SL Green Realty Corp (SLG) 2002 Q1 法說會逐字稿

Thank you for standing by and welcome to the Reckson Associates first quarter earnings conference call. At this time our participants are only in the listen only mode. Later there will be a question and answer session and instructions will be given at that time. If you do need assistance during the call today, please press 0 followed by the star. Also as reminder today's call is being recorded. We will now read the forward-looking statement provided by Reckson. The information

to be discussed in this earnings conference call includes estimates of future may contain forward-looking statements within the meaning of the private securities litigation format of 1995. Such forward-looking statements and all other statements that are made on this call that are not historical facts are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those expected. Among those risks, trends, and uncertainties are the general economic climates, changes in the supply and demand for office and industrial properties in the New York tristate area, changes in the interest rate levels, our ability to respace in the timely manner at current or anticipated rental rate levels, changes in the operating costs, repayments of debts owed to the company by third parties, risks associated with joint ventures and other risks associated with the developments and acquisitions of properties including risks at developmental cost may be greater than anticipated. For further information on factors that could impact Reckson, reference is made to the company's filings with the Securities and Exchange Commission. Reckson is subject to the reporting requirement of the Securities and Exchange Commission and undertakes no responsibilities to update or supplement information discussed in this conference call that subsequently becomes untrue. That being said, I now like to turn the conference over to our host Mr.Scott Rechler. Please go ahead sir.

Thank you operator and I would like to you for participating on our first quarter conference call. Those who haven't participated before we actually use as reference a power point presentation which is available via our website which you

can access by going to the web at www.reckson.com. If for some reason you can't access or you have a problem, please call Susan McGuire, our head of Investor relations at 6316226642. We are going to start with formal presentation by myself and Michael Maturo, our Chief Financial Officer and then we are going to open up to our questions for either one of us or any other members of our of our senior management team that are with us today. We will return to the PowerPoint presentation, turn to page 2. I will start by providing some general commentary about the quarter.

Generally speaking our core portfolio performed extremely well during this quarter. I am really going to highlight the competitive vantage that we derive from the strength of our local franchise. As I go to the statistics, you will see the challenging market conditions, yet we seem to be progressing extremely well in these markets. Our markets are relatively strong compared to many other markets around the country. They remain uncertain in the near term as to what is about their near term strength. Things like cyber space tends to stability and the business confidence are having negative impacts on all markets like other markets around the country. In the long term, however, we remain fairly confident about our markets because supplies and check, our demand remained diverse. These are the markets that we believe will actually come back with much greater strength when the economy begins to recover. In addition as we go through the presentation, you also see that we remain conscious about the industry markets because they are extremely competitive. I will give you some example for that as we move on. Let me get into some of the specifics.

Specifically during the quarter we reported diluted of $0.60 per share witch compares to $0.69 per share for the first quarter of 2001. However, if you look at the first quarter of 2001and our core state operations was $0.69 per share would have been $0.62 per share which would still represent a decline of about 3.2 percent. This is primarily driven by

Dilution from the execution of our disposition program where we sold assets and yet not had re-invested the capital. Mike Maturo will provide additional details regarding this 3.2 percent variance later in our presentation.

operations, we have same property increase of 8 percent on a cash basis and 1.9 percent on a GAAP basis. This is net and our on the spot portfolio actually increased 10 percent on a cash basis and 3 percent on a GAAP basis. So you will see that our and was broke down somewhat by our industrial portfolio which we will talk about a little later in our presentation. Our same space rent growth was 22.8% on a GAAP basis and 13.3% on a cash) basis for Office portfolio and 16.7% on a GAAP basis and 6.1% on a cash basis for industrial portfolio during the first quarter. Our is up 50 basis points to 95.1 percent which is up since the end of 2001. Our developmental program has been very successful, actually had some great activity during the quarter. We are now, our developments in short hill, and one or two JFKs is now 100 percent occupied and in our Reckson executive force is now 61 percent occupied and is slowly picking up some momentum. We renew 91 percent of our expiring script during the quarter. We reduced our least exploration exposure to 4.7 per cent for the balance of 2002 and on the corporate side we actually have some very exciting news where we added 2 new independent members to our board of directors. Pierre Quick who is our presently President of American Stock Exchanges joined our board as well as Ron Menegar who is formerly head JP Morgan corporate services was also former chair of NYU downtown hospital and is presently trustee NYU now medical. We believe that both have backgrounds and their expertise were significant for both our board and our company and proud to have them join us.

Now we turn to slide . I will give you little bit of background on our snapshots of our portfolio composition. If you look at our portfolio composition to a few changes. You will see that from the amount at NLY derived from new York city as from 30 percent to 27 percent which reflected of the joint venture that resulted in 919 revenue, went up from 30 percent to 32 percent in terms of the NLY derived from that marketplace. West Chester went from 21 percent down to 19 percent and went from 12 percent up to 15 percent. With respect to our other portfolio statistics, they are pretty much in line with they had been still $20.5m with $181m properties, 86 percent of our NLY is derived from our office portfolio, 14 percent from our industrial portfolio and w ill speak about the occupancies.

I will take a moment to discuss the conditions of our market and we actually can look at slight in a particular which will have the vacancy range of our suburban markets, and our CBD markets on the hand, both the direct vacancy range and the overall vacancy range as well as the vacancy range of our own portfolio. When you look at these slides, 3 points I would like to cover. First you can see that Reckson is significantly performing in all of our markets. If you look at the role of circles which is Reckson vacancy range, it is substantially below both the direct vacancy range and the overall vacancy range in all of our suburban markets and most of our markets in, some markets in . The second point I would like to focus on is, high light little bit more the power of our franchise and how we are able to perform in these markets and focus specifically on Westchester and , both those markets in the office markets, we have the largest name board in those markets required rent space and you will see promise in both cases the spread between our vacancy range and the market vacancy range is extremely large. In addition, just in Westchester, for example, in 2001 74 percent of the deals that we did in Westchester, we did without the aid of a broker. That the companies actually embraces

Brokers and you know really in I think it demonstrates how active and how proud we are in that marketplace. Another example I want to point to in Westchester related to our redevelopment of 360 and avenue in downtown went place. This is the development that today is practically a 100 percent lease. But when we commenced it, we commenced it at the same time when another property owner across the street commenced their development. And today we are nearly a 100 percent leased, that property owner is still 100 percent vacant.

In a similar story if you look at which mentioned Reckson executive for toady is 61 percent leased, similarly there was another project that came on line in very close timing to Reckson executive park in the same sub market ands the at property is 100 percent vacant still and we compete head-to-head. This gives you a certain demonstration that in this markets we are competing extremely well and definitely getting more that are share of the tenants.

The third thing this graph shows you and then I want to stress and to talk about, is it so much space do remain a factor in all of our marketplaces. If you look at this so much space and about 540 basis points to the direst vacancy range as relates to our suburban markets and about 380 basis points to direct vacancy rates relates to our ad market. So it really is having a significant impact. The good news of the suburb space is that when the market does begin to recover, we believe that the suburb space will actually be reduced in a much more rapid pace than direct space. Many companies are actually subletting mortable suburb spaces on the, marketplace trying to determine whether or not this interest and in which one of their profits would be interested and then they will pull other one off the market and in addition as the market begins to recover we believe that companies will determine that they need the space for themselves and pull it off the market. So we think that statistically suburb space will decrease in a much quicker pace. At this point, seeing so much space has stabilized in most of our markets. It is not a continued addition of suburb space but the economic environment is till remains shabby so there is uncertainty that we will see most of our space come on the market if there is continued business business have a hard tome reaching the profit levels that they hope to achieve. So watching these, markets carefully, generally speaking as I said in the beginning of the presentation from a relative perceptive we are extremely pleased with the profits of our markets and specifically how well we are competing in our marketplace.

Just a slide 5 again, most of the comments are any way can be re-iterated in slide 5 but you can just see again from the direct perceptive there is the vacancy rate in Manhattan still remain in single digits ad we will talk about some of the same space rentals in we are doing extremely well in terms of getting the high prices still in our marketplaces.

On slide 6, just continuing on the market, we will just give you a little more color with respect to the scale in the market and

The amount of new supply has been added to the market. The market that we operate in are huge markets, in total about 600m square feet. Within that 600m square feet, this only new supply of 1.4 percent, practically no new supply to the space

In the scale of this market and of that 1.4 percent of new supply that is going up in these markets, 72 percent of it is pre-leased. So when you look at the supply picture going forward, we think it is extremely targetive and again refer to my earlier comment about the long term in our market, this is what supports that. We believe that as the economic recovery starts to take off and will continue, our markets are going to strengthen at a very rapid and strong pace because of lack of supply.

Now I will spend some time focusing on our own portfolio starting with our occupancies. On the office side, if you look at the top of the graph on slide 7, you will see that we averaged about 96 percent, we are 96.2 percent today. The only short aberration we had was in the year 2000 which was 97.2 percent. But before that year we used to divide our target as to where we had been on occupancy for office portfolio. With respect to our industrial portfolio, we see a dip in 2001 and continued little bit in2002 and now it reached one property in industrial property, in Connecticut where we have a block of space that is vacant in that property. Without that block of space, we will actually be 96 percent or 95.9 percent occupied on our industrial portfolio at this time and will have some discussion for we actually seen a large pick up of leasing on our industrial portfolio and we are extremely pleased with the performance of that portfolio. \par

Just will spend some time talking about the same property and NOI growth as I mentioned earlier, we had the same property and NOI growth of 8 percent for total portfolio on a cash basis and 1.9 percent on a GAAP basis. The office portfolio was 10 percent on a cash basis and 3 percent on a GAAP basis. If you look at just the major drivers of this just trying with the office portfolio our cash revenue was up 7.7 percent, our operating expense is increased 3.5 percent which benefit from good whether conditions. Real estate taxes of 5.2 percent and our general office portfolio was off 90 basis points from the first quarter of 2001. If you look at the graph on the left hand side you will see the similar tax as related to our total portfolio which Michael will go into detail. There are no differences, total portfolio is off 250 basis points since the end of the first quarter of 2001, so if you see the industrial portfolio has significant impact of that.

I will just give a little bit color on market by market with respect to same property and NOI growth at this point. Starting with New York City, during the quarter New York City had GAAP same property and NOI growth of 5.7 percent and cash same property and NOI growth of 22.3 percent. Long Island had GAAP of same property and NOI growth of 0.5 percent and GAAP as mentioned as flat on a cash basis, and again that was pulled down by somewhat industrial portfolio just in terms of downtown that existed in that quarter. Westchester had GAAP and same property and NOI growth of 1.8 percent and cash same property and NOI growth of 4.9 percent. Connecticut was down, GAAP and cash was about 6-7 percent, again relating to the industrial property, there is one industry in Connecticut. And in New Jersey had same property and NOI growth of 7.7 percent on a GAAP basis and 20 percent on a cash basis.

Now I will just go on and review some of our leasing stats. During the quarter we actually leased 62 leases for 857,000 sq. ft which made about 4 percent of our portfolio. As I mentioned earlier renewed 91 percent of our expiring square feet during the quarter which we are extremely pleased with. Our office rent growth in terms of the leases expired, we were able to reassign tenants to that space at 22.8 percent higher rents of our office portfolio and 16.7 percent higher rents for industrial portfolio and those were GAAP statistics. On a cash basis, it was 13.3 percent and 6.1 percent for office and industrial portfolio respectively.

Again to give you a little more color on a market-by-market basis of our same space statistics, as leases expired on Long Island portfolio during the quarter, we revised the met rent at about 18 percent higher than what the prior tenant was paying. Westchester was about 12 percent higher than what the prior tenant was paying, Connecticut was about 34 percent higher, New Jersey 12 percent higher and Manhattan about 48 percent higher. Those were GAAP numbers, on a cash basis, Long Island was 5.2 percent Westchester was 6.3 percent, Connecticut was 29.4 percent, New Jersey 4.7 percent and New York was 35 percent.

Just continue on some of our leasing trends. We try to put together a series of graphs on slide 10 that will provide you greater insights to the underlying drivers of leasing activity that we had during the quarter and some historical perspective

of that. Starting on the top graph on the left hand side of slide 10, same space average rent growth, you will see that on an almost consistent basis other than the fourth quarter of 2001, we believe we maintained about 22 percent higher rents as we re-leased the expiring space for last 5 quarters. 2001 on an average was down at 60.3 percent but we bounced back up in the first quarter of 2002. If we go to the graph right, provides you with our tenants retention rates. It is jus for our office portfolio and you will see that 82 percent in the first quarter of 2002 was high relative to the trends over the last 4 quarters prior to that. On a net effective rent prospective, sometimes there is going to be a lot of questions on terms as we were keeping pour beach rental, partly being dragged down from a net effective rent perspective because of GI leasing commissions

and concessions. So what this graph tries to show is a spread between the beach rent and a net effective rent from the last 5 quarters. And you can see that we had about 8.2 percent spread in the first quarter of 2002 which is at the higher end of the range that we had during the last 4 quarters but not completely out of the range neither is it showing a significant increase. I would tell you that our own expectations as we go forward for the rest of the year is that wear see some pressure on these number based on the present market conditions. And last we will try to provide you with average leased term. There ha been some rumblings in the marketplace that having a hard time committing long term. We share statistics right now shoeing that we had been able to maintain our normal average lease terms at 6.3 years in the first quarter of 2002 which is actually higher than what we achieved after 4 quarters prior to that. So I think that is something that hasn't proved true on our portfolio.

One account this I want to make about all these statistics is we actually pulled out of projects that are underdeveloped. these are our core operating properties. The have different type of invocation so these numbers is really trying to show you what a more stabilized portfolio performance is.

I am just looking for just to give you an outlook on lease explorations. We are 4.7 percent of our portfolio square feet is expiring after the reminder of 2002, 5.5 percent of our office portfolio, 3.2 percent of our industrial portfolio. If you look at our industrial portfolio, we made some good progress again primarily as on we reduced our 2003 exposure from 12.6 percent to 10.8 percent and about 40 percent of our portfolio actually expires from 2004 to 2006 and based on our view as to the long term potential strength of our, market as the economy begins to recover, we think it is actually a good time frame to have these exploration exposure. So we are pleased as to where we are, position right now.

Just more details what is expected in 2002 explorations on the office on the slide 12. We actually provide pipe shot breaking out the explorations by market just as you saw in the last quarter that Westchester mix was about 38 percent of our explorations during the remainder of the year, has 275,000sq of space that is expiring at 9 percept of the division. It is off to a good start in the first quarter, we have actually budgeted about 41,000sq of and we actually signed about 109,000sq of GO in Westchester for the first quarter. So I think we are off to a good start there.

And the next is market is New York City with a 161,000sq. On the right hand side of the slide we actually give you a sense as to how these explorations pull out over the next 3 quarters. You can see the pretty much long line in the 200 to 270,000sq per quarter with the third quarter having a little bit of higher explorations.

To give you a sense of our mark-to-market spreading rents versus our forecasted rents as I recollect on the last call before we changed our methodology to be more specific as to what we have in our own internal projections, these reflect those projections over the next 7 quarters and to see our total portfolio we have a target mark-to- market of 10 percent on a cash basis and 17 percent n a GAAP basis. This is slightly below the results you generated in the first quarter where we had 13.3 percent on a cash basis and 22.8 percent growth on a GAAP basis. When you look at the composition between CBD and Suburban you will see that CBD is the big contributor with about 32-33 percent growth on a cash and GAAP basis. Our suburban portfolio is about 1 percent growth on a cash basis and 10 percent growth on a GAAP basis. This is again none of our suppliers, there is deficit in cash in the GAAP on the suburban portfolio because a large portion of our portfolio, specifically on Long Island has growth in rent increases, so which grow at about 4 percent per unit basis which obviously have an impact on the cash mark-to-market o but would be picked up, the debit will be picked up in the GAAP side.

As I mentioned earlier, we made significant progress as related to our developmental projects during this last quarter. Slide 14 is the break out of one of the three JFK park lane short hills. We are pleased to announce that we actually signed a lease with the branch for 100 percent of the property. The 123,000sq, the total anticipated investment is about $32.8 m which is higher than what we have originally anticipated. But was compensated in the rental part of the negotiation, so we owe a 10 percent as on target to what we had originally anticipated. So we are pleased to have this project while we .

The other only active substantial development project that we have presently is our Reckson Executive part. This property now is 61 percent leased, has leases out for another 38,000sq and proposal for another 50,000sq with leases that are presently being negotiated with, the property 75 percent. As I mentioned earlier, the property has lot of momentum, signed a new , I think gave the marketplace and understand that this is going to be leased and people who want to be in this building have stepped to the plane and starting to cut deal right now and we are confident that

We really do need or exceed our year-end target occupancy of 220,000sq.

With that I would like to hand it over to Michael Maturo to provide some financial discussion and then I will conclude what is the outlook for 2002, for the remainder of 2002.

Thank you Scott. You turn to page 16, provides some commentary on the results from years over year basis. As Scott said in his opening, we had FFO of $0.60 compared to $0.69. Reconciling down to full operation number which is how we projected all our estimates and provided the guidance last quarter for the year, that would exclude $0.07 related to the front line loan interest in our JVs which we no longer include interest in our numbers. That brings it down to 62 versus 60 for the first quarter 2002. To provide some insights into that, if you look below you will see, for the quarter 2002 versus 2001 we had a decrease in termination fees of about attending investment dilutions of about a $0.01. Investment dilution of about $0.05. Bad debt, excess debt expense was about $0.01 and that was said to by an increase in some interest cost saving.

To provide some additional color related to the first quarter versus the full year guidance that we provided, from the standpoint of termination fees, we were $0.01 per share until while we reported in prior year. In our guidance for 2002, we have assumed a $0.09 per share loss on termination fees. We still think this is the case as most of last year's termination fees were towards the latter part of the year. So we currently still see that difference, we don't see much in the way of termination fees for the rest of this year. With respect to investment dilution the $0.05 is pretty much what we had forecasted for the quarter,

So we think we are right where we are, we forecasted in respect to that.

On the excess debt we reported $0.01for the quarter, we forecasted $0.04 for the year. We still think that $0.04 is a good number for the year, remaining cotious with respect to bad debt. Other income was flat on year over year for first quarter. We forecasted a $0.05-0.06 per share decrease or difference from last year to this year. Again we still think this is the case that the forecast shows and most of the difference again forces in the next 3 quarters, so we still think that it is a good number for the quarter and for the remaining part of the year. So currently we have no change to the forecasted numbers and I guess I would say as Scott said earlier our biggest challenge on the right now would be our ability to meet the investment guidelines that we provide in respect to this year.

Just a moment, a little bit time on the credit time on the bad debt. We have included in bad debt expense for this quarter our outstanding exposure as related to receivable balance to HQ, just a little bit of commentary on HQ itself. We had 11 centers under leases, 2 centers were closed where we took the space back. That was a small amount of space on a combined basis for 24,000sq. Actually one of those spaces in Westchester 12,000sq is on the way to be subleased as currently being negotiated with the tenant. Of the remaining 9 centers, HQ has informed us that they are retaining 5 of those centers without any changes to the term. The other 4 centers, they also wanted retain and have come back to us with some changes to rent terms. We are working through negotiating those transactions. However, on an overall basis, we don't see at this point any additional mature exposure HQ space.

Just a little snap shot of Just AR in general. If you look at our AR balance as of March 31 of last year, with $16m as of the end of the December 2001, it was $13m and as of March 2002, it is actually $12m. So we have a 25 percent decreased in our AR balance year over year and actually a 14 percent decrease from December 31. We maintain a 20 percent against that number and that is consistent for each period. So while we are very focused on credit issues and very cotious we are not seeing any material issues arising other than the isolated incidences I mentioned.

Okay, turn to the next slide on the financial ratios. Our balance sheet continues to be very very strong and solid condition. Interest and fixed rate ration continues to strengthens primarily attributable to the decreased debt and interest cost and the portfolio performance. In addition, this quarter we had an $11m balance of preferred units convert to common at a price of $25.50. So our debt service coverage now at 36 and fixed coverage at around 27 tons with our debt ratio at 39 percent. We continue to have significant liquidity and financial flexibility. We see excess of $500m of debt capacity on a pro forma basis, which will keep us within our stabilized level. So we are very happy with where our balance sheet stands.

On the next page, slide 18, our debt schedules, we have no near term maturities. Our nearest maturity is $100mof notes that are due in May of 2004. Our affording range of debt is only 15 percent of our total debt and which is around secured facility. We think this sis a reasonable balance in today's environment and we will continue to monitor at what point it will make sense to take this out to a long term through corporate note issuance or do some sort

of interest rate protection.

On the next slide, we added actually this slide here just for additional debt closure purposes, kind of reach out what are our preferred securities look like, we have about $299m outstanding. Interestingly we are seeing some opportunities to opportunistically purchase these securities, the people are seeking liquidities and we will evaluate this as an investment option. As for the preferred units which are generally owned by limited partners that have solid portfolios to us. We converted 20m of those units, to date including 11m at this quarter at a levels. So overall our balance sheet and financial liquidity are well positioned to support our strategic growth, goals and efforts going forward. With that I hand it to Scott.

Thanks Mike. Just to include little bit additional about 2002. Again just to re-iterate this quarter portfolio performed extremely well in the challenging market. Our occupancies increases, our maintain final effective rents. The reason for the developmental projects are tracking ahead of schedule, the developing costs us near term on our market. Our suburban space is still having a large impact on our market as you saw in the graphs. We went through stability remains a concern unclear as to who and who is not a good credit in toady's environment when things like situations are occurring and well the GBP has been up. Business confidence has reached more perspective and without that continues to remain a low and so in this type of market this is the team fighting for market share. The good news is, I think this we are doing a very good job at fighting and executing a for that market share. Again as I mentioned, long term we are seeing the positives about the markets, the slide picture is great, there is no due supply so as the demand starts to follow the growth in the economy, we would expect sublet space to disappear more quickly after market and we would expect a strong market recovery. I don't know if that is a 2003 or 2004 situation but we are obviously staying for this to capitalize on that.

From an investment perspective as Mike alluded to, it has been a challenging investment environment. This has been significantly capital, in the marketplace to limited to 2 projects when it is created somewhat of an overheated investor market. Some of that overheated industrial market is things that are our and some may be ling term repricing of some of the higher quality more stable assets in some of the better locations. So we are trying to differentiate between which are long-term adjustments versus peaks. Just want to think that we can spend a lot of time doing. We have been extremely aggressive pursuing opportunities in our markets. We are very active this past quarter in terms of trying to transactions and been on a number of different opportunities but due to pricing in the competition we are not successful in executing those in, I think as I mentioned before we are going to maintain highest level of discipline in terms of what our investments standards are and to the extent that we are not comfortable with the potential investment at a certain price. We will step away and suffer the short-term dilution to our earnings and we wait the right type of investment opportunities.

Even following that we continue to pursue strategic because the market is strong, we continue to look at our portfolio to assess which properties have either exposure or non towards long term and are seeking to put them on the marketplace. We have 2 properties right now under contract for that $40m. We have another $100m that we probably have targeted to beyond that we continue to look at our existing portfolio as to what might make sense as right prices in today's type of investment environment. Also during the quarter, we hope to be active acquirers of our stock but due to the good performance of our stock, we found few opportunities where we could attractively acquire stock during the quarter. So that is something we will continue to remain focused on and as Mike has also mentioned we also plan on broadening our target beyond just to common stock also look at the preferred securities every now and then as it is attractive.

As we look forward to 2002, we are reaffirming the guidance that we issued at our last call $2.45 to $2.55. I think Mike worked it through well the different things that impacted the guidance based on the poor performance of our portfolio this quarter. To give that offset by the points that might made on the investment side and some of the other danger out of control such as termination fees and other income like items. We think we better feel for that guidance. Our next quarter and that is when we plan on commenting on at that time. In addition, we are not prepared to provide guidance for 2003 at this time but would expect also by our next quarterly call to be in a position to provide some of those guidance with respect to 2003. With that I will be glad to open up the phone for questions. Operator, you could please give us the questions.

Ladies And Gentlemen If You Wish To Ask A Question Please Press The '1' On The Touch Tone Phone, You Will Hear A Tone Indicating You Have Been Placed On Queue. You May Remove Yourself From The Queue At Anytime By Presing The '*' Key. If You Are Using A Speaker Phone Please Pick Up Your Handset Before Pressing '1'. One Moment Please For The First Question.

Our Firrst Question Comes From Garry With Salomon Smith Burney.

Hai, it is Jonathan Litt for Gary Boston. I had a couple of questions.

First, Any chance of recovery of the investment in frontline RSVP? Any update on that?

I think, John, from the standpoint right now, we're comfortable with the reserve that exists. We obviously evaluated every quarter and we think it's a conservative reserve on a conservative evaluation. RSVP is going through the process to take that portfolio and try to monetize assets where that makes sense. It's hard to say right now from where the prices will come in but other than the say, you know, we think the balance is on the conservative side and we will see over time as they try to realize value what happens.

When do you think we will get an update on that?

I think that the plan right now is that over the next 12 to 18 months we will see transactions as those assets are monetized and I think over the next quarters we will probably see some clarity as to the types of transactions and valuations that we are seeing.

With regard to tenant retention in the quarter, I was curious, what's happening with TIs and leasing commissions on new and renewal leases?

The spread between the new and renewals. What the difference is?

No. What kind of TIs are you giving for new space, what are you giving for renewals and how is that changed?

I think that the.. let me give the general comment and then I will open in up for this source and one of the other MDs to give some color. Generally I think we receive at least on a ratio perspective, the net effective rent has stayed the same. Practically our view around slide 10 before we provide the net effect of schedule shows that we are 8.2 percent which is spread between our base rent and our net effective rent. So that was the difference between those two numbers for the first quarter of 2002. It ranges from 6.6 to 8.3 percent, I am sorry it is 6 percent to 8.3 percent for the four quarters prior to that. So at least in total our NERs have stayed somewhat stable.

I think, you know, speaking and join in; we are seeing a little more pressure on TIs going up and the concessions. But generally speaking, they are holding pretty well at this point. I think we saw the biggest jump on that in the fourth quarter of 2001 and I think in the first quarter of 2002 we are seeing similar margins on that side. I think, the markets softly take back toward the end of last year and we are trying to maintain that going into the first quarter of 2002.

Do you have an aggregate number for the portfolio for new and renewal for the quarter?

We don't have it on an basis, you will see it on a total basis when you look at the Street supplement that comes out here. We haven't done any other calculation.

With regard to Short Hills, on that lease, what's the ups over time?

The bump is 12.5% in year six of a 10-year deal.

You had mentioned the investment dilution. Can you just refresh me on what that is, the $0.5 investment dilution?

That's basically the NOI on assets, the non-core assets we sold and the interest in 919 3rd Avenue.

Thank you.

You have a question from Steve Sakwa of Merrill Lynch. Please go ahead.

Good afternoon. Could you just talk, you mentioned at the acquisition mark it was pretty difficult. Within your 2.45-2.55 range, what are you assuming in terms of completed acquisitions?

2.25 to 3.50 on the low end. You know, 2.25 on the low end and 3.50 on the high end and that includes stock repurchases as well as acquisitions.

And you have any of those assets under contracts or anything, you know, under at this point?

We do not. We are actively working on number of transactions, so we have nothing on the contract or letter on intent at this point.

And what sort of cap rates are you targeting or expecting on that investment?

It depends on the deal, I rather not comment what our average cap rate is because as I said it is stock purchasing there and at the heat of negotiation I would rather not comment as to what our target cap rate is. But it is going to be obviously depend on what market is, what the potential of the asset is, you know and the strategic and no strategic role and different things like that.

Okay, I guess two follow up on John's question on the JFK property, what was the original cost when you said that the cost came in higher than you had originally anticipated. Is that the building that was leased temporarily to American Express or is it the other building?

The other one. We originally projected pro forma at $30m and it cost $32m and change.

So have rent moved that much or your yield was down slightly from ?

Our yield held. We got compensated with higher rents and part of it was a build-out and contribution to the tenant.

What is your assumption for G&A this year?

We are used about 7.5 million dollars a quarter.

So roughly was out the first quarter.

First quarter was little bit down but I think overall for the year we probably have at around 7.5 million dollars a quarter,

OK. Thanks.

Then we are having question from Stuart Axelrod of Lehman Brothers. Please so ahead.

You talked about 360 Hamilton, can you talk about the risk of Metromedia Fiber in that building in terms of the square footage and rents?

On an average basis, they're pretty much near the market or slightly below the market. Consider in the stays of their rent and where the rent being done today in that market placed. That's all we continue to over achieve in that market. We've structured the deal where we have a pretty good security deposit with them that affords us in multiple months rent on the entire stay should we have an issue. We continue to work in the marketplace to get create of and are there any opportunity to replace them without tenants who are working closely with them as well as with some of the transactions and potential transactions.

How much space do they occupy?

They have 105,000-107,000 sq. ft.

Can you give us some color on some of the activity from New York City that has been hitting Westchester. Can you comment on that?

Yes. Specifically the White Plains CBD market were showing to the number right now we will work in that 3 potential tenants that have been in the Westchester marketplace particularly White Plain financial services lower from that are they like the proximity to rail and the other assets that the property like infrastructure that's not only in the building related to internet connectivity, electricity, and what's in the street in White Plains related to ability to access fiber. We are seeing fair manufacture it started the fourth quarter last year and it seems to be a trend and it has continued right to the first quarter. We're close within the market making a couple deals in the 20,000-50,000-sq.-ft. range out of New York City.

Are you actually subleasing some of that space sir?

We are actually some of their space subleasing where we are working closely with them to be creative to take back the stage space or do some direct deals etc..

Great. Scott you mentioned. you characterized the acquisition market as overheated. I would see all our transactions in New York City. Can you talk about the suburban market what is out there? What kind of pricing you are seeing?

I characterized the overheated with two components. One is there's a lot of capital and second being not a lot of supply. In the suburban markets are characterized it more not a lot of supply in terms of ready opportunities are. We would had been investment opportunities in the suburban side depending on the market I would characterized as less overheated unless it's a real trophy type property. As an example there was a property in Greenidge downtown that is a very very high quality property that would go for the suburb . So things like that, I would say are aberrations. But I think in the suburban markets and potentially in the there is a view that the capital is our there and because people are looking for their portfolios, we should start seeing some additional supply or product on the market as the year progresses and that is our hope and we are focusing on, frankly, and I would say all these are we are actively working on now, which I have mentioned a number of them. I think they are not on the market working with owners or users who have specific needs or requirements to do something for balance sheet perspective or other perspective and we can help till there is need. In that type of marketplace we need to be more creative, we need to be more proactive, if you can really have a change to create value along the way.

And lastly you did drop your yield at the Novo project at 11 percent and that is for Lisa ?

As I mentioned that just it was a question of Lisa, it was not actually Lisa frankly, it is more of the cost to put it and the price of the Zurrich deal and some of the other deals and they are just being competitive in the marketplace. Our hope is that they maybe conservative now that we have reached the 61% and have that the other 10 out there and maybe we can start pushing the price a little more.

Great thanks.

And we have another question from Lawrence Raiman from Credit Suisse First Boston, please go ahead.

Hi, nice job and a good portfolio in the quarter. I had one question on accounting for free cash flow as you call CAD. Could you walk us through what adjustments you would anticipate for the full year 2002 for straight line rents and non-incremental non-capitalized improvements for the portfolio, so we can get to a CAD number for the year and then relate that to your dividend?

No. Conceptionally Larry what we do on the capex side is we do deduct out of the FFO number, the committed amount based on the leases that we do for the quarter. So we take a very conservative approach to that and we don't deduct what's actually paid, but we actually deduct the entire cost of the leases that were signed during the period whether or not they were expiring during that period. So it is an example that we can add that will expire at the end of 2002 and probably wouldn't have paid it somewhere for the second quarter of 2003 that shows up in this quarters CAD numbers. So obviously that is reflected in the ratio. I don't have the full numbers for the year right with me because they are forecasted based on leasing numbers, but I have to get back to you on that.

Okay, I will call you off line. One other question and that would be in the past you have disclosed where you create pipeline to include projects in planning, other assets Melville corporate center too. On your balance sheet you are showing development

projects that will cost about 70 million. I take that to be the Melville and one or three great projects. Those other projects in planning, are there many costs that are being capitalized associated to those and where are they represented in the balance sheet?

There are costs being capitalized with respect to those projects as those projects are under continued to undergo various zoning and other types of site costs and work architecturally and so forth and they are capitalized in the `development costs/land` line.

And could you give us a perspective as to how large that amount is today?

Amount?

The amount that is capitalized for the projects in planning other than the two projects you mentioned as part of your presentation?

Again I don't have that number. I will be glad to give it to you.

Okay, thanks, nice job.

We have a question from John Lutzius with Greenstreet Advisors. Please go ahead.

Hai good afternoon can you briefly rank your suburban market based on your position or the strength?(John Lutzius - Greenstreet Advisors)

I would say that Long Island continues to be extremely strong and frankly actually Long Island is being helped by some of the defense sector. Some of this sort are sweeping once defense company is that strength their business is all of the sudden defense contrast of coming out. As well as the strength of the consumer has been good for Long Island were lot of the service companies that support the population so they can obviously supply. So Long Island continues to be strong. You know Westchester I would put Westchester and Pereferal counting to gather I would put them as the next market again may be we are little bias because of our dominance in that market and I really execute in that market place but seem to do extremely well there we are hard at it we were getting great results and I think it is very positive the Morgan Stanley situation and the addition of interest that we have seen recently from New York City company looking to down town white lanes as a part of there operations which is something they are happy but crowded for long time. And I put last New Jersey and that is primarily because of some of the high telecom sector potential in terms of the sublet state that has come on the market because of that as well as some of the supply in New York and New Jersey relates to that as well. I think I have answered.

Thank you. It had water menus on the lines Todd can you comment on the competition that midtown Manhattan will be getting competition from sublet space in downtown? (John Lutzius - Greenstreet Advisors)

Sure. I think that I think if your are going to see in the short-term tenants leaving midtown to go downtown for economic reason John, but I would say that historically the market has been very thin in terms of companies willing to migrate their business downtown for many many reasons, the biggest one being transportation and I think with given what happened disrupting this transportation disrupting the existing downtown even more I don't see it as a major trend I really don't so I am not I don't think that you are going to see any long-term trends and I don't think you are going to see any kind of erosion in midtown real estate.

What types rent levels are being offered on class-A sublet station of (John Lutzius - Greenstreet Advisors)

Downtown.

Yes. (John Lutzius - Greenstreet Advisors)

I dont know this is a factual matter but I understand that the double space at the World Financing Center for instance has been some of that in lease negotiations right now in the mid forties for some of the less desirable space in that project. So I still think in the class A product will be in the forty. We just signed over a hundred walls street before you .

So both of those takes me suprisingly high?(John Lutzius - Greenstreet Advisors)

It is great real estate. As Todd said we can not necessariy stand the fact of the World Finance Center when we know the hundred wall street.

I think you still has to remember as the statistic showed on direct vaccancy in midtown in true class A buildings and institutions that need class A office states in midtown although there is a more availability this ranks are still 60 dollar full 70 dollar full and so that is what I think you are seeing that.

So I think there are other opportunities in downtown for much less? (John Lutzius - Greenstreet Advisors)

Yes. But it is not in the big build . I think there is still lot of confusion on what is going to happen downtown and it is not a clear timetable. As do when things are going to happen there are lot of companies still that are downtown that are looking in midtown. And they could find ways to get out of theie lease in some cases they are able to because of consolidation of publish consolidated one spot. (Indiscernibl) couple of tenants look at this point.

When tenants look at this 60 dollar 70 dollar class A rent that you speak out and want to shop at do you think that shopping more by going to say Westchester, white lanes, and then downtowns? (John Lutzius - Greenstreet Advisors)

I think that no. I think it is for a headquarters type deal that is not with the competitors said is I think it is the suburban alternatives for New York City based companies are more of a diversification issue and I don't think it is to try and find the sub market price again.

Ok. Thanks Michael you have your current guidance despite being what strtikes me somewhat behind the 8-ball on acquisitions to here? Is that because the core portfolio is doing better than you would have expected? (John Lutzius - Greenstreet Advisors)

Yes I think as said I think that we have eluded because the core portfolio in the first quarter has performed extremely well and again despite more cautious view of our market that speaks to our ability to competed in the market. But that is really but that is part A and part B is we are all working on a number of transaction whether or not it will occur who know but I think it is too early to make the assumption that we won't meet our investment goals for the year. We actually did target back ended for the year in the guidance. So I think it's still to early to say that we are not going to achieve that.

Did the two new directors that you have announced make material investment in Reckson in common?

I would say no at this point and actually the board appointed them yesterday, so the answer is no right now.

Is there an expectation that they would?

That was not discussed.

Ok thanks very much.

And we have a question from Chard White from Rutherford Partners.

Please go ahead.

Good after. I would like to follow up on Larry's question about CAPEX and another supplement will come out exactly what is going on in those numbers? The absolute numbers were big and do you have a sense of what they ?

We said that will come out, by the way the supplemental will be coming out this afternoon in the e-mail.

Do you have a sense of...

Yeah, we do, they are off, they are not of, I think there is more volume driving it and this is actually

But I found it is always far on gross quarter. When you look at these numbers, skewed body, you have a lots more a universe of data that is being put into these numbers, so it is much better if you look at that one later into the year you have a couple of quarters.

If you go through the visions on Long Island for example in average blending in new and renewal 10 dollars and 22 cents a foot versus sharp 96 for whole of last year. So, Westchester was up 11 dollars 30 cents per foot versus 880 last year. Connecticut was higher 12 32 versus 289 but I am sure that has some differential in it. New Jersey was 10.27 versus 7 dollars and New York City was actually lower 31.56 versus 37.55. One another thing which is driving a little bit is on the CAPEX on the buildings side. We had kind of an unusual amount of dollars spent in the first quarter not unbudgeted but based on prior year, and that is a kind of attributed for two things. One is kind of the weather allowed work to be done. The second thing is that because we had less activity on the development side. Capital projects could be addressed earlier on in the year, then they have historically. So, that is driving a little bit of the number also which has skewn it towards more the first quarter than you know it has got it historically towards the later part of the year.

Ok I guess lastly among those lines, I know the biggest doubt in your lands, I know the dividend was actively hopefully growing to CAD as the had to become cash.

In your big that has to be because it was a 919 straight line rent, which affected April 1 of this quarter, 919 is now a full accrual, you know full cash relative to those you know approximately eight hundred to million square foot of leases that had substantial confession so that differential should compress substantially next quarter.

Ok so we should expect the to be below than 100 percent?

It will be obviously better than it was this quarter. The other thing that is striving the if and I provided some additional disclosure this quarter and I think it is also included in the financial numbers that we announced with the press release is because of the B dividend, the dividend on the B stock is obviously higher. And, on a log-term basis remember that B stock converts automatically to A common in the third quarter, early third quarter of next year, so there is some an aberration there, that the B stock creates because at a higher dividend, that over a long-term basis will go away.

Ok, great, well, thank you for the clarification.

If there are any additional questions please press the one at this time.

And we have a question from Loo Tailer from Deutsche Bank, please go ahead.

My question has been answered thank you.

We have a follow up from Steve Shakwa with Merrill Lynch.

Please go ahead.

Hai Mike, you I am just sorry, I know you mentioned the straight-line number, I just missed it, could you just repeat where you are, what your actions are for 02 and 03?

I didn't give one Steve because I didn't have the detail, as a table here.

Ok, I will follow up later, thanks.

And Mr. Rechler there are no further questions at this time.

Thank you operator.

We appreciate upon participating on our conference call and look forward to speaking to you next quarter and during this quarter.

Thank you.

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