Veris Residential Inc (VRE) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the Mack-Cali Realty Corporation fourth quarter 2007 conference call. Today's call is being recorded. At this time, I would like to turn the conference over to the President and Chief Executive Officer, Mr. Mitchell Hersh. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining Mack-Cali's fourth quarter and year-end 2007 earnings conference call. With me today are Barry Lefkowitz, Executive Vice-President and Chief Financial Officer, and Michael Grossman, Executive Vice-President. On a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the federal securities laws. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We will 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, and what we're seeing in our markets. Then, of course, Barry will review our financial results and Mike will give you an update on our leasing results. FFO for the fourth quarter of 2007 came in at $0.89 per share as compared to $0.87 per share for the fourth quarter of 2006. Our occupancies increased during the quarter to 92.7%, which is up from last quarters 92.2%, reflecting strong leasing activity over 1.1 million square feet. Rents for the quarter rolled down by about 1.9%, compared to last quarter's 0.8% roll up. However, this roll down was in fact skewed by a handful of transactions that in fact were very beneficial to Mack-Cali, and I'm going to discuss some of those larger transactions in a few moments.

Our tenant improvement and commission expenses for the quarter were $2.82 per square foot per year, compared to last quarter's $2.98 per square foot per year. And while the economics of lease transactions remain very competitive, we are managing to deal with tenant concessions and actually move them in a positive direction. I do want to point out that in the quarter, Mack-Cali again outperformed our markets with respect to occupancy in our portfolio. In almost all markets where we operate, including northern and central New Jersey, Westchester, suburban Philadelphia and Washington D.C., we continue to maintain a competitive advantage. Despite some modest improvements in the quarter, there still has not been much positive absorption in the markets that would indicate a broad recovery. In fact, as every business, we are concerned about the economic downturn and outlook and how long this period will last. We have seen some effects of economic downturn resulting in slower leasing activity over the last couple of months, and of course, the uncertainty and lack of clarity in the overall economy [breeds] indecision.

For the first quarter of 2008, we are facing some sizable lease expirations, most notably, 163,000 square feet and change at the Hewlett-Packard Building and Capital Office Park in Greenbelt, Maryland. And while we modeled that acquisition and transaction with Hewlett-Packard vacating, we are concerned about the level of demand that we're seeing in the market. But having said that, for the remainder of 2008, we face rollovers of just 6.8% of our base rent, or slightly more than $40 million. Clearly manageable within a company of this size and fortitude. Going back to results for the fourth quarter, we did have some significant leasing transactions. I alluded to them with respect to the roll down.

At 101 Hudson Street, our trophy asset in Jersey City, an AIG subsidiary, National Union Fire Insurance, expanded its space by over 77,000 square feet, and if you think back to the original 311,000 square feet that we took back from Merrill Lynch, or that we assumed they would vacate upon their lease expiration when we acquired the building, we now have only 49,000 of that 311,000 feet remaining unleased in the building. Also at the Jersey City waterfront, at Harborside Financial Center, we signed a long-term lease renewal for over 137,000 square feet with a very significant Japanese bank. We extended the lease out to August 31st of 2019. Thus, further stabilizing this prime asset and prime complex, which is now almost a hundred percent leased, 99.6%.

In Westchester, Xand Corporation leased almost 90,000 square feet for about 10 and a half years at Mid-Westchester Corporate park. A transaction that included 44,000 square feet of new space and a renewal for the remainder of the space. One of our pharmaceutical tenants expanded by over 40,000 square feet in bridge water for a lease term exceeding 10 years. And they also extended their recently-signed new lease with us of 68,000 feet by an additional year to be coterminous with the expansion now a term through 2018. With regard to our stock buyback program, during the fourth quarter, we purchased approximately 2.6 million shares of outstanding common stock at an average price of about $35.54 a share, for a cumulative total of $93 million.

For the entire year in 2007, we purchased about 2.9 million shares of our own stock, for a total approximating $104 million. And so, out of $150 million board authorization, we've purchased about $104 million of our own stock. Now, our evaluation was considering the significant decline in our stock price, coupled with our strong revenue stream, our strong balance sheet, our dividend yield and our high-quality assets plus a limited number of accretive investment opportunities available in today's market place, we felt that this stock purchase was an excellent investment for us.

Now, I would like to review just a few factoids before turning the call over to Barry, who will review in some detail our financial results, but I did see some analysts reports this morning, and some questions about various matters, and I would like to take this opportunity to address a few of them. Obviously, and not to be redundant or at the risk of being redundant, we're seeing a very significant lack of clarity in the economy, most of the news that's evolving is bad news. Every day another piece of it affecting the capital markets, the credit crunch, the lack of liquidity in the system, concern about employment, concern about Wall Street employment and what effect that might have on occupancy. So, we've taken a very careful look as we always do traditionally at our income stream at the credit quality of our tenants, to do everything we can to insure the highest caliber of revenue stream to benefit the company and our shareholders. Right now in the securities industry, and this would include securities, commodities and other financial service industries, which represent in total about 19.5% of our annual base rent. We've looked out on an annual basis over the next 10 years as to what impact lease expirations and roll over would have on our portfolio.

In 2008, 0.34% of our base rent revenue stream is centered in the financial service industry. In 2009, 1.67% of our base rent is centered in the financial service industry. And so while I certainly share your concerns and the concern of the entire nation and the global economy as to what is going on out there, we feel a sense of confidence and comfort that we have an extreme level of diversity within our portfolio. And that we are not particularly susceptible to any particular segment of the economy and changes in employment that could alter the picture. With respect to our guidance, we have reaffirmed our guidance that you have seen within the current range.

Yes, we've reflected very positive results in terms of our same store growth rate. A reflection of the fact that our leasing teams and our entire team has worked very hard to put leases in place to build our occupancy, and we're finally reaping the benefits of many of those occupancies over the last year by finally collecting rent from high-credit quality tenants, now being reflected in our same store cash and GAAP operating metrics. And so, while a lot of positive things have happened to us over the course of the last year in the face of a declining or economic downturn, including the repurchase of our own stock on an accretive basis, because it's a great investment. We've held our guidance within the current range because there's a lot of uncertainty looking out over the course of the year. And as I indicated before, many of the metrics that we use, the velocity of conversion on deals, the number of space showings, are not providing enough clarity for us to alter those metrics at the present time. Of course there's always the question about external growth strategies, and what we'd look at in terms of being an acquirer. And for the moment, I'll talk about asset acquisitions and then later in my discussion when I conclude, I'll talk about the bigger picture.

Right now, we're not buying anything. When I look at the financial picture and I see that our current FFO yield based on our stock price is just under 10%, that our dividend is 7.2% based on today's trading, we're not a buyer. There's lot of uncertainty out there, there's a lot of notable transactional activity occurring. We're highly leveraged purchasers who use very aggressive and lofty underwriting, may have in fact set the bar for premium pricing. And right now, we're more than content to have ample capacity, to continue to gain an understanding of appropriate underwriting and metrics in the marketplace, and put that capital, both human and financial capital, to work at the appropriate time, and that time is not now.

Regarding the cash picture for the company, in the quarter, we basically broke even on a free cash flow basis. For the year, we expanded some $67.5 million in capital for building improvements and tenant improvements and leasing commissions, and finished the full year of 2007 at slightly below breakeven in terms of free cash flow. We don't anticipate much of a change through 2008, given the flatness in conditions. We don't have clarity on exactly how much leasing we're going to throughout the year. There may be a slight decline on a quarter to quarter basis.

In our occupancy rate, I already talked about some notable vacancies that we're dealing with. But hopefully at the end of the year, we'll have the good fortune of keeping our occupancies roughly in the range that exists today. We'll be happy to spend another $60 or $70 million to keep our properties pristine, to pay for tenant improvements and leasing commissions and hopefully, finish the year in a similar cash position as we are concluding 2007.

And now, I'm going to turn the call over to Barry, who will review our financial results for the fourth quarter. Barry?

Thanks, Mitchell. Net income available to common shareholders for the fourth quarter of 2007 was $15.8 million, or $0.24 cents a share, versus $67.4 million, or $1.07 per share for last year. For the year ended December 31st, 2007, net income available to common shareholders amounted to $108.5 million, or $1.61 per share, as compared to $142.7 million, or $2.28 per share. The major differences between the two years, we had some substantial sales of assets and gains that we recognized in '06, which didn't repeat in '07.

FFO available to common shareholders for the quarter amounted to $73 million, or $0.89 per share, versus $68.2 million, or $0.87 a share in '06. For the year ended December 31st of 2007, FFO available to common shareholders was $293.9 million, or $3.56 per share, versus $290.5 million, or $3.73 per share in '07. Other income for the fourth quarter of 2007 included approximately $570,000 in lease termination fees. Fourth quarter of last year had lease termination fees of $3.8 million. For the year 2007, we had termination fees of $10.1 million, as compared to $6.9 million in '06.

Same store net operating income which excludes lease termination fees on a GAAP basis was up 6.5% for the fourth quarter of '07, and for the year increased by 2.5%. Same store net operating income on a cash basis increased by 7.7% for the fourth quarter, and for the year was up 4.9%. Our same store portfolio for the fourth quarter was 28.5 million square feet, which represents about 97.6% of the portfolio. Today we have about $291 million outstanding on our credit facility. Our unincumbered portfolio at the end of the quarter was 238 properties, aggregating 25.7 million square feet of space, which represents 87.7% of the portfolio.

At quarter end, Mack-Cali's total undepreciated book assets equaled $5.5 billion and our debt to undepreciated asset ratio was 40.2% and debt to market cap ratio was 44.4%. We had interest coverage of 3.3 times and fixed charge coverage of 2.8 time for the fourth quarter and interest coverage of 3.3 times, and fixed charge of 2.9 times for the year ended 2007. We ended the quarter with total debt of $2.2 billion, which had a waited interest rate of 6.8%. Also, I would like to note that during 2008, we have very minimal debt maturities, we have roughly $12.5 million, which comes due in a mortgage, in August of '08. Please note that under SEC regulation G, concerning non-GAAP financial measures, such as FFO, we are required to provide an explanation of why we believe such financial measures are relevant and reconcile them to net income. Available at our website at www.mack-cali.com, our supplemental package and earnings release, which include the information required by regulation G, as well as our 10-K. Now, Mike will cover leasing activities.

Thanks, Barry. Thanks to a solid leasing performance across all of our major markets, we achieved 50 basis point increase in lease space for the fourth quarter, which enabled us to close the year at 92.7%. This is the highest percentage lease since the third quarter of 2004, and 70 basis points above our fourth quarter 2006 results.

For the year, we signed 519 transactions representing 4.3 million square feet. 1.1 million square feet leased during the fourth quarter was consistent with previous results, but it will be challenging to sustain that level of leasing volume given the current economic conditions. We retained 88.8% of expiring square footage in the fourth quarter, and 71.7% of expiring space for the full year.

At $2.82 per square foot per year for the quarter and the $2.72 for the full year, occupancy costs were significantly below 2006 levels despite highly competitive markets. The 1.9% roll down for the quarter was queued by a handful of large transactions, but as Mitch noted, very beneficial transactions for the company. Moving the four deals with the highest impact from a calculation, result in a 0.8% rent roll up. This is a better management of the bulk of our leasing activity, which was composed of transactions of 10,000 square feet or less.

For the full year 2007, we averaged a 0.2% roll down overall. Expirations for 2008 amount to 7.2% of space leased. About 30% of which will expire in the first quarter of the year, and 6.8% of rent. Thanks to our continuing early renewal efforts, 2009 expirations amount to only 9% of space leased and 8.9% of rent. As a measure of activity within our markets, the total number of space showings during 2007 in Mack-Cali Building was nearly identical to 2006 both overall and on a market-by-market basis. The total square footage was down about 12% due to smaller on average potential tenants in our New Jersey properties. The total square footage of our showing in other markets was consistent with 2006.

Stability characterized our markets in the fourth quarter according to Cushman and Wakefield's statistics. Westchester and Fairfield achieved slight reductions in Class A overall availability during the fourth quarter, while our major markets experienced small increases. Class A direct average [estimates] were nearly unchanged in the fourth quarter across our major markets.

Looking at the full year 2007, our New Jersey markets remained stagnant. Consolidation among the major pharmaceuticals contributed to a 70 basis point gain in vacancy for the year. Conversely, the markets in our portfolio have benefited from recent expansions among mid-side pharmacy. Fairfield County and Suburban Philadelphia standout with 240 basis points decreases in vacancy in each of those regions. Our other markets achieved smaller decreases in vacancy in 2007. Speculative construction continues be to restrained, with only a moderate activity occurring in our New Jersey markets.

There's less than 1 million square feet of unspoken for new office construction scheduled to be delivered within the next 2 years representing less than 0.6% of the total space in the market. As I mentioned, Class A direct asking rent generally help steady for the fourth quarter, compared to a year ago, asking rents have increased modestly by approximately $1 per square foot, or just over 3% on average across our major suburban markets. The current economic climate will certainly provide challenges for us in 2008, but with our well-positioned portfolio, strong leasing capabilities, we'll work to continue to significantly outperform our markets.

Mitch?

Thanks, Mike. Before we open the lines to your questions, I just want to make a few further comments in closing. I want to reiterate that our outlook remains very cautious considering today's economic environment. However, we navigate through this period of uncertainty with strong occupancies, as evidenced by our report today, with strong credit quality behind our occupancies and our revenue stream, a strong balance sheet, a no near-term debt maturities. We're carefully watching the markets, and we'll continue to focus on effectively managing our properties, ringing out efficiencies and efficacies wherever we can.

As I've said before, we continue to believe that there will, in fact, be opportunities, and we have a strong balance sheet in the capital to act on those when opportunities do in fact arise. Concerning speculation in the marketplace about larger transactions and I think we've seen a lot of change occurring in the marketplace, a lot of lack of clarity with respect to what opportunities might be available, I thought I would just make a few comments. I think as has been been evidenced over time, we don't necessarily subscribe to the notion that bigger is necessarily better.

Our goal as demonstrated over the last many years has been focus, has been to continue to upgrade our portfolio, and try to harvest value over time, when the opportunities emerge. Especially in times like these, I can tell you that we won't stress either our human capital or our financial capital. That's not to say that we won't look at every opportunity that's available in the market place very carefully to continue our role as market leader and to continue to create value for our shareholders. But whatever opportunities we take advantage of, we'll need to be very compelling. I need to, in fact, demonstrate that I can produce and create value for our shareholders. So with that, we'll open the floor to questions. Operator?

Thank you, sir. (OPERATOR INSTRUCTIONS) We'll go first to Jordan Sadler with KeyBanc Capital Markets.

Thanks and good morning. Mitch, I just want to add a question regarding the sort of opportunistic side of things. You made some commentary that it sounded like you're not necessarily a buyer today, understandably. And I was just curious as to what we could think about and what you might be looking for where you might become more opportunistic, or would look to invest. What is it you're looking for essentially before you would put money to work today?

Good morning, Jordan. I think that there will be a subset of opportunities that will emerge as a result of some of the aggressive underwriting that's been done with particularly highly leveraged either funds or individual players and investors in the market. Obviously, the capital markets and the credit markets for sure are largely shutdown. The debt markets for investment grade rated credit, in the unsecured markets, are shut down largely, so certainly this realm of employing high leverage with underwriting and anticipated dramatic rent growth will provide some opportunity. I think we will continue to use basic metrics with respect to if it's an asset, replacement cost comparisons. I mean, we are a prolific developer when the time is right, and we have the expertise. So we understand what evaluations are with regard to new development and what the cost of development is, and so that will be a metric. We'll need to understand if it's a more stabilized asset, what the opportunities for growth are, setting sort of a floor and a bar.

Again, using basic metrics of not so much cap rates, but how we can grow the income, and how that might be accretive to the company. And what sort of market share penetration does it afford us, et cetera. Can it help us become more significant and more competitive and have an advantage in a particular submarket or market? So I think that's one element. I think with regard to any sort of larger transactions we will need to understand what the risks are with respect to the human capital side, the integration side. I think we've demonstrated through the -- for example, the Gale acquisition that we remained focused. It gave us the ability through that acquisition, to enhance our market share, to enhance certainly lines of business, if you will, within our markets, and do so at an appropriate evaluation. So, there are lots of things that will be going into the equation, probably the least of which will be looking at internal rates of return on highly speculative reversion cap rates, and highly speculative growth in rent in a marketplace that almost today, outside of very few, is universally relatively dormant.

I guess, the message is we're going to be real careful, and we're going to look at every opportunity very, very carefully to see what it can do for our shareholders, and our franchise to be beneficial. And frankly, I don't know that this will go anywhere, but, we've seen some renewed interest on the part of some significant private players in our market base right now that are interested in at least looking at OP unit transactions, because they so highly value the Mack-Cali currency. But clearly at this depressed stock price, we're going to be very, very careful in that regard, as well. So I guess the message is, I've been through this before, I've been through a lot of cycles. This one is different because it impacts so many different aspects of the world's economy, in terms of currency, arbitrage, in terms of lack of transparency.

Fortunately, we haven't seen impacts right now to any significant degree in the commercial markets, other than the fact that many, many debt holders are unable to refinance their debt. Many, many debt holders who participated in CNBS financing don't have servicers that they can even talk to in this environment, because of the way the debt was sliced and diced. So we'll be real careful, Jordan, and I think the frame of reference is that this is not the first economic downturn that I and my team have been through, and I expect that we'll emerge sensing that there is some level of opportunity and it will crystallize over the coming months.

From a market perspective, shall we assume that the New York plans would be incrementally accelerated, or maybe put to the side?

Well, we'll continue to look at opportunities within the New York City marketplace. but I wouldn't basically take a position one way or the other. I still think, as to many, many others, including the analytic community, that the New York Epicenter has been somewhat barrier constrained, and site remains a vital market and a vibrant market. There are naturally significant concerns about what the financial service industry does with respect to employment, and how that might affect service employment and other sectors that are interdependent and what that's going to do to occupancies. And is it going to put sublet space back on the market in New York, and how is that going to affect rents and underwritings, but, and I don't mean to be evasive, but we are going to look at every opportunity that emerges. We're not a buyer of certainly at this level, of trophy assets on the avenue. That's not been our profile.

It's never been a stated goal. And I suspect that there will be some opportunities that more conform with the highly leveraged guys, and I'm not talking about the notable situations I'm talking about. there are many of those situations, but we're going to be real careful about the underwriting and how we feel about the [continuum] of an income stream on a property specific basis. And we're kind of in uncharted waters right now with the confluence of all of these events that are occurring in the economy, and when you have a Federal Reserve and a Treasury Department that are struggling for ways to deal with the economic fallout right now, it's a time to kind of sit back and watch and wait and be very, very comforted in the notion that you're not pressured to do anything either in the equity or the debt side of the business.

Do you think you would try to raise capital through some assets here, or do you think that's --

First of all, the availability of liquidity in the market, other than very rare instances, is almost nonexistent today. Certainly if you wanted to do secured financing, you could do that, and no matter how good the underlying credit is, or the sponsorship, today you're looking at a 50 to 60% leveraged level, plus or minus, maybe in the higher end. In the case of a Mack-Cali, to be able to do secured financing, and so the equity cone isn't very significant and the type of assets that we might consider dispossession of to continue to upgrade our portfolio, without sacrificing our market share, or our ability to build and an economy that's regaining strength in the future, in terms of new development. The type of assets are not appealing to the sovereign wealth nations, and they're more akin to the leveraged buyer, who is largely out of the market. And so why take the risk of failed execution, coupled with a demoralized management time with respect to those portfolios at this point in this cycle. I don't think the risk-reward equation is there right now.

Thanks for the color, Mitch.

You're welcome.

We'll go next to Sloan Bohlen and Goldman Sachs.

Good morning, guys. Mitch, just a quick question on guidance. I was wondering if you could maybe elaborate about what uncertainties you're kind of baking in. What are the main risks you guys see? Is it single tenant risk, or people giving back space, before that be the Hewlett-Packard lease, or other tenants you're looking at?

Yes, it's not so much a risk as much as it is a timing element. Yes, as I pointed out before, it's quite conceivable that there will be a fluctuation in our occupancy as a result of some of these larger vacancies, and demand is slow to replace those tenants at Greenbelt, Maryland right now. Demand is slow and in some of the large blocks of space, we haven't seen the kind of velocity that we saw a year ago, and I guess we lack clarity on timing of when we're going to regain or stabilize the occupancy at the current level and when we're going to start collecting income on it. And we think that right now it's a little bit of a muddled picture. We feel that certainly the range of guidance, given some recent activity as, we talked about in terms of stock repurchase or so fort, is comfortable for us. And over the course of the year, we'll have more clarity on that.

And so it fair to say that it's more about leasing up the vacancy you currently have in the portfolio, as opposed to you haven't seen subleased space coming on to the market?

Yes, I could tell you right now that but for one discussion. On a waterfront property, and it's not significant, and it is a financial service tenant in a correlated industry, nobody is talking to us right now about giving back space, or putting blocks of subleased space to any degree into the market. So it is strictly about being able to deal with our vacancy, and having dealt with that vacancy we'll be able to collect cash income as opposed to GAAP reporting.

Okay. And just one quick question on Jersey City. You kind of alluded to it, but you guys had fairly strong leasing in that market, particular with financial service tenants. A competitor of yours also signed a lease with with a financial service tenant. Could you just characterize what the talks with those types of tenants are? Given depending lay-offs, potentially in Manhattan.

Again, I can reiterate the fact that we've just completed some very significant transactions. We have in 101 Hudson Street, where we purchased the asset. I guess, now three years ago. This month. We have moved rents from. At that time, the underwritings standards at $28 and change of foot to close to $40 a foot. So there clearly is a dimension of the market place that still sees a significant value in locating in the Jersey City waterfront taking advantage of and of the incentive programs of business employment, (inaudible), retension agreement, the urban enterprise zone, and still looking across various parts of the river at rents that exceed the ones I just recited by multiples, and still get high-quality real estate in a dynamic community, where things are happening, and it's got cache and so fort.

So we have been able to do quite well along the waterfront. There was a transaction announced within the last few days of a major financial service firm that signed a very significant lease, not in our property along the waterfront, because we have no vacancy. But a very significant lease, and the generating factor in that particular transaction, and we were involved, we just couldn't accommodate the space, I guess that's a good thing, was the economic disparity between being located in mid-town and being located in mid-town west, which is the waterfront. So the waterfront area remains pretty healthy right now. But there is an overriding concern, I think, in the mind's eye of the financial service community as to - will there be layoffs and what impact is that going to have on currently leased space.

We signed up between the two transactions I talked about. Well over 200,000 square feet within the last month. Both renewals and new incremental absorption on the part of - one is an insure company, the other one is a global bank. And so I can't imagine they took that space unless they were committed to occupying it, and having thought that through carefully and deliberately as opposed to being so vulnerable and thinking from day to day that they might have to sublease it. So we're pretty comfortable with where we are in terms of our waterfront properties right now.

Okay. Thank you. That's helpful.

You're welcome.

We'll go next to George Auerbach with Merrill Lynch.

Hi, good morning, everyone. Mitch, does your '08 guidance assume that the Greenbelt asset remains vacant through '08?

I hope it doesn't remain vacant through '08, but it assumes by the time we get it leased and get it rent paying, '08 is pretty much gone.

Okay. And what are your expectations for overall portfolio occupancy in '08?

It's hard to predict. I would tell you that next quarter, or the quarter we're in, actually, as a result of some of these expirations, it could decline slightly. In fact, it probably will. I would hope that we're roughly in a zone of where we've been over the last few years. With a 9 certainly in front of our occupancy at year-end no matter what happens?

Okay. And finally across your portfolio, what's the average contractual rent bump on on your in place rents?

I'm not sure what the average is but we'd loved to achieve anywhere between a point and a half and three percent, depending on what we can accomplish on an annualized basis. And naturally some of these rent increases are aggregated in five-year increments, plus or mine us, and along the waterfront properties, more traditionally they're annual bumps in that zone, in that range.

Great. Thanks so much.

You're welcome.

We'll go next to Jamie Feldman with UBS.

Great. Thank you. I guess I'll follow up on some of the last question. So, in terms of '08 guidance your assumption for leasing spread?

Flat.

Flat. Okay.

Now, with basically, you saw the fact that we're roughly at what I would call, mark to market. But these larger transactions, which really sure up the portfolio, certainly the water front portfolio, we are actually slightly positive, but anybody who tells you in this environment, other than an anecdotal instance, or rare circumstance, that rents are going up, I would really question that.

Okay. It sounds that you're same (inaudible) and then offset by whatever occupancy decline you may have?

Yes, pretty much.

Okay. In terms of I guess back on the growth issue. How does it maybe build to suit development market look, cash or (inaudible) better? Any RSP's out there? That may begin construction in '08 or even '09 as we're looking out

I would say largely the answer is no. There are a couple of situations that are being evaluated, actually, by the tenants right now, in the (inaudible) market place that are working with us. This is one way or the other, I would expect, will result in continued opportunity for Mack-Cali in considering a built to suit on the campus, versus some other options within the campus. But, you know, there is such a high degree of uncertainty in the economy right now that it's largely not a topic of discussion today.

Okay. And then staying on development, can we have an update maybe on the filing basement project?

Well, as you know, we have a 15% position in that development. We're very encouraged with recent discussions with potential lenders. The construction financing element is being led by our partner VORNADO capital markets group, and they are working, or should I say we are directly working. But they're leading that, to put together a club, if you will, to provide something in the order of $5 to $550 million dollars of construction financing. The project is somewhere around a $710 or so million-dollar project, and, you know, all [ofny] approvals and so forth have been have been obtained, and will is work going on on the site. Some of the work with respect to the historic building and the (inaudible) basement building. It's forging ahead, and we'll have a finite capital commitment at this juncture, and we're hoping that we'll be able to put this financing package together.

What about on the demand side?

A lot of demand, frankly, still no real new office product available outside of the financial district. This is adjacent to it. It's the next opportunity in Boston. We're seeing a fair amount of demand on the part of law firms. We're looking at net rents, plus or minus in the $50 range in terms of the price talk right now. We're working with our partners, VORNADO, J.P. Morgan, and Gail international on the possibility of a pre-sold hotel. Although, that has not yet been finalized and that would be roughly between 250 and 260 rooms. Still a little bit fluid in terms of how the design can evolve. And VORNADO is working on a whole variety of different opportunities in the retail sector. A lot of interest in the remaining retail space outside of the (inaudible) basement. So I would tell you that demand is strong, and we're very optimistic about that project. And frankly, just in terms of Boston itself, we have properties up on the northern quadrant in partnership with J.P. Morgan, the route 93 portfolio. We've seen, notwithstanding all of the issues in the economy, there still continues to be a driving demand in the bio technology card or predominantly, and the elements of pharmaceuticals that are more focused on biotech and research. So we're pretty encouraged with what we're seeing up in Boston right now.

Okay. And then finally two quick modeling questions for Barry. The other was higher than we expected, and operating expenses were below. Is there anything one-time in nature in there?

No, we still continue to have other income in the $3.5 to $4 million range is the way we model it. Obviously, we could be a little higher and a little bit lower for each of the quarters, and in terms of operating expenses, generally they've been holding a little higher than they were last year. But principally we're seeing most of the growth in operating expenses related to utility cost.

Thank you very much.

You're welcome.

We'll go next to Susan Berliner with Bear Sterns.

Good morning. Barry, I was wondering if you could talk about -- I know you have a decent amount outstanding on your bank line and what what your problems are your refinancing, or if you're just going to keep it on your line?

Well, at the present time, we have a $775 million credit facility. We have about $291million drawn. That credit line has roughly three and a half years left to run, with a one-year extension option, and as I mentioned before, we have virtually no maturities this year. We have a $300 million bond that comes due in March of next year. So at this point in time, we're evaluating, what we might do. If we see the debt marks open up, and we can see some reasonable activity there, we might go to the unsecured market. We'll also look at the mortgage market for a term out, but we're not pressured to do anything in particular at this point.

Great. Thanks. And Mitch, and I apologize if someone had asked this before, I had to hop off for one second. The investment you made last quarter which was kind of an opportunistic investment in a competitor, can you just update us to where you guys stand on that? of a exit we are be could you update us where you guys stand on that?

Sure. There's no change in that investment. I would tell you that it's about even, maybe slightly in the money at this juncture, and so no change at this point.

Great. Thank you.

You are welcome.

We'll take our next question from Michael Knott in Green Street.

Hey, guys. Mitchell, can you just update us on the Gale Green acquisition that you had done back in, I think, '06?

Okay. The -- are we talking about the joint venture? which element of it?

The portfolio acquisition.

Yes, I mean, we're managing the portfolio. We have all the issues that impact the markets are affecting to varying degrees. The assets within that portfolio. So there's not much new. We still own it with the SL Green. And we have some financing on it with gramercy, which was part of the acquisition financing, but there's really no change. Michael.

Has it performed up to your expectations?

It's performed -- I mean, let's put it this way, we bifurcated those properties into a joint venture because they were higher risk properties with respect to occupancies. And so I think we did the right thing, certainly for Mack-Cali shareholders by doing that, and I think SL Green understands that we're doing the best that we can to rebuild expirations within the portfolio. We've had some successes with Al forma and some others, with leasing activity, and some of the properties, you know, are really actively quiet now. So I think it in fact has performed up to our expectations, and that's why we joint ventured it.

And did part of that feel get sold during the quarter? It looked like in the --

Yes, that was Troy Michigan in Naperville, and we effectively, other than a nominal interest for structuring ropes, had no economic participation in that. And so, may have been a little bit confusing. I noticed that in one analyst report that talked about some expenses of $30 million, basically that all related to the sale of Naperville and Troy, which was done at a loss below book basis, but had no impact on Mack-Cali.

Okay. And then can you talk about your expectation for possibly utilizing the remaining balance of your share repurchase authorization, and how you might think about that activity relative to other capital occasion opportunity?

Yes, I indicated before that we're not pressured to do anything. I mean, we're operating with earnings guidance within a range, as has been indicated several times on the call. We're in a fairly flexibility position with respect to our balance sheet, out plus or minus 300 million on the line. So we have probably all told, on a credit basis, or a debt basis, another 5, 6, $700 million without even looking at mortgage financing on any of our assets, which are largely unencumbered. I think our unencumbered pool is 91%, plus or minus. So, capital is not an issue right now, but we're going to utilize it very wisely, and it's also very affordable, frankly, because borrowing on the line today at spreads over LIBOR, certainly using our bit facility is a pretty efficient debt instrument right now in the marketplace.

And not to repeat Barry's comment to Susan Berliner, but if we see some level of efficiency in the unsecured markets, and no risk of execution per se, we're going to go in that direction at some point, but with regard to the stock buyback, I think we have gallon straightened a commitment and a confidence level by investing $104 million up to the end of the year. It's accretive. We're happy to have invested in the company. We still have this marginal amount of 46 million that we can invest. But right now, in an illiquid environment, where, again, credit markets, dead markets, have shutdown, and what you have is what you have right now, with no sun on the horizon, in terms of when these markets are going to open up. We're going to treat every dollar of our available capacity as extremely precious. And at some point, maybe that will result in more buybacks, and maybe it will result in utilizing capital for other things. But right now, it's resulting in a lot of patience with no pressure to do anything.

Okay. Thanks a lot.

Welcome.

We'll go next to Michael Bilerman with Citigroup.

Hi, Mitch and Barry, just going back to the stock buyback last quarter, going through the 10-K, it looks like the value went down by about $800,000, or about a 16% decline in the fourth quarter relative to where you bought it. I'm just wondering, you're really aggressive buying back your own stock, you saw value, you obviously bought this small stake, because you perceive some value. Why not be more aggressive and continue to buy more if it was down so much?

Okay, first of all, congratulations, Michael, on your new role

Thank you.

at Citigroup. You're welcome. You kind of broke up on the question, but I think it centers around the investment in the securities investment that we made in another company that reflected an $800,000 loss because it runs through the equity. Is that right?

Exactly. Yes.

As with any of these companies, any company that has securities on their balance sheets, it's sort of an (inaudible) mark to market, and that's all. That's a reflection of. I can tell you that generally speaking, as of, let's say yesterday, we were about neutral or slightly in the money on that investment. The investment was made clearly for strategic reasons. A seat at the table type of thing, because of distractions and other matters that have affected everyone, including that particular company, I haven't had the opportunity of having that seat at the table. And if that persists, I'll make a decision as to what to do with that investment at the appropriate time.

Right. Questions on G&A. What was the big spike in the quarter and what is the outlook for next year?

Basically, it was bonuses and chewing up some of the (inaudible) around the compensation plan.

And Mitch, as you reflect on - you had your comments about wanting to be conservative in this environment, which completely makes sense, and how you'll be very cognizant of the underwriting and what things should be priced. As you reflect now on your purchase of 125 broad, if you were having to purchase that asset today, and you wen't in there, a low 4 initial cap rate yield, would anything change?

I think our basis in the asset is attractive. I think that the rents, you know, are well under today's market. I can't.

I'm satisfied with that acquisition. I am concerned about the overall cone of the New York City marketplace, given the dominance of financial services. We -- in the first lease that's expiring in the building, have a little more than two years, or about two years remaining. I've talked to the tenant. I think the tenant is you. And at this point, I'm getting the proverbial. We don't know what tomorrow is going to bring, let alone two years from now, but the comfort that we have is that all of the cap leasing that's been done in and around 125 has been done at $15 to $20 a foot, if not more than the rent in that particular lease. So, we're pretty comfortable with our basis.

But if that came to market today, you were buying it (inaudible).

You are breaking up. Can you repeat the question? You broke up.

Sorry, if the asset came to market today, where do you go you think that asset would trade, even if you bought it somewhere else, do you think it would still be attainable?

I mean, assuming that a trade could be done in this environment with respect to the capital constraints that exist on potential purchasers, clearly, we have seen nothing but price appreciation since we bought the asset, and not to be forgotten, the fact it was part of a strategic transaction with SL Green where we traded an asset that we didn't particularly view as core for almost the same pricing metrics on a per square foot and a cap rate basis. So, that certainly should and needs to be viewed as part of that overall transaction. But, for the one year, since we've owned it, more or less, we've seen nothing but a rise in prices. Actually, there is a changing, evolving situation in New York now.

Right. I completely understand. All right. Thank you.

You're very welcome.

We'll go next to Mitchell Germain with Bank of America Securities.

Good afternoon. Mitch, the Greenbelt asset, I apologized if you already addressed that. I had to shut off for a second, releasing, do you think it's consistent with your overall mark to market, or do you think that it might lease up, lease down?

The one good thing about Greenbelt, and that whole, you know, lana marketplace, is that the rents don't move much one way or the other, and when we underwrote the acquisition, we had enough knowledge to at least assume in the underwriting that they were going to vacate the building because it was discuss at that time about a consulting contract that they had with a component of the government that wasn't potentially going to be renewed.

In that marketplace, you're looking at mid-$20 rents. It reminds me anecdotally of Westchester. Good times, bad times, the rents are always mid-20s, plus or minus. So I think we'll be fine there, just a question of seeing a little more demand. And as I alluded to, that's impacting, our view of guidance you my may have jumped off the call at that point, as a result of when we might actually see cash rent out of that particular releasing.

And I got that point. Okay. And what about cap, does it require any specific capital costs?

No. Nothing more than standard [C.I.] plus.

Okay. Great, and specifically in any of your markets, are you seeing any increase in the concession package?

The answer to that is no. Actually, if you look, let me kind of bifurcate the answer. If you look at our statistics, we have certainly been driving down the cost relative to TI commission packages on a per square foot annualize basis. So we've met some reasonable goals in that area. That's not to say that certain markets aren't weaker than others. For example, frankly, the Princeton market has remained a difficult, sluggish market, and the costs of the T.I. packages and concession packages there are probably greater, I think, than virtually any other market that we operate in New Jersey. You have to look at each on it own.

Great, thanks, guys.

You're welcome.

And we have a follow-up from Jordan Sadler with KeyBanc Capital Markets.

Hi, guys. Just on this marketable securities stake, you said you wanted to have a seat at the table. Is this a distressed situation?

No, it's a strategic situation where my view was that there were aspects of a particular company that could be incrementally beneficial to Mack-Cali. It's not a distress situation, and I frankly don't -- well, I guess I shouldn't say there are none in the public sector, but it's not a distress situation.

Okay. And earlier you spoke of sort of investments, looking to sort of focus the portfolio and/or upgrade the quality of the portfolio in an environment like this, or in a more difficult environment, if you were to invest opportunistically, would this -- and you also say there's no change to sort of this investment. Are those in sort of the same context? Would this be an upgrade to the portfolio? And has anything changed in terms of your view of this type of up investment?

No, this particular investment would be an enhancement of the portfolio in markets or sub markets that we currently have certain positions in, so it would be an enhancement to the quality of the assets would fit within the definition of class A assets within our universe, and there were also certain other synergistic elements to the company that in term office few various business areas that I felt could be strategically beneficial. I don't know anymore I can tell you on it, other than it fits within the pattern of what we have been doing.

Good. That's helpful. And have you been in contact with the other management team?

Yes.

Okay. Okay.

Yes. But I'm not suggesting for a moment that's going anywhere, but the answer is yes yes, I've had contact with my counterpart.

But you're basically going to hold this position just in case something happens, or is something still -- this is not fully resolved, or played out at this point?

It's not fully resolved, and I'm undecided.

Okay. That's helpful. Thank you.

You're welcome.

My other question was just as it related to Jersey City and the leases signed during the quarter. When did those leases commence during the quarter? Was it October 1st? There's just significance for modeling purposes.

Yes, I think in both instances they commence in the first quarter we're in.

Sure. But -- oh in the first quarter of '08. Right?

Yes.

That's helpful. Thank you.

You're welcome.

And there appear to be no further questions at this time. I would like to turn the call back to Mr. Hersh for any additional or collateralizing comments.

Well, thank you all for joining us on today's call. I hope you all found it informative, the interaction is very helpful to us, and we look forward to reporting to you again next quarter. Have a good day.

Again, that does conclude today's conference calling. Thank you for your participation. You may disconnect at this time.