Mack-Cali Realty Corp

F:WY4

Earnings Call Transcript 2018-Q3

[Operator]

Good day, everyone, and welcome to the Mack-Cali Realty Corporation Third Quarter 2018 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Michael J. DeMarco, Chief Executive Officer. Please go ahead, sir.

[Michael DeMarco, executive]

Thank you, operator. Good morning, everyone, and thank you for joining the Mack-Cali Third Quarter 2018 Earnings Call. I'm Mike DeMarco, CEO of Mack-Cali. I am joined today by my partners, Marshall Tycher, Chairman of Roseland, our multifamily operation; David Smetana, our CFO; and Nick Hilton, our EVP of Leasing.

On a legal note, I must remind everyone that certain information discussed in this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to our press release, annual and quarterly reports filed with the SEC for risk factors that could impact the company.

We have filed last night our supplemental for this quarter, and we'll be releasing a revamped investor deck this coming week in preparation for next week's NAREIT meeting. We look forward to seeing you there. These combined presentations will reflect the ongoing transformation in Mack-Cali's portfolio, and more importantly, with NOI composition. We will be referring to key pages in our supplemental during the call. And please contact David, my partner, on any further suggestions as to content.

As we've done before, we're going to break our call down to the following sections: I will make some brief opening remarks; Nick will discuss the office leasing performance and our view of the markets going forward; Marshall will provide insight into our multifamily operations; David will then recap our operating results; and then I will close before we go to questions.

We had another successful operating quarter as we delivered extremely positive results for the first time in '18. '18 has turned out to be a relatively good year for us, and this strong quarter of leasing on the Waterfront and our lease of the multifamily have laid the groundwork for the remainder of '18 and well into 2019 in our opinion. Our individual asset distribution strategy, which David will go over in his remarks, is substantially behind us and now we are solely focused on leasing, leverage and operations.

For example, leasing of the Waterfront and the suburban assets had great momentum this quarter. Tours are up, which Nick will go over in a bit detail, as is proposals. And we obviously have great numbers coming in.

We believe next quarter will be equally as good and possibly even better and we look forward to 2019. 2019 is shaping up well as tenants are accepting the new product that we've delivered, as far as revamped cafeterias, lobbies, amenity package and improvements we've made to the Waterfront, and also, for creating a sense of place at all assets. We believe our assets will be really well received in 2019 as these projects are coming to a close. For the remainder 2018, we have substantially done all our leasing for the year, and now we're basically looking at just getting net absorption in the last quarter. We have some new deals coming at some very attractive rates with some great names that will change the way people view our portfolio.

Moving forward, just to note, we have very low expirations for '19, '20, '21, if you assume that the Flex business is gone, which is something we've been working on and believe we'll have a completion too in the short order. The only average with our remaining office portfolio is about 625,000 square feet or almost an $11 million plus portfolio, so it's about 6% less. This is an all-time low for us to deal with. Looking back when we started the team, the first year was 21%, then it was 18% and 14%, always double digits, relatively high numbers. This year, we expect, and Nick will go over in detail, to do almost 2 million square feet of leasing. Our projection at the beginning of the year was 1.2 million square feet and change. The market has definitely picked up for us, were benefiting from us, and we can actually catch in on that and achieve some great results. We're very happy we'll be able to deliver the right rates. We haven't had to increase concessions, and we'll be getting some great tenants.

Regarding multifamily. Marshall will go over this -- his points in detail, but we had a very, very good quarter for leasing of RiverHouse 11, is now stabilized. And soon behind it will be Signature Place, Portside, 145 Front Street shortly thereafter, all by -- done by the end of the year, or at the most, beginning of the first quarter 2019.

The only activity we have lagged is the hotels, which, in fact, that Residence will be opening this November, pre-Thanksgiving; and the Autograph will be open in late -- the first quarter of 2019.

Lastly, one of the most important topics. Leverage is going to come down. We talked about it before and we believe we have some trades that will happen in the next several months to get us down to a more acceptable level. This is the high point of leverage for us. It's going to be more downhill from there. We are committed to it as is our board.

I'd like to turn it over to Nick for some answers and questions on leasing. Nick?

[Nicholas Hilton, executive]

Thank you, Mike. I'm excited to say it was a great quarter for the leasing department across our entire portfolio. As we look at our leasing results, we signed just over 816,000 square feet of transactions in our Waterfront, Core and Flex assets, ending the quarter at 84.2% leased. Of those transactions, approximately 454,000 square feet were new leases, and we're also able to capture over 362,000 square feet of in-place renewals.

Across these segments, our rents on Q3 deals rolled up 9.9% on a cash basis and 30.9% on a GAAP basis. In this quarter's transactions, we committed $5.50 per square foot per year of lease term, which is largely a result of our early renewals and expansions in our Waterfront portfolio.

Examining our results by market. The Waterfront continued its positive momentum from the end of Q2. Shortly after we completed the 132,000 square foot E*TRADE renewal and expansion, which was discussed on last quarter's call, we signed a renewal and expansion with SMBC for 111,000 square feet in Harborside 2. Another sizable transaction also included the renewal and expansion of First Data for over 80,000 square feet in 101 Hudson.

In all, we completed over 389,000 square feet of transactions on the Waterfront, with a cash roll-up of 12.7% and a GAAP roll-up of 41.1%. As we look to the fourth quarter, we are currently in negotiations with numerous new tenants on the Waterfront, totaling approximately 190,000 square feet, which will further drive our vacancy lower and continue the positive response we are seeing in the market.

Our suburban portfolio also remained active in the third quarter. Specifically, we had over 221,000 square feet of leasing. Some of the most significant transactions included the trustees of Princeton University for over 67,000 square feet in Princeton; and the renewal and expansion of Investor Savings Bank for over 56,000 square feet in Short Hills. The outlook for our suburban portfolio continues to be stable through the fourth quarter, and we'll be looking to close roughly 153,000 square feet of additional transactions before the end of the year.

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

[Marshall Tycher, executive]

Thanks, Nick. Roseland's third quarter was highlighted by the delivery and extraordinary leasing success of RiverHouse 11, a 295-unit community in Port Imperial. The property commenced leasing activities in July, and as of today, is 95.6% leased. Moreover, we raised rents 8x during this initial opening. We have 4 additional lease-ups totaling 917 apartments from our 2018 deliveries including, Portside Phase II on East Boston Waterfront, which has also had tremendous success and is currently 73% leased. The majority of unleased inventory there are affordable units awaiting residential approvals.

Signature Place, a 197-unit apartment community in Morris Plains, New Jersey, is currently 86% leased. We are targeting stabilization for Portside and Signature Place by year's end.

145 Front Street, a 365-unit project, is an integral component of revitalization of downtown Worcester, Massachusetts. We delivered Phase I in the first quarter and Phase II in late second quarter. Phase I is currently 67% leased, and overall, project is currently 49% leased.

And finally, Metropolitan Lofts, a 59-unit community in Morristown, recently stabilized at 95%.

Roseland's leased up portfolio from these 2018 deliveries is 74% leased in total. As highlighted on Page 34 of the supplemental, upon stabilization, we forecast NOI after debt service from this portfolio of $14.5 million.

We anticipate the opening of our 372-key dual-flagged hotel with the fourth quarter opening of 164-key Residence Inn and late first quarter delivery of 208-key Autograph Collection. These hotels will serve as a cornerstone amenity for the Port Imperial, offering excellent access to Hudson Yards with exceptional views of the Manhattan skyline. Upon stabilization, hotels are projected to generate $9 million NOI after debt service.

As of quarter end, Roseland's stabilized operating portfolio had a leased percentage of 96.4% as compared to 97.4% last quarter, with Roseland's same-store portfolio experiencing a 1.2% increase in NOI on a GAAP basis. Additional third quarter highlights include the acquisition of Prudential's majority ownership in the 412-unit Marbella in Jersey City. In addition to eliminating our last significant legacy subordinate interest, the acquisition enhanced Roseland's market-leading position in Jersey City and translated to a gross asset value of a 4.62% cap rate.

The construction started on Chase III, the next phase of development in our Overlook Ridge community, where we currently own and operate 1,386 stabilized apartments. This $100 million dollar project has 326 units and we financed with this $62 million construction loan.

And finally the construction started on Building 9 at Port Imperial, adjacent to the recently stabilized RiverHouse 11. This 313-unit project is in close proximity to the New York Waterway ferry terminal, with a 12-minute commute to Hudson Yards. The $142 million project will be financed with a $92 million construction loan.

We are targeting 2 strategic construction starts through the end of this year. We have started site work on 233 Canoe Brook in Short Hills, one of the premier suburban towns in New Jersey. This 200-unit refurbishing project is located adjacent to Mack-Cali's 150 JFK Parkway, The Mall at Short Hills and Canoe Brook Country Club.

Our second remaining start is 25 Christopher Columbus, a 718-unit signature development in Jersey City. Another site will commence in the fourth quarter and the [ full-on ] construction late in the second quarter of 2019.

As detailed on Page 7 of the supplemental, we estimate a residential NAV of approximately $1.84 billion. After accounting for Rockpoint participation, Mack-Cali share of NAV will be approximately $1.58 billion or $15.71 for outstanding Mack-Cali share. We have materially improved the composition of our NAV, with 84% of value along the Hudson Riverfront and our metropolitan Boston markets.

On Page 37 of our supplemental, we included a residential calculator, reflecting a typical resident's net income availability, after tax and rent, based on living in Manhattan versus Jersey City. I encourage you to take a look. The numbers speak for themselves.

As stated previously, Roseland's platform is self-funding operations as we have excess capital source availability, including undrawn capital from Rockpoint, to complete our active construction projects and fund our target construction starts.

I'll now turn the call over to David.

[David Smetana, executive]

Thank you, Marshall. I'd like to touch on a few financial highlights before handing it back to Mike for closing remarks. We reported core FFO per share for the quarter of $0.43 versus $0.57 in the prior year. The year-over-year decrease is due mainly to move-outs of tenants on the Waterfront and lost NOI due to asset sales from our disposition program.

We reported $0.42 of NAREIT white paper FFO and had $0.01 per share of nonrecurring item, employee separation costs, that has added back to arrive at core FFO of $0.43 per share. Same-store cash NOI declined by 6.5%, the decline driven by move-outs in our Waterfront portfolio, partially offset by lower real estate tax expense. We are tightening our cash same-store NOI guidance to a range of minus 11% to minus 14% for the year, better than our previous guidance, due mainly to lower real estate tax expense estimates. And we strongly favor the high end of that range or the minus 11%.

Touching on the Waterfront move-outs, hopefully for the last time, ICap was our last major expiration, over 50,000 square feet on the Waterfront. ICap vacated 90,000 square feet in Harborside Plaza 5 on August 31. We believe our office EBITDA has bottomed, with the last of the major move-outs occurring in the third quarter combined with the extremely positive leasing results we have just reported.

Shifting to transactions. We sold 3 office properties and 2 transactions during the quarter for a total of $32 million gross proceeds at a blended cap rate of 7.8% and $139 per square foot.

On the disposition front, we expect another $40 million to $100 million sales for the remainder of the year to wind up our disposition program, with available net proceeds to pay down balances on our line of credit. The $63 million reduction from the previous midpoint of $400 million is due to a large land parcel in the $40 million to $45 million range slated for Q4 that now looks like it will creep into '19 and the vacant office building scheduled to be sold to the occupier that also now looks to be a '19 close.

Turning to the balance sheet. As expected, net debt-to-EBITDA was 10.0x this quarter. And as expected, this will be the peak for this metric. The new leasing activity was robust in the quarter. Tenant work needs to be completed before space is handed over and GAAP rents commence. We continue to see the greatest driver in the reduction of our net debt-to-EBITDA metric through the reletting of our Waterfront assets. At market rents, we estimate a 1.4x reduction to our current net debt-to-EBITDA upon reaching stabilized occupancy of 92% on the Waterfront.

Looking at our debt stack. Our 2019 maturities are very manageable. We have one unsecured debt obligation with an initial maturity in 2019, our $350 million term loan. We have given notice to our bank group on electing the use of the first of two 1-year extensions. The remaining maturities, totaling $408 million, you can see on Page 21 of the supplement, are mainly construction loans on successful multifamily properties. These will be converted to permanent financings and all have extension options. There's also a $26 million permanent loan due in 2019 that secures a property currently under contract to be sold.

Lastly, we have tightened our FFO guidance for the year by $0.01 at both the bottom and top end to $1.81 to $1.85 per share.

With that, I'll turn it back over to Mike for closing remarks.

[Michael DeMarco, executive]

Thank you, David. In closing, I think we're set up to have a good 2018. The fourth quarter is looking to be very strong for us in all fronts. As my colleagues have all commented, we have a lot of projects in motion, as always. And I feel very comfortable that we'll be accomplishing all goals. We believe we can have a better 2019 and 2018 for the simple fact that momentum is with us and we're feeling it across the entire portfolio.

We were able, as Nick pointed out, to lease up and renew what we believe are higher rates and bid for it in the beginning of the year. As David pointed out, we are deleveraging in due course throughout 2019. Tenant demand, overall, is growing. Our capital improvements are being very well received, and we finished up on the CapEx projects that we started 3 years ago. We're going to start a small set, going forward, of a few buildings that we can fund some cash on and we think that will yield us additional good results. Our focus obviously has been on the Waterfront. You will see us, in the next coming months, make some moves to consolidate our holdings to be able to have a much clear and concise story, which will give us a better thesis going forward.

They were commented on before, there are a lot of companies looking to be in the New York Metropolitan area, and some of them can't afford the actual New York rents and have swung over to move to New Jersey. We got number of serious conversations with firms based in the far suburbs but want to be on the Waterfront from a point of view of attracting the right talent, running their operations and creating the right brand.

That all being said, there's still a lot of work ahead of us. We have a plan that we started 3 years ago when we took over as a team. We're at the very end of it. I think we have accomplished almost all our objectives. And as I said earlier, we feel very strongly that 2019 and even 2020 will be excellent years for us.

We will be announcing an Investor Day in early January of 2019. I hope you can join us. Details will be forthcoming, and we look forward to seeing you all at NAREIT next week.

With that, I'd like to take some questions. Operator, the first question, please?

[Operator]

[Operator Instructions] Our first question today comes from John Guinee from Stifel.

[John Guinee, analyst]

Mike, there must be some very, very good reporters at Bloomberg because they always come up with information about sales and all that sort of thing -- company sales. Any comment on -- is there a real, live in-writing offer?

[Michael DeMarco, executive]

Well, John, this is an earnings call. So we're not really supposed to talk about M&A matters, but it's a very good question and it's very timely. I'm a board member. I'm the CEO. Every day I come to work, I check to see if my phone works, my e-mail works. As most of you know, and John, you know particularly, I answer my own phone. We've had board meetings. We've had this conversation long before because we've had a conversation to John's letter. We know of no bid. It's not a factual comment that we received an offer and we persuaded anyone in making a further offer or have a conversation with us. If anything, we're actually hoping to receiving offers if they're appropriate. The board has been more than apt on that subject. So we've had a conversation with Bloomberg. We've obviously responded no comment. But I appreciate your question, but no, John, no active bids. And I'd also point out, if there was something in the market, you would hear from x number of bankers who've done financing packages to raise equity. We haven't had any confirmation of that subject.

[John Guinee, analyst]

Okay, great. Nick, David was very kind to say that to get the -- when you get the Waterfront from 74% leased to 92% occupied, that's worth 1.4 turns on the leverage. How long does it take to lease up that 950,000 square feet?

[Michael DeMarco, executive]

John, I'm going to first and then Nick's going to jump in. We've had very good acceleration, and we now have a really good quarter, essentially, a couple hundred thousand square feet of net absorption. So we think we're going to end the year in a very positive note. The big question is the larger tenants. We have at least a half-dozen names of people with over 200,000, some as large as 500,000 that are circling. If we just get one, even at 250,000, that obviously will make it much more accelerated. But sans of what -- sans that conversation, and I'm going to ask Nick for his point of view, we should be able to do between 300,000 to 400,000 square feet a year. So hopefully, 2019 is as good as 2018 was. So we'll get another -- halfway there and then we finish up in 2020. But Nick, please give your comment.

[Nicholas Hilton, executive]

Well, right in line, Mike, with exactly what you said. We're averaging about 300,000 or at least we're projecting about 300,000 to 400,000 square feet a year. The tours and the amount of proposals we're negotiating on right now is falling right in line with that to be able to make those numbers as well.

[Michael DeMarco, executive]

And Nick, also, talk to John about the fact that the quality of tenants has really changed. So we only used to see financial, and now the -- [ moving slowly ] to kind of categories people to -- talking about.

[Nicholas Hilton, executive]

Absolutely. Yes, to Mike's point, we're seeing everything from electronics, consumer products -- of course, we always have financial services, but they just make up a portion of it, not just the overwhelming majority, fashion and even some HR outsourcing companies as well. So it's really running the gamut, and it's --

[Michael DeMarco, executive]

And co-working.

[Nicholas Hilton, executive]

And co-working as well. And it's really showing that the market is attracting more than just the financial services and the connectivity to downtown Manhattan, but really attracting a wide base.

[John Guinee, analyst]

And then David, if you go -- if you start with the 10x net debt-to-EBITDA and you take out -- reduce it by 1.4 turns, I don't have my calculator with me, but I don't think that gets you down to what the industry expects. Is there anything else going on that will get you down to what, whether we like it or not, the industry expects? And then I'm assuming that you're going to run the residential portfolio at a higher leverage. Any sense for where you want to get to on the office portfolio?

[Michael DeMarco, executive]

So John, I'll do this first for David. One thing missing is the Flex sale, which we expect to do in the next few months. It brings you down at 1 full -- maybe a little bit more than 1 full turn, so that's -- it takes you down 2.4 to, say, a 2.5, which, it actually gets you from 10 to about 7.5. And if we get -- we're lucky on some other asset sales, we get to a more manageable number. The way it's going to split is going to above all, John. It will be office. It will probably 6.5 or less. And multi is going to run higher. We feel the risk in the company has always been on the exogenous side of the office business, as evidenced by the move-outs. And multi can have a higher leverage. We feel, today, we actually have a much better balance sheet from a risk point of view, as to what credit provides us, than we did even when we started in 2015, when we were at 8x. I'll let David, please, jump in.

[David Smetana, executive]

So John, to be just exact on my words, so the 1.4x, we view as our largest debt-to-EBITDA reduction. And what I'm really trying to say there is we're not an office company that's 94% or 95% occupied running at 10x, so we should do something now or even contemplate diluting our shareholders. I'm just trying to illustrate for people that we have some runway on the EBITDA side there. And as Mike said, slightly behind the 1.4x would be a Flex transaction, which would get you about 1 turn. We'll talk about this more at the Investor Day, but we really do feel, with office below 7x and multi-family, the mortgage is running about 12x, we've actually created a safer debt stack than an unsecured suburban office company that runs 7, 8, 8x on an unsecured financing basis.

[Operator]

We will now take a question from Manny Korchman of Citi.

[Emmanuel Korchman, analyst]

Mike, in your release, you talk about the -- getting tenants to our projects and we're pleased to see the conversion. When we look at the stats, or at least what closed in the third quarter and a little bit in the second quarter, most of it was renewals, expansions of existing tenants with a little bit of new tenants. So are you talking about sort of that other tenant demand that Nick brought up when he answered the previous questions? Or is there something else that you meant in that comment?

[Michael DeMarco, executive]

I think what we're seeing overwhelmingly, Manny, and I'm going to have a question for you at the end, is we're seeing a different type of tenant coming over. Like, fashion started about 3 years ago. So Tory Burch is in the market, [ Colmar ], a few other names out there. And then you've seen more tenants like that come through. So we're getting those types of tenants. They're hipper, they're cooler -- Whole Foods is looking for a tenancy in the marketplace. We have [ Woolworth's ] looking for tenancy in the marketplace. So we have those names which we feel very close to and a number of those tenants, which I think you'll see coming out hopefully in the fourth quarter if not early in January, which is what I was actually referring to. But as Nick pointed out, we could see some electronic companies, drug companies, pharmaceutical companies and general companies. And you're getting larger formats, we have about 1.5 million square feet of proposals out, which is really good for us. So even if we got 10% conversion, that's a pretty good chunk. It's 15% of what we're trying to do, of what's remaining. If we got 30%, obviously, it would be an excellent year. And to emphasize a point that we've made in previous calls, the Waterfront, albeit not in 2017, averaged, from 2010 all the way through now, around 300 plus thousand square feet of absorption this year. So we just got back on track, which 2018 will be. We'd feel pretty good that we can get most of it done by '19, if not into early '20.

[Emmanuel Korchman, analyst]

And then Nick, those other types of tenants that you talked about whether it be fashion or technology or whatnot, where else are they looking? So if you got 1.5 million square feet of proposals out, if you don't get the 1.5 million square feet, which I don't think you will, where do those tenants end up? Is it in New York? Is it in Brooklyn? Is it in the suburbs?

[Nicholas Hilton, executive]

Well, it's a mix, and it's something we actually discuss on previous calls, too. So it's a mix from tenants looking from Manhattan, looking at the Waterfront. So they would also be checking other outer boroughs, whether they're a midtown or downtown tenant, checking other areas within Manhattan and including the Waterfront. We also have a good -- actually, historically good -- just view right now of tenants looking from Western New Jersey actually looking at the Waterfront, really focused on how they can retain and attract people. I mean, it's -- really, it's quite surprising. So where else are they looking? It depends on where they're coming from, to answer your question. So if they're coming from Manhattan, they're looking in the outer boroughs. If they're coming from Western New Jersey, we are competing -- sometimes, even just with ourselves with some of our other suburban product.

[Michael DeMarco, executive]

Manny, to be a little bit more specific, there's a project called ON3, which is Route 3, which is the redo of the Hoffmann-La Roche site, decent-sized project. Last year, we competed with them. They got Polo. Because Polo was coming out of Meadowlands. They didn't want to cross over the Richwood barrier. Last year, we competed with Newark, which has not got as much press or as many inquiries lately. But last year, they got Mars, which is coming out of Hackettstown, which we were very close to doing a deal with. So it's really Newark if you want that experience, but I think people have found out that Newark doesn't really get you the millennial base. It gives you a better transportation, but not get you what you want. The one thing we do is we draw a map. We've done it pretty good for people in presentations and was done very tight. We can show you within 40 minutes of commuting how much you can get to through mass transit, drive, ferry, subway to our location, and it's a really good map. That's what we're -- actually we're really working on.

[Operator]

We will now take a question from Steve Sakwa of Evercore.

[Steve Sakwa, analyst]

Mike, I was just wondering if you could elaborate a little bit more on the Flex sale. I know that, that's something you've been talking about for a while, and I think, even sort of had a process that was running. Is this the entire 3.7 million square feet that you sort of outlined in the supplemental? Is this a subset of it? And is this something that you think will close by year-end or is this more of a 1Q '19 event?

[Michael DeMarco, executive]

Excellent question as always, Steve. What we did is we put the portfolio out with HFF. We did it in seconds because we want to see if we can sell it in one piece, sell it in multiple pieces. We will sell a piece in 2018. We feel comfortable that was at the industrial side. We're going for final board approval tomorrow. The board's also -- will be discussing the rest of the sale, and we have a bidder that we think we can accomplish that with. They can do a strategy with us that allows us to -- and then enable us to do a 1031. Just to reiterate what we've stressed before, we will hit our NAV number that we targeted in the presentation. There will be no discount. It's what we think today. We will use $300 million to basically pay down debt, which I alluded to with John as 1 full turn. The other $250 million is going to be put into a replacement asset because we have a large 1031 in that asset. We've identified an excellent multifamily asset that we think we could purchase in our core market that will make our Waterfront strategy even stronger. So we have an exit on the Flex business and do Water. So with the board approval tomorrow, and I don't know, I'm going show at my board. You will have replacement asset. You will have a paydown of debt. And I think we'll be well on to accomplishing the goals that we articulated early in the year, Stephen.

[Steve Sakwa, analyst]

Okay. And then if we sort of just turn to the multifamily business, just sort of trying to look at kind of broad figures here. If you sort of look at 2019, what are your expectations in terms of number of projects and sort of capital to be spent on the multifamily development business in 2019?

[Michael DeMarco, executive]

So let's look at that question in segments that you gave it. The composition should be, as a percentage of Mack-Cali's total business, just slightly less than 40%, somewhere in the high 30s, maybe even touch 40% depending upon the growth in income, which is a far change of 2015 when it was less than 7% or 8%, so 5x, albeit at a -- obviously, we put on leverage in order to do that. We will be selling and have us contract out on one of our projects called Park Square because we'll start to trim the bottom of the multifamily portfolio, as we've proven we can trim on the office size. We have a couple of joint ventures in the DC market that we will be looking to exit over time. We'll -- also, we'll be selling some of the sites that we've identified as suburban, true suburban sites, as a portfolio as we complete the land application process. That leaves you with a very core strategy, which we think we can effectively achieve the highest results. That is the continuation of development of Portside, [ Roseland ] which we've had excellent results. We will obviously have Weehawken, West New York and Jersey City. The capital needs on those projects have been laid out in the presentation. We will be doing another equity raise at Roseland in order to satisfy those, and we might have enough capital to go forward to complete the next 30 or 36 months worth of projects, which is what we normally do. So when you look at it from a composition point of view, this company is going to dramatically change. We used to be 297 assets. We're 122 in the book today. You give away the Flex business, you're down to 40 and change. Of that, you'll have a number of buildings in the multifamily business that have gone from partial, subordinated joint venture, the plethora of ownership entities, to really just consolidated, so essentially, wholly owned or controlling. And it's going to be a much cleaner story. Did that answer your question, Stephen?

[Steve Sakwa, analyst]

Well, I just want to -- I'm just trying to -- just -- let me not pin you down to an exact number, but just in rough figures, what do you think you'll spend next year in multifamily development, sort of a range?

[Michael DeMarco, executive]

I think in the book -- I'm going to get the page for you in one second. It's actually -- we have the capital for it because next year is not that big for us. The big thing is when we start the jobs for the projects in Jersey City. So on Page 40, Stephen, there's a page in construction what we expect to spend in capital and trajectory going forward. So 2019 is -- we have $39 million left. Total capital development cost is $180 million. Debt is $141 million. 2020 is $149 million, almost all of it debt, no equity. And the sites that we will start in 2018, in the fourth quarter, are Canoe Brook and then Christopher Columbus Drive, which is going to be a long-term job. And in 2019, is Plaza 8, which is outside our window; and the second phase of Urby. If you want, we can give you a -- get your number after the call, if you like.

[Operator]

We will now move to a question from Michael Lewis of SunTrust.

[Michael Lewis, analyst]

Mike, you gave a very clear answer to John Guinee's first question about a bid or I guess, more accurately, no bid. It's a delicate topic, but can you comment or give a little more color maybe on what you think Mack-Cali will be 2 years from now? I mean, do you think it will still have a multifamily subsidiary? I know you've talked in the past about that maybe not being ideal. Do you think the company will still be public? Do you think you'll still be working there?

[Michael DeMarco, executive]

Mike, I really love your questions. I really do. Like another version of Guinee with a little softer tone. But putting that aside -- it's a compliment, by the way. It's to make you laugh. So you've got 3 questions. The multifamily business, I believe, is becoming an integral part of the Mack-Cali business. We're trying to create a Waterfront concept. If it doesn't work out, and we know it, if we don't trade with them 2 years at an NAV, I will strongly advocate that we disembowel the company and basically sell the pieces off. Every quarter, every day, every week, every moment, we come in and basically say, how do you make it cleaner, neater, more concise? Because I believe that simple sells. Your second question is, do I think Mack-Cali will be public? I think I it answered in the first question because they're really tied together, right? Because the multifamily business at 40% and growing, if you really exit that business, there's really not much left in the office business. It will consist of probably 20 buildings, 6 or 7 on the Waterfront and probably 15 or 20 in the suburbs, which you could easily sell off and I think we'll get great results on. The third question is -- it's my board's decision, where they're still working on that. I actually enjoy my job. I actually love coming in. I think it's the -- it is an old phrase that John F. Kennedy once said, that happiness at work is the full use of your powers along the lines of excellence. I love coming to work. It's what I try to do. But any other questions, Mike?

[Michael Lewis, analyst]

Just one more for me. You talked about the Flex portfolio sale. I was just wondering if there was any update on kind of the tax consequences and the strategy to shield those taxes. I know you've talked about splitting it over a couple of years. I mean, it probably -- maybe it's still early to put any numbers around what that impact might be.

[Michael DeMarco, executive]

No, no, we have it covered. So we'll do a piece in '18. That will get done. The rest will be in '19. We won't pay taxes. The piece that we have a deep, deep built-in gain, that's our problem in addition to the unitholders. But really, it's our problem because we've owned it for 25 years. We'll look [ shelter ] we found an asset. It's going to be a great addition to our portfolio. It makes complete sense. It will give us more meat on the residential portfolio side. I won't be buying a suburban building that John will be complaining about -- to me about, but it will allow us to basically have a cleaner story. And I think when you look at it some time in the next several months, you'll say, "Hey, this is a much easier story." And when we do the tour in January, and the people get a chance to refresh, they'll say they've been spending their time well. Leasing has really changed. The assets have been upgraded. It's still New Jersey, can't change that. But the quarter results, which people have glossed over, it will hit the ball hard this quarter, right? The cash numbers and GAAP numbers are as good as anybody in our segment. The fourth quarter should be as good or better, and we have a really big built-in game -- sorry, built-in lease-up numbers because my predecessor did a lot of deals in the low 30s and we're doing them in the mid-40s. And you've got to love that trade every single day. That's why I want to go to work every day. I get to redo [ these urgent ] deals.

[Operator]

We will now take our follow-up question from Manny Korchman of Citi.

[Michael Bilerman, analyst]

It's Michael Bilerman here with Manny. Mike, you referenced -- when you said that if you still have a job, it's up to the board. I'd like you to sort of give some views as to whether you think the board is the right team right now to manage the company going forward. And I say that because 8 out of the 10 members of your board have been on the board for 18 years, actually a little bit over 18, with an average age of 75. I'm not trying to be an ageist, but they've been in that seat for a long time. And so outside of you and Rebecca who got put on a couple of years ago, this probably the most long-tenured board in the industry. There's an article in the journal that talked about that today in a pretty negative light. So can you talk a little bit about the board composition and whether you think that there's risk there if changes are not made?

[Michael DeMarco, executive]

Actually, I really like my board. I think they're a talented group of men and women -- one woman, obviously 9 men. I was added to the board also, so that changes the little composition. Rebecca was added a year before me. Obviously, I have the greatest respect for my Chairman, my lead directors or my Committee Chairman. They're really talented people, and their ethics are not to be challenged, right. They really don't have a reason to be on the board. This is a very, very wealthy group of individuals. Not everyone, but mostly people you've referred to, Michael, are -- have done very well in life. They are thankful for what God has given them. So they're not doing it for the board fees. And I think they do it because they believe they have done good stewardship. They also, I think -- I find very them talented. I've been representing boards and looking at a boardroom since I was in my late 20s, which was a long time ago, likely 30 years. This is a talented group. I've also worked for a company, which I think is the second longest standing board, which is Vornado. They're also a talented group, right. And there are number of boards similar to that. I know this is a subject. We talked about it. If they realize I'm not a well off in a few years, and they're with it. I mean, if -- it will be a topic we'll discuss tomorrow because [ that's what we ] made. But if you ask me on a direct basis, which I've always proven to be a -- what I mostly would say is a very direct upfront-type guy, is this board a hindrance in doing what we do? No. Is this board talented? Yes. Are they helpful? Yes. Are they people that you can get on the phone and discuss a subject? Absolutely. I admit that there is a pending problem, right? 18 years is a long time. It's the reason why people judge these, but it's not my call. But if you ask me, I'll say it a second time. In no manner, shape or form are they a hindrance to anything I've tried. And given how much we've done, Michael, and how much we've changed. You're hard-pressed to say that they just don't -- that they don't embrace change.

[Michael Bilerman, analyst]

Right, but ultimately the proof is going to be in the pudding, right? And if the stock is where the stock is, at that point, perhaps fresh perspectives are needed in the boardroom. And if the board itself is not willing to do it, you obviously run the risk that someone else could come about, right? And if shareholders are not happy, given where the stock is you'd rather do it on your own terms than for someone else to do it, right?

[Michael DeMarco, executive]

I would argue that the perspective -- we worked about 20% from when we took over as a team, right. We were trying with dividends, that will take 3 years, we got a 9%, 10% IRR, which is not exactly bad. We're undervalued but undervalued because we've created a lot of value over time. We're also overleveraged, but it was a massive transformation. You're hard-pressed to look and say that we didn't embrace the problems that we're setting in front of us. Now the choice is whether you sell yourselves or operate yourself. And I recognize that day that truth. And albeit, as I've always said, my #1 job is to work for the shareholders. I'm a NAV guy. That's why we talk NAV and we live NAV because at the end of the day, the proof is in the pudding. You start with cash, you end with cash. You're 100% correct. There's a reckoning coming. I recognize it. We work toward that and no one's taking their job or their responsibilities lightly. But I do appreciate the comment.

[Michael Bilerman, analyst]

And then I just want to make sure I understand the comments you made on this offer -- not offer. I think you said there's no active bid today. Does that mean there was an approach to members of the board before? Or you're saying -- you are categorically saying absolutely no approaches were made to any member of the board about a potential sale?

[Michael DeMarco, executive]

No, no, no. What I will say is this. My knowledge, which I attend every meeting. I'm not excluded from any conversation. I've had direct conversation with every member. There's been no written or oral bid that I would tell you, as an investment banker, made that conversation. Has someone said to us, "Hey, improve this. You guys should go private," as you just did with the phone with us, Michael, yes, we often get that conversation. We should go private. Great. That's really lovely. As I said earlier, my phone works. I answer it. My e-mail works, right? Categorically, no written offer, no verbal communication. No banker came and said "Here's how we'll do it. This is what goes," so on and so forth. Have people made comments the way you did? Yes. Do we try to -- but we should we react to it? Could you get the check for me, Michael, I can sell the company to?

[Michael Bilerman, analyst]

So the flipside of that is, if so, do you think the company should run the process? Do you think you should dual track, sort of go down the road of what you're doing now but also go out there in a team when --

[Michael DeMarco, executive]

Michael, I was an M&A banker. I made my stock in trade. I am running a process. I list, every quarter, a detailed summary of the assets and cash flows so someone can make an informed decision about what we're worth versus what we're trading. No one, and I mean no one, is more transparent than Mack-Cali, right? And I want it more easy for people to get on the phone and have a conversation with, right. And also by the way -- I want to finish. The one thing that we do that other companies haven't done and we don't seem to get enough credit for, but if I wanted to get credit, I had a different job, right? Let me put this for you very simply, we handle our problems straight up, every single day, in a direct manner. You tell me a list of things that we have avoided or haven't done, I'll be happy to deal with it. You want to get out of the business, out of segments and lines, get out of joint ventures, take the pay of selling assets, restructure. I am down $16 million in overhead since I took over 325 individuals. This is not a shop that's sitting around waiting for a phone call.

[Michael Bilerman, analyst]

Right. Just last question, just not related to governance. Just relating to the 3 big renewals. So on the 3 renewals, so when was E*TRADE, Sumitomo and First Data, when were those leases scheduled to expire originally?

[Michael DeMarco, executive]

First Data has like 5 or 6 years left on it. It was a deal that we have done, Michael, we had expanded First Data, when I first got it, from 1 to 2 floors. So that was like 3 years ago with a 10-year deal. Then they wanted to go to a third floor and we took them all the way out. What E*TRADE was, basically, they have 2 years left, right. It was a '21 expiration. One interesting one is Sumitomo. Sumitomo had 3 to 4 years left, and they went out another 15. At the end, almost 18 years left on that lease now. It's a really long-term commitment to us, which has relatively the roll-up. So they all expanded and extended, but in different times. So just to summarize, First Data had 6 left, Sumitomo had 4 left and E*TRADE had 2 left and they wanted to get the --

[Michael Bilerman, analyst]

And these were -- you did new leases with them or you blended and extended? Just to understand the dynamics of economics.

[Michael DeMarco, executive]

So you -- basically, it's combination of both. You actually do a new deal, Michael, on each individual space. The broker gets a different commission. It's just calculated differently. And then you extend and then blend the remaining deals to cover that term, but it's done in segments. So each one of them would have like -- so E*TRADE had 3 different parts. Sumitomo had 2 parts. And then First Data had also 2 parts to it.

[Operator]

As there are no further questions in the queue, I would now like to turn the call back over to your host today for any additional or closing remarks.

[Michael DeMarco, executive]

I hope everyone had a great Halloween with their children yesterday. I know we did. I wish everyone comes by and see us at NAREIT next week. We'd love to have a conversation with you. And thank you for your time and attention today.

[Operator]

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