Cedar Realty Trust, Inc. — Q1 2019 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2019, compared with Q1 2018. Cedar is a REIT focused on owning, operating and redeveloping grocery-anchored shopping centers in urban markets from Washington, D.C. to Boston. At quarter-end, it owned and managed 56 operating properties totaling 8.6 million square feet; the portfolio was 90.5% leased and 90.2% occupied.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $36.9 million | $37.6 million; down 1.8% |
| Property operating income | $23.7 million | $24.7 million; down $1.0 million |
| Net income (loss) | $3.0 million | $(16.6) million |
| Net income (loss) attributable to common shareholders | $0.2 million; $0.00 per share | $(23.0) million; $(0.26) per share |
| FFO per diluted share | $0.11 | $0.09 |
| Operating FFO per diluted share | $0.11 | $0.13 |
| Cash from operating activities | $9.2 million | $10.1 million |
| Cash and cash equivalents at quarter-end | $25,000 | $2.0 million at Dec. 31, 2018 |
| Debt and capital lease obligations | $630.1 million contractual balance; $626.8 million net carrying amount | — |
| Revolver availability | $105.2 million | — |
Q1 property operating income was approximately 64.3% of revenue, compared with 65.7% in Q1 2018. Interest expense rose 9.7% to $5.9 million. The company reported $5.4 million of other comprehensive loss, primarily reflecting changes in cash-flow hedge values.
Material changes versus the prior comparable period
- Revenue decreased $0.7 million, mainly due to properties sold or held for sale and lower same-center rental revenues and recoveries; growth from a 2018 acquisition partly offset the decline.
- Same-property NOI fell 1.2% to $18.9 million. Same-property occupancy declined to 90.7% from 92.7%, primarily following two anchor vacancies associated with the Bon-Ton bankruptcy; average base rent increased to $13.22 per square foot from $13.08.
- Net income improved largely because Q1 2018 included $21.4 million in impairment charges. Q1 2019 included a $0.1 million gain on sale and no impairment charge.
- Operating cash flow declined $0.9 million. Investing cash flow was positive $1.1 million, including $9.9 million of property-sale proceeds and $8.8 million of improvements. Financing cash outflow was $12.3 million, including $6.8 million of common-stock repurchases and $7.1 million of common and preferred distributions, partly offset by net revolver borrowings.
- In Q1 2019, Cedar repurchased approximately 2.05 million shares at a weighted-average $3.34 per share. Since the program began in December 2018, it had repurchased 2.823 million shares at a $3.25 weighted average, under a $30 million authorization.
Outlook, commentary, risks and unusual items
- No numeric earnings or operating guidance was provided. Management expects to fund near-term needs primarily from operations and may use its revolver; longer-term needs may be funded through borrowing, equity or OP Unit issuance, or property sales. Management cautions financing may not be available on favorable terms.
- The board declared Q2 dividends of $0.05 per common share, $0.453125 per Series B preferred share and $0.406250 per Series C preferred share, payable May 20, 2019. Future dividends remain at board discretion and could be reduced or suspended.
- Total contractual debt and capital lease obligations were $630.1 million, with a weighted-average stated interest rate of 3.6% in the debt schedule. $152.0 million was variable-rate debt; a 100-basis-point rate change would affect annual interest cost by approximately $1.5 million. The weighted-average rate on unsecured facilities increased 14 basis points effective April 1, 2019. Cedar reported compliance with its financial covenants at March 31.
- Three properties—Carll’s Corner, Fort Washington Center and Suffolk Plaza—were classified as held for sale. Maxatawny Marketplace was sold for $10.3 million on February 15, generating a $0.1 million gain.
- Adoption of the new lease standard resulted in $14.6 million of right-of-use assets and liabilities at adoption; $0.7 million of leasing costs were expensed in Q1 that previously could have been capitalized. The company recorded a $0.5 million opening-equity adjustment related to lease receivables.
- Key risks include tenant ability to pay, retail-sector disruption and e-commerce, geographic concentration, redevelopment execution, leverage and refinancing availability, interest rates, and economic or credit-market weakness. Management reported no material change to previously disclosed risk factors, no expected material effect from ordinary-course legal matters, and effective disclosure controls.
Important facts for investors to verify
- Whether occupancy and anchor-tenant leasing improve, and the effect of the Bon-Ton vacancies on same-property NOI.
- Expected timing and proceeds from the three properties held for sale, and any related impairment or disposition effects.
- Debt maturities and refinancing plans, revolver availability, covenant headroom, and the effect of higher borrowing rates.
- Cash generation relative to common and preferred dividends, redevelopment spending and ongoing share repurchases; cash on hand was only $25,000 at quarter-end.
- How the new lease-accounting presentation and leasing-cost expensing affect comparisons of rental revenue, expenses and operating results.
FFO and Operating FFO are non-GAAP measures; the filing cautions they are not substitutes for GAAP earnings or operating cash flow and may not be comparable across REITs.