Veris Residential Inc (VRE) 2009 Q4 法說會逐字稿

Good day, everyone. Welcome to the Mack-Cali Realty corporation fourth quarter 2009 conference call. Today's call is being recorded.

At this time, I'd like to turn the call over to the President and Chief Executive Officer, Mr. Mitchell Hersh. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining Mack-Cali's fourth quarter 2009 and year end 2009 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 certain information discussed on the call may constitute forward-looking statements within the meaning of the Federal Securities Law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to our press release and annual and quarterly reports filed with the SEC for risk factors that could impact the Company.

First, I'd like to review some of our results and activities for the quarter and what we're seeing in our markets. Then, Barry will review our financial results, and Mike will then give you an update on our leasing results. FFO for the quarter was $0.78 per diluted share, excluding nonrecurring, non-cash items primarily reflecting the 105 Challenger Samsung situation that we discussed previously. And, for the year ending December 31, 2009, FFO was $3.32 per share.

We had some significant leasing activity last quarter, with a total of 901,468 square feet of lease transactions. These transactions enabled us to end the year at 90.1% leased, up in fact slightly, from the last quarter's 90%. Rents did roll down in the quarter by approximately 10.5% or 6.8% on a GAAP basis compared to last quarter's 13.7% cash roll down. For the year 2009, we had a rent roll down on a cash basis of 9.3% and on a GAAP basis of approximately 5.9%.

Our leasing costs for the quarter were at $3.69 per square foot per year, up from last quarter's $2.40 per square foot per year, reflecting continued pressure on the fundamentals in the leasing environment. For 2010, we face rollovers of approximately 8.7% of our base rent or about $55.5 million dollars. Despite a challenging environment, our portfolio continues to outperform most of the markets where we operate, with our leased rates exceeding market averages in northern and central New Jersey, West Chester, suburban Philadelphia, and Washington, D.C.

Our fourth quarter leasing activity is a testament to our commitment to the highest levels of service for our tenants in our premier properties. Additionally, because of our scale and the scale of our portfolio, we're able to offer tenants a great deal of flexibility with respect to location, product type, and leasing flexibility. And our size allows us to take advantage of economies of scale and pass those savings right through to our tenants.

Some of the notable leasing transactions occurring during the quarter included the following. We signed a new 16-year lease with the PBA of the city of New York for just under 40,000 square feet at 125 Broad Street in downtown Manhattan. The Patrolman Benevolent Association will be locating its executive offices in our premier downtown asset.

A & E distribution, a subsidiary of A & E stores signed a five year lease renewal for about 63,500 square feet at our Mack-Cali Airport, 200 Riser Road in Little Ferry, New Jersey. This 286,000 square foot building is 100% leased. The law firm, Budd and Larner signed a 13 year two-month renewal for just under 55,000 square feet at our Mack-Cali Short Hills building at 150 JFK Parkway in Short Hills, New Jersey. This 248,000 square foot office building, as well, is 100% leased.

In a very interesting transaction, three subsidiaries of the Interpublic Group, the global marketing communications and marketing services company, signed lease renewals totaling just under 125,000 square feet at three of our properties in Parsippany, New Jersey and Morris county. These renewals, which have extended the leases through 2022, consists of the following. Integrated Communications signed a 43,000 square foot lease renewal at 5 Sylvan Way in our Mack-Cali Business Campus.

Pace signed a lease renewal for just under 20,000 square feet at 35 Waterview Boulevard in Waterview Corporate Center. And Tory Laser Healthcare Group signed a lease renewal for 62,000 square feet, plus or minus, at 20 Waterview Boulevard, also in Waterview Corporate Center in Parsippany. During the quarter, we continue our One Jefferson Road joint venture project in Parsippany with our new tenant, Day Pitney now moving into the tenant improvement phase.

And our built to suit for Sanofi Aventis in Bridgewater, continues on schedule and frankly below budget. Just last month, Mack-Cali announced that we refinanced $150 million secured mortgage loan with the Prudential Insurance Company of America and VPCM, a wholly owned subsidiary of the Virginia retirement system. The loan which matures on January 15, 2017 carries an interest rate of 6.25% and is secured by seven properties in Bergen County.

Year after year, Mack-Cali is recognized for our expertise in property management as well as our energy conservation efforts. For 2010, we've already received the Energy Star designation for 200 White Plains Road, in Tarrytown, New York. This award given by the US EPA and the US Department of Energy, is given for excellence in a buildings energy performance and efficiency. We also just recently received that designation for our 125 Broad Street building in downtown New York.

Finally, I'd like to comment on the 2010 FFO guidance reduction by $0.10, now at $2.70 to $2.90 - - the $2.80 mid-point range. This reduction was primarily driven by the Prudential mortgage, about $0.095. You may recall that on the last earnings call, when questioned about this mortgage, I indicated that we were inclined not to refinance the loan.

However, at the behest of Prudential and in the interest of expanding our exemplary relationship with Prudential, and now with their co-lending participant Virginia Retirement System, we decided to move forward with the loan. The interest rate was, in fact, reduced by 95 basis points from that previously discussed with them. And so we're very delighted to move forward with this mortgage financing at a very favorable interest rate of 6.25%, and expand our relationship with a premier company such as Prudential.

I'd also like to review just a few factoids and metrics, particularly given the fact that this is also a 2009 year end call. Today we have cash on hand on our balance sheet of over $291 million. Today we are undrawn on our $775 million revolving credit facility, which as you know, has a borrowing rate of LIBOR plus 55 basis points with a June 2012 maturity if we exercise the one-year extension.

And while we did have pressure on our NOI in the quarter, again, on a cash basis down 2% through the year on a cash basis through 2009, up actually 0.2%, we finished the quarter with a free cash flow of approximately $7 million and the year 2009, free cash flow on a CAD calculation basis of over $56 million. So in fact, we have a great deal of liquidity and a very strong balance sheet moving into the future. And with that, I'll now turn the call over to Barry Lefkowitz, who will review and expand upon the financial results for the quarter. Barry?

Thanks, Mitchell. I'll briefly review some of the financial results and some other things. FFO before items of the fourth quarter 2009 amounted to $71.8 million or $0.78 a share. For the full year of '09, FFO before items was $293.1 million dollars or $3.32 a share.

In the fourth quarter reported an impairment charge of $16.6 million or $0.18 per share on our property at 105 Challenger Road in Ridgefield Park, New Jersey. For the year, we had net items of $18.3 million dollars or $0.21 per share. For the fourth quarter 2009, net income [available] common shareholders was $1 million or $0.01 a share and for the full year of 2009, net income [available] common shareholders was $52.6 million or $0.71 a share.

Other income in the quarter included $195,000 in lease termination fees as compared to $334,000 for the same quarter last year. For the full year, lease termination fees were $2 million as compared to $9.4 million last year. Same-store net operating income, which excludes lease termination fees decreased by 2.7% on a GAAP basis for the fourth quarter of '09 and for the full year, it decreased by .8%. On a cash basis, same-store net operating income decreased by 2% for the fourth quarter and increased by .2% for the full year.

Our same-store portfolio for the quarter and full year was 29.2 million square feet. At year end, we had $291 million in cash and no drawings on our $775 million revolver. At 12/31, Mack-Cali's total undepreciated book assets equal $5.9 billion. And our debt to undepreciated asset ratio was 39.8%.

Excluding the effects of non-cash items previously discussed, the Company had interest coverage of 2.9 times and fixed charge coverage of 2.8 times for the fourth quarter of '09. And interest coverage of 3.1 times and fixed charge coverage of 2.8 times for the full year. We ended the quarter with approximately $2.3 billion in debt which had a weighted average interest rate of 6.61%. Our unincumbered portfolio at quarter end totaled 236 properties aggregating 24.3 million square feet of space, which represents around 79% of our portfolio.

On January 15, 2010, we extended our $150 million mortgage with Pru to January 15, 2017. The loan bears interest at 6.25%, is interest only payments for the first 30 months, with 30 year amortization thereafter. We revised our 2010 FFO guidance to a range of $2.70 to $2.90 per share reflecting the loan extension. 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 web site at www.mack-cali.com, are our supplemental package and earnings release which includes the information required by regulation G as well as our 10k. Now Mike will cover our leasing activity. Thank you.

Thanks, Barry. At December 31st, our consolidated portfolio was 90.1% leased up ten basis points from September 30th. The 900,000 square feet of leasing activity we signed during the quarter is the highest leasing volume we've generated since the third quarter of 2008, but it still below our historical average. A third of the transactions were represented by new leases which is slightly above the two-year average. For the full year, we signed just under 500 transactions for a total of 3.2 million square feet and retained 58% of our outgoing space.

Rents rolled down 9.3% on a cash basis, and 5.9% on a GAAP basis, and leasing costs for the full year averaged $3.13 per square foot per year of lease term. Our overall new lead activity in the fourth quarter was up 15% on number of leads, and 40% for square footage versus the same period last year. For the full year, the activity comparison to full year 2008, varied among our regions. Demand for space in submarkets adjacent to Manhattan was off last year's totals, while our central New Jersey and suburban Philadelphia offices experienced a moderate uptick in space inquiries. In total, the number of our new leads was on par with last year, but those leads represented less square footage than in 2008.

Our 2010 rollover is the highest at the end of each year with roughly 710,000 square feet expiring in both the first and fourth quarters. Expiration in the second and third quarters totaled 415,000 square feet and 538,000 square feet respectively. . In many cases, tenants are delaying commitments as long as possible, taking the time to extensively evaluate their needs and options. We continue to aggressively pursue those companies who have yet to commit and make a decision about their space requirements.

In our markets, leasing activity continues to lag behind the pace of previous years. The northeast markets in which we operate generated deals for 22% less space than in 2008, however, leasing volume during the second half of the year exceeded that of the fist half in most of our markets by a range of 35% in Manhattan to 150% in Washington, D.C. During 2009, vacancy rates increased in all of our markets. New Jersey produced split results with northern New Jersey experiencing only a 30 basis point increase in vacancy compared to central New Jersey's 210 basis points.

Vacancy rates in our West Chester and suburban Philadelphia markets increased 140 to 150 basis points, respectively. (inaudible) markets such as Bergen, Passaic and Union counties in New Jersey, and Elmsford, New York were able to reduce vacancies slightly during the year. Asking rents declined in all markets except Washington D.C. , and sublease space continues to average approximately 20% of overall

Thank you. In closing, I would just like to say that there's no question that the markets remain challenging. You don't lose 8.5 million jobs in the workforce in the nation and have a structural unemployment as high as we do without it having an impact on every sector of the economy, including office space utilization. As has been stated in some of the prepared remarks, we continue to face a reluctance on the part of tenants to make long-term decisions on their office space needs given the lack of visibility and lack of certainty in the general economy. Although, we have seen certain sectors of the economy exhibit some signs of improvement, particularly in healthcare and pharmaceuticals.

But generally, we see an environment where deals are taking longer to close. We certainly hope that the Government and some of the programs and initiatives that have been announced out of the Administration and Congress can be effective in helping the small business sector return to relative stability in the wake of a severe economic downturn and credit freeze. We hope that liquidity returns to small businesses so they can add employment and finance their own needs going forward.

And it's certainly critical given the fact that small business represents 70% of the employment in the nation for us to begin to see this so that we can begin to see the light at the end of this very long tunnel. And while we anticipate a period of continued economic uncertainty for some, perhaps, protracted period of time, we've certainly positioned Mack-Cali well as the landlord of choice in all of the region's in which we operate. And given our balance sheet strength and the strength of our team and our human capital, we're well poised to take advantage of opportunities as they emerge.

You've probably all seen just today the Congressional Oversight Panel announcing its concern about debt maturities in the commercial real estate sector and the impact that that might have on regional and community banks going forward. And, so there will be a lot to do in the future. And companies like Mack-Cali, given our strength, our liquidity, and our resolve will hopefully be part of the solution going forward. And with that, now I will take your questions, thank you.

(Operator Instructions) We'll take our fist question today from Sheila McGrath from KBW.

Good morning. Mitch, you're sitting on about $300 million of cash. Is your thought or strategy to remain liquid for acquisitions, and if so, are you seeing any activity picking up?

Well, let me just say this. First of all, part of the cash that we have on our balance sheet will probably be used to retire a piece of unsecured debt. All things being equal, we have a $150 million tranche that matures in April.

But having said that, with respect to your second question about opportunities, I would say this, that generally speaking, transactional activity is virtually silent in the markets. But there are certainly many discussions going on that are more strategic relative to, as I said before, being part of the solution for credible portfolios, credible ownership, and an opportunity for us to potentially expand in the markets that we have chosen to operate in, that being the DC corridor up through Fairfield County, Connecticut, and maybe once again in the Boston market, depending on opportunity. And doing so in a strategic way where we can assist existing owners with some of their needs and build on our platform. And those are the nature of the discussions that, certainly, I have been immersed in for the last couple of months.

But your typical plain vanilla traditional wrap it up pretty via broker and send it to every owner out there looking to sell assets is virtually nonexistent. I suspect, you know, as long as we are in this malaise relative to the expressions of kick the can and the banks not knowing whether they're going to take the marks, the owners who are meeting debt service right now, although that's under continued severe pressure as a result of the declining rent environment that we're in. Right now, there hasn't been a lot of activity, but I suspect that as the fed intervenes as we saw again today with the congressional oversight panel in some of the commercial lending environment, and insist that some of these assets be mark to market, that there be better solutions for maturing debt, perhaps we'll see more opportunity.

But everything that we are doing at this moment in time looks from our perspective to be more of a strategic platform builder for us going forward, not one-off type asset acquisitions.

Okay. Thank you.

You're welcome.

Next we'll hear from (Inaudible) with Morgan Stanley.

Thanks. Good morning. Last time we spent quite a bit of time talking about guidance. Effectively after the adjustment for the day, it's unchanged. I'm wondering, the economy's come a long way in the last three months, wondering how the markets feel to you now versus what you were expecting three months ago? What's your outlook for 2010 on occupancies now, that sort of thing?

Well, first of all, we've modeled in an occupancy loss through the course of the year. That reflected and has been reflected in our guidance. So again, restating what you've just said, the principal change in guidance was a reflection of $.096 for the Prudential refinancing.

I would say that while we want to be optimistic and look to a brightening economy and a growing economy, the evidence that in fact, there's traction in the economy is somewhat anecdotal. And while there was a GDP expansion in the fourth quarter, a lot of that was driven by inventory rebuilding, and not in any way associated with traction in the jobs market. And until we see drivers of employment, I suspect that the economy and the business that we are in, and many of our peers and breadwinner are in, are going to face a challenging marketplace.

So our view is that while we'd like to see flat to positive absorption in our portfolio, we've modeled in slight dimunition. We've modeled in what we think are very realistic economics with respect to lease transactions, and we're hoping to see more positive sign ease merge. If you listened this morning, the Obama administration said that they expect that job growth will occur this year, and that we'll be adding 100,000 jobs a month, and claim, which is not new that there were two million jobs created or preserved as a result of the federal stimulus package. But having lost 8.5 million jobs, and again that's not all related to office use by any means, it's lots of other forms of construction and development and it affects retail and housing and the residential area clearly, we have a long way to go.

So we're conservative in our modeling. We keep our heads down and do the business at hand. Again, have the liquidity and the power and the balance sheet to hopefully, as a result of what's happening out there now, take advantage of being part of strategic solutions for some owners that will benefit our platform going forward.

By no means have we seen distress in the marketplace on anything other than an anecdotal basis. So getting back to your point, I hope you're right that the economy is improving, but we're taking a very conservative view at this juncture.

Thank you.

You're welcome.

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

Hi. It's Craig Mehlman here for Jordan. One of your peers recently said on the earnings call this quarter that they effectively called bottom on the leasing environment in their markets. We were just curious to see what your thoughts are on where your markets are in the cycle?

Well, I guess calling the bottom has been a big mistake for those who have done it over the last three or four years, as you've seen in the decline in valuations and asset pricing. So I don't make predictions, but I have a pretty good feel of the market. I would reiterate that the markets are under continued pressure. The fundamentals are under continued pressure.

I know very specifically that a number of landlords, particularly in the private side of the spectrum, have difficulty today even if they are fortunate enough to do leasing in having the ability to fund the leasing costs, the TI and the commissions. So I'm not sure that we're at the bottom. We may be in a trough right now that might be protracted, and until we have clear signs of job growth in the knowledge base and service component of the economy, I would be reluctant to say that we are at a bottom.

As I said, we might be in a trough. This might be an extended period of inflection, but frankly from Washington, which is supposed to be benefiting from the federal dollars, I guess if they reopen the federal offices again, we'll maybe see better activity. Right up through Boston in almost every market we continue to see a challenging environment,with no signs at least in the office sector that there is necessarily a rapidly improving environment.

Okay. That's helpful. I just wanted to circle back to your comments on the strategic opportunities. Maybe a little more color on whether those would be just more joint ventures or whether you'd look to invest in debt and maybe what your return requirements would be.

Well, I would say that we're looking at both the goal for us really as having a long-term view of being a significant part of the commercial real estate business, and the public sector going forward is more oriented to the platform building in a strategic way. And so that might, in fact, involve joint ventures. As a part of that we are looking at a couple of debt situations, although there's such an enormous amount of capital that's trying to chase that part of the spectrum sort of nonstrategic just return on investment opportunities, get into the capital stack, with perhaps the notion that at some point you can take control of the asset, although that's probably remote.

I would say in that area, you're looking for returns that are low to mid-teens, preferably mid-teens on an IRR basis, to get into the capital stack and be able to know where you are in that stack, so that you don't end up with a subordinated tranche of debt that can get wiped out ,as so many people where investors have seen over the last two years or so, where billions of dollars have been lost in the form of mezzanine financings gone bad. So our preference is an asset-based model. We're not opposed to doing joint ventures where governance is carefully articulated and we know where we stand.

Okay. In the past, you guys have noted that you might look at other public [RESs] opportunities. Is that still the case, or are you looking more into private opportunities?

I would say it appears that the private opportunities are more realistic in the public markets, and while I wouldn't rule that out, there appears to be little sentiment on the part of either management teams or boards to look at consolidation frankly, given the volatility in stocks. Every bad day is followed by maybe a good day. So those that might think that I'm one day they might have a better opportunity to benefit their shareholders and build their platform by doing something in the form of some level of consolidation, that comes off the table the next day if the stock goes up a dime.

So we've seen that volatility. By the same token, we've also seen the IPO market and some of the blind pools, face challenges coming to market, as a result of less appetite on the part of public investors to not know how the money is going to be spent, and that's kind of foreclosed some options at least in some entities that had the option of public executions. And more definitively responding to your query, I would say it's the private sector that probably is a more realistic opportunity set in this environment.

Great. Thank you.

You're welcome.

(Inaudible) with Banc of America Merrill Lynch has our next question.

Hi. Just following up on your comments on small business challenges, can you discuss what your tenant watch list looks like right now and any kind of adjustments in reserves?

Yes. We have basically a reserve of approximately $2 million a quarter, and our watch list frankly is a lot smaller than that, we had, as we have discussed on this call in the last two years similar calls, dodged some major bullets in terms of the companies and the institutions that you never thought would be in peril that ended up to be in peril. Fortunately the government intervention resolved those issues for us.

But out of 2,100 tenants, we have lots of small businesses. Some of them, again, this is more anecdotal, have come to us for some level of assistance over the last year and a half or so, because of the fact that their access to credit was frozen and paralyzed and hasn't yet returned to liquid form, hasn't thawed out yet. And so we have a careful watch list, but we think the reserve that I've just stated to you more than adequately covers all elements of the tenant watch list.

We have some situations, frankly, where, as a result of downsizing and certain industries, companies have closed offices. They're certainly not credit risks, and in a number of instances have years remaining on their lease and might be what you refer to as shadow space in interprets of a competitive set. But they're paying their rent in full and are not part of any credit reserves.

Okay, thank you very much.

You're welcome.

We'll now here from Michael Knott with Green Street Advisors.

Hey Mitchell, I was wondering if you could comment on the uptick in this quarter?

Sure, a lot of hard work, appreciate it. We had some good leasing volume. I cited a number of the transactions. We had a whole host of 10 or 12 to 15,000 foot transactions that effectively were absorption against some of the losses in a variety of different sectors, both technology in Jersey city, a company called Goom, who has some significant financial backing.

We've seen I would say particular strength in the pharma, bioscience and healthcare area where that's -- those gains have offset some of the expirations. We were able to do some of these major extensions that naturally resulted in slight diminishing of space like the Interpublic. We took back a little space early, and we were however able to extend that lease out to 2022. And you know, with regard to the markets, West Chester and suburban Philadelphia, demonstrated a little more strength in the quarter, although that varies quarter to quarter. So it's still a lot of transactional work, and a lot of hard work.

Thanks, and do you have any on the mix of new versus renewal leasing?

Yes. I do, actually. Out of 902,000, call it, of activity, 308,000 was new, and the other was about 594,000 of retained. And for the year 2009, approximately 3.2 million square feet of activity of which 1.1 million square feet was new and the balance, 2.1 and change, retained. So we are seeing new businesses. We are seeing flight to quality in our two-hour portfolio as indicated by the new transactions.

And then I have a couple quick questions on downtown. I know you commented on Broad a little bit and I see some activity there. Leasing-wise in the supplemental, can you give us a snapshot of where you're at on that, where you expect to be by the end of the year? My second question on downtown - - I don't know if you have any comments or observations about the process of the Port Authority looking for a partner at World Trade Center and if that's something that you've thought about? Thanks.

The answer to the last question is no, we haven't considered nor will we consider partnering on the Trade Center project. I think that, you know, that, while might at some point that environment might be magnificent, it will be a decade away and it will be a construction zone over there for at least a decade in our view. You know, sort of a difficult place to do business from that perspective at least.

What we see mostly in terms of the space showings and the activity set downtown are small to mid-sized businesses in almost every sector that you can imagine. We've got technology companies, not for profits, and the insurance companies, and the list goes on and on. There is pressure on the economics downtown.

I think, you know what we had hoped for, frankly, was more activity as a result of the midtown overflow but mid-town pricing has come off so substantially in some cases 40%, 50% from the highs so, you know, the tenants that are located in mid-town that might have been priced out of the market are staying there. So statistically, you see there's more activity in midtown, but primarily that's sort of lateral movement, not a lot of organic growth. Flight to quality to better space at much more affordable rents. So, that didn't put the positive pressure on the downtown market that we had seen signs of.

But we do continue to see a fair amount of activity, it's lower than we had hoped. The rents will be lower than we had hoped for, but not dramatically different than the expiring rents that we've seen from the Citigroup expiration, which is a first quarter 2010 event as you know. The average, you know, most of the tenants that we see are at least a full floor, 37,500 feet or more. And we are working seriously with at least two that are approximately 150,000 feet.

So, you know in the order of magnitude of five floors in the asset, all though we haven't reached the finish line, the good news is in both of those instances, they are existing tenants of ours. These are more divisional headquarter locations. And in one case, they are located downtown in several locations, so it's a natural consolidation. So we're hoping to take advantage of a premier asset with, you know, very high quality space and build on the relationship we have with these tenants.

But we need to be competitive, and so the gross rent range in that average $40 number over, you know, the lease term is probably where we're going to end up. So that's kind of a snapshot of what we're seeing downtown right now.

Okay, thanks for that. I just have one quick follow up to that. If I look on page 36 of the supplemental under the leasing statistics, I see the gross rent for a 40,000 foot lease there was about 33 bucks and then there's about six bucks per foot per year of leasing costs. And then I imagine the operating and taxes are fairly high there, so I assume the net effective rent is pretty skinny. Do you think about those types of deals as you make money on the bumps over, say in this case, a 16-year term? How do you think about weighing low net effectives today versus filling the space?

First of all, the operating expense is about $16, maybe $16 and a quarter all in, including taxes. We have the taxes under appeal so that could be a benefit to us. So frankly, compared to midtown, the operating expenses are half. That's important to note.

The reality is, yes, we will be getting bumps, roughly $3 increases every five years in the PBA deal. I think it's a signature transaction for us. It's a preeminent organization. The executive offices of the Patrolman's Benevolent Association moving to the building and, again, you know, it reflects on sort of a going in rent as you state with an operating package of about $16. So, it does make economic sense for to us do the transaction.

You know, some of the issues downtown, in addition to give you full knowledge of what's occurring down there in addition to the midtown situation as I described it, is the fact that Goldman Sachs has some space in the downtown market. Goldman Sachs will be moving to their new headquarters at some point, and one of the buildings that they had under lease, 77 Water had been a significant competitor because of the concession packages that have continued to be offered in the building. But, they have larger floor plates, a whole competitive set that we think we have an advantage as well as the ability, frankly to have tenants move in more quickly because of the plug and play nature of the former Citigroup space.

So, there are a variety of things affecting the market. We would like the rents to be higher. We will meet the market, however, in terms of trying to fill the Citigroup space.

Thank you, Mitchell.

You're welcome.

We have a question from Private Investor Stuart Sperling.

Good morning. Let me be the fist to wish you a happy and healthy new year.

Thank you. Let me wish you the same.

Thank you very much. I'm going to try and have one. My question is about dividends. The last major move you made regarding dividends was a cut.

Is there any percentage that you will not allow, what can I say, the dividend to pass before cutting it or erasing it? For example, it's roughly, you said, the cash - - your funds from operations would be around, between 270 and 290. You're paying out 180, that's about 60%, somewhere in that area.

Do you have a ballpark figure that you say, well, it's gotten down to this point? We want to make sure we have enough cash available, we're going to cut the dividend? Or, on the other hand, if the cash flow gets better, we can raise the dividend a little?

I think it's a great question. We're very proud of the fact that we had a modest dividend, only a modest dividend cut in comparison to many others in our business and the public markets. And we've continued to pay out our dividend in cash, and so, we're very proud of that fact. The way we see the world right now, is we finished the year 2009 with roughly a 73% payout ratio on cash available for distribution.

That's the CAD calculation that's done, and that, just by way of information, reflected in a 54.2% payout ratio on funds from operations, FFO. But CAD, for the purposes of dividend coverage, is sort of the important metric. With our estimate of the year 2010, again, nobody has a crystal ball. We hope that things improve more quickly than we currently anticipate and certainly we hope that they don't decline beyond what the current environment is.

Having said that, we believe that with our current dividend payout of $0.45 a quarter in cash, $1.80 a year annualized, we will comfortably get through 2010 on a cash flow basis and have a positive cash flow at the end of the year. And, that's after spending, you know, some $65 million in tenant improvements and leasing costs if all things are equal. Again, we have to continue to look at that as we do quite forensically and carefully throughout the course of the year.

So I would say that right now there's certainly no discussion on the table concerning further dividend cuts. There is absolutely no discussion in changing the manner in which we pay the dividends, that being all in cash. And we'll continue to monitor the situation as we move through the year. Then, you know, see what the environment is, and that's what I can tell you right now.

That's okay. Now I have one trivia question. I've listened to a number of conference calls, of course, not as many as most of the analysts have, but I noticed this is -- I know you like to save money, but this is the only Company so far that didn't have a toll-free number. Is there any reason for that? Or is it just to heck with it today, every plan covers the United States, so it doesn't matter?

Are you talking about toll-free number for the earnings call?

Yeah. I'm sorry. I wish I'd made myself clear.

No, that's quite all right. We certainly can look into that. You know, we find that, and we do, of course, monitor all of the call participants that the majority today given technology are web participants and use the Internet. So I guess, frankly, we don't think too much about using a toll-free call-in, but we'll certainly look into it and be prepared to address it next earnings call.

Didn't bother me. I was just curious. I thought I had the wrong number, that's all.

No.

You guys continue what you're doing and again, have a wonderful year.

Thank you. I wish the best to you as well.

Thank you.

No further questions, I eel turn the conference over to Mr. Hersh for any additional closing remarks.

Okay. Well, thank you all for joining us on today's call. We think that 2009 was a good year given all of the circumstances surrounding the economy and we look forward to reporting to you again next quarter. Thank you again. Good day.

This does conclude today's conference. Thank you for your participation.