investor update - jefferies · 2015-06-30 · • experienced management team with diverse retail...

INVESTOR UPDATE

SAFE HARBOR

DDR considers portions of the information in this presentation to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company’s expectation for future periods. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose, any statements contained herein that are not historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including, among other factors, local conditions such as supply of space or a reduction in demand for real estate in the area; competition from other available space; dependence on rental income from real property; the loss of, significant downsizing of or bankruptcy of a major tenant; constructing properties or expansions that produce a desired yield on investment; our ability to buy or sell assets on commercially reasonable terms; our ability to complete acquisitions or dispositions of assets under contract; our ability to secure equity or debt financing on commercially acceptable terms or at all; our ability to enter into definitive agreements with regard to our financing and joint venture arrangements or our failure to satisfy conditions to the completion of these arrangements; and the success of our capital recycling strategy. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements, please refer to the Company’s Form 10-K for the year ended December 31, 2014, as amended. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

2

OVERVIEW

DDR OVERVIEW AND INVESTMENT THESIS

$17B 407 117MSF 95.5% AUM # PROPERTIES TOTAL GLA LEASED RATE

•  Invest in market dominant prime power centers located in large and supply-constrained markets occupied by high credit quality retailers that cater to the consumer’s desire for value and convenience

•  Experienced management team with diverse retail and investment backgrounds, shareholder centric, and free from conflicts of interest

•  Unique, scalable operating platform that drives strong and consistent results and creates incremental value

•  Focused on NAV growth and long-term value creation

•  Prudent risk profile with free cash flow to reinvest in the portfolio and room to further grow the dividend

4

DDR GREW FFO BY 18% DESPITE SELLING NEARLY 200 ASSETS SINCE YEAR-END 2012

5

0%

5%

10%

15%

20%

25%

FRT DDR REG WRI EQY KIM RPAI

Growth calculated using the midpoint of most recent 2015 FFO guidance range.

OPERATING FFO GROWTH, 2013 - 2015

THE CORRELATION BETWEEN MULTIPLE AND GROWTH SUGGESTS ROOM FOR MULTIPLE EXPANSION

6

BRX

FRT

DDR

WRI

REG

KIM

KRG

RPAI

10x

13x

16x

19x

22x

25x

-‐10% -‐5% 0% 5% 10% 15% 2014 - 2015E FFO Growth

2015 FFO Multiple

DDR IS ~4 TURNS BELOW THE WARRANTED VALUATION, BASED ON YOY FFO GROWTH

23%

47% 49% 53%

56%

0%

10%

20%

30%

40%

50%

60%

70%

80%

EQY RPAI KIM WRI REG FRT KRG BRX DDR 2011

DDR 2012

DDR 2013

DDR 2014

DDR 2015

LOWER RISK PROFILE ALLOWS FOR HIGHER PAYOUT RATIO GOING FORWARD

Source: Bloomberg, Company Reports; 2015 payout ratio calculated using the midpoint of FFO guidance range 7

CURRENT FFO PAYOUT RATIO

Peer Average = 62%

-$1.5

-$1.0

-$0.5

$0.0

$0.5

$1.0

$1.5

$2.0

2010 2011 2012 2013 2014 2015 YTD

BILL

IONS

ACQUISITIONS DISPOSITIONS

SINCE THE BEGINNING OF 2010, DDR HAS TURNED OVER MORE

THAN 65% OF ITS GROSS ASSET VALUE

CAPITAL ALLOCATION IS DDR’S TOP PRIORITY

8

ACQUIRED OVER 40% OF YE09 GROSS ASSET VALUE

SOLD 25% OF YE09 GROSS ASSET VALUE

43%

36%

29% 25%

INTENSE FOCUS ON INCREASING RENT PSF HAS YIELDED ATTRACTIVE GROWTH

9

$12.45

$12.85

$13.53

$14.15 $14.29

$11.50

$12.00

$12.50

$13.00

$13.50

$14.00

$14.50

2011 2012 2013 2014 1Q15

RENT PER SQUARE FOOT

4.4% CAGR

> 95% LEASED

< 95% LEASED

0%

2%

4%

6%

8%

10%

2014 LEASING SPREAD

PORTFOLIO QUALITY UPGRADE TRANSLATES INTO INCREASING PRICING POWER

10

OVER 280BP OF PRICING POWER

91%

92%

93%

94%

95%

96%

0%

2%

4%

6%

8%

10%

12%

2010 2011 2012 2013 2014

BLENDED SPREAD LEASED %

DDR’S MANAGEMENT TEAM HAS DECADES OF OPERATIONS EXPERIENCE

11

EXECUTIVE TITLE YEARS IN INDUSTRY

Ken Stern

Senior Vice President - Peripheral Development 28

David Dieterle

Senior Vice President - Leasing 23

James Bold

Vice President - Leasing - Eastern Region 22

EXECUTIVE TITLE YEARS IN INDUSTRY

Anthony Vodicka

Senior Vice President - Leasing - Western Region 18

Bryan Zabell

Senior Vice President - Leasing 15

Bill Kern

Senior Vice President - National Accounts 13

SHAREHOLDER-FRIENDLY CORPORATE GOVERNANCE FOSTERS ETHICAL LEADERSHIP AND TRANSPARENCY

12

COMPENSATION DICTATED BY LONG TERM SHAREHOLDER VALUE CREATION – NOT FFO EQUITY COMPENSATION > CASH COMPENSATION NON-STAGGERED BOARD MAJORITY INDEPENDENT DIRECTORS SEPARATE CHAIRMAN AND CEO NO POISON PILL NO SHAREHOLDER RIGHTS PLAN SIX OF THE NINE DIRECTORS ARE INDEPENDENT

BEST PRACTICES NOTABLE UPDATES

–  David Oakes has joined the board of directors

–  Four board members did not stand for reelection in 2015

–  Alexander Otto, whose family owns 17% of DDR’s

outstanding stock, joined DDR’s board of directors in 2015

–  DDR achieved 92% approval in 2014’s Say-On-Pay vote to approve the compensation of named executive officers

P P P P P P P P

OVER THE LAST 20 YEARS, REITS OUTPERFORMED A 60/40 STOCKS AND BONDS ALLOCATION BY 280 BP

13

TWENTY YEAR ANNUALIZED RETURNS BY ASSET CLASS, 1995 – 2014

12%

10%

9%

6% 6% 6% 5%

3% 3% 2%

0%

2%

4%

6%

8%

10%

12%

14%

REITs S&P 500 60/40 Stocks & Bonds

Bonds Gold Oil EAFE Homes Average Investor

Inflation

Source: J.P. Morgan Asset Management, Guide to the Markets, U.S. 2Q 2015

HISTORICAL DATA DOES NOT VALIDATE FEARS SURROUNDING THE CORRELATION BETWEEN REITS AND RISING INTEREST RATES

14

CUMULATIVE Δ (BP)

10-YEAR TREASURY YIELD IMPLIED CAP RATE

1986 - ‘87 + 193 0

1993 - ‘94 + 248 - 40

1998 - ‘00 + 204 - 10

2003 - '07 + 149 - 260

2012 - ‘14 + 110 - 60

The correlation between DDR’s returns and the 10-Year Treasury from 1994 - 2014 is less than 3%.

RISING RATES ARE DRIVEN BY A STRENGTHENING ECONOMY AND HEALTHY CONSUMER

FUNDAMENTALS.

Source: Cohen & Steers, “What History Tells Us About Rising Rates”

THE POWER CENTER THESIS

NEVER UNDERESTIMATE THE U.S. CONSUMER

Source: US Census Bureau 16

U.S. RETAIL SALES

IN B

ILLI

ONS

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

4.4% Long-Term Annual Growth

JOBS AND WAGES MOST INFLUENCE THE US CONSUMER OVER THE LONG TERM…

Source: Credit Suisse Equity Research (Bureau of Labor Statistics, Credit Suisse estimates, company data) 17

83% CORRELATION BETWEEN WAGE GROWTH AND RETAIL SALES

-6% -4% -2% 0% 2% 4% 6% 8%

10%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Wage Growth, Y/Y Retail Sales - SA ex-Autos and Gas Y/Y %

-6% -4% -2% 0% 2% 4% 6% 8% 10%

-6%

-4%

-2%

0%

2%

4%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Non-Farm Payrolls, Y/Y Retail Sales - SA ex-Autos and Gas Y/Y %

83% CORRELATION BETWEEN EMPLOYMENT GROWTH AND RETAIL SALES

$31

$32

$33

$34

$35

$36

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 TH

OUSA

NDS

…AND WILL BENEFIT FROM HISTORICALLY LOW UNDEREMPLOYMENT AND HIGH CONSUMPTION

18 Source: Bureau of Labor Statistics, Goldman Sachs Investment Research, Federal Reserve Bank of St. Louis

7%

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

18%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

UPWARD PRESSURE ON

WAGE GROWTH

OUTPACING PRE-RECESSION

HIGHS

SEASONALLY ADJUSTED UNDEREMPLOYMENT REAL PERSONAL CONSUMPTION EXPENDITURES PER CAPITA

NATURAL RATE OF UNDEREMPLOYMENT

E E

UNDEREMPLOYMENT: HIGHLY-SKILLED LABOR EMPLOYED IN LOW-PAYING JOBS OR WORKING BELOW CAPACITY

IMPROVING CONSUMER BALANCE SHEETS IMPLY ADDITIONAL SPENDING CAPACITY

19

HOUSEHOLD FINANCIAL OBLIGATIONS RATIO DEBT AND FINANCIAL OBLIGATIONS AS A PERCENT OF DISPOSABLE PERSONAL INCOME

15%

16%

17%

18%

19%

2000 2002 2004 2006 2008 2010 2012 2014

APART FROM 4Q12, THE CURRENT FINANCIAL OBLIGATION RATIO IS THE

LOWEST IT HAS BEEN 33 YEARS

Federal Reserve Board, Bank of America Merrill Lynch

RELATIVE TO TOTAL U.S. RETAIL SALES, DDR’S TOP TENANTS HAVE WON THE MARKET SHARE BATTLE THROUGHOUT THE CYCLES

20

TOTAL SALES GROWTH (INDEXED TO 100)

50

100

150

200

250

300

350

400

450

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US RETAIL TJX WMT TGT DKS WFM BBBY PETM KSS BBY ROST

35%

45%

55%

65%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0%

20%

40%

60%

80%

100%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Value/Convenience: Discounters, Warehouse Clubs, Dollar Stores, Specialty Grocers

Dept. Stores: JCPenney, Macy’s, Nordstrom, Bloomingdale’s, Saks, Dillard’s, Bon-Ton

OUR TOP TENANTS ARE WINNING THE MARKET SHARE BATTLE

Source: US Census Bureau 21

Traditional Grocers: Ahold, Delhaize, Kroger, Publix, Supervalu, Safeway

Non-Traditional Grocers: Walmart, Target, Costco, BJ’s, Sam’s Club, Whole Foods, The Fresh Market, Trader Joe’s, Sprouts Farmers Market, Fresh Thyme

70% of DDR’s wholly-owned Prime assets contain a grocery component

Department stores are losing market share at more than 2.5% annually

804 668

320

(576) DOLLAR, DRUG, CONVENIENCE

STORES

WHOLESALE, SUPERCENTERS

ORGANIC LIMITED ASSORTMENT

TRADITIONAL SUPERMARKETS

CONSUMERS CONTINUE TO SPREAD THEIR GROCERY SHOPPING ACROSS MULTIPLE CHANNELS

22 Source: JLL, Willard Bishop. Traditional supermarkets are defined as stores offering groceries, meat, and produce, with 15,000 - 60,000 SKUs and at least $2M in annual sales.

20,886 85

65 61

31

(303)

(350)

(300)

(250)

(200)

(150)

(100)

(50)

-

50

100

ORGANIC WHOLESALE, SUPERCENTER

LIMITED ASSORTMENT

DOLLAR, DRUG, CONVENIENCE

STORES

TRADITIONAL SUPERMARKETS

BASI

S PO

INTS

EXPECTED CHANGE IN STORE COUNT, 2013 – 2018E EXPECTED CHANGE IN MARKET SHARE, 2013 – 2018E

TRADER JOE’S, ALDI,

SAVE-A-LOT, ETC.

SAM’S CLUB, COSTCO,

WALMART, ETC.

WHOLE FOODS, THE FRESH

MARKET, ETC.

DOLLAR GENERAL, DOLLAR TREE,

ETC.

WHAT YOU NEED TO KNOW ABOUT DDR’S PUERTO RICO PORTFOLIO

23

11% Puerto Rico as a percentage of DDR’s pro rata base rent 60% Estimated value of the top three Prime + malls as a % of the total portfolio… >$500psf …In-line tenant sales performance of those top three enclosed malls 3.6% Debt coupon on the 7-year, non-recourse loan encumbering Plaza Escorial completed in 2014 10 / 15 Prime + or Prime assets, representing 90% of portfolio value 70% Base rent derived from U.S. based credit-worth tenants +2.4% Total NOI growth from 2013 to 2014 4.9 Years Weighted average lease term remaining

0.5

1.0

1.5

2.0

2.5

3.0

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

WHILE DEMAND IS STRONG, SUPPLY OF POWER CENTERS PER CAPITA IS DECLINING

24

U.S. POWER CENTER GLA PER CAPITA

POWER CENTER GLA PER CAPITA HAS DECREASED BY 2% SINCE 2010 AFTER

GROWING NEARLY 5X SINCE 1975

0.0%

0.5%

1.0%

1.5%

2.0%

APARTMENTS INDUSTRIAL OFFICE ALL SHOPPING CENTERS

'05 - '08

'09 - '12

'13 - '14

SHOPPING CENTERS ARE EXPERIENCING LITTLE NEW DEVELOPMENT ON AN ABSOLUTE AND RELATIVE BASIS

25

NEW DELIVERIES AS A % OF EXISTING STOCK

Construction lending remains restrained as Basel III forces banks to hold 50% more capital for a construction loan

EVEN A SMALLER % MEET THE

DEFINITION OF A POWER

CENTER

KEY TAKEAWAYS FROM MEETINGS AT ICSC RECON

26

THEME #1: RETAILERS CONTINE TO TRADE DOWN TO OFF-PRICE AND VALUE CONCEPTS Macy’s Backstage, F21 Red, Whole Food’s value, and Bloomingdale’s outlet have been added to compete with TJ Maxx, Ross, and Burlington

THEME #2: OUTLET BRANDS ARE EXPANDING INTO POWER CENTERS FOR MORE DESIRABLE CO-TENANCY, CONVENIENCE Nike Factory, J Crew Outlet, and Gap Outlet, in addition to traditional mall tenants like Forever 21

THEME #3: CAP RATES IN BOTH CORE AND SECONDARY MARKETS CONTINUE TO DECLINE Power centers with and without grocery anchors continue to trade sub-6%

THEME #4: NON-TRADITIONAL BUYERS OF SHOPPING CENTERS CONTINUE TO EMERGE Interested parties include traditional grocery retailers, power center tenants, and B mall landlords

THEME #5: THE RESURGENCE IN SMALL SHOP CONCEPTS IS CONCENTRATED IN FITNESS AND FAST CASUAL New burger, pizza, and cycle concepts, many of which are mom-and-pop shops, are spurring demand

NEW STORE OPENING PLANS CONTINUE TO BE ROBUST BASED ON RECENT MEETINGS

27

RETAILER PREFERRED FOOTPRINT (SF) PLANNED OPENINGS TIMELINE, AND OTHER NOTABLE ITEMS:

Walmart Neighborhood Market 50,000 250 Looking to open 250 stores in 2015 and 200 stores in 2016

Aldi 18,000 125 Intending to add 500 new stores over the next 4 years

Panera 4,300 110 Looking to continue to open 110 stores annually

Five Below 7,500 85 Their next new market will be in Los Angeles

Famous Footwear 5,000 55 Annual openings of 55 stores will continue through 2017

Costco 140,000 35 Looking to open 35 stores in 2015 following 35 openings in 2015

Burlington 50,000 30 Looking to open 30 stores in both 2015 and 2016

Nordstrom Rack 35,000 30 Looking to open 20 – 25 units annually

Planet Fitness 20,000 30 Looking to open 30 stores within the next year

J Crew Factory Outlet 6,000 25 Increasing presence in power centers as outlet construction has slowed

Nike Factory Outlet 19,000 20 Increasing presence in power centers as outlet construction has slowed

Total Wine 20,000 17 Projecting an additional 20 stores in 2016 and 2017

EXISTING RETAILERS CONTINUE TO EVOLVE THEIR FOOTPRINTS AND ROLL OUT NEW CONCEPTS

28

RETAILER PREFERRED FOOTPRINT (SF) CHANGE FROM PREVIOUS OR ALTERNATIVE FOOTPRINT

Dick’s Sporting Goods 100,000 Experimenting with a side-by-side concept featuring adjoined Field and Stream and Dick’s Sporting Goods

Macy’s Backstage 35,000 Off-price concept will debut in September

Nordstrom Rack 25,000 Smaller footprint will target smaller-metro markets, and will have a scaled down merchandise mix

Bloomingdale’s Outlet 25,000 Outlet concept will open three units in 2015, and is planning an additional 3 – 6 units annually

Whole Foods Value Concept 25,000 New concept targets millennial shoppers, offering a lower price point in smaller-format boxes

Starbucks 15,000 Will open Starbucks Roastery stores in major metros over the next few years

Charlotte Russe 10,000 Fast fashion Lemonpop concept targets whole family

Payless ShoeSource 7,500 Large format concept contrasts with 3,000 SF average stores, and are looking top open 30 in 2015

Macy’s Micro Store 6,000 Small format concept will target street and off-mall locations, and will offer buy online, pick up in store

Verizon Smart Store 5,000 Experiential store will include areas for music, gaming, tablets, phones, fitness tech, and workshops

Panera 2,500 Panera To You concept provides limited seating, and plans to grow as a pick up/delivery café

Massage Envy 2,000 Typical prototype is 3,500 SF; new stores are intended to reach hard-to-access markets

Sally Beauty 1,750 Developing a new concept to compete with ULTA, including higher-end merchandise and salon chairs

Starbucks 750 Will roll out their “express” stores in urban markets in 2016

NEW RETAILERS PROVIDE MOMENTUM IN THE SHOP AND BOX CATEGORIES

29

RETAILER DESCRIPTION

Active Ride Shop Sells skate clothing, shoes, and skateboards, and is targeting 3,500sf stores in CA, NV, AZ, TX, CO

Air Time Trampoline park operator looking for 27,500sf Midwestern locations

Cinepolis Mexico’s largest theater chain, expanding into the US; operating with luxury, traditional, and hybrid concepts

Cycle Bar Instructor-led cycling workouts expanding nationwide through franchising, looking for 2,500sf spaces

Jake’s Wayback Burgers Retro-style fast-food restaurant serving burgers and milkshakes, designed to compete with Five Guys

Lucky’s Market Specialty grocer looking for 30,000sf spaces, run by the Wild Oats founders

Midici Neapolitan Pizza Fast casual pizza concept looking for 4,000sf spaces, developed by the creators of Menchie’s

MOD Pizza Fast casual pizza concept looking for 2,600sf spaces and planning to double their 45 store base by YE16

Pet Supermarket Competition to PetSmart and Petco, looking for 8,000sf spaces; plans to double store count to 300 in next 5 years

Tin Drum Asiacafè Fast casual Asian concept started by the creators of Tropical Smoothie Cafe

TOP 20 TENANTS HAVE STRONG CREDIT PROFILES

30

COMPANY % OF

TOTAL ABR

% OF OWNED

GLA

RATING (S&P / MOODY’S / FITCH)

1. TJX Companies 3.4% 3.9% A+ / A3 / NR

2. PetSmart 3.0% 2.5% B+ / NR / NR

3. Bed Bath & Beyond 2.9% 3.0% A- / Baa1 / NR

4. Walmart 2.6% 5.1% AA / Aa2 / AA

5. Kohl’s 2.4% 3.9% BBB / Baa1 / BBB+

6. Dick’s Sporting Goods 2.2% 2.2% NR

7. Ross Stores 2.0% 2.4% A- / A3 / NR

8. Best Buy 2.0% 1.7% BB / Baa2 / BB

9. Michaels 1.8% 1.8% B+ / NR / NR

10. AMC Theatres 1.6% 0.9% B+ / NR / NR

COMPANY % OF

TOTAL ABR

% OF OWNED

GLA

RATING (S&P / MOODY’S / FITCH)

11. Gap / Old Navy / Banana Republic 1.6% 1.3% BBB- / Baa3 / BBB-

12. Office Depot 1.5% 1.4% B- / B2 / NR

13. Publix 1.4% 2.0% NR

14. Ulta 1.2% 0.7% NR

15. Ascena 1.1% 0.7% NR

16. Kroger 1.1% 1.6% BBB / Baa2 / BBB

17. Barnes & Noble 1.0% 0.7% NR

18. Jo-Ann 1.0% 1.2% B / Caa1 / NR

19. Lowe’s 1.0% 2.0% A- / A3 / NR

20. Staples 0.9% 0.8% BBB- / Baa2 / BBB-

Total 35.7% 39.8%

WHY WE ARE INVESTING IN POWER CENTERS

31

METRIC POWER CENTERS GROCERY ANCHORED NEIGHBORHOOD CENTERS

1. SCALE = FLEXIBILITY >40 acres, >350ksf 10 - 20 acres, ~125ksf

2. CREDIT QUALITY >75% ABR from Nationals ~25% ABR from Nationals

3. COLLECTION RISK Low: National Tenants High: Local Tenants

4. TRADE AREA POPULATION 350k+ 200k-

5. ANCHOR LOSS IMPLICATIONS Minimal/Opportunity Disastrous

6. MARKET SHARE TREND Gaining Losing

7. SITE PLAN CONTROL Flexible Inflexible

8. ANNUAL ROLLOVER ~10% ~20%

9. ECONOMIES OF SCALE Relationships/Co-Tenancy Health of grocer is all that matters

10. MERCHANT TYPE Food, Service, Hardlines, Softlines, Entertainment, Mass Merchants, Home Food and Service

THE OCCUPANCY COST OF DDR’S TOP TENANTS HIGHLIGHT THE EFFICIENCY OF BRICK-AND-MORTAR

32

3.8% 4.1% 4.4% 4.8%

6.4% 6.5% 6.6% 6.7%

9.8%

0%

2%

4%

6%

8%

10%

WFM ROST JWN PETM BBBY DKS TJX ULTA AMZN

OCCUPANCY COST

GROSS SHIPPING COSTS / NET SALES

POWER CENTER PRICE DISCOVERY

33

DATE MARKET PRICE (MIL) PRICE PSF CAP RATE ANCHORS 4Q13 Austin 81 231 6.5% Home Depot, Best Buy, Marshalls, Chair King, Bed Bath & Beyond

4Q13 San Francisco 202 233 5.2% Lowe's, Costco, Kohl's, Toys R Us, TJ Maxx, Jo-Ann, Nordstrom Rack

4Q13 Seattle 165 344 5.2% Regal, Dick's Sporting Goods, LA Fitness, Ross, Marshalls

4Q13 Denver 116 276 6.4% 24 Hour Fitness, Dick's Sporting Goods, Best Buy, Sprouts

4Q13 Denver 124 190 6.5% JC Penney, AMC, Ross, REI, H&M, Staples, Forever 21

4Q13 Atlanta 53 284 5.7% Bed Bath & Beyond, Havertys, TJ Maxx, PetSmart

1Q14 Philadelphia 92 202 6.2% Home Depot, BJ’s Wholesale, Conway’s, PetSmart, Staples, Walgreens

3Q14 Los Angeles 260 776 5.0% Old Navy, Nordstrom Rack, Men’s Wearhouse, Marshalls

3Q14 Chicago 50 260 5.7% Fresh Farms, Babies R Us, Ross, Walgreens

3Q14 Wash. DC 88 540 4.3% Whole Foods, Michaels, Modell's, Gold's Gym, CVS

3Q14 Orlando 114 263 5.8% Kohl's, Ross, Bed Bath & Beyond, Regal, Sports Authority, Old Navy, Michaels

4Q14 Denver 86 174 6.0% Dick's, Kohl's, Office Depot, Petco, Sprouts

4Q14 Atlanta 55 248 5.3% Target (U), Publix, TJ Maxx, Office Depot, Dick's, PetSmart

4Q14 Charlotte 61 257 6.3% Marshalls, PetSmart, Old Navy, Best Buy, Office Max

1Q15 Minneapolis 107 230 6.0% Cub Foods, Kohl's, HomeGoods, TJM, Nordstrom Rack

1Q15 Los Angeles 187 591 5.5% Lowe's, Ross, Sports Authority, PetSmart, Ulta

1Q15 Los Angeles 72 760 5.9% Marshalls, PetSmart, Michaels

1Q15 Denver 57 236 5.7% Target, TJ Maxx, HomeGoods, Michaels, Golf Galaxy, PetSmart

2Q15 Oklahoma City 53 255 5.3% Walmart, Babies R Us, Nordstrom Rack, Ulta, Shoe Carnival, Kirkland’s

2Q15 Northern New Jersey 50 358 5.0% Nordstrom Rack, DSW, TJ Maxx, buybuyBaby, Cost Plus World Market, Ulta

Institutional quality power center transactions not involving DDR:

$2,073 $117 5.7%

PORTFOLIO MANAGEMENT

~75% OF PORTFOLIO VALUE CONSISTS OF JUST 115 ASSETS (PRIME+ AND PRIME) Values shown at pro rata

WHOLLY OWNED PRIME+

WHOLLY OWNED PRIME

WHOLLY OWNED PRIME-

WHOLLY OWNED NON-PRIME

JOINT VENTURE

44% OF VALUE 47 ASSETS





35

DECONSTRUCTING THE PORTFOLIO: WHOLLY OWNED PRIME +

36

INVESTMENT THESIS: Long-term hold

METRIC AVERAGE

EST. CAP RATE 4.75% - 5.75%

# OF ASSETS 47

NOI CAGR (5 YEAR) > 3.0%

VALUE ~ $105 M

VALUE PSF ~ $270

SIZE ~ 500 KSF

ABR PSF ~ $17.00

LEASED RATE ~ 95%

TRADE AREA POPULATION ~ 650 K

TRADE AREA HH INCOME ~ $90 K

44% OF VALUE WHOLLY OWNED PRIME+

WHOLLY OWNED PRIME

WHOLLY OWNED PRIME-


JOINT VENTURE

DECONSTRUCTING THE PORTFOLIO: WHOLLY OWNED PRIME

37

INVESTMENT THESIS: Long-term hold with a focus on upgrading merchandise mix and enhancing market dominance

METRIC AVERAGE

EST. CAP RATE 6.0% - 6.5%

# OF ASSETS 68

NOI CAGR (5 YEAR) ~ 3.5%

VALUE ~ $50 M

VALUE PSF ~ $195

SIZE ~ 330 KSF

ABR PSF ~ $14.05

LEASED RATE ~ 93%



WHOLLY OWNED PRIME+

30% OF VALUE WHOLLY OWNED PRIME

WHOLLY OWNED PRIME-


JOINT VENTURE

DECONSTRUCTING THE PORTFOLIO: WHOLLY OWNED PRIME -

38

INVESTMENT THESIS: Evaluate for investment to increase growth profile or for short or medium term disposition

METRIC AVERAGE

EST. CAP RATE 6.75% - 7.75%

# OF ASSETS 64

NOI CAGR (5 YEAR) ~ 3.0%

VALUE ~ $24 M

VALUE PSF ~ $125

SIZE ~ 260 KSF

ABR PSF ~ $10.70

LEASED RATE ~ 93%



WHOLLY OWNED PRIME+

14% OF VALUE WHOLLY OWNED

PRIME-


JOINT VENTURE

WHOLLY OWNED PRIME

DECONSTRUCTING THE PORTFOLIO: WHOLLY OWNED NON-PRIME

39

INVESTMENT THESIS: Near-term disposition to mitigate risk

METRIC AVERAGE

EST. CAP RATE 7.50% - 8.25%

# OF ASSETS 40

NOI CAGR (5 YEAR) ~ -0.5%

VALUE ~ $16 M

VALUE PSF ~ $90

SIZE ~ 235 KSF

ABR PSF ~ $9.30

LEASED RATE ~ 88%


TRADE AREA HH INCOME ~ $68K

WHOLLY OWNED PRIME+


JOINT VENTURE

WHOLLY OWNED PRIME

WHOLLY OWNED PRIME-

5% OF VALUE

WHAT’S LEFT OF NON-PRIME?

40

Values shown at pro rata $ in millions

JOINT VENTURES

11% CATEGORY # OF

ASSETS

% OF NON-PRIME

VALUE STRATEGY

LEASE UP 13 40% Sell after lease up

MARKETING FOR SALE 18 21% Currently in the market or under

contract

DEBT 4 17% Sell at maturity

SINGLE TENANT 5 12% Sell after renewal

JOINT VENTURES 57 11%

TOTALS 97 100%

LEASE UP 40%

DEBT 17%

SINGLE TENANT

12%

MARKETING 21%

% OF NON-PRIME VALUE

DISPOSITIONS: EVOLVING QUALITY

2011: DISTRESSED

SALES Pine Ridge Square

(Gaylord, MI) ~ 12% cap rate

41

2012: EXITING NON-CORE PROPERTY

TYPES Tiffin Mall

(Tiffin, OH) ~ 10% cap rate

2013: EXITING LOW GROWTH IN WEAK MARKETS Carlisle Commons (Harrisburg, PA) ~ 8% cap rate

2014: TAKING ADVANTAGE OF

PRICING ENVIRONMENT

Abernathy Square (Atlanta, GA) ~ 6% cap rate

THE EVOLUTION OF THE PORTFOLIO FROM SMALLER, LOWER QUALITY ASSETS INTO LARGE FORMAT PRIME POWER CENTERS CONTINUES

42

# OF ASSETS AND TOTAL GLA (WHOLLY-OWNED)

AVERAGE ASSET SIZE (WHOLLY-OWNED)

# OF A

SSET

S SF

, IN 00

0s

175

200

225

250

275

300

325

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

175 200 225 250 275 300 325 350 375

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

-37% CHANGE IN # OF ASSETS +61% CHANGE IN AVG ASSET SIZE

43

2008 PORTFOLIO

(LESS) DISPOSITIONS

(ADD) ACQUISITIONS / DEVELOPMENT

(EQUALS) CURRENT PORTFOLIO

ASSET COUNT 621 376 162 407

TOTAL SQUARE FEET (MIL)

119 49 47 117

AVERAGE SIZE 190,000 130,000 290,000 290,000

LEASED RATE 92.6% 86.1% 93.2% 95.5%

RENT PSF $12.34 $11.02 $13.89 $14.02

POPULATION (TRADE AREA)

220,000 474,000 432,000

HH INCOME (TRADE AREA)

$68,000 $82,000 $82,000

ORGANIC GROWTH OPPORTUNITY

THE PORTFOLIO HAS MOVED UP THE QUALITY SPECTRUM

THE PORTFOLIO HAS EXPERIENCED A DRAMATIC QUALITY UPGRADE SINCE 2010

44

CONSOLIDATED PORTFOLIO 2010 2015

# OF ASSETS 348 219

AVG ASSET SIZE (KSF) 202 323

AVG ASSET VALUE (MIL) $23 $49

CONSOLIDATED AS % TOTAL 81% 93%

RETAILERS THAT HAVE MOVED INTO DDR’S TOP 50

TOTAL PORTFOLIO

2010 2015

LEASED RATE 91.2% 95.5%

RENT PSF $12.46 $14.02

ABR FROM TOP 50 MSAs 57% 77%

TRADE AREA POPULATION 359K 439K

RETAILERS THAT HAVE MOVED OUT OF DDR’S TOP 25

AGGRESSIVE PORTFOLIO REPOSITIONING WILL CONTINUE

45

2008 CURRENT TARGET

TOTAL MSAs 174 106 <75 Defined by media markets

TOTAL STATES 45 37 ~30 Exited North Dakota, South Dakota, Vermont, Louisiana, and New Mexico

ABR FROM TOP 50 MSAs 57% 76% >90% Focused only on large growth markets

OFFICE / INDUSTRIAL ASSETS 7 0 0 Further simplification of the story

DOMESTIC B/C MALLS 10 0 0 Focused on only one property type

We have also… Added Boston, Orlando, Minneapolis, and San Antonio to our top 20 markets Decreased the combined ABR from Buffalo and Detroit by $28 million, or 45% of total exposure

DDR HAS WOUND DOWN 15 JVS SINCE 2011 AND WILL CONTINUE TO FOCUS ON FEWER, HIGH QUALITY PARTNERS

46

JOINT VENTURES

DDR # OF # PRIME +, OWNED BOOK PARTNER OWN % ASSETS PRIME ASSETS GLA VALUE DEBT

BRE DDR RETAIL HOLDINGS III Blackstone 5% 67 20 11.2 $85 $62

DDRTC CORE RETAIL FUND TIAA-CREF 15% 26 18 8.4 233 122

DDR DOMESTIC RETAIL FUND I Various 20% 56 14 7.9 276 184

DDR-SAU RETAIL FUND State of Utah 20% 23 3 2.1 56 31

OTHER Various Various 13 2 2.0 73 23

TOTAL 185 57 31.6 $723 $453

All figures in millions, except asset counts and percentages

JVS MAKE UP APPROXIMATELY 7% OF DDR’S PRO RATA GROSS ASSET VALUE

CAPITAL MARKETS

$0

$200

$400

$600

$800

$1,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+

BALANCED MATURITY PROFILE MITIGATES RISK CONSOLIDATED DEBT MATURITIES

IN M

ILLI

ONS

GAAP INTEREST RATE 7.5% 5.8% 3.8% 5.3% 3.8% 6.0% 4.7% 3.4%

REVOLVER AVAILABILITY

4.2% 3.5% CASH INTEREST RATE 7.7% 6.6% 3.8% 5.3% 3.9% 6.1% 4.7% 3.4% 4.5% 3.5%

48

DEBT / EBITDA REDUCTION WILL CONTINUE

49

PRO

RATA

DEB

T / E

BITD

A (B

ENEF

IT) (0.15x)

(0.07x)

(0.11x)

(0.06x)

(0.16x)

(0.09x)

(0.8x)

(0.7x)

(0.6x)

(0.5x)

(0.4x)

(0.3x)

(0.2x)

(0.1x)

0.0x

INCOME FROM SIGNED LEASES NOT YET OPEN

(ACTUAL)

LEASE-UP CIP (PER $100M)

LEASED RATE INCREASE

(PER 100 BP)

OPERATING ASSET SALES (PER $100M)

NON-INCOME PRODUCING ASSET

SALES (PER $100M)

RETAINED EARNINGS

(PER $100M)

RISK REDUCTION GOES BEYOND DEBT/EBITDA

50

EXITED ALL INTERNATIONAL MARKETS THROUGH DIVESTURE OF BRAZILIAN INVESTMENT P Eliminated currency, sovereign, and partner risk, as well as development and reporting risks specific to Brazil P Removed unnecessary complexity associated with reporting and modeling × Increased debt / EBITDA

TRADED LOW QUALITY ASSETS FOR HIGH QUALITY ASSETS AT A 100 – 200BP SPREAD P Developed a portfolio of fortress power centers that will outperform in both a bull and a bear market P Enhanced the credit quality and lowered the beta of company cash flows × Increased debt / EBITDA

REDUCED LAND AND CIP AS A PERCENT OF GROSS ASSET VALUE TO 3.5% P Minimized development risk while simultaneously increasing focus on high-quality redevelopment projects (7 – 10% yields) P Redirected capital allocation to the highest quality assets in the portfolio

WOUND DOWN 15 JOINT VENTURES OVER FOUR YEARS IN FAVOR OF LONGER-TERM PARTNERSHIPS P Simplified company structure and enhanced quality of fee income streams P Increased management focus on DDR’s wholly-owned assets × Increased debt / EBITDA

ISSUED LONG-TERM, UNSECURED DEBT AT HISTORICALLY LOW INTEREST RATES P Decreased the weighted average cost of capital to approximately 6% P Extended the weighted average debt duration of the consolidated portfolio by ~1 year to 4.3 years since 2010

INCREASED THE UNENCUMBERED POOL TO $7.5 BILLION P Over the last five years, DDR has increased unencumbered NOI by 66% and increased the average asset size by 61% P In 2015, DDR will add 8 prime assets totaling $1 billion of value to the unencumbered pool

FFO TAILWINDS WITH HIGH COUPON REFINANCINGS

51

4.48%

9.63%

7.50%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2015 2016 2017

Refi at 7% = ($0.01) per share earnings Impact

Refi at 5% = +$0.05 per share earnings Impact

GROWING THE UNENCUMBERED ASSET POOL

52

2009 CURRENT CHANGE

NUMBER OF ASSETS 242 181 -25%

UNENCUMBERED NOI $252 $462 +83%

% OF CONSOLIDATED NOI 49% 66% +35%

UNENCUMBERED DEBT YIELD 10% 13% +30%

AVERAGE ASSET SIZE 180ksf 295ksf +64%

TOP CREDITS Walmart, Rite Aid, Lowe’s PetSmart, Bed Bath & Beyond, TJX

•  The $6.8 billion unencumbered pool has improved materially in terms of size, quality and credit

DDR UNENCUMBERED FOUR FORTRESS ASSETS IN THE SECOND QUARTER

53

•  In June, DDR repaid the $255 million of 6.4% (cash) secured debt; the GAAP interest rate was 2.75%

•  The total value added to the unencumbered pool is greater than $650 million, implying <40% leverage previously on the pool

LOCATION TIER KEY TENANTS Shoppers World Boston Prime + Kohl's, AMC, Macy's, Nordstrom Rack, TJ Maxx, Petsmart Woodfield Village Chicago Prime + Trader Joe's, Container Store, Nordstrom Rack Fairfax Towne Center Wash DC Prime + Safeway, Regal, TJ Maxx, Bed Bath & Beyond Carillon Place Naples Prime Walmart Neighborhood Market, Ross, TJ Maxx, Total Wine

investor update - jefferies · 2015-06-30 · • experienced management team with diverse retail...

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