Greetings, and welcome to Federal Realty Investment Trust fourth quarter 2019 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Ms. Leah Brady. Thank you. You may begin.
Good morning, everyone. Thank you for joining us today for Federal Realty's fourth quarter 2019 earnings conference call. Joining me on the call are Don Wood, Dan Guglielmone, Jeff Berkes, Wendy Seher, Dawn Becker, and Melissa Solis. They'll be available to take your questions at the conclusion of our prepared remarks. A reminder that certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results. Although Federal Realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty's future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained.
The earnings release and supplemental reporting package that we issued yesterday, our annual report filed on our Form 10-K and 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. Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person during the Q&A portion of the call. If you have additional questions, please feel free to jump back in the queue. With that, I will turn the call over to Don Wood to begin the discussion of our fourth quarter results. Don?
Thank you, Leah. Good morning, everyone. For the 10th year in a row, FFO per share was higher than the previous year, excluding of course, last quarter's Kmart real estate acquisition charged to the income statement for accounting purposes. Barring some unforeseen collapse, 2020 will be the 11th year in a row, as Dan will talk about in a few minutes. Please let that sink in. We've grown earnings, bottom-line earnings, every single year over this past decade and expect to do so again next year. Yes, growth has slowed as the industry continues to morph into something different, but it's still growth, and there's not a single other publicly traded strip peer that can make that claim. In fact, of nearly 200 U.S. equity REITs in every sector, less than 5% were able to grow FFO per share each year.
Not surprisingly, those companies have a combined average multiple of nearly 21x. One of the things that differentiated Federal a decade ago when growth slowed following the 2008 recession, was the way we relied on our balance sheet strength and broad skill sets to move forward with initiatives that would power us in the years that followed, but which were not helpful with generating immediate earnings. We aggressively moved forward with master plans for Pike & Rose, Assembly Row, other long-term initiatives despite the challenging environment. As a result, we were able to outperform as sentiment changed because we were that far ahead. This feels like that to me. This time, rather than dealing with a broad recession and planning large decade-long mixed-use projects, we're dealing with oversupply and changing consumer preferences. We're doing equally forward-thinking things.
Things like doubling down on already successful mixed-use communities with less risky and mostly non-retail additional phases that capitalize on the communities we've already established. We're constructing new mid-size projects like CocoWalk in Miami and Darien Shopping Center in Connecticut and listening to what retailers, restaurants, and the communities they serve tell us about what's important to them. By the way, if you look at our year-end balance sheet, you'll note $760 million of construction in process, more than we've ever had in our long history. We're aggressively moving forward with solidifying our core portfolio by proactively acknowledging the haves and have-nots among retailers and shopping center environments. We're beefing up incredibly well-located, high-quality centers for the next decade with better tenancy, with alternative and additional uses, and with attractive placemaking using sustainable methods and environments. We're recycling assets with little opportunity for future growth.
Nearly $300 million worth at Plaza Pacoima, Free State Shopping Center, the office over retail building in Hermosa Beach, California, and the Kohl's portion of San Antonio Center. We're reinvesting those proceeds in far better opportunities in Hoboken, New Jersey, Brooklyn, New York, and Fairfax, Virginia. In other words, in a naturally cyclical business, we're always focused on growing long-term FFO per share, no matter what the current environment looks like. Let's talk about the transactions that closed in the fourth quarter to demonstrate the point. We did what we said we would do. First, we received the full $155 million in December from the Los Altos School District for the 12-acre portion of San Antonio Center through the condemnation process we've been discussing for months now.
The elevated cash position on our year-end balance sheet reflects this, and while we have the obligation to use a portion of those proceeds to pay existing tenants on the site, the timing and amount of those payments is uncertain at this time, but the net value to us is more than a little impressive. We also closed on Costco-anchored Plaza Pacoima in Los Angeles in the quarter for $51 million. When these fourth-quarter dispositions are combined with the sales of Hermosa, Free State, and a couple of smaller parcels earlier in the year, $300 million of capital was raised at a mid-four cap rate based on expected 2020 cash flows. When we recycle that capital into Hoboken, New Jersey, where 37 of the 39 buildings we bought in our new partnership closed in the fourth quarter.
The other two buildings will close this month. We also closed on Georgetown Shopping Center in Brooklyn, and in January, the retail strip adjacent to our previous holdings in Fairfax, Virginia. 300 million invested in properties which generate a going-in yield modestly in excess of the assets that were sold with an IRR that's 200 basis points higher. We expect to be able to expand further given that Hovnanian partnership and the opportunities we're seeing. Transactionally, the fourth quarter was extremely active. Operationally, it was too. We ended 2019 having signed 457 retail and office leases for nearly 1.9 million sq ft at average rents of $41 a foot. We signed more than 2,300 residential leases at average rents of $2.82 per foot, $34 per foot per year.
Just the retail and office leases combined created $77 million of growing annual contractual rent obligations for the next 7+ years. Our rental stream comes from an incredibly diverse set of retail, office, and residential tenants. On the development side, we're incredibly active with 700 Santana Row complete and just turned over to Splunk last week. $210 million, which is on budget and yielding 7.5%. This building is a home run at the end of the street anchoring Santana Row. Really something you should check out on your next trip to Northern California. It's impressive. Across the street at Santana West, construction is well underway. Roughly $100 million of spend in 2020, $150 million of spend in 2021 with no income until 2022. Strong interest in the building at this very early stage is encouraging. Full-blown construction at Assembly on both the residential and the office building continues unabated.
Both projects are on schedule and on budget. Roughly $200 million of spend in 2020, $100 million in 2021 with no significant income contribution until late 2021. This is one big development phase that'll really change the feel of Assembly Row. Puma's North American headquarters is the office anchor there. Construction of 909 Rose, the flagship office building at Pike & Rose that'll house Federal's new headquarters in August of this year, is on budget, is on schedule with roughly $50 million in spend expected in 2020. We're currently trading paper with other tenants for more than 40,000 sq ft in line with our underwriting. CocoWalk is moving along beautifully with 87% of the retail space and 57% of the office space spoken for under signed lease or fully executed LOI.
Another $30 million of capital is programmed there for 2020. Income will begin to be generated here later this year. Finally, we can now say that demolition and construction are underway at Darien, where we will completely change the character of the grocery anchor shopping center, where we will add 75,000 sq ft of new lifestyle-oriented retail space to complement our strong Equinox anchor, 122 apartments and 720 parking spaces directly adjacent to the Noroton train station in Darien. $120 million at an incremental 6% yield with $25 million spent in 2020 and most of the balance beyond that. No incremental income here this year or next. I go through the status of just those large development projects for obvious reasons. Our balance sheet at year-end shows $760 million of construction in progress.
While the Splunk building at Santana delivers this year and will reduce that number, an additional $400 million or so will be added in 2020 and $300 million in 2021 before these projects are turned over to rent-paying tenants after that. Back to the remarks I made initially. We're doing a ton of investing in leading-edge real estate projects and markets as we look toward a very bright but different future with changing consumer demands and retailer business plans. We expect to be at the forefront of that change, all while continuing to grow FFO per share, albeit more slowly in the near term. That's about it for my prepared remarks. All the focus on short-term occupancy, current earnings, and lease-up expectations at this uncertain time is understandable, and it's certainly important.
A company's clear path to growth and mid- and long-term relevancy of its real estate long after the current vacancies have been leased up is, in our view, far more important. Let me turn it over to Dan before addressing the questions. Dan?
Thank you, Don. Good morning, everyone. Another record year of FFO per share as we posted $1.58 for the fourth quarter with a full year for 2019 at $6.33 as adjusted for the acquisition of the Kmart at Assembly. An uptick in FFO versus the same periods in 2018. Remember, in 2019, we faced an increase in G&A of roughly $0.02 per quarter from the new lease accounting standard. The numbers in the fourth quarter were driven primarily due to higher term fees and higher rental income than last year, offset by a shift in timing on property-level expenses, both from real estate taxes, where a meaningful forecasted tax refund was pushed into 2020, and non-recoverable property-level expenses, which were pulled forward from 2020.
Both of these are primarily timing issues that should come back to us positively in 2020, but represented roughly $0.02 of drag in the quarter versus forecast. While this quarterly FFO result may seem muted, this was driven primarily by timing. We had a really successful quarter in terms of all the positive activity Don highlighted in his comments. Our comparable POI metric came in at 2.4% for the fourth quarter and 2.9% for the year, basically in line with our previously increased annuals. With respect to retail space rollover, the 99 comparable retail leases during the fourth quarter for 462,000 sq ft were written in at an average rent of $37.78 per sq ft, 7% higher than the prior rent. Those results closely tracked the 379 Full Year 2019 comparable deals, which were written at $40.48 on average, or 8% higher than the deals they replaced.
Our portfolio remains well leased at 94.2%, though we do expect that to move lower in the first half of 2020. While we don't typically provide guidance on our occupancy metrics, given the aggressive level of proactive releasing and some of the recent retailer fallout, we expect our occupancy metrics will trough in the first half of 2020 to the mid 93% level for leased and the mid 91% range for occupied. However, we should see a steady rebound back up to historic levels over the latter half of 2020 and into 2021, given our strong pipeline of leasing activity. A few additional comments I'd like to highlight in our disclosure this quarter that further demonstrate the strength in our business that is not directly reflected in the quarter's numbers.
On our development schedules in the 8-K, please note on page 17, we closed out another $50 million in projects, in four of them, on time and on budget. On page 18, we raised our projected yield on One Santana West to 7%, reflecting continued strength in rental growth of that sub-market for the amenitized office product we offer there. Why do I mention this? It's because the redevelopment and mixed-use development we do is challenging, and it's really difficult to execute effectively. Through Federal's experience and 20-year track record, we have meaningfully de-risked these parts of our business model. We'll turn to 2020 guidance. We have formally provided a range of $6.40 to $6.58 per share. This formal guidance takes into consideration some of the projected tenant failures that have occurred since our late October 3Q call, A.C. Moore, Pier 1, and Fairway the most prominent.
We felt it prudent to take a more conservative posture as these restructurings play out. This range represents 2.5% growth in 2020 FFO at the midpoint. While this guidance range reflects some discrete headwinds facing us in 2020, which I will get to shortly, our diversified platform is executing on all cylinders, as evidenced by delivering 700 Santana Row to Splunk last week at a return in the mid-7s. The stabilization of the phase twos at Assembly and Pike & Rose. Delivery of smaller projects over the course of 2020, including the Primestor JVs Freedom Plaza, AKA Jordan Downs, beginning delivery to start this year. Bala Cynwyd Residential opening in Q2, and a newly renovated CocoWalk expected to start delivering to tenants in the second half of the year. While none of these smaller projects will meaningfully add to 2020, they will be additive in 2021.
We also have the stabilization of the $50 million of redevelopment at a blended incremental yield averaging 9%. We also have a core portfolio excluding headwinds caused by term fees, repositionings, and recent tenant failures, which otherwise would deliver comparable growth in the 2.5%-3% range. Also note that we executed on roughly $300 million of new investments and over $300 million of non-core asset dispositions during 2019, which will be a couple cents accretive in 2020, but provide more meaningful value creation and growth over the longer term. What other retail REIT can tout an asset recycling program that's accretive to FFO in year one? These items together would drive FFO per share growth into the 6%-7% range, if not for some discrete but somewhat disproportionate headwinds. Let me give some additional color. First, term fees.
We had a record year in 2019, earning over $14 million in gross fees. Whether it provides headwinds or tailwinds, we include term fees in our metrics because it is part of our business, and the overall strength of our lease contracts provide us with a competitive advantage we can leverage over time. While we expect a strong year again in 2020, we do not forecast getting back to 2019 levels. Therefore forecast a meaningful drag here. A second headwind. Late last year, we identified several attractive proactive remerchandising and repositioning opportunities across our portfolio and continue to evaluate additional opportunities which will drive significant longer term value creation, but at the expense of 2020 FFO.
Changing out struggling retailers with limited runway in terms of long-term relevancy and replacing them with tenants who we project to be thriving in 2030 and beyond, will be another source of 2020 drag. Add in the forecasted impact from the recently announced retail failures on top of those previously identified, such as Dressbarn. Collectively, these items get us to a range of 1%-4% FFO growth in 2020. With respect to other assumptions behind our guidance. Comparable POI growth is expected to be at 0%-2%, which reflects the headwinds we just highlighted. The first and second quarters of 2020 will be the weakest and may even be negative due to term fee drag. We assume roughly 100 basis points of credit reserve comprised of bad debt expense, unexpected vacancy, and rent relief. This is roughly in line with past year's projected reserves and actuals.
Please note that projected lost revenues from the recently announced tenant failures previously mentioned have been incorporated into our guidance and are not part of this reserve. With respect to G&A, we forecast roughly $11 million per quarter, up modestly from 2019's run rate. On the capital side, we project spend on development and redevelopment of roughly $450 million-$500 million. As is our custom, this guidance assumes no acquisitions or dispositions over the course of the year. We will adjust guidance for those as we go. Finally, we're projecting roughly $60 million-$80 million of free cash flow generation after dividends and maintenance capital. Now on to the balance sheet. As has become a Federal Realty custom, we have positioned our capital structure exceptionally well to handle the current wave of value-creating development or redevelopment activity at the company.
We finished the year with over $100 million of excess cash and nothing outstanding on our newly expanded and extended $1 billion credit facility. Our net debt to EBITDA now runs at 5.5x . Our fixed charge coverage ratio holds steady at 4.2x . Our weighted average debt maturity remains near the top of the sector at 10 plus years. The weighted average interest rate on our debt stands at 3.8%, with all of it effectively fixed. Our A-rated balance sheet, equipped with a diversity of low-cost funding sources, allows us to execute our diversified business plan with a meaningfully lower cost of capital than anyone in the sector, which is another way we de-risk the development activity we have underway.
Our game plan for 2020 has all the components in place to position Federal for sustainable outperformance in both FFO and NAV growth over the next decade. That's all I have for my prepared remarks, and we look forward to seeing many of you in Florida in a few weeks. Operator, please open the line for questions.
Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for our first question. Our first question comes from Nick Yulico with Scotiabank. Please proceed with your question.
Thanks. Just first question on the guidance. If you look at the FFO range you put out versus the goalposts you talked about on the last call. You mentioned that A.C. Moore, Fairway, and some others, I think, affected things. Was there also a decision to start more redevelopment? Is that also causing any additional drag versus what you expected last quarter?
No, I think, Hey, Nick, by the way. Good morning. Yeah, it was really just taking a more conservative posture as we looked at some of the news that has come out since late October, three and a half months ago. Really, that was the primary driver.
Okay. That's helpful, Dan. I guess the second question is, as we think about this year, you talked about earnings growth being affected by a few significant move-outs that are unrelated to tenant bankruptcies. You've always been sort of ahead of the curve in terms of re-merchandising boxes. This year is clearly a more impacted year than most. What I'm wondering is this a function of the retail environment, and is it going to be a new theme in the Federal portfolio? How should we think about risk of there being a similar type of downtime vacancy impact in 2021?
Yeah, Nick, well, let me start on that. We've taken a very holistic approach to all of our centers and really trying to take a look at where we believe these things will be more powerful in 2025 and 2026. That means the notion of place and place-making. It's always been an important part of what we do, but it's a bigger focus in terms of what we're creating, including the type of co-tenancy that is happening there. Clearly less clothing, if you will. More experiential type of stuff, including health and beauty, including food and different food sources. We look at this holistically as a major change in how retail and centers, including mixed-use centers, serve their communities over the next 10 years. As you know, our stuff is not in the middle of the country, generally.
It's sitting in the coast, in populated areas with lots of money and lots of people around. We are forward-thinking, if you will, in terms of that, and it's not just about backfill and space.
Does this continue? Yeah, I do think it continues, because I think this is a major change in how people are going about their lives when it comes to interacting with retail. We do it on a balanced basis. There's nothing more important than that to us to note that as a public company, we can't tell you, "Well, our earnings are going down, but it's going to be great in the future." We need to balance both of those things, current earnings, along with the sustainability of great real estate. That's the needle that we thread.
All right, Don. Yep, that makes sense. Just last question is on the releasing progress on the spaces that are a drag on 2020 NOI, for example, Kmart, Assembly, Stop & Shop, Darien, and the Banana Republic at Third Street in Santa Monica.
Yeah. Let me go through those because those are big ones. The Kmart at Assembly, we made temporary lease up, the space. The purpose of that was, that's an acquisition to be developed, and that'll be a continuation of Assembly Row. We've got entitlements to do. That takes a couple of years. The timing and the planning is necessary. We'll certainly look for some kind of mitigation, if you will, of the lost Kmart rent, but it's not the driver. The driver is the value that'll be created on that six acres, which is why I still don't understand the accounting that has it go through the P&L, frankly. That is an acquisition all day long. Come up to Darien. We are now under construction. That Stop & Shop is gone, going away. As a result, that'll be a completely different use on that parcel.
You won't see income contributed there. We're not trying to backfill the Stop & Shop. We knock it down. The whole notion there is how to create a whole bunch of value on a piece of land that was obsolete. That shopping center wasn't needed as another grocery anchored shopping center at that train station. Look forward to that in the coming years. In terms of Banana, Jeff, I don't know how much you want to say at this point. We're making some real good progress on backfilling that at an incremental way.
Yeah. Thanks, Don. Nick, we can tell you more, hopefully next quarter. We're down the road, but not to the point where we can really give a lot of detail on the leasing progress there because we're in negotiations. More to come on that one, but trending in the right direction.
Okay. Thanks, everyone.
Our next question comes from Christy McElroy with Citi. Please proceed with your question.
Good morning, guys. Thanks for the call out on our conference for promoting it. Don, you talked about $400 million of additional spend in 2020, $300 million in 2021. I know you have many options for capital raising to fund that. Just sort of generally, how should we think about the mix? Dan, you said free cash flow this year is $60 million-$80 million. You've also got equity issuance as an option. How should we think about the potential for additional dispositions as well?
Yeah, that'll always be part of our plan now, Christy. First of all, let's start with the balance sheet that you're looking at, which has over $120 million of cash on it. Starting out with a balance sheet that, as you know, is about as strong as can be, including a completely unutilized billion-dollar credit line. That's not a bad start. On top of that, there's no doubt we will continue to recycle the portfolio that you should still assume, and I'd love to say $150 million or $200 million of dispositions, but the reality is that's very opportunistic and it depends. We just did $300 million last year. We did much less than that the year before. I don't know exactly where that'll be in 2020, but it's part of the program. It's part of the capitalization, if you will, of the company.
We're comfortable in doing that because of the uses of capital that we have to reinvest. Between the existing balance sheet capability, along with asset sales, along with cash flow generated by the business, we're more than covered, I think as, kind of we've shown you for the past 10 years.
Okay. Dan, thanks for all the color on sort of the drivers behind the comp POI range. I'm wondering if there's any properties that are sort of entering the pool in 2020 that have sort of an impact there. In regard to the term fees, it sounds like they'll be relatively back-end loaded through the year. I'm wondering if you could say how the 2020 absolute amount is supposed to come out in FFO relative to the $14 million in 2019.
Okay. Maybe I'll start with the term fee question. $14 million is significantly in excess of our 20-year average, which typically is about $5 million per year per annum. Over the last 10 years, it's been about $6 million per annum. Maybe a better way to look at it, because we've grown over time, is it's roughly the 80-90 basis points of total revenues. That creates a bookend of maybe $5 million-$8 million of term fees, which is kind of what we have currently in the range. We don't expect to get back to the $14 million level. I wouldn't say necessarily it's back-end weighted.
We'll probably have a little bit of a tougher headwind in the first quarter from term fees because we had such a big one in the first quarter of [uncertain] .
Got it. Yeah.
With the Lowe's term fee at Orchard Supply. With regards to your first question, could you just repeat it?
Yeah, sure. Just what's entering the pool in 2020 that might have an impact there?
There will be some things moving around. They won't be materially kind of moving things. We are going to move the residential at Assembly Row into the pool. We're going to be moving phase I of Pike & Rose, as well as the residential and phase II into the comparable pool. We'll probably also be moving Towson residential. All of those have stabilized, and so there won't be a material boost that you'll see from those entering the pool. They've stabilized for the kind of one-year seasoning we do as part of that methodology for comparable. You won't see a big boost there.
Okay. Thanks, guys.
Our next question comes from Samir Khanal with Evercore. Please proceed with your question.
Yeah, good morning, guys. I guess, just shifting subjects a little bit here on the acquisition front. You guys were pretty active in 2019, kind of wondering what's in the pipeline at this time.
Samir, you don't want me to give you the LOIs that we've got, right? At the end of the day, our pipeline for acquisitions does change all the time. There is no question that we were heavily focused on the New York metropolitan area in 2019, and that will stay. We will continue to try to increase our holdings in those markets where we just entered. By the way, the same thing for the Northern Virginia market. That doesn't mean something else won't pop up. One of the things that we are noticing right now are clearly more sellers who are looking to get out for all the reasons you would assume. The trick for us is making sure that we're picking up assets that we believe in the long term for.
That could even be a box center in a place or two, but it really depends on the metrics. There isn't anything that is imminent at this point, but you should see us active, if you will, throughout 2020, particularly in the areas that we've targeted for future growth.
What about on the disposition side? I know you guys, you've kind of had the strategy to sort of dispose some of the non-core assets. You were a little bit active at last year. How should we be thinking about that sort of disposition volume possibly in 2020 from a modeling perspective?
Yeah. I don't know how to say too much more than I did on the first question to Nick. I don't know whether the number is $150 million or $200 million or what it should be. I will tell you, we've identified assets that we would like to dispose of because we have things to spend that capital on. In the preparation for those packages and figuring out what makes sense in the marketplace, we do that very opportunistically, there is not a budgeted number, if you will, that you can just put in the model of how much dispositions we would have. You should assume that anywhere from $0 to $200 million or $250 million is what we have historically done, we'll approach it the same way in 2020 as we have over that period of time.
Okay, thanks.
Yep.
Our next question comes from Derek Johnston with Deutsche Bank. Please proceed with your question.
Hi, good morning, everyone. We're going urban, Hoboken and now Brooklyn. Can you go through the near-term opportunity at Georgetown Shopping Center, mark-to-market opportunities, merchandising improvements, your planning? They have a Fairway, they had a Dressbarn, a GameStop, a buffet. To be fair, some stronger retailers, Starbucks, Carter's, Five Below, Chipotle. The question is, what's the near-term plan, and where are you actually going with this longer term? It's a nine-acre parcel, and it has 575 parking spaces.
Derek, let me just start something. I'm going to ask Wendy to jump in there after that. We're going urban. We've built around the density and the population centers. I don't think there's any change in Brooklyn, N.Y. than there is of Bethesda, Maryland or Santa Monica, California or Fairfax County, Virginia. That is what we are. We're those close in suburbs, if you will, of major CBDs. I think, frankly, a grocery anchored shopping center, with the density that Brooklyn has at the price that we got it at, was hard to pass up, to tell you the truth.
Obviously, we underwrote the weakness in Fairway as part of that underwriting process. Didn't know and still don't know the timing in particular of what we can do there. We know that demand for grocery there is ridiculously strong. You should assume that will be a grocery anchor shopping center in the middle of a very densely populated area with rent upside based on how it was previously managed and run, compared with how we will prospectively run that shopping center. You shouldn't expect it to be torn down and something else happening there. You should expect that to be a really, in my view, hopefully better run, higher rent, better tenanted nine-acre park, open parking lot in the middle of Brooklyn.
Okay. San Antonio Center certainly seems to have worked out fine. I think you guys paid around $62 million in 2015. It was sold under condemnation for the $155 million. When will you have to pay out the tenant award portion from the proceeds? Can you share how that's determined and how that works?
Jeff, you want to take it carefully?
Yeah. It's going to play out over the next couple of years. We've been able to work things out with most of the tenants, but not all of the tenants. Still TBD on that. The process is relatively straightforward and mechanical. It's not going to start for a couple of years. Don, I don't know if there's much more than that that we'd want to add.
Well, the only thing I would point you to, is the financial statements where there is a recorded gain and obviously inherent in that gain, is an estimation of the expenses that have to be paid out. I hope that's helpful. You should know that is by design very conservative.
Thank you, everyone.
It's very conservative, but it's actually in excess of what we expected. We had kind of guided folks to kind of net proceeds after those payments of $90 million-$100 million. Net-net, we're closer to $110 million. That's with a conservative estimate. Obviously a good result and better than we had hoped.
Thanks, Dan.
Our next question comes from Craig Schmidt with Bank of America. Please proceed with your question.
Thank you. Yeah. On page 17, you break out the delivered projects which are returning at 9%, and then the active redevelopment projects which are delivering at 6%. I wonder if the 6% is the new norm, or is this just a temporary mix issue?
Yeah. Well, a little bit of both, Craig. I think that's a great question. The reality is, man, construction costs are high. They're significantly higher than they were a couple of years ago as we started these other projects. That's certainly part of it. I don't know whether it's half of the difference or whatever else. The other half is certainly mix. You can see that Darien has a disproportionate piece in it. That's a complete redevelopment of a shopping center. One of the reasons we're willing to do a Darien or something like that at an incremental six is because of the nature of the project and where we believe the future in that asset goes.
This isn't the same as putting a pad out in front of a shopping center where the new income is the new income, and that's what it'll be for 10 years. At something like Darien with a big residential component too, you should say, "You're darn tooting we'll do Darien at six," because of the incremental rent increases we expect to get not only on the residential side, but in terms of the lifestyle part of the center as it gains traction. You've got a big mix component in that, but also, as I said, construction costs are up.
Great. In terms of re-leasing space like A.C. Moore or Pier 1, can any of that occur before the end of 2020 or is that all a 2021 event?
There's nothing better than me looking at Wendy here right now. Because I love that you asked that question. Wendy.
Thank you, Craig. I do think that we will be able to do some of the re-leasing and get those documents signed in 2020. In terms of them opening, I think you'll see that more in 2021, but we do have some strong activity in the pipeline right now, which gives me encouragement that we will get a fair amount of it done in 2020.
Great. Thank you.
Our next question comes from Jeremy Metz with BMO Capital. Please proceed with your question.
Hey, good morning. Don, Dan, I just wanted to go back to the growth topic again. You guys mentioned growth this year, growth next year, and obviously appreciating you're in this for the long game. You also specifically detailed a number of projects in your opening remarks, which was clearly helpful. It sounds like income will be a little more phased and possibly back-end loaded through 2021. Just broadly thinking about a bridge, is it fair for us to be thinking we should have some tempered expectations at this point for any sort of big re-acceleration or any re-acceleration of growth next year? Obviously, recognizing there's a number of the moving pieces in the pipelines and the repositionings you guys have talked about.
Yeah, Jeremy, you understand it well, and you've kind of laid it out really well there. There's clearly uncertainty in our business. I love what we're doing in terms of what the capital that we're putting to work. Its contribution, as you said, will be later in 2021. The big question, and answer to your question, is how many holes are there at the bottom of the bucket? That's what is, for anybody in this space, in retail space, the big unknown. It does make it harder to predict. It does make it harder to say, "Okay, growth will go back to this number on 6th May 2022," or something like that.
All we think we should be doing is looking toward making sure this stuff, all of this portfolio, is extremely relevant and as good as it's ever been and better, as we go through the twenties. Balancing it to keep growth in place, but not knowing when we're able to really accelerate to another level is just the facts today, and I would tell you it's the facts with everybody, no matter what they tell you. The difference is, we got $1 billion of incremental capital that will create that incremental growth going forward. What's the negative coming out of the bottom of the bucket? That's the unknown.
Yeah, that's fair. Dan, just a quick one. You mentioned the 100 basis points of credit reserve. You also mentioned A.C. Moore Fairway, Pier 1. Just wondering, are those baked into that 100 basis points that you're giving yourself, or are those on top of the 100 and that's separate? Thanks.
Yeah. Our guidance reflects a projection of what lost revenue we should achieve or what we'll be hit with in 2020. That's reflected in our guidance. If we deviate and it gets more negative, then that's covered in the reserve. Kind of an expectation of how things will play out with regards to those recently announced retail failures is reflected in the guidance, and then a reserve on top of that if it's worse than we project.
Got it. Thanks.
Is that fair?
Yep.
Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey. Good morning. Just two questions from our end. First, Don, you've spoken before that you guys are a retail company. You do office, you do apartments, but at your core, you're a retail company. That said, office has definitely been a bright spot this cycle. As you guys think about where you're going to spend on development pipeline or the assets that you're looking at, are you having your team focus more on assets or opportunities that could involve more office? Your view is, look, we're a retail company focused on retail. If it has office, if it has residential, great, but retail is our core.
I guess, Alex, the best way for me to say it is we are real estate people, the best thing that we can do with real estate is use retail to be able to get people to come to that piece of property that we have. There is always a how do we get people to come to our real estate as the primary driver. Now, what can we do with it absolutely involves other real estate uses. I think we've proven that. I think what you've seen in the past number of years from us is actually just the natural evolution of mixed-use properties where you create that retail environment and then add residential or office or hotel or incremental uses that play off that retail. That will continue.
It doesn't mean we won't do a pure retail play like in answer to the previous question we did in Brooklyn, when we have our bread and butter and we know how to create value from increasing rents in a net dense environment. When you have other uses that include Hoboken, which has a large residential component to it, or as you see what it is that we're doing, obviously at Santana or Darien or CocoWalk, we're going to look at it with a broader view, I think, than other folks in the shopping center world. We don't do that for just one or two projects. We do that with every possible piece of real estate that we own or are looking at. It's been like that for a very long time with us.
I realize that. It's funny, this cycle office seems to be the golden child. You had the positive yield revision at One Santana, so I didn't know if that was leading you to try and push your team more to office. The second question is.
Let me say one thing to you there, Alex. It's important that we don't do this for cycles. We don't invest to time cycles. There'll be a time when office is no good and retail is back better, and we are building long-term sustainable real estate destinations. No, you're not going to see us buying industrial properties because it's hot right now, for example. I just always want to make sure you know we are a long-term focused company, and we act that way.
The second question is, with all the retailer closings that are announced, some are obviously full liquidations, but some are retailers paring stores. In general, as you guys look at your portfolio in troubled retailers, are you generally pretty good about calling which of your tenants is going to close? Do you feel like some of these retailer closings are sort of haphazard or wouldn't necessarily follow productivity logic that you would otherwise dictate? Meaning, are you caught offsides by some of these closing announcements, or all the ones that have happened, apart from a full liquidation, you're pretty much like, "Yeah, we had a feeling they were going to close this one or that one.
Well, that's a good question. I'm putting in a percentage on this, not for exactness, but to be illustrative. I would say 75% or 80% of the deals, we kind of have a real good idea as to what's going on and why, logically, a tenant would close a store or renegotiate a store, do whatever. Obviously. There is, to your point here, 8%, 20%, some percentage, if you will, of decisions that are being made today that are not as obvious as they used to be. Some of that is because there are broader market decisions that are being made. Good performing stores can be closing too, because they don't fit in a business plan of a company going forward. There are other reasons that, sure, they do take us by surprise occasionally.
You see it certainly in some of the categories, like restaurants, for example, where you can have a decent performing restaurant, but because of that ownership structure, we get surprised with a closed door. Overall, the point here is really to make sure whether surprise or not, we've got backfills, and we've got alternatives to be able to fill that. I don't know how you better mitigate that risk more than with great real estate.
Thanks, Don.
Our next question comes from Ki Bin Kim with SunTrust. Please proceed with your question.
Thanks. Just wanted to go back to the kind of bigger picture and the growth rate that we can expect from Federal. Is there any way you can give just some color around how much NOI you expect from redevelopment and development, just from the known projects that you have on the ground today, that we should expect in 2020, and how that looks like in 2021?
Well, let's do it this way. When you go to page 17 and 18 of our 8-K, that does a pretty good job, I think, of laying out capital and laying out the returns. You can get a pretty good idea of what ultimately those projects, and new ones coming up, are going to contribute. Now, on the timing, there's no doubt that much of the big numbers on those two pages will not be producing income until starting later in 2021 and then forward. They're big projects. By the way, that construction does have, certainly in the case of a Pike & Rose or an Assembly, it does have an impact. Slight, but it's got an impact on the rest of the project because there's more stuff happening with dump trucks and that kind of stuff.
You should assume later in 2021, is when the big stuff on pages 17 and 18 starts producing. As Dan went through, you'll get some of that in 2020, including, by the way, a big one in 700 Santana Row in Splunk. There's a lot more coming, so you'll have to back-weight that. We're still growing, Ki Bin. We're still growing.
Yeah. The reason I ask that is that we've had a couple of years of low growth, and I know you're investing for the future, and it's all the right decisions. At least in the near or medium term, the market is trying to figure out when we get back to that 4% or 5% FFO growth trajectory. That's why I ask those questions.
No. Go ahead.
Are you working on anything to perhaps try to decrease the downtime when you already have a lease on hand and when you have a tenant moving out, trying to narrow that gap, the downtime?
Absolutely, yes. In fact, if you could read our goals and objectives for the company, it is the single biggest thing. From the first leasing person's discussion with a tenant to the first dollar of rent that gets recorded in the P&L, all along that process, major initiative to reduce that time. It includes some things that you would assume, like a simpler lease. It assumes some things you might not assume, like how tenant coordination happens and who does the work and how it gets priced out and things like that. It assumes some changes in terms of the marketing materials that leasing agents use and how they use them. All the way through, it is a primary focus of this, and I would suspect most companies in this space in 2020.
All right. Thanks, Don.
Our next question comes from Michael Mueller with JPMorgan. Please proceed with your question.
Hi. Two things. First, I was wondering, can you talk about the timing and the magnitude of the recent unanticipated bankruptcies that you've been talking about?
Yeah. I think we've taken a kind of holistic view of, look, there's uncertainty in these restructuring processes, and we've taken an estimate of how we anticipate getting potential stores back, what stores will stay in place, and so forth, and we made that estimate. I don't think that there's a good answer for you in terms of helping you with specificity. Like Pier 1, I think we're in pretty good shape with Pier 1, where we're basically released on one of them. Another one is going to stay because it's one of their top-performing stores in the region. The remaining two out of three, we're trading paper and should have them leased up probably by end of the year. It's tough to go through each one of them, and the bankruptcy process is an unpredictable one, so we'll see how it plays out.
Got it. Maybe a couple other numbers questions here. What was the lease term income in the fourth quarter?
Lease term income was gross fees of about $3.8 million in the quarter, and that was roughly in line with kind of what we had expected.
Got it.
Another strong quarter.
Got it. Okay, thanks. Last question. With no dispositions in the guidance and, I think it was $4-$450 of investment spend, what's the equity assumption baked into 2020 FFO guidance?
Yeah. Over the course of the year, what's reflected in our guidance is about $125 million of incremental equity, consistent with what we have done over the years in that range. It would be kind of played out over the year in terms of your models. We've got the balance sheet that we don't have to use that. We've got other sources that will fill the gap, whether it be incremental leverage neutral leverage, asset sales, cash on hand, free cash flow. We've got a lot of tools in the toolbox in addition to kind of the opportunistic equity issuance that we've been fortunate to be able to issue over the years.
Got it. Okay. That was it. Thank you.
Our next question comes from Vince Tibone with Green Street Advisors. Please [proceed with your question].
Hi, good morning. I'm just curious, when you lose a grocer such as Fairway, how does it impact the adjacent small shop tenants? Are there typically co-tenancy clauses that allow them to immediately pay lower rent once the grocer closes?
No. There are not, Vince. In any strong located place like that, it certainly wouldn't be in our lease. While we didn't write that lease, that was before that, there is no such impact there. It's just the grocer, just that box. On the other side of that, can you imagine putting a better grocer in that box and what the impact that would have in terms of traffic to the balance of the space, something that we're counting on.
Right. Makes sense. Then just kind of on that, just how surprised were you by the Fairway bankruptcy? Just in general, how worried are you about some of the smaller regional grocers out there? Are you expecting more bankruptcies to occur over the next five years, let's say, as the grocery industry is kind of evolving here?
Let me answer that question two ways. One, not surprised at all with respect to the Fairway bankruptcy. It, frankly, was one of the most important parts of our due diligence on buying the asset. If you knew what we did for due diligence, much of our time was spent figuring out how much demand there was for that space and at what rent they would pay. No, no surprise there at all. In terms of the bigger question, TBD, Vince. I don't view groceries as very different than any other category. This kind of goes back to the beginning part of what we were talking about here. We're not just about filling boxes up. We really are about bringing these retail products to places, shopping centers and mixed-use properties, to places that will be the best five years from now.
To the extent more grocers go out, smaller, less well-capitalized grocers, which if they don't have a particular niche, sure, they're under margin pressure all the way through. Completely agree with that. Again, so what, to the extent you've got backfill opportunities that are more sustainable to what that shopping center should be in any particular neighborhood or community. Our stuff, as you know, is a lot bigger on average and a lot more regional on average than a traditional grocery anchor shopping center in a lot of markets. It's more than double the size on average in GLA, for example, and land. It's all about, from a landlord's perspective, options, alternatives. It's hard to imagine there isn't more disruption in the grocery business. Of course, there will be, just as there will be in every other sector as we move forward.
I think we're well prepared to use that to create better retail destinations.
Thanks, Don. A very interesting color.
Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.
Hi. In terms of occupancy troughing to mid-93% leased and mid-91% occupied, then getting stronger in the second half of 2020 into 2021, where are you hoping to end the year in terms of occupancy for 2020?
I would say that back at current levels. We expect a dip over the course of the year and targeting getting back to what our year-end levels were at 2019. Over the course of that, obviously, we'll work our way through that trough.
And then-
Still grow, bottom line.
Thanks. Do reimbursements see more of an impact this year given lower occupancy?
Sure. Yeah.
Absolutely. We don't talk about that enough, right? With triple net leases effectively losing any tenant in that space, somebody's got to pay those bills, and it's us. There's no doubt that hurts earnings too. I think the point that's really important to understand here, though, is with reduced occupancy as expected, we are projecting FFO growth. That's pretty incredible, actually, and it speaks to the balance of the project, the balance of the portfolio, I think.
Agree. Do you have any Lucky's or Earth Fare, just on the topic of groceries?
No, we have neither.
Okay, thanks.
Our next question comes from Floris van Dijkum with Compass Point. Please proceed with your question.
Great. Thanks, guys. Quick question. The 1% credit reserve that you have baked in, how does that compare to your five-year historical realized credit losses?
It's actually very much in line with our five-year history and actually where we come out in terms of actual. There's not a material difference. That 100 basis points has been pretty consistent, at least since I've been here. The actual results are in line roughly with those reserves.
Maybe a quick question on the residential rents. What has your experience been on the rental increases after the first year's rents on newly developed apartments? What kind of increases have you seen at Assembly or at Santana? How should we think about Pike & Rose in terms of increases for residential? Do you think that market is different and you think it's going to be a little softer than Boston and San Jose?
Floris, it's a great question. Our best population from which to get that information is Santana because we've been open as long as we have. I can tell you that the annual CAGR for those residential rents have been about 3.8%, almost 4% over that period of time. Not every year during it, strong. Come over to Assembly. Assembly's real interesting because if you remember, we started out with AvalonBay Communities doing the first phase of the residential. We then added Montage, which is a big 500-unit building, now we are adding more supply. Even with all that happening, we've seen rental growth that's, again, it's only a couple of years, in excess of 4%. That's real strong. In terms of Montgomery County, it's clearly been weaker.
Montgomery County, therefore for Pike & Rose on the residential rent side, the first three or four years was essentially flat. We are now, in the last 12 to 15 months, seeing the first signs of real strength from that perspective. By the way, not surprisingly, that is very much in line with the strength we're seeing on traffic counts and sales on the retail piece. As these communities become more mature, there is no doubt that inures to the residential up top. Very hopeful to see sustainable, call it 3%, at these properties over the long term.
Great. Thanks, Don.
You bet.
Thank you. At this time, I would like to turn the call back over to Leah Brady for closing comments.
Thanks for joining us today. We look forward to seeing many of you in the next couple of weeks. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.