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Developers Diversified Realty Corporation (NYSE:DDR)

Q3 2009 Earnings Call

October 23, 2009 10:00 am ET

Executives

Kate Deck – Director of Investor Relations

Scott A. Wolstein – Chairman and Chief Executive Officer

Daniel B. Hurwitz – President and Chief Operating Officer

David J. Oakes – Senior Executive Vice President of Finance, Chief Investment Officer

William H. Schafer – Executive Vice President, Chief Financial Officer

Analysts

David Wigginton - Macquarie Research Equities

Quentin Velleley for Michael Bilerman - Citigroup

Craig Schmidt - BofA Merrill Lynch

Alex Barron – Agency Trading Group

Michael Mueller - J.P. Morgan

Nick Vedder - Green Street Advisors

Jay Haberman - Goldman Sachs

Richard Moore - RBC Capital Markets

Jeffrey Donnelly - Wells Fargo Securities, LLC

[Shubar Mukardee] – Barclays Capital

Operator

Good day ladies and gentlemen, and welcome to the third quarter 2009 Developers Diversified Realty earnings conference call. My name is [Shantala] and I will be your facilitator for today’s call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the presentation over to your host for today’s call, Miss Kate Deck. Please proceed.

Kate Deck

Good morning and thank you for joining us. On today’s call you’ll hear from Chairman and CEO Scott Wolstein; President and Chief Operating Officer Dan Hurwitz; Senior Executive Vice President of Finance and Chief Investment Officer David Oakes; and Executive Vice President and Chief Financial Officer Bill Schafer.

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 that statements are subject to risks and uncertainties. Actual results may differ materially from the forward-looking statements. Additional information about such factors and uncertainties that can cause actual results to differ may be found in our 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, 2008, 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 22, 2009. This release and our quarterly financial supplement are available on our website at DDR.com.

Lastly I’d like to request that callers observe 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 Scott Wolstein.

Scott A. Wolstein

Good morning everybody and thank you for joining us today. We’ve had a very active quarter and I’d like to begin by going through some of the highlights.

At our Investor Day on July 1 we discussed our goals of improving liquidity and lowering leverage and we laid out a very specific plan to focus on achieving those goals in the short term and the long term. While we received consistently positive feedback on our goals, there was also great concern regarding the execution risk involved in achieving those goals. Now just over three months have passed since we previewed the plan and I’m very pleased to report the considerable progress that we’ve already made in such a short time.

On July 1 we said that we would reduce total consolidated debt by approximately $1 billion during 2009. On December 31 of 2008 we had $5.9 billion of consolidated debt on our balance sheet. On September 30 of 2009 we had approximately $5.2 billion of consolidated debt or a reduction of over $700 million just over the past nine months, and we are well on our way to our goal of $4.5 billion of consolidated debt by the end of next year.

Additionally we reduced our share of unconsolidated joint venture debt by $140 million in the first nine months of the year. We further reduced our debt by another $80 million and we redeemed our interest in our joint venture with MDT this week. All of this resulted in total reduction in our debt of $920 million just this year.

We said that we would complete $900 million in new debt financing during 2009. With two months remaining in the year, we have already met our goal by originating $300 million of unsecured notes and approximately $600 million in new mortgage loans. We also currently have the opportunity to close several additional mortgage financings this year.

We said that we would retire our senior unsecured notes at discount to par and so far during 2009 we have purchased $250 million of notes through a successful tender offer and another $440 million of notes through open market purchases for a total discount to par of $165 million. We said that we would complete $370 million in asset sales this year and we’ve already completed over $450 million. Our share of debt total is over $300 million.

Almost all of these sales have been non-prime assets and have contributed to the de-leveraging effort by reducing our debt by over $300 million, $65 million of which was our share of secured mortgage debt encumbering these assets. And the balance of the proceeds repaid unsecured notes and [inaudible] balances.

We also referenced a discretionary equity raise of $300 million and we have already executed on over half of this, in addition to the $110 million of equity raised from the Otto family.

In total we have generated more than $1.5 billion of new capital year-to-date and $1.1 billion of new capital since our Investor Day which has been applied to lower leverage, enhance liquidity and extend maturities. Bond and mortgage maturities through 2012 have been reduced from $2.3 billion to $1.7 billion just during the last four months.

We said that we would simplify our structure and we have redeemed our interest in our joint venture with MDT this week. As mentioned earlier, this eliminated a net $80 million of debt for DDR and our pro rata share. We now own 100% of three high quality prime assets as a result of this reduction.

Finally we said that we would work diligently to re-tenant space formerly occupied by a bank of retailers. We have generated real activity on over 55% of that space in the form of either signed leases, sales, leases pending signature or letters of intent, and we are gaining traction as retailers firm up their 2010 and 2011 opening plans. We continue to be prudent in evaluating deal terms, and while rents have moderated we have been successful in driving economically efficient deals with lower than average capital expenditures. Bill, Dan and David will go into more detail on all these items.

We are very pleased that we have been able to execute on our plan thus far, but we know we have much more work to do. In our Investor Day presentation we laid out plans for 2010, 2011 and beyond and we will keep our energies appropriately focused in order to continue to successfully execute upon these plans.

Despite the high level of transactional activity this year, we have not lost sight of the operational side of the business. Results were quite solid considering the continued challenging environment, with operating FFO per share results coming in at $0.44 per share which met our expectations. Given the continued challenges of the environment, we are very pleased with the performance of our portfolio and of our team.

Now I’d like to turn the call over to Bill who will go into more detail on the operating results.

William H. Schafer

Thanks Scott. As just mentioned, our operating FFO for the third quarter was $0.44 which was in line with our expectations after taking into account the significant transactional and financing activity executed during the quarter. Including several non-operating and generally non-cash items aggregating approximately $165 million, the FFO loss per share was $0.54.

Now I’ll walk through some of the details regarding the specific non-operational items aggregating $165 million, most of which are non-recurring and substantially all of which are non-cash. These items are also clearly broken out on the front page of our earnings release.

The most significant non-operating non-cash items were primarily attributed to the appreciation of our share price and the requirement that the Otto transaction be treated as a mark-to-market derivative. This was discussed in detail last quarter and now that the final tranche of the Otto equity has closed, the ongoing mark-to-market adjustment will be much less.

The other non-operating and non-cash charges primarily relate to two joint ventures that have seen the market value of their portfolios decline from their formation to today, largely related to an increase in cap rates. The aforementioned charges are partially offset by a $24 million gain on repurchase of debt and a $3.5 million gain on the sale of MDT units which we sold above the price at which we had carried them.

In other operating results, same-store NOI for the quarter was down 5% and down 4.1% for the year. This is in line with our previous guidance of 4% decline in same-store NOI for 2009. The decline continues to be largely attributed to the bankruptcy of Goody’s, Linens ‘N Things, Circuit City and Steve & Barry’s.

As with previous quarters, our Brazil portfolio continues to perform very well with the same-store net operating increase of 11% for the quarter.

Our third quarter general and administrative expenses include some additional one time charges relating to severance and executive retention, aggregating $2.7 million. This in addition to the $4.9 million of non-cash changing control charges discussed in our earnings release. Therefore excluding the above charges our general and administrative expense for the quarter would have been approximately $18.5 million.

Next I’d like to discuss our continuing compliance with debt covenants. At Investor Day we projected improvement in both our bank and bond covenant ratios by year end 2009. I am pleased to report that the bank covenant that has historically been tightest for us, the unencumbered asset ratio, has continued to improve to approximately 1.75 times from 1.63 times at year end 2008 and from 1.67 times at June 30. Our consolidated outstanding debt to consolidated market value ratio was well below the 60% limitation at approximately 53% as of September 30.

Our execution on various de-leveraging initiatives including asset sales, equity issuance and retained capital, will continue to improve these ratios over time, giving us increased flexibility quarter by quarter. In addition, as we continue to increase our occupancy back closer to long term norms, these ratios should improve further.

With regard to our liquidity position, at September 30 we had over $500 million of unrestricted cash on hand and revolver availability. Our cash on hand and revolver availability was only $150 million as of June 30. So we have made considerable progress in enhancing our liquidity position.

Finally I’d like to discuss the decision to pay an all cash dividend of $0.02 for the third quarter. After it was determined that we would be able to meet the minimum payout required to meet REIT status for 2009, the board approved the continuation of the cash portion of the prior two quarters dividend of $0.02 per share in order to retain additional capital and enhance financial flexibility while remaining committed to distributing some cash flows to our investors.

Now I’ll turn the call over to Dan.

Daniel B. Hurwitz

Thank you Bill, and good morning everyone. I would like to begin with a brief update on the leasing and retail environment, particularly as we head into the most important retail season of the year.

Fortunately, back-to-school retail sales were encouraging and we see reason to believe that operating margins for retailers will continue to remain stable, even if comp store sales results are moderate or negative. Retailers continue to prove their resilience and display their ability to control inventory levels and buy right, which should lead to lower clearance levels and less gross margin deterioration compared to last year.

While lowering inventory levels are generally a positive strategy in a recessionary environment, it could also create headwinds for retailers if the consumer returns to the store in greater numbers than expected and inventory is sparse. It will be very interesting to watch this phenomenon and we remain cautiously optimistic for the holiday season as the consumer clearly prefers and is aggressively seeking value and convenience.

In regard to specific quarterly metrics during the third quarter, we signed 146 new leases representing over 737,000 square feet of GLA and 287 renewal deals representing over 1.85 million square feet of GLA. On a blended basis, there were 433 deals executed during the second quarter representing nearly 2.6 million square feet of GLA and an average rental spread of 3.5. Importantly, of the 737,000 square feet of new deals signed during the third quarter, 44% represent space that was previously vacant and over 20,000 square feet and thus non-income producing prior to these new leases.

When combined with our releasing of spaces in Q2, these deals alone will contribute over $9.5 million per year of base rent when the tenants assume occupancy over the next 18 months. Please note that we have added new disclosure to the supplement on leasing activity and costs in our effort to continue to provide maximum transparency. This information is contained in Section 5.

We are pleased with the volume of leasing activity achieved during the third quarter, especially coming off our record setting second quarter. While maximizing rent spreads remains challenging, we are pleased to see a marginal improvement on blended rental rate spreads over the previous quarter, and are particularly pleased with the over 5.5 million square feet of leasing done in the second and third quarters combined.

From a capital expenditure perspective, the cost of executing deals has decreased 17% on per square foot basis from the same period one year ago as we continue to utilize existing fixtures and improvements when we back fill boxes and focus on making the most efficient deal with our retail partners.

Our successful leasing results can be attributed to the quality of our real estate, the operating platform, the absence of new development projects and an extraordinarily focused and aggressive leasing team. As retailers seek external growth opportunities, the supply of new space is limited and therefore retailers must rely on second and third generation space available in the market. Good real estate will get leased, and we continue to receive significant interest in our portfolio from many of the most successful and aggressive retailers looking to capitalize on this opportunity.

Most importantly we remain focused on our tenant relationships and have invested our human capital wisely by staying in front of tenants, conducting portfolio reviews and discussing new store opportunities. During the third quarter we held several productive meetings with many of the most active retailers within our portfolio including but not limited to Hobby Lobby, Bed Bath & Beyond, Best Buy, Kohl’s, HHGregg, Jo-Ann Stores, Dollar Tree and regional grocers such as [Sprats]. Other tenants with whom we have met such as TJX Companies, the parent company of TJMaxx, Marshalls, AJWright and HomeGoods, also remain desirous of new locations. We have multiple executed leases or an active lease or LOI negotiations with each of the retailers just mentioned.

As we enter the fourth quarter and evaluate the importance of holiday sales and consumer fundamentals for many of the tenants in our portfolio, I think it’s also important to note the capital markets activity that has recently occurred, particularly for the retailers, that many landlords have on their watch lists. Last quarter as you may recall I mentioned the positive capital raising for Wal-Mart and TJX Companies. This quarter Blockbuster was successful with their issuance of a five year senior unsecured notes, Dollar General continues to advance their discussions regarding plans for an IPO by leveraging positive sales and profitability trends, and Office Depot recently closed on a significant capital raising event which provides increased liquidity to the office supply retailer. Earlier this week Rite Aid priced ten year senior secured notes and the transaction is expected to close on Monday. While these retailers represent a small portion of our entire portfolio, their recent capital raising initiatives indicate increased access to capital for the retail sector. While no amount of capital can hide poor merchandising, operations or sales, even the best merchants cannot survive without capital and signs of capital availability to retailers have become more positive over the past few months.

Regarding portfolio occupancy, as discussed on last quarter’s conference call we believe that our second quarter portfolio leased rate marked a trough for our portfolio. At the end of the second quarter of this year, our leased rate remained constant at 90.7%. The fact that we were able to hold our leased rate flat quarter over quarter, coupled with the fact that we have historically experienced drops in occupancy from the first quarter to the second quarter, was a strong indication that we were truly operating at a soft bottom. As of September 30, 2009, our portfolio leased rate was 90.9%, a 20 basis point improvement over the prior quarter. Some of the properties sold this quarter had leased rates above our portfolio average, so on a more same-store basis our leased rate would have shown an even larger increase this quarter.

We expect continued marginal improvement as we head toward year end with the impending impact of holiday sales as the primary influence on occupancy for the first quarter of 2010 and beyond.

In terms of addressing our big box vacancies, we continue to make significant progress in the re-leasing and backfilling of junior anchor and anchor spaces within our bankrupt tenant portfolio. As of September 30, we had 55% of the units solid, leased, at leased or in LOI negotiations. We are committed to re-tenanting space creatively with strong credit tenants while maximizing the reuse of existing improvements and minimizing capital outlays. Growth in rental revenue remains a priority for our company, and as a result we are committed to realizing the opportunity to organically grow earnings through internal means beyond historical averages.

While significant upside potential remains from lease up, it is worth noting that our new business development team continues to creatively generate significant rental revenues via temporary and seasonal leasing of both big box and in line vacant units. Specifically, we signed 84 deals with Halloween operators this year, representing a 79% increase in deal volume year-over-year in that particular focus of our seasonal leasing initiatives. All told our new business development department generated over $8.4 million of ancillary revenues during the third quarter, a 30% increase over the same period last year, providing a mitigating factor against lost rental revenues and further declines in NOI due to retailer fallout.

Regarding bad debt in our portfolio, our bad debt expense as a percent of revenue has grown in the past year, particularly among small local tenants. These tenants make up a large portion of our grocery anchored portfolio, and as a result bad debt is a much larger percentage of revenue in our joint venture portfolio than in the rest of our assets. The southeast is particularly affected with more than twice the amount of bad debt than any other region of the country. We are not surprised by this trend and had contemplated such results in our operating metrics and prior guidance.

Turning for a brief moment to our operations in Brazil, I am pleased to report continued growth and stability within our portfolio, as well as the broader macroeconomic environment. As of September 30, as Bill mentioned, same-store NOI grew 11% and the portfolio leased rate remains strong at 96%. Our new development in Manaus which opened in the second quarter has stabilized at 96% leased and our ancillary income initiatives in Brazil continue to produce exceptional results with our cart and kiosk programs leading the way. Overall we continue to be very pleased with our Brazilian operations and we expect the portfolio to be a significant contributor to overall growth over the next several years.

In summary, we continue to be pleased with our operating platform amid the challenging retail environment and are cautiously optimistic headed into year end. While many have declared the recession over, I can assure you that the joy is not universally felt across Main Street. Various economic and unemployment uncertainties remain for the consumer, particularly as we head into this holiday season, and we remain focused on leveraging our tenant relationships as they are the key element to our operating success and present the clearest opportunity for recovery and future growth.

At this time I’d like to turn the call over to David.

David J. Oakes

Thanks Dan. As mentioned we’ve made good progress on the various initiatives that we announced at Investor Day. I will go into a little more detail on a few of these and I’d like to focus on the effects of these actions on our balance sheet and maturities schedule as well as our capital plans for the next year.

We completed a successful tender offer in mid-September, buying back $250 million of our senior unsecured notes at 91% of par. The tender offer achieved our goal of retiring unsecured notes with a heavy weighting toward the near dated maturities. In addition to the tender offer, we retired $48 million of 2010, ’11 and ’12 notes on the open market during the third quarter at an average 86% of par. In total, we eliminated approximately $30 million of debt through the discounts to par that were achieved in the third quarter.

We also raised $300 million of new senior unsecured notes maturing in 2016. Our capital plan for Investor Day had called for our return to the unsecured market with $250 million raise in 2011. However, the unsecured markets opened to us in recent months and we decided to take advantage of the opportunity. This offering of long term debt to repay short term debt extends the duration of our overall debt and fits very well within our maturity profile.

The offering also served as an important signal of the availability of capital that exists for us from many sources. The interest rate was much higher than our historic experience and we remain highly focused on executing upon the balance sheet improvements that will lower this cost over time.

In the third quarter we also closed on $17 million of new 6% long term mortgage financing on two small assets. Subsequent to quarter end we closed on a new five year mortgage financing with an affiliate of Goldman Sachs. The new long term debt proceeds were used to retire mortgages with near term maturities, retire 2010 bonds and lower the balance on our line of credit.

We also sold $220 million of equity in the quarter. In addition the second tranche of the equity sold to the Otto family, we issued almost $160 million of equity through the common equity dribble program at an average price of more than $8.50 per share. These equity sales provide a portion of the capital that we expect to raise in order to lower our leverage and provide us a greater flexibility on the timing of additional issuance.

In addition, we sold over $450 million of mostly non-prime assets in 2009 and approximately $270 million in the third quarter, with a closing occurring almost every week since late May. After taking into account all of the above items including the activity thus far in the fourth quarter, I’m very happy to report that we have no remaining 2009 debt maturities, and all but six of our wholly owned 2010 mortgage maturities amounting to $59 million have been repaid.

As Scott mentioned, we reduced our consolidated debt by over $700 million in the first nine months of the year, and we reduced our unconsolidated debt by over $100 million. Since the end of the second quarter we have retired $102 million of 2009 debt, $215 million of 2010 debt, $437 million of 2011 debt and $227 million of 2012 debt. In addition to significantly reducing the amount of debt outstanding, we have also extended duration by more than a year with our weighted average maturity now more than three years out.

Turning now to the current strategy and focus for the next year, first, we will continue to sell non-prime assets to third parties. However, due to the success of our capital raising initiatives year-to-date, we do not feel an urgency to sell assets at fire sale prices to raise capital. As evidenced by the $450 million of asset sales this year, retailers, wealthy families, local individuals and some 1031 buyers continue to be active in the transactions market. We have another $150 million in assets that are contract for sale or subject to LOI currently. We continue to look at asset sales as a good source of capital, only when pricing is acceptable and generally when assets do not fit our focus on prime properties.

Second, we will continue to repurchase our unsecured notes if discounts to par remain. If discounts on the nearest term maturities evaporate, we will preserve ample room on our revolving credit facilities to address them upon maturity. Third, we will have a new common equity dribble program at our disposal where we can sell equity in the open market at our discretion. This program is an extension of the $200 million equity dribble program that we announced last fall and will allow us to sell up to an additional $200 million of common stock over the course of the next three years.

Fourth, we have the potential to complete several other secured financings at our discretion in the next several months. We don’t see these transactions as necessary to meet our near term maturities, but we remain open to the potential to close on additional secured debt to provide us with additional liquidity. We are encouraged by the continued opening in the capital markets and the success that other leading REIT’s have had in raising long term debt and equity.

At Investor Day we also spoke about our focus on a debt-to-EBITDA ratio and our expectations for future improvement. This is a metric that we will continue to use to measure our leverage, and we are working diligently to improve this ratio.

I’d like to turn your attention to Page 2.4 of our supplement where we’ve added two debt-to-EBITDA calculations for recent periods. The first is a consolidated calculation and the second is a true pro rata calculation. We hope this makes it easier for you to track our status and our progress as we steadily de-lever. We will also use this ratio and more importantly the improvement in this ratio as one of the key metrics to determine executive compensations.

Finally I’d like to address the MDT redemption that we announced recently. An MDT unit holder vote was held on October 19, the redemption was approved and we have now closed the transaction that results in DDR receiving 100% ownership in three properties in exchange for our 14.5% interest in the U.S. REIT joint venture with MDT. This transaction simplifies our structure, provides MDT with more flexibility to recapitalize, and eliminates considerable near term debt maturities from DDR’s pro rata maturity schedule. We continue to actively co-manage the trust and aggressively lease its assets.

Now I’d like to turn the call over to Scott for closing comments.

Scott A. Wolstein

Thanks David. I’d like to wrap up the call be reiterating the guidance we gave in the press release in September of $1.90 to $2 per share in operating FFO for 2009, which excludes any non-recurring items.

Finally, I’d like to thank the DDR team for their hard work these past few months. As you’ve heard, we’ve made great progress on our de-leveraging and liquidity enhancing plans, and we will continue to execute aggressively on those goals.

With that, we’ll take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from David Wigginton - Macquarie Research Equities.

David Wigginton - Macquarie Research Equities

Can you guys maybe talk a little bit about same-store NOI trends on a sequential basis? Meaning from maybe the second quarter to the third quarter.

William H. Schafer

From the second quarter to the third quarter the same-store NOI was pretty consistent at 5% decline.

David Wigginton - Macquarie Research Equities

So just same-store NOI in general from second quarter, what was the number then versus what was the number in the third quarter? I mean was there a decline in same-store NOI from second quarter to the third quarter?

Daniel B. Hurwitz

You know we measure it and the numbers we provide are on an annual, you know year-over-year basis and so those are the traditional numbers we give out. On a quarterly sequential basis we haven’t provided those. We can certainly dig deeper into it. Our expectation would be there was a modest improvement, flat to slight improvement between the third quarter of this year and the second quarter of this year based on the metrics that show up in our supplemental although we’ve not specifically calculated that number on a sequential basis.

William H. Schafer

Yes, David, you know you really shouldn’t expect to see very much quarter-to-quarter at this time of the year because you know even though we’ve signed a lot of leases, tenants really take occupancy in our business either in the spring or in the fall. So you know there’d be very few of the you know additional leases that were signed during the quarter would ever translate into same-store NOI until at the very earliest November when they start to take occupancy for holiday sales. And then even more so based on calendar next spring.

David Wigginton - Macquarie Research Equities

No, I understand. I’m just trying to get a feel for the trend at this point.

William H. Schafer

It’s pretty flat you know from quarter-to-quarter on that basis.

David Wigginton - Macquarie Research Equities

My second question is related to the expense recovery ratio. It dropped pretty sharply in the quarter. Just wondering what obviously a result of bankruptcies but even the trend versus second quarter seemed to tail off a little bit in the third quarter. Was there anything in particular that drove that down?

William H. Schafer

It’s primarily the nature of the expenses. As we indicated in our supplement, our bad debt expense was up significantly from where it was a year ago. And when you look at the I’ll say the additional landlord expenses associated with maintaining the vacant units, i.e. like utility bills and so forth that are typically paid directly by tenants, when those units become vacant they now become the landlord’s responsibility. A lot of this is really related to the Mervyn’s portfolio. When you look at the nature of those expenses, they increased you know well over $3 million compared to the prior year. Combine that with the increase in the real estate taxes and again the real estate taxes, a number of those items we are certainly appealing, but the process is expensive in that area. So when you look at the overall increase of well over $4 million in what I will refer to as non-recoverable related expenses, that had the biggest impact on that recovery ratio.

David Wigginton - Macquarie Research Equities

What was the bad debt expense as a percent of total revenues?

William H. Schafer

For the quarter it was I believe around 2.4% if we disclose it, its $4.8 for the quarter, $4.8 million is the bad debt expense. And that’s reflected in our earnings release.

Operator

Your next question comes from Quentin Velleley for Michael Bilerman – Citigroup.

Quentin Velleley for Michael Bilerman – Citigroup

Just on the debt-to-EBITDA ratio, which is still stubbornly high despite some of the de-levering you’ve done, I know you’ve got an 8.3 times target for the end of this year. And to get there it seems to be only the real way would be raising about $500 million of equity or selling up to $500 million of land, a combination of the both. Could you just comment on where you’re at with those two things?

Daniel B. Hurwitz

And this is exactly why we want to have that calculation out there to highlight our focus on it and the progress we’re making, but I don’t think the requirements are as great as you’ve indicated to achieve what we’ve indicated is our targets. The single biggest change between what would be a fourth quarter calculation and that number which is what we had discussed at the analyst day versus the third, fourth quarter calculations outlined in our supplemental today, is simply the seasonality of NOI and the annualization of that income stream. So simply from seasonality if we were truly comparing you know apples to apples comparison of what we gave in the Investor Day presentation versus what’s provided in the supplemental, you know using 3Q NOI is a considerable difference, even just based on the leases that are in place today and the ancillary income contracts that are in place today versus what showed up in third quarter. So I think that’s an important part of it which is simply seasonality.

Secondly while you know we’re pleased with the activity that we’ve achieved thus far on the de-levering front, there should be no assumption that we believe we’re done with that. And there are you know considerable additional initiatives planned just for the next several months in terms of continuing to improve that ratio. None of which get to the size of the $500 million plus of transactional activity you indicate in terms of an equity raise, but certainly a great focus on additional de-leveraging initiatives to continue to move that debt-to-EBITDA calculation lower and more in line with what we guided to July 1.

William H. Schafer

Also you know I think let’s talk about the apples to apples comparison as to what we presented on Investor Day. That number at 8.3 was on a consolidated basis and right now at the end of Q3 we were at 9.2 and today we’re even below that. So the delta really isn’t that great, apples to apples. And you know I’ve noticed a trend among analysts you know to look at de-leveraging as a one way street, that the only way you de-lever is by raising equity. You also de-lever by raising NOI and a very significant component of the increase in our debt-to-EBITDA is not because we increased debt, it’s because we lost EBITDA with the bankruptcies of these tenants. And as those tenant spaces are re-leased, EBITDA will rise and the ratio will come down, even without equity raised. So it’s really a two way street. It’s a combination of two metrics you know converging in the middle. Yes, we will raise more equity but yes we will also raise NOI and EBITDA and that debt-to-EBITDA ratio will continue to decline.

Quentin Velleley for Michael Bilerman – Citigroup

Are you still progressing with some potential land sales in the meantime?

William H. Schafer

Land sales? I’m sorry.

Quentin Velleley for Michael Bilerman – Citigroup

Yes, are you still progressing? I think at the Investor Day presentation you said there’s up to $500 plus million dollars of book value of land that you were looking at selling.

Scott A. Wolstein

Yes. That’s very much a part of our strategy.

Quentin Velleley for Michael Bilerman – Citigroup

And is it progressing?

Scott A. Wolstein

Slowly. I mean this is obviously the most difficult time in the history of the United States to sell development property. But you know there are interested parties in some parcels and yes it is proceeding.

Daniel B. Hurwitz

Well and I think you know we really outlined that as an opportunity more so than a specific part of our plan and our requirement. We do believe that relative to the size of the company overall today and our targets going forward that the development pipeline will likely be reduced relative to the size that it is today. That doesn’t mean that we don’t have a considerable you know pipeline going forward and commitment to that, but I do think there’s an opportunity to take some capital out of that pool of non-earning assets today that can considerably help these ratios. And so it’s something we’re focused on. It is not the requirement part of the plan. It is certainly not a quick fix given the timing it takes to get those transactions closed, but it is an opportunity for additional de-levering for us over the next year or so.

William H. Schafer

But to be more specific Quentin we have very, very serious interest in some parcels up in Canada where we have a significant investment. And we also you know where you’re probably going to see the most land sales are going to be in development properties that we are in the entitlement process and we have pending deals with anchor tenants who will buy their [pads] as soon as we get entitlement. So you know all of this is in process and yes we do expect it to happen on a pretty methodical basis.

Quentin Velleley for Michael Bilerman – Citigroup

In terms of the $400 million secured loan with Goldman, which you’re obviously working towards making TALF eligible, we’ve heard from a few people that the rate was about 9% in the interim. If it’s unsuccessful in becoming TALF eligible, does that rate hold up?

David J. Oakes

The long term rate is not determined today and given where we are in the process is not something that we are able to discuss at this time.

Operator

Your next question comes from Craig Schmidt - BofA Merrill Lynch.

Craig Schmidt - BofA Merrill Lynch

Of the 55% of the vacant boxes that have been impacted and I guess this is for Dan, is it possible to break out those that are LOI’s versus those that are lease assigned or sold?

Daniel B. Hurwitz

Yes, in fact it’s in the supplement in our new disclosure section, Page 5. So we have 19% are actually sold or leased, 9% are at lease, 27% are at LOI and that totals the 55%. Section 5. We gave you a lot of detail, Craig, particularly the locations, the tenants, the square footage and something a lot of people have been asking about is lease terms , the term of the lease, so we actually included that as well.

Craig Schmidt - BofA Merrill Lynch

The second question I guess is for David. He started to touch on it. On the $450 of non-prime assets you sold, who were the buyers of that? Who’s the most interested in you know and maybe describe them, give a little color on them for me.

David J. Oakes

Yes. It’s been a different profile than the traditional leaders in the transactions market, you know for us that $450 million of transactions is nearly 40 separate sales to 40 different groups. So you can see that none of these is necessarily a major headline that was the exclusive driver of that. It has been a large number of local individuals who know market very well. We have selectively sold some stores back to retailers. At this point our retailers cost of capital is dramatically lower than ours and we’ve sought to take advantage of that giving them control of their box long term and providing us with capital at a better cost. We’ve selectively sold some assets into the 1031 market, where the stability of the traditional cash flows from our sort of long term leases can be well appreciated by individuals that are both you know trying to buy acceptable quality assets but more so to manage their tax situation.

At this point we are seeing more interest coming into the markets from various larger sources, but the activity year-to-date has been a lot of smaller transactions with wealthy individuals, local operators, retailers and 1031 participants.

Operator

Your next question comes from Alex Barron - Agency Trading Group.

Alex Barron - Agency Trading Group

Can you talk a little bit more about your seasonal and Halloween stores? How much did that improve the occupancy in terms of square feet and basis points?

Scott A. Wolstein

We don’t include that in the occupancy metrics, you know, frankly. It’s in our revenue, it’s in our NOI but we don’t treat that as an occupied unit.

Alex Barron - Agency Trading Group

Could you elaborate a little bit more maybe, I missed it, on what caused the sequential increase in dollars in the SG&A line?

William H. Schafer

The increase there, obviously we had the second portion of the change of control charge which was approximately $4.9 million, and that was mentioned right on the face I think of our earnings release. Then there was some severance in the executive retention cost that netted about $2.7 million that was incurred in the third quarter.

If you eliminate those items you’re down to approximately about $18.5 million in G&A for the third quarter.

Daniel B. Hurwitz

Alex, just to your earlier question on Halloween, it’s a very good question because we are starting to see some temporary tenant deals creep into occupancy rates in our industry. And it’s not something that we have historically done. Some companies draw a bright line and they say if the tenant’s in occupancy for five months or six months we’ll include them, some say if it’s a year. We have always taken the position not to include our ancillary income tenants in our occupancy and we have resisted to do that now, primarily because we want to make sure that we can provide you with an apples to apples analysis of where the portfolio was and where the portfolio has gone.

Alex Barron - Agency Trading Group

And on that front, is the occupancy you report then only for your wholly owned properties? Or does it include joint ventures as well?

Daniel B. Hurwitz

It includes joint ventures as well.

Alex Barron - Agency Trading Group

And do you have like a physical occupancy versus leased?

Scott A. Wolstein

Yes. The difference is about 200 basis points. Historically for those of you who have followed that trend line for the company, when we were at our highest occupancy levels in the history of the company when we were between 96% and 97% leased, we would be anywhere between 20 and maybe 50 basis points spread. When we had the last significant round of bankruptcies which were the Home Place, K-mart days if you will, that spread went to about 150 basis points because obviously you lose all those tenants at one time and then of course you fill them up over an extended period of time.

Today we’re actually at the highest spread we’ve seen. We’re at 200 basis point spread between our physical occupancy and our leased [ream]. And that is not unexpected. In fact it’s positive. It means that you know we lost a number of tenants which wasn’t positive, but the good news is that our lease velocity is very high which is causing that spread to increase and obviously that will decrease over time as tenants open. But right now the majority of the deals that we’ve done in our bankrupt portfolio particularly those tenants are not open and will not open until later this year and in most cases next year.

Operator

Your next question comes from Michael Mueller - J.P. Morgan.

Michael Mueller - J.P. Morgan

First question for Dan. With respect to the box leasing for the bankrupt tenants, I think that was 9% and maybe 20-some percent or along those lines for LOI as well as signed leases. Can you walk us through a rough timeline as to when you see that coming online and how much of it maybe spring of ’10, how much of it back into ’10 and how much thereafter?

Daniel B. Hurwitz

Yes. For what we have in process today, Mike, most of that will be impactful to our numbers in the late fall of ’10. But even what is, if you look at the projected opening dates, even what we have completed or near completed we still will have some leakage into ’11. I think if you’re looking at an annualized basis, the fall of ’11 is going to be where we’re starting to see significant pickup from the momentum of leasing that we’ve seen over the last two quarters.

Michael Mueller - J.P. Morgan

And then David, kind of going back a second to the debt-to-EBITDA conversation, I know at Investor Day you talked about a different metric used to consolidate metric, but if we’re looking at the pro rata method now, can you talk about where you think that metric could be from the combination of NOI lease up as well as just you know incremental right hand side of the balance sheet de-levering at say year end ’10? And where you think it could be a year after that or so?

David J. Oakes

Yes. The guidance you know given at the Investor Day was based upon the consolidated metric which as we’ve talked to a broader group of investors and you know dug into more what other companies were doing, you know, was not the primary focus. And we’ve provided both the consolidated metric as well as the pro rata metrics here so you can see where we stand on both. I think the improvement that is expected over the various periods of time is consistent. However, when you think about the change in either one of those variables we’ve guided to relative to the end of 2008, a little greater than you know one time decline and a one-and-a-quarter point time decline in the consolidated metric and what we had discussed previously. And I think it would be consistent with that on a pro rata basis. And that’s a number that we think is achievable and we hope to exceed.

William H. Schafer

Michael, you know I think it’s important to note that the redemption of our MDT interest didn’t occur during the third quarter. It just occurred in October. So when you’re looking at pro rata indebtedness you have to remove you know another $80 million of debt in doing that debt-to-EBITDA calculation.

Michael Mueller - J.P. Morgan

Going to the dividend for a second, I mean what sort of color can you give us at this point about the plan in 2010 for either a dividend level, number one, or just the split between cash and stock? Will you continue to utilize the stock dividend as you did for a chunk of this year and return to cash?

William H. Schafer

Yes, that’s going to be a board decision. That will be taken up at our next board meeting. So we’ll be able to give you firm guidance on that very soon.

Operator

Your next question comes from Nick Vedder - Green Street Advisors.

Nick Vedder - Green Street Advisors

It seems like there’s been some positive news from the retailer perspective as of late. Can you tell me what you’ve been hearing from generally? And has that changed more recently?

Daniel B. Hurwitz

Well you know retailers you know they’re always posturing and they’re always positioning. And I think things particularly for a lot of the value, the moderate to budget priced retailers that we deal with primarily weren’t quite as bad as they wanted everyone to think they were. And now they’re realizing that there’s opportunity that sales are pretty good. They’re comfortable that they have their inventories in line. You know that doesn’t happen overnight. That takes a number of quarters to adjust. And the results are good. Margins have been maintained. You know while same-store sales are really unimpressive, clearly retailers are hitting their plan and they’re able to make some money.

So I think they’ve figured out how to operate in this environment, and as a result they’re trying to take advantage of the fact that they have a significant amount of leverage. And in some cases some retailers today are running out there without competition, for the first time in the history of their company they don’t have any major national competitor that is competing with them for space. And they’re taking full advantage of that.

So it’s going to be interesting to see. This ties back a little bit to what we just talked about with Mike because while we have some opening dates, rank commencement dates that are pretty far out for the deals that we have done now, the retailer has the right to accelerate that date. And we’re not counting on that by any measure, but if in fact we end up with a good holiday and if in fact some of the 2011 deals that we’re looking at today would fit nicely into a 2010 open to buy for a retailer that has just gone from wanting to do 40 stores to 50, then we may see some of that move up in the pecking order. Like I said we’re not counting on that, but there’s a lot of movement still out there. It’s still an extremely fluid situation.

But the conversations with retailers are clearly better than they were last quarter, a lot better than they were in the first quarter. And of course you know the fourth quarter last year wasn’t even worth taking the call. So I think we’re seeing some positive traction. We’re encouraged by it. You know for us to do over 5.5 million feet over the last two quarters of leasing is a very, very big number and we hope that that trend continues.

Nick Vedder - Green Street Advisors

You mentioned that some of the retailers that took your big box space can move up their opening date. Can they delay their opening date as well?

Daniel B. Hurwitz

They can’t. They can delay their opening date, but they can’t delay their rent commencement date. So for example they can decide not to open, but they have to start paying us rent on that outside date. So really the way the lease would typically read is that they have to pay rent the earlier of when they open for business to the public or the rent commencement date.

Nick Vedder - Green Street Advisors

And then can you give your expectations for same-store NOI growth in 2010?

William H. Schafer

Well you know we’re going through those numbers now, Nick, and I think it would be imprudent for us to be aggressive on that quite frankly. You know as we look at the numbers and you see what’s happening and there are still some distressed retailers out there, I think on a very, very optimistic front you would be about flat and on a more realistic we probably will be less negative than it was this year. It’s hard to see a scenario where it’s going to turn dramatically positive.

Daniel B. Hurwitz

I think Nick just to be clear that you know we had a full quarter basically of Circuit City rent in 2009. So that’s a headwind in terms of a same-store NOI calculation. We would have to lease all of that space you know essentially for a full quarter in 2010 just to be even. So you know if you look at same-store NOI you know, backing out the bankruptcy space, it will be positive. But we still have to overcome that negative comp from Circuit City.

Nick Vedder - Green Street Advisors

And then also there’s a reference to a 9% rate on the Goldman loan of $400 million. Can you confirm if that’s indeed correct?

William H. Schafer

That’s the ancillary rate until the loan is securitized. Correct.

Nick Vedder - Green Street Advisors

And what is your sense of timing in terms of that loan being securitized?

Daniel B. Hurwitz

You know I’d like to tell you, but we are under strict orders from our lawyers since this is a 144A private placement that we can’t talk about it.

Operator

Your next question comes from Jay Haberman - Goldman Sachs.

Jay Haberman - Goldman Sachs

Can you address the joint venture debt coming due in 2010? I know you mentioned bad debt’s been picking up in the joint venture portfolio and it looks like some of the assets that you’re selling there have been at sort of fire sale pricing, more on the $60 a square foot range. So can you speak a bit just how you’re going to address the debt coming due next year?

Daniel B. Hurwitz

Yes I think we can. A lot of that is going to be consistent with some of the short term strategies that we’ve employed this year where we have had considerable success extending CMBS maturities by a year and buying additional time. We are in progress on some early stages, but some longer term refinancings of various pieces, a 2010 joint venture debt that’s maturing. And also I think we are with perhaps only one exception fortunate enough to have you know high quality, well capitalized joint venture partners that have historically been willing to fund equity requirements for those portfolios.

Jay Haberman - Goldman Sachs

For what’s coming due next year do you anticipate having to inject additional equity?

Daniel B. Hurwitz

We haven’t firmly determined that yet at this point. We continue to see capital markets improving. We continue to see availability of debt capital becoming greater and greater and right now we think that we’ll be able to refinance or extend a considerable portion of that debt. I think its obviously important to note that we no longer have an equity interest in the MDT assets which is where the largest 2010 debt maturities are. But even on those assets which we manage and that trust which we manage we continue to make progress regarding the 2010 debt.

Jay Haberman - Goldman Sachs

And then maybe just in addition, can you give us a reference point just for where cap rates are today? I know you clearly have been selling some assets you mentioned to investors and wealthy families but can you give us a sense of the returns that they’re anticipating?

Daniel B. Hurwitz

Yes, it’s hard to speak to exactly what returns in NOI they’re expecting. But from our perspective numbers that we could agree upon you know we are transacting in lower quality assets in tertiary markets, so certainly non-prime assets at cap rates in the low nines. These assets on average recently have been more highly occupied than our portfolio as a whole. So its been a headwind a little bit to our occupancy pickup over all, but the reason that there’s been a focus on selling some of those along with everything we’ve sold is we generally believe there could be a negative NOI profile over the next several years for those assets. So you know I think one, it’s one thing to say they’re lower quality assets, but I think we also believe that that cap rate is not completely reflective of what we believe to be future year returns because we do generally expect some greater NOI challenges within what’s being sold versus what’s being retained.

Scott A. Wolstein

It’s important to point out, Jay, that we are seeing a significant new appetite from foreign investors for quality assets. You know we’re not selling our prime assets but we’re entertaining dialog on potential joint ventures and you know it shouldn’t be surprising to anybody that you know the weak dollar is causing the discussions on cap rates on foreign capital to be much lower than they were a year ago you know at this time. So you know we’re starting to see some firming and on the better assets I think if we wanted to sell them I think we’d certainly be in the eights and maybe on some of them even in the sevens.

Jay Haberman - Goldman Sachs

If I could follow up with a question Scott, but does that change your sort of strategy a bit? Instead of selling your maybe non-prime and sort of switching? Because you referenced backing off asset sales and possibly using the line of credit to repurchase unsecureds but you know maybe this is a good time to start selling some of your better quality at lower cap rates, given the foreign demand.

Scott A. Wolstein

We really are being very, very disciplined about keeping control of our prime assets and we really don’t need to sell them. We can joint venture them you know and maintain them in the portfolio and that would be our preference if we were going to do anything. And we shouldn’t confuse that with you know the sale of non-prime assets because the sale of the non-prime assets is really not a capital raising initiative. It is a quality of the portfolio initiative which is intended to over time increase the organic growth rate of the portfolio over all without the requirement of investing capital for its general growth. So we’re going to continue all the assets we don’t want to own whenever we can get a reasonable offer. And we’re going to keep the other assets in the stable if you will, either wholly owned or in joint ventures.

Jay Haberman - Goldman Sachs

And then last question I guess for Dan on leasing velocity you mentioned has been strong, but in terms of the breakout I guess it’s a three to one margin tour of renewals versus new leases. But at the same time you mentioned the gap between leased versus occupied. Do you see the current occupancy as in fact the bottom, this 88 I guess when you include the vacant boxes for this cycle?

Daniel B. Hurwitz

I do, Jay. I think we’re going to have increased occupancy marginally in the fourth quarter. And I think we’ll continue to grow from there. I think one of the things that we’re looking to do is to be around that 250,000 feet of box space per quarter. That’s an important number for us to meet our projections as we go forward. You know we’ve exceeded it the last couple of quarters but it won’t be that way forever and we know that. But based on what we have in the pipeline today, we think we’re very comfortable with that level and that velocity of leasing. And that’s what’s going to move the number because you know quite frankly our renewals, our percentage of renewal retention is still very, very high in our portfolio because we have good assets and tenants are doing business. It doesn’t mean they don’t ask for rent concessions. But if you say no to them, the vast majority of these people are renewing anyway.

And I think that’s going to continue if not get better as the economy gets a little better. And I think our velocity of 250 to maybe at the peak 300,000 feet of basic box space, if we can do that on a quarterly basis we’re going to be able to really drive not only our occupancy but our rental growth.

Jay Haberman - Goldman Sachs

Did you mention that the pickup in NOI based on what’s leased to date that’s $9 million on a full year basis?

William H. Schafer

That’s $9.6 million on what was just leased in our anchor store redevelopment portfolio between last quarter and this quarter. That’s right. On an annualized basis.

Jay Haberman - Goldman Sachs

That’s an annual number for next year.

William H. Schafer

Well it may not be an annual number for next year because some of those tenants will open in ’11. So it’ll be a partial number for next year and you’ll get the vast majority of that in ’11, but the first full year, total full year of what we just did in Q2 and Q3 will probably be ’12.

Operator

Your next question comes from Richard Moore - RBC Capital Markets.

Richard Moore - RBC Capital Markets

Hey Bill just to finish up a previous question. Where does that leave 4Q G&A then?

William H. Schafer

4Q G&A?

Richard Moore - RBC Capital Markets

Yes, because you know you had the one time Otto type things and then you had the compensation.

William H. Schafer

Right. The fourth quarter will be higher than the $18.5 based on certain plans that have been put in place and some other things. But it’s probably in that $20 million number.

Richard Moore - RBC Capital Markets

And then Dan you know I noticed that percentage rents in the quarter took a pretty nice bounce up while regular base rents of course were coming down. And I’m curious, is any of that, I can’t imagine it has to do with sales being better, certainly not in this environment. Does any of that have to do with the co-tenancy clauses kicking in to percentage rent? Anything like that?

Daniel B. Hurwitz

Yes, it does. That’s exactly right. You know the difference between overage rent and percentage rent, that has more to do with co-tenancy provisions and the fact that as the base rent comes down but the tenant’s not paying us the base rent, they are in fact paying us the percentage rent or the alternative rent if you will. That’s not overage rent. It’s not a result of sales. You’re correct. It’s about co-tenancy.

William H. Schafer

Rich, that’s usually a one year change with respect to the co-tenancy provision in the leases. So you know if those tenants remain in occupancy a year from now, that’ll go back to base.

Richard Moore - RBC Capital Markets

And how would you guys assess that situation? I mean are we going to have more of that I guess?

Daniel B. Hurwitz

It’s stabilized at this point in time. You know that is a result of primarily the bankruptcies and unless we see more significant bankruptcies, we don’t expect to have a large big box vacancy which would cause other tenants to go on percentage rent. So we think it’s stabilizing. It has dropped significantly from where we were a couple of quarters ago. And we don’t see it moving very much absent some negative impact on the sector like we had this time last year.

Richard Moore - RBC Capital Markets

Dave, you were saying that you’re getting capital availability from many sources and you don’t really need to do these extra secured loans. You might do them. I’m curious why you guys continue with the TALF program? I mean it can’t be a pleasant experience working with the government. I mean is there some particular reason why that’s still attractive to you?

David J. Oakes

I mean, I think our focus overall has been throughout this year to improve our liquidity and to lower our leverage and it hasn’t been about you know what was going to be necessarily the easiest or most pleasant for this company to execute. And so I think we’ve pursued you know all strategies, the various costs of capital, both in terms of coupon rates as well as in terms of how cumbersome they are and how much time they take to put together. So you know while some of them are certainly more challenging, you should assume that we are absolutely pushing as hard as possible in every direction to put as much capital as possible to insure that there’s no question of this company’s liquidity over the next several years.

Richard Moore - RBC Capital Markets

I hear what you’re saying. I mean the credit markets seem to me to be significantly more open than they were and why not take these 28 assets and just get mortgages on them?

Scott A. Wolstein

Rich, you know you’re not totally off base and yes, you know the advantages of the program aren’t necessarily what they were six months ago. But you know we’ll do whatever is best for the company in the long run. But yes you’re right in the sense that you’re observing that there are more opportunities now than there used to be.

Richard Moore - RBC Capital Markets

Are you sort of stuck with this, Scott? Could you actually get out of it if you wanted to or are you sort of you know?

Scott A. Wolstein

No, we’re not stuck with it at all. We could get out of it if we chose to.

Richard Moore - RBC Capital Markets

Last thing guys on the credit lines, where are you with those you know given they’re due next year?

William H. Schafer

At this point you know the huge focus has been to you know prepare the balance sheet as much as possible to make that negotiation as strong as possible with the banks and to create as great a level of comfort as possible in terms of their overview of our credit. There’s also obviously been a major focus on working on other transactions and strengthening the relationship with our largest lenders to make sure that they are very aware of the importance of DDR as a good and recurring client. And so I think that’s where the focus has been. Today, given that we have you know 20 months until the maturities of our revolving credit facility, hasn’t been the appropriate time just yet to enter into formal negotiations regarding the extension of our credit line. There’s certainly informal conversations and work to insure that on a daily basis the bank group feels as comfortable as possible with their commitments to this company.

With the recent capital that’s been raised there’s also been huge pay-downs of that revolving credit facility which was drawn roughly 90% of total capacity for a large portion of this year and it’s now more in the 60% range. So I think that’s a lot of capital coming back to those banks so I think we’ve sent them very important signals thus far. We continue to do that and would expect their renegotiation and the extension of our revolving credit facility to be a process that occurs in the first half of next year with firm results that we would expect to be able to report in the second half of next year, which is still going to be at minimum 6 but as much as 12 months before the maturity deadline.

Operator

Your next question comes from Jeffrey Donnelly - Wells Fargo Securities, LLC.

Jeffrey Donnelly - Wells Fargo Securities, LLC

I just wanted to follow up on something that I think Rich actually touched on. What has specifically been the pace of requests for rent and leased tenants? Have you seen any abatement there? And what about the pace in your granting those requests? I guess one final part of it is how are those renegotiated leases reflected in your same-store leasing metrics?

Daniel B. Hurwitz

Well, renegotiated as a result of like a rent relief request or something like that may be granted but not reflected in our re-leasing efforts. They’re not in those numbers unless that tenant is at the end of its term and the lease has expired or the tenant then exercises its option. We reflect it exactly as it is so if the lease is expired it’s a new lease and if they exercise their option regardless of their rent then it’s in the renewal.

As far as your question about rent reduction, first the velocity has slowed dramatically of requests coming onboard. Our total portfolio requests and keep in mind we have about 14,000 or 13,000 tenants, we had 953 total requests across the portfolio. And that is core and JV. The vast majority of them came from the southern region. 43% of those requests came from the southeast which is predominantly our grocery entered neighborhood center portfolio. We’ve granted 4.3% or 41 concessions of the 953. And the average concession that we granted was 22% off the base rent for a period of one year, and then the tenant converts back to its full rent.

So that’s how the numbers break down. It’s pretty interesting to see where the requests are coming in and where they’re not coming in from, but suffice it to say the southern region is the one area that is showing the most distress.

Jeffrey Donnelly - Wells Fargo Securities, LLC

Is that 953 requests cumulative to date?

Daniel B. Hurwitz

Yes it is.

Jeffrey Donnelly - Wells Fargo Securities, LLC

A question on bad debt, it’s certainly been accelerating I guess as the year moves forward. How should we think about that figure in Q4 or perhaps even Q1 if you’re able to speak to that? I guess I’m curious. Do you think we’re at a peak or near a peak?

Daniel B. Hurwitz

I think it’s probably going to be somewhat consistent with where we’ve been operating these last couple of quarters. You’ll probably see more of it maybe into the Q1. I mean as typical cycles go. But it’s going to be probably averaging around maybe that 2% number.

Jeffrey Donnelly - Wells Fargo Securities, LLC

You mentioned in the release that there might be some instances where [audio impairment] the commenced construction on development. I guess I’m curious. Can you share with us what sort of returns are penciling out there and I guess more broadly if you weren’t as far into those projects as you are today, would you consider commencing additional greenfield development in the near term?

Scott A. Wolstein

Domestically no. The returns available today in the domestic United States are not nearly sufficient to justify the investment of capital on the balance sheet. You know in terms of you know what’s the right strategy for the land that we own you know in the pipeline, you know when you look at the return, Jeff, you can look at it based on what you paid for the land or you can look at it you know based on you know what you could sell the land for. Or you could look at it based on you know what incremental income can you generate and what is the implied value of the land after you’ve developed the property.

And that’s the kind of prism that we apply to each project to decide whether it makes sense to invest additional capital. You know I think that this is very consistent with all other developers, everybody’s facing the same issues, you know. And you know that’s in terms of sales of real estate assets, raw land will be the last thing where you’ll see a lot of velocity and transactions. So you know it’s probably something that is a case by case analysis and you know to your question what kind of returns would be need to see? You know to justify new development I would say you know it’s our view it would have to be north of 12% and we’re not going to see that in the domestic U.S. for quite a while.

Having said that down in Brazil we’re seeing returns as high as 17%, 18% on costs. So our Brazilian subsidiary will be an active developer.

Jeffrey Donnelly - Wells Fargo Securities, LLC

And I’m just curious, just domestically if you could put some scale to it, I’m assuming that’s what you might be referring to in your release. I mean what sort of investment could you be making I guess in 2010 potentially for projects that are beginning construction?

Scott A. Wolstein

Probably less than we put in CapEx in 2009.

Operator

Your next question comes from [Shubar Mukardee] – Barclays Capital.

[Shubar Mukardee] – Barclays Capital

My question relates to the secured financing that you guys have secured from Goldman. Could you give us some sense of what the loan to value on that transaction is likely to be and what impact it would have on your unencumbered asset coverage ratio?

Daniel B. Hurwitz

We pride ourselves on trying to be as transparent as possible and offering great disclosure as we’ve indicated before. We apologize that we cannot speak further regarding that transaction at this point.

Operator

At this time there are no further questions in the queue. This ends your presentation for today. Thank you for your participation. You may now disconnect. Have a wonderful day.

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