Welcome to the Second Quarter Cedar Realty Trust Earnings Conference Call. As a reminder, this conference is being recorded. At this time, all audience lines have been placed on mute. We will conduct a question-and-answer session following the formal presentation. I will now turn the call over to Nicholas Partenza. Please proceed.

Good evening and thank you for joining us for the Second Quarter 2018 Cedar Realty Trust Earnings Conference Call. Participating in today's call will be; Bruce Schanzer, Chief Executive Officer; Robin Zeigler, Chief Operating Officer; and Philip Mays, Chief Financial Officer. Before we begin, please be aware that statements made during the call that are not historical may be deemed forward-looking statements, and actual results may differ materially from those indicated by such forward-looking statements. These statements are subject to numerous risks and uncertainties, including those disclosed in the Company's most recent Form 10-K for the year ended 2017, as it may be updated or supplemented by our subsequently filed quarterly reports on Form 10-Q and other periodic filings with the SEC. As a reminder, the forward-looking statements speak only as of the date of this call, August 2, 2018, and the Company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see Cedar's earnings press release and supplemental financial information posted on its Web-site for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. With that, I will now turn the call over to Bruce Schanzer.

Thanks, Nick, and thank you all for joining us this evening. The second quarter of 2018 represented another solid quarter for Cedar and a milestone for me and Phil Mays, our CFO. Phil and I joined Cedar together at the end of the second quarter in 2011. Having been blessed with the opportunity to lead this outstanding group of people, known as Team Cedar, for the past seven years, I relish the coming years as we work together to achieve our personal and professional goals. Since beginning at Cedar, Phil and I as well as my senior executive colleagues, I fondly refer to as my Kitchen Cabinet, not to mention the totality of Team Cedar, have endeavored to transform what was a challenged shopping center REIT with a bloated balance sheet into a well-capitalized enterprise with a keen strategic focus and culture of everyday excellence. I believe as we continue executing on this transformation, we will eventually be counted among the premier companies in our space. Even in the last few days, we have seen significant measures to advance this objective. Phil will discuss a financing executed by him and his team after the quarter end that enhances our capital structure by paying down mortgages otherwise coming due in 2021 and 2022, thereby leaving us with a single mortgage across our portfolio. Keep in mind, when we started, our entire portfolio was encumbered by mortgages. The highly flexible capital structure we now have is a testament to planning, execution, and relationships, not to mention having a terrific CFO overseeing it all. In a similar vein, Robin will discuss our dogged leasing efforts, spearheaded by Tim Havener and his team. Although the Bon-Ton bankruptcy and resulting vacancies continue weighing on our leased occupancy stats by around 130 basis points, we have…

Thanks Bruce. Good evening. We continue to have positive leasing momentum besides some of the macro retail challenges. During the first half of 2018, we completed 83 leases total and 79 leases at a comparable lease spread of 1.8%. This spread is 4.7% after excluding one unconventional retail anchor space signed this quarter for Trexler Mall and five anchor tenant renewals we discussed last quarter that were proactively and strategically renewed and extended at reduced or flat base rental rates. On a trailing four-quarter basis, again excluding these same strategic leases, we signed 133 comp leases for almost 900,000 square feet at a positive spread of 4.3%. We have been focusing on renewing tenants, both small shops and anchors, 24 months out and converting month-to-month tenancies into term or exiting these tenancies to advance our redevelopment strategy. This quarter we executed 24 renewals at a spread of 8.1%. As of June 30, 2018, our portfolio is 91.7% leased. Despite the return of possession of 116,500 square feet from the two Bon-Ton boxes at Trexler Mall and The Commons, there is only a negative 85 basis point spread over the prior quarter due to all of the positive leasing activity during the quarter. Excluding the Bon-Ton closures, the total portfolio and same-property portfolio leased occupancy would have been 134 and 155 basis points higher respectively. As mentioned in the previous quarters, we proactively address the Bon-Ton bankruptcy and we are in active lease negotiations with tenants to backfill both Bon-Ton boxes. The Company's leasing momentum endures with our redevelopment. We are currently negotiating six anchor leases with national tenants totaling over 250,000 square feet for our mixed-use development projects. Upon execution of these deals, some of which result in the entry of new anchor tenants to the Cedar portfolio, we will…

Thanks Robin. I'm going to add just a few brief highlights to Bruce's and Robin's remarks before opening the call to questions. First, operating results; for the quarter, operating FFO was $17.6 million or $0.19 per share, and same-property NOI when compared to the comparable period in 2017 was up 0.7%. As discussed on our last call in April, we accepted a payment of $4.3 million as consideration for permitting a dark anchor to terminate its lease prior to the contractual expiration. This cash payment along with the related GAAP adjustment for accelerated below-market lease amortization and straight-line rent offset by foregone rental payments had a positive impact of $0.06 per share for this quarter and will positively impact the full-year by $0.05 per share. As a reminder, this terminated dark anchor was located at a property held for sale. Now moving to the balance sheet, shortly after quarter end, we closed a new seven-year $75 million unsecured term loan. This new term loan bears interest at LIBOR plus a spread based on the Company's leverage ratio and we've entered into LIBOR swap that will result in an initial effective fixed rate on this loan of 4.6%. It is important to note that no proceeds were drawn at closing as this term loan permits up to 90-day delayed draws. Accordingly, we anticipate drawing the proceeds late in the third quarter, at which time we will prepay four mortgages totaling $78 million with an average interest rate of 4.7%. These mortgages were scheduled to mature in early 2021 through late 2022, and although the interest rate on the new term loan is similar to the mortgages being repaid, this refinancing increases the average duration of our debt and increases our unencumbered property NOI to 95%. Notably, one of the mortgages being repaid is secured by our East River property located in Washington DC and its repayment will facilitate the redevelopment of this property. Additionally, we ended the quarter with almost $110 million of availability under our revolving credit facility and no debt maturing until 2021. And finally, regarding guidance, we are updating our full-year 2018 guidance and operating FFO range at $0.58 to $0.59 per share. The significant assumptions underlying this guides are noted in our press release today and I encourage you to review them. With that, I'll open the call to questions.

[Operator Instructions] Our first question comes from the line of Todd Thomas from KeyBanc Capital Markets. Please proceed with your question.

Just first question, in terms of the redevelopments, I appreciate some of the commentary there. How far is the Company from getting ramped up in redevelopment spend to that $75 million a year level that you've previously discussed?

So, when we start – I think the way I described it, Todd, was $75 million on average, and we expect the redevelopment to occur over the next five or maybe even in six years, and I would say that that average spend is probably still a reasonably good description of how much we expect to spend. But again, it's not going to be exactly $75 million a year. We do expect to break ground in the beginning of next year, again assuming that the LOIs we are negotiating get converted into leases and some other approvals get done, but what I would tell you is that it will probably have a permit like feel to it, so it will start next year, it will grow in the following two years, and then it will probably sell down as we execute [indiscernible] current capital plan. I'll let Robin expand on that a little.

Yes, I think that's exactly right. So, as we start each project, there will be a larger capital spend in the beginning, and then it will taper off. So, I would imagine that you will see more in 2019 going into 2020, and then tapering it off in 2021, 2022, into 2023, that way as Bruce described.

Okay. So, if you had to, just given sort of where you are in the process with a couple of these, what's sort of a level of investment then that you'd anticipate maybe throughout the remainder of 2018 and into 2019?

So the remainder of 2018 is not going to be terribly meaningful. There's a lot of human capital being invested. But I wouldn't say that it's going to be a huge number in terms of the financial capital. Start going into 2019 is when assuming that we get out of the gates well, you're going to start seeing us getting to that 75 million and probably growing, if we're successful, to slightly over 100 million, and then we would expect that level to continue in 2020 and 2021, and in 2022 start tapering down little bit. So I think that what you'll see is again if we're successful in getting out of the gate in Q1 on the projects that we hope to kick off, you'll start seeing that ramp-up occur in 2019 where we'll hopefully get close to 100 million, if not maybe higher than that. But again, on average over the years in which we're going to be executing these developments, I think you'd see on average about 75 million.

Okay. And then the single, the 29,000 square foot lease at Trexler Mall, just curious how long that space was vacant for, and maybe can you describe that space a little bit, what that means exactly when you say, unconventional retail space?

Sure. So, the space was actually occupied but the tenant was not paying their contractual rent. And when we say unconventional, it wasn't conventional space, in that it wasn't a conventional retail box. It was oddly configured in the back of the space. It puts you in the mind of more of a community center kind of a space as far as how it was configured. So, the tenant actually didn't pay any money in 2018 add very little money in 2017. So, on an actual cash basis, the spread is quite positive on the new contractual deal as compared to the amount we actually received on a cash basis there. But on a contractual to contractual basis, it was a negative spread. And so, that's why as we look at our spreads, we looked at it with it and without it to give you that context.

Got it, right. So, in terms of thinking about the cash flow, more the trajectory of cash flow here, it sounds like it's actually sort of incremental as it pertains to sort of same-store NOI growth or thinking about it from that perspective. So, it would be positive.

Correct.

The spread isn't necessarily going to weigh on the same-store, but I'm assuming it is in the same-store pool now.

It is, yes.

This is Bruce. What's interesting is this is an instance where focusing on the statistic completely obscures the underlying economics. In other words, this is a negative rent spread because contractual to contractual rents are down but our cash NOI will go up on account of this transaction.

Okay, got it. That's helpful. And just lastly for me, so the guidance implies sort of flattish same-store NOI growth for the year. You're at 0.7% for the quarter, 0.4% for the first half. The two Bon-Tons that closed in April, so they were out for most of the period. What would weigh on same-store NOI growth from here in sort of the third and fourth quarter? I guess what factors can you kind of point to that would weigh on growth causing it to moderate from here?

I'm sorry, Todd, I was sneezing. Can you repeat the question? I apologize.

So, guidance implies – bless you, first off – but guidance implies flattish same-store NOI growth. You're at 0.4% I guess in the first half, right. The two Bon-Tons closed in April. They are out for most of the second quarter. What specifically can you point to that would cause same-store growth to moderate from 2Q levels from here?

Sure. So, we do have from a leasing perspective, we have about little between 36 to 37 deals in our leasing pipeline that are in legal right now that are in our forecast coming through that way into – that will increase our NOI. And as far as the Bon-Tons, we have, as we talked about in the comments, we have proactively gone after backfilling those. So, we do have deals keyed up for the backfill of both of those boxes to replace both of those spaces.

Okay, got it.

This is Phil. Let me add just a little context. Keep in mind, and we have talked about it on prior calls, the size of same-store pool, it's about 20 million a quarter. So, for half the year so far, 40 million, I mean 1% growth before [indiscernible], we're talking half of that, so a little less than 200,000 at 0.4%. So, when we say relatively flat for the year, I mean that's why we say it that way, right, and I'm just trying to provide a little context. So, it's not like we're up 0.4 and same-store NOI is growing millions of dollars and we're saying it's going to flip and go negative to get us back to flat for the full year. It is almost flat at, it's up 150,000, or whatever it is. And we're saying it's going to kind of continue that trend for the rest of the year.

Okay, got it. Thank you.

Our next question comes from the line of Collin Mings from Raymond James. Please proceed with your question.

First, Bruce, maybe can you just update us on the status of the dispositions you discussed earlier this year, I mean just more broadly talk about [average] [ph] you might be looking to bring to market or have on the market? It looks like, again, total assets held for sale here now is three different ones that you put in the supplemental. So just maybe update us on that front.

So, in addition to the three assets that we have held for sale, it's Carll's Corner, West Bridgewater, and Maxatawny Marketplace who also have an asset in Mechanicsburg that isn't been our supplemental, that we're marketing and that we expect to close probably in August. What's noteworthy about these transactions, so the first two that I mentioned, Carll's Corner and West Bridgewater, are being sold, I think we described them on our first quarter call as being sold on a per pound basis. At one of them, at the West Bridgewater asset, we did get a termination payment. But beyond that, we now have two vacant anchor shopping centers, which again are being sold for a relatively small amount, and this is just a practical portfolio management thing to just move them out of the Company. Maxatawny and Mechanicsburg are both your classic grocery-anchored shopping centers, sort of the prototypical Cedar shopping center. And what we're seeing in both transactions is that pricing, when thinking about on a cap rate basis, are encouragingly strong. In other words, both cap rates or both transactions are inside of where we have them internally marked for starters, in other words they are priced better, and we're seeing a high degree of investor interest. We think that this is a function of two things. One is our assets on average are, these assets I should say sort of suburban grocery-anchored centers on average, are valued in call it the $10 million to $20 million neighborhood again using broad characterizations. And because the conduit markets continue to be receptive to the financing of these types of acquisitions, buyers continue to be aggressive in terms of how they price them. We're encouraged by that because they continue the thought into your second question, we do contemplate selling additional assets to fund our capital spend into next year. So, for this year, I would say we're unlikely to sell more assets beyond the three assets in the held for sale bucket, plus this additional asset that wasn't in our supplemental or held for sale bucket but likely to sell before the end of the quarter. As we go into next year, our plan is the following, and we have described this sort of mechanical process before, we're going to spend money on our projects, we're going to draw off of our credit facility to fund those obligations in the first instance and then we'll bring assets to market to pay down our credit facility. And if we are able to stay on schedule and commence these projects in early 2019, we would realistically be closing on the divestitures in the middle of 2019, again assuming that everything stayed on schedule. So, I would tell you that you're unlikely to see more transactions in 2018 and you are probably unlikely to see transactions closing in early 2019, assuming that we stay on pace with our redevelopment capital spending plans.

Okay, Bruce. And just maybe along those lines, just to make sure I understand it correctly, so if I go to the guide and see the disposition range of a 15 million to 30 million in the second half of 2018, that would basically contemplate the four assets that you've now identified and that's what we should expect over the second half of 2018, then a pause to some extent, and then as we look into the back half of 2019, some portion of, call it, that 75 million of development spend being funded with dispositions, is that kind of how you guys think about it from a capital planning perspective, did I understand it correctly?

Right. And you are sort of giving me two-parter. One is the range of 15 to 30 and how that relates to our guidance, and then more generally, how we're thinking about divesting assets going into next year. So, the 15 to 30 does cover all those four assets and what it contemplates is just that until they close, we don't know which of them are going to close or how many of them are going to close. If all four of them were to close, it would get you to that $30 million number. If some of them close but not all of them, that would get you to that 15 million. So, Phil and I in talking it through just kind of picked a range that covered the likely outcomes between some of them selling to all of them selling, and that take it to that 15 to 30. But in terms of next year, the divestitures are going to largely be driven by our capital spend that you described in your question.

Okay. And then recognizing having assets at the market, there's going to be some sensitivity to this, and again, two of them more on a price per pound basis, but if we were to think about the two more traditional sales, if you will, how should we think about cap rate maybe on a blended basis, recognizing you may not want to go down to asset level numbers?

So, what I would tell you, and I think I'm only hesitating so I don't want to jinx ourselves, is that the pricing is remarkably strong. So, on a blended basis, we're selling these assets in the low – below a 7% cap rate, so sort of in call it 6.5% to 6.7% cap rate on a blended basis. And that's candidly, we do mark our book pretty conservatively. Those are good prices in our estimation. We're not selling them at the height of the market type prices but these are also not fire sale prices. So, we think that this is an interesting window into the mindset of investors because these were fully marketed transactions, they are both being financed, they are both being bought by sophisticated local buyers, and we're encouraged by that because as we look into the future and we think about our need to sell assets to fund our redevelopments, our hope is of course that the market for these types of assets remains as strong as we're seeing it now.

Okay. And maybe kind of back on, I apologize if I missed this, Phil, but just to clearly think about the top end of the operating guidance coming down $0.01, is that just high without formally including some of these dispositions in the potential outcomes, or is there's nothing else that was driving that, and I apologize if I missed that?

Yes, it's partially this and then some small things, nothing individually significant after that. Within guidance you always give a range. So, just for example, Collin, like one of the items we talked about is between shareholder activism and ongoing litigation approximately $0.01. That can be 400,000 [ramping up] [ph] business to 1.4 million [ramping] [ph] down business. And so, we think maybe we're trending towards the middle or higher end of that also along with the dispositions, and so we trim the top.

Okay. Just two more quick ones for me, just Bruce, in response to dispositions commentary or question, you've commented about the range of buyers. Maybe just from your perspective taking these assets to market, just talk about the depth of that buyer pool, who are you seeing out there coming to market with quality bids?

So, it's a range of buyers. What I would say is, broadly speaking I would divide them into three categories. So, there are the 1031 buyers who are still out there and still have an appetite. You have the private fund or syndicator types who are either a small fund or they syndicate deals but they are very sophisticated underwriters and investors, and many of them have portfolios that are similar in size to Cedar's portfolio. And then you also have local players who understand the particular neighborhoods or submarkets in which these assets are often times located and see some type of a value-add opportunity to exploit that we either haven't recognized or that just makes sense for a smaller buyer but don't make sense for a larger firm such as ours. And I'd say, broadly those are the three types of investors that we're seeing. And we saw a fair amount of depth in all those categories and our marketing efforts. So, while you are definitely seeing on the margin a reduction in the number of copies being signed and bidders circling around an asset, we're seeing enough activity that as we're discovering in this marketing process, there certainly are serious buyers out there who are willing to pay full prices for solid assets.

Okay, all right. That's helpful color. And then last one for me and I'll turn it over. Just, Bruce, we've spent a lot of time on the last couple of calls talking a lot about some of the issues with some of your larger tenants, but just given call it 40% plus of kind of your rents are derived from what you characterize as smaller tenants. Maybe just walk us through what are you seeing on that front a little bit more in terms of just the demand for some of your smaller shop space.

I have a view on that but I think rather than taking all the airtime, Robin is a lot closer to that. She works very closely with Tim Havener and his team. So I'm going to let Robin comment on that.

So, on the small shop side, we're seeing a lot of interest and activity. As I mentioned before, we have a lot of strong pipeline of leasing deals coming through. The macro challenges are still out there, there is no question about that. I think as Bruce alluded to in his comments, I think there is clearly an appetite for these urban type of assets and we're seeing that and seeing an interest in that type of activity and we're seeing that in our redevelopment leasing. But certainly even in the rest of the portfolio, just the amount of leasing volume that's coming through, you're certainly seeing tenants being pickier about their prototype. They want their standard leased prototype, they want their loading, they want their typical box the way they wanted, they are not as amenable to changes and shifts in that, but if you are able to deliver to them what they are looking for, we're able to get deals done. So, that's generally the climate that we're seeing out there.

Okay. I appreciate the color there, Robin. I'll turn it over. Thank you.

There are no further questions at this time. I would like to turn the call back to Bruce Schanzer for closing remarks.

Thank you for joining us this evening. We wish you all a pleasant balance of the summer.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.