Cedar Realty Trust, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2011. Financial statements are unaudited. The company is a REIT focused primarily on supermarket-anchored shopping centers.
Business context
Cedar is exiting Ohio and repositioning toward grocery-anchored strip centers in the Mid-Atlantic and Northeast. It is also selling malls, single-tenant properties, development projects, land and other non-core assets, while reducing development activity. At September 30, the company reported 70 operating properties totaling about 9.5 million square feet, plus a 20% interest in 22 Cedar/RioCan joint-venture properties. The combined managed portfolio was 92.9% leased.
Financial highlights
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $33.5 million | $31.7 million | $100.7 million | $99.1 million |
| Operating income | $2.8 million | $8.6 million | $16.5 million | $28.7 million |
| Net loss attributable to common shareholders | $(70.1) million | $(6.8) million | $(110.1) million | $(14.5) million |
| FFO, a non-GAAP measure | $8.2 million | $3.9 million | $18.2 million | $22.4 million |
| FFO per diluted share | $0.12 | $0.06 | $0.26 | $0.34 |
| Cash provided by operating activities | Not presented by quarter | Not presented by quarter | $21.4 million | $20.2 million |
- Revenue growth was modest, while operating income declined. Nine-month interest expense was $31.2 million, down from $33.2 million.
- Cash and cash equivalents were $11.6 million at September 30, 2011; restricted cash was $13.8 million and generally unavailable for general obligations.
- Secured debt was $757.3 million, excluding $148.1 million classified with real estate held for sale/conveyance. Total liabilities were $984.8 million. Weighted-average interest on total mortgage and revolving-facility debt was 5.2%.
- Common dividends declared were $0.09 per share for Q3 and $0.27 per share for the first nine months.
Material changes versus comparable periods
- Q3 revenue rose 6%; nine-month revenue rose 2%. Management attributed growth chiefly to leasing at development/redevelopment properties and rent and expense recoveries.
- Common-shareholder losses widened sharply, primarily because of impairment charges on assets designated for sale or conveyance. Discontinued-operations impairments were $64.7 million in Q3 and $87.3 million year to date; land-parcel impairments included in operating expenses were $7.4 million year to date. The company also wrote off an $8.0 million joint-venture investment in the first half.
- Nine-month results included $6.5 million of management-transition charges following the retirement of the prior CEO/Chairman and departure of the CFO. The charge included about $3.7 million of severance and $2.0 million from accelerated vesting of awards.
- FFO increased in Q3 but declined for the nine-month period. FFO excludes specified items, including property impairments, and is not cash flow or a measure of cash available for distributions.
- Operating cash flow was slightly higher year over year, but investing cash outflow increased to $67.1 million, principally reflecting $76.1 million of real-estate and improvement spending. Financing activities provided $43.2 million, including mortgage proceeds and net revolving-facility advances.
Outlook, liquidity, risks and unusual items
- Management said it expects sufficient liquidity, drawing on cash, operating cash flow, revolving facilities, property financing, asset sales, joint ventures and possible equity issuances. It cautioned that financing and disposition proceeds are not assured.
- The $185 million stabilized-property facility had $74.0 million drawn and approximately $63.4 million available under then-current covenant and collateral calculations. It matured January 31, 2012, subject to a one-year extension. The $150 million development facility had $92.3 million drawn and was due June 13, 2012.
- A $64.0 million Pottsgrove construction mortgage had $63.8 million outstanding and was due November 26, 2011. After quarter-end, the company completed an amended facility with availability up to $70.7 million, maturing in October 2013, subject to a one-year extension.
- The company reported compliance with the applicable credit-facility covenants at September 30. Variable-rate debt creates interest-rate exposure; management estimated that a 1% rate increase would raise annual interest cost by about $1.6 million on $156.1 million of variable-rate debt, with additional impact on the stabilized facility only if LIBOR exceeded its 2% floor.
- Homburg joint-venture buy/sell transactions remained subject to lender approvals. Cedar expected the transactions to close in early 2012: it elected to buy Homburg’s interests in two properties and not to meet offers on seven others.
- The company was arranging a deed-in-lieu process for a vacant Philadelphia property with a $12.9 million non-recourse mortgage; the filing describes a $250,000 company guaranty. No mortgage payments had been made since May 2011, and a possible gain on conveyance had not yet been realized.
- On October 27, the board declared a $0.09 common dividend payable in November. Cedar said the quarterly common dividend rate for 2012 might be reduced to $0.05 per share; future payments remain subject to board approval.
- Management identified tenant credit and vacancies, property-market conditions, impairment estimates, refinancing availability, interest rates, development costs and lease-renewal costs among the principal risks. Disclosure controls were assessed as effective, with no material change in internal controls reported.
Important facts for investors to verify
- Whether announced asset sales, Homburg transactions and the Philadelphia deed-in-lieu are completed on expected terms and timing, and what proceeds or liabilities result.
- Refinancing, extension and covenant terms for facilities and mortgages approaching maturity, including the effect of assets removed from collateral as sales close.
- Whether further impairment charges arise and how sale prices compare with the estimates used to value held-for-sale assets.
- Cash generation, leasing and tenant collections at continuing properties, and whether recurring cash flow supports debt service and distributions.
- The board’s 2012 dividend decisions and the effect of the new CEO’s 2.5 million-share award on compensation expense and dilution.