This REIT Focus is from the January issue of our commercial real estate newsletter, View of the Market and is on Cedar Realty Trust, Inc. (CDR). CDR is a publicly traded REIT engaged in the ownership and operation of primarily grocery-anchored shopping centers in the Boston, MA to Washington, DC corridor. CDR owns 67 properties containing 9.8 million square feet of space and the average occupancy and lease renewal revenue growth as of 9/30/13 was 92% and 7.3%, respectively. CDR's properties are located in PA, MA, CT, MD, VA, NY and NJ. CDR owns a 99.7% economic interest and is the sole general partner in its UpReit general partnership, Cedar Realty Trust Partnership, L.P.
CDR completed a secondary common stock offering in January 2014 for 6.9 million shares and net proceeds of $41.3 million. The proceeds will be used for general corporate purposes, acquisitions and repayment of debt.
CDR was organized in 1984 and is incorporated in Maryland. CDR is traded on the NYSE, is based in Port Washington, NY and its debt is not rated. CDR has 68.8 million common shares outstanding and a market capitalization of approximately $447 million.
CDR's management team includes Bruce J. Schanzer, President, Chief Executive Officer and Director since June 2011 and prior thereto was employed by Goldman Sachs & Co; and Philip R. Mays, Chief Financial Officer, who joined CDR in June 2011 after six years with Federal Realty Investment Trust.
Select financial data for CDR as of the 9/30/13 10Q and supplemental data for the period 1/1-9/30/13 is as follows (in millions where applicable):
|Real Estate Assets, Gross||$1,468|
|Mortgages Payable and Credit Facility||$741|
|Common Stockholders' Equity||$529|
|Net Loss Per Share||($.06)|
|Cash Flow from Operations||$34|
|Unsecured Line of Credit ($310 with $180 used)||$130|
|Property Debt to:|
|Gross Real Estate Assets||50%|
|Dividend and Yield ($.20/sh.)||3.1%|
|First Nine Months Revenue Per Above Annualized||$143|
|Less: Operating Expenses Annualized (excluding depreciation, amortization & interest expense, plus G&A expenses and other income)||56|
|Annualized Net Operating Income 2013||$87|
|Projected Inflation Rate at 3.5%||x103.5%|
|Projected Forward NOI for Next Year||$90|
|Projected Cap Rate||7.5%|
|Projected Value of Real Estate Assets||$1,200|
|Add: Net Operating Working Capital||77|
|Total Projected Asset Value||$1,277|
|Less: Total Debt Per Above||(741)|
|Series B Preferred Stock (at book value)||(191)|
|Minority Interests in Consolidated JV's (at book value)||(5)|
|Projected Net Asset Value||$340|
|Common Shares Outstanding 69.63M (68.8M common stock shares, 584K incentive plan shares and 248K operating partnership shares)|
|Projected NAV Per Share||$4.88|
|Closing Market Price Per Share on 1/15/14||$6.50|
The gross real estate assets, property debt, revenues, net income (loss), funds from operations and dividends per share for the years 2009 through Q3 2013 are shown in the table below:
|(millions except per share amounts)||2009||2010||2011||2012||Q3 2013|
|Gross Real Estate Assets||$1,555||$1,591||$1,364||$1,460||$1,468|
|Net Income (Loss)||($25)||($51)||($118)||$10||($3)|
|Funds From Operations||$52||$29||$26||$27||$27|
|Dividends Per Share||$.20||$.36||$.36||$.20||$.05(1)|
(1) Per quarter
As shown above, our net asset value per share for CDR is $4.88/sh. versus a market price of $6.50 per share. Current average cap rates for retail properties per our experience and CBRE are in the 6% to 9% range, depending on the location, tenancy and quality of the property. We have used an average cap rate of 7.5% due to CDR's portfolio being primarily Class A food and drug neighborhood retail properties.
CDR's strengths include; lease renewal rental growth of 7.3% in Q3 and stable occupancy of 92%. Weaknesses include; low dividend yield of 3.1%, high stock price which equates to about a 6.8% cap rate, a decline in asset growth of 5.5% from 2009, no revenue growth from 2009 and poor investment and growth strategy.
We are not recommending the purchase of the stock at the current price of $6.50 and the low dividend yield of 3.1%, especially with minimal growth in assets and revenue. Food/drug retail centers are excellent investments as they are usually very stable and are in high demand by institutional investors. However, they trade at low cap rates and the income is fairly flat with minimal rental increases and are considered bond type investments. CDR needs to be more aggressive in acquiring assets to grow the company and should consider investments in other markets than the current Northeast corridor. If cap rates are too low for food/drug centers, then CDR should consider other retail properties to acquire at higher returns to grow the company. We think there are more value oriented retail REITs for investment at values below NAV and 5%+ yields including Inland Real Estate Corporation and CBL & Associates Properties, Inc.
A five year price chart of CDR is shown below: