Site Centers Corp (SITC) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter Developers Diversified Realty Corp. conference call. I will be your Operator for today.

At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of today's conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Ms. Kate Deck, Investor Relations Director. Please proceed.

Good morning, and thank you for joining us. On today's call, you will hear from President and CEO, Dan Hurwitz; Senior Executive Vice President and Chief Financial Officer, David Oakes; and Senior Executive VIce President of Leasing and Development, Paul Freddo.

Please be aware that certain of our statements today may be forward-looking. Although we believe that such statements are based on reasonable assumptions, you should understand those statements are subject to risks and uncertainties, and 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, 2009 and filed with the SEC.

In addition, we will be discussing non-GAAP financial measures on today's call, including FFO. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings press release dated April 22, 2010. This release and our quarterly financial supplement are available on our website at DDR.com.

Lastly, we will be observing 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'll turn the call over to Dan Hurwitz.

Thank you, Kate, and good morning.

To begin our call, I'd like to highlight the progress made since the end of the first quarter of 2009, as I believe it underscores our committment to reduce debt and enhance the quality of our portfolio. During the last 12 months, we reduced total consolidated indebtedness by $1.1 billion from $5.8 billion as of March 31, 2009 to $4.7 million as of March 31, 2010, through incremental and strategic transactions, including equity raises, retained cash flow, asset sales, open market debt repurchases, and tender offers. As a result of these various transactions, and again on a year-over-year basis, we were able to reduce our prorata debt to EBITDA from 10 times to 9.1 times, well on our way to our goal of the mid-8 times range by year-end. In addition to leverage reductions, we also increased the weighted average maturity of our debt by over one year, resulting in greater financial flexibility and a more balanced debt maturity profile. With respect to our liquidity position, the balance available on our revolving credit facility has increased by over $900 million from the cycle low availability of less than $100 million a year ago.

Regarding portfolio operations over the trailing 12-month period, we were able to increase our leased rate from 90.7% to 91.3%. Overall, we are encouraged by the progress we have made over the past year, and believe the execution of our strategy signifies a disciplined focus of delivering results based upon the expectations we set for ourselves and partnership with our investors. As we navigate the first half of 2010, we remain keenly focused on the operating and balance sheet initiatives that we identified in January.

From an operational perspective, our committment to improving our leased rate has resulted in marginal gains within our portfolio, and record-setting deal volume. We have seen momentum building in the junior anchor box category, as market dominance and expanding retailers seek external growth in high quality shopping centers amid a diminishing supply of such space. Deal economics are still challenged and lease spreads remain negative; however, we are encouraged by the aggressiveness we are seeing with some of our stronger retail partners. The decline in same-store NOI has moderated, and we expect further improvement throughout the year as new leases come on line in Q3 for the back-to-school selling season and Q4 for the holidays. In addition to enhancing the quality of our shopping centers through lease up, we remain focused on overall portfolio management, by pruning the portfolio of underperforming centers and selling non-prime assets.

Before turning the call over to Paul, I'd like to take a minute to highlight an improvement we are seeing with regard to our accounts receivable balances across the portfolio. Accounts receivable in general is often a good indicator of future retailer health, and typically tells a story one way or another. On a positive note, within the month of March, our collections group was able to record the largest monthly reduction of receivables within the past four years. We have all learned over the past few years that just because you bill a tenant, that doesn't necessarily mean they automatically pay you; but through a combination of aggressive collecting and improving conditions, our tenants are paying their bills. We obviously view these results as very encouraging from both a macroeconomic perspective and retailer operational perspective, as there appears to be less distress among tenants and more overall liquidity, resulting in our collections team growing more effective in its efforts to reduce our outstanding balances. We certainly understand that one month does not foretell the results for the remaining nine, but we will continue to monitor this effort very closely, as it may indicate a positive trend over time in a healthier outlook for retailers as the years continue.

I'll now turn the call over to Paul, who will discuss what we are seeing in the retail environment, and provide greater details about our portfolio operations.

Thanks, Dan.

I'd like to begin with a brief update on the retail environment, which continues to show signs of improvement. After a better than anticipated Holiday season, retailers continued their momentum into the late winter and Easter season by posting better than anticipated results in February and March. The March sales results were notable, not because of the headline comp increase, which benefited from the calendar shift and favorable weather, but because of the underlying sales trend. While April sales will be negatively impacted by the calendar shift, the upward revisions that many retailers made to their first quarter earnings guidance reflects their improved sales outlook, much cleaner inventory position, strong initial reaction to Spring fashion, and a favorable margin outlook due to the increase in discretionary spending.

Strong sales and solid earnings growth for retailers translate into expansion plans, and we are working with numerous retailers who need space to meet their [open to buys] for store openings in the next two years. Top line sales are now in the spotlight, and our core retail partners in the value and off-price channels are increasingly viewing square footage expansion as their primary vehicle for top line growth, particularly in low inflationary to even a deflationary environment for some categories. This is evidenced by the volume of new deals that we executed in the first quarter, and the increased representation that many retailers are bringing to the Las Vegas [ITSE] show in May. We are also seeing retailers become more flexible in size and location in order to meet their goals, which marks a significant change from 2009, when retailers could be more selective. Quality space continues to be in demand, and this bodes well for the lease up of our portfolio.

As Dan mentioned, deal velocity continued to be strong in the first quarter. In addition to breaking a Company record for new leases signed in a single quarter, we increased our lease to occupancy rate by 10 basis points to 91.3%. This compares favorably to a, historic average decline of 20 basis points in the first quarter, due to the seasonal nature of tenant fall out. During the first quarter, we completed 180 new deals, representing 1.2 million square feet, and 242 renewals for 1.4 million square feet. In total, we executed 422 deals during the first quarter for 2.6 million square feet. These results include the cumulative efforts of our leasing team for both owned and managed assets, though our supplemental disclosure does not match exactly, as only centers in which we have an ownership interest are included in the supplement. Based on current deal flow, we remain confident that we will achieve a leased occupancy rate of at least 92% by year-end.

Spreads remain challenged, but we're starting to see some improvement in deal economics. Spreads for new deals were negative 5.9% for the quarter. This compares favorably with the negative 15.3% for the fourth quarter of 2009. Renewal spreads for the quarter were negative 1.9%. This was impacted by the decision to negotiate some short-term renewals at reduced rates, enabling us to negotiate more favorable longer-term rates in an improving economic environment. In total we executed 39 one-year renewals, with the expectation we'll be in a better environment to discuss longer-term deals a year from now. Our combined spreads for new deals and renewals was negative 2.9%. Looking forward to the balance of the year, we expect spreads on new leases to remain slightly negative, and for renewals to be roughly flat.

In regard to back-filling big box vacancies, our anchor store redevelopment team continued to make substantial progress in the first quarter, leasing 12 units for over 524,000 square feet. Of the 6.9 million square feet of space returned through the five major bankruptcies, we now have some level of activity on 63% of the space, including 31% leased or sold and 32% in LOI or lease negotiations. In the first quarter we executed deals with many of today's most active retailers' including the Fresh Market, Kohl's, buybuy Baby, Forever 21, T.J. Maxx, Burlington Coat Factory and Hobby Lobby.

Our prime portfolio continued to perform well, and ended the quarter with a leased occupancy of 92.9%. We've introduced additional disclosure to the supplement regarding the prime portfolio, including the number of centers, GLA, and percent of our total NOI. It is important to note that these 265 shopping centers make up roughly half of our total owned assets, but generate over 80% of our total NOI. Our strategy continues to be to hold these assets for the long term, and sell the non-prime assets where it makes financial sense, further simplifying the focus on the high-quality assets that dominate our results.

Our ancillary income department continues to mitigate NOI losses from vacant space, while also helping our retail partners meet their increasing demand for seasonal space. For the first quarter, ancillary income for the combined portfolio was $8.8 million, which is a 13% increase over the same period in 2009. The deal volume for the remainder of the year is very encouraging, especially in the seasonal categories, which are benefiting from the entrance of additional players into the market for temporary locations for the Halloween and Christmas season.

Turning to operations in Brazil, our portfolio continues to perform well, with same-store NOI growth of 11.2% for the quarter and a portfolio leased rate of 97.7%. We continue to see opportunities for growth in Brazil, and recently started construction of a new mall in Uberlandia, with a planned opening in the Fall of 2011. Uberlandia is an underserved market located North of Sao Paulo. Last week, we secured an 81 million reais construction loan on the mall, which is currently 53% leased and will be anchored by Wal-Mart and Cinemark. We also recently started a 60,000 square foot expansion at our largest and most successful asset, Parque Don Pedro, which is expected to open this Fall.

With regard to development in the domestic portfolio, we continue to minimize ground-up development spending, while allocating capital to the lease up of existing projects; however, we do see a great opportunity to redevelop a number of our existing assets. We view this as a strong growth opportunity that we intend to fully capitalize on. We recently hired a professional experienced in development and redevelopment to oversee this program, and are excited about the opportunity to create value without the risk or capital requirement of new development.

In summary, we had another strong quarter for leasing activity, and expect the momentum to continue throughout the year. Our number one focus continues to be on leasing up vacant space. We are encouraged by the increasingly optimistic mood in the retail community heading into RECON in Las Vegas, and expect to capitalize fully on the various opportunities to fill space with best-in-class retailers.

And now I'll turn the call over to David.

Thanks, Paul.

I'd like to begin by highlighting the various changes and improvements that we've made to our quarterly earnings supplemental. Our goal is to consistently provide best-in-class transparency and deliver disclosure that provides the most comprehensive view of our Company in the most efficient fashion. This prompted us to complete an intensive internal review of our current disclosure, and take direction from our analysts and investors, which lead us to add new information, remove less relevant information, and clean up our existing documents, so that it is easier for investors and analysts to understand and to use. Many of the changes appear this quarter, and we will roll out additional changes for the second quarter supplemental as well. We hope you find the new and improved supplemental useful, and your continued feedback is always appreciated.

Turning now to our quarterly financial results. Operating FFO is $0.28 per share for the first quarter. Including certain non-operating and primarily non-cash net charges, FFO was $0.12 per share for the quarter. Once again, impairments and other non-cash charges skewed our true operating results. The charges taken this quarter aggregate $36 million, and are primarily related to the loss on equity derivative instruments related to the auto warrants, as well as impairments and losses associated with assets being marketed for sale.

As evidenced by our capital markets activity this quarter, we continue to actively and opportunistically raise capital, reduce leverage and extend our debt duration. We started the quarter by raising $46 million through our continuous equity program, at an average price of $9.30 per share. We stopped selling shares in this manner in January. In February, we completed a $350 million common equity offering, and in March we issued $300 million of senior unsecured notes with a seven-year term. We also tendered for $83 million of our 2010-2011 senior unsecured notes, generated retained earnings of approximately $45 million, and sold $456 million of assets which, after JV partner interest, netted $95 million of proceeds to DDR for leverage reduction.

All of this activity netted the Company over $800 million of capital this quarter, which was predominantly used to delever, and secondarily to reinvest in our assets. Additionally, we were part of the first multi-borrower CMBS transaction to close since 2008, through our DDR domestic retail fund joint venture. The $30 million financing is for a five-year term at a rate of 4.2%; it replaces three loans with a comparable balance maturing in 2010.

Availability of capital has improved significantly for our industry, and especially for our Company, over the past year, and we have taken advantage of these conditions to raise a considerable amount of new capital. Many of these financings were initially budgeted to occur later in 2010, but we recognized the opportunity to reduce risk and we took it in the first quarter. For the past year we have articulated the strategy of lowering leverage, increasing liquidity and extending duration, with the goal of lowering our risk profile and our long-term cost of capital, and we are pleased with the progress made during this year, especially this quarter.

The proceeds from our various capital-raising activities this quarter went primarily to repay debt. We repurchased 156 million of near-term unsecured notes, paid off over $150 million of consolidated mortgage maturities, in addition to removing $392 million of mortgages affiliated with assets sold. We also paid down our revolving credit facilities by over $400 million this quarter. We reduced total consolidated debt from $5.2 billion at year-end to $4.7 billion today, which is more than halfway to our goal of $4.4 billion by year-end 2010.

We lowered our prorata debt to EBITDA ratio from 9.54 types at year-end to 9.12 times today, and we expect this ratio to be in the mid-8 times range by year-end, driven primarily by continued asset sales and retained capital, as well as improving EBITDA. Additionally, we extended the weighted average maturity of our debt from March 2013 to July 2013, and increased liquidity to roughly $1 billion of cash and availability on our revolving credit facilities. Today, we have approximately $310 million of wholly-owned debt maturing this year, which consists of almost $300 million of two series of senior unsecured notes maturing in May and August, and one small mortgage. We will address our maturities using the availability on our revolving credit facilities, proceeds from asset sales, retained cash flow, and funds from available discretionary capital-raising activities.

After several refinancings completed in April, our share of unconsolidated mortgage maturities in 2010 totaled approximately $200 million. Most of these loans are in the process of being refinanced, extended or, in some cases, the assets are being sold. We have also made progress reducing our 2011 wholly-owned maturities, which totaled roughly $750 million, including $346 million outstanding on the revolvers. As many of you are aware, our revolving credit facilities have their initial maturity this June, but have a one-year extension at our option that we expect to exercise shortly. We are currently in discussions with participating banks, as well as several banks that are not current participants but have expressed an interest in joining. We'll reduce the size of our revolvers by at least 25%, as we implement a longer-term financing strategy and shift away from reliance on short-term debt. This strategy has been demonstrated by the $900 million reduction in our borrowing on our revolver since this time last year. Smaller facilities will still provide ample borrowing availability, without incurring the cost to support excess capacity that we do not intend to use. The facilities will be more appropriately sized for our disciplined growth strategy going forward.

We're encouraged by the feedback that we've received from banks thus far, and we plan to close on the new facilities in the fourth quarter of this year. We remain compliant, as we always have, with our credit facility and bond covenants, and the cushion on some of these covenants have hit positive levels that we have not seen in several years but expect to maintain. Our historically tightest covenants have been the consolidated outstanding debt to consolidated market value ratio, and the unincumbered asset coverage ratio, as calculated for the revolving credit facilities. In the first quarter the consolidated debt ratio was 57%, well within the 65% limit, and the unencumbered asset coverage ratio was just over two times, well above the 1.6 times minimum. This marks the first time since the second quarter of 2006 that the unencumbered ratio has been over two times.

Enhancing the size and quality of our unencumbered asset pool has been important for us, as we seek to solidify investment-grade credit grade ratings. We continue to proactively raise capital to repay first mortgages on wholly-owned assets, and have not replaced many of them, which results in more property being added to the unencumbered pool. In May, we will repay a 9% $60 million loan, which will release two large prime assets into the unencumbered asset pool and will further reduce our cost of capital.

Recently we formally engaged Fitch to provide corporate credit ratings for us going forward. We are now formally covered by three rating agencies. As you may recall, we are still investment grade-rated at Moody's, and remain focused on earning our way back to that level with S&P and Fitch. We continue to work closely with all the rating agencies to ensure that they have the most up-to-date information, and that they are aware of the balance sheet progress that we continue to make.

Finally, I'd like to provide an update on MDT. As we stated in the press release yesterday morning, MDT completed a private placement with EPN for AUS$9.5 million, and plan to conduct an entitlement offer to raise an additional AUS$200 million. The proceeds from both capital raises will be used to stabilize MDT's balance sheet by reducing leverage and extending duration. As part of the recapitalization, EPN will buy Macquarie's 50% stake in the US Manager, and will become our new partner in managing the trust. EPN is a joint venture of two public companies, Elbit Imaging and Plaza Centers, and one private group Eastgate Property, all of which have long and successful track records of real estate investing. Since the redemption of our interest in the main MDT joint venture last year, our only real economic involvement with MDT is through our asset management leasing and property management contracts, all of which stay in place with their current fee streams. We are pleased to see the trust raise capital from an experienced real estate investor in order to stabilize its balance sheet, and we look forward to working closely with EPN to create value for MDT unit holders through our services.

I'd like to wrap up by stating that although we have made significant strides, reducing leverage, extending maturities, and enhancing portfolio quality this quarter, we remain extremely focused on continued improvement, and we look forward to updating you throughout the year with our progress.

I'll now turn the call back over to Dan for his closing remarks.

Thank you, David.

As you've heard, we had a very active first quarter and made significant progress on our balance sheet and operating initiatives. As David mentioned, the major financing transactions that took place during the quarter were initially budgeted to occur in the middle of the year. As a result of the timing of these transactions, and the higher weighted average share count, and higher short-term interest expense that will exist for 2010, we are lowering our operating FFO guidance to $1.00 to $1.05 per share. The lower guidance is exclusively a function of the timing of capital raises, and there is no change to our EBITDA projections, as operations continue to track on budget. Consistent with our articulated strategy, and given the still fragile state of the economic environment, the uncertainty surrounding capital market conditions, and the strong advice received from the market through various sources, we firmly believe we made the right decision to reduce risk and to execute transactions when we did, and as a result have significantly enhanced our Company's balance sheet and long-term capital structure at the short-term expense of 2010 FFO.

From a quarterly standpoint second quarter FFO will be our weakest, as the full dilution of the capital raising will be reflected at the same time that the smallest amount of rental income from all of our leasing activity will be in place. Simply put, tenants rarely open new stores in the second quarter. The third and fourth quarters should show solid growth sequentially, as more of this rental income comes online.

Before turning the call over to questions, I'd like to address a few corporate initiatives that I believe highlight our committment to shareholders and forward-thinking ideas. First, as many of you know, we have engaged a third-party consultant to conduct a perception study of investor sentiment toward our Company. This is the second consecutive year we have engaged this firm to conduct a perception study, in an effort to gauge progress made and identify additional areas for improvement. Last year's survey uncovered various strengths and weaknesses of our investor relations and strategic planning efforts, and that feedback was greatly appreciated and acted upon. Our consultant was in the market for the past several weeks to finish this year's survey, and I would like to personally thank each of you that participated for taking your time to share your thoughts. Your perspective and feedback is truly valued, and will certainly be considered by the Management team and our Board of Directors, just as it was last year.

Second, we recently conducted a research study designed to reveal how evolving consumer behavior, changing demographics, and the economy will shape shopping center leasing, development, and property management well into the future. The study focused on projections for the years 2014 to 2020, and included interviews with several industry resources, including shopping center industry executives, major retailers, authors, academics, and economists. The research was rather revealing for our property type, and more specifically for our portfolio, and will serve as a guideline for future operating initiatives. We are currently preparing an executive summary that will be made available to the investment community upon completion. This is a very thought-provoking study that will be an invaluable tool in understanding future trends and strategies within our business.

At this time, Operator, we'll be happy to take some questions.

(Operator Instructions)

Your first question comes from the line of Jay Habermann of Goldman Sachs. Please proceed.

Hi, good morning, everyone. Starting with Dan or Paul, but you talked about the stronger leasing or I should mention sales activity, for much of this year, and I guess March especially.

Jay, you're breaking up for some reason. We cannot hear your question.

Does it sound better now?

Yes, much better, thank you.

Okay, great. You talked about the stronger sales in March. Can you give us some sense of whether or not this will translate into stronger demand, say, in 2011 versus 2012?

I missed a little bit of that.

You're still breaking up, Jay, just a bit. We're catching only bits and pieces of your question.

Okay, well let me get back in the queue. I apologize. Maybe I have a bad line.

Okay, thank you.

Your next question comes from the line of Alexander Goldfarb from Sandler O'Neill. Please proceed.

Good morning.

Good morning.

Hopefully -- is this line okay?

Yes, you sound great.

Okay. Just for my two questions, the first question is just thinking about guidance, and it sounds like retail activity has been picking up, so I think at the end of last year you guys gave guidance for about $40 million of leasing costs for this year; one, want to know if you're still comfortable with that or you think it could be higher? And then two, I think you still have some remaining ATM capacity, so just want to know if that's factored into your new revised $1.00 to $1.05, whether that's in there or not?

Yes, on the first question, clearly okay with the $40 million. We are right at it, and tracking right to that number at this point. By the way, if it's slightly higher we would view that as good news in terms of leasing activity, but right now it's exactly what we're tracking.

And very much sticking to our discipline of not incentivizing retailers simply by writing them checks to occupy the space, but trying to find efficient and appropriately economic deals.

On the second item, on the ATM program, we do have additional capacity there, and could certainly put additional capacity into place. At this point based on the equity that we raised in the first quarter we don't have plans today to raise additional equity, but we do have the capacity to do it, and certainly as we look around at opportunities, it would be a potential tool to help fund, that as any sort of investment activity that we would look at would be funded with a very high component of equity, and the test set for if it made any sense would be compared to that cost of equity as opposed to anything like our line of credit costs; but at this point don't have plans and have not been active in the market with the ATM additional capacity.

And then my second question is, if I just look at the stock reaction today, it's off versus the group and the rest of the REITs. I'm wondering if it's possibly driven by sort of the items, the charges that you guys took in this quarter, and then what some other potential charges or items could be in the balance of the year that may show improvement for the Company or be reflected in like the auto derivatives, which investors can think about so as to not be surprised when those sorts of things come out?

We acknowledge that the results have been more messy than would be ideal, over the past two years really. We're pleased that this quarter has less of those items than was the case in most quarters over the past at least year and-a-half, but still some of that remains. The auto derivative, which was by far the largest charge this quarter related to the revaluation of their warrants, is something we will have to deal with until those warrants are exercised; so potentially an additional four years of that. It's completely counter-intuitive in some ways, where the positive performance of the stock was the exclusive driver of why that charge exists, and as the stock would trade down that would actually be a gain in future periods, and so very far away from the real economic impact that you'd think of there, but on that we won't be able to get away from. As we do sell assets, there may be additional impairment charges and losses on sales. We certainly don't think it will be anything as large as has existed over the past two years, but constantly, you know, some ability for that to happen.

Most importantly though, I think, as we've said many times, after years of this Company driving growth in FFO per share and having a heavy focus at the Board and the Management at the strategic level on maximizing FFO per share, it is not the primary metric we are looking at today, and so we won't let our investment strategy be driven by the short-term maximization of FFO per share. So in the cases where we continue to look at asset sales that may generate losses or impairments, that conversation is exclusively happening in the context of, do these asset sales make sense at this pricing? Is this real estate we don't want to own? Is this real estate where we expect the NOI to be lower in the coming years rather than higher? And so there will continue to be FFO impacts from activity like that, but we firmly believe that it is the right strategic decision.

Thank you.

Your next question comes from the line of Jay Habermann Goldman Sachs. Please proceed.

Hi, good morning. You can hear me now?

We can.

Sorry about that before.

No problem.

Dan, or Paul, maybe starting off with the comments on retail sales and the strength you saw in March, and obviously the positive tick for much of this year, and obviously that's had an impact on tenant demand, but can you talk a bit about [the chances] for potentially stronger demand in 2011, say, versus 2012 openings?

Well, one of the things that we're clearly seeing, Jay, is tenants very, very concerned about 2012. 2012 is a year that -- as you know, we're going to have significant increases in occupancy throughout the industry for 2010 and 2011. There's really no new supply of space being built. Tenants have been indicating that they are comfortable with the 2010, they are somewhat comfortable with the opportunities in 2011, but they are very concerned about their opportunities in 2012 because the supply and demand ratio should shift dramatically, as companies like ours, and all of the other companies, quite frankly, in retail continue to increase their occupancy levels. So we think demand for space in 2011 for 2012 will be extremely strong, and we think it will be equally as strong as we're seeing now for 2011 and 2010, if not stronger.

Jay, I would like to add-on to that that in our conversations with these retailers, clearly there's concern, and I know Dan mentioned that but, we need to emphasize that; there's concern about where they are going to meet their square footage growth needs, and nobody is indicating that this is a short-term growth plan, and then we're going to be satisfied with our store count, quite to the contrary. And so it's going to be an interesting dynamic in the next few years, as the demand increases and the supply diminishes.

And I think we're going to see and hear some of the results of that pressure on retailers at RECON in May, because it's really not too early to start talking about 2012, especially for some of the larger boxes, who are trying to allocate capital for future years. So I think this year at RECON will be vastly different than last year, hopefully, and I think we'll start to feel some of the -- or see some of the pressure on the retailers to secure space, as opposed to all of the pressure on the landlords to fill space.

And can you comment a bit about say rents versus occupancy, the trade-off there? I know you mentioned strength in the junior anchors' box bases, but it's my understanding that some of the remaining spaces now are going to be the more challenging spaces to lease; so can you comment a bit about that sort of dynamic between rent versus occupancy for the balance of this year? Should we see leasing spreads continue to soften?

Yes, one we will continue to see the spreads soften, and part of that is the increased demand. A couple of things we're seeing, Jay. A lot more competition for space. That's one of the things that we talked about on prior calls, there was no competition for space last year. They were all very selective, and picking and choosing, and we rarely saw two retailers looking at the same box. That has changed dramatically, and so with that, competition becomes certainly a different discussion when it comes to rent. Retailers are clearly remaining disciplined in what rents -- or remaining disciplined in the rents they are willing to pay, but again we are seeing movement in that.

One of the things we also mentioned previously is that retailers are coming back to markets and locations that they passed on a year ago. They aren't going crazy and considering markets that they shouldn't be in, but they are being more flexible in the markets they will go to, and a typical call would be hey, that market we told you no interest in last August, let's talk about. So that's also improving our situation.

Flexibility and size is another thing we're seeing with the especially with the junior anchors. A lot of them realized that their prototype doesn't fit what's available, so we've seen several of them come with a smaller prototype and just try to figure out how they are going to get more space. I'm not overly concerned about the fact that the best goes first and what's left is not desirable, because we're seeing more and more activity on a great majority of the space.

Okay, lastly maybe for David. Did you give a specific asset sales target for the balance of the year, to get to your mid-8 target on leverage?

We indicated in the portion of the press release where we updated guidance that the assumptions on all of the operating metrics were the same, and so I apologize that we didn't go into detail on that. But still looking at -- for DDR's prorata share of asset sales to be $150 million for the year, and very much believe we are on pace to hit that. Of course that number is netting out our joint venture partner's share of some of the sales.

Okay, thanks everyone.

Thank you, Jay.

Your next question comes from the line of Christy McElroy of UBS. Please proceed.

Hi, good morning.

Good morning.

David, just following up on Alex's question, with the longer-term goal of further deleveraging, given that your stock is up pretty substantially from where you issued equity back in February, how do you weigh your options in terms of thinking about potentially raising more equity at this level, You know, arguably much lower implied cost of capital than February, versus other options for raising capital and reducing debt? And is there an opportunity to pay down more debt as you look to refinance your credit facilities over the next few months?

Well, we're certainly encouraged by the market's response to the progress we've made thus far, and by the strong performance of the stock year-to-date and particularly since the equity offering. We are constantly thinking about our access to capital and our cost of capital, and we are most driven by our goal of lowering that long-term weighted average cost of capital, and so we're evaluating that on a regular basis. From the plan that we've been articulating, we believe that we can achieve our leverage targets in a reasonable period of time without additional equity being raised, simply for purposes of debt repayment; and so I think if we would look at additional equity raising activity, it would more likely be with some investment activity that we thought was opportunistic enough to justify a high level of equity funding. At this point, we don't have anything that we're too active on and that we're willing to talk about today.

So it's something we think about, but we truly believe through our other initiatives that there are other ways that we can lower our debt in ways that are less costly from a long-term perspective than selling common equity, even at $13 a share, with both our ability to improve EBITDA and our ability to lower debt and other means.

Okay. And then just sort of following along those same lines, we've seen signs of cap rate compression for high-quality assets in good markets, but have you seen more interest in or pricing that would make sense that you might sell more of the assets in your non-core portfolio than maybe you're sort of targeting right now, the $150 million? Just trying to get a sense for whether or not there's been much cap rate compression for B, C assets in secondary and tertiary markets?

Yes. I would firmly agree with your initial point that there has been continued compression in cap rates, and no longer is that just a talking point. There's much more tangible evidence that that is occurring, and there are many more prints out there that would clearly, clearly indicate that prices have come up and cap rates have come down.

That is somewhat separate from the world that we are living in with many of our asset sales, where the institutional players purchasing the high-quality assets, which represent most of our portfolio, are clearly paying higher prices than they would have even three months ago, let alone 12 months ago. We've seen a bit of that flow through to the non-prime assets that we're selling; we're particularly seeing some benefit there as the financing market improves, and the ability to put financing on assets that aren't of the highest quality has clearly improved. And so we've seen a bit of tightening with the assets in the caliber of stuff we're trying to sell, but nowhere near what's occurred to market pricing for the core of what we own and what we're not looking to sell.

For now, the budget remains the $150 million of asset sales for this year, but certainly view it as a long-term strategic initiative to continue to lower the amount of exposure we have to non-prime assets, and so we'll see how the transaction market turns out over the rest of the year to evaluate if it could make strategic sense for this Company to push that figure a little higher for next year, and leave a little less to do in the coming years.

So of your targeted dispositions this year, what kind of cap rates are you sort of projecting on those transactions?

Have budgeted in the 9% to 10% range for some of the stuff we're selling that really is that non-prime B, and probably much, much closer to C-quality real estate.

Great. Thank you.

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

Good morning.

Good morning.

When I look at the lease expiration schedules between December 31, 2007 and the one you just published for March 31, 2001, the total rent roll for shop spaces is essentially flat, but the anchor drops from 1,492 to 1,104. I just wonder what is accounting for that drop in the anchor space?

Craig, we were including temporary tenants in the fourth quarter disclosure, and we have decided with our new disclosure to not include those, as it -- it skews the 2010 and 2011 years in particular. But to give you a more accurate representation of our long-term leases, we decided to exclude those; so that's the reason for the drop.

Great. And I assume at some point, with the releasing of the junior anchors, there's going to be some spaces you just aren't able to lease in their current configurations. What goes into the decision to consider reconfiguring that space to maybe lease through a more flexible size box?

Well, obviously, there's a process, Craig. You start with the next best retail available and interested your box, and we work right down through less desirable retail, and this enters into our whole prime, non-prime discussion, and which assets we're going to be more selective about who we release with; but clearly we're looking at a small bottom percentage of the portfolio of vacant boxes, and what do we do with it. We're very aggressive in how we're looking at repositioning them.

We've had a couple of examples where we're going to consider knocking down, you know, razing that box, and replacing with some much more valuable outparcels; just trade GLA for GLA, if you will. But you start with who's the best-in-class that you can get in, and you work your way through the retail lineup, and then we get down to where we may have non-retail uses, of which there are some; or simply, again, scraping the box and replacing GLA with GLA in a more desirable configuration and location.

Okay, thank you.

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

Good morning, folks. Dan, at the prior peak, many of the retail REITs, I think you guys as well, were running at occupancies over 96%, sometimes closing on 97%. As you look down the road three to five years forward, do you feel that's a threshold, the shopping center REITs or even DDR in specific, can reattain, or do you think that was unique to the last cycle, and the next peak might be a little lower?

I think the next peak is going to be a little lower, Jeff, for a couple reasons. Number one, overall today, if you really look at the inventory of potential tenants, for space there are fewer of them. We've lost a few, more than a few, and if we don't have some new ones come into the market, which we haven't seen in a very very long time, there just really aren't going to be enough people to take all of the space.

As we look at our portfolio, we feel that full occupancy going forward will be in that 95.5% range, down from that 96% to 97% where we were at our peak in the past, and we think that that's a stable number that can be maintained. That gives us, as you know, another couple hundred basis points of occupancy that's available for internal growth within our portfolio, and we feel that the market is going to be able to sustain that going forward.

And just a follow-up, I'm not sure if this is better put to you or David, but how do the average bumps in the new leases that you've been signing in 2009 and 2010 compare to what the growth is that's in your existing lease space? I guess I'm wondering on the one hand have you lost a little bit of pricing power, but on the flip side how are you incorporating the opportunity you talked about for 2012 and beyond, into the way you're setting leases today?

The deals we're cutting today, Jeff, the bumps are very typical of historic bumps. Obviously we're starting at a lower base, and we have been -- I'd say on the one hand we've been more successful in getting sooner and larger bumps from some of the anchor boxes, just because of the low starting point, but we haven't given anything away in terms of the growth, particularly in those anchor box leases, over the typical would be some percentage at year five and ten, et cetera, et cetera. But we've been trying with that lower start rate to at least get more significant and sooner bumps.

If I can just ask maybe one last question then, Dan, you mentioned that opportunity for 2012. How do you think that manifests itself in investment opportunities? Because retailers, it's not that they just want space, they want space that they can access their customers; so does that pant a picture where there's going to be much greater compression in cap rates, or high demand for infill properties, or do you think there's an opportunity to go buy the outlying more vacant centers or, call it, busted developments?

Let me start with something I alluded to in my script. This is Paul, and then I'm going to let David and Dan answer the cap rate compression story, but one of the things we mentioned was this idea of redevelopment of existing assets. You know, Dan and I both hit on the fact that there is clearly diminishing supply, no new supply being created, and we see demand at least steady with today's rate, and possibly increasing. That's really the background to our decision to look hard at redevelopment of existing assets, I think which fits into that infill question you're asking, Jeff.

There are lots of great locations that retailers who want it are just not properly configured today or tenanted, and we're going to look very hard at that opportunity; I'm not sure what that means right now, but that's why we hired someone to come in and help us understand it. But we're going to spend a lot of time trying to figure out how big an opportunity that is. We think it's a great one, and we're going to fully capitalize on it. We believe that's a great way for retailers to meet that need. Redevelopment of existing space comes without a lot of the risk of new ground-up development obviously, and we're excited about that opportunity and think that it's a way we will meet some of the retailers' demand.

And I think that cap rate question on certain subsectors within the property type is still particularly hard to answer if it is so asset by asset, versus other property types, where the suburban versus downtown or CBD office question can always be talked about.

You know, we see just as many infill assets trading at much higher than average cap rates, simply because they've got rents in place that are so far above market, and don't allow for retailer profitability as you do suburban assets, where sometimes you have more reasonable rents in place. So it's hard to say there's a specific rule there. It's really just going to be driven by where the tenant can do the best sales, and what the right configuration is for the consumer to make it convenient for our sort of value-oriented tenants.

Thanks, guys.

Your next question comes from the line of Quentin Velleley of Citi. Please proceed.

Good morning. Just going back to the guidance, the revised guidance, can you just clarify how much additional dilution there is in your revised guidance number, in terms of any further debt issuance and these asset sales, and whether there's any land sales, and maybe as -- to have any sense of dilution you have in that guidance number?

Yes, Quentin, it was a little hard to hear parts of that but I think I got it, but shout at me afterwards if I missed anything. As far as our guidance for the rest of the year, we talked about the amount of asset sales we've completed thus far, and so we expect to get to that full $150 million number for the year as a whole. Potentially it could exceed that based on activity we have today, which is why we provide a range rather than a single point estimate.

In terms of additional capital markets activity, we don't want to be overly specific, but we're clear in the fact that extending the duration of our debt is extremely important. And so while our line of credit doesn't actually mature until June 11, I think we very much plan to have something done this year, and incorporate a little extra cost from that happening sooner, rather than riding the 1% wave for the cost of the current revolver longer. And secondly, to give ourselves room to raise additional long-term debt over the course of this year, which we absolutely believe is the right strategic decision to lower the risk profile of this Company. And so we have Incorporated additional progress on delevering and duration extension through the remaining eight months of this year.

And so about how many cents of dilution is in the revised guidance number?

I mean, for additional activity, there's a few additional cents in there. The reality is, it was a range previously that for ease we'll all talk about the midpoint as a range today, for ease we'll all talk about the mid point, so you can say that the total difference is that $0.07 to $0.08 from prior guidance to new guidance; the reality is there's still some assumptions that go into this. We could end up at the high end of that range, but not necessarily be completely pleased with our activity if we've foregone what we believe are the right capital markets activities; or we could stress it and be at the low end of that range for 2010, but not have made the continued balance sheet progress that we want.

And so we're looking at that $.05 range as something that we feel comfortable is achievable today over the next eight months; even with several additional transactions, it will improve the balance sheet, whether it's through deleveraging or whether it's through duration extension.

And with seeing some preferred issues by some of the retail REITs, is that something that you've been looking into?

Certainly something we consider. I think we've all been clearly reminded that leverage and fixed charges were not the only issues that companies had, but very importantly, a balanced and as extended as possible maturity schedule is extremely important. And so looking at tight spreads between where perpetual preferred is available versus long term debt, there's some interest there.

On the other hand, we do have a good amount of preferred in our capital structure today, so it's certainly something that we look at, believe we have access to, and have had conversations regarding, but no plans today on any specific additional capital raising.

And Michael Bilerman is here. He's got one for you.

David, I guess as you think about some of the capital markets activities that you did, and clearly part of it was just bringing dilution forward, and I think some of the reduction in guidance clearly reflected that you did things earlier rather than later, but that dilution was eventually going to come. And it sounds like in some of the things you're talking about now is, you're still trying to figure out how aggressive you're going to be in pulling future dilution forward into 2010, which is why you're sort of saying you still could -- guidance for this year could still change potentially, or you may come at the high end.

I guess when you step back from it, how much more capital raising negative spread, if you think about it over a two to three-year timeframe, should we be thinking about? And I'm just trying to get a sense of, when you look at your capital stack and the cost of capital, how do you think about where you are today in terms of your in-place debt, and what sort of rate you would targeted on a refinance, and how much dilution is there still on the come, whether it be in 2010 guidance already, or whether it's the 2011 or 2012 event?

Yes, I think a big part of what you're talking about is the right way to think about it, Michael, in terms of if we were out there with 2011 guidance today, and I know you guys certainly model 2011 already, the activity that we've completed year-to-date and the activity that we expect to complete through year-end, while it has had an impact on 2010 FFO, we really don't believe that it's had an impact on 2011 FFO. It's exactly as you say, it's a timing issue of improving this balance sheet a little sooner, and so it's a lower 2010 FFO stream from a better balance sheet; and it's a balance sheet that we had always targeted and talked about, but not necessarily one that we would count on we could put in place as quickly as we did.

So if you look at the maturity profile over the next few years, there's still some very attractively-priced debt in place. There's still $350 million on a revolver that costs barely over 1% today. There is still $800 million on a term loan that costs marginally above 1% today. Some of that floating rate has been swapped, and we give the details on those swaps, where LIBOR is locked at 4% or even higher, so you probably already got that math baked in; but there's certainly some attractively-priced debt that exists on balance sheet today that we believe will have to be rolled to a somewhat more expensive cost [roll] almost under any scenario that you look at over the next few years. That number is dramatically smaller than what needed to be done six to 12 months ago, but there's still attractively-priced debt in place.

Mitigating that on the other side, we've got a heck of a lot more non-income producing assets than we've had at any other point in the past, and that's directly related to some of the stuff that Paul was talking about with the vacancy in the core prime portfolio that we expect to be cash flowing over the next couple of years, but it also relates to nearly $1 billion of non-income producing land and construction and progress on the balance sheet that will be coming online. So we don't think it's completely fair to just talk about the dilutive side of the changes that are being made because there are some other -- there are some benefits, especially as we've stopped capitalizing interest and real estate taxes on a bigger and bigger position of our development pipeline, where we're taking those costs for an asset that benefits us in no way from the typical ratios we're talking about, and so it could benefit us in a big way if we would explore more aggressively, which we certainly are today, the sale of some of those assets. So think you'll continue to see an interest expense line item that moves up, but we would hope that you see an EBITDA line item that can outpace that over the coming years.

One other item I'd mention is that while we don't view FFO per share as the exclusive focus, especially for the current year, of what this Company is trying to deliver, we do take our guidance very seriously, and we do think this is the appropriate range to think about for the rest of the year, even incorporating additional balance sheet improvement activities.

Okay, thank you.

(Operator Instructions)

Your next question comes from the line of Michael Mueller of JPMorgan. Please proceed.

Yes, hi. Just two quick questions. One, any color at this point on line of credit pricing? And secondly, any thoughts on the dividend as you move through 2010 and into 2011? And then let me actually throw an addendum there, too. The year-end target of 8.5 times for debt to EBITDA, any thoughts on the year-end 2011 target?

Sure. So on -- first on the line of credit, actively involved in the dialogue today. We still have 16 months until the final maturity, so we've got a good amount of time, 15 months I guess, but believe that we'll have something done well before that. As a few other quality investment grade-rated REITs have put lines in place recently, I think there's more that we can point to as third-party evidence of where that pricing is coming out, more so than directly talking about anything coming out of our conversations. But a spread relative to the LIBOR somewhere in the 300-basis point range seemed to be where other transactions are happening today for unsecured lines of credit. We hope that as we continue to make progress, that there's an opportunity to improve that even further, but I think that's pretty representative of market turns from what other quality competitors have reported thus far.

On the dividend, it's obviously a decision of our Board of Directors. From a taxable income perspective, we expect to maintain low enough taxable income this year to give ourselves an extreme level of flexibility with how that dividend can turn out, and so it really just becomes a constant and quarterly evaluation in terms of Management's recommendation and then the Board's approval for a dividend policy there, So for now, we've stuck with the $0.02 a quarter, that provides considerable retained cash flow we believe, that we have very good uses for that retained cash flow today, and it's an important part of our process to continue to lower leverage.

Debt to EBITDA, we haven't outlined a specific target for year-end 2011. We talked about on this prorata debt to EBITDA, which we believe is the more conservative calculation, we've talked about the mid-8s target for the end of 2010. We've also talked about a long term target of 7 times, so we haven't exactly filled in that blank as to where you end up in 2011, but I think we know where we're headed for this year, and we know where we're headed for the longer term, but obviously want to continue to stay nimble as this market evolves.

Okay, great. Thank you.

Your next question comes from the line of Jim Sullivan of Cowen and Company. Please proceed.

Thank you, good morning. A question regarding receivables, and the bad debt expense for the quarter. In the prepared comments there was favorable commentary regarding collections, and where the receivables are at the end of the quarter, and yet the bad debt expense of the quarter was actually higher than the year earlier number. So first question is that seems counter-intuitive, maybe you could address that? And then secondly, your full year FFO guidance, I wonder whether you could -- what kind of full year bad debt expense number you're assuming? And I'm assuming in your same-store NOI -- kind of a related point, I'm assuming in the same-store NOI definition that that hasn't changed, and it still excludes the bad debt expense number?

That's correct on your final point in terms of bad debt being out of same-store NOI, not because we're trying to hide anything just because in terms of providing a number that tries to be as comparable as possible between the periods, given all of the timing issues with bad debt, where we're still suffering today from certain of the 2008 bankruptcies, we do exclude debt from the same-store NOI calculation, but try to show you all of the detail as possible on that.

Traditionally, we would expect to see receivables actually go up in the first quarter, now that we are getting our [cam] bills out to tenants and our true-ups out to tenants earlier in the year than was historically the case, and so you're billing more with less time for the tenants to respond to that. And so we would naturally expect receivables to go up and probably peak in the first quarter, so we were pleased to see that that balance did not go up as much as we would have thought, even though we got the bills out in the first quarter. And in fact, we saw those receivables go down, and what Dan was exactly referring to was between February and March, so not exactly quarter periods, but you get to see what -- an important improvement in terms of us managing this on a realtime basis. So I think some encouraging signs on the accounts receivable side, both based on what's happening in the world overall and the improvement there in some cases, and secondly, based on the extreme efforts of our accounting and collection department in getting everything that we can.

Bad debt expense for the quarter was in line with what we budgeted for the year, depending on what exactly you're using as your denominator, and the ways we look at it where we also include the joint venture portfolio internally, you're going to be between 1.5% and 1.75% of the total revenue figures. So that's where we were for the quarter, and that's where we expect to be for the year. There are some longer-term items that factor into that related to some of the bigger bankruptcies, where we're just getting to the point in those long-term liquidations where we find out the answer to what some of those claims are, and then there's some of it that's just directly related to the continued struggles we still see with some of the small shop tenants within the portfolio that also impact that number.

Okay, so in the guidance, the FFO guidance, the 1.5% to 1.75% is kind of the number we should be using?

That's correct.

Okay, great. Thanks.

Your next question comes from the line of Carol Kemple of Hilliard Lyons.

Good morning, what was your spread in the quarter between occupied space and leased space?

Oh, between occupied and leased? About 280 basis points, Carol. A great number of deals done that obviously haven't opened or commenced rent paying, but that's a positive, obviously.

Okay. And who of your small shop tenants is looking for more space in this environment?

You know, it's a good mix. Our small shop space is not a lot of nationals, other than some of our lifestyle centers, so a lot of moms and pops and local retailers; but what we are seeing is the significant pick up again in the franchise business, which dropped off dramatically in the last year and-a-half. So the most positive sign on the small shop space is clearly coming through the franchises, whether it's the food guys such as Subway, or UPS is a big one; so we're seeing much more pick up in the franchise business.

Okay, thank you.

You're welcome.

(Operator Instructions)

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

Hello, good morning guys. Paul, the bankruptcy environment, how would you characterize that today?

Certainly much better than we viewed it a year ago Rich, all of us. That talk before about maintaining a watch list and keeping tabs on those especially with the highest exposure to the Company, that list is greatly reduced. It's just a much better environment. We saw the office category come through the fourth quarter with the capital events, which was great news. Borders even recently had a capital event, and it's still a video -- a brick and mortar video store, books, would still be the most challenging, but it's just a much improved environment, obviously.

I mean, it seems to me that it's usually good. Is that accurate, do you think?

Yes, we were pleasantly surprised. I don't want to have you believe that we thought it was going to be as good as it turned out to be but yes, it's surprisingly good, and that's a good sign for all of us, obviously.

Sure, good, yes, great. Thank you. And then the $1.7 million of litigation expense, could you guys give us an update on what's going on there?

Sure. We provided disclosure in the public filings about the couple larger cases. It's obviously sensitive matters whenever there's litigation, so I apologize that we can't say too much, but we continue to be involved in a few cases, most of which have been reflected in the press, and we continue to have to spend some amount of capital on defending those; and at the end of the day, then some verdict comes across, where there was one big one late in 2008 that was against us, there have been others historically that have been in our favor. But we try to separate off the litigation costs, both on an ongoing basis, until we know what that final result is, but it is an absolute expense that continues to show up to operate this business, especially in tougher economic times.

Okay, so does that sort of continue, Dave, at that kind of run rate, you think, for -- I guess the foreseeable future?

For the near term, I think you're going to continue to see litigation expenses at least somewhat around that level. We try to be smart about it, in terms of being as careful as possible with our spending, but the reality is we have to defend ourselves in these cases.

Okay, good. And last thing, guys, if you think of your prime portfolio is about 80% of your NOI, you probably have $1 billion or so of assets that are undesirable, I guess. Does the $150 million seem a bit tepid for dispositions? I mean, is this a seven or eight-year program you're thinking of for dispositions?

Well, in terms of the volume I think we're trying to outline what we can get done, and what we can get done on terms that we think are appropriate. We prioritize them on that sales pool what's more important to get done sooner versus later, and we do want to continue to lower the size of that non-prime pool, but that happens in a couple ways. The most obvious way, and potentially easiest way, although our disposition team might not agree with that, is the sale of those assets. It's a tough process, it's a long process, but we've been able to make progress there.

But also, as Paul talked about earlier, the redevelopment efforts, the opportunities to really rethink about some of these projects in some cases could also help move non-prime assets to prime; and so it doesn't need to be a pure liquidation of that entire pool, but increasing the focus on prime is crucial, and the asset sales part is a big part of it. We moved from an environment last year where large transactions were absolutely not possible. Today, we continue to evaluate that, and whether selling assets on a one-off basis is either the only or even the best way to transact, or if there is an opportunity to do something larger and accelerate that process.

Your point is a good one, because the time that we put together our models was also a time that there really was no opportunity for large-scale portfolio sales. That market has changed; and if it continues to avail -- to provide an opportunity for us, we would want to take advantage of it, and that number could increase if the market gives us the opportunity to do so.

But at the time that we were looking at the $150 million, you know we were doing $5 million to $10 million deals and doing 50 of those a year, and no-one was looking at a transaction anywhere near the size of a $100 million, let alone a $200 million transaction. As those opportunities present themselves, and we have seen a few potential opportunities, we are going to pursue those; and if it's in the best interest for us to execute, we will.

Good, thank you. So just extending that for a second, if there is truly $1 billion dollars of sort of non-prime assets, and maybe more if you count the joint ventures, is any of that -- or I guess a better question is, how much of that is -- would you consider redevelopment? Is 20 or 30% of that redevelopable, if you will?

That's probably too high on that percentage, Rich, but as I mentioned earlier, we are just really getting into this. Time will tell as we continue to have these discussions with the retailers, see where their needs are and what their demands are, and we'll be able to give you a better number going forward, but right now that sounds high to say that that much of the non-prime portfolio would be appropriate for the redevelopment pool.

Okay, great. Thank you, guys.

Ultimately, that redevelopment portfolio is going to be defined by the tenant interest, and one of the reasons why we've become so focused on it is because tenants have come back to us and are talking about markets where we absolutely are certain that nothing new is going to be built. So if you have an existing asset with expansion possibilities on an entitled site with improvements already in place, it's going to create a unique opportunity for us to expand a center, and it's also going to create a unique opportunity for a tenant to enter a market that really the barriers to entry are extremely high. So we're going to have to follow the tenant market with that, because they ultimately will tell us where they want to be, and that will define what the redevelopment opportunity truly is.

Right, and you mentioned 2012 could be a change in dynamics, so yes, that's a great point, Dan, thank you.

Thank you, Rich.

Your next question comes from the line of David Harris from Broadpoint Gleacher. Please proceed.

Yes, good morning. Are there any rent relief agreements still in place, or have they largely burnt off, guys?

No, we're seeing -- Dave, we're seeing very little in terms of requests today, and I don't believe we've even granted one over the course of 2010 from the first quarter. It's a problem that's gone away for the moment.

And they were typically 12-month agreements?

The peak was last Summer, and so some of that would still be in place from that --

And they typically were what, 12 months?

Yes. We limited them to a year or less, yes.

Okay, now Dan, if I remember a conversation you and I had about a couple of years ago, when you had just come back from a tour of Asia and Europe, and you were enthused about the exciting experience of shopping in many of those [motels] compared to what we have here in the United States, is there really any way to express that today? I guess what that means is looking at smaller local tenants with perhaps less credit standing, than taking the big guy selling the [me too] product that makes the shopping experience a very homogeneous experience in the US compared to those other locales?

Well, it's a great question, and I wish I had good news for you in that regard, but I really don't. If you really look at US retail today, it still is not nearly as exciting as our foreign competitors. One of the things that came out in the research report that I mentioned was the fact that we are really operating -- the local entrepreneurial retailer that dominates Europe, and even in Brazil, dominates the scene there, we're really operating those folks out of the business, either through our hours of operation or our expense structures, or the unavailability of capital for them to invest in inventory or even new prototypes.

So we're very fortunate -- we had a situation here this past week where we had a new tenant concept come in to meet with us, and Paul and I were commenting on that was the first time that's happened in about three years. And usually they all stop here because of the size of the portfolio, and it just tells you that we really don't have an awful lot of creativity here. There is much more creativity abroad, and I don't see that changing any time soon, because I really don't see the availability of capital going into retail R&D today. And if you really talk to the existing tenants who have the best availability of capital, particularly the nationals, they really don't feel comfortable right now investing in new prototypes. They just feel the risk profile is not appropriate for the market.

Don't you feel there's a risk in longer term that rival shopping centers might be prepared to take a risk on less creditworthy established tenants, and you might lose market share over time? I realize that's not the priority now. You've got to fill the space available and get the best credit, but longer term it's sort of a health of the industry issue here, isn't it?

Yes, I think that's true, and it's certainly something to monitor, but keep in mind the real estate expenses for a retailer as a percentage of total expenses is really relatively nominal. We could not wake up one day and decide that we wanted to be an incubator for great retail space, and take market share from others, because that retail would still have to find someone to finance their inventory and their construction, and run their operation for them, all of which today is very, very difficult.

So I think it's something to watch. I think it's something that as an industry it is concerning, the lack of new and exciting and fresh ideas to keep the consumer excited about shopping. I think that's part of what all existing retailers and part of what landlords should be focused on; but at the same time, I think everyone is sort of in the same boat, and the homogeneous nature of retail in the US seems to be here to stay for a while.

Okay, disappointing, but thank you.

Yes, disappointing indeed, I agree.

(Operator Instructions)

Your next question is a follow-up from Jeff Donnelly from Wells Fargo. Please proceed.

This call is going to keep going on if you keep letting us asking questions. Just to follow-up, Dan, and certainly the rest of the team, too. We've had a few people out there talking about the opportunity be a little bit more speculative to invest in I think what I referred to as busted developments, projects that might be entitled, partially leased or partially built. Are retailers bringing you those deals? Do you think that the [D market], is that worth pursuing or do you think it is going to be a really slim opportunity?

Right now, I would say it's a very slim opportunity. The short answer is yes, retailers are bringing us opportunities but they aren't bringing you anything that you would want to invest in. The stuff that we're seeing is extremely distressed, distressed to the point where even if we were to leverage our portfolio, we really couldn't resuscitate it. It's really amazing some of the stuff that's out there, and retailers do come to us on a fairly regular basis and say, hey, would you guys take a look at this, and we do look at things; but we're pretty honest, because we certainly don't want to disappoint the retailers if we say we're going to get involved. We certainly don't want to get involved in something and fail. So right now what we're seeing is the distressed level is so high on what's available out there, it's really not anything you'd want to leverage your platform or certainly invest in, either your time or your capital.

The rest of the potential distressed assets that you think you might be able to help just aren't coming back to the market yet. Lending institutions are working with landlords, retailers are working with landlords to try and get some of these assets that are very close to getting over the hump over the hump. Those assets are not coming to us at this point in time. But the things we're looking at, some of it brand new, beautiful, $130, $140 a foot construction that's going to need a bulldozer to fix, and that's pretty tough to undertake.

I was going to ask, what's the nature of the distress? Is it the financial terms you've got to buy into, or is it the fact that maybe some of these projects are just more in markets or locations that just -- basically just won't work?

It's interesting, because some of them are in good markets and good locations, but the design of the center, the layout, the fact that a lot of people put in second, or in some cases third story retail, in order to help the pro forma, and we can know today no matter how good the market is, in some of these it will never get leased.

And it's really not deal economics, because the tenants will work with you on deal economics, number one, the lenders certainly will work with you, some of the private developers will clearly just do anything to get themselves off personal guarantees at this point in time, but you really can't work with the physical infrastructure that's in place. You really have to start from scratch, and if that's going to be the case it's going to take an enormous amount of additional capital, and no-one is really in a position where they want to put more capital in. They just want someone to fix it, they don't want someone to rebuild it; and some of these are very good locations, but they will not lease. You cannot get tenants to take some of the space that was created, and it's unfortunate but it's prevalent.

Thanks, guys.

Sure.

If there are no further questions, I'd like to thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.