Veris Residential Inc (VRE) 2016 Q2 法說會逐字稿

Good day everyone, and welcome to the Mack-Cali Realty Corporation Second Quarter 2016 Earnings Conference Call. Today's conference is being recorded.

At this time, I'd like 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 2016 Second Quarter Earnings Call. This is Mike DeMarco, the President of Mack-Cali. I am joined today by my good partners Mitchell Rudin, CEO; Marshall Tycher, Chairman of our Roseland subsidiary; and Tony Krug, CFO.

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. Though 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, annual and quarterly reports filed with the SEC for risk factors that could impact the company. As always, we look forward to an open dialog about our results and plans going forward.

We again filed expanded disclosure about operations in two supplementals, one for Mack-Cali office portfolio and one for Roseland Residential Trust, our residential subsidiary. We will be referring to key pages on those supplementals during this call and as always, we'll continue to provide the best disclosure of our operations, strategy and results.

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

As disclosed last night, our results show yet another excellent quarter showing continued positive results for the first six months of the year. Our hard work over the last 15 months as a new team is showing real results. As stated before, we're fully aware that this is a long process and we have and will continue to show steady and meaningful improvement quarter-by-quarter.

We commented in the past that we're highly focused on four primary areas with respect to operations and always plan to update you on this, as we work to unlock the full value the Company. One, the ongoing success and execution of operating plan is based on a number or real estate and capital markets activities, leasing, sales, acquisitions, equity raises, and development. We believe our plan has been executed way well ahead of schedule with better results than projected.

Two, the strength of our balance sheet is one of our chief concerns. We value financial flexibility and are working towards reducing our net debt to EBITDA ratio in 2016. We made great progress this quarter; with our interest coverage ratio at 3.4 times and our fixed charge coverage at 2.6 times. We expect in the future to reduce our debt over the coming quarters and we begin to benefit from improving cash flow. Additionally, we believe with the improved results we're at a place to redo our balance sheet over the next several quarters, with a new line, term loan and (inaudible) maturity is possible. We're confident that we have a clear path today to creating the right financial flexibility for operation over the long term.

Three, we started with a complex story. We're fully aware of that. We believe our story gets more transparent every day. We started the process, let's see if it can provide complexity to realize the potential value, we are well ahead of that schedule and expect to increase our pace in the next six months. The activities at Roseland, which Marshall will discuss in detail and I'll complete the disposition and acquisitions on making our story more transparent each day and easy to understand. In six months from now, we expect it to be significantly more transparent.

Four, as everyone knows, the belief is that as New York slows, New Jersey will suffer. Our current results and leasing activity, as well as the general market activity are exceeding our expectations. The resulting cash and cap roll of this quarter for the second quarter as well are the best results we've achieved in quite some time. Our current activity as Mitch will align in detail, is excellent. We have outlined our progress in our supplementals and we'll go into further detail in our prepared remarks.

I'd like to turn the call over to Tony, who will go over our quarterly results. Tony?

Thanks, Mike. With respect to earnings, as indicated on page 8 of the supplemental, core FFO for the quarter was $55 million or $0.55 per share as compared to $47.7 million or $0.45 per share for the quarter ended June 30, 2015. For the current quarter compared to last year, the 22% growth in FFO per share resulted primarily from increased base rents and lower net property expenses in the current quarter. We reported net income for the quarter of $48.4 million or $0.54 per share as compared to $35.4 million or $0.40 per share for the quarter ended June 30, 2015. Included in net income for the quarter ended June 30, 2016, was approximately $50 million of net gains from property and debt-related transactions.

As shown on Page 24, same-store NOI was up 8.3% on a GAAP basis and 2.1% on a cash basis for the quarter, just about where we thought we would be. Total company G&A for the quarter was $12.8 million with $10.7 million for the office public company and $2.1 million for our RRT subsidiary. We will continue to focus on G&A expense as we streamline our portfolio.

Turning to our financial statistics as indicated on page 23, our total indebtedness at quarter-end was $2.3 billion with a weighted average interest rate of 4.79%, down from 5.22% at year-end and we expect to reduce that further as we move forward in 2016. Net debt to EBITDA annualized for the quarter was 7.2 times. We had a fixed charge coverage ratio of 2.6 times for the quarter and interest coverage of 3.4 times. Our $600 million credit facility had $75 million drawn at quarter-end and $248 million drawn as of today. We've drawn the line to fund some of the opportunities that Mike will cover in his capital markets overview.

I will now turn the call over to Mitch. Mitch?

Thanks, Tony. Our portfolio of commercial properties was 86.7% leased at June 30, down slightly from last quarter, but up 440 basis points from the same period last year. Rent roll-up for the quarter was 27.3% on a GAAP basis. During the quarter, we signed 74 deals from 700,000 square feet and mitigated our 2017 expirations by over 275,000 square feet. Year-to-date, we've signed 1.8 million square feet of transactions, momentum we're very pleased with.

The most significant second quarter deal was Deutsche Bank's renewal of over 125,000 square feet at Harborside in Jersey City. Tenants lease was originally set to expire in 2017. They'll be vacating approximately 275,000 square feet in late 2017, which will allow us to advance plans for redevelopment of that building, which has our best address in Jersey City. Apart from Jersey City, other notable deals included Verizon's renewal of 95,000 square feet in Central New Jersey, which would have otherwise expired in 2017, as well as the 22,500 square foot renewal with Wells Fargo in Downtown White Plains.

The implementation of our strategic initiatives surrounding leasing is paying off in a wide range of improved transaction metrics, average rents, lease terms and tenant retention are all improved year-to-date over the first six months of 2015. You will see on page 13 of the supplemental the remaining 2006 expirations are quite manageable, just over 700,000 square feet. Our view today is that we're likely to retain about half of those expirees. We're still targeting a leased percentage in the 89% to 90% range for year-end.

Progress continues on our 2017 roll-over as updated on page 6 of the supplemental. We currently have leases out on 100,000 square feet of 17 expirations and continue to engage in discussions with the remainder. In addition to the Waterfront in Parsippany, other areas where our core properties are performing very well include Short Hills, Monmouth, transit-based areas such as Metropark and Princeton offered lease rates at approximately 90% or higher.

Our Hudson Waterfront portfolio continues to draw interest from firms looking not only for value in a nearby back office solution, but also from companies seeking a premier waterfront front office location. As recently reported, the global advertising agency, Omnicom signed a new -- a lease with us last week for 80,000 square feet, while business lenders had a ribbon cutting for its new headquarters two weeks ago at 101 Hudson and our neighbor in Hoboken, Ernst & Young has committed to 125,000 square feet.

We are also quite proud to be joining that list as we opened our new headquarters in Harborside this coming Monday. As per Manhattan, overall asking rents are at the highest level recorded since the 2008 economic collapse and are projected to rise further. New Jersey has very positive momentum and has one of the lowest unemployment rates in the country decreasing by 90 basis points over the last year to 4.9%. We're benefiting from that momentum. Our flex business continued its consistently strong performance in the second quarter, GAAP rents rolled up 7.4% on over 150,000 square feet of activity and leasing costs were held at the $1.83 per square foot per year term.

I'll now turn the call over to my partner Marshall.

Thanks, Mitch. At quarter-end Roseland's platform included 5,434 operating apartments and 2,560 apartments under construction. The stabilized portfolio had a least average percentage of 97.1% as compared to 96.6% last quarter. Rents in our largest two submarkets, Jersey City and Overlook Ridge, were up 5.2% and 4.5% year-over-year, respectively.

Our operating portfolios inclusive of the recently opened M2 At Marbella in Jersey city. The 311 unit, 39-story tower was 45% leased at quarter end, representing a leasing achievement of 139 apartments in just two months of initial lease-up. As of today the property is 60% leased. Since opening market rents have increased from $44 a square foot to $48 a square foot.

Roseland's current construction activities are highlighted on page 29 of the supplemental and includes scheduled deliveries of 400 apartments in the second half of 2016 and 1,788 apartments and the 372 key hotels in 2017 or shortly thereafter. From this active construction portfolio we project value creation to Roseland's 93% average ownership of $279 million and net cash flow in excess of $38 million.

The remainder of 2016 and as highlighted on page 31 of the supplemental, we forecast six additional residential starts totaling 1,217 apartments. These starts include two of our successful repurposing efforts. The third quarter start of the 209 apartments in Bala Cynwyd, Pennsylvania, and the fourth quarter start of 200 apartments in Short Hills, New Jersey. At year-end, we'll have remaining well-positioned land portfolio of approximately 10,000 units.

One of the Company's primary goals has been to increase ownership and reduce subordinate joint venture interests. To that end, and as highlighted on page 7 of the supplemental, in the second quarter, we executed the following transactions. At Portside in East Boston, we acquired Prudential on our minority partners' interests, which increased Roseland's ownership to 100% on Portside Phase 1 and 296-unit in-construction Portside Phase 2. Total consideration of the combined acquisition was $39 million. We project initial return of approximately 10% on our net capital investment.

At Port Imperial, we acquired our JV partners' interest, which increased our ownership across five Weehawken waterfront development parcels to 100%, including the in-construction RiverHouse, a 295-unit project. As part of the transaction, we've also increased Roseland's ownership in the Port Imperial Garage and Retail [South] from 43.5% to 70%, and we converted our parcel to ownership to a heads up 50-50.

Total consideration with these collective Port Imperial achievements was $36 million. We also acquired Prudential subordinated interest to RiverTrace in Port Imperial for $11 million, bringing Roseland's subordinate interest in that partnership to 50%. We're in discussions with UBS to further revise the financial structure of this partnership to enhance Roseland's cash flow in future NAV.

Finally, we sold our subordinate interest recessions in RiversEdge and RiverParc communities potential for $6.4 million and reached an agreement to sell and to replace for $40.4 million, which is scheduled to close on or before August 15. These acquisitions and conversions coupled with our first quarter Chase transaction support a year-end 2016 target of just three remaining subordinate partnership interests as compared to nine at year-end 2015.

As a result of these various acquisition, construction, development and repurposing activities highlighted this morning, we estimate a current Roseland NAV of $1.285 billion with forecast for continued growth of both NAV and cash flow. From a capital perspective, the build out of our in-construction portfolio and our remaining 2016 targeted construction starts will require approximately $163 million of capital investment, though the Company can meet these capital applications as well as those of our projected 2017 starts, we are in the market-seeking longer term capital solutions to fuel the continued growth of Roseland. This includes the ongoing discussions we're having with a number of select institutional investors for direct investment in Roseland, as well as alternative structures and solutions.

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

Thanks, Marshall. Moving on to guidance, as we disclosed last night, we increased our expected results full-year 2016 core FFO to a range of approximately $2.07 to $2.13 per share. We're raising the bottom and the top of our range and moving the target guidance at this time to $2.10 and expect third quarter for both to be approximately $0.54 to $0.56 per share. We feel very comfortable with a new target of $2.10 and believe that $2.13 is clearly achievable if we had continued success.

As indicated on page 19 to 21, some updates to our 2016 assumptions are as follows (inaudible). We're not changing our leasing percentage range of 89% to 90%. Our lease activity is strong with the waterfront at projected 95% for the quarter end. Metropark was projected to be at 99% and Parsippany will probably gain 2% occupancy in this last quarter. We achieved 90% of our combined Waterfront, Core, and Flex portfolio in the second quarter in a row if you include the post June 30 closings of Zurich and Omnicom transactions.

Two, we are increasing our same-store NOI projection by providing disclosure on both our original and post sale portfolio. This is an ongoing process, we'll be continuing to move assets in and out of those buckets, as we continue to drive rents in all assets. We achieved excellent results in this quarter. As indicated on page 25 on supplemental, for the post-sale portfolio, we're expecting to achieve 9.5% to 10.5% of GAAP, 5% to 6% cash.

Three, regarding non-core asset sales, we have a target of 750, we're ahead of schedule and achieving planned results. The blended cap rate on sales for the year should be disclosed 6.5%. To date we've closed $400 million, $200 million is expected to close in the next 90 days. The remainder will be done in the fourth quarter or early 2017 as we carefully manage the last segment of these asset sales and basically get every dollar we can have out of that process.

Four, we have just closed marketing an additional $250 million in additional asset sales, this is a preview to what we think we'll be accomplishing in 2017. The sales activity will not affect our 2006 guidance. Effectively, we've been marking a number of assets and we took into consideration what Roseland has sold, but we don't really count in total sales. We've totaled -- sold way over [$750 million] this year alone.

Five, acquisitions. We closed on what we said we would, which is 111 River in Hoboken, 101 Wood in Metropark that was combined $217 million, two smaller assets for $34 million, for approximately total of [$351]. Any future acquisitions will continue to be highly selective and accretive.

Six, we're now assuming as Marshall mentioned that we raised approximately $150 million to 200 million of JV or entry level equity for Roseland. We've reduced these as we've been pushing out some major projects from 2017 to 2018. These are Jersey City deals, we'll go into detail with comments, and I mentioned we'll get quite a few questions. As Marshall stated before we can fund 2016 and 2017 starts from previously invested sums in the sale of assets (inaudible) which we had disclosed last quarter. This gives us in total about $85 million of proceeds. You should also take note of our sources news (inaudible) on page 22.

Let me conclude prior to taking questions with the following: 50 months ago when we formed this management team, we were asked a number of regional questions by management people on this call and many others, regarding whether we went in to the right markets, had the right assets, the right people and more importantly can we execute on the strategy to produce excellent results.

I'd like to say with these results are answering those questions. With that brief overview I'd like to turn the call over for questions.

Manny Korchman, Citigroup.

Michael, if we think about the Roseland JV and take sort of to your comment separately. One, it sounds like that might not happen at all if I'm reading into your comments correctly and two, if it happens, it sounds like it's going to be smaller in size. Can you just walk us through sort of what's changed and maybe the other question, why that hasn't happened yet?

Excellent question as always Manny, but first before that, how is your wife feeling these days? You got the baby yet?

Not yet.

I hope she is doing well, I know it has been very hard lately. Let's go through it Manny. A year ago when we started this process and 100 days later we developed a plan and we presented at the Four Seasons, which you were in attendance. We basically took a page out of a gentleman I worked for and I had the pleasure working for a number of interesting and talented individuals. That gentleman's name is Wesley Robert Edens, he goes by Wes, by his enemies and friends. He is the founder and Chairman of Fortress. Wes taught me something when I worked with him for three years between 2007 and 2010, which is probably the longest decade of my life, which was that you never start anything unless you expect great results and great results do not come from reasonable expectations.

So, our plan that we put out which was 20 million square feet and 15,000 units with an ambitious plan, which everyone questioned whether we could execute on that. We've no questions by the way, no doubt. We've gone to 20 million square feet as clearly indicated in our pages with sales activity will get us there. Mitch and I talked about whether it's right 20 million square feet, which we're still working through. And Marshall has made great strides as to getting the platform toward 15,000.

When we put it together, there was a question out there, but how much capital we would need at the very maximum, and in that plan we had some speculation about some deals we would do -- new deals, some projects in Jersey City and a few other things. Let's look at what we've done so far. To-date, we've improved earnings dramatically, capital leverage is same and our debt service coverage ratios have gone up. Kind of a little bit of a magic act in some degree, was still funding Roseland.

We funded this past six months alone over $150 million of capital. One reason why the NAV has gone up for them is solely through the deals that Marshal outlined, which we funded. When you look at what we planned to do, we've taken note of the concern people have about development starts. One of the projects we're doing is URL, which we think is a big winner in Jersey City. Just to rehash, it's about a $325 million development project, which our equity is about $125 million. To do that project over, which is the next two stages, it's more than double, plus you'd assume you've to build the two buildings together, that's the way the sites configured, it was a $650 million deal, the equity is at least $250 million, if not more given the fact that (inaudible) should probably cost a little bit more three years later than it did when we bought it three years hence. So we look at that equity and say, should we have started it? That plan envisioned starting that in 2017 to some degree; we want to push that out a little bit. We want to see if your lease is up the way we think about it, Marshall and I've determined that we should really figure out whether the configurations make sense, so you push that start out and across history, we had another start also in the numbers, which is (inaudible).

On August 11, a week from now, if you'd like to join us, we're going to do a tour Jersey City, we are going to explain in detail. Those projects were a large portion of that [$350 million] of equity need, right. The smaller stuff we're funding, right. Right now, when you look at the land that we own, which we look at the NAV, the NAV is about $240 million of land, on the balance sheet $248 million, I think. Now looking at a bit about that, 80% of that is either Port Imperial or Jersey City, right. So, when we look at those numbers, we said to ourselves, can we fund it a year ago with capital on hand or through sales? Could we do as people criticize us the 9%, 4% trade, sell at 9%, invest in 4% cap rate, and actually not have dilution. We've been able to do that. One, we haven't sold at 9%, two, we didn't invest at 4% and we've been able to re-purpose assets and take the money out at numbers that were accretive and put it into the plan. So, we need less cash. It's a good thing. The question is what method do we raise it at? We should have been selective? There's no rush for us to go and do something which is involving an [18] start. Hope that answered your question?

It did. The other one was on acquisitions, and it sounds to me or reads to me like you guys are leaning more and more towards growth through acquisitions. I was just wondering if you could give us sort of flavor of what those might look like? What markets are targeting, especially since there is less product trading in your sort of very core markets, especially on the Waterfront? And how do you think about valuation in that concept?

Great. One, we don't think we're going to do a ton of acquisitions per se, we don't think it's in the growth, we think it's rearranging the furniture in a room. We got down. Mitch and I were talking about it with Marshall earlier, when we took over a year ago, if you took the total number of assets and the capitalization of Mack-Cali the day we took over, it come back to $12 million. The average asset we owned was $12 million. Unless we're in the storage business and we were like public storage that didn't work for us. So we've been selectively going through in selling assets and (inaudible) square feet this year with some greater marginal less that number and get down to more core. We like the assets we bought. The two deals we bought in Metropark. Both of them will be 100% rented by the end of this quarter at numbers that exceeded our expectations. The building in Hoboken, we believe, is a big winner; any space we get back in there, the market has gone up several dollars since we underwrote it, as the market has strengthened. We would buy in a Waterfront at right numbers, number we passed on the two first deals that were given to us which were purchased by (inaudible) which is 70 and 90 Hudson. So, we've been in our view disciplined. What we have committed capital to is obviously investing in Roseland's where we've been buying upon as interest, $30 million here, $40 million there, it does add up over time. They've all been excellent deals and that's made that story so much more transparent. The markets we would look at today, the top of our list in order is probably the Waterfront, Metropark, Short Hills, maybe Monmouth and then the risk probably gets really light after that, and only select assets and in only places we think we can actually have an impact.

Now on the same line, which might be a follow-up question, is what would we sell? We need to continue to look at the bottom of portfolio, that [$750 million] number that we put out a year ago was really 20% of the value the portfolio the day we took over. We didn't want to do five, we didn't want to do 10, we thought we could do 20 and have a demonstrative effect on our results, which we are having. The leases have gone up. The average term has gone up. The quality has gone up. So, really we're not to go up in leverage just to buy an asset. On the same line when you try to find the right deals, good buildings that you want to own, only come up once every 10 years, you have to fix that fact. So if you don't want it, just assume that it's going to be another decade before it comes back.

John Guinee, Stifel.

John Guinee here. Hi, how are you. Good morning. Any chance -- while you were answering Manny's question, his wife gave birth? Mitch, when we caught up a month or two ago, I thought you said some very interesting about the Waterfront market is really a Manhattan market where Central Jersey is very, very -- Northern Jersey is a very, very different market. Can you elaborate on that and really talk about why this go-around, the Jersey Waterfront will attract tenants, where over the last two or three decades it doesn't quite seem to have ever really worked over the long term, why is it going to work this time?

Let me relate an anecdote to you. I spoke to the broker who is quite talented, who represented Omnicom, we're congratulating each other on the deal and he states, you know, when I started the process, I was given a mandate that we couldn't pay more than $45 a square foot and we had to make sure we didn't move to a location that was disruptive to our employee base. And he states I looked at Brooklyn, I looked at Queen's and I knew I couldn't find anything in New York and we needed to be somewhat approximate to our midtown and downtown locations. He states I've never been to Jersey City. I went there. It satisfied every one of our criteria, and as we've talked before about not only our rents -- call them $40 a square foot, but as you walk through the benefits program, it takes you down to near zero. In addition, the transportation is terrific. And what's also happened has been that this transformation of downtown. So, if you look at the statistics across rewards in the brokerage companies, for the first time, the vacancy in downtown is below that of midtown and that's extraordinary. That is a permanent shift and what's happened to New York. So that tells a very compelling story and one that's not going to change. We are in single-digit availability downtown today.

Jamie Feldman with Bank of America.

I guess just starting out, can you guys talk about -- you bumped guidance $0.03. You moved several of the assumptions around including the equity raise, can you maybe just talk about what were the biggest changes in your mind that moved those $0.03?

We've had better results on the leasing, Jamie. We set out to lease up our portfolio in order to give us cash flow. So we've done a couple of things. One, you'll notice, well, we think our G&A is still a little too high, and from an overall point of view, would take note of that; it hasn't increased. So, we've put a hiring freeze and get to static. So as now revenue rose up, more drops to the bottom line, we have margin improvement as an oil organization. When we started this, we had assumed that you could rent in Jersey City at $30 or $32. We are actually achieving low $40s. That also drops to the bottom line. We've also rented up Jersey City to the waterfront to a 95% level this quarter. That's just going to drop more number to the bottom line. We've also had better opportunity to base the place one set of asset to another and in some cases have accretive results. As we mentioned earlier, we bought two buildings in Metropark and they are both full now, where we had sold other buildings in order to buy them, the one didn't have (inaudible). So you take all that together and combine that while Marshall has been actively going through and getting his subordinate interests to wholly owned, each case he does it, the invested dollars are coming back at 11% and 12% as we've mentioned a number of times, that adds to the bottom line, all that combination, so we started the year, Jamie, remember was $2 to $2.10 with $2.04 midpoint. That was disclosed last September. Fixed loans later were basically at $2.10 midpoint looking at $2.13, as I said earlier, if comfortable results continue, we can hit that. So we've had a $0.10 outperformance for all the things I've mentioned to you.

Okay, great. That's helpful. And you guys talked about your 2016 expiration, some of them -- a couple of -- maybe it doesn't sound like your coverage with 80% or so retention rate. Can you maybe talk about the spaces you expect to get back in the back half of 2016 and 2017 at this point?

Just a couple things, we have -- I'll turn over to Mitch in a minute. The 2016 -- I mean, one of the things as people commented on our leasing volume being down. Our leasing volume is very, very directly affected by how much space we have each quarter. This was a more normal year for us, 1.7 million square feet, next year it's going to look like 2 million square feet. But when we started a year ago, that was at 4 million square feet and change, it was going to be an abnormally (inaudible). We've been able to whittle it down to half the size in less than a year. So we don't really feel concerned about expirations. I would tell you we have a couple of deals that closed post quarter. So, Omnicom and Zurich, which we disclosed, if they were in the prior quarter, it would have been a (inaudible) quarter, right, because we would have had different results because of those two deals.

This quarter, we already know a couple of deals that were in there -- we've been tapped to be the person that is going to get the deal, if we can close the lease in the amount of time left in the quarter they will show up. That's about 200,000 square feet. We have 100,000 square feet at the replacement tenants, that also we've been tapped will likely to get. So we're looking pretty good. But we also noticed that it is slow -- a little slow towards this month because of the weather, because it's August, and because maybe people just -- just decided take a bit of a vacation. But when we look at -- I'll turn it over to Mitch. When we look at 2017, we whittled that number down, the Deutsche Bank space is coming back to us, we feel comfortable about that. It was at $31 to $33 expiring rent, and the best building we have in Harborside, it's 90 feet from the [path]. It's right across on a high (inaudible) as you remember from the tour. It has all the conveniences. We can redo that building and hopefully get outstanding rents for it. But Mitch, do you want to embellish?

Let me just -- two points because Mike covered it pretty comprehensively. First, as I indicated in earlier call, basically in 2016, we're dealing with singles and doubles. We don't have any space remaining that's over 50,000 square feet, and so, we anticipate a fair amount of that is flex and the lights, so that will be finishing that up and as we go into 2017, a good part of that was larger vacancies come up in the -- we don't get that space back until October 1. So, we're 15 months from now. And third, let me just reiterate what Mike said in his remarks, not only are we reinforcing our commitment to what we indicated our guidance about 89% to 90%, we probably feel even stronger about it today than we did when we announced it last quarter.

And then, finally for Marshall, I believe, referred to moderating rent growth, there are some rent declines in the apartment sector. Can you just talk about what you're seeing in your markets?

Sure. In a couple of the sub-markets, I mentioned we've had some actually substantial rent growth, Jersey City continues to astound everybody with its rental numbers. But clearly, the market is slowing up. I think it really has been a tremendous amount of supply. And I think in the suburban markets, we are seeing rents flattening out a little bit. I mean, so rent growth is moderating, it's not flat overall, but maybe in some sub-markets, it's flat. Our two largest markets for our ownership being the Waterfront, Jersey City and Overlook Ridge, we're still seeing good submarket rent growth there. But there's no questioning, the industry overall is seeing a slowing up.

So you've a sense of how much you can push rents this year or what are your latest thoughts?

It's submarket to submarket. So as I mentioned in my comments, we were doing the lease-up of (inaudible). We've raised rents 10% during the course of the lease-up. So, we really look at it every day to see we have expirations constantly unlike the office business. We don't know when somebody's going to leave until they give us notice, but -- and it's frequent, but we're not pushing rents too aggressively, we're trying to maintain our high occupancies, and I think you'll see it just submarket to submarket being minor growth, but I don't think it'll flatten, at least not in the next two quarters.

Jed Reagan, Green Street Advisors.

I guess just following up on the last question, so in terms of reducing the Roseland development starts and I mean, should we think about that largely as a response to slowing fundamentals in your core markets? Is that fair to say?

No, actually the opposite, I think it was the M&A when we started the plan, we were aggressive about pushing things forward. Now that we've worked the market for a year or so, we look at the overall project and say, let's see how we can improve the results, do we have to change the unit mix? Do we have to make it (inaudible) difference. And when you draw these deals, that building alone is in the second phase is likely to be $700 million complex, you want to get it right. And to be very candid, we looked and said, okay, do we want to sell a piece of it? When we raise equity, we really basically are giving away part of the returns. Well, can we work the balance sheet a different way and to be really candid, Jed, should we have as many suburban assets as we do or should we convert some of that equity into some other form of multi-family investment and we look at that concept. So we've had a good experience about selling and redeployment as evidenced by our results and believe we can both sell, deleverage slightly, and redeploy.

Now as Marshall pointed out in his remarks, we have $38 million to $40 million, probably a little bit more coming in for that construction in progress, that's going to add literally $0.38 to $0.40 to our bottom line, which takes our numbers for the $2.10 and make $2.50 at one day in the future, not too distance future. The question is as you continue to circulate that cash flow, what's the right amount of development on the balance sheet? Right now, we have a CIP of about $400 million and we're judging our balance sheet as we go through it and look at our results and say what's the right number. We're very confident about where we are on the leverage scale and how you have to produce the right results.

But Jed, we do have a significant number of starts still remaining for the second half of this year as well as going in 2017. But we have in certain senses made decisions on projects. For example our [Fire Start] schedule had a start in Center City, Philadelphia. We made a decision in that market, had a great moving rents. But we didn't think that was going to continue and costs were going up and we made decision not to develop that -- not to close on the site and build that project. And as Mike said, a couple larger city jobs, just from a timing perspective we're going to slip probably into 2018 and that changes the dynamics of our numbers. But overall, we still like the markets we're in. We're getting good rents and we still projecting most of the submarket, they are going to start products that have good returns.

Okay, thank. As you're on the market and remain in the market for that for the equity sale there in Roseland, are you finding good investor appetite for that deal and if so why not still do the full $350 million to use proceeds for additional debt pay-downs or additional liquidity?

Well, they came into really three buckets, which is kind of humorous. So the good news is everyone liked the assets, there's no question it was great assets. No one had a problem with management. I've never seen -- when many people love Marshall -- he is the one to stay with them (inaudible) anywhere else, from being an investor choice. And no one had a problem with the strategy, the Boston to DC strategy the markets we're in, everyone's fine with. They sell in to three buckets. First bucket is, love it, I want to hold it. I'll pay you the price. We're not a seller. Don't want. Board hasn't made the determination. We believe we need too much NAV on the table.

The second bucket is, okay, I want to put the money, but I want to own half and I want control, but we really don't want to get control, we didn't want to sell half. So the third bucket comes down to what we're dealing with now is the select institutional investors, we have about five to six that we're working that basically will do anywhere from 15% to 20%, could be as much as [350], we're trying to figure out how much we actually need and what type of control rights we give up, but since we don't really need the capital right now on that and the stock is far different than when we started this process a year ago, it behooves us to basically make sure that we get every dollar of NAV we can for our shareholders and not rush to do a transaction just because it's available.

And you see, you've put up two straight quarters of double-digit cash releasing spreads, and I'm wondering how representative those results are for future quarters. For instance, do you have a current mark-to-market on your overall portfolio?

Well, if you look at it, we believe that we are able to produce better results because we've had better action and really now if you think about it, the first quarter we took over, Mitch, Marsh and I, we were in the job for 40 days. So, what were the quarter results, actually we started June 2. That first quarter wasn't us, that was our predecessor, right. The second quarter that we took over, which is the third quarter of last year, we were able to push it a little bit, right. The fourth quarter, you really saw our mark on the portfolio of how we influenced about releasing spreads, rents, turnover.

The first half of the year, the screws are coming in. And now people lease the way we want them to lease. And you can notice that as we mentioned and the disclosure we gave about a week ago of the number of deals we have, (inaudible) rolls up, one is flat and only a few are down. We think that's indicative of a wide way of the portfolio and if not, we probably are going to sell those assets and redeploy the money. It will pay down debt so and so forth. We have been totally agnostic about what assets we own. If we don't perform, we will sell them. If they perform, we will keep them. So we believe one way or the other, would then achieve the results that we have over the last two quarters.

85% of the deals that we've done both in this quarter and for the year were roll-ups and a good number there are significant. And if you take a look at page 13 of the supplemental and you look at just at the average rents, I mean they're in the very low-20s, so a very high likelihood that there will be significant roll-ups and that will continue.

(Operator Instructions) Emmanuel Korchman, Citi.

Hello, it's Michael Bilerman. Mike, there was about $800,000 of debt deal costs, just sort of wondering how many deals that related to? How many different assets, you are chasing and can you elaborate a little bit on that?

It was the one deal that Marshall mentioned in Center City, Philadelphia. It was a Chestnut Street deal. That was $800,000 deal, worked it for a while, decided to look at the numbers, made a decision pragmatically and decided to kill it. We don't have many more of those events.

Okay. And then just getting back to sort of leverage things, you have the net debt to EBITDA business plan effect, you had sort of removed that column on the Roseland projected equity, which prior would have taken your debt to EBITDA down to call it the mid 5's and certainly from a 4Q perspectives in a stabilized projects perspective, you continue to tick down all the initiatives that you do, sort of around seven times in the low 6's. I guess walk through a little bit and you talked a lot about sort of the decision making process on Roseland, in terms of raising money [150 versus 350] and I can appreciate the equity needs within Roseland, but taking at the corporate Mack-Cali level, that equity certainly was a part of the overall deleveraging plan and it doesn't seem like the capital needs overall have changed meaningfully. So to help us just --

No Problem. So when we looked a year ago, we were $19 to $21, when we first started. We were $17, when we started we got a $2 bump for being in the management team. We put together the plan we said we really need to focus on both earnings and deleveraging the portfolio over time. We could've sold the equity any number of times. Believe me we got no shortage of bankers who walk-in and explain to us, this is the dull moment to sell equity, right at [22, at 25, at 27] and we obviously declined. When you put out an NAV as we have and continue to update that, we have the responsibility to achieve that NAV. We looked at one method of that was to raise equity at Roseland. We still believe that's a good thing to do.

Question is, how much equity do we need? I feel comfortable operating at 7 and below. I'd like to get it to 5's overtime, but I would tell you, I was a banker for a long period time, I thought it was pretty good. I used to get paid well. No one actually wakes up and sells assets and want (inaudible) times and has a great stock price, that's a fallacy. The great companies that have been created and you can name them all, they all grew their way into it, day-in, day-out, they grinded it out, incredible stewards of capital and wound up at the right number. There's no easy fix. We will sell assets and pay down debt. We will sell assets and invest in Roseland. We'll sell assets and redeploy appropriately, but the only thing that matters is how that revenue produces the bottom line growth that we need. When we started a year ago people expected in 2016 -- and I have the reports on my desk that Roseland will make -- Mack-Cali will make $1.65 to $1.70. We're going to be $0.40 over that. We believe we can continue to work that. The quick fix is to take the equity route. We thought last year, we needed the equity in order to establish Roseland brand. Today, over the last 12 months, we've invested a large sum in Roseland, well over $200-plus million, and it hasn't affected our earnings. It's funded all the 2015 starts, all the 2016 starts and likely will fund most of the 2017. We do need equity. Question is how much? And you would judge us about how we raise that money and at what cost? And the one thing I was told and I tend to move very quickly for a guy of my size, right. But I don't rush to do something, I think is not correct.

Right now, we look at the numbers and say, there is movements to be made, we negotiate with people and if they think you're weak, they take advantage of you. And before, when we were at $17 and $20, to be candid, we were weak, right. We were a Company that underperformed for10 consecutive years, and that's probably being generous, right. And anybody who invest with us, I thank you each and one of you personally, I still do. You took a shot on us. We think we've produced results, we intend to produce results. The easy results now is to be satisfied. Anyone who knows me, I'm not a very satisfied person. So, we're going to push the numbers as hard as we can, but be very disciplined about the results. And if the equity comes to us at the right level, we will raise it. It's very likely we will raise it, but it'll be at the right amount.

Right, how about the element of -- in the early (inaudible) in REITs, your stock got back down to below $18 as the lot of stocks got hit, so is that -- I can appreciate sort of last year, sort of when you came in and where the stock was, and it has certainly been point-to-point and unbelievable run. But I guess, how do you start thinking about the volatility in the stock markets, which is sort of beyond your control and while your NAV is in your schedule at 34 to 39, raising common equity, certainly a lot less dilutive today, raising it at $28, then it would have been at $18, do you feel any need at all either have an ATM program and chip away that small amount of common equity or is that just completely off the table?

So, I've a younger daughter. She might be listening to this call, we had her named Charlotte and Charlotte attended the University of Chicago, I went to business school and she's a really bright kid, she's actually brilliant, it's just all from her mother, but Charlotte is a Classics major, this is why I have to work so hard, she studied Latin, Greek. She spent the summer in North Israel, was digging around in an archeological dig, right. This is the reason why I have to go to work every day, Marshall's laughing across the table, but Charlotte says, Dad, went to business school, University of Chicago, my friends want to go to business school, what did you learn? I said all I had three profs that were Nobel Prize winners, two judges who sit on the Supreme Court, actually, were nominated for Supreme Court and I would tell you I've learnt one great lesson. You know what that lesson is, Michael? Never run out of cash. That's all they would teach at business schools. If we don't run out of cash. You don't run out of cash, you won't go bankrupt, right. So if you noticed the line goes up, we find a way to repay it. If the line goes back up, we repay it. We (inaudible) maturity is, we're going to bring down our overall rate. We're going to drive hopefully our debt service coverage, our target is four times, we'll get as close to as we can, right. And we look at equity the way Center Point used to look at, which I had the pleasure of dealing with in my early career. Maybe if you remember them Michael, it was incredibly precious to them. It's not something you just go out and say. So all the guys like to raise money so and so forth, and I worked for a chairman, as was Mitch and Marshall, who likes to get his stock price up and he isn't too quick about some equity. ATM is a good option, somewhere in the future. It's thoughtful, it does it appropriately large equity raise, when you went out and just told people that the price is around 35 and I'll raise at 28, because I can get it done on a Thursday in August? No, I don't think so. I think that would be disingenuous and we'd turn ourselves in and from people that try to be honest into lies very quickly.

We will basically work our way out of this the old school way. We will drive it. And now if you look at our comp package, we are priced the same way. We only get paid if we perform at the top $0.20 to $0.25 of the REIT index, our peer group which we've had the pleasure of doing. It's not going to be easy. It's going to be difficult, but anybody who invests with us will find us every day grinding away. And I don't think anyone at the table believes that we're totally satisfied at today's stock price.

Jed Reagan, Green Street Advisors.

Hi. Just a couple quick follow-up guys. Looks like expense reductions have been a pretty big focus and you've been achieving your goal there. Can you just talk about some of the key areas where you've had some success in ringing out those savings?

So it's in our presentation initially we had staff reductions and we put a hiring freeze in last year. You can't hire a secretary without my sign off, and I literally really mean that. People will say -- property managers, so and so forth. We intend to have a more drastic recovery starting probably in the next month or two, where we are going to look at resizing of our portfolio as we shared so many square feet and look at the size of the overhead over that portfolio and things can slimmed down dramatically.

We've had very good results and our property management team gets credit for this on the operating levels. We went back re-bid all our contracts, snow removal, landscaping so and so forth, but Mitch and I both believe we need to reinvest in Class A assets. So wouldn't be spending dollars in CapEx that we now have to enhance cash flow to bring our assets, the ones that we want to keep up to the Class A level. So it's personnel, it's a little bit of professional fees, its operating expenses -- utilities actually also benefit. We've been better at that also. And we've also been better at a little bit of a -- on some ways of passing through some expenses that we were [laxing] in the past, we're taking a much more approach of -- if it was your money, how would you treat the business type approach.

And then, it looks like you acquired a small asset in Newark last quarter. What's the thought there and is that an area you like to expand over time?

So when we did the Bank of America transaction, we announced it was on one of the calls that they'll have to exit a Newark asset to take some additional space in 101 Hudson, which is one of buildings in the Waterfront. They wanted us to buy the asset. We negotiated what we think is a very good deal. We bought two gem-like buildings that are Class A buildings in Newark. We have a tenant that we're negotiating with for the whole space, it should be an accretive transaction, hopefully, we'll announce that transaction at the end of this coming quarter. So it's worked out well for us.

So Bank of America still operates the space, there have a short-term rental on this, when they roll out, we think we have a tenant taking the whole space back, and there were buildings that we paid about $140 a square foot, and if we had to build them today, they will be probably be $400, structured parking, backup generation, 200 person seat cafeteria, child care center. It was built at the highest standards including an [institutional land]. It's not something we wanted to do, we did it reluctantly, but we think we don't wind up at the other end, actually doing okay on it.

Are you underwriting other assets there?

No. That could be a one-time trip.

John Guinee, Stifel.

Let me just make sure I understand, there's been a lot of things moving around. What you're basically saying, Mike, is, equity is still too expensive, leverage is very cheap, I'm still trading below NAV, I'm still increasing cash flow, I think a little more leverage is okay for now.

No, I think the little more leverage, John, has to be moderated and so we may go up slightly, but then we intend to sell assets to bring it down. I don't want to go to 8 times, Tony and I talk about it, we call it the snowman, we don't want to have a snowman on our numbers, right. We started at 7.6 with 7.1, if we didn't do anything fourth quarter annualized takes us just around to below 7 and you take the CAP as comes over the next 18 months, gets us to the mid 6s, but along that way we might go up a little bit to get to and that's something we think we need to do, but then have a very good plan to bring it back down again. Over time, the line should be descending to something in the mid 6s to low 6s, just going to take us a while to get there. But, John, just to end out, when we started our debt service coverage at this Company, which is horrific with 6%. I've never seen a Company, John, had an ability after seven years of low zero interest rates, have 6% debt. We're getting new quotes John, at 3%. So, as interest coverage can go up hopefully above 3.4, we may get to 3.8, hopefully we would like to get it to 4. And at that level you have to feel comfortable having high 3's or mid 3's debt service coverage, maybe even a 4 fixed charge coverage because we are limiting amortization on a lot of other refinancing will hopefully drift up also and our dividend -- actually coverage ratio has gone up. So our earnings keep on growing, we think the right path is to drive within the confines of the box. The biggest question we should answer, which no one has asked us, is how much of the suburban portfolio do we want own? Right?

Assuming the [flex] is something you may sell, and the Waterfront is the Waterfront. I will tell you this -- we're having a presentation on September 12, back at the Four Seasons again for Investor Day. The interesting slide that we worked up is what the top 10 assets were, the day we took over. And what the top 10 assets are today. I think you are going to find it very interesting. The quality, the clarity, how many multifamily assets make that list, some of the assets we bought and the enhancements we are going to make to them, you don't look at and say, this is a Company now that used to be homogenically a suburban portfolio substantially. Right now our NAV on a suburban basis is 25%. The other 75% is something else. Substantially, the Waterfront, the Roseland platform and there are some other assets here and there. We think we need, as we said earlier on to lose the suburban label. We're going to lose it, one way or the other. We only own the best stuff that performs, otherwise why do it. We're not doing this for the drill. That's for sure.

So another way to say this is we're a lot more comfortable raising cash via asset sales than we are raising cash via issuing common?

Right. That is what -- that's what the difficult path is and that's what people pay us to do. That's because it's easy to basically just say, we need to delever, we raised some cash (inaudible) as around. It's the easy answer. The hard answer is to look yourself in the mirror and say -- and these sales, John, are like hand-to-hand combat. Like selling these small buildings in suburbia sometimes it's easy, but most of the time it's swaging it through, but it does get you the right results. You no longer have that asset. You no longer have the people to manage it. You no longer have the overhead to it. You no longer have the bad results flowing through your numbers. So win, win, win, just difficult process.

And that concludes our question and answer session for today. I would like to turn the conference over to Michael DeMarco for any additional or closing remarks.

Thank you everyone for joining us. We'll see when the weather gets a little cooler, for the next conference call. Again August 11, next Wednesday we're having a property tour on the Waterfront, we invite everyone to join us, it should be a great day. And on September 12, we're having our Investor Day, again at the Four Seasons. Thank you for your support and thanks for your interest.

And that concludes our presentation. We thank you all for your participation. You may now disconnect