Cedar Realty Trust, Inc. — Q3 2017 Form 10-Q
Business and period. Quarterly period ended September 30, 2017; financial statements are unaudited. Cedar is a REIT focused on owning, operating, and redeveloping grocery-anchored shopping centers in high-density markets from Washington, D.C. to Boston. It reported 61 operating properties totaling 9.0 million square feet, 92.7% leased and 91.4% occupied.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $36.4 million | $37.8 million | $108.9 million | $113.9 million |
| Operating income | $12.0 million | $5.9 million | $30.6 million | $26.4 million |
| Net income (loss) | $6.4 million | $(0.8) million | $14.0 million | $5.6 million |
| Net income (loss) attributable to Cedar | $6.3 million | $(0.7) million | $13.6 million | $5.9 million |
| Net loss attributable to common shareholders | $(5.1) million | $(4.3) million | $(5.0) million | $(4.9) million |
| Basic and diluted loss per common share | $(0.06) | $(0.05) | $(0.07) | $(0.07) |
- Revenue declined 3.7% in Q3 and 4.4% year to date. Management attributed the declines principally to properties sold or held for sale and weaker same-center results.
- Same-property NOI decreased 1.3% in Q3 and 1.8% year to date. Management cited two vacant anchors, related temporary co-tenancy rent reductions, and lower average base rents.
- Operating cash flow for the first nine months was $42.1 million, compared with $40.6 million. Investing cash outflow was $39.5 million; financing cash outflow was $3.3 million. Cash and cash equivalents ended the period at $2.2 million, with restricted cash of $2.5 million.
- Nine-month FFO was $0.32 per diluted share versus $0.37; Operating FFO was $0.41 versus $0.43. Q3 FFO was $0.05 per diluted share versus $0.14; Operating FFO was $0.14 versus $0.15. These are non-GAAP measures, not substitutes for GAAP earnings or operating cash flow.
- At September 30, total assets were $1.256 billion, total liabilities $676.6 million, and total equity $579.2 million. Debt carrying value was $627.7 million; stated principal balances totaled $630.9 million, with a weighted-average rate of 3.4%. The company had $143.4 million available under its revolving facility and was in compliance with financial covenants.
Material changes and unusual items
- Q3 operating income and net income improved from 2016, in part because the prior-year quarter included a $6.3 million impairment charge. Year-to-date results included a $7.1 million gain on sale and a $9.9 million impairment charge for Fredericksburg Way, classified as held for sale.
- The company acquired Christina Crossing for $27.9 million and adjacent land near South Philadelphia Shopping Center for $3.3 million. It sold a Camp Hill outparcel for $10.7 million, recording a $7.1 million gain.
- On September 8, Cedar amended its unsecured credit facility: a $250 million revolver, maturing in 2021, and a $50 million term loan, maturing in 2022. It also extended maturities and reduced pricing on certain existing term loans.
- Cedar issued 3.0 million Series C preferred shares, netting approximately $72.3 million, and redeemed 4.5 million Series B preferred shares for $112.5 million. It also settled forward sales of 5.75 million common shares for approximately $43.2 million. The $7.9 million preferred-stock redemption cost contributed to the common-shareholder loss despite positive net income.
Outlook, risks, and contingencies
The filing provides no numeric earnings, revenue, or FFO guidance. Management said it intends to continue regular quarterly dividends, subject to board discretion, cash flow, financial condition, capital needs, and REIT distribution requirements. The board declared a $0.05 common dividend after quarter-end, payable November 20, 2017.
Key stated risks include retail-sector disruption and e-commerce, tenant financial health and bankruptcies, geographic concentration in the Washington-to-Boston corridor, indebtedness and refinancing conditions, interest-rate changes, redevelopment execution, competition, and natural or other disasters. A 100-basis-point change in rates on the $145.0 million of variable-rate debt would change annual interest cost by approximately $1.5 million. Management did not expect pending ordinary-course legal matters to have a material adverse effect; it reported no material change in previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether vacant anchors and co-tenancy provisions continue to pressure same-property NOI, occupancy, and rental revenue.
- The carrying value, sale status, and ultimate proceeds for Fredericksburg Way, including the assumptions underlying its $9.9 million impairment.
- Debt maturities, variable-rate exposure, covenant headroom, and the company’s ability to refinance or access the revolving facility.
- The ongoing effect of the preferred-share exchange and redemption, related costs and dividends, and common-share dilution on per-share results and distributions.
- Capital needs and returns from acquisitions, redevelopment, and property improvements, alongside the sustainability of cash flows and dividends.