Site Centers Corp (SITC) 2015 Q1 法說會逐字稿

Good day and welcome to the DDR Corp. first quarter 2015 earnings conference call and webcast. All participants will be in listen only mode.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the call over to Meghan Finneran, Senior Financial Analyst.

Thank you for joining us. On today's call you will hear from the President and CEO, David Oakes; CFO and Treasurer, Luke Petherbridge; Senior Executive Vice President of Leasing and Development, Paul Freddo.

Please be aware that certain of our statements may be forward-looking. Although we believe such statements are based upon reasonable assumptions, you should understand these statements are subject to risk and uncertainties and actual results may differ materially from the forward-looking statements. Additional information's about such risks and uncertainties that could cause actual results to differ made be found in the press release issued yesterday and in the document that we filed with a SEC, including our form 10-K for the year ended December 31, 2014 as amended.

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

Last, we will be observing a one question limit during the Q&A portion of our call in order to give everyone the opportunity to participate. If you have additional questions, please rejoin the queue. At this time it is my pleasure to introduce our President and Chief Executive Officer, David Oakes.

Thank you, Meghan. Good morning and thank you for joining us. I would like to start off by discussing the focus of this management team, the progress made in the first quarter and the implications that this refined focus had on operating results for the quarter.

As we've conveyed to the investment community over the past two months, we are acutely focused on long-term net asset value creation for our shareholders and we are committed to building a portfolio of fortress power centers, which combined with a low risk balance sheet, a more simplified story and talented team that we are refining should translate into out performance in both bull and bear markets. We have made good progress on those fronts in recent months that you will hear about throughout this call.

First, we're accelerating this position of our non-prime and prime minus assets beyond our original guidance of $250 million given the current pricing environment. While these buckets continue to diminish in terms of overall value we think it is prudent to expedite the sales of these assets at historically strong prices for our property type, evidenced by the large portfolio trade that was announced in our sector.

Very simply, we only seek to own assets that sit on high-quality dirt with attractive growth profiles and those shopping centers that do not meet these criteria will be disposed of. That increased focus of the quality of the dirt and our strict underwriting standards have made the acquisition environment difficult, although we remain confident in our ability to source unique, high-quality acquisition at attractive prices. Longer-term, we envision that the over all asset count of the Company will continue to decline although we would expect our total portfolio value to be higher as we find larger scale acquisitions in redevelopment in which to invest in coming years.

Second, reducing risk and creating more simplified company remain paramount to our story. Our progress continued this quarter with issuance of additional long-term, unsecured debt and restructuring our lines of credit and term loan. All of which extend our weighted average duration reduced the year's cost of capital, on which Luke will elaborate.

Also during the quarter we wound down the Coventry joint venture which removed the overhang of legacy $500 million lawsuit and allowed DDR to effectively dispose of 22 low-quality joint venture assets and regain 100% ownership of a high-quality power center in Southern California.

Third, our organization continues to improve and heighten its focus on excellence and execution, long-term planning, operational efficiency and collaboration. These characteristics drove some of the activity that you saw in the first quarter and should have a much greater impact over time, driving consistent long-term value creation even at the expense of some short-term noise. We are confident that our shareholders will see the fruits of these changes in the coming quarters.

Finally, I would like to spend a moment on a specific example of how this long-term will create short-term noise. Our decision to reduce our expected holding period on 25 operating shopping centers in the majority of our remaining land parcels that drove the requirement for the impairment charge is the result of our desire to more quickly reduce our exposure to weaker assets. While we acknowledge the historic investment missteps, the current team is committed to rapidly moving forward in effort to create that fortress power center portfolio and record cleaner earnings figure in future quarters.

Additionally, our commentary regarding increased asset sales could indicate near-term earning headwinds, however, our team believes that this outweighed by the long-term benefits for the shareholders as evidenced by the out-performance over time of those blue chip REITS who are similarly focused on capital allocation over the course of multiple cycles.

I will now turn the call over to Paul.

Thanks, David. Operating fundamentals remain strong in the first quarter as evidenced by the continued strength in deal volume and spreads. We executed 289 new deals and renewals for 2.6 million square feet, in line with historic volume and resulting in a lease rate increase of 40 basis points year-over-year.

For the quarter, we achieved a positive pro rata new deal spread 26.9%, our highest pro rata spread since we began tracking this metrics. We also achieved a positive pro rata renewal spread of 6.7%, resulting in a combined pro rata spread of 9.7%. In regard to the renewal volume and spread, as you know these metrics will vary quarter to quarter based on the pool of leases that are being renewed in any given quarter.

As example, in this first quarter we had several large anchor tenants exercising options at low single-digit spreads. If these anchor renewals were excluded, our renewal spread would increase by 120 basis point to 7.9% on pro rata basis. Also worth noting, 95% of all tenants with the opportunity to exercise an option did so in this quarter, well above the typical rate. This retention is a direct result of the improvement in the portfolio and the lack of down time in capital required more than offsets the total spread on an economic basis.

Our overall leased rate declined 20 basis point sequentially and increased by 40 basis point year-over-year to 95.5%. As I have previously mentioned, a slight decline in the first quarter is historical norm. In addition to the typical seasonality of move ins and move outs, this course decline also reflects the impact of the Radio Shack bankruptcy and project accelerate as we continue to position our assets for long-term growth. The Radio Shack bankruptcy alone accounted for 40 of the 50 basis point decline in the leased rate per space less than 5,000 square feet.

Given our pipeline of new deal, we remain confident in our guidance to increase the lease rate of 25 to 50 basis points by year end 2015. Is also important to remember that we view the bankruptcy of retailers such as Radio Shack or Deb Shops in a very positive light. We have been anticipating getting this space back for some time and are excited by the opportunities these situations offer given the current leasing environment. First and foremost, gaining control of the quality small shop space that a tenant like Radio Shack occupied within our shopping centers allows us to re-merchandise our centers and accommodate higher quality and better credit tenants.

In many cases, the simple backfilling of space results in an attractive rent comp arranging from the high single digits to the mid-40% range. In other cases, we are working with new or existing tenants to consolidate small shop space allowing tenants to get right-sizes or creating an opportunity to add a desirable retailer where we previously did not have enough space to accommodate them.

So I'll offer one example, at an 800,000 square foot wholly-owned prime plus power center in New Jersey we proactively retained control of the Radio Shack lease in the bankruptcy proceedings. This allowed us to control the real estate and consolidate Radio Shack space with and adjacent small shop unit that was chronically vacant to accommodate an empower retailer. We achieved a rent comp of over 33% and a return on invested capital of over 30%.

Based on the deals which are already negotiated where we were simply waiting for releases to be rejected as well as initial expressions of interest, we are confident of re-tenanting of the Radio Shack space will produce improved merchandise mix at high rents and with limited down time.

The simple nature of retail is that we will continue to see winning and losing retailers. We have consistently welcomed and proactively pursued the recapture of space occupied by retailers in decline. These situations provide us with a breath of operational advantages and value creation opportunities.

We continue to build relationship and execute deals with best-in-class, market share winning retailers and we analyze all opportunities in great detail to ensure we are making quality deals that enhance the merchandise mix and economic value assets and create long-term value for shareholders.

I would now like to take a few moments to update you on our current development activity. As you know, we open Seabrook Commons last summer. Seabrook Commons is a 380,000 square foot prime power center located north of Boston and includes Wal-Mart, Dick's Sporting Goods, PetSmart, Michael's, Ulta, Famous Footwear, and Five Below, as well as the complementary restaurant lineup consisting of Panera, Outback Steakhouse and Noodles and Company. HomeGoods will soon be added to this strong lineup as they are slated to open this fall.

Following on the success we are experiencing with Seabrook, we continue to make great progress on both Guilford Commons, located just east of New Haven, Connecticut and Lee Vista Promenade located in Orlando, Florida. We broke ground on Guilford Commons last fall and the center is on track to open during in the fourth quarter of this year. Guilford Commons will span 130,000 square feet and include best-in-classic retailers such as The Fresh Market, Bed, Bath and Beyond, Michael's and DSW, as well as well 40,000 square feet of shop and specialty space. We will be 85% leased at opening and expect to be fully leased at the first quarter 2016.

We also broke ground on Lee Vista Promenade in December and are on target to open the first phase of this center in the fourth quarter. Lee Vista Promenade will be a 450,000 square-foot multi-phase project located in a heavily trafficked area just north of the Orlando airport. The center will initially be anchored by a theater and a great lineup of junior anchors and restaurants including HomeGoods, Petco, Five Below, Famous Footwear and others.

In closing, as you know RECon is just around the corner. As we head into this year's show, our focus continues to be on the consistent qualitative and quantitative improvement of our assets. The leasing environment continues to be strong and we intend to take full advantage of this opportunity.

As usual will have a full slate of meeting scheduled and look forward to having productive meetings with our retail partners as well as members of the investment community. I want to remind everyone that we will be located at the Bellagio again this year. And please keep in mind that our space will be open on Sunday as well as Monday and Tuesday. We look forward to seeing you there. And I will now turn the call over to Luke.

Thanks, Mike. Before I review our first quarter financial results, I'd like to take a moment to express my gratitude to both David and the Board for the opportunity to lay the financial and transactional arms of our Company. I look forward to continuing to work closely with our talented and experienced team, our bankers, our partners and the investment community in my expanded role.

I'm excited in the direction of the Company and our ability generate above average long-term returns for our shareholders as we continue to strive to become a Blue Chip organization. In conjunction with David, I will oversee two primary goals in order to position us for the long period our performance. First, to operate our business with appropriate level of risk. And second, to expedite our portfolio transformation, which is already seen over $2 billion of more than 250 lower quality assets sold in the past five years. Our first-quarter activity is evidence of continued execution on these goals.

Turning to the results for the first quarter operating FFO with $107.1 million or approximately $0.30 per share including non-operating items FFO for the quarter was $30.2 million or $0.04 a share. Non-operating items primary consisted of $279 million of non-cash impairment charges. In light of the attractive cap rate environment, combined with the transitioning leadership, this management team will further seek to accelerate our portfolio repositioning and as such we felt it is now prudent to review the basis of the assets we don't deem to be long-term holds.

This review has resulted in us booking in the first quarter any payment of $279 million, which includes $180 million of operating asset and $99 million of land. We wrote down five of our final six tracts of land and intend to market and dispose of these at the biggest close of counter basis. These actions support our message that we'll operate with pure non-income producing and non-prime assets and we'll continue to utilize the market's low cap rate environment to our advantage.

We expect any quarterly deltas between FFO and operating FFO going forward to be truly nonrecurring. This decision was the first of many that this new team will make as we look to expedite the final stages of the transformation and report a clean and transparent earnings figure in future quarters.

I would now like to begin my summary of the quarterly transaction activity by discussing the wind down of our legacy joint venture of Coventry. At the time of its dissolution the joint venture managed 22 assets in an 80/20 partnership between Coventry Real Estate Advisors and DDR. As we had no GAAP in 8 of the 22 assets, the financial impact of the venture was minimal on a company-wide scale.

However, exiting Coventry mark our successful resolution of a significant lawsuit which the Company successfully defended and it further exemplifies our goal of exiting smaller joint ventures which are no longer consistent with the Company's business strategy in favor of longer-term partnerships with large sophisticated institutional partners that are better aligned with the Company's current investment objectives.

In exchange for our 20% interest in 21 of the portfolios 22 assets, we acquired from Coventry 80% interest in Buena Park Place, a 220,000 square foot prime portfolio located in Orange County California. As overall pricing continues to favor sellers, Buena Park Place has been our only acquisition year to date. Not withstanding the environment, we remain confident of reaching our acquisition goal of $250 million predominantly in the later half of the year.

During the quarter, we disposed of 10 assets outside the Coventry joint venture totaling $104 million of the company share and had seven additional assets under contract with (inaudible) at quarter end totalling $80 million and we that expect that amount under contract to grow as we look to opportunistically to dispose of assets at attractive pricing. Should these trends continue, we expect our disposition activity to exceed our acquisition activity in the first half of 2015.

As announced last week, we closed on amendments to two revolving credit facilities and a new unsecured term loan. Pricing on both revolvers was reduced by 15 basis points and [set at LIBOR] plus 100 basis point while final maturity will extend from April 2018 to June 2020.

[In turn] with this refinancing, we entered into a new $400 million unsecured term loan which is priced at LIBOR plus 110 basis points and has a final maturity of April 2020 and is currently undrawn. We anticipate we will draw on this in the later half of the year with price [used to address] almost half of our 2015 debt maturities. And at the same time enable us to continue to grow our unencumbered pool and quality with the addition of four franchises assets including Shoppers' World in Boston.

As we continue to operate the business with less risk, our leverage metrics will continue reduce over time but not at the detriment of value creation. This quarter is the last quarter that debt to EBITDA would be negatively affected from the prior corresponding period due to sale of our Brazilian investment. This divesture as explained in mid-2014 was the right long-term decision for the company, allowing our the reduction of our exposure to development, foreign currency and non-controlling investment risk albeit at the short term expense of debt to EBITDA reduction.

Before I turn the call over to David, I would like to address several modeling related events that occurred in the first quarter. As I mentioned on February's call, the snow falling that hit New England at the beginning of the year impacted our first quarter recoveries. We incurred $1 million of non-recoverable, weather-related expenses in January and February alone, nearly twice as much as we expected, which caused the same store NOI to deteriorate more than 25 basis points.

Separately, temporary legislation in Puerto Rico has allowed us to opportunistically reduce our perspective tax rate on the island from 39% to 10% by restructuring the ownership of our assets into a REIT. When we originally acquired our portfolio on the island, shopping centers were not a property type eligible for favorable REIT tax treatment under Puerto Rico tax law. Since the Puerto Rican rate structure was not valid at the time and it was held in a vehicle which was subject to the highest marginal corporate tax rate of 39% for operational activity and capital gains transactions were subject to 29% taxes.

Through a short-term legislative initiative and the Company's corrective discussions with taxing authorities we're able to opportunistically restructure the ownership of our investment into a REIT. Prospective tax rates for this new ownership structure will now be 10% for both operational and capital gains generating activities. Representing a tax benefit of 29% on all of our future operations on the island.

In order to accomplish this restructuring, the Company elected to pay an upfront tax based upon a reduced tax rate of 12% on unsheltered tax on capital gains from its Puerto Rican assets. The payment will also allow our tax base to be increased, which will generate future tax reductions.

For reporting purposes the tax claim of $20.3 million results in the creation of a tax asset of $16.8 million and nonrecurring three point $16.8 million and nonrecurring $3.4 million tax expense that has been added back to operating FFO. The investment is anticipated to generate double digit returns in the form of savings from the lower tax rate achieved in this transaction and represents another example of long-term focus of this management team.

As a final note, we have updated and expanded the disclosure of our development and redevelopment activity in our quarterly financial supplement by breaking out all major re-developments with over $10 million of total spend. Defining all minor redevelopment under $10 million of spend and delineating further between releasing, which is included in same store NOI and redevelopment, which is excluded from store NOI.

The new content is streamlined in an effort to clarify modeling of our development pipeline and we hope this expanded disclosure is helpful to the investment community. We have additionally included a summary of our top 50 assets by ADR in an effort to showcase the size, scale and quality of our largest assets and allow the investment community to more closely monitor the properties that make up approximately 50% of our value.

I'll now turn the call back to David for closing remarks.

Thanks, Luke.

Although we've referenced the earning's headwinds from a higher volume of asset sales, we remain comfortable with re-iterating our original 2015 earnings guidance of $1.20 to $1.25 per share of operating FFO. While we do expect to dispose of more than the $250 million of original disposition guidance throughout the year, we are not altering our earnings guidance range, as the range contemplates increased sales and we continue to find other areas where we can beat our budget.

Operating fundamentals remain strong and we expect no change to our original same store NOI or leased rate expectations. Thank you for our time and I'll now asked operator to open the call up for questions.

(Operator Instructions )

Christy McElroy, Citi.

This is Katy McConnell on for Christy. Just a couple a question on the targeted asset sales. Do you plan on exiting any markets entirely or will it be more asset specific? And then can you provide additional color around the timing of the expected dispositions and acquisitions throughout the year?

This is Luke. They're not go to be specific to markets. I think it's an asset-by-asset basis. We are looking to reduce our exposure to assets that we deem as prime (inaudible) or non-prime. So one's that may have lower growth but do sit in good markets. You'll start to find that the assets we are selling will be larger in size and probably attract better cap rates as they are becoming more and more institutional. It's just we don't see more medium to long-term were able to drive the growth that we're after.

George Auerbach, Credit Suisse.

I guess the $180 million write-down suggests a pretty large group of assets that your going sell in the near term or look to sell in the next 12 to 24 months. Can quantify for us what the amount of assets are that you have either on the market today or expect to put on the market soon? And I guess when you ran through the math on the write-downs, what was the assumed cap rate you were assuming on the sale of these assets?

Yes sure, George. Right now, as we have on, we've close on a company share about $150 million at quarter end. That's increased closer to $200 million and we're probably with what's under contract closer to $250 million today.

What's probably worth noting is the assets that we impaired down, they will most likely be sold over the medium-term, not immediately. So I don't think these should be seen as something that we were going to exit in the next six months but over the next 12 to 24 months these are the assets that we're looking to exit.

From a cap rate point of view, the cap rates of these assets are probably in the 7.5 to 8.0 cap range. They have smaller assets. They have a general household income and population that are 20% to 30% lower than our prime average. So they do sit in weaker demographics. And the NOI target on these assets are less than 1%. So assets we feel we can rotate capital out of and into much stronger, better performing assets over the longer-term.

Jeff Spector, Bank of America.

Good morning, thank you. My question is back on the strategy, David, in your opening remarks you specifically used the words quality dirt, fortress power centers, can you define that a little more? We continue to hear more about hybrid centers and again you're using very specific words on the strategy.

I think there's two ways to approach it, Jeff, and one of those is from a purely qualitative perspective where it is challenging to provide an exact definition. I think from the experience of the large team that we have here working on this, some of that comes down to just having seen thousands of shopping centers around this country, being familiar with markets and sub-markets, and saying this is a location that make sense or has the opportunity to improve over time.

It's the fantastic amount of feedback that we get from retailers in terms of their current performance or their future growth plans that we take into account through dialogue with a large number of retailers on a regular basis. So I think there is some of it where I can't offer you any sort of specific definition that would define exactly what we mean, except for we know it when we see it when we go through a very large number of assets.

The other side of it, that I think we have made great strides over the past couple years, to quantify and be able to offer a more clear definition is through our portfolio management efforts where we really have come up with three primary criteria on which we grade every asset in terms of what we think of the location or dirt quality, how the tenants perform today and the credit quality of those tenants and then the value creation opportunity that we see over time. So those three buckets divided into several sub-buckets where we do give each asset a specific numerical grade that comes down to define our prime plus, prime, prime minus, and non-prime buckets. So while we don't share them publicly, we do have a detailed analysis for each asset that really defines for us what we think of as a prime plus center or a fortress center as we mentioned earlier.

On various property tours and other events we've showed off this analysis a little bit. I think we'll be talking about it more, obviously, something proprietary so not anything that we'll be publishing. But I think a tool that's been very helpful internally and looking at our portfolio and looking at external opportunities to provide at least a more quantifiable and numeric answer to your question of how we define quality, in terms of either prime plus or fortress quality assets where we have made great strides in moving the portfolio in that direction. And we expect to make considerable progress as we look out over the next several years.

Todd Thomas, KeyBanc Capital Markets.

This is Grant Keeney on for Todd. I was just wondering, David, there is some uptick in M&A activity and I'm just curious what your view was on M&A in this space and what role DDR may play, if any?

We're obviously watching it very carefully. We do a considerable amount of work on any portfolio, public or private, that contains shopping centers where we would have an interest in owning it. We, obviously, have a great relationship with Blackstone where we worked on number of deals together that you've heard about because they've happened. And we've worked on a very significant deals that you haven't heard about because they haven't happened or haven't happened with our involvement.

So I think we've got a good seat and a huge amount of research done internally to view those transactions and to find the rare situation in a portfolio deal, like with the ARCP portfolio last year, where we thought it was a portfolio of size and a portfolio with extraordinary quality among the top assets, but also one that because of the situation the sellers found themselves, where we were able to execute it at very attractive pricing. And so in terms of checking both the boxes, quality and pricing, I think that was one that fit the bill for us. As we've looked at other recent transactions, we haven't seen that it's met both or even, either of those criteria in some cases.

I think we've got the underwriting capacity, we've got the information, we've got the operating platform, that would allow us -- and then now we also have the balance sheet that would allow us to be a consolidator and so we're excited to have that opportunity. However, if something doesn't meet the quality that we need and if something doesn't offer an attractive enough financial return, we're just not going to be there and so that's why you've seen us pretty quiet ever since the announcement of the ARCP transaction, which was just about 12 months ago.

Jeremy Metz, UBS.

This is Ross Nussbaum here with Jeremy. David, how much longer is the portfolio transformation actually going to last?

I think we can answer it two different ways. From the perspective of the transformation that Dan and I originally started talking about probably six years ago or so, I would say we are done. So the scary part, the hardest part, the deluded part, the most challenging part of selling true non-institutional quality real estate is overwhelmingly finished at this point. Massive progress has been made from an absolute peak of around 800 assets in early 2007 down to about 400 today. I think from what we've defined historically as the transformation we would say we are overwhelmingly done with that effort.

The next steps of it going forward represent something much closer to a portfolio management exercise of looking at the entirety of what we own and saying what represents something that has either lower growth or higher risk over time. But generally still talking about very institutional quality assets that other, and in some cases even savvy buyers, have seen opportunity and where we think our capital is best allocated elsewhere.

We really look at this as the continued refinement of the portfolio. I think a little bit of what you saw this quarter, the last steps of the cleanup of the land bank, but in terms of the operating portfolio, really just the continued refinement to focus more clearly our capital, and therefore also our teams time, on the highest quality assets in the portfolio.

I look at this as something that should be a constant process for this company to continue to improve portfolio quality and to continue to maximize value where we do think we have pulled everything good out of an asset and we are happy to pass that on to someone who will own that as a very core but potentially low growth investment on a go forward basis. That's why I think we can look at these next steps of asset sales and capital recycling as one that doesn't need to come with some of the negative associated with those sort of activities, like considerable dilution, or earning headwinds. This is one where we think we can improve the long-term growth rate and the long-term opportunity to create value in the portfolio by some of these sales, as well as the reallocation of that capital of certain acquisition and re-development activities over time.

I hope that I get to tell you for a long period of time, that we're continuing down that path even if it doesn't represent a massive transformation like the one that occurred over the past 5 to 6 years was but also one that significantly improved quality with addition though, of some earnings dilution.

Haendel St. Juste from Morgan Stanley.

Good morning out there. David, question for you on the persistent discount that DDR still appears to trade at versus your peers into your underlying asset value. You've made significant progress over the past few years improving the quality of your balance sheet, your portfolio, the Puerto Rico assets continue to do well despite negative headlines for the island, power center cap rates have compressed, the CEO transition is over -- in the strategy of focusing on long-term, higher-quality assets is one we agree with despite perhaps some short-term delusion headwinds. So the question for you, as you think of all that, what do you think that perhaps investors aren't appreciating or getting about your strategy and why that discount persists?

For us, there's some level of frustration with the discount, but the reality is our focus has to be creating value within the portfolio and the challenge for analysts and investors is recognizing that value and changing some of that discount. But I think, for us, where we see the greatest misunderstanding is in the portfolio quality. It's one of the reasons while a very simple addition to the front of our supplemental package we have added the top 50 assets.

We've always included a property table in the back that included all of the assets, but I think for us, we can consistently feel like that the quality of the portfolio is missed and so what can do to make it easier for people to realize that. Some of that is running around with groups like the ones you've put together to do property tours in various cities. And some of it is improving our disclosure so that it is more clear what assets truly drive the performances of this company. And so those top 50 assets that we break out earlier in the supplement, I think, are helpful in getting people to recognize the quality of portfolio.

One thing we've always struggled with, with the portfolio upgrade over the past several years, is that it's much easier to show off portfolio improvement if you buy one trophy asset, particularly in an investor oriented sort of market, it's much harder to show portfolio improvement when you sell 400 low-quality assets in much smaller, less traveled to markets.

Obviously, no one's doing that property tour of what you don't own anymore. Even though from an internal perspective from a relationship, a tenant perspective, from where leasing managers are allocating time perspective, the sale of the low-quality assets actually does a lot more to improve portfolio quality than the addition of one or two trophy assets. And so I think that's where we continue to struggle to make sure we're telling the best story so that people understand the quality of the portfolio that exists today.

Obviously, at the same time while we're executing on the next legs of making that story even more significantly true with transactional activities driving an even better portfolio as we look out a couple years.

Tammy Fique, Wells Fargo Securities.

I'm just curious to know if there is a range of disposition volumes kind of embedded in the guidance range that you gave for the year. I guess I'm just curious what that is and at what cap rate? Thank you.

When you think about that overall $0.05 range on 360 million plus shares, you get to a spread in FFO that can be made up from a number of things. Part of it's to get us to a low end is accelerated re-financing activity where you take advantage of low rates but you add additional capital and potentially sit on cash sooner rather than later. Some of it is earlier sales volume. Some of it is greater sells volume. Some of it was concern months ago that bankruptcy season could have worse than what it was. So you eliminate some of those down size scenarios but then give yourself additional opportunity to either sell more or accelerate financing activity in other cases.

I can't say that there's a specific range that we have outlined just related to this single variable of disposition volume and pricing, but I'd say we continue to be comfortable that our range is achievable even being very meaningfully ahead today of our dissipation volume. And so pricing is coming in a little bit better but the volume of dispositions and the timing earlier in the year is significantly ahead of our expectations. And so today, if we did end up $100 million to $200 million ahead on dispositions and thinking about the 2015 period alone, having those much more heavily first half weighted on the disposition and the second half weighted on the investment.

I think even with all that, our overall guidance range is something that we remain comfortable with based on the original way that we budgeted it and some of the cushion that we build in, particularly on the low end so that we wouldn't be prevented from taking advantage of either a strong financing environment or a strong disposition environment.

Alex Goldfarb, Sandler O'Neill.

First, thank you for the added 50 asset disclosure. David, I guess a two part question, it's the same topic. One, are we done with the major write-offs or the write-offs. And then two, beyond operating FFO to regular FFO, does this mean now that DDR, the operating FFO that you guys report is basically going to be the same as reported FFO?

Yes, I would say from a very comprehensive analysis that we've done over the past several months thinking about potential sales candidates, the timing of those and then how that flows into our book value for those assets versus what we think is the market value at a time that we might sell it. I do very much think that this in it in terms of any sort of significant impairment activity, I think, when we entered into this analysis we wanted to make sure that we could answer that question with confidence.

If the environment changes, certainly it means that the evaluations can change, but I think where we stand today we believe that we have included everything into this analysis and would not expect some of the regular quarterly noise that you've seen over the past several years. Therefore, would also think that operating FFO should look extraordinarily close to (inaudible) redefine reported FFO.

There can always be certain truly onetime items. And I'll tell you certainly with some of the transitional that we're going through here there is the potential that those sort of things could happen. There's the potential that as we work our way through the simplification, some of the joint venture aggregates that we've gone through and continue to contemplate in other cases where there could be additional friction in the near-term. But I would say the overwhelming majority of it should be done and on a go forward basis. I think operating FFO should look extremely close to (inaudbile) define reported FFO, which we've consistently given but, obviously, have included certain add backs that we thought were more appropriate simply as we take the view on what's the right way for people to look at the company. But I think on a go forward basis it becomes even simpler.

Vincent Chao, Deutsche Bank.

Just want to go back to guidance for a second, I know we just talked about it a little bit in terms of ins and outs and some of the puts and takes that were baked into the original range. But if we think about sort of the discussion here, dispositions being accelerated and also larger maybe than initially anticipated. First quarter NOI negatively impacted by higher than expected snow removal, some of the other operating metrics being maintained in terms of the outlook.

Just curious does that really leave that financing timing as the main upside lever to keep you comfortable with the range as apposed to maybe turning towards the lower end?

I'd honestly say that when we talk about refinancings role in this, it's probably one of the negatives in terms of our expectation and our execution so far to raise the $500 million 10-year bonds earlier than we expected. So you have some savings from the re-do of the credit facilities but the larger picture issues we're looking at, in terms of what's the right financing strategy for this company, more often those are going to be slightly detrimental to FFO per share for 2015 than beneficial. I think that's another thing we generally think of is working against us slightly. Certainly when you're think about the top of the range higher disposition volumes and earlier re-financing volumes make that much more difficult to achieve.

That said, we do think we budgeted appropriately and we do see very strong operations continuing. I think the historically bad weather in the first quarter was absolutely a drag and was absolutely something that we would expect to be nonrecurring and allow for better results through the rest of the year.

But when we take everything into account in terms of operations, financing, and transactional activity, we remain comfortable with the range and think that will continue to show one of the better growth rates for FFO per share within the sector, even during the year where we improve the portfolio quality and improve the balance sheet.

Caitlin Burrows, Goldman Sachs.

Good morning. As you dispose of assets in the US this makes your Puerto Rico exposure naturally increase and actually on your new disclosure page, I see three of the top five centers of revenue are in Puerto Rico. Could you just talk about whether this increased exposure concerns you regarding the retailers shop for demand, but also the local economy and the politics on the island.

We certainly acknowledge that we do have a larger investment in Puerto Rico than others. And that some of our largest assets are down there. They're also on that top 50 list and at the top of that top 50 list because of just how good those assets are and just how well they've held up over the past few years. Selling assets in the domestic US and, certainly in the mainland US, has slightly potentially increased our percentage exposure to Puerto Rico. On the other side when you look at the redevelopment activity and the acquisition activity from last year, where we did increase US exposure, I think overall the Puerto Rico figures have remained pretty consistent. So I think we're comfortable with our investment down there, particularly because so much of it is contained in those top three assets that you note from the chart.

On the broader question are we concerned about the financial situation on the island? Absolutely. It's something where we have been actively following it. We have been actively involved. We were pleased that we could work through our tax restructure in a way that benefited the island in terms of their interest in current cash but our ability to significantly lower our long-term tax rates on the island. The toughest part now is the uncertainty, not knowing exactly how the tax structure is going to be changed, how the tax is going to be implemented, and what that exact tax rate is going to be.

There's nothing a market dislikes more than uncertainty. If we'd at least get the news of what the new structure and rate would be then I think everyone can plan accordingly. But the period today of uncertainty is the toughest period. So I think from a macro standpoint, we have to acknowledge all of that. From a micro standpoint we've got high-quality, high credit, US domiciled tenants, paying US dollar rent and doing very strong sales per square foot on the island.

I think when we think about it from a pure real estate or DDR portfolio perspective, is $1 rent from Wal-Mart in San Juan different from $1 rent in Chicago or Dallas? We really don't think so, particularly when the occupancy costs, because of the high sales volume, is even better positioned on the island than it is here today. We are very carefully monitoring the performance of our assets. We are carefully monitoring some of the canary in the coal mine sort of metrics, like accounts receivable are 120 day or greater accounts receivable and not seen any great signs of concern when we look at how our assets are performing or our tenants are performing. And so we continue to stand by that in terms of what matters most for DDR's very valuable investment on the island.

Yes, Caitlin, this is Paul. Let me jump in and add a few more specifics. Dave mentioned still strong metrics and opportunities on the island given even with the uncertainty, we're just completing large re-developments at Del Sol and Hondo. Two great projects, finishing deals with people like Outback and Dave and Busters and H&M. These are big deals that are still happening on a island that everybody is concerned about. It's still a consumer mentality. We spent a lot of years transitioning from a local tenant-base portfolio to a national base, as Dave had mentioned. And we're down to 15% of our tenant base or our rent throughout the island is local versus national, which is significant and something we stay focused on.

Since you brought up Puerto Rico, I also want to give a shout out to our friends at Taubman. I'm sure most of you've seen it. Beautiful project they built in San Juan -- opening timing tough but we're quiet confident it's going to be a big success over time and helpful to all of us that have space on the island.

Jim Sullivan, Cowen Group.

David, for same store NOI metric does not include major redevelopments, obviously in contrast to many of your peers. Is there a targeted number or metric that you have either as a number of centers or as a percentage of the portfolio that you believe might clear the hurdle for a major redevelopment investment and can you clarify what that hurdle might be in terms of return on cost.

I think it's a good question, Jim, in terms of the way, one, we think about the project and, two, then how they'll show up in the reported results. And while you haven't had much time to go through it yet given the release of the new supplemental format last night, I hope you do notice that we have taken some time to try to answer that question or part of that question with our disclosure where we break out major re-developments versus minor re-developments and then everything just being releasing CapEx. And so while we can't give an exact rule in terms of above or below a certain dollar threshold, I do think we internally have categorized the assets and the projects into those couple buckets so that we can present them in our development section in a way where people can understand here are the handful really big projects that anyone would call a re-development. And here are the larger number of small projects. Some cases are truly development and some case are more in that just larger-scale releasing budget.

But, overall for us, when we're thinking about these projects, it continues to be a very large number of $5 million to $15 million projects. In those cases I think we are absolutely focused on considerable value creation. At this point I'd tell you, that means 9% to 11% average returns on the incremental capital invested into those projects and that we continue to achieve those returns that we've under-written and in some cases are finding that we can do even better.

The larger scale redevelopment at times, particularly the two large California projects, can be lower returns than that, partially because of the very low cap rate environment that those assets would trade in, both where they're located as well as the quality of the asset. So we can accept something lower on those projects and still have extraordinary valuation creation in the larger projects like that that get a very significant focus from a much larger group of people at this company; and where we can continue to move forward and continue to see successful execution that should lead to considerable and noticeable value creation on the large scale projects and considerable, although less noticeable value creation, on that smaller scale re-development bucket of projects.

Rich Moore, RBC Capital Markets.

Good morning, guys. My question, Dave, is first on any planned board changes you might have. And then kind of on the same lines, if you could talk about any organizational changes that you've either already done. It looks like some on the web site or planning, especially on the operating front -- the operating side of the business and in particular what you plan to do with Paul's contract? When do you renew that, I think it expires end of this year if I'm not mistaken.

Rich, I'll address me, this is Paul. I really love this business and as you guys heard today we've got a lot going on and it's a lot of fun being here right now. I am completely engaged and focused on continuing to lead the leasing and development teams as we get this portfolio in position for the long-term sustainable growth Luke and David have been talking about. We also have a phenomenal team in place here, especially at the leadership levels and it's something that Dave and Luke and I look at constantly what the makeup of what the organization is and I'm quiet certain whenever the time is appropriate we'll be prepared for an effective and seamless transition whenever that may be.

In terms of the other items, particularly related to the board, with our proxy released several weeks ago, you will see several changes in the nominees on the addition side. Alexander Otto will be joining our board. So historically he is nominated two directors to represent him. This year he nominating one director and he is also personally standing for reelection and so an interesting dynamic. Where not just two great representatives of our largest shareholder will be in the room, but the shareholder himself will be in the boardroom with us.

So I think positive in terms of his indication and interest in spending even more time on his investment here. In additional to, if you go through the details of the proxy, having invested additional capital into the investment in DDR in the past year. So I think a positive addition there. Someone who has a huge amount of skin in the game, perfectly aligned with our other investors and someone with very, very deep shopping center, operational, and development experience and broader real estate experience in the US and in Europe and retail experience.

Other changes, there are two directors, two other directors not standing for reelection both of which who have served us very well over a period of time. Especially, most recently the challenging time through the downturn for the company and several management changes and so I think those changes are clearly reflected in the proxy. The board gets a little bit smaller. I think it can work very well at that size, but it also positions us to have an opening to add additional talent over time as we potentially locate the right additional members there. But very pleased with the slate we have in place and have nominated for this year.

In terms of organizational change, I think this company has been in very good shape over the past several years. I think there's certainly some refinement that we're making there. I don't think there's been massive change to the leadership of the company outside of changes in titles for Luke and I. But I think we're very early in what hopefully is a very long-term opportunity to run this company and so there is no rush to make immediate change.

I think there's an opportunity for us to evaluate what think is best to manage this company for a long period of time and so you may see some changes, but certainly not a massive part of the plan given the incredible quality of the team that we think we have in place today. And that particularly relates to the exact comments that Paul was making earlier about his leadership position as well as a very strong group of individuals under him. Not to create any alarm, but also not call Paul's contract out, none of us have contracts beyond the end of this year. And it doesn't mean that all of us expect to be leaving, we've obviously had a lot of other things to deal with and we'll figure out the contractual nature of the team going forward. But I think you've got a large, talented, and extremely committed and motivated team here that's excited for the opportunity that lies ahead of us.

Chris Lucas, Capital One Securities.

Good morning, guys. A follow-up on guidance questions. I'm trying to understand what the thought process at this point given that initial guidance was initially what $250 million acquisitions, $250 million dispositions, I haven't heard anything more specific than sort of a front half disposition versus back half acquisition. One is, David, on the acquisition side, what level of confidence do you have right now as it relates to reaching that level of acquisition volume? Is there anything under contract? What volume of opportunities are you seeing out there on the stuff that you like? And I'm just trying to understand what the spread likely will be when we get to the end of the year between the acquisitions and dispositions in terms of volume.

Yes. I think it's reasonable to dig into some of those assumptions. Obviously the transactions market that we're seeing today makes the disposition environment much stronger and therefore easier than the acquisitions environment. Just because it's not easy doesn't mean that I don't think we have an exceptional team that can identify some unique acquisition opportunities and would be hopeful that over the next several months we're able to executive on about $100 million of those and then hopefully fill in the rest in the second half of the year.

I am confident in this team finding enough acquisitions to get us to that $250 million of guidance and, even more importantly, doing so on deals that we view are attractive. Doing so on deals that we view are case study sort of transactions that we want to show the investment community exactly what we're doing. So it's not going to be easy to find attractively priced deals. You can, obviously, always spend more money if you're willing to compromise your discipline, but I think even without doing that, I do continue to feel confident that under Luke's leadership the transactions team can find $250 million of acquisitions. And hopefully we even have some of that to show you in the second quarter, but certainly in the second half of the year.

The way we're thinking about it today, probably most likely outcome is at least $100 million of net dispositions and potentially $200 million or so of net dispositions just based on achieving our $250 million of acquisition guidance but exceeding our $250 million of original disposition guidance. I think other places within the budget where we see opportunity is we're calling back to the fall when we were making these plans and there existed uncertainty regarding management, I do think that meant we had to budget very carefully; and so I think we continue to find that in some cases on the G&A side there are opportunities. We have basically assumed that we would have a CEO in addition to the team we have in place as opposed to the board ending up providing the mandate to the existing team. So I think there's some efficiency there that can be picked up.

I think in other cases, we had, as we usually do, carefully budgeted on the operating side where we did forecast a larger than prior year bankruptcy volume and so I think we continue to find opportunities on the operating side of the budget where our strong platform is executed well but also we budgeted appropriately and so there are little bits of upside that we also find there. Some of that, you know, exact end of year number plays out in the lease termination fees and other shorter term things but I think when we're truly thinking about the strength of the platform and the portfolio today we continue to be pleased that operations are contributing to us. Continuing to be comfortable with the range despite an accelerated and higher than budgeted disposition volume.

Next question comes from Tayo Okusanya.

Good morning, gentlemen. Just two questions from me. First of all, just the Excel deal and again the implied cap rate on that transaction. Just curious if you think it has any implications for you for any of the other REITs that have a meaningful amount of big box retail within their portfolio?

Hi, Tayo, it's Luke. I think it absolutely has implications for other REITs. I think people think it's a low six, we did do a lot of underwriting on that portfolio. We look at a lot of things with and in conjunction with BlackStone, so I think that the pricing that the market has seen is probably about right. There are some very, very good assets in that portfolio. But we feel the quality across the portfolio probably isn't something that really fits DDR. As David noted in his opening remarks our continual focus on quality of dirt and location really means that any sort of portfolio deal, it does have to be unique and has to be very attractively priced. Excel on that bases didn't quite take both the boxes.

Anthony Howell, SunTrust.

Good morning, guys, and thanks for taking my question. Sorry if I missed this, but in your last quarter prepared remarks you mentioned that you intend to access the unsecured bond market later this year. Now that you guys closed $400 million of term loans you would pay half in [maturing] debt, are you guys still contemplating on accessing the bond market later this year and what's the timing on that?

Yes, this is Luke. So the answer is yes we still are. We still have about $900 million of consolidated mortgages that are in unsecured facilities coming in June, so the $400 million, as I noted, funds almost half of it, but we still feel that there's an opportunity for us to come into the market in the second half of the year. The benefit of having an undrawn term loan, it allows us to choose when we draw on that so we can do a bond deal earlier in the second half if we choose. And we see that the rates are opportunistically priced for us. At the moment we do have an intention to come to the second half to help fund some of the maturities.

This concludes our question-and-answer session. I would like to turn the call back over to DDR management for any closing remarks.

Thank you very much for joining us and your continued support. We look forward to seeing you either at RECon or at NARE. Thank you. Bye.