Original Source: FD (FAIR DISCLOSURE) WIRE
. Scott Schroeder, Developers Diversified Realty Corporation, VP,
Marketing & Communications . Scott Wolstein, Developers Diversified Realty Corporation, Chairman & CEO . Bill Schafer, Developers Diversified Realty Corporation, SVP & CFO . Dan Hurwitz, Developers Diversified Realty Corporation, EVP . David Jacobstein, Developers Diversified Realty Corporation, President & COO
The Co. reported that 1Q05 FFO was $0.90 per share diluted and basic vs. $0.71 per share diluted and $0.72 per share basic in 1Q04. DDR reaffirms previous guidance of $3.15-3.25 per share FFO for 2005. 2Q05 FFO is projected to be in the low $0.80 per share range. Q&A Focus: Guidance, cash flow, Puerto Rico.
A. Key Data From Call 1. 1Q05 FFO = $0.90 per share. 2. Expected 2005 FFO = $3.15-3.25 per share. 3. Expected 2Q05 FFO = low $0.80 per share.
S1. Opening Comments (S.W.) 1. 1Q05 Highlights: 1. FFO was $0.90 per share, which represents a 27% increase over 1Q04. 1. Significant contributor was the large amount of merchant building gains that DDR recognized in 1Q05. 2. Asset sales have allowed to grow the Co. by over $4b in about a year, while raising less than $800m in equity. 1. Asset sales have allowed DDR to recycle capital into higher yielding development opportunities, which will generate merchant building gains in the future. 3. DDR's portfolio continues to demonstrate strong leasing fundamentals, which reflect both the growing strength of the Co.'s asset class and the quality of its portfolio. 4. As previously reported in Jan., DDR acquired 15 Puerto Rican shopping centers from Caribbean Property Group for $1.15b. 1. DDR owns three of the ten largest retail assets on the island, and 13 of the 50 largest assets.
2. The transition with these assets has been very smooth. 3. Staffing progress both in Cleveland and in Puerto Rico is proceeding on schedule. 5. During the first four months of 2005, the Co.'s MDT JV acquired several DDR wholly owned assets aggregating approx. $350m in value. 1. These included several recently completed development properties, primarily acquired from JDN, that generated merchant building gains of approx. $38m, $14.5m of which
occurred in 2Q05. 2. In less than two years, MDT's assets have grown to over $2b, which is more than five times the size of DDR and its IPO in 1993.
S2. Capital Market Activity (B.S.) 1. 1Q05 Results: 1. FFO was $0.90 per share diluted and basic vs. $0.71 per share diluted and $0.72 per share basic in 1Q04. 1. The Co. earned total FFO of nearly $113m in 1Q05, which is 54% higher than $73.4m earned in 1Q04. 2. The Co. sold several other operating assets and recognized
over $39m in gains, which were not reflected in FFO. 3. Of the $39m gained, nearly $30m represented an undepreciated economic gain. 2. Capital Markets: 1. During 1Q05, DDR amended and extended all of its revolving credit facilities. 2. Amended the Co.'s $1b senior unsecured credit facility and extended the term of the facility by two years from 05/30/06 to 05/30/08. 3. The amended facility provides for an accordion feature to expand the size of the facility at the Co.'s option up to $1.25b.
4. The facility also includes a reduction in interest rate from
LIBOR plus 80 BP to LIBOR plus 67.5 BP, based on the Co.'s
current corporate credit ratings. 5. DDR also increased, extended, and amended its National City revolving credit facilities by combining the two secured facilities, aggregating $55m into $160m unsecured facility and reducing the interest rate to LIBOR plus 67.5 BP, and extending the maturity to May 2008. 6. DDR also closed on an amendment to its MDT secured revolving credit facility. 1. The amendment extended the maturity to 11/30/07 and reduced interest rate from LIBOR plus 137.5 BP to LIBOR plus 100 BP. 2. Increased the capacity of this facility from $100m to $125m, and added an accordion feature to expand it to $200m.
3. As MDT continues to grow, DDR will look to continue to expand this facility and also move to an unsecured facility in the future as MDT's evolution permits. 3. Philosophy Towards Variable Rate Debt:
1. DDR looks to maintain a floating rate debt percentage of total
consolidated debt between 15-30%. 2. In times when the yield curve is steepening, the Co. may be above the 30% level, and as DDR sees the yield curve flattening, it will look to reduce its exposure to variable rate debt by locking in favorable long-term interest rates. 3. In early Feb., following DDR's acquisition of assets from CPG, the Co. entered into $300m treasury lock and the ten-year treasury was approx. 4%. 4. Last week, DDR issued $200m of ten-year fixed rate senior unsecured notes with an interest rate of 5.547%, and $200m of five-year senior unsecured notes with an interest rate of 5.04%. 1. After applying the benefit of the rate locks that the Co. entered into, DDR's effective five-year interest rate is approx. 4.95% and effective ten-year interest rate is approx. 5.37%. 2. At year-end, DDR's floating rate debt exposure was approx. 20% of total consolidated debt. 3. Following the CPG transaction, that percentage increased to 38%.
4. Following the issuance of the above fixed rate senior unsecured notes, DDR's floating rate debt is approx. 28% of total consolidated debt. 4. Internal Projections: 1. DDR has increased its forecast at rates on floating rate debt to an avg. LIBOR rate of approx. 3% for 2Q05 and 3.6% for 2H05. 2. At 25 BP, LIBOR rate adjustment will have a quarterly impact of approx. $700,000. 3. For the three months ended 03/31/05: 1. Fixed charge coverage ratio was approx. 2.4 times. 2. Debt service coverage was approx. 3.12 times. 3. Interest coverage was nearly 3.7 times.
S3. Leasing & Development (D.H.) 1. Leasing Overview: 1. 1Q05 was extremely active with 303 leases executed, representing 1.36m sq. ft. of retail space. 2. Rental spread on new leases was 18.9%, while renewals were 16.2% for a blended increase of 10.2%.
3. For the DDR core portfolio, which includes the former JDN
assets, but excludes the former Benderson and Caribbean Property Group assets, occupancy …