Cedar Realty Trust, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results. Cedar is a REIT focused on grocery-anchored shopping centers in high-density markets from Washington, D.C. to Boston. At quarter-end, it owned and managed 55 operating properties totaling 8.3 million square feet; the portfolio was 90.0% leased and 88.9% occupied.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $28.6 million | $35.7 million | $71.1 million | $72.5 million |
| Net income (loss) | $(6.0) million | $5.5 million | $(8.1) million | $8.5 million |
| Net income (loss) attributable to common shareholders | $(8.8) million; $(0.10) per share | $2.7 million; $0.03 per share | $(13.7) million; $(0.16) per share | $2.9 million; $0.03 per share |
| Same-property NOI | $15.7 million | $18.4 million | $33.7 million | $36.2 million |
| Operating cash flow | Not reported separately for Q2 | Not reported separately for Q2 | $24.5 million | $28.4 million |
For Q2, same-property NOI declined 14.6%; the six-month decline was 7.1%. Q2 operating loss was $0.3 million versus operating income of $11.5 million a year earlier. Six-month results included $7.6 million of impairment charges and $7.1 million of other income from a dark anchor tenant’s early lease termination at Metro Square. Depreciation and amortization rose substantially, including accelerated write-offs following tenant departures and redevelopment activity. Interest expense decreased to $11.2 million for the first half from $11.8 million.
At June 30, cash and cash equivalents were $68.2 million, versus $2.7 million at year-end 2019. Total assets were $1.254 billion and total liabilities were $772.6 million. Debt and finance lease obligations had a $703.7 million contractual balance and $701.3 million carrying amount after unamortized issuance costs. The revolving facility balance was $176.9 million at quarter-end. As of the filing date, after subsequent repayments and the August 4 amendments, $106.9 million was outstanding and $74.5 million was available. The company reported compliance with financial covenants as of filing.
Six-month investing cash use was $18.6 million, primarily real estate improvements; financing provided $59.6 million, chiefly reflecting net revolving-credit advances. Common dividends were cut to $0.01 per share per quarter from $0.05; preferred dividends continued at stated rates.
Material changes and unusual items
- COVID-19 materially affected rent collections, tenant operations and leasing. Q2 collections were 77% of contractual base rent and monthly tenant reimbursements. The company deferred approximately $2.0 million of rent and waived approximately $0.4 million during the quarter; about $1.8 million of deferrals continued to be recognized as rental income.
- During Q2, $4.0 million of billed rent and tenant reimbursements went unpaid and was not recorded as revenue for tenants accounted for on a cash basis. The company also reported a $1.2 million reduction in net income from changing revenue recognition and writing off straight-line rent receivables for certain tenants.
- Four properties were classified as held for sale. Six-month impairment charges of $7.6 million related to held-for-sale properties. Metro Square was sold July 9, 2020 for $4.3 million.
- Cash flow from operations fell year over year, while financing cash flow swung positive, supported by net revolving-facility advances of $70.9 million for the first half. The company had drawn $75.0 million in March to preserve financial flexibility.
- The common dividend reduction was intended to preserve approximately $3.6 million of cash per quarter. The company reduced near-term redevelopment and non-essential capital spending.
Outlook, management commentary and risks
Management expects further rent concessions or other tenant relief may be needed; the scale and financial effect were not yet known because discussions were ongoing. Deferred rent had a weighted-average payback period of approximately 10 months, with repayments beginning at various times from July 2020 through March 2021. Management estimated 2020 spending of approximately $15 million for three ongoing mixed-use redevelopment projects; separately, it estimated approximately $20 million for mixed-use redevelopment and value-add renovations combined, excluding approximately $7.5 million of capitalized overhead, interest and real estate taxes. The filing provides no earnings guidance.
On July 23, 2020, Cedar signed a 20-year, 10-month lease with the District of Columbia for planned office space at Senator Square. Delivery is estimated for late 2022, with aggregate annual rent of approximately $13.5 million after commencement, subject to a 10-month free-rent period and other lease terms. The District’s obligations are subject to annual budget appropriation.
On August 4, 2020, Cedar amended its unsecured credit arrangements, changing covenant and borrowing-base calculations to use trailing four quarters and excluding qualifying interest-rate swaps from the definition of debt. COVID-19 could nevertheless impair covenant compliance and borrowing capacity. The company also disclosed NYSE notice that its share price had fallen below the $1.00 minimum average-price requirement; it had until December 31, 2020 to regain compliance.
Other key exposures include tenant bankruptcies and rent defaults, retail-sector weakness and e-commerce, refinancing and interest-rate risk, leverage, redevelopment returns, and the geographic concentration of properties. A 100-basis-point change in rates on $226.9 million of variable-rate debt would change annual interest cost by approximately $2.3 million. Interest-rate swaps had a $22.7 million fair-value liability at June 30. Management reported disclosure controls were effective and stated there were no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Subsequent rent collections, tenant defaults and the recoverability and timing of deferred rent; reconcile the 77% Q2 collection rate with unrecorded billed charges.
- Current revolving-facility availability, covenant headroom and compliance under the amended credit agreements, particularly as tenant income and property NOI change.
- Held-for-sale property dispositions, proceeds and any further impairments, including the status and carrying values of the remaining properties.
- Whether the District of Columbia lease proceeds to construction and how annual appropriation, tenant improvement costs, rent credits and the free-rent period affect expected economics.
- NYSE minimum-price compliance and the sustainability of common and preferred dividends alongside debt maturities and planned capital spending.