Back in March, investors in the Cedar Realty Trust (CDR) preferred shares went into an uproar (and selling mode) when the company agreed to be sold to Wheeler Real Estate Investment Trust (WHLR).
The deal closes next week, so it’s a good time to revisit the investment potential of the CDR preferred shares.
Because I think investors are wrong, and there may be a big profit opportunity brewing…
In early March, Cedar Realty and Wheeler announced a deal to sell a portion of the Cedar assets to a third party, and then Wheeler would acquire the remainder of the business. Cedar common stock owners will end up with $29.00 per share in cash. The announcement said that the Cedar preferred B and C shares would continue to trade on the New York Stock Exchange.
The problem is that Wheeler has not paid dividends on its outstanding preferreds for several years. Investors immediately assumed that the same would happen with the Cedar preferred shares, and investors dumped them, driving the share prices from the mid $20s down to single digits. Currently, the CDR.PC shares, with a 6.5% coupon trade for $8.30, gives a current yield of 17%. The CDR.PB shares have a 7.25% coupon priced at $10.23 for a similar current yield.
The Cedar preferred shares have each declared two dividend payments, including a payment on August 22. While investors believe that the preferred dividends will stop when Wheeler absorbs the company, also expected on August 22, I have read through the SEC filings and believe the preferred dividends will continue.
To make this deal work, Cedar Realty will continue operating as a company, set up as a wholly owned subsidiary of Wheeler Real Estate. This setup means that Wheeler will be the 100% common stockholder of Cedar, and for Cedar to make payments to Wheeler, the preferred share dividends must continue to be paid.
The first preferred stock dividend announcement after the Wheeler takeover should come out in October. That will be when I find out whether my analysis is correct. If it is, the preferred share prices could quickly double from the current values.
— Tim Plaehn
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Source: Investors Alley