U.S. Markets closed

Edited Transcript of FRT earnings conference call or presentation 14-Feb-19 3:00pm GMT

Q4 2018 Federal Realty Investment Trust Earnings Call

Rockville Feb 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Federal Realty Investment Trust earnings conference call or presentation Thursday, February 14, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Daniel Guglielmone

Federal Realty Investment Trust - Executive VP, CFO & Treasurer

* Donald C. Wood

Federal Realty Investment Trust - President, CEO & Director

* Jeffrey S. Berkes

Federal Realty Investment Trust - EVP & President of Western Region

* Leah Andress Brady

Federal Realty Investment Trust - IR Manager

================================================================================

Conference Call Participants

================================================================================

* Alexander David Goldfarb

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst

* Collin Philip Mings

Raymond James & Associates, Inc., Research Division - Analyst

* Derek Charles Johnston

Deutsche Bank AG, Research Division - Research Analyst

* Jeffrey John Donnelly

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Justin Thomas Devery

BofA Merrill Lynch, Research Division - Associate

* Kathleen McConnell

Citigroup Inc, Research Division - Research Analyst

* Ki Bin Kim

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Nicholas Philip Yulico

Scotiabank Global Banking and Markets, Research Division - Analyst

* Stephen Thomas Sakwa

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst

* Vince Tibone

Green Street Advisors, Inc. - Analyst of Retail

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2018 Federal Realty Investment Trust Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Leah Brady. Ma'am, you may begin.

--------------------------------------------------------------------------------

Leah Andress Brady, Federal Realty Investment Trust - IR Manager [2]

--------------------------------------------------------------------------------

Thank you. Good morning. Thank you for joining us today for Federal Realty's Fourth Quarter 2018 Earnings Conference Call. Joining me on the call are Don Wood, Dan G., Jeff Berkes, Wendy Seher, Dawn Becker and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks.

A reminder that certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results. Although Federal Realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty's future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained.

The earnings release and the supplemental reporting package that we issued yesterday, our annual report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of operation. These documents are available on our website.

Lastly, we'll be hosting an Investor Day on May 9 at Assembly Row in Boston. You should have received a save the date. If not, please let me know. Keep your eyes out for an invitation with additional details and a registration link in the next few weeks. We look forward to seeing you all there.

(Operator Instructions)

And with that, I will turn the call over to Don Wood to begin our discussion of our fourth quarter results. Don?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Leah. Good morning, everyone. We finished out 2018 particularly strong with reported FFO per share in the fourth quarter of $1.57, better than we had expected, resulting in a full year 2018 result of $6.23 a share, 6.8% better than last year for the quarter, 5.4% better for the year.

I just have to point out right upfront. This was the ninth year in a row that we have reported FFO increases over the prior year, the only shopping centers REIT to do so. Hence the 15th year of the past 16, that we've done so. We also expect to grow in 2019. Please let that sink in, in light of today's environment.

A lot went right this quarter and subsequently, through today, that both benefited the fourth quarter operating results, and more importantly, cash flow in the future. Everything from record leasing activity in the quarter to stabilized residential occupancy in our big developments, to powerful office pre-leasing at both Assembly Row and CocoWalk. All that is contributing to a business plan that more and more seems right for today's demanding and changing consumer.

So let me get to some specifics. Revenues grew 5.1% quarter-over-quarter and 6.8% year-over-year. Earnings growth at comparable properties was 2% for the quarter, 3.1% for the year. The comparable portfolio remained 95% leased and 94% occupied. And operating expenses, including G&A, but not including real estate taxes grew at less than 1% for the quarter and less than 3% for the year. That's a pretty complete formula for a largely organic growth.

In terms of leasing, we did 107 comparable deals for 574,000 square feet at an average rent of $32.16 a foot, 15% above the $27.96 that the previous tenant was paying in last year of their lease.

We've never done deals for that much square footage in a quarter before. A record by nearly 10%. For the year, we did 374 comparable deals and 402 total deals for almost 2 million square feet. Again, an all-time annual record for us, at 12% more rent. So despite the dislocation in the retail real estate business, there is plenty of strong retail leasing going on in the dominant quality properties that we own.

A few more words on leasing because I don't want to portray it as all rosy. The big difference we see in today's results compared with a few years back is the increased volatility when you look at a large sample side -- size of leases. Big rent bumps at redeveloped and modernized retail destinations are strong or even stronger than they've ever been. But there's also a number of roll downs on anchor or junior anchor boxes where there are legitimately acceptable alternatives in the market. Now while that basic supply and demand dynamic has certainly been around forever, it feels more pronounced today. So that the spread between good deals and not so good deals seems to me to be wider.

We've talked about for quite some time now the importance of a well-diversified income stream to sustainable growing cash flow. And I couldn't be more proud of the progress we've made in this regard. Our core shopping center portfolio is second to none, and we're looking at it harder than ever for densification opportunities in terms of broader real estate uses, retail resi and office. Following the successes we've had or are having at places like The Point in El Segundo, Tower Shops in Davie, Florida, Congressional Plaza in Rockville and many more. You know the list.

We broke ground this quarter on our initial development phase at Bala Cynwyd Shopping Center, which includes 87 luxury apartments, and expanded planning for the development of the balance of the east end of the site. In the next few months, we're hopeful we'll get investment committee approval and move forward with redevelopment of the entire western portion of Graham Park Plaza, our long-time owned 19-acre shopping center that sits inside the beltway on Route 50 in Fairfax County, Virginia. That plan includes the addition of about 200 apartments, and place making incorporated into a reinvigorated retail shopping destination.

And we're getting closer in Darien, Connecticut, with negotiation and feasibility of a residential-over-retail mixed-use community right at the train station in this New York City suburb. For prefer a building permit, we now have all local and state entitlements to develop 75,000 square feet of new retail space and 122 rental apartments. Diversify and intensify, wherever feasible.

The big development news over the past few months involved Assembly Row, Pike & Rose and CocoWalk. After achieving stabilization in 2018 is the big residential component of our second phase at Assembly Row, at higher rents and at a quicker pace than we had expected, we were anxious to capitalize on that success with the start of our next phase.

In addition, the maturation of Assembly as a first-class office location solidified by Partners HealthCare and the active tea stop emboldening us to add more office product there too. So we're underway and we're driving plows. Two high-rise buildings. One directly at the foot of the tea stop with 500 rental apartments above ground floor retail; and the second, at 300,000 square-foot Class A office building, half of which is pre-leased to German shoe and apparel maker, PUMA, for their North American headquarters. I hope you saw the separate announcement on PUMA several weeks back.

Together, a $475 million Phase 3 expansion at one of the country's most successful mixed-use development, and we're conservatively underwriting at the combined 6% yield with full land and infrastructure allocation, and near 7% on an incremental cash basis.

With the commitment of West Elm to take the final 12,000 square feet adjacent to Pinstripes at Pike & Rose, our retail space has all been leased at least once. As West Elm and the remaining tenants open throughout 2019 and the residential units remain 95% occupied, the first 2 phases of Pike & Rose will be fully stabilized.

Construction on the 200 -- on the 212,000 square-foot spec office building and the 600 parking -- space parking garage in Phase 3 is now fully under construction for tenant occupancy in 2021.

At CocoWalk in Miami, we made very strong progress on both construction and leasing on this 256,000 square-foot mixed-use redevelopment over the past several months, with the signing of the 43,000 square-foot office lease executed with Regus for their spaces concept at the project, along with an additional 21,000 square feet of new deals, both restaurants and retailers, which when combined with existing tenants, gets us to well more than 50% pre-leased on this important redevelopment.

The office demand here, in particular, is validating our thesis of consumer wanting to be in a magnetized environments close to home. This property is going to be very special when it's completed.

No significant developments at Sunset Place over the last few months as we continue to work toward entitlements that would allow greater density. Tenants who will continue to leave the property as it sits in its existing conditions, and so Sunset will be a significant year-over-year earning strategy in 2019.

West Coast construction continues on schedule and on budget, as we prepare to deliver 700 Santana Row to Splunk later this year.

Next step should be the first of 2 350,000 square-foot office buildings at Santana West. The 12-acre site that we control across Winchester Boulevard from Santana Row. We expect the investment committee consideration of that project in a couple of months, with construction start later this year, if we can get comfortable with the numbers. Stay tuned.

Also, Jordan Downs, our 113,000 square foot grocery-anchored development in Los Angeles with joint venture partner Primestor, is well under construction with its full anchored program under lease. 30,000 square feet of signed leases in the fourth quarter alone with Nike and Blake Fitness. Joining grocer Smart & Final and value retailer Ross to round out the offerings, resulting in more than 75% of the GLA at least at this point. Attention now turns to the small shop space.

And finally, a quick shout out to Wendy Seher, to Jan Sweetnam, and the other 11 Federal Realty Executives that were promoted last week coming out of our board meeting, including investment -- investor favorite, James Milam. There was a separate press release that lays out the details.

There's very little about running this company that is more satisfying to me than being able to develop and grow human capital from within. It's not always possible, but we strive to be able to do so. To me, it's indicative of the depth of our team and pays off in spades in terms of the continuity of our business plan and our ability to not miss a beat. And yes, as Dan G. will note, G&A will go up a bunch next year.

And that's about it from my prepared remarks for the quarter and for the full year of 2018. It was a really good one.

Let me now turn it over to Dan for some additional color and then open the lines up to your questions.

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [4]

--------------------------------------------------------------------------------

Thank you, Don and Leah, and hello, everyone. We are really pleased with our results for the fourth quarter and the full year of 2018. With FFO per share growth of 6.8% and 5.4%, respectively, versus 4Q and full year of 2017. We beat consensus for both the quarter and for the year by a penny.

The numbers in the fourth quarter were driven primarily due to lower net real estate taxes, offset by greater net impact from failing tenants than was forecast heading into the fourth quarter, as well as higher demo and higher G&A.

Our comparable POI metric came in at 2% for the fourth quarter as a result of these drivers. The average comparable POI growth per quarter for the year was 3.2%, as solid results in light of the challenging environment.

With respect to our former same-store metrics, the quarterly average for the same-store with redev was 3.1%, and same-store without redev at 2.7%. We are officially retiring these metrics, having provided them over the course of 2018 during our transition to a more relevant comparable POI figure.

With respect to asset sale and other activity during 2018, we raised over $200 million of proceeds in the aggregate, as we close in over 85% of the market rate condos at Assembly Row and Pike & Rose raising roughly $130 million in proceeds, sold Chelsea Commons residential and Atlantic Plaza Shopping Center in our Boston region at a blended mid-5s cap rate, raising $42 million, and closed on our 50-50 JV at the Row Hotel at Assembly, bringing in $38 million of gross proceeds.

On the acquisition side, our discipline was once again evident in 2018 as we aggressively scoured the market for opportunity but to continue to find better risk-adjusted capital allocation alternatives in our own portfolio from a redevelopment and development perspective.

However, we do have a pipeline of attractive acquisition targets and are optimistic we can bring a couple of them over the finish line in 2019.

Now onto the balance sheet. 2018 was a year where we positioned our capital structure exceptionally well to handle the next wave of value-creating development and redevelopment activity for the company. We finished the year with roughly $50 million of excess cash and nothing outstanding on our credit facility. We reduced our overall net debt level by over $100 million. We generated upwards of $90 million of recurring free cash flow as the dividends and maintenance capital in 2018. As a result, our net debt to EBITDA at year-end is 5.3x, down from 5.9x at year-end 2017. Our fixed charge coverage ratio stands at 4.3x currently, versus 3.9x at 4Q 2017.

Our weighted average debt maturity remains at the top of the sector at 10-plus years, and the weighted average interest rate on our debt stands at 3.88%, with over 90% of it fixed.

As we push forward with the next wave of development and redevelopment at Federal over the coming years, development which has been significantly derisked through solid pre-leasing, Splunk with a 100% of the office leased and 97% of the total building at Santana Row, delivery set at the end of the year.

PUMA with 55% of the office space leased, and multiple tenants competing for the balance of the office space at Block 5B in Assembly Row, delivery slated for late 2021. And Regus', the IWG spaces concept, having pre-leased 50% of the new office space at CocoWalk, delivery scheduled for late 2020.

Our A-rated balance sheet, equipped with the diversity of all cost funding sources leaves us extremely well positioned to execute our multifaceted business plan and drive sector-leading growth to 2019 and into 2020, '21 and beyond.

Now I will turn to 2019 FFO guidance. We are formally providing a range of $6.30 to $6.46 per share. This guidance takes into account the impact of the new lease accounting standard, which we estimate at $0.07 to $0.09, where among other items, we will be expensing internal leasing and legal costs that were previously capitalized. Please note that on an apples-to-apples basis, adjusting for the new accounting standard, our FFO growth forecast for 2019 would be roughly 2.5% to 5%. Behind this growth are the underpinnings of a very solid 2019. Occupancy and rental rate gains in our comparable property portfolio will be meaningful.

Proactive re-leasing activity in 2018 will drive growth in 2019 as major tenants, like Anthropologie and Bethesda, 49er Fit and T.J. Maxx at Westgate, in San Jose; Bob's Furniture at both Los Jardines and Escondido in Southern California; Target at Sam's Park & Shop in D.C. among others, all contribute more fully over the year. And continued stabilization, our signature mixed-use projects, Assembly Row, Pike & Rose and Santana Row will all drive meaningful growth to the bottom line in 2019.

These items, together, would drive FFO per share growth into the 6% to 8% range, if not for some discrete, but somewhat disproportionate headwinds. De-leasing impacts at our noncomparable properties, CocoWalk, Graham Park and Sunset Place will weigh on this year's results.

Proactive redevelopment and remerchandising activity at some of our dominant, regional assets, in order to further consolidate their market-leading positions will also have an impact. Assets, which include Plaza El Segundo in Los Angeles; Huntington Shopping Center on Long Island; and Congressional here in Metro D.C. In addition, our recent initiative to establish the next generation of leaders of Federal will meaningfully increase our G&A in 2019, beyond the lease accounting changes. As a result, our guidance underscores a very constructive 2019 for Federal.

Now to the detailed assumptions behind our guidance. Comparable POI growth of about 2% and total POI growth of 4%. A credit reserve which includes bad debt expense on expected vacancy and rent relief of roughly 100 basis points, noncomparable redevelopments, i.e. CocoWalk, Graham Park and Sunset will create about $0.06 of drag relative to 2018 as we work through the continued de-leasing impact of these assets.

With respect to G&A, we forecast roughly $10 million to $11 million per quarter. This reflects $0.07 to $0.09 impact from the new lease accounting standard taking effect this year, and about $0.05 to $0.06 in higher G&A, primarily relating for the promotions and new additions we mentioned.

On the capital side, we project spending on development and redevelopment of $350 million to $400 million. As is our custom, this guidance assumes no acquisitions or dispositions. And finally, we are projecting another $70 million to $90 million of free cash flow generation after dividends and maintenance capital.

As I close out my comments on guidance, I would like to highlight that Federal's diversified business model continues to consistently churn out sector-leading FFO growth by a wide margin. When you assess the projected apples-to-apples FFO growth for 2019, let me have you pause and think about the following statistics. Federal consistently produces outsized bottom line FFO growth relative to our peers. Not as adjusted, but as you see endorsed may redefined FFO growth. Over 3-year, 5-year, 10-year and 15-year horizons, Federal's FFO growth has outperformed its Bloomberg shopping center peer average by a margin of roughly 8%, 6%, 8% and 7%, respectively. That's per annum, and that's compounded.

With that, we look forward to seeing many of you in Florida in a few weeks. And please be on the lookout for the invitations to our Investor Day, which will be held on Thursday, May 9, at Assembly Row in Boston.

Operator, you can open up the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Jeff Donnelly of Wells Fargo.

--------------------------------------------------------------------------------

Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [2]

--------------------------------------------------------------------------------

The question is, the guidance range that you provided seemed slightly more conservative than earlier commentary you gave in late '18. Is that small delta the result of a specific change in your outlook you can talk about? Or is that really just kind of a nonspecific, I guess, let's say, a desire to be cautious looking out at '19?

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [3]

--------------------------------------------------------------------------------

Yes. I think it's a little bit of both. I think that -- when we think puts out there we have a place holder with regards to the G&A and the incremental G&A outside of the lease accounting. And so that ends up being a little bit higher. And I think just as we work through. We -- there was a preliminary guidepost -- guidance back in November. And as we work through a budgeting process, which hadn't really yet started until mid-November, it came through the end of the year, it wasn't finalized until January. I think, look, it's 60 basis points, $0.04 revision on a $6.40 basis. So it's tweaking around the edges. It -- could we view it with a little bit more conservatism? Yes.

--------------------------------------------------------------------------------

Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [4]

--------------------------------------------------------------------------------

And maybe just a second part on the guidance. Can you talk about what your assumptions are around cash spreads on renewals for '19? Just because in 2017, there were up 9%, and in 2018 they were up 4%. I guess, I'm wondering, if there's a trend there, if you guys kind of think you sort of bottom here? Maybe that's not so much a trend other than just a mix of lease maturities that you faced?

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [5]

--------------------------------------------------------------------------------

Can you repeat the question? I didn't catch the beginning of it. Oh, you got it?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [6]

--------------------------------------------------------------------------------

I got you, Jeff. You know it is -- I don't have much to add to that. It is a mix, it depends on what deals are coming up. How it kind of rolls and plays through. There is no doubt, there are pressure on rents. And I tried to make that point in the prepared remarks. At least we see more volatility. Great deals are great, not so great deals are not so great. And as that mix between top and bottom is more. When it comes down to renewals. I mean, if I look and just looked even at the fourth quarter, I can give you a couple of pretty interesting specifics there as -- a CDS deal at a great property that we have in Northern Virginia, that's a big time renewal increase. At the same time, we sit there with an open deal at Congressional Plaza, where they had somewhere else to go. And we wound up agreeing to reduce rent on that. Something that wouldn't have happened a few years back. So it really is a bit more volatile. I don't know what more to tell you in terms of the notion of how those renewals will play out. But I can tell you that, overall, you can certainly expect to see continued growing rents from us. I just can't give you the mixes as precisely as maybe you'd like it.

--------------------------------------------------------------------------------

Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [7]

--------------------------------------------------------------------------------

And maybe if I can just add one -- sorry.

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [8]

--------------------------------------------------------------------------------

I think you'll see more volatility. I think you saw that this year with regards to some of the rollover, the range of 6% in 1 quarter, 22%. You'll see more of that, I think, going forward.

--------------------------------------------------------------------------------

Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [9]

--------------------------------------------------------------------------------

Just one last question maybe for you, Don. I'm just curious how you guys think about office leasing decisions? At Assembly, you obviously cut the tail with PUMA, a retail brand instead of looking outside of retailing. I'm just curious because for your retail properties, you guys have always talked about putting a thought behind, not just economics, but how the tenant contributed to the overall merchandising and other factors. For office, is it strictly economics? Is it credit risk? Is it -- what it does to the daytime population, how do you guys kind of think about that?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [10]

--------------------------------------------------------------------------------

Yes, that's a great question, Jeff. It really is. There is -- on the weighting of merchandising versus economics, certainly, on the retail side, as you know, we put a lot of -- there is a higher weight on the merchandising side. On the office side, it is less. It is more economic, but not completely. So at the end of the day, again, when we're doing office, we're only doing office at our places where we've created that environment on the street. So to the extent the company has a workforce that aligns better with the merchandising that we've done on the retail side on the street, that is clearly beneficial or they get a checkup in that type of environment. Credit is certainly the most important thing as we look at it on the office side. But that merchandising component is clearly a component in who we put there.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Our next question comes from the line of Christine McElroy of Citi.

--------------------------------------------------------------------------------

Kathleen McConnell, Citigroup Inc, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

This is Katy McConnell on for Christy. Just wondering if can you talk generally a little bit more about the yields you're able to achieve on larger mixed-use development projects? And how you're underwriting future phases as well? And how you think about it in the context of ultimate value creation? And what these assets can be worth upon stabilization?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [13]

--------------------------------------------------------------------------------

Yes, Katy. I'd love to deal with it. I'd love to take that one. Look, there is no question. I don't think, I'm saying anything that everybody doesn't know that construction costs are clearly high, and probably will go higher as we go forward. And you need premium rents to do that. I can tell you the best thing that we have done in the last decade was to not stop our mixed-use development program throughout the last recession. That put us, as you know, in the place of Club Hamming, the places themselves, the street-level places created during that period of 2013, '14, '15. And so the incremental mixed-use development stuff that we do at those places, Pike & Rose, Assembly Row, Santana Row, are risk mitigated in large measure. I very much believe that mixed-use properties are -- at least the good ones are completely integrated in terms of those uses and have to be viewed as integrated in terms of their cap rates, what they would be sold for, what those income streams are valued at. And so when we have the chance to jump on and take Assembly, the next big piece for residential and office at a combined 6% on a fully loaded basis, and closer to a 7% on a cash-on-cash basis, there is no doubt in my mind, we're creating significant value. And that's in a market where construction costs are about as high as any place that we've seen, and given what's happening in and around us with the casino and other things that are taking that construction workforce and employing them. So if you just step back then and say all right, do you view these mixed-use properties that we're doing as sub-5 capital assets in total? Absolutely, we do. We absolutely look at those things as being 1 plus 1, plus 1, equals 4 in terms of office and resi and retail. And accordingly, to the extent we can put our capital to work 6% or better, certainly, at assets like that, we think we're getting a sufficient premium to our cost of capital, plus as has been demonstrated at Santana, and in the Bethesda, as these things are open, and yes, they take a long time to get open. Yes, they take a long time to mature. But they are the gift that keeps on giving. So the growth rate of those assets, we've experienced to be higher than other stuff. So the IRRs are effectively higher than other stuff. So I hope that answers and I hope that puts some context for you.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Our next question comes from the line of Steve Sakwa of Evercore ISI.

--------------------------------------------------------------------------------

Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [15]

--------------------------------------------------------------------------------

Two questions. I guess, Don, to follow-up on that. As you think about places like Santana Row and the next phase and office. I mean, are you sort of raising the bar at all? Are you getting a bit more cautious as we're getting later in the cycle, particularly on the office side as it relates to pre-leasing? Or sort of the wiggle room you want on rents? I realize that the apartment side is a little bit easier to sort of weather it down. So how do you think about the office component this late in the cycle?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [16]

--------------------------------------------------------------------------------

Yes. It's a very fair question, Stephen. And look, we absolutely look at this market-by-market, property-by-property as we make those decisions. And I'll give you a great example. When we look across the street at Santana Row and you look at those 13 acres, we had a tenant that we could have signed for the entire 350,000 square feet of space to effectively pre-lease that -- one of those buildings. We decided not to do it. We decided not to do it because of the credit of the tenant, because of the viability of the business plan, even though the rents were strong. So it's important, I think, that you know that as we're allocating capital, and we're allocating the -- or underwriting, if you will, the quality of the tenants that we're getting that -- while they are completely not good -- while they're very much de-risked because of the environment we've created, but not totally de-risked. And so we look really close at the credit. We look really close at the diversity of the tenant base. We look very close as to the prospects of their impact on the rest of the shopping centers, Jeff Donnelly asked early on. In total, we feel real strongly about Silicon Valley in terms of those opportunities over the next 2 or 3 to 4 years. Beyond that, we'll have to see. It is not as vibrant at all in Montgomery County, Maryland. And that's why we're doing one building relatively small size. We know we want office as part of the overall mix of the mixed-use project, those will probably be smaller tenants and more diversified in terms of the business. So the marketplace will dictate it to some extent, but we have no problem saying no to a tenant that doesn't meet the underwriting standards that are necessary to make the whole thing work.

--------------------------------------------------------------------------------

Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [17]

--------------------------------------------------------------------------------

Okay. And then, I guess, one for Dan G. Just on the guidance. I guess, I understand you've got a lot of balance sheet flexibility. But is it fair to assume that you've got some equity raised in the model to fund the $350 million to $400 million on the development spend in 2019?

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [18]

--------------------------------------------------------------------------------

Yes. Not a lot. I think that we position the balance sheet with, call it, $80 million to $90 million of free cash flow after dividends on maintenance capital. We position the balance sheet to be able to raise leverage-neutral incremental debt of $125 million to $150 million. We have some dispositions in the market now. We'll see how -- we'll look to kind of bring those over the finish line. But also, we've got capacity on our line of credit, and we'll be opportunistic with regards to use our ATM program to the extent that it's opportunistic.

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [19]

--------------------------------------------------------------------------------

Yes, the only thing I'd add to that, Steve, is -- truly, look at our history. And in terms of how we judicially issue equity. It's -- we don't love doing big deals, and you don't love it, nobody loves it. And so everything balanced, and the ATM program has been a good program in terms of matching up with development spend pretty nicely. We're out of position as I think you know, where we don't have to do that though. And so when you sit back and you look at all the alternatives, I think, Dan said, we have some properties in the market. I think we've got a $125-or-so million worth of dispositions that are in the market now that hopefully get done. We expect them to get done. See how that plays out. So it is all about having more hours in the quiver and being able to pick and choose them opportunistically, carefully, and in no way in a big -- in any one of those arrows being over too big a deal.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Our next question comes from the line of Alexander Goldfarb of Sandler O'Neill.

--------------------------------------------------------------------------------

Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [21]

--------------------------------------------------------------------------------

Just two questions here. First, Don, just going to the office side, you guys have obviously now done some pretty big deals with PUMA and you got partners now from Splunk. Are you guys thinking that maybe as you look at your pipeline going forward, that maybe you want to have more office? Or do you feel that you guys are still leading with retail and offices is, I don't want to say an also-ran, but office is that second component. Just trying to understand, because obviously, you've had some pretty big wins here.

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [22]

--------------------------------------------------------------------------------

It is a very good question, Alex. And please understand, we are a retail company that -- if you just -- the way you build out a large mixed-use project, and we have 3, between Santana, Assembly and Pike & Rose in particular, you have to create the place first. It's -- create that place, and we lead as we have in all 3, with residential over that, because there's no question having a population that lives there associated with the environment you've created is a real positive. Now as those things mature and if you're lucky enough as we have been to have big pieces of land where there are incremental ways to create value, the logical next place to go is with daytime population. The thing that we're seeing in the marketplace, to me, that is just really frankly, amazing, is -- it's become almost not optional for a progressive company to have -- who hires younger people or the workforce that it needs to not be in a place with all of the amenities. And so we're sitting with this advantage, if you will, of this many, many year head start, if you will, of creating places. And so now, you'll see office, that daytime population that fills in and makes such a -- rounds out the communities and makes them so strong. And I mean, I don't know whether PUMA would be there without the Partners deal. And remember, Partners HealthCare, we are on the building. We didn't take the risk. We're going to lease it. So we are a conservative company in terms of the way we view value creation at these -- at better assets. We could probably grow faster. If we did absolutely everything ourselves and moved forward in that way, we're careful about it. And we only do it ourselves in places where we've really already established and know what the environment is. So think about our office as an integrated part of a decade or 2-decade long place-making environment community, if you will, that has to have all components of lifestyle, including the office environment.

--------------------------------------------------------------------------------

Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [23]

--------------------------------------------------------------------------------

Okay. That's helpful. And then second question is -- and maybe my -- with old age maybe I'm forgetting things. But I thought previously, you guys had spoken about just with the experience of the second phases of Pike & Rose and Assembly, that the next wave of projects would be sort of smaller in scale. But the capital spend for Phase 3 at Assembly is significantly bigger than either the other 2 on an individual asset basis. So just really curious, how you're thinking about it as far as the stabilization period, the impact it has to earnings. I know you guys are all about growing regardless. So just want to understand how this bigger capital spend factors into that? And if you expect a longer stabilization period? Or because it's a lot of office maybe that's not really as much of a factor because they move in sort of quickly?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [24]

--------------------------------------------------------------------------------

Yes. Let's say, first of all, you have nothing to worry about with your age. You're remembering well. Everything seems totally perfect. You're doing just fine, pal. So let's get that out of the way. In terms of -- and so incremental adjustments and adds to existing properties are generally smaller than the original first phase that we do in the first 2 phases that we do. We saw an opportunity at Assembly. And I really hope you'll join us on May 9 for our Investor Day up there. This marketplace -- that marketplace is on fire. What we were able to do with that building, the residential building, which was big, 477 units, the time it took to fill that up surprised even us. It was a short and very different than almost every other market, it's that good. So the ability to jump on that and there were some reasons both from construction cost perspectives, which continued to go up there as well as some things that we need to get done with the -- on the residential side, in terms of units that are cheaper effectively to do. On balance, it made sense to do that right now. And jumping on that, it's a big building. It's at the base of the tea. That residential building, we have very strong thoughts on how well that'll do. And then when PUMA was -- without us putting a shovel in the ground, effectively had that deal done there, that convinced us to move forward there. So we decided to do 2 at the same time. It -- while a residential building is not pre-leased, effectively we view it as that way given the level of success that we've had over the last 18 months. So it's a bit of an anomaly, but it's only an anomaly based on the strength of the market and the success that we've had in the first 2 phases.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Our next question comes from the line of Ki Bin Kim of SunTrust.

--------------------------------------------------------------------------------

Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [26]

--------------------------------------------------------------------------------

So if I think about some of the troubled tenants out there, and I'm generalizing here. Obviously, you've talked about it, but we've seeing some landlords work with these tenants to restructure their leases to keep them viable, and occupancy costs rationalizes and so forth. But it's been more -- a little bit more one-off. But my question is, if I were working at the real estate department at T.J. Maxx or the gyms that are expanding our Peloton, and any of the kind of expanding very strong retailers. And I see other tenants getting a 30% discount on their rent. I would think and come to you and say, you know what, we're the draw. We're bringing tenants -- we're bringing customers into your center. They're a lot more value for us to be there. Why are we not getting a discount? Now I answer my own questions, and I know it's different by property and quality and all that, but do you see this as a risk and is that increasing?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [27]

--------------------------------------------------------------------------------

Oh, keep in. I mean, there is no doubt -- by the way if you were hired at any retailer's real estate department, and you did not try to take advantage of an oversupply situation in the country, you probably wouldn't be there that long. So there is no question that every retailer has adopted the position of getting the best deal. That's not different than it's ever been. There is no question that in a more oversupplied environment that they play that card higher. Play it -- answer out your own question, when there are no other opportunities, you can play it all out, but you don't win. On places where there is more opportunities, you do. And that goes back to my volatility point from earlier on. I see a bigger spread between good deals and not so good deals from that perspective. I think if you -- I think -- I don't think there's a company out there that can say that the retail real estate industry is not in a position of change, does not have a overall oversupplied phenomenon associated with it. So you have to look at 2 things, in your specific real estate, what leverage do you have to a deal, and at what terms. And then secondly, outside of basic shopping center leasing, where else do you have to grow? What other ways do you have to grow? And if you can't answer those 2 questions, then you've got a growth problem. We don't have that issue. And that's a big deal. So the last couple of questions have been about office. Think about this for a second, we have a 0.5 million square feet of signed office deals that are going to create over $23 million of NOI over the next couple of years. Just -- they are locked, they're just not -- that's a lot of pizza shops and T.J. deals and dry cleaners and stuff. That's a pretty good down payment on future growth. And that's because of a vision of the overall importance of place that has been a 20-year or longer view for us. So what you say is, of course, it's a risk. It's a risk to the entire industry. Then you have to look at what you have to negotiate against that, and I think we've done pretty well.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Our next question comes from the line of Jef Spector of Bank of America.

--------------------------------------------------------------------------------

Justin Thomas Devery, BofA Merrill Lynch, Research Division - Associate [29]

--------------------------------------------------------------------------------

This is Justin on for Jef this morning. One for Dan. We saw portfolio occupancy tick down a little bit in the fourth quarter, both sequentially year-over-year. Can you just drill into what happened in the quarter? And then second, just from a guidance perspective, where you sit today, how should we expect occupancy to trend over the next 4 quarters?

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [30]

--------------------------------------------------------------------------------

Yes, sure. Sure. I mean, look -- occupancy as we reported is, December 31 occupancy of 2017 versus December 31, 2018, overall occupancy was pretty stable over the course of the entire year from an economic perspective. And so while you saw some point in time to point in time diminution, I think that was part of it. I think in the fourth quarter, we were hit with a little bit of some bankruptcies on a smaller level that led us down a little bit over the course of the quarter. But that's a bit of the color that we could kind of point to. I would say that with regards to some of our small shop. I mean, I think, which trended down a little bit as well. A lot of that is driven by the de-leasing activity we got going on at Sunset and Coco. Without those 2 properties, our small shop would be about -- up about 150 to 160 basis points higher. So, I think, it's a little bit specific to kind of some of the redevelopment that we're doing within our portfolio with regards to some of those trends. But I would expect over the course of 2019, occupancy and lease rates will be fairly stable.

--------------------------------------------------------------------------------

Justin Thomas Devery, BofA Merrill Lynch, Research Division - Associate [31]

--------------------------------------------------------------------------------

Okay, great. And then, Don, sorry, if I missed this, but any updates on the Primestor JV? I'm curious if these assets are meeting your internal expectations so far? And if there's anything you've learned there from this venture that you might be able to integrate into the overall core portfolio?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [32]

--------------------------------------------------------------------------------

A very, very good question. And the short answer is, yes. I mean, it's been a really good experience all the way through. Jeff's on the phone. Jeff, why don't you -- can you take Primestor on this?

--------------------------------------------------------------------------------

Jeffrey S. Berkes, Federal Realty Investment Trust - EVP & President of Western Region [33]

--------------------------------------------------------------------------------

Yes, yes. The -- we've been up and running for about 18 months now with the Primestor folks. And we're meeting our projections on what the property produced in the way of NOI. And leasing velocity within the portfolio. And if you look at some of the -- we had a small bankruptcy out here G-stage, we're able to backfill those spaces very quickly at better rents. So operationally, I think, everything is going well with the JV. In Jordan Downs, as Don mentioned, is our first new investment with them since formation. Everything there is on track. We're 75% leased with our boxes in place and focused on leasing our small shop space right now. So that's on track as expected. So I think, everything is going well. In terms of, are we learning anything that we can apply to our greater portfolio? I don't know, Don, you may want to chime in on that. I'd say probably not. But again, we haven't been in the JV that long. And there's a lot of heavy lifting upfront, of course, when you form a relationship like that. So I would expect they'll be some nuggets as the years go on that we're able to extract. But Don, what do you think?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [34]

--------------------------------------------------------------------------------

Yes. I think the word nugget is right. Remember, we did this deal with Arturo and Primestor, because they did think like us. Because they have -- if you go to a number of their properties, Azalea is the one that comes to mind most. You'll see a lot of importance on place, a lot of importance on the mix of tenants, and that's kind of what got us together in the first place. So we are aligned in the way we see things. There'll be nuggets that come out going forward, that will go both ways, I'm sure, but not at this point.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

Our next question comes from the line of Vince Tibone of Green Street Advisors.

--------------------------------------------------------------------------------

Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [36]

--------------------------------------------------------------------------------

I'd like to drill down a little further on the comparable property NOI growth guidance. I'm just trying to bridge the gap on how to get to the 2% because you mentioned occupancy is expected to be roughly flat this year, and with -- where spreads and contractual rent bumps are, it seems like that would imply something greater than 2%. Just hoping you could provide a little clarity there.

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [37]

--------------------------------------------------------------------------------

Sure. Sure. I think that kind of our core portfolio overall, we'll see kind of decent growth in, call it -- along with some the -- kind of the proactive re-leasing activity that we had in 2018, kind of really reaping the benefits into 2019, kind of getting us north of 3%. So you're right from that perspective. But there are specific things in the portfolio that will weigh on some of those numbers. One, some of the late year bankruptcies that we -- impacted the fourth quarter. We'll see that carry out through 2019. So that'll be about a 50 to 60 basis point drag in our forecast for the year, in terms of some of those kind of below the radar impact from bankruptcy. And then also, I mentioned, the redevelopments at Plaza El Segundo, Huntington, Congressional, where we're doing kind of some remerchandising that will create some drag as we turn tenants over. And at those large assets, they're going to have big impacts that'll create about 80 to 90 basis points. Just on those kind of 3 or 4 assets of drag. So that kind of brings us down to that -- about 2% number. And so it's those 2 things.

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [38]

--------------------------------------------------------------------------------

But they're value creative.

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [39]

--------------------------------------------------------------------------------

Yes. And the key point there is that long-term, at Plaza El Segundo, what we're doing at Huntington, Congressional, great pieces of real estate, where we're doing in kind of that diminution and kind of cash flow over 2019 as we do that. Long term, we're creating value, and you'll see higher rents and higher property operating income over the long term there, and value-creating project. So again, similar to our proactive re-leasing activity, this was more of the same, but just on a larger scale.

--------------------------------------------------------------------------------

Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [40]

--------------------------------------------------------------------------------

That's really helpful color. One quick follow-up there. So just -- is the redevelopment contribution going to be negative then? Just looking -- so it looks like you only have a few smaller projects that stabilized in '18, that would contribute to comparable property NOI, and a few rolling in '19 as well. So given that 80 basis point drag, is the overall contribution to next year's growth negative from redev?

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [41]

--------------------------------------------------------------------------------

Well, we look at the kind of the redev and development kind of in the same thing. I think that you'll see some balance there. I think you'll see some small contributions from a redev perspective in terms of what's on Page 16 of our 8-K. I think you'll see continued contributions from Phase 2 roll-up of Assembly from 2018 to 2019 as well as that...

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [42]

--------------------------------------------------------------------------------

These answers are comparative.

--------------------------------------------------------------------------------

Unidentified Company Representative, [43]

--------------------------------------------------------------------------------

Comparative.

--------------------------------------------------------------------------------

Unidentified Company Representative, [44]

--------------------------------------------------------------------------------

Comparable.

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [45]

--------------------------------------------------------------------------------

Comparable.

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [46]

--------------------------------------------------------------------------------

Oh, comparable. Okay.

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [47]

--------------------------------------------------------------------------------

So yes, I mean (inaudible)

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [48]

--------------------------------------------------------------------------------

Yes. No, I think you'll see, yes. Based upon that redevelopment -- yes, now there will be drag from redevelopment during that on our comparable number. Yes.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Our next question comes from the line of Nick Yulico of Scotiabank.

--------------------------------------------------------------------------------

Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [50]

--------------------------------------------------------------------------------

Dan, just hoping to get a -- maybe a few of the items. How we should think about for the AFFO adjustments there, like a recurring CapEx number, how that might trend this year versus last year?

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [51]

--------------------------------------------------------------------------------

I think, we expect -- when we look at kind of the -- going from FFO to AFFO, it'll be pretty consistent, I think with 2018 numbers. After our free cash flow, which is really AFFO less dividends, should be pretty consistent. We're still projecting, as I mentioned, free cash flow after dividends and maintenance capital to be pretty consistent, get a sense of that, call it, $80 million plus/minus range in terms of what -- we expect our AFFO payout ratio to be pretty consistent with what we have in 2018.

--------------------------------------------------------------------------------

Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [52]

--------------------------------------------------------------------------------

Okay. That's helpful. And then, Don, I just wanted to return to Santana Row and the future office development opportunity there. I mean, all the stats on the market out there showing strength, new supply -- competitive new supply continues to get leased and there's less of it available. So I guess I'm just wondering, do you have like a -- does the company have an internal time frame on sort of go or no go on the office there? Since -- and then whether we should think about the separate -- but you have this 320,000 office versus the 1 million square feet across the street, whether there is like separate decision-making on that? Or you could just launch everything at once if the market is -- do you think the market is strong enough?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [53]

--------------------------------------------------------------------------------

Yes. Let me -- it's a great question. Yes, I mean, cycles, right? So as we sit and we look at Santana, we very much would like to make decisions in the first half of 2019. And so whether we're going forward with the first 350,000 square foot building across the street from Santana, that's Santana West. That's the next thing up. We haven't even delivered Splunk yet, and it won't be delivered till the end of the year. And hopefully it's this year, might even go into next year. We'll see how that plays out. But other than Splunk, we've got -- it'll be the go, no-go on the 350. You'll see that decision soon this year because the market is as strong as it is. It definitely weighs into our considerations. We know the queries we've been getting about office on that site, we know that they're strong. We know we've kind of proven it with Splunk 1, Splunk 2, AvalonBay chose to bring their offices there with us. Our first office building, it's been a -- complete with 100% leased with great roll ups there. So we know we've got an office environment that we've created there that will be successful. So to the extent that market softens as it surely will at some point over the next 5 or 6 years, we don't want to be in that position. And so there is definitely a desire to get it done and get it going, at least, part of it in 2019.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

Our next question comes from the line of Derek Johnston of Deutsche Bank.

--------------------------------------------------------------------------------

Derek Charles Johnston, Deutsche Bank AG, Research Division - Research Analyst [55]

--------------------------------------------------------------------------------

Are you seeing an uptick in interest or signing leases or additional leases with online native retailers? And are there any examples -- you're seeing proof-of-concept regarding long-term viability there?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [56]

--------------------------------------------------------------------------------

That's a great question. In terms of long-term viability, too early to say it right. I can tell you that we've had some real good meetings and are doing some pretty good deals with digitally native brands coming over, whether we're talking about Casper or Parachute Home, or Allbirds, or any of those guys. Now all that is good, and it's demand and increasing demand in the type of properties that we have that's clearly a positive. Now whether those brands are -- will be great brands for 10 or 20 or 30 years, time will tell. We'll have to see. It's why the diversity of the income stream is the most important thing in that decision-making process. So clearly many -- all would be too strong, many of those digitally native brands who just 3 and 4 and 5 years ago said, I'll never have a brick-and-mortar place have gone -- have a reverse course that way. And yes, with the type of properties we own, we're a natural recipient of that demand.

--------------------------------------------------------------------------------

Derek Charles Johnston, Deutsche Bank AG, Research Division - Research Analyst [57]

--------------------------------------------------------------------------------

Okay, great. And just switching gears a bit. I know there are no disposed provided in guidance. But you guys are out there in the market. Any idea of how many assets are currently being marketed? And the demand profile you're seeing in the private markets? And how they're performing? And basically, our cap rates coming in at your expectations? Or what's the delta?

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [58]

--------------------------------------------------------------------------------

Yes. We're in the market with as Don mentioned 2 assets, we expect kind of a -- hope to get into that $125 million range in terms of proceeds, and that -- it's an ongoing process. I think we're -- I think that right now, with regards to those processes -- sales processes coming in at our expectations, we'll see whether or not we get them done. But Yes. Now, I think, for our assets, we're seeing relative stability of demand for them and no surprises so far.

--------------------------------------------------------------------------------

Operator [59]

--------------------------------------------------------------------------------

Our next question comes from the line of Collin Mings of Raymond James.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [60]

--------------------------------------------------------------------------------

Just -- in the prepared remarks, the tone seemed to be pretty upbeat about maybe getting some acquisition opportunities to the finish line this year. Anything else you can offer us or expand on those comments at all at this point? And maybe just generically, should we think about that -- those opportunities that you're pursuing maybe having a redevelopment component based on some of your prior activities? Is that is a fair way at least to think about that?

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [61]

--------------------------------------------------------------------------------

It is, Collin. Let me jump on that for a bit because it's so funny when Dan and I were talking about what to do for -- on prepared remarks. He wanted to talk about acquisitions because we do have some things that are close. The bottom line is, when we do acquisitions, we want to make sure that there is an opportunity to create value. We've never been a volume shop, as far as I'm concerned, we never will be a volume shop. And it's harder to buy today and assume that rents are going up. It's not 2006 anymore. So that kind of leads us to say, what we do primarily will have some sort of a redevelopment component. So it's what we do best. Does it mean we're not looking for under market rents? Of course, we're looking for under market rents, but it's harder to find that. So you'll see some acquisition activity from us this year. It'll probably be relatively minor. But -- and mostly because our best use of capital is in the places that we've already created, and we have incremental things to do at them. That is the -- on a risk-adjusted basis. Clearly, the best thing for us to be doing, which is why you see that development pipeline so full. But one of the things we never want to be is a one-trick pony. And so on that -- on the acquisition side, you'll see the occasional acquisition. It'll most likely be part of some strategic plan to either -- add an adjacency or do something to it to be able to create redevelopment value.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [62]

--------------------------------------------------------------------------------

All right. And just going back to Derrick's question on disposition activity. Can you guys just touch on the Atlantic Plaza sale on 4Q?

--------------------------------------------------------------------------------

Daniel Guglielmone, Federal Realty Investment Trust - Executive VP, CFO & Treasurer [63]

--------------------------------------------------------------------------------

Sure. Sure. We closed on a $27 million grocery-anchored center. Pricing was kind of in the mid-6s, kind of taken that with a blended basis of our Chelsea Commons residential. We were in the mid-5s on a blended basis on those 2 kind of what we view as noncore at the end of the day, just kind of -- and yes, that's the color on that. I mean, I think, that...

--------------------------------------------------------------------------------

Donald C. Wood, Federal Realty Investment Trust - President, CEO & Director [64]

--------------------------------------------------------------------------------

The demos are too light there for us. And it came as part of a package, I don't know, 10 years ago, maybe even more now, that includes a number of assets and that was one of the lighter demos. It was a good area. It is a good area with North Reading. But it is -- but they were light. And so when we looked at what we'd be able to do there in the future, we said, nothing. And had the ability to have shelter, which is what we did, and that's why that got sold.

--------------------------------------------------------------------------------

Operator [65]

--------------------------------------------------------------------------------

And I'm showing no further questions at this time. I would now like to turn the call over to Ms. Leah Brady for closing remarks.

--------------------------------------------------------------------------------

Leah Andress Brady, Federal Realty Investment Trust - IR Manager [66]

--------------------------------------------------------------------------------

Thank you for joining us today. We look forward to seeing many of you over the next few weeks. Again, follow-up if you did not receive the Investor Day save the date. Thank you.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.