Site Centers Corp (SITC) 2015 Q2 法說會逐字稿

Good morning and welcome to the DDR Corp second quarter 2015 earnings conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Meghan [Dudwala] Senior Financial Analyst. Please go ahead.

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

Please be aware that certain of our statements today may be forward-looking. Although we believe such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and actual results may differ materially from the forward-looking statements. Additional information about such risks and uncertainties that could cause actual results to differ may be found in the press release issued yesterday and the documents that we file with the 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. Reconciliations 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 on 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. Today, I would like to discuss five items. First, the progress we've made internally over the past five months; second, the results from our Annual Shareholder Meeting; and finally, the three pillars that this management team has outlined and acutely focused on the progress on all fronts. The internal progress of this team as given the mandate in February has far exceeded our expectations. We have retained our top talent, transformed the culture, and put new controls and processes in place to focus our operations team on deal quality over the quantity and are already having an impact on the bottom line.

This progress was evident this quarter as we produced strong same-store NOI growth and leasing metrics, all while we continue to encourage vacancy to upgrade the caliber of our tenancy. I am proud of our organization thus far, and I am confident that our operational efforts and our produce-first message-later mentality will translate in the outperformance over time. The team takes the recent underperformance very crucially and it (inaudible) even further.

Next important changes were made at the Board level following our shareholder meeting in May. We welcomed our largest shareholder, Alexander Otto on to the Board, further aligning our Board with shareholders as well as adding very experienced retail real estate minds to the boardroom. We were pleased to receive very strong support in our proxy vote for the shareholder aligned compensation program, and all of our other directors.

There are three pillars that our team has outlined over the course of the year but I would like to expand on that. The first is our refining focus on portfolio quality greater emphasis on quality of the dirt, which is evident by the 4.4% increase in rent per square foot since this quarter last year, as we continue to sell assets that do not meet our quality threshold. While we've made tremendous strides in upgrading portfolio quality through the years, we've raised our standards and see a short runway for completing the final legs of the transformation. I will highlight the progress we've made. As of today, our wholly-owned prime plus and prime portfolio now comprise approximately 75% of pro rata gross asset value of our company. These centers carry a small shop rent per square foot of $27.50, 17% above the portfolio average and they grew same store NOI up 3.25% for the quarter above the overall 3%, reported an indicative of the superior quality.

Going forward, we intend to continue to reduce our asset count through the next few years to between 250 assets to 300 assets, including the sale of a large number of assets held with joint ventures with low economic ownership. Given what we believe we are in the valuation cycle, we have taken a very honest view of asset quality and will continue to also sell wholly-owned non-prime and prime-minus shopping centers into this market. For example, this quarter, we disposed of a 99% leased grocery-anchored asset in Georgia that was located outside of TOP 50 MSAs and had a future NOI growth rate of less than 2% as well as an asset in non-core market in New England where we recently executed the junior anchor deal taking the asset to 100% lease with future growth of less than 1%.

These two institutional quality prime minus assets were indicative of our desire to exit low-growth centers in mediocre sub-markets that attracted pricing in the mid-6% to low-7% cap rate range, allowing us to redeploy proceeds in higher growth assets in the TOP 50 MSAs. That all said, our shareholders should be confident that we do not intend to reduce the balance sheet significantly or sacrifice earnings growth as acquisition opportunities and thoughtful investment activity should continue to mitigate such evolution.

The second pillar is capital allocation, which we believe is the most significant measure of group performance over time. Our cultural shifts and increased controls triangulated net effective rents that increased 8% year-over-year this quarter and G&A expenses, excluding separation charges, have decreased 8% since last year. G&A is trending only 4.6% of revenues, down 9 basis points year-over-year and near the sector lows. Our discipline was also evident in our acquisition activities. We purchased two high-quality power centers in Orlando and Houston and terms in excess of our cost of capital, which Luke will discuss in further detail.

This organization is extremely focused on returns associated with leasing, redevelopment, and transactional activity, and we are pleased to see the results start flowing through to the bottom-line in such short amount of time.

The final pillar is our lower risk profile, which includes not only a fortress balance sheet, but also a fortress earlier prime power centers we will maintain the steady cash flow in all cycles as Luke will elaborate on in more detail, we made important strides in the second quarter as we added four high-quality shopping centers with approximate value of $700 million to our unencumbered pool by refinancing the maturing debt with our new unsecured term loan. (inaudible) debt to EBITDA is an important measure of risk that will come down over the next few quarters, we also believe the equally important components of risks include debt duration, size of the unencumbered pool, and the asset and credit quality in our properties, all of which has improved dramatically. We continue to expect this company will absolutely operate within appropriate level of risk to maximize shareholder return over a long period of time. I will now turn the call over to Paul.

Thank you, David. The overall leasing environment and resultant operating fundamentals remain positive in the second quarter as evidenced by exceptional deal volume and continued strength in leasing spreads. We executed 369 new deals and renewals for 2.9 million square feet, an outstanding quarter for a portfolio that is 95.5% leased. I'd also like to highlight the starting rents for the new deals and renewals at $20.35 per square foot and $15.04 per square foot respectively, both great numbers and both indicative of the positive leasing environment and the quality of our portfolio.

For the quarter, we achieved a positive pro rata new deal spread of 25.4% and a positive pro rata renewal spread of 7.2% resulting in a combined pro rata spread of 10.2%. I would like to remind everyone that the renewal spread is based upon the starting rents in the renewal period measured against the last rent in the current term. What is not included in the calculation of this spread is any future contractual increase built into the renewal. In this quarter alone, we had 91 renewals with bumps averaging 3% per year over the starting rent obviously leading to additional growth and this focus on annual rent steps is one of the most significant recent changes we have made when negotiating and analyzing deals.

Our overall leased rate at 100% ownership remained flat quarter-over-quarter at 95.5% and increased by 20 basis points year over year. The nature of the flat leased rate quarter over quarter was due to a couple of factors. First, we sold low-growth assets with leased rates in the high 90% to 100%, and acquired high-quality assets with vacancy obviously offering significant growth opportunities through lease up and do a redevelopment. The second contributing factor was the signing of new leases on spaces that were already included in the leased rate. So, despite significant leasing volume and strong spreads, it nets to little impact on the leased rate. Third, we continue to encourage vacancy from our weaker tenants such as Kmart in an effort to increase the credit quality and merchandise mix of our centers. As David mentioned, and as we've talked about on many occasions, we are focused on improving the caliber of our tenancy as we also look to improve the quality of the overall portfolio. One great example of this strategy, which also highlights the quality of our portfolio and the supply and demand environment is a deal we recently concluded with ALTA within one of our whole foods-anchored prime shopping centers in Columbus, Ohio. The lease for the current tenants expires during the second quarter of 2017 with no renewal option. ALTA agreed to sign a lease for 2.5 years before they will open -- the fourth quarter of 2017 to control the space, far from their typical schedule and adding 66% markup in rent, all indicative of retailers' desire for quality space and the steps they will take to secure it. The signing of the ALTA lease results in no change to our leased rate but a significant change to tenant mix and net value creation for this asset.

Our pro rata shop leased rate for the entire portfolio for space less than 10,000 square feet is now 87.9%, up 40 basis points year over year. This is in line with our peer average when reported on this comparable basis and in excess of the 86% leased rate we disclosed in our supplement for space less than 5,000 square feet.

I would also like to spend some time this quarter breaking down some of the metrics we report to highlight the differences between the four tiers of our portfolio. As David also mentioned our wholly-owned prime plus and prime assets comprise roughly 75% of pro rata gross asset value. And it is within this pool that we are seeing our strongest results. In terms of leasing spreads for the quarter the new deal spread for the prime plus and prime assets was 28.8% while the new deal spread for prime minus and non-prime assets was 6.7%. For renewals, the spread for prime plus and prime was 7.6%, 140 basis points higher than those for prime minus and non-prime. Another metric worth noting is the year one starting rent for new deals. The starting rent for the wholly-owned prime plus and prime assets was $20.95 while the starting rents in the prime minus and non-prime was $15.83, a 32% spread between the two pools.

To update you on Puerto Rico, I would first like to point out that 90% of our Puerto Rico portfolio value is comprised of prime plus or prime assets, 60% of the portfolio value is in the top three prime plus malls and 70% of the base rent is derived from US-based credit-worthy tenants, all of which emphasize the quality of our cash flow on the island. Despite the macro headlines, regarding the sales tax and debt issues, we are seeing reported sales across our entire portfolio that are relatively flat on a rolling 12-month basis with four of our top five assets actually reporting small sales gains. Additionally, our blended spreads on the island for the quarter were a positive 5.5% while as the low double-digit blended spreads we are reporting for the US, they remain positive. Furthermore and one of the most telling statistics, an area we are focused on for the past several years is accounts receivable. We have and will continue to work on the mix and credit quality of our tenants, and these efforts have been rewarded with an accounts receivable number, which has remained flat year over year, and is near historical low for this portfolio.

From a deal perspective, we're still seeing new retailers who view the island as an attractive location as they look for areas to expand. We've recently signed a deal with Dave & Buster's for their first location on the island at Plaza Del Sol with an opening date of early 2017. We are also finalizing a deal with H&M for one of their first two locations on the island also at Plaza Del Sol, with an opening in late 2016. These are significant additions to our top asset on the island and represent strong statements regarding retailers' views of the strength of retail on the island going forward.

In the back half of this year, we will recapture a few boxes on the island, including two Kmart's at their natural lease expirations. This will have an immediate impact on occupancy but will have minimal impact on NOI stream as rents for these spaces are significantly below market and ultimately will result in attractive opportunities for rent growth and merchandising improvements.

Finally, I'd like to share with you the success we are having with our National Accounts Group, which was reorganized in March with strong senior leadership. The National Accounts team was assembled to leverage our operating platform and continue to foster quality relationships with our top tenants and other notable retailers with whom we want to grow. Our Top 50 tenants comprise roughly 55% of total annual base rent, and it is critical that we have a continuous open line of communication with these retailers.

When you have 70 to 100-plus leases with any single tenant, there are undoubtedly issues that will arise and our retail partners know these issues will be resolved in a timely manner with the involvement of the DDR Account REIT. During the month of July and August alone, our National Accounts team will conduct portfolio reviews with 20 of our Top 50 tenants while we meet and have regular portfolio reviews with all of our top tenants, the daily communication between our accounts team and the retailers is even more critical.

We continue to realize the value and having a strong National Accounts program as we negotiate renewal packages with tenants, utilize high-level relationships to finalize or amend deals, and quickly obtain insightful and reliable retailer feedback on performance in our existing centers as well as for potential acquisitions. Our relationships with the retail community are something we have emphasized for a long time with DDR. I have great confidence that the team we have in place will continue to excel and remain best in class in this extremely important component of our business. Let me now turn the call over to Luke.

Thanks, Mike. Operating FFO was $111.4 million or $0.31 per share for the second quarter, which is a 10% increase over the prior year. Including non-operating items, FFO for the quarter was $105.4 million or $0.29 per share. Non-operating items primarily consist of transaction costs. As David mentioned, we are pleased to report another quarter of robust transactional activity, which included the acquisition of two prime plus power centers that we believe exemplify this management team's disciplined focus on acquiring high-quality dirt at attractive pricing.

International Drive Value Center in Orlando, Florida, which we acquired at the end of April, is located in one of the nation's strongest retail submarkets and is situated within one mall of two highly productive eight-plus retail centers, Orlando Premium Outlets and The Mall at Millenia, which both produce sales in excess of $1,200 a square foot. The centers TJX, Ross Dress For Less, Bed Bath & Beyond are among each respective chain's top-performing stores. Willowbrook Plaza, which we acquired in June is also directly adjacent to a highly-productive Willowbrook Mall in Houston, and offers significant NOI and occupancy run rate given its 87% leased rate. We view the opportunity to invest capital in Houston as attractive from a pricing standpoint, combined with their relatively low exposure to the sub-market. And we're confident the quality of this real estate and the sub-market will perform well throughout the cycle, even with any short-term headwinds. Both assets were acquired in excess of the (inaudible) NOI and provide considerable and visible growth over the coming years. And we are excited to have these assets in our platform.

The quarter further advanced their portfolio and management activity, as we ended June with $340 million of assets sold or under contract, which will exceed our originally stated disposition guidance for the year of $250 million. Of the $60 million of closed asset sales in the second quarter, $56 million was attributed to seven non-prime and prime minus operating assets with the remaining $4 million consisting of three land parcels. The weighted average cap rate for the quarter was in the low 7-cap range. We had $119 million of additional assets under contract for sale at quarter-end comprising 89 operating assets and three land parcels. Five of the assets sold or currently under contract were part of a group that was impaired in the first quarter, and we are actively marketing three of the remaining 20 operating assets and the six remaining land parcels. Ten of the operating assets under contract for sale are currently held in joint venture with Blackstone at pricing in the mid-seven cap range from non-prime assets. The sale of these assets will not have an immediate impact on the balance of about $300 million of preferred equity issued to the joint venture. Although, we do expect a modest reduction obviously from 2016 as additional are sold and we continue to improve concentration to the highest quality assets. We remain focused on selling down the remaining non-prime and select prime minus assets in our portfolio until we feel our asset base is sufficient to perform in all markets throughout the cycle. Although, we ended the second quarter as a net acquirer, the significant volume of assets currently under contract for sale (inaudible) expectation that will end the year as a net sale while we still do intend to make the $250 million of acquisition guidance announced in January. While we continue to underwrite new opportunities in a disciplined manner, we plan to invest disposition proceeds to pay down debt and further strengthen our balance sheet into further acquisition opportunities as a source, which will lead to the accelerating our reduction in our debt-to-EBITDA in the second half and into 2016.

Turning to the second quarter capital markets activity, I'd like to draw our attention to select re-financings that have a significant positive impact on cash flow but potentially negative impact to GAAP earnings. During the quarter, we partially drew down $400 million unsecured term loan to pre-pay the $256 million mortgage secured by four assets, which mature in September 2015. As outlined in the prior quarter supplemental, this line had a combined tax rate of 6.4% whereas the GAAP interest rate was much lower at 2.75%. We plan to again to draw down the remaining portion of the term loans beginning of August to pre-pay an unencumbered two additional mortgages, which encumbered three properties and have combined loan balance of $175 million, which has a blended cash interest rate of 6.2% and a GAAP rate of 3%. Assuming a 4.5% long-term interest rate on unsecured debt issuance, the refinancing eliminates $8 million of annual interest expense on a cash basis but will add an additional $7 million of annual interest expense on a GAAP basis. For further color, please refer to page 39 of our latest presentation on the website. For additional color, on one and three quarter convertible notes maturing in November this year, which are expense at a GAAP rate of 5.25%. Our intention is to settle the principal of the notes with the cash proceeds from a long-term unsecured bond offering later in the year and any premium attributed to a conversion in shares by giving notice to the bond holders on October 6. Using yesterday's closing price of [$16.22], we expect to issue a little over 2 million shares on November 20, which are not currently in our diluted share account with no price at DDR.

I would like to take a moment to elaborate on a comment made by David about how we intend to operate our business with the appropriate level of risk to maximize long-term shareholder returns. What I specifically want to highlight is that managing and lowering our risk profile doesn't necessarily come at the detriment of returns to our equity holders. A good example of this is continuing the material enhancement in size and quality of our unencumbered asset pool, which during the last quarter we increased by approximately $700 million from the refinancing activity I just outlined.

During the quarter, we added some of their largest and highest-quality prime plus assets such as Shoppers World in Boston, Woodfield Village Green in Chicago, and Fairfax Towne Center in Washington DC that now we have greater operational flexibility, allowing us to more easily enhance each asset's value over time. As of July, our unencumbered pool is internally valued at over $7 billion, which would be more than two times larger than what it was post our top financing in 2009.

Not only is their pool larger, but the quality is better with the average asset size being 300,000 square feet, which is 80% larger than in 2009. What's worth noting at this significant pool is something that differentiates DDR's balance sheet from our peers, and provides us the ability to write capital against this collaterals, well alternative funding options, present challenges.

With that, I'll hand the call back to David for closing remarks.

Thanks, Luke. I would like to conclude by reiterating our original 2015 full-year earnings guidance of $1.20 to $1.25 per share of operating FFO. Operating fundamentals remain very strong. Our portfolio transformation remains on target, and we continue to find avenues to mitigate the potential dilution from this year's increased asset sales. Thanks for your time. Now I'll ask the operator to open up the call for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Craig Schmidt, Bank of America.

Good morning.

Hi, Craig.

David, I was wondering what's the trigger to get you to go --- it seems a little further on the portfolio transformation, and maybe just a little more color on the assets you were selling like you had said low economic ownership?

Yes, I think (inaudible) make extraordinary progress, selling 500-plus assets in the past six or seven years. So, I do think there's been a focus on portfolio improvements for quite a number of years. I think where it's become more nuance recently is we've sold the truly non-institutional stuff, we've sold the truly non-prime products, and now it comes down to a portfolio management exercise selling assets that are pretty good, but simply don't need our current criteria for growth or future total return expectation. And so, I think as we have eliminated the worst assets and as we have seen a private market for shopping centers this continue to be very strong, everything is lined up to allow us to continue the sales process but selling higher quality inventory now than what we were selling a few years ago and therefore getting the much more attractive pricing associated with that and so I think we're just being more thoughtful as we take this next step in selling institutional quality assets but one that we think the current private market values too highly and where we think we can redeploy those proceeds into much more attractive higher growth assets in larger MSAs, as we continue to be active on both the acquisition and disposition front.

And Craig, this is Luke, with regards the low economic ownership, that's just a reference to the joint venture assets that are being sold. So year to-date, we have sold five assets out of the Blackstone joint venture, which when we originally acquired that portfolio we highlighted that there would be some pruning in conjunction with discussions with Blackstone. Of the 18 assets we have under contract today, 10 of those are in that Blackstone joint venture where our economic ownership is only 5%.

Christy McElroy, Citi.

Hi, good morning, guys. David, just your comment about this focus on development returns and looking at sort of the overall construction pipeline in a different bucket between developments, major redevelopments and minor redevelopments. Can you break out by bucket, the average projected yields on those existing projects? And sort of thinking ahead to the future pipeline, what sort of yields are you underwriting to when you're thinking about the feasibility of ground-up projects versus redevelopment?

Yes. Christy, this is Paul. Starting with this redevelopment, John, on the minor redevelopments and typically with all of our leased up CapEx, a lot of our hurdle is going to be 10%. We would expect nothing less than that in terms of yield. On the major developments, slightly as some of these are our little defensive at times but also bigger projects and typically with assets that we're trading over 5%, 5.5% cap. So something in the high single digits, 7.5% to 9% on some of the major redevelopments, some still exceeding that 10% hurdles on the way. And on the ground up we said in the past and with the legacy land, some of the stuff we're developing right now all in you're looking at mid-single yields with an incremental yield somewhere in the 7.5%, 7% to 8% range. But we would expect, mostly with the major redevelopments and minor redevelopments to be in the high-singles and north of 10% with the minors the focus will still be spread. We will continue to look for development opportunities, major redevelopments, it's going to be more, you're going to see that are very exciting, and we've got in the early stages that will eventually make it to our reporting and we'll talk more about them in even great markets, and great opportunities to create value. Minor redevelopments will continue to be a big focus also in -- I would estimate that we're going to be in that $100 million to $150 million run rate range on the entire redevelopment program.

Todd Thomas, KeyBanc Capital Markets.

Hi, it's Grant Keeney on for Todd. Good morning. Regarding G&A, you mentioned in recent quarters you had some opportunities, and it sounds like you've made some progress, but just wanted to get some additional color on the timing and scale, and just another follow up, it looks like 2Q, you had a separation charge, so as just see what a good run rate was for the rest of the year?

Yes I think what you've seen in the first two quarters is we have been able to operate even more efficiently, and so I think you see most of that show up in results obviously, a little bit of one-time charges in terms of some separation agreement this quarter, but I think that at this point you're seeing, most of those efficiencies show up in the run rate, and so I think historically we've guided 5% of total revenues is a reasonable G&A range and certainly a G&A range lower than our peers for many years and today I think that number can be a little bit lower than that, and so I think you've seen now the first full quarter of that show up and we think that can be recurring going forward but wouldn't model in anything else too significant on that front.

Ki Bin Kim, SunTrust Robinson Humphrey.

Thank you. So going back to dispositions, David, maybe you could wrap it up for us, easily digestible package, you guys just saw some JVs possibly and make some wholly-owned assets, but when you look at kind of total pool of which call consider non-prime or what's realistically you're going to sell over the next couple of years, what does that -- on your share basis, what does that look like?

From our share basis, so when we look at it, I think this year, we're probably going to achieve between $400 million to $500 million of sales, which majority, we have on the contracts today. I think them as we look forward as David pointed out, I think the non-prime bucket is as reduced dramatically, there is probably 20 to 25 assets in May, which are small assets and a couple of $100 million there, but then it's really looking at just ongoing portfolio, pruning and rotating capital out of assets that we deem that we can reallocate our equity into higher growth assets. So, I think over time, we can continue to achieve, I don't think we're going to have dispositions that are at the size of this year. I think this year is a logic year, but I think going forward, we'll continue to look at rotating capital, but we will be mindful on any sort of dilution that comes from that. I think we can mitigate a lot of that with one of the assets we're selling at better quality and we're getting better cap rates on that which you're seeing, this year, it's sort of [7.25%] level, I think the stuff we are looking at going forward, might even be harder than that, but I think it's opportunistic of where we deem we can pull capital out of low-growth assets or assets that we don't believe has the long-term return profile that we're looking for.

Yes, we're thinking about two sides of it, Ki Bin. The first one is just the capital recycling, which is a constant process of redeploying capital out of those prime minus assets of lower growth rates into higher growth assets where we think we're taking, no real change in current cash flow by swapping that but we're certainly positioning ourselves better for long-term growth. The second part of it is net buyer or net seller outside of that recycling activity, we saw some significant net buyer a few years ago when we thought pricing was relatively low for power centers, and we had an acceptable cost to capital. We saw it as a net buyer, we significantly added to the portfolio and improved the portfolio through those years. Today, we look at the private market, and you say pricing is relatively high. And so our natural response to that is to increase the volume of sales and that's exactly what you've seen for this year.

Jason White, Green Street Advisors.

Hey guys, just want to know I know I really just cant pinpoint this, but in a more general sense, can you kind of walk through the Blackstone assets that you have? How many are left out of the original I think it was 70? And what you would relate to keep longer term? What that means? Maybe for fees and then getting the prep payback and just kind of walk through that whole deal in general?

Yes, sure, Jason. That's right, that was a 70-asset acquisition. Five assets have been sold. There's another 10 under contract. They would expect to be sold in the coming weeks. With regards to long-term ownership, we do have a ROPO on the top 10, so we've clearly identified the 10 that we aim of the long-term ownership. Clearly we don't have the right just to buy them, it is something the Blackstone controls and their exit is something that they control. So I think it is -- in coming years there is an opportunity that we feel we're best, we're well-positioned to get the control and ownership of the assets that we deem that would be long-term prime and prime plus assets but for our portfolio what that means to the fees and the prep, I don't think there is any near-term impact for that. I think the prep will start to be a paydown in the course of 2016 but not at a dramatic, right. But I do think that prep will start to come down. Obviously, the fees will come down as well as we sell assets, but I don't think this is a near-term catalysts where the ownership would change from Blackstone to DDR.

Haendel St. Juste, Morgan Stanley.

Hey, good morning guys. So, a quick two part on capital allocation, understanding your debt reduction goals and [your recent] funding requirements. What is the stock buyback today, separating your capital allocation thought with the stock down on 16 well below many of them are basically your own. I would also love to know your thought on the high coupon debt maturity upcoming during 2016 and 2017 rates and I guess 7% in 2016 and 6% in 2017. What's your current thought of these upcoming maturities and how are you weighing the opportunity to perhaps refinance that versus debt pre-pays?

Yes, capital allocation as mentioned in opening remarks and I think let's talk about -- regularly is a very significant focus for us. You look back several years ago when I think we did a more attractive cost of capital and the private market wasn't reflecting the value and quality of power centers. We were an issuer of equity to buy shopping centers. So, I think today when we look at the considerable disconnect between the private market value of our assets and public market valuation of our stock, certainly I see a disconnect there and absolutely I thought about it and considered share repurchase where we stand today. We do have other attractive uses of capital but share repurchase certainly is something that we talked about and thought about and will continue to do but if not active at all at this point, but certainly something that is on the radar screen for us, with constant view that the balance sheet improvement is very important to us. And so not something that we would consider at the expense of our risk profile but something that we do think this is certainly possible. I think we've taken important steps in the first part of recognizing that arbitrage between public and private markets by being a considerable net seller of the assets recently and what we're forecasting for the second half of that year and we certainly consider all of those proceeds as we continue through the next several quarters on the maturities, I'll pass to Luke.

Yes, Haendel. With regards to the high coupon paper in 2016 and 2017, we obviously still have financing to come this year, which is the convert, which is $350 million, 2016 there is -- clearly is the [non-prime] which provides a nice earnings tow into a portion of that year. Repaying at early obviously we'd need to economically make the decision on that. I don't think it makes sense right now today. And in 2017, I just want to make one point on that, which is something I made in my prepared remarks is that although it is [7.5%] in that year, we do have some depth that the difference between the cash and GAAP rate for that year, there is a differential where the cash interest rate for that year is 6.5%, and that the GAAP rate is 5.8%. So although, we do anticipate a significant cash saving on the interest expense, the GAAP saving will not be as much, although it won't be quite the impact that we're seeing that I highlighted earlier, but it's probably just worth noting. There is a slight difference there. We do think that there is an opportunity over the coming years to do better than the right for the coming and we think that provides an FFO tailwind to the Company.

Vincent Chao, Deutsche Bank.

Good morning, everyone. Just Luke, going back to your comments, I think I heard you say that you have about $400 million to $500 million of disposal you think, for this year. And I think it's year-to-date $300 million plus, including those that's under contract, so that seems like it's a little bit higher than we returned the last quarter. And I'm just trying to understand from a guidance perspective and I know the focus is on - not necessary on earnings per se, but with the guidance unchanged, and dispose stepping up a little bit, and presumably financing costs, maybe up a little bit from earlier in the year on the unsecured that's coming down the road. Just curious what are other levers that you've been talking about as being offset? Are those being pulled? What's actually being done today to kind of be able to get you to that midpoint?

Yes, I think, Dave will probably have some comments, clearly, there are some operational efficiencies that we are starting to see flow through. With regards to dispositions increasing, I think that comes back to the point David and I have been making is that this is a market that we see as an opportunity to sell not just only the non-prime stuff, but some of the prime minus stuff that we think has lower returns but I think there's an opportunity for us, particularly in the second half of the year, and that's really where you are not going to have the full-year impact there, but we are able to sell some assets of pricing that we see is very, very attractive for the long-term return of this company, and we do believe that we are able to reinvest that capital probably not completely this year, but over time we're going to be able to reinvest that capital to generate longer-term returns. Yes, we're just seeing that the pricing for assets highlighted by the two that David mentioned in his prepared remarks, we're seeing pricing that's far exceeding what we deem as the long-term value some of those assets.

Yes, I think being we guided reasonably operations if coming strong and that's why we create a range so I think we -- you know it contemplates some of the risks that could happen on the downside, it contemplates the higher volume sales and earlier refinancing activity, and so where we standard aid, we remain very comfortable with guidance despite the fact that that we are absolutely on track to be net seller this year.

Jeremy Metz, UBS.

Hey, good morning, guys. First, just on the prior question from Haendel, do you actually have a buyback program in place today. And then, as we think about the dispositions you talked about targeting $400 million, $450 million this year. So I guess after those how much more do you have left to sell if you are to kind of get to the ideal go-forward portfolio, and then how should we be thinking about the earnings growth profile for DDR here, as we look into 2016 and 2017.

So, Jeremy. It's Luke, we don't have a buyback program in place. With regards to dispositions as we've highlighted, we will be a continual disposal of assets. The size and velocity of that will depend on the market. We do have some non-prime assets although that is dramatically going to reduce this year, it's really going into the prime-minus assets which are just assets that we believe may not have the growth profile but we're looking for from now equity, we're able to rotate those opportunistically and reinvest that capital whether internally or into new acquisitions that will be an opportunity that we will review at current mark or the market timing. So I do believe our goal is to build a portfolio that will withstand all market cycles and long-term produce the return. I think the one thing that I probably would like to note is that the vast number of assets. So if we think of the number of assets we are going to sell, the majority of those will actually we will have a lower economic interest because they are joint venture assets that will be disposed of. So our economic interest is now that it from vary 5% to 20%. So I think the impact to our earnings is somewhat reduced.

Tayo Okusanya, Jefferies.

Hi, yes, good morning. Just a quick one for Luke. Luke the page 39 that you highlighted in the presentation, trying to understand the passthrough and FFO impact of the debt refinancing. Could you just kind of walk us through that real quick, again why kind of like the big difference with regards to the rate cash-wise and the rate GAAP-wise on these pieces of debt?

Yes, absolutely Tayo. The real reason of why there is a different rates for GAAP is when you acquire assets you mark the debt-to-market. So when we acquired using a [home art] portfolio that was debt, that was actually put in place when it was the Australian joint venture. So it was done with long-term debt. When we acquired it was dramatically shorter-term debt. So you mark the debt to market. I think that from a GAAP point of view or a cash point of view, we don't have a dramatic amount of those I think one thing that works the other way is obviously the converts, which have a high -- lower cash to GAAP, rate, but there are some pieces of debt when we actually acquired assumed the debt that are going to have these differences. This is a nominal year this is really looking at home art as their largest one which we have and that was the Blackstone acquisition. As I mentioned, there is a small amount in 2017 but it really is just the mark-to-market of the debt when we acquire the assets.

Sameer Kanal, Evercore ISI.

Hi, guys, David just going back to G&A and I was just curious as you reduce G&A just through a reduction of -- is it mainly through a reduction in headcount or are you doing something else differently? Are there any other changes that you're doing internally more from, let's say, a sort of an expense savings standpoint?

Not really any sort of noticeable headcount reduction, obviously dance transitioned out earlier this year and we didn't replace in with an outsider and so I think we have some simple straightforward stuff like that. When we look beyond that, it's just been finding ways where we can operate more efficiently with the very high quality team that we have in place today. And so I think you've seen some of those benefits show up over the last quarter or two.

Michael Mueller, JP Morgan.

Yes, hi, just going back to asset sales for a second. About how long do you think it'll take to go from 400 properties now down to that 250 to 300 properties, because I know you talked about the selling the JV stuff, and I think that's around 60 properties give or take, but you're going to be offsetting with some new acquisitions. So what sort of timeframe you are looking at?

Yeah, Michael, this is Luke. I think that's over a couple of years, I think that as I mentioned, the vast majority of assets in number that will be sold will be out of joint ventures. So, we don't have total control over the exit of those. So, we do think that joint venture number of assets will start to shrink that the platform is probably going to stay comparable size. So it's probably over the next couple of years, I think you'll see our asset count started go down pretty quickly.

And I think we want to be careful that in a way that we're addressing this because we are talking about reinvesting a majority of that capital in the high quality and larger assets versus fractional ownership of smaller assets. And so this isn't the way of us trying to frame dilution in the upcoming years. We think that transaction market is strong enough and our team is executing well enough where this is really portfolio strategy. This is not the reasons why we don't think FFO will grow in excess of peers over the next several years, and so it really is two separate discussions. I think from the portfolio standpoint you will see a greater focus on a smaller number of larger higher quality faster growth assets, but we're not doing that at the expense of earnings, even in the short term.

Ryan Peterson, Sandler O'Neill.

Yeah, thanks guys. A quick question from me, you've done a good job with the supplemental and simplifying things, so that is easier and clear for the Street to be able to model us. I was just wondering if you have any other initiatives or other areas that you expect to continue to provide more clarity to make it easier for the Street to understand guidance and what the out years are going to look like?

Yeah, I mean we have that a renewed focus on transparency I think for a number of years, we've tried to be at the forefront of improving our disclosure both in the supplemental, as well as through our regularly updated investor updates to try to make the company in the industry is as well understood as possible, so we continue to make stride absolutely opened to your feedback and people have assets or stuff data would be more useful. We've added our disclosure a number of times, I think we've added some additional development disclosure this year; we've added some of the additional disclosures, Luke was talking about earlier just regarding the differences between the true cash benefit of some of our refinancing versus the GAAP earnings detriment, and so we're trying to be very thoughtful with those materials to make sure the that were as transparent as possible and people understand the strength of this business and portfolio. But clearly our open to additional ideas that what would be helpful because obviously we do want to make sure people have the best understanding possible of the strength of this company, our portfolio, our balance sheet and our expected growth rate going forward.

Chris Lucas, Capital One Security.

Yes, good morning, everyone. I guess Luke, the question (technical difficulty) the unsecured markets. We've seen companies that have issued earlier this year that spreads that have been wider than expected and some that have pulled the yields, and go on to term loan market, I guess what I'm wondering is, what is your expectation as it relates to the spread on the deal that you're looking at for later in the year and do you feel like the market will be perspective given what you're hearing from your consults at this point.

Yes, Chris, so what we're hearing from our fixed income investors I think it's worth noting that we do spend a lot of time with our fixed income investors, I do believe that would be it would towards recepted toward a DDR offering. I think there is a difference between DDR and some of the others issuer the time to go to the private market, what the main one being sized in liquidity; I think it's something that's very important to bondholders at the moment. I do think good example is DDR being able to issue $500 million earlier this year that was in a time of uncertainty for the management team over a management transition. We still had a significant overwhelming amount of support from now, from the fixed income community. So, I do believe right now that we feel that we could get an issuance done at most channels on the curve, with regards to wear out spread is. It's clearly is wider than what it was earlier this year. I think overall funding costs have gone up. I do feel, what we're saying and one of their peers in the market today. I do feel that we would be pricing somewhere around that at the 10-year sort of 175 to 180 area if we issue today, I think though over -- I think we could probably do better than that, if we were to start to move towards an issuance later this year. So I think we keep our eye on the market very closely. I think we're looking at what can we actually want to do, we look at obviously our maturity profile and then also, which is going to be the amount of capital we actually made to payback some of the debt, which we're going to refinance, and then also some of the, with asset sales as well.

Rich Moore, RBC Capital Markets

Hi, good morning guys. I'm curious, you mentioned that you had reorganized the National Accounts team. And I'm wondering, what was the team like before, and I guess, what makes it better under the new reorganized team?

Yes, Rich. Good morning. It's Paul. Before we had a structure, mostly as multiple and in quite a few account reps scattered, we kept track of, and we did a good job of it. I don't want to make it sound like this is brand new to us. But there was -- it wasn't as coordinated an effort I would have liked. So the biggest difference was really restructuring under Senior VP who reports directly to me, and he's got a fairly senior staff that works exclusively on some of these major accounts in terms of some of things like I mentioned, package renewals and the like. Something obviously, we see whether all of the mall players. And I thought we could do a much better job -- than we have. I mean, it's producing phenomenal results. Doesn't mean the deal makers out there aren't still communicating and coordinating with their retail partners because they are. And they are the deal makers. But when you have so many large accounts, and I mentioned the number 70 to 100 leases with any single tenant we've got quite a number of those and it means that higher level, higher coordination, something that all of us here is at the senior level can get involved in. And it just kind of produce much greater results, and that's the significant change.

Ki Bin Kim, SunTrust Robinson Humphrey.

Thanks. Just a couple of quick ones, the CapEx per square foot you show on page 12, is that TI plus landlord works plus recent commissions, one of your (inaudible) in that bucket? And our second question is just on your same-store base rents, why - I mean maybe you can talk a little bit about the 1.9% versus last quarter's 2.4%, and how that should - if there is any investment pulling that down this quarter, and how that should trend throughout the year? Thanks.

Yes, on the CapEx, Ki Bin, that is all inclusive. We do have our landlord work, tenant improvements or tenant allowance and leasing commissions. So it's all inclusive, which we think is the way everybody should be disclosing their net effective rent. We feel great about where that numbers gone, where the net effective rents have gone, quarter-over-quarter, starting rent was up, CapEx was down approximately 14% on a per square foot basis, resulting in net effective rents that were up 16%. That's a big deal and that's going to pay dividends going forward. In terms of that base rent number, you're looking at in the same-store account. There are couple issues, some of the bankruptcies were in there, Puerto Rico clearly had a little bit of an impact. But what you're often not seeing are the new deals that assign debt at much higher rents that will eventually drive that number up.

And this concludes our question-and-answer session. The conference is now concluded. We thank you for attending today's presentation.

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