Nicholas Partenza - Assistant Controller, Financial Reporting Bruce Schanzer - President and CEO Robin Ziegler - EVP and COO Philip Mays - EVP and CFO

RJ Morgan - Robert W. Baird Todd Thomas - KeyBanc Capital Markets Collin Mings - Raymond James Floris van Dijkum - Boenning

Welcome to the first quarter 2017 Cedar Realty Trust earnings conference call. As a reminder the 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 now turn the conference over to Nicholas Partenza. Thank you. You may begin.

Good evening and thank you for joining us for the first quarter 2017 Cedar Realty Trust earnings conference call. Participating in today's call would be Bruce Schanzer, 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 may be deemed forward-looking statements and actual results may differ materially from those 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 2016 and may be updated or supplemented by our subsequently filed quarterly reports on Form 10-Q and other periodic filings with the SEC. As a reminder, the forward-looking statements speak only as of the date of this call, May 4th 2017 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 net operating income. Please see Cedar's 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 Schanzer.

Thanks, Nick. Good evening and thank you for joining us on the first quarter 2017 earnings call for Cedar Realty Trust. Our results this quarter were in line with the guidance we gave a few months ago and Robin and Phil will review them in greater detail momentarily. However the real news is what has been happening in the retail market more generally with the wave of recently announced retailer bankruptcies and downsizing, that has triggered a sell-off in Cedar and the broader retail REIT universe. For this quarter's call, we prepared a slide deck I will walk through that discusses Cedar in the context of this dramatic market correction. A link to the slide is available in the investors section at our just renovated website that I would encourage you all to visit. Before getting into the substance of my remarks, let me give a shoutout to all my colleagues on team Cedar who continually work with everyday excellence. In particular, I would like to acknowledge the members of our so-called kitchen cabinet, who are with me on this call. Phil Mays, CFO; Robin Ziegler, our COO; Mike Winters, our CIO; Adina Storch, our General Counsel; Charles Burkert, our Senior Vice President of Development and Construction and the newest member of Cedar's kitchen cabinet, Tim Havener, Senior Vice President of Leasing. Tim joins us from Equity One, where he held a similar position up until their recent merger. Robin will describe a number of additional hires which taken together with Tim make me even more excited about the direction we are heading. I will spend the balance of my comments on the presentation which you've hopefully now found on our website. Although it is admittedly frustrating to not see the accomplishments of the past six years be reflected in our share price, we do feel good about how we are positioned. The purpose of our presentation titled Cedar in Context is to highlight four essential notions and make a fifth point that when taken together cause Cedar to be uniquely situated within the broader retail reach setting and should hopefully make you feel comfortable trusting us with your capital. First, our portfolio of predominantly grocery anchored centers in the DC to Boston corridor are fairly well insulated from retailer bankruptcies and store closures. Notably this is not a recent phenomenon. As described on page 5 of the presentation, since 2008 we have seen many waves of retailer bankruptcies depending on the broader economy. Many years have seen even more than where 2017 will turn out if we annualized the year to date numbers. We believe our relative insulation from retailer bankruptcies is inherent in the nature of our grocery anchored centers situated in mature and stable markets and we expect this dynamic to endure. In fact, as described on page 6 and looking down the road at struggling retailers who have announced store closures, of the 23 different retailers who have announced literally thousands of store closings during 2017, we have six small shops stores slated for closing as a result of two bankruptcies having an aggregate impact of roughly $250,000. In sum, this current wave of retailer bankruptcies and store closures and store closings is simply not having an effect on us in any meaningful way. Second grocery anchored shopping centers have not experienced significant cap rate movement. As you are all aware, our portfolio comprises shopping centers in higher population density markets and lower population density markets and our strategy is to migrate our capital from our lower population density assets into higher population density assets. By way of background, for purposes of underwriting investments and for purposes of having an internal view on our NAV, we carefully monitor all shopping center transactions in our markets compiling detailed and often times non-public information on each transaction. This is something Mike and his team have been doing for many years. As an aside, they will often get calls from brokers who want color on deals since the extensiveness of our database is pretty well known. That said, we have evaluated trends in shopping center transactions going back to 2014 for both lower population density centers and higher population density centers in our region in order to determine whether there is a meaningful trend. As described on page 8, cap rate trends as reflected by the best fit line calculated for each of the two categories of transactions has and continues to stay essentially flat whether for higher or lower population density centers. Now to be clear, each transaction is different from the other, which is why the cap rates are scattered, and many of our centers were acquired before 2014 and may not be perfectly comparable to the transactions on this page. But the number of transactions we have observed support the conclusion that private market cap rates for grocery anchored centers in our markets have remained relatively stable. We believe this is due to the continued investor interest in grocery anchored shopping centers in the mid-Atlantic and Northeast whether in higher density or lower density markets. Third, Cedar has resolved four of its five current anchor vacancies with the fifth close to a resolution as well. As many of you are aware, we have had to work through a frustrating situation over the past 18 months or so, as we have experienced what I would call a two standard deviation series of anchor move-outs. Although each vacancy was distinct, they coincided and negatively impacted our earnings and same-store NOI growth. For us as we described at the time, they also represented an opportunity to reposition and improve the rent streams at the affected centers. As you can see on page 10, we have released four of our five vacant anchors at an average rent spread nearly 37% higher than the prior rent. This is well in excess of the rent spread we had contemplated when we initially announced this situation back in November of 2015. Although these anchors will be taking occupancy and starting to pay rent at different times in the coming quarters, we have now essentially resolved this issue. As I mentioned the fifth vacancy has an LOI being negotiated that will hopefully get done and leased in the coming months. Fourth, we have spent the past six years repairing our balance sheet and in many respects preparing for the capital market shock such as the one we are experiencing. As those who follow Cedar know, we have reduced leverage from over nine times when Phil and I started here to approximately seven times pro forma for taking the cash from the forward equity offering we completed last August and applying it against our outstanding debt. And significantly, we have pushed out debt maturities such that we have no maturities until early 2019. Moreover, as described on page 12, beginning with 2019 we have a manageable debt maturity schedule out into the foreseeable future. Accordingly, we are very comfortable when it comes to capital market risk in the face of this retail sell-off, and if anything view this market opportunistically. Fifth is a topic not in the slide deck that Robin will expand upon in greater detail. We continue to advance our exciting urban mixed use redevelopment projects and expect to continue to be able to share exciting news in that regard both on this call and in the quarters to come as we finalize additional anchor leasing. These projects will redefine our company due to their distinctiveness and will allow us to migrate our capital into identified high quality opportunities over the coming years. As I mentioned at the outset of my comments, we just launched our new website and in addition to what Robin is about to share, there was a section on our redevelopment activity that is compelling today and will grow as we disclose more of what we have under way. With that I will give you Robin to discuss leasing, operations and our redevelopment pipeline. Robin?

Thanks, Bruce, good evening. Over the last several months our development and leasing teams have made significant progress in advancing our value creation pipeline by launching preleasing efforts for several of our redevelopment remerchandising and key urban mixed use redevelopment. We have rebranded two of our neighboring assets in Philadelphia, Pennsylvania, the South Philadelphia shopping center and Quartermaster Plaza at South Quarter Crossing. We have begun the preleasing efforts on the first phase of this new combined 1 million square foot project, which is programmed to include retail, residential and potentially office resulting in a mixed use redevelopment that will be unique to the South Philadelphia market. Similarly, we have launched our vision for the redevelopment for East River Park in Washington D.C. This asset is located in the heart of Ward 7, an area starved for quality retail and grocery offerings and is planned for ground floor retail with residential above along with office. In addition to these urban mixed use redevelopments, early leasing progress has been made on our grocery anchored redevelopment such as Port Richmond, where we have redesigned the - we have designed a repositioning of the front of the center to create a accretive path sites for which we are currently negotiating LOIs as the first phase as well as preleasing activity is occurring for the redevelopment of Carman's Plaza anchored by Key Foods and 24 Hour Fitness. As Bruce mentioned, you will know by visiting the redevelopment tab of the strategy page of our new website, there are leasing brochures which highlight our preliminary site plans and conceptual renderings for some of these exciting projects. During entitlement and leasing, we will continue to finalize these plans, which will inform the ultimate layout, capital and returns for these projects, which will be discussed in the near future as we progress. In the first quarter of 2017, 310,000 square feet of space with leased, which is 14.3% more than the prior quarter. The majority of this lease activity was in the 35 renewals executed at a spread of 6%, which rises to 8% when adjusted for the two Bon-Ton flat renewals that are burdening this spread. Given our relatively small number of new leases, the negative new leasing spread was driven by one deal given the small sample size. As our performance is not driven by any one deal, a better reference for leasing spreads is our trailing 12 quarter rate of roughly 29%, which captures significantly greater activity. Same center was 90.5% occupied at the end of the quarter and 92% leased. The total portfolio was 89% occupied and 91.2% leased as of March 31st, with the lease-to-occupied spread of 220 basis points. Subsequent to the quarter, two significant leases were executed, a Toys 'R' Us lease at Colonial Commons and a Burlington deal at Trexlertown Plaza. While the Burlington deal includes some typical entitlement approval provisions, the execution of these two deals brings our portfolio-wide leased percentage to 91.8% and increases the leased-to-occupied spread to 280 basis points. Additionally, it should be noted as Bruce pointed out earlier, that with this lease activity, we have least four out of the current five vacant anchors and we are now negotiating an LOI for the fifth anchor, the former Acme Box at Carl's Corner. As we execute on our strategic plan related to the redevelopment and repositioning of our existing assets, we continue to refine our staffing to effectuate that plan. As Bruce mentioned, Tim Havener, most recently at Equity One has joined Team Cedar as our Senior Vice President of Leasing to lead Cedar's leasing and remerchandising efforts. To round out Tim's leasing team, we have also added Lars Kerstein from Metro Commercial; [indiscernible]. We are extremely excited about the positive momentum that we believe this leasing team will bring to our portfolio. To round out our development staffing, as you may already know, we hired Ehud Kupperman as our Vice President of Development, formerly from Equity One to head up our redevelopment effort and we recently brought on [Melanie Wallace formerly from Lease and Federal Realty] to manage the operations of the urban mixed use redevelopment. These exciting additions to team Cedar solidify our ability to execute our vision and strategic plan. I will now turn the call over to Phil.

Thanks, Robin. I'm going to add just a few brief highlights to Bruce and Robin's extensive remarks before opening the call to question. Starting with operating results, for the quarter operating FFO was $11.7 million or $0.14 per share. Further same property NOI growth for the quarter was negative 1.8%. Both of these figures were in line with our expectations and full year 2017 guidance. The decrease in the same property NOI was driven by our reanchoring and remerchandising efforts discussed on our last call along with the related temporary co-tenancy impacts. And as a reminder and for context before leaving this topic our same property NOI pool is relatively small. For this quarter it was just under $22 million., so the 1.8% decrease equates to about $400,000 or less than $ 0.005 per share of FFO. Moving to the balance sheet. We ended the quarter with just over $150 million of availability on a revolver as Bruce noted no debt maturities until early 2019. Additionally, we have not yet settled any portion of our fourth equity offering. We still anticipate physically settling this forward agreement in full close to the expiration date of August 1st. As a quick recap, our forward equity offering was for 5,750,000 shares and the proceeds received will be $44 million less plus any dividends paid part of the settlement along with some administrative costs. With regards to guidance, we are reaffirming our full year 2017 operating FFO guidance range of $0.53 to $0.55 per share. For the full year we still expect negative same property NOI growth of close to 2%. However, an individual quarter could have an even higher negative growth, again due to the relatively small size of our same property pool. The full year negative growth is also driven by the same factors that impacted this quarter and discussed on our last call. Finally, our guidance does not reflect any additional acquisitions or dispositions. This does not mean we will not acquire or dispose of any assets to update our guidance each quarter based on actual closed and announced acquisitions and dispositions. And with that, I will open the call to questions.

[Operator Instructions] Our first question comes from RJ Morgan from Robert W. Baird. Please go ahead.

Hey guys good evening. Bruce, just wanted to go back to your comments as you highlighted some of the transaction cap rates that we've been seeing. Does that give you pause given where your stock is trading today on applied cap basis before you want to go out and buy more assets?

Well, so it definitely does give me pause. I think what it does is it forces us to think about all of our capital alternatives when we acquire an asset. In other words, it behooves us to think about things like buying back our stock, which is something that we wouldn't think about otherwise. So certainly having a share price that doesn't jive with what we're seeing in the private market obviously gives us pause and it forces us to be that much more methodical as we allocate capital.

Okay, and then maybe taking a step even further back and putting your banker hat back on. How much of it do you think the private market is missing what the anticipated growth rates are versus the public market missing it? So do you think the public market is anticipating a change in cap rates and that's why the stocks are trading where they are? Or do you think that there's just a mispricing between what cap rates will be and where the private - where the public markets are?

I guess putting my banker hat back on, maybe I'm putting my business school student hat back on, I think that one of the fundamental elements of your question is that it presupposes that the market is acting efficiently and rationally. I remember back in - during the Great Recession right, I was at a bank and seeing the massive selloff in banks at the time, there was clearly panic selling and it was a little bit irrational. And certainly, what we're seeing on the ground here in terms of how our business is operating relative to our stock is trading, I would characterize it as similarly irrational. So I'm not sure if I can really ascribe a reason to why our stock is trading the way it is. Our business is not that complicated. And so, it's readily observable that where our stock is trading is not warranted by how our business is operating at the time - at this time. So that's I guess the way I would answer your question.

I guess my question is so you think - it's your belief that the public markets are the ones being irrational at the moment and not the private markets?

Exactly.

Excellent. Thanks guys.

Sure.

Our next question comes from Todd Thomas from KeyBanc Capital Markets. Please go ahead.

Hi, thanks. Just, Bruce, following up on the last questionnaire about how you're thinking about allocating capital, I know you're trying to grow the portfolio but I guess from your comments, would you contemplate accelerating asset sales of pricing is there as you suggest and buying back stock here?

We would - it's not as simple as that in as much as we have a relatively small company. And so one of the considerations that comes into buying back stock is the extent to which although we'd be buying stock back at a discount to our net asset value that we would actually be diminishing our net asset value by lowering our enterprise value with the platform that we have. So we'd have to weigh all of that. But again, as I mentioned to RJ, certainly, with the share price where it is, it has to be a consideration when we look at our suite of capital allocation alternatives.

Sure. And then how should we think about the forward equity sale here and the use of proceeds from that, assuming you said all the deals expected with the stock price about 30% below where that deal's locked in?

Hey Todd, it's Phil. I'll just go back to Bruce's comments. At all times we're looking at all of our options for our capital and we'll continue to do that and will exercise that option and close that agreement out right around the expiration date, most likely of August 1st and it will depend on the alternatives at that point in time.

Okay. And then just a couple quick questions on the same store portfolio just looking to dig in a little bit here, appreciate some of the detail around the leasing activity for the anchors. First, how much CAM and real estate tax expense are you carrying on a per square foot basis on the 211,000 square feet that was vacated late in '15? Are you are you able to share that?

Yes, I think the total amount of recovery that are slipping in addition to base rent there is right around for just those four anchors that we've filled that are on the slide, not carpet, just those four is about $1 million.

Hi, this is Robin.

Hey, Todd, and that's CAM and real estate taxes, with all the recoveries, I'm not splitting it up altogether, it's around $1 million or maybe slightly more. Want to add anything else?

No, that's covered things.

Okay. And then, when in the third quarter of '16 did I guess Acme, I think it was the Carl's Corner, were they in occupancy paying rent for the third quarter in '16? I'm trying to get a better understanding of sort of that year-over-year impact on the quarter.

Yes, they were there through the quarter, they left 9/30.

Okay great. And then, just lastly for the 211,000 square feet, apologies if I missed this, but how much capital do you expect to spend, that has not been spent already in order to bring online - the rent at the $10.25?

Sure. So as we mentioned, those four leases have been executed and it was about $10 million

Okay, great. Thank you.

[Operator Instructions] Our next question comes from Collin Mings from Raymond James. Please go ahead.

Hey, thanks. Good evening. First question for me. Just in context of the new highlights in the prepared remarks. I know you guys addressed this last quarter but just any update or change to that $17 million run rate in terms of G&A?

No, Collin, this is Phil. That's still a good number. I know it sounds like a lot, a lot of those are replacements. So for the leasing team, I think we're up net one after all that and on development, I believe we're up net one. In both of those there were additional hires done in order to focus on - to work with Robin and focus on the redevelopment. On the Ops side we mentioned [Melanie Wallace]. That was - we are net neutral on the Ops side. We just added an expertise as someone who really knows how to manage urban mixed use projects and projects while they're under redevelopment, and the complications that go along with that when you're moving tenants around and dealing with construction. But someone has left and we had the opportunity, so we added her. So net-net I think it's just up one on leasing, one on development and we were aware of that when we did the forecast.

Okay. And then going back to Robin's remarks about, again, specific details on some of the redevelopment projects you're working on will be highlighted in the future, but just maybe more broadly, can you guys just talk about how you're thinking about the relative returns on some of these redevelopments as you kind of get a little bit deeper into the process now relative to acquisitions.?

Sure. So as I mentioned in the prepared remarks, I mean a lot of what we talked about today is our preleasing efforts as we get ready for ICSC and so, as we have continued conversations with merchants and refine our plans relative to those conversations, we'll continue to then refine our site plans and the capital requirements as a result of that, which will then obviously affect our ultimate returns. And so, in the coming quarters we will then start sharing that information.

And Collin, the only thing that I would tell you is we're always mindful of our cost of capital and what our investment alternatives are and so as we underwrite these redevelopment projects, we are vigilantly mindful of making sure that we're achieving an adequate risk adjusted return on those investments.

Okay. And then, I guess maybe just along the lines, just capital allocation again recognizing there still a lot to be determined and different projects are going to be different. But just curious as you think about the range of dollars you're willing to be spent on the specific product, I was just flipping through the package here on the website as it relates to South Quarter Crossing, just how do you think about the amount of your balance, your capital you're willing to put into any specific project?

Well, let me take that one. To be clear, there's an average annual spend and the average annual spend is going to drift up a little bit from the $20 million to $30 million range to maybe $30 million and $40 million on average and maybe drift up even to $50 million in a given year, just based on the projects we've talked about. In terms of the issue of putting out our capital into markets, we do like the idea of investing into these markets that we're currently focused on Philly and Washington D.C. and we said that we're going to have opportunities to invest further into New York and the New York or Boston markets. And what we like about investing into our existing assets is the fact that we - there's just a little bit less risk in those types of investments. From our perspective the idea of having more capital into these markets in larger deals that are well underwritten, where the risk has been well managed and quarantined to something that we're comfortable with. And Robin, you might want to add to that a little bit.

Yeah, just to piggyback on that, the markets that we're focused in, for example, the larger projects that you saw, South Quarter Crossing and East River, both of those are in markets that one could say are unique to the type of products that we are contemplating to build there. And so, the capital that we would be spending and putting there will be creating projects that seemingly would have limited competition. And so, again to piggyback on Bruce's point, as we look at what scale of projects to put there and the amount of capital to put out relative to the types of tenants that we can attract, all those types of decisions will be made relative to the cost of capital and making sure that we're making prudent economic decisions. So that is - that's the process we're undergoing right now.

So I guess one last one for me. Just going back to - it's kind of in context of that discussion and being mindful of the cost of capital as well as the range of different potential capital sources you have, just as you look at opportunities like this, how are you thinking about potential JV partnerships, Bruce? Because I know that's something again, you guys have done a good job of kind of simplifying the Cedar story. I'm just curious as to how you think about that as a potential avenue going forward as you kind of ramp up some of spending.

Just to be clear, are you describing on the redevelopment projects that we're pursuing?

Yes.

So I would tell you that our preference is to do these things 100% and not to join venture these projects. When we imagine Cedar in four or five years from now, we imagine a company that has successfully executed a bunch of very high profile and successful urban mix used redevelopment projects and as we look at the future, we imagine owing those at 100%. And I think it would be a shame if we weren't able to pull that off. That's certainly our plan right now, recognizing that we do carefully risk management, so who knows where the future is going to go. But just based on the facts as we currently see them even with some of the challenges in the capital markets, our plan is still to do these at 100% and not to joint venture our potentially best assets.

Okay, thanks.

[Operator Instructions] Our next question comes from Floris van Dijkum from Boenning Please go ahead.

Great. Thanks guys. Wanted to ask you, Bruce, about dispositions looking at - obviously, the share price seems to be telling most people and giving a red light to growing and you're suggesting here that cap rates even for some of your non-core markets are holding relatively stable. Does that make you want to accelerate some of your dispositions going forward and do you have any properties in the market right now?

So it does not make us want to accelerate our dispositions since at this point the way we see it, cap rates are heading - are holding pretty steady and we don't really have today at least at this point a use of proceeds for us. Just to remind you, we sold back towards the end of last year Upland Square, that was a very large asset for us that made us a net seller and we continue to be net short. From that perspective, we haven't yet exhausted the proceeds from that sale. We sold that asset not so much because we had a view on where grocery anchored shopping center cap rates were going but really because that was a big box center that haven't had a grocer in it and we thought that that particular center might experience some operating weakness in the months to follow after we sold it. We haven't kept track of it but just based on the temperature that we're seeing in the big box community my suspicion is that was probably a well-timed decision. Certainly going forward, our plan is to continue to match fund our acquisitions and dispositions unless some unique opportunity presents itself, in which case we might explore some alternative.

Maybe a follow up for Phil. I mean you guys talk about your debt to EBITDA ratios and how they've come down. Do you have a target for your debt and preferred to EBITDA going forward?

We've never laid out a target for us. We're not going to obviously issue equity in this environment. We'll continue through - that is growing our NOI and other smart allocations of capital to grow our EBITDA kind of consistently and steadily reduce it that way. And then if there's an opportunistic opportunity, otherwise it will. But I mean what we're focused really on is what we want the lowest whack, we want a lot of flexibility, we want to keep on our incumbent pool and a [later maturity]. So that's what we are really focused on there.

Thanks, Phil.

Thank you. This does conclude the question-and-answer session. I would like to turn the floor back over to Mr. Schanzer for any closing comments.

Thank you all for joining us this evening. I realize this evening's call was a little bit unusual with our discussion of the presentation, Cedar in Context. However, we are all operating in an unusual time and felt this discussion was in order. For those of you attending ICSC or NAREIT in the coming weeks, please feel free to reach out if you would like to schedule a time to continue this discussion further. Have a good night.

Thank you. This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.