Nicholas Partenza - Assistant Controller, Financial Reporting Bruce Schanzer - President and Chief Executive Officer Robin McBride Zeigler - Executive Vice President and Chief Operating Officer Philip Mays - Executive Vice President and Chief Financial Officer.

Drew Ashley - KeyBanc Capital Markets Collin Mings - Raymond James.

Welcome to the Second Quarter Cedar Realty Trust Earnings Call. As a reminder, this conference is being recorded. At this time all audience lines have been placed on a muted mode. We will conduct a question-and-answer session following the formal presentation. I will now turn the call over to Mr. Nicholas Partenza. Please proceed, sir..

Good morning and thank you for joining us for the second 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, August 4, 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 morning, and welcome to the second quarter 2017 Earnings Call for Cedar Realty Trust. The quarter was marked by progress on a number of fronts, especially on the leasing, redevelopment and financing fronts. The most measurable progress was made in terms of leasing.

The benefits of having Robin in as COO for a full-year, coupled with the infectious energy and laser focus of Tim Havener as our new Head of Leasing have resulted in an outstanding 120 basis point increase in lease occupancy quarter-over-quarter. Moreover, the pipeline looks strong and we are optimistic that leased occupancy will continue to grow.

This is not just to the credit of two people, however, rather this is a result of the tireless efforts of all of team Cedar, whether in leasing, legal, asset management, property management, investing and accounting, who are committed to everyday excellence. It truly takes a village to do what we do for the communities we serve.

My heartfelt thanks to the members of team Cedar for all they do to continue our march towards achieving our ambitious goals. Unfortunately, the challenge facing the CEO of an open air shopping center REIT today is not merely to make sure that leases are getting done, redevelopment projects are advancing and capital is being allocated properly.

Rather, it also involves convincing a universe of investors who have been advised that you have some sort of fatal condition that, in fact, you’re healthy and you’re actually growing the value of your company. Last quarter, we prepared a presentation focusing specifically on Cedar in the context of the challenged retail market.

What we noted is that, we have no real exposure to distressed retailers, no significant debt maturities for the foreseeable future and a relatively stable pricing environment for our assets.

Since then, though probably not because of the presentation, trading in Cedar and other shopping center REIT stocks has essentially stabilized, though it hasn’t recovered.

Taking a step back, however, we still struggle to reconcile the negative sentiment in the news media and among investors on account of the secular changes in retailing with the progress we continue to make.

I believe the issue is that the doomsday narrative regarding bricks and mortar retail is off target in the case of open air, grocery anchored shopping centers, such as ours, and the brush is being applied too broadly.

We have seen the media and investors take a shrill and undifferentiated view to retail landlords whether their tenants are discretionary or nondiscretionary, soft or hard goods purveyors and Internet or non-Internet resistant. Specifically, we are repeatedly told that the U.S.

is over retailed, with approximately 23 feet per person in this country, which is far in excess of the retail GLA in other countries and in need of contraction. Thus working backwards, this means that for the roughly 323 million Americans, there’s 7.6 billion square feet of retail.

Of this 7.6 billion, 6.2 billion is non-mall shopping center GLA, of which REITs own a mere 421 million, or roughly 1.3 feet per American. Ignoring for a moment the fact that the wealth per capita in the United States justifies more retail GLA than in other countries.

The open air shopping center REITs, which arguably own the better retail square feet and own a very small fraction of the overall U.S. retail GLA truly represents the babies being thrown out with the bathwater.

That’s not to say that all is well in the land of retail, rather retailing continues to be Darwinian with the best operators putting their weaker competition out of business as they have done for generations. Margins for grocers remained thin and technology is forcing everyone to up their games.

For retail landlords, it means that we must continue as always to focus on the right assets, the right tenants, and the right markets. Speaking of Darwin, I have a quote of his in my office that states, it is not the strongest of the species that survives, but the one most responsive to change.

This idea has guided us during my tenure at Cedar, as we have been highly responsive in the face of the changing retail landscape over the last six years and find ourselves well situated for today’s evolving retail environment.

Six years ago, we had an undifferentiated portfolio of retail assets that were of many types and in numerous markets, stretching from the East Coast into the Midwest. We now own a portfolio of 61 predominantly grocery anchored shopping centers, straddling the D.C. to Boston corridor with a focus on the highest density submarkets within that footprint.

Thus, it is not a surprise to us that our leasing results for this quarter are strong, laying the foundation for earnings growth going forward.

In addition to owning the right assets in the right markets with the right types of tenants, we have a dynamic capital migration strategy that contemplates our continuing to concentrate our capital into the highest barrier markets and assets within our portfolio.

Furthermore, as Robin will elaborate on, our redevelopment efforts in these gateway markets continue apace, thereby positioning us well for further capital appreciation and attractive returns.

Lastly, the results of continuing to use the capital embedded in our lower-density market shopping centers to fund our high-density market redevelopment projects is that, we are gradually ending up with a portfolio of newly renovated and remerchandised mixed-use assets concentrated in the premier, high-density submarkets of the northeast.

Today’s retail market didn’t just happen overnight. Rather it has evolved over years and decades with some folks just waking up to the realities of the market. At Cedar, we are proud that we have been responding to the changing market for the past six years, and that we are now poised to capitalize on today’s retail environment.

We have continually acted on the conviction that our small size coupled with our capital migration strategy will allow us to nimbly navigate through the challenges we will inevitably face.

I’m confident that as the investment community starts painting with a finer brush and starts recognizing the strong results that continue to come out of certain shopping center REITs, such as Cedar, the capital markets will once again support the continued measured growth of our uniquely well-situated company, as we continue the process of repositioning our portfolio and our balance sheet.

With that, I give you, Robin, to discuss our leasing and redevelopment results..

Thanks, Bruce, good morning. A large part of our operational focus for 2017 has been on leasing and occupancy gains in our portfolio. As we are now halfway through the year, we are continuing to unlock the intrinsic value within this portfolio.

Since I started a little over a year ago, we have laid the groundwork for a leasing platform that involves remerchandising, enhancing the tenant credit profile, incorporating consistent annual rent bumps and improving occupancy.

The addition of a new Head of Leasing and an enhanced leasing team has energized the execution of this strategy as demonstrated by this quarter’s strong performance. We are now 92.4% leased portfolio wide, a 120 basis points spread over prior quarter.

On a same-property basis, leased percentage increased to 93.7%, representing a 110 basis point increase over the previous quarter. 38 leases were executed this quarter totaling over 277,000 square feet, including two anchor leases, as well as several small shop deals.

Overall, comparable lease spreads are 8.4%, with new leases at 14.2% and renewals at 6.2%. Overall, new lease ABR is $14.46 per square foot and renewal ABR is $14.41 per square foot.

Another operating initiative, we have focused on this year is reducing the time between delivery and rent start, shortening time to deliver space and thereby increasing base rent and achieving occupancy faster. Same property occupancy has increased to 92.1% this quarter. This is a 110 basis points higher than last quarter.

In addition to our favorable occupancy and leasing spreads this quarter, we are optimistic regarding how this positions us for sustained growth in these areas in 2018 and beyond, as we continue executing our leasing strategy. Our same-store NOI growth was a negative 2.4%, excluding redevelopments and a negative 1.7%, including redevelopments.

While not favorable, this was in line with our 2017 guidance and relates primarily to our re-anchoring every merchandising efforts temporary co-tenancy impacts and the closure of OfficeMax at Colonial Commons.

The OfficeMax box has been leased to Toys ‘R’ Us and we are in final LOI negotiations with the replacement tenant for the Acme Box at Carl’s Corner. Upon execution of this anchor lease, all five vacant anchors will be released.

In order to effectuate our leasing strategy, we are also making some esthetic and physical improvements to some of our shopping centers.

We are implementing targeted physical improvements throughout our portfolio in 2017 in a cost effective manner by painting facades, enhancing playmaking, pylonand signage improvements, as well as LED lighting upgrades. We’re making great strides in all of our redevelopment efforts. Entitlements are progressing positively.

LOIs are in hand and leases are under negotiation. Site plans are in final stages and relationships are being built in the community and with elected officials. Our redevelopments are well underway and are catalyzed by the strategy introduced over six years ago of acquiring assets in high-density urban markets from D.C. to Boston.

Our entitlement efforts are supported by the fact that we are advancing projects in communities, where the local pop – where the local populace and their elected officials welcome economic development are seeking out these opportunities and they therefore support our efforts.

Our leasing is helped by the fact that, we are in markets where retailers want to have a presence, thereby allowing us to have multiple LOIs for the same space and multiple tenanting options. We have tenants who are adding additional concepts because of the strong sales of their existing stores.

All of this bodes well for the retail landscape and strong markets, like Washington D.C. and Philadelphia, with high population density. I would note, that this is in contradiction to the stories about retail in general that we are being told in the news media.

As I have now been here a little over a year, along with our senior management team that is now complete and only been in place for a few months, I’m proud of what we have accomplished thus far with strong leasing and occupancy spreads, redevelopment progress and operational improvements.

But almost more importantly, this management team along with all of team Cedar has a framework pipeline and management ability to continue this trend for sustained future success. I will now turn the call over to Phil..

Thanks, Robin. On this call, I will discuss our operating results for the quarter and provide updates on our balance sheet and 2017 guidance. Starting with operating results. Operating results for this quarter were consistent with the prior quarter.

Operating FFO was $11.7 million, or $0.14 per share and same property NOI growth for the quarter was negative 2.4%, both of these figures are in line with our 2017 guidance.

As noted by Robin and on prior calls, the decrease in same property NOI was driven by our re-anchoring and remerchandising efforts along with the related temporary co-tenancy impact.

I discussed earlier, we are pleased with our leasing progress and the future contribution to operating results that will come as a result of the existing 170 basis points spread between our occupancy and lease percentages.

Please keep in mind the timing of how this 170 basis points spread will transition first into earning and then subsequently in the same property growth. First, the spread will begin to narrow as the tenants take physical possession of their spaces. And once we have completed all related landlord work, straight line rental revenue will begin.

And finally, after any initial pre-rent period, cash rents will commence. As we report same property results on a cash basis, same property NOI growth will not be impacted until such cash rents commence..

Additionally, we expect that the lease is completed from four of our five vacant anchors, will commence to paying cash rents between late 2017 and late 2018. Moving to the balance sheet. We ended the quarter with just over $160 million available on a revolver, as Bruce noted, no debt maturities until early 2019.

Additionally, earlier this week, we fully settled our forward equity offering and issued the related 5,750,000 common shares, which after adjustment for dividends and other costs during the forward period resulted in cash proceeds of $43.2 million.

Further, as our 7.25% preferred are now callable, we have issued a redemption notice for 1.5 million shares of them for an aggregate of 37.5 million to be completed on August 16.

The combined result of these two transactions increases our annual free cash flow by almost $2 million, improved our fixed coverage ratio from 2.2 times to 2.4 times and has no significant impact on earnings. And 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%. Our guidance does not reflect any additional acquisitions or disposition, as we have update our guidance each quarter based on actual close and announced acquisitions and dispositions. With that, I’ll open the call to questions..

Thank you. At this time we’ll conduct a question-and-answer session. [Operator Instructions] Our first question comes from Todd Thomas with KeyBanc. Please proceed with your question..

Hey, guys, good morning. This is Drew on for Todd today..

Hi..

Just a quick question on the – hey, guys, on the anchor leasing. I’m just wondering if there’s any updates on Carll’s Corner.

And just to clarify that none of the rent has commenced for any of the four boxes yet, you expect all of that to commence in late 2017 and 2018, is that correct?.

Yes. So, as I have mentioned in the comments, we are in final negotiations on a box to backfill ACME with another grocer replacement. So as soon as that lease is executed, we’ll be announcing it on the call..

And Drew, there’s just been a little bit of cash rent, I mean, like $20,000 related to Planet Fitness at Webster’s. But the larger tenants have not moved in and or haven’t committed to any cash rents yet..

Got it.

And then in terms of same-store NOI along the same lines, do you guys see any impediments to an inflection in late 2017 and 2018? Is there any move-outs that you may see that would prohibit an inflection?.

No, there’s nothing we’re anticipating at this point. So, as we’ve kept guidance the same and that’s what we’re anticipating from where we said..

Got it. And then Bruce a question for you. So just considering what’s going on in the grocery space recently, obviously Amazon Whole Foods. But also Lidl entering the mid-Atlantic market lot of the markets where you guys have some of your centers.

Just curious how you guys are thinking about that? And what your existing grocers in your centers are thinking in terms of competing with Lidl, if you could just speak about that a little bit? Thanks, guys..

Sure. So the way we look at the world is kind of binary. If people are doing business in bricks and mortar stores, we see them as attractive participants in the retail market. So Lidl is, of course, entering the market.

They’re a low margin, they’re efficient operator and they’re entering an arena with incredibly sophisticated competitors who have every intention of not only going head-to-head with Lidl, but defeating them.

And so Lidl is going to come into a very competitive marketplace with people who already have very efficient low margin models and they’ll try to get their share and they probably will get some market share. But I can assure you that the competition is formidable.

And that this will be a process where there will be plenty of survivors and there will be plenty of pie to go around. So I think, on the Lidl front, the grocers are respectful, of course, of this fairly accomplished competitor.

But again, Lidl is going up against people who have proven business models, have established themselves in their markets, already run very, very efficiently, have much greater buying power than Lidl does. And so I think that folks are – acknowledge Lidl, but I don’t think they’re panicked by them.

I think the Amazon Whole Foods transaction may be is a little bit more complex analytically, because it’s unclear what Amazon does with Whole Foods. But again, it appears that the plan is to run their businesses out of the Whole Foods boxes.

And so to the point I made earlier and thinking about it from a binary perspective, this will continue to be a bricks and mortar business, and landlords will continue to get their fair share. But of course, how that business evolves is something that we will all come to understand in the coming years..

Got it.

And are you guys having conversations with Lidl at all about potentially leasing space?.

Yes, we’re talking to them about leasing space, particularly in several of our redevelopments..

Great. Thanks, guys. I appreciate that..

Sure..

[Operator Instructions] Our next question comes from Collin Mings with Raymond James. Please proceed with your question..

Hey, good morning, all..

Good morning. Hey..

First question for me, just Rob, I was curious if you could expand maybe just a little bit more on the leasing environment? Just more specifically, how you you are balancing, obviously, the focus on improving occupancy against the state lease up, but also pushing on pricing as well as some TI dollars?.

Sure. So one of the things that we are looking at portfolio wide is improving our merchandising, but also looking at credit quality as well as making sure that we have sustained growth by incorporating the annual rent bumps into the leasing.

So, we look at all of those factors, the market that the shopping center is in making sure that we have the right deal for each shopping center. So as I’m sure you are aware, every deal is different, every shopping center is different.

And so we make the best financial decision for each tenant at each center kind of with all those factors in mind and with the ultimate goal of creating as much value as we can out of each shopping center. So the ultimate goal is to get as much spread as we can.

But ultimately, we want to make sure that we are sustaining that annual growth and getting good credit quality with those tenants. So that’s kind of how we’re approaching it on a center-by-center basis..

Okay.

So in other words willing to maybe sacrifice a little bit in terms of pricing power, or in terms of rents, or TI commitments in order to get the right merchandising at a particular property, is that kind of the balance?.

Yes. I mean, again, it depends on the shopping center, it depends on the tenant. Obviously, how much capital you give to a national tenant is different than how much capital you might give to a mom and pop. And certainly, that capital decision is dependent upon merchandising. But all of those factors come into play.

It’s kind of hard to answer that question definitively, because it depends is really the answer. It is something that we’ve determined on a case-by-case basis for each shopping center, for each tenant to make the right decision for that particular situation..

Okay.

And then just to clarify an earlier comment, Phil, just – so should we expect – anticipate again, 2Q here being the trough as far as same-store NOI year-over-year?.

I think, here in the middle, Q2, Q3 will be on the high-end or slightly out of the high-end of our one to two full-year. But for the full-year, we still expect right around two..

Okay. And then again, you touched on this, Bruce, in the prepared remarks. But just last call – last quarterly – a lot of great colors around cap rates in your markets and kind of broke that down between higher-density, lower-density markets.

Have you seen any shift in terms of kind of asset pricing at all over the last couple of months, or any particular data points if you were to extend that chart out where that we should be mindful of when we think about the pricing environment?.

Quarter-over-quarter, it’s hard. We do continue to track transaction activity. But quarter-over-quarter in our markets, there just aren’t enough transactions to identify real trends.

So I would tell you that, while our intuition would be that cap rates will start widening just based on all the chatter in the market, we are not really seeing enough transaction activity to conclude that that’s in fact the case.

The other thing to keep in mind is that, as long as the financing market remains as readily available as it now is, the cash on cash yields, whether in lower-cap rates assets or especially in the higher-cap rate assets, it’s still so compelling that you are probably not going to see a substantial move in cap rates until, and hopefully it doesn’t happen, you were to see spreads gap out on the financing side..

Okay. And then just last one from me, just can you expect – it looks like, again, Fredericksburg Way got moved to held for sale.

Can you maybe just touch on that reclassification there, plans and timing associated with the – what sounds like a pending disposition there?.

Yes. So we moved it to held for sale this quarter. I think we talked about it a few times, it’s a very low value asset. We did have some potential leasing leads there.

When we started delving further into those and we look at the amount of capital in terms of cash capital and TI, we have to put in there to release it along with just as importantly human capital just time and distraction, we decided it is better to just cut it loose and sell it vacant. And with that decision Mikey [ph] begin to market it.

And once it’s became marketed, we put it held for sale and took an impairment to selling it as is vacant dark. So that’s what caused the reclassification this quarter..

Okay. I appreciate the color, Phil. Thanks..

Ladies and gentlemen, at this time, I would like to turn the call back over to Mr. Bruce Schanzer for closing comments..

Thanks for joining us this morning. We hope you enjoy the rest of the summer and we look forward to seeing you at the conferences in September..

Thank you, ladies and gentlemen. This does conclude today’s teleconference. You may disconnect your lines at this time, and thank you for your participation..