DDR's (DDR) CEO David Oakes on Q4 2015 Results - Earnings Call Transcript

| About: DDR Corp. (DDR)


Q4 2015 Earnings Conference Call

February 12, 2016, 10:00 ET


Meghan Finneran - Senior Financial Analyst

David Oakes - President & CEO

Paul Freddo - Senior EVP of Leasing & Development

Luke Petherbridge - CFO & Treasurer


Ki Bin Kim - SunTrust Robinson Humphrey

Christy McElroy - Citigroup

Todd Thomas - KeyBanc Capital Markets

Jeremy Metz - UBS

Alexander Goldfarb - Sandler O'Neill & Partners

George Hoglund - Jefferies

Floris van Dijkum - Boenning & Scattergood

Carol Kemple - Hilliard Lyons

Mike Mueller - JPMorgan

Chris Lucas - Capital One Securities

Craig Schmidt - Bank of America Merrill Lynch


Welcome to the DDR Corporation Fourth Quarter 2015 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Meghan Finneran, Senior Financial Analyst. Please go ahead.

Meghan Finneran

Thank you. Good morning and thank you for joining us. On today's call you will hear from President and CEO David Oakes, CFO and Treasurer Luke Petherbridge and Senior Executive Vice President of Leasing and Development Paul Freddo.

Please be aware that certain of our statements today may be forward-looking. Although we believe such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and actual results may differ materially from the forward-looking statements. Additional information about such risks and uncertainties that could cause actual results to differ may be found in the press release issued yesterday and the documents that we file with the SEC, including our form 10-K for the year ended December 31, 2014, as amended.

In addition we will be discussing non-GAAP financial measures on today's call, including FFO and operating FFO. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings press release issued yesterday. This release and our quarterly financial supplement are available at our website at www.DDR.com.

Last, we will be observing a one-question limit during the Q&A portion of our call in order to give everyone the opportunity to participate. If you have additional questions please rejoin the queue.

At this time it is my pleasure to introduce our President and Chief Executive Officer, David Oakes.

David Oakes

Thank you, Meghan. Good morning and thank you for joining our call. Given that we recently held our 2016 guidance call in January, I will keep my comments brief. As you know, our focus in 2015 was on three pillars, owning the best locations for the future of retail, allocating capital prudently and executing with a lower risk profile. I'm very pleased with our team's execution on each. To recap 2015 briefly, we grew FFO per share by 6%, grew our dividend by 11%, generated same-store NOI growth of 3.1% -- above our original range -- produced new leasing spreads of 22% and renewal spreads of 7% and made important strides culturally that we expect will flow through to outsized NAV and FFO growth for years to come. It's important to point out that these accomplishments came in the midst of a Management transition, highlighting the caliber of our senior leadership and the quality of the employees that I come to work with every day.

Turning to our transactional progress, our portfolio evolution was dramatic in 2015. We heeded the signals from both the private and public markets and executed on $326 million of acquisitions and $569 million of dispositions at our share. The fruits of our transactional efforts through the years which include selling nearly 500 assets and acquiring over 200 assets since 2008, were on display in the fourth quarter operating results. Excluding Puerto Rico, same store NOI growth in the wholly-owned portfolio, a pool that makes up approximately 80% of our NOI, was 4.5% in the fourth quarter, highlighting the tremendous strength of our core business.

Additionally, we grew average base rent per square foot for the portfolio by 4.1% year over year, the third consecutive year of growth above 4%. Interestingly, despite having the most aggressive transactional program in the peer group over the past few years, the nominal cap rate ascribed to our portfolio by the investment community has seemingly moved in lock step with our peer group, highlighting the lack of recognition for the progress made.

While it is difficult to market the quality upgrades through dispositions versus acquisitions and shedding weaker assets is often out of favor in a bull market, we expect that our operating results and subsequent FFO and NAV growth will illustrate our upgrade over time. As you are aware, the beginning of the year is when we see the highest frequency of bankruptcies in retail. There are three primary reasons why we're not as concerned about pending bankruptcies relative to prior years. First, DDR's craft is leasing space. Since 2008 we have leased over 80 million square feet, including signing 544 new anchor leases and we will approach pending vacancies in the comparably aggressive fashion that we have historically. We budget for potential fallout within our guidance ranges and we market space well in advance of store closings.

Second, the list of tenants looking for new space far exceeds those potentially closing stores and combined with a continued lack of material new supply for junior box space, positive absorption and favorable rent should not be an issue. Finally, as we move into this bankruptcy season, the quality of our NOI stream is on display. Over the past few years we have not only exited weak assets, but also a great deal of weak credits and the active management of our watch list has protected us from doing new deals with questionable tenants. As we look to the remainder of 2016, little has changed in terms of our operational or transactional expectations and as a result there are no changes to our previously disclosed guidance range.

While the credit markets have been volatile over the past few months and some assets have seen a less significant number of bidders, we have not seen cap rates increase from what we're selling as the demand for assets remains strong and many of the buyers we're working with are not reliant on the high loan-to-value CMBS market. As such, we continue to believe that our disposition activity will be significant and weighted to the front half of the year.

As I complete my first year as CEO of this Company, I'm proud of our organization's focus and progress throughout 2015. With that said, our team is well aware that expectations are even higher in 2016. Internal progress continues to exceed share price performance. However we have conviction in our strategy, our asset quality and our risk profile and we believe that the market will reward those companies who are most thoughtful about capital allocation over the long term.

I will now turn the call over to Paul.

Paul Freddo

Thanks, David. Our team's focus on execution, our dramatic portfolio evolution and the current supply and demand dynamics allowed us to produce another consistently strong quarter and year in terms of operating results. In the fourth quarter we executed 290 new deals and renewals for over 2.5 million square feet. Deals spread for robust, with new deal spreads of 24.5% and renewal spreads of 7%; while same-store NOI came in at 3.4%, the highest in the last 12 quarters. Our full-year 2015 results were equally as impressive.

New deal spreads were 22%, near all-time highs; we leased nearly 11 million square feet, the highest volume in our history; and we renewed 90% of all square footage rolling, also above our historical average of approximately 85%. For further detail behind our same-store NOI of 3.4% in the fourth quarter, our wholly-owned assets, excluding Puerto Rico, grew at 4.5%, a fantastic number for a portfolio that makes up 80% of our NOI.

Leasing and minor redevelopment activity at some of our time, prime-plus and prime assets continues to drive this metric and the strong fourth quarter included activity at prime-plus assets such as Shoppers World in Boston, Midtown Miami and Woodfield Village in Chicago, all highly leased assets that we continue to grow. Our same-store performance is a testament to the strength and quality of our team and portfolio and we feel confident that our process for determining this figure is as indicative as any in the industry in terms of understanding the recurring NOI less major capital expenditures associated with a portfolio of high-quality power centers.

Our pro rata leased rate improved 20 basis points sequentially and is flat year over year as we finish 2015 with a leased rate of 96%. Remaining flat year over year is in large part due to the continued sale of low-growth assets, with leased rates in the high 90% range and the acquisition of assets with some vacancy and significant growth potential. In the fourth quarter alone, we sold 2.2 million square feet with a leased rate of 98%. And during the full year we sold 6.2 million square feet with an average leased rate of 97%.

These sales, in conjunction with our acquisitions, accounted for 10 basis points of pressure on the lease rate relative to year end 2014 and will translate into more of a growth runway, with fewer low and negative growth assets and an increased occupancy opportunity. I would also like to point out that we improved the small-shop leased rate for units under 5,000 square feet by 60 basis points, highlighting the strength in this category from national and regional players such as smaller fitness users, fast casual dining options and salons and service users, as well as mom and pops.

As David mentioned, it is no secret that certain retailers are being mentioned as possible candidates for reorganization in 2016 and we're constantly asked whether these scenarios represent an opportunity or a concern. First, we look at the names being mentioned as reorganizations, not liquidations which is a significant difference. Second, as we have made dramatic improvement in the quality of our portfolio and the credit quality of our tenants, we definitely look at the possibility of replacing struggling retailers with best-in-class dynamic retailers as a clear opportunity not only to improve the rent paid on a given space, but to improve the terminal cap rates at which a given center would trade. Third, we watch all of our tenants' performance closely and are fully cognizant of and prepared for the space that we would get back.

One very recent example of this is a Sports Authority that did not take its option in California in the first quarter. We have already agreed to economics with three high-quality national tenants in the 8000 to 14000 square foot range at a combined spread of 22% and an estimated net value creation after CapEx of $5.5 million. Clearly, retenanting boxes comes with downtime and capital, but as David also mentioned, this is our craft. And owning high-quality assets that will outperform as retail continues to evolve puts us in a position to take full advantage of these opportunities.

To provide an update on Puerto Rico, I would like to share a few very important metrics regarding our portfolio on the island. In 2015, we generated over 400,000 square feet of total leasing activity in Puerto Rico and we continue to see reported sales on the island as relatively flat on a rolling 12-month basis. A couple of bright spots include traffic, that as many of you have observed remains consistently strong and historically low accounts receivable and bad debt. Same-store NOI was slightly negative in the fourth quarter and while this again highlights how strong the wholly-owned domestic assets are performing, we're cognizant of the distress on the island.

The fact is, while the macro environment continues to struggle, there is still demand for new space in Puerto Rico and the consumer demand, coupled with the perpetual lack of competitive new supply, positions our assets well as the commonwealth further copes with problems that have existed for years.

Finally, I would like to make a comment about all of the excitement and confusion in the press over Amazon's plans to open in brick-and-mortar locations. We, like others, have had conversations with Amazon to understand what their plans might be and how they might eventually fit into our constantly improving portfolio of assets. Without knowing exactly when, what and how many, the point is that they and other existing online and other yet unknown retail concepts will grow their brick-and-mortar presence and will want to do so in quality locations such as the locations we're focused on.

And I will now turn the call over to Luke.

Luke Petherbridge

Thanks, mate. For the fourth quarter, operating FFO was $114.1 million or $0.31 per share. Including non-operating items, FFO for the quarter was $116.7 million or $0.32 per share. Non-operating items consisted primarily of transaction costs offset by asset sale gains. For the full year, operating FFO was $446.2 million or $1.23 per share which is a 6.1% increase over the prior year. Including non-operating items, FFO for the year was $348.3 million or $0.96 per share. Non-operating items consisted primarily of non-cash impairments charges taken in the first quarter of 2015. It is worth noting that in the past five years DDR has been able to grow our FFO per share at a compound annual growth rate of more than 6%. This is despite selling nearly $4 billion of lower-quality assets, highlighting our ability to manage dilutive events.

During the fourth quarter, we closed on the sale of nine operating assets and three land parcels for $211 million at our share, bringing the full-year total to 66 operating assets and eight non-operating assets sold for $570 million at our share. Pricing within our asset class remains at historic high levels and we have leveraged this environment to opportunistically sell the bottom tier of our portfolio at an average cap rate of 7.2%.

As outlined by David, we acknowledge the impact these dispositions have on our short term performance, but we absolutely feel this is the right step in the current market conditions which will materially improve our Company's forward-looking earnings growth while reducing downside earnings risk. The assets sold in 2015 were over 96% leased and were underwritten to grow at less than 2% over the coming years.

Additionally, the sale of these assets eliminated over 20 boxes which re-leased to watch list tenants which will further reduce retail full impact to our earnings. For example, recent assets sold like Home Depot Center, 150,000 square foot center in Chicago with five-year NOI growth profile of 1.7%, for a mid 6% cap rate. Notwithstanding, our dispositions have dominated the volume of transactions in 2015 and into the first half of this year, our talented transaction team continued to source and review opportunities to deploy capital into new opportunities where we feel our operating platform can achieve creative returns.

In the fourth quarter we closed on the acquisition of seven assets for $166 million at our share, bringing the full-year total to 10 shopping centers and three out parcels acquired for $330 million. Six of the seven properties acquired in fourth quarter were purchased in conjunction with Blackstone for $13 million at our 5% share and carried an $83 million preferred equity component with an 8.5% annual return. Our joint venture platform remains a prudent low-risk avenue for acquiring high-quality dirt at off market pricing and allows DDR the opportunity to acquire assets at attractive pricing.

The transaction differs slightly from our prior deals with Blackstone, as we only took in equity interest in the higher quality assets that we have a right of first offer on. These centers are located in Long Island, Philadelphia, Miami and Orlando. We're confident in our ability to accretively replace upper third equity position with NOI from acquisitions or with additional preferred equity, as our existing joint ventures with Blackstone are wound down gradually in the coming years.

We also acquired Millennium Plaza in the four quarter, a 400,000 square foot power center located in Orlando and anchored by Dick's Sporting Goods, BJ's Wholesale Club, The Home Depot and Ross Dress For Less. This acquisition elevates Orlando to the Company's sixth largest market by pro rata base rent and significantly increased our presence in the Mall of Millennia retail corridor, where we now own three centers, all acquired in the last year and have become the dominant open-air landlord in the sub-market.

The strong demand for our property type has allowed us to close 2015 as a net seller by approximately $250 million. As we discussed in our guidance call in January, we're also projecting to net sale approximately $450 million at the midpoint of our guidance range. To that point, in the first quarter this year we have sold 14 of the 17 operating assets that were under contract for sale, totaling $195 million at our share and have 4 assets still under contract for sale and 21 under agreement, highlighting our commitment to the final legs of the portfolio upgrade and take advantage of the continued strength of the transactional market for institutional-quality assets.

I would like to highlight that DDR trades at an implied cap rate comparable to where we're selling our lowest quality assets, approximately 80 basis points outside our shopping center peers. This is the same relative bifurcation the stock experienced in 2010 and 2011 prior to DDR selling an additional 280 assets.

On the capital market side, we issued $400 million of 10-year unsecured notes in October at a 4.25% coupon, marking our 10th unsecured issuance since 2009 and our continued attractive access to the bond market. The proceeds were used to repay the $350 million of convertible notes that were due in November which carried a GAAP interest rate of 5.25% and a cash interest rate of 1.75%. We have $350 million of secured and unsecured debt maturing in 2016 at a weighted average interest rate of 7.8% and we intend to accretively repay all maturities with disposition proceeds and at this point do not intend to access the capital markets in 2016.

Our 2016 maturities consist of $240 million of seven-year unsecured debt that was issued in 2009 and carries an interest rate of 9 5/8% which will be fully retired in March. Following the repayment of all 2016 maturities, DDR's consolidated debt tier ratio will be the longest on record since 2005 and represents our desire for a comprehensive lack of funding risk. Finally, expected asset sales proceeds will be used to retire maturing debt and reduce our consolidated debt to EBITDA by approximately 0.5 to 0.8 times by year end 2016. The growing size of our unencumbered pool, our exposure to floating-rate debt and ample access to liquidity through our asset sale proceeds, have dramatically reduced our risk profile and put our balance sheet in a position to outperform in all market cycles.

With that, I will now turn the call back to the operator for questions.

Question-and-Answer Session


[Operator Instructions]. Our first question comes from Ki Bin Kim of SunTrust. Please go ahead.

Ki Bin Kim

David, could you talk little bit about your same-store NOI? And how much impact does bad debt make a dent to the 3.4% reported same-store NOI growth? And if you included your bad debt reserve into your 2016 same-store NOI guidance, what would that 2.5% to 3.5% guidance look like?

David Oakes

One of our policies associated with same-store NOI that really tries to accomplish that goal of that number answering the question how is this portfolio growing this quarter year-over-year, is the items that do have multi-year impact are not included in same-store NOI. So bad debt would be one of those items, because often times you could have two years of accrued accounts receivable that were booked as income all get written off in one quarter.

So you effectively captured all of that in one period of time as opposed to truly saying what is the portfolio doing this quarter, this year versus last year. We calculate and follow closely the bad debt numbers; they were actually down a little bit in 2015.

And so effectively if we included them it would have helped the number a little bit in 2015. We budget them to be a little bit higher in 2016. And so if we did include them in 2016, it would take that same store NOI a little bit lower.

But overall bad debt remains very low which we think is a positive sign for what we're seeing in the retail environment. And like I said, if we did include it for 2015 which has always been our policy to exclude it from the same-store NOI calculation, it would have been slightly beneficial to our reported results.


Our next question comes from Christy McElroy of Citi. Please go ahead.

Christy McElroy

Just with regards to development and redevelopment, as you deliver on some big projects in 2016, are there any large projects that you expect to start this year? Just wondering how to think about 2017 and beyond external growth and how you're thinking about new projects and major capital commitments as we enter a more uncertain retail environment?

Paul Freddo

One of the things we're showing in the sup these days is real projects. There are other projects, as you point out, that will be started and will be later, out year completions. We're really going to focus on and I will start with redevelopment. There's a large handful of some of our larger and better assets that we've got some plans. But we're going to include them when they are real.

And steer away from a large -- a big number out there with a program of $1 billion or multiple billions over several years. We want to be real in the sup about what's deliverable and when we're going to deliver it. There other things that don't show that will show in future quarters; that will be second phases of projects, Lee Vista will be one. Belgate we're commencing a second phase that we will spell out in future quarters.

The second phase down in Kyle which is an Austin market where we had a development several years ago, we think will kick off a second phase either late this year or in 2017 for probably an 2018 completion. Again, the focus within the sup is to be more real in terms of what we're showing you guys as real projects and when they'll be delivered and exactly what those costs are going to look like.

But there is clearly a pipeline. The other thing to remember is we talk about development as -- that we're clearly taking a much more thoughtful approach to how we look at the pipeline, what we're going to deal with. We see quite a number of projects that are presented to us as possibilities. We've repeated this quarter after quarter, we're not going to get into long term entitlement processes. We're going to look at projects that we know we can deliver in a one to three-year horizon.

And again, the focus is going to be on what's real. I'm not concerned about a lack of pipeline because there is plenty out there for us to do. It's just going to be a much more thoughtful approach and you're going to see what's real and what we can deliver.


Our next question comes from Todd Thomas of KeyBanc Capital Markets. Please go ahead.

Todd Thomas

Leasing spreads in the fourth quarter were strong. We've seen that across the strip space for the most part this quarter. Have discussions changed at all with retailers of the last 30 to 45 days or so? Do you think we should expect to see leasing activity moderate a bit throughout the year if broader economic conditions do not improve?

Paul Freddo

No, Todd. The conversations have continued to change in our favor, if you will. We continue to see rents growing. I don't see any slowdown in that. One of the things that came out of New York in consistent conversations post-holiday sales is the retailers that are growing market share are not pulling back on their growth plans. That's consistent with the retailers we're focused on.

You hear us talk about the winners which are clearly in the value and the off-price play and we feel very good about where they sit in this environment. We feel very good about their continued growth plans and I don't expect any change in the near term in that conversation.


Our next question comes from Jeremy Metz of UBS. Please go ahead.

Jeremy Metz

David, in your opening comments you mentioned not seen any moving cap rates for the secondary or even call it non-core assets here you're selling yet. Buyer pools are thinning and it feels at least anecdotally that pricing is set to move at the disruption in the capital markets. I'm wondering if that's at all weighing on your thinking and encouraging you at all to try to push some of these transactions to happen sooner before maybe the market does move, even if you have to compromise in pricing a bit?

David Oakes

Jeremy, I think you raised some good points. We certainly did want to be up front with the comment that we're seeing buyer pools a little bit smaller, but tried to make the point that this is going from a very significant number of buyers to a still significant number of buyers.

So directionally I get what you're asking about and the way you're thinking about it, but we still are seeing a significant enough amount of demand, a significant enough amount of equity that is funding that where we haven't seen things change. In fact on the other side even if spreads had been more volatile, obviously treasury rates going lower, so some things that do continue to encourage buyers.

And so we're not seeing a significant change there at all. But on the other side, I think we've outlined some important plans to complete the last stage of the asset sale process and get that stuff done. And now that we've made those decisions, we just see no reason to wait. And so it's not a notion of compromise on price to emphasize timing, strategically we've made this decision to do this, we've presented it as part guidance.

And so we think it's prudent to execute as soon as possible on what we've outlined. Hopefully it's more a signal of that than any sort of true deterioration that we're forecasting in the next several quarters.


Our next question comes from Alexander Goldfarb of Sandler O'Neill. Please go ahead.

Alexander Goldfarb

First, wrapping up a chapter there with the sale of Paseo Colorado. It was last of the Trizec mixed-use projects. Question for Paul on your Amazon comments. As you speak to different internet retailers who are looking at bricks and mortar strategies, are they open, a blank canvas as far as what retail format they look at, whether it's malls, grocery anchored shopping centers or power centers? Or when you start conversations with them most of them have sort of a preconceived notion of what format they want to be in?

Paul Freddo

It's early on in that whole conversation, Alex. I will tell you some of them and Warby Parker and Bonobos are two examples, -- these guys are going to start with street retail in some of the sexiest markets in the country. It's really how does it grow from there? Where do they go from there? There is no preconceived do they move to a mall, do they move to great power centers? There is a possibility.

Amazon is a different story. This conversation about the bookstores clearly fit right into our product type and property type. I don't want to speak for other calls, but the point that was trying to be made was they are going to grow and they're going to grow significantly and it's going to be over time and they are going to pick quality locations. And if you own quality locations they're going to be in it.

So right now I would tell you, simple comment is that on the Amazon piece we're quite confident that when -- and that is a big unknown as to when they eventually roll out some kind of bookstore program, they're going to be looking at power centers as well as some of the better mall properties in the country. The other guys, it's going to start with the street retail and you will see it grow from there.

Alex, I don't want to lose -- anybody to lose the focus on the fact that what we're seeing with the existing retailers in place too. As these guys become more and more of a power and a presence in that whole multi- and omni-channel world, that's today and for the next couple years what I see is the much greater focus. How are our retailers successful, best-in-class retailers driving that business and what are they doing to compete in that online format?


Our next question comes from Tayo Okusanya of Jefferies. Please go ahead.

George Hoglund

This is George on for Tayo. A couple of questions, I guess first on Puerto Rico, if you could just give a little more color into the slight negative same-store NOI? Is that more occupancy or rate driven? And then also what are releasing and spreads looking like in Puerto Rico?

Paul Freddo

I'll start with the last bit, George. The spreads are just like I say low single digit, but we're seeing some positive spreads on the releasing across the deals we've made over the year end and in the fourth quarter. The same story -- we had a couple of Kmart's leave during the year and as we've mentioned on prior calls we obviously believe those created an opportunity well below market. Low rents, but significant impact late in the year and in the fourth quarter.

So spreads I would say certainly lower than the overall portfolio, but again, flat to slightly positive. And lease rate was pretty consistent between quarters, Q3 to Q4. Don't see that going much lower, so we should grow back. But again I think the Kmarts are probably the biggest impact on same store.


Our next question comes from Floris van Dijkum of Boenning. Please go ahead.

Floris van Dijkum

Paul, this is for you. Could you please comment on the off-price retailer growth, in particular TJ Maxx which is our largest tenant and Ross? They're almost in one-third of your centers I believe now. How does that impact the overall retail market in your view on the shopper's preference for your centers with those tenants relative to maybe traditional outlets?

Paul Freddo

First of all the two names you mentioned, TJ with their various concepts and Ross, aren't outlet retailers. They are typical power center, strip center retailers who are fantastic. So I'll start with their growth. They both continue to want to grow in that 100 store per year range which is just an incredible number because this is a number that have been achieving for the last several years.

Another thing worth pointing out about those guys and I'm emphasizing this because quite frankly I like to brag about them and our emphasis on retailers such as TJ and Ross, these are guys who led in results going into the recession, during the recession and in the many years since the recession which is an incredible consistent story and goes well beyond something that just only plays when everybody is feeling down.

It's not something you see in any other sectors. Start with the luxury sector which obviously is going to have big swings up and down. We're seeing it in the department stores. The department store model is a very difficult one. Those are not guys we're focused on. We're focused on the retailers you are talking about. Their performance has been incredibly consistent, they want to grow in a big way.

They want to continue to take market share in a big way and we're confident they will. I don't see it as any overlap with traditional outlet centers. The excitement of the merchandise offering, the different merchandise offering that can be in a TJ Maxx at any one time, it drives traffic and it drives excitement with the consumer. I see nothing but continued upside and growth for those off-price and value retailers.

Another thing I think is worth thinking about is how we see other retailers continue to go after that business. Not that Nordstrom Rack is new to it at all, but very successful with that division of Nordstrom. You have Macy's with Backstage and Lord and Taylor now. Others see the success and just not the short term success but the longer term sustainable success of TJ and Ross and are going after that business.


Our next question comes from Carol Kemple of Hilliard Lyons. Please go ahead.

Carol Kemple

In your centers what retailers are you seeing that want to expand besides your off-price value retailers?

Paul Freddo

Bed Bath and Beyond is one that is clearly expanding. Dick's Sporting Goods in a big way with a couple different divisions, with their Dick's Sporting Goods and their Field & Stream. Those are couple of the retailers that we see are always looking to grow.

Carol Kemple

Okay. And then in the last five years have you seen any kind of significant shift between the amount of physical retailers in your shopping centers and the service retailers, whether it be like a Drybar or a Massage Envy? Or would you say the percentage is about the same?

Paul Freddo

I would say the percentage is the same. In our best power centers you don't see a big component that's in that category you mentioned, whether it's service or some of the food and beverage. In the grocery anchor there's a little more of that, but percentages haven't changed over time.


Our next question comes from Mike Mueller of JPMorgan. Please go ahead.

Mike Mueller

Just taking a look at the sup at the redevelopments and can you walk through what exactly causes a project to fall into the major redevelopment bucket versus the minor bucket? And how much of the minor deliveries do you expect to come online in 2016?

Paul Freddo

We don't have a cut and dry rule on it, Mike, but it's usually about $10 million. Typically includes additional GLA for the project. It's a little bit of feel and that's one of the reasons we're going to spell them out and you're not going to see a long, long list of majors. There will be others coming to the list and you'll recognize the centers are some of our best centers as we refine our plans and think through exactly how much we're going to spend and when we're going to deliver.

On the minor, I don't want to wing this too much, but it's going to be somewhere in I think about the $90 million -- somewhere in that $80 million to $90 million range for deliveries. We expect a run rate, Mike, of right at about $100 million, maybe a little north of that in any given year in terms of CIP. But in terms of deliveries this year it will be somewhere in that $80 million to $90 million range.

Luke Petherbridge

Mike, probably the other thing to note is we did update our disclosure earlier this year -- or last year to break out the redevelopments to major and minor. Clearly major is not in our same store and that is the main reason we put that in there.

And then minor is going to have a significant number of projects that come in and out. The one coming out this quarter was part of Seabrook which is our New Hampshire development.


Our next question comes from Chris Lucas of Capital One Securities.

Chris Lucas

Just a follow-up question actually on the last one which is as it relates to the process by which you take something that's in the shadow and move it to the supplement, are there specific rules or milestones that have to be achieved? Or is it more of a feel process?

Paul Freddo

In terms of what's brought to the sup, that's not a feel. That's when we think a project is real and we've thought through and we've got a pretty accurate understanding of what the spend is going to be and when we're going to bring it online, Chris.

So again, what we wanted to get away from was just putting out a big bold number that we're going to deliver X in the next few years something that never seems to be terribly accountable and is all over the place in our industry.

This is going to be something where you're going to see real projects move in and you'll see them move out when there are delivered and put into service. But what moves into the sup and out of the sup, certainly it's not a feel, that's just real stuff.


Our next question comes from Ki Bin Kim of SunTrust. Please go ahead.

Ki Bin Kim

Just a couple quick ones, did you already talk about what motivated you to sell Paseo Colorado, a major redevelopment project before it was completed? And the second question, with some of the news that happened this week on same-store NOI accounting, just curious if that prompted any kind of internal discussion -- new internal discussions with the Management team or Board members on how you report that number at all?

Luke Petherbridge

So on Paseo that was a 550,000 square foot class A lifestyle center which we acquired in the early 2000s. It's located in Pasadena. Basically that is a project we have been working on for the better part of a decade, but more recently over the last couple of years we have had significant leasing momentum there. We started what would have been a significant redevelopment, probably one of the largest in the Company's history.

We were approached off market by the buyer and we felt that the price that they offered gave us the majority of the gain which we felt we would realize through the redevelopment today and obviously remove a significant amount of risk from our development pipeline going forward. It had a huge component, probably one-third of the spend was in residential or condos.

So we just felt that the price offered was in line with class A mall pricing and we were able to realize the gain which we felt we were going to get over the probably the next two to three years or more today. So we thought it was a prudent decision from a risk point of view.

David Oakes

On same-store NOI, we've had a consistent process for years. We even outlined specifically in that back section of our supplemental with major accounting policies, we outlined the mindset and some of the specifics regarding same-store NOI.

We have dedicated personnel that spend a considerable amount of time post quarter close working on that calculation. We have oversight from our internal audit group and so it is a number that we have been very focused on for a long period of time and believe we've calculated consistently and believe we're well positioned on a go-forward basis.

We've lived through quarters like the first quarter of this year where some one-time snow removal expenses or just some seasonal expenses impacted that result lower and we dealt with reporting a quarter that was lower than our expectation at times. And this quarter at the end of the year coming in very strong; and so we've dealt with the reality of what the results provided.

We have obviously been even more focused on it given the events of the past week. We had our Board meeting earlier this week, we had our audit committee meeting earlier this week, we've had a good discussion with those groups and I think everyone here is comfortable with the way we have calculated it and the way that we expect to calculate it going forward.

I think you have been very much at the forefront of trying to make those numbers comparable between companies and calling out surprises or inconsistencies when you saw them and we really have tried to make this number as much as possible the right answer to how the assets are growing on a year-over-year basis. So I think we will continue with that process, we will continue to exclude major redevelopment activity that we think does not represent same store. And so it's been a focus and I think it continues to be the one that we think our process works and we're not inclined to change it.


Our next question comes from Craig Schmidt of Bank of America. Please go ahead.

Craig Schmidt

Thinking about acquisitions, those assets that you are interested in acquiring, are the bidders similar in size, were they worse versus maybe 9 or 12 months ago? And what is the composition of those bidders?

Luke Petherbridge

Craig, the answer to that is for the stuff we're looking to buy, so prime plus power centers, the composition really hasn't changed. I think David made a -- we answered a question earlier and made some comments about with the recent debt changes has that altered pricing? I think you may start to see that in non-institutional, non-prime assets. We're not seeing that on the stuff we're selling.

So I think we're selling institutional assets, but even taking that to the other extreme, I think the high quality assets that we consider would be a good fit for our platform are still remaining extremely competitively bid by whether it's public rates -- and but more so it's private money, whether it's pension funds or sovereigns or asset allocations. I think advisors, they are still a significant force in the acquisition side. They still have a significant amount of capital to place.

We don't envisage that coming off at all in the near term. However, we do think we're able to probably find a couple hundred million of acquisitions this year. Whether it's off market or whether it's using our platform, we feel we're going to be able to achieve a better return on our equity. But the acquisition side for prime and prime plus assets remains extremely difficult.


Our next question comes from George Hoglund of Jefferies. Please go ahead.

George Hoglund

Just a question on Sports Authority, in terms of the 2015 or 2016 locations and the portfolios, on average are there in place rents above or below market? And if you can provide any overall color on the quality of the centers they're in, that would be great.

David Oakes

George, on average clearly below, I would say some are probably at market. But the better point to make on the Sports Authority portfolio, they are in some of our best assets. Just rattling off a few, Midtown Miami, Shoppers World in Framingham, Perimeter Point in Atlanta come to mind. These are all locations we'd absolutely love to get back.

It's also worth noting a couple are back, so the number -- like the one I referenced in California where we've already made deals to retenant the space quickly which speaks to the fact that we're way out in front. We have a very good feel as to which locations we would get back if any upon filing and a great working relationship with those guys.

So we have a real good idea of what works and doesn't work for Sports Authority. But bottom line, they are in great locations, for the most part they are below market and they are a retailer in these locations that we would love to replace with a strong and long list of quality retailers who are looking for the space, including specialty grocers and others in these locations.


This concludes our question and answer session. This also concludes today's conference. Thank you for attending today's presentation. You may disconnect. Have a great day.

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