SL Green Realty Corp (SLG) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by. We do appreciate it your patience today while the conference assembled. And good morning, welcome to the Reckson Associate's first quarter earnings conference call. [OPERATOR INSTRUCTIONS]

Ladies and gentlemen, if I may have your full attention, the information to be discussed on this earnings conference call may contain forward-looking statements within the meaning of a Private Securities Litigation Reform Act 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. A list of factors that could impact Reckson is included in the Company's form 10-K and 10-Q filings made with the Securities and Exchange Commission which are available on the company's website: www.reckson.com. Investors and others should read these factors before making any investment. Reckson undertakes no responsibility to update or supplement information discussed on this call.

Also during this call the Company may discuss non-GAAP financial measures. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and a reconciliation between these measures can be found on the Company's website in the quarterly earnings press release slide show presentation and supplemental package.

So, with that being said, let's get right to this first quarter agenda. With that, I would like the turn it over to Mr. Scott Rechler, Chief Executive Officer of Reckson. Please go ahead, sir.

Thank you, Operator and thank you all for joining us for our first quarter 2006 earnings call. Presenting with me today is Mike Maturo, our President and Chief Financial Officer. The balance of our executive management team is with me and will be available for Q&A after we go through the formal presentation. As usual we're going to be working off a presentation that can be accessed from our website at www.reckson.com as the operator noted. If you have a problem accessing it you can contact Susan McGuire, who is the head of our Investor Relations at 631-622-6642. To keep the presentation brief and informative we've also included an appendix with additional slides of other information that you can review at your convenience.

Before I jump into the presentation, I wanted to discuss some changes that we made to guidance you may have noted in our press release. We trimmed guidance for '06. This is primarily driven by a decision to accelerate the dispositions, to capitalize on the hot sales market and slow down on our forecasted acquisitions for 2006. Specifically, last quarter we were working on over $750 million of what we call Reckson sourced deals. These are deals that were not on the market, deals that Reckson sourced prior to them going to market. We anticipated closing them in the first quarter or the beginning of the second quarter. Increasing valuations and some of the hype that existed in the markets resulted in many of these sellers determining that they needed to take these deals to market to test the values that were placed on their properties. The by-product of that exercise was that some of these deals became too rich for us and we passed on them altogether. Other deals that we still think we have a chance of making are out in the marketplace albeit at higher values and we think that if we do make them it's going to be later in the year than we had originally anticipated.

On the disposition side, we've been accelerating our dispositions to capitalize on the strength of these hot sales markets. In doing this we recognize it would create more short-term dilution, but we believe it is the right thing to do for the long-term positioning of our Company and the creation of net asset value. This dilution was magnified by the fact we are sitting with $100 million in the bank waiting to be used for like-kind exchanges to help us manage the approximately $250 million of gains we've experienced as a result of property sales over the last two quarters.

We also made some strategic decisions that impacted our guidance for 2006. First, to capitalize on the interest rate environments before they got too high we decided to accelerate the timing and increase the size of a planned bond issuance which created some dilution, and second, we've also decide to pursue an additional offering for the Australian LPT. In doing this we are assuming now that we are going to contribute more Reckson assets and a portion of our investment pipeline into the trust as part of that offering. We believe that this scale for the LPT is critical to its success, and we believe the LPT success is critical to Reckson's long-term success.

We spent a lot of time during this quarter discussing these initiatives with our board, recognizing that they were going to create some dilution in the short-term and decided they were right decisions for the long-term growth of our business. The fundamentals of our business and markets are extremely strong as reflected in the guidance we set for 2007 which is $2.60 to $2.80 per share. As a matter of fact, we believe that the initiatives that we're taking, while dilutive in the short-term are going to put us in a better position to execute on this plan and capture the value that's embedded in some of these initiatives. I think we will get a better feel for this as I walk you through our presentation.

With that why don't we turn to the formal presentation and start on slide number two. Just on our reported FFO, we reported FFO per share of $0.56 on a diluted basis. That includes the LTIP charge, which was $0.02 higher than we originally anticipated and Mike will give more color later in his points of the presentation. When you adjust for the LTIP charges, the FFO per share was $0.60 as compared to $0.55 for the first quarter. This is higher than our forecast and guidance from the last quarter. You might recall, if you participated in the call last quarter, we actually laid out an expectation for first quarter FFO of about $0.52 per share, and we provided a little bridge between the the fourth quarter results and the first quarter and noted that really what's being impacted is from $0.60 in the fourth quarter we had about $0.06 of disposition dilution that hit at the end of '05 that was going to dilute down our first quarter results which brought us down to about $0.52 when you take into account other income, so the $0.52 is where we really were targeting at that point. We actually did better than that because we some got additional other income as related to selling an option that we had on an interest in one of our properties which I will discuss later.

If you turn to slide 3 to our portfolio performance, our same property NOI, focusing on a pro rata share basis which is what impacts our bottom line, was on a cash basis for the office portfolio 1.6%, on a straight line basis it was 1.3%. It is important to note what's really impacting the cash same property NOI is, as you might recall, the 1185 Avenue of the Americas increased ground lease expense as part of that resetting of that ground lease that took place this quarter compared to last quarter. If you adjusted for that, the same property NOI was 5.2%. So, you see it really isn't the trend line that we have been seeing and still we're experiencing on a cash basis, but was actually watered down by the impact of that ground lease payment. When you look at the overall portfolio, we were 2.2% on a cash basis and 2% on a straight line basis.

Turning to the occupancy statistics on the bottom half of that slide, you will see on a quarter end basis we were flat quarter over quarter. On the same property basis. What's interesting here is, if you note, we actually think this quarter included an economic occupancy and really economic occupancy is the occupancy that is space that's lease and we're recognizing revenue on it compared to quarter end occupancy that is space that's contractually leased whether or not we are recognizing revenue. Something that's very interesting to point out here, when you look at our portfolio on a pro rata basis, you will note there is a 270-basis point spread between the first quarter economic occupancy and the quarter end economic occupancy of 90.7%. When you look at that number really, that's probably more than over two times what we've experienced historically, and that really reflects there is an extended build-out period of time and down time after we sign the lease until when the tenant actually takes possession of the space, and we're recognizing revenue related to that. That's part of what's happening in our marketplace is as tenants are demanding greater build outs even though they're funding much of those build outs themselves, it is a more extended build-out period. That's something we'll talk about later on in the presentation as well.

When you look to the right side on occupancy and talk about our overall occupancy, you will note year-over-year there was a significant decline. That is as expected again because that occupancy stat now includes some of the key projects in our value creation pipeline, such as the Eastridge portfolio, 68 South Service Road, Six Landmark Square, Reckson Plaza, et cetera. So, that was vacancy that was either built vacancy or bought vacancy.

Turning to the next slide and talking about leasing activity, we signed 57 leases during the quarter for 370,000 square feet. It is a little slower but it's coming off the fourth quarter, which you recall was a record about 900,000 square feet of leasing activity. This also excludes about another 42,000 feet we signed related to a property Three Gannett which we subsequently sold. So, we didn't include that in the statistics. Our renewal rate was 56.7%. We had good same-space rental stats on a straight line basis on the first quarter. We had 8.8% same space rent increases; on a cash basis it was 1.2%. When you look at that over the past trailing twelve months, you see it was a little bit below the average of 13.2%, and 2.1% on straight line base rent cash basis respectively. That's really more of the make up of the small amount of New York City leases that were in these numbers and the level of renewals versus new deals that we had in these numbers.

On a tenanting cost perspective, you will see that we had $2.70 for the consolidated portfolio on a per-foot per-year lease term, $2.40 for the total portfolio. When you look at the return on tenanting costs, which as you know is a key metric we follow which takes into account the incremental revenue generated by the higher rents being paid by the new lease versus the old lease against a total cost you will see on the consolidated portfolio we had a 13.1% return on net investment and on a total portfolio, we had a 10.4% return on the total capital investment.

If you turn to slide 5, I want to start talking about our markets a little bit, and we actually provided just a quick overview of a sort of a location map of the Reckson properties, and you will see the Reckson properties surround---are in midtown Manhattan and surround midtown Manhattan, and while each of the suburban markets have their own unique characteristics, they are greatly influenced as to what happens in mid-town Manhattan, so as mid-town Manhattan continues to get stronger each quarter, it further enhances our already strengthening suburban markets. And you can see as you look at this map, sort of a visual as why that happens.

We turn to the next slide on slide 6, we can talk a little bit about some of the details. Generally speaking, all of our markets are seeing continued strength as demand outpaces supply. The strength of the midtown Manhattan market as I mentioned remains a catalyst for regional growth. It is really on fire and continues to be extremely strong. The rents for premier spaces continue to climb as vacancy falls to the single digits. This past quarter we had 15 leases in the marketplace that were signed at over $100 per square foot. The supply of high quality space alternatives remained extremely limited in midtown. There are only four space alternatives of blocks of 200,000 square feet of space or larger. There are only 10 alternatives for high quality blocks of space of 100,000 square feet or larger in midtown Manhattan. This is something that is very, very scarce for a market the size of mid-town.

The other thing we've seen is good continued job growth; the first quarter job growth is on pace to exceed the 2000 boom year of 100,000 new jobs. Clearly if this happens it's going to further fuel the demand that we've experienced in mid-town Manhattan and the surrounding marketplaces. The other thing we believe is that as mid-town Manhattan continues to get stronger we think it is going to strengthen the surrounding markets as tenants pursue regional decentralization. And something we've talked about a lot is that tenants look at their real estate strategies and they think about moving a portion of this operations outside of Manhattan to save money, to deal with some business continuity strategies and making sure they're on different communication networks, different road systems, different power grids, and also broaden their work force and enhance the quality of life of their work force. We've seen that uptick of Manhattan based companies out in the marketplaces looking to relocate a portion of their operations there.

When they do do this, they seek some of the best buildings, the most high quality buildings with the most modern infrastructure and technology in those buildings to meet their requirements. We're well positioned to provide this with our 1.7 million-square foot development pipeline that's fully approved in places where companies want to operate their operations. The other thing we've seen, of course, not only the tenants from Manhattan but across all our markets is there is a continued flight to quality and you're seeing tenants look to going to higher quality buildings, as I mentioned, with the infrastructure but also to attract the higher end employees they need to drive their business as they go forward.

Based on these supply and demand characteristics we're experiencing pricing power in mid-town Manhattan, in Stamford, in Long Island and the New Jersey route 24 corridor. Last quarter we laid out a leasing strategy that was focusing on pushing rents in our premium spaces. This is something that is on course. I think we are extremely pleased with how that's going, and to date have seen a number of those spaces have a level of activity we would have anticipated and not getting the push back on the rents we think we should be achieving and we'll talk about that more in the next slide.

We're also experiencing an increase in tenants seeking expansion space, both small and large tenants now, are look to find ways in which they can expand, and we're seeing that throughout all of our markets and then finally, as I mentioned earlier, we're experiencing tenants having more extensive build-outs on their space which is increasing down time at least as it relates to income recognition. That's obviously reflected in that economic occupancy I spoke about. What's interesting is that the tenants are willing to allocate their own dollars to their space. While we may be making our $25 to $30 square foot investment in the suburbs or $45 in the city, you're seeing tenants actually invest up to multiples of that number into their space, because they want to meet their specific specifications.

One thing we are also addressing as a abnormally high inventory of small suburban units and these units are requiring a longer lease up period in our markets and one of the ways we're addressing is we're actually moving some tenants around and creating blocks of space. We have done this, for example, in some of our spots in New Jersey where we have taken smaller tenants, moved them out and created 50,000, 60,000 square foot blocks of space, which we think we can get higher rent on and there's more demand on because there is scarcity of those blocks versus the 5,000 to 10,000 square foot type, smaller blocks.

If you go to the next slide see a little color on a market by market basis. In Manhattan we have 400,000 square feet of prime space expiring in '06 and '07. The primary space is at 1185 Avenue of the Americas where we have 135,000 square feet coming back from West Point Stevens. When you recall whenwe bought the building they were paying low $22 a foot we upped them to $50, I believe just recently, as part of a one-year renewal. We expect to achieve rents in that space of in excess of $60 a square foot. At 1350 Avenue, of the Americaswe have the Men'sweartenants in that building for over 100,000 square feet. That comes due in the third quarter of this year. They're paying in the mid 30's per square feet and we think we will be able to lease that space between the mid 50's and $70 a foot depending on which floor in that building they hit. On Long Island we're achieving rents at Reckson Plaza, our new acquisition, in the mid 30's as we hoped we would have. Our activity on 68 South Service Road development is doing well. We have leases out for an additional 50,000 square feet for that property which would take it to the low to mid 80% occupied. Then the balance of the portfolio frankly is 95%, 96% occupied, so it's a lot of those smaller type spaces that are things that we'll just work our way through over time.

In New Jersey it continues to be a tale of two markets. You have the Route 24 type markets where it's remained strong; where we have in Shorthills we're working on deals and doing deals at, $45 a square feet. We have very strong activity in our Giralda Farms office park with One Giralda our redevelopment having significant amount of activity on that building now. We feel very good about that. On the other side of the coin, the more commodity like space is more challenge. Active is sluggish, and it remains competitive. The good news is about 70% of our revenue comes from the route 24 marketplace. And so, we feel good, at least, that we're well positioned but we're working through some of the that commodity space.

In Princeton where we have our development going up, the markets remain good. We're actually out with initial RFP's on about 50% of the building, and we don't expect to complete construction to the beginning of next year. Stamford has been one of the highlights. This is a marketplace that we really think demonstrates that when you have big tenants move into some of these suburban markets they can have a significant impact on the supply and demand characteristics. You have had RBS announce that it is going to move their headquarters there. It’s taken some sub let space off of that marketplace in advance of that. You have had UBS continue to expand in that marketplace. We're starting to see real pricing adjustments. For example, in Stamford Towers, we're working on leases that's over $45 per square foot where as a year ago we were doing leases at about $30, $31 a square foot in that space.

In Landmark Square we've had some good activity. Again, some of the smaller places are a little slower to lease than some of the bigger spaces, but we've had goo activity. And then we have a high ridge property that has some expirations in 2007 we think is well positioned to capitalize on the strength of the market as that space comes back to us. In Westchester, had some positive absorption this quarter, about 45,000 square feet. I have seen some reduction in its vacancy rate on the direct vacancy rate although there has been sublet space put on the marketplace. The good news for us is we think we're making good inroads with our MCI expiration which you recall is 180,000 square feet and believe we will renew a significant portion of that space when it comes due mid-year.

We're still experiencing a little bit of weakness in the west side of the county, and that's really because of some sublet space, one large sublet block came on the marketplace undercutting that market a little bit and hopefully when that gets resolved that will work itself through. Downtown White Plains is performing well with over 97% occupancy and then we have our Eastridge portfolio which we talked about the last time we were on the call. We're kicking off in June a ground breaking for the significant repositioning we're doing of that acquisition. We think we'll actually see an uptick in activity post that, although to date we've seen good activity; we have about 130,000 square feet of deals that we're working on. A lot of internal growth of existing tenants, also new tenants and renewals, et cetera, so we think we're off to a good start. But, post June is really when we expect to see great traction in Eastridge once we kick off that repositioning.

As you look on prospectively you will see that we have 3.3 million square feet scheduled to expire in '06 and '07. These leases have rents that are 7.4% below market on a cash basis and about 15% below market on a GAAP bases. On the right-hand side you will see the names of the areas of key attributes of that positive mark-to-market key properties there. I am not going to go through because I went through it before. You see there is a lot of built in growth potential as we execute our strategy between '06 and '07.

I will turn to slide 9 and shift to the investment markets a little more. I gave some color in the intro. Clearly as you glean from my commentary in the introduction the investment markets for premier properties continue to get pricier. It has been surprising to us the cap rates have continued to compress; we think almost 100 basis points in the past year during the same period that we saw short and long-term interest rates climbwhich is something you would not expect even if you expected them to be stable, seeing them continue to compress was somewhat of a surprise. For stable properties we do not see investors in our mind appropriately valuing risk or discriminating based on asset quality yet, and we think that is something that will start to happen; there will be some level of discrimination and distinction as interest rates climb and lenders become a little bit more focused on that. We've capitalized in this environment on the disposition front as I mentioned earlier. During the last two quarters we sold over $1 billion of properties or interest in properties of which is $170 million just this first quarter alone. As I said before we believe this strategy will enhance our growth rate and the quality of our portfolio as we repositioned it---our portfolio to more strategic type assets.

The other thing that you see when you see these cap rate compressions is, again I think recognizes the underlying value of Reckson's portfolio which has gone up dramatically because these are the type of assets that institutional buyers are willing to pay premiums for---the type of assets that Reckson owns.

As I mentioned earlier, we continue to pursue Reckson identified investment opportunities before they come to market while as I mentioned we have let some go because of pricing. We're still working on the pipeline, about $500 million of opportunities. Timing clearly has been somewhat delayed but things we think will get some portion of that done, and the other thing we've seen is initial investment spreads have narrowed due to the higher valuation and the increasing in interest rates.

One of the other initiatives we're continue to go work on and discussed in the past is using our interest in our existing Manhattan properties as a currency to acquire other Manhattan properties, and while this may not ultimately result in a net additional investment in Manhattan, it will broaden our---our portfolio presence in that marketplace which we think will be a value and also potentially give us another pool of more competitively priced capital to grow in Manhattan and some build fee streams off of that.

One thing that we expect is values to begin to moderate on some of the transitioning properties. As I mentioned earlier I think lenders are starting to show some discipline particularly when there is vacancy coming due, requiring more reserves. It is hard as interest rates go up to get the debt service coverage lenders might want and we believe that that environment is going to actually provide opportunities for us that we'll be ready to pounce on and take advantage of with our expertise.

Finally, we anticipate allocating more of our capital and time to the higher yielding value creation projects we've built a pipeline for as we go forward. On that note if you turn to slide 10 we've laid out a slide highlighting our extremely robust value creation pipeline. We broke them up into different categories. If you look on the left, the mark-to-market opportunities are really what I had described before. This is just a handful of them we're talking about here, about 650,000 square feet. There is actually 1 million square feet of just CBD mark-to-market opportunities of CBD leases expiring that are expiring at rents that are 30% below market between now and the end of '07. But, if you look at just the 630,000 square feet of leases we expect to generate $7.6 million of incremental NOI by marketing these leases to market between now and '07.

The repositioning opportunities - we have Eastridge and we have Reckson Plaza. We would think as we bring that to stabilization we'll generate $13.6 million of incremental NOI. We have redevelopment opportunities which is One Giralda, Six Landmark Square and 103 Corporate Drive which we'd expect as we bring those properties to stabilization will generate about $3.2 million of incremental NOI and then we have our development opportunities of 650,000 square feet with 68 South Service Road, Seven Landmark Square and University square which we believe we can generate another $15 million of incremental GAAP NOI, so in total just for these four buckets between now and the end of '07 we think we can actually generate $40 million of incremental GAAP NOI on a run rate stabilized basis on a going-forward basis as we execute on this strategy. We're anticipating it costing us about another $160 million of incremental investment, investment that's in addition to what's on our balance sheet today to achieve that $40 million.

Beyond these four near-term value creation opportunities we also have another 1.7 million square feet of projects and planning that are right behind it, and what we will do is cycle those projects in as these projects start to reach a level of stabilization, and then beyond that, we have other opportunities that are seeding our future for value creation opportunities with another 5.5 million square feet which primarily is the Nassau coliseum redevelopment project.

Actually if you turn to the next slide we'll just give you a quick overview of that project as many of you probably know at this point, we actually were selected by the county executive with our partner, the owner of the Islanders to redevelop the 77-acre coliseum site. It would be a $1.6 billion project, be about 5.5 million square feet. When you look at the project, you'll see that this is something that, in our mind, is not only of great value in terms of having a great future development pipeline but very important to Reckson strategically. As you see we surround it with 2.5 million square feet of Reckson properties. So, our involvement is critical to ensure the ultimate development enhances the area and the competitive nature of the area not detracts from it. So, it's one of the key reasons to be involved. At this point we're working through the details with the County and once we're done with that, we will go through and seek the local approvals. Best guess is this is something that would begin in two years from now or so, and while it seems like a long way away, this is a large project that will then serve as a great built-in development pipeline for years to come.

Moving to a little bit more discussion on the Australian trust and part of that strategy, I think we've spoken to many of you. We went and did another follow-up investment tour in Australia during this quarter, had a very good series of meetings and you can see that our Australian investors in the Australian marketplace is extremely receptive to the Reckson story. As you look at the performance of stock, we were one of the leading performers with almost a 15% return since our listing as compared to the indexes being at 3.4% during that period of time. This has also enhanced our cost to capital, and I think positioned us where we have the correct momentum to continue to grow this vehicle. We believe still that this is a key strategic initiative, and we think it is important to take it to the next step. That's why, as I mentioned earlier, one of the things we are contemplating is an additional offering for Australia and that would combine some of our existing portfolio with other acquisitions we're working on. As you go and you talk to our investors, it is clear that having the right scale and the right mix of internal growth prospects is what's going to further enhance RNY and thus give us a attractive cost of capital going forward. We think this is important and something we will be working on this next quarter and following quarter.

Finally, before I turn it over to Mike, just a recap of the non-income producing assets and some of that activity, you might recall last quarter when we established our guidance for 2006 we talked about a other income line item of between $10 million and $20 million, which was about equal to what our last three year average was, and that includes termination fees and other mixes there---land sales, termination fees, other sort of one-time items. One of the things that we were able to achieve this quarter was selling an option that we had on our Omni properties---an option that we got a number of years ago when we actually re-capitalized our partner's interest with a $17 million loan which then grew to about $22 million at 12%. In selling the option the partners paid back that loan which was yielding 12%. We sold the option to one of our existing institutional partners we have a relationship with, done a lot of business with and expect to do more business with on a going forward basis. We also have land that we have identified we think will make good sense for sale. We're looking at the highest and best use for this portfolio and are seeking to monetize a number of those parcels in '06 and '07.

Finally, we have RSVP. Last quarter you might recall we talked about repatriating a portion of the cash or some of the cash that exists at RSVP and some of the proceeds we expected to come from the sale of the Tollway projects. We had anticipated bringing back about $50 million, $55 million or so of cash mid-year from RSVP. At this point we believe it is going to be later in the year just because it has taken us longer on the marketing of the Tollway project, so we think this is something that at the end of this year we'll be able to bring that cash in. We have not reflected any gains associated with RSVP in our guidance, but we are reflecting as we look forward taking the cash and paying off debt with that cash. The ultimate objective at RSVP is to realize a substantial portion of our book investment with ACC, the sale of ACC, ALI, and the Tollway and then hold the Catskills for future upside since we think there is a significant amount of potential in that project, and not too far away at this point. With that being said we're in the process, with our partners, of receiving the necessary approvals to move forward with the residential land development and some of the hotel developments at the Catskills.

With that, let me turn on over to Mike and then I will come back with concluding comments.

Thank you, Scott and good afternoon everybody. I will start off on page 14 on the operating data slide and with respect to the operating margins, our portfolio operating margin for the first quarter 2006 was reported as 55.4% as compared to 59.4% for the same quarter last year. The margin for the portfolio year-over-year is really not comparable due to the significant amount of acquisition and disposition activity over the last twelve months, and a real mix of assets. The first quarter, particularly of '06, was negatively impacted by the repositioning properties such as Eastridge, and Reckson Plaza.Eastridge had a low 70's% occupancy, Reckson Plaza was a 90% and the Landmark Square asset. Taking a closer look and looking on the same-store basis the operating margin for the first quarter 2006 was 57.9% as compared to the first quarter of 2005 of 58.8. That's a decrease of about 90 basis points and reflects primarily a decrease in the economic occupancy period over period, and to some extent increases in energy costs that gets included in there.

The decrease in the operating margin sequentially from the fourth quarter of 2005 also reflects the impact of the repositioning projects, Eastridge portfolio as well as having One Court Square a significant net leased property at 100% ownership for the two months in the fourth quarter of 2005 before we sold the 70% interest. So, if we were, again, to adjust for these items, the sequential decrease would only be about 60 base points and again is primarily as a result of the change in the economic occupancy period over period.

With respect to G&A, it was approximately $9.5 million for the first quarter. This number was higher than expected and primarily is due to a number of new positions added to the management team and the employee base and related costs of retaining these employees. We have expanded our financial investment teams and added some additional management in the divisions. This also reflects a higher cost attributable to equity based compensation that we have over a larger group of management participating in these programs in order to retain the talent and overall increase in compensation costs. For the remainder of 2006 we're looking at an estimate on the G&A of between $9.5 which we reported and $9.7 per quarter as we expect to add several management and staff positions that are on the board for the rest of the year.

If you recall last quarter, we took a charge for the long-term compensation plan which was put in place in January of 2003. The charge was based on a stock price at December 31, 2005, in related to that service period through that date. For the first quarter we recorded a charge in the amount of $3.6 million which is based on the stock price on March 31, 2006, and was limited to the cash amount pursuant to the plan. This amount included approximately $1.4 million of catch-up charge relating to the prior periods because we had a reprice up to the price at March 31, 2006, and that's why that number of $3.6 that Scott mentioned was higher than we anticipated, and is due to the repricing up to the cap which is based on the stock price at March 31. Assuming the plan criteria continues to be met and we stay at that cap and at that pricing, we would expect a charge of approximately $2.3 million in each of the next three quarters and approximately $1.8 million in the first quarter of 2007 which is when the plan vests on March 13th of 2007.

Moving onto the other income areas: in total, other income for the first quarter was approximately $17.9 million. That includes $5.5 million of interest income on the mezzanine and other notes receivable, $9.5 million of investment and other income, approximately $9 million is attributable to the sale of the Omni option that Scott described for you. Equity in JV earnings, a real estate joint ventures was $396,000. That was negatively impacted by a charge at the JV level related to debt retirement in connection with the LPT's purchase of the Tranche II assets. They had purchased some assets with debt on them, repaid that debt and re-financed those assets on their books. Adjusting for this amount in the FFO adjustments, which is basically depreciation, the FFO contribution run rate on a quarterly basis for the assets that we have now is about $3 million a quarter. This number reflects a full quarter of Tranches I and II of the LPT JV, and a full quarter of the 30% interest in One Court Square. The fees earned through JV's amounted to $2.7 million for the quarter of which $1.7 million was attributable to the LPT, JV.

Moving onto slide 15, our financial ratios for the first quarter continue to be very strong. Our debt to total market cap was 34% at the end of the first quarter. Our fixed coverage was 3.1 times for the first quarter. We also reduced our secure debt ratio down to 9.6% and increased the unencumbered pool of assets. This provides the balance sheet with the flexibility and capacity to fund the 2006 and 2007 value creation activities and growth initiatives that Scott had walked us through.

As for the capital market activities during the first quarter, we issued $275 million of senior unsecured notes at an effective rate of 6.02%. Giving effect to in the money hedges that we had in place prior to that deal we reduced the rate to slightly under 6%, about 5.98%. Proceeds were used to repay the floating rate debt we had outstanding to pay for the Eastridge portfolio, and in part to repay maturing mortgage on 1350 Avenue of the Americas which is now encumbered. We have approximately $100 million of mortgages coming due over the next year with an average interest rate of about 8%. That may present some upside opportunity as we refinance those debt instruments. As these mortgages mature we'll refinance them with unsecured borrowing or sales proceeds and add these assets to the unencumbered pool to create some additional capacity.

So, overall, from a balance sheet perspective we are well positioned to finance our growth initiatives within the capacity of the balance sheet.

Moving onto slide 16 - the debt schedule, our weighted average pro rata interest rate on outstanding fixed rate debt of March 31, 2006 is 6.05%. That's down from 6.12% at December 31 as we repaid and refinance some of that more expensive debt. The weighted average maturity is 5.3 years, and that's up from 4.5 years at the end of last year. We have limited exposure to maturities over the next three years with no unsecured debt coming due until mid 2007. Our line of credit had an outstanding balance at the end of the quarter of $180 million, which is our only floating rate debt and represents 9% of our debt. This amount does not give effect to approximately $95 million of 1031 escrows which effectively would bring the floating rate down to about 4% if it was applied, and that money will be either reinvested in new assets or used to pay down outstanding debt.

That's my summary. I will hand it back over to Scott.

Thanks, Mike, and turning to slide 17, I am not going to recap a lot of this because it relates to the earnings guidance and I covered a lot in the beginning and throughout the presentation. It would be somewhat redundant. Let me just say that as it relates to 2006 again guidance of $2.36 to $2.40 per share. The big adjustment, again, relates to the accelerated disposition program and slower reinvestment activities including the impact of the LPT strategy we discussed and some of the one-time items or increase in G&A that Mike hit in his commentary.

As it relates to the second quarter from a guidance standpoint I would guide you to the second quarter being somewhat flat to the first quarter. We do not expect the economic to contractual occupancy spread to narrow during that quarter. That's something we expect to see during the second half of the year, and we do not anticipate investment accretion to offset 2005 or 2006 dispositions dilution especially with the dilution from those dispositions. Obviously all of this less of course the Omni gain in the first quarter we don't anticipate also in the second quarter.

As you look to 2007 as I mentioned earlier, we've established a pretty large leap in guidance of $2.60 to $2.80 which really brings us back in line with our normal and forecasted growth rate we would have anticipated, so while it is a leap, I think just to us, it is a matter of that timing playing its way through its cycle and coming forward on that front. This does not include any impact that we might have on additional LTIP charges. There may be a small one in the first quarter depending on what happens in that mode and the 2006 guide also, as you know, does not include the impact of any additional LTIPcharges.

The reason we're comfortable with 2007 as we turn to slide 18 is we really are well positioned with visible identified growth. From an organic growth standpoint we have been effectively executing the leasing strategy to maximize the rental rates on the premium spaces on all of those blocks we have out there we have good activity and deals we're working on that gives us that level of comfort. The weighted average pro rata office economic occupancy is really a timing issue is that when the economic occupancy narrows closer to where the contractual occupancy is, those are revenues that will just flow in, and so there's not a leasing risk associated with that. There is a timing risk associated with that which is identifiable.

The incremental NOI from a repositioning and redevelopment property is on track to generate strong returns and we feel comfortable with that and then we have the significant mark-to-market opportunities that are going to take place in '06 and '07 in all the key markets I discussed. From an external growth standpoint as you know we went through this. The markets remain competitive. But, I think we're well position to source unique opportunities. We have our development pipeline which will continue to deliver on. We're pursuing off market deals and we have the ones we're working on now as well as the ones behind that. As I said they take time. The margins are thinner but we think we'll execute on our share of those. Our existing portfolio, we believe, serves as an attractive currency that may give us an inside track on some other investment opportunities that others might not have because they're not using the portfolio in that manner, and then we think the Australian trust will also offer an an attractive source of investment capital that's more competitive to target some of the investment properties as we go forward.

Just finally, our balance sheet as Mike has gone through is extremely strong at 34% debt to market cap as well as having about $100 million of above market interest rate debt coming to maturity which we'll be able to pay off during this period of time. You can see it is clear, identifiable growth factors here we think give us comfort to that '07 guidance. With that, Operator, let me open up for Q&A.

Thank you very much, Mr. Rechler and Mr. Maturo and our host panel. [OPERATOR INSTRUCTIONS] And, representing Citigroup, our first question comes from the line of Jordan Sadler. Please go ahead.

Hi, Jordan.

Hi guys, I am here with John. Could you just clarify for me, you said for the second quarter you are looking for basically flattish. Is that flat with $0.50 excluding the charge or ---

Right, plus we'll have---I think we will have some level of other income in that mix as well. I don't know what that number is. Maybe it is $0.50 to $0.52 depending on what the other income would kick in which is basically saying the core operations should be flat. We have no new investment activity, frankly a little more dilution kicking in from the first quarter dispositions in the second quarter, and then as things start to we have some significant expiration still kicking in the second quarter we're working through.

Okay. And what kind of magnitude in terms of acquisition disposition activity, I mean I think you were guiding towards net acquisitions of about $100 million previously, and now it is sounds like definitely dispositions are going to come first. What kind of size are we talking about?

As I said we're working on about $500 million right now.

Of sales?

Of acquisitions. On sales side we have probably another $300 million. We've done $175 already, and the question is where that timing comes in. Some comes in earlier or later. Right now it looks like the sales are trending ahead of the acquisitions. It is a question as to where that happens. One of the key factors here as I mentioned earlier is what we do with the Australian trust because that would be a big chunk of both the dispositions and allocation of the acquisitions.

That $175 million of sales includes the any sales into the LPT?

No. The $175 million we sold includes the small Trance IIpiece, but the balance of it is One Orlando and 3 Gannett Drive.

And the forward-looking stuff which is $300, $350?

If we end up doing, right, if we end up doing the Australian trust around that range, probably $100 million of non-core additional to the non-core assets we're look to go wholly on sale and then we have the---a---$200 million related towards Australia.

In terms of the acquisitions, I'm just curious what types of acquisitions or what markets these might be? I was kind of surprised to see you guys sell the option in what I considered to be I don't know if you guys considered that to be a core holding, the Omni?

We definitely considered it core holding. I think that was really driven by our expectation for where the value would be able to achieve and where we would have to effectively acquire versus sell the option on that property. It was different than buying a strategic property where we can go in and create efficiencies and create value. They're already embedded in the Omni. We're managing it as efficiently as possible. The costs are much more there, so you can't really squeeze any more out of it at that point. And so, it just seemed like there was from a stand point of where that would trade, we're better off not buying it at that because from an IRR perspective relative to where we have other alternatives wouldn't make sense. Going back to your first question relating to where I would say that two thirds of it is suburban and one third of it is CBD or so, and they're all off market transactions that are being negotiated with other things we're working on.

And last question is just what are the opportunities--- I think on the bottom of page 10 or so of your presentation you mentioned seeing valuation that I guess banks have greater discipline at this point and you guys might see that as an opportunity because you could do some more lending. Is that kind of --

No, that was more of a buying standpoint. That's the example of Eastridge where you have that much transition going on in the portfolio, the lending -- the borrowing alternative is not optimal either for---maybe a refinancing in that case because the existing owner needs to then put up reserves or get less proceeds than they anticipated or the new acquirer can't be one of these highly leveraged floating rate debt type borrowers and try to do a little bit of equity.

You previously guided towards mez of $100 to $150 million. Is that a good number going forward you would have on the balance sheet at one point in time?

Yes. I think that's about what we set as a target. As you know, that goes up and down in the mix, but that's where we have been in focusing, yes.

Okay. Thank you.

Thanks.

Thank you very much, Mr. Sadler. Next in queue we go to the line of Ross Nussbaum with Banc of America Securities. Please go ahead.

Thank you. It is John Kim here with Ross.

Hi, guys.

Hi. Mike, you discussed margins this quarter declined due to I guess mostly the mix of the assets and also additional vacancy you have. My question is how much of the components of property expenses were higher than you expected and also when do you expect margins to improve when you get some occupancy gains?

The operating expenses was really not that big an issue this year, this quarter over quarter. It was really, as I said, the mix of assets in that we had much more repositioning assets that really drove that down. We did have some energy costs as you would expect year-over-year. I think going forward we're going to be in this 55 to 56 range, and that will creep up as we release this space and get these repositioning projects more in line with occupancies that are consistent with the rest of the portfolio.

And also, John, just if you look at it from a cash NOI basis I mentioned earlier that expense line item has increased a lot. That reflects the 1185 ground lease cash payments. That has an impact of the cash NOI.

Those are GAAP, though.

I was pointing to the slide show.

Along those lines, typically among your portfolio leases what percentage of the operating expenses are you reimbursed?

About 70% across the portfolio.

Okay. Most of your recent acquisitions and all of your development opportunities have been in your suburban markets. Based on your comments, Scott, on the mid-town Manhattan office market, how do you waive the allocating capital between your higher yielding developments and acquisitions in the suburban markets versus mid-town Manhattan which might have lower going in yields?

Right, I think one or two. Mid-town Manhattan just buying straight without having some real repositioning view that you can actually drive that cash flow growth through higher rents and clearly you're not only going to experience short-term dilution going in but from a total IRR perspective it is hard to justify relative to alternative. When we look at Manhattan opportunities, we're looking for ones where the structure like we did with 1166 to get---and off market where we get non-market type returns because of how we structure and how we dealt with tax issues, et cetera, or alternatively where we could find something where we have the potential to greatly increase the revenue through either rent or repositioning of space like we have done in the past at 1185 and 1350

It is hard. Manhattan is a hard and competitive market right now. And I think that we scour every opportunity, but we're maintaining the discipline. If it doesn't meet the types of risk adjusted return threshold that we have in place for them relative to our suburban, either acquisitions, repositions, or development, then we allocate our capital through to the suburban ones.

When you discussed about contributing additional assets to LPT, did you provide a dollar amount? If you did, I missed it. And also, how much of that is from Eastridge versus your option properties versus, I think you mentioned, potentially some acquisition opportunities that you may contribute?

We didn't throw out a dollar amount right now. As I said maybe about $200 million of asset there. Specifically which assets--- we're looking at a lot of different alternatives now. That depends on where interest rates are, where the LPT is trading, how each of these assets are performing. You're trying to find the right mix of growth and stability and also it's going to depend on what other acquisitions- third party acquisitions we're able to make, whether we're able to make a greater amount of third party acquisitions that work for the LPT that meet their investment parameters and we would do less Reckson.

Sure. I believe Ross had a couple questions.

Yes guys, just one question. What gives you the confidence at this point to put our your 2007 earnings guidance and can you give us some of the major assumptions embedded in that guidance?

I think what gives us the confidence as I noted was, if you turn to that the value creation slide and the fact that a big part of where you're going to see some level of growth here relates to leasing up our value creation vacancy and transitioning assets which we're seeing good traction on.

In terms of the some of the big vacancies that are due coming forward to us that are end of '06, end of '07, like the MCI one, like the 1185 which are opportunities but vacancies, and 1350 again, we're seeing good activity that gives us a level of comfort that we'll meet those time lines.

Then you have the contractual rent versus the -- I mean the contractual occupancy versus the economic occupancy. And there is the 270-basis point spread we believe--- as you look out at the rent commences, the GAAP rent commences on those signed leases, that compresses to more like 100-basis point type spread, which is what it has been traditionally. We think that [bulletin to places contractually signed] and we've given ourselves some cushion.

So, I think we feel very comfortable that that range is a range achievable---- where exactly in that range we fall, there is a lot of moving pieces between now and 2007 as to how that happens, whether it is the top of the range, middle of the range, but we feel comfortable that the initiatives are in place. We're seeing the demand where we need to see the demand. We have a contract signed, we have the projecting rolling at this point, and feel good about that.

There is nothing in there in terms of big billion dollar acquisition in the beginning of 2007 at a 100 bit positive spread or anything like that?

No, no. It has the same sort of mid-year, our traditional mid-year $250 million acquisition number at market cap rate type number, so it doesn't have a that big of an impact frankly unless we accelerate more dispositions because as you know---- where cap rates are right now the spread isn't that much, right?

Thanks.

Next we go to the line of Lou Taylor representing Deutsche Bank. Please go ahead.

Thank you. Good morning. Mike, can you talk a little bit about the increased G&A and your last call was 60 days ago. Just what happened in the last 60 days other than the comp plan which caused you to say gee, do we not have enough people to run the Company this year, but what happened last 60 days to drive the G&A up?

Last quarter I think we came out and we said we were going to be around $9 million. We came out about $9.5 million, a large part of that is attributable to a few more spots we had to fill. Some spots the cost of retaining those---those people, going out and getting them and as I said in my comment we do have this equity grant program that is more widely used and has been allocated to additional people. That equity compensation gets amortized over a fairly short period---it does have some criteria that is attached to it, and that criteria has to be met over the next year. However, we actually on a conservative basis go ahead and accrue for that assuming that it is met so that we don't have a big number at the end of the year at the end of next year to accrue.

That number was bigger than anticipated because as I said we had a group of people that have been here for an extended period of time that we felt we needed to step up to the market, and make a level of grants. That includes both senior management and executive management, and we're including that amortization on a conservative basis in the numbers, so that's probably the big difference. That equity compensation is probably looking out over 2006 an additional number of people that we're going to be adding. A number of those people being some senior management people, one--- a couple that we mentioned in our press release that we actually brought on board, probably a little bit earlier than we had thought, but those payments in today's market are at a level.

This is incremental in the last 60 days?

Well, the grants that were made were done post year end. The amount of grant that went out to these people was determined by the board and the executive compensation committee, and those numbers needed to be adjusted to retain the talent that we believe we need to operate this Company.

Okay. Moving to the differential between --- on your economic occupancy and on your lease, your leased occupancy, we haven't heard that gap widening for anybody else, and so I guess what's happening in your market or what happened in your budgeting process that this is all of a sudden again in the last 60 days become an issue to contribute to the lower guidance?

Again, I don't think frankly that is a big issue to the lower guidance as much. I think what you're seeing here is a little bit consistent with what we talked about the last quarter which was that as you go out and we were demanding higher rents and leasing larger blocks of premium spaces, those tenants are demanding longer build out times. Maybe if anything as I think this is more of a recognition of if you recall that's why we said in our last call the fourth quarter and first quarter on operating basis is was going to be flat. After you take into accounted the dilution as you recall. That was primarily because some of that expiration and some of the down time, and this is a piece of that down time.

But, I do think we have a couple of large blocks of space, [inaudible] city, some other tenants in the marketplace, other spaces in our markets right now where we have contributed TI, we're building out the space, and they're now making contributions and until the space is fully built out where they're taking possession of it, even if they're paying cash rent we can't recognize gap rent. That's the accounting rule. Part of our business model is we build out the space. We're feeling it in some of our larger transactions more so than we have in the past because I think they're just the nature of them taking the time.

Understood. Wouldn't you have known that 60 days ago?

As I said, I don't think this component of this is dramatically -- this is not a big piece of -- this in its own right would not be where the just guidance. Just guidance is the disposition program stepping up, the acquisition program being slower, our LPT strategy and some of the numbers that Mike spoke about. This I think is a normal course of business. This may have taken away some of the cushion, Lou, that normally if you have a little higher G&A is not a big deal. We had this forecasted in there. I was just highlighting it more of an identification as to the core operations not so much of the guidance situation.

Okay. Thank you.

Thank you very much, Mr. Taylor. We go to the line of Jim Sullivan representing Green Street Advisors. Please go ahead.

Thanks. Page 6 of your presentation, Scott, you say that rents in town in surrounding markets as tenants pursue regional decentralization strategies. Still, is that happening?

It is definitely happening. Citibank has taken 1,100 jobs out of New York City---bringing them to Long Island in our building; as part of that strategy they're looking in the expanding in Long Island City, expanding in New Jersey, they're expanding in Westchester and in that mix. You have seen expanding in other markets as well, and as part of that strategy you've seen Morgan Stanley do it, seen RBS doing it and we've seen a number of tenants----but more than the number that actually signed deals is the level of activity we're having on our development sites as these tenants have looked at making those moves. We have just -- we have more RFPs out on a development sight in the past couple of quarters than we've had in years because of that incremental demand for that quality space.

What are the implication of that for rent growth in mid-town?

I think that it is not going to have any impact. I think that this is -- I think there is a sort of a decision, a fundamental decision for at least the big users, and we're really talking the big users and players of financial service firms, some of the law firms, et cetera as part of operating their business there is a component you should allocate outside of Manhattan. They've also some of them have been begin continuing to grow in Manhattan. You have seen Lehman Brothers continue to grow in Manhattan. I think there is still enough demand in Manhattan, it's such a scarcity of space that I don't think this in anywhere in the near term impacts mid-town.

Now, if they redevelop the Westside dramatically, and there is a tremendous amount of space, five, ten years from now that hits the market and part of those initiatives may be in the Penn station area, maybe there'll be some other components just doing it for price that may stay in mid-town and not go there, and there still will be a bigger component that says I am doing it for more than price, I'm doing it because this is the business model that makes sense.

I think one of the things I mentioned to you in the past that stepped up this process frankly was the Sarbanes 404 process when you've had the real estate teams with their CFO's reporting to their board and order committee about their business continuity plans and what are our real estate strategies to deal with another catastrophe in the New York area, and the answer can't be we have part of our operations the Westside, part of the operations on the Eastside and part of the operations downtown.

So what extent do you think these big tenants are talking to you and other developers not because they really do intend to move but to give them leverage in negotiating their leases in mid-town?

See, I don't think there is any of that. I think the guys that are making---the ones we're having discussions with aren't even -- this is a use. They may be doing that to negotiate leverage against us and someone in New Jersey and someone else in Long Island and Westchester. That you have: intermarket. When these uses they don't even look at mid-town as an alternative.

Switching gears, the small case inventory that you have, help me understand that. It strikes me a lot of your suburban markets are in fact small tenant markets. Why is that the problem that you set it out to be?

I don't want to make it much of a problem. It is just that we had a higher propensity of the expirations happen to be these smaller spaces. When you have a lot of them in a lot of different same submarkets you've got to work through them one off and one off at a time. Plus, right now as I mentioned there is a demand because of the scarcity of high large blocks of spaces. The question is can we combine some of these smaller blocks of spaces like we're doing right now in one of our projects in New Jersey, combining a number of small blocks and spaces and creating a 60,000 square foot block. You will have better demand and better rent and a better quality tenant probably in the 60,000 square foot block than a bunch of the small ones, but it takes more time and I was raising it as a trend in our portfolio right now based on the expirations we've had.

With respect to the coliseum sight, can you set parameters to the timing, the dollars that will go out the door, maybe which pieces happen first, how many years the build out?

Yes, it is a little early to do that simply because they're still going through the approval process and there is a lot of moving pieces. I would tell you that as I said on the call probably a couple years in the approval process. As the plan gets locked down we'll be able to determine the right timing in terms of which phases are built first. Up front there is really more carrying costs than anything else. The land payments are--- or the payments to improve the coliseum in lieu of land payments are right now scheduled to occur at the final site---- non-repealable site plan approval. That's tied. That's two years out. That's when that would be and that's --- Reckson share $75 million type number. Prior to that it is just more our normal carrying cost plus we would be buying into the Marriott hotel and they would be buying into our land -- [inaudible] we have contiguous to the site.

At what point in time would you expect the development fees to start hitting your income?

My guess is probably not until we get through the final approvals.

Okay. With respect to rent roll-ups, you cited a 7.5 cash increase in your '06 and '07 rollovers. What would that number be for the whole portfolio?

I don't have the number for us on the entire portfolio.

Okay. Finally on page 9 you make a reference to net asset values. It has been awhile since I heard you talk about net asset value. Why that reference and what do you think your net asset value is?

I was referring to the reference. The good news is higher capitalization rates is that increases the value of your---our underlying portfolio. The challenge is that it is hard to invest as some of the prices we think are extremely high right now and not generating the type of returns in equity we would have to have on a going forward basis. That was really the point of that commentary.

I think with us what we would like to do with NAV right now is try to use it in some cases as a currency to acquire other properties as I mentioned. That's an area where we think that that may be one of the best price currency if you can use your NAV in that mix to acquire other properties and as I said before accelerates some of the dispositions.

Think your current share price as a discount or premium?

As you know we make it a practice not to comment on any of the relative to our share price.

Okay. Thanks guys.

Next representing Millennium Partner we go to the line of Eduardo Abush. Please go ahead.

Yes, hi, Scott, Mike. Could you help us just to understand? The guidance came down $0.11 at the midpoint, so what the different pieces would be on an SSM per share basis maybe between what you think dispositions could be in terms of magnitude and the difference between the economic and the actual occupancy?

I guess as I said the economic actual occupancy is probably a $0.02 of that whole mix. The bigger pieces of that really relates to the acquisitions disposition and the cash related to that on hand, we'll just call that like $0.05 or so of that mix. The RSVP delay and the G&A that Mike spoke about.

Okay. What do you think your same store NOI, what are you projecting your same store NOI growth going forward for this year?

I think we've said from the last GAAP basis we were focusing on 0% to 2% same store NOI growth for this period simply because as we went through we have the roll overs of that space, heavy level of roll over this year and the down time, and then next year comes back up to the north of 5%.

Okay. Thank you very much.

No problem.

Next in queue we have Tony Paolone representing J.P. Morgan. Please go ahead.

Thanks. Scott, on page 10 when you talked about the $40 million of NOI pick up from various initiatives in leasing items, is that an annualized number?

I think I said at the end---- it is a run rate number upon stabilization.

Okay. So $160 million to get you to that point, so like cost on that seem like about 10 million, so you get about 30 million of FFO, does that sound about right?

No, I am sorry, the 160, are you saying --- this is NOI. I am sorry, what was the 10 million deduct from?

Like you mentioned I think $160 million --

I am sorry. Yes.

That's like $0.30, $0.35 a share. I am trying to get a little more specific with driving to your '07 guidance with a [two to two ten] run rate and another $0.30 to $0.35 a share from this, what are the big items that get you up to say the mid-point then and that's assuming, I guess, these things have a full impact in '07?

I think the things that get up up to the mid-point is the spread on the occupancy that we talked about before which is about could be another $8 million or $9 million there on that front. Redeploying some of the capital particularly the cash capital we have on our balance sheet right now has an impact, ---on that front. The drivers I laid out in our overview here, those are the key drivers behind it---so, you have [inaudible] NOI growth, as I said, on a GAAP basis of 5% to 6%.

Is some of that---that already captured with some of these mark-to-market and the things you laid out in the $40 million?

Right. It's just that it's hard for me to start at that point. This is a moving run rate, Tony, you know what I am saying?

Yes. Okay. Also.

It is really a combination of all of those different items.

Okay. To make sure I understand the '06 guidance, the $0.04 in the LTIP in the first quarter, that's not in there, right?

That's correct.

And also in the rest of the remaining quarters and then '07 first quarter as well?

That's correct.

Okay. What's the blended yield on the mezzanine and loan portfolio now that Omni piece is taken out?

I don't know if I've got that on the top of my head.

Did it change materially?

Not materially. It is just the amount has changed. If you want, we'll come back to you. I don't have that off the top of our head.

I can get that number to you, Tony.

That's fine. Given some of the lease-up and such in Eastridge and going and the leasing activity you will have going into '07, what do you think dividend coverage looks like?

I think '07 we're still at a point where we will be covering our dividend. I don't think that's changed. I think as we said really '06 is a matter of time to go get through some of this stuff. I think in '07 we will be exactly where we were.

Okay. And then last question just on the LTIP program, I think a couple quarters ago you talk about where you stood relative to your peer group. I think one of the hurdles is being in the top 40 percentile for that program to hit. Where are you now?

We're in the low 60's.

Meaning low 60's -- we're right where you -- [overlapping speakers].

So, it's in the money?

Yes. It's in the money; that's why we're continued to accrue the charge.

Okay. Thanks.

Thank you.

Next representing Zimmer Lucas Partners, let's go to the line of Juan Zanabria. Please go ahead.

Hi. Good afternoon. I was just hoping you could run through your acquisition disposition assumptions again and whether or not that includes or excludes the Australian LPT.

It does include.

What were those numbers again, though?

When you say numbers, you mean --

Gross sale proceeds.

Sales we would say we think 300--- about $200 million or so related to that.

Of sales?

Of Reckson sales related to the LPT, yes.

How about sales outside of the LPT?

You mean purchases outside the LPT?

Purchases and sales outside of the LPT at Reckson.

Another $100 million. I am sorry. Yes.

On both sides?

$200 and $100 so it is $300.

$200 million sales and $100 million [overlapping speakers]---

$200 million LPT, $100 million sales.

No acquisitions?

We have acquisitions. We're, forecasting as we said on the call we think we have $500 million of acquisitions we're working on so we think we will pick up some acquisitions. The question is to when, and depending on what we do, some of the that will end up going to the Australian trust.

Okay. You're not comfortable giving a number that's baked into your guidance at that 500 million?

No, not at this point.

Okay. Thank you.

And thank you very much, sir. With that, Mr. Rechler and our host panel I will turn the call back to you. There are no further questions.

Thank you for all for taking the time on the call. Obviously, we are around and available to answer any questions----any additional questions you might have today or throughout the rest of the quarter. Operator, thank you.

My pleasure. Thank you, sir. Ladies and gentlemen, your [inaudible - background noise] just over a week. It starts at 5:15 p.m. today, the fourth of May all the way through 11:59 p.m. the 12th of May. To access ATT&T's executive replay service dial 800-475-6701. At the voice prompt enter today's conference id of 824253. Internationally, please dial 320-365-3844, again with the conference ID of 824253. That does conclude our earnings conference for this first quarter. Thank you very much for your participation as well as using AT&T's executive teleconference service. You may now disconnect.