Cedar Realty Trust, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; filed August 2, 2018. Cedar is a REIT focused on owning, operating and redeveloping grocery-anchored shopping centers in high-density markets from Washington, D.C. to Boston. At quarter-end, it owned and managed 58 operating properties totaling 8.7 million square feet, excluding properties held for sale; the portfolio was 91.7% leased and 91.3% occupied.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $41.35M | $35.70M | $78.92M | $72.47M |
| Property operating income | $30.30M | $25.32M | $55.00M | $50.30M |
| Net income (loss) | $9.94M | $(4.39)M | $(6.68)M | $7.56M |
| Net income (loss) attributable to common shareholders | $7.09M | $(8.08)M | $(15.89)M | $0.10M |
| Basic and diluted EPS | $0.08 | $(0.10) | $(0.19) | $(0.00) |
| FFO per diluted share | $0.19 | $0.14 | $0.28 | $0.27 |
| Operating FFO per diluted share | $0.19 | $0.14 | $0.32 | $0.27 |
Q2 property operating income was about 73% of revenue, versus about 71% a year earlier; the corresponding six-month ratios were about 70% in both periods. Same-property NOI increased 0.7% for Q2 and 0.4% for the first half. Management attributed the modest gains mainly to higher average base rents, partly offset by lower occupancy. Same-property occupancy was 91.8% at Q2-end versus 92.3% a year earlier; leased percentage was 92.0% versus 93.6%.
Cash provided by operating activities was $30.64M for the first half, compared with $30.16M. Investing used $14.02M, primarily for property improvements, versus $27.50M used in 2017. Financing used $17.19M, compared with $2.95M used in 2017. Cash, cash equivalents and restricted cash totaled $6.66M at June 30, 2018, including $1.63M unrestricted cash.
Balance sheet, debt and liquidity
- Total assets were $1.233B at June 30, 2018, down from $1.252B at year-end 2017. Total liabilities were $664.9M and total equity was $567.8M.
- Debt carrying value was $628.4M, comprising $126.5M of mortgage loans, $104.5M drawn on the revolver, and unsecured term loans. Gross debt before unamortized premium and issuance costs was approximately $631.0M; weighted-average stated interest rate was 3.5%.
- The $250M revolving facility had $109.2M available at June 30. The company reported compliance with all financial covenants. Restricted cash is generally reserved for specific property-level requirements and is not freely available for general obligations.
- Fixed-rate debt averaged 3.5%; $154.5M of variable-rate debt averaged 3.4%. A 100-basis-point rate change on variable-rate debt would affect annual interest cost by approximately $1.5M, absent other changes.
- On July 24, 2018, the company closed a new $75M unsecured term loan maturing in 2025; none was drawn at closing. Proceeds may be drawn through October 24, 2018 and are expected primarily to repay mortgages maturing through November 2022. Once fully drawn, the company estimates an effective rate of 4.6% based on its current leverage ratio and the related swaps.
Material changes, outlook and risks
- Revenue increased 15.8% in Q2 and 8.9% for the first half. A significant one-time contributor was a dark anchor tenant’s early lease termination: a $4.3M cash payment generated $5.4M of reported revenue, including $3.8M of other income and $1.5M of accelerated intangible lease amortization. The tenant was at a property held for sale.
- The company recorded $21.4M of first-half impairment charges for three properties classified as held for sale: Carll’s Corner, Maxatawny Marketplace and West Bridgewater Plaza. This contributed to the first-half net loss. The 2017 comparison included a $7.1M gain on sale and $9.9M of impairment charges.
- In January, Cedar redeemed 2.0 million Series B preferred shares for $50.0M plus accrued dividends, and recorded $3.5M in redemption costs. Preferred stock dividends were $5.5M for the first half.
- No specific earnings or operating guidance is provided. Management expects to fund near-term needs from operations and may use its revolver; long-term needs may be funded through debt, equity, OP Unit issuance or property sales. Future dividends remain at the board’s discretion, subject to cash flow, capital needs and REIT distribution requirements.
- Key risks include tenant payment defaults or bankruptcies, retail-sector and e-commerce disruption, financing/refinancing availability and cost, leverage, geographic concentration in the Washington-to-Boston corridor, redevelopment returns, and natural disasters. Management noted that prolonged significant inflation could adversely affect the business, although leases provide partial cost-recovery protections.
- Management reported no material litigation expected to adversely affect the company and no material changes to the risk factors in its 2017 Form 10-K. Disclosure controls were deemed effective, with no material changes in internal control over financial reporting reported during the quarter.
Important facts for investors to verify
- How much of reported revenue and Q2 earnings reflects the nonrecurring lease termination payment and accelerated lease amortization.
- Sale progress and final proceeds for the three held-for-sale properties, including whether further impairments are required.
- Leasing, occupancy and same-property NOI trends, given lower leased and occupied rates versus the prior year.
- Use and cost of the new $75M term loan, upcoming mortgage maturities, revolver availability and covenant headroom.
- Cash generation and dividend coverage, considering low unrestricted cash, debt service and preferred dividends.
- Management’s future assessment of the adoption effects of new lease and expected-credit-loss accounting standards; the filing says these assessments were ongoing.