Wheeler Real Estate Investment Trust, Inc.
Q1 2019 Earnings Call Transcript

Published: 5 May 2019

[Operator Welcome to the Cedar Realty Trust First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicholas Partenza, Director of Financial Reporting, please go ahead.Nicholas Partenza Good evening and thank you for joining us for the first quarter 2019 Cedar Realty Trust earnings conference call. Participating in today's call will be Bruce Schanzer, Chief Executive Officer; Robin Zeigler, 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 2018 as it 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 2, 2019, 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 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 Schanzer.Bruce Schanzer Thanks, Nick. Welcome to the First Quarter 2019 earnings call for Cedar Realty Trust. Before beginning my remarks on the quarter, I wanted to take a moment as always to acknowledge my senior management colleagues, whom I refer to as my kitchen cabinet as well as the balance of team Cedar. I want to thank them for their tireless efforts and for their collective commitment to collaboration, collegiality and everyday excellence.This quarter, my comments will be relatively brief. Earlier this week, we had our first quarter board meeting and annual shareholder meeting. I shared with the board, the very first concept drawings done back in 2012 for the mixed use redevelopment project then contemplated for the South Philadelphia Shopping Center. This project evolved significantly with the acquisition in 2014 of the Quartermaster Plaza Shopping Center across the street and is now known as South Quarter Crossing.In considering this early concept drawing, we were all struck by the fact that back in 2012, we had the foresight to anticipate where the market was going and therefore, the importance of migrating our capital into our highest density submarkets to focus in the years ahead on urban mixed use redevelopment for our open air shopping centers in these high population density areas.Of course, it also was apparent in considering the fact that we were looking at a project that was first contemplated many years ago that it takes a lot of time and human capital to move large scale redevelopment projects, such as South Quarter Crossing from creative vision to tangible milestones where leases are signed and buildings are being built. At long last, we are just about at that point.During these same years, we have refined our portfolio, repaired our balance sheet and strengthened our management team, such that we now have a pipeline of redevelopment projects being advanced similar to South Quarter Crossing in their ambitions and scale. Over the same period, we have also observed the secular dynamics we predicted back in 2012, starting to take a root throughout much of the bricks and mortar retail universe.Despite these prescient strategic decisions, today, our shares trade for roughly 60% of the value they did back in 2012, when we were more highly levered, had an inferior portfolio and had no meaningful plan for creating shareholder value. Moreover, today we trade for approximately 50% of the consensus net asset value for our portfolio.As a management team, we are pursuing these ambitious redevelopments and we generally are keenly focused on astute capital allocation in order to grow the net asset value of Cedar and correspondingly, its share price. In pursuing these redevelopments, we have determined that we can achieve the best risk adjusted returns over our weighted average cost of capital versus other capital allocation alternatives.Accordingly, we continue forging ahead with these projects. As I've noted on earlier earnings conference calls, over the last five years, we have issued equity only when trading at a premium to our consensus net asset value and commenced a share repurchase program when trading at a significant net asset value discount. This conduct is the foundation of our capital allocation scorecard and is what is expected of the best REIT managers.Accordingly, we are puzzled at our trading level relative to our net asset value and our value creation pipeline, since our capital allocation decisions to this point should cause an investor to feel confident about owning our shares. That said, we very much believe that in executing the capital migration plan we have been pursuing for many years now, we will meaningfully grow our net asset value and hopefully will narrow the discount between our prevailing share price and our net asset value.With that, I give you Robin to discuss our leasing results and redevelopment progress.Robin Zeigler Thanks Bruce, good evening. Our leasing team continues to make steady progress with the execution of 40 new deals during the first quarter 2019 consisting of 11 new leases and 29 renewals. There were 42 total leases, including two noncomp leases, for the redevelopment signed this quarter totaling 413,200 square feet, our highest volume of square footage leased in the rolling 12 months.These new leases were executed at an overall new lease comp spread of 5.4%. Excluding the new leases that were vacant greater than one year, the new lease comp spread increases to 14.8%. This spread on renewal leases this quarter is 1.6% which is weighted down by a long term renewal with Pat Catan's at the Commons in DuBois, Pennsylvania, accompanied by a conversion to the store to their Michael's concept. The exclusion of this deal increases the renewal lease spread to 4% overall.Approximately 75% of the renewal GLA executed this quarter is attributed to the renewal of four anchors and two junior anchors at a spread of 5.8% excluding Pat Catan's. This type of proactive leasing effort is part of our continued effort to sustain our anchors' occupancy long-term as a catalyst for future leasing activity at our centers. Current same property leased occupancy is 91.1%, down 10 basis points from prior quarter and total property lease occupancy of 90.5%, down 50 basis points from prior quarter.Occupancy decrease was driven by two principal factors:]

Return of possession primarily from impact of vacant anchors and proactive vacancy to prepare for redevelopment. During first quarter 2019, there was new return of possession totaling approximately 80,000 square feet. Approximately 35,000 square feet or 43% of the total is related to the closing of Just Cabinet's at Golden Triangle and Farm Fresh Floral at Kempsville.The Farm Fresh Floral Box at Kempsville has already been backfilled with an executed lease with a fitness club, which is scheduled to open this week. We are in discussion with multiple prospects for the Golden Triangle box. Total property occupancy is affected by the intentional vacancy to prepare for our redevelopments.This quarter, approximately 29,000 square feet or 34% of the ROP is related to those redevelopments. Redevelopments continue to progress in an orderly phased fashion. As we have discussed in previous quarters, we tend to characterize our redevelopments in two categories