Veris Residential Inc (VRE) 2014 Q1 法說會逐字稿

Good day and welcome to the Mack-Cali Realty Corporation first-quarter 2014 earnings 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. Good morning, everyone. I want to thank you for joining Mack-Cali's first-quarter 2014 earnings conference call. With me today is Tony Krug, who, as you know, is Acting Chief Financial Officer and Chief Accounting Officer and joining us from our Roseland subsidiary, Carl Goldberg, Co-President and Gabe Shiff, Roseland's Executive Vice President of Finance.

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 first quarter and what we are generally seeing in our markets. Then Tony will review our financial results. Before I discuss the results, I want to quickly mention this winter's weather conditions, which I am sure everybody is aware of. Extended winter freeze conditions resulted in record electricity demand and reduced natural gas production and distribution disruptions in our core Northeast markets.

As you can imagine, utility costs far exceeded our budget. The spike in electricity rates we experienced during the first quarter was not anticipated and had a significant financial impact on our first-quarter results. Importantly, we believe this was a unique situation and rates have begun to return to more normalized levels. We remain well-positioned with strong assets and a solid balance sheet for the remainder of the year. We are advancing our ongoing portfolio transformation and income diversification through asset sales and by executing on our multifamily strategy. We remain very focused on creating long-term value for the Mack-Cali shareholders.

And now let me walk you through the quarter's results. FFO for the first quarter of 2014, excluding certain nonrecurring items, was $0.46 per diluted share. During the quarter, we signed a total of 645,000 square feet of lease transactions, which included over 220,000 square feet of new leases. Our 2014 rollover was heavily weighted in the first quarter, including the anticipated lease expirations of Morgan Stanley and Credit Suisse at Harborside in Jersey City along the Gold Coast. These expirations aggregated 371,000 square feet. The Harborside expirations contributed to a tenant retention rate of 32.1% of outgoing space and we ended the quarter at 83.6% leased, which was down from last quarter's 86.1% leased.

To add some perspective, the first-quarter expirations roughly equaled the total square footage rolling for the remainder of the year, though the first quarter equaled the rollover for the remaining three quarters of the year. Rent on renewals rolled down in the quarter by 3.9% on a cash basis, roughly equal to last quarter's 4% cash rolldown. Remaining lease rollovers for 2014 are only 5.6% of base rent or approximately $30 million. Leasing costs for the quarter were a little more than $3 per square foot per year, down from a little more than $4 in the last quarter. Despite the challenging office leasing environment, our portfolio continues to outperform in most of the markets in which we operate with our leased rates exceeding market averages in central New Jersey, Westchester County, Manhattan and Washington DC.

During the first quarter and beyond, we remain intensely focused on transforming Mack-Cali and executing on our plan to diversify the Company into the multifamily sector. We will continue to redeploy capital from nonstrategic asset dispositions into our growing multifamily platform and Mack-Cali is well-positioned to take advantage of today's growing demand for luxury rental apartment homes in well-located amenity-rich areas.

And now I will discuss some of our recent activities. In February, we announced that Mack-Cali entered into agreements to form joint ventures with Keystone Property Group whereby Keystone will acquire several office properties owned by Mack-Cali throughout northern New Jersey, New York in Westchester and in Stamford, Connecticut. This transaction, which we expect to close in the next few months, is an important step in the Company's diversification into multifamily. And as we continue to retain minority interest in these properties, we have the benefit of participating in any upside value creation by partnering with KPG.

Consistent with our focus, in the second quarter, we acquired the 220 unit multifamily community Andover Place in Andover, Massachusetts, the Metropolitan Boston area, for a purchase price of approximately $37.7 million. Andover Place offers residents spacious, well-appointed apartments in a very strategic location with extremely high barriers to entry. Our Roseland subsidiary will be upgrading the property and offering residents an enhanced amenity package and we expect to increase the yield on this investment over the next several years.

Just today, we announced the sale of 22 Sylvan Way in Mack-Cali business campus in Parsippany, New Jersey for $96.6 million to Griffin Capital Corporation. Griffin also assumed $7 million in future tenant improvement allowances and commission obligations yielding approximately $415 a square foot. 22 Sylvan Way was developed in 2009 pursuant to a long-term net lease to serve as the headquarters for Wyndham Worldwide Corporation, a leading hotel and hospitality chain. Due to the long-term lease with Wyndham, this was an excellent opportunity for Mack-Cali to monetize the value of this Class A corporate headquarters asset.

I have already commented on the 645,000 square feet of leasing for the quarter. I would refer you to our supplemental for specific lease transactions throughout our portfolio. Along the Gold Coast at Harborside, we are readying our construction to transform the common areas of Harborside Plazas 1, 2 and 3 to conform with the millennial age and the new way in which companies do business. If you visit Harborside, you will also see heavy equipment on our URL site where we have commenced construction getting ready to drive piles. And now I will turn the call over to Tony who, for the first time as CFO, will review our financial results for the first quarter. Tony?

Thanks, Mitchell. Funds from operation for the first quarter of 2014, excluding certain items, was $0.46 per share as compared to $0.63 per share for the same quarter last year. For the first quarter 2014, net loss available to common shareholders, excluding certain items, amounted to $0.01 per share as compared to net income of $0.13 per share for the same quarter last year. Including certain items, FFO was $0.30 per share and net income was a loss of $0.17 per share. The quarter was significantly impacted by two items, as Mitchell mentioned. The extended winter freeze conditions in our core Northeast markets cost us $0.05 per share net of tenant recoveries. We also took an $0.11 per share charge in the quarter related to management changes.

Same-store net operating income decreased by 17.8% on a GAAP basis and 13.6% on a cash basis for the quarter. Excluding the $5 million for the harsh winter costs, same-store net operating income -- I'm sorry -- income decreased by 12.4% on a GAAP basis and 7.8% on a cash basis. Our same-store portfolio at quarter-end was 27.7 million square feet, our unencumbered portfolio at quarter-end totaled 219 properties and represents 75.6% of our portfolio on an NOI basis.

At March 31, Mack-Cali's total undepreciated book assets equaled $5.8 billion and our debt to undepreciated assets ratio was 38.8%. Excluding the items described earlier, the Company had interest coverage of 2.4 times and fixed charge coverage of 2.1 times for the quarter. Including these items, interest coverage was 2 times and fixed charge coverage was 1.8 times.

In the quarter, the Company repaid its $200 million, 5.125% senior unsecured notes that matured on February 15. We ended the quarter with approximately $2.2 billion of debt with a weighted average interest rate of 5.54%. Currently, we have $55 million outstanding on our $600 million unsecured revolving credit facility. Primarily reflecting the results from the quarter, we are updating our FFO guidance for 2014 in the range of $1.62 to $1.72 per share. At the midpoint, our guidance assumes end-of-year occupancy about 60 basis points higher than our March 31 level of 83.6%, development investment of about $170 million for wholly-owned and joint venture projects, including the startup of the new Harborside URL multifamily residential joint venture in Jersey City and our majority-owned development project in Eastchester, New York, acquisitions of $165 million primarily for multifamily properties, including the recently closed Andover Place Massachusetts 220 unit purchase, property sales of about $450 million, including yesterday's sale of our 22 Sylvan Way property for approximately $97 million.

Please note that under SEC Regulation G concerning non-GAAP financial measures such as FFO, we are required to provide an explanation of why we believe such financial measures are relevant and reconcile them to net income. Available on our website at Mack-Cali.com are our supplemental package and earnings release, which include the information required by Reg G, as well as our 10-Q. Mitchell?

Thank you very much, Tony. Now I am going to turn the call over to our Roseland Associates. First, Carl Goldberg will give us an update on the repurposing efforts on some of the Mack-Cali properties and then Gabe Shiff will talk about the financial performance of Roseland. Carl?

Thank you, Mitchell and good morning. I am going to focus on two areas of the expansion of the Mack-Cali multifamily platform, repurposing and select sites completing their entitlement process. First, on the repurposings. A summary of Mack-Cali, Roseland Mack-Cali's ongoing program to rezone the sites of some of the Company's nonstrategic office assets, especially those with excess land or underutilized parking facilities. First, we are active in Upper Saddle River on the 1 Lake Street site where a formal request to rezone the 47 acre parcel for a mixed-use proposal with 240 luxury rental homes has been submitted to the governing body and referred to their planning board for further consideration. Secondly, in Millburn Township in Essex County, on parking lots adjacent to 150 JFK Parkway, including the demolition of the former Roseland headquarters at 233 Canoe Brook Road.

On that site, after a series of meetings with municipal representatives, including the Township attorney and planner, the municipality has embraced the concept plan for 200 luxury rentals and a 250 key hotel. The zone change ordinance is being prepared by the Township attorney to be introduced at an upcoming council meeting. We are very optimistic about the progress on this particular site and as many of you on this call know, Short Hills, New Jersey is one of the most desirable and underserved multifamily markets in this region.

Thirdly, in the borough of Morris Plains on a parcel on 250 Johnson Road. Initial conversations have begun with the borough on a proposed zone change to allow for construction of a multifamily rental community on the site of an 80,000 square foot office building scheduled to become vacant in July of 2014. Clearly, in our presentation to potential hosting municipalities, we emphasize the benefits of a successful repurposing to all stakeholders. That is critical to the entitlement process. These may include on-site amenities open to the entire community, ancillary retail for local restaurants and convenience shopping and most importantly an enhanced ratable for the community to assist in the stabilization of local property taxes.

Establishing a template for the repurposing of these types of Mack-Cali assets allows for an expansion of our multifamily platform without the same level of capital outlay as new acquisitions or the purchasing of land for ground-up developments. The repurposing program will continue to expand as we look at other Mack-Cali assets, especially those, as I suggested earlier, with excess land or those with underutilized parking facilities that might provide additional rezoning opportunities for the expansion of our platform.

I also want to take a few minutes to talk about two specific development sites that are nearing the completion of their permit approval process, which will also be a part of the expansion of the Mack-Cali multifamily platform going forward. First, we are very excited about the progress of our application in Freehold Township for a 360 unit multifamily rental community. We are now in the process of finalizing a municipally-endorsed zone change to permit construction. We anticipate a start in that community by the end of 2014. Importantly, this is a 100% owned Mack-Cali site.

Secondly, in Morristown, New Jersey, where we have been very active over the last five or six years with the completion of a rehabilitation zone in the area of Morristown around the Morristown Green, we are looking to complete the entitlements for a 59 unit multifamily rental. This is the last phase of the development of that area in need of rehabilitation on an owned parcel in Morristown. This property is owned in a joint venture 50-50 with Woodmont Development and we anticipate a fourth-quarter 2014 start. We are also very active and continue to be active along the Hudson River waterfront where we anticipate the construction start of a new rental community in Weehawken consistent with our existing approvals that are part of our PD approval in Weehawken Township. As we look towards other opportunities along the Hudson River waterfront, we have additional sites in West New York and Jersey City. Thank you very much and I will turn the call back over to Mitchell.

Thank you very much, Carl. It's good insight into what is going on and of course, as well we have entitlement process proceedings in Bala Cynwyd and a number of other locations that you will see in our supplemental package. I will now turn the call over to Gabe to talk about the financial performance of the Roseland subsidiary.

Thank you, Mitch and good morning. Today, six quarters since the acquisition of Roseland, we are reflecting significant growth of our residential platform through construction starts, excellent lease-ups and acquisition activity. Like 2013, the first quarter of 2014 represented continued progress across our three core growth cylinders. The development of our existing land pipeline, the acquisition of strategic operating assets and new development sites, some of which we just referenced and the continued approvals of the synergistic repurposing of select Mack-Cali properties, as Carl just discussed.

During the first quarter of 2014, we commenced construction on two projects, a 108 apartment home community in the high barrier to entry lower Westchester County town of Tuckahoe. This property is projected to cost $50 million with an anticipated stabilized yield of approximately 6.6%. In addition, the 763 apartment recent start of Harborside URL in Jersey City. At present, the Company has a total of 3,426 luxury apartment homes in the Northeast under construction and initial lease-up representing approximately $1.3 billion of development costs.

From this activity, we anticipate approximately 1,150 apartment homes will be delivered in 2014, including the recent leasing commencements of River Trace at Port Imperial, Estuary in Weehawken and The Chase at Overlook Ridge. These three communities were on average 20% leased at quarter-end.

In addition, at year-end 2013, the approximately 850 space garage at Port Imperial opened at full capacity and continues to operate at that level. More specifically, River Trace located in the Port Imperial master-planned neighborhood adjacent to existing and future Mack-Cali residential communities, has averaged nearly 30 leases per month since opening in this past challenging winter. Moreover, this absorption level has been accomplished with limited concessions and market rents per square foot approaching $39.

Additionally, The Chase at Overlook Ridge, similarly adjacent to existing and future Mack-Cali residential communities, has averaged over 25 leases per month since opening this February with rents of approximately $25 per square foot. The acquisition cylinder of the Roseland platform of Mack-Cali is comprised of operating assets, as well as new development site opportunities. The Company's operating property acquisition strategy is focused on projects where the collective skill set of the Roseland platform can add value by asset repositioning in its core geography.

To that end, in 2013, we closed on the acquisition of 1,909 apartment homes at a total purchase price of approximately $500 million. Moreover, the Company has budgeted approximately $40 million in capital improvements on these assets where we believe there is material upside and rent potential given the surrounding demography. As one example of this strategy, we are achieving over a 15% return to date on our value-added investments at Alterra by modernizing common areas and units with corresponding rent premiums.

Further, as Mitchell mentioned, on April 10, the Company closed on the 220 apartment home Andover Place community north of Boston at a cost of approximately $37.7 million. Also subsequent to quarter-end, the Company entered into agreement to acquire a New Jersey community at a cost of approximately $95 million, which we anticipate will close in the second quarter as well. These two properties represent approximately $133 million in new acquisition activity.

Our third cylinder, the true fruit-bearing nature of our business combination is the repurposing of select Mack-Cali properties. As just detailed by Carl, in the first quarter, we advanced the approval process and identified repurposing properties and are hopeful these activities will lead to construction starts in the near future. We also continue to evaluate additional repurposing candidates.

Looking forward, over the next four quarters, we anticipate continued progress across the platforms' multiple growth cylinders, including seven projected construction starts representing 1,525 apartment homes and a parking garage at an approximate cost of $507 million. During that same period, we will advance our active construction projects that are already in construction as referenced previously with the delivery of over 1,100 apartments in that same period. Importantly, as the Company accelerates its residential transformation, the residential platform continues to generate fee income from its construction, development and management businesses.

In closing, while we will continue to execute on our legacy joint venture developments, we will seek to increase our ownership positions throughout the portfolio. In this connection, we have recently increased our ownership and participation in two development properties by investing additional capital and we will continue to pursue additional partnership restructurings. Based on the construction, development and acquisition activity just described, the percentage contribution of residential net asset value and profitability to Mack-Cali will continue to grow through 2014. Mitchell?

Thank you. Very thorough review, Gabe. So moving forward, we remain focused on selling our nonstrategic assets and we will continue to source out new opportunities on the multifamily front. We look at each opportunity with a keen eye towards building our presence in the multifamily sector, in the right demography and right locations and remain committed to being the preferred provider of office space in our current markets. Mack-Cali is poised to build on the momentum we are generating and I am confident that the continued execution of our transformational strategy will create long-term value for our shareholders. And with that, we will now take your questions. Operator?

(Operator Instructions). Jordan Sadler, KeyBanc Capital Markets.

I wanted to just get a sense -- I appreciate the overall review; it was comprehensive. But I guess I am trying to back up a little bit and get a little bit of a broader sense coming back to some of the expectations that were laid out originally post the Roseland acquisition and maybe just a refresh on sort of where we stand in the progress. In other words, how long do you expect this transformation to take place over, how long of a time period? Should we expect it to take another two to three years or so? And is the pace still expected to -- are we on pace for the $700 million a year of gross multifamily investment through development and acquisition that you originally laid out or is that moving around? And then ultimately what percent of Mack-Cali should we expect to be multifamily again?

A lot of questions, Jordan, but I will do my best to encapsulate an answer for you. First, I would tell you that we are absolutely on track with the Roseland performance, both from the perspective of new investments, development, volume, fee income and general synergies, as well as the repurposing. So with that as a backdrop, we have worked very diligently to look at a three-year projection in a great deal of detail and are comfortable that within that three-year timeframe, which would include 2014, 2015 and 2016, barring any other sort of platform type opportunities that might emerge or large-scale opportunities that, at that point in time, the multifamily income would be somewhere in the 25% zone of the income stream of the Company. And as I said, that is what we see pretty crisply and clearly in our looking glass today.

Okay. And in financing that, is the expectation that asset sales will continue at a similar pace to what we've seen to date? Is the 450 still a good number or is that expected to accelerate here?

Well, I don't think we ever suggested that there was a run rate of 450 in terms of our analysis or thinking. It just so happens that this year and last year in the aggregate we've sold about $1 billion worth of assets or we have them under contract for sale, execution the remainder part of this year. We will look selectively at additional asset dispositions. Right now, our Roseland platform by virtue of what either has closed or what is under contract to close is fully funded. So at this time, we do not need additional capital to fund the platform.

Okay. Lastly, in terms of the acquisition, Andover Place and the one that is under contract, could you sort of give us a little bit of a sense of what the going-in yields are and/or will be and what the stabilized yields are expected to be?

Yes, the initial yields in the incidence of Andover, as well as the New Jersey acquisition that Gabe alluded to, the initial yield would be in the mid-5% range and then there would be slight peaks and valleys as we turn units and customize and upgrade the units. Our expectation, and we have done a very careful study of this and recall that we operate in these markets, so we know them very, very well, that the ultimate or absolute yield over a couple year period of time should approach close to 6.3% on leverage on both of those assets.

Okay, over a couple of years. Okay, I will yield the floor. Thank you.

Jamie Feldman, Bank of America Merrill Lynch.

Great, thank you and good morning. Can you talk a little bit more about just any changes to your guidance assumptions from what you provided in the fourth quarter?

Well, again, the guidance plus or minus a penny sort of met the Street expectations. The issues that surrounded the effects on guidance were, number one, to put it in dollars, a $10 million increase in electricity for the first quarter. Of that, approximately half or $0.05 share out of the $0.10 a share is part of the tenant pass-throughs pursuant to our leases. But the electricity increase, and I am sure we are not alone among property companies, particularly along the Northeast area or coast as a result of the inability for the utility generators because of natural gas shortages and disruptions, there was an inability to produce electricity and there were difficulties in the conveyance of the utilities because of the severe weather conditions. That in combination resulted in again a $10 million increase in electricity.

So that is the element that was completely unanticipated. As you might imagine, with approximately 28 million square feet of same-store portfolio primarily located in the Northeast region, it takes a while to synthesize that and figure out all of the billings and so forth. And as I said, now that the weather has largely subsided, although it has still been a unique spring, the rates have begun to stabilize and return to more normal conditions. So we will ensure in terms of how we hedge utility costs going forward that given this circumstance we will be very, very keenly aware and protective that this doesn't affect the Company on a go-forward basis.

The other is the severance payments, which resulted in a charge of about $0.11 a share all in and so those two elements were the key contributors to the earnings adjustment. And there are other things as to when a sale might close, would be a penny this way or that way. So we are comfortable at this juncture with the guidance that we've announced today.

No, I understand that. I guess what I am asking is what is your current year-end occupancy assumption? What are your leasing spread assumptions? What do you think (multiple speakers)?

Yes, Tony commented that our assumption is that we increase occupancy by 60 basis points. There is right now about a 200 basis point spread between leasing and occupancy due to GAAP reporting and free rent and so forth.

Okay. And how does your mark to market look for the rest of the year?

We have seen same-store declines in the 5%, 6%, 7% range and that is what we expect for the remainder of the year. I don't think -- we don't need to -- I will put it in the vernacular -- we don't need to play catch-up to meet the guidance that we put forth today. And by the same token, we don't expect material changes or improvements in the market in the near term.

Okay. And then can you tell us the cap rate on the Wyndham sale?

Well, what I can -- I will give you a -- just say that it is slightly above a 6% cap rate if you take the purchase price of $96.6 million and the future obligations pursuant to the lease for tenant improvements and leasing commissions of $7 million and depending on how you present value that $7 million today would give you the absolute cap rate. But, roughly speaking, it was a sale in excess of $100 million and it was 249,000 square feet. So that is the math.

Okay, all right. Thank you.

You are welcome, Jamie.

George Auerbach, ISI Group.

Great, thanks, good morning. Overall, the leasing volumes have been trending down over the last few years as the vacancy rates have gone up in your portfolio. Just wondering what you are doing across the Company, what you are telling your leasing people and what you are doing with taking net effective rents across your portfolio to try to drive better traffic?

Well, we have a very talented and capable leasing team. I guess part of the velocity decreases the fact that we have also decreased our portfolio a little bit in terms of some of the asset dispositions. So you might take that into consideration. But we have in selective areas brought in the preeminent brokerage firms to represent us in agencies to not only help with traffic, but to ensure that we are seeing every single transaction in every single submarket that we work in. In Harborside, we have the JLL Scott Panzer team and his association with [John Maisel] of the Jersey office.

And so between that linkage, we have brought in what we conceive as one of the top agencies possible in the region to ensure that we are driving traffic, that we are seeing every deal in the Metropolitan New York area and as you know, downtown is an improving environment, but it is also an environment that has a lot of office space now. And so everybody is kind of trolling for all of the same deals and New Jersey has some pretty active as of right policies in the New Jersey Economic Opportunity Act of 2013 to help bring new jobs and with what we are doing down there in the live work play environment, as well as transforming again particularly the common areas in the retail arcade and space.

At Harborside, we will really be very appealing to the tech firms, the advertising firms, the media firms and the information firms that are driving growth in the economy particularly in these urban areas. As far as the suburban markets, on a selective basis, we have agencies again to ensure that we are seeing every transaction in the marketplace, that no stone is left unturned. With regard to how we incentivize and compensate our leasing associates, a large part of their compensation is results-oriented. So they are clearly motivated and clearly talented and looking to every possible transaction. Most of our markets, they have kind of stabilized, but they are quiet; there is not a lot of demand. In some of our markets, we outperform our competition like Westchester by hundreds of basis points. It depends on the particular submarket and the competitive set in the submarket, but demand is, as I said, is soft and there is not a lot of economic vitality in general and there is a lot of competition.

So I think we are doing everything that we can that is within our control. We are a very financially flexible and capable entity. We can fund TI packages, which are significant, as you know, in connection with turning over office space. It is a capital-intensive industry. We have continued to upgrade our sticks and bones and common areas of most of our asset base. You can walk into numerous of our multitenant office facilities and see magnificent lobbies with state-of-the-art digital monitors and upgraded elevator systems. So we have kept our assets up to absolute impeccable condition and we have the financial wherewithal to do it. The brokers know when they deal with this firm that although they may grouse a little bit occasionally about not getting paid before they leave the door of the company, they get paid and they get paid promptly.

And so we have lots of tools in our toolkit. We have very talented executives in each of our regions leading a very talented team of leasing representatives who have lots of years of history in each of the submarkets with both the brokerage community and the tenant community. It is a little unfortunate that some of the industries that have traditionally driven jobs or job growth and sustainable jobs within the Northeast corridor have, for one reason or another, changed their shape, be it pharmaceuticals or whatever it might be and we are in an active M&A environment. We are in a declining financial service environment in terms of population of employees, but we capture certainly our share of the market. Does that answer your question, George?

It does, thanks. That was really helpful. I guess just one follow-up for me though would be you mentioned the CapEx cost to release the office space. Have you laid out the sort of FAD guidance for 2014 mostly for leasing CapEx and just how you think about that for second-generation as-is space that you are going to lease up and also what you are budgeting for space that's maybe been vacant for a little while that you want to spruce up to drive demand?

Yes, we certainly have done that and as you know, we have always presented ourselves in terms of free cash flow and on a real cash flow basis, which is space that has been vacant for more than a year, is incremental CapEx that we deduct from our calculation of cash flow. Some do, some don't. We do so that we know what our real effective cash flow projection would be for the year on an annualized basis. And what we've built into our modeling for 2014 is about $33 million of building improvements, about $42 million of tenant improvements and then we have incremental CapEx on top of that, which is about another $26 million and that is to keep again the spaces that have been vacant for more than a year and certain customized improvements through the assets.

So in total, our expectation is that we are going to spend over $72 million in the year on keeping our portfolio fit and trim and up to the highest standards so that we capture as much of the leasing market as possible. Some of the other assets that represent what I would say for one reason or another nonstrategic assets whether they are from a locational perspective where we only own for example one asset in Piscataway and so we have no particular market advantage and similarly in Morris Township and even in Westchester where we only own two buildings in Tarrytown or Stamford where we only have one office building, those are part of the Keystone pool where they will, because of their ability to procure high leverage much more than we would or could do as a publicly traded investment grade rated real estate company REIT. And so they will apply high leverage and have ample capital available to put back into those assets. And hopefully by them doing it and by them having creative financing structures, ultimately that will result in residual value in which we will share that value with them.

So we have kind of taken the outer ring, if you will, and contributed it to joint ventures. This is the second major joint venture with Keystone in the portfolio that they purchased in suburban Philadelphia. We contributed it to a joint venture. They had about 100,000 square feet more or less of leasing in the quarter in that portfolio. And don't forget, in addition to the fact that we had $10 million in excess electric charges in the quarter, we had one of the most miserable hostile weather patterns and believe it or not that sometimes prevents people from coming out and looking at space and leasing space. So we had lots of things putting up headwinds during the quarter.

I appreciate the color. Thank you.

You're welcome.

[Emanuel Cordesman], Citibank.

Actually, good morning, it's Michael Bilerman. Mitch, I just wanted to go off a comment you just made about Keystone doing a little bit higher leverage and being able to invest in the assets and taking a little bit higher risk and as a publicly traded REIT that wasn't something that you could do. And I just -- I guess I heard that and I said, well, I guess had you or the Board ever contemplated Cali being a private company to have executed this strategy, whether it be taking assets and needed capital and getting away being a private company and executing this strategic shift in a private format, which sometimes a public market -- well, we've recognized public markets hasn't endorsed usual change, not just your company, it is a lot of companies, as they go through that transition. So I am just wondering if that ever rose up to something -- why let someone else do it? Why don't we just do it ourselves?

Michael, I would have thought you would ask a controversial question. I am only kidding. Michael, we have been looking at every aspect of the business and all alternatives. We have spent an extraordinary amount of time with our finance groups and our leasing groups to determine what realistic projections are over the next three years and of course, that includes, and I commented before about the three cylinders in Roseland and assuming that we don't have any other large-scale platform opportunities where we would be in three years.

We also have a very active Board at this point who is fully engaged in reviewing these projections, reviewing where we will be, what the leverage looks like, what the access to capital looks like. We have a new Board member, Jon Litt, who we engaged as a constructive Board member, who has a lot of experience in the industry, who I guess was your predecessor at Citigroup at one time. And so we are looking at the entire universe of maximizing value to our shareholders. And I say that in a very serious way and of course, the going private scenario is merely one avenue for any company to consider, but there are lots of issues that surround any strategic direction, including again access to capital, tax issues, distribution requirements, all sorts of things, organizational issues and social issues, etc. So we are looking at everything and we are not closed-minded to improving value for our shareholders.

Has there been an update in terms of the dividend level? And obviously with a little bit more pressure given the weather and the cause in the first quarter, where do you -- has the Board made an update as to where it would see dividend policy?

No, the Board regularly reviews dividend policy. We have not -- traditionally, we have done that in the third quarter. We may do it earlier than that this year to begin the discussion and dialogue on dividend policy. So the answer is that is a Board matter, as you know and we have not begun that discussion at this juncture.

On Sylvan, just in terms of the purchase price of $96.6 million, if you go back to your January 15 disclosure, in the cash flow presentation, you had that sale being done at $99.8 million. Is there any reason why it was $2.2 million less? Is that just (multiple speakers)?

Again, from our perspective on doing the math, the sale was $96.6 million plus $4 million on a present value basis of future obligations.

So when you showed it in the cash flow statement, you effectively -- it was different from the way you are describing the sale today?

You got me at a loss on that because I don't know what you are referring to.

Well, it is the 8-K that you put out on January 15 has the sale in the cash flow statement at $99.8 million of cash being coming in the door, not necessarily (multiple speakers).

If that is the case, then mea culpa. It is $96.6 million plus a value of $4 million in terms of what we would have had to invest in the property had we not sold it.

And then I was just wondering as a clarification just on the occupancy, I think Tony had mentioned -- so you are expecting a 60 basis point increase in occupancies between now and year-end. Is that correct? So you effectively go to 84.2%?

Yes, that is what is built into our modeling. We hope to do a lot better than that, but that is what we have built into the modeling.

Now from a sales perspective, if you think about the Wyndham sale and the Keystone sale, because those assets are more highly leased than where the current portfolio is as a whole, portfolio occupancy would go down by 10 basis points. I am not sure -- I think you still have about $120 million left of sales. I don't know, are those highly leased assets, low leased assets in terms of just trying to understand the math because it would appear as though just on the basis now you take 10 basis points down from the sales and then you still have 1.3 million square feet rolling in the back half of the year. So not only would you -- you would have to have positive net absorption of almost 200,000 square feet to hit the number and it just seems like a lot in this sort of weak environment.

Acknowledged, but that is what our expectation is, a 60 basis point rise by the end of the year. (multiple speakers) 10 basis points.

And the sales that you are contemplating in terms of $120 million, how should we think about that in terms of -- is it more high cap rate, low vacancy or is it low cap rate, fully leased assets like Wyndham because it could be at both ends of the spectrum?

Are you talking about the remainder of what hasn't closed in the call it $450 million-ish pipeline? Is that what you're --?

Yes, $450 million pipeline you sold (multiple speakers).

So you have got $231 million in the Keystone transaction at an average cap rate of 8.3%. You have got the one that we talked about today, Sylvan, at low 6%. You have got two Washington assets totaling somewhere around $140 million, give or take, around 6% and what did I forget?

That's it. The Washington assets would be the piece and those are currently occupied. Current occupancy on those is --?

Washington is high mid-90%s, I will give -- yes, mid-90%s and the other stuff is around 80% -- the Keystone stuff ranges from 60% to 80% occupied.

And the last question comment is just I think it is really helpful to understand some of the granular detail that the Roseland team went through, but I do think that there is a mismatch between sort of a lot of the granular details and just the sort of top-down macro perspective. And you talked a lot about this sort of three-year look and I think what the market is struggling with is trying to figure out where earnings will bottom and you have already put in place a number of growth initiatives that have yet to bear fruit into earnings, but will take place in the next couple of years. And I think trying to put everything together and understand the progression not only in terms of the earnings stream and the cash flow stream, but the balance sheet and investment is what the market is missing a little bit in providing confidence. And with the stock towards its lows, there appears to be something that is lost and I don't know if you are planning on doing a more full presentation or a strategic sort of plan on a long-range basis to sort of walk people through, but I think that is probably something that would be helpful to provide clarity to the Street because it is not being reflected clearly with where the stock is.

Okay. We will do it.

Thank you.

Vincent Chao, Deutsche Bank.

Hey, good morning, everyone. Just maybe a couple of just quick clarifying questions. In terms of the same-store NOI guidance, I think previously it was 7% cash down given the tough start. Just curious what the thought is on that number now?

Yes, I alluded to that before. On a same-store NOI basis, we are somewhere in the -- call it an average of 6% down. That is projection for the remainder of the year.

Remainder of the year. Okay. And then on the G&A side of things and I appreciate the comments about the severance, but what is the ongoing savings now that you have got one less (multiple speakers) ?

About $0.04 a share.

About $0.04 over the balance of the year or that is annualized?

Annualized.

Annualized. Okay. And then just in terms of the asset sales discussions, I mean just still a tough market on the leasing side, but just curious how much interest you are seeing for some of the Jersey assets. If that has changed at all, if there is more buyers snooping (multiple speakers).

I think that some of the private equity players and most of the call it nontraded REITs are looking more for stabilized cash flow. I think private equity is kind of running out of room in the real estate asset class to acquire product. So I think that that has stimulated more interest on their part in what I will call more traditional suburban office assets at least in the markets that we see that we are operating in.

Okay. Can I take away from that that that interest is sort of somewhat improving I guess? It doesn't sound like it is vastly different (multiple speakers).

I don't see any dramatic shift in it, but there is interest particularly in that segment of the capital (inaudible).

Right. Okay, thanks.

Michael Knott, Green Street Advisors.

Hey, Mitchell, I guess for you or Tony, just real quick, if we combine first quarter with the 6% down on same-store NOI for the rest of the year, I think that suggests down 8% for the full year compared to down 7% previously. Is that about right?

Yes, Michael, that is correct.

Okay, thanks. And then just curious, when you talked about markets where you are performing better than the underlying markets that you are in, northern New Jersey was absent from that list. Just curious if you can talk about that market, maybe your prospects for releasing space at Harborside and maybe -- I know there was the new state tax credit that I think you previously had described as bringing a gun to a knife fight. Just curious if that is having any impact. Just curious if you can talk about New Jersey and your prospects there.

I think that the urban areas, Harborside in particular, is one of the most active submarkets that we operate in from the perspective of tenant demand and levels of interest. I will tell you that a lot of the transactions that have been publicly discussed in the press and the media and talking about transacting deals and other buildings other than Mack-Cali buildings are largely just discussion at this point. There have been very few deals of large scale, some financial institutions in particular. Deals are still not signed. So I would say that in general, and I probably would -- you would probably here this comment echoed by some of our peers across the river in that area, down in New York City, that there is a lot of looking, there's a lot of talking, but there isn't a lot of transactional completion at this point. The state of New Jersey through the EDA has been inundated by New York metropolitan area companies that are looking to reshape themselves in terms of how they do business, the kind of physical space that they have now that companies want to pack a lot more people in less space.

So you have physical issues and a lot of assets in terms of system capacity, plumbing, elevators, vertical transportation and the state, and I speak to them regularly and actually the phrase bringing a gun to a knife fight was Tim Lizura, who is the President of New Jersey EDA and he spoke at a seminar at Harborside actually a few days after the legislation was signed by the Governor. And so you have a lot of activity in terms of these companies looking to see how they want to do business for the next 10 or 15 years, but very few transactions. You have seen all this discussion about the World Trade Center and now the debate on whether to have the Port Authority guarantee the construction financing for Silverstein on World Trade Center 3. You have all these millions of square feet over there and average signed leases right now, the product is largely incomplete at this point, is 51% of all those buildings.

So things just are moving at a different pace these days, Michael. But the Harborside, the urban infill areas are still very dynamic. As far as leasing velocity in the suburban markets, still transactions take a long time to get to completion, but we have basically a handshake on a deal in excess of 100,000 square feet, new tenant, new deal in Paramus. I can't identify the tenant obviously at this point. So we are in the thick of it, but the markets are moving generally slowly in the office sector.

Okay, that is it for me. Thanks.

Jordan Sadler, KeyBanc.

I wanted to just follow-up on the spend at Harborside and sort of the scope of work that you are discussing. It sounds like -- is it upgrading to some of the common areas, is it just the lobbies and sort of what's the expected spend there and timeframe?

Well, we are sort of doing -- I don't think Rick Clark would mind if I say this, but at Brookfield Place there, since we have the same architect and we are taking the entire retail arcade, the entry points at the exchange place path entry, which is the southerly entry, the midpoint entries along the exterior, promenades and river walks, including reconstructing the river walks to be more conducive to lifestyle changes, particularly in the new millennial workforce. So all the entry points, the atrium area, all the common areas, all the foodservice will be cool, edgy, redone, lots of transparency with glass, lots of light and air, approximate construction cost budget of $15 million to do that. The architect who is the Spector Group is about 70% done with design development drawings moving into the CD stage, but we have been pricing and value engineering all along and we expect to begin construction by June.

Is there going to be -- so that is $15 million of basically base building work and is there going to be some new space created as a result, some new tenant space, some retail space in some of those areas?

Yes, along the arcade, we are maintaining what I will call the store front sort of limit in order to reasonably control the scope of this renovation. But in the atrium areas, we will be bringing in sort of -- I will allude to the new age WeWorks Regis type concepts so that people have -- that they will actually work spaces within these kind of semiprivate public areas. So we will be expanding some of the retail. We will be expanding the foodservice element within the atrium area. The management office, the Mack-Cali management office that is off of the atrium in Plaza 3 will become part of the common space and probably a foodservice facility. So yes, the answer is we will be expanding some of the rentable square footage also.

Okay, that's helpful. Thank you. And then maybe one for Gabe. On the multifamily, I'm kind of curious, it is good to get the perspective in terms of what you are building and what you are developing, but it is also -- even though it is early stages, we would be interested to understand what the operating environment looks like for you guys and sort of how that feeds into the opportunity set as you guys see it for the growth in multifamily. So what are you seeing in terms of rents on renewals and new leases in terms of bumps and what kind of NOI growth is sort of -- are we seeing? Is it accelerating, slowing?

Thank you so much for the question. Our core markets, which are all in the Northeast, we continue to see rent growth, as well as absorption. I mentioned the detail stats before about The Chase at Overlook Ridge, as well as River Trace because despite the very difficult winter, you heard that we absorbed ahead of our projections, as well as achieving rents ahead of our projections. And that is key because we have holdings currently in those marketplaces. For example, the Alterra acquisition is located adjacent to The Chase at Overlook Ridge, as well as our future development pipeline starts within the next 12 months will occur in both of those communities, Port Imperial, as well as Overlook Ridge. The other markets where we have our holdings or core holdings are all, as Mitchell mentioned previously, tend to be urban infill, adjacent to mass transit and we continue to see high demand for these sort of properties.

And just one more last item, in terms of the acquisitions that we are doing, they are not solely based on yield as Mitchell mentioned as well. These are evaluate opportunities and they are all occurring in markets where we currently manage and own a significant portion of the residential apartment communities. So we have a good sense of demography, a good sense of rent potential and we are focused solely on properties where we believe with our knowledge of those markets that we can improve those rents materially with our value add enhancements. Was that helpful?

It is. But on an operating basis, across your operating assets, forget about development for a second and lease-up for a second, across your operating assets, in Jersey City or along the New Jersey waterfront in the more stabilized assets, what are you seeing in terms of same-store NOI growth, if you will and the prospect for same-store NOI growth for this year and what are you seeing in terms of renewal spreads? So rents on renewals as you are handing customers new leases and releasing existing units and/or new units. So how much are rents going up?

Sure. We are seeing rental growth generally in the 3% to 4% range, which corresponds obviously down to NOI growth as well in similar numbers. Our utility charges like the office portfolio we operate in the same core geographies are going to be up for the first quarter of this year. They were up so that will impact NOI, but corresponding with that with our rent growth, we still will see bottom line NOI growth in our portfolio. Despite adjacent lease-ups, we are not seeing an increase in vacancy across the markets where we have our existing office portfolio, our residential portfolio.

Okay, and you are not underwriting any --?

Jordan, Jordan, let me just add one comment to that. And I am glad that you asked the question and I am glad that Gabe also responded to the utility usage because, in fact, no asset class is immune from the effects of this winter and we didn't even talk about snow removal, which is probably $0.02 of the excess and also affecting some of the multifamily. But yesterday we had a meeting with Ironstate who is our URL partner who obviously has a great deal of product in our markets and they opened up a 48 unit URL, which we toured yesterday. Partly it is on the other side of Jersey City, it is an infill location in the center of Jersey City and the reason that it was that they purchased it was to use it almost as a laboratory to continue to improve the brand of what we are creating in URL in terms of the amenities, the efficiencies and the desirability, particularly by the new millennial worker and the ability for people who don't necessarily want to have roommates because if you are going to be renting in Brooklyn or in New York City, chances are that it is not affordable for young urban professionals just coming into the workforce unless they have roommates.

And so we are kind of catering to a part of the market that has not really been focused on and they have a 48 unit redevelopment I will call it and the demand literally is out the door. It is 100% full, other than two units that we retain or they retain for -- to showcase as model. And the rents have approached $46 a square foot. It is not located on any public transportation line and it has very limited parking available to it. So you can imagine what is happening along the waterfront where you have the access to public transportation in multiple forms, both up and down the coast and across and back and forth over the river ferry path, all of that and a much more highly amenitized location. But what they are seeing there since they opened it a year ago, about a 7% increase in the rents. So it is a very, very strong urban core along the waterfront.

Okay, thank you.

Emanuel Cordesman, Citi.

Just for the remaining roll, the 1.3 million square feet, is there a certain retention ratio or have discussions progressed in terms of retaining a certain size of those tenants in terms of confidence level?

Yes, we have 1.305 million square feet. We have definitive moveouts of 52%.

And then the other stuff is still working out in terms of trying to (multiple speakers)?

Either they have committed to stay and we just haven't transacted yet or they have indicated that they will probably stay.

Right. So then you effectively have to -- just going back through to get to the occupancy effectively have to lease up 900,000 square feet of vacancies within the portfolio to get to the target, somewhere in that ZIP Code?

Yes, to get to the increase of 0.6, yes, somewhere in that ZIP Code and traditionally, but for the extraordinary conditions that we have faced in the winter and the fact that we have diminished the size of the portfolio somewhat, we were doing a million square feet a quarter.

And then just on the multifamily platform, you are clearly progressing along the front on your utilization of sites and the developments and the acquisitions. The structure of a lot of the resident partnerships were complex, right? A number of the assets were sliver or preferred equity, or sliver equity issuance, some of them were levered, a lot of joint ventures. Is there anything that you are doing on that front to simplify the ownership --?

Yes, yes. We are -- there's not too much we can do about some of the older legacy joint ventures. They are sort of what they are, but on a go-forward basis, we have been in very, very deep discussion with the principal institutional partners, particularly one that starts with a P and the Roseland team has been fully engaged with that partner about restructuring the go-forward on all of the assets. And frankly, it might involve a trade here or there so that we can get rid of a couple of the joint ventures and Mack-Cali will own 100% of the asset, a couple in Port Imperial.

But the structure going forward is going to be simplified. It will be basically a 50-50 deal on everything we do, basically pari-passu on all returns and we expect to not only get our promote for adding the value of the hard work, for example, in Port Imperial that Carl Goldberg has done over 20 years to get the entitlements, but the increase in land value, etc. as a result that and we expect that, based on our current level of discussion, that we are going to be able to monetize that promote at what I will call the land closing and those are very active discussions. You will not see Mack-Cali enter into any of what I will call the old legacy joint ventures. The reason they existed was because Roseland did not have a balance sheet and so they put the sweat equity in, the expertise and the capable development arm. And for that in exchange -- for that rather they got a promoted interest and fee income. But now with the strength of Mack-Cali, we want to have pari-passu returns with these organizations. So yes, we have been very, very engaged in that, Michael.

And then the last one, just in terms of the three Co-Presidents, as you embark -- next year will be the three-year period upon which the promote, the earnout would be measured, but also I guess their agreement to stay -- that they've agreed to stay for those three years. I guess has there been any thought or movement about securing the three longer term and just share with us a little bit about sort of that management team and how with this vision of where Mack-Cali is going the importance of those three principles?

This is Carl Goldberg again. The three of us remain fully committed to the growth of the Mack-Cali multifamily platform. I think Mitchell said very clearly and very accurately at the onset of the call the synergy between Mack-Cali and Roseland Property Company, now Roseland Mack-Cali, has been extraordinarily strong from top to bottom. I think the personal chemistry between the three Co-Presidents, as well as the senior leadership and Mitchell Hersh as the CEO, as well as the senior executives here has been seamless. And so I anticipate significant conversations to be very constructive going forward in terms of the longer-term commitment by the Co-Presidents to Mack-Cali.

I also did want to add one other comment to your question and that is why I emphasized with the Freehold Township development that is coming out of entitlements shortly that 360 unit multifamily community will be 100% a Mack-Cali community. And so when we are doing new land acquisitions and processing them through the entitlement process to create expansion to the multifamily platform, we are looking for them to be wholly-owned 100% Mack-Cali assets. And so I think you are going to see continued movement in a very short period over time to a greater percentage of ownership of multifamily assets as they continue to come online in the expansion program.

And the net result of that of course is a simpler story, less complications.

Okay, thanks for the color.

And there are no further questions at this time, so I would like to turn the call back over to Mr. Hersh for any final closing remarks.

Well, thank you for joining today's call. I think it was a very thorough and full discussion and we will soon arrange something in accordance with my dialogue with Michael Bilerman to have a more detailed Investor Day, if you will, for lack of a better term, to get into very granular detail of what we are up to with the multifamily transformation. So I want to thank you again and I look forward to speaking to you if not before next quarter, but I think probably before since we have NAREIT coming up shortly. Thank you. Good day.

And that concludes today's conference. I thank everyone for your participation.