Cedar Realty Trust, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. The unaudited filing covers a REIT focused on grocery-anchored shopping centers along the Washington, D.C.–Boston corridor. At quarter-end, Cedar owned and managed 67 operating properties totaling approximately 9.8 million square feet; the portfolio was 92.8% leased and 92.0% occupied.
Financial performance and condition
- Revenue: Third-quarter revenue was $35.4 million, up 5.8% year over year; nine-month revenue was $107.5 million, up 2.6%. Rent and expense recoveries were the main revenue sources.
- Operating results and earnings: Third-quarter operating income was $8.4 million versus $9.8 million; nine-month operating income was $33.5 million versus $27.7 million. Third-quarter net income was $62,000, while net loss attributable to common shareholders was $3.5 million, or $0.05 per share. For nine months, net income was $8.4 million and the common-shareholder loss was $3.4 million, or $0.06 per share.
- Property performance: Same-property NOI increased 2.3% for the quarter and 1.6% for nine months, excluding the re-tenanting impact of replacing a dark anchor with a Walmart Neighborhood Market; including that impact, growth was 3.2% and 1.4%, respectively. Same-property occupancy was 93.5% and leased rate was 94.1% at quarter-end.
- FFO: Reported funds from operations, a non-GAAP measure, was $9.5 million for the quarter versus $6.8 million and $26.7 million for nine months versus $22.9 million. FFO is not a substitute for GAAP earnings or operating cash flow.
- Cash flow: Nine-month operating cash flow was $34.0 million versus $36.7 million. Investing activities provided $5.3 million, including real estate sale proceeds, while financing activities used $41.3 million. Real estate improvement expenditures were $14.9 million.
- Debt and liquidity: Debt in the MD&A debt schedule totaled $723.3 million: $543.3 million of property-specific mortgages and $180.0 million under the credit facility. The weighted-average interest rate was 4.5%. Cash and cash equivalents were $5.4 million, with $11.2 million of restricted cash; $106.8 million remained available under the credit facility. Total liabilities were $800.4 million.
- Capital and dividends: Cedar raised $59.8 million net from Series B preferred stock issuance and redeemed its remaining Series A preferred shares for $35.4 million. It declared common dividends of $0.05 per share per quarter and Series B preferred dividends of $0.453125 per share for the subsequent payment date.
Material changes and notable items
- Quarterly revenue growth reflected a late-2012 acquisition and higher rents and recoveries at existing properties, partly offset by the end of Cedar/RioCan management fees. Nine-month revenue also reflected lower lease-termination income and reduced joint-venture management fees.
- Third-quarter depreciation and amortization rose to $13.5 million from $9.3 million, including $3.8 million of accelerated depreciation from demolition tied to redevelopment and leasing of vacant space. Interest expense declined year over year, reflecting lower borrowing rates and debt balances.
- Nine-month earnings included a $1.1 million impairment reversal on a previously written-off loan and a $1.3 million gain on extinguishment of debt following a short sale. Properties sold or designated for sale are presented in discontinued operations; prior-period amounts were reclassified without changing previously reported common-shareholder earnings or EPS.
- On August 1, Cedar amended and extended its unsecured $310 million credit facility: a $260 million revolver matures in 2016 and a $50 million term loan in 2018. The facility includes financial covenants and restrictions; failure to comply could accelerate the debt.
- At September 30, Cedar was negotiating conveyances of three properties with associated mortgage principal, accrued interest, and property taxes totaling $21.8 million. The subsidiaries had stopped payments and were in default on these non-recourse loans. Cedar estimated potential aggregate gains of approximately $11.0 million upon conveyance; these were not yet realized. The lender had agreed to accept a deed in lieu for Roosevelt II, expected before year-end.
- After quarter-end, Cedar acquired the remaining 40% interest in Upland Square for approximately $1.6 million. It also reported a non-cancelable agreement to acquire a Connecticut grocery-anchored center for $34.5 million plus closing costs, expected to close in mid-November, funded primarily with the credit facility and some OP Units. A $7.6 million mortgage was prepaid on November 1 without penalty.
Outlook, risks, and contingencies
- The filing gives no numerical earnings, FFO, or operating outlook. Management expects to fund near-term needs mainly from operations and may use the credit facility; longer-term needs may be funded through debt, equity, OP Units, or property sales. Financing availability is not assured.
- Management intends to continue regular quarterly dividends, but future declarations are at the board’s discretion and depend on cash flow, financial condition, capital needs, and REIT distribution requirements.
- Key exposures include tenant ability to pay rent, interest-rate increases, compliance with credit-facility covenants, property dispositions and redevelopment execution, and the outcome of the three mortgage defaults. A 1% rate change on $239.7 million of variable-rate debt was estimated to change annual interest cost by approximately $2.4 million.
- Management stated that pending ordinary-course legal actions were not expected to have a material adverse effect. Disclosure controls and procedures were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Reconcile debt totals, including the separately presented $18.3 million mortgage balance for real estate held for sale/conveyance, and review maturities, collateral, and covenant headroom.
- Track resolution and final economics of the three defaulted non-recourse mortgages; the estimated $11.0 million gain depends on completed conveyances.
- Confirm the Connecticut acquisition’s closing, funding mix, and resulting impact on credit-facility availability and share dilution.
- Assess whether occupancy, leasing spreads, and same-property NOI growth persist, including the effect of the Walmart Neighborhood Market re-tenanting.
- Evaluate dividend coverage using operating cash flow and capital requirements; reported FFO is a non-GAAP measure and does not establish cash available for distributions.