Federal Realty Investment Trust. (FRT) — Q1 2015 Transcript

Good morning. I'd like to thank everyone for joining us today for Federal Realty's first quarter 2015 earnings conference call. Joining me on the call are Don Wood; Jim Taylor; Dawn Becker; Jeff Berkes; Chris Weilminster; and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks. 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 its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained. The earnings release and 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. These documents are available on our website at www.federalrealty.com. And with that, I'd like to turn the call over to Don Wood to begin our discussion of our first quarter 2015 results. Don?

Thanks, Brittany, and good morning, everyone. Well, we have a lot to talk about on this call this quarter with some acquisitions, dispositions, and personnel appointments, in addition to a very robust development and operational updates. Jim will cover acquisitions, dispositions, balance sheet, some operations, and earnings points, and I will try to cover the rest before opening up to questions. I don’t think I have ever been as grateful for the arrival of spring — a spring of this year. Snow removal expenses topped $10 million in the quarter, doubled what we forecast. And while the strength of our leases allows us to pass through over 85% of those costs, residential, office, and some retail leases, along with vacancy, build from that recovery and accordingly our first quarter FFO per share were $1.26, which was negatively impacted by over $0.02 a share, good year for Boston in particular. Other than the weather, the company continues to perform well and in line with our expectations, and early anecdotal evidence suggests that cooped-up Northeastern shoppers are more anxious than in most years to get out and shop and eat as spring has arrived. We are certainly seeing that at Assembly Row. Okay, enough about snow. Rental income growth in the first quarter was strong at 9%, with same-center growth of 3.6%, despite only $500,000 in lease termination fees this quarter versus $1.5 million last year. Those fees are such an integral part of managing our business, and we always include them in our same-store numbers, as we do with all financial impacts to running the shopping centers. Sometimes they benefit the comparisons; sometimes they hurt it; we live with the new way. In terms of leasing, it was a good quarter. We completed 86 deals, 75 of them for a quarter million square feet of comparable space at average rents of $37.50, which is 11% more than the $33.70 per foot representing the last year in the former lease. Both leases with new tenants and renewals of existing tenants were profitable and grew at 16% and 8%, respectively. The capital included in those new deals was consistent and, in fact, a bit lower than last year’s first quarter, diverging much in line with the past couple of years, which I view very positively. California in general and Silicon Valley in particular continue to lead the market we do business in. In terms of leasing demand, exceeding supply and the product that we offer, with Boston and New York Metro following closely behind, is really strong. The other market we do business in, particularly Washington DC, is good, but is not exhibiting the same leasing power and strength that we are experiencing out west at this point in time. A few years back, it was just the opposite, reminding us how important the geographically diversified portfolio is, the business plan that provides us consistency and stability. Occupancy remains strong in the quarter with a portfolio of 95.4% leased, just slightly up from the 95.6% leased percentage at the end of last year and last year’s first quarter. On a same-center basis, we were 96% leased, up slightly from the end of last year. All in all, these are very healthy times in our business. Let me move on now and report some development news. The early success of Assembly Row made it clear to us that commercial and residential demand in and around the site wasn’t satisfied with the first phase. Earlier this week, our investment community and then Board approved the next phase of Assembly Row. This newest phase will include an expansion of the retail street in conjunction with the ground and the second-floor retail in the Partners HealthCare building. All in all, the additional 167,000 feet of retail for the project, 447 row apartments, the Federal will build to manage 155 rooms with Tico hotels to be owned in partnership with New England based XSS Group, the deal is not done, but is awfully close, and 117 for-sale condominiums sitting eight floors above the hotel. Excluding the condos, we have committed and appropriated up to $285 million for this phase and expect to yield an unlevered return of about 7% in the first full year of stabilization. Appropriated capital for the condos approximates $65 million, while we expect the leasehold net proceeds to be significantly above that cost; we are assuming breakeven in Phase II disclosed returns. Assembly Row continues to perform extremely well, but the only material portion of the first phase remaining to be leased is about half of a 100,000 square foot office building. Assembly Row and the adjacent Assembly Square marketplace have really begun to solidify themselves as an important new shopping and entertainment district in the market, which feels great. And when the second phase is completed in late 2017, early 2018, we will still have much more to exploit on this site. At Pike & Rose in North Bethesda, Maryland, you will see a fully leased and occupied residential building hold for sale. We only leased the first phase retail components of the project, with openings continuing through the summer and an office component with Merrill Lynch and Bank of America moving in as we speak and otherwise being negotiated on the balance of the space. We will begin leasing the second residential building called Palace next month, and the Phase II parking garage is well under construction and will alleviate limited parking pressures by September this year. Around that same time, construction begins on the next two buildings that will extend the main shopping street. We should have some pretty interesting retail leasing announcements over the next few quarters based on the interest that we’re seeing. Lots and lots happening at Pike & Rose. By 2017, we’ll have over $510 million deployed on that site in nine buildings before selling 104 condos, that is, 340,000 feet of retail, 757 residential apartments, 104 condos, 80,000 feet of Merrill Lynch anchored office, a 177 room Canopy branded hotel, and nearly 2,000 parking spaces. And like a family, we’ll still have much more notably on the site. The Point in El Segundo, California, will open up in late summer with additional tenant openings continuing through FFO and beyond. This intersection of Sepulveda at Rosecrans, with the addition of The Point and considering the adjacent Plaza El Segundo shopping center that we control and operate, has really become incredibly dominant and important to the beach communities. We expect it to become more so with the new centers open. At Santana, construction of the office building addressed as 500 Santana Row at the San Jose site continues on schedule and on budget. The continued strength of the Silicon Valley economy, strong job growth, and the growing reputation of Santana Row as a desirable office location has made us very bullish about doing deals in that state-of-the-art building over its remaining construction period. In terms of our important search for a Senior Vice President of our core shopping center portfolio between Boston and Washington DC, we’re down to two final round candidates and expect to make a decision announcement within a couple of weeks, maybe sooner. Fortunately, I have been really impressed with the quality of the candidates we have seen and feel really good that the enhanced focus on the shopping center side of our business will be fruitful over the next few years. On the mixed-used side, you may have read that our very own John Hendrickson was wooed away by Ramco Gershenson to serve as their CLO. Until that process began, John was promoted to his latest role at Federal. I think the world of John and wish him continued success. But this is the Federal Realty earnings call, and as such, I’m thrilled to announce that Dawn Becker will assume the role of Executive Vice President Mixed-Use Operations in addition to her General Counsel responsibility. As I said on last quarter's call, our company has grown significantly over the past several years, and the bifurcation of core and mixed-use is necessary to serve each. Dawn’s skills and background, her relationship with the senior team partners, and respect throughout this organization make her perfectly suited to this role. It’s a great ask. We’ve got more to talk about in terms of our most recent Florida acquisition, future acquisition prospects, and our exit from San Antonio, Texas, along with balance sheet and earnings considerations. For those and other items, I’ll turn it over now to Jim Taylor before opening up the line for your questions. Jim?

Thank you, Don, and good morning everyone. As Don covered in his remarks, this quarter has been an extremely productive one and a continued successful execution of our business plan. I will briefly touch upon some financial highlights, our balance sheet activity, acquisition, disposition transactions, and our outlook for the balance of the year. Overall, property operating income grew at 6.9% year-over-year, even with higher snow costs. As usual, same-store growth excluding redevelopment was the largest single driver of that growth at 3.7%. That same-store growth was driven primarily by rental rate increases, both contractual and embedded ramp-ups, and rollover versus occupancy. Redevelopment contributions from successfully delivered projects such as Hollywood, Misora, Santana Row, and Westgate were largely offset by the downtime as we redeveloped assets such as East Bay Bridge and Quince Orchard in Maryland, as well as with our lease termination fees this year. Developments at Assembly and Pike & Rose contributed approximately 250 basis points of growth, or approximately $2.5 million of POI. Finally, the benefit of the San Antonio Center acquisition in California drove the balance of the growth. In sum, each of the elements of our long-term growth plan that we articulated over a year ago continued to deliver. G&A increased approximately $1.1 million year-over-year due primarily to transaction costs associated with the closing of San Antonio at the beginning of the quarter, as well as slightly higher personnel costs as we build our platform for growth, as Don just discussed. Even with that incremental investment on a run-rate basis, we expect our G&A margin to trend below 5% as we drive topline growth and maintain strict discipline on expenses. Interest expense decreased by $1 million due to lower capped interests as we delivered approximately $300 million in development, offset by lower rates as we continued to bring down our weighted average costs. Bottom line, FFO grew about 7% when you adjust for the impacts of higher sale and transaction costs. Again, this growth was achieved while we continue to invest for the long-term. Turning to the balance sheet, we successfully raised an additional $200 million of third-year debt at an effective yield of 4.18%, a record in the REIT industry. We used the proceeds to redeem our 2017 6.2% notes, bringing our weighted average rate down to 4.4% and importantly, extending our average tenure to 10.5 years. Again, consistent with our long-term focus, we opportunistically executed upon historically low rates and a flat yield curve to capitalize our growth plans. At quarter-end, we had approximately $175 million of cash with nothing drawn under our revolver, providing ample liquidity for growth. Speaking of growth, on the acquisition front, we were very pleased to announce earlier this week the closing of CocoWalk for $87.5 million. CocoWalk is a 200,000 square foot lifestyle center located in the heart of Coconut Grove, Florida. With the trade area exhibiting some of the best demographics in Miami-Dade County, the vibrant street retailers in the Center Grove District serve the excellent year-round communities of South Florida, including the Grove, Coral Gables, and South Miami. CocoWalk was acquired on an off-market basis from an out-of-state private company with no local presence. We partnered on the acquisition with local specialists, Grass River Property and The Comras Company, whose on-the-ground presence and operating and leasing expertise complement perfectly our national mixed-use and retail platforms. We expect to drive significant value creation at this prime location through redevelopment and remerchandising. Also, please stay tuned, as we expect to capitalize on additional opportunities within this vibrant section of Miami-Dade County. On the disposition front, we successfully closed on the sale of Houston Street, following the end of the first quarter. We sold this for $46 million at a high cap rate, realizing a gain of $11 million on an asset where we saw limited future growth. Finally, during the quarter, we successfully integrated the acquisition of San Antonio Center in Mountain View, a truly phenomenal off-market acquisition with tremendous upside in the heart of Silicon Valley. We are pleased that even in this competitive environment, we’ve been able to find attractive investment opportunities in these highly desirable coastal markets. Turning to guidance, we maintained our range of $5.26 to $5.34 per share excluding the debt repayments. Let me offer some insight on the factors that will influence where we end up in that range. Each of these factors I’m about to discuss reflects careful decisions we continue to make as we invest in long-term growth. First, the sale of Houston Street. As I mentioned on last quarter’s call, this sale will be approximately $0.025 dilutive to our original forecast. Second, Don mentioned we incurred approximately $0.02 of snow removal costs beyond what we expected this year. Third, we expect the acquisition of CocoWalk to be neutral FFO this year given transaction costs, but we do expect it to contribute significantly following its repositioning and remerchandising. We are active on other acquisition opportunities and may incur additional transaction costs before we close anything. Fourth, we made a strategic decision to continue to invest in R&D, as Don just put it, investing in people on our platforms so that we can responsibly scale into the pipeline of value creation we have underway. Again, I believe that we have most of this investment covered in our numbers, though the transitional costs and other one-time expenses could impact our numbers by an absolute penny or two. Finally, on the investment side, we continue to aggressively pursue near-term tenant rollover and the related temporary decline in occupancy to create long-term value. This activity, along with lower-than-usual lease termination fees that we expect to realize versus the prior year, will likely cause our same-store NOI to decelerate slightly in the second and third quarters. But we still expect to average 3% to 4% for the year. Turning again to larger timing assumptions factored into our guidance, we expect to deliver approximately $375 million in developments and redevelopments this year. Some of the more significant deliveries include approximately $80 million of office space in Pike & Rose and Assembly, which is being delivered in the first half of this year. As I detailed last quarter, we have underwritten primarily 2016 rent starts to reflect lease-up timing and revised periods. The retail is fully leased in Pike & Rose, as Don just mentioned, with 85% of the space now open, including iPic Theaters, Del Frisco's, Summer House, City Sports, and Sport & Health. The balance of this retail space will continue to open as planned through 2015. Pallas, the 319-unit high-rise, which represents approximately $110 million of investment, is slated to open this summer and is expected to lease up over the following 18 months. Given that timing, we expect it to be a drag-down violator this year and early next as it reaches stabilization towards the end of 2016. We expect the planned redevelopment of Pallas House condo, which represents approximately $85 million of investment, to open in late summer and stabilize in 2016. From a capital standpoint, we expect to fund our approximately $250 million of development and redevelopment expenditures this year, as well as any acquisitions through free cash flow, long-term debt, our ATM, and our line of credit. As mentioned earlier, we remain opportunistic as it relates to interest rates, and we always look for ways in this environment to term out our maturities and reduce our weighted average debt cost. In closing, we have a lot of great opportunities delivering now for the long term. We couldn’t be more excited about how we continue to execute upon our plans, a plan that should reliably produce growth of 7% to 9% per year — growth largely driven by opportunities that we own and control today and moderated by our discipline to continue to invest in the long term. We look forward to seeing many of you at NAREIT next month. And with that operator, I would like to turn it over for questions.

Good morning.

Good morning, Jason.

I was curious when you're looking at the new T-SOP at their Boston, what your expectations were for shopper traffic and how that's kind of trending now that you are open and things are rolling?

We are just talking about that, Jason. When you look at the orange line, I don’t have numbers yet. I wish I did. We can get them in terms of who is coming off and who is coming on. When you think about it, while Phase I is open and the residential is open upstairs, traffic continues to build. Now, within less than two years we are going to have 4,700 employees, who are going to work there every day for foreign healthcare and you will have the second phase opening. So I think you will see going from zero upper rents, that’s pretty steady between now and the next few years. I mean, obviously, it’s a critical part to making that land a whole lot more valuable than it was before.

Okay. And then on staying on Assembly, is Phase II retail going to include outlet type tenants as well, or is it going to have a different mix?

It’s going to be a continuation of what is working so well in the first phase.

Okay. And then Pike and Assembly have some for-sale condos, what are those bringing to property and why those instead of just more apartments? I mean what's the analysis on why you put for-sale in there versus the rent?

Well, first of all, they make money. I don’t want it to be viewed as a subsidy if you will, it’s not a subsidy at all. We evaluate the markets and we believe we are going to make money on them. Even though we are very conservative in the way we are disclosing them in the 8-K, but I will tell you when you look at the communities that we are building, they are a critical part. These are living communities. They are not Disneyland. They are not pretty pictures on the front of the annual report. So it’s a half product within the apartment product. It’s not like we build the same buildings with the same consumer in mind or renter in mind; they are different products and this kind of row has showed us that in the best — has the best example. Similarly, having some level of for sale, now we are a public REIT, and we are certainly all about long-term interest rate. So we are not going to do a lot of for-sale units, but they have some of that product just like growing levels of apartment product that is critical to making the whole community work as one.

Great. Thanks, Don.

You bet.

Good morning. A question about the condos at Assembly Row. There are not a lot of comps in that immediate area and I was just curious if you had any idea on the numbers you are thinking about underwriting the sales prices there per unit or per square foot?

Yes. We do. We have done a lot on and thinking about it. And I can tell you that conversations that we’ve had not only with Avalon and the renters and how many of those folks are asking for sale units, but also with respect to partners and then coming in there and the kind of dearth of that type of product available outside of Boston. I mean, what we are building will be a far more urban condo product. And when you look at the comps up there — and I know they aren’t a lot of that math exactly. It sure feels like demand will significantly increase supply to 100 units or so. As specific conversations with Don Briggs while you are up there Jeff can give you a whole lot more. And we’ll be talking a whole lot more as we get underway. But the market research says this is absolutely the right thing to do.

And I’m just curious in broad strokes — how do you think about the rents at Phase II both multifamily and retail and how will they compare to the rents in Phase I, once you’re sort of stabilizing through any kind of initial presence?

Listen, we will see, right. We’re going to push hard — let’s talk about the retail first. The single biggest that we’ll be pushing harder in the second phase versus the first phase is more fixed rent, less percentage. And that should be attainable based on the success of the first phase. But overall, we would expect higher numbers, combined fixed plus percentage in the second phase than the first phase, and that’s simply less risk because of the first phase they opened. On the residential side, you can talk Avalon in their call stuff, but boy, they’re really strong. The rents they’re getting are really strong. And the product that we are building is differentiated. Remember, they built two types of product; they’ve got the AVA and the Avalon product in two separate buildings in Phase I. And so, just like we’ve seen at Santana Row, and kind of what I’ve just seen adjacent, there has to be a balance of product type there and one of the buildings we’re building there on the residential side is high rise. So those views will be a different product; those rents will be a bit higher, although we’re not underwriting them to be a bunch higher at all, whatever Avalon is achieving today. So we feel like we’re underwriting it very reasonably. We feel like the product will be a significantly differentiated. Do I expect there to be stabilization when you put a bunch of new product on the market? Do I expect there to see some rent pressure on the lease-up, particularly with the Avalon side versus this? I’d sure I do, but your questions are the right ones. Upon stabilization, I think you’re going to see a clearly underserved residential market here with a street that is just killer.

If I could switch gears, I guess, first I want to congratulate Mr. Hendrickson on his decision to seek a warmer climate in Detroit. I’m just curious on, I mean, last quarter you talked about creating a mixed-use in core property roll. It seems like the impetus there was just to focus personnel on those specific areas and so, no disrespect to Dawn, but I guess, why double up her responsibility? She already had a lot on her plate with her existing role.

That’s so funny because remember, she had the whole thing. It was clearly too much, right. She had mixed-use and the core, which was clearly too much, particularly when we’re bringing things like Assembly and Pike & Rose to fruition. So from her perspective, I don’t think of course — she is welcome to speak for herself. This is far more manageable for her. And on the core side, if you just think about it, Jeff, really as this stuff comes together, it clearly is hard to give each business the attention that each business needs when you’re delivering large projects like this. So having her work closely with Bridge, with Weilminster, with two deals that the team effectively, that is bringing mixed-use out makes all the sense in the world to us, and I think you’ll see it when you see the core team that we’re putting together too.

And just last question, there have been a few assets or a few markets, I should say, like San Antonio and maybe Chicago that have been, I think, always on kind of the wholesale trends over the year. You’re exiting San Antonio. I mean, now that you’ve got a more active acquisition pipeline, does that mean you might be more open to increase your dispositions?

Well, I don’t know that it’s increasing dispositions. Listen, we look at this stuff very, very holistically with respect to the company. Now, to the extent there is an asset or two or three — and there are not a lot of them in this portfolio that underperform. But to the extent there are, yeah, we are going to match them up with an acquisition. But, I think, if you took from those comments and went out and underwrote a bunch more dispositions, I think I’d be wrong. I don’t think you should. I think again it’s a one-off as occasions change. We’ve talked about Chicago forever, performing pretty well for us.

Okay. Thanks.

Yeah.

Thank you. I wonder what the current occupancy of CocoWalk is? And how long do you think it’s going to take before your impact on leasing is going to be felt on the project?

As it relates to occupancy, we are approaching 80% there, and the asset clearly has lagged behind the great resurgence that is happening there in the Grove District, Center District of the Grove, with rent on the streets significantly exceeding what’s there in the property. My point of view is that with Chris Weilminster and Michael Comras, our local partner, we are going to be getting after in the next 12 to 18 months, pretty meaningful changes in that tenancy, which has lagged and reflects a little bit more of a mix that might serve tourism than really the local community. So we think there is a tremendous opportunity there for us to get after soon.

Craig, look for a two, three, four years, that’s what for me.

And then what do you think your yield will be on the project after that stabilization?

We expect that yields will come in the low to mid 5s, and we expect that yield to be somewhere between 250 higher than that when we stabilize.

Hello. Good morning. And Don, congrats on the new position. Hopefully, we’ll see an increase in comp in the coming year for you?

Let’s hope, Alex, thank you very much.

Yeah. Thanks, Al.

Jim, you as well. Listen, Don does a lot and she’s obviously an integral part, so just like to see good people rewarded.

Did you have a question, Alex?

Just a few questions here. One, I don’t know if you commented on Assembly 2 with the condos? Are you planning on selling those yourself, or are you going to build them and then sell them both to a condo seller?

No. We will sell them ourselves, and when I say ourselves, we have a condo seller with us. But we will not effectively pre-sale them to the condo seller.

Okay. And then as far as, Jim, on the — you mentioned a number of items transaction expense. Obviously, there’s a prepay and then you reiterated guidance with the — excluding the prepaid charge. So just curious, are you guys planning to switch to a core FFO number, or will you report a reported FFO number on a go-forward basis?

We are following NAREIT’s definition of FFO. Our guidance really is intended to exclude the debt repayments, really to avoid confusion.

Okay. And then finally, Don, as you guys are more active on the acquisition side, are you finding it harder or easier to source privately on deals? Meaning that are the private owners looking at these cap rates and going wow, this is great? Or are they increasingly looking at values, going where else can I replicate my income streams, so I am sort of more likely to not sell product today just because I can't find somewhere to reinvest?

I’ll let me say one thing, Alex, and then Jeff is on the phone as is Jimmy, so they can add to it. We have never been able to kind of give you broad comments like that and say, this is what private owners are thinking and this is what public owners are thinking, etc. If you look at CocoWalk, and hopefully, over the next couple of months you’ll see additional stuff that we are talking about here. You will see, and certainly, when you look back and you see San Antonio Center, these are one-off decisions made by investors, both private and public, who have all sorts of different reasons for doing what they are doing. I don’t — when you look, we’ve done a billion dollars worth of acquisitions in the last few years. It’s not like we haven't done a lot; we do bigger ones. In every case, there is a different set of situations. So, I don't see that changing. I don't feel like that's changing right now.

Don, I think you hit the nail on the head. I mean, Alex, maybe a broad comment like that works for more commodity product, but given where we want to be and the type of property we want to buy, really is an individual decision, particularly with the private owners on every deal. And the reasons are many and what’s happened here respective of what’s going on in the capital markets.

Hi. Good morning, guys. Just for Jim, a couple modeling questions on the transactions thus far. You had, I think, a couple of $100,000 of acquisition costs related to CocoWalk in Q1. What are you expecting acquisition costs to be in Q2 and then what was the cap rate on Houston Street?

The expected total acquisitions cost Q1 and Q2 for CocoWalk will be about a penny, and the cap rate on Houston Street was in the high 5s.

And then do you have any additional acquisition or dispositions under contract or close at this point that you are working on negotiations?

We do, so stay tuned.

Thank you. Good morning. Just a couple of questions on CocoWalk. I wonder whether you can share with us, Jim, at this point regarding the remerchandising strategy there for levels 2 and 3. I think that’s where the vacancy has been concentrated? And can you also confirm whether you expect to maintain the fourth level as offices?

I don’t want to talk yet about plans by floor. But let me give you a little bit of perspective. It sounds like the asset is well — and in fact you’re right, the upper levels have struggled, as does second, third floor retail in many instances. We do have Cinepolis now as the theater operator who will be bringing in more of an upscale movie experience on the third floor, anchoring it, and they’re going to put significant capital and what they have there from a theater and experience perspective. We also will be bringing into those levels more destination type tenants—think Health Plus businesses, things like that. For the balance, we believe that the office market there is pretty robust and provides some opportunity, and we think there is an opportunity for other more destination-type tenants. Overall, we think the merchandising in performance to that asset significantly lagged what’s happening in the streets around it. That’s really what the asset has been in the last 10 years by an out-of-state owner operator and it’s the need of some remerchandising and repositioning which we’re excited to get after.

And in terms of your partners there, the local sharp shooters as you’ve labeled them. Can you kind of outline how the management of the property will operate and what the fee structure will be?

We’re paying market-based fees for the ongoing operation of the asset. We have in our local partner, Grass River Property, a group with operating expertise, which is actually located on the next block away from the property. Obviously, our team will be working with them to make sure the properties are operated well. And from a leasing perspective, we’ll be working with Michael Comras and of course, our own team to make sure we’re getting the right tenancy and merchandising mix in there.

And then finally on this property, Don mentioned, I think, in the prepared comments that we should stay tuned for more activity in Dade County. And I just wonder whether, if you do more acquisitions in that county, whether you use the same partnership or whether that will be done totally differently?

We would look at opportunities with this partnership. What we believe strongly is that local on-the-ground presence is critical to success. And particularly, Jim, in a market like this, we’re pleased with the type of opportunities that this partnership has been looking at together, and I think we’re well positioned to capitalize on that.

Thank you. Just a couple of quick questions on CocoWalk. Does this acquisition often mainly in the planning phase include maybe from other nearby acquisitions? It seems like there are other, not the same, but similar looking strip centers or lifestyle centers nearby that look challenging as well. Just curious if your overall master planning includes maybe assembling other products nearby?

That's a great question. The answer is yes! It doesn’t mean we are only focused on the mix in Miami. We consider a broader perspective of the area. If we can achieve what we aim to accomplish at CocoWalk and possibly acquire other properties, we would like to do that in the vicinity, as long as the numbers make sense. I don’t want to point to a specific strip center or power center, but rather think generally about retail and how we can leverage the business we plan to pursue to assist in that effort.

Okay. For the two, have you already started engaging some other owners about buying or is it let's get this part done first and then start that dialogue later?

Let’s leave this commerce. That’s another conversation.

Okay. So you don’t want to do it on the conference call. And just last question, when you roll out places like Santana Row, Assembly, or Pike & Rose. I’m sure you guys have done ton of studies, but the dollars that the market share you end up grabbing in whatever radius you pick, how would you describe the shoppers that end up coming to your center? Is it — or the dollars coming to your center, is that really coming from dollars that would have been spent at malls nearby or shopping centers? How would you describe that market share grab?

This is going to be anecdotal, much more than scientific gear, but the real answer to that, it’s just a combination. Certainly, we want to expand the marketplace. Certainly, we do. I mean, when you take a look at Santana over a dozen years now, we absolutely have expanded the marketplace. Have in certain instances, we’ve taken from other centers and other retailers; absolutely too. So, it’s a combination. It’s not one versus the other. The products in really all of those cases that we are trying to build is a community that works for the particular market that we are in. So as you know, Assembly is very different than Santana, and both are very different than Pike & Rose and we could go on and on and talk about the others. Each is different but they are aiming for a 25-mile radius around the particular center and producing a product that is just not available there. So it’s a combination of expanding that market and also some privacy.

Okay. Thank you. That’s it for me.

Yeah. Thanks, Steven.

Yeah. Hi. Real quick on Houston Street, just curious, what was the specific catalyst triggered to sale now?

Mike, it’s a great question. We look at all of our portfolio and really evaluate on a going-forward basis what the growth prospects look like, what our hold-IRR is. And as we look at that asset and a brilliant effort by Jeff and the team, we decided that this was the right time to sell it. We thought valuations would be strong. Actually, we were pleasantly surprised by where we ended up from a valuation standpoint. And we are pleased that we made the decision to move forward with that.

Mike, it’s the right time as Jimmy said; and also we wanted the assets to be in the best shape it could be prepared for sale. So when you look at the leasing that was done there, the West Coast team has run that and really put it in shape to be more marketable than it’s been. We’ve known for a very long time that we were not going to make San Antonio, Texas a hub of Federal’s acquisition activities. So it really was about getting the asset in the right position. We did some developments there with a new Walgreens a couple of years back and just made it more marketable, when you combined that with the current economic environment now is the time.

Got it. And then I know you touched on this before during your Investor Day, but when you are looking beyond Phase II of Assembly, beyond Phase II of Pike & Rose, how built out are those sites going to be after the Phase IIs?

Basically — I mean, I was just thinking about this for Pike & Rose. About half of Pike & Rose, about half of that and a bit more than half at Assembly wants to go and then think about Santana there. Think about — when you see — I don’t know if you’ve seen yet really what the mixed-use portfolio looks like. But the mixed-use portfolio also includes big pieces of land that we have shopping centers on, whether it’s Grant Park, Atlanta, whether it’s Pike 7, whether it’s Montrose Crossing. And similarly in the core, when you look at some of the assets in that core, there is a lot to do. So, yeah, I know all of our focus is always on and talk about with respect to Pike & Rose and Assembly. But truly, get up a notion higher and you will look and you will see acres and acres of really well-located big shopping centers that should be intensified.

Got it. Okay. That was it. Thank you.

Hey. Good morning. Just a couple ones for me here. Curious on what you are seeing or hearing from brokers on the pipeline for the back half of this year, for the type of products you’d be interested in buying and how that compares to six months ago, and hoping to get a sense of, if you are seeing perhaps a sense from sellers that they might be more willing to come to the table now, maybe reflecting a sense of anxiety over rates or the impact of asset pricing?

Haendel, as Jeff alluded to earlier, each situation that we look at is itself unique. It does feel like we are seeing some slight building in terms of opportunities, particularly those that are being brokered, but in terms of what our targeted list of assets is, it just really depends. It's too early to tell whether or not this recent volatility is really changing investor decisions as to what to do with these assets that we targeted, but we will see.

Okay. And you guys have stuck to the plan of spending $200 million to $300 million per year free desk for some time now demonstrating some discipline on capital allocation. I am curious if the highly competitive acquisition environment along with the success of your recent projects like Assembly Row and like supply in the community center space may make you perhaps consider picking up your redevelopments or expansion investment pace a bit here over the next year or so?

The bottomline is — and I know you get tired of me saying this, but this is all about the balanced business plan. So when you think about that pace as it includes redevelopment of existing shopping centers, all day long, we have pushed — we push as hard as we can. And frankly, I am hopeful that this breaking out of core and shopping centers in McHugh will actually help that over the next few years, certainly not immediate, but over the next year. So again, I am hopeful there. In terms of the big stuff that we do, I mean we are not a — I never want us to be 25% of this company being developed. So it is that balance. But by and large, this is a core shopping center company that truly takes advantage of the places that we’re in, which have gotten better and better over the last couple of decades to intensify them. That will continue and I hope it actually goes up a little bit in terms of the core portfolio.

Appreciate it, guys.

Thanks, Haendel.

Hi. Good morning. Taking a look at sort of the DC market, it’s been for a couple of quarters being concerned over multifamily for rent supply, but can you sort of talk about the for-sale product in the DC area and what the status of the supply is there?

I can’t. No, as we think about what’s happening in this particular market, North Bethesda, what led us to go with the condo product has actually been a lot of unsolicited demand. So we feel pretty confident based on the basis that we are coming in and where we see the current sales prices for condos in this particular region that we have significant upside. And certainly based on early indications, we will have significant demand.

But Vineet, that wasn’t your question, I mean we couldn’t be more optimistic about the 104 for-sale units at Pike & Rose. With respect to the entire Metro DC market, as you’re asking about in terms of for-sale product, now there is really not much more we are going to add to that.

Okay. Fair enough. And then I guess taking the DC silver line has been opened for some time and the roadwork in that area is complete. Can you sort of talk about the sales trends at Pike 7 and how they compare to the preconstruction environment in that area?

Yes. Pike 7 blows me away. When you’re sitting, you think about a kind of a community center with a parking lot in front of it. One story of REIT — one story of retail, you would never think that — you would think about stuff to coming up at least. Well, it’s the opposite. With what’s happening inside them, with all of that congestion titles with the silver line with all of that done, that center has done remarkably well. Sales were off a few percent and that center during all that construction, they are well back above where they were before. It’s stronger than ever. And when you think about it, it’s one of the few shopping centers that produce such easy to park in front and walk in in a market that is totally under construction right now. So silver line is definitely a positive thing for that piece of land, certainly it may be intensified as we go forward, as the leases come up over the next five years, or something like that. But in the meantime, we are doing really well there.

Okay. And then just lastly, I think a couple of quarters ago you spoke about how the retail tenants sales are coming in relative to the budgets at Assembly Row, can you sort of walk through the same for Pike & Rose if it’s not too soon?

I can’t. Pike & Rose remember what we did, it’s different than Assembly. Assembly, what we did primarily is built out the street and not only primarily almost totally built out the street and put in our big boxes, and Avalon does the residential, but the street was key. At Pike & Rose that was a different strategy, because there was an existing shopping center on the site, made by Plaza which was doing extremely well even up till the time we knocked it down. That project was basically a residential project in the first phase. So there isn’t critical mass of the retail, which is why we did in that first phase, feels like eye-tech, which is killing it, as you know. Sport & Health, which is a local, regional health club operator that is really well known and strong. That’s why we do restaurants like a Del Frisco's Grille, like a Summer House, doing very well. And with respect to the retail, that’s why we went with National like GAP and City Sports there to kind of round it out. Those guys are doing fine, not nearly as good as they will do with the second phase opened up, which is why we are working so hard to construct that second phase. Now then that will have created the street that feels very much like Assembly.

Okay. Well, thanks for taking my questions.

Sure.

Thank you, everyone, for joining us. We will start to see you every week in New York in the coming weeks.