波士頓物產 (BXP) 2009 Q1 法說會逐字稿

Good afternoon, and welcome to Boston Properties' first quarter earnings call. This call is being recorded. All audience lines are currently on a listen-only mode. Our speakers will address your questions at the end of the presentation during the question-and-answer session. (Operator Instructions). At this time I would like to turn the conference over to Ms. Arista Joyner, Investor Relations Mansion for Boston Properties. Please go ahead, ma'am.

Good afternoon, and welcome to Boston Properties' first quarter earnings conference call. The press release and supplemental package were distributed last night, as well as furnished on Form 8-K. In the supplemental package, the Company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy of these documents, these are available in our Investor Relations section of our website at www.BostonProperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website.

At this time, we would like to inform you that certain statements made during this conference call which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in Wednesday's press release, and from time to time in the Company's filings with the SEC. The company does not undertake a duty to update any forward-looking statements.

Having said that, I would like to welcome Mort Zuckerman, Chairman of the Board; Ed Linde, Chief Executive Officer; Doug Linde, President; Ray Ritchey, Executive Vice President and National Director of Acquisitions and Development; and Mike LaBelle, Chief Financial Officer. Also during the question-and-answer portion of our call, our regional management team will be available to answer questions as well.

I would now like to turn the call over to Doug Linde for his formal remarks.

Good morning -- good afternoon, everybody, and we realize it has been a busy day with conference calls. We will try and be as scintillating as we possibly can, give you as much information as we can about how we're seeing things, as well as our perspective, and Mort I think will talk a little bit about the economy later on. But we will get started, and we will try to wrap this up as quickly -- as close to 2:00 as we can so you can get on to that next call.

I think we're all hearing alternating optimistic and pessimistic views, including signs of renewed confidence and economic activity, balanced against increasing job reductions, unemployment, and personal and corporate financial distress. Everybody is searching for indications that the economy has reached its terminal velocity,that the rate of decline is no longer accelerating. And we are, as most people are, hopeful that the United States and the global stimulus is going to start to jump demand forward, that the bulk of inventory destocking that -- has already occurred, that nonfinancial companies that have taken substantial reductions in labor costs and inventory are going to start to see some benefits from the stimulus, and that -- the enhanced confidence-inspired spending that hopefully will go along with that, and that the policies of the Fed and the other governmental bodies will act to stabilize and reconstruct our financial system.

With that being said, we're in the office business, and we are dependent upon job growth, and our typical and traditional tenants are knowledge-based companies, primarily in the service sectors, and we recognize that unemployment has not started going down yet. It hasn't peaked, and we're probably not going to see growth in the office business, and my definition of growth is increases in rental rates, until the later stages of the recovery. While we have a very diverse tenant base, growth in our CBD markets, and that makes up about 77% of our revenues, and which are all thankfully characterized by supply limitations, has been driven by increases in demand from professional services firms and the financial services sector.

What is interesting, and should not be minimized, is just because there is not going to be job growth for a while does not mean that Boston Properties can't increase its revenue and its cash flow. Leasing transactions are specific, despite national or even regional trends, originating from lease expirations, M&A activity, expansion by some limited number of users in various markets, and by some new business formation. So even in a difficult market, where there is no incremental new demand, there is going to be leasing activity, motivated by the opportunities to meet occupancy needs in the better buildings and at lower rates. Our regional teams are the best real estate operators in their respective regions, and we are very confident that we will increase our market share in this challenging market, just as we have done in previous downturns.

It was not a surprise to us that transaction activity in the first quarter, which we define as leases that are signed, not necessarily the stuff that hits our supplemental, was pretty low, at 250,000 square feet versus about 700,000 square feet a year ago. When we were down in Florida, at the Citi Conference during the first week in March, the New York City market was first and foremost on everybody's mind. Virtually every question we had was about New York City and the long-term viability of New York City. So we described transaction activity in New York City in the following way at that time. In midtown Manhattan, where the average monthly transaction volume was 1.4 million square feet between 2004 and 2008, activity during the months of December and January may have averaged about 550,000 square feet. Effectively tourism inquiries had come to a standstill, and you can say the same thing about our other regions.

Perhaps counter-intuitively, but as a result of the factors I said a moment ago, over the past 30 days we have seen a significant change in the level of activity in New York City. While none of it may translate into actual signed leases in our portfolio, we hope it will, and rental rates are certainly well off their 2007 and 2008 peak, discussions are under way on a number of the Lehman floors at 399 Park Avenue, with interest from tenant and such as a growing niche investment banking firm, a financial services technology provider, and a real estate brokerage company with an impending lease expiration. We have signed a lease for 13,000 square feet on the 15th floor of the Lehman space. We're negotiating leases for some of our pre-built suites, ranging from 3,000 to 6,000 square feet, at 399 Park Avenue, 540 Madison, 599 Lex -- we're negotiating a 25,000 square foot renewal, coupled with a 10,000 square foot expansion, at 599 Lexington Avenue. We signed a short-term lease for about 50% of one of the top floors at Citigroup Center with a start-up money manager. We're negotiating a lease for an additional floor at Citigroup Center with a law firm that specializes in litigation, and we received two proposals at the last remaining Heller Ehrman floor at Times Square Tower. Activity is pretty good.

As a point of reference for what is happening today, I went back and looked at some of the transactions we were going in our CBD assets in 2004. This was what I would define as the bottom of the -- from a rental rate perspective, after the prolonged jobless economic recovery of the last recession. Now, we may or may not have reached the floor. But because of rents grew so quickly in such a relatively short period of time, current rental levels, you're going to be surprised to hear, are not nearly as depressed as what the market may actually perceive.

Back in 2004, in New York City, we were leasing the mid-rise portions of the Times Square Tower in the high 40s, and we were achieving rents in the high $50s and low $60s at Citigroup Center, 399 Park, and 599 Lexington. Those included a $62 transaction in the middle of 399 Park, a $57 deal in the middle of Citigroup Center, and a $65 deal at the top of 599. Now these compare today with rents ranging from the high $50s to the high $80s in our assets in and around 53rd Street, Park and Lexington.

Evidence of increased activity, although not universal, has also appeared in our other markets. In the San Francisco region, we have four active deals at our Mountain View properties. We've had significant interest in the near-term availability in our 601 Gateway Building in south San Francisco. And in the city, while there has been a noticeable falloff in general market activity, we're completing two small expansions, turning a full floor sublet into a 10-year direct deal, and doing a number of full floor and smaller renewals.

Once again, contrasting conditions in the middle of 2004 with today, then we were negotiating the sale of the old Federal Reserve building in San Francisco, after having no success leasing the space at $310 a square foot, Genentech leased the 651 Gateway building after a very prolonged vacancy in the high $20s, and we completed a number of long, large-term leases -- excuse me, large long-term leases at Embarcadero Center, with starting rents in the low $40s. Today, our transactions down at Gateway in south San Francisco are in the low $30s, and our transactions at Embarcadero Center range from the low $40s to the low $60s.

Mid-2004 was also a challenging time in Boston. We did a 135,000 square foot renewal in the city at $27, and a couple of full floor deals in the low $40s. Available space in Cambridge was leasing under $30 a square foot, and our suburban portfolio was priced in the high teens to the mid-$20s. Today, rents at the Prudential Center ranged from the low $40s to the low $70s, Cambridge rents are in the mid-$40s, and suburban rents are in the mid-$20s to the high $30s. Activity in Cambridge and the western suburbs continues to feel pretty normal. We're seeing a consistent flow of small, medium and large requirements, with large being defined as about 30,000 square feet or more. There continue to be a handful of expanding technology tenants that are taking advantage of the recent pull-back in the market to upgrade their premises. The Boston CBD has been a little less active, with limited lease expiration-driven transactions anticipated over the next few quarters.

The only market in the country where increased employment is expected in the short-term is Washington, D.C., but it hasn't happened yet. While the Federal stimulus dollars will be spread across the country, they're going to be awarded and administered from Washington. This is going to translate into job growth and greater government and contractor leasing in the DC area, and the question is simply when. As the current landlords to the GSA, we can tell that you nothing happens very fast. In fact, we have leases that have expired in 2007, 2008, and in March of this year, that have yet to be legally renewed, even though the agencies remain happily in occupancy conducting normal operations. The GSA leasing process is understaffed and mired in bureaucracy. The lag before additional space is leased could be significant.

The financial rescue and the new regulatory oversight will also create additional employment and translate into new or expanded demand. When the SEC budget is increased by 13%, the bulk of that funding is going towards new staff. The Treasury Department, the Federal Reserve, the SEC, the FDIC, are all looking to fill new positions, and they're all located in Washington.

One concrete example of new leasing has been the TARP's lease of about 110,000 square feet at a building that was recently vacated by the EEOC, and the rumor is they're taking another 80,000 square feet in that same place. Jobs are going to be filled, contractors are going to be hired, and new space is going to get leased, and this bodes very well for the Washington, D.C. real estate market.

As you review the leasing data we provided in our supplemental, it is clear that re-leasing spreads were very healthy this quarter. As a reminder, the data represents transactions that had an economic impact during the quarter and were signed in previous quarters. The overall increase of 58% for the portfolio with 80% in New York City, those are net numbers, means a little additional disclosure. The New York City number includes a four-floor lease of 120,000 square feet that was signed in February of 2008 at over $100 a square foot, and three floors that were signed in August at over $90 a square foot, and those were at Citigroup Center and 125 West 55th Street. Clearly, the market's not there today.

When we calculated our mark-to-market this quarter, we did have a better picture on the current level of rents in New York City, since we're in the midst of a number of live transactions. On average we brought down our rents by about 14%, although our rents were somewhat conservative from that point. Since the middle of 2008, we have reduced our gross rents for purposes of calculating our mark-to-market by about 35% in New York City.

Now once again, you need to remember that the mark-to-market is a point in time comparison of our leased space. So it includes currently-leased space that will be vacant in the near term, like the Lehman space at 399, as well as leases that don't expire until 2019, like the 10-year lease that we signed at $140 in November of 2008, and where the current spot rent is certainly not $140 a square foot. Currently, the overall market portfolio mark-to-market is just slightly positive, about $0.20 per square foot. The mark-to-market for space coming available in 2010 is about $1.22 positive, and that same calculation for 2011 is negative $1.95, largely driven by a number of leases in Embarcadero Center that were signed at over $100 a square foot that are coming due in 2011. Our occupancy rate ticked down a little bit this quarter. And if you exclude Lehman Brothers, we probably would have been somewhere around 93.1%.

Mike is going to spend some time discussing our capital commitments and financing activities, but I wanted to make a few comments surrounding our overall leverage. We are acutely aware of the deleveraging that is occurring across the financial sector, and in the real estate industry. It is something we're thinking about and discussing on a daily basis. Quite frankly, if there were a silver lining to the postponement of our 250 West 55th Street project, which was clearly outlined in our press release, it was the natural deleveraging that came with the $500 million reduction of capital commitments.

With the goal of increasing our equity over time, we believe it makes sense to trim our dividends to a level that approximates our taxable income. Based on our current earnings model, we estimate that taxable income will be between $2.00 and $2.20 for the next few years. While our Board has not formally declared a second quarter dividend, we believe that absent any unanticipated changes in circumstances, a dividend of about $0.50 per share per quarter would allow us to maintain a consistent dividend for a number of quarters, have a payout rate in line with our taxable income, and preserve about $100 million per year.

Over the past few weeks, a number of REITs have successfully accessed the equity markets, the unsecured debt markets and the convertible debt markets. They are all getting better. These are encouraging trends, and we continue to discuss various capital-raising alternatives with our Board. We do so, however, in the context of our specific balance sheet, which we believe to be quite strong, and the maturity schedule of the debt it includes.

Before I turn the call over to Mike, I just wanted to make a few comments on the John Hancock transaction. Much has been written and talked about, about the purchase price, and what it might imply for real estate valuations. First, everyone must recognize that we don't know precisely what Broadway allocated to the Hancock Tower when it was acquired in 2007 in a portfolio transaction. Second, while there is a $640 million first mortgage, at one time there was additional mezzanine debt in excess of $470 million, or $1.1 billion, associated with that asset. The building was purchased as part of a cross-collateralized portfolio, and proceeds from other property sales were meant to reduce the debt allocated to the Hancock Tower, and other properties were sold.

Recently, the most senior tranches of mezzanine debt were aggregated by two private real estate funds. Our understanding is that one of those funds was an original investor in the second most senior tranche. While we don't know the actual number, the new owners have more capital invested in the properties than the $660 million reported sales price, which they credit bid at the auction and which set the price for transfer tax purposes.

Third, any acquisition must be evaluated with appropriate weight given to existing vacancy and short-term rollover in the property which in the case of the Hancock Tower is in excess of 350,000 square feet or 20% of the building. In order to lease the available space, additional capital will be required to pay for transaction costs, and the new ownership may have plans for potential capital expenditures for the building.

Finally, much has been written about the value of the below market debt, which is interest only at 5.6%, and obviously quite attractive in today's market, and until maturity in 2017 will be very helpful in enhancing the leverage returns to the equity. The building will need to be worth the sum of the debt, the cost basis of the mezzanine purchase, any additional capital needed to lease the asset, and whatever return the new equity demands. We think the new owners have a pretty bullish view on rental rates, demand, and appreciation over the next few years, and we are rooting for them to be right.

With that, I'm going to turn the call over to Mike.

Thank you, Doug. Good afternoon, everyone.

I would like to start by supplementing Doug's comments and talk about the capital side of our leasing activity. The second generation leasing costs were up for the quarter, at just over $40 per square foot. This is due to over 50% of the leasing activity for the quarter being in New York City, where the long term leases and strong rental rates resulted in high leasing commissions. The second generation costs on the New York City activity alone was $56 per square foot, and it was broken down between weighted average tenant improvement costs of $22 per foot and weighted average leasing commissions of $34 per square foot.

I would also note that the transactions that we are seeing now in New York fall into two camps; pre-built space, where we have created move-in condition space for $75 to $95 per square foot in a variety of suite sizes, and space that is currently in move-in condition from the prior tenant, where minimal additional tenant improvements are necessary. In our other markets we have seen tenant improvement costs coming down, as tenants are looking to sign shorter-term deals and/or reduce their own capital costs. We are also seeing competitors in our markets that are challenged to invest significant tenant improvement dollars, if any at all. Those landlords that are in tough financial shape or have overleveraged properties may be unwilling or unable to fund capital, putting others like us who have flexibility at a competitive advantage.

Moving on to our first quarter results, last night we reported first quarter funds from operations of $1.11 per share, inclusive of a one-time charge related to the suspension of work at our 250 West 55th street development, of $27.7 million or $0.19 per share. Excluding this charge, our results were in line with our prior guidance. In February, we announced the suspension of work on 250 West 55th street. Our charges related to the project are comprised of costs that do not have ongoing value for the development.

We have completed an evaluation of the remaining carrying value, including land costs, hard costs, and certain soft costs, and will continue to carry these on the books, as they have value when we restart the development. Our strategy is to complete the foundations and the steel to grade level and then fully secure the site, so that it is in a position to be easily restarted at some point in the future. We expect to spend an additional $23 million to complete the shutdown, excluding $20 million of capitalized interest. We should finish the work sometime in the fourth quarter of 2009, and we will be capitalizing both interest and applicable wages until then. There will be certain temporary costs that we do not expect to have future value, which will be expensed as incurred. These costs will be roughly $2.5 million to $3 million, and are part of our guidance for 2009. Looking beyond 2009, the project will cost us approximately $2 million per year in taxes, insurance, and other site maintenance costs.

As I mentioned before, exclusive of the charges related to 250 West 55th street, our results are in line with our guidance, with a few noteworthy variances. For the quarter, our in-service portfolio outperformed projections by approximately $2 million, with a $1.6 million of better-than-projected rents, and we achieved net operating cost savings of $1 million dollars. The net operating cost savings were a combination of prior year tax abatements and lower-than-projected utilities and repair and maintenance costs. This was offset by a $600,000 shortfall in parking receipts. Our G&A came in $1.5 million below budget. Income from our joint venture properties was down $1 million, primarily due to the reduction in percentage rent, due to lower sales from the Apple Store in the GM Building.

With regard to our tenants, we are consistently evaluating the creditworthiness of your tenant base and take reserves for accrued rent where appropriate. This quarter, we increased our reserve by $2.9 million. Two tenants for whom we are fully reserving leased an aggregate of 150,000 square feet of space in our New York City portfolio and comprised over 90% of the increase this quarter. Our cash exposure to these two tenants for the remainder of the year is $10 million.

This quarter, the noncash interest expense related to our exchangeable debt, in accordance with APB 14-1, is reflected in our results. This increased our interest expense by $9.4 million in the quarter, and was budgeted within our prior guidance. We will continue to book this noncash interest expense in the future, and we will also report adjusted 2008 interest expense as if APB 14-1 had been in effect for comparison purposes.

Looking ahead to the rest of 2009, we expect the leasing markets to continue to be difficult. With the decline in activity in the past quarter, and our knowledge that specific spaces will become vacant, we are projecting an increase in vacancy throughout the year. Our current occupancy as Doug mentioned is 94.3%, down just 20 basis points from last quarter; however, we expect our occupancy to approach 91% by year-end, an increase of approximately 1.1 million square feet of vacancy. Much of the increase will be in New York City, with the Lehman Brothers space at 399 Park accounting for 400,000 square feet of 430,000 square feet of projected new vacancy. Boston will add 300,000 square feet of vacancy, mostly in the suburbs; and San Francisco, 100,000 square feet. Washington, D.C. will add 240,000 square feet, primarily due to bringing our One Preserve Parkway project into service at just 20% leased. There is some good news, though, at One Preserve, where we are in lease negotiations with a tenant for about 25,000 square feet, or another 14% of the space, for commencement in the fourth quarter or the beginning of 2010.

We do benefit from the fact that only 7% of our portfolio, or 2.4 million square feet of leases, rolled this year. Our practice of signing long-term leases and proactively covering exposure, two to three years in advance where possible, results in our having moderate exposure to large lease rollovers in any given year. Our projections assume that we only complete 1.1 million square feet of new leasing for the rest of 2009. This is just 30% of our typical volume in prior years, and reflective of the weak leasing markets. Approximately 70% of this leasing is currently under negotiation, and another 15% is expected renewals.

Our 2009 full-year same store projections have improved by 100 basis points from last quarter, due primarily to Lehman Brothers extending its occupancy through April on all of their space, and through June for a portion. 2009 same store growth is expected to be flat to slightly negative, with cash same store NOI down 1.5% to 2.5%, and GAAP NOI projected to be relatively flat, with a range of up 0.5% to down 1%. Same store performance is mostly the result of the New York City and Boston portfolios. New York City is impacted by vacancy created by Lehman Brothers, which is partially offset by new leasing during 2008 at Citigroup Center and 599 Lexington Avenue. On the cash NOI side, there is a negative impact from the 135,000 face of former Heller Ehrman space at Times Square Tower, where we have re-leased 80% of the space but cash rent will not commence until 2010.

In addition to the increase in vacancy in the Boston region, the retail at Prudential Center is expected to be down due to several substantial termination payments that we received in 2008, as well as our projections for reduced percentage rent this year. The San Francisco market is projected to show positive same store results, due to strong leasing activity in both Embarcadero Centers 2 and 4 during 2008, will which have a full year contribution in 2009. And Washington and Princeton are both relatively flat year-over-year. Straight line rents for the portfolio are expected to be $31 million to $33 million for 2009, and we also project $1 million per quarter of termination income. As we discussed last quarter, we expect to see incremental growth in 2009 from the full-year impact of our 2008 development deliveries that are not in the same store. These include South of Market in Reston and 77 CityPoint in Waltham.

We are continuing to budget a decline in revenue of $10 million associated with potential lost revenue due to tenant defaults during the year. We have seen only a moderate level of defaults and lease restructuring, primarily in our retail tenancies. Thus far in 2009, we see no material office tenant defaults and requests for rent relief have been few. However, given the economic environment, we are anticipating that credit problems will surface in the portfolio. We are monitoring our portfolio closely to proactively manage these issues, but it is difficult to forecast the real default risk associated with the tenants.

The Cambridge Marriott was in line with its budget for the first quarter, so we are maintaining our 2009 NOI projection of $7 million to $7.5 million. 2009 development deliveries include the offices at Wisconsin Place, which is 91% leased; Democracy Tower in Reston, which is 100% leased; 701 Carnegie Center in Princeton, 100% leased; and One Preserve Parkway in suburban Maryland, which is 20% leased. Excluding One Preserve Parkway, these projects will deliver in the second and third and fourth quarters respectively, and have projected blended cash and GAAP FFO returns of 9.5% and 10%. One Preserve Parkway was completed in 2008, and will be brought into full service in the second quarter. Due to its current leasing profile, we do not expect it to materially contribute to earnings in 2009.

We will experience a full year of income from the New York City joint ventures in 2009, as well as the impact of the delivery of our Annapolis Junction joint venture development property. We are projecting income from all joint ventures to total $140 million to $150 million, including FASB 141 income of $100 million. Development and management services fee income is expected to increase from our prior projections, at between $30 million and $32 million for the year. The improvement is generated from additional development fee income in Washington, D.C., continuing management fees, and a cash recovery from a legal settlement on a previously abandoned development project. We are experiencing reductions in other fee income sources, such as work order service income and overtime HVAC profit, as our tenants have reduced their utilization of these services; a clear sign of the economic times.

We are maintaining our net interest expense projections of between $320 million and $330 million. Interest expense will be higher than last year, due to the new APB 14-1 accounting rules, that we expect to result in our reporting an additional $32 million of noncash interest expense, net of capitalized interest, in 2009. Capitalized interest is projected to run between $45 million and $50 million for the year, and includes the continued capitalization of 250 West 55th Street into the fourth quarter. We expect to complete most construction activities at 250 West 55th during the fourth quarter, and do not expect to be capitalizing interest for the project in 2010.

We have reduced our G&A budget for the year, and are now projecting G&A to be between $72 million and $74 million. This is roughly flat to 2008, despite imbedded increases of $3 million due to the incremental noncash vesting of long-term stock compensation, and a $4 million increase associated with our deferred compensation plan. As we mentioned before, the deferred comp plan lost $3.2 million in 2008. Currently we're projecting a gain of $800,000 in 2009, which is a $4 million swing to G&A from year to year. We expect our cash G&A expense, excluding deferred comp, to be $49 million to $51 million in 2009, down from $55.5 million in 2008.

On the capital markets front, we have continued to successfully access the markets, evidenced by the closing of our $215 million construction loan on Russia Wharf last week. We originally anticipated a loan of between $300 million and $320 million, but decided to close with a smaller loan when one major lender elected not to move forward last month. We chose to execute a smaller loan, rather than extend additional time seeking a replacement lender for the project. The loan is sized at roughly 50% of the cost of the project and parking -- the cost of the office and parking components of the project. We are now working on our 2009 debt maturities that consist of three loans that total $253 million. We plan to utilize the first of two one-year extension options available in the largest maturing loan, a $185 million construction loan on our South of Market development project, and we've received multiple term sheets to refinance the other two loans on relatively attractive terms.

Last quarter, we indicated that we plan to raise an additional $300 million to $350 million of incremental term debt. With the suspension of 250 West 55th street, reducing our future capital needs by $500 million, we now expect to drop this amount of new financing to $225 million. In fact, we are in the final documentation stage of closing a $225 million seven-year fixed rate mortgage on one of our properties with a single lender. The coupon on this debt is 7.5%, and we expect to close in the second quarter.

Overall, the credit markets remain difficult to access, but are open for companies like ours. The secured mortgage markets are actively providing term sheets for high-quality properties, with 50% to 60% leveraged fixed rate debt for five to 10 years at the 7.5% to 8.5% range. Floating rate bank debt can be found for terms of three to five years at LIBOR plus 300 to 450 basis points that can be swapped to a fixed rate of 5% to 7%. And the Government is actively working with the industry on TALF 2.0 and other Government programs to try to reopen the securitized markets at low leverage levels, which might be supplemented with higher coupon junior debt to raise proceeds to 60%.

The secured markets are seeking to finance the highest quality assets with low tenant leasing risk and moderate leverage. One of the benefits that we have is a large unencumbered pool of nearly 100 properties, with over $650 million of annualized GAAP NOI. This pool of assets offers the flexibility to substitute an asset or raise incremental debt capital with properties that meet the market's current underwriting parameters. Overall, we continue to be well positioned to access the moderate amount of capital available from the banks and other secured lenders, due to our strong relationships, high-quality assets and stable financial condition.

As Doug mentioned, the unsecured markets have actually started to improve. The convertible debt market has reopened, and coupons have come in markedly into the mid-single digit range. Traditional equity investors have replaced the hedge funds, and are attracted to the fixed downside risk combined with equity upside. The senior unsecured debt market is also open, but 10-year coupons remain sticky in 10% area. Interestingly, the unsecured debt market for general corporate Names has become much more liquid, with 10-year coupons for similarly-rated general corporates of around 8%. We are looking forward to the day that REIT spreads will start to compress as well. In the meantime, we plan to utilize other more attractively-priced capital for our debt capital needs.

We continue to be comfortable with our liquidity position, and our strategy for managing our future debt maturities. Our projected cash flow before dividends and debt principal payments for 2009, after the funding of all tenant improvements, leasing commissions and capital costs, is estimated at $470 million. Based upon the anticipated reduction in the dividend that Doug discussed, our projected retained cash flow after the dividend will be about $185 million on an annualized basis. Add to this our cash balances of $144 million, the $225 million in additional term financing that we expect to raise in the second quarter, and the $885 million available on our line of credit, results in total liquidity of over $1.4 billion. After funding the $600 million of future capital required to complete our development pipeline over the next three years, we would have about $800 million of excess liquidity.

We also may seek additional construction facilities on some of our remaining development properties, further bolstering this amount. And the liquidity that I have just outlined does not include the additional retained cash flow that we will have in future years. Our liquidity provides a strong position in dealing with our 2010 and 2011 debt maturities, including our share of joint venture debt. We have analyzed all of these debt maturities against current secured loan underwriting standards, and believe that all are readily financeable, with only two having moderate paydown exposure aggregating about $100 million.

I would like to conclude by updating you on our 2009 guidance. Due to the one-time charges related to the suspension of 250 West 55th street, totaling $0.19 per share in the first quarter, we are reducing our 2009 guidance range from $4.75 to $4.95 per share, to $4.65 to $4.80 per share. After adjusting for the one-time charge, this is actually an increase in our guidance of $0.07 per share at the midpoint. Excluding the impact of nonrecurring charges in 2008 and 2009, the midpoint of our 2009 FFO guidance is also up modestly from our 2008 results. This is despite the substantial challenges in the leasing and overall economic environment, anticipated declines in our overall occupancy, and the loss of approximately $25 million of revenue from Lehman Brothers. For the second quarter, we are projecting FFO of between $1.26 and $1.28 per share.

I would now like to turn the call over to Mort for his comments.

Thank you very much. Can you all hear me? Hold on.

We can, Mort.

Let me take off on something that was mentioned earlier, which is New York City and the future of New York City. It is my view that New York City will emerge from this financial crisis as an even stronger city in the world of finance globally than it was before. Not so much because of just what is happening in New York, but frankly what is also happening in a major competitive city like London, which I think is -- where the financial world is just disintegrating. And that will really lead, I think, many people to look to New York to a degree for -- in finance, to a degree that really will be unprecedented in terms of market share, and there will be a lot of need for financing. So I think New York is going to have a considerable resurgence once this particular phase of the financial and economic crisis turns.

As for the wider situation, it is hard really to share some of the optimism about the economy in general, for me at least. And the reason for that are that -- let me just give you one thing. There was a very large poll, economic poll of consumers, in which they estimated that they would be increasing their savings rate to 14% of income. Now this is in the midst of foul economic mood, but still 14% is the average, and they expect it to extend for a number of years, primarily because they feel they have to rebuild their retirement funds, which have been decimated by A, the drop in the value of the equity in their homes, and B, the drop in the value of their financial assets.

Now that tells you something about the mood that has hit the consumers of this country. They will be deferring many things. They won't be going out to eat. They will be cutting back on consumer durables. They will certainly be cutting back on travel, particularly expensive travel. I could go on. But the point here is that a lot of people who assumed that their retirement was sort of fixed for life, and they had all of the wealth they needed, those people are now looking at the wreckage, the financial wreckage, and anticipating not only a high rate of savings, but working on average from a retirement age of 61 and-a-half to roughly 65 and-a-quarter. So there is a real sense of both higher savings and longer employment.

That, I think, is the backdrop for what I would say is going to affect us in the short run, when the shock to consumer confidence is still at its greatest level. It is true it has flattened out a bit, and consumer retail sales as a part of consumer confidence has improved somewhat. As I say, I'm not sure how sustainable it is, nor am I comfortable with the degree to which the stimulus program will be able to affect the economy, because according to a Government accounting report that came out last week, the amount of money that is going to be spent this year, because of the slow rate of application of infrastructure programs and other programs, will be really quite small, maybe even under $100 billion, except for those funds that go either to tax cuts, which they do not believe will affect much other than an increase in savings, or the support of other jobs such as in health care and state budgets that, in a sense, does not really add to the sense of new spending or to the multiplier of funds that are being spent in the [audio dropout].

Therefore, I think we are going to have a slower rate of recovery than what would be reflected in some of the reports, and I regret that I have this sense of pessimism. Nevertheless, I think it will get a little better a little faster than I thought before, because I do think that unlike the European countries, or really almost any country around the world, we have been in a position to react much more substantially and much more quickly than almost any other government, and there is a lot of confidence at this point in the government's ability to address the problem. In this sense, the Obama Administration has established itself as a government that is energetic, is willing to experiment, but in a constant sort of mode of action to respond to these problems.

Now, the question will be, will these problems work, and I think the key indication is going to be in several areas. Will home prices start going up instead of continuing to go down? And will employment start going up instead of continuing to go down? And if both of those continue to go down, and nobody quite knows where this is going to go, because our economic conditions are unprecedented and therefore unpredictable, then I think they will be in great political difficulty next year and will probably suffer a lot in the Congressional elections of a year from November. But that's a long time away, and since nobody can really predict how well the American consumer and American business is going to respond to what has been, to my mind, the bursting of the most difficult and most important bubble, which is the bubble of confidence, that, I think, is just going to have to await results on the ground, rather than predictions.

But I do think, as I say, the interesting thing for me, there has been a lot of chatter about what is the future of New York, and what is the future of the financial world, and I have to say there is no new supply coming on New York, there will be no new supply coming on New York for a number of years. But if this economy does turn around, I think New York is going to re-emerge in a way, counter to some of the predictions, at an an even stronger center of global finance than it has in the past, because there is really no other competing center that I think has the intellectual ability, the technical competence, the resources in many ways. And frankly, however much damage there has been to the financial world in New York, the damage to the financial world in London is much, much greater, and to the banks of that country, much, much greater. I don't want to underestimate our problems. I will say in relative terms we still are doing better, and we will continue to do better, because of the alacrity and the extent of the involvement of the Federal Government in the support of the financial world.

I think I will stop there. And Doug, do you want to just sort of move on to the next phase?

Yes, we will open up to questions, Operator. So why don't you start, please?

(Operator Instructions). At this time, we will hear first from Sloan Bohlen with Goldman Sachs.

Good afternoon. First, a quick question on the development side at West 55th. You said you are basically going to finish the foundation. At one point, and it is probably a ways off, but what do you need to see in order to continue with that project? Would it be more in the way of pre-leasing? What would you expect in terms of rents or what would you look for in terms of returns?

I will answer the question in two ways. I think to be realistic about it, we're going to need significant pre-leasing, but we're also going to need significant pre-leasing at a level on an incremental basis that makes sense, because we're going to think about the incremental dollars going into the project at this point as opposed to to what the total return on the asset is. And I think that, you know, based upon our view of where current market rents are, and where current large user demand is, it is going to be a while before we start that building up again.

I would like to add something to that, Doug, if I may. Again, consistent with what I said before, there is no new space coming on the market. And if in a couple of years, for example, there is a real turn-around in the activities of the financial world in New York, then I think we will be able to produce new space in a period of time that is foreshortened by the extent to which we have unfortunately sort of -- what we've done so far and where we had to stop it, we're really in a position to move much more quickly than anybody else starting any other new project.

So in that sense, we will be able to respond very quickly and we will have a real competitive advantage if somebody is looking for a large amount of space, a large tenant user, in a fairly short period of time. Because everybody is sitting back and waiting for the turn-around, and when that turn-around comes, and people really begin to feel the constraints of whatever their existing space may be, I think we will be in a unique position on that side.

Okay. Switching I guess to developments, it is a little bit in the nearer view, at Russia Wharf, just given the size of the loan is a little bit less than you had expected, could you provide us an update on what your expectations for returns on that project might change, and if there is any update on the unleased portion of the building? And lastly, what you're expecting to do with the multi-family and the condo portion of the project?

That is a lot of questions. Let me try and be succinct. The project is currently permitted as a 550,000 square foot office building, a 90,000 square foot residential building, and then about a 215,000 square foot residential/retail building. We are working in conjunction with the city and the BRA to repermit the 215,000 square feet to office, and that is not going to be -- has not gone through its full process yet, although there has been relatively positive feedback from the various community boards, as well as the city of Boston and the BRA.

The other building will remain a residential building. We have not attempted to start leasing any of that other space yet, and we just -- it has been off of the radar, and it has been out of the market, and in fact the inquiries that we've received from tenants have been basically, we told them, you know, come talk to us again towards the later portion of the spring, early summer, when we know exactly what our permitting status is going to be, what our delivery times are going to be, and what we can deliver from a use perspective.

From a return perspective, I think the return levels are probably similar to where they were, because the vast majority of the space was leased to Wellington. And I think those numbers were in the mid-7s when we started the project and I don't think they will change much in the way up or down, and the building is going to be delivered in the third quarter of 2011. So that's when that will hit. I'm sorry, first quarter 2011.

Great, thanks.

(Operator Instructions)

We will hear next from Mark Biffert with Oppenheimer.

Yes, Doug, added to that, how much of the yield expectation of maintaining what you had previously expected is attributed to cost savings that you may have renegotiated on Russia Wharf?

We probably got cost savings -- unfortunately, we bought the curtain wall, and we bought the steel for the building, and the foundations for the building, prior to the economic collapse in the construction industry. So we weren't really able to sort of re-bid that and maintain our schedule for Wellington. So I would say on average, we probably got somewhere between 5% and 7% on the other trades. And you know, it probably totaled somewhere between $5 million and $10 million on the hard side.

Okay. And then a lot of the detail that you gave, I appreciate that, on the leasing in New York, you know, it seems like a lot of the square footage is more to the smaller side. I mean is that your expectation over the next year or two, that most of the leases you're going to sign are going to be, you know, under, you know, 150,000, 100,000 square feet?

If you are talking about quantity of leases, I would say the answer would be yes. If you are talking about total square footage, I hope the answer is no. I mean the spaces that we're in, that we've received proposals on at 399 are between 100,000 square feet and 60,000 square feet, and there are three or four of those, and you know, the other firms that we're talking to about the floor at 7 Times Square -- Times Square Tower, the floor at Citigroup Center, those are all full-floor users so those are -- they've been looking for expansion, as well so those are generally in the 30,000 square foot range. But if you said in terms of the number of transactions that you're going do, I expect we will do twice as many or three times as many small transactions at 540 Madison, at 599 Lexington, at Two Grand Central, than we will, you know, total transactions in the other buildings.

Okay. And then Mike, quick question, on the convertible debt that you have, I mean are you guys looking at all at the equity markets, or have thoughts at all about issuing equity, given what a lot of your peers have been doing, and using that to fund maybe some convertible debt that may be trading at discounts or for other, you know, purposes?

I will just repeat what I said before, look, we're very encouraged by what has happened in the equity markets, and we're also very encouraged by what is going on in the convertible markets, as well as what we hear is going on in the unsecured debt markets, and we look pretty often at liability management and ways to either reduce our total overall leverage and/or extend out our maturities, and there are lots of ways that we think about to do that.

Okay. Thanks.

We will take our next question from Jordan Sadler with KeyBanc.

Thanks. Good afternoon. I just wanted to follow up on that last question there. You referenced leverage, you look to reduce your overall leverage, and just for the [reacquisition]. How do you want to be repositioned when the turn-around comes, leverage-wise? Let's say you're, 7 and change, debt to EBITDA, 7 and change times debt to EBITDA today. Where would you want to be?

I wish I could give you a relative number, Jordan. I just can't. Because, you know, a lot of what is going on today, I think, is in response to the availability of debt, not just the levels of debt, and if people felt, for example, that anybody who had unsecured debt could readily and quickly replace that unsecured debt at a reasonable level, I think that might affect people's views on total amount of unsecured leverage that people would have and be comfortable carrying. And so I think it is going to depend a lot on the comfort level, and the openness and the availability of different sources of capital.

But, you know, clearly, to do things, and to take advantage and to put ourselves in a position to be acquisitive from an opportunistic perspective, as we get more comfortable with the recovery and the opportunities that we believe that will in fact show up at some point, based upon the gross over-financing that has occurred in the real estate markets over the last three or four years, we're going to need to have additional equity capital in the Company. I can't give you a number, though.

And the other question I had was, you helpfully walked through where you were quoting rents in many of your markets versus where they were in the prior cycle. And I was curious, for example, I think you said in New York City, rents 50s to the -- rents in your buildings are in the 50s to the 80s. Number one, are those gross asking rents that you were giving us today? And what kind of move is it overall that you've seen, in terms of where the market was maybe at year-end?

Sure. I mean those were gross rents. And as Mike described, the interesting thing about than of those deals is that depending on the space, the space may be on an as-is basis so the transaction costs are going to be in certain cases much less than you would otherwise think. But just sort of give you a perspective, we signed the lease at -- you know, in the high rise at Citigroup Center at $140 a square foot in November of 2008, and I don't think we would be able to get $90 a square foot today. It doesn't mean we won't get $80 or $85 a square foot, but I think rents with a starting rate with a nine in front of them would be a real challenge, and probably not achievable.

Do you think the numbers -- those rent levels, the rent levels you quoted, have they started to -- has the rate of decline started to subside?

If you're asking have we hit a plateau, I think we've absolutely hit a plateau. Whether or not there is going to be an additional fall-off, I wish I was smart enough to know the answer to that. I don't have a clear-cut response. I will say the following, which is that I think there is enough available space in the marketplace today that those tenants that are actively in the market are looking at the world and basically saying, you know, it may get a little bit worse, but the opportunities that we have now are significant, and we can get into the best buildings or potentially get into the best buildings at rents that we never thought were achievable. We might as well, you know, move on with our lives, and take this particular decision off the table. As opposed to a perspective that well if we wait six months later, rents are going to be 20% less than they are today. I don't think that is happening any longer.

Thank you.

We will take our next question from Alexander Goldfarb with Sandler O'Neill.

Yes, hi. Good afternoon. Just going back to the 250 West 55th, is there any potential for some further costs relating to Gibson Dunn?

The only costs that are related to Gibson Dunn would be the costs that we -- included in the costs that we are writing off this quarter.

Okay. So the in costs, in the $0.19, there is some sort of settlement or something that says that that is it, there is no more expense related to them?

Yes. Correct.

Okay. And then next, over at Times Square Tower, Ann Taylor, any sense that they might give back any space? Or they seem pretty fine with where they are? They seem to be closing a fair number of stores.

Mike actually spent some time looking at them from a risk perspective this quarter, so I will let him comment on their balance sheet. But they're paying somewhere in the neighborhood of $45 to $46 a square foot for that space, and while they may not be utilizing all of it, we have not been aware of any subletting, that they're doing it.

But as Doug mentioned, it is certainly possible and likely that they've got head count reductions in much of their staff, because their revenues are clearly being hit pretty dramatically, like all of the major retail companies. But they have a pretty strong balance sheet, with very, very little debt on them. So we've always been very comfortable with the way they operated their business. So we don't feel, you know, overly concerned at this point that there is going to be a credit problem there, that there would be a need for us to negotiate with them where were they to come to us and ask us for anything. At this point, they have not come us to and asked us for anything.

Okay. And then one of your peers out there, the employees relinquished some of their comp and the company took a charge. Any consideration that any of your management team may contemplate something similar?

It is not a conversation that we're prepared to have.

Okay. Then thank you very much.

We will hear next from John Guinee with Stifel.

Hi, Doug, I thought you had an interesting comment on 250 West 55th street, which is the incremental cost above your basis when you decide to start the development again. Based on today's dollars, kind of forgetting land, because trying to pick a land value is very difficult, what do you think the hard and the soft costs are to build in Manhattan?

Robert, you can probably answer that question more readily than I can.

Well, there are various discussions going on with the building trades, and of course, we have seen a strong falloff in the contractor's profit margins. Construction costs had been in the $400 a foot range, and they are clearly coming down, but I wouldn't want to speculate what they will be in a couple of years.

Great. Thank you.

We will take our next question from David Harris with Arroyo Capital.

Good afternoon. I read a couple of articles over the last few months which have suggested that the health of some of the major law firms, particularly those tied to financial services, is being stressed in a way that it has not really been before. We're seeing layoffs of senior staff and even up to partner. Could you sort of comment, and I know these businesses can be difficult to underwrite from a credit perspective, but clearly you've got some exposure here. Could you just sort of talk generally to that?

David, it is Mike LaBelle. We have talked to many, many of our law firms over the last three to six months, just to kind of investigate and understand better about what is going on in the industry. And you know, clearly, the second half of 2008 was a very, very challenging part of -- challenging time from a revenue generation perspective for law firms, and I think what is most interesting is, you know, these law firms are doing the right thing by cutting back in their staff, cutting their nonproductive partners, and taking an opportunity that they have really not taken before to drop their expense basis pretty significantly by 10%, 15%, as they drop the number of their people in reaction to this. The discussions that we have had with our specific firms have not seen drastic drops in revenue. In fact, many of our larger firms showed revenue growth, believe it or not, in 2008 -- what's that?

I said I think there might quite a considerable lag in that business.

I think there is a little bit of a lag. But the other thing that we're seeing is that there was a period of time in the fourth quarter, after everything hit, where there was no work to be done, and now that -- the other side of the work that has started to pick up, the workout business, the restructuring, the bankruptcy business and the litigation business of those firms. So as we look at our portfolio, and we look at 85% of our law firm revenue that is in the top 100 law firms, and we see the diversity of practice groups that is in our law firms, we get some comfort from the fact that they're starting to generate more revenue on one side of the house, and maybe less revenue on the other side of the house; these firms don't have really any material debt typically, they simply have to take, you know, potentially home less at the end of the day but they will survive.

Can you remind me what percentage of your rentals are derived from legal --

It is about 25%.

About 25%. Can I just go back, Doug, and Mort, if you're still there as well, to some comments that you made, Doug, in your opening remarks about Washington, D.C., and combining that with thoughts of, you know, maybe we're in a period where the Federal Government expands for a considerable period of time and plays a bigger role in whether the a -- the affairs of the country. Is it your ambition over the longer period in time to build up DC relative to your New York exposure?

I don't think -- this is Doug speaking. I don't think there is any -- we have never had, as a Company, an allocation to our various markets. Our perspective has always been, if there are opportunities to grow in a particular market, we should make sure we have the resources to avail ourselves of those. And the reason we're not in 20 markets or 15 markets or even 10 markets is that we think there are potentially the opportunities to grow in our markets are enough to satisfy the growth of the company at all, and so I don't think that it is a zero sum game, David.

If we are able to find opportunities to grow in Washington, D.C., I don't think it would be necessarily to the detriment from a portfolio perspective of our other assets or our other markets. We would just figure out a way to find the capital and the resources to make those types of investments in Washington, D.C.

I will just add to that. I do think that Doug captured it. We are really not sort of in the allocation business, in that sense. I think we feel, in all of the principal markets that we are in, there is some serious degree of constraints on new supply, and when we go forward, you know, when the markets turn around, we don't think they are all going to turn around at the same pace or with the same energy. We will just have to pay attention to that, and the opportunities that might exist in the individual markets.

For example, whatever else you may say about Washington, it is still very, very difficult to find sites in the best locations, and we will continue to work to acquire sites because we do think over time the Washington market is going to develop as it always has, and I mean not only at a level of growth, but it will maintain, if not increase its level of stability. We also do think that there will be, as I say -- I think we will see a more rapid comeback, and a more accelerated come back in a city like New York. So these are things that we don't predict, but we just watch carefully, we have a feel for each one of these markets and we will respond to them, as much as anything else, as implicit as Doug said, on an opportunistic basis rather than on any kind of formal plan.

Mort, can I just finally say this. I lived and worked in London for 15 years, and I've now lived and worked in New York for 15 years, and I wouldn't dismiss London's competitive position quite as forcefully as you did.

No, I don't dismiss it. I'm just saying I think they suffered greater damage.

You and I probably have --

I think they're going to have a slower time coming back. Frankly I think the confidence in the world of global finance will be rebuilt more quickly in New York than it will in any other place, and that's why I think there will be a more rapid return and a more whatcha-ma-call-it, a relatively improved market share in New York than a lot of people expect.

Thank you.

We will take our next question with Jacob Strumwasser with Brahman.

You can guys please clarify your comments on the dividend?

What we said was that we are -- you know, if nothing unanticipated occurs that we expect that our dividend will be in and around the $0.50 per share range starting next quarter, and that that is a level that we believe will be continued for a period of time, and based upon our views on taxable income, which are between $2.00 and $2.20 for the next few years.

Okay, so I just want to confirm that that is a decrease in the dividend, correct?

Our current dividend is $0.68 per share.

Okay. And can you -- what cap rate are you seeing in the marketplace right now?

For what?

For buildings in your strike zone.

To be honest with you, we're not. I mean that is one of the challenges that we have, is that there are effectively no trades that are occurring. There are, you know, there are talk of trades but there don't seem to be any actual trades, and the deals that have occurred have been based on distressed situations, and those situations have, I believe, from a cap rate perspective, been significantly lower than I think what the market would anticipate, but I think that the valuations of those assets have been significantly lower than what you would consider replacement costs or sort of fair price. As an example, 1540 Broadway I think sold for a sub-six cap rate, but it was $340 a square foot. So unfortunately I don't think we are able at the moment to sort of give you comfort that we know where, from a private market perspective, cap rates are.

Can you give me a guess?

I could, but I won't.

Okay. So it sounded like earlier, we were also pontificating a little bit about this state of the world, and where it was going, so I wonder if you would entertain me a bit and kind of talk about if interest rates become much higher in the future, how is that going to affect the cost of funding for your Company, and what are you doing to kind of -- it sounds like you guys are big thinkers, and think years kind of down the road, so what are you doing to lock in some sort of -- I mean like cost-saving mechanism in front of what could be much higher interest rates down the road?

Well, I'm going to answer your question in two different ways, okay? I will answer the question in the real estate way first, which is if in fact -- I think what you're describing is probably inflation, and if there is significant inflation, then real estate has always been a beneficiary of that, because the cost of new construction, assuming there is incremental demand, is significantly higher, and the ability for companies like ourselves, assuming there is incremental demand, to see significant increases in our rental rates will dramatically outstrip that inflation, and our assets will be worth a lot more. Okay, that's sort of number one.

Number two is, what we try and do, from a financing perspective, is basically borrow as long as we possibly can all the time, and in markets like today's, where market rent, you know, interest rates are -- I don't know if they're considered high or low, but they're certainly higher than they were, but they don't have embedded in them significant inflation. We are a user of the current market conditions, so as Mike described, we are doing a loan for $225 million at 7.5%. We -- last quarter, announced that we did a $375 million loan at what was the rate, Mike?

6.1.

6.1%. So that is $600 million of long-term capital. The first loan was I think eight years, and this is a seven-year loan. We enter into hedges for our floating rate loans when we think it is an appropriate time, and we basically don't sort of play an interest rate game. You know, we take advantage of opportunities to increase our duration and lock in interest rates when we think interest rates are quote-unquote, you know, fair.

Thank you very much for your time.

We will take our next question from Michael Knott with Green Street Advisors.

Hi, guys. I will ask the leverage question in a slightly different way. Apparently on the Kimco call today, Milton Cooper, the right leverage level for his company down the road would be 75% equity. What is the probability that the right answer for Boston properties is anywhere in that zone?

You know, I don't see how anybody can give you that kind of prediction. We have a very different kind of business than he does. I mean we are in a situation where the vast bulk of our leases are with high-quality credit in high-quality buildings, where the average lease is, I don't know, seven, eight, sometimes nine years, depending on the individual markets. And as we have said over and over again, we are in supply-constrained markets, and we do feel that we can afford and support certainly a higher leverage than might be possible in other markets. But there are so many different issues that sort of crowd in upon that conclusion, I think it is very difficult to make these kinds of long-term judgments.

I really think we're just going to have to do what we've done before, which is just to pay attention to all of the markets that we are in, and particularly the financial markets, which covers all of our markets, and make what we hope are conservative judgments. I would say that by and large, as you may have noted, we have for years, and maybe since the time our Company went public, we have been in probably the most conservative position in terms of our rate of degree of leverage of any of the companies in our peer group, and I suppose we're probably going to stay that way.

Okay. And then if we have a period of time in the next two or three years where there are abundant acquisition opportunities, I guess A, I would be curious your thoughts on that, and then B, do you feel like you could be able to pounce on those after the GM deal last summer?

Yes, listen, I think as you probably noted, we have partners in the GM deal. There are a number of people who have spoken to us who would like to be our partners in any sort of opportunistic environments that become available. That is, if their specific situations where we felt we could make acquisitions of properties, we would look at it very carefully and frankly, if we acquired more equity money than we felt comfortable shelling out, although we would be investors ourselves, we would do it with these partners. And there are partners, and we have spoken to very serious partners who are looking to joint venture with us on acquisitions. I'm not saying that we're going to do that. I'm just saying that we are -- you know, quite naturally planning for that possibility, because we want to make sure that we're going to be in a position to move quickly.

Thank you.

We will take our final question from Michael Bilerman with Citi.

Hi, good afternoon. Doug, you talked a little bit about the dividend reduction providing an $100 million dollars of capital, and you talked about the convert market being one avenue. I guess the dividend reduction gives you a little bit more pricing power on that end. Were there any -- was that tied at all?

It was not tied at all to that, Michael. I mean obviously, we're not naive to not understand that there is not a correlation between your dividend rate and what you may pay as a coupon for the convertible, but we didn't do one in anticipation of doing another.

And then just thinking about sizing, I think you clearly talked about just going down to what your minimum payout is, or trying to get down to that sort of level. You already had about $100 -- well, $80 million to $100 million of free cash flow. How do you think about just that extra $100 million relative to your capital needs versus maintaining a dividend, given the fact that you do have below average leverage, a decent capital structure, sort of having to weigh all of these things together, or even potentially just paying it in stock? I'm just curious how your thought process went through?

I think the thought process was pretty straightforward, which is -- I mean as I said, you know, in my comments, we're not naive to the recognition that, and realization that, over time, given sort of the current state of affairs, we're much better off having more equity in the Company than less equity in the Company, because it gives us the flexibility both to deal with our existing liability management side, in terms of being able to repay and replenish facilities that we currently have, as well as hopefully putting us in a position, at some point, it is not today, to take advantage of other opportunities. And so we felt like this was the right thing to do for the Company at this time.

And we, you know, we continue to talk about our overall amount of debt, our overall leverage, our overall equity, ways that we can potentially increase the amount of equity in the Company, other alternatives to pushing out and extending our maturities on our existing liabilities, whether or not those liabilities are the appropriate ones for the Company in terms of their form, being secured, unsecured convertibles, et cetera. It is very much a fluid situation, and as the facts change, our opinion may change. And you know, that's sort of where we are right now.

You talked a little bit about the Hancock transaction, and some of the rationale of why not looking at a headline number is indicative of where things are. Clearly, 1330 went a similar fashion. Can you put at least a little bit of goal posts around, as a third-party buyer, and not the mez lender effective coming in, how those deals were effectively priced? Because I do think there is a fair amount of confusion in the market, and clearly a lot of headlines that the values were a lot less than effectively what it would have been in a true sale.

As I said, you know, I think when you think about the Hancock Tower, you have to think about what they probably have invested in the building, and I'm not going to, you know, posture a number. I can just tell you -- tell that you my assumption is that they certainly didn't purchase the debt that was more senior to them for par, and I don't know what that amount was. And they had their own investment in the asset, and they paid a transfer tax, and I have no idea whether or not they chose, in terms of aggregating the debt above them, so that they could if they wanted to have credit bid in at $850 million to -- you know, what they paid for at those various tranches. So it is certainly significantly more than $650 million. And the asset is going to need additional capital, both on -- potentially on the base building side and certainly on the tenant improvement side.

And then I don't know what a fund like Normandy or Five Mile, which were the two that I believe are the owners of that asset now, are looking for from a return on equity perspective, but my expectation is there is not a lot of free cash flow from the asset today, so you may have to sort of accrue all that in. And that is sort of where you have to come out in terms of where effective they sort of saw the valuation over a relatively short period of time.

I think that again because it was a -- it is a situation that is -- you know, was distressed, thinking about it on a dollars per square foot basis or on a yield basis is hard, because our understanding is when the asset was originally purchased, it was a 3.5 cap or something, you know, in that ballpark. And I would wager to believe that the capitalization rate, based upon what they have in the thing, is certainly a number today that would not be quote-unquote deemed as market -- you know, if an asset were being sold on a sort of arms-length transaction from a willing buyer from a willing seller on a fully marketed basis. So you have all of those sort of conflicting issues associated with these tricky situations, which make it very difficult to sort of peg valuations.

You talked a little bit about debt maturities where you said I think two of them, and which I guess are the two assets in the fund, 125 West 55th and Two Grand Central, that will probably need some equity when those loans mature. Curious how your discussions are going with your fund partners to provide that equity?

We have business plan meetings, and they knew when we purchased the asset that there was likely going to be a requirement to pay down the capital stack on those two assets, and there's really been no additional discussion other than sort of what the amounts are going to be, and what the timing might be.

And then just on 17 Cambridge, those development rights, what is the timing in that transaction?

Well, the transaction has occurred. Just to give you a little bit of background, 17 Cambridge Center is the last available development site in our Cambridge Center property, that combination of assets. When Biogen decided that they were going to move their headquarters out to the building that we're developing for them out in Weston, it was clear that they no longer were going to use that -- those development rights which we had transferred to them way long ago. And so we effectively purchased them back, and we will be -- it is a right, so we didn't actually buy the land yet. We buy the land from the Cambridge Redevelopment Authority, and my expectation is we will probably close on the transaction sometime in 2010, about but it could be a little bit sooner than that.

Thank you.

And there appear to be no further questions in our queue. I will now turn the conference back over to our speakers for any additional or closing comments.

That's all we have. Thanks for your participation. And again, we realize that this is a long day with a lot of calls, and we will let you get on to whatever the next one is. Thanks a lot.

That does conclude today's conference. Thank you all for your participation. You may now disconnect.