Site Centers Corp (SITC) 2011 Q2 法說會逐字稿

Good day ladies and gentleman and welcome to the second quarter 2011 Developer's Diversified Realty Co. earnings conference call. My name is Shauntelay and I will be your facilitator for today's call. At this time all participants are in listen only mode. We will be facilitating a question-and-answer session towards the end of this 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 call Mr. Tim Lordan Senior Vice President of Investor Relations. Please proceed sir.

Thank you 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 of Leasing and Development Paul Freddo; and Chief Financial Officer David Oakes. Please be aware that certain of our statements today may be forward-looking. Although we believe such statements are based upon 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 the press release issued yesterday and filed with the SEC on Form 8-K and in our form 10K for the year ended December 31, 2010and 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 to GAAP measures can be found in our earnings press release issued yesterday. This release and our quarterly financial supplement are available on our website at www.DDR.com. Last, we will be observing a two question limit during the Q&A portion of the call in order to give everyone a chance to participate. If you have additional questions, please rejoin the queue.

At this time it is my pleasure to introduce our CEO Dan Hurwitz.

Thank you Tim, good morning and welcome to our second quarter earnings conference call. I would like to begin the call by highlighting our continued focus on capital recycling and enhancing the overall quality of our portfolio. The successful refinancing of the term loan and revolving credit facilities has provided greater financial flexibility and a more competitive cost of capital for our company. As a result, we are intently focused on sourcing external growth opportunities to the acquisition of prime assets and recycling capital from non-prime asset sales.

As highlighted in our June 30 press release, we disposed of an additional $112 million of primarily non-prime assets during the second quarter, and have $85 million of prime assets under contract to acquire. The non-prime assets sold were primarily in the secondary and tertiary markets and some were single tenant assets while others were non-income producing assets. To the contrary, the properties under contract were creatively sourced, are located in a target market with demographics that will enhance our prime portfolio and have growth characteristics that will be maximized through our operating platform and tenant relationships.

In addition to the assets under contract, our pipeline of acquisition opportunities include Core, Core Plus and Value-add assets and our underwriting will continue to be very disciplined. Acquisitions are all about growth not asset count. In addition to the external growth opportunities that we are actively sourcing, we are keenly focused on maximizing our internal growth opportunities through the continued lease up of our portfolio and the aggressive pursuit of redevelopment's. As highlighted by our quarterly same-store NOI growth of 3.6%, we are continuing to see the benefits of the leasing momentum that has existed within our portfolio for the past several quarters. And we believe the strong NOI growth will continue in the near term as we work our way back to a stabilized leased rate of at least 95%.

Moreover, as mentioned on prior calls, we have been working hard to identify redevelopment opportunities within our existing portfolio. Based upon our thorough review of near-term and long-term opportunities, we have identified nearly $750 million of potential redevelopments that will be pursued over the next 5 years. The reduced risk profile of redevelopments are attractive relative to ground up development projects and provide compelling typically double-digit first year un-levered cash on cost returns. Moreover, with our continued focus on improving the quality of our portfolio we are excited about the opportunity to invest in many of our highest quality assets further enhancing net asset value.

When thinking of DDR going forward, our goal is to be viewed as a Company with an increasingly high-quality portfolio that will continue to improve over time. As a company with an exciting internal growth story through continued lease up and rent-roll growth and an external growth story driven by acquisitions that leverage the strengths of our operating platform. Also, a company with an opportunistic redevelopment program that will maximize the value of assets already owned. Finally, you should continue to expect additional improvement to our balance sheet. Credit metrics and credit ratings. At DDR we are constantly thinking about retail, the positives and the negatives, learning from our retail partners and using that knowledge to energize a platform dedicated to creating value for our shareholders.

I will now turn the call over to Paul.

Thank you Dan. I'll begin by highlighting what was another highly productive quarter followed by a brief discussion regarding the subject that deserves a great deal attention, portfolio quality and why it matters. Regarding our quarterly leasing results, our domestic leased rate increased to 92.8%. This represents a 128 basis point increase over the second quarter of 2010 and a 40 basis point increase of sequentially. Including Brazil, our blended leased rate is now 93%. We expect this momentum to continue in the third and fourth quarters resulting in a blended leased rate of over 93.2% by year-end.

In the second quarter we completed a total of 483 deals for over 2.5 million square feet with a combined spread of 6% up from 3.9% one year ago, and 5.4% in the first quarter. This represents our fifth straight quarter of positive combined leasing spreads and illustrates the consistent demand for quality space. It is important to note that this growth has been achieved with lower CapEx on a per square foot basis and that the impact of these results will be apparent in our income statement in the coming year of a full impact will show up in 2013.

I would now like to take a few minutes to discuss the importance of portfolio quality and how we should evaluate the quality of the specific asset. There are many ways to evaluate the quality of a portfolio or a particular asset including local demographics, comparisons to national averages, occupancy levels, rental growth, etc. But one factor should stand above all else. The retailers. The retailer knows the consumer better than any landlord and the consumer certainly shows that they frequent the most successful and compelling retailers.

Moreover, it is critical to keep in mind that no consumer shops at any property based on who owns it. They shop exclusively based on the tenants that occupy it. Speaking of the tenants the consumer votes for every day, our portfolio consists mostly of power centers with destination tenants such as Wal-Mart, Target, Kohl's, Bed Bath and Beyond, T.J. Maxx, Dick's Sporting Goods, Publix, Pet Smart and many other national credits that attract other high-quality retailers as co-tenants and generate significant sales volumes. These retailers have game changing marketing, real estate, and merchandising strategies that drive customers to their stores and therefore increase the value of our centers.

These retailers and the others that we are doing business with every day, are also the retailers that have consistently grown market share. Most importantly they grew market share before and during the recession and continue to grow share even coming off positive comps. Just the 8 aforementioned retailers have plans to open over 75 million square feet of new stores in aggregate over the next 2 years. As a company that has leased more than 32 million square feet of space in the last 3 years, our portfolio is a first look for successful retailers with aggressive open to buy's. While we can all acknowledge that there is vacant space out there that never in my career have I seen such an imbalance between the demand for space from retailers and the lack of quality supply.

In our portfolio over 73% of our GLA consists of units that are over 10,000 square feet, and these same units are over 95% leased and represent 62% of base rent. Only 17% of our GLA consists of units less than 5000 square feet and they represent 26% of base rent. So in summary, our portfolio is more heavily weighted toward anchor and junior anchor credit tenants that local small shops. With our shop space roughly 83% leased, and approximately 3 million square feet of vacancy space larger than 10,000 square feet, we continue to see significant internal growth potential in both categories.

As a result of our tenants operational successes and the high demands combined with the lack of quality new supply, as Dan mentioned, we are significantly ramping up our redevelopment efforts. For example, in addition to the 2 Target redevelopment's in Denver and San Antonio, which we mentioned in our May 18 press release, we are currently undergoing new development of one of our largest assets Plaza Del Notre in Puerto Rico. We are eliminating chronically vacant small shop space and previously un-leasable common area to accommodate an expansion of JC Penny and we are also combining 4 vacant small shop units to provide Pet Smart a net with another one of its early stores on the island. These 3 projects totaled $40 million in investment at a combined 10.5% un-levered cash on cost yield, and are indicative of the opportunities that we are pursuing.

Before closing I would also like to again to address the popular theme of tenants desire to down size and explain why this can be an opportunity for value creation. Using Best Buy as an example, there are 20 locations in over 40,000 square-feet in our portfolio. As a result, we estimate we can get back as much as 250,000 square feet in residual space in the next 3 to 5 year period should Best Buy execute exactly as their public statements outline. It could easily take longer and it is highly unlikely it would take less time to meet those stated downsizing goals.

It also is important to note that all but one of those stores are in prime assets. By releasing the residual square footage at current market rents, we estimate over $1 million of embedded base rental growth from this potential downsizing alone, keeping in mind there are opportunities with other retailers as well. There will in many cases be some short-term downtime and potentially some capital spent on build-out depending on the individual deal. But long-term, this is a great opportunity for DDR, and Best Buy alike. But, this is all at the landlord's discretion. Best Buy does not have the contractual right to down size unless their lease is up for renewal, meaning everything is up for negotiation and since all but one location in prime should we be unable to come to terms and they leave altogether the growth potential is even greater.

The bottom line is we are supportive of Best Buy's plans and we are working directly with them to create a positive result for both of us. But still, the deal has to make economic sense for DDR. In summary, when considering the tremendous quality endorsement that our portfolio continues to receive from our customer, the tenants, as evidenced by consistent leasing momentum. The dynamic that exists with certain tenants expressing an interest in downsizing while others desire growth one can conclude that the supply and demand dynamic within our portfolio presents a compelling opportunity for occupancy and rental growth today and tomorrow. I will now turn the call over to David.

Thanks Paul. Operating FFO was $64.4 million or $0.23 per share for the second quarter which was in line with our expectations including non-operating items, FFO for the quarter was $24.1 million or $0.09 per share. Non-operating items were primarily impairment charges and losses related to the disposition of certain non-prime assets as well is the write off of original issuance costs related to the redemption of our 8% Series G preferred shares in April. Gains of approximately $14 million on asset sales were recognized in that income during the quarter and are excluded from both FFO measures.

As you may have noticed from the press release we are tightening our guidance for 2011 operating FFO per share by $0.03 on the low end and the high-end $0.93 to $1.02 per share. The mid point is unchanged despite the aggressive execution of our 2011 strategic objectives. We exceeded our full-year disposition objectives during the first half of the year, significantly accelerated the timing of our capital raises and refinancing and have lowered our amount of floating rate debt. With all that we are encouraged to still be able to maintain our full-year guidance mid point.

The significant Capital Markets activity this quarter was the refinancing of our $550 million term loan and unsecured revolving credit facilities. Our initial 2011 plans called for the term loan to be addressed late in the year. However, we decided to take advantage of attractive debt markets and we were very pleased to have amended the credit facilities at the same time. Pricing on the new financing was very competitive and over 100 basis points tighter from last year, with spreads to LIBOR of 170 basis points on the term loan and 165 basis points on the credit facilities. These spreads are based on Moody' s and S&P's credit ratings which can improve as we work to regain our consensus investment grade credit ratings.

We also took the opportunity to fix LIBOR on $100 million of the new $500 million term loan, entering into an interest rate swap contract that fixes LIBOR at 1% through June of 2014. At the end of the second quarter, only 13% of our total consolidated debt is variable rate which is consistent with our objective of having approximately 10% to 20% of our debt at floating rates. Equally as important as the cost of our debt is its duration. And these financing's result in much better balanced maturity schedules than ever before. At June 30, our weighted average debt maturities was 4.5 years a significant improvement from 3.1 years at the end of last year's second quarter.

Further, there are no years in which consolidated debt maturities exceed $1 billion. For a Company of our size with relatively stable and long-term revenue streams, and a track record for raising over $2 billion of capital per annum recently, our debt maturities going forward are very manageable and our cost of capital is clearly competitive again. We are also taking advantage of a competitive market for property financing's. Early next month we will close on a $75 million 10 year mortgage secured by a lifestyle center in Chicago MSA. Interest on this mortgage is fixed at 4.8% and it replaces a $60 million loan priced at 5.6%. Shortly after that financing we expect to close a $65 million ten-year mortgage secured by power center in New Jersey. Interest on this mortgage is fixed at 5.4% and this replaces a $37 million loan with an interest rate of 7%.

Closing these financing's will further improve our weighted average debt maturity and average cost of debt. During the first half of the year we raised more than $1.7 billion of new debt and equity capital and it is encouraging to see our efforts to lower our risk profile and restructure our balance sheet rewarded. There is more work to do in pursuing our deleveraging goals we continue to expect to have pro rata debt to EBITDA ratio within in mid 7 times range at the end of the fourth quarter and below 7 times longer-term. We will continue to actively pursue opportunities to lower leverage and we expect to continue to make progress on this initiative without further dilution.

We also continue to deliver on our capital recycling initiatives. Through the first six months of the year, we have generated $155 million of gross proceeds through asset sales our share of which was $107 million which again exceeds our full-year goal. We are deploying the proceeds from non-prime asset sales and the acquisition of prime shopping centers which improves the quality of the portfolio on a balance sheet neutral basis. While our active disposition program presents some challenges predicting our near-term earnings, we are very confident that these efforts will result in a portfolio with better than average long-term growth aspects which we believe will create significant value for our shareholders.

We are being very diligent in underwriting potential acquisitions and despite a competitive market we are pleased to be finding select opportunities which we expect to update on you later this quarter. We are very proud of the consistent execution on the strategic objective that we have outlined for you over the past few years and we will continue to make decisions that are in the best long-term interest of all of our stakeholders.

Finally, I am pleased to announce that Zamir Kanal has recently agreed to join our team as Senior Director of Investor Relations. Zamir is joining us from Morgan Stanley and has 8 years covering leases as a South Side analyst and knows commercial real estate in our sector very well. We are proud to be an industry leader in providing effective and transparent disclosure and Zamir's addition is an example of how committed we are to being proactive in this regard. We are confident he will further improve our investor communications and make significant contributions to DDR overall. At this point I will stop and turn the call back over to Dan for closing remarks.

Thank you David. In closing I would like to reiterate our continued focus on maximizing internal growth opportunities while taking a disciplined approach to external growth. We are creatively sourcing prime acquisition opportunities with a primary focus on enhancing net asset value. Our reduced costs of capital and successful re-capitalization of the balance sheet provides far greater financial flexibility to support these growth initiatives. Additionally, we are encouraged by the level of demand we are seeing from retailers for new stores and believe our ability to work or cooperatively with our tenants as they seek to down size and reconfigure their space will result in continued strength in our portfolio.

Overall, our story is getting much clearer by the day and we expect the positive momentum that we have enjoyed to continue. At this time operator we would be happy to address any questions.

(Operator Instructions)

Paul Morgan, Morgan Stanley.

You went through the dispositions. Could you break out -- is it material impact on the portfolio option you seek they are under occupied is what 700,000 square feet?

This quarter there was not a material impact on the increase in occupancy for the quarter. We did have one prime center in the pool that was more highly leased in our portfolio average. We also had, obviously the great majority of assets were non-prime assets with lower occupancy levels but overall it is just a small enough sample where there was no material impact certainly nothing that would have been I don't think even 10 basis points but certainly not more than that.

There will be some situations though, Paul, where we have and will continue to sell assets that may be occupied at a higher level than the overall portfolio because we are uncertain whether it would remain there. So, for example, we have assets that we have sold over 94% leased and we felt quite confident that it would go to 88% before they went to 95%. So we will continue to assess that on a case-by-case basis.

Would you say that there's momentum in terms of the asset sales based on maybe the breath of demand widening out? Is this mostly just blocking and tackling or is everything one-off or do you think you could sell things on your portfolio?

I think there is a couple of ways to look at it. Most of it will be one-off, one or two off. But one of the things that you have to keep in mind is that we have sold over $2 billion worth of assets in the last couple of years so our actual roster of assets to sell has gotten much smaller over time.

So the idea of doing a large portfolio is going to be much more difficult because again the size of the portfolio that is left to sell has dwindled somewhat because of our successful execution on the disposition side and the quality of what we are selling now is -- tends to be on the lower side as well. So, I think you could fairly well expect us to maintain a one-off or maybe two off sort of transactional pace to get through our $100 million a year of dispositions. But I can't see a scenario in which asset dispositions will accelerate given what is left to sell.

We are being more selective in terms of pricing when you think about sources and uses and with the current time the uses of proceeds being the redevelopment pipeline as well is prime acquisitions. Redevelopment's represent attractive high return opportunities. Acquisitions as we all know are very competitively priced for the most part at this time. So, that means we need to be price sensitive on the sales side also which is a difference relative to two years ago when the more we could accelerate any sales the more we could repurchase our debt at dramatic discounts to par. Where today we are much more disciplined simply because of the use of the proceeds. We have to be much more careful and so that is what you're seeing show up in the sale results and the more attractive pricing that we are achieving.

Sure, my other question is on Borders. And not so much just within your portfolio because your portfolio is relatively limited but just more broadly speaking do you think your color on the way retailers are going to view the space and then kind of how that may evolve over the second half of the year? As it all becomes available. Do you think that retailers are more likely to increase their store openings because it is becoming available or are they waiting on the sidelines for the space for a while? Or is it sort of already embedded in expectations and the fact that it is coming available earlier may mean other deals people may have in the works may get postponed?

I think it is the last one you made, Paul. It clearly has been anticipated. And is not going to change anything in terms of the available space dynamic. And it is not going to move the needle much on the supply side either. It has been anticipated.

We have been working as I'm sure every landlord with Borders in their portfolio has on the entire portfolio. We have had deals in NOI stage while borders was still in bankruptcy and we just hope to execute those quickly. But that is really what is happened here. Nobody is surprised that it's turned into a liquidation. I don't see anybody ramping up their open to buy plans, but at the same time they knew that this would be an available source for deals.

Great, thanks.

Jay Habermann, Goldman Sachs

A question for David, as you look at the mid point of the narrowed range for guidance for the year I guess taking the first half run rate. Can you walk us through some of the factors that might move you perhaps to the upper end? You look at occupancy expected to be at 93.2% at the end of the year. You have seen a nice pickup in same store NOI and leasing spreads have improved as well. But what are you looking toward that, put you at the upper of the range?

I mean there is not a ton of time left in the year for new long-term leasing but there is obviously a constant profit in terms of how to maximize the cash flow from the portfolio. Where we can think about certain acceleration of lease payments whether that is just getting someone open earlier in select cases where we have got demand for the space. The lease termination, it's also, we probably have been more active than anyone on the industry on the ancillary income side where there is still an opportunity to add additional income for later in the year.

And then some of it just relates to the budget process where while we are pleasantly surprised everyday and happy to see LIBOR say at the 20 to 25 basis point level it is certainly not the way we budget anymore. And so to the extent that we do see rates stay lower, it is helpful. That said, you've got some currents on the other side too. And that's why we have maintained a range that we think is appropriate where we do not foresee any reasonable circumstances where we would fall outside of that and continue to target the mid point in that range for the outcome of this year. Despite the fact that we pulled asset sales forward, we've pulled refinancing' s forward, and it is not at all unreasonable to assume that if we think it is the right thing to do for the Company long-term that we would continue to do that and that could still have an impact on our costs later in the year.

And I guess with bad debt turning down year-over-year, have you seen any changes in terms of store closings or expectations changing at all for the back half of the year?

No, I think we have factored in everything that we anticipate, Jay. We really don't anything -- obviously something we watch very closely within any category that we deal with risk, but the guidance we are talking about clearly reflects any modifications for the Borders and Blockbuster's and closings such as that.

One of the things that also, Jay that we are very active on is obviously on the ancillary income side. So if you take the situation like where we had Borders where it was not fully anticipated that they would abandon all of their stores before year end, we've already replaced that income that we would lose in 2011 with ancillary income and temporary tenants.

So we have mentioned a number of times that our -- the aggressive nature of our new business development platform and our ancillary income platform helps us mitigate risk in the event that we have a negative surprise. And this is a perfect example of it. If we had not been able to replace Borders, their closing with temporary tenants, we would have lost somewhere around $250,000 in revenue between the end of September and the end of the year. But again, we have already backfilled that space assuming we get it back the we think we will, and that is part of our platform that we think helps mitigate the risk of future down size.

That's helpful. And my second question just on the developments on hold. Can you give us some sense there in terms of I guess any updated thoughts on that investment, you know the $530 million?

On the development part of it, Jay, we are still looking at. We are not overly excited about getting anything going soon. I think we last spoke to you guys on the first quarter call about taking a good look at recon in Vegas in May and seeing what the appetite was.

And it is clearly interest in appetite and it is all about locking up the anchor tenants. But I will be honest with you, we are not looking to get anything out of the ground anytime soon. We do know in some cases it is going to be the best way to modify fill in but we are being patient with it. We are going to wait for the right rate, for the right return and we will move forward once we are satisfied. We feel it coming but it is not there yet.

Okay, thank you.

David Wigginton, DISCERN

David in your commentary you mentioned your objective of getting to mid 7 times for your debt-to-EBITDA ratio. Are you still operating under the premise that you are going to continue to lower that ratio primarily as a result of increasing EBITDA? Or are you planning on lowering debt as well maybe through new equity or free cash flow?

The overwhelming majority of the improvement that we forecast either for the rest of the year or for future years is from the EBITDA growth. Selectively there will still be debt reduction. Debt reduction has been a primary driver of the improvement in this metric the past couple years on a go forward basis we would think EBITDA growth would be the larger driver. Would not expect all that to be debt reduction through equity issuance or the issuance of new common shares. But could think about that through the effective creation of new equity either by the low payout ratio that continuous to result in considerable and considerable free cash flow some of which gets reinvested in the portfolio. But some of which could also be used to repay additional debt.

Also the monetization of non-reducing assets which for covenants and debt-to-EBITDA ratio purposes works at least as well as the issuance of new common equity's. So, there might be so much improvement on the debt reduction side that would not all expect that to be the issuance of common equity. But more so would expect the improvement in EBITDA to be the larger driver there.

So, on the EBITDA front, then, you're EBITDA has been taken down sequentially with the disposition activity in the portfolio. And obviously you have got a pretty wide spread between you're leased and commenced rate as well. And you're generating pretty decent rent growth. How does that all balance out and actually get you to your goal?

With the EBITDA reduction on a total portfolio basis year-to-date has been partially driven by the dispositions falling earlier in the year than the acquisitions. While we have exceeded our disposition goal for the year, we are still -- have some work to do to get to our acquisitions goal. So I think that part of it -- some of it is also going to be the importance of seasonality.

Second quarter is basically the seasonally lightest quarter for us in terms of EBITDA both relating to tenant schedules for the most natural time for closing stores as well as opening stores for retail -- retailers as well as the amount of ancillary income that is created in various quarters. And so we would hesitate to use the second quarter is the right way to think about the run rate there. Where we think by the fourth quarter even as the seasonality of that the size, the point you mentioned about the considerable volume of leasing that has been signed but yet to commit cash flowing. We think all those factors combined to get us much improved on that metric over the next several quarters.

So then based on what you just said your pace of acquisitions going to outpace the rate of dispositions for the remainder of the year?

Over the remainder of the year the budget has the pace of acquisitions exceeding the pace of dispositions. We have mentioned previously we are under contract on $85 million of acquisitions which will represent the majority if not all of what we complete before year end.

Okay, understood. And final follow-up to that is can you give us an idea what the spread between you're acquisition and disposition cap rates have been year-to-date and kind of where you see that going for the remainder of the year?

Year-to-date the spread has been approximately 50 basis points from the mid-sevens on the acquisition side to the high sevens, low eights on the disposition side. Going forward we would assume that it would be somewhere between that 50 and 100 basis point range. There are going to be selected positions that trade well wide of that. There going to be certain dispositions that trade well inside of that where we are able to reinvest the proceeds on an accretive basis. But net based on the significant increase in quality from what we are buying versus what we are selling we would expect it to be something in that 50 to 100 basis point range.

It is also for the relatively low volume relative to prior years that you're seeing a sell and the greater pricing discipline that we have shown there. I think we are generating better pricing on the dispositions and we are also not at all pressured to force ourselves in to anything on the acquisition side where we are unwilling to compromise our underwriting pricing discipline there. And so that's why you are seeing amidst the overwhelming majority of assets that trade simply because we think the pricing is particularly aggressive. But the select opportunities we find, we think can actually show a pretty modest spread between the cap rates on what we are buying and what we are selling. And we think looking out a year or two you more than make up for that by the higher growth profile of what we are buying -- at the end of livestream of what we are buying.

Okay, thanks.

Christy McElroy, UBS

Paul, I just wanted to follow up on your comments about the 250,000 square feet of space you get back over the next three and half years. Does this represent only the Best Buy space or are there other retailers and in there that might be downsizing? And are these estimates a result of direct discretions that you have had with Best Buy regarding future space needs? And what retailers could potentially take that residual space?

Okay, the numbers clearly Best Buy related only, Christy. And it is in discussions with them. This was used as an example, in fact we had these guys in our office this week going through the entire portfolio, but one of the things I wanted to emphasize is that there is a way to be cooperative with your major retailers, it is not all downside. And we are working closely with these guys to figure out how to get this done. So that number comes specifically through conversations with Best Buy.

There's a lot of the devils in the detail and finding the right replacements and as I mentioned in the script, it is going to be our call at the end of the day and Best Buy gets that. There are several retailers and we haven't gone to the length that we have gone with Best Buy yet but all of the office guys and not every location is oversized. JoAnn fabrics is another example in the arts and crafts side. But anybody who down sized and this is something that we are regular reviewing throughout our entire portfolio, treat it as an opportunity, get proactive with it and lets get them in here and discuss it. And trust me, retailers love that approach.

So, as a result of those types of discussions in addition to Best Buy how much space could that potentially be in that aggregate over the next three to five years?

Don't really know and we haven't gotten that far, Christy. And again it is going to be -- not everybody has been as clear as Best Buy in their releases in terms of what they're looking to down size to and from. So was a little simpler with the Best Buy if they wanted the 36,000 to 40,000 in every location it's not hard to figure it out. But we don't have that. But it is something we are working on and the point there is opportunity here it is not all risk.

There is a big GAAP Christy in the retail community between those that are talking about it and actually executing it. And those that are quite frankly talking about it because they think that's what the market wants to hear.

Obviously a tenant like Best Buy is very proactive and they are working very aggressively like Paul said they were here this week. We went through everything with them. We have a good working relationship and we will make progress.

Some of the other tenants know that it is quite fashionable to talk about that. It's something that they should do but they are well behind some of their peers and it is somewhat uncertain to us yet who is real in the downsizing effort and who thinks it's fashionable to talk about a downsizing effort.

And just following up on the second part of my question. We've heard names like Trader Joe's or Safora being thrown out there as retailers that could potentially take the residual space. Are you seeing any other retailers popping up?

There are quite a few. Ulta heads the list, Christy, and Trader Joe's and Safora clearly there but also Carter's is in an aggressive growth boat. And they are specifically asking about where we can get space, that some of your larger tenants want to down size. Five Below, Dots, and Dress Barn these are all guys that are looking for space in that category that call it 8000 to10,000 feet.

And then, just following up on your projected $750 million of redevelopment opportunities. Can you give a sense for how the timing of the investment would play out over the next 5 years and expected returns on investments?

In terms of timing, clearly it is going to ramp up as we go into the out years. We're planning to spend somewhere around $45 million in 2011, really just the genesis of the program, but it ramps up pretty significantly in the later years.

And returns?

Returns that on average are certainly going to be in the double digits selectively you might have a few that are below that but the overwhelming majority and certainly the weighted average are going to end up in the double digits, low teens sort of area.

Thanks so much guys.

Ki Bin Kim, Macquarie

Could you break up the same store performance between your various regions? Meaning Brazil and the US. And maybe Puerto Rico.

The biggest spread is with Brazil where it has been by far the strongest results down there continue to be in the mid teens range and to well in excess of what we are able to achieve elsewhere. For US and Puerto Rico, has generally been in the mid 2% range.

Is the positive lease spread is that also driven by Brazil or is that more equal?

That is much more equal. There is going to be less of an impact there. Both the volume of leasing they are signing on a quarterly basis as well as our leasing spreads for the Brazilian portfolio are significantly understated relative to the real economic growth because we get annual escalators. You are seeing that NOI show up every year but it is not-- or your NOI growth show up every year but it's not showing up in a rental spread. So rental spreads down there are good but significantly understate the real economic growth because you're getting that contractual bump every year. And so on the spread side there is really not much impact and not much different.

And I'd add to David's point that it is really carried by the US and Puerto Rico the domestic portfolio on the spreads.

Okay, and if you could provide some quick commentary on Florida. Is that market picking up?

It's soft -- softer than most, let me put it that way. There is a little bit of pick up but we are seeing better pick up in Georgia and the Carolinas. So in terms of the small shop space we've seen the same success in the box space down in Florida that we had experienced in most places. But small shops, that has really been the hardest hit and continues to be the slowest to come back. We are seeing some recovery in shop space but the Carolinas and Georgia have really carried that.

By the range of your portfolio it looks like the space has greater than 20,000 square feet, occupancy increased about 40% to 96.3%. I'm guessing that had a lot to do with overall portfolio, obviously, gains and seems NOI especially in the US. Given that is kind of approaching that structural level of upper 90's for the next year going forward what are the incremental -- I guess my question is how you get continued 3%, 3.5% NOI growth with large space being almost fully occupied?

What I would tell you also is do not look at a 95% or 96% in that box space that is fully occupied. It is always been a much higher percent leased than the corporate average. But there is clearly still upside and we've got to 2.5 million square feet approximately of space and then north of 10 or 20 and there is lots of opportunity there. We honestly believe we can get that up in the 98% range and we'll do it. There's still lots of activity, lots of demand, lots in our pipeline.

And there is also the opportunity in the small shops. You know we historically got to a high in that less than 5000 square feet in the high 80s. So we are sitting in the low just below 83 there is room there too. So combined we think there is plenty of upside for the foreseeable future.

And remember that from a same-store NOI perspective we were switching from talking about square footages as you guys have been talking about NOI. The smaller space as well -- they have been tougher and as Paul mentioned their occupancy naturally is going to be somewhat lower over time, they do generate higher rent per square foot and maybe approximately 2 times the rent per square foot. So, you need a smaller amount of progress in that bucket to still make a very large contribution as same store NOI.

Okay and I noticed you guys provide a little more break out on the small shop space, you guys carried out a little more, but if you could compare it apples to apples basis over last quarter. What was the incremental increase in occupancy or decrease?

It was up, but slightly. Quarter to quarter in the small shop space but there is something that we are going to track more closely. If we had broken it down a little finer -- and that is part of the intention in the supplement given to show a further breakdown so we will be able to track this a lot closer.

It is worth making a couple of other points on that small shop space. We actually had our higher spreads in the quarter in that space in our renewal spreads which is a significant amount of renewals in any year, were solid in this category also. I don't want to sit here and say that everything is rosy in the small shop space, because it is not, but there is certainly improvement and a lot of upside.

I know you have the best intentions, so I'm not trying to hit you on that. Last question, given general negative headlines in the economy and a lot of riff out there, how much if you could somewhat quantify are qualitatively -- how much demand do you think is out there that is just waiting to things to clear up before they pull the trigger?

Yes, very little. And I'll tell you it is unsettling -- as unsettled as the macro situation is, we have been consistently pleased by how steadfast the retailers have been and how consistent they have been in seeking space. We don't get the sense somewhat like you do often on the investment side or the Capital Market side that there is a wall of demand out there waiting for something positive to happen.

I think it is quite the opposite in the retail community. I think the retailers understand that even though the macro situation is uncertain, and may not be as stable as they would like, I think the availability of space is even less certain for them. And if they know if they don't act now they are going to have a real problem in the foreseeable future and as a result that has maintained a level of interest in space that we think really will continue, number one and number two has surprised us with its consistency.

I think it is also one of the things and when you talk to tenants that are looking to down size, it surprised them to. Because they go out and they talk to other tenants as well, they are surprised by the demand for space and that gives them the ability to accomplish their downsizing goals in a manner in which they had outlined.

Okay, thank you that was helpful.

Alex Goldfarb, Sandler O'Neill & Partners

Dan, just want to get your big picture take. A lot of talk with Amazon and Internet sales not being taxed if it is just purely online without the brick-and-mortar presence. Do you have any sense as you speak to your various tenants or how much sales they actually lose because people are deciding instead to buy it online rather than walk into a brick-and-mortar store. And I don't mean like tenants like a Best Buy who are choosing to it buy on their website versus walk in the store I'm talking about the Amazon and the Gilt's etc.

Yes it's a good point, it is a good question. Because one of the things that you are seeing which you may intuitively think when you talk about the impact of Internet sales an overall decline in comp store sales at the asset level. And we are not seeing that.

So the question you almost have to ask yourself is are they taking my piece of the pie or is the pie actually getting larger? Most tenants will tell you, most tenants will tell you that online sales are supporting the bricks and mortar sales and contributing dramatically to the comp store bricks and mortar number because there is a lot of browsing that goes on on the Internet and a lot of buying that goes on in the store.

So, I don't think that most of them feel that it is taking away from bricks and mortar forgetting like you said Best Buy particularly in the ready-to-wear sector where most people like to touch and feel clothing before they buy it. I think most of them feel from our conversations that the Internet proposition is supportive of the bricks and mortar and is complementary to bricks and mortar and hasn't really taken away from the sales of the bricks and mortar the way intuitively we might think that it would.

So, like using Amazon as an example, is that something more like a sort of books related where a whole category has sort of migrated online and most categories your tenants aren't seeing people shop exclusively at online only retailers?

I think that is right. I do think there is a difference though -- there is a difference between categories that are vulnerable because they are flawed versus categories that provide just an alternative shopping experience that consumers that may or may not take advantage of. We have said for many years we have had this discussion that we have always been concerned about commodity goods that are at very, very low margins and the fact that there is a more efficient distribution channel being in particular the Internet or in some cases a catalog versus bricks and mortar. We've talked about some of the sectors and we are seeing that come to fruition.

It doesn't surprise us and it doesn't really concern us. It is actually just part of the evolution of retail. It is what we deal with every day. So I think category by category, if you take a look at it, our goal is to obviously identify the winners and losers and we feel that from a competitive standpoint, those commodity goods at thin margins with inefficient distribution channels are the ones that will continue to struggle and eventually they will disappear.

Okay and my second question is for David. In your discussions with the rating agencies you've done the term loan and it line of credit. Are there any next steps that they are looking for or is it purely just sort of getting to some sort of EBITDA metric or something or some sort of special like that?

I think that the major steps are done at this point. Everything we have outlined to them in terms of major individual transactional activity has been accomplished over the past couple of years and in general it has been accomplished at better execution than we originally budget it with various models that we would have shared with them. And so, we are pleased that you've seen positive rating agency activity from each one of the three major agencies. And so we are seeing it move in the right direction.

It is never going to be as rapid as we might like to reflect the progress that we certainly are confident that we are making every day. But, we have seen progress there and we think that there will be more. And some of it as you mentioned is just a process we have seeing the EBITDA growth over time while some of the Capital Market's activity is something you can go and do in a week or in a month and the transaction is completed. On the leasing side, it is obviously a much longer term process of getting a good tenant in place and cash flowing. And so it has been a process over time of showing more and more progress there and we expect that to continue and we expect the positive feedback to continue.

So from just our perspective, is midyear next year sort of reasonable for thinking that one of the other two, may also upgrade you guys to investment grade or is that a little too ambitious?

I don't want to avoid the question, but the reality is it is better placed with them than with us. We certainly can control how hard we push on the metrics and there is a constant and urgent focus on that and a strong dialogue with each of the agencies. We have talked about having the metrics comfortably in place during 2012. When the ratings come is uncertain.

And obviously when you overlie some of the crazy macro stuff going on right now where whether it is the agencies or any fixed income investor in the world being dramatically more focused about the US sovereign situation than DDR's credit rating. I think it makes it even harder to forecast it. What we can control is the metrics and how hard we push and with how much urgency we push on continued improvement there. And you can assume that we are working extremely diligently on that when the ratings come, I don't think it is something that we would want to handicap.

Well at least they are discussing upgrading you guys and not the other way around as in DC.

Absolutely.

Thanks.

Craig Schmidt, Bank of America

Looking at certain retailers and for one I'm thinking of TJX who have pretty open to buys in their case, over 100 stores in 12 and 13. In your discussions how are they planning to do that? Are they planning to build freestanding stores or go to lower quality strip centers? What's the game plan?

Haven't heard about them building any of their own, Craig. But listen they know it's a very aggressive plan but the success of the Marshals and the TJ Maxx and home goods has a lot of runway also because it is not out there in a big way in terms of number of stores. So you're going to see as a lot of home goods being done.

This is the kind of conversation that I have had with many of you individually that it is a great question. How are you going to get it done? You get a little bit out of a quarter's bankruptcy and they will each grab a few but not a lot. But they are going to have to be aggressive and they're going to have to be creative and that gets back to the flexibility story where you're going to see smaller stores smaller markets.

So, they are trusting that they are looking at their research and figuring out if we thought we could do X number in a metro market it maybe is that plus 10 because they're going to be closer together with a smaller format. Or just a smaller market just in terms of population? That's the kind of thing that you're going to see from the TJ. They are blowing and going with a Puerto Rico strategy which wasn't there a few years ago. It all adds up but they know they have their work cut out for them and it is not an easy task.

Okay, thanks. And just given the dispositions obviously your store count by retailer is falling but it seems to be falling most aggressively for what I would say your more challenged retailers. So, and given your comments today, Paul, I would assume that when you're looking at dispositions you are not only looking at some secondary markets, but you are looking at those centers with maybe some troubled real estate retailers?

Absolutely, Craig, and that would include not only disposition but potential terminations. Reducing our exposure to the retailers that we believe are at risk. Dan alluded to it talking about the Internet, is an important part of what we are doing. The more quality we have in the portfolio, the better quality the overall portfolio is. But you hit it on the head it is something we look at regularly and not only in the disposition arena.

The single biggest factor is going to be what we think the NOI profilers over the next several years and so you can see that or you can imagine that would be highly aligned with some of what we believe to be the more challenged tenants and how can we take a price that might not feel like the ideal cap rate of today? But based on what we might expect the NOI stream to be two to five years down the road. It is dramatically better pricing today than we think we could achieve in the future. So that has been the process on our side and that is why you see some of the more challenged retailers getting smaller on that list.

Great, thank you for that.

Michael Bilerman, Citigroup.

In terms of sources in use for the next few years an opportunity for growth, and Dan, I think you articulated in your opening comments, you think about the redevelopment it sounds like you have a number of acquisitions that are lined up. The development properties which doesn't sound like you're going to start, but clearly that would require capital at some point or I guess you could just write it off or sell it, but probably more of a capital need. It seems that there is a lot more capital needs than capital uses.

I also think about the dividend which obviously you have kept low but eventually the taxable income will revert as you have taken some of the depreciation that you are going to be required to have a higher dividend than what you're paying now. So it would seem that there is a lot of capital needs and I'm just curious how you think about sourcing that capital? And how much capital that is? But also the cost of capital? Because I think you spend a lot of time on the call talking about your -- what you think is a more competitive cost of capital. And I'm just curious how you think about where that is across the different capital sources that you have?

Yes, I don't think that we would completely agree that the uses over the next several years are well in excess of the sources. I do think, particularly on the redevelopment side that we are seeing a greater volume of opportunity than we expected a few years ago just because the retailer interest is much greater in terms of funding that. You're exactly right come that thus far an extremely low dividend payout ratio has been an important source of capital. We don't take that lightly and we don't expect that to be the long-term case that we would keep the dividend this low. We do still think that we will generate some volume of free cash flow in any given period although we would expect the dividend payout ratio to be much higher than it is today in the not-too-distant future.

But even with that we still expect some amount of free cash flow. We continue to make progress on asset sales whether those proceeds go to fund acquisitions to the extent that we can find select opportunities or whether those proceeds are reinvested in redevelopment. And then finally on the development side, we probably do view that at least at much as a source of capital as of a use of capital because even some of the projects we decide to move forward with as is the case with the two redevelopment's we announced a couple months ago, the first step in that process is a pad sale to a major anchor.

And so, I think we can see development projects move forward on a cash flow positive basis to DDR even if some of that cash ends up getting reinvested -- some or all of that cash ends up getting reinvestment of that project it doesn't necessarily mean that the only way you can see us go vertical on a sight is by putting net more capital in. And so, whether it is a project to move forward where we are selling pads or whether it is some of the other monetization of non-producing assets we think that can be a pretty significant source of proceeds over the next couple years. Let's also remember that while the $750 million redevelopment is a relatively large headline number and one that we think is very achievable, we are talking about a five-year period there.

And so there is a long period of time to generate proceeds from those other sources to fund that. And I think that we would also reiterate given everything that we have lived through over the past few years not only is it the focus of the management team and the board to continue to operate with a lower risk profile, but we have also just put a lot more systems, modeling, risk controls, enterprise risk management in place where you asking this question is refreshing because it is something we talk about quite a bit internally. It is no longer a situation where you're bringing up something that could present a risk but that you haven't talked about. It is exactly this that we spent time internally and you can absolutely assume that we are not going to push forward on anything that we do not believe is very, very appropriately funded with proceeds that we have got identified from one of the sources we've talked about.

We are pleased that our cost of capital has improved. We also know that the only way that will continue to be the case is if we continue to operate with great discipline to keep our debt spread low by not being too reliant on that source of capital and to continue to get to a more attractive price of equity. And by understanding the very high cost of common equity versus other means to generate those proceeds.

I guess how much will equity factor into that? Clearly, when you pick up the preferred' s earlier this year with an equity swap, I mean how much more sort of equity do you want to put back into the system? You are not at your EBITDA -- debt-EBITDA target yet you are on target to get there through the EBITDA growth for the next 12 months. But clearly things are going to have to be match funded and equity in your assets is one-piece but the only other equity sources is common equity. How should we think about -- at what point do you use that as an option?

I don't think we have any near-term plans to use that as an option. I mean we are obviously consistently thinking about the cost of various forms of capital. We do understand that if there is net asset growth that there is an equity requirement.

But for us we continue to believe that other sources of effective equity are dramatically cheaper than the issuance of new common shares. And so, when we think about the monetization of non-producing assets which for covenant purposes and for debt-to-EBITDA purposes serve at least as attractively as the issuance of new equity. As well as the generation of free cash flow through even a normalized payout ratio, the capital that would come out of that. I think those are what we prioritize more highly is the forms of equity that we would be likely to include as part of funding any net growth that you might see in terms of a net asset growth.

And just a clarification on same-store NOI. Use show your same store NOI on a gross share basis as if you own 100% of all joint ventures. And clearly with Brazil being a large portion of which you only own a third of. If you were to strip it down to pro-rata share of things of NOI what would that growth be? What would happen to that 3.6 and then break it out further between what would US be and what would be Brazil be?

If you take Brazil out which is obviously an outlier on the high side it's going to reduce that NOI figure. However if you take out some of our other large joint ventures, they've been generating lower same-store NOI growth either because of the specific assets they own or because of the fact that less capital has been invested in some of those centers to fund new leasing activity. So, some of those -- the removal of some of the other large joint ventures would actually help if you went to a pro rata basis. All in you would take the 3.6% for the quarter or the 3.8% year-to-date down 75 basis points to 100 basis points. Depending on period you're looking at, to think about the true pro-rata basis in the mid to high 2% range.

And that is with Brazil and then you take out the US in the US would probably be 1.5% to 2%?

No. US would be in excess of 2%.

Even though Brazil is 10% of the total and is up 15% wouldn't that be 1.5% growth?

Year-to-date from the US, portfolio overall we are north of 2%. And if you take out the joint ventures or if you reduce the influence of the joint ventures that are lower than the consolidated portfolio and so if you reduce that to a pro rata share you would be somewhere in the low twos.

Okay, thank you.

Jeffrey Donnelly, Wells Fargo.

Just a few follow-ups. Considering the redevelopment pipeline I'm just curious at some of the common themes were behind the value creation there? Is it really just following through on deferred CapEx like a facelifts to centers or are these expansions like adding groceries or creating out parcels that you're looking at?

Is not deferred CapEx, Jeff. It really comes from a couple different areas it is expansions of certain centers reconfiguring space but what is really driving this is tenant demand and tenant flexibility. You know, we have had situations in centers for a long time particularly the one center in Denver that we announced in the June press release. We have owned that for along time and really have had no luck redeveloping it even though we have tried for about the last seven years to do so. But, tenants demand is up and it is a great location and tenants need to be flexible in order to achieve their open to buy goals.

Getting back to Craig's question of how they going to do it. And how are they going to hit their goals is they are going to be flexible on the redevelopment side and look at existing space differently than they have looked at it in the past. So, that has really been the impetus behind the growth of redevelopment because we now have space that may not have considered -- been considered viable in the past that is not only considered viable but is highly desirable. And that is going to continue I think to fuel the growth because like Paul said, the development of new space is really not going to be at significant at any level anytime soon.

Just I'm curious than if you think that Anchors are -- their expectations around rents are adjusting quickly? Certainly the drop in the asking rents from the prior peak to the trough of the cycle how quickly do you think their expectations are adjusting on the way back up?

It's coming back. They are not adjusting up as quickly as they adjusted down of course. And if you are attending you would do the same thing. But we are starting to see pricing power and return to the portfolio, you have seen it in the spreads.

We think that will continue because I think when you asked the question how are you going to meet your growth, -- your growth goals, the short answer from a lot of tenants is they are not really sure how they are going to do that. And that means that they're going to have to become more flexible. They going to have to become more aggressive on price. Those with some space are going to be a little more patient and hopefully that will drive the rentals back to close to where they were. I don't know if we will get back to the peak 2007 days, but our goal would be to get as close as we can get in as short a period of time as we can. But rents clearly do not climb quite as quickly as they do drop.

And maybe a second question for David what is the volume of non-income producing assets that you have in your balance sheet out there? And separately, maybe to follow to the prior do you attribute the traction in shop space leasing I guess I will call it, and pricing specific to the pickup in your anchor occupancy or is it something more macro going on?

Well first on non-income producing assets, you're going to be less than the billion dollar number that we talked about historically just as we have monetized a portion of that I think that was the headline number that we start talking about a year ago. You're still going to be approximately 10% of the balance sheet so something in that $850 million plus range. Some of which will be possible to monetize in near-term some of which could be quite a ways off but all in the way I still think about it is approximately 10% of the balance sheet in non-producing assets.

And on the other part of the question, Jeff, clearly there has been some improvement leasing of the small shop space because of the filling of vacant boxes for example. There is no secret that when you have a better mousetrap with better quality anchor's and draws you're going to achieve more success. The other thing we're seeing with the small shops is that it has been improved credit available. It is not overwhelming. We are seeing great pick up in franchisees as we have seen the franchise companies play bank. They know they have to lend to their prospective franchisees if they're going to grow so we have seen some improvement in that but there is clearly a relationship to an improved center in terms of the leasing progress in the small shop sites.

Great thanks.

Mike Mueller, JPMorgan Chase & Co.

Just got most of my question on the re-developments but maybe one thing. Of the $750 million, about how many projects does that include?

A significant number of projects, Michael. They run the range from one that may be in the of $40 million to $50 million range and then and then we have got some that are in the $5 million to $10 million. I would say most of them are going to be in that $10 million range.

So, as we go along we are seeing some more that are significant spends. We had some initially that were in the $2.5 million to $5 million spends. A lot of the things -- and I don't think we hit on it yet, one of the areas we are working is where we are converting small shop space to anchor space. That clearly is a redevelopment and it is the right thing for the asset and it is a great upside to the NOI. But in terms of an exact number we have not pinned that down at this point.

Got it okay. And then on the new leasing spreads, I understand the rationale for focusing more on the leased -- the lease spreads of space that has been vacant less than 12 months, but if you would throw in the vacancies greater than 12 months how different would the lease spreads be? They would still be positive, correct?

Absolutely, they would be less but they would still be positive. Is not a calculation we are doing anymore Michael. But I think more importantly as I've talked about on a few occasions is that the rents are up quarter-over-quarter. So the first year starting rent you can see that right in the stuff that there is an improvement in first year rents whether it is vacant for a year or not, or greater so we are seeing that. And the other thing is that again I keep coming back to that renewal spread, that is a big, big deal and something we should all be focused on and it continues to grow and I am very confident that we'll stay positive.

You know new deal spread you will see some bouncing around. It's going to be a function of the deals made in any quarter. Renewals we are seeing consistent improvement in the renewal spread and that is a big deal and as leasing gets better for obvious reasons. There is less chance of risk of people threatening to walk away and more and more are taking their options.

And to Paul's point, Mike, the importance of the renewal spreads which is where we spend most of our time focused, is simply that is the vast majority of the activity in the quarter. Depending on the quarter were depending on even the year if you go back to markets between 75% and 80% of our total activity on renewals. So the renewal spread number is the one that we focus on very closely that gives us a good indicator on overall health out there number one with the retention rate is and number two how the renewal spreads work. And that is the one that we have been most enthusiastic about as we have seen a recovery within the portfolio.

Okay, got it. Thank you.

Jim Sullivan, Cowan and Company.

Two quick questions, first of all kind of a follow-up to the commentary on spreads. I'm curious to what extent if any we keep hearing that retailer margins are going to be squeezed in the second half, apparel, food, and some other categories. To what extent if any to the retailers mention this and pushback in terms of any rental spreads? Is it something that is just noise that enters into negotiations or does it come up at all?

It's mentioned, Jim, but it doesn't carry a lot of weight. One of the things--first of all they are not all sure how these margins are going to be squeezed. We are all concerned and we are going into the back half now and there is a little bit of caution but we have yet to see the margins squeeze, some of it is going to be predictable.

The other thing when you are negotiating the rent with a tenant is that a spike in cotton prices is not a forever situation. Rent is a long-term proposition and it is one of things that we remind them of. Just the fact that you had a spike in cotton -- cotton's come down. We are not going to lock in a 10 year rent at all based on the potential for margins being squeezed because of commodity pricing. Again it comes up and it hasn't been a significant factor at this point.

Okay, and the second question really goes to one of the slides that is in your presentation that you gave in May reads; the five-year plan slide of column if you will where you talk about same-store NOI on I guess a post recovery period in a range of 1.5% to 2%. I'm trying to square that with what when look back over the last 10 years, the average same-store NOI growth was just a little below that even if we include 2009. And given all the commentary regarding focusing on improving significantly the average asset quality, the initiatives in terms of the ancillary income and how successful they have been. That 1.5% to 2% number and also presumably that includes the effective what you are doing outside of the US, it seems like that is a pretty conservative estimate. I am just curious if you could comment on that?

We agree. We think it's a conservative estimate. But of course that number as we are putting together the five-year plan, the end of last year quite frankly there were a lot of initiatives that we had -- that needed to go according to plan in order for us to meet those strategic initiatives over a five-year period of time. And a lot of things had to go right.

The good news is that a lot of things have gone right. And I would be disappointed if we couldn't beat that number going forward. Particularly with the improvement in the overall quality of the portfolio domestically has been very, very significant.

I think your point is a good one. We don't want to put ourselves in a position where we over promise and under deliver at any given time to this market. At the time that we put those numbers together we were looking at things as -- and the risk involved in the execution we felt that the was the appropriate numbers that those were the appropriate number and the appropriate range. If we can beat it I think that's great. But we also have to keep in mind that there are things in the market today that are still working against us that we need to overcome and we will continue to work towards beating all the numbers that we presented to you.

Okay, fair enough and just kind of a follow-up question. The redevelopment spending effort and initiatives albeit it's going to be spread over many years and could be smaller projects and bigger projects, but I'm assuming that from a modeling standpoint the contribution from that will be in addition to the same-store NOI growth.

Yes, that is correct.

Okay, thanks.

Omotayo Oksanya from Jefferies & Company.

Most of my questions have been answered but just along Jim's line of questioning. When we do look back at the five-year plan presented at the investor day, I know that it's only four months since then, but could you talk a little bit about confident you are about hitting some of those marks. And just how you would grade yourselves relative to those initiatives that you're taking on.

You're exactly right, it is a short period of time since the plan was created late last year and since the plan was rolled out publicly at our investor day in March. That said, we are pushing hard every day to execute. We are pleased with the progress thus far through approximately 10% of the period of time that we originally outlined in the plan. We still feel that the goals are achievable. But on the other side of that no one here is going to be happy if we simply achieve those goals. So we are not just pushing to get there and take the last two years of that plan off. We are pushing to get there as quickly as possible and to keep pushing beyond there. So happy with execution over the first six months or so and expect to be able to show you a lot more as we look out over the next few quarters.

Just from a process perspective, we will be reviewing that plan on an annual basis as our board as we do at a board retreat every November. And we will do it again this November and we will look at where we were right and where we were wrong and will look at how the market has changed and how we will need to adjust and accordingly. And obviously since we have a lot of communication with many of you on a regular basis we will be presenting you with changes to that plan based on what we see as market conditions that are either positive or negative.

Great, thank you.

Rich Moore, RBC capital markets

Dave, I have a question for you on the Mezzanine loan impairment. What was that exactly?

That was the sale of a loan that we had made approximately 4 years ago as part of a prior investment thesis and more than FFO driven strategy to make some Mezzanine loan investments that could generate FFO. We still have a few of those on our books. This was one where we had the opportunity to either invest more capital and potentially or likely get all of our principal out over multiple year period of time, or to exit earlier but except less than the par amount on the loan. Given the non-retail underlying property type we certainly thought that while there was some economic rationale for further investment really felt that with the strategic plan we had outlined in talk about internally and externally that it made more sense to take some capital out we invest the net proceeds in our core business rather than go further down the path with that specific Mezz loan.

The majority of the Mezz loans or loans on in all on our books today the great majority are tied to high quality power centers and while they might rest in a little different portion of the capital stack the underlying thesis of prime power centers is very much what the majority of that capital is invested in but still has a few vestiges of prior activity.

So are you doing any more of those or is that not something you are looking at -- any more new Mezzanine loans?

Certainly not outside of the retail space. Selectively I think especially as competitive as the acquisition market is if we could look to gain involvement in a high quality project that we have interest in owning an ability to own and manage attractively we would certainly consider it but I would expect it to represent a small minority of our overall investment activity.

Okay, thank you, good. And then when you guys look at dispositions and I know you had and still have the portfolio that you are trying to get rid of as a block, how realistic -- it seems like I'm not hearing much in the way of interest whether it's on the Mall side or the community center side from buyers in a portfolio? Obviously bridged in individual assets but the portfolio seems to be more difficult, what you guys think about that?

Our portfolios are more difficult. In particular today in our case the quality of what is left to sell because we have sold so much already is pretty low. And, as a result if you really look at some of the larger portfolio sectors that have sold, while you could argue that overall the quality may not yet have been overly high, there was some very high quality assets contained that made a certain percent of the overall portfolio. A lot of what you're seeing out there today doesn't have any percentage of high quality assets in the portfolio and as a result I think astute buyers are recognizing that they would be wiser cherry pick than to buy en masse.

Okay, thank you.

Carol Kemple, Hilliard Lyons.

What percent of your portfolio was actually occupied in the second quarter in paying rent?

90.5%

So is that spread a little tighter than from the first quarter?

Just a little bit. It was 250 basis points and then I believe we reported 240 basis point at the end of the first quarter. We should see that come down little bit with the openings in the third and fourth quarters.

Keep in mind that is a very seasonal number because very few tenants open in the first and second quarter. Third quarter things pick up with back to school and obviously in the fourth quarter everyone wants to be open.

And you all talked about earlier in the call at some point you're going to have to raise the dividend can you give any timing or estimate as when that will be?

Obviously dividend policy is a board decision. We have said publicly that until we had made considerable progress reducing the risk profile of the balance sheet that it was not something that management would recommend to the board. At this point I think we really set the last step in this process as to refinancing of the term loan the extension of that maturity and the removal of a large majority of the maturities from 2012 as being an important catalyst for that. We've clearly executed on that at this point and so we are much more open with that behind us to thinking about higher dividend and to recommending a higher dividend over the coming quarters.

Okay, great, thanks.

Vincent Chow, Deutsche Bank

Just a follow-up question. As we think about the longer-term occupancy ranges in that less than 5000 square-foot range in light of the redevelopment projects that you have identified. How much of the vacancy improvement comes from those redevelopment projects where you are taking back some space maybe from the smaller tenants? And then outside of that it seems like national and regional tenants are really the ones that are sucking that space up in that small true mom-and-pops not really showing any signs of real growth. If that is the case, is there enough demand from the national and regional players in the franchisees and whatnot to take that back to the 88-ish, call it, normal range?

We are not getting that far ahead of it, Vince, but clearly we see 300 basis points of improvement which would get us up to about 86 in that category. Some of that but not a significant amount yet is because of redevelopment. I think I mentioned in the script in one of the project in Puerto Rico, we actually took 4 vacant spaces and vacant for a significant amount of time and turned it into one Pet Smart so that is where redevelopment didn't reduce the vacancy rate. But we are leasing the space and keep in mind we are 2.5 years to 3 years beyond when this whole problem with small shop space started. So we've had a lot of fallout and to grow back is what we would expect. And we are not getting crazy and thinking 88 is in the immediate future but we certainly see a few hundred basis point of improvement there. It is more national there is no doubt. There is national chains that are franchise chains where you're dealing with mom-and-pop's who are the franchisees and they're getting credit from those franchise companies and that is a significant part of the growth we're seeing in that category.

Okay but you think to get back to the 86 range even the 300 basis points you think that can be done via the regional and national's where you seeing the demand from today?

Yes. You don't need the true mom-and-pop's to come back to get there? No but were going to see some come back, were not counting on it but we will see some.

Okay, thanks.

Cedric LaChance, Green Street Advisors.

Just with regard to your TI packages. You did a great job providing us the information on that front. Would you be able to give us an idea of the average TI package on a first quarter per year for small shop tenants versus anchor tenants?

Yes, for small shops it is next to nothing, Cedric, there's very little TI package in the small shop space. In the larger stuff we have been re-tenanting the boxes that came back to us a few years ago as we have said consistently we have seen it come down. But that could be in the $20-$25 a foot range but when you average in the small shops it is very little and in fact very few cases where we have allowances for the small shops.

And then just going back to one of the earlier comments that you made, Paul. If you haven't seen the GAAP in terms of demand from retailers and availability of goods supplied on your part for your entire career, it would seem to suggest to me that either rents are going to spike quite dramatically at some point or that development is going to pick up. In which direction do you think we are most generally headed?

Rents. I would tell you that but I don't know that spike up is the word I would use but it has been consistent improvement over the last 2.5 years Cedric, and we are seeing it with the conversations we have every day. There is not enough development to even when if that comes back that it's going to move the needle on that supply-side. That's a big thing to remember on this. We are just not going to see retailers chase future residential growth which isn't there and nobody knows when it's going to come back. So limited development will take some of the demand but we are going to see growth in rent. It is that simple.

I think also important Cedric to keep in mind that on the development side the entitlement risk out there is still great. People talk about development almost like you can flick a switch sometimes and it can automatically appear. Even if rents go up to the point where development becomes much more attractive, that doesn't mean the entitlement situation is going to become any easier and companies like ours are going to be able to deliver product in a timely manner. So, the nice thing about having existing space is that it is exists, so you control exactly what you can do with it.

The problem with development is while yes you need tenants to pay the appropriate level of rent in order to justify the investment in the return, there is a whole bunch of third parties out there who can control whether that space ever gets built or not and really controls your project. Much more so than you do existing space. So that is why I totally agree with Paul, I think the thing we are going to see is that we are going to see rent trail up. And rents may trail up to the point where development at some point look attractive but that still doesn't mean they get done because of all of the other factors that are necessary to actually put a shovel in the ground.

Cedric I will give you an example of that we are talking about what is happening with demand and rents and on the Border situation we have one that we know is coming back with the latest wave of liquidation. Where we have to of the junior anchors that we've all been talking about regularly fighting for the space, it's fine. We are seeing a competition like we haven't seen it we're going to achieve somewhere in the $14.00 to $14.50 range on space that I'm telling you would have leased for $9.00, 2.5 years ago. And that is part of the story. That is a very positive exception to the rule but that is what we are going to see more of.

Okay, that is helpful. Thank you.

At this time there are no further questions in the queue and I would like to turn the call back over to Management for closing remarks. Please proceed.

Thank you all very much for joining us and we will look forward to speaking with you next quarter. Have a nice weekend.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.