CEDAR REALTY TRUST, INC. quarterly report, Q3 FY2019

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Cedar Realty Trust, Inc. — Q3 2019 Form 10-Q

Reporting period: Three and nine months ended September 30, 2019. Cedar owns and operates grocery-anchored shopping centers, primarily in urban markets from Washington, D.C. to Boston. At quarter-end it had 57 operating properties totaling 8.5 million square feet; the portfolio was 92.3% leased and 90.8% occupied.

Key financial metrics

  • Revenue: Q3 revenue was $35.9 million, down 0.7% from $36.2 million. Nine-month revenue was $108.5 million, down 5.8% from $115.1 million.
  • Operating performance: Property operating income was $24.4 million in Q3 versus $24.7 million, and $72.5 million for nine months versus $79.7 million. Same-property NOI was nearly flat: $19.5 million in Q3 versus $19.3 million, and $57.8 million for nine months versus $58.0 million.
  • Profit and per-share results: Q3 net income was $2.9 million; net income attributable to Cedar was $2.8 million, leaving $92,000 attributable to common shareholders. Reported basic and diluted EPS rounded to $(0.00). Nine-month net income was $11.5 million, with $11.0 million attributable to Cedar and $3.0 million to common shareholders; EPS was $0.03. The 2018 nine-month comparison was a $12.4 million common-shareholder loss and $(0.15) EPS.
  • FFO: Q3 FFO and Operating FFO were each $10.6 million, or $0.12 per diluted share. Nine-month FFO and Operating FFO were each $31.0 million, or $0.34 per diluted share, versus Operating FFO of $41.9 million, or $0.45, in 2018. These are non-GAAP measures, not substitutes for cash flow or GAAP earnings.
  • Cash flow: Nine-month operating cash flow was $36.4 million versus $40.0 million. Investing used $14.2 million, including $23.8 million of property improvements and $9.1 million for an acquisition, partly offset by $18.7 million of real estate sale proceeds. Financing used $22.1 million. Cash and cash equivalents were $2.0 million at September 30.
  • Debt and liquidity: Debt and capital lease obligations totaled $634.6 million before $3.0 million of unamortized issuance costs; the balance-sheet carrying amount was $631.6 million. The weighted-average rate shown for the debt was 3.7%. The company had $116.0 million available under its revolving facility and was in compliance with its financial covenants. Revolver borrowings were $107.0 million; the filing reports $157.0 million of variable-rate debt and estimates a 100-basis-point rate change would alter annual interest cost by about $1.6 million.
  • Equity and distributions: Nine-month common dividends were $0.15 per share; preferred dividends were $8.1 million. Cedar repurchased approximately 2.05 million common shares during the nine months for a weighted-average $3.34 per share.

Material changes versus prior period

  • Nine-month revenue fell primarily because of a $5.4 million reduction associated with a dark anchor tenant that terminated its lease in 2018, property sales or properties held for sale, and lease-accounting presentation effects. Same-property occupancy was 90.5%, down from 91.8%; average base rent increased to $13.31 per square foot from $13.07.
  • Nine-month GAAP income improved substantially from 2018, when results included $20.7 million of impairment charges and $4.8 million of early debt-extinguishment costs. Conversely, 2018 included $4.9 million of property-sale gains, compared with $2.9 million in 2019. Operating FFO declined year over year.
  • Interest expense rose 8.5% for the nine months to $17.9 million, primarily from a higher weighted-average interest rate. The company attributed a 14-basis-point increase in unsecured borrowing rates to a slight increase in its leverage ratio.
  • The company acquired Girard Plaza for $8.5 million and sold Maxatawny Marketplace for $10.3 million and Fort Washington Center for $9.0 million. Carll’s Corner and Suffolk Plaza were classified as held for sale at quarter-end.
  • Adoption of the new lease standard resulted in recognition of $14.6 million of right-of-use assets and liabilities at adoption. The company also expensed $2.1 million of leasing costs in the first nine months that could previously have been capitalized.

Outlook, risks and contingencies

  • The filing provides no quantified earnings or operating guidance. Management says it expects to fund near-term needs primarily from operations and may use its revolving facility; longer-term needs may be funded through borrowing, equity or OP Unit issuance, or property sales. Management cautions that financing availability is not assured.
  • Management intends to continue regular quarterly dividends, but future declarations remain at the Board’s discretion and may be reduced or suspended to retain cash, reduce debt or fund capital needs.
  • Key stated risks include tenant payment defaults or bankruptcies, retail-sector change and e-commerce, consumer spending and economic conditions, geographic concentration, indebtedness and refinancing access, interest-rate changes, disasters, and redevelopment returns. The company uses swaps to manage rate exposure; their net fair value was a $9.9 million liability at September 30, compared with a net asset position at year-end 2018.
  • Management did not expect normal-course legal actions to have a material adverse effect; no material risk-factor changes were reported. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.

Important facts for investors to verify

  • Whether occupancy, leasing spreads and rent collections stabilize, particularly given the decline in same-property occupancy and the prior dark-anchor lease termination.
  • Upcoming debt maturities, especially the $107.0 million revolver and $75.0 million term loan due in 2021, and the company’s ability to refinance on acceptable terms.
  • Cash generation relative to property improvements, debt service, preferred and common distributions, and the limited $2.0 million cash balance.
  • Progress and sale terms for Carll’s Corner and Suffolk Plaza, and the expected costs and returns of redevelopment projects.
  • The effects of interest-rate swaps, including the reported $9.9 million swap liability and the scheduled 2020 swap transition.
  • The basis and sustainability of reported FFO and Operating FFO, including the year-over-year decline in Operating FFO per diluted share.