Good morning and welcome to DDR Corp.'s Third Quarter 2016 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Meghan Finneran, Senior Financial Analyst. Please go ahead.

Thank you Angie. Good morning and thank you for joining us. On today's call you will hear from President and CEO, Tom August; Executive Vice President of Leasing and Development, Vince Corno; and Executive Vice President, Chief Accounting Officer and Interim CFO, Christa Vesy. 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 can cause our 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, 2015. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same store NOI. Reconciliations of these non-GAAP financial measures and most directly comparable GAAP measures can be found on our earnings press release issued yesterday. This release and our quarterly financial supplement are available on 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, Tom August.

Thank you, Meghan. Good morning everybody and thanks for listening into our call. As Meghan said I'm in the room here with Paul Freddo, Vince Corno, Christa Vesy, and Matt Lougee. I want to talk about three things today. First is just to reflect for a couple minutes on some meetings I have had recently with analysts and investors. I am going to make a few comments about the quarter and then Vince and Christa will sort of fill in on a lot of that, and then really focus on the strategic issues that we have been addressing the last few months here. Let me start out -- I sort of stayed here in Cleveland and visited properties during the summer, and went out on sort of a tour with visiting analysts and investors in Boston and Washington, a conference, a dinner. And I'm getting the same response from everybody, and that is, you're tired of the DDR story. It's always next year when things are going to get better. I'm the third CEO who says, we will get things better, and I guess, really as you look at the stock, price things haven't changed to everybody's satisfaction. I understand everybody's frustration, but unfortunately I can't go back to 2014 or 2015 and do things differently than they were actually done. All I can tell you is I am sitting here in October of 2016, we are going to tell you what we're going to do and then we plan on going out and getting it done. I wish there was more I could do, but we are doing everything we can and thinking of all the ways we can to try and create value for the company. I appreciate those of you who have stuck with us, and I…

Thank you, Tom. And good morning to everyone from the city of Cleveland, the home of one champion and hopefully in the next couple of weeks, a second champion here very shortly. Thank you all for joining today's call. I would like to start off, this is my first earnings call but I want to offer up my thanks to Paul Freddo for his continuing support and tutelage. I am pleased to say that the transition of leasing and development from Paul to me continues to be very smooth and orderly. Paul and I have been great friends and special colleagues for over 20 years, going back to our department store days, and I must say it's a true privilege to be on the same team. Tom, Paul and I spent the last quarter doing a deep dive into the DDR portfolio, as Tom mentioned in his opening comments. In August and September we conducted 10 days of portfolio reviews in which we looked at the operational status of most of DDR centers from coast-to-coast. We looked at the property's strengths, weaknesses and opportunities, did an in-depth Boardroom assessment of each center's market position, tenant lineup, site plan, financial performance among other things, and these were all led by our by our capable leasing professionals responsible for the individual assets. It also provided me an opportunity to spend time getting to know the team. Tom and I, as he mentioned, also visited a large number of DDR assets since the last call. We have been to Puerto Rico, Denver, Chicago, and Atlanta with more business to come. I must offer that every trip I come away even more energized by the high quality of the centers across the portfolio and the pride that we have here at DDR about the…

Thank you, Vince. For the third quarter operating FFO was $120.6 million or $0.33 per share which represents a 6% increase over the prior year. Including non-operating items FFO for the quarter was $120.1 million, also $0.33 per share. Non-operating items primarily consisted of approximately $500,000 of transactional and debt extinguishment costs. As Vince mentioned the quarter benefited from strong same-store NOI growth through our consistent new and renewal leasing spread as well as through expense reduction. During the third quarter we also recorded approximately $105 million of impairment charges, due almost exclusively to the change in the holding period and probabilities of sale related to assets in our current disposition pipeline. While we clearly remain sensitive to impairing assets these charges were triggered by management and the Board's decision to move forward with additional asset sales in an effort to achieve new deleveraging goals. While the prior strategy targeted a pro rata debt-to-EBITDA figure of approximately seven times, the current team sees the need for additional deleveraging to a figure of at least six times, if not further. While we're very comfortable with our position in terms of the size of the unencumbered asset pool, debt duration, EBITDA stream, lack of development and international exposure, we no longer find it acceptable to be an outlier on debt-to-EBITDA. We are committed to a year of capital raising through additional asset pruning in 2017 for de-levering as we pursue rating upgrades to benefit our cost of capital going forward. Next, I would like to provide an update on our transactional progress. We closed on the sale of 25 assets totaling $457 million of DDR share in the third quarter and in the fourth quarter to date including the sale of the portfolio of assets located primarily in upstate New York. Asset…

Thank you. [Operator Instructions] Our first question comes from Alex Goldfarb from Sandler O'Neill. Please go ahead.

Good morning. Good morning out there. Just a question, Tom, you brought up the Board and you brought up the two replacement board members. Given the history that DDR's been [ph] a stand out with basically a dysfunction between management and the Board, I know you guys are looking for a replacement for you as an independent, to get a new independent. So the two Board members you are talking about, are these going to be two of the five who have been there for over 10 years, in addition to you or it's just two in general, and as part of that can you talk about making sure that going forward there is more alignment between the Board and management, because clearly that's been -- there is an overhang on the prior management and it's just been something that makes DDR a standout, which it shouldn't be.

Thank you for the question, Alex. First of all I would like to say that my relationship with the Board is good. So I'm not going to discuss history. History, all I can tell you is the Board has been very supportive, as I have thought about what we want to do in terms of the deleveraging and JVs. That's number one. Number two. I think what we are thinking of us right now is first let's add to the Board. We are pretty short on committees, I mean, the ability to fill the committees. So we are looking for two to add and I'm sure that the Board once we get these people on board will be addressing Board rotation in the future.

Our next question comes from Michael Bilerman from Citi. Please go ahead.

Hi. It's Michael, and Christy is on the phone with me as well. Tom, you have effectively described DDR as a show me story. Show me all the stuff that you are doing and then ultimately it should be reflected. What is the appropriate amount of time that you expect the market to give you to execute against this plan, and I guess at what point given the progress you are making and where the stock trades would you encourage the Board to consider strategic alternatives? Obviously the stock being at the mid-$15 today, down from $20 in the summer is back to 2012 levels, sizable discount to the current NAV. I guess at what point does it make sense to run a dual track process rather than wait?

Well, right now Michael I can tell you my focus is just on fixing the fundamentals of the company. They are not focused on strategic alternatives. I think my mandate from the Board has been fix what we need to fix in terms of our leverage, in terms of our focus, in terms of our joint ventures and then let's see where we stand after that. So I think that when you look at the next quarter we are projecting substantial noticeable improvement. It's not getting us all the way there but $250 million of assets sold, another 250, additions to the board, additions to management team. So we think we are making significant progress on a quarter to quarter basis. That's really what my focus is today.

Next question comes from Jay Carlington from Green Street Advisors. Please go ahead.

Good morning. So tom what does the hiring of a CEO, President kind of mean in terms of your role and time frame at the company, because maybe there was an assumption you would be there for the next couple of years. So has that thought process changed at all?

So maybe I misspoke or maybe you hopefully didn't hear me right. We are talking about hiring a President or CEO, -- excuse me a President or COO.

Okay.

So obviously what we want to do is hire some really qualified retail experienced person and that person will hopefully along with others, either in the company or additional hires be in a position to take my place at some point. Now whether that's three years, five years, two. I don't know. Obviously we want to get the right person in here to help us with this turnaround.

Our next question comes from Steve Sakwa from Evercore. Please go ahead.

Thanks. Good morning. I guess, Vince, maybe you could talk a little bit more about Puerto Rico and the demand that you are seeing down there. It sounds like renewals were down. I'm just wondering is there any new activity and I guess how much of a price discount do you have to give people in order to get them to either stay in current space or to kind of manage through the sales declines?

Candidly, it's a difficult environment down there. A lot of the tenants that are rolling are requesting significant rent reductions to stay on board. What we are doing is positioning the asset so that we are not locking in at these lower rents for the longer term because we do believe that will be opportunity down the road. But I would tell you that it is an environment where in order to maintain a 93% leased rate we are having to make concessions to tenants that are rolling.

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

Hi. Thanks. Good morning. Tom, I understand that you don't want to be a forced seller in Puerto Rico, but you laid out a target of reducing leverage to six times debt-to-EBITDA which includes quite a bit of disposition activity to get leverage to that level. If you don't sell Puerto Rico and you end up selling other assets instead, are you comfortable owning that portfolio as a larger exposure within DDR?

Well I think the preference would be to at least reduce our exposure there but again we are going to be faced with the choice and then I'm sure we will get some sort of offer and we decide it is appropriate for us to sell it now or hold it a little bit longer. Again our preference would be to reduce our exposure somewhat but we don't want to get too far in front of ourselves where we are forced to take a deal that just doesn't make any economic sense.

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

Thanks. Good morning. Could you just help recap your disclosure program? I know you said you are looking to sell 250 or 300 more in the fourth quarter. I am guessing that excludes the JV asset sales. So in totality what is the range of the activity that we should expect from DDR next year? And the second tied to that Puerto Rico when we look at the year-over-year change in the ABR for a top five assets it seems like it was down 1.6%. Just curious how you expect to get some reasonable pricing when NOI is going negatively?

Let us start. I think we are targeting 250 to 300 for the next quarter. In those numbers we're not assuming anything for any of our joint venture or the two joint ventures that I referred to which would be the Manatee and the Volvo. And I think the second question, I think we were flat not down.

Yes. Puerto Rico, Ki Bin, in terms of the sales model, one that is based on an annualized quarter lease ABR. So it's not overly comparable quarter over quarter, when you are looking at individual assets, so there could be seasonality involved in there and just the annualization. So as Vince mentioned we were roughly flat in terms of ABR growth in Puerto Rico.

Our next question comes from Haendel St. Juste from Mizuho. Please go ahead.

Hey, good morning. Thanks for taking my question. Can you guys talk a bit about the full year same-store NOI guidance. You left it untouched here. We have got 60 days left in the year. I'm curious why you haven't narrowed it. It implies a 4Q same store NOI basically 0% to 2% which clearly a big drop off from recent quarters. Are you being conservative here given your concern over Sports Authority and Golfsmith as you mentioned earlier and as part of that can you talk about what you're expecting from them? And any other potential tenant issues that are maybe emerging or factoring into your thinking, and can you weave in some thoughts on the big jump in the lease termination fees this quarter as well?

As to the same-store NOI roll forward I would tell you that going forward we don't expect it to be on the high end of the range. Fourth quarter will probably be on the lower end of the range that we have guided. The TSA impact and the Golfsmith impact obviously will take some of the luster off of the recent performance. As to the TSA and the Golfsmith locations, as I mentioned in my comments we are in the process of redeploying those assets. We have three already resolved. We have six that will be up and running in the middle of next year. With the Golfsmith it is really still too early to tell. But certainly with respect to the guidance that we provided to-date we expect it to be on the lower end of the guidance in the fourth quarter.

And on the term fee question and driven mostly by a deal with Game Stop on multiple locations. That's what drove the big number in the third quarter.

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

Hey guys. Tom, I want to follow up on Michael's question earlier on how DDR has been this next year's story for the past few years. You guys took up your disposition targets again which will further dampen 2017 earnings, paring back Puerto Rico is obviously still a priority. So I'm wondering how confident you are that next year will be the turning point here and then what sort of earnings growth rate do you think is realistic for the company from there?

Going forward, I'm not sure about that. I will tell you for the next year assuming the market conditions stay kind of where they are now I think we are going to be hitting our goal. I think, just giving you an example, I think in New York we got kind out in front of ourselves telling you it was done before it was really done and I think we want to be cautious here and make sure we can deliver. We are really confident about the next quarter. I would suggest that we think we are going to be able to get our goals by the end of the year. If it takes us an extra quarter or so, so be it. But that is sort of where we are. In terms of the -- I know you are all waiting and you deserve, what do we look like afterwards. We are pretty close to finalizing that but again we are hopefully going to bringing in some senior retail talent pretty quickly and I would like to have them put their finishing touches on it before we sort of tell the market. We only -- when I started my conversation, we are a show me company. We are not trust me. I don't want to start saying things we can't deliver. So I want to be a little bit cautious and take a little bit longer than I normally might.

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

Hi, I appreciate the color on the potential vacancies that might come to the market from department stores. I'm wondering what's DDR's point of view in terms of the retail environment heading into 2017 in terms of how might the level of vacancies and bankruptcies be relative to 2016. And if management does have a view on the likelihood we do see a lot of department store vacancies?

I think in terms of the retail trends that we are seeing out there, I would say that the winning concepts are really in the off-price sector, the Ross, the Burlington's. We are also seeing specialty grocers, home improvements, restaurants, fitness, entertainment, all of those categories are showing signs of growth. As to the industry segments that are losing market share and showing a little strain that would be department stores, full price apparel, obviously office supplies and electronics. As to our portfolio, I would tell you that we do business and count among our largest tenants some of the success stories in the industry, the darlings of the industries if you will; the TJXs, the Dick's, the Ross, the Ultas, the PetSmarts of the world are in our centers. They are all showing strong signs of growth. In the case of Ulta in the second quarter they were up 14%. By and large across the board the tenants that I just mentioned are all showing positive comps as compared to other retailers. So we are optimistic about the holiday season, about the potential for our centers and the tenants in our centers. We look at it as a real opportunity for us to continue to grow our same-store NOI and our tenants will continue to show positive comps.

Our next question comes from Vincent Chao from Deutsche Bank. Please go ahead.

Yes, hey. Tom, just in terms of some of the executive searches that are going on right now plus the potential to add a President and COO, one, just curious how we should be thinking about G&A as we head into 2017 but then also below that executive level, is the transition phase or the turnover that you are seeing in that second layer, is that largely complete at this point or do you expect some additional changes below the executive level?

I think the G&A will move up slightly. If you all recall I think we had a $10 million reduction from 2014 to 2015. So there will be clearly a slight uptick depending upon how many and the expense of these people we are bringing on. My guess is it will probably not be -- it will be still less than it was two or three years ago. And I think what we have done is -- you would guess when I was named CEO there was a certain amount of instability here, feeling, people just nervous. I think with that the longer I am here the more stability we have gotten, and I think we are putting in place incentive programs for people to really show them the value of staying here at DDR. So I don't think there is going to be much more turnover at the lower level as well.

Our next question comes from Michael Mueller from JPMorgan. Please go ahead.

Hi. I was wondering are you expecting another year of heavy asset sales in 2017 above the JV inline similar to what we are seeing here, and if there is anyway can you throw out some rough parameters? And secondly I know you mentioned the 2017 cap rates would be about 7.5%. Curious how much of overall 7.5% product is in the overall portfolio to be sold at some point?

I think that we probably have the first part of our sales program is going to be at the 7.5 range, the first half maybe. Certainly the next $250 million to $300 million will be in that category.

Michael, it's Matt. I would add that obviously in terms of dispositions for next year we have not quantified that in terms of guidance, although with Tom's remarks I think whatever you can back into mathematically I'm getting to roughly a term lower. It's probably the right net sales number in terms of cap rates. Mid-sevens is probably what we have left in the portfolio. I mean the New York stuff was the worst of the worst. And so that cap rate print I think would be on the high end of anything else we would sell going forward. So I think from a modeling perspective I think you continue to see a seven handle on those.

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

Good morning. On the income statement operating and maintenance expense was down quite a bit over last year. Was there anything that led to that decline just besides you have sold assets?

No. I would say generally speaking there was maybe a bit of outsized spending in 2015 compared to 2016. We did have lower expenses across the portfolio both in Puerto Rico and domestically. In Puerto Rico we did experience some savings on the utility front side, just due to benefit of lower rates. But I would say it wasn't necessarily part of some sort of a formal program.

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

Great. Good morning. A question on your net effective rents. Could you maybe talk about why the net effective rents appear to have dropped by $1, a $1.5 relative to previous quarters and why you're CapEx is picking up a little bit?

Yes, Floris. This is Paul. One it's a function of several things and obviously the starting rent has something to do with where we end up on net effective rent, and they were slightly lower than the prior two quarters but still a strong number. I don't want -- that starting rent on new deals of $18.91 is something we feel very good about. It is not the same number as the other two quarters but well head of about 20% north of our average base rent in the portfolio. So you are always going to see some choppiness in the starting rent based on the character of the deals we make in a quarter. In this quarter and in terms of some of the cost, I think it is always important to remember we are including everything in that cost part of this equation, landlord work, tenant allowance, commissions. I'm not sure that's the way it is being reporting by everybody else but we have got it all in, and in this quarter we happen to have a couple of deals that, the demise and split of one of our Sports Authority, boxes out in LA, in the LA market, great comps but a costly deal and also a new specialty grocery we did backfilling, that we will be in HH Greg, again at a significant spread but costly. So a little higher costs this quarter. No trend that concerns us at all as we look at the capital we are putting into the deal.

Our next question comes from Richard Hill from Morgan Stanley. Please go ahead.

Good morning. This is Ronald Kamdem on Richard Hill's line. Just a quick one for me. Talking, looking at the dispositions that you have mentioned for 4Q and assuming that the Manatee and Ballroom goes through, can you just remind us that the end of 2017 where does that put you in terms of assets and obviously you spent a lot of time going through and walking through the portfolio. When you are thinking about longer-term and the disproportionate amount that comes from your top 50 assets, longer-term view where do you think could be an ideal asset base for the company? Thanks.

I think that if we do what we say we are going to do and the two joint ventures wind up we will be at around 200 assets. And I just want to remind everybody that several years ago it was 850. When I first started two or three or four months ago it was 350. So it is a significant drop. I think one of the things that is getting lost in a lot of this is that as you can tell by the cap rates, we are selling the lower quality stuff. So I think the quality of the portfolio will be much better. I'm hoping that once all this noise with the management issues get settled that people start to focus on the real estate and the quality that we have created over the last few years. I don't think we have set a goal in terms of number of assets. I think that our goal is really quality and growth rate going forward. And we just got into a little bit of trouble when we started buying these the big, big portfolios with several hundred assets and disposing of the bottom pieces has taken us a lot longer than we thought it was going to do it.

Our next question comes from Michael Bilerman from Citi. Please go ahead.

Hi. Good morning. It is Christy here as Michael. Just to be clear on the timing regarding Michael's question. You mentioned that you have a lot going on in the next 90 days. Is that the timeframe after which you might start to explore some more strategic things to demonstrate to the market a discount to NAV? And then, just on Puerto Rico, you mentioned sales are somewhat dependent on financing. Would you consider providing seller financing to get deals done?

I think what I told Michael is my focus right now is on improving the overall quality of DDR from a balance sheet asset perspective and then adding some new people from a new organization. I don't think I addressed -- and if I did I shouldn't have. We are seeking strategic alternatives. I have not said that at all. What we are doing is just fixing what we have today. We think that we will be in great shape once we do that. I can't remember the second. It was several questions in there. Seller financing, I think -- again I think what we have said it's a little too early to tell where we are with about Puerto Rico. We would like to reduce our exposure. We will do something that's economically advantageous to us and nothing more than that. We will keep all of our options open with respect to that.

Our next question comes from Paul Morgan from Canaccord. Please go ahead.

Hi, good morning. I am curious you said you were out in the markets touring the assets over the past quarter or so. What your takeaways are, the prior management had set, kind of clear demarcation prime plus, prime and had a view on kind of where the cutoff was. Now you have implied dispositions going forward to get to your new leverage hurdle. I mean does that -- do you think that the asset sales that are implied by that are going kind of cut into what we used to think of as the prime portfolio? Do you think that was the right quality bar to set and kind of anything -- any color that's related to kind of what you saw recently?

I think that we would be selling the lower quality in secondary markets. I think that's what our goal is. I think when I look back at my predecessors, Dan and David, I think that was their philosophy too. I think that in fact the quality has improved dramatically. Appropriately the other issues with the company have overshadowed. People are really looking at the real estate.

Our next question comes from Chris Lucas from Capital One Securities. Please go ahead.

Yes. Good morning everybody. Tom, thanks for a good overview of your immediate goals. I guess the one question I had relates to sort of the organizational structure that will be reporting to you, say six months or whenever the executive level positions that you are currently looking for get filled. Can you give me a sense as to what that looks like? Who are the people that were reporting to you and what their responsibilities will be?

At a minimum there will be all of the corporate functions which will be the CAO, the CFO, the General Counsel, potentially the CIO. Depending upon what role -- obviously the leasing and development and depending upon who we bring in, it could be have some operational people reporting to that new person. I think until we actually hire the person and understand the skill set that we are bringing in, deciding reporting requirements at this time is just a little too difficult for me right now.

Our next question comes from Tammy Fique from Wells Fargo.

Hi. Just following up on Paul's question maybe a little differently, asking a little differently. Following the recent portfolio reviews and looking at property strengths and weaknesses, I am just sort of curious, these broad portfolio reviews have been done a number of time over the last few years. So how is this review different versus prior reviews in terms of what specifically you were looking for and how were you thinking about redevelopment yield thresholds?

I am going to take the first part and I will turn it over to Paul or Vince for the second part. The portfolio views are really different because three or four years ago they were looking at 850 assets with a totally different quality and locational range than what I did this time, which was 350 assets, really 335 since New York was pretty much done. My review was of a much more focused and higher-quality portfolio than might have been conducted three or four years ago.

As to the redevelopment pipeline I think we feel very confident that we should be able to support at level of at least $100 million a year and the yields on that should be in the high single-digits. There is a lot to work within the existing portfolio. Be it an out parcel, be it repurposing vacant stores. But certainly I think that that's a pretty low threshold and should be able to sustain that level.

This concludes our question-and-answer session. Ladies and gentlemen the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.