Federal Realty Investment Trust (FRT) Q2 2012 Earnings Report, Transcript and Summary

Good morning and welcome to the Federal Realty Investment Trust Second Quarter 2012 Earnings Conference Call. (Operator Instructions) This conference is being recorded. If you have any objections you may disconnect at this time. I would now like to introduce the conference leader Ms. Kristina Lennox. Ma’am you may begin.

Good morning. I’d like to thank everyone for joining us today for Federal Realty’s second quarter 2012 conference call. Joining me on the call are Don Wood, Dawn Becker, Andy Blocher, Jeff Berkes, Chris Weilminster, Jim Taylor and (inaudible). These and other members of our management team are available to take your questions at the conclusion of our prepared remarks. Our second quarter 2012 supplemental disclosure package provides a significant amount of valuable information with respect to the Trust’s operating and financial performance. This document is currently available on our website. 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 contained in our forward-looking statements and we can give no assurance that these expectations will be attained. Risks inherent in these assumptions include, but are not limited to future economic conditions including interest rates, real estate conditions and the risks and costs of construction. The earnings release and supplemental reporting package that we issued yesterday, our Annual Report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial conditions and results of operation. Now I’d like to turn the call over to Andy Blocher, who will begin our discussion of second quarter 2012 results. Andy?

Thanks, Kristina and Good morning, everybody. $1.04 of FFO per share in the second quarter matches our record first quarter 2012 result and again was driven by continued strong internal growth which include a higher portfolio occupancy and a continuation of low level of bad debt. Let me provide some of the details of the quarter then we can discuss the capital market activities before going through the assumptions behind our increased guidance and the dividend increase. Property operating income increase $8.5 million versus second quarter 2011, $5.1 million came for 2011 acquisition the Plaza El Segundo and Montrose Crossing. On a same-center this property operating income increase 3.5% including redevelopment and 2.7% excluding redevelopment. Increases in the same center portfolio were driven by improvements in minimum rents through year-over-year occupancy gains and redevelopments coming online such as 300 Santana Row and Levare the latest residential building at Santana Row. Increases in other property income were driven by lease termination fees. You may recall that we’ve been guiding to increase other property income in 2012 and establishing guidance in November. One, just want to go through our improved 2012 guidance. We continue to see low absolute levels of bad debt. The second quarter bad debt increased on a comparable basis based on the very tough second quarter 2011 comp. So roughly $5 million increase in interest expense for the second quarter ‘11 largely comes from mortgage loans associated with the acquisitions of Plaza El Segundo and Montrose Crossing we did last year. In total funds from operations increase 3.9% to $66.8 million and 2% on a per share basis to $1.04 results in the second quarter. On a year-to-date basis FFO was up 6.3% and 3.5% on a per share basis. Very strong operating performance reflecting the strength of our…

Thanks Andy, good morning everybody. A very eventful quarter and frankly month of July for Federal in so many ways and one that really set us well for the next few years. First we ask Jim Taylor as you know to bring a deep industry experience to Federal and join our senior team as Chief Financial Officer. We executed $250 million 10-year unsecured bond deal, the lowest coupon ever done by any REIT, anywhere and anytime. We raised our quarterly dividend for REIT rerecord 40, 50 in a row and this year by significant $0.16 a share annually nearly 6%. We broke ground on our $250 million first phase Pike & Rose development here in Rockville, Maryland. At here decided not to move forward with the second Boston store on land next to our assembly road development, which we feel is a net positive to our plant and we duplicated the first quarter’s record earnings and feel confident enough for increased earnings guidance for 2012 to the second time in two quarters. What I like to do, talk of the quarter starts around the productivity of our total lease, since it provides the best window we’ve into the expectations for future cash flows. Like the first quarter, second quarter leasing was again pretty extraordinary with 106 deals for 356,000 feet of comparable space completed in average rate $36.08, 11% higher than the $32.64 it replaced. We had never done that many deals in the quarter before ever. To further put the leasing block perspective, we now leased 817,000 feet of space in the first half of 2012 companywide. We release that much G&A in the first six months of year just once before back in 2004 and those deals will generate $3.3 million of more rent annually then the deal…

Thank you. (Operator Instructions) And your first question comes from the line of Jeffrey Donnelly with Wells Fargo. Please proceed. Jeffrey Donnelly – Wells Fargo: Good morning guys. Yeah let me echo I guess Andy it’s been a pleasure working with you and I certainly wish you success in the future as well. Don, I guess as part of the CFO transition what should investors read into the hiring of Jim Taylor, is there a reason you chose from Jim’s background that you see a need for something may be larger or more strategic in the future or I guess is there a message there?

I do Jeff and there is a couple of things. First of all Jim has been a key advisor to the company with First Union to Wachovia to well and he is still for the better part of a dozen years. He knows the inside and out and I can tell you I’ve got the utmost respect for his strategic advice and his business development expertise. When we took Jeff Berkes and Jeff moves to the West Coast to take on the role of President of the West Coast, I really felt like I was missing that here on the East Coast as a whole when Jeff went West and the opportunity to get somebody that our senior team knows as well as Jim somebody that knows this company as well somebody that every other CEO that I’ve talked to has – who has called me has said man you took away my best advisor, I cannot tell how many people – how many CEOs I’ve heard that from, the ability to have somebody like that in the CFO role is a pretty unique opportunity and one that I didn’t want to pass out. I hope that helps. Jeffrey Donnelly – Wells Fargo: That’s helpful and just on Assembly Row, a few questions, do you have an update for us on leasing there, I think last quarter you were saying that there is a substantial number of LOIs. How many of those become more concrete?

Yeah they’ve all become more concrete but they haven’t become leases yet and or a few of them have but I don’t want to just do a one off kind of thing so I want to buy another quarter or so and I want to basically give you a real good idea coming into this year, the timing has always been the end of this year we felt we had some things to announce, we will have that probably before the end of this year because that’s tracking really, really nicely and so I’ll lay that out for you there. I don’t want you to, as you think about that project I’ve got some great restaurant news, you have some great outlet news of the theaters you know is obviously locked in, I think you’re going to like the merchandising plan but I want that to cook a little bit further before we start talking about that specific. Jeffrey Donnelly – Wells Fargo: And on the IKEA side is there a use you do not want to see there whether or not you’re involved and do you think another developer can actually be competitive for that site given the complexity of the overall project and I would argue that the city probably has considerable sway in what ultimately is put there.

I absolutely think another developer could be, it could be influential and are competitive rather on that side. I mean, there hasn’t been a new (inaudible) up in Boston in 27 years as you know, and in a 12 acre piece of land next to, a development that boasts Federal Realty and AvalonBay have committed to, I mean that’s got to be a really attractive thing, with respect to how complex it is, how entitled it needs to be, what it should be, those are all very fair points too. But, so that balance is clearly, it clearly is going to be considered by any potential owner of that land. And like I said before, we are going to look at the Jeff, not defensively, but offensively. And so, if there is a 12 acre site next to a great project that we’re working on, where we can pencil something that makes sense to do, then we’ll do it, to the extent that, if that, price goes to a crazy place or the entitlement risk and the complexity and all that stuff makes it such that, there is not a deal that make any financial sense there then let somebody else do it. And that’s really is truly is how I feel about it, if that, I hope that helps in your thinking, it’s offense with respect to a new development site there for Federal, not defense with respect to the existing assembly project. Jeffrey Donnelly – Wells Fargo: Just a last question on Super Value, can you just give us any more specifics there, I think your average in place rents about $10 a square foot, I think your average anchor rent is about $16, are those situation that could trigger, I guess I’ll call them redevelopments if they come back to you, or is it really just going to be more of the usual block and tackles releasing?

It’ll be a combination of both. We’re looking at eight, I guess seven different units between Acme up in the Philadelphia market and Shoppers down here and Washington things like. All of those, I can’t wait I would love to get them back and what we do with respect to getting them back, we’ll run the gamut as it normally does from replacing grocer in some cases to larger redevelopment possibilities that it opens up but when I look I am just looking down to the base rents. The base rents in total for those 10 bucks a foot, pretty on good, 10 bucks a foot in those markets that we’re at with 338,000 square feet making up those seven locations, yeah that will be okay. Jeffrey Donnelly – Wells Fargo: Okay, thanks guys.

You bet.

And your next question comes from the line of Craig Schmidt with Bank of America. Please proceed. Craig Schmidt – Bank of America: Thank you. Let me just start off wishing Andy the best of luck going forward.

Thanks Craig. Craig Schmidt – Bank of America: On Valley Kenwood I believe the two of new anchors are LA Fitness and Giant Food now?

No, they have been there for a long time. We did LA Fitness probably 10 years ago Craig something like that and that’s in Acme right, an Acme is one of the Acme location I was just referring to but we did and there is also Lord & Taylor that’s in the middle of a great new, to the inside of that store and the deal we cut with Lord & Taylor allowed us to add additional retail to the front of the center on the hard corner, around the hard corner which is just getting done now or being leased, opening up that. Craig Schmidt – Bank of America: Okay, great and on the IKEA, it would seem like you would have an advantage there because not only would you be taking advantage of the new T-Stop but, as you build Assembly Row you’re going to add value and if you control the land, it seems like you’d also be able to integrate that in the project.

I don’t, I am sorry, let me let you ask your question, go ahead. Craig Schmidt – Bank of America: No, no I just – to me it seems like as you mentioned on the previous question that you’re going to be aggressive but it just seems like to me a real opportunity much the same way when people build malls they would buy the surrounding land around that site?

I couldn’t agree with you more, it is. But having said that, you have seen some of the deals that have happened in real estate land over the commercial real estate land over the past year and some of them are just laying crazy and to the extent it gets just laying crazy or out and so, just in terms of how we look at it obviously we’re making a big bet on the 50 plus acres that we already own and control. This adjacent piece as you point out correctly makes all the, it makes all the sense for us, we should have a competitive advantage, it should work out, I feel some crazy stuff going on out there and so we gotten ourselves internally very, very comfortable on not owning it because it is going to be developed and most of the uses that will apply, if not all the uses that will apply to that, to all acres which is not appropriately known right now for a lot of those uses by the way will benefit our project next to it. So if you were going to say to me, hey Don, you can go grab and you can go put something in there and you can earn a 2.5% return on it, I’d say no thank, let’s somebody else go on to 2.5% return and we’ll benefit just quite via proximity. So that’s all I am saying. We will look at it offensively as a new development. Craig Schmidt – Bank of America: Okay, thanks.

Yeah.

And your next question comes from the line of Paul Morgan from Morgan Stanley. Please proceed. Paul Morgan – Morgan Stanley: Hi good morning. Just on the debt deal and how that might affect your kind of your view of, I mean obviously it has some effect on you cost to capital, it is your cost to capital, but how do you think in terms of your required return on investments and both from perspective of acquisition where cap rates are obviously a lot lower but then also just your return on redevelopment?

Yeah Paul, its, yeah, I mean I’ll tell you that very candidly, it was eye opening. I mean that is one great piece of paper for Federal Realty. And there is no doubt that with our advantage in terms of cost of capital and Jim in this role and the opportunity is that are out there that you may see us being more aggressive, you’ll certainly see us being more aggressive in terms of the number of things that we’re looking at. Whether any of those effectively turn into actual deals, actual things that we do, remains to be seen because while we do have an advantage in terms of our cost of capital, we in no way are going to get anymore lacks on the quality of that real estate, which is not going to do it. So it’s got to be the right product and to the extent is that right product either on the acquisition or development side, I don’t know, as you know, we’ve got plenty of development right now to do. The, there is no doubt that $250 million at 3.14 effective yield does impact our view on our folk’s capital a little bit. Paul Morgan – Morgan Stanley: And then, in terms of your appetite for sort of the more complex projects, given that you already have sort of a number in the works. I mean, how do you think about phasing any opportunities that would come along, I mean, would you look, would you be interested in investing in something that would really involve, starts along the same time highs as your existing projects or....

Yeah. It’s a great question, Paul. I mean the answer is no. I mean, we’ve got, our plate is absolutely full right now, with respect to that. Now, and in addition by the way, the project that we’re working on this is not, we’re talking about first phases right now, we’re, if we do these things right, we’ve got, we got a reservoir of opportunity for a dozen years with respect to those. That doesn’t mean that we won’t look for other development opportunities in the future, but we got to get these up and operating first. On the acquisition side, either at the property level or more broadly, we will clearly be looking at a lot of stuff here. Paul Morgan – Morgan Stanley: And just lastly, on occupancy, you’ve continuously been in 95 range, you’re not there now, there has been kind of the borders and other things. But, given the quality of the portfolio and the solid same-store numbers, I mean, what kind of visibility do you have to getting back to your kind of your traditional occupancy level?

I think you’ll see additional occupancy gains as we move through this year. I definitely believe that 95, 95.5, for this company is pretty darn near fall off. And we used to see some of the competitors in the heyday up in 97, 97.5, frankly I think you given up rent if you’re out there because you need that balance between pushing for rent in the right tenant and the vacancy is a long-term commitment. So I would Paul I, we’re going to see what happens with this economy over the next couple of years I can tell you right now there is good momentum. And momentum is hard to stop and so that’s why we think we’ve got the visibility for the balance of this year, it’s why we raised the guidance there despite the fact of, major cost of changes you imagine additional debt cost et cetera we’re still able to do that. I think you should feel good. Paul Morgan – Morgan Stanley: Okay thanks.

And your next question comes from the line of Alex Goldfarb with Sandler O’Neill. Please proceed. Alex Goldfarb – Sandler O’Neill: Hi, good morning and I’ll join in the queue with people Andy, we’ll miss you but I’m sure we’ll see you sometime in the near future.

It’s not like I am dying. Alex Goldfarb – Sandler O’Neill: Very true, very true. Just Don, going back to Jeff’s question, Jim certainly has a different background than Andy, and one is hard pressed to think of him just issuing debt once a year and doing a little ATM issuance, I’d imagine he would get pretty poor doing that. Should we think about more M&A, more corporate activity portfolio acquisition, a guy with his skill set, would be ashamed not to use it, so what’s your take. And then also as we think about the A minus rating, how should we think about a step up in activity balancing that with the A minus rating?

That’s fair. First of all Alex – I really wish you were in this room to seen Andy’s reaction. When you said, just doing a dead deal once a year something like that Andy is sitting there with his arms raised, so you will get a call in around noon. Alex Goldfarb – Sandler O’Neill: Sure. I can’t wait for that call.

From...

Looks like on the JV, CFO.

But listen first of all with respect to this company, you know or I hope you know, I hope everybody on the call knows that this company is all about balance, is all about high quality real estate, a steady stream of increasing cash flow and there is no one individual other than frankly in this position because I have my job that can’t change that belief and that business plan of this company. Having said that Alex clearly with Jim’s background, he is not going to be spending as much time on the Investor Relation side as Andy does, we will have to make sure that we’re covered there. But it will free up time for looking at capital allocation alternatives that as you point out with Jim’s background should be greater than today. That may or it may not mean that there are additional uses of the capital coming in the future, it depends on what it is that we find, the rating agencies who we met with, absolutely understand that in terms of the discipline that is a hallmark of this company and that it would be wrong to look at that change and say oh my God there is going to be a whole bunch more stuff that gets done. There is going to be the whole bunch more stuff that gets looked at, reviewed, discussed, strategically reviewed, that kind of thing. But whether happened or not, it is fits in the box of the Federal Realty business plan, that is and has always existed fundamentally. Alex Goldfarb – Sandler O’Neill: So thinking out, three years or so, you would expect Federal to look similar to as it is today or you think that it could be bigger, it could enter new markets?

Yes, yes, yes. Alex Goldfarb – Sandler O’Neill: Okay.

I don’t have to say rather than kind of the longer way I’d said it. Alex Goldfarb – Sandler O’Neill: Yes, it’s fine, okay. And then the final question is last, on the last quarter’s conference call, you guys spoke about your redevelopment at Huntington, having driven passed their recently, Simon is obviously well underway at Walt Whitman. You have a lot of road construction there on 110 and, Northern Parkway, what are, is there any opportunity at Melville, your asset there?

There is, it’s a great – as you know that’s a great color. I mean the reason Simon putting money into this, into that mall is because it’s a very successful mall and has opportunity. The reason we’re putting money is to that extent is because it’s a terrific ancillary use of property to the mall and has a great opportunity. Melville is in the same categories there. The leases are more restrictive with respect to getting some of that stuff done. I mean as you drive by Melville, you say man this is a nice piece of land, it should be more that can happen there. There may be some day but there are lease restrictions in community points of view there. Now we have to work through and just like we do in any of our other properties, we’ll be doing that, we are doing that and, it’s in this portfolio of a pretty darn good 19.5 million square feet. Alex Goldfarb – Sandler O’Neill: Okay, thank you.

You bet.

And your next question comes from the line of Michael Mueller with JP Morgan. Please proceed. Joe Dazzio – JP Morgan: Good morning guys, it’s Joe Dazzio here, just one question so you’re going to be using the ATM I guess a little bit more over the balance of the year and I was curious I guess as you look through 2015, do you have a rough estimates how much equity you think you need to raise and/or in the some kind of split you have in mind between common issuance or perhaps bringing in JV partners as a funding source.

All under review, Joe all under review. I can tell you that we found a lot of growth coming over the next few years and that not only comes from the developments that are underway on but it comes from the existing portfolio which is being leased up more, is performing really well. We got a lot of growth, we got a lot of stuff to do, we’ve got bunch of redevelopment and I mean the magic formula or part of the magic formula this company is a conservative balance sheet, no question about that. We look at all the possible opportunities that are available to us, everything from common to preferred to JV equity and kind of debt interest paying to debt, that was just done. So you should not expect to see any long-term difference in the overall capitalization of the company that doesn’t mean any particular quarter or any particular year for that matter, doesn’t see it spike one way or the other, it depends on the marketplace and we’ve got the flexibility to use all of them. I wish I can give you a better answer to that as we get a little further and evaluate the JV opportunity potentially along with the ATM, along with overnights, along with asset sales to put in there. There will more to talk about as we go forward, but I can’t give you any number today. Joe Dazzio – JP Morgan: Okay. Thank you.

Thanks, Joe.

And your next question comes from the line of Tayo Okusanya with Jefferies. Please proceed. Tayo Okusanya – Jefferies: Hi guys. Good morning. Just quick question regards to strategically one of the thing that FRT was focused on was again kind of moving traditionally mall based retailers over to more of the shopping center feel. And I’m just kind of curious if there is any update on that initiative and if any new suspect is in regards to getting tenant to move out of the mall and more into the street mall?

Tayo, it is a constant focus of this company and it’s one that we have had pretty doing on success. And one of the things if you remember, when we talked about that, what that’s all about is truly trying to create additional demand, incremental demand for our shopping centers, particularly the more urban shopping centers, the street retail stuff where we’ve got an easier settle that way and have an advantage of pricing effectively and tenant taxes over them all. We have examples where I can show you that the mall tenant is operating. We have better examples frankly where the mall tenants have looked at and helped us increase the – created a horse rates if you will on the, for this retail type product. And therefore, we’ve gotten better rents from our existing tenant valued here both. That’s not a onetime initiative, that’s a business philosophy that we continue to have. We really made a focus on and about two years ago started that focus. That focus is now ingrained in Chris Weilminster’s leasing department. Tayo Okusanya – Jefferies: Got it. That’s helpful. Just wanted to add my own comments as well, Andy you will be missed and just call me anytime you’re ready to go shoe shopping.

Thanks.

We’ll explore that deeper later. Thanks.

(Operator Instructions). And your next question comes from the line of Quentin Velleley with Citi. Please proceed. Quentin Velleley – Citi: Hi, good morning. Just an asset specific question, in terms of Santana Row, Westfield it seems they’re getting closer to doing a pretty large redevelopment expansion, I believe department store in good and luxury in launch space. How are you sort of thinking about how that might impact Santana Row once it gets out of the ground?

Well, I got to tell you Quentin, I’m going to ask Jeff to jump in here in a second. But, we’ve been competing with Westfield across the street now for 10 years in operations, there has been nice improvements that they’ve made over there, there have been plans that have not happened if, it’s great real estate and there is always going to be opportunity at Westfield or at Santana to expand, to do something different. The nice thing about this property in Santana is it has become not particularly competitive with the mall, it’s a different story, it’s a different product that’s being offered there and it has certainly solidified itself. So, when you see the tenant sales numbers that we see increasing, when you’ve seen the long standing dominance of its restaurant product that’s there, I can’t, when you see the residential premiums that we’re getting, the hotel premiums that we’re getting, I couldn’t feel more positive about the future of Santana Row, no matter what happens across the street, with respect to Westfield and Jeff, I don’t know if you want to add anything to that but go for it.

Yeah, still TBD is to whether or not that happens. I think, given the positioning of the anchors on the type at (inaudible) that could be in that positive for Santana Row quite frankly. There is a lot of back and forth traffic between the property if you stand out at the entrance to Santana Row on a Saturday afternoon and look at the number of people that walk back and forth across the street it’s pretty impressive and having a couple of big anchors right at top of the street at Santana Row I don’t think hurts us at all. But, expand on that, Don’s point, we really go for in our minds what we view is a different tenant and that’s a tenants that’s really focused on their merchandize and their presentation that appreciates being in the kind of environment that we have here at Santana Row and we’ve specially over the last couple of years had great success. We’ve out here today, you see big H&M, the biggest H&M in the South Bay under construction in the former border space, you see a brand new Fed store which looks just amazing and is off to a great start and we’ve got four other small shop restaurants in look through or four other small shop tenants have put through a restaurant under construction right now and over commitment of demand for the former H&M space and a lot of other positive things going on that are, really too premature to discuss. So, who knows whether that happens but not a huge concern from my standpoint. Quentin Velleley – Citi: Could you maybe give us an update on any progress on potentially leasing the office space around the back there on (inaudible).

Yeah you’re speaking of the lot 11 space

Yeah. So, from an entitlement standpoint everything is progressing as expected and on schedule. We have a council hearing next week, we’ve got through our planning commission here in a couple of weeks ago and got unanimous approval so from an entitlement standpoint everything is moving forward as expected, construction costs are actually shaping up to be a little bit less than what we thought when we originally got into the project but we don’t have everything nailed down there and tenant demand, we’re out in the market, we’re talking to tenants, we’ve got interest but we’re not close with anybody yet. The positive momentum is here in this part of Bay area, they’re still strong so it’s a matter of time I think until we find the tenant that’s the right fit for the building, who’s got the right financial statement and we’ll go from there, so everything is moving forward as expected. Quentin Velleley – Citi: Thank you.

And your next question comes from line of Rich Moore with RBC Capital. Please proceed. Rich Moore – RBC Capital: Hi good morning guys. The other property income line in the quarter I think have some terming coming in, what was that, was that Genuardi’s as well or was that something different?

No, it was other lease termination fees from Espree and from 3rd Street Promenade, from facilities at Boston, at Santana, this you know Rich give me a good opportunity to talk about lease termination fees as everybody like to do, for a second. I am just sitting, looking, this year clearly we’ll have boy a lot of lease termination fees, we view that as a wonderful thing, there are very few times when we effectively get paid up upfront for leased commitments that we don’t do a whole lot better in terms of the releasing of this space, economically the combination of lease termination fees plus the new rent is often much better than before. This company always will have lease termination fees as a key part of what it does, that’s because our leases are really strong. And our leases are really strong not because we have the greatest orders in the world, our leases are really strong because the properties are in great locations. And so it gives us a chance to add more leverage in terms of tenants used, lease changed, their old operations changed, they want to do a number of different things. So, the ability for us, if you look at Federal that in the last year, we had a low year in lease termination fees, we had less than $2 million. The year before that, we had $7.5 million, the year before that $6.5 million, the year before that $7.5 million. Basically over $5 million bucks a year, $5.5 million bucks a year in lease termination fees over the last five years on average. And if you look at taking that money and what has happened to those spaces in terms of the releasing. This company’s value is clearly significantly more than if those original tenants stayed in the entire time. And the same thing is going to happen with respect to Genuardi this big we have said that we just got and frankly I’ll be ready in next quarter to tell you I want to talk about all three of those deals with Genuardis and what that does to the future value of those properties and of Federal. So I guessed, I just want to make sure that any analyst who looks at the company understands the, how integral lease term fees are to our business because of the strength of the underlying contract, that allows us to get paid so regularly. Rich Moore – RBC Capital: Thank you. That was a great explanation. I appreciate that. I want to ask you if I could well we’re talking about the Genuardi’s the two as I understand from the press release went to Giant and the third is vacant is that right?

That’s right, they are basically Giant of Carlisle assumed certain Genuardi’s locations in Pennsylvania but we had three Genuardi’s locations two in Pennsylvania in Philly and one on the Cherry Hill side on the Jersey side in Cherry Hill called (inaudible). Giant didn’t pick that on up and so that is today still a Genuardi’s but will close. We’re working hard on the releasing of that and that’s one of the things though little premature Genuardi’s hasn’t been closed there yet but I’m not blowing you away before we do with that along with the other two that are in Philadelphia. Rich Moore – RBC Capital: Okay so the, I’m trying to understand exactly so the rent that you have before on the three versus the rent that you have today what is the difference in that and then how long before that changes?

Windwood there is new tenant that assumed the lease so no change in rents. Rich Moore – RBC Capital: No change okay.

Flowertown there will be big increase in rent and I’ll get more into the detail why it is later on and Cherry Hill where the Genuardi’s is closing will have downtown down time for the period of time and then will have a big increase in rent. Rich Moore – RBC Capital: Okay so the time to release one of the one the one that’s going down will probably take a year or something like that?

Yeah you can figure it 12 months sure and then we’ll beat it. Rich Moore – RBC Capital: Okay and what is the can you give the rough idea of what kind of lost rent are you talking about there?

Yeah 6-700,000 bucks a year. Rich Moore – RBC Capital: Okay got you. Okay good thank you and then Don is there any other change besides the CFO plan or are you looking at other aspects of management or is it just a single...

Rich, first of all if I were, do you really think I would this conference call to announce it and number one and number two absolutely not. This is an opportunistic change, this is an opportunistic point in time when a senior advisors to the company became available to fill strategic needs and a business development need that we took advantage of. I think it’s good smart business personally but not the idea that it push out a lot, anything else would be wrong. Rich Moore – RBC Capital: Okay, good, thank you.

Okay.

And your next question comes from the line of Quentin Velleley with Citi. Please proceed. Michael Bilerman – Citi: Yeah, Michael Bilerman speaking. Can you hear me?

Yeah Mike. Michael Bilerman – Citi: Just in terms of Jim, what sort of multifamily experience did you have – do you spent a lot of time multifamily with those clients?

Yeah Michael, it’s Jim. I did, I spend a lot of time with Long Bay and BRE, Axes and a number of the other public companies. My coverage really did focus a lot, although I ran their group, I focused a lot on both the retail and multifamily names. Michael Bilerman – Citi: And then so I guess as you sort of think about the situation and obviously has been an advisor to the company for a long time and friendly with Don, I guess how do you sort of see Federal in that sense continuing to morph and keep on adding residential?

Well, I think if you know residential is a percent of the company’s overall revenue kind of mid single-digits and I think that residential made sense for certain of the company’s asset as a way to continue to drive value from the retail that’s there but I don’t expect the company will change, this will be predominantly a resale company. Michael Bilerman – Citi: Okay. Thank you.

And your next question comes from the line of Jeffrey Donnelly with Wells Fargo. Please proceed. Jeffrey Donnelly – Wells Fargo: Thanks, guys. And actually, Andy, don’t call me if you go shoe shopping. Actually, I just had a question Don, I mean just want to circle back in this, as your response to earlier questions made, it just sound like you’re kind of mixing things up there a little bit and maybe, I guess, I just want to understand that a little bit better, because a lot of people do rely on Federal’s consistency. Should we be anticipating by that remark, that you see maybe a shift in philosophy and how you think about leverage or you talked about begin bigger in different markets, does that mean.....

No, I didn’t Jeff. I think, maybe I misspoke, or you misheard, or I wasn’t as clear as I need to be. There is no question that the D&A that has set this company on the path that it’s been on for the last 10 years, will absolutely continue. That, the, only that there is no any person that can comment, other than the CEO and I don’t intend to be going anywhere, that can change that philosophy. The philosophy works, I fully understand that it’s this steady stream of cash flow, transparency, consistency, is that is what works and never get me to change that. Having said that, there is no doubt that having someone of Jim’s background is going or should be able to serve up additional activity. That should only be a positive, because it’s not going to happen unless they are in line with that business plan, consistent with that business plan and profitable with respect to that business plan. So, I think from an investor perspective or analyst perspective in a weird kind of way if you like what Federal is then I think you’re going to, then it can only be upside by additional activity going through the filter that is the same filter that is made for everyone in this. So I don’t see the down. Jeffrey Donnelly – Wells Fargo: Okay but that’s helpful, thank you.

You bet.

And your next question comes from the line of Nathan Isbee with Stifel Nicolaus. Please proceed. Nathan Isbee – Stifel Nicolaus: Good morning Andy just like to the echo the fun sentiments and Jim welcome.

Thanks. Nathan Isbee – Stifel Nicolaus: Focusing on the Third Street space and, there was an eye opening trade in the press this week and another Third Street space granted Apple changes the equation and your space is smaller, but is there anything that you can do with your space to transform the value equation?

Well, we got a bunch of spaces on Third Street. If you look today at whether they are, at or below market, you’re going to see that clearly there’s a lot of money yet to me made on Third Street Promenade for us. Do we control enough of Third Street Promenade made to be able to be transformational with respect to the street probably not, probably not but when you look at the street, when you look at how it’s impacted by the redone mall, how it feels I can tell you we’re very, very bullish on the future but that future value will come primarily from releasing to some tenants who, that’s one of the places where tenants want a set a flag and so there is always, I’ll use the word cool, sometimes cool is cool most of the times cool is profitable. It’s not likely to be transformational to the whole street because we don’t control the whole street we’re enough of it. Nathan Isbee – Stifel Nicolaus: Okay thanks and then just going back to the management change, I am going to give Andy a little more credit of being at JV CFO.

That’s good, because it was going to be ugly once you hung up. Nathan Isbee – Stifel Nicolaus: So, I’m just wondering, with Jim’s skill set, who is going to bring the Andy skill set to the table for you guys going forward?

Describe what’s your.... Nathan Isbee – Stifel Nicolaus: Well, it just on the...

(Inaudible) Nathan Isbee – Stifel Nicolaus: The capital markets the accounting et cetera?

Well, you haven’t met, the combination of Jim and a lady who I don’t know how much you’ve met with and that’s Melissa Solis, who was our Chief Accounting Officer obviously, it’s not going to be same as Andy, it will be different.

(Inaudible).

Well, it’ll be fine. And with Melissa, who you haven’t spent a bunch time with, but you will more and more, we’ve got a very, very, we got a start here, basically. And it will be very good for her carrier, it’ll be very good for the people that she is dealing with in the analysts and investor community to get to know her a little bit better. You know that, one of the things I love about what Andy has done with the process is, he has made sure that you know Dawn Becker, he has made sure that you know Chris Weilminster, he has made sure that you know Jeff Berkes. So, one other things we talked about years ago is, you got to see the depth here, the depth here is really one of the best assets of this company and here is an opportunity for you to get a little bit more visibility to that with Melissa. Nathan Isbee – Stifel Nicolaus: Okay, great. Thanks.

Yep.

At this time there are no further questions. You may continue.

Thank you. And this concludes our second quarter earnings conference call.