Cedar Realty Trust, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Unaudited consolidated results. Cedar is a REIT focused primarily on grocery-anchored shopping centers in the Washington, D.C.–Boston corridor. At quarter-end it owned and managed 62 properties totaling 9.6 million square feet; the portfolio was 91.2% leased and 90.3% occupied.
Key financial results
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Total revenue | $37.9 million | $36.7 million | $76.1 million | $75.4 million |
| Operating income | $11.8 million | $12.6 million | $20.5 million | $23.2 million |
| Net income | $4.8 million | $5.4 million | $6.4 million | $8.8 million |
| Net income (loss) attributable to common shareholders | $1.3 million | $1.9 million | $(0.7) million | $1.8 million |
| Basic and diluted EPS | $0.01 | $0.02 | $(0.01) | $0.02 |
| Same-property NOI | $23.5 million | $23.1 million | $46.1 million | $45.5 million |
| FFO per diluted common share | $0.14 | $0.14 | $0.23 | $0.25 |
| Operating FFO per diluted common share | $0.15 | $0.14 | $0.29 | $0.26 |
Same-property NOI increased 1.5% in both comparisons; higher average base rent was partly offset by lower occupancy. FFO and Operating FFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
- Cash flow: First-half operating cash flow was $27.6 million, versus $27.3 million. Investing used $20.0 million; financing used $7.0 million. Cash and cash equivalents were $2.7 million at June 30.
- Debt and liquidity: Debt outstanding before unamortized premiums and issuance costs was $695.7 million, with a weighted-average stated rate of 3.8%. Balance-sheet debt carrying value was $692.5 million. The company had $168.0 million of availability on its revolving facility and was in compliance with financial covenants.
- Assets and equity: Total assets were $1.326 billion and total liabilities $746.6 million. Restricted cash was $4.1 million and is generally limited to specified property-level requirements.
Material changes and transactions
- Revenue rose 3.1% in Q2 and 1.0% in the first half. Acquired-property revenues and lease termination income contributed, while same-center recoveries and revenues from sold or redevelopment properties partly offset gains.
- First-half operating income fell $2.7 million. General and administrative expense rose $1.8 million, acquisition costs rose $2.6 million, and depreciation and amortization rose $1.4 million; lower property operating expense and interest expense partly offset these increases.
- First-half common-shareholder results declined to a $0.7 million loss from $1.8 million income. The 2016 period included $3.1 million of acquisition costs and $1.4 million of management transition costs; the 2015 comparison included impairment reversals in discontinued operations.
- Acquired Shoppes at Arts District for $20.5 million and Glenwood Village for $19.5 million. Sold Liberty Marketplace for $15.0 million.
- Refinanced Franklin Village Plaza debt with a $50 million mortgage at 3.9%, maturing in 2026. Closed a $100 million unsecured term loan maturing in 2023; it was undrawn at closing and intended primarily to address mortgage maturities. A forward swap is expected to fix its effective rate at 3.2% from November 2016.
- After quarter-end, completed a forward sale offering of 5.75 million common shares, with estimated net proceeds of $44.2 million before adjustments. The company expected to physically settle by August 1, 2017; settlement could dilute shareholders.
Outlook, risks, and unusual items
- No numerical earnings or operating guidance is provided. Management said it expects to continue regular quarterly dividends, but future declarations remain at the board’s discretion and depend on cash flow, financial condition, capital needs, and REIT distribution requirements. Q2 common dividends were $0.05 per share; Series B preferred dividends were $0.453 per share.
- The company reported $74.3 million of scheduled balloon payments remaining for 2016 and a $60.5 million payment due January 1, 2017. Management expected to fund these primarily with the new term loan and revolver availability.
- Interest-rate risk includes $142.0 million of variable-rate debt; a 100-basis-point rate change would change annual interest cost by approximately $1.4 million. The interest-rate swaps had a $13.6 million liability at June 30, and approximately $4.0 million of accumulated hedge losses was expected to be reclassified to earnings over the next 12 months.
- Key disclosed risks include tenant payment defaults or bankruptcies, retail-sector and e-commerce pressures, consumer spending and economic conditions, refinancing access and interest rates, leverage, geographic concentration, disasters, and redevelopment returns. The company reported no material change to its 2015 Form 10-K risk factors.
- Management reported disclosure controls and procedures were effective; no material adverse legal proceedings were expected.
Investor facts to verify
- Whether leasing and occupancy trends stabilize: overall occupancy was 90.3%, and same-property occupancy was down 140 basis points year over year in Q2.
- Availability and terms of funding for the 2016 and January 2017 mortgage maturities, including drawdown of the $100 million term loan.
- Actual settlement, proceeds, and dilution from the 5.75 million-share forward sale.
- Whether same-property NOI growth and rent increases can offset occupancy softness and higher corporate, acquisition, and redevelopment-related costs.
- The effect of hedge valuation changes and future interest costs on earnings and liquidity.