Veris Residential Inc (VRE) 2007 Q3 法說會逐字稿

Good day everyone and welcome to today's Mack-Cali Realty Corporation third quarter 2007 conference call. Today's conference is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to President and Chief Executive Officer, Mr. Mitchell Hersh. Please go ahead, sir.

Good morning, everyone. And thank you for joining Mack-Cali's third quarter 2007 earning 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 assuredness 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 are seeing in our markets and then Barry will review our financial results and Mike will give you an update on our leasing results. FFO for the third quarter of 2007 came in at $0.93 per share as compared to $0.86 per share for the third quarter of 2006. Our occupancies ended the quarter at 92.2%, up slightly from last quarter's 91.9%. As I have mentioned in previous quarters, the suburban leasing environment, in general, remains somewhat indecisive and a bit sluggish and, frankly, there hasn't been the ability to put much upward pressure on rents. Clearly, however, there are certain submarkets that are performing quite well.

This would include in our world, so to speak, Morris County, which has seen a resurgence in the service sector and the pharmaceutical industry, we've seen good activity from law firms, communication and technology companies. We have recently done some very significant transactions that we have talked about over the recent months in Morris County. The CBD market, such as Washington and Jersey City, remain very robust and in Jersey City we're starting to see a fair amount of increased activity from a variety of companies from diverse industries, including technology companies. In most of our core markets, Mack-Cali continues to out perform, in terms of lease rates the general market statistics. In New Jersey, we outperform on average by 480 basis points. In Westchester by over 700 basis points and in suburban Philadelphia by 380 basis points, a testament to our franchise and our branding.

During the quarter, rents rolled up slightly by 0.8% compared to last quarter's 0.3% roll up, and so at least the trends are in right direction. Our tenant improvement and commission expenses for quarter were $2.98 per square foot per year compared to last quarter's $2.91 and so the economics, while remaining competitive, at least seem to have reached that point of inflection. For the remaining quarter of 2007, rollovers within our portfolio are only 1% of base rent or $6.2 million. For 2008, our rollovers are quite manageable at 7.7% or just under $46 million. Translating this to square footage, it is about 2.2 million square feet. Putting that in the context of a company that's been leasing in excess of a million square feet a quarter, we're very confident of the future.

During the quarter, we continue to refine our portfolio. We sold our only two office properties in Atlantic County, Decodon Corporate Center, for $12.5 million; a profitable sale exiting a submarket that we viewed as very thin and not offering us a competitive advantage or, frankly, any growth opportunities. In the leasing area, I would like to mention just a few leases in particular. At 11 Hudson Street in Jersey City we continue to make progress on the space left over by Merrill Lynch. As you recall this was in excessive of 311,000 square feet when we purchased the building. We signed leases totaling over 108,000 square feet, including, frankly, a 10-year expansion with Lehman brothers for almost 63,000 square feet. So out of this original 311,000 square foot plus give back, we have less than 100,000 yet to lease and a lease out for 53,000 square feet of that. And so, Jersey City remains a very vital marketplace.

Our Harborside financial center is now 99.6% leased with one of our financial service companies recently expanding by 88,000 square feet during the quarter and we're in discussions with them as we speak, concerning additional space taking over some other tenant space. In the suburban markets, in Parsippany, Diagnostica renewed their lease and expanded for almost 42,000 square feet doing a 10-year transaction at 5 Century Drive. Also at the business campus in Parsippany, the RBA Group, an architectural and engineering firm, signed a new 11-year lease for almost 36,000 at 7 Campus Drive, a building that we recently modernized and upgraded. In Westchester, UPS renewed its lease of 77,000 square feet for a 5-year term at the Elmsford distribution center.

In the development arena, we placed into service a build-to-suite office building of almost 100,000 square feet, downtown Red Bank in Monmouth County. The building was developed on a 10-year prelease for Hovanian Enterprises, and that commenced in September. We've also broken ground on the quarter of a million square foot phase one for that we're developing for Wyndham Worldwide Headquarters at our Mack-Cali Business Campus in Parsippany. The new building is scheduled for delivery in late 2008. Wyndham preleased it, as you recall, for a 15-year lease term.

Another building that we're developing in the Morris County Marketplace in Parsippany includes 100,000 square foot office building we are constructing in joint venture partnership with JP Morgan asset management and Hamshire Companies at the center of Morris county. This is 100,000 square foot trophy building that will complete and fill out the balance of the center of Morris County where you will recall Deloitte & Touche recently leased the bulk of a new building that was recently completed there. We have also received an Office Building of the Year award, BOMA award, for our Stanford Executive Park. This was our third award this year for excellence in property management. So we continue to be recognized for what is the core of our business, providing our tenants with superior work environments. And with that, I will now turn the call over to Barry Lefkowitz who will review our financial results for the quarter. Barry --

Thanks, Mitchell. Net income available common shareholders for the third quarter of 2007 was $23 million, or $0.34 per share, versus $16 million, or $0.26 a share for last year. For the nine months ended September 30, 2007, net income available common shares amounted to $92.6 million, or $1.37 a share as compared to $75.2 million, or $1.20 a share for last year. Funds from operation available to common shareholders for the quarter amounted to 77.5 million, or $0.93 a share, versus 67.1 million, or $0.86 a share in 2006. For the nine months ended September 30, 2007, funds from operations available to common shareholders was $220.9 million or $2.67 a share versus $222.3 million, or $2.86 a share for '07. Other income for the third quarter of 2007 included approximately $8.6 million in lease termination fees. Third quarter last year had lease termination fees of about 900,000.

For the first nine months of the year, termination fees totaled 9.5 million as compared 3.1 million in '06. G&A this quarter included $2.1 million write off related to a project in Belmar, New Jersey, no longer considered viable. Same-store net operating income, which excludes lease termination fees that I discussed before, on a GAAP basis was up 0.1% for the third quarter and for the nine months increased by 1.6%. Same-store net operating income on a cash basis increased by 2.9% for the third quarter and for the nine months increased by 4.4%. Pretty good numbers. Other than -- our same-store portfolio for the third quarter was 28.4 million square feet which represented about 97% of the portfolio.

During the quarter, we expanded the borrowing capacity our on unsecured credit facility from 600 million to 775 million. There's currently 207 million outstanding on this facility. Our unincumbered portfolio at quarter end totaled 238 properties aggregating 25.7 million square feet of space which represents about 88% of the portfolio. At quarter end, our total undepreciated book assets equaled $5.5 billion and our debt-to-undepreciated asset ratio was 38.9% and our debt-to-market cap ratio was 38.3%. We had interest coverage of 3.4 times and fixed charge coverage of 2.9 times for the third quarter and interest coverage of 3.3 and fixed charge coverage of 2.9 for the nine months.

We ended the quarter with total debt of about $2.1 billion which had a weighted average interest rate of 6.14%. We have minimal debt maturities until March of 2009. Our FFO guidance range for 2008 of $3.40 to $3.56 per share is based on the following major assumptions: Our midpoint case assumes leasing starts during the year of 2.3 million square feet versus scheduled expirations of 2.2 million square feet. And also the midpoint assumes no significant acquisitions or sales.

Please note that on this 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 web site at www.mack-cali.com are our supplemental package and earnings release which includes the information required by Regulation G as well as our 10-Q. Now, Mike will cover our leasing activity. Mike.

Thanks, Barry. Despite a still challenging leasing climate, we produced around round of solid results in the third quarter. We recouped our second quarter occupancy loss and are 92.2% leased at September 30, up 30 basis points since June and back to our March 31 level. We saw 127 transactions amounting to over 1 million square feet during the quarter. Turmoil in the financial services sector didn't hamper our leasing team's efforts in Jersey City where we signed expansions or new leases with a major international bank, National Stock Exchange, Inc., and Lehman Brothers. Velocity was also strong at our Morris County properties where our teamed signed 145,000 square feet of transactions that produced a 190 basis point gain in space leased.

Morris County transactions, Mitch mentioned, reduced our large block vacancy in this market by 60,000 square feet. Absorption gains in the submarkets helped our northern New Jersey properties finish the quarter at 92.5% leased. We also had a busy quarter in Westchester County where almost 265,000 square feet of transactions helped us finish at 96.2% lease in this market. We are still experiencing competitive pressure on rents but we're able to achieve a slight roll up for the quarter.

On average, our gross rent spreads on a cash basis were positive in all regions except for suburban Philadelphia. Leasing costs of $2.98 per square foot per year re reflective of both large percentage of new leases we saw in this quarter versus lower cost renewals and the high volume of activity at our Jersey City properties. Our $2.68 year-to-date average is still well below the $3.40 average for the same period last year. We retained 65.4% of expiring square footage in the third quarter and 66.3% of expiring space year to date. Despite volatility in the financial services market, we experienced only minimal in material credit losses as a result of the mortgage industry uphevel.

Looking at our 2008 expirations year to date, we reduced next year's rollover by almost half a million square feet. At September 30, '08 expirations represent only 8.3% of space leased and 7.7% of annualized rents. Space showings remain quite active and generally on par with 2006. Northern New Jersey stands out with a double digit increase in both the number of perspective tenants and total square footage of requirements they represent. In addition to our markets, according to Cushman Wakefield statistics, are making slow improvement. They vacancy rates have fluctuated very little since the third quarter of last year characterized by some small gains and minor set backs. An exception is the suburban Philadelphia which saw a year-to-year vacancy reduction of 350 basis points.

Most of our other markets have made head way in absorption gains but a much less dramatic fashion. Central New Jersey is only submarket where vacancy increased in the past year albeit by only 80 basis points. Class A direct rental rates have increased in all of our suburban markets since this time last year with the biggest gain coming in Fairfield County, Connecticut. But in our primary markets, namely New Jersey, Westchester County in suburban Philadelphia, increases in asking rents made only single digit percentage gains during the past year. Restrain development has helped our markets move toward recovery and equilibrium. While there is some speculative construction here in the northeast, it has been confined to markets able to bear the additional supply burden such as Washington D.C. and suburban Philly.

Northern and central New Jersey have a combined market size of 175 million square feet, but less than 600,000 square feet of speculative construction is underway. The competition for tenants is still very fierce. Our leasing teams are working aggressively to continually outperform our markets. Our premier properties in dominant market presence allow us to keep our portfolio well occupied on the best possible economic terms. Mitch.

Thanks, mike. Now, I would like to take your questions. Operator, would you set up the queue, please.

(OPERATORS INSTRUCTIONS) We'll take our first question from Michael Billerman with Citi.

Good morning. Barry, maybe you can talk a little more about guidance. If you take the third quarter, you back out the lease term fee and write off the development, you're effectively at $0.87. Your guidance for the fourth quarter based on your full year is $0.83 to $0.87. I am just wondering why you would go down $0.04. Why $0.87 wouldn't be the rate into next year which would get you the 348. I am sort of scratching my head a little bit really trying to put all these pieces together on why growth is so subpar going into next year into the fourth quarter.

Well, Michael, if you kind of look at the midpoint of your guidance going into next year, it is at, if you took $0.87 and multiplied that by 4, you'd get the 348, and that is effectively where the midpoint of guidance is for next year.

But going, but I am still confused if your fourth quarter a range of $0.83 to $0.87 what would cause you, maybe you can go through some of the line items. I am not sure where 348 should be the midpoint; 348 should be in the bag as to what the current portfolio is. There should be growth from that point.

Well, that, again, inside these numbers there are a number of things including some fee income and some other things that we have taken a little bit of a, a less aggressive stance on for 2008, and that's essentially kind of where we are. The core portfolio is doing very well, as you recognize, and from that perspective but, in fact it has to do with fee income and timing of fee income. We've had a little fee income in 2007 which will be nonrecurring in 2008 and effectively our guidance is kind of where, where you are looking at.

Maybe you can just outline some of the key, what same-store NOI is, what you're budgeting for other income, what you're budgeting for the management company, maybe G&A just so we can put some brackets around, in terms of the building blocks, building up to your guidance.

Sure. I mean in terms of what we are budgeting today for G&A, we're budgeting around $12 million a quarter for G&A. We are looking at about $3.5 million of other income. e're budgeting roughly $1 million a quarter for service income, net, again I'm looking at net numbers and that is kind of the metrics we are looking at at the midpoint.

Okay. Maybe, Mitch, you can talk about you started a share buy back program in the quarter. As well, you have marketable securities on the balance sheet which maybe you can go in detail what that comprises and just the thoughts regarding both of those activities.

Sure. As you may recall, the board re(inaudible) an authorization of $150 million for share buy back. As you have correctly stated, we repurchased about $11.1 million of our stock and that is a program that, particularly in this type of an environment, that I can, that I expect to remain active in. As far as the other marketable securities, I would only say that that particular endeavor is, at this juncture, profitable and it's would be strategic and beyond that I'm really not prepared to comment on the specifics.

Has that position grown since if end of the quarter?

No, it hasn't.

And this is one entity rather than multiple positions.

That is correct.

Okay. Thank you.

You're welcome.

We are take our next question from David [Cohen] with Morgan Stanley.

Good morning. Just wanted to follow up on the '08 outlook. You guys have been doing 1 million square feet of leasing per quarter but next year it sounds like you are only expecting to average what 600 -- 500 -- 600,000 square feet. Can you just talk about why, do you really expect leasing to drop off by that much?

No I think quite the contrary, I think the leasing volume, if you will, will remain at approximately the same level that it has which is slightly in excess of a million square feet a quarter. We have, at the present time, 2.2 million square feet expiring at '08 expirations and that's one component of the total leasing volume that will be done to include future years. So, when you are looking at your mid, why are expecting it to be much -- 1 million square feet of leasing per quarter. Where would that put you in terms of your guidance? Sorry for the feedback here. Yes. Well, I think if you look at it, a perspective or historical reference, we expect next year to be very much the same as 2007, almost in all respects. We think the rents, while they firmed, will remain pretty much where they are today.

Will still spend probably somewhere in the neighborhood of $2.5 to $3 a square foot per year, in terms of leasing, TI, and commission expenses. And we'll probably do somewhere around 4 to 4.5 million square feet of total leasing. So when we assess the guidance, it's kind of like a replay in many respects of the economic performance, perhaps hopefully slightly better, and we'll hopefully be able to bring on more development activity as we move forward, not unlike we are doing now for example, in Red Bank and then '09 will bring on the revenue from the Wyndham lease. So, in terms of overall economics, I would expect the performance to be fairly stable. I think as Barry mentioned before, we had some fee income for land management contracts that, and those particular agreements are at the point of expiring. So we'll hopefully be able to replace some of that income and do a little bit better. But from a realistic or pragmatic perspective, we think 2008 is going to be not too dissimilar from 2007.

All right. So, you are expecting kind of similar rents and more robust leasing activity. What would have to happen to get you to the low end of the guidance range?

Well, I think that the low end of the guidance range would be a real fall off maybe along the lines of the numbers you've mentioned, 5 - 600,000 feet a quarter in leasing but we don't expect that to happen. But that would get us to the low end of the guidance.

Okay. Can you just talk about the lease termination fee?

Yes. The lease termination fee would be largely due to a transaction in [Harborside] and it facilitated a major expansion of what we call a global banking firm because they have asked us not to use their name specifically, but I think you all know who it is, Major International Bank, and so essentially the lease buy out fee was able to pay for the a large part or a large portion of the cost of putting that particular tenant into that space. It was underutilized space by another financial company. It is an anomaly in terms of its magnitude, as you can see. But it was very, very good from both an economic perspective and vesting a major firm even more so in terms of their commitment to Harborside.

Okay. Just finally, it looks like you guys have renegotiated the Gale agreement, the earn-out provision. Again, it seems like every quarter there's some other new negotiation. Can you just talk about the negotiations there, why are things changing and how did that lead to the write off of the development project?

Sure. The, I would like to put it in more of a positive than a negative context. The Belmar situation was a project that at the time seemed extremely exciting, remaking a seaport village becoming part of some of the revitalization of mixed use projects in various communities; however, the project fell victim, if you will, to the courts decision that imminent domain on the part of governing bodies would be limiting or limited to severely blighted areas. That's something that evolved overtime. It is sort of a national sentiment right now and there were a couple of specific court cases in New Jersey of which Belmar was one of them. So no one could have predicted at the time of inception of this particular project in its nascent stages that it would be victimized as a result of that court decision which essentially vitiated much of the redevelopment plan.

That's what created the unwinding, if you will, of the project. The good news, in terms of the restructuring of the Gale agreement as you refer to is that Stan Gale stepped up to the plate and recognized that it wasn't -- that particular project wasn't what was envisioned when we purchased his interest and so he agreed to absorb $2 million of effectively a write off or a loss to be a good citizen. So I view the restructuring of the agreement this quarter and frankly its restructuring once before as his recognition that things change over time and he was willing to take economic loss or pain beyond the scope of the agreement, none of which he had to do contracturaly. So to me, it's a reflection of dealing with honorable people.

Okay. This last question, is it safe to assume that your plans to enter, to I guess buy a second asset in New York maybe off the table for a short term?

Well, you know something. We just took a look very seriously at an asset in New York with, at, with an individual who I hope at some venture -- at some point in time will actually be our partner, Bob [Savit] who I consider to be very respectable player and well respected player in the New York City marketplace, particularly in the, the southern part of midtown into the downtown area and the fashion and garment areas. And we continue to see a pricing dichotomy that is theological, at least from perspective, in terms of the expectation of rent growth going forward where in some instances, at least in this one particular instance, the deal would trade at sub 2% caps on in-place income and the inability to turn that around for considerable period of time.

So right now there remains a fair amount of capital, be it foreign capital because of the devaluation of the dollar and the arbitrage that exists there, the free money, if you will, in terms of foreign currencies or other players at that are hopeful that the credit markets re-emerge so that they can finance some of the deals that they're looking at today. But right now it's not an affordable environment, although we remain keenly interested and keenly active in carefully scrutinizing opportunities that come along. I happen to have been on a panel yesterday for the Mortgage Bankers Association and there were absolutely two schools of thought, one, that prices were going to continue, at least rents were going to hold firm in Manhattan and prices were going to continue to at least remain stable if not more than that, and there was an absolute 180-degree diametrically opposed view from a major New York player that the crisis in the credit markets is going to result in wholesale job losses on Wall Street.

That would reflected, if nothing else, in sentiment in New York City and both rents would flatten if not all off and pricing would flatten if not decline. And that a lot of deals in the pipeline in New York City, and I'm only expressing this sort of third party, would not get financed because the cost of all financing if you combine mesinine equity or some, what other avenues are available in the unreconciled credit markets today would not allow those deals to get done. So, our view is we have expanded our liquidity base right now. We have put in place our line expander and other vehicles to give us an enormous amount of liquidity and we're just going to be patient. We are not going to do anything until I have a sense of where the marketplace is, be it in New York City or elsewhere. We are going to use our capital and allocate capital as efficiently as we can. This could take a little longer than expected, in terms of a dislocation, but we all see that the markets at this point lack clarity from the capital markets to the real estate markets and we want to be there with the checkbook when things rationalize.

Thank you.

You are welcome.

We'll take our next question from Jordan Sadler with Keybanc Capital Market.

Good morning. Mitch, in your -- in response to a question I think you said that 2008 is going to look a lot like 2007 and I guess that's also reflected in the guidance you've provided. 2007 so far has not been such a great year, obviously from a shareholder's perspective. And I am just curious what you might view as the one or two opportunities that you have or view that are sort of imminent that may help you enhance shareholder value as we look forward to 2008.

Well, thank you for the question, Jordan. I guess to some extent while stock price or retained depreciation in the stock price is a disappointment, clearly, I can -- I more than share that view. I think that the yield on the stock is certainly a benefit to the shareholders. I think some of the things we have been prudent about will continue to pay dividends not perhaps in terms of the $0.64 a quarter share but in terms of how we conduct our business. We have very limited exposure to the sub prime markets today. We have apparent guarantees where we do have any exposure to financial companies in general so that the income line, in terms of Mack-Cali, we believe it is extremely secure and it is not at risk as it might be if we had, let's say, a lesser underwriting stand for how we evaluate tenants and how we evaluate the quality of income in the company. So those are all good things for the shareholder.

We have a secure capital base. We operate the company to very strong triple B flat level from an investment grade perspective. So we have a lot of discipline here and we do things for the future. It might not be viewed as the next best hot money because of the sort of sanguine or, let's say, subdued markets that exist in a lot of the suburban locations right now but we think we're well poised for the future. And I don't look at things as what is imminent to give us a pop. I look at things more from the perspective of knowing that the foundation of the company is extremely well secured, the human capital is extremely well endowed, and we have the base to do a lot of things in the future.

We have a 12 million square foot land inventory, 3.5 of that is along the waterfront. It is just not if, it is only when the opportunities will arise at the waterfront in Jersey City for us to put that land to use. There has been a lot of fits and starts but New York is out of space and whether the rents decline a little bit, there's still going be a fair amount, I think, of decisions made. You read about Colgate just yesterday looking at the waterfront and keeping only a small front door presence in a building they owned on Park Avenue and sold it to another company and are looking at the cost of occupancy.

I expect over time, be it the waterfront, Morris County, Princeton or elsewhere we'll be able to put a lot of this land to use and when we do, we will put it to use at yields of 8, 8.5, 9, 9.5 depending on the particular situation, and we wont be reaching, stretching and hoping that buying building at 6 or 6.5% which in our world right now is almost negative leverage, will turn to good things because we are counting on future rent appreciation. I don't mean to lecture but I think that we, unfortunately, our multiple right now in the stock price reflects the fact we haven't seen a lot of traction or growth in the preponderance of our markets for a variety of reasons. Whether it is New Jersey or suburban Philadelphia seeing a major contraction with Merck and other companies. The future is still very bright because the land that we own is in, and the assets largely, are in barrier-constrained markets. There's been an overhang in the market. It's been a slow recovery over the last couple of years. New York has been a great place. People want to live there, work there but it is becoming unaffordable in many instances and I think that we'll be the beneficiary as time goes on.

How would you sort of view an opportunity to capital as an 8.5 yield in let's say a development opportunity versus buying back your stock which is --.

But I said that before. Yes. At the same yield. On a FFO yield base, stock is today, unfortunately as a result of some external factors I think in the market as well, and we all know what I am referring to in terms of some of the banks and oil companies. Our FFO yield is 9% today and so we're, I said before and I am very serious about it, we will re-engage after the quiet period and be an active repurchaser of our stock because we see the value in all of the things I just said and, fortunately, we have been smart enough in managing our balance sheet to be able to have the where with all in the capital to buy our stock. So I, there's no way I would buy some of the deals in the marketplace, real estate deals in the marketplace at the prices that is exist today with the expectation that trees grow to the sky and the future will bail you out. I had rather own our own company. That's what we are going to do.

Well, and what kind of investment would the marketable securities, what kind of strategic investment would make sense for you guys and would be potentially more valuable than buying back your stock at recent prices?

Well, you know, again I commented before that the particular security that we purchased is profitable and so at the very least we've made money today anyway, as of today on the trade, and it is strategic, we operate the company in the mid Atlantic to northeast region. That's a wide swap extending from Washington to Boston. And if we can see an opportunity to enhance that critical mass with a portfolio or combination of portfolios that enhance our branding presence and franchise in any one more or more of those regions, we're going to at least take a careful look at it. That's what this is all about. I am unwilling to be more specific about it right now, Jordan.

That's okay. By strategic, it would be, it would fall within your existing preview is what you're saying, company in your markets kind of.

Yes, that's right.

And then, I guess maybe if you could just provide a comment, you did mention Colgate. What are the prospects in Jersey City currently? You had mentioned on the last call that a decision was imminent from a midtown player and you also said there were some (inaudible) so obviously nothing happened yet. Otherwise we would know about it. But what's the latest?

The latest is that a number of the tenant that is we have in our waterfront holdings are continuing to expand. That's very good news. The pricing continues to perform well. We're certainly out performing in [Harborside] and 101Hudson, but in terms of these fundamental decisions on preleases, there has been a lack of decision making. It is no secret, frankly, that many of the if I were's we have been talking to are financial firms, although not only, and the markets have been in turmoil and -- since certainly since the summer. And so other than expansions, which are easier decisions for the corporate leadership leaders to make, nobody has yet committed to a sufficient amount of preleasing to build the next tower.

Okay. Thank you.

You're welcome.

We will take your next question from Sloan [Boling] with Goldman Sachs.

Hi there. Good morning. Mitch, just with your comments on New York City rents, if they're potentially leveling or even falling in the future, can you discuss how that has maybe changed the leasing velocity in Jersey City or at least discussion in terms of expansion?

Well, Jersey City still remains a very affordable alternative to to New York City occupancy, particularly midtown occupancy in terms of just the efficacy of the cost of doing business. $45 plus or minus on a gross basis versus somebody predicted yesterday that the rents would stabilize in the $100 to $115 range versus what we was thought to be an endless rise up to the 120 to 140 per foot range. I don't know whose right, whose wrong. Obviously, nobody wants to see significant disruption in the markets. It is not good for anybody because it affects decision making and clearly if rents fall off in midtown, then the next question is well, will that then create a situation where more tenants stay there because rents are more affordablement. I think that there's a psychology out there right now that is in the midst of altering and the psychology is unclear as to where the direction of the economy is going, but as demonstrated by some of these companies that have gone public, with their notion of looking very seriously at Jersey City or maybe one or two of the outer burrows as alternative locations and that depends a lot on the employment demographic, I think affordability is becoming more important to leadership of some of these global companies and that's where we have a tremendous advantage.

We can provide first class, brand new institutional quality real estate which is in a stone's throw of Manhattan, easily accessible by virtue of transportation of all kinds and means, and amenities in housing that are exemplary. So I think our day is coming down there. I think it's just a matter of exactly when some of those fundamental decisions are going to be made, but if you continue to see this level of disruption in the credit markets and the banking industry, those decisions become more important for leadership of those companies to deal with.

All right. Thanks. And one other question on Jersey City development. Is the deal that you discussed on the last call with the JV deal with the hedge fund, is that still on the table or being discussed?

It is not being discussed. It is still on the table, but I think that it is, right now our expectations for the success of our remaining capacity, if you, will down there are so positive that I don't, and our access to capital is fluent and I don't see a reason to do a transaction right now. We don't need the money.

Thanks guys.

You're welcome.

We will take your next question from John Guinee with Stifel.

John Guinee. How are you?

Good.

Three quick questions. I think it was about this time last year you lobbed in a small dividend increase. Is that expected again?

Well, we ordinarily do that in the third quarter in September, and so that is something that's something we will revisit in September of 2008.

Okay. The second question. We ran out our numbers for about four or five years and we are sort of in the 350 to 360 a share range. Do you feel that's a accurate run rate?

Well, we just put out guidance today suggesting that sort of the midpoint is where we are ending up right now, which is that 348 number. So we are not really far apart and I suppose it wouldn't take a lot to push us to the higher end of our guidance but you know us, we like to be careful and thought about how we present ourselves to the marketplace.

I am thinking more 2010, 2011, 2012. Is it still safe to say still 350, 360 out years?

That's too far in the future for me. I mean we are just looking at 2008 right now.

Okay. And the third question, not to bring up a sore subject but your sister company in suburban Philadelphia is running at a G&A of about 6.5 million a quarter and you are running at about 12 million a quarter. Any idea how two very, very similar companies could be 5.5 million a quarter or $22 million a year different?

No, other than I don't know if the sizes of the company are the same. I mean that would be my first question. And if we are talking about one company then we are talking about, you know, a large part of if company is an industrial company which is sort of a different kind of real estate and how is G&A being charged? Is it property level specific or is it being charged as corporate overhead? So I guess I really think you need to scrub that before kind of making that statement, John.

Great. You don have any color as to the difference?

Yes, I do. I mean not specifically because I don't even know which company because we have lots of sisters out there. But I think that in the one instance that may be whether G&A is charged at a property level or whether it is charged at a corporate level.

Are you running as much G&A through the property level as you can?

No. I we are not running any of it through the property level.

Okay. Got you.

We'll take our next question from Michael [Knott] from [Greenstreet] Advisors.

Hey, guys. Mitchell, is it fair to conclude you are not expecting much in market rent growth in '08?

Yes, that's a fair assumption.

Okay. And you expect releasing cost to sort of remain in that sort of maybe 20% of net rent type range if it is high 2 or $3 a foot?

Yes, I think that's right.

Okay. And then have you seen any changes in values or cap rates in your market over the last several weeks or months, any deals that stick out in your mind?

Well, what I can tell you is there have been a number of deal that have been broken. A couple of deals that were all put together as packages have not been completed simply because capital structure could not be put together. So my feeling is as a result of that certainly for, let's say, less than stellar properties or those that are less than really well stabilized, you -- the next step is going to be some fall off in pricing.

Okay. And then, have you given any thought to the possibility of selling 55 corporate?

Well, we don't own 55 corporate. We are partner, a 50/50 partner in what they call pad 4 which is a pad that is approved for 200,000 square feet. Sanofi has an option on the property that essentially, with a penalty payment associate or a liquidated damage payment associated with it that actually occurs this month. Pad 1, 2, and 3 are owned by SL Green and Gramercy Capital. They have at least talked to the marketplace about selling those assets. Sanofi has a right of first offer, I believe, on those. If in fact -- well regardless of whomever develops or whenever pad 4 is developed, whether it's for Sanofi or somebody else, we, through our Gale subsidiary, will be the developer and be the recipient of development fees for that 200,000 foot building.

Would it make sense to buy the existing buildings?

Not at the price SL Green and Gramercy Capital was were looking for. Okay. And then my last question not to go too far back in history but can you just give us a quick update or maybe self-assessment on the AT&T deal from 2004? Yes. I would be happy to do that. I think that it was still a very good real estate buy in all respects. Kimbell Plaza clearly has a preface. The suburban markets have been less active than we had hoped and certainly the infrastructure in these two assets with the, with the location and the quality we had hoped for better activity sooner but, in terms of Kimbell Plaza, it's now about 35% leased. We do have some very active people -- requirements, corporate requirements looking at it.

It has tremendous infrastructure. It is one of the few areas in the entire Morris County market where you can get descent sized blocks of space of 100,000 feet and so I'm not discouraged about how that's going to end up, and 30 Nights Bridge today is almost 80% leased. We've got some great tenants in the building in addition to AT&T. So I think that particular asset or set of assets has worked out very well for us. We amortized in the cost of some of these sublets and the -- we've done a few particularly on Brelan Road in Florham Park, but the term wasn't long enough in many instances to do something with some of the others. I still think at the end of the day, when we complete the leasing on Kimbell Plaza, that our all-in basis will be extremely low in comparison to a rational market or the cost of replacement.

The cost of building today has gone up pretty quickly and I would say that the cost of development today, even in suburban locations, is up maybe 15 to 20% over just a year, a year and a half ago. And so the replacement cost today with a reasonable land allocation of $30 or $35 a square foot depending on the parking, whether there's any structured parking or not, is really about, for a class A building with granite, fasad is anywhere from $250 to $300 a foot and growing because of the, the increases that we've seen in raw materials and steel, the continued increase in labor, although maybe with maybe with the housing crisis that will be altered slightly, but we're dealing with union labor versus the way housing is built even with the public companies. That's nonunion labor. So I think where we end up on an all-end cost basis will be more than acceptable and more than satisfactory when we complete the leasing and we are almost there on 30 Nights Bridge.

Just a quick follow up on, how would that number vary between say Kimbell Plaza 2 and say your headquarter building in [Edison]?

How would what number vary?

The replacement cost.

Oh, I see. Well, the replacement cost on a unit basis for, obviously Edison is technically a high-rise because of the fact that it is eight stories and but, as you know, several levels are parking that are enclosed beneath the office section which is really four levels, but the nature of high-rise construction on a per square foot basis is more expensive than spread out three and four stories, but you have lesser land components so you have to figure all of that into the mix. But I think to replace, to replace a building like Edison today, the building that we're sitting in is probably closer to $400 a square foot than $300 a square foot in a suburban location.

Thank you.

You are welcome.

We will take our next question from Ian Weissman from Merrill lynch.

My question has been answered. Thank you.

Thank you.

We have one final question from Chris Haley with Wachovia Securities.

My questions have been answered.

Thanks, Chris. Take care.

And we have a follow up question with Michael Billerman with Citi.

Yes, Mitch, have you approached the CEO of the other REIT that you're looking at?

The answer is sort of. Not to be evasive but it has been through intermediaries.

Okay. Thank you.

You are welcome.

And that does conclude today eats question and answer question. At this time I would like to turn the call over to your speakers for any additional or closing remarks.

Thank you. I appreciate everybody participating in today's call and I look forward to reporting to you again next quarter. Thank you very much. And have a good day. That does conclude today's conference call.

You may now disconnect.