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Cedar Realty Trust Inc (NYSE:CDR)
Q2 2020 Earnings Call
Aug 10, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Second Quarter 2020 Cedar Realty Trust Earnings Conference Call. [Operator Instructions] I would now turn the call over to Nicholas Partenza. Please proceed.

Nicholas Partenza -- Director of Financial Reporting

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 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 of 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.

Bruce J. Schanzer -- President & Chief Executive Officer

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've 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 we're 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 thought of this line often over the last four months as we've 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'm never sure whether I should be relieved our assets are so resilient or astounded that our stock price doesn't reflect this remarkable fact. A good friend of mine often teases me for being too optimistic. I've learned over the years it is a common trait among CEOs, and I will confess that in reflecting on the dichotomy between our strong performance and our weak share price, I choose to be excited that the incredible durability of our assets and the professionalism of my battle-tested teammates suggests that future of Cedar is bright indeed.

When the pandemic began, we immediately formed a 12 person cross-functional crisis management committee that has performed with great intensity and considerable success. The members of that committee along with our colleagues throughout the organization, have pushed themselves incredibly hard and have squeezed everything out of our assets, which shows in our consistently strong results through each COVID critical month of the second quarter. Notably, we have continued clawing our way back with over 80% cash collections in June and over 88% cash collections for July. Phil and Robin will expand on our collection efforts, forbearance process and accounting treatment in their prepared remarks.

I am very proud that this performance has placed us among the best performing shopping center REIT in terms of collections during the second quarter and through July. While the COVID chapter may evoke aspect of a tale of two cities, at Cedar, it has really been a tale of one company. The professionalism, dedication and unified effort demonstrated by Cedar professionals throughout our ranks was critical to obtaining the results we achieved this quarter and to date.

In addition to the strong collections during the pandemic, while announcing that we have slowed the capital spend on our redevelopment, we also announced a significant redevelopment milestone in finalizing a 20-year build-to-suit lease with the District of Columbia, a AAA credit tenant, for 260,000 square foot office building, including street-level retail that will anchor and be the first phase of our Northeast Heights redevelopment project. This is a huge win for the redevelopment team led by Robin and I will ask her to expand on this lease in more detail.

I will note two things, however. First, this lease represents an extraordinary value creation event for Cedar today even before the building is constructed. And second, this is not a retail asset, and therefore helps to diversify Cedar's prospective rent stream into another asset class.

Coupled with the strong relative performance on the asset side, we have found our bank group to be remarkably constructive during the pandemic. A perfect example is our agreement last week to tweak some of the definitions in our credit facility, thereby giving us greater breathing room on our covenants and borrowing base. Over the years, we have found our bank group led by KeyBanc to be terrific partners, and we especially appreciate their professionalism and support during this once-in-a-career type of experience for all of us. Phil will spend a little more time on the credit facility modification that we just closed.

And with no rest for the weary, we have now begun to focus on our upcoming term loan maturity in February. Taking a step back and looking at what we have done over the past nine years with the balance sheet, it was essentially renovated for precisely this sort of situation. First, we have taken care to stagger our maturities, so that we do not have too much debt maturing in any one year. Second, we have largely unencumbered our portfolio in order to give us the flexibility to be able to explore a number of financing alternatives in a stress scenario, such as the one we are in now.

One thing to note more generally is that in addition to debt alternatives, we are also actively marketing a number of pad sites and anticipate generating roughly $20 million of relatively low cost capital from those asset sales that will help us reduce debt a bit as we bear down on the term loan refinancing efforts in the weeks ahead. During this remarkable time, as we have been challenged in ways we can never have imagined both personally and professionally, I have continually reminded myself that this period of stress to our business will come to an end.

Recessions such as the one we are in presently offer dangerous traps for management teams to make rash decision that lead to irreversible value destruction. However, they also present opportunities for reinvention by companies that had lagged before a recession and to companies that lead coming out of it. I believe Cedar might experience such a positive reversal of fortunate, especially since this recession appears to have catalyzed a meaningful societal shift both in terms of where people live and shop as well as how they live and shop.

And as it relates to Cedar, this isn't just a CEO being optimistic. Our relatively strong performance over the past four months is not an accident or a fluke. Rather, it is a combination of our highly organized and effective crisis management protocol as well as an outgrowth of these accelerating market trends we are all observing and experiencing.

For example, as you all know, Cedar has a predominantly grocery-anchored portfolio with among the highest percentage of grocer-anchored centers of any retail REIT. This is a critical feature that has helped insulate us during the pandemic and will serve as a foundation for our portfolio in the years ahead.

What you might not appreciate is that we have among the most e-savvy grocer-anchors in our shopping centers of any shopping center REIT. In other words, more of our grocer-anchors have evolved their e-commerce businesses organically as opposed to outsourcing this function, thereby capturing margin and market share while positioning themselves better for the future. This online foundation helped our grocers pivot relatively seamlessly to meet the overnight changed needs of their customer base while maintaining a healthy and uninterrupted stream of customers at our centers. Moreover, we have among the lowest exposures to at-risk retail tenants of any retail REIT, thereby insulating us on a relative basis against the continued secular decline in retail.

Lastly, we have among the lowest exposures to MSAs with negative employment trends and prospects, thereby increasing the chances our tenants will continue recovering as the pandemic recedes into the past since their surrounding economies are better performing. In other words, as the world is changing rapidly right before our eyes, we find ourselves in a remarkably solid position to benefit from some of the secular trends continuing to take hold in our industry.

All that said, I will conclude my comments with something that I've often told shareholders and prospective shareholders when discussing Cedar over the years. When you invest in Cedar, you are truly partnering with me and my colleagues. Speaking for myself, I have a very significant portion of my net worth invested in Cedar stock and I've invested funds continually into our stock over the years, rarely selling any stock.

The collapse of our stock represents a loss for our shareholders, and I, as a shareholder, am right alongside you. And significantly, I can assure you that my colleagues and I are working tirelessly, probably harder than many of us have ever worked in our professional lives, and certainly with greater intensity and focus to navigate the Company through this perfect storm and thereby drive a recovery in our share price. This is a responsibility we take incredibly seriously as it is a challenge that is both professional and personal. However, as I've already described, I'm highly optimistic that we will be successful.

With that, I will give you Robin to discuss our operations and redevelopment projects. Robin?

Robin Mcbride Zeigler -- Executive Vice President & Chief Operating Officer

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 protest and resulting social unrest, travel ban 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 of 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 jurisdictions reopening criteria by retail use, and worked with our tenants on reopening strategies, which included providing operating assistance, social media and marketing guide books and assistance.

During the shutdown and reopening process, we simultaneously reduced [Indecipherable] 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 social -- socially distanced sale transactions for both retailers and restaurants that have been favorably received by our tenants.

Additionally, we initiated a program whereby we provide a PPE -- PPE and food to first responders in conjunction with our restaurant tenants. The property management team also work with key restaurants to create outdoor seating to ensure profitability due to limited indoor capacity rules for restaurants.

During these difficult times, we have made especially certain our tenants know that their landlord is supportive and is there to partner with them through these times. This type of management becomes particularly relevant when it is time for renewal or when a tenant is deciding to open more stores.

Another essential prong to pandemic crisis management has been extending rent deferral to our tenants. As I believe have laid out during last quarter's call, our general terms for deferral were as follows: For local, and mom-and-pop small shop retailers, they are qualified for deferral upon our review of their financial situation, we generally offered two to three months of deferred rent with payback over 12 months beginning January 2021; for national small shops and anchors, we offer two to three months of deferral with pay back over six months commencing July 2020. We studied the lease of every tenant in the portfolio to determine if there were lease provisions we would like amended, and deferral terms were negotiated in exchange for these provisions when applicable.

At times, we modified the standard deferral terms to a more customized solution to accommodate the objectives of securing certain lease amendments. For example, in limited instances rent was waived instead of deferred in consideration for obtaining relief from an unfavorable lease provision or in exchange for an exercise of an option or for additional term.

As of June 30, 2020, we executed 92 tenant assist agreements, 74 deferral agreements totaling $2 million of base rent in the second quarter for 630,000 square feet. Notably, 94% of the tenants who received rent deferral in the second quarter have paid their July rent. Similarly, 18 deals were executed during the second quarter that waived rent totaling $400,000 for 206,000 square feet. Of those tenants who received waivers, 84% of the tenants whose rent was waived paid rent in July.

Additionally, there are still 30 deals totaling $1.1 million in rent that are in negotiation for deferral and 29% of the July rent in this category has already been paid. The top three deals within this category of deals that are still in negotiation are related to LA Fitness locations throughout our portfolio, the Planet Fitness at Quartermaster, and Regal Theater at Revere. These deferral negotiations are either tied to the redevelopment project or provide us flexibility given the uncertainty surrounding the fitness and movie industries post-COVID.

Our collections during this quarter have continued to be particularly strong. Cash collections in April, May and June were 76%, 76% and 81%, respectively, resulting in a 77.4% collection rate for the quarter. This positive trend has continued with 88% collection of our monthly charges in July. While I certainly may be biased and extolling the effectiveness of our team and the process that we put in place to deal with collections, I am certain that the one-on-one very hands on approach that we employed with each and every tenant had a positive effect. That being said, undoubtedly our merchandising makeup is a key as well.

Bruce mentioned that the fact that we have a largely essential -- Bruce mentioned the fact that we have a largely essential retail portfolio, but let's parse through that a bit. Our total annualized base rent is $102 million: $29 million of that or 28.5% is from grocer-anchors with the collection rate of 99.7%; $7.1 million comes from fast casual restaurants with the collection rate of 77%; $5 million comes from dollar stores with a collection rate of 90%; medical facilities make up $4.6 million of our rent with the collection rate of 75%; and discount department stores comprised $4.5 million with a collection rate of 81%.

These are just the top five, but I think the trend is apparent. All of these uses proved to be relatively COVID-resistant. Other essential uses that permeate our portfolio such as banking, drugstores, home improvement, government office, liquor stores and automotive, all had collection rates over 95%.

Related to the second quarter 2020 leasing performance, we signed: 21 leases, totaling 182,300 square feet; 17 renewals totaling 170,000 square feet at an average rent of $9.77 with a positive spread of 2.6%; and four new leases at an average base rent of $22.60 per square foot with a negative spread of 30%. This results in an overall comparable leasing spread of negative 3.9%. Of note, this quarter during the pandemic, PetSmart and New London Mall was renewed, and options were exercised with Acme at Academy Plaza and Food Lion at Yorktowne. The negative leasing spread is primarily attributable to two small shop deals at our redevelopment properties, which fill long-term vacancy and provided early termination rights where applicable.

At the outset of the pandemic, we articulated three simple directives to the team: Maximum cash inflow; minimize cash outflow; and do not lose any tenant as a result of the mandatory closures. The renewals I just referenced as well as these two deals demonstrate this idea as we are focused more than ever on maintaining the occupancy at our centers. But our overarching missions remain to do deals that make sense economically, taking into account credit risk.

As of June 30, 2020, our current leased occupancy is 90%, which is a 180 basis point reduction from prior quarter. This decrease is principally related to the closure of A.C. Moore at The Point and New London as well as the bankruptcy 24 Hour Fitness at Carman's Plaza. We are actively seeking backfills for all three locations.

Last quarter we discussed that we have reduced our capital spend in 2020 for our mixed use urban redevelopments and value-add renovations to a level of approximately $20 million. This development budget remains unchanged, as of the second quarter. That being said, the development, construction and leasing team remain hard at work. Fishtown Crossing is progressing nicely. Starbucks has been delivered. And GameStop and Nifty Fifty are scheduled to deliver in August.

The IGA grocery store facade renovation will commence this fall. A lease has been executed with The Original Hot Dog Factory who will now be joining the tenancy. Some of you may have heard of this fast casual restaurant as its owner is in the cast of the Housewives of Atlanta, and Fishtown Crossing will be one of their first Philadelphia location.

Post quarter end, Northeast Heights benefited from a significant boost with the execution of a 260,000 square foot office building, including street for retail to the District of Columbia Department of General Services. This government agency is comprised of more than 700 skilled professional employees with expertise in the areas of construction, building management and maintenance, portfolio management, sustainability and security at district-owned properties. This office building will be part of the first phase of Northeast Heights, and the employees and related services will provide a strong demographic as a daytime traffic driver for the remainder of Northeast Heights. The accretive deal structure over a 20-year, 10-month term is based on a net rent of $22.52 per square foot and a gross rent of $56.43 per square foot, which include the TI [Phonetic] amortization of $14.09 per square foot.

Our ability to be the winning recipient of this competitive RFP process was largely based on relationships built with leadership throughout the district, as well as community relationships. Significantly, being awarded this deal truly exemplifies the district's overall support of the Northeast Heights project and their commitment to the revitalization of downtown Ward 7 for which we sincerely thank them as to the residents of Ward 7, who will be the beneficiaries of this building and project.

Our team is busy, our team is focused. These are difficult times, and we are up to the challenge, taking each situation, navigating through it, solving problems as they arrive and all the while ultimately always seeking ways to create value for our shareholders and the communities we serve.

With that, I will give you, Phil.

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks, Robin. Before discussing our operating results and balance sheet, I want to the 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 component along with our 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 billings.

Our total tenant billings for the -- for base rent and recovery combined for the quarter were $33.6 million. During the quarter, we collected and recognized as revenue $26 million or 77% of these billings. Additionally, we recognized as revenue another $3.3 million or 10% that we determined to be collectible, consisting of $2 million for which we have signed deferral agreement and $1.3 million, which is either in advance negotiation for deferral agreements or we otherwise believe will be paid. Accordingly, combining the 77% collected with this 10% determined collectable and accrued, we recognized 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 sell, we expect many of them will simply make inconsistent payments or partial payments, which we will recognize revenue as revenue when received.

Preparation of financial statements always require estimates to be made. As always, our leasing team, asset management, property accounting, lease administration, property management and collections, all work diligently together to make our estimates for the quarter. Estimates by their very nature are not 100% precise and only the passage of a year or more will ultimately determine the precision of the estimates we have made related to the pandemic. However, based on tenants that paid rent in July, that at least initially appears our estimates for the quarter were prudent and done with good judgement.

Moving to operating results. For the quarter, operating FFO was $5.7 million or $0.06 per share. This reflects the $4.4 million of billings I discussed that were not recognized as revenue and the write-off of $1.2 million of straight-line rent and $500,000 of accounts receivable from prior periods, both related to tenants that were placed on the cash basis during this quarter.

Same-property NOI decreased 14.6% over the comparable period in 2019 excluding redevelopment properties, and decreased 19.7% when redevelopments are included. The larger decrease including redevelopment was primarily driven by non-payment of an existing gym and theater anchored at these properties.

Moving to the balance sheet. We did not sell or acquire any properties during the quarter. However, after the quarter, we did have several noteworthy balance sheet activities. On July 9, we sold Metro Square for $4.3 million. As you may recall, in the previous quarter, we negotiated a termination agreement with a dark anchor at this property and received a $7.1 million early termination payment. The sequence of the dark anchor termination and the subsequent sale of the property in this manner as we determined it was the best way to maximize proceeds instead of simply selling the property with the dark anchor still in play.

On August 4, we amended our unsecured revolving credit facility and term loans to compute both financial ratios and our borrowing base using the trailing four quarters as opposed to the current quarter annualized to also exclude interest rate swap liabilities that are a hedge of existing debt from the definition of debt. Further, on August 7, we repaid $70 million of borrowings under our revolving credit facility, after which we had $74.5 million of availability under this facility and $4.5 million of unrestricted cash.

One final note. We did include an additional disclosure in our supplemental financial information filed earlier today. Our schedule of base rent and GLA by tenant category provided on Page 17 now also includes cash collections for each of these tenant categories. During this pandemic, we are starting to be as transparent as possible about our portfolio and our operations, and hope you find the information contained in our press release, financial supplement and prepared remarks today to be informative and helpful.

With that, I'll open the call to questions.

Questions and Answers:

Operator

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.

R.J. Milligan -- Baird -- Analyst

Hey, good afternoon everybody. Obviously, pretty strong rent collections in July at 88%. Robin, I appreciate you sort of running through the different buckets. But is there a way that you can just bucket the additional 12% versus working on deferrals or expectations that rent won't be paid?

Robin Mcbride Zeigler -- Executive Vice President & Chief Operating Officer

Yeah. 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 -- 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 we've forecasted now based on tenants we -- have paid rents 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 buckets.

R.J. Milligan -- Baird -- Analyst

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

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. So a lot of the increase, that is 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 the increase. It's [Phonetic] 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 -- out of the ones we are negotiating deferral agreements with, I believe about a third of them already paid July also. So it was primarily driven by completed deferred agreement along with a little bit from each of the other buckets that Robin talked about.

R.J. Milligan -- Baird -- Analyst

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

Robin Mcbride Zeigler -- Executive Vice President & Chief Operating Officer

So...

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

It's -- go ahead.

Robin Mcbride Zeigler -- Executive Vice President & Chief Operating Officer

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 are 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 the -- some of those categories that we -- that were AR issues prior to COVID that we are -- 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 there tenant by tenant and said -- and some of those are ones that we're still negotiating with, but we're just not altogether 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.

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

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 percent of [Phonetic] base rent they make up, what their collections. The 12% you can see it by the lowest paying categories in there is what's driving the remaining 12%, which Robin mentioned was due primarily fitnesses and the theater we have. But if you go through there and you look at the lowest three, four categories, that's what's driving the 12% that's remaining.

R.J. Milligan -- Baird -- Analyst

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

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So, you're correct. The next maturity we have is a $75 million unsecured term loan maturing in February of 2021. We are currently looking at three options to refinance it. First, the secured debt market. We are starting to see CMBS and LifeCo loans are closing for grocery-anchored centers like ours. CMBS terms are generally seeing our 60% to 70% loan to value, 25- to 30-year amort, and rate 3.5% to 4%, so not all that different from that loan that's maturing. The LifeCos that are closing generally similar terms but lower loan to value, more in the kind of a 50% to 60% loan to value range.

The second option we're looking at is we had a syndicated bank unsecured loan at the Syndicated Bank Group [Phonetic]. The bank is 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 a one plus one plus one to 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 then 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%, we'll engage in a lot more robust discussions in one of 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 did, we're get sales reporting. So that's helpful if we go to secured debt market to have a lot more tenants reporting sale [Phonetic].

And since we are 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 are thinking about it currently.

Is that helpful?

R.J. Milligan -- Baird -- Analyst

Yeah. That's great guys. That's all I had.

Bruce J. Schanzer -- President & Chief Executive Officer

Thanks, R.J.

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks, R.J.

Operator

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

Todd Thomas -- KeyBanc -- Analyst

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

Bruce J. Schanzer -- President & Chief Executive Officer

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. We've 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 derisk but there are a lot of considerations that can -- that going to how -- how we're going to exploit this lease and also how we're going to do right by the folks that we're hoping to help within downtown Ward 7. So, certainly something that we've been actively exploring and that will continue to explore now that it's been finalized.

Todd Thomas -- KeyBanc -- Analyst

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

Bruce J. Schanzer -- President & Chief Executive Officer

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 under way. 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 good, solid, affordable housing and the retail, as an amenity, will give people access to fresh food groceries and nice retail amenities. New office is going to hopefully be a significant economic driver and an employment driver, and 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.

Robin Mcbride Zeigler -- Executive Vice President & Chief Operating Officer

I mean, yeah. 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 that -- the type of economic engine that district agencies have -- 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 kick-off 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'd be the [Indecipherable] 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 and -- that we could think about under, and kind of way in marry the different capital considerations that come along with that. But the notion of DGS coming to the project does allow for kind of the kick-off of a bunch of different options for the project.

Todd Thomas -- KeyBanc -- Analyst

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?

Robin Mcbride Zeigler -- Executive Vice President & Chief Operating Officer

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 if that ultimately is our decision as part of our merchandising plan or we may opt to bring more new retail to that building, but the total is 17,800 square feet.

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

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 are familiar with 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 and 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 partners. So there is multiple options here and it's all just driven by very, very strong credit and a very long lease.

Todd Thomas -- KeyBanc -- Analyst

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

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

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

Todd Thomas -- KeyBanc -- Analyst

Okay. All right. And just a 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, is that -- that was for the quarter, so that's $2.4 million of annual revenue from those tenants. Is that correct?

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. 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.

Todd Thomas -- KeyBanc -- Analyst

Okay, got it. All right, great. Thank you.

Operator

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.

Bruce J. Schanzer -- President & Chief Executive Officer

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.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Nicholas Partenza -- Director of Financial Reporting

Bruce J. Schanzer -- President & Chief Executive Officer

Robin Mcbride Zeigler -- Executive Vice President & Chief Operating Officer

Philip R. Mays -- Executive Vice President, Chief Financial Officer and Treasurer

R.J. Milligan -- Baird -- Analyst

Todd Thomas -- KeyBanc -- Analyst

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