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Cedar Realty: Invest In Essential Anchors For High Dividends And Double-Digit Upside


  • Preferred shares have offered an excellent opportunity to invest in companies that the market perceives as risky.
  • This landlord is covering expenses while collecting just 70% of rent. Things will only get better from here.
  • Despite the worst being over, these preferred shares are still trading at a hefty discount to par.
  • Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Get started today »

Co-produced with Beyond Saving

At High Dividend Opportunities, we have been beating the preferred equity drum. In our opinion, preferred equity is an underrated portion of the capital structure, especially when it comes to investment structures like REITs, which are required by law to distribute a significant portion of their taxable income.

Our primary goal is to have a portfolio that provides a high level of recurring income. We all know that some super high yielders could be volatile, and that dividend cuts can sometimes be unpredictable. Certainly, COVID-19 has shown how quickly once "safe" dividends were reduced by some companies to preserve cash and strengthen their balance sheet.

Prior to COVID-19, we were recommending to our investors to have 40% or more of their portfolio invested in fixed-income investments, like preferred equity. Currently, we have 54 preferred stock recommendations. This helps provide our portfolio with a solid bedrock of dividends, even during difficult economic times.

While prices of preferred shares were not immune to the wrath of the market in March, the dividend payments have proven to be very stable. We did experience a few dividend suspensions, Two Harbors (TWO) and Invesco Mortgage Capital (IVR) are examples of companies that suspended their preferred dividends in March.

We recommended to keep holding the TWO preferred stocks before and through the suspension and the dividend was resumed in a matter of weeks. The IVR preferred was a newer recommendation to our members at the height of the panic. Buying shares of Invesco Mortgage Capital, 7.50% Fixed/Float Series C Redeemable Cumulative Perpetual Pfrd (IVR.PC) for under $5 we were able to lock in a yield of more than 37% and are currently sitting on unrealized capital gains of more than 300%.

The best part is, that while both companies had suspended their dividends, it

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This article was written by

Rida Morwa profile picture

Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.

Rida Morwa leads the investing group Learn More.

Analyst’s Disclosure: I am/we are long CDR.PC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (102)

Biological profile picture
SACH reinstated dividend, in full, at $.12/quarter. Payable later this month. CT real estate is on fire due to the exit from NY urban Utopia by anyone who can, now not functioning without police and rioters running free.
PendragonY profile picture
Yes, that is good news. The after market had the price up quite a bit. I am long SACH and was glad I hung on.
PendragonY profile picture
This announcement is very good news for the preferred holders. Any dividend at all to the common shareholders means we get our full dividend.

tonor profile picture
Why has CDR’s stock price crashed faster than CDR’s operating results? 1) they have committed to build 1,000,000 square feet of retail space plus 750 apartments without the money to pay for it and 2) they are soon busting their debt covenants.
Emperor Norton profile picture
Sorry, new to the arcane nature of SEC filings. As I read it, Namco is a privately owned shopping center owner/operator that has acquired an 8.8% stake in CDR. Am I misinterpreting the 13G form?
@Emperor Norton
Anybody up to 4.9% ownership must file a 13G. An individual ownership group can own up to 9.8%. Namco is obviously buying to get on the next proxy to reconstitute the board with their own slate. Why not...with the stock trading at $1.01/share it’s an absolute steal. I’ve been buying heavily as well personally and with my investment group.
toddkaz profile picture
Hey I am a newbie and I like the looks of CDR. What stops CDR filing for bankruptcy, wiping out shareholders and another company taking over?

Like I said, I am new so maybe I don't understand these practices.
ckarabin profile picture
@toddkaz If a company files bankruptcy, they will concede much of the value in the firm to the creditors as opposed to the equity holders. So why don't think just file bankruptcy? Because the shareholders, which are also the management, lose everything and the banks/creditors would probably fire that management and bring in their own guys to run it, making it so they lost their jobs too. Management rarely gains and usually loses big time when a bankruptcy is filed.
Emperor Norton profile picture
Any significance to the filing by Namco?
@Emperor Norton yes. It’s 15% of the center and next to a one-off fitness operator. Trouble ahead. Cdr also experienced 24hr fitness announced closure in 20% of GLA in NY and Tuesday Morning in Harrisburg, Stages stores filing in 2 of Cdr’s worst assets yet they are spending >800k to raise a roof for a one off franchisee of Urban Air in Pa., a highly risky post COVID operation. Despite the rhetoric, Cdr is not interested in disciplined capital mgmt. It’s only about mega comp for mgmt. Sorry to say, high grocer concentration can’t overcome poor mgmt.
ckarabin profile picture
CDR has been the epitome of good capital management since the new management team took over. And stores come and go, citing one for having trouble does not mean that replacement stores won't want to get into the vacant space.
You are so correct on multiple fronts. This mgt group has destroyed CDR’s NAV. Friday’s close was $1.01. Traditional NAV’s run at a 10-15% discount of current stock prices meaning CDR’s NAV would be $.85 -$.90/share today. Jul 25 2016 stock price was $8.04 which means their NAV at that time was $6.83 - $7.23. The destruction of value is painfully obvious. 88% of the NAV has been lost by Bruce Schanzer and Phil Mays’ management practices or the lack thereof. These guys are not only overpaid, but they need to go. Schanzer’s lawsuits along are grounds for immediate dismal based upon cause for sexual harassment and battery.
toddkaz profile picture
Their portfolio doesn't look too bad. It looks like management has run this company into the ground.
PendragonY profile picture

Given you think the portfolio of properties is good, exactly how do you think management has "run this company into the ground"?
toddkaz profile picture
Have you not seen their depreciation over the last 5 years? The lawsuits against the CEO? I also said their portfolio doesn't look too bad. I never said it looks good. Not sure why you are putting words in my mouth.
PendragonY profile picture

Sorry, I didn't need to put words in your mouth. What do you mean by "depreciation"?
PendragonY profile picture
I am trying to buy more of the preferred shares today, but so far my limit order hasn't closed.
tbone profile picture
@PendragonY get em while they are hot ....down 15% in the last week...
PendragonY profile picture

While they were at a very good price on Friday, no, they were only down ~8% over the last week.
toddkaz profile picture
Management of CDR is looking at a takeover from Namco.

I really don't know whats going on but they are now at 8.8% ownership.

I have a position in CDR(Not a large one) and look too double or triple my money. If Namco turns things around could be $$$.
The common has declined 85.58% over the past 5 years under Bruce Schanzer’s and Phil Mays’ leadership...what else needs to be said?
Biological profile picture
Yeah, they are not as good as SPG's Simon.
They are both inept as to real estate ownership and management. It’s unbelievable that the board and major investors would tolerate such activities. Bruce had two lawsuits....one personally (battery) and one corporately (sexual harassment). With the #metoo movement, it’s totally unacceptable for a CEO to be allowed to remain under such activities.
Any response to @Joe X 's point @Rida Morwa ? That's a pretty big adjustment to your assumptions...
tonor profile picture
One of my concerns for CDR is the capital and management attention being devoted to the big 3 redevelopments, South Quarter, Riverview, and East River. The company has not provided budgets for these projects which total 1 million square feet of retail plus 750 new apartment units.

If CDR announces it has permanently cancelled the big 3, could the stock blast higher as CDR's sources and uses of funds outlook suddenly becomes clearer?
Joe X profile picture
Hey guys, not so fast on those CDR preferreds.

Although a 30% haircut on $42 million of revenues looks reasonable, the starting point is questionable. On page 19 of the 10-Q, CDR disclosed that revenues for 1Q'20 included a hefty $7.1 million lease termination payment on a dark anchor (the property is held for sale). If you adjust the pro forma column to exclude this windfall payment, they are not covering recurring capex let alone preferred dividends.

Here's what CDR reported revenues look like for the last 5 quarters - see anything unusual?

$36.883 - 1Q'19
$35.660 - 2Q'19
$35.912 - 3Q'19
$35.628 - 4Q'19
$42.485 - 1Q'20

If you have to own one of the preferreds, the 7.25% Series B has the ugliest coupon and stands the best chance of coming out first. This issue is callable now and has already had some partial calls along the way.

Good luck to all.


Joe X.
ijeff profile picture
Only thing unusual I see is 1st quarter looks like their best quarter and this past 1st quarter was extremely strong. What am I missing?
What you’re missing is that the worst case scenario pro-forma was based on the anomalous $4.2MM quarter, snd the value argument that he makes based on that pro-forma completely falls apart when using accurate numbers.
tbone profile picture
@Joe X @PendragonY more likely that they halt payment on the preferred as they inch toward bankruptcy, rather than redeeming it...
11 Jun. 2020
Why is a more distant call date better?
Phenom1 profile picture
A more distant call date can generally be better if (1) dividends are cumulative; (2) dividend remains well covered and yield is high; and (3) the issue is trading below par, as these are, ensuring that if they are called (at par =$25) you receive a nice capital gain.
Rida Morwa profile picture
@Jkatz2 A call is almost always negative for shareholders, it is a redemption at the company's option, which means that the company is buying your shares away from you at $25 plus accrued dividends on their time-table. As a shareholder, you can go sell your shares in the open market on any day that it strikes your fancy. If you haven't sold, there is a reason for it, and the company takes that away from you when they exercise their call option.

Importantly, a company is never going to exercise a call option when shares are trading below par value, because the company has the right to buy in the open market too. So if shares are trading at $24, when a call would cause you to profit from the current price, the company wouldn't call it- they would save money and buy some shares at $24. Why pay the extra $1 if it isn't necessary?

It is when the shares are trading above par, say $26, that the company would exercise their call option. On the day the call on the shares is announced, it is virtually guaranteed that before the news you could have voluntarily sold the shares for more than you will receive from the call. I won't say there has never been an exception, but essentially all the time, the price drops the minute the call is announced because people will bet that a call isn't going to happen right now and bid up the price to something higher than par + accrued dividends.
PendragonY profile picture
A company calls preferred shares when it has some way of getting a better deal. If the shares are trading below par, that means that they would have to pay more dividends to replace those shares. If it is trading at a premium, then the company can issue new preferred with lower dividends.

As Rida points out, you can always sell your shares, so you hold them because you like the deal you are getting and the company calling them stops that deal.
PendragonY profile picture
eREIT preferred stocks are very safe, and when the REIT has property anchored by grocery stores, even better. Looking to pick up some of the CDR preferred when I get the cash.
Rida Morwa profile picture
@PendragonY They certainly do, the market consistently underestimates the durability of REITs.
PendragonY profile picture
I got some cash in today and am using it to buy CDR-B. It is a great deal to get ~9% yield on cumulative preferreds!
tbone profile picture
@Rida Morwa @PendragonY wow...CDR pfd ??? take your cue from the common: from $8 / sh five years ago, to as low as $0.65 a couple months ago. Not a ringing endorsement from the market. What's the market saying about the quality of their portfolio ? Any risk to the preferred div being suspended at some point during the next 1-2 years ? Sure is...especially if you think a second wave in the Winter is probable. For a mid 8% yield, I'll pass.
Robert Lewis profile picture
I have chosen to sell m preferred holdings and focus on the common. CDR is solvent and steady. Although the preferreds offer a higher and safer income, the upside on the common can be multiples of its present price (up 2x from its low). The worse seems to be over and although it will be a long and rocky road, I suspect it will be worth it considering that the common is selling at about 20% of its true value.
Rida Morwa profile picture
@Robert Lewis Yes, I agree the common is interesting, but we prefer to take the safer route and collect the higher income.
PendragonY profile picture
@Robert Lewis

Sign me up to get more income for less risk every time.
ijeff profile picture
I'm still leery of the common and some of those tenants. I know Rida put a bit of a positive spin on 24 Fitness filing bankruptcy, but I still see major risks for the others.

First off, LA Fitness has been closing many locations even before Covid-19. I no longer see any open within miles of me. I have zero confidence in their future. I would expect they will be the next one to file bankruptcy.

Planet Fitness has been a great business with an excellent business model that has been growing rapidly for years. I see most of their problems going forward as a direct result of Covid-19. Others going out of business isn't going to be much help. Their problem now has little to do with getting new members as much as it is figuring out how to survive with reduced occupancy.

As an anecdotal sidelight, I recently spoke to a manger of a fitness equipment store and their business is booming now at what is typically a slow time of year for them.
Great article - the preferred sub $10 have offered great value. I just sold some of the B to take cash off to rotate back into common if it drops below 1 again. Long term the Phili ShopRite/apartment development is going to be key to the common but preferred should be fine regardless.
Rida Morwa profile picture
@CJoyce316 Thank you for stopping by, the common is an interesting investment for those with a higher risk tolerance.
ckarabin profile picture
Thanks Rida, always appreciate your common sense investing
Rida Morwa profile picture
@ckarabin Thank you for reading and commenting, CDR-C is a great opportunity!
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