1 colgate real estate workshop matt lougee ‘07 director of finance developers diversified realty...
TRANSCRIPT
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Colgate Real Estate Workshop
Matt Lougee ‘07Director of FinanceDevelopers Diversified RealtySeptember 25-26, 2009
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The Basics
What’s a REIT?
A Real Estate Investment Trust is a corporation that uses the pooled capital of investors to purchase and manage income-producing property. To qualify as a REIT, the company must pay out at least 90% of its taxable income in the form of a dividend. REIT’s offer investors a liquid way to own real estate that combines the bond-like income stream from dividends with the price risk and growth potential found in traditional stocks.
DDR at a Glance
Assets Under Management $18.4 billion
Properties Owned and Managed 703
Gross Leasable Area 153 million sq. ft.
Leased Rate - IPO (1993) 95.7%
Leased Rate – Current 90.7%
Avg. Lease Term 7 years
Employees 770
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DDR’s Diverse Geographic Presence
13.6 msf 8.9%
5.8 msf 3.8%
GLA by State
+5.0 MSF
+1.0 – 5.0 MSF
Less than 1.0 MSF
5.0 msf 3.2%
153 MSF in 45 states plus Puerto Rico, Brazil, and Canada
10.2 msf 6.7%
16.6 msf 10.8%
15.2 msf 9.9%
7.4 msf 4.8%
5.2 msf 3.4% 9.4 msf
6.1% 5.0 msf
3.3%
Puerto Rico
Brazil
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The Downfall – What happened to REITs?
1. Capital Markets effectively shut down – Risk Re-priced
- No access to equity and debt – Fear and Irrationality
- Inability to refinance upcoming debt maturities
- Inability to finance transactions
- No way to fuel growth / returns
2. Declining Fundamentals - Consumer staying home
- Declining Occupancy – Weak tenants go bankrupt
- Linens N Things, Circuit City, Steve & Barry’s
- Declining NOI growth and Leasing spreads
= Declining
1. Asset Values
2. REIT Stock Prices
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The Downfall
2008 Price Performance - DDR vs. REIT Peers
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
DDR RMZ
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The Solution: Recapitalize the Balance Sheet
2009 Sources of Capital Amt. (mil.)Sell Assets $440Cut Dividend $240TALF CMBS Debt 1 $400TALF CMBS Debt 2 $210Unsecured Bonds $250Private Equity $110Public Equity $150Total $1,800
2009 Uses of Capital Amt. (mil.)Debt Repurchases $1,000TALF CMBS Debt I $155TALF CMBS Debt II $110Near-Term Mortgage Debt $535Total $1,800
Perpetual Preferred Stock$555.0
8%
Variable-Rate Revolving Credit and Term Debt
$1,369.520%
Fixed-Rate Revolving Credit and Term Debt
$600.09%
Construction Financing$167.3
2%
Common Shares Equity $751.9
11%
Senior Convertible Notes$536.0
8%
Fixed-Rate Unsecured Debt$1,285.2
19% Mortgage Debt$1,606.7
23%
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#1 – Term Asset-Backed Loan Facilities (TALF)
TALF Underwriting: CMBS Pool 1 CMBS Underwriting: 2005 - 2007
NOI (Current) $65,000,000 NOI (Pro Forma) $68,250,000Cap Rate 8.50% Cap Rate 6.00%Asset Value of Pool $764,706,000 Asset Value of Pool $1,137,500,000Loan to Value 50% Loan to Value 75%Proceeds to DDR $382,353,000 Proceeds to DDR $853,125,000
• Investors borrow from the Fed, then lend to REITs
• Lower borrowing rate than other sources of debt capital
• Loan secured by first mortgage in a cross-collateralized pool of assets
• Functions as a catalyst to restart the securitized lending market (CMBS)
• More scrutinized standards for ratings
• Conservative underwriting vs. Dominance of speculation ($600B ’05 – ’07)
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#2: Repurchase Bonds at Discounts to Par
Note: $227 million of our January 2009 notes were repaid at par in January
Bonds Outstanding
$0
$100
$200
$300
$400
$500
$600
$700
in m
illi
on
s
3Q08 3Q09
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Investors recognizing progress
2009 YTD Price Performance - DDR vs. REIT Peers
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
DDR RMZ
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The Future of Commercial Real Estate
The “New Normal” – Deep Recession ≠ Strong Recovery- Unemployment: +/- 10% (CRE / Unemployment – Lagging Indicators)- Savings Rate: “Paradox of Thrift” = Saving $ generates less economic activity- Government: Privatize Profits, Socialize Losses, Printing Prosperity?- Rational Credit Markets / Subdued Risk Appetite
REIT Recapitaliztion – “Re IPO”- Equity Raised - $17 billion- Debt Raised - $9 billion- REITs as Fixed Income or Total Return?
Opportunity: “Dry Powder”- Money waiting on the sidelines for trough valuations and distressed operators
Weed out bad retailers- Focus on credit quality and profit margin
Fundamentals - New development at historic lows; opportunity for absorption of 2005-2007 supply- Long term leases- Resiliance of consumer
Industry talent gap
- Entry level jobs extremely difficult - Tangible product- Opportunity to work in multi-dimensional sector with little peer competition- Risk-perspective