Developers Diversified Rlty Co at Wachovia 10th Annual Real Estate Securities Conference - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

JEFF DONNELLY, ANALYST, WACHOVIA SECURITIES: We'll get started. I think people are still coming up from our luncheon, and maybe the sound of our voice will bring people into the room. My name is Jeff Donnelly. I work in Wachovia's real estate equity research area. With us today we have Dan Hurwitz, Chief Investment Officer of Developers Diversified Realty. I am hoping Dan, who has probably come over fresh from ICSC, will give us a little bit of insight in what is going on over there; and after some prepared remarks we can open up to Q&A from the floor. With that I will turn it over to you, Dan.

DAN HURWITZ, SENIOR EVP, CIO, DEVELOPERS DIVERSIFIED REALTY CORPORATION: Thank you, Jeff, and good afternoon. We have books that we prepared. I don't really think anyone is here to hear me go through the books. So feel free; Michelle will bring them back. You can go through them. They give a lot of the basic detail on the Company for those of you who don't know us. I will have a few remarks, and then I would hope that this would be sort of interactive and we could talk about the state of the industry; what is going on in the acquisition market; leasing; development; capital markets. I can spend a few minutes telling you what I think is going on over at the ICSC convention, which is -- there is always something, for sure.

First let me say that for Developers Diversified and for most of the REITs in the retail sector today, these are very exciting times. The consumer has proven to be beyond resilient, has overcome many predictions of its demise. As of right now, as we talk to retailers -- and we have over the last couple days, and we will after I am done here and tomorrow -- I am sure I'm going to hear the same story from retailers, which is that sales are on plan or slightly ahead of plan with maybe the exception of Wal-Mart. And that, more importantly than sales, margin has been protected well by taking limited markdowns early in the season, or the markdowns were planned into the earliness of the season, if you will.

Tenant demand as a result is the highest it has been. Open air shopping is still the most desired venue for America's most aggressively expanding retailers. As a result of that, development activity is brisk. We are still seeing very, very strong yields on our development pipeline.

On a risk adjusted basis, we are taking more risk to get those yields. I mean, I can't stand here and tell you that we are getting double-digit yields and creating 400 basis points of spread in value without taking more risk than we did when we were getting 200 basis points of spread in value. But for companies like ours, with a platform that is large enough to have access to information that helps you make those decisions prudent ones, we really have not had any negative impact from taking that additional risk.

On the acquisition side, as most of you have probably heard, we are scheduled to close on a $6.2 billion acquisition of one of the Inland REITs first quarter of next year. The flow of private capital continues to come into the sector for acquisitions, for go-private transactions, which there is lots of chatter about that over at ICSC, as you might well expect. And that private capital is really acting as jet fuel for a lot that we are doing and for a lot that the industry is doing.

Overall, I think that they are now talking there will be over 12,000 people at the ICSC event here in New York, which is really inappropriate for the Hilton Hotel to handle. I think about 6,000 of those people were in a bad mood this morning because they had a very cold shower. There are a lot of really cranky people this morning. The Hilton is sort of at meltdown mode.

But five years ago we had about 4,000 people at that show. So it tells you a little bit about what is happening. There was a time five years ago, you go to that show, it was just developers and it was just retailers. Now you have lenders, architects, lawyers, analysts, investors, and the list is endless. I would venture to say if you look at the growth of the convention, it is not from developers and it is certainly not from retailers. It really is from those other ancillary businesses that support retail overall.

So that is sort of where we are. I think that you will find, going through, as we finish up the holiday season, the good merchants will do well and the bad ones won't. That sounds sort of simple; but one of the things that we often forget in our business, because we think to some extent on the periphery that we may be in the retail …