Cedar Shopping Centers CEO Discusses Q4 2010 Results - Earnings Call Transcript

Mar. 3.11 | About: Cedar Realty (CDR)

Cedar Shopping Centers, Inc. (NYSE:CDR)

Q4 2010 Earnings Conference Call

March 3, 2011, 10:00 am ET

Executives

Brad Cohen – IR, ICR

Leo Ullman – Chairman, CEO and President

Larry Kreider – CFO

Nancy Mozzachio – VP, Leasing

Brenda Walker – COO

Analysts

Todd Thomas – KeyBanc Capital Markets

Paul Adornato – BMO Capital Markets

Sri Nagarajan – FBR Capital Markets

Arthur Friedman – Friedman Asset Management

Operator

Good morning and welcome to the Cedar Shopping Centers Incorporated fourth quarter and year-end 2010 earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open to your questions following the presentation. Additionally, today’s call is being recorded.

It is now my pleasure to turn the call over to your host, Brad Cohen of ICR.

Brad Cohen

Thank you very much, operator. Good morning. At this time, management would like me to inform you that certain statements made during this 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 and Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995.

Although the company believes that expectations reflecting 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 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, which was put out 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 our 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?

Leo Ullman

Thank you very much Brad as always for your disclaimers. Thank you very much for joining us today on the Cedar Shopping Center’s earnings conference call for the fourth quarter and full year 2010 results.

With me on the call today 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.

We have had a very strong quarter and a good year. As you will note from our earnings release and from our supplementary information filed last evening, we announced large increases in revenue growth and net operating income attributable in large part to acquisitions during the year.

Our operating FFO, excluding non-cash items and certain transaction expenses, was $0.14 per share for the quarter and $0.59 for the year, which in each case exceeded our guidance. We are, of course, pleased with those results.

Very importantly, our occupancy for our stabilized core properties based on tenants in place and paying rent was 94%, a significant incremental increase over prior periods, and our total occupancy including redevelopment properties again reflecting only tenants in place and paying rent was 92.5%, also a meaningful incremental increase over prior periods.

If we had included signed leases, our occupancy levels would have been even higher at 95%, and 93.5% respectively. These strong occupancy results are attributable to our development properties coming on stream, and also correspondingly to outstanding results from our fine leasing team headed by Nancy Mozzachio, who will shortly discuss some of our leasing efforts and achievements.

Our FFO and our income metrics were affected as Larry will further discuss by substantial capital transactions during the course of the year, with generated proceeds of some $185 million. Those proceeds were used in large part to pay down our primary credit facility to the point where that credit facility as of the end of the year had borrowings of 29.5 million, and availability of approximately $110 million, which has greatly enhanced the flexibility on our balance sheet, improved our overall debt to EBITDA from 9.4 to 8.3, and substantially reduce our debt to total capital percentage to approximately 56% from 64%.

We very successfully acquired 14 properties during the year in our joint venture with RioCan. Those properties evidenced strong anchor tenants with long leases, very little vacancy, new construction and solid sales results. Our company benefits greatly from the structure for each of these properties by way of acquisition fees, financing fees, property management fees, and the like. We purchased those properties at cap rates ranging from 7.5% to 8% on a cash basis with our conservative underwriting standards, and we were able to place attractive financing of those properties generally at approximately 5% based on 55% to 60% loan to value metrics.

We expect to leverage returns to drive strong net operating results for our company during the current year and years to follow. In the current environment, we are seeing more aggressive cap rate and general cap rate compression, with reports of acquisition by our brethren of even subsixes, while at the same time interest rates have increased substantially at levels approaching 5.75%, a point where the spread between ingoing yields and interest expense have thus diminished to relatively small and potentially unattractive proportions.

Our acquisitions have evidenced a commitment by us to acquire properties with generally higher demographic profiles as opposed to smaller market properties in our core group. This commitment towards stronger demographics is also reflected in our current efforts to recycle capital, and pay down additional debt as we dispose slower growth properties in secondary and tertiary markets.

We will continue effectively to shed debt as an integral means of delevering and enhancing our balance sheets. Specifically, we have sold or placed for sale substantially all our Ohio properties, consisting of 22 properties, all but four of which are drugstore anchored. We have already disposed of seven Ohio properties, plus another four properties in other states.

In addition, we have now placed our two properties in Michigan, and a few of our smaller properties in Maryland and Virginia up for sale. With respect to our Pennsylvania properties, we have had a very successful joint venture with the Homburg Invest Group of Canada and the Netherlands, for nine supermarket anchored properties, of which eight are in Pennsylvania. Pursuant to a buy-sell arrangement under that joint-venture, recently triggered by the Homburg Group, and after substantial discussions, we opted to sell our 20% interest in eight of those nine properties, acquiring the 80% Homburg interest only in Meadows marketplace in Hershey, Pennsylvania, a ground up development property, anchored by a giant food store supermarket in the same general market as the large Colonial Commons, which we have just purchased.

The sale of our 20% interest in the other eight properties will result not only in a gain and further meaningful reduction in debt, but it also evidences our intent to reduce our commitment to smaller markets in favor of higher demographics. We will thus reduce significantly our commitment to some slower growth markets in Pennsylvania, and reduce the total number of giant supermarkets in our portfolio by approximately 20%, and reduce the giant number of annualized base rents from the present 17.8% of revenues to approximately 14.8%.

We have announced that we have placed a substantial number of properties for sale, and have taken a meaningful impairment with respect to those properties. At the same time, as a result of such dispositions, we will be shedding a lot of debt and of course losing some income offset in part by interest expense savings. We believe that our efforts to further delever our portfolio, targeting a lower debt to EBITDA ratio and a higher fixed charge coverage, while focusing on assets with higher demographics in our portfolio, will all enure to the benefit of our shareholders, and create greater shareholder value.

With that, I would like to turn the call over to our vice president of leasing, Nancy Mozzachio, who will discuss the leasing environment and some of our leasing results. I will then ask our CFO, Larry Kreider, to walk us through some of the financial data. Thereafter, we would as always welcome your questions, your thoughts and comments. Nancy.

Nancy Mozzachio

Thank you Leo. Our strong results for the quarter and year evidenced our commitment to increase shareholder value through effective leasing efforts. We executed new leases for the quarter totaling approximately 288,000 square feet, including square footage leased within properties out for sale.

For the year ended 2010, we leased a total of 424, 600 square feet. Last year, we projected a 100 basis point increase in occupancy due to new lease commitments. We are pleased to report we met our goal in 2010. It is important to know that leases recognized in the fourth quarter of 2010 are expected to contribute approximately $2.2 million in revenue for 2011.

Now to renewal activity, we are proud to report we’ve renewed 466,000 square feet for a quarter at 6% spreads on straight-line basis, and renewed 1,581,439 square feet for the year, with average spreads of 5.58% also on a straight-line basis. Of this yearend total, 6 leases occupying 529,616 square feet renewed at current rates pursuant to in place lease contracts. For leases other than the six flat renewals, our average renewal rate increases to on a straight-line basis 7.68% on 1,51,823 square feet. For the current year, we have already renewed 63% of leases set to expire.

I would like to point out with the exception of one quarter in 2009; we achieved positive renewal spreads for the last 20 quarters. We’re proud of this record. Our leasing totals are the result of lot of hard work by our leasing team, comprised of eight individuals. Leasing velocity within the portfolio is increasing at all size levels. Leasing within our development properties, namely Upland Square and Crossroads is gaining momentum. With the recent lease signings, Upland Square is 91% leased, Crossroads is now 82% leased.

Small store leasing is improving in all geographic regions within the portfolio. Well capitalized regional franchisees are committing to locations with greater frequency, and national chains are poised to grow platforms in a systematic way for 2011 and 2012. In this quarter’s filings for the first time, we are separately reporting small store and large box occupancy. As of 12/31/2010, small store occupancy was 82.2%, large store occupancy as of December 31 was 94.4%. We expect these numbers to further increase during 2011.

With that, I will turn the call back over to Leo.

Leo Ullman

Thank you very much Nancy. And now Larry will take us through some of the financial data. Larry.

Larry Kreider

Thank you Leo. For full details of our financial results for the quarter ended December 31, 2010, 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 fourth quarter feature stable operations in our core properties, growth through properties acquired by the Cedar/RioCan joint venture, and improved leasing and continued progress on our financial metrics.

As documented in our supplemental financial information document on Page 9, revenues and net operating income for the fourth quarter, including all of our managed properties, but excluding non-cash revenues, increased approximately 24% and 26% respectfully as compared to the third quarter of this year, primarily as a result of the newly acquired properties purchased by the Cedar/RioCan joint venture; including acquisition and financing fees.

By early in the fourth quarter, we completed the last of the 14 properties purchased by the Cedar/RioCan joint-venture. Operating results also reflect continued leasing at our development and stable results in the rest of our portfolio.

Our financial results, as measured by same property results, were stable with the exception of the financial impact of approximately $350,000 from the bankruptcy filing of A&P and the one lease it rejected. However, we believe we may have a fairly substantial substantive recovery on our claim, which we would record at a later date. Other than this item, our same property results were again consistent as compared to last year and last quarter.

G&A expenses were $300,000 higher than last quarter due to some additional tax and accounting costs, but still within the expected range of approximately $2.4 million to $2.7 million per quarter, exclusive of non-cash, stock based compensation of mark-to-market adjustments.

Interest expense was flat compared to last quarter as debt levels and variable interest rates were consistent. Preferred stock expense increased by $1 million as a result of the August issuance of 2.85 million shares. Lastly, operating results reflect the impact of our strategic decision to focus on improvement in the quality of assets in our portfolio. In the quarter, management decided to hold 17 properties for sale, 15 in our Ohio drugstore anchored portfolio. The resultant impairment charges of $36 million comprised virtually all of the discontinued results of operations.

Net cash provided by operations was a robust $17.9 million in the fourth quarter of 2010, as compared to $6.6 million in the third quarter of 2010. The third quarter reflected seasonal payment of insurance and real estate tax bills, while the fourth quarter reflects collection of operating amounts due to the Cedar/RioCan in the ordinary course.

As we noted in our press release, in 2010, we raised approximately $185 million of capital in the form of common and preferred stock, transfers of properties to the RioCan joint-venture and other property sales. In connection with the property transfers and sales, we also removed property specific debt of approximately $107 million from our balance sheet.

In 2010, we only used $30 million of capital, and approximately $40 million pro rata of property specific debt to purchase 14 properties in the Cedar/RioCan joint-venture. These had a total purchase price of $345 million, and were made on an accretive basis and earned the company substantial fees. We also placed $200 million of property specific debt on these properties.

As a result, comparing the fourth quarter of 2010 to the fourth quarter of 2009, our ratio of debt to EBITDA decreased to 8.3 times from 9.4 times, our ratio of debt to market capitalization decreased to 56.1% from 66.3%, and borrowings under our $185 million stabilized property line of credit decreased to $29.5 million from $188 million.

As we indicated in our press release, we have deferred providing guidance for 2011 operating FFO to a date on or prior to the first-quarter 2011 earnings call, due to a substantial number of asset related transactions that we recently undertook, related to strategic initiatives and the timing of these events.

However, let me provide some perspective relative to our fourth quarter operating FFO as it relates to expected ongoing operations for 2011 full year and first quarter. With respect to non-recurring items, operating FFO in the fourth quarter of 2010 included acquisition and financing fees earned on fourth quarter acquisitions, approximately $900,000, bad debt expense related to A&P bankruptcy, approximately $350,000, and reductions in non-cash revenue approximately $270,000 relating to amortization of intangible lease liabilities, and straight-line rents.

With respect to ongoing revenue, the company expects to achieve leasing spreads on renewals in the 5% to 10% range. With respect to acquisitions, the fourth quarter of 2010 included for only two months operating FFO from the event [ph] portfolio, and the Cross Keys acquisitions acquired for $117 million. The fourth quarter of 2010 also did not include operating FFO for the Colonial Commons acquisition that the company bought in January 2011, for an aggregate purchase price of $49.1 million.

Lastly, with respect to discontinued operations, the fourth quarter of 2010 includes operating FFO of approximately $340,000 relating to the 17 properties held for sale in the quarter, and approximately $240,000 net of sales and purchases relating to properties included in the Homburg joint-venture transactions as previously disclosed.

We expect all these properties to continue to contribute to operating results until underlying property specific transactions are consummated.

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

Leo Ullman

Thank you Larry. Operator, we would be pleased to take any questions, comments or thoughts.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We will go first to Todd Thomas with KeyBanc Capital Markets.

Todd Thomas – KeyBanc Capital Markets

Hi, good morning. I am along with Jordan Sadler.

Leo Ullman

Good morning.

Todd Thomas – KeyBanc Capital Markets

Good morning. Leo, in your prepared remarks and in the earnings release, it sounded like there are more dispositions being contemplated than the asset sales that have been announced, I guess the 17 properties that were placed on the market in the quarter, can you just provide some context around the volume of total sales in 2011 that we should expect, and maybe how much in gross proceeds you would expect to generate?

Leo Ullman

I don’t think I could provide that at this moment Todd. I did mention that we were selling a couple of properties in Michigan, and that we had placed for sale a couple of properties in Maryland and Virginia. We expect to further review our portfolio with our board, and to provide some further color when we provide guidance at the end of the coming quarter. Again, it will be difficult to quantify the exact amounts at this point.

Todd Thomas – KeyBanc Capital Markets

Okay, how about some color around the pricing that you expect to achieve on I guess the 15 Ohio properties and the other two, and what kind of expected timing are you anticipating today?

Leo Ullman

The timing again is not clear because it is a process to sell the Ohio properties. We do not expect to achieve results much better than 8.5% to 9.25%.

Larry Kreider

Todd, just one additional, we do expect to achieve based on what Leo just said, $67 million in total proceeds.

Todd Thomas – KeyBanc Capital Markets

Okay, that is helpful. And then just flipping to acquisitions, can you characterize what you are seeing and sort of how active you expect to be on buying property, while you reposition the portfolio through asset sales?

Leo Ullman

Just a further clarification on Larry’s point, with the 67 million in sales, we expect part of that to be approximately 34 million of debt or so that we would be eliminating. In terms of acquisitions, we really have to try to bifurcate those with the acquisitions within the RioCan portfolio and those on balance sheet. For the RioCan portfolio, we will be targeting 150 million to 200 million. Whether we achieve that or not will be a function as I mentioned in my remarks, of cap rates and cap rate compression and interest costs. But that is certainly our target. And that would be by the end of October, because that is when our JV period technically matures.

With respect to on balance sheet, it is very hard to determine we bought the $50 million or so Colonial Commons property. We would be looking for additional opportunities of that sort with redeveloping and retenanting prospects in good demographic areas with some good growth prospects. I would not expect it to exceed 50 million to 100 million on balance sheet at this moment.

Todd Thomas – KeyBanc Capital Markets

Okay, and then just lastly, maybe this is for Nancy, regarding the leasing activity, I may have missed some of this in your prepared remarks, but how much annualized NOI do you expect for leases that are signed but not yet commenced to contribute?

Nancy Mozzachio

Well, we have leases that we completed in the fourth quarter of 2010 that we expect to contribute 2.2 million in 2011, and that number of course, would be slightly larger for 2012. And then since the quarter is closed we’ve signed other new leases that we expect those to probably contributed at least a quarter of $1 million for 2011, and probably upwards of 600,000 for 2012.

Todd Thomas – KeyBanc Capital Markets

Okay. Thank you.

Operator

(Operator instructions) Next from BMO Capital Markets, we will hear from Paul Adornato.

Paul Adornato – BMO Capital Markets

Hi, good morning.

Leo Ullman

Good morning.

Paul Adornato – BMO Capital Markets

I was wondering if you could tell us if the properties subject to the Homburg buy-sell, if those properties were presented or considered for the RioCan JV.

Leo Ullman

Not really is the short answer. What basically happened is that the Homburg Group triggered the buy-sell, and we then had the opportunity to buy or sell those nine properties. We did talk to RioCan about it, but it was really our decision to sell most of those properties, all but the one property that I mentioned, because we felt on balance that was the way to go.

I don’t think that it would have been a good idea to even create a situation where there might have been a cherry picking approach or so, because this was basically an overall transaction for both parties.

Paul Adornato – BMO Capital Markets

Okay. And with respect to asset dispositions, could you talk about your expectations for those markets in general, and why the timing makes sense now, as opposed to perhaps sometime in the future when cap rates may compress a little bit?

Leo Ullman

Well, I think it reflects an acceleration of a process that was started by our company a year, year and a half ago, to look at our portfolio very carefully, even though most of it has been acquired in very recent years, and to programmatically move to dispose properties that were in lower growth, smaller markets, even if performing relatively well, because in the long run I think it is reasonably clear that the market has favored better demographics, and lower debt metrics, and we’re positioning our company to benefit from those important metrics.

So, we looked at and have targeted much more than the ones that we talked about, the ones that we mentioned earlier at 67 million, that is probably, let us say two thirds or so of what we reasonably expect to sell, and it may be quite a bit more than that. But we have looked at our properties, we have carefully evaluated all of our properties, we have looked at those with higher leverage. We have looked at those with lower growth, and we will continue to do that exercise and it will take a year to 2 years we think.

Paul Adornato – BMO Capital Markets

Okay. And finally, what is your appetite for moving up the risk spectrum at this point, obviously most of your activity has been through the JV, but you have done at least a couple of deals outside of that. So, what should we expect Cedar to do by itself?

Leo Ullman

I don’t think you should expect us to move up the risk ladder very, very much. We have historically benefited from opportunities to reposition and redevelop and retenant properties, and we expect to be looking out for those opportunities. We think that specifically within our development and redevelopment pipeline, we have a lot of opportunities still, and we will be working on those. It includes, for example, the Shore Mall property, the properties on Roosevelt Boulevard in Philadelphia, plus the Trexlertown properties, among the biggest development and redevelopment opportunity, and we will be working hard on those. But that is probably as much on the risk profile as we would tolerate at this point.

Paul Adornato – BMO Capital Markets

Okay. Thanks very much.

Operator

(Operator instructions) We will move next to Sri Nagarajan with FBR Capital Markets.

Sri Nagarajan - FBR Capital Markets

Thanks and good morning. Leo, a broader strategic question if I may, I mean I think you have hit on the point that as the market is favoring a little bit of higher demographics, your stock has been consistently trading at or below NAV. It appears to add – again in your prepared remarks you also talked about a board and a review process in there. Why not a strategic review of your entire portfolio here as a logical next step, and it appears that your recent activity of selling non-core assets and exiting JVs is also accelerating. Could you just comment on the various strategic review options that you discussed perhaps with the board or are there thoughts on increasing your NAV or new strategies there?

Leo Ullman

Well, Sri, we have developed we think a very, very strong portfolio of properties over the years. As you will note, we have been able to demonstrate very strong consistent performance throughout the various quarters. Our occupancy has remained very high; our cash flow has been predictable almost to the nickel, so we think we have developed the most outstanding conservative risk averse portfolio that maybe out there with more supermarkets than anyone else on a percentage basis.

So, we think we have a very high quality portfolio to begin with, and we purposely and carefully assemble that portfolio. What we are doing now is as I mentioned acceleration of sales of – in the pruning mode. We are pruning, we are not converting ourselves to a different animal. This is a very, very high-quality portfolio and strong operating portfolio, and what we are doing again is to prove them so as to create better demographics and again to delever, but we are not changing the focus of our company beyond what we have announced, and from which we started this enterprise.

Sri Nagarajan - FBR Capital Markets

Again on the dispositions, and all the questions just to hit on a point of the volume acquisition is obviously you have talked about as well, but from a financial metric perspective, is there a goal that the board has outlined to you from a debt to EBITDA level, or a fixed charge level that you alluded to in your prepared remarks that you are striving to achieve through these dispositions?

Leo Ullman

We are working with our board as always to adopt a business plan, which will target certain debt to EBITDA metrics, and fixed charge coverage metrics, which we will attempt to achieve, and as mentioned this is a continuing process, and we will announce some of those targets when the time comes.

Sri Nagarajan - FBR Capital Markets

So, I don’t think – is it part of the guidance process that you would think that it is – you would announce something like a goal of say, 5 times or whatever it is by a certain year-end target, along with the guidance is there something that we could expect going forward?

Leo Ullman

I would indeed expect to do that, and expect to do that by the end of the second quarter, but it won’t be five times regrettably.

Sri Nagarajan - FBR Capital Markets

Okay. Just trying – so on the – a few bookkeeping questions on the A&P termination, obviously you know, you are more optimistic with the bad debt of 350,000, what is the lost revenue or NOI annually that is – I believe that maybe already a tenant in this space, but what is the lost incremental NOI there?

Leo Ullman

I just appreciate Sri that A&P never opened in this site. It was to be (inaudible) in East Lansing, Michigan. And it never opened. It built a new beautiful store with a new parking lot, everything else, and A&P subleased it to Hobby Lobby at a substantially reduced rent.

Hobby Lobby is still in place, and that is now a direct lease as a result of the disaffirmation of the lease by A&P. Our annual loss in revenue for that property is what Larry, roughly?

Larry Kreider

About $560,000.

Sri Nagarajan - FBR Capital Markets

Okay. Fair enough.

Leo Ullman

That is the base rent for A&P, but Hobby Lobby pays. That is okay. The difference annually is about 560, but appreciate again that under the bankruptcy code, we do have a continuing claim for I’m going to say 15% subject to correction by Stuart [ph] of remaining rents under the lease for a 20 year term in this case, and as a result of that our claim, and under the code is in an amount in excess of $2 million.

Sri Nagarajan - FBR Capital Markets

Okay. Fair enough. Now again, the recent news on Supervalu has not been good. It is closing a few stores in the north-east at least. How has this affected, or will it affect your portfolio at all in terms of rent going forward, and is there a positive outcome for you in terms of repositioning, or if any at all?

Leo Ullman

Well, you were tough today Sri. We do have five of our six store closings are Supervalus all of which are still paying rent, and I will ask Brenda to discuss this a little bit. Brenda if you are…

Brenda Walker

Okay. At the end of 2010, we had 4 supermarkets. We have subsequently had two more closings. The total square footage at the end of 2010 was 234,000 square feet of our GLA, and that is approximately 1.6%. The base rent for the four at the end of the year was $3.2 million. Was that helpful.

Leo Ullman

What is significant there Sri is that the leases go on, 2014 is the first to expire to 2030. So, the lease schedule goes 2014, 2016, 2017, 2027, 2024, and 2030. So, we have an awful lot of rent to collect, but as indicated, all but one are Supervalu concepts. Incidentally, one of those properties is in the Homburg JV portfolio.

Sri Nagarajan - FBR Capital Markets

Okay. So, from a top rent revenue collection perspective, it is not impactful for your top line at least yet?

Leo Ullman

No, but I appreciate for each of the respective properties it is a challenge for some of the other tenants where applicable, and we’re working hard with other groceries, among others, to fill that space, even though it is the supermarket that has the right to sublease in mostly all of those cases.

Sri Nagarajan - FBR Capital Markets

Fair enough. Finally on the JV fees itself, as you ramp up your RioCan JV here, maybe a breakdown of what is recurring JV fees, and potential fees in the future could be really helpful, just in the quarter and looking at 2011, perhaps you guys can outline to us what is recurring fee stream that would come from the JVs?

Leo Ullman

Okay. Do we have that?

Larry Kreider

Yes. Well, in the quarter, we have about $1 million of acquisition and financing fees that are all included in other revenue, and I think ongoing, the amount that we expect from property management fees on an annual basis is $1.5 million.

Sri Nagarajan - FBR Capital Markets

So, $1.5 million annually?

Larry Kreider

Yes.

Leo Ullman

For the property management.

Larry Kreider

For the property management.

Leo Ullman

The acquisition fees and the financing fees are separate one-time transactions.

Larry Kreider

So, as an addendum to that, it is about $2 million of property management and accounting fees?

Sri Nagarajan - FBR Capital Markets

Okay. I guess, as the portfolio grows, one could expect this 1.5 million to grow in size as well?

Leo Ullman

We hope so.

Sri Nagarajan - FBR Capital Markets

Okay. Fair enough. Thank you so much.

Larry Kreider

Thanks Sri.

Operator

And our last question will come from Arthur Friedman with Friedman Asset Management.

Arthur Friedman – Friedman Asset Management

Hi, good morning Leo and everyone.

Leo Ullman

Good morning.

Arthur Friedman – Friedman Asset Management

You have actually answered most of my questions, so I just want you to explain one thing, I think for a lot of us while you went through this process of reviewing your properties for the last year, this whole slew of sales in the last two months looked like a change in strategy, but I think you have articulated it clearly now. So I understand it. I guess the only question I have then at this point is what are you seeing overall in terms of the marketplace, just from a business strategy standpoint?

Leo Ullman

Well, on an overall basis, I think that we have – I’m going to speak personally for a second. I feel quite a bit nervous about our economy. I feel that the increase in gas prices, I think increases in consumer product prices, increases in interest rates will all have a meaningful effect on retail in general. And I think our kind of defensive portfolio will continue to perform well under the circumstances.

Correspondingly, I think our acquisition opportunities will be limited because of the increases in rents and the amount of money available to buy stuff. I also think that we’re going to see declining reports, even though there were pretty robust reports by many retailers, I think we’re going to see some declines as a result of increases in commodities and in hydrocarbons.

On an overall basis, I am a little bit more guarded than the optimism that you hear and see at the moment. Correspondingly, there is not much new development. So that there is substantial demand for our properties as you have seen in our leasing results. So, I feel that our properties will continue to operate very well, but I do worry a bit about retailing in general during the next year.

Arthur Friedman – Friedman Asset Management

Thank you very much. Good presentation.

Leo Ullman

Thank you very much Arthur.

Operator

And that is all the time that we have for questions today. I will turn the conference back over to management for any additional or closing comments.

Leo Ullman

Thank you very much operator. In closing, we wish to stress that our fine management team, again supported by our board, tenants, lenders and shareholders has delivered strong results for the fourth quarter and full year 2010. Going forward as noted, we will be very much focused on rationalizing our portfolio towards higher quality and demographics, delevering to improve our critical financial metrics, and where appropriate making acquisitions to also further enhance the quality of our portfolio, all-important efforts to create value for our shareholders.

Thank you very much operator.

Operator

Thank you. Ladies and gentlemen that does conclude today’s conference. We thank you for your participation.

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