Veris Residential Inc (VRE) 2013 Q2 法說會逐字稿

Please stand by. Good day, everyone. And welcome to the Mack-Cali Realty Corporation Second Quarter 2013 Conference.

As a reminder, today's presentation 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. I thank you for joining Mack-Cali's Second Quarter 2013 Earnings Conference Call.

With me today is Barry Lefkowitz, Executive Vice President and Chief Financial Officer. And for his first earnings call appearance, Tony Krug -- our chief accounting 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're seeing in our markets. Then Barry will review our financial results, and Tony will be available to assist in any q-and-a in the financial area.

FFO, for the second quarter of 2013, was $0.65 per diluted share. In that number, it included some additional revenue from some real estate refunds, and some adjustments on fair-market value liabilities. That was offset to some degree by our bond transaction done in May; and as you all know, the higher-than-anticipated volume and rate of sales and dispositions in the company.

So with that, we adjusted our mid-point guidance, which you saw in today's press release, to a range of $2.32 to $2.42. Our previous mid-range guidance was at $2.45, at our last earnings call.

Within the revenue composition, we had healthy leasing activity, totaling over 1.3 million square feet of lease transactions. That included, in the second quarter, 165 lease transactions. So our leasing teams were working hard and working smart, to conclude 402,000 square feet of new leases, and the balance of primarily renewals and some older-generation space leased, as well.

This provided a retention rate of 64% of outgoing space. So we ended the quarter at 86.2% leased; slightly up from last quarter's 86%.

Rent on the renewals rolled down this quarter by approximately 6.2% on a cash basis, and 5.5% for all transactions on an aggregated basis. The remaining lease rollovers for 2013 are only about 3.9% of base rent, or approximately $23 million.

The leasing costs remain approximately at the same level. This quarter, they were $3.37 per square foot per year. And so they're trending in the same average as the last couple of quarters.

Despite a very challenging environment -- certainly in the office arena -- our portfolio continues to outperform all of the markets where we operate. Our leased rates exceed market averages in northern and central New Jersey, suburban Philadelphia, Westchester and Fairfield Counties, Manhattan, Washington and suburban Maryland. A testament to the franchise and the hard work of our teams.

We have demonstrated our commitment to the strategy of selling, or in fact joint venturing, select office properties within our portfolio, in order to largely self-fund our diversification in the multi-family apartment sector.

Looking at some of the activities in the quarter, I'm pleased to share with you the fact that during the quarter, we sold approximately $136 million of non-core assets. So in 2012, and so far in 2013 -- and I expect this to sort of be the cap at the present time -- we have sold or entered into joint ventures to sell approximately $420 million of assets.

In April, we sold 55 Corporate Drive in Bridgewater. A brand-new 4-story, 205,000-square-foot property; developed for Sanofi-Aventis. The property was sold for approximately $72.3 million -- representing a significant gain to the company, of over $20 million.

We sold 19 Skyline Drive in Hawthorne, New York, for approximately $17 million. This asset is located in the Mid-Westchester Executive Park. It was purchased by Touro Medical College.

In May, we sold Mack-Cali Airport in Little Ferry, New Jersey. A two-story -- basically, an industrial building. Although part of the building is occupied by Falcon Jet -- that's old Falcon Jet, as their corporate headquarters. This asset was sold to a pension-fund advisor for $32.3 million.

In Clifton, we sold our only asset in that city for approximately $5.8 million. A 75,000-square-foot building. 16 and 18 Century Park in Blue Bell Pennsylvania. A 93,000-square-foot building, 16 Century; and a 95,000-square-foot building, 18 Century. These assets were sold for about $19.3 million, and we retain a carried passive economic interest in the properties.

The transaction was done with the same group -- Keystone -- who is purchasing the balance of our Philadelphia office portfolio; a transaction we announced a few days ago.

In Branchburg, New Jersey, we sold 51 Imclone Drive, which is a telephone-switch building, occupied by part of Verizon. 63,000-square-foot property, sold to them.

In June, we recently announced the sale of 40 Richards Avenue in Norwalk, Connecticut. Our only asset in Norwalk. 145,000-square-foot building, for about $16.5 million.

As we had previously announced, already in the third quarter, we've sold Liberty Corner Corporate Center in Bernards Township, New Jersey. 106 Allen Road. This 4-story, 133,000-square-foot property sold for approximately $18 million. A fair amount of vacancy in that asset; our only asset in Bernards Township, in that part of Somerset County. And we think it was a good transaction for the company. And avoids long down-time and a lot of capital expenditures and leasing costs that would be necessary to bring that building to stabilization.

As we announced last week, a somewhat exciting transaction with Keystone Property Group. We entered into joint venture agreements, or an agreement to form various joint ventures, with a fund sponsored by Keystone. Very talented group in Philadelphia. To facilitate the sale of our suburban Philadelphia portfolio, consisting of 15 office properties and 3 small land parcels -- for about $233 million.

We have a very strong relationship with Keystone and its principle, Bill Glazer. This afforded us to do a very exciting, and we think value-added transaction for both of us.

It offers our Roseland subsidiary an opportunity to develop additional multi-family properties that are in line with our strategy and reputation for building the best-in-class in residential, visionary lifestyles.

At the gateway to the mainline in Philadelphia, on City Line Avenue, we'll be able to develop two different properties. One that was previously controlled by Keystone, and another that will involve a subdivision of one of the assets included in this transaction.

We'll have the opportunity to take these proceeds and deploy them into our strategic-growth opportunities in the multi-family sector. This joint venture sale represents about a cap rate of 9% on recurring income.

However, if you strip out -- due to some large lease expirations that are looming, and frankly partially unoccupied space -- pharmaceutical companies that have sold their businesses, in the wave of consolidation in that sector -- certainly no certainty as to renewal probabilities. So if you strip out the CapEx and the leasing costs that we anticipate in Year 1 going forward in that portfolio of some $10.5 million to $11 million, the cash flow yield on this transaction is 4.5% on the purchase price; on the $233 million purchase price. And 5% on the cash. As you've seen from the release, we will be reinvesting about 10% of the proceeds back into the properties, and have a 50% carried interest over certain return thresholds for both Keystone's equity and the Mack-Cali equity.

If you look at it from that perspective, the cap rate on the sale is approximately equal, if not lower, than the cap rate on several or the majority of our development projects that are underway in the Roseland subsidiary.

So during the quarter, we've moved forward and continued to build our platform in Roseland. We acquired or completed the acquisition of Altera, at Overlook Ridge in the metro-Boston area. Revere in Malden, Massachusetts. This second-phase acquisition includes 412 luxury-rental apartments that were constructed by Roseland, along with their partner at the time, Prudential.

Our Roseland subsidiary officially broke ground on the 280-unit riverfront River Park at Port Imperial in Weehawken, New Jersey. We had a groundbreaking there with the local and state and county officials.

The 10-story building that's just begun construction is the latest rental property developed in the southern portion of Port Imperial, which -- as most of you know -- is a mixed-use master-planned waterfront development, spanning 2.5 miles, directly across the Hudson River from Manhattan.

So if you look at the global sources and uses, we sold over the recent past or certainly entered into contracts to sell, about $420 million worth of assets. We have an active pipeline right now that includes, in our estimation, about $344 million worth of Mack-Cali share of equity requirements. That's if several transactions that we are working on go forward. We can't tell you at this time that they will, but we are working on several large-scale opportunities.

So in our recent and pending construction starts, we have about $72 million of capital needs in terms of uses. We have several acquisitions -- one that we expect to enter into a contract imminently, and another that is under contract that would require about $63 million of equity.

So between all of that, that's about $145 million. And we have deals that we are negotiating. Again, too early to say with any certainty that we'll conclude them. But certainly, transactions that we are looking at, totaling another close to $200 million.

So we've put ourselves in a position with their asset-recycling and disposition program, of self-funding our Roseland business at the present time.

With respect to office leasing, trends remain the same. Retention is strong. I mentioned 64%, reflecting the fact that most tenants are staying in place. Those that have experienced no change in their business plan are staying in their current premises with some refurbishing. Occasionally there's an expansion. Occasionally there's a contraction.

But generally speaking, those tenants that have enjoyed relationships -- long-term relationships -- with high-quality landlords like Mack-Cali, are generally happy to stay in place. Naturally, we have to meet the market, in terms of rent that we're pricing.

Having said that, again, I reiterate that we concluded 402,000 square feet of new leases. That's new business. So once again, I have to commend our leasing teams for the great job that they have done in an economy that we all recognize still faces significant headwinds.

Moving on to financial activities.

During the quarter, we completed the sale of $275 million in 10-year senior unsecured notes, at an interest rate of 3.15%. The treasury lock on that transaction in May -- I believe it was May 8th -- was at the time, 1.66%. We've all seen the radical change or volatility in the interest-rate environment, since having done that transaction. That same 10-year treasury would be some 80 basis points more or less higher today.

The net proceeds of that bond offering were used for general corporate purposes -- working capital and repaying some outstanding borrowings.

In addition, we recently announced -- a few days ago -- the refinancing and extension of our unsecured revolving-credit facility. We had an impeccable execution of this facility.

We maintained or retained our accordion feature, which allows us to expand the $600 million facility to a billion dollars. That facility, based on our investment-grade rating, allows us to borrow on the facility at LIBOR-plus 110 basis points.

These successful financing transactions certainly enhanced our financial flexibility, going forward, and being able to support all of the activity that we have between Mack-Cali's office portfolio and our Roseland subsidiary's multi-family portfolio.

With that, I will be happy to turn the call over to Barry, who will review our financial results for the quarter. Barry?

(technical difficulty)

We had a technical problem, so I'll start over again.

For the second quarter of 2013, net income available to common shareholders amounted to $23.1 million, or $0.26 per diluted share, as compared to $10.1 million -- or $0.11 per share for the same quarter last year.

FFO for the quarter amounted to $65.2 million, or $0.65 per share versus $62.1 million, or $0.62 per share in 2012.

Other income in the quarter included approximately $190,000 in lease-termination fees, as compared to $1.3 million for the same quarter last year.

The results for the period included $2.3 million or $0.02 per share in net real estate tax refunds -- as well as $1 million, or $0.01 per share benefit from the marked-to-market of the Roseland-contingent consideration.

Last year we had $2.5 million in expensed acquisition costs, and $4.4 million in early-extinguishment of debt costs.

Same store net-operating income, which excludes lease-termination fees, decreased by 1.6% on a GAAP basis, and 2.7% on a cash basis for the second quarter. Our same store portfolio for the quarter was $29.4 million fee.

Our unencumbered portfolio at quarter-end totaled 232 properties, aggregating 23.9 million square feet of space, which represents 80.3% of our portfolio. At June 30th, we had total undepreciated book assets of $6.1 billion, and our debt to undepreciated asset ratio was 38.8%.

The Company had interest coverage of 3.1-times, and fixed-charge coverage of 2.7-times for the second quarter of 2013.

We ended the quarter with approximately $2.4 billion in debt, which had a weighted average interest rate of 5.64%.

During the quarter, we issued $275 million of 3.15% 10-year notes, which yielded the investors 3.41%. Last week, we extended our $600 million unsecured credit facility for a fresh 4-year term. And based on the current ratings, the spread was reduced by 15 basis points, to 110 over LIBOR. And the facility fee was reduced by 5 basis points, to 20 basis points.

Currently, we have nothing drawn on the facility.

We adjusted our FFO guidance for 2013 to a range of $2.32 to $2.42 per share. At the midpoint, our guidance assumes same store NOI declines around 4%, leasing starts of 800,000 square feet -- versus scheduled lease expirations of a million square feet for the remainder of the year.

End-of-year 2013 lease percentage, which reflects completed and anticipated dispositions -- around 86%. Acquisitions of about $230 million, primarily for wholly-owned and joint venture multi-family properties; of which about 180 have closed, to date.

Sales of about $410 million, which include the recently-announced agreement to sell our PA portfolio to Keystone. About $195 million have closed, to date.

Please note under SEC Regulation G, concerning non-GAAP financial measures, such as FFO, we are required to provide an explanation of why we believe such financial measures are relevant, and reconcile them to net income.

Available at our website, at www.Mack-Cali.com, are our supplemental package and our earnings release -- which include the information required by Regulation G, as well as our 10Q.

Mitchell?

Thank you, Barry.

So in closing, I hope that you can see we've continued to demonstrate our commitment to the transition of Mack-Cali, from a pure office and office-flex space provider -- landlord of choice, in that arena -- to be equally a landlord of choice in the multi-family arena, with our Roseland subsidiary.

I've identified the fact that we do have a full pipeline, in what we are undertaking right now at Roseland. We continue to source new opportunities. And at this time, we are able to capitalize on those opportunities by self-funding through the disposition program that we've engaged in over the last year-and-a-half or so. Very successfully, in my view.

So we're very excited to look at the future in this transformation. We've moved pretty aggressively, pretty quickly, to accomplish it. And we have a lot to look forward to in the future.

So with that, I will now ask the operator to set up the queue for q-and-a. Operator?

Thank you.

Ladies and gentlemen, if you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your "mute," function is turned off, to allow your signal to reach our equipment.

Once again, that is *1 if you have a question.

And we'll go first to Jordan Sadler with KeyBanc.

Thank you. Good morning.

If I could get a little bit of clarity on sort of what's keyed up and what's in guidance. You guys ran through a few numbers. In terms of new investment.

I think I'm more clear on the disposition side; the $410 million, essential, Barry just mentioned with $195 closed to date.

I'm more sort of interested on the acquisitions that are sort of embedded in guidance.

And then outside of guidance, what just overall -- those numbers. What they are, again.

Well, embedded in guidance is the dilutive effect of the sales and disposition program that's been identified. Totaling a net of about $410 million -- a gross of about $420 million. So that's all embedded in the current guidance that we provided this morning.

In terms of what we have coming on-stream, I think our filings have identified all of the development projects that have currently broken ground, and that will contribute to the income stream in the near-term.

We're, as I mentioned on the call, under contract on one -- and about to enter in a contract on another asset -- which total about $90 million, between the two. That would have an impact in 2014.

So 2013, right now, is reflective of the income adjustments as a result of the sales that have closed, and the Philadelphia sale that we expect to close imminently.

So that $90 million -- those are gross value. That's inclusive of debt. That's not an equity number. And that's your share at 100%?

Our share is 100%. The equity number's about $63 million. One of the acquisitions, which is a hard contract at this point, it was to our distinct advantage from a pricing perspective to assume an existing mortgage. To avoid a rather significant prepayment that the seller would have had to have provided. It's almost a brand-new complex.

Are these along the waterfront in Jersey?

These are along -- one is on the waterfront and one is in a transit hub.

Okay. And what type of cap rates are we seeing on apartment acquisitions?

Well, the acquisitions -- and again, these are both -- believe it or not -- relationship transactions. These will be approximately, plus-or-minus, 10 basis points of 6%. On an unlevered basis.

6 caps. Okay.

So there is a little bit of deleveraging. And that $90 million is not obviously affecting this year's numbers in the model or in guidance. So there is some delevering baked into the revision, effectively, to guidance.

But can you maybe give us a little bit more color as to what you're seeing out there as it relates to the additional $200 million of deals? Beyond this first $93 million? Or $90 million?

Yes. Sure.

Most of what we're engaged in right now are opportunities. Are development opportunities. Development with what I would say is a great deal of certainty, in terms of entitlements and tax benefits and that sort of thing.

That's about all I can tell you, other than they're in our major metro markets.

Okay.

And the cap rate should be in the same range, plus-or-minus?

We anticipate cap rates in the range of 6% on a conservative basis.

Okay. And dry-powder today, based on a pro-forma basis, is what?

We have cash on the balance sheet of about $130 million. We have an untapped $600 million facility.

And you have some incoming proceeds?

Correct. We have $201 million, plus-or-minus, coming in, in the near-term.

And the willingness to sort of utilize the line or to lever up a little bit? Can you maybe speak to that?

We'll utilize the line if need be. We're long cash, at this point. So we're going to deploy that, first.

Right. That makes sense.

I would say, in fact, a delevering, as you've mentioned.

Right. But I mean to the extent you close this -- the first 90, and another 200. Then you've got to deploy into the development. Are you willing to sort of implement --

Absolutely. Absolutely.

Okay.

And then my last question is just on the --

I'm looking at the apartments and I don't know if I'm comparing this quarter's supplemental versus last-quarter's supplemental on Page 15, on the unconsolidated joint venture breakdown.

I'm looking at occupancies. I'm not sure if you're looking at the same numbers, but I see a decline in overall occupancies on those seven properties. From 93.5 to 94.9 -- so about a 140-basis-point decline. That's pretty consistent across all the properties, with the exception of maybe Monaco.

Could you maybe give us a little bit of insight there?

It's a seasonal situation. That's all that's reflected there. In fact, we look at that as an opportunity.

These are traditional, seasonal, low troughs in the resi markets.

Okay. And do you know what type of increases you're seeing on renewals?

We expect 3% increases.

Okay. Okay; thank you!

Thank you. Take care, Jordan.

Bye-bye.

Our next question comes from Michael Bilerman with Citi.

Good morning, Mitch.

Congrats on getting all the sales done!

Just a question on Philly. Just wanted to make sure I understood what was happening.

So about $21 million of current NOI. You talked about $10 million to $11 million of CapEx, as you have some vacancies coming. Which I think -- from your 4.5% comment -- you're effectively deducting the CapEx from the NOI, and adding that to the basis. From my calculation. But what I'm trying to understand is, what is -- occupancies at 87 -- how much occupancy is going out?

Where does that $21 million of NOI go? Put aside the CapEx for a second; just so we can understand how that's trending.

Yes. Well, we think there's -- at least from our perspective -- some real vacancy risk in a couple of large tenants, with near-term lease expirations. One in '14, and -- both in '14.

So if you kind of look at the $10.5 million, in order to maintain a trending NOI -- if we were fortunate in finding absorption in those assets -- we expect we'd be spending about $10 million to $11 million on a recurring basis. At least for the next few years, to keep our current income stream.

And that's if we could find tenants to absorb that space.

And that's not dealing with any of the existing vacancy at all?

What's that?

That's not dealing with any of the existing. The portfolio's only 87% occupied, today.

Correct. That's maintaining those tenant losses. So, from our perspective on a cash flow basis, barring any unforeseen miracles, we would expect that it would be costing us $10 million or $11 million a year for the next few years.

Right. I guess another way to look at it is, it's 25 basis points of yield just occurring to the basis -- effectively, over the course of three years.

If you're able to maintain the 21, then the 230 grows 30 million in three years, you have a $260 million basis. Or the buyer does. With $21 million of income, at that point. And then it trends back to a normalized CapEx.

Thinking about it more from an IRR/DCF approach basis.

Yes. And if that happens, then we'd be able to pay off both of our [prefs] and share in 50% of the ups on either refinancing or sales.

Thinking about being long cash today, and some of the opportunities on the apartment side. Could you talk also about the opportunity just in your stock?

When you announced the Roseland transaction, the board had set up a $150 million share-repurchase program. Last year you had executed $11 million at a price of $28 a share. Obviously the stock today -- under 25 -- and had hit a low of 23 in June. I guess how do you think about the opportunity to buy your stock at an attractive price? Relative to being very aggressive in the transformation?

Well, I think that part of the reason that the stock multiple has been so depressed is because of some degree of uncertainty, with respect to a company that's in a transitional state.

I have on the one hand moved quite aggressively. And I think quite profitably, in terms of disposing of our what I'll call non-core or secondary market positions. So that we can fund this transition and create more certainty, and reflect that to our stakeholders and our shareholders in both debt and equity, that this transformation is working. That we have a full pipeline of opportunity, and that depending on how you view the math, what we're selling is supporting -- on an equivalent basis -- what we're building or buying in the multi-family resi market.

I know that it's a quick fix sometimes, to buy your stock back, in terms of providing a benefit to your shareholders. The strategy that we have, however, was to demonstrate to the markets and to ourselves that our asset base and our skillset and our relationships in being able to consummate fairly complex but yet profitable transactions -- buy or sell transactions -- could accelerate the transition. Take out the uncertainty and fund the wealth of opportunities that we have in the multi-family sector.

So, this is a medium- to long-term strategy, and a directional change for the company. It's certainly evolved as a result of the fact that the way companies use space and the amount of space that they use, and the locations of where they use it in the office sector have gone through a paradigm shift -- and continue to do so. And they continue to evolve.

So that's a long way of saying that the funding mechanism was created to fund and build a platform. And our strategic shift. Not to buy our stock back, so that we could provide immediate benefits. This is a long-term thing.

Right. But the board, and I'd assume on some advice of management, did set up a $150 million plan for a reason. And did execute $11 million of that plan at $28 a share. So did something change between then and now? Especially with the stock considerably below those levels?

What changed in the board or -- ?

What changed is that we entered into a structural change in the company, with a great team and a great platform. And the platform that we acquired has been operating in complete synchronization and harmony with us at the core office -- the corporate part -- of the company. And moving quite nicely; seamlessly, aggressively, in building that platform.

We didn't have that degree of certainty when the board initiated or approved the stock buy-back plan. Now we think there are much greater opportunities to deploy the capital to build that platform.

And then just one other quick one. The 6% on the acquisitions. Is that a going-in yield? Or is that a stabilized yield?

One property -- one of those two $45-ish million to $46 million properties -- is a brand-new property that will set the tone for us in an expansion of our waterfront marketplace. That's brand new.

It will be delivered to us free and clear of punch list and any kind of liens and so forth. Or covenants, et cetera.

That, we'll be buying. What we did there, because of a relationship with the seller -- the developer-seller, who we expect will be able to deliver us both some pads and some additional properties -- it's not just a one-off transaction; it's a more global transaction -- was in the interest of us taking some of the leasing risk. We don't think there's much leasing risk.

We basically present-valued the stabilization period, and reflected that in the price. We think we can stabilize the asset in about a year. It's about 100 units. 100 apartments with some retail.

So we discounted the lease-up period. The stabilization period. And we reflected that in the purchase price.

The reason that the seller is doing this deal with us is because of a 40-year relationship with me. They have major holdings. And in today's kind of volatile and erratic environment -- particularly in the debt markets and the interest-rate environment, et cetera -- the seller wants to know that he has absolute certainty in the sale. So that's why he is doing that transaction with us.

The other asset, we were buying at approximately 6%, and it is stabilized.

And that is interesting about deployment between those two. The development is how much of that $90 million gross?

They're equal, in terms of purchase price. But the one that's stabilized comes with a mortgage. That was a benefit for us.

Right. So each of them is $90 million? Or just the totality?

Each of them is roughly half of $90 million.

Half of 90. Okay. So as we think about redeployment of proceeds, obviously the $72 million that you've targeted for construction -- that's a late-2014/15 that will impact 45 out of the 90. That will take -- that's probably going to go to 2015 to its NOI.

Then it sounds like the $200 million of potential, which would cover all of the current cash and the expected proceeds, is also likely for the development. So there will be -- just from a modeling perspective the way the Street understands, 2014 is going to reflect much more dilution until you get on the other side in 2015, where some of the reinvestment starts to pay dividends.

That's right. The opportunity set in the resi sector, for us, is the development sector. And that's where we think we can -- with what we're doing and what we hope to be able to do we can -- build into outsize returns.

And so there will be some period of being long on cash.

Yes. Thank you very much.

You're welcome. Thank you.

And from Green Street Advisors, we'll go next to Michael Knott.

Hey, Mitchell. Sorry to make you clarify. But it sounded like there was $200 million of potential opportunities that you're working on behind the $90 million that you and Michael just went in through on detail.

That's right.

Okay. And those would be more '14 closings as opposed to '13?

Well, notwithstanding the closings. They're development projects, although we've modeled or targeted an acquisition target representing about $40 million. But the rest are development opportunities that will be probably '15 income producers.

Gotcha. Okay.

And then can I ask you about Jersey City? Just curious if there's any update on the build-to-suit on the office side that you mentioned in prior quarters. And then also just any update you care to share on the development of the project there at Harborside?

The State of New Jersey in its infinite wisdom has been somewhat slow. And I tell you, I've been in constant communication with legislators. The entire incentive program in New Jersey, under Grow New Jersey, and the Economic Development Agency, has reformed and remodeled the entire program. Both in terms of grants, under what's called the Urban Transit Tax Hub Credit, which impacts our ability or impacts the timing -- with respect to Harborside 7, which is our apartment transaction with Ironstate.

We're ready. We're shovel-ready on that project. There is a significant tax benefit that we expect and have been identified to receive by the EDA of the State of New Jersey, as soon as this legislation is passed. There wasn't enough funding, apparently, in the last go-round. And they could only provide funding on a limited basis for two projects of need in any one municipality. That funding was done in March.

So we head to wait for this legislation, which every senator and assemblyperson that I know and that Ironstate -- our partner -- knows, committed to have it done by June 30th. Well, now it's July 25th. It's still not done.

The governor's ready to sign it. He's stated that publicly. That needs to be done.

Now, that program that I'm referring to under EDA is a multi-faceted program. That affects what we call in New Jersey, the "BEIP," which is the Business Employment Incentive Program. The BRAG, which is the retention program. That's all being reformulated under this new legislation, which will provide even more incentive to employers to come to New Jersey, and to domicile their workforce in New Jersey.

So I hate to say it, but it's like the Federal Reserve. There's a lot kind of in limbo that's waiting for this legislation to be passed. It's frustrating. I can't tell you how many communications I've had, and conversations with the legislators, who are equally frustrated. Because as with any political process, there are those that want more, et cetera.

I expect it to be done. I had hoped it would be done by June 30th. We're ready to break ground on that project. We're done with our budgets.

We have a financing commitment that's contingent upon this urban-transit hub tax credit. As soon as the legislation is done, I expect we're good to go.

As far as the office tenants, like I said, there are a lot of benefits that are included in this program. Some of the consolidations that you've seen talked about at the -- for example -- Hudson Yards across the river, were related is building. And potentially, others -- Brookfield, et cetera.

Some of those headquarter relocations that are being discussed only include the front office. The operations' centers are still -- New Jersey is still being very seriously considered. And it's somewhat dependent on this program.

That's a long way of saying I wish I could wave the wand, but it's politics.

Right. Okay. Thanks for that color.

I'm intrigued at the comment you gave earlier about a 6% cap rate on a stabilized property. Do you think that is a signal that cap rates have moved up for apartments? Or is that just something of a one-off deal?

Yes. I think it's more of a one-off deal. Look. You still have assets trading in the city. You still have rent growth, at least right now. You still have assets in the multi-family sector trading at 3.5 to 4.5.

These are opportunities that we have in acquisitions because of a variety of factors. One-offs, like I said. The certainty in one -- the fact that we are taking some lease-up risk. Not a lot.

And in the other one, again, a certainty not only to the seller, but to the seller's lender. So I think we're getting pretty good deals there.

Okay. Then my last question would just be about maybe any preliminary thoughts on the outlook for 2014. Same store NOI? Do you think it has a negative in front of it? Again, next year, I know there's one big move out. Sounds like conditions are stabilizing a little bit.

Just I'd be curious any thoughts you have on that question.

It's a little premature, Michael. We haven't analyzed that, yet.

Thank you.

Thank you.

Our next question comes from Vinton Chao with Deutsche Bank.

Hey. Good morning, everyone.

Just a follow-up on the cap re question there. Barring a sort of one-off deal, you mentioned financing costs under your last transaction would be maybe 80 basis points higher to today. Have you adjusted your cap rate expectations in any way over the last couple months?

Well, let me say this. That interest rates have been somewhat volatile.

But we've completed -- Number 1 -- the sale program. And we're under contract in Philadelphia. But there hasn't been one retrade. There won't be one retrade on any of the sales, despite the fact that over that period of time, there's been some volatility in the interest-rate environment. As well as the lenders willing to assume some interest-rate risk.

So on sales, we've seen certainty. We've seen clarity and conviction.

On the buy side, the agencies in the multi-family space are still there. Some of the development projects that we're looking at right now have some unique hacks -- incentive-type financing -- aspects to them. So we don't expect much volatility.

We saw a slight move, frankly, in our financing on Harborside 7. But we locked in some spreads with the lender. It's a 15-year loan. And some floors. So it gave both the lender and us some comfort that there won't be material adjustment to our pro-forma, as a result of the volatility.

But naturally if you see an inflationary spiral, and you're looking at asset classes not only in multi-family but in every asset class, where if the cost of borrowing exceeds the cap rate -- you're beginning to have a problem. Unless you can move rents to correspond. That's hard to do with long-term leases. It's easier to do in the multi-family space, with 12-month leases.

Okay. And just on the suburban side. Obviously been quite busy there in the sales side of things.

Are you seeing any changes in that market, in terms of number of other sellers coming to the market? Or are you seeing any increase in buying interest from maybe a broader set of investors?

Yes and no. It depends on the type of asset. The Sanofi-Aventis long-term highly-rated investment-grade-rated credit. You've got fixed-income investors. You've got private REITs. Pension funds. Then you can drive the pricing pretty good on that kind of an investment profile.

There's been some increase because there've been fewer assets available at reasonable pricing levels or reasonable cap rates in the urban areas, because of the whole concept of more protection. Because of demographic shifts, urbanization, et cetera.

Foreign investment coming in. Wanting to be in the metro markets that are the gateway cities, et cetera.

So, somewhat of necessity, there's been a little larger buying profile in the suburban markets. But not materially different.

Great. Thank you.

Thank you.

And our next question comes from Steve Sakwa with ISI Group.

Thanks. Good morning, Mitch. I just had one question.

Good morning.

Early on, you talked about kind of making some additional revenue or getting some additional revenue and some refunds. I don't think you actually quantified that figure. I just wanted to make sure we're appropriately adjusting, going forward.

Could you give us that number?

Oh, I think in my first comment about FFO?

Yes. I think you sort of suggested there may be an additional --

Well, I'll tell you that -- yes -- we had, from our perspective, $0.03 in additional revenue in our FFO for the quarter. Part of that was $0.02 in real estate tax refunds. Primarily in Westchester. And then about a penny in the earn-out reduction that Barry spoke of in the Roseland earn-out fair-market-value liability, which we could go into more detail. But I think it's kind of like a complicated Black Shoal type of model.

So that represented $0.03 above our $0.62 consensus.

Okay. Thank you.

Thank you.

And from Cowen Group, we'll go next to Jim Sullivan.

Good morning. I just want to go back to the same store NOI outlook, Mitch. There were some comments made by Barry in terms of the assumptions for the back-half of the year.

The same store NOI is reported 3.4 for the first half. So I guess it looks like in Q3 and Q4, we're looking for a same store-NOI decline. Somewhere in the mid-4s.

With the year-end occupancy of I think around 86 was the number? That seems to suggest that the worst of the occupancy decline is over. I know that in earlier questions, you talked about stabilization.

I understand your reluctance in terms of getting into 2014, but as you sit here today with the outlook for occupancy ending the year about where it is now, is it your sense that at least in terms of occupancy -- and perhaps partly because of what you're selling -- your stabilization is not far off? In terms of the existing office-industrial portfolio?

Well, I think that we've certainly seen things stabilize. We haven't seen the rents reverse direction at all.

I can give you an example on a 100,000-square-foot renewal with a tenant. On a GAAP basis, we still had a write-down. This is a renewal during this quarter. This past quarter.

We had a write-down 13.5%; on a cash basis, 20%. Now that's somewhat extreme. But it's reflective of the fact that the tenants, even if they're in occupancy in the market, in your portfolio still go out and hire brokers to kind of beat up on the landlord, and meet the market.

So, given our same store profile and given what we really see in terms of the next two quarters, we think that -- we continue to think that -- the average NOI reduction or negative NOI for the year on a full-year basis, would be about 4%.

You'll recall that in our last earnings call for '12, we said 3% to 5%. And we're there. We're midpoint.

And when you -- shifting focus to the new leases, Mitch. What percentage of those leases have fixed bumps in them?

Well, virtually every lease that we do that's over a 3-year lease has some degree of increase; averaging anywhere from 1.5 points to 2% a year. Some of them are -- on a 10-year lease -- it will be a 5 and a 5.

It's somewhat market-specific in how you can do that. In the more-urban areas, we can raise rents annually. But in the suburban markets, that's not the custom.

If it's a 7-year lease, it'll be the first four years at a number, and the second three years -- or vice-versa. That's how it works.

Okay. Very good.

And maybe if you could just help us, because as we go forward, as the residential segment of the portfolio expands, what are the plans? And I know this doesn't begin until next year, but what are the plans in terms of reporting same store NOI? It would obviously be very helpful if you segment that out.

Is that the plan?

That is exactly the plan. We understand that the community -- the analytic community -- needs to see that. And that's fully baked into our plan.

Okay. And then a final question for me, in terms of the G&A modeling. The second-quarter run rate. Is that a good run rate to use going forward for the back half of the year?

Or is there anything exceptional in that second quarter that comes up?

No. That's the run rate as we anticipate.

Okay. Great. Thank you.

Thank you.

And we do have a follow-up question from Michael Bilerman with Citi.

Yes. Just wanted to come back just as we think about the rest of the office portfolio. If we use Philly as the example, where you talked about the heightened CapEx, and the move-outs... How should we think about the rest of your office portfolio in that light?

Is it facing the same challenges in '14 and '15 that Philly would? As we think about it, you've been running $70 million to $80 million of total CapEx. Some of these comments about occupancy hitting bottom -- do we extract what your comments are in Philadelphia to the rest of the portfolio?

No. No, I don't think so, Michael. The reason we're selling Philadelphia is because it was what I would again say is a non-core, secondary market for us. We don't have the competitive advantages in that marketplace to be able to...

That's why I think in terms of the best interests of our shareholders was served by doing this transaction. Where we could help an entrepreneurial operator build more market presence. For example, in Blue Bell, he already owns a half-million square feet. To capture more market share. So that he can perform better on that portfolio than we could, frankly. To compete better, with more market presence.

But all the things that we do in our core markets, he can do there. The reason we're retaining 50% of the residual is so that we equally benefit down the road.

But I don't expect that to ever impact us in our what I'll call our "core markets." The waterfront. Morris County. Northern New Jersey. Central New Jersey. Westchester.

These are markets that we have very strong positions in and can do a lot better, in terms of a competitive set. So that's my answer to your question.

And then in terms of the potential future of sales. I think you said in your opening comments that this would represent a cap at the present time.

I have no plans at this time to sell anything else.

So as you think about the sources and uses, you've matched it up pretty well for what you have as cash and what's coming in versus the uses that you outlined in multi-family. What's going to be the decision factor after that's done?

So if you're successful at putting the $344 million of capital that you've identified, and clearly you had some of development --

Yes. I get it. Well, part of the pressure on our stock has been the concern on the part of the investment community that we're going to issue equity. Be able to fund our accelerated growth in the resi platform. With reasonable cushion, we have now taken that uncertainty out of the marketplace.

So that's my response. We have no imminent need to raise equity.

Okay. Great. Thank you so much.

Thank you.

And we do have a follow-up question from Jim Sullivan with Cowen Group.

Mitch -- one other question, here.

You have a fairly sizeable high-coupon maturity in 2014. And I know that yield to -- yield-premiums -- yield-maintenance premiums -- can be very substantial. But I'm just curious what you can tell us about taking that financing or taking that debt and refinancing it. How are you thinking about that today? And kind of what's the timing?

I don't know what the maturity quarter is in 2014, but it's a near-7% rate on that. Can you give us any update on the plans?

Yes. Okay. Those are mortgages that you're referring to. It's not an unsecured piece of debt.

Right.

Yes. The maturity of that is a year from now. So those are assets that we'll probably refinance. We'll either extend those mortgages or renew them.

Okay. So there's no chance here that they would be prepaid?

No. They're locked out from prepayment. You know -- up until 60 or 90 days prior to maturity.

Okay. Very good. Thank you.

Thank you.

And Mr. Hersh, at this time, there are no further questions. I'll turn the call back to you, sir.

Well, thank you very much. I hope that everyone participating today has found this to be an informative call. We always enjoy the opportunity of discussing what we're doing at the company with you.

Exciting times for us in this transformation.

And so I want to thank you for joining today's call, and certainly look forward to reporting again next quarter.

Have a good day and a great summer.

And ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.