Q3 2019 Earnings Call

Good day, everyone and welcome to the Mack Cali Realty Corporation third quarter.

<unk> earnings Conference call today's call is being recorded.

I would like to turn the conference over to Mike Demarco, Chief Executive Officer. Please go ahead.

Good morning, everyone and thank you for joining the Mack Cali third quarter 2019 earnings call.

This is Mike democracy, all Mack Cali.

I'm joined today, but my point is massive patient chapter one novelty found operation.

David Smith CFO .

Nick Hiller naive B P at least.

Illegal about I must remind everyone that certain information discussed in this call may constitute.

Looking statements than many other federal Securities law.

We believe the after that's reflected these statements are based on recent assumptions.

Can I get a shock to the detailed results will be achieved.

They do a press release annual and quarterly reports filed with the FTC forgets factors that could affect the company.

We filed with the matter this quarter.

As always please contact I pointed David what any further suggestions back to school she'd like to see.

As you have done before we're going to pick a coal down at the falling sections I will make some opening comments nickel discuss office leasing performance and hope you have the market's going forward Marshall with white insight into multifamily operations, which is really hitting on all cylinders and then David will recap operating results I will call just some comments.

We had started getting better this quarter and we delivered positive results across all operating metrics.

Had another quarter with great deal of transaction activity, which is a schedule.

That allows us to continue executing that plan regarding sales purchasing financings.

They continue to bleed teams are operating at the highest levels.

This quarter combined with the last two quarters activity in transactions is allowing us to execute our vision for the waterflood that vision is simply to be the largest when it's going to say multifamily what are called the ball fares, which allows us to find the live work play in all markets.

However, waterfront leasing.

Results for 2019 up below expectations velocity.

Regarding total amount of square foot at least.

Rates are hitting on all expectations as all concessions.

We believe we can achieve greater results of the upcoming quarters with nickel go out of line as well you go through his comments, we're working on an underwater new deals in the suburbs and waterfront, which both active [noise].

Regarding the New Jersey office walking in general as discussed before on last call as of June Thirtyth. The government did not approve the continuation of to grow New Jersey incentive.

There's still a disagreement between a governor legislative branches regarding side, it's got the new program not whether they should be a problem at all.

The branches of government, who Jersey democratically held which will continue to be after next chooses collection. We expect based on recent conversations with several parties disagreements disagree with this agreement will be resolved the upcoming weeks after election.

Expect tour activity to be light and pull then and it certainly till the certainty around these programs.

Well, we do have several new deals in the marketplace that we are pursuing.

Got it overall portfolio, we see no pushback in prices nor do we feel we are the wrong at the space I still believe that it makes a strong 2020.

Got it on multifamily platform like to make some brief comments well my partner Matson makes is.

We're still able to push rents the multifamily business as we can do your basket of products and add to our holdings repositioning the brand of developments.

There was just sitting at the kind of overall, becoming a place a choice for kind of to live and they do have metropolitan area.

1300 units delivered in the last formats in the waterfront area during the city are fully rented.

Upcoming supply is like the next several quarters, we a modern aquatic an older buildings in order to capture the high rent.

Turning to date of inside with module that write off.

We look forward to except in deliveries in 2020 product, which will substantially into class a buildings.

As I said before starting in 2000 2021, the new product that we deliver but I guess I promise, one and 25, Christopher Columbus and the plan, we tell changes outside with inclusion of whole foods and several other restaurants will totally changed away after she definitely still good.

Will expand the restaurant in all cases upcoming quarters. Additionally, new Marriott hotel in Port Imperial Cold and are we talking last quarter is to continue with your privately back into find that market.

Yeah, the capital necessary to complete our pipeline, which David wireline, we expect an attitude about when deals in a waterfall the upcoming quarters.

David will talk about a planned sales for 2019, which were ahead of schedule. We had a prices are marking a new sizeable marketing a new sizable suburban office deploying to sell these efforts are going very well, we expect if they progressed to present to our board of directors Cassandra definitive transaction and the board approval the sales, which we expect there will be completed.

First quarter 2020.

We will update you on these efforts over the next call. The proceeds from the sales David will elaborate will be used to pay outstanding debt, all but 2019 delta better pay down debt.

That's a leverage it would seem to come down a form of repayment of unsecured term loans, which we only have one remaining today and we plan to the amount bonds next year would feed yourself.

I'd like to tell the Nick for an overview of leasing Nick.

Thank you Mike.

Across our portfolio, we posted an unusually slow quarter for Q3 29 team starting just over six 9000 square feet of transactions, resulting in our core and waterfront portfolio, finishing at 80.8% leased at quarter end.

Of these transactions approximately 62% or 43000 square feet were new leases and 38% or 26000 square feet were in place renewals.

Across all core markets, our rents on Q3 deals rolled up 10.9% on a cash basis in 22.4% on a GAAP basis, and we committed sick $5.62 per square foot per year of lease term.

As we turn our focus to the specific markets. The waterfront close just over 3000 square feet of new transactions, finishing the third quarter, 77.9% leased and we continue to see a positive right push with increases of 18.8% on a cash basis is 36% on a GAAP basis.

Looking at our current activity level, we have approximately 600000 square feet of new transactions currently an active negotiations across a diverse tenancy mix, including financial services co working and shipping just to name a few.

We also continue to have strong tour activity.

With positive responses to the improvements we have made and continue to make within our waterfront development.

Looking ahead, we have a limited amount of lease roll over the next 15 months with only 61000 square feet expiring in 2020.

As a result, we expect to make continued gains as we improve the overall occupancy levels on the waterfront.

Our suburban portfolio also posted unusually slow third quarter.

Specifically, we executed approximately 34000 square feet of transactions.

However, although our overall transaction square footage was light we continue to see a positive rent push with increases of 1.9% on a cash basis and 7.8% on a GAAP basis are starting rents averaged above $32 per square foot.

Turning to 2020, we have over 487000 square feet expiring that year.

Of which we know approximately 26% or 131000 square feet will vacate.

We're confident in addressing the balance of this roll over as we are already in active negotiations with approximately 225000 square feet of transactions across the suburban portfolio.

With that I'd like to turn the call over to Marshall.

Thanks, Nick during the quarter Roseland continue the execution of the company's New Jersey waterfront strategy with two significant transactions in September we acquired Liberty towers institutional quality 648 unit community in Jersey City exposed to.

Actively evaluating operating efficiencies and are preparing a comprehensive common area and you had improvement plan for the property.

The Liberty towers acquisition was an asset swap with the disposition of the Altera and chase communities North of Boston.

So the swap will initially be slightly dilutive to earnings we sold suburban Boston assets for highways, Hi, wise waterfront towers in our core geography.

Our third quarter any of the estimate is 2.24 billion net of rock was interest Mack Calis year. This figure is 1.79 billion nearly $18 per Mack Cali share transformative transactions over the last four years, reflecting the composition of our navy, 70% as long as an waterfront, 79% of any ideas and operating or in construction and.

And just three tenths of 1% is now in supported interest operationally Roseland same store portfolio experienced a 2.7% increase NOI over second quarter 2018 on a GAAP basis and finished third quarter at 96.1% leased.

Our same store results were negatively impacted by our active renovation programs at Monaco and more bad. These properties, we have embarked on a full repositioning to modernize the units common areas and amenities initial feedback has been positive with releasing units achieving 10% premiums to be unrenovated apartments.

We adjusted reporting same store results to account for these offline units third quarter in high growth would have been 6.6%.

2018, we delivered 1200 12 units to the marketplace. This portfolio is excluded from the reported same store results is currently 98% leased as forecasted to produce stabilized NOI of $26 million.

In July the company open to 280 on view Autograph collection Hotel initial performance of our two Porter for hotels has been strong and they serve as a cornerstone amenity source of Placemaking and cross marketing opportunities the maturing port Imperial community.

Primary source of future cash flow and value growth is our active construction portfolio comprised of 1900 44 units collectively this portfolio is forecasted to generate and alive approximately $61 million a yield on costs slightly above 6%.

Of these remaining capital committed this portfolio is approximately $70 million. This capital obligation along with future development requirements will be sourced from a combination of roselands organic cash flow refinancings select dispositions and rockwell's remaining capital commitment as amended in June .

Veteran portfolios highlighted by three developments along the Hudson waterfront totaling 1400, 10 units dribble Oxy and labor has nine in port Imperial or last Liberty Riverhouse 11 is 99% lease and the Charlotte in Jersey City, which will include a 36000 square foot onsite Elementary school, which will be a significant amended in Jersey waterfront neighborhood.

Looking ahead, we are preparing for a series of additional construction starts at Port Imperial and Jersey City.

Isn't 20, and we're also evaluating nonstrategic apartment and suburban land dispositions that I will turn the call over to David.

Thank you Marshall I Love a few brief highlights before turning the call back over to Mike.

It was another inline quarter for the company office operations continue to fall within budget and operations remain healthy and our multifamily division, we reported core FFO per share for the quarter 38 cents versus 43 cents in the prior year year over year decrease once again is due mainly to move out of tenants on the waterfront and lost NOI from asset sales executed.

As part of our disposition program.

Cash same store Anoro and align our office portfolio declined by 4.4% in GAAP same store NOI increased by 1.1% in the third quarter. The declines on the office side have moderated as the last of the waterfront move outs in 2018 were mostly complete by the end of the third quarter last year in rent Commencements for two major.

And then extend deals we announced at the beginning of the year are now being recognized in income as mentioned by Marshall Roseland same store NOI improved by 2.7% this quarter and revenue growth continues to be affected by ongoing reservoir renovations of lobbies and units at both of our Monaco and Mar Bay a properties.

On the transaction side, we had no office dispositions in the quarter after quarter end, we had a suburban office property trade for $26 million with an additional $84 million of assets under contract expected to close by ended the year 2019.

If all remaining assets were completed by year end. This would place disposition activity toward the high end of our range. I'd also note we have an additional non core office asset under contract set the closed in early 2020 for $36 million. The remaining 2019 sales will be weighted towards the end of the fourth quarter with proceeds targeted toward.

Debt repayment, namely our turmoil I'll also mention the 409 million dollar Liberty Towers acquisition was completed on September 23rd turning to the balance sheet. During the quarter. We continue to migrate towards our secured borrowing strategy and August 5th we received $150 million and proceeds and the tenure.

3.8% coupon interest only mortgage that we placed on our what 11 111 River office asset in Hoboken, New Jersey. The proceeds were used to retire the 100 million dollar balance remaining on our $350 million 2016 term loan and we used another $45 million to reduced.

The 2017 term loan balance.

To a balance of $280 million, we have notified our banks of our intention. They use the first of two extensions on the 2000 term loan in January 2020 for any remaining balances after pay down from our non core asset sales.

I would note the net debt to EBITDA metric at quarter end was inflated by our multifamily asset swap.

Accounting for the proceeds received in October this metric would have been 10.0 times at quarter end residential secured debt balances will continue to increase as we fund our value, creating $1 billion multifamily pipeline. These developments are projected to produce a roughly 6% NOI yield and thus will provide $60 million.

As of additional and NOI when they come online and stabilize throughout 2020 in 2021.

Lastly, shifting to our guidance and supplement we're tightening our core AFFO guidance range to dollar 59 to $1.64 per share the range still straddles our initial guidance midpoint. Despite an earlier than anticipated sale of our flex portfolio, partially dilutive multifamily asset swaps and increased disposition guidance all of which we're now.

Contemplated at the time of original guidance.

We received proceeds from the sale of our Irby tax credit for roughly $2.6 million at share in October and thus, while the benefit to our Q4 FFO of approximately three cents per share. We've increased our same store NOI guidance on the office side to minus one to minus 4% on a GAAP basis and minus six to minus 9% on a cash basis.

An increase at the midpoint of minus one of a plus 1.5% in 2.5%, respectively. We're leaving full year multifamily same store NOI guidance in place. This multifamily guidance takes into effect the drag from redevelopment activity is up at our Monaco and Mar Bay assets and does not include our Boston.

That's for the full year, which contributed a 100 basis points excess benefit to the same store NOI pull through September thirtyth right to be was updated as it is each quarter based on our most recent underwriting of each of our assets, including individual adjustments for the net value of assets being placed under contract G.

On a companywide basis was decreased by 1.53% with that I now turn it back over to Mike.

Thank you David and closing is my colleagues have outlined I continue to believe we're set up to have a solid 2019 from execution point of view with the results of our hard work showing up in 2020 and beyond.

I will focus as we've outlined is now 100% on the waterfront, which really means growing on multifamily business. For example, we intend to exit our DC joint ventures, and it made progress on these transactions.

We had land sites in Philadelphia now under contract as before they were marketing.

We have land sites in suburban New Jersey to now be marketed would you expect something to be close in the coming months old.

All this goes you to pay down debt will find out development.

Additionally, we had a process of selling the remaining portion of our Boston assets, we look forward to purchasing additional assets at the county to comment on development.

We're very excited about operating portfolio.

And how we will continue to grow with excellent new the new projects and dispositions being taken out of all about operating metrics.

The real key evolve strategy is creating sense. It plays in the waterfront I'm confident that total effective coordinated efforts of office retail multifamily will produce excellent returns in a short and long term.

And with that I'd take some questions operator lets go trick or treating.

Thank you.

I'd like to ask a question at this time. Please press star one on your telephone keypad. Please to ensure the mute function on your telephone.

Your signal to reach.

Once again, please press star one for telephone question.

Your first question today comes from Derrick Johnson of Deutsche Bank. Please go ahead.

Hi, good morning, everyone.

You guys have now posted seven consecutive quarters of negative same store NOI and I know a lot's been driven by the dispose in the portfolio repositioning.

But at what or how about this when do you believe we will see an inflection point back to same store NOI growth.

Given that the comps are certainly more favorable at this point.

Derek It's Dave Smith had Oh as I mentioned you notice in our release actually our GAAP same store NOI for office has started to turn positive this quarter, because we're recognizing GAAP rents from some of our big renovations are big really seems to large tenants.

And so that is already turned we believe cash will follow.

The last tough comp we have on the move outs as a 90000 I can't move out in October of last year.

But basically from here, we believe without any further tenant fallout and we only have 40000 square feet. Rolling next year that cash is going to turn positive in 2020.

Gaps already positive.

Okay, great and and just.

You know look right regarding the overall office portfolio, just wondering like Where's the push back guys. How many you concerned about companies, leaving New Jersey, and maybe New York City and seeking tax incentives elsewhere, I don't lower tax states, maybe the Sun belt.

Would it be a push back on pricing or Ti packages and look I'm asking this because we appreciate the improvements you've made especially to the waterfront offering. So I'm really just trying to understand the dynamics are headwind given the quality of the portfolio and favorable pricing versus you know Manhattan and also you know acknowledging.

That is not like you're getting a lot of credit for this portfolio right.

But just you know something on the overall you know leasing market in general please.

Yes excellent question Derek This is Mike.

If you looked at it from a macro to micro point of view a macro it's been a tough sledding for office products other than some spots in the west coast, which have been really benefiting from tech I mean, you will get my colleagues at for NATO SL Green.

Paramount anti stayed even Boston properties and I'll take the last five years, it's really been Supervia from a return point of view I think new Jersey.

Yes, the city is still a mecca for job creation, especially on the tech side of it has been amazing how many square feet have been absorbed.

You have a little bit of the we work for out which will be affecting portfolios on the new Jersey side, we've always been secondary location people came to us because they wanted to have.

Benefit of having a lower costs, which were starting to see a little bit of that so we think as things slow down in recessions, maybe looming people look at say Hey, let's move people to New Jersey, So we're getting some activity.

For the core portfolio in a state itself, it's a big pharma pharmacology state I mean, it's big on for pharmaceutical companies we have.

Seemed a little bit of that had been throw as far as new product come in so we've been looking at shedding asset. So we don't think that we could find.

The rate home for them over time, so we continue to shrink our portfolio, which is why we've invested in multifamily I still believe in a core portfolio and on the waterfront could work they write scenarios, but if that doesn't work I'll be happy to pace to exit that business also so we look at it is very an open I kind of joined this way and say it would be better here.

The state was more open for business, which is clearly that.

We'd be better the incentives already embraced by the governance Legislative branch.

We think there's a lot of things happening in New York that favor asked to some degree there's a lot of things happen in New York going to pick getting people to look and say that's the right place for people to work in live, especially we have conversations about a housing index and cost of weather employees connections of here versus Austin, Texas, a shoulder Jacksonville, but a lot of those markets Philip relatively quickly.

I mean, they get variance to be tied and you can see stories already surfacing about education problems and trapped temptation problems in these new budgeting submarkets, but if we look at it every quarter. We look we've been selling every quarter, we continue to basi harvest.

Ill take the money.

Invested multifamily interesting note there could have been covenants for the five years, we've been doing this but the day we started June 2000.

And in 15, we were at 17002 cents that morning multifamily Division is worth about 80 Bucks today, which we grew from a couple of dollars back then so we've made a decision to basically repositioning our portfolio.

But at any of it.

Which makes sense and just says as a last follow up do you think that there could be ultimately a shift from the 40 40 20 model 40 multifamily 40 waterfront in 20 suburban.

It could be shifts to that going forward based on the environment.

Yes, I would love to the suburban to be zero in a year or so.

I would also like the multi to be 60 more going the other way I mean, I will follow the money and that's what we do we think if you look at how we turns into multifamily business. We've done an excellent job, reducing we've got we bought it I think we've done a very good job of being defensive and earning we've had every quarter, we've had positive cash and GAAP.

On a company that negative for several years before we took over but you're still fighting untied, maybe doesn't doesn't work your way.

Again before opening side, we will get a very casual very carefully.

Thank you Mike Thanks, everyone.

Okay.

Thank you.

Next question will come from Jamie Feldman of Bank.

Please go ahead.

Thank you and good morning, So I guess that you guys did mention a 600000 square foot of new transactions in the pipeline across multiple industries. I think you mentioned co working as one of the industry can you talk about the composition of that pipeline in terms of suburban versus waterfront and then how much co working would you be willing to add to the portfolio.

This point in which operators.

Yes, no problem.

The 600000 square feet I referred to was waterfront specific.

The.

Hi, later reference 225000 square feet, we're in active negotiations on in.

And the suburban portfolio.

The overall.

The overwhelming.

A tenant mix right now is financial services.

That's and that said that the large chunk of it but we do have a.

We are talking with co working as well.

70 to 80000 square feet of that Mark.

Now I'd say in suburbia it runs.

Through a large gamet, but also again financial services insurance and the fire industries as well.

Jamie we had a current tenant that's in our portfolio.

In two buildings for about 40000 square feet and with the absence, we work in the marketplace. They wanted to expand with a new concept to go 120000, an extra 80, that's when looking at.

And that's at the waterfront.

Yes, okay.

In two buildings existing and we'd have a there we go into this one of the same buildings for another four and a half.

Okay.

And then as you think about it sounds that you want to keep selling down the non Jersey city.

Assets.

How do you think about the big picture I mean, if you would eventually spin off that portfolio.

The idea of being completely concentrated in one sub market as opposed to something a little bit more diversified I'm just curious what your thought process is there.

Well I looked at all the great companies that had the pleasure to work with as a banker in my career, whether it's not always started out with a very big Central Penn station portfolio, My powdered SL Green, who did dominated grand central.

What's document that three blocks on park Avenue in lacks that probably had several billion dollars. The contraction as an bother you. If you had the ability to operate it we're looking at a region. It runs from the battery to like 75th Street in Manhattan, effectively it's just like the in Manhattan on a on a new Jersey side.

We tend to have a fairly good foothold on on.

Getting things done in these marketplaces and I'd, rather be that didn't have a disparity portfolio in DC in Boston and much more of a tourist and I am a professional.

Okay and then what are your latest thoughts on that residential spent.

Well, we've been we've been building that toward and we've had these conversations data you and I for this last several quarters. It depends on the size and we're getting close to it and when did when we deliver to next year.

Deliveries, which is a billion to we'll probably put into the ground margin I chatting about maybe a billion dollars. Some really great projects, you'll have the size and scope, we could look and say Wow that is a really really solid multifamily company with great operating metrics.

And by that time, hopefully you will exited the suburban and you're left with hopefully a leasing up waterfront if not you have to deal with the waterfront accordingly.

But you have value creation I just said before.

Each quarter the.

Multifamily business continues to perform better numbers, we keep on taking land turning into service, which introduces increasing in a b. It goes on and on its a little bit of a production cycle for us when a manufacturing business today, but from where we started several quarters ago to where we are now it's a linear progress and at some point you're looking sale it's time.

I don't know when it is it sounds like it's this quarter, but I can see it in the future.

Okay, and then finally.

How should we think about the need for special dividends, if you're going to be selling assets and paying down debt as opposed to redeploying into real estate.

No what good I think we have I.

I mean first I think about us has been tax strategies and I don't think people really they give us credit I'm not looking for more credit, but the complexity of taking existing read and we bought a rig gobbling up and going into a different business without paying taxes is somewhat more art than science, maybe its combination of both we don't have a tax problem with special dividends.

Need in the foreseeable future.

We are pretty good.

Okay all right. Thank you.

I have a great day Jamie.

Thank you.

Our next questions today come from Emmanuel Korchman.

Please go ahead.

It's Michael Bilerman here with Manny.

Mike can you talk a little bit about the potential dilution as you migrate and sell down the suburban assets in your updated and maybe you have those at about a 10% cap rate and if you're going to use that too.

Pay down your debt, there's a pretty big dilutive spread putting aside all the other things you're working on just executing that selling assets at a 10 cap paying down debt. It four to five could cars anywhere from a 25 to 30 cents.

Yes drag on FX. So she can you talk a little bit about.

How you sort of envision executing a sale.

Without the dilution.

It will does somebody dilution test that's just a reality.

We're going to basically to the latest batch we're doing is about a seven cap rate so to do should isn't isn't that bad.

On the multifamily comes on line starting next year. So we pick up some income where the hotels ramping up this year, which picks up some income we think would have hopefully a little bit of leasing which makes it remain calm and we have to make a determination Michaels and I'll do you want to have debt and hold it out when you have acentia coming on or would you like to be a little less levered and exit maybe a portfolio that you don't want to home.

Long term that's a conversation for the boards have on December 19 did a board meeting, which will prepare to make those comments and at that time, when we give guidance for next year, we'll break work into those numbers, but yes. It if it is going be dilutive, if that's substantially diluted but it would put it in a slightly due to category, but we've been managing that forever, but I also think that go to where we wind.

With a portfolio and less debt and more multi it's a good trade off I also look at that's EFO, Hey, if a fall basically stays in a pretty solid range because with shedding assets that use a lot of capital Y. leasing commissions a lot of downtime.

Roche in dollars so before it actually is pretty clean so it's a balancing act.

But if looking at the supplemental right pages 789, right you have the suburban portfolio valued today at a 10 cap.

And I think in response to another question you said you want to see that it's zero by the end of the year I'd ideally selling out of the suburban so why wouldn't that if you. If you just updated the flight to 10 cap, you're saying, it's a seven cap.

Sure.

The thing too.

Well, it's it's a 10 cap because we look at some tenants that are moving out the incomes in a migrate down we have a place yet. We also haven't spent to capital what I said was the assets that we currently have to sale the $259 that we put out as is running around a 7% in place in Hawaii rate. The next batch, which we have to do right and I'm not.

Saying with selling everything at one time, right, but we're going to start selling assets in buckets.

That bucket will be slightly dilutive and it'll be a buck and ask that Adam I'm trying to match that with deliveries the multifamily.

As I said before the hotels are kicking in a little bit which gives them incomes. We've got some cost savings to do is a few other places we can do it.

Just look at the numbers you've done this before where you go to say 10, five doesn't make sense dilutive. We've been doing this now for the last several years, we want to get down in debt you want us to get done in debt you want us to exit a suburban we want to exit suburban to surpass I think we wind up in a relatively good spot.

Evidence in Idaho.

In the 250, you're talking about it it's the transaction you talked about.

Thing that you're going to bring to the board of during the year.

Oh 250, as they can fully already have so we have stuff that we have in 19 and 20 closings about 259 Bucks.

And then how much closer to transform right how much of the deal you referenced in your opening comments another batch of suburban sales that you.

One eventually take the board that would be the remaining 250 at a suburban portfolio.

No. There's a visit the branded portfolio, it's probably worth about 900 and change a portion of them in a recommended a board on December 19th and figured out exactly what that is yet and when I just wanted to them they will disclose it to you.

How big inside me then.

Let me put it in slow math and this is I'm doing this off the top of my head, but usually get a pretty good.

We had about a $1.150 billion of total suburban assets about 250 of it we've already contracted for sale in various small bits and its again the theory of junior worse that would leave you with five assets by pools of assets minus metropark.

Short hills to rather and positivity remaining those equals somewhere around $900 million plus the can't get exactly the right number we go through it and that $900 million plus I have a portion of it at that elect recommend to the board the for sale in December I haven't gotten approval, yet I don't front, one my Boyd I don't front on the process. So neither the amount why stores.

Because that would be in fact in front running but I will go recommend a portion I will then recommend the strategy to see if we can get can you would have all of that over the next 12 months. That's a strategy when it had a conversation on in December .

So it's a combination of both the class a suburban and the suburban where you're going to be love your thoughts on water front and the residential so that total billing is what you're chipping away at which reflects both the 1 billion won 50.

Yes, yes, the totality of those what I'm seeing a JV right. The totality of those two columns of narrowing the gun ratcheting that down.

Yes.

Okay, Manny you had something sorry.

Thanks, Mike.

Just if you think about the leasing comments, a Nick made earlier and combine those what what's your comments Mike.

The the tourism the traffic in demand in New York proper hasn't been great and I think that's conversation we've had so what what's tempting those.

Tenants to look at your portfolio, especially without the.

Tax advantages in place.

Or is it simply just a a pricing game and they continue look at from that perspective. Thanks.

So it breaks into four four tenants pick up to 600000, many on the do it slowly so one of them is.

80000 square feet 60 to 80000 square feet of co working from an existing tenant that we already have which you can easily look up and finally that is.

Two we have a shipping company that wants to be on the new Jersey side because of supportive of.

The poly thought relationship with portal, putting to work and Elizabeth right. That's about 60000 square feet. That's a 140 go about 25% of what we just discussed.

The next tenant is a tenant that has been in our market before it has been in our buildings before but has exited as now looking and saying I want to move into New York again and have what we've done well I'd be in Jersey City, there about Buck 50 give or take maybe little bit more maybe buck Haiti, So thats and now we're moving up to about 300, plus the last tenant is a tenant that it.

Shifting in the New Jersey market, who is in a building for long period of time coming up a one of those 15 year renewals and he will get in life and say do I want to everybody has to restack at the end of 15 years Nobody has a great technology has changed the whole millennial class seeding open open format do I want to do it in place or you might want to move to Mack Cali is nice new.

Building they renovated that I can do it as as I meet pay they need to and leaning towards moving and that's the that's the MCCSR to other for tenants.

That clear.

Yeah. Thank you for that.

Pleasure.

Thank you.

Our next question today come from John Tiny of Stifel. Please go ahead. Your line is open.

Okay. I think your last quote Mike was operator lets go trick or treating.

Okay. So tell me in this dialogue, what's a trick and what's a treat.

John I was assuming that getting you run it on a lovely Thursday, which is that cloudy weather is just to treat that I just can't I can't believe this is getting a big candy bar from the neighbor.

You didn't expected again plus money is found in a wrap up.

Okay, that's what I guess when I get you John on the phone on Thursday in the middle level along week.

All right let me let me just asked this really quickly.

Your suburban at Air Suburban office portfolio is worth about a billion won 50 I think you said, that's an eight and a half cap yeah.

And I think David our Marshall said that you're going to.

You have about 70 million of span. The net then up a billion dollars' worth of starts on multi family, which actually gets you to about 1 billion won 50 also so is it.

It's a safe to say your maximum.

Both office disposition matches yard development starts dollar for dollar.

In the next 12 months just.

No. It's unbelievable so what we're trying to convey and I'll try to make it clear is that with the existing pipeline people often ask this do we have the capital we only have $70 million remaining and we clearly have the capital to complete that pipeline.

And with Marshall didn't that line, which I might as well we will have stocks delivering in.

More than a revere in the first quarter will deliver a short hills shortly thereafter.

Well it shortly thereafter port Imperial it depends on how you're going to time port Imperial has two buildings coming on at the end of 2020 and then at the end of 2021, we deliver the project in Jersey City, we call. The Charlotte. So we have those thoughts already built we get a tremendous amount of income from that which is what I was trying to convey to Michael Bilerman about how you get a magic to too you may have a little bit.

The lag, but people can see a path of suburban would high capital low growth to multifamily brand new end markets that you have expertise dominance is it's a good trade I would assume yes.

The next stock today outlaid because people always want to know is we have several sites as we continue our building program that will be done. He two important period in two states in Jersey City. Once we've done a joint venture. They total about a billion dollars give or take we havent really whack down every dollar of the capital, but we'll be doing out over the next several quarters, we don't expect those.

Starts to be into June 2020, 2021.

Okay, so, saying you're talking about on page.

37.

Basically at the Weehawken into two Jersey deals here, which say target starts 2020 right.

Yes, basically yes. It so when we call the park, which is that the southern end of our Weehawken Holdings next door building, we but would hotspot Colby estuary the great Submarket. So beautiful site. It's got 270 degrees of frontage looking at New York City and it surrounded by both deals at the city has put in its actually a gorgeous building, especially for families. We expect I wanted to be a.

True winter, where the set outside my window, which we call Plaza eight.

We have the second building Herbie, which has obviously been a very successful project for us that we were doing a joint venture with state.

So that the and then I think David said that you're going to.

Lever up to stabilize multifamily portfolio on a secured basis.

No what will happen is we will.

Maybe a b.

Selling assets and taking capital out of existing deals. We will so we're still for example, John which we've done a very good job on fully leased not a core holding for us, we probably have $50 million to $60 million of of equity in that project.

We are the same and with some Boston projects that have the same that we could look at it takes three which will coming online, we probably have $60 million of profit in that deal or equity that will become the foundation pieces to build at least one of those towers.

Gotcha, Okay. Thanks, a lot. Thank you.

Thank you.

Questions come from Daniel is now of Green Street Advisors. Please go ahead.

Good morning, everyone. I, just can you talk a little bit more about the changes in the energy estimates are any of the reductions are result of the feedback received on the assets or marketing or is this kind.

Skating to the PUC on base based on where you see general market conditions.

We take a pretty rigorous review quarter to quarter, and we do a really deep dive into year end, obviously, because you follow you follow.

10-K versus the Q.

The cues, we basically use a couple of things asset sales, we look carefully at what has transpired in a quarter, but it's more of an adjustment periods will again numbers in saying look is multi up yes, we'll get some of things happening in office, let's move down we're going to look at as we go through the sale process I just laid out we'll get the numbers we get.

And then look at the remaining portfolio and probably take a very very deep dive on risks on this year end, we'll have the time.

To do that and then you can expect if I look at the NPV is.

Being.

Well for whatever is as of the information we use now anywhere in the spend more time in more depth depth, which will go through things that will looking at now.

And that can you frame year over year net effective rent growth for some of your office exposure, particularly for the suburban assets.

I apologize that you came in order to Blowmolding that one Oh, yeah can you frame year over year net effective rent growth for your office exposure, particularly for the suburban assets or marketing.

On the suburban have been relatively the same line is the overall metrics.

We've been getting some good roll ups in places like models and we wish we put a bunch of money into Metropark does really well for us.

We got some good things in parsippany.

And we've had I would say that tells that we've invested maintained our cash flow growth and it's become somewhat more stabilized and we get $32 today in moments, where when I started in this company. We probably 26 to 27, you picked up five metropark to 30 738 down market. It used to be a 31 short hills is relative.

To be flat, but we get some great numbers, there and people, we still can get roll ups and possibly we probably moved from a 22 low $30 market. When I look forward, but I don't think is existing there is that much more movement, which is one reason we're looking at basically shutting those assets, we've stabilized and we put money in now we should take that money and we deployed into assets, we think can grow more Pacific.

Really.

And just just last one for me or are there any other de levering actions being considered.

Duty issuances on the table for 20 to reduce that.

No we're going to happen is now have outlined the strategy before when we get to the REIT portfolio, which Jamie Feldman might put out as a multifamily portfolio you either have a spin and what you do a recapitalization in order to going at the right level.

All that company to get the right amount of money.

But to recapitalize today to raise equity on a portfolio that you still shifting through is I think a fallacy in a false before a force you Scott.

No equity raises in the foreseeable future other than what we do it and with the rock point people, which is basically at any the which is useful and productive for us.

Excess thanks, guys.

But you have a nice day.

Thank you.

Questions come from Jason Green of Evercore. Please go ahead.

Good morning, just a question on New Jersey incentives in your opinion being closer to this what's the downside risk for how long this incentives process could play out.

I think I.

I think if it goes past the first quarter. It would be shocked I mean, I think they they continue to make proposals, which the governor is there a bump but can they get to a short ended at spectrum as people really do believe incentives need to be done.

You can see that the economy is slightly slowing of course, United States of government, obviously, the treasury cut rates yesterday, you have to be somewhat.

So we hope truly opaque not to look and say at the Governor's level, Hey, I should have an incentive program nor the secure jobs I think he wants it I talked to see the people he's he's pro business and certain modified scale. The center President has a different view I think the to them need to come together and reach an agreement as I said in my role.

Welcome to both Democratic healthcare institutions, which is the legislative Senate and the Governor we have the assembly men get a we elected this is coming to stay in a general election, I think entities that election, I expect to see activity because you have reconstituted houses.

Got it and then just on co working given some of that we work difficulties you talked about expanding a co working tenet. How are you thinking about those deals given some of the fundamental business concerns that have started to come to light.

I think the name that we're thinking about it has been in business longer than we were often has always been considered to be relatively to credit I just didn't grow as rapidly I think we were Ics problems came from both growth and management obviously.

And I just take the and my comments there, we're looking and saying is co working in a business market. The size is very little of it.

We would have the only location. So we would have in a pump market of 20 million 20 million plus square feet you'd have probably 120000 I mean, it's not exactly open what New York City has which is a lot larger so I feel pretty good about the addition.

Okay. Thank you.

Thank you.

Next question comes from Comcast.

Please go ahead.

Thank you good morning, guys.

Couple cleanup questions here first you pulled harborside one out of the operating portfolio.

This quarter, which I assume means you got the Deutsche Bank space back what does the next steps on that asset and how long. It. So you can start kind of marketing not just the shell has to be done get to put in that additional capex or is that somebody that can happen kind of part and parcel with a renovation.

So we've done towards the last few months.

One of the times, we've mentioned is looking at that building because in the way. It lays out if you go by the building today that written a sides of it off the panels have been taken down in his new panels going up we expect to have that we skin, it's already been totally demolished or a substantially essentially demolishing side, we'll be putting a new bathrooms and elevate into the next couple of quarters, we've been building back on.

Online as quick as possible, we think given its location at the photos a path attached to vary.

And actually would be brand new space effectively it would be something that'll be well rented hopefully well sought after by by tenants.

Got it might you had mentioned in your opening remarks that kind of all Capex was already accounted for so I assume that includes that refresh as well correct.

No I said capital for the multifamily division capital for that is ongoing we spend it quarter by quarter, we spent probably about 20% of the numbers so far.

If there will be played out over the next several quarters and we have the cash want to basically pay for it.

Okay. So that comes out of a retained cash flow God.

And then.

Marshall One question just in the resin I know there was that NOI roll down at monotone M. Two obviously because of the unit refresh.

But it looks like it was a bit of a roll down to at so Ho law and it was my understanding that this is kind of that's the first generation of leases that were rolling off that there was a those rents were kind of a little more promotional to fill the building up was that just kind of.

Onetime lumpy results or rents kind of rolling down there in the second generation.

That's a whole is really not enough same store number.

Because we just bought it in April those rents are rolling up basically was with a beneficiary of the discounts. They gave when we bought the building that's worked up relatively well for us. It stays is 96% occupied isn't as of today and rents are moving up nicely I mean, there'll be some things have to go through and find unit said.

So people don't love when they get anything about the repricing other people love the more but it's one of the hottest pulled accident and I'll city in the summer time.

We have some new retail options are going to bottom of it the monochrome on bad tonnage amenta on on perfectly on point, we're basically renovating those units we've taken out 20, something a month turn them over redo the flaws.

Back splashes for kids is cabinetry basically turned into a new working appointment as.

As you know and because your local Avalonbay has planned to put across the street from a holdings at my Bad Monaco.

Building new store approval on I remember, Steve will see plenty about approval the 950 units.

69 stories 525 unit called Raj because he does square for the retail things and I have to cross over six to 700 million Bucks the way, we we price out deals.

Yeah. They believe they are trying to their sort of lead okay. Great views at the taxes to projects. They currently own but those rents and I have to be in 60 is in order to justify that new construction as Marshall shaking his head to me so well across the street in the high Fortys, We think if we renovate IL units when they come online in three years from now we'll have a nice little complement and enable would.

Really change preparing for that.

That's a fair point, Mike what kind of along those lines too.

Yes, the newer stuff that you're going to be doing whether it's the next phase of irby, which said that maybe at the kind of different product type, but definitely when you're looking at plaza eight nine.

Would you get into the ground and complete before Avalon or is it going to be kind of a race to the finish there.

I think it's both of vessel by come at the same time, but we keep capital track as you get closer to the water as you know time, there's very few sites. We on most of them we have quite a number them. So the Charlotte and Crystal comments will be done first is to projects one by cushion there one by Albani's Mako.

Silverman.

I growth Street on those are the only project I'm aware of Avalon has to still go out and by that job is a lot of work to do they have a lot of prep work to after basic cut off a funnel building in order to make a site equivalent I think we'd beat them out of the ground. All these different product and we have some other divisions, but the market is absorbed these units and a phenomenal rate and.

It would be excellent alternatives, so I feel pretty confident each building its headed creates a great esensor place in Jersey City look in long Island City first on instead, others too many units now to keep running into units that's creating a sense. A neighborhood same same concept battery Park city would be another example, more is actually better.

[laughter] understood all right. Thanks, Mike.

Thank you.

Well take a follow up question from a monumental Korchman. Please go ahead.

Look at Threeq.

Trick or treat which one is it.

And again as cost so maybe just maybe it's you pretending youre Michael Bilerman, It's really Manny doing your voice that would be interesting actually forget it.

Well actually I want to dress up as a tenant looking for space I don't know if I'm going to go to Jersey City, though.

Yeah.

So on the 600000 does that take into account any of the 400000, that's rolling 20 wants in terms of those tenants renewing or that separate from those discussions.

Separate and when we have we're having good conversations and those tenants and 21 direction, we think it on a stay on them.

I guess can you talk about.

The tenor of the conversations where they are in the pipeline.

Sure just to get to give it a little bit more meat around that 'cause. It obviously, if you're able to get that leasing would be a dramatic change to everything.

Shipping company is somebody has looked at the space for the last couple of years I think would it make it very competitive offer with trading paper on that now.

We have received RF piece for both for the last two tenants, which is the two financial companies.

And that's related to meet event and I think I think so we'll get some more things coming out and as and I got some good space to show people. So improvements. We've made are now coming to fruition people like division that Weve reenacted.

And what would the timing of these leases that you're discussing or these a 2020 tight start or something that's further out.

The two larger ones likely would be 21, because they those big companies come out to you 24 to 30 months in advancing because of the size and complexity of the move. So this is something that are about 18 months out so the timing document or whatever we would have to build out that space, which is manthey because they take it all in one shot.

Yes, 100 was we work actually.

So the last time, we talked about that the 50 still ongoing for 100 was we work.

Okay. So that's not happening.

Thank God for that maybe the best deal that was attributed to others.

Okay, all right. Thanks.

Report on it and if you want to ask your question on it then we can and that conversation on the call. So the special Committee was formed in June and had four members laid out its Frederic criminal Maryann will come on.

My head of might what it could be might lead director Albion account had Lisa Meyer is one of my new directors Who's had to step off the committee because of work needs and we basically put on Dr. Irwin Reed, who runs by governance Committee. So they started work on the taking the work to hoping to report to the board in Middle of December at the 19th meeting they've had a financial advice.

I'm into you're going to progress down it sounds like you're embarking on continuing asset sales and leasing is there a working on.

The strategic plan.

The second farm is going to basically look at Merrells work give another form of opinion basically kind of belt and suspenders, we have JLL updating on individual asset numbers as I mentioned before for when I talked about looking at the end of the evaluations.

Under on taking every every possible.

And then when the committee has one member from the activity slate persist Marianne.

Well the same for example, and on the works email works Michael works open for business everything works well good.

Alright, perfect. Thank you.

Mike had a great day enjoy something right.

Thank you.

Thanks, I guess.

No that's not that's how they do they will do.

Report to the board and the board will undertake a deliberate conversation about what weve under what thoughts have come out and we'll make a determination about update on strategy.

Okay.

In your mind I mean, what gave you differently today than you've been doing in the past.

Well I think you could advance some conversations I think that gives more credence to it and also on delays the field people had about all this companies not open for business. It's not looking after the best interest to shareholders I think those will be dispelled I mean, when the special Committee was formed the thought was there was that a conflict right at the Max had on do control over the ball.

So both street propose for independence, which began along very well talented people. We elected to I was a new one and then I consider myself, obviously independently someone else when those getting some independent and then Rebecca Robinson, whose adjoin to work with who has proposed a year before so we have a newly constitute the board I also would like to point out among them minus.

Then he is I got a one rating from ISS onboard governance, we went from eight to a one which is pretty remarkable given the history of Mack Cali right. So one ranking we have.

By female direct is one of them runs by comp Committee I have a distinguished person Who's African American who runs Mike Governance Committee and I have basically a chairman who is not as CEO . So we put all requirements are having the best practices.

Actually I think you'd asked a different question, but that worked out pretty well.

If you just talk about this structure of the co working lease you're working on it. It is it a revenue share is a straight not base great great <expletive> .

He is it like southwest.

It will be more enterprise West was we would that building before.

And there will be that's what we think the market needs and I think that has a decent T.I. package, but we got a very long run schedule. Good growth in it made up the differential I would say the ti package might be under $50 more than I would have normally gave when I thought it was a good use and looking forward to having a type of.

I suspect it's a good markets for that type of tenant because you can get relatively modest cost of space and be very close to Manhattan to commute. Jamie's example, if you want based.

Merrill Lynch and you wanted to have a co working spot we will be a good choice review you would coming from short Hills Park here work at the office and you could pop into the city as you know rather quickly and we take eight to 10 minutes.

Enterprise kind of short term leases is here to say I mean, what's your appetite to do that on your own it.

No no.

Sounds good and good now good I wanted to work with a pro.

There the difficult enough to know that they're going to what they do we think with a good tenant we dealt with them before we had a number locations. If you were going flat.

Okay, No I guess, what I'm asking is would you entertain even direct like shots or at least because now it's in that space no.

No I am a focus guy that's out there right focus for me.

Right I don't think that would be a good business model for us we're doing some prebuilts.

If it's interesting thing. This does my my thought process and one of one Hudson was always a big tenant building.

We're finding a phenomenon when people coming in in 115, 18, 12000 square feet partial force. They usually tend to be people, who are local so guys, who move out of the city by a brownstone in Jersey City, one of one of business here for 10, 15, 20000 square feet. So we think about doing some prebuilds full floor about 30000 square feet that.

Break into maybe seven to 10 units.

But that's about the extent of our thinking on the subject.

Okay all right. Thank you.

Well the best have a great day. Thanks.

<unk>.

It's a question.

Speakers for any additional or something.

We thank everyone for joining us on this Halloween hope everyone has a very safe day and enjoy themselves and we appreciate your time and attention. We'll see you at May read in a few weeks.

Before discussing our conversations thank you so much bye bye.

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