Cedar Shopping Centers, Inc. Q4 2009 Earnings Call Transcript

| About: Cedar Realty (CDR)

Cedar Shopping Centers, Inc. (NYSE:CDR)

Q4 2009 Earnings Call

March 4, 2010 10:00 am ET

Executives

Brad Cohen – ICR

Leo Ullman – Chairman, CEO and President

Larry Kreider – CFO

Tom Richey – President, Development and Construction Division

Nancy Mozzachio – Vice President, Leasing

Analysts

Todd Thomas – KeyBanc Capital Markets

Jordan Sadler – KeyBanc Capital Markets

RJ Milligan – Raymond James

Mark Lutenski – BMO Capital Markets

Steve Swett – Morgan Keegan

Ben Rosenzweig – Privet Fund Management

Operator

Good morning, everyone. Welcome to the Cedar Shopping Centers Inc. fourth quarter and year end 2009 earnings conference call. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

It’s now my pleasure to turn the floor over to your host, Brad Cohen of ICR.

Brad Cohen

Thank you very much, Kevin. Good morning, everyone. 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 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 and that release was put yesterday and from time-to-time in the Company's filings with the Securities 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?

Leo Ullman

Thank you very much, Brad, and I’m glad you’d memorized the disclaimer. Good morning, everyone. Thank you very much for joining us today on the Cedar Shopping Centers Earnings Conference Call for Fourth Quarter and Year End 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 Operating Officer and Nancy Mozzachio, our Vice President of Leasing are also on the call and available to you.

I’d like to take to discuss first various aspects of the consistent and remarkable strength of our company’s operations. Necessities retailing remains the strongest areas within the retailing sector. Such bread and butter stores and operations are, of course, the hallmark of our portfolio and the essence of our business plan and strategy.

Our occupancy has remained at 95% for the last quarter, for the past year, for many past quarters and for many past years. The reason we have been able to maintain such remarkable occupancy levels in such difficult times is, in fact, quite simple.

We primarily own properties with dominance super markets in the respective markets in stable areas of the Northeast. More than 75% of our properties are anchored by supermarkets and/or drug stores. In fact, more than a third of our base rental income is from supermarkets.

It is also important to note that not only do our supermarket leases extend for more than a 11 years on average, excluding of course, extension options, but very importantly, the average supermarket rents are, in fact, higher than the rents for our other ancillary retail within our portfolio. This apparent anomaly is, in fact, contradiction to the focal or about shopping centers.

Our supermarket anchors are and wish to remain the dominant groceries in their respective areas. They generate remarkable sales and they are willing to pay rent to maintain their spot in the best retail sites.

Also, you should note that again, contrary to the focal or and to experience of many other owners at operators our renewal leases have continued to show remarkable increases and strength. Thus, for each quarter, this year, notwithstanding the difficult times, not only have our renewals evidence substantial increases but importantly our new leases have been a rental rate substantially above those have expired leases.

The reason for this, again, is quite simple. Our average rental rate for the portfolio is only approximately an $11.5. This provides to us the opportunity to sign new leases as we have very effectively done at increased rents. It is also a testament to our outstanding leasing team.

A second area that I would like to focus on today is our attention to balance sheet’s strength and as a corollary, the positioning of our company for future growth.

In accordance with our business strategy, as it relates to overcoming these difficult times we have taken a number of important and carefully considered steps. First of all, as planned, we have reduced our overall debt by use of proceeds from a number of sources.

They include, one, the recycling of capital through joint ventures for some of our existing properties, where we have been able to play stable and highly occupied properties into joint ventures and thus realizing substantial proceeds attributable to selling, say, 80% of certain properties as we did with RioCan, while at the same time, removing substantial debt from our balance sheet.

Two, the continued successful sales of some of our smaller properties involving primarily, drug store, anchored properties in Ohio, again, realizing additional cash proceeds and further reducing our debt.

Three, a SEPA program, which involves certain cash advances against sales of our stock essentially at the market. And finally, four, selling approximately 12.5% of our stock to RioCan, coupled with the warrant to purchase additional stock.

In addition to those four steps, we extended our principal credit facility for an additional two-year period with a one-year extension option. Additional details are further discussed in our earnings release, our SEC filings, and in Larry Kreider’s comments.

Through these various steps we have greatly reduced our outstanding balances under our primary credit facility. Upon completion of the RioCan transfers, we will have created availability of more than $100 million.

We managed our debt maturities carefully so that we basically have no remaining maturities in 2010 and only one property specific loan due in 2011. We continue to replace floating rate debt with attractive property specific fixed rate debt which we have been able to source from many new local lenders at attractive rates.

Finally, we have reduced our development pipeline by delivering almost all of our announced projects. We have only perhaps 35 million that we expect to spend in 2010 on the announced properties in the pipeline. All of which will be available under our credit facilities, including extension options, these facilities will continue for an additional couple of years and will provide us with substantial availability.

Going forward, we look to our strategic alliance with RioCan as now standing driver of potential growth. This is a great partner, not only with substantial cash to be committed to U.S. real estate, and also with banking relationships which will provide to our joint ventures access to substantial financing.

Most importantly, RioCan is a savvy real estate investor and operator, with the culture and infrastructure with which we are extremely comfortable. We expect to acquire to gather some great properties. The fee structure for Cedar, in our 80-20 joint venture arrangements with RioCan, including acquisitions, property management, leasing, construction management, and financing fees, are expected to add meaningfully to our company’s yields and cash flows.

As previously indicated, the parties anticipate acquiring a number of properties over the next two years with 50% to 60% financing. Cedar’s commitment for these properties assuming, for example, $500 million in acquisitions, would be in the order of $40 million to $50 million, which having regard to our existing balance sheet and credit facility availability should be readily digestible.

There is a lot of opportunity for Cedar in the coming years. We have demonstrated our ability to operate very well in an extremely challenging cycle and to generate strong cash flows while improving our balance sheet.

Our company continues to evidence strong results with the risk adverse portfolio, a very experienced management team and solid potential for meaningful growth and shareholder values.

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.

Larry Kreider

Thank you, Leo for full details of our financial results for the quarter ended December 31, 2009. I refer you to our press release issued last night as well as our supplemental financial information published on our Web site and also available at www.sec.gov.

Our results in the fourth quarter featured tremendous strides we have made in securing our capital structure in a cost-effective manner and continued steady operating results. Because our operating results were consistent and well-documented in our press releases supplemental I will limit my discussion here.

The stabilized occupancy remains 95%, bad debt expense remained approximately 2.5% of total revenues, and expense recoveries were at an acceptable 71%, consistent with last year. Lastly, core renewal leasing continues to show respectable results, increasing almost 5%.

Operating cash flows reflecting seasonal timing of payments remain very substantive as well. Net cash provided by operations was $16.2 million in the fourth quarter of 2009 as compared to $9.2 million in the third quarter of 2009

Another operating non-GAAP cash flow measured Funds Available for Distribution or FAD was constant at approximately $7.12 million to $7.2 million for the fourth and third quarters, providing a dividend payout ratio of approximately 67% based on a reinstated dividend of $0.09 per share on a quarterly basis.

It should be clear from our press release and prior announcements. Our financial position has improved dramatically as a result of the capital raising and financing activities in the fourth quarter of 2009 and first quarter of 2010. First in the fourth quarter we entered into $105 million of capital transactions with RioCan.

In 2009, we closed on a $40 million sale of common stock. In 2009 and 2010, we closed on approximately $50 million of the $65 million we have agreed to receive from the transfers of properties to the RioCan joint venture. In 2009, we recorded an impairment charge of $23.6 million as a result of the property transfers.

Second, in the first quarter of 2010, we sold $60 million net of expenses of common stock comprising 9.6 million shares at a base price of $6.60 per share. We closed on the greenshoe yesterday.

Third, we have now sold approximately $7.5 million of common stock under our SEPA program with UK Hill Associates [ph] and Raymond James including on the last day of 2009 received a $5 million, against which we issued shares ratably through our January 2010.

Fourth, we have closed our extended and reduced stabilized property line of credit with $285 million of commitment, due in January 2012 plus a one-year expansion with a syndicate headed by Bank of America and KeyBanc.

Fifth, we have steadily closed on the sales of properties in our drug store anchored properties primarily in Ohio. This has yielded approximately $8 million in cash and eliminated another $17 million of debt while causing us to incur additional impairment charges of approximately $3 million in the fourth quarter.

Sixth, we have minimal maturities of property specific debt over the next few years of this time. We have no remaining maturities in 2010 and $21 million in 2011.

At December 31, 2009, we have $70 million borrowed on our $150 million development property line of credit and $61 million borrowed on our $77.7 million Upland Square syndicated construction financing. Both are due in 2011 and are extendable to 2012.

We have delivered most of our ground of development projects and presently, contemplate one ground of development project cut down Pennsylvania and two redevelopment projects in the Shore Mall and Trexlertown Plaza in addition to further tenant build-outs at our delivered projects.

We continue to observe and improve lending environment in the banking community at various levels. And we are focused on placing fixed rate property specific debt on properties in our variable rate lines of credit when appropriate.

The result of all these transactions is a significant improvement in our financial flexibility of balance sheet strength. For example, after giving effect to all these transactions our ratio of pro forma debt to market capitalization was a decrease to 59.5% from 71% at the end of the third quarter, with market prices roughly comparable.

Our debt-to-EBITDA ratio will have decreased to 8.3 times from 9.6 times at the end of the third quarter. Our EBITDA to fixed charges ratio will have increased to 2.1 times from 2.0 times in the third quarter 2009.

And borrowings under our stabilized line of credit will have decreased to approximately $99 million from $234 million immediately prior to the RioCan transactions following the final property transfers to the RioCan joint venture and application of the $5 million over-allotment proceeds, most of which we received yesterday.

Lastly, our interest expense charges will decrease approximately $1.8 million per quarter as compared to those incurred in the fourth quarter 2009.

Let me provide a little commentary on the guidance that we reflected in our press release. We have provided guidance of $0.60 to $0.70 per share excluding the particular uncertainties listed in the press release, but including the non $0.12 per share non-cash accounting decrease related to amortization of intangible lease liabilities and straight line rents.

These adjustments relate to the properties we acquired in prior years with long-term leases significantly below market for which GAAP accounting requires recognition of the so-called lost rent for a period of time that we estimated at the time of acquisition or until the tenant lease.

In 2010, this time has arrived for some tenancies causing the drop off in the market rents. After adding back this non-cash accounting reduction, our guidance is roughly in line with consensus.

Additionally, our AFFO and cash-based NOI are unaffected by this non-cash accounting reduction. Our guidance includes the effects of the previously announced events that I just mentioned that we entered into to strengthen our balance sheet and enhance our financial flexibility.

These include the sales of common stock at various times over the last few months, the transfer of properties to the RioCan joint venture, the November 2009 extension of our stabilized line of credit, the increasing stabilization of our development projects throughout 2010, and the announced sales of our drug store anchored properties primarily located in Ohio. After taking into account these events, we believe that our 2010 AFFO will approximate our 2010 FFO and our 2010 cash pro rata NOI will approximate our 2009 cash pro rata NOI.

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

Leo Ullman

Thank you very much, Larry. Operator, we'd be pleased to take questions at this point.

Question-and-Answer Session

Operator

(Operator instructions). First up we go to Todd Thomas at KeyBanc Capital Markets.

Todd Thomas – KeyBanc Capital Markets

Hi, good morning. I am on with Jordan Sadler as well.

Larry Freider

Good morning, Todd and Jordan.

Todd Thomas – KeyBanc Capital Markets

Just question on guidance, lot of your peers have provided same-store NOI forecast for 2010. I was just wondering if you could talk about what you think is in store for your portfolio next year, this year?

Larry Kreider

Well, as I said, our cash pro forma, our cash NOI, should be consistent with 2009.

Todd Thomas – KeyBanc Capital Markets

Okay.

Larry Freider

That is roughly same-store.

Todd Thomas – KeyBanc Capital Markets

Right. And then looking over your development credit facility, I was just wondering which properties on that line and also are there any requirements as to how long you can leave the debt on the properties even if constructions complete in there, they are nearly stabilized?

Larry Freider

You are talking to property –

Todd Thomas – KeyBanc Capital Markets

The development credit facility

Larry Freider

Developmental line of credit?

Todd Thomas – KeyBanc Capital Markets

Correct.

Larry Freider

The development.

Leo Ullman

I think there is no restriction on how long it can stay on, until the maturity of the facility, which at this point is mid-11 with an extension to '12. We have substantially completed and deliver four properties that were previously on the line and are still partially in the line. And we have two major re-tenanting projects that are involved with the line. The development property in cut stand will be included. We do not have any numbers yet for the Trexlertown and Shore Mall properties. Perhaps, the largest property that we have been in our portfolio the Upland joint venture property is largely delivered except for some small stores, perhaps, Tom, if you are on the line, perhaps you could give a little color to the remaining part.

Tom Richey

I will be happy to, Leo. Upland Square, as you know, has a separate credit facility and we intend to spend some dollars fitting out tenet space or tenet spaces have been constructed there and that will depend on tenant absorption. The balance of what we need to spend on the line really relates to the same fit out work at the likes of Campbelltown, Blue Mountain Commons, Heritage Crossing and some others that are substantially delivered with some spaces yet to go. The remaining to be spent can range anywhere from $22 million to the $36 million that we specified earlier.

Larry Kreider

Todd and Jord, we don’t see any issue in today’s climate with placing properties specific debt on these properties. However, we do like to wait until they receive pretty full or achieve pretty full stabilization so that we achieve optimum fixed debt.

Tom Richey

Also with at least for couple of these properties, there could be targets for merchant building solutions into a joint venture, including, for example, the RioCan joint venture. Under those circumstances we would wait for property specific debt on based on consultation with the joint venture partner.

Todd Thomas – KeyBanc Capital Markets

Okay. And where is leasing at Upland Square right now? Can you provide an update on everything of that project?

Leo Ullman

All right. Nancy, are you on?

Nancy Mozzachio

Yes.

Leo Ullman

And/or Tom?

Nancy Mozzachio

We are relatively close to the number that we reported, I guess, last quarter. What we’re working on today are multiple letters of intent, I mean, in some cases, with the same space. We’re not prepared at this point in time to just take any deal if it’s not the right economic deal for us. We’re obviously interested in selling the space but we’re also interested in the growth of the NOI there. So, we are making progress and expect that we will report probably 3 or 4 percentage points above where we were at the end of last year with new deals.

Jordan Sadler – KeyBanc Capital Markets

Okay. And it’s Jordan. I just wanted to dig in a little bit more to the cash NOI number being the same year-over-year. Larry, you said, it’s predominantly the same-store portfolio but I know, you, in the latter half of last year, completed handful of developments, obviously, and so, you got some contribution from those developments. And so, if you could maybe give us a little bit more insight or color into what happens between the core portfolio from an occupancy standpoint versus market rents, so that we may be able to sort of understand what goes on?

Larry Kreider

Here are the dynamics that are going on, on cash pro rata NOI. Indeed, we are adding significantly for NOI from our developments, as they achieve stabilization, catering that is the effect of contribution of the properties to the RioCan joint venture, which have the financial benefits that we have discussed.

Jordan Sadler – KeyBanc Capital Markets

Okay. So you are suggesting that the core sort of same-store portfolio will also be flat year-over-year?

Larry Kreider

I believe that’s what –

Jordan Sadler – KeyBanc Capital Markets

Is it fair?

Larry Kreider

That’s what we are projecting in our time.

Jordan Sadler – KeyBanc Capital Markets

And that occupancy is down a couple hundred basis points or 100 basis points to 200 basis points with a positive mark-to-market on rents?

Larry Kreider

We have a specific plan with regard to our tenants and those that are leaving and tenants that we’re putting in, but its approximately constant occupancy overall.

Jordan Sadler – KeyBanc Capital Markets

And then could you just clarify for me on the intangible lease liability and straight line rent amortization reduction you’re seeing next year. I guess on a cursory level the FAS 141 treatment of above market, below market rents, but essentially, so, what happens, and I don’t know this is the right characterization, when you under wrote these level of rents you had below market rents you had an intangible and there they you have amortized through and now that’s burning off as these leases expire. Would it be safe or fair to say that the market rents rolled down some amount from the time that you under wrote these deals and therefore you won’t be capturing the upside in the release so the renewal?

Larry Kreider

Yes, we set these time schedules five years ago or four years ago and that’s the fixed time, they are coming to the end in 2010 for, if we look at lease by lease. But at that time each tenant has a different story because its five years after we made our original projection, and in some case, our guidance reflects what we think is going to happen with regard to re-leasing. In some cases, we are re-leasing at higher rates, in some cases, there are renewing leases that are not still yet at market.

Jordan Sadler – KeyBanc Capital Markets

Okay. We will follow up after. Thank you.

Leo Ullman

Todd, just an add on, take for example of a property that has a Kmart in it and we have a couple of those, where the rent is substantially below market and where we originally contemplated that Kmart would not renew and that we would be able to replace Kmart with a tenant at market and that sub-position at the outset was taken because Kmart filed and was not spending money on the stores that everybody assumed it was a real estate play. In fact, Kmart has renewed substantially all of its leases and certainly, those in our portfolio. And we have not been able to capture that increase while the market has remained at least at the higher number or better.

Jordan Sadler – KeyBanc Capital Markets

That’s helpful, thank you.

Larry Kreider

All right.

Operator

Next up from Raymond James, we have RJ Milligan.

RJ Milligan – Raymond James

Good morning, guys.

Larry Kreider

Good morning, RJ

Leo Ullman

Good morning.

RJ Milligan – Raymond James

Can, Leo or Larry, can you talk about the other expense or the other revenue line this quarter was $1.3 million versus fourth quarter '08 it was $130,000, what’s in that line?

Larry Kreider

Yes, we had other revenues, it was the lease termination income of about 800,000 and we have $4,000 of other items.

Leo Ullman

The lease termination, the $800,000, was a ratable part of a payment that was made for the property at Oakhurst Plaza where Giant vacated to move into our new Blue Mountain Commons property, that was the largest part of that item.

RJ Milligan – Raymond James

Sure, if you were to net out that one-time lease term, the same store is down more than 2.6%, means that the way to look at it, because that’s not a recurring number?

Larry Kreider

I don’t believe it would be down 2.6%. Looking at the cash number, I see, 24.9 versus 24 be up a little bit, roughly comparable.

RJ Milligan – Raymond James

Okay, thank you guys.

Larry Kreider

Okay.

Operator

The question now from Mark Lutenski of BMO Capital Markets.

Mark Lutenski – BMO Capital Markets

Hi, I was wondering if you could discuss your G&A expectations for 2010.

Larry Kreider

Well, we don’t expect anything unusual in 2010 but I have to point out that the number does bounce around quite a bit as a result of this mark-to-market which we have specifically excluded effects from our guidance. So I think the average over 2009 excluding the mark-to-market would be roughly comparable to 2010, that’s in our guidance.

Mark Lutenski – BMO Capital Markets

Okay. And I’m wondering what’s your appetite for doing additional acquisition? I know you have approximately $500 million in that joint venture with RioCan, but do you really?

Leo Ullman

Let me just address that. First of all, there is no agreement on $500 million that was just announcement …

Mark Lutenski – BMO Capital Markets

Up to $500 million?

Leo Ullman

I’m sorry.

Mark Lutenski – BMO Capital Markets

Up to $500 million?

Leo Ullman

Up to $500 million, but it’s not a contractual term, it’s an expectation of the parties. We do have the two-year exclusives in our respective areas. We are very hopeful that we will reach those kind of numbers, and we are working very, very hard on that.

What is interesting is that there has been for our kind of product being supermarket anchored properties in the northeast that are stable along the lines that RioCan and we, and our joint venture would be looking for.

There is tremendous, tremendous demand and tremendous amounts of money available for this product, relatively little product coming on the market and enormous competitive bidding for these properties, involving 30 or more bidders at a time, and its coming from everywhere, be it foreign sources and government funds, pension funds, asset managers, representing various types of funds, smaller investors from the Mid East, from Europe, from Canada, and, of course, a number of the traditional large joint venture players.

So there we do expect to be acquiring and we are working very hard on it and we have made serious inroads on a number of properties and we hope to be announcing those within the next couple of months. We did acquire our first property, as you are aware, with RioCan for approximately $19 million in a supermarket anchored property near Reading, and that’s a very attractive property, but again cap rates are being severely compressed at the moment to the point where acquiring a good property at above 8 is very, very difficult.

Mark Lutenski – BMO Capital Markets

Okay, I appreciate the comments. And I was wondering you talked about positive rentals in your portfolio. I’m wondering what happened in the fourth quarter for the renewal they were down slightly and was there an aberration there?

Leo Ullman

No, the renewals were up with the exception of one specific tenancy and we have experienced very, very good results, so last time we spent quite a bit of time discussing physical fitness facilities where we put a couple of those away at very attractive increased rents. We have got the large Giant Eagle supermarket in Indiana, PA, which will be delivered or the Pad will be delivered this month and that’s a very attractive item. The one negative that affected the quarter’s results was the 85,000 square foot Burlington Coat Store, it renewed in the context of at the same time are terminating the value city lease at the Shore Mall property.

Mark Lutenski – BMO Capital Markets

Thank you.

Operator

(Operator instructions). We’ll move on now to Steve Swett at Morgan Keegan.

Steve Swett – Morgan Keegan

Thanks very much. Larry, with your interest assumption for next year and you said down $1.8 million on a quarterly basis from fourth quarter what are your expectations for capitalized interest and is that estimate include the in-changing capitalized interest?

Larry Kreider

Well, we expect capitalized interest to decrease somewhat as I think as evident you could see the trend already in our supplemental on our income statement where we do breakout the lines. Well, we do have some other projects that are continuing, but I would say, capitalized interest would remain at a lower level, but the $1.8 million is primarily the cash interest expense net up all the factors that are included.

Steve Swett – Morgan Keegan

Okay. And then just related to the amortization of the intangible lease liabilities, is that something that just continues to roll down at a steady rate through the year to get to that $0.12 adjustment or is it more of a step down at the start of the year and then a flatter run rate?

Tom Richey

I think it’s a steady rate during the year.

Steve Swett – Morgan Keegan

Okay, it steps down to a steady rate or it declines to a steady rate?

Tom Richey

I have to say we have to go down property by property, I don’t know that I have the quarterly step downs. There are some pretty large ones as you might imagine in there.

Steve Swett – Morgan Keegan

Okay, I will follow up with you off-line. Thanks

Tom Richey

Yes, I probably just don’t have a specific.

Steve Swett – Morgan Keegan

Thanks very much.

Operator

We’ll move back to Todd Thomas.

Todd Thomas – KeyBanc Capital Markets

Yes, hi, just a quick follow up. I was just wondering the guidance, I know, it doesn’t assume any fees from acquisitions or any acquisitions. Is that also for the $19 million asset that was already acquired or those fees excluded as well?

Leo Ullman

Well, on that property, we own, of course 20% but the fees are pretty small on that. And I don’t think we included them in our projections for the year.

Larry Kreider

It certainly was not included in our budget, which we did last year and the amount is small, we did consider it, but it’s just a small amount, did not move the needle.

Todd Thomas – KeyBanc Capital Markets

Okay, and what about any fees from the first seven properties in the existing joint venture?

Larry Kreider

Those are included in our budget and our guidance that we did though.

Todd Thomas – KeyBanc Capital Markets

And how much is the total fee income related to the joint venture and guidance?

Larry Kreider

I don’t have the specific amount there, so I have to…

Todd Thomas – KeyBanc Capital Markets

Can you tell us the fee structure, so maybe we could arrive that is it off of asset value or equity value, third-party asset?

Leo Ullman

I will give you the fee structure, its 3.5% of gross revenues. And with respect to leasing, it’s generally in the order of 5% step down to half of that with renewals, construction management is 5% of construction costs, the acquisition fees don’t come into play. A financing fee could come into play for at least two of the properties and in the years some more beyond that. And I think that’s about it. The acquisition fees as I said didn’t apply. The refinancing fees for existing loans or for new loans on the same properties are basically a 0.25%.

Todd Thomas – KeyBanc Capital Markets

And there is no asset management fee right, there is just the property management?

Leo Ullman

There is no asset management fee as such –.

Todd Thomas – KeyBanc Capital Markets

And the acquisition fees would apply on going forward acquisitions like on the $19 million and on the next ones you do?

Leo Ullman

Yes.

Todd Thomas – KeyBanc Capital Markets:

And what is that –?

Larry Kreider

It’s about $560,000 for the seven properties on an annual basis, now, not all those properties that have been contributors yet, so the property management fees don’t commence until contribution.

Leo Ullman

Just to answer the other half of your question, Todd, the fees are 0.75%; acquisition fee was $150,000 cap per property.

Todd Thomas – KeyBanc Capital Markets:

Okay, great, all right, thank you.

Operator

Our last question will come from Ben Rosenzweig at Privet Fund Management.

Ben Rosenzweig – Privet Fund Management.

Hey, guys, thanks for taking my question. Quickly on the income statement what’s the increase in G&A contributed to?

Larry Kreider

In the fourth quarter?

Ben Rosenzweig – Privet Fund Management

Yes, in the fourth quarter

Larry Kreider

It is a basis that were accrued based on performance at the end of the year and stock-based compensation awards amortization, the only accrued in the fourth quarter.

Ben Rosenzweig – Privet Fund Management

Okay, so just the extra comp there. The impairment charges from the discontinued op that you guys talked about, that was the disposition of those drug store properties in Ohio, can you guys elaborate, was it more than that?

Leo Ullman

Yes, the impairment charges were attributable to the Ohio properties, but we also announced the impairment relevant to the properties contributed to the joint venture.

Ben Rosenzweig – Privet Fund Management

Right, right, but I think it will come out as discontinued ops for the Ohio

Leo Ullman

Yes.

Larry Kreider

That’s correct.

Ben Rosenzweig – Privet Fund Management

So, can you kind of talk about those properties in a little bit more detail like, how did you select those, are you trying to exit the drug market in Ohio, what kind of cap rates did you see on those or –?

Leo Ullman

I can generally discuss those. We have a nine properties that we’re talking about in this context. A couple of those were net lease generally single asset properties or single tenant properties. A couple of those were in New York. They involved tenants like CVS and Staples. We did consciously try to identify properties in our Ohio portfolio that were relatively easily saleable.

Our greatest concern in that area has been the Columbus area where we have experienced some vacancies. But we have at this point sold eight and we have one that’s pending. And the impairment that we announced was about 3.5 million and the gain was about a 0.5 million. But in terms of identifying them its properties that we thought were relatively saleable, easily saleable and we continue to look for those opportunities. But the estimates that was in one of the reports that the cap rates of 9 to 10 is probably pretty accurate, with the exception of McDonald’s Waffle House property we sold at a 6 cap, but sadly enough that’s not prevailing.

Ben Rosenzweig – Privet Fund Management

Right. And so, when you say easily saleable, just from what I’ve seen that means basically good occupancy maybe like sub-6% non-recourse financing with like 5 to 7% available or 5% to 7% remaining years, is how you kind of define as easily saleable?

Leo Ullman

I think that’s right. It’s historically been sort of a good product for the 10/31 purchasers who would have been in the past been able to finance up to 100% of the cash flow. That is not really generally available at the moment, so we have been selling the kind of properties that you’ve mentioned and we’ve gotten half a dozen offers on them and generally private local developers and owners rather than the dentists and doctors, etc., that we used to get.

Ben Rosenzweig – Privet Fund Management

Right. Okay. And then, just kind of turning towards occupancy at the stabilized portfolio, I know that you guys what you report is more of the financial occupancy, can you kind of speak to what’s the physical occupancy, was at the end of the fourth quarter and how you see that trending?

Leo Ullman

I don’t think there is any meaningful difference between physical occupancy and financial occupancy. There are virtually no tenants paying rent to ardent occupancy, there are a couple, we have one grocer, for example, paying rent and no longer in occupancy. We have, I guess, about four properties where larger tenants are paying rent, but not in occupancy. They go out as far as 2027 in one case for a Shaw’s in Massachusetts, but otherwise there isn’t a heck of a lot that isn’t in occupancy. Our shopping centers are operating and they are highly occupied.

Ben Rosenzweig – Privet Fund Management

Okay. So you are basically talking about the 58,000 square foot farm fresh in Kempsville Crossing Virginia that moved down October, lease until 2014 –

Leo Ullman

Right.

Ben Rosenzweig – Privet Fund Management

And you talked about the Shaw’s West Bridgewater Plaza, 57,000 square feet, what about the Sam’s Club in Connecticut. I think it was over 100,000 square feet that moved out but they still got a lease.

Leo Ullman

Well, that has moved out and we at the time that we bought the property we thought they would move out. We knew that they were likely to move toward side across the street, which they have done and we have been working with very much with Nancy’s group to replace that tenant. And we are fairly positive about that.

Ben Rosenzweig – Privet Fund Management

Okay. So, just that’s 200 plus basis points of divergence between physical and financial?

Leo Ullman

I think that’s right. With the exception of those four grocers they are four, another one that will close is that the Ukrop’s in Fredericksburg, Virginia, where again, they will continue to pay rent.

Ben Rosenzweig – Privet Fund Management

Right, okay. And then just I know you guys had disclosed the Giant that moved across to Blue Mountain Commons in Oakhurst, and they pay the lease termination fee. I noted that you guys moved in your classification Oakhurst to a re-tenanting property. I think I am so not exactly sure what that means. I know what you have redevelopment and you got ground up development, you don’t count it in your stabilized portfolio, but what exactly is re-tenanting, it’s just seems that when somebody moves out, it’s goes into re-tenanting, but how does that seems the classification?

Leo Ullman

Primarily that it goes below the stabilized level. And that point we put it into re-tenanting and at that property, with the supermarket moving out, we have also had a couple of smaller ones that either have moved or in the process of moving out. But there again, we expect to re-tenant the property but the re-tenanting is that one, I think we also have that at Lake Raystown and we have it at the Giant Eagle property in Indiana, PA that I mentioned. We are still including all of that at the 91% level that we announced. So it’s all in our numbers and even with those we’re at 91% plus occupancy. It’s actually a fraction over 91%.

Ben Rosenzweig – Privet Fund Management

Right. I know you guys disclosed the occupancy of your overall portfolio. When I pull up the press releases it’s a big, big thing is its occupancy, 95%. So that’s just of the properties that are over80% basically.

Leo Ullman

It’s correct, which is most of our properties, but –

Ben Rosenzweig – Privet Fund Management

Right, right.

Leo Ullman

Yes.

Ben Rosenzweig – Privet Fund Management

Okay. Just wanted to make sure I understood everything, thanks for the color guys.

Leo Ullman

Right.

Larry Kreider

Thank you.

Operator

With that ladies and gentlemen, we will thank you for participating in the question and answer session. I will turn things back over to Leo Ullman for any additional or closing remarks.

Leo Ullman

Thank you very much, operator. My closing comments largely mirror the comments of the outset of the call. Our company overcame one of the most difficult years in the country’s history with remarkable strength. Our occupancy, revenues and NOI were generally undiminished.

We also successfully renewed our credit facilities, reduced our debt and as mentioned earlier, carried on our capital recycling strategy, including the sale of some properties. At the same time we put ourselves in a position through our joint venture with RioCan and with substantial availability under our credit facilities to take advantage of some fine investment opportunities. With the deep and experienced management team to effectively take advantage of these opportunities, we expect to strongly drive shareholder value during this and coming years. Thank you very much.

Operator

Ladies and gentlemen, again, thanks for joining us. That will conclude today's call. Have a good day.

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