Cedar Realty Trust, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; financial statements are unaudited. Cedar owns and operates grocery-anchored shopping centers in the Washington, D.C.–Boston corridor. At quarter-end it had 57 operating properties totaling 8.6 million square feet; portfolio occupancy was 91.4% and leased occupancy was 91.5%.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $35.7 million | $41.4 million | $72.5 million | $78.9 million |
| Operating income | $11.5 million | $15.5 million | $20.4 million | $4.2 million |
| Net income (loss) | $5.5 million | $9.9 million | $8.5 million | $(6.7) million |
| Net income (loss) attributable to common shareholders | $2.7 million | $7.1 million | $2.9 million | $(15.9) million |
| Diluted EPS | $0.03 | $0.08 | $0.03 | $(0.19) |
| Operating cash flow | Not presented by quarter | $28.4 million | $30.6 million |
- Q2 property operating income was $24.4 million, or about 68% of revenue, versus $30.3 million, or about 73%, a year earlier. Same-property NOI was $19.4 million, down 0.6%; for the first half it was $38.3 million, down 0.9%. Management attributed the same-property decline primarily to occupancy falling 60 basis points, partly offset by a $0.10 per-square-foot increase in average base rent.
- First-half investing cash outflow was $5.6 million, including $15.2 million of property improvements and $9.1 million for an acquisition, partly offset by property-sale proceeds. Financing cash outflow was $22.7 million. Cash and cash equivalents were $2.1 million at June 30.
- At June 30, balance-sheet debt and capital lease obligations totaled about $623.7 million net of unamortized issuance costs; gross contractual obligations were $626.9 million. The balance included $99.0 million drawn on the revolving facility and $472.5 million of term loans. The company reported $117.4 million of additional revolving availability and compliance with all financial covenants.
- Reported debt rates averaged 3.7% for fixed-rate debt and 4.0% for variable-rate debt. Management estimated a 100-basis-point change in rates would change annual interest cost on variable-rate debt by approximately $1.5 million.
- Total assets were $1.216 billion and total equity was $533.4 million. Interest expense increased 7.2% in Q2 and 8.4% in the first half year over year.
Material changes and notable items
- Revenue declined 13.8% in Q2 and 8.1% in the first half. Management cited $5.4 million related to a dark anchor tenant’s early lease termination at West Bridgewater Plaza, lower revenue from properties sold or held for sale, and adoption-related presentation effects. The company received $4.3 million for the tenant’s early termination in 2018.
- Q2 common-shareholder income fell to $2.7 million from $7.1 million. The first-half comparison improved from a loss to income, principally because 2018 included $21.4 million of impairment charges and $3.5 million of preferred-stock redemption costs; 2019 included $2.9 million in property-sale gains.
- Same-property occupancy was 91.3%, versus 91.9% a year earlier; same-property leased occupancy was 91.4%, versus 92.1%. Q2 average same-property base rent was $13.19 per square foot, compared with $13.09.
- The company acquired Girard Plaza for $8.5 million and sold Maxatawny Marketplace for $10.3 million and Fort Washington Center for $9.0 million. Two properties, Carll’s Corner and Suffolk Plaza, were classified as held for sale at quarter-end.
- Common shares repurchased in the first half totaled approximately 2.05 million at a weighted average price of $3.34, under a $30 million authorization. The quarterly common dividend remained $0.05 per share; the board declared the same rate for the next quarter after period-end.
Outlook, risks and contingencies
- The filing provides no numerical earnings or operating guidance. Management expects short-term needs to be funded primarily from operations and potentially the revolver; longer-term needs may be funded through borrowing, equity or OP Unit issuance, and property sales. Management cautioned that financing availability is not assured.
- Key risks include tenant payment defaults or bankruptcies, retail-sector and e-commerce pressures, consumer spending, refinancing and interest-rate exposure, leverage, and the company’s geographic concentration. Dividends remain at the board’s discretion and may be reduced or suspended to preserve cash or fund needs.
- The company adopted the lease accounting standard in 2019, recognizing $14.6 million of right-of-use assets and corresponding lease liabilities at adoption. It also expensed $1.4 million of leasing costs in the first half that previously could have been capitalized.
- Management said it did not expect normal-course legal actions to have a material adverse effect; it reported no material change to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether occupancy and leasing trends, including the impact of dark-anchor vacancies, improve or continue to pressure rental revenue and NOI.
- Revolver availability, debt maturities and covenant headroom, especially the $99 million revolving balance maturing in 2021 and the company’s sensitivity to rates and refinancing costs.
- Progress and realized proceeds on the two properties held for sale, and the returns from Girard Plaza and redevelopment spending.
- Cash generation relative to common and preferred dividends, repurchases, capital improvements and debt service.
- How much reported earnings and FFO depend on property-sale gains, accounting presentation changes, and other nonrecurring or non-cash items.