Original Source: FD (FAIR DISCLOSURE) WIRE
. Michelle Dawson, Developers Diversified Realty Co., IR . Scott Wolstein, Developers Diversified Realty Co., CEO . Bill Schafer, Developers Diversified Realty Co., CFO . Dan Hurwitz, Developers Diversified Realty Co., COO . David Oakes, Developers Diversified Realty Co., CIO . Christy McElroy, Banc of America Securities, Analyst
. Christeen Kim, Deutsche Bank, Analyst . Michael Bilerman, Citigroup, Analyst . Ambika Goel, Citigroup, Analyst . Craig Schmidt, Merrill Lynch, Analyst . Jonathan Habermann, Goldman Sachs, Analyst . David Toti, Lehman Brothers, Analyst . Michael Mueller, JPMorgan, Analyst
. Carol Kemple, Hilliard Lyons, Analyst . Jim Sullivan, Green Street Advisors, Analyst . Rich Moore, RBC Capital Markets, Analyst
DDR reported 1Q08 FFO of $0.83 per share. 2008 FFO expectation is $3.95-4.05 per share.
A. Key Data From Call 1. 1Q08 FFO = $0.83 per share. 2. 2008 FFO expectation = $3.95-4.05 per share.
S1. Introductory Remarks (S.W.) 1. 1Q08 Highlights: 1. FFO was $0.83 per share vs. $0.91 per share in 1Q07. 2. After adjusting for certain one-time items, results show a [15%] YoverY increase.
2. Corporate Priorities: 1. Remains highly focused on balance sheet and continues to find financing at attractive pricing.
2. Portfolio is well positioned to outperform in an environment
where consumers are more price sensitive than ever and largest
tenants are offering most attractive value propositions to
consumers. 1. While (indiscernible) fundamentals remain strong and consistent with history: 1. Rent growth is solid. 2. Spreads on new leases are strong at 28%. 3. Portfolio lease rate of nearly 96% remains high. 2. Some deceleration in retailer new store growth is expected. 3. Seeing more abundant investment opportunities created by market dislocation.
S2. 1Q08 Financial Review (B.S.) 1. Results: 1. Items included in 1Q07 results that did not reoccur in 1Q08: 1. Release of certain tax valuation reserves resulted in a net $15m tax benefit in 1Q07 vs. $1m of expense in 1Q08. 2. Reduction in other income of approx. $4.3m was attributable to an acquisition fee of $6.3m earned in 1Q07 relating to Inland transaction. 1. Partially offset by $2m increase in lease terminations in 1Q08 vs. 1Q07. 3. Merchant building, land sale gains, and promoted income was $3.5m higher in 1Q07 vs. 1Q08. 4. Interest income was $3.1m higher in 1Q07, primarily due to interest earned on funds placed in escrow for Inland shareholders until transfer agent finalized distributions. 5. Included in 1Q07 G&A cost was approx. $4.9m related to charge associated with departure of a former President and certain Inland integration costs.
2. After eliminating impact of aforementioned items from each
year's FFO, increase in FFO per share was over 15% in 1Q08 vs.
1Q07. 1. Increase primarily attributed: 1. Full qtr. operating result from Inland acquisition vs. just over a month in 2007. 2. Increase in same-store net operating income offset to a certain extent by an increase in bad debt expense. 3. Approximate 40 BP decrease in weighted avg. interest rate in 1Q08 vs. 1Q07.
2. Strategy Review: 1. Primary focus in 2008 will be with regard to balance sheet. 2. Given abundance of opportunities available, DDR can afford to be much more selective with regard to how much capital is committed to construction and progress. 3. Sources of Funds: 1. Majority of asset sales are expected to occur during 2H08. 1. These sales are expected to generate several hundred million of proceeds to DDR and aggregate transactional
income comparable to levels achieved in 2007. 3. Debt Markets:
1. Recently closed on over $500m in new financings including five
year, $350m secured financing on (indiscernible). 1. Loan to value, approx. 55%. 2. Interest rate, 5%. 1. Effective loan to value on these properties has been increased to 70%, as they are also included as collateral to DDR's secured term loan which bears interest at LIBOR plus 70 BP. 4. Other Loan Closings:
1. $71m construction loan on Homestead, Florida development. 2. Refinancing of $72m of JV debt with a partner during 1Q08. 3. 50% JV with Sonae Sierra, which owns and develops retail real
estate in Brazil, closed on a BRL50m credit facility in late
Feb. 4. YTD, 15 properties were unincumbered with an aggregate value of approx. $700m. 5. Closed this week on a three-year $40m construction loan relating to expansion of corporate headquarters in Beachwood, Ohio. 1. Interest rate is at LIBOR plus 110 BP. 6. Actively pursuing additional secured project refinancing
primarily with regard to JVs. 1. Confident these will be successfully completed over next several months. 5. Line of Credit: 1. Line of credit availability at 03/31/08 was nearly $600m.
1. Continues to maintain a substantial unincumbered asset pool
of nearly $6b. 6. Market: 1. Since 2Q07, debt capital markets have been extremely volatile and challenging. 1. Significant financial institutions have experienced unprecedented write-offs and liquidity issues. 2. Currently, lenders appetite for new financing is mixed. 1. Rates available from commercial and investment banks are widely divergent. 2. Larger banks are interested in offering participations. 1. There are good opportunities for local and regional banks. 3. Life companies are becoming more selective. 1. Appear to be more interested smaller loans up to around $50m. 4. Believes it is extremely important to maintain a conservative
balance sheet and access to all types of capital, which
provides maximum financial flexibility. 1. Will continue to operate in this manner.
S3. Business Review (D.H.) 1. Portfolio Management: 1. Strategic portfolio management efforts over last few years in terms of acquiring high quality shopping centers, selling non-core assets, redeveloping existing properties, and delivering new developments have reduced: 1. Avg. age of assets by over five years. 2. A necessary amount of CapEx needed to lease and operate properties.
2. Leasing & Renewal: 1. 1Q08 leased rate, 95.8%. 1. A metric DDR was watching very closely as challenges facing the economy in 3Q07, 4Q07 and 1Q08 were generally expected to negatively impact occupancy. 1. DDR's properties perform consistent with historical norms. 2. Continues to be a healthy demand for quality space.
1. Illustrated by 28% spread on new leases signed during 1Q08. 1. Continues to track well above long-term avg. 3. Executed over 2m sq. ft. of renewals. 1. Posted avg. cash spreads of 7%.
4. For 2008, renewals are 80% complete portfolio wide. 5. YTD, has completed 30 portfolio reviews with many of the most active retailers. 1. Retailers are proceeding with new store expansion cautiously and looking at location and sponsorship as key risk mitigators. 1. Seeing continued opportunities, some presented by
retailers themselves, as dislocation in capital markets continues to eliminate many private developers and creates heightened uncertainty and much less transparency regarding tenants future openings. 3. Goal: 1. With Las Vegas ReCon Convention on the horizon, DDR's goal is to further cultivate strong tenant relationships primarily
focusing on: 1. 2009 deals. 2. Continued leasing of development pipeline, which currently stands at 75% executed or committed. 2. Talking with several tenants regarding a limited number of 2008 commitments, many of which are result of instances where other developers have failed to deliver space to tenants.
3. To date, leasing team has scheduled over 800 meetings for
ReCon to facilitate tenant demand in opening new store locations throughout the portfolio. 4. Through national tenant account program, will continue to monitor, communicate, and actively manage risk that is currently present. 4. CompUSA:
1. Rio Hondo Center, Puerto Rico: 1. 33,000 sq. ft. CompUSA store, largest in DDR's portfolio, was located. 2. Expects a soon-to-be-announced investment grade category leader to assume the former CompUSA space with: 1. No interruption in rent. 2. No retrofit cost to [loss]. 3. Payment of $1m signing fee. 2. In total, had 11 CompUSA locations. 1. Eight currently have either tenant commitments or executed lease assignments with tenants such as Fresh Market, HomeGoods, and [Buy Buy Baby]. 5. Development Business: 1. Continues to see value add …