Welcome to the DDR Corp. First Quarter 2017 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like now to turn the conference over to Meghan Finneran. Please go ahead.

Thank you. Good evening and thank you for joining us. On today's call, you will hear from President and CEO, David Lukes; Executive Vice President and Chief Operating Officer, Michael Makinen; and Executive Vice President, Chief Financial Officer and Treasurer, Matthew Ostrower. Please be aware that certain of our statements today may be forward-looking. Although we believe such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and actual results may differ materially from the forward-looking statements. Additional information about such risks and uncertainties that could cause actual results to differ may be found in the press release issued today and the documents that we file with the SEC, including our Form 10-K for the year ended December 31, 2016. In addition, we will be discussing non-GAAP financial measures on today's call, primarily including FFO, Operating FFO and same-store net operating income. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings press release issued today. This release and our quarterly financial supplements are available on our website at www.ddr.com. For those of you on the phone who would like to follow along viewing today's presentation, please visit the Events section of our Investor Relations page and sign in to the earnings call webcast. At this time, it is my pleasure to introduce our President and Chief Executive Officer, David Lukes.

Good evening and thank you for adapting your schedules so that we could communicate with you about our results and initial business planning as quickly as possible. First, I'd like to say how honored I am to have been asked to lead this excellent organization and express my thanks to the Board of Directors for extending this wonderful opportunity. DDR has faced some challenges over the years, but that doesn't take away from the extraordinary people working here who have invested so much of themselves into this business. I'm incredibly grateful to be working with such diligent, intelligent and capable colleagues. We're going to depart from established practice this quarter and touch on a broader range of topics during this call in an attempt to begin answering questions I know you all have. We'll discuss our quarterly results first, including a description of our new earnings guidance and then move on to the restructuring we announced at the beginning of the month. Finally and most importantly, we'll discuss the short- and long term business plan we have begun to implement. Before I move on to earnings, I'd like to address our rationale for moving to DDR. Mike, Matt and I made this move with the expressed intention of making tough decisions as quickly as possible. We're aware the volatility has been painful for investors and I want you to know that we share your sense of urgency and the need for change. We believe change is most critical in capital allocation and balance sheet management. Regardless of our stock’s multiple, we intend to treat our capital as scarce and costly and risk adjustment will be central to every allocation decision. The balance sheet is key to risk management and it's our intention not just to lower leverage which can be…

Thank you, David. DDR's results this quarter and for the remainder of the year are being weighed down by significant anchor vacancies resulting from recent tenant bankruptcies from The Sports Authority, hhgregg and Golfsmith. Same-store NOI for the quarter was down 10 basis points, including a 3.3% decline in Puerto Rico. Excluding results from Puerto Rico, same-store NOI was up 50 basis points. Our portfolio of lease rates fell to 94.3% from 95% last quarter. While these bottom line results are relatively modest when compared to the last several years, they should not take away from the outstanding job being done by our leasing team in retailing spaces. In fact, we executed 285 leases and renewals totaling 1.8 million square feet in the first quarter, nearly 200,000 square feet of which was formerly vacant. Finally, blended leasing spreads this quarter were 5.6%. The leasing spread result was negatively affected this quarter by a single-anchor deal in Puerto Rico. The lease was the first step in the reactivation of a dark but rent-paying anchor and we're excited about the prospects for backfilling the remaining space at a significant positive spread. Without this lease in Puerto Rico, new leasing spreads were 16%. Given the impact of tenant bankruptcies on results, I would like to spend a few minutes reviewing our prospects for re-leasing these large vacant spaces. Let's start with The Sports Authority whose former space we've had control over for the longest period. We expect to make significant progress on these in 2017. We already have about 40% of the spaces re-leased and we expect to have rent commencements for 77,000 feet of additional space by the end of this year, with the vast majority reoccupied and generating revenues by mid-2018. On hhgregg, another significant retail bankruptcy, 2 spaces or 17%…

Thank you, Mike. I'll start with a review of key transactions in the quarter, starting with incremental ongoing deleveraging through asset sales of $124 million. We have an additional $49 million of dispositions and loan payoffs completed quarter-to-date. Moving from transactions to impairment, we established a combined $76 million valuation allowance for 2 preferred investments with current aggregate face amounts of $395 million that the company made when the 2 Blackstone joint ventures were established in 2014 and 2015. These reserves are noncash in nature and we expect no change in cash interest income from the JVs until they are liquidated. That said, in conjunction with the $76 million charge to GAAP net income incurred in association with the establishment of the reserves, we have stopped recognizing the noncash portion of the preferred dividends that we continue to be owed on the entire face amount of the preferred security. This will cause GAAP preferred dividends which we include in interest income on the income statement, to decline $8 million annually starting in the second quarter. The principles for assessing the impairment for this type of investment are similar to a loan and thus, unlike for a typical consolidated real estate investment, depend on how a third-party looks at current market values. As a result, the valuation of our Blackstone preferreds are much more exposed to recent increases in cap rates for certain big-box assets in secondary and tertiary markets. Our preferred investments in these partnerships receive preferred distributions from operating cash flows. However, capital distributions are treated differently. When proceeds from asset sales are distributed prior to 2020 and 2021, they are subject to sharing with the common partners. After 2020 and 2021, when DDR can exercise its preferred redemption rights, capital distributions are made first to the preferred securities.…

Thanks, Matt. One key change we effectuated since quarter end is the organizational streamlining we announced at the beginning of the month. These were, without question, extremely difficult decisions to make, but we're convinced they are right for the company and for our shareholders. DDR's portfolio has shrunk significantly over the past several years without a commensurate decline in our employment base. Our goal in the restructuring was to be decisive, timely as well as thoughtful and objective. While we reduced headcount significantly, no particular area of the company was targeted nor do we lose the ability to respond to changing business conditions or exploit new opportunities. While the changes were difficult, we can now provide clarity to our team that we've got the right people moving forward. I'd like to turn now to the future. I'll break my comments into both shorter term principles and observations as well as thoughts on where our long term business plan is going. On the short term side of things, I'll outline 5 key plans and principles. First, as I outlined earlier, we came to DDR to make tough decisions in a timely and thoughtful manner. I can assure you that no one wants answers or decisions as badly as we do. That said, given the impact of these decisions to our overall profitability and capital base, we must take time to understand the assets and the various alternatives in front of us. Second, we intend to lower leverage and improve liquidity. This is a reflection of our view that less debt means less risk and that investment opportunities tend to arise when capital is scarce. We're as aware as anyone about the costs associated with deleveraging and we intend to weigh those costs carefully against the benefits of capital assets. But I…

[Operator Instructions]. The first question comes from Todd Thomas of KeyBanc Capital.

Just first question. So a lot of your commentary around the retail environment and DDR's portfolio in general just pointed to a lot of the deboxing potential, so that 80-20 big-box small-shop mix that you discussed, where do you think that ultimately should be in your view in the long term? Do you have a target in mind as you begin to think about the portfolio today? And is there a range of annual CapEx required for this type of activity that we should be anticipating or thinking about?

Todd, I would love to give you details on that plan and we're working aggressively to try and figure out what we think the potential is. At this point, to be frank, we've gone asset by asset and we still have a long ways to go, but we're focused on where we can create value. And at some point, we'll be able to express to you all what size we think the pipeline could be for this type of program.

Okay. And for the 3 larger bankruptcies that you outlined, the slides were helpful, for Sports Authority, hhgregg and Golfsmith. Can you just talk about the leasing spreads and returns on average that you're achieving on those boxes? And then it sounds like you're expecting those spreads to decelerate. So how much of a deceleration is appropriate to anticipate here as you make your way through the remainder of those boxes?

Basically, we're anticipating for each of the 3 bankruptcies we highlighted to have leasing spreads that are all positive, on average, across the group. On the slides themselves, you can see that we actually present our expectations. With Sports Authority, for example, we're anticipating anywhere from a 5% to 10% leasing spread on those. And we’re anticipating similar results on the rest. It really comes down to the timing and the types of tenants that we’re going to anticipate in those uses. But in general, we're looking at about an 18-month period and we're fairly optimistic that, that will materialize.

All right. Great. That's helpful. And then just lastly, you've made some organizational changes here early on and I'm just curious whether the platform’s where it needs to be for the long run and whether there are some additional changes to asset management or operations just in terms of how the business is actually being operated or conducted today.

Well, speaking for myself, I'm very enthusiastic about the size of the organization and its structure. As we noted, there really was not a lot of organizational change other than rightsizing the employment base relative to the portfolio today with some room to grow. So I feel very good about what we have today and I don't anticipate that we're going to be responding further based on what we have today in our portfolio.

The next question comes from Nick Yulico of UBS.

I guess, first question is just putting all this together on the strategy. So your leverage is higher than peers. You're talking about more of a focus on liquidity than leverage now and it seems like there's a lot of CapEx spend that needs to go in to reposition the portfolio. So I'm wondering, as you are wrestling with whether or not to sell Puerto Rico based on pricing, if you did not sell Puerto Rico, what's the pathway towards you being able to reduce leverage, improve liquidity and also have the CapEx spend -- the dollars for your CapEx spend that you need?

Well, bear in mind that -- I would not say that reducing leverage was a backseat. I mean, I think we're pretty clear that we have an expressed intent to use asset sales which we believe we have a good portfolio of to be able to act on that and make a better play of reducing our leverage. The second component in terms of liquidity, I think, we also outlined how we can accomplish that. And I'm not concerned at this point about any specific type of portfolio, for instance, Puerto Rico impacting our overall decision to reduce leverage.

Okay. I guess just one other question on the balance sheet. Could you just explain kind of what's going on from a cash flow standpoint? I mean, your cash went down versus fourth quarter. Your -- you now have $90 million on the line of credit. You were a net seller in the quarter. So what's going on from a sort of cash flow standpoint sources and uses in the first quarter?

We had -- well, you can see that we sold about $124 million of face-value properties. I think, it's $118 million at pro rata share. You can also see that we consumed most of that cash in acquisition that was committed to, I think, back in the fourth quarter when it's contracted at that point. So really, I don't think you're seeing a huge net benefit of dispositions in the first quarter. So I think that's -- those are kind of the 2 biggest pieces and of course, we do continue to spend some money on the ongoing redevelopment program, so not to mention tenant improvements, et cetera. So I don't think you saw a huge amount of movement in overall leverage, net cash generation, et cetera, in the first quarter. We obviously intend to change that balance significantly throughout the rest of the year. Does that answer your question?

Yes. I was just wondering with all that was going on, why, I guess, the revolving credit facility went up and you now have a $90 million balance on that. It just seems like a lot relative to what you may have spent on the redevelopment capital.

Yes. Look, I think a lot of that will come down to timing of various expenses, et cetera. There's no huge one move in capital spending in the first quarter. So I think that's largely noise. Again, I would think, as the year goes by, you'll see, hopefully, asset sales proceeds significantly overwhelming those other kind of onetime or timing issues.

The next question comes from Ki Bin Kim of SunTrust.

So going to your same-store NOI guidance and some of the occupancy losses, I usually wouldn't ask you this question about like 2018 and things like that but given the situation of just your maybe some of the tenants that might be at risk, if you had to describe the overall arc of same-store NOI or occupancy losses and if you tie that into your, kind of, your radar list for maybe troubled retailers, when do you think this negative 1% or 2% same-store NOI starts to reverse course over time or are we at...

Ki Bin, it's Matt. It's obviously, looking into the crystal ball is hard, right. I think everyone at the moment is a bit uncertain about exactly what the future holds as it relates to tenant bankruptcies. What we've tried to do is kind of lay out the big swing factors for you that we know about, right? And you can see from Page 14 of the deck, you can see that based on what we know today, we see the arc, as you refer to it, as kind of troughing in '17, a significant negative growth. And then we should start to see some rebound in 2018. I think it's very difficult for us to sit here and tell you what the path of tenant bankruptcies is going to be exactly over the course of the next 9 months. That's why we obviously laid out potentially a more negative same-store NOI projection than you would hope in the base case. Clearly, there are some other tenants that we have on our own watch list that would be on all of your watch lists that we worry about. The timing of this stuff has proven to be pretty difficult to predict. Things tend to happen a bit faster and a bit more decisively than in the past. So I guess, what I would tell you is based on what we know now, I would say we're cautiously optimistic that you start to see better growth, same-store-wise in 2018. That could change, obviously, if fundamentals get worse for a variety of the retailers and credit deteriorates. But based on what we know now, '17 should be a pretty tough year and '18 should be a bit better.

Okay. That is helpful. And then the small shop repositioning or demising junior boxes plan, is that very incremental at this point? Or meaning it's only as boxes come back. I'm just trying to gauge if this is -- how meaningful it becomes over time.

I think with the way that you should think about it is that open-air strip centers in good demographic areas have a design. They have a layout and that layout is generating income for the landlord. Our purpose for showing those slides was simply that as things occur in the marketplace, we do have more options than simply finding replacement in the same square footage. And sometimes, many times, those options are accretive, not dilutive. How much there is, how frequently it's used, is it done forcefully or is it done after a bankruptcy occurs I think are all questions on each individual property. But I think the point to remember is that entitled and built square footage which is somewhat flexible, can be a real benefit to an open-air strip center owner as opposed to other types of asset classes.

Okay. And just last quick question, I know you don't want to comment too much on asset sales and I totally get that you don't want to negotiate publicly.

But you're going to ask it anyway, aren't you?

Well no, no. I'm going to ask you in a very, very general way. Is there a dollar amount, so you don't want to talk about specific assets or Puerto Rico, but is there generally a dollar amount that you do want to target? Because that was a big part of the story in the past.

I think that in the coming quarters, we'll probably be able to ring-fence for you a better volume so that you can do a better job of modeling. And it's a little embarrassing to not be able to give you a little bit more than a cannonball fire. But the fact of the matter is, if you look at our 3 criteria that we want assets to fall into, we have to evaluate each of those assets with our leasing staff, who the leadership is in this room today, the property management staff, the financial planning group. And as we go through the assets we can decide, is this a keeper or is this not a keeper. I don't know yet what the full number is going to show. I do know that we're going to overlay that keep and hold list up against a leverage goal of less than we have today.

I would just add, Ki Bin, to David's earlier comments in the prepared remarks, that we're really weighing the cost benefit here, right? It is expensive to delever if asset prices are really weak, right? And we're going to be looking very carefully at what assets we can sell for what prices. We don't know the answer to that question yet. We're getting out there into the market. We have a lot of exposure there and we're learning a lot very quickly, but for us to sit here now and tell you what that trade-off is going to be, I think, would be a bit too ambitious.

Okay. And for the record, I thought the comment you made about holding on to Puerto Rico being an option was actually pretty decent if you don't get the right pricing.

The next question comes from Christy McElroy of Citi.

It's Michael Bilerman here with Christy. David, I was wondering if you can just talk about sort of raising common equity and how that ranks in the pecking order because I've heard a lot of different comments. You've talked about shareholder capital is precious. Matt also talked about it's expensive to delever if asset pricing remains weak. I've heard you talk about improving liquidity, lowering leverage, lengthening your maturity schedule, wanting to be opportunistic given dynamic market that could open up for acquisitions which obviously requires you to be much lower leverage and have capital. So your stock price is clearly extraordinarily depressed. How do you sort of weigh that relative to other things and the need to raise liquidity and put yourself in a position to do all these things?

It's a great question. I mean, I'd say that's the topic du jour that we spend the most time discussing and thinking about because I would only pivot a little bit from what you just said the very last sentence. You said, the need to delever. I would say there's a very strong desire. If we term out some of our debt and we're careful about managing it, I think that the coverage we have right now and the dividend is pretty good. And the real issue is that we have a desire to be less levered because we know that opportunities are going to come and we have a team that has a lot of creativity and would like to make investments and make money for shareholders. How we get there is, at this point, a series of potential solutions. And my personal feeling is that asset sales right now are one of the best solutions we have to that. The portfolio is much more diverse than I thought it was a year ago. And that diversity is helpful because there are buyers for different types of assets in the retail space at very good cap rates. So I feel like the delevering is certainly possible to continue as we have been through asset sales. As far as equity issuance goes, we don't have any immediate plans to be using additional common equity at this point. I think throughout time, we'll always keep a bunch of ideas in front of us and figure out what's best at the right time. But as we sit here today, we don't have any immediate plans.

And then I can respect on guidance not having guidance for this year given the transaction activity that you’re going to embark upon, but I'm curious as you think about the more longer term earnings power of this company as you go through the model, getting down to whatever target leverage you want to get down to, rolling in all of the vacancy that's created, where will earnings sort of bottom to when investors can expect to see growth? Is it $1 a share? Is it $0.95? Is it $1.05? We understand the $0.31 run rate is not sustainable, given the vacancies, given the preferred income that's going to go away, given the asset sales you’re going to do given the deleveraging. I think investors sort of want to understand where does it bottom and when does it bottom?

Well, I certainly understand the importance of the question and the severity. And I think that as enthusiastic as investors would be to learn what the trajectory looked like, I think we're more intrigued to learn that. And I think you just have to give us a little bit of time to understand this portfolio. It's not an insurmountable task. It's 151 wholly owned properties. Many of them are very understandable. The people that have been leasing and managing these properties have been at this company, in some cases, more than 10 years. We have a huge amount of information, but it's going to take some digestion to help us understand how that's going to translate into FFO over the long term. But I assure you, we plan to get there. I just don't think we're at the point yet where we can make a comment.

I would just add, Michael, I mean to David's points previously about urgency. I think we would view ourselves as having done a poor job for shareholders if we went through some long term 3-year miserable death-by-a-thousand-cut deleveraging process and couldn't give you any clarity in the relatively near future. So we get that there has to be a finite window to this. We want to get there as quickly as we can, but I think we would be -- it would be inappropriate for us to give you numbers that we just don't have 100% confidence around yet. We're working as hard as we can to get there.

Hi, it's Christy here, guys. Just wanted to get some further clarification on the reduction in same-store NOI and specifically the expected occupancy decline. You did cite the vacancies from recent tenant bankruptcies that had not been anticipated in the prior range. And you talked about Sports Authority and Golfsmith, the downside from which arguably should have been in the prior guidance but then plus hhgregg which I think is only another 50 to 60 basis points impact to occupancy. But the year-end occupancy target was obviously revised down much more to that, much more to a 150 to 200 basis point decline. So just maybe can you walk through sort of the different buckets of that expected decline in terms of tenants just not renewing versus the lease rejections within bankruptcy? Is there risk of more announcements beyond what we already know maybe embedded in there? And is it maybe also reflecting greater downtime or slow re-lease up from The Sports Authority and Golfsmith stuff? Just trying to get a sense for how much buffer there is on the downside here versus the base case on same-store.

Thanks, Christy. I guess what I would say is when we went through this process, I think if you were us, you would have just put previous guidance to one side and looked at the portfolio that you have today, looked very carefully, you would've spent a big chunk of the last x weeks looking at those budgets and trying to understand them and trying to come to your own conclusion about what you think appropriate guidance is and what you think appropriate expectations are for NOI growth or contraction in the portfolio. That is what I can speak to, that's what the 3 factors I tried to give you were, to try to explain to you why there wouldn't be growth this year, why there would be a significant decline. It's very hard for me. We didn't spend a great deal of time trying to go through previous guidance or previous expectations. We spent a lot of time just trying to understand where we think the portfolio will go. So that's -- I tried to be as clear as I could. We tried to be as clear as we could about downtime on the various bankruptcies, the magnitude of various bankruptcies and when you put everything together with Puerto Rico and some one-off anchor departures, kind of, how we get to a potential flat or modest negative growth this year in same-store NOI.

The next question comes from Craig Schmidt of Bank of America.

I thought in the prepared comments, you had mentioned a possible spinoff of the Puerto Rico assets. Could you give a little more color on the thinking behind that?

What I said, Craig, is that with respect to the Puerto Rico portfolio, the management team is considering all options. And there are a number of different ways that we consider options but that is, along with others, simply part of an option pool. I don't really have any comments on it. I think any of the options we would consider would have some pros and some cons. But at this point, we're simply learning more about our properties and to the extent that we have any thoughts about which direction we're taking, we'll get more details out after a transaction takes place.

Okay. And is there any thought in terms of looking at M&A activity?

I mean, Craig, just to add on to what David said, again, we're not going to give you a huge amount of specifics on transaction that will be interesting. I know people want that clarity but we're putting absolutely everything on the table. We talked to anybody who wants to talk to us about these assets, anybody who wants to transact, our door is wide open. You can imagine we're out there. People have been -- we've been, as a company, been very public about its intention to think about reducing Puerto Rico exposure. So we've got a big billboard out there effectively. So we're having all those conversations but we're simply not going to give you specific commentary.

The next question comes from RJ Milligan of Baird.

David, I believe you mentioned that 1Q actually came in ahead of budget. And so I just want to clarify those comments because that would probably imply that there's even a bigger delta between the way you underwrote the next 3 quarters and where previous guidance was.

I'll take that one, RJ. I mean, I would just say that, yes, there was some weak -- we gave you some examples of some ways that we varied from our own internal budget. They were not enormous variances. And again, I really, I can't speak to what previous guidance was. That's not where we put the kind of scarce amount of time and energy that we've got. We didn't put that into reconciling those deltas. So it's hard for me to kind of bridge that gap for you.

That's fair, I understand that. Can you guys give us some time line in terms of when you believe the portfolio review will be complete?

As soon as possible. I mean, I don't know, David, you probably...

Matt saw me struggling, so he answered. That's the risk of sitting across from him. I think we've been here a matter of weeks and we're getting to know a lot of people that know the history of these assets, particularly the leasing staff. We’re traveling to look at the properties. I'd say we're working as hard as we can to try and get through a portfolio review. I don't see it being a protracted long, long process. And I think we've tried to show you a half dozen examples of what we found and what we've learned. So if you take a half dozen and look at the thought process that went into that, you can recognize that it's not a process that's going to take forever.

So are dispositions currently on hold as you review the portfolio? Are there certain number of assets that you have in the market that you're planning on selling? How does that work, while you're still reviewing?

We've reviewed more than the 6 that we've shared with you. Some of them, we have established as keepers and some of them we've established as sale candidates. And in that instance, we're proceeding with both the hold and the sale bucket.

Okay. And then the -- just any color on the time line for -- I know you guys said as soon as possible, is that a 6-month process, 1 year, 3 months? Any sort of guidance as to when we can expect. I guess what we're trying to figure out is previous management had guided to about $800 million to $1 billion of dispositions and if we get through the portfolio review and it's not a year from now and it's a greater number than that, then there's going to be more dilution in out years. And so I guess, I'm just trying to figure out...

Well, you can certainly reconcile the fact that our primary goal is delivering. It's not an outrageously complicated process to figure out certainly how to keep our program going that we find useful, meaning selling assets to reduce leverage. So I would not assume that our disposition program is going to be negatively impacted or slowed down by the portfolio review process. They'll be concurrent.

And just to be clear, I want to be very clear, we understand, I think, very clearly, very painfully, we understand what public market expectations are. And I think if we were sitting here today and we had major concerns about our ability to satisfy your and investor expectations around doing this in a timely manner, we would be signaling that to you, right? It's hard for us to be very specific at this point in time. I don't think it's advisable for us to be specific at this point in time. But we intend to meet or exceed people's expectations on this stuff.

Last question is, over the past couple of years we've gone through 4 CEOs, multiple portfolio reviews, different shifts in strategy. At some point, the focus really has to shift from any individual management team to the board. And I'm curious as to whether or not we should expect any changes on the board level in the near future.

Well, the board is there to represent shareholders and we work for the board. We consider them our colleagues and our bosses. As you can imagine, we spent quite a bit of time with this board prior to accepting these positions, talking about issues such as leverage and asset quality and future programs and the pros and cons of retail real estate and became comfortable that 3 people, plus a couple of more, decided that this would be a company that we would very much enjoy being a part of. So I think the board to date has been great for us to work with. We've gotten a lot of collaboration and support. And I think I'll leave it at that with respect to the future. We're simply giving them the respect they deserve and asking for advice and counsel, but also sharing our strong opinions about company direction and strategy.

The next question comes from George Hoglund of Jefferies.

One question just on the same-store NOI guidance. You guys had mentioned that there's change in methodology with regards to bad debt expense. Is it possible to kind of quantify the impact of that on guidance?

About 20 basis points.

About 20 bps. Okay. And then just in terms of kind of the watch list going forward, kind of whether you sort of talk about the top tenants on the watch list or what categories are you kind of worried about for the rest of the year.

This is Mike. Basically, when we look at tenants that are at risk, we'd break them into 2 categories, one is that group which requires immediate action and we've talked, obviously on this call in our prepared comments regarding Sports Authority, hhgregg, Golfsmith, I would also add Gander Mountain to that list which has 2 stores in our wholly owned portfolio which has filed. Beyond that, we're basically looking at tenants that we see as at risk and there's 2 ways we deal with it. One way is that we have a team that basically functions as a national accounts management program and a credit analysis program and we're constantly evaluating the financial health of our tenants as well as looking into how they're treating us with regard to renewals and what -- reading the tea leaves as well as getting the detailed information on their credit. The second half of how we deal with it is that we have our field leasing team which evaluates all the spaces and does a detailed backfill assessment. So right now, we're very cognizant of the fact that there are tenants out there who are on the watch list and we feel prepared to be well informed in advance of anything happening and prepared to follow up on backfilling and re-tenanting these spaces.

Okay. Well, I guess, besides the ones that have already been mentioned, I mean, how much, I guess, is on your watch list in terms of...

I'll give you an example of a category that is a very close focus of ours and that is the office supply category. I think it's fair to say that the industry is changing dramatically in how office supply retailers are serving their customers. And we have a significant number of Staples, a significant numbers of Office Depots, OfficeMax in our portfolio. Those are tenants that we're keeping a close eye on, looking at their credit and looking at their individual lease terms in each of the spaces. And subsequent to that and concurrent with that, we're also taking a close look at how we feel we could backfill those spaces and the example that David gave about potentially downsizing the space and doing shops are one of the approaches that we're looking at for all those types of spaces.

I'll just add. It's really -- we're giving this range because we don't have a list of 3 names that we would say, aha, these are the guys going this year, right? We just don't have that. We have a list like I'm sure you do in your shop of tenants you'd be worried about where there's obvious credit concern. We're giving you a range for a reason and that's because we think there's some uncertainty around that. We just don't know what's going to happen and when.

The next question comes from Alexander Goldfarb of Sandler O'Neill.

Just a few questions. First, going to the Blackstone impairment that you guys took. Just 2 on that. One, you said it's still cash flowing so just curious, was this a joint write-down that you and Blackstone did in concert so they took an equal write-down on their portion? And then 2, if you're -- if it's still cash flow and your view is that, hey, we're not going to be made whole on this when we do the accounting, we have to just stop recognizing right now versus it's still flowing versus recognizing the income that you're getting cash.

Thanks for the question, Alex. I mean I would say, first of all, I can't speak to what Blackstone is doing. I think it's very possible. So to be clear, as far as we know, this is not a joint write-down. This is something that we're doing on our own. We're using GAAP accounting. It's very possible they'll use a different accounting standard for their books, given that's a private entity, et cetera. So I can't speak to what they're doing but as far as I know, this is just us doing it. To your question around cash flow and you'll see in our supplement we try to make it very clear, there's 2 parts to the dividend and Alex you may know this already but for others who don't, there's 2 parts to the dividend here, right? There is a cash component and there is an accrual component. There's a kind of payment in kind that we get. Nothing around the economics of the portfolio and the cash flows of the portfolio have caused this write-down, right? It's simply a concern that we have around cap rates and the ultimate capital payment we will receive from liquidation of assets and when those payments occur, right? So from a kind of a cash flow and even an accrual standpoint, the economics are basically all the same, they're fine, there's no huge problems there. But when you take as -- it's basically there's some very clear rules on this, when you take a reserve here, when you establish an allowance, the accrual piece, you simply stop recognizing, right? So we will continue to keep track of that. We continue to believe we're owed that by the joint venture, but we're not going to recognize that on our books because we've established an allowance already.

Okay. And then but if you guys take an allowance independently, does that -- as you guys work with them, does that somehow make it tougher on the relationship? Or it's purely an accounting thing and people see through that?

Yes, I don't expect this to have -- this isn't a relationship component. This is simply us following GAAP accounting rules, really. Whether we wanted to do this or not, we have to do it because it's what the accounting rules stipulate. I don't think anyone would look at us and say, oh, you're being obnoxious about this or something like that. It's simply us responding to the environment and the GAAP accounting rules we have to follow.

Okay. And then the second question is as you guys talked about different efforts to try and sell assets or unwind things, including Puerto Rico and up here, I think one of the things you mentioned was JVs, so in the sense of keeping the portfolio investment grade, the prior management teams have done strong efforts to regain the strength of the investment grade. How do you guys balance dispositions and also potential JVs with maintaining that unencumbered pool that the investment-grade rating is predicated on?

We'll do what we have to do. It's as simple as that. So we won't get carried away in any particular area in a way that jeopardizes our ability to access unsecured capital which we view as central to this business plan.

The next question comes from Vincent Chao of Deutsche Bank.

Just sticking with the Blackstone impairment. It sounds like that was just the cap rate assumption that you guys are worried about. I mean, can you share what the change in cap rate was that caused the $76 million write-down?

I don't think we're giving out a cap rate at this point. To the degree you have questions about the mechanics, I'm happy to go over that with you off-line. We've given you enough information in the supplement about the waterfall involved here that you can kind of do some of your own math around that. And I'm happy to walk you through that -- how that actually works. It's all out there in black and white.

Just on the leverage, we talked a lot about deleveraging a lot on this call. We've also talked about the fact that retail is undergoing some massive changes here today. And I'm just curious. I'm assuming you don't want to give us a leverage target. But some of your better capitalized peers are sort of in the 5x debt to EBITDA range and you also want to give yourself some cushion for potentially taking advantage of dislocations. I mean, is that the right way to think about leverage here over the next, say, 1 year or 2? It sounds like you don't want to let that drag for too long but that's a fairly significant decline.

Yes, look, I don't think we're going to commit to a target on this call. So we're obviously very aware of where peers are, having been at those peers ourselves, so we get that. I don't think that's the absolute standard. We're not just saying, where is everybody else, we want to get there. I think that can lead to some flawed decision-making, to be perfectly frank. This is going to be really about what capital needs do we think we have which we're still establishing and then what are the costs, right, what are the cost to shareholders of getting to the balance sheet we'd love to have. If we could snap our fingers and end up at 3x debt to EBITDA with no cost to shareholders, of course, we would do that, right? But that's not the world that we live in. So we're getting out there and trying to understand what those costs are. It's a huge part of this equation, not to mention what we think our capital needs are going to be, another thing that we're still spending time on.

Let me ask another way. I mean, how do you weigh what it appears to be increasing operational risks just from the environment overall with maybe trying to offset that by taking leverage down even more than you normally would? So forget about what your peers are doing. Relative to the risk of the entire business, how do we think about the right level of leverage? Because I think that's a question that we get. Is 6x okay? Is 5x okay? Maybe it's got to be 2x in today's world, where we're seeing a lot of closures and acceleration of bankruptcies and things like that.

I think we've effectively beaten this horse because our desire is to have a company that can get on its -- the front foot and can make some value-creation decisions. And we're absolutely geared towards trying to get there. At this point, I think we're still confident that we've got some asset sales of things that we don't see the value and can use those. But in terms of the endgame, I just don't think we're in a position to comment on exactly where the numbers should or will shake out.

Okay. I got it. Maybe just a different question. I mean, again, just sticking with the idea that things are changing pretty rapidly here. We're sitting here in one of the longest economic recoveries we've had in the history of the country, but yet retail closures and bankruptcy levels are approaching recession levels. You commented that you think 2017 will be the trough. I guess, given that we're seeing this massive amount of bankruptcies today when the economy is otherwise doing relatively well, why are you confident that 2018, things will start to pick back up again?

I would just say, just based on my previous comment, I'm not trying to express to you that we're highly confident that 2018 is going to be a recovery year and everything is going to be great, right? What I'm trying to say is we don't have really any better of a crystal ball than you or others do. We believe the portfolio can handle additional fallout. We're trying to provide some flexibility in our guidance. Obviously, if we ended up at the bottom end of our guidance, 2018 could be affected by that, especially given the potential timing for these things. So we're really not -- I'm trying not to sit here on a horse, kind of parading a bullish position here on tenant bankruptcies. We just don't really know. It does feel like some obvious candidates have fallen out. There's other ones that are in the press all the time that we're worried about, that you're worried about. We just don't know when it's going to fall out. What we do know is that we've got the right team in place to deal with this kind of fallout. It may have a short term impact to same-store NOI growth, but I think David, Mike and the operating leasing team here, they know how to change assets and how to adapt to this kind this adversity.

The next question comes from Steve Sakwa of Evercore ISI.

I just want to circle back on the dividend because I'm not sure I heard you correctly. Just in terms of kind of the current dividend and the payout and sort of where you saw that going. Could you just kind of reclarify your comments?

Sure. My comments were that we recognize that the dividend policy is the purview of the board and that from our perspective as management, when we look at our coverage ratio, we feel like there's a reasonably good cushion there. We also recognize that it's one of the benefits of a REIT is a sustainable dividend. And we recognize the importance of it, but we're going to leave the policy decisions up to the full board as we consider that.

So I guess you look at that as a potential source of capital and kind of rightsize that even if there's sort of cushion. Do you look at that as kind of the first place to look and rightsize that? Or you'd say you can still maintain it even with occupancy going down towards 93?

Well I would say, by definition, it's always part of a dialogue about accessing capital. It happens to be lowest on the priority list, not first. So I guess what I was trying to say about the dividend coverage, if you look at it now, is we feel there's adequate cushion for us to feel relatively confident in the near future.

Based on what we know today, based on asset sales, deleveraging everything else, we feel relatively optimistic.

The next question comes from Jeff Donnelly of Wells Fargo.

I appreciate the opening remarks on the business and the industry, David. I was curious, could you talk in broad strokes about how you're thinking long term asset value or same-store NOI growth prospects or power centers as -- on whole, I guess, at this stage of the cycle? I mean, do you see it as sort of a 1% business, 2% business? I'm just curious what your perspective is because given your background at some of the other companies you've both been at, I think I'd be interested in how you're thinking about it now.

It's a great question, Jeff. I mean, I have to admit that personally, I've spent a lot of time thinking about this because there was a time in my career where you could categorize assets by a brand name. It was a power center. It was an open air strip center. It was unanchored strip. It was a net lease property. It was an A mall; it was a B mall. And I think recently we've all begun to recognize that retail real estate takes up a lot of land and it takes up land in vastly different trade areas. Some of them are dense and some of them are less dense. And there's a reason why consumers go to these properties. If the reasons change, the properties should probably change as well. And most of what we're doing here at DDR is recognizing that we've got a very diverse portfolio and we're trying to think a little bit ahead of where we think the retail market is going so that we can be prepared to make changes in how our sites access the demographic in the near term 3-mile ring around it. I personally feel that one of the greatest benefits of retail real estate is the low ABR. When you have square footage in certain environments and only 1/4 of it is built and the rest of it’s asphalt, you have a great benefit of being able to be creative and flexible with the building which is relatively inexpensive to build relative to other types of asset classes. So I would agree with you that the traditional big-box power center with low shops and low pads is generally a slower-growing category than one is with a lot of shops and a daily traffic component. But that doesn't mean it will stay like that. And so as we look at divestitures and future investments, we're looking for properties that I think the square footage is just not being used in the best way for the landlord that it could. And that's without densification. I mean, other assets, you can have densification strategies. But even without that, just moving the puzzle pieces around on the table, I think, can achieve a lot of cap rate value and a lot of cash flow growth.

Understood. And I think -- and I understand your strategy can be different. I think prior management, in some ways, was going the opposite direction. A lot of their dispositions seemed to be limiting that in-line tenant space for the portfolio. Maybe just a follow-up because you referenced it. I mean, the regional mall space is arguably going through a very painful transition. I'm curious how you think that plays out for power centers, meaning that from a valuation perspective, do you think cap rates on core versus commodity power centers -- I guess, where are they going to be today? Where do you think those groups are headed? And from a leasing perspective, how competitive do you feel mall vacancies are for power center vacancies that could be phased? I'm just curious as you sort of plot those 2 versus each other.

No, it's a very good question because I think for the past year or so, people have been using the term shadow inventory. And I think it's an important question to ask ourselves, is what is the impact of potential shadow inventory. Putting cap rates aside, because honestly, I just haven't seen enough transacting to really have a strong opinion about cap rates across the U.S. But if you just simply look at a big box-oriented center in the same submarket as a B mall, there are some pretty big differences. First of all, the cost structure to operate a B mall with enclosed space is significantly different than the cost structure to open air centers. That cost structure is an advantage to the retailer if they're in an open-air environment and that advantage is critical if they need to pay a certain level of rent in order to remain profitable. The second is that I think that the larger power center or the larger big-box collections and we showed one in Massachusetts on our slide, the boxes are so diversified that it's a collection of departments that used to be in the department store. And having that diversity is much easier for a retailer to be able to analyze whether they want to go into the open-air environment adjacent to a bunch of other folks like them or into a merchant mix that relies on a couple of anchors to drive traffic down a certain corridor. So I think that simply the diversity of the anchor profile can make a big difference. Lastly, I would say that the layout does become an important piece of it. And I know that I consistently come back to physical layout. But the fact of the matter is that an enclosed multiple anchor mall which is a 360-degree design, is very different than a traditional open air strip center with respect to visibility and traffic and access. I think in all 3 of these categories, it benefits the retailer if they have a choice to be in a traditional open air layout and not to be in a mall layout unless there is no other alternative. What I'd love to do is look at over the next couple of months whether we can find examples of when did a big-box retailer leave a traditional open-air environment and go into a nearby 360-degree mall location. I bet you, it's relatively small, given how profitable they are in traditional open-air centers. That was a long-winded answer, I know, but it definitely is on our mind.

No, that's helpful. Maybe just 2 quick follow-ups I'm just curious about. On the asset sales, you talked about sort of keepers. I'm just curious, how do you think your keeper list compares to the list of, I guess, I think it was prime assets that was kept by the prior management teams? Is there a significant overlap? Are they kind of wildly different? I'm just curious how that might compare.

I mean, we haven't gotten very far in our vast 7.5 weeks, but we've gotten long enough to kind of understand that there is some overlap. I would say that it's really the lens or the context at which you're looking at a property. If you start with a trade area or MSA, you're going to end up with a different list. If you start with those 3 categories that we laid out earlier about our cash flow growth, I think you're going to end up with a different list. And our tilt is to be much more towards where do we think these assets can grow on a risk-adjusted basis, almost irrespective of the submarket. And I do think that is going to be a distinguishing feature that we're simply not afraid to be in markets like St. Paul, where it's not a traditional gateway market but I think we've seen some ingredients that make the real estate very valuable.

And just one last question. Maybe I don't you want to leave you out, Matt. Just given the prior staffing levels at DDR and I think the level of data analysis that had been undertaken by DDR on itself and at times peers, it seemed to imply that there's a pretty robust, I guess, enterprise information system there on DDR, its assets, its prospects. I guess I'm curious. I know it's only been 7 weeks, but have you found that it's maybe not the case, that maybe your -- one of your first orders of business has been sort of establishing some of that information on the portfolio? Like that's the initial hurdle you're facing and undertaking in assessment at DDR? I'm just curious what you're facing in that aspect.

No, the systems here, I would say, are pretty mind-blowing. We came from a pretty small platform before, where we had to be extremely cognizant of every single dollar given the G&A that we already had and the base that we had. This company has used scale to their advantage. They have designed some really good stuff. There's really good information available to us. And on top of all that, I would say and even more important, the people who are implementing this, the people who are using it doing the analysis, we've all been pretty blown away by. So it's only been positive surprises from my perspective.

The next question comes from Michael Mueller of JPMorgan.

I hate to bring up asset sales again, but I'll keep it really short. I guess the question here is, can you talk about how the domestic asset sale plans, how they may or may not be impacted by what you'll ultimately do with Puerto Rico?

I would say that I don't see any connection between the 2.

Okay. So if something is not a keeper, it's still not a keeper regardless of whether or not Puerto Rico is sold.

You got it.

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

On the tenant densification strategy, David, I was curious if you could maybe share a little bit about how you're thinking about the timing as it relates to getting the organizational and team in place in order to sort of accomplish that. Do you have that? I kind of think of DDR's organizational structure as being more centralized than probably the typical small-shop-oriented peer.

Well, I would say there's 2 components -- well, there's 3. There's the planning, there's the leasing execution and then there's the physical execution. I think the first part of the strategy, the existing leasing leadership of this company is much deeper than I think we're used to with smaller companies and I think that the opportunity assessment can happen fairly quickly. On the tail end, we have a substantial development and construction department. I must say that that's usually one of the more difficult departments to hire and recruit into. This company has retained some significant talent in both construction and development, so I feel fairly enthusiastic that we've got kind of the gas in the tank to execute on some plans. I think the middle component, you're hitting on something important which is some of us have a passion for shop leasing because I think it's an overlooked benefit to retail real estate. I think historically, this company has been top of the heap in terms of national chain box leasing. I think the relationships here are absolutely stellar. Mike has already gone out with the team and visited with a number of national retail chains at their own company headquarters, doing portfolio reviews. But on the shop leasing front, I think it's a matter of do we have enough people in those positions and are we focusing on those commitments that we want to make to those smaller property types? And I would say we're not quite there. We need to allocate some resources so that we feel like we have those resources on the ground and we'll continue doing that kind of within the teams that the existing leadership has in these different portfolios.

Okay. And then just a quick one, Matt, on the -- you've got a couple preferreds that become redeemable, the one -- the sure one next. How are you thinking about your preferreds? Is that expensive debt in your mind or is that something you sort of keep around in the interim as you think about how to deal with the rest of the balance sheet?

Yes, I mean -- look, I'll say first and foremost, we're in the process of formulating these plans, right, so I can't give any specifics. We're very focused on duration, right? We said, you can look at delevering which is very important and also very expensive. You can also look at how you manage your liquidity and your overall duration. And I think preferreds can be very useful in that process. So I don't really know the answer yet, but you can see where some of our biases are.

The next question is a follow-up from Ki Bin Kim of SunTrust.

Just a quick question. Are most of the DDR leasing people on salary bonus or commission basis? And I was wondering if you had plans to change that to something similar to what you had at Equity One?

Still under evaluation, Ki Bin.

Okay. And just as one last question on the Blackstone preferred equity investment. The $76 million write-down, I mean, if I look at the PIK interest, about $8 million per year, it doesn't come close to that. So I was wondering if, I guess, there is a capital -- there is capital risk with that write-down, is that correct, if I understand that correctly?

Yes, the reserve that we've set aside, so the allowance we've set aside here is about how we mark the assets. So again, it's not really about the dividend or the payability of the dividend. It's much more about what -- if and when these assets are liquidated and we said that we think that they're likely to be liquidated ahead of 2020, 2021 which means that this waterfall in place, we put it in the supplements and you can see it. When they're liquidated, what price do we think we’re going to sell the stuff for and how much money do we think we're going to get back to pay back the preferreds. So it's really a capital question and it's really -- it's our best assessment of where we think particularly some of these secondary and tertiary box assets are trading right now in the markets. And it's -- we did our best on that, no one really knows the answer to what exactly everything is worth.

The next question is a follow-up from Christy McElroy of Citi.

It's Michael Bilerman. I was wondering if we can just come back to the board discussion. When you came on, David, Tom came off not only as the CEO but came off the board. Can you talk about how that decision was driven? Was that your desire not to have him on the board? Was it the board's decision not to have him on the board? Or was it your majority shareholder, Otto, that didn't want him on the board anymore? Or was it his own decision that he was fed up and he wanted to get off the board?

I think, Michael, I would just simply rather focus on the future. The decisions at the board level remain at the board level. And all I can say is that we're excited to be here. And I think that's about all I can comment on the subject.

Well, I guess if the board works for shareholders. Now that Tom is off and obviously, Jane had joined, but the remaining board members have a tenure anywhere, call it, an average of 14 to 15 years. If they work for shareholders and the shareholder results haven't been as positive and you guys have come in and communicated a lot of your strong views about where it needs to be. I guess why do you feel that the board doesn't need more change? Why isn't that something that's important to you as the CEO? You said you work for the board, the board works for shareholders. If the board hasn't delivered for shareholders what it needs and the stock price is a barometer of that, I guess, why wouldn't you -- why wouldn't that be a core principle that you have of improving corporate governance?

Right now, the most important things I can think of to spend time on are figuring out how to create value for shareholders on the real estate. We will certainly be spending a lot of time with our board in the next couple of quarters as we get into the strategic direction. And at this point, I'm still very enthusiastic about the reception we've had to date. And the working relationship between the people on the board and ourselves.

And then, could we just review just on the occupancy from an operational standpoint, the 150 to 200 basis point decline in your targeted lease rate from year-end '16 to year-end '17, let's call it 700,000 to 900,000 square feet, by my math. I would have thought Sports Authority would have already been in the year-end number in the lease rate. I guess, can you just walk through that 700,000 to 900,000, how much of that is specific bankruptcies that are known today, how much of it is nonrenewal of the roll and how much of it is just the added conservatism that you've baked in for future store closings, either related to bankruptcy or just downsizing.

Yes, I mean, look, I would say that just like with the same-store NOI, we're giving you a range to work with there, Michael. So some of those are post year-end. We've had one-off. We've got a couple of significant one-off anchor departures and those add up very quickly, right? There could be more of those. We don't really know. We've also had bankruptcies since year-end. We've tried to give you as much data as we can on the total square footage of those numbers. So I think the math is pretty straightforward on that.

The next question comes from Richard Hill of Morgan Stanley.

Just a quick question. I appreciate the desire to debox, for lack of a better term. But I was hoping you can maybe give us a little bit of insight based on your historical expertise about how much that costs and what are you projecting in terms of a per square foot cost, just average sort of rule of thumb.

I think on a rule of thumb basis, it really does depend on the property. For instance, are the utilities already split in the back or do they have to be subdivided? How does the column grid lay out? Is the storefront made of precast concrete or is it stick frame? They can make the square footage to subdivide go between $50 a square and $250. So it really does depend. I would say that the reason we put those temperature charts in those slides on our deck is to simply point out the fact that when you have at least a $10 delta between the shop rents and the box rents, that usually means that it has the ingredient to at least study it further. So there are some properties that we studied that simply don't have that much of a delta between shops and anchors. And in that sense, we usually kind of put those to the side as we're still trying to find inventory. But you're right, the cost side of the equation then becomes equally as important as the revenue side and in essence, it's just too specific by property.

Got it. I understood. And so just a point of clarification on my behalf. As I'm thinking about your portfolio optimization and the way you're thinking about that, it's trophy properties, number one; number two, properties that are already well positioned within their given market, such like Cotswold. And then number three, properties that are maybe underserved relative to their current tenant mix and can be deboxed. Is that -- is my understanding fair or am I missing something?

I would say the only divergence I would say from that is that to us, all properties have to fit into one of those 3 categories. They either have to have durable NOI growth on their own or they have a potential to move the square footage around in a deboxing event or thirdly, the land is so valuable that as leases expire, you can densify the properties. It has to be one of those 3. Otherwise, we're simply collecting rent. I mean, we have to create value and the best way to do that is to work on these assets. Trophy properties tend to fall into one of those 3 categories. If a trophy property that someone looks at and says, well that MSA is a trophy MSA, we might find that it simply doesn't have the ingredients that fit into one of those 3 boxes and we might sell it.

And then I thought your comment about the cost benefit analysis was pretty interesting. And I was sort of comparing it to your comment that you thought there would be pretty interesting opportunities to maybe acquire in the future. And hopefully, I'm not putting words in your mouth there. But as I'm thinking about the opportunity, the cost benefit, how do you think about, for lack of a better term, the opportunity cost and the benefit of selling today at what might look like a distressed price today versus selling tomorrow and it might look more fairly valued? Are you guys thinking through that? How are you thinking about that?

It's funny we haven't gotten to the point yet where I think we have to look at a property and decide, boy, we really want to hold this one, but we really need to sell it. We simply haven't gotten there yet because in my opinion, we're finding inventory that we think is tapped out, doesn't fit one of those 3 categories and therefore, is just a sale candidate, almost irrespective of where you are in the real estate cycle. Because if you're going to sell at a point in the cycle that maybe cap rates are different than they were 12 months ago, on the acquisition and redeployment side, if you find something to put value into, you're likely also to find the cap rates have expanded in that market. So I think you're going to see us be a little bit agnostic to the cycles and probably more focused on where we can create value.

The next question comes from Paul Morgan of Canaccord Genuity.

I was very interested in your comments about the portfolio strategy in nongateway markets and submarkets. But I'm also kind of interested in kind of how you brought your experience at your prior company into that decision, obviously. Is it just sort of kind of doing the best with the hand you're dealt or is there -- are there things you found in the first 7 weeks when you looked at the growth within the parts of the DDR portfolio that you've -- kind of you viewed markets, like you say, St. Paul or others, nongateway markets to be kind of definite holds or submarkets or whatever? Is there kind of any new perspective you've had in kind of in these early days or is there something else, maybe just kind of the pricing disparity or any other reason?

I think if you kind of look at the context of the last 15 years and the different places, the different people sitting around this table here have been, there a lot of experiences that involved secondary markets, different types of assets. And in many ways, the flexibility that DDR has to be able to access those markets and get market information in some ways is a benefit to being a pure play in only 2 or 3 submarkets in the coast, because you lose the transparency to quite a bit of other real estate across the country. So I don't really see it as a paradigm shift that we've been trying to learn or have found. I think it's just if you're in the retail real estate business for long enough, you start to learn about multiple communities across the country. And we happen to have very good real estate in quite a few of them.

But even beyond kind of doing the best with your own portfolio currently, are you saying that as you look maybe down the road a ways at kind of incremental acquisitions, you would also see those to be in kind of a similarly broader set of markets?

Yes, meaning if we believe that we can purchase the assets that fall into our 3 categories, we're going to be more agnostic to the submarket and we're going to be more focused on how we can create value.

Okay. And just kind of the last little thing. I don't know if I missed this or not. But in terms of kind of the lease spread numbers you provided for the first quarter, in the context of where you see same-store and occupancy, is there any thoughts that kind of -- should we expect lease spreads to be kind of consistent with the first quarter for the rest of the year? Are there any reasons it can move either way?

To be perfectly frank, that's a number there we're happy to report to you guys. It is not a number that we focus on from a kind of management accounting perspective and an operational perspective. So I can't sit here and tell you we've done a great job forecasting all of those in the next 3 quarters. We'd look much more at cash flow growth. And of course, the cash flow and same-store NOI which is more cash like same-store NOI, is not going to be dependent on spreads. It's going to be spreads from some time ago, from 2, 3, 4 quarters ago, so it's not that we focus that much on short term.

And this concludes our question-and-answer session. I would now like to turn the conference back over to David Lukes for any closing remarks.

Thank you all very much for joining and for your patience in an afternoon call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.