Investor Update. Citi Global Property CEO Conference March 1-4, 2009

Transcription

1 Investor Update Citi Global Property CEO Conference March 1-4, 2009

2 Focus on liquidity and lowering leverage We are taking important steps to enhance liquidity and meet future debt maturities in order to prepare for continued financial market dislocation Our portfolio and asset class have traditionally demonstrated limited volatility during economic downturns and continue to generate consistent cash flows We are committed to de-levering our balance sheet We continue to make progress on asset sales and new debt financings We continue to advance new joint venture and fund structures with institutional partners, which will preserve liquidity and enable us to capitalize on the unique investment opportunities created by the challenging economic environment 2

3 Developers Diversified is well-positioned to meet its financial obligations over the next several years We have taken proactive steps to reduce leverage and enhance financial flexibility $155 million: common equity proceeds obtained or committed from the fourth quarter of 2008 through today $300 million: additional free cash flow resulting from 4Q08 dividend omission, reduced payout ratio and payment in 90% stock for 2009 $200 million: asset sales in 2008, with another $66 million sold year to date in 2009, and over $100 million under contract or subject to letter of intent $77 million: face value of DDR s outstanding senior unsecured notes purchased at an average of 80% of par from the fourth quarter of 2008 through today $1.2 billion: amount of new debt proceeds raised in

4 Common stock sale to Otto Family On February 23, 2009, we announced that we had entered into a strategic transaction with Mr. Alexander Otto and have a binding agreement for the sale of 30 million DDR common shares, plus a $60 million five-year term loan, pending shareholder approval. This transaction is important for several reasons: Investor will be a long term holder of the stock and will be the largest shareholder in the Company. The Company will benefit from the broad real estate and retail experience of the Otto Family. The two directors that may be nominated to the Board will provide additional experience and representation by executives representing a major owner of the Company. The sale of 15 million shares at $3.50, 15 million shares at $4.00 and 10 million warrants at $6.00 were at significant premiums to the $2.50 closing share price on the day of the announcement. Proceeds will be used to purchase debt at a discount and pay down the corporate revolver, thereby deleveraging the balance sheet and enhancing liquidity. 4

5 Important dates for the Otto transaction If the SEC decides to review the proxy for the Otto transaction, proxy mailing dates, due dates, and closing dates will vary. No SEC comment* SEC comment* Proxy mailing date March 16 March 30 Proxy due date April 7 April 21 First closing date April 14 April 28 Second closing date By October 14 By October 28 *Expected dates as of February 26, 2009, dates are subject to change 5

6 Our dividend policy has been adjusted to maximize liquidity while the capital markets remain frozen On October 24, 2008, we announced that the 4Q08 common dividend would not be paid, and the 2009 common dividend would be reduced to a level near the minimum necessary to maintain REIT status. On February 23, 2009, we announced that the Board had approved the payment of the first quarter 2009 common dividend with a mix of 90% stock and 10% cash. The Board of Directors will review the dividend policy each quarter Assuming that stock comprises 90% of the payout for the full year, our 2009 cash payout will represent a roughly $300 million savings relative to 2008 This retained capital can be used for debt repayment 6

7 Despite Market Turbulence, Our Core Portfolio Operations Remain Solid Assets Under Management $16.0B DDR s Share of AUM $8.4B Owned and Managed Operating Properties 712 GLA 157 MSF Avg. Leased Rate Since IPO 96.0% Core Portfolio Leased Rate, 12/31/ % Occupied Rate 12/31/ % Avg. Remaining Lease Term Avg. Age of Shopping Centers Largest Tenant Relationship Geographic Presence 7.04 years 10 years Wal-Mart/Sam s Club 45 States (plus Puerto Rico, Brazil and Canada) 7

8 DDR s rank as one of the largest REITs in the country provides a large equity base and unencumbered asset pool as security Wholly Owned: Undepreciated Assets Undepreciated Equity Unencumbered Asset Value (1) Unsecured Debt (2) December 31, 2008 $10.2 Billion $ 3.9 Billion $ 5.7 Billion $ 3.5 Billion 1. Unencumbered Asset Value is defined in the Company s Revolving Credit Agreements. 2. Adjusted for common equity proceeds that paid down unsecured debt in 4Q. 8

9 Our top tenants have consistently evolved as the retail market has, though our occupancy has shown minimal variance 1993 GLA 4Q08 GLA 1. Kmart 24.1% 2. Wal-Mart / Sam s Club JCPenney Publix T.J. Maxx / Marshalls Beall s Herberger s Fashion Bug Hill s Lowe s Home Improvement Wal-Mart / Sam s Club 10.9% 2. Target Lowe s Home Improvement Home Depot Kohl s T.J. Maxx / Marshalls Kmart / Sears Publix Mervyn s PetSmart 1.5 Percent of Total GLA 61.2% Percent of Total GLA 34.5% 9

10 Portfolio leased percentages are relatively well-insulated from economic recessions and store closings Asian Currency Crisis 100% Oct Russian Financial Crisis Aug Dot Com Crash Mar Sept. 11, 2001 Recession Percentage Leased 98% 96% 94% 92% 90% 4Q97 Homeplace Bankruptcy March th largest tenant by rent 12 locations 663,000 sf, $7.3m rent 3Q99 3Q00 3Q01 K-mart Bankruptcy March th largest tenant by rent 26 locations 2.3 msf, $9.3m rent 3Q02 3Q03 Leased Rate Trailing 12 Month Avg. Linens N Things Bankruptcy April th largest tenant by rent 38 locations 1.3 msf, $7.0m pro rata rent 3Q04 3Q05 3Q06 Mervyns Bankruptcy July nd largest tenant by rent 38 locations 2.9 msf, $17.3m pro rata rent 4Q07 4Q08 Circuit City Bankruptcy November th largest tenant by rent 46 locations 1.5 msf, $12.5m pro rata rent 10

11 Strong market position within many of the nation s top metro areas provides geographic diversity Top 10 MSAs by Total GLA Total GLA MSA (msf) Top 10 MSAs by Pro Rata Rents Rents MSA (millions) 1. Atlanta San Juan (Puerto Rico) $ Buffalo Buffalo Tampa Atlanta Los Angeles Denver Denver Los Angeles Phoenix Salt Lake City Miami Southern NJ Salt Lake City Columbus Chicago Phoenix Columbus Miami 14.7 Subtotal 45.6 Subtotal $262.7 % of Total 40% % of Total 37% 11

12 Retail sales continue to shift to our largest tenants 90% Percent of General Merchandise Sales 80% 70% 60% 50% 40% 30% Discount Dept. Stores, Warehouse Clubs and Supercenters Conventional & Nat l Chain Department Stores 20% 10% Sources: U.S. Census, Economy.com, Property & Portfolio Research 12

13 Less capital expenditure is required to maintain and grow our earnings relative to peers... 20% Cap Ex as a % of NOI 15% 10% 5% 3.5% 6.3% 8.0% 8.2% 10.2% 10.6% 10.9% 11.1% 11.1% 11.3% 12.9% 13.1% 13.7% 14.9% 0% DDR DDR EQY REG SPG GGP FRT WRI MAC KIM GRT PEI TCO CBL Internal Calculation Source: Green Street Advisors 13

14 ... and reflects a strong internal growth rate on a capex-adjusted basis 5.0% 4.0% 3.8% 3.5% CapEx Adjusted SS NOI Growth 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% 1.4% 2.2% 1.8% 1.8% 1.8% 1.4% 1.2% 0.9% 0.5% SKT T CO FRT DDR REG KIM AKR MAC SPG BFS KRG IRC EQY GRT WRI PEI GGP CBL -0.6% -0.5% -0.9% -1.8% -2.4% -2.5% -2.7% -4.0% -5.0% Source: Company reports as of 3Q08 14

15 Considerable bad news has already been reflected in stock price performance Trailing Twelve Month Return Shopping Centers & Malls 0% FRT EQY REG AKR CDR RMS SPG WRI TCO KRG KIM MAC PEI CBL GRT DDR GGP -10% -20% -30% -40% -50% -60% -70% -80% -90% -100% -41% -44% -52% -54% -54% -57% -60% -62% Average: -68% -68% -71%-73% -80% -83% -84%-86% -92% -98% Source: Bloomberg as of February 26,

16 Our FFO multiple is well below the peer group average Price to FFO Multiples Retail REIT Average: FFO Multiples as of February 26, 2009 Shopping Center & Mall REITs 0 GGP CBL PEI DDR MAC WRI KIM SPG T CO REG FRT Source: Citigroup as of February 26,

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18 Impact of tenant closings on DDR in 2009 Tenant # of Store Closings 1 Square Footage Prorata Annual Revenue DDR JV DDR JV (in millions) Mervyns ,590 2,197,717 $13.9 Circuit City ,469 1,192, Goody s , , Steve and Barry s ,359 40, Linens N Things ,538 30, Total ,201,313 3,698,231 $ Closings after December 31,

19 The Mervyn s portfolio is located primarily in major west coast markets with high-barriers to entry Mervyn s Locations: 38 (37 in JV with MDT) GLA: 2.9 msf (2.6% of portfolio) Pro Rata Revenues: $17.3M (2.4% of portfolio) Average Base Rent: $11.63/sf Average Size: 76,000 sf Geography: 27 CA, 5 AZ, 5 NV, 1 TX 12 Los Angeles, 7 San Francisco, 4 Phoenix Security: $25M purchase price adjustment was received $33M tenant improvement/leasing commission escrow $8M security deposit (LOC) Bankruptcy: $465M DIP Financing from Wachovia DDR sits on Creditor s Committee Releasing update: 5 locations purchased by Kohl s One lease assumed by Forever 21 19

20 We are working aggressively to release former Circuit City locations Circuit City Liquidating: Locations: 37 (17 JVs) GLA: 1.2M sf (1.1% of portfolio) Pro Rata Revenues: $11.4M (1.6% of portfolio) Average Base Rent: $15.02/sf Average Size: sf Geography: 23 South, 5 West, 6 North, 3 Midwest Closed: Locations: 9 (7 JVs) GLA: 285,000 sf (0.2% of portfolio) Pro Rata Revenues: $1.2M (0.2% of portfolio) Average Base Rent: $12.21/sf Average Size: 31,960 sf Geography: 5 South, 3 West, 1 Midwest Bankruptcy: We expect to receive liquidating locations in late March or early April 20

21 DDR has minimal exposure to Steve and Barry s closings Steve & Barry s Rejected and Closed Locations: 10 (3 JV) GLA: 528,400 sf (0.4% of portfolio) Pro Rata Revenues: $2.5M (0.4% of portfolio) Average Base Rent: $7.44/sf Average Size: 52,673 sf Geography: 1 MO, 1 NC, 2 OH, 1 AL, 1CA, 1MI, 1 MN, 1 SC, 1 VA 21

22 The impact of the Linens N Things closings is manageable Linens N Things Rejected and Closed: Locations: 38 (29 JVs) GLA: 1.2M sf (1.1% of portfolio) Pro Rata Revenues: $6.9M (1.0% of portfolio) Average Base Rent: $13.17/sf Average Size: 32,600 sf Geography: 5 GA, 3 TX, 3 FL, 3 NC, 3 NY, 3 NJ, 2 RI, 2 AL, 2 CT, 2 CO, 2 TN, 1 AZ, 1 MA, 1 MN, 1 PA, 1 SC, 1 FL, 1 MI, 1 OR Bankruptcy: DDR sits on Creditor s Committee 22

23 Debt Maturities (in millions)* Remainder of 2009: Consolidated Mortgage Debt $103 Unconsolidated JV Mortgage Debt 82 $185 DDR Proportionate Share 2010: Unsecured Notes $498 Consolidated Mortgage Debt 346 Unconsolidated JV Mortgage Debt 312 $1,156 DDR Proportionate Share 2010 Unconsolidated JV Mortgage Debt excluding MDT $190 DDR Proportionate Share * Excludes loans with extension options 23

24 Consolidated Debt Maturity Schedule ($ in millions) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Includes credit facilities ($1,269M drawn); assumes 1-year extension option exercised at L+60 $800M secured term loan; assumes one-year extension option exercised at L+70. $583M of convertible notes at 3.0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Thereafter Unsecured Notes Corporate Credit Facilities/Term Loan Mortgage Debt Note: As of 1/31/09. 24

25 Joint Venture Debt Maturity Schedule ($ in millions) $3,000 $2,500 $2,000 $1,500 $1,000 $268M secured revolver $197M secured revolver; assumes one-year extension option exercised at L+65. $500 $0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Thereafter Secured Revolvers Mortgage Debt Note: As of 1/31/09. 25

26 Despite market conditions, new capital was available to DDR in 2008 Date Amount Raised (in millions) Pricing Capital Provider Sonae Sierra Brazil Revolver 2/27/08 $19* CDI + 45bp Banco Itau DDR Portfolio Loan 3/26/08 $ % Metlife DDR Construction Loan 3/24/08 $71 L % PNC, Scotia, First TN DDR Construction Loan 4/23/08 $40 L % JPMorgan, FirstMerit RVIP VII Mortgages 3/25/08 $72 L % US Bank Coventry II Bloomfield Mortgage 6/27/08 $48 L % Wells Fargo MDT Portfolio Loan 8/04/08 $ %/L+240bp Metlife Sansone Venture Mortgage 8/26/08 $7 L % Associated Bank DDR Construction Loan 9/18/08 $45 L % Scotia, FirstMerit Coventry II Mortgage 9/30/08 $45 L % Wells Fargo Coventry II Mortgage 9/30/08 $36 L % Mass Mutual Berndt Venture Mortgage Enhancement 10/1/08 $11 L % Compass, NCB Independence Commons 12/12/08 $ % Jackson National Life Sonae Sierra Brazil Revolver 12/22/08 $ 38* 8.50% Banco Da Amazônia Total $1.2 Billion * Brazilian Reais in US Dollars at today s exchange rate 26

27 Liquidity is tight for most companies. We are taking a multifaceted approach to addressing 2009 needs: Revolver Availability 12/31/08 1 $290 Sources: Cash Flow from Operations 400 Loan Draws 30 New Secured Financings 350 Asset Sales, Net 210 Other Capital Raise 213 $1,203 Uses: Preferred Dividends (42) Mandatory Loan Payments and Prin. Amortization (435) Development Funding & Other Cap. Ex. (180) ($657) Projected Revolver Availability 12/31/ Less: Est. Minimum Common Dividends (15) Projected Revolver Availability before Debt Repurchase $821 Purchase of Unsecured Notes (470) Adjusted Projected Revolver Availability $ Excludes $7.6M undrawn Lehman commitment. 27

28 Asset Sales in 2008 and YTD 2009 Property Sales Price (in millions) Cap Rate Close Date Albertson s at Bloomingdale Hills Eastside Plaza Shopping Center Hutchinson Mall BJ s Warehouse PetSmart & JoAnn Fabric Portfolio $ % 10.48% 4.29% 7.07% 7.47% 1/10/2008 3/07/2008 6/12/2008 6/23/2008 8/05/2008 Crossroads Plaza % 8/11/2008 KB Homes % 8/20/ Commons % 9/12/2008 Apollo Building % 9/12/2008 Independence Commons % 11/05/2008 T-Mobile Building % 12/02/2008 CVS - Plano % 12/09/2008 Shop & Shop % 12/18/2008 CVS (8 Assets) % 12/23/2008 Northland Mall % 12/29/ Total % Ormond Town Square % 1/15/2009 Mervyn s (5 locations)* /5/2009 Five Forks Crossing % 2/19/2009 *Mervyn s sale price and cap rate cannot be disclosed per PSA with Kohl s (buyer) 28

29 DDR has been repurchasing some of its unsecured notes at a discount to par Par Value of Notes Purchased $48.0M $0.4M $8.7M $3.0M $17.0M Price Issue Jan May 2010 Aug Aug Mar

30 Macquarie DDR Trust is in the process of improving liquidity DDR owns 12.1% of MDT s outstanding shares Announced strategic review to maximize shareholder value Asset sales or other capital raise being explored Nothing will occur without DDR approval at the Board and asset levels Sold 84.5% stake in Independence Commons Gross purchase price of $62 million (sub 8% cap rate) $20 million of net cash proceeds to MDT Refinanced US$340 million of IPO mortgage debt with December 2008 maturity Received US$370 million of proceeds Weighted average interest rate of 5.9% (81% fixed/19% variable) Weighted average maturity of approximately 6 years Amended head trust facility to enhance financial flexibility Increased overall debt covenant threshold from 60% to 65% Reduced capacity from US$100 million to US$60 million Increased interest rate spread from 100 bps to 150 bps Potential for DDR to exit with 100% stake on a pool of assets and remove MDT s maturity overhang from our debt schedule 30

31 Development spending has slowed as we continue to strengthen the balance sheet and enhance liquidity Additional development spending is discretionary Expected development spending in 2009: - Consolidated funding: $46.1 million - DDR proportionate share of JV funding: $13.7 million Required rates of return and underwriting caution have increased Sufficient pre-leasing and potential construction financing required before development commences Construction halted in Russia until third party financing can be obtained Highly pre-leased shopping center in Manaus, Brazil is near completion; additional development spending in Brazil viewed cautiously 31

32 Development carries greater risk today and our development pipeline is reasonable relative to our total asset base 30% 25% KRG REG SKT 20% KIM 15% MAC WRI 10% 5% DDR CBL FRT SPG TCO GGP 0% Development pipeline as a % of Total Assets Source: Goldman Sachs Global Investment Research as of 3Q08 32

33 We maintain an investment grade credit rating with all rating agencies Fitch Ratings Latest Update Outlook: Negative October 23, 2008 Rating: BBB Standard and Poor s Outlook: Negative October 23, 2008 Rating: BBB- Moody s Outlook: Negative November 11, 2008 Rating: Baa2 33

34 Opportunities exist across the capital stack Common Stock Price: $2.87 Dividend Yield: 52.2% Preferred Stock 7.5% Issue 8% Issue 7.375% Issue Price: $5.21 $5.86 $5.10 Dividend Yield: 36.0% 34.1% 36.2% Par is $25 per share Convertible Debentures 08/11 (3.5%) 03/12 (3.0%) Price: $45.50 $43.30 Current Yield: 7.7% 6.9% Current Yield to Maturity: 40.0% 34.9% Par is $100 per share Debentures 05/10(5.0%) 08/10(4.625%) 04/11(5.25%) Price: $76.00 $70.50 $59.00 Current Yield: 6.6% 6.6% 8.9% Current Yield to Maturity: 39.5% 32.2% 33.9% Debentures 10/12(5.375%) 5/15(5.5%) 7/18(7.5%) Price: $43.50 $65.00 $48.00 Current Yield: 12.4% 8.5% 15.6% Current Yield to Maturity: 33.4% 14.0% 19.9% As of February 26,

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