Federal Realty Investment Trust Q4 2007 Earnings Call Transcript

Feb.13.08 | About: Federal Realty (FRT)

Federal Realty Investment Trust (NYSE:FRT)

Q4 FY07 Earnings Call

February 13, 2008, 11.00 AM ET

Executives

Andrew Blocher - Sr. VP, Capital Markets and IR

Donald Wood - President and CEO

Joe Squeri - EVP, CFO and Treasurer

Jeff Berkes - EVP, Chief Investment Officer

Chris Weilminster - Sr. VP, Leasing

Larry Finger - Sr. VP, CFO & Treasurer

Analysts

Christine McElroy - Bank of America

Jeffrey Donnelly - Wachovia Securities

Craig Schmidt - Merrill Lynch

Mark Biffert - Goldman Sachs & Co.

Jeffrey Spector - UBS Securities

Michael Mueller - J.P. Morgan

Philip Martin - Cantor Fitzgerald

Christeen Kim - Deutsche Bank

Paul Morgan - FBR Capital Markets

Christopher Lucas - Robert W. Baird

Richard Moore - RBC Capital Markets

Operator

Good morning and welcome to the Fourth Quarter and Year-end 2007 Federal Realty Investment Trust Earnings Conference Call. All participants will be able to listen-only until the question-and-answer session of the call. This conference is being recorded. If you have any objections you may disconnect at this time. I would like to introduce the conference leader Mr. Andrew Blocher. Sir, you may now begin.

Andrew Blocher - Senior Vice President, Capital Markets and Investor Relations

Thank you. Good morning everybody. I want to thank the analyst, investors and all the employees who are joining us today for our fourth-quarter and year-end 2007 earnings conference call. Joining me on the call today are Don Wood our CEO, Joe Squeri our Chief Financial Officer and Jeff Berkes our Chief Investment Officer. These and other members of our management team including Larry are available to take your questions at the conclusion of our prepared remarks.

As you are aware, Larry is retiring from the Trust. I will be remiss if I didn't thank him for being a friend and a mentor to me over the last six years. I am a significantly bigger man as a result of knowing him. Our year-end 2007 supplemental disclosure package provides a significant amount of valuable information with respect to the Trust’s operating and financial performance. The supplement is 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 believe the expectations reflected in such forward-looking statements are based on reasonable assumptions. Federal Realty's future operations and its actual performance may differ materially from the information contained in our forward-looking statements. 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 risk and cost 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 operations. I’ll now turn the call over to Don, to begin our discussion of fourth quarter and year-end results.

Donald Wood - President and Chief Executive Officer

Thanks a lot Andy, and good morning all. Thanks very much for being on the call today. And despite the market and stock price performance that couldn't possibly be called stable and consistent over the past several months, I'm happy to report that our operating results are: 2007 was a record year in many respects for Federal. Revenues rose 13% to a record $485 million. FFO rose 8.4% to a record $3.63 per share. Dividends were increased for the 40th consecutive year to a record $2.44 a share.

New leases were written at 20% higher rents than the previous lease, and that's 22% more by the way in the fourth quarter alone. And we were able to reduce our leverage at the end of the year, in a very uncertain market to our lowest level in years, so today, we're roughly 28% of the total capital on a market value basis.

I'm going to talk about the current retail environment in a bit, and what we see happening out there over the next 12 months. But first, I'd like to spend a few minutes looking back on 2007. There were really five basic categories of concentration that produced both great results in 2007, but just as importantly, set us up well for '08, '09 and beyond. Number one is 2007 leasing activity. It was really stellar. The second is acquisitions and dispositions, including a couple of very creative deals. Thirdly, lots of redevelopment that started to produce in 2007 with more on top for '08. Fourth, creative capital structuring that has dramatically strengthened our balance sheet. And five, some organizational refinements that highlighted strong asset management and faster decision-making.

I'm going to address the first three in my remarks and then turn it over to our new CFO, Joe Squeri, to handle the last two. Let's start with leasing, 353 deals for 1.7 million square-feet of space with more deals in square footage done in the fourth quarter than in earlier quarters. Most of those leases were for comparable space, in other words spaces for which was a previous deal in place. And were written at average cash basis at rents of over $24... $24.21 to be exact, which is 20% higher than the previous deal. That's a huge leasing year for us, and it was bolstered by such deals in cooling an extension of a Lord and Taylor lease at Bala-Cynwyd for a couple of years, while we worked through the redevelopment of that center and a similar situation with an extension of Ross Dress For Less at Westgate Mall as we planned for that future redevelopment.

But even without those two big rent bumps, straight old fashion renewals throughout the portfolio all year long at sizable bumps really tell you a ton about the breadth of the portfolio. Consider this. Of the 312 comparable deals done in 2007, 200 of them, nearly two thirds were for renewals of existing tenants, rather than for new tenants.

Renewal rents excluding the aforementioned Ross and Lord and Taylor deals were 14% higher on a cash basis than they were previously paying with de minimis levels of capital required in all of those deals. Nothing speaks to the quality of Federal's properties or with incremental earnings power, like that statistics.

Next, with the selective acquisitions and dispositions. The large White Marsh purchase, which closed in the first quarter has already begun to create incremental value. If you remember, we viewed this primarily as a releasing and re-merchandising play, because of what we felt... were significantly undermarket in place leases throughout the project. In the last 9 months, we've done six new or renewals comprising 33,000 feet at White Marsh with average rents of nearly $35 a foot, 21% higher than the previous rent.

Then, came the Shoppers' World acquisition in Charlottesville, Virginia. We bought this well given its location and re-leasing opportunities at a low 7s cap rate and then used it in a reverse 1031 exchange to shelter a large tax gain on the sale of two street retail buildings in Queens that we sold at a low 5 cap. In the fourth quarter we bought the land under Mid-Pike shopping center in Rockville and Huntington shopping center on Long Island in exchange for leasehold improvements on six slow growing New Jersey properties plus in cash in a very important deal for us. The Levin transaction, as we call it was all about redeploying our capital and our resources to places that have the opportunity to create the most value. The short-term impact of that transaction will cost us couple of cents per share in 2008 but it will free up so much more value in the future, particularly at Mid-Pike where we are in the initial planning stages of a significant redevelopment.

You can see by the nature of acquisitions and sales, that I have discussed, that are asset redeployment and deployment program here is quite a bit different than our peers, we're not a volume shop with particular dollar or other volume related target as part of our plan, we just don't do that, nor do we usually make large portfolio of acquisitions, which by definition includes some good properties, some average properties and some dods [ph] we'd rather hand select acquisitions on a one off or two off basis, knowing that our competitive advantage might lie more in deal structuring that tries to soft sellers issues as opposed to paying the highest price and doing as many deals as possible. It's only our above average internal growth that lets us take that approach.

Finally, let's talk about redevelopment, more than 25% of Federal's growth in 2007 came from contributions of redeveloped properties, properties like Rockville Town Square, Mercer Mall, Willow Lawn, the Village at Shirlington and Loehmann's Plaza were all delivered at various points during 2007 and will be full year contributors in 2008. Then, in the next couple of months, we will be delivering on our next phase at Bethesda Row known internally as [inaudible]. This is a new $79 million building comprised of 180 luxury apartments on top of 43,000 square feet of terrific street retail, the retail is fully leased as we sit here today and we’ve opened our residential leasing office and begun taking reservations, initial interest has been very strong.

We also intend to begin construction this summer on our latest space of Santana Row four stories of Class A office over 15,000 feet of ground floor retail front end center at the project at the corner of Stevens Creek in Santana Row in San Jose, California. We are really excited about this iconic addition to the project given a very strong office market out there and it's extremely unique location. We expect to put about $42 million to $45 million to work over the next 20 months and earn an estimated 9% to 9.5% cash and cash return on the project beginning in late ‘09 or early 2010. But I think you can see that from a leasing, acquisitions and development perspectives our balanced approach to the business surely seems to be working.

In terms of what actually plays out in 2008, we are keeping a very close eye on retailers’ health as well as the health of sellers at shopping centers out there. There is just no doubt that consumers have cut back on spending at least for the time being and the higher cost of financing if it's available at all will slow down retailers appetite to expand. You've already seen a number of retailers Starbucks, Ann Taylors, Chico's, and others who cut back on planned store opens. As a result, 2008 is simply going to be harder year to predict than the past. But having said that, I continue to believe that we are in a significantly better relative position to handle whatever happens in our peers. Let me remind you of the eight basic reasons that I strongly believe that; first, our locations have the best supply and demand characteristics from a leasing perspective. Secondly, no tenant accounts for more than 2.5% of our revenue base. Third, percentage rent comprises less than 2% of our rental screen. Fourth we are not dependent on acquisitions to grow in the near term. Fifth our debt maturities are well laddered with no significant debt in 2008 and $300 million of capacity on our unsecured line. Sixth, we carry very low leverage. Seventh, our development pipeline is very manageable at certain… to size and risk profile. And eighth, our overall in-place leases are still significantly under market, you get the idea. And it’s all right [ph] despite the uncertainty on the economic horizon we are not changing 2008 guidance. Before I turn it over to Joe, I too.... I want to say take a minute and publicly thank Larry Finger for his enumerable contributions to Federal Realty over these past six years, but most importantly, for his guidance and his personal friendship. He has been a mentor, he is in a sounding board and a critical part of this organization. We're going to miss him a lot. Larry, thank you.

And now I'd like to turn it over to our new CFO, Joe Squeri.

Joe Squeri - Executive Vice President, Chief Financial Officer and Treasurer

Thanks Don. And first of all I'd like to echo Don's comments with respect to Larry. The time and effort he's invested with me as I transitioned to the CFO position has been invaluable. It's been a pleasure to work with and I wish him the best as he transitions to the next chapter in his life.

Let me add a little more color to two of the points Don has addressed today. The first being certain capital market transactions and their impact on our already solid financial position. There were three mean events that really solidified our balance sheet in 2007. First, the closing of the $200 million term loan in the fourth quarter at very attractive rates, LIBOR plus 57.5; two, the completion of an approximately $162 million-equity issuance in connection with our inclusion into the S&P MidCap 400 Index. And three, the closing of the aforementioned Levin transaction.

The term loan closing and the equity issuance in the fourth quarter effectively allowed us not to only address our short-term refinancing obligations but enabled us to completely pay off our $300 million facility. These transactions enhance the trust's short-term capacity to address both our operational needs and provide with flexibility as we pursue acquisition opportunities. Levin transaction also contributed to our strong financial position by eliminating onerous capital lease obligations and improving our coverage ratios as well.

These transactions position us well for the uncertain environment in which we are all currently operating, while we are not immune from these events, and the events unfolding in the capital environment, we are positioned better than most and our business plan is specifically designed not to be overly reliant in any one year on the capital markets or development pipeline. Nonetheless, it is an important element of our strategy and we will be opportunistic with respect to our capital raising activities.

The second topic relates to operational improvements. During 2006 Don and Larry recognized the need to further enhance the overall financial and operating oversight of the Trust portfolio. The organization restructured and staffed in 2007 and 2008 will represent the first full year of the group. The rollout of this organization could not be more timely. It's a critical core function of our company that effectively helps us manage the operations of our centers, and by extension the financial performance of the trust.

Our goals for asset management are clear. One, drive financial performance. Two, identify value-creating opportunities. And three, partner with leasing, development, and acquisitions to execute the Trust’s business plan. As we identify the strategic opportunities each of our assets have to offer we will look to build upon the value that already... has already been created. We've assembled a talented group of executives to lead this effort and I'm confident that we will be able to offer insights and opportunities to continue to drive incremental value in future.

Now, we'd like to address our 2008 forecast. With respect to our earnings outlook, we are reaffirming our previously issued 2008 FFO guidance of 389 to 394 per share. Economic factors continued to evolve that will make 2008 a less predictable year. However, the core attributes of the trust, that Don previously outlined, position us well to continue to successfully execute against our business plan. Nonetheless, while we are comfortable with and are reaffirming our guidance, please don't lose sight of continuing uncertainty in the environment as you model your projections within that range.

I'd like to now open up the call to your questions. Operator?

Question and Answer

Operator

Thank you. Thank you. At this time we would like to begin the question-and-answer session of this conference. [Operator Instructions] Our first question comes from Christi McElroy, Banc of America. Please proceed.

Christine McElroy - Bank of America

Hi, good morning guys. Given all that’s happened in just the last few months in terms of the [inaudible], the economy, the softer consumer spending, changing attitudes of some retailers, and the continuing turmoil in the credit market, how has your view of the world changed and would you say that you are in more of a defensive mode today given the environment or you out there looking to put capital to work in a market that could potentially see some mispricing and deal structuring opportunities as you put it?

Donald Wood - President and Chief Executive Officer

Well Christi lets break it down. There is no question that in tougher economic times we are looking at two things on the leasing side, right. I mean tenant sales will be lower. They won't grow as fast as we thought they would, that leads us to looking at percentage rent projections in our numbers that are lower than they would otherwise be, number one. Number two, it takes longer to lease things up, and so our downtime projections are longer. And so when we operate from a leasing perspective, we are on more of a defensive mode, there's no question about it. And this is very similar to markets that we've been in before and it never... there was nobody that was going to think it was going to stay the way it was in '03, '04 and '05 forever and so we're very prepared for that. So, I would say, yes, defensive on the operation side of the business. In terms of the growth side of the business, acquisitions, development opportunities etcetera, this is where I think we do get a little bit more aggressive and as we look out and see what's going on in the world, we are keeping a real close eye on opportunistic ways to grow the portfolio. You know we have been looking at getting into the floors over the past couple of years and prices have kept us out, the type of products have kept us out. I'm hopeful that over the next 12 months or so we will finally make some progress there as things break a little bit. So, you will see more on the opportunistic side in terms of the growth side but more defensive in terms of operations.

Christine McElroy - Bank of America

And then just a follow-up on that, I mean has there been any change at all to your JV partners' attitude about new investments?

Donald Wood - President and Chief Executive Officer

Yeah. I think there has. Jeff is on the phone, right?

Andrew Blocher - Senior Vice President, Capital Markets and Investor Relations

Yes.

Donald Wood - President and Chief Executive Officer

Jeff, where are we with our partners?

Jeff Berkes - Executive Vice President, Chief Investment Officer

Clarion all along has been a very selective and I would say astute investor and when we've owned the JV back in July of 2004 it's really when you began to see the acceleration of the slide in cap rates and since July of 2004 we along with them have been very careful about what we bought and what we put in the portfolio. And I think going forward they are taking the same view and being very selective about where they place their capital, but if an opportunity presents itself where we think we can make some money on the mis-priced assets I think they are right there along with us.

Christine McElroy - Bank of America

Great. And then can you just remind me what kind of same-store NOI growth are you projecting for '08?

Donald Wood - President and Chief Executive Officer

What have you gotten there, Joe, somewhere between 3% and 4%.

Joe Squeri - Executive Vice President, Chief Financial Officer and Treasurer

Yeah. I don't think it's any different than... it's consistent with our business plans between 3% and 4%. Although I'd just echo Don's comments before, I mean, we're being cautious on the outlook. We don't have complete visibility but what we do know we have modeled in. But our projections are around 3% to 4%.

Christine McElroy - Bank of America

Great. Thank you.

Operator

Our next question comes from Jeff Donnelly from Wachovia. Please proceed.

Jeffrey Donnelly - Wachovia Securities

Good morning guys. Just first off Larry, I just want to say it was a pleasure working with you over the years. I think everyone agree you are a passionate supporter of the federal story [inaudible]. Let someone leave a room without them letting and getting a taste of your conviction for federal. Whether they wanted it or not.

Donald Wood - President and Chief Executive Officer

But you really like him Jeff?

Jeffrey Donnelly - Wachovia Securities

Correct. Kidding aside. I wish you the best of luck. I guess Donald, if I could ask a Christine's question maybe a little bit differently, Federal is clearly like an internally driven model whereas the majority of your peers have really staked their claim on being more development and acquisition reliant, particularly from a JV capital formation standpoint and even [inaudible] events. This environment has certainly slowed the fuel for that model a little bit. So I am curious... I mean what are you thinking about now, do you think you are going to see either a new approach emerge, if you will, or may be a little bit of what you were talking before, do you stay cautious and you hold cash or when you talk about going on the offence, do you think you'd ever look at buying an entire company or a large portfolio to get into your target markets, which historically have been once a choosy type company.

Donald Wood - President and Chief Executive Officer

Yes. It really does. I don't see us changing generally from being a once a choosy company. And the reason for that is really simple. There... we know that the biggest advantage that we have is the location of these properties that will I believe in downtimes as well as good times outperform in terms of the internal growth. So anything that is going to really dilute that and kind of put us in the same bucket as a lot of other people is not particularly attractive to me. Having said that Jeff, there we have at least so far and Jeff could probably talk to this a little better than I can, but we have not seen in terms of the stuff that we want to buy, bargains out there at this point and we are going to stay very, very close to the market to make sure opportunities like that don't go away, but so far at least on the stuff that we want in the markets that we want, you are still talking six and sometimes below six caps to be able to get it. It is really not about that as much as it is, the opportunities for what you can do with the assets we buy. And so, to the extent we will absolutely pay up for great assets in place where there is a redevelopment opportunity. And given the capital markets that are out there it is hard to imagine that there won't be more opportunities, more opportunities like that coming forward. And that's what I am talking about in terms of being aggressive on the acquisition side. But man, nothing can trump... nothing can trump our focus on the core portfolio which is why Squeri talks about the asset management investment that we've made, we have to make sure that we continue to do that to really differentiate ourselves.

Andrew Blocher - Senior Vice President, Capital Markets and Investor Relations

Don let me add to that a little bit to just kind of round out the answer for you a little bit. A couple of things if you will on what we are seeing out there on the acquisition side of the business, the first would be the gap between yields or returns on quality product versus non-quality and I would say again non-quality is either a property that is not a great property, to begin with or a property that is in a tertiary market or a property that is dependent upon a CMBS finance buyer, that gap is continuing to widen and I would even say in some cases where certain assets that are in small markets have some issues, there might not even be buyers today. But for the markets that we are in and for the type of deals that we look to buy, it's a completely different story and it is very simply a supply and demand business and there has been precious few deals that we really want to go after over the last again 6 months, 12 months or so. And there is still very well priced balance sheet, lender mortgage debt for those assets. And I think there is a huge supply of equity for those deals right now.

Pension funds done a ton of money in 2007 and absence on huge decline in the stock market that would create a denominator affect for them. They are expected to invest even more money in real estate in 2008. And again, a lot of these assets that fit our profile, are kind of $20 million to $50 million bucks and depending upon the market you are in, every market has a different group of well healed local operators that can raise the hand fewer million, so they need to raise to be able to buy the deals. So, on the supply side, not a lot of supply and on the demand side still a lot of demand, which is keeping cap rates down and prices up. I would say in California that's kind of a still a 5.5% to 6% range, it's probably close to that and Washington, D.C. is not the same and not much different from that and the other markets we look at on the east coast. Florida, which we’ve spent a lot of time analyzing has had some more transaction activity, and again for the kind of stuff we want to buy, I think those cap rates are generally, upper five to low sixes. If you want to put specific numbers on five in three quarters, six in a quarter, it's kind of the range that we're seeing in South Florida.

But the important thing, when you're looking at what we buy and what you're looking at our portfolio is not the cap rate it's the IRR and with a shift, particularly in institutional capital towards more kind of core plus value add opportunities and that kind of being the nature and what private buyers want to buy, I don't really think those IRRs have moved much over the last year or so. But still a very competitive market and we're aggressively, aggressively pursuing it just as we always have been. And on one hand, this is kind of what we've been waiting for for four years. But I don't want to... I don’t want to leave you with the impression that we're going to go to a ton of deals because we are very disappointed about what we're buying, I still think it is highly competitive.

Jeffrey Donnelly - Wachovia Securities

Jeff. I can stick with your first, second is... how do you think those IRR requirement have changed, levered or maybe unlevered to better metric. For A&B properties over the last 12 months, where did you come from and to till date you think?

Jeff Berkes - Executive Vice President, Chief Investment Officer

Well, we don't really want to leverage the IRRs. We're looking at everything on a same-store [ph] basis. And I think for generally speaking the kind of assets that I'm talking about which are costal market assets or you can move the NOI needle and your pro forma that you're buying today isn’t as good as it's going to get. That's in the 7% to 8% range. And again I don't think that has changed much. There was a period of time when the more core stabilized properties were the pro forma day one was sort of as good as it gets. We're trading down into the sixes on an IRR basis, may be as low as 6.5. I think with the debt where it is today, those are tough deals to deal. But again still a lot of equity capital out there, the ones that are in great retail real estate. Heaven knows, we just haven't seen the data points.

Jeffrey Donnelly - Wachovia Securities

And I know that not much time is elapsed, but, is there any update on Mid-Pike Plaza on your ability to get it recognized under the... I think it's with White Flint Metro Policy.

Jeff Berkes - Executive Vice President, Chief Investment Officer

Yes. There is... we're doing really well in that regard. Now obviously it's a long impediment process and it's... you know, it's probably 18 months out there in terms of... or more may be a little bit in terms of the impediments, but we're working very closely with [inaudible] and a couple of other folks who are in that district. And in terms of getting the whole, the entire district zoned, and at least at this point those conversations are very open, going very well, conversations with Montgomery County have been very productive and so, I'm real hopeful that you'll see a really, pretty special redevelopment opportunity [inaudible].

Jeffrey Donnelly - Wachovia Securities

But, generally speaking the County is supportive of it, they are not...

Jeff Berkes - Executive Vice President, Chief Investment Officer

Very much so.

Jeffrey Donnelly - Wachovia Securities

And last question was, what are the odds that we see a repeat of, I call it he Tower Records and Storehouse situation where we have a little bit of a spike in vacancy, say over the next 12 months to 18 months.

Donald Wood - President and Chief Executive Officer

Better than they were six months ago, but still very unpredictable. I mean, you know the thing I know you asked me a bunch, Jeff and I'm going to repeat it one more time. The thing you have to remember is, despite Tower and Storehouse, we didn't change our guidance at all and we delivered on that. And I got to tell you, that is the most critical thing about this business plan. It's... I certainly would expect to see more vacancy. I certainly would expect to see more bankruptcies coming down the road. But the way we’ve set this up, it really would take a confluence of a number of them to bang us off what we are talking about and your guess is as good as mine as to whether that confluence will happen but it’s certainly a lot less likely to push us off here than elsewhere there are other places.

Jeffrey Donnelly - Wachovia Securities

Thanks guys.

Operator

Our next question comes from Craig Schmidt from Merrill Lynch. Please proceed.

Craig Schmidt - Merrill Lynch

Hi, thank you. Given that Santana Row... Santana Row has been opened five years and the San Jose market is showing very low vacancy, solid sales and really strong rents. Are some of the initial leases at that center starting to roll over?

Donald Wood - President and Chief Executive Officer

Absolutely. They're starting to roll over and we're seeing some pretty good traction. You know, let me talk about Bethesda Row a second. Because I think, this is more a macro issue in our industry. There is no doubt when you open up a large brand new project, particularly a mixed-used project. It takes time without question for those properties to kind of dig in and so... stabilizing and find their customer base and find the merchandising base that makes the most sense etcetera. When you do that, in a recession, which I believe we were in 2001, 2002 in Silicon Valley something not nationally, but in that market it takes even longer and so, it truly has taken four years or so. But, now in the fifth year it's taken that time for it to really solidify in terms of what it is. But it's there Craig, and I think, I've got a guy here in this room today, guy named, Chris Weilminster who runs our leasing, who has taken on about 18 months ago responsibility for Santana Row leasing let me turn this over to him and kind of, so you can get a little bit from the horse's mouth, which I think [inaudible].

Chris Weilminster - Senior Vice President, Leasing

Hi Craig. We've been very pleased with the... with the retailer's interest, renewed interest in Santana Row and our ability, I think to renew some of the existing strategic tenants that we believe are on place that help differentiate us from our competitors in the market. And we're now starting to get looks from some of the local retailer, some of the best-in-class retailers in San Francisco that are finally now viewing the South Bay market as a region where they can add stores and be successful. And they are very interested in the amenities that are operated at Santana believing that it really gives their consumer the kind of atmosphere that they want that will lead them to success. So, I've been very pleased with regard to our ability to renew and I've also been very pleased with the interest we are getting, we are running it close to a 100% occupancy. We rolled together some spaces recently and we are very successful in getting a great deal done for the assets with H&M, which was a huge boost for the soft-goods mix. And they opened in late October and that is just kind of been adjacent to helping us get more interest I think from the soft-goods retailers that are out there in the market.

Craig Schmidt - Merrill Lynch

Chris, as long as I have you on line, can you tell me what you know about Sunnyvale Towns Center, I know it opens in the second half of 2009. But I know it's within 8 miles of your project and they seem to be bringing a lot of square footage on. Are you getting any sense of what kind of retailers you're bringing into that project?

Chris Weilminster - Senior Vice President, Leasing

Sunnyvale is bringing in some food component retailers, I know that they have talked to a handful of the retailers that we have at Santana Row. And I believe that they are going to bring in more of a mid priced and what I would call life style and with Target as being their anchor tenant. So, I know that they are working hard to get some deals completed with players like H&M, they have not finished those deals yet, but I do think that you'll see that being more of a middle of the row from a lifestyle standpoint, they will nudge you towards luxury at all and I think ultimately it will be a successful project.

Craig Schmidt - Merrill Lynch

And do you have any impact… a sense of the impact you might have on San Jose sales, I mean, out of Santana sales?

Chris Weilminster - Senior Vice President, Leasing

Well, I think that Santana Row, where we are located, Santana Row physically is the super regional market for the South Bay area with a regional mall directly located across the street and other component surrounding Santana Row. So, I think that that will provide a nice premium [ph] location for the immediate surrounding community or constituents around Sunnyvale. But I don't think that that will bleed any business off the Santana Row in anyway shaper from, from a regional standpoint. So, we are curious to see how it works, but we're very confident in the long-term continued success at Santana Row.

Craig Schmidt - Merrill Lynch

Thanks. I appreciate it.

Chris Weilminster - Senior Vice President, Leasing

You're welcome.

Operator

Our next question comes from Mark Biffert from Goldman Sachs. Please proceed.

Mark Biffert - Goldman Sachs & Co.

Hi guys. Don, question for you. I am wondering have you looked at a worst-case scenario if in each of your portfolio as things get significantly worsen than you expected. If you looked at it and how that would impact your leasing for '08 or '09?

Donald Wood - President and Chief Executive Officer

It's very hard to... when you say worst-case scenario I mean, the reality is... and it is the reason I kind of go through those eight specific things. If you look at the eight things that we've done to make sure that we are as balanced as we can be in terms of risk. And really if you take that and you think about what those things are, we are truly not overly dependent on any one category, on any one business line, on any one portfolio. That is so critical. And as a result, look, we gave a range of 389, 394 and probably something similar to that in terms of growth for 2009. I don't know for sure at this point. But when you think about that, the reason that that range is really pretty narrow is because it truly would have to be draconian. And if you ask me, have I gone down the draconian route and said what would we do, my god, at that point. I think the answer really is no, because I don't think that is very likely. I do think you can absolutely see softening and you'll see it in little pieces as I say with increased down time may be occupancy that goes from 96 to 95 or 95.5 or 94.5... things along that line, but... no, I am not big on saying, okay, what if all of these eight things went bad, because I don't think it is very likely?

Mark Biffert - Goldman Sachs & Co.

What about leasing spreads, how much do you think leasing spreads could compress and..?

Donald Wood - President and Chief Executive Officer

Yeah, leasing spreads can compress. The only thing I would say is that, when you look at what leases are expiring, on a contractual basis, there is some predictability there. You know that we have a bunch of stuff that this old and you know that even if we are not as aggressive with rents, or if we can't be as aggressive as we have been on rents, that you are still going to see old leases turning around at great spreads. So, on balance, sure they can contract and they should contract but frankly from the 18% and 20% that we have been doing it’s been... it’s been an amazing three and four years, but it doesn't need to, but our business plan never called for 18% and 20% to be able to meet our objectives of earnings growth. We can absolutely have that come back into the 12% and 13%, a 11% range. And any core could particularly be worse than that. But, overall I think that's the kind of diminishing [ph] that's possible, but way too early to say that because, okay, I'm sitting here, where are we in February 13th with... I know what we did in the month of January and those things and those spreads have remained strong.

Mark Biffert - Goldman Sachs & Co.

So, what kind of visibility going on, on leases do you have, two, three months?

Donald Wood - President and Chief Executive Officer

Longer than that on anchor deals and three and four months on small shop deals.

Mark Biffert - Goldman Sachs & Co.

Okay. And Tom [ph] has a question as well.

Unidentified Analyst

Hi guys, this is kind of a broader question, I wanted to get your thoughts on the challenges of mixed use redevelopment versus plain vanilla retail redevelopment given the tougher economic environment. You'd have to think that it's got to be more difficult to align all the necessary partners for a complicated mixed-use project to just move forward with a plain vanilla retail redevelopment, can you guys touch on that?

Donald Wood - President and Chief Executive Officer

Yes, I wouldn't disagree with the point. There is no question that... mixed-use in of itself is... in many respects a better product when its done... if its been done right. In terms of its value creation abilities over the long-term, but when you're trying to put it all together, trying to put four or five parties together is harder than putting together one or two. So, there very well might be that impact. As I sit and look at it though... I mean you look at our, where our capital get spent on the development side, we had a pretty darn good mix of plain vanilla of simple redevelopments and you just look at the list in terms of what's going on. In addition to some great longer term mixed-use projects, when I think of the long-term value that will be created at Assembly Square or the future of Santana Row or Mid-Pike Plaza etcetera, Bala-Cynwyd. I mean we are not going to be talking about delivering any of those things in the '08, '09 period and in terms of putting it all together... I mean it's funny just before this call I made sure I was... is at the speed as I could be on Assembly Square that everything was still going in the direction that we expected to be and it's very much so. The question was asked on Mid-Pike, very, very much so. So, it depends... so, the macro question that you are asking, I think is a very good point. But, again as you take it down into the business plan of this company, I think we are pretty... we are pretty cushioned in terms of development as a total percentage of what we do and the types of development within that being everything from real simple to more complicated.

Unidentified Analyst

Thanks a lot for that color. And just a quick modeling follow-up, G&A, on a year-over-year basis was up 20%. That's probably a function to a certain extent of the build out of your asset management platform. Should we look for that kind of year-over-year ramp-up in G&A, as we head into 2008?

Donald Wood - President and Chief Executive Officer

I think, last year's numbers is not only a build out of asset management, it was minimization of Larry Finger. So, those two were sort of unusual, I think on a run rate basis....

Andrew Blocher - Senior Vice President, Capital Markets and Investor Relations

There is a million bucks or so in the fourth quarter.

Donald Wood - President and Chief Executive Officer

Yeah, there is $1 million associated with [inaudible], but there is $1 million associated with Larry's retirement package. There is a run...there is some run rate things with respect to asset management but on our modeling, our forecasting, we are looking to keep G&A at 4% annualized basis.

Unidentified Analyst

Okay, thanks a lot guys.

Operator

Our next question comes from Jeff Spector from UBS. Please proceed.

Jeffrey Spector - UBS Securities

Good morning. Just a follow-up to Jeff's question in thinking about the environment we've been hearing about a lot of private developers getting into trouble, just trying to take advantage of things, maybe be more opportunistic. Is it time to get a little more aggressive in some of the markets you wanted to get into and take advantage of some of the... your development skills you've developed over the last few years?

Donald Wood - President and Chief Executive Officer

Sure, for the right properties. And I guess, if there is anything that we've learned over a very long period of time here is that you cannot...we won't skimp or get back in terms on the quality of the property and the quality of the location. So, you sit here you think about, well gosh, what's going to happen going forward, where is the world going and all the unknowns associated with that. The one place that we know, we will still pay up, whether it gets cheaper going forward or not, who knows. But we will pay up and we will get it done in the locations that we want to get to and that applies to both the development and the acquisition side. So, yeah, I mean one of the things that hasn't happened for a long time, and still isn't happening is Jeff, Blocher talked about a few minutes ago, is those places that we really want to own, they don't come... they are not available very often. And, we work a hit list, and we work relationships and we do the best we can to make sure that none of those things trade without our knowing it and that's... again is development and acquisitions. Yeah, I can tell you that this market we believe will free up some of those things, and will be there, and will be there aggressively. And so, from that standpoint, you can count on it. In addition to that, just the very nature of the stuff that's in our pipeline have us real busy, and when you are talking about Assembly Square, and you are talking about Mid-Pike, and you are talking about Bala-Cynwyd, and you are talking about Santana Row. There is nothing we'd rather do than to put our capital on places where we are the most sure of success and the stuff that we own and know the work that falls in that category. So there won't be a lack of things for us to do, I can tell you that.

Jeffrey Spector - UBS Securities

Great. And then just a question on the tenant side. We've heard a lot of comments that there hasn't been as much pull back from tenant demand, I mean, at the same time, I think the concern is, are the tenants making the right decisions for '08, '09. I mean, what are your feelings at this point?

Donald Wood - President and Chief Executive Officer

Yeah, let me jump in...let me go in and then Chris, if you want to add more color to what I'm thinking. Remember the lag, okay. The deals that are happening right now were conceived, especially Anchor deals while ago, in some cases a year ago, on redevelopment two years ago and I think along those lines. So, there absolutely is a lag, point number one. Point number two, and... I'm not sure, I'm going to be cold about this, but the reality is there is a big difference between being a retailer, and being a landlord. And as the landlord, we truly don't need every retailer doing fantastic gangbuster all the time, because their market has changed. We try as best we can and because the locations were more successful to set up those leases, where as much of the leverage is possible is in our hands. Things like recapture rights are really important to us, and the ability to control, if you will, the real estate is real important to us, we can't always do it, but it's something we're always trying. When you marry all those things together, whether retailers are making the smartest decisions or not... I mean they are just people and they are in the same situation that we are. We're trying to guess as to where the world's going to go, but nobody really knows, so it's hard to say. I can tell you they're certainly going to not reduce the deals that they're doing in the better quality locations. Far better than they are in other markets so, we should be affected less, that's the first thing. And secondly, I think we've got the leverage as best we can in those markets to be able to protect ourselves. Anything else Chris?

Chris Weilminster - Senior Vice President, Leasing

Yes. All I would do is reiterate Don's point that there...in a challenged market, there is absolutely a flight to quality, and our portfolio screams of quality. And so, we have a example right here where our corporate offices are Congressional Plaza where you have a retailer that we all read about as being a bit challenged in their sales performance recently, which is being Chico's, we recently completed a transaction with Chico's to take a store that they currently occupy, which is about 2500 square feet and not only expand that to about 4500 square feet, but also add their White House, black market brand. So, they're going to be back selling a larger space here, Congressional Plaza. And I think that's just affirmation of what Don was saying or what I truly believe, there will be a flight to quality in a more challenged market. And what's your leasing at Federal Realty back in 1990 and 1991 and in those challenged economic times, we certainly were able to keep our portfolio well leased and get great deals done, because of the quality of our real estate and I see nothing different with where we're heading this coming year.

Jeffrey Spector - UBS Securities

Thank you. And Larry best of luck.

Larry Finger - Senior Vice President, Chief Financial Officer & Treasurer

Thank you.

Operator

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

Michael Mueller - J.P. Morgan

Hi, couple of questions. First of all, in terms of the redevelopment pipeline, the 2009 delivery is that set at this point or is there the potential for more additions?

Donald Wood - President and Chief Executive Officer

The ones that are there are set. In terms of additions, it's possible they would be smaller deals obviously, not larger deals. The... if you had this scheduled laid out for the next ten years, we have said in the past and I'd reiterate it again, $75 million a year, maybe $100 million a year on average we put to work in redevelopment is absolutely a good number. Does that mean every year? No, it’s lumpy. It's why, you'll have years there with a $150 million, you'll have years there with $60 million or $55 million as this one says but in '09, I mean that $55 million may go up by some smaller deals but it won't go up by much.

Michael Mueller - J.P. Morgan

Okay. In terms of the Santana redevelopment, the office component there, will you own that?

Donald Wood - President and Chief Executive Officer

Yeah, we are going to do the whole thing. It's right front in center of the property there and it is a little bit similar to in Bethesda where we are doing the apartments over the retail. When we know the property really, really well, we know the market really, really well and it is not a multi-hundred of millions of dollars deal in terms of size we will do the whole thing.

Michael Mueller - J.P. Morgan

Okay. And last question, when you were talking about potentially going into new markets and putting capital for and being maybe a little bit more aggressive, you were mentioning you don't see bargains today but do you think there is a trigger point or just something that freeze up, I guess, transactions where pricing gets a little bit better later on this year? Is there something specific that you think could change?

Donald Wood - President and Chief Executive Officer

What do you think, Jeff?

Jeff Berkes - Executive Vice President, Chief Investment Officer

No, not really, not really. I think it’s a kind of wait and see and be on top of every deal like we have been and are. But I don't expect a major shift again for the type of stuff we want to buy.

Donald Wood - President and Chief Executive Officer

I can't overemphasize the notion of type of stuff that we want to buy. I know when I hear these words, sometimes when you look at it and I hear Jeff's response, I say boy, is that thing consistent with what other folks are saying and everything else. I don't see anything consistent because I think it does come down to the type of properties we want to buy. If you go back and you look hard at our White Marsh field, right, which closed last year, and then the results of White Marsh and how important that property is in its trade market, you kind of get the point and so whether White Marsh traded last year or this year or next year, the issues of how to get that freed up and how to, in that case, solve the sellers' problems are still going to be the same.

Michael Mueller - J.P. Morgan

Okay. Great. Thank you.

Operator

Our next question comes from Philip Martin from Cantor Fitzgerald. Please proceed.

Philip Martin - Cantor Fitzgerald

Good morning, everybody. Is it fair to say Don that given... we've heard some anecdotal evidence and you mentioned it in your opening remarks about retailers pulling back taking a step back to analyze their own growth plans, but given the strength of your portfolio, locations, etcetera, I would have to think that retailers view your locations as half-to locations where if they are going to grow, they are going to grow and they are going to pick locations that are characterized in your portfolio. Is that fair to say and is that some commentary you are hearing from many of your retailers?

Donald Wood - President and Chief Executive Officer

Yeah, I mean that is how we've set it up. Now that doesn't mean it's going to working in all cases, I mean, Jeff Donnelly, I think asked the question before could there be another store house in Tower, bankruptcy that drops folks out and hits our earnings in a particular period of time? Sure, but again even in that case we weren't knocked off our earnings guidance, that is the business plan, what you just described is the business plan and I know in talking with Chris on a regular basis, I am talking about the whole leasing team on a regular basis that when there are cutbacks or pullbacks and expansion that it is very unlikely that Federal is disproportionately affected negatively. It is almost always that Federal is disproportionately affected positively.

Philip Martin - Cantor Fitzgerald

You know from an... I know in everybody is so focused on initial cap rates but when you look in your markets and we talk about 5.5% to 6.5% cap rates on well-located properties are there enough opportunities, are you seeing enough opportunities or may be the better way to ask this, do you expect more opportunities of these call it 6% cap rate properties that are under managed where in Federal’s hands, the initial cap rate might be a 6%, but in Federal’s hands in a year or two out it’s a 7.5%, 8% given your platform, your ability to restructure, reposition these assets.

Donald Wood - President and Chief Executive Officer

You just described the White Marsh acquisition and gosh, I hope Pat [ph] isn’t listening. I am not saying anything wrong with the way they read the property at all. I am simply saying with our platform, we were able to do a really good job and lease out and that's the platform, that's the relationships, that's what we do.

Jeff Berkes - Executive Vice President, Chief Investment Officer

That's obviously what we look for in an asset, we are looking for a strong location, we are looking for strong tenant sales performance at a property and we are looking for what is a hopefully old or under managed rent roll or merchandise mix, that we can come in and through a combination of capital investment and leasing and property operating expertise make that income stream grow. And if the assets don't have those qualities, we don't buy them.

Philip Martin - Cantor Fitzgerald

And incrementally going forward here, do you expect... given the recent credit market turmoil that is obviously going to lead to more disciplined lending standards, fewer competitors, I would have to think Federal... this is a great opportunity for companies like Federal that are well structured from a balance sheet stand point, a value-add repositioning platform, the backdrop of significant internal growth. I'd have to think you would be more excited at this time than you were probably two years ago, is that fair to say and do you expect to see over the next year, even year-and-a-half incrementally greater opportunities of these under managed 6% initial cap rate properties?

Jeff Berkes - Executive Vice President, Chief Investment Officer

That's why I said a few minutes ago, we have been waiting for this time for four years, but again I don't want to accept the expectations that there is just an opening of the flood gates and abundant, abundant, opportunities in that regard because again for the type of things we want to earn which I just described, I don't... it's not going to be an opening of the flood gates, but I can tell you that we are out there pounding the pavements and working as hard as we always have or even harder now, because we do think it is a good time.

Philip Martin - Cantor Fitzgerald

Well, in your platform and the overall size, doesn't necessarily require to mean an opening of the flood gates just enough opportunities?

Jeff Berkes - Executive Vice President, Chief Investment Officer

Exactly.

Philip Martin - Cantor Fitzgerald

Okay, thank you very much.

Operator

Our next question comes from Christeen Kim from Deutsche Bank. Please proceed.

Christeen Kim -

Deutsche Bank

Hi, good morning. Jeff just staying with you, you mentioned before that spread between quality and non-quality assets has widened considerably, could you put a number to that and do you see this further movement in that spread going forward?

Jeff Berkes - Executive Vice President, Chief Investment Officer

I would think so, I mean may be a couple of quarters ago, we and others saw that was 60 to 100 basis points and now, it's probably 100 plus, may be 200 and in some cases, again without a CMBS lender, there may not be buyers for certain assets right now, because the balance sheet lenders are very picky about what they are lending on and they can’t be, so there is no doubt it makes very hard to buy some assets. But I think broadly speaking, call it 100 basis points to 200 basis points.

Christeen Kim -

Deutsche Bank

And you think that spread could widen further?

Jeff Berkes - Executive Vice President, Chief Investment Officer

Well, it could widen further or it could be impossible to determine because there is no transaction in that really lower, our bottom quality tier properties because there is no debt.

Christeen Kim -

Deutsche Bank

Great thanks... sorry.

Jeff Berkes - Executive Vice President, Chief Investment Officer

No, that's again it is a real broad look and it's not something that we spent a whole lot of time on it because we are not interested in markets that aren’t great markets.

Christeen Kim -

Deutsche Bank

That's helpful, thank you. And then in terms of just your leasing strategy, obviously you guys have high quality centers where retailers want to be, but we’ve heard of your peers talking about them, tweaking their strategies has given a more turbulent economic environment. Are you guys doing anything differently in terms of your negotiations with retailers?

Donald Wood - President and Chief Executive Officer

Well, there is clearly more of a defensive mindset out there in some respects which means we want to renew leases as early as we can. We want to lock them in as best we can. We absolutely want and we do negotiate for as quicker rent start as we possibly can in terms of fixed rent start base and things like that. So it is... tweaking is the right word. I mean there is clearly a mindset of let us make sure that our blocking and tackling is really solid. But having said that you bet we are going forward as much as rent as we can get. And because of the locations we have some pretty good success getting it done.

Christeen Kim -

Deutsche Bank

I apologize if you mentioned this before, I jumped on a little late, but did you talk about what percentage of lease you committed were for 2008 in terms of your renewals?

Donald Wood - President and Chief Executive Officer

I didn't, I don't know how to do that really for you. I did... I can tell you that we are forecasting to be over 95% lease by the end... throughout the year.

Christeen Kim -

Deutsche Bank

Okay, thank you.

Donald Wood - President and Chief Executive Officer

You bet.

Operator

Our next question comes from Paul Morgan from FBR Capital Markets. Please proceed.

Paul Morgan - FBR Capital Markets

Hi, sticking with the lease expirations, I mean is there anything I can read into the low expiring rents for '08. I mean it is like $21, $22 well below all the other years and is it on the one hand either way below market properties or is it harder to rent spaces or some where in between?

Donald Wood - President and Chief Executive Officer

No, it is a combination of everything I can tell you, when I look at it, one of the things I get excited is about '09 and you sit there you see more contractual expiring leases in '09 than in any of the other years and where Paul is looking, I think, Paul, you are looking in the 8-K the lease expiration schedule.

Paul Morgan - FBR Capital Markets

Yes.

Donald Wood - President and Chief Executive Officer

Right, that $21.82 that you are looking there just happens to be specific leases that are taking… that we are talking about. I don't particularly know here and I don't know if anybody does, I would doubt it, what the corresponding market rents are for that space. So I wouldn't read anything into that and all I'm trying to say is… so that maybe good news and maybe bad, I don't know for sure. We could certainly find that out and talk to you offline about that. But I do think you should look at the big number that is expiring in '09 and view that as a very good thing.

Paul Morgan - FBR Capital Markets

Just in terms of the volume you mean...

Donald Wood - President and Chief Executive Officer

Yes, absolutely. Opportunity.

Paul Morgan - FBR Capital Markets

Yes, okay. On the Pike 7 and kind of the Dallas rail I know you structured it such that you could get back that space just in case that there is either significant layer or nothing at all, are all the leases there coterminous now or you just have options?

Jeff Berkes - Executive Vice President, Chief Investment Officer

A majority of those leases are coterminous. There is a couple that… there’s a couple of anchor tenants that go beyond and those are with anchor tenants that we have very strong relationships with that of who on a opportunistically redevelop work, we believe that we can work deals out.

Donald Wood - President and Chief Executive Officer

You know Paul, that's a double-edged sword for us there. I mean obviously we would love to a big redevelopment there. Having said that one of our most profitable shopping centers and frankly if there isn't going to be a [inaudible] for sometime we can lock down some leases at and get some term there at some higher rents than we have been able to do because we have been doing more short-term leases with pick-up and stuff. So ironically no Metro going through there is good news in the short-term and having a Metro there is great news on a long-term, so that's the balance.

Paul Morgan - FBR Capital Markets

So, it's not a leasing downside risk situation.

Donald Wood - President and Chief Executive Officer

[inaudible].

Paul Morgan - FBR Capital Markets

Okay, and then lastly on the Third Street Promenade, I mean have you seen from what you've witnessed so far about the kind of lease-up effort at the Santa Monica redevelopment there might be leasing risk or where do you see kind of the center of gravity shifting and how it might impact your leasing now?

Jeff Berkes - Executive Vice President, Chief Investment Officer

I can tell you with certainty based on some of things we are working on there is we are seeing... we are seeing no bleeding of our ability to get market rents that are well in excess of what is in place today and we were excited about getting our hands on one or two of the leases right now that we are working on, so.

Donald Wood - President and Chief Executive Officer

It's a small transaction that we did during '07 but it kind of says a lot, we did... when we first did all those properties on Third Street Promenade, we were 90% owner, and we had a 10% partner on a company called CIM, and we've now bought out all of those leases and we own a 100% of the assets on that we control on the Promenade. The Promenade has exceeded all of our expectations by a factor of many and when you look at in-place rents versus current market, there probably is no single property in all of Federal's portfolio that has greater upside than that.

Paul Morgan - FBR Capital Markets

Okay, thanks.

Donald Wood - President and Chief Executive Officer

With or without Santa Monica place.

Operator

Our next question comes from Chris Lucas from Robert W. Baird. Please proceed.

Christopher Lucas - Robert W. Baird

Hi, good morning guys. Just in the interest of time, I just wanted to say thanks to Larry, but real quick Don, if you could just give us some thoughts on handicapping the Dallas Metro rail extension in terms of what the likelihood is?

Donald Wood - President and Chief Executive Officer

Chris, there's got to be somebody better than me that can handicap... that can handicap that, my gosh it is a crapshoot, it really is. There is no question that if you live in the Washington, DC area that frankly it’s ridiculous, that there is no way to get to the areas major airport but public transportation, it make no sense and therefore you got to believe that there is an awful lot... an awful lot of both civic and financial impetus to get a Metro between Downtown and Dallas airport. This is clearly a big setback with that the absence of Federal funding to be able to make that done. Right now there are all kinds of scrambling going on, on the private side, in the international side in terms of money, I believe somebody figures that out, will it be in the same timetable, no way. That's why I think...

Christopher Lucas - Robert W. Baird

Okay and then more specific modeling question. On a snow ice event like we have had the last 24 hours, is there a ballpark number in terms of unrecoverable expenses we should be factoring in to our operating expense numbers?

Donald Wood - President and Chief Executive Officer

No, it's minor, given that net leases and the 96% lease portfolio is a wonderful thing and no… it would be a couple of hundred thousand dollars things like that but nothing significant.

Christopher Lucas - Robert W. Baird

Okay, well thanks a lot.

Donald Wood - President and Chief Executive Officer

Super.

Operator

Our next question comes from Rich Moore from RBC Capital Markets. Please proceed.

Richard Moore - RBC Capital Markets

Hello guys I will be quick as well. Just one thing I thing, I need a little help on the whole credit market situation, it seemed like a couple of months ago, no one would lend to any body and now all of sudden all I hear is we got cheap interest rates, so we are going to get all kinds of cheap debt and I'm curious where are you guys with the credit markets, what you are hearing, what you are seeing, are things getting looser, what do you got?

Joe Squeri - Executive Vice President, Chief Financial Officer and Treasurer

Rich I will give you my own view, this Joe and I'll kick it over to Andy who deals with it more specifically but I think there is a couple of things. Jeff mentioned early on that for good assets in quality markets there, there seems to be some secured financing that is available and it doesn't seem... I guess the best way to say it, it doesn't restrict, what's going is not restricting our business model, the transactions that we did last year position us well to execute our business plan, we have seen spreads widen, we have seen things tighten up, we have seen a lot more restrictive lending but we feel really good about what we had accomplished last year, our credit facilities is completely available and as I echo some of the comments that Jeff made on the secured basis, we feel pretty strong about that and Andy can give you more specific color about transactions that we are seeing in the market.

Andrew Blocher - Senior Vice President, Capital Markets and Investor Relations

Rich, I mean when you look at it, I mean we're being.... we are probably being quoted rates that are on an unsecured 10-year basis that are probably 100 basis points wider than where they were six months ago, that's probably made up of 100 basis point to 150 basis point decrease in treasury yields offset by 250 basis point increase in credit spread. On an unsecured basis, I think what Joe said is dead on. We are hearing that there is a little bit of availability of debt in the secured market at a positive spread to the unsecured market. The question that you have there is when you are looking at absolute amount of funds, how are they pricing the properties so on and so forth and a lot of that is really driven by the fact that there really hasn't been any unsecured debt issued in REIT land since October. I did see that… Duke this morning came out with the preferred deal at 8.375%, it would be AA2 credit, which hopefully will kind of work towards bringing up something on secured stuff.

And then finally on the bank side, I mean when we exit the market in November of last year we're able to get a rate of LIBOR plus 57.5 on the one-year term loan with a one-year extension option and what we are hearing now, kind of if you are looking at doing like a one or two year term loan, you'd probably be looking at a spread of LIBOR plus 110, so those are all the specifics behind the general comments that Joe made.

Joe Squeri - Executive Vice President, Chief Financial Officer and Treasurer

Let me just give you one last point that's really... I think as you analyze all companies that you're looking at, you really have to look at on the unsecured side is absolutely spreads have widen far more than treasury rates have come down and so the cost of money certainly is higher but it is so much less in my view about the cost of money than it is about the availability of that money and just on the unsecured side, and there is just... no business deal, so it's a little bit about what Blocher was saying in terms of when you talk about widening cap rates and things like that, well it depends, if there is no deal I don't know what the appropriate cap rate is and if there is no lending, I don't know what the appropriate interest rate is on the unsecured side, that is where the issue I think where you got to decouple with.

Donald Wood - President and Chief Executive Officer

That's very good stuff, thank you.

Richard Moore - RBC Capital Markets

Thank you Don.

Operator

At this time there are no further questions. I would now turn the call back over to Andrew Blocher.

Andrew Blocher - Senior Vice President, Capital Markets and Investor Relations

Well, thank you all for joining us on the call and we look forward to hearing from you guys next quarter.

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