Veris Residential Inc (VRE) 2014 Q3 法說會逐字稿

Good day, everyone and welcome to the Mack-Cali Realty Corporation Third Quarter 2014 Earnings Conference Call. Today's call is being recorded. And at this time, I'd like to turn the call over to President and Chief Executive Officer, Mr. Mitchell Hersh. Please go ahead, sir.

Thank you, operator and good morning, everyone. Thank you for joining Mack-Cali's third quarter 2014 earnings conference call. With me today is, Tony Krug, CFO and from our Roseland subsidiary, 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.

As is custom, first I'd like to review some of our results and activities for the third quarter and generally what we're seeing in our markets. Then Tony will review our financial results and Gabe Shiff will summarize the activities in our Roseland platform.

FFO for the third quarter of 2014 was $0.48 per diluted share. During the quarter, we signed a total of 621,000 square feet of lease transactions, including approximately 266,000 square feet of new leases. Our tenant retention rate was just under 56% of outgoing space. And with that, we ended the quarter at 83.7% leased, unchanged from last quarter. Rent on our renewals rolled down this quarter by approximately 4.8% on a cash basis, which was significantly less than last quarter's 6.3% cash roll down. Remaining lease rollovers for 2014 are just 1.5% of base rent or approximately $7.8 million. Our leasing costs for the quarter were $3.44 per square foot per year on average, which was up a bit from last quarter's $3.21.

Clearly, the New Jersey and Westchester office suburban markets in particular remained quite challenging with little in the way of new demand and substantial inventory. Clearly, we are seeing better activity along the waterfront than in some of our more urban locations. At Mack-Cali, we remain laser focused on building occupancy within our portfolio using our relationships with our tenants and the brokerage community to get the message out that we have exceptional assets, are well capitalized and offer our tenants flexibility to deal with their ever-changing needs.

As mentioned on last quarter's call, we are well along in our $35 million capital reinvestment plan in our office assets, upgrading building systems, HVAC, elevators and the like, redoing lobbies and public spaces as well as enhancing curb appeal with new paving, landscaping and curbing. At Harborside, we began construction on the $15 million reimagining of the common areas, entrances and public spaces. As previously discussed, we are reimagining the original industrial roots of the original section of Harborside to appeal to the ever-changing workplace and the demands of the new [family] and technology tenants. Additionally, we've been very active in building on our highly respected brand in both the office and multi-family sectors through the use of technology innovation and social media.

Now, I'll discuss some of our recent activities. During the quarter, we completed the sale through a joint venture of seven assets located in New Jersey, New York and Connecticut to Keystone Property Group as the final component of a larger tri-state portfolio dispositions. Through this partnership with KPG, Mack-Cali will participate in value creation above certain hurdle rates, we will handle leasing and tenant construction for the properties as well a share in management fees.

In August, we received repayment together with our joint venture partner, Winthrop Realty Trust, of our investment in the purchase of a senior mezzanine note, securing properties in Stamford, Connecticut. Mack-Cali received just under $38 million on our original $32 million investment in this note representing an approximate 11.25% internal rate of return. We continue to make good progress in our plans to repurpose Curtis Center in Philadelphia with our partner, Keystone. In connection with this magnificent asset, we closed a $150 million loan just several weeks ago.

On the multi-family front, during the quarter, we acquired the equity interest of our joint venture partner in Overlook Ridge or approximately $16.5 million. And as a result, we increased our ownership to a 100% of the developable land and acquired an additional 25% for a total now of 50% of our joint venture interest with UBS in the two multi-family properties located at Overlook Ridge in Malden and Revere Massachusetts, just outside Boston.

Speaking of Boston, in a few weeks we look forward to the official ribbon cutting at our joint venture multi-family project, Portside at East Pier in East Boston. This newly opened community will feature state-of-the-art amenities, stunning water views, ferry service to the financial district and (inaudible) at the Mavericks station. This project is the culmination of many, many years of planning and hard work with the Boston governmental officials and Massport in Massachusetts. We look forward to creating in East Boston what Roseland actually pioneered in Hudson County, New Jersey along the Hudson River waterfront important area.

Construction on our URL multi-family project is on schedule and on budget. We closed a $192 million 15-year construction and permanent loan with Pacific Life several years ago and the anticipated opening of early 2016, first quarter of 2016 is on target.

Now, I'm going to turn the call over to Tony who will review all our financial results for the quarter, but I wanted to make the comment, obviously in the press release you saw that we restated guidance and extended it through 2014, full year 2014. And for the first time, we're providing guidance for 2015. I note that and many of the analyst's notes this morning that preceded this call, some discussion of the guidance for 2015 and I just wanted to make the point that the majority of reduction in what the Street was holding for 2015 versus what we put out today is a result of the Prentice-Hall lease expiration on a 475,000 square foot building in Upper Saddle River and that frankly, we've been talking about on this call probably for eight or more quarters, it's part of our repurposing efforts through our Roseland subsidiary. So I just wanted to make that point.

And now with that, Tony, why don't you take us through the results.

Thanks, Mitchell.

Funds from operations for the third quarter of 2014 was $0.48 per share as compared to $0.57 per share for the same quarter last year. For the third quarter of 2014, net income available to common shareholders was $0.02 per share as compared to $0.05 per share last year. Same-store net operating income decreased by 3.3% on a GAAP basis and 4.1% on a cash basis for the quarter. Our same-store portfolio at quarter end was 25.3 million square feet. Our unencumbered portfolio at quarter end totaled 207 properties, and represents [78%] of our portfolio on an NOI basis.

At quarter end, Mack-Cali's total undepreciated book assets equaled $5.7 billion and our debt to undepreciated assets ratio was 39%. The Company had interest coverage of 2.8 times and fixed charge coverage of 2.3 times for the quarter. We ended the quarter with approximately $2.2 billion of debt with a weighted average interest rate of 5.62%. Currently, we have nothing drawn on our $600 million unsecured revolving credit facility.

We have narrowed our FFO guidance for 2014 in the range of $1.72 to $1.76. And based on our current plans and assumptions, we are providing initial FFO guidance for 2015 in the range of $1.62 to $1.82 per share. At the midpoint, our guidance for 2015 assumes percentage leased declining from 83.7% at year-end 2014 to about 81% by mid-2015 and then up to about 82% by year-end 2015. Same-store net operating income is expected to decrease by about 8.6% on a cash basis and 7.4% on a GAAP basis. We assume no asset sales or operating acquisitions for 2015. We estimate multi-family development spending of Mack-Cali's equity to be approximately $103 million in 2015 primarily for the funding of multi-family joint venture developments.

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

Mitchell?

Thanks, Tony.

I'm going to turn the call over to Gabe Shiff, who is going to provide details of our activities both in what we're doing with our stabilized assets in the Roseland platform, our development activities and a little bit about our repurposing. I want to make the comment that our teams have worked very long and hard certainly over the last couple of quarters, but I hope it's reflected in this quarter's supplemental to provide clear, crisper more succinct information regarding what we're doing in the multi-family platform, what we are -- our expectations are in terms of yield, on our developments and cost and yield on the repositioning dollars that we're reinvesting into our assets.

So with that, Gabe, take it away.

Thank you, Mitch.

Today, two years since Mack-Cali's acquisition of Roseland, we are proud to reflect continued cash flow and value creation growth throughout the residential platform. The sources of set growth have been strong rental rates and occupancies on our operating portfolio, high velocity lease-ups on our construction completions, initial successes on our asset repositionings, and the advancements of tending starts from our residential land and repurposing development pipeline. On an operating basis, the third quarter reflected strong occupancies and revenues across Roseland's approximately 3,900 apartment home stabilized residential portfolio.

Concurrent with performance of our stabilized portfolio in the third quarter, we had continued leasing success across three communities representing 1,042 apartment homes. These communities, RiverTrace at Port Imperial, Estuary in Weehawken, and the Chase at Overlook Ridge were on average 87% leased at quarter end compared to [56%] leased one quarter ago, representing 325 apartment homes of new leasing activity in the third quarter.

Importantly, these strong absorption levels were accomplished at our Port Imperial and Overlook Ridge master planned communities where the company projects a 280 apartment home lease-up commencements as well as new construction starts in 2015. Further, subsequent to quarter end, the RiverTrace and Estuary lease-ups crossed the 95% leasing threshold and we anticipate that Chase will achieve a similar result in early 2015 as well.

At quarter end, Roseland had approximately 2,400 apartment homes across eight communities in construction. These communities located entirely in the northeast corridor between Washington DC and the Boston waterfront represents approximately $920 million in total development activity. This activity is projected to generate approximately $61 million of stabilized NOI producing an unlevered yield across this portfolio of approximately 6.75%. Subsequent to quarter end, three communities representing 544 apartment homes from this active construction portfolio commenced leasing activities including RiverPark in Harrison, New Jersey, as Mitchell referenced to the groundbreaking at the Portside of Pier One on the East Boston waterfront and Estuary Phase II on the Weehawken waterfront. Furthermore, in 2015, we forecast delivery of two additional communities comprised of 657 apartment homes in the first quarter and one additional community representing 311 apartment homes later that year.

Moving to our future pipeline, through year-end 2015 from the development pipeline we currently own or have under contract, we are projecting seven construction starts. This construction start activity includes five communities representing approximately 1,450 apartment homes in addition to a 364-key hotel and commuter parking garage at Port Imperial. These next round of construction starts are projected to generate unlevered yield of approximately 7% on total development cost of approximately $550 million.

In addition to construction activity from our existing residential sites, we have made material progress on repurposing select Mack-Cali holdings for residential developments, a synergistic component of the Roseland Mack-Cali business combination. To that end, we are finalizing approvals at two municipalities in New Jersey and one town in the Greater Philadelphia region and are hopeful these activities will lead to construction starts in 2015 as well.

As Mitchell referenced just shortly ago, the enhanced the Section 5 of the supplemental, the section dedicated to the residential platform, highlights these activities and our form of ownership on these projects comprised of three structures. First, our consolidated developments; second, participatory joint ventures whereby Mack-Cali invest capital on a proportional heads-up basis to its effective ownership, and lastly, subordinated joint ventures whereby the Mack-Cali interest is subordinated to an equity partner's preferred return. Importantly, we will not pursue new subordinated joint ventures on the future developments described and we will seek to amend legacy subordinated joint venture commitments to create heads-up co-investment opportunities to generate non-subordinated NOI, similar to our achievements at Marbella South.

As referenced previously, in the third quarter, the company entered into an agreement to acquire our joint venture partner's equity interest at the Overlook Ridge master planned community in Massachusetts for $16.6 million. The transaction increased the company's ownership from 50% to 100% and correspondingly eliminated our joint venture partner's priority land accounts on the proposed build out of approximately 1,150 apartment homes. The transaction also increased the company's ownership from 25% to 50% at the Chase at Overlook Ridge, a community currently finalizing its lease-up.

The platform has also focused on new development opportunities. To that end, we are under contract for three developments sites in our core geographies, representing approximately 1,000 apartment homes, [all at a] targeted land closings between Q4 and early 2015 with subsequent construction starts shortly thereafter. Further in the third quarter, Roseland has continued executing on its repositioning plan across many of our recently acquired assets and we anticipate this improvement activity will continue.

This morning, we have highlighted a trend of continuous transition of property to more valuable asset classifications within the residential development cycle. We are hopeful to continue this trend, with the stabilization of our lease-up assets, the completion of our in-construction portfolio and the placement of new residential and repurposing communities into production. Importantly, as the company accelerates its continual residential transition, the residential platform will continue to generate fee income from its construction, development and management businesses.

In closing, we are hopeful for continued progress across Roseland's multiple growth and value creation initiatives. Thank you.

Thank you very much, Gabe. That's a great snapshot and summary of the activity of what's going on at Roseland and the multi-family side of our business.

Just a few comments before we open the floor to your questions. Tony mentioned the fact that our expected NOI decline in 2015 as we sit here today is about 8.6% in cash and 7.4% in GAAP, and I wanted to just comment that right now we've based on known move-outs including Prentice-Hall, our occupancy while we expect it to close the year approximately even to where it is today at 83.7%, maybe plus or minus 1 basis point or 2 basis point as we know today that the expirations that would affect our occupancy in the first quarter of 2015 would bring us to about 81.2% and then combine that with what we're seeing in the second quarter, down to about 80.5%. We have modeled in growing our occupancy based on the guidance that we provided today to end 2015 at 82.2%. Obviously I hopeful and we are focused on doing better than that, but that's our conservative projection as we sit here today.

In connection with all of that, we have also modeled into our projections about a $107 million of spend on what we call non-incremental CapEx and that's for building improvements and tenant allowances and leasing commissions that a $107 million for the year and that puts us at a almost a full CAD payout ratio.

Further, as Tony also stated at the -- our projections in our modeling do not include any additional asset sales. With that, through the 15 months, which includes the fourth quarter of this year and full year 2015, our spending in connection with our multi-family, and that includes URL and everything else that's active at the moment, will be about $138 million and that's been built into our model and that plus $106 million more or less in capital spend would put us on an outstanding borrowing on our line of about $150 million, 15 months from now. So we have planned our balance sheet to anticipate all of the spend on both our core office portfolio and our multi-family equity requirements and I wanted to make that point.

So having said that, Operator, I'm now going to open the floor to questions.

Thank you. (Operator Instructions) (inaudible), UBS.

Hello, Mitch. It's Ross Nussbaum here with Nick.

Hi, Ross.

Maybe I can start off on the capital spend numbers that you've outlined for next year. I just want to clarify that is your equity contribution, so that the remainder of the needs are going to be going on construction financing, is that how we should think about it?

Yes, that's the -- the equity requirements -- Mack-Cali cash equity requirements would be about $39 million for the fourth quarter for the multi-family spend, fourth quarter of this year. And then just under $100 million for the full year of 2015.

And what would be the total spend if I included the construction financing as well?

I'll pull the numbers. It's approximately $1.5 billion, it's a round number, but it's close to $1.5 billion total spend.

But you're share of that, you're not spending the whole $1.5 billion, what would be your?

I just outlined it, it's $39 million in this quarter and $100 million throughout the course of 2015.

Right. But I'm trying to get at the $1.5 billion total capital spend?

Yes, that -- so what we've already spent actually is listed in the supplemental and that's part of that $1.5 billion and we will pull it out for you right now.

Mitchell, if you -- on Page 51 of the supplemental package, you'll see the total estimated cost of $920 million.

Okay, Ross, if you look at Page 51 of the supplemental, you'll see the total estimated cost of $919 million.

Yes, got it, okay. That's helpful.

Okay.

The other question I had was on the multi-family side is there a same-store NOI growth or same-store revenue growth number you can give for the stabilized communities?

It's been approximately 3%, our portfolio is young, our acquisitions have been over the last really eight quarters and a lot of them really within the last four quarters. So, we will begin over time to produce same-store results in our financials. However, at this point in time because of the size of that same-store pool, because of the -- due to the age of it, we don't report it right now.

Jordan Sadler, KeyBanc Capital Markets.

Thanks, good morning, guys. Mitch, just a point of clarification on that last question on the $1.5 billion, can you reckon what's the difference between the $919 on Page 51 and the $1.5 billion?

Yes. The total of $1.5 billion, the difference between that and the $920 million, projects that haven't yet commenced.

Okay. So including this 1,000 units you --.

They are built into our modeling for 2015.

Okay. Are those flagged anywhere in the supplemental in terms of the ones that are going to commence or is there?

No, they are not. But I can --.

Parse them out for us?

Yes, I'm going to parse them out, but if you go to Page 52 of the supplemental.

That's the -- okay, I see it. The anticipated construction and that's basically the total cost of that would be another $500 million.

That's correct, right. That's right, $550 million.

Okay. Thanks, that's helpful. I guess my other question was on guidance overall. I have the range, right, $1.62 to $1.82 and I appreciate that and we had the Pearson move out -- the Prentice-Hall move out, which in your numbers I think with $9 million of rent, but we've known about this for years. The piece -- I just wanted to point out that the difference between consensus and the midpoint of your number on a gross basis is $15 million. My number, which is not far off from consensus, I had the Prentice move out in there. I guess what I'm asking is, what else do you think is in here that maybe I don't have and I know you're not looking at my model, but what other expenses might I'd be missing?

Okay. Well, let me kind of run through it. Obviously, again at the risk of redundancy, the largest component is Prentice-Hall, which represents 475,000 feet, $18.20 and about $4 in carry just to pay taxes and operate the asset while it's standing in its current state. So you can do the math, but that's about $0.11. We do have some known move outs that will impact us certainly at the beginning of the year first quarter. I gave you the occupancy stats, what's projected [81.2%] in the first quarter down to what we hope is the point of inflection at 80.5% in the next quarter, but that represents another $0.07 in income loss.

We do have some operating expense increases or inflation partly due to contracts through unionization in certain sectors of operating plus taxes have been going up -- real estate taxes. So that's a couple of cents, $0.03. We have the continued impact from the asset sales. We sold the income producing properties, which the market [wanted] and we did it creatively into a joint venture, so that we could recover fee income and future value and some of that fee income will offset some of these dilutions or economic losses. But the reality is, we have almost a dime of continued dilution as a result of losing that income stream. Naturally it gave us the capital to fund our development program and some of our other capital needs through the Company. We have some interest and other investment declines not material, and some interest expense on some debt, but again, not material.

But then, you look at adding up and you come up with $0.35 worth of deductions. Now that's partially offset by call it almost $0.20 of positives and those are interest expense savings. We've talked openly about the fact that we expect to pay off our unsecured note, which is a $150 million January 15 expiration, it's a [5.8%] note. So it's a negative spread and we're going to pay that off early and that should save us about a nickel, we'll do that at some point in December. We have some positive FFO coming through our JVs, mostly from our stabilized assets in our Roseland portfolio. We have some fee income as I mentioned both through Roseland and some fee income that will be deriving through our KPG joint ventures.

We've kind of reordered our G&A, which is going to save us a couple of million dollars a year for sure. We've worked hard at reducing the expenses in the Company and operating as lean and mean as we can, but having the appropriate resources and we've had some capping of our energy, last year was a wild time in the energy markets because of the severe cold weather and the natural gas prices on the shelf and of course a lot of companies, a lot of money that was not recoverable caused us about a dime. And now we've hedged. So we do in fact expect a savings actually of a couple of cents and just some consolidated multi-family net income gains all resulting in more or less $0.18 to $0.20 of offset against that $0.35 loss.

Now, if we do better on our occupancy gains and believe me, we are out there everywhere trying to capture what demand does exist in the marketplace, we'll do better. But this is our conservative view today.

It sounds like you've worked hard to put forth the number that you could achieve. I guess my other question for you would be, you went through the capital plan pretty thoroughly, I've got non-incremental spend down, I've got the multi-family spend and it says no additional asset sales, but I'd be curious any additional investment opportunity to buy in either multi-family interests or additional joint venture opportunities with Keystone on the acquisition side?

The answer to that is that we did Carter Center recently, which we think is a superior accomplishment that's just an incredibly magnificent asset that we will have a lot of opportunity with our reimagining and repurposing part of it. And we look at opportunities all the time, but as I've stated very clearly and so there is no mixed message about this, we're not looking to buy stabilized multi-family assets, we're not looking for negative arbitrage, we are -- if something presents itself, either on the office side or the multi-family side on either side of the equation that's compelling buy, sell, we're certainly going to look at it, that's what we're in business to do, but it's really got to be very compelling.

Okay. And you wouldn't buy stabilized unless you were buying in an additional -- an incremental interest in an existing sort of Roseland joint venture or not?

Well, the answer -- the short answer is that's not our goal. We were set -- I mean the average cap rate on the kind of multi-family product that we have, I'm going to say, is 4.5 to 5 and both these assets depending on location and quality of location is higher and whether that's 6 or 6.5, or 7 or 7.5, it's a negative [arm] and we have committed to the market that and to our own analysis that it -- we're not going to do that and we don't have the flexibility of capital spend to support that kind of investment and so we've stated that were not in the market for the stabilized assets.

Okay, thanks for the color.

You're welcome.

Michael Bilerman, Citi.

Great, thank you. Mitchell, I would echo Sir Jordan's point about sort of I can't speak for what consensus is, but certainly we had a $1.78 also (inaudible) numbers and the numbers still came a little bit below, but I guess all the ins and outs that you talked about weren't all fully baked in.

Maybe you can share a little bit about sort of the same-store decrease in terms of it's about, I guess $27 million, $28 million year-over-year, clearly the Prentice-Hall, the $11 million, you said there is $7 million from move-outs. What are the other variables because I would have thought that the really harsh winter that affected the utilities in the first quarter, you get a positive variance. I'm just trying to understand how the same-store is such a negative decline.

Well, once again, half of it more or less is Prentice-Hall. So that kind of brings your number down to 4 or 5 negative once you take that out of the equation, and the rest of it is primarily -- I mean you have some expenses, some increases but you have move-outs, loss of income on the occupancy numbers that are reflected and slight increases and full board operating on the assets despite having lost the income.

So the combination of all that unfortunately results in the numbers that we've presented and the continued downward pressure on the NOI. I'm hopeful that we're certainly taking out Prentice-Hall from the equation that we're narrowing the gap and we're going to see a point of inflection where we're no longer going to have -- at least no longer have material NOI erosion same-store and then I'll think same-store anyway at this point moving into 2016.

Right. But, if it's $27 million, $28 million and Prentice-Hall is only $11 million, that's only 40% of the decline.

Yes, well, right now -- let me run through some of the -- we have a situation in an asset in Lyndhurst and it's one of the mortgaged assets, I don't know how it ends up, but it's an 83,000 foot tenant Sony that needed half the space and they've moved to another building because we couldn't even work with them, given the fact that that building was one of the Gail assets that had securitized -- a securitized loan on it. We have a couple known move-outs in Princeton, the general Princeton market that are 120,000 feet in total and another 60,000 or 70,000 that we know about right now in the first quarter of expirations with known move-outs throughout various locations in the portfolio.

And similarly in the second quarter now, we have a 90,000 foot move-out, but I'm hopeful that we have a replacement tenant for, but it's too early to tell for sure. So we've built it into our modeling as a move-out. So, it's these kinds of things and there are fairly chunky tenancies that we've modeled in the loss of income. We're really hopeful that in all our part, we can rebuild it through new leases, but we know that our current tenants are leaving.

Of the $550 million of the 2015 starts, it looks as we look on Page 52, most of those are 100% on projects. Of that $550 million, what is your share and what level of construction financing do you have to fund that in place?

Yes, that starts just, again 52 outlines what those starts are. So I think that's pretty clear. Our expectation is that on the total cost of the project, regardless of our ownership percentage, we're 60% to 65% loan to cost on financing on construction loan. And then it varies based on our percentage of interest as to our equity component, which I've laid out for you in the $39 million for the rest of the year and the $100 million through 2015 that $100 million corresponds to the list on Page 52.

Right, but some of that is (inaudible) spend all the capital in 2015, so I think what we're just trying to understand is?

That is what we anticipate spending in 2015.

Right, but I was just thinking about it more so from a capital commitment of the Company gets started, you will have much further capital lease spend to finish those projects past 2015. So I think we're just trying to get an understanding of what that total committed capital will be. So if the project is $550 million in aggregate, it's $206 million of equity at a 100% share. You're are spending about $100 million and --.

Yes, you're right. Okay, right now on the $550 million that make up the difference between the $919 million and the $1.5 billion, our commitment to date is $58 million.

And then I think Gabe talked about three projects where you can develop about 1,000 units, those would be separate from these land holdings, those are future adds to the pipeline and what would be the cost of that land and when would you anticipate it to start?

We have -- depending on capital flexibility I'll call it, we have a project in Freehold, we have a project in Conshohocken that will be ready to go representing those units.

But this is land that's not yet in the Company's or three purchases you're going to make?

Conshohocken is an imminent purchase, we've cleared all of the issues, the approvals, et cetera. It's a $14 million land acquisition. Freehold is very, very close to that point in time, that will be about $15 million or so in land acquisition, maybe $18 million. So those are imminent. We would acquire the land, fully approve and probably we've listed those as 2016 starts.

And that's out of the capital plan you talked about before that's just -- is there a --.

Yes, that's all included in the $138 million.

In the $138 million, is this $32 million for these two sites and is there a third site or?

Yes, if you look in again on Page 52, you see Worcester, Massachusetts that's a 100% Roseland Mack-Cali. It's a -- we projected it as a third quarter 2015 start, it's not a big number in the land. It's a $4.5 million spend and it's included in the $138 million.

Vincent Chao, Deutsche Bank.

Just curious, absent the Prentice-Hall move-out in terms of you talked about a number of move-outs across the course of the year, I'm just curious the 56% retention ratio that you reported this quarter, is that ballpark-ish a good number to think about for next year?

Well, let me say this --.

Again, absent Prentice.

Yes. That 50% of the 2015 lease expirations are vacates. So that gives you a sense that, yes, we'd be in that retention range. We hope to equal it at 55% or do better.

Okay. And then just thinking about your comments about CAD coverage being pretty much 100% it sounded like or roughly for 2015, as you look out to 2016, I mean, does it get much better at that point or is it too early to say?

It's clearly, Vincent, too early to say. As I indicated to you, we are very, very hopeful that this 2015 is a pivotal transformational year, a point of inflection where occupancy improvements and clearly one additional fact is that the waterfront and the urban areas in general, but certainly the waterfront, we're seeing a lot of activity. We have some significant vacancy there particularly in Harborside Plazas 2 and 3 and some significant vacancy in 101 Hudson, I mean we're talking about 800,000 foot or 750,000 foot of vacancy. Now we're reimagining the space in Harborside which represents more than half of that and obviously Morgan Stanley and Credit Suisse space primarily. And we are seeing some very good activity and you've read about some of it with the financial service industry looking at consolidation and cost savings and the appeal of the Grow New Jersey as a right center program. I've personally been attending a number of broker events like dinners this week with the New York centric brokerage community who -- the (inaudible) of the brokerage community quite frankly. You'll confirm that these firms that are out there with these larger requirements, the 300,000 foot to 500,000 foot requirements are very seriously engaged with looking at the incentive programs because they need to cut their costs. While lots of them might like to stay in different parts of Manhattan and move to the Hudson Yards and et cetera, there may be other limitations imposed upon them.

So, we haven't really built in any sort of exponential performance of the waterfront, but I think it's a hidden jewel at this point that could certainly be a benefit to us.

Okay, thank you.

You're welcome.

Jamie Feldman, Bank of America-Merrill Lynch.

I guess sticking with the waterfront, I mean we've clearly been hearing a lot about leasing activity, a lot of government incentives there. Can you guys just talk about what your leasing pipeline does look like for the waterfront?

Well, I would say it's several million square feet. We have a fair -- what I would view as a very serious tour tomorrow for a 450,000 foot requirement. It's hard to know -- some of these prospective tenants have a couple of years remaining on their lease, in some instances just enough time to build, whether it's in New York City or it's Plaza 4 and Jersey City, at our Harborside, it's just enough time to build and in a couple of other cases, they don't have that much time. So, they need to look at existing inventory.

So I would say, it's between 1 million and 2 million square feet. The question is, is it one that's really based on cost and one would think that it should be a particularly when you have such a high quality asset and emerging live-work-play environment like we have in our presence down at the waterfront Jersey City with the residential component and all the retail that we're going to be including in the reimagined arcade and then dining facilities as well as our hotel et cetera.

So companies once again, we haven't seen this in a couple of years, are out in the marketplace because of looming expirations to determine what their future is. And New York, for whatever it's worth, has come out somewhat openly and stated that they're not providing incentives, now whether that's true, I don't know. But at the moment, they say publicly they're not providing incentives in New Jersey, it's all as of right under the Grow New Jersey program. So that's what I can tell you. It's encouraging to see the activity level right now.

And then what do you think of as your competitive, what's the competitive vacancy there that you guys are competing lately?

Not a lot. I mean the unknown vacancy, sort of the shadow vacancy is the Goldman Sachs building, which has fit out space and it's an appealing space, it's more expensive. So we're more competitive economically, but they were able to do the (inaudible) deal. And so that's kind of shadow inventory that one would never have expected. But outside of that, I guess some space in 90 Hudson, 70 Hudson and a little bit in Newport. But I don't think right now, I think right now, if there is significant demand in these larger space requirement categories, we're in a very good position.

Okay. And then moving on to the suburbs, I mean we've clearly seen the US market in a recovery, it sounds like the markets are slower to recover. Are you guys seeing any pick up? But what does the leasing pipeline look like for your suburban assets?

I stated it in my remarks, Jamie. I wish it weren't so, but it is. It's been a lot of headwinds. New Jersey, you've seen some macro reports recently done by various think tanks is not doing so well in creating new jobs, certainly in comparison to some of our adjacent locations and Massachusetts, that's another one that's made more progress particularly in biotechnology and pharma. So New Jersey clearly has to do better. And so from the demand side of the equation, we haven't seen the kind of vibrance that we would hope to have seen by this point in the economic recovery.

And as I mentioned, unfortunately there is a fair amount of inventory, some of it's controlled by banks and lending institutions at this point. But nonetheless, it creates competitive set and even existing tenants who hire their professional representatives go out and scout the marketplace and see what's available and it puts pressure on the economics of transactions.

So, New Jersey has a ways to go, but clearly some of the -- I think more multi-tenanted facilities will continue to have some resilience certainly with the ownership mantle of Mack-Cali and our reputation and our brand and our capital wherewithal will capture our share. I think you'll see some more of the large corporate headquarter and there has been a lot of press about this that there are no 500,000 foot, 600,000 foot tenants that are expanding in the Jersey marketplace and it's putting a lot of pressure on the municipal governments to think more smartly about the future because you just can't backfill these buildings that were built in a different era and different -- and companies were using space in a different way back in the 1970s and 1980s.

So the market frankly has been a challenge. And we see that in a lot of suburban locations, we see it in Westchester. We have sort of the largest presence in the flex space in Westchester. So we -- that's offset some of the difficult headwinds in the Westchester suburban office markets, but we sold some of that product as part of that final tranche of closing with Keystone in some of the Elmsford office assets and nearby.

So -- but that's the story right now. Jersey has sort of not recovered in sync with the overall economic recovery in job. It's one of the few states that hasn't regained all of the jobs lost in the financial crisis meltdown of [2008 lately] into 2009.

Okay, that's helpful and then just last, so if we think about the vacancy you mentioned today beyond Prentice-Hall, some of the other hidden portfolios are going to take it to 2015, where are those tenants going, are they -- are you losing out to other landlords that are more aggressive (multiple speakers)?

No. We don't lose any deals because we certainly don't lose any of our existing tenants because other landlords are more aggressive. I mentioned in the case of one tenant in a mortgaged asset where the mortgagee didn't -- it's a CMBS loan held by a special servicer and they didn't want to talk about restructuring. They just wanted to preserve the existing collateral until the expiration will lease, which now is right in front of them and whatever will happen with the asset will happen, but whatever value they could have preserved they chose not to because there is not really a principal there a special servicer.

In the other cases, for example, a pharmaceutical company in Princeton of 50,000 square feet that's a first quarter 2015 move-out, they were one of the few pharmaceutical companies in the state that have expanded and actually built their own headquarters building to accommodate this space that's located in our College Road building, so they -- that's what's happened with them. And the others are either contractions where they're being absorbed into other space that's either owned by the entity or the restacking is not practical from their perspective or their business models have just changed.

But we are extremely competitive in the marketplace and we're well respected and well liked by the brokerage community, because they know that it's money good with us and that we will do what we say, we will do which is -- helps them with their relationships with the tenants they represent as well. But business is changing and we're changing with it. And unfortunately, there is a period of transition associated with that.

John Bajani, Green Street Advisors.

Mitchell, are there any large known office move-outs beyond 2015 that you can highlight?

2016 is a much quite a year in terms of expirations.

Okay. And then a couple of higher level questions. So it's been about two years now since the Roseland acquisition and you guys have built on the platform, improved your property level disclosure, but your stock is still trading at a massive discount to what I think is your underlying asset value. You previously suggested that you thought the stock is [discount] for the multi-family opportunities misunderstood. Do you still feel that's the case, and what do you and the Board feel needs to be done looking forward to close the valuation gap?

We do feel that the stock trades at a significant discount to underlying value. We've enhanced our communication if that's the right word with the marketplace by improving our information fuller disclosure in our sub, so that the metrics are kind of right there for the analytic community to be able to determine net asset value for the Company much more easily.

We've remained focused and on message with respect to the following; preservation of our balance sheet flexibility, not overstressing our balance sheet, we sold assets to fund our activity. As I said, you can't have it all, so if you're going to sell some assets, we did it in what we believe a very creative way in providing some future optionality for us, but you lose the cash flow and that -- and you suffer some dilution as a result of that. So we've sold what we're going to sell. We're modeling in no additional sales in the numbers that we have presented. And so you've got balance sheet flexibility, we reduced our dividend to provide another $60 million in capital availability to the Company. We've kind of normalized our dividend to our distributable amount under the REIT rules [close to] 90%, but really 100% of your taxable income. Our distribution, so that's at $0.60 a share on an annual basis is more normalized right now.

We're going to build out our development pipeline both in URL and through our Roseland pipeline with the defined list as you see in our filing and as we've discussed today and when those assets come on line in the next two years and hopefully it will be a continuum of development after that with all these fabulous sites that we own and control subject to capital availability, that the income stream from the Roseland platform will be a more meaningful contributor to the Company. We are not using our precious capital to buy back stock. And once again, redundancy, but I do support and the Board supports the notion that we're undervalued and that's what I can tell you at this juncture.

Okay, that's helpful. I guess one follow-on question on asset sales. I think you previously talked about selling a couple of assets in DC, is that completely off the table now or what's going on there?

(multiple speakers). Yes, we haven't built in any additional asset sales in the current modeling.

All right, thanks.

Thank you.

And that will conclude our question-and-answer session for today. I'd like to turn the call back to Mr. Mitchell Hersh for any additional or closing remarks.

Well, thank you. I do want to thank everyone for joining us today. I know that we had a fairly full list of participants in this call and I hope that we've been informative and helpful to you. We look forward to seeing many of you at NAREIT in the coming weeks and then reporting to you again in the new year. Thank you again and have a good day.

Thank you very much. That does conclude our conference call for today. I'd like to thank everyone for your participation.