Cedar Realty Trust, Inc. — FY 2018 Form 10-K
Business context and reporting period
Annual report for the year ended December 31, 2018, with quarterly data for Q4. Cedar is a REIT focused on grocery-anchored shopping centers in the Washington, D.C.–Boston corridor. At year-end it owned and managed 58 operating properties totaling 8.7 million square feet; the portfolio was 91.0% leased and 90.7% occupied. Pennsylvania accounted for about half of portfolio GLA.
Financial results and key metrics
- FY revenue: $152.0 million, up 4.1% from $146.0 million in 2017. Property operating income was $104.1 million, compared with $101.7 million.
- Profit: Consolidated net income was $4.4 million, down from $19.7 million. Net loss attributable to common shareholders was $10.5 million, or $0.13 per share, versus a $2.4 million loss, or $0.04 per share, in 2017. Preferred dividends and redemption costs contributed to the common-shareholder loss.
- Q4: Revenue was $36.9 million; net income was $4.7 million and income attributable to common shareholders was $1.9 million, or $0.02 per share.
- REIT operating measures: FFO was $45.2 million ($0.49 per diluted share), up from $40.0 million ($0.45) in 2017. Operating FFO was $53.6 million ($0.58 per diluted share), up from $48.3 million ($0.55). These are non-GAAP measures.
- Property performance: Same-property NOI declined 0.3% to $75.7 million; same-property occupancy fell to 91.6% from 93.1%. Average base rent increased to $13.23 per square foot from $13.12.
- Cash flow: Operating cash flow was $57.9 million, versus $57.1 million in 2017. Investing cash use was $14.9 million and financing cash use was $48.2 million. Year-end cash and cash equivalents were $2.0 million.
- Debt and liquidity: Debt obligations were $624.8 million, including the capital lease; total liabilities were $664.2 million. The company reported $132.2 million available under its revolving credit facility and compliance with financial covenants. About $176.1 million of debt was scheduled to mature in 2021, including $100 million on the revolver and a $75 million term loan.
- Dividends and equity: Common dividends remained $0.20 per share for the year. The company redeemed $50 million of Series B preferred stock, repurchased about 772,000 common shares at a weighted average $3.02, and authorized a $30 million repurchase program. After year-end it repurchased another 2.05 million shares at an average $3.34.
Material changes versus the prior period
- Revenue rose mainly due to a $5.4 million lease-termination-related revenue item, redevelopment activity, acquisitions and same-center growth. Operating expenses increased 8.0%, including higher same-property taxes, snow removal and insurance costs.
- Net income fell substantially, primarily reflecting impairment charges of $20.7 million versus $9.5 million in 2017 and $4.8 million of early debt-extinguishment costs versus $0.2 million. Interest expense was broadly unchanged.
- Occupancy weakened despite higher average portfolio rent: year-end occupied space was 90.7%, versus 91.3% in 2017. Portfolio GLA decreased from 9.0 million to 8.7 million square feet.
- Debt obligations increased from $580.1 million to $624.8 million. The company repaid $80.3 million of mortgages and drew a new $75 million term loan in 2018.
Outlook, commentary, risks and unusual items
- The filing provides no specific earnings or FFO guidance. Management said it expects to fund operating needs primarily from operations and may use its credit facility; longer-term needs may be met through debt, equity, OP Units or property sales. Future dividends remain at the board’s discretion and may be reduced or suspended.
- Management attributed same-property NOI softness primarily to two vacant anchor spaces and related temporary co-tenancy rent reductions. It views grocery-anchored centers as necessities-based, while noting retail-sector risks including e-commerce, tenant failures and competition.
- Unusual items included a $4.3 million cash payment to permit a dark anchor tenant at a property held for sale to terminate its lease. The resulting $5.4 million revenue benefit included $3.8 million of other income and $1.5 million of accelerated intangible lease-liability amortization.
- Impairments totaled $20.7 million: $9.4 million associated with West Bridgewater Plaza and $11.3 million associated with properties classified as held for sale, Carll’s Corner and Maxatawny Marketplace. Mechanicsburg Center was sold for $16.1 million, producing a $4.9 million gain; West Bridgewater Plaza sold for $3.5 million.
- Key risks include retail demand and tenant credit, geographic concentration, refinancing and interest-rate exposure, redevelopment execution, property impairments, environmental liabilities, and REIT qualification. Ahold-owned Giant, Stop & Shop and Food Lion brands together represented approximately 11% of GLA and 11% of 2018 revenue.
- The company hedges certain term-loan interest rates; a 100-basis-point change in rates on its $150 million variable-rate debt would change annual interest cost by approximately $1.5 million. The company reported no material litigation and stated that its financial statements and internal controls received unqualified audit opinions.
Most important facts for investors to verify
- Whether leasing and occupancy recover, particularly at centers affected by vacant anchors and co-tenancy provisions.
- How sustainable FFO and Operating FFO are after excluding impairments, lease-termination income and debt-extinguishment costs.
- Refinancing plans and covenant headroom ahead of the substantial 2021 debt maturities, as well as actual revolver availability.
- Sale timing and proceeds for held-for-sale properties, and whether further impairment charges or disposition losses arise.
- Cash coverage of common and preferred dividends, planned repurchases, and the effect of post-year-end share buybacks on liquidity.
- The effect of tenant concentration, retail bankruptcies and e-commerce on rent collections and leasing demand.