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Colgate Real Estate Workshop. Matt Lougee ‘07 Director of Finance Developers Diversified Realty September 25-26, 2009. What’s a REIT?

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Colgate Real Estate Workshop

Matt Lougee ‘07

Director of Finance

Developers Diversified Realty

September 25-26, 2009


What’s a REIT?

A Real Estate Investment Trust is a corporation that uses the pooled capital of investors to purchase and manage income-producing property. To qualify as a REIT, the company must pay out at least 90% of its taxable income in the form of a dividend. REIT’s offer investors a liquid way to own real estate that combines the bond-like income stream from dividends with the price risk and growth potential found in traditional stocks.

The Basics

DDR at a Glance

Assets Under Management $18.4 billion

Properties Owned and Managed 703

Gross Leasable Area 153 million sq. ft.

Leased Rate - IPO (1993) 95.7%

Leased Rate – Current 90.7%

Avg. Lease Term 7 years

Employees 770


Ddr s diverse geographic presence
DDR’s Diverse Geographic Presence

GLA by State

153 MSF in 45 states plus Puerto Rico, Brazil, and Canada

+5.0 MSF

+1.0 – 5.0 MSF

Less than 1.0 MSF

13.6 msf 8.9%

5.8 msf 3.8%

10.2 msf 6.7%

5.2 msf 3.4%

9.4 msf 6.1%

5.0 msf 3.3%

16.6 msf 10.8%

7.4 msf 4.8%

Brazil

15.2 msf 9.9%

5.0 msf 3.2%

Puerto Rico


The downfall what happened to reits

  • 1. Capital Markets effectively shut down – Risk Re-priced

  • - No access to equity and debt – Fear and Irrationality

  • - Inability to refinance upcoming debt maturities

  • - Inability to finance transactions

  • - No way to fuel growth / returns

  • 2. Declining Fundamentals - Consumer staying home

  • - Declining Occupancy – Weak tenants go bankrupt

  • - Linens N Things, Circuit City, Steve & Barry’s

  • - Declining NOI growth and Leasing spreads

  • = Declining

  • 1. Asset Values

  • 2. REIT Stock Prices

The Downfall – What happened to REITs?




1 term asset backed loan facilities talf

  • Investors borrow from the Fed, then lend to REITs

  • Lower borrowing rate than other sources of debt capital

  • Loan secured by first mortgage in a cross-collateralized pool of assets

  • Functions as a catalyst to restart the securitized lending market (CMBS)

  • More scrutinized standards for ratings

  • Conservative underwriting vs. Dominance of speculation ($600B ’05 – ’07)

#1 – Term Asset-Backed Loan Facilities (TALF)


#2: Repurchase Bonds at Discounts to Par

Note: $227 million of our January 2009 notes were repaid at par in January



The future of commercial real estate
The Future of Commercial Real Estate

The “New Normal” – Deep Recession ≠ Strong Recovery

- Unemployment: +/- 10% (CRE / Unemployment – Lagging Indicators)

- Savings Rate: “Paradox of Thrift” = Saving $ generates less economic activity

- Government: Privatize Profits, Socialize Losses, Printing Prosperity?

- Rational Credit Markets / Subdued Risk Appetite

REIT Recapitaliztion – “Re IPO”

- Equity Raised - $17 billion

- Debt Raised - $9 billion

- REITs as Fixed Income or Total Return?

Opportunity: “Dry Powder”

- Money waiting on the sidelines for trough valuations and distressed operators

Weed out bad retailers

- Focus on credit quality and profit margin

Fundamentals

- New development at historic lows; opportunity for absorption of 2005-2007 supply

- Long term leases

- Resiliance of consumer

Industry talent gap

- Entry level jobs extremely difficult

- Tangible product

- Opportunity to work in multi-dimensional sector with little peer competition

- Risk-perspective


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