Veris Residential Inc (VRE) 2012 Q1 法說會逐字稿

Good day, everyone, and welcome to the Jack-Cali Realty Corporation first quarter 2012 conference call. Today's call is being recorded. At this time, I would like to turn the conference over to President and Chief Executive Officer, Mr. Mitchell Hersh. Please go ahead, sir.

Good morning. Thank you for joining Mack-Cali's first quarter 2012 earnings conference call. With me today is Barry Lefkowitz, Executive Vice President and Chief Financial Officer.

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

Truthfully, not much has changed in the macroeconomic environment since our last earnings call. Economic recovery and job creation remains at a painfully slow pace. There is a general lack of clarity emanating from Washington concerning tax policy, healthcare reform, and other entitlement programs, and, of course, the potential of European contagion.

And so, as I have said before, we'll probably be in a relative holding pattern with respect to seeing substantial gains in the macroeconomic environment until the election. Hopefully at that point we'll have clarity and we'll be in a much stronger growth mode in our economy.

Concerning our results for the quarter, FFO for the first quarter of 2012, was $0.74 per diluted share. We had solid leasing activity totaling almost 1.1 million square feet of lease transactions, including almost 300,000 square feet of new leases. Tenant retention was 61.5% of outgoing space. And we ended the quarter at 87.9% leased, compared to last quarter's 88.3%.

Rents rolled down in the quarter by 5.4% cash compared to last quarter 7.2% cash. And so we obviously saw an improvement there. Remaining lease rollovers for 2012, are 7.3% of base rent, or roughly $45 million. Our leasing costs for the quarter were approximately $3.85 per square foot, compared to last quarter's $3.33 per square foot per year, but, obviously, this figure varies depending on the type of deal, the length of the lease, et cetera.

Relative to our activities, as previously announced during the quarter, Mack-Cali entered into a joint venture with Winthrop Realty Trust, and we acquired a senior mezzanine loan position in the capital stack of a very high-quality 1.7 million square foot office portfolio in Stanford, Connecticut. We paid $40 million, or $0.80 on the dollar. The loan has a face value of $50 million, and is secured by the equity interest in a premier seven-building portfolio containing almost 1.7 million square feet of class A office and 106 residential units totally about 70,000 square feet. All of the assets are located in the Stanford Central Business District.

We believe that this transaction will yield an attractive return while providing the opportunity to work with an exceptional partner [and] a significant portfolio, a portfolio that's right within our footprint in Fairfield County, Connecticut.

Now turning to the leasing front, some notable transactions that we've outlined in our quarterly filings include, Tower Insurance Company of New York, signing a new lease for 77,000 square feet at Harborside Financial Center Plaza 2, in Jersey City. Metropolitan Life Insurance Company signing three transactions totaling about 47,000 square feet. Those transactions encompass our Taxter Corporate Park in Elmsford, 65 Jackson in Cranford, and Mack-Cali Center IV in Paramus.

We did another interesting transaction [within] a global engineering company that included an entire building at 228 Strawbridge Drive in Moorestown, and approximately 40,000 square feet at our Horizon Center in Hamilton, New Jersey.

Again in Jersey City, Lehman Brothers Holdings, the new global financial services firm, signed a lease for 33,000 square feet at our 101 Hudson Street, magnificent trophy building in Jersey City. This asset is now just under 90% leased.

And then in Bergen County, financial service firm Wells Fargo Advisors signed a new lease for 29,000 feet and change, at Mack-Cali Center VI in Paramus.

Moving on to some of our financial activities, we recently completed the sale of $300 million in 10-year senior unsecured notes at a very favorable interest rate of 4.5%, a benchmark rate, certainly, for Mack-Cali. The net proceeds of almost $297 million, were used primarily to repay outstanding borrowings. Certainly this successful execution enhances the financial flexibility of our balance sheet.

We also, just yesterday, announced the redemption of our $94 million in December 15th of '12, 6.15% notes, and our $26 million of 5.82% notes that come due March 15th of 2013. Both of these redemptions will occur on May 25th of 2012.

Mack-Cali also continues to be recognized for its superior property management and superior energy performance within our assets. Earlier in the quarter, we announced that our Liberty Corner Corporate Center at 106 Allen Road in Bernards Township, New Jersey, was awarded LEED Existing Building Silver Certification. And just yesterday at this great asset, Ipsen Pharmaceutical celebrated a ribbon cutting, opening its 33,000 square foot United States headquarters. And so we wish great success for this European pharmaceutical company as they expand and grow in our portfolio in the United States.

In addition, earlier in the week, we announced that Eisenhower 280 Corporate Center in Roseland, New Jersey, received the outstanding building of the year, the TOBY award, in the suburban office part low-rise category. And this is awarded by the BOMA organization.

We also restated our guidance in our press release this morning and in our filings, to a range for the full year of 2012, of $2.50 to $2.60, reflecting the debt issuance and the redemptions that I spoke of a moment ago. As you've noted in our filings this morning and our supplemental, our same-store NOI on both a GAAP and a cash basis, was positive for the quarter, 3.8% on GAAP, 4.8% on cash. We had, of course, moderate operating expenses. We had a mild winter, which reflected very favorably on our utility costs and our snow removal costs. And that all reflected well in our performance for the quarter.

As far as the leasing spreads are concerned, in the first quarter, again on a cash basis, we were down 5.4%, and on a GAAP basis, we were down 7%. Again, 166 deals done, almost 1.1 million square feet, of which 300,000 square feet, approximately, were in new transactions.

With that, I'll turn the call over to Barry, who will further review our financial results. Barry.

Thanks, Mitchell. For the first quarter of 2012, net income available to common shareholders amounted to $25.8 million or $0.29 a share, as compared to $15.7 million or $0.19 a share for the same quarter last year. Funds from operations for the quarter amounted to $74.5 million, or $0.74 a share versus $67.3 million or $0.70 a share in 2011.

Other income in the quarter included approximately $6.8 million in lease termination fees, as compared to $2.2 million for the same quarter last year. Included in the $6.8 million is $5.4 million related to the early termination of the Toys-R-Lease in Paramus, New Jersey, which had been scheduled to expire at the end of the year.

Same-store net operating income, which excludes lease termination fees, increased by 3.8% on a GAAP basis, and 4.8% on a cash basis for the first quarter. The same-store increase was primarily due to lower-than-normal seasonal expenses in 2012, as compared to much higher costs in '11. Our same-store portfolio for the quarter was 30.6 million square feet. Our unencumbered portfolio at quarter end totaled 237 properties aggregating 24.5 million square feet of space, which represents 79% of our portfolio.

At March 31st, Mack-Cali's total undepreciated book assets equaled 50 -- I'm sorry -- $5.7 billion, and our debt-to-undepreciated asset ratio was 34.2%. The company had interest coverage of 3.4 times and fixed charge coverage of 3.3 times for the first quarter of '12.

We ended the quarter with approximately $1.9 billion in debt, which had a weighted average interest rate of 6.15%. On April 10th, 2012, the company sold $300 million of 4.5% 10-year senior unsecured notes. The proceeds were primarily used to pay down our line in full. We have cash on hand of approximately $80 million.

Yesterday we called our 6.15% bonds due December 15th of '12, as well as our 5.82% bonds due March 15th of '13. The $120 million of bonds will be redeemed on May 25th. The company expects to recognize a charge of approximately $4.5 million related to the early repayment of these bonds. We have adjusted the range of our FFO guidance for 2012, [to] $2.50 to $2.60 per share, to reflect first-quarter actual results and recent financing activity.

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, are our supplemental package and earnings release, which include the information required by Regulation G, as well as our 10Q. Mitchell.

Thank you, Barry. As I prefaced my earlier comments, the economic recovery and employment gains have been slow to materialize. We all know that. Despite the continued pressure on economic fundamentals, we continue to do our business out there in the marketplace, and the leasing results speak for themselves - again, almost 1.1 million square feet.

Notwithstanding the challenging environment, we continue to be the landlord of choice in the markets that we operate in. We offer tenants stability, high-asset quality, and the highest level of service.

IN the recent days, we've announced that we are holding four assets for sale down in South Jersey, where I talked about a global engineering company securing a lease on one of the three-74,000 square foot buildings at our Moorestown Corporate Center in Moorestown, New Jersey. We are marketing those three assets for sale. We don't feel that they are important from a strategic perspective to us. In a rather turbulent South Jersey market, we are primarily a high-grade flex operator in that market. We intend to keep those assets, and they're well leased. And we've just gone to market through a broker on the three buildings.

Up in Bergen County in Montvale, at 95 Chestnut Ridge Road, we are under contract to sell a 47,000 square foot office building, office building that's 37 years old that has been empty for a while after the expiration of a lease with Bayer Pharmaceutical Company. We're selling this building. Again, it's in due diligence under contract with a small public company that will use the building, upgrade the building for use as its corporate headquarters. They're Bergen County-based currently.

We are continuing our efforts to get our multi-family project underway, a fascinating, exciting project. We passed the appeal period in our municipal approvals. We're advancing on all fronts with respect to the development of working drawings, construction documents, in all of the various disciplines for phase one, which are the two towers totaling 66 stories in height from the ground. And we're also examining a variety of different financings with our partner and have had a series of recent meetings with lending sources. And we're confident that we will have a financing package for phase one put together in the coming days. Again, phase one is approximately a $380 million project.

We're continuing our efforts to finalize the conversion of one of our sites in Morris County to retail use where we are under a letter of intent, and I expect quite imminently under a signed lease, hopefully, with a major retailer to deliver to them a [pad] on a 25-year [ground] lease.

We have been engaged in discussions in a variety of opportunities, including at least one build-to-suit in the Princeton market - again, direct discussions with principals of a major company. And we continue to meet with perspective tenants for office usage down in Jersey City, looking at consolidation in the urban fabric of a great location down in Jersey City, only to be enhanced with the multi-family project that we are undertaking. There are several New Jersey companies and several New York City companies that continue to be active in exploring a build-to-suit opportunity in Jersey City and taking advantage of the [as of] right incentive programs that are being offered under the Urban Transit Hub Tax Credit.

Given the fact that we have a fortress balance sheet in the company, we feel quite comfortable in having dialogue, at least, and, hopefully, it'll become more than dialogue, in a number of acquisition opportunities in the markets that we have identified as places that we want to continue to grow the company - that being the metropolitan Washington area, and that might include some joint venture activity, and the New York City metroplex. So too early to say, but we are in active discussions in what could be some sizeable transactions.

So with that, I hope that's been informative, and now we'll take your questions. Operator, would you open it to questions?

Thank you. (Operator Instructions) We'll pause for just a moment to allow everyone an opportunity to signal for questions. Jamie Feldman with Bank of America Merrill Lynch.

Thank you, and good morning. Can you talk a little bit more about your mezzanine investment in Stanford? Kind of what's your basis? How are you thinking about the investment? And kind of what you think the long-term profile will be.

Well, a lot of the investment is within our control in terms of having ensured that we're in the senior-most position with the highest level of collateral behind our loan. We are 80/20 with Winthrop. We paid $40 million for a $50 million par or face piece of paper. So we have $32 million, they have $8 million.

We are happy to be repaid. It's a current pay right now, and the borrower is current. The first trigger date is August 6th, where the borrower has two-1-year-as-of-right extensions on the first mortgage, which is $400 million, and our senior mezzanine, based on a debt-service coverage test, which basically is a 6.75% debt yield on the subordinated debt.

I don't know at this point whether the borrower will meet that test. I know that they have been engaged preliminarily with the senior mortgage holder, the mortgagee, and we'll see. So we're happy to get paid in full, repaid with interest, and get back our principal. Or alternatively, we're happy to, at some point, be part of a restructured capital stack and participate in the portfolio or we'll have to wait and see.

I mean, I'm not trying to be vague. It's just that these are the various tests and benchmarks that need to be met for the borrower to continue in its current position.

And then what's your current yield?

Current yield is approximately 3%.

So you're getting paid 3% today on your capital?

That's right.

Okay. Was it a pretty competitive bid? It seems kind of low.

No, the current pay on the note was stated in the original mezzanine documents that were sold to us through major private equity shops that co-own the loan. It is also obviously an accreting of the gain that we will realize if we get repaid in full. So there's a $7 million minimum accreting that you have to couple with the current pay. So effectively, the Stanford [mezz] position represents about $0.025 of earnings to us between those two elements.

As far as competitive bid, I'll tell you that it was a marketed transaction. But the ultimate decision as to who the purchaser would be was made -- that decision was completely within the purview of the two rather successful and significant, and I'm not going to name them, but I'm sure they're in the filings, private equity shops, that, for a variety of reasons, wanted to sell their position. The acquirer needed to be a qualified transferee, which generally means that it needed to be a REIT. And so it fit well for us and for Winthrop.

I think that between Michael Ashner and I, we -- and particularly Michael's experience in buying debt and our experience in operating platform in the geography of the portfolio, gave the seller of the senior note the confidence that we were the right buyer. We didn't move much in terms of the pricing. We were slight -- obviously, our first foray was slightly less than $40 million, but not materially. And we knew where we had to be to be successful, and that's how the deal evolved.

Okay. And then just for Barry. In terms of the guidance, change, are there any changes to your underlying assumptions for the operating portfolio?

No, it's, as I said, it's principally to reflect results in the first quarter, including the investment activity that we had with the note, and the recently announced financing transactions and call of the bonds.

Thank you.

Sheila McGrath with KBW.

Mitch, you had a really active leasing quarter. Wondering if there are any signs of concessions coming down or any evidence affirming or improving conditions?

I would say that the market is kind of bouncing around the bottom, Sheila. I think that it really varies depending on the type of deal it is and the particular location. I mean, obviously downtown New York now, we only have a floor left. We have, I won't say a bidding war, but a lot of highly interested parties for the remaining space that we have. And so we're able to push back on what was a very expensive concession package.

And generally here and there we can push back. But I think if on average we're seeing -- kind of rolling along the bottom, free rent is still on the order of magnitude of between a half a month to a month per year of term, again depending on location. Leasing expenses are in that $3.50 to $4, on average, you take renewals and new transactions, per square foot per year.

So I would say that, truthfully, in the suburban markets in general, there's not much pricing power. But there's no -- I don't sense that there's further denigration or degrading of the economics in the marketplace at this point.

Okay. And could you give us an idea of any acquisitions in your market that you may have recently looked at and may not have pursued, where did pricing shake out in your view?

We haven't pursued anything particularly in our current markets, other than some strategic discussions that involve potential joint ventures and potential acquisitions in the two markets that I've identified before. But in terms of our suburban markets, we have not been active in bidding for anything.

Thank you.

Michael Knott, Green Street Advisors.

Hey, Mitchell. Obviously there was a large [mediate] tenant renewal in midtown Manhattan announced last night. Just curious if that was at one point any prospect for some of the build-to-suit in Jersey City that you were talking about.

No, [was] not.

And then, Barry, I believe your same-store NOI guidance before was down 3% to 5% on a cash basis. Just curious if the reduced FFO guidance reflects anything, any further reduction in that number or if it was mostly or all related to the financing?

Michael, let me response to that. The answer is the guidance reduction, which was net effectively a nickel, was a reflection of approximately $0.075 of financing costs between bond -- between the issuance of $300 million of the 4.5% and the redemption of and the yield maintenance, if you will, on the redemption of the two notes. We offset that by roughly $0.025 of positive earnings on the Stanford note, and that's how we came to a nickel.

Beyond that, from a core operations perspective, there really is no adjustment. Our sentiment and our tone is still that down 3% to 5% on same-store NOI. We'll see, obviously, how it goes in terms of weather-related issues. There are a few tax appeals that could benefit us, but they take longer to get done these days because so many of the municipalities are broke that they're reluctant to settle tax appeals.

But generally, we would have to tell you that we're still in that 3% to 5% zone.

That's helpful. And then last question would be, I missed some of your commentary on -- I thought I heard sizeable transactions in D.C. and New York potentially. Just curious how you think about that opportunity as compared to -- or sort of why allocate capital in a major way when you're stock trades 15%, 20% below, what we at least perceive the NAV of your company today?

We are looking at growth opportunities, Michael. We are more than cognizant of the fact that the issuance of that equity at this point would not be prudent, given its dilutive nature to net asset value at the huge discount under which we trade today. We have a powerful balance sheet. We have access certainly to lots of forms of debt capital. And we're going to use the resources that we have to carefully deliberately grow in places that we think are contiguous with our markets. And in some instances, or all instances, actually, we are already in those markets. And in some instances do it with partners that have even more experience than we do in those markets.

We're not going to buy back stock. So if that's the direction of the question, that's the answer to the question.

And then just how do you define sizeable maybe, in terms of -- I know you can't give a specific number. But what sort of order of magnitude?

Aggregate order of magnitude could be a billion dollars.

Thank you.

Ross Nussbaum with UBS.

Couple of questions, guys. Just back to the guidance, had you previously contemplated the Toys lease expiring in Q1?

No.

Did that have any net impact on the full-year guidance or was it just really a --

It was a Q1 lease [termination]. So it was part of the 60-some-odd cents of projected earnings accreting, if you will, to $0.74. It was a $6 million, plus-or-minus, termination fee in Q1 that was unanticipated, but, as it turned out, very smart thing for us to do for a variety of reasons.

But at the end of the day, didn't really have an impact on the full-year guidance?

NO.

Just really, in effect, a prepayment of the rent they owed you anyway?

It's exactly what it was, Ross. They paid 100 cents on the dollar. They wanted to be rid of the liability. They're going through their own sort of capital planning and so forth. And for us, it was somewhat strategic in being able to evolve longer term leases with a few of the subtenants and avoid any lease-end issues, if you follow me.

Makes sense. What kind of condition is that building in? Do you need to --

It's in exceptional condition. It's truly class A.

So you don't envision any material TIs to get it released?

We'll have to put TIs into it, the typical package, if you will, that I referred to before, the $3.5 to $4 per year type of thing.

But you don't need to gut it?

But no capital expenses in that regard.

Okay. If I go back to the Stanford portfolio, which I'm staring at out my window right now, the capital stack, just to be clear, there's a 400 first.

Yes.

There's $400 million of mezz, of which you're the senior 50?

No. There's 400 behind us.

So there's 400 first, then your 50, then another 400 behind you?

Right. Correct.

Okay. Do you know, is it still RFR who's really in control of that 400 behind you?

Yes. As far as I'm aware, yes.

Okay. And then last question. As you might know, Bill was at the NYU REIT Conference last week, and he made an interesting comment where he basically said he had seen a few leasing deals recently where the density was substantially lower per employee where you had some deals where it was maybe, call it 100 square feet per employee versus, let's say historically a number that would have been double that.

Is that something you've been seeing lately? And how --

No.

-- much of an issue do you think that is, secular trend-wise?

He had mentioned that to me, some project that that area's involved in in Boston, a development project. And we have -- we see densities of -- and these are not sort of aberrations. Call center-type densities are five, six per thousand, people per thousand. We've seen some evidence, and I've talked about it on calls previously where, for instance, the accounting firms, particularly the big four, will do hoteling of space and that sort of thing, which, in a manner of speaking, is densification and reduction of space needs. Less so on the law firm front.

I have not seen any indication that there's a real shift in how -- everybody's trying to do more with less, clearly. But a lot of that's a result of downsizing and so forth. I have not seen a new a paradigm where people are being jammed into spaces.

Now, technology, technology could be different. We have technology companies in our portfolio, but they're high-end, research-oriented, and administrative. They're not a bunch of new millennium workers sitting at a desk with a fireplace at the end of the desk and everybody just has a laptop. There may be industries that are evolving as part of the growth of our macro economy that will require less space and use higher densities, as I guess his comment was alluding to.

But we really have not seen a paradigm shift. And we can judge that really well because of our parking lots, having surface lot parking generally, or even structure parking in some instances, but primarily surface lots. And we don't see the demand where buildings are full. We don't see excessive increases in demand. And we monitor it very closely because of the HVAC systems and the fact that we're required to deliver specified temperate controls to our tenants based upon ASHRAE standards, and that's based on occupancy.

So no paradigm shift from what we're seeing.

Appreciate it. Thank you.

Jordan Sadler with KeyBanc Capital Markets.

It's Craig Melman here with Jordan. Can you guys maybe just give a little bit more color on the decision to redeem the maturing unsecureds early, pay the make-whole incentive, maybe just investing the proceeds from the $300 million offering in some short-term bonds or some other yielding assets?

Those two notes are very high rate of interest notes. For the $94 million and change, it's roughly a $3 million yield maintenance. And for the $26 million, it's roughly $1 million. It kind of washes out at worst case, where the cost of being [long], the cash would wash out against the prepayment.

So from our perspective, it was the right thing to do, more efficient, and gives us more opportunity to use our line, which is a much lower cost facility, than retaining those bonds to maturity.

And did you guys, I guess have this -- you guys [needed] to an unsecured at some point during the year. Did you guys just get really good pricing on the 4.5% and decide to pull the trigger early? Had that been contemplated maybe later in the year to --

We contemplated in our initial guidance doing something later in the year, but there's been a lot of fluctuation in the interest rates in the 10-year in particular. Obviously, it's come back in, [news is] a lot fear [about] Europe right now and Spain and every other part of Western Europe. But we saw a 25, 30 basis point rise in a very short period of time in the 10-year, maybe signaling that there's a lot more inflation tension than there is concern about economic growth.

And then the fear in the market came back, and so we took compression. The spreads have been tight. There's a -- right now, we did this deal a couple weeks ago. As a matter of fact, the European markets were closed the day before - it was Easter Monday in Europe. So we didn't know how those markets would open. But then early Tuesday morning, Treasuries were rallying. There was huge global concerns about Europe. We had Td up our due diligence. We were ready to go on a deal, and we felt that the execution, along with our advisors, the co-managers on the book, that we would get tight spread pricing, tight pricing on the deal. We were in a declining interest rate environment for that few hour period, which is about as far as you can have an outlook these days.

And what started out as a $250 million offering, had 900 and change on the book, a good book, all institutional quality holders, so we upsized the deal by $50 million, to $300 million. And everybody got their allocation. And we're very pleased with that execution, again, a benchmark execution.

But the reality is that we thought we'd be doing that deal later in the year. We didn't think we'd see as much volatility in the Treasury market as we had been seeing over the month or so that preceded that period. And, frankly, all of the meetings that we had at Citi, et cetera, with the analytic community and the investment community, we kind of sent the signal that -- or I did, that I was very concerned about the volatility, and we'd probably go sooner rather than later. But it naturally reflected in a slight pressure on our earnings.

That makes sense. And just separately, I guess there's some talk out in the market about Goldman Sachs basically pulling employees back to lower Manhattan from their Jersey City building. Now the abatement's up and they're trying to figure out potentially are they going to put it up for sale.

I know it's early, and this is basically just conjecture --

Yes. Let me comment since everything is anecdotal on this. The article was in Steve Cuozzo's New York Post column. And I saw it early in the morning, and I sent it to the governor's office, who had not seen it, the governor of New Jersey. And I said that this is a situation that they should get out in front on.

We subsequently had an audit committee meeting - that was Tuesday. And I mentioned that on the audit committee call, where one of our Directors was formerly the Vice Chairman of Goldman Sachs, and is still a stockholder and a limited partner in Goldman Sachs. And he laughed at that because he spends a fair amount of time at 200 West Street, and he's been in the Jersey building on many occasions, which he claims, and he knows better than I, that the building is probably two-thirds full, and that there's virtually no space in 200 West.

So my view is, based on -- this is complete conjecture on my part and it's anecdotal. But my view is that there's recognition that the [BEEP] Grant is coming to an expiration in 2014. And unfortunately today, because of the limited growth that's occurring, not only in financial services, but certainly in financial services, these companies are incentive shopping and they are, in my opinion, realizing that they need to start talking to New York and New Jersey about the future and what kind of benefits they might derive from keeping and/or relocating workforce.

That's helpful. And just one quick one, if I could, on the Stanford portfolio. I know the outcome's still in flux. But just curious if you guys are contemplating or holding back any capital for [maybe] participating in the recapitalization. And maybe your thoughts on how much you would need to contribute, possibly.

Again, this is all sort of our view of the world, that that $400 million first, in today's environment, with the lease up and so forth, would probably require an equity infusion, if you will. In other words, refinancing at a lower par number of probably [hundred] less, more or less. So worst case, we're 80/20 on the deal with Ashner and Winthrop, and so that's what we would need.

Great. Thank you.

Joshua Attie, with Citi.

It's David Shamis here with Josh. On the asset sales, you talked about a few assets that you put on the market in South Jersey. What exactly are your pricing expectations and how's the demand going for those assets?

I don't want to give away my pricing expectations, because some of the buyers could be on this call, or perspective buyers. But I'm going to be realistic about it. I would say that assets have traded in those markets for somewhere in the vicinity of [nine caps] on in-place NOI. And so somewhere in that zone is what my expectation would be.

Okay. And what exactly is factored into your guidance regarding the asset sales?

Nothing. Nothing.

Thanks a lot.

Jim Sullivan, Cowen and Company.

Mitch, following on from the earlier question regarding the incentives and the competition in the metro New York market, clearly there was a lot of press surrounding some of the initiatives from the governor's office in New Jersey in January. I'm just curious what your opinion is of how meaningful those incentives are, number one. And number two, whether you've seen any increase in requirements from tenants in light of the incentives that were provided.

Well, we continue to do the dance, if you will, from or with a number of New York companies, that are looking at the waterfront, number one, because it's a very viable, credible market, with a lot of amenities and a real lifestyle and a sense of community and great public transportation and all of those other elements.

But clearly, the Urban Transit Hub Tax Credit is substantial. And if you look at the effective rent that companies like [Pearson], for example, are paying, call it $25 a square foot [gross] for a 10-year period on a brand new building, that ordinarily on a market rate basis would be $48 or $50 a square foot, and they're paying $25, $26 with this incentive, again, for a 10-year period. And then they get kind of sticker shock, which is I guess what Goldman Sachs is looking at now under a different but similar program with the [BEEP].

The World Trade Center is at least advertising $70 to $80 rents, and that gives you a sense of differential, at least between those two markets.

So I think clearly the UTC is a major driver of kind of moving [deck chairs] around. I'm not sure that organically there's a huge amount of growth anywhere in the economy, maybe media a little bit, maybe technology a little bit, but certainly not wide scale.

With respect to New Jersey, there's a bill in the legislature advanced actually by the Democrats, by Lesniak, to expand the funding by $1.1 billion in September for the UTC to replenish the capital available. I don't know -- I know that the governor is looking at it. I don't know whether if they're in agreement with that number, but they're certainly going to continue to be very proactive to retain and attract new companies using that program.

A couple of other minor questions here. On the phase one of the residential in Jersey City, the amount of that phase is $380 million. Just to be clear, does that $380 million include an allocation of value for land?

Yes, it includes an allocation of value of $30 in FAR. If you recall, our partner is --effectively our capital account is receiving credit for $30 in FAR. Phase one is 1.1 million square feet of FAR. So we're getting $31 million and change in our capital account, and it's, therefore, reducing our out-of-pocket equity requirement for the project.

And you had talked in your prepared comments about, I think a build-to-suit discussion possibly in Princeton. You indicated in your supplement three different parcels there - the Mack-Cali Princeton Executive Park, and then 60 acres and then two-10-acre sites above that in West Windsor. Which one of these sites is involved in this?

Princeton Executive Park.

And then you talked about a retail ground lease. That's the site in Hanover?

Yes.

And the total site there is 64 acres. How many acres are involved in that ground lease?

The total site in the ground lease is about 29 acres. But I should point out that the ground lease portion -- let me say that half of that, more or less, or 60% is the ground lease portion to this one particular retailer. We're going to be able to put more density, about another 30,000 feet on the site. So we'll have additional income from one or more additional retailers. We'll do the same thing. We'll ground lease it to one or more - either [it'll] be pads for restaurants or some other retailer. We're not going to build it. We're just going to deliver the pad.

Fine. And then the final question from me, can you just give us an update on what's happening on the Downtown Crossing site in Boston?

Ask my friends over at Vornado. We're waiting for final documents, we meaning JP Morgan and us, to sign agreements. For Vornado to buy back our interest or to have an option to buy back our interest, they have to do some other stuff that they're doing with Millennium, some zoning efforts and so forth. Millennium is their partner. And they have agreed to buy back our 50% between us and JP Morgan, at the current land basis.

And just for our information, your original cost [up there] was what -- investment there?

The original land investment was what it is today, more or less, 10%. It's around $92 million.

Thanks, Mitch.

That concludes today's question-and-answer session. Mr. Hersh, I'll turn the conference back to you for any additional or closing remarks.

Thank you, Operator. I would just like to thank everybody for joining in today's call. We look forward to reporting to you again next quarter. Thank you very much.

Thank you for your participation. That concludes today's conference.