Good day, everyone, and welcome to the Mack-Cali Realty Corporation Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. I'd 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 over to Mahbod Nia, Mack-Cali's Chief Executive Officer.

Good morning, and welcome to our third 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 further simplified the business and continued to enhance our operational platform while capitalizing on the positive trends in the multifamily sector. We're encouraged by the steady progress we've made thus far. And today, I listed a handful of office assets as we transition into a pure-play multifamily company. Our results for the quarter are a testament to the quality and appeal of our multifamily portfolio. Despite the continued economic uncertainty, we maintained strong leasing momentum throughout the quarter, increasing occupancy to above pre-pandemic levels. Specifically, as of October 24, our 5,825-unit operating portfolio was 96.5% occupied, up from 92.3% as of June 30 and 2.7% above pre-pandemic levels. As I mentioned last quarter, we removed concessions across most assets and started increasing rents, positively impacting net operating income, which is up 4% this quarter compared to the prior quarter. The positive performance across our multifamily portfolio was further fueled by strong leasing across all three of our recently completed lease-up properties, which are collectively now more than 95% leased and performing well ahead of our internal expectations with respect to both leasing velocity and rent level achieved. The Upton in Short Hills and the Capstone at Port Imperial, both of which began securing meters during the first quarter, were 99.5% and 96.4% leased, respectively, as of October 24. Riverhouse 9 at Port Imperial is already about 95% leased despite having only launched in May. We anticipate initial occupancy of Haus 25, our newest 750-unit apartment building at 25 Christopher Columbus in Jersey City, to commence in the first quarter of 2022 and look forward to updating you on the leasing momentum there in the coming quarters. Since announcing our strategic plan to simplify the business and strengthen the balance sheet, we have sold approximately $1 billion of suburban office assets as part of our suburban office disposal program, including the sales of 7 Giralda Farms and 4 Gatehall Drive for $29 million and $25 million, respectively, the proceeds of which were used to reduce corporate debt. Consistent with our ongoing efforts to transition to a pure-play multifamily REIT, we've also entered into separate definitive agreements to sell two office properties located in Jersey City and Hoboken, totaling approximately 1.8 million square feet for a combined sale price of $590 million. Upon completion of these sales, our multifamily assets will account for approximately 70% of our net operating income pre-stabilization of Haus 25 and assuming all else is held constant. Turning to the office portfolio, the Waterfront assets are now 73.3% leased. As COVID-19 cases in the Northeast decline and many employees return to the office, we believe our live, work, play office proposition on the Waterfront presents an attractive option to a varying cross-section of tenants across industries, including a wide range of spaces, outdoor space, workplace solutions and the comprehensive amenity offering. Overall, we're pleased to report strong operating results during the quarter and excited about the strategic direction of the company. With that, I'm going to hand over to David, who will update you on our financial performance during the quarter.

Thanks, Mahbod. We reported core FFO per share for the quarter of $0.17. The year-over-year reduction in core FFO per share was primarily due to the impact of our suburban office asset sales program, which is now complete. This quarter, we continue to see positive trends throughout our multifamily operations. As Mahbod mentioned, our occupancy now stands at 270 basis points above pre-pandemic levels, which has allowed us to begin to grow net effective rents through the reduction of concessions and increases in market rents. On a sequential same-store basis, we reported a revenue increase of 4.3% and an NOI increase of 4%. We see these trends underpinned by a tight labor market and strong wage growth continuing into the fourth quarter. Our three newly stabilized developments in Short Hills and Port Imperial, New Jersey continue to outperform our expectations, generating $2.7 million of NOI at share in Q3, a $3 million increase over their NOI contribution in the second quarter. Office leasing was modest in the quarter, with only three small non-comparable leases signed for 8,600 square feet. As anticipated, TD Ameritrade has moved out of its remaining 44,000 square feet at Harborside 6 in October. We placed two of our six remaining Waterfront office assets under contract in the quarter at a combined sales price of $590 million or $325 per square foot. In the suburbs, we completed the previously announced $29 million sale of 7 Giralda Farms. And post-quarter end, our last suburban office asset held in discontinued operations, 4 Gatehall, closed for $25 million in proceeds. Excluding the contributions from the held-for-sale Waterfront assets and suburban assets in discontinued operations, multifamily operations accounted for approximately 70% of the company's NOI in the third quarter. All else remaining constant, we anticipate that the multifamily NOI contribution will increase to approximately 75% upon stabilization of our newly developed properties in Haus 25. Upon closing of the Waterfront asset sales under contract, our operations will be driven by our 21 Class A multifamily operating assets, with sector-leading average monthly rents of $2,930 per unit and sector-leading average portfolio age of only seven years. Additionally, we have one multifamily project in construction, Haus 25, with budgeted total cost of $469.5 million and with no remaining equity requirements. This asset is expected to receive tenants in the first quarter of 2022. Our remaining portfolio includes four office assets totaling 3.1 million square feet, all located within our Harborside complex in Jersey City; two hotels; and the prime land bank comprising 14 development sites, the majority of which are located one transit stop from Manhattan. We are excited about our competitive position. Our streamlined portfolio focused on Class A multifamily assets improves our NOI growth outlook and our cash flow growth profile as we move forward, especially when accounting for capital expenditures. We see continued tailwinds from concession burn-offs, anticipated growth in market rents and the upcoming delivery of our Haus development, all contributing to cash flow growth in the quarters ahead. This concludes our prepared remarks. Operator, can we open the call for Q&A?

Our first question comes from Manny Korchman from Citi.

In terms of the asset sales in Jersey City and Hoboken, do you have hard money deposits on those? And when do you anticipate that those would close?

Manny, thanks for the question. Yes, we do have hard money deposits on those, and the expected timing for close is Q1 next year.

And then, Mahbod, thinking further out, is the plan meant to sell down the rest of the Harborside office holdings? And if so, does that require lease-up of those holdings? Or are you running sort of at least soft or hard inquiries out there to see if there's interest in them as-is? Or what's the plan for the rest of the Harborside?

Yes. I think what we've made clear, the strategic direction for the company is to further simplify our focus and enhance operations around the multifamily side of the business, and you're really seeing that now come to fruition. We made a comment in the prepared remarks about how with the expected sale of these two assets, everything else held constant, approximately 70% of our NOI would come from multifamily and then with the stabilization of the development assets in Haus 25, then it moves up from there. So I think we've been pretty opportunistic and considerate about asset sales, and we'll continue to approach it in the same way going forward as we make this transition. But no specific time frame on that. It will be in a very measured and balanced way with the aim of maximizing value for shareholders.

Our next question today comes from Jamie Feldman from Bank of America.

I know your leverage ticked up to about 15x in the quarter. Can you walk us through the glide path here for bringing leverage down based on the asset sales in the pipeline and how we should think about timing?

Thank you, Jamie. So on a net debt-to-EBITDA basis, as we've talked about before, I think the glide path really is to remain about constant in the teens now as we wait for our largest development to come online, Haus 25, where we continue to fund all the debt. We're almost done there. That should begin receiving tenants in the first quarter. And then from there, as you note, the combination of debt repayment from asset sales, the lease-up of office at Harborside and, possibly, some recycling of land into yielding assets, we see a glide path that brings us down, not all the way to where the market is in multifamily, but into the lower teens approaching single digits. But you'll need all of that to happen, and it'll take some time for us to approach those levels. I would note as I have on past calls that when we seek to finance our multifamily, these are 55% loan-to-value loans on multifamily assets. We consider our debt extremely safe on the assets, and we don't have any major maturities over the next three years.

If you're going to be kind of a going concern, even if it's just an apartment company, how do you get to that final level, bring it down? Is it hopefully the stock is in a place where you can raise equity or more asset sales? What gets you to that goal line?

Yes. I can take that. I think it's one step at a time. There's no silver bullet, but I think we're making good progress moving in the right direction. As Dave mentioned, there are a few different tools potentially available to us to bring the leverage down to what may optically be more consistent with the multifamily market. Look at where we were a year ago with two looming corporate debt maturities of a significant quantum. I think we've gone a long way during the past 12 months to strengthen the balance sheet. The debt that we have right now, albeit on a net debt-to-EBITDA basis, is elevated, and that is a function of the disproportionate amount of equity that we have in a fully equity-funded land bank and constructions in progress that are not yielding any EBITDA yet, plus vacancy on the Waterfront as a capital allocation point. Ultimately, the leverage is not an acute financing risk: there are no looming maturities of concern and overall leverage on a loan-to-value basis, particularly given the quality of the assets and the cash flows, doesn't present any kind of real financial risk to us. So I think it's more about the optics of coming into line over time, and we do have a few tools at our disposal to allow us to do that.

A lot of news in the press about potential large leases at Harborside 1. Can you talk about the leasing pipeline? If you were to get that building leased up, does that move you closer to selling that one as well?

As I'm sure you'd appreciate, it's not our policy to comment on rumor and speculation. But what I will say about leasing generally is that during the quarter, leasing was quite muted, and our feeling is that that was somewhat related to the Delta variant. If you think back a few months and the fear that caused the postponement of leasing decisions during the quarter, it's not a complete surprise. In fact, office leasing over the last 18 to 24 months across the board has been muted, and the Waterfront is not an exception. But to put it into perspective, year-to-date, there's been around 375,000 square feet of leasing on the Waterfront; about two-thirds of that is renewals, and that's the second lowest volume in 10 years. It's 80% below the 2016 peak, and it's about 30% below the five-year quarterly average. So in what has been a relatively tough leasing period, with the investments that we've made in the Harborside complex and our leasing efforts, we still managed at least 176,000 square feet year-to-date, which is around 60% of the total leasing activity year-to-date despite only earning about one-quarter of the total stock in that market. So the market isn't strong on the leasing front, but we are making the most of it. I continue to believe that we are in the best position we've been for a very long time as a company to capture more leasing demand as we now start to see, particularly with the booster jab, a greater return to the office along that whole market on the East Coast.

Can you quantify the size of the leasing pipeline? I think you've done that in the past.

Not during my tenure. My stance is that we will announce leases as and when they become leases and we sign them. So we're not going to provide guidance on the leasing pipeline going forward.

The buyers of the Waterfront assets you have under contract, is there interest in Harborside as well from the same buyers?

We're contractually restricted from disclosing the identity of those buyers for assets, which is why you saw them lumped together. Those buyers had an interest specifically in those assets, not beyond them, and we didn't explore that further with them.

Our next question comes from Steve Sakwa from Evercore ISI.

Mahbod, can you talk a little bit about the apartment business? The rebound has been sharp. What are you now sending out in terms of renewal increases given that you're roughly 96% occupied and pricing power has moved back in your favor?

Thanks, Steve. It's been a pretty sharp rebound. We are now 2.7% above pre-COVID levels, and concessions are being tapered back. There are some concessions still on the lease-up properties, but for the most part, they're scaled back. We're at the point now where you'd expect to start to see rental growth, and we're starting to see that. We still have constituents of demand out there that are not even back yet, the most notable being the overseas student community. With borders now opening up potentially, that adds further field to demand going forward, and we're optimistic about our ability to capture rental growth. We have really high-quality assets that attract premium rents and are renting extremely well. These are sought-after assets across the portfolio, and we expect that to translate into rental growth over the coming quarters.

You're not willing to quantify where you're sending out renewal notices looking out 60 days. How much has that changed or moved in your favor in the last two months?

The first step has been tapering concessions, and we are starting to see the impact on rent — net effective rents are up. I think it's a little early for us to give that level of color this quarter. Hopefully next quarter we'll be able to provide more detail. But it's a great position to be in. Market fundamentals are strong, the assets have performed well relative to competitors, and we're optimistic about pricing power going forward.

You have a lot of land sites. Talk us through your desire to find JV partners that you can contribute land to while they provide capital. How do you put that land to work? Are there things in the mix today that could allow you to start new projects over the next 12 to 18 months?

It's a capital allocation and redeployment question. The balance sheet is somewhat constrained, but as we sell assets like the two office buildings, that releases equity. When those closings occur, we'll evaluate all options for redeploying that equity to its highest and best use. No decision has been made yet. We have a disproportionately large and inefficiently funded land bank. It's a great land bank, but holding so much equity tied up with back-ended returns and no current income is inefficient for a REIT. Some of that land could be recycled, with the equity reallocated to higher and better uses within the business. We're looking at all options.

Can you remind us about the Rockpoint JV? Are there any put rights, capital calls, or financial obligations around that we should be mindful of? Any key dates coming up in '22 or '23?

All the equity has been funded by Rockpoint on their end. Our current business plan doesn't call for us to call any additional equity from them nor are we required to. The next main date in the agreement would be March 2, 2023, where there is a put/call between both partners. At that point, either partner can exercise a one-year extension. So you're really one year off from rationalizing the JV, finding net asset value or market value for both and executing. The JV will continue over the next quarters, and I don't think you'll see anything different on that end.

We'll go to our next question now from Tom Catherwood from BTIG.

Mahbod, you've talked about the restructuring you've done. How is that restructuring impacting the operating side of the business? Did that contribute to the residential occupancy pickup, or was that more driven by stronger market fundamentals?

I think it's a combination. The restructuring collapsed two almost autonomous organizational structures into one streamlined organization, which reduced financial and operational inefficiencies. We reconfigured certain areas and brought in seasoned multifamily experts. That's made a difference. The market has also been extremely strong, as you've seen in competitors' results. So there has been efficiency on the cost side and revenue improvement driven by both changes we made and market strength. You're starting to see the early rewards of those changes.

It was good to see sequential pickup in both parking and hotels revenue this quarter, especially given concerns around the Delta variant. The Hyatt Regency inflected into positive NOI territory for the first time since 2019. Can you speak about the trajectory for parking and hotels and drivers of sequential improvement?

On parking, we saw sequential improvement toward the end of the quarter. Return-to-office at Labor Day got pushed back, but our lobbies are fuller, elevator use is up, and food vendors are opening around Jersey City. Parking probably needs three to four quarters, maybe by the end of next year, to get back to pre-COVID levels, coinciding with return-to-office being back 100%. For hotels, we've seen group pickup, weddings and events. But we'll watch what happens this winter with return-to-office, variants and flu. From here, we expect modest growth — a stair-step up in hotels to a level where more modest, low single-digit growth in EBITDA and RevPAR is reasonable.

The merged New Jersey incentive program was put in place earlier this year. Are you seeing any positive change in tenant requirements now that the incentive plan is in place?

I do think the incentive program has made a huge difference to inquiries and the number of firms considering relocating to New Jersey. There have been two instances where the award was utilized: Party City, which received a $10 million incentive package and will see 350 new jobs created in Woodcliff Lake, and Fiserv, which is investing $105 million in Barclay Heights, creating 3,000 jobs and receiving a substantial tax credit award. That translates into leases, and we expect to see more of that going forward as firms are attracted to the area.

We have a follow-up question now from Manny Korchman from Citi.

It's Michael Bilerman here with Manny. Mahbod, the pandemic limited your ability to come to the U.S. I'm curious now as things have reopened more: what is your plan in terms of geography? I know you hired a COO in London that we used to work with. Can you update us on your plans for managing the organization?

Michael, thanks for the question. During the last 14 months we've made progress. Many of us have been working remotely, and what we've done so far has been positive. I'm excited because my One Visa has come through now; I have my embassy appointment next week and have a flight booked to get over there in the next couple of weeks. Similarly with our COO, we are going through a process and the expectation is that she'll relocate if everything goes as planned. I'm looking forward to seeing the Board and coming over.

Are you going to relocate and run the company from the U.S., or as you make this transition to multifamily do you want to stay CEO based in London? Do you expect to hire a permanent CEO in the U.S.?

That's really a question for the Board. The decision is undecided. As it stands, if I'm spending half my time over there and half my time away, I'm not sure if I'll be living in the U.S. and flying back to see my family or vice versa. I will do what it takes to make this company and the story a success for as long as I'm in the seat.

Pre-pandemic you guys indicated you had an offer referenced in filings. Where does the corporate transaction initiative stand? How much time are you spending on a corporate-level transaction given there has been interest before and you've now cleaned up the portfolio?

We have a relatively new, highly competent and focused Board and strategic review committee focused on creating and unlocking value for shareholders in any way they can. Our job as management is to focus on operations to create value at the asset and entity level. Any future strategic decision that may involve crystallizing value outside the current structure is a question for the SRC and the Board. It's something they're highly focused on, but it's not a question for management.

Thinking about the two office sales, can you talk about the process? Were those actively marketed or off-market inbound offers? How did you think about pricing, especially given the $590 million gross price and roughly $20 million of costs and another $20-25 million of prepayment penalties, so netting down to about $545-550 million? With $400 million of debt, that's about $145 million of net cash. Can you reconcile that math and speak to cap rate and pricing net of those costs?

These assets were marketed and had been marketed even pre-COVID, so we had a sense of where interest lay. We're happy with the pricing given where it came in compared to pre-COVID. We won't disclose exact quotes as we're not closed yet and are under confidentiality. You are correct about defeasance; we have defeasance, but we didn't let that dictate our strategy. We developed creative workarounds for defeasance. Net-net of defeasance, we still think we came out with pricing we're very happy with. Strategically, this aligns with pivoting toward multifamily. I don't have additional cap-rate detail to provide.

I think it's a strong price across the two properties on a per-square-foot basis, and that's been the reception we've received. We think it's the right decision to move forward. We're focused on transitioning to a pure-play multifamily REIT thoughtfully and opportunistically, and these sales are consistent with that approach.

Can you walk through the sources and uses and the math? I was surprised transaction costs were so high and the prepayment penalties for delivering the assets unencumbered. How much NOI goes away when these deals close?

You're asking for the cap rate to figure those out. We disclose debt amounts and interest rates. You can see rents and occupancy in our supplement. These assets haven't closed, so we won't comment on cap rates. When cash comes in, we'll manage our float and pay down the line. As Mahbod mentioned, we'll look at capital allocation options, including recycling, returning capital and further debt repayment. But we're not relinquishing cap rates on these assets at this point.

How much of Rockpoint is tied into the asset value and GAV of the multifamily platform?

We disclose the Rockpoint minority interest. They've invested $400 million, and they also have an accrual in the waterfront, which we book; it's on our NAV page in the supplement at $466.3 million. We don't disclose the JV split percentage. That Rockpoint interest is their equity interest; with leverage you could back into what their percentage of GAV is. On an NAV basis you could back into their equity interest. Nothing new to report on Rockpoint.

Can you distribute assets and relinquish, or is the buy/sell on the complete platform?

There are a number of options. We have a very good relationship with Rockpoint. This won't be a sudden buy/sell surprise. We'll have discussions when the time comes, but we don't see anything in the near future changing that relationship.

As we have no further questions at this time, I'd now like to turn the presentation back over to your speakers today for any additional or closing remarks.

Thank you very much, everyone, for joining us today. We look forward to updating you on our continued progress next quarter.

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