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Executives

Julie Trudel – VP, IR

Louis Haddad – President and CEO

Michael O’Hara – CFO

Eric Smith – VP, Operations

Analysts

Dave Rodgers – Robert W Baird & Co

Jonh Guinee – Stifel, Nicolaus & Company, Inc.

RJ Milligan – Raymond James

Armada Hoffler Properties Inc. (AHH) Q3 2013 Earnings Call November 8, 2013 8:30 AM ET

Operator

Thank you for joining us for the Armada Hoffler Properties’ Third Quarter of 2013 Conference Call. At this time, all parties are in a listen only mode. Following the management’s presentation, we will conduct a question-and-answer session. (Operator Instructions). I would like to remind everyone that this conference call is being recorded. I would now like to introduce Julie Trudel, Vice President of Investor Relations for Armada Hoffler Properties. Please go ahead.

Julie Trudel

Good morning and thank you for joining Armada Hoffler’ third quarter 2013 earnings conference call and webcast. With me this morning are Louis Haddad, CEO; Mike O’Hara, CFO; and Eric Smith, our Vice President of Operations will join us for question-and-answer. The press release announcing our third quarter earnings along with our quarterly supplemental package was distributed this morning. A replay of this call will be available shortly after the conclusion of the call through December 8, 2013. The numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we remind you that remarks made herein as of today November 8, 2013 and have not been updated subsequent to this initial earnings call. During this call, we will make forward-looking statements including statements relating to the current and future performance of our portfolio. Our identified development pipeline and future pipeline, our construction business, our portfolio performance in financing activities as well as our comments on our outlook. We also will discuss certain non-GAAP measures including but not limited to FFO, Core FFO and Core EBITDA. Definition of these non-GAAP measures as well as well reconciliation to the most comparable GAAP measure are included in the quarterly supplemental package which is available on our website at www.armadahoffler.com. Listeners are cautioned that these statements are subject to certain risks and uncertainties many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual result to differ material from our current expectation and we advise listeners to review the risk factors discussed in our press release this morning and in document that we have filed with or furnished to the SEC.

I would now turn the call over to our Chief Executive Officer, Louis Haddad. Louis?

Louis Haddad

Thank you, Julie. Good morning and thank you all for joining us for our third quarter earnings call. This morning, I’ll provide first with an update on our company including recent announcement. Next, I will touch on a few of the metrics for my third quarter earnings release. Following that I want to review the unique aspects of our platform that not only differentiate us in a REIT space but are critical to understanding our financial performance and condition.

My comments will highlight how we utilize these advantages to drive value over the long term. Impressing upon our stable and diversified portfolio, development pipeline growth engine and our in house construction expertise, I will share with you how we view the benefit for our integrated company. As you know, my comments will merely appendix we included in our third quarter supplemental package titled – Understanding AHH which we provide at this quarter to associate with discussion. At the conclusion of my remarks, I will turn the call over to Michael O’Hara who will provide additional details on our results in the quarter and our balance sheet.

With that let me begin by saying that we are pleased with our quarter and delighted with how well positioned the company is post IPO. We are on track to accomplish what we set out to do this year, including maintaining a stable portfolio and executing on our identified development pipeline. I am also extremely pleased with the attractive array of opportunities for the next generation pipeline. We believe are well-positioned to grow net operating income and create value for our stockholders into the future. As for our results our stable portfolio, was stable as we expected.

The stability of our portfolio is an important distinction. As many of you know, we managed our asset for the past 34 years through recessionary time as well as boom time. We’ve successfully navigated before recession and come out of each one stronger and better positioned for the future. We managed the long-term stable cash flow. This often means waiting for the right tenant and lease terms for each prospective vacancy and not just throwing space as quickly as possible to satisfy short-term comparison. Similarly, it often means balancing space use and credit, renovate additional terms and perhaps mostly importantly panic neck. This is proven to be very successful long-term approach and it is why our occupancy very good open to 95% benchmark we set for ourselves while cash flow from these assets remains stable over time.

As I have said before, we don’t get overly excited when our occupancy reaches 97 % or 98% nor we do get overly concerned when it gets into the low 90. Our focus is on the long term. Timely difference are inherent in this business, a fact that is exacerbated in a relatively small portfolio such as ours. As we have experienced throughout our history, it’s just a nature of laying a stable portfolio. In fact, this is playing out right now here in our Town Center property. As you may recall, our second quarter result included the impact of restaurants per closing in Town Center. We have several restaurants concept that would like to come to Town Center and we are reviewing those to ensure proper fit with rest already here. Alternatively, we have been approached by potential retailers for recent vacancy. In either case, we continue to see the length of lease negotiations either office or retail increasing as costing continues to dominate the decision making processes of this company.

The bottom line is that we’re going to take our time to ensure as much as possible that we get the right tenant that will be a success on a long-term basis.

Now let’s talk of our growth engine, development. Our identified and announced projects remained on track and progressing nicely. Our identified development pipeline be approximately $175 million pipeline that we spoke over in our IPO road show, a round budget and progressing as expected. We expect to complete all of these projects and begin to recognizing NOI of $13 million to $14 million on annual basis between the middle of 2014 and 2015. This will represent NOI growth in excess of 30%. In addition to the progress on our identified pipeline, the activity around our next generation pipeline remains robust and not only the number of development opportunities we are seeing that natural criteria but also the nature of the opportunity, such a 100% occupied build to shoot a high credit quality tenant that are fully stabilized upon completion and gross rent for shopping center that have historically been the foundation of our stable cash flow.

Such projects put positive upward pressure on our development spread in that these type assets demand lower market cap rate once completed. We have proven over the last three decades that our development expertise, extensive corporate relationship to long standing track record in executing large, public private partnership continue to drive opportunities in our direction and is continue to be true in the next generation development pipeline.

As for the volume of that pipeline, we are comfortable that the target we spoke up during our IPO road show as well as our September Investor Day, the production of approximately $150 million to $175 million high quality asset every 18 to 24 months is well within sight. Along with targeted and strategic acquisitions development has and will continue to be the primary growth engine for our company.

I will be commenting more about the NOI growth and equity creation from our identified and next generation pipeline later in my remark. One of the hallmarks of our company has been our ability to attract quality individuals who stay with us for the long term. Most of our management team has been with us for at least 15 years with many individuals having over 20 years of service. The longevity of our management team and our combined commitment to the company going forward is evidenced by the fact that along with previous partners we still own approximately 40% of this company which has a current market cap in excess to $300 million.

In keeping with our approach to building an experienced management team, we’ve been successful in attracting high caliber talent to our board which is many of you have known is anchored by lead director, former treasury, secretary John Snow. We are very fortunate that Admiral Joseph Prueher has now joined our Board. Joe comes to us following a highly decorated military and public service career, with his considerable experience as a member of multiple Fortune 500 company board, we believe he will provide even more gist to an already experienced board of directors.

Turning to our third quarter results, I am pleased to report that our funds from operations, thanks to our sales metric, occupancy and leasing activity all continue to reflect quality and stability of our portfolio. With the quarter, our core FFO with $0.20 per diluted share, our same store sales, NOI remained stable across all segment.

During the quarter we executed leases totaling approximately 42,000 square feet. At the end of quarter of our office, retail and multifamily property operating portfolio were 93.4%, 93.6% and 92.7% occupied respectively. One of the metric I guess reviewed our important parameters of performance. I want to reiterate that we’ve always managed our business with a goal of creating long-term value. Therefore, I would like to spend some time this morning providing greater insights as to how we look at our business.

Simply stated, we are unique in the REIT state by the nature of our integrated platform and growth strategy. We are offering unique investing opportunities through our diversified and stable portfolio of institutional grade real estate in the Mid-Atlantic region and a development capability to continually add additional assets of similar quality per asset base. We also provide general construction and development services to third party client throughout even larger geographical footprint.

Our diversified real estate portfolio and the integration of development and construction capabilities with our platform allow us to take advantage of a wider variety of profitable opportunity with our client. However, while our geographical footprint product mix and capability help explain the nature of our stabilized portfolio and how we thought and execute on opportunity, these attributes can make it more difficult for a balance sheet, operating results and valuation in a proper contact.

And let me call your attention to the appendix we added to our third quarter supplemental titled – Understanding AHH. We believe in order to properly assess our earnings and balance sheet as well as our equity creation over time, it is critical to understand the business model that we have been executing since the mid-80. And that we continue to operate as a public company.

First, ad our core is a portfolio of high quality stabilized assets that produce a predicable stream on an ongoing basis. This stable occupancy and consistent well income provides the backbone of our business and the cash flow available for dividend growth, reinvestment, de-leveraging etcetera.

Second, our portfolio will grow over time with the addition of stabilized properties created by our development engine as well as strategic off market acquisition. And lastly, their earnings and value of our company is also augmented by our integrated construction business. Not only this affect the continuing generate additional earnings from the third party construction work but it provides a suit to project our brand throughout the market place. More accurately assess the cost and risk of development opportunity and mitigate the cost increase and handling risk inherent development.

On Page 34 of the Appendix, we have provided the more granular views of the NOI from our stable portfolio property. We believe it is important to keep in mind the diversified nature of our portfolio as well as the uniqueness of some of the assets when thinking about the valuation of our stabilized property.

It is important when you consider likelihood that the product mix may shift and cap rate may move independently among asset practice. For example, some assets such as Town Center has got a competitive advantage and high barrier entry through the public private partnership that bonding traditional valuation metrics in market comp comparison are not obstacle – applicable and are [indiscernible]. In addition, you are having the information on this page available for more thorough evaluation approach.

It is important to note what information is not on this page. What you see is data for stabilized asset and in the future it will exclude property from the development pipeline that are completed but not yet stabilized. We consider such assets to be a part of the development pipeline until stabilization occurs.

We believe it is important to view assets that are in a various stages of the development process, most notably that are complete but not yet stabilized separately on the stabilized portfolio. Inclusion of those projects which skew corporate metric such as earnings, leverage and value and potential create a disincentive to commit the solid profitable development opportunity.

Let’s now turn to Page 35 of the Appendix and discuss our development pipeline. This page details both the identified pipeline as well as our projections for the next generation pipeline which we expect to announce over the coming month. As we discuss today, the NOI from the identified pipeline project would start coming on line beginning at mid-2014 to 2015. But the stabilized NOI from the next generation pipeline likely to begin materialize in 2015. This is slightly faster than the expectation we share during our IPO road show of a development pipeline in the range of $150 million to $175 million every 18 to 24 months.

As you can see from the data shown the weighted average return on cost for both the identified pipeline and next generation pipeline are expected to is in excess of 8% based on current assumptions. As we’ve talked about many times before, we strived spread between the return on cost and market cap rate of between 100 and 200 basis points. You will also notice our expectation for the spread on the next generation pipeline; it is estimated to be slightly higher than the current pipeline, plus adjusting lower blended market cap rate for this asset.

This is something is driven by the attributes of the project taking shape in that pipeline. Most notably the ratio build to suit project, the credit quality of tenant and other factors that management believe is demand the market cap rate below 7%. With this data in mind, I want to spend a few minutes discussing on how we think about the value creation suggested by these announces.

We believe that significant value is created when an inter connect leases are signed. As you can see on Page 35 of our supplemental, we believe these opportunities will generate an additional $55 million in value creation. The development deals on associated leases represent assets and equity creation that carry high degree of certainty in our mind. Despite the fact that these projects do take time to complete. They suddenly come from our business platform notably our proven development and construction capability and our ability to manage the execution of this engagement.

As a result, we view the decision to begin the development project including the financing of these projects as a decision to create value with a high degree of certainty and with much of the risk navigated.

So let me connect about between these discussions of the development of pipeline with my earlier comments about the stable portfolio. While we believe it is important to access or core business to stabilize portfolio without the noise of the development engine, the leverage incurred on our balance sheet to fund the development pipeline cannot be ignored. We have and continue to have many capital leverage that are disposable to address the potential issue to debt ratio ever move out of our comfort zone.

This leverage could include the selling and stabilize asset through cash, pre selling development TO, preferred equity, joint ventures or traditional capital rising. The final P of our unique and integrated platform is our construction division. We talked in length in previous forum about how we project our brand through our construction company. Such as the $1 billion cost for third party construction work is completed at the Inner Harbor at Baltimore over the last few decades including the Legnasen [ph] building which many of you are familiar with. And help such brand recognition lease opportunity such as the John Hopkins mix development added part of our next generation pipeline.

In addition to lease benefit, we have a solid and consistent track record of generating gross profit that represent an ongoing successful business and should be part of any valuation discussion when viewing Armada Hoffler as a whole. We provide some useful data on the generate contracting and real estate services segment of our business on Page 36 of the supplement.

That leads to Page 37 of the supplement where we provided a summary of the information just discussed to assist you in your valuation of the company. We hope that you found this discussion and the data provided in the appendix useful to better understand the uniqueness of our business model and some of the pitfalls that exist at the core portfolio along with the development and construction engine are not thought about individually first before being combined into a whole.

I think you find it interesting to note that this approach to thinking about our business platform is exactly how is managed the company for decade. All of our metrics and analytics were summarized in two important reports. One, that the cash flow coming from stabilized assets and the other showing the equity creation and subsequent cash flow from the development pipeline.

We believe the information that I walked you today highlight the equity creation that our current shareholders are enjoying as we execute on our stable portfolio, development pipeline and third party construction business.

We anticipate that this pattern of equity creation will continue to repeat itself in the future with the execution of the more development pipelines compliment in five strategic acquisition.

With that I will ask Mike to walk you through some of the key financial and portfolio metrics contained in the third quarter supplemental and I look forward to any questions you may have about this discussion during Q&A. Mike?

Michael O’Hara

Thank you, Louis and good morning. In my comments today I will first review the highlights from the third quarter, next discuss our recent financing activity and update you on our balance sheet strategy and finally provide some re-comment on our expectations for the balance of the year. Let me start with our third quarter results which represent our first full quarter as a public company. Core Funds From Operation was $6.6 million or $0.20 per diluted share which was in line with our expectations. We believe Core FFO is a useful supplemental performance measure as it excludes certain items including but not limited loss on debt extinguishment and non-cash compensation.

During the third quarter, we executed one new office lease and five office lease renewal for approximately 17,000 square feet and six retail lease renewals totaling approximately 25,000 square feet. As outlined in our newly extended supplemental package, the office really seems spread are hired by $2.42 per square foot on GAAP basis and $0.33 on a cash basis. Retail leasing re-spread is lowered by $0.85 per square foot on GAAP basis and $4.79 on a cash basis. As per our same store NOI, three and nine months period ending September 30 were positive on both a cash and GAAP basis. Office store NOI increased by $0.4 million, the increase was driven by leasing and contractual rent increases. Retail same store NOI decreased by $0.2 million, the decrease was primarily due to the impact of the closing of the two restaurant at Town Center which we previously discussed.

The multifamily same store NOI increased by $0.1 million, this increase was primarily the result of the new destination maternity leave on the first over the cosmopolitan which is offset, a fact and is decline in occupancy at the cosmopolitan.

During our September Investor Day, we discussed 30,000 square feet tenant at Town Center with an upcoming lease renewal, we state to the date since the 10,000 square feet in vacant space. This tenant agreed to re-lease the 30,000 square feet and now lease the adjacent 10,000 square feet in 15 years. This lease was signed in October and will impact our fourth quarter leasing spread in the same store NOI.

We decided to trade current rental rate for a longer term lease and release some additional space which we believe was best for the long term. On the construction front, we have recorded a segment profit of $1 million on revenue of $22 million. We executed approximately $25 million of new contracts included the new Hyatt hotel in Baltimore in Center Harbor. At the end of the quarter the company had construction backlog of approximately $59 million.

Now turning to the balance sheet activity. In July, we close on a $63 million construction loan and funded 4525 Main Street office in the Encore Apartments projects, a long term is for 42 months, interest only a LIBOR plus 1.95%, we have put interest rate cap for this loan.

Also in July we paid up the first loan secured by One Columbus which is located in the Virginia Beach Town Center. We entered the quarter, we are continuing to execute on our balance sheet strategy provide us with the flexibility to fund our growth objective and multi efficient in cost effective manner. While proactively manage our upcoming loan maturities.

In October, we increased the volume capacity on revolving credit facility by $55 million by adding six properties to borrowing base. The borrowing capacity of the credit facility now stands at $155 million; enjoy a premium rate 2.5 year LIBOR interest rate cap at 1.5% in credit facility. We also closed on $18.5 million loan to fund the development of the Whetstone Apartments in Durham, North Carolina. A loan term is for 36 months, interest only has LIBOR of plus 1.9%, we put interest cap on this loan as well.

In October, we repaid the first loan secured by the [indiscernible] and its property which is schedule to mature in January 2014. This property is now available to be added for the borrowing date for credit facility if we choose.

In October, we refinance six loans to the Bank of America, three of which was schedule to mature in 2014. We reduce the REIT loan balances by $1.5 million remove the recourse component. The six new loan terms are the same and after five years the rate of LIBOR plus [225] in non-recourse. Specific loans include three loan secured by three shopping center, pharmacy retail and in a [indiscernible] which is the lower rate and the entire net [indiscernible], we are evaluating interest rate cap and swap for this loan.

We expect this close as soon as lending loan expansion between listing vendor later this month. Loan term is the 36 months with two 12 months extension at our option at a rate LIBOR plus 2.15% and re cost is reduced to 25%. After completing these activities will be only one loan maturity in 2014, North Point matured in December with the balance of loan in $1 million.

Next, I want to give an update on our development activity. In addition to two construction loans I discussed earlier, we have a bank commitment to finance the same Sandbridge Commons project. The term is the 48 months for which 24 months are interest only. The rate of LIBOR plus 1.85% during construction and rate of LIBOR plus 1.75% on completion. Loan is 100% recourse and construction; we are deducting 50% upon completion and a further reduction to 25% on achieving certain NOI metrics. We offer pretty [Indiscernible] for this project during the quarter.

We have been utilizing the credit facility to fund our equity requirement for 4525 Main Street office, the Encore Apartments and the purchase the land in Sandbridge Commons Whetstone Apartments project.

Moving on to our balance sheet. At the end of the third quarter, we have total activity debt of approximately $247 million including $45 million outstanding on the credit facility. Our core debt to core EBITDA after quarter end was 6.8x, the average interest rate is 4.1% and average term maturity of new loan is 9.3. Approximately 56% of our debt is fixed at December 30, that including interest rate cap, 74% of our debt risk to core hedge.

As I share with you our September Investor Day our goal over time in maintaining our balance sheet and appropriate degree of flexibility to fund our growth strategy. Maintaining a balance sheet with adequate capacity and flexibility will allow us over time to facilitate access to a variety of capital sources at the most advantageous terms. That said let me remind you that relative size of our portfolio and the development pipeline as well as our financing model may result in short term fluctuation and leverage metric, this [indiscernible] cooperate the upside equity creation and.

Going forward we will continue to provide you with disclosure in metric to help and properly understand and value our business. We had a long successful track record of executing our business and we remain extremely comfortable where our integrated operating equity creation and financing model.

Now turning to our dividend. On August, the Board of Directors declared a dividend of $0.16 per share for the third quarter of 2013. The dividend was paid on October 10, 2013.

Looking for the balance of the year. We expect the fourth quarter to reflect a continuation of the stable portfolio and operating results we have reported year-to-date. As outlined in our perspective of our IPO, we expected to close on the purchase of the Liberty apartment fully known as the prime school apartment in November, that is discussed at our September Investor Day, delay in the opening of the [indiscernible] school at the request of [Newport new ship building has] deferred the acquisition of the property until the first quarter of 2014.

That I discussed to outline our perspective for IPO, end of June we will projected to be approximately $7.2 million. We continue to believe that our 2013 pro forma G&A will be in that range. That’s to the first quarter 2014 we are expecting seasonality impact on our G&A. The first quarter G&A will be higher when a typical quarter because of [indiscernible] including restricted stock rent to employee, yearend audit fees and tax fees.

Now, I will turn the call back to Louis.

Louis Haddad

Thank you, Mike. Thank you all for your time this morning and your interest in your Armada Hoffler. Operator, we would like to begin the question-and-answer session. We ask that you limit yourself to one question and follow up so that we can accommodate as many questions as possible.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is coming from the line of David Rodgers with Robert W Baird. Please proceed with your question.

Dave Rodgers – Robert W Baird & Co

Hi, good morning. I guess starting may be with the operating portfolio. It seems like maybe the cosmopolitan into the most variable piece of the operating portfolio here in the near term, and I understand you had a lot of construction going in the quarter but can you talk a little bit may be about the trend and recovery of our occupancy there, what you are seeing and is there any kind of get back some of what was lost in the quarter and then how you feel about that year in the fourth quarter?

Louis Haddad

That’s great question, David. I appreciate you bringing that up. I am staring at the building as we speak. I want to turn this one over to Eric to give you some detailed on but I’ll tell you my thoughts first. I really don’t see with the fourth quarter traditionally being the latest quarter for us at the Cosmo, I don’t expect the whole lot of recovery in the fourth quarter between that seasonality and the continuing construction. Really looking more towards stream and I think that we bottom up to what the damage maybe if you will. But that’s my overview of the situation. Eric?

Eric Smith

Thank you, Louis. We actually, the team that manages the property for us does – and they are going to view whenever possible with tenancy with terminate leases. And we have been free to see – an uptake in the number of focusing and construction next store was a lead contributing factor. Those reasons have stabilized and had not continue to increase and so the reasons that we are seeing that people leaving are very consistent with what we are seeing in previous year and as we complete this year the seasonality that we just spoke of, so we are not only concerned about that we think at this point we have bottom out on the impact on the construction next store, that ability has now topped out and over the next quarter construction will continue to move internal rather than external on that development side and until we are fully expecting with the seasonality impact this –bounce back to the first of next year

Louis Haddad

This construction we are referring to 4525 Main is 15 storey high rises that is approximately 90 feet from the base. We experienced over the past several months 2 am concrete cores as well as four months of pilot driving that we commenced at 6 am. We thought didn’t do anybody any favor.

Dave Rodgers – Robert W Baird & Co

No, thank you for the color and that’s your point I guess maybe a follow up towards the identified pipeline or maybe what we maybe more refer to the next generation pipeline, thank you for the color on that I think that the big component that is work you are doing up in the Baltimore area but do you have any more color on kind of a timing of some of those I assume those are all signed and inked to deal, can you talk about the timing or the brackets around timing that we should think about in terms of these project getting going or being complete?

Louis Haddad

Sure, David as I said in my remarks we are really excited about this taking shape faster than we had anticipated. The projects should be agreed to and I always get concerned when we talk about ink, I love shaking hands with people and letting to start spending some money but I’m nervous until we actually have all the documents and we are not quite there. With that said, you will notice that I mentioned that some of this will be online even before some of the identified pipeline comes online. And that’s because as I was previously saying that I really don’t like bread and butter [indiscernible] just backtrack those new type construction that you opened it up and stable and there is a lot of other reasons why people say that, like we can produce with our integration of services we can produce this facility a lot best than our competition.

Dave Rodgers – Robert W Baird & Co

Great, one more into Mike, just wanted to go to the core of calculations this quarter I think you had a back of non-cash comp into the quarter FFO, was it really moved that up from the year calculation anything you can give color on that would be helpful. Thank you.

Michael O’Hara

Good morning, Dave. You are correct, typically, we wouldn’t add that core assets, we haven’t back non-cash comp to core FFO. But what we are doing here is, we had an initial 700,000 shares of restricted stock at the IPO that were paid for by the previous owners. So far why we have granted about 20% of the share which is a part that we add back and we will continue that back these initial 700,000 shares to Core FFO but after those are the traditional not the adding that back.

Operator

Thank you. Our next question is coming from the line of Jonh Guinee with Stifel. Please proceed with your question.

Jonh Guinee – Stifel, Nicolaus & Company, Inc.

Great, thank you very much. Louis or Mike, I am looking at the Pro forma sort of free IPO and the core portfolio looks to me like it was pro forma that about $43 million of GAAP NOI and it looks like you are coming in little under $40 million of GAAP NOI annualized, what’s the difference there?

Louis Haddad

Thanks John, Eric, why don’t you take that?

Eric Smith

Sure, good morning John. Couple of comments there most notably as we talked about previously on our call last quarter as well as the more recent Investor Day, we seen a little bit slower lease up vacant space and I think we will commented and alluded to some of the reasons compare to March as we have seen a little bit of extension on the time it takes for the tenant to moving commit to new space. So, that as you seen by the number is the tenant in place continue to be a stable and in fact we have renewed 100% of tenant that have come up over renewal since we gone public and so there is not an issue on that side but the lease up has occurred more surely than we would have anticipated, in addition we have had a couple of impacts on operational issues that the notable one be again one we commented on in previous dialogues, with the investor community the restaurant at Town Center and the two restaurants we spoken have also contributed to that. So those two items contribute to a large extent to that difference we have noted.

Michael O’Hara

And to add to that we Jonh anticipate a drop in our same store NOI in fact year-to-date and just to clarify something I made in my opening remarks I said we have positive GAAP since doing away through nine months that’s not quite negative things during NOI through September.

Eric Smith

And I was come back, this is Eric, I would come and also mention that is if that close down and you think about on a per share basis there is some diluted effect with additional shares that we issued we deal [indiscernible] etcetera and obviously that capital was used that in case it is possible but to some extent there was [indiscernible] arbitrage there from having mostly closing rate interest left to pay off with those additional funds so you take the contact per share basis that I thought was an important point to mention.

Jonh Guinee – Stifel, Nicolaus & Company, Inc. So the net-net should we look at this a stabilized portfolio as $10 million $11 million a quarter GAAP NOI.–

Louis Haddad

Yes John we’re thinking right now we see [indiscernible] about 95% over the course of the decade that will go up and down to 93s and up to the 97s but the 95% point would be closer to 11, but there is no telling exactly we have those fluctuations again our curve I would tell you that would leverage out over course of few years.

Jonh Guinee – Stifel, Nicolaus & Company, Inc.

What was in the high 10 or 11 back in April was now around $10 million a quarter.

Louis Haddad

Correct.

Jonh Guinee – Stifel, Nicolaus & Company, Inc.

Okay. Well, that sort of begs the question and I hate to ask the question but you think you can deliver the pro forma development at 10 a quarter?

Louis Haddad

I’m sorry John, could you repeat that.

Jonh Guinee – Stifel, Nicolaus & Company, Inc.

I look at your development paid you got about $140 million of development which is in the pipe now about eight in the quarter yield on cost.

Louis Haddad

Yes

Jonh Guinee – Stifel, Nicolaus & Company, Inc.

Is that a good number?

Louis Haddad

Correct.

Jonh Guinee – Stifel, Nicolaus & Company, Inc.

Okay. And then the last question is and this is always something I hate to ask but I got to ask, if I look at your independent directors anybody on there with public company REIT experience?

Louis Haddad

No, there is not.

Jonh Guinee – Stifel, Nicolaus & Company, Inc.

So what did you just bring on these wonderful guys from the navy instead of someone with public company REIT experienced?

Louis Haddad

If you read the resume, he is a retired admiral three years been on several Fortune 500 company board, he is also very influential in this area as you might expect as a lot of ties to the military, I will leave you to connect the dots.

Operator

Thank you. Our next question is coming from the line of RJ Milligan with Raymond James. Please proceed with your question.

RJ Milligan – Raymond James

Good morning guys. Doing all right. Couple of questions actually one comment thanks again for the disclosure out this quarter, I think it’s going to be very helpful going forward to have this kind of detail. So thanks for that. Second, just if you could talk about pre-leasing as you’re for the Main Street office building, any discussions you’re having and then I guess given the weakness in cosmopolitan, that’s almost driven by the construction there just what your thoughts are as you start to deliver those unit next year in terms of demand for apartments there in Town Center.

Louis Haddad

Sure. Let me first say overall I’m pleased with the amount of activity the amount of chatter out there the conversations that we are having with tenant regarding office base. As Eric mentioned we renewed a 100% of the leases that have come up since we went public and we expect that trend to substantially continue in the future. So really not going to be talking about that’s going a whole lot, so any new tenants coming obviously focused on new building. We got about 80,000 feet of back space in the high rise, and 20,000 feet on the floor on the ground and I can tell you that it’s taking longer to go from talking and being excited in matter of intense to get the leases I think we are seeing that portfolio wide not just here in Town Center or enhancing rather it is everywhere. People are just a lot more cautious but I would be a lot more concerned if we won’t having the conversations, a very comfortable with where that building going to end up and make sure again that the people understand the nature of Town Center, high rise once here or solid $5 or $6 a square foot higher than the rest of the region, it’s a familiar address enhancing in road periods. A number of these people could go and drop their rent by some 20% simply by moving out and they don’t, and that’s a good news but it’s not so good news it will take longer for people that make that decision to step up and take a step here, good example is core section taking 80,000 feet in the new tower. Their rental expense is going to go by some 80% when they move here, they are making that move because they think they need to have this kind of address compete on a national basis and as you might expect and today’s day and age it’s harder to complete to make that decision. That said, if you are very comfortable with the stability of the product.

RJ Milligan – Raymond James

Okay, thanks. And then any comments on a multifamily demand for Town Center?

Louis Haddad

We have seen again really good demand I we are not seeing an issue, I think we are projecting somewhere around 18 months for the total lease stock of [indiscernible] when it’s comes online. Again Town Center is getting more and more play locally it is the place to be as I said before you can go elsewhere for couple hundreds of dollars of month less, and we are going to stick to that differentiation even if that it long it is kind of lease up, and it also plays into what we have been talking about in terms of the lease up of vacant space here on the ground for those restaurants. There is a reason people pay such a huge premium to be here and we’ve got to be very careful about making sure that the mix stays unique in order to maintain that spirit.

RJ Milligan – Raymond James

Okay, thanks, that’s helpful. And I guess how do you guys think about obviously the construction was creating some move out multifamily in a sense 6 am pilot driving is going on, how do you think about the development schedule and when you are actually doing the things versus, how do you way that between getting something down on time or fresh manner versus potentially creating additional move outs and how do you balance that?

Louis Haddad

It’s a fine line and it is something we struggle with as we do more and more urban areas we struggle with it more and more in this particular case I think hard deadline for the anchored tenant to move and also large second lead tenant to sit over and willingness to get out of the way its tenant expanding a newer state so we probably push the envelope more than we normally would, we didn’t have a deadline but it’s something that we continually struggle with. It is a fact of life and development; there is not a whole lot of corn field left to do construction in.

Operator

Thank you. (Operator Instructions). Our next question is coming from the line of [indiscernible]. Please proceed with your questions.

Unidentified Analyst

Hi, good morning. Had some phone trouble, I don’t know if I came up earlier but I wanted to follow up, you had a couple of properties drop occupancy this quarter that I didn’t hear any mentioned but I think it was the Central Part in South Retail and I don’t know, was there any color you have to add to the drop in occupancy from second quarter?

Michael O’Hara

Yeah, good morning, Craig, this is Michael O’Hara. In South Retailer drop in occupancy and that one have to deal with the restaurant that we announced on June 30th, or July 1. And over a line Central Park that the combination of retail and office and space and we need to occupy some space over there which we vacated and we will extend in another space.

Operator

Thank you. It appears there is no further question at this time. I would now like to turn the floor back over to Mr. Haddad for any concluding comment.

Louis Haddad

Thank you. We appreciate your interest in our company and look forward to updating you on our activities and result in the coming quarters. Take care.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your line at this time. And thank you for your participation.

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