Q2 2021 Cedar Realty Trust Inc Earnings Call
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Welcome to the second quarter 2021 Cedar Realty Trust earnings Conference call. As a reminder of this conference is being recorded.
At this time all audience lines have been placed on mute.
We will conduct a question and answer session. Following the formal presentation I'll now turn the call over to Jennifer Bitterman Police force.
Yeah.
Good evening and thank you for joining us for the second quarter 2021 Theater of Realty Trust earnings Conference call participating in today's call will be Bruce.
These are chief Executive Officer, Robin Ziegler, Chief operating Officer, and Philip Mays, Chief Financial Officer.
Before we begin please be aware that statements made during the call that are not historical maybe deemed forward looking statements and actual results may differ materially from those.
<unk> 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 2020 as updated by our subsequently filed quarterly reports on form 10-Q, and other periodic filings.
Fillings with the SEC.
As a reminder, the forward looking statements speak only as the date of this call July 29, 2021, 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.
<unk> net operating income.
Please see Cedars 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 Shantha.
Thanks, Jennifer and thank you all for joining US this evening for the second quarter 2021 earnings call for Cedar Realty Trust.
Before jumping into my prepared remarks, I want to thank my team Cedar colleagues for their continued commitment to everyday excellence collegiality and collaboration.
This period of time is unique in our personal and professional lifetimes with opportunities and challenges we could never have imagined.
I've never been prouder to be on team Cedar and Im thrilled at the professionalism that has been exhibited up and down the organization.
I would also like to acknowledge and thank our board of directors for.
And stewardship.
As you are aware earlier this year, we expanded our board to 8 members and added 3 new directors.
Having now had 2 meetings with our newly constituted board I am happy to report that our new directors at our legacy directors have built a high functioning team and as the beneficiary.
They're got input and Mike capacities.
And as a shareholder I am thrilled to see this high performing group navigate the company at such an elevated level.
The second quarter of 2021 is noteworthy for a number of reasons most significantly because it marks over a year since the onset.
Of the COVID-19 pandemic.
The year over year comparisons of our results highlight how far we have come from the depths of the pandemic. When we simply had no idea what the future held and whether you would even survive the individuals' let alone as a company.
As we look ahead, we are first and foremost grateful.
I'd say, we have been spared.
Hopeful that any resurgence is short lived.
Here, we are a year later with the remarkable economic tailwind.
The robust leasing pipeline and validation of our central guidance strategy of focusing on grocery anchored shopping centers.
Pool through their strong performance over the last 12 months and the resultant investor appetite for these assets.
Significantly during the second quarter, we closed on the sale of the Camp Hill mall per roughly $90 million, representing an approximate 6.5% cap rate.
In this transaction.
Both was most definitely not an outlier. Since then we have seen any number of single asset and portfolio sales. The confirm this market comp and if anything suggest our purchaser might've been ahead of his time and recognizing this market trend.
What we are seeing drive this trend is of confluence.
Action of 3 complementary dynamics.
<unk>.
There is significant tenant demand for space in our grocery anchored centers since they've proven themselves to be resilient and productive through the most challenging market dynamics.
Second the.
The other investable real estate classes, specifically multi.
Multifamily housing industrial and net lease has gotten so costly, but they don't offer reasonable yields and investors are avoiding offices hotels and malls because they are seen as too risky.
Third the debt financing markets are still remarkably constructive for our asset types.
With low rates flexible terms and high leverage levels.
This trend in the grocery anchored asset sale market only highlights the profile of the disconnect between our share price and our underlying market value.
As I commented publicly when we sold camp Hill. This is a disconnect on.
<unk> continue to focus and regarding which we will take further appropriate measures to exploit if it persists.
Which appears to be the case.
Moving over to leasing as I alluded to earlier, our leasing pipeline is robust to say the least we anticipate growing NOI and occupancy over the coming.
<unk> with the pipeline of leases that have either been signed or under negotiation or are close to being finalized debt. When taken together will result in substantial occupancy and NOI growth within our core grocery anchored shopping center portfolio.
While the capital is generally required to effectuate these leases the unlevered.
<unk> returns on invested capital are remarkably attractive and are certainly warranted considering the value creation at the asset level and our underlying cost of capital.
My heartfelt, thanks to <unk> and the entire leasing team for their contributions to this remarkably strong effort and.
And I urge you.
Continue putting the pedal to the metal in order to finalize the leases in hand and grow the pipeline further.
Robyn will elaborate on our major mixed use and value add redevelopments.
As you know, we announced in the second quarter, but before our last earnings call a joint venture with Goldman Sachs.
And the Ashland for construction of the Bgs office building, representing the first phase of the northeast type project in Washington D C.
We continue making steady progress in advancing what will be the later phases at northeast Heights, as well as revelry and Philadelphia.
On the value add redevelopment.
<unk> side, we have achieved important leasing and construction milestones of Norwood Valley Plaza, Yorktown, and fish Towne crossing all of which Robyn will elaborate on in her prepared remarks.
Before handing it over to Robyn.
Once again, thank the team and board for their productivity during this unique period.
<unk> and I would conclude by repeating our commitment to maximizing value to our shareholders in the face of the manifest disconnect between our share price and our underlying real estate value with that I give you robin.
Thanks, Bruce good evening.
We have seen good progress on both operations and leasing.
The thing as we experienced second quarter emergence from the pandemic. During this quarter, we collected 97% of billed rent and as we have discussed in prior quarters. We continue to have strong rent collection performance on a relative basis.
In recent weeks, we have noticed an increase in leasing activity that we anticipate.
It will bring us back to pre pandemic performance, if not better the.
The leasing volume this quarter is strong with 40 total leases being executed of totaling 209100 square feet.
15, new comparable leases were executed this quarter as compared to 4 new leases executed in each of the.
Just the pay 2 quarters.
While volume has certainly increased the spread on this quarter's 15, new deals as a negative $18, 7%. This was primarily due to several restaurant and service type retail deals that began lease negotiation several months ago during the pandemic and we're ultimately.
We executed this quarter, we expect to see better spreads as we continue to move through the process. Assuming there are no additional shutdowns or impact to retailers due to new Corona virus variants.
23 renewals were completed at a positive spread of 2.6%. These renewals include 3 anchored.
The deals big lots of Tiffany Plaza T J Maxx at Groton shopping center and La fitness at Sweet square.
These sales totaled 95000, and 407 square foot the collectively at a positive spread of 6% and.
An additional 2 non comparable deals were executed this quarter, including us.
A lot at Trexler town Plaza in previously on lease space and the new pad site deal at fish Towne crossing per the new Popeye's prototype.
Post second quarter, we executed on non comparable deal with honey grow a stir fries salad fast casual restaurant at fish Towne crossing. Additionally, 3.
Free anchor leases were executed after June 30th.
Hobby lobby and grocery outlet at Valley Plaza and quarter on chapter of Technical school at New London small.
These anchors totaling 95207 square feet are replacing a former Kmart at Valley Plaza and a former AC.
Core and new London.
As of the end of second quarter, we have of leased occupancy of 88, 7% of <unk>.
0.9% increase from prior quarter same property leased occupancy is 99% as of June 30 of which was a 0.8% increase from prior.
Higher quarter, while occupancy is trending in the right direction, our occupancy is still affected by preparing our redevelopments per execution.
The leased occupancy for our redevelopment portfolio is 79, 6%, while same property leased occupancy of 99%, resulting in the overall leased occupancy of.
88, 7%.
We continue to work on our value creation portfolio of renovations at Valley Plaza, Karremans, Norwood York Channel, New London, and fish Towne crossing their each progressing nicely enhanced by the leasing this quarter of the 2 new deals of fish town. The 2 new anchors of Valley Plaza 2 new.
Small shop deals at Carmen and of new anchor and new London.
As we detailed in last quarter's earnings call. This quarter, we closed on our $114 million refinancing the dispositions of both the common shopping center and Camp Hill shopping center and the joint venture for the Department of General services known as D. G.
At northeast Heights the.
The D C. S joint venture represents the first phase of the northeast Heights redevelopment construction of this first phase is underway and we anticipate delivery in December 2022.
With that I will give you Phil.
Thanks, Robyn on this call I will briefly highlight operating results and provide an update.
Yes.
Starting with operating results.
For the quarter operating <unk> was $8.5 million 61 per share and property NOI was $28 million opt.
Operating expenses included $2 million of demolition cost incurred at <unk> shopping center.
These demolition core.
Costs related to raising big wise old space and delivering them of pad to build of new larger grocery store that will be of significant enhancement to Norwood shopping center.
As is our practice, our computation of operating <unk> adds back redevelopment items, such as the demolition costs that increase the value of a property but of required of the expense under.
On our balance of leading redevelopment properties same property NOI increased 8.2% over the comparable period in 2020, and 10, 2%, including Redevelopments the.
The increases were driven by our portfolio of having substantially recovered from the effects of the COVID-19 pandemic.
Moving to the balance sheet.
In.
In May we closed the $114 million nonrecourse mortgage loan cross collateralized by 5 grocery anchored shopping centers.
The 10 year loan with Guardian life was completed at a 65% loan to value with <unk>.
5 years of interest only payments and of fixed interest rate of 349%.
Utilizing the proceeds.
The GAAP loan along with the aggregate proceeds from the recent sales of Camp Hill in the comments, we repaid $50 million term loan that was scheduled to mature in February of 2022 and reduced the outstanding amount on our revolving credit facility from $179 million to $12 million.
Our revolving credit facility now with only $12 million.
From this 1 on it matures in September and represents our only 2021 debt maturity.
Accordingly, we have begun discussions with our bank group about refinancing the revolving credit facility and are optimistic that we will do so prior to its maturity of.
Additionally, we are discussing the potential early refinancing of the $50 million term loan maturing in 2020.
Driver I should note we have of 1 year extension option for our revolver and could exercise this option and address the revolvers maturity later this year and therefore in the first half of 2022.
With that I will open the call to questions.
At this time, we will be conducting a question and.
And answer session, if you'd like to ask the question. Please press star 1 on the telephone keypad. The confirmation tone will indicate your line is in the question queue. You May press star 2 if you'd like to remove your question from the queue for.
The participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
1 moment, please while we pull for questions.
And our first question is from kind of comments with Keybanc capital markets. Please proceed with your question.
Hi, good afternoon.
The first question Robin the the lease rate improved sequentially by about 80 basis points.
Solid move.
Do you feel.
Feel that that momentum should continue do you see the leasing trending higher from here and then can you also talk about the pricing power you commented on the new lease spreads in the quarter.
You worked through some some lease signings it sounds like that you began negotiating earlier on the recovery would you expect to see new lease spreads inflect higher now that you've.
Worked through some of those.
Yeah. Thank you Todd.
So related to volume, we definitely are seeing kind of increased volume I would put on the last couple of months some of which sort of at.
At the tail end of Q2, and then end up going into.
The next quarter.
I would expect that we are starting to see.
Retailers look at expanding their operations opening new stores opening restaurants et cetera.
So we are we are seeing good momentum there.
Weighted to spread equally.
As I mentioned many of the deals that were several of the deals that were closed during the second quarter.
The worst started during the height of the pandemic as far as the economic terms.
So I do expect to see an improvement in those terms relative to spreads.
As they go.
The other coming on.
Okay. If we look at the the total portfolio I realize there's some development redevelopment projects in there, but the 88, 7% of lease straight for the the overall portfolio.
At June 30, if we look out over.
The next day, you know I don't know year, maybe maybe 6 quarters sort of end of 'twenty 2.
Where do you where would you sort of loosely project the the portfolio to be leased up at.
Sure. So yeah, we have.
<unk>.
The momentum outside of the the redevelopment that.
Then about the we expect to see some leased occupancy increases.
The increases there and then related to the the drag so to speak from the Redevelopments I would say that relative to kind of of our value add renovation portfolio. The majority of the impact of.
We talked that tenancy is on even if not because of the numbers.
And the only thing that I would expect that we would see probably not this year in 'twenty, 1, but maybe as we get into 'twenty 2.
On some occupancy drag from removing the tenants of northeast Heights, as we move into the next phase, but I think.
Although a ways away.
But related to kind of what's going on currently there may be some small ebbs and flows on the redevelopment side, but largely the the tenancy that's impacted by the redevelopment is already factored in.
And okay interject debt to amplify that point.
Our leasing pipeline is very strong on the occupancy statistic that we report and Robin did a really good job of.
Walking the walking people through at a high level is distorted just because of some of the intentional vacancy that we incur in some of the vacancy that we have on accounts of our value add redevelopments.
But as that starts working itself out as we do 2 things as we the fab.
Wait those value add redevelopments and as we execute our leasing pipeline again controlling for the.
Major mixed use redevelopment I think youre going to see occupancy.
That's kind of.
Continue to creep up into the low to mid nineties.
And I think that that's going to be.
Really a function of just the strength of the grocery anchored portfolio and the strength.
Debt, we're just seeing in the in the leasing pipeline right now.
Got it so.
T end of 19 of the portfolio I realize it's a different portfolio of different mix right now and you know with things.
On the redevelopment side and otherwise, but you were at 93, 2% so call it 450 basis points or so you see it being reasonable and.
The chief of ball to get back to sort of that.
Low to the 90% range over the half.
The here so.
Right so to be clear of the answer is yes.
What I would differentiate it between the headline statistics, and what we're seeing and sort of the non net.
The assets, where there is no action I can't obviously when we.
Intentionally vacate the tenant there is.
They can see and those spaces, but as the broad characterization. The core grocery anchored portfolio that we're operating is trending exactly as you described and as realistically going to it's going to get.
That kind of the level again.
Okay.
And then that's helpful. And then Bruce you discussed the sale of our camp Hill for 6.5% cap rate. It sounds like you plan to look to further exploit the disconnect between public and private market valuations as is that through additional.
Disposition similar to camp Hill or is there something else being contemplated.
The exploit that that disconnect.
Yeah, what I would say Todd and you've followed us for a long time and hopefully you can appreciate that from a management discipline and analytical perspective.
All of you look at everything.
And we continue to look at everything and so what I'm struck by on what our board instruct parties again. This just disconnect that we need.
The need to reflect on and think about it as we're making cash.
Capital allocation decisions and that was from making strategic decisions and so.
Yeah.
It runs the gamut, but certainly it's a big area of focus for us considering this disconnect and considering the strength and the.
And the asset sale market as evidenced by the Camp Hill deal.
Okay, and just I guess lastly, the you know.
It was talking.
About the board and regarding the board of turnover in some of the new members that have joined.
The board over the last several months you know you you've been talking about the disconnect in public and private market valuations for for quite some time, but you know on the last few months those are the 2 meetings with the new board members I guess, what kind of input have they had.
Their emphasis in terms of areas of impact and thinking.
Thinking about the company in the business.
Okay.
First of all I would say that as the broad statement, we've really gone from strength to strength with the board change. So we had a terrific board before and we have terrific New board members.
What's in there very thoughtful in their independent.
And 1 of the great things about the theater board and I, often say this to our directors as that of any of our shareholders who are in this room listening to the debates in conversations that we all have they'd be thrilled.
How are you.
Our board of approaches topics and again, we haven't really missed the beat.
These new directors are terrific additions and they've integrated well with the legacy directors as I was describing earlier and it's a lot of the same.
This is a topic that we are focused on pre COVID-19 before the whole activity when the accident situation heated up rate. We commented on the fact that we had literally run.
Out of process prior to Covid, so certainly.
The the board the board of directors prior to this change.
Was very focused on this issue and the.
The new directors began very thoughtful high integrity folks of picked up that conversation and it continues.
1 of the areas that we focus on.
And our board deliberations.
Okay alright, thank you.
Sure.
And again as a reminder, if you have any questions you May press star 1 on your telephone keypad those old issue.
Sure you're placing the question and answer queue our.
Our next question is from Floris Van <unk> with Compass point. Please proceed with your question.
Yes.
Hey, good afternoon, or good evening guys. Thanks for taking my question.
Just a little bit of a more infill.
Nation on the the leasing pipeline if you will.
How how robust.
Do you see or how much demand do you see.
Obviously, 1 way to look at it is in and look at your your leased to occupied spread but if you can also maybe give us of a little.
An update in terms of your total pipeline as it stands right now in the mix of that pipeline.
How do we do as well Robin why don't you maybe take a first stab at it and that all of this amplifier to the extent necessary.
Sure.
So thanks Laurence for the question.
A bit of a say kind of I guess, starting at the end of going to the beginning of of your question.
On the types of deals that we're seeing in the pipeline are you know everything from anchor deals to national small national anchor deal to national small shop to the local.
No I wouldnt local retailers.
So we're seeing of you know of wide.
The breadth there of the types of deals coming through and you know a lot of the activity that we talked about you know at first retailers, we're kind of doing what theyre low hanging fruit and the things that were already in process pre pandemic.
Of course are now focused on growth and expansion and so we're staying the same.
Seeing the benefit of that both and you know Hello lives coming through that are executed on deals that are Justin and negotiations that.
Or and are in the pipeline. So you know I think.
Then I had said before I think we do expect over the coming quarters to get back to kind of that the pre pandemic low 90 ish.
Per cent occupancy related to related to that on the leased occupancy side.
And then related to just deal structure.
As we were seeing.
We're seeing better spreads.
Spreads and then we did kind of during this quarter. We're seeing deals that are that represent a better spreads based on what we've seen thus far so we're expecting that activity to continue.
Again Robin.
Just.
So the the spreads where obviously the.
Maybe there are some 1 offs in that but if I look at your leasing costs. I mean, they're also really elevated they're almost <unk> of what you were on on in terms of your new leases.
Uh huh.
Obviously.
Behaviour spreads because it was still a really negative spread but how much insight does that provide into what youre going to be doing on a going forward basis for your free releasing activity.
Yeah no. Thanks for that question on Florida, So we really look at capital related to leasing deals on a on an individual basis.
You're not this and making sure that each deal has a.
The positive net effective rent over the term of the lease with that being said you know what.
Some of our kind of comparable deals at the space has been vacant for a while we often have capital that needs to be applied.
Just to get it to a leasable white box, we try to limit how much capital, we get above that but for some spaces and our older shopping centers are up at the space that hasn't been leased in a while there may be you know a sizeable amount of capital to put to the space just forget of total leasable white box and we still apply that all.
Based on our central does the deal, but it certainly provides for the the at least the ability of the box going forward, even beyond the steel so and some individual circumstances the.
You know the the the leasing cost may feel elevated we also obviously have the impact of.
The increase in commodity pricing for construction and so some of that is factored in but again, we do look at it very stringently on a deal by deal basis to make sure that capital outlay makes sense for that particular deal.
And of course already.
No not really.
First I was just kind.
100 per I mean, I don't think that there's some larger trend going on in terms of elevated capital levels.
We have of small enough sample size in any given quarter that as Robyn was saying it really is.
Deal by deal type of analysis.
Certainly when we think about the capital.
The AD inventory lease deals you know the returns are fairly attractive.
I referenced in my prepared remarks, and they certainly work well with our cost of capital and again when you look at the.
Capital outlays on the deal by deal basis, and generally speaking are focused on positive net effect of the grants right and if.
I mean that we satisfy ourselves from that perspective. We proceed so when you look at it.
And sort of an aggregated basis.
On a single quarter basis, youre not necessarily can identify a trend that's rather just sort of a big bowl of soup with a lot of different ingredients on it.
Yeah.
Great I appreciate.
That guidance.
By the way, but I wanted to follow up maybe on on the on the mortgage of financing of 157 million mortgage that you did on the 5 assets until maybe if you can comment on that.
Guardian life was the was the lender.
How restrictive are does this mean and if you want to sell 1 of those assets.
Do you have to sell the whole the whole package or how much flexibility do you have to swap assets or to substitute things or do you have to pay off the whole loan that could you maybe walk us through that.
Yeah of course, 1 of the reasons, we went with the life company was to keep flexibility and so we do have substitution rights there.
So we.
We can substitute in asset.
It requires the approval.
But we can work through that with them and find an asset of equal or if necessary slightly larger value.
But we do have substitution rights. So it is not prohibited from selling any of those on an individual 1 off basis.
Thanks, So maybe the last question in terms of of you know obviously the success in the Camp Hill sale.
Maybe Bruce if you can just why not do more of that I mean, you've got you.
Like with like the pointed out you know more of your portfolio is for sale every day, so why not start to break it up a little bit of of what's what's preventing it's the it's the climates.
It's still not right in your view or do you think that where is it a is it becoming more of a seller's market now.
Well, you're asking 2 different questions. So maybe I'll answer then individually. Your first question was why don't we sell more real estate and as I.
The 2 it certainly is something that we are reflecting that.
With the classic playbook with the REIT is if your stock is below your real estate value you saw your real estate.
And if your stock is above your real estate value of your stock.
And of course in this context.
Book would point out the selling our real estate and so that is something that we continue to think about it and I havent been secretive about that we've pretty much made that explicitly clear both in our actions and selling canto and in my remarks in saying that we are going to think about.
The alluded more of that more.
More generally is it a seller's market.
Yes.
I think it.
Does appear to be a situation where the.
Real estate investment community is recognizing that.
Grocery anchor.
Anchored retail in particular doesn't necessarily suffer some of the challenges that other categories of retail seem to be suffering.
And so certainly when you compare as I mentioned in my remarks, the opportunities for reasonable return out of the grocery anchored retail.
Shopping center.
The relative to industrial or multifamily of net lease, especially with very supportive of financing. It does seem to me that it's a pretty auspicious time.
Both to be of salary on a buyer of frankly of <unk>.
Grocery anchored retail so maybe rather than characterizing it as a seller's market I would say that we're in an interesting.
Resting state of the equilibrium.
There a lot of the cap rate trends in grocery anchored arent informed as much by the return opportunities in other assets.
There are by the <unk>.
Riskiness of this particular appetite so again to the extent that industrial and multifamily in net.
At least continue to deliver 4% returns I think that the cap rates and grocery anchored retail will continue to trend down to the extent of those cap rates were to drift up I think you would probably not see a grocery anchored.
Grocery anchored cap rates drift down so I think that day they relate to 1 another.
It's a pretty significant way.
Okay.
Thanks, Bruce I appreciate that.
Sure.
Yes.
And we have reached the end of the question and answer session I will now turn the call over to Bruce <unk> for closing remarks.
Thank you all for joining us. This evening, we wish you an enjoyable balance of the summer and look forward to continuing to share with you our progress in delivering strong results for our shareholders.
And this concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
Other.
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