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Mack-Cali Realty Corp (NYSE:CLI)
Q1 2021 Earnings Call
May 7, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Mack-Cali Realty Corporation First Quarter 2021 Earnings Call. [Operator Instructions] I would like to take a reminder that -- 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 the company's press release, annual and quarterly reports filed with the SEC for risk factors that impact the company.

With that, I will now hand the call over to Mahbod Nia, Mack-Cali's, Chief Executive Officer.

Mahbod Nia -- Chief Executive Officer

Good morning, and welcome to our first quarter 2021 earnings call. I'm joined today by David Smetana, our CFO. I'd like to start by acknowledging the impact of the past 12 months have had on everyone's professional and personal lives. With the COVID-19 pandemic forcing a reevaluation of the most fundamental aspects of how we live and work. We've anticipated that U.S. economic growth will begin to accelerate this year, fueled by the sizable government stimulus, pent-up demand and recovering labor markets.

It certainly appears that we may be at an inflection point and at the start of an economic recovery. Nearly 1/3 of New Jersey's inhabitants are fully that committed, which should also help the reopening of the economy and return to office life in our backyard in the months ahead. While these are optimistic signs, we are cognizant that significant uncertainties persist, and the path ahead represents largely unchartered territory. As such, we remain focused on the initiatives that are within our control. These include simplifying our business, strengthening our balance sheet, and optimizing our operational efficiency.

Despite the unprecedented challenges of 2020, we had an active quarter and solid start to 2021. We advanced Mack-Cali's strategic transformation while generating value for our shareholders by continuing to monetize suburban office properties, signing a number of leases at Harborside and further developing our multifamily platform by advancing our two construction projects: RiverHouse nine and the Charlotte, while capturing leasing momentum at the upturn and the Capstone. More about these later. Our asset portfolio was 74.2% occupied as of March 31. The drop in occupancy compared to 78.7% as of year-end, was driven primarily by the previously announced departure of TD Ameritrade. They vacated 140,000 square feet in Harborside six, formerly known as Plaza 4A. This move was partially offset by the 78,900 square feet of new leases or lease extensions completed during the quarter, 58,200 square feet of which relates to our waterfront assets.

While the office leasing market throughout the country remains subdued, including the New Jersey market, which, during the quarter, recorded historically high vacancy rates, we are cautiously optimistic and have started to see a marked improvement in tenant inquiries. Next week, we'll be on latest update to our Harborside campus, where we have been working hard to develop a premier destination for employees, locals and visitors alike by introducing smart design solutions that meet tenant demand for high-quality office space and amenities. We believe we are well positioned to secure new tenants amid the market recovery, an increase in vaccinations and the reinvigoration of office life. During the first quarter, we also made significant progress toward simplifying our portfolio through the continued disposal of suburban office assets, having sold over $547 million or 1.9 million square feet year-to-date, representing approximately 2/3 of our year-end 2020 noncore assets by value.

We exited the Princeton office market with a $38 million sale of 100 Overlook Center and completed the $254 million sale of the Metropark portfolio. Subsequent to the quarter, we sold our 843,000 square foot ShortHills office portfolio for $255 million, generating approximately $100 million of net proceeds after retirement of the loan and costs. These sells were concluded substantially in line with our internal net asset values and pre-pandemic valuation of the properties. In total, these sales have provided us with approximately $370 million of net proceeds, which were used toward repaying our outstanding corporate bonds, further strengthening our balance sheet through the repayment of recourse debt. Turning to our multifamily portfolio. Since the start of the year, we've seen an improvement in leasing momentum. Our operating multifamily portfolio finished the quarter 93% leased, up from 90% as of year-end. We've seen strong leasing activity across a number of our assets, which we anticipate will allow us to continue reducing and eventually eliminating concessions.

On the development front, we're pleased to have opened two residential communities in January: The Upton, 193 unit upscale community in Short Hills, targeting affluent in Northern New Jersey; and the Capstone a 360 unit project in Port Imperial. The Upton achieved 37% occupancy at quarter end was 54% leased as of May 3. The Capstone is 39% leased, up from 25% at quarter end. Our remaining development projects comprising 1,063 units, include RiverHouse nine in Port Imperial, a 295 unit apartment building scheduled for delivery in the second quarter; and The Charlotte, a 750 unit tower located on Jersey City's Waterfront. I'd like to now turn to highlighting the evolution of our ESG efforts, in the ways in which we have renewed our commitment to operating in a more responsible, sustainable, inclusive and equitable manner across our portfolio. Last July, our Board of Directors, including myself, formed an ESG committee that formally endorsed several global sustainability initiatives, including the 10 principles of the United Nations Global Compact and the Task Force on Climate-Related Financial Disclosures.

As a result of our enhanced ESG efforts and disclosure improvements, including the introduction of new internal policies, Mack-Cali Realty was awarded an ISS quality score of three for environmental, up from a nine in October 2020. And a score of one for both social and governance, up from eight and two in October 2020, respectively. We are also one of only seven REITs out of approximately 250 REITs benchmark for an ISS quality score to achieve a score of one across all subcategories within the social segment. These scores are based on a scale of one to 10, with one being the highest score. While there is still work to be done, I'm pleased with the tremendous progress we've made to date, and we're encourage those interested in learning more to review our 2020 CSR report, which is available on our website. With that,

I'm going to hand it over to David Smetana, Chief Financial Officer, who will update you on our financial performance during the quarter. David?

David J. Smetana -- Chief Financial Officer

Thanks, Mahbod. We reported core FFO per share for the quarter of $0.18 per share versus $0.33 per share in the prior year. The year-over-year reduction reflects the impact of our suburban asset sales program as well as the impact from the pandemic on our hotel, parking and multifamily operations. Lower-than-expected asset sales timing, lower interest expense due to capitalized interest and better than budgeted expenses on both the office and multifamily platforms, led to a $0.03 per share better result compared to the high end of our Q1 guidance range of $0.15 per share. Please note that our adjustment to core FFO included a $0.025 onetime G&A expense related to management restructuring and the CEO change.

The Waterfront office portfolio had a same-store cash decline of 10.9%, largely attributable to less parking income year-over-year and the previously announced move out of an anchor tenant at Harborside six, offset by expense savings of 3.8%. We have 201,000 square feet of our Waterfront office campus leases remaining to expire in 2021, including 44,000 square feet related to the remaining TD Ameritrade move-outs at Harborside six, and 100,000 square feet related to the Natixis move-out at Harborside five. As Mahbod detailed, our multifamily portfolio is showing positive trends across a number of metrics.

Although revenues were off 12.2% on a year-over-year basis as we anniversaried the last pre-COVID quarter, our occupancy increased by 330 basis points sequentially from the fourth quarter, and net effective rents stabilized due to lower concessions. We showed only a slight sequential same-store revenue decrease of 30 basis points and a sequential NOI increase of 7.3%, as real estate taxes and repair and maintenance expenses normalized from the fourth quarter. Transient revenues remained depressed for the quarter as our hotel operations were, again, limited to the residents in portion of our dual flagged hotel at Port Imperial, which continued to run near EBITDA breakeven. Notably, both the EnVue and Hyatt Hotels are now fully operational with the Hyatt opening in April and the EnVue in May. We anticipate the contribution from these operations to be subdued for the remainder of the year.

Turning to the balance sheet. In the quarter, we reduced our line balance to 0 and carried $261 million of cash on the balance sheet at quarter end. These proceeds, along with the proceeds from the sale of the Short Hills portfolio, will be used to repay corporate debt and will remain on our balance sheet until our bonds are retired on June 6. We have only one mortgage maturity remaining in 2021, a $3.9 million mortgage on a small retail condo within Roseland, which we intend to refinance. Yesterday, I'm happy to announce we entered into a new agreement on a $250 million revolving credit facility and a $150 million term loan. This facility provides us with the flexibility to lease and invest in our Waterfront portfolio while continuing the growth efforts surrounding our multifamily platform. I now would like to provide a couple of highlights on our outlook for the remainder of 2021.

First, we would like to remind everyone that we held our Metropark portfolio for nearly the entire quarter and it was sold at a 7% cash cap rate on March 25. Shortly thereafter, on April 20, we sold our Short Hills portfolio at a cash cap rate of 8.5% based on our Q1 annualized cash net operating income. As a condition of calling our bonds, we will be required to hold cash for 30 days in the second quarter to fund the bond redemption and make-whole payments. Importantly, upon completion of the remaining suburban asset sales, we expect to derive approximately 55% of our NOI for multifamily operations and 45% from our office portfolio in the back half of the year. We believe this is a notable accomplishment, not yet recognized by the market. Finally, we'd like to take a moment to touch on guidance. With both the economic recovery and our company transformation evolving, we will not be providing guidance at this time. And with that, that will conclude our prepared remarks.

Operator, can you please open up the line for Q&A.

Questions and Answers:

Operator

[Operator Instructions] We will now take our first question from Steve Sakwa from Evercore.

Steve Sakwa -- Evercore -- Analyst

Thanks. Good morning. I guess with the suburban sales now kind of largely in the rearview mirror, I guess, there's maybe $200 million or so left to sell, maybe we can just kind of focus on the Waterfront leasing. You guys made some comments about changing some programs and seeing more demand. Can you just maybe speak to the types of tenants that you're seeing? Are these native New Jersey companies just moving to the Waterfront? Are these Manhattan companies looking at Jersey as a cheaper alternative? And maybe you could update us on the grow New Jersey incentives.

Mahbod Nia -- Chief Executive Officer

Steve, thank you for the question. It's a good one. So I -- ultimately, we've got high-quality assets in a great location that we've been investing in and through the rejuvenation of that Harborside, Waterfront, we feel that the appeal of those is only going to be enhanced through the quality of the office offering and also the amenities that will be on offer. After that, we've got a best-in-class internal and external leasing team in place now focused on leasing that vacant space.

We've got the piece of the vaccine rollout that's been progressing extremely well over there. And a planned return to the office, kind of feel like the worst is behind us. And then add to that, as you mentioned, the package, which really can be significant. We understand to the tune of potentially $10 to $34 a square foot for qualifying tenants. We just think the appeal of that whole Waterfront is only going to improve from this point on. And the comment we made about tenant inquiries, it's been quite a varied set, actually. Some incumbents, some looking to move into that area, but it's been a very encouraging early sign, I would say, and validation of all the effort that's gone into that positioning that Waterfront portfolio for leasing hopefully in the near future.

Steve Sakwa -- Evercore -- Analyst

Okay. Thanks. And then maybe second, just turning to the residential portfolio. You obviously saw a nice uptick sequentially. Maybe just talk about what you guys are seeing on the demand front as folks are coming back to the New York area. Folks are leaving their parent's homes. What kind of demand uptick are you seeing? Is that trend continuing into kind of April and May? And what's happening with concession packages today versus maybe two to three months ago?

Mahbod Nia -- Chief Executive Officer

Yes. So the -- certainly, the return of demand and what you've seen in the uptick seems to be, again, somewhat kind of broad-based, but is linked, we believe, to the beginning of the return to some remnants of normality, should the vaccine rollout and the return to more ordinary living and working conditions. So we're optimistic. It's been a good quarter, and we're hopeful that, that's going to continue. Again, great to. So what's the second part of your question, Steve?

Steve Sakwa -- Evercore -- Analyst

I was just trying to get a sense for -- you showed, I think, a couple of points.

Mahbod Nia -- Chief Executive Officer

Concessions?

Steve Sakwa -- Evercore -- Analyst

Yes, concessions and just kind of, did the trends continue in April and May?

Mahbod Nia -- Chief Executive Officer

Yes. What's been interesting in the first quarter is we've actually been able to continue to increase occupancy while cutting back concessions. And in -- on certain assets actually completely eliminating concessions. So all again, really positive signs and again, testament, we believe, to the quality of the assets that we've got.

Steve Sakwa -- Evercore -- Analyst

Great. Thanks. That's it for me.

Mahbod Nia -- Chief Executive Officer

Thanks, Steve.

Operator

We will now take our next question, Jamie Feldman from Bank of America.

Jamie Feldman -- Bank of America -- Analyst

Thank you. A follow-up on Steve's question. Just can you provide a little bit more granularity in terms of the interest in the Waterfront assets? Just kind of who's looking and what kind of tenant sizes possibly? And I know you guys have talked about life science in the past. Is that still something you're thinking about?

Mahbod Nia -- Chief Executive Officer

Yes. So not really looking to give any guidance at this stage. I think it's too early to provide that. But what I would say, again, is that with the whole package that's there between what we are doing on the Harborside to reposition those assets. And you look at Plaza one, and it's -- already it looks like a very different building to that which it was only a couple of quarters ago. And what seems to be pretty widely planned return to the office, we feel like the worst is really behind us, and that's where we feel the tenant inquiry is coming from.

As I mentioned, it's quite a varied group. And it's also very fairly varied in the size of space that tenants are looking for, but all really positive early signs from our perspective. In relation to life sciences, that's obviously an area that you'll know there's considerable demand at this time. And so we've been looking at and continue to evaluate the conversion potential of some of that space to be able to feed into that strength.

Operator

We will now take our next question from Manny Korchman from Citi.

Manny Korchman -- Citi -- Analyst

Hey, everyone. Good morning. Mahbod, as you speak to that new leasing team that you have in place, sort of what specific changes have they made over the last few months to try to find those new tenants that, arguably, before the pandemic, weren't necessarily looking in Jersey City? What are they doing now to attract those tenants to that market?

Mahbod Nia -- Chief Executive Officer

Good to speak with you. So Manny, thanks for the question. So look, from my experience, when assets are stubborn to lease, typically somewhere in the chain between prospective tenant and landlord, something is broken. And usually, it means landlord is either not providing the right products that the tenants seeking or even worse, it's not the right product, and it's not at the right price point either. So I think what we've done is we've gone a long way to reestablishing relationships with the brokerage community. We've been proactively reaching out to tenants that we believe could really benefit from the move to this location.

And we've been looking to really establish that chain over again. And I really feel like we've done that. And so I think the chain is intact, and we've got the right outreach. And that's why I believe we're seeing the sort of inquiries that we're seeing. and coupled with the investment into the product, we've been improving the product. So I believe we're creating a product that will be in demand and that we'll be able to offer competitive rent levels to attract those tenants that are looking to move to that space. Leasing has been happening. I mean, we just haven't been capturing our fair share of it, which, again, just given the location and quality of these assets, we hope to change going forward.

Manny Korchman -- Citi -- Analyst

Thanks for that. And then just as you've embarked on this journey selling a lot of suburban, to Dave's comment earlier, the multifamily is now a larger piece, at least for the year than the office. Is there any discussion or any plan to sell maybe some of the more core Waterfront office? Or do you think that your scale is where it needs to be to keep that as a portfolio?

Mahbod Nia -- Chief Executive Officer

Well, look, I think at this stage, to answer your question, would we consider something like that? Absolutely. I mean so the Board and management are highly focused, as you know, on creating value for shareholders, particularly in this instance, given how we've come to be in the seats that we're in. And we'll continue to evaluate all options that are available to us and achieving that goal consistent with our fiduciary obligations. Having said that, at this point, we're focused on things that are within our control. And those initiatives, including the -- what we believe will be highly value-enhancing rejuvenation of the Waterfront office complex.

Manny Korchman -- Citi -- Analyst

Thanks very much.

Mahbod Nia -- Chief Executive Officer

Thanks, Manny.

Operator

Our next question from Michael Lewis, Truist Securities.

Michael Lewis -- Truist Securities -- Analyst

Great. Thanks. Following up on an earlier question about the office leasing. I wanted to ask about that pipeline of inquiries, how much square footage do you think is out there for you to target? And along those lines, we talked quarter after quarter kind of about the pipeline. There hasn't been leasing. So to the extent that prospects are looking, where are they ending up? Is it -- has it just ground to a halt because of the pandemic? Are tenants choosing Manhattan? And are they going to the Sun Belt? What's kind of been the headwind there?

Mahbod Nia -- Chief Executive Officer

So I'd say actually, office leasing across the U.S. has been subdued during the timeframe that we're referring to really when we've got involved and started to really kind of look at repositioning that Harborside. So I don't think it's been a case of there's been significant leasing in Jersey City, and we've missed it because tenants have elected to go elsewhere. It's really just been that leasing has been subdued. And that just hasn't been the volume. That's what we're seeing changing. How large is the opportunity? Very difficult to say at this point.

But what we are seeing, as I said, is encouraging signs that lead us to believe that office is very much alive, and firms are generally looking to return to an office of some form and that the assets that we have with location, the quality, the flexibility of the floor plates, should provide a good option to tenants that want accessibility to Manhattan, but at a significantly lower cost. As I said, particularly when you factor in the new incentive package, which we believe will be of interest to many qualifying tenants.

Michael Lewis -- Truist Securities -- Analyst

That makes sense. And then on the apartment side, how do you think about -- do you think now is a good time to be starting apartment developments to maybe deliver into that 2023, 2024 window? And if so, are you kind of hamstrung at all from the strategy and the rest of the company and where the balance sheet is?

Mahbod Nia -- Chief Executive Officer

It's a good question. So we've been clear about wanting to unlock the potential within Roseland and grow the multifamily part of the business. We've just got to balance that with capital constraints, cash flow. And so all those considerations are really being contemplated right now to, ultimately, determine the go-forward strategy. So no decision has been made yet in relation to future development. But as with broader decisions that we'll be looking at, it will be, ultimately, a capital allocation decision and looking at the capital that's currently available to us and determining what its highest and best use would be.

Michael Lewis -- Truist Securities -- Analyst

Okay. And then just lastly for me. The first call -- first earnings call with a new CEO, I wanted to ask about kind of a broader strategy question. And you are almost done with the noncore asset sales. Back about two years ago, Bow Street, when they put out their slide deck, they seemed to suggest that they thought selling the noncore office and trying to delever the balance sheet that way and still deliver on the promise of the multifamily was sort of a doomed strategy, and they thought that buyers were lined up to buy pieces or all of the company. When you finish with the noncore asset sales, which will be soon, do you have a different view on the strategy? Or do you think the playbook then is focused on leasing the Waterfront and then see what options are after that? Or anything different on the strategy, any different view you have about where the company is headed?

Mahbod Nia -- Chief Executive Officer

Well, so look, I would say, at this point, I make more general comment that, again, we continue to evaluate all options available to us to create and unlock value for shareholders. But aiming our approach is going to be measured. It's going to be thoughtful. And any decisions that we make will be decisions that we believe to be in the best interest of shareholders. Now, for now, I believe that the near-term strategy is really to focus on things that are within our control, value-enhancing initiatives that we believe will, ultimately, create the value -- enhance the value of the company that we have. That could involve further simplification of the business over time.

It means looking at the operational efficiency within which we operate and looking at whether there's enhancements we can make there. It's looking at ways to further strengthening our balance sheet. And it's focusing, as I mentioned, on leasing and tenant retention. Those are things that we can focus on today that will, ultimately, create value. And the broader direction will determine as and when we have great clarity on the direction that we believe would be in the best interest of shareholders.

Michael Lewis -- Truist Securities -- Analyst

Thank you.

Operator

Tom Catherwood from BTIG.

Tom Catherwood -- BTIG -- Analyst

Excellent. Thank you and good morning, everyone. Dave, just a mechanical question. If I heard you right, it sounds like you have to have the cash in your balance sheet for the bonds for 30 days, as you mentioned. So you have, obviously, the cash from the recent sales, you draw down your new secured line of credit and term loan. You'll obviously pay the interest on that for a period of 30 days after that, as we get into June. Or do you redeem the bonds in June? Do we have -- is it a period where you're going to be redeeming them over time? How does that process kind of roll in?

David J. Smetana -- Chief Financial Officer

Yes. Thanks for that, Tom. So actually, last night, contemporaneously with the close of the credit facility, we funded the entire bond redemption of both issues, $575 million, plus another approximately $20 million for the make-whole payment. So how that trade actually works, it's kind of like T plus 30 days. So we do have to continue to pay our 4% interest on the combined bond issues for the next 30 days. So in the absence of guidance, I just wanted to highlight that for you and the other analysts.

Tom Catherwood -- BTIG -- Analyst

Perfect, perfect. And then if we think about it, obviously, you had the cash on hand, part of the balance sheet, part with the sale of Short Hills, but you'll still be carrying some on the line even after you close out the unsecureds, and I assume that a good chunk of that gets paid down as Red Bank portfolio gets sold and as kind of the other ones get sold. It seems like the bulk of the assets are under contract. And the impression I got last quarter was that Red Bank was a kind of a near-term event, but the others might slip into maybe early '22. What's your current thought on sale pace?

David J. Smetana -- Chief Financial Officer

Perfect, perfect. And then if we think about it, obviously, you had the cash on hand, part of the balance sheet, part with the sale of Short Hills, but you'll still be carrying some on the line even after you close out the unsecureds, and I assume that a good chunk of that gets paid down as Red Bank portfolio gets sold and as kind of the other ones get sold. It seems like the bulk of the assets are under contract. And the impression I got last quarter was that Red Bank was a kind of a near-term event, but the others might slip into maybe early '22. What's your current thought on sale pace?

Tom Catherwood -- BTIG -- Analyst

Got it. Got it. Appreciate that, Dave. And then Mahbod, I agree with your comment on Harborside one, it really does look like it's coming along. As I step back and think about the office portfolio, it seems to me that it's laying out in kind of some different chunks or different segments. There's some kind of high-rise space available, Harborside five. There's what would be kind of creative office space, it seems Harborside six above. What's going to be the Whole Foods there's kind of a few blocks in two and three, and then there's the brand-new space, effectively all new at Harborside one. When you're thinking about marketing this, are you segmenting it into these different groupings and maybe approaching tenants and approaching potential opportunities targeted to those different types of space?

Mahbod Nia -- Chief Executive Officer

Yes, that's a great question. And as you'd expect, to a large degree, yes, that's correct. But I also would say that I think one of the strengths of our offering is that flexibility of space and the range of space that's available to prospective tenants. So again, you're in the right location, you've got great assets, but if you want small floor plates and dollar rise building, that's one of the benefits, I guess, of the vacancy that we've got is that there is quite a wide range of options that are available to suit tenants' needs. But fundamentally, you're in a great location, and you'll have the amenity offering that will soon on offer.

Tom Catherwood -- BTIG -- Analyst

Got it. And then in terms of Harborside one, timeline wise, how much longer until that's buttoned up, white box ready and could be ready to show the market?

Mahbod Nia -- Chief Executive Officer

It's progressing well. I hate to put a date on these things, but I would say, certainly, toward the end of the third quarter, early fourth quarter is our expectation that, that will be ready to occupy.

Tom Catherwood -- BTIG -- Analyst

Excellent. That's it for me. Thank you, everyone.

Mahbod Nia -- Chief Executive Officer

Great. Thanks for your questions.

Operator

Our next question is from Derek Johnston from Deutsche Bank.

Derek Johnston -- Deutsche Bank -- Analyst

Hi and good morning, everyone. Sorry if I missed this, but can we get an update from your vantage on the New Jersey legislative appetite for tax incentives or relocations from New York to New Jersey? Any update on possible timing, kind of what you guys are hearing on the ground? I feel like we've discussed this for some time, but it seems elusive. Once again, sorry if I missed comments on this.

Mahbod Nia -- Chief Executive Officer

Well, it is already approved. And so it was a long time in the making, but it was actually already -- it's already been approved. So it's available to qualifying tenants. And the comment that I made about it earlier was really just that it can be quite a meaningful incentive dollar figures for qualifying tenants, we believe, could be between $10 to mid $30 type of an incentive package for qualifying tenants on a per square foot basis, that is, sorry. But it is very much available today.

Derek Johnston -- Deutsche Bank -- Analyst

Okay. And so the timing -- so it's approved and the timing is -- sums up for leases to be signed right away.

Mahbod Nia -- Chief Executive Officer

Correct.

Derek Johnston -- Deutsche Bank -- Analyst

On office, your New York CBD peers this quarter certainly came off as very optimistic. And I think one went so far as saying that things were on fire. Given the pipeline you see on the Jersey City side, especially since new leases have been a little bit challenged, and you did have some positive commentary, when do you expect that we may see an occupancy inflection point if that could be a maybe late '21 event? Any thoughts would be helpful.

Mahbod Nia -- Chief Executive Officer

Yes. Look, it's difficult to put a specific time frame on these things, I think. What's encouraging to us is the trend. And that trend, certainly, this year has been very positive in terms of the level of inquiries and the nature of those tenants. So that's what we're cautiously optimistic about. And again, we have strong confidence in the quality and the location of the assets that we've got and the work that we're putting to be positioning those, we feel with the incentive package provides a compelling proposition to those tenants.

Derek Johnston -- Deutsche Bank -- Analyst

Okay. Great. And then just lastly, I mean, I know it's a small piece of the pie. But I guess as suburban shrinks, it gets larger. What is the outlook for the hotels? And are there any bookings for return to events, maybe late summer or early fall? Or any maybe pent-up demand for weddings, which are pretty high margin?

Mahbod Nia -- Chief Executive Officer

So the -- certainly looking at -- we've only just opened the -- reopened the EnVue, but certainly looking at what's happening in the hotel sector, the majority of the revenue seems to be more consumer-oriented than business-oriented. So with the anticipated return to office, we should see that rebalance, one would hope, toward the latter part of this year to call a normalized composition of revenue for hotels.

Derek Johnston -- Deutsche Bank -- Analyst

Thanks, everybody.

Mahbod Nia -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions] We will now take a follow-up question from Jamie Feldman from Bank of America.

Jamie Feldman -- Bank of America -- Analyst

Thank you. It looks like leasing has been pretty strong at The Upton. I'm just curious, what types of tenants? How are you -- or what types of users seem to be leasing that space? And then any thoughts on how you -- if you're able to push rents at all? And then does that make you rethink the sale of the other site there?

Mahbod Nia -- Chief Executive Officer

The majority of those seem to be empty nesters that are taking that space. So it's been great for us. We've been pleasantly -- I won't say surprised, but it's been good to see that, that asset is getting the traction that we feel that it deserves. I'm sorry, what was the second part of your question? No, look, I think the second part is whether that changes our view, go back to the comments I made on development and capital allocation. I think all of that is really TBD. We've got to really sit down and the how capital is allocated today and determine what the highest and best use for that capital available to us would be going forward. And so no decision really has been made on that going forward, at this point.

Jamie Feldman -- Bank of America -- Analyst

So you're actually still marketing that second site for the hotel?

Mahbod Nia -- Chief Executive Officer

No. We are not.

Jamie Feldman -- Bank of America -- Analyst

Okay. All right. And then, David, I appreciate you providing the cap rates for the asset sales. Do you have those on a GAAP basis? I think you said cash?

David J. Smetana -- Chief Financial Officer

Yes. Yes. So on both of those, if you added 20 basis points to the cash, you would arrive at the GAAP cap rates on this.

Jamie Feldman -- Bank of America -- Analyst

Okay. And then I guess back to Mahbod, just kind of big picture, I think this is your first conference call in the seat. Any just perspectives after taking over the role, things that have surprised you, things that have been -- that you think are more challenging as you're taking over leadership of the company?

Mahbod Nia -- Chief Executive Officer

Yes. Not really. I mean I was in a fortunate position that I was on the Board for several months prior to taking this role. So I had the ability to be able to ease myself into the position. It is a different level of detail now being in this seat and having looked under the hood. I wouldn't say, no, there's anything particularly surprising or troubling. As I said, I do think that, for us, near-term focus will be in areas of looking a ways to further simplify the business over time, looking at operational efficiency and how we're organized and aligned internally and really using the resources that we have human and capital in the best way that we possibly we can to create value.

Jamie Feldman -- Bank of America -- Analyst

Okay. Thank you.

Mahbod Nia -- Chief Executive Officer

Thanks.

Operator

As there are no further questions at this time, I would like to turn the call back to your speakers for any additional or closing remarks.

Mahbod Nia -- Chief Executive Officer

Well, thank you very much, everyone, for joining us today, and we look forward to keeping you updated again in due course.

Operator

[Operator closing remarks]

Duration: 42 minutes

Call participants:

Mahbod Nia -- Chief Executive Officer

David J. Smetana -- Chief Financial Officer

Steve Sakwa -- Evercore -- Analyst

Jamie Feldman -- Bank of America -- Analyst

Manny Korchman -- Citi -- Analyst

Michael Lewis -- Truist Securities -- Analyst

Tom Catherwood -- BTIG -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

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