Cedar Realty Trust, Inc. — Q1 2016 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2016, compared with Q1 2015; balance-sheet figures are compared with December 31, 2015. Cedar is a REIT focused on grocery-anchored shopping centers from Washington, D.C. to Boston. At quarter-end it owned and managed 61 properties totaling 9.5 million square feet; the portfolio was 91.6% leased and 90.7% occupied.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $38.3 million | $38.6 million; down 1.0% |
| Property operating income | $26.2 million | $25.6 million |
| Property operating income margin | 68.5% | 66.3% |
| Net income | $1.6 million | $3.4 million |
| Net loss attributable to common shareholders / diluted EPS | $(1.9) million / $(0.03) | $(0.1) million / approximately $(0.00) |
| Operating cash flow | $10.0 million | $9.8 million |
| Investing cash flow | $0.02 million provided | $23.5 million used |
| Financing cash flow | $10.3 million used | $14.0 million provided |
| FFO per diluted share | $0.09 | $0.12 |
| Operating FFO per diluted share | $0.14 | $0.13 |
Same-property NOI increased 1.3% to $23.4 million across 55 properties. Same-property occupancy was 91.5%, versus 92.7%, while average base rent rose to $13.29 per square foot from $13.04. Renewal rents increased 9.5% on a cash basis; comparable new-lease rents declined 1.1%.
At March 31, total assets were $1.320 billion and total liabilities were $733.7 million. Debt carrying value was approximately $681.1 million, including $304.2 million of mortgage loans, $79.0 million drawn on the revolver, and $297.9 million of term loans. Gross debt before unamortized premium and issuance costs was approximately $684.0 million. Cash and cash equivalents were $1.8 million, with an additional $6.0 million of restricted cash; $181 million remained available under the revolving facility. The company reported covenant compliance.
Material changes and notable items
- Revenue decreased modestly, mainly due to lower expense recoveries and same-property straight-line rent and lease-intangible revenue, partly offset by revenue from acquisitions.
- Property operating expenses fell $1.0 million, primarily because snow-removal costs declined $1.2 million. General and administrative expense rose $1.4 million, reflecting costs associated with hiring a new COO and the estimated termination costs for the prior COO.
- Acquisition costs increased to $2.6 million, including $1.7 million of transfer taxes tied to buying out a ground lease and acquiring the fee interest in an existing property, and $0.5 million related to Shoppes at Arts District.
- Q1 acquisitions included Shoppes at Arts District in Maryland for $20.5 million, partly funded by assumption of an $8.5 million mortgage at 5.2%. Cedar sold Liberty Marketplace for $15.0 million. After quarter-end, it acquired Glenwood Village for $19.5 million.
- Q1 comprehensive loss attributable to Cedar was $3.3 million, including a $5.0 million unrealized loss on cash-flow hedges. Swap liabilities were $9.0 million at quarter-end, up from $3.9 million at year-end; approximately $3.4 million of accumulated hedge losses were expected to be reclassified to earnings within 12 months.
- Cash dividends were $0.05 per common share and $0.453 per Series B preferred share for the quarter. The board declared the same per-share amounts for payment in May 2016.
Outlook, risks, and contingencies
No specific earnings or operating guidance was provided. Management said it expected to fund remaining 2016 debt requirements with proceeds from a new $100 million unsecured term loan closed April 26, 2016; none had been drawn at closing. The loan can be drawn through October 26, 2016. A May 3 refinancing replaced a $40.3 million mortgage with a $50.0 million mortgage at 3.9%, maturing in 2026. Remaining scheduled 2016 debt included $3.4 million of amortization and $124.2 million of balloon payments, before giving effect to these subsequent financing transactions.
Key risks include tenant rent-payment capacity, retailer demand and bankruptcies, e-commerce and retail-sector consolidation, the company’s geographic concentration, leverage and refinancing access, interest-rate movements, and the execution and returns of redevelopment projects. A 100-basis-point change in rates on $129 million of variable-rate debt would change annual interest cost by approximately $1.3 million. The company stated that it was in compliance with debt covenants. Management did not expect ordinary-course legal actions to have a material adverse effect; no material risk-factor changes were reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether occupancy and leasing trends stabilize, particularly given lower same-property occupancy despite higher base rents and NOI.
- Whether reported growth in Operating FFO persists; it excludes acquisition, redevelopment, financing, and management-transition costs, and is not a GAAP measure or cash-flow substitute.
- Funding and repayment of 2016 maturities, including the actual use of the new term loan and the effect of the Franklin Village refinancing.
- Future interest expense and hedge-related earnings effects, including the $3.4 million expected reclassification of accumulated hedge losses.
- Acquisition and redevelopment costs, the final purchase-price allocation for Shoppes at Arts District, and the economics of the post-quarter Glenwood Village acquisition.
- Dividend sustainability relative to cash generation, debt service, capital needs, and REIT distribution requirements.