Q4 2020 Mack-Cali Realty Corp Earnings Call
Good day everyone and welcome to the Valley Realty Corporation fourth quarter 2020 earnings conference call sales call is being recorded at this time. I would like to turn the call over to our service, please. Go ahead.
Good morning. Thank you operator. I'd like to remind everyone that's certain information discussed on this call May constitute forward-looking statements within the meaning of the federal Securities Law. Although we believe the estimates rejected the new 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 wage for risk factors that impact the company with that. Please allow me to introduce Maryanne Gilmartin mack-cali board chair and interim chief executive officer. Good morning all thanks for joining us off. I want to start by once again, thanking the entire team for their continued dedication to the company through a very difficult year. We have remained focused on the execution of our strategic initiatives while navigating the challenge of the pandemic in twenty-twenty. We made meaningful Improvement on our non-core assets sales and have continued to work to strengthen our balance sheet. We absorb the pandemic LED Market disruption on the residential
Outside and are beginning to see signs.
The stabilization we made exciting Headway repositioning our Harborside campus across the company. We showed a willingness to embrace change both in leadership. And in the alignment of the companies priorities to ensure continued progress in the years ahead following the completion of the work of our strategic Committee of which I was a charter member when I first joined the board in 2019, we embarked a diligent plan to sell all of our non-core office assets and to exit a number of land positions and Residential Properties outside of our core markets. This initiative was successful in generating $352 million dollars in Gross proceeds from non-core office and four hundred and thirty-seven million in Gross proceeds from land and select residential sales all in 20. We remain on track to complete the cell of the majority of our remaining non-core office Properties by the end of the second quarter. Thanks to the hard work of Ricardo and his team at that point.
Mack-cali will be the owner of six large water front office properties strategically located in an office campus setting and a and a solid residential portfolio that generates the majority of the company's revenues and that operating income regarding our commercial portfolio. We are increasingly optimistic about the Strategic repositioning of our Harborside Holdings. We believe the corporations will be returning to the office later this year and then employees are eager to give up their zoombie existence and reconnect with old friends and colleagues on the residential front. We now believe we are at or close to an election point and we are seeing leasing velocity ahead of plan in our newest delivery the emery in Suburban Boston. We just began to lease option an attractive new residential communities the Optima a Short Hills and the Capstone important. We are very pleased with the early traffic in the interest in both.
With that I will pass the call now to Dave Santana Dave. Thanks Marianne. We reported core ffo per share for the quarter of $0.16 per month versus $0.44 per share in the prior-year. The year-over-year reduction is due mainly to the impact of our Suburban asset sales program and then packs from the pandemic on our hotel parking brake assembly operations the Waterfront office portfolio had a cash same store. I know I decline of 4.4% largely attributable to last parking income and expense recoveries on the revenue side real estate taxes in the fourth quarter of 2020 against a low fourth quarter 2019 resulting from lower real estate tax Assessments in the Waterfront portfolio in 2019 commercial will go into in more detail the multifamily portfolio experienced similar operating pressures in the New York City metropolitan area that others have reported but we have seen indications that we may be close to a bottle.
Rent collections remain stable in the quarter averaging 97.1% in our office polio and we're ninety-nine percent in the multifamily portfolio bad debt expense remained wage remains in good shape bad debt expense in the quarter totaled $489,000 half of which related to retail tenants in the Roseland portfolio. And we also took a $200,000 write-down a strong mind runs with $131,000 relating to discontinued operations properties and 69,000 to Roseland retail tenants. I'm transient revenues our hotel operations remained committed to the Residence Inn portion of our dual flagged hotel, which is running above even a break-even. However, including the closed on View Hotel, the fourth quarter ebitda loss was $838,000 off. We expect both the on view and Hyatt Hotels to remain closed for the first quarter and we'll evaluate reopening later this spring.
parking revenues
We're off by $800,000 sequentially and remains subdued early and twenty 21%
on the office leasing front. We have four hundred eight thousand square feet set to expire on the waterfront in twenty Twenty-One as we have mentioned at Plaza for a TD Ameritrade moved out of a hundred forty thousand square feet of space in January and will vacate the remaining forty four thousand square feet of space at the end of September that will leave Whole Foods Grocery as the only tenant in the building and we are all marketing the asset for potential life science use keeping in mind a wide range of structures to limit our need to make material Capital commitments to the project our second largest move out date Plaza 5 with natixis, which leases seventy-five thousand square feet of office in twenty-six thousand square feet of storage and ancillary space all of which is expiring at the end of July off the end of July the balance of 123000 square feet is in various stages of leasing which ad will update us on
Turning to the balance sheet in the corridor. We reduced our line balance to $25 outstanding with proceeds from the $204 million dollars of assets sales. We executed in the quarter back in September. We exercise the first of two months to six month extension options on our line of credit extending our maturity date to July of 2021. We plan to execute our second six-month extension to January of 2022 later in March. We have only one mortgage maturity in 2021 a 3.9 million dollar mortgage on a small retail condo with in Roslyn. Ricardo will discuss our assets progress shortly the proceeds after debt and Ephesians payments from the three remaining Parks will be targeted for corporate debt repayment and provides a basis for the formation of a new credit line tailored to our go-forward asset mix of predominantly multifamily assets. The net debt-to-ebitda metric was 15.8 times at quarter-end wage.
Reflective of our vacancy hotel and parking disruptions in a nearly funded nine hundred six million dollar development pipeline that is in the process of coming online this year metric and I see if she does not tell our complete story of the progress. We have made towards de-risking our balance sheet. When I joined the company three years ago. We had one point four billion dollars in corporate debt with a request to the company supported supported by a hundred forty-six. Mostly Suburban office properties today are only remaining corporate debt consists of an eight million dollar balance on our credit line in our to bond issues, totaling $175 billion dollars outstanding which are earmarked for Redemption as we complete our Suburban asset sales. The execution of this plan has come with dilution to ffo per share. But now I'm back up positions the company to grow from a smaller base with 24 residential Assets in six Office Buildings all with locations that have Superior access to mass transit and we'll have an appropriate Capital wage.
upon
Recent of the Suburban asset sales in the second quarter. We expect we will derive approx 55% of our noi for multifamily and 45% from our office portfolio month now under outlook for 2021.
With the current pandemic uncertainty affecting our hotels parking volatility in our multifamily operations and the timing of our Suburban asset sales we feel it is prudent to provide our own not only for the first quarter of twelve to Fifteen cents. We will continue to evaluate the Merit of providing a longer-term Outlook as we move throughout the year. I will now turn it over to Ricardo cardo so our chief investment officer. Thank you David and good morning everyone. I am pleased to announce that we have completed another busy quarter on executing our strategy of selling non-core Suburban office and residential assets sales in the fourth quarter for both office and residential totaled approximately 520 million despite the early impacts of Covent on the capital markets the state of New Jersey finished 2020, which is over 2.3 billion in office sales, which is in line with historical volumes.
Sales of our Suburban office Assets in the fourth quarter totaled $94 million comprised of office properties in a land parcel. We successfully closed out the year with total of $350 million on our non-core office assets subsequent to year-end. We exited the Princeton office market with the sale of 100 Overlook Center for 33 million.
On the residential side in the fourth quarter Roseland completed the sale of three non-core Residential Properties, totally 1202 land Parcels value of those assets totaled $428 million in total The company generated close to $83 billion of net sale proceeds from his interests in the residential a month after Mortgage Debt retirement as David mentioned most of our sale proceeds from the past year have been used to pay down or credit line with future sale proceeds earmarked for them down are unsecured Bond debt in furtherance of this plan. As of today. We have four transactions under contract totaling over $600 million on 14 Suburban office assets this group of properties under contract comprised over two point six million square feet. We anticipate closing two of these transactions are Short Hills and Metro
Portfolios by the end of the first quarter with the gross price in excess of $500 million the two remaining transactions total approximately 100 million and are scheduled to close in the second quarter. The completion of these sales is expected to provide over $440 million in net proceeds after payments after debt repayment and suck costs.
In summary, we are pleased with our progress of monetizing our non-core assets at a rapid Pace, but most importantly without sacrificing value. We also continue to make progress on finalizing sale terms on the remainder of our non-core commercial assets including JV interests in several offers properties retail assets and land prestige in our non-core market and with that I would like to turn the call over to Ed Gilman.
I've had a busy first four months back at McCallie despite the pandemic we've begun to successfully Implement new approaches to unlock the potential of Harborside.
Based on discussions I've had with tenants perspective tenants Brokers and other Business Leaders, especially since the first of the year, I expect the vast majority of companies will return to their offices later this year off with many returning over the summer or shortly after Labor Day people Miss camaraderie mentorship and collaboration working remotely and companies are frustrated by their inability to establish and maintain your corporate culture via Zoom.
The layout of office space may change and the work week May evolve, but people generally appear to be eager to get back to the office.
Harborside is in a terrific position to capitalize on this trend mack-cali has great Assets in the best location in Jersey City with the assistance of our CBRE leasing agency team. We are pro actively engaging the market in addition. We anticipate the state of New Jersey's new incentives program will provide additional support to our leasing efforts and makes Jersey City even more competitive compared with, New York.
upon completion of the renovations to Harborside one the buildings
we're still facing challenging market conditions, but we are optimistic with the returning to work in sight the desire of employees to return to the
The office the State's new incentives program the renovations that are beside one progressing well, and of course the vaccine being more widely distributed, we are well-positioned for the future months and look forward to keeping you all updated on our progress. Thank you. I'll now turn the call to Marshall.
Thanks ad in the fourth quarter Roseland operating portfolio finished at 90.2% lease as compared to 89.5% last quarter leasing traffic exceeded the same period in the prior Year's this leasing momentum continued through January as well. The improved metrics have been a result of the following initiatives. We prioritize capturing more leasing traffic with added concessions which increased occupancy at the short-term wage is a net effect of rent. We implemented more competitive pricing. We continued or increased online marketing campaigns and we increase incentives to improve existing resident retention, whereas percentage long-distance have improved recently see momentum will be realized in the second quarter as prior quarter concessions burn off and cash flow will improve moreover as a result of losing momentum. We are strategically reducing special select properties in the quarter our same-store portfolio, excluding to assets under renovation experienced a decrease in revenue of 9.5% and Ally however, decreased 24.1
1% as a result of increased expenses and in particular in $850,000 from a pilot burn off in Jersey City for the entire year of the same portfolio generate a negative noi of 6.2% driven from a 1.1% decrease in revenues with respect to our Port Imperial hotels The Ivy remain closed in the fourth quarter, the Marcus Samuelsson dining operation remained open having generated gross excess of 1 million dollars in the quarter despite the oil in New Jersey lodging Market. There is no immediate plan to open the I view guest rooms the Residence Inn continue to operate and finish the cord with average occupancy of 60% life and positively but the Amory 326 unit community in Malden, Massachusetts stabilize in the fourth quarter this asset least up entirely on twenty-twenty and missed the pandemic achieved the highest rental market.
You're in Rosen had four main construction projects can price of 1616 units. The company is fully funded as Equity commitment to these projects which are projected to generate a stabilized noi of $56,000 on The 6.15% Leverage yield subsequent to quarter-end two of the communities opened the update in Short Hills 193 upscale Community targeting affluent empty-nesters in a New Jersey and its first month of leasing the property signed 49 leases representing 25% of the overall project and 30% of its market rate inventory. We also open the 360 in a Capstone Imperial this property is achieved initially success of 44 units or 12% and its initial three weeks since opening the remaining construction projects include the River House 9 at Port Imperial a 2095 unit apartment house scheduled for delivery in the second quarter and the Charlotte is 750 unit Tower located in Jersey City's Waterfront, which will open in the first quarter of 22.
Roseanne secured to signify
Get financing transactions in the fourth quarter $165 million-dollar refinancing at Boulevard seventy-five, which have been the platform's most significant short-term maturity at a rate of 2.9% and the $72 construction takeout facility for the emery at a rate of 3.2% furthermore the operating properties. We sold in the fourth quarter were sold at a blended 12-month trailing capitalization rate in the low threes this page further underscores. It continued strength in the multi-family nav in spite of covetous packs. We have no immediate construction start scheduled, but have to shovel ready development projects the park at Port Imperial in Harbor on the Hudson Waterfront in Jersey City. Both are fully planned and permitted to start when the company election initiate new construction starts while twenty Twenty-One was still present challenges to both occupancy and net income recovery. We do believe the last 90 days reflects a turn and notice will improve and in our Marketplace and should continue to demonstrate steady income and I can see growth going forward with that. I will turn the call back to Marianne.
Thanks Marshal. When I joined the board nearly two years ago, I believe that I believe that the right strategy and Leadership. We would unlock unrealized value at McCallie. Thanks to the dedicated and talented team at the company and the the strengths of our assets. I believe we are well on our way to achieving that Vision. Well now open up the call for questions.
Thank you. And if you ask you for a question, he signaled by pressing star one on your telephone keypad. Again, that is star one key for a question.
We would love to take our first question from Derek Johnson of Deutsche Bank, please go ahead.
Hi everybody and good morning, you know across all office REITs. Were you seen a paucity of leasing activity? And you know your water front office really has been no exception here long. How long do you think it will take Business Leaders to refocus again on there real estate footprint and if they do decide to reduce New York City office office Footprints, do you Bank your Waterfront assets can actually see a net benefit, you know, just as a quick example, I've been Conde Nast was reported recently in the press to be considering a smaller office footprint and you know did not like the Jersey City Waterfront as an alternative. Are you seeing any of this demand, you know from them or from others?
I'll take that first. Thanks for the question. I'll begin by saying that we have a level of activity presently in The Harborside properties that is encouraging and it's been a relatively busy dark given that we don't think that there's a lot going on the other side of the river and we think that has a little bit to do with the desire for companies to remain close to the urban core but perhaps to be at some standoff distance would still be well served by mass transit and all the amenities that the Harborside campus brings. So as we retool are messaging revamp our marketing efforts off and continue to reconnect with the brokerage Community. We remain encouraged and there is presently a level of activity of approximately 110000 square feet of leasing office, which we are trading paper and that is encouraging. But of course, we can't be assured that we will complete those transactions. And so we're going to be very modest and careful about predicting and of course.
I'm not in a position to comment on.
On the Conde Nast situation as we typically would not comment on any perspective tenants or leasing transactions prior to lease is being signed Matt. Kelly has the best assets in in our office location in Jersey City. So I think it's fair to assume that any tenant that's looking for office space in Jersey City would be speaking to us.
Add one comment about the if you'd like a dark, I'll just let Ed talk about return-to-work mentality and what we're finding were in close touch with all of our current tenant interesting over the last few weeks. We've seen an uptick in in-person tours and in-person meetings, which really had been very rare since the start of the pandemic. We are engaged in conversations with a number of our existing tenants and prospective tenants in proposals outstanding. And as you mentioned we have leases outstanding with several tenants for more than a hundred thousand a hundred and ten thousand off of space. It seems like the market has reached a point where tenants are recognizing that the return to work is going to happen this year and they need to be ready for the return to work for the first time. In fact, sometimes it seems like tennis or more willing to make real estate-related decisions. Whereas during the early stages of the pandemic certainly it really shied away from making any decision. They had to make except for dead life.
With him delay or some other critical need for a decision.
No, thank you for the color. That was very helpful. Just switching to the residential. You know, how is the current environment impacted the residential development, you know if line or Outlook with your land bank and you know, how has the Capstone? I know it's leasing up. But you know, how is it performing versus underwriting and and clearly riverhouse 9 a.m. Is basically right behind it. So is the demand there and how much given lower rent rents have development yields compressed in these projects. Thank you God. I'm going to let Marshall take that question. Sure. So the first is you have a few questions here to respond to so certainly the lease up that we've had to date of the month and the we started construction on three years ago was going quite well, actually the unreleased up completely Short Hills is least very well very quickly at pro forma the emery by the way at least over pro forma caps.
Stone has been a very pleasant surprise. We've been hitting our face rent pro forma and have had a very good traffic and capture percentage for the opening month. But we do we do give it away and free range as does everybody in our Marketplace. I'm historically when you open new buildings, you have one to two months free rent in the normalized market in this pandemic Market. Those numbers are generally three months, but we try to average 15 month lease. So we have almost a full 12-month Runway of Market rent being paid by our residents. But today that has been the case in Capstone. We've opened that up with ninety days, which is what we performed cash flow projection. So it's actually exactly where we projected it and and river house and I will open the same way. It'll open up with a 90 days free rent on average fifteen month term so long. So for us fortunately we've actually done well actually as well as we possibly hope for given the market place on the opening these new units certainly stabilized yields cuz of COVID-19.
Will not be affected in new construction.
Because all that free rent is absorbed in the capitalization of the project on our interest Reserve. So as long as we maintain face rent, the stabilized you'll need to ask us coming out of construction will sustain a loss in around 6% 6.15 somewhere in that yield and as we've mentioned with the sales we made this year and what we're seeing with other properties sold in the marketplace cap rates on apartment houses have never been better than they are wage today. So I think the return spread between new construction and value still is a minimum of a hundred fifty basis points. So it's still very very accretive to to build versus buying a having said that construction pipeline starts for us at the moment as we said before we're waiting before the board to make a decision on when we want to capitalize new starts. And so we're ready to go with projects Thursday. We are selling a few non-strategic landholdings and when it's time to start again and somebody gives us a check book will start again. I'll just round out what martial saying by saying we believe the name.
Is important and we strongly believe in the value of the multifamily Assets in the markets, we build and so as we address our debt in our corporate line will do it with an eye toward potential growth and unlocking the potential are very valuable land assets. Once the markets corrected for the Covent packed. We think there's tremendous value there.
Thanks, everyone.
We want to take our next question from Steve soccer of evercore is I can go ahead.
Thanks. Good morning. I just wanted the first Circle back on the Suburban assets. Make sure I had the numbers straight. I think you Maryann or Ricardo. It talked about Thursday at two point six million feet in for transactions that whereas a little over six hundred million, you know in the supplemental you list about 3.3 million between the class A suburban the Suburban so kind of leaves about seven hundred or seven hundred thousand people left to sell that that right. And is there a kind of a rough estimate of kind of value on that seven hundred thousand feet?
Ricardo sure, the the the $600 million of two point six million square feet are transactions that we have under a hard contract. We are working through a number of other transactions that we are under contract but not quite not quite not quite non-refundable and others that we are close to executing final psa's or purchasing agreements.
Okay, so is your expectation record of that kind of remaining chunk would close this year just maybe later in the air or do you think that spills over into 22?
The $600 that I mentioned in my in my in my earlier will close by the end of the second quarter. We have another call it a hundred and fifty million of you know, one-off single transactions that we feel will be able to capture a good portion of those sales in the latter part of the year, but also trickle some of it will trickle into 22 because it includes land land transactions. Also we're we're still working through various entitlements to maximize the value of the land before executing a transaction.
Okay, great. Thanks.
You and then I guess between days Dave's comments on the leasing and and adds again if I have my facts right you said there's about 480,000 rolling but only about a hundred and twenty-three that's still kind of up in the air. So it kind of implies 270s moving out. I guess maybe I could you just comment on the remaining $123 and of the 110,000 where you're trading paper is most of that for the one $23 or is there a still kind of a lot of indecision on the kind of remaining twenty-one expirations?
Work as you can imagine, we're aggressively speaking to all the 21 rollover tenants. In addition to that were talking to the tenants in the near future Beyond 21 that are rolling over so we are in discussions with a number of the wage, uh, additional Twenty-One rollovers, but the hundred and ten thousand square feet of lease transactions that we talked about our separate and aside from those
Great, and then last question Mary and I guess there was really no comments in your prepared remarks or in the press release just about the full-time CEO search. So could you just maybe update us on that process?
Sure, as you recall, we indicated as a board that we would be aiming for a first quarter of 2021 announcement and I'm happy to report that an announcement on the permanent CEO is imminent and so you can expect to be hearing from us soon about that selection.
Great. Thank you. That's it for me.
We'll take our next question from Richmond sissy, please go ahead. Hey, good morning. Everyone some questions for you here. Can you get off updates on what the new New Jersey incentive program actually looks like
Sure, the new program is named emerge. It's a tax credit program that rewards new tenants and retain retained tenants that move in recently rolled out by the state number of the tenets that we're talking to are glad that there was finally been a new program put in place and are looking forward to take advantage of it.
And then I think you guys mentioned doing life science at 1 Harborside. Is that based on demand you're staying or tenants of approach to you and now you're going to make the space, you know Apple watch them or is that just hey life-sign seems to be a good sector others are doing it. Let's do this, too.
Many thanks for the question. So it's Harborside for a formerly known as for Amy renamed it Harborside 6. And again, we are looking to diversify the offerings here. It's everything from you know, pre-built to large-scale single-occupancy abilities at Harborside one. And so in the quest to provide the market more options, we studied Life Sciences capabilities of that building and did a deeper dive into the potential need for increased investment in infrastructure, and it's quite positive because the floors are generous and there isn't much by way of that product offering here in the market and that is proven to be an interesting idea because we have been in discussions with a few may be partners in the life science space and because the building is so well-suited and it's, you know effectively available at 100% available. We will continue to discuss a life-long.
conversion opportunity
With partners and as I indicated last the partnership concept is important because of the capital needed to be a true life science offering on the enhanced Korn shell and so, we are mindful of the fact that the capital will need to come from somewhere and therefore we're looking at your future partners.
Thanks Ricardo. Where does 111 River fall into the disposition find out?
Right. Now we are focused solely on the selling of the Suburban office assets. We will take you know, we will review we continue to review our Waterfront off assets right now 111 River. We are not currently marketing for sale.
And then finally one for day I told you I had one for everyone gave you talked about we doing or or you know, thinking about redoing the life a lot of credit later this year. I guess. How do you think about that until tality? Just giving them where you're going to end up on a multi-family and office perspective. Are you going to need more Equity just to get things done. Is it going to be a smaller line just to help us frame what that new line might look like
Thanks Manny. Yes, I'll help you frame that so I think let's first take a look at Roseland, which is where will mostly be up to the Suburban office sales Rose lands in a joint venture. We use mortgage financing there. When we develop most of the equity we have is already in the land that we own and control. So a small portion of our new line would be allocated over to Roseland to help them with their kind of General Corporate purposes and needs but the larger line one, I'll be very clear. We do not need to put any equity in it'll be secured by R6 assets on the waterfront four of which are unencumbered. It'll be a smaller line and it'll be you know, really based more on mortgage metrics and availability than corporate covenants. So obviously being better Thursday night. Our Capital needs will be much more modest when we're down to the the six office assets here on the waterfront Manny and we'll have separate set-asides within the line for t i and Cat-Back so dead.
A smaller line secured by the Waterfront with some availability for our Roseland friends and partners if that makes sense.
Great. Thanks, everyone.
One sec or next question from Bank of America, please. Go ahead.
Good morning, and thank you for taking the question Marianne. Perhaps you can share your thoughts on.
What it would look like to spin off the multi family business, and then just, you know, keep that a score and maybe just sell off the rest of the office and the future. I know you've mentioned potentially the ability to spin spin off the rose lamp business. Do you get proper valuation in the market for what that's worth. So any thoughts on that would be helpful. Thank you.
Thanks Elvis. I've got lots of thoughts on it. But I think the best way to answer that question is we're super focused on the disposition strategy in the suburbs and we're continuing to explore all strategic Alternatives including you know, an entire transaction or partial in off of sections of the business. And so I think the best thing for me to to communicate to Thursday is that the focus today is to show up the balance sheet and dispose of the Suburban assets while the same time the Strategic Review Committee at the board is deeply engaged in exploring all strategic Alternatives and respond back in bounds.
Great, and then just one more on the CEO search. Will the person be an internal higher or someone for me?
As we've indicated my position here is an interim CEO. It's always been my intention to pass the Baton and I'm excited to be doing that and it is not an internal candidate.
Great. Thank you so much.
And there are no further questions at this time. I would like to have the call back to our house.
Thank you all for joining us today. Enjoy your weekend and happy Friday.
Thank you that nice includes the call. Thank you for your participation. You may know disconnect.
Thursday