SITE Centers Corp. (SITC) Q1 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Developers Diversified Realty Corporation Earnings Conference Call. My name is Jasmine and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host to Ms. Kate Deck, Investor Relations Director. Please proceed.

Good morning, and thank you for joining us. On today's call, you will hear from President and CEO Dan Hurwitz, Senior Executive Vice President and Chief Financial Officer David Oakes, 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 that such statements are based upon reasonable assumptions, you should understand that statements are subject to risks and uncertainties and actual results may differ materially from the forward-looking statements. Additional information about such factors and uncertainties that could cause actual results to differ may be found in the 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, 2010 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 April 27, 2011. This release and our quarterly financial supplement are available on our website at ddr.com. Lastly, we will be observing a 2-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 Dan Hurwitz.

Thank you, Kate. Good morning, and welcome to our first quarter earnings conference call. With our earnings released yesterday evening, I don't want to spend too much time rehashing information that you've already reviewed in our release or our supplemental. Rather, I'd like to begin today by highlighting our continued progress with regard to our portfolio management strategy and expand upon the March 31 press release that summarized our first quarter disposition and acquisition activity. While our first quarter transactional activity of $43 million in non-prime asset sales and the acquisition of 2 prime properties from our joint venture partners for $40 million is indicative of our strategy to recycle capital from non-prime into prime, the overall impact on portfolio quality should not go unnoticed. Over the past 5 quarters, we executed over 80 transactions and disposed of more than $800 million of non-prime assets. These assets averaged about 79% leased, and on average were about 100,000 square feet of GLA per asset. The top 3 MSAs in which we sold assets were Atlanta, where we are actively looking to lower our exposure to lower quality assets, Detroit and Buffalo. Some of the top tenants that occupied these assets by GLA and number of units were Kmart, Tops and Rite Aid. In comparison, our top 3 tenants within the prime portfolio by GLA are Wal-Mart, Target and Kohl's. Moreover, as we sit today on a 7-mile radius, average household income in our prime portfolio is $78,000 per household, population density is over 335,000 people. This represents a 5% to 20% increase over the non-prime assets sold within the past 5 quarters. A 7-mile radius is the appropriate measurement for our asset class given the size of the assets, regional draw and tenant mix. For informational purposes, our prime assets average 305,000 square feet of GLA, which, in addition to the retailers that occupy these assets, confirms that they service a more regional trade area. While our strategy is not simply addition by subtraction, it is important to emphasize the impact of non-prime assets on the calculation of NOI derived from the prime portfolio. As a result, in 2009, our prime portfolio produced 70% of our NOI. By 2010 year end, we achieved 83.3% and today we stand at 86.7%. Just to reiterate, 86.7% of our current NOI comes from prime assets that average over 305,000 square feet of GLA and benefit from average household incomes of $78,000 and average population of over 335,000 people. We are encouraged by the success we have had in upgrading the quality of our portfolio, and note there will be additional opportunities for further enhancement going forward and the significant numbers that I just presented will only get better over time. Given the progress we have made with our balance sheet and the flexibility provided by a more competitive cost of capital, we are carefully underwriting a range of potential acquisition opportunities of prime assets. Our pipeline includes value add, stabilized prime assets, and loan-to-own opportunities that could include the origination of mezzanine debt or the purchase of a senior note at a discount on prime assets. We have successfully sourced attractive opportunities that fit our selective requirements, but remain prudent in our underwriting and bidding practices. As a result, we will likely lose more bids than we win, but we are confident that we can find attractive opportunities to redeploy asset sale proceeds, allowing us to grow and simultaneously reduce operating risk by continuing to improve portfolio quality. This is primarily achievable through a combination of internal and external growth, aggressive dispositions and selective acquisitions, all of which are top of mind on a daily basis. I'd now like to turn the call over to Paul.

Thank you, Dan. I'd like to spend a little time today talking about one of the topics getting a lot of attention recently, that being the potential downsizing of retailearnings relea space, but first let me review what was another highly productive quarter. Our domestic leased rate increased by 10 basis points from 92.3% at year end to 92.4%. This represents a 110 basis point increase over the first quarter of 2010. Including Brazil, our blended leased rate is now 92.6%. These results compare favorably to the historic average decline of 20 basis points in the first quarter due to the seasonal nature of tenant fallout and lease expirations versus commencements. We remain confident in our ability to achieve an occupancy rate above 93% by year end 2011, consistent with our guidance. Overall, in the first quarter, we completed 428 deals for 2.6 million square feet with a combined spread of 5.4%, up from negative 2.7% in Q1 of '10. These spreads are consistent with our combined spread of 5.4% in the fourth quarter of 2010 and are a dramatic improvement from the year ago numbers. As we discussed on Investor Day, spreads are important, but they only tell part of the story. We believe average first year rents on new deals are a better leading indicator of leasing trends. The average first year rent for all new deals completed in the quarter was $14.17 per square foot, up from $12.80 per square foot in the first quarter of '10. It's important to note that this growth has been achieved with lower CapEx on a per square foot basis for these new deals. I'd now like to take a few minutes to talk about an issue that has been getting quite a bit of attention lately, and that is the trend toward smaller stores and what that means to the landlord community. First, we shouldn't confuse a retailers' ability to operate in smaller stores as a rush to downsize their entire portfolio nor that it can happen overnight. There is a clear distinction between the categories and the retailers that have learned they can be flexible in size and merchandise offering and those that simply have too much space. For the retailers that are exhibiting flexibility, this is not an indication that their entire portfolio is oversized and in need of downsizing to be competitive. What it does show is that they are strong retailers with the ability to compete in a variety of store sizes in a variety of diverse markets. Moreover, the desire for a smaller prototype should not be viewed as a trend toward reducing store count. As industry leasing numbers indicate, demand for new stores is still extremely high even with the changes to prototype and footprint. For those specific retail groups [ph] and categories that do require less space to be productive, it is clearly in our best interest to have them appropriately sized. Greater productivity and smaller stores result in a more successful shopping center with a greater ability to drive brands. But size changes are not always easily achievable. So the question becomes, can and how do we work together to achieve a win-win situation. If the tenant is willing to participate in the cost to downsize and we are left with leasable space, we can usually reach agreements on a business deal, with the result being a more productive retailer and the opportunity for upside on the existing rent for the reduced space as well as upside on the new rent in the residual space. However, if the tenant is not willing to contribute or we are left with unleasable space, we have a very different situation. In that scenario, the things we will take into account include the probability of the retailer relocating, our ability to backfill the space should they do so, and most importantly whether it is a good store for the retailer. First and foremost, retailers are in the retail business and not the real estate business. Retailers do not close successful and profitable stores. It's much easier to lose market share then to gain it and retailers know that better than anyone. Put simply, given today's supply and demand dynamic and tenant thirst for external growth, most retailers feel greater risk in losing market share than landlords do in re-tenanting potentially vacant box space. So to summarize, there's a lot of buzz about retailers downsizing their stores. What is the reality? Would retailers always like to be at their ideal size? Yes. Do we want retailers at their ideal size? Yes, when the deal makes sense. Is their ideal size a constantly moving target, which makes this more difficult? Yes. Is that why relationships and platform matter? Clearly. Are retailers in a position to demand size adjustments in every situation? Absolutely not. Are landlords at risk of losing every oversized space in the near future? Not at all. And are most of our top retailers still growing overall store count and square footage? Absolutely. At the end of the day, it's clearly better for both tenant and landlord to have smaller, more highly productive stores. We like tenants that produce higher sales per square foot, higher profit per square foot and have dramatically increased inventory turn. As a result, we will continue to work with our tenants to achieve the desired end result, but execution relies entirely on the logic of the proposed deal. And I'd now like to turn the call over to David.

Thanks, Paul. Operating FFO was $63.2 million or $0.24 per share for the 3 months ended March 31, 2011, which is in line with our expectations. Including certain non-operating items, which were net gains this quarter, FFO for the quarter was $89.1 million. The non-operating items relate primarily to gains resulting from acquisitions of our partners' interest in 2 high-quality properties and a noncash gain on the equity derivative instruments relating to the final evaluation of the Otto Family warrants before they were exercised, partially offset by a charge related to the termination agreement exercised with our former executive chairman. I would like to reiterate that in regard to the Otto warrants, the family had the option to exercise their warrants in a cashless fashion, but instead executed a cash exercise where they invested $60 million more into DDR shares and effectively purchased over 3 million shares at the then current market price. We greatly appreciate the continued support and confidence that this highly sophisticated investor has shown in our company and in our direction. At this point in the year, we remain comfortable with our 2011 operating FFO guidance of $0.90 to $1.05 per share and continue to believe that this relatively wide range provides us flexibility to opportunistically accelerate additional refinancing and capital recycling activities. Now, turning to our recent capital markets activity. The first quarter was one of continued progress in our efforts to improve our balance sheet and we are very encouraged by the impact this has had on our cost of capital, most notably our 4.75%, $300 million 7-year bond issuance in early March. Also, we issued 9.5 million shares of common stock pursuant to a forward sale agreement that we executed on March 1. The proceeds received from the equity issuance plus the $60 million from the Otto Family warrants exercise were primarily used to fund the redemption of $180 million of 8% Class G preferred shares. We are aggressively executing our long-term plan to reduce debt to EBITDA and extend duration, and we're please with the reaction from the rating agencies thus far. Just recently, Moody's affirmed our investment grade credit rating and raised its outlook to stable, highlighting our considerable progress in improving our balance sheet and operations. In late February, S&P also raised its outlook on DDR to stable and raised the rating on our senior notes from double-D to double-D plus. We expect progress to continue as we strive for consensus investment grade ratings. During the quarter, our joint venture Sonae Sierra Brasil completed an initial public offering of common shares resulting in gross proceeds of BRL 465 million. While we still own 1/3 of the company and are excited about future prospects, we have dramatically improved DDR's risk profile by creating a liquidity option, plus dramatically improved Sonae Sierra Brasil's access to capital. We have no plans to sell our shares, but we do appreciate the long-term flexibility that comes with such liquidity. We will continue to be very focused on opportunistic refinancing despite minimum near-term maturities and high credit line availability. Based upon the strong market conditions that exist today, we expect to address our 2012 debt well before maturity. The recent improvement in our outlook from the rating agencies lowered the interest cost on our $550 million term loan from LIBOR plus 120 basis points to LIBOR plus 88 basis points, and we expect to make further strides in lowering our overall cost of capital and extending our duration. At March 31, our weighted average debt maturity was 4.2 years, a significant improvement from 3.4 years at the end of last year's first quarter, and nearly all of the $1 billion capacity on our corporate credit facility is available. As you can see, DDR is a much better balanced company and we operate with substantially less risks today than at any time in recent years. This has allowed us to actively pursue external growth opportunities for which we are very enthusiastic. As Dan mentioned earlier, our ability to recycle non-prime asset sale proceeds into prime acquisitions provides us with an opportunity to upgrade the overall quality of our portfolio on a risk-adjusted and balance sheet-positive basis. Some of you may have seen that we recently renewed our aftermarket common equity program for $200 million. We have benefited from the flexibility and efficiency of this program in the past, which is a primary reason that we have renewed it, but currently, we have no plans to use it. We will continue to work aggressively to improve our balance sheet and upgrade the portfolio and at this point, we do not expect any new common equity to be required to accomplish these objectives. One last point before I turn the call back to Dan regarding our Investor Relations function. Recently, we decided that Tim Lordan would assume responsibility for our Investor Relations efforts. As you know, Tim currently oversees our Funds Management Program and many of you know him from his time at The Rouse Company. Kate Deck will continue in her role as Director of Investor Relations, and we expect this change will only enhance analyst and investor coverage of DDR and offer consistent and transparent access and disclosure. This change will allow Francine Glandt to focus her time exclusively on the continued execution of our capital market strategy. We're excited to have Tim take on more responsibility and we look forward to the additional contributions he will bring to the company. At this point, I'll turn the call back to Dan for closing remarks.

Thank you, David, and before turning the call over to questions and answers, I'd like to take a moment to thank those of you who attended our Investor Day in March or listened to the management presentation via the webcast. As a management team, we appreciate your continued support and interest in our story, and hope that you found our presentations to be worthwhile. In addition to the information we shared with you at Investor Day, by now you should have received a copy of our 2010 annual report. We understand that annual reports do not provide the most current financial or operational information given the production timeline. However, we believe the annual report is an important representation of our enterprise, and as such, we took a different approach to our annual report and letter to shareholders than years past. I hope you find the tone and content of the annual report to be consistent with your expectations based upon the direction we have been taking the company in articulating to the market. As always, I look forward to your feedback at your convenience. At this time, we would be happy to answer your questions. Thank you.

[Operator Instructions] And your first question comes from the line of Craig Schmidt with Bank of America.

Paul, thanks for the comments on the potential downsizing issue. I just wanted to question. I mean, we often hear that the increase of the Internet business is the reason for the downsizing. But are there other reasons right now we're seeing this downsizing or should we expect it to be kind of focused on those categories that are doing pretty strong Internet business?

I think the focus, Craig, should be on those categories that are impacted by the Internet business, but I'll give you another example that I don't believe is impacted by the Internet business, that would be Old Navy. We aren't seeing a lot of the apparel retailers look to downsize, but that's a clear case of a company that just got way ahead of itself with oversized stores throughout the 90s that the early 2000s, and now they're realizing that there's a smaller prototype that's right for their merchandise mix. But I think in general terms, the focus is on those categories such as the office product guys and electronics where we'll see more of the downsizing.

And in your discussion with retailers, are they remaining focused on margin or market share at this point now, or is there any shift in those 2 priorities?

Clearly, both priorities. I mean market share is what's going to drive margin at the end of the day. Interestingly, I think we're seeing some things we've talked a lot over the past year or so about commodity price increases. We're seeing the good retailers maintain and improve their margins, even in light of those price increases. But typically, market share is going to drive margin. Any increased market share will drive margin, Craig. So that's the first focus, but they're both critical to retailers.

Thanks a lot.

Your next question comes from the line of Sri Nagarajan from FBR. Srikanth Nagarajan - FBR Capital Markets & Co.: I just wanted to follow up on the earlier question and your remarks, Paul, in terms of the oversized retailer and the landlord particularly not in danger of losing space immediately, what are the tenant options today on being oversized? And obviously, as you look at it from a pure analyst perspective, how is it now going to affect overall fundamentals in rent outlooks in the future?

Well, one of the key points I was trying to make was that it is not as easy as it seems, and that's one of the reasons we were emphasizing it on today's call. A couple of years ago, or let's go back even a little further when development was plentiful, that's an easier environment within which to thread in if you're the retailer, the relocation to a competing site, we can now get our prototype at a fair rent. That and as I mentioned on the call, the dynamic of no new development and available space being absorbed quite quickly doesn't give them a lot of options. So the reality is that we're going to try to work together because it's in both of our best interests, but if we can't, we are expecting that they will take their option, renew in their current size and we're seeing that in quite a few examples where there's no effective way to do it, they're not going to close the store, they don't have an alternative, and that's what it really gets down to. Look, it's up to us to use our best judgment to figure out exactly what the best situation is with each situation and decide which way we're going with it, but they're not going to close stores that are good even if they can't get to their perfect size. That's really the point.

I think that's probably the most important point, is that retailers today in particular can't afford to close profitable stores for a variety of different reasons. Number one is you have to replace the volume and if you don't replace the volume in some way, the impact on your indirect charges and the profitability of the other stores that you have in that market is going to be dramatic. So if it's a profitable store, if it's a growing store, retailers will not close it. They will leverage real estate as best they can to try to reduce their operating expenses so they can expand their margin, but at the end of the day, the real estate doesn't make the decision on whether that store should be open or not. It's the market share and the profitability, and if the market share is there and the profitability is there, we're very confident that retailers won't use that as leverage to close the stores. Now we face that discussion everyday and we look at the threats of closing stores every day, and very, very rarely, very rarely has a tenant who said, "If I can't reduce the size of my store unless I'm not going to renew my option," very rarely do they not then ultimately pick up the option at the last minute and continue to operate a profitable store.

Sri, to address one of the specific items in your question, I don't think our comment is that this is something we don't expect to have an impact on rents over time. We do in fact expect it to impact rents over time and we expect that impact to be positive. When the discussions occur with these retailers, they have a certain volume that they expect for a store, and whether they can get their exact footprint or not, they're multiplying that volume times their occupancy costs and that's the amount of rent they can pay and you really are ending up with a situation where we would expect sales per square foot and rents per square foot to be higher if they're operating in a more efficient size for them. Srikanth Nagarajan - FBR Capital Markets & Co.: That's very helpful color, thanks. And my second question is on leasing spreads for the rest of the year. I mean, obviously, do you guys feel that 1Q was a little bit higher? And from a leasing mix perspective, is it going to be a little bit lesser over the rest of the year?

Sri, I think what you're going to see is that there'll be some movement in the new deal spread. We're very comfortable that it will remain positive. The more important spread as we look at it is the renewal spread and I would feel very good about it. We went through several quarters of negative or flat spreads on our renewals, we've now had a few quarters in a row of 3% to 4% renewal spreads positive, and that's where we see that being pretty much at floor. We'll be in that 3%, 3% up, 3% and up range on the renewals. You'll see movement in the new deals spread, but we're confident in what we're seeing and what we've seen over the last couple of quarters that it'll remain positive. You're not going to always see it at a 9% rate in any quarter and I don't want to indicate that we expect that quarter-to-quarter, but I would expect positive results on the new deal spreads also. Srikanth Nagarajan - FBR Capital Markets & Co.: That's helpful, I'll join back the line. Thanks.

Your next question comes from the line of Jay Habermann with Goldman Sachs.

Dan, you gave some statistics on obviously the non-prime portfolio sales, the $800 million and 79% leased. As you look at the sort of bottom 14% of the remaining portion that is yet to be completed, how much of an impact do you expect that to have on sort of your average household income, population densities, and even just overall occupancy?

A lot of it because we're a national company and we're spread pretty far and our non-prime portfolio basically goes coast-to-coast. Some of the impact on those numbers is pretty diverse. But I think what we anticipate is that on the income side, non-prime generally is about a good 10% less than where we are on prime. And in many cases on the population, it's 20% to 25% less. And that's pretty consistent. Now that's across a large portfolio so a lot will depend, on a quarter-to-quarter basis on the timing of those sales, but I think you could pretty well assume that the income side is going to be in the low double digits and the population should be somewhere in that 20% range plus.

And Jay, where that impact can be even larger in the way some people look at the stats, not exactly the way we look at the stats but the way some of the reports get published. When you weight it by the number of assets, if we eliminate the non-prime assets, you get an elimination of that 10% to 20% lower demographic on close to 50% of your assets. If you weight it the way we normally think about it and what we think is economically appropriate, it may only amount to 14% of the portfolio today and so you get 14%, times that 10% to 20% improvement. But for the way they announce this, is oftentimes done and published where your equal weighting it by asset, the impact on our overall portfolio demographics relative to what's published in many of those reports could get considerably better because the simple number of assets is high even though the NOI contribution is quite small.

Okay, so that's helpful. And then just thinking about, you mentioned addressing some 2012 debt earlier than expected. I mean, clearly the term loan jumps out, that $550 million. Can you give us some sense as you think about the deleveraging and obviously the pace of asset sales, and then also just tying in the acquisition opportunities you mentioned as well?

Yes. At this point, there's a clear focus on addressing some of the 2012 debt maturities. Quite early, the bank market is very strong at this point, and I think we have a high degree of confidence in our ability to refinance that for well in excess of the proceeds that are outstanding and maturing today. Our goal obviously, as we've articulated previously, is to continue to improve our leverage stats, to continue to have less exposure to short-term debt, to continue to have less exposure to bank debt. And so I think as we proceed with that refinancing, you should expect to see nothing larger than the size today and probably something overall that somewhat lowers our exposure to short-term bank debt, but exclusively at our option rather than at the option of the banks. In terms of deleveraging, I think when we think about the progress going forward, primarily thinking about it on a debt to EBITDA basis, we would expect dramatically more of the improvement going forward to come from the EBITDA growth side, rather than the debt reduction side. So not looking at raising equity to pay down debt and not looking at redeploying asset sale proceeds into debt paydown, more of those proceeds are being used exclusively for the acquisition efforts that we talked about earlier. So it really will be more debt-for-debt when we think about the refinancing activity for 2012, although we'd still firmly expect credit metrics to improve based on rising EBITDA and the monetization of some of the non-income producing assets.

Your next question comes from the line of Alex Goldfarb with Sandler O'Neill.

Dan, as you talk to your tenants, in the reports it sounds like Wal-Mart is taking a hit on their customer base from higher gas prices. Are you hearing any impact from higher gas prices from any other of your tenants? And if not, how do you think that the consumer, the average consumer, is absorbing $4-plus gas and still shopping?

I think that's a great question. The short answer is, where we are hearing some concern from tenants, it's not necessarily on sales but on margin, because the cost of distribution has gone up dramatically, and as you know, as Paul mentioned, there has been some commodity price increases that many retailers have not been able to pass through to the consumer. And as you have transportation cost increases as well, particularly on moderately priced to discount-priced goods within margins to begin with in some cases, the cost of distribution becomes a much more significant impact on profitability and margin. In particular, for example, if you look at the dollar stores and stores that had a cap in some regard either by name or by philosophy on pricing, when you go from $2.50 a gallon to $4 a gallon for delivery but yet you can't really raise your pricing very much, it obviously is going to have an impact. So the deeper the discount, the larger the impact. And that's something that we hear about pretty consistently, not having a big impact on sales but could potentially have an impact on margin.

And as far as where do you think -- how do you think the consumer -- what are your customers, your tenants telling you where the consumers are taking up that slack? Like how are they absorbing the -- how are they still shopping and still filling up the tank?

Well, I think one of the things -- in fact we had a couple of tenant meetings this week and one of the things that came out was people are very surprised at how accepting the consumer really has been to a $4 price. I think some people don't view that as sustainable. We've been there before, and it came back down, and I think time will tell whether it's going to stay where it is. But right now, the consumer has been less concerned than most of our retailers thought they would be, by inflated gas prices, and we'll see what happens through the summer. I think it'll be -- I think this summer where sales naturally soften will be a good indicator of a future trend.

And then my second question is, Paul, on the occupancy, I think you mentioned the year end target of 93% occupied, the December 31 occupied rate was 90.6%. Can you give some color on first quarter occupancy and how we should think about the quarterly step-up to reaching that 93% target?

Sure. Again, for the last few first quarters Alex, we've recorded a small increase, which is a big deal because as I mentioned in the script, historically, we see about a 20-basis point hit in the first quarter with the move-outs and expirations versus new commencements. So the 10-basis point improvement feels good. The 92.6% includes the Brasil, but just looking at the metrics for a second going from 92.3% to 92.4%, I think we'll see similar trends to where we've seen in the past 2 years where we've got, it just -- it ramps up over the final 3 quarters of the year, and again I'm very comfortable with that 93%.

Wait, were you talking about leased rate? I was asking about occupied -- occupancy rate?

I'm sorry. Yes, that's leased rate, yes. I'm sorry, I missed the point. Yes, leased rate, and again we actually -- we'll see that spread, if you will, between occupied and leased decrease over the course of the year. Not many openings in the first quarter, certainly more closings than lease expirations. So at this point, we've got a spread of about 220 basis points between leased rate and those tenants that are signed but not yet open and rent paying. Second quarter won't be a big quarter to reduce that spread either, but then third and fourth you'll see that come down, and obviously the number's going to have a direct relationship to how much new leasing we do. We don't expect it to come down to historic rates in that 50 to 100 basis point range any time soon, but you'll see the number shrink over the next few quarters, more people come online.

Your next question comes from the line of Christy McElroy from UBS.

You talked about potential acquisitions. How active are you in sourcing new opportunities? Do you have a dollar value in mind as far as what you could potentially target over the next few years? And would you potentially use the ATM to fund the equity portion of future deals or would that be strictly coming from non-core asset sale proceeds?

I'd say we are extremely active in reviewing acquisition opportunities today. That doesn't mean we're extremely active in closing acquisition opportunities today, but we are looking at everything that's out there, spending a lot of time on that, spending a lot of time talking to tenants about what locations do well for them and where we think we might be able to grow rents over time. And so it is a big focus for us, although I would not expect that to translate into a massive volume of acquisition activity. The reality is it's a very competitive deal, cap rates have been pushed significantly lower over the past year, and we're not willing to simply run around winning auctions to grow our square footage or our asset base if the economics don't make sense. So I think you'll continue to see us very disciplined in terms of what we do close on where we think there is an attractive opportunity. So right now, we'd reiterate what we have in our guidance where, from a capital recycling program, we expect to take disposition proceeds and redeploy those into acquisitions. Originally we had talked about something in the $100 million range. I think we would expect that we would feel very comfortable achieving that and might exceed that, but would also reiterate that we expect disposition proceeds to fund the acquisitions and would not expect to issue new equity to fund acquisitions at this time. If we found something particularly attractive, I think we'd have to explore that and we'd have to get feedback from investors and analysts about the market's response to that. But where we stand today we simply don't see opportunities that would encourage us to issue equity simply to grow our size. The focus has been on the capital recycling side, selling non-prime assets and reinvesting those proceeds into prime acquisitions, which is obviously a change in tune relative to the past several years where disposition proceeds were funding debt repayment.

Clearly, one of the things that's happening also, Christy, and I think it's going to be very, very interesting next month for those of you who are going to RECon in Las Vegas to keep an eye out for this, is that cap rate compression is an incredible motivator for those people who own assets to sell assets. And we are seeing more product now that we've seen in many years quite frankly, and stuff that's coming on on the market that we had not expected to even come on the market. And I think that there's an opportunity that, in Las Vegas this year, there's going to be a lot of folks shopping their product because they are enticed by what we're all seeing as sort of peak cap rate compression and tight pricing. And there's a lot of interest and a lot of capital that's resulting in that pricing power. So I think we're going to see a very, very different May convention this year, where there's going to be a number of people looking to shop their product and much more so than we've had in the last several years.

Okay, and then just following up on leasing spreads, could you give us some sense for what the difference in spreads has been in the last quarter or two between space under 10,000 square feet and over 10,000 square feet?

Yes, Christy. It's been pretty consistent across the range of sizes, but we're seeing more improvement in the smaller space, if you will. It's -- they can achieve higher rents, more flexibility in who you can put in there, what they can pay. The box space, we continue to see gradual improvement in first-year rent but we're seeing a greater improvement in what we're seeing in the small shelf space, and that's really as it's being leased to more national tenants such as the phone companies and the small restaurants and such.

Okay, thank you.

Your next question comes from the line of Carol Kemple with Hilliard Lyons.

What new tenants are you seeing come in to your center or new concepts?

Not so much in the new concepts in our product type. We're seeing more flexibility in terms of different store sizes and people that are hitting new markets, Carol. We're seeing some of the -- we talked a little bit about the flexibility and not confusing that with the need to downsize. So we're seeing some tenants reach into smaller, more diverse markets, more rural in some cases, than they would typically have entered, and that's really what we're seeing new in our product type. We are seeing a few of the folks who were married to mall space such as Kirkland's now very interested in strip center space, but not a lot of new concepts. It's really more maneuvering of existing retailers and what they're doing differently in terms of size and product offering.

And that is something that concerns us. One of the things that we are concerned about is the lack of new product from a consumer perspective because we -- what would make shopping exciting is when you have new concepts, new stores, new price points and new vendors coming into the market in a new environment and we don't have a lot of that. If you walk into one of our centers that's Target/Kohl's anchored in California or one of our centers that's Target/Kohl's anchored in Connecticut, they're very similar, they're very similar in merchandise mix. And we would like to see more new concepts because we think the consumer is easily bored by some of the offerings that they see in retail in the United States in general. The one thing that we have to be very careful about though is that some of the new concepts that have been presented to us, we just don't feel are economically feasible. There are some new concepts out there that many people talk about and some are actually getting very excited about where we just can't seem to understand that the combination of the size, the occupancy cost, the merchandise mix, the margin and the profitability. And when those cases present themselves to us, while we would love to add someone new to our center, we're just not willing to take the risk on that merchant. We've been to that show before and we're not going to go back.

Are you seeing any of your existing tenants like Bed Bath & Beyond had a couple of concepts -- come out with new concepts at this point?

No, but what we're going to see and we are seeing, Carol, is that they're going to grow the new concept. Bed Bath is a great example. buybuy BABY is a relatively small piece of that business today, but tremendous growth opportunity. Now they're really running with their three concepts, the Bed Bath & Beyond, the buybuy BABY and the Christmas Tree Shops. And they actually have one other concept, Harmon's, which is not a big part of their business. But what we will see is that's a lot for one company anyway, and the fact that they've got a lot of runway left with concepts such as buybuy BABY.

Your next question comes from the line of Quentin Velleley from Citigroup.

Just in terms of EPNs off of the remaining shares of EDT, if EPN is successful in taking the vehicle private, are you likely to maintain management of the portfolio and the $3 million to $4 million of management fees that you get?

Given where we stand with the bitter statement being released and the Target statement soon to be released, there's not much we can say about this situation. But going back to the original IPO documents, our property management and leasing rights are evergreen in nature as long as the trust and the U.S. manager are in existence.

Okay. And I'm not sure of what EPN's intentions are, and I think they're sort of bidding on an implied cap rate above 9%. If I were to break up the portfolio and sell parts of it, is there a selection of prime assets in there that you would be interested in?

There are absolutely a large number of prime assets in there. But I'm sorry, Quentin, we really can't speculate on what's going to happen here, particularly where we sit with the timeline of disclosures.

Got it. Maybe one for Dan then. You commented on looking at prime acquisitions on a loan-to-own basis through mezz or through bank senior loans. Can you just talk a little bit about sort of the size of the opportunity and how you're going about accessing some of those potential opportunities?

Well, one of the ways that obviously we're accessing those opportunities, is through our lenders. In many cases, we're meeting with our banks who are informing us of situations where they think there could be a potential issue or there is an issue. And we are looking at some of those assets on a perspective of would we like to own that asset. If we don't want to -- if we would not be interested in owning the asset, we're not going to loan mezz and we're not going to buy the senior note even at a substantial discount. These have to be assets that we think fit the prime designation and fit it without question. So that's one of the ways we're doing it. The other way is, as you know, is we have done a few of these deals and sometimes when you do a few of these deals, people come to you. And we have had some of the people that we know in the market, particularly, obviously, on the private side, who have some maturities that are coming up or have come up and passed. And they got a one-year extension, and that one-year extension is now coming up and they have other issues. There's a refinancing pressure, the loan-to-values and the spreads and the amount of equity that's required to refinance goes beyond their capabilities, and we're a logical place for them to come if they own the product that we like. So as David mentioned, we're being very -- we're being highly selective because this is not just a yield play. This is an enhance-your-portfolio and asset management play. So we're underwriting these assets, even in the case where we may not own it. We're underwriting the assets as if we were going to own it and being very careful.

Your next question comes from the line of Samit Parikh from ISI Group.

Just wanted to follow up on a little bit of what you just said, Dan, and you were talking about a lot of assets coming to the market. And we know that a lot of pension funds are sort of sitting on the sidelines with cash targeting waiting for core retail to come out and are going to underwrite very aggressively. One question I wanted to -- well, two questions really. One was are your return requirements coming in considerably from where they have been historically because you want to be more competitive on these potential acquisitions? And two, if people are starting and you're saying that we're sort of at peak pricing and underwriting is getting aggressive, have you thought about maybe selling some core end markets that you might not have a dominant presence in or a big presence in and sort of recycling that capital into value-add opportunities elsewhere in the portfolio?

Yes, certainly, with the pricing where it is today, Samit, and I think you're right on point, there is -- it is enticing to think about selling some core products, some prime product. But that is not our goal, and that is not where we're going to be. If it happens in our company and you may see it happens because a joint venture has decided to sell a prime asset, and it's trading at a price we feel is not appropriate and therefore, we let it go to the market. I think one of the important things that -- to keep in mind, when bidding against pension funds, private equities, et cetera, is our access to information often gives us a competitive disadvantage. We're not going to try to outbid private capital just for the sake of winning the bid. As David mentioned earlier, we don't want to think that we're -- we made a great deal and we're smart just because we paid more than the next guy. It's not hard to win when you pay more than the next guy. The important thing to keep in mind though, is that our access to the tenant community gives us great information on what we feel is going to happen to that asset. So for example, we looked an asset recently that we did not -- we were not successful on and we knew there's going to be significant rent roll downs. And I can assure you that the buyer of that asset has no access to that information, is not anticipating rent roll downs and probably underwrote the option extensions at exactly as they were written in the lease. That's an inappropriate way to look at that asset. We know that, and that will make us noncompetitive. And I think a lot of -- it's not just us. I think a lot of the other publicly traded REITs that have good tenant relations, they're going to have the same issue when bidding against private capital. One of the things that we'd like to do is, obviously, find opportunities to leverage the platform. So while risk on pricing is not something we always are willing to take, we are willing to take a little risk, for example, on leasing because that access to tenant information, while sometimes can be a negative in the bidding process, very often can be a positive in the bidding process as well. And where it's a positive it's where tenants have expressed an interest in doing business with landlords that they know can deliver them product on time, on budget and in the right season. So that's really where we're focused, but I would not expect us and you should not expect to see us bidding successfully against passive-aggressive private capital, because our operating platform really wouldn't permit us to underwrite the assets in the same manner.

Regarding the part of the question on return requirement, I think there's two sides to that answer relative to our return requirement. Two years ago -- we are much more aggressive today in looking at lower return requirements relative to two years ago simply as a function that our cost of capital has changed dramatically. When we had to think about potential acquisition activity a couple of years ago and you're underwriting cost of debt somewhere in the 10% to 25% range and a cost of equity in the 25% to 50% range, it's obviously something that's going to make new acquisition activity have to have an extremely high return threshold. So we're in considerably relative to where we have been a couple of years ago due to cost capital improvement. Relative to the longer term history of DDR as a major portfolio acquirer, I'd say our return thresholds are not only higher than they were, looking back 4 to 10 years, but also the definition of returns is different than what it had been in the past. No longer that notion of what's the initial yield on the initial accretion, the focus is much more on the long-term return opportunity. But even with that, I would say our return requirements are higher than they were, say, 5 years ago.

Your next question comes from the line of David Wigginton from DISCERN.

So Dan, you guys had talked a lot about acquisitions, and I think Samit just touched on the dispositions. Can you maybe just give us an idea of what the market is like from maybe a demand and pricing perspective for the assets in your non-prime bucket? I know you guys have been pretty active on that. Just wondering if you expect to see maybe an uptick in the volume that you've experienced thus far, maybe this year over the past couple of quarters.

Well, we would like to. We would like to be able to come back to you at some point in time and say that this market gave us the opportunity to accelerate asset dispositions beyond what we had originally guided to. And there is certainly more interest in B/C assets than we have seen in the past. It's not unusual for us now to get multiple bids on assets when in the past we really got one or two bids, if we were lucky, on an asset. But I'm not yet convinced and I do think, by the way, based -- looking at the appointment schedule, Vegas will be very important, about dispositions as well as acquisitions as I mentioned earlier. I'm not convinced that the market is exuberant about B minus C assets as some people think. Clearly, there has been some transactions out there. We've done some, but there's been others that are much larger than what we're doing. And one of the things that happens when those transactions occur is that there are winners and there are losers. And the losers have, in their minds, decided that perhaps chasing yield in B/C markets is a good thing. And hopefully, we'll have the opportunity to take advantage of that but -- and we will pursue that as aggressively as we can. But we'll see. We'll see. I think sometimes the market gets ahead of the real interest level, and when people come in to talk to you, I think it's not a question of just chasing yield. I think it's a question of trying to steal assets, and we're not in the position at this point in time where we're going to sell assets for cap rates that we feel are totally inappropriate given the current position of the asset in the market.

Beside Dan's comments on price sensitivity, the other major issue and mitigating factor for us is going to be that we simply have dramatically less of this product than we had a few years ago. So when you talk about acceleration or deceleration of disposition activity, almost by definition, it has to be a deceleration simply because we sold over $2 billion of that product over the past couple of years, and we just don't have nearly as much inventory remaining. And so exactly as Dan mentioned, it remains a big focus. We continue to push on that side to improve the portfolio quality, but there's a heck of a lot less inventory here at DDR today of non-prime product.

So in light of that then, I guess, what -- from looking at your long-term occupancy goal, what -- I mean, how much of your non-prime portfolio do you need to dispose of to achieve that? I know you guys have been active on the lease upfront, but presumably, you're getting rid of 75%, 80% occupied assets. That's helping your overall portfolio occupancy rate. What -- I mean, maybe a better way of asking this is maybe over the last year, what percentage of your occupancy increase of 110 basis points was attributable to disposing of non-prime properties versus lease-out?

It's a good question, David. But the answer is almost none, and the reason is because many of the non-prime assets actually had a higher occupancy rate than the prime portfolio. It's just that we felt that, that occupancy rate was either unsustainable in the nearer term or the long term. So we sold assets, for example, when we were 90% leased, that were 94% leased. That was not uncommon for us to do that. We just didn't like the markets. We didn't perhaps like the credit quality of that 94%, et cetera. As far as going forward is concerned, our goals for occupancy do not assume that the portfolio is different than it is today. So when we say that we feel we can get to a 95% or 95.5% leased portfolio, we feel we can do that through leasing space in both prime and non-prime assets. What will impact that number is if we sell prime assets that are at a lower level than that, the occupancy rate will go up sooner than we anticipated, and maybe we'll hit 95% before three years or two years or maybe we'll hit it within the next couple. So that's something that will be impacted by asset sales in the short run. But in the long run, we feel that the 95.5% is achievable through the existing portfolio of prime and non-prime, or having less non-prime and having more prime where perhaps there's some value-add opportunity. So there is some vacancy that comes with some of that.

Okay. And I guess just regarding your 95.5% occupancy rate, what -- you broke out your leased rates by, I guess, by shop size. And where would your small shop occupancy level need to get to, to get to that 95.5%? And I guess, what do you consider sort of the stabilized occupancy rate for those, like -- the stores?

In the mid to high 80s, Dave. I mean, historically, that hasn't been a whole heck of a lot higher than that. But that's what I'm looking at, getting that small shop space somewhere in the mid to high 80s. And keep in mind, we're also working to reduce our exposure to that shop space, that size, right. We know it's the most difficult, most challenging in re-leasing. So whether it's conversion to larger space, consolidation of small tenants -- or small tenant space, or the majority of that -- or a large percentage anyway, of that small shop space is going to be within their non-prime portfolio.

Okay. And then just a quick question on the supplemental. You're leased information, it looks like it includes your Brazil portfolio now. I just wanted to confirm that the quarterly leasing summary also includes Brazil?

That's correct. We've tried to continue to make improvements with the supplemental, make it simpler and I think especially now with the IPO at Sonae Sierra Brasil, the reality is it's not just the issue of do we include it in the stats or not. We've made the decision to have an ownership stake down there. It's been an important and very attractive investment for us, and we have included it in the statistics this quarter. It had a very minimal impact on the leased rate, but on a go-forward basis, we just thought the right strategy was to have it included in there as it's obviously part of the portfolio.

Is that at your share, or is that on a 100% basis?

The majority of the portfolio statistics are at 100% share of everything. So whether it's a 15%-owned U.S. joint venture, whether it's the third -- 1/3 ownership stake we have in Sonae Sierra Brasil or a consolidated asset at 100%, they're all in there at full ownership.

Your next question comes from the line of Rich Moore with RBC Capital Markets.

I'm curious, with your comments about the demand for a product especially coming up at ICSC. Does it make sense with all the yield buyers out there to put together a portfolio rather than a bunch of one-off type asset sales and take advantage of that a bit?

Yes, it does. Yes, it does for a lot of reasons. Number one, for us to get to the volume we've been getting to on a one-off basis is a sort of a Herculean effort when you're doing 50 deals, 60 deals a year. The centers are going to be somewhere, obviously, under about 100,000 square feet and you're dealing with a lot of local buyers. If it's possible to put together a package that makes sense that we can accelerate our portfolio transition, we would do so.

And I'm guessing, Dan, that would be in excess of the $100 million type targets targeted for the year?

Yes, that's correct, Rich.

Okay. And then with the flexibility that the retailers are showing at this point that you guys talked about, I'm curious if you would be likely to accelerate redevelopment of some centers to accommodate the new demands for retailers or maybe even some new development from that standpoint? Curious, I guess, as far as redevelopments and developments going forward, what you're thinking.

Yes, is the simple answer, Rich. I mean, this is something we are talking about, looking at every day. We've got a meeting this afternoon to review another portfolio by region just to make sure we're not missing any opportunities, because there will be more and more opportunities in this area. As we mentioned at Investor Day, right now we're focused on a 5-year program that's around $350 million, with about a $45 million spend this year. We're on pace to do that, and if the returns are right and the demand is there, we will accelerate. It's something we look at everyday. There are certain smaller things that don't even hit that radar screen in terms of redevelopment, where -- a situation with a PetSmart recently with three small shops that have sat vacant for as long as we've owned this asset and then we're putting in a 12,000-foot PetSmart. We're not even showing that in that redevelopment category, if you will. But it's a great example of a flexible PetSmart willing to go 12,000 in this market, and we've got space that, again, sat vacant for a number of years and we can fit them in. So yes, we're very excited about the redevelopment. We continue to look for more opportunities every day, and we will continue to keep you guys all apprised of that.

Okay. And then Paul, would development fall into that too? Any of the idle developments you guys still have on the books, or is it still too early to think for a -- from the development...

We talked about, Rich, there's interest out there. We're in no hurry, very consistent with what we've been saying for a while now. We're going to talk -- there's interest in a small group of the sites we now own and control, and we'll talk about it at RECon this year. We're not setting any time frames. We're not talking about any, this is our opening date. We're going to talk to the retailers. We're going to see what they're willing to do with rent. We know, as we've mentioned time and time again, that there's a little bit of a panic mode out there about '12 and then '13 for sure in terms of the open to buys the retailers have. So I don't want to comment too much about what we'll see at RECon, but we're going to talk about it and we'll be able to report back on that. But we're going to be taking the temperature, if you will, and again, we're in no hurry. What's happening with the supply and demand story has been working very well for us, but we'll see what they have to say at RECon.

Rich, to Paul's point, every month that goes by, retailers are getting closer and closer to a problem, which is satisfying those 2013 and 2014 open to buys, and I think they are recognizing that with increasing frequency. So I do think that will be a topic of conversation at RECon. I think it'll be front and center with a lot of tenants who have large open to buys requirements for 2012 and '13, and the fact that space is being absorbed relatively quickly in the existing portfolio. And they're going to have to either rethink their pricing requirements for new developments, or they're going to have to figure out how to grow their business without new stores. And I don't know too many retailers that want to think about growing their business without new stores. So I think the conversations over the next 3, 4 months are going to be very, very interesting in regard to development.

Your next question comes from the line of Laura Clark with Green Street Advisors.

As values are increasing and have increased and development prospects are increasing as well, what's happening to land values today? And is there a market for the land in your portfolio?

There's more conversation, Laura. Yes, we've had some activity in the first quarter. We're in discussions and negotiations on certain other pieces. So there's clearly a heightened level of conversation and discussion as it pertains to vacant land today. And obviously, we're going to continue to pursue where we can with that. And so I could just tell you, the activity level has certainly much increased from the last couple of years. So there is a market. We've got to determine what that market is.

Okay. And then lastly, I noticed that you took out your bankrupt tenant leasing disclosure this quarter. Can you give us an update on the progress you've made towards leasing the space in 1Q and what the prospects are for the remaining boxes?

Yes, we were -- and I'll explain a little bit of why we did that, Laura. We were up about 80% total activity, and I believe we recorded 82% at the end of the fourth quarter. There's not a lot left, there's somewhere in that 600,000, 700,000 square feet, because that was a select group. Those were the four Linens, Circuit, Goody's and Steve & Barry’s that we were talking about, and we didn't want to continue just to focus on that. I think it leads into a good question about Borders and Blockbuster though, which are front and center for all of us. And there's a great level of activity on both of those portfolios. They were widely anticipated bankruptcies and both very confusing situations for those retailers, by the way. We're talking for a minute about -- Blockbuster, as we've said several times before, being entirely out of that portfolio is our goal. We believe we will be there probably within the next year and that's even if they don't liquidate. It's great space. We're seeing a lot of activity from the banks, from Five Guys, from Panera, Corner Bakery and the like. We're not having any difficulty. It comes with some pain. There's some downtime and some investment on some of this, and the same is true with Borders. Borders, there is clearly no certainty what's going to happen in this bankruptcy process. We know what they'd like to do. They're not getting a lot of love from the publishers, and without product, you're in a very bad situation, obviously, as any type of retailer. But we've recently -- we're not in position to name the tenants because leases aren't signed. But we've just gotten 5 back and of those 5, 2 of them we have done deals with best-in-class retailers and good chance we get them open this year. It's exciting stuff, and it comes with some pain. There's some downtime on rents, but these are going to be better assets, better centers with these replacement tenants. Activity level is high on both of those retailers. So we'll probably spend a little more time keeping you all updated on those categories. There's just really not a lot to say about the four older bankruptcies, if you will.

[Operator Instructions] And your next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller - JP Morgan Chase & Co: First question, going back to the mezz loans for a second. Can you talk a little bit about what the pricing looks like on some of the transactions you're looking at? And is it safe to assume that if the base case is for $100 million of capital deployment via recycling, that these debt investments would be probably in the minority in terms of a portion of that?

I would absolutely agree with your latter point. The point, I think, is that we're looking at a large range of opportunities. Pricing is aggressive for the most core, the most trophy sort of opportunities, and so that's obviously where there's a lot of product on the market but not necessarily where we see a huge opportunity for DDR. And so we are looking at some situations where we could enter at a different spot in the capital stack, but would expect that to be a very small minority of the overall activity. And rates on that would be relatively widespread, but something in the very low double digits would be a reasonable assumption. But again, it really varies quite widely across the spectrum of opportunities we're looking at. Michael Mueller - JP Morgan Chase & Co: Okay. And then going back to the downsized stores one more time. Based on the experiences that you've seen so far and situations where somebody is downsized, is it safe to assume that the rents really haven't changed on day one when you're talking about rents going higher on a per square foot basis? You were talking about that kind of over time. And then second part of that is, for the space that's come back and then you have big centers, big boxes, not as much small shop space, does some of the space just kind of get permanently taken out of service? Or is it cut up so pretty much everything you get back you make sure it's leasable?

On the first question, Mike, a little different story a couple of years ago when there was, clearly, the position where we couldn't afford to lose any more space, we and everybody else on the landlord side. But I would tell you, the deals we're making right now on the downsizing, we are expecting an upside in the rent immediately on the smaller store, if you will, and clearly on the residual space. But a big part of our exercise is making sure, working with the retailer that we are left with leasable space. I can't think of an example with a downsizing of an existing tenant where we haven't been left with leasable space. Carving up vacant boxes, and there we have had a couple of situations. But very small amounts of space, maybe several hundred square feet or 1,000 square feet where it's just you can't bring in the two new tenants or the one new tenant you're talking about and lease all the space. But that is more of a 2-year ago, a year ago story. It's become different. And we've had a couple examples where a major retailer who wanted to get smaller than the 30,000 foot box to be ideal, and we were left with unleasable space, we didn't make the deal. They've come back, we've made the deal, they're taking the whole box and actually at a higher rent than they were talking about a year and a half ago. So that's what we're seeing. But we are expecting upside if you take your store from 30,000 feet to 18,000 feet, you will pay a higher rent and we're not getting a lot of resistance on that.

Your next question comes from the line of Ki Bin Kim from Macquarie.

Just a couple of questions on your leasing spreads. If you look at, say, on a broad level, the national rent cycle for retail, it would imply that the lease spread should be negative 10%, not positive. So I'm just wondering, what is the reason for the positive spreads? Is it that you're rolling over just much older leases, or is it a function of more current demand? And if nothing changes in this world and market rates stay flat, what does this look like a couple years out?

First of all, it's important to remember what our calculation. We are not including space that's been vacant for more than one year, and there are several reasons for that. Some of this stuff has been vacant since we've owned the asset. Some space that's never been leased. We have always used the calculation of space that's been vacant for one year or less in the spread. And an historic practice is that's because space is turning at that rate. So that the spread we're quoting is for just space that was vacant for less than one year. And we expect rents to continue to improve as the supply and demand story is working in on our favor. And again, that is clearly why our focus is going to continue to be on average first year rents of new deals as we put in the supplemental, and then also with the net effective rent, which is very important too. We actually had a lower CapEx per square foot on our new deals, and that's something we're going to continue to emphasize.

Another item I'd bring up is you do a lot of great macro research. We love the product, look at it even before you had covered us. But I do think one of the shortfalls that we see and that you're going to continue to find is that the macro analysis for this property type just doesn't work as well as for some of the other property types where you've used it. And it's just that difference between commodity-oriented space and non-commodity oriented space where you really will and have one shopping center vacant and another one fully occupied across the street from one another and you simply don't see that dynamic on other property types -- or you see it have a massive impact on rents and that's just not how it works here. Another issue is going to be the quality of the data that you can get on other property types versus what you can get here. The nature of brokers being less involved in retail leasing versus other property types means that, that national data that oftentimes comes from brokers is the absolute best source of information for office or industrial, just doesn't have the same quality when you think about the data that you're getting on a national basis for retail and can oftentimes be skewed by a huge amount of freestanding retailers, single-tenant boxes that represent a huge portion of the denominator that is oftentimes reflected in those stats. So we understand the numbers you're looking at. But we would downplay those for this property type. It's just the macro story oftentimes really misses what's going on when you truly dig in to a certain market or submarkets for our property type.

Okay. And how about for the second part of that question. If market rates stay the same, where do you think leasing spreads go for a couple years out from here?

Well, if market rates stay the same, leasing spreads should also be about the same. But I don't think we've had a time in our history where market rates stayed the same, and we've obviously had times where they've gone down and we've had more times where they've gone up. A lot of that's going to really depend on your view of inflation and where you think the inflationary environment is going to go. If you think that we are headed towards a period of significant inflation, you can assume that comp store sales will go up dramatically. And market rents will go up dramatically as a result because at the end of the day, what the tenant pays is just a percent of overall sales and what they can afford to pay is a percent of overall sales. If you think we're going to still be in a deflationary environment, then I think there's going to be very little growth and you could start to see some pressure in a deflationary pricing environment where commodity prices are perhaps going up and retailers aren't able to actually transfer that cost increase over to the consumer. The consumer has been somewhat unwilling to absorb price increases, and the retailer has no choice but to accept price increases. So I think a lot of -- the answer to the question and I think it's a great question, is really going to depend on your view on what you think the next couple of years will hold for us from an inflationary perspective.

Okay. Thank you for that, it was helpful. And just to comment on the commodity prices, ignoring gas prices for a second. I did look at the prices for cotton. It's basically doubled in the past year. So what implications does that have for clothing or Bed Bath & Beyond, those type of retailer margins and what that can mean for how much you can push rents on them going forward?

Well, I think it's an issue that we have to monitor very carefully. As of right now today, if you talk to most retailers, they'll tell you there has not been an impact because keep in mind that most of the goods that they get, they've gotten -- the orders were placed a long time ago. And you place your orders nine to 12 months in advance of a season, so you're looking at a lag. But going forward, I think it's something that we have to watch very carefully because if the retailer is unable to pass along that increase, it will have an impact on margin. And as we all know, retailers pay their rent with margin, not with comp store sales. That's why we focus so much on the margin line and the profitability line and not the comp store sales line. Comp store sales are nice, but they don't pay the bills, per se. And I think it's something that could have a real impact if the retailer is unable to pass along the pricing increase to the consumer. Now that being said, we can go into our centers today, and we can find plenty of evidence where retailers are trying to pass along the increase, some of the increases, that they either anticipate or they're currently experiencing. And I think the consumer ultimately will determine how successful that is.

Okay. And last quick question. As I look at your 2012 debt maturities, the $1.1 billion coming through, what is the average effective interest rate and what do you think the average effective interest rate will be when you refinance that?

I think we've got that specific number in the supplemental. The largest components of it are going to be the term loan, which is $550 million in LIBOR plus 88 basis points. $100 million of that $550 million has LIBOR swap to a high 4% rate. But still all-in, you're at 1.5% for half of that debt. The second largest component of it is what remains of our large convert that has a base interest rate of 3%, but for accounting purposes, we actually book it in the mid-5% range. So from what's showing up on the income statement, it's a little higher than that. So all-in, you would blend in terms of what's being expensed, to somewhere in the 3s. And with the same thing on refinancing. Right now, you'd see the spread on the term loan go up somewhat. That increase will be dramatically less than what we or anyone else would've speculated in the past. And I think the bond market gives us good pricing for -- the secondary market gives us good feedback on what pricing would be for a 5-, 7- or 10-year bond issuance in the -- somewhere between the low 4s and low 5% rates depending on what exact tenor we pick. So all-in, if today you're expensing somewhere in the mid-3s, I think it's credible that you would go to somewhere in the mid-4s, all-in on that 2012 expiration activity.

Your next question comes from the line of Tayo Okusanya. [Jefferies] Omotayo Okusanya - Jefferies & Company, Inc.: Going back to the question of retail bankruptcies. I know you guys don't have that much exposure to Blockbuster. Could you kind of talk about what you're hearing out of them at this point?

Yes, Tayo. It's -- everybody knows the Dish Network was the successful bidder at auction, and they're talking about still coming out with 500 stores. It's hard to visualize why the Dish Network needs 5,000 square-foot stores and 500 of them. So our approach is clearly going to be, like, we're going to get them all back. They've been telling us, in our example, where we're down to about 16 or 17 that there's probably 7 leases they would assume because they want to operate them. They obviously can't control that. But our view is that, that this is a short-term play, and at the end of the day, there's a liquidation of most, if not all, of the physical locations.

And there are no further questions at this time, and this will conclude today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.