Site Centers Corp (SITC) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to third quarter 2009 Developers Diversified Realty conference call. (Operator Instructions). As a reminder this conference is being recorded. I will like to turn the presentation over to your host for today's call, Miss Kate Deck. Please proceed.

Good morning. Thank you for joining us. You will hear from Chairman and CEO Scott Wolstein, President and Chief Operating Officer, Dan Hurwitz, Senior Executive Vice-President of Finance and Chief Investment Officer, David Oakes and Executive Vice President and Chief Financial Officer, Bill Schafer.

Please be aware that certain of our statements today may be forward looking. We believe such statements are based upon reasonable assumptions you should understand that statements are subject to risks and uncertainties. Actual results may differ materially from the forward-looking statements. Additional information about such factors and uncertainties that could cause actual results to differ may be found in a press release issued yesterday and filed with the SEC on Form 8-K and in our Form 10-K for the year ended December 31, 2008, and filed with the SEC. In addition, we will be discussing non-GAAP financial measures on today's call including FFO. Reconciliation of the non-GAAP financial measures to the more comparable GAAP financial measures can be found in our earnings press release dated October 22, 2009. This release and our quarterly financial supplement are available on our website at DDR.com. Lastly I would like to request that callers observe a two question limit during the Q&A portion of our call in order to give everyone a chance to participate. If you have additional questions please rejoin the queue.

At this time I will turn the call over to Scott Wolstein.

Good morning and thank you for joining us today. We had a very active quarter and I would like to begin by going through some of the highlights. At our Investor Day on July 1 we discussed our goals of improving liquidity and lowering leverage and we laid out a very specific plan that focused on achieving those goals in the short term and the long term. While we received consistently positive feedback on our goals, there was also great concern regarding the execution risk involved in achieving those goals. Now just over three months have passed since we previewed the plan and I am pleased to report the considerable progress we already made in such a short time. On July 1st, we said we would reduce the total consolidated debt by approximately $1 billion during 2009. And December 31st of 2008 we had $5.9 billion of consolidated debt on our balance sheet. And September 30th of 2009, we had approximately $5.2 billion of consolidated debt or reduction of over $700 million just over the past nine months. And we are well on our way to our goal of $4.5 billion of consolidated debt by the end of next year. Additionally we reduced our share of unconsolidated joint venture debt by $140 million in the first nine months of the year. We further reduced our debt by another $80 million when we redeemed our interest in our joint venture with MDT this week. All of this results in total reduction in our debt of $920 million just this year.

We said that we would complete $900 million in new debt financing during 2009. With two months remaining in the year we met our goal by originating $300 million of unsecured notes and approximately $600 million in new mortgage loans. We also currently have the opportunity to close several additional mortgage financings this year. We said that we would retire our senior unsecured notes with discounts to par and so far during 2009 we have purchased $250 million of notes through a successful tender offer and another $440 million of notes through open market purchases for a total discount to par of $165 million. We said that we would complete $370 million in asset sales this year and we have already completed over $450 million. Our share of total is over $300 million. Almost all of these sales have been nonprime assets and contributed to the deleveraging effort by reducing our debt by over $300 million. $65 million of which was our share of secured mortgage debt incumbering these assets and balance of the proceeds repaid unsecured notes and rebalances. We also referenced the discretionary equity raise of $300 million and we executed on over half of this. In addition to the $110 million of equity raised from the auto family. In total we generated more than $1.5 billion of new capital year to date and $1.1 billion of new capital since our Investor Day, which has been applied to lower leverage and enhanced liquidity and extend maturity.

Bond and mortgage maturities through 2012 has been reduced from $2.3 billion to $1.7 billion just in the last four months. We said that we would simplify our structure and we have redeemed our interest in joint venture with MDT this week. Mentioned earlier this eliminated a net $80 million of debt for DDR in our pro rata share. We own 100% of three high quality prime assets as a result of this redemption. Finally we said we would work diligently to retenant space formally occupied by banker retailers. We generated real activity on over 55% of that space in the form of signed leases, sales, leases pending signature or letters of intent and we are gaining traction as retailers firm up their 2010 and 2011 opening plans. We continue to be prudent in evaluating deal terms and while rents have moderated, we have been successful in driving economically efficient deals with over than average capital expenditures.

Bill, Dan and David will go into details on all these items. We were pleased we were able to execute on our plan thus far but we know we have much more work to do. In our Investor Day presentation, we laid out plans for 2010, 2011 and beyond. And we will keep our energies appropriately focused in order to continue to successfully execute upon these plans. Despite the high level of transactional activity this year, we have not lost site of the operational side of the business. Results were quite solid considering the continued challenging environment with operating FFO per share rules coming in at $0.44 per share, which met our expectations. Given the continued challenges of the environment, we are very pleased with the performance of our portfolio and of our team.

Now I would like to turn the call over to Bill who will go into more detail on the operating results.

Thanks, Scott. As just mentioned our operating FFO for the third quarter was $0.44, which was in line with our expectations after taking into account the significant transactional and financing activity executed during the quarter. Including several nonoperating and generally non-cash items aggregating approximately $165 million, the FFO lost per share was $0.54.

Now I'll walk through some of the details regarding this specific nonoperational items aggregating $165 million most of which are not recurring and substantially all of which are non-cash. These items are also clearly broken out on the front page of our earnings release. The most significant nonoperating non-cash items were primarily attributed to the appreciation of our share price and the requirement of the auto transaction be treated as a mark to market derivative. This was discussed in detail last quarter and now that the final traunch of the auto equity has closed ongoing mark to market adjustment will be much less. The other nonoperating and non-cash charges primarily relate to two joint ventures that have seen the market value of their portfolios decline from their formation to today. Largely related to an increase in cap rates. The aforementioned charges are partially offset by a $24 million gain on repurchase of debt and $3.5 million gain on the sale of MDT units, which we sold above the price at which we had carried them.

In other operating results, same store NOI for the quarter was down 5% and down 4.1% for the year. This is in line with our previous guidance of 4% decline in same store NOI for 2009, the decline continues to be largely attributed to the bankruptcy of Goody's, Linens N'Things, Circuit City and Steve and Barry's. As with previous quarters, our Brazil portfolio continues to perform very well with the same store net operating increase of 11% for the quarter. Third quarter general and administrative expenses include some additional one time charges relating to severance in executive retention aggregating $2.7 million. This in addition to the $4.9 million of non-cash changing control charges discussed in our earnings release. Therefore excluding the above charges are general and administrative expenses for the quarter would have been approximately $18.5 million.

Next I would like to discuss our continuing compliance with debt covenants. At Investor Day we projected improvement in our bank and bond covenant ratios by year end 2009. I am pleased to report that the bank covenant that is historically tightest for us the unincumbered asset ratio has continued to improve to approximately 1.75% times from 1.63% times a year end 2008 and 1.67% times at June 30. Our consolidated outstanding debt to consolidated market value ratio was well below the 60% limitation at approximately 53% as of September 30th. Our execution on various deleveraging initiatives including asset sales, equity issuance and retained capital will continue to improve these ratios over time giving us increased flexibility quarter by quarter. In addition, as we continue to increase our occupancy back closer to long term norms, these ratios should improve further. With regard to our liquidity position at September 30th we had over $500 million of unrestricted cash on hand and revolver availability. Our cash on hand and revolver availability was only $150 million as of June 30th so we have made considerable progress in enhancing our liquidity position.

Finally, I like to discuss the decision to pay an all cash dividend of $0.02 for the third quarter. After it was determined we would be able to meet the minimum payout required to maintain weak status for 2009, the Board approved continuation of the cash portion of the prior two quarters dividend of $0.02 per share in order to retain additional capital and enhance financial flexibility while remaining committed to distributing some cash flows to our investors.

Now I will turn the call over to Dan.

Thank you, Bill. Good morning, everyone. I would like to begin with a brief update on the leasing and retail environment particularly as we head into the most important retail season of the year. Fortunately back to school retail sales were encouraging. And we see reason to believe that operating margins for retailers will continue to remain stable even if comp store sales results are moderate or negative. Retailers continue to prove the resilience and display their ability to control inventory levels and buy right, which should lead to lower clearance levels and less gross margin deterioration compared to last year. While lowering inventory levels are generally a positive strategy in a recessionary environment, it could also create head winds for retailers if the consumer returns to the store in greater numbers than expected and inventory is sparse. It will be very interesting to watch this phenomenon and we remain cautiously optimistic for the holiday season, as the consumer clearly prefers and aggressively seeking value and convenience.

In regard to specific quarterly metrics during the third quarter, we signed 146 new leases representing over 737,000 square feet of GLA and 287 renewal deals representing over 1.85 million square feet of GLA. On a blended basis, there were 433 deals executed during the second quarter., representing nearly 2.6 million square feet of GLA and an average rental spread of negative 3.5. Importantly, of the 737,000 square feet of new deals signed during the third quarter, 44% represents space that was previously vacant and over 20,000 square feet. And thus nonincome producing prior to these new leases. When combined with our re-leasing of spaces in Q2, these deals alone will contribute over $9.5 million per year of base rent when the tenants assume occupancy over the next 18 months. Please note that we have added new disclosure to the supplement on leasing activity and cost in our effort to continue to provide maximum transparency. This information is contained in section five. We are pleased with the volume of leasing activity achieved during the third quarter especially coming off our record setting second quarter. While maximizing rent spreads remains challenging, we were pleased to see a marginal improvement on blended rental rate spreads over the previous quarter and are particularly pleased with the over 5.5 million square feet of leasing done in the second and third quarters combined.

From a capital expenditure perspective, the cost of executing deals has decreased 17% on a per-square-foot basis from the same period one year ago as we continue to utilize existing fixtures and improvements when we backfill boxes and focus on making the most efficient deal with our retail partners. Our successful leasing results can be attributed to the quality of our real estate, operating platform, the absence of new development projects and an extraordinarily focused and aggressive leasing team. As retailers seek external growth opportunities, the supply of new space is limited and therefore retailers must rely on second and third generation space available in the market. Good real estate will get leased. And we continue to receive significant interests in our portfolio from many of the most successful and aggressive retailers looking to capitalize on this opportunity.

Most importantly, we remain focused on our relationships and have invested our human capital wisely by staying in front of tenants, conducting portfolio reviews and discussing new store opportunities. During third quarter we held several productive meetings with many of the most active retailers within our portfolio including but not limbed to Hobby Lobby, Bed, Bath & Beyond, Best Buy, Kohls, HHGregg, JoAnn Stores, Dollar Tree and regional grocers such as Sprouts. Other tenants which we have met such as TJX Company, the parent company of TJ Maxx, Marshalls, AJ Wright Home Goods also remain desirous of new locations. Multiple executed leases or active lease or LOI negotiations with each of the retailers just mentioned.

As we enter the fourth quarter and evaluate the importance of holiday sales and consumer fundamentals for many the tenants in our portfolio, think it's also fun to note the capital markets activity that recently occurred particularly for the retailers that many landlords have on their watch list. Last quarter as you may recall I mentioned positive capital reason for Wal-Mart and TJX companies. This quarter Blockbuster was successful with their issuance of a five year senior unsecured notes. Power General continues to advance their discussions regarding plan for an IPO by leveraging positive sales and profitability trends. And Office Depot recently closed on a significant capital raising event which provides increased liquidity to the office supply retailers. Earlier this week Rite-Aid priced 10 year senior secure notes and transaction is expected to close on Monday. While these retailers represent a small portion of our entire portfolio, their recent capital raising initiatives indicate increased action for capital in the retail sector. While no amount of capital can hide poor merchandising, operations or sales, even the best merchants cannot survive without capital and signs of capital availability to retailers have become more positive over the past few months.

Regarding portfolio occupancy, as discussed on last quarter's conference call, we believe our second quarter portfolio leased rate marked a trough for our portfolio. At the end of the second quarter of this year our lease rate remained constant at 90.7%. The fact we were able to hold our lease rate flat quarter over quarter coupled with the fact that we have historically experienced drops in occupancy from the first quarter to the second quarter was a strong indication that we were truly operating at a soft bottom. As of September 30, 2009, our portfolio leased rate was 90.9%, a 20 basis point improvement over the prior quarter. Some of the properties sold this quarter had lease rates above our portfolio average so on a more same store basis our lease rate would have shown a larger increase this quarter. We expect continued marginal improvement as we head toward year end with the pending impact of holiday sales as the primary influence on occupancy for the first quarter of 2010, and beyond.

In terms of addressing our big box vacancies, we continue to make significant progress in the releasing and back filling of Junior Anchor and Anchor spaces within our bankrupt tenant portfolio. As of September 30, we had 55% of the units sold, leased at least or in LOI negotiations. We were committed to retenanting space creatively with strong credit tenants, while maximizing the use of existing improvements and minimizing capital outlays. Growth in rental revenue remains a priority for our Company and as a result we are committed to realizing the opportunity to organically grow earnings to internal means beyond historical averages. While significant upside potential remains from lease up, it is worth noting that our new business development team continues to creatively generate significant rental revenues be it temporary and seasonal leasing of both big box and in line vacant units. Specifically we signed 84 deals with Halloween operators this year representing a 79% increase in deal volume year-over-year in that particular focus of our seasonal leasing initiatives. All told, our new business development development generated over $8.4 million of ancillary revenues during the third quarter, a 30% increase over the same period last year providing a mitigating factor against lost rental revenues and further declines in NOI due to retailer fallout.

Regarding bad debt in our portfolio, our bad debt expense as a percent of revenue has grown if the past year particularly among smaller local tenants. These tenants make up a large portion of our grocery anchored portfolio and as a result bad debt is a much larger percentage of revenue in our joint venture portfolio than in the rest of our assets. The southeast is particularly affected with over twice the amount of bad debt than any other region of the country. We were not surprised by this trend and had contemplated such results in our operating metrics and prior guidance.

Turning for brief moment for operations in Brazil. I am pleased to report continued growth in stability within our portfolio as well as broader macro-economic environment. As of September 30th, as Bill mentioned, same store NOI grew 11% and the portfolio leased rate remains strong at 96%. Our new development in Manaus, which opened in the second quarter has stabilized at 96% leased and ancillary income in Brazil continue to produce exceptional result with cart and kiosk programs leading the way. Overall, we continue to be pleased with our Brazilian operations and expect the portfolio to be a significant contributor to overall growth over the next several years.

In summary, we continue to be pleased with our operating platform amid the challenging retail environment and are cautiously optimistic heading into year end. While many have declared the recession over, I can assure you that the joy is not universal felt across main street. Various economic and employment uncertainties remain for the consumer as we head into the holiday season and remain focused on leveraging our tenant relationships as they are the key element to our operating success and present a clearest opportunity for recovery and future growth.

At this time I would like to turn the call over to David.

Thanks, Dan. As mentioned, we made good progress on the various initiatives that we announced at Investor Day. I will go into more detail on a few of these and I would like to focus on the effect of the action on balance sheet and maturity schedule as well as our capital plans for the next year. We completed a successful tender offer in mid September, buying back $250 million of our senior unsecured notes at 91% of par. The tender offer achieved our goal of retiring unsecured notes with a heavy weighting towards the near the dated maturities. In addition to the tender offer we retired $48 million of 2010, 2011 and 2012 notes on the open market during the third quarter in an average 86% of par. In total, we eliminated approximately $30 million of debt through the discounts to par were achieved in the third quarter. We also raised $300 million of new senior unsecured notes maturing in 2016. Our capital plan from Investor Day called for our return to the unsecured market with $250 million raise in 2011, however, the unsecured markets opened to us in recent months and decided to take advantage of the opportunity. This offering of long term debt to repay short term debt extended the duration of our overall debt and fits well in our maturity profile. The offering also served as important signal of the availability of capital that exists for us from many sources. The interest rate was much higher than our historic experience and we remain highly focused on executing upon balance sheet improvement that will lower this cost over time.

In the third quarter we also closed on $17 million of new 6% long-term mortgage financing on two small assets. Subsequent to quarter end we closed on a new five year mortgage financing within an affiliate of Goldman Sachs. The new long term debt proceeds were used to retire mortgages with near term maturities, retired 2010 bonds and lowered balance on our line of credit. We also sold $220 million of equity in the quarter. In addition, the second traunch of the equity sold to the auto family we issued $160 million of equity through the common equity dribble program and average pry of $8.50 per share. These equity sales provide a portion of the capital that we expect to raise in order to lower our leverage and provide us a greater flexibility on the timing of additional issuance. In addition, we sold over $450 million of mostly nonprime assets in 2009 and approximately $270 million in third quarter, with a closing occurring almost every week since late May.

After taking into account all of the above items including the activity thus far in the fourth quarter, I'm very happy to report we have no remaining 2009 debt maturities and all but six of our wholly owned 2010 mortgage maturities amounting $59 million have been repaid. As Scott mentioned we reduced our consolidated debt by over $700 million in the first nine months of this year and we reduced our unconsolidated debt by over $100 million. Since the end of the second quarter we retired $102 million in 2009 debt, $215 million of 2010 debt, $437 million of 2011 debt. And $227 million of 2012 debt. In addition to significantly reducing the amount of debt outstanding, we have also extended duration by more than a year with our weighted average maturity now more than three years out.

Turn now to the current strategy and focus for the next year, first, we will continue to sell nonprime assets to third parties. However, due to the success of our capital raising initiatives year to date we do not feel an urgency to sell asset at fire sell prices to raise capital. As evidenced by the $450 million of asset sales this year, retailers, wealthy families, local individuals and some 1031 buyers continue to be active in the transactions market. We have another $150 million in assets on a contract for sale or subject to LOI currently. We continue to look at asset sales as a good source of capital only when pricing is acceptable and generally when assets do not fit our focus on prime properties. Second, we will continue to repurchase our unsecured notes at discounts to par remain. If discounts on nearest term maturities evaporate we will reserve ample room on our revolving credit facilities to address them on maturity. Third, we will have a new common equity dribble program at our disposal where we can sell equity into the open market at our discretion. This program is extension of the $200 million equity dribble program that we announced last fall and allows us and will allow us to sell up to an additional $200 million of common stock over the course of the next three years. Fourth, we have the potential to complete several other secured financings at our discretion in the next several months. We don't see these transactions as necessary to meet our near term maturities but we remain open to the potential to close on additional secured debt to provide us with additional liquidity.

We are encouraged by the continued opening in the capital markets and success that other leading REITs have had in raising long term debt in equity. At Investor Day, we also spoke about our focus on debt to EBITDA ratio and our expectations for future improvement. This is a metric that we will continue to use to measure our leverage and we are working diligently to improve this ratio. I would like to turn your attention to page 2.4 of our supplement where we added two debt to EBITDA calculations for recent period. The first is a consolidated calculation and second is a true pro rata calculation. We hope this makes it easier for you track our status and our progress as we steadily delever. We will also use this ratio or more importantly the improvement in this ratio as one of the key metrics to determine executive compensation.

Finally I would like to address the MDT redemption we announced recently. An MDT unit holder vote was held on October 19. The redemption was approved and we now closed the transaction that result in DDR receiving 100% ownership in three properties in exchange for our 14.5% interest in the US REIT joint venture with MDT. This transaction simplifies our structure, provides MDT with more flexibility to recapitalize and eliminate considerable near term debt maturities from DDR's prorata maturity schedule. We continue to actively co-manage the trust and aggressively lease its assets.

Now, I'd like to turn the call to Scott for closing comments.

Thanks David. I would like to wrap up the call by reiterating the guidance we gave in a press release in September of $1.90 to $2 per share for operating FFO for 2009 which excludes nonrecurring items. Finally I would like to thank the DDR team for their hard work in the past few months. As you heard, we made great progress on our deleveraging and liquidity enhancing plans and we will continue to execute aggressively on those goals.

With that, we'll take your questions.

First question comes from the line of David Wigginton of Macquarie. Please proceed.

Can you maybe talk a little bit about same store NOI trends on a sequential basis maybe the second quarter to the third quarter?

From the second quarter to the third quarter the same store NOI was consistent at 5% declines.

No. I understand. So same store NOI in general from second quarter what was the number then versus the number in the third quarter? Was there a decline in same store NOI from the second quarter to the third quarter?

We measure the numbers we provide are on an annual year-over-year basis and so those are the traditional numbers we give out on a quarterly sequential basis. We haven't provided those and we can certainly dig deeper into it. Our expectation is there is a modest improvement flat to slight improvement between the third quarter of this year and the second quarter of this year based on the metrics that show up in our supplemental though not specifically calculated that number on sequential basis.

David, you really shouldn't expect to see very much quarter to quarter at this time of the year because, you know, even though we signed a lot of leases, tenants take occupancy in our business either in the spring or in the fall. So, very few of the additional leases that were signed during the quarter with ever translate into same store NOI until at the very earliest November when they start to take occupancy for holiday sales and then even more so based on the calendar next spring.

I understand. I'm trying to get a feel for the trend at this point.

It's pretty flat from quarter no quarter on that basis.

Okay. My second question is related to the expense recovery ratio. It dropped pretty sharply in the quarter. Just wondering what obviously result of bankruptcies but even the trend versus second quarter seemed to tail off a little bit in the third quarter. There is anything in particular that drove that down?

It's primarily the nature of the expenses. As we indicated in our supplement, our bad debt expense was up significantly from where it was a year ago. And when we look at the -- I will say the additional landlord expenses associated with maintaining the vacant units, IE, like utility bills and so forth that are typically paid directly by tenants when they become vacant they now become landlord's responsibility. A lot of this is really related to the Mervyns portfolio. When you look at the nature of those expenses, they increased well over $3 million compared to the prior year. Combine that with the increase in the real estate taxes and again the real estate taxes a number of those items we were certainly appealing but the process is extensive in that area. When you look at the overall increase of well over $4 million in what I will refer to nonrecoverable related expenses that had the biggest impact on that recovery ratio.

Okay. And then finally can you provide -- what was the bad debt expenses a percent of total revenues?

For the quarter I believe around 2.4% if we disclose to at $4.8 million for the quarter or $4.8 million is the bad debt expense.

Okay.

That's reflected in our earnings release.

Thank you.

Your next question comes from the line of Michael Bilerman of Citigroup. Please proceed.

Good morning, everyone. It's Quentin Velleley on here for Michael. Just on the IPO, which is still stubbornly high despite the delevering you have done, you have an 8.3 times target for the end of this year and to get there it seems that the only real way would be raising about $500 million of equity or selling up to $500 million of land combination of the both. Can you comment on where you are at with either of those two things?

Yes. And this is why we want to have that calculation out there to highlight our focus on it and the progress we are making. But I don't think that the requirements are as great as you indicated to achieve what we indicated as our target. The single biggest change between what would be a fourth quarter calculation of that number which is what we had discussed at the analyst day versus the third quarter calculations outlined in our supplemental today is simply the seasonality of NOI and the annualization of that income stream. Simply from seasonality if we were truly comparing the apples to apples comparison of what we gave in the Investor Day presentation versus what's provided in the supplemental using 3Q NOI is a considerable difference even based on the leases that are in place today and the ancillary income contracts that are in place today versus what showed up in third quarter. So I think that's an important part of it which is simply seasonality. Secondly, while we were pleased with the activity we have achieved thus far on the delevering front there should be no assumption that we believe we are done with that and there are considerable additional initiatives planned just for the next several months in terms of continuing to improve that ratio. None of which get to the size of the $500 million plus of transactional activity. You indicate in terms of an equity raised but certainly a great focus on additional deleveraging initiatives to continue to move that debt to EBITDA calculation lower and more in line with what we guided to July 1.

Also, I think let's talk about the apples to apples comparison as to what we presented on Investor Day. That number at 8.3 was on a consolidated basis and right now at the end of Q3 we were at 9.2 and today we are even below that. The delta isn't that great apples to apples. And you know I noticed a trend among analysts to look at deleveraging is a one way street that the only way to delever is by raising equity. You deliver by raising NOI. And a great -- very significant component of the increase in our debt to EBITDA is not because we increased debt its because we lost EBITDA with the bankruptcies of these tenants and as those tenants spaces are released, EBITDA will rise and the ratio will come down even without equity raised. It's really a two way street. It's a combination of two metrics converging in the middle. Yes, we will raise more equity but we will raise NOI and EBITDA and that debt to EBITDA ratio will continue to decline.

Okay. You still progressing with some potential land sales in --

Land sales?

Are you still progressing? At Investor Day presentation you said that there is up to $500 million dollars of book value of land you were looking at selling.

Yes, yes, very much a part of our strategy.

And progressing?

It's slowly. Obviously the most difficult time in the history of the United States to sell development property. But there are interested parties in some parcels. Yes, it is proceeding.

I think we really outlined that as an opportunity more so than the specific part of our plan and requirement. We do believe that relative to the size of the Company overall today in our targets going forward that the development pipeline will likely be reduced relative to the size it is today. That doesn't mean we don't have a considerable pipeline going forward and commitment to that. But I do think there is an opportunity to take some capital out of that pool of nonearning assets today that can considerably help these ratios. And so it's something we are focused on. It's not a requirement. It's part of the plan. It is certainly not a quick fix given the timing it takes to get those transactions closed. But is it an opportunity for additional delevering for us over the next year or so.

To be more specific, Quentin, we have very serious had interest in parcels up in Canada, where we have a significant investment. And we also where you will see the most land sales are going to be in development properties that we are in the entitlement process and penning deals with anchor tenants who will buy their pads as soon as we get entitlement. All of this is in process and we expect it to happen on a pretty methodical basis.

Good. Just the second question. In terms of the $400 million secured loan with Goldman which you are working towards making eligible, we heard from that the rate was about 9% in the interim. If it's unsuccessful in the coming eligible, does that hold up?

Is the what?

The rate at about 9% on the loan if it doesn't become (inaudible) eligible will that right remain at those levels.

The long term rate is not determined today and given where we are in the process is not something that we are able to discuss at this time.

Okay. Thank you.

Your next question comes from the line of Craig Schmidt of Banc of America Merrill Lynch. Please proceed.

Good morning. Of the 55% of the vacant boxes that are impacted and this is for Dan, is it possible to break out those that are LOIs versus those that are leases signed or sold?

In fact it's in the supplement in our new disclosure section. On page five. 19% are sold or leased. 9% are at least at -- at lease, excuse me. 27% are at LOI and that totals to 55%.

Great.

Section five, we broke out -- we gave you a lot of detail, Craig. Particularly the location, the tenants, the-square-footage and something a lot of people are asking about is lease terms so we also the term of the lease so we actually included that as well.

Okay. Thank you. And the second question I guess is for David. He started to touch on it. On the 450 of nonprime assets you sold who are the buyers? Who is the most interested in maybe describe them, get a little color on them for me?

It's been a different profile than the traditional leaders in the transactions market for us. That $450 million of transactions is nearly 40 separate sales to 40 different groups. So you can see that none of these is necessarily a major headline that was the exclusive driver of that. It has been a large number of local individuals who know market very well. We have selectively sold some stores back to retailers at this point. Our retailers cost of capital is dramatically lower than ours and we sought to take advantage of that giving them control of their box long term and providing us with capital at a better cost. We've selectively sold assets into the 1031 market where the stability of the traditional cash flows from our sort of long term leases can be well appreciated by individuals that are both trying to buy acceptable quality assets but more so to manage their tax situation. At this point we were seeing more interest come into the markets from various larger sources. But the activity year to date has been a lot of smaller transactions with wealthy individuals local operators, retailers and 1031 participants.

Okay, thank you, that's helpful.

The next comes from the line of Alex Barry from Agency Trading Groups.

Thanks. Can you talk more about your seasonal and Halloween stores? How much that improved the occupancy in terms of square feet and basis points? Thanks.

We don't include that in the occupancy metrics frankly within our revenue, our NOI. But it isn't in -- we don't treat that as an occupied unit.

And could you lever little more? Maybe I missed it on what caused the sequential increase in dollars in the SG&A line?

In the SG&A line?

Right.

The increase there obviously the second portion of change of control charge which was approximately $4.9 million and that was mentioned on the face of our earnings release. Then there was additional -- some severance in executive retention costs that netted about $2.7 million that was incurred in the third quarter. Eliminate those items you are down to approximately $18.5 million in G&A for the third quarter.

Okay. And that's helpful. Thanks.

Alex, to your earlier question on the Halloween. It's a very good question because we were starting to see some temporary tenant deals creep into occupancy rates in our industry. And it's not something that we have historically done. Some companies draw a bright line and say if the tenants in occupancy for five months or six months we will include them. Some say if it it's a year. We have taken the position that not to include our ancillary income tenants in our occupancy and have resisted to do that now primarily because we want it make sure that we can provide you with an apples to apples analysis of where the portfolio was and where the portfolio is going.

Okay. And on that front, is the occupancy you report then only for your wholly owned properties or does it include joint ventures as well?

Includes join ventures as well.

And do you have like a physical occupancy versus leased?

Yes.. The difference is about 200 basis points. Historically for those of you that have followed that trend line for the Company when we are at our highest occupancy levels in the history of the Company between 96% and 97% leased we would be anywhere between 20 and maybe 50 basis point spread. When we had the last significant round of bankruptcies which were the Home Place, K-mart days if you will, that spread went to about 150 basis points because you lose all those tenants at one time and then you fill them up over an extended period of time. Today we were at the highest spread we have seen. We are at 200 basis point spread between our physical occupancy and our leased rate. And that is not unexpected. It's positive. It means that we lost a number of tenants which wasn't positive but the good news is that our lease velocity is very high which is causing that spread to increase. And obviously that will decrease over time as tenants open. Right now the majority of the deals that we have done in our bankrupt portfolio particularly those tenants are not open and will not open until later this year and in most cases next year.

Great. Thank you.

Sure.

Your next question comes from the line of Michael Mueller oh JPMorgan. Please proceeds if good morning.

First question with Dan with respect to the box leasing for the bankrupt tenants, I think it was 9% and [27%] or something along those lines for LOI as well as signed leases. Can you walk through a rough time line as to when you see that coming online, how much of it maybe spring of '10, how much of it back into '10 and how much there after?

What we have in process today, most of that will be impactful to our numbers in the late fall of '10. But even what is, if you look at the projected opening dates, even what we have completed or near completed we still will have some leakage into '11. I think if you are looking at an annualized basis, the fall of '11 is going to be where we are starting to see significant pick up from the momentum of leasing that we seen over the last two quarters.

Okay. And then David, going back a second to the debt to EBITDA conversation, I know at Investor Day you talked about a different metric used to consolidate metric. If we look at pro rata method now, can you talk about where you think that metric could be from the combination of NOI lease up as well as just incremental right hand side of the balance sheet delevering at year end 10 and where you think it could be a year after that or so?

The guidance given at the Investor Day was based upon the consolidated metric which as we talked to a broader group of investors and dug into more what other companies were doing with not the primary focus and we provided both consolidated metric as well as pro rata metric here so you can see where we stand on both I think the improvement that is expected over the various periods of time is consistent however when you think about the change in either one of those variables. We guided to relative to the end of 2008, a little greater than a one-time decline and one and a quarter point decline in the consolidated metric and what we had discussed previously and I think it would be consistent with that on a pro rata basis and that's the number that we think is achievable and hope to exceed.

Michael, I think it's important to note that redemption of our MDT interest didn't occur during the third quarter, it just occurred in October. So when you look at pro rata indebtedness you have to remove another $80 million of debt in doing that debt to EBITDA calculation.

Okay. Going to the dividend for a second. What sort of color can you give us at this point about the plan in 2010 for either a dividend level number one or just the split between cash and stock. What you continue to utilize the stock dividend as you did for this year retain to cash?

That's going to be a Board decision that will be taken up at our next Board meeting. We will be able to give you firm guidance on that very soon.

Okay. Okay. Thank you. Appreciate it.

Thanks, Mike.

Your next question comes from the line of Jim Sullivan of Green Street.

It's Nick Vedder here. Seems like there is positive news from retailer perspective as of late. Dan, can you tell me what you have been hearing from generally and has that changed more recently?

Well, retailers are always posturing and positioning and I think things for particularly for a lot of the value, the moderate to budget price retailers that we deal primarily weren't as bad as what everyone think they were and are now realizing there is opportunity that sales are pretty good. They comfortable that they have their inventories in line. That doesn't happen overnight. That takes a number of quarters to adjust. And the results are good. Margins have been maintained. While same store sales are really unimpressive, clearly retailers are hitting their plan and they are able to make some money. I think they figured out how to operate in this environment and as a result are trying to take advantage of the fact that they have a significant amount of leverage and in some cases retailers today are running out there without competition for the first time in the history of their company they don't have a major national competitor that is competing with them for space and are taking full advantage of that. So it's going to be interesting to see. This ties back a little bit to what we talked about with Mike. While we have some opening dates, commencement dates that are pretty far out for deals we have done now, the retailer has the right to accelerate that date. And we aren't counting on that by any measure. But if in fact we end up with a good holiday and if in fact some of the 2011 deals that we are looking at today would fit nicely into a 2010 open to buy for retailer that has just gone from wanting to do 40 stores to 50, then we may see some of that move up in the pecking order. Like I said we aren't counting on that. There is a lot of movement still out there. Still extremely fluid situation but the conversations with retailers are clearly better than they were last quarter. A lot better than where they were in the first quarter and, of course, the fourth quarter last year wasn't even worth taking the call. I think seeing some positive traction and we are encouraged by it. For us to do 5.5 million feet over the last two quarters of leasing is a very, very big number. And we hope that trend continues.

Thanks, Dan. Mentioned the retailers that took the big box space can move up their opening day. Can they delay their opening date as well?

They can't. They can delay their opening date but they can't delay the rent commencement date. For example, they can decide not to open but they have to start paying us rent on that outside date. Really the way the lease would typically read is that they have to pay rent the earlier of when they opened to business to the public or the rent commencement date.

Okay. And then can you give your expectations for same store NOI growth in 2010?

Well, we were going through the numbers now. And I think it would be imprudent for us to be aggressive on that quite frankly. As we look at the numbers and see what's happening and there are still some distressed retailers out there, I think on a very, very optimistic front you would be negative and I think -- you would be about flat and on a more realistic we probably will be less negative than it was this year. It's not -- it's hard to see a scenario where it's going to turn dramatically positive.

I think, Nick, to be clear that we had a full quarter basically of Circuit City rent in 2009. So that's a head wind in terms of same store NOI calculation. We would have to lease all of that space essentially for a full quarter in 2010 just to be even. So if you look at NOI backing out the bankrupt space it would be positive. But we still have to overcome that negative comp from Circuit City.

Thank you. And then also I think there is reference to a 9% rate on the Goldman loan of $400 million. Can you confirm if that's indeed correct?

That's the answer until the loan is securitized. Correct.

What is your sense of timing in terms of that loan being securitized?

I would like to tell you but we have -- we are under strict orders from our lawyers this is a 144A private placement that we can't talk about it.

Okay. Thank you.

Your next question comes from the line of Jay Haberman of Goldman Sachs.

Good morning, everyone. Here with Jehan, as well. Can you address the joint venture debt coming due in 2010? I know you mentioned bat detonate joint venture portfolio and the assets you are selling there have been at fire sale pricing more in the $60 a-square-foot range. Can you speak a bit to how you will address the debt coming due next year?

I think we can. A lot of that is going to be consistent with some of the short-term strategy that we employed this year where we have had considerable success extending CMBS maturities by a year and buying additional time. We are in progress on some early stages of some longer term refinancings of various pieces of 2010 joint venture debt that's maturing. And also I think we are with perhaps only one exception, fortunate enough to have high quality well capitalized joint venture partners that have historically been willing to fund equity requirements for those portfolios.

For what's coming due next year, do you anticipate having to inject additional equity?

We haven't determined that yet at this point. We continue to see capital markets improving. We continue to see availability of debt capital becoming greater and greater. And right now we think that we will be able to refinance or extend a considerable portion of that debt. I think it's obviously important to note that we no longer have an equity interest in the NBT assets which is where the largest 2010 debt maturities are. But even on those assets which we managed in that trust between manage we continue to make progress regarding the 2010 debt.

Okay. Then maybe just in addition, you give us a reference point where our cap rates are today? I know you are selling assets you mentioned to investors and wealthy families. Can you give us a sense of the returns that they are anticipating?

It's hard to speak to exactly what returns and NOI they are expecting. From our perspective numbers that we could agree upon we are transacting in lower quality assets in tertiary markets so certainly, nonprime assets at cap rates in the low nines. These assets on average recently have been more highly occupied than our portfolio at a whole so it's been a head wind a little bit to our occupancy pick up overall. But the reason that there is a focus on selling some of those along with everything we sold is we generally believe there to be a negative NOI profile over the next several years for those assets. So I think one -- it's one thing to say they are lower quality assets but we believe that that cap rate is not completely reflective what we believe to be future year returns because we do genuinely expect some NOI -- greater NOI challenges within what's being sold versus what's being retained.

It's also important to point out that there is -- we were saying a significant new appetite from foreign investors for quality assets. We have -- we are not selling our prime assets but we were entertaining dialogue on potential joint ventures. And it shouldn't be surprising to anybody that the weak dollar is causing the discussions on cap rates for foreign capital to be much lower than they were a year ago at this time. So we are starting to see some firming and on the better assets I think if we wanted to sell them I think we would be certainly in the eight and maybe some of them in the sevens.

I was going to follow up with a question but does that change your strategy a bit instead of selling your nonprime and maybe switching because you referenced backing off asset sales and possibly using the line of credit to repurchase unsecureds. Maybe this is a good time to start selling your better quality at lower cap rates given the foreign demand.

We really have been very, very disciplined about keeping control of our prime assets and don't need to sell them. We can joint venture them and maintain them in the portfolio. And that would be our preference if we were to do anything. And we shouldn't confuse that with the sale of nonprime assets because the sale of the nonprime assets is really not a capital raising initiative. It is a quality of a portfolio initiative which is intended to over time increase the organic growth rate of the portfolio overall without the requirement of investing capital for external growth. We will continue to sell the assets we don't want to own whenever we can get a reasonable offer and we will keep the other assets in the stable, if you will, either wholly owned or in joint venture.

And then last question for Dan on leasing velocity, you mentioned it has been strong but in terms of the breakout it's a three to one margin toward renewals versus new leases. At the same time you mentioned gap between leased versus occupied. Do you seat current occupancy as in fact the bottom, this 88 when you include the vacant boxes for this cycle?

I do. I think we are going to have increased occupancy marginally in the fourth quarter. And I think we will continue to grow from there. One of the things that we are looking to do is to be around that 250,000 feet of box space per quarter. That's an important number for us to meet our projections as we go forward. We exceeded it the last couple of quarters. But it won't than way forever. We know that. So based on what we have in the pipeline today we think we are comfortable with that level and that velocity of leasing and that's what is going to move the number because quite frankly our renewals our percentage of renewal retention is still very, very high in our portfolio because we have good assets and tenants are doing business. Done mean they don't ask for rent concessions but if you say no to them, the vast majority of these people are renewing anyway. And I think that's going to continue, if not get better as the economy gets a little better. And I think our velocity of 250 to maybe at the peak 300,000 feet of vacant box space if we can do that on a quarterly basis we will be able to really drive not only our occupancy but our rental growth.

In just lastly, did you mention the pick up in NOI based on what's leased to date is $9 million on a full year basis?

By $9.6 million on what was just leased in our anchor store redevelopment portfolio because last quarter and this quarter. That's right. On an annualized base.

Is annual number for next year?

It may not be an annual number for next year because some those tenants will open in '11. It will be a partial number for next year and you will get the vast majority of that in '11. But the first full year total full year of what we just did in Q2 and Q3 will probably be '12.

Okay. Great. Thank you.

Your next question comes from the line of Rich Moore of RBC Capital Markets. Please proceed.

Hi, good morning, guys. Bill to finish up a previous question, where does that leave 4Q G&A then?

4Q G&A?

Yes, because you had the one time auto-type things and then the compensation --

Right. The fourth quarter will be higher than the 18.5 based on certain plans that were put in place and some other things. But it's probably in that $20 million number.

And then, Dan, I noticed that percentage rents in the quarter were -- took a nice bounce up while regular base rents were coming down. I'm curious, is any of that -- I can't imagine it has to do with sales being better certainly not in this environment. Does any of that have to do with the co-tenancy clauses kicking in to percentage rent?

That's exactly right. The difference between over and percentage is that has more to do with co-tenancy provisions and the fact as the base rent comes down because the tenant not paying us the base rent and they are in fact paying us the percentage rent or the alternative rent if you will. That's not overage rent or result of sales, you are correct, it's about cotenancy.

That's usually a one year change with respect to co-tenancy provision in the region. If they remain a year if now that will go back to base.

How would you assess that situation? Will we have more of that?

It stabilized at this point in time. That's a result of primarily the bankruptcies and unless we see more significant bankruptcies, we don't expect to have large big box vacancy, which will cause other tenants to go on percentage rent. We think it's stabilizing. It has stabilized significantly from where we were a couple quarters ago. We don't see it moving very much absent some negative impact on the sector, like we had this time last year.

And then if I could real quick. Dave, you were saying that you are getting capital availability from many sources and you don't need to do these extra secured loans. You might do them. I'm curious why you continue with the [TALF] program. It can't be a pleasant experience working with the government. Is there a reason why that is still attractive to you?

Our focus is throughout this year to improve our liquidity and lower our leverage and it hasn't been about what was going to be necessarily the easiest or most pleasant for this Company to execute and so I think we pursued all strategies of various costs of capital both in terms of coupon rates as well as in terms of how cumbersome they are and how much time they take to put together. Some of them are more challenging and assume we were absolutely pushing as hard as possible in every direction to put as much capital as possible to ensure that there is no question of this Company's liquidity over the next several years.

I hear what you are saying. I mean the credit market seem to me to be significantly more open than they were. Why not take these 28 assets and get mortgages on them?

Rich, you aren't totally off base and there is -- the advantages of the program aren't necessarily what they were six months ago. But we will do whatever is the best for the Company in the long run. Yes, you are right in the sense that you are observing that there are more opportunities now than there used to be.

Are you sort of stuck with this, Scott? Could you get out of it if you wanted to or are you sort --

No, we aren't stuck with it at all. We could get out of it if we chose to.

Okay. Last thing, guys. On the credit lines, where are you with those given they are due next year?

At this point the huge focus has been to prepare the balance sheet as much as possible to make that negotiation as strong as possible with the banks and to create as great a level of comfort as possible in terms of their overview of our credit. There is also obviously a major focus on working with other transactions and strengthening the relationship with our largest lenders to make sure that they are very aware of the importance of DDR as a good and recurring client. So I think that's where the focus is today give than we have 20 months until the maturity of our revolving credit facility haven't been the appropriate time just yet to enter into formal negotiations regarding the extension of our credit line. There is certainly informal conversations and work to ensure that on a daily basis the bank group feels as comfortable as possible with their commitments to this Company. With the recent capital that's been raised there is also huge pay downs of that revolving credit facility that was drawn roughly 90% but total capacity for a large portion of this year and is now more in the 60% range. I think that's a lot of capital coming back to those banks. I think we sent them very important signals thus far. We continue to do that and would expect the renegotiation and the extension of our revolving credit facility to be a process that occurs in the first half of next year with firm results that we would expect to report next to report in the second half of next year which is still going to be at minimum six. But as much as 12 months before matturety of that.

Thank you, guys.

Your next question comes from the line of Jeffrey Donnelly of Wells Fargo. Please proceed.

Good morning, guys. I wanted to follow up on something that Rich touched on. What the pace of request for rent and lease of tenants? Have you seen abatement there and what about the pace and granting those requests? One final part of it is how are those renegotiated leases reflected in your same store leasing metrics? Are they renewal?

The negotiated leases as a result of like a rent release request or something like that are reflected or not reflected in our leasing efforts. They aren't in those numbers unless there is a tenant is at the end of its term and then the lease is expired or the tenant then exercises its option. We reflect exactly what it is. If the tenant if the lease is expired it's a new lease and exercised their option regardless of the rent than its in the renewal. As far as your question about rent reduction, first the velocity has slowed dramatically on the coming on board. Total portfolio request and keep in mind we have 14 or 13,000 tenants we had 953 total requests across the portfolio and that's core and JV. The ast majority came from the southern region. 43% of those requests came from the southeast which is predominantly our grocery neighborhood center portfolio. We granted 4.3% or 41 concessions of the 953. And the average concession that we granted was 22% off the base rent for a period of one year and then the tenant converts back to its full rent. That's how the numbers break down. It's pretty interesting to see where the requests are coming in and where they aren't coming in from. But suffice it to say the southern region is the one area that is showing the most distress.

That 953 requests cumulative to date?

Yes, it is.

And then another question actually on bad debt. Accelerating is you move forward, how should we think about that figure in Q4 and perhaps in Q1 if you are able to speak to that? I'm curious, we were at peak or near a peak?

I think it's going to be probably somewhat consistent from where we have been operating these last couple of quarters. You will probably see more of it in the Q1 as typical cycles go. But it's going to be probably averaging around maybe that 2% number.

Just last question actually you mentioned the release that there might be instances where you intend to commence construction on development. I guess I'm curious, you share with us what sort of returns are pencilling out there and more broadly if you were far into those projects as you are today would you consider commencing additional green field development in the near term?

Domestically no. The returns available today in the domestic United States are not nearly sufficient to justify the investment of capital on the balance sheet. In terms of what is the right strategy for the land that we own in the pipeline, when you look at the return, Jeff, you look at it based on what you paid for the land or look at it based on what you could sell the land for or look at it based on what incremental income can you generate and what is the implied value of the land after you've developed the property. And that's the kind of prism we apply to each project to decide whether it makes sense to invest additional capital. Very consistent with all other developers. Everybody is facing the same issues. And that in terms of sales of real estate assets, raw land will be the last thing where you will see lot of velocity of transactions. It's probably something that is the case by case analysis and to your question what kind of returns will we need to see? To justify new development I would say it's our view it would have to be north of 12 and we aren't going to see that in the domestic US for quite awhile. Having said that down in Brazil we are seeing returns as high as 17% , 18% on cost. Our Brazilian subsidiary will be

I'm secured domestically to put some scale to it I'm assuming you might be referring in your release, what sort of investment could you be making in -- 2010 potentially for projects that are beginning construction?

Probably less than we put into CapEx in 2009.

Your next question comes from the line of Shubhomoy Mukherjee of Barclays Capital.

My question relates to the secured financing that you have secured from Goldman. Could you give us some sense of what the loan to value on that transaction is likely to be and what impact would have on your income asset coverage ratio?

We pride ourself on being at transparent at possible in providing great disclosure. As we indicated earlier, we apologize we cannot speak further regarding that transaction at this point.

Thanks.

That the time there are no more questions in the queue. This ends your presentation for today. Thank you for your participation. You may now disconnect. Have a wonderful day.