Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Cedar Shopping Centers, Inc. (NYSE:CDR)

Q1 2009 Earnings Call

May 6, 2009 10:00 am ET

Executives

[Brad Cohen] – Investor Relations

Leo S. Ullman – Chairman of the Board, President & Chief Executive Officer

Lawrence E. Kreider, Jr. – Chief Financial Officer

Thomas B. Richey – Vice President Development and Construction Services

Brenda J. Walker – Vice President

Nancy H. Mozzachio – Vice President Leasing

Analysts

Paul Adornato – BMO Capital Markets

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Analyst for Quentin Vellelley – Citigroup

RJ Milligan – Raymond James

[Mark Rotinski] – BMO Capital Markets

Arthur Friedman – Friedman Asset Management

Operator

Welcome to the Cedar Shopping Centers Incorporated first quarter 2009 earnings conference call. At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions following the presentation. It is now my pleasure to turn the call over to your host [Brad Cohen] of ICR.

[Brad Cohen]

At this time management would like me to inform you that certain statements made during this conference call which are not historical facts may be deemed forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as a amended by the Private Securities Litigation Reform Act of 1995.

Although the company believes that expectations reflected in any forward-looking statements are based upon reasonable assumptions, they are subject to various risks and uncertainties. The company can provide no assurance that expectations will be achieved and actual results may vary. Many of the factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday’s press release and from time-to-time in the company’s filings with the SEC.

In the end, the company undertakes no obligation to revise or update any forward-looking statements reflected in or circumstances after the date of the company’s release. It is now my pleasure to turn the call over to Mr. Leo Ullman, Chairman, Chief Executive Officer and President.

Leo S. Ullman

Thank you very much for joining us today on the Cedar Shopping Centers earnings conference call for the firsts quarter 2009 results. With me on the call is Larry Kreider, our Chief Financial Officer, other members of our team including Tom Richey, our Vice President of Development and Construction, Brenda Walker, our Vice President of Operations and Nancy Mozzachio, our Vice President of Leading are also on the call and available to you.

The message for today’s call is first of all that bread and butter shopping centers remain our strength. Secondly, and most importantly, is that we have taken numerous steps to reinforce the already defensive nature of our portfolio. We believe our story to be compelling in terms of value. Let me provide some additional details in support of these concepts and in support of the overriding thought that this company’s portfolio, operations and debt structure are well positioned to continue our strong performance during the current economic upheaval.

In this connection, we would like to stress the following points. Our portfolio representing some 102 properties and 12.7 million square feet continues to evidence extraordinarily high occupancy rates at more than 95% for our stabilized properties and 92% including our development properties. We emphasize again that even in these challenged times we have had no net reduction in occupancy of our properties. Our CAM collections remain exemplary at approximately 78% of costs.

Our bad debt experience remains low at less than 1.25%. Unlike the reports on retail generally and on some of our peers in particular we have had very few net closings. Of approximately 1.03 million square feet of leases which were scheduled to become due during all of 2009, we have already arranged more than 760,000 square feet of renewals. Of the remaining 273,000 all but 44,000 involves just two leases. In addition, more than 170,000 square feet of the 1.5 million square feet in 2010 have already been renewed.

Our lease renewals for this quarter evidenced a nice increase not withstanding a few rent concessions. Our renewals also exceeded our terminations. Our development activities represent 12 projects totaling approximately $311 million, we have managed those projects with strong discipline. We have spent approximately $219 million to date and have self funded all of the required equity to complete those 12 projects. We have in place $227 million of financing for our construction projects on which we have drawn approximately $98 million. The undrawn balance represents all the financing required to complete all the announced projects.

We have made excellent progress in our negotiations to renew our secured revolving credit facility for stabilized properties scheduled to mature in January of next year in a targeted amount of $300 million. The lead banks include Bank of America, which is the sole lead on our existing $300 million secured revolving credit facility, Keybanc, M&T Bank and Regions Bank. Those banks alone have undertaken subject to final approvals to fund not less than $176 million of the $300 million facility.

We expect to commence making the meetings with the syndication group of banks starting next week. If successfully concluded the extension coupled with a further one year extension option would extend the facility until January 2013. We have taken a number of steps beyond the new secured credit facility which we believe will further strengthen our balance sheet and provide additional flexibility, they include the following.

We are completing property specific fixed rate five year financing on three properties totaling approximately $23 million at interest rates ranging from 5.25% to 6.75%. We are also working on property specific financing for a handful of others which are presently in the collateral pool for the existing secured credit facility. We expect to move a couple of properties which meet certain criteria from our secured stabilized credit facility to our secured development credit facilities.

We have announced an attractive completed sale of a net lease property in Ohio at a six cap and we are presently working hard on attempting to sell a number, as many as 10 of smaller properties primarily in Ohio, Maryland and Virginia. As you know, we have suspended our dividend for the balance of this year preserving approximately $37 million of capital.

For the first quarter our FFO per share of $0.33 represents a sequential improvement of 6.5% and year-over-year improvement of 10%. This is a testament to a company that is operating very well and who’s portfolio continues to evidence solidity. While we have had two attractive joint ventures, supermarket anchored shopping center acquisitions during this quarter involving total expenditures of only approximately $7.6 million by our company, we contemplate no further acquisitions during the balance of this year.

Equity requirements for our announced development pipeline as earlier indicated have been fully funded. Thus, we will not require any additional cash equity or debt beyond what’s already in place for the announced pipeline. Our development projects are coming online as we speak. We delivered a Walgreens in our Heritage Crossing Project in Limerick Pennsylvania during the first quarter. We expect to deliver the 98,000 square foot Super Giant prototype at Blue Mountain Commons in Harrisburg Pennsylvania in the third quarter as well as the new Redners Supermarket at Northside Commons in Campbelltown Pennsylvania in the third quarter.

We have just commenced this past month construction on a new Giant Supermarket at our Crossroads II joint venture development property in Stroudsburg, Pennsylvania which we expect to deliver in November. The principal tenants at our large Upland Square joint venture project in Pottsgrove Pennsylvania including Target, Best Buy, a Giant Supermarket, Bed, Bath & Beyond, TJ Maxx, Petco, Staples, etc. will be opening their stores starting in July of this year.

We expect to put property specific debt on our development properties as they become stabilized. We are continuing to explore opportunities to delever at this time including a couple of what we believe to be attractive joint venture opportunities for a few of our stabilized properties and some property sales. While we recognize that many REITs have raise equity recently, our analysis of our capital structure is ongoing and we continue to consider various opportunities with our board and our advisors.

In terms of managing our debt, we have sufficient liquidity to meet all our debt and development obligations. We have no fixed debt coming due this year and our fixed rate debt maturities during each of the next 10 years are manageable. We have been able to place attractive property specific financing on a number of our properties even in this market again, because the cash flow is solidly supported by supermarket and/or drug store anchors.

Our portfolio continues to reflect an increasing percentage of supermarket anchors which together with our drug store anchors represents more than 75% of all of our properties. The supermarkets continue to do well. We have 13 chains in our portfolio and substantially all of them are showing strong sales and healthy operating ratios. Many are seeking new sites within our geographic territory.

While we have reduced the overall percentage commitment to Pennsylvania to less than 45% of our revenues and GLA, we remain very much committed to Giant and to other excellent supermarket operators in the greater Harrisburg and close in Philadelphia markets. At the same time, consistent with our business plan, we have expanded our supermarket anchored shopping center portfolios in Massachusetts, Connecticut and the coastal mid Atlantic states. We note that in almost every one of our markets, our grocers are the number one or number two grocers in their respective markets.

The smaller tenants in turn want to be in locations with a dominant grocer and accordingly our smaller tenants in our supermarket anchored centers are generally also doing well. I would like now to turn the microphone over to Larry Kreider who will walk you through some of our highly transparent financial metrics. Thereafter, we would of course welcome your questions and comments.

Lawrence E. Kreider, Jr.

For full details of our financial results for the quarter ended March 31, 2009 I refer you to our press release issued last night as well as our supplemental financial information published on our website and also available at www.SEC.gov. Our results in the first quarter continue to demonstrate the relative stability of our operations and are predominately grocery and drug store anchored customer based.

In our press release we primarily focused on the first quarter of 2009 results as compared to the first quarter of 2008. Here I’ll supplement that by comparing the first quarter results of 2009 to the fourth quarter of 2008. FFO was $0.33 per diluted share in the first quarter of 2009 as compared to $0.31 per diluted share in the fourth quarter of 2008. Our expense recovery and bad debt experience have improved from the fourth quarter 2008 generating an increase of approximately $0.01 per share.

In the first quarter of 2009 we collected approximately 78% of our common area maintenance and real estate tax expense excluding non-billable bad debt and compensation expenses as compared to 72% in the fourth quarter of 2008. Similarly, our bad debt expense improved to approximately 1.2% of revenues from 1.8% in the fourth quarter of 2008 principally due to resolution of second half 2008 issues with a few of our inline tenants in Ohio.

We have noted our continued occupancy and leasing results in our earnings release. With respect to other operating items percentage rent revenue reflects a seasonal reduction of approximately $0.01 per share from the fourth quarter of 2008 when our relatively small percentage rents are at their peak and revenue from amortization of intangible lease liabilities is lowered by approximately $0.01 per share due to the effect of a fourth quarter 2008 lease termination.

G&A and operating expenses in both the first quarter of 2009 and fourth quarter of 2008 include a benefit of over $0.03 per share from mark-to-market gains relating to the company’s stock based compensation based on the sequential decline in our stock price over the last two quarters. G&A and minority interest include transaction costs of approximately $0.02 per share in both the first quarter of 2009 and the fourth quarter of 2008. The expense in the first quarter of 2009 relates partially to the adoption of new accounting rules requiring the expensing of transaction costs as incurred.

Other than these items G&A in the first quarter of 2009 reflects lower professional fees. Interest expense was lower by $0.01 per share in the first quarter of 2009 as compared to the fourth quarter of 2008 principally as a result of lower average LIBOR rates applicable to our variable rate debt. With respect to our balance sheet and liquidity we continue to position Cedar’s balance sheet to weather the current economic turmoil and to provide for the flexibility and liquidity we need to execute our business plan.

As of today, we have approximately $6 million of borrowing capacity available under our revolving credit facilities plus $6 million in cash. This year through today we have repaid the only 2009 debt maturities we had in early January 2009 of $9 million, paid a first quarter common dividend of $5.3 million and funded the acquisition of two properties for approximately $7.6 million.

In the next few weeks we expect to increase our availability under the stabilized line of credit and cash balances to approximately $35 to $40 million through a pledge of an additional $20 million of presently unencumbered properties and a pay down of the line by approximately $6 million from previously funded development. With respect to other sources and uses for the remainder of the year we have no further property specific mortgage maturities due in 2009 and $9.3 million in 2010.

In 2011 we have $114 million due comprised of four properties, one of which is the property specific construction line of credit for our Upland development site that is extendable under certain conditions by a year. The development property line of credit due in 2011 is also subject to a one year extension. As previously indicated, we believe that virtually all of our development activities will be funded under these existing development lines of credit and we do not expect any further property acquisitions this year.

We expect operating cash flows to be in the $12 to $15 million level per quarter for the remainder of the year. Operating cash flows were $9.1 million in the first quarter of 2009 reflecting reductions of $1.5 million for payment of transaction costs most of which historically would have been treated as investing activities and $3.7 million reflecting the timing of payments of accrued liabilities and the largely seasonal collection of receivables.

Incidentally, for the first time we have included a specific funds available for distribution or FAD analysis in our supplemental financial report in response to questions during last quarter’s conference call. Our FAD which is an alternative measure frequently used by the investment community and closely aligned with operating cash flows was $8.5 million for the first quarter of 2009 after deduction of approximately $.8 million of transaction costs on a prorate basis.

We expect no further common dividends in 2009 having suspended our dividend for the balance of the years previously announced. As compared to last year the reduction of the first quarter dividend coupled with the suspension of the balance for the year will save the company cash of approximately $37 million. A principal focus of our financial activity in 2009 as indicated will be to renew our stabilized line of credit that comes due in January of 2010.

As we have previously mentioned, we are making good progress in discussions with our lenders and we are confident that we will be able to refinance the facility. Of course we are very cognoscente of the volatile financial markets and there can be no certainty that we can complete the renewal as presently contemplated. We expect that the new line when closed will result in a net reduction in our availability, cost significant fees and cost higher interest expense all as reflected in our guidance.

As of March 31, 2009 our prorate share of debt was $978.6 million which amounted to 64.1% of our total book basis capitalization of approximately $1.53 billion. The pro rata share of floating rate debt amounted to approximately 26% total book based capitalization. With regard to another financial metric, our EBITDA to fixed charge coverage ratio for the quarter ended March 31, 2009 was approximately 2.2 to 1 as it has been historically maintained other than a dip in the fourth quarter of 2008 of 2.2 to 1.

With respect to our 2009 guidance, as reported in our press release we have reiterated the 2009 guidance we issued of between $0.85 per share and $1.00 per share. With regard to projected lower revenues and increased bad debt expense. As reported in our results to date, our overall occupancy bad debt experience and expense recovery billings remain strong and are better than our guidance would suggest. Our principal tenants, grocery stores and drug stores appear to be performing well.

We continue to be mindful however of the generally stressed market environment. With regard to interest costs, we had a continuation of very short term interest rate costs in the first quarter. Our guidance reflected steadily increasing rates during the year and substantially higher costs under the renewed stabilized line of credit when closed including amortization of substantial fees. With respect to write offs of transaction costs in 2009 we had a net pro rata affect on FFO of approximately $.8 million in the first quarter of 2009. That was consistent with the range in our guidance.

Lastly, with respect to lower market rents or revenues from amortization of intangible lease liabilities, these are essentially scheduled and were consistent with our guidance. I would now like to turn the call back to Leo for Q&A and closing remarks.

Leo S. Ullman

Operator, we would be happy to take any questions that there may be in the line.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Paul Adornato – BMO Capital Markets.

Paul Adornato – BMO Capital Markets

In the press release you noted that with respect to I think four lease renewals you offered some concessions. I was wondering if you could describe the circumstances and what the company received in turn for granting those concessions?

Leo S. Ullman

We gave concessions on 39,000 square feet and those concessions incidentally Paul did not go beyond the end of this year. On an annualized basis those amounts were in the order of $75,000 though for the first quarter they were minimal because they took place in the last month. Brenda, perhaps you could indicate who the specific tenants were?

Brenda J. Walker

Yes, one was a fashion tenant, another was a doctor and a Dollar Store tenant. Two fashion store tenants, a doctor and a Dollar Store tenant.

Paul Adornato – BMO Capital Markets

First of all what is the average lease term of those renewals and over the entire renewal term would you say those tenants are paying market, above market, below market?

Leo S. Ullman

These specific four? Well, let’s take a look, one is Mandy’s at $15, a doctor at $20, a fashion store at $21 which we believe to be in fact over the market, that one is in Long Island at Carmen’s Plaza. We believe that one to be a couple of dollars over the market. The fourth is a Big Lots store at $5 which is perhaps below the market. The leases range from 2010 to 2014 for those specific leases.

Paul Adornato – BMO Capital Markets

For those tenants that did not renew it looked like they were mostly smaller tenants. Could you just characterize the reasons that simply terminated?

Leo S. Ullman

That’s the 90,000 square feet?

Paul Adornato – BMO Capital Markets

Yes.

Leo S. Ullman

I’ve got a list in front of me here, one was National Wholesale Liquidators which itself was 30,000 square feet and they filed chapter and we have one store of theirs in a south Philly shopping center. The second largest was actually a 10,000 foot surf shop and we guess the surfing isn’t that great in Pennsylvania at the moment. Other than that, their smaller stores, I would say largely boutique stores, one Curves, one pharmacy, a CVS which actually we are replacing and one Game Stop, a couple of gourmet shops. That’s the kind of tenancies they are.

Paul Adornato – BMO Capital Markets

In the quarter you recorded a positive impact from stock-based compensation or I should say the lack of granting stock-based compensation. Could you just remind us what the hurdles are for the stock-based compensation and if there’s a possibility that they could be reinstated later this year or next year?

Lawrence E. Kreider, Jr.

Well Paul actually we recorded positive effect on the stock-based compensation not based on the grants but based on just strictly the movement in our price. We have a liability in our balance sheet that’s expressed in terms of shares and as the price of our shares goes down that liability decreases and we’re required under the accounting rules to mark it to market.

Paul Adornato – BMO Capital Markets

Finally, I know that you said that you wouldn’t start going out to the syndicate with the line of credit until next week but any sense of either appetite or pricing for the line?

Leo S. Ullman

Well in terms of appetite we haven’t pursued that vigorously as yet because we expect first to have a meeting with all the banks after having tied up all the negotiated terms of the four bank lead group. In terms of pricing we believe it to be market. It will not be quite as good as the announced federal deal that was in S&L this morning. We are looking generally at 200 basis points minimum labor floor and an interest rate in the 3.50% range. Plus, as Larry indicated amortized fees and we expect those fees to be serious.

Paul Adornato – BMO Capital Markets

Finally, you say that you emphasize bread and butter properties yet it looks like you sold a Waffle House, if that’s not a property that’s dripping with butter then I don’t know what is.

Leo S. Ullman

Paul, it’s pretty rare in this market to be able to sell a property for a six cap so we were hoping you would transfer that to our entire portfolio.

Operator

Your next question comes from Nathan Isbee – Stifel Nicolaus & Company, Inc.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Just getting back to the credit line question, when you look out a year from now, clearly you don’t know exactly how much you’re going to get but realistically it’s going to be much smaller. Can you just lay out a sources and uses how you’re going to pay down and source enough equity to get to the new credit line level?

Leo S. Ullman

Well, we tried to do that in the prepared remarks basically. We are highly cognoscente of the fact that availability under the credit facility in all likelihood less than what we have available to us now under the existing facility based on covenants such as cap rates, loan-to-value, debt service coverage, etc. although they won’t be materially different from our present one. The big factor which will be an unknown to us for some time is that we have 34 properties presently securing the existing facility. We expect to have new appraisals required for all properties which were appraised prior to October of last year and that represents about 22 properties and we don’t know how those will come in and that will have a very meaningful affect we think.

But, in the meantime, to take care of these kind of things, we are moving as you heard about $20 million plus dollars worth of unencumbered properties in to the facility. We are taking a couple of properties out and putting property specific debt on those and we had already arranged as we said I believe $23 million worth and we’re working on a couple of others which will affect both numerator and denominator but which will reduce the overall amount. We also contemplate moving in, in effect potentially some stabilized properties as they mature from our development facilities.

Those are the kind of things that we are working on and we expect as mentioned a few small sales at the [inaudible] of some properties and based on those things we feel confident that we will meet the availability requirements as we project them at this time.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Let’s say the banks come back and say, “We’ll give you $150.” Do you still feel comfortable you could do it?

Leo S. Ullman

We would scramble at $150 but we’ve already mentioned that we have, while it’s still subject to credit committee approvals and documentation and so forth, we have undertakings by just the four leads of $176 minimum and we think of the remaining syndicated group we know a couple will drop out we are extremely hopeful that because this facility has been operated very well and has been profitable to the banks and that there are fees attached and it is a good loan with good spreads we are very hopeful that much of the syndicate would stay together.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Just one last question, in your development pipeline the leasing activity during the quarter was kind of minimal, basically the leasing levels and the letter of intent both stayed the same. Just focusing on the 20% of LOIs, can you just talk about where those stand and how close they are to moving either into full lease or possibly falling out?

Leo S. Ullman

Well, maybe the best person to deal with that is Tom Richey. Tom, could you and Nancy addressing the leasing at the development properties?

Thomas B. Richey

Yes, I’d be happy to. Nancy, I think you’re probably better suited on the LOI basis.

Nancy H. Mozzachio

With regard to LOIs that are in play, we definitely see most of those deals coming to fruition with a lease document particularly as the second quarter has begun we’ve seen quite a bit of deal velocity and we expect to close most of those deals within this quarter. So, in addition to the numbers reported for the quarter we’ve seen a substantial uptick in activity with our development properties with regard to LOI negotiations and preliminary meetings and that sort of thing.

Operator

Your next question comes from Analyst for Quentin Vellelley – Citigroup.

Analyst for Quentin Vellelley – Citigroup

Just jumping back to the line of credit, definitely great news that you have secured at least for the $170 odd but regarding the next steps you mentioned the $20 million of unencumbered that you’re doing back in to the facility and $20 off of property specific debt. Could you provide some more detail on what sort of numbers we’re talking about for the rest of the properties, the debt you’re working on moving some of the stabilized properties from the development pipeline, sales? What are we talking exactly there?

Leo S. Ullman

Cover some total numbers?

Analyst for Quentin Vellelley – Citigroup

Yes.

Leo S. Ullman

Well, we’re not sure of that yet. I did indicate that we did get three loans for property specific loans at the amount of $23 million and those are at rates ranging from 5.5% to 6.75% with five year terms fixed with smaller banks. Brenda is working as we speak and perhaps Brenda you would like to discuss this, but we are working on a good half dozen property specific loans. In terms of moving properties from one facility to another we are looking at potentially as much as $60 million odd worth of properties that could move from one facility to the other because it meets leasing criteria or lack of leasing criteria to move from one to the other. Brenda do you want to discuss your activities?

Brenda J. Walker

We’re working with the banks in the area where the properties are located. They’re familiar with the properties and are comfortable making the loans. We’re generally talking about LTVs of 65% to 70% and I think the range of interest that Leo indicated is what we are looking at. We’ve established some very good rates at the 5.25% with a small credit union for instances, the 6.75% is a fixed rate from a local Pennsylvania bank. So, I think that is the range I would expect these loans to fall. We have some very good interest with these banks where the properties are located again, because they do feel comfortable with the asset. They know the areas.

Analyst for Quentin Vellelley – Citigroup

What is your unencumbered NOI pool at the moment?

Leo S. Ullman

I think it’s not fair beyond the $20 million we just mentioned. Most of our properties as you know are secured by property specific CMBS debt historically much of it led by Keybanc. That totals nearly $700 million total for the fixed rate and on top of that we have the floating rate secured credit facilities that we mentioned. But, most of our properties between the credit facilities and the stabilized fixed debt are secured by specific property loans so we don’t have much in the way of unencumbered at this point.

What we will have of course is the properties that are maturing from the development line as they become stabilized we have the choice to keep them in the floating rate pool with relatively modest interest rates at least at this point or to put fixed rate debt on them and we are getting some very attractive rate on fixed rate debts for properties such as Blue Mountain Commons as it matures.

Analyst for Quentin Vellelley – Citigroup

Then just one more, on the portfolio and potential tenant weakness, with respect to maintaining guidance [inaudible] little weakness that you have seen so far, how much visibility do you have where problems could emerge versus just applying a discount to shot in the dark, things could get a lot worse in that decision to keep guidance on revenues and bad debt from tenant weakness in place.

Leo S. Ullman

Appreciate that with respect to guidance, a good chunk of that of course is based on our projected substantially increased interest rate costs under the credit facility when its put in place. Assuming that could be put in place as soon as midyear it would have a tremendous effect. We are also counting some of the transaction costs and very importantly we are contemplating the possibility that we might not pursue a couple of development projects in which we have some substantial investments.

So, those kind of reductions are probably going to be more meaningful, or almost certainly more meaningful than the loss tenancies. Our tenancies are extremely strong and the request that we have received for relief have dissipated but they are still certainly there. But, you will note that we didn’t have any Circuit City’s and we didn’t have any Linen N’ Things, we didn’t have Fortunoff and Steve & Barry’s and Mervins and Filenes Basement which just announced, those aren’t our kind of tenants.

We do note that during the last quarter we had some exposure which caused some write offs for privately owned health facilities. This is a category that we are watching because they take a fair amount of square footage, they don’t have that much credit when their privately owned and this is when the discretionary items that people cut back on. But, in terms of the bigger boxes, we don’t have Home Depots, we don’t have Office Depots, we don’t have a lot of the store closings.

We only have one Starbucks for example and we have very, very little fashion. What little fashion we have, this is an area where we have received some requests and as you noted we did do something for Dots. We have received requests from a couple of the bigger boxes like Bon-Tons and we have not dealt with those as of yet though we may give some relief there and that will come. Then, we have a store like Value City in our Shore Mall property which is 140,000 square feet were we are presently negotiating with Burlington Coat to take that back as an empty store while they stay in their existing store with an extended lease.

That would also have some impact and we’re taking those kinds of things in to account but we don’t see at this point a very large vacancy factor or huge impact from that aspect. But note again, that we do have those other considerations.

Operator

Your next question comes from RJ Milligan – Raymond James.

RJ Milligan – Raymond James

I have a question, in the 10K you guys projected about $85 million to $112 million in development and redevelopment spend. Is that still accurate for the year?

Lawrence E. Kreider, Jr.

We’re showing $92 million.

Leo S. Ullman

We announced the total at $311 minus $219 that we’ve spent already so basically that differential is it and that’s all coming out of the credit facilities.

RJ Milligan – Raymond James

So it’s a minimal spend for the rest of the year?

Leo S. Ullman

Part of that, the difference, that $92 million, basically that will not all be this year, some of that goes in to next year.

RJ Milligan – Raymond James

For the guidance at the beginning of the year you guys had provided a per share for lower revenues, increased interest costs, write offs, etc., do you still envision those to be accurate for the remainder of the year?

Leo S. Ullman

That was really the substance of the discussion we made in the prior question and with Citi in the prior question. Again, we think much of that will be affected by the credit facility. We do expect the possibility of writing off a couple of development properties if we can’t secure sufficient credit commitment and tenant commitment and we do think there will be some additional continuing rent relief but that will not be the largest factor at this point.

Operator

Your next question comes from [Mark Rotinski] – BMO Capital Markets.

[Mark Rotinski] – BMO Capital Markets

I was wondering if you could comment on what sort of potential joint venture partners you were seeing out there?

Leo S. Ullman

Well, we’re seeing a lot and the problem is that some of them are looking at very high yield hurdles that our types of properties would not normally be able to achieve. There are a lot of the high yield folks and I won’t mention the names but you would know them who are looking for better than 20% IRRs and for our kind of properties we think that we can deliver mid teens over a period of years pretty comfortably based on leverage.

But, that we can’t reach these enormous hurdles in part because we’re so heavily occupied at 95% and also in part because we are committed with long grocer leases which in our portfolio extend at 11 years and have relatively modest increases based on five year bumps based at $1 a bump. So that is a much more solid moderate growth kind of profile and we are looking primarily for funds let’s call them that are looking for this kind of solidity and this kind of strong earnings but not spectacular quick hits.

[Mark Rotinski] – BMO Capital Markets

Just curious, are you seeing any potential or I guess distressed sellers in any of your markets?

Leo S. Ullman

I think your question is right, there are distressed sellers and distressed owners, we haven’t seen huge portfolios of truly distressed properties though there are a couple of $500,000 property sales out there from companies like [Centro] and DDR but that’s not what we do. I mean, first of all we don’t have much capacity at the moment to do any acquisitions but where we see the great opportunities potentially is [paradoxally] in the development side of it where developers have been fully entitled and they’ve gotten fully leased commitments and they can’t get financing because that type of construction financing is difficult to find and we happen to have it and we can jump in to something like that and finish it within a year and hopefully get new kind of yields that are much greater than typical acquisition yields. Whereas development historically has been 9% to 11%, we’re now looking to 11% to 14%. But again, we don’t have much in the way of equity to be able to do that at this time.

If we do a couple of joint ventures and if we get some substantial availability as a result of that perhaps we could look at it again at that point. But, we’re not seeing large distressed portfolios rather we see some distressed owners and we think those two properties which we acquired during the first quarter one from [Centro] and one from a fund or a joint venture that included the Harvard Endowment Fund were special situations of which there are many more. But again, we’re not really very much in a position to benefit from that as yet.

Operator

Your next question comes from Arthur Friedman – Friedman Asset Management.

Arthur Friedman – Friedman Asset Management

I have a few questions here, this one is more probably for the CFO, on the consolidated balance sheet you have two line items, rents and other receivables net and straight line rents receivable. Could you explain what the difference is between those two lines and also what the DSO is? And, is there a different DSO for each line item?

Lawrence E. Kreider, Jr.

This is sort of technical but rents and other receivables are straight rents, that’s the amount due at the end of each period that we bill principally in terms of cash. The straight line rent is a pure accounting concept. Under accounting rules you take your average rents over the term of the lease and you record the average rent but of course only a portion of that, usually a greater portion is cash so the difference that you bill or record each period gets accumulated as a receivable and then the theory goes that at the end of the lease the receivable is reversed as your actual rent exceeds your straight line rent.

Arthur Friedman – Friedman Asset Management

So the DSO is basically 30 days?

Lawrence E. Kreider, Jr.

Our DSO is very short and I would tell you that we reserve our rents formulaically so we only leave a rent receivable on the books that goes according to the following formula, if it’s over 60 days we reserve 50%, if it’s over 90 days we reserve 75%, at 120 days we reserve in full. So, it’s a formulaically DSO.

Arthur Friedman – Friedman Asset Management

One other question, in terms of the preferred shares, based on the previous press release as of today are you still maintaining that you will pay a dividend on the preferred shares?

Lawrence E. Kreider, Jr.

Yes.

Leo S. Ullman

Absolutely.

Operator

I would now like to turn the call over to Mr. Ullman for any additional or closing comments.

Leo S. Ullman

We strongly urge our actual and potential investors and analysts to take a good and careful look at what we believe to be stable and growing cash flows and other performance metrics of our uniquely strong portfolio as reported in these comments and in our published figures. We continue to evidence remarkable strength of performance and we hope you’ll recognize the value of this company, its portfolio and its operations now and in the future. Thank you very much.

Operator

This does conclude today’s teleconference. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cedar Shopping Centers, Inc. Q1 2009 Earnings Call Transcript
This Transcript
All Transcripts