Good day, ladies and gentlemen, and welcome to the Federal Realty Investment Trust Third Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's conference, Ms. Brittany Schmelz. Ma'am, you may begin.

Good morning. I'd like to thank everyone for joining us today for our third quarter 2015 earnings conference call. Joining on the call are Don Wood, Jim Taylor, Dawn Becker, Jeff Berkes, Chris Weilminster and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks. Certain matters discussed in this call, maybe deemed to be forward-looking statements within the meaning of the Private Securitize 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 operation and it's actual performance may differ materially from the information in our forward-looking statements. And we can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued yesterday, our Annual Report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of operations. These documents are available on our Web site at www.federalrealty.com. And with that, I'd like to turn the call over to Don Wood to begin our discussion of our third quarter 2015 results. Don?

Well, thank you, Britney, and good morning, everyone. So we had a big important quarter for the company here with FFO per share of $1.36, a result higher than we ever reported before with 10.6% higher than last year's third quarter. Starts on the top line with overall revenue growth of 8.4%, which flows nicely down overall property level operating income growth of 8.7%. Somewhat higher G&A from additional personnel and down below the operating line, the strength of our balance sheet paid huge dividends in the form of lower interest costs. If you sit back and you pause for a minute and really reflect on the components of that third quarter P&L, you'll start to recognize that the 5 million sources of our growth all contribute here, creating what we think is the most balanced and durable set of financial results in the business. Consider that in this third quarter, there are contributions from; Number 1, the big developments that Assembly and Pike & Rose, which added nearly $4 million more rent than last year's quarter. 2, Active redevelopments especially in Mercer Shopping Center in New Jersey, Westgate Center in San Jose, the Peterson Building in Hollywood which along with others resulted in overall same-store growth including redevelopment of 4.2%. Third, same-store growth from the core excluding redevelopment which were only 2% with the results of a purposeful and aggressive towards to get back space for redevelopment along with a tough year-over-year comp caused by lower termination and other fees this year. Four, acquisitions like CocoWalk and San Antonio Center which contributed an incremental $2.4 million in rent over last year and most importantly number 5, our balance sheet and track record that results in one of the lowest cost of debt and equity capital among REITs that really…

Thank you, Don, and good morning, everyone. As Don alluded to this quarter represented yet another record for us at $1.36 per share and just pausing on FFO for a moment, I would like at the outset to recognize the contribution of the entire Federal team from leasing, operations, development and investments many of them you got to meet at our Investor Day last month who delivered these outstanding results. Turning to the numbers overall POI grew at 8.7% over the prior year in line with our long-term plan. The largest single driver of that growth was our core portfolio, which grew at 4.2% on a same-store basis including redevelopment. Given the volume of properties that we have under redevelopment that pool represents approximately 95% of our total POI. Our same-store pool excluding redevelopment activity which is a smaller percentage grew at 2%. We realized about 70 basis points of drag from year-over-year differences in term fees and certain one-time fees. Other drag on same-store POI growth which began to show this quarter and will accelerate as Don alluded to and I will cover in guidance associated with roll over contributed another 30 basis points of drag. When you consider the roll over that we are achieving from a leasing perspective, which was 19% on a cash basis and has averaged 70% over the last four quarters this timing lag or downtime is very opportune as we release the space in a very strong market. The balance of POI growth was driven by development deliveries collectively Pike & Rose and Assembly contributed $3.5 million of POI this quarter and the successful integration of the San Antonio Center and CocoWalk acquisitions both of which are performing very well against our initial acquisition underwriting. G&A increased $1 million year-over-year largely due to…

Thank you. [Operator Instructions] And our first question comes from the line of Craig Schmidt with Bank of America. Your line is now open.

Hi. Thank you. I was wondering, if you could give a sense of the direction that maybe the new tenants that shop at Sunset Place may take versus --

I was expecting the question. I was hoping it wasn't the first question. Listen, I do want to talk about Sunset Place a little bit. Look, you may have heard the former owner of Sunset Place, Simon Property Group is pretty darn good at what they do. If it were an easy fix and there was an easy way to create a lot of value in 12 months or something else like that they would have done it. So I don't want to talk about that just yet. There's a lot of complexity with it. Basically when you look at the going in yield and the going in price, we basically said all right there is enough cushion based on what that location is and what you would have to pay for a perfect assets. There's enough cushion over that to give us the opportunity. Give us the time to take the chance to see if we can find a better merchandising scheme or better physical plant, see if we can make the numbers make some sense and which includes -- which will include a new entitlement process et cetera. So that will take -- it will take a couple of years. It will take some time. So I don't want to get out ahead. I don't really want to have anything in your mind. I would love to just kind of take it for what it is. And when we start talking about a way to create value that we see pay for it then give us credit for it then. But at this point, I'm really not ready to do that.

Okay. And then, maybe if you have any observations about Macy's backstage opening at Melville, I would like to hear it.

I actually don't know how they open in terms of numbers. I should know that but Chris Weilminster, do you have any information you can add?

Craig, it's still a little bit early for us to report on that. We've not gotten much information back from Carl or his team. So unfortunately I do not have any better answer than Don provided.

Okay.

We will be ready to talk about that next time Craig.

Okay. Thanks. Goodbye.

Thank you. And our next question comes from the line of Ki Bin Kim with SunTrust. Your line is now open.

Thank you. It seems like you made some parts of leasing at Congressional Plaza and Pentagon Row, could you talk a little bit about that? And maybe just putting it all together your guidance or same-store NOI of 3% to 3.5% which I assume includes redevelopment. What is that look like if there wasn't someone that is kind of proactively leasing and A&P?

Well, I mean 100 basis point in and of itself. A&P and LAF alone is about 100 basis points. So and again, Ki Bin when you put the context of what we're doing overall because roll over happens every year. Downtime happens every year. Over the last several years our average downtime has been about $10 million to $11 million just in our same-store portfolio this year it is going to be about $17 million. So it gives you a sense of the scale and scope of the drag on what we're getting after. Just A&P and LAF alone from an occupancy standpoint would be approximately 180 bps of occupancy. So just those are pretty meaningful. Again, nothing is static. Chris and team continue to be very active on the leasing front, but even if we get that space leased as you understand it will take some time before that rent commences. So that's what we're forecasting for 2016.

Hey, Ki Bin, the only thing I would add to that is, you may remember from the Investor Day, we did spend a lot of time on Congressional because we really did want you to see what a dominant shopping center -- how it can still our value effectively 50 years after we bought it. And show when Saks OFF 5TH opens up there, we will also do a refresh to the front end of that shopping center which we believe will help us in our re-leasing of all the shop space that is there not to mention 50 additional units, residential units on the back of the shopping center. So this is all tied in. That is not specific to LAF or to A&P. But we are getting after those type of situations throughout the portfolio. Not just the two big ones that we mentioned.

Okay. Thank you.

Thank you. And our next question comes from the line of Christy McElroy with Citi. Your line is now open.

Hey, good morning, guys. I heard you mention a couple occupancy numbers associated with the downtime, was it 120 basis points or was it 180 basis points, I think you just mentioned.

No. I'm sorry, I misspoke. Thank you for clarifying that. With the A&P and LAF, it's about 120 basis points of occupancy.

Okay. And so when should we expect that to be fully in the numbers as we kind of think about as we go through 2016 and what quarter would you expect to be sort of a trough in terms of the year-over-year occupancy decline?

As you look into the year, we are going to be seeing the drag really not only this quarter but at least for the next three quarters into 2016. As we go into the fourth quarter of 2016 we expect to see some of that improved.

Christy, anchor leasing, I'm sure Weilminster is smiling on -- he is not in the office with us, he is at a remote location but I'm sure he is smiling. In Anchor leasing getting those deals done and new deals done, getting that space built out, getting the tenants in and paying rent will take at least a year. And just -- that's what it takes. That is in the math of what we consider. When we consider aggressively going after in A&P or whatever it is, we are not believing that six months from now that space is up and operating in rent payment. It just doesn't work that way. So financially, we are considering a full 12 months and in some cases 15 months of downtime before its back in the numbers.

Got you. And if you think about sort of all the rent that you're losing on all this space and aggregate, what do you think could be potentially the mark-to-market on that space, or some sort of a range relative to the spreads that you been generating?

I would hope that you see something like 25%, 30% or maybe more percent.

Okay. And then, just lastly, how do you think about selling assets today just for the fund growth versus accessing the ATM?

Well, let me talk about asset sales for a second because this is something that it never -- it always kind of hangs underneath the radar for us. But when you look back there is always a level of assets sales no, not as much as our competitors. We don't need to do as much as our competitors in there. But when you see the assets on Houston Street and San Antonio, Texas sold this year, you will see by the end of the year, I suspect, we have got another one on the contract to sell -- you will see that too if that deal goes through. You'll see another one next year. There's all these going to be $50 million or so of trading up. One of the things you kind of get me a little bit earlier than I wanted to talk about it. But I'm going to be showing you maybe not for a NAREIT, but maybe we will see if we can be ready. The past couple of years of assets that have been sold versus what it is that we have bought. And you will clearly, although it is a little dilutive, it's not as dilutive as most of our competitors would necessarily be because we get good prices even on what we are selling vis-à-vis what we are buying. You will see a real improvement in the overall portfolio if you just think about San Antonio Center that we brought in Northern California in and Houston Street, San Antonio, Texas out, the difference is night and day and we're going to show you two or three or four more examples like that on a portfolio basis. But figure around 50.

Thanks.

Thank you. And our next question comes from the line of Michael Mueller with JPMorgan. Your line is now open.

Hi, it's Jim. Sticking with the occupancy. So just to clarify, are you saying in Q4 that's where we're going to start to see it's going to be down about 120 year-over-year. That's the first part. And the second part is, I think Don mentioned possibly accelerating this and recapturing being more practical recapturing some other boxes. So if we're thinking about 2016, if you got the 120 dip for those two tenants should we expect more on top of that.

Yes. Thank you. In fact of the fourth quarter that dip could be as low as 150 or as high as 150 basis points of occupancy based on some of the other boxes that we're getting after. So as we look forward and as I mentioned and put it in context, we are seeing substantially more downtime and lag in the coming year associated with this targeted recapture and taking over the space.

Got it. Okay. And then going to Pallas, the apartments, I think you said stabilized in the fourth quarter, you mentioned breakeven to occupancy. What exactly is a breakeven occupancy at what level and do you think you'll open there.

Our breakeven occupancy there is going to be 40% to 50% range somewhere in there we begin to cover the operating cost. It depends of course on the mix of units that are in that 40% to 50%. We expect to be there towards the end of the first quarter early second quarter. So my comment is meant to point out that early in the year that building will be dragging from an NOI perspective. As Don mentioned, we are on target in terms of our pro forma rents. And as we deliver units we're seeing good appetite. But with this building we're delivering units as we go up the building. And it's the pace of construction more than anything else dictating that timing.

Got it. And one last one here. For 2016 guidance what's assumed for equity raise?

We expect to raise probably about $150 million for the year.

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

Thank you. And the next question comes from the line of Jason White with Green Street Advisors. Your line is now open.

Hey, how you are doing? Just a couple of quick questions. The first part as you look at the anchor boxes, you are taking down and remerchandising, what portion of those do expect over the next year to be once that is kind of come back to you that you didn't really seek out, and then how much that's proactive? And then, I guess, the second part of that is, why now on the proactive front is this what you feel like is kind of the peak leasing season over the cycle or is it just now it's good as time as any?

Jason, let me take the last part first, and yes, there is no doubt, look this for 2009 or 2010 the approach would be a different approach. And it would be about maintaining that income stream the best we can. When we look at 2016, it's not only that we feel strong. I'm going to ask Weilminster to comment on this, when I'm done. But it's not only that we expected to be -- to remain strong in terms of demand exceeding supply on the particular location and in the particular boxes that we're talking about. But we have other ways to grow the company. And so on balance, I mean I'm not sure how many of the competitors are out there are going to grow at 7% next year or certainly 7% this year, 7% next year, 7% two years ago more. I mean it's probably 25% over the last three years something like that. I don't know how many competitors have that and I do think that's because of all of the tools we have. So when you take the other ways we have to grow coupled with what we believe about the particular anchor boxes that we are purposely trying to upgrade the tenancy on and upgrade the shopping centers on, this seems like the right time to do it aggressively. And by the way, we are paying more G&A for more individuals who have smaller portfolios from which to create value and so that better half more aggressive management of those particular acre boxes. It all works together at this particular time. That is our bet.

Okay. So on the first part what's the breakdown of -- as you look over the next 12 to 18 months, is it, most of these came back to you because the retailer is underperforming, or is there a larger chunk that you are proactively seeking. Could you give us a couple of examples but just in terms of magnitude?

Yes. On the anchor stuff it's by far mostly stuff that we are proactively going after. It is the A&P. It is the LA Fitness. Some of those smaller stuff which is included in there, Hudson Trail which is a local or a regional sporting goods company going bankrupt is, we wouldn't have aggressively wanted it back. Now it opens up some good things, but we wouldn't have aggressively wanted it back. The same with City Sports, which is in both Bethesda and Pike & Rose. We wouldn't have chosen this timing. But we get it. Because we're in the right locations we still think it will be a good thing, but it's a lot on top of those anchor boxes that are primarily proactively aimed for.

Okay. Then when you look at Pike & Rose, yields have gone from 8 to 9 to 7 to 8, down to 7 and I think that's largely because of some rent from the first part, and then, some apartment rents and then some cost overruns. Is this just a pretty typical of complex mix used or would you say these are more one-off related to Pike & Rose that shouldn't be kind of extrapolated across many of your mixed-use projects going forward.

I would not. I think when you specifically look at Pike & Rose, Pike & Rose in the first phase is largely residential. When you are talking about largely residential, you are talking about 12 month leases. And we had a Board meeting down in Miami yesterday and I was talking to the Board about this. The reality is that, and I don't mean to say this in a cavalier way, I don't mean to come across that way, but so what. To the extent we missed the rent in a 12 month lease on a residential product to start because of more supply in the market because of whatever economic conditions that there are 12 months from then we'll have another chance, 12 months from then, we will have another chance since that. And they would have been no different investment decision made. It takes a seven years from beginning to end to do this. You are never going to get. Sometimes you get lucky and you are in the peak of the part of cycle where the residential rents are higher sometimes the opposite. But you wouldn't have made a different decision. In terms of the cost, I feel differently about that. I mean we've got cost overruns on that high-rise in particular that I wish we didn't have. That is value that is gone. So it is a different type of thing. I think that's a mixed-use thing? No. I don't. I think that's a screw up on that particular design and implementation and construction project. So I wouldn't take that and extrapolate that all along. When you are talking about retail deals we're dealing with much longer term leases into that office, you are certainly talking about longer-term leases. So I view them a little differently.

Great. Thanks.

Thank you. And our next question comes from the line of Paul Morgan with Canaccord. Your line is now open.

Hi. What's your total dollar value invested in redevelopment next year and your funding mechanisms for that you mentioned $150 million in the ATM but how far do you think in terms of your redevelopment cost?

Our total spend is going to be approximately $400 million of development and redevelopment. Of that probably $50 million to $60 million are spend during the year is going to be pure tactical redevelopment. And from a funding standpoint, we do expect to be issuing about $150 million of equity. We will potentially have some asset sales as Don alluded to and then as always free cash flow to fund that.

Okay. Great. And then just a little bit more macro, I mean can you talk about, how you are seeing the supermarket business at the moment. I mean there's been a lot of news over the past quarter between the bankruptcies and whether it's Walmart on one end or Whole Foods on the other. And maybe then kind of more narrowly as you look at things like the A&P spaces, do those necessarily go in the supermarket direction or could there be other uses as you look at really the anchor space or doing something similar to redevelopment there?

It's a good question Paul. And Chris, I'd like you to chime in on this start. Let's start on the macro question with -- what you see in the supermarket business.

Yes. We're seeing for our -- again, I think about our portfolio and then look more macro on a macro basis there is certain -- there is demand. We are seeing it certainly in our assets and I think there are some of larger companies that are out there whether it's -- looking at a small store concept to get more urban located it, whether it's Kroger trying to figure out a way to grow its [indiscernible] footprint, differentiate its brands a little bit more or Whole Foods working on the 365. There's a lot of focus on these brands and/or the company is figuring out different platforms to grow. And so when you then think about that to what it means to Federal, when you look at our high-quality of assets surrounded by the best-in-class demographics, they very much have an interest in it. So the three locations, the A&P's that we have there, there is interest from groceries and all of those locations. In addition to that there is interest with other players that are out there. We talk to at the Investor Day about the soft goods categories looking for growth whether that's Macy's, Nordstrom Rack, HBC, Saks OFF 5TH concepts. We have demand in some of the category killers that are out there, the pet categories, the shoe categories, the cosmetic categories. All of these players are looking for growth opportunities. And with the limited amount of new supply that has entered the market, opportunistically with the great piece of real estate, Federal Realty certainly takes advantage of that demand that is out there. So we're clearly -- you may see some groceries backfilling some of the portions of what those A&P boxes were, but we're looking at all opportunities unfortunately for us we've got the demand from different categories. Don, you want to take it from there?

Yes. Paul I wanted to say something more macro to you. First of all, and that is, there is not a retail category. And certainly grocers are not exempted from this. That isn't trying to figure out who they are going to be, how they are going to service. How they're going to improve their investment pieces over the next 5 to 7 years. Every category is impacted. And grocers are no different. It's funny. It's why a long time ago, I just did not want to be seen as a grocery anchored shopping center company. The idea of being opened, when you listen to Chris Weilminster's speech, you can tell that his view of the retail world is not grocery centric. And as that business is struggling in parts of it, just like women's fashion is struggling, just like hard goods are trying to figure themselves out, just like banks are trying to figure out how to reach retail customers. Every industry the grocery business too. It does come down to having the right place where demand will exceed supply into the extent that demand can be beyond grocers go better. Having said that, it's real clear to us that particularly in at least two of the four and probably more of the A&P boxes they are great grocery locations. So we do believe there will be negotiations with better grocers for those boxes. In addition, as Chris says a wider plethora of retailers.

Great. Thanks. That was helpful. Just real quick, is there anything in the acquisition pipeline that you can see closing by year end?

Not by year end. No.

Thanks.

Thank you. And our next question comes from the line of Vincent Chao with Deutsche Bank. Your line is now open.

Hey, good morning, everyone. Just sticking with the A&P's, I know you gave the average in place rents on those $11.64, just curious what the order of magnitude is on the mark-to-market, do you think?

I said Vince, somewhere like 25% to 30%, maybe more.

Okay. Sorry, I missed that.

That's okay. That's fine. I mean let me be really clear. The capital necessary to not only get those boxes but to absorb the downtime and put in the rest of the shopping centers as compared with the incremental rent not just from that box but including that box and everywhere else in that shopping center is the math we're doing to figure out what kind of IRR and value creation we're making at those shopping centers. There will be a time whenever you want to go in the next year or so I'm going to take you to Brick Township, Brick Plaza, in Brick Township, New Jersey and you'll see exactly what I'm talking about if you're only looking at those four walls you're missing the point.

Right. No, that makes sense. Just on the -- to do just get outbid on that one?

On the fourth one, we did. We thought we put up a decent number and we were blown out of the water by another grocery operator.

Got it. Got it.

I'm sorry. I just wanted to make one point, I'm sorry, I'm not in the room with Don, but I think one thing is important about these A&P leases with Brick, Melville and Troy that everybody should understand and Don is touching on it. But we inherited those leases those weren't leases that we had and they were very much encumbered with restrictions on other categories and other uses that we know demand exists. So I just want to make sure that in addition everything Don is talking about that you guys understand that this does unlever our ability to go after categories that we were not able to do and when we renegotiate leases or when we find replacement tenants we will maintain that flexibility as well as hopefully future out parcel development. I think it's really important, so it was not only getting it back to control end density of the space, but it really does from a leasing standpoint unlever our ability to really add value with more relevant retail which is what we need to stay connected with our communities.

Yes. That makes sense. Just maybe one last question. For Jim, just I know you've talked about sort of the difficulty in projecting out earnings given the amount of development that's going on and sort of the timing of all of that. And certainly that can shift to here and there. But I was just curious that guidance range that you provided is pretty tight. I think it's only about 1% spread at the midpoint. Just curious what gives you the confidence to have it so tight given the --

You are making me nervous.

Vince, I'm curious too.

We feel pretty good that we're going to end up in that range, but you make an important point. And I think it goes to the reputation that some of you have alluded to about our being conservative in our forecast. We have a range for a reason. And a lot of the things that in part volatility as it relates to quarterly number what we'll be seeing next year, we are very positive about all of the activity that can generate that, but it certainly can move things around in the year. But we feel comfortable with that range, albeit I'm sure that a lot of you are going to go right to the top of the range and we provide a range for a reason. And so that's what it is.

Okay. Thanks.

Thank you. And I'm showing no further questions at this time, I would like to turn the conference back over to Ms. Brittany Schmelz, for any closing remarks.

Thank you, everyone, for joining us. We look forward to seeing many of you at NAREIT later this month. As we mentioned, if you're not already done so please do feel free to reach out to reserve one of the remaining slots in our meeting schedule. Thank you.

Ladies and gentlemen, thank you for participating in today's conference, this does conclude today's program. You may all disconnect. Everyone have a great today.