Veris Residential Inc (VRE) 2015 Q4 法說會逐字稿

Good day, everyone and welcome to today's Mack-Cali Realty Corporation Fourth Quarter 2015 Earnings Conference Call. Just as a reminder, today's call is being recorded. At this time, I'd like to turn the call over to turn the call over to Michael J DeMarco, President and Chief Operating Officer. Please go ahead, sir.

Thank you operator. Good morning everyone and thank you for joining the Mack-Cali 2015 fourth quarter earnings call. This is Mike DeMarco, the President of Mack-Cali. I'm joined today by my partners Mitchell Rudin, CEO; Tony Krug, CFO; and Marshall Tycher, President of our Roseland Subsidiary.

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 assurances that the anticipated results will be achieved. We refer you to our press release, annual and quarterly reports filed with the SEC for risk factors that could impact the Company.

As disclosed last night, our results show we had another excellent quarter. Our initial hard work is taking root as we move quickly and effectively on announced transformation. While this is a long process, we have made significant progress over the last few months and we'll continue to make meaningful changes in the near future.

As always, we look forward today to an open dialog about our results and plans going forward. We filed expanded disclosure about our operations in two supplementals. One for Mack-Cali's office portfolio and one for Roseland Residential Trust, our residential subsidiary. We will be referring to key pages in those supplementals during this call. And always, we'll continue to provide the best disclosure for operations, strategy and results.

We're going to break the call down into the following sections. Tony will recap our operating results for the quarter and year; Mitch will then discuss our office leasing results and our views of the markets; then Marshall will provide an overview of our multi-family operations. I will then provide an overview of our capital market activities, comment on our views of our guidance and strategic plan before we take questions.

Before I turn the call over to Tony, I'd like to share the following thoughts with you. Of having the opportunity to meet with many investors over last several quarters, we are well aware of the four primary concerns regarding operations which are as follows. One, the success in execution of operating plan is based on a number of real estate and capital market activities including leasing, sales, equity raises and development. We are pursuing each of these activities actively and you can see that we have made tremendous progress on a number of those fronts.

Two, we are over leveraged. We are working towards reducing our net debt to EBITDA ratio in 2016. We truly value financial flexibility and will align with you on this issue. That said, delivering that type of flexibility will occur if we've asset sales and improvements in operations. Both of these will occur in 2016.

Three, we have a complex story. We believe that our story gets more transparent each day. We have started the process to simplify the complexity and realized our potential value. Fourth and last, there is a perception that New York is slowing down and therefore New Jersey will suffer. Our current results and robust leasing activity do not support that logic.

We are also aware the marketing decisions that are affecting the REIT industry over the last several weeks and the foreseeable future. While we cannot control market volatility and equity in sort of credit conditions we believe we have made the correct adjustments to our corporate strategy. We've outlined our progress in our supplementals and will go over into further details in our prepared remarks.

I'd now like to turn the call over to Tony, who will go over our quarterly and year-end results.

Thanks, Mike. With respect to earnings, as indicated on page 8 of the supplemental, FFO for the quarter was $46.9 million or $0.47 per share as compared to $34.1 million or $0.34 per share for the quarter ended December 31, 2014. For the year-ended December 31, 2015, FFO equaled $188.1 million or $1.88 per share as compared to $162.7 million or $1.63 per share for 2014.

For the current quarter compared to last year, the increase in FFO per share resulted primarily from severance costs of $0.13 in 2014. I would like to take this moment to go over 2015 activity. As we've mentioned in the past, the Pearson Prentice-Hall lease ended in the first quarter of 2015 and we disposed of a number of assets through the remainder of the year. Even with the loss of revenue from the lease and sale of assets, we ended the quarter with core FFO of $0.47 per share, flat to the same quarter last year and we are well positioned for improved results in 2016.

We reported net loss for the quarter of $31.7 million or $0.35 per share as compared to net loss of $9.2 million or $0.10 per share for the quarter ended December 31, 2014. For the year ended December 31, 2015, net loss equaled a $125.8 million or $1.41 per share as compared to net income of $28.6 million or $0.32 per share for 2014. The net loss for the year was caused by $197.9 million of impairment charges on properties currently being considered for sale, which are part of our recently announced strategic initiative.

Same-store NOI was up 5.9% on a GAAP basis and 3% on a cash basis for the quarter, ahead of our expectations and due to both better leasing results and expense savings. Total Company G&A for the quarter was $12.6 million with $10.3 million for the office public company and $2.3 million for our multi-family subsidiary. For the office public company, G&A was 1% of total assets, and 7% of total revenues. For the full year of 2015, G&A for the office public company was 1% of total assets and 6.7% of total revenues. We will continue to focus on G&A expense as we streamline our portfolio.

Turning to our balance sheet, as indicated on page 22 and 23, our total indebtedness at year-end was $2.2 billion, with a weighted average interest rate of 5.2% and expect to reduce that to approximately 4.6% after we address maturing debt in 2016. Net debt-to-EBITDA annualized for a quarter was 7.7 times. We had a fixed charge covered ratio of 2.4 times for the quarter and interest coverage ratio of 2.9 times.

Our $600 million credit facility had a $155 million drawn at year-end but was only a $100 million drawn as of today. We will draw on the line to fund some of the opportunities that Mike will cover in his capital markets overview. Also, I would direct you to page five in the supplemental, where we provide a sensitivity analysis of the potential effect to net debt to EBITDA based on some of our planning steps.

I will now turn the call over to Mitch.

Tony, thanks. Our leased space at December 31, 2015 increased to 86.2%, up from 85.8%. The 40 basis point increase was driven primarily through positive leasing absorption with a 10 basis point contribution from acquisition activity. Let's now turn to the leasing results for the quarter, as indicated on page 11 of the supplemental.

We signed 88 deals totaling almost 900,000 square feet; a 180,000 square feet of the leasing coming from new leases and the balance of 720,000 square feet from renewals. For the full year, as indicated on page 9, we completed 443 leases totaling just under 4 million square feet; of which 1 million square feet were new and 3 million square feet were renewals. This result represents the highest annual leasing activity in this portfolio in the last 10 years.

Topping the list of the quarter's significant transactions was a 350,000 square foot renewal with Vonage America for their corporate headquarters in Holmdel, New Jersey. The lease which would otherwise have expired in 2017 was extended to late 2023. Other notable deals included new leases with the Ascensia Diabetes Care for 44,000 square feet and a 54,000 square foot renewal expansion with Coyne Public Relations both in Parsippany.

Lease rate roll for all fourth quarter transactions, as shown on page 12 of the supplemental, was a negative 0.5% on a cash basis, but a positive 8.3% on a GAAP basis. Lease spreads for renewals were down 0.1% on a cash basis and up 9% on a GAAP basis. Based on our analysis and initiatives, we feel that we can continue to improve our occupancy over the next four quarters by aggressively marking space in our existing buildings, selling buildings that are underperforming and selectively adding buildings that have superior occupancy, such as we have done in 333 Thornall in Metropark. We believe we can achieve year-end occupancy of 89% or possibly even higher.

As we look to 2016, on page 11, our expirations are quite manageable. 1.6 million square feet expire in 2016 and the square footage is spread evenly across all four quarters. Our view today is that we are likely to retain 60% or more of our expiring leases that will leave us with about 640,000 square feet to backfill. We have just 300,000 square feet expiring in the first quarter, and as of today, we know approximately half of that is renewing. We are working on several new leases that total almost 250,000 square feet.

As indicated on page 6. In 2017, we expect that roll over predominantly in Jersey City, will allow us to increase rents in some of our best buildings. As discussed, we renewed 350,000 square feet of 2017 expirations in the fourth quarter. As of December 31, our total exposure in 2017 is 3.6 million square feet of which 700,000 square feet is in buildings we planned to sell. We expect to finalize 400,000 square feet of renewals in our core and Waterfront markets soon.

Of the remaining 2.5 million square feet, 800,000 square feet is on the Waterfront and 700,000 square feet is in flux space, which historically has had a high retention rate. The balance of 1 million square feet in our core portfolio is predominately tenants under 10,000 square feet, which we'll address on a quarter-by-quarter basis.

Our core portfolio is 9.4 million square feet, so we're working with a very manageable 10% for 2017. Across all our properties, we're currently in favorable negotiations with over a million square feet of tenants. That iceberg that was 2007 expirations is slowly becoming an ice cube and the results look very positive. Looking at the markets, the activity in both the Waterfront and in Parsippany continues to be very strong. Leasing velocity was particularly heavy in our Parsippany portfolio in 2015 with over 0.5 million square feet of leases signed, more than half of which were new deals.

Jersey City is on its way to becoming the largest city in New Jersey and one of the best mid-sized cities in the United States and we're benefiting from that momentum with unprecedented activity in excess of 1.5 million square feet of either leases out or proposals on active discussions. We'll likely get close to 90% for the Waterfront by the end of the first quarter and possibly mid-80%s for Parsippany by year-end 2016.

Other markets where our core properties are performing very well include Short Hills, Metropark, Princeton, and Monmouth; all with occupancy at approximately 90% or higher. Our Flex business continued its consistently strong performance in 2015 with over 900,000 square feet of leasing activity and an increase in space leased to just under 92%. It continues to have yearly rental increases of 4% per annum with low CapEx requirements.

Lastly, as we discussed, weather in New Jersey will slow down in the upcoming quarters. I'd like to refer you to page seven of the supplemental. The New Jersey grow incentive programs can make the move to New Jersey essentially free to relocating tenants. Typical New York tenant looking at the Waterfront today lasted a deal 15 years ago. Rents in New York, as we all know, have changed dramatically in that time frame.

And now with that, I'll turn that over to my partner, Marshall.

Thanks, Mitch. I'd like to give a brief overview of Roseland, our multifamily division. As Mike mentioned, we filed an expanded supplemental this quarter to help promote better understanding of our residential business. To further facilitate disclosure transparency and capital flexibility, we also formed Roseland Residential Trust on December 31, 2015, a distinct subsidiary of Mack-Cali [res] Mack-Cali.

Roseland Residential Trust execute all of Mack-Cali's residential activities, including the build out of Roseland's current residential land portfolio, repurposing and conversion of non-strategic Mack-Cali office assets into luxury apartment communities, and the sourcing of new marketplace development and acquisition opportunities. Roseland has grown from an initial Mack-Cali investment in October 2012 of $115 million to a current NAV of approximately $1.1 billion. 90% comprised of consolidated or joint venture interest and almost 75% concentrated in the New Jersey Waterfront and Greater Boston regions.

Our platform, which is owned asset-by-asset by us and our various JV partners has a gross value of approximately $4.5 billion. As reflected on page eight of the supplemental, we have achieved growth across key financial metrics over the last three years and in addition, continued growth over the next three years.

As highlighted on page 10 of the supplemental, we have made progress on turning our substantial 19,500 unit apartment portfolio into operating assets. As of December 31, 2015, this portfolio was comprised of 5,640 operating apartments, 2,570 apartments under construction, 1,900 apartments were scheduled 2016 starts and a future land development portfolio of 9,380 units.

I'd like to share additional activities that we undertook during and after quarter end. We purchased from our partner UBS, their senior 50% interest in Chase I, a 371 unit recently stabilized apartment community at Overlook Ridge, a Roseland master plan community five miles north of Boston in Malden. The subordinated interest that we carried on our books were $2.3 million and was valued by UBS at $11.6 million.

When applying our subordinate interest value, our purchase of this Class A asset represents a 5.7 capitalized rate. Our leverage yield at replacement is $72.5 million at fixed rate debt will exceed a 14% yield on a $20 million net capital investment. With the acquisition of Chase I and the third quarter construction start of the adjacent 290 unit Chase Phase II coupled with Roseland's ownership at Altera, the Company will own a 100% of 1,385 units at Overlook Ridge with adjacent development right for an additional 750 units.

Also in the fourth quarter, we started two new developments. Portside parcel 5/6, a 296 unit apartment development in the east end Waterfront directly across the harbor from downtown Boston adjacent to our recently stabilized Portside at East Pier and [signature place] at Morris Plains, a 197 unit apartment repurposing start at 250 Johnson Road.

As highlighted on page 13 of the supplemental. We've made significant progress on our repurposing activities including that recent start, I mention at signature place; the 2016 scheduled start of 150 Monument in Bala Cynwyd where we received preliminary site plan approval and the near-term start of 233 Canoe Brook Road next to the mall at Short Hills, which now has [earnings] approvals in hand for 200 apartments and a 250 key full-service hotel.

As part of the Short Hills redevelopment, we will be remodeling our adjoining 250,000 square foot office building at 150 JFK Parkway. This combined office, hotel and apartment community will be one of the premier mixed-use developments in Northern New Jersey.

Looking forward, in 2016, we are scheduled to deliver 1,182 apartments to the market, including Marbella Phase II in March and a 311 unit residential tower, which we own 24%, Quarry Place at Tuckahoe in the second quarter, a 108 unit property where we own 76%; and URL at Harborside in the fourth quarter, a 763 unit, 69 story residential tower which we own 85%.

The opening of Marbella II and URL will further advance our leading presence in the Jersey City market where rents continue to increase and valuations are 600,000 [a unit] and a sub-4.5% cap rate. We are also advancing conversations with multiple joint venture partners to convert our existing subordinated interest in operating holdings to heads up joint ventures, which will correspondingly improve our residential cash flow.

I'll turn the call back over to Mike for some closing remarks.

Thanks, Marshall. Moving on to guidance, we expect full year 2016 FFO to be in the range of approximately $2 to $2.10 per share. We're not change our guidance at this time and expect first quarter to be approximately $0.45 to $0.49 of FFO per share.

As indicated on pages 15, 16 and 17; we gave you some updates to 2016 assumptions, which I'll run through as follows. One, the percentage of leases increasing to a range of between 88% to 90%; our leasing activities increasing, as Mitch commented, the Waterfront and several other markets are strengthening each quarter. Two, same-store NOIs is [creasing] to 2.5% on a cash basis and 6% on a GAAP basis, we're driving rent on all assets. We've achieved these results in the past quarters as indicated in page 20 of supplemental.

Three, non-core asset sales of $750 million, which is the midpoint. We have $450 million predicted for the first half of the year, we're in the process of signing definitive sales contracts of approximately $400 million to $440 million, as of today with a cap rate of approximately 5%. In addition, we have about $300 million slated for the back half of the year, at an estimated cap rate of 8.5. The blended rate on the entire $750 million is approximately 6.5%.

Development expenditures; soon starts to seven multifamily projects in 2016, the projected costs of these starts are estimated to be $633 million, with our capital requirement at $167 million. In addition, there were eight projects currently under construction, including three starts in the third quarter, and two starts in the fourth quarter. Our estimated remaining capital for these projects is $81 million. On average, we expect the [construction] projects to be financed 55% debt to equity with some JV partner equity. As outlined on page 18 of the supplemental, our total unfunded equity to be incurred in 2016 as of today is approximately $160 million.

Five, we assume we raise $350 million of joint venture entry-level equity for Roseland by the end of the second quarter to early third quarter. The marketing process is currently underway. The current public market volatility is not affecting our efforts to date as our prospective partners have a long-term view on that subject to the daily mark-to-markets. We will have a further update on our next call for the first quarter.

Six, corporate financing; as you all know, we obtained a $350 million, five-year unsecured term loan, interest rate was 3.12%. We swapped it to fixed. Proceeds were used to pay down the $200 million 5.8% bonds in January and we paid the outstanding credit line facility at that time. We also now plan to pay down high cost debt with this additional processed during the course of the year. As Tony mentioned, in order to bring down our overall cost of debt.

Seventh and the last point; our multifamily deliveries as Marshall mentioned will be 1,182 units, three projects, Marbella, Quarry Place, URL. The rental market, as Marshall mentioned, continues to improve in Jersey City. The underlying fundamentals are excellent. We expect Marbella and Quarry Place to begin to contribute to earnings in the latter part of the year. You should also note, our sources and uses are presented on page 18.

We're now prepared to answer any questions during the Q&A. I'd like to turn it over. Operator, we'll take the first call.

(Operator Instructions) Manny Korchman,Citigroup.

Good morning guys and thanks for the increased disclosure. Just if we can focus on your comments on the relationship between NYC and New Jersey and maybe tie it into your expectations for 2017 renewals at Waterfront, where are those tenants coming from and are they, in your conversations with them, is it the New Jersey incentives that are drawing them there? Is it something else and can you give us some flavor of at least the type of tenant you're talking to in New Jersey?

Yes, Manny. I'm going to do first and Mitch will do second because we both deal with his all the time. What you're seeing is and we talk about it every day, tenants from 15 years ago who're rolling off; so they did a deal in 2002, 2001, maybe had a 12-year deal, are rolling out to a totally different environment in New York City today. So while people comment about cooling down, you really have to look at the run-up in rates to corporate tenant experience, but the number of tenants across and all the industries in terms of the mix now is much wider than what we seen in past. You used to just see the back office to the banks. We don't see that anymore. Mitch, do you want to comment?

Yes, you're also seeing; in addition to what Mike indicated Manny, expansion because the expansion alternatives in New York are similarly so expensive and when you look at that grow New Jersey program, in addition to our rents without the program being anywhere from $20 to $40 less a square foot; you add that program in, it could add another $20 to $25 to that. So they're really compelled to look at that, both front office and operations.

And Manny, one last point is people may have noticed, The New York Times ran a very nice article about Jersey City; it's not just a place to put people to work, it's becoming a place that people want to live and actually conduct their activities after work, so we find that's another thing. So you really get to pick-up an activity when people feel they can attract and retain talent by putting people in an office environment that they want to be in, which is what Jersey City has become.

Great, and then if we think about your disposition plans, has the market volatility changed your timing expectations? Are you trying to get assets out there sooner? It seems like you've accelerated the process a little bit.

No, we had the same proposal that we inducted on our Investor Day. We told you, we move quickly, people doubt that we moved that quickly, I guess because of past experience, but we have lived up to our expectations. We started the process after Investor Day.

We contracted with six different firms and the first books we put out were the ones that did least asset management, so we could get the highest value-price and take the least market risk. As everyone knows, there is commercial mortgage [the way] we report it on one deal in DC, we've another building in DC and we have one in New York that will be going to contract relatively soon.

After that we're now engaging in conversations with a number of other parties with other assets that we have on the market. We want to get through that as quickly as process and then look at a second round of possible dispositions on that apartment. That -- one thing, we made this is comment on the road, our expense reduction and our asset discipline wasn't a one shot deal for us. It's an ongoing monthly, quarterly process. So you can expect us to constantly look at what we own, to see if it's the right thing to own and we're going to constantly look at our expense structure in relationship to what we own.

Great, maybe my last one for Marshall. If we think about Roseland, RRT in the future; are the deals going to lean towards being more wholly owned or still within JVs?

We're definitely heading more towards wholly-owned assets and even when we do JV, we're doing them in a heads-up basis. So we've not entered into any new subordinated joint ventures since we began this discussions at Investor Day. So for the most part, we're trying to be smart about use of capital, whether we do it as a heads up joint venture or a wholly owned, we will only be doing where we have a -- with nobody in front of us on cash flow.

So we're going to maximize the yield for our capital invested. Clearly going out with Eastdil Secured to raise new equity capital and an entity level, it's our anticipation that we'll almost exclusively wholly owned once we've recapitalized the trust with new investors.

John Guinee, Stifel.

I'm also looking at page 18, which is I think where you guys finished up. If I look at $180 million of FFO; $180 million to $200 million net of dividend, that's about $120 million to $140 million. And then I look at all the CapEx, you've got to spend, based building CapEx, non-incremental and incremental leasing costs, that's about $140 million to $165 million. So essentially, core FFO is not covering all those costs this year, do you think you can cover those costs next year?

John, it's a one-time event for us. When you leased up from a low level that we were at, John, the 82%, 83%; you have to spend money in order to get to the new level. So this year it's a kind of win/lose situation. The winning is, we're going to (inaudible) and occupy it. The losing is we have to expect some capital expenditure to get there. But we have the resources; that is one reason why, as we commented on Investor Day, we cut our expenses down in order to create the cash flow so we wouldn't have this problem.

And that money gets phased in over the course of the year. But at the end, we wind up with -- we predicted when we took over the team that have earnings of $1.60 to $1.65, we think we'll be at $2.05 to $2.10. So that $0.40 came through the extra leasing and that leasing has some cost to it. But the leases we're signing are longer in terms than what we've done previously. So we believe this is -- be a (inaudible) over long period of time.

Okay. And then, the second question. It makes all the sense in the world to monetize or to recapitalize Roseland as a separate subsidiary and then the uses associated with that. But one thing that I'm struggling with or maybe you could help us a little bit more is with $700 million to $800 million of office sale proceeds which still feels like a better time to be a seller than a buyer, and then $500 million to $600 million of office acquisitions and $335 million to $355 million of other; reduction of debt being the obvious. Why isn't it more like a couple of hundred million of office acquisitions and much greater reduction of debt.

The problem we have, and we've talked about this internally. We would love to reduce debt more significantly, we think it will be the next wave of things we do. At the stage we are now, we have a strategic plan that entails having a focus on the Waterfront. It's hard to pass up an opportunity on a Waterfront as they come up and not fulfill that plan.

But what we're not going to do and I made it very clear, we're not going to Stanford, we're not going to Philadelphia, we're not going to [Greenwich]. We're not going to any market that we haven't already expressed an active interest it and that has to have a certain threshold in order to [judge] that for us. So the acquisitions today are really a holding place and we will reduce debt. Also our debt isn't that easy to pay down.

We have a lot of longer-term bonds with some heavy prepayment penalties on them. So we're looking at the latter part of the year, we got a shot at doing [approval], which has a six handled piece of paper to it, we'd love to get rid of that one and we have some other things next year. But you'll see us over time, reduced debt and have more financial flexibility.

My coverage problem doesn't exist. I cover our debt and we'll cover it better as the quarter goes on, because we're getting increased operations, we are getting lower cost coupons, because we'll be repaying. What people have a problem with is the net debt to EBITDA, which we also have an issue with. That is effectively influenced by how much CIP we have. So we have to make our developments in Roseland which then pay off, we think, handsomely at the end, but in the interim, we carry a slightly higher debt level, which we now plan to basically reduce as we've laid out, through a series of steps.

But your point is absolutely in a range of conversations we have at the Board, where we look at what we manage from earnings, we'll look at what we get form growth and the opportunities it has to create a Company at the end that we get the highest value and that's what we balance.

Jamie Feldman, Bank of America Merrill Lynch.

Hey, thank you. I guess, sticking with John's question on CapEx, what do you think CapEx for the portfolio would look like in a normalized year, call at 2017 or 2018?

We'll have a much smaller portfolio of assets and we believe that buildings that we currently will have at that time [while] lower CapEx requirements, we suffer as, and we've been very honest about by -- and inheriting a portfolio as a team that had somewhat benign neglect, maybe not even benign, just to neglect. So therefore, we've been spending money in order to bring those assets up to speed.

We would expect that CapEx requirements will ameliorate down with base building might be $20 million to $25 million and one thing that Mitch and I didn't mentioned to date so far is that our concession package is going down. One of the ways we've been able to raise rents is one way and the second is the concession both on free rent and then also what we've been expending out to tenants has also come in.

Jamie, it's Mitch. One other [conscript] and this is you know of the expenditure, but the promise of the expenditure of CapEx that's been on deferred maintenance. We're seeing an activity which we'll be likely announcing at the next call if not before on space that's been sitting vacant five and six years. So, there is that huge opportunity cost all those years of not expending it.

Okay that makes sense. On RRT what are you thought here on an eventual spinoff of the entity?

Well, we've always been about options. So, everything is on the table with us, we've always said that. There is a process upon which you go to, which is to create the value in order to maximize and so you can have the option you want. I have a quote that I use all the time, objective stay the same, our options change every morning. So the spinoff is one thing. There is a number of other things that we could do in addition to that in order to get the value, but it's on the table.

And we're laying it out, so we can showcase it, raise financing on it, raise equity at that level to allow us to basically realize what we think is the inherent NAV. As Marshall mentioned in his comments, we started this process at $115 million acquisition three years ago, just a few months ago and we've actually grown this business into a real platform. Roseland today, as you look at it at a [gross of] basis controls a portfolio that has about $4 billion of assets, and when we blow this thing up into its fully matured state, it's going to be one of the best multifamily platforms in Northeast by far.

Okay. And then I guess internally at RRT, are there any other personnel changes or they are going to have a standalone board or any other changes we should expect here?

No we have some governance issues; we'll have to deal with raising a partner. We don't think that'll be substantially different than what we run our business today. We'd still be the 80% owner, so therefore we would be tactically in control, but we'd have a partner and we will fulfill our partner responsibilities.

Okay, and then we heard Forest City yesterday talk about starting a new project in Jersey City on the residential side. Maybe just some thought on the supply side in Jersey City?

I think I'll turn this over to Marshall, but the space get quickly absorbed. It is a market that is raising in rate and deliveries are being well absorbed, but Marshall?

There is certainly are a number of starts in Jersey City. It is most active submarket in the state. And it's done quite well based on which we have all seen is continued growth in the office market and continued on unaffordability of Manhattan. Jersey City actually, probably now, is a destination that the New York young populous is willing to live in. That used to like, just want to go to Brooklyn, but now Jersey City is experiencing the same type of immigration and migration of new residents. The last couple building that have opened have leased 50, 60 units a month; fantastic pace.

So we haven't seen demand slow. It is a lot of units. We'll have to see if it has that [contained] of velocity of lease-up each time a building opens. But up to now, leasing velocity has been spectacular and rent growth has continued to persist. So I think, as long as the overall economy stays as it's been, relatively consistently as it's been and the New York State is unaffordable as it's been, you'll continue to see a sub-market like Jersey City thrive.

Jamie also, if you look at AvalonBay's last supplemental, they bought a building in Hoboken recently at just around $600,000 a unit and then we have the [notice] as we looked at it through the brokers that we do it, it's a sub 4.5% cap. I don't think they would purchase that if they though the absorption in the market was going to be off to what they currently envisioned.

Okay. And then last question from me, just. So you talked about incentives helping Jersey City, but maybe if you could talk about Parsippany and Metro Centre, like just some of the other Jersey sub-markets and what you are seeing in terms of demand and what your thoughts would be if you do see a slowdown in New York, how those might be impacted?

Let me deal with the last, first, which is this implication that there is a slowdown in New York and that may extend to New Jersey. First of all, we're the largest owner in this state of commercial property. So, we've got a pretty good take. We have unprecedented activity and we have people who have been involved with the leasing of our portfolio for over 15 years here.

I had mentioned this related to the Waterfront, 1.5 million square feet. I could've easily have said almost 2 million, but that's -- on the incremental 0.5 million square feet, we didn't have the same degree of confidence. We're seeing activity at high levels across our entire portfolio and so that's as it relates to us. As it relates to the market, the brokerage firms don't always agree on everything, but if you read the reports of each one of the major firms in the state, each one is optimistic and are talking about being poised for continued growth that they anticipate 2016 to be a good year.

And then lastly, going to that position about what's happening in New York, when you look more closely at some of the statements that have been made, every person has said that activity is strong, going into this year. There have been questions about the latter part, but in terms of the activity that are being seen in terms of both the ownership side and the brokerage firms, they're all quite busy right now.

Jamie, one comment on Metro Park in particular, we bought a building recently, as everyone knows, we closed on the fourth quarter, we had prescribed a $32 rents, we're signing deals at $35 in the two buildings we have now. So we've seen a pickup in activity, we've seen a pickup in rents. We'll actually -- probably be a 100% occupied in the two buildings that we currently have. And we see the same activity of pick up in places like Parsippany and obviously Short Hills and Princeton and Monmouth, where we do business in.

So we've seen actually good underlining foundings. The big thing to remember is, when we shift the non-core out and we reposition other assets during the course of year to [Roseland] business, the buildings that were left is indicated in the supplemental, have a high degree of occupancy. And the leverage therefore goes to us as opposed to the tenant. When there is 90% or 88% or 89% occupied, you have a little bit more strength than you to do 82% or 78% or 77%.

So I guess, how much of the demand you're seeing is, as you've got kind of a new approach to managing these assets and running these assets as opposed to actually tenant growth, job growth?

It's a combination of two things. We're opened for business and we're being more selective about what deals we do. And then also the portfolio certainly change, as I said, we've dropped the bottom out either through sales or repositioning. So the core that's left is asset that we could work with. We're actually eliminating our problems as opposed to creating them.

Jamie, it's Mitch, let me follow on this. On an earlier call I had indicated in sort of a bad news/good news scenario that when we looked and aggregated, we sufficiently were underperforming the markets we're in. As we've gotten more selective and as you look to 26 and 27 of the supplemental, in our core markets we are 600 basis points over what the market is. So when we apply ourselves and we have the benefit of what I indicated earlier of size and people wanting to do business with a large credible institutional owner.

Jim Sullivan, Cowen & Company

I wonder and these questions are directed to Marshall. Marshall, we've been hearing this quarter in some of the calls some cautionary comments from some of the apartment REITs about the outlooks for Northern Jersey for 2016. And of course, there was an earlier question about the supply numbers that you guys answered. I'm just curious if you can tell us you view as you assess the outlook for the different markets; Boston, New Jersey, DC; what your expectations are for revenue growth, expense growth and the resulting same property NOI growths for the year?

I think those concerns are certainly legitimate. I mean, there has been more starts in the Northeast in the last couple of years than it had been in prior years. And certainly, we've had a nice run on the economic side as far as job growth and apartments certainly track that to some extent. So to the extend the same-store rental rates and occupancy have grown each year, I guess the outlook of leveling off is fairly realistic.

A lot of the properties both in our portfolio and others have also been suffering the cash flow fight of tax appeals with the various jurisdictions they're in. So some of these properties actually are showing, I know with Avalon as well, some flat income and part of it is subject to tax appeals they've been filing. All these municipalities have been aggressively reassessing and owners have been aggressively fighting back. But it takes time and so those have been an impact on cash flow as well.

So, do I think it's going to stay as strong as it has been the last few years? I don't think anybody thinks it's going to continue at the exact same line it has for the last three or four years, just because of the number of starts and a slight slowing in the economy. But I don't think anybody is looking for anything dropping off a cliff. I mean, maybe rents are going to flatten out, occupancy might lower a point or two. I think New York had a big burst of starts because of 421-a. So that will also add some [immunity] to the market that otherwise wouldn't have been there, but I think it will be relatively short-term for most of these sub-markets.

But maybe just to be clear. Are you projecting same property NOI growth in each of your major apartment markets or are you projecting a flat same-property NOI growth for this year?

We're expecting a slight growth in this year.

Okay. And maybe if you could clarify something, in the prepared comments, when you talked about the Short Hills project. I think you used a phrase that you had the approvals in hand. And I understand that's a variance free project or a proposal. But if you could clarify, there have been some continued hearings in the township, I guess, over that project. If you could talk about what conditionality if any there is on your 2017 target start date. And just a broader topic of repurposing, there is a project in upper Saddle River where you could have sensitivities in the tenant for this kind of project. How confident are you that you're going to be able to do both of those projects?

As I mentioned before, I'll start with Short Hills; my comment was that zoning is secured and the [land use] process in New Jersey and the most of the states we work and of course, you have a master plan, then a zoning plan, then a site plan approval, all from a municipal level as well as other state and county permits.

In Short Hills, we did change the master plan in Short Hills and re-zone the site. Both of those approvals are complete. So we are now in the site plan application process. As you mentioned, it is variance free. So ultimately, the municipality will grant us a site plan approval. It is controversial. We do have residents with concerns and most rightfully so and we're responding to those concerns in the site plan approval process.

We ultimately will secure an approval. It will have conditions and we'll meet those conditions that we can get a start. So we're very confident in our Short Hill schedule. Repurposing is an interesting business, it does involve the public. It is a land use process. As you noticed in our earnings calls and in our reporting and Investor Day, we never tell you about a repurposing until we have something to tell you about, because it's a moving target on timing and public process.

So Upper Saddle River, we've been negotiating a settlement with the town of Upper Saddle River. We're very close. We're actually papering that now. So we do believe they will be able to settle that with Upper Saddle River and complete an approval. Short Hills as you've mentioned as well, as you've seen we just completed a preliminary site plan approval in Bala Cynwyd, which is part of a repurposing project there.

We've got five other active repurposing cases going right now. We're not going to report on those yet, because we don't want to tell you anything that we can't deliver. But it is a process, it does have a lot of ins and outs and we're very comfortable that the projects we've embarked on at some point will get approvals. So it's a hard quarter-to-quarter topic to guess.

Okay, that's great. Thanks for the color, Marshall.

John Bejjani, Green Street Advisors.

For the $300 million of additional sales that you formally out to guidance, how does the 8.5% cap that you've suggested, is that any different from what you might have expected a few months ago?

Not the same, it's about 30 assets, John. So you're going to have pluses and minuses. We get some surprises occasionally. We get some disappointments occasionally also and they tend to bounce out. The 8.5% cap also is -- it's going to be a mixed bag because you have buildings that have not great occupancy, so the 8.5% -- you could have a cap rate lower than that; you could have cap rate slightly higher than that that blend to 8.5%. We still feel pretty good about it. We went out and got brokers opinions on value before we start with the process, which enables us to have some view and we're monitoring it now and on the next call, we'll give you more of an update as we get further into the sales process.

Okay. So it sounds like you anticipate selling most of this $300 million on a piecemeal basis as opposed to a portfolio sale?

Yes, it's being done piecemeal, we're going to target the highest price per property.

Okay, great. And then -- so just looking at your guidance, your operating guidance, you expect 2016 year-end occupancy and same-store NOI growth to pick up notably, relative to your last issuance of guidance. Understood that most of this is due to solid leasing pipeline, but how much of that is due to just the new planned asset sales and a changing of the pool?

Two things, when you get rid of the bottom, you can increase the averages that you get on the top, because they're just better performing averages, right. So by facing the facts and selling the assets that we don't want to own, but ones we do own, the reason why we do want to keep them is because they perform better. So to answer the question, it's largely that reason.

The second is, we get better performance on individual leasing activity and as we get back into the latter part of the year, we believe we'll get more and more occupied on buildings and we're experiencing some rental growth in some key markets.

Okay and then just lastly, so the increase to your planned equity raise at Roseland. What drove this? Is this a desire to sell more of a stake? Is this just better investor interest than you thought or why the change at this time?

Well actually we're aiming for 20% and we contributed more equity to Roseland during the course of this period, and that just equaled out to the number that we came back to. We always said 20%, if you look at some of the contributions we made including Chase I that we did in the first quarter and some other starts, we put more money in. So that just came out to the same percentage.

Okay, great, thanks a lot.

Gene Nusinzon, JPMorgan.

Hey, guys. The net debt-to-EBITDA projections, does that include CapEx, on development and leasing?

Yes, the projection that we presented on that page has the kind of base building CapEx and the leasing CapEx.

Okay, thank you.

Manny Korchman, Citi

So, I had a question on guidance. I guess you kept the guidance the same, but you have dispositions that are ramping in higher acquisitions, can you give us a couple of just goalposts in terms of how much dilution there is in the 2016 numbers from the disposition plan on an annualized basis. You're talking about almost $0.50, and then how much accretion there is from the acquisitions, because that too on an annualized GAAP FFO basis approaches $0.50. But clearly, the timing of when you buy versus when you sell would have a dramatic effect on ultimately the range and where you head into 2017. So can you put some parameters around that for us?

If you looked at our overall thoughts as we went into this process, we should be thinking about increasing guidance if we were in a steady state portfolio right, because as Mitch pointed out and as Marshall pointed out and Tony commented about reducing of even interest expenses and the underlying leasing, you would say well, these guys [will not] the numbers.

But because we're in a transformational process, as you pointed out, everything is going in and out, which then leaded to let's say what's the net effect. So we looked and said, do we feel comfortable that we'll be between $2.00 and $2.10. We spend a long time coming to conclusion that it's an emphatic yes.

Then we look and said, what is the negative of when things are sold? We viewed the market being somewhat tumultuous as everyone has. So we want to get ourselves done first. If we can't find anything to buy, then will pay down debt or will hoard cash in the interim. We think there are some things that we might want to purchase and might come our way. And therefore, we'll have the ability to do something that will be accretive to our strategic numbers and also accretive to our strategy that are coming together.

And you pointed out, yes, the sales are (inaudible) we take them all down, we have to pay down debt. Correspondingly, we balanced the acquisitions back in, some of it's -- the [mark] that we put into Marshall's business and some of it is deals we already did, For example, Thornall and Chase I were both fairly accretive that we did last quarter. So we have a goal of basically walking a tight line on basically selling things as quickly as we can and then prudently putting out the capital if it makes sense to us to get to that range of $2 and $2.10. We believe today we have that ability to do so.

Maybe we can tack it from a different angle, where would you -- let's assuming you sold all the assets and you bought all the assets you did, what's sort of the run rate heading into 2017 putting aside the operational benefits and interest expense savings you talked about just so that we understand a little bit about where those numbers shake out and then if you can't buy or you don't want to buy.

Right. They should be flat with what we sell at a blend of 6.5% and what we buy could be essentially about the same. Well you'll only get a benefit of the lease up in the quarters which come in throughout and we have a lot of progress in that net number. So our fourth quarter run rate, when you look at it, gives us a very high number going to 2017.

We realize what it have to -- if we want to do what we really need to do, we'll be taking these types of same situations, taking leasing up, taking some of the profit and using it to basically pay for things that we need to get rid of in order to get to a portfolio that gets the right valuation. If you look at our numbers on a valuation basis, if you back out the sales that we've committed to, the [number the] 750 and then you put in what you still thinks the Marshall's platform or the Roseland platform is worth which is $11 to $12 and you apply a 6% cap to Jersey City in our Flex business, which is really where they should be. The core suburban sells at a 29% cap rate. So, the things we need to do in order to get our valuation correct and (inaudible) walking through.

Right. And I would assume just from an earnings perspective if you decided that you don't want to put $600 million to work in acquisitions or you didn't find the deals that you want, you pay down debt in sort of the [four to five] range, you deliver at a more quicker pace and earnings are just modestly lower and you [want to] have the capacity at some point to go out but clearly, there'd be a little bit of an earnings drag at least in the interim.

We laid an option. So, let's say we're unsuccessful in raising equity, which we don't think we will be, we could use the sales in order to find the Roseland platform. As I said early in the call, objectives stay the same, options change every morning, right? Conversely, we raised the equity. Now we look and say okay, do we paid down debt (inaudible).

We have some other piece of debt that we think we can get rid of that all have high coupons to them. So it's actually, net-net they're basically neutral. It's the latter part of the sales, the back-end [last $300 million] that I would take dilution on if I didn't use it to do something, we'd probably be housing cash.

Right, which is deleveraging and (inaudible) the balance sheet. And if we just looked at the core operations, put all this transaction activity aside because sometimes people don't see through, effectively at the same-store guidance range, if the same-store pool stays the same that you had at last time, you're talking about a 250 basis point increase, that like $7.5 million, $0.07 to $0.08 a share and then given this attractive financing you did in January, you're saving another $0.03. So all else being equal, would have guidance gone up $0.10 if you were aggressive at selling assets sooner and at better prices than you originally thought.

Another way to look at it -- if we had done the sales last year, we'd be up $0.10 on a same-store basis, your numbers are correct, maybe even slightly more than that. Every 1% of occupancy is about $7 million to us or $0.07. It gets better in Jersey City. If you get rents at $39 to $40, the number actually goes to $0.085 to $0.09. As we lease up, and we've talked about it, we could actually be full in Jersey City under some scenarios by the end of the third quarter which will be synergically, obviously more than we expected.

John Guinee, Stifel.

On page 42, you've got us some debt that looks like it's about to go back -- the assets are about to go back to the lenders 6 Becker, 85 Livingston, 75 Livingston, 20 Waterview, and then maybe 4 Becker. Are you including those assets in your asset held for sale numbers or in your disposition numbers?

No, we're still working out something with the lender. Maybe favorable, can't comment on it now. Likely first quarter and I think you'd view it positively that did occur.

And it appears we have no further questions at this time, I would like to turn the conference back over to Mr. DeMarco for closing remarks.

Thank you everyone for joining us this morning. We appreciate your support. Look forward to talking to you in another three months.