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Federal Realty Investment Trust (NYSE:FRT)

Q4 2011 Earnings Call

February 16, 2012 11:00 am ET

Executives

Kristina Lennox - IR

Don Wood – President & CEO

Dawn Becker – COO

Andy Blocher – CFO

Jeff Berkes – EVP, Western Region and President, Federal Realty West Coast Inc.

Chris Weilminster – SVP, Leasing

Analysts

Geoffrey Donnelly - Wells Fargo

Paul Morgan - Morgan Stanley

Alex Goldfarb - Sandler O'Neill

Jeff Spector - Bank of America

Christy McElroy - UBS

Michael Mueller - J.P. Morgan

Vincent Chao - Deutsche Bank

Wes Golladay - RBC Capital Markets

Michael Bilerman - Citigroup

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Year End 2011 Federal Realty Investment Trust Earnings Conference Call. My name is Cathy and I’ll be your operator for today. At this time, all participants are in a listen-only. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today’s call to Ms. Kristina Lennox. Please proceed.

Kristina Lennox

Thank you. Good morning. I’d like to thank everyone for joining us today for Federal Realty’s fourth quarter year-end 2011 earnings conference call. Joining me on the call are Don Wood, Dawn Becker, Andy Blocher, Jeff Berkes, and Chris Weilminster. These and other members of our management team are available to take your questions at the conclusion of our prepared remarks.

In addition to our fourth quarter and year-end 2011 supplemental disclosure package, we also filed our 10-K yesterday. Both documents provide you with a significant amount of valuable information with respect to the Trust’s 2011 operating and financial performance and both are currently available on our website.

Certain matters discussed in 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 it’s actual performance may differ materially from the information contained in our forward-looking statements and we can give no assurance that these expectations will be attained.

Risks inherent in these assumptions include, but are not limited to, future economic conditions, including interest rates, real estate conditions, and the risks and costs of construction.

The earnings release and 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.

Before I turn the call over to Don Wood, I would like to announce that on May 16th and 17th 2012 we will be sponsoring an Analyst and Investor Day in San Jose. If you like additional information please contact me directly.

And now, Don will begin our discussion of our fourth quarter and year end 2011 results. Don?

Don Wood

Thanks Kristina. Good morning everybody. About midway through 2011 I began to feel decisively more upbeat about our business and I tried to convey that optimism in my second quarter comments call remarks and then again in the third quarter remarks. Now, February 2012 the books are closed for the year and I think the improving sentiment is reflected for all to see in our 2011 results.

Federal Realty had a very strong year and the momentum has carried over into January of 2012 with the signing of some key leases and a continuation of low bad debt type cost. Reported FFO per share for the year was $4 which includes some very significant acquisition expenses tied to the Montrose Crossing and Plaza El Segundo. It still grew 3.1% in 2011 and set an all-time record for Federal as did revenues at $553 million and EBITDA of $354 million. That’s an all-time record better than the heydays of 2006 and 2007 and every other year in our 50-year long history before and since.

If you look at our earnings growth without those acquisitions costs, which are closed in late December by the way so there is no offsetting benefit in 2011 for the properties operations, you would see FFO per share growth of 4.4% and again that’s over an all-time high last year.

In the fourth quarter, the reported number of $0.97 includes $0.04 of those Montrose Crossing acquisition expenses and therefore appears to be flat with the $1.10 reported in last year’s fourth quarter. But remember that we had just settled our dispute with Vornado on the Pentagon Row land last year and that settlement benefitted fourth quarter 2010 by $0.03 or $0.04 too. I go through all of this only to show that the improved operating trends that we saw in the middle of 2011 carried through to the end of the year and in fact in 2012.

Same center of growth for the full year was solid, just under 2% both including and excluding profit under redevelopment, it was even better for the fourth quarter, 2.7% excluding redevelopment 3.5% when including those profits. Those results were of course the result of our strong leasing results earlier in the year and last in the executed deals in the fourth quarter and they bode well for a strong 2012 too. I will talk about those deals for a minute.

In the quarter 82 deals done; 74 of them for our existing comparable space at average first year new rents of $32.81 a foot compared with $29.80 a foot for the last year the previous lease, 10% increase. Two thirds of those deals were renewals and a 9% increase and one third were new tenants at a 12% increase. We saw that relative leasing strength in all three of our major geographic regions. We saw it in the North East, the Mid Atlantic and California, and we saw it among both shopping centers and mixed use properties.

When adding in those fourth quarter results to the first nine months, the full-year of 2011 saw us complete 362 deals for over $1.4 million square feet of space. Most of those deals were done in space for which there had been an expiring leasing in place, and were done in average rent of $30.57, 9% more in the previous deal. 2012 and 2013 will be the beneficiary of those new leases.

One of those deals was with Anthropology to take a chunk of the former Borders book space in Old Town Los Gatos. Then after year-end, we also made a great new deal with H&M to take the entirety of the Borders space at Santana Row. In both cases, rent on the new deals we exceed the Borders rent, two down two to go in terms of backfilling our four Borders locations and we are very close to a lease signing on the third one.

When you think about the analyzing Federal, it’s helpful to consider the stability of our operating portfolio and then focus on the growth initiatives embodied in our development and redevelopment pipeline, as well as the new acquisitions.

Because the operating portfolio generates operating earnings north of $380 million annually and generally grows at 2% plus each year, we feel comfortable supplementing that portfolio with development capital allocations of nearly $500 million to mixed-used construction on our existing sites at Assembly Row, Pike & Rose, and Santana Row. Projects that we are optimistic will fit right in with our existing portfolio increased significant value as they stabilize and grow.

Similarly, the acquisition of over $300 million of real estate interest in Plaza El Segundo in Greater Los Angeles and Montrose Crossing in Rockville, Maryland further signifies the operating portfolio and provides a raw material for future redevelopment.

Getting all that going and prepared for inclusion in 2012 was a big part of our focus in '11 and I think that’s put us in a fine position to have a very productive 2012 subject to Europe or some other anticipate crisis throwing our economy off track. That’s why we raised our guidance.

So let’s first talk about the developments. Later this month, we'll begin construction on project 8B at Santana Row. It’s a $70 million residential building housing 220 apartments right behind the main retail street. Given the success of all other residential at Santana most recently borne out last year’s project we did, we are optimistic that we will be able to generate yields in the 7% plus range upon stabilization in a couple of years. We are also making some very good progress in completing planning for the remaining build out Santana of additional office, additional residential and retail at the end of the row. Stay tuned for more in the coming quarters.

At Assembly, as we announced last month our deal with AvalonBay is closed. All the T-stop hurdles have been satisfied, our lease with AMC for a state of the art 12-screen theatre has been signed, and construction on all fronts will began by the end of this quarter. We have allocated approximately $160 million in capital to this first phase where we expect the delivering space to retail tenants in 2014 with stabilization at some point 2015. Come a long way at Assembly, and while our first phase will yield somewhere in the 6% range initially, we are very optimistic about the value we are creating here over the mid and the long-term. The leasing interest from both outlet tenants and restaurants in this project has been incredible or varying.

Later in 2012, we expect to begin construction of Pike & Rose currently you know it as Mid-Pike Shopping Center in Rockville, Maryland. We were committing capital approximating $250 million for the first phase of the project that will include roughly 500 residential units, 80,000 square feet of office, and 150,000 square feet of brand new retail. We are looking at 8% plus returns here, and 2014, 2015 rent starts is very unique makes these project in one of the best intersections in D.C., in the D.C. Metropolitan area. All in all nearly $500 million in a accretive developments beginning in a few years at locations where we are already operating and know well.

On the acquisition side, we finally closed our deal at Plaza El Segundo and we are thrilled to have this iconic shopping center added to our West Coast portfolio. We are currently evaluating the development opportunities that’s at a hard corner of Sepulveda and Rosecrans adjacent to the existing shopping center for an incremental 70,000 feet or so restaurant and retial.

And in Rockville, Maryland, we are finally able to get control of 89.9% of Montrose Crossing, the 366,000 square foot regional power center on 38 acres across the street from Pike & Rose, the Pike& Rose development on Rockville site. With the addition of Montrose Crossing, which has been on our acquisition hit list for decades. We now control over 1.2 million square feet of retail, within a mile stretch on the Pike.

It’s anchored by Giant Foods, Marshall’s, Sports Authority, Old Navy, and Barnes and Noble, among others and we believe that the rents are generally below market. We acquired Montrose Crossing in a low 5% yield for $127 million that’s our 89.9% and we obviously included it as well as Plaza El Segundo in the full guidance that Andy will go through in a minute.

That’s it. A very active development and acquisition year in 2011, in addition to a core portfolio that continues to provide all the stability that you could ask for, from retail real estate in the post 2007 economy.

Everything we see at this point suggests 2012 will give us more of the same out of the core that allow to focus hard on development and execution. The path and visibility of this company towards further value creation is I think extraordinary.

I’m going to now turn it over the Andy and then we’ll open up lines for your questions.

Andy Blocher

Thanks, Don, and good morning everyone. I’m going to run through a number of the drivers that led to the strong results that Don discussed before going through a recent financing and then providing some detail on our improved 2012 guidance.

Our record 2011 FFO per share was driven by our solid core operations, improvements in bad debt, a redevelopment impacts from a couple of key properties. These results came despite some significant current year costs, as we position Federal Realty for future growth, including $3.4 million of closing costs associated with new high quality acquisitions.

Let me provide some of the details. Total property revenue was up $11.3 million with a lion’s share coming from the same center pool, as well as year-over-year improvements at Hampden Lane in Bethesda, Escondido Promenade as we continue to benefit from the Ross and Six deals in the former vacant Mervyn's box. In Santana Row, as the retail and office building, 300 Santana Row continues to provide strong year-over-year results and as the new 108 unit residential building Levare came on line in October.

Property revenue was negatively impacted by $5.7 million decrease in lease termination fees versus 2010. Lease term fees has always been recurring part of our financial results and the $1.8 million of lease termination fee income in 2011 was the lowest level we've seen since 2003 and was less than half of our 10 year average.

For the year, $3.7 million reduction of bad debt expense with some primary contributor in the lower rental expenses, reflecting our continued strong corporate collections efforts as well as generally improving economic conditions. A $6.5 million decrease in interest expense was driven by a 30 basis point decrease in weighted average rate over the course of the year, and full year G&A increases came largely from the $2.4 million of closing costs on Montrose Crossing in the fourth quarter, as well as $1 million associated with Plaza El Segundo that were expensed throughout the year. In total, FFO was up 5.2% while FFO per share was up 3.1% to a record $4 per share result. As our weighted average account increased as we issued 1.7 million common shares through the ATM in the first nine months of 2011.

Fourth quarter 2011 results were driven by the same factors as the full year result, but were disproportionately impacted by the significant acquisition closing costs in the quarter, as well as tough comps related in the fourth quarter 2010 ground rent. Minimum rent increases for the quarter benefitted from the new Santana Row residential units. On the acquisition side, we received full benefit of this January 2011 acquisition of Tower Shops in the quarter, but Plaza El Segundo and Montrose only contributed nominally operating results due to their late December closings.

The rental expenses continue to benefit from improvements in bad debt. Interest expense was up $0.5 million as a result of higher average balances outstanding and the $2.2 million increase in G&A was almost entirely attributable to closing costs associated with our acquisition of Montrose Crossing in December.

On to the balance sheet, it was an active quarter with respect to borrowing and assuming debt. On our last quarter’s call, we discussed that we are in the market with a new seven year term loan. We expected to size that deal of $200 million at a rate of approximately 3.5%. Our actual execution benefited from better subscription and a favorable debt market conditions.

In November, we closed on our new $275 million seven year term loan, at a rate of LIBOR cost 145. At closing we swapped our $275 million of LIBOR exposure through November 1, 2018 for a fixed rate of 1.72%, effectively fixing the rate on the term loan at 3.17%

In connection with both Montrose Crossing and Plaza El Segundo, we assumed debt with our acquisition of controlling interests in both transactions. In the case of Montrose Crossing, the $80 million, 10-year mortgage was placed on the asset in closing, bears interest at 4.2%. At Plaza El Segundo, we assumed our pro rata portion of the existing $175 million of secured debt associated with the property at a rate of 6.3%. The Plaza El Segundo debt matures in August 2017. Both assets have been consolidated on our balance sheet, as have the entirety of their debt balances.

Finally, we didn't utilize the ATM in the fourth quarter, but in total issued 1.7 million shares at a weighted average price of over $85 throughout 2011. The ATM is proven to be a great tool to manage our balance sheet and liquidity throughout the year. Even with the assumption of secured debt associated with the recent acquisition, the balance sheet remains in great shape with fixed charge coverage north of three times, debt-to-EBITDA in the mid five and a leverage on a booked basis at 44% and 27% on a market capitalization basis.

In addition, we were sitting on $50 million of excess cash at year end and have less than $200 million of debt maturities in 2012, and no outstanding balances on our $400 million line of credit.

Our long-term balance sheet management with a competitive advantage in being able to absorb the secured debt in both Montrose and Plaza El Segundo and was recognized in January by Moody's, who placed our Baa1 rating on positive outlook.

With fourth-quarter behind us, let me give you some perspective on how we are thinking about 2012 performance drivers. Don spent some time talking about acquisitions and developments, but our internal growth in 2012 will benefit from a lot of the hard work we have done from a leasing and operations perspective over the past several years.

Leasing deals for previously vacant space will be delivered in 2012 including a new 45,000 square foot [LA Fitness] in the previous Circuit City of Quince Orchard a new 38,000 square foot grocery store in the Safeway Box at Westgate Mall at higher rents, both in the first half of the year. And the new 25,000 square foot Dawson's Market grocery store, at Rockville Town Square that is expected to be open for business in the second half of 2012.

These deals as well as a host of others are expected to drive 50 to 75 basis point occupancy improvement over the course of 2012. That occupancy improvement will be heavily weighted to the second half of the year.

We will continue to see positive redevelopment impacts from both our residential building and the retail and office buildings at Santana Row and the Dixon Ross deals at Escondido Promenade as these projects will be operational for the entirety of 2012.

And we will get rent increases were strong new and renewal leases that will take effect over the course of the year such as a new lease with Michael's and renewal with Lord & Taylor, both at significantly higher rents at Bala Cynwyd in Philadelphia, and the impact associated with the new fresh market at Congressional which held a grand opening in mid January.

These positives will be somewhat offset by new vacancy as we make way for future growth through redevelopment and re-tenanting opportunities including taking about a quarter of Mid-Pike out of service in 2012 as we progress with a significant development of Pike & Rose on that side. Recent vacancies of previous Toys R Us and Barnes & Noble spaces at Huntington Shopping Center in Long Island which paved the way for better merchandising opportunities the higher rents for that property, and Shoppers World in Shortsville Virginia as we progress with the redevelopment there.

Taken together these intacts provide the basis for an improved outlook for same center growth in the 3% range for 2012. This improvement in our quarter outlook was an incremental $0.02 per share increase associated with the acquisition of Montrose Crossing which was not included in our previous guidance allows us to raise our FFO per share guidance to a range of $4.19 to $4.25.

The record 2011 results that we reported yesterday are a testament to the quality of our operating decisions over the past few years. In addition our portfolio is well-positioned for the future with additional opportunities for core growth through occupancy and roll over, a growing pipeline of very real near term development and redevelopment opportunities to supplement that core growth, and a balance sheet which provides the flexibility to take advantage of market opportunities to fund our business effectively going forward.

Operator, we will now take your questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). And our first question comes from the line of Geoffrey Donnelly of Wells Fargo. Please proceed.

Geoffrey Donnelly - Wells Fargo

Good morning guys, just a few questions. Don, what interest would you guys have in maybe looking to sell off or monetize your multifamily even on a ground lease basis because that could allow you to control a long term the directional land that may be kinda capitalizing some of the pricing and you know, you can recycle some of that capital?

Don Wood

Yeah, Geoff, that’s a fair point. Listen most of what we -- most of what we built we are building a condos back, we are building at the quality in such and it has been added and set up to be able to sell at the appropriate time. What -- because we don’t go out and do residential on a standalone basis basically we wanted -- because its included in the fabric of the retail development that we are in, it's really important that we control it, we know what it looks like, we know what it feels like, and frankly that is that we get the NOI from the rents for period of time and see how it all plays out.

So, there is a balance between doing it you know today when, when a lot of it is not done and ready yet. We did obviously a few years ago exactly that with Santana, the first 200 units on top of building three. We would do that with more of Santana coming up. We want to see how it all plays out for us and we want to be the beneficiary of the income for a while I assume. The rest are strong.

Geoffrey Donnelly - Wells Fargo

And I guess maybe taken some of the mix of these projects, what’s the latest on IKEA at Assembly Square, are they starting construction; I apologize if I missed that in your remarks?

Don Wood

No, you haven’t and you won’t miss it, because we’re now to all over the place, if not at our land, if this -- if it happened. They put off basically making any of this -- any decision all for about two years in the middle of the recession. We expect an answer if not to us, they expect to make a decision and announce it to both the public and the city in the next, what is it Dawn, next 60, 90 days actually. Right.

Dawn Becker

That’s probably a little bit though.

Don Wood

So we’re close. They’ve not said yes. Now they may say no, we’re not doing it. And while IKEA at Assembly would clearly be a good thing, I mean there is no question about it. It brings in lots of traffic, lots of people to the area. I can tell you that the momentum that we’re getting on both the leasing side, obviously the announcement of the peak, without IKEA out there has made it, so they’re less important to the project and obviously we work that hard. So I hope they do it, well they don’t exactly in a little while.

Geoffrey Donnelly - Wells Fargo

And does the acquisition Montrose factor into the Whiteland, I guess the Whiteland sector plan or is that more of a future save?

Don Wood

Not particularly. It’s actually -- actually it’s outside of it, isn’t it just barely outside of this the?

Dawn Becker

It is. It’s just outside the boundaries of the sector plan that we’re going to be developing Pike & Rose under. And it’s part of the sector plan two, which will be coming shortly.

Don Wood

Yeah. But the bigger thing for us Jeff and I know, you know this area well. When you now control Congressional Plaza, Federal Plaza, Montrose Crossing, Pike & Rose, directly across the street, why would just down the street, Rockville comes there up the street I mean it’s pretty compelling. I mean we have to have that effort.

Geoffrey Donnelly - Wells Fargo

And then, that’s why I wanted to ask questions is -- do you -- I think I asked you this last quarter but it was not where you thought to be really allowing assets transacted. I’m just curious kind of what you’re thinking as far as cap rate there because I’m trying to figure out if you think there is any applicability maybe to some of your other sort of main street type portfolios like Santano or Third Street Promenade?

Don Wood

I thought I had said it last time, maybe I didn’t. But I mean there it went for a sub four basically in the first year. Now they’ll certainly lease up to do. And that lease up, we looked at it, got it out to maybe a five in a number of years. And I don’t remember the numbers exactly but it’s something – it’s something like that. I don’t know that that you can take and drill a straight correlation to any other particular asset. I mean there are obviously every transaction has some very specifics in terms of the buyer and what we’re trying to accomplish.

But, you know, what you can’t ignore Jeff and I think you’re I don’t know if you’re alluding to this or not, but as investors today you’re trying to figure out where they can add value to real estate. There is just no question that the heavily in-fill particularly year then streets like this with a mixed-use component have great futures. And they got to be in the right palaces like everything else. But when you’re underwriting something you’ve got a chance of making your investment work from an IRR perspective to the extent you’re in places like that. So of course, they’re going from very low initial cap rates, it’s not really very much different than what you see in the residential area today for good comment to have sub five stuff happening a lot.

And so, I don’t, I won’t say you can take that and apply to every other situation. But when you look at retail real estate and you talk about values, you’re always going to get a lot more demand and ability to push prices higher for newer street type of assets and does that apply to Santana Row, does that apply to Bethesda Row, I certainly think it does. Does it apply everywhere I don’t now? I mean they’re very individual decisions.

Geoffrey Donnelly - Wells Fargo

And just the last question for Andy is, what’s the guidance for maybe accessing ATM in 2012?

Andy Blocher

Jeff at this point, kind of the incremental cost of the ATM relative to our debt is, its really pretty comparable. So we haven’t made a decision with respect to which way we’re going to go. But it shouldn’t have a material impact on guidance based on absolute rate. It will have -- it could have a potential impact based on timing.

Operator

Our next question comes from the line of Paul Morgan of Morgan Stanley. Please proceed.

Paul Morgan - Morgan Stanley

On, Don you mentioned the low five CapEx at Montrose and I know that was strategic for you. It doesn’t sound like there is kind of much to be done or you necessarily look too much on redevelopment their near-term given what you guided at Pike & Rose. But I mean how should I think of that as sort of your appetite for sort of low five cap yield right now?

Don Wood

First thing you should think about Paul is the ability to put 38 acres together on the corner of a street light that. 38 acres. This isn’t a strip shopping center that 8 acres, 10 acres, or 12 acres, 38. And so, when I look at that, and I look at obviously the first thing we look at is the rates that are in place, where they can go from their, whether they’re going to be rolling down, what the story is their. And we’re very comfortable that generally the rents were below market there. So that’s a really important thing in and of itself.

But secondly you’re absolutely right. There isn’t going to be construction starting on a residential project or anything else on that 38 acres in the next six months. But don’t count that out in the mid-term. I mean I’ve kind of said this a lot over the past, in the past and I so believe it more and more and more. Bigger pieces of land give you more flexibility and more opportunities to do things, even if they’re under ratable, that’s the word, not under ratable at the time of acquisition. Montrose is no different to that. I think you’re going to love the 10-year IRR on Montrose Crossing.

Paul Morgan - Morgan Stanley

Okay, great. And then on the development high point I mean you’ve had some definite successes in terms of pacing things and getting building a lot of momentum in several of those projects at the same time. How do you thing about from a risk perspective, what your comfort zone is in terms of the size of the pipeline relative to your base and how much would you look to grow that and would that be a constraint on acquisition opportunities that might have a multiphase mix use as part of that in the near-term?

Don Wood

Paul it’s a great question and its one that we are very, very attuned to. I never want you to think of us, as you know primarily a development company or primarily a company that’s an acquisition company and it’s why am I remark like that. I try to make a big point because I really believe it, in the $380 million bucks that we do year in and year out are growing but that kind of a base on the core property.

With that kind of a base I’m absolutely willing to take the kind of risk that we have on Assembly and Mid-Pike and Santana, I think you would too. But as a general rule you’re never going to see more than 20% of the focus of this company being on acquisitions and redevelopment. It’s basically a core plus kind of initiative here with great stuff that you can kind of count on to that stability, but the ability to do an Assembly, the ability to do a Mid-Pike, you won’t us adding three more of those things within the next year or two. We’ll see how that -- even as the first phase of those projects get going there is still well over a $1 billion left that’s going to go on those pieces of land after we get the first phases done. And so how much of that’s going to be ours, how much of that’s going to be a partner. Let’s see how the first phase does.

And so the ability to be able to kind of balance and that is a big word with me. But balance this business plan between that level of risk on development and acquisition commences with a $380 million stable core portfolio is about what you should kind of expect. I hope that’s helpful; I know it does not exactly quantify the way you like, but that’s how I think about it

Paul Morgan - Morgan Stanley

No, it’s a good color. And then just last on you know you got great portfolios in both D.C. and Silicon Valley and there is a lot of talk and certainly in the office, in the apartment market about a shift in strength, Silicon Valley being very strong in both, D.C. decelerating in both, I know the retail is different in lot of respects, are you -- how are you seeing that play out in terms of your portfolio?

Don Wood

Well I got to tell you, and I am going to start with Silicon Valley first. Silicon Valley clearly has led, actually in the markets we are in, led us out of recession. The first bits of strength that we saw and continue to see come out of Silicon Valley. It's why we were able to build the first residential project that we did and put into service last year and beat the rents and beat the budget and beat the timing. I mean it is its why we have now moved forward very quickly on the second residential piece, it's why we got some great traction going on right now but it’s too early to talk about -- about the end of the Street retail wise and maybe even office wise out there.

So when I think about Silicon Valley, what’s happening out there will allow us to over the right time now build outs and completely. We should if this market continues the way it goes in the next four or five years we should be built out (inaudible) not a lot more stuff to do, but that’s because of the strength of the Silicon Valley.

In Washington, in the Washington region I will tell you I don’t know what’s going to happen going forward certainly as it relates to government spending and jobs, but if you take a look at what has happened so far and what we are forecasting we see very strong, very strong demand for our properties here. I don’t see that changing. I really think I kind of said this in the past I am going to repeat it, short loss in Washington DC at your own peril. It is just too strong and deep and vibrant market to -- it's not a Washington of 1968, there is a very, very strong business base here that frankly has gotten stronger and stronger. I don’t want to see it changing.

Operator

Our next question comes on line of Alex Goldfarb of Sandler O'Neill. Please proceed

Alex Goldfarb - Sandler O'Neill

Just going to the capital front, Andy, you have the $175 million 6% coming due in July the unsecured term loan market you guys have demonstrated and others have, remains very competitive very attractive. And then you guys have all the development and redevelopment spend. So, just trying to get a sense for what your thoughts are on replacing the $175 million and if it would be materially upside just given your funding needs for the development?

Andy Blocher

Yeah, I mean, Alex, as I try to sit with the conversation which, I mean, we've got a fully under online that we can utilize. We have access through the ATM. We have long term debt options, I mean, they are long term assets, we want to fund them on a long-term basis. And the difference in cost between an incremental FFO yield on the new equity relative to what it is that we are seeing 10-year unsecured are kind of low to mid 4s. We have to wait and see how the markets react and how the year treats us and we'll make the decisions along the way but I don’t think that its going to have a material impact one way or the other earnings estimate. That’s why we also gave you a range.

Alex Goldfarb - Sandler O'Neill

Okay, but as far as I guess keeping the debt investors happy do you feel keep compelled that you have to come to market every few years or if you take a few years off I guess they will still love you regardless?

Don Wood

Well, those are your words, not mine. But, yeah, I mean I don’t feel a need for us to be in the unsecured market once a year, once every other year. It's a great place -- I feel like our relationships with the fixed income investors are very, very strong. We've seen some real positives the deposit outlook that we got Moody's that can be a real positive there, which is we're constantly evaluating what our alternatives are. And then we look at where our funding needs are and we pick the best choice, and I think that we've demonstrated that we've been very good at doing them.

Alex Goldfarb - Sandler O'Neill

Okay, so just continuing that on the capital front, if we look towards the dividend just given all your access, the availability of capital right now is something like a 7% dividend increase is that sort of upper single digits is that reasonable or is it focused to retain more cash for the internal uses?

Andy Blocher

Yeah, Alex, from our perspective our goal is always the way that we try to target it is paying out a 100% of taxable income. Taxable income is growing at a slower rate than you are seeing FFO. So, 7% to me right now seems very, very strong, but I absolutely see the dividend record continuing and if we have the ability to push it more than the penny or two per quarter that we've seen and we'll try to do that.

Don Wood

Alex, keep an eye on this year. Obviously it’s a very busy -- obviously the economy is still fragile and we're going into a significant development period. So, those two things create caution. Having said that, this is a recovery. We are -- we can call it a fragile recovery, we could call it reversible and all that, but it's clearly a recovery and so, the more confidence we get, the more likely we are to increase that dividend above what we’ve done last year, so.

Alex Goldfarb - Sandler O'Neill

Okay. Just a final question. On the disposition front, just given the appetite for quality centers, you have a few centers in the Chicago area, in Illinois, and then one in Michigan. There aren’t markets that we typically hear you guys talking about a lot. Is this also maybe taking advantage of the strong demand for assets, and using that as a source of liquidity?

Andy Blocher

There is, Alex -- Alex it’s a very good point. What has happened and we look at that for quite some time. What has happened is we’ve regularly been surprised by, been able to do better than we thought we could on those properties. And so, the idea of okay let’s get that lease tied up, let’s get the income to one of the strongest points. Frankly although we’ve held this back a little bit, but strategically you’re exactly right. We very likely will not be in Chicago or certainly Detroit in any kind of a big way. And so, you may see that going forward. I don’t want to say that any decisions are made; it is not up in that way. But we certainly will look at it.

Operator

Our next question comes from the line of Jeff Spector of Bank of America. Please proceed.

Jeff Spector - Bank of America

A follow-up question to Alex’s. I guess, could you talk about Florida a little bit in particular I know just a couple of years ago you bought was it Del Mar Village in book. I guess anything happening there, that you see more opportunities or is that not one of the core markets?

Don Wood

No it is. I’ll say it is and I appreciate you asking that, Jeff. We like Florida and we like the East Coast of Florida a lot. Now with respect Del Mar in…

Andy Blocher

Wellington.

Don Wood

Yeah, good in Wellington we could not have bought it overtime. And believe me, if this company was made up of those two -- those two assets you wouldn’t be investing very much because it is they’re absolutely not creating value, in fact they’re destroying value as we roll leases down. And I’m really happy that we don’t own a lot more that is that stuff that would go off with a high basis, so well four or five, six and seven. Compare that to the acquisition of the Tower Shop, which is much more of a Regional Center that we bought this year and it’s like night and day. It continues to show us that that its just plane with whatever market you’re in you got to be in the best, in the best properties. You have to be in those places, where you can create retailer demand, small shop demand in Florida at least in those two properties remains weak, and frankly, too much small space, small shops space for the market place. And yet it if were to show you the results from Tower Shops between what we paid for and the reason leasing that we have done is you would say, my god, this can’t be in the same markets. So, it’s very good. We absolutely continue to look and I think we will be successful in being able to buy more in those three counties. We are very bullish on it long-term, but you got other right properties.

Jeff Spector - Bank of America

And a follow-up, so I guess your comment about small shops, Don. There has been a lot of discussions about the mom-and-pops and whether mom and pops are recovering or not. And I guess from our broker contacts, I think it’s been a little bit less recovery with mom-and-pops more on maybe the small boxes national tenants taking 5,000 to 10,000 square feet, I guess can you talk about that a little bit?

Don Wood

Yeah, I think that’s -- listen, I think that’s a fair point globally. I think globally, if you were to ask us, are we having more luck and making more progress with the DSWs, the TJ Maxxs, the Rosses, Nordstrom Racks, (inaudible) those type of national 10,000 to 30,000 foot tenants, the answer is absolutely very, very strong, particularly in the great locations. And when you compare and contrast that to small shops, there is absolutely more weakness. And although within that, when you talk about quick service restaurants and food uses really great. But the service type of stuff in the soft goods is weaker. But again, that is a global common, and you really got to take that down to the individual markets and the individual centers in that market. And in that we see a very wide variety and not unlike the rest of the stuff, the better the quality of the real estate the more luck and successfully have it.

Jeff Spector - Bank of America

And then, understanding Pike very well, I definitely appreciate your comments about the strategic acquisition with Montrose. Maybe it would be a little helpful, could you provide any more comments on, when you say, the leases are below market, are you talking about some of the big box tenants you mentioned, some of the smaller spaces there, timing, can you quantity that at all?

Don Wood

Can I do it here? I don’t -- I can’t do it really well here, I can tell you overall, that we are looking about four or five bucks below market based on our guesses of market. There are a number of leases that coming up in the next couple of years that we are going to big pops on. So that’s great, I mean, I don’t want to talk about the restaurant pattern front, but there is a good example, right, as something right that will be in shorter term.

When you look at the numbers that the boxes are doing there, it’s a wonderful thing in terms of the ability for those tenants to renew when they are up at significantly higher rents. So, I feel great about that. If maybe we can do this down at City Group in Florida, maybe we can do this at Mary, but we’ll have something prepared on Montrose that gives you better visibility towards where we’re trying to take it.

Jeff Spector - Bank of America

Okay last question for Andy. Andy, you mentioned improvements in bad debt. I guess is there anything interesting in that, you know that trend to talk about, whether its regions or types of tenants?

Andy Blocher

Not really, I think that we’ve done a very good job of you know improving our collection efforts internally and I think that we’ve been pretty conservative with respect to reserving the tenant issues that have been out there and what you see over the course of 2011 was the culmination of those efforts.

Operator

Our next question comes from the line of Christy McElroy of UBS. Please proceed.

Christy McElroy - UBS

Andy, I’m wondering if you could quantify the dilutive impacts on FFO in '12 versus '11 and I guess taking the quarter proportion of Mid-Pike out of service and also kind of aggregating with the other sort of re-tenanting stuff that you’re doing?

Andy Blocher

$1.5 million or so? $0.02?

Don Wood

Yeah, it probably about right.

Andy Blocher

$0.02, $0.025.

Christy McElroy - UBS

$0.02? And how does the timing work in terms of that space coming off line versus other lease up there because I think your forecasting sort of slight up 50 occupancies for the year? How shall we think about the movement of that?

Don Wood

Second half, Christie, I think if you look at that coming out you should be -- we should start construction on Mid-Pike gosh late summer, right. So the September-October time period is where we’re looking now to get the thing to do and some prices to get nailed down.

The trickier part is you know the other tenants, keeping the other tenants going in the part of the center that’s not being demolished and the timing there is going to be more month to month. So if I were looking at that, I would kind expect some stuff going down mid-year and kind of rolling in the second half.

Christy McElroy - UBS

Okay, and then you had provided I think same store NOI guidance of about 3% for this year. So if I look at the same store NOI growth including redevelopment versus excluding redevelopment because of sort of that the Pike & Rose and the other stuff, which one is the 3% and how shall we be thinking about them relevant to each other?

Andy Blocher

Yeah, I know. The 3% is the including redevelopment and that will absolutely be negatively impacted associated with things like the Mid-Pike coming offline, but certainly it will be possibly impacted by things like up full a year have been proving operations over as Santana Row and a couple of the other redevelopment projects.

Christy McElroy - UBS

So the excluding redevelopment number should be higher?

Andy Blocher

No, I think that the excluding -- it should be pretty typical. I think that the excluding redevelopment would probably be in the mid 2s and you’ll see the including redevelopment in the 3s.

Christy McElroy - UBS

And can you remind me what kind of financing whether it’s constructive financing or other, do you expect to put in place for Pike & Rose and Assembly Row?

Andy Blocher

Our expectation is that we are going to do that corporately. We have no anticipation that we are going to do construction, financing. It’s the reason why we manage our balance sheet the way that we do because of the ultimate flexibility for us to go on, finance it utilizing the line, fixing markets in the equity markets as we seek that.

Operator

Our next question comes from the line of Michael Mueller of J.P. Morgan. Please proceed.

Michael Mueller - J.P. Morgan

In terms of acquisition you just came off busy second half of ’11, big start of 2012 and you’re looking at a redevelopment pipeline that’s getting a lot bigger by the next few years. How do you think acquisitions play into the mix of investment spending over the next few years? Does it feel like it’s a little bit less of priority or the same as it has been over the past year?

Don Wood

Oh, Michael, absolutely, the same as it has been. It’s hard with us, right, because you can't -- because it’s lumpy. We are going to do one or two or maybe three in a year. It’s really all about and always has been about with us shaking loose opportunities on our hit list. I mean, we’ve identified the acquisitions we want, Montrose was a great example, but we don’t control the timing of getting them. That will not in any way be less of a priority or more of a priority. It is what we do. We try to build the portfolio of the greatest stuff.

And so today, I can tell you -- let me give you some breaking news from my perspective, okay? Today or last night, we put in a bid on a property that we really liked that may or may not have some redevelopment opportunity, that we thought we aggressively bid on and we basically got word this morning that we are not even in the same ballpark. And we will not. We’re just not going to chase the numbers that just can’t make any sense for us, acquisitions like that even if they are on the hit list. I mean, talking about seriously stuff, buy stuff, in this particular case we’re not doing. So, whether we get one done or two done or none done I don’t know but its every bit the priority that it always has been.

Michael Mueller - J.P. Morgan

Okay. And just a quick on for Andy. Andy you talked about lease term fees being down significantly in the ‘11 year-over-year, what’s a rough range that’s included in 2012 guidance?

Andy Blocher

Yeah, I assume we did $1.8 million in ’11. I think that we’re going to end up getting a little bit of that back, we will probably be in the $2 million to $3 million range.

Michael Mueller - J.P. Morgan

What’s in the guidance then?

Andy Blocher

It’s $2 million to $3 million.

Operator

Our next question comes from line of Vincent Chao of Deutsche Bank. Please proceed.

Vincent Chao - Deutsche Bank

Hi everyone. Just a follow-up question on the hit list, I mean is the activity on those properties that you’re tracking is it changed much in the past six months or so or is that you’re seeing more opportunity to go after some of that stuff?

Don Wood

I don’t think so. I don’t know Jeff is on the call right?

Jeff Berkes

Yeah. I’m here.

Don Wood

Tell me Jeff what are you seeing?

Jeff Berkes

Well, this is a kind of a strange start to 2012. Normally, what we’ll see in a given calendar year is a lot of broker RFP activity in the fourth quarter, which translates to a lot of new stuff coming to market right after the first of the year. We didn’t see that this year. Now, I talked to a lot of brokers on a regular basis and they all seemed busy working on stuff, that’s going to come to market later in the year, but the 2012 got off to a very slow start.

So, who knows, how it will materialize the rest of the year but we’re definitely off to a slow start versus prior years. The individual owners that we talked to on our hit list. Sometimes we’re in a strange conversation we’re sitting in the market like Don said what we’re seeing properties and not just street retail properties or urban like huge properties, but really strong neighborhood and community shopping centers trading at spectacularly high values, cap rates it’s up five or close to five, IRRs that are six maybe on a good day. And it’s sort of understandable why institutions are applying a lot out of their portfolios right now because they don’t have much of an alternative, but individual owners aren’t taking advantage of this pricing environment, so the head scratcher for me. So I don’t know how this year is going to turnout, I just know we’re not seeing the normal flow of deals that we’ve seen every other year since I’ve been doing those, which has been a very long time.

Vincent Chao - Deutsche Bank

Okay thanks for that color. And I just want to -- you said that individual owners that are driving the pricing that high, is that what you’re saying competition wise?

Jeff Berkes

No, no, no, it’s primarily the institutions that are driving pricing right now.

Vincent Chao - Deutsche Bank

Okay.

Jeff Berkes

Well the pension fund advisors or the operators backed by pension fund capital.

Vincent Chao - Deutsche Bank

Okay. Gotcha. Okay lack of alternatives and that kind of thing?

Jeff Berkes

Yeah. So it makes it tough for them to sell right now because whether they’re going to do it for money, I don’t know that individuals that own great assets should think the same way, I mean, that’s why I scratch my head. I mean it’s a great time if you’re an individual and you’re not going to be a definite owner taking advantage of really well everybody views as a second bite in the apple to take advantage of certain really, really great pricing and they’re not doing it like they typically have.

Vincent Chao - Deutsche Bank

Okay, thank you. And just, I know the leasing momentum it sounds like it maintains here in early 2012 but just wondering if you could apply some color on -- I know it may just be a [cool] thing but the new leasing volume this quarter did seem to be a bit slower than it’s been quite a while. Was there anything driving that or just hesitation on tenants parts?

Andy Blocher

No, I wouldn’t draw that conclusion at all. It’s just 90-day period.

Vincent Chao - Deutsche Bank

Okay.

Andy Blocher

No conclusions drawn on that, our leasing is strong.

Vincent Chao - Deutsche Bank

Okay, fair enough. And then just the last question on maintenance CapEx, it was up a fair amount this year, year-on-year? Can you provide some -- just some commentary on what was driving that and if the sort of $21 million level that you did in 2011 is sort of a good benchmark for 2012?

Andy Blocher

Yeah, I mean we’re anticipating probably be a little bit less in 2012 than what we saw in 2011.

Vincent Chao - Deutsche Bank

Okay. Was there something driving 2011 so much higher?

Andy Blocher

Nothing. Nothing specific.

Vincent Chao - Deutsche Bank

Okay.

Andy Blocher

Just the timing of project.

Operator

Our next question comes from the line of Wes Golladay of RBC Capital Markets. Please proceed.

Wes Golladay - RBC Capital Markets

With the recent rebound in housing starts, has this changed your outlook on multifamily developments?

Don Wood

No. No, it hasn’t. The -- remember, when we talk about multifamily developments, what we’re always doing is looking at that investment as part of our overall retail project. There is no standalone multifamily business that that we’re in or we desire to get into. So you have to look at it through the glass of the mixed use project that we’re doing and in the case of mid pipe where we’ll be doing that in the case of Santana, remember these are retail locations that we know extremely well. And so, when we’re building these things for the long-term we’re very, very optimistic that we will be able to do the multifamily too, just as we have in the past and just we have it congressional.

Operator

(Operator Instructions) Our next question comes from the line of Quentin Velleley of Citigroup. Please proceed.

Michael Bilerman - Citigroup

Hi it’s actually Michael Bilerman. Don you think about Montrose and El Segundo and I guess the put rights that the partners have to you at the end of next year, and then if those are not exercised it goes much further out in the future. How do you think about sort of buying in those interests and how will fair market value be determined?

Don Wood

It’s good question. Well, you did Jeff you want to take Plaza El Segundo.

Jeff Berkes

Yeah. I mean Plaza El Segundo we’ve got a couple of different situations with the partners as stated in the deal. A couple other partners are in for the longer-term on a shoulder-to-shoulder basis with us, and when they decide they want out and we’ve the right take them out, it we will at the fair market value. But their interests are relatively small to the overall asset. So I don’t think it affects our overall asset pricing that much.

The other partner that stayed in wanted to tradeoff some cash flow risk for a little bit more certainly on the pricing, which we were happy to do, and we get a bit at that apple a lot sooner than the other two. So that that prices got a little bit variability to it but not much and it’s what we would have paid today if we had the opportunity to do that. So not too concerned about that either.

Michael Bilerman - Citigroup

And then -- we‘ve got one partner if you will it’s a less competent a deal at Montrose, Dawn what do you think of that?

Dawn Becker

Really no different than we just said with which was El Segundo, it is the seller is willing to do by this they love to have flexibility that if they choose to catch up they can, I suspect we won’t be seeing that exercise for quite sometime.

Michael Bilerman - Citigroup

And then, when you think about El Segundo obviously the mortgage is a 2017 maturity obviously it’s a extraordinarily highly levered asset, how does that sort of play into if those put rights are not done at the end of next year and we get to 2017 and it has to be refinanced. How do all the dynamics work obviously you’re under 50% partner but you get 75% of the cash flow, just trying to think about how new equity if it had to be reequitized at that point would have to be injected in?

Don Wood

The question how our partners would do that or how we would do that I’m sorry.

Michael Bilerman - Citigroup

Right, I guess yeah what’s the shared if that could be reequitized or lets say you couldn’t get a loan at that point, lets say you completely have come from the outset what’s your -- what sort of view or funding for that relative to the partners?

Don Wood

Well, it’s -- as you might imagine very complicated and very detailed. But I think the way you should look at that is when that -- when we do have the ability to pay that mortgage off, one we don’t have to put as much debt back on the asset. And two that probably gives us an ability to call in some of those interests sooner than we otherwise would, and if doesn’t the math is probably favorable to us.

Michael Bilerman - Citigroup

Okay. And Andy, just from a guidance perspective I think you talked about Montrose being $0.02 accretive to ’12, at least in the guidance. How did the dynamics work from an FFO and AFFO prospective for El Segundo, I assume the more digits is above market and that has an impact in your consolidated. I’m just wondering how you’re going to flow that through your income statement both from an FFO and AFFO or FAD perspective?

Andy Blocher

Yeah, I mean, and Michael that we talked about Plaza El Segundo on last quarter’s call. It was in the guidance that we had previously. I mean, Plaza El Segundo is about a penny accretive, accretive to us in 2012.

Michael Bilerman - Citigroup

And that’s a cash or that’s a GAAP, penny?

Andy Blocher

GAAP.

Michael Bilerman - Citigroup

And from a cash perspective it would be less because you’re not -- you're marking to market other loans, you’re getting higher?

Andy Blocher

We’re marking to market the loan, we’re marking to market the leases, we’re marking to market everything.

Michael Bilerman - Citigroup

And so would it be dilutive on the cash basis at least initially or?

Andy Blocher

It’s about flat.

Michael Bilerman - Citigroup

Okay. And then Don just -- I guess a question that you always run a very simple story from an ownership perspective, obviously you’ve the Clarion joint venture, yet the stuff in a venture, New Berry and these two deals have obviously just you’ve partners in this was it a little bit more complicated in owning 100%. How do you think about, someone else selling off multifamily, how do you think about now some of these assemblages that you’ve created of bringing partners in and raising capital from that. I recognize that you want to have a portfolio to get this stuff. But would you be willing to have less of a share of the greater stuff to sort of monetize some of the value that you’ve created by bringing all the stuff together?

Don Wood

Yeah that’s’ a great question Michael. The short answer to that is surely we would. The longer answer is I got to stay balanced. I mean, and when I say balanced, I firmly believe that there is a premium that we receive because of the understandability and simplicity of the company. And even when you had listened to the last two questions that you had on Montrose and Plaza El Segunda while the physical deal because there are partners is have a few more bells and whistle to it. The underlying management leasing and economics of all those projects or both of those projects are in our control. So to the extent we aren’t able to put additional capital on those sites, we would play out those deals and until basically we had more control.

To the extent we can add, we’re going to like what we'll be able to do at Mid-Pike and maybe near Pike & Rose and maybe be able do at Montrose in the future, absolutely consider taking those things and bundling in, putting it in a more of a venture with just some other very patient capital. As long as we can maintain management, as long as we can maintain leasing as long as we can maintain basically maintain the future of the project.

Operator

With no further questions in the queue at this time, I would now like to turn the call over to Ms. Kristina Lennox for closing remarks. Please proceed.

Kristina Lennox

Great. Thank you everyone. And if you would like any more information on the Investor Analyst Day please feel free to contact me directly. Thank you.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect and have great day.

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