Veris Residential, Inc. (VRE) Earnings Call Transcript & Summary

Great. Welcome to Citi's 2021 Global Property CEO Conference. I'm Michael Bilerman. I'm here with Manny Korchman from Citi Research. We are extraordinarily pleased to have with us Mack-Cali and newly minted, like literally 5th day in the seat, Mahbod Nia, CEO of Mack-Cali. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available up on the webcast. [Operator Instructions] Mahbod, I'm going to turn it over to you to introduce Mack-Cali. As an existing Board member and the newly minted CEO, I'm sure that's going to be -- you can go through that. Introduce Dave and Marshall, who are with you, and then we'll -- we have an opening question that I can then ask once you introduce the company.

Perfect. Thank you, Michael. So I'm Mahbod Nia. I'm the CEO of Mack-Cali. Mack-Cali is a New York listed REIT that is focused on, well, primarily multifamily Waterfront office assets, Harborside office assets and suburban office assets that we have been exiting.

Great. And so...

And on the online with me, we've got Dave Smetana, the CFO; we've got Marshall Tycher, who heads up the Roseland side of the business.

Perfect. Coming out of the pandemic, if an investor were to choose only 1 real estate stock to own, what are the 3 reasons why they should invest in Mack-Cali?

So Michael, I would say, fundamentally, I'd say the quality of the assets. We've got a great business. I believe the value of that -- of our assets is not even close to reflected in the share price, and probably disproportionately so compared to our competitors, given some of the other structural features of our business, namely the complexity that we currently have. But fundamentally, we've got good assets. We've got a great team. And I think with the change in Board and leadership, I think we are very well positioned to come out of the pandemic and realize the true value that we know our company has.

And so you came on the Board last year as part of that change and that governance refresh. And so maybe you can just help frame for investors what drew you to be on that slate initially and to be a part of joining the Board. And then take us through last summer to today, at what point in that process did you either decide, "Hey, I want to become the CEO. I miss being a CEO of a NYSE-listed company." Or I don't know if it was a Board-driven thing, like, "Hey, you ran a publicly listed company. You seem to have all the skill set that we need." So just help us through what occurred.

Yes. Sure. So I think initially it was actually one of the bankers that I think had suggested to Bow Street to reach out. I knew Bow Street. They were an investor in NRE, but they sold out in 2017, I think it was. So I hadn't had any contact with them since then. And I think the reason why the banker suggested me was probably the experience of cleaning up and selling a REIT that I'd had with NRE. As you'll recall, at NRE, that was an extremely complex business. Leverage was on the high side. Found us -- it took us some time to find our feet in the public markets. We were also externally managed, which was a whole additional challenge that we frankly don't have here. So I think that was the reason why I was approached. And it was an interesting opportunity for me to potentially be part of a slate that could go in and really clean things up and make a difference. So that was the initial basis. And then I was really on the Board and doing my job, and there was a CEO Search Committee that was established to find the CEO. Ferguson Partners was retained to assist with that. And through that process, I didn't put my hand up for the role. There was a point at which I think it was kind of like you described, the skill set that they were looking for, I think, was similar to mine. And just, again, thinking about the parallels between this and NRE and how that story went, the governance changes we made but also the way we focused the business, and we were in 9 markets and 5 asset classes, we ended up significantly streamlining that business down to 3 markets and 1 asset cost in office. We reduced our leverage from 60% to 40%. We rightsized our G&A. Couldn't shape the external management structure, created a ton of value down in the REIT, and ultimately, made the decision to do the right thing by shareholders and crystallize that. And so it's not that dissimilar to, I think, the paths that we need to be thinking about. Doesn't necessarily mean that this is -- there's a sale at the end of the road for Mack-Cali. But I think cleaning up the company, making it more focused, making it more efficient in the public markets is absolutely a priority. And so I was approached on the opportunity. Having learned more about it, it resonated with me. And then I entered the process alongside everyone else, went through the interview process, referencing process, and here we are.

So -- and all that happened within like 3 days?

No. All that happened -- when did I enter the process? I want to be accurate about this. Probably, let's say, October, November, something like that.

So it's been a while.

It's been a while.

Yes. And what -- I guess, what are your other responsibilities outside of Mack-Cali? Have -- did you have to free up other things to now take on this role? And I don't know if -- are you still living in London? Or...

I am at the moment, yes, can't travel. So yes, I was on a parallel path, something in the private space and, ultimately, freed myself up to be able to do this. So no outside responsibilities. I was associated with 1 or 2 other kind of PSA before this all. But that's not something that -- I'm not on the Board there. I'm on the Board of a small private advisory business here in Europe. But outside of that, fully focused on Mack-Cali.

New CEOs usually have 100 day plan. Why 100 days? I don't know. I guess what's the -- you already have a jump start, right? Because you're not -- you're coming in with having probably -- you had the activist campaign, which went on for a few months and heavily involved. And you've been sitting on the Board for 9 months where, just given the level of stuff that the company has done, I assume that's not just quarterly Board meetings mailing them in and it's a pretty intense dialogue. So just -- I guess what's your sort of goals now for the next, and I'll say 100 days because they always have 100-day plan, but what are you trying to get yourself into at this point?

Yes. I don't know about, to me -- there's a 100-day plans, that's not the way I really think. So I have near-term objectives, medium-term objectives, longer-term objectives. I've been on the Board for 7 months, and so definitely, I'm hitting the ground running. But it is a different proposition. When you really get under the hood, there's just a different level of detail and understanding of the inner workings and functionality of a company. So I think I've got a good understanding of the asset base, but what I'm now gaining is much more insight into just how the company runs. And that, to me, is going to be key in determining, I think, ultimately, direction in which way we go on a number of fronts. And so I'm in learning mode, and it is a -- I'm now kind of under the hood and kind of absorbing as much as I can. No preconceptions, very open minded, but really with one objective, and that is realizing the full value of the company, which I know to exist. Either fixing it so that we can realize that value as a going concern and a long-term viable entity in the public markets, and if we can't do that, then considering our other options.

Right. And then I know the pandemic really affects travel, especially international travel. So I guess what's your plans? When was the last time you actually were in the U.S. looking at these assets? I got to imagine it's probably not during the pandemic, right?

No, no, no. So yes, I mean, look, a year ago. We're in now March, so February -- January, February, was the last time I was -- I haven't traveled since then, not been able to. So -- but look, that looks like that's changing. So we've got a great vaccine program that's being rolled out over here, and the U.S. is also starting to get some momentum behind there. So I'm pretty confident that I'll be able to get over there again, soon.

Right. So you have Dave with a GoPro on his hat, and he's walking you through the assets.

You got it. There's been a lot of virtual communication of all sorts.

Go ahead, Manny, sorry.

So you highlighted a few things, and I didn't note down all of them. But essentially, looking at G&A, looking at the company structure, looking at the complication, uncomplicating some of that complication, all those things. But those are things that this company has actively been doing since 2015. And we -- from 2015 to 2018, we talked about the low-hanging fruit. And then 2018 to 2020 was supposed to address some of that less low-hanging fruit, and a lot of that's been done with the suburban sales. So I guess now as we sit here and think about that dysfunction or that dislocation in each of those categories, it's not that severe. And so how do you think about that from each of those perspectives of the heavy lifting has been done, and so now to me, we could talk about complication here and then blaming some of the valuation discount on complication. It's not all that complicated, you've got a suburban office portfolio -- or Waterfront office portfolio, and then you have a multifamily portfolio that somewhat closely tracks that office portfolio with some other assets added in. I can simplify it pretty quickly. Where am I wrong?

I think it's way too complicated for the public markets. So you've got a suburban office portfolio, you've got a Waterfront office portfolio, you've got another company in Roseland that does multifamily development and develops and manages multifamily that has a joint venture with Rockpoint. In a private structure, this is not too complicated. We can all talk about and understand it in 5 minutes. For a public company, compared to REITs, it is still very complicated. As you know better than I do, dedicated REIT investors like to know exactly what they're investing in. And you can be geographically somewhat diverse and being in 1 asset class, being in 2 asset classes are really focused if you can demonstrate that you have the skill set in-house to be able to deliver in that market and those asset classes. But this sort of complexity, to me, doesn't really work in the public markets, and that's where you start to see the discount. So I still think we've got a lot of work to do from here. And then you also kind of look at what a REIT was intended to do, which is to pay a stable recurring dividend. We've got significant assets on the Waterfront that do not generate income, and so we've got potential leasing to do there or we got to think about capital allocation towards those assets. And then we've got a significant land bank on the Roseland side that needs to be developed to be generating income that, right now, we don't have the capital to develop. So the drag on earnings from having all of that nonyielding asset base in there takes its toll in the value as well. So from my perspective, a lot of work has been done, but we're not streamlined enough, and we're not really -- we're not in the sort of position that, I think, we need to be as a REIT to be viable long term to be able to get a competitive cost of capital to be able to grow. And if you're not able to grow, then you're kind of spinning your wheels as a public company in this space.

How much of an overlap is there in those -- the 2 elements you just shared, the nonproducing land in the office portfolio leading to developable land in the Roseland portfolio? And how do you deal with the overlap there?

Yes. But you mean overlap an in could any of the office portfolio...

Well, I think there's always been -- in our conversations with Marshall, there's always been what should be Harborside, I've lost track of the numbers, 8, 9. That's essentially office land, and it's now been entitled to maybe office, maybe multi. And so it seems like multi is a better path for that, but it sits within Mack-Cali and it doesn't sit within Roseland. And because Roseland has a partner in Rockpoint, it doesn't transfer that easily. And all the stuff you just talked about becomes harder because you have these 2 property owners or operators or developers that could play for the same asset, but the asset might not sit in the right bucket.

Yes. On the Waterfront, the answer is none. But I don't know, Marshall, if you can talk about some of the suburban assets that have been repurposed to multifamily and whether you're seeing further potential for that?

Manny, on the commercial side in the suburbs, we have actively rezoned a number of the sites, and we've actually built both in Short Hills and in Morris Plains. And we have other sites that are teed up that have been rezoned from office to housing. And as Mahbod spoke about before, it's a capital allocation decision we're going to have to make as we elect to start building on those sites. So it's -- there is some crossover between the asset classes as far as the redevelopment opportunity, part of that complexity.

There was a question that came through on the Veracast questions, and it's says, Mahbod, at NRE, you created considerable value through leasing up properties and monetizing them for big games. Same playbook here?

It could be. I'd certainly say in terms of looking to monetize value over time, create it however we can, I think that it's a balance, right? So there are actions we can take to create value at the asset level, and then there are actions we can take to create value at the corporate level. And it's a balance, and you want to do both. And so absolutely, that is my -- I'm singly focused on that, how to get us up to where I believe this company is worth. And it's -- anything and everything is on the table, very much so including looking at the possibility of leasing assets that are vacant.

And I do appreciate you only became CEO on Monday, and so this is very -- this is day 4, and you spent it doing investor meetings and not doing this. So I know you're not going to have all the answers, and I appreciate you doing this just to get out there. What is -- I asked the 100 days, which is probably too long. What is that -- what are the next few weeks? What are you trying to accomplish as coming to the CEO seat in that checklist that you need to get off once you stop doing this Citi CEO Conference?

It's -- no, it's actually fine. It's what I said to you at the beginning, I think it's really to learn and to ensure there's a smooth transition from MaryAnne. The next few weeks will be entirely focused on that. Any decisions that we make are going to have to be well-thought-through, considered, balanced, methodical. And it's going to take more than 3 weeks. So I'm in learning mode.

We've talked about leasing sort of tangentially a couple of times. You're probably not the right person because I don't even know if you've met with the leasing team yet, but maybe this is one for Dave. What does that leasing opportunity set look like? You're not the only ones with space on that Waterfront. I think in the last slide deck I saw from you guys, there was a lot of comparing yourselves to Midtown and Downtown and sort of still being the value relief valve. But the New York landlords haven't been clamoring over leases either, right? It's been tougher there as well. So how do we think about that leasing pipeline cadence, momentum, all that stuff?

Yes. Thanks, Manny. So like others, I think we all suffer from, right now, the lack of certainty with the vaccines of when everybody is going to be called back to work. We pay attention to announcements like American Express calling workers back after Labor Day. And we really think on the new leasing front, we'll start to see the decision-makers pull the trigger later in the summer, towards the fall. That said, relatively, we are pleased with the level of inquiry versus Manhattan. I think you've seen press reports of some companies that have larger space in Manhattan exploring hub-and-spoke with Jersey City. As you mentioned, we have excellent connectivity to Downtown and Brookfield Place here in Jersey City as you move up the river to Hoboken and Port Imperial, great connectivity over to Hudson Yards. We still believe even with sublet space, which tenants don't want as a long-term solution, that the price differential gives us lots of headroom and will give us the ability to execute deals. Sorry, that's my cell phone out of reach. I'll just keep going through that. The pipeline that we talked about on the call, I had talked about 130,000 square feet. I'd say generally, it's skewed in 2 ways: one, towards renewals, like most of our peers; and two, I think the companies we see closer to making decisions tend to be tech-focused. I think their businesses are doing better, and Jersey City offers great, great fiber. As everybody knows along the river in Jersey City, you have DTC for all stock clearance. You have, Michael, all the Goldman Sachs' trading operations backed up here. So those are kind of the trends we see.