Good day, and welcome to the Mack-Cali 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 to 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 a number of them. Turning to development. During the quarter, we opened a third residential community, Riverhouse 9, a 295-unit apartment building located in Port Imperial. Despite having only recently come online, the asset was 60% leased as of July 25, ahead of our internal expectations with respect to both leasing velocity and rent level achieved. We also successfully secured strong levels of leasing at our other two recently completed properties. As of July 25, the Upton in Short Hills and the Capstone at Port Imperial were 94% and 70% leased, respectively. Our 750-unit apartment building at 25 Christopher Columbus remains on track for initial occupancy early next year. Turning to office. We are encouraged by the progress we have started to make in leasing. In the first six months of the year, we signed 87,000 square feet of new leases and lease extensions on the Waterfront. The Waterfront assets are now 75.4% leased, up from 74.2% at the end of the first quarter, with the growth primarily due to a new 52,000 square foot lease at Harborside 2 and 24,000 square feet of lease renewals or expansions that were signed with Harborside 2 and 101 Hudson. We also unveiled a repositioned Harborside campus, anchored by a pedestrianized Hudson Street, recreational areas, retail amenities and New Jersey's first-ever boardwalk, all of which have driven plentiful foot traffic to Harborside and reinvigorated the campus as both the community hub and workplace solution for the future. We also continue to identify ways to advance our sustainability and innovation efforts to become a more environmentally and socially conscious landlord. As an initial step in this direction, I'm pleased to share that all of our electricity usage at our headquarters at Harborside 210 is now from fully renewable sources. We also remain highly focused on our strategic objectives of simplifying the business and streamlining the balance sheet, as illustrated by the disposal of virtually all of our remaining suburban assets during the quarter, substantially in line with our pre-pandemic valuation expectations. In total, we sold $387 million or 1.8 million square feet of suburban assets. These sales included the Short Hills portfolio for $255 million, the River Center portfolio in Red Bank for $84 million, and a Wegmans-anchored retail center in Hanover for $46 million. Earlier this week, we completed the sale of 7 Giralda Farms for $29 million, allowing us to fully retire the $150 million term loan. Moving to operations. During the quarter, we took steps to establish a more efficient organizational architecture that we expect to result in operational cash cost savings of up to $5 million per annum on a run-rate basis. We expect these changes, along with some targeted technology investments that we are contemplating, to have the potential to drive both top-line revenue enhancements and further operational efficiencies. We also bolstered our team with new talent that we believe will help us achieve our full potential as a best-in-class multifamily owner and operator. Jay Minchilli, a seasoned multifamily operations leader with 16 years of multifamily experience at JPMorgan and Carmel, a multifamily specialist managing over 40,000 apartments, joined us this quarter. He will work closely with other members of the team to further optimize our multifamily platform and innovate to meet the needs of our stakeholders while overseeing the third-party property management services that we provide to a number of institutional clients. With that, I'm going to hand over to David Smetana, our Chief Financial Officer, who will update you on our financial performance during the quarter.

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 of 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 rollover 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 current portfolio. It is currently comprised of: 21 operating Class A multifamily assets which produced approximately 53% of our pro rata NOI; one multifamily project in construction; our six Waterfront office assets; two remaining suburban office assets, one of which is in discontinued operations; our two hotels; and a land bank comprising 14 development sites. As our multifamily development pipeline stabilizes, we expect to have embedded NOI growth gradually begin to contribute to earnings. We will also continue to derive incremental income as occupancy rises and concessions burn off in our multifamily operating portfolio. Turning to the balance sheet. In the second quarter, we booked a $300 million April 2022 bond issue, and the $275 million May 2023 unsecured bonds were retired with proceeds from the sale of our suburban office portfolios. Simultaneous with the retirement of the bonds, we entered into a new revolving credit facility and a $150 million term loan. With the closing of 7 Giralda Farms earlier in the week, our term loan has now been fully repaid, further de-risking our balance sheet. We are left with a favorable debt maturity schedule with a single $3.8 million mortgage maturity in 2021 and only one maturity in 2022 related to our successful Class A apartment construction loan totaling $74 million, which has a one-year extension, if needed. We are pleased with the progress we have made on our balance sheet and the flexibility our new credit line provides us, as we continue executing on our strategic objectives. This concludes our prepared remarks. Operator, can we open the call for Q&A?

We can now take our first question. It comes from Manny Korchman of Citi.

Your office concessions remain elevated as you're 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 MGM lease, there was a very minimal rent-free period that was granted. So the majority of the concessions really went into the TI package. We're leasing at levels that are accretive to the business from a value perspective and from an earnings perspective; the incentives granted were focused primarily on the tenant improvement package rather than extended rent-free periods. We're pleased and encouraged 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 that comment was more centered around concentration risk and whether, to the extent that we do gravitate more towards becoming a multifamily REIT, we should be more concentrated in our current markets or look to new markets. We have a presence in Boston, as you know. There are some interesting dynamics on the job and earnings growth front, and, again, on the general economic front in that market and a couple of others in the 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. Certainly, with the investment that we've made into the Waterfront and the Harborside complex, the place-making initiatives that we've implemented, it really is a live, work, play campus now. 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 interest. Getting specific, 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?

It's a good question. Having tapered concessions on substantially all of the assets and having reached leasing of 97.5% and occupancies just over 94%, we are at that inflection point now where the next natural phase and evolution of the story should be rental growth. On a very case-specific basis, we'll be working closely with the team on the ground to assess what's feasible. It's certainly an encouraging sign, the rebound in occupancy and leasing over the last quarter. We still haven't seen all the constituents that would reside in our apartments return yet. With borders being shut and office returns still being more of a post-Labor Day type of event, generally speaking, we would hope that with 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 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. There are technically two suburban office assets left: Gatehall, which is under contract and held in discontinued operations, and our 23 Main Street asset, which is really a big office campus that ultimately may turn into a land play, or may not. That one will probably be around with us a little bit longer than Gatehall, but we're down to two remaining suburban office assets. So really the focus is 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.

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

Both of 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. We're not going to give cap rate guidance, but thinking about price per square foot is a decent way to consider that last remaining sale.

Mahbod had mentioned the cost savings and maybe some platform improvements and 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. As you know, we have an established multifamily operations platform. We manage our own assets and manage assets for a number of blue-chip institutions as well. The steps we've taken are really, on the one hand, to further optimize and enhance the operational efficiency within which we operate internally, and then, equally importantly, 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. With that, there are a number of initial changes. As I talked about, the organizational architecture and hiring Jay Minchilli, who I believe will be tremendous at leading that effort for us. Some of the changes we mentioned on the technology side will be targeted at the revenue side and more effectively monitoring, managing and controlling the revenue side of the business, and some will be more focused on the cost side. They're incremental. We already have a platform that works well and is validated by others who allow us to manage assets for them. But we really want to make sure we remain best-in-class and that we're 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 — when you think about the core portfolio, excluding those two suburban assets, it sounds like you still have the TD move-out and Natixis in the back half of the year and then 2022 probably less. When do you think NOI bottoms? Because it sounds like you are feeling pretty good about the apartment pickup.

Sorry, Jamie, did you lose me with feedback now? I apologize. So a good question. We have a couple of countervailing forces. I highlighted the move-outs which are well-known: Natixis at the end of this month and then another 44,000 square feet from TD Ameritrade. To the positive, we are starting to see a recovery in parking income, albeit slight, and our hotels. We have our multifamily development pipeline coming online, coupled with sequential growth in our residential portfolio. 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 now.

And then just to confirm, you're saying on the Waterfront in 2022 you really have nothing meaningful moving out?

Yes. As I highlighted in the prepared remarks, there's 100,000 square feet total in our largest lease rolling with the largest being 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 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, like the Wegmans Center? Is there anything else besides office that's going to come out to help alleviate the balance of that debt?

Great question. That's right: we have the remaining two suburban office assets. We have some land on the Mack-Cali side and perhaps some excess land on the Roseland side. I think we've messaged to many of you that the hotels probably are not part of our long-term operating core portfolio. Those in total should be able to take care of the remaining line balance.

And then when we look at office leasing, New Jersey put its Emerge New Jersey incentive program in place not too long ago. Any sense on when those benefits could 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 definitely has made a difference in terms of helping further enhance the appeal of Jersey City. Tenants, to varying degrees, will qualify for it, but it can be a pretty meaningful subsidy and can make it more appealing from a pure financial perspective for tenants to relocate there. We're very pleased that it has been introduced this year. We do think it's already making a difference. We just need a more widespread return to the office, and if that continues as it appears to be today, I'm sure we'll see the benefits of that come through.

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

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—starting to come back to us and get current on rents, so we had some write-ups there. The larger retail footprint we have in the base of Harborside we view as an amenity to the office; as occupancy picks up, and our leasing team wants to get it 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. I would not be modeling in any big pickup from a retail contribution in the near term. In Jersey City, you will start to see increased retail leasing, but we're going to hold off on modeling that retail income coming in aggressively.

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.