Good day, everyone, and welcome to the Mack-Cali Realty Corporation Second Quarter 2016 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Michael J. DeMarco, President and Chief Operating Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining the Mack-Cali 2016 Second Quarter Earnings Call. This is Mike DeMarco, the President of Mack-Cali. I'm joined today by my good partners, Mitchell Rudin, CEO; Marshall Tycher, Chairman of our Roseland subsidiary; and Tony Krug, CFO. On a legal note, I must remind everyone that certain information discussed on 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. As always, we look forward today to an open dialogue about our results and plans going forward. We again filed expanded disclosure about operations in 2 supplementals: one for Mack-Cali office portfolio; and one for Roseland Residential Trust, our residential subsidiary. We'll be referring to key pages in those supplementals during this call, and as always, we'll continue to provide the best disclosure of our operations, strategy and results. We're going to break the call out again into the following sections: Tony will recap our operating results for the quarter; Mitch will discuss our office leasing results and our view of the markets; and then Marshall will provide an overview of the multifam operations. I will then provide an overview of our capital market activities and comment on our views of our guidance and update our strategic plan before we take your questions. As disclosed last night, our results show we had another excellent quarter, showing continued positive results for the first 6 months of the year. Our hard work over the last 15 months as a new…

Thanks, Mike. With respect to earnings, as indicated -- excuse me, on Page 8 of the supplemental Core FFO for the quarter was $55 million or $0.55 per share as compared to $47.7 million or $0.45 per share for the quarter ended June 30, 2015. For the current quarter compared to last year, the 22% growth in FFO per share resulted primarily from increased base rents and lowered net property expenses in the current quarter. We reported net income for the quarter of $48.4 million or $0.54 per share as compared to $35.4 million or $0.40 per share for the quarter ended June 30, 2015. The included net income for the quarter ended June 30, 2016, was approximately $50 million of net gains from property and debt-related transactions. As shown on Page 24, same-store NOI was up 8.3% on a GAAP basis and 2.1% on a cash basis for the quarter, just about where we thought we would be. Total company G&A for the quarter was $12.8 million, with $10.7 million for the office public company and $2.1 million for our RRT subsidiary. We will continue to focus on G&A expense as we streamline our portfolio. Turning to our financial statistics as indicated on Page 23. Our total indebtedness at quarter end was $2.3 billion, with a weighted average interest rate of 4.79%, down from 5.22% at year-end, and we expect to reduce that further as we move forward in 2016. Net debt-to-EBITDA annualized for the quarter was 7.2x. We had a fixed charge coverage ratio of 2.6x for the quarter and an interest coverage of 3.4x. Our $600 million credit facility had $75 million drawn at quarter end and $248 million drawn as of today. We will draw on the line to fund some of the opportunities that Mike will cover in his capital markets overview. I will now turn the call over to Mitch. Mitch?

Thanks, Tony. Our portfolio of commercial properties was 86.7% leased to June 30, down slightly from last quarter but up 440 basis points from the same period last year. Rent roll-up for the quarter was 27.3% on a GAAP basis. During the quarter, we signed 74 deals for almost 700,000 square feet and mitigated our 2017 expirations by over 275,000 square feet. Year-to-date, we've signed 1.8 million square feet of transactions, momentum we're very pleased with. The most significant second quarter deal was Deutsche Bank's renewal of over 125,000 square feet at Harborside in Jersey City. The tenant's lease was originally set to expire in 2017. They'll be vacating approximately 275,000 square feet in late '17, which will allow us to advance plans for the redevelopment of that building, which has our best address in Jersey City. Apart from Jersey City, other notable deals included Verizon's renewal of 95,000 square feet in Central New Jersey, which would have otherwise expired in 2017, as well as the 22,500 square foot renewal with Wells Fargo in downtown White Plains. The implementation of our strategic initiatives surrounding leasing is paying off in a wide range of improved transaction metrics. Average rents, lease terms and tenant retention are all improved year-to-date over the first 6 months of 2015. As seen on Page 13 of the supplemental, the remaining 2,006 expirations are quite manageable, with just over 700,000 square feet. Our view today is that we are likely to retain about half of those expiries, and we're still targeting a lease percentage in the 89% to 90% range for year-end. Progress continues on our 2017 rollover as updated on Page 6 of the supplemental. We currently have leases out on 100,000 square feet of '17 expirations and continue to engage in discussions with the remainder.…

Thanks, Mitch. At quarter end, Roseland's platform included 5,434 operating apartments and 2,560 apartments under construction. The stabilized portfolio had a leased average percentage of 97.1% as compared to 96.6% last quarter. Rents in our largest 2 submarkets, Jersey City and Overlook Ridge were up 5.2% and 4.5% year-over-year, respectively. Our operating portfolio is inclusive of the recently opened M2 at Marbella in Jersey City. The 311-unit 39-story tower was 45% leased at quarter end, representing a leasing achievement of 139 apartments in just 2 months of initial lease-up. As of today, the property is 60% leased. Since opening, market rents have increased from $44 a square foot to $48 a square foot. Roseland's current construction activities are highlighted on Page 29 of the supplemental and includes scheduled deliveries of 400 apartments in the second half of 2016 and 1,788 apartments and a 372-key hotel in 2017 or shortly thereafter. From this active construction portfolio, we project value creation to Roseland's 93% average ownership of $279 million and net cash flow in excess of $38 million. Through the remainder of 2016 and as highlighted on Page 31 of the supplemental, we forecast 6 additional residential starts, totaling 1,217 apartments. These starts include 2 of our successful re-purposing efforts, the third quarter start of the 209 apartments in Bala Cynwyd, Pennsylvania and the fourth quarter start of 200 apartments in Short Hills, New Jersey. At year-end, we will have the remaining well-positioned land portfolio of approximately 10,000 units. One of the company's primary goals has been to increase ownership and reduce subordinated joint venture interest. To that end and as highlighted on Page 7 of the supplemental, in the second quarter, we executed the following transactions: at Portside in East Boston, we acquired Prudential and a minority partner's interest, which increased…

Thanks, Marshall. Moving on to guidance. As we disclosed last night, we increased our expected results full year 2016 core FFO to a range of approximately $2.07 to $2.13 per share. We're raising the bottom and the top of our range and moving the target guidance at this time to $2.10 and expect third quarter FFO to be approximately $0.54 to $0.56 per share. We feel very comfortable with the new target of $2.10 and believe that $2.13 is clearly achievable if we have continued success. As indicated on Page 19 to 21, some updates to our 2016 assumptions are as follows we'd like to highlight: we're not changing the leasing percentage range of 89% to 90%; our leasing activity is strong, with the Waterfront at a projected 95% for the quarter-end; Metropark was projected to be at 99%; and Parsippany will probably gain 2% occupancy in this last quarter. We achieved 90% of our combined Waterfront core and flex portfolio in the second quarter in a row if you include the post-June 30 closings of the Zurich and Omnicom transactions. Two, we are increasing our same-store NOI projection, providing disclosure on both our original and post-sale portfolio. This is an ongoing process. We'll be continuing to move assets in and out of those buckets as we continue to drive rents in all assets. We achieved excellent results in this quarter as indicated on Page 25 of the supplemental. For the post-sale portfolio, we're expecting to achieve 9.5% to 10.5% GAAP, 5% to 6% cash. Three, regarding noncore asset sales, we have a target of $750 million. We're ahead of schedule in achieving planned results. And the blended cap rate on sales for the year should be close to 6.5%. To date, we have closed $400 million. $200 million is…

[Operator Instructions] And we will take our first question from Manny Korchman with Citi.

Mike, if we think about the Roseland JV and take sort of 2 of your comments separately, one, it sounds like that might not happen at all, if I'm reading into your comments correctly. And two, if it happens, it sounds like it's going to be smaller in size. Can you just walk us through sort of what's changed? And maybe the other question is why that hasn't happened yet.

Excellent question, as always, Manny. But first before that, how's your wife feeling these days? Did you have the baby yet?

Not yet.

I hope she's feeling well. I know it's very been very hot lately. Let's go through it, Manny. A year ago, when we started this process and 100 days later, we developed a plan and we presented it at the Four Seasons, which you were in attendance. We basically took a page out of a gentleman I worked for and had the pleasure of working for a number of interesting and talented individuals. That gentleman's name is Wesley Robert Edens, he goes by Wes by his enemies and friends. He's the Founder and Chairman of Fortress. Wes taught me something when I worked with him for the 3 years between 2007 and 2010, which was probably the longest decade of my life, which was that you never start anything unless you expect great results. And great results do not come from reasonable expectations. So our plan that we put out, which was 20 million square feet and 15,000 units, was an ambitious plan, which everyone questioned whether we could execute on that. A reasonable question, by the way, no doubt. We've got into 20 million square feet as clearly indicated in our pages, with sales activity will get us there. It -- Mitch and I talked about whether it's the right 20 million square feet, which we're still working through. And Marshall has made great strides as to getting the platform towards 15,000. When we put it together, there was a question out there about how much capital we would need at the very maximum. And in that plan, we had some speculation about some deals. We would do new deals, some projects in Jersey City and a few other things. Let's look at what we've done so far. To date, we've improved earnings dramatically, kept our leverage the same…

It did. The other one was on acquisitions. And it sounds to me or reads to me like you guys are leaning more and more towards growth through acquisitions. Was just wondering if you could give us sort of flavor of what those might look like, what markets are targeting especially since there's plenty less product trading in your sort of very core markets, especially on the Waterfront. And how you think about valuation in that concept.

Great. Well, one, we don't think we're going to do a ton of acquisitions per se. We don't think it's going to be growth. We think it's rearranging the furniture in the room. We got down -- Mitch and I were talking about it with Marshall earlier. When we took over a year ago, if you took the total number of assets and the capitalization of Mack-Cali the day we took over, it came back to $12 million. It means the average asset we owned was $12 million. Unless we're in the storage business, and we were like in the public storage, that didn't work for us. So we've been selectively going through in selling assets. And we're going to sell 4.5 million square feet this year or some greater margin or less that number and get down to more core. We like the assets we bought. The 2 deals we bought in Metropark, both of them will be 100% rented by the end of this quarter at numbers that exceeded our expectations. The building in Hoboken we believe is a big winner. Any space we get back in there, the market has gone up several dollars since we underwrote it as the market has strengthened. We would buy in the Waterfront at right numbers. Remember, we passed on the 2 first deals that were given to us, which were purchased by Spear Street, which is 70 & 90 Hudson. So we've been, in our view, disciplined. What we have committed capital to is obviously investing in Roseland, so we've been buying our partner's interest, $30 million here, $40 million there, it does add up over time. They've all been excellent deals, and that's made that story so much more transparent. The markets we would look at today, the top…

And our next question comes from John Guinee with Stifel.

Oh, John Guinee here. Any chance that while you're answering Manny's question, his wife gave birth?

No question.

Mitch, when we caught up a month or 2 ago, I thought you -- this -- said some very interesting about the Waterfront market is really a Manhattan market where Central Jersey is very, very or Northern Jersey is a very, very different market. Can you elaborate on that and really talk about why this go around the Jersey Waterfront will attract tenants where over the last 2 or 3 decades, it doesn't quite seem to have ever really worked over the long term. Why is it going to work this time?

Let me relate an anecdote to you. I spoke to the broker, who was quite talented, who represented Omnicom. We're congratulating each other on the deal. And I -- he says, you know, when I started the process, I was given a mandate that we couldn't pay more than $45 a square foot, and we had to make sure we didn't move to a location that was disruptive to our employee base. And he says, I looked at Brooklyn, I looked at Queens, I knew I couldn't find anything in New York, and we needed to be somewhat approximate to our midtown and downtown locations. He says, I've never been to Jersey City. I went there, it satisfied every one of our criteria. And as we've talked before about the advantage -- not only our rents, we call them $40 a square foot, but as you walk through the benefits program, it takes you down to near 0. In addition, the transportation is terrific. And what's also happened has been that this transformation of downtown. So if you look at the statistics across the board from the brokerage companies, for the first time, vacancy in Downtown is below that of Midtown. And that's extraordinary. That is a permanent shift in what's happened to New York. So that tells a very compelling story, and one that's not going to change. We're in single-digit availability Downtown today.

Great. Great. And then... perfect.

And our next question comes from Jamie Feldman with Bank of America.

I guess just starting out, can you guys talk about -- you bumped guidance $0.03. You moved several of the assumptions around including the equity raise. Can you maybe just talk about what were the biggest changes in your mind that moved those $0.03?

We've had better results on the leasing, Jamie. We set out to lease out our portfolio in order to give us cash flow. So we've done a couple of things. One, you noticed -- well, we think our G&A is still a little too high and that's from an overall point of view, we'll take note of that, it hasn't increased. So we've put a hiring freeze in to cut the static. So as our revenue goes up, what drops to the bottom line. We have margin improvement as in all other organization. When we started this, we had assumed that you could rent in Jersey City at $30 or $32. We're actually achieving low $40s. That also drops it to the bottom line. We've also rented up Jersey City to the Waterfront to a 95% level this quarter. That's just going to drop more numbers to the bottom line. We've also had a better opportunity to basically replace one set of assets with another, and at some cases, have accretive results. As we mentioned earlier, we bought 2 buildings in Metropark and they're both full now, right, where we had sold other building and in order to buy them, that weren't full and didn't have growth rents. So you take all that together and combine that while Marshall has been actively going through and getting his subordinated interest to wholly-owned, each case he does it, the invested dollars are coming back at 11% and 12% as we've made mention in a number of times. That adds to the bottom line. All that combination so we started the year, Jamie, remember with $2 to $2.10 with a $2.04 midpoint. That was disclosed last September. Six months later, we're based the other $2.10 midpoint, looking at $2.13, and as I said earlier to comfortable, so comfortable if results continue we can hit that. So we've had $0.10 outperformance for all the things that I have mentioned to you.

Okay great. That's helpful. And you guys talked about your '16 expiration, some of them, a couple maybe there that it doesn't sound like you’re covered with an 80% or so retention rate. Can you maybe talk about the spaces expect to get back in the back half of '16 and '17 at this point?

Well, just a couple of things. We have -- I'll turn over to Mitch in a minute. The -- '16's light. I mean, one of the things that people have commented on are leasing volume being down. Our leasing volume is very, very directly affected by how much space we're coming -- have become each quarter. This was a more normal year for us, 1.7 million square feet. Next year's going to look like 2 million square feet. But when we started a year ago, that was like 4 and change. It was going to be abnormally large year. And we've been able to whittle it down to half the size in less than a year. So we don't really feel concerned about expirations. I would tell you, we have a couple of deals the close post quarter. So Omnicom and Zurich, which we disclosed, if they win in the prior quarter, it would have been a stellar quarter because we would have had different results because of those 2 deals. This quarter, we already know a couple of deals that were under -- with -- been tapped to be the person that's going to get the deals if we can close the lease in the amount of time less than a quarter, it will show up. That's about 200,000 square feet. We have 100,000 square feet that's a replacement tenant that also we've been tapped or likely to get. So we're looking pretty good, but we also noticed that if slow, a little slow on tours this month because of the weather, because it's August and because maybe people just decided to take a vacation. But when we -- and I'll turn on the mids. When we look at '17, we whittled that number down, the Deutsche Bank space is coming back to us. We feel comfortable about that. It was $31 to $33 expiring rent and the best building in -- we have in all the sites is 90 feet from the path, it's right across from the Hyatt, Jamie, as you remember from the tour. It has all the conveniences. We can redo that building and hopefully get outstanding rents for it. But, Mitch, do you want to embellish?

Yes. Let me just -- just 2 points because Mike covered it pretty comprehensively. First, as I indicated in an earlier call, basically in '16, we're dealing with singles and doubles. We don't have any space remaining that's over 50,000 square feet. And so we anticipate a fair amount of that is flex. From the likes of it, we'll be finishing that up. And as we go into '17, a good part of those larger vacancies come up in the -- we don't get that space back till October 1, so we're 15 months from now. And third, let me just reiterate what Mike said in his remarks, not only are we reinforcing our commitment to what we indicated -- our guidance about 89% to 90%. We probably are feeling stronger about it today than we did -- when we announced it last quarter.

Okay, that's helpful. And then finally for Marshall, we've heard of moderating rent growth or some rent declines in the apartment sector. Can you just talk about what you're seeing in your markets?

Sure. In a couple of the submarkets I mentioned, we've had some actually substantial rent growth. Jersey City continues to astound everybody with its rental numbers. But clearly, the market is slowing up, I think it's really been a tremendous amount of supply, and I think in the suburban markets, we are seeing rents flattening out a little bit. I mean, so rent growth is moderating, it's not flat overall, but maybe in submarkets, it's flat. Our 2 largest markets for our ownership, being the Waterfront, Jersey City and Overlook Ridge, we're still seeing good submarket rent growth there. But there's no question, the industry overall is seeing a slowing up.

So do you have a sense of how much you can push rents this year? Or what are your latest thoughts?

It's submarket to submarket. So as I mentioned in my comments, we were doing a lease-up of Marbella II, we've raised rents 10% during the course of the lease-up. So we really look at it every day to see -- we have expirations constantly unlike the office business. We don't know when somebody's going to leave until they give us notice. But -- and it's frequent. But we're not pushing rents too aggressively. We're trying to maintain our high occupancies, and I think you'll see it just submarket to submarket being a minor growth, but I don't think it'll flatten, at least not in the next 2 quarters.

Our next question comes from Jed Reagan with Green Street Advisors.

I guess, just following-up on the last question. So in terms of reducing the Roseland development [indiscernible], I mean, so should we think about that largely as a response to slowing fundamentals in your core markets? Is that fair to say?

No, actually the opposite. I think it was the statement I made. When we started plan, we were aggressive about pushing things forward. Now that we've worked the market for a year or so, we look at the URL project and say, let's see how we can improve those results. Do we have to change the unit mix? Do we have to make it, the [indiscernible] different? And when you draw these deals that, that building alone is then second phase is that -- likely to be a $700 million complex, you want to get it right. And then to be very candid, we looked and said, okay, do we want to sell a piece of it? When we raise equity, we're really basically giving away part of the returns. Or can we work the balance sheet a different way, and to be really candid, Jed, should we have as many suburban assets as we do or should we convert some of that equity into some other form of multifamily investment. And we look at that constantly. So we've had a good experience about selling and redeployment as evidenced by our results. And believe we can both sell, deleverage slightly and redeploy. Now as Marshall pointed out in his remarks, we have $38 million to $40 million, probably a little bit more, coming in for that construction in progress. That's going to add literally $0.38 to $0.40 to our bottom line, which takes our numbers from the $2.10 and make it $2.50 at one day in the future, not too distant future. The question is, as you continue to circulate that cash flow, what's the right amount of development on the balance sheet? Right now, we have a CIT of about $400 million. And we're judging our balance sheet as we go through it and look at our results and say, what's the right number. Look, we're very confident of our -- where we are in the leverage scale and how you have to produce the right results.

But Jed, we do have a significant number of starts still remaining for the second half of this year as well as going in 2017, but we have, in certain instances, made decisions on projects. For example, our prior start schedule had a start in Center City Philadelphia. We made a decision that, that market had, had a great move in rents, but we didn't think it's going to continue and costs were going up, and we made a decision not to develop that, not to close on the site and build that project. And as Mike said, a couple of large city jobs, just from a timing perspective, are going to slip probably into 2018, and that changes the dynamics of our numbers. But overall, we still like the markets we're in. We're getting good rents and we still project and most of the submarket are going to start product to have good returns.

Okay. And as you were out in the market and remain out in the market for the equity sale there in Roseland, I mean, are you finding good investor appetite for that deal? And if so, why not still do the full $350 million, use the proceeds for additional debt paydowns or additional liquidity?

Well, they came into really 3 buckets, which is kind of humorous. So the good news is, everyone liked the assets. There's no question, it's great assets. No one had a problem with management. I've never seen many people love Marshall. They wanted to stay with him forever. He gets more love here than he does anywhere else from being on the investor tours. And no one had a problem with the strategy, the bus into D.C. strategy in the markets we're in, everyone was fine with. They fell into 3 buckets. First bucket is, love it, I want to hold to, I'll pay you the price. We're not a seller, don't want, bought as in made the determination. We believe, we leave too much NAV on a second -- on the table. The second bucket is, okay, I want to put the money in, but I want to own half and I want control. But we really don't want to give up control. We didn't want to sell half. So the third bucket comes down to what we're dealing with now is the select institutional investor. We have about 5 to 6 that we're working that basically would do anywhere from 15% to 20%, could be as much as $350 million, we're trying to figure out how much we actually need and what type of control rights we give up. But since we don't really need the capital right now, Ned (sic) [ Jed ], and the stock is far different than when we started this process a year ago, it behooves us to basically make sure that we get every dollar of NAV we can for our shareholders and not rush to do a transaction just because it's available.

Okay. And you say you've put up 2 straight quarters of double-digit cash re-leasing spreads. And I'm wondering how representative those results are for future quarters. For instance, do you have a current mark-to-market on your overall portfolio?

Well, if you look at it, we believe that we are able to produce better results because we've had better action. And really if you think about it, the first quarter we took over, Mitch, Marshall and I, we were in the job for 40 days. So whatever the quarter results were, were actually -- we started June 2. That first quarter wasn't us. That was our predecessor, right? The second quarter that we took over, which was the third quarter of last year, we were able to push it a little bit, right? The fourth quarter, you really saw our mark on the portfolio, of how we influenced about re-leasing spreads, rents, turnover. The first half of the year, the screws are coming in. Now people lease the way we want them to lease. And you can notice that, as we mentioned in the disclosure we gave out a week ago, of the number of deals we have, [indiscernible] rolled up. One is flat and only a few are down. We think that's indicative of why did we have the portfolio. And if not, we're probably going to sell those assets and redeploy the money. It will pay down debt and so and so forth. We have been totally agnostic about what assets we own. If they don't perform, we will sell them. If they perform, we will keep them. So we believe one way or the other, we'll achieve the results that we have over the last 2 quarters.

Jed, if you -- 85% of the deals that we've done, both in this quarter and for the year, were roll-ups and a good number of them significant. And if you take a look at Page 13 of the supplemental and you look at just at the average rents, I mean, they are in the very low 20s. So a very -- a high likelihood that there will be significant roll-ups and that will continue.

[Operator Instructions] We have a follow-up question from Manny Korchman with Citi.

Hey, it's Michael Bilerman. Mike, there was about $800,000 of dead-deal costs. Just sort of wondering how many deals that related to how many different assets you were tracing -- chasing so do you -- elaborate a little bit on that.

It was the one deal that Marshall mentioned in Center City Philadelphia. It was the Chestnut Street deal. That was the $800,000. We had worked it for a while, decided to look at the numbers, made a decision pragmatically and decided to kill it. We don't have many more of those, if any.

Okay. And then just getting back to sort of leverage things. You have the net book to EBITDA business plan effect. You had sort of removed that column on the Roseland projected equity, which prior would have taken your debt to EBITDA down to, call it, the mid-5s, and certainly, from a 4Q perspective and a stabilized project perspective, you continue to dig down as all the initiatives that you do sort of around 7x and the low 6s. I guess walk through a little bit and you talked a lot about sort of the decision-making process on Roseland in terms of raising $150 million versus $350 million, and I can appreciate the equity needs within Roseland, but taking it the corporate Mack-Cali level, that equity certainly was at a part of the overall deleveraging plan. And it doesn't seem like the capital needs overall have changed meaningfully. So sort of help us just...

No problem. So when we looked a year ago, we were at $19, $21 when we first started. It was $17 when we started, we got $1 or $2 bump the new management team. We put together the plan, we said we really need to focus on both earnings and deleveraging the portfolio over time. We could have sold the equity any number of times. We get no shortage of bankers who walk in and explain to us this is the dumb moment to sell equity, right, at $22, at $25, at $27, and we obviously declined. When you put out an NAV as we have and continue to update that, we have the responsibility to achieve that NAV. We looked at one method of that was to raise equity at Roseland. We still believe that's a good thing to do. The question is, how much equity do we need. I feel comfortable operating at 7x and below. I'd like to get to the 5s over time, but I would tell you, I was a banker for a long period of time. I thought it was pretty good, at least I got paid well. No one actually wakes up and sells assets and winds up with 5.5x and has a great stock price. That's a fallacy. The great companies that have been created, and you can name them all, they all grew their way into it, day in, day out, they grinded it out, were incredible stewards of capital and wound up with the right number. There's no easy fix. We will sell assets and pay down debt. We will sell assets and reinvest in Roseland. We'll sell assets and redeploy appropriately. But the only thing that matters is how the revenue produces the bottom line growth that we need.…

Right. How about the element of -- in the early year swoon in REITs, your stock got backed down to below $18 as a lot of the stocks got hit. So it's not -- I can appreciate sort of last year, sort of when you came in and where the stock was, and it's certainly been point-to-point an unbelievable run. But I guess, how do you start thinking about the volatility in the stock markets, which is sort of beyond your control, and why your NAV is -- in your schedule $35 to -- $34 to $39, raising common equity, certainly a lot less dilutive today raising it at $28 than it would've been at $18. Do you feel any need to -- at all, either have an ATM program and chip away at that small amount of common equity? Or is that just completely off the table?

So I have a younger daughter. She might be listening to this call, right? Her name's Charlotte, and Charlotte's attending the University of Chicago where I went to business school. And she's a really bright kid. She's actually brilliant. She gets it all from her mother. But Charlotte is a classics major. This is why I have to work so hard. She studies Latin, Greek, spent the summer in North Israel digging around an archaeological dig, right? This is the reason I have to go to work everyday. Marshall's laughing across the table. But Charlotte says, hey, dad, you went to business school in University of Chicago? My friends want to go to business school. What did you learn? I said, well, I had 3 profs that were Nobel Prize winners, 2 judges who sit on the Supreme Court -- actually, were nominated for the Supreme Court, and I would tell you, I learned one great lesson. You know what that lesson is, Michael? Never run out of cash. That's all they ever teach you at business schools. If you don't run out of cash, you won't go bankrupt, right? So if you noticed, the line goes up, we find a way to repay it. The line goes back up, we repay it. We're going to [indiscernible]. We're going to bring down our overall rate. We're going to drive hopefully our debt service coverage, our target is 4x or as close to it as we can, right? And we look at equity the way CenterPoint used look at it, which I just had the pleasure of dealing with in my early career. If you remember them Michael, they -- it was incredibly precious to them, right? It's not something you just go out and say, so all the guys like…

And our last question is from Jay (sic) [ Jed ] Reagan with Green Street Advisors.

Just a couple of quick follow-ups, guys. Yes, looks like expense reductions have been a pretty big focus and you've been achieving your goals there. Can you just talk about some of the key areas where you've had some success in wringing out those savings?

So it's in our presentation. Initially, Ned (sic) [ Jed ] we had staff reductions. And we put up a hiring freeze in the last year. We can't hire a secretary without my sign off and I really mean that, I'm an accountant. People always say, well, you know, we're property managers, so and so forth. We intend to have a more drastic recovery starting probably in the next month or 2, where we were going to look at our resizing our portfolio as we shed so many square feet and look at the size of the overhead over that portfolio and think it can be slimmed down dramatically. We've had very good results, and our property management team gets credit for this on the operating levels. We went back and rebid all our contracts, snow removal, landscaping, so on and so forth. But Mitch and I both believe we need to reinvest in Class A assets. So we're going to be spending dollars in CapEX that we now have to enhance cash flow to bring our assets, the ones that we want to keep, up to the Class A level. So it's personnel, it's a little bit on professional fees, it's operating expenses -- sorry? Utilities actually also benefit. We've been better at that also. And we've also been better at a little bit of, some of these are passing through some expenses that we were lax in, in the past. We've taken a much more approach of a -- if it was your money, how would you treat the business with that approach?

That's helpful. And then it looks like you acquired a small asset in Newark last quarter. What's the thought there? And is that an area you'd like to expand over time?

So when we did the Bank of America transaction, we announced, it was on one of the calls, that they had to exit a Newark asset to take some additional space in 101 Hudson, which is in one of the buildings in the Waterfront. They wanted us to buy the asset. We negotiated what we think is a very good deal. We bought 2 gem light buildings that are Class A buildings in Newark. We have a tenant that we're negotiating with for the whole space. It should be an accretive transaction. Hopefully, we'll announce that transaction at the end of this coming quarter. So it's worked out well for us. So Bank of America still operates the space. They have a short-term rental on it. When they will roll out, we think we have a tenant taking the whole space back. And the buildings that we paid about $140 a square foot. If we had to rebuild them today, they're probably $400, structured parking there, backup generation, 200-person seat cafeteria, childcare center. It was built to the highest standards you could in institutional land. It's not something we wanted to do. We did it reluctantly, but we think we're going to wind up with their end actually doing okay on it.

Are you underwriting other assets there?

No, that's a -- that could be a one-time trip, Ned (sic) [ Jed ].

Our next question is coming from John Guinee with Stifel.

Okay. Let me just make sure I understand because there's been a lot of things moving around. What you're basically saying, Mike, is equity is still too expensive, leverage is very cheap, I'm still trading below NAV, I'm still increasing cash flow, I think a little more leverage is okay for now.

No. I think a little more leverage, John, has to be moderated. So we may go up slightly, but then we intend to sell assets to bring it down. I mean, I don't want to go to 8x. Tony and I talk about it, we call it the snowman. We don't want to have a snowman on our numbers, right? We started at 7.6x, we're at 7.1x. If we didn't do anything, fourth quarter annualized takes us just around to below 7x. And if you take the CAP as it comes over the next 18 months, gets us to mid-6s. But along that way, we might go up a little bit to get -- to enact something we think we need to do but then have a very good plan to bring it back down again. Over time, the line should be descending to something in the mid-6s to low 6s. It's just going to take us a while to get there. But John, just to embellish, John, when we started our debt service coverage at this company, which is horrific, was 6%. I've never seen a company, John, that had an ability after 7 years of low 0% interest rates have 6% debt. We're getting new quotes, John, at 3%. So our interest coverage can go up, hopefully above 3.4%, we may get to 3.8%. Hopefully, we'd like to get it to 4%. And at that level, you have to feel comfortable having high 3s or mid-3s debt service coverage, maybe even a 4% fixed charge coverage because we're limiting amortization on our involvement about a refinancing will hopefully drift up also. And our dividend actually coverage ratio has gone up. So if earnings keep on going, we think the right path is to drive within the confines of…

Okay. So another way to say this is we're a lot more comfortable raising cash via asset sales than we are raising cash via issuing common.

Right. But that is what -- that's what the difficult path is, and that's what people pay us to do. That's because it's easy to basically just say, we need to delever, we raise some cash, it sloshes around. It's the easy answer. The hard answer is to look yourself in the mirror and say, and these sales, John, are like hand-to-hand combat, right? Selling these small buildings in suburbia, sometimes it's easy, but most of the guys, most of the time, it's slogging it through. But it does get you the right results. You no longer have that asset, you no longer have the people that manage it. You no longer have the overhead [indiscernible] to it, you no longer have the bad results flowing through your numbers. So win, win, win, just a difficult process.

And that concludes our question-and-answer session for today. I would like to turn the conference over to Michael DeMarco for any additional or closing remarks.

Thank you for joining us. We'll see you when the weather gets a little cooler for our next conference call. Again next August 11, next Wednesday, we're having a property tour on the Waterfront. We invite everyone to join us. It should be a great day. And on September 12, we're having our Investor Day again at the Four Seasons. Thank you for your support, thanks for your interest.

And that concludes our presentation. We thank you all for your participation. You may now disconnect.