Veris Residential Inc (VRE) 2006 Q2 法說會逐字稿

Good day everyone, and welcome to the Mack-Cali Realty Corporation second-quarter 2006 conference call. Today's call is being recorded. At this time, I would like to turn the call over to President and Chief Executive Officer, Mr. Mitchell Hersh. Please go ahead, sir.

Good morning everyone. Thank you for joining Mack-Cali's second-quarter 2006 earnings conference call. With me today are 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 law. 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'd like to review some of our results and activities for the quarter and what we're seeing in our markets. Then, Barry will review our financial results, and Mike will give you an update on the markets and our leasing results.

FFO for the second quarter came in at $0.95 per share compared to $0.94 per share for the second quarter of 2005. Our portfolio ended the quarter at 90.7% leased compared to last quarter's 90.4%, reflecting a 30 basis point gain due to solid leasing activity. Now, let me make some general observations.

While the markets remain competitive, we continue to see improvement in fundamentals and encouraging signs within our core markets. Some northern New Jersey markets, for example Essex County, are experiencing good leasing activity and space absorption, particularly in the professional services sector and primarily in law and accounting. The Jersey City Waterfront has become particularly active, and we're seeing an increased amount of outflow from tenants in Midtown Manhattan. We're currently working on a lease that will fill a significant portion of Harborside Plaza One, and I expect and hope that that will be completed in the very near-term. We're also working on a very significant potential build-to-suit at Harborside.

The financial services industry is slowly gaining momentum in many northern and central New Jersey submarkets. And consolidation in the pharmaceutical industry seems to have dissipated and now reflects in a positive trend in many of our submarkets. In addition, in certain New Jersey markets, the growth in the hotel and retail services is adding amenities, which should in turn help fuel office demand in those submarkets. In Westchester, the White Plains CBD submarket is showing signs of tightening with rents finally starting to rise. We're optimistic that the surrounding suburban markets will soon experience some of the positive spillover effects from what is happening in the CBD.

In suburban Philadelphia, while economic terms remain competitive, there has been increased velocity in deal flow. Leasing velocity also remains strong in the Washington, DC/Maryland region. So generally, we're seeing positive signs that all bode well for recovery in our core office markets.

Now, I'll review some of our results and activities for the second quarter. Our TI and commission expenses were down slightly to $3.45 per square foot per year compared to last quarter's $3.53. Rent roll-down for the quarter was 1.7% compared to last quarter's 4.8%. As you can see from both the expenses and the rents, the economics of lease transactions remain quite competitive but I must say significantly improved from a year ago.

The bulk of the 2006 rollovers for us was in the first two quarters. So for the balance of the year, rollovers are now just 3% of base rent or $17.3 million. With the market activity we're seeing, we're confident that we'll be able to build up some occupancy throughout the remainder of the year.

During the second quarter, we completed our acquisition of The Gale Real Estate Services Company and interests in properties that include a 20 building office property portfolio in New Jersey, consisting of 2.8 million square feet. As I've mentioned before, the Gale transaction solidifies our position as the dominant landlord in New Jersey and increases our significant presence in vital submarkets, such as Parsippany, Roseland and Princeton. It also provides us with new opportunities for future growth through Gale's third-party services platform as well as through its very deep industry and corporate relationships. We are working to complete the integration of the Gale portfolio and Mark Yeager, President of Gale and a Mack-Cali Executive Vice President, has been doing a great job with the Gale team and its construction, facilities management, leasing and property management divisions. We've also acquired a minority interest from Stan Gale and his affiliates in several additional exciting projects, including a property under development at 100 Kimball Drive in Parsippany and Transit Village developments in Belmar and Newark.

Although we just closed the Gale transaction in May, we are already starting to reap some of the benefits of the Gale relationships. In June, we expanded our Northeast reach by entering the Boston market through a $53.5 million joint venture acquisition of seven suburban office buildings, totaling approximately 670,000 square feet. This transaction was the direct result of the Gale deal. Our joint venture is with a fund of JPMorgan and Gale International, which under the leadership of John Hynes in Boston, is a very significant presence in that market. Our joint venture will be investing over $4 million. We've already begun to upgrade this portfolio of seven assets, which was undermanaged under its previous owners. And so we see significant potential to add value as we lease up in a very strongly recovering market. We also expect to add additional growth opportunities in the Boston market out of the deep relationships that Stan Gale, John Hynes, and the Gale International team have throughout that marketplace.

In other activities during the quarter, we continued to reduce our holdings in non-core markets by, for example, selling our only asset in Dutchess County, New York. We sold 300 Westage Business Center in Fishkill, 118,000 square foot building that was approximately 85% leased for $15.1 million, representing a gain to the Company of $3.9 million. We also sold a flex property in Moorestown, New Jersey for $4.2 million to a tenant that had under its lease an option to purchase the building. This reflected in a gain to Mack-Cali of $1 million.

During the quarter, both Mack-Cali and its Gale GFS subsidiary were awarded with Office Building of the Year Awards from BOMA New Jersey. Frankly, we're honored to be recognized year after year for excellence in office property management and are of course pleased that our Gale subsidiary is recognized for operating with the same tenant-first, high-class asset philosophy.

We just also announced the acquisition of 395 West Passaic Street in Rochelle Park, New Jersey adjacent right on the Paramus border -- 100,000 square foot Class A office property for about $21 million. The building is adjacent to our Mack-Cali Centre IV and forms a campus with that asset, and it's close to a number of our other Mack-Cali properties. This is a very good strategic fit for our portfolio and allows us to further enhance our presence and concentration in Bergen County in the Paramus and Rochelle Park corridor.

Before I turn the call over to Barry, I wanted to make an announcement that we are moving to the completion of a transaction to sell our entire Colorado portfolio. The sale will include our 16 assets in the Denver and Colorado Springs market along with one tract of land. So this sale is very significant in that it will mark our complete exit of the Colorado and Denver market, which has clearly been a strategic objective of ours for some time. Now, I will turn the call over to Barry, who will review our financial results and activities for the quarter. Barry?

Thanks, Mitchell. Net income available to common shareholders for the second quarter of 2006 equaled $26.6 million or $0.43 a share versus 36 million or $0.58 a share for the same quarter last year. For the six months ended June 30, 2006, net income available to common shareholders amounted to $59.2 million or $0.95 a share as compared to 58.5 million or $0.95 a share for the same period last year. Funds from operations available to common shareholders for the quarter ended June 30, 2006 amounted to $74.4 million or $0.95 a share versus $71.4 million or $0.94 a share for the same quarter last year. For the six-month period ended June 30, 2006, funds from operations available to common shareholders was $155.2 million or $2.00 a share versus $138.5 million or $1.83 per share for the same period last year.

Our results for the quarter included three items of note. First, we received from a former tenant in our Denver portfolio approximately $2 million or $0.03 a share related to an old claim. Second, as a result of higher property operating expenses over the past year, particularly as it relates to energy costs, we collected and recognized $2.8 million or $0.04 a share in pass-throughs related to these costs. Third, we earned $1.3 million or $0.02 a share in commission income related to a large lease transaction we brokered at 95 Christopher Columbus Drive in Jersey City, a property we lease and manage. We completed our Gale Company acquisition a northern New Jersey real estate joint venture with SL Green in May.

Please note that the profit and loss statement that you see that we've recently filed reflects a few new line items first for construction services, real estate services as well as payroll reimbursements with related expenses relating from the Gale Company acquisition. The impact of the Gale Real Estate Services Company acquisition on the quarter was primarily -- you know the primary difference reflected in G&A was about $2 million. But the overall Gale Company acquisition and SL Green joint venture did not have a real meaningful effect on FFO for the quarter.

Included in other income in the quarter was approximately $1.3 million of lease term fees. This compares to about $3.4 million for the same quarter last year. And for the first six months of the year, we've had about $2.8 million of lease term fees as compared to $3.6 million of lease term fees in the same period in '05. Same-store net operating income which excludes lease termination fees on a GAAP basis increased by 1.9% for the second quarter of 2006 as compared to the second quarter of 2005 and for the six months decreased by 1.7%.

Same-store net operating income on a cash basis increased by 0.5% for the second quarter of '06 as compared to the same period in '05 -- for the six months, decreased by 3.9% compared to the same period in '05. Our same-store portfolio for the second quarter was 29.1 million square feet, which represents about 95% of our portfolio. Our unencumbered portfolio at quarter end totaled 251 properties, aggregating 26.2 million square feet of space, which represented about 85% of the portfolio.

At quarter end, our total undepreciated book assets equaled $5.4 billion, our debt to undepreciated asset ratio was 43.8% and debt to market cap was 39.6%. We had interest coverage of 3.2 times and fixed charge coverage of 2.7 times for the second quarter. For the six months ended June 30, '06, the Company had interest coverage of 3.4 times and fixed charge coverage of 2.9 times. We ended the quarter with approximately $2.4 billion in total debt, which had a weighted average interest rate of 6.08%.

Our funds from operations guidance range for the third quarter is $0.84 to $0.86 per share and for the full year of '06 is now $3.65 to $3.75 per share and is based on the following major assumptions. Our midpoint case assumes leasing activity of 1.1 million square feet for the remainder of -- for the last six months of the year versus scheduled lease expirations of about 700,000 feet. In addition, our midpoint also assumes no new acquisitions or sales other than the recently-announced 395 West Passaic transaction.

Please note that under SEC Regulation G concerning non-GAAP financial measures, such as FFO, 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 website at www.Mack-Cali.com or our supplemental package and earnings release, which include the information required by Reg G as well as our 10-Q. Now, Mike will cover our leasing activity. Mike?

At June 30, our consolidated properties were 90.7% leased compared to 90.4% at March 31. During the quarter, we signed 167 transactions, totaling more than 1.2 million square feet. The transactions reflect retention of 67.3% of expiring space for the quarter. Our rent rolled down on a cash basis, comparing outgoing rents plus escalations to first rents payable after ending concession period was 1.7%. This compares to 4.8% in the prior quarter.

Tenant improvement and leasing commission costs averaged $3.45 per square foot per year compared to $3.53 in the first quarter. The lease expirations for the year were heavily weighted in the first quarter and for the remainder of 2006 total only 716,000 square feet, representing 2.6% of leased space and 3% of annual rent. And roll over, it should be noted, is evenly distributed throughout our portfolio and not heavily concentrated in any one particular submarket. Further details on our leasing activity can be found in the supplemental package on our website.

Now to review what we're seeing in our markets. Our market information is provided by Cushman Wakefield and unless otherwise noted, we're going to discuss overall Class A vacancy rates and direct Class A average asking rents. Before discussing our markets surrounding New York City, I will start with a look at the very active Manhattan office market. Despite a slow start this year, Manhattan leasing activity took off in June with 3.2 million square feet leased, accelerating the trend toward lower vacancy rates that began in 2004. At the end of June, Midtown availabilities stood at 6.8%, a five year low and Class A rent reached its highest level in four years. Economic and employment growth forecasts lead to predictions that a rent spike may occur as the market tightens further, likely causing more companies to look to the suburbs for more affordable space.

In Westchester County, overall availability was 16.9%, which is up from 15.6% at March 31. The anticipated placement on the market of IBM's 1133 Westchester Avenue, a 600,000 square foot property in non-CBD White Plains skewed the market's absorption from positive to negative. Average asking rents increased modestly to $29.99. Sublease space decreased to 15% of overall availability. Mack-Cali's 4.8 million square feet of office and office flex properties were 96.1% leased at June 30.

In Fairfield County, conditions continued to improve, with availability decreasing 150 basis points to 15.5%. Sublease space as a percentage of total availability also declined to 23.8%. Average asking rents continued to move upward to $31.25, which is a $0.50 increase over the first quarter. Our Fairfield portfolio, which totals 852,000 square feet, was 86.5% leased at June 30th, virtually at the same level as March 31. There are no new office buildings under construction in either Westchester or Fairfield County. And in spite of some of the large block returns of space to the market, leasing activity in Westchester and Fairfield is up year-to-date over the same period last year. And prospective activity, including a number of larger, 100,000 plus users, indicate a region poised for a positive second half of year.

In the northern New Jersey market, availability increased 1 percentage point to 20.5%. Average asking rents are up $0.05 to $28.89, and sublease space as a percentage of overall availability crept upward from 24 to 27%. Looking at some of the largest submarkets in northern New Jersey, availability in the Bergen County submarket decreased just 10 basis points to 24.2%. Our Bergen properties were 93.9% leased, off from 95.4% in the prior quarter. In Morris County, availability increased by 90 basis points to 24.3%. The availability rate in the Parsippany submarket, where Mack-Cali owns over 2.6 million square feet, increased slightly to 15.2% in the second quarter. Our properties in the Parsippany submarket are 85% leased. Much of the inquiry we are saying is lateral moves and moderate expansion by pharmaceutical, financial and professional service firms within the submarket. This activity should produce modest absorption.

Hudson County availability rose this quarter from 16.4% to 18.5%, but we see an increase in stays inquiries, primarily from the financial services sector coming out of the tightening Manhattan markets. Mack-Cali's 4.3 million square feet in Jersey City is 94.7% leased. Overall, our 13.1 million square feet of space in the northern New Jersey region was 88.7% leased at June 30, off just 10 basis points from the prior quarter. There's just less than 0.5 million square feet of space under construction in this market, and that's divided between Morris and Bergen Counties.

The central New Jersey market again held steady. Overall availability was 19.4% at June 30, giving up 20 of the 60 basis points gained in the first quarter. Mack-Cali's 4.9 million square feet in central New Jersey was 89.8% leased, down just 10 basis points from the prior quarter. While competition for tenants within this market is still strong, some development has begun in the region. There is currently 840,000 square feet under construction and 167,000 square feet of completions year-to-date. As mentioned last quarter, the Princeton market has the predominant share of the development.

The suburban Philadelphia market improved after holding steady during the first quarter. Availability decreased from 19.3% at March 31 to 17.4% at the end of the second quarter. Average asking rents increased nearly $1 to $26.72. Mack-Cali suburban Philadelphia holdings totaled 3.6 million square feet, and the end of the quarter 91.4% leased. And this is up from 90.7% in the prior quarter.

Construction completions in Washington, DC outpaced Class A demand this quarter, driving availability from 9.7% to 11.2%. 5.1 million square feet of new construction is currently underway and 2.7 million square feet is planned. However, demand remains strong, keeping overall vacancy at near five year lows. Average asking rents declined by $0.89 to $46.54. And as we moved to the Maryland market, which is comprised of Montgomery and Prince George's County, we saw availability increase just 1 percentage point to 8.1%. Mack-Cali's 1.3 million square feet in the DC region were 89.2% leased at June 30, and this is up from 86.3% at the end of the first quarter.

We made progress at our Capital Office Park, 850,000 square feet complex in Greenbelt, Maryland which we acquired in the first quarter, increasing space leased from 84.7% to 86.2% during the second quarter. In our major markets outside the Northeast, suburban Denver availability improved again, closing the quarter at 13.4% compared to 14.1% at the end of March. Asking rents eased slightly to $19.78. San Francisco showed continued improvement as well with availability at 12.7% as of June 30. Asking rents also climbed, averaging $39.36, up over $3 from the end of the first quarter. Mack-Cali's holdings outside the Northeast sold 1.9 million square feet and were 93.6% leased at June 30. It was up 20 basis points from the prior quarter.

Overall, our Northeast markets saw a moderation in leasing activity for the quarter but year-to-date performance that was still better than 2005. New York City Midtown market strength has yet to noticeably drive increased demand in our suburban markets with the exception of Jersey City. As in past cycles, we do expect to pick up in the northern western suburban markets as rent in Midtown continues to rise and availabilities diminish. Mitch?

I'd just like to reiterate what I hope came across in my earlier comments. First of all, our primary markets appear to be gaining some momentum, strength, some leasing velocity and better fundamentals. We're confident also that the strategic moves we have made, particularly the Gale acquisition as well as our expansion into the Boston market, will prove over time to be very positive for our Company and for our future growth prospects. The impending sale of the Colorado portfolio is another important strategic step in the realignment of our portfolio pursuant to the commitments that we made to the marketplace a number of years ago. Now, with that, I would be happy to take your questions. Operator?

(Operator Instructions). David Cohen, Morgan Stanley.

Just first with a housekeeping issue. You talked about a couple of the onetime items during this quarter. Was a bunch of that in that payroll reimbursements line item? And what is that going to be going forward?

No, they were not in the payroll reimbursement line item. They were in the line items related to other primarily and escalation income.

So what is that payroll reimbursement? Is that just all part of the Gale?

Yes. It's part of the Gale Company. What happens is as part of the facilities management and property management and construction management, we actually have some direct charges for people that we have -- personnel that we have on our books and that we get reimbursed for and that's what you are seeing there.

So that's an ongoing --

Yes.

Just the Colorado asset sales, what is it that is allowing you to sell that now? Is it pricing or is it the fundamentals?

I think that there's a much better town evolving in the Colorado and Denver in particular marketplace. You know we've always talked about the quality of life being superior and then we needed to see the quality of the corporate life gaining some momentum. That's beginning to happen. Our team in Colorado has done a fabulous job in leasing up our portfolio and doing it in a way that ensures some long-term value with credit tenants. And so I tested the marketplace. I've tested it over a number -- over the last several years frankly, and I think the timing is now quite appropriate. I don't want to comment too much on the transaction until it is 100% complete, which I expect to be in the very near-term. But I can tell you that the transaction will reflect in a very suitable gain for Mack-Cali.

So, can you give a sense of just a range of where our cap rates are in the marketplace (multiple speakers) for your assets?

At this point, I would prefer not to make further comment on the transaction until it's done.

Just one last question before I yield the floor. The large lease at Harborside One that you said you might announce shortly, can you give us the timing of when that might start impacting your results? When does that lease come online? Then what rents are you expecting there?

We're certainly expecting our pro forma rents in that building -- those rents are -- actually, it exceeds our pro forma rents. It should be in the $27 gross range with about $10 in expenses plus or minus. So that gives you a sense of the net. It's got built-in increases on an annual basis, so it's a very favorable transaction. It should total somewhere in the aggregate of about 0.25 million feet -- 230,000 to 250,000 -- maybe as much as 300,000 feet depending on how this finally shakes out. My expectation is to hopefully get the transaction done within the next two weeks. And the commencement is kind of a rapid fire situation. The tenant really needs to be in occupancy by the end of the year. So it certainly will reflect our 2007 results.

And the TI is with that?

The TIs in that package is $40 a square foot.

So that would be high on a per year of lease basis?

It's a 15 year transaction.

John Guinee, Stifel Nicolaus.

Nice quarter, guys. A quick question. It looks like building improvements, you are increasing your run rate last year to this year about 70%. And it looks like you're heading on an annualized basis for base building improvements of maybe $0.30 a square foot and 8.5 million to $9 million. Is that appropriate?

I think it's hard to assess it that scientifically. I think we're seeing some seasonal aspects to the CapEx, some weather-related aspects to it as well frankly. I think it should normalize in terms of a run rate.

Michael Bilerman, Citigroup.

Jon Litt is on the phone with me as well. Just thinking about the Colorado sale, use of proceeds I guess is pay down debt?

Yes, that's right.

How do you think about the accretion dilution from--?

I have to tell you something. I mean again, I don't want to comment too much on it. But if there's any dilution, it's going to be negligible.

Then thinking about, Barry, just on the income statement, can you just break out -- you went through those three line items to 2.0 million, 2.8 million, 1.3 million . Can you just highlight where those are actually included -- those three on the income statement?

Sure. Let me just grab the income statement in front of me if you give me a second. In escalations and recoveries, we have the 2.8 million . In other income, we have the 2 million that we got on the fee and 1.3 million is also real estate services that we just commissioned.

And all of that is one time in nature so that won't be recurring?

They are not recurring. The only thing I would say is as it relates to the recoveries, we will see some element of recurrence to that. But what you saw is a bit of a bulking in this quarter.

Then thinking about your same-store NOI of 0.5 on a cash basis, if you strip out some of this income, where does that go to?

We basically pulled out these things that were non-recurring as it related to the properties themselves when we reported that stuff. So, it would be -- the number you see is not taking into account for this.

Is a real number.

Correct.

Then in terms of the guidance, you effectively lifted $0.10 at the midpoint. I guess it reflected the $0.09 you're talking about here.

Yes, we were $0.10 above top of our range for the quarter. You know there was $0.01 just better overall property operations, so your worth of $0.10.

Is it possible (multiple speakers)

Quarter.

Is it possible, just given it sounds like trends are accelerating a little bit faster than expected that you feel more comfortable towards the higher end?

No. At this point, we're comfortable certainly with the midpoint. We do expect potentially to have a little more of what we have just defined as this non-recurring income in connection with the possible expansion of the tenant that we received some commission income on. So certainly, that could help push it a little higher than the midpoint. We're beginning to see fundamental improvements. If we continue to see these trends reflected in our same store and our overall revenue stream, then we're a little more optimistic. But right now, so as not to lead anybody in a direction that's not sustainable, we're comfortable with the midpoint.

And my last question just on the Meadowlands, Mitch, if you can just give us an update. You talked previously about maybe even trying to exit that stake. Can you just tell us where you are today?

Where we are today is we have met with Mills. Mills is in the process of whatever they are in the process of doing. But as part of our meeting, KanAm participated. And I know that senior executives of Mills and KanAm spent some time in Munich over the last few weeks assessing the capital needs for the project. So I haven't gotten an update on that situation but the project continues. It's under construction. There are no defaults of any kind at this juncture.

There seems to be some positive momentum relative to leasing velocity as well as the potential -- a great deal of income that is reflected in naming rights and things of that nature, broadband capabilities for the entertainment and retail center. So it's kind of status quo at this juncture, but I would hope that certainly through over this quarter, we will have a clearer picture of what portends for at least Mills' role in the project.

[Stephen Rodriguez], Lehman Brothers.

Back to the Colorado disposition. You guys did not factor it into guidance, correct?

That is correct.

Is that mainly due because the timing? It could be an early '07 transaction or just because you don't include it until it's complete?

Yes, it's reflected in the midpoint of the guidance. But you know there will be more clarity on that as we move forward in the transaction.

On a different subject, on the potential build-to-suit in Harborside, you mentioned that it is potential and you're still in negotiations. But can you give some color on the potential tenant? Is this a tenant that is moving out of Midtown due to the excellent escalating rents trying to look for value over in New Jersey?

So as not to disadvantage our position in the transaction, I'm not going to define the tenant. But I will tell you that given the rents that are being realized in Midtown in particular and frankly the lack of availability of high quality space with large floor plates and the ability to really stack it in an efficient way, we're seeing at least a fair amount of space showings resulting from Midtown tenants that are looking for expansion. Again, it's too early to call whether we will make this deal. I'm certainly optimistic and hopeful. We're very competitive in this situation and we should know more pretty soon.

If that picks up further, just with more similar type transactions where we are going to have to keep escalating decreased space in Manhattan, would you possibly -- I mean in the future probably use your large land bank for spec development? Because I know you've been developing more for build-to-suit lately.

I don't think we would entertain spec development at this juncture. We would have to see a lot more fundamental improvement throughout the marketplace. But I can tell you that there was a large block of sublease space that was taken off the market as of yesterday. It was the last large remaining block of sublet space in the entire Jersey City Waterfront Class A office market. And so as a result of that, I have to believe that we are now going to experience some positive rent pressure and much greater tightening within the waterfront, provided we continue to see the demand that's been accelerating as a result of financial services -- among other types of corporate users that seem to be interested in the waterfront emanating from Midtown. I would only build a partial spec building if I saw all of that happening and we had somewhere in the neighborhood of 50% pre-leasing. So to build absolute spec at this juncture is not on the radar screen.

Last question on dividend coverage. You guys are about covered that I see with the CapEx increasing. Do you guys see yourself falling under and selling more assets to cover? Or do you see CapEx coming back down with a lower leasing?

Actually, we anticipate spending a total of about $75 million for the full year including building improvements and TI and leasing commissions. That's our projection. In the second quarter, it was heavily weighted. We spent about $21 million. We indicated that this would be about a breakeven year on cash flow plus or minus. Up to this point in time, we have been cash flow positive through what I would call the most difficult and turbulent times in the office market over the last five years post 911. So we are roughly on expectation it could swing either way, maybe 10 to 15% on CAD coverage. And then that's what we expected would occur throughout the course of 2006. And then I might add that our expectation in 2007 is a lower -- a much greater dividend coverage on CAD because we'll have to spend a good deal of money this year on some pretty large lease expirations.

Robert Hansen, Deutsche Bank.

G&A was up about 3 million over last quarter. So just to clarify, 2 million of that was from the Gale transaction?

That's right.

And the other million, what do you see going forward? What's a good run rate?

You know, it's kind of miscellaneous on a run rate of 30ish million. It's just miscellaneous items. Frankly, our G&A is being refined as we move forward because we can now take advantage of the economies of scale and the efficiencies and synergies that are evolving out of the Gale transaction.

In terms of the non-recurring stuff that the -- so you're not giving any guidance in terms of that stuff?

We've had a historical sort of a lease termination fee, which is pretty low in contrast or in comparison to our peer group. But you know specifically, the non-recurring items that loomed large -- that $2 million settlement situation and the 1.3 in commissions, it's hard to predict those types of income items going forward. But it seems one way or the other we always have some event where we do have some non-recurring income.

[Ian Hoistman], Merrill Lynch.

I was actually just dropping the call, so I apologize if this question has been asked and answered. But it was just announced that SL Green would be buying Reckson. I understand in the past, you guys have been interested parties in M&A transactions for different portfolios. Are there any markets which you are currently not operating in, including Long Island, that you might be interested in if a deal came your way?

Yes, the answer is clearly the Northeast Mid-Atlantic corridor is our focus. And so, certainly we would have interest in a M&A transaction. But we're very cognizant of operating the portfolio profitably, and so we continue to look at these situations. And if we find an M&A opportunity, even if it's in a new adjacent market, where we can have some level of market dominance or franchise dominance within an area, branding dominance, we would certainly look at it and try to take advantage of it. But at the end of the day, you've got to make money out of these deals. And what we've seen so far has just been too expensive. So we have stayed away from them.

Just again, I apologize if this was asked, but the Jersey City deal that you are currently working on for a potential build-to-suit -- in the past, you had said that there could be potentially two deals. I'm just wondering if that second deal has right now been shelved. The other question is is the challenge in getting Midtown tenants convincing them to come in across the river or is it just a question of negotiating rent at this point?

No, it's -- first of all, the second requirement has been quiet. It's still there but it's not as active as it was three or four or five months ago in terms of discussion. But we still have dialogue with them. And the challenge is -- New York City has been extremely aggressive in providing incentive programs and various economic packages to retain industries and vitality within Midtown. Now that the economic picture has changed there, I think that Jersey City can be much more attractive on an economic basis. I think that it's gained a tremendous amount of credibility, and so I don't think the river per se is a barrier any longer, given all the amenities that we've talked about on many calls in terms of the amount of housing and transportation infrastructure and hotels and restaurants and the permanent-type housing and condominiums and the caliber of tenants that exist along the Jersey City Waterfront -- premier companies.

So I don't think there are any barriers to crossing the river in that sense. And my expectation and hope, frankly, is that as the economy continues to purr along and as companies begin to add employment which they are doing right now, we're going to see more opportunity in Jersey City. Naturally, if you have a tenant in Midtown, you are going to try to do whatever you can do to retain them because it's always less costly to keep a tenant than to replace them. But there is such a euphoric atmosphere in Midtown now and such a rapid rise in rents that for the first time over the last few months in a very long time, we're seeing companies -- that even I would not have imagined would really consider making a move for a variety of reasons and strategic reasons -- are really very seriously considering the waterfront right now.

At this time, we currently have no further questions.

I want to thank everyone for joining us on today's call. We certainly look forward to reporting to you again next quarter. I would certainly ask that you stay focused on upcoming events relative to the impending sale of Colorado when we will be able to provide fully all of the details on that transaction as well as clarity on some of the Jersey City transactions that we alluded to in this call. Again, thank you very much and have a good day.

Thank you everyone for joining the Mack-Cali Realty Corporation second-quarter 2006 conference call. Today's call has concluded. You may now disconnect.