Veris Residential Inc (VRE) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to the Mack-Cali Realty Corporation third-quarter 2008 conference call. Today's call is being recorded. At this time I would like to turn the call over to the President and Chief Executive Officer, Mr. Mitchell Hersh. Please go ahead, sir.

Good morning and thank you for joining Mack-Cali's third-quarter 2008 earnings conference call. With me today are Barry Lefkowitz, Executive Vice President and Chief Financial Officer; and Michael Grossman, Executive Vice President.

On a legal note I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurances that the anticipated results will be achieved. We refer you to our press release and annual and quarterly reports filed with the SEC for risk factors that could impact the Company.

First, I'd like to review some of our results and activities for the quarter and what we're seeing in our markets. Then Barry will review our financial results and Mike will give you an update of our leasing results. FFO for the third quarter of 2008 came in at $1.02 per share as compared to $0.93 per share for the third quarter of 2007.

Considering the overall economic conditions, I'm pleased to report that we had a solid quarter with some significant leasing accomplishments. We had over 1.1 million square feet of lease transactions and our portfolio ended the quarter at 91.8% leased, slightly down from last quarter's 92.3%.

Rents had a slight roll down this quarter by 1.8% compared to last quarter's 6.5% roll up. The roll downs were throughout many of our markets and largely based on a number of strategic transactions. Similarly, our leasing costs rose slightly this quarter with TIs and commissions for the quarter at $3.46 per square foot per year compared with last quarter's $2.86 per square foot per year, but again, largely due to a number of strategic transactions in our Morris county and Hudson County market place.

For the remainder of 2008 we face lease rollovers that are quite manageable. They comprise only 1.2% of the base rent of the Company, or just under $7 million. And in 2009 our lease rollovers constitute 7.4% of our base rent. So we have very manageable lease rollovers over the next few years.

Unfortunately, as I've stated on prior calls, we don't believe we've seen the worst of economic conditions. And so we expect that our markets will remain very challenging and the economics of lease transactions will remain very competitive. We certainly will continue to concentrate our efforts on keeping our properties well leased and certainly our tenant retention rates of over 72% demonstrate that.

Our portfolio continues to outperform most of the markets where we operate, with leased rates exceeding market averages in northern and central New Jersey, Westchester, suburban Philadelphia and Washington, DC, as well as downtown Manhattan.

Never the less, despite our out performance there is a great deal of uncertainty in the business sector, as we all know. Tenants are simply reluctant to make long-term strategic office space commitments because they don't know what their employment picture will look like in the ensuing years. And so, more clarity is required in the economy.

With that being said, we're pleased that even in these most challenging times and markets we have maintained our competitive advantage and our market leadership.

As you may have noted from this morning's earnings release, we have some especially good news to report which further solidifies our balance sheet and financial strength. The Company just two days ago closed on a $240 million mortgage financing from Northwestern Mutual Life Insurance Company and New York Life Insurance in partnership on our Harborside Financial Center Plaza V property in Jersey City.

The proceeds of this loan, again $240 million, have been used to pay down outstanding borrowings on our unsecured credit facility. And essentially what's occurred is that this financing repays our maturing $300 million senior unsecured bond which matures in March of 2009.

Today our outstanding line balance is roughly $95 million on a $775 million unsecured revolving credit facility that doesn't expire until effectively June of 2012 with extensions. And in addition to that credit facility we have a $75 million overnight note program. And so the Company has ample liquidity. And even with this secured financing, our unencumbered asset pool remains at almost 85%. And so we have access to additional secured financings for further liquidity in the future.

Looking back at some of our notable leasing transactions during the quarter, first and foremost Arch Insurance Company, a division of Arch Capital Group, a provider of property-casualty and specialty insurance signed a new 15-year and six-month lease for almost 107,000 square feet at our Harborside Financial Center Plaza III in Jersey City.

In suburban Philadelphia Keystone Mercy Health Plan and AmeriHealth Mercy Health Plan, providers of personal insurance coverage, signed five-year lease extensions totaling over 303,000 square feet at our Airport Business Center in Leicester, Pennsylvania. This transaction extended their leases through April of 2020.

We also signed a renewal of 52,000 square feet at Strawbridge Drive in Moorestown with defense contractor, Lockheed Martin Corp. Strawbridge is a 74,000 square foot building that's almost 99% leased and it's in our Moorestown corporate Center.

GAB Robins North America, a national insurance and risk management service, signed approximately 58,000 square feet, a renewal for 10 years, at our 9 Campus Drive at our Mack-Cali Business Campus in Parsippany, New Jersey. This 156,000 square foot office building is now approximately 94% leased.

In addition to this leasing news, we have some other positive news to highlight. Mack-Cali continues to be recognized for our expertise in property management and tenant service. I'm pleased to tell you that just this evening Mack-Cali Soundview Plaza in Stamford, Connecticut will be receiving the office building of the year, the Toby Award from the Connecticut chapter of BOMA.

4 Gatehall Drive located in our Mack-Cali Business Campus in Parsippany, New Jersey has earned the United States Environmental Protection Agency's prestigious Energy Star Award, the national symbol for superior energy efficiency and environmental protection. Our property management teams are currently working to achieve this important designation so vital to our nation in additional buildings throughout our portfolio.

With respect to our 2009 guidance noted in this morning's press release, you'll note that our 2009 midrange of $3.35 is approximately 3.7% below our midrange 2008 guidance, which was $3.48 when first provided a year ago. Of course, this reflects our conservative view of perhaps slight occupancy loss in our portfolio through the difficult climate in 2009, and certainly doesn't account for any special nonrecurring items which resulted frankly in $0.21 per share in earnings in 2008 based on the latest release and guidance set forth today.

And so, as has been our practice, we maintain a conservative posture and a careful and disciplined posture in both our assessment of the marketplace and in our assessment of the earnings stream. And now I'll turn the call over to Barry who will review our financial results for the quarter.

Thanks, Michel. Net income available to common shareholders for the third quarter of 2008 was $22.6 million or $0.34 a share versus $23 million a year earlier and $0.34 a share. For the nine months ended September 30, 2008 net income available to common shareholders amounted to $55.9 million or $0.85 a share as compared to $92.6 million or $1.38 a share for last year. Funds available -- FFO available to common shareholders for the quarter amounted to $82.1 million or $1.02 a share versus $77.5 million or $0.93 a share in '07.

For the nine months ended September 30, 2008 FFO available to common shareholders was $228.2 million or $2.83 a share versus $220.9 million or $2.67 a share in '07. Other income in the quarter included approximately $8.2 million of lease termination fees. Third quarter last year had lease termination fees of about $8.5 million. For the nine months of this year termination fees totaled approximately $9 million as compared to $9.5 million in '07.

Same-store net operating income, which excludes lease termination fees, increased by 0.6% for the third quarter of '08 on a GAAP basis and for the nine months increased by 0.5%. Same-store net operating income on a cash basis increased by 0.1% for the third quarter of '08 and for the nine months increased by [1.5]%. Our same-store portfolio for the third quarter was 29.2 million square feet and our same-store portfolio for the nine months of '08 was 28.5 million square feet.

Our unencumbered property pool at quarter end totaled 239 properties aggregating 25.8 million square feet of space which represented at that time about 88.3% of our portfolio. As Mitchell mentioned earlier, we just completed a $240 million mortgage financing secured by our Harborside Plaza V property. The financing, which was provided by Northwest Mutual and New York Life as co-lenders, has a term of 10 years with 30-year amortization and bears interest at 6.8%.

The proceeds of the loan were used to reduce outstanding borrowings under our $775 million unsecured credit facility bringing the current outstandings under the facility to $95 million. After the mortgage financing our unencumbered property portfolio now totals 238 properties aggregating 24.8 million square feet of space which represents 84.9% of our portfolio.

At quarter end Mack-Cali's total undepreciated book assets equaled $5.5 billion and our debt to undepreciated assets ratio was 40.6%. The Company had interest coverage of 3.6 times and fixed charge coverage of 3.1 times for the third quarter and interest coverage of 3.4 times and fixed charge coverage of 2.9 times for the nine months ended September 30, '08. We ended the quarter with total debt of approximately $2.2 billion which had a weighted average interest rate of 5.78%.

We are providing 2009 FFO guidance for the first time. Our 2009 FFO guidance range of 325 to 345 of FFO per share assumes at the midpoint leasing starts of about 1 million square feet for the year versus scheduled lease expirations of about 1.9 million square feet. End of year occupancy for 2009 about 2% below the 9-30-08 levels, and we also included a reserve of approximately $3 million for the uncertainty regarding the Lehman Brothers space in Jersey City.

Please note that under SEC Regulation G concerning non-GAAP financial measures such as FFO, we are required to provide an explanation of why we believe such financial measures are relevant and reconcile them to net income. Available on our website at www.Mack-Cali.com are our supplemental package and earnings release which include the information required by Regulation G as well as our 10-Q. Now Mike will cover our leasing activity. Mike?

Thanks, Barry. In the third quarter we signed 118 transactions totaling 1.1 million square feet. A quarter-to-quarter decrease of 50 basis points in our space leased was primarily the result of a few large block expirations in our suburban Philadelphia, Maryland and Westchester County properties combined with a decrease in new and expansion space transactions as compared to our two-year average.

Our New Jersey and remaining suburban portfolios held occupancy this quarter. Leasing costs of $3.46 per square foot per year of lease term reflect a number of strategic transactions. Lower costs in the first half of the year bring our year-to-date average down to just over $3 per square foot. Our rent roll down of 1.8% can be attributed this quarter more to the makeup of our outgoing space than changing market conditions.

A few of our larger transactions absorbed space that had in-place rents above market. Without these deals the mark to market was effectively flat and in line with our more recent results. Going into the fourth quarter tenants representing 7.4% of our base rent are expiring next year. We're actively addressing our rollover has served us well and bolstered our portfolio against current market conditions.

In our major markets we saw mostly modest vacancy increases in the third quarter. Direct asking rents have remained flat or increased slightly year-to-year, but we expect they may be coming down as we move through the cycle. (inaudible) space is yet to become the major factor it was at the beginning of the decade. With the exception of northern New Jersey, Manhattan and Washington, DC, sublease space availability has dropped in all the markets since this time last year.

Despite the fears of a slowing economy and increased delays in securing lease commitments, our leasing teams remain focused and on task with keeping our buildings well occupied. Mack-Cali's dominant market presence and attractive well located buildings, coupled with the depth of our experience in our leasing groups, provide an edge that will allow us to continue to outperform our markets. Mitch?

Thank you. In closing I'd like to offer a few additional thoughts. I think it merits revisiting what I've said in our recent conference calls. You've heard me loud and clear say that Mack-Cali certainly has sufficient resources to pursue new opportunities and new acquisitions; however, we didn't like what was happening in the financial markets, we didn't think that the deal opportunities that were coming to market with the pro forma estimations of rent growth made sense for us to pursue. And we weren't anxious to spend capital just for the sake of growing our portfolio.

Certainly the extraordinary events of the past several months have made us very satisfied that we were right in staying so focused and so disciplined. We are positioned today with a very diverse group of properties, a portfolio with higher occupancies than our peers and with comfortable lease terms. We are not highly leveraged like some of our brethren in the commercial real estate industry and, in fact, we estimate completing 2008 based on our [CAD] calculations with approximately $11 million in free cash flow.

And so we're in a particularly enviable position. At some point we'll see growth in the economy, we'll see a rise in consumer and corporate confidence, less fear in the market place and once again we will see job growth. At that point this company, Mack-Cali, will be poised to take advantage of opportunities in the marketplace, but until then we will remain very cautious, very disciplined and very liquid. Thank you and we'll now take your questions. Operator?

(Operator Instructions). Jordan Sadler, KeyBanc Capital Markets.

Good morning, Mitch. Just a quick question on positioning this time versus last time. I'm just curious how you feel your portfolio will perform in the downturn that's in front of us versus maybe where you were last go round.

Well, when you say last go around, are we talking about the 9/11 period?

Yes.

I think that we have an extremely diverse composition within our tenant base and that speaks for itself. In our supplemental you can see the diversity throughout. And so I believe that that diversity and the cash flows that result from it put us in a stronger position, quite frankly, then what we've seen previously. The situation was Lehman Brothers of course was distressing from many points of view throughout the global economy, not only at Mack-Cali, but certainly we expect a little bit of pain from that.

But fortunately the government, for right or for wrong and a terms of overall strategy in the way they may be implementing the TARP, has stepped in in a variety of different ways now to try to stabilize the financial market place. So I think that while we haven't probably even broached the recessionary period that's going to occur as a result of many, many different factors, our portfolio will perform well.

I do expect that it will be relatively static in terms of occupancy. As I said, perhaps a slight downturn, nothing material. We think that generally speaking we have limited credit risk. Again, who would have ever thunk with regard to a Lehman Brothers, but I would venture or estimate at this point that we think our credit risk is limited.

And so if I were to stack side-by-side the portfolio now versus in 2001 and remembering that we recycled $1 billion worth of capital and moved 4 million to 5 million square feet out of relatively thin weaker markets in the southwestern part of the United States into a much deeper macro economy. I think this time we stack up better and our balance sheet is certainly stronger, in my opinion, and our liquidity is greater than it was at that period of time.

And as it relates to Lehman, the reserve it sounds like you took this year, Barry, for next year rather, was $3 million. And I'm curious how that stacks up versus their -- in the supplement it says you've got about a $6 million or doubled that exposure?

I can address that. Lehman leases from us 207,000 square feet at 101 Hudson. However, about 144,000 square feet of that demised promises is sublet on a long-term basis to a variety of tenants that entered into (inaudible) agreements with us as the landlord at the time of the subleasing. So our net exposure to Lehman Brothers is 134,000 square feet which on an annualized rent basis is $3.4 million or approximately $0.04 a share.

At this point Lehman Brothers, or through its -- through Barclays, is paying all of its obligations, has not rejected or taken any action with respect to the lease, the 134,000 square feet and, frankly, has just sought court approval, bankruptcy court approval to extend the notice date or the decision date on all executory contracts of which leases are a part. So it's unclear to us what the actual picture is, both the when, how much and what will happen on that roughly $3.4 million per annum exposure. So that's exactly where we are with the Lehman situation.

And to the extent that you had to re-lease that space in Jersey City?

Fortunately I would tell you that -- the only good fortune is that Jersey City remains probably among the most active markets in the metropolitan area for all the obvious reasons that we've talked ad infinitum about on these calls in terms of infrastructure transportation. And 101 Hudson happens to be, along with some of our new recent development product like Plaza V at Harborside, among the finest assets that there are.

And so, of all markets, if I had to take the infliction of pain, that's where I would want to take it and that's the building that I would want to take it in. So we're optimistic, but at this point, as I said, the lease is in full force and effect and all financial obligations are current.

Any other financial services exposure in Jersey City that you feel is at risk either because of roll of --?

Well, I haven't talked to Henry Paulson lately or Dr. Bernanke, but I would think at this point that of all the majors which constitute the primary tenancy within our portfolio, particularly at the waterfront, that they're all -- hopefully fall in the category of too big to fail in accordance with the policies laid out by the Treasury and the Fed. So we're as sanguine as you can be in what is clearly an economic and a financial tsunami.

And finally on Citigroup's upcoming roll downtown?

We've retained the services, we're finalizing an agency agreement with a brokerage firm who has vast success, both with us in Jersey City and downtown, and we're marketing under a major marketing effort that space. I guess the market certainly will be competitive, but there aren't a lot of large blocks of space downtown and certainly not in a Class A building like 125.

We can be competitive, we will be competitive on rate. There are all kinds of incentive programs, the downtown employment program, that provides very significant employment benefits for moving new employees downtown. In comparison to the New York City landscape, the operating expenses on the building and our basis in the building will allow us to be competitive and aggressive, and I assure you I will be, in trying to refill that space. But it's very early in the process at this juncture.

It sounds like, so Citi is out --.

I will only tell you that Citi has until tomorrow actually to exercise their renewal option. But I am not optimistic that they will do so.

Okay. Can you just remind us of what the in-place rent was there?

About $39 a square foot fully loaded plus or minus.

Thank you.

Michael Bilerman, Citi.

Good morning. Irwin Guzman right is on a phone with me as well. I want you to spend a little more time on guidance. Maybe you can just -- if you had $0.91 when you exclude the lease term fee for this quarter, so it gets you to about 364 in terms of a run rate.

Now I know you have $0.04 from the Lehman and if you were to take 200 basis points off of your NOI today and assume it's still full-year that is about the $0.10. So I am still having a hard time -- and I know you want to be conservative, I know what is the right thing to do. But I am just trying to reconcile where you are today to get to an $0.81 to $0.86 run rate for next year.

We also had some G&A expense reductions, so we've brought our G&A down by about $4.5 million on an annualized basis. We also had some real estate tax refunds of $3 million or $4 million that we don't, at this point, know whether in fact they will be recurring. We've taken some, shall I say, conservative points of view with respect to some of our joint venture income including our hotel, which, by the way, is magnificent, but everybody recognizes in the face of a competitive hotel environment where occupancies could be falling as a result of business contractions and less tourism partially due frankly to the stronger dollar now. Everything goes around, as we see.

We've taken a little bit more of a conservative viewpoint towards 2009 and we'll see -- again, I know I shouldn't use the expression "it's only 3.7% less than where it was a year ago" because everybody would like to see it in the positive direction. But again, we're in the midst of an economic paralysis that's occurring in corporate America.

Other than some of the boutique industries and maybe some of the service industries that might benefit from the distress that we're seeing in the market place in helping the government intermediate this financial tsunami, we're generally seeing reticence on the part of -- almost unilaterally. And pretty much whomever I talk to, my peers in this industry, certainly in the metropolitan area, are seeing paralysis generally speaking about making strategic decisions.

Everyday you're reading about job loss, whether it's from Qwest or whether it's from -- whomever it's from. Every day there's another signal that job diminishing is occurring out there. And so, I think, and I know I've always sort of been accused of being too conservative, but I think that this in fact is the time to be conservative.

Mitch, I completely agree with you. I want to make sure that I understand how you get from today to at least what your guidance is showing. And I guess when I build up all the pieces -- and I know it's the right thing to be conservative and that's what we want you to be, but I just want to make sure I can get to those numbers.

There's $0.25 worth of income in 2008 that we don't know for sure that will recur in 2009. Chances are some of it will.

But that was -- you had $0.12 of lease term fees, right? The other $0.09 of it, you're saying that G&A will now go back to $50 million after being --?

G&A reductions were $0.045 a share. You had --.

Why won't that continue into next year?

We've brought down G&A to a run rate that we think is sustainable running through 2009, so I'm not sure we'll see a material deviation from that. And again, we expect we'll probably see some additional real estate tax refunds, but we're not 100% sure.

If we do some additional leasing similar to the Arch Insurance deal, which I think is possible, we should see some lease termination fees that will help us pay for that new tenant and that represented almost $0.13 a share between the AICPA and other lease termination fees that we saw throughout the year. So that $0.25 a share is sort of an unknown factor right now and that's the difference.

I'm still coming up a little bit short, but I guess if you beat that I guess that would be a good thing. I think Irwin has a question as well.

Mitch, could you spend a little more time talking about Jersey City specifically? You mentioned some of the advantages of the much lower rent relative to the New York and the infrastructure that's there. But how much risk do you see from the consolidation that we're seeing in financial services and how that could impact back office requirements and sort of what you see in terms of sub lease space in Jersey City over the next couple of years?

Well, it clearly is a little bit hard to predict. I would expect that the Merrill space that we have for example should remain. I mean, there's every indication that Bank of America is going to leave that in tact as almost a self operating subsidiary as their brokerage and investment banking arm. The Lehman situation we already talked about.

AIG for example has, notwithstanding any of the other issues that surrounded AIG in its recent Sunday night situation, what we have in our portfolio, throughout our AIG portfolio, are operating insurance companies, property and casualty insurance companies. And those firms -- I'm not aware of any notion of consolidation. If anything, frankly, the government is talking about capital injection in the insurance industry.

So ICAP plc, Garban, recently the CEO of ICAP was on CNBC, indicated that Lehman for example in all their inter-broker dealings represented only 5% of their revenue base, that's how broadly diversified they are, and that the Company is performing well and there were no indications that there would be consolidation in that area.

You recall over at the last five or so, maybe six years, certainly five, we've seen some fairly significant consolidation in electronic trading between TD Waterhouse and Ameritrade and some of the electronic trading houses, so I don't know that there will be continued consolidation and we certainly haven't heard of that.

So we've continued to see in Jersey City, a pretty good mixture of insurance, the insurance industry, Arch, AIG, National Union Fire, etc., fairly stable in terms of financial services. We haven't seen a dramatic shift one way or the other. And some good diversity in terms of Forest Laboratories just having taken additional space.

And so obviously I don't know exactly what the future holds, but I think at this moment I'm pretty comfortable with the fact that sublease space should not inundate that market place. I see no indication of that. And frankly, there are a couple of large requirements that are New York centric -- whether they move, whether they bifurcate, whether they end up on the waterfront I don't know. But there are still some pretty good levels of activity considering the waterfront as new tenants and they're primarily New York City centric.

Thanks, Mitch.

Sloan Bohlen, Goldman Sachs.

Good morning. [Jay] is on the line as well. Just a question on guidance maybe asked a little bit differently from Michael's question. Mitch, you talk about occupancy maybe declining just slightly next year. What assumptions are you guys making for what your renewal rates and where you think rents go next year are?

We think that rents will be generally where they are today. The market place has been very competitive, particularly the suburban marketplace. So our projections and estimates are based on what we're seeing in the marketplace today. I don't believe that there will be deteriorated for the quality tenants that we see even in flight to quality in terms of our asset base. And our estimates are fairly conservative. So if we should see more rapid regrowth in the economy than I anticipate at this point I think there's only upside in the rents.

Okay, and do you expect further declines in the renewal rate much like you saw this past quarter?

No, the principle reason that we had roll down was we had situations, for example in Harborside, where -- and this Arch deal -- where I think the deal today is a very competitive deal in the older section of Harborside on the average of like $36 or $37 gross rent over the term. But we had tenants paying $43 a square foot because they were old leases that had escalations. And so we had that situation that was a large part of the rolldown that you saw in the quarter.

Generally, if you take out these few strategic specialized deals, we would have almost been flat, maybe a 10th of a percentage point roll down, which gives me further confidence that we've kind of reached the floor in the rents. Now it's not so much a question of are tenants renewing? Because tenants that are operating businesses don't want to go anywhere.

The last thing they want to do is take on new obligations, have distractions and all sorts of things that are associated with moving -- IT costs and everything else -- to save a dollar or two. They're more concerned with staying in place and trying to get a better handle on what the picture for their business growth will be in the future. So I'm pretty comfortable with our projections.

Okay. And lastly on the Harborside V refinancing, what was the LTV on that?

The loan to value was approximately 57%. The banks -- or the insurance companies which were co-managers, co-leaders, they did the deal equally Northwestern and New York Life, and we've had long-standing relationships with both firms over many, many years. And so I think the sponsorship, the asset quality and the income stream were all very important. The loan to value was about 57%.

They, on $29 million of NOI, valued the building at about $420 million. So the loan was conservative and the all-in rate which we locked many, many months ago on a handshake actually, is 6.8%. Which by the way, the maturing senior unsecured bond that we have coming due on March 14, 2009 has an all-in cost of 7.4167% plus or minus. And so this in fact is a lower cost of capital than the unsecured bond coming to its maturity.

Mitch Germain, Banc of America.

Good morning. What's your assumption for the Greenbelt, is that included at all in guidance that there will be some leasing activity there?

Very little. Most of what we're seeing in Greenbelt are smaller transactions. What's occurred down there basically is that the government has frozen virtually all spending in defense and other programs I guess pending, number one, the financial issues or the meltdown that's occurred and the priorities that now exist in government allocation of resources. But I think until there's a new President in office and Congress is reinstated you won't see appropriations.

A lot of what drives that market place and fuels that marketplace are a variety of government spending programs and the consultants that serve those industries, whether it's defense, whether it's the IRS growing its operation, all of the Prince Georges County employment or a large portion of it is tied to those types of programs.

So unfortunately, because of the presidential election and the fact that the entire Congress is up for reelection, we've seen a cessation of that sort of demand. And most again of what we're seeing are smaller firms related to, in one way or another, boutique situations or the federal courthouse which sits right next to the campus which is full of activity at this point.

Great. And you mentioned about a 200 basis point decline in occupancy. Is that related to any specific region or is that just kind of more general throughout your portfolio?

I would tell you that the regions that I think are under most pressure are in fact Greenbelt, as we just discussed, and parts of suburban Philadelphia which have -- whether it's Bluebelt and we haven't seen much velocity there, and I don't expect it to pick up. Merck having announced that they're laying off 9,000 people and Unisys contracting and just the general conditions in the capital markets for securities type firms which have been large employers -- Vanguard and the spillover effect. I would say those are the markets that are, out of all of our markets, under the most pressure right now.

Okay, and just last question. Any specific tenant type industry that you've seen more subtle of a pullback? I guess everyone is pulling back these days, but --?

I think it's almost across the board. Like I said before, we year to date have lost 760,000 jobs, and just last month 159,000 jobs in this country. Every industry is under pressure to preserve capital and to reduce expenses because top-line growth pretty much across the board is a big question mark right now.

And so we haven't seen much within our portfolio in terms of what I would call shadow contraction. We have maybe 5% of our in place wholly-owned portfolio that in one form or another is available for sublease or otherwise empty. But all you're hearing in the corporate community is expense reductions, employment reductions and so we're being conservative until we see a brighter horizon.

Thanks.

Sheila McGrath, KBW.

Good morning. Mitch, you mentioned that the Plaza V mortgage was negotiated a while ago. I was just wondering your thoughts on if you think you could get a deal of that size done now?

It's going to sound like I'm boasting, but I think a great deal of the fact that this was done on literally -- I was on the telephone with the head of mortgage finance for New York Life and Northwestern and locked the rate on the telephone and that's got to be two months ago I would guess, a month and a half to two months ago.

And they honored every aspect of the transaction and we didn't even have the paperwork done for another 30 days. We completed the commitment and so forth and that basically what were in fact the loan documents because everything was addressed in the commitment. Do I think that could be done today? I would tell you that in our discussions there's almost every reason that every capital provider is looking to either increase the cost of that capital or reduce the principle because of the uncertainty in the market place.

So I think that our sponsorship, the quality of our assets and our tenants and our track record in one case with one half of that partnership, 30 plus years, was a big part of being able to get that transaction done. And having the confidence that once we effectively shook hands over the telephone on the rate that we weren't going to see a discussion of spread widening or similar.

But I will tell you right now, Sheila, that in discussions with those same lenders, the universe has changed in terms of spread today. If we were to look for that same sort of financing today or secured financing, spreads have already changed in that period of time.

Okay. And with that in mind, on the '09 maturity, you can put on the line now. And then would you probably go back to the secured market (multiple speakers)?

Yes, we're looking at a couple of much smaller secured transactions that would essentially make up the differential, the $60 million plus or minus differential. And we're going to look at a few others on a similar scale. And if we think that the cost of capital and the loan to value and so forth -- and we think in one case that we're pretty close to a deal. But we feel really comfortable that we have effectively between the 775 and the 75 million overnight program that we have in excess of $700 million of liquidity available to us.

Okay. And last question -- just in terms of -- it looks like you're covering your dividend, but just in the new environment, the capital constrained environment, where are your thoughts on the dividend?

We look at that all the time from -- obviously cash flow is paramount. Naturally there's a requirement to pay out a certain amount annually to meet the tax obligations for REIT status. And we stress the portfolio, we stress the cash flows and we've recently had a very full discussion at the Board, we do that in September. And more frequently in these unusual extraordinary times.

So at this point, we paid out $0.64 a quarter, we expect that our CAD payout ratio is approximately 95% year end 2008. Our current modeling suggests it will be 97-ish percent based on what we think will be leasing activity and incremental CapEx that we put back into the buildings for '09. And we will continue to look at our dividend and our coverage and cash flow ratios as we go forward and that's what I can tell you.

Great. Thanks, Mitch.

James Feldman, UBS.

This is actually Jon Petersen, I'm sitting in for Jamie today. I was hoping we could get an update on the development pipeline, specifically the Windham build to suit, what yield you're expecting. And then maybe an update on the Boston Filene's project and how that's progressing?

With regard to Windham, we anticipate effectively a delivery of possession date of February 1st, upcoming February 1, 2009. And the cash on cash, obviously it's all cash, it's all equity, with a fully loaded land contribution based on the allocation of developable land on the campus will yield us approximately 8.5% on cost, again fully loaded including all of our internal and external cost of the project.

So we're very pleased with that development. It's coming along extremely well. Windham is doing well. They've obviously made different transitions within their own business to reflect market conditions and some of their [hotelaminium] businesses. Like everybody else in the world they're adjusting, but the core company is doing fine. I maintain personal contact with Steve Holmes, the CEO. And so everything looks to be completely on track with respect to delivery of that.

Regarding Boston, right now it's fairly fluid. As you know, we're a minor participant. Let's say we have 15% of the deal, JPMorgan Asset Management has 35%, Vornado has 50%. Clearly, as has been written, the financing markets, particularly for a largely speculative type development, are challenging to say the least. Although basically if we move forward with the full project, the hotel element is really presold on delivery after construction of the core and shell, and a lot of the retail is leased and we do feel that there's a relatively -- a reasonably buoyant office market up there.

But the capital markets have been very, very difficult. The financing has been clearly difficult. So we are considering our different options. I actually spoke with Vornado and JPMorgan yesterday frankly and we may elect to phase in the project which we can do both physically and technically and -- until the world looks like it's a better place with respect to financing. But it is very real time with respect to looking at our different options for that project.

Okay, thank you. And I know it's a ways out, but the 2010 unsecured maturity, I was wondering -- looking that far ahead do you guys have plans for how you'd address that, whether you'd take it on the credit facility like the maturity next year or whether you'd look to refinance it.

We have $165 million that comes due in senior unsecured in 2010 with an interest rate of 5.5% and then we have a couple of mortgages, which frankly the larger mortgage is a small pooled mortgage, portfolio mortgage with, again, another life insurance company that we've dealt with for 30 plus years. So we're confident that we'll get that one redone at its principle level.

So the question mark would be the senior unsecured tranche. I have to, let's say, hope that the commercial markets in terms of the ability to issue public debt will return long before 2010 and that the global economy is on a much better footing. And so I hope we'll be able to look at the unsecured markets for public debt, but it's a long way away and we have a lot of flexibility, particularly given this mortgage that we've just done.

Okay, thank you.

Chris Haley, Wachovia.

Mitch, good morning. On the Filene's project, did you say that there was pre-leasing on the retail side?

Filene's is a significant part of that and returning to the site. And there are other, let's say, letters of intent or the ability to enter into leases in a number of different retail leases that frankly Vornado's been leading the charge on that. So the answer is yes, it appears to be a pretty good environment with respect to the ability to complete the retail. And as I said, if in fact we elect to move forward with the entire project we have a deal that we can implement with respect to a pre sale of the hotel component roughly at cost.

But we're looking at different options right now, Chris, because of the difficulty in the financial markets and the options are either go ahead with the complete project and take whatever we think we can get out of the financing markets and we do have some commitments that are what I would call more than soft commitments but not quite hard at this point. We can do that.

We could build the project out of equity which is highly unlikely, it's plus or minus a $700 million project. We could phase the project, which is something that we're looking at now, to develop only part of it out of equity which we all feel would be very manageable. Or we might consider other alternatives which might include mothballing the project until the financing markets open up. As I said, these are real-time discussions that we're having with Vornado and JPMorgan right now.

Thank you for that. In your disclosure I think it's about a $700 million project if I recall. And the total amount of money in the project is about -- what we're hearing is about -- just $200 million.

It's more like $160 million, and that's the land and all of the costs incurred to date. But we will give you an exact figure for demolition and all the soft costs.

I'd be interested if you could offer some color, as specific as you'd like to get or unspecific as you'd like to get in terms of how much would that be related to the logic in retail and the potential office component if you were to downsize the project? Because I seem to recall that this is one of your largest development projects that you've had.

First of all, again, $100 million of the capital expended today was for the site, and the rest of it, as I said, which I think is about $60 million in terms of commitment or expenditure to date is for demolition and hard and soft costs. If we were to phase the project, and, again, I don't want to speak for Vornado or JPMorgan because these are real-time discussions and we're 15% of the deal, although we all have to agree upon these major decisions. That we might look at phasing it as small as just the retail component or part of the retail component.

But it's hard to say at this point what we're going to do, but there will be clarity of what we're going to do certainly within the fourth quarter. (multiple speakers). And I might add too, just for whatever it's worth, that I think -- I'm told that the total commitment to date might be as high as $184 million for all in everything.

But the point I want to make is that the construction cost as a result of -- believe it or not -- demand destruction in Asia and other parts of the world for things like -- for commodities like steel have already shown that the cost of the development will be less, that there's a more competitive environment because there's so little construction going on. But again, the fourth quarter will reflect clarity on what our intentions are as a unified partnership between the three of us.

Okay, that's helpful. In your '09 guidance, are you including any reserving for that or are you including any expensing of overhead or interest on that that would contribute --?

No.

Okay. Last question on organic growth expectations or same-store, did you comment on what you thought 2009 organic growth metrics would look like?

Pretty flat. I mean, we look at the same-store, which is basically our entire portfolio at this point, for the year 2008. On a GAAP basis it's about half a percentage point. And that's a guess or an estimate to the end of the year, and cash of about 1.5%. So I would say it's certainly not going to exceed those numbers for 2009. We're looking at a slight diminution frankly of occupancy.

Right. You had indicated -- I think Barry mentioned 200 basis points of occupancy loss year end to year end. And seeing where the markets are based upon Michael's comments, what would you expect to see in terms of organic revenue growth year over year, looking at the components of same-store revenue and expenses? I'd be interested if you could offer any color on that.

I think if you could look at and NOI projection we're thinking that there could be a $7 million or $8 million loss of net operating income, if it's not more buoyant than I think it is at this point. In other words, if we are strictly on projection based on the guidance that we put out today it could be $6 million or $7 million plus or minus, or so, of NOI reduction.

Right. Okay, that's very helpful. Thank you.

Jordan Sadler, KeyBanc Capital Markets.

I didn't catch this, what do you have in terms of lease termination fee expectations in next year's guidance?

It's almost nothing. I mean, we can carry an other income category of a couple million bucks, so it's really minor. Again, if we, for example, backfill the remainder of the AICPA space similar to what we did with Arch, that was an $8 million plus or minus lease termination fee and there's call it an equal amount of space, slightly more space that we're working on a couple of transactions on. It might be more material, but right now it's almost a negligible number in our guidance.

Okay. And just in terms of tenant discussions. Are you actually -- have you seen an increased level of discussions with tenants looking to give back or maybe reduce the amount of space they have exposure to?

Nothing more than anecdotal. We have dealt with certain situations, a couple of the renewals were for slightly less space because tenants on some of these renewals wanted to rationalize themselves and be in a stronger fighting weight position for tough times. And so we did go through a couple of situations where we saw 25% reductions in their space. But no, other than anecdotally there's nothing looming out there.

And lastly, any commentary that you could provide on the Mack-Gale-Greene joint venture and sort of how that's progressing from a lease up perspective?

The portfolio, the wholly-owned portfolio is about 90-ish percent plus or minus, high 80s. The joint venture portfolio is about 72%, which is the 880,000 feet. So it's suburban product in tough markets with very little demand right now. So that's what's going on.

Okay. Thank you. That's about it.

It appears there are no further questions at this time. Mr. Hersh, I'd like to turn the conference back over to you for any additional or closing remarks.

Well, I want to thank you all for joining us on today's call. I'm hopeful that the information we've provided and the discussion has been informative and helpful and we look forward to reporting to you again next quarter. Thank you very much. Have a good day.

This concludes today's conference. We thank everyone for their participation. You may now disconnect your lines.