NEW YORK--(BUSINESS WIRE)--Snow Park Capital Partners, LP (“Snow Park” or “we”), an investment advisor focused on publicly traded real estate securities that beneficially owns approximately 3.5% of the outstanding common shares of Cedar Realty Trust, Inc. (NYSE:CDR) (“Cedar” or the “Company”), today sent the following letter to the Board of Directors of Cedar (the “Board”).
October 25, 2017
Cedar Realty Trust, Inc.
44 South Bayles Avenue
Port Washington, New York 11050
Attn: Board of Directors
Dear Independent Members of the Board:
Thank you for allowing us to voice some of our views in an introductory call on October 9th. While we are encouraged that the Board has at least taken an initial step to listen to shareholder concerns, we remain concerned that the Board may not have learned from some of its prior missteps and is on a course that will perpetuate the Company’s consistent track record of underperformance. As the owner of approximately 3.5% of Cedar’s outstanding shares, we believe that Cedar can do more to create value for all of its investors.
In fact, Snow Park estimates Cedar to have an NAV of $7.00 to $8.25 per share.3 We believe such NAV levels are readily attainable should the Company take the appropriate steps because its portfolio is comprised of highly liquid grocery-anchored shopping centers for which investment demand remains robust.4 Snow Park has communicated with multiple firms, both financial and strategic, that have specifically expressed interest in Cedar’s portfolio. Many of these parties have either formally or informally reached out to the Company, only to be rebuffed. Cedar’s lack of willingness to even entertain a market check on the Company’s assets has left shareholders suffering in an inefficient and underperforming REIT with very little hope that Cedar’s discount to private market value will ever be closed.
As the Board is aware, under CEO Bruce J. Schanzer’s tenure, from June 1, 2011 through September 28, 2017,5 Cedar’s shares have declined in absolute terms.6 And further, Cedar’s most loyal shareholders have suffered greatest, as the current stock price is lower than any follow-on offering in the Company’s history spanning both the tenures of Mr. Schanzer and former CEO Leo S. Ullman, all under Board Chairman Roger M. Widmann’s stewardship since the 2003 IPO (see table below).
Follow On Equity & IPO Transactions7
Furthermore, we do not find credible management’s claims that the “next leg of value creation” will come from the high-risk, mixed-use developments that it has described only in abstract terms and for which the Company has no core competence or identifiable experience. Even more baffling to us is that after researching certain projects, we have been unable to even find plans or permit information for them.8 We believe that management’s claims are nothing more than an attempt to obfuscate their performance and garner another seven years to earn compensation packages more typically seen at Fortune 500 companies or professional athletic teams rather than tiny, subscale REITs.
We are also disappointed in the Board’s proclivity to enter into agreements that have made a small group of insiders wealthy. For over 14 years, insiders have consistently over-promised and under-delivered while shareholders have continued to suffer in the highly inefficient structure of Cedar. Troublingly, Cedar has generated negative 14% total shareholder returns since its 2003 IPO while named executives and Board members have earned over $85 million.9 Cedar’s current annualized G&A expense load equates to nearly 3.5% of the equity market capitalization,10 and nearly 20% of NOI (as compared to approximately 12% of NOI in 2011). Simply stated, while the Company owns desirable and eminently salable assets, but unfortunately for shareholders these assets are hopelessly trapped in a flawed and inefficient structure that has done nothing more than transfer value to insiders since 2003.
In fact, since 2011, cumulative compensation to just the top two executives and the Board will have totaled over $40 million by the time Mr. Schanzer’s contract expires in June 2018, compared to a market capitalization of only $350 million at the time his contract was entered into in June 2011.11 Snow Park is not alone in its concerns regarding the Company’s compensation. Tellingly, Cedar shareholders overwhelmingly voted against the Company’s executive compensation practices at the annual meeting following the entry into the employment agreements with Mr. Schanzer and Chief Financial Officer Mr. Philip R. Mays.
In essence, the Board’s bold 2011 gamble on unproven executives has failed, and shareholders are in no better position today than when Mr. Schanzer’s employment agreement was entered into nearly seven years ago. And more recently, Cedar has begun to post negative same store NOI and still retains a seven-year track record that is worst amongst its peers.12
With these costly and ill-advised employment contracts nearing their end,13 it is clear that now is the time for the Board to finally put an end to long-lasting shareholder suffering and explore all alternatives to enable shareholders to salvage the value of the Company’s real estate which is worth significantly more than the current trading price of $5.56 per share.
We hereby request that the Board take the following actions immediately in order to give shareholders confidence in the Board and hope that Cedar’s valuable real estate assets will finally be capitalized upon after 14 years of underperformance:
Announce to the market that it intends to explore all strategic
alternatives, including a sale of the Company by hiring a nationally
- Any strategic alternatives process should focus on the return of shareholder capital at NAV and under no circumstances should it include entrenching transactions such as sales of interests in owned assets through the creation of joint ventures, or any capital strategies that perpetuate and entrench the status quo, make any future sale process significantly more complicated, or hamper shareholders’ ability to realize NAV;
- Take steps to rationalize all discretionary G&A, and look for lower cost ways to conserve asset value for the benefit of shareholders;
- Cease frightening investors with talk of another five to ten years2 of high pay and use of shareholder funds on experimenting with new business strategies such as risky mixed-use developments, as all shareholders should be aware that the Company has no history of developing apartments or condos;
- Make clear to the market that the days of excessive management pay will end with the expiration of Messrs. Schanzer and Mays’ contracts in June 2018, and that no long term agreements with these executives or others will be entered into without direct consent of shareholders;
- Independently and honestly evaluate the performance of the management team, which is delivering industry worst same store results. This evaluation should also include a study of work hours and interactions with non-executives, and take appropriate remedial action;
- Make clear that no renegotiation, deferral, or other roundabout mechanism will be adopted to allow the vesting of Mr. Schanzer’s performance units absent the share price performance promised to shareholders under his existing employment agreement. He should not be rewarded for failing to deliver acceptable returns to shareholders; and
- Show good faith to shareholders by opting out of tools that could only be reasonably used to entrench management and the Board, including the Maryland Unsolicited Takeovers Act.
Snow Park hopes to continue to work constructively with the Board to find a path that provides a solution for shareholders to realize Cedar’s significant real estate value. Although we are hopeful that recent overtures from the Board demonstrate a willingness to address Cedar’s continued underperformance and shortcomings, we will continue to evaluate all opportunities to enhance value for the benefit of all Cedar shareholders. We will not hesitate to take any action that we believe is necessary to protect shareholders’ best interests, including nominating a slate of independent director candidates for election at the 2018 Annual Meeting.
Jeffrey Pierce, Managing Partner
About Snow Park
Snow Park Capital Partners, LP (“Snow Park”) is an investment advisor that focuses on publicly traded real estate securities.
1 Implied cap rate is in-line with recent comparables as
highlighted in Cedar’s May 2017 investor presentation and Snow Park
2 “The REIT Newshound A Baseball Metaphor,” REIT Zone, October 4, 2017.
3 NAV estimate takes into account the value of management compensation that would be triggered by a change of control and termination of named executives.
4 Source: Company materials.
5 The date prior to Snow Park’s involvement being reported by Reuters.
6 $5.47 closing price on June 1, 2011, and $5.45 closing price September 28, 2017.
7 Source: Bloomberg.
8 Management has highlighted future developments in North East, D.C. and South Philadelphia, PA.
9 Source: Bloomberg. Offer date, October 23, 2003 and ending date is unaffected price at close on September 28, 2017 (the date prior to Reuter’s article reporting Snow Park involvement). 2017 compensation for named executives and Board assumed to equal 2016 compensation. Assumes a full vesting of equity awards.
10 Peer average 2016 G&A / market capitalization of approximately 1%. Peers include Acadia Realty, Brixmor Property Group, DDR, Federal Realty, Kimco Realty, Kite Realty, Regency Centers, Retail Opportunities Investments, Retail Properties of America, Saul Centers, Urban Edge Properties, Urstadt Biddle Properties, Weingarten Realty. Source Bloomberg, SNL Financial.
11 Assumes a full vesting of equity awards.
12 Source: Boenning and Scattergood research dated July 2017.
13 Mr. Schanzer’s current employment agreement expires on June 15, 2018 and Mr. Mays’ expires on June 6, 2018.