Cedar Realty Trust, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Cedar is a REIT focused on grocery-anchored shopping centers, primarily along the Washington, D.C.–Boston corridor. At quarter-end, it owned and managed 61 operating properties totaling 9.1 million square feet; the portfolio was 91.7% leased and 90.5% occupied.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $37.8 million | $36.1 million | $113.9 million | $111.5 million |
| Property operating income | $27.2 million | $26.3 million | $80.7 million | $78.0 million |
| Income (loss) from continuing operations | $(0.8) million | $6.1 million | $5.6 million | $14.8 million |
| Net income (loss) attributable to common shareholders | $(4.3) million | $2.6 million | $(4.9) million | $4.4 million |
| Basic and diluted EPS | $(0.05) | $0.03 | $(0.07) | $0.05 |
| Same-property NOI | $22.1 million | $21.8 million | $64.8 million | $63.9 million |
| FFO per diluted share | $0.14 | $0.14 | $0.37 | $0.39 |
| Operating FFO per diluted share | $0.15 | $0.14 | $0.43 | $0.40 |
Net cash provided by operating activities was $40.6 million for the nine months, versus $39.9 million in 2015. Investing activities used $25.5 million and financing activities used $12.6 million. Cash and cash equivalents were $4.5 million at September 30.
Total liabilities were $748.9 million and total equity was $573.9 million. Debt had a $694.5 million balance-sheet carrying value, including $697.4 million of outstanding principal before unamortized premium and debt issuance costs. The revolving facility had $130 million available. The company reported compliance with its financial covenants.
Material changes and notable transactions
- Q3 revenue increased 4.7% year over year, while nine-month revenue rose 2.2%. Management attributed growth mainly to acquisitions, partly offset by dispositions and weaker results at redevelopment and same-center properties.
- Same-property NOI increased 1.2% for Q3 and 1.3% for the nine-month period. Higher average base rents and lower bad-debt expense were partly offset by lower occupancy. Same-property occupancy was 91.0% at quarter-end, down from 92.4% a year earlier.
- Quarterly results included a $6.3 million impairment charge on Upland Square, classified as held for sale. Cedar sold the property on November 2, 2016, for $83.3 million, approximately its carrying value.
- Nine-month common-shareholder results declined, with continuing-operations income down from $14.8 million to $5.6 million. The filing cites higher acquisition pursuit costs, general and administrative costs, depreciation and impairment charges. G&A included $1.4 million of COO hiring, relocation and transition-related costs.
- Cedar acquired Shoppes at Arts District for $20.5 million and Glenwood Village for $19.5 million, and sold Liberty Marketplace for $15.0 million.
Debt, liquidity and capital
During 2016, Cedar repaid several mortgages, totaling $148.1 million among the specifically listed loan payoffs, and reported $189.4 million of mortgage repayments in its cash-flow statement. It borrowed $100 million under a new unsecured term loan maturing in 2023, primarily to repay debt maturing through January 2017, and refinanced a mortgage with a new $50 million loan at 3.9%, maturing in 2026. The new term loan’s effective fixed rate is 3.2% beginning November 2016. Fixed-rate mortgages had a weighted-average rate of 4.8%; the reported weighted-average rate across debt was 3.2%.
Variable-rate debt totaled $180 million. The company estimated that a 100-basis-point rate change would change annual interest cost by approximately $1.8 million. Interest-rate swaps had a fair-value liability of $11.2 million; approximately $3.9 million of accumulated hedge losses was expected to be reclassified to earnings within the next 12 months.
A forward sale agreement covers 5.75 million common shares for estimated net proceeds of $44.2 million before adjustments. No shares had been physically settled by the filing date; Cedar expected to settle before the agreement expires on August 1, 2017. The quarterly common dividend was $0.05 per share; the board declared the same amount for payment in November.
Outlook, risks and other disclosures
The filing provides no numerical earnings or operating guidance. Management said it expects to fund near-term needs principally from operations and may use the revolving facility; longer-term needs may be met with debt, equity, OP Units or property sales. Future dividend declarations remain at the board’s discretion.
Risks cited include retail-sector and tenant weakness, e-commerce, tenant credit and rent-payment risks, financing and refinancing availability, leverage, redevelopment execution, and the portfolio’s geographic concentration. Management reported no material change to the risk factors in the 2015 Form 10-K, no litigation expected to have a material adverse effect, and effective disclosure controls.
Investor verification priorities
- Verify the post-quarter Upland Square sale proceeds, costs and final accounting versus its reported carrying value.
- Track occupancy and leasing trends: portfolio occupancy was 90.5%, and same-property occupancy declined year over year despite positive NOI growth.
- Review debt maturities, covenant headroom, refinancing needs and the effect of interest rates and swaps on future interest expense.
- Confirm settlement, dilution and net proceeds from the 5.75-million-share forward sale agreement.
- Assess whether recurring cash generation supports common and preferred dividends alongside acquisition, redevelopment and capital needs.