Veris Residential Inc (VRE) 2003 Q4 法說會逐字稿

Welcome to Mack-Cali Realty Corporation fourth-quarter 2003 conference call. Today's conference is being recorded. At this time for opening remarks, I would like to turn the conference over to the Chief Executive Officer, Mr. Mitchell Hersh.

Good morning and thank you for joining Mack-Cali's fourth-quarter 2003 earnings conference call. With me today are Tim Jones, President; Barry Lefkowitz, Executive Vice President and Chief Financial Officer; and Michael Grossman, Executive Vice President. On a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the federal securities laws. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved.

We refer you to our press release and annual and quarterly reports filed with the SEC for risk factors that could impact the company. First, I would like to give you an overview of our results and what we are seeing in our markets, then review some of the quarter's activities. Barry will then follow with a discussion of our financial results, and Tim and Mike will give you an update on the markets and our leasing results. In what is still a very challenging economy our FFO for the quarter came in at 91 cents per share versus 96 cents per share for last year's fourth-quarter, while FFO for the full year was $3.82 per share versus last year's $3.93.

This was due mostly to lower rents and lower occupancies compared to last year. Our net income was 47 cents per share for the quarter versus 52 cents per share for fourth-quarter 2002. For the full year was unchanged from last year at $2.43 per share. We are pleased to report an increase in our occupancies from 90.7 percent leased last quarter to 91.5 percent this quarter. This was due to increased absorption in the portfolio as well as our sale of an underperforming asset in San Antonio, Texas.

We're working hard to make up the loss in occupancy we experienced in the third quarter when our new Harborside building in Jersey City was added to our leasing statistics. Excluding this building, for comparative purposes, we would have ended the year 92.7 percent leased, actually above last year's year-end rate of 92.3 percent. In our markets we are still seeing a reluctance on the part of businesses especially large employers to make long-term decisions about capital spending and office space.

Job losses and business failures have abated although merger and acquisition activity continues to pose risk to office space demand. While the economy has started to show signs of recovery this has yet to translate into noteworthy employment growth which of course is the driving force behind office space demand. We do not expect to see a widespread real estate recovery until there is sustained economic and employment growth. There has however been some pickup in activity, especially in certain submarkets in New Jersey such as Jersey City, Monmouth County and South Jersey.

On the Jersey City waterfront space showings have increased notably since the beginning of the year. The reopening in November of the World Trade Center PATH station linking directly to Jersey City was a real boost for this market and we are seeing a renewed interest from users of all sizes. Since October we leased almost 48,000 square feet at our Harborside Financial Center Plaza 5 building in Jersey City and the building is now 61 percent leased. In general, the markets remain highly competitive but rent pressure is beginning to ease. Rents in our core Northeast markets declined by 4.4 percent this quarter versus last quarter's 3.9 percent.

Rents in our much weaker noncore Southwestern markets and Western markets fell by an incredible 30.7 percent compared to 28.1 percent last quarter. This all resulted in a portfolio wide rolldown of 9.2 percent. Tenant improvement and leasing commission costs were up slightly this quarter to $2.59 per square foot per year versus last quarter's $2.49. At the end of the fourth-quarter our remaining rollovers for 2004 were only 7 percent of base rent or roughly $35 million. Now I would like to briefly review some of our fourth-quarter activities. We sold a noncore asset, Riverview Tower, in San Antonio for approximately $11 million.

The sale of this asset which was just 71 percent leased was part of our ongoing program of selling assets in non-strategic markets and while only $44 and change per square foot, it was sold at roughly a 7.7 cap rate. We sold over $500 million of wholly-owned and joint venture assets since we started our capital recycling program in September of 2000. We have provided mezzanine financing for a maximum of the $16.3 million for One River Center, 480,000 square foot Class A office complex in Monmouth County, New Jersey at Exit 109 of the Garden State Parkway.

Our loan is convertible into a 62.5 percent ownership interest in the property and we are currently providing management and leasing services for the property. We view this transaction as an opportunity to enhance our presence in this active market in a very opportunistic way and we currently have leases out on about 95,000 square feet and so the property's performance is doing extremely well. Another important development in the quarter was the approval by the New Jersey Sports and Exposition Authority of the developers agreement or our joint venture Meadowlands Xanadu project to redevelop the Continental Airlines Arena site.

Groundbreaking on the family entertainment phase and infrastructure improvements which will be led by our partner, the Mills Corporation, is expected this summer. Mack-Cali will lead the latter phases of the office and hotel development which will total approximately 2.2 million square feet upon completion and of course prudently Mack-Cali has limited its capital to $32.5 million for the entire Phase 1 development. Some of the quarter's leasing highlights include Prudential Insurance Company's renewal and expansion lease for over 75,000 square feet at Mack-Cali Business Campus in Parsippany, New Jersey.

This transaction included an expansion of over 8,500 square feet and was important to the stability of the property and also important because we originally acquired the Campus from Prudential. We signed a new lease for an entire 65,000 square foot Flex building at Moorestown West Corporate Center in Moorestown, New Jersey, to Jack and Jill Ice Cream. We leased up the balance of the 71,000 square foot office Flex building in Yonkers, New York that we acquired just last quarter.

Montefiore Medical Center leased an additional 26,475 square feet after leasing initially over 44,000 square feet when we bought the building, and so now Montefiore occupies the entire building. Before I hand the call over to Barry, I would like to reflect on some of our accomplishments for the year. We continued to enhance our presence in our core Northeast markets. We acquired properties in New Jersey, Westchester and suburban Philadelphia. These core markets which now make up over 92 percent of our portfolio's base rent are outperforming most other markets throughout the nation because of their limited new inventory, high barriers to entry and diverse macro economies.

During the year Mack-Cali again consistently outperformed in our core markets with our lease rates exceeding market averages by up to 840 basis points at year end. In 2003 we further reduced our holdings in non-strategic markets, our commitment to the market place with property sales in Texas and in California. We leased almost a staggering 4.2 million square feet in what was a very weak economic environment as we can all attest to. While our occupancies did decline over last year from 92.3 percent to 91.5 percent leased, as I have previously mentioned, the decline principally was due to the addition of our new Harborside building to these leasing statistics.

We in fact made up much of this decline in the fourth-quarter. Going forward, first-quarter 2004 will continue to be a challenge with a few large leases expiring, including a 96,000 square foot lease with Ford Motor Company in Burton (ph) County, a 49,000 square foot lease with Avaya in Somerset County and a 82,000 square foot lease with MCI in Dallas, Texas. However, we do expect to see some slight uptick in occupancies in the latter quarters of the year as the economy continues to recover and job growth takes hold.

During 2003 we continue to focus on securing long-term leases with top-quality tenants and the credit quality of our tenant roster is among the strongest in the industry today. Our financial performance for the year was solid with revenues and net income up slightly for the year and our total return to shareholders was an impressive 48 percent. We took advantage of the favorable interest rate environment to continue to strengthen our balance sheet to allow us the capacity and flexibility to act quickly on opportunities.

Mack-Cali was added to the S&P MidCap 400 Index in 2003 which should only serve to enhance our liquidity in the long run. During the year our company and its financial policies received a strong vote of confidence when Moody's upgraded us in June. This was especially satisfying since very few companies were being upgraded at the time due to the difficult economic environment. So in conclusion, I believe that our company and our strategy are right on track. We have entered 2004 in a very strong position and are well poised to capitalize on a recovering economy. Now Barry will review our financial results for the fourth-quarter.

Funds from operations available to common shareholders for the fourth quarter of 2003 amounted to $66.5 million or 91 cents per diluted share as compared to $68.3 million or 96 and per share for the same period last year. Funds from operations for the full year 2003 amounted to $275.7 million or $3.82 per diluted share as compared to $281.8 million or $3.93 per diluted share for 2002. Net income available to common shareholders in the fourth quarter was $27.4 million or 47 cents per diluted share as compared to $29.8 million or 52 cents per share for the same quarter last year.

For the year, net income was $141.4 million or $2.43 per share from $139.7 million or $2.43 per share in '02 also. Parking and other income for the quarter included $7 million in lease termination fees. The fourth-quarter of last year had termination feet of $0.6 million. Same-store net operating income which excludes lease termination fees on a GAAP basis increased 1.3 percent for the fourth quarter of '03 as compared to the same period in '02 and decreased 2.2 percent for the full year '03 over '02. Same-store net operating income on a cash basis increased 0.8 percent for the fourth quarter of '03 as compared to '02 and decreased 2.6 percent for the full year '03 over '02. Our same-store portfolio for the fourth quarter was 26.1 million square feet which represents 97 percent of our portfolio.

During the fourth quarter we sold 27.7 acres of land located at Horizon Business Park in Hamilton Township, New Jersey, for $2.5 million and recognized a gain of $2 million which is included in FFO. We finished the quarter with no outstanding borrowings under our $600 million unsecured credit facility. Our unencumbered portfolio at quarter end totaled 233 properties aggregating 21.1 million square feet of space which represented 78 percent of our portfolio. More recently in January of this year the company sold 100 million 5.125 percent notes due February 15, 2014.

The notes were priced to yield 2.23 percent. The proceeds from the issuance of approximately $98.5 million, together with cash on hand and drawings from our revolving credit facility will be used for the retirement of $300 million 7 percent senior unsecured notes which mature on March 15, 2004. At the end of the year Mack-Cali's total undepreciated book assets equaled $4.3 billion and our debt to undepreciated asset ratio was 47.9 percent and debt to market cap ratio was 34.6 percent. The company had interest coverage of 3.3 times and fixed charge coverage of 2.6 times for the fourth-quarter.

For the full year '03 we had interest coverage of 3.4 times and fixed charge of 2.6 times. We ended the quarter with total debt of approximately $1.6 billion which had a weighted average interest rate of 7.1 percent. Please note that under Securities and Exchange Commission regulation G concerning non-GAAP financial measures such as funds from operations, we are required to provide an explanation of why we believe such financial measures are relevant and reconcile them to net income. Available on our Web site at www.Mack-Cali.com, are our supplemental package and earnings release which include the information required by Reg. G as well as our 10-K. Now Tim will cover our leasing activity.

At December 31, our consolidated portfolio is 91.5 percent leased compared to 90.7 percent at September 30, 2003, and 92.3 percent at December 31, 2002. During the quarter we signed 173 transactions totaling over 940,000 square feet. These transactions produce retention of 72.9 percent of outgoing space. First rental rates payable subsequent to any concession period decreased at an average of 9.2 percent over the expiring rental rate including all escalations. TI's plus leasing commissions average $2.59 per square foot per year of lease with an average term of 6.7 years.

For the entire calendar year of 2003 we signed 679 transactions totaling almost 4.2 million square feet at an average cost of $2.64 per square foot per year and first rental rates decreased an average of 7.9 percent. Retention of square footage for the year was 64 percent. Further details of our leasing activity can be found in the supplemental package on our Website. Our market information today is provided by Cushman and Wakefield and unless otherwise noted we will discuss overall Class A vacancy rates and direct Class A average asking rates. Now I will turn you over to Mike for a review of the Westchester and Fairfield County markets.

Due to several large lease transactions both Westchester and Fairfield Counties posted significant positive absorption statistics in the fourth-quarter of 2003. However, recently announced consolidations and downsizings will temper this progress in the first half of 2004. In Westchester, overall Class A availability dropped from 20.5 percent in the third quarter to 16.8 percent in the fourth. All the positive absorption occurred in direct leases with sublease space availability actually increasing slightly from 809,000 square feet to 839,000 square feet in the fourth-quarter. Sublease availability now comprises approximately 25 percent of overall availability, up from 20 percent thanks to the significant direct absorption.

Net direct absorption was a positive 765,000 square feet in the fourth-quarter and a positive 822,000 square feet for the year. Westchester overall asking rents for Class A space rose slightly to $28.56 per square foot, a 3 cent increase from the third quarter. Mack-Cali's Westchester properties contained 2.1 million square feet of office, 2.3 million square feet of office flex and 387,000 square feet of industrial space, ended the year 94.9 percent leased. This compares to 95.6 percent in the third quarter.

Leases totaling 290,000 square feet expire in 2004, approximately 6 percent of our total Westchester inventory and 6.8 percent of total Westchester rents. Overall Class A availability in Fairfield dropped over 2 full percentage points to 17.5 percent in the fourth-quarter. Absorption was more evenly divided between direct and sublease space with the sublease percentage of availability down slightly to just under 34 percent of overall availability. Net direct absorption was a positive 388,000 square feet in the fourth-quarter and a positive 358,000 square feet for the year.

The overall asking rental rates for Class A space in Fairfield further declined from $29.33 per square foot in the third quarter to $29.08 at year-end. Mack-Cali's Fairfield properties comprising 579,000 square feet of office space and 273,000 square feet of office flex space finished the year at 91.7 percent leased up from 90.8 percent leased in the third quarter. Leases expiring during 2004 totaled 89,370 square feet or 10.5 percent of our Fairfield inventory. Expiring leases amount to 14 percent of Fairfield rent. Noteworthy transactions in the market for the fourth-quarter include Boehringer Ingelheim's 229,000 square foot lease in Danbury, Connecticut; Argent Mortgage Company's 223,000 square foot lease in the White Plains, New York central business district; and Cadbury Schweppes lease of 135,000 square feet at Long vacant (ph) 900 King Street in Ryebrook, New York.

While the leasing of another of the long vacant large blocks of space that have kept the vacancy percentage high is welcome, Cadbury will consolidate here from two other locations vacating nearly 80,000 square feet in Westchester and approximately 120,000 square feet in Fairfield. These availabilities will enter the statistics in 2004.

Significant Mack-Cali transactions for the quarter include Fremont Investment & Loans' 30,000 square foot expansion at 555 Taxter Road in Elmsford, New York; Montefiore Medical Center's expansion of 26,475 square feet to take the entire building at Three Odell Plaza in Yonkers, New York; Homestar Mortgage Company's lease of 12.400 square feet at 1000 Bridgeport Avenue in Shelton, Connecticut; and Basso (ph) Capital Management which leased 10,500 square feet at Salview (ph) Plaza in Stamford, Connecticut. Fremont's expansion at 555 Taxter Road brings total absorption of available space at the building, including the 121,000 square feet of space vacated by Fuji Photo, to 78,410 square feet at year-end.

While there was much upbeat news in the fourth-quarter since the first of this year two major companies announced they would reduce their occupancy in Westchester. The Altria (ph) Group announced it would vacate its complex in Ryebrook placing the 625,000 square foot office facility on the market for sale. Also Reader's Digest Association announced it intends to pursue a sale and partial leaseback of its 690,000 square foot corporate headquarters campus in Chappaqua. Both companies in Tens (ph) retain employees within the county.

Altria will relocate some of its staff to other facilities it owns in Tarrytown as well as lease additional space nearby and Reader's Digest plans to continue to occupy a portion of its headquarters to house its current workforce of 800. The movement of large users into long vacate spaces in Westchester over the past two years may have encouraged these companies to put their spaces on the market.

Also recently announced is an agreement or relocate the Agia's (ph) headquarter operations from several locations totaling approximately 400,000 square feet in downtown Stanford and in Westchester, to new construction in Norwalk, Connecticut. It is anticipated the company will occupy the entire 277,000 square foot building in March of 2005, with all of their existing spaces becoming available. This is the first significant new construction in either county in more than a year.

Activity in a more typical smaller to mid-sized spaces which are the hallmark of Mack-Cali's properties in the region, remains consistent with recent quarters. New and expansion requirements appear to be keeping pace with space being returned to the market and there has been little addition of sublease space in either county. Both are well positioned to anticipate positive absorption in the mainstream small to medium-size market in 2004 as economic activities increase.

In Northern New Jersey Class A overall vacancy decreased from 18.7 percent to 18.2 percent in the fourth-quarter and asking rents averaged $29.25. Overall vacancies for all classes of space remain unchanged throughout the year at 17.3 percent. Looking at some of the major Northern New Jersey's submarkets, Morris County's class A overall availability decreased from 23.1 percent to 21.3 percent this quarter. Morris County's leasing volume was the highest of any Northern or Central New Jersey in 2003 at 1.7 million square feet.

There are still several large blocks of vacant space. American Express, AT&T, Lucent, Accenture, Tycom, and Chubb all have subleased blocks in excess of 55,000 square feet available. But the markets diversity of business well developed highway and public transportation systems and an affluent highly educated workforce should continue to attract more than its share of demand. In Bergen County availability increased from 20.9 percent to 22 percent. Sublease space still represents 32 percent of the Class A -- of that space available in Bergen County where the direct vacancy is 15 percent.

Class A vacancy in this submarket increased 1.9 percent in 2003 which is significantly slower than the 6.4 percent vacancy increase experienced in 2002. Hudson County's Class A vacancy remained essentially flat at 15.7 percent this quarter. Mack-Cali continues to outperform the market in these counties. Our combined 9.4 million square foot inventory in Bergen, Hudson and Morris Counties was 90.6 percent leased at year end compared to a combined market average Class A overall availability of 19.4 percent and direct availability up 11.7 percent.

Central New Jersey's overall Class A availability dropped from 26.5 percent to 25.8 percent in the fourth-quarter and finished the year only slightly higher than the 25.5 percent year end 2002 vacancy. Direct vacancy dropped from 15.4 percent to 14.8 percent. Although there is still a large amount of sublease space in the market conditions seem to be stabilizing. Rental rates dropped to $26.85 per square foot. Mack-Cali's central New Jersey presence is 2.8 million square feet which is 92.2 percent leased. There were no new significant construction starts in Northern and Central New Jersey in 2003, and anticipated 2004 construction deliveries will only add 90,000 square feet of unleased space to this 170 million square foot market.

The region should be well positioned to absorb vacant space once demand increases. Suburban Philadelphia's vacancy rate increased from 26.3 percent to 27.5 percent in the fourth-quarter. The Class A markets saw negative absorption of 1.3 million square feet in 2003 as it struggled to fill new construction and space vacated by corporate downsizing. Asking rents averaged $27.11. Our office holdings in this market include 2 million square feet of office space in both Southern New Jersey and suburban Philadelphia and 1.4 million square feet of office flex space in southern New Jersey.

These properties were 89 percent leased at the end of the fourth-quarter. In Washington D.C. Class A vacancy dropped slightly to 10 percent this quarter and asking rents are $47.8. With its low rate of job loss in 2003 this market remains the most stable in the country. Mack-Cali's 228,000 square feet in Washington are 98.8 percent leased. In our major markets outside the Northeast Dallas non-CBD vacancy fell from 25.4 percent to 24.1 percent with rents at $21.16.

Denver suburban vacancy rate continued to fall, down from 23.4 percent in the third quarter to 21.9 percent at year-end. Asking rents in Denver averaged $18.10. Lastly, San Francisco's vacancy rate dropped slightly from 22.7 percent to 22.5 percent at year end and rents averaged $29.64. In our portfolio we have seen an increase in leasing inquiries and space showings particularly since the beginning of the year.

Also encouraging is that the number of inquiries from existing tenants about expansion space and new tenants who want to build expansion into their proposed leases is higher than we have seen in the last two years. Additionally expansion transactions outnumbered reductions in the fourth quarter. So despite some high vacancy rates in our markets we believe that overall conditions will begin to stabilize as we wait for job growth. Mitch?

Thank you, Tim. I think before I open the floor to questions I would like to discuss a view additional points and clarify a few issues. First of all, in adjusting guidance which of course you are all aware of based on our release today, in no way are we changing our view towards the performance of our core portfolio and the strength of our markets. I think that the leasing results that we have demonstrated are a reflection of the depth of the macroeconomic factors that while we all operate in a challenging economy certainly bode well for the markets that we operate in. Our current guidance for 2004 FFO reflects a reduction from our previous guidance which was put out last quarter primarily attributable to the successful completion of our recent $100 million bond offering. This affected our guidance by about 4 cents per share.

We did this earlier in 2004 than was previously estimated and took advantage of a very opportunistic interest rate environment and spread environment. It is also the result of a higher share count from the exercise of stock options since late in the fourth-quarter. From November 7, 2003, through February 24, which was the last of our calculations, 1,738,186 options have been exercised for an aggregate cost of about $62 million or approximately $35.70 per share. This reflected in our guidance by a lowering of about 5 cents per share.

The other impact in our guidance falls principally to the area of acquisitions and dispositions. We had modeled in our guidance earlier about $200 million worth of acquisitions much of which would be in the latter part of 2004. At this juncture we have what we believe is control of a $34 million Class A asset in our marketplace that we are trying to finalize the transaction and the closing on imminently. Other than that frankly in this environment we don't see a great deal of opportunity to make smart buys in the acquisition arena.

So we have essentially taken all other acquisitions, other than that $34 million building, out of our calculation today. I would also like to give you some perspective on our company's performance and emphasize and reiterate perhaps some important statistics. Number one, most of the occupancy and operating expense margin issues surrounding our portfolio have been impacted by the addition of Plaza Five in Jersey City at Harborside, to our statistics. Plaza Five being a building of 980,000 square feet. It is a superb Class A institutional quality asset.

The building today is 61 percent leased and we have modeled in only leasing to about 70 percent, only another A+ or minus percentage points to the year end 2004 which of course we think is somewhat conservative given the current level of activity and space showings at least that are occurring down in Jersey City. I think it is important to make the point that much of the operating margins and statistics are a reflection of the addition of that asset, a large asset in a tough market and a tough economy. But I want to emphasize the fact that we continue to put a lot back into our core portfolio in terms of our properties. Last year we spent almost $64 million between tenant improvement, leasing commissions, and of that amount around $9 million was base building capital where we continue to put money back into our assets to upgrade them, to enhance them, to improve the infrastructure and the curb appeal of our asset base. And we have done this on a regular basis, year after year, to remain competitive and to serve our customers' needs.

After having spent all of that money which we have done on a fairly regular basis our CAD payout ratio for 2003 was about 87 percent and so we continue to maintain a strong financial position and a strong positive cash flow in the company while bending those types of some of sums of money. For 2004 we figure between leasing commissions and tenant improvements and $7 or $8 million in base building capital and bringing our occupancy from now roughly 91.5 percent up to hopefully around 93 percent and figuring a midrange up around 91.7 just for averaging purposes, we will spend about $77 million.

After having done that we be believe that at year end we should either be cash flow positive and certainly around neutral, notwithstanding the fluctuations throughout the course of the year. As far as exposure to our portfolio, looking at 2004 we only have 7 percent as we have previously stated of our base rent rolling over, some $35 million. Next here in 2005, it is a little more than 12 percent and in 2006 a little more than 11 percent, and so we continue to manage down the exposure to our portfolio.

We have done the right thing by capital recycling because when we look at our rental rate rolldown and that is a reality of life today in the office market, and we look at the statistics for 2003 we see that on average for the entire year our rolldown for our northeast core portfolio was only 3 percent in contrast to almost 24 percent for our Southwestern portfolio. We took very appropriate steps in terms of taking advantage of the fluid financing market and interest rate market in advancing some of our financings and refinancings.

Today we sit with about $150 million in cash. We have a $300 million note coming due March 14. Between the cash that we have on our balance sheet today we will put about $150 to $200 million on our line at least temporarily where we borrow at 70 basis points over LIBOR. We have done the right things with respect to financings. As far as G&A expenses are concerned and some might question why there were some fluctuations in the last quarter. Well, we wrote off some deal costs for opportunities that we were looking at that we didn't believe could come to fruition, and that was $400,000 or $500,000 and then we had about $2.5 million for a restricted stock plan that was approved.

So on a normalized basis the G&A really hasn't changed from run rates in the low $6 million per quarter arena. As far as the future, questions about M&A, I raised that myself in my earlier discussion and what the landscape will look like. AT&T wireless being acquired by Cingular and what the impact of that will be. I guess the good news is that number one, Cingular doesn't have much of a presence in our markets. A company that is going to be as large as that combined company leases only a little more than 100,000 square feet in the entire region, of that 89,000 feet in Middlesex County and about 32,000 feet in Essex County.

We are hopeful that the facilities that we operate with AT&T Wireless in Bergen County which have over three years remaining on the lease will remain as an important part of the structure of that company on a going forward basis. So I felt it was important just to reiterate some of the impacts and strengths within our portfolio. Now having done that, I would like to open the session to questions. Operator?

(OPERATOR INSTRUCTIONS). Gary Boston, Smith Barney.

I'm here with John. Mitchell or Barry, I don't know who this is for, just in terms of the guidance you referenced the bond offering as being one of the factors that has changed there, in the prior guidance how were you assuming that the outcome in maturity was refinanced?

Originally what we had done was we had put that out, we had taken that out with a draw on the credit facility as well as some cash we have around. If you recall, we had a significant amount of cash from the sale of Plaza Ten and we would draw the balance on the credit facility which in our projections had an overall interest rate of 2 percent. We projected a LIBOR grade of 130 and 70 basis points above that and then we refinanced much later on in the year. By doing it here we have an effect of about five cent difference between the two rates and the way that comes out in terms of timing.

Does that address all of your -- that only addresses a portion of your '04 300 million maturing? Is that right?

Yes, we have $300 million coming due on March 14. We have effectively done $100 million a that in the recent bond offering or unsecured transaction that we did and we have another two, so we will have $200 million. We are long today, about 150 million in cash, 100 of which is from that bond offering done in January and so we expect that, at least for a period of time, we will be drawing on our line for the balance which will be somewhere between $150 and $200 million.

As I mentioned we do have an acquisition that we are looking to close hopefully in the near-term which is about $34 or $35 million. So in total, we should be in the $150 to $200 million arena. We are going to watch the market very carefully in terms of, of course the interest rate environment, and the spread environment and we're going to take the appropriate steps as we go down the road to continue to secure our balance sheet.

Your rate on that debt maturing, it's about 7.3 percent. Is that correct?

It's about 7 percent.

Seven percent, but the effective rate is about 7.3.

So you're probably going to pick up at least 100, 200 basis point savings?

Oh, yes.

So that is in your numbers for '04?

Yes, that is correct.

On your acquisitions, you only have 34 million in your guidance for acquisitions. What did you have on your previous guidance?

About 200 million, much of which was in the latter part of 2004.

I assume you brought up AT&T's merger because it got big exposure there. How much longer is on their lease?

It is over three years.

So it wouldn't be an immediate issue anyway?

Not at all. I mean the expiration is March 31, '07.

In the aggregate, I think you said your rents were down about 9 percent in '03 on a cash basis. What are you expecting in '04?

On a cash basis, I guess about 10 to 15 percent is baked in as it were.

And on a GAAP?

We would have to get you that number. We don't really look at it that way. We look at cash.

Thanks a lot.

Greg Whyte with Morgan Stanley.

You addressed a lot of the points we were going to raise, but just wondered -- Barry can you just reiterate for us what your same-store guidance is within the confines of the FFO guidance?

To be honest with you I would have to go and get your that number. The way we do our projections is we go building by building, lease by lease, and we look at each one of the leases that are rolling and make a projection on it. It is kind of hard to roll everything up into the same-store number. If I had to guess I would say we would probably be in the neighborhood of what we did in the prior year, meaning 2003, somewhere in that neighborhood on an overall basis.

The numbers in the fourth-quarter were quite encouraging actually, so I just wondered -- where I'm going with this is how much of the fourth-quarter is sustainable or was it somewhat of an aberration to that improvement?

I would tell you the fourth-quarter same-store number was positively impacted by the addition of Plaza Five because if you recall fourth-quarter of '02 was the first time you had Plaza Five fully in the numbers as it compared to fourth-quarter '03. So you got a big jump in occupancy as well as at that point in time we had a lot of pre-rent and a lot of leases hadn't started yet in the same period last year.

Mitch, you spoke about the limited exposure that you would have on them on Xanadu in terms of limiting equity exposure. Can you give us a little timing? I mean that 31 million, I'm assuming that you're not even going to be exposed to that full amount this year?

No, I don't expect that to be the case. We have actually only expended about $600,000 to date. We are probably going to be participating in a couple of million dollars worth of soft costs and various and sundry fees and financing costs, etc. in this quarter. But $32.5 million is our maximum capital commitment with respect to the entire Phase I which is the 2.5 million feet more or less of family entertainment, sporting venues, high-end fashion retailing, etc. as well as the infrastructure improvement costs of some $65 million and mitigation costs on the old Empire tract.

At the end of the day, and again it is difficult to predict exactly how quickly money will be spent. I guess the more money spent by Mills the better. That means the project is advancing that much more quickly. So I can't predict exactly sort of a segmenting of when the $32.5 million goes out the door. But at the end of the day after having spent that we will effectively own 20 percent of the entire front-end, as I call it, of the project which is what I have just defined for you.

If I can just ask you, obviously this is more of a subjective question, but can you give us a sense -- you are effectively reining in your acquisition target a little bit for '04 and I just curious to know what is happening to pricing and maybe sort of over the last three to six-months and if you are able to give us a little color on who the buyers are for the type of asset you would be interested in? I am just curious to know, is there any change going on?

I think assets are only getting more expensive. I think we have seen continued exhilaration of capital flows into real estate and that has enhanced values I guess for all of us. But it has made it much more difficult to be competitive particularly when it comes to the auction block bidding which is generally the broker asset base that is being acquired today. So there has continued to be a compression of cap rates and particularly for well leased, well located, high-end product.

Most of what we have been able to accomplish including this $34 million asset that I am discussing are sort of under the radar screen relationship driven transactions where the seller knows that they are going to go through a fluid process in sort of an uncontested closing. But there is still a lot of capital looking to bid up assets and when you think you are at the end of the day, even if you are involved in a bidding process, when the seller has selected the successful bidder or buyer then they only try to bid up the price further.

So it is still a very competitive environment and I felt it was prudent to relook and revisit our guidance and our modeling and until I see some adjustment in the market in terms of valuations be it as a result of interest rates moving or as a result of somewhat diminished capital flows looking at our sector, I didn't think that we should be modeling in these acquisitions until there is more certainty.

Mitch, are you prepared to take the other side of the trade here and do some more JV's and stuff?

We only do strategic JV's. I mean we haven't -- when you say do JV's --.

I'm just saying take advantage of the pricing. Are there assets that may even be in your core market that you might want to start getting out of and taking advantage of the high prices?

I would say no at this point. We have looked at that and we have had discussions about certain of the obvious assets that we own, the high visibility assets, and we don't feel that it is an appropriate action for the company to take. It puts a lot of pressure on the company or a company when there are JV's. A lot of potential conflicts emerge from that which I think need to be scrutinized very, very carefully. And we don't feel it is in the best interests of our shareholders to have to entertain those conflicts of interest, which space gets leased and what are the constraints around you.

We are in a very strong financial position in this company. We have built a balance sheet to take advantage of opportunity when it emerges and we don't feel pressure to do capital transactions just for the sake of being out there. I would tell you that I have to believe that with a core concentration in one swath, it is sort of an inch wide and a mile deep as the Mack-Cali portfolio is. More joint ventures will result in more potential for conflict and that is a very big concern of ours.

Great, thanks a lot.

Dan Oppenheim with Bank of America Securities.

Lee (indiscernible) is here as well. Just wanted to ask a little bit more in terms of the lease rollover that you have this year. You talked early in the call about some of the large leases rolling with Ford and Avaya and MCI and I am just wondering if you can address some of those and if you are expecting some of those to vacate and what your goal is for occupancy over the course of a year?

Again, we have built into our modeling a slight buildout in occupancy and our lease percentage to plus or minus 93 percent in terms of leased at the end of the year. As far as the transactions that I mentioned Avaya is out. I mean we know they are vacating. Avaya being a telecommunications technology company has been part of this consolidation and so we know that that building needs to be relet. Ford Motor Company has also consolidated some of their operations. This was part of their logistics component of the company. So we know that that 96,000 square feet is coming back.

MCI in Dallas, although MCI had a major switch installation in the building that I guess we are going to have the benefit of in that 82,000 foot building because I believe they are willing to leave it there, they are the result of the MCI WorldCom bankruptcy plan and so this building is not going to be reoccupied. We have kind of baked into our projections a lot of very site-specific knowledge. We know who is coming, who is going and we have a pretty good feeling for what will occur down the road.

Looking out into some of the prospective quarters we have, for example, AT&T Corporation in San Francisco. They occupy 63,000 feet in a building that we actually acquired from them back in 1999 and we have leases out to them today. They have 63,000 feet. We have a lease out to them for execution for 48,000 square feet. As Barry indicated before in terms of looking at same-store NOI, we do go through a very painful and deliberative process of going lease by lease into every single space within the company and have a pretty good flavor of each asset and what is happening in each asset.

Thanks. I will turn it over to Lee.

Mitch, I know you are being conservative in this thought process about lack of acquisitions but given the fact that you did this Mesloan (ph) deal, do you think it is really conservative that we can expect to see a couple of these under the radar screen type of deals get done or is that pretty much unlikely given how hot the market is today?

We try to provide a midrange that was reflected of what I really anticipate happening. I continue to feel that there will be, especially if interest rates begin to move, more pressure on the secured leveraged borrower that could result in more similar type transactions to what we were able to accomplish down in Monmouth County. I don't see those on my desk right now to be candid. I have tried to provide a midrange guidance based on what I view is a very pragmatic and probable approach today.

I guess that approach assumes that because you are not seeing them on your desk, that you're not going to see them until rates go up for a sufficient period of time, that gets people in trouble? Is that fair?

I think that is a very fair statement and it is not that we are wishing rates to go up or people to get in trouble, it is just the fact that interest rates have continued to remain stable and (indiscernible) which has also served to enhance our balance sheet, hasn't insulated the leverage borrower from any degree of pressure in many instances and they have been able to do refinancing and compensate for the greater equity component, but it could happen at any time, the change.

Got it, thanks.

David Shulman with Lehman Brothers.

First could I go to Barry. G&A run rate for the year given what we were and what Mitch said, something like $25 million, something like that.

As Mitch said before, mid to low $6 million a quarter.

Mid to low six. (indiscernible) 25, 26 or something like that, would be. What were lease terms and fees in Q4.

$700,000.

Okay, $700,000. I misheard that. What is the share count on your Feb. 27 day? You talked about the increase in shares. What was the number for the fully dilutive?

It is about 73 million shares.

About 73 million. Okay. Now to Mitchell. Did I hear you right when you said you were going to spending on TI's leasing commissions and building CAPEX, 77 million this year?

That is exactly what I said. I will give you some sense of what I believe that breakdown is, David. TI's of over $50 million and commissions of about $19 million and then 7 or 8 million in base building OPEX. In terms of first generation space that could be as much as another almost $15 million.

There is another 15 million on top of that for first generation, right?

Yes, it is included in the 77.

In the 77, there's about 15 million, that supplies the five (ph) basically, right?

That's right.

So if I backed out 15 for second generation, just looking at second generation, that number would be 62, right?

Yes.

Okay, on that. So that means in order to get there the way it is, is you have lease rolls of about 2 million but you have one million eight in '04 and you have over 3 million next year. I'm assuming you are going to be doing a lot of '05 business in '04.

I would hope so, that is right.

So therefore, even if (indiscernible) lease roles of one million eight, you're likely going to lease 2 million plus square feet, if all goes well? You have to be leasing a lot more (multiple speakers), right?

I think that is exactly right, David.

And that is the game plan, okay.

That is the game plan and we are delighted that we are in a position to support those kind of cash expenditures which in fact are a reality of the marketplace.

That is what you're supposed to do. No need to be defensive about all that stuff. Next question. Are you going to continue to sell noncore assets? Can we expect to see that during the year?

Yes, I would hope so. We have something brewing in Texas now. A little early to be definitive, but it is our game plan.

Is that on your guidance, (indiscernible) asset sales?

Not really, no.

So if there should be asset sales that might (indiscernible) depending on the lease status of the building it might affect guidance a touch.

David, they are small. We will be able to replace those with I will call it nondilutive transactions.

Okay. Thank you very much, guys.

Caryn Zieses of Lehman Brothers.

One more follow-up question actually on the suburban Philadelphia market. It looks like you guys had a big pickup in occupancy, about 260 basis points in the fourth-quarter. I was wondering if you could talk a little bit about why that was so strong?

We include the Moorestown portfolio in those statistics. We had a couple of transactions that were noteworthy. I talked about one before which is the Jack and Jill Ice Cream transaction in Moorestown Corporate Park. There was another large deal done with Unitrin, so that is the major contributor. As far as the Philadelphia suburban markets per se, we have seen some strength in the blue belt Plymouth Meeting corridor. We announced one of the transactions was in Plymouth Meeting. We have seen some strength in the King of Prussia corridor. As you move a bit further West, there still needs to be strengthening in those markets. There is not a lot of activity and the deals are tough.

Okay, thank you very much.

Kerry Callahan (ph) with Goldman Sachs.

It's Nora Creedon here with Kerry. As you start to look out on the '05 roll which it sounds like you're working on some of that, or included some of that in your TI's and (indiscernible) commissions, can you tell us what you are hearing from your tenants in terms of what they are demanding on the TI or free rent and if that mix is changing or how that feels relative to three or six months ago?

Well let me tell you how it feels out there right now. It feels like rent rates are stabilizing and I would expect that if the optimism that exists in the marketplace in terms of the economic optimism continues, particularly in an election year, that we will continue to see some positive momentum and I believe that as we move through 2004 we will see firming conditions and we won't see further deterioration, certainly not on any large scale, if I look at a broad brush of the markets we operate in.

We won't see any further rent rate deterioration and we will see concession packages basically starting to firm and diminish but that is probably going to happen more towards the latter part of the year. I am hopeful that the good economic indicators we see are going to translate into more positive fundamentals in our business. I am also hopeful and I've seen evidence of this that at least the optimism that exists in the marketplace is giving pause to tenants, particularly larger tenants, that if they are going to be out there in the next year or two looking for large blocks of space they better be doing that now, certainly if they expect to take advantage of what I will call a tenants' market. And we continue to see more signs of that. That is my overall impression of what is happening in the marketplace.

But you still see maybe a 10 to 15 percent negative mark to market for the next year or two?

Yes, when all is said and done, certainly this year is going to reflect in a 10 to 15 percent rolldown. We are still -- we are at the inflection point perhaps but we are down in the trough and that would be the expectation.

Barry, how much are the lease term fees for the whole year? What do they amount to?

The lease termination fees for the full year were $6,528,000.

And are you basically assuming none for '04 in your guidance?

The way we budget for those things is we take all of our other income items and we budget for that in total which excludes some lease termination fee which we always have, different levels of it. It seems to work out around $12 million a year give or take in total for all other income stuff is basically what we have budgeted in the past.

Thanks very much.

Mike Marron, Bear Stearns.

My question has been answered, thank you.

John Litzius (ph) with Greenstreet Advisors.

Mitch, one general topic of potential acquisitions is the idea of perhaps buying some of these corporate campuses that exist, helping some of these big corporate users deal with excess space. Is that something you have looked at? Can you give some comments on that as a growth potential?

Yes, I can. Actually given the tenant roster that we have and the relationship with some of the Who's Who of corporate America, we actually started dialogue as long ago as 1998 with some of these large corporate users that had ownership portfolios and talked to them about transferring ownership, moving the asset base off their balance sheet and trying to realize value. And for whatever reason in their own tax analysis in general, and this was sort of the response I heard, that having to recognize mark to markets and so forth, that it wasn't an efficient thing for them to be doing.

Over the last couple of months, particularly given the fact that certain industries may have remade themselves in a different fashion, technology, telecommunications, a couple of those discussions have resurfaced and it is hard to predict whether it will get to the finish line. But I give you sort of an example, where a company has a substantial portfolio of owned and some leased properties. It is a visceral discussion at this point, but what we are talking about is -- and some of the leased facilities are with us -- is talking about extending those leased facilities because they are part of their core, what they call magnet facilities, acquiring some of their own properties because we operate in the markets and we would -- and they are surplus, they don't need that space.

They would be much better served to create value in the hands of Mack-Cali as an owner/operator than they would be in the hands of a corporation whose busy doing other business. So interesting that you mention this, John, because these discussions are really quite recent, over the last couple of months. But it is early to predict whether this will be a trend or a phenomenon because I have been there before in having these discussions. But I think that as I said before, some of these companies have remade themselves now.

They're different companies. They have different levels of employee counts and they have outsourced a great deal of their real estate functions whereas when we began these discussions back in 1998, they had much deeper infrastructures internally. So they really can't be as fluid in dealing with their own asset base as they could back then. So I think, you're right, this may end up to be bigger than what it has been in the past and that's what I can tell you about it.

This represents -- when I think about corporate campuses that are not being occupied, those spaces generally don't compete in the multitenant market today. So they really inflate the statistics, but are not particularly competitive. Is that fair?

I think that is very fair. I mean, I look at the New Jersey landscape, for example, where you had a major telephone company asset that was sold to a pharmaceutical company on the heels or the cusp of that company merging with another, and they acquired the asset and it is not being marketed in any way other than for the potential of another -- either expansion of their own merged company or a user coming along that can kind of fit in like a glove to that asset. But to the extent large transactions have been done with corporate style campuses, be them in Westchester or New Jersey Central to Northern New Jersey, they are basically off the books in terms of being competitive. They are not shown as multitenant type facilities in the brokerage community, and so they are not competitive.

Moving on briefly to Xanadu, and I know you made some comments there and I don't want to backtrack too much, but a couple of other issues exist. There have been some lawsuits, I guess, or continue to be some lawsuits, which I guess is kind of normal with these projects. But there is that and then there is the talk about the transit link. Can you just give a very quick update on your overall view?

Yes, as far as the transit link, we have a very optimistic and positive view. The Port Authority of New York and New Jersey has agreed to fund the principal amounts in connection with bringing a rail spur to the -- directly to the side, which will link all of the Northern Bergen lines and the brand-new Secaucus transfer station that was recently opened in November.

And essentially what that's going to do is it's going to connect all the rail connections in New Jersey from the Jersey shorelines, which will go through the transfer station, and the Bergen lines, which are basically the entire northern New Jersey quadrant, to a rail linkage that will bring -- that will serve this site. There will be some federal funding, as I understand it, through the Ice-T program and -- but basically there's a commitment to go ahead and do that and have it done by the time Xanadu opens, and that's a major, major positive for bringing -- transporting people to the Meadowlands site.

As far as the litigation is concerned, there is ongoing litigation. There has not been one successful venue for the litigant, the plaintiff in that case in connection with any of the court's rulings to date. It has not been looked upon favorably by the courts, and I know there's an action pending right now where they've tried to consolidate all of their cases or all of their various actions in the appellate court. But they so far haven't been successful in any venue. So I certainly can't predict where that ends up, but all I can tell you is that all involved in the project, and that's us, Mills, and of course Mills has the bulk of the economic responsibility at this point, and the New Jersey Sports and Exposition Authority are moving full-bore to get this project in the ground. So the litigation really hasn't deterred anybody or distracted anybody.

And as far as the teams, I sort of know what I read as you read it in terms of the teams moving around. I think the Newark situation, while I have no opinion; it's a long way off as is Brooklyn. And so there is some discussion on the part of the sports authority about with or without teams spending the appropriate amount of money to revamp the arena, Continental Arena, and really the revenue that's derived there is derived principally through events and not sporting events -- concerts and so forth. And it is second only to Madison Square Garden in terms of its revenue percentage in this region. So that's what I can tell you.

Thanks. And just one last housekeeping question. Barry, do you know what fourth-quarter same-store NOI would've been without Harborside 5?

I don't have that information handy, but I will get it for you.

Okay, that's all I had. Thank you.

Chris Haley with Wachovia Securities.

I was listening in and -- interesting to hear your leasing assumptions for '04. Your (indiscernible) exploration is around 2 million. What is the -- regarding the TI 15, 50, 52 and the leasing commission is around 19, what is the volume assumption that you have built in for leasing during the '04 calendar period?

I'm not sure I understand. Could you clarify the volume assumption?

Sure. Volume of leasing. What is the -- trying to get to what kind of tenant improvement leasing commission cost per foot are you expecting for the '04 period? As then the second -- and the related question is how does that compare versus '03? What are you expecting in terms of inducement changes?

As I said before, Chris, I think -- first of all, I want to make the point that part of our expenditures in connection with leasing commissions and TI's is if we're going to do a long-term lease -- remember, some of our leases are 16 years in duration, that's the new leases we've got -- we're obviously going to spend some more money in encouraging that longevity with high credit quality and amortize it over a longer period of time. I want to make that point because it's a little distorted. But basically, I expect that we've been in the range of this $2.75 to below and basically I only see it firming.

So that's the capital cost per foot per year lease term?

The answer is, yes.

And in regards to the negotiating points on leases today, I understand and I hear in the market that the public players have more capital to work with, but there is a certain circle that suggest that the TI dollars have topped out because there is an increasing devaluation by the landlords who say there's no more reason for me to put any more money in the building, so if you really want to negotiate on a deal, I'll continue to give you free rent and maybe I'll come down more on the rent. Is that what you're kind of -- that's what I see -- that's what I'm reading in terms of your comments that cash rents are continuing to come down as a function of market fundamentals, but also that's the negotiating point that landlords are willing to work with as they're kind of full on giving TI.

I don't know, Chris, I hate to generalize like that. Every situation is different. And to be candid, a lot of it is generated by the guidance tenants are being given by the brokerage community. If they are in a highly competitive market and they can get $30 a square foot whether they need it or not in terms of capital to help buy their MIS systems as well as their tenant installations then that's what they're going to ask for. And so I'm not sure I see those trade-offs.

Are you pushing back on TI in any of your submarkets saying we're not going to offer that much?

Absolutely. We're pushing back on all fronts, but by the same token we're making deals. But I understand and all of the team involved in leasing understand the realities of each different marketplace. And yes, I'm absolutely pushing back. I had a deal down in Harborside, for example, in Plaza 5 and they were asking for an enormous capital contribution. And my attitude on that particular transaction was there's a very little sublet space left to compete with us and if somebody is willing to spend those dollars let them take them out, that will be that much less sublet space to compete and will only firm us up. So I drew the line. And I don't know where the deal ends up, but I know that if it ends up with us the line is drawn.

That's helpful. On the first generation space, is that predominantly Jersey City?

Yes, basically it's almost the whole Jersey City.

Okay. Lastly -- the acquisition revisions downward in terms of volume, how much do you think capital returns or cap rates have declined or hurdle rates have changed in the three months that you changed your assumptions? And then, could you review today what your hurdle rates are, what your return hurdles are? So first, how much have things changed really in three months in terms of pricing and then what are your current hurdle rates?

I guess the hurdle rates today is what we've been buying, for example, if you look at what we've purchased in 2003, we had an average cap rate on the buy at 971, and that was average. And so we're looking depending on location, market, asset quality, in the nine range. And the average on our dispositions in that same period of time was 8.34 percent on the cap rates. I think cap rates have continued to compress maybe 50 basis points over the last four months of -- or three months of 2003 because interest rates have compressed as well. So that's sort of the order of magnitude that I've seen.

That's very helpful. Thank you, Mitch.

This would conclude our question-and-answer session. I'd like to turn the conference back to our speakers for any additional or closing comments.

Thank you very much for joining us in today's conference call. We look forward to reporting to you again next quarter on our progress. Have a good day.

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