Cedar Realty Trust, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2012; filed November 8, 2012. Financial statements are unaudited. Cedar is a REIT focused on supermarket-anchored shopping centers, primarily along the Washington, DC–Boston corridor. At quarter-end it owned and managed 67 operating properties, approximately 9.6 million square feet, and held a 20% interest in a 22-property joint venture. Occupancy was 90.9% for Cedar’s operating properties and 97.0% for the joint venture properties.
Financial performance and position
- Revenue: Third-quarter revenue was $33.6 million, up 0.5% year over year. Nine-month revenue was $105.0 million, up 4.5%; rent for the nine months rose 3.0% to $80.4 million. Management attributed much of the increase to $3.0 million of lease-termination income and higher revenue from development properties.
- Operating results and margins: Third-quarter operating income was $9.8 million, versus $2.7 million a year earlier; nine-month operating income was $27.9 million, versus $16.4 million. Property operating income was $23.9 million for the quarter and $74.8 million for the nine months, equivalent to approximate margins of 71.1% and 71.2% of revenue, respectively. These compare with 68.4% and 67.2% in the corresponding 2011 periods.
- Net results: Third-quarter net income was $2.3 million, compared with a $71.3 million loss in 2011; the prior-year quarter included $64.7 million of discontinued-operation impairment charges. Net loss attributable to Cedar was $0.2 million for the quarter and $0.8 million for the nine months. Net loss attributable to common shareholders was $4.3 million for the quarter and $12.4 million for the nine months; reported loss per common share was $0.07 and $0.19, respectively. The 2011 nine-month common-shareholder loss was $110.1 million, substantially affected by property impairments.
- FFO: Company-defined funds from operations, a non-GAAP measure, was $6.8 million for the quarter, down from $8.2 million, and $22.9 million for the nine months, up from $18.0 million. The filing cautions that FFO is not cash flow or a measure of cash available for distributions.
- Cash flow: Nine-month operating cash flow was $36.8 million, versus $21.4 million. Investing activities provided $2.1 million, compared with using $67.1 million in 2011. Financing activities used $43.5 million, versus providing $43.2 million. Cash and cash equivalents declined by $4.7 million to $7.4 million; restricted cash was $13.1 million. Capital expenditures for real estate and improvements were $22.2 million.
- Debt and liquidity: At September 30, reported debt included $560.0 million of property-specific mortgages and $93.0 million outstanding under credit facilities, including a $75.0 million term loan and $18.0 million revolver balance. The filing reported $164.9 million of additional revolving availability at quarter-end, before subsequent transactions. Average interest rates were 5.5% on property-specific mortgages and 3.0% on credit-facility borrowings. Separately, $94.2 million of mortgage debt was classified with real estate held for sale/conveyance. Total liabilities were $816.9 million and total assets were $1.470 billion.
- Equity and distributions: Cedar raised $124.4 million net from Series B preferred stock issuance during the nine months and repurchased or redeemed Series A preferred shares for $12.1 million. The quarterly common dividend was reduced to $0.05 per share for 2012, from $0.09 in 2011. The Board declared a $0.05 common dividend for November 2012.
Material changes and significant transactions
- Cedar continued its strategic shift away from Ohio, malls, single-tenant properties, and development assets, concentrating on grocery-anchored centers in the Mid-Atlantic and Northeast. It sold properties and land during the period for aggregate proceeds reported as $23.5 million in MD&A; net real-estate sale proceeds in the cash-flow statement were $18.8 million.
- On October 10, 2012, Cedar agreed to exit its 20% Cedar/RioCan joint venture interest in exchange for Franklin Village, valued at approximately $75.1 million and subject to assumption of about $43.1 million of mortgage debt, plus approximately $40.0 million in cash. The cash was initially applied to reduce the credit facility. Cedar’s management agreement for the properties acquired by RioCan was scheduled to end January 31, 2013.
- On October 12, Cedar reached agreements with Homburg Invest concerning nine joint-venture properties: it acquired the other 80% of two properties for approximately $27.3 million, including assumed mortgage debt, and sold its 20% interests in seven others for approximately $23.6 million, including assumed mortgage debt.
- In October, Cedar redeemed approximately 4.5 million Series A preferred shares for $114.1 million, funded by a credit-facility draw. This followed the September preferred-stock issuance and materially changed the company’s liquidity and capital structure after quarter-end.
Outlook, risks, and unusual items
- The filing provides no quantitative earnings or FFO guidance. Management’s stated priorities include reducing leverage through non-core asset sales, improving operations at remaining properties, and limiting development activity. It intended to continue regular dividends, but future declarations are at the Board’s discretion and depend on cash flow, financial condition, capital needs, and REIT distribution requirements.
- Tenant rent payments are a key operating dependency. Management identifies access to mortgage financing, refinancing, construction financing, and joint-venture proceeds as uncertain. The credit facility has leverage, interest-coverage, fixed-charge-coverage, and net-worth covenants, along with restrictions on debt, investments, and distributions.
- Four properties were in the process of being conveyed to lenders; related mortgage principal and accrued interest totaled $23.3 million at September 30. The subsidiary borrowers had stopped making payments and were in default on these non-recourse mortgages.
- Mortgage loans and credit facilities have substantial scheduled maturities, including $122.8 million of mortgage obligations shown for 2013. The filing notes that $59.7 million of 2013 mortgage maturities relates to construction financing with a one-year extension option. At quarter-end, a 1 percentage-point change in rates on $156.1 million of variable-rate debt would change annual interest cost by approximately $1.6 million.
- Unusual or non-recurring items included $1.1 million of 2012 management-transition and employee-termination costs, a $2.6 million accelerated write-off of deferred financing costs, and $1.1 million of net impairment reversals on held-for-sale properties. The 2011 comparison included significant impairment charges and executive-transition costs.
- Management stated that it did not expect material adverse consequences from pending legal actions and assessed disclosure controls as effective at September 30, 2012.
Important facts for investors to verify
- Post-quarter-end liquidity and leverage after the RioCan transaction, the $40.0 million cash proceeds, and the $114.1 million Series A redemption funded with credit-facility borrowings.
- Progress and final economics of the 17 properties classified as held for sale/conveyance, including the four mortgage defaults and any further impairments or lender conveyances.
- Debt maturities, extension options, credit-facility covenant headroom, and actual revolver availability after subsequent transactions.
- Whether recurring property-level revenue and cash generation can support operating needs and dividends without reliance on lease-termination income, asset sales, or further preferred-stock issuance.
- Leasing and occupancy trends in Cedar’s continuing portfolio following the strategic asset sales and exit from the joint ventures.