Cedar Realty Trust, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars. The company was a REIT focused on grocery-anchored shopping centers; its results and outlook were dominated by agreements to sell its portfolio and merge with Wheeler Real Estate Investment Trust.
Business context and transaction
- At quarter-end, Cedar reported 17 operating properties excluding held-for-sale assets, totaling 2.6 million square feet. The portfolio was 86.3% leased and 86.1% occupied.
- The planned transactions comprised a $840 million sale of 33 grocery-anchored centers and a subsequent all-cash merger with Wheeler, valuing the remaining portfolio at $291.3 million. The company estimated net proceeds of about $29 per common share after transaction expenses, payable upon merger completion.
- On July 7, 2022, Cedar completed the grocery-anchored portfolio sale and sales of East River Park and Senator Square for approximately $879 million in gross proceeds, including assumed debt. On July 11, it paid off its unsecured credit facility and term loans. The merger was expected to close in August, subject to customary conditions; it had not closed as of the filing.
Financial results and key metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Continuing-operations revenue | $8.5 million | $10.8 million | $16.8 million | $21.8 million |
| Net income (loss) | $(42.8) million | $51.5 million | $(43.8) million | $52.7 million |
| Net income (loss) attributable to common shareholders | $(45.3) million | $48.4 million | $(49.0) million | $46.8 million |
| Basic and diluted EPS | $(3.41) | $3.52 | $(3.69) | $3.41 |
| Same-property NOI | $4.6 million | $4.8 million | $9.2 million | $9.2 million |
| Operating FFO per diluted share | $0.58 | $0.61 | $1.22 | $1.23 |
- Continuing revenue declined 21.6% in the quarter and 22.9% for the six-month period, mainly reflecting asset sales and properties classified as held for sale. Same-property NOI fell 3.5% in Q2 and increased 0.1% for the six months.
- Reported losses include $30.5 million of Q2 transaction costs ($34.2 million for the half year), of which $23.6 million related to future employee severance, and $16.1 million of Q2 impairment charges on discontinued operations ($16.6 million for the half year). Prior-year results included a $48.9 million gain on property sales.
- Discontinued operations generated $21.6 million of Q2 revenue and $7.7 million of operating income before impairment; after impairment, they recorded an $8.4 million loss. The 33-center portfolio was treated as discontinued operations for all periods presented.
- Six-month operating cash flow was $16.1 million, versus $24.8 million a year earlier. Investing cash flow was $14.8 million, including $31.9 million in real-estate sale proceeds and $16.9 million of improvement spending. Financing cash outflow was $32.9 million.
- June 30 cash and cash equivalents were $1.0 million, plus $0.2 million restricted cash. Total debt and finance lease obligations were $504.6 million gross ($501.7 million net of unamortized issuance costs), including $41.0 million drawn on the revolving facility. Most unsecured debt was repaid after quarter-end; mortgages on sold properties were assumed by the purchasers.
- Q2 preferred dividends were $2.7 million; common dividends were zero in Q2. The company declared Q3 Series B and C preferred dividends payable August 22, 2022.
Management commentary, outlook, and risks
- No continuing-operations earnings guidance was provided. Management expected the merger to close in August 2022, subject to closing conditions. Preferred shares were expected to remain outstanding in the surviving company and remain listed on the NYSE.
- Five shareholder lawsuits challenged transaction disclosures, and preferred-stockholder lawsuits disputed preferred holders’ rights in the transaction and sought to restrict distributions and the merger. A court denied preliminary injunction motions on June 23, finding plaintiffs unlikely to succeed on the merits; the cases continued, with a consolidated amended complaint due August 24. Litigation could still affect timing, costs, or distributions.
- Cedar reported approximately $3.5 million of COVID-related rent deferrals and $2.4 million of rent waivers through June 30; less than $0.1 million of the deferred amount remained outstanding. Tenant solvency, collections, lease renewals, retail-market conditions, inflation, interest rates, property risks, REIT qualification, and transaction completion were identified as risks.
- Management stated disclosure controls were effective and reported no material change in internal controls over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether the Wheeler merger closed as expected, the final net proceeds per common share, and the timing and allocation of distributions.
- How the continuing preferred-stock litigation affects preferred holders’ contractual, conversion, or liquidation rights and any proceeds distributions.
- Final transaction and severance costs, and reconciliation of debt repayments, assumed mortgages, and cash proceeds from completed sales.
- Post-disposition liquidity and operating performance of any assets remaining after the transactions.