Good day, everyone, and welcome to the Mack-Cali Realty Corporation First Quarter 2021 Earnings Call. Today's call is being recorded. I would like to take a reminder to everyone, that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities Law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to the company's press release, annual and quarterly reports filed with the SEC for risk factors that impact the company. With that, I will now hand the call over to Mahbod Nia, Mack-Cali's, Chief Executive Officer.

Good morning, and welcome to our first quarter 2021 earnings call. I'm joined today by David Smetana, our CFO. I'd like to start by acknowledging the impact that the past 12 months have had on everyone's professional and personal lives. With the COVID-19 pandemic forcing a reevaluation of the most fundamental aspects of how we live and work. We anticipated that U.S. economic growth will begin to accelerate this year, fueled by the sizable government stimulus, pent-up demand and recovering labor markets. It certainly appears that we may be at an inflection point and at the start of an economic recovery. Nearly a third of New Jersey's inhabitants are fully vaccinated, which should also help the reopening of the economy and return to office life in our backyard in the months ahead. While these are optimistic signs, we are cognizant that significant uncertainties persist, and the path ahead represents largely unchartered territory. As such, we remain focused on the initiatives that are within our control. These include simplifying our business, strengthening our balance sheet, and optimizing our operational efficiency. Despite the unprecedented challenges of 2020, we had an active quarter and solid start to 2021. We advanced Mack-Cali's strategic transformation while generating value for our shareholders by continuing to monetize suburban office properties, signing a number of leases at Harborside and further developing our multifamily platform by advancing our two construction projects: RiverHouse 9 and the Charlotte, while capturing leasing momentum at the Upturn and the Capstone, more about these later. Our asset portfolio was 74.2% occupied as of March 31. The drop in occupancy compared to 78.7% as of year-end, was driven primarily by the previously announced departure of TD Ameritrade who vacated 140,000 square feet in Harborside 6, formerly known as Plaza 4A. This move was partially offset…

Thanks, Mahbod. We reported core FFO per share for the quarter of $0.18 per share versus $0.33 per share in the prior year. The year-over-year reduction reflects the impact of our suburban asset sales program as well as the impact from the pandemic on our hotel, parking and multifamily operations. Lower-than-expected asset sales timing, lower interest expense due to capitalized interest and better than budgeted expenses on both the office and multifamily platforms, led to a $0.03 per share better result compared to the high end of our Q1 guidance range of $0.15 per share. Please note that our adjustment to core FFO included a $0.025 onetime G&A expense related to management restructuring and the CEO change. The waterfront office portfolio had a same-store cash decline of 10.9%, largely attributable to less parking income year-over-year and the previously announced move out of an anchor tenant at Harborside 6, offset by expense savings of 3.8%. We have 201,000 square feet of our waterfront office campus leases remaining to expire in 2021, including 44,000 square feet related to the remaining TD Ameritrade move-outs at Harborside 6, and 100,000 square feet related to the Natixis move-out at Harborside 5. As Mahbod detailed, our multifamily portfolio is showing positive trends across a number of metrics. Although revenues were off 12.2% on a year-over-year basis as we anniversaried the last pre-COVID quarter, our occupancy increased by 330 basis points sequentially from the fourth quarter, and net effective rents stabilized due to lower concessions. We showed only a slight sequential same-store revenue decrease of 30 basis points and a sequential NOI increase of 7.3%, as real estate taxes and repair and maintenance and expenses normalized from the fourth quarter. Transient revenues remained depressed for the quarter as our hotel operations were again, limited to the Residents…

Thank you [Operator Instructions]. We will now take our first question from Steve Sakwa from Evercore. Please go ahead.

Thanks. Good morning. I guess with the suburban sales now kind of largely in the rearview mirror, I guess, there's maybe $200 million or so left to sell, maybe we can just kind of focus on the waterfront leasing. You guys made some comments about changing some programs and seeing more demand. Can you just maybe speak to the types of tenants that you're seeing? Are these native New Jersey companies just moving to the waterfront? Are these Manhattan companies looking at Jersey as a cheaper alternative? And maybe you could update us on the Grow New Jersey incentives.

Hi, Steve, thank you for the question. It's a good one. So I - ultimately, we've got high-quality assets in a great location that we've been investing in and through the rejuvenation of that Harborside, Waterfront, we feel that the appeal of those is only going to be enhanced through the quality of the office offering and also the amenities that will be on offer. After that, we've got a best-in-class internal and external leasing team in place now focused on leasing that vacant space. We've got the pace of the vaccine rollout that's been progressing extremely well over there. And a planned return to the office. Kind of feel like the worst is behind us. And then add to that, as you mentioned, the tenant incentive package, which really can be significant, we understand to the tune of potentially $10 to $34 a square foot for qualifying tenants. We just think the appeal of that whole waterfront is only going to improve from this point on. And the comment we made about tenant inquiries, it's been quite a varied set, actually. Some incumbents, some looking to move into that area, but it's been a very encouraging early sign, I would say, and validation of all the effort that's gone into that positioning that Waterfront portfolio for leasing hopefully in the near future.

Okay. Thanks. And then maybe second, just turning to the residential portfolio. You obviously saw a nice uptick sequentially. Maybe just talk about what you guys are seeing on the demand front as folks are coming back to the New York area. Folks are leaving their parent's homes. What kind of demand uptick are you seeing? Is that trend continuing into kind of April and May? And what's happening with concession packages today versus maybe two to three months ago?

Yes. So the - certainly the return of demand and what you've seen in the uptick seems to be, again, somewhat kind of broad-based, but is linked, we believe, to the beginning of the return to some remnants of normality, with the vaccine rollout and the return to more ordinary living and working conditions. So we're optimistic. It's been a good quarter, and we're hopeful that, that's going to continue, again, and we have great assets there. So what's the second part of your question, Steve?

I was just trying to get a sense for - you showed, I think, a couple of maintenance points.

Concessions?

Yes, concessions and just kind of, did the trends continue in April and May?

Yes. What's been interesting in the first quarter is we've actually been able to continue to increase occupancy while cutting back concessions, and on certain assets actually completely eliminating concessions. So all again, really positive signs and again, testament, we believe, to the quality of the assets that we've got.

Great. Thanks. That's it for me.

Thanks, Steve.

We will now take our next question, Jamie Feldman from Bank of America. Please go ahead.

Thank you. A follow-up on Steve's question. Just can you provide a little bit more granularity in terms of the interest in the waterfront assets? Just kind of who's looking and what kind of tenant sizes possibly? And I know you guys have talked about life science in the past. Is that still something you're thinking about?

Yes. So not really looking to give any guidance at this stage. I think it's too early to provide that. But what I would say, again, is that with the whole package that's there between what we are doing on the Harborside to reposition those assets, and you look at Plaza 1, and it already looks like a very different building to that which it was only a couple of quarters ago. And what seems to be pretty widely planned return to the office, we feel like the worst is really behind us, and that's where we feel the tenant inquiry is coming from. As I mentioned, it's quite a varied group. And it's also very fairly varied in the size of space that tenants are looking for, but all really positive early signs from our perspective. In relation to life sciences, that's obviously an area that you know there's considerable demand at this time. And so we've been looking at and continue to evaluate the conversion potential of some of that space to be able to feed into that strength.

We will now take our next question from Manny Korchman from Citi. Your line is open. Please go ahead.

Hey, everyone. Good morning. Mahbod, as you speak to that new leasing team that you have in place, sort of what specific changes have they made over the last few months to try to find those new tenants that, arguably, before the pandemic, weren't necessarily looking at Jersey City? What are they doing now to attract those tenants to that market?

Manny, good to speak with you, by the way. Thanks for the question. So look, from my experience, when assets are stubborn to lease, typically somewhere in the chain between prospective tenant and landlord, something is broken. And usually, it means landlord is either not providing the right products that the tenant is seeking or even worse, it's not the right product, and it's not at the right price point either. So I think what we've done is we've gone a long way to reestablishing relationships with the brokerage community. We've been proactively reaching out to tenants that we believe could really benefit from the move to this location. And we've been looking to really establish that chain over again. And I really feel like we've done that. And so I think the chain's intact, and we've got the right outreach. And that's why I believe we're seeing the sort of inquiries that we're seeing. And coupled with the investment into the product, we've been improving the product. So I believe we're creating a product that will be in demand and that we'll be able to offer competitive rent levels to attract those tenants that are looking to move to that space. Leasing has been happening. I mean, we just haven't been capturing our fair share of it, which, again, just given the location and quality of these assets, we hope to change going forward.

Thanks for that. And then just as you've embarked on this journey selling a lot of suburban, to Dave's comment earlier, the multifamily is now a larger piece, at least for the year than the office. Is there any discussion or any plan to sell maybe some of the more core Waterfront office? Or do you think that your scale is where it needs to be to keep that as a portfolio?

Well, look, I think at this stage, to answer your question, would we consider something like that, absolutely. I mean so the Board and management are highly focused, as you know, on creating value for shareholders, particularly in this instance, given how we've come to be in the seats that we're in. And we'll continue to evaluate all options that are available to us in achieving that goal consistent with our fiduciary obligations. Having said that, at this point, we're focused on things that are within our control. And those initiatives, including the—what we believe will be highly value-enhancing rejuvenation of the Waterfront office complex.

Thanks very much.

Thanks, Manny.

Our next question from Michael Lewis, Truist Securities. Please go ahead.

Great. Thank you. Following up on an earlier question about the office leasing. I wanted to ask about that pipeline of inquiries. How much square footage do you think is out there for you to target? And along those lines, we talked quarter-after-quarter kind of about the pipeline. There hasn't been leasing. So to the extent that prospects are looking, where are they ending up? Has it just ground to a halt because of the pandemic? Are tenants choosing Manhattan? And are they going to the Sun Belt? What's kind of been the headwind there?

So I'd say actually, office leasing across the U.S. has been subdued during the timeframe that we're referring to really when we've got involved and started to really kind of look at repositioning that Harborside. So I don't think it's been a case of there's been significant leasing in Jersey City, and we've missed it because tenants have elected to go elsewhere. It's really just been that leasing has been subdued. And that just hasn't been the volume. That's what we're seeing changing. How large is the opportunity? Very difficult to say at this point. But what we are seeing, as I said, is encouraging signs that lead us to believe that office is very much alive, and firms are generally looking to return to an office of some form and that the assets that we have with location, the quality, the flexibility of the floor plates, should provide a good option to tenants that want accessibility to Manhattan, but at a significantly lower cost. As I said, particularly when you factor in the new incentive package, which we believe will be of interest to many qualifying tenants.

That makes sense. And then on the apartment side, how do you think about - do you think now is a good time to be starting apartment developments to maybe deliver into that 2023, 2024 window? And if so, are you kind of hamstrung at all from the strategy in the rest of the company and where the balance sheet is?

It's a good question. So we've been clear about wanting to unlock the potential within Roseland and grow the multifamily part of the business. We've just got to balance that with capital constraints, cash flow. And so all those considerations are really being contemplated right now to ultimately determine the go-forward strategy. So no decision has been made yet in relation to future development. But as with broader decisions that we'll be looking at, it will be, ultimately, a capital allocation decision and looking at the capital that's currently available to us and determining what its highest and best use would be.

Okay. And then just lastly for me. The first earnings call with a new CEO, I wanted to ask about kind of a broader strategy question. And you are almost done with the noncore asset sales. Back about two years ago, Bow Street, when they put out their slide deck, they seemed to suggest that they thought selling the noncore office and trying to delever the balance sheet that way and still deliver on the promise of the multifamily was sort of a doomed strategy. And they thought that buyers were lined up to buy pieces or all of the company. When you finish with the noncore asset sales, which will be soon, do you have a different view on the strategy? Or do you think the playbook then is focused on leasing the waterfront and then see what options are after that? Or anything different on the strategy, any different view you have about where the company is headed?

Well, so look, I would say, at this point, I'll make more general comment that, again, we continue to evaluate all options available to us to create and unlock value for shareholders. But our approach is going to be measured. It's going to be thoughtful. And any decisions that we make will be decisions that we believe to be in the best interest of shareholders. For now, I believe that the near-term strategy is really to focus on things that are within our control, value-enhancing initiatives that we believe will, ultimately, create the value - enhance the value of the company that we have. That could involve further simplification of the business over time. It means looking at the operational efficiency within which we operate and looking at whether there's enhancements we can make there. It's looking at ways to further strengthening our balance sheet. And it's focusing, as I mentioned, on leasing and tenant retention. Those are things that we can focus on today that will ultimately, create value. And the broader direction will determine as and when we have great clarity on the direction that we believe would be in the best interest of shareholders.

Thank you.

Tom Catherwood from BTIG. Your line is open. Please go ahead.

Excellent. Thank you and good morning, everyone. Dave, just a mechanical question. If I heard you right, it sounds like you have to have the cash in your balance sheet for the bonds for 30 days, as you mentioned. So you have, obviously, the cash from the recent sales, you draw down your new secured line of credit and term loan. You'll obviously pay the interest on that for a period of 30 days after that, as we get into June. Or do you redeem the bonds in June? Do we have - is it a period where you're going to be redeeming them over time? How does that process kind of roll in?

Yes. Thanks for that, Tom. So actually, last night, contemporaneously with the close of the credit facility, we funded the entire bond redemption of both issues, $575 million, plus another approximately $20 million for the make-whole payment. So how that trade actually works, it's kind of like a T plus 30 days. So we do have to continue to pay our 4% interest on the combined bond issues for the next 30 days. So in the absence of guidance, I just wanted to highlight that for you and the other analysts.

Perfect, perfect. And then if we think about it, obviously, you have the cash on hand, part of the balance sheet, part with the sale of Short Hills, but you'll still be carrying some on the line even after you close out the unsecureds. And I assume that a good chunk of that gets paid down as Red Bank portfolio gets sold and as kind of the other ones get sold. It seems like the bulk of the assets are under contract. And the impression I got last quarter was that Red Bank was a kind of a near-term event, but the others might slip into maybe early '22. What's your current thought on sale pace?

Yeah, thanks. I think you're right on it. You can see in the structure of the line and the term loan, there's about a $150 million term loan outstanding. So the asset sales and you point out the right one, Red Bank, which is under contract as we said in the release is expected to hopefully close around the end of the second quarter. You have a couple of assets left from the [indiscernible] the portfolio and those in total with some other noncore land pieces should take care of your term loan. So that is kind of the match. And again over the longer period of time as we reduce all of our noncore, again it's a couple of joint ventures and some land pieces that you should be focused on, Monmouth and the last two assets 4 Gatehall and 7 Giralda as really the culmination of our suburban office asset sale program with the proceeds again to be used to retire the term loan.

Got it. Got it. Appreciate that, Dave. And then Mahbod, I agree with your comment on Harborside 1, it really does look like it's coming along. As I step back and think about the office portfolio, it seems to me that it's laying out in kind of some different chunks or different segments. There's some kind of high-rise space available, Harborside 5. There's what would be kind of creative office space, it seems Harborside 6 above, what's going to be the Whole Foods. There's kind of a few blocks in 2 and 3, and then there's the brand-new space, effectively all new at Harborside 1. When you're thinking about marketing this, are you segmenting it into these different groupings and maybe approaching tenants and approaching potential opportunities targeted to those different types of space?

Yes, that's a great question. And as you'd expect, to a large degree, yes, that's correct. But I also would say that I think one of the strengths of our offering is that flexibility of space and the range of space that's available to prospective tenants. So again, you're in the right location, you've got great assets, but if you want small floor plates and lower rise building, that's one of the benefits, I guess, of the vacancy that we've got is that there is quite a wide range of options that are available to suit tenants' needs. But fundamentally, you're in a great location, and you'll have the amenity offering that will soon on offer.

Got it. And then in terms of Harborside 1, timeline wise, how much longer until that's buttoned up, white box ready and could be ready to show the market?

It's progressing well. I hate to put a date on these things, but I would say, certainly, toward the end of the third quarter, early fourth quarter is our expectation that, that will be ready to occupy.

Excellent. That's it for me. Thank you, everyone.

Great. Thanks for your questions.

Our next question is from Derek Johnston from Deutsche Bank. Please go ahead.

Hi and good morning, everyone. Sorry if I missed this, but can we get an update from your vantage on the New Jersey legislative appetite for tax incentives or relocations from New York to New Jersey? Any update on possible timing, kind of what you guys are hearing on the ground? I feel like we've discussed this for some time, but it seems elusive. Once again, sorry if I missed comments on this.

Well, it is already approved. And so it was a long time in the making, but it was actually already - it's already been approved. So it's available to qualifying tenants. And the comment that I made about it earlier was really just that it can be quite a meaningful incentive dollar figures for qualifying tenants, we believe, could be between $10 to mid-$30 type of an incentive package for qualifying tenants on a per square foot basis, that is, sorry. But it is very much available today.

Okay. And so the timing - so it's approved and the timing is thumbs up for leases to be signed right away.

Correct.

On office, your New York CBD peers this quarter certainly came off as very optimistic. And I think one went so far as saying that things were on fire. Given the pipeline you see on the Jersey City side, especially since new leases have been a little bit challenged, and you did add some positive commentary, when do you expect that we may see an occupancy inflection point, if that could be a maybe late '21 event? Any thoughts would be helpful.

Yes. Look, it's difficult to put a specific time frame on these things, I think. What's encouraging to us is the trend. And that trend, certainly, this year has been very positive in terms of the level of inquiries and the nature of those tenants. So that's what we're cautiously optimistic about. And again, we have strong confidence in the quality and the location of the assets that we've got and the work that we're putting to be positioning those. We feel with the incentive package provides a compelling proposition to those tenants.

Okay. Great. And then just lastly, I mean, I know it's a small piece of the pie. But I guess as suburban shrinks, and gets larger what is the outlook for the hotels? And are there any bookings for return to events, maybe late summer or early fall? Or any maybe pent-up demand for weddings, which are pretty high margin?

So certainly looking at - we've only just opened the - reopened the Envue, but certainly looking at what's happening in the hotel sector, the majority of the revenue seems to be more consumer-oriented than business-oriented. So with the anticipated return to office, we should see that rebalance, one would hope, toward the latter part of this year to call a normalized composition of revenue for hotels.

Thanks, everybody.

Thank you.

[Operator Instructions] We will now take a follow-up question from Jamie Feldman from Bank of America. Please go ahead.

Thank you. It looks like leasing has been pretty strong at The Upton. I'm just curious, what types of tenants, or what types of users seem to be leasing that space? And then any thoughts on how you - if you're able to push rents at all? And then does that make you rethink the sale of the other site there?

Good morning. Thank you for your questions. The majority of those seem to be empty nesters that are taking that space. So it's been great for us. We've been pleasantly - I won't say surprised, but it's been good to see that, that asset is getting the traction that we feel that it deserves. I'm sorry, what was the second part of your question? No, look, I think the second part is whether that changes our view? I go back to the comments I made on development and capital allocation. I think all of that is really TBD. We've got to really sit down and look at the how capital is allocated today and determine what the highest and best use for that capital available to us would be going forward. And so no decision really has been made on that going forward, at this point.

So you're actually still marketing that second site for the hotel?

No. We are not.

Okay. All right. And then, David, I appreciate you providing the cap rates for the asset sales. Do you have those on a GAAP basis? I think you said cash?

Yes. So on both of those, if you added 20 basis points to the cash, you would arrive at the GAAP cap rates on this.

Okay. And then I guess back to Mahbod, just kind of big picture, I think this is your first conference call in the seat. Any just perspectives after taking over the role, things that have surprised you, things that have been - that you think are more challenging as you're taking over leadership of the company?

Yes. Not really. I mean I was in a fortunate position that I was on the Board for several months prior to taking this role. So I had the ability to be able to ease myself into the position. It is a different level of detail now being in this seat and having looked under the hood. I wouldn't say, no, there's anything particularly surprising or troubling. As I said, I do think that, for us, near-term focus will be in areas of looking at ways to further simplify the business over time, looking at operational efficiency and how we're organized and aligned internally and really using the resources that we have human and capital in the best way that we possibly we can to create value.

Okay. Thank you.

Thanks.

As there are no further questions at this time, I would like to turn the call back to your speakers for any additional or closing remarks.

Well, thank you very much, everyone, for joining us today, and we look forward to keeping you updated again in due course.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.