Cedar Realty Trust, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. Financial statements are unaudited. Cedar is a REIT focused on supermarket-anchored shopping centers from the Washington, DC–Boston corridor. At quarter-end it owned and managed 67 operating properties (about 9.6 million square feet) and held a 20% interest in a 22-property joint venture. The managed portfolio was 91.9% leased: 90.2% for Cedar-owned properties and 96.4% for the joint venture.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $37.0 million | $32.6 million | $71.5 million | $67.1 million |
| Operating income | $13.7 million | $4.3 million | $18.0 million | $13.6 million |
| Net income (loss) attributable to common shareholders | $1.2 million | $(27.7) million | $(8.1) million | $(40.0) million |
| Basic and diluted EPS | $0.01 | $(0.41) | $(0.13) | $(0.59) |
| FFO, a non-GAAP measure | $10.9 million | $2.1 million | $16.2 million | $9.8 million |
- Q2 property operating income was $27.2 million, up 20.0%; as a share of revenue it was approximately 73.6%, versus 69.6% a year earlier.
- Six-month operating cash flow was $28.1 million, compared with $13.6 million. Investing activities provided $8.2 million, largely reflecting $16.8 million in real estate sale proceeds, while real estate and improvement expenditures were $11.6 million. Financing activities used $40.8 million; cash and equivalents ended at $7.6 million, down $4.5 million.
- At June 30, assets were $1.465 billion and total liabilities were $919.8 million. Cash was $7.6 million and restricted cash was $15.7 million.
- Debt and liquidity: management’s debt schedule reported $741.7 million of property mortgages and credit-facility borrowings, with a 4.9% weighted-average rate. This excludes $113.4 million of mortgage debt classified with properties held for sale/conveyance. The $300 million secured credit facility had $179.5 million drawn and $78.3 million available for additional borrowing as of the filing date.
- Six-month common dividends were $0.10 per share. The 2012 target rate was reduced to $0.05 quarterly ($0.20 annualized); future declarations remain at the Board’s discretion.
Changes versus prior comparable periods
- Q2 revenue rose 13.5%; six-month revenue rose 6.5%. Management attributed the increase in part to approximately $3.0 million of lease-termination income, as well as higher rental revenue from operating, development and redevelopment properties.
- Six-month property operating expenses fell 8.6%, mainly due to lower snow-removal and other operating costs. General and administrative expense increased 41.4%, primarily from payroll and related costs, including share-based compensation.
- Common-shareholder results improved substantially from 2011, when results included a $12.3 million Q2 impairment charge, a $22.5 million six-month impairment charge, a $8.0 million joint-venture investment write-off, and management transition charges. The 2012 six-month result still included a $2.6 million accelerated write-off of deferred financing costs related to replacement of prior credit facilities.
- Depreciation and amortization increased 41.6% for the first six months, principally reflecting redevelopment activity and accelerated depreciation associated with a property space being leased up.
- Cash flow from investing moved from a $56.4 million use in first-half 2011 to an $8.2 million source in first-half 2012, reflecting lower property investment and greater disposition proceeds.
Outlook, management commentary and risks
- Management is exiting Ohio and disposing of malls, single-tenant properties, development projects and other non-core assets to focus on grocery-anchored centers in the Mid-Atlantic and Northeast and reduce leverage. The filing gives no quantified earnings or FFO guidance.
- During the first half, Cedar sold 13 properties or land parcels for total proceeds of $21.4 million. At June 30, four properties were being conveyed to lenders; the related non-recourse mortgages and accrued interest totaled $22.9 million. The applicable subsidiaries had stopped monthly payments and were in default.
- The new secured credit facility carries financial covenants and restrictions on indebtedness, investments and distributions; covenant breach or default could accelerate obligations. Scheduled debt maturities include approximately $125.3 million of mortgage debt in 2013, subject to extension options on certain facilities. The filing also cites $4.5 million of scheduled principal amortization and $8.2 million of balloon payments for the remainder of 2012.
- Approximately $242.8 million of debt was variable-rate; a 1 percentage-point rate change would affect annual interest cost by approximately $2.4 million. Interest-rate swaps fixed rates on $31.8 million of mortgage debt at 5.2%–6.5% and had a $1.9 million fair-value liability.
- Substantially all real estate was pledged as collateral. Restricted cash is generally limited to specified property-level uses. The company’s results also depend on tenants’ ability to pay rent; management noted that necessities-based retail may support relatively stable revenue but did not eliminate this risk.
- The Cedar/RioCan joint-venture agreement allows either party to initiate a buy/sell process after December 10, 2012. Management stated that it did not expect normal-course legal actions to have material adverse consequences.
- Subsequent to quarter-end, the Board declared a $0.05 common dividend and preferred dividends payable August 20, 2012.
Important facts for investors to verify
- How much of the revenue and operating improvement is recurring, given the $3.0 million lease-termination income and property dispositions?
- What are the timing, final accounting effects and lender outcomes for the four properties in default and the other assets held for sale/conveyance?
- Can Cedar meet upcoming debt maturities and facility covenants while maintaining adequate liquidity, funding property needs and paying distributions?
- How sensitive are cash flows and asset values to occupancy, tenant credit, interest rates and the planned portfolio restructuring?
- FFO is non-GAAP and is not cash flow available for distributions; compare its calculation with GAAP results and operating cash flow.