Cedar Realty Trust, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Cedar is a REIT focused on owning, operating, and redeveloping grocery-anchored shopping centers in the Washington, D.C.–Boston corridor. It owned and managed 59 operating properties totaling 8.7 million square feet; the portfolio was 92.6% leased and 91.6% occupied.
Financial performance and liquidity
- Revenue: $37.6 million, up 2.2% from $36.8 million. Rents were $28.2 million and expense recoveries were $9.3 million.
- Property operating income: $24.7 million, down $0.3 million year over year; property operating expenses rose 9.2% to $12.9 million. Same-property NOI was essentially flat at $19.8 million across 51 properties. Same-property occupancy improved to 92.9% from 91.5%.
- Profit/loss: Operating loss was $11.2 million versus operating income of $17.4 million a year earlier. Net loss was $16.6 million; net loss attributable to common shareholders was $23.0 million, or $0.26 per diluted share, versus net income of $8.2 million, or $0.10 per share. Q1 2018 included $21.4 million of impairment charges and $3.5 million of preferred-stock redemption costs.
- FFO: $0.09 per diluted common share, compared with $0.13 in Q1 2017. Operating FFO was $0.13 per share versus $0.14.
- Cash flow: Operating activities provided $10.1 million, compared with $10.9 million. Investing used $6.3 million; financing used $4.1 million. Cash, cash equivalents, and restricted cash totaled $6.9 million at quarter-end, including $3.9 million of restricted cash.
- Debt and availability: Debt carrying value was $634.0 million; debt balances before unamortized premiums and issuance costs totaled $636.7 million, with a 3.4% weighted-average rate in the debt table. The company had $98.7 million available on its revolving facility and reported compliance with financial covenants. Cash and cash equivalents were $3.0 million.
Material changes and notable items
- Carll’s Corner and West Bridgewater Plaza were classified as held for sale. Cedar recorded $21.4 million of impairment charges; the properties’ reported held-for-sale value was $4.1 million.
- On January 12, Cedar redeemed 2.0 million Series B preferred shares for $50.0 million, plus accrued dividends. The redemption reduced preferred equity and was funded in part by net revolving-credit borrowings of $54.5 million during the quarter.
- Revenue rose chiefly from redevelopment properties and properties acquired in 2017, partly offset by properties sold or held for sale. Same-property NOI was flat: higher rents and occupancy were offset by increased bad-debt expense, primarily related to an anchor tenant’s expected vacancy.
- In April, Cedar accepted $4.3 million from a dark anchor tenant to terminate its lease early. The company expected to recognize the payment in Q2 2018.
- The board declared quarterly dividends payable in May: $0.05 per common share, $0.453125 per Series B preferred share, and $0.406250 per Series C preferred share.
Outlook, risks, and contingencies
- No numerical earnings or operating guidance is provided in the filing. Management said it intends to continue regular quarterly dividends, subject to board discretion, cash flow, financial condition, capital needs, and REIT distribution requirements.
- Management identified risks from tenant payment capacity, retailer bankruptcies and consolidation, e-commerce, consumer spending, the company’s geographic concentration, redevelopment returns, indebtedness, and access to financing or refinancing.
- Variable-rate debt was $159.5 million; a 100-basis-point rate change would change annual interest cost by approximately $1.6 million. Interest-rate swaps hedge certain term loans; their quarter-end fair value was a net asset of $11.7 million.
- Debt maturities include $209.7 million in 2021 and $199.9 million in 2022, including scheduled amortization, balloon payments, revolving credit, and term loans. The company warned that refinancing costs, covenant breaches, or reduced financing availability could affect liquidity.
- Management reported no material expected adverse outcome from ordinary-course legal actions and no material changes to the risk factors in its 2017 Form 10-K. Disclosure controls were assessed as effective.
Investor verification points
- Review the valuation assumptions and sale progress for the two held-for-sale properties and the $21.4 million impairment.
- Track the dark anchor tenant’s lease termination, the $4.3 million payment recognized in Q2, and any resulting occupancy or leasing costs.
- Reconcile reported debt carrying value with gross debt, upcoming maturities, revolving-facility availability, and covenant headroom.
- Assess whether flat same-property NOI and improved occupancy persist, given increased property costs and bad-debt expense.
- Verify ongoing dividend coverage and cash needs after the preferred-share redemption and associated financing.