Q2 2021 Mack-Cali Realty Corp Earnings Call
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Good day and welcome to the <unk> Realty Corporation second quarter 2021 earnings Conference call.
Today's call is being recorded.
I would like to remind everyone that surf information discussed on this call may constitute forward looking statements within the meaning of the federal Securities law.
Although we believe the estimates reflect on these statements are based on reasonable assumptions, we cannot give assurance at the anticipated results will be achieved we refer you.
The company's press release annual and quarterly reports filed with the SEC risk factors that impact the company with that I would hand, the call over to my <unk> My colleagues Chief Executive Officer.
Good morning, and welcome to on second quarters once he's going through on the earnings call.
I'm doing good day Bye Davidson Mokoena I'll C S I.
Mm pizza share that we had another actor quilted you're in which we made significant progress on a number of key initiatives as we seek to unlock value for our shareholders.
We'd rather simplified our business and strengthened our balance sheet, while positioning Iraq that the maximize the leasing potential and streamlining Allentown operations to realize operational cost savings and other ancillary benefits that will address the future success all.
I'll discuss each of these in more detail later.
The U S economy appears to be at the beginning of a strong recovery supported by the government stimulus on high vaccination levels. The international Monetary Fund recently ready, there's 2021 growth projections, it's 7 per cent the highest level since 1994.
However, risks remain including market concerns related to rising inflation levels and the potential resurgence of COVID-19 infection rates and the variance.
We cannot control what the future brings we believe the quality of on multifamily portfolio combined with all day, while can play office proposition mixes well positioned to continue capturing leasing demand as the economy reopens and employees returned to the office.
The rebound in economic activities, particularly visible on a multifamily cold Friday, which now accounts for approximately half of all NOI and I've seen an incredibly strong with surgeons and leasing during the last 90 days.
All 5825 unit operating profit he I was 97.5% vs and 94.4 per cent occupy it as of July 25th up from 92.8 per cent and 89.7 per cent as of March 31st respectively.
We have removed concessions across the majority of all properties and I've started to increase the number of the.
Turning to development during the quarter, we open on the third residential community Riverhouse 9.295 unit apartment building located important period.
<unk>, having any recently come on line the asset was 60 per cent at least as of July 25th ahead of our internal expectations with respect to birth decent velocity and rent level of cheese.
We also have successfully suggest strong levels of anything at all others. He recently completed properties as of July 25th the Optime short hills and the Capstone important parallels on 94 per cent and 70 per cent respectively.
750 unit apartment building at 25, Christopher Columbus remains on track furnishing occupancy early next year.
Starting to office, we are encouraged by the progress we have started to make an leasing in the first 6 months of the year, We signed 87000 square feet of new leases on these extensions on the waterfront.
Who wants to find out that somehow 75.4 per cent at least up from 74.2 per cent at the end of the first quarter with a growth primarily due to a new 52000 square foot decent harvest by 2.
And 24000 square feet of lease renewals on expansion on the side with homicide too I'm on a 1 Hudson.
We also unveiled a repossession publicised campus and.
Goodbye Pedestrianize Hudson Street recreational areas retail immunities and new Jersey's first at a smorgasbord location, all of which have driven plentiful foot traffic the homicide and reinvigorated the campuses both a community hub on what.
Solution for the future.
We also continue to identify ways to advance on sustainability and innovation efforts to become a more environmentally and socially conscious landlord.
As an initial step in this direction I'm pleased to share that all of our electricity usage at headquarters at harvest side to time is now from Philly renewable sources.
You also remain highly focused on our strategic objectives of simplifying the business day and streamlining the balance sheet as illustrated by the disclosure that virtually all of our remaining survivor on us that's during the quarter.
It actually in line without Prepandemic valuation expectations.
In total we sold $387 million, a 1.8 million square feet of suburban assets B.
These cells, including the short hills pool Friday on for $255 million. The river Centuple failure on Red Bank for $84 million on a wegmans line could retail center on hand over for $46 million.
Earlier. This week. We competed this line of 7 Geraldo thumbs for $29 million, allowing us to study reply on $150 million ton line.
Moving to operations here.
During the quarter, we took steps to establish a more efficient organizational architecture that we expected results and operational cash cost savings on up to $5 million per annum on a run rate basis.
We expect these changes along with and talk to the technology investments that we are contemplating to have the potential to drive by a top line revenue enhancements and further operational efficiencies.
We also have bolstered our team with new talent that we believe will help us achieve all full potential is the best thing cause multifamily or not and operates on Jamie.
Jamie and Chili a season multifamily operations leader with 16 years of multifamily experience with J P. Morgan on Carmel Ah multifamily specialist managing over 40000 apartments joined.
Joined us this quarter.
Closely with other members of the team to further optimise on multifamily platform and innovate the needs of all stake holders, while overseeing the third party property management services that we provide to a number of institutional clients.
With that I'm going to hand, it was David Latona, a chief financial Officer, who will update you on on financial performance true quarter.
Thank you ma'am.
We reported choreographer per share for the quarter of 15 cents vs 28 cents per share in the prior year the year on year reduction in court for sure was primarily due to the impact of a suburban office asset sales program and effects of the pandemic on hotel parking and multifamily operations.
This quarter, our team drove significant improvements in multifamily operations underpinned by increasing occupancy net.
That effective rents have stabilized due to lower concessions and we are now beginning to show sequential revenue growth.
On a sequential same store basis, we reported a revenue increase of 1.5 per cent and the sequential the same store NOI increase of 1.4 per cent.
Also in the quarter, we received our share of the sale proceeds from the early tax credit of $2.6 million, which was included in core F. F. O. Historically this credit was received in the third quarter.
Waterfront office leasing team continue their efforts to reinvigorate the portfolio, resulting in 76000 square feet at least compared to 58000 square feet at least last quarter.
The waterfront portfolio incurred a cash game store NOI reduction of 9.6 per cent largely attributable to decrease parking income you over here and previously announced tenant moved us GAAP.
<unk> same store NOI increased by 2.5 per cent due primarily to prior year straight line right right those.
For the balance of 2021, we have approximately 190000 square feet over waterfront office leashes remaining 2 expire.
44000 square feet of which relate to the additional Gd ameritrade moved outside Harbourside sex in the fourth quarter, and 100000 square feet of which relate to and it takes us from about at Harbor side 5 at the end of July.
Looking ahead 2022 has a manageable lease roll with only 100000 square feet expiring and no single at least greater than 26000 square feet set to expire.
I'd now like to take a moment to provide an overview of our current portfolio.
It is currently comprised of 21 operating class a multifamily assets, which produced approximately 53 per cent of our pro rata N Y 1 multifamily project in construction.
R 6 waterfront office assets.
True Romanian suburban office assets, 1 of which isn't discontinued operations are 2 hotels and a land bank comprising 14 development sites.
As our multifamily development pipeline stabilizes, we expect to have embedded NOI growth gradually begin to contribute to earnings.
We will also continue to to derive incremental income as occupancy rises and concessions burnt off and or multifamily operating portfolio.
Turning to the balance sheet in the second quarter to 300 million dollar April 22 bond issue in the 275 million may twenty-three unsecured funds were retired with proceeds from the sale of our suburban office portfolios.
Simultaneous with the retirement of the bonds, we entered into a new revolving credit facility and $150 million from work.
With the closing of 7 Geraldo farms earlier in the week or term loan has now been fully repaid further derisking our balance sheet.
We are left with a favorable debt maturities scheduled with a single $3.8 million mortgage maturity in 2021, and only 1 maturity and 20 twenty-two related to a successful class a apartment construction alone totaling $74 million, which has a 1 year extension if needed. We are pleased with the progress we have made on our balance sheet.
And the flexibility our new credit line provides us as we continue executing on our strategic objectives.
This concludes our prepared remarks, operator can we open the call for Q&A.
[noise]. Thank you.
If you would like to ask a question today. Please press star 1 on your telephone keypad no pause for just a moment to 1 on everyone an opportunity to signal for questions. As a reminder, at star 1 to ask that question today. Thank you.
We can now take our first question comes from many quarters of city. Your line is open. Please go ahead.
Hey, good good morning, and afternoon on you.
You know office concessions remain elevated as witness and you're losing.
Cause that's sort of the the new normal for now and when do you expect them to to come back down.
The morning money.
Thanks for the question.
Yeah, I think it concessions, obviously, all renovated relative to pee covered levels, but does that mean.
If you look at the package that we all set on the but M. G. M. A nice really that that was a very minimal rent free that was granted so read them drive to the concessions really went into the T. I package, so with leasing a level that on a creek.
LOL from a valuable spank Goldman from the non existent massive incentives.
But based on.
Or encouraged me I need to have started to see some traction on that funds.
On on how to see that continue.
Oh, Great and then how about during our Armenian Navy you spoke about expanding the multifamily platform outside of sorts of Corp. In New Jersey, and maybe New Jersey cause base what.
Where do you stand on that is that something you're actively personally on a moment.
Yeah, I I would say really that comment was more centered around concentration risk in on whether to the extent that we do.
Uhm gravitate more towards becoming a multifamily read whether we should be more concentrated and all current market. So on that to new markets and we have a presence in in Boston as you know there were some interesting dynamics on on the job and earnings growth front and an income.
What channel on the comic fund and not market and on a couple of other than not northeast card on so we're at the point, where we're really evaluating.
Potential options for us in the future, but confused on decisions have been made at this point.
Thank you.
Thank you <unk>.
Thank you we cannot move along to our next question comes from Brian spun off Hypercard. The line is officer. Please go ahead.
Hey, Thank you good morning Uhm.
Let me just talk about leasing interest that the the waterfront you know what what does the pipe line of activity look like there's a bit of acceleration in the corner. So just kind of he has some color on what what's in the pipeline in terms of the types of tenant size industry. Thank you.
[noise] sure I think suddenly with the investment that we've made into the waterfront onto the homicide complex that the Senate says that the placemaking initiatives that wave.
Implemented it really is a live walk play campus now and that coupled with the fact that we have a pretty dive us.
Uhm offering in terms of the type of space that we have available for tenants means that it's a pretty varied and diverse group of tenants that.
Is it that Ah shoveling interest and so you know like getting specific it is creative assets financial services professional services insurance technology advertising Entertainment, it's really pretty broad uhm on the requirements simple you give us as well.
Right, Okay, and then I guess just switching over to multifamily.
With with the Apartment's lease over 94 per cent as a few days ago, you talked about you know on tape or in back in session and starting to have a crush France.
How aggressive you think you can get given current market conditions, and you know where do you plan on settling on that on the occupancy from there.
Yeah, well, it's a good good question it really I would say.
We having tape it that concessions on substantially all of the outside.
And having reached leasing is 97 and a half per cent occupancies. It just is 94% we are at that inflection point now where the next natural phase and the evolution of this story should be rental grass. So on a very case specific basis, we'll be working closely with the team and.
On the ground to assess once what's feasible, but suddenly it's an encouraging sign the <unk> the the free boundary and occupancy in D. C over the last quarter and we still haven't seen uhm.
Uhm older constituents that would reside in the apartments return yet so with the borders being shot and.
Office.
I'm still being more of a sort of post September labor day type of an event generally speaking.
Hope with the bold is opening overseas students returning on a wide are returned to the office that's still more momentum on the demand side that could help us help us realize the mental growth.
Okay, Great color and lastly day is there anything left on the suburban office from in terms of sales or does that complete it.
Yeah. Thanks, Brian Good question, So I Wanna make sure everybody understands where all the assets remaining assets are accounted for so they are technically true suburban office assets left a 4 day to haul which is under contract and held on discontinued operations and our twenty-three main street.
<unk>, which is really a big office campus, which ultimately may turn into a lamp I may not but that 1 will probably be around with us a little bit longer than 4 gate hall, but we're down the 2 remaining suburban office asset so really the focus and you can see on our.
And our bullets in on the call is on the waterfront and and the losing momentum there.
Great. Thanks very much.
Thank you we cannot move to our next question.
He is comes from Jamie Feldman of Bank of America. Your line is open. Please go ahead.
Alright. Thank you. Good morning, I guess you have to follow up so 4 gate Hall is that on the market now or you're not marketing that just yet.
It is it is currently under contract.
Okay and.
And looking at the draw the farms cap right can I know the the I always 60 per cent least let me do you expect something similar for this asset.
Birthday is both these assets are located in you know the parsippany on Geraldo, Submarkets, which have a lot of sublease space and due to a couple of murders of some big pharma companies. So we're not gonna give cap rate guidance, but the price per square foot should be in the.
The same price per square foot is a decent way to think about that last remaining sale.
Okay. Thank you.
Not that I had mentioned you know talking about the cost savings and maybe some of the the platform improvements technology investment can you just talk a little bit more about.
That you guys have in mind.
And how that might help the business.
Sure I'll get good morning, Jamie well. So as you know we have an established multifamily operations Potful, we manager right on all sides to be managed.
Phone number is.
Blue chip institutions as well so the steps that we've taken are really on the 1 hand to just.
The optimize uhm and enhance the operational efficiency within which we operate in telling me.
And then equally important be greedy to ensure that we remain go ahead of the card in terms of.
Achieving our objective of being a a best thing Cos on an operator cannot sector and so with that there are a number of potential changes talks about the organizational architecture in hiring uhm.
Uhm, gentlemen, chivvy him I do need will be tremendous at leading that effort for us and.
And on some of the the changes that I mentioned on the technology side will be targeted at the revenue side and more.
Effective the monitoring and managing and controlling the revenue side of the business and some of them will focus on the cost side. So.
So.
They're incremental uhm, we already have a platform. It works well, it's validated by others here uhm rely on us to manage assets for them, but we we really want to make sure we remain best and cost on that we're really at the leading edge of the market when it comes to utilizing technology and and the way that we we all.
Great I'll assets. That's that's really about that has taught me to that.
Okay.
And then David and then when you think about the core portfolio.
Excluding those 2 suburban half of asset sometimes.
It sounds like you still have the T D move out and it takes it in the back half of the year 22, probably less and when do you think NOI bottoms cause it sounds like you you are feeling pretty good about it.
Department pick up.
[noise] sorry, Jeremy do you have any without the feedback now apologize that yeah no you're good.
Alright, so great answers.
Yeah, a good question. So yeah, we have a couple of countervailing forces I I have highlighted the move outs, but are well known a on the Texas at the end of this month and then another 44000 square feet from T. D. Ameritrade. So to the positive we do we are starting to see a recovery in parking income.
Albeit slight and our hotels and we have our multifamily development pipeline coming on line, coupled with the now sequential growth and our residential portfolio. So I think putting that all together I think we're seeing EBITDA starting to bottom towards the.
End of this year and grow going into next year, but this is kind of the peak of the dilution as we were finishing up the suburban office asset sales and these couple big move it move outs, which we've been trying to notify everybody about for a couple of quarters in a row now.
Okay. That's helpful. And then just to confirm you're saying on the waterfront twenty-two really have nothing meaningful moving out.
Yeah, and I I highlighted in prepared remarks, there's 100000 square feet total in our largest lease rowing is 26000 square feet. So nothing like the large tenant moved out. So we had this year in 2021.
Okay, Alright, great. Thank you.
[noise]. Thank you we can now move along to our next question. It comes from Tom Cottonwoods of P. T. I G. Atlantis open. Please go ahead.
Thank you and good morning, everyone. Dave just wanted to swing back I appreciate the comments on the suburban office sales on the 2 remaining assets there.
As we think though kind of about the <unk>.
<unk> track for repaying the remaining secured on line of credit is there anything else. Besides just the operating office, that's kind of in the non core sales pocket things like.
Remaining office land, maybe any of the non core land within Roseland or anything else that was non core kind of like the Wegmans Center is there anything else. Besides office, that's gonna come out to help kind of alleviate the balance of that debt.
Yeah, Great question time, and you know the the the company well that's right. We have the remaining 2 suburban office assets, we have some land over on the Mat Kelly's Kelly side, some perhaps access land on the Roselyn side and I think we've we've messaged to yourself and many of that hotel.
Probably are not part of our longterm kind of operating core portfolio. So those in total should be able to take care of the Romanian line balance.
God I appreciate that day, and then when we look at office leasing, obviously, New Jersey put it emerge New Jersey incentive program and not too long ago.
Any sense on on when those benefits could could kind of start flowing in and and you know do you expect them to have a positive uptick you know beyond what was obviously a positive quarter on the office leasing from.
Good morning come on.
Type that so it definitely made a difference I would say in terms of helping funds and half. The appeal has a J V say to you so.
Tenants, obviously to varying degrees will qualify for it but it it can be a pretty meaningful subsidy and can make it even more appealing from appear on financial prospectus attendants to to relocate that so uhm weren't very pleased that it's has been introduced at the beginning of this year. We do think it is.
It's already making a difference.
<unk>, we just need the the mobile widespread returned to the office.
Plan to continue as it appears to be today.
Partial will see the benefits of that come through.
Got it I appreciate them aboard and then last question for me and I know, it's tough to ask about retail, especially as things are just kind of starting to reopen but if we look at your your office business segment. There's you know 190000 square feet plus of of retail amongst a variety of buildings.
It's not generating any N O Y right now what are your kind of thoughts as far as filling that space up utilizing that space time as the reopening continues and then what could that ultimately generate in terms of earnings for you as it stabilizes.
At Tom It's David Uhm, So on retail a couple of things you're starting to see in the quarter. Our our base building office tenants. The ones that we do have are starting to come back to us get current on Reds. So that we have we have some writeups there and the larger kind of retail footprint we have.
On the base of Harbor side, we view that space is really amenity to the office as the accuracy picks up in our leasing guys want to get at least as well to help induce our office tenants, we'll start to see more impact from the retail, but we Wanna go slowly on that now and make sure we get the right turn on.
But I would not be modeling in any big pick up from a retail contribution, but when you're in Jersey City, you will start to see increased retail leasing, but we're gonna hold off on on on really modeling that retail income communists.
Understood I appreciate it thanks, everyone.
Thank you.
[noise]. Thank you that concludes our Q&A session I can I'll have to call back to the speakers for any additional Arkansas on my.
Thank you.
Well. Thank you everyone for joining us this quarter, it's been a productive quota for us and we look forward to updating your again Angie calls.
Okay.
That's true Okay. Today's conference call. Thank you for your participation Davidson gentlemen, you may now disconnect.
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