Cedar Realty Trust, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. Although the request references 2012 Q4, this filing reports annual results; it also provides selected fourth-quarter data. Amounts are in U.S. dollars.
Business context and portfolio
Cedar is a REIT focused on grocery-anchored shopping centers, primarily in the Washington, D.C.–to–Boston corridor. At year-end, it owned and managed 67 operating properties, excluding assets held for sale or conveyance, totaling approximately 9.8 million square feet. Occupancy was 91.9%; leased space was 92.7%. Pennsylvania represented 53.4% of consolidated portfolio GLA.
The company continued its strategy of reducing leverage and concentrating on core grocery-anchored centers: exiting Ohio, disposing of malls, single-tenant properties and development/non-core assets, and improving the remaining portfolio.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue | $140.6 million | $134.8 million |
| Operating income | $34.1 million | $21.5 million |
| Income (loss) from continuing operations | $25.4 million | $(26.1) million |
| Net income (loss) attributable to common shareholders | $9.9 million | $(117.8) million |
| Diluted EPS | $0.13 | $(1.79) |
| FFO, as defined by the company | $26.7 million | $26.5 million |
| Cash flow from operations | $50.6 million | $39.2 million |
| Cash flow from investing activities | $50.1 million | $(64.2) million |
| Cash flow from financing activities | $(105.3) million | $22.9 million |
Revenue increased 4.3%; management attributed the increase principally to lease termination income, acquisitions and development properties. Property operating income was $100.0 million, or approximately 71.2% of revenue; GAAP operating margin was approximately 24.3%. Same-property NOI rose 1.1% to $71.2 million across 59 properties, with same-property occupancy of 93.6% versus 93.2% a year earlier. Renewals achieved a 7.7% increase in cash rent per square foot; new leases averaged $14.48 per square foot.
Reported net income included a $30.5 million gain on exiting the Cedar/RioCan joint venture and $8.6 million of income from discontinued operations. Thus, the return to GAAP profitability does not by itself indicate a comparable improvement in recurring operations. FFO is a non-GAAP measure and should not be treated as cash available for dividends.
Year-end total assets were $1.370 billion and total liabilities were $848.2 million. Core mortgage debt and secured credit facilities totaled $761.2 million, at a weighted-average rate of 4.8%; a further $23.3 million of mortgage debt related to properties held for sale/conveyance. Cash and cash equivalents were $7.5 million, with $13.8 million of restricted cash. The $300 million secured credit facility had $81.0 million drawn on its revolving portion and $81.8 million available for additional borrowing at year-end, subject to facility terms and collateral.
Scheduled 2013 principal payments were approximately $119.1 million, including $114.6 million of balloon payments; some financing has extension options. The filing lists total debt, interest and operating lease obligations of $901.3 million across the stated maturity periods, excluding approximately $23.3 million applicable to discontinued operations. A 1% rate increase on year-end variable-rate debt was estimated to increase annual interest cost by approximately $2.2 million.
Material changes and significant transactions
- In October 2012, Cedar exited its 20% interest in the 22-property Cedar/RioCan venture, receiving Franklin Village Plaza, valued at approximately $75.1 million and subject to about $43.1 million of mortgage debt, plus $41.6 million in cash. The cash was initially used to reduce the credit facility.
- Cedar acquired the remaining 80% interests in Meadows Marketplace and Fieldstone Marketplace for approximately $27.3 million, including assumed debt. It sold its 20% interests in seven other Homburg joint-venture properties for approximately $23.6 million, including assumed debt.
- Property sales and joint-venture dispositions generated approximately $34.9 million of net real estate sale proceeds and $41.6 million of joint-venture exit proceeds in 2012. Investing cash flow consequently turned positive, while financing cash flow was negative, reflecting debt repayments, preferred-stock redemptions and distributions.
- Debt and facility borrowings increased to $761.2 million from $753.1 million, while assets declined to $1.370 billion from $1.512 billion. The balance sheet also reflected a substantial reduction in properties classified as held for sale/conveyance.
Outlook, risks and unusual items
- Management expected remaining properties classified as held for sale to be sold during 2013. The company was negotiating conveyances with lenders on four properties whose non-recourse mortgage principal and accrued interest totaled $23.7 million; the borrowers had stopped payments and were in default. Potential gains on conveyance were estimates, not completed transactions.
- In February 2013, Cedar raised approximately $54.7 million net from a Series B preferred offering and announced redemption of its remaining Series A preferred shares, requiring approximately $35.4 million. These are post-year-end transactions.
- Common dividends were reduced to $0.20 per share in 2012 from $0.36 in 2011. Future dividends remain at board discretion and depend on cash flow, financial condition, capital needs and REIT distribution requirements.
- Other unusual items included a $4.4 million write-off of an Ohio property loan after a missed payment and an estimated inability to recover it; 2012 impairment charges were $5.8 million. By comparison, 2011 included $88.5 million of impairment charges in discontinued operations.
- Principal risks include refinancing and debt-maturity exposure, covenant restrictions, tenant payment/renewal risk, concentration in the Washington-to-Boston region and Pennsylvania, and reliance on major grocery tenants. Ahold-owned Giant Foods, Stop & Shop and Martin’s together accounted for approximately 15% of 2012 revenue. Environmental liabilities and property insurance limitations also remain risks; management reported no known material environmental matters.
- The company reported no litigation expected to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Selected fourth-quarter facts
Fourth-quarter 2012 revenue was $35.8 million, net income was $30.7 million, net income attributable to common shareholders was $22.3 million, and diluted EPS was $0.31. The fourth-quarter result included the large joint-venture exit gain; it should not be viewed as a standalone run rate.
Important facts for investors to verify
- Whether 2013 property dispositions and lender conveyances were completed as planned, and the final proceeds, debt relief and gains or losses.
- The schedule and refinancing or extension status of the approximately $114.6 million of 2013 balloon debt, plus subsequent-year maturities and credit-facility covenants.
- Recurring property performance apart from the joint-venture gain, lease termination income and discontinued operations; reconcile GAAP earnings, FFO and same-property NOI.
- Tenant concentration, occupancy and leasing outcomes, especially exposure to Ahold-affiliated grocers and upcoming lease expirations.
- Dividend coverage and sustainability after the reduction in common distributions, preferred-stock issuance and Series A redemption.
- Post-year-end preferred financing, redemption and any subsequent changes in cash, debt, available credit or capital requirements.