Welcome to the Second Quarter 2020, Cedar Realty Trust Earnings Conference Call. As a reminder, this conference call 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 2020, 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 2019, as updated 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 10, 2020, 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 website 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.

Good evening and thank you for joining us for Cedar Realty Trust Q2, 2020 earnings conference call. Before moving to my prepared remarks I would like to take a moment to sincerely thank my colleagues both on team Cedar and on our board of directors. This period has been one that we as a nation will all remember for a long time to come. It is truly generation defining. For our company in particular it has been a defining experience as well. I have seen the best in my teammates during this period from my kitchen cabinet colleagues to our most junior people and I couldn't be prouder and more excited about their efforts and accomplishments during this trying time. Remarkably, in what can only be characterized as truly setting the tone from the very top Cedar's independent directors at the outset of the pandemic waived their board fees for the second quarter and decided last week to similarly waive their fees for the third quarter. I know I speak for all of my colleagues and thanking them for their guidance, support and leadership through both word and deed during this challenging time. Charles Dickens famously begins a Tale of Two Cities, it was the best of times, it was the worst of times. It was the season of light and it was the season of darkness. I have thought of this line often over the last four months as we have seen the best in our people and observed the defensiveness of our portfolio while experiencing the unpredictability of the capital markets and witnessing the utter dislocation of our common stock price from its underlying asset value. On a daily basis I am never sure whether I should be relieved our assets are so resilient or astounded that our…

Thanks Bruce. Good evening. The other day my daughter said to me that in the future she predicts that there will be a college course studying the events of 2020 and she may actually be right. This year we have seen no less than the COVID-19 pandemic and the resulting global economic shutdown, the black lives matter protests and resulting social unrest, travel bans and last week a hurricane with major power outages in the northeast. Our operations team with ultimate professionalism and selflessness has had to deal with the impact of each of these challenges at our shopping centers and has done so with a keen focus on the benefits to Cedar and its shareholders as well as the communities we serve. Due to our portfolio's essential retail merchandising mix and grocer anchors all of our shopping centers remained open during the COVID pandemic. While some small shop tenants were closed temporarily during the shutdown, the shopping centers in which they were located remained open. We then closely followed each jurisdiction's reopening criteria by retail use and worked with our tenants on reopening strategies which included providing operating assistance, social media and marketing guidebooks and assistance. During the shutdown and reopening process we simultaneously reduced common air expenses and capital improvements to the minimal level needed to sustain operations. We launched a curbside pickup program at 13 centers strategically selected to allow for socially distant sales transactions for both retailers and restaurants that have been favorably received by our tenants. Additionally, we initiated a program whereby we provided PPE and food to first responders in conjunction with our restaurant tenants. The property management team also worked with key restaurants to create outdoor seating to ensure profitability due to limited indoor capacity rules for restaurants. During these difficult times we…

Thanks Robin. Before discussing our operating results and balance sheet I want to first provide insights and details related to our revenue recognition for the quarter. I think the best way to do this is to walk through each of the various revenue components along with their related accounting treatment. For this discussion let's set aside non-cash items such as straight line rent and the amortization of intangible leases and just focus on tenant billing. Our total tenant billings for basement and recovery combined for the quarter were $33.6 million. During the quarter we collected and recognizes revenue $26 million or 77% of these billing. Additionally, we recognize this revenue another $3.3 million or 10% that we determined to be collectible consisting of $2 million for which we have signed deferral agreements and $1.3 million which is either an advanced negotiation for a deferral agreement or we otherwise believe will be paid. Accordingly combining the 77% collected with this 10% determined collectible and accrued we recognize this revenue $29.3 million or 87% of our total billings for the quarter. Moving to the $4.4 million or 13% we did not recognize. This consists of $4 million that is not paid by tenants that we have determined at this time should be accounted for on a cash basis and $400,000 we have agreed to waive for this quarter. Be clear just because we have placed certain tenants on the cash basis this does not mean that we will not collect anything from them. While some cash basis tenants may fail we expect many of them will simply make inconsistent payments or partial payments which we will recognize as revenue when received. The preparation of financial statements always requires estimates to be made. As always our leasing team, asset management, property accounting, lease…

Thank you. At this time we'll be conducting a question-and-answer session. [Operator Instructions] Your first question comes from the line of R.J. Milligan with Baird. Please proceed with your question.

Hey good afternoon everybody. Obviously pretty strong rent collections in July at 80% Robin I appreciate you sort of running through the different buckets but is there a way that you could just bucket the additional 12 versus working on deferrals or expectations that rent won't be paid?

Yes. Thank you R.J. So the way that we are looking at it is really focusing on the different types of tenants and based on the essential retail mix that we have and the level of collection that we have in July and even so far in August, the types of the collections that we have so far we think that we will have that level coming into August as well and Phil can kind of talk to you about how we have bifurcated the portfolio. I think he went through that a little bit in his comments based on how we typically forecast and how he have forecasted now based on tenants we have paid rent historically through COVID and tenants that we think will not pay based on what we've seen and that's how we've kind of bracketed out the bucket.

Okay so is it fair to assume that, go ahead Phil.

Hey. Yes. So a lot of the increase the majority of it was related to tenant the 2 million that we did deferral agreements with I think Robin said the numbers about 95% of them paid in July. So that's a lot of increase and then it's that plus some of the cash basis guys didn't pay as we expect them to make partial or periodic payments. Some of them paid and then they're out of the ones we are negotiating their current agreements with I believe about a third of them already paid July also. So it's primarily driven by completed deferred agreement along with a little bit from each of the other buckets that Robin talked about.

And then so what's remaining in the 12% that's uncollected?

So I was going to say some of that is going to be, we talked about the rent that was waived and then some of the tenants are, tenants that we feel won't pay whether it's or categories that we're questioning whether they're going to pay whether it's the some of the fitness centers, some of the movie theater. We have one movie theater that we're negotiating with that we talked about. Some of those categories that we -- that were AR issues prior to COVID that we're we just put a handicap on those so we're just being a little bit conservative in our treatment of that. So those are what's left in that last bucket. We kind of went through their tenant by tenant and said and some of those are ones that we are still negotiating with but we're just not all together positive as to how they're going to perform long term like the Chinese buffets and such that are more challenged in the COVID as far as how they can perform. So that smaller percentage we're just putting an extra handicap and being extra conservative on.

Hey R.J. it's Phil again. If you look at page 17 in our supplement it's got all the categories and it's got the specific-based rent they make up plus their collections. The 12% you can see it's by the lowest paying category then there is what's driving the remaining 12% which Robin mentioned was primarily fitnesses and in the theater we have but if you go through there and you look at the lowest 3-4 categories that's what's driving the 12% that's remaining.

Okay that's helpful. And then Phil there is a term loan coming due beginning of next year. Can you talk about thoughts on addressing that?

Yes. So you're correct. The next maturity we have is a $75 million unsecured term loan maturing in February of 2021. We're currently looking at three options to refinance it. First is the secure debt market. You're starting to see CMBS and life co-loans closing for grocery anchored centers like ours. The CMBS terms you're generally seeing are 60% to 70% loan to value, 25 to 30-year amort and rates 3.5% to 4% so not all that different from that loan that's maturing. The life codes that are closing. Generally similar terms but lower loan to value more in the kind of the 50% to 60% loan to value range. The second option we're looking at is the syndicated bank unsecured loans with the syndicated bank group. The banks currently aren't doing five year and seven year loans like they typically do but they are you're seeing them close a lot of kind of one plus ones or even occasionally one plus one plus one just kind of bridge their clients to a longer term financing and give them flexibility. So that's something else we're looking at. And thirdly we did have one bank that's in our existing bank group approach us with something that would be approximately kind of a three-year unsecured term loan that we might consider. It probably has a little higher frictional cost to do that but I think now with the whole quarter behind us and you see our collections ramping up and approaching 90% and it will engage in a lot more robust discussions on all three of these options and the other thing that's really helpful that Robin touched on is with these deferral agreements and the small amount of waive rent we gave it getting sales reporting. So that's helpful if we go to secure debt market to have a lot more tenants reporting sell and since we're on the topic of debt maturity the only other maturity in 2021 is our line of credit matures in September of 2021 and we do have a one-year extension option at our election for that. So that's kind of how we're thinking about it currently. Is that helpful?

Yes. That's great guys. That's all I have.

Thank you.

Thanks R.J.

[Operator Instructions] Your next question comes from line of Todd Thomas with KeyBanc. Please proceed with your question.

Hi, thanks. Good afternoon. Just first question I wanted to ask about the lease said [indiscernible] Square. I guess Northeast Heights, it seems like there would be an opportunity to monetize that lease and development up front take a lot of risk off the table and maybe raise capital for deleveraging. How are you weighing your potential options there?

Hi Todd it's Bruce. Thanks for asking that question. Of course we're very excited about the lease and it's certainly as you correctly note something of value today just by its very execution even before we've started the construction. It certainly isn't something that caught us by surprise been working on it for the better part of the year and so we've, as the lease started to crystallize and as we realized with a fairly high degree of certainty that it was going to come together we started exploring a whole slew of different options and we continue to do that. We're not yet at a point where we can publicly disclose what our plans are but certainly we're very excited about this lease as it represents the first phase of a significant project that we think will add a lot of value both to our shareholders and to the community and so you are correct one path would be to potentially monetize it and de-risk but there are a lot of considerations that go into how we're going to exploit this lease and also how we're going to do right by the folks that we are hoping to help within downtown ward 7. So certainly something that we've been actively exploring that. We will continue to explore now that it's now been finalized.

How does this lease deal complement the other components of the project and the build out there? Are there other components that are underway that you can you can comment on more, that are more meaningfully today?

I'm going to introduce that and I'm going to let Robin who really deals in the day-to-day much more handle it although we're a small company we all spend time on these things. The Northeast Heights project it's arguably the most ambitious of the redevelopment projects that we have underway and it certainly does have some very distinct phases and from a [mixed use] perspective it has office, residential as well as retail. This is going to be the first phase. It's going to be a significant traffic driver to the area as Robin mentioned in her comments and even more significantly it's also going to be an economic engine for the neighborhood so much in the way that bringing workforce housing to the neighborhood will allow people to have a good, solid, affordable housing. And the retail as an amenity will give people access to fresh food groceries and nice retail amenities. The office is going to hopefully be a significant economic driver and an employment driver and a daytime traffic generator for the area. But why don’t I let Robin expand on that a little bit since again it's a very exciting development and certainly it's a very important part of the project.

I mean yes I think Bruce really hit on the key points there. I mean one of the things that I will just add to that is just when you look at other areas in Washington D.C. District agencies moving to areas similar to ward 7 historically have shown just when you look at other historical trends it shows the type of economic engine that district agencies can and have provided. So we do look for the DGS headquarter move to do the same for Northeast Heights. It also can be the catalyst for other I'll call them sister agencies for lack of a better term or other ancillary uses to want to move to the project and move near to want to be near DGS. So it's a catalyst for other leasing activity that way and it is as I said the kickoff for the first phase. So it does allow us to think about what other buildings we want to kick off as part of that whether it be the [indiscernible] street building or other residential building or other things that could be affected as part of outgrowth of DGS coming to the project and that can just, those are future considerations that we could think about under and kind of weigh and marry the different capital considerations that come along with that but the notion of DGS coming to the project does allow for kind of a kickoff of a bunch of different options for the project.

Okay and then and how much ground floor retail at this building is being contemplated and Phil maybe can you comment on the availability in terms of construction financing that's available today?

So I'll answer the first question and then Phil can answer the second. The ground floor retail at the base of the building is 17,800 square feet. We do have the ability to relocate some of our existing tenants to the DGS building. That's ultimately our decision as part of our merchandising plan or we may, may opt to bring more new retail to that building but the total is 17,800 square feet.

And as far as financing options Todd because it's such good credit, there is a few options available there. Conventional construction loans are available obviously the loan to value might be or the loan to cost there, it would be like 70% or so. And those are happening for a very high credit like this. Also there is I don't know if you're familiar there is the credit term loan market. When you have very high credit, tenants like this taking up the entire building or substantially all of it. That could go even 90% of cost, but it's generally pretty much a fully amortizing loan over the life of the lease. So it will be a 20-year loan it'd be pretty much fully amortizing. The other thing to consider is if we have a JV partner on here that JV partner might bring other construction financing and options to the table that would be available to us with them as our partner. So there is multiple options here and it's all just driven by very-very strong credits in a very long lease.

Okay. And what would be the timing that you would look to nail down financing for the project?

Yes. I mean we would do that probably before the end of this year.

Okay. All right. And just the last question real quick. Phil in the press release I think it was noted the bankruptcies represented I think 600,000 of rent and recoveries. I just wanted to clarify that was for the quarter so that's $2.4 million of annual revenue from those tenants? Is that correct?

See that would be, that would be the annual run rate for those tenants. There is no rent really paid in the current quarter. So it's already flushed out if you're trying to run off the current quarter but if you're looking at kind of pre-COVID numbers that is the annual run rate.

Okay. Got it. All right. Great. Thank you.

Ladies and gentlemen we have reached the end of the question-and-answer session and I would like to turn the call back to Mr. Bruce Schanzer for closing remarks.

Thank you all for joining us this evening. On behalf of the entire team here at Cedar we thank you for participating in our earnings conference call and wish you a healthy and peaceful conclusion to the summer.

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