Author Topic: CDR - Cedar Realty Trust  (Read 1061 times)

thepupil

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CDR - Cedar Realty Trust
« on: September 27, 2019, 11:59:05 AM »
So here's a fun one, way too levered and retail-y for the likes of BG2008, we've got a strip center REIT that's been left for dead, with a CEO who bloviates about the massive disconnect between public and private markets, a few new board members, some scary re-developments and development plans, a salacious history of accusations of harassment and failed activist plan, retailpocalypse, all coming together to create this hodge podge at an apparent 9 cap but with a of S,G,&A.

Placeholder for more work, putting her out there for group contributions.

It's certainly no KIM at $14 and an 8 cap in terms of quality/diversity/etc. like we had in early 2018, but those guys are all through the roof this year (KIM, DDR, BRX all about 45% total return YTD) and this is down in no man's small cap REIT land and it's way too levered for the public market's liking. but that leverage at extremely low cost in conjunction with the stock at 1/2 NAV leads to a quite juicy 15% FFO yield, virtually all of which is being used to (according to the questionably credible management) upgrade the quality of the portfolio.

$1.5 billion of gross property (purchase price) spread across 58 buildings and 8.7mm sq feet, all yours for $1B ($277mm common, $163mm preferred, $623mm debt, all of which is swapped into fixed and termed out roughly evenly over the next 6-7 years). annualized NOI is about $90mm, less $20mm of G&A, $70mm to cover interest of $24mm, leaving about $45mm to de-lever, re-develop, maintain the buildings, and pay somewhat high cost preferred divvies ($10mm) etc. the appeal here is there seems to be a fair amount of cash flowing to the equity, such that one can make a good return as long as fundamentals don't drastically deteriorate.

They've been culling the portfolio for 8 years. the number of buiding hasn't declined drastically, but there are purchases mixed in there. $333mm in sales 2011-2018, $240mm of purchases. 
10-K 2011-2018
Number of buildings: 70,67, 65, 59, 60, 61, 58
Square feet: 9.8--->8.7

The question is, is it even possible to have "good" strip center real estate. My answer to that is yes, but I don't know if what CDR owns is at all good. I ahve a feeling it's significantly better than the 9 cap would suggest, but not sure of the degree.
Note that according to bloomberg, CDR's term loans all trade $98-$99.5 w/ a yield at about 4.05%, the preferred at $90/7.2%, then the equity at 15% (FFO). the term loans seem pretty confident this is not CBL, the pref's seem complacent (the easiest way to conserve cash would be to cut common/pref divvies, pref's have no upside). but the common is implying distress/absolute crap (-47% over the past 5 years).

Quote
During these same years we have refined our portfolio, repaired our balance sheet and strengthened our management
team such that we now have a pipeline of redevelopment projects being advanced similar to South Quarter Crossing in
their ambitions and scale. Over the same period we have also observed the secular dynamics we predicted back in 2012
starting to take root throughout much of the bricks and mortar retail universe. Despite these prescient strategic
decisions, today our shares trade for roughly 60% of the value they did back in 2012 when we were more highly
levered, had an inferior portfolio and had no meaningful plan for creating shareholder value.
Moreover, today we trade for approximately 50% of the consensus net asset value for our portfolio. As a management
team, we are pursuing these ambitious redevelopments and more generally are keenly focused on astute capital
allocation in order to grow the net asset value of Cedar and correspondingly its share price. In pursuing these
redevelopments, we have determined that we can achieve the best risk-adjusted returns over our weighted average cost
of capital versus other capital allocation alternatives. Accordingly, we continue forging ahead with these projects.
As I've noted on earlier earnings calls, over the last five years, we have issued equity only when trading at a premium
to our consensus net asset value and commenced a share repurchase program when trading at a significant net asset
value discount. This conduct is the foundation of our capital allocation scorecard and is what is expected of the best
REIT managers. Accordingly, we are puzzled at our trading level relative to our net asset value and our value creation
pipeline since our capital allocation decisions to this point should cause an investor to feel confident about owning our
shares. That said, we very much believe that in executing the capital migration plan, we have been pursuing for many
years now, we will meaningfully grow our net asset value and hope we will narrow the discount between our prevailing
share price and our net asset value.

Quote
s. Our leasing activity has been remarkably strong over
the last 12 months, with a very solid leasing pipeline, although we did not execute a number of them before the end of
the second quarter, the prospect of occupancy growth is visible and at hand.
This is true for both our core portfolio as well as our redevelopment assets. Furthermore, our value-add redevelopments
continue to be getting completed, generating attractive returns with a growing pipeline of value-add opportunities.
Robin will expand on this further. While I don't want to take too much time speculating as to why we are trading where
we are today, I would highlight a few ideas.
First, we own relatively small shopping centers, for which there is a highly liquid private sale market with readily
realizable liquidity. In our corporate presentation posted on our website, we share cap rate information on comparable
assets within our markets, as well as the building blocks of our NAV calculation. In addition, in our supplemental
financial filing, we share information on assets we have sold recently. All these transactions, whether in our portfolio or
in the market more generally, support the consensus NAV for Cedar.
Second, beyond our current NAV, our redevelopment pipeline is strong, and we anticipate it will grow our NAV over
time in a manner that far exceeds inflation. Thus, beyond our current NAV, we anticipate above inflation NAV growth.
We believe none of this is being reflected in our current share price. Third, we have a management team and Board that
is keenly focused on thoughtful capital allocation and strategic decision making.
We have a demonstrated track record of astute capital allocation decisions, some offensive and others defensive. What
they have in common is a nimble, analytical and flexible mindset. We sell stock at optimal moments, divest assets
when appropriate, acquire assets when they make strategic, as well as financial sense and repurchase shares in the same
manner. In that vein, I can assure you that the Board and management are keenly focused on addressing this disconnect
between the public and private valuation for Cedar.

Quote
On Monday, December 17, we came to terms with a buyer for one of our bottom half assets. It was an approximately
$10 million sale priced at a cap rate below 7%. Keep in mind the consensus net asset value or NAV for Cedar of
approximately $6.15 per share for our entire portfolio utilizes the 7% cap rate, which necessarily means that analysts in
arriving at a cap rate for our portfolio are using a cap rate above 7% for our bottom half assets.
On that day, December 17, after weeks of downward pressure on our share price, we fell over 12% in a single day;
drifting down to a low of $2.73 per share in the days that followed. This share price level implied a cap rate for our
entire portfolio of well over 9%. We were literally selling for more than a 50% discount to our consensus NAV.
Equipped with the real-time market color from that day's asset sale, we confidently announced a share repurchase plan
the following day at an initial $30 million.
Since announcing our share repurchase plan, we have been active purchasers of our stock and have bought in
approximately 2.8 million shares or 3% of our outstanding shares at a weighted average price of $3.25 per share or an
approximate 9% cap rate for a total of approximately $9 million. Essentially, we sold one of our lower rated assets at a
sub 7% cap rate and used the proceeds to purchase a pool of our better assets at a 9% cap rate. Notably, just last week,
we came to terms for another roughly $10 million sale of another bottom half asset, this time at a 7.25% cap rate.
As all will agree, selling our lower half assets at roughly 7% cap rates to purchase our better assets at an approximate
9% cap rate is compelling. Essentially, this is the investment equivalent of shooting fish in a barrel and it is irrational.
Today, you will hear from Robin and Phil about both our results and forecast. You will hear from them that there is no
financial or operating distress at Cedar. In fact, as Robin will discuss in greater detail, we have a strategy being actively
executed that we believe will meaningfully grow our NAV in the years to come. We own retail real estate, which
admittedly is a challenging arena in which to operate. However, even with a recent spate of anchor bankruptcies that
has hurt our occupancy, we are still 91% occupied.
I imagine one of my children coming home and telling me he or she got a 91 on a test, and my seeing this is a sign that
things aren't going well. And keep in mind, students generally get scored out of 100, while our effective full occupancy
is well below that figure. So our occupancy is solid, with a little room for improvement and a leasing pipeline that
causes me to be optimistic.
Nonetheless, it is still not possible to reconcile observable and realizable private value for our real estate, which
supports our consensus NAV at a minimum, with the trading level for our shares. In my opinion, the explanation for
this irrational public-private disconnect is much simpler and it presents a compelling and sustained investment
opportunity.
Over the last few years, we have seen slightly less than half of Cedar's ownership drift into the hands of ETFs and
index funds. This is a little greater than for REITs in general, though it is consistent with the overall trend. In
December, it appears that the downward drift in our stock was largely attributable to selling by these fund vehicles.
This selling appears to be a function of fund flows and not fundamentals. Accordingly, it was truly an example of
sellers who are so insistent on selling they were selling without regard to publicly available information and intrinsic
value.
For Cedar, on the other hand, we have precise information regarding our portfolio. We know what our assets are worth
and our underlying net asset value. Accordingly, we were presented with a unique opportunity, which we have and will
continue to exploit on behalf of our shareholders. However, as the John Maynard Keynes saying highlights, we are
constrained in fully exploiting this irrational buying opportunity by our responsibility to our shareholders to be
conservative in our use of their capital.

Snow Park Drama (Activist Fund Pointed out bad track record and sexual harassment suit). Then manager at activist fund accused of sexual harassment, then said activist accused accuser of embezzlement.
https://www.bisnow.com/national/news/capital-markets/activist-investor-flawed-structure-from-unproven-executives-is-failing-cedar-realty-trust-80835
https://www.scmp.com/property/international/article/2113715/activist-hedge-fund-snow-park-builds-stake-cedar-realty-trust
https://www.globest.com/2018/02/22/cedar-realty-reaches-agreement-with-activist-shareholder-snow-park/?slreturn=20190827145346
https://www.wsj.com/articles/cedar-realty-trust-chief-faces-sexual-harassment-allegations-1523962800
https://dealbreaker.com/2018/06/accused-hedge-fund-cfo-tackler-claims-files-countersuit-claiming-hedge-fund-cfo-embezzlement
https://dealbreaker.com/2018/05/after-being-recorded-getting-all-handsy-with-his-cfo-hedge-fund-manager-allegedly-got-all-tackley-with-her


« Last Edit: September 27, 2019, 01:29:34 PM by thepupil »


thepupil

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Re: CDR - Cedar Realty Trust
« Reply #1 on: March 24, 2020, 03:21:37 AM »
Thankfully; i never bought this.

With the pref’s and common collapsing it’s an interesting “option-like” equity.

Surely KIM at $9/10 is a better risk/reward, but if you want to get long $1.5 billion of property with a $70mm equity sliver with maybe more than a snowballs chance in hell of making a multi bagger, this is an option.

An immediate opportunity would be to turn off the pref/common and buy back the pref’s at low prices. REIT prefs exist to be screwed in a distressed scenario (or even in a not distressed one, looking at you Brookfield DTLA!)

The term loans create the company at a pre-corona 14 cap, so I think there’s equity value.
« Last Edit: March 24, 2020, 03:29:02 AM by thepupil »