Cedar Realty Trust, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars. The filing reflects a major portfolio sale and merger: Cedar sold 33 grocery-anchored centers and related assets on July 7, then merged with Wheeler Real Estate Investment Trust on August 22. Cedar common shares ceased trading; Series B and Series C preferred shares remain listed on the NYSE.
Business context and transactions
Before the transactions, Cedar operated retail properties, primarily grocery-anchored shopping centers in the Northeast. At September 30, it reported 19 operating properties. The July sales generated approximately $879 million in gross proceeds, including assumed debt. Wheeler acquired the remaining company in an all-cash merger. Common shareholders received a $19.52-per-share special dividend and $9.48 per share in merger consideration.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $8.0 million | $8.5 million | $24.8 million | $30.3 million |
| Loss from continuing operations | $(36.2) million | $(63.4) million | $(77.4) million | $(22.7) million |
| Net income (loss) attributable to Cedar | $89.3 million | $(80.5) million | $45.7 million | $(28.3) million |
| Operating cash flow | Not separately presented | Not separately presented | $(22.4) million | $32.3 million |
- Q3 net income was primarily driven by a $125.5 million gain on discontinued-operation asset sales; it does not represent recurring operating performance. Nine-month discontinued operations contributed $123.2 million of income, including the sale gain.
- Transaction costs were $24.0 million in Q3 and $58.2 million for the nine months, of which $33.5 million related to employee severance. Continuing-operations impairment charges were $9.2 million in Q3 and $9.4 million for the nine months.
- Same-property NOI, a company-defined non-GAAP measure, fell 25.3% to $3.9 million in Q3 and 7.2% to $13.4 million for the nine months. End-of-period occupancy was 82.6%, compared with 83.5% a year earlier; leased occupancy was 84.5% versus 83.5%.
- At September 30, total assets were $234.0 million, liabilities $147.5 million, and equity $86.5 million. Cash and cash equivalents were $2.1 million, with $11.4 million of restricted cash.
- Debt included a $130 million secured, variable-rate term loan, reported net of issuance costs at $126.6 million. Nine-month investing cash flow was $677.5 million, mainly from asset-sale proceeds; financing cash flow was $(644.9) million, including $397.3 million of common distributions and debt repayments.
Changes, outlook, and risks
Comparisons are substantially affected by the disposal of the grocery-anchored portfolio, which was classified as discontinued operations, and by transaction-related costs. Continuing revenue declined 6.0% year over year in Q3 and 18.2% for the nine months. Management cited lower revenue from sold or held-for-sale properties and weaker same-center revenue; same-property operating expenses also rose in Q3.
At September 30, the $130 million loan was due in August 2023 and bore a variable rate of approximately 5.1%; the contractual margin was set to increase in February 2023. After quarter-end, Cedar entered into a $110 million, 5.25% fixed-rate loan on October 28 to refinance part of the portfolio. Management said this reduced debt due within one year to $27 million and planned to address the remainder through refinancing and dispositions. The filing provides no earnings or operating guidance.
Management identified tenant payment, bankruptcy and lease-renewal risks; retail-market and economic pressures, including inflation and higher interest rates; real-estate and weather risks; REIT qualification; and cybersecurity risks. It planned to improve liquidity and operations through refinancing, dispositions, leasing vacant anchor space, replacing defaulting tenants, and using restricted cash in part for tenant improvements. Interest-rate sensitivity was estimated at approximately $1.3 million of annual interest expense for each 100-basis-point change in the benchmark rate; the scheduled margin increase could add approximately $2.0 million annually.
Preferred-stockholder litigation remained a material uncertainty. The court denied preliminary-injunction motions in the consolidated Sydney and Kim cases; defendants moved to dismiss the amended complaint in October. Other preferred-holder lawsuits were pending, including a separate securities complaint and a class action filed in October. The filing states that outcomes are uncertain. The company said ordinary-course legal matters were not expected to materially affect its financial position or results.
Key facts for investors to verify
- Whether the October refinancing and planned refinancing or asset dispositions resolve the remaining $27 million near-term maturity and meet liquidity needs.
- The status and potential financial exposure of the pending preferred-stockholder lawsuits, including claims about preferred holders’ rights and the merger transactions.
- How the remaining 19-property portfolio performs, including occupancy, rent collections, same-property NOI, and tenant leasing and renewal activity.
- The recurring earnings and cash-flow profile after excluding asset-sale gains, discontinued operations, and transaction and severance costs.
- The ongoing payment capacity and terms for Series B and Series C preferred dividends; the common stock is no longer publicly traded.