Site Centers Corp (SITC) 2016 Q4 法說會逐字稿

Good morning and welcome to the DDR Corp. fourth-quarter 2016 earnings conference call.

(Operator Instructions)

I would now like to turn the conference over to Meghan Finneran. Please go ahead.

Thank you. Good morning and thank you for joining us. On today's call you will hear from President and CEO, Tom August; Executive Vice President of Leasing and Development, Vince Corno; and Executive Vice President, Chief Accounting Officer and Interim CFO, Christa Vesy.

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 releases issued yesterday and the documents that we file with the SEC, including our form 10K for the year ended December 31, 2015.

In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same store net operating income. 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, Tom August.

Thank you and good morning, everyone, and thank you for listening to our fourth- quarter conference call. I'm going to give a brief summary of our 2016 results and really spend a few minutes on the progress we have made in the strategic objectives we've outlined in the last conference call. Vince will review the operational results and discuss the status of the retail environment and then Christa will discuss our financial performance and our 2017 guidance.

Before I start, Paul Freddo is in the room with us today and I would like to thank him for his service to DDR. As many of you know, he will be stepping aside at the end of the month. He has been here nine years. He's been an extraordinary contributor and leader to the Company. He's done a great job with Vince on the transition and we will miss him. So Paul, on behalf of all of us at DDR, thank you very much.

Let me get onto our 2016 performance. It's been an active year and I think overall it's been pretty solid. We've leased over 9 million square feet of space, including Puerto Rico. When I give all of these numbers it will include Puerto Rico. Our new leasing spreads have been in excess of 20%. Our renewal leasing has been 7.5%.

Our occupancy, we ended the year at 95%, which was slightly down and that was caused by the TSA bankruptcy. Vince is going to touch on that and how we are doing in releasing those boxes in a few minutes. Our average base rent was up almost 5%. And our same-store was up 3%.

We have sold over $133 million worth of assets that included 50 income-producing properties and nine pieces of land. So pretty active. I think what we all note is that the fourth quarter slowed down a little bit and that was do to our Puerto Rico situation and bankruptcies.

Let me focus now on strategic objectives we had. On the last call, which was late October, early November, we talked about five things that we really needed to address. Number one was additions to the board. If you remember I outlined that we only have five independent board members and committee assignments were kind of tough, so we needed to add a couple and we wanted to add people with a diverse background, a different perspective from those that are currently on the board and members of the management team.

And I'm pleased to say, as many of you hopefully have seen in our press release recently, we added Jane DeFlorio. She joined us for our last week's board meeting. Her background is in capital markets and retail, which is different from others on the board. So I think she is going to be a great addition to the team and we are really delighted that she was able to join the board and look forward to her contributions going forward.

We are looking for a second board member. That process is well underway. And I hope we will be able to announce another board member, certainly by our next conference call, which is in the beginning of May of this year.

On the management side, as we all know, Vince joined us in July, has gotten up to speed remarkably quickly and is providing us with that retail expertise that we would have lost with Paul leaving the Company. So on the retail front I think we are in good shape.

Bill Ross joined us as COO in January. Bill is going to be focusing on our strategic initiatives and asset management, given his background at McKenzie, General Electric and Forest City where he headed up the asset management program. We are delighted to have Bill on the team, as well.

We need to round out the management team. As with the board search, that process is well underway and I should be making an announcement shortly, hopefully by the end of the quarter, if not sooner, on how we filled out the management organization.

Next was our joint ventures. What we wanted to do was we'd like joint ventures to help us with our cost to capital. But we needed to find a partner whose business objectives were more consistent with ours and I think on the Manatee joint venture we have done that. That deal has been awarded. It is under letter of intent.

It is not yet firm or closed, certainly, so I cannot go into too much detail. Let me just tell you that we found a longer-term investor who will be buying out the 80% interest owned by the limited partners. DDR will have the opportunity to stay in as a 20% general partner. Our debt will go down slightly through asset sales. And as currently structured, our fee stream will be extended certainly longer term, and our rights of first refusal will stay in place.

I wanted to spend a minute on this, because this was one of the things we struggled on because one of our objectives is to simplify our structure, our strategy and really reduced, quote-unquote, dots on a map. But we decided this was a good deal for us to go forward with. One, because we had a partner whose business objectives were similar to ours. Secondly, it didn't really reduce our leverage a lot by selling this because we only own 20% and the fee stream would go away.

Thirdly, on a positive side, the fee stream has now been converted from a shorter-term, which was going to end in May or June for somewhat longer. And I think the most important thing from our perspective is that by retaining all of the rights of first refusal there are a number of assets, some of them are power centers, some of them are grocery centers, but they are in markets we know, they are assets we like, and I think when our leverage gets a little bit more acceptable level, this will provide us an opportunity to grow. So overall this was a good deal for us and that is why those are the rationales for moving ahead with it.

On ballroom, that is our joint venture with Blackstone. There is really not a lot to say on that. We have sold three smaller assets. We have a couple more under contract. But we have received no indication from Blackstone of their intention to sell the portfolio or close out this investment.

As you know, we are a 5% equity partner. We've provided $300 million worth of preferred, but Blackstone is a managing general partner so we are just really following their lead on this.

The fourth and probably the one we spent the most time on and is certainly the biggest for us is our leverage. As you know, we had a goal of reducing our debt to EBITDA to 6.0, hopefully by the end of this year.

Before I tell you about our activity let me just give you the very brief outlook on what we are seeing in the market. We're not selling our prime plus assets, but given that a number of people know we are trying to deleverage, we've received a number of inbound calls, and our perception is if there is little change in the cap rate environment on A assets and A market, probably in the mid-5s. There is still a lot of money out there, but what we have seen is that spreads have widened 50 to 100 basis points for B assets and/or B markets.

We are seeing a lot of activity. If there is some sort of value added play to anything we are selling, whether it be redeveloping, repositioning, or retenanting space; buyers want to feel that they at least have the ability to have some upside potential. The market is more limited for stabilized B assets in B markets.

We've made significant progress on selling assets. I think on our last call I indicated I was hopeful that we'd have $250 million or so either under contract or sold by this meeting. And again, this is subsequent to the upstate New York sale, which was for $390-ish million. Since the Q3, we now have $335 million either under contract or sold since that date at mid-7% cap rate. Additionally, we have approximately $225 million to $250 million of assets under letter of intent.

Now, I will caution you; obviously, there is a long way from a letter of intent to a contract to sale, but I just wanted to give you an idea of the activity level where we're seeing. The cap rates on these new deals, again are in the mid-7%s, and we have been selling assets either to get out of some markets where we don't see we have a longer-term future, focusing on selling slower growth assets or upgrading the physical quality of the building.

Our goal is to convert those assets that are under letter of intent and a couple more into contracts and sales, so we are budgeting and hoping for another $250 million to $300 million of these assets sold or under contract by June 30.

I've given you a bunch of numbers, so let me just state this in a little bit different way. On 12/31/15 our debt to EBITDA was 7.4 times. On 9/30/16 it was 7.1 times. 12/31/16 it was between 6.8 and 6.9. Given the $335 million under contract and closed, that should take us down to 6.6. And our budget for mid-year, again with assets closed or under contract, we'll be getting down to 6.4. So lots of progress. A long way to go, but a lot of activity and we've got a lot stuff on the market and I think we are on target to hit our goal, hopefully by year end or shortly thereafter.

The last strategic goal was Puerto Rico. We have made some progress, but it has been slower than we had hoped. We have one group that is looking at the entire portfolio, and we have several that are looking at different parts of the portfolio. All those groups indicated to us that before they could make a firm offer, we needed to know what kind of debt was available for this type of assets in Puerto Rico at this time.

We spent the last two to three months working with investment bankers, brokers and rating agencies, and we have received five, I think, or six offers on debt financing. The quotes were approximately 60% leveraged. Overall the spreads were good, but obviously the gross interest rates have increased little bit as interest rates have risen, particularly since the election. So I think we're presently surprised that we received five or six quotes for 60%-ish loan-to-value properties in Puerto Rico at this time. We have now just started to work with the potential buyers in seeing if we can convert those interests into offers and contacts.

We are not counting on these sales to meet our leverage goals, but certainly would like to reduce our exposure to Puerto Rico. If the uncertainty on the island with the government oversight board, with the new government down there, produces poor offers, then we are prepared to sit and wait until conditions stabilize and improve.

Summarizing on the strategic objectives, on the board, one in place one more to come, hopefully check that box off by May. On the management side, Vince and Bill are in place, which should complete the staffing on the management organization by the end of the quarter if not sooner.

The JVs, Manatee should be closed by the end of next board call or our next conference call. Clearly, on the Blackstone, we are just waiting on that and we are following Blackstone's lead. And on Puerto Rico, we are just beginning to work with buyers, so there is more to come on that.

So with that I'm going to turn it over to Vince.

Thank you, Tom. Good morning to everyone, and thank you for joining today's call. I would like to start off by summarizing results for the fourth quarter and for the full FY16, followed by our outlook and expectations for 2017, and then we will finish with some commentary on the overall retail environment.

DDR produced same-store NOI growth in the fourth quarter of plus 2% at pro rata share, and plus 3% for the full-year 2016. This is exactly at the midpoint of our original guidance of 2.5% to 3.5% for the full year. Not surprising, fourth quarter same-store NOI was pressured by the Sports Authority bankruptcy, which caused a 110 basis point drag, and Puerto Rico, which was down 1.1% same-store NOI for the quarter, and caused an additional 50 basis point drag.

Excluding Sports Authority and Puerto Rico, same-store NOI actually exceeded our guidance at plus 3.6% for the quarter and plus 4.0% for the year. Our lease rate remains high at 95%. Excluding Puerto Rico and retailer bankruptcies the leased rate is actually in excess of 96%. This highlights how well our domestic portfolio is performing and how we are now realizing the benefits of our concentrated efforts to upgrade the portfolio over the last couple of years.

For the quarter, we executed over 400,000 square feet of new leases, and nearly 1.5 million square feet of renewals. This is consistent with the pace of prior quarters. For the year we leased more than 9 million square feet. New leasing spreads for the fourth quarter were up 21.3% and renewals spreads were plus 8.3%, excluding Puerto Rico in both cases.

The average rent on new deals for the year was more than $19 per square foot, which exceeds our portfolio average by more than 20% and drove our overall rent per square foot to grow 4.7% year-over-year. We expect our overall rent per square foot to continue to grow in 2017, as our portfolio quality continues to strengthen, principally through planned strategic divestitures.

I am also pleased to report another strong quarter of built-in new growth, or built-in growth on new signed leases, which was plus 1.4% for both the quarter and for the full year 2016 and represents a 30 basis point increase over 2015.

A follow-up on our Sports Authority stores: as I mentioned in the last call, we have 12 wholly-owned units, three of which were assumed in the bankruptcy process by Dick's Sporting Goods and T.J. Maxx. Of the remaining nine, six are leased or in advanced discussions with a list of retailers that include T.J., Dick's Sporting Goods, Burlington, Ulta, Petco, Five Below, Hobby Lobby and Sprouts Farmers Market.

We expect five of the 12 locations to commence rent in 2017, with the remainder in 2018 at a blended positive spread over Sports Authority's rent in the 6% to 10% range. We're seeing similar success with Golfsmith with whom we had six wholly-owned stores. Dick's Sporting Goods there assumed two leases in bankruptcy and we saw no interruption in the rent stream on those two deals.

We have a committee approved deal and an ongoing lease negotiation with a national high-end home decor outlet in another one of the empty stores at a positive spread, leaving three remaining locations, all of which are the subject of active interest from the retail community. We will continue to update on our progress.

As we turn to 2017, we remain very encouraged by the operating fundamentals of our domestic portfolio and expect deal volumes and economics to be on par with 2016, setting aside the impact of retailer bankruptcies in Puerto Rico. Our 1% to 2% same-store NOI guidance range outlined in yesterday's release accounts for continuing challenges in Puerto Rico and a possible wide-ranging contraction of a national junior box retailer on the low end of that range.

While 2017 shapes up as a transitional year for DDR, we have staked our path to return to same-store growth in the high 2%, low 3% range in 2018, and we are determined to capitalize on the transformational improvements that we have delivered and continue to deliver with our domestic portfolio. On balance, the portfolio quality has never been better and 2018 shows promising growth once we get our Sports Authority and Golfsmith spaces back online.

I would also like address our redevelopment pipeline. I personally visited many of our assets since I started last summer, and continue to be encouraged by potential opportunities that we have to add value to our centers. In the fourth quarter we placed $16 million of construction in process into service at an 8% yield, as Dick's Sporting Goods and Five Below opened up at Kenwood Square in Cincinnati. I would encourage everyone to see this redevelopment as it is a proud accomplishment for our Company.

We are on track to place an additional $80 million of CIP into service over the course of 2017 at high single digit yields, roughly half of which is incremental to same-store NOI. This includes expansions at our recently opened Lee Vista Promenade in Orlando and Belgate Shopping Center in Charlotte North Carolina. We are also on track to place into service Puerto Rico's first Dave and Buster's at Plaza del Sol. That will open up in the fourth quarter of 2017.

We continue to comb the portfolio for major redevelopment opportunities and are actively pursuing projects at trophy assets, like Shoppers World in Framingham, Massachusetts, Midtown Miami and Woodfield Village in Schaumburg, Illinois.

As everyone knows, the retail environment is going through a fundamental change, and in 2017 we expect the disruption to continue. Nonetheless we believe that DDR's high-quality power and grocery-anchored centers are formats that are positioned not only to survive, but to thrive in the new retail order that is unfolding.

We are encouraged that many of our retail partners, especially off-price and discount, are posting solid market share gains with comps in the plus mid-single-digits and even higher. It is no secret that many retailers that favor power centers are benefiting from the fall-out of the malls and the department stores. Grocery stores in our portfolio continue to do well and drive daily traffic to our centers. We feel very good about the strength of our retailers and certainly value their continued partnership.

In addition to our compelling and industry-leading retail, convenience also sets us apart. Our centers are manageably sized, they are easy to access with ready curbside surface parking at the retailer's doorstep. We are finding that the American shopper is now more mission-focused in their shopping trip and the ease of getting in and out is more important than ever.

For this same reason our centers are well-suited to serve the evolving dual purpose role of bricks and mortar stores, as both a shopping venue and a logistics distribution point. Winning retailers are working to perfect direct buy online pickup in-store, and buy online ship-from-store models, and our real estate format is ideal for this adaptation.

Having said that, I also acknowledge that challenges lie ahead. Since the beginning of the year there have been multiple and notable retail bankruptcy filings and store closers, but fortunate for DDR shareowners, to date these bankruptcies will have little or no effect on our portfolio.

It is conceivable, however, that we will see additional bankruptcies and store closures potentially impacting our portfolio in 2017. As we always have we will continue to closely monitor at-risk retailers and get out in front of potential vacancies. We've also done a good job of mitigating this risk on the front end by identifying struggling retailers early and reducing exposure in new deals and through divestiture.

We are also very proactive in trying to get these spaces back in advance of the bankruptcy filing or store closure announcement. In that vein, there are a few tenants that have garnered recent headlines that their mentioning. hhgregg is in 10 wholly-owned DDR centers and six joint venture centers, paying pro rata ABR of about $3.8 million, or 55 basis point. Two of the 16 assets are currently on the market for sale in 2017. That will reduce our exposure to 45 basis points and lower hhgregg to number 47 from number 41 on our top 50 tenant list.

In place rents averaged $11, which is far below where new junior box rents are today and offers a significant positive spread opportunity. Many of hhgregg's stores in the DDR portfolio report sales that are in line, or exceed Company average, which would arguably reduce store closure risk in the event of a reorganization.

Payless ShoeSource has also been mentioned in the media. DDR has 41 Payless locations at 125,000 feet total. Pro rata ABR from Payless, approximates $2.2 million, or 30 basis points, which would put at about number 60 on our top tenant list. These are generally small spaces at around 3,000 feet, and we are optimistic that we'll be able to fill these as we always do in the ordinary course.

Gander Mountain is another one that has been in the news, with which we have five stores and 20 basis points of ABR. Our exposure here is minimal, as we have the three wholly owned locations, all of which are either under contract or slated for sale this year. That would leave us with $100,000 or less of rent exposure.

We're very comfortable with her manageable exposure to these retailers should they close stores and/or file bankruptcy, and are optimistic that we'll backfill any surrendered stores with stronger retailers at better rents.

Before I finish I would like to address the flood of recently announced department store closures and the shadow supply that will soon be on the market. We are always laser focused on potential risks to our assets, and while it remains to be seen whether retailers are real estate agnostic, as some espouse, I do know this: great retailers want to be next to other great retailers in easily accessible centers with convenient parking that generates high traffic counts in their prototypical box at rents that are proportionate to sales. On all counts DDR's portfolio is an industry leader and we remain highly confident in the long-term sustainability and growth of our business model. That concludes my comments.

I will now turn the call over to Christa.

Thank you. For the fourth quarter, operating FFO was $111.1 million, or $0.30 per share. Including nonoperating items, FFO for the quarter was $111.2 million, also $0.30 per share. For the full-year, operating FFO was $468.4 million, or $1.28 per share, which is a 4.1% increase over the prior year. Including nonoperating items, FFO for the quarter was $466.2 million, or $1.27 per share.

During the fourth quarter we closed on the sale of 24 operating assets and three land parcels for $497 million of our share bringing the full year total to 50 operating assets and nine land parcels for $833 million at our share, in line with the revised 2016 disposition guidance of $700 million to $900 million. These transactions carried a weighted average cap rate of approximately 7.5%. So far in 2017 we have closed on the sale of three assets for $31 million and are under contract to sell an additional $168 million.

Additionally, in 2016 we closed on the previously disclosed acquisition of two power centers located in Phoenix Arizona and Portland Oregon for $148 million, and subsequent to year end we also closed on the acquisition of 3030 N. Broadway, a132,000 square foot urban shopping center anchored by a Marianas grocery store, located in the Lincoln Park neighborhood of Chicago for $81 million. The Chicago acquisition in the first quarter was originally scheduled to close in the fourth quarter of 2016, and would've represented an acquisition total for the year of approximately $230 million, which is in line with our guidance off $200 million to $300 million.

Additionally, this acquisition represents the Company's desire to not simply acquire large format power centers, but to own and acquire the highest quality real estate that represents an opportunity for growth and net asset value creation. This acquisition was the primary driver of the $100 million of acquisition activity disclosed in our 2017 guidance release.

Before I discuss our 2017 earnings guidance further, I would like to provide some context surrounding the ranges provided in last night's press release. Given the uncertainty surrounding the potential transactions we are contemplating, including a significant volume of wholly-owned dispositions, our commingled Manatee joint venture, the two Blackstone joint ventures and the associated preferred equity, as well as the potential reduction of our exposure in Puerto Rico, we do expect that our range could change during the year.

We will be as thoughtful and communicative as possible in our commentary to the investment and analyst community to provide as much information as possible as we move throughout the year. While we understand guidance changes are cumbersome, we are making critical decisions in 2017 to set the Company up for a clean slate of earnings growth in future years.

Regarding our 2017 operating FFO guidance, last night we released an operating FFO range of $1.12 to $1.16 per share. The reduction in projected earnings relative to 2016 primarily is driven by our strategic decision as a new management team to delever further with a target of 6 times debt to EBITDA.

While we do not take the earnings dilution expected in 2017 lightly, we have made the decision to prioritize our balance sheet over earnings growth in an effort to soon position DDR to benefit from a largely strong cost of capital from a relatively strong cost of capital in an effort to generate outside future growth. Given our view that DDR's share price remains below net asset value, our primary source of capital will be asset sales between $800 million to $1 billion, exclusive of the DDR's pro rata share joint ventures and the associated repayment of any preferred equity.

We expect the cap rate on these dispositions to be in the mid to high 7% range and occur largely through the final three quarters of the year. In addition, our current guidance range does not specifically contemplate a potential opportunistic sale of any portion of our Puerto Rico portfolio.

Proceeds from all asset sales and investments will be used exclusively for debt paydowns, which currently contemplate approximately $600 million of near-term unsecured notes at a weighted average interest rate of 6.1%, and $360 million of wholly-owned mortgage debt at a weighted average GAAP interest rate of 3.8%. I would like to point out that the 3.8% GAAP rate does carry a cash interest rate of 100 basis points higher resulting in an artificial earnings benefit today, but a headwind upon paydown of refinancing.

Combined in 2017 we expect to pay off over $950 million of near-term debt maturities at a GAAP rate of approximately 5.4%, with pre-payment penalties of less than $10 million. The prepayment penalties will make up the difference between the operating and NAREIT FFO ranges provided.

Regarding the joint venture related line items, we expect between $30 million to $33 million of fee income, down slightly from 2016 as a result of a $2.6 million one-time fee in the second quarter of 2016, as well as the potential decrease in fees as a result of the Blackstone joint venture.

The timing of the exit of that venture remains uncertain, and as such, our interest income guidance contemplates the preferred equity remaining outstanding for the majority of the year. As Tom mentioned, we also expect to remain a 20% partner in our 55-asset Manatee joint venture.

Additionally, we expect 2017 G&A to be flat to slightly higher than 2016 at $77 million to $80 million, and our dividend to remain flat in 2017 as our payout ratio is impacted by reduced operating FFO.

On the operational side, same-store NOI will be pressured in 2017 as the recent bankruptcies of the Sports Authority and Golfsmith, as well as deteriorating fundamentals in Puerto Rico will weigh on performance. The full impact of these major tenant bankruptcies are reflected in our same-store NOI for 2017.

For context, we guided in our release to a range of 1% to 2% same-store NOI growth in 2017, which was driven by approximately 100 basis points from the full year 2017 impact of these bankruptcies, and another 50 basis points from Puerto Rico, which is expected to produce negative 3.5% to 4% NOI growth in 2017.

While the same-store headwinds are a challenge during our transition year in 2017, we are encouraged by the domestic portfolio run rate, which, when excluding the impact of Puerto Rico and bankruptcies would have been approximately 3%. As the final item on 2017 guidance, we expect to deliver approximately $80 million of redevelopment, largely back-half-weighted at cash on cost yields in the high single digits.

As you know we bifurcate out major projects like our expansions at Belgate in Charlotte and (inaudible) in Orlando, as incremental NOI towards same-store growth. As a result, approximately half of the $80 million that will be placed in service during the year is considered major and therefore incremental for that same-store NOI figure.

Finally, I would like to discuss the expected impact of our 2017 capital allocation decisions on future earnings. Given the significant amount of transactional and joint venture activity projected for this year, there is a risk the timing of that activity bleeds further in the year and therefore may lead to further dilutions the following year.

While 2017 represents the final year of our major disposition and joint venture wind-down activity, it nonetheless has a multi-year effect and could lead to a multi-year negative impact on earnings growth. Our strategic goal is to position this Company with a best in class balance sheet, portfolio and earnings growth trajectory. While we have full conviction in the long-term decisions outlined on this call, we are more excited about the future of DDR and the growth and stability that those decisions will lead to.

I will now turn the call over to the operator for questions.

(Operator Instructions)

Christy McElroy, Citi.

Hi, good morning, guys. Christa, you mentioned the multi-year negative impact on earnings growth. Just looking at the $800 million to $1 billion of asset sales in 2017 that you expect, if you're not transacting on Manatee, how much is in there, for the Blackstone JV or for Puerto Rico? And can you give us a sense for what else is in that bucket? And assuming it doesn't encompass all of the Blackstone JV, or maybe it does, and you would still like to sell Puerto Rico, looking beyond, how much more dilutive could that be?

So if $0.30 is the Q4 2016 quarterly number, what's the steady-state quarterly FFO, after you do everything that you want to do; is it $0.25, $0.26? For the market to accept all of the things that you're doing, and the potential of dilution associated with that, those changes, it would help to have a sense for what the floor, and FFO could be?

Sure. So just to back up a bit, from a Blackstone perspective, we really aren't projecting much of an impact on the 2017 earnings. Anything that would happen, is something that could be more end of year, so that's also from a fee standpoint.

When you look year over year, just bridging from 2016 to 2017, and looking at that maybe $0.12 to $0.14 decrease in operating FFO, we're looking at about maybe $0.09 of that, is a combination of probably 2016, that's the full-year impact of the 2016 asset sales, as well as what we're projecting for 2017.

Also looking at the bucket of the asset sales, when you're talking about the $800 million to $1 billion, as Tom mentioned, as I mentioned in my comments, that's not really something that's specific to Puerto Rico. That's just looking at an overall general bucket. So that's something, as we progress during the year, and we make progress on our asset sales, we'll probably have a little bit more color as to what that -- how that run rate, could get impacted.

Ki Bin Kim, SunTrust.

Thank you. Good morning, everyone. Could we talk a little bit about perhaps the evolving dialogue you're having with the buyers that are looking at the Puerto Rico assets, how has the buyer pool changed? What is the -- if there is any repricing activity that's happening?

And the second part to that question, and maybe even more important is, if you get all the asset sales including Puerto Rico done, what is the remaining pro forma quality of DDR portfolio look like? And if you can maybe apply some operating [statistics] or demographic data around it, so that maybe the market can better appreciate -- even though you have less earnings per share, what's that quality looks like?

Let me address the Puerto Rico first. First of all, the best way to characterize it, is it clearly it is they are private companies. There are no public REITs, that are interested right now.

There's a recognition that Puerto Rico may be a great investment at this point in time. But if, somebody doesn't want to get on this thing quarter to quarter, and have to explain it for the next two or three years, while it turns around. So all the buyers -- not all the buyers -- the buyers we're talking to, are all private buyers. They're all fund type, raising money, and they all see Puerto Rico as, even with today's raised interest rates, they see it as a good cash flow projection, that they can make some cash flow on, and hopefully benefit on the upside when the thing turns around and stabilizes. So that's where Puerto Rico is. I can't remember --

So Ki Bin, it's Matt. On a pro forma portfolio, obviously this would exclude Puerto Rico being a part of the conversation. As we outlined $800 million to $1 billion of assets sales, likely domestic, we're probably looking at an asset count in the low-200 range, certainly fewer JVs, if Blackstone goes away. Very hard to peg demographics on that.

We have it internally, but obviously, it's a mixed bag of asset sales. We don't know when it's going to hit, so it's hard to peg that. Rent per square foot, you see today, roughly $15.50, that should be north of $16. Once we get done with asset sales, you're looking at a larger overall asset size. And notably, you're looking at a growth rate as we're selling 0% to 1%, potentially negative growth rate assets in the 2%, to closer to 3% range.

Todd Thomas, KeyBanc Capital Markets.

Hi, thanks. Just wanted to follow-up a little bit on Puerto Rico, and the transacting there. So you have some interested parties, you have some indications for debt financing, so it comes down to pricing.

And I was just wondering, if you could characterize, where pricing is on some level? And then, what would be a reasonable timeframe to get something done from this point forward, if something were to get done here at this point in the cycle?

Well, I can tell you -- I'm not going to tell you what reasonable pricing is. We are going to wait and see, and then we'll make a decision when we get that in. In terms of timing, I would hope we will have some indication within the next 30 to 60 days, and then it would probably be another 60 to 90 after that to close something, assuming we got acceptable offers.

Look at where the market is changing pretty dramatically, even from the last six months to now. So we want to be flexible, but prudent and reasonable on what we can live, with in terms of pricing on any asset sale in Puerto Rico.

Jeremy Metz, UBS.

Hey, guys. You talked about some increasing interest from the mall-based tenants. I was just wondering, if could give us more color, on exactly what you're seeing on this front? And then with the Golfsmith and Sports Authority leases, you mentioned Gander Mountain, probably going to get some spaces back from the Office Supply names.

I'm just wondering, how deep really is the tenant pool, and demand today for these bigger boxes, and how many of these are more going to be candidates to split into smaller boxes, when maybe the demand is a little stronger? Thanks.

This is Vince. I will tell you that right now, we see is pretty robust demand, as we've improved the overall quality of our portfolio. The boxes that we're getting back, we're really not having, or lacking for demand for the most part. I would tell you that, with respect to the small shop tenants, we've seen a rise in overtures from retailers that historically been mall-based tenants, expressing interest in exploring possibilities of coming into our centers.

In recognition of the fact, that certain malls in this country may be subject to risk, given the department store status. But all said, we're finding tenants, and the demand we see is robust for the vast majority of the boxes that we're getting back. And we feel very good that we can redeploy these boxes with better quality retailers, that would be accretive to the merchandise mix of the center, at better rents in most cases.

Vincent Chao, Deutsche Bank.

Hey, everyone. I know we spent a lot of time on Puerto Rico here, but just curious, you mentioned getting five to six quotes, and being happy about that on pricing for the financing side of things. I'm just curious, when those quotes were provided, and whether or not they contemplated some of the deterioration here we're seeing in the fourth quarter, as well as expected in 2017?

I can't answer what they were contemplating. I can tell you that the quotes came in mid-to-late January -- mid January, certainly mid-to-late January, So they're pretty up to date.

Thank you.

George Hoglund, Jefferies.

Yes, one more on Puerto Rico. You noted the 60% potential LTV, but how much additional financing do you think a potential buyer would be looking for, in terms of would they also be looking for mezz debt, any preferred equity? And would DDR be willing, or think it might be necessary to provide any seller financing?

Some form of secondary financing would probably be required. And depending upon the pricing, and where it fits in the capital stack, we would be flexible, and certainly consider it, if it made the deal happen.

Rich Hill, Morgan Stanley.

Hey, good morning, guys. Promise I'm not going to ask about Puerto Rico. I was curious about some of the comments, you made about Class B assets, and specifically maybe some of the demand that you were seeing for value-add plays, whereas the market activity was more limited for stabilized B properties in B markets.

So I was hoping maybe you could give a little bit more color on the 50 to 100 basis points cap rate widening that you're seeing in B assets, separated between value-add plays, and stabilized B properties? Is it uniformly 50 to 100 basis points, or is what's attracting the value-add plays, is maybe those have widened out a little bit more?

Hey, Richard, it's Matt. So based on Tom's commentary, I'd say we haven't seen any irrational widening of that. You'd argue that 18 months ago, it could've been irrational, in terms of stabilized B-quality centers, or A assets in B markets where those were trading sub [7] in the power-center space.

We've seen that widen roughly a 100 basis points, we've seen in the high [7s] today. I don't think that's a proxy at all for DDR, most of the REIT portfolios, as most -- the bulk of our assets are A quality assets in A quality markets. But As and Bs in B quality markets is what we're selling today. That's certainly have gone out. Value add certainly gets doubled or tripled, the number of bidders.

If you're selling 100% leased center, that's a good solid bond, in a B market today, you're going to have one-third the bidders that you will, if you have a vacant box. And whether or not those potential buyers can do better than DDR could potentially do, remains to be determined. But certainly more bidders, better pricing, and probably for the value-add component. Who knows on the cap rate at this point, as we market this stuff, but you're probably two to three times the number of bidders for those assets.

Alexander Goldfarb, Sandler O'Neill.

Good morning, up there in Cleveland. First, Tom, nice to see some new blood on the Board, and look forward to that continuing. Just a question on the Manatee, on the Inland JV You guys before had spoken about simplifying DDR exiting the Blackstone; obviously, you've got Puerto Rico on the market, and the also exiting the Inland, as a way to clean up the portfolio, get away from the JVs, and just have really wholly-owned assets. So just curious, why you are deciding to stay in the Inland JV?

Alex, it's several reasons. Number one is, we found a partner who extended, so it's a little bit longer term, rather than the shorter term deals that we're in. Secondly, and again most importantly, is we are undergoing a significant downsizing now, as we're selling assets. We'd like to think at some point we're going to be growing.

So to us, that this was a nice bridge from point A to point B, we keep the fees in place. We keep the ROFRs in place on assets that we really like, both grocery and power centers. And we're thinking then, in the not-too-distant future we will be able to exercise that ROFR on a number of assets, and convert them from a 20% owned to 100% owned. So A, it bridges up a little bit, certainly with fees. And secondly, it provides us an opportunity, a leg up, obviously with a ROFR, to buy assets that we really like, to buy when our debt levels are a little bit more acceptable.

Haendel St. Juste, Mizuho.

Hey, so I won't promise that I won't ask you any more questions on Puerto Rico. But my question is, Tom you mentioned that there is more demand for select pieces of the portfolio in Puerto Rico, which I assume means the better quality assets a la a Plaza del Sol. So I'm curious really, how viable or likely a partial sale really is? How would you explain that to the marketplace, especially if it would leave you with lower quality, less desirable assets in Puerto Rico? And as an addendum to that question, can you gives us a broad sense of what the cap rate differential for the upper and lower quality assets in Puerto Rico portfolio, compared to the US; your comparable US assets? Thanks. Thanks.

Well, I can't answer all of that. But I can tell you this; we are recognizing that if we sell part of the portfolio, we want to be left with something that's salable as well. So if we have 12 assets, we're not selling the top four, and we're going to stick with the bottom eight. We are going to sell enough, so that we are comfortable with what we have left.

And to be honest, there have been so few asset sales in Puerto Rico right now, I don't think we are in a position to tell you with the cap rate is. We're anxious to find that out for ourselves, from our buyers. But you can rest assured, that we are keenly aware that people would like to buy the best assets, or the best two assets. And we recognize that if we don't sell the whole thing, we have to be left with something that is salable once things stabilize a little bit further.

Tom, I could add something to that, for the most part, across the portfolio, the 14 assets that we have on the island, they range from power, to strip, to malls. All of those formats we're comfortable with. If we mix and match, and there is a partial sale, we have expertise to be able to run very, efficiently with the balance.

Michael Mueller, JPMorgan.

Yes, hi. Going back to the JVs for a second. The comment was, in 2017 you're wrapping up the major JV repositionings. So it looks like you have found a new home for Manatee on Blackstone. It doesn't sound like we should bank on something happening in 2017.

Is there anything else that we should be aware of that's on the horizon, in terms of the JV unwinding? And by the end of 2018, do you think you'd be in a position where the Blackstone JV is gone, Puerto Rico is gone. Is that what you're aiming for?

Well, first of all, we really are not in a position, and have no indications from Blackstone as for the timing of the Ballroom sales. So, it's not going to be forever, but I can't give you a better answer. We have modeled it, very little happens this year, from an earnings perspective.

In Puerto Rico, we're anxious to do something, but we're anxious to do something on a prudent basis. So we hopefully will find out what that translates into in the next 60 to 90 days, as these potential buyers come up with offers. And then we'll just have to give you more update on the next conference call. But I don't want to project anything right now, because I just don't know.

Carol Kemple, Hilliard Lyons.

Good morning. It looks like in the fourth quarter, there was about a100 basis point spread between the leased and commenced rate. Do you expect that to be similar at the end of 2017, or do you expect that to close? And if so, where do you expect that spread to be?

I'm sorry. That was the 100 basis point spread between leased and commenced? Was that the question?

Yes, 140 basis points between leased and commenced.

What I would tell you is, that we have a number of -- this level is pretty consistent with what we have seen in the past. The 40 basis points -- we have a number of larger deals that are the pipeline, it's unique just to this particular quarter.

We have a first time, for instance at Dolben Village here in Kansas, 30,000 square feet. So I would say to you, that this is just ordinary course differential, there's nothing in there that is unusual.

Okay. Thank you very much.

Michael Gorman, BTIG.

Thanks, good morning. Could you just spend a little time talking about the G&A run rate, and how you think about the platform going forward? You're about a net seller of $700 million last year, another about $1 billion this year. You talk about simplifying the platform. So can you put that into context with the 3% increase in G&A at the mid point, and where you think that goes from there?

Maybe you should take that, Christa? I don't even know --

On a full-year basis, when we look out, at the 3% increase, we think that's pretty reasonable. We feel comfortable where we fit today with the portfolio, that our level is in line.

It's not unreasonable, particularly compared to where we see our peers. Obviously, it's a number that we're mindful of, and we pay close attention too. But when we look out again, how we've trended as a percentage of revenue over the years on the portfolio side, we see that number, there's room for improvement, but it looks pretty in line for this next year.

Christy McElroy, Citi.

Good morning, it's Michael Bilerman with Christy. Tom, I have just two questions. One, in your opening comments, you talked about having some announcements by the end of the quarter, if not sooner, on the completion of the Management Team. And so, I'm just curious, maybe you could expand a little bit on that? But also talk about the G&A impact, and whether that's in the $77 million to $80 million or not, in the terms of the types of hires that you're looking to make?

And then, the second question relates to FFO and the trajectory. And you and Christa both talked about there's a lot of things that are out there, and the guidance is going to change through the year. One thing that would be helpful for the Street is start to focusing on, where you're going to be, when all is said and done.

And perhaps thinking about where you're going to be on the fourth quarter, after you've at least completed what you've laid out in the guidance of almost $1 billion of sales, and the same store, what is that quarterly FFO in the fourth quarter? And then, we can start modeling in the Puerto Rico. We can start modeling in Blackstone, and the Street can start focusing in on, what the bottom level is of FFO? So that they can get comfortable in buying the stock. And having that disclosure, and having those numbers would be very helpful.

Unfortunately, Michael, I cannot give you too much more color. Obviously, as I said the -- we're well underway in the process of finalizing the management organizational positions. We're in good shape. If we find a real good guy who wants a lot of money, we will pay him, [despite it might] affect the G&A, but right now, we are in good shape on this.

Michael, it's Matt. On FFO growth, as we think about modeling, and in conjunction with how you think about it, it's not lost on us, that our trajectory is down significantly this year. We are contemplating internally what the run rate of that is.

Based on the same store -- long-term same-store guidance of this portfolio, which we have not given yet, and we will articulate to the market, of hopefully something closer to 3%. And in addition to our redevelopment pipeline and transactional activity, a range of 4% to 6% FFO growth is something that we're targeting internally. So we'll be out with those assumptions soon.

One thing we do want to note to the market, is that in 2018, as a result of significant transactional activity in 2017, it will pressure -- it will likely pressure earnings in 2018, and we hope that that's modeled in, and we'll work with the Street on that. But after the impact of those asset sales, we do expect to be a 4% to 6% FFO growth Company, healthy dividend growth on top of that, to get to a high single-digit FFO -- or excuse me, total shareholder return after that.

Chris Lucas, Capital One.

Hey, good morning, everyone. Tom just trying to get a little clarity on the disposition pool, given the fact that you removed the JVs from that as a potential source, or not a likely source of proceeds. And Puerto Rico also not being included. So what I'm wondering is, what risk is there that, out of the $800 million to $1 billion of asset sales that you're targeting for disposition this year, how much of that is actually going to be in a prime, or prime-plus-type category or [must] essentially being sold, in order to meet the leverage guidance?

What we have done, we've prioritized the sales in terms of -- as the metrics I outlined at the beginning, whether it be the slow growth markets, we don't want fully leased. And so, far so good.

I do suspect that as the year progresses, there will have to be some trade-offs we're going to make, because not everything is going to hit. We're going to find some markets, as Matt alluded to before, where maybe it's a stabilized B market or B asset, and people just -- the cap rate is too wide for us to swallow. So as of yet, we hadn't had to make those trade-offs.

So I would think that -- maybe I'm, this is just as a wild guess, it's $200 million to $300 million, maybe we'd have to go to prime assets, if some things fall out of [that]. But so far we've go a list of assets that we are comfortable with, and so far the market is absorbing them. If it changes, we clearly, going to have to make some decisions. But I don't think it's going to be substantial.

George Hoglund, Jefferies.

Yes, just looking at total potential asset sales in 2017, hypothetically, if you got a bid, an acceptable bid for the whole Puerto Rico portfolio tomorrow, would that impact how you viewed the remaining asset sales? Or could we end up in a scenario, where we've seen $1.5 billion to $2 billion of asset sales in 2017?

Well, let's get that offer, and that would be a great position for us to be in, but clearly, it would effect it. Especially just as we reflect on the previous question that was asked. If we have to start trading off, between prime assets and selling things, if we can get Puerto Rico sold, I'm sure it will make us, and the Board rethink, how much we should be selling to get our leverage down. And maybe we'll go a little bit lower than [6], and maybe will just decide that that's enough. And clearly, there will be some trade-offs that we make, if we get an offer from Puerto Rico that's acceptable shortly.

Ki Bin Kim, SunTrust.

Thanks just a couple quick ones here. If Puerto Rico doesn't happen to the degree you're expecting, does that effectively make you want to slow down other asset sales, because Puerto Rico would take up more of your NOI, a slice of that NOI pie? And the second question, you mentioned cap rates in the A markets or A assets, just broadly speaking, what percent of your portfolio's NOI is in that group?

We have a goal of getting to the [6.0] times. We haven't budgeted Puerto Rico being sold in here. So I don't think as I sit here today that, that would affect our thinking very much.

When we get done, we'll have to deal with Puerto Rico some other way. So that answers the first question. Matt, I'll let you take the second part.

Yes, Ki Bin Kim, it's Matt, and we'll provide you with a much better breakdown of the portfolio, post asset sales. At this point today, A assets in A markets classified by call it, the top-30 MSAs were very, very strong growth assets. In the top-50 MSAs, you get to probably three-quarters of the portfolio that's in there. The remaining 25%, you're going to have Puerto Rico. And then you're going to have A assets in B markets, and that's some of the stuff on the market today. Very, very little non-prime, prime-minus stuff, so credibly, three-quarters of that is As in A markets.

Floris van Dijkum, Boenning.

A quick question for you in terms of property type, it sounds like maybe you're more open to broadening your -- the type of ownership, obviously, the acquisition in Chicago is more of a lifestyle urban, lifestyle health center, and Manatee has a lot of grocery anchors. Are you -- do you think that the composition of your portfolio in two or three years time, could have a lesser weight to power centers?

It may change, what we're looking at, in terms -- and I don't think -- it's not a total strategy shift, but 70% of our portfolio today has some grocery component to it. And what we've seen, is the quality, and how we're able to handle groceries, especially in markets where we have a big presence, we're very comfortable with.

So we're going to be focused. Clearly, going to be a power Company, but focusing on good real estate in good markets, and if it's -- and especially if we have a presence here, we're more likely to stick with grocery than otherwise.

Christy McElroy, Citi.

Just a quick question. On the disposition, the $800 million to $1 billion, what is the range of cap rates on the aggregate dispositions, does it better than your guidance? And secondarily, I assume those are excluded from the 1% to 2% same-store growth. But what would that collection of assets have done, in terms of same-store performance? Or what would the total portfolio have been, if those assets were included?

Overall, we're in the [7.5-ish] range for everything we're projecting to sell, unless I -- Matt, did you understand that?

Yes, so they're in the [7.5-ish] range for what we're selling, Michael. One thing, one caveat on that, based on your follow-up question on growth, is that we view the NOI of a lot of these assets at risk. And so, the year-one cap rate is not overly indicative of a cash flow growth profile of these assets, which is why they're on the market.

And so, the NOI growth is certainly below what we're projecting for the long-term growth rate of this Company, that 2% to 3%, hopefully on the higher end of that range. So the ones we're selling, are -- you can assume they're credibly in the flattish to potentially negative growth rate range.

This concludes our question-and-answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.