Veris Residential Inc (VRE) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Mack-Cali Realty Corporation fourth-quarter 2012 conference call. Today's call is being recorded.

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

Thank you operator, and good morning, everyone, and thank you for joining Mack-Cali's fourth-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. First, I'd like to review some of our results and activities for the quarter and what we are seeing in our markets, and then Barry will review our financial results. As you've seen from the press release issued this morning, FFO for the fourth quarter 2012 was $0.66 per diluted share, and for the year ending December 31, 2012, it was $2.67 per share. We had healthy leasing activity with a total 1.147 million square feet of lease transactions, including 375,000 plus square feet of new leases within that total. Our tenant retention was 59.3% of outgoing space, and we ended the quarter at 87.2% leased, slightly down from last quarter's 87.5%.

For the full year, we signed 546 lease transactions totaling approximately 4.1 million square feet, and that total included 1.4 million square feet of new leases. Our full-year tenant retention rate was just under 59% of outgoing space. Rent on renewals rolled down this quarter by 4.4% on a cash basis compared to last quarter's 5.9% cash roll up. Again, a very cyclical number that's reflective of that particular transactions in any one quarter. However for the year, we had an average rent roll down of 3.4%.

Lease roll overs for 2013 are 10% of base rent or approximately $60.4 million. Our leasing costs this quarter were $4.11 per square foot per year, up from last quarter's $3.03, again reflective of particular transactions. For the year 2012, our leasing costs averaged $3.56 per square foot per year. 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, in West Chester, in suburban Philadelphia, and in Washington DC. While the fourth quarter was a defining quarter for Mack-Cali with our acquisition of Roseland and committed strategy, the diversification and expansion in the multi family sector, it was not without its challenges.

Continued uncertainty surrounding the deficit, healthcare reform, and individual and corporate tax policy plagued both corporate America and consumers alike. And then, along came super storm Sandy, further disrupting business and wreaking havoc on the infrastructure. We at Mack-Cali are fortunate to have largely been spared serious property damage, with the exception of our building at 125 Broad Street in downtown Manhattan, which was essentially out of service for about three weeks due to the flooding and wind damage. I am proud to say that our property management teams were up to the task of ensuring the safety of our assets, and ensuring the comfort of our tenants and our multifamily residence.

As we discussed on the last call, last quarter we closed on our acquisition of the real estate interests and development and management businesses of Roseland Partners, marking a fundamental step in a strategic diversification for Mack-Cali, wherein multifamily residential will be a key component of our growth strategy. In addition to acquiring the development and management businesses, Mack-Cali acquired joint venture interest in six operating multifamily properties totaling 1769 apartments, one condo residential property totaling three units, and four commercial properties totaling approximately 212,000 square feet, 13 in process development projects which include nine multifamily properties totaling 2149 units, two garages totaling 1591 parking spaces, the first of which garage 45 totaling 850 out of that total just about complete, and two retail properties totaling approximately 35,000 square feet. As well as interests or options in land parcels, which may support approximately 6000 additional units, approximately 736,000 square feet of commercial space, and a 321 room key hotel atop garage 45.

The locations of the properties layer in with the Mack-Cali footprint extending from New Jersey to Massachusetts, with the majority along the waterfront in New Jersey, in particular at its flagship development, Port Imperial, in Weehawken and West New York. During the quarter, we sold Moorestown Corporate Center on Strawbridge Drive in Moorestown, New Jersey. We sold the three building, 220,000 square foot office complex for approximately $19.4 million, continuing our plan of recycling capital out of non-core assets. We have several additional initiatives to sell non-core assets as reflected in our filings. These include, 16 & 18 Sentry in Blue Bell, Pennsylvania, where we will also retain a residual carried interest without any capital exposure going forward. 51 Imclone in Branchburg, New Jersey, which we will be finishing a contract to sell to a major telecommunications company that happens to be the tenant in the building. Possibly an additional small asset in Clifton, New Jersey, as well as, as I say, those properties that are held for sale in our filings that were filed with the SEC today. We will redeploy this capital into our multifamily expansion.

This quarter, we've already announced the acquisition of Alterra at Overlook Ridge 1-A in the Metro Boston market for approximately $61.3 million. Simultaneously, we agreed to acquire Alterra 1B for approximately $88.7 million sometime in the early spring when the loan that currently encumbers the property opens for repayment. The luxury multifamily properties contain 722 rental units in the master planned community at Overlook Ridge in Revere and Malden, Massachusetts. The properties that I mentioned, Alterra, are being acquired from a Prudential joint venture. Roseland developed these properties in the mid 2000's and continues, and has done so, to lease and manage them.

Properties offer resort style amenities and are a ideal location in the metro Boston market. Just last week, we announced the December 2012 commencement of several significant multifamily projects, including River Park at Port Imperial in Weehawken, New Jersey. That is being done in joint venture with Prudential, another example of the fine long-standing relationship that Roseland has enjoyed with institutional partners. This project includes a 10 story, 280 unit luxury multifamily community, the latest rental property developed in the southern portion of Port Imperial.

In a joint venture with a fund advised by UBS Global Asset Management, we commenced construction on the Highlands at Overlook Ridge, a 371 luxury apartment development in Malden, Massachusetts. It is the latest addition to Overlook Ridge master plan community, which also includes the Alterra complex that I mentioned a moment ago. Just last week, I attended the official groundbreaking ceremony, along with the Governor of Massachusetts and the Mayor of Boston, for Portside at Pier One. Part of the planned mixed-use community on the East Boston waterfront. This 176 unit apartment project is being done in joint venture with Prudential as well.

And I might add, a labor of love, particularly on the part of Boston and Roseland to have been working together on this project for almost a dozen years, and we are delighted to now see it take shape. Some of our additional activities that are -- that we're involved in with Roseland at the moment include 196 units that are to be built in Mount Laurel, New Jersey, great suburban community. We're actively engaged in a potential acquisition with an institutional partner in the Metro Washington DC market. We'll talk more about that in the coming days. And as well, we are involved in a mixed use student housing project with one of our existing partners at -- to one of the state universities in New Jersey that would include 446 beds and approximately 75,000 square feet of retail space.

Now turning to office leasing. Some notable transactions that we outlined in our quarterly filings include the previously announced Barrie House Coffee Company up in Westchester, a coffee manufacturing and Allied product distribution company. They signed a new lease for almost 68,000 square feet at Four Warehouse Lane in Elmsford. And this 195,000 square foot industrial warehouse building is now about 97% leased.

New Cingular Wireless, who also goes by the name AT&T Mobility, and we all know who they are, signed renewal leases in Paramus for 138,000 square feet at Mack-Cali Centre 7 on 15 Midland Blvd, and approximately 74,000 square feet at Mack-Cali Centre 3 at 140 E. Ridgewood Avenue, both in the same vicinity. The 259,000 foot Mack-Cali Centre 7 is about 81% leased, and the 240,000 square foot Mack-Cali Centre 3 is about 92% leased. AECOM Technology Corporation, a global technology and support services firm, signed several transactions with us over the quarter. They include a new lease for over 91,000 square feet at 125 Broad Street in downtown Manhattan, thus taking up the bulk of the occupancy of Oppenheimer. And lease transactions totaling 71,000 square feet at our 30 Knightsbridge Road in Piscataway, where AECOM has been our tenant for a number of years. These strategic transactions consisted of a 60,000 square foot renewal and a little over 11,000 square foot expansion at 30 Knightsbridge, which is a four building office complex totaling 680,000 square feet that is about 93% leased in Piscataway, New Jersey.

Also, going back to 125 Broad, the Institute for Community Living, a not for profit corporation that assists individuals with disabilities, signed a new lease for 42,000 square feet, and so now Mack-Cali's ownership interest of just under 525,000 feet at 125 Broad Street are 100% leased. And I'd like to point out that the building is 100% back in service, certainly not without its challenges given the downtown effects from super storm Sandy. Nestle Water North America, the bottled water company, signed a lease renewal for 47,000 square feet at 5 Warehouse Lane in Elmsford. This building is located in the Elmsford Distribution Center, and the building, 75,000 square feet, is over 97% leased.

Moving onto the capital markets activities, during the quarter the Company completed the sale of $250 million face amount of 2.5% senior unsecured notes due in December 2017. The net proceeds from the sale were used primarily to repay outstanding borrowings under the Company's unsecured revolving credit facility. Also during the quarter, Mack-Cali announced that its Board of Directors authorized a share repurchase program under which the Company may purchase up to $150 million of its outstanding common stock, and we purchased about $11 million. On another note, Mack-Cali continues to manage its properties with a keen eye towards energy efficiency and sustainability and best practices.

Earlier in the quarter, we announced that 8 Campus Drive at Mack-Cali Business Campus in Parsippany was awarded the LEED-EBOM Silver Certification from the United States Green Building Council. Along with our 106 Alan Road in Bernards Township, these were two of the four multi tenant buildings in the state who achieved this prestigious award. The award recognized maximum operational efficiencies, with minimized environmental impacts and carbon footprint impacts. In addition, during the quarter Mack-Cali properties continued to be awarded with the Energy Star designations.

These designations given by the United States EPA, Environmental Protection Agency, and the US Department of Energy, are national symbols for superior energy performance. These are great examples of the achievements we have made in efficiently running our buildings, helping to reduce our carbon footprint, and providing cost efficacy for our shareholders and our tenants.

Now I'll turn the call over to Barry, who will review our financial results for the quarter. Barry?

Thanks, Mitchell. For the fourth quarter 2012, net income available common shareholders amounted to a loss of $9.2 million, or $0.11 per diluted share, as compared to $16.1 million in income, or $0.18 per share for the same quarter last year. For the full year 2012, net income available common shareholders amounted to $40.9 million, or $0.47 per share, versus $69.7 million or $0.81 per share in 2011. The results for the quarter and for the year include $0.25 and $0.23 per share respectively of losses on dispositions of rental property and impairments.

FFO's for the quarter amounted to $65.4 million, or $0.66 per share, versus $68.1 million, or $0.68 per share in 2011. For the full year 2012, FFO amounted to $267 million, or $2.67 per share, versus $277.4 million or $2.80 per share in 2011. Other income in the quarter included approximately $787,000 in lease termination fees, as compared to $596,000 in the same quarter last year. For the full year 2012 lease termination fees were $9.253 million versus $4.529 million for the full year of 2011. Same-store net operating income, which excludes lease termination fees, declined by 2.3% on a GAAP basis, and by 5% on a cash basis for the fourth quarter, and for the full year '12, decreased by 1.5% on a GAAP basis and by 2.2% on a cash basis.

Our same-store portfolio for the quarter was 30.3 million square feet, our unencumbered portfolio at quarter end totaled 236 properties aggregating 24.8 million square feet of space, which represents 80.7% of our portfolio. At December 31, Mack-Cali's total undepreciated book assets equaled $6 billion and our debt to undepreciated asset ratio was 36.7%. We had interest coverage of 3.2 times and fixed charge coverage of 2.8 times for the fourth quarter of '12. For the full year of '12 the Company had interest coverage of 3.2 times and fixed charge of 3 times. We ended the quarter with approximately $2.2 billion of debt which had a weighted average interest rate of 5.86%.

Currently we have $58 million outstanding on our $600 million revolving credit facility. We are affirming FFO guidance for 2013 in the range of $2.40 to $2.60 per share. At the midpoint, our guidance assumes leasing starts of 2.3 million square feet versus scheduled lease expirations of 2.8 million square feet. End of year 2013 occupancy about 80 basis paint lower than our December 31, 2012 level of 87.2%. Development investments of about $50 million in 2013 for wholly owned and joint venture projects, including the completion of Phase II for Wyndham Worldwide in Parsippany, and the startup of the multifamily residential joint venture at Harborside in Jersey City.

Acquisitions of $230 million primarily for wholly owned and joint venture multifamily properties, and we also, as Mitchell laid out before, are looking for property sales of about $100 million. Please note, that under SEC Regulation G, concerning non-GAAP financial measures such as FFO, we are required to provide a 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 quite right Reg G, as well as our 10K.

Mitchell?

Thank you, Barry. There is no question but that the market for office space remains challenged. You look at the Cushman & Wakefield statistics which are the statistics that we employ, you would see that in our markets, space showings were off year-over-year by 20%. If you look at those same statistics for Midtown Manhattan, you will see that space showings for Midtown Manhattan were off by 26% year-over-year, and 22% year-over-year for Downtown. And so I'm delighted that we were able to backfill 125 Broad Street with over 130,000 feet of new leases to take the place of Oppenheimer, who we also signed an early surrender agreement with, so that will help them accelerate their move into 85 Broad and our new tenants in 125 broad.

Undoubtedly, most of you have heard from other office companies about paradigm shifts affecting demography, urbanization, and densification. These trends will undoubtedly sort themselves out over this next economic cycle, which frankly so far has been very slow to add new service and science sector and jobs, and build on the employment levels. These are the jobs that are needed to fill office space. I am, however, delighted to tell you that just this morning I received a counterproposal from a major metropolitan corporation who has been looking at the possibility of consolidation for now close to a year.

And they have made us a proposal in response to our responding to their requests to build Harborside Plaza 4, which is a 1 million square feet, and it would be leasing that for a 20 year term. Now I point out that we have not signed a lease at this point, we are merely in discussions, but I guess it proves that if you have land and permits and approvals in high barrier to entry markets, where that cannot be replicated or duplicated, a little bit of patience makes a lot of sense. So I look forward in advancing these discussions and certainly we will keep the market informed.

Our acquisition of Roseland is in response to recognizing these trends. The ones I talked about, paradigm shifts, demography shifts, urbanization, transit orientation, and expanding and allocating capital into a sustainable real estate sector that is reflective of these lifestyle changes and choices. High end visionary lifestyles, affording rentals of choice as opposed to rentals of necessity. And providing a lifestyle that affords flexibility. We at Mack-Cali are always working to maintain and, where possible, improve our position in all aspects of our business. We have and we will continue to be active in asset management, selling assets that no longer make strategic or economic sense to own, and redeploying this capital into the growth of our platform.

I think the discussions today about some of the assets that are held for sale and those that we intend to sell prove that point. We are also committed to repurposing assets where that makes strategic and economic sense as well. As well as putting our land inventory to work. Wegmans in Hanover, and a contract to sell a large parcel in Princeton to a lifestyle type company, are examples of that. As well, we, meaning the management team of Roseland and I, have visited with a number of municipalities to discuss rezoning of commercial properties to include multifamily residential, and in some cases, mixed use development where you can amenitize the uses with some level of retail services. We certainly remain committed to being the preferred provider of office space within our markets, as well as maintaining a strong balance sheet, and being poised to take advantage of opportunities as they present themselves.

With that we will take your questions. Operator?

Thank you.

(Operator Instructions).

Jordan Sadler, KeyBanc.

Thank you, good morning. Mitch, pleased to see some of the announcements this morning and some of the activities you were active and engaged in during the quarter. Particularly on the asset sale side, it seems you have embraced the asset management discipline a bit. And I am just curious, $100 million relative to a $5.5 billion entity, not a huge number. What is your propensity or thought process surrounding potentially accelerating that process?

Well we have announced in connection with our guidance, that we would be looking to dispose of $100 million plus or minus in the course of 2013. So, I think we are certainly on track with everything that we have indicated to the street. We are looking at our entire asset base from the perspective of, as you say, asset management, where we have sites that we can developed that can be in co-habitation with existing offices space, and be very high level live work play environments. At this moment we are not interested or looking to dispose of any particular market or sub market. So we will be a little more surgical about it, and see how we can utilize our asset base to grow our multifamily platform as well as potentially repatriate some capital and utilize it in our growth platform. So although $100 million may not be a lot in the context of a $5 billion Company, we think this will be an effort that will continue over time.

Okay. The other question I have for you, a thought process surrounding Alterra A & B, 1A & B, 1B, the markets there, Revere, Malden, and strategically where you'd look to position yourselves vis-a-vis in relative to cities, relative to your existing markets with multifamily?

Well as I said, the properties, the Alterra properties were developed by Roseland and managed by Roseland. First phase was 2004, the second phase in 2008. Prudential chose to close its fund the life of its fund that held the assets. We had a tremendous competitive advantage because of the relationship and the fact that they did not see the necessity of a broadly marketed transaction. We thought we got a very fair price buying the assets at somewhere about a 5.4 tap, based on current rents and given the financing that we are putting into place having a cash on cash yield of 70/30, 70% financing, 30% equity, somewhere in excess of 9%.

We are building right next door to the Alterra site or project, in connection with the Overlook, we expect to be building that to about a 6.7% free and clear. We are seeing rising trends in rent we also manage Lennar's existing apartment complex that had originally been built for condo sales and evolved into rental apartments. So this particular area just north of Boston is very strong, we are approximately 98% leased, and as we turned some of the leases over, we have every expectation that we will see rent growth. And in Boston itself, we, as of course described, we're building on the waterfront a magnificent site. East Boston is becoming like the meat packing district, or the SoHo, of Boston. It looks back on the financial district, there will be Cross Bay ferry service. It is almost next door to the airport, and the whole area is gentrifying.

So we are very encouraged with our opportunities there. We have a great relationship, particularly the Roseland, Marshall Tycher in particular, with the administration up in Boston and as I said, this was a 12 year effort to get this project off of the ground. It is extremely important to the state, and to the city to see this stimulate this project, be sort of a stimulative to growth in the area. And that is why the governor, Deval Patrick, and Mayor Menino, along with several congressmen and state legislatures, legislators, took their time to come to this groundbreaking. So we think it makes eminent sense to expand into that region, it so happens I think Boston is probably doing a little better than most of the other Gateway cities, in terms of some economic vitality. So we are happy to be there. We are also actively engaged in finishing a transition of notable size in the Metropolitan DC marketplace, which is been a home to Mack-Cali assets for many years, so it is not new to us.

And this asset is in a great location, and we have a great unusual opportunity and it is big, where we're bringing in a partner, one of the names that I mentioned in my discussion. But for the moment, we'll be -- until we finish crossing all of the T's on this, there is not much more I can say about it. So the footprint, the geography, the overlay is perfect from the Roseland perspective as how it layers into the Mack-Cali footprint.

The DC one is a multi as well?

The DC is multi.

Last question, on multi -- the multinational corporation that may, looking at a potential build to suit here, I know it is early days, but we do not see a lot of, you said it was consolidation, we don't as much expansion activity here on the East Coast yet. And given the context of your dialogue in the call here, what is the nature of this Company? Is this a major reduction or expansion? And would they be coming out of Manhattan? Or what would be the nature of its?

The nature of is it's a consolidation, as we all know, the larger multinational companies have been looking to create more densification of their space. In order to do that, you need real -- and to do it in a serious way and I consider a 1 million square foot user is a serious user, you need to have a new product built for you. We have a heavier burden on all your systems in the building, air-conditioning, the elevator systems, the number of bathrooms, on down the line. And this is been going on for about one year, I've talked on many earnings calls about both the excitement and the disappointment on not seeing some of these transactions come to fruition. We do our dog and pony shows and make our presentations, to large cash and broker, sophisticated brokers, representing these companies. And they have all, many of them have, come to Harborside to -- over the last couple of years to talk about the potential of consolidation.

This appears to be very real, it is very real time, I literally got a response to a proposal that I sent back to them on a Saturday, in October, October 13, I got it today. It is very serious, the numbers are very real, and that is what I can tell you. I'm can't -- I'm not at liberty to divulge who the company is, other than to say what I have said.

Would it be a consolidation out of Manhattan did you say? Or just in New Jersey --

Largely out of Manhattan.

Okay. Thank you.

You're welcome.

Michael Knott, Green Street Advisors.

Hey Mitchell. Ask you about the Brandywine sale of Princeton Pike, I think it was 8.5% cap rate, $150 a foot. Two questions on that. A, did you put in a bid for that? And then B, do you have any thoughts on what that 8.5% cap suggests about the value of your suburban New Jersey portfolio?

We did put in a bid, didn't look at the due diligence, wasn't offered a package on it. But of course I am aware of the sale. I think unstable assets in suburbia, that stabilized being reasonable periods of time remaining on the leases, not unusual amounts of roll over, or that sort of thing. 8% to 8.5% on a typical low rise suburban asset is realistic. When you get into the more urban centric assets, campus type of settings as well, that cap rate compresses to some extent. Certainly I would think that assets, for example, on the waterfront you would be on a 6% to 6.5% range, and similar range on cap rates for long-term leases, net leases with high-grade credit, even if they are suburban type assets.

So for the plain vanilla stuff, 8%, 8.5%, and then for stuff that's, assets that are either unleased or with lots of vacancy potential in the near term, given the amount of capital that you would have to invest, the cap rates in my opinion become meaningless. It is all a matter of what you can find somebody who is willing to pay for the bones and willing to take the risk of releasing going forward. The markets have been extremely sluggish as I indicated.

Right. Okay thanks for that. And then, a question on further capital allocation, it sounds like you obviously have been busy, and it sounds like you have more deals to come. Just curious on your thoughts on, or your interest in, pursuing entity level deals? There is a certain entity in the DC region that you've owned securities in before that is going to be going through a CEO transition. Do you have interest in furthering entity type of deals? Or do you feel like you are full right now after Roseland?

Yes, well that entity that you're talking about is yes to everything that you said is what I have read, and they are looking to sell their medical building unit, which is not of interest to us. We do have a lot on our plate, but we have a huge amount of capacity. We are looking at the potential of a couple of entity style transactions, frankly, in more in the multifamily sector right now. And we will so how that shapes up over the next coming months.

Okay. Thanks.

You're welcome.

Joshua Attie, Citigroup.

Good morning, it's actually Michael Bilerman. Mitch, going off that point, what would the sizing be of these types of entity level transactions?

I got a package literally yesterday, again something that we have been working on for a while. But I did get it yesterday, we are talking about several thousand apartments, a lot of it is new development but sites that are approved. So I would think it's, on the order of magnitude of that sort of thing, it certainly is not on the order of magnitude of some combination with an existing multifamily REIT.

How do you, if you step back for a minute, how do you think about your cost of capital in going into the multifamily business? If you look at what your multiple is, you look at where your implied cap rate is, you're miles away from where multifamily trades?

Yes. I guess multifamily trades at 20 times earnings, and they buy a lot of property at 2.5% to 3.5% free and clear, or as you call it on the street, cap rate yield.

I would defend that. I think, actually I don't think that is correct. I think a lot of the multi family companies are buying at or above where you just bought Alterra. And they're developing at pretty high yields, even higher when you are developing next to Alterra. And that's where the asset values are, and their stocks trade there for a reason.

Yes, okay. I have not seen those deals, I guess you see more of that universe. We think that if we can build in the mid to high 6% range on in place rents today, and appropriately finance the product, which in today's world and today's universe is eminently possible, we are doing it right now. And have good cash on cash yields in the cases where we bring in partners, limit our capital and put some capital in on a pursuant basis and generate fee income in managing leasing and development that it makes sense for us.

But I guess even, take Alterra for second right? There's no doubt that the Fannie & Freddie financing that is available is allowing you to get that 9% cash on cash, but as a entity level, if we look at Mack-Cali and your strong desire to keep a strong balance sheet and something that you've done over time. You've raised a lot of equity to keep that leverage low, bringing in $150 million of assets with $110 million of debt is going to raise overall corporate leverage. And so how do you effectively equalize the balance sheet with what is now becoming, you look on Page 30 of your in process development, and you still have some acquisitions in the budget which are little bit offset by $100 million or so of dispositions.

But leverage is moving up, and your equity is not affording you the cost to finance it. I guess I'm struggling with how value is being created?

Well first of all, leverage is not materially loving up. It is modeled to move somewhere around 38%, plus or minus, 39%. So we have a lot of room on the leverage side of the equation. We think that both the combination of having some of the best sites in the -- in our geographic footprint, including office sites that can add and layer in multifamily development, are something that a lot of other companies in the space can't do. So we think a combination of the best sites and the best locations, the ability to repurpose an asset base rather than necessarily sell it or give it away because the street wants to see a lot of asset deployment and management. We can create at lot of value, and I am hopeful that our multiple will expand as a result of a combination of all of these things so that we can raise equity at this point. Time will tell.

But to -- we are in a growth sector with the best and the brightest in terms of our team. And to have not done anything, given the fact that the office markets in general have been soft, remain soft, both suburban and urban, matter of degree. That it was an appropriate strategic diversification for the Company. I'm sure that as with most things, we can debate pros and the cons and you can take your view of it.

If you look on page 30 of the supplemental, the value creation pipeline, Barry, of this capital for the unconsolidated, of that $805 million of total cost, what is Mack-Cali's care share the cost?

Is if you look at Footnote 4 in the filing, you will see that we have very little share of the cost, all the joint ventures are laid out for roughly $900 million worth of capital. And you will see that the Mack-Cali investments are extremely minimal. I suggest that you carefully study Footnote 4 and then we can continue this discussion either online, off line or out of line. But you should read that.

I am on Page 30, there are no footprints on that, so I will have to go to a different document.

It is in the financial statements in the 10K, and go to Footnote 4.

Okay. Thank you.

You're welcome.

Steve Sakwa, ISI Group.

Thanks. Mitch since the office is still a pretty large component I'd like to focus back on that for a minute. I think you said that your occupancy was going to be down about 80 basis points this year. If I recall, I think last quarter that number might have been 40 basis points, is that correct? And if so, what is accounting for the incremental slippage from 3Q to 4Q?

Well, first of all, we I guess have had a few disappointments on some of the expected renewals that have not occurred. We are also making some adjustments because of the sales that are either those asses listed for sale or held for sale, including some of the assets that I described today on the call that we will be disposing of. So there are some adjustments taking place, but the reality is that some of the transactions that we had hoped to achieve have not occurred. And some that we had anticipated having occurred already have been put on hold. It's the nature of the business particularly in this environment. So there is no other science to it.

Okay, and if you try and look out and, talking to tenets that may have expirations in '14 or '15. The question is, do continue to see a slow bleed on the occupancy? Or do you think 2013 marks the bottom?

2013 and 2014 are both challenging years. And so -- in 2013, we have a total of 2.8 million feet of roll. We know that roughly half of that is out the door, based on what they are telling us now. And so we've got a lot of wood to chop and work to do. And '13 is a tough one -- or rather '14 is of similar proportion. So tenet's plans change, and we are working hard to get commitments as early as we can.

And I guess going back to some of the questions that you've gotten on a capital deployment and asset sales. Have you contemplated maybe dramatically selling a lot more of the Company and making some sort of special dividend? If you think that there is a real disconnect between where the stock is trading and asset value of the Company? Or are there tax considerations that really preclude you from doing that?

You know the nature of contributing properties, and there are always tax complications in doing that. And as fiduciary's as part as of the public company you need to be cognizant of that. So, no it is not something that we have considered. And is the first time I've actually heard the concept, but it is a interesting thought.

And I guess lastly, on the apartments. How far are you willing to expand the footprint? Is it basically DC to Boston and that is it? Or can you envision this multi family portfolio going further than that?

No. DC to Boston is what we have targeted. And, of course does not preclude lots of different locations within that footprint, areas in Pennsylvania, potentially Mount Laurel as I have indicated. But that is the define -- Mid-Atlantic to Northeast.

Okay. Thank you.

You're welcome.

Jim Sullivan, Cowen Group.

Good morning. Just a follow-up on Steve's question regarding the leasing prospects. I wonder, looking at the sub market, it appeared that northern New Jersey and West Chester were the ones hit the most over the last 12 months in terms of occupancy. Is there anything particularly negative about those markets that's causing that? Or is it simply the expiration schedule from last year?

Well look, I think the expiration schedule. But business is very slow, and -- on the office side of the equation. Most of what you see within the markets are musical chairs, tenant taking advantage of opportunities to either potentially reduce the amount of space or create better stacking inefficiency at lower costs. There is very little new business activity. I indicated the space showings that are off by 20% year-over-year. And so, and it is not New Jersey alone, it is pretty much every market that we are familiar with. There is a lackluster amount of vitality in the business community right now, certainly as it relates to office space.

Shifting focus a little bit here. In terms of sources, there are a couple of joint ventures out there at the Company has had many invested in for some time which may or may not be coming to an end or a potential source of capital. I was thinking about Downtown Crossing in Boston, and I know there was one small JV interest that was sold early in January. What are the prospects for pulling cash back from those joint ventures? Is there anything in the model for 2013?

It is not really in the model we have per se, we have an agreement with Vornado. We, meaning JP Morgan and Mack-Cali, who are on one side of the 50% partnership. To be bought out of that project they have a option, they are working with their partner Millennium to resuscitate and reshape the development of filings, that was also in the newspaper recently, within the last week or so. Their option expires in May, we have every indication that they are going to go ahead and buy us out. And that will be at par.

So yes, there will be capital coming back as a result of that. Our 50% interest with JPMorgan, of which is 70/30, JP and ours is $45 million. We have an agreement in principle that we are finalizing to be bought out of our remaining residual interest in the Xanadu development with Colony Capital. That surrounding ground, it's very complicated in the capital stack nature. And it's not substantiative in terms of the size of Mack-Cali, but it could represent over some time about a $8.5 million to us, property is being sold to the Ghermezian's to Triple Five to continue the expansion of their development at Xanadu. And so we have a few of those types of situations were capital could -- hopefully will be coming back to us.

Okay. And then turning to the development projects that were announced. I think you mentioned a 6.7% yield for Overlook Ridge. I do not recall if you provided any yield guidance for the RiverParc at Port Imperial or Portside at Pier One.

We thought that we provided it in the press release. We are checking right now. But --

If you can just remind me, I have the release of front of me that does not have it.

Anyway, the yields are very similar. When we bought the existing product it was about 5.25% on the existing product, the development yields are all expected to be 6.5% plus on an unleveraged basis. We expect any cash that we put in, of which is very little in those joint ventures, almost none, that our cash will generate at least 9% if not higher on a cash-on-cash return.

So just to be fair, when you look at these developments versus based on in place rents, as you put it, current market rents, and where cap rates are on existing product, you are looking at, before fee income, I am assuming, you are looking at something like a 15% to 20% spread in terms of value creation. Is that fair?

Well, yes, before fee income, if you are looking at the repositioning -- well, I will give you a example. The asset that we are buying in DC, right now, the rents are approximately $2.11 a month a foot, and when we are done repositioning that and we have modeled in to the kind of cap rates that I have indicated to you, the repositioning dollars, we expect to dollars and $2.75 in rents. So that's the spread.

Sure. I'm thinking really about the three Roseland JVs and the two in Boston and the one in New Jersey that are listed in the press release, the $242 million of developments, there you're looking out about a 15%, 20% spread to market cap rates in terms of value creation.

If you are looking at -- right, if you're looking at, say, building to 6.5%, call it, and selling at 4.5%.

Sure. Then it's even higher, sure. And in terms of fee income, I am not sure, Barry, if you've provided this in the guidance before, but what kind of number are you projecting for 2013 in the model for fee income for the joint ventures?

From the joint ventures themselves? You know, I do not have a from the joint ventures, in the aggregate, we're looking at fee income close to about $25 million out of the whole RPC platform, which includes third-party and development fees from third parties.

And so that is only including what is existing or announced I am assuming?

Including what's existing, announced, and what we know is going to be coming online over the year.

Okay. And then finally from me, on the asset sales, you talked about $100 million in this call, I think in the prior call you were talking about $75 million. So it seems to be a increase, maybe I am wrong. What is the overall cap rate you are projecting?

Well, the cap rate on the $75 million slug is for a single asset. And that's -- we are expecting somewhere in the low 6% range. The remaining sales are more $100 type per square foot, considering the fact that they are pretty empty buildings. And so the cap rate really becomes somewhat irrelevant.

They are priced on a per pound basis.

Correct.

Okay, very good. Thank you.

You're welcome.

James Feldman, Bank of America.

Great thank you. Mitch, I was hoping you could talk a little bit more about the organizational impact of bringing Roseland into the Cali organization? Can you talk about some the changes we're going to see at the home office? And then give an update on how things are going, and also just talk about, you've had a lot happen in the quarter. How do you think about the risk of everything going on and how you are mitigating that risk? Both to the balance sheet and to organization in general?

That is a fair question. I would say the least concern is integration. The Roseland platform is virtually self-sustaining, self sufficient. Obviously, there is an integration of systems and protocols and policies. But they operate independently, the governance of the organization is by me, as the Chairman and the CEO, we have executive committee meetings, we rotate executive department and finance committee meetings. And -- but they have continued to operate, aside from the structural changes and the impact of additional systems data, as an independent organization.

We have just gone through probably one of the more difficult 10K assemblages, kudos to our finance group and our legal group and our outside auditors for working so, under such stress, who I think we may have -- may be the first 10K filing out there, in certainly the office space that was filed this morning. And that articulates, in great detail, all of the joint ventures and, frankly, all of the risk factors that we can anticipate in connection with this transaction. So I would say that you will see very little change in the complexion of Edison versus Roseland and so forth. Because of the way we have structured this, as you know, and the nature of your question suggests, that business combinations and Company style combinations ordinarily bring integration risk, and that in so many instances, is a recipe for failure. And we were very, very careful in this instance to make sure that, that could not happen. Relative to the balance sheet, we are extremely cognizant and sensitive of maintaining the strength of our balance sheets, of maintaining our investment grade ratings, and we have a very good handle on how much additional leverage we can employ.

We are taking steps to bring in institutional partners, particularly those that have been business so frequently with the Roseland platform in some of these larger, chunkier assets, so long as we can get the same benefit of pari passu preferred returns, and so that is what we're doing and we are also benefiting from the fee income. There is no question that we would like to be able to issue equity at some point, the price of our stock right now does not permit it, but we -- certainly would have -- we have a great opportunity set. We'd have a greater opportunity set if we have more liquidity in the form of equity capital. And so that is our goal. And, I personally think that the most sophisticated investors, and certainly those that understand real estate, have applauded this strategic diversification as an early staff and a bold move to diversify the Company into a sector that continues to show sustainable growth. And so that what is what we have done. I am certain that among the -- those that applaud us, there are those, some of whom we have heard on this call, that have opinions otherwise.

So it is my goal to, many of you have received an invitation to come out and meet the management team from Roseland, take a tour of the superior assets that they have built and continue to manage and we have various ownership participation in. I know that unfortunately you won't be able to be there, but your associate will. And the investors and the analysts can judge for themselves the quality of the professionals that have now become a very significant part of Mack-Cali

Okay thanks. Just to be clear, so it sounds like you're going to keep the Roseland office open? The one near Shore Hills?

I'm going to keep it open until we move into our office building in Short Hills, and then redeploy and repurpose the site that the Roseland building sits on. Just in case you live in the Short Hills, I know you live in Livingston, but we're -- we've got much but bigger plans for that site.

Okay. And then can you, I know you painted with a broad brush what is going on in the suburbs, but can you maybe give a little bit more color on Connecticut versus West Chester, and any improvement there? Or it really is across-the-board and not getting better?

It is not getting better, really. It is a gear box that is in neutral. And we are not seeing a lot of new business leads in West Chester, we are not seeing it in Connecticut. I mean I am not trying to be pessimistic or negative, but I can -- other than some of the tech companies and some of the tech sector, there is very -- we are seeing very little new business on the larger scale. There's still small entrepreneurial firms, law firms, that sort of thing, that are taking space and moving around. But more of the -- there's more contraction today that there is business development, or business growth, and that you have the occupancy pressure. So that's -- it's not -- it doesn't materially vary from market to market, it really does not.

Okay. Then finally, can you talk about if you're seeing any -- we're hearing from some of the other suburban office landlords that there is a uptick of capital flowing into their markets. Are you seeing that in all any increased interest, or any pressure, downward pressure on cap rates?

I see in most of the markets the entrepreneurial private funds that are interested in buying product that -- they -- value added type product. And money is hard to raise in that sector, but there is some level of it available, and that is why we are able to sell some of these assets that I talked about. As far as the well leased yield investors, there are plenty of them for that sector. Whether -- no matter where it is, whether it is in suburbia or in the middle of mid-town Manhattan. Because their yield plays and the cost of money is very low, and there is a lot of international money as well that is looking to find a home in the United States in safe secure assets.

So there is a, I think there was a somewhat of a bifurcation in the capital flows into the office sector.

Okay great. Thank you.

You're welcome.

Michael Knott, Green Street Advisors.

Mitchell, if I can ask one more question on the Jersey City potential tenant. Obviously, downtown leasing economics are a little tough right now, just as evidenced by the $7 per foot per year on some of your leases at 125 Broad. But I would presume that tenet you are talking to of that size, they are probably looking at World Financial Center as well. Can you give us a quick view of how your economics would compare to what they would be paying at World Financial?

I can tell you that our economics would be in the mid to slightly above mid $40 initial rents on a gross basis. Our expenses down there on the order of magnitude of $12.50, give or take, including without -- and that is without any special real estate tax treatment. So it gives you a sense of what we are looking at. I do not want to speak for Brookfield Property or for the Port Authority or Silverstein or anybody else. You can gauge whatever you think those rents are. But I think that we are probably 30% less costly, if not more.

Okay. And then on the topic of buy-back's, I think you ended up at about $10 million if I remember the number correctly, can you refresh us on your thinking of how you ended up there? At $10 million or $11 million, whatever the number was, as opposed to zero or $20 million or something more, just how you thought about it?

Well to be very candid, you know that I've not been a proponent over time of buying back stock. I thought, at the time we were doing it Roseland, it would demonstrate, buying back stock demonstrate that we were allocating capital to buy back an investment in our strategy which was the diversification strategy. We stopped at about $11 million, recognizing that until the rest of the market embraces the strategy a little more we have to be cautious about how we spend capital or allocate capital going forward. So, that is the only science to it.

Okay.

So, shareholder friendly.

Any updated thinking in terms of the longer-term weighting between office and multifamily?

You know, we are anxious to continue to expand the resi platform. It is too early to predict percentages, but I could tell you that outside of, potentially, this very, what could be an enormously exciting opportunity down in Jersey City on the Plaza 4 office, both of the allocation of capital is going to go into multi family.

Okay. Thank you.

You're welcome.

At this time there are no other questions in the queue. At this point I'd like to turn the call back over to Mr. Mitchell Hersh

Thank you Operator. I want to thank all of you for joining us today. I felt it was a very informative call. We are clearly excited about the opportunity set in front of us with our new Roseland team, working in tandem with keeping our office portfolio as fully leased, with the higher level of service that we can, and that we pride ourselves on. We are delighted that after tremendous effort on the part of our finance, accounting, legal, and outside auditor team that we were able to get our 10K filed this morning, a lot of work as you will see if you scan through it, as a result particularly of the Roseland acquisition.

And so we are proud of our accomplishments in all areas, and we certainly look forward to seeing many of you at the investor tour the morning of the 28th -- 27th. I sent out invitations yesterday, our marketing team did that. And also, for those who cannot attend or are unable to attend, we look forward to reporting to you again next quarter. Thanks and have a good day.

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