Cedar Realty Trust, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet figures are as of March 31, 2017 unless otherwise noted. Cedar is a REIT focused on grocery-anchored shopping centers from Washington, D.C. to Boston. It owned and managed 62 operating properties totaling 9.1 million square feet; portfolio occupancy was 89.0% and leased area was 91.2%.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Total revenue | $36.8 million | $38.3 million; down 3.9% |
| Property operating income | $25.0 million | $26.2 million |
| Operating income | $17.4 million | $8.7 million |
| Net income | $11.9 million | $1.6 million |
| Net income (loss) attributable to common shareholders | $8.2 million; $0.10 per share | $(1.9) million; $(0.03) per share |
| Same-property NOI (non-GAAP) | $21.7 million | $22.1 million; down 1.8% |
| FFO per diluted share (non-GAAP) | $0.13 | $0.09 |
| Operating FFO per diluted share (non-GAAP) | $0.14 | $0.14 |
| Cash from operating activities | $11.3 million | $10.0 million |
GAAP earnings benefited from a $7.1 million gain on the sale of an outparcel. Revenue fell as dispositions and lower same-center rents and recoveries outweighed contributions from acquisitions and redevelopment properties. Same-property occupancy declined 1.8 percentage points to 90.5%; average base rent rose to $13.38 per square foot from $13.27.
Cash used in investing was $21.2 million, chiefly reflecting $28.8 million of real estate acquisitions and $3.2 million of improvements, partly offset by $10.4 million of sale proceeds. Financing provided $9.3 million, including $18.0 million of net revolving-credit borrowings; cash and cash equivalents ended at $2.2 million.
Total assets were $1.258 billion, total liabilities $669.8 million, and total equity $588.1 million. Debt outstanding was $627.5 million before unamortized premium and issuance costs; the balance-sheet carrying amount was $625.1 million. The company had $90.0 million drawn on its revolving facility and reported $151.4 million available for additional revolver borrowings. Restricted cash was $2.0 million and generally limited to specified property requirements.
Changes, transactions, and capital
- Revenue decreased 3.9%; same-property NOI decreased 1.8%. Same-property leased occupancy was 92.0%, versus 92.8% a year earlier.
- Interest expense declined to $5.4 million from $7.0 million, primarily due to lower average rates and debt balances. General and administrative expense fell to $4.1 million from $5.3 million, including the absence of $1.4 million of prior-year COO transition costs.
- Acquired Christina Crossing in Wilmington, Delaware, for $27.9 million, plus $0.9 million of transaction costs. Sold a Camp Hill, Pennsylvania outparcel for $10.7 million, recognizing a $7.1 million gain.
- Declared and paid common dividends of $0.05 per share and Series B preferred dividends of $0.453 per share during the quarter. The board declared the same per-share amounts for payment in May 2017.
Outlook, risks, and contingencies
The filing provides no specific earnings, revenue, or occupancy guidance. Management described operating cash flow and the revolving facility as sources for near-term needs, with debt, equity, OP Unit issuance, and property sales among potential sources for longer-term requirements. The company expected to physically settle by August 1, 2017, a forward sale agreement for 5.75 million common shares, estimated to generate $44.2 million net before adjustments; it reported no physical settlements as of the filing.
Debt covenants include leverage, secured-debt, fixed-charge-coverage, and net-worth tests; the company reported compliance at March 31. Variable-rate debt was $140.0 million; a 100-basis-point rate change would alter annual interest cost by approximately $1.4 million. Interest-rate swaps hedge certain term loans. Management estimated approximately $2.1 million of accumulated other comprehensive loss would be reclassified to earnings as interest expense within 12 months.
Principal risks include retail-sector and e-commerce pressures, tenant ability to pay rent, financing and refinancing availability and costs, indebtedness, redevelopment returns, and the portfolio’s geographic concentration. The company reported no material change to the risk factors in its 2016 Form 10-K. It stated that ordinary-course legal actions were not expected to have a material adverse effect and reported effective disclosure controls.
Important facts for investors to verify
- How much of the improvement in GAAP net income reflects the Camp Hill sale gain, and how do recurring results compare using FFO, Operating FFO, and same-property NOI?
- Whether occupancy and same-property NOI stabilize, given lower same-property occupancy and declining NOI despite higher average base rent.
- Settlement of the 5.75 million-share forward sale agreement, including final proceeds and dilution.
- Available liquidity, covenant headroom, and refinancing plans for debt maturities, particularly the $168.5 million scheduled for 2019.
- The continuing effect of retail and e-commerce conditions, tenant credit, redevelopment execution, and interest-rate movements on rent collections and cash available for dividends.