Cedar Realty Trust, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; financial statements are unaudited. Cedar is a REIT focused on grocery-anchored shopping centers from the Washington, DC–Boston corridor. At quarter-end, it owned and managed 62 operating properties totaling approximately 9.5 million square feet; the portfolio was 93.5% leased and 92.6% occupied.
Key financial results
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Total revenue | $37.3 million | $35.6 million | +5.0% |
| Property operating income | $24.8 million | $24.3 million | +2.1% |
| Operating income | $8.9 million | $12.5 million | Down $3.6 million |
| Net income | $1.7 million | $3.9 million | Down $2.1 million |
| Net loss attributable to common shareholders | $(1.8) million; $(0.03) per share | $(0.9) million; $(0.02) per share | Loss widened |
| Cash from operating activities | $7.2 million | $9.8 million | Down $2.6 million |
| Funds from operations (FFO) | $7.3 million | $6.9 million | Up $0.4 million |
Property operating income was approximately 66.4% of revenue, compared with 68.3% a year earlier; operating income was approximately 23.8% of revenue, versus 35.2%. Same-property NOI rose 2.7% to $19.4 million across 54 properties; same-property occupancy was 93.9%, up 0.7 percentage points. Management reported NOI growth of 1.6% excluding the benefit from re-tenanting Oakland Commons with a Walmart Neighborhood Market.
Investing cash use was $18.3 million, including $38.5 million of cash paid toward an acquisition and $3.2 million of property improvements, partly offset by $24.5 million of real estate sale proceeds. Financing provided $12.2 million; cash and cash equivalents ended the quarter at $5.1 million, with an additional $12.7 million of restricted cash.
Balance sheet, debt and liquidity
- Total assets were $1.40 billion and total liabilities were $827.4 million at March 31, 2014. Cedar shareholders’ equity was $564.8 million; total equity including noncontrolling interests was $571.9 million.
- Debt excluding debt for properties held for sale/conveyance totaled $753.7 million, with a weighted-average interest rate of 4.3%. This comprised $509.7 million of fixed-rate mortgages, $119.0 million drawn on the revolving facility, and $125.0 million of term loans. The balance sheet also showed $22.5 million of mortgage debt associated with held-for-sale/conveyance properties.
- The $260 million revolver had $119.0 million outstanding and $133.2 million available. It matures in August 2016, with two optional one-year extensions, subject to conditions. Cedar reported financial covenants and restrictions; covenant breach or default could accelerate debt.
- In February, Cedar closed a $150 million term-loan facility: $75 million was borrowed under a five-year loan and the remaining $75 million commitment under a seven-year loan had not been drawn by quarter-end. The company expected to borrow the latter amount by July 1, 2014. Swaps were intended to fix rates from July 1 at 3.37% and 4.27%, respectively, based on the then-current leverage ratio.
- For the remainder of 2014, scheduled debt principal amortization was approximately $5.6 million and scheduled balloon payments were $104.1 million. A 100-basis-point change in rates on $244 million of variable-rate debt would change annual interest expense by approximately $2.4 million.
Material changes, transactions and outlook
- Cedar acquired Philadelphia’s Quartermaster Plaza on March 21 for approximately $92.3 million, assuming $53.4 million of mortgage debt and funding the remainder through the revolver. Acquisition costs were $2.9 million.
- On February 25, Cedar sold Harbor Square for $25.0 million, approximately its carrying value. It also classified four properties as held for sale/conveyance.
- A January public offering of 6.9 million common shares generated net proceeds of approximately $41.3 million. The at-the-market program, allowing sales of up to 10 million shares, had not been used through March 31.
- Revenue growth reflected acquired properties and same-property increases. Operating expenses rose 11.3%, including higher snow-removal costs, while $2.9 million of acquisition costs and the absence of a prior-year impairment reversal contributed to lower operating income. Interest expense fell 9.3%, principally due to a lower weighted-average rate.
- No earnings or operating guidance is provided in the supplied filing text. Management said it intended to continue regular quarterly dividends, subject to board discretion, cash flow, capital needs and REIT distribution requirements. The board declared a $0.05 common dividend and $0.453125 Series B preferred dividend, payable May 20, 2014.
Risks, contingencies and unusual items
- As of March 31, Cedar was negotiating with lenders to convey Gahanna Discount Drug Mart Plaza and McCormick Place through a short sale, foreclosure or deed-in-lieu process. The related non-recourse mortgages and accrued property costs totaled $7.9 million; the subsidiaries had stopped making monthly mortgage payments and were in default. Management estimated potential aggregate gains of approximately $1.7 million upon conveyance.
- Cedar identified tenant ability to meet lease obligations, access to financing and interest-rate movements as risks. It noted that financing availability is not assured. Inflation was described as not materially detrimental in recent years, but sustained significant increases could adversely affect the business.
- Management did not expect normal-course legal actions to have a material adverse effect. Disclosure controls were assessed as effective, with no reported material changes in internal control over financial reporting during the quarter.
- FFO and same-property NOI are non-GAAP measures; the filing cautions that they are not substitutes for GAAP results or cash flow and may not be comparable across REITs.
Important facts for investors to verify
- Confirm the status and funding of the undrawn $75 million seven-year term loan, the related swap rates, and the $104.1 million of scheduled 2014 balloon payments.
- Track negotiations and outcomes for the two defaulted property loans, including any conveyance, costs, or gain recognition.
- Review Quartermaster Plaza’s final purchase-price allocation and operating contribution; the acquisition valuation was preliminary and acquisition costs affected Q1 earnings.
- Reconcile the common-share loss presentation: the statements report a $1.815 million loss attributable to common shareholders, while the EPS note’s reconciliation reports a $1.997 million loss after its allocations. The filing text does not explain this difference.
- Assess cash generation, dividend coverage and liquidity using operating cash flow and debt maturities, rather than FFO alone; restricted cash is not generally available for other obligations.