CDR - Cedar Realty Trust

[thepupil]

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).

 

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.

 

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.

 

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

 

 

 

[thepupil]

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.

[thepupil]

Lol, I bought <100 bps of this yesterday as an option. You get long $1.5B of crappy but mostly grocery/essential strip centers with a $70mm (now $100mm) equity sliver.

 

I bought when they reported they collected 73% of rents, seemed like enough to keep the term loans/banks happy.

 

Today it decided to go up 45%..I guess the enterprise value moved a couple percent.

 

Will probably drop 50% tomorrow.

 

Big and weird moves in real estate land today.

[BG2008]

Lol, I bought <100 bps of this yesterday as an option. You get long $1.5B of crappy but mostly grocery/essential strip centers with a $70mm (now $100mm) equity sliver.

 

I bought when they reported they collected 73% of rents, seemed like enough to keep the term loans/banks happy.

 

Today it decided to go up 45%..I guess the enterprise value moved a couple percent.

 

Will probably drop 50% tomorrow.

 

Big and weird moves in real estate land today.

 

Today is a very weird day for real estate, it's weird seeing so many of these RE names work simultaneously

[BG2008]

FOMO taking over?

[thepupil]

Also a “Namco Realty LLC” run by an Igal Namdar just purchased 8.8% of Cedar and filed a 13G. Mr Namdar seems to be a buyer of malls/strip centers that no one wants, so Cedar is a good fit in their portfolio.

 

Private market crap real estate investor, I’d like to introduce you to my fickle friend, Mr. Market. He offers you levered strips at a 10 cap / 2x FFO, with some preferred stocks ripe to be taken advantage of and the loans trade at par. I think you’ll like him

 

https://namdarrealtygroup.com/

[BG2008]

Lol, I bought <100 bps of this yesterday as an option. You get long $1.5B of crappy but mostly grocery/essential strip centers with a $70mm (now $100mm) equity sliver.

 

I bought when they reported they collected 73% of rents, seemed like enough to keep the term loans/banks happy.

 

Today it decided to go up 45%..I guess the enterprise value moved a couple percent.

 

Will probably drop 50% tomorrow.

 

Big and weird moves in real estate land today.

 

Today is a very weird day for real estate, it's weird seeing so many of these RE names work simultaneously

 

It's weird having a day where my dodgy RE names are beating the tech names.  Small victories, small victories

[thepupil]

Anyone else looked at this company?

 

It is up 100% in 2 days and all I can find is a private market operator bought 9% of the company. Given that a T Rowe Value fund owns a large (18%) at much higher cost, the high g&A, the decreased likelihood they proceed with aggressive redevelopments, I think this is ripe to be taken over, but I also see no news for the 2x move on 2 days and 3x from the lows.

 

When buying highly levered property for a 10 cap, I expect big upside commensurate with the jnpairment risk, but also would expect news to accompany that.

 

EDIT: I just sold half to size back down to ~80 bps. Please read up on all the fun behavioral finance errors committed. It is probably rational to buy more given that we know someone's aggressively accumulating shares, but who knows?

 

it's still a super risky pile of dogshit.

 

 

 

[thepupil]

It's odd when  your overlevered retail strip mall company that you view as an option is successfully inking government backed built to suit office development deals.

 

actually somewhat validating to their strategy which is "buy strips where there are a lot of people, regardless of income/demographics".

 

in some ways, this could be a negative, because it could encourage the existing management team to plow ahead with their strategy rather than sell the company....some sort of transformation needs to happen. Management teams with -74% 10 year and -80% 5 year total returns shouldn't last forever

 

the term loans are low 90's / 370-400DM so showing some signs of worry but not distress

 

 

https://www.bizjournals.com/washington/news/2020/05/28/dc-dgs-moving-east-of-anacostia-river.html

D.C.’s Department of General Services will move its headquarters to a development along Minnesota Ave. NE, making it the first agency to commit to Mayor Muriel Bowser’s pledge to push more of the District government east of the Anacostia River.

 

Bowser announced Thursday that DGS has signed a letter of intent to build a new headquarters at Senator Square, a shopping center owned by the New York-based Cedar Realty Trust. The agency is currently located in the Reeves Center on the U Street corridor, but will someday build new space at 3924 Minnesota Ave. NE, near the Benning Road intersection and about a mile from the Benning Road Metro station on the Blue and Silver lines.

 

“My charge was to use our resources and leasing power to attract much-needed retail, amenities and jobs, and that is what we will do for the residents of Ward 7,” Bowser said in a statement.

 

Bowser’s office did not disclose the terms of the deal, or the size of what DGS will look to build. The agency’s request for space said it was seeking between 175,000 and 200,000 square feet.

 

The mayor announced a directive last fall that any District agency looking for office space should start their searches east of the river in wards 7 and 8, reasoning that city workers can provide an influx of daytime foot traffic for retailers. That could prop up existing businesses and lure new ones, a key focus for District officials, who are eager to see new grocers and other amenities flow to the city’s historically underserved neighborhoods.

 

She followed up by directing DGS to launch its search for new space as the first test of this initiative, kicking off the process last September. The agency said at the time that it hoped to see the new office deliver within two to three years, as the city simultaneously weighs the redevelopment potential of the Reeves Center. DGS also recently re-upped a lease for supplemental space elsewhere on the U Street corridor.

 

 

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Someday, DGS’ roughly 700 employees will be located alongside a handful of small retailers at Senator Square, including Subway, Cricket Wireless and Dollar Tree locations.

 

Cedar bought the property back in 2018, outlining plans to someday redevelop it in conjunction with the East River Park office and retail campus across the street. That property is anchored by a Safeway, and the District’s Department of Employment Services.

 

With an anchor tenant in tow, Cedar hopes Senator Square can become “the signature redevelopment of Northeast D.C.,” Cedar COO Robin Zeigler said in a statement.

 

“This transaction will be one of the most significant office leases in the area, and it reflects our success at creating a working relationship with the District for the betterment of the entire community,” Ziegler said.

 

 

 

Items 1.01 Entry into a Material Definitive Agreement

 

On July 23, 2020, Cedar-Senator Square, LLC, a Delaware limited liability company and wholly-owned subsidiary of Cedar Realty Trust Partnership, L.P., the operating partnership of Cedar Realty Trust, Inc. (the “Company”), entered into a commercial lease agreement (the “Lease”) with the Government of the District of Columbia (“District”), for the lease by the District of approximately 240,000 square feet of office space in a new 6-story building to be constructed by the Company at 3924 Minnesota Avenue NE, Washington, DC (the “Premises”). The building is planned to house the new office headquarters for the District of Columbia’s Department of General Services’ (“DGS”) 700-member workforce. The term of the Lease is 20 years and 10 months, to commence upon substantial completion and delivery to DGS of the Premises along with related parking, including all permits and approvals required from governmental authorities for occupancy and use, as detailed more fully in the Lease (the “Term”). The Company anticipates commencement of construction to occur in the first quarter of 2021 and currently estimates that the Premises will be delivered during the end of the fourth quarter 2022.

 

Upon completion of the building, the District will be obligated to pay initial annual net rent of approximately $5.4 million per year, subject to a 2.5% annual escalator on each anniversary of rent commencement, plus certain operating costs, property taxes and amortization of tenant improvements together totaling approximately an additional $8.1 million per year, for an aggregate total annual rent of approximately $13.5 million. The Lease provides for a free rent period of 10 months immediately following rent commencement. The Lease also provides the District with a tenant credit of approximately $6.8 million to be applied, at the District’s election, against either annual rent or any other tenant payment obligations including tenant improvement costs, in excess of the tenant improvement allowance. Pursuant to the Lease, the Landlord will contribute up to $155 per rentable square foot of the Premises toward the cost of tenant improvements for the Premises, to be amortized over 240 months. In addition, the Lease provides that the Company will contribute $9.38 per rentable square foot in additional tenant improvement allowance between the 10th and 12th Lease years to refresh the Premises, upon the District’s timely election. The obligations of the District under the Lease are subject to annual budget appropriation.

 

The foregoing description of the Lease does not purport to be complete and is qualified in its entirety by reference to the actual Lease, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information included above under Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.

 

[lnofeisone]

Pupil - this is a fun one. I bought 50 shares just for fun.

 

On the unrelated note, the area where DC gov't office is planning to move got redeveloped a lot in the past 2 years. I drove there just last week (mostly by accident). Lots of new developments. I took a look at one - https://www.facebook.com/ParkSevenDC/. Studio for $700/mo. Basically 1/2 the price of what one would pay across the river. DC gov't is not really getting a great deal here. Looks like about $56/sq. ft, I'd say it's about average for downtown. This can be had A LOT cheaper where they are moving to so, as a taxpayer, I'm not thrilled.

 

[thepupil]

20mm shares traded today (20-40x normal) and 22% of shares. just got kicked out of indices so that could be who is selling. Suspect we’ll know who is buying soon.

 

Could be t Rowe (18%) giving up selling to someone also.

 

Maybe a little size up is warranted.

 

We already know a private market owner of crappy retail likes this. The company just announced a nice deal with the DC office build to suit which as Info notes was non economic and driven by politics.

[thepupil]

Collected 88% of rents in July, ugly Q otherwise Still think this belongs in private hands and somewhat surprised the gigantic index rebalance trade didn’t see another big buyer (or the same 9% PE owner) come in for more.

 

Zero or hero, 2x FFO (4x Q2annuakized) 10x levered.

[thepupil]

Bruce can always be counted on to start the call lamenting his ginormous discount to NAV and his personal problems of his stock only being worth a couple million after presiding over like the worst long term TSR in a terrible space. Gotta love a CEO who's like " my friends all say I'm too optimistic" lol.

 

So I may be drinking the kool-aid a bit too much here, but I read this call, see that they collected almost 90% of July rents, hear that grocery-anchored strips are finance-able at 3.5.-4.0% at LTV's not out of line with CDR's total leverage, see them ink the 20 year build to suit with DC (a AAA credit) that also makes the rest of the center more valuable, and start to think that this may actually be more than "an option" and may deserve greater sizing than at present, maybe even a wild and crazy 200-300 bps.

 

Recognizing this is a bit of a monologue, I'd encourage others to take a look and see if I'm completely delusional or merely overly optimistic. 

 

https://seekingalpha.com/article/4367381-cedar-realty-trust-inc-cdr-ceo-bruce-schanzer-on-q2-2020-results-earnings-call-transcript?part=single

 

Rant about why you don't understand why you're stock is so cheap, when you are a levered owner of low rent retail with dreams of chasing waterfalls (mixed use development) when the market just wants you to stick to the rivers and lakes that you're used to (sell to PE and move on)

On a daily basis I am 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 have learned over the years it is a common trade 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 the future of Cedar is bright indeed....

 

All that said I will conclude my comments with something that I have 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 have 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 and right alongside you. As 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 have already described I am highly optimistic that we will be successful.

 

How they plan to address the 2021 maturities:

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?

 

 

Some detail on the build to suit:

Terms:

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 includes a TI amortization of $14.9 per square foot.

 

Affect on overall property

Todd Thomas

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?

Bruce Schanzer

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 I am going let Robin stand 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 Zeigler

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 another 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 merry 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.

 

Financing:

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. It would 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.

 

 

[thepupil]

http://ir.cedarrealtytrust.com/Cache/IRCache/c7c80d2e-d805-5001-bd0f-49b57b28e5fc.PDF?O=PDF&T=&Y=&D=&FID=c7c80d2e-d805-5001-bd0f-49b57b28e5fc&iid=102929

 

New presentation.

 

Collected 90% of August rent, has rough economics on the build to suit office for DC.

 

Really need to get a refi done.

 

Love the “25% of NAV” chart lol.

 

Would make this huge if it wasn’t so levered but if it wasn’t it wouldn’t be this cheap

 

[thepupil]

4 important Cedar Realty happenings today.

 

The Gamestop at Fishtown Crossing is OPEN! And yes, they tweeted about it:

 

Fishtown Crossing is hosting a Food Truck Festival! And yes, they tweeted about it.

 

Cedar Realty announced a "corporate access non-deal roadshow" on September 30th hosted by KeyBank Capital Markets. Maybe this means they aren't going BK? or Diluting us like crazy? Or maybe it's just getting everyone ready for the giant offering at 0.2x NAV.

 

Stock up 14%. I think it was the Gamestop re-opening.

 

[thepupil]

just an update here, stock is up 3x or so from the low.

 

there are 6 activists/strategics in the company, two of whom have nominated board members (Camac and Ewing Morris). It's now or never for this company getting sold. today the company issued a press release that said "we know you activists want us to sell, well we tried to sell for $25/share (current $15) in 2H2019, but Coronavirus interrupted that". This is an awful rebuttal and I really can't figure out their angle in releasing that because it only goads the activist on. As crazy as it sounds, value has potentially flat or even increased since pre-covid (DC 20 year NNN build to suit deal increased value of one of their main properties).

 

I think this probably gets sold for $20+ under the circumstances, so still some meat left on the bone, but also think there's a risk that management successfully defends itself and everyone wants out at once. could get ugly.

 

I made 100% or so on a very small position, got out, then bought again at roughly same price and am up 150% or so on that (wonder what the IRR on that is lol), but have done some recent trimming; it's getting awfully crowded in here. this has been an 80 -200 bp position for me because of it's high leverage and risk, but still a helpful contributor to my recovery. in this market, where I've taken the most punchy risk (JOE options, CDR, etc) is where I've made multiples, but I don't regret not making those bigger, things could have ended very differently, what luck giveth, luck taketh).

 

Namco:          8.8%

Ewing Morris    8.1%

Camac            5.1%

Anson            3.7%

Barington        1.5%

Cruiser          0.9%

[thepupil]

http://ir.cedarrealtytrust.com/News/news-details/2021/Cedar-Realty-Trust-Announces-Appointment-Of-Three-New-Independent-Directors/default.aspx

2 of the activists are now on the board. 

I have not been adding to this and own a pretty small position. would maybe add a little more if she falls as people get impatient/wanted an immediate sale, but it's in purgatory of not quite enough upside for bigger position given the risk/overall quality. 

 

 

[thepupil]

Been adding a little after trimming on the way up. There have been a few things that de-risk this a little. 

On the last call, CDR’s terribly underperforming and overcompensated CEO, noted (accurately) that at a market cap rate, these assets are worth $25 (stock at $14 today)

more importantly, CDR recently de risked its balance sheet by taking on some decently cheap asset level debt from a life co. They got a $114mm mortgage on 5 of their centers w/ 10 yrmaturity and 5 yrs of IO at 3.5%. This was 65% LTV at 6.7% cap rate. 

this mtg is an important validation of the finance ability of the portfolio and CDR’s ability to navigate its upcoming term loan maturities, all of which come due in the next 4 years.

They also entered into a deal that pretty much sold off their build to suit deal with the DC government. That deal could have been better; think they kind of messed up on that. But it nevertheless removes a big funding obligation. 

the change in board composition and right direction on the balance sheet make this high risk ghetto grocery stock a touch less risky.

 

[thepupil]

in addition to revitalizing the center w/ a 20 year built to suit, DC is also providing a $50mm subsidy to the redevelopment of $CDR's Senator Square. 

generally $CDR owns grocery anchored retail strip centers in dense, but lower income areas. this potentially  means higher cap rates, higher risk, less glamor/whatever, but also means the government occasionally throws money at you in order to revitalize the neighborhood. 

I am not above receiving some government tendies. 

 

https://www.bizjournals.com/washington/news/2021/05/20/dc-approves-subsidy-for-ward-7-development.html?utm_source=st&utm_medium=en&utm_campaign=we&utm_content=wa&ana=e_wa_we&j=23928118&senddate=2021-05-22

Quote

D.C. officials now plan to pursue a $50 million city-backed financing plan for a massive new development in Ward 7, which will someday become home to the Department of General Services headquarters and, perhaps, a grocery store.

Mayor Muriel Bowser announced Thursday that she hopes to create a tax increment financing district to support Northeast Heights, an effort designed to transform a pair of old shopping centers at the intersection of Benning Road and Minnesota Avenue in Northeast into a 2 million-square-foot of mixed-use project. That would allow the city to borrow against future tax revenues the new buildings will generate to provide cash to the developers up front. 

The development team – Cedar Realty Trust, Trammell Crow Co. and newly announced partners Asland Capital Partners and the Goldman Sachs Urban Investment Group — has been in talks with D.C. officials about setting up a TIF district to support the project for months now. The D.C. Council will ultimately need to approve the financing plan, though the support of Councilman Vince Gray, D-Ward 7, should clear the way for its passage. He attended a groundbreaking event for the first phase of the project Thursday, where Bowser announced her TIF plans.

“With this project, we’re using all of the tools in our toolbox — our D.C. government leasing power, over $50 million in TIF funds, and we’re in an Opportunity Zone,” Bowser said in a statement. “With an assist from DGS, this development will bring new opportunities, new jobs, and new amenities to the residents of Ward 7.”

Documents previously submitted to lawmakers suggested that the TIF district would not include the new DGS headquarters itself, set to be located on the western half of the 13.3-acre property currently home to the Senator Square shopping center. A spokesman for Bowser’s Office of the Deputy Mayor for Planning and Economic Development said officials are "working on finalizing the terms" of the TIF and plan to submit it to council before the council's August recess.

The mix of financing mechanisms involved at Northeast Heights is a demonstration of just how tricky it can be for developers to secure the cash needed for projects in emerging areas east of the Anacostia River. The District embraced a similar strategy of pairing a TIF with a major D.C. government lease to kickstart work at Anacostia’s Reunion Square. Bowser has, in general, been looking to push as many D.C. government agencies to wards 7 and 8 as she can, particularly to support grocery-anchored projects.

The development team has yet to announce which grocer it hopes to lure to this project, though it is promising a 70,000-square-foot store on the property. That’s a key priority for Gray as well, who has long sought to steer government funding to support grocery-anchored developments east of the Anacostia. 

“This and other vital projects in the ward will have a catalytic effect on increasing neighborhood amenities and creating new jobs for Ward 7 residents,” Gray said in a statement.

Northeast Heights is set to include 1,350 apartments, 32,000 square feet of additional office beyond the DGS space, and 130,000 square feet of additional retail by the time it’s fully built out.

The first phase of work will include a six-story, 258,000-square-foot commercial office building set to be leased entirely by DGS, one of the city’s largest agencies. The department will move there from its current home in the Reeves Center on the U Street corridor, which is also set to be redeveloped.

The development team hopes to complete the new HQ for the agency by winter 2022, according to a release.

 

 

[thepupil]

Cedar sold a 97% occupied grocery anchored strip center outside of the booming metropolis of Harrisburg Pennsylvania for a 6.5 cap / $90 million. This along w/ the $115mm 10 yr mortgage they got in May significantly de-risks the balance sheet (the mortgage used a 6.7% cap rate for LTV purposes). 

 

On a $1 billion EV, the mortgage financing ($115mm) and asset sale ($90mm) are significant real world validations/de-risking events. The balance sheet de-risking and the obtaining of board seats by hedge fund / external shareholders are why I bought more of Cedar over the last few months, generally at higher prices than where I had previously sold. this is a different trade than when it was in the $3-$5 range (speaking in new post reverse split terms) where one had multibagger upside). 

From the Q1 call. 

 

Quote

While we do not publish our NAV and we will not be starting to do starting to do so at this time, I would note that applying a 7% cap rate to our first quarter annualized NOI would result in a value per share after subtracting debt and preferred of over $26 per share. With the valuation subscribed to our recently financed assets and the transaction activity we are currently observing, I certainly do not think a 7% cap rate is a stretch in applying a warranted cap rate procedures portfolio today. Rather, what I do think is a stretch is that, at our current share price of roughly $16 per share we are being valued at over an 8% cap rate, which is widely off market. Keep in mind, none of these cap rates or NOI figures capture the additional upside from our redevelopment projects.

 

Edited June 22, 2021 by thepupil

[Gregmal]

15 minutes ago, thepupil said:

the booming metropolis of Harrisburg Pennsylvania

 

Either you're exaggerating or times have really, really, changed. Hearing Harrisburg brings me back to the glory days. Good friend went to school around there and had my fair share of fun at some of the bars and clubs in the area. Including an episode with said buddy and some twins where the phrase "2 nickels equals a dime" instilled an important life lesson. Total shit hole of an area though. At least back then. Roaring 20s? 6 cap!

[thepupil]

I was being sarcastic. I have to drive through there to see my in laws in rural NY. I take the longer beltway to avoid going through Harrisburg as I can get cheaper heroin in Baltimore.  

 

where the actual property is has decent demographics though.

https://datausa.io/profile/geo/camp-hill-pa
my point was that this property was not significantly higher in quality to the rest of CDR's portfolio. 

 

Edited June 22, 2021 by thepupil