Cedar Realty Trust, Inc. — Q3 2015 Form 10-Q
Business context and reporting period
Unaudited quarter and nine months ended September 30, 2015; comparisons are with the corresponding 2014 periods. Cedar owned and managed 59 operating properties totaling approximately 9.3 million square feet, primarily grocery-anchored shopping centers in the Washington, D.C.–Boston corridor. At quarter-end, the portfolio was 93.3% leased and 92.0% occupied.
Financial performance and condition
- Q3 revenue: $36.1 million, down 1.1% year over year. Operating income was $13.1 million versus $14.3 million; operating margin was approximately 36.3%, compared with 39.1%.
- Q3 earnings: Net income attributable to Cedar was $6.2 million versus $5.8 million. Net income attributable to common shareholders was $2.6 million, or $0.03 per diluted share, versus $2.2 million, also $0.03 per share.
- First nine months: Revenue was $111.5 million, essentially unchanged. Operating income was $36.3 million versus $38.3 million; net income attributable to common shareholders fell to $4.4 million from $13.8 million, and diluted EPS was $0.05 versus $0.18. The prior-year period included substantial gains on property sales and debt extinguishment in discontinued operations.
- Property performance: Same-property NOI increased 2.2% for Q3 and 2.1% for the nine-month period. Same-property occupancy declined 1.2 percentage points for Q3 and 1.1 points for nine months, partly offset by higher average base rents.
- Cash flow: Nine-month operating cash flow was $39.9 million, up from $33.9 million. Investing used $23.8 million, versus $38.4 million provided in 2014; financing used $17.4 million, versus $72.1 million. Cash and cash equivalents were $2.2 million at September 30, excluding $5.0 million of restricted cash.
- Debt and liquidity: Debt totaled $643.8 million, with a weighted-average interest rate of 3.9%. The balance included $279.8 million of mortgage debt, $64.0 million drawn on the revolver, and $300.0 million of term loans. The company reported $195.8 million available under its revolving facility and compliance with financial covenants. Total liabilities were $693.0 million; total assets were $1.288 billion.
- Equity and distributions: A January common-stock offering generated approximately $41.9 million net proceeds and issued 5.75 million shares. Quarterly common dividends remained $0.05 per share; Series B preferred dividends were $0.453 per share.
Material changes and notable items
- Acquired the remaining 60% interest in New London Mall for $27.3 million, including assumed mortgage financing, and acquired Lawndale Plaza for approximately $25.2 million.
- Repurchased or repaid several property mortgages; mortgage debt declined from $393.4 million at year-end 2014 to $279.8 million. New unsecured term loans increased term borrowing, and the company amended its credit facility.
- Sold Kenley Village and Circle Plaza for combined proceeds of approximately $4.1 million; Huntingdon Plaza was sold for $2.2 million and reported as discontinued operations.
- Q3 interest expense declined 15.7% to $6.9 million, mainly due to lower average rates and debt balances. For nine months, interest expense fell 12.3% to $21.4 million.
- Interest-rate swap liabilities rose to $7.0 million from $2.8 million at year-end 2014. Management estimated approximately $3.9 million of accumulated hedge losses would be reclassified to earnings as interest expense over the next 12 months.
Outlook, risks and contingencies
The filing provides no specific earnings or operating guidance. Management said it intends to continue regular quarterly dividends, but future declarations depend on cash flow, financial condition, capital needs, REIT distribution requirements, and board discretion. The company expects to fund longer-term needs through a mix of debt, equity, OP Unit issuance, and property sales; financing availability is not assured. Principal risks include tenant payment and bankruptcy risk, retail-sector and e-commerce pressures, refinancing and interest-rate exposure, leverage, geographic concentration, and redevelopment returns. Credit agreements impose leverage, secured-debt, fixed-charge-coverage, and net-worth covenants; noncompliance could accelerate debt. Legal matters were described as arising in the ordinary course, with no expected material adverse effect. No material changes to previously reported risk factors were disclosed.
Important facts for investors to verify
- Whether occupancy trends and leasing gains continue to support same-property NOI growth.
- Debt maturities, refinancing terms, covenant headroom, and the availability of the stated $195.8 million revolver capacity.
- The effect of swap fair-value changes and expected hedge-loss reclassification on future interest expense and equity.
- Whether operating cash generation can support property investment, debt service, and common and preferred dividends given low unrestricted cash.
- How the 2015 share issuance affects per-share performance and whether reported non-GAAP FFO measures reconcile to GAAP results.