Cedar Realty Trust, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Cedar is a REIT focused on grocery-anchored shopping centers in high-density markets from Washington, D.C. to Boston. At quarter-end, it owned and managed 54 operating properties totaling 8.2 million square feet; the portfolio was 89.8% leased and 88.8% occupied.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $31.2 million | $35.9 million | $102.3 million | $108.5 million |
| Operating income | $7.1 million | $9.0 million | $10.2 million | $29.3 million |
| Net income (loss) | $1.4 million | $2.9 million | $(6.7) million | $11.5 million |
| Net income (loss) attributable to common shareholders | $(1.4) million | $0.1 million | $(15.1) million | $3.0 million |
| EPS attributable to common shareholders | $(0.02) | $(0.00) | $(0.18) | $0.03 |
| Operating cash flow | — | $26.2 million | $36.4 million | |
| Investing cash flow | — | $(24.8) million | $(14.2) million | |
| Financing cash flow | — | $(0.5) million | $(22.1) million |
- Same-property NOI was $16.6 million in Q3, down 9.1% year over year, and $49.4 million for the first nine months, down 8.4%. Same-property occupancy was 90.5% at quarter-end versus 91.1% a year earlier.
- FFO and Operating FFO were both $0.09 per diluted share in Q3 versus $0.12 a year earlier; for nine months, both were $0.33 versus $0.34. These are non-GAAP measures.
- Cash and cash equivalents were $3.6 million at September 30, 2020. Total assets were $1.20 billion and total equity was $481.6 million.
- At September 30, gross debt and finance lease obligations were $647.4 million (balance-sheet carrying amount, net of issuance costs, was $645.3 million). The weighted-average rate shown for debt was 3.4%. At quarter-end the revolving facility balance was $120.9 million; after October 27 borrowing to repay a term loan, the revolver balance was $195.0 million as of the filing, with $44.1 million available. The company reported covenant compliance.
Material changes and unusual items
- Revenue declined 13.2% in Q3 and 5.7% year to date, primarily from COVID-19-related declines in rent and expense recoveries. Rental revenue was also affected by tenants for which collection was no longer considered probable; the company reported $6.6 million of billed rent and reimbursements not recognized as revenue in the nine-month period.
- For the first nine months, results included $7.1 million of income from an anchor tenant’s early lease termination, $0.7 million gain on an outparcel sale, and $7.6 million of impairment charges on properties held for sale. Depreciation and amortization rose 23.2%, including accelerated charges related to tenant departures and redevelopment activity.
- Nine-month operating cash flow fell to $26.2 million from $36.4 million. The filing cites COVID-19 effects and working-capital changes; the prior-year comparison also included property disposition activity.
- The common dividend was reduced from $0.05 to $0.01 per share quarterly, preserving approximately $3.6 million of cash per quarter. Preferred dividends remained unchanged. The board declared another $0.01 common dividend for payment in November 2020.
Outlook, liquidity, and risks
- The company reported collecting 91% of contractual base rent and monthly tenant reimbursements in Q3, versus 77% in Q2. During the first nine months it deferred approximately $2.7 million and waived approximately $0.9 million of rent. Deferred rent had a weighted-average payback period of about 10 months. Management expected further rent relief could be needed; its eventual scale and financial impact were unknown.
- Management estimated approximately $15 million of 2020 spending for three mixed-use urban redevelopment projects. Separately, it estimated about $20 million for mixed-use redevelopments and value-add renovations combined, excluding approximately $7.5 million of capitalized overhead, interest, and property taxes.
- An August credit-facility amendment changed certain covenant and borrowing-base calculations. Management warned that COVID-19 could weaken covenant capacity as trailing results incorporate the pandemic’s effects; the trailing period was expected to fully reflect those effects by Q1 2021. A $75 million term loan due in February 2021 was repaid on October 27 using the revolving facility.
- In October, the board approved a 6.6-for-1 reverse split plan, with authority to complete it by December 31, 2020, following NYSE notice over the share-price requirement. The filing said delisting could restrict access to equity financing.
- A 20-year, 10-month lease with the District of Columbia for a planned Senator Square office building provides for approximately $13.5 million in aggregate annual rent and related payments once rent commences, subject to a 10-month free-rent period and annual budget appropriation. Construction was anticipated to begin in Q1 2021, with delivery estimated for late 2022.
- Principal risks include pandemic-related tenant defaults, rent concessions, vacancies, property impairments, refinancing and covenant pressures, leverage, retail-sector weakness, and uncertainty in property sale values. The company disclosed no material change to previously reported risk factors. It reported effective disclosure controls and no litigation expected to have a material adverse effect.
Important facts for investors to verify
- Subsequent rent collections, tenant relief agreements, write-offs, and the recovery of deferred rent.
- Revolver availability, covenant headroom, refinancing plans, and the impact of the October 27 term-loan repayment on near-term liquidity.
- Whether the common dividend remains sustainable given cash flow, debt needs, redevelopment spending, and REIT distribution requirements.
- Timing, cost, leasing progress, and expected returns for redevelopment projects and the Senator Square lease, including its appropriation and tenant-improvement provisions.
- Final execution and market effects of the reverse split, and disposition proceeds and impairment exposure for properties held for sale.