CEDAR REALTY TRUST, INC. quarterly report, Q3 FY2018

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Cedar Realty Trust, Inc. — Q3 2018 Form 10-Q

Reporting period: Three and nine months ended September 30, 2018. The filing is unaudited. Cedar Realty is a REIT focused on owning, operating and redeveloping grocery-anchored shopping centers in high-density markets from Washington, D.C. to Boston. At quarter-end it owned and managed 58 operating properties totaling 8.7 million square feet; portfolio occupancy was 91.3% and leased percentage was 91.6%.

Financial performance and condition

  • Revenue: Q3 revenue was $36.2 million, down 0.6% from $36.4 million. Nine-month revenue was $115.1 million, up 5.7% from $108.9 million.
  • Profit and earnings: Q3 net income was $6.3 million versus $6.4 million; net income attributable to common shareholders was $3.5 million, or $0.04 per diluted share, versus a $5.1 million loss, or $(0.06) per share. For nine months, the company reported a $0.4 million net loss and a $0.7 million loss attributable to the company; common shareholders’ loss was $12.4 million, or $(0.15) per share, versus a $5.0 million loss, or $(0.07) per share, in 2017.
  • Operating performance: Property operating income was $24.7 million in Q3, down from $25.9 million. Same-property NOI was $19.3 million, down 0.2%; nine-month same-property NOI was $56.9 million, up 0.5%. Same-property occupancy declined to 91.9% in Q3 from 92.4%; average base rent increased to $13.22 per square foot from $13.08.
  • FFO: Q3 FFO was $0.08 per diluted common share versus $0.05; Operating FFO was $0.13 versus $0.14. Nine-month FFO was $0.36 per share versus $0.32; Operating FFO was $0.45 versus $0.41. These are non-GAAP measures as defined and reconciled by the company.
  • Cash flow: Nine-month operating cash flow was $40.0 million, compared with $41.4 million. Investing used $6.5 million, versus $39.2 million; financing used $36.3 million, versus $3.2 million. Cash and cash equivalents ended the period at $4.4 million.
  • Debt and liquidity: September 30 balance-sheet carrying amounts included $621.5 million of mortgage and unsecured debt, plus a $5.4 million capital lease obligation. The debt schedule reported $624.9 million outstanding before unamortized issuance costs. The weighted-average debt rate was 3.5%; $152.0 million was variable-rate debt. The company had $135.1 million available under its revolving facility and reported compliance with all financial covenants.
  • Capital and distributions: Total assets were $1.238 billion and total liabilities were $666.6 million. The company redeemed $50.0 million of Series B preferred stock in January. Common dividends were $0.05 per share for Q3; the board declared the same common dividend for payment in November.

Material changes versus comparable periods

  • Nine-month revenue increased by $6.2 million, including $5.4 million recognized in connection with a dark anchor tenant’s early lease termination. Same-property NOI rose only 0.5%; higher rents were partly offset by lower occupancy.
  • Nine-month net income shifted from $14.0 million income in 2017 to a $0.4 million loss in 2018. The 2018 period included $20.7 million of impairment charges, compared with $9.9 million in 2017, and $4.8 million of early debt-extinguishment costs. Gains on property sales were $4.9 million in 2018 versus $7.1 million in 2017.
  • Q3 earnings included a $4.9 million gain on the Mechanicsburg Center sale and a $0.7 million impairment reversal, offset in part by $4.8 million of debt-extinguishment costs. Q3 revenue was nearly flat, while property operating expenses rose 8.8%.
  • Debt composition changed following repayment of approximately $78.0 million of property mortgages and borrowing of $75.0 million under a new unsecured term loan maturing in 2025. The company also increased revolver borrowings; the balance was $102.0 million at quarter-end.
  • The company sold Mechanicsburg Center for $16.1 million and West Bridgewater Plaza for $3.5 million. Carll’s Corner and Maxatawny Marketplace were classified as held for sale, with $11.3 million of 2018 impairment charges associated with those properties.

Outlook, risks and unusual items

  • The filing provides no numerical earnings, revenue, occupancy or FFO guidance. Management said it expects to fund short-term needs primarily from operations and may use its revolver; longer-term needs may be funded through debt, equity, OP Units or property sales. Future financing availability is not assured.
  • Key risks identified include retail-sector weakness, tenant bankruptcies or inability to pay rent, e-commerce impacts, consumer spending, financing and refinancing conditions, leverage, redevelopment returns, geographic concentration in the Washington-to-Boston corridor, and disasters.
  • A 100-basis-point change in rates on the $152.0 million variable-rate debt would change annual interest cost by approximately $1.5 million. The company uses swaps to fix rates on certain term loans and states derivatives are not used for speculation.
  • The $4.3 million cash payment for early termination of a dark anchor lease, together with accelerated lease-liability amortization, contributed $5.4 million to nine-month revenue. The company also incurred $4.8 million in debt-extinguishment costs from mortgage prepayments.
  • The company expects adoption of the new lease standard in 2019 to result in recognition of right-of-use assets and liabilities for its ground and office leases; it did not expect significant changes to its lessor revenue accounting. Management reported effective disclosure controls and no material changes in internal control over financial reporting. It reported no material litigation and no material changes to previously disclosed risk factors.

Important facts for investors to verify

  • Whether occupancy and leasing trends improve: portfolio occupancy was 91.3%, and comparable new leases signed during the first nine months had rents 8.8% below prior rents.
  • How much of reported revenue and operating cash flow depends on the nonrecurring lease-termination payment and related accounting.
  • The expected sales timing and proceeds for held-for-sale properties, and whether further impairment charges or reversals arise.
  • Debt maturities, refinancing needs, available revolver capacity, covenant headroom and the sensitivity of cash interest expense to rates.
  • Whether recurring operating cash flow supports dividends, capital improvements and redevelopment spending, particularly given low cash balances and the nine-month common-shareholder loss.