Cedar Realty Trust, Inc. — Q3 2014 Form 10-Q
Business context and reporting period. The filing covers the unaudited quarter and nine months ended September 30, 2014, compared with the same 2013 periods. Cedar is a REIT focused primarily on grocery-anchored shopping centers from Washington, DC to Boston. It owned and managed 58 operating properties totaling approximately 9.2 million square feet; the portfolio was 93.1% leased and 92.7% occupied at quarter-end.
Key financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $36.3 million | $34.2 million | $110.7 million | $103.7 million |
| Operating income | $11.8 million | $7.7 million | $31.8 million | $31.5 million |
| Net income attributable to common shareholders | $2.2 million | Loss of $3.5 million | $13.8 million | Loss of $3.4 million |
| Basic and diluted EPS | $0.03 | Loss of $0.05 | $0.18 | Loss of $0.06 |
| FFO (non-GAAP) | $10.8 million | $9.5 million | $30.6 million | $26.7 million |
| Cash from operating activities | Not presented quarterly in supplied text | $33.9 million | $34.0 million |
- Property performance: Same-property NOI, a non-GAAP measure, rose 1.2% in Q3 and 1.9% for the nine-month period. For the nine months, growth was 1.2% excluding the re-tenanting impact at Oakland Commons. Same-property occupancy was 93.4%, versus 93.3%; average base rent was $12.87 per square foot, versus $12.72.
- Cash flow and investment: Nine-month investing cash flow was positive $38.4 million, including $85.4 million of real estate sale proceeds, offset partly by $38.9 million for acquisitions and $9.7 million of property improvements. Financing cash flow was negative $72.1 million. Cash and cash equivalents ended at $4.3 million.
- Debt and liquidity: Balance-sheet debt was approximately $686.2 million, including $6.6 million associated with properties held for sale/conveyance; debt excluding those properties was $679.6 million. The company had $81.0 million drawn on its $260 million revolving facility and $168.4 million available. Overall weighted-average debt interest rate was 4.3%; the company reported compliance with all financial covenants. Scheduled mortgage balloon payments were approximately $3.6 million for the remainder of 2014 and $104.4 million in 2015.
- Capital and distributions: A January common-stock offering of 6.9 million shares generated approximately $41.3 million net proceeds. Quarterly common dividends were $0.05 per share; Series B preferred dividends were $0.453 per share. The board declared the same rates for payment in November 2014.
Material changes versus prior comparable periods
- Revenue increased 6.1% in Q3 and 6.8% over nine months. Management attributed the increase principally to acquired properties, with additional contributions from same-property and redevelopment activity.
- Q3 common-shareholder results improved from a loss to income. Nine-month income improved primarily alongside higher revenues and gains on property sales, lower interest expense and depreciation, partly offset by higher operating costs, acquisition costs and impairment charges.
- Q3 operating income benefited from $2.3 million in gains on sales and $3.5 million less depreciation and amortization than a year earlier; the prior-year quarter included $3.8 million of accelerated depreciation related to redevelopment.
- Nine-month same-property NOI increased 1.9%. Property operating expenses rose 8.1% for the period, faster than revenue growth, including higher snow removal and other operating costs.
- Operating cash flow was nearly unchanged year over year. Real estate sale proceeds rose substantially, while financing outflows increased, including mortgage repayments and net repayments on the revolving facility.
Outlook, management commentary, risks and unusual items
- The filing provides no specific earnings, revenue or FFO guidance. Management expects to fund short-term needs primarily from operations and may use its revolver; long-term needs may be funded through debt, equity, OP Unit issuance or property sales. Access to financing is not assured.
- Management cited the grocery-anchored, necessities-based nature of the portfolio as a source of potentially more stable revenues, while noting that results depend on tenants meeting lease obligations. Risks include the factors in the company’s 2013 Form 10-K, interest-rate changes, refinancing and balloon maturities, tenant performance, and sustained high inflation.
- The company acquired Quartermaster Plaza for approximately $92.3 million in March 2014 and incurred $2.9 million in acquisition costs. During the nine months it sold properties for $36.5 million classified as continuing operations and $74.8 million classified as discontinued operations; reported gains included $6.1 million and $8.0 million, respectively.
- Two properties were transferred to lenders through deeds-in-lieu of foreclosure, settling approximately $7.7 million of mortgage debt and related obligations. Q3 included $1.25 million in impairment charges on properties held for sale/conveyance; nine-month impairment charges were $3.1 million in continuing operations and $0.3 million in discontinued operations.
- New $150 million unsecured term loans were entered into and hedged with interest-rate swaps. Effective fixed rates at quarter-end were 3.2% and 4.1%; a 100-basis-point change on the $131 million of unhedged variable-rate debt would change annual interest cost by approximately $1.3 million. Approximately $2.8 million of accumulated swap losses was expected to be reclassified to earnings within 12 months.
- Management reported disclosure controls and procedures were effective as of September 30, 2014, with no material change in internal control over financial reporting during the quarter. Ordinary-course legal actions were not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether same-property NOI and occupancy trends persist, and how acquisition, redevelopment and disposition activity affects comparable results.
- The company’s capacity to meet 2015 mortgage maturities, including the reported $104.4 million balloon payments, and maintain adequate revolver availability and covenant compliance.
- How much reported earnings and FFO depend on property-sale gains, impairment adjustments and other nonrecurring items.
- Tenant credit and leasing performance, including whether leasing spreads and occupancy support rental growth.
- Dividend sustainability relative to recurring cash generation, capital requirements and required REIT distributions.