SL Green Realty Corp (SLG) 2009 Q4 法說會逐字稿

Thank you, everybody, for joining us and welcome to SL Green Realty Corp's fourth quarter and year end 2009 earnings results conference call. This conference call is being recorded. At this time, the Company would like to remind the listeners that during the call, management may make forward-looking statements. Actual results may differ from predictions that management may make today. Additional information regarding the factors that could cause such differences appear in the MD&A section of the Company's Form 10-K and other reports filed with the SEC.

Also during today's conference call, the Company may discuss non-GAAP financial measures as defined by the SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measures can be found at the Company's website at www.slgreen.com, by selecting the press release regarding the Company's fourth quarter and year-end earnings. In December, executive management provided substantial commentary at its investor conference, addressing both past performance as well as detailing the estimates for 2010.

Therefore, for today's call, we will be utilizing an abbreviated format from that of quarters past. Initial commentary will come only from Chief Executive Officer, Marc Holliday. Then we will turn the call over immediately to Q&A. As a reminder, for the Q&A section please limit your questions to two per person. Thank you.

I will now turn the call over to Marc Holliday. Please go ahead, Mark.

Thank you, Heidi. And as Heidi just mentioned, we had last month our investor conference which turned out to be a very successful, a very well attended event. Appreciation to all of you who attended and participated. At the conference we discussed in detail numerous topics impacting -- the portfolio and set out near term goals and objectives. The year has just begun, but we are well on the way to accomplishing many of the goals and objectives that we set out in December. And I think many of those accomplishments can be seen either in the fourth quarter results or in the leasing release that we put out there this morning with some recent events. I would like to review with you some of the goals and objectives from 2010, talk about how the recent activity is pointing us in the right direction, and then we will open it up for some Q&A.

First goal and objective was to sign greater than a million and a half square feet of Manhattan leasing. While we made great strides towards that, as we saw this morning with the recent renewal of BMW with 555 West 57th Street in a transaction for a 228,000 square feet, those conversations were ongoing for quite some time. But I'm happy to report that we and BMW were able to agree and get the lease done. And I think in part, the sentiments towards a bottom in the market that is about to rise to help spur those discussions towards a conclusion. And if you look how that lease plays into some other of our totals, we now have reduced expirations in 2010, 2011,and 2012 by 388,000 square feet in total, against what you see in the fourth quarter supplemental.

There was substantial inroads we made into future leasing just in this recent quarter. I think that really is illustrative of a market that we started talking about as being recovering on the last call and certainly in our December investor meeting. Overall Manhattan vacancies stayed level at around 11.25%. Midtown vacancy is right around 12% with nine direct, three sublet, and basically even fourth quarter over third quarter in that regard. In December, market-wide, there was, in midtown, 1.6 million square feet of leasing which resulted in positive absorption in December, the second month in a row. And currently, we have 30 leases out being negotiated covering 650,000 square feet. Certainly as it relates to the market and our leasing goals, I think we're on track.

Second one to note was the sourcing of $250 million of new investment opportunities. Just days after having the investor conference, we announced the acquisition of a first mortgage position with $189 million of funded outstanding balance on 510 Madison Avenue. And while we are limited, and I will be limited as to what we can discuss regarding this investment in the Q&A, I can tell you that we think it is a terrific asset, very well located. And we're confident that we're going to meet or exceed our investment objectives with respect to this asset.

Moving on to 1515 Broadway, see set out multiple goals. One was the repositioning of the retail. And with the signing and announcement this morning of the Aeropostale lease at 1515 Broadway for 17,000 square feet of space, which -- some of which was taken back from an existing tenant and some of which was recaptured from Viacom when we did our early lease renewal, thinking that was almost two years ago now, a year and a half ago. The combination of those events puts us very far along to complete retail repositioning that we had announced to people. And evaluated components of the space take-back and it is now largely completed with this lease.

Also, we were able to refinance the maturing debt on 1515 Broadway. You will recall, there was $625 million maturing in 2010. And we announced just in the past few weeks, the successful closing of that transaction with a new $475 million five-year mortgage loan which basically puts that building capital structure to bed for the intermediate term. The combination of the Viacom early lease renewal with the retail repositioning, the refinancing of the indebtedness, and the completion of the re-development which was completed on January 1 and on time, this asset is largely repositioned, recapitalized, and for the time being, put to bed for us.

There was also the goal with respect to completing the foreclosure and commencing a repositioning on 100 Church Street. There again, within the past few days or weeks, we announced the successful completion of the foreclosure, consolidation of ownership, and extension and modification of underlying indebtedness on 100 Church Street; all of which is now behind us. We will be able to successfully move forward with an aggressive marketing campaign that as I said in December we hope to, at a minimum, have 150,000 to 200,000 square feet of tenants identified and under lease in 2010.

All of this activity in part used cash and with our goal of maintaining floor liquidity of $350 million of unrestricted cash, we found an opportunity in the market to issue $125 million in preferred equity at terms we believe were attractive for the Company, continues our goal and overriding objective of deleveraging which we've been doing now for 18 months. And we've made substantial strides in that regard. So much so that we have partially obtained another one of our goals which would be upgrading of the rating on the Reckson bonds, where Moody's just recently came out and raised the rating on the outlook to stable on Reckson bonds. We were happy to be able to get all of that done on the balance sheet side.

And lastly, while it doesn't fit no any of the specific open objectives we posted in December, we did complete the successful restructuring and modification of the indebtedness at 626 Avenue. That was something that I think had been reported as in foreclosure. But since that time, we've been able to come to agreement with the borrowing groups who have invested new cash equity on a subordinated basis into the property and as such, we will be returning that asset to performance status.

I would say all in all, that was not only a very successful quarter, but quite a busy and very satisfying seven weeks or six weeks -- six or seven weeks since the investor meeting. We wanted to give you that as an update, because it is more than we frankly had expected. All of these things we felt were likely to occur, not just -- just not as rapidly as they wound up occurring. We're happy that they did. And it really just sets us up that much better for 2010 and here we are still just the middle of January and I think we're in great shape toward finishing off all of the other goals and objectives that we have remaining in the year.

With that, I would like to open this up for Q&A. Operator, you can begin taking questions.

(Operator Instructions). And your first question comes from the line of John Guinee with Stifel Nicolaus. Please proceed.

Hi, John Guinee here.

Hi, John.

A lot of activity, good. Okay. Can you --

It is all in perspective. I read this morning not a lot. It is all a matter of perspective.

Good point. Can you just clarify for us on both 510 Madison and 100 Church what your investment is to date, how much more money you expect to put in for the base building, your TI lease commission budget, your OpEx carry budget and then your imputed cost of capital accrued to stabilization in just round numbers?

I don't know that -- I think the first part is -- well, I it don't know that we really can do that, John. We don't punt on questions but this one, it is in the structured finance book. The note amount I mentioned earlier was $189 million, plus or minus, that has been funded.

There are facilities for future funding, but that the borrower may or may not be eligible for as time permits. It is very hard to say at this time what will ultimately be expended by us on the project, not knowing exactly the outcome of the indebtedness. I think we have to just take a pass on that one, unfortunately, and maybe give you more color in the future as it comes to pass.

And how about 100 Church?

No, there -- with respect to 100 Church, so I get -- what is exactly the question?

What is your investment to date, additional budget for base building capital, TI and leasing commission budget, other imputed costs until you get to stabilization, so that people can figure out what your expected basis will be in the asset.

Got it. Andrew --

Yes, our basis today is around $55 million, in terms of cash. And with the transaction we did with Gramercy Capital and the participation, we would take that today net of reserve -- cash reserves at the loan level, at around $150 a square foot. And we would anticipate to be stabilizing the asset -- obviously it is a function of the time it takes to lease it up and the type of concessions we have to give to tenancy on top of that, but we do have 6000,000 square feet or so to lease at the building. We're encouraged by the activity we've experienced thus far.

Thank you very much.

And Andrew, it is safe to say the bulk of the TI and leasing is sitting in cash with the lender at this point, available for withdrawal.

Yes, that will be additive to the basis that I gave, but yes.

And your basis right now is roughly $150 a foot on the loan and another $55 million in equity?

The $150 includes the $55 million of equity. We have $55 million of cash invested and our basis in the asset is around $150 per square foot. But that is net of the cash reserves held at the loan level so Marc's point is you shouldn't expect to see our cash basis increase significantly because we will be spending reserves from the loan level and you will see the basis rise, but you won't see our cash investment go up significantly from $55 million, we don't project.

Right. And the total per foot, we think on a fully-funded basis is somewhere between $200 and $225 a foot.

Excellent. Thank you.

Okay. Next question out there?

And your next question comes from the line of [Ian Weissman] with the ISI Group. Please proceed.

Good afternoon. Can you just talk a little bit about the acquisition market? You guys tested the market late last year with 45 Lex. We hear there is a lot of capital out there, just not a lot of product. Do you see yourself coming back to market with additional assets this year?

I think you should expect us to come back. It is really going to be a question of whether we come back with something larger along the lines of a 485 Lex, or whether the market will be open to properties that we've sold in the past which have typically represented our noncore product where we don't think we can get enough value added return and pair down the lower 10% to 15% of the portfolio. I think that would be our preference because that's consistent with our business strategy over many years.

The market for that was not there last year. The people were -- what limited capital there was, was only focusing on pure well-located class A assets. But I think as capital on the sidelines realizes that it can't necessarily meet this yield objectives for what they were hoping to get -- higher returns on midtown assets, that they will reach further into other asset classes that we may be able to sell properties into for our own business purposes. I think the answer is you will definitely see it continue to be an asset recycler in 2010, but we are reconsidering which assets to bring back to market and at what price level.

Just as a follow-up to that, what are the return hurdles that the capital on the sideline today is looking for?

I think it depends on which assets. There are people that I think would love to own midtown assets at unlevered returns of 9% to 10%, and levered returns of low to mid teens for dead-on class A assets. Those are very hard to come by. I think you need to be very creative and you got to be pretty flexible in structuring in order to achieve those kinds of results.

But I would say that is where we have targeted, set our sights to 8% to 10% unlevered and 12% to low teens levered returns for good core products. I think that's where capital should be. People are probably looking for returns that are even higher than that, at least on a levered basis, but I don't think you're going to see any transactions because there is just nothing available at numbers north of that that would fit the -- what I would call good well-located midtown assets.

Would you put a dollar value out there today in which you think you could sell this year or not ready to do that?

No, I think we should hold off because it is not going to be -- this will be driven more by how much capital we can generate, as opposed to the nominal headline amount of volume. It could be a smaller unencumbered asset that -- where we get all equity. Or it could be a levered asset where it may have a bigger headline price, but a much smaller amount of equity. I don't think we've set any targets in that regard. We put out an acquisition goal of $250 million. I think that we will wait and see on the sales, but I can almost be certain that we will be delivering product into the market None of what we hold today is small product.

That would obviously also be influenced by the amount of investment opportunity we see as well.

Sure. Thank you very much.

And your next question comes from the line of Michael Knott with Green Street Advisors. You may proceed.

Hey, guys. You can provide any update that there may be on Aqueduct?

There is really no update that I have on Aqueduct over and above what we reported back in December unfortunately. It is still a decision that is reportedly [imminent ]and I think that everybody seems to be anxious for a conclusion to the process. Us included. But I can't really tell you that there is any serious advancement one way or the other since the investor meeting where we covered Aqueduct in some level of detail.

All I would tell you is we're certainly hopeful that the decision makers will reach a consensus as early as this week. Hopefully we will be selected, given what I think we've proposed as the best in class team and the best proposals for the state. But we've had that proposal out there for some time now, and we're just actually awaiting the conclusion.

Okay. Thanks. And then my last question is on the Graybar building. It looked like there was a noticeable decline in occupancy this quarter. I'm just curious if that took you by surprise. And then also, I think that you guys have historically thought of that of as least indicative of the small tenant market. Any conclusions there on what happened at that building? Or any comments?

No, we had -- we took a couple of pieces of space back that were part of a restructuring -- some tenants that got into trouble. Those discussions were in the middle of the year and by the time we worked ourselves through it and took it back, it came into the fourth quarter. But the volume of transactions as we sit here today in Graybar is still pretty healthy. I don't really see -- I will give you just a quick anecdote.

We are doing a deal right now for 12,000 square feet and leases are pretty well advanced in discussions. And it looks like that deal may get knocked out by somebody who might want to do a deal for twice as much square footage. We still have good activity. I don't think there is a huge -- anything to read into it. It should happen this year and next year, our big lease rollover years for this building. And so you're going to see a little bit of erosion in occupancy because of that, but I still think the leasing activity is going to hold up.

I think that was contemplated where we forecasted the occupancy to end up, and drops there. And you also saw drops over at 1350 that were also expected so you will see rebounds here in the first half of the year. But that was contemplated as far as where we (inaudible).

Thanks guys. Really helpful.

The next question comes from the line of [Jana Gallen] with Banc of America Merrill Lynch. Please proceed.

I'm asking this question on behalf of Jamie Feldman. I was just wanting to get a little bit of color about how you're thinking of TI's and rents in the early stages of a recovering or bottoming market.

I think general consensus amongst owners, and certainly from our perspective, is that we're going to see concessions tighten up this year. I haven't seen a material increase in the concessions that we're giving tenants or even in tenant proposals in the past, call it the six months. I think the general feeling as that the year goes on, you are going to see -- the first thing that will happen in an improving market is the concessions will tighten up, security deposits will increase, the length of leases will increase. We're already starting to get attached to that.

Having said that, there is still a big demand from tenants out there who are looking to preserve their capital and are looking for built spaces. But what they're finding when they go into the market are fewer -- less willingness by landlords to actually spend a full ticket to do a complete buildout on spaces. And they're finding sub lease spaces that are of high quality becoming fewer and fewer opportunities. I think that combination is going to drive concessions to reduce throughout the year.

I would just add, you should expect that in the first and second quarters next year that you are going to see back at the levels that we saw in the second and third quarter this year. The fourth quarter, we came in on average of 14 because Steve was out there doing a great renewal with BMW that had very, very limited capital and that's why the average ticked down to just 14 for the quarter so it added to the deal. It will are for the first half of next year a little bit fuller than that. First half of 2010, yes.

And then do these market fundamentals also extend to the suburban portfolio?

No. I think that has its own set of dynamics in the suburban portfolio. There again, there was a substantial amount of leasing that was done in the fourth quarter. There was some rental erosion which showed up on a percentage basis -- on a dollar basis and it is modest because the rents were fairly low to begin with.

There I think we're competing on the basis of concessions still, but it is just the dollars are so much less as compared to what we are confronted with here in Manhattan that we don't think it is going to have a significant impact on cash flow or the way we look at it in those term. But it is clearly something that we have to be competitive with, and the TI terms there are still -- I would say the market there is not as in demand as it is in Manhattan.

And I would just add to that. You did see a big uptick in the suburbs on free rent in the portfolio this quarter where it averaged 7.8 months. But that was really attributable to a single 11-year deal that we did where we ended up giving a year free. That was a longer-than-usual term -- long-term lease there. And so you did see higher-than-normal free rent on the quarter out there.

Thank you.

And your next question comes from the line of Jay Habermann with Goldman Sachs. Please proceed.

Hey, guys. Good afternoon. Here with Sloan as well. Mark, just I'm not sure I recall from the investor day, but could you just update us on the structured finance? You've got close to $400 million that matures in 2010. Are you expecting any cash on the balance sheet from those transactions? Or what needs to take place in order for that to realize -- to get your cash back?

Included in that number is the 510 funding that we just did, so that money just went out the door. I think it is reasonable at this point to expect -- we need to see where 510 is going to fall out. On the balance though, we would expect at this point minimal repayments. They're working through some restructuring there.

And just to be clear on 510, there is virtually -- is that almost 100% vacant today? Yes, the construction is not completed yet, Jay. It is scheduled to be completed around May, between March and May. And there are two leases signed at the property, but nobody is occupying it.

Right. But in terms of what has been leased to-date?

Those two leases Andrew just referred to.

And as a percentage, is that 10% of the building or --

Small percent of the building.

Okay.

The building -- I don't know how aggressively it has been marked until it has gotten closer to its completion date.

Okay. And just the decision to issue the preferred, I know you obviously just got the upgrade on the Reckson bonds. But would you consider issuing unsecured and at what rates? Does that make sense?

I think the decision to issue the -- if you look back when we sized our equity offering, it hadn't contemplating really many new investments so making the sizable investment that we did at 510, we thought it important to get some additional equity into the Company. We got some indications from some folks that were interested in putting money out in those type of securities, and so we went ahead and upsized that deal at pricing that would really suggest that it was an investment grade credit.

We are, as Marc alluded to, spending time with the agencies trying to get an upgrade as to where we're rated there. If you look in other instances, I think it is reasonable to think that unsecured notes could trade anywhere between 25 and 75 basis points, inside where pref equity trades with subordinates. That deal went off at 8 and one-eighth so that kind of spread inside of there is I think the right way to think about it.

And just my last question, Marc, you mentioned the 650,000 square feet of potential leasing. How much of that has changed in the last say 30 to 60 days? Is that pool growing or --

Well, we had a big Q going into December and January which we just -- the results of which you just have seen in the various releases. I would say it is growing for sure over what we've had in the second half of the year, and it is growing considerably over what we had in the first half of the year. It is headed in the right direction. It is a large amount of space that we're working on and I think that Q will grow as the market continues to improve. But --

The other thing to remember is we posted a slide at the investor conference that showed leases that had been closed to date, and then deals that were out for signature that we were going to bring up and I think that number was 500,000 to 600,000 square feet that was out. We closed the Shaw, the BMW and couple others, and in the last 30 days have replenished that 350,000 plus square feet of deals that we already closed. The good news is wasn't just like a pop in activity in December. It was a pop that seems to be carrying forward as we go into 2010.

Yes, I would just add that when you're looking at potential for job growth, the securities industry has lost something like 28,000 jobs since the recent peak in January '08. And in December, the securities industry added modestly, but added more jobs than it has since the summer of '08 and that I think is very telling. Because as the financials begin to improve, and the overall job outlook continues to stabilize, we would expect that to translate directly into leasing activity and that Q will get larger. But clearly when we look at statistics like temporary employment stats which had leveled off, securities industry employment stats which have gotten modestly positive after many, many months of dropping 1,000 to 2,000 a month, we're [emboldened] by that.

And your next question comes from the line of Jordan Sadler with Keybanc Capital Markets. Please proceed.

Thank you. Could you provide some color on the reserves that were taken this quarter? What were they surrounding? And maybe the magnitude seemed a little bit higher than you had anticipated a few weeks ago, so maybe just discuss what came about.

Yes, it is principally related to two positions. One is on a mortgage position out in New Jersey where we had been working closely with the senior lender there, and we're hopeful of getting a restructuring done. It is unclear that that is going to come to pass so we took the opportunity to go ahead and reserve that position.

And then the other position is a mezzanine piece where the borrower has a pay-in-kind option, and elected on their semi-annual payment to go for paying time and actually not pay there in December. Given that, which was not entirely expected, we went ahead and took a reserve against that position until we get greater color as to what is going to transpire there on a very sizable corporate position. We're a small piece of it, but it is a sizable restructure. There are really two positions that drew the lion's share of that reserve.

Did you say there was a New York property?

Neither one. The first one was a New Jersey property where we think, just given the values, what has happened there, it is highly impaired. And the second one is a non-New York corporate credit where we reserved potentially half the investment.

Okay. And then just as a follow-up, maybe you could walk us through -- I know you are limited in terms of what you can discuss on 510 Madison. But what is really the opportunity set in a 510 Madison-type investment as you see it here, making nor investments through the structured finance book?

I don't -- not to base it on 510, we have had and continue to have an active structured finance book in Manhattan. The Manhattan book, as we've said in the past is we prefer them to perform much, much better and the total return than we have in the non-New York book. And it has created at this point five good pipeline investments for us. I wouldn't say it is a -- it is not a new door that is opening for us.

It is just a continuation of a program that has been very profitable in the past, over $250 million of aggregate profit and five pipeline buildings, and a book of assets in New York, whether it is already on book which we think is a good solid book of assets in New York or an ability to add to that with some new origination opportunities, acquisition opportunities. We are seeing more and more of that, and I think within our sweet spot in New York, we're continuing to be active generally on a smaller scale than 510. But 510 was somewhat, in our eyes, a unique opportunity.

It is safe to assume that you take -- expect something else to unfold there and we shouldn't expect that the 2.9% return you highlight in the supplemental is the end-all?

I think the loan matures in March, Jordan. There are several scenarios obviously that can play out in March, but that return won't hold beyond then.

I think if you look at the footnote in the supplemental, that return excludes the discount -- so the related amortization. I think whether the loan gets paid off or something else happens, that it would meet the requisite return requirements that Marc had highlighted earlier in the call.

And your next question comes from the line of [Josh Attie] with Citi. Please proceed.

Thanks. I'm here with Michael Bilerman also. You noted in the press release that tenants are coming to you and asking for early extensions. What would you need to see fundamentally for you to be less inclined to renew leases today that may expire in 2011 and beyond?

I think we're always pretty [desirous] of doing that, and we've talked about that a lot as part of our strategy. The only way we wouldn't do it is if we just think that the terms being requested today are out of market with what I would call -- not the future leasing market, but the market today or the next year or two. I think we're looking for a reasonable balance. A lot of tenants are willing to commit to transactions on that basis. We've evidenced that with 1.5 million square feet of leasing in 2009 where the contractual expirations I think were under (inaudible).

Clearly the balance of that leasing is all future activity, and we think that basically acts as a stabilizing force in the portfolio and gives us negotiating strength with other tenants as well. I think we're pretty desirous. The only thing I would point to is if somebody comes out with some unreasonable expectations, particularly on concessions with an existing tenant who is looking for unreasonable concession, then we just won't do it.

We shouldn't interpret that as -- that you don't necessarily think that it is going to be a much better leasing environment in 2011 and 2012.

You shouldn't interpret --

Even at the height of the market, you will recall that we have the same philosophy. We never took the position of holding vacancy simply to ride the market. Recognizing that we have 900,000 to 1.5 million of square feet of roll every single year, it would be imprudent to let that number get too big, simply because we thought the market was going to fall in our favor. It is a much -- I think a much more conservative approach towards managing our rent role.

Other landlords do it. We don't. And it is not market timing. We just don't do that as a corporate policy. We blend and extend at market or reasonably foreseeable market for players and we're not -- whether we thought the market was going up dramatically or not, we've got space maturing in future years that we will deliver into that increased market.

Okay. Thank you.

And your next question comes from the line of Brendan Maiorana with Wells Fargo. Please proceed.

Good afternoon. You guys talked about the return requirements and expectations for the class A or core properties. Can you give us a sense of where the returns are, the return thresholds for some of the noncore or smaller assets? And how narrow does that spread need to get before you would look to sell some of your smaller or nontrophy type assets, relative to monetizing gains in some of the core trophy assets?

Andrew, do you want to get that?

Yes, I think in the smaller noncore assets, you're likely looking at 200 to 400 basis points premium to the returns that Marc cited. There is still not a lot of trading in those assets as well and generally where they're stabilized, they're getting a lot of bids. When they're not stabilized and where there is large vacancies, you're seeing people try to demand more opportunistic returns. I think the dynamic we saw in '05, '06, and '07, where that gap narrowed to call it zero to 100 basis points, where the B's were trading right on top of the A's was a time when we took advantage of selling a lot of class B assets. We look for similar types of conditions for particular opportunities within some of the smaller noncore buildings, in order to make a decision to sell.

Okay. And then Andrew, do you think there has been a change or more aggressive underwriting assumptions in terms of forward expectations of occupancy rates, concessions, on the part of buyers to drive their return requirements?

I think certainly the assets that are being marketed and the buyers who are buying are putting in increasing rents in their models. There is -- at today's rents and today's concession packages, it would be very difficult to achieve the type of prices we've seen when assets -- the few assets that have sold have traded. I think generally, people are modeling rental growth -- concession tightening this year, rental growth, starting in 2011, and the return to a more normal market as vacancy declines a bit.

And have you guys gotten more aggressive in terms of your forward expectations in the past six months or so?

Certainly within the past six months, with the pickup of leasing that Steve Durels discussed, I think it is really just defining timing. We've always been bullish on a recovery, given the lack of supply and the same dynamics that we've been talking about in Manhattan. But in terms of timing, with the job losses in New York not being as bad as the city itself had projected and a pickup in activity, we've taken a little bit more bullish stance. I think you've heard us say, we expect to try to try to tighten up concessions this year and we hope to return to some level of rental growth in 2011 and beyond.

Okay. Great. Thank you.

And your next question comes from the line of Vincent Chow with Deutsche Bank. Please proceed.

Good afternoon, everyone. Just one follow-up on the unsecured question earlier. Did I hear -- did the preferred offering preclude you guys from thinking about a nonsecured debt offering later in the year? And how are you thinking about the convert that is (inaudible)?

No, I don't think it precludes it at all. It was just opportunistic and gave us the chance to get in some equity. We're continuing to look at the unsecured market. We have the cash on hand as we talked about before to retire the unsecured obligations that come due in 2010 and 2011, including the converts that are [puttable] in June of this year.

But certainly the unsecured market if it continues to tighten, it would be an efficient option for us, and then would make that cash that we have on hand available for external purposes because we could use a new unsecured issuance which was not originally contemplated to refinance and term out those 2010 and 2011 obligations that we have coming due.

Okay. Thanks. And can you also just comment on that lease that is coming due in 2010?

The [Vivende] lease?

Yes.

They renewed for a couple of floors over there. If you will recall, we don't manage that building but we have an investment in it. They renewed for a couple of floors. A big chunk of the space had been subleased out to a variety of tenants and there had been a substantial amount of leasing that has been completed in the last 60 days. If we can provide some additional specific color on that, but it would have to follow this call.

Okay. Thank you.

Okay.

And this does conclude the question-and-answer portion of the conference. I would now like to turn the conference over to management for any closing remarks. Please proceed.

Okay. Thank you. Hopefully that was -- we were able to add some clarifications to a lot of things that happened over year-end and look forward to speaking with everyone again in three months. Thank you.

And we appreciate your participation in today's conference. This does conclude the presentation. You may now disconnect and have a great day.