Cedar Realty Trust, Inc. — Q2 2014 Form 10-Q
Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2014, compared with the same periods in 2013. Cedar is a REIT focused primarily on grocery-anchored shopping centers from Washington, D.C., to Boston. At quarter-end it owned and managed 60 operating properties totaling approximately 9.4 million square feet; the portfolio was 93.3% leased and 92.2% occupied.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $37.1 million | $33.9 million | $74.4 million | $69.5 million |
| Operating income | $11.0 million | $11.3 million | $19.9 million | $23.8 million |
| Income from continuing operations | $6.7 million | $2.3 million | $7.4 million | $6.2 million |
| Net income attributable to Cedar | $17.1 million | $4.6 million | $18.8 million | $8.4 million |
| Net income attributable to common shareholders | $13.5 million | $1.0 million | $11.6 million | $0.1 million |
| Basic and diluted EPS | $0.17 | $0.01 | $0.15 | Approximately $0.00 loss |
| Same-property NOI | $18.9 million | $18.5 million | $37.9 million | $37.1 million |
| Cash from operating activities | Not provided for quarter | $22.9 million | $24.2 million |
Same-property NOI increased 2.0% for Q2 and 2.4% for the half year. Excluding the re-tenanting effect of the Walmart Neighborhood Market at Oakland Commons, growth was 1.0% and 1.3%, respectively. Same-property occupancy was 93.5%, versus 93.2%; leased occupancy was 93.8% in both periods. Operating income as a share of revenue was approximately 29.8% in Q2 and 26.8% for the first half, versus 33.2% and 34.2% in 2013, respectively.
At June 30, total assets were $1.335 billion and total equity was $579.5 million. Cash and equivalents were $4.0 million; restricted cash of $10.3 million is generally reserved for property-level needs. Six-month investing cash flow was positive $18.7 million and financing cash flow was negative $41.6 million. Cash increased $64,000 in the period.
Debt totaled approximately $708.4 million, including $6.6 million associated with properties held for sale/conveyance; debt excluding those properties was $701.7 million. The latter comprised $425.2 million of mortgage debt, $76.5 million drawn on the revolving facility, and $200 million of unsecured term loans. Weighted-average interest was 4.4% on the reported debt excluding held-for-sale properties. The $260 million revolver had $165.8 million available; the company reported compliance with its financial covenants. Scheduled for the remainder of 2014 were approximately $3.2 million of principal amortization and $28.7 million of mortgage balloon payments.
Material changes versus prior periods
- Revenue rose 9.3% in Q2 and 7.1% in the first half, reflecting acquisitions and modest same-property growth. Property operating expenses increased faster, up 11.0% and 11.2%, respectively; management cited repairs and maintenance, snow removal, and acquired properties.
- Interest expense fell 9.0% in Q2 and 9.2% for the first half, primarily due to lower average borrowing rates.
- Common-shareholder income and EPS improved substantially, but results were materially affected by dispositions: first-half gains on sales totaled $11.8 million, including $8.0 million in discontinued operations and $3.8 million in continuing operations.
- First-half operating cash flow decreased by $1.3 million year over year despite higher reported net income. The filing attributes working-capital movements to insurance premium timing and the timing of receivable collections and liability payments.
- Quartermaster Plaza was acquired for approximately $92.3 million in March. During the first half, Cedar sold properties for aggregate stated proceeds of $74.8 million; two properties were transferred to lenders by deeds-in-lieu of foreclosure. The company also raised approximately $41.3 million net from a January common-stock offering.
Outlook, commentary, risks and unusual items
- Management provided no numerical earnings or operating guidance. It expects to fund near-term needs primarily from operations and may use the revolver; longer-term needs may be funded through debt, equity, OP Units, or property sales. Management cautioned that financing availability cannot be assured.
- The $150 million unsecured term loans were hedged with swaps effective July 1, 2014, fixing rates at 3.37% for the five-year loan and 4.27% for the seven-year loan, based on the quarter-end leverage ratio. The filing estimates a 100-basis-point rate move on $126.5 million of variable-rate debt would change annual interest cost by approximately $1.3 million.
- Unusual items include $2.9 million in acquisition costs, $1.8 million of first-half continuing-operations impairment charges, gains from property sales, and $1.4 million of gains on extinguishment of debt in discontinued operations. The new discontinued-operations standard was adopted prospectively in 2014, so presentation may not be directly comparable for newly classified disposals.
- Management said it intends to continue regular quarterly dividends, subject to board discretion, cash flow, capital needs, REIT distribution requirements, and other factors. The common dividend was $0.05 per share quarterly; the Series B preferred dividend was $0.453 per share quarterly. A July 21 declaration set the next payments for August 20, 2014.
- Risks include tenant payment and occupancy performance, refinancing and financing availability, interest-rate exposure, covenant compliance, property-sale valuations, and the potential effects of prolonged significant inflation. Management did not expect normal-course legal actions to have a material adverse effect. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- How much of the improvement in earnings and EPS reflects recurring property operations versus sale, debt-extinguishment, and other nonrecurring gains.
- Whether same-property NOI growth, leasing spreads, occupancy, and rent collections remain sustained after acquisition and disposition effects.
- The timing and funding of the $28.7 million in 2014 balloon payments, and the company’s access to refinancing or other capital.
- Available revolver capacity and covenant headroom, as well as the cost and effectiveness of the term-loan interest-rate hedges.
- Cash available for dividends after debt service, property improvements, tenant costs, and required REIT distributions.