Good day, and welcome to the Mack-Cali's Realty Corporation Second Quarter 2021 Earnings Conference Call. Today's call is being recorded. I would like to remind 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 hand the call over to Mahbod Nia, Mack-Cali's Chief Executive Officer.

Good morning, and welcome to our second quarter 2021 earnings call. I'm joined today by David Smetana, our CFO. I'm pleased to share that we had another active quarter during which we made significant progress on a number of key initiatives, as we seek to unlock value for our shareholders. We further simplified our business and strengthened our balance sheet, while positioning our assets to maximize their leasing potential and streamlining our internal operations to realize operational cost savings and other ancillary benefits that will anchor us for future success. I will discuss each of these in more detail later. The U.S. economy appears to be at the beginning of a strong recovery, supported by the government stimulus and high vaccination levels. The International Monetary Fund recently raised its 2021 growth projections at 7%, the highest level since 1984. However, risks remain, including market concerns related to rising inflation levels and the potential resurgence of COVID infection rates and new variants. Though we cannot control what the future brings, we believe the quality of our multifamily portfolio, combined with our live, work and play office proposition, makes us well positioned to continue capturing leasing demand as the economy reopens and employees return to the office. The rebound in economic activity is particularly visible in our multifamily portfolio, which now accounts for approximately half of our NOI, and has seen an incredibly strong resurgence in leasing during the last 90 days. Our 5,825 unit operating portfolio was 97.5% leased and 94.4% occupied as of July 25, up from 92.8% and 89.7% as of March 31, respectively. We have removed concessions across the majority of our properties and have started to increase rents at the number of them. Turning to development. During the quarter, we opened a third residential community, Riverhouse 9,…

Thank you, Mahbod. We reported core FFO per share for the quarter of $0.15 versus $0.28 per share in the prior year. The year-over-year reduction in core FFO per share was primarily due to the impact of our suburban office asset sales program and effects of the pandemic on hotel, parking and multifamily operations. This quarter, our team drove significant improvements in multifamily operations, underpinned by increasing occupancy. Net effective rents have stabilized due to lower concessions, and we are now beginning to show sequential revenue growth.On a sequential Same-Store basis, we reported a revenue increase of 1.5% and a sequential Same-Store NOI increase of 1.4%. Also in the quarter, we received our share of the sale proceeds from the URBY tax credit of $2.6 million, which was included in core FFO. Historically, this credit was received in the third quarter. The Waterfront office leasing team continued their efforts to reinvigorate the portfolio, resulting in 76,000 square feet leased compared to 58,000 square feet leased last quarter. The Waterfront portfolio incurred a cash Same-Store NOI reduction of 9.6%, largely attributable to decreased parking income year-over-year and previously announced tenant move outs. GAAP Same-Store NOI increased by 2.5% due primarily to prior year's straight-line rent write-downs. For the balance of 2021, we have approximately 190,000 square feet over Waterfront office leases remaining to expire, 44,000 square feet of which relate to the additional TD Ameritrade move-outs at Harborside 6 in the fourth quarter and 100,000 square feet of which relate to a Natixis move-out at our Harborside 5 at the end of July. Looking ahead, 2022 has a manageable lease role with only 100,000 square feet expiring and no single lease greater than 26,000 square feet set to expire.I'd now like to take a moment to provide an overview of our…

[Operator Instructions] We can now take our first question. It comes from Manny Korchman of Citi.

Your office concessions remain elevated as witnessing your leasing. Is that sort of the new normal for now, and when do you expect those to come back down?

Yes, I think the concessions obviously are elevated relative to pre-COVID levels. But certainly, if you look at the package that we offered on the -- that MGM lease, really there, there was a very minimal rent-free that was granted. So really the majority of the concessions really went into the TI package. So we're leasing at levels that are accretive to the business from a value perspective and from an earnings perspective, massive incentives. We're pleased to encouraged really to have started to see some traction on that front and hope to see that continue.

And then Mahbod, during our meeting at NAREIT, you spoke about expanding the multifamily platform outside of sort of the core, in New Jersey and maybe New Jersey plus base. What are you saying on that? Is that something you're actively pursuing at the moment?

Yes. I would say really, that comment was more centered around concentration risk and whether, to the extent that we do gravitate more towards becoming a multifamily REIT, whether we should be more concentrated in our current markets or look to new markets. And we have a presence in Boston, as you know. There are some interesting dynamics on the job and earnings growth front and, again, on general economic front in that market and then a couple of others in that Northeast corridor. So we're at the point where we're really evaluating potential options for us in the future, but no conclusive decisions have been made at this point.

We can now move along to our next question. It comes from Brian Spahn of Evercore.

Could you maybe just talk about leasing interest at the Waterfront? What does the pipeline of activity look like? There's a bit of acceleration in the quarter. So just kind of -- can you add some color on what's in the pipeline in terms of types of tenant size, industry?

Sure. I think, certainly, with the investment that we've made into the Waterfront onto the Harborside complex, the sense of -- the place-making initiatives that we've implemented, it really is a live, work, play campus now. And that coupled with the fact that we have a pretty diverse offering in terms of the type of space that we have available for tenants means that it's a pretty varied and diverse group of tenants that are showing an interest. And so you know like getting specific, it is pre-diverse, it's financial services, professional services, insurance, technology, advertising, entertainment. It's really pretty broad, and the requirements are pretty diverse as well.

And then I guess just switching over to multifamily. With the apartments leased over 94% as of a few days ago, you talked about tapering back concessions and starting to be able to push rents. How aggressive do you think you can get given current market conditions, and where do you plan on settling out on the occupancy front there?

Yes. Well, it's a good question. It really -- I would say we having tapered that concessions on substantially all of the assets and having reached leasing of 97.5% occupancies at just over 94%, we are at that inflection point now where the next natural phase and the evolution of the story should be rental growth. So on a very case-specific basis, we'll be working closely with the team and on the ground to assess what's feasible. But certainly, it's an encouraging sign, the rebound really in occupancy and leasing over the last quarter. And we still haven't seen all the constituents that would reside in our apartments return yet. So with the borders being shut and office returns still being more of a sort of post September labor day type of an event, generally speaking, we would hope with the borders opening, overseas students returning and a wider return to the office, there's still more momentum on the demand side that could help us realize the rental growth.

And lastly, Dave, is there anything left on the suburban office front in terms of sales? Or is that completed?

Good question. So I want to make sure everybody understands where all the assets -- remaining assets are accounted for. So there are technically two suburban office assets left for Gatehall which is under contract and held in discontinued operations, and our 23 Main Street asset, which is really a big office campus, which ultimately may turn into a land play, may not. But that one will probably be around with us a little bit longer than for Gatehall, but we're down the two remaining suburban office assets. So really the focus -- and you can see in our bullets and on the cars on the Waterfront and the leasing momentum there.

We can now move to our next question. It comes from Jamie Feldman of Bank of America.

I guess just a follow-up. So for Gatehall, is that on the market now, or you're not marketing that just yet?

It is. It's currently under contract. Okay.

And looking at the Giralda Farms' cap rate 10, I know the -- I know it's 60-ish percent leased. I mean, do you expect something similar for this asset, or lower?

Both these assets are located in the Parsippany and Giralda submarkets which have a lot of sublease space due to a couple of mergers of some big pharma companies. So we're not going to give cap rate guidance, but the price per square foot should be in the same price per square foot, is a decent way to think about that last remaining sale.

And Mahbod had mentioned talking about the cost savings and maybe some of the platform improvements, technology investment. Can you just talk a little bit more about what you guys have in mind, and how that might help the business?

Sure. Well, so, as you know we have an established multifamily operations platform. We manage our own assets, we manage assets for a number of blue-chip institutions as well. So the steps that we've taken are really, on the one hand, to just further optimize and enhance the operational efficiency within which we operate internally, and then equally importantly, really to ensure that we remain ahead of the curve in terms of achieving our objective of being a best-in-class owner, operator in that sector. And so with that, there are a number of initial changes. As I talked about the organizational architecture and hiring in Jay Minchilli who, I believe will be tremendous at leading that effort for us. And some of the changes that I mentioned on the technology side will be targeted at the revenue side and more effectively monitoring and managing, controlling the revenue side of the business, and some of them will be more focused on the cost side. So they're incremental. We already have a platform. It works well. It's validated by others who were allowing us to manage assets for them. But we really want to make sure we remain best-in-class and that we're really at the leading edge of the market when it comes to utilizing technology and in the way that we operate our assets. That's really what that's targeted at.

And then, David -- and then when you think about the core portfolio, excluding those two suburban assets, it sounds like you still have the TD move-out in Natixis in the back half of the year, 22, probably less. And when do you think NOI bottoms? Because it sounds like you are feeling pretty good about the apartment pickup.

Sorry, Jamie, do you have me without the feedback now? I apologize.

Yes. No, you're good.

So, a good question. So -- and we have a couple of countervailing forces. I highlighted the move-outs which are well-known of Natixis at the end of this month and then another 44,000 square feet from TD Ameritrade. So to the positive, we do -- we are starting to see a recovery in parking income, albeit slight and our hotels. And we have our multifamily development pipeline coming online, coupled with now sequential growth in our residential portfolio. So I think putting that all together, I think we're seeing EBITDA starting to bottom towards the end of this year and grow going into next year. But this is kind of the peak of the dilution as we're finishing up the suburban office asset sales and these couple of big move-outs which we've been trying to notify everybody about for a couple of quarters in a row now.

And then just to confirm, you're saying on the Waterfront 22, you really have nothing meaningful moving out?

Yes. And I highlighted in prepared remarks, there's a 100,000 square feet total in our largest lease rolling this 26,000 square feet. So nothing like the large tenant move-outs we had this year in 2021.

We can now move along to our next question. It comes from Tom Catherwood of BTIG.

Dave, just wanted to swing back. I appreciate the comments on the suburban office sales and the two remaining assets there. As we think, though, kind of about the track for repaying the remaining secured line of credit, is there anything else besides just the operating office that's kind of in the non-core sales bucket, things like remaining office land, maybe any of the non-core land within Roseland, or anything else that was non-core, kind of like the Wegmans Center? Is there anything else besides office that's going to come out to help kind of alleviate the balance of that debt?

Yes, great question, Tom, and you know the company, well. That's right. We have the remaining two suburban office assets. We have some land over on the Mack-Cali's side, some, perhaps excess land on the Roseland side. And I think we've messaged to yourself. And many of that hotels probably are not part of our long-term kind of operating core portfolio. So those in total should be able to take care of the remaining line balance.

And then when we look at office leasing, obviously, New Jersey put its Emerge New Jersey incentive program in -- not too long ago. Any sense on when those benefits could kind of start flowing in, and do you expect them to have a positive uptick beyond what was obviously a positive quarter on the office leasing front?

So it's definitely made a difference, I would say, in terms of helping further enhance the appeal of a Jersey City. So tenants, obviously, to varying degrees, will qualify for it, but it can be a pretty meaningful subsidy and can make it even more appealing from a pure financial perspective for tenants to relocate there. So we're very pleased that its -- has been introduced at the beginning of this year. We do think it's already making a difference. I think we just need the mobile widespread return to the office plan to continue as it appears to be today, and I'm sure we'll see the benefits of that come through.

And then last question for me. And I know it's tough to ask about retail, especially as things are just kind of starting to reopen. But if we look at your office business segment, there's 190,000 square feet plus of retail amongst a variety of buildings. It's not generating any NOI right now. What are your kind of thoughts as far as filling that space up, utilizing that space, and as the reopening continues? And then, what could that ultimately generate in terms of earnings for you as it stabilizes?

Yes, Tom, it's David. So on retail, a couple of things. You're starting to see in the quarter our base building office tenants. The ones that we do have are starting to come back to us, get current on rents. So we had some write-ups there. And the larger kind of retail footprint we have in the base of Harborside, we view that space as really amenity to the office as the occupancy picks up, and our leasing guys want to get it at least as well to help induce our office tenants. We'll start to see more impact from the retail, but we want to go slowly on that now and make sure we get the right tenants. But I would not be modeling in any big pickup from a retail contribution. But when you're in Jersey City, you will start to see increased retail leasing, but we're going to hold off on really modeling that retail income coming in.

That concludes our Q&A session. I can now hand the call back to the speakers for any additional or concluding remarks.

Thank you, everyone, for joining us this quarter. It's been a productive quarter for us, and we look forward to updating you again in due course.

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