KeyBanc Positive On Cedar Realty Trust After Management Meetings

On March 24, KeyBanc Capital Markets released an update on small-cap shopping center REIT

Cedar Realty Trust IncCDR

after meetings with management. Cedar Realty is a $650 million cap pure-play on grocery-anchored shopping centers located in the Washington D.C. to Boston corridor -- with a focus on Philadelphia and surrounding markets.

The portfolio currently consists of 60 properties totaling just under 10 million square feet, plus properties designated for sale. On March 2, Cedar Realty announced the acquisition of a 100 percent leased, 93 million square foot neighborhood shopping center, anchored by grocer ShopRite in Lawndale, Pennsylvania for $24.5 million.

Tale Of The Tape - Past Year

Cedar Realty shares have traded in a 52-week range of $5.69 to $8.61 and closed at $7.64 on March 23.

The

Vanguard REIT Index FundVNQ

is a good proxy for the broader REIT sector.

Cedar Realty Strategy - Highlights From March Presentation

Cedar Realty's new management team has continued to execute on its portfolio transformation program of recycling capital in order to acquire higher quality assets.

KeyBanc - Cedar Realty (CDR): Maintains Overweight, $8.50 PT

Valuation - KeyBanc's model is based upon 18.6x its 2015 AFFO estimate. This represents "a 22% discount to the shopping center REIT avg. of 23.9x." The KeyBanc PT implies "a ~10% discount to the shopping center REIT avg."
Divestitures - Initial program has been completed with CDR having sold 50 non-core assets during the past few years.
Acquisitions - CDR "has shifted to offense" with three recent acquisitions and about a dozen deals currently in the pipeline.
"Dry Powder" - KeyBanc views Cedar's $215 million line of credit to be the primary source of funds and management doesn't foresee another equity offering in 2015 at this point. Also, addition by subtraction is likely to continue, as management "will be mindful of earnings dilution."
Leasing - Small shop leasing represents a large opportunity. Leasing spreads "continue to be positive, in the 8-10% range," and management sees this trend continuing.

KeyBanc PT Risk Factors

A weak macro-economy and/or slowdown in consumer spending.
A weakening in the credit quality of CDR's tenant base.
The inability to increase occupancy and/or re-lease space.

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Tale Of The Tape - Past Year

Cedar Realty Strategy - Highlights From March Presentation