Site Centers Corp (SITC) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2011 Developers Diversified Realty Corporation earnings conference call. My name is Jasmine and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a Question & Answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host, to 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 upon reasonable assumptions, you should understand the statements are subject to risk 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, 2010, 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 compared GAAP measures can be found in our earnings press release dated April 27, 2011.

This release and our quarterly financial supplement on are available on our website at www.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. Good morning and welcome to our first quarter earnings conference call.

With our earnings released yesterday evening, I don't want to spend too much time rehashing information that you have already reviewed in our release or our supplemental. Rather I'd like to begin today by highlighting our continued progress with regard to our portfolio management strategy and expand upon the March 31 press release that summarized our first quarter disposition and acquisition activity.

While our first quarter transactional activity of $43 million in non-prime asset sales, and the acquisition of two prime properties from our joint venture partners for $40 million is indicative of our strategy to recycle capital from non-prime into prime, the overall impact on portfolio quality should not go unnoticed.

Over the past five quarters we executed over 80 transactions and disposed of more than $800 million of non-prime assets. These assets averaged about 79% leased, and on average were about 100,000 square feet of GLA per asset. The top three MSAs in which we sold assets were Atlanta, where we are actively looking to lower our exposure to lower quality assets, Detroit, and Buffalo.

Some of the top tenants that occupied these assets by GLA and number of units were KMart, Tops, and Rite Aid. In comparison, our top three tenants within the prime portfolio by GLA are Wal-Mart, Target and Kohl's.

Moreover as we sit today on a seven-mile radius, average household income in our prime portfolio is $78,000 per household, and population density is over 335,000 people. This represents a 5% to 20% increase over the non-prime assets of sold within the past five quarters. A seven-mile radius is the appropriate measurement for asset class, given the size of the assets, regional draw and tenant mix.

For informational purposes, our prime assets averaged 305,000 square feet of GLA, which in addition to the retailers that occupied these assets, confirms that they service a more regional trade area.

While our strategy is not simply addition by subtraction, it is important to emphasize the impact of non-prime assets on the calculation of NOI derived from the prime portfolio. As a result, in 2009 our prime portfolio produced 70% of our NOI.

By 2010 year end we achieved 83.3%, and today we stand at 86.7%. Just to reiterate, 86.7% of our current NOI comes from prime assets that average over 305,000 square feet of GLA and benefit from average household incomes of $78,000, and average population of over 335,000 people.

We are encouraged by the success we have had in upgrading the quality of our portfolio and know there will be additional opportunities for further enhancement going forward. And the significant numbers that I just presented will only get better over time.

Given the progress we have made with our balance sheet, and the flexibility provided by a more competitive cost of capital, we are carefully underwriting a range of potential acquisition opportunities of prime assets.

Our pipeline includes value-add, stabilized prime assets, and loan-to-own opportunities that could include the origination of mezzanine debt, or the purchase of a senior note at a discount on prime this assets.

We have successfully sourced attractive opportunities that fit our selective requirements, but remain prudent in our underwriting and bidding practices. As a result we will likely lose more bids than we win, but we are confident that we can find attractive opportunities to redeploy asset sale proceeds, allowing us to grow and simultaneously reduce operating risk by continuing to improve portfolio quality.

This is primarily achievable through a combination of internal and external growth, aggressive dispositions, and selective acquisitions, all of which are top of mind on a daily basis.

I'd now like to turn the call over to

Thank you Dan. I'd like to spend a little time today talking about one of the topics that's getting a lot of attention recently, that being the potential downsizing of retailers space. But first, let me review what was another highly productive quarter.

Our domestic leased rate increased by 10 basis points from 92.3% at year-end to 92.4%. This represents a 110 basis point increase over the first quarter of 2010. Including Brazil, our blended leased rate is now 92.6%. These results compare favorably to the historic average decline of 20 basis points in the first quarter due to the seasonal nature of tenant fallout and lease expirations versus commencements.

We remain confident in our ability to achieve an occupancy rate above 93% by year-end 2011, consistent with our guidance. Overall, in the first quarter we completed 428 deals for 2.6 million square feet, with a combined spread of 5.4%, up from negative 2.7% in Q1 of '10. These spreads are consistent with our combined spread of 5.4% in the fourth quarter of 2010 and are a dramatic improvement from the year-ago numbers.

As we discussed on investor day, spreads are important but they only tell part of the story. We believe average first year rents on new deals are a better leading indicator of leasing trends. The average first year rent for all new deals completed in the quarter was $14.70 per square foot, up from $12.80 per square foot in the fourth quarter of 2010. It's important to note that this growth has been achieved with lower CapEx on a per square foot basis for these new deals.

I'd now like to take a few minutes to talk about an issue that has been getting quite a bit of attention lately, and that is the trend towards smaller stores and what that means towards the landlord community.

First, we shouldn't confuse a retailer's ability to operate in smaller stores as a rush to downsize their entire portfolio, nor that it can happen overnight. There is a clear distinction between the categories and the retailers that have learned they can be flexible in size and merchandise offering, and those that simply have too much space.

For the retailers that are exhibiting flexibility, this is not an indication that their entire portfolio is oversized and in need of downsizing to be competitive. What it does show is that they are strong retailers, with the ability to compete in a variety of store sizes in a variety of diverse markets. Moreover, the desire for a smaller prototype should not be viewed as a trend toward reducing store count.

As industry leasing numbers indicate demand for new stores is still extremely high, even with the changes to prototype and footprint. For those specific retailers and categories that do require less space to be productive, it is clearly in our best interest to have them appropriately sized.

Greater productivity and smaller stores result in a more successful shopping center with a greater ability to drive rents. But size changes are not always easily achievable, so the question becomes, can and how do we work together to achieve a win-win situation?

If the tenant is willing to participate in the cost to downsize and we are left with leasable space, we can usually reach agreement on a business deal, with the results being a more productive retailer and the opportunity for upside on the existing rent for the reduced space as well as upside on the new rent in the residual space.

However, if the tenant is not willing to contribute or we are left with unleasable space, we have a very different situation. In that scenario the things we will take into account include the probability of the retailer relocating, our ability to back fill a space should they do so, and most importantly whether it is a good store for the retailer.

First and foremost, retailers are in the retail business and not the real estate business. Retailers do not close successful and profitable stores. It's much easier to lose market share than to gain it, and retailers know that better than anyone. Put simply, given today's supply and demand dynamic, and tenant thirst for external growth, most retailers feel greater risk in losing market share than landlords do in re-tenanting potentially vacant box space.

So to summarize, there is a lot of buzz about retailers downsizing their stores. What is the reality? Would retailers always like to be their ideal size? Yes. Do we want retailers at their ideal size? Yes, when the deal make sense. Is their ideal size a constantly moving target, which makes this more difficult? Yes. Is that why relationships and platform matter? Clearly. Are retailers in a position to demand size adjustments in every situation? Absolutely not.

Are landlords at risk of losing every oversized space the near future? Not at all. And are most of our retailers still growing overall store count and square footage? Absolutely.

At the end of the day it's clearly better for both tenant and landlord to have smaller, more highly productive stores. We like tenants that produce higher sales per square foot, higher profit per square foot, and have dramatically increased inventory turn.

As a result we will continue to work with our tenants to achieve the desired end result, but execution relies entirely on the logic of the proposed deal.

I would now like to turn the call over to

Thanks Paul. Operating FFO was $63.2 million or $0.24 per share for three months ended March 31, 2011, which is in line with our expectations. Including the certain non-operating items, which were net gains this quarter, FFO for the quarter was $89.1 million.

The non-operating items relate primarily to gains resulting from acquisitions of our partners interest in two high-quality properties and a non-cash gain of the equity derivative instrument relating to the final valuation of Otto family warrants before they were exercised. Partially offset by charge-related and the termination agreement exercised with our former executive chairman.

I would like to reiterate that in regard to the Otto warrant, the family had the option to exercise their warrants in a cashless fashion, but instead executed a cash exercise where they invested $60 million more into DDR shares and effectively purchased over 3 million shares of the then-current market price. We greatly appreciate the continued support and confidence that this highly sophisticated investor has shown in our company and in our direction.

At this point in the year we remain comfortable with our 2011 operating FFO guidance of $0.90 to $1.05 per share and continue to believe that this relatively wide range provides us flexibility to opportunistically accelerate additional refinancing and capital recycling, activities.

Now, turning to our recent capital markets activity. The first quarter was one of continued progress in our efforts to improve our balance sheet and we are very encouraged by the impact that this had on our profit capital. Most notably our 4.75%, $300 million, 7-year bond issuance in early March. Also we issued 9.5 million shares of common stock pursuant to a forward sale agreement that we executed on March 1.

The proceeds received from the equity issuance, plus the $60 million from the Otto family warrant exercise were primarily used to fund the redemption of $180 million of 8%, class G, preferred shares. We are aggressively executing our long-term plan to reduce debt to EBITDA and extend duration. And we are pleased with the reaction from the rating agencies thus far.

Just recently, Moody's affirmed our investment-grade credit rating and raised its outlook to stable, highlighting our considerable progress in improving our balance sheet and operations. In late February, S&P also raised its outlook on DDR to stable and raised the rating on our senior notes from DD to DD-plus. We expect progress to continue as we strive for consensus investment-grade ratings.

During the quarter our joint venture, Sonae Sierra Brazil, completed an initial public offering of public shares, resulting in gross proceeds of BRL465 million. While we still own one-third of the company and are excited about future prospects, we have dramatically improved DDR's risk profile by creating a liquidity option plus dramatically improved Sonae Sierra Brazil's access to capital.

We have no plans to sell our shares, but we do appreciate the long-term flexibility that comes with such liquidity. We will continue to be very focused on opportunistic refinancing, despite minimal near-term maturities and high credit line availability. Based upon the strong market conditions that exist today, we expect to address our 2012 debt well before maturity.

The recent improvement in our outlook from the rating agencies lowered the interest cost on our $550 million term loan from LIBOR plus 120 basis points to LIBOR plus 88 basis points, and we expect to make further strides in lowering our overall cost of capital and extending our durations. At March 31, our weighted average debt maturity was 4.2 years, a significant improvement from 3.4 years at the end of last year's first quarter, and nearly all of the $1 billion capacity on our corporate credit facility is available.

As you can see, DDR is a much better balanced company and we operate at substantially less risk today than at any time in recent years. This has allowed us to actively pursue external growth opportunities, for which we are very enthusiastic.

As Dan mentioned earlier, our ability to recycle non-prime asset sale proceeds into prime acquisitions provides us with an opportunity to upgrade the overall quality of our portfolio on a risk-adjusted and balance sheet positive basis.

Some of you may have seen we recently renewed our aftermarket common equity program for $200 million. We have benefited from the flexibility and efficiency of this program in the past, which is the primary reason we renewed it, but currently we have no plans to use it.

We will continue to work aggressively to improve our balance sheet an upgrade the portfolio and at this point we do not expect any new common equity to be required to accomplish these objectives.

One last point before I turn the call back to Dan regarding our investor relations function. Recently we decided that Tim Lordan would assume responsibility for our investor relations efforts. As you know, Tim currently oversees our funds management program and many of you know him from his time at the Rouse company. Kate Deck will continue in her role as Director of Investor Relations and we expect this change will only enhance analyst and investor coverage of DDR and offer consistent and transparent access and disclosure.

This change will allow Francine Glandt to focus her time exclusively on the continued execution of our capital market strategy. We are excited to have Tim take on more responsibility, and we look forward to the additional contributions he will bring to the company.

At this point I will turn the call back to Dan for closing remarks.

Thank you, David. And before turning the call over to questions and answers I'd like to take a moment to thank those of you who attended our Investor Day in March or listened to the management presentation via the webcast.

As a management team we appreciate your continued support and interest in our story, and hope that you found our presentations to be worthwhile. In addition to the information we shared with you at Investor Day, by now you should have received a copy of our 2010 Annual Report.

We understand that annual reports do not provide the most current financial or operational information, given the production timeline. However, we believe the annual report is an important representation of our enterprise, and as such we took a different approach to our annual report and letter to shareholders than years past.

I hope you find the tone and content of the Annual Report to be consistent with your expectations based upon the direction we have been taking the company and articulating to the market. As always I look forward to your feedback at your convenience.

At this time, would be happy to answer your questions. Thank you.

(Operator Instructions)

And your first question comes from the line of Craig Schmidt with Bank of America please proceed.

Thank you, and Paul, thanks for the comments on the potential downsizing issue.

I just want to question. I mean, we often hear that the increase of the Internet business is the reason for the downsizing, but are there other reasons right now we are seeing this downsizing. Or should we expected to be kind of focused on those categories that are doing pretty strong Internet business?

I think the focus, Craig, should be on those categories that are impacted by the Internet business, But I'll give you another example that I don't believe is impacted by the Internet business, and that would be Old Navy.

We aren't seeing a lot of the apparel retailers look to downsize, but that's a clear case of a company that does got way ahead of itself with oversize stores throughout the 90s and the early 2000s, and now they are realizing that there is a smaller prototype that's right for their merchandise mix.

But I think in general terms the focus is on those categories, such as the office products guys and electronics, which we'll see more of the

And in your discussions with retailers, are they remaining focused on margin or market share at this point, or is there any shift in those two priorities

Clearly both priorities. I mean market share is what's going to drive margin at the end of the day. Interestingly, I think we're seeing something -- we talk a lot over the past year or so about commodity price increases. We are seeing the good retailers maintain and improve their margins even in light of those price increases.

But typically market share is going to drive margin and increased market share will drive margin, Craig. That's the first focus, but they're both critical to retailers

Thanks a lot.

Your next question comes from the line of Sri Nagarajan from FBR. Please proceed.

Thank you, and good morning I was just wanted to follow up on an earlier question in you remarks, Paul, in terms of the oversize retailer and the landlord, particularly not in danger of losing space immediately.

What are the tenant options today on being oversized, and obviously as you look at it from a pure analyst perspective, how is that going to affect overall rent outlooks in the future?

Well, one of the key points that I was trying to make is that it is not as easy as it seems, and it's one of the reasons we are emphasizing it on today's call.

A couple of years ago, let's go back even a little bit further when development was plentiful, that's an easier environment within which to threaten, if you're the retailer, a relocation to a competing site. We can now get our prototype at a fair rent, that as I mentioned on the call, the dynamic of no new development and available space being absorbed quite quickly, doesn't give them a lot of options.

So the reality is that we're going to try to work together because it is in both of our best interests. But if we can't, we are expecting that they will take their options, renew on their current size and we are seeing that in quite a feat examples where there is no effective way to do it, they're not going to close the store, they don't have an alternative, and that's what really gets down to.

It's up to us to use our best judgment to figure out exactly what the fact situation is with each situation and decide which way we are going with it. But they are not going to close stores that are good, even if they can get to their perfect size. That's really the point.

And I think that's probably the most important point, is that retailers today in particular can't afford to close profitable stores. For a variety of different reasons. Number one is that you have to replace the volume. And if you don't replace the volume in some way the impact on your indirect charges and the profitability of the other stores that you have in the market is going to be dramatic.

So if it is a profitable store, if it is a growing store, retailers will not close it. They will leverage real estate is that they can to try to reduce their operating expenses so they can expand their margin, but at the end of the day the real estate doesn't make the decision on whether that store should be open or not.

It's the market share and the profitability, and if the market share is there are and the profitability is they are, we are very confident that retailers won't use that as leverage to close the stores.

Now we face that discussion every day and we look at the threats of closing stores every day, and very very, very rarely has a tenant who said if we can't reduce the size of my store unless I'm not going to renew my option, very rarely do they not then ultimately pick up the option at the last minute and continue to operate a

To address one of the specific items in your question, I don't think our comment is that this is something we don't expect to have an impact on rents over time. We do in fact expect to impact rents over time, and we expect that impact to be positive.

When the discussions occur with these retailers, they have a certain volume that they expect for a store, and whether they can get their exact footprint or not, they are multiplying that volume times their occupancy cost, and that's the amount of rent they can pay.

And you really are ending up with a situation where we would expect sales per square foot and rents per square foot to be higher if they are operating at a more efficient size for them.

That's very helpful color, thanks. My second question is on the leasing spreads for the rest of the year. Obviously do you guys feel that 1Q was a little bit higher from a lease and mix perspective is it going to be a little bit less over the rest of the year?

Sri, I think what you're going to see is that there will be some movement in the new deal spread, where we are very comparable that it will remain positive. The more important spread as we look at it is the renewal spread, and that we feel very good about. We went through several quarters of negative were flat spreads on our renewals.

We've now had a few quarters in a row of 3% to 4% renewal spreads positive, and that's where we see that being pretty much a floor. Will be a net three and 3% and up range on renewals. You'll see movement in the new deal spread, but we're confident in what we're seeing, and what we've seen over the last couple of quarters, that it will remain positive.

You're not going to always see a 9% rate in any quarter and I don't want to indicate that we expect that quarter-to-quarter. But I would expect results on the new deal

That's helpful I'll rejoin the line thanks.

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

Good morning. Dan, you gave some statistics on obviously the non-prime portfolio sales at $800 million and 79% leased. If you look at the sort of bottom 14% of remaining portion that has yet to be completed, how much of an impact do you expect that to have on sort of your our average household income, population densities, and even overall occupancy

A lot of its because of we are a national company, and we are spread pretty far and are non-portfolio basically goes coast to coast. Some of the impact of those numbers is pretty diverse.

But I think what we anticipate is that on the income side non-prime generally is about a good 10% less than where we are on prime, and in many cases on the population it's 20% to 25% less. And that's pretty consistent.

Now that's across a large portfolio, so a lot will depend on a quarter to quarter basis on the timing of those sales. But I think you can pretty well assume that the income side is going to be in the low double digits and the population should be somewhere in that 20% range plus.

Jay, where that impact of even larger in the way some people look at the stats, not exactly the way we look at the stats but the way some of the reports get published.

When you weight it by the number of assets, if we eliminate the non-prime assets, you get an elimination of that 10% to 20% lower demographics on close to 50% of your assets

. If you weight it the way you normally think about it and the way that we feel is economically appropriate, it may only amount to you know 14% of the portfolio today and so you get 14% times 10%, 20% improvement.

But, the way the analysis is often times done and published, where you are equal weighting by asset, the impact on our overall portfolio demographics relative to what's published in many of those reports could get considerably better because the simple number of assets as high, even though the NOI contribution is

Okay. That's helpful. And then just thinking about -- you mentioned addressing some 2012 debt earlier that expected. Clearly the term loan jumps out, that $550 million. Can you give us some sense as you think about the deleveraging and obviously the pace of sales, and then just tying in the acquisition opportunities you mentioned as well.

Yes at this point there is a clear focus on addressing some of the 2012 debt maturity. Quite clearly the bank market is very strong at this point, and I think we have a high degree of confidence in our ability to refinance that for well in excess of the proceeds that are outstanding and maturing today.

Our goal obviously, as we've articulated previously, is to continue to improve our leverage stats, to continue to have less exposure to short-term debts, to continue to have less exposure to bank debt. And I think as we proceed with that the refinancing you should expect to see nothing larger the size today, probably something overall that somewhat lowers our exposure to short-term bank debt, but exclusively at our option rather than at the option of the bank.

In terms of deleveraging, I think when we think about the progress going forward, primarily thinking about it on debt to EBITDA basis, we would expect dramatically more of the improvement going forward to come from the EBITDA growth side rather than debt reduction side. So not looking at raising equity to pay down debt, not looking at redeploying asset sale proceeds into debt pay down.

More of those proceeds are being used exclusively for the acquisition efforts that we talked about earlier. So it really will be more debt-for-debt when we talk about the refinancing activity for 2012 although we still firmly expect credit metrics to improve based on rising EBITDA and the modification of some of the non-assets.

Thank you

Your next question comes from the line of Alex Goldfarb with sandler O'Neill. Please proceed.

Thank you, and good morning. Dan, as you talk to your tenant -- in the reports it sounds like Wal-Mart has taken a hit on their customer base from higher gas prices.

Are you hearing any impact from higher gas prices from any other of your tenants? And if not, how do you think the average consumer is absorbing $4.00-plus gas and still shopping.

I think that's a great question, and the short answer is where we are hearing some concern from tenants is not necessarily on sales but on margin. Because the cost of distribution has gone up dramatically, and as you know, as Paul mentioned, there has been some commodity price increases that many retailers have not been able to pass through to the consumer.

And as you have transportation cost increases as well, particularly on moderately priced to discount price goods, with thin margins to begin with in some cases, the cost of distribution becomes a much more significant impact on profitability and margin.

In particular, for example, if you look at the dollar stores and stores that have a cap in some regard, either by name or by philosophy, on pricing, when you go from $2.50 per gallon to $4.00 per gallon on delivery but yet you can't really raise your pricing very much, it obviously is going to have an impact.

So the deeper the discount, the larger the impact. And that's something that we hear about pretty consistently, not having an big impact on sales but could potentially have an impact on margin.

And as far as where do you think -- how do you think the consumer -- what are your customers your tenants telling you where the consumers are taking up that slack. Like how are they absorbing the -- how are they still shopping in filling up the tank?

I think one of the things, in fact we had couple of tenant meetings this week, and one of the things that came out is that people are very surprised at how accepting the consumer really has been to a $4.00 price, I think some people don't view that as sustainable. We've been there before, and they came back down.

And I think time will tell whether it's going to stay where it is. But right now the consumer has been less concerned than most of our retailers thought they would be by inflated gas prices, and we'll see what happens through the summer. I think it will be -- I think this summer, where sales naturally soften will be a good indicator of a future trend.

And then my second question is, Paul, on the occupancy I think you mentioned the year-end target of 93% occupied. The December 31 occupied rate was 90.6%. Can you give some color on the first quarter occupancy and how we should think about the quarterly step up to reaching that 93%

Sure. Again for the last few first quarters, Alex, we have recorded a small increase, which is a big deal, because as I mentioned in the script, that historically we see about a 20 basis point hit in the first quarter with the move-out and expirations versus new commencements.

So the 10 basis point improvement feels good. You know the 92.6 includes a Brasil. I'm just looking at the metrics for a second going from 92.6 to 92.4. I think we will see similar trends to what we have seen the past two years. Where we've got -- it ramps up over the final three quarters of the year. And I'm very comfortable with that 93.

Wait, were you talking leased rate? I was talking that occupancy rate.

I'm sorry. No. That's leased rate, yes. I missed the point. Yes, leased rate, and again we actually see that's spread, if you will, between occupied at leased decrease over the course of the year.

Not many openings in the first quarter, certainly more closings and leased expirations. So at this point we've got a spread of about 220 basis points between leased rate and those tenants that are signed but not yet opened and rent paying.

Second quarter won't be a big quarter to reduce that spread either, but then third and fourth you'll see that come down, and obviously the number is going to have direct relationship to how much new leasing we do. We don't expect it to come down to historic rates in that 50 to 100 basis point range anytime soon but you'll see the numbers shrink over the next few

Thank you.

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

Hi, good morning everyone.

You talked about potential acquisitions. How active are you in sourcing new opportunities? Do have a dollar value in mind as far as what you could potentially target over the next few years, and would you potentially use the ATM to fund the equity portion of deals or would that strictly becoming from non-core asset proceeds

I would say we are extremely active in reviewing acquisition opportunities today, that doesn't mean we are extremely active in closing acquisition opportunities today. But we are looking at everything that is out there, spending a lot of time on not, spending a lot of time talking to tenants on what locations do well for them and where we think we might be able to grow rents over time. And so it is a big focus for as although I would not expect that to translate into a massive volume of acquisition activity.

The reality is it's very competitive field. Cap rates have been pushed significantly lower over the past year, and we are not willing to simply run around winning auctions to grow our square footage, our asset base it the economics don't make sense, so I think you will continue to see as we are very disciplined in what terms of what we do think there is an attractive opportunity.

So right now we would reiterate what we have in our guidance, where from a capital recycling program we expect to take disposition proceeds and redeploy those into acquisitions. Originally we had talked about something in $100 million range. I think we would expect that we would feel very comfortable achieving that and might exceed that, but would also reiterate that we expect disposition proceeds to fund acquisitions and would not expect to issue new equity to fund that acquisitions at this time.

If we found something particularly attractive I think we would have to explore that and we would have to get feedback from investors and analysts about the markets response to that.

But where we stand today, we simply don't see opportunities that would encourage us to issue equity simply to grow our size. The focus has been on the capital recycling side of selling non-prime assets and reinvesting those proceeds into prime acquisitions, which is obviously a change in tune relative to the past several years, where disposition proceeds were funding debt repayment.

Clearly one of the things that's happening also, Christy, and I think it's going to be very very interesting next month for those of you who are going to ReCon in Las Vegas to keep an eye out for this. Cap rate compression is an incredible motivator for those people who own assets to sell assets.

And we are seeing more product now than we have seen in many years quite frankly. And stuff that is coming on the market that we had not expected to even come on the market, and I think that there is an opportunity in Las Vegas this year there's going to be a lot of folks shopping their product, because they are enticed by what we are all seeing as sort of peak cap rate compression and tight pricing. And there's a lot of interest in a lot of capital that resulting from the in that pricing power.

So I think I think we're going to see a very very different May convention this year where there's going to be a number of people looking to shop their product, and a much more so than we've had in the last several years.

Okay and then just following up on leasing spreads. Could you give us some sense for what the difference in spreads have been in the last quarter or two between space under 10,000 square feet and over 10,000 square feet.

Yes Christy. It's been pretty consistent across the range of sizes, but we are seeing more improvement in the smaller -- in a smaller space if you will.

You can achieve higher rent, more flexibility in who you can put in there and what they can pay. You know, in the box space we continue to see gradual improvement in first year rent, but we are seeing a greater improvement in what we're seeing in a smaller shop space. And that's really in who it's being leased to more national tenants, such as the phone companies and the small restaurants and such.

Okay. Thank you.

Your next question comes from line of Carol Kemple with Hilliard Lyons. Please proceed

Good morning. What new tenants are you seeing coming to your center or new concepts?

You know not so much of the new concepts in our product type. We are seeing more flexibility in terms of different store sizes and people that are hitting new markets, Carol, where we're seeing some of the small -- I know we talked a little bit about flexibility and not confusing that with the need to downsize.

So we're seeing some tenants reach in to smaller, more diverse markets, more rural in some cases than they would typically have entered. And that's really the -- what we're seeing you in our product type. We are seeing a few of the folks who were married to the mall space, such as Kirkland's, now very interested in strip center, but not a lot of new concepts.

It's really more maneuvering of existing retailers and what they are doing differently in terms of size and product offering

And that is something that concerns. One of the things that we are concerned about lack of new product from a consumer perspective because we -- what would make shopping exciting is when new concepts, new stores, new price points, and new vendors coming into the market in a new environment. And we don't have a lot of that. If you walk into one of our centers that's Target/Kohl's anchored in California and one of our centers that's Target/Kohl's anchored in Connecticut, they are very similar.

They are very similar. They are very similar in merchandise mix and we would like to see -- we would like to see more new concepts, because we think the consumer is easily bored by some of the offerings that they see in retail in the United States in general.

The one thing that we have to be very careful about, though, is that some of the new concepts that have been presented to us we just don't feel are economically feasible. There are some new concepts out there that people talk about and some are actually getting very excited about were we just -- we just can't seem to understand that the combination of the size, the occupancy costs, the merchandise mix, the margin, and the profitability.

And when those cases present themselves to us, while we would love to add someone new to our center, we are just not willing to take the risk on that merchant. We've been through that show before, and were not going to go

Are you seeing any of your existing tenants like Bed Bath & Beyond have a couple concepts that come out with new concepts at this point

No, but what we're going to see and we are seeing, Carol, is that they are going to grow the new -- Bed Bath is a great example. BuyBuy Baby is a relatively small pieces of their business today, but tremendous growth opportunity.

They are really running with -- there are the three concepts, the Bed Bath & Beyond, the BuyBuy Baby and The Christmas Tree Shops. And they actually have one concept, Harmon's, which is not a big part of their business. But what we will see is -- that's a lot for one company anyway, and the fact that they've got a lot of runway left with concepts such as BuyBuy Baby.

Okay thank you

Your next question comes the line of Quentin Velleley from Citigroup please proceed.

Hi there. Just in terms of VPNs off of the remaining shares of EDT. If EPN is successful in taking the vehicle private, are you likely to maintain management of the portfolio and a $3 million to $4 million of management fees that you get. Okay. And I'm not sure of what EPN's intentions, and I think they are sort of bidding on an implied cap rate above 9%. If I were to break up the portfolio and sell parts of it, is there a selection of prime assets in there that you would be interested I?

There are absolutely a large number of private assets in their, but I'm sorry Quentin we really can't speculate on what's going to happen here, particularly where we sit with the time line of disclosures.

Got it. (inaudible) Dan, you commented on looking at prime acquisitions on a loan-to-own basis through (inaudible) or through bank center loans. Can you just talk a little bit about some of the size of the opportunity and how you are going about accessing some of those potential opportunities?

Well one of the ways that obviously we are accessing those opportunities is through our lenders. You know, in many cases we are meeting with our banks, who are informing us of situations where they think it could be a potential issue or there is an issue. And we're looking at some of those assets on a perspective of would we like to own that asset.

If we don't -- if we would not be interested in owning asset were not going to (inaudible) and we're not going to buy the senior note even at a substantial discount. These have to be asset that we think fit the prime designation and fit it without question. So that's one of the ways we are doing it.

The other way, as you know, is we've done a few of these deals, and sometimes when you do a few of these deals, people come to you. And we have had some of the people that we know in the market, particularly obviously on the private side, who have some maturities that are coming up, or have come up and past. And they have a one-year extension of that one year extension is now coming up and they have other issues.

There is refinancing pressure, the loan-to-value is in the spreads and the amount of equity that's required to refinance goes beyond their capabilities and we are a logical place to come if they own a product that we like.

As David mentioned, we are being very -- we are being highly selective, because this is not just a yield play, this is an enhance your portfolio and asset management play. So we're underwriting these assets, even in the case where we may not own it. We're underwriting the assets as if we were going to own it and being very careful.

That's great. Thank you.

Your next question comes in the line of Samit Parikh from ISI group. Please proceed.

Hi, good morning everyone.

Just wanted to follow up on a little bit of what you just said Dan and what you were talking about a lot of assets coming to the market. And we know that a lot of pension funds are kind of sitting on the sidelines with cash targeting waiting for quarter retail to come out and are going to underwrite very aggressively.

One question -- well two questions really -- but one was are your return requirements coming in considerably from where they have been historically because you want to me more competitive on these potential acquisitions?

And two, if people are starting -- and you're saying that we are kind of at peak pricing and underwriting is getting aggressive, have you thought about maybe selling some core end-markets that you might have not have a dominant presence in, or a big presence in and sort of recycling that capital-to-value add opportunities, also in the portfolio?

Yes, certainly where the pricing where it is today, Samit, and I think you are right on point there is -- it is enticing to think about selling some core product, some prime product, but that is not our goal, and that is not where we are going to be.

If it happens in our company, and you may see it, it happens because a joint venture has decided to sell a prime asset and it's trading at a price that we feel is not appropriate, and therefore we let it go to the market.

I think one of the important things to keep in mind when bidding against pension funds, private equity, et cetera, is our access to information often gives us a competitive disadvantage.

We are not going to try to outbid private capital just for the sake of winning the bid. As David mentioned earlier, we don't really want to think that we made a great deal and were smart just because we paid more than the next guy. It's not hard when you pay more than the next guy.

The important thing to keep in mind though is that our access to the tenant community gives us great information on what we feel is going to happen to that asset. So, for example, we looked at an asset recently that we did not -- we were not successful on, and we knew there would be significant roll downs, and I can assure you that the buyer of that asset has no access to that information, is not anticipating rent roll downs, and probably underwrote the option extensions at exactly as they were written in the lease.

That's an area inappropriate way to look at that asset, and we know that and that will make us noncompetitive and I think a lot of -- It's not just us. I think a lot of the other publicly traded (inaudible) that have good tenant relations are going to have the same issue when bidding against private capital.

One of the things that we would like to do is, obviously find opportunities to leverage the platform. So while risk on pricing is not something we always are willing to take, we are willing to take a little risk, for example, on leasing.

Because that access to tenant information, while sometimes can be a negative in the bidding process, can very often to be a positive in the bidding process as well. And where it's a positive, it's where tenants have expressed an interest in doing business with landlords that they know can deliver them product on time, on budget, and in the right season.

So that's where we're focused, and -- but I would not expect us and you should not expect to see us, bidding successfully against passive aggressive private capital, because our operating platform really wouldn't permit us to underwrite the assets in the same manner.

Regarding the part of the question on return requirements. I think there is two sides to that answer, relative to our return of requirements. Two years ago -- we are much more aggressive today in looking at lower return requirements relative to two years ago, simply as a function that our cost of capital has changed dramatically.

When we have to think about potential acquisition activity a couple of years ago and you're underwriting cost of debt somewhere in the 10% to 25% range, and the cost of equity in the 25% to 50% range it's obviously something that is going to make new acquisition activity have to have an extremely high return threshold.

So we are inconsiderably relative to where we had been a couple years ago due to cost capital improvement. Relative to the longer-term history of DDR as a major portfolio acquirer, I would say our return thresholds are not only higher than they were you know looking back 4 to 10 years, but also the definition of returns is different than -- what it had been in the past.

No longer that notion of, what's the initial yield and the initial accretion. The focus is much more on the long-term return opportunity, but even with that I would say our return requirements are higher than they were say five years

Okay, thanks. That's helpful.

Your next question comes in the line of David Wigginton from DISCERN. Please proceed.

Thank you, good morning. Dan, you talked a lot about acquisitions something you just touched on, the dispositions. Can you maybe just give us an idea of what the market is like from maybe a demand and pricing perspective for the assets in your non-prime bucket. I know you guys have been pretty active on that. Just wondering if you expect to see maybe an uptick in the volume that you've experienced thus far maybe this year over last couple of quarters

Well, we would like to. We would like to be able to come back to you at some point in time and say that this market gave us the opportunity to accelerate asset dispositions beyond what we had originally guided to. And there is certainly more interest in B/C assets than we have seen in the past.

It's not unusual for us now to get multiple bids on assets when in the past we really got one or two bids if we were lucky on an asset. But I'm not yet convinced and I do think, by the way, based on looking at the appointment schedule. Vegas will be very important about dispositions as well as acquisitions, as I mentioned earlier. I'm not convinced that the market is exuberant about B-/C assets as some people think.

Clearly there has been some transactions out there. We've done some, but there have been others that are much larger than what we are doing. And one of the things that happens when those transactions occur is that there are winners and there are losers, and the losers in their minds decided that perhaps chasing yield in B/C markets is a good thing, and hopefully we'll have the opportunity to take advantage of that.

But we will -- and we will pursue that as aggressively as we can. But we'll see, we'll see, I think sometimes the market gets ahead of the real interest level, and when people come in to talk to you, I think it's not a question of just chasing yield. I think it's a question of trying to seal asset. And we are not in the position at this point in time where we are going to sell assets for cap rates that we feel are totally inappropriate given the current position of the asset in the market

Besides Dan comment on price activity, the other major issue and mitigating factor for us is going to be that we simply have dramatically less of this product than we had a few years ago. So when you talk about acceleration or deceleration of disposition activity, almost by definition, it has to be a deceleration, simply because we sold over $2 billion of that product over the past couple years, and we just don't have nearly as much inventory remaining.

And so, exactly as Dan mentioned it remains a big focus. We continue to push on that side to improve the portfolio quality but there is a heck of a lot less inventory here at DDR today of non-prime product.

So in light of that I guess. What -- from looking at your long-term occupancy goal, how much of your non-prime portfolio do you need to dispose of to achieve that? I know you guys have been active on the lease front, but presumable you're getting rid of 75%, 80% occupied assets. That's all helping your overall portfolio occupancy rate.

Maybe a better way of asking this is maybe over the last year, what percentage of your occupancy increase, of 110 basis points, was attributable to disposing of non-prime properties versus lease-out?

It's a good question, Dave, but the answer is almost none. And the reason is because many of the non-prime assets actually had a higher occupancy rate than the prime portfolio, which it's just that we felt that occupancy rate was either unsustainable in that -- the near-term or the long-term. So we sold assets, for example, when we were 90% leased that were 94% leased. That was not uncommon for us to do that. We just didn't like the markets. We didn't like perhaps the credit quality of that 94%, et cetera.

As far as going forward is concerned, our goals for occupancy do not assume that the portfolio is different than it is today, so when we say that we feel we can get to a 95 will or 95.5% leased portfolio we feel we can do that through leasing space in both prime and non-prime assets.

If it will -- what will impact that number is if we sell prime assets that are at a lower level than that, the occupancy rate will go up sooner than we had anticipated, and maybe we will hit 95% before three years, or two years. Maybe we will hit it in the next couple. So that's something will be impacted by asset sales in the short run, but in the long run we feel that the 95.5% is achievable through the existing portfolio of prime and non-prime, or having less non-prime and having more prime, where perhaps there is some value-add opportunity. So there is some y vacancy that comes with some of that.

Okay. I guess just regarding your 95.5% occupancy rate. You broke out your lease rates by -- I guess by -- shop size, Where would your small shop occupancy level need to get to, to get to that 95.5%? And what do you consider sort of the stabilized occupancy rate for those -- for that group of stores

In the mid to high 80s, Dave. I mean that historically that hasn't been a whole heck of a lot higher than that. But that is what I am looking at, getting at small shop space somewhere in the mid to high 80s. And keep in mind we are also working to reduce our exposure to that shop space, that size. We know it's the most difficult. We know it's the most challenging (inaudible) So whether it's conversion to larger space, consolidation of small tenants, or small tenant space, or the majority of or a large percentage anyway, of that small shop space, is going to be within the non-prime portfolio.

Okay. And then just a quick question on supplemental. You're leased information, it looks like it includes your Brasil portfolio, and I just want to confirm that the quarterly leasing summary also includes

That's correct. We have tried to continue to make improvements with the supplemental and make it simpler and I think especially now with the IPO of Sonae Sierra Brasil. The reality is, it's not just the issue of do we include it in the stats or not. We've made the decision to have an ownership stake down there.

It's been an important and very attractive investment for us and we have included it in the statistics this quarter. It had a very minimal impact on the leased rate, but on a go forward basis, we just felt the right strategy would have included in their as it is obviously part of the portfolio.

Is that at your share, or is that on 100% basis?

The majority of the portfolio statistics are a 100% share of everything, so whether it's 15% owned US joint venture, whether it's the third, one-third ownership stake we have Sonae Sierra Brasil were consolidated asset at 100% they are all in their full ownership.

Okay. Thanks.

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

Hello guys. Good morning. I'm curious, with your comments about the demand for a product, especially coming up at ICSC. Does it make sense, with all the yield buyers out there to put together a portfolio rather than a bunch of one-off type asset sales and take advantage of that a bit

Yes it does. Yes it does.

For a lot of reasons. Number one, for us to get to the volume that we've been getting to on a one-off basis is sort of a Herculean effort, when you are doing you know 50 deals, 60 deals a year. The centers are going to be somewhere obviously under 100,000 square feet. And you are dealing with a lot of local buyers. If it's possible to put together a package that makes sense that we can accelerate our portfolio transition, we would do so.

And I'm guessing, Dan, that would be in excess of the $100 million-type targets for the year

Yes, That's correct, Rich.

Okay. And then, with the flexibility that the retailers are showing at this point, that you guys talked about. I'm curious if you would be likely to accelerate redevelopment of some centers to accommodate, you know, the new demands or even some new development from that standpoint. I'm curious, I guess, as far as redevelopment and developments, going forward what you are thinking

Yes, it's is a simple answer, Rich. I mean this is something we're at talking about, looking at everyday. We've got a meeting this afternoon to review another portfolio by region, just to make sure we're not missing any opportunities, because there will be more and more opportunities in this area.

As we mentioned at Investor Day, right now we're focused on a five-year program that's around $350 million with about a $450 million this year. We are on pace to do that and it returns are right and demand is there, we will accelerate. This something we look at everyday.

There are certain smaller things that don't even hit that radar screen, in terms of redevelopment situation where And we can fit demand. So yes, we are very excited about the redevelopment. We continue to look for more opportunities every day, and we will continue to keep you guys apprised of that.

Okay. And then Paul, would development fall into that into development too? Any of the idle development you guys still have on the books, or is it still too early you think -- ?

As we've talked about, Rich, there is interest out there. We are in no hurry, very consistent with what we've been saying for a while now.

We're going to talk. There is interest in a small group of the cites we now own and control, and we will talk about it at ReCon this year. We are not setting any time frames. We are not talking about any -- this is our opening date. We're going to talk to the retailers, we're going to see what they are willing to do with rent

As we have mentioned time and time again, there is a little bit of a panic mode out there about '12 and then '13 for sure, in terms of the open to buy that the retailers have. So I don't want to comment too about much on what we'll seal at ReCon, but we are going to talk about it, and we will be able to report back on that.

But we are going to be taking the temperature, if you will, and again we are in no hurry. What's happening with the supply and demand story has been working very well for us. But we are will see what they have to say at ReCon

You know, Rich, to Paul's point. Every month that goes by, retailers are getting closer and closer to a problem, which is satisfying those 2013, 2014 open to buys. And I think they are recognizing that, with increasing frequency, so I do think that will be a topic of conversation at ReCon.

I think it will be front and center, with a lot of tenants who have large open to buy requirements for 2012 and 2013, and the fact that the spaces being as a word relatively quickly of existing -- in the existing portfolio. And they are going to have to either read think there pricing requirements for new developments, or they are going to have to figure out how to grow their business without new store.

And I don't know too many retailers that want to think about growing their business without new stores. So I think the conversations over the next three or four months are going to be very very interesting in regard to development.

Okay very good thank you guys.

Your next question comes the line of Laura Clark with Green Street Advisors. Please proceed.

Hi, good morning. If values are increasing or have increased and development prospects are increasing as well, what's happening to land values today, and is there a market for the land in your portfolio?

There's more conversation, Laura. We had some activity in the first quarter. We're in discussions and negotiations on certain other pieces. So there is clearly a heightened level of conversation and discussion as it pertains to vacant lands today. And obviously we're going to continue to pursue what we can with that. But I will say the activity level is certainly much increased from the last couple of years.

So there is a market. We have got to determine what the market is.

Okay. And then, lastly, I notice that you took out your bankrupt tenant leasing disclosure this quarter. Can you give us an update on the progress you have made toward leasing the space in 1Q, and what the prospects are for the remaining boxes?

Yes, we were -- and I'll explain a little bit about why we did that, Laura. We were up about 80% total activity and I believe reported 82% at the end of the quarter. There is not a lot a lot left. There is somewhere in that 600,000 to 700,000 square feet. Because that was a select world. Those were four. Linens, Circuit, Goody, and Steve & Barry's that we were talking about.

And we didn't want to just to focus on that. I think it leads into a good question about Borders and Blockbuster though, which are front and center for all of us, and there is a great level of activity on both of those portfolios. They were widely anticipated bankruptcies, and both very confusing situations for those retailers by the way.

We're talking for a minute about Blockbuster as we have said several times before, being entirely out of that portfolio is our goal. We believe we will be there, probably within the next year. And that's even if they don't liquidate. It's great space. We're seeing a lot of activity from the banks, from Five Guys, from Panera, Corner Bakery and the like. We're not having any difficulty. It comes with some pain. There is some downtime, and some investment on some of this.

And the same is true with Borders. There is no clearly certainty it is bankruptcy process. We know what they would like to do. They are not getting a lot of love from the publishers, and without product you're in a very bad situation, obviously as any type of retailer, but we've recently -- we're not in a position to name the tenants because leases are signed, but we have just gotten five back, and of those five we, two of them we have done deals with.

Best-in-class retailers and good chance we get them over this year. It's exciting stuff, and it comes with some pain, there some downtime on rents, but these are going to be better assets, better centers with these replacement tenants. Activity level is high on both of those retailers, and will probably spend little more time keeping you all updated on those categories. There's just really not a lot to say about four older bankruptcies if you will

Okay. Thanks so much

(Operator Instructions)

And your next question comes from the line of Michael Mueller a JPMorgan. Please proceed.

Yes, hi. First question, going back to them mez loans for a second. Could you talk a little bit about what the pricing looks like on some of the transactions you are looking at, and is it safe to assume that if the base case is for $100 million of capital deployment, recycling that these debt investments would be in the mutual minority in terms of a portion of that?

Would absolutely agree with your latter point. The point I think is that we're looking at a large range of opportunities. Pricing is aggressive for the most core, the most trophy sort of opportunities, and so that's obviously where there's a lot of product on the market but not necessarily where we see a huge opportunity for DDR.

And so we're looking at some situations where we can enter into it at a different spot in the capital stack, but would expect that to be a very small minority of the overall activity and rates on that would be relatively widespread. But something in the very low to double-digits would be a reasonable assumption, but again it really varies quite widely across the spectrum of opportunities that we are looking at.

And then going back to the downsized stores one more time. Based on the experiences that you've seen so far, and situations where somebody is downsized, is it safe to assume that the rents really haven't changed on day one, when you are talking about rents going higher on a per square foot basis.

You're talking about that kind of over time. And then the second part of that is, for the space that's coming back, you have big centers, big boxes, not as much small shop space. Does some of the space just get taken permanently out of service? Or is it cut up so that pretty much everything you get back you make sure it's leasable.

The first question Mike. A little different story couple of years ago, when there was clearly (inaudible) and we couldn't afford to lose any more space, we and everybody else on the landlord side. But I will tell you the deals we are making right now, on the downside. We are expecting an upside in the rent immediately on the smaller stores if you will. And clearly on the residual space, but a big part of our exercise is making sure, working with the retailer, that we are left with leasable space.

I can't think of an example with a downsizing of existing tenant where we haven't been left with leasable space. Carving up vacant boxes, and we have had a couple of situations, but very small amounts of space maybe several hundred square feet or one thousand square feet, where it's just, you can't bring in the two new tenants or the one you tenant you are talking about and lease all the space.

But that is more of a two year ago, year ago story. It has become different, and we've had a couple examples where a major retailer who wanted to get smaller than the 30,000 foot box to be ideal, and we were left with unleasable space, we didn't make the deal. They've come back, we've made a deal they've taken the whole box, and actually at a higher rent than they were talking about yea- a-half ago.

So that so we are seeing. But we are expecting upside. If you take your store from 30,000 to 18,000 feet, you will pay a high rent, and we're are not getting a lot of resistance on

Great thank you

Your next question comes from the line of Ki Bin Kim from Macquarie. Please proceed

Just a couple of questions on your leasing spreads. If you look at, say -- on a broad level the national rent cycle for retail, it would imply that you know the lease pressure would be negative 10% not positive. So I'm just wondering, what is the reason for the positive spread. Is it that you are rolling over older leases, or is it more of a function of more current demand? And if nothing changes in this world and market rates stay flat, what does this look like a couple years out?

First of all, it's important to remember what our calculation is. We are not including space has been vacant for more than one year, and there are several reasons for that. Some of this stuff has been vacant since we've owned the asset. Some space has never been leased.

We have always used the calculation of space that's been vacant for one year or less in the spread, and in historic practice that because spaces are turning at that rate. So that the spread we are quoting is just space that is vacant for less than one year.

And we expect rents to continue to improve, as the supply and demand store is working in our favor. And again that is clearly why our focus is going to continue to be on average first year rents of new deals, as we put in a supplemental. And then also with the net effect of rent, which is very important. We actually had a lower CapEx per square foot on our new deals. And that's something we're going to continue to emphasize.

Another item I'd bring up is, you do a lot of great macro research. We love the product, look at it, even before you had covered us. But I do think one of the shortfalls that we see, and that you are going to continue to find, is that the macro analysis for this property type just doesn't work as well as for some of the other property types where you've used it.

It's just that difference between commodity oriented space and non-commodities oriented space, where you really will have one shopping center vacant and another one fully occupied across the street from one another. And you simply don't see that dynamic in other property types. Or you see it on a massive impact on rent, and that's just not how it works here.

Another issue is going to be the quality of the data that you can get on other property types versus what you can get here. The nature of brokers being less involved in retail leasing versus other property types means that that national data that often times comes from brokers is the absolute best source of information for office or industrial. It just doesn't have the same quality when you think about the data that you are getting on a national basis for retail. And it can oftentimes be skewed by the huge amount of freestanding retailer, single-tenant boxes that represent a huge portion of the denominator that is often times reflected in those stats.

We understand the key numbers you are looking at, but we would downplay those for this property type. It's just that a macro story oftentimes really misses what's going on when you truly dig into a certain market or sub market our property type.

Okay, and how about for the second part of the question. If market rates stay the same, where do you think the leasing spreads go for a couple years out, from here?

If market rates stay the same, leasing spreads should also be about the same. But I don't think we've had a time in our history where market rates stay the same, and we've obviously that times they've gone down, and we've had more times where they've gone up.

A lot of that is really going to really depend on your view of inflation, and where you think the inflationary environment is going to go. If you think that we are headed towards a period of significant inflation, you can assume that comp store sales will go up dramatically and market rents will go up dramatically as a result. Because at the end of the day what the tenant pays is just a percent of overall sales. And what they can afford to pay as a percent of overall sales.

If you think we are going to still to be in a deflationary environment, then I think there is going to be very little growth. And you can start to see some pressure in a deflationary pricing environment where commodity prices are perhaps going up and the retailer is unable to actually transfer that cost increase over to the consumer.

The consumer has been somewhat unwilling to absorb price increases, and the retailer has no choice but to accept price increases. So I think -- I think a lot of the answers to the question, and I think it's a great question, is really going to depend on your view, on what you think the next couple years will hold for us from an inflationary perspective.

Okay. Thank you for that. And just to comment on that commodity prices. Ignoring gas prices for a second. I can look at the look at the prices for cotton, it's basically doubled in the past year, so what implications does that have for clothing or Bed Bath & Beyond, those type of retailer margins and that can mean for how much you can push rent going forward

I think it's an issue that we have to monitor very carefully as of right now. Today if you talk to most retailers they will tell you it has not been an impact, because keep in mind that most of the goods that they get they've gotten -- the orders were placed a long time ago. And you place your orders 9 to 12 months in advance of a season. So you're looking at a lag.

But going forward I think it is something that you have to watch very carefully, because of the retailer is unable to pass along that increase, it will have an impact on margin, and as we all know, retailers pay their rent with margin not with comp store sales. That's why we focus so much on the margin line and the profitability line and not the comp store sales line.

Comp store sales are nice, but they don't pay the bills per se. And I think it's something that could have a real impact, if in fact the retailer is unable to pass along the pricing increase to the consumer. Now that being said, we can go into our centers today and we can find plenty of evidence where retailers are trying to pass along the increase. Some of the increases that they either anticipate what they are currently experiencing. And I think the consumer ultimately will determine how successful that is.

Okay. Last quick question -- I think I have your 2012 debt maturities, the $1.1 billion coming through. What is the average effective interest rate, and what do you think the average effective interest rate will be when you refinance that?

I think we've got that specific number in the supplemental. The largest component of it are going to be the term loan, which is $560 million in LIBOR plus +88 basis points. $100 million of that $550 million has LIBOR swaps to a high 4% rate. But still, all in, you're at 1.5% for half of that debt.

The second largest component of it is what remains of our large convert. But it has a base interest rate of 3%, but for accounting purposes we actually book it at -- in the mid-5% range. So from what's showing up on the income statement it's a little higher than that. So all in you would blend, in terms of what's being expensed, to somewhere in the 3s, and you would think on refinancing right now you would see the spread on the term loan go up somewhat.

That increase will be dramatically less than what we or anyone else would have been speculated in the past. And I think the bond market gives us good pricing for -- the secondary market gives us good feedback on what pricing will be for 5, 7, or 10-year bond issuance in the somewhere between the low 4% and 5% rates, depending on what exact tenor we pick. So all in, if today you're expensing somewhere in the mid-3s, I think it's credible that you would go somewhere in the 4s, all in on that 2012

Okay, thank you. That was very helpful

Your next question comes on the line of Tayo Okusanya. Please proceed.

Good morning. Going back to the question of retail bankruptcies. I know you guys don't have that much exposure to Blockbuster, but can you kind of talk about what you're hearing out of them at this point?

Yes, Tayo. Everybody knows the Dish Network is the successful bidder at auction, and they are talking about still coming out with 500 stores. It's hard to visualize why the Dish Network needs 5,000 square-foot stores and 500 of them. So our approach is clearly going to be we're going to get them all back. They've been telling us in our example where we're down to about 16 or 17 that there's probably seven leases they would assume because they want to operate them.

They obviously can't control that, but our view is that this is a short-term play, and at the end of the day there is a liquidation of most if not all of the physical locations.

Got it. Okay. That's helpful thank you.

And there are no further questions at this time. And this will conclude today's conference. Thank you for your participation. You may now disconnect. We have a wonderful day.