form10kcorp.htm
 
 

 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:  1-13274
 
 
MACK-CALI REALTY CORPORATION
(Exact Name of Registrant as specified in its charter)
 
 
Maryland    22-3305147
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
343 Thornall Street, Edison, New Jersey   08837-2206
(Address of principal executive offices)   (Zip code)
   
                                                                                                                                                                                                                                                      
(732) 590-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
 
 
(Title of Each Class)   (Name of Each Exchange on Which Registered)
     
Common Stock, $0.01 par value   New York Stock Exchange
                                                             
Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes X No ___

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes ___ No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes X   No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes X   No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.  [ X  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x                                                                                                Accelerated filer  ¨

Non-accelerated filer  ¨ (Do not check if a smaller reporting company)                                                                                                                                Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes ___ No X

As of June 30, 2012, the aggregate market value of the voting stock held by non-affiliates of the registrant was $2,517,721,130.  The aggregate market value was computed with reference to the closing price on the New York Stock Exchange on such date.  This calculation does not reflect a determination that persons are affiliates for any other purpose.  The registrant has no non-voting common stock.

As of February 4, 2013, 87,912,281 shares of common stock, $0.01 par value, of the Company (“Common Stock”) were outstanding.

LOCATION OF EXHIBIT INDEX:  The index of exhibits is contained herein on page number 135.

DOCUMENTS INCORPORATED BY REFERENCE:  Portions of the registrant’s definitive proxy statement for fiscal year ended December 31, 2012 to be issued in conjunction with the registrant’s annual meeting of shareholders expected to be held on May 15, 2013 are incorporated by reference in Part III of this Form 10-K.  The definitive proxy statement will be filed by the registrant with the SEC not later than 120 days from the end of the registrant’s fiscal year ended December 31, 2012.

 
 

 

FORM 10-K

Table of Contents

 
PART I
 
Page No.
Item 1
Business
3
Item 1A
Risk Factors
10
Item 1B
Unresolved Staff Comments
19
Item 2
Properties
20
Item 3
Legal Proceedings
41
Item 4
Mine Safety Disclosures
41
     
PART II
   
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters
 
 
and Issuer Purchases of Equity Securities
42
Item 6
Selected Financial Data
46
Item 7
Management’s Discussion and Analysis of Financial Condition and
 
 
Results of Operations
47
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
70
Item 8
Financial Statements and Supplementary Data
71
Item 9
Changes in and Disagreements with Accountants on Accounting and
 
 
Financial Disclosure
71
Item 9A
Controls and Procedures
71
Item 9B
Other Information
72
     
PART III
   
Item 10
Directors, Executive Officers and Corporate Governance
72
Item 11
Executive Compensation
72
Item 12
Security Ownership of Certain Beneficial Owners and Management
 
 
and Related Stockholder Matters
72
Item 13
Certain Relationships and Related Transactions, and Director Independence
72
Item 14
Principal Accounting Fees and Services
72
     
PART IV
   
Item 15
Exhibits and Financial Statement Schedules
73
     
SIGNATURES
 
133
     
EXHIBIT INDEX
 
135


 
2

 


PART I

ITEM 1.                 BUSINESS

GENERAL
Mack-Cali Realty Corporation, a Maryland corporation (together with its subsidiaries, the “Company”), is a fully-integrated, self-administered and self-managed real estate investment trust (“REIT”) that owns and operates a real estate portfolio comprised predominantly of Class A office and office/flex properties located primarily in the Northeast.  The Company performs substantially all commercial real estate leasing, management, acquisition, development and construction services on an in-house basis.  Mack-Cali Realty Corporation was incorporated on May 24, 1994.  The Company’s executive offices are located at 343 Thornall Street, Edison, New Jersey 08837-2206, and its telephone number is (732) 590-1000.  The Company has an internet website at www.mack-cali.com.

As of December 31, 2012, the Company owned or had interests in 278 properties, aggregating approximately 31.7 million square feet, plus developable land (collectively, the “Properties”), which are leased to over 2,000 commercial tenants.  The Properties are comprised of: (a) 264 wholly-owned or Company-controlled properties consisting of 158 office buildings and 95 office/flex buildings aggregating approximately 30.4 million square feet, six industrial/warehouse buildings totaling approximately 387,400 square feet, two stand-alone retail properties totaling approximately 17,300 square feet, and three land leases (collectively, the “Consolidated Properties”); and (b) five office and two retail properties, aggregating approximately 0.9 million square feet, six multi-family properties totaling 1,769 apartments, and a 350-room hotel, which are owned by unconsolidated joint ventures in which the Company has investment interests.  Unless otherwise indicated, all references to square feet represent net rentable area.  As of December 31, 2012, the office, office/flex, industrial/warehouse and stand-alone retail properties included in the Consolidated Properties were 87.2 percent leased.  Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future, and leases that expire at the period end date.  Leases that expire as of December 31, 2012 aggregate 378,901 square feet, or 1.2 percent of the net rentable square footage.  The Properties are located in six states, primarily in the Northeast, and the District of Columbia.  See Item 2: Properties.

The Company’s historical strategy has been to focus its operations, acquisition and development of office properties in high-barrier-to-entry markets and sub-markets where it believes it is, or can become, a significant and preferred owner and operator.   The Company intends to aggressively pursue multi-family rental investments in its core Northeast markets, both through acquisitions and development, with the goal of materially expanding its holdings in the multi-family sector. This strategy may include, over time, selectively disposing of office assets and re-deploying proceeds to multi-family rental properties, as well as the repositioning of a portion of its office properties and land held for development to multi-family rental properties.

The Company believes that its Properties have excellent locations and access and are well-maintained and professionally managed.  As a result, the Company believes that its Properties attract high quality tenants and achieve among the highest rental, occupancy and tenant retention rates within their markets.  The Company also believes that its extensive market knowledge provides it with a significant competitive advantage, which is further enhanced by its strong reputation for, and emphasis on, delivering highly responsive, professional management services.  See “Business Strategies.”

As of December 31, 2012, executive officers and directors of the Company and their affiliates owned approximately six percent of the Company’s outstanding shares of Common Stock (including Units redeemable into shares of Common Stock).  As used herein, the term “Units” refers to limited partnership interests in Mack-Cali Realty, L.P., a Delaware limited partnership (the “Operating Partnership”) through which the Company conducts its real estate activities.  The Company’s executive officers have been employed by the Company and/or its predecessor companies for an average of approximately 25 years.

BUSINESS STRATEGIES
Operations
Reputation: The Company has established a reputation as a highly-regarded landlord with an emphasis on delivering quality tenant services in buildings it owns and/or manages.  The Company believes that its continued success depends in part on enhancing its reputation as an operator of choice, which will facilitate the retention of current tenants and the attraction of new tenants.  The Company believes it provides a superior level of service to its tenants, which should in turn, allow the Company to outperform the market with respect to occupancy rates, as well as improve tenant retention.
 
 
 
3

 
 

 
Communication with tenants: The Company emphasizes frequent communication with tenants to ensure first-class service to the Properties.  Property management personnel generally are located on site at the Properties to provide convenient access to management and to ensure that the Properties are well-maintained.  Property management’s primary responsibility is to ensure that buildings are operated at peak efficiency in order to meet both the Company’s and tenants’ needs and expectations.  Property management personnel additionally budget and oversee capital improvements and building system upgrades to enhance the Properties’ competitive advantages in their respective markets and to maintain the quality of the Properties.

The Company’s in-house leasing representatives for its office portfolio develop and maintain long-term relationships with the Company’s diverse tenant base and coordinate leasing, expansion, relocation and build-to-suit opportunities.  This approach allows the Company to offer office space in the appropriate size and location to current or prospective tenants in any of its sub-markets.

The Company’s in-house, multi-family residential management team emphasizes meticulous attention to detail and an unwavering commitment to customer service to complement the quality, design excellence and luxury living attributes of its multi-family rental properties.  The Company believes this strategy will enable the Company to buttress management’s reputation with the market-leading designs, amenities and features of its multi-family rental properties to attract quality tenants.

Portfolio Management: The Company plans to continue to own and operate a portfolio of  office properties in high-barrier-to-entry markets, with a primary focus in the Northeast.   The Company also expects to continue to complement its core portfolio of office properties by pursuing acquisition and development opportunities in the multi-family rental sector.   The Company’s primary objectives are to maximize operating cash flow and to enhance the value of its portfolio through effective management, acquisition, development and property sales strategies, as follows:

The Company seeks to maximize the value of its existing portfolio through implementing operating strategies designed to produce the highest effective rental and occupancy rates and lowest tenant installation cost within the markets that it operates, and further within the parameters of those markets.  The Company continues to pursue internal growth through leasing vacant space, re-leasing space at higher effective rents with contractual rent increases and developing or redeveloping office space for its diverse base of high credit tenants, including Wyndham Worldwide, National Union Fire Insurance and The United States of America - GSA.  In addition, the Company seeks economies of scale through volume discounts to take advantage of its size and dominance in particular sub-markets, and operating efficiencies through the use of in-house management, leasing, marketing, financing, accounting, legal, development and construction services.

Acquisitions: The Company also believes that growth opportunities exist through acquiring operating properties or properties for redevelopment with attractive returns in its core Northeast sub-markets where, based on its expertise in leasing, managing and operating properties, it believes it is, or can become, a significant and preferred owner and operator.  The Company intends either directly or through joint ventures to acquire, invest in or redevelop additional properties, principally in the multi-family rental sector, that: (i) are expected to provide attractive long-term yields; (ii) are well-located, of high quality and competitive in their respective sub-markets; (iii) are located in its existing sub-markets or in sub-markets in which the Company is or can become a significant and preferred owner and operator; and (iv) it believes have been under-managed or are otherwise capable of improved performance through intensive management, capital improvements and/or leasing that should result in increased effective rental and occupancy rates.

The Company has entered into (particularly in connection with the Roseland transaction, as described below), and may continue in the future to enter into, joint ventures (including limited liability companies and partnerships) through which it would own an indirect economic interest of less than 100 percent of a property owned directly by such joint ventures, and may include joint ventures that the Company does not control or manage, especially in connection with its planned expansion into the multi-family rental sector. The decision to pursue property acquisitions either directly or through joint ventures is based on a variety of factors and considerations, including: (i) the economic and tax terms required by a seller or co-developer of a property; (ii) the Company’s desire to diversify its portfolio by expanding into the multi-family rental sector and achieve a blended portfolio of office and multi-family rental properties by market and sub-market; (iii) the Company’s goal of maintaining a strong balance sheet; and (iv) the Company’s expectation that, in some circumstances, it will be able to achieve higher returns on its invested capital or reduce its risk if a joint venture vehicle is used.  Investments in joint ventures are not limited to a specified percentage of the Company’s assets.  Each joint venture agreement is individually negotiated, and the Company’s ability to operate and/or dispose of its interests in a joint venture in its sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.  Many of our joint venture agreements entitle us to receive leasing, management, development and similar fees and/or a promoted interest if certain return thresholds are met.  See Note 4: Investments in unconsolidated joint ventures to the Financial Statements.
 
 
 
4

 
 

 
Development: The Company seeks to selectively develop additional properties either directly or through joint ventures where it believes such development will result in a favorable risk-adjusted return on investment in coordination with the above operating strategies.  The Company identifies development opportunities primarily through its local market presence.   Such development primarily will occur:  (i) in stable core Northeast sub-markets where the demand for such space exceeds available supply; and (ii) where the Company is, or can become, a significant and preferred owner and operator.  As part of the Company’s strategy to expand its multi-family rental portfolio, the Company may consider development opportunities with respect to improved land with existing commercial uses and rezone the sites for multi-family rental use and development. As a result of competitive market conditions for land suitable for development, the Company may be required to hold land prior to construction for extended periods while entitlements or rezoning is obtained. The Company also may undertake redevelopment opportunities that may require the expenditure of significant amounts of capital.

Property Sales: While management’s principal intention is to own and operate its properties on a long-term basis, it periodically assesses the attributes of each of its properties, with a particular focus on the supply and demand fundamentals of the sub-markets in which they are located.  Based on these ongoing assessments, the Company may, from time to time, decide to sell any of its properties.  The Company continually reviews its portfolio and opportunities to divest properties that, among other things, no longer meet its long-term strategy, have reached their potential, are less efficient to operate, or when market conditions are favorable to be sold at attractive prices.  The Company anticipates redeploying the proceeds from sales of office properties to develop, redevelop and acquire multi-family rental properties in its core Northeast sub-markets and repositioning a portion of its portfolio from office to residential, as part of its overall strategy to re-weight our portfolio between office and multi-family rental sectors.

Financial
The Company currently intends to maintain a ratio of debt-to-undepreciated assets (total debt of the Company as a percentage of total undepreciated assets) of 50 percent or less, however there can be no assurance that the Company will be successful in maintaining this ratio.  As of December 31, 2012 and 2011, the Company’s total debt constituted approximately 36.7 percent and 33.6 percent of total undepreciated assets of the Company, respectively.  Although there is no limit in the Company’s organizational documents on the amount of indebtedness that the Company may incur, the Company has entered into certain financial agreements which contain covenants that limit the Company’s ability to incur indebtedness under certain circumstances.  The Company intends to utilize the most appropriate sources of capital for future acquisitions, development, capital improvements and other investments, which may include funds from operating activities, proceeds from property and land sales, short-term and long-term borrowings (including draws on the Company’s revolving credit facility), and the issuance of additional debt or equity securities.

EMPLOYEES

As of December 31, 2012, the Company had approximately 594 full-time employees.

COMPETITION

The leasing of real estate is highly competitive.  The Properties compete for tenants with lessors and developers of similar properties located in their respective markets primarily on the basis of location, the quality of properties, leasing terms (including rent and other charges and allowances for tenant improvements), services or amenitites provided, the design and condition of the Properties, and reputation as an owner and operator of quality properties in the relevant market.  The number of competitive multi-family rental properties in a particular area could have a material effect on the Company’s ability to lease residential units and on rents charged.  The Company competes with other entities, some of which may have significant resources or who may be willing to accept lower returns or pay higher prices than the Company in terms of acquisition and development opportunities. In addition, other forms of residential rental properties or single family housing provide alternatives to potential residents of multi-family properties.  The Company also experiences competition when attempting to acquire or dispose of real estate, including competition from domestic and foreign financial institutions, other REITs, life insurance companies, pension trusts, trust funds, partnerships, individual investors and others.
 
 
 
5

 
 

 
REGULATIONS

Many laws and governmental regulations apply to the ownership and/or operation of the Properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.

Under various laws and regulations relating to the protection of the environment and human health, an owner of real estate may be held liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in the property.  These laws often impose liability without regard to whether the owner was responsible for, or even knew of, the presence of such substances.  The presence of such substances may adversely affect the owner’s ability to rent or sell the property or to borrow using such property as collateral and may expose it to liability resulting from any release of, or exposure to, such substances.  Persons who arrange for the disposal or treatment of hazardous or toxic substances at another location may also be liable for the costs of re­moval or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person.  Certain environmental laws impose liability for the release of asbestos-containing materials into the air, and third parties may also seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials and other hazardous or toxic substances.

In connection with the ownership (direct or indirect), operation, management and development of real properties, the Company may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental penalties and injuries to persons and property.

There can be no assurance that (i) future laws, ordinances or regulations will not impose any material environmental liability, (ii) the current environmental condition of the Properties will not be affected by tenants, by the condition of land or operations in the vicinity of the Properties (such as the presence of underground storage tanks), or by third parties unrelated to the Company, or (iii) the Company’s assessments reveal all environmental liabilities and that there are no material environmental liabilities of which the Company is aware.  If compliance with the various laws and regulations, now existing or hereafter adopted, exceeds the Company’s budgets for such items, the Company’s ability to make expected distributions to stockholders could be adversely affected.

There are no other laws or regulations which have a material effect on the Company’s operations, other than typical federal, state and local laws affecting the development and operation of real property, such as zoning laws.

INDUSTRY SEGMENTS

The Company operates in two industry segments:  (i) real estate; and (ii) construction services.  As of December 31, 2012, the Company does not have any foreign operations and its business is not seasonal.  Please see our financial statements attached hereto and incorporated by reference herein for financial information relating to our industry segments.

RECENT DEVELOPMENTS
 
Acquisitions
Roseland Transaction
On October 23, 2012, the Company acquired the real estate development and management businesses (the “Roseland Business”) of Roseland Partners, L.L.C. (“Roseland Partners”), a premier multi-family rental community developer and manager based in Short Hills, New Jersey, and the Roseland Partners’ interests, principally through unconsolidated joint venture interests in various entities which, directly or indirectly, own or have rights with respect to various residential and/or commercial properties or vacant land (collectively, the “Roseland Assets”).
 
The Roseland Assets consisted primarily of interests in: six operating multi-family properties totaling 1,769 apartments, one condo-residential property totaling three units and four commercial properties totaling approximately 212,000 square feet; 13 in-process development projects, which included nine multi-family properties totaling 2,149 apartments, two garages totaling 1,591 parking spaces and two retail properties totaling approximately 35,400 square feet; and land parcels or options in land parcels which may support approximately 5,980 apartments, approximately 736,000 square feet of commercial space, and a 321-key hotel. The locations of the properties extend from New Jersey to Massachusetts with the majority of the properties located in New Jersey. 
 
 
 
6

 
 
 
The Company acquired the Roseland Assets and Roseland Business for aggregate purchase consideration of up to approximately $134.6 million, subject to adjustment, which included: 
 
·  
approximately $115 million in cash which was financed by the Company primarily through borrowings under its unsecured revolving credit facility and available cash; and 
·  
up to an additional $15.6 million in cash that may be paid to Roseland Partners pursuant to certain earn-outs, which are based upon the achievement of operational milestones of the Roseland Assets and Roseland Business during the three years following the closing date.    
 
The purchase consideration is subject to adjustment upon the failure to achieve a certain level of fee revenue, during the 33-month period following the closing date.   Also, at the closing, approximately $34 million in cash of the purchase price was deposited in escrow to secure certain of the indemnification obligations of Roseland Partners and its  affiliates. 
 
Alterra
On January 17, 2013, the Company signed an agreement (the “Alterra Agreement”) to acquire Alterra at Overlook Ridge IA and IB.  On January 18, 2013, pursuant to the Alterra Agreement, the Company completed the acquisition of Alterra at Overlook Ridge IA, a 310-unit multi-family property located in Revere, Massachusetts, for approximately $61.3 million in cash.  The purchase price for the property was financed primarily through borrowings under the Company’s unsecured revolving credit facility.

Also pursuant to the Alterra Agreement, the Company agreed to acquire Alterra at Overlook Ridge IB, a 412-unit multi-family property in Revere, Massachusetts, for approximately $88 million in cash and expects an early April 2013 closing when the loan that currently encumbers the property opens for prepayment.  On January 18, 2013, the Company posted a letter of credit deposit in the amount of approximately $22 million (which was issued using the Company’s unsecured revolving credit facility) related to the Alterra at Overlook Ridge 1B closing, which is subject to certain conditions set forth in the Alterra Agreement.

Development
In July 2012, the Company entered into a ground lease with Wegmans Food Markets, Inc. (“Wegmans”) at its undeveloped site located at Sylvan Way and Ridgedale Avenue in Hanover Township, New Jersey. Subject to receiving all necessary governmental approvals, Wegmans intends to construct a store of approximately 140,000 square feet on a finished pad to be delivered by the Company in the first quarter of 2014.  The Company expects to incur costs of approximately $14.4 million for the development of the site through the first quarter of 2015 (of which the Company has incurred $1.0 million through December 31, 2012).

As part of the Roseland Transaction, the Company acquired a project for a new five-story parking garage consisting of approximately 850 parking spaces located in Weehawken, New Jersey.  The carrying value of the project through December 31, 2012 was approximately $69.4 million including $13.1 million of land costs.  The Company expects to incur an additional approximate $0.5 million to complete the project, which is expected to be completed in the first quarter 2013.

Property Sales, Held for Sale and Impairments
On July 25, 2012, the Company sold its 47,700 square foot office property located at 95 Chestnut Ridge Road in Montvale, New Jersey for net sales proceeds of approximately $4.0 million (with no gain from the sale).  The Company previously recognized a valuation allowance of $0.5 million on this property at March 31, 2012.

On November 7, 2012, the Company sold its three office buildings totaling 222,258 square feet located at Strawbridge Drive in Moorestown, New Jersey for net sales proceeds of approximately $19.4 million, with a loss of approximately $0.1 million from the sale. The Company previously recognized a valuation allowance of $1.6 million on these properties at June 30, 2012.
 
 
 
7

 
 

 
At December 31, 2012, the Company identified as held for sale its 248,400 square foot office building located at 19 Skyline Drive in Hawthorne, New York.  The Company determined that the carrying amount of this property was not expected to be recovered from estimated sales proceeds and accordingly recognized a valuation allowance of $7.1 million at December 31, 2012.  Also at December 31, 2012, the Company identified as held for sale its 204,057 square foot office building located at 55 Corporate Drive in Bridgewater, New Jersey.  The two properties held for sale at December 31, 2012 carried an aggregate book value of $60.9 million, net of accumulated depreciation of $16.8 million and a valuation allowance of $7.1 million.

At December 31, 2012, in light of recent discussions to dispose of its interest, the Company determined that certain rights to participate in a future development venture, which related to a mixed use development project in East Rutherford, New Jersey, were not expected to be recovered from estimated net proceeds from its eventual disposition.  Accordingly, the Company recorded an impairment charge of $6.3 million, to reduce the carrying value from $11.9 million to the estimated recoverable amount of $5.6 million at December 31, 2012.  These rights are included in deferred charges, goodwill and other assets, as of December 31, 2012.  The Company also recorded an impairment charge on another rental property investment of $0.5 million related to an office property in Newark, New Jersey.

The Company’s office property located at 9200 Edmonston Road in Greenbelt, Maryland, aggregating 38,690 square feet, is collateral for a mortgage loan scheduled to mature on May 1, 2013 with a balance of $4.3 million at December 31, 2012.  At December 31, 2012, the Company estimated that the carrying value of the property may not be recoverable over its anticipated holding period. In order to reduce the carrying value of the property to its estimated fair market value, the Company recorded an impairment charge of $3.0 million at December 31, 2012.  Also at December 31, 2012, as a  result of management’s current intentions regarding a potential disposition, the Company estimated that the carrying value of the Company’s two office properties located at 16 and 18 Sentry Parkway West in Blue Bell, Pennsylvania, aggregating 188,103 square feet, may not be recoverable over their anticipated holding periods.  In order to reduce the carrying value of the two properties to their estimated fair market values, the Company recorded an impairment charge of $8.4 million at December 31, 2012.

Operations
The Company’s core office markets continue to be weak.  The percentage leased in the Company’s consolidated portfolio of stabilized operating commercial properties was 87.2 percent at December 31, 2012, as compared to 88.3 percent at December 31, 2011 and 89.1 percent at December 31, 2010.  Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future and leases that expire at the period end date.  Leases that expired as of December 31, 2012, 2011 and 2010 aggregate 378,901, 193,213 and 187,058 square feet, respectively, or 1.2, 0.6 and 0.6 percentage of the net rentable square footage, respectively.  The Company believes that vacancy rates may continue to increase in some of its markets through 2013 and possibly beyond.  As a result, the Company’s future earnings and cash flow may continue to be negatively impacted by current market conditions.

The Company expects that the impact of the current state of the economy, including high unemployment, will continue to have a dampening effect on the fundamentals of its business, including lower occupancy and reduced effective rents at its office properties.  These conditions would negatively affect the Company’s future net income and cash flows and could have a material adverse effect on the Company’s financial condition.

FINANCING ACTIVITY
On April 19, 2012, the Company completed the sale of $300 million face amount of 4.50 percent senior unsecured notes due April 18, 2022 with interest payable semi-annually in arrears.  The net proceeds from the issuance of $296.8 million, after underwriting discount and offering expenses, were used primarily to repay outstanding borrowings under the Company’s unsecured revolving credit facility. 
 
On May 25, 2012, the Company redeemed $94.9 million principal amount of its 6.15 percent senior unsecured notes due December 15, 2012 (the “2002 Notes”).  The redemption price, including a make-whole premium, was 103.19 percent of the principal amount of the 2002 Notes, plus accrued and unpaid interest up to the redemption date.  The Company funded the redemption price, including accrued and unpaid interest, of approximately $100.5 million from borrowing on its unsecured revolving credit facility, as well as cash on hand. In connection with the redemption, the Company recorded approximately $3.3 million as a loss from early extinguishment of debt.  
 
On May 25, 2012, the Company redeemed $26.1 million principal amount of its 5.82 percent senior unsecured notes due March 15, 2013 (the “2003 Notes”).  The redemption price, including a make-whole premium, was 103.87 percent of the principal amount of the 2003 Notes, plus accrued and unpaid interest up to the redemption date.  The Company funded the redemption price, including accrued and unpaid interest, of approximately $27.4 million from borrowing on its unsecured revolving credit facility, as well as cash on hand. In connection with the redemption, the Company recorded approximately $1.1 million as a loss from early extinguishment of debt. 
 
 
 
8

 
 

 
On November 20, 2012, the Company completed the sale of $250 million face amount of 2.50 percent senior unsecured notes due December 15, 2017 with interest payable semi-annually in arrears. The net proceeds from the issuance of $246.4 million, after underwriting discount and offering expenses, were used primarily to repay outstanding borrowings under the Company’s unsecured revolving credit facility.

AVAILABLE INFORMATION

The Company’s internet website is www.mack-cali.com.  The Company makes available free of charge on or through its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files or furnishes such materials to the Securities and Exchange Commission.  In addition, the Company’s internet website includes other items related to corporate governance matters, including, among other things, the Company’s corporate governance principles, charters of various committees of the Board of Directors, and the Company’s code of business conduct and ethics applicable to all employees, officers and directors.  The Company intends to disclose on its internet website any amendments to or waivers from its code of business conduct and ethics as well as any amendments to its corporate governance principles or the charters of various committees of the Board of Directors.  Copies of these documents may be obtained, free of charge, from our internet website.  Any shareholder also may obtain copies of these documents, free of charge, by sending a request in writing to: Mack-Cali Investor Relations Department, 343 Thornall Street, Edison, NJ  08837-2206.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

We consider portions of this report, including the documents incorporated by reference, to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of such act.  Such forward-looking statements relate to, without limitation, our future economic performance, plans and objectives for future operations and projections of revenue and other financial items.  Forward-looking statements can be identified by the use of words such as “may,” “will,” “plan,” “potential,” “should,” “expect,” “anticipate,” “estimate,” “continue” or comparable terminology.  Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate.  Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved.  Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements.

Among the factors about which we have made assumptions are:

·  
risks and uncertainties affecting the general economic climate and conditions, which in turn may have a negative effect on the fundamentals of our business and the financial condition of our tenants;
·  
the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis;
·  
the extent of any tenant bankruptcies or of any early lease terminations;
·  
our ability to lease or re-lease space at current or anticipated rents;
·  
changes in the supply of and demand for our properties;
·  
changes in interest rate levels and volatility in the securities markets;
·  
changes in operating costs;
·  
our ability to obtain adequate insurance, including coverage for terrorist acts;
·  
the availability of financing on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities and refinance existing debt and our future interest expense;
·  
changes in governmental regulation, tax rates and similar matters; and
·  
other risks associated with the development and acquisition of properties, including risks that the development may not be completed on schedule, that the tenants will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated.
 
 
 
 
9

 

 
For further information on factors which could impact us and the statements contained herein, see Item 1A: Risk Factors.  We assume no obligation to update and supplement forward-looking statements that become untrue because of subsequent events, new information or otherwise.

ITEM 1A.     RISK FACTORS

Our results from operations and ability to make distributions on our equity and debt service on our indebtedness may be affected by the risk factors set forth below.  All investors should consider the following risk factors before deciding to purchase securities of the Company.  The Company refers to itself as “we” or “our” in the following risk factors.

Adverse economic and geopolitical conditions in general and the Northeastern suburban office markets in particular could have a material adverse effect on our results of operations, financial condition and our ability to pay distributions to you.
Our business may be affected by the continuing volatility in the financial and credit markets, the general global economic conditions, continuing high unemployment, and other market or economic challenges experienced by the U.S. economy or real estate industry as a whole.  Our business also may be adversely affected by local economic conditions, as substantially all of our revenues are derived from our properties located in the Northeast, particularly in New Jersey, New York and Pennsylvania.  Because our portfolio currently consists primarily of office and office/flex buildings (as compared to a more diversified real estate portfolio) located principally in the Northeast, if economic conditions persist or deteriorate, then our results of operations, financial condition and ability to service current debt and to pay distributions to our shareholders may be adversely affected by the following, among other potential conditions:

·  
significant job losses in the financial and professional services industries may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;
·  
our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from both our existing operations and our acquisition and development activities and increase our future interest expense;
·  
reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;
·  
the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investments or other factors;
·  
reduced liquidity in debt markets and increased credit risk premiums for certain market participants may impair our ability to access capital; and
·  
one or more lenders under our line of credit could refuse or be unable to fund their financing commitment to us and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.

These conditions, which could have a material adverse effect on our results of operations, financial condition and ability to pay distributions, may continue or worsen in the future.

Our performance is subject to risks associated with the real estate industry.
General: Our business and our ability to make distributions or payments to our investors depend on the ability of our properties to generate funds in excess of operating expenses (including scheduled principal payments on debt and capital expenditures).  Events or conditions that are beyond our control may adversely affect our operations and the value of our Properties.  Such events or conditions could include:
 
 
 
10

 
 

 
·  
changes in the general economic climate and conditions;
·  
changes in local conditions, such as an oversupply of office space, a reduction in demand for office space, or reductions in office market rental rates;
·  
an oversupply or reduced demand for apartment homes caused by a decline in household formation, decline in employment or otherwise;
· decreased attractiveness of our properties to tenants;
· competition from other office and office/flex properties;
· development by competitors of competing communities;
· unwillingness of tenants to pay rent increases;
·  
rent control or rent stabilization laws, or other housing laws and regulations that could prevent us from raising rents to offset increases in operating costs;
· our inability to provide adequate maintenance;
·  
increased operating costs, including insurance premiums, utilities and real estate taxes, due to inflation and other factors which may not necessarily be offset by increased rents;
·  
changes in laws and regulations (including tax, environmental, zoning and building codes, landlord/tenant and other  housing laws and regulations) and agency or court interpretations of such laws and regulations and the related costs of compliance;
·  
changes in interest rate levels and the availability of financing;
·  
the inability of a significant number of tenants to pay rent;
·  
our inability to rent office or residential space on favorable terms; and
·  
civil unrest, earthquakes, acts of terrorism and other natural disasters or acts of God that may result in uninsured losses.

We may suffer adverse consequences if our revenues decline since our operating costs do not necessarily decline in proportion to our revenue:  We earn a significant portion of our income from renting our properties. Our operating costs, however, do not necessarily fluctuate in relation to changes in our rental revenue.  This means that our costs will not necessarily decline even if our revenues do.  Our operating costs could also increase while our revenues do not.  If our operating costs increase but our rental revenues do not, we may be forced to borrow to cover our costs and we may incur losses.  Such losses may adversely affect our ability to make distributions or payments to our investors.

Financially distressed tenants may be unable to pay rent: If a tenant defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord and protecting our investments.  If a tenant files for bankruptcy, we cannot evict the tenant solely because of the bankruptcy and a potential court judgment rejecting and terminating such tenant’s lease (which would subject all future unpaid rent to a statutory cap) could adversely affect our ability to make distributions or payments to our investors as we may be unable to replace the defaulting tenant with a new tenant at a comparable rental rate without incurring significant expenses or a reduction in rental income.

Renewing leases or re-letting space could be costly: If a tenant does not renew its lease upon expiration or terminates its lease early, we may not be able to re-lease the space on favorable terms or at all.  If a tenant does renew its lease or we re-lease the space, the terms of the renewal or new lease, including the cost of required renovations or concessions to the tenant, may be less favorable than the current lease terms, which could adversely affect our ability to make distributions or payments to our investors.

Adverse developments concerning some of our major tenants and industry concentrations could have a negative impact on our revenue: Recent developments in the general economy and the global credit markets have had a significant adverse effect on many companies in numerous industries.  We have tenants concentrated in various industries that may be experiencing adverse effects of current economic conditions.  For instance, 14.1 percent of our revenue is derived from tenants in the Securities, Commodity Contracts and Other Financial industry, 10.0 percent from tenants in the Insurance Carriers and Related Activities industry and 8.7 percent from tenants in the Manufacturing industry.  Our business could be adversely affected if any of these industries suffered a downturn and/or these tenants or any other tenants became insolvent, declared bankruptcy or otherwise refused to pay rent in a timely manner or at all.
 

 
 
11

 

Our insurance coverage on our properties may be inadequate or our insurance providers may default on their obligations to pay claims: We currently carry comprehensive insurance on all of our properties, including insurance for liability, fire and flood.  We cannot guarantee that the limits of our current policies will be sufficient in the event of a catastrophe to our properties.  We cannot guarantee that we will be able to renew or duplicate our current insurance coverage in adequate amounts or at reasonable prices.  In addition, while our current insurance policies insure us against loss from terrorist acts and toxic mold, in the future, insurance companies may no longer offer coverage against these types of losses, or, if offered, these types of insurance may be prohibitively expensive.  If any or all of the foregoing should occur, we may not have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available.  Should an uninsured loss or a loss in excess of our insured limits occur, we could lose all or a portion of the capital we have invested in a property or properties, as well as the anticipated future revenue from the property or properties.  Nevertheless, we might remain obligated for any mortgage debt or other financial obligations related to the property or properties.  We cannot guarantee that material losses in excess of insurance proceeds will not occur in the future.  If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property.  Such events could adversely affect our ability to make distributions or payments to our investors.  If one or more of our insurance providers were to fail to pay a claim as a result of insolvency, bankruptcy or otherwise, the nonpayment of such claims could have an adverse effect on our financial condition and results of operations.  In addition, if one or more of our insurance providers were to become subject to insolvency, bankruptcy or other proceedings and our insurance policies with the provider were terminated or canceled as a result of those proceedings, we cannot guarantee that we would be able to find alternative coverage in adequate amounts or at reasonable prices.  In such case, we could experience a lapse in any or adequate insurance coverage with respect to one or more properties and be exposed to potential losses relating to any claims that may arise during such period of lapsed or inadequate coverage.

Illiquidity of real estate limits our ability to act quickly: Real estate investments are relatively illiquid.  Such illiquidity may limit our ability to react quickly in response to changes in economic and other conditions.  If we want to sell an investment, we might not be able to dispose of that investment in the time period we desire, and the sales price of that investment might not recoup or exceed the amount of our investment.  The prohibition in the Internal Revenue Code of 1986, as amended (the “Code”), and related regulations on a real estate investment trust holding property for sale also may restrict our ability to sell property.  In addition, we acquired a significant number of our properties from individuals to whom the Operating Partnership issued Units as part of the purchase price.  In connection with the acquisition of these properties, in order to preserve such individual’s income tax deferral, we contractually agreed not to sell or otherwise transfer the properties for a specified period of time, except in a manner which does not result in recognition of any built-in-gain (which may result in an income tax liability) or which reimburses the appropriate individuals for the income tax consequences of the recognition of such built-in-gains.  As of December 31, 2012, seven of our properties, with an aggregate net book value of approximately $129.7 million, were subject to these restrictions which expire periodically through 2016.  For those properties where such restrictions have lapsed, we are generally required to use commercially reasonable efforts to prevent any sale, transfer or other disposition of the subject properties from resulting in the recognition of built-in gain to the appropriate individuals.  126 of our properties, with an aggregate net book value of approximately $1.7 billion, have lapsed restrictions and are subject to these conditions.  The above limitations on our ability to sell our investments could adversely affect our ability to make distributions or payments to our investors.

New acquisitions, including acquisitions of residential real estate may fail to perform as expected and will subject us to additional new risks: We intend to and may acquire new properties, primarily in the multi-family rental sector, assuming that we are able to obtain capital on favorable terms.  Such newly acquired properties may not perform as expected and may subject us to unknown liability with respect to liabilities relating to such properties for clean-up of undisclosed environmental contamination or claims by tenants, vendors or other persons against the former owners of the properties.  Inaccurate assumptions regarding future rental or occupancy rates could result in overly optimistic estimates of future revenues.  In addition, future operating expenses or the costs necessary to bring an acquired property up to standards established for its intended market position may be underestimated. The search for and process of acquiring such properties will also require a substantial amount of management’s time and attention.  As our portfolio shifts from primarily commercial office properties to increasingly more residential properties we will face additional and new risks such as:

·  
shorter-term leases of one-year on average for residential communities, which allow residents to leave after the term of the lease without penalty;
·  
increased competition from other housing sources such as other apartment communities, condominiums and single-family houses that are available for rent as well as for sale;
·  
dependency on the convenience and attractiveness of the communities or neighborhoods in which our residential properties are located and the quality of local schools and other amenities;
·  
dependency on the financial condition of Fannie Mae or Freddie Mac which provide a major source of financing to the multi-family housing industry; and
·  
compliance with housing and other new regulations.
 
 
 
12

 

 
Risks of Repositioning the Company’s Portfolio: There can be no assurance that the Company, as it seeks to reposition a portion of its portfolio from office to the multi-family rental sector will be able to sell office properties and purchase multi-family rental properties at prices that in the aggregate are profitable for the Company or an efficient use of its capital or that would not result in a reduction of the Company’s cash flow.

Americans with Disabilities Act compliance could be costly: Under the Americans with Disabilities Act of 1990 (“ADA”), all public accommodations and commercial facilities must meet certain federal requirements related to access and use by disabled persons.  Compliance with the ADA requirements could involve removal of structural barriers from certain disabled persons’ entrances.  Other federal, state and local laws may require modifications to or restrict further renovations of our properties with respect to such accesses.  Although we believe that our properties are substantially in compliance with present requirements, noncompliance with the ADA or related laws or regulations could result in the United States government imposing fines or private litigants being awarded damages against us.  Such costs may adversely affect our ability to make distributions or payments to our investors.

Environmental problems are possible and may be costly: Various federal, state and local laws and regulations subject property owners or operators to liability for the costs of removal or remediation of certain hazardous or toxic substances located on or in the property.  These laws often impose liability without regard to whether the owner or operator was responsible for or even knew of the presence of such substances.  The presence of or failure to properly remediate hazardous or toxic substances (such as toxic mold, lead paint and asbestos) may adversely affect our ability to rent, sell or borrow against contaminated property and may impose liability upon us for personal injury to persons exposed to such substances.  Various laws and regulations also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances at another location for the costs of removal or remediation of such substances at the disposal or treatment facility.  These laws often impose liability whether or not the person arranging for such disposal ever owned or operated the disposal facility.  Certain other environmental laws and regulations impose liability on owners or operators of property for injuries relating to the release of asbestos-containing or other materials into the air, water or otherwise into the environment.  As owners and operators of property and as potential arrangers for hazardous substance disposal, we may be liable under such laws and regulations for removal or remediation costs, governmental penalties, property damage, personal injuries and related expenses.  Payment of such costs and expenses could adversely affect our ability to make distributions or payments to our investors.

We face risks associated with property acquisitions: We have acquired in the past, and our long-term strategy is to continue to pursue the acquisition of properties and portfolios of properties in New Jersey, New York and Pennsylvania and in the Northeast generally, and particularly residential properties, including large real estate portfolios that could increase our size and result in alterations to our capital structure.  We may be competing for investment opportunities with entities that have greater financial resources.  Several office building developers and real estate companies may compete with us in seeking properties for acquisition, land for development and prospective tenants. Such competition may adversely affect our ability to make distributions or payments to our investors by:

·  
reducing the number of suitable investment opportunities offered to us;
·  
increasing the bargaining power of property owners;
·  
interfering with our ability to attract and retain tenants;
·  
increasing vacancies which lowers market rental rates and limits our ability to negotiate rental rates; and/or
·  
adversely affecting our ability to minimize expenses of operation.

Our acquisition activities and their success are subject to the following risks:

·  
adequate financing to complete acquisitions may not be available on favorable terms or at all as a result of the continuing volatility in the financial and credit markets;
·  
even if we enter into an acquisition agreement for a property, we may be unable to complete that acquisition and risk the loss of certain non-refundable deposits and incurring certain other acquisition-related costs;
·  
the actual costs of repositioning or redeveloping acquired properties may be greater than our estimates;
·  
any acquisition agreement will likely contain conditions to closing, including completion of due diligence investigations to our satisfaction or other conditions that are not within our control, which may not be satisfied; and
·  
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and acquired properties may fail to perform as expected; which may adversely affect our results of operations and financial condition.
 
 
13

 
 

 
Development of real estate, including the development of residential real estate could be costly: As part of our operating strategy, we may acquire land for development or construct on owned land, under certain conditions.  Included among the risks of the real estate development business are the following, which may adversely affect our ability to make distributions or payments to our investors:

·  
financing for development projects may not be available on favorable terms;
·  
long-term financing may not be available upon completion of construction;
·  
failure to complete construction and lease-up on schedule or within budget may increase debt service expense and construction and other costs; and
·  
failure to rent the development at all or at rent levels originally contemplated.

Property ownership through joint ventures could subject us to the contrary business objectives of our co-venturers: We, from time to time, invest in joint ventures or partnerships in which we do not hold a controlling interest in the assets underlying the entities in which we invest, including joint ventures in which (i) we own a direct interest in an entity which controls such assets, or (ii) we own a direct interest in an entity which owns indirect interests, through one or more intermediaries, of such assets.  These investments involve risks that do not exist with properties in which we own a controlling interest with respect to the underlying assets, including the possibility that (iii) our co-venturers or partners may, at any time, become insolvent or otherwise refuse to make capital contributions when due, (iv) we may be responsible to our co-venturers or partners for indemnifiable losses, (v) we may become liable with respect to guarantees of payment or performance by the joint ventures, (vi) we may become subject to buy-sell arrangements which could cause us to sell our interests or acquire our co-venturer’s or partner’s interests in a joint venture, or (vii) our co-venturers or partners may, at any time, have business, economic or other objectives that are inconsistent with our objectives.  Because we lack a controlling interest, our co-venturers or partners may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives.  While we seek protective rights against such contrary actions, there can be no assurance that we will be successful in procuring any such protective rights, or if procured, that the rights will be sufficient to fully protect us against contrary actions.  Our organizational documents do not limit the amount of available funds that we may invest in joint ventures or partnerships.  If the objectives of our co-venturers or partners are inconsistent with ours, it may adversely affect our ability to make distributions or payments to our investors.

Our real estate construction management activities are subject to risks particular to third-party construction projects.
As we may perform fixed price construction services for third parties, we are subject to a variety of risks unique to these activities.  If construction costs of a project exceed original estimates, such costs may have to be absorbed by us, thereby making the project less profitable than originally estimated, or possibly not profitable at all.  In addition, a construction project may be delayed due to government or regulatory approvals, supply shortages, or other events and circumstances beyond our control, or the time required to complete a construction project may be greater than originally anticipated.  If any such excess costs or project delays were to be material, such events may adversely effect our cash flow and liquidity and thereby impact our ability to make distributions or payments to our investors.

We face possible risks associated with the physical effects of climate change.
We cannot predict with certainty whether climate change is occurring and, if so, at what rate.  However, the physical effects of climate change could have a material adverse effect on our properties, operations and business.  For example, many of our properties are located along the East coast, particularly those in New Jersey, New York and Connecticut.  To the extent climate change causes changes in weather patterns, our markets could experience increases in storm intensity and rising sea-levels.  Over time, these conditions could result in declining demand for office space in our buildings or the inability of us to operate the buildings at all.  Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy and increasing the cost of snow removal or related costs at our properties.  Proposed legislation to address climate change could increase utility and other costs of operating our properties which, if not offset by rising rental income, would reduce our net income.  There can be no assurance that climate change will not have a material adverse effect on our properties, operations or business.
 
 
 
14

 

 
Debt financing could adversely affect our economic performance.
Scheduled debt payments and refinancing could adversely affect our financial condition: We are subject to the risks normally associated with debt financing.  These risks, including the following, may adversely affect our ability to make distributions or payments to our investors:

·  
our cash flow may be insufficient to meet required payments of principal and interest;
·  
payments of principal and interest on borrowings may leave us with insufficient cash resources to pay operating expenses;
·  
we may not be able to refinance indebtedness on our properties at maturity; and
·  
if refinanced, the terms of refinancing may not be as favorable as the original terms of the related indebtedness.

As of December 31, 2012, we had total outstanding indebtedness of $2.2 billion comprised of $1.4 billion of senior unsecured notes and approximately $757 million of mortgages, loans payable and other obligations.  We may have to refinance the principal due on our current or future indebtedness at maturity, and we may not be able to do so.

If we are unable to refinance our indebtedness on acceptable terms, or at all, events or conditions that may adversely affect our ability to make distributions or payments to our investors include the following:

·  
we may need to dispose of one or more of our properties upon disadvantageous terms;
·  
prevailing interest rates or other factors at the time of refinancing could increase interest rates and, therefore, our interest expense;
·  
we may be subject to an event of default pursuant to covenants for our indebtedness;
·  
if we mortgage property to secure payment of indebtedness and are unable to meet mortgage payments, the mortgagee could foreclose upon such property or appoint a receiver to receive an assignment of our rents and leases; and
·  
foreclosures upon mortgaged property could create taxable income without accompanying cash proceeds and, therefore, hinder our ability to meet the real estate investment trust distribution requirements of the Code.

We are obligated to comply with financial covenants in our indebtedness that could restrict our range of operating activities: The mortgages on our properties contain customary negative covenants, including limitations on our ability, without the prior consent of the lender, to further mortgage the property, to enter into new leases outside of stipulated guidelines or to materially modify existing leases.  In addition, our revolving credit facility contains customary requirements, including restrictions and other limitations on our ability to incur debt, debt to assets ratios, secured debt to total assets ratios, interest coverage ratios and minimum ratios of unencumbered assets to unsecured debt.  The indentures under which our senior unsecured debt have been issued contain financial and operating covenants including coverage ratios and limitations on our ability to incur secured and unsecured debt.  These covenants limit our flexibility in conducting our operations and create a risk of default on our indebtedness if we cannot continue to satisfy them.  Some of our debt instruments are cross-collateralized and contain cross default provisions with other debt instruments.  Due to this cross-collateralization, a failure or default with respect to certain debt instruments or properties could have an adverse impact on us or our properties that are subject to the cross-collateralization under the applicable debt instrument.  Failure to comply with these covenants could cause a default under the agreements and, in certain circumstances, our lenders may be entitled to accelerate our debt obligations.  Defaults under our debt agreements could materially and adversely affect our financial condition and results of operations.
 
Rising interest rates may adversely affect our cash flow: As of December 31, 2012, outstanding borrowings of approximately $77.1 million of our mortgage indebtedness bear interest at variable rates.  We may incur additional indebtedness in the future that bears interest at variable rates.  Variable rate debt creates higher debt service requirements if market interest rates increase.  Higher debt service requirements could adversely affect our ability to make distributions or payments to our investors and/or cause us to default under certain debt covenants.
 
 
 
15

 
 

 
Our degree of leverage could adversely affect our cash flow: We fund acquisition opportunities and development partially through short-term borrowings (including our revolving credit facility), as well as from proceeds from property sales and undistributed cash.  We expect to refinance projects purchased with short-term debt either with long-term indebtedness or equity financing depending upon the economic conditions at the time of refinancing.  Our Board of Directors has a general policy of limiting the ratio of our indebtedness to total undepreciated assets (total debt as a percentage of total undepreciated assets) to 50 percent or less, although there is no limit in Mack-Cali Realty, L.P.’s or our organizational documents on the amount of indebtedness that we may incur.  However, we have entered into certain financial agreements which contain financial and operating covenants that limit our ability under certain circumstances to incur additional secured and unsecured indebtedness.  The Board of Directors could alter or eliminate its current policy on borrowing at any time at its discretion.  If this policy were changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our cash flow and our ability to make distributions or payments to our investors and/or could cause an increased risk of default on our obligations.

We are dependent on external sources of capital for future growth: To qualify as a real estate investment trust under the Code, we must distribute to our shareholders each year at least 90 percent of our net taxable income, excluding any net capital gain. Because of this distribution requirement, it is not likely that we will be able to fund all future capital needs, including for acquisitions and developments, from income from operations.  Therefore, we will have to rely on third-party sources of capital, which may or may not be available on favorable terms or at all.  Our access to third-party sources of capital depends on a number of things, including the market’s perception of our growth potential and our current and potential future earnings.  Moreover, additional equity offerings may result in substantial dilution of our shareholders’ interests, and additional debt financing may substantially increase our leverage.

Competition for skilled personnel could increase our labor costs.
We compete with various other companies in attracting and retaining qualified and skilled personnel.  We depend on our ability to attract and retain skilled management personnel who are responsible for the day-to-day operations of our company.  Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel.  We may not be able to offset such added costs by increasing the rates we charge our tenants.  If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be harmed.

We are dependent on our key personnel whose continued service is not guaranteed.
We are dependent upon our executive officers for strategic business direction and real estate experience.  While we believe that we could find replacements for these key personnel, loss of their services could adversely affect our operations.  We have entered into an employment agreement (including non-competition provisions) which provides for a continuous four-year employment term with each of Mitchell E. Hersh, Barry Lefkowitz and Roger W. Thomas.  We do not have key man life insurance for our executive officers.  In addition, as the Company seeks to reposition a portion of its portfolio from office to the multi-family rental sector, the Company may become increasingly dependent on non-executive personnel with residential development and leasing expertise to effectively execute the Company’s long-term strategy.

Certain provisions of Maryland law and our charter and bylaws could hinder, delay or prevent changes in control.
Certain provisions of Maryland law, our charter and our bylaws have the effect of discouraging, delaying or preventing transactions that involve an actual or threatened change in control.  These provisions include the following:

Classified Board of Directors: Our Board of Directors is divided into three classes with staggered terms of office of three years each.  The classification and staggered terms of office of our directors make it more difficult for a third party to gain control of our board of directors.  At least two annual meetings of stockholders, instead of one, generally would be required to affect a change in a majority of the board of directors.

Removal of Directors: Under our charter, subject to the rights of one or more classes or series of preferred stock to elect one or more directors, a director may be removed only for cause and only by the affirmative vote of at least two-thirds of all votes entitled to be cast by our stockholders generally in the election of directors.  Neither the Maryland General Corporation Law nor our charter define the term “cause.”  As a result, removal for “cause” is subject to Maryland common law and to judicial interpretation and review in the context of the facts and circumstances of any particular situation.
 
 
 
16

 
 

 
Number of Directors, Board Vacancies, Terms of Office: We have, in our bylaws, elected to be subject to certain provisions of Maryland law which vest in the Board of Directors the exclusive right to determine the number of directors and the exclusive right, by the affirmative vote of a majority of the remaining directors, even if the remaining directors do not constitute a quorum, to fill vacancies on the board.  These provisions of Maryland law, which are applicable even if other provisions of Maryland law or the charter or bylaws provide to the contrary, also provide that any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, rather than the next annual meeting of stockholders as would otherwise be the case, and until his or her successor is elected and qualifies.  We have, in our corporate governance principles, adopted a mandatory retirement age of 80 years old for directors.

Stockholder Requested Special Meetings: Our bylaws provide that our stockholders have the right to call a special meeting only upon the written request of the stockholders entitled to cast not less than a majority of all the votes entitled to be cast by the stockholders at such meeting.

Advance Notice Provisions for Stockholder Nominations and Proposals: Our bylaws require advance written notice for stockholders to nominate persons for election as directors at, or to bring other business before, any meeting of stockholders.  This bylaw provision limits the ability of stockholders to make nominations of persons for election as directors or to introduce other proposals unless we are notified in a timely manner prior to the meeting.

Exclusive Authority of the Board to Amend the Bylaws: Our bylaws provide that our board of directors has the exclusive power to adopt, alter or repeal any provision of the bylaws or to make new bylaws.  Thus, our stockholders may not effect any changes to our bylaws.

Preferred Stock: Under our charter, our Board of Directors has authority to issue preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of our stockholders.  As a result, our Board of Directors may establish a series of preferred stock that could delay or prevent a transaction or a change in control.

Duties of Directors with Respect to Unsolicited Takeovers: Maryland law provides protection for Maryland corporations against unsolicited takeovers by limiting, among other things, the duties of the directors in unsolicited takeover situations. The duties of directors of Maryland corporations do not require them to (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) authorize the corporation to redeem any rights under, or modify or render inapplicable, any stockholders rights plan, (c) make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act, or (d) act or fail to act solely because of the effect of the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition.  Moreover, under Maryland law, the act of a director of a Maryland corporation relating to or affecting an acquisition or potential acquisition of control is not subject to any higher duty or greater scrutiny than is applied to any other act of a director. Maryland law also contains a statutory presumption that an act of a director of a Maryland corporation satisfies the applicable standards of conduct for directors under Maryland law.

Ownership Limit: In order to preserve our status as a real estate investment trust under the Code, our charter generally prohibits any single stockholder, or any group of affiliated stockholders, from beneficially owning more than 9.8 percent of our outstanding capital stock unless our Board of Directors waives or modifies this ownership limit.

Maryland Business Combination Act: The Maryland Business Combination Act provides that unless exempted, a Maryland corporation may not engage in business combinations, including mergers, dispositions of 10 percent or more of its assets, certain issuances of shares of stock and other specified transactions, with an “interested stockholder” or an affiliate of an interested stockholder, for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter unless specified criteria are met.  An interested stockholder is generally a person owning or controlling, directly or indirectly, 10 percent or more of the voting power of the outstanding stock of the Maryland corporation.  Our board of directors has exempted from this statute business combinations between the Company and certain affiliated individuals and entities.  However, unless our board adopts other exemptions, the provisions of the Maryland Business Combination Act will be applicable to business combinations with other persons.
 
 
 
17

 
 

 
Maryland Control Share Acquisition Act: Maryland law provides that “control shares” of a corporation acquired in a “control share acquisition” shall have no voting rights except to the extent approved by a vote of two-thirds of the votes eligible to cast on the matter under the Maryland Control Share Acquisition Act.  “Control shares” means shares of stock that, if aggregated with all other shares of stock previously acquired by the acquirer, would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of the voting power:  one-tenth or more but less than one-third, one-third or more but less than a majority or a majority or more of all voting power.  A “control share acquisition” means the acquisition of control shares, subject to certain exceptions.

If voting rights of control shares acquired in a control share acquisition are not approved at a stockholder’s meeting, then subject to certain conditions and limitations, the issuer may redeem any or all of the control shares for fair value.  If voting rights of such control shares are approved at a stockholder’s meeting and the acquirer becomes entitled to vote a majority of the shares of stock entitled to vote, all other stockholders may exercise appraisal rights.  Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any acquisitions of shares by certain affiliated individuals and entities, any directors, officers or employees of the Company and any person approved by the board of directors prior to the acquisition by such person of control shares.  Any control shares acquired in a control share acquisition which are not exempt under the foregoing provisions of our bylaws will be subject to the Maryland Control Share Acquisition Act.

Consequences of failure to qualify as a real estate investment trust could adversely affect our financial condition.
Failure to maintain ownership limits could cause us to lose our qualification as a real estate investment trust: In order for us to maintain our qualification as a real estate investment trust under the Code, not more than 50 percent in value of our outstanding stock may be actually and/or constructively owned by five or fewer individuals (as defined in the Code to include certain entities).  We have limited the ownership of our outstanding shares of our common stock by any single stockholder to 9.8 percent of the outstanding shares of our common stock.  Our Board of Directors could waive this restriction if they were satisfied, based upon the advice of tax counsel or otherwise, that such action would be in our best interests and would not affect our qualification as a real estate investment trust under the Code.  Common stock acquired or transferred in breach of the limitation may be redeemed by us for the lesser of the price paid and the average closing price for the 10 trading days immediately preceding redemption or sold at the direction of us.  We may elect to redeem such shares of common stock for Units, which are nontransferable except in very limited circumstances.  Any transfer of shares of common stock which, as a result of such transfer, causes us to be in violation of any ownership limit, will be deemed void.  Although we currently intend to continue to operate in a manner which will enable us to continue to qualify as a real estate investment trust under the Code, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke the election for us to qualify as a real estate investment trust.  Under our organizational documents, our Board of Directors can make such revocation without the consent of our stockholders.

In addition, the consent of the holders of at least 85 percent of Mack-Cali Realty, L.P.’s partnership units is required: (i)  to merge (or permit the merger of) us with another unrelated person, pursuant to a transaction in which Mack-Cali Realty, L.P. is not the surviving entity; (ii) to dissolve, liquidate or wind up Mack-Cali Realty, L.P.; or (iii) to convey or otherwise transfer all or substantially all of Mack-Cali Realty, L.P.’s assets.  As of February 4, 2013, as general partner, we own approximately 87.9 percent of Mack-Cali Realty, L.P.’s outstanding common partnership units.

Tax liabilities as a consequence of failure to qualify as a real estate investment trust: We have elected to be treated and have operated so as to qualify as a real estate investment trust for federal income tax purposes since our taxable year ended December 31, 1994.  Although we believe we will continue to operate in such manner, we cannot guarantee that we will do so.  Qualification as a real estate investment trust involves the satisfaction of various requirements (some on an annual and some on a quarterly basis) established under highly technical and complex tax provisions of the Code.  Because few judicial or administrative interpretations of such provisions exist and qualification determinations are fact sensitive, we cannot assure you that we will qualify as a real estate investment trust for any taxable year.

If we fail to qualify as a real estate investment trust in any taxable year, we will be subject to the following:

·  
we will not be allowed a deduction for dividends paid to shareholders;
·  
we will be subject to federal income tax at regular corporate rates, including any alternative minimum tax, if applicable; and
·  
unless we are entitled to relief under certain statutory provisions, we will not be permitted to qualify as a real estate investment trust for the four taxable years following the year during which we were disqualified.
 
 
 
18

 
 

 
A loss of our status as a real estate investment trust could have an adverse effect on us.  Failure to qualify as a real estate investment trust also would eliminate the requirement that we pay dividends to our stockholders.

Other tax liabilities: Even if we qualify as a real estate investment trust under the Code, we are subject to certain federal, state and local taxes on our income and property and, in some circumstances, certain other state and local taxes.  From time to time changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase in the frequency and amount of such increase.  These actions could adversely affect our financial condition and results of operations. In addition, our taxable REIT subsidiaries will be subject to federal, state and local income tax for income received in connection with certain non-customary services performed for tenants and/or third parties.

Risk of changes in the tax law applicable to real estate investment trusts: Since the Internal Revenue Service, the United States Treasury Department and Congress frequently review federal income tax legislation, we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted.  Any such legislative action may prospectively or retroactively modify our and Mack-Cali Realty, L.P.’s tax treatment and, therefore, may adversely affect taxation of us, Mack-Cali Realty, L.P., and/or our investors.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our tenants and business partners, including personally identifiable information of our tenants and employees, in our data centers and on our networks.  Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.  Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation, which could adversely affect our business.

Changes in market conditions could adversely affect the market price of our common stock.
As with other publicly traded equity securities, the value of our common stock depends on various market conditions, which may change from time to time.  The market price of our common stock could change in ways that may or may not be related to our business, our industry or our operating performance and financial condition.  Among the market conditions that may affect the value of our common stock are the following:

 
·
the extent of your interest in us;
 
·
 the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;
 
·
 our financial performance; and
 
·
 general stock and bond market conditions.

The market value of our common stock is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash dividends. Consequently, our common stock may trade at prices that are higher or lower than our net asset value per share of common stock.

ITEM 1B.      UNRESOLVED STAFF COMMENTS

None.

 
19

 


ITEM 2.         PROPERTIES

PROPERTY LIST

As of December 31, 2012, the Company’s Consolidated Properties consisted of 259 in-service office, office/flex and industrial/warehouse properties, as well as two stand-alone retail properties and three land leases.  The Consolidated Properties are located primarily in the Northeast.  The Consolidated Properties are easily accessible from major thoroughfares and are in close proximity to numerous amenities.  The Consolidated Properties contain a total of approximately 30.8 million square feet, with the individual properties ranging from 6,216 to 1,246,283 square feet.  The Consolidated Properties, managed by on-site employees, generally have attractively landscaped sites and atriums in addition to quality design and construction.  The Company’s tenants include many service sector employers, including a large number of professional firms and national and international businesses.  The Company believes that all of its properties are well-maintained and do not require significant capital improvements.

 
20

 




                   
Office Properties
                 
                   
                 
2012
       
Percentage
2012
   
2012
Average
     
Net
Leased
Base
   
Average
Effective
     
Rentable
as of
Rent
 
Percentage
Base Rent
Rent
   
Year
Area
12/31/2012
($000’s)
 
of Total 2012
Per Sq. Ft.
Per Sq. Ft.
Property Location
 
Built
(Sq. Ft.)
(%) (a)
 (b) (c)
 
Base Rent (%)
($) (c) (d)
($) (c) (e)
                   
NEW JERSEY
                 
                   
Bergen County
                 
Fair Lawn
                 
17-17 Route 208 North
 
1987
143,000
88.5
2,851
 
0.48
22.53
17.93
Fort Lee
                 
One Bridge Plaza
 
1981
200,000
92.3
4,714
 
0.80
25.54
21.42
2115 Linwood Avenue
 
1981
68,000
75.6
915
 
0.15
17.80
16.03
Little Ferry
                 
200 Riser Road
 
1974
286,628
100.0
2,416
 
0.41
8.43
8.15
Lyndhurst
                 
210 Clay Avenue
 
1981
121,203
90.9
2,458
 
0.42
22.31
20.03
Montvale
                 
135 Chestnut Ridge Road
 
1981
66,150
76.4
913
 
0.15
18.07
15.45
Paramus
                 
15 East Midland Avenue
 
1988
259,823
80.5
4,425
 
0.75
21.16
20.40
140 East Ridgewood Avenue
 
1981
239,680
91.9
5,055
 
0.85
22.95
19.55
461 From Road
 
1988
253,554
39.4
2,213
 
0.37
22.15
21.31
650 From Road
 
1978
348,510
67.4
5,756
 
0.97
24.50
21.01
61 South Paramus Road (f)
 
1985
269,191
60.8
4,497
 
0.76
27.48
23.98
Rochelle Park
                 
120 West Passaic Street
 
1972
52,000
99.6
1,474
 
0.25
28.46
26.82
365 West Passaic Street
 
1976
212,578
84.6
3,816
 
0.65
21.22
17.75
395 West Passaic Street
 
1979
100,589
65.3
1,030
 
0.17
15.68
12.67
Upper Saddle River
                 
1 Lake Street
 
1973/94
474,801
100.0
7,465
 
1.26
15.72
15.72
10 Mountainview Road
 
1986
192,000
82.4
3,216
 
0.54
20.33
18.12
Woodcliff Lake
                 
400 Chestnut Ridge Road
 
1982
89,200
100.0
1,950
 
0.33
21.86
16.32
470 Chestnut Ridge Road
 
1987
52,500
100.0
1,250
 
0.21
23.81
18.67
530 Chestnut Ridge Road
 
1986
57,204
100.0
852
 
0.14
14.89
13.60
50 Tice Boulevard
 
1984
235,000
85.9
5,457
 
0.92
27.03
23.66
300 Tice Boulevard
 
1991
230,000
100.0
6,123
 
1.04
26.62
24.25
                   
Essex County
                 
Millburn
                 
150 J.F. Kennedy Parkway
 
1980
247,476
58.7
6,839
 
1.16
47.08
40.64
Borough of Roseland
                 
4 Becker Farm Road
 
1983
281,762
96.2
6,828
 
1.15
25.19
23.07
5 Becker Farm Road
 
1982
118,343
92.6
2,374
 
0.40
21.66
19.46
6 Becker Farm Road
 
1982
129,732
78.3
2,574
 
0.44
25.34
23.55
101 Eisenhower Parkway
 
1980
237,000
84.6
4,859
 
0.82
24.23
20.63
103 Eisenhower Parkway
 
1985
151,545
63.3
2,186
 
0.37
22.79
19.05
105 Eisenhower Parkway
 
2001
220,000
80.9
4,943
 
0.84
27.77
20.79
75 Livingston Avenue
 
1985
94,221
64.2
1,129
 
0.19
18.66
14.32
85 Livingston Avenue
 
1985
124,595
84.8
2,711
 
0.46
25.66
23.73


 
21

 






                   
Office Properties
                 
(Continued)
                 
                   
                 
2012
       
Percentage
2012
   
2012
Average
     
Net
Leased
Base
   
Average
Effective
     
Rentable
as of
Rent
 
Percentage
Base Rent
Rent
   
Year
Area
12/31/2012
($000’s)
 
of Total 2012
Per Sq. Ft.
Per Sq. Ft.
Property Location
 
Built
(Sq. Ft.)
(%) (a)
 (b) (c)
 
Base Rent (%)
($) (c) (d)
($) (c) (e)
                   
Hudson County
                 
Jersey City
                 
Harborside Financial Center Plaza 1
 
1983
400,000
100.0
11,318
 
1.91
28.30
24.64
Harborside Financial Center Plaza 2
 
1990
761,200
97.5
18,339
 
3.10
24.71
22.48
Harborside Financial Center Plaza 3
 
1990
725,600
86.0
19,680
 
3.33
31.54
29.01
Harborside Financial Center Plaza 4-A
 
2000
207,670
100.0
6,392
 
1.08
30.78
26.90
Harborside Financial Center Plaza 5
 
2002
977,225
84.1
33,225
 
5.62
40.43
35.07
101 Hudson Street
 
1992
1,246,283
89.0
29,587
 
5.01
26.67
23.48
                   
Mercer County
                 
Hamilton Township
                 
3 AAA Drive
 
1981
35,270
89.7
633
 
0.11
20.01
15.46
600 Horizon Drive
 
2002
95,000
100.0
1,400
 
0.24
14.74
14.67
700 Horizon Drive
 
2007
120,000
100.0
2,459
 
0.42
20.49
18.33
2 South Gold Drive
 
1974
33,962
61.6
224
 
0.04
10.71
8.13
Princeton
                 
103 Carnegie Center
 
1984
96,000
94.0
2,031
 
0.34
22.51
18.67
2 Independence Way
 
1981
67,401
100.0
1,531
 
0.26
22.71
22.15
3 Independence Way
 
1983
111,300
96.0
1,981
 
0.33
18.54
14.28
100 Overlook Center
 
1988
149,600
89.6
3,750
 
0.63
27.98
25.16
5 Vaughn Drive
 
1987
98,500
94.5
2,274
 
0.38
24.43
20.47
                   
Middlesex County
                 
East Brunswick
                 
377 Summerhill Road
 
1977
40,000
100.0
372
 
0.06
9.30
8.98
Edison
                 
343 Thornall Street (c)
 
1991
195,709
89.6
3,345
 
0.57
19.08
15.75
Piscataway
                 
30 Knightsbridge Road, Bldg 3
 
1977
160,000
100.0
2,445
 
0.41
15.28
15.28
30 Knightsbridge Road, Bldg 4
 
1977
115,000
100.0
1,757
 
0.30
15.28
15.28
30 Knightsbridge Road, Bldg 5
 
1977
332,607
92.9
5,180
 
0.88
16.76
12.69
30 Knightsbridge Road, Bldg 6
 
1977
72,743
63.8
239
 
0.04
5.15
3.99
Plainsboro
                 
500 College Road East (f)
 
1984
158,235
82.9
2,811
 
0.48
21.43
16.81
Woodbridge
                 
581 Main Street
 
1991
200,000
99.3
4,968
 
0.84
25.02
21.65
                   
Monmouth County
                 
Freehold
                 
2 Paragon Way
 
1989
44,524
47.2
441
 
0.07
20.98
17.56
3 Paragon Way
 
1991
66,898
88.2
797
 
0.13
13.51
9.00
4 Paragon Way
 
2002
63,989
30.8
531
 
0.09
26.94
26.94
100 Willow Brook Road
 
1988
60,557
57.4
741
 
0.13
21.32
18.50
Holmdel
                 
23 Main Street
 
1977
350,000
100.0
4,012
 
0.68
11.46
8.63
Middletown
                 
One River Center Bldg 1
 
1983
122,594
86.1
2,796
 
0.47
26.49
22.78
One River Center Bldg 2
 
1983
120,360
94.5
2,599
 
0.44
22.85
19.30
One River Center Bldg 3 and 4
 
1984
214,518
93.3
4,519
 
0.76
22.58
21.38
Neptune
                 
3600 Route 66
 
1989
180,000
100.0
2,400
 
0.41
13.33
12.06
Wall Township
                 
1305 Campus Parkway
 
1988
23,350
72.3
361
 
0.06
21.38
18.48
1350 Campus Parkway
 
1990
79,747
99.9
1,135
 
0.19
14.25
12.55


 
22

 





                   
Office Properties
                 
(Continued)
                 
                   
                 
2012
       
Percentage
2012
   
2012
Average
     
Net
Leased
Base
   
Average
Effective
     
Rentable
as of
Rent
 
Percentage
Base Rent
Rent
   
Year
Area
12/31/2012
($000’s)
 
of Total 2012
Per Sq. Ft.
Per Sq. Ft.
Property Location
 
Built
(Sq. Ft.)
(%) (a)
 (b) (c)
 
Base Rent (%)
($) (c) (d)
($) (c) (e)
                   
Morris County
                 
Florham Park
                 
325 Columbia Turnpike
 
1987
168,144
100.0
3,899
 
0.66
23.19
19.16
Morris Plains
                 
250 Johnson Road
 
1977
75,000
100.0
1,514
 
0.26
20.19
18.05
201 Littleton Road
 
1979
88,369
75.4
949
 
0.16
14.24
11.50
Morris Township
                 
412 Mt. Kemble Avenue
 
1986
475,100
67.9
6,601
 
1.12
20.46
16.13
Parsippany
                 
4 Campus Drive
 
1983
147,475
71.2
1,960
 
0.33
18.67
15.01
6 Campus Drive
 
1983
148,291
78.2
2,862
 
0.48
24.68
20.84
7 Campus Drive
 
1982
154,395
78.0
2,590
 
0.44
21.51
17.17
8 Campus Drive
 
1987
215,265
66.4
3,748
 
0.63
26.22
23.42
9 Campus Drive
 
1983
156,495
40.9
1,412
 
0.24
22.06
18.58
4 Century Drive
 
1981
100,036
62.5
1,142
 
0.19
18.27
14.39
5 Century Drive
 
1981
79,739
52.0
894
 
0.15
21.56
16.52
6 Century Drive
 
1981
100,036
58.0
591
 
0.10
10.19
7.45
2 Dryden Way
 
1990
6,216
100.0
99
 
0.02
15.93
14.64
4 Gatehall Drive
 
1988
248,480
86.0
6,193
 
1.05
28.98
25.39
2 Hilton Court
 
1991
181,592
100.0
6,529
 
1.11
35.95
31.80
1633 Littleton Road
 
1978
57,722
100.0
1,131
 
0.19
19.59
19.59
600 Parsippany Road
 
1978
96,000
90.4
1,622
 
0.27
18.69
14.85
1 Sylvan Way
 
1989
150,557
96.0
3,714
 
0.63
25.70
20.92
4 Sylvan Way
 
1984
105,135
100.0
1,929
 
0.33
18.35
16.47
5 Sylvan Way
 
1989
151,383
85.6
3,809
 
0.64
29.39
27.00
7 Sylvan Way
 
1987
145,983
100.0
3,289
 
0.56
22.53
21.20
22 Sylvan Way
 
2009
249,409
100.0
6,327
 
1.07
25.37
22.98
20 Waterview Boulevard
 
1988
225,550
93.8
4,982
 
0.84
23.55
21.10
35 Waterview Boulevard
 
1990
172,498
93.8
4,242
 
0.72
26.22
23.58
5 Wood Hollow Road
 
1979
317,040
88.1
5,838
 
0.99
20.90
16.58
                   
Passaic County
                 
Clifton
                 
777 Passaic Avenue
 
1983
75,000
67.0
1,133
 
0.19
22.55
20.16
Totowa
                 
999 Riverview Drive
 
1988
56,066
89.2
669
 
0.11
13.38
11.38
                   
Somerset County
                 
Basking Ridge
                 
222 Mt. Airy Road
 
1986
49,000
100.0
1,079
 
0.18
22.02
17.82
233 Mt. Airy Road
 
1987
66,000
24.7
27
 
0.00
1.66
1.66
Bernards
                 
106 Allen Road
 
2000
132,010
63.6
2,516
 
0.43
29.97
24.86
Branchburg
                 
51 Imclone Drive
 
1986
63,213
100.0
537
 
0.09
8.50
7.91
Bridgewater
                 
55 Corporate Drive (g)
 
2011
204,057
100.0
4,847
 
0.82
23.75
20.99
440 Route 22 East
 
1990
198,376
93.4
4,637
 
0.78
25.03
21.71
721 Route 202/206
 
1989
192,741
92.1
3,911
 
0.66
22.03
15.77
Warren
                 
10 Independence Boulevard
 
1988
120,528
86.3
2,667
 
0.45
25.64
25.42
                   
Union County
                 
Clark
                 
100 Walnut Avenue
 
1985
182,555
100.0
4,747
 
0.80
26.00
22.33


 
23

 



                   
Office Properties
                 
(Continued)
                 
                   
                 
2012
       
Percentage
2012
   
2012
Average
     
Net
Leased
Base
   
Average
Effective
     
Rentable
as of
Rent
 
Percentage
Base Rent
Rent
   
Year
Area
12/31/2012
($000’s)
 
of Total 2012
Per Sq. Ft.
Per Sq. Ft.
Property Location
 
Built
(Sq. Ft.)
(%) (a)
 (b) (c)
 
Base Rent (%)
($) (c) (d)
($) (c) (e)
                   
Cranford
                 
6 Commerce Drive
 
1973
56,000
93.3
1,014
 
0.17
19.41
17.30
11 Commerce Drive
 
1981
90,000
95.0
2,169
 
0.37
25.37
21.71
12 Commerce Drive
 
1967
72,260
84.7
923
 
0.16
15.08
13.07
14 Commerce Drive
 
1971
67,189
85.2
1,194
 
0.20
20.86
16.11
20 Commerce Drive
 
1990
176,600
99.6
3,990
 
0.67
22.68
19.94
25 Commerce Drive
 
1971
67,749
82.0
1,342
 
0.23
24.16
21.26
65 Jackson Drive
 
1984
82,778
84.4
1,534
 
0.26
21.96
19.19
New Providence
                 
890 Mountain Avenue
 
1977
80,000
72.6
1,051
 
0.18
18.10
16.29
                   
Total New Jersey Office
   
19,330,159
86.3
397,415
 
67.19
23.82
20.79
                   
NEW YORK
                 
                   
New York County
                 
New York
                 
125 Broad Street
 
1970
524,476
100.0
16,055
 
2.72
30.61
26.62
                   
Rockland County
                 
Suffern
                 
400 Rella Boulevard
 
1988
180,000
93.6
3,664
 
0.62
21.75
19.24
                   
Westchester County
                 
Elmsford
                 
100 Clearbrook Road (c)
 
1975
60,000
83.3
1,002
 
0.17
20.05
18.11
101 Executive Boulevard
 
1971
50,000
0.0
82
 
0.01
0.00
0.00
555 Taxter Road
 
1986
170,554
68.7
3,045
 
0.51
25.99
20.21
565 Taxter Road
 
1988
170,554
82.8
3,526
 
0.60
24.97
21.61
570 Taxter Road
 
1972
75,000
66.1
1,279
 
0.22
25.80
23.56
Hawthorne
                 
1 Skyline Drive
 
1980
20,400
99.0
319
 
0.05
15.80
15.25
2 Skyline Drive
 
1987
30,000
100.0
543
 
0.09
18.10
12.60
7 Skyline Drive
 
1987
109,000
82.0
2,190
 
0.37
24.50
20.04
17 Skyline Drive (f)
 
1989
85,000
100.0
1,692
 
0.29
19.91
19.27
19 Skyline Drive (g)
 
1982
248,400
100.0
4,036
 
0.68
16.25
15.24
Tarrytown
                 
200 White Plains Road
 
1982
89,000
78.8
1,698
 
0.29
24.21
21.16
220 White Plains Road
 
1984
89,000
88.9
1,664
 
0.28
21.03
18.50
White Plains
                 
1 Barker Avenue
 
1975
68,000
99.8
1,792
 
0.30
26.41
23.41
3 Barker Avenue
 
1983
65,300
94.1
1,536
 
0.26
25.00
23.03
50 Main Street
 
1985
309,000
85.2
8,190
 
1.38
31.11
27.47
11 Martine Avenue
 
1987
180,000
79.3
4,483
 
0.76
31.41
27.11
1 Water Street
 
1979
45,700
78.6
994
 
0.17
27.67
24.86
Yonkers
                 
1 Executive Boulevard
 
1982
112,000
100.0
2,962
 
0.50
26.45
23.91
3 Executive Boulevard
 
1987
58,000
100.0
1,733
 
0.29
29.88
28.05
                   
Total New York Office
   
2,739,384
88.1
62,485
 
10.56
25.88
22.75


 
24

 



                   
Office Properties
                 
(Continued)
                 
                   
                 
2012
       
Percentage
2012
   
2012
Average
     
Net
Leased
Base
   
Average
Effective
     
Rentable
as of
Rent
 
Percentage
Base Rent
Rent
   
Year
Area
12/31/2012
($000’s)
 
of Total 2012
Per Sq. Ft.
Per Sq. Ft.
Property Location
 
Built
(Sq. Ft.)
(%) (a)
 (b) (c)
 
Base Rent (%)
($) (c) (d)
($) (c) (e)
                   
PENNSYLVANIA
                 
                   
Chester County
                 
Berwyn
                 
1000 Westlakes Drive
 
1989
60,696
69.5
925
 
0.16
21.93
19.37
1055 Westlakes Drive
 
1990
118,487
81.2
2,098
 
0.35
21.81
18.57
1205 Westlakes Drive
 
1988
130,265
99.1
3,026
 
0.51
23.44
20.70
1235 Westlakes Drive
 
1986
134,902
86.5
2,795
 
0.47
23.95
20.68
                   
Delaware County
                 
Lester
                 
100 Stevens Drive
 
1986
95,000
100.0
2,771
 
0.47
29.17
26.55
200 Stevens Drive
 
1987
208,000
100.0
6,083
 
1.03
29.25
26.97
300 Stevens Drive
 
1992
68,000
100.0
1,522
 
0.26
22.38
18.41
Media
                 
1400 Providence Road – Center I
 
1986
100,000
98.5
2,086
 
0.35
21.18
18.08
1400 Providence Road – Center II
 
1990
160,000
100.0
3,564
 
0.60
22.28
18.79
                   
Montgomery County
                 
Bala Cynwyd
                 
150 Monument Road
 
1981
125,783
93.7
2,666
 
0.45
22.62
19.15
Blue Bell
                 
4 Sentry Park
 
1982
63,930
83.5
1,051
 
0.18
19.69
15.55
5 Sentry Park East
 
1984
91,600
58.5
1,175
 
0.20
21.93
15.45
5 Sentry Park West
 
1984
38,400
68.3
253
 
0.04
9.65
8.50
16 Sentry Park West
 
1988
93,093
100.0
2,276
 
0.39
24.45
21.47
18 Sentry Park West
 
1988
95,010
75.4
2,092
 
0.35
29.20
25.42
Lower Providence
                 
1000 Madison Avenue
 
1990
100,700
82.0
1,240
 
0.21
15.02
10.29
Plymouth Meeting
                 
1150 Plymouth Meeting Mall
 
1970
167,748
78.7
2,615
 
0.44
19.81
16.14
                   
Total Pennsylvania Office
   
1,851,614
88.8
38,238
 
6.46
23.26
19.95
                   
CONNECTICUT
                 
                   
Fairfield County
                 
Norwalk
                 
40 Richards Avenue
 
1985
145,487
59.5
1,898
 
0.32
21.93
17.66
Stamford
                 
1266 East Main Street
 
1984
179,260
83.7
3,599
 
0.61
23.99
19.40
                   
Total Connecticut Office
   
324,747
72.9
5,497
 
0.93
23.23
18.77
                   
DISTRICT OF COLUMBIA
                 
                   
Washington
                 
1201 Connecticut Avenue, NW
 
1940
169,549
99.0
6,520
 
1.10
38.84
35.19
1400 L Street, NW
 
1987
159,000
100.0
5,626
 
0.95
35.38
29.91
                   
Total District of Columbia Office
   
328,549
99.5
12,146
 
2.05
37.16
32.62


 
25

 



                   
Office Properties
                 
(Continued)
                 
                   
                 
2012
       
Percentage
2012
   
2012
Average
     
Net
Leased
Base
   
Average
Effective
     
Rentable
as of
Rent
 
Percentage
Base Rent
Rent
   
Year
Area
12/31/2012
($000’s)
 
of Total 2012
Per Sq. Ft.
Per Sq. Ft.
Property Location
 
Built
(Sq. Ft.)
(%) (a)
 (b) (c)
 
Base Rent (%)
($) (c) (d)
($) (c) (e)
                   
MARYLAND
                 
                   
Prince George’s County
                 
Greenbelt
                 
9200 Edmonston Road
 
1973
38,690
100.0
910
 
0.15
23.52
21.17
6301 Ivy Lane
 
1979
112,003
76.6
1,844
 
0.31
21.49
18.66
6303 Ivy Lane
 
1980
112,047
85.6
2,362
 
0.40
24.63
21.51
6305 Ivy Lane
 
1982
112,022
97.8
1,986
 
0.34
18.13
15.94
6404 Ivy Lane
 
1987
165,234
71.5
2,405
 
0.41
20.36
15.33
6406 Ivy Lane
 
1991
163,857
13.2
89
 
0.02
4.11
3.33
6411 Ivy Lane
 
1984
138,405
69.9
2,139
 
0.36
22.11
18.85
Lanham
                 
4200 Parliament Place
 
1989
122,000
96.3
2,874
 
0.49
24.46
22.57
                   
Total Maryland Office
   
964,258
70.9
14,609
 
2.48
21.36
18.40
                   
TOTAL OFFICE PROPERTIES
   
25,538,711
86.1
530,390
 
89.67
24.12
21.02


 
26

 



                   
Office/Flex Properties
                 
                   
                   
                 
2012
       
Percentage
2012
   
2012
Average
     
Net
Leased
Base
   
Average
Effective
     
Rentable
as of
Rent
 
Percentage
Base Rent
Rent
   
Year
Area
12/31/2012
($000’s)
 
of Total 2012
Per Sq. Ft.
Per Sq. Ft.
Property Location
 
Built
(Sq. Ft.)
(%) (a)
 (b) (c)
 
Base Rent (%)
($) (c) (d)
($) (c) (e)
                   
NEW JERSEY
                 
                   
Burlington County
                 
Burlington
                 
3 Terri Lane
 
1991
64,500
85.8
528
 
0.09
9.54
8.17
5 Terri Lane
 
1992
74,555
100.0
609
 
0.10
8.17
6.59
Moorestown
                 
2 Commerce Drive
 
1986
49,000
75.6
218
 
0.04
5.88
4.70
101 Commerce Drive
 
1988
64,700
100.0
275
 
0.05
4.25
3.85
102 Commerce Drive
 
1987
38,400
87.5
234
 
0.04
6.96
4.29
201 Commerce Drive
 
1986
38,400
75.0
88
 
0.01
3.06
1.88
202 Commerce Drive
 
1988
51,200
91.8
230
 
0.04
4.89
4.30
1 Executive Drive
 
1989
20,570
90.8
120
 
0.02
6.42
4.77
2 Executive Drive
 
1988
60,800
65.8
228
 
0.04
5.70
5.17
101 Executive Drive
 
1990
29,355
99.7
297
 
0.05
10.15
7.89
102 Executive Drive
 
1990
64,000
100.0
474
 
0.08
7.41
7.30
225 Executive Drive
 
1990
50,600
79.1
255
 
0.04
6.37
4.80
97 Foster Road
 
1982
43,200
100.0
168
 
0.03
3.89
2.82
1507 Lancer Drive
 
1995
32,700
100.0
97
 
0.02
2.97
2.20
1245 North Church Street
 
1998
52,810
100.0
292
 
0.05
5.53
4.75
1247 North Church Street
 
1998
52,790
80.7
291
 
0.05
6.83
5.63
1256 North Church Street
 
1984
63,495
100.0
473
 
0.08
7.45
6.50
840 North Lenola Road
 
1995
38,300
100.0
371
 
0.06
9.69
7.94
844 North Lenola Road
 
1995
28,670
100.0
201
 
0.03
7.01
6.31
915 North Lenola Road
 
1998
52,488
100.0
293
 
0.05
5.58
4.59
2 Twosome Drive
 
2000
48,600
100.0
279
 
0.05
5.74
3.44
30 Twosome Drive
 
1997
39,675
100.0
303
 
0.05
7.64
6.15
31 Twosome Drive
 
1998
84,200
100.0
432
 
0.07
5.13
4.66
40 Twosome Drive
 
1996
40,265
86.6
242
 
0.04
6.94
6.19
41 Twosome Drive
 
1998
43,050
100.0
195
 
0.03
4.53
4.00
50 Twosome Drive
 
1997
34,075
56.0
244
 
0.04
12.79
12.05
                   
Gloucester County
                 
West Deptford
                 
1451 Metropolitan Drive
 
1996
21,600
100.0
120
 
0.02
5.56
5.28
                   
Mercer County
                 
Hamilton Township
                 
100 Horizon Center Boulevard
 
1989
13,275
100.0
71
 
0.01
5.35
2.79
200 Horizon Drive
 
1991
45,770
100.0
695
 
0.12
15.18
13.48
300 Horizon Drive
 
1989
69,780
53.2
465
 
0.08
12.53
9.46
500 Horizon Drive
 
1990
41,205
93.8
578
 
0.10
14.95
13.27
                   
Monmouth County
                 
Wall Township
                 
1325 Campus Parkway
 
1988
35,000
100.0
642
 
0.11
18.34
15.34
1340 Campus Parkway
 
1992
72,502
100.0
933
 
0.16
12.87
10.52
1345 Campus Parkway
 
1995
76,300
100.0
1,047
 
0.18
13.72
10.85
1433 Highway 34
 
1985
69,020
66.2
482
 
0.08
10.55
8.80
1320 Wyckoff Avenue
 
1986
20,336
100.0
222
 
0.04
10.92
8.36
1324 Wyckoff Avenue
 
1987
21,168
87.1
175
 
0.03
9.49
5.15


 
27

 



                   
Office/Flex Properties
                 
(Continued)
                 
                   
                 
2012
       
Percentage
2012
   
2012
Average
     
Net
Leased
Base
   
Average
Effective
     
Rentable
as of
Rent
 
Percentage
Base Rent
Rent
   
Year
Area
12/31/2012
($000’s)
 
of Total 2012
Per Sq. Ft.
Per Sq. Ft.
Property Location
 
Built
(Sq. Ft.)
(%) (a)
 (b) (c)
 
Base Rent (%)
($) (c) (d)
($) (c) (e)
                   
Passaic County
                 
Totowa
                 
1 Center Court
 
1999
38,961
100.0
594
 
0.10
15.25
13.17
2 Center Court
 
1998
30,600
62.8
229
 
0.04
11.92
9.78
11 Commerce Way
 
1989
47,025
88.9
418
 
0.07
10.00
7.22
20 Commerce Way
 
1992
42,540
61.1
267
 
0.05
10.27
9.93
29 Commerce Way
 
1990
48,930
20.4
228
 
0.04
22.84
19.54
40 Commerce Way
 
1987
50,576
86.3
534
 
0.09
12.23
8.96
45 Commerce Way
 
1992
51,207
100.0
519
 
0.09
10.14
8.08
60 Commerce Way
 
1988
50,333
89.1
548
 
0.09
12.22
10.15
80 Commerce Way
 
1996
22,500
100.0
295
 
0.05
13.11
11.16
100 Commerce Way
 
1996
24,600
88.6
323
 
0.05
14.82
12.62
120 Commerce Way
 
1994
9,024
100.0
98
 
0.02
10.86
8.64
140 Commerce Way
 
1994
26,881