Q2 2012 Earnings Call

August 01, 2012 10:00 am ET


Samir Khanal - Senior Director of Investor Relations

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Previous Statements by DDR
» DDR's CEO Discusses Q1 2012 Results - Earnings Call Transcript
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» DDR's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Daniel B. Hurwitz - Chief Executive Officer, President, Member of Board of Directors, Chairman of Dividend Declaration Committee, Chairman of Pricing Committee, Chairman of Other Committee, Member of Executive Committee, Member of Management Committee and Member of Investment Committee

Paul W. Freddo - Senior Executive Vice President of Leasing & Development

David John Oakes - Chief Financial Officer and Senior Executive Vice President


Paul Morgan - Morgan Stanley, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Thomas C. Truxillo - BofA Merrill Lynch, Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Quentin Velleley - Citigroup Inc, Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Steve Sakwa - ISI Group Inc., Research Division



Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 DDR Earnings Conference Call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Samir Khanal, Senior Director of Investor Relations. Please proceed.

Samir Khanal

Good morning, and thank you for joining us. On today's call, you will hear from President and CEO Dan Hurwitz; Senior Executive Vice President of Leasing and Development, Paul Freddo; and Chief Financial Officer, David Oakes. 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 those statements are subject to risks and uncertainties, and actual results may differ materially from the forward-looking statements. Additional information about such factors and uncertainties that could cause actual results to differ may be found in the press release issued yesterday and filed with the SEC on Form 8-K and in our Form 10-K for the year ended December 31, 2011 and filed with the SEC.

In addition, we will be discussing non-GAAP financial measures on today's call, including 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.

[Operator Instructions] At this time, it's my pleasure to introduce our CEO, Dan Hurwitz.

Daniel B. Hurwitz

Thank you, Samir, and good morning, everyone. As we navigate through the slow summer months of the retail environment, with the overhang of our presidential election adding uncertainty in the market, we, at DDR, find ourselves in a position of strength with tremendous opportunity. June retail sales results were below expectations for most retailers, but not for all, and most importantly, not for many of our key tenants. Off-price retailers and discount stores grabbed profitable market share, with sales results beating expectations and earnings guidance revised upwardly. Moreover, store opening plans for our retail partners were generally maintained or raised, and the secular negative trend in the traditional grocery business, most recently highlighted by the SUPERVALU situation, will continue to benefit our prime portfolio in the long-term.

From a capital markets perspective, we've made further progress with our balance sheet by opportunistically accessing the unsecured market and, most recently, the preferred market at very attractive rates, resulting in a lower cost of capital and an improved maturity profile.

With regard to our capital recycling and portfolio management activities, we continue to prune the portfolio of nonprime assets and weak retailers and source acquisitions of prime power centers, while simultaneously simplifying our story.

The quality of our portfolio and the credit quality of our cash flows have never been better, and the outlook for continued improvement is encouraging.

Overall, we are very pleased with the consistency of our operating results and the performance of our platform, the sales results and the market share gains of our key retailers, the continued success of our capital recycling program and the continued improvement in our balance sheet to the execution of our capital markets strategy.

While our progress has been steady and consistent, we are constantly reminded of our surroundings and, specifically, the concerns of the market most recently regarding an economic slowdown. The questions we've been hearing indicate a market searching for clarity regarding the growth outlook for our retailers, the propensity for consumers to continue spending and how this translates to the real estate portion of the equation. Given the various moving pieces, it is important to note that retailers make domestic real estate decisions based on sales and profit forecasts and their cost and access to capital, which remains very strong, as opposed to any particular election cycle or events in Europe. We continue to work with our retailers to meet their growth aspirations in a supply constraint environment, and there has been no indication of a slowdown.

In terms of the consumer, we don't have to guess where they are shopping and spending their money on everyday products. Ready-to-wear is being purchased at off-price retailers that offer branded and private label goods at a discount price, as the vast majority of consumers seek bargains and promotional pricing presented in a simple manner. One only needs to look at the recent results of J. C. Penney and the recently announced pricing policy adjustment to confirm this fact. Groceries are being purchased at large discount stores, warehouse clubs and specialty grocers. Consumers in this economic environment more than ever demand value and convenience as they look to maximize their dollar. This plays to our strength.

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