Earnings Call: Q4 2019

Feb 11, 2020

Greetings, and welcome to Federal Realty Investment Trust 4th Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Ms. Leah Braden. Thank you. You may begin. Good morning, everyone. Thank you for joining us today for Federal Realty's 4th quarter 2019 earnings conference call. Joining me on the call are Don Wood, Dan Gee, Jeff Berkes, Wendy Seher, Don Becker and Melissa Solis. They will 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 Forms 10 ks 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 1 or 2 per person during the Q and A portion of the call. If you have additional questions, please feel free to jump back in the queue. And with that, I will turn the call over to Don Woods to begin the discussion of our 4th quarter results. Don? Thank you, Leanne, and good morning, everyone. So 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. And 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 flowed 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 21 times. One of the things that differentiated Federal a decade ago when growth slowed following the 2,008 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 and Rose, Assembly Row, other long term initiatives despite the challenging environment and 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, but 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 midsize 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 $760,000,000 of construction and 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 has 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 place making using sustainable methods and environments. We're recycling assets with little opportunity for future growth, nearly $300,000,000 worth at Plaza Pacoima, Freestate Shopping Center, the office over retail building in Hermosa Beach, California and the Kohl's portion of San Antonio Center. And 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. So let's talk about the transactions that closed in the Q4 to demonstrate the point. We did what we said we would do. First, we received the full $155,000,000 in December from the Los Altos, California 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, Oklahoma and Los Angeles in the quarter for $51,000,000 When these 4th quarter dispositions are combined with the sales of Hermosa, Free State and a couple of smaller parcels earlier in the year, dollars 300,000,000 of capital was raised at a mid-four cap rate based on expected 2020 cash flows. And when we recycle that capital into, Hoboken, New Jersey, where 37 of the 39 buildings we bought in our new partnership closed in the Q4. The other two buildings were closed 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. Basically, dollars 300,000,000 invested in properties, which generated going in yield modestly in excess of the assets that were sold with an IRR that's 200 basis points higher. And we expect to be able to expand further given that Hoboken partnership and the opportunities we're seeing. Transactionally, the 4th quarter was extremely active. Operationally, it was too. We ended 2019 having signed 457 retail and office leases for nearly 1,900,000 square feet at average rents of $41 a foot. And we signed more than 2,300 residential leases at average rents of $2.82 per foot, dollars 0.34 per foot per year. Just the retail and office leases combined created $77,000,000 of growing annual contractual rent obligations for the next 7 plus 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. Dollars 210,000,000 which is on budget and yielding 7.5%. This building is a home run at the end of the street, anchoring Santana Row and 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 $100,000,000 of spend in 2020, $150,000,000 of spend in 2021 with no income until 2022. Strong interest in the building at this very early stage is encouraging. Full blown construction and assembly on both the residential and the office building continues unabated. Both projects are on schedule and on budget. Roughly $200,000,000 of spend in 2020, dollars 100,000,000 in 2021 with no significant income contribution until late 2021. This is one big development phase that will really change the feel of Assembly Row. Puma's North American headquarters is a office anchor there. Construction of 909 Rose, the flagship office building at Pike and Rose that will house Federal's new headquarters in August of this year is on budget, is on schedule with roughly $50,000,000 in spend expected in 2020. We're currently trading paper with other tenants for more than 40,000 square feet 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 $30,000,000 of capital is programmed there for 2020 income will begin to be generated here later this year. And finally, we can now say that demolition and construction are underway at Darien, where we will completely change the character of the grocery anchored shopping center where we will add 75,000 square feet of new lifestyle oriented retail space to complement our strong Equinox anchor, 122 apartments and 7 20 parking spaces directly adjacent to the Naroton train station in Darien. Dollars 120,000,000 at an incremental 6% yield with $25,000,000 spent in 20 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 $760,000,000 of construction in progress. And while the Splunk building at Santana delivers this year and will reduce that number, an additional $400,000,000 or so will be added in 2020 $300,000,000 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. And 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. But 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 for addressing the questions. Dan? Thank you, Don, and good morning, everyone. Another record year of FFO per share as we posted $1.58 for the 4th quarter with the 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. And remember in 2019, we faced an increase in G and A of roughly $0.02 per quarter from the new lease accounting standard. The numbers in the 4th 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, was driven primarily by timing and 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 4th quarter and 2.9% for the year, basically in line with our previously increased annual lease. With respect to retail space rollover, the 99 comparable retail leases during the 4th quarter for 462,000 square feet were written at an average rent of $37.78 per foot, 7% higher than the prior rent. Those results closely tracked the 3 79 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 twenty twenty. While we don't typically provide guidance on our occupancy metrics, given the aggressive level of proactive re leasing and some of the recent retailer fallout, we expect our occupancy metrics will trough in the first half of twenty twenty to the mid-ninety three percent level for leased and the mid-ninety one percent range for occupied. However, we should see a steady rebound back up to historic levels over the latter half of twenty twenty 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 ks, please note on page 17, we closed out another $50,000,000 in projects and 4 of them on time and on budget. And on page 18, we raised our projected yield on 1 Santana West to 7%, reflecting continued strength in rental growth for that submarket for the amenitized office product we offer there. Now 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 derisked these parts of our business model. Now 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 7 100 Santana Road to Splunk last week at a return in the mid-7s. The stabilization of the Phase 2s at assembly in Pike and Rose. Delivery of smaller projects over the course of 2020 including the prime store JVs Freedom Plaza, AKA Jordan Downs beginning delivery to start this year. Ballakenwood 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 $50,000,000 of redevelopment at a blended incremental yield averaging 9%. And 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% to 3% range. Also note that we executed on roughly $300,000,000 of new investments and over $300,000,000 of non core asset dispositions during 2019, which will be a $0.02 accretive in 2020, but provide more meaningful value creation and growth over the longer term. What other retail REIT can count an asset recycling program that's accretive to FFO in year 1? These items together would drive FFO per share growth into the 6% to 7% range if not for some discrete but somewhat disproportionate headwinds. Let me give some additional color. 1st, term fees. We had a record year in 2019 earning over $14,000,000 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 20 nineteen's levels and 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 2,030 beyond will be another source of 2020 drag. Add in the forecasted impact on more recently announced retail failures on top of those previously identified such as Dressbarn and collectively these items get us to a range of 1% to 4% FFO growth in 2020. With respect to other assumptions behind our guidance, comparable POI growth is expected to be at 0% to 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 and A, we forecast roughly $11,000,000 per quarter, up modestly from 20 nineteen's run rate. On the capital side, we project spend on development and redevelopment of roughly $450,000,000 to $500,000,000 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. And finally, we are projecting roughly $60,000,000 to $80,000,000 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 and redevelopment activity at the company. We finished the year with over $100,000,000 of excess cash and nothing outstanding on our newly expanded and extended $1,000,000,000 credit facility. As a result, our net debt to EBITDA now runs at 5.5 times. Our fixed charge coverage ratio holds steady at 4.2 times. Our weighted average debt maturity remains near the top of the sector at 10 plus years and 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. 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 goalpost 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. Yes, we the additional redevelopments really didn't come into it was really just taking a more conservative posture as we looked at some of the news that has come out since late October 3.5 months ago. Really that was the primary driver. Okay. And then I guess the second question is, as we think about this year and you talked about the earnings growth being affected this year is clearly a more impacted year than most. So what I'm wondering is, 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 downturn downtime vacancy impact in 2021? Yes, 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. And that means the notion of place and place making is a much it's always been an important part of what we do, but it's a more important 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. So 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. And 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. So we are forward thinking, if you will, in terms of that. And it's not just about backfill of space. So 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. But we do it on a balanced basis. And 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. And that's the needle that we thread. All right, Don. Yes, that makes sense. Just last question is on the re leasing progress on the spaces that are a drag on 2020 NOI, for example, Kmart Assembly, Stop and Shop Darien and Banana Republic at Third Street in Santa Monica? Yes. Let me go through those because those are big ones. The Kmart at assembly, we made temporary lease up to space, but the purpose of that was that's an acquisition to be developed and that'll be a continuation of Assembly Row. Now we've got entitlements to do that takes a couple of years. The timing and the planning is necessary. So 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 will be created on that 6 acres, which is why I still don't understand the accounting that has to go through the P and L frankly. That is an acquisition all day long. Come up to Darien. We are now under construction. That Stop and Shop is gone, going away. And so as a result, that will be a completely different use on that parcel. And so you won't see income contributed there. We're not trying to backfill the Stop and Shop. We knock it down. And so 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. So 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, but we're making some real good progress on backfilling that at an incremental rate. Yes. Thanks, Sean. And 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. So 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. Hey, good morning guys and thanks for the call out on our conference for promoting it. In terms of Don, you talked about $400,000,000 of additional spend in 2020, dollars 300,000,000 in 2021. I know you have many options for capital raising to fund that, but just sort of generally how should we think about the mix? Dan, you said free cash flow this year $60,000,000 to $80,000,000 You've also got equity issuance as an option, but how should we think about the potential for additional dispositions as well? Yes. That will always be part of our plan, Christy. So first of all, let's start with the balance sheet that you're looking at, which has over $120,000,000 of cash on it. So starting out with a balance sheet that as you know is about as strong as can be including a completely unutilized $1,000,000,000 credit line. So 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 can't I'd love to say $150,000,000 or $200,000,000 of dispositions, but the reality is that's very opportunistic and it depends. We just did $300,000,000 last year. We did much less than that the year before. I don't know exactly where that will be in 2020, but it's part of the program. It's part of the capitalization, if you will, of the company. And we're comfortable in doing that because of the uses of capital that we have to reinvest. So 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. And then 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. And then 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 $14,000,000 in 2019? Okay. Well, maybe I'll start with the term fee question. Dollars 14,000,000 is significantly in excess of our 20 year average, which typically is about $5,000,000 per year per annum. Over the last 10 years, it's been about $6,000,000 per annum. Maybe a better way to look at it because we've grown over time is it's roughly to 80 to 90 basis points of total revenues. So that creates a bookend of maybe $5,000,000 to $8,000,000 of term fees, which is kind of what we have currently in the range. We don't expect to get back to the $14,000,000 level. I wouldn't say necessarily it's back end weighted. We'll probably have a little bit of a tougher headwind in the Q1 from term fees because we had such a big one in the Q1 of 2019 with the lowest term fee at Orchard Supply. And then with regards to your first question, can you just repeat it? Yes, sure. Just what's entering the pool in 2020 that might have an impact there? There will be some things moving around. I mean, I think that we're but 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 1 of Pike and Rose as well as the residential in Phase 2 into the comparable pool. And we'll probably also be moving Towson Residential. But 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 in kind of for the kind of 1 year seasoning we do as part of that methodology for comparable, but you won't see a big boost there. Okay. Thanks guys. Our next question comes from Sameer Kannil with Evercore. Please proceed with your question. 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? Sameer, you don't want me to give you the LOIs that we've got, right? I mean, at the end of the day, the 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 20 19 and that will stay. So we will continue to try to increase our holdings in those markets where we just entered. But that doesn't mean that and 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. Not sure it'd even be a box center in the appropriate place in a place or 2, but it really depends on the metrics. So 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. And 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. Yes, you were a little bit active at last year. I mean, what should we how should we be thinking about that sort of disposition volume possibly in 2020 from a modeling perspective? Yes. I don't know how to say too much more than I did on the first question to Nick. Whether I don't know whether the number is $150,000,000 or $200,000,000 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. But in the preparation for those packages and figuring out what the market what makes sense in the marketplace, we do that very opportunistically. And so 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 $2,000,000 or $250,000,000 is what we have historically done and we'll approach it the same way in 2020 as we have over that period of time. Okay. Thanks. Yes. Our next question comes from Derek Johnston with Deutsche Bank. Please proceed with your question. Hi. Good morning, everyone. So we're going urban, so Hoboken and now Brooklyn. Can you go through the near term opportunity at Georgetown Shopping Center, mark to market opportunities, merchandising improvements, you're planning, I mean, they have a fairway, they had a dress bar and a GameStop, a buffet, to be fair, some stronger retailers, Starbucks, Carter's, Five Below, Chipotle. So the question is, what's the near term plan? And where are you actually going with this longer term? It's a 9 acre parcel and has 5 75 parking spaces. So, Derek, let me just start something. I'm going to ask Wendy to jump in there after that. But we're going urban. I mean we built around the density and the population centers. So I don't think there's any change in Brooklyn, New York than there is or 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. And so I think frankly a grocery anchored shopping center with the density that Brooklyn has at the price that we got at that was hard to pass up to tell you the truth. And 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. But we know that demand for grocery there is ridiculously strong. And so you should assume that that will be a grocery anchored shopping center in the middle of a very densely populated area with rate upside based on how it was previously managed and run compared with how we will previously how we will prospectively run that shopping center. So 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 9 Acre Park, open parking lot in the middle of Brooklyn. Okay. And then San Antonio Center certainly seems to have worked out fine. I think you guys paid around $62,000,000 in 2015. So it was sold under condemnation for the $155,000,000 When will you have to pay out the tenant award portion from the proceeds? And can you share how that's determined and how that works? Jeff, you want to take it carefully? Yes. It's going to play out over the next couple of years. And we've been able to work things out with most of the tenants, but not all of the tenants. So still PBD on that. The process is relatively straightforward and mechanical, but it's not going to start for a couple of years. So Don, I don't know if there's much more than that, that we want to add. Well, Derek, the only thing I would point you to, maybe a 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 are that have to be paid out. So I hope that's helpful. And you should know that that is by design very conservative. Thank you, everyone. And it's very conservative, but it's actually in excess of what we expected. And we had kind of guided folks to kind of net proceeds after those payments of $90,000,000 to $100,000,000 And net net we're closer to 110,000,000 dollars So and that's with a conservative estimate. So obviously a good result and better than we had hoped. Thanks, Dan. Our next question comes from Craig Smith with Bank of America. Please proceed with your question. Thank you. Yes, 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? Yes. Well, a little bit of both, Craig. I think it's a great question. The result is the reality is construction are high. And they're significantly higher than they were a couple of years ago as we started these other projects. So that's certainly part of it. Call it I don't know whether it's half of the difference or whatever else. The other half is certainly mix, certainly mix. And you can see that Darien has a disproportionate piece in it, has a complete redevelopment of a shopping center. And one of the reasons we're willing to do a Darian or something like that at an incremental 6 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 on a out in front of a shopping center where the new income is the new income and that's what it will be for 10 years. At something like Darien with a big residential component too, you should say, you're darn tuned, we'll do Darien at 6 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. So you've got a big mix component in that, but also as I said construction costs are up. Great. And then in terms of re leasing space like A. C. Moore or Pier 1, can any event occur before the end of 2020 or is that all a 2021 event? There's nothing better than me looking at Wendy's here right now and 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. But you also specifically detailed a number of projects in your opening remarks, which was fairly helpful. But it sounds like income will be a little more phased and possibly back end loaded through 2021. So just broadly thinking about a bridge, is it fair for us to be thinking we should have some temporary expectations at this point for any sort of big reacceleration or any reacceleration of growth next year, obviously, recognizing there's a number of moving pieces in the pipelines and the repositionings you guys have talked about. Yes, Jeremy. You understand it well and you've kind of laid it out really well there. There's a lot of there's clearly uncertainty in our business. I love what we're doing in terms of what we're 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 holds are there at the bottom of the bucket. And that's what is for anybody in this space, in retail space, the big unknown. And so it does make us it does make it harder to predict. It does make it harder to say, okay, growth will go back to this number on May 6, 2022 or something like that. But all we think we should be able 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 20s. And so balancing it to keep that growth to keep growth in place, but not knowing when we're able to really accelerate to another level. It's 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 $1,000,000,000 of incremental capital that will create that incremental growth going forward. But what's the negative coming out of the bottom of the bucket? And that's the unknown. Yes, that's fair. Dan, just a quick one. You mentioned the 100 basis points of credit reserve. You also mentioned the AC 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. Yes. Our guidance reflects a projection of what lost revenue we should achieve or what we'll be hit with in 2020. So that's reflected in our guidance. If we deviate and it gets more negative then that's covered in the reserve. But 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, Chris. Thanks. Thanks. Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question. Hey, good morning. 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. So 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? Or 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. And 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. So 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. And so when you 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. But 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 Gary Anne or Coke, a walk. We're going to take we're going to look at it with a broader view I think, than other folks in the shopping center world. And we don't do that for just 1 or 2 projects. We do that with every possible piece of real estate that we own or are looking at. But it's been like that for a very long time with us. I realize that it's just it's funny this cycle office seems to be the golden child. So you had the positive yield revision at 1 Santana. So I didn't know if that was leading you to try and push your team more to office. But the second question is Let me say one to you there, Alex. It's important that we don't do this for cycles. We don't invest the time cycles. This is 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. And so, no, we don't move along with you're not going to see us buying industrial properties because it's hot right now, for example. And I just always want to make sure you know, we are a long term focused company and we act that way. Okay. And then the second question is, with all the retailer closings that are announced, some are obviously full liquidations, but some are retailers pairing 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? Or 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 off sides by some of these closing announcements? Or all the ones that have happened, you're pretty much apart from a full liquidation, you're pretty much like, yes, we had a feeling they were going to close this one or that one? Well, that's a good question. And I would 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 or do whatever, obviously. But there is to your point here, 8 percentage, 20%, some percentage, if you will, of decisions that are being made today that are not as obvious as they used to be. And some of that is because there are broader market decisions that are being made. So 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. But overall, the point here is really to make sure whether surprised or not, we've got backfills and we've got alternatives to be able to fill that. And 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 bigger picture and the growth rate that we can expect from federal. So maybe you can is there any way you can give just some color around how much NOI you expect from redevelopment and development from the 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, I mean, let's do it this way. When you go to page 1718 of RAK 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. And by the way that construction does have certainly in the case of Pike and 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. So you should assume later in 2021 is when you're going to is when the big stuff on pages 1718 starts producing. And as Dan went through, you'll get some of that in 2020 including by the way a big one in 700 Santana Row and Splunk, but there's a lot more coming. So you'll have to back weight that. But we're still growing Ki Bin. We're still growing. Yes. I mean the reason I asked 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. But 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 asked those questions. Yes. Go ahead. And 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, not from the first leasing person's discussion with a tenant to the 1st dollar of rent that gets recorded in the P and L, all along that process, major initiative to reduce that time. And 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. And 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. Yes. Hi. Two things. First, I was wondering, can you talk about the timing and the magnitude of the recently the recent unanticipated bankruptcies that you've been talking about? Yes. I think we've taken a kind of an holistic and 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 kind of a good answer for you in terms of helping you with your with kind of specificity. Like Pier 1, I mean, 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. And the remaining 2 out of 3 were trading paper and should have them leased up probably by end of the year. But it's tough to kind of go through each one of them And the bankruptcy process is an unpredictable one. So we'll see how it plays out. Got it. And maybe a couple of other numbers questions here. What was the lease term income in the 4th quarter? Lease term income was gross fees of about $3,800,000 in the quarter and that was roughly in line with kind of what we had expected. Got it. And then got it. Okay. Thanks. And last question. With no dispositions in the guidance and I think it was $4,000,000 to $4,500,000 of spend investment spend, What's the equity assumption baked into 2020 FFO guidance? Yes. Over the course of the year, what's reflected in our guidance is about $125,000,000 of incremental equity consistent with what we have done over the years in that range. And it would be kind of played out over the year in terms of your models. But 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, 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 stairway, how does it impact the adjacent small shop tenants? Are there other typically co tenancy clauses that allow them to immediately pay lower rent once the grocer closes? No. They are not Vince. But in particular in any strong located place like that, it wouldn't certainly wouldn't be in our lease. And while we didn't write that lease that was before that, there is no such impact there. So it's just the grocer, just that box. But 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. And then just kind of on that, just how surprised were you by the Fairway bankruptcy? And just in general, like how worried are you about some of the smaller regional grocers out there? Are you expecting more bankruptcies to occur over the next 5 years, let's say, as the grocery industry is kind of evolving here? Well, let me answer that question in 2 ways. 1, not surprised at all with respect to the Fairway bankruptcy. Frankly, it was one of the most important parts of our due diligence on buying the asset. And 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. So no surprise there at all. In terms of the bigger question, CBD, Vince, I mean, I don't view groceries as very different than any other category. And 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, 5 years from now. And so to the extent more grocers go out, smaller grosser, 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. But again, so what to the extent you've got Baxill opportunities that are more sustainable to what that shopping center should be in any particular neighborhood or community. And our stuff, as you know, is a lot bigger on average and a lot more regional on average than a traditional grocery anchored shopping center in a lot of markets. It's more than double the size on average in GLA, for example, and land. So it's all about from a landlord's perspective, options, alternatives. And 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. But I think we're well prepared to use that to create better retail destinations. Thanks, Don. 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-ninety 3 percent leased and mid-ninety 1 percent occupied, but then getting stronger in the second half of twenty twenty into 2021. Were you hoping to end the year in terms of occupancy for 2020? I would say that kind of back at kind of current levels, we expect kind of a dip over the course of the year and targeting getting back to kind of what our year end levels were at 2019. But over the course of that, obviously, we'll work our way through kind of that trough. And then And should they grow bottom line. Thanks. And then do reimbursement see more of an impact this year given lower occupancy? Sure. Yes. I mean, absolutely. And 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. So 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. That speaks to the balance of the project, the balance of the portfolio, I think. Agree. And then do you have any Lucky's or Earth Fare just on the topic of grocers? No, we have neither. Okay. Thanks. Our next question comes from Floris Van Dijkstra 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 5 year historical realized credit losses? It's actually very much in line with our 5 year history and actually where we come out in terms of actual. It's not a material difference. That 100 basis points has been pretty consistent at least since I've been here. And the actual results are kind of in line roughly with those reserves. Okay. And then maybe a quick question on the residential rents. What has your experience been on the rental increases after the 1st year's rents on newly developed apartments? What kind of increases have you seen at assembly or at Santana? And how should we think about Pike and Rose in terms of increases for residential? Or do you think that market is different and you think it's going to be a little softer than Boston and San Jose? Yes. Flora, it's a great question. I mean, obviously, our best population from which to get that information is Santana because we've been open as long as we have. And 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, but strong. Now come over to assembly. Assembly is real interesting because if you remember we started out with Avalon Bay doing the first phase of the residential. We then added Montage, which is a big 500 unit building. And now we are adding more supply. And even with all that happening, we've seen rental growth that's again, it's only a couple of years in excess of 4%. So that's real strong. In terms of Montgomery County, it's clearly been weaker. Montgomery County and therefore Fort Pike and Rose on the residential rent side over the past 3 or 4 the 1st 3 or 4 years was essentially flat. We are now in the last 12 to 15 months seeing the first signs of real strength from that perspective. And 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. So as these communities become more mature, there is no doubt that that inures to the residential up top. So 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 and thank you for your participation.