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Cedar Shopping Centers (NYSE:CDR)

Q1 2011 Earnings Call

May 6, 2011 9:00 a.m. 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

Nathan Isby - Stifel Nicolaus

Craig Schmidt - Bank of America Merrill Lynch

Evan Smith – FBR Capital Markets

Arthur Friedman – Friedman Asset Management

Operator

Good morning and welcome to the Cedar Shopping Centers Incorporated first quarter 2011 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. As a reminder, today’s call is being recorded. It is now my pleasure to turn the call over to your host, Brad Cohen of ICR. Please go ahead sir.

Brad Cohen – IR, ICR

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 – Chairman, CEO and President

Thank you very much Brad. Good morning and thank you all very much for joining us today on the first quarter 2011 earnings call for Cedar Shopping Centers Inc. With me on the call today are Larry Kreider, our CFO, and Brenda Walker, our COO. Also available on the call today are Tom Richey, president of our construction and development division, and Nancy Mozzachio, our vice president of leasing.

Larry will further report on the company's financial results immediately after my opening comments, and both Nancy and Tom will also participate in today's call with brief reports on their respective areas of operations.

Our company started off 2011 with a strong first quarter as it relates to occupancy, leasing, and cash flows of our properties. Our occupancy for the stabilized properties, which represents 104 properties of our 114 property portfolio, other than 17 properties held for sale, remains at approximately 94%. Our occupancy for all properties including ground-up development and redevelopment properties is approximately 91%.

As Nancy will further detail, our renewal lease results have continued to be remarkable, and yet again show dramatic increases for this quarter. In fact, we have now shown meaningful increases in base rents on renewals for 21 of the last 22 quarters.

Our development activities continue apace as properties are nearing completion and a number of others are continuing to show progress. Tom Richey will provide additional insight on these activities in a few moments.

I would now like to focus on the adoption by the company of a major strategic change initiative, which we have incorporated into our long-term business plan. Our new business plan is focused on disciplined improvement of our overall portfolio quality while also emphasizing further deleveraging of our balance sheet.

In this regard, we are very much committed to, and focused specifically on, 1) improving our fixed charge coverage, and 2) improving our debt-to-EBITDA ratio. In our efforts to meet these goals, we are taking a number of important steps with respect to our portfolio that will encompass a very disciplined approach to adding value.

We are targeting the sale or disposition of a number of properties in secondary or tertiary markets, which properties may be relatively highly leveraged and where the prospects of future growth are generally limited. We expect to achieve such improvement in overall quality and demographics for our properties initially, through such targeted dispositions, and this pruning process is well underway, evidenced in part by the contracts we recently announced to sell substantially all of our remaining Ohio properties.

We are thus in the process of completing the sale of 17 properties including 14 anchored by Discount Drug Mart for approximately $45 million subject to approximately $30 million in debt. As indicated in our earnings release, we have taken an additional impairment charge during the first quarter of this year with respect to these anticipated sales.

After closing of such sales, expected by the end of the third quarter of this year, we will only have 3 net leased small drugstore properties, i.e. 2 CVSs and one Rite Aid, in Ohio, each with a self-amortizing mortgage.

In addition, we are marketing the two small properties that we have in Michigan. We have also put up for sale, and have received strong interest, in a portfolio of five primarily supermarket-anchored properties in the Chesapeake area of Virginia. Those properties are nearly all anchored by Farm Fresh, an affiliate of SUPERVALU. SUPERVALU has experienced some financial difficulties and a number of its chains have sold stores and or are reported to be offering additional stores for sale.

We have previously announced our agreement to sell our 20% interest in all but one of the nine properties in the joint venture with Homburg Invest, the closing of which is still subject to lender approvals for those respective properties. We have also previously announced that we are selling our interest in the Columbia Mall in Bloomsburg, PA.

All of these steps will further reduce our exposure to smaller markets in Pennsylvania and non-core markets in other states. We would fully expect and fully intend as a result of these actions, coupled with selected strategic acquisitions of larger properties with enhanced growth opportunities such as the acquisition of Colonial Commons in the first quarter of this year to improve the overall performance, demographics, and quality of the core properties in our portfolio in the coming years. We know it will take time, but we believe it will have a significant impact in growing our earnings and cash flows over the long term.

In addition to the repositioning of our core portfolio to enhance its value and future growth opportunities, coupled with our ongoing focus on delevering of our balance sheet, we have also invested significant time working with our banks on a new credit facility. We expect to be in a position to share the specifics of that new credit facility in terms of size, rates, covenants, and terms with you once it is completed.

Our FFO for the first quarter of 2011 was $0.14 per share, which was generally consistent with our results over the last several quarters. Our 40-acre development site on Route 1 in northeast Philadelphia, previously leased to the U.S. government and vacated as of mid-April this year, as we had fully expected when we acquired the sites, will have a meaningful impact on our cash flow results until redevelopment at the site is completed. Incidentally, the government is required to restore the buildings on the property to its original state or to pay to us amounts equal to the potential costs of such restoration, which we believe could well amount to several millions of dollars.

The reduction in cash flow, together with the dispositions discussed earlier, will obviously also affect our FFO and AFFO per share results. Accordingly, our basic operating FFO guidance range for 2011, which we are announcing today, and as discussed in our earnings release, will be $0.40 to $0.44 per share and OP unit.

Now I would like to turn the mike over to Larry for some further analysis of our financial results.

Larry Kreider – CFO

Thank you Leo. For full details of our financial results for the quarter ended March 31, 2011, I refer you to our press release issued last night, as well as our supplemental financial information published on our website and also available at www.sec.gov.

Our results in the first quarter reflect stable operations at our core properties, growth through properties acquired both by the Cedar-RioCan joint venture and the company and improved leasing. As indicated on page 9 of our supplemental, the company's pro rata share of revenues for the first quarter as compared to the fourth quarter of last year, this includes the company's share of managed properties but excludes noncash revenues, increased approximately 7%, primarily as a result of the Colonial Commons acquisition by the company at the end of January 2011, partially offset by the acquisition and financing piece earned by the company in the fourth quarter 2010 from joint venture acquisitions early in the fourth quarter.

The company's pro rata share of net operating income was approximately flat, as the additional NOI from the acquisition this quarter was largely offset by the acquisition and financing fees last quarter. Operating results compared to the comparable quarter of the prior year were also quite stable. For the 87 same properties, which comprise approximately 83% of our GLA, NOI, excluding noncash revenues increased by $182,000 to $22.6 million. This reflects steady lease-up at our development properties, offset somewhat by higher bad debt expense, mostly at our redevelopment properties.

G&A expenses were $2.7 million in the quarter including approximately of employee termination charges partially offset by approximately $200,000 of benefits from a legal settlement in the company's favor, thus bringing the base level of our G&A to within our expected range of approximately $2.4 million to $2.7 million per quarter exclusive of noncash stock based compensation mark-to-market adjustments.

Interest expense was higher by approximately $600,000 as compared to last quarter, reflecting debt used to finance the Colonial Commons acquisition. Lastly, operating results continue to reflect the impact of our strategic decision to focus on improvement in the quality of assets in our portfolio.

As of the end of April, the company had completed negotiated sales contracts on all but one properties held for sale and recorded additional impairment charges of $9.9 million, reflecting $2 million for the additional properties held for sale and $7.9 million principally for revised negotiated sales contracts.

Net cash flow provided by operations was $4.2 million in the first quarter of 2011, compared to $3.7 million in the first quarter of 2010. Reflecting the effects of the Colonial Commons acquisition in the first quarter, our ratio of debt to EBITDA was 8.6x in the first quarter of 2011 as compared to 9.3x in the comparable quarter of the prior year.

The ratio of debt to market capitalization was 58.1% in the first quarter, largely reflecting reduction in the company stock price and the ratio of EBITDA to fixed charges was 1.6x in the first quarter of 2011.

The company is working to arrange a three-year extension to the company's stabilized and development property lines of credit that would result in a meaningful reduction of interest expense, including amortization of deferred financing costs when completed.

Additional comments regarding our 2011 guidance. As we indicated in our press release, we expect to report operating FFO of $0.40 to $0.44 per share and approximately the same amount of FFO in 2011. Our press release essentially reconciles our annualized operating FFO first quarter run rate of approximately $0.54 per share to this guidance.

With respect to the $0.06 per share of reduce operating FFO related to the Roosevelt Boulevard properties in Philadelphia, Pennsylvania, this represents revenue on two parcels in the quarterly amount of $1.4 million, or $0.02 per share per quarter, which resulted as expected from the tenant vacating the premises on April 15, and most of which has not been included in NOI in the past. With the first quarter completed, the remaining three quarters represent the $0.06 per share, or $0.06 per share per quarter of FFO.

I'd like to make a few additional comments for those of you who track our net asset value. The bulk of the revenue is on the first parcel, in the amount of $1 million prior quarter, or $0.0014 per share per quarter, and has been included in equity and income from unconsolidated joint ventures on the income statement, and has not been included in NOI. The property value has been recorded net of debt on the balance sheet at a value of approximately $6 million in a line item called "Investment in Unconsolidated Joint Ventures" and has not been reported in our property list at any time.

Revenue on the second parcel, which was acquired in late October 2010, was included in NOI in the amount of $300,000 in the fourth quarter of 2010, or approximately $0.004 per share. For the first quarter of 2011, we recognized $458,000, or $0.007 per share. The property value, beginning in the fourth quarter of 2010, was reported at a book value of approximately $13.3 million.

Now with respect to the $0.02 per share of reduce noncash revenue from amortization of intangible lease liability amortization and straight-line rent, as discussed in last year's guidance disclosure, these noncash revenue items are expected to be lower based on schedules established primarily when the related properties were purchased with below-market rents that typically run through the first or second term of the leases acquired. These amortization amounts have some variability based on unexpected lease terminations.

With respect to the $0.03 per share reduction due to the disposition of properties held for sale, operating results from such properties are includable in FFO through the date of disposition despite reported in the income statement in discontinued operations. The effective removal of these properties is subject to variability based on the timing of closing the actual sales of the properties, which we have generally assumed to be in the third quarter.

Looking to the stability of our core operating properties, we also expect to report constant same-property NOI excluding noncash revenues.

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

Leo Ullman – Chairman, CEO and President

Thank you very much Larry. I'd like to turn the mic over to Tom Richey, to discuss our development activities. Tom?

Tom Richey - President, Construction and Development Division

Thank you Leo. As disclosed in previous communications, the present development and redevelopment pipeline at Cedar is much reduced from its size in past years. Today, Cedar's pipeline has a total of eight projects. Of these, three are ground-up developments while the remaining five are redevelopments of existing operating properties. These projects represent a total of new net investment approximating $50 million.

Significant progress is being made in obtaining the final necessary entitlements for two of the ground-up developments. Each of these projects Kutztown Commons in Kutztown Pennsylvania, and Halifax Commons in Halifax Pennsylvania, should be delivered in late 2011 or early 2012.

The final ground-up development Addisville Commons in Bucks County, Pennsylvania, is slated for delivery in 2013. The Kutztown and Bucks County projects are grocery-anchored developments, while Halifax Commons is pharmacy-anchored.

Of the five redevelopment projects, two, Townfair Shopping Center in Indiana, Pennsylvania and The Point Shopping Center in Harrisburg, have already been delivered earlier this year with a third, Trexlertown Plaza, in Allentown, Pennsylvania, to be delivered later this calendar year.

The Point Shopping Center project consisted of the expansion of an existing operating grocer, while the Townfair project involved the replacement of a dark grocery anchor with a new, much larger grocery store. The Trexlertown Plaza project consists of the relocation of an existing grocery anchor into a new facility.

The final two redevelopment projects in the Cedar pipeline, the Brickyard shopping center in Berlin, Connecticut, and the Shore mall in Egg Harbor Township, are scheduled for completion in 2012 and 2014 respectively.

We continue to consider future project opportunities at Cedar with a previously stated strict and conservative criteria centered on our aversion to risk. We are also continuing to look at projects that have a significant amount of preleasing and entitlements in place, as a means of further mitigating risk.

We have found that the marketplace has continued to provide us with these types of opportunities as well as the more traditional project opportunities provided by the expansion needs of our many grocery tenants.

I'd now like to turn it back to Leo.

Leo Ullman – Chairman, CEO and President

Thank you very much Tom, and in turn I'd like to turn it over to Nancy to talk a bit about our leasing efforts, which continue to be very strong. Nancy?

Nancy Mozzachio – VP, Leasing

Thank you Leo. Recently, I read an interesting statistic contained in a study produced to determine average monthly consumer trips to retail categories. The number that stood out was 7.3. It was the lead number by a long shot, and represented monthly trips by consumers to supermarkets.

Here's why the number is noteworthy. It represents support for supermarket operators already contending with consumers concerns about rising gas and food costs, and it's also meaningful for other tenants and supermarket anchor properties. Monthly visits are a reliable predictor of sustainability. This study helps explain why our new-lease-to-renewal spreads are consistent last year positive, and why our product type remains defensive in an ever-changing retail environment.

Now to our numbers. We completed 22 new lease transactions in the quarter, a 45% increase over the same period a year ago, and a 10% increase over last quarter, very much consistent with our projections. Thirteen new leases commenced in the first quarter. The remaining nine, when commenced, are expected to contribute approximately $303,000 in revenue in 2011 and $1.6 million in 2012.

While the numbers reflect an apparent decline in new lease rates versus terminated rates, further examination will show that this was overwhelmingly skewed by one lease termination, which was strategically ended prior to term to take advantage of a $1 million termination payment offered by the tenant.

We accepted payment in December 2010 and terminated the lease in January of 2011. We felt we could easily release the space, which is located in Virginia, in the year of 2011. New lease rates for this space, combined with exiting termination payments, should provide new net gains that far exceed old rents.

If we exclude this strategic termination, new lease rents for those that have commenced and not yet commenced, versus old rents, reflect a 4.5% increase. Twenty-one leases representing 376,000 square feet renewed in the quarter at 9% spreads. Renewal spreads are up 60% from this time last year, and even though the number of transactions differs from first quarter 2010, this should not be seen as a dip in activity. The difference merely points to a lesser number of leases expiring in the first quarter of this year.

While we believe leasing spreads are a good indicator of internal growth, further growth will stem from eased TI expenditures coupled with good spreads. Just this last quarter, TI costs declined over 60% from last quarter, and over 35% from the same period in 2010, even though leasing activity levels are up considerably, as previously indicated.

Overall, retailers with strong balance sheets dominate our pipeline for new deals, as retailers begin to implement robust expansion plans established last year. In almost every size category, we've seen a surge in activity, the most noticeable in the mid to large size box category.

Last quarter we reported that our plans to complete deals with tenants to fill our largest vacancies in Harrisburg and Bloomsburg Pennsylvania, and Berlin Connecticut, were of utmost importance this year. We are happy to report we executed on those plans and signed leases for 28,000 square feet in Harrisburg at our Oakhurst property, and 61,000 square feet in Bloomsburg at our Columbia Mall property. We expect to sign a 65,000 square foot tenant in our Brickyard property in Berlin, Connecticut within the next two weeks.

In addition, leases were signed in two locations where we had the opportunity to add GLA to exiting centers. We executed a lease with TJ Maxx at our DuBois property in western Pennsylvania, where we plan to construct a 24,000 square foot store due to open in late fall, and executed a lease with Carmike Cinemas at Upland Square in Pottstown, Pennsylvania. The tenant will construct a 45,000 square foot theater, which is expected to open in the spring of 2012.

As we head into this month's annual recon conference, we feel confident in our meetings will further enhance our strong retailer relationships and produce meaningful leasing activity for the coming months and years.

And with that, I'll turn the call back over to you, Leo.

Leo Ullman – Chairman, CEO and President

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

Question-and-Answer Session

Operator

Thank you sir. [Operator instructions.] We'll take our first question from Todd Thomas at KeyBanc Capital Markets.

Todd Thomas – KeyBanc Capital Markets

Hi, good morning. I'm on with Jordan Sadler as well. With regard to your guidance can you discuss some of the underlying assumptions related to the core portfolio that you're assuming in terms of occupancy and maybe same-store NOI?

Leo Ullman – Chairman, CEO and President

Well, Todd, as I said in my remarks, we expect a pretty constant same-store NOI through this year and constant occupancy.

Todd Thomas – KeyBanc Capital Markets

Okay. And I was wondering, Leo, you mentioned with regard to the additional asset sales, the two properties in Michigan and the five in the Chesapeake area, I was just wondering if you could discuss the strong interest that you're seeing and maybe discuss what kind of pricing we should expect, and also who are the buyers for these assets.

Leo Ullman – Chairman, CEO and President

The strong interest has been mostly from private owners who are active in the area. We have generally contemplated based on initial reactions that the sales prices would be generally equal to our cost basis for the properties.

In Michigan, we have not seen a great deal of activity and partly it's a problem of not yet having fixed the Hobby Lobby lease, which replaces the A&P tenancy, although A&P never opened, and Hobby Lobby is the sublessee, that contract is either extendable or terminable by us and we haven't reached an agreement because that may very much affect the desirability of the property to an acquirer.

The other property in Michigan is a small development site near Grand Rapids. We have had some activity for the Columbia Mall property and we continue to market that. Other than that, I think it's mostly been the Ohio properties.

Todd Thomas – KeyBanc Capital Markets

And then just lastly, you talked about the SUPERVALU a little bit with regard to Farm Fresh, but I was just wondering if you can give us an update on the Acme and Shaw's SUPERVALU stores that are in your portfolio as well.

Leo Ullman – Chairman, CEO and President

Well, we have Acme Stores in Philadelphia primarily. They operate very well. We think that if anything should happen to those stores, and we don't contemplate that, that they would be easily retenantable. We do have some Shaw's properties in Massachusetts and we have closed properties there, and Brenda can discuss that. Brenda, would you mention something about the Shaw's?

Brenda Walker – COO

Certainly. We have a Shaw's in Raynham, Massachusetts. It's operating very well. That property has a very high occupancy and they saw a statistic of 7.3 trips per month. I think we can continue to see that property operate well. We have a closed Shaw's in New Bedford. They closed in the first quarter, in February of this year.

Leo Ullman – Chairman, CEO and President

That property is in the Homburg portfolio.

Brenda Walker – COO

That is in the Homburg portfolio. The lease goes into 2024.

Leo Ullman – Chairman, CEO and President

So they are continuing to pay rent.

Brenda Walker – COO

Yes, they are paying rent.

Leo Ullman – Chairman, CEO and President

I think that's about it. Todd, is that satisfactory for your purposes?

Todd Thomas – KeyBanc Capital Markets

Yes, thank you.

Operator

And moving on, we'll next go to Paul Adornato with BMO Capital Markets.

Paul Adornato – BMO Capital Markets

First, with respect to the East Lansing property with the A&P, that obviously is in same-store, but is it also included in held-for-sale?

Leo Ullman – Chairman, CEO and President

No.

Paul Adornato – BMO Capital Markets

What do you think you'll do with the property? Will you try to lease up the A&P before you market it?

Leo Ullman – Chairman, CEO and President

No, in fact we first have to figure out exactly what we will be doing with Hobby Lobby and that in turn will be dependent on, as I indicated, whether potential purchasers would rather have the vacant store versus a continuing lease. That lease is at about $6.25, whereas the A&P lease, I believe, Nancy, was in the $17 area?

Nancy Mozzachio – VP, Leasing

$17.03, something along those lines, yes.

Leo Ullman – Chairman, CEO and President

That property is a couple of hundred feet from the entrance to Michigan State University, so we do expect to have strong interest in that property once we determine what to do with the Hobby Lobby lease, which now is a direct lease rather than a sublease, and that tenant has been paying rent to date. The other thing that's relevant to that property is that we do contemplate having substantial claims under the A&P bankruptcy for leases up to three years, and that's a valuation in the millions of dollars, where we are actively talking to companies who purchase these claims in bankruptcies at a 20-27% valuation of the ultimate claim. And we contemplate that that may be a transaction that we would enter into, which would generate probably on the order of $400,000 or more.

Paul Adornato – BMO Capital Markets

And finally, Leo, you talked about the big picture strategy, which is to focus on asset repositioning and improving certain metrics. What should we expect with respect to the asset repositioning? That is how much and what timeframe do you think we will see dispositions?

Leo Ullman – Chairman, CEO and President

Well, I think you will continue to see dispositions, not only the properties that we have announced, but ultimately we are reviewing our portfolio and determining any properties where there may be a question or a concern that would impel us to sell or offer those properties for sale. And they could include indeed even a couple of our larger development properties.

With respect to the acquisition side of it, we have to maintain very considerable discipline. Our cost of money is substantial, and there is compression in cap rates for properties with higher demographics.

We have been fortunate to have been able to acquire some very, very good properties in the RioCan joint venture, which enhanced our demographics for properties, and those properties are operating very, very well. And we would hope to continue to acquire some of those types of properties, even with more aggressive cap rates and perhaps tinkering with the 20% - 80% formula going forward.

Those are the kind of things that we would look to, but it will disciplined and we are not projecting any meaningful acquisitions during the course of this year.

Paul Adornato – BMO Capital Markets

So if I'm hearing it correctly, there's definitely still an appetite on RioCan's part for your footprint. Is that a fair statement?

Leo Ullman – Chairman, CEO and President

I think it's fair to say. I don't expect it to stand in RioCan's shoes but certainly their cost of money is very attractive. Their announced initiative to acquire additional properties in the U.S. is strong, and I think it is fair to report that our joint venture has operated very, very well, we've acquired properties that have continued to demonstrate strong occupancy, even increased occupancy at a very high level, highly credit-worthy tenancies, long-term leases, good demographics, and increases in cash flows. So I think it's fair to expect that if we can continue to show quality product to RioCan that they would be interested buying them.

Paul Adornato – BMO Capital Markets

And then just finally, on accounting, there was a $0.02 adjustment for amortization of lease intangibles. Just to make sure I understand what's going on. So under accounting you're required to mark-to-market essentially your lease portfolio, and now the adjustment is due to the lower market rents assumed in that calculation?

Larry Kreider – CFO

Well, you're correct in one sense, that when you buy a property, you do set up a reserve account for below-market leases. It's a liability account. That's amortized over a period of time, typically one to two terms of the lease, but it's a schedule that amortizes each year, and we've been amortizing those leases since acquisition. Some of these properties have got to the five-year term for example, and the term of the amortization has just expired.

Paul Adornato – BMO Capital Markets

Okay, so it's no change in the market assumptions?

Larry Kreider – CFO

No, no change at all. It's all historically determined.

Operator

And next we'll go to Nathan Isby at Stifel Nicolaus.

Nathan Isby - Stifel Nicolaus

Can you just disclose what the physical occupancy of the portfolio is, not on a leased basis but actual physical occupancy?

Leo Ullman – Chairman, CEO and President

I'm going to leave the discussion on occupancy to Gus for a moment. Gus, would you explain also, if you would, what we have done with occupancy statistics during the course of the past year in our sup.

Gus - Cedar Shopping Centers

To start off, if you look back at our sup from March of 2010, you would see that the occupancy for the total operating portfolio was more around 94.5%. In June of last year, on the advice of our analysts, we decided to put back in the retenanting properties into our total operating portfolio.

And over the course of December and March, as we held properties for sale, we removed them from the total operating portfolio in accordance with the accounting rules. It reduced that occupancy from 94.5% to approximately 93.5%. Our occupancy right now in March of '11 is approximately 93.6%. We had about seven tenants that were erroneously marked as terminated as of March 31, who did not terminate at March 31. Our actual occupancy for the March quarter should be about 93.8%, which shows about a 20 basis point decrease from December.

In our new leases that we list here on page 13 of our supplemental, there are about 34,000 square feet of new leases that relate to our ground-up developments, which are not in the total operating portfolio. Also, in the new leases executed but not yet commenced, which are not in our occupancy numbers, there are about 24,000 square feet of leases related to our total operating portfolio. What it does is our occupancy is pretty stable from December to March and has shown an increase from March of last year.

Nathan Isby - Stifel Nicolaus

What I was actually referring to was the physical occupancy just in terms of the fixed grosses that have closed and how, if you were to include those into your occupancy numbers, how that would -

Gus - Cedar Shopping Centers

Understood. Yes, the six grocers that have closed represent a total of approximately 360,000 square feet out of the 14.9 million square feet we are reporting. And that represents approximately, let's say, 2.5%.

Nathan Isby - Stifel Nicolaus

Okay, very good. Thank you. And then can you just address, just looking at your portfolio as a whole and then maybe breaking it down a bit, what your sales productivity of the grocers in your portfolio are?

Leo Ullman – Chairman, CEO and President

Well, we have a pretty good idea of certainly the Stop N Shop and Giant component, which represents nearly 20% of our total revenues and of our GLA. Their average sales for the stores in our portfolio are between $630 and $650 per square feet according to our estimates. The grocers are not required to report, so much of this is based on our assumptions and our analysis and conversations with people at the tenants.

With respect to our other stores, it's varied, but I would guess generally that it's in the $400 to $450 per square foot range, with the exception of course, again, of the very strong Stop N Shop and Giant tenancies.

Nathan Isby - Stifel Nicolaus

If you were to look at your portfolio between what's in the RioCan portfolio and what's in your consolidated portfolio, how much of a difference would you say there is in terms of the gross and productivity?

Leo Ullman – Chairman, CEO and President

I think it's probably fairly reflective. In the RioCan portfolio we have, let's say, between 22 and 24 properties. Most have a supermarket component and most are the Ahold affiliates, with limited exceptions, such as Raynham, mentioned by Brenda, and there may be others. But basically, I would say that most would reflect the grocery component with the Ahold concept. So again, at the probably $625-650 per square feet kind of sales results.

Nathan Isby - Stifel Nicolaus

And then just looking at it one other way, can you talk about what the productivity in your SUPERVALU concepts are? And maybe specifically both what's still open and maybe the six grocers that have closed already.

Leo Ullman – Chairman, CEO and President

Well, the six grocers that have closed aren't producing a lot of -

Nathan Isby - Stifel Nicolaus

I know, but where were they before they closed?

Leo Ullman – Chairman, CEO and President

I think in general our properties that we have offered for sale in the Chesapeake area are operating well. I would say in the $400-425 kind of area. And the reason we put them for sale at this time is that they are operating well and they do look good. But strategically for us, we have decided it's a market that we do not want to play in going forward. I think with respect to the other SUPERVALU concepts, Acme in Philly is, I would say, would be in the $500 area. Those are good stores. Washington Center, probably a little down from that, in South New Jersey. That's probably in the $400 area. I think those are the ones that are relevant.

Nathan Isby - Stifel Nicolaus

And the ones that are closed, do you have any figures on those?

Leo Ullman – Chairman, CEO and President

Before closing? They don't report, Nate. None of them report. It's hard to speculate at this point.

Nathan Isby - Stifel Nicolaus

And then just focusing on the Philly property. I remember when you bought it you clearly knew it was not a long-term deal for the IRS there. Can you just talk about what you're looking at, what you've been working on in terms of replacing and IRS, what it's going to cost in terms of time and yield?

Leo Ullman – Chairman, CEO and President

Well, there again it's not predictable. I wish it were in terms of timing and cost. The property was just vacated literally a couple of weeks ago at this point. And we have carefully reviewed the properties in terms of our potential claims for restoration. It represents 40 acres in northeast Philly, just south of the Pennsylvania turnpike, where we have a signalized entrance that's just north of [Red Line] Boulevard. 100,000 cars or so pass this property per day. It's 12-lane traffic, believe it or not, and of course it's Route 1 Roosevelt Boulevard, so it's a very, very impressive site. It is presently zoned industrial. We have been in the process of obtaining potential retail use and dealing with the various entitlement aspects of it. We have also been talking to a couple of very strong Philadelphia developers on the concept of potential joint development activities, which could be multiuse. We have also been approached by schools and industrial users as possibilities. So it's very, very hard, at this early stage, to predict when, and how, and how much.

Nathan Isby - Stifel Nicolaus

Okay, thank you. And then just one final question. Your net recoveries were down this quarter. The expenses were up, recoveries were down. Was that due to snow issues?

Leo Ullman – Chairman, CEO and President

On a cash basis, certainly. On an accrual basis, we're still showing 73% collections, which are, in fact, slightly up.

Nathan Isby - Stifel Nicolaus

Yeah, I was looking in your same-store NOI on page 12 there.

Leo Ullman – Chairman, CEO and President

We think by the end of this month, we will have billed and largely collected on a cash basis much of the year-end billings, which of course were immensely affected by snow removal.

Operator

Next we'll go to Craig Schmidt of Bank of America Merrill Lynch

Craig Schmidt - Bank of America Merrill Lynch

You may have been in the process of answering this, but when I look at the occupancy for the operating properties, from December to March you went from 96.4% to 97.4% and then for the smaller properties you went from 81.9% to an increase of 82.7%. But when I get to the total for opening properties, it went from 94% to 93.6%. I'm just trying to understand why the two different areas could increase yet the total would decrease.

Leo Ullman – Chairman, CEO and President

Gus?

Gus - Cedar Shopping Centers

Craig, you're looking at the table that's in the footnote H? In the sup on page 13?

Craig Schmidt - Bank of America Merrill Lynch

Yes, on page 13, on March and -

Gus - Cedar Shopping Centers

That also includes our ground-up developments and our development properties. That's why there's the difference between the 92.1% and the 93.6%. In the prior quarter at December, it didn't include all the properties. We had to correct the mix.

Craig Schmidt - Bank of America Merrill Lynch

Okay, so it's a mix issue.

Gus - Cedar Shopping Centers

Yes.

Craig Schmidt - Bank of America Merrill Lynch

Great. Okay, then I guess for Nancy, if she could just describe the leasing spreads between the large and the small tenants. How would you characterize them?

Nancy Mozzachio – VP, Leasing

You're talking about new lease spreads, or renewal?

Craig Schmidt - Bank of America Merrill Lynch

Renewal I guess is more important, but both if I can get it.

Nancy Mozzachio – VP, Leasing

Okay. Well, just generally I can tell you that the overall renewal spreads large versus small, of course if it's a lease that comes due with an option that's in place with a larger tenant, you're typically seeing a smaller increase, sometimes no increase at all. The grocer sometimes will give you a small percentage. When we've had the opportunity to negotiate new terms, we have generally had the ability to get a positive free lease spread on a renewal basis. With the smaller tenants, I would say we've been seeing pretty consistently pretty high numbers in terms of our spreads. I'd say anywhere between the 7-11% range, and we're certainly seeing that well into 2011 and any new deals that we're working on for 2012. In terms of new lease spreads, I think that we are showing, and as I mentioned in my remarks, the overall numbers are still positive. Our newer leases with larger-sized tenants, we're still eking out percentages and with the smaller tenants I think pretty consistently I would say maybe 5-7% for new leases for smaller tenants, say under 10,000 square feet.

Operator

[Operator instructions.] We'll take our next question from Sri Nagarajan at FBR.

Evan Smith – FBR Capital Markets

Hi, this is Evan Smith on with Sri. I was just hoping you guys could talk a little bit about specific goals you have in terms of net debt to EBITDA and fixed charge, and also the timing of those goals.

Leo Ullman – Chairman, CEO and President

Well, we can give you sort of a range. Basically, in terms of our business plan, over a two-year period, we would like to move the fixed charge coverage from 1.6 toward 2.0, and with respect to debt to EBITDA, again looking at a two-year period, we'd like to move that 8.3, at which we are now, to, say, the 7.5 kind of range.

Evan Smith – FBR Capital Markets

And with the planned dispositions that you've been talking about, are there any additional impairment charges that you expect to incur this year? And then also, is this going to have any effect on the dividend level going forward?

Leo Ullman – Chairman, CEO and President

We don't expect any effect on the dividend. Our AFFO is substantially in excess of our dividend amount. Our AFFO is in the 43-44% range, and our dividend's $0.36. So we do not expect a challenge in that area. We do contemplate possible additional impairments, which we can't quantify yet. For example, with respect to the Michigan property, if we have a sale there, and possibly Columbia, depending on where we ultimately sell that. But we don't expect large amounts anymore. We took a real hit with respect to our Ohio properties and that's where we think we were most vulnerable. But strategically, we strongly believe it was the right move. And other than that, we do not expect serious impairments.

Larry Kreider – CFO

Just one addendum, we do expect an, in the range of $5 million increase once we dispose of our 20% interest in the Homburg properties. A gain.

Evan Smith – FBR Capital Markets

And then lastly, you talked in the press release about substantially completing all renewal leases for 2011 expirations. Just curious what exactly you mean by substantially, and also what the retention rate was.

Leo Ullman – Chairman, CEO and President

Nancy, would you address that?

Nancy Mozzachio – VP, Leasing

I think last quarter we were talking about that we're more than 50%. We've definitely upped that number. I would say that we are probably two-thirds of the way at this point, with probably another, I would say, 10-15% in contracts, so not yet signed. The retention rate for us is quite high. You're probably in the high 80s for smaller tenants and probably in the low 90s if not higher for the larger tenants.

Operator

And now we'll take our last question from Arthur Friedman at Friedman Asset Management.

Arthur Friedman – Friedman Asset Management

Actually, all my detailed occupancy questions have been very nicely answered, so I won't ask those. I was wondering could you do what you did last quarter, which was give us just an overall macro assessment of the overall economy and how you think it's impacting your strategy and the properties going forward?

Leo Ullman – Chairman, CEO and President

I think it's fair to say that we may be a little bit more pessimistic than some of the reports that have been in papers, and we think our product, which is essentially a defensive product with the grocery anchors, continues to be probably the best answer to the increases in commodities pricing, to the increases in fuel charges and energy costs, all of which we think will impact again on sales for retail properties going forward. Continued unemployment, no meaningful increase in housing starts, all of those things. And no meaningful new construction. We think all of that will continue to benefit our defensive product going forward.

And as you heard from Nancy, in terms of the trips to the supermarket-anchored properties, they are more than double the nearest other category, which I believe is the power centers. So we think we're in a relative sweet spot still, with the challenges that are out there.

The other kind of concerns that we have, which are not impacting us very much, are sales through the web, and we think that will impact electronic stores. Among our tenants, it could impact people like Staples. We don't have that much exposure to, say, Best Buys, but it could impact Staples and Staples has been featuring smaller stores. It could impact somebody like Radio Shack. Again, not a meaningful percentage of our overall tenancy at all, but we think with respect to grocers, they will continue to operate well.

The challenge for the grocers has been, and will continue to be, the amount of food that's being sold in drugstores, convenience stores, and dollar stores. And that will impact on our general leasing parameters in that the grocers, in terms of their exclusivity, would clearly prefer not to have challenges with dollar stores, which to date have comfortably been in the same supermarket-anchored properties as the grocers. And I think going forward that huge component of our total tenancy that's measured by the dollar stores will be challenged. But the dollar stores we think will continue to do well unless pricing from China increases greatly as a result of transportation costs for example.

Arthur Friedman – Friedman Asset Management

That's right, because actually we noticed Targets are starting to sell a lot of food too. Thank you very much.

Operator

And that's all the time we have for questions today. At this time I'd like to turn the call back over to our speakers for any additional or closing remarks.

Leo Ullman – Chairman, CEO and President

Thank you very much, operator. Thank you again all for listening in to our call. For closing remarks, I would only say that the company will continue its capital recycling strategy, which we started last year, to upgrade the quality of our assets through selected asset sales as we've been talking about and through dispositions generally. We expect that our efforts will further reduce our debt and improve long-term growth in our opening results in order to build and enhance shareholder value, which of course is what we have to be about. So thank you very much, and that's the end of this call.

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