Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Federal Realty Investment Trust 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 be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to introduce your host for today’s conference Leah Brady. Please go ahead ma’am.

Good morning, I would like to thank everyone for joining us today for Federal Realty’s third quarter 2018 earnings conference call. Joining me on the call are Don Wood, Dan G, Jeff Berkes, Dawn Becker and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks. I’d like to remind everyone that certain matters 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 that expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty’s future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued yesterday, our annual report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of operations. These documents are available on our website. [Operator Instructions] And with that, I will turn the call over to Don Wood to begin our discussion of our third quarter results. Don?

Thank you, Leah. Good morning, everybody. At a $1.58 a share in the third quarter, we generated more funds from operations in a 90-day period than we ever have in our 56-year history. On an absolute basis, this was simply the best quarter we’ve ever had. More than 5% ahead of last year’s quarter, and in excess of both the streets and our internal expectations contributions came from all parts of our business and on both coasts. Overall rental income grew 5.5% quarter-over-quarter. Earnings growth at comparable properties was particularly strong at 3.5%. The comparable portfolio remains 95% leased and 94% occupied and operating expenses including G&A, but not including real estate taxes, actually fell slightly quarter-over-quarter despite 12 million more in revenue, real estate taxes it seems never goes down. The only metric that was underwhelming for us on the surface was comparable retail lease rollover growth at 6%, 90-day comp, 90 comparable deals were 448,000 square feet and an average rent of 38.31 per foot, 6% above the 36.22 that the previous tenant was paying in the last year of the lease. Not bad, but it’s not what you’re used to seeing. So let’s take a deeper look and breaking down the overall results space leased to new tenants grew at 13% with the previous tenant, while renewals of existing tenants grew at only 2%. That’s the combined 6% rollover. The detail supporting this 2% renewal rollover rates revealed that more than half of the renewal rent came from just two deals, both of whom renewed flat for the last year their previously lease and therefore depressed the reported percentage increase. A strong credit anchor at East Bay Bridge in Emeryville, California and the Best Buy building at Santana Row. Now many of you who are familiar with…

Thank you, Don, and hello, everyone. Our $1.58 per share of FFO for the quarter was $0.07 above our expectations and $0.03 above consensus. This outperformance was driven by higher POI through more rent and forecasts and continued expense controls at the property level. Higher term fees than we had forecast as well as lower G&A. But once again offset from the drag of early ramp up at our two new hotels with Pike & Rose and Assembly, the latter of which just opened midway through the quarter. Our comparable POI metric was 3.5%, which bested our forecasts as a result of the items I just mentioned. You probably remember from our last call, we had expected this quarter to be the weakest of the year. Our continued proactive releasing activity this year provided in drag of 110 basis points. Although this was partially offset from the benefit of our 2017 proactive releasing efforts. Our better than expected termination fees enhance the results by roughly 1%. As a reference, our former metric same-store with re-dev came in at 3.4%. Don discussed in detail our lease roll over number for the quarter 6%. But please note that on a trailing fourth quarter basis our rollover stands at a solid 12%. In double-digits and in line with 2016 and 2017 levels. And to reemphasize, let’s remember this is real estate, where true value creation should be measured over 3 to 5 to 10-year horizon and let’s not get overly focused and any one quarters or even any one year's metrics. With respect to occupancy if a strong momentum in the second quarter. Our overall lease and occupied figures were 94.8 and 93.7 respectively. Essentially flat to down slightly, but consistent with previous comparable quarters. New leases of note includes industry on Third…

Thank you. [Operator instructions]. Our first question is from Nick Yulico with Scotiabank. Your line is open.

Thank you, good morning. Dan just going back to the goal post for 2019. When you are talking about growth in line with the past several years, are you was that referring to FFO growth or is that also same-store comparable NOI growth?

Yes, generally its FFO, was what the reference was there. We’re not providing any same-store guidance at this point and probably won't until our February call. Similar to what we did last year.

Okay and second question is just on the releasing spreads and Don, you know you gave a lot of info there. I guess question is, whether you have more those types of leases which those escalations, sounds pretty attractive, that’s one part. And then separately you know maybe we can get a preview of how you expect the releasing spreads for working the next year I know they are been volatile, you highlighted that they would – they could come down. Any numbers you could share there?

Let me frame it Nick this way. First of all, those two leases, I think normally I wouldn’t break out a couple leases and give you that those kind of specifics on it but that is just so economically compelling that I felt the need to do that. Now, are there a lot of big anchor boxes that has those kind of boxes, no, those kind of bumps, I don’t know if any other, to tell you the truth, I mean they are, that’s really unusual, but the only reason that happens is because of productivity of the store and the strength in the market, the strength in the location – so, what I am – the reason I do stuff like that – or talk about stuff like that is you probably get sick of me saying those contracts were business of contracts and those contracts are just critical in terms of what they say to determine the value of the real estate that's underlying it. And when you have deals like that, I’m sure there are other people on this call saying wow, because they don’t have deals like that of that kind of significance. Now generally, so every quarter there is something that as you know I like to highlight or talk about that kind of builds the case for the value of the real estate. There’s no doubt that overall pushing rents, pushing rents is an issue industry-wide because supply exceeds demand in terms of retail rents it’s key reason that we look hard at office and at residential as a big part of our business plan. Once you create the overall environment on the ground floor, it’s awfully nice to be able to capture real estate value by being able to do the right merchandising downstairs, you’re going to get paid for it upstairs in the form of higher residential or higher office rents up there and how much we believe in that. Alternatively or in addition to that it really does come down to the leverage of each of the individual shopping centers that we have and we own good ones. So do I expect there, the next year or two to be years of 20% and 22% and 24% rent low little bumps? No, I don’t. Do I expect us still to be able to do double-digit rent bumps, yes. I don’t see why not, that doesn’t mean any particular 90 days but certainly when we look at our loss to lease overall on this portfolio and I love this slide that we do in our deck that shows what leases have been done at versus what the in place is, it sure shows you, compared to almost anybody else to look at that there’s a whole lot of upside left there. But that doesn’t mean across the board and everywhere, that gets tougher. I hope that helps.

Our next question is from Alexander Goldfarb with Sandler O’Neill. Your line is open.

So two questions. First, Dan, you mentioned the 125 million of dispositions that are in the pipeline. So I’m not sure if that’s sort of guidance for full year dispositions for ’19 or not. But can you just sort of give a breakout? How much of that are sort of I’ll call free assets like condos, things like that, that have no NOI impact versus how much of that will there be an NOI impact from?

I mean, I think the 125 is just what we have and probably represents what’s the first half of what we’re targeting the first half of the year for 2019. They are kind of income producing assets, kind of we view them as not non-core that we don’t have to own long-term. And we think we should be able to achieve pricing kind of in the mid-5s on those as well. So that’s a color on those two.

And then the second question is having toward Pike & Rose recently. One, the asset it definitely come down more. But two, just sort of curious you announced the second office there. Don, how do you think about the mix of residential and office as far as driving like restaurants and the other elements of the projects in general? Do you view each item on its own merit meeting which maximizes NOI for that particular land parcel, or is there a view of which what’s the right mix of office residential et cetera that drives the overall NOI of the center? Just trying to figure that out?

Yeah, it’s a combination of both. I mean, look, at the end of the day when you’re doing these type of projects but the real trick is the path to maturation. All of these projects, mix use projects take time take years to mature, now do they mature in two or three or do they mature in six or seven or somewhere in between or differently. One of the key ingredients to get that maturation is day time traffic which are trying to get to is a busy place as often in seven days, 24 hours a day as possible. Office is a key user for us. So, that day time traffic coupled with the incredible efficiency that comes from parking that you build for office that’s necessary for office but it's also used by the retail and another uses in the evening is the incredible part of the efficiency of how mix use project works. So, everyone of these and Pike & Rose well because of the time that you’ve spent there and when you look at Pike & Rose you think of what’s coming on from a retail perspective and you see how we’ve does on nice weekends from the residential base that’s there and the retail base that’s there, you can see well yeah there needs to be some day time traffic and that office is a critical component to that. And part of the reason that we continue to invest that way.

Okay. Thank you.

Thank you. Our next question is from Christy McElroy with Citi. Your line is open.

Hi. Good morning. Dan, I just wanted to follow up on the $275 million term loan you talked about refine next year. I think that the two swaps on that expired today and now that’s floating. Do you plan to keep that floating through the maturity next November? Or when do you plan to sort of refi that or when can you. And what are your plans for that?

Yeah. It will float at LIBOR plus 90. And I think we’ll look to be opportunistic in terms of refinancing that term loan. I think by extending it into 2019 it avails us to get into a little bit of sweet spot of the market and the bank market to potentially refinance it as another term loan. Or it gives us the optionality to look at it in the bond market. So, I think that we’ll be opportunistic in terms of refinancing that. It will be pretty open to repayment and so we can, there won’t be any access cost that we look to be opportunistic ahead of the November 2019.

Okay.

But likely '19 Christy, not '18.

Right, right. So, keep it floating for year and then refi to something shift next November?

Or before that, but what I’m saying is it won’t be a refi in the fourth quarter of 2018, it will be in 2019 opportunistically.

Got it. Got it. Okay. And then just with regard to the term fees recognizing that this is a recurring part of your business, but they did seem a little higher in Q3 than you would originally thought. What was those related to you and that speaks that you were proactively trying to get back or do this unexpectedly come back to you?

Little of both, this is a good conversation. And listen I absolutely know how you feel about term fees. And I appreciate you're starting out by saying that you do know the recurring part of our business, because it’s, I mean this is a business of contracts and we are like, we want to use those contracts to our best advantage as a tool in a various numbers of ways including the ability that to proactively get tenants out. But also recognizing and this is a big part, there is a changing consumer, we don’t want the same retailers over and over again as you look over out over the next five, seven, nine years we’re probably less than others about simply trying to backfill an existing box with another tenant. Than we all are about having an opportunity to redevelop a shopping center. So, one of the tools that we use for this stuff is a strong lease and it's just so critical to what it is that we do when you look at this quarter they were higher and it’s a combination of everything that you said, we lost some tenants that didn’t think we were, when we gave a forecast for termination fees but we also went hard after a couple of them to be able to make sure that we were able to redevelop and keep them in pipeline growing. So, you see in both places, I don’t expect term fees to be low, over the next year or two. I mean if you think about the business there is a changing in the business and a changing of retailers, I don’t know if you have seen the list of retailers that we actively go after who are digitally based retailers who have figured out you know what, we need a bricks and mortar presence. That’s a long list of other tenants, that’s a list of tenancy that particularly for street retail oriented, mix used type of product that’s a tenant base that we’d love to be able to access. Things like parachute home and others that you haven’t heard necessarily a lot about but are part of the future. So, having a contract in place that strong within existing tenant gives us the opportunity to be able to have some leverage to be able to create places for the future and that much more than any other comparison with any other company that’s what drives us, in terms of what we report and what our business plan is. I know its long winded but it really is, it's important to us to talk like that.

Go ahead.

Yes, Christy I just wanted to add, of the tenants that terminated in the third quarter over two-thirds of that income has already been replaced with execute leases of tenants who are coming in, so not only did we get those term fees, as outsize term fees, we have already been nimble enough to actually backfill over two-thirds of that space, before we even reporting in the quarter. So I think that’s the testament to how proactive we are in terms of managing the process and limiting kind of cash flow downsize.

Great, that is exactly what I was looking for, thank you.

Thank you. Our next question is from Jeremy Metz with BMO Capital Markets. Your line is open.

Hey good morning. Going back to the 2019 guidance at least a rough goal post you laid out there. Could you walk through some of the bigger pieces that could really swing you from one end to the other end to the other end, I know you mentioned the term loan and the G&A, any other bigger pieces there and then maybe how you’re thinking about bad debt in kind of all our relative to this year it sounds like from your comments, and Christy’s question, that you’re more or less expecting a similar level of headwind on that front?

Yes, I think its whole host of things. As I said, this is preliminary, I think how quickly the hotels continue to ramp up at Assembly and Pike & Rose can move things around a little bit. I think kind of where are, where we see our watchlist performing, over the course of 2019. Just going back to the two items, I mean I think even now at LIBOR plus 90, we’re going to have roughly a 100 basis points of drag if we keep it floating, and if based upon where kind of 6 and 12 month LIBOR is projected to be, there will be some drag over the course and that’s looks to be up to roughly $0.03 to $0.04 in the ballpark. And G&A will grow, I’m not going to get too far into the detail there. But G&A will be higher in 2019 and we’ll provide more color on that in our February call.

Yes. Jeremy, let me just add two things to that. First of all, welcome to BMO, it’s good to have you back. And secondly it is the developments that that are the single biggest mover, I mean we’re going to deliver to Splunk at some point around a year from now. A month one way or the other or two months one way or the other is important to how that works through. And secondly, I do want to add one thing to the G&A piece. With, while Mr. Enbriggs leaving, it’s an awesome opportunity for the next generation here. So we’re going to doing a bunch of promotions and that’s why G&A is going up, it’s good stuff. It’s the reason to be able to bet on that Federal Reality 2.0 if you will with respect to the next level management. So we will talk more about that in February. But it’s a critical part to us setting us up for the next 10 years.

And then you talked about the ramping dispositions of it as a source of capital. Dan, you mentioned 125 million in the first half of next year. Beyond that, we look at decisions is being more opportunistic or as markets accommodate and equity is attractive you may be pulled back from selling and fine on that, I mean are you baking some equity into the plans at this point?

I mean, as I said, it’s preliminary, I think that will be opportunistic on the equity side as well. I think that it’s a very limited small amount is kind of what’s figured in to our 2019 calculus for providing that those goalpost will have a greater refinement on kind of what that detailed assumption is in February.

And let me add one thing, if you don’t mind. In my prepared comments, I think, I led you to a discussion of the next phases of development at Assembly, the next phases of development at Santana. You saw what we’re doing at Bala with respect to the residential project. They’re very strong redevelopment pipeline and core. So as that’s stuff comes to fruition. This company looks at funding it including potential dispositions, but it’s different in other companies and that we don’t have a bunch of shopping centers that we don’t want to own. So it’s a smaller pool effectively to look at. No, we don’t have equity in the numbers in a significant way at this preliminary point, but we might. Again very modestly or modestly as a part of the balance sheet program. But a lot of it is dependent upon whether we go forward and I expect we will on building out some of these big de-risked development projects, de-risk because the places are already there and successful.

From a capital perspective we have multiple arrows in the quiver, in terms of, I mentioned $80 million of free cash flow in 2018. We should expect similar levels in 2019 or from where we sit today. I think also the balance sheet capacity as we're down positively trending from a debt-to-EBITDA perspective. I think that as cash flow continues to grow, as we continue to ramp up at Assembly and Pike & Rose in 2019 and as they further stabilize that will add greater debt capacity just very, very naturally on a leverage neutral basis. And so we’ve got a number of different ways that we can kind of fund the development pipeline and feel really, really good about how well positioned we are heading into the final quarter of 2018.

Okay. Thanks.

Thank you. Our next question is from Samir Khanal with Evercore. Your line is open.

Hi, guys. Good morning. Don, can I ask you to take step back and maybe talk about sort of your watchlist today and compare that to last year. I mean I look at, as we kind of go through your top 20 certainly feels like there is less exposure to the tenants that are will anchor or liquidate which tells me kind of that 2% to 3% of same store probably still is applicable for next year. But then you look at that Bed Bath or you look at Krogers that continue to top down rents. Is there a race that your releasing spreads could kind of start to decelerate a little bit here going into maybe the next 12 months to 24 months?

Yeah. Samir, it’s a good question. Look, the -- and I love the way you started it, because that’s exactly how I looked at it. I start out with that list that watch list et cetera and try to predict to the best as we can what would effectively happen. I mean do I worry about Bed Bath Beyond long-term, sure. I mean I absolutely do and do I worry about that Bed Bath Beyond not honoring their commitments and paying rent, no, not at all and somewhere and that’s a great example of an operation where, I don’t know how they will change their business plan, I don’t think anybody does at this point whether how successful they’ll be, what that new prototype will be as they move forward in the coming years. But certainly I want to make sure we have tenants that are at are tenant of the future that we believe in that are there to the extent we’re not part of the plan going forward. So, certainly with any tenants that’s not performing as well as they were, the rent pressure ramps up. It's an obvious statement, but it's certainly the case throughout a lot of these boxed tenants. The key with us is the balance and I going to start to show you a little bit more of how our residential performs, going to show you how our office performs, we’re going to try to get to this community to understand our company in its broadest – from a broad real estate perspective, because there are pressures coming in terms of retail lease roll over, certainly there are pressures. Do I see them as oh my god, off single digit lease roll overs or what we roll back – no I don’t. So, consider this within the context of the whole company in terms of how we’re moving. I think you’re going to feel really good about an investment that is very likely to continue to grow for years simply based on what we have in pipeline today. And I don’t know if there is anybody else that can say that there are very many else that can say that.

Okay. Thanks. And as we think about next year, I mean what are sort of the drags we need to think about especially from the same store perspective. I mean there is one is certainly Toys right, but I don’t think you had lot of exposure to those and then are there any other tenants that, will the company be kind of moving on to a level where you’ll be proactively maybe taking back space like you did a couple of years ago. So, is that something to think about for 2019?

Very much so, very much. I mean you know when you go down the list and you look at what we've got you've got to feel really good about this income stream. Toys might be the best example at all. One, one that was completely released at significant bumps to where Toys was and yes indeedo with you know within an incredibly short amount period of time. That's done. So you know where what happens with respect to Mattress Firm, we got 14 of them. You know when I look at the 14 and you know where most of are there are there on out parcels or in caps in great locations. That's not something I particularly worry about. Doesn’t mean there's not going to be some dislocation depending on what happens with the revolution of the company but we deal with that all the time, always have been. Don't see any amount of those type of income stoppages if you will in a significant way any different than we've managed through in years past certainly. And certainly better than 2016. So yes you ought to think about proactively leasing to we do constantly. It's not a switch that we turn on and off it is a dial that we turn up when we see opportunities turn down we don't. Yes you could see that turned up a little bit again.

Okay, thanks so much.

Thank you. Our next question is from Craig Schmidt with Bank of America. Your line is open

Thank you. Don, I was wonder you give us some description or background on RevUp the third-party platform that Mike Kelleher is setting up?

Very good, very good for picking that up, Craig, that’s cool. Not a big deal at this point at all. What that, what that's about is you know when you look at this industry and you think about temporary tenant income, ancillary income, sponsorships, all of the kind of nontraditional leasing revenue generation. I'm really proud of what we built as a company over the last decade or decade and a half. And yeah Mike Kelleher has been a big part of that to be able to grow it. We think we have capacity there and we think we've figured out how to do that maybe better than some other folks have. So we'd like to in the markets where we do significant business already we'd like to pick up some third party work and spread that platform across a bigger base. It's just something that we're rolling out. We probably won't do that service for you know some of our direct public competitors but there's an awful lot of regional real estate companies that really could benefit and we could share the income with them. So that's what we're messing with. I think it's cool. I don't know if it turns into anything or not. If Kelleher were on the phone right now, he’ll be telling you it's the greatest thing you've ever heard of and we're going to do really well with it. We'll see. But it's I think more importantly Craig it's indicative of the creativity and the way we look at trying to add value in various different ways big and small throughout the company.

Great. And then lower G&A I'm sure was helped in some part by Dan and Christian’s exit but it looks to be more significant than that. Can you tell me what to you doing there in terms of maybe getting some more cost savings.

Yes, look, it's a big part of one of the things that that I always wonder about I think you can appreciate this is as a company with our longevity. Right. We've been around a long time and we’re relatively powerful in the few markets that we’re in. And then I think vendors and others get comfortable with that in terms of dealing with Federal. I don’t think we use our leverage as much as potentially we could have to be able to renegotiate some of those deals and effectively reexamine scopes, reexamine financial terms with some of our partners. No, when I say partner, I mean vendor, I mean, people necessary to create great shopping centers. We pushed hard on that in 2018, and we pushed hard on that with some very favorable results. That’s what you’re seeing coming through. And I don’t think those are one-time favorable results. I think those are our benefits that are all about relooking and leveraging the power of Federal Realty and again the five or six critical markets that we do business. And part of it is on a year-over-year basis and we did the prime store acquisition in the third quarter of last year. So there were transactional costs that added to G&A, which we just didn’t have in 2017, and we just didn’t have in the third quarter of this year. So that’s another kind of a driver.

Our next question is from Jeff Donnelly with Wells Fargo. Your line is open.

Don, I think you might have touched on this in the call, but I had heard that concerning Santana West that, that was a site that even Apple might have been looking at perhaps for one of their projects, that maybe market chatter. But I guess my question is, do you think that’s that office opportunity that needs to be a single tenant development opportunity like you had with Splunk or is it possible that could have something that's a little more ground for retail or residential or office on it?

Yes. Just going to add, Jeff will add to this just make a comment or two on it. No, this is an office product. It’s an office site. It’s an entitled for office any retail that we do would be relatively insignificant. And this is real simple and this is a 12 acre piece of land directly across from one of the most iconic if you will at this point, mixed use destinations in the country. It happens to be in the middle of Silicon Valley, it’s really valuable. And so whoever the tenant or tenants are, it doesn’t have to be one tenant, it could be can certainly be several. What we know is we’ve got a piece of real estate there, that is getting an awful lot of interest from some, I will say typical or users that you would think of and some niches certainly would. And it just shows the broad value of the real estate, because of what was created across the street. So there’s all this has to be value a little bit more, but there’s no denying the value of the real estate business, that’s there.

Right. So Jeff, I don’t really have anything to add other than if you look at all Silicon Valley right now. There is precious little available office space or office space coming anytime soon just a matter of time. We’ve got Santana was probably one of, only a handful or less than a handful of opportunities for that over the next two or three years. Just given the entitlement cycle and what’s going on and some of the other sub markets around here. So we’re like Don said super bullish on it and there’s a lot of interest in the site right now.

Jeff, just I guess speaking with that. I mean, are you seeing some of the bigger employers in that market that are actually trying to tie up office space, even though they might not have an immediate need for the space today, just because of that dearth of space they’re sort of tying it up in anticipation of future growth?

Yes and no, but remember growth is a occurring very quickly out here and the lead time on a development, even something that’s entitled ready-to-go is still a couple of years to build a building. So, lot of firms are growing into the requirements by the time the space actually delivers. I mean it’s clearly the case with Apple, their new headquarters building from what we understand that’s full. When we look at market activity, we don’t see them giving back any of their other space. So, if you look at the big users out here, I think that’s true that they have to look out a couple of years and by the time the space is ready, they’ve filled it.

And maybe Don just stepping back more broadly on external growth, I mean your perspective on retail seems to have shifted somewhat sharply over the last few years and what the prospects of it hold. Do you think as a company you’re more open to mixed use or a mix of users than you have ever been before? And do you think the market focus -- just the geographic focus of the company maybe has changed with that. Are there some markets that you’re more open to going into? Maybe one last aspect of it is, will you ever do standalone office or residential development away from retail?

No to the last question. I mean I’m going to book in you here for a minute because that was a lot. No, we won’t do standalone or non-retail-oriented resi or office as part of our business plan. I’m going to go back to your last thing, I’m going to say one quick thing about your last question and that is please don’t speculate about Apple, don’t speculate that, don’t write that down because that’s probably not the case, okay? Let me be clear. Now let’s get to what you just asked. Here’s the way I look at it, the more predictable the future is, the more narrow you can target your business plan. The less predictable the future is, the more you want to be able to have to be as flexible and it’s a most important word in our business and as flexible as you possible can. Flexibility with respect to what the future holds simply means to me, I’d like to be able to not rely on any one income stream and if that’s the rolling forward of rents in a basic shopping center, that’s one thing. If it is, do I want to have the ability to create value upstairs on land in the markets that we’re in that are identifying anyway? Of course I do. It’s not -- it really isn’t a battle, liking mixed use or not liking mixed use, or liking a shopping center or not liking a shopping center. The reality is what our core competency is, is first ring suburbs creating great places for people to go to. That can be a grocery-anchored shopping center, it can be a mixed use, probably can be whatever else it is. Once you have the layer, that’s not necessary and in Manhattan at the…

Thanks guys.

Thank you. Our next question is from the line of Mike Mueller with JP Morgan. Your line is open.

Hi. A couple of questions. First, Dan, when you’re talking about 2019 you flagged G&A and then lease accounting separately. So is your lease accounting expense, is that going to be in operating expenses?

No. They will be a component of increase in our G&A in 2019. Part of it will be lease accounting related. The lease accounting change geographically will sit up as G&A item. But we will also have a -- in our current level of G&A, there will also be an increase which -- so there’s two pieces to that.

Got it. Okay. And then I guess just thinking about tenant demand and everything on the mall calls, you constantly hear about retailers and demand moving into the malls. I'm just curious about your portfolio, are you seeing that sort of interest as well from those types of tenants?

Yes, Mike, this is -- I’ve talked about it earlier in one of the questions. But just think about this for a minute. All of these retailers basically -- or let's start and say online retailers who have started online, these guys, all of them, I didn’t say all, most are struggling and have always struggled with typical things you struggle in a business with number one being, customer acquisition costs. How do I get that customer and what’s it me to get to them? And of course then the delivery system. And those two things have led many of them to the conclusion that you know what, we need a physical presence. And I've got some interesting stuff I’ll share outside as maybe at NAREIT next week, some of the quotes and some of the plans that these guys have, now when you say okay where are they going to go? The chances to me are look awfully good for the type of properties that we own. We're close to a lease for one of those tenants that we're talking about in Bethesda Row right now. We're close on two at Santana Row right now. The streets that we have presence are on like Third Street Promenade. I mean these are -- it's -- I don't know how important a component of the future it is but it's certainly a component of the future. And going back to where I was before, we want to cast the broadest widest funnel to be able to be attractive to the largest possible number of retailers. And where we are suggests to me that we'll have more than our fair share of those tenants who are finding the need for bricks and mortar stores.

Thank you. Our next question is from Haendel St. Juste with Mizuho. Your line is open.

Lots of calls, lots of detail, much appreciated. But question for you Don. I guess more of a big picture. We’ve seen a lot of M&A this year in the REITs, but nothing in the shopping centers. Curious why you think that is? And then is there anything you expect over the next year that Federal could participate in?

Oh, Haendel, this was -- I mean we’ve been talking about this question for 20 plus years and that’s just what I remember, so I’m sure it goes back before that. Look, the idea of combining platforms has to have a business sense to it that makes all the sense in the world, obviously what you saw with Equity One and Regency was indicative of that. I think you can look at that and say, yes that company is Federal than the two companies separately would have been. But those things are few and far between, they’re hard to do. As you know, I love to tell the story of -- and I don’t know if [Ernst] really would mad at me for saying it or not, but we had a -- we have a very good relationship and back before they were public, we were trying very hard to put those companies together, didn’t work out, they went public, are doing great. So we’ve come down to the individual business plans, it comes down to the social issues that are part and parcel to it. And when you think about betting on the future, there’s almost always dilution from the buyer side, initially for a period of time. So you have to be comfortable with where that future is going and what it’s going to provide. That’s harder to do today than -- that’s been another period. So the combination of other things, is Federal involved and anything that’s possible for us? You bet. We talk a lot -- we talk to a lot of people a lot of the time. But we’re not going to do something that doesn’t improve the prospects versus our existing plan. And our existing plan is really good in terms of this real estate. Our real estate clearly will be worth more in the future than it is today. When I see it and I look at the prospects for growth, for domination in certain -- at certain properties, the whole consolidation the properties, et cetera. So, any kind of deals from a merger perspective or anything else has to be incrementally significantly better than that. I haven’t found that.

And just a follow-up on the mid-5 cap rate expectations for the assets under discussion for disposition here. Curious where you think those assets might have traded 12 to 18 months ago? And then how large would you say your bucket of non-core, but tax efficient potential asset sales bucket is?

I’m going to jump in before Dan here on a minute because I’m cringed when he said that, when he said mid-5. Because listen, we’ll see based on the marketplace, what those assets will trade at and what they won’t trade at. The answer to your question, how does that compare? I don’t know. That’s what I’d love to see as part of this and it is a small bucket. And I kind of went into that before a little bit, it’s a small bucket, because we sit and we look at the future earnings prospect of the assets and quite far and away most of the assets at this company -- and again, there’s only 104 of them. Most of those assets have really bright futures. To the extend they don’t, we’ll find a way to effectively recycle out of them but that we’re talking about six, seven, eight assets, based on information that we have today in terms of looking at the future, that would fall into that bucket.

Thank you. Our next question is from Derek Johnson with Deutsche Bank. Your line is open.

Hi, this is Shivani Sood on for Derek Johnson. The office aspect of the portfolio has been a large focus of today’s call. So would you mind just speaking to the leasing front there, how the process and the potential CapEx and involve might differ from the retail aspect of the portfolio? And also kind of how you view it from an operating metric perspective?

Sure. It’s a good question. I’m not sure that -- well I am sure that we don’t have a view on office product in a national way or in standalone office products. What we do know is, places where we have created an environment with retail on that ground floor that is amenity-rich is more and more and more attractive to office users. And as a result, in places where we have the land -- and again our average shopping center is 20 acres large which is big compared to most shopping centers and we have the opportunity at various places to be able to exploit that retail environment that we’ve created. In some cases, we’ve seen it at Pike & Rose with the first phase; we’ve certainly seen it at Santana Row. Even through there are other opportunities in the marketplace for office, the office user sees those other opportunities as irrelevant and obsolete. And so, we think we have something that’s particularly special, that can drive a premium rent, that can drive premium bumps in those rental deals. And most importantly, it’s so integral to the overall property that we’re developing or building -- or community to that we’re building that it’s really part and parcel of how the retail works, how the resi works, it provides the day time traffic. As I said before, that’s critical, it is immensely efficient in terms of parking. And so, office brokers bring the product to us. And so, these are negotiated similar to any other office deal with the same criteria for capital, the same criteria for rent, et cetera. We just feel like we’re in a stronger position to be able to be at the top of the range of those market conditions on all the economic aspects, because of what we’ve invested down on the ground floor. So, you won’t see us doing separate office buildings across the country to broaden our -- what our basic core competency is, but we certainly will at the properties that we’ve created great places, exploit that. And to me, that office product where we’re building whether it’s Santana or Assembly or Pike & Rose, that office product is de-risked to a huge degree because of the significant investment that has been made in the place previous to that.

Great. Thanks so much for that color. And then just given the more diverse, full of assets that -- effort -- you have centers, for example, power centers, grocery-anchored, mixed use. Can you just give us an update in terms of retailer demand for the different property types and has that shifted at all over the past year or so?

Nope. And I’d tell you what, because I know it's simpler to say power centers perform like this and grocery-anchors perform like this and mixed use perform like that et cetera, It's just not true. It totally depends on physically where that property is in the supply and demand characteristics and at that particular piece of real estate. So I spend bunch of time on that call talking about leases at a power center called East Bay Bridge in Emeryville, California. It's an incredibly powerful supply demand environment for us because there's no other supply of that. So, no, and I could make those same kind of comments for each one. You really got to get into the individual real estate. It's not a compound. I know it sounds like one. But I really fight hard about the characterization of any particular type, even though I understand it's easier for you to categorize. Sorry.

Thanks. That's it for us.

Thank you. Our next question is from Ki Bin Kim with SunTrust. Your line is open.

Thanks. So, already a lot of good questions have been asked by my peers. So just want to ask, one from me. If you could wave a magic wand and get any piece of technology to help your business, what would that be?

I'll keep doing the last question and it's the most cerebral here for crying a lot, good for you. There's an interesting thing going on right now and it's obviously all about data and how much data is available and every two person consulting firm who's selling their idea of what data you need and what would really matter, the answer to that question in my mind and I don't think my peers agree with me necessarily around this but the answer to that question has not -- is not clear. There is so much information out there. The one thing that I think we all have to be careful about is running out and investing and pulling in a whole bunch of data that it turns out really isn’t impactful to the lease negotiation or to the deal negotiation in the form of an acquisition et cetera. The obvious pieces of data and information are clear. It's certainly sales of square foot. It's certainly profitability. It's certainly the supply effectively. It’s certainly understanding where your customers are coming from. But when you say what one piece is there, it gets too myopic in my view, I don't think there is one piece. And so we're dealing with all that. Now we're talking with a lot of vendors. We're talking with potential partners. We're talking with companies that are trying to marry retailers with landlords doing all the right things but really trying to figure out where to invest in information that will make a difference. That's still great.

Yes, I get you're saying. I've seen a few pictures and I know what my problem is. My problem is that everything sounds great. I get you. Thank you.

Absolutely, you bet.

Thank you. And that does conclude our Q&A session for today. I'd like to turn the call back over to Leah Brady for any further remarks.

Thanks for joining us today. We do have a couple of meeting slots left at NAREIT. So please reach out if you are interested in meeting with us. And we look forward to seeing you -- many of you there. Have a good day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone, have a great day.