Developers Diversified Realty (DDR)

Q4 2010 Earnings Call

February 18, 2011 10:00 am ET



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Daniel Hurwitz - Chief Executive Officer, President, Member of Board of Directors, Member of Executive Committee, Member of Management Committee and Member of Investment Committee

David Oakes - Chief Financial Officer, Senior Executive Vice President, Chairman of Investment Committee, Chairman of Operating Committee and Member of Internal Compensation Committee

Paul Freddo - Senior Executive Vice President of Leasing & Development, Member of Internal Compensation Committee, Member of Investment Committee and Member of Operating Committee

Kate Deck - Investor Relations Director


Laura Clark - Greenstreet Advisors

David Wigginton - Merrill Lynch

Jonathan Habermann - Goldman Sachs Group Inc.

Benjamin Williams

Christy McElroy - UBS Investment Bank

Alexander Goldfarb - UBS

Michael Gorman - Credit Suisse

Richard Moore - RBC Capital Markets, LLC

Quentin Velleley - Citigroup Inc

Carol Kemple - Hilliard Lyons Research Division

Vincent Chao - Deutsche Bank AG

Michael Mueller - JP Morgan Chase & Co

Craig Schmidt - BofA Merrill Lynch



Good day, ladies and gentlemen and welcome to the Fourth Quarter Developers Diversified Realty Corporation Earnings Conference Call. My name is Crystal and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Ms. Kate Deck, Investor Relations Director. Please proceed, ma'am.

Kate Deck

Good morning, and thank you for joining us. On today's call, you'll 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 31, 2009, and filed with 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 February 17, 2011. This release and 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.

Daniel Hurwitz

Thank you, Kate, and good morning, everyone. Beginning with the company's operations, I'd like to reflect upon the progress made during 2010 and the strategic direction of the company going forward.

After surviving the most challenging periods of the late 2008 and 2009, and strategically executing on a plan to address short-term problems with long-term solutions, the last few quarters have presented a period of discovery and reflection.

As a management team, we took the opportunity to reflect and debrief on the lessons learned and the obstacles faced during tough times for this company.

After much analysis, reflection and strategic planning, management and the board have made a collective commitment to operate this company with significantly less risk going forward, with a key focus on enhancing our operating platform and providing industry-leading transparency and candor. As the economic environment improves and the appetite for risk grows, we will remain prudent in our operational execution and capital allocation plan and maintain our singular focus on long-term value creation for our shareholders.

We understand the responsibility for which we are charged. To steward shareholders capital in a responsible and strategic manner and we'll continue to do so with a heightened sense of responsibility and respect for the market in which we operate.

A significant focus in 2010 was to build back credibility in the market. As a management team, we know the only way to do so is to deliver on what we say we're going to do.

In January of 2010, we issued written guidance with several operational and financial goals. I'm proud to say that one year later, we met or exceeded the majority of our goals.

In 2010, we plan to achieve flat to slightly positive same-store NOI compared to 2009. A prediction that raised many eyebrows at that time given the operating environment and for good reason. At year end 2010, however, we met that target with the full year same-store NOI of positive 1.1% and a positive 3.6% increase for the fourth quarter alone.

We set out to increase our portfolio of lease rate by 100 basis points over year-end 2009. By year-end 2010, we realized an increase of 130 basis points over 2009 and reached 92.3%.

We set out to increase ancillary income by 17%. At year end, we realized an increase of 22%, exceeding our target by approximately $2 million. We set out to sell $150 million of non-prime assets to reduce our exposure to underperforming property and improve the overall quality of our prime portfolio.

At year end, we sold $250 million net of joint venture interests, exceeding our goal by $100 million and highlighting our commitment to actively manage our portfolio and emphasizing our determination to continually improve asset quality.

Moreover, our execution of attractively priced and strategic asset sales, exceeding budget, underscores our focus to navigate market opportunities for the long-term benefit of our shareholders, even if those decisions put pressure on short-term FFO results.

We set a goal to reduce total consolidated outstanding indebtedness to $4.4 billion by year-end 2010. At year end, our total consolidated outstanding indebtedness was $4.3 billion, beating our target by nearly $100 million. Additionally, our goal was to reduce pro-rata debt to EBITDA to the mid-8x range and we ended the year in nearly a half turn lower at 8.1x.

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