Veris Residential Inc (VRE) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to the Mack-Cali Realty Corporation third quarter 2012 conference call. Today's call is being recorded. At this time, it is my pleasure 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 third quarter 2012 earnings conference call. With me today is Barry Lefkowitz, Executive Vice President and Chief Financial Officer.

As is custom, on a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the federal securities laws. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We 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, and then Barry will review our financial results.

FFO for the third quarter of 2012 was $0.65 per diluted share. Now clearly, we had very healthy leasing activity in the quarter, resulting in over 933,000 square feet of leasing transactions. And of that total, 374,000 square feet were new leases. Our tenant retention was about 56% of outgoing space, and we ended the quarter at 87.5% leased, plus or minus where we finished the last quarter by a few basis points.

Rents on renewals rolled up in the quarter, by 5.9% on a cash basis, compared to last quarter's 3.1% cash roll down, and so we did have some very healthy renewal activity within the portfolio. On a same-store basis, however, it was, including the new transactions, a more traditional quarter for us, where we had same-store NOI on a cash basis down about 6.2%. And so we believe that we will still, for the near term, anyway, be experiencing continued pressure on the NOI, on average, of about 3% to 5%.

Remaining lease rollovers for 2012 are only 2% of base rent, or a little more than $12 million. Leasing costs for the quarter were just over $3 a square foot per year per square foot, down from last quarter's $3.10. Not really a trend, but still a favorable metric.

And so despite a challenging environment, our portfolio continues to outperform most of the markets where we operate, again, finishing the quarter at 87.5% in a very challenging environment, and still exceeding the leased rates in virtually every sub-market that we operate in.

With regard to our activities, I'm very excited to announce that we've closed, on Tuesday, the acquisition of the Roseland Property Company, Roseland Partners, and as I've expressed, this acquisition marks a fundamental step in a strategic diversification for Mack-Cali, where multi-family residential will be a key component of our growth strategy. In addition to acquiring the development and management businesses, we've acquired joint venture interests in six operating multi-family properties, totaling almost 1,800 apartments; one small condo/residential property; four commercial properties, totaling about 212,000 square feet; 13 in-process development projects, which include nine multi-family properties totaling about 2,150 apartments; two garages down at the New York Waterway ferry, totaling almost 1,600 parking spaces, which will also house Formula One, which I'm sure you've all read about that; as well as two retail properties, totaling about 35,000 square feet. We've also acquired interests, or options, in land parcels which can support approximately 6,000 apartments, an additional 740,000 square feet of commercial space, and a pad for a 321-key hotel.

The location of these properties and our interests extend from the waterfront in New Jersey to the dynamic sub-markets in Morris County, Morristown, the urban areas that are fast becoming very high quality of life locations, highly amenitized, particularly for the echo boomers and the new millennium workers and the young professionals of the future, as well as the Greater Boston area, where we will beginning two development projects in the very near future, one probably within a matter of weeks, in east Boston, on the waterfront; another one in Revere, Massachusetts, just to the north. And so this is a very exciting, energizing acquisition for the company and a new direction for Mack-Cali in the future.

Now turning to some of the more notable lease transactions that we've outlined in our quarterly filing, and those that we spent a fair amount of capital on in this quarter, for TI and leasing costs, which we're very happy to do, by the way. We announced a strategic transaction with our global partner, Regus/HQ, where they signed eight new leases totaling over 110,000 square feet in the quarter, bringing their total leased space with Mack-Cali to over 375,000 square feet today. You're all familiar with Regus/HQ, the premier operator of workspace solutions. They incubate businesses that ultimately and very often lease more space from Mack-Cali as they grow their businesses in this best-in-class facility.

Those leases include Mount Airy in Basking Ridge; 30 Knightsbridge in Piscataway; Commerce Center in Totowa; Woodbridge, Mack-Cali Woodbridge, 581 Main Street; 20 Commerce Drive in Cranford. In New York, in Westchester, 7 Skyline Drive in our Hawthorne Mid-Westchester Executive Park, and 400 Rella Boulevard in Montebello, which is part of Suffern in New York. And then in Pennsylvania, 5 Century Park in Blue Bell, and imminently we expect to sign a lease in Bala as well.

FedEx Ground Package System extended its term for the entire 66,000 square foot, 600 West Ave in Stamford. We're very delighted with that renewal, particularly in light of some of the announcements that have put pressure on these rapid delivery firms.

Cort Business Services, which is part of Berkshire Hathaway, signed a renewal for 47,000 square feet in Moorestown, New Jersey, at our Twosome Drive property. So that building, which is 84,000 square feet, is 100% leased.

Cablevision Systems signed a lease with us for 39,000 square feet at 6 Executive Park in Yonkers. This 80,000 square foot building, as well, is 100% leased.

In Paramus, NICE Systems, an Israeli company, provider of software solutions, signed a new lease for 35,000 square feet at Mack-Cali Centre VI in Paramus.

DSM Services, a life sciences and life science material company, signed a new lease for 32,000 square feet at our Class A-plus 8 Campus Drive building in Parsippany, in our business campus.

Moving on to some other activities during the quarter, the Board of Directors authorized a share repurchase program under which the company may buy up to $150 million of our outstanding stock. That was announced in conjunction with the acquisition of Roseland Properties, and we immediately entered the market. Obviously, we had to come out of the market, due to the quiet period of earnings. But we purchased 395,000 shares at a total of roughly $11 million in that short time frame, once again, demonstrating a commitment to the activities that we have undertaken.

On another note, we continue to be recognized for expertise in property management, quality of life, superior energy performance, a commitment to sustainability, to LEED certification, and corporate responsibility. During the quarter, four of our properties received TOBY awards, The Building of the Year awards, from the local chapters of BOMA. These awards went to 11 Commerce Drive in our Cranford Business Park; Soundview Plaza and Stamford Executive Park, both located in Stamford; West Lakes Office Park in Berwyn, as well.

We also achieved Energy Star status in a number of properties, once again demonstrating our commitment to energy conservation, reducing operating costs, and improving the environment. These buildings included our own headquarters, right here at 343 Thornall in Edison; Princeton Metro Center at 5 Vaughn Drive; 500 College Road in Princeton as well; Taxter Corporate Park in Elmsford; and 3 Executive Boulevard in South Westchester Executive Park in Yonkers. And so these continue to be part of our profile and our program to reduce carbon footprint and demonstrate corporate responsibility as well.

With regard to other activities, we expect to close on the sale of our Strawbridge office buildings, our three small 75,000-foot office buildings down in Moorestown, for just under $20 million, and that's anticipated to close actually within a week or so. And I can assure you that during 2013, the company will be much more active in recycling capital out of some of our non-core assets and redeploying that capital in the multi-family residential sector of the economy.

With regard to some of the metrics that contributed to our results this quarter, I mentioned that same-store, on an NOI cash basis, was down about 6%, plus or minus. Same-store occupancy was 87.7%.

We have been experiencing reduced utility costs, which have clearly contributed to the bottom line, and some anomalies with respect to real estate tax. As you recall last year at this time, this quarter, we had a very significant tax certiorari settlement that brought in about $7 million to the company during that quarter. And now we've more normalized our real estate taxes on a go-forward basis.

So there you have it. I'm sure that we'll have a lot of discussion about some of these activities following our remarks. But for the moment, I'll turn the call over to Barry, who will go through our guidance and our financial metrics. Barry?

Thanks, Mitchell. For the third quarter of 2012, net income available to common shareholders amounted to $14.3 million or $0.16 a share, as compared to $20.5 million or $0.24 a share for the same quarter last year. FFO for the quarter amounted to $65 million or $0.65 a share, versus $72.9 million or $0.73 a share in 2011.

Other income in the quarter included approximately $410,000 in lease termination fees, as compared to $674,000 the same quarter last year. Included in G&A for the third quarter is $3.8 million in costs related to the Roseland acquisition.

Same-store net operating income, which excludes lease termination fees, decreased by 6.4% on a GAAP basis, and 6.2% on a cash basis for the third quarter. It's important to note, as Mitchell did before, that in 2011, we included some significant tax refunds. If you exclude the effect of these tax refunds, same-store for the third quarter would have been, on a GAAP basis, 2.5% down, and on a cash basis, 2.2% down.

Our same-store portfolio for the quarter was 30.8 million square feet. Our unencumbered portfolio at quarter end totaled 237 properties, aggregating 24.7 million square feet of space, which represented around 80% of our portfolio.

At September 30th, our total undepreciated book of assets equaled $5.7 billion and our debt to undepreciated asset ratio was 34.4%. We had interest coverage of 3.1 times and fixed charge coverage of 2.9 times for the third quarter of '12.

We ended the quarter with approximately $2 billion in debt, which had a weighted average interest rate of 6.19%. We currently have $223 million outstanding on our $600 million revolving credit facility, which includes the recent borrowing to fund the closing of the Roseland transaction.

We've narrowed our range of FFO guidance for 2012 to $2.63 to $2.67 per share. We are providing initial FFO guidance for 2013 in the range of $2.40 to $2.60 a share.

At the midpoint, our guidance assumes lease starts of 2.8 million square feet versus scheduled lease expirations of 3.1 million square feet; end of year 2013 occupancy about 70 basis points lower than our September 30th, 2012, level of 87.5%; development investments of about $30 million in 2013 for wholly owned and joint venture projects. This is our equity share, including the completion of Phase II headquarters for Wyndham Worldwide in Parsippany, New Jersey and the startup of the multi-family residential joint venture at Harborside in Jersey City.

We assume acquisitions of $250 million primarily for multi-family properties and property sales of $75 million. And we expect to do long-term debt financings of $350 million including an unsecured note offering for at least $250 million.

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. Mitchell?

Thank you. In closing, I will just say that we clearly look forward to the many opportunities that our acquisition of the best-in-class in Roseland Partners, best-in-class as a multi-family developer, owner, manager. That in combination with Mack-Cali's financial strength, our stability in the marketplace, our impeccable reputation certainly in the commercial office sector as the landlord of choice will result in many successful endeavors for us, and in fact, will make us the one-stop solution in many respects for real estate needs in several sectors of commercial real estate.

We are planning, as Barry commented in terms of acquisitions, on a very near-term acquisition in the Greater Boston area of an apartment complex that was originally developed by Roseland, owned by an institution which afforded us the ability to essentially negotiate without a widely marketed transaction, an acquisition that will represent over slightly in excess of 700 apartments and about a $150 million acquisition, and we're hopeful of finalizing that sort of as we speak. And we are very confident that that will only be the beginning of our acceleration in the multi-family sector in terms of both stabilized properties as well as new developments and repurposing of some of our land inventory and asset base.

So we're very excited and energized about the future and the new direction for the company in terms of strategic diversification and transformation, and with that I will now open the call to questions. Operator?

(Operator Instructions) James Feldman with Bank of America.

Great. I'm sorry. I may have missed some of the assumptions behind the guidance, Barry. I'm sorry, do you mind just saying again same-store NOI for next year, leasing spreads and year end occupancy?

Yes, we talked about same-store NOI. Mitchell actually talked about that in his comments earlier of 3% to 5% down. Year end occupancy of 13%, about 70 basis points lower than where we stood at the end of September. And really didn't comment on leasing spreads at this point. Mitchell would you?

Yes, Jamie in essence I did. I talked about the fact that we were up on renewals on a cash basis of almost 6%, but we did have a couple of anomalistic renewals, and so I think if you normalize the renewals for the quarter it would have been more like a 2% up on a cash basis. But the new deals, the new transactions, which represented almost 374,000 square feet, were down about 14.5%, the mark-to-market if you will.

So again, that's why you combine all of this, I expressed the fact that I thought on a sort of normalized basis for next year we would continue to see the trend of pressure, negative pressure on the NOI of some 3% to 5%.

Okay. And then what does that mean for FAD payout and dividend coverage next year, and just where you think you'll be on FAD?

Yes, well on a CAD basis, we expect to finish the year this year we will be sub -- almost there, 99% give or take on a CAD payout ratio, and for full year '13 somewhere around 14% above that. So on a slightly negative cash flow. Of course, this is based on CAD calculations.

We're spending money on TI and commissions. We'll have spent close to $50 million as we currently anticipate for 2012 just on those two categories. We continue to reinvest in our assets to keep them the highest level of quality in terms of systems, curb appeal and operating efficiencies.

And so with everything, we're spending some $85 million a year and we project even a little more than that for next year, about $92 million. So we're about cash flow neutral this year and a little bit negative as we project for '13.

Okay. And then just turning to the apartment portfolio growth and investment, I guess big picture you're making a big bet on the Hudson Waterfront, multi-family. If you look at what's on tap for that market, it seems like there is a pretty good supply pipeline. Can you just give us your thoughts on what gives you comfort on the big project you're talking about building and what you think the supply-demand picture looks like over the next several years there?

Well, I would acknowledge that Jersey City probably has a little more inventory potential than West New York and Weehawken, which is the Roseland nucleus if you will. With regard to Roseland, Weehawken, the quality of life, the transportation, all of those elements bode extremely well. The occupancy rate of the current Roseland portfolio is hovering about as close to full as you can get on a realistic basis, 98%, 99%. Huge amenities, great amenities; and amenitizing the environment is extremely important.

Regarding Jersey City, the development that we are about to undertake with Ironstate is being built to the demand in that marketplace for, as I expressed, the new millennium workers, the echo boomers, small apartments, lot of studio, very efficient unique design. And so we're building to the market demand in terms of the type of apartments that we think are required to satisfy the demand in the different groups and demographic groups occurring.

Part of our acquisition of Roseland is being also a governor in the sense that if we sense that there is more supply in any particular sub-market we will be in a position of governing that. So this puts us in a very enviable position of building to demand in markets.

And there is -- certainly the product that Roseland has consistently built is absolutely the highest quality. They really build a condo product and rent it, but it's that quality level throughout their entire portfolio.

In other areas like Greater Boston, we are in the midst of seeing a renaissance of sorts in East Boston. It's an evolving, emerging community much like the Waterfront in New Jersey has seen and places like Chelsea and other places. And so we're in on the ground floor of that evolution.

The other comment I would make, getting back to New Jersey and the Waterfront, which was the thrust of your question, the discount on a rental basis that we have pro formaed that have consistently been achieved in the Roseland operating properties is a very significant discount to Manhattan, some as much as 60%, and I would say on average 40% discount to what you can get right across the river. You've got places that have seen new product develop like Williamsburg in Brooklyn that are renting right now at $60 a square foot, and our pro forma on a non-trended basis in pretty much everything that we're looking at and doing is about $40 a square foot. So that's the other factor, that we intend to be and will be much more competitive than a lot of our peer and competitive set in the metropolitan area.

Okay. And then just last question on Roseland. How many, other than the people named in the release, how many people are you bringing on board, and then what's the impact on G&A for next year?

We did include the impact on G&A. It's that $18 million. We're bringing onboard 250 people, of which about 210 are property level and the rest are management in various forms, property management services, vertical integration, a very strong development force, obviously, and the administrative and financial and reporting functions.

So we've got about 40 people in those positions. A few of them are up in the Boston region and the rest are in Short Hills.

Okay. Thank you.

You're welcome.

Our next question will come from Jordan Sadler with KeyBanc Capital Markets.

Good morning. It's actually Craig Melman here with Jordan. Mitch, maybe could you give some color on your thoughts surrounding incremental buybacks versus putting that capital to use for acquisitions and developments?

Yes. Look, I think that clearly we're in a very enviable spot with respect to balance sheet liquidity and low leverage. And although we certainly have looked at it very carefully and we have a good feel and understanding of where the leverage will be a year from now and it will be slightly higher, but we're going to continue to operate the company and manage the balance sheet to an investment grade credit.

The few things we're doing sort of out of the box in terms of Roseland do involve secured mortgage financings. We'll probably over time really evolve that to much more unsecured to use our capability and our low cost of capital in the unsecured markets in that regard.

But our stock is cheap and hopefully now that we've had an opportunity to talk a little more about the Roseland transaction, we'll see a little bit of lift in that. But it was hard not to buy back some stock, given the discount to net asset value, and the fact that I thought it was important, and the rest of the Board agreed, to demonstrate a commitment to what we're doing in terms of buying back some of our own stock, to demonstrate that we're not only shareholder friendly, but that we believe wholeheartedly in what we're doing.

But we have to balance all these things. Again, and that's why I made the comment about our balance sheet management. We know comfortably what our capacity is. And although I think that will increase and expand over time, and so we're going to balance all of these things.

That's fair. And then on Roseland, do you have an allocation of the purchase price among the stabilized now?

It's actually in the supplemental package, and we break it down fully. I can review it with you very, very quickly if I can find it. Okay. On page 33 of the supplement it has an overall summary and it shows the allocated purchase price all the way to the right of $115 million and a few pennies.

The operating multi-family is about $32.6 million. The operating commercial properties is about $7.7 million. The in process development projects is about $30 million. The land parcels about $38 million, and the management company is about $6.8 million.

And then the following pages provide a detailed breakdown of all of those numbers, provide the revenue per unit in the apartments, the revenue per square foot, the debt, preferred returns in the case of the institutional partners on some of these projects. So it's all there.

I appreciate it. I apologize. I didn't make it all the way through the sup.

And then just a clarification, the $275 million or sorry $250 million of acquisitions for multi-family, that's in addition to the $150 million that you guys think you're going to close in the near term in Boston?

Yes. Well, what we said in the '13 guidance, the answer is total of about $250 million. The $150 million deal we anticipate closing that the first week of January. And so we'll have full year of yield on that, which we expect based on the leverage, to be about a little more than a 9% cash-on-cash yield.

And then through the course of the year at a minimum we built into our guidance $100 million more of acquisition of stabilized product in the multi-family sector. I hope to do more, but that's what we built into the guidance.

Okay. And then just one last quick one. On the $250 million of potential unsecured bond issuance, where do you think you price today?

We think we price today probably somewhere in the sub 4% range.

Craig Melman. Great. Thank you, guys.

You're welcome.

Our next question comes from Michael Knott with Green Street Advisors.

The leasing spreads for next year, you mentioned normalized you thought was 2% up, but there was something that was down 14%. I'm sorry, I didn't catch that. Would you mind repeating that?

Not at all. What I said was on the 374,000-ish square feet of new deal activity, that on a cash basis or GAAP, I mean, they're both very close, we were down about 14-plus-% on expiring leases.

Okay. So ignoring just sort of next year only, but if you had to think about the overall portfolio, where is that today versus market, in place versus market?

I mean, I would say that on average, we had some particularly large -- not large, but high rent district expirations. So I would say on average we're probably down mark-to-market 8% to 10%.

Okay, and that's on a gross basis?

Yes.

Okay. And then just with respect to multi-family, the $100 million and the $150 million deals next year, those would be wholly owned, right?

Correct.

Okay. And then just as you think about longer term financing, if you can reach that 30% of NOI target for multi-family, do you expect that that's five years or more? And then do you anticipate asset sales to fund some of that? Just how do you think about actually getting to that number over the longer term financing wise?

Yes, here's how I think about it. I think it's a five year period, maybe it's plus or minus longer, shorter, but it's five years on average. It equates to something like $1.85 billion of assets. So you can do the math.

On an annual basis about $360 million, $370 million, but I don't expect to start at that velocity. Hope to grow into it.

And we are going to be more active in part of that capitalization in asset sales. We built into our model $75 million. I actually believe we can do a little more than that, and naturally you have to balance everything, Michael, because you can't sell cash flowing assets without buying some cash flowing assets. And so we get that.

But I'm hopeful that the market recognizes the strategic importance of this diversification and rewards us in some multiple expansion. I know you personally had your own -- not personally but professionally had some differing thoughts on that, and that we will have a variety of pockets of capital to access over that five year period of time as well as recycling capital.

Okay, thanks. So just two more follow-up questions on that, thanks for that level of detail. The $75 million of asset sales, that's per annum over that five year period?

I would say, yes.

And is that partly included in guidance for next year? I might have missed that. Sorry if I'm --

Yes, we did. We said $75 million in guidance for next year.

Okay, sorry about that. And then just on the $1.85 billion of multi-family that you threw out, that would include your large development in Jersey City, both phases, I guess. And then what would be the average yield or cap rate that you're planning on, associated with that $1.85 billion?

First of all, it really doesn't include Jersey City. Right now at least on phase one that's a stand-alone joint venture. It's 85% Mack-Cali, so it's kind of ours. But no, I'm just looking at the sort of total multi-family without that for the moment.

We've anticipated a 5% yield on a multi-family. I will tell you that that could vary asset to asset because of the portfolio nature and the minority interest.

We were able to do the Roseland deal at about 5.25%. We are in the process of doing a development deal that we haven't talked about yet with Roseland where we actually expect the stabilized yield to be about 6.7%, but naturally the market on -- at least the sales market for stabilized product is closer to 5% at this juncture. And in certain cases it's 3.5% to 4.5%, but we've built in our assumptions a 5% yield.

Okay. And then if I can just ask one more follow-up question on the $75 million of asset sales, what kind of cap rate should we expect maybe at least for next year? I won't pin you down for the whole five years, though.

About 6%, 6% to 6.5% on the target that we have identified for the $75 million.

Are those higher quality assets or are those lower quality assets with vacancy and that's why that number is low?

The number -- the asset, actually, that we factored into the guidance is a higher quality asset that has no sort of strategic purpose for us. The sales, for example, on Strawbridge, represent about a 10% cap rate, but the aggregate of the building is 62% leased with not too long, about three, four years remaining on those 62% tenants. So that kind of gives you a sense of what the market is today.

We're selling also, to give you a sense of the market, another asset that we own a very minority position in with JP Morgan right now. It's a single tenant building, high quality, but it's not a public company that's the occupant or the tenant. And that's probably going to sell -- we've taken first round bids. We'll see how the second round bids come in. It's probably in the low 7% cap rate range.

What that 7% cap rate range equates to about $325 a square foot. So there are cases where the ultimate price per pound, if you will, will override cap rate.

Thank you.

You're welcome.

We have time for one more question today, and that question will come from Gwen Clark with ISI.

Hey guys, it's George Auerbach.

Hey George.

Mitchell, just one clarification, is the Roseland deal $115 million of equity value or asset value?

It's $115 million of equity value.

Okay. I guess thinking forward for development starts in the residential platform and acquisitions, what are you thinking in terms of capital spend for residential in the years ahead?

I hope that we can spend a couple hundred million dollars a year in the years ahead. As I said, if we're going to -- and ultimately, if we're going to reach a target of 30%, on a static basis anyway, of NOI over a five year period, I identified the fact that we'd need to have acquired or taken in the fold a total of $1.8 billion more or less of assets. So -- but for the next year I anticipate if we can spend $200 million we're doing well.

Great, thanks for that. And just one more question, in the 2013 guidance are there any buybacks assumed next year?

No, we haven't. We've been more -- as I said, we went into the market, we bought back $11 million worth and we haven't included anything in the guidance.

Great, thanks very much.

You're welcome. Operator, is that the end of the queue?

We actually had another follow-up question queue up from Jordan Sadler of KeyBanc Capital Markets.

Sure.

Hi guys, it's Craig again, just a few quick ones. On the G&A you said $18 million for Roseland. Is it fair to assume just a $4.5 million uptick in sequential run rate? Is that a good way to think about it for '13?

Yes. I mean, the total was about $36 million, $37 million for Mack-Cali and another $18 million. It was $56 million, I think was the number and that's the run rate.

Okay, perfect. And then on the bond, the timing, when do you guys anticipate or what's in the model at least for the timing?

Well, right now we've modeled in sort of an end of first quarter, sometime in the latter part of the first quarter of $250 million at somewhere around 4%. It appears that at least, we'll see what happens with the election, but the Fed, of course, yesterday came out with no new policy. So right now I believe that we could do an issue sub 4%.

Okay, then just one last one. Does the Formula One race delay in Weehawken do anything to the development or any money you guys may be getting from them for infrastructure?

No, they've paid in full on infrastructure. So that's not a concern. Obviously, we're all excited about the race as are the various municipalities that both benefit from an infrastructure perspective, road improvements and the like.

It might slightly delay the retail component in what we call Garage Four/Five which we expect to be fully occupied by Formula One and use it sort of as their Disney show, if you will, Disney store where they're advertising and selling all the NASCAR and the Formula One type, like the NBA store in New York. And so it might slightly delay that, but we don't expect any material delays and they are paid in full on infrastructure.

Great. Thanks.

You're welcome.

We did have another follow-up question from James Feldman with Bank of America.

Yes.

Great. Thanks. Talking to brokers about what's happening in New York, there's a lot of talk about tenants trying to move some back office out of the city. Are you guys having any new conversations about that and potential developments or just kind of what are you seeing on that front?

We have three proposals out right now. But I don't talk about them, Jamie, because we've seen this exercise occur before. But we do have three significant proposals out on Plaza 4, which would be new development, new construction of about 1.1 million square feet. The largest requirement is going in at 800,000 square feet, and it's hard to predict.

I know that all of these companies are preparing what they call their matrix, and they're all talking to both New Jersey and New York about dialing for dollars, if you will, and who's going to give them more favorable benefit and incentive programs. And so the decisions are very, very slow to evolve or come to fruition.

But we do have those out and that would certainly justify new construction at the Waterfront. And frankly given some of the multi-family explosion that's occurred for a whole host of reasons -- later family formation, the fact that a lot of empty nesters have moved to rental apartments. I can't tell you how many people that you never would have imagined would move to the Waterfront have talked about doing so to give them more flexibility and the lifestyle and so forth.

But the sheer fact that a lot of the land inventory has been rezoned for multi-family -- and we did some of that down at the Harborside -- has removed some of the competitive set from the office side in terms of availability to build new trophy type class A buildings. And it's diminished our competitive set which clearly could prove to be a benefit to us.

So it's hard to tell when and if these decisions will be made. There's no question that every office market is under some degree of pressure. We have virtually filled 125 Broad Street downtown and taken care of some of the upcoming vacancy of the Oppenheimer space. We've taken care of virtually almost all of it with a recently signed lease.

It's very competitive out there. And we're in a good position to compete in Jersey City on both a quality level and a full vital service, well amenitized environment for both office and multi-family. So that's what we're seeing right now.

And so you mentioned three new potential leases, the largest being 800,000. How long have those been in discussion? Have these been around for a couple years or this is actually pretty new?

I would tell you that some of the banks talked to us as long as two years ago, but they're not in really active discussion as clearly pressure on financial services as a result of Dodd-Frank. These are not within financial service sectors.

And the discussion, one RFP actually responded to last week have done several presentations to the brokers and the executive management of the company. And it's a well-known company, but I don't see any purpose gained in identifying them on this call. It's a New York centered company that has six or seven locations and looking at consolidation and literally we responded to the RFP last week.

And the other two which are more in the range of 400,000 to 500,000 square feet, and I'd still build the building with that kind of a commitment, are probably three, four months. But active communication.

Okay.

They haven't gone silent. So ask --

Would they also consider downtown? I mean, are they, I guess what I'm trying to figure out is it back office split offs or is this just moving out of the city?

It's moving out of the city, at least in the case, clearly of -- well two out of three are moving out of the city.

And would have no more operations there. Okay. And then just in terms of your more traditional suburban market, are you seeing interest at all for either campuses or these kind of tenants that would actually want to move farther out? Or is it just really just the harbor front at this point?

I would say that the trend right now is the Waterfront or more urbanized environments where there's a higher amenitized base and a public transportation. Because, especially in the businesses that are looking Plaza 4 right now, they're media-type companies. They want, certainly, to get young, youthful, professional employees that -- and these employees want to live where the action is.

And so I would say that the suburban markets are kind of steady as she goes, block and tackle, not a huge influx of new demand. Some we've seen. We've been the beneficiary of a couple of life science companies. We actually competed with Cambridge, Massachusetts on one and they chose a New Jersey suburban location. And they're our tenant now and they're already expanding with us.

So there are those instances which clearly are very positive for us. But I would say that these larger requirements are definitely Waterfront requirements.

Okay. And then one follow-up on Roseland, am I correct that you have no incremental spend on the buildings in process now, and your incremental spend would be on future projects?

Yes, the bulk of everything that formed part of the acquisition is a zero spend. We are looking at -- we are, for example, have an opportunity in one particular development project that's about to be undertaken where we can invest more of Mack-Cali capital, and we're not talking about big dollars. We're talking about sub $1 million investments, and really kind of juice our returns.

So clearly if we can get the right, and I believe we can, the right governance we'll be doing that. But by and large, it's zero spend.

Okay. All right, thank you.

You're welcome.

And we do have one final question in queue. That question comes from Gabriel Hilmoe with UBS.

Hi guys, just following up on the Roseland transaction question. Just a question on the existing partners and what, I guess, kind of the end game is there in terms of expectations of them being long term holders. Are you guys expecting to take a bigger share of those assets going forward?

Well, I mean, the existing assets are pretty well defined, and they're all in our filings as to what our equity participation is, which ranges from approximately 25%. There's one that's 7.5%, but by and large they're 25% to 50%. We don't expect that those grouping of six operating assets there will be a change in ownership.

With the respect to the developments, some of that's evolving. Right now, what's in the pipeline are, again, zero spend institutional partners that have expensive preferred positions, but again, no money on our part.

Some of that might change as we develop stronger relationships from the Mack-Cali Roseland perspective with some of these institutional partners. But what we're going to focus on in addition to what is a very healthy queue, both in terms of developments in progress, inventory for future development, is new opportunities both in terms of utilizing our land bank, utilizing even some of our operating properties.

The Roseland principals and I literally met with the mayor of a community yesterday and discussed utilizing the parking lot because of the unique topography of the parking lot, and decking over a portion of it, and taking part of a large site that is currently occupied as office and building a multi-family community. And so these are some of the unique avenues to success that we will have combining our skill set, the fact that particularly in New Jersey, we've all been part of the political landscape and the governmental and approval and jurisdictional landscape together, although albeit in different sectors, for many years.

And now combining that aspect and that communication with, I think, one of the two or -- certainly less than a handful of most highly respected multi-family developers in the entire Northeast gives us the ability to be creative that way and to take underutilized assets and repurpose them. And that's good for the towns, particularly in a declining tax base environment, and it's good for us and our shareholders.

Okay. Thank you guys.

You're welcome. Okay, well I hope that we had a very thoughtful and thought provoking discussion today. We're energized. We're excited by this acquisition. We know that execution at the end of the day is what counts and we're up for the task.

We've now teamed up with the best in class in the multi-family sector and lots of opportunities on the horizon. And we're going to do what we say we're going to do and expand that part of the business in a very fruitful and productive way.

And so I want to thank you for all being patient today with a lengthy discussion of this evolving transformational diversification of Mack-Cali. And we look forward to reporting further results to you if not before, certainly next quarter. Everybody have a good day. Thank you.

And once again ladies and gentlemen, that does conclude today's call. Thank you for your participation and have a great day.