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Developers Diversified Realty Corporation (



Q3 2010 Earnings Call Transcript

October 26, 2010 10:00 am ET


Kate Deck – Director, IR

Dan Hurwitz – President and CEO

David Oakes – Senior EVP and CFO

Paul Freddo – Senior EVP, Leasing and Development


Alex Goldfarb – Sandler O’Neill

Jay Habermann – Goldman Sachs

Christy McElroy – UBS

Craig Schmidt – Bank of America/Merrill Lynch

Michael Mueller – J.P. Morgan

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Jim Sullivan – Cowen & Company

Laura Clark – Green Street Advisors

Rich Moore – RBC Capital Markets

Quentin Velleley – Citi



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» Developers Diversified Realty Corporation Q3 2009 Earnings Call Transcript

Good day, ladies and gentlemen and welcome to our third quarter 2010 Developers Diversified Realty Corporation earnings conference call. My name is Candall and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) I’d now like to turn the conference over to Ms. Kate Deck, Investor Relations Director. Please proceed.

Kate Deck

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 and Chief Financial Officer, David Oakes and Senior Executive Vice President of Leasing & Development, Paul Freddo.

Please be aware that certain of our statements today may be forward-looking. Although we believe that such statements are based upon reasonable assumptions, you should understand 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 31st, 2009 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 dated October 25th, 2010. This release in our quarterly financial supplement are available on our website at

Lastly, we will be observing a two-question limit during the Q&A portion of our call, in order to give everyone a chance to participate. If you have additional questions, please rejoin the queue. At this time, I’ll turn the call over to Dan Hurwitz.

Dan Hurwitz

Thank you, Kate. Good morning and welcome to our third quarter earnings conference call. To begin the call, I would like to provide an update on our continued progress toward 2010 year-end goals. In January of this year, we issued earnings guidance complete with specific operational and financial targets and as of September 30th, we have made measurable progress toward achieving those goals.

The metrics, I will discuss, represent key components to our 2010 full-year goals and as you will see, our progress to date is significant. 2010 full-year guidance indicated a year-end lease rate of 92%. As of September 30, we have achieved that goal.

We expect continued positive momentum in leasing volume and as a result, we will exceed expectations within anticipated year-end lease rate of 92.25%. Paul will speak to this in more detail a little later in the call.

2010 guidance assumes full-year same-store NOI to be flat to slightly positive. As of the end of the third quarter, our year-to-date same-store NOI was positive 0.3% and we are on pace to meet our full-year guidance as leasing revenue from previously executed leases begins to come online.

2010 full-year guidance indicated non-prime asset sales of $150 million. As of Q3, we achieved that goal as well. To date, we have achieved over 180 million in non-prime asset sales and we will continue to pursue additional sales where pricing and terms are acceptable, even if dilutive to short-term FFO results.

2010 guidance assumes total consolidated outstanding indebtedness of $4.4 billion at year-end. As of Q3, we also achieved that goal as total consolidated outstanding indebtedness was just under $4.4 billion. And we will continue to delever the balance sheet to both debt reduction and EBITDA growth while continuing to extend our overall debt maturity profile.

We also highlighted in January that we would continue to take advantage of capital raising opportunities. Year-to-date, we have raised over $2.4 billion through equity offerings, long-term unsecured note offerings, secured debt financings and revolver refinancing including and in addition to retained earnings and asset sales.

As announced last week, we successfully refinanced our revolving credit facilities with pricing and duration terms more favorable than originally budgeted and we reduced our term loan by $200 million. The refinancing of the revolving credit facilities was one of the most significant financial goals we set for the year and another important step in extending maturity profile of our debt and improving our risk profile.

Regarding ancillary income, our goal for 2010 was to increase revenue by 17%. As of the third quarter, ancillary income has increased over 25%, compared to the first three quarters of 2009. Based upon the progress achieved to date and the pace at which deals continue to be executed, we expect positive trends to continue and we will exceed full-year guidance.

Overall, we are pleased with the progress made to date towards achieving our stated goals for 2010. And we remain committed to our disciplined strategy of simplifying the business and reducing risk for our shareholders, bond holders, lenders and partners. The execution of our strategy combined with the strength of our operating platform and improving quality of our asset base will be the impetus to create significant and consistent shareholder value in the future.

Regarding specific operational accomplishments for the third quarter, our portfolio lease rate increased by 40 basis points and we recorded our second consecutive quarter of positive leasing spreads, with a positive blended cash leasing spread for new leases and renewals of 5%.

Leasing volume continues at a cadence well above expectations with 503 leases executed during the quarter, representing another company record in deal volume. In same-store, NOI increased by 2% as retailers began to take occupancy for the holiday season and previous leasing progress begins to impact revenues.

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