Cedar Realty Trust, Inc. (NYSE: CDR-PB) is a fully-integrated real estate investment trust (REIT) that focuses on owning and operating income-producing retail properties, primarily grocery-anchored shopping centers, in the Northeast region of the United States. With a portfolio of 17 properties as of September 30, 2024, Cedar Realty Trust has established itself as a key player in the retail real estate sector, weathering industry challenges and positioning itself for future growth.
Business Overview and History Cedar Realty Trust was founded in 1984 and commenced operations as a public company in 1994. The company’s primary focus has been on acquiring, redeveloping, and managing grocery-anchored shopping centers, which it believes provide relatively stable revenue streams even during economic downturns due to the necessity-based nature of the retail offerings. Over the years, the REIT has strategically expanded its portfolio, leveraging its expertise in the Northeast market to identify and capitalize on opportunities.
In its early years, Cedar Realty Trust grew through strategic acquisitions of retail properties. The company faced challenges in the late 2000s and early 2010s due to the economic recession, which led to increased tenant bankruptcies and vacancies. To address these issues, Cedar Realty Trust worked to improve occupancy levels and tenant quality by backfilling vacant spaces and replacing defaulted tenants.
In 2022, Cedar Realty Trust underwent a significant transaction, merging with Wheeler Real Estate Investment Trust, Inc. (NASDAQ: WHLR). This merger has allowed the combined entity to benefit from increased scale, enhanced diversification, and improved access to capital resources, further strengthening its competitive position in the industry. However, the company also faced litigation related to this merger from certain preferred shareholders, which was ultimately dismissed by the courts in 2024.
Throughout its nearly 40-year history, Cedar Realty Trust has demonstrated resilience and an ability to adapt to changing market conditions. The company’s portfolio of grocery-anchored shopping centers has provided relatively stable revenue streams, even during challenging economic times.
Financial Performance and Ratios Cedar Realty Trust’s recent financial performance has been mixed, with the company navigating the challenges posed by the COVID-19 pandemic and the ongoing evolution of the retail landscape. For the fiscal year ended December 31, 2023, the company reported total revenue of $34.63 million, a slight increase from the previous year’s $34.30 million. Net income for the same period was $2.01 million, down from $44.03 million in 2022, primarily due to one-time charges and impairment expenses. Operating cash flow (OCF) for 2023 was $8.25 million, while free cash flow (FCF) stood at $1.79 million.
The most recent quarter (Q3 2024) showed some challenges, with revenue of $8.11 million, representing a 5.9% decrease compared to the prior year quarter. This decline was attributed to a $0.14 million decrease in rental revenues and expense recoveries from same-center properties, a $0.27 million decrease from properties sold in 2024, and a $0.21 million decrease in market lease amortization and straight-line rents, partially offset by a $0.11 million increase in other income. Net income for Q3 2024 was $357,000, down 87.8% from the same period last year, primarily due to increases in depreciation and amortization, interest expense, and a decrease in gain on sales.
Despite the revenue decline, the company’s operating cash flow for Q3 2024 increased by 54.3% to $1.67 million, driven by changes in working capital. However, free cash flow for the quarter was negative at -$2.83 million due to higher capital expenditures.
The company’s financial ratios indicate a mixed picture. As of September 30, 2024, Cedar Realty Trust’s debt-to-equity ratio stood at 2.20, suggesting a relatively high level of leverage, which could potentially constrain its financial flexibility. However, the company’s current ratio and quick ratio both stood at 2.52, pointing to a strong liquidity position and ability to meet its short-term obligations.
Operational Highlights and Challenges One of the key operational highlights for Cedar Realty Trust in recent years has been its success in maintaining high occupancy rates within its portfolio. As of September 30, 2024, the company’s same-property occupancy rate was 86.3%, up from 84.8% a year earlier, indicating the REIT’s ability to attract and retain tenants in a challenging retail environment.
However, the company has faced its share of challenges as well. In September 2024, one of Cedar Realty Trust’s major tenants, Big Lots, filed for Chapter 11 bankruptcy protection. The two Big Lots locations in the company’s portfolio accounted for approximately 0.53% of its annualized base rent, posing a potential risk that the REIT is actively working to mitigate through negotiations and tenant replacements. Cedar Realty Trust is currently negotiating with Big Lots on potential lease modifications, with uncertainty surrounding which leases, if any, will be assumed as part of a sale of Big Lots’ business.
Additionally, the broader retail industry has been undergoing significant shifts, with the growing influence of e-commerce and changing consumer preferences. Cedar Realty Trust has adapted by focusing on necessity-based retailers, which have proven to be more resilient during times of economic uncertainty. The company has also invested in enhancing the customer experience at its properties, incorporating amenities and experiential offerings to maintain the relevance of its shopping centers.
Liquidity and Capital Structure As of September 30, 2024, Cedar Realty Trust had $17.51 million in cash and cash equivalents, providing a solid liquidity position to support its operations and growth initiatives. The company’s total debt stood at $143.31 million, with a weighted average interest rate of 5.60% and a weighted average maturity of 7.9 years.
In 2024, the company entered into a $9.5 million revolving credit agreement, which it utilized to fund capital expenditures and tenant improvements. The Revolving Credit Agreement was subsequently closed in September 2024 following the dispositions of two properties that served as collateral for the facility. Cedar Realty Trust has also been actively managing its capital structure, repurchasing $1.03 million of its preferred stock during the third quarter of 2024 as part of its $10 million repurchase program.
Shareholder Returns and Dividends Cedar Realty Trust has maintained a consistent dividend payout to its shareholders, with the company declaring and paying dividends on its preferred stock throughout 2024. As of September 30, 2024, the company’s preferred stock dividend yield stood at 11.18%.
In September 2024, Cedar Realty Trust announced and commenced a modified Dutch auction tender offer to purchase up to $9 million of its outstanding 6.50% Series C Cumulative Redeemable Preferred Stock. The tender offer, which expired on October 24, 2024, was successfully completed, with the company accepting for purchase approximately 688,670 Series C Shares at a price of $14.00 per share.
Legal Proceedings In April 2022, several purported holders of the company’s preferred stock filed a putative class action lawsuit against Cedar Realty Trust, its former board of directors, and Wheeler REIT. The lawsuit alleged breaches of contract and fiduciary duties related to the company’s merger with Wheeler REIT. In August 2023, the district court dismissed the lawsuit, and in September 2024, the Fourth Circuit Court of Appeals affirmed the dismissal, marking a significant legal victory for the company.
Outlook and Future Prospects Cedar Realty Trust remains cautiously optimistic about its future prospects, as it continues to navigate the evolving retail landscape. The company’s focus on necessity-based, grocery-anchored shopping centers has helped to provide a degree of stability and resilience during challenging times.
Going forward, the REIT’s strategy will involve further enhancing its portfolio through selective acquisitions, strategic dispositions, and proactive asset management. The company will also work to address the impact of the Big Lots bankruptcy, seeking to backfill vacant spaces and minimize the financial impact on its operations.
Additionally, Cedar Realty Trust plans to leverage the benefits of its merger with Wheeler Real Estate Investment Trust, utilizing the combined entity’s increased scale, diversification, and access to capital to drive long-term growth and create value for its shareholders. Management is actively working to increase revenue by improving occupancy, including backfilling vacant anchor spaces and replacing defaulted tenants.
Conclusion Cedar Realty Trust has demonstrated its ability to adapt and evolve within the dynamic retail real estate sector. Despite facing headwinds such as the ongoing shifts in consumer preferences, the impact of the COVID-19 pandemic, and challenges with specific tenants like Big Lots, the company has maintained its focus on its core strategy of owning and operating necessity-based, grocery-anchored shopping centers in the Northeast.
As Cedar Realty Trust navigates the challenges and opportunities ahead, its experienced management team, prudent capital management, and commitment to operational excellence position the REIT for continued success. While recent financial results have been mixed, the company’s strong liquidity position and strategic focus on improving occupancy and tenant quality provide a foundation for potential future growth. Investors seeking exposure to the resilient retail real estate market may find Cedar Realty Trust’s unique investment proposition worthy of further consideration, though they should remain mindful of the ongoing challenges in the retail sector and the company’s efforts to address them.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.