Cedar Shopping Centers Inc. Q3 2009 Earnings Call Transcript

Oct.29.09 | About: Cedar Realty (CDR)

Cedar Shopping Centers Inc. (NYSE:CDR)

Q3 2009 Earnings Call

October 29, 2009 10:00 am ET

Executives

Brad Cohen – ICR

Leo S. Ullman – Chairman, President and Chief Executive Officer

Lawrence E. Kreider, Jr. – Chief Financial Officer

Thomas B. Richey – President of Development Construction Services

Brenda J. Walker – Chief Operations Officer

Nancy H. Mozzachio – Vice President Leasing

Analysts

Nathan Isbee – Stifel Nicolaus & Company, Inc.

David Fick – Stifel Nicolaus & Company

Paul Adornato – BMO Capital Markets

Richard Milligan – Raymond James

Todd Thomas – KeyBanc Capital Markets

Ben Rosenzweig – Privet Fund Management

Operator

Welcome to today's Cedar Shopping Centers Incorporated Third Quarter 2009 Earnings conference. (Operator Instructions) It is now my pleasure to turn the conference over to your host for today Brad Cohen at 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 with the meaning of section 27A of the Securities Exchange Act of 1933 and section 21E of the Securities Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995.

Although the company believes that expectations reflect in any forward-looking statements are based upon reasonable assumptions, they are subject to various risks and uncertainties. The company can provide no assurance of expectations will be achieved and actual results may differ.

Many of the factors and risks that could cause actual results to differ materially from expectations are detailed in the company's press release that was released yesterday and from time to time in the company's filings with the Security and Exchange Commission. 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 the Mr. Leo Ullman, Chairman Chief Executive Officer and President.

Leo Ullman

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

While there have been requests for us to conduct today's call both in French and English in order to avoid embarrassment we will conduct the call only in English. I'd like to focus today first on our operations, then on some of the steps that we have taken during recent months to strengthen our balance sheet, followed by a couple of words about our recently delivered development properties, and finally the important arrangements which we announced earlier this week with RioCan.

Operations, first of all with respect to our operations we are pleased and proud to note that our occupancy levels remain at an extraordinarily high 95% for our stabilized properties. Further, we have continued to demonstrate throughout this and many prior quarters substantial increases in renewals and in new leases. This is a result of outstanding leasing efforts in one of this country's most challenging periods by our leasing team headed by Nancy Mozzachio and extremely hands on management under the [ejes] of Brenda Walker our COO.

We think it's fair to say that our primarily supermarket anchored portfolio has continued to perform extremely well during these difficult times. Indeed we believe by being able to maintain our level of occupancy, coupled with our modest level of bad debt and our strong collections results, Cedar has established an exemplary standard.

Balance sheet considerations, with respect to our balance sheet we have taken the philosophic approach that we did not want to risk or suffer the substantial dilution and large potential discount which our company might have risked in issuing large amounts of stock during the re-equitization process undertaken by many of our weak brethren. We also know that until and unless we completed the renewal of our credit facility a major stock offering would be extremely challenged.

Finally we believe that the long-term measure of our success will be based upon our ability to outperform and to drive increased cash flow. We have taken a multi-pronged approach towards strengthening our balance sheet. First largely through the efforts of [Mike Winters] and his team we have successfully sold and are in the process of selling a number of properties in Ohio and New York thus reducing our commitment to Ohio.

Secondly, we have been successful at placing property specific financing on a number of our properties which were previously in the collateral pool for a floating rate credit facility. It has been our experience fortunately that property specific loans of $10 million to $20 million have been available on attractive terms from local and regional banks, credit unions and even a couple of insurance companies. Thirdly, we have been able to recoup some of our excess upfront equity contributions to development properties through draws from our construction credit facility.

Fourth, we have introduced the unique SEPA program which we believe to be the only equity facility of its kind and a very effective means for us to obtain equity advances of up to $5 million per month against subsequent committed sales of our stock at a cost of only 2% to 4%. Larry Kreider will further discuss some of these measures. Fifth as promised we have arranged a joint venture, and sixth we have arranged a private placement both with RioCan which I'll discuss shortly.

Development, with respect to our development properties under Tom Richey's strong leadership as President of our Development and Construction division, we have delivered three supermarket anchored properties and one drug store anchored property during the past few months. They include one, a ground up development of the largest center we have undertaken the Upland Square joint venture development with a total project cost of approximately $100 million or so and tenants such as Target, Best Buy, Giant Food Stores, TJ Maxx, Petco, Staples and others.

Two, a center with a new 98,000 square foot Giant supermarket in Harrisburg, Pennsylvania. It opened literally yesterday. Three, a new Redner supermarket anchored center which opened last month in Campbell Town near Hershey Pennsylvania and is operating very successfully. And four, a new Walgreens anchored property in Limerick Pennsylvania. In addition, a new 74,000 square foot Giant supermarket is scheduled to open on November 4 at our Crossroads II shopping center in Stroudsburg PA.

All of these are expected to contribute meaningfully to our cash flows for 2010. The overriding takeaway is that we continue to stick to our bread and butter real estate focusing on core consumer necessities and staying away from the fashion and more discretionary types of stores.

Credit facility, with respect to our credit facility we expect to close a facility shortly. We have in hand actual commitments at this time for $241 million. RioCan, finally and indeed very important a promising new relationship with RioCan. RioCan is the second largest owners of shopping centers in North America. It is a very successful company with a market value of some $7 billion which of course is even larger than Cedar.

Through extensive and intensive discussions we have discovered excellent symmetry in our intense and hopes for future growth in the U.S. During this process, we have developed enormous respect Ed Sunshine, Fred Waks, Rags Davloor, Jonathan Gilin and the entire RioCan team. Cedar will provide to RioCan a platform of considerable strength, penetration, knowledge and experience in the Northeast quadrant of the U.S. with our bread and butter type shopping centers.

Of interest to RioCan has been our portfolio and our management team with demonstrated operating strengths and stability. We view the purchase by RioCan of approximately 12.5% of our stock now for $40 million and up to approximately 15% upon exercise of a warrant for a additional $10 million as a show of confidence and as a validation of the strength and value they see in our company. Incidentally, the New York Stock Exchange approved the private placement late yesterday afternoon.

With respect to its stock ownership in Cedar, RioCan has entered into a three-year standstill agreement. The joint venture of existing properties with RioCan, involving six existing stabilized properties plus the Blue Mountain Commons development properties is expected to result in approximately $63 million of net proceeds to our company during the next 60 to 90 days.

Which in addition to the $40 million before costs received from the private placement, will be used immediately to pay down or reduce the amounts outstanding under our credit facilities. The result of all of this, of course, is to reduce the total amount of our debt by more than $100 million and to take steps to enhance our debt to total cap ratio.

With respect to the future, we look forward to the opportunity to acquire substantial additional properties in joint venture mode with RioCan. They have targeted up to $500 million of acquisitions with us during the next two years. We know that with their considerable financial resources, our combined experience and acumen in real estate, and our company's longstanding network of relationships, we will be able to acquire many attractive properties together.

Under the terms of the joint venture arrangements, RioCan has a right of first refusal to participate on an 80/20 joint venture basis in any stabilized, primarily supermarket anchored property which the company may acquire in New York, New Jersey, Pennsylvania, Virginia, Maryland, Massachusetts and Connecticut. We have a reciprocal right with respect to any properties RioCan might acquire in those states.

There is no restriction on our company or RioCan's ability to make acquisitions in other states nor on the company's ability to do development deals. We very much look forward to a long and mutually successful relationship with RioCan.

Taking inventory at this point as to the strategic steps taken by the company, we have executed and performed the very plans we have contemplated and announced. First as indicated, we reduced our outstanding balances under our credit facilities with our multi-pronged approach, including dispositions, property specific fixed rate financing and our SEPA equity facility.

We have entered into a highly effective and important joint venture for seven existing properties with RioCan, further substantially reducing our debt. We have put ourselves in a position to renew our stabilized property credit facility due January 2010 for two additional years, plus an option year.

We have arranged $40 million, potentially $50 million, of common share equity through a private placement with RioCan without exposure to massive dilution and discounts in our stock. We have delivered our announced development projects of primarily supermarket anchored properties on time and within budget with prospects of strong added cash flows during 2010 and subsequent years.

Now, based on our strengthened balance sheet and through our strong operating performance, we expect to generate sufficient cash flow to allow our board to consider renewing dividend distributions with respect to our common stock. We need to complete our budget process prior to any such board action. It is also fair to assume that the board will consider dividend distributions at a level which will be less than the $0.90 per share, which we previously paid, but which may well be $0.45 to $0.50 to cover our otherwise taxable income.

Finally, we have placed ourselves in a position to grow attractively and to thus become more relevant in the future, both through organic growth on the development side, as well as through incremental even geometric growth with our strong joint-venture partner. We could perhaps contemplate someday suitable equity-raise opportunities to match funds of further growth. We think it's a powerful story and one we hope you'll follow closely.

I would now like to turn the microphone over to Larry Kreider who will walk you through some of our financial metrics, which we believe we have provided to you in a highly transparent form. 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 September 30, 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 operating results in the third quarter continued to demonstrate the stability of our operations and reflect the first benefits of our development activities. In our press release, we primarily focused on the third quarter of 2009 results as compared to the third quarter of 2008. Here, I'll supplement that by comparing the third quarter results of 2009 to the second quarter of 2009.

FFO was $0.30 per diluted share in the third quarter of 2009 as compared to $0.29 per diluted share in the second quarter of 2009, after adjusting in both quarters for cash in non-recurring items – non-cash and non-recurring items. As reported, FFO was $0.28 per diluted share in the third quarter of 2009 as compared to $0.23 per diluted share in the second quarter of 2009. These results include an impairment charge related to a discontinued operation in the third quarter or $0.01 per share.

Expense from the termination of a development project in the second quarter of $0.05 per share, and expenses related to stock-based compensation in both quarters were $0.01 per share each. By the way, I want to point out a typographical error in our press release, in that net income for the third quarter of 2009 should have read $1.4 million instead of the indicated $1.3 million.

The underlying consistency of our operations is exemplified by our continued steady occupancy leasing results, core financial results and operating cash flows. With respect to our core operating results, all our metrics were generally consistent with the prior quarter.

With respect to occupancy and leasing, as you have heard, we continued our high rates of occupancy. The increase in GAAP-based rents in our leasing renewals was 7%. We had a small increase in our bad debt expense to 2.6% from 2.2% and a small decrease in our expense recoveries to 73% from 75%, both of which amounted to less than $0.01 per share combined.

Our bad debt experience continues to relate primarily to inline locally owned fitness centers and personal care stores, some of which are being addressed as we speak. Our expense recovery experience relates primarily to our redevelopment properties, particularly the Shore Mall. Amortization of intangible lease liabilities continues to reduce as scheduled in our guidance, but was more than offset in the third quarter by income from termination of a lease of a locally owned fitness center.

G&A and interest expense were also very steady. Operating cash flows reflecting seasonal timing of payments remained satisfactory as well. Net cash provided by operations was $9.2 million in the quarter as compared to $11.5 million in 2008, reflecting seasonally heavy payments of real estate taxes and insurance, as well as timing of payments.

Additionally, several of our ground-up development properties have begun to operate. While results were small in the third quarter of 2009, we expect them to contribute meaningfully to our results as they become fully stabilized with a full compliment of inline tenants through 2010. We have added two properties to our development schedule, one a ground-up development in Kutztown, Pennsylvania anchored by a Giant Food supermarket, and the other the Shore Mall in Egg Harbor, New Jersey a redevelopment operating property.

Our balance sheet and financial condition further strengthened with the completion of the announced stocked private placement and joint venture arrangement with RioCan. As of today, we have approximately $27.5 million of borrowing capacity available under our stabilized revolving credit facility, plus $10 million in cash at September 30.

In the near future and apart from the RioCan transactions, we expect to increase this availability by approximately $25 million by placing property specific debt on a property and placing two additional properties into the development line of credit. We also expect to get some cash benefit from our SEPA program, whereby we have the ability to issue equity in up to $5 million amounts on a monthly basis up to $30 million.

In this program, we get the funds upfront and then issue equity at the market ratably over the next 20 trading days. We have given the program a modest test run and we are convinced that this program will proved to be a useful cash management tool.

With respect to our other property specific mortgage debt maturities, we have none in 2009 and are comfortable that we will be able to refinance or extend all the debt maturing over the next few years. We have $9.2 million due in 2010 principally comprised of two properties, and $77 million due in 2011 comprised of three properties. Plus the property specific construction line of credit for our Upland Square development with $57 million borrowed at September 30 that is extendable by a year to 2012.

The development property line of credit due as well in 2011 is also subject to a one year extension. As previously indicated, we believe that virtually all of our development properties, which are now being completed as anticipated, will be funded under these existing development lines of credit and that we will be able to place property specific debt in these properties on a timely basis.

Additionally, we expect no further common dividends in 2009, having suspended our dividend for the balance of the year as previously announced. For all of 2009, the reduction of the first quarter dividend coupled with its suspension for the balance of the year will have saved the company approximately $36 million.

Of course the RioCan transactions will have a significant impact on our financial position. When completed, we expect to repay our stabilized and development lines of credit by approximately $100 million. This combined with the pro rata reduction of property specific debt in the joint venture properties will serve to reduce our debt to total asset ratio by over 600 basis points.

With respect to the renewal of our stabilized line of credit, we have commitments of $241 million. We expect to close the loan in November and have substantial availability thereafter. As of September 30, 2009, our pro rata share of debt was $1.00 billion, which amounted to 64.5% of our total book basis capitalization of approximately $1.56 billion. The pro rata share of floating rate debt amounted to approximately 26% of total book basis capitalization.

Our EBITDA to fix charge coverage ratio for the quarter ended September 30, 2009 was approximately 2.1 to 1, adjusted by the other charges outlined above. We have increased the 2009 guidance we issued to a range of $0.95 per share to $1.02 per share, including the expected dilution from the sale of shares to RioCan, which should not have a big impact due to the short period of time it would have to affect our average share count and results in 2009.

I would now like to turn the call back to Leo for Q&A and closing remarks.

Leo S. Ullman

Operator, we'd be pleased to take questions and comments at this point.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Nathan Isbee – Stifel Nicolaus & Company, Inc.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

I'm here with David as well. What was the cap rate that you sold the properties to RioCan at?

Leo S. Ullman

The cap rate for which we sold interests, partnership interests at seven properties was approximately 8.5% on an overall basis.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

I guess as a follow-up, as you look out at the acquisition opportunities out there, is it safe to say that you would be looking to acquire properties at a positive spread to the 8.5% where you sold?

Leo S. Ullman

Again, Nate, we sold partnership interests at 8.5% where the acquisition involved an interest that's not transferable for a period of years, etc., etc. The underlying assets may be valued a quite a different number. My thinking is that for our type of properties, which are supermarket anchored in the Northeast primarily, there has not been that much cap rate slippage as yet.

We've seen several transactions close at less than eight. We bid on a property just recently at low eight caps and lost it to a 7.75% bidder. I think the important thing for us to note is that it will probably be in the low eights to mid eights for the better properties with not too much hair. And we would look for a leveraged yield with debt at the 11% to 12% rate.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Do you have anything under contract now?

Leo S. Ullman

No.

David Fick – Stifel Nicolaus & Company

It's Dave Fick. Can you help me out with understanding how you can have significant bad debt expense without an increase in vacancy?

Leo S. Ullman

Brenda, do you want to discuss that?

Brenda J. Walker

Our bad debt, it's a function of working with the tenants or evicting them, and hoping that at some point in time the economy will allow them to make up the difference in what we've allowed to accrue versus evicting them at this moment. So that's really what's going on, David.

David Fick – Stifel Nicolaus & Company

Can you explain the process? I mean, having been an old shopping center guy myself, if a tenant didn't pay by the 10th they were sent a notice, and certainly nobody was allowed to get more than 30 days in arrears. How does an account balance even build without you reserving it immediately?

Lawrence E. Kreider, Jr.

David, it's Larry Kreider. There are a couple things that are going on here. One of the things is that we are replacing some of the tenants, and the second thing is that a significant portion of the bad debt arises from rent abatements that we have offered that we continue to build and reserve fully.

David Fick – Stifel Nicolaus & Company

Leo, you said you recently bid an eight on an asset. I thought you said last quarter that you were effectively out of the acquisition market for the time being.

Leo S. Ullman

Well, that's right, David. But you may have noticed that we have a transaction with RioCan where we contemplated acquiring some properties, and this is the first one that we might acquire.

Operator

Your next question comes from Paul Adornato – BMO Capital Markets

Paul Adornato – BMO Capital Markets

Leo, I was wondering if you could give us your perspective on the character of the potential acquisitions that you see. Do you think that you'll see both redevelopment opportunities, leasing opportunities and stabilized properties or any combination thereof?

Leo S. Ullman

We are looking at the outset to acquire quality supermarket anchored properties. We've been looking at the Eastern portion of Pennsylvania and we've seen a couple of properties in Connecticut and Massachusetts.

Our history has been in growing the company with one off acquisitions. We don't see many large portfolios at this moment. We have looked at a portfolio of four or five properties supermarket anchored in Massachusetts and Connecticut. There's going to be a lot of bidding on those types of properties. We've looked at a couple of recently developed properties in Eastern Pennsylvania. We think that the profile of the properties is going to be quite similar to what we have now.

I don't think that RioCan's appetite is for a great deal of risk in redeveloping and certainly not in developing. So that we will be looking primarily for the joint venture properties with RioCan at stabilized supermarket anchored properties with some upside opportunities, but really counting on a long lease and stable cash flow projections for the properties.

Paul Adornato – BMO Capital Markets

And is it your goal to have all of your acquisitions go into the joint venture, or will you perhaps keep some development opportunities outside of the JV?

Leo S. Ullman

Well, the development opportunities are not part of the JV exclusivity arrangements. We do contemplate continuing to develop, and when those properties become stabilized, we would expect to offer them to the joint venture with RioCan, much like the one property that's in the joint venture package initially which is the Blue Mountain Commons property where we just delivered that supermarket.

That's a property on which we could put some property specific debt. It's essentially stabilized at the outset. We have basically I think 11,000 feet to be leased. The bank is just opening at the same time. This is the kind of property that we would expect to offer, but in the meantime the development process and the development opportunities will be ours alone.

Paul Adornato - BMO Capital Markets

And with respect to some of the smaller tenants, especially the ones in the categories that you described as being potentially troubled, what's the outlook for the rest of those types of tenants in your portfolio? Have you been in touch with them? Should we expect an increase in distress from these tenants?

Leo S. Ullman

I don't think that you should expect an increase in distress. We've pretty much suffered the distress that we thought we'd have with respect to the operators of privately owned health facilities and I think, or instead of health facilities, fitness facilities. What's happened, and we have an example, for example in our Long Island property in Massapequa.

There we have a very large, very handsome fitness facility in a separate building at the rear of the center, basically, newly developed for an operator. The operator experienced some difficulties. We now have the opportunity to replace that operator and we have essentially come close to making a deal to replace that operator. And we have the choice among four or five others.

In our facilities in Ohio, we've had a couple of fitness facilities that have not been able to pay rent. We contemplate eventually replacing those, but we've had less luck there.

Paul Adornato - BMO Capital Markets

Finally, with respect to the dividend, you mentioned that you may have taxable income next year for which you may have to pay a dividend. Has there been any contemplation of satisfying that with stock?

Leo S. Ullman

The short answer to that is no. Let me give you some rough indications of where we think we are. And again, it's a board decision and we expect that decision to come within the next couple of months as we deliver the budget to the board and review it with them. Basically, we are running, or have been running, at a level of taxable income of say $20 million, $22 million per annum, which we have been able to cover this year with some cost segregation depreciation and we could continue that for a couple of properties going forward.

On the other hand, we are in a position to pay that dividend from our free cash flow. We have an expected level of free cash flow of say $35 million to $40 million per annum. We would expect or recommend to the board that we contemplate a dividend sufficient to cover the otherwise taxable income, which would result in perhaps 70% of our free cash flow to be used for the dividend.

Operator

Your next question comes from RJ Milligan – Raymond James.

RJ Milligan - Raymond James

Leo, you talked about some difficulty in the locally owned fitness centers. Any difficulty with the LA Fitness's you guys have in your portfolio?

Leo S. Ullman

No, none whatsoever. They're operating well to the best of our knowledge. They're very strong tenants. We have, I think, four of them in our portfolio and one to come and they're doing fine. They're good tenants.

RJ Miller - Raymond James

Is there anybody else on your watch list or that's creeping up on your watch list going into the fourth quarter?

Leo S. Ullman

We have, of course, a watch list that Brenda maintains, but we think we're past most of the difficult times. Brenda, do you want to address that?

Brenda J. Walker

Yes, I think what we are watching closely now is the video category. Movie Gallery and Hollywood Video are grouped together. We have 10 of them. We've been trying to communicate with them lately. We believe that they're in some trouble. And with the recently announced closing of additional 250 or so Blockbuster stores, we think as a category it's something that we have to face the reality that we will need to replace all these tenants at some point in time. We have 24 video tenants in our portfolio.

RJ Miller - Raymond James

And what are the re-leasing prospects for your specific video store? Are they end caps? Who do you fill those stores with?

Brenda J. Walker

I think that might be Nancy Mozzachio's [inaudible] to be able to answer accurately. Nancy, are you there?

Nancy Mozzachio

Yes, I am, RJ. I think I can help you with that. The benefit there, as you just mentioned, is that many of these stores are end cap and much more prominent locations. We've found success with tenants like AutoZone for example. Many of the auto parts tenants today are very bullish on the economy and have been able to step up and make rather quick deals to commit to many of these locations because they believe in the prominence of their locations in their respective shopping centers.

So that's one tenant in particular that comes to mind. But certainly any of these value-oriented tenants such as Dollar Tree or the dollar stores really do see benefit in these end cap locations that the video stores commanded for many years.

RJ Miller - Raymond James

One more question. Larry, could you talk about the pricing for the new facility?

Lawrence E. Kreider, Jr.

Yes, I think we've talked about it before as well. It's 350 basis points over LIBOR with a 200 basis point floor.

Operator

Your next question comes from Todd Thomas – KeyBanc Capital Markets.

Todd Thomas - KeyBanc Capital Markets

I'm on with Jordan Sadler as well. Regarding the RioCan transaction, do you feel that the initial seven properties are more or less representative of your portfolio overall?

Leo S. Ullman

We do. We wanted especially to contemplate properties that were highly occupied and that would be very stable for long periods of time. It was important for RioCan, with respect to this initial penetration in this quadrant of the U.S., to have stable properties.

So we have, for example, a single tenant net lease supermarket with probably 18 years left on its lease. We have a small shopping center with a supermarket, again, with a long lease and very little ancillary space. We have a brand new development property with a very large supermarket and a long 20-year lease.

So the profile of many of these properties is a very stable income and we thought they were attractive for joint venture on our side in that they were very stable and wouldn't show much growth over that period. And that corresponded, we think, to one of the things that RioCan was looking for.

We think it's quite representative of our portfolio. It includes a small shopping center with a gross period includes a net lease property, includes a development property. It includes a fairly large stabilized property. One of the properties has an office building with some second floor office as well.

We think, and I believe RioCan thinks, that it was a fair deal for all parties. And it's part of a total transaction, of course, but the pricing reflects some that would have been higher than 8.5 and some less and we thought the 8.5 was fair, and a lot of due diligence went into it.

Todd Thomas - KeyBanc Capital Markets

On these same seven properties does RioCan have any money down or are there any termination rights by any party?

Leo S. Ullman

There is a small deposit of $500,000, which we've received. Actually we received an amount $25 less than the $500,000 and we've decided not to default RioCan yet. The properties will be closed [seri autom] over a period of a couple of months because two of the properties we can do very quickly and we've started that process to pull them out of the [collateralized] facilities and the five others will be done as soon as lender approvals are obtained. But, there's basically not an out once their acquired, they're in there for a three-year period, coupled with a buy/sell which can be triggered at that point.

Todd Thomas - KeyBanc Capital Markets

So you're raising capital at the cap rates that you've noted and I know that there is perhaps a couple small adjustments there and so forth, but you're building and redeveloping to similar yields to risk, so what's your threshold for new development or redevelopment projects at this point. I now it looked a little high, but generally going forward what's your hurdle rate look like?

Leo S. Ullman

Tom, are you on? Why don't you address that?

Thomas B. Richey

I'd be happy to. The majority of our published pipeline, which basically is in that 8.5, 8-3/4 yield. Going forward like [quicksand] we are not looking at anything less than 10.5 to 14 and that's pretty much how we're going to proceed going forward.

Todd Thomas - KeyBanc Capital Markets

Do you have more in the pipeline that could be at that type of yield?

Thomas B. Richey

We haven't published anything else in that yield range as of yet, but we are working on quite a few other deals. Appreciate that 7 of the 11 properties listed on the [SUP] on the redevelopment schedule will soon be going off that schedule as they stabilize and are delivered. So we will reload the pipeline with other projects as they come around and they will be in that new yield range.

Todd Thomas - KeyBanc Capital Markets

Lastly, back to the local gym operators and the personal care stores, how many square feet total are we talking about for these two types of tenants that could be problematic and is there a specific geography where the troubles are sort of located?

Nancy H. Mozzachio

I don't have an aggregate on all of our fitness exposure. The fitness center we've been talking about here on Long Island is 30,000 square feet, but we've got a couple of other smaller ones throughout the portfolio and if you'd like, we can certainly aggregate that for you and get that information to you after the call. I just don't have those numbers here in my statistics.

Leo S. Ullman

But your guess is that it's 1% of our portfolio at most?

Nancy H. Mozzachio

Not even.

Leo S. Ullman

So we're not talking a heck of a lot here, Todd. I'd like to just go back to the development question for one second. Appreciate that our development profile is quite a bit different from the normal picture of acquiring some land and then getting it rezoned and finally getting a tenant. We don't take down land, in general, until we have a signed lease with that supermarket anchor and then we build to a fixed cost. So we're taking an awful lot of risk out of that profile and therefore we can more effectively target whatever our yield is going to be at the outset.

Operator

(Operator Instructions) Your next question comes from Ben Rosenzweig – Privet Fund Management.

Ben Rosenzweig – Privet Fund Management

Just quick question on, I guess it was page nine of your supplemental where you do your funds available for distribution calculation. I think there's a line item in there, CapEx tenant improvement and leasing commission as it relates to second generation space, so that would just be the stabilized properties. I was wondering what caused the uptick there from quarter-to-quarter.

Lawrence E. Kreider, Jr.

It's Larry Kreider, I can't tell you the specific property we had there, it's just normal construction activity that we have. It's been a little low in prior quarters and I think this just balances it out a little bit to the $0.55 per square foot we ordinarily project.

Ben Rosenzweig – Privet Fund Management

This is just a quick clarification also, I guess in the press release when you were addressing same property NOI, it had the third quarter of '08 NOI if 29.2 but then in the supplemental it had it at 29.5, so it said the same property NOI was down 1.7 in the press release, while its down 2.9 in the supplemental. Just kind of curious what might be the cause of that?

Lawrence E. Kreider, Jr.

In the prior year we had insurance proceeds for about $350,000.

Ben Rosenzweig – Privet Fund Management

Then on the 26 new leases that you guys signed in the quarter, were there any tenant improvements on those? Do you have that figure?

Leo S. Ullman

I think the short answer is yes. As to the number, Nancy and Tom, can you address that?

Nancy H. Mozzachio

This is Nancy speaking. I don't have a specific number, but I can tell you with regard to development properties, what we've done here is we did separate the leases associated with development properties. In the case of development properties, generally we go into a deal and we pro forma the entire project. There is a vanilla box cost associated with each particular deal.

When in fact there is additional funds that are necessary to spit out a tenant, it is incorporated back into that rent deal with interest and the rent would reflect it. So, Tom you may have some number, but I can just give you the idea of the process.

Thomas B. Richey

I don't have those numbers at my fingertips, but we can certainly get that back to you as to how many of those new leases involved TI.

Ben Rosenzweig – Privet Fund Management

I guess this goes to kind of your pro forma capital structure, in terms of the proceeds from the RioCan, the placement and the JV, are those going to be used to pay down the line or some of the property specific debt?

Leo S. Ullman

No, it's going to pay down both lines, the development facility and the stabilized credit facility. So, we expect the development facility to be reduced roughly in the order of $25 million and the stabilized credit facility to be reduced roughly in the amount of $36million, $38 million, something of that order.

Ben Rosenzweig – Privet Fund Management

So when you say that you've got commitments of 241 on the stabilized, what do you see that closing in the range of? Is that 241 going to be about right or are you just going to see how –

Leo S. Ullman

No, we're scheduled to close early next month and we're still working with a couple of banks, so we do have the 241 in hand and we may conceivably be a little bit more than that.

Ben Rosenzweig – Privet Fund Management

Okay.

Leo S. Ullman

Was the question the amount outstanding when we close?

Ben Rosenzweig – Privet Fund Management

Well, no I can figure that out myself, but I guess I was just saying what are you shooting for?

Leo S. Ullman

What level are we going to close?

Ben Rosenzweig – Privet Fund Management

Yes. What level are you shooting for?

Leo S. Ullman

We do have the 241 in commitments and we're still working with a couple of other banks.

Ben Rosenzweig – Privet Fund Management

Lastly, towards the RioCan transaction, you had said that it's about an 8.5 cap, but I think RioCan had said something along the lines of adjusted for certain management fees since you guys are handling all those and it was somewhere north of 9% on in place income? Is that correct?

Leo S. Ullman

I don't think that's quite right. Appreciate that these numbers are adjusted for lots of things. There are earn outs still that are available to our company for subsequent leasing, for example, and those may or may not have been figured into those numbers. We have a vacancy factor that's in there for analysis purposes but which really isn't there, etc. So, I don't believe that that's quite correct, and I don't believe that's exactly what they said, as I was on that call yesterday.

Ben Rosenzweig – Privet Fund Management

Just quickly can you speak to what went into your decision making to do that joint venture 80/20 as opposed to an outright sell the assets or I mean more of a 50/50 split perhaps? I mean was it just the capital that you desired and how you wanted to structure acquisitions going forward?

Leo S. Ullman

Well, we have in our portfolio a couple of other JV's and the JV with the Hombre Group was also an 80/20 structure. I think an awful lot of the joint ventures with a moneyed partner are in the 80/20 mode. We had some with Kimco, which were basically also 80/20. We wanted to stay with these properties because we think they're excellent properties. We get the benefit of management fees.

We get the benefit of a buy-sell arrangement if for whatever reason the other party would like to get out. So we want to stay with these properties. They're very good properties, as we think are most of our properties in our entire portfolio.

So the joint venture was a means of raising some equity, which we thought was financially more efficient and less risky than an offering. And it was part of a package with RioCan where they also bought some of our stock and, importantly, we have a going forward arrangement with respect to future acquisitions.

We have announced previously that we were working on joint ventures and we have. We've always thought that this was a very good means of raising some equity that would be efficient. And we think that this deal was by far the best for us and we are sure that will work out very favorably to the company.

Ben Rosenzweig – Privet Fund Management

I was just curious if any part of the decision was that perhaps the assets were kind of being valued at a level that was under the carrying value and because of joint venture accounting you wouldn't have to recognize an impairment even though they were really being valued at that level?

Joe S. Ullman

Well, again, they're not being valued at that level and, again, we're selling partnership interests which are non-transferable, etc., etc. Appreciate that the discussion with RioCan was much more along the lines of trying to arrange an agreement between the parties for an investment in our company of plus, minus $100 million. And the method that we ultimately evolved was part stock and part acquisition of our assets, and we think that's a very good solution because it aligns RioCan's interest completely with ours. And that was an important part of the entire discussion and consideration.

Operator

It appears we have no further questions at this time. I would like to turn the conference back over to Mr. Ullman for closing remarks.

Leo S. Ullman

The overall takeaway here we believe it's clear. Our fundamentals remain remarkably strong. We have experienced no decline in occupancy across our portfolio. Our developments have leased up and are being delivered as promised. And we have delivered and expect to continue to deliver on our promise to reduce our leverage and to manage our balance sheet intelligently and carefully for the benefit of our shareholders. Thank you all very much.

Operator

That concludes today's conference. Again, we thank you all for joining us.

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