Veris Residential Inc (VRE) 2006 Q4 法說會逐字稿

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

Good morning, and thank you all for joining Mack-Cali's fourth quarter 2006 earnings conference call, as well as our year-end report. 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 would like to review some of our results and activities for the quarter, what we're seeing in our markets, and some of our new activities. And then Barry will review our financial results, and Mike will give you an update on our markets and the leasing results.

FFO for the quarter came in at $0.87 per share, compared to $0.86 per share for the fourth quarter 2005. I'm happy to report that our occupancies increased 60 basis points, now to 92% leased in the fourth quarter, compared to last quarter's 91.4%. While this increase was due entirely to positive absorption, I must tell you that we continue to see a challenging leasing environment. The markets remain competitive, and deals are still taking an extraordinarily long period of time to complete. With the exception of a few submarkets, such as the Jersey City Waterfront and White Plains CBD near the train station, demand has not increased enough to generate overall positive absorption or give us the ability to put positive pressure on our rents. However, having said that, during the quarter, we leased almost 1.5 million square feet of space due to the outstanding efforts of our leasing teams.

In Hudson County, our team lead by Vice President Chris DeLorenzo, accomplished several significant transactions. Merrill Lynch's 237,000 square foot renewal and expansion at our trophy 101 Hudson Street in Jersey City, E-Trade's new 107,000 square foot lease at Harborside in Jersey City, a very complex transaction. In Morris and Monmouth Counties, our team, lead by Vice President Diane Chayes, also accomplished significant transactions.

A brand new 108,000 square foot lease at Kemble Plaza II with Louis Berger, leases totaling over 116,000 square feet with High Point Safety and Insurance at buildings in Red Bank and Monmouth County, and Parsippany in Morris County, and as well, the Wyndham lease that we just announced this morning for build to suits, and I'll talk more about that in a moment. And so I do want to recognize the efforts of our teams, as well our Onsford team, lead by Jeff Warner, and our southern region lead by John Adderly.

We did have a rent rollup in the quarter of 2.1%. Frankly, our first rollup in over four years. And this compares favorably to our last quarter's 1.1% rolldown. And so the markets do at least reflect the fact that there are some stabilizing impacts. Our TI and commission expenses were $2.88 per square foot per year, down from last quarter's $3.45, obviously a good trend. However, despite these improved numbers, the economics of lease transactions remains very competitive, and as long as the market vacancies hover in the mid-teen range to even slightly more in some instances, this won't change. For 2007, rollovers are 7.8% of base rent, or approximately $44 million, and so we continue to make progress in reducing the rollover exposure to the income stream of the Company.

Our fourth quarter was highlighted by the completion of our exit of our remaining western markets, our strategic goal announced in September of 2000. We completed the sale of both our 19-building Colorado portfolio with some vacant land for $194.5 million, an excellent trade for the Company. As well, we sold our two San Francisco buildings for $126 million, and our joint venture interests in another San Francisco property, valued at $82 million, and so all of these sales were profitable sales for the Company. The sale of our Denver and San Francisco portfolios now represents a significant milestone for Mack-Cali. It's the final step along the way of the strategic plan to focus our efforts on the Northeast Corridor and the mid-Atlantic regions.

During the quarter, we also sold our interest in the infamous retail component at Meadowlands Xanadu, the ERC as it were. We were able to achieve a result for the Company that I consider to be extremely favorable. We maintained virtually all of our optionality to develop roughly 2 million square feet of office, and a 520-room hotel when and as we choose to do so, for consideration totaling approximately $25 million. And we no longer have any involvement in the entertainment and retail center at Xanadu.

And further refining our portfolio, we contributed the third-party facilities management operations, formerly known as Gale GFS, to a new partnership with Newmark Knight Frank, now called Newmark Knight Frank GMS, Global Management Services. We have a 40% interest in this partnership, and we believe firmly that the affiliation with Newmark will provide this management business with a much larger sphere of opportunities going forward, as well as create a good strategic alliance with a very prolific commercial real estate broker doing business throughout the region.

We continue to pursue growth opportunities resulting from the Gale transaction and through the Gale relationships. We co-ventured with Gale International, John Hynes and Stan Gale, on its joint venture investment with Vornado Realty on the Filene's Basement mixed-use redevelopment project in Boston, Massachusetts, a signature new redevelopment -- historic redevelopment where we intend to construct a tower together with Vornado and Gale International, and our new partner, JPMorgan Asset Management, totaling approximate 1.3 million square feet in mixed-use venues. So far, we've closed on the land together with our partners, the land totaling approximately $100 million, and Mack-Cali, through our new Newmark GMS group will have management responsibility for the office tower, which will total about 600,000 square feet in the future.

Our Gale subsidiary also partnered with Praedium to acquire One Newark Center, a 22-story, 625,000 square foot class A tower in downtown Newark right at the train station at Gateway. With this acquisition, we were able to make a minimal capital investment, sub $1 million, acquire a 3-plus or minus percent interest in the ownership, maintain all of the leasing and management functions within the building, acquire the development rights to a pad next door to develop a new tower of 600,000 square feet. And as the future of Newark, New Jersey brightens, particularly in these great transit hub areas, through our Gale subsidiary, we'll now be a part of it.

Just a few weeks ago we successfully completed a public offering of common stock, selling 4.65 million shares, and generating net proceeds of over a quarter of a billion dollars. We're very proud of this execution. It was our first equity offering in the public markets in almost nine years. We also belief that it demonstrates the confidence of the investment community in the future of this great Company.

I'm happy to announce, and I mentioned it briefly a moment about, that we have just entered in to an agreement with Wyndham Worldwide to build it's corporate headquarters facility at our Mack-Cali business campus in Parsippany, New Jersey. As you see in the release, Wyndham has preleased 250,000 square feet in a to-be-build, class A building. The lease term is 15 years. It also integrates with Wyndham's existing occupancy and another premier asset of ours, 7 Sylvan, another 146,000 square feet. And so this not only demonstrates the confidence that a major world class tenant has in Mack-Cali in our development platform, but it also puts to work some land inventory in our campus in one of the most highly barrier-constrained areas in the state of New Jersey.

So to conclude, with the exits of our Western markets now complete, we're now fully focused on opportunities along the East Coast. Our reach now extends up in to Boston, and we are exploring and examining opportunities and structures within markets, both existing and adjacent to existing, within this region from Washington to Boston. We feel that with our balance sheet and our talent pool, we are now very well positioned to capitalize on strategic growth opportunities. And with that, I'll now turn the call over to Barry, who will review our financial results and activities for the quarter.

Thanks, Mitchell. Net income available to common shareholders for the fourth quarter of 2006 was $67.4 million, or $1.07 a share, versus $14.4 million or $0.23 a share for the same quarter last year. Included in these results for the quarter was $65.5 million, or $0.84 a share of gains resulting from the sale of our holdings in Colorado and California. These gains are not included in funds from operations.

For the year ended December 31, 2006, net income available to common shareholders was $142.7 million, or $2.28 a share, as compared to $93.5 million or $1.51 per share in '05. Funds from operations available to common shareholders for the quarter amounted to $68.2 million or $0.87 a share, versus $65.1 million or $0.86 a share in 2005. For the full year '06, FFO available to common shareholders was $290.5 million or $3.73 a share, versus $270.3 million or $3.57 a share in '05.

Other income in the quarter included approximately $3.8 million in lease termination fees. The fourth quarter of 2005 had lease termination fees of $1.3 million. For the full year of '06, our termination fees totaled $6.9 million, and for the full year of '05, they were $8.3 million. Same-store net operating income, which excludes lease termination fees on a GAAP basis, increased by 2.9% for the fourth quarter of '06, as compared to the same period in '05. This increase is primarily due to lower costs as the result of the warmer weather -- costs for utilities, snow removal, and the like which we didn't experience in '06, but had in '05. For the full year of '06, same-store increased by 0.6% over '05. Same-store net operating income on a cash basis increased by 5.6% for the fourth quarter, as compared to the same period in '05, and for the full year in -- of '06, it decreased by .4% as compared to the same period in -- for the full year of '05. Our same-store portfolio for the fourth quarter was 27.4 million square feet, which represents about 95% of the portfolio.

Our unincumbered portfolio at quarter-end totalled 236 properties aggregating 24.8 million square feet of space, which represents about 86% of the portfolio. At quarter-end, we had total undepreciated book assets equal to $5.2 billion, and our debt to undepreciated asset ratio was 41.4%, and debt to market cap ratio was 35%. We had interest coverage of 2.9 times and fixed charge coverage of 2.5 times for the fourth quarter, and for the full year of '06, we had interest coverage of 3.1 times and fixed charge coverage of 2.7 times. We ended the quarter and the year with about $2.2 billion in debt, which had a weighted average interest rate of 6.11%.

We are affirming our 2007 full-year guidance range of 3. -- $3.38 to $3.54 per share. The mid-point assumes no significant acquisitions or sales other than reinvestment of about -- of some 1031 proceeds of about $76 million sometime midyear, and includes our recent 4.65 million share equity offering. Please note that under SEC 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 website at www.mack-cali.com are our supplemental package and earnings release, which includes the information required by Reg G as well as our 10-K.

Now Mike will cover our leasing activity. Michael?

Thanks, Barry. To recap our year-end, at year-end, our consolidated portfolio was 92% leased, compared to 91.4% in the prior quarter, and up 100 basis points from 91% at the end of '05. We signed 167 transactions, totaling nearly 1.5 million square feet in the fourth quarter, and retained 69.6% of outgoing space. Our retention for the year was 67.8%.

For the fourth quarter, we posted a rent rollup of 2.1% on a cash basis, comparing first rents payable after any concession period without outgoing rents including escalations. This contrasts with a rent rolldown of 1.1% in the third quarter, and .2% rolldown for the full year. Lease expenditures averaged $2.88 per square foot per year, compared with $3.45 in the prior quarter, and $3.23 for the full year. Lease expirations for 2007 comprise 2.1 million square feet, which represents 8% of our leased space and about 7.8% of annual rent. Further details and a by-market break down of our leasing transaction activity can be found in the supplemental package on our website.

Taking a look at market conditions, we're using information provided by Cushman & Wakefield, and unless otherwise noted, I'll cite overall class A vacancy rates and direct class A average asking rents. Before discussing activity in our New York City suburban markets, I'll briefly review the dynamics in Manhattan.

Midtown, midtown south, and downtown all ended the year with vacancy rates between 5% and 7%, moderate to significant reductions from already tight levels in the third quarter. Leasing activity for the year slowed in midtown south, but was up moderately at midtown, and up a dramatic 64% downtown. There are no new construction deliveries scheduled in the next few years, and continued strong demand has created a diminishing amount of available space, which in turn, steadily pushing rents higher. Other than Jersey City, we have yet to see much spillover from Manhattan into our markets. But the city's continued tightening makes the suburbs an increasingly attractive option for New York City businesses looking to expand or cut costs.

In Westchester County, availability stayed constant at 18%. Strong leasing activity was offset by a returned space to a sublease market which totaled over 800,000 square feet. Asking rents are $31, and this was up 6% from the end of '05. Fairfield County, availability edged up to 14.9% due to several announced corporate moves and reductions. However, the market remains active, and average asking rents increased slightly to $31.73. There's only one noteworthy project under construction in either Westchester or Fairfield County. It's a 158,000 square foot building in Fairfield Eastern submarket, and this is due for completion in early '08.

Solid leasing activity continued in northern New Jersey, with availability increasing over a [4] percentage point to 17.4%. Average asking rents remain unchanged at $29.04. Looking briefly at our major northern New Jersey submarkets, [inaudible] County vacancy dropped 23.1% in the fourth quarter, and asking rents are $29.67. Morris County, vacancy decreased to 23.2%, and asking rents fell to $27.93 . Despite over 1.5 million square feet of leasing activity in 2006, the county still has to absorb a fair amount of space to generate noticeable improvement in the leasing fundamentals.

Hudson County vacancy declined 200 basis points this quarter to 14%, and asking rents remain relatively unchanged at around $32.40. Hudson County vacancy fell a total of 450 basis points in 2006, and subleased space on the Hudson Waterfront declined from 61% of availability at the end of '05 to 46% at the end of '06. In central New Jersey, availability rose 60 basis points to 19.7%, while asking rents increased slightly to $29.45. As discussed last quarter, while construction activity in northern and central New Jersey is fairly brisk, relative to recent years, the 750,000 square feet of unleased space scheduled to delivery represents less than .5% of existing inventory.

Suburban Philadelphia market stats stayed nearly constant in the fourth quarter, availability edged down to 16.3%. Asking rents were virtually flat at $26.41. Restrained new construction and continued improvement in the Philadelphia regional economy resulted in positive absorption and steadily improving fundamentals over the past eight consecutive quarters. The Washington DC market tightened further. Availability declined 8.8% at year-end. Average asking rents increased to $47.63. In suburban Maryland, availability increased slightly to 8.4%, and average asking rents are at $28.22.

So for the fourth quarter of 2006, it clearly punctuated a year of steady occupancy gains in most of our markets. Continued corporate consolidations and some construction deliveries held others at close to year prior occupancy levels. In our own portfolio, we saw the greatest occupancy gains during the year in northern New Jersey, attributable in large part to the significant absorption at Harborside Financial Center in Jersey City, and at Kemble Plaza in Morris Township. We saw modest occupancy increases throughout the rest of our properties, with the exception of suburban Philly where the expiration of a 70,000 pharmaceutical firm lease was only partly mitigated by some positive absorption at some of the other buildings in our portfolio.

Overall, we experienced increased space showings in our New Jersey and New York portfolios last year compared to '05, and the New Jersey submarkets closest to the city were particularly active. Lead volume was up almost 20% in Bergen and Hudson Counties. While tenants are out there looking for space, the primary source of leasing value remains companies making intramarket and lateral moves. We have seen only a small percentage of expansion resulting in little absorption relative to the leasing volume.

Looking at a few other fundamentals in our transactions, we saw a drop in free rent during 2006. As Mitch mentioned, our fourth quarter rent rollup of 2.1% is encouraging, but our markets are still very competitive, and we do anticipate only marginal improvements in rent growth during 2007. Although our fourth quarter leasing costs of $2.88 per share foot per year are the lowest we've seen since the first quarter of '05, we expect continued challenges on this metric in the coming year as well. It's unlikely you'll see costs come down consistently until there's further sustained improvement on markets, but as usual, we're continuing to push and keep these numbers as low as the market will bare.

Due to our proactivity lease renewal program, which Mitch instituted years ago, we reduced our '07 expirations from 10% of leased space at the end of '05 to a manageable 8% at year-end '06. Approximately 40% of net space, or 815,000 square feet, is located in northern New Jersey, our largest block is at 101 Hudson Street in New Jersey. Central New Jersey expirations represent only 8% of rollover, suburban Philadelphia square feet represents about 18% of our expiring space, 17% of our rollover is located in Westchester County, and about 12% of our expirations are located in the suburban Maryland market. The remaining 5% are contained in our Fairfield County, Connecticut, and Rockingland County, New York properties. Our leasing teams are doing a great job at keeping our properties well leased, and overall, our portfolio continues to outperform its markets. We saw modest occupancy increases in 2006, and we expect greater improvement going forward, once we see an increase in activity from either the New York City relocations or the sustained job growth in our core markets and the accompanying business expansions that should follow. Mitch?

Thank you, Mike. Before we open the lines to your questions, I would just like to make a few points. Number 1, as you've seen in the press release that we issued today, the Company expressed comfort with a range for our 2007 guidance. That range is $3.38 to $3.54, and I know that some of you will probably ask why there's such a wide range in the guidance, but we don't think that at this point early in the year, we are able to refine that more specifically, and also feel that it's quite consistent with industry trends in terms of the parameters for guidance range.

With respect to cash, which is all near and dear to our hearts, I would like to report that the CAD payout ratio for 2006 actually was a fair bit better than we contemplated and discussed earlier in the year. It ended up at about 106.4%. We had talked earlier in the year about a higher CAD payout range to achieve a stronger leasing velocity. And so to kind of cut through it, we were able to build our occupancy by 100 basis points in markets that you've heard are continuing to be challenging with respect to concessions and the inability to apply positive rent pressure. But notwithstanding that fact, we were nimble enough, and our teams were talented and creative enough, to build that occupancy, and yet do so at a fairly low cost.

Moving forward in 2007, it's our expectation that we will continue to build occupancy as markets firm, as we see the spill-over effects from Manhattan, as we continue to see stabilizing effects within industries that have long been the engine of growth within some of our core markets, such as telecommunications and pharmaceuticals and life sciences. And so we expect that based on our early analysis, that we'll build occupancy by at least another 50 basis points throughout the year, and that we anticipate spending close to $100 million to get there, between all of the adjustments that are made for CAD, as well as spending about $80 million on capital for both tenant improvements and building capital, and that would put us somewhere in the range of about 113% CAD payout ratio. And then it's our firm believe that the markets by that point in time throughout the year of 2007 will have firmed sufficiently, inventory and availability will be tight enough to be able to reflect in positive rent pressure. And so given the stabilization that we've seen as evidenced by our same-store results and our -- and finally being able to actually move rents in a -- move our NOI in a positive direction, we do expect improvement throughout the year 2007, and then much more improvement in the ensuing years. And so with that, I would now like to open the floor to your questions. Operator?

[OPERATOR INSTRUCTIONS]. And we will take our first question from Michael Bilerman with Citigroup.

Hey, guys John Litt's on the phone with me as well. Mitch, you talked about strategic growth opportunities and looking at different structures in markets that were adjacent to your existing markets. What is sort of your appetite in coming into Manhattan?

We clearly would like to obtain a presence in Manhattan, and we are looking at different opportunity sets that might be available to us in different structures and potential joint venture structures as well. We didn't feel it was in any way appropriate for us to serious look at, for example, the EOP portfolio, because it clearly is negative leverage, and that -- to come into Manhattan in a value-added mind set is what we're looking to do as well as to build a team within the city.

What sort of size are we talking about in terms of these opportunities? Particularly your coming into Manhattan?

Well, I think we clearly would look to have a program -- a programmed approach, where over a period of time, we would potential invest on an absolute basis as much as $1 billion in a number of assets. However, I think first of all, we would have a joint venture structure. We would employ an appropriate level of leverage at debt, and we would limit the actual equity or capital investment on the part of Mack-Cali. We are looking at some things now. It's too early, in this world, to tell you that the're anything more than explorations.

And the billion dollars, that would be your equity commitment, or are you thinking about $1 billion of transactions?

Yes, $1 billion of transactions over time.

And you would do it in joint venture structures where you would be a majority or a minority partner?

I would say that we would be, for all intents and purposes, and not opining legally, we would be an equal partner.

Is there a preference on uptown or downtown?

Well, I'll tell you, we -- right now, I think the opportunity set on the avenues in midtown are clearly limited, as we've seen through these various trades, and the appetite and pension of private equity to go after them. You really have to have a conviction that not only is the current rent rate environment sustainable, but that in order to grow out of the negative leverage that's it's going to further expand, and we're not qualified to make that assessment. We don't have a crystal ball. A lot of the talented operators within Manhattan are scratching their heads about the rent rate environment. Given that situation, I think that clearly downtown is of interest. The velocity of improvement there has been significant, and the -- not only the decline in vacancy, but the fairly rapid increase in rents, and the limited amount of inventory, and so that's of interest to us at this point.

And you don't think there will be a negative carry in downtown?

I think that if you structure it right, yes, on a short-term basis, there might some negative leverage, but you -- I think the ability to quantify the abilities grow out of that into a positive leverage effect, and to exceed your cost of funds, obviously, and to have some management leverage as well in terms of fee income and promoted structures, I think it's much more attainable at this moment in time downtown.

Was that part of your thinking in joining the group to bid on [inaudible]?

Yes, the -- it was an opportunity for us to get into Manhattan. Clearly, the deal was cut up at that time, 50% Mack-Cali, and 50% to the McClough Icon interest. We would have blended and consolidated the ownership of all of the properties, including Manhattan, so it would have been a good way for us to enter the city. But obviously that didn't happen, so we're looking at other avenues, and we're hopeful that we can put something together.

Was there any dead deal costs in G&A? Your G&A looked like it went up --

We spent maybe $200,000-$250,000 dollars total on that entire situation, and that's probably on the high side.

And I guess thinking about the balance sheet, you talked about how the balance sheet's in great shape after the sales and the equity. I guess your leverage is now down from the low 30s up from the high 30s last quarter. How much of that capacity -- where do you sort of view your sort of targeted leverage ratio? And at what point will you get there in terms of reinvesting and releveraging the balance sheet?

Well, I think our target has always been in the low-- in the 40 to low 40% range. We're quite comfortable, and obviously, we well exceed all of our covenants, both with respect to credit facilities and our debt covenants under the rating agencies. So we're -- the equity offering, while initially minimally dilutive because of the low cost of debt versus the all-in cost of equity, so to speak, very minimally dilutive until we put those funds to work, does rebalance the balance sheet in terms of as you have just stated, really reducing the debt to market cap, and the debt to equity. But we're going to put it to work, and we're going to rebuild the leverage to that low 40 percentile range.

What does your guidance assume in terms of investment of capital, then, for this year?

The guidance, as was stated, only assumes that we're investing less than $100 million -- $76 million. So if we are creative enough and fortunate enough to seize upon a number of these opportunities, we'll put a lot more than $76 million to work, and we'll do well.

My final question, just on other income. Barry, you touched on $3.8 million of lease-turn fees. That was the balance made up of, and can you give us some sense of what that line item is in '07?

The balance is made up of somewhat of a bit of hodgepodge of different things. It's all the income from things like changing light bulbs in tenant space to some tenant extra work that we do, and whatever income we earn from various different things around the properties. I would say to you that that number is probably estimated at the midpoint today in our guidance at about $2 million a quarter going forward.

In totality for other income?

For other income. And again, it really moves -- the dramatic moves you see up and down in there are principally around lease termination -- large lease termination fees.

Now that would be half of what you've earned in '05 and '06?

Yes, if you look at '05 and '06, it would be -- some of those numbers have now been somewhat rebalanced because some of the lease -- some of the amounts that we previously had earned from property management fees and what have you, have moved in the line items as a result of us recategorizing our P&L around the Gale transaction. So for example, where we did third-party property management, it used to be included in out-parking and other income, it's now been broken out going forward.

Okay. Thank you.

And our next question comes from Ross Nussbaum with Banc of America.

Hi, guys, good morning. Couple of questions. First on the office space that's rolling in 2007, looks like the average rent's $23.65. Is it safe to assume that the spreads are going to be roughly what we saw in the last -- in the last quarter?

Yes, I think that we have essentially marked the portfolio to market at this juncture, Ross.

Okay. And with respect to your comments on the filings building in Boston, what is Mack-Cali's ownership position there? How much capital are you going to be investing in total?

We expect to invest somewhere in the range of $21 million in total for the project. We have a 50% ownership interest. Vornado has a 50% owner interest, and our interest is 70/30 with JPMorgan Asset Management. Our 50%.

But your pro rata share's 21, or 50% of 21?

No, our pro rata share is 21. The expected cost of the project is plus and minus $625 million, and right now the anticipated equity from each side is $70 million for each 50% interest, and we're 30% of that 70.

Okay. Along same lines of Michael and John's questions, you previously talked about Boston as a potential expansion market. Are you looking up there right now? Are you looking at and of the EOP assets?

We are looking up there right now. We are not looking at the EOP assets. Right now, other than the wharf EOP, the EOP assets are not really being sold. We're just talking about one development site at present time.

That's what we have heard as well. Okay. Final question is on G&A, just following up on Michael's question. Barry, did you give a run rate for where you think G&A was going to be in '07? Because it did spike up in the fourth quarter.

We haven't, but I would tell you that our estimate today is about $52 million of G&A for full year.

Which isn't that all different from '06. Was there anything one time in nature in the fourth quarter?

No. It's -- there wasn't really -- we pay -- do some compensation-related things in the fourth quarter, and that's principally what happened related to those kinds of things. And it typically is what you have if you go back the other fourth quarters, it's what happens every year.

Okay. Thank you.

You're welcome.

Next we'll hear from Jordan Sadler with KeyBanc Capital Markets.

Good morning. Could you give us the status of bringing a significant tenant over into Jersey City -- or actually -- and maybe opine on what vacancy is specifically in Jersey City as opposed to Hudson County as direct and subleased?

Yes, most of the vacancy in Jersey City is, at this juncture, the result of subleased space, and it's not in major blocks. Much of the large blocks have been taken back. There's approximately -- the numbers vary depending on what you are looking at. But there's about 890,000 square feet of subleased space available along the waterfront out of a total vacancy of 1.1 million square feet. So you can see the vast majority is sublet space, which always has issues surrounding it. What we're looking at in Jersey City, aside from releasing some minor amounts of space, given the magnitude of the market in 101 Hudson Street, basically are several Build-To-Suit opportunities. Those are New York City tenants. I can't tell you whether they will land, number 1, and whether they will land in Jersey City. But we have had discussions for some period of time with several tenants -- prospective tenants for new developments in Jersey City.

Is it expected that Viacom would come downtown -- excuse me, would come to Jersey City? I know they talked about moving some of their space downtown.

Well it's a one of -- well, the move downtown, as I understand it, on Hudson is pretty much unrelated to the strategic realignment of their occupancy that currently exists in 1515 Broadway. They are still examining their options. I mean we all read the papers. They have gone through some serious changes recently in terms of employee count, et cetera, in several of their divisions. So I would imagine that cost of occupancy is something that's fairly important to them. And when you are looking at new development in midtown, requiring a rent of $100 a square foot, give or take, and that same high quality new development in Jersey City of equal quality, if not greater, requiring a rent in the low $40 range, these companies have to give some pretty serious attention to it, particularly for parts of their work force that don't need a presence on the avenue in the Americas. So we're cautiously optimistic that something will spur a development opportunity at Harborside. The important thing is that we can get in the ground immediately. We have all of our permits and approvals. We have plans done for three towers at Harborside. So we can essentially pull the trigger on any of them. We can deliver a building, assuming it's a million square foot building in 30 months, which far surpasses the ability to deliver any inventory in Manhattan, downtown or midtown. And we have a balance sheet sufficient where we can fund that development immediately out of our own funds, so wait and see and hopefully, it will work out for us.

Okay. On the Merrill Lynch space that's rolling at 101, what is the date on that, and what do you think happens with that 250,000 feet?

Well, it's more than that. It's about 275,000 feet that's yet unclear as to what happens. The current expiration is 3/31/07 on that space. We have a number of very, very interested tenants, in addition to Merrill Lynch, in terms of taking back some of the space that they thought they would relinquish. So I'm pretty confident that that block of space is going to be dealt with very soon.

But they wouldn't have had to give you notice if they were vacating?

Yes, they don't have any rights to it, but we have a great relationship, and they have come back and expressed strong interest in taking back a significant portion of that vacancy. They do also understand, because the walls have ears, that there are a number of very interested tenants that -- they are going to have to move very quickly at this point.

Okay. And then just following up on the New York question, you talked about being an equal partner for, I guess, in terms of economics, it sounded like. Would you be more of strategic partner would you say, or a financial partner?

No -- if in fact we do enter New York City, we will do so with an operating platform under the Mack-Cali monicker. We would not be passive.

So you would be the operator and manager, and there would be a capital partner?

Yes, well we'll also put capital into it obviously, but there will be -- a significant amount of the capital will be other people's money.

Okay. And what was the expected cost in yield on the Wyndham Build-To-Suit?

Well, we haven't really declared that, but suffice it to say that the going in yield on a triple net, no exposure basis will be roughly 8.5% free and clear.

Okay. Great. Thank you.

You're very welcome.

[OPERATOR INSTRUCTIONS]. And we will take our next question from John Guinee with Stifel.

Hi, John Guinee here. A couple things. Mitchell, you have the ability to raise -- or to issue $2.5 billion worth of debt and still be below 50% debt to total market cap. So what was the philosophy while being at 35% debt to total market cap to raise common shares?

Well, I'm not sure that I totally concur with the numbers. We had outstanding -- about $2.4 billion in total debt, and we had -- we saw an opportunity, because we believe over the next, what I will call a period of time, we're going to have some investment opportunities to raise common equity in the public markets at a fairly favorable pricing level, where the cost of raising that equity was roughly, on a par, with the cost of carrying a similar amount of debt on an interest rate -- an absolutely interest rate basis. Our FFO yield, when we raised the equity, was approximately -- hovering between 6.2% and 6.3%. Our cost of funds on our credit facility -- and we have a pretty efficient credit facility, was 5.9%. And so we felt, given the spread in those costs of funds, if you will, it was an appropriate time, given, again, what we see in the future -- in the not too distant future, as an opportunity set to accept that minimal dilution of something like 6/10th of a percent as a maximum, and issue the equity. So I don't necessarily correlate the two issues as you do, the debt and the equity. But that's just one man's opinion.

Okay. Interesting. Second question, in order to really benefit from the relocations at -- and one has to have B plus the product beyond transportation. Excluding Jersey City, what percentage of your northern New Jersey, Westchester County negative portfolio rate, B plus the better portfolio, and on -- [technical difficulties].

Well, first of all, yes, I guess none of it is B plus. It's all class A. And as far as being on transit hubs, yes, certainly White Plains is right at the train station, so 50 Main, 11 Martene, but the nature of transportation is going through a change. We have optionality, for example, at the Meadowlands, next to that project Xanadu, where we can build 2 million feet of office, and they are in the process of building a passenger rail line right through the site that will have a train station within minutes, walking distance of the entrance to all of our future office buildings. So I think we're keeping pace with the infrastructure development and improvement that's occurring. You now have light rail that moves you along the Waterfront, and I know you said outside of Jersey City. So I think that we are looking to the future. The properties in Newark, one of the reasons we invested in 1 Newark Center was because number 1, is on the train right at Penn Station. It is all walkway systems there, all enclosed walkway systems generally through Gateway, and we have the option to build 600,000 square feet right next to 1 Newark Center. which by the way, also houses Seton Hall's Law School. We also have the ability and the option to development mixed-use development at the Broad Street Train Station in Newark, which just opened a light rail service about six months ago, extending from Broad Street, which is right near Route 280, to Gateway. And that's the old Westinghouse site that we have the ability through the Gale acquisition to be the developer of, and that can be housing as well as commercial properties. So some of our properties are highway centric, because they are suburban communities that are at the crossroads of the major highway systems that traverse New Jersey and Westchester and Philadelphia. And some of them are more centric to transit hubs. So I don't know how else to answer that question.

Thank you.

You're welcome.

Next we'll hear from Michael Knott with Green Street Advisors.

Good morning, guys. I wondering, Mitchell, if you could just address the Mark Yeager direct pay arrangement with Stan Gale that we saw in the 10-K this morning?

Sure. That agreement was entered into in December between Stan and Mark. It involved Mark's participation in projects that were fermenting for long period of time under his stewardship on a day-to-day basis of the Gale Company. There was no agreement in place until December, and so he, obviously, we became aware of it. We filled out the appropriate filings and we've put it in to our public filing as soon as their agreement was done, and we were made aware of it. So it represents many years of effort that Mark has had at the Gale Company to try to create value first for Stan Gale, and now ultimately creating what we hope is a significant value for Mack-Cali. It's all transparent, and it's all out there in the public filings.

Okay. Thank you.

You're welcome.

One other question. Sorry. Can you just address cap rates in your market? EOP didn't have any presence there, so we haven't seen any [inaudible] like we have seen in other markets. So opine on your capture rates in your primary markets?

Yes, I think again it varies submarket-- submarket I think the Waterfront is a 5 to 6 cap rate environment right now for the quality assets that we own down there. So I consider the things that we have done to be highly accretive. You recall that it was just two years ago this month that we closed on 101 Hudson Street, and that was about a 7% cap rate, $262 a foot. So the markets have moved dramatically. As far as the suburban markets are concerned, I think that the environment is a 7% to 8% environment. And I'll be very frank will you. There have been some portfolios that have come to market that haven't garnered a huge level of interest, because it's been a pot puree of different asset quality within the suburban markets, and different income stream quality relative to the nature of the leases and the types of the tenants. So I think there's been, certainly, more discerning and distinguishing valuations in the suburban markets than there have been in many of the 24/7 coastal cities, as it's now referred to, where there's a huge amount of capital being thrown at every availability of, sort of core asset base. So some of the trades in the suburban markets that have been brokered and marketed haven't been consummated because the sellers didn't get their numbers, or what they anticipated they would get.

And Mitchell, it sounds like a 7% to 8% initial yield in some of the suburban markets would vest a little bit higher total return, higher expectation that I would have guessed, given that it sounds like you expect maybe '08 and '09 -- operating fundamentals and certainly '05, '06 and maybe '07. Does it seem like the unlevered IRR at that kind of cap rate is significantly higher than what you would otherwise expect?

Well, IRRs are a function of -- as you just said, what you anticipate in terms of leasing performance and income performance. So if you are buying at -- if you are buying at somewhere between a 7 and an 8, and you have a year, year and a half leasup to get your properties into new market conditions, and if you are a seven-year hold, maybe your -- maybe you are reaching close to a 10% IRR. But there's a lot of work that has to go into it to get there.

Right. And do you expect that to come down in the coming years, the target IRRs that the buyers have? Or do you expect it to stay at that level?

Markets are merely a function of supply and demand, and as inventory is absorbed and market fundamentals improve, valuations will likely improve. The big unknown there is where our interest rate is going to be as all of that is happening. And that could severely impact on IRR and valuation computations. But looking at it more in a more finite way, I think that, for example, in New Jersey where we own and manage about, more or less, 23 million square feet, and can build another 10 million square feet in total, the ability for Mack-Cali to leverage its position and franchise into recovering and improving markets is pretty significant, both on a development side, where you saw before we can development 8.5 -- a quarter of a million foot building is a nice sized building. You get a sense of the value for a building like that the suburban assets, the quality that we build -- call it between $225 and $250 a foot, depending on site conditions and any kind of underbuilding or structured parking, which would impact on it, and you see the spread -- the positive spread in being able to build into markets, having the development platform, the teams, the approvals in place, and the land inventory in tight markets, and I would take development all day long to be able to build a 200 or 250 basis point spread than to go invest in a market like Manhattan midtown and spend $1,100 a foot at a 3.5 cap, and hope that the trees grow to the sky in the future. So I think we have a lot of opportunity moving forward. And if the markets cooperate and the economy cooperates, it will be very good.

Okay. And my last question, I appreciate your comments, what kind of conditions would you require in order to go speck on the Waterfront, if you don't get a Build-To-Suit?

40% prelease.

Okay, so you wouldn't go 100% speck under any conditions.

Would not. Would not.

Okay. Thank you.

You're welcome.

Next we'll hear from Chris Haley with Wachovia.

Good afternoon, Mitch, how are you.

I'm doing well. How about you Chris? How's the family?

Fabulous. [Technical difficulties]. -- you offer your land parcels, could you give us your best guess as to which of these parcels might be moved on on Cali's part -- not Cali's part -- in the near term? Say next one to two years?

Again, I'm hoping that we have an opportunity to begin a project at the Waterfront, so I have talked a lot about that, so I guess there's no need to continue except to kind of quantify it, we can build 3.5 million feet at Harborside, and three towers outside of the residential parcel that we hold, which is Plaza 8 and 9, that's another 1.2 million in addition, but we expect that will eventually go residential. So that's something we're hopeful about. We own an 50% interest with SL Green/Grand Mercy Capital in a development site for 200,000 feet at the [inaudible] Complex in Bridgewater at 55 Corporate Drive, and we believe that -- or we have been in some discussion with [inaudible] that they are going to exercise their option to take that site. They have a $7 million payment to make in October if they don't exercise the option, and they are a growing pharmaceutical company. We would be the developer of that under our Gale subsidiary. So that's something that probably is not too far in the future, and we're hopeful because we have seen more activity in Morris County, and we still have the ability to develop in east Hanover.

We hope that Wyndham will continue to grow. They're a fine company because we do expect a second phase to this corporate headquarters of an equal 250,000 square feet. We have been talking to a variety of different tenants -- perspective tenants down in Princeton. Although Princeton has been a soft, choppy market, we have an interest now in Princeton Forrestal Center, and that can accommodate a higher density, taller development, which is a different type of user, so we've had some discussion down there. And we're also going to take down the land, I guess next week, in Capital Office Park, which will enable us to develop up to 600,000 square feet adjacent to the park that we bought, and right next to the federal courthouse in Greenbelt, Maryland. So there's a lot of things -- a lot of options that we have, and a lot of preplanning has gone in to all of this so that we can pull the trigger very, very quickly on any of this development. Again I don't want to be redundant, but to me, the real way to grow earnings in the future on a reasonable risk adjusted basis on spread is new development, and we have right now the ability. I'm looking at the development inventory. We could develop 11.5 million square feet on our either land that we own wholly, or land that we have options on that we can exercise, and so that hopefully will be a big part of the growth story.

Yes. The expected preleasing throughout the portfolio on new development would be at least 40%, or are there any markets where you are willing to go speck?

I would say that probably not at this point. We inherited a building in Parsippany. It's on the other side of Route 287, and it's a 175,000 foot building. Marvelous quality building -- magnificent quality building. It was built speck by Gale and an institutional partner. And it's in the $250 foot range, has some underbuilding parking. Very high quality. It's in the process now of being leased. I guess their -- the building probably could have come in to service six or eight months ago. So by the time they get a rent-paying tenant in there, it will be a year and a half. And it's a good tenant -- good quality tenant. It's actually a tenant that we have a relationship with. We'll have an 8.3% interest, plus or minus, in that property. They built it on speck, and I think a year and a half or so, give or take, is a reasonable downtime to be able to move a tenant in, and if market trends continue to be positive, I might consider speck in the Morris County market, but not yet.

Okay. All right. Thanks for that color.

You're welcome.

On guidance, Barry, your year-end lease level is approximately, I guess, what 92%?

92 even.

92 even. Could you give us a sense as to what your expectations are for year-end '07.

92.5.

Okay. So if I look at your leasing numbers, for the full year 2006, you leased a little over 4 million square feet, and you have got a little more 2 million square feet set to expire during the calendar 2007 year. And so I add a little bit more for lease-up of the portfolio. Trying to reconcile your prior comments about your FAD, your CapEx deductions, and therefore, having a lower coverage ratio on your dividend, even though your aggregate leasing expectations are expected to be notably less in '07 than '06. Can you help reconcile that?

Yes, I'll certainly give you numbers. In full-year 2006, where we built occupancy by exactly 1 percentage point, it cost us in building improvements, general capital improvements, $12.465 million, and TI and leasing commissions of $68.5 million. Now, to accomplish -- and again there are -- there's deferred maintenance, there are lots of issues that go into all of this.

Sure.

Timing of maintenance. Timing of commissions. Our estimate to accomplish roughly half again as much leasing, another 50 basis points, the numbers are almost the same.

Okay.

In terms of capital. Now that's not a precise science. Again, we could see lots of variables in that. But I guess the message I was trying to convey is that when we started 2006, when we were on this call a year ago, we anticipated a CAD payout ratio, as I recall, as much as 115%. And we're able to achieve some very good leasing results, and frankly, we spent a ton of money in the fourth quarter in paying commissions. We got some discounts, frankly, on brokerage commissions, and we opted to pay them early, maintained great relationships with the brokerage community and also accept discounted commissions. So we did better than we thought on capital in 2006, and this is our best estimate of moving in to 2007.

And that is either just being conservative, or it is lease-roll exposures to certain submarkets that are weaker than others? Or do you know you have got some problem spots?

I wouldn't call them problem spots. We have a little bit of lack of clarity in a couple of situations. For example, the Hewlett-Packard situation at COP in Greenbelt, 162,000 feet, the lease doesn't expire until the end of the year. We think they're going to extend. Even if they didn't, we would be spending money, but probably that money wouldn't be spent until 2008 by the time we moved a tenant in, et cetera. So there are -- I don't think we have any major singular situations or any kind of problems. We have the normal challenges that you have to deal with every day when you have a 35 million square feet portfolio, and average roll in that portfolio, no matter what you do, is close to 10% a year.

Okay. Did you offer a -- did you provide a full-year 2006 and then 2007 estimate with regards to cash releasing spreads?

No.

You said minus one for the third quarter, plus two for the fourth quarter -- do you recall where the full year came in and what we might expect for '07?

No, but I think that as I stated before, we've marked the portfolio to market. We have five years of rent rolldowns, which clearly with exacerbated with our western portfolio presence, and I believe we have now washed through it.

Okay. And then just -- in terms of accrual accounting on the GAAP FFO, if I look at your guidance, in the fourth quarter there wasn't a lot of stuff included in the G&A or other items that might materially impact that mid-to high 80s FFO, and I look at that and annualized that, just keep things very simple. I'm already in the middle of your full-year 2007 range for FFO, and I have got a little bit of new investment activity. I've got a positively trending same-store NOI. I'm trying to understand why we wouldn't at least see a little bit of growth from a GAAP perspective? I hear your comments regarding cash, but wanted a little color on there as well.

The full-year GAAP on same-store was up 0.6%.

Okay. But I look at the trends-- the trends are clearly moving in the right direction.

The trends are moving in the right direction. I guess I would like to see another quarter or two of sustainable performance before I'm willing to be any more aggressive than I am today.

Okay. Thank you.

Because, Chris, the other side of this equation are the expense ratios.

Right.

We have continued to see escalations in real estate taxes and utilities, and so it -- those increases continued to eat away at the margins.

Yes.

And I would like to see how all of that stabilized.

Okay. That's great. Thank you.

Take care.

Our next question comes from Jacqueline Long with Morgan Stanley.

Hi, guys, just two questions. The first is that we noticed your average in place effective runs declined in pretty much every market of your office portfolio. Can you guys talk a little bit about why that happened.?

The average asking rent?

The in-place effective rent.

Okay. You are saying in place effective rent?

Right.

Your mike is a little fuzzy, so I apologize. It declined in each market. From the prior quarter or year?

From the prior quarter.

Well, I -- we would have to be clear as to what you are looking at to be available to respond to that. Because clearly, our same-store -- on both cash and GAAP were improvements, so --

Right. But if you look at, I believe--

Are you looking at the property tables that are included therein where we go through each property and we give the net effective rents of each of the properties?

Right.

What you are seeing there is the culmination of all of the CAD payouts we have had. So effectively now, we've raised those cost in those -- in the portfolio. We've increased our cost of installing tenants, and as we amortize them down, because what you are seeing is the base rent being amortized and an amortization of the tenant improvement and leasing costs, which has then come down to the net effective rents. So you are seeing the effect of all of the higher releasing costs that we've reported on a cash basis for CAD now coming through and impacts on the amortization of those amounts through the -- through that exercise.

I think the message is that's not really reflective of the market condition.

Okay.

That's an accounting exercise.

Sure.

Perspective of historically what we achieved in the rents there.

Okay. And secondly, your AAA operations center and the 100 Kemble development projects, I think they were originally scheduled to be placed in service during the fourth quarter, but those have been pushed back to the first quarter of '07. Can you guys discuss just why the projects were delayed.

That was the project I spoke about before that was built on speck by Gale and JPMorgan Asset Management. The good news is ultimately it's going to be a nice and profitable project. The good news is that we own 8.33% of it.

Okay.

The good news is that the building looks like there is a large lease culminating now, hopefully about ready for execution that's going to take about 140 out of 175,000 square feet or maybe slightly more than that, but that's -- that's the issue when the build speck buildings. Especially in markets that have a fair amount of vacancy, and a lot of alternatives, you lack some degree of pricing power, and in this instance, they were willing to wait out the market until they found a tenant, and get the Gale, our subsidiary now is responsible for the leasing, but the capital partner, JPMorgan was willing to agree to wait out the market conditions until they found a large enough tenant that wanted to be in that high quality asset, where they could drive the pricing a little bit. And that's going to end up to be plus or minus, somewhere in the $33 to maybe even slightly better than that gross rent range. So in that market just like a $21 net. So it's going to work out to be a nice return, but that's the risk of development where it's speck.

Okay. Thanks, guys.

You're welcome.

Our next question come from Sloan Bohlen with Goldman Sachs.

Thanks, guys most of my questions have been asked. So I'll be pretty quick. This might be a question for Mike. Just on the DC market, I think I heard you say that the vacancy in the overall market fell a little bit, but occupancies for you guys were down just slightly in the quarter. Wondering if you can just talk about what you are seeing out there?

I'll respond to that. I think for us that includes all of the suburban markets, and the way we intended to report it, and the outside of certain parts of DC, the district, it is still a challenge in the suburban markets but for a few, and we think we're going to do real well in Greenbelt at the CLP development, but nonetheless, it's still a bit of a challenged market, absorption, while continuing to be positive, is slow, and so it's a matter of where you are. If we were on Pennsylvania Avenue, we would be -- we would have much higher cost basis, but the leasing velocity would be much stronger.

All right. Thanks.

You're welcome.

Next we'll here from Michael McGowan with Kensington.

I have just a few questions. One from the leases that you mentioned in the press release, it looks like I'm sort of guessing that free rent or concessions runs about a half month per year at the lease term. Is that trending down at all?

A little bit. A little bit, but it really depends on the market conditions right now. We-- for example, we have a possible situation in Somerset County. It's a large block of space, and it's a five-year lease with three months of free rent, so it's roughly pursuant to your equation. And -- however, in most instances, the -- you will collect the rent for the term, so the lease would in that case actually be 63 months. But it depends on the market conditions. In some markets like the Waterfront, you're just are providing fix-up time with virtually no free rent.

And the Costar data has -- which includes subleased space and all buildings, single tenant and everything, has what appears to be much lower vacancy rates, they've got like 12.6 for the whole central and northern New Jersey. What data source to you guys rely on more?

We use Cushman and Wakefield's reports, and we find them -- I'm not suggesting anything about Costar, but we find C&W to be very reliable and a fairly in-depth analysis of the market conditions, and they are having the brokerage development -- department as well as the statistical and consulting department is helpful, because they really have an on the ground experience. So that we use C&W, we think that their numbers are pretty accurate.

Last question, circle back on Michael Knott's question on the cap rates. It seems if you had a building that was a 90% to 93% lease that has decent tenants and was at market in a place like Woodcliff Lake or Settle River or the nice stuff in Paramus or White Plains Road, it seems like 7 to 8 cap --

I agree with you.

I hope you wouldn't sell at 7 to 8 caps.

No. In a market like that with a quality income stream, I think today you could trade that building somewhere in the 6% to 6.5% range. To where net lease probably in the lower part of that, closer to 6. Price per square foot, replacement cost, all of that enters into it as well. But I think in certain suburban markets, you can clearly push resales at anywhere from 250 to much higher per square foot. Again, I'm not talking the Waterfront where the numbers would be a lot higher. It all depends on the type of asset base, et cetera. But I would tell you that a typical suburban asset that is highly underleases -- an asset that is in the 50% lease-up range today, good quality asset in a park, is probably $175 a foot type of trade.

Okay. And looks like the portfolio, there there's only one property that is 0% leased now. So a lot of the big leasing challenges are being addressed. Would you -- as things lease up more and the market stabilizes, would you look towards a more active recycling capital program, like selling some of the [multiple speakers] buildings?

Right. Definitely. I would say as the market tone improves, we would look at more recycling. But there has been -- as I said earlier in response to some questions, there have been some portfolio deals that are underleased, and again, when you are marketing an underleased portfolio, you are saying what a great opportunity it is because you are buying vacancy, and you can grow into an emerging market. But the market, they are only just changing now, and so some of those portfolio deals have garnered very limited amounts of interest. And so -- but I think that's changing. That's clearly changing, and as it -- as the tone changes, we will take our assets that are less fundamentally core to us, or strategic, and look to trade them into higher quality, more core concentrated assets.

Great. Thanks a lot.

You're welcome.

We'll take a follow-up question from Michael Bilerman with Citigroup.

The 2.1 % rent spreads, those are cash or GAAP?

When I'm talking about development, I'm purely talking about cash.

The rent spreads?

Correct. Yes. Cash.

Okay. There was land scale gain in the 10-K of $1.1 million. Where was that booked?

That -- first of all, the property was down in Hamilton Township at our Horizon Center, so I assume that's what you are talking about. We sold a piece of ground to the New Jersey School Board's Association. It's in our Horizon Center. As far as where it is booked, we're going to get the answer to that right now. The gain on sale on land.

That was in FFO?

It was included in FFO. If you look on the line item as gain/loss on sale of land and other assets which had a negative $416,000.

And so what was the -- so there was a positive 1.1, and --

It was $1.5 million of a loss that recognized in connection with the contribution of the GMS business into the Newmark joint venture.

Maybe you could expand a little bit on the economics of that JV if you took it at a loss.

Yes, I lost you there. Yes, it was an accounting loss, a book loss. We contributed the asset into a joint venture for $1 million, the company. We retained 40% of the asset, so we received $600,000 in proceeds for the contribution. It was -- it was matter of allocation when we purchased the Gale Company and it's various subsidiaries, and that's why we took the loss. It was merely matter of accounting allocation, but we expect that, again, from a strategic perspective and future growth perspective, the contribution to Newmark was -- was the right thing to do.

Top tenants, AT&T went down in terms of their annualized-based rent to $9.7 million from $11.4 million, and the lease square foot has remained the same.

I don't think that's correct. The-- 795 Folsom Street in San Francisco was a big AT&T tenant. so their square footage and income that is associated with that, we sold the asset. The square footage is not the same. I don't have the number at my fingertip here.

Okay. The income went down, but the square footage number's still is the same as last quarter, but that's fine.

We'll double check that. Clearly there was a reduction in San Francisco.

Okay. Barry, just anything on the straight lines and the FAS 141, they changed pretty dramatically relative to the third quarter. What is your sort of expectation going in to next year?

In terms of straight line?

Straight line and your FAS 141 on market to market.

The FAS 141 obviously changes as we buy assets and as we do things, but let's talk about straight line, because I think that's the one that's a little bit at least more predictive. We're looking at like $3 million plus or minus a quarter in straight line rent going forward, at least in the projections that we did. The FAS 141, a lot of those adjustments that you saw here relate to some of the purchase prize allocations that we completed, or we're in the process of completing and estimated as they related to some of the assets that were acquired through the Gales transaction.

Okay. And that's basically showing up in your JV line pick up?

Correct.

And so that's why the JV FFO went up to almost $5.6 million.

Yes.

By the way, Michael, our straight line adjustments in your CAD prediction, if you will, for 2007 is actually a total of $14.8 million. So slightly more than that $3 million a quarter.

The last question, and I may have missed it, the lease termination fee, where was it booked, and what square footage has been leased?

The lease termination fee, sometimes those fees don't really -- perception is not reality. In this instance, we were able to take back a chunk of space in Harborside from a major financial institution that was underutilizing the space, and they were able to consolidate in to other space in Harborside, give us back the space to accommodate each rate, and pay us a lease termination fee, which helped defray the cost of that installation, and it was quite significant.

Okay. Do you have the economic occupancy at the end of the year, relative to your lease percentage?

Yes. The economic, it's 89.4% versus 92%.

And you would expect that to go up 50 basis points the same as your lease, or is there a bigger pick up?

No, we expect -- I'll give you the break down. In the first quarter, this is all '07, at 636,000 square feet, and that commences next quarter is 93.5. And then 30 -- almost 32,000 square feet in the third quarter.

Great. Thank you very much.

You're welcome.

Take a follow-up question from Michael Knott with Green Street Advisors.

Hey, guys I'll follow up offline thank you.

Okay. You are welcome.

There are no further questions at this time. I would like to turn the call back over to our speakers, for any additional or closing remarks.

First of all, I would like to thank everyone for joining us today. We look forward to a very productive 2007, and to continue to have the opportunity to talk with you next quarter. So thank you very much. Good day.

That does conclude today's conference. Thank you for your participation, and have a great afternoon.