Cedar Realty Trust, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports fourth-quarter results and certain subsequent events through February 23, 2017.
Business context
Cedar is a REIT focused primarily on grocery-anchored shopping centers in the Washington, D.C.–to–Boston corridor. At year-end, it owned and managed 61 operating properties, totaling approximately 9.1 million square feet. The portfolio was 91.9% leased and 89.9% occupied. Rental income and tenant expense reimbursements are the main revenue sources.
Financial performance and condition
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $151.1 million | $149.2 million |
| Property operating income | $106.6 million | $104.6 million |
| Operating income | $37.9 million | $50.0 million |
| Net income attributable to Cedar | $8.9 million | $22.1 million |
| Net income (loss) attributable to common shareholders | $(5.5) million; $(0.08) per share | $7.7 million; $0.09 per share |
| FFO | $41.1 million; $0.48 per diluted share | $45.1 million; $0.53 per diluted share |
| Operating FFO | $49.2 million; $0.57 per diluted share | $46.4 million; $0.54 per diluted share |
| Cash from operating activities | $57.5 million | $59.1 million |
Revenue increased 1.3%. Property operating income as a share of revenue was approximately 70.5%, compared with 70.1% in 2015. Same-property NOI rose 1.8% to $85.4 million; higher average rent per square foot was partly offset by lower same-property occupancy. Common dividends were $0.20 per share for the year, unchanged from 2015; Series B preferred dividends were $14.4 million.
Year-end assets were $1.234 billion, total liabilities $651.5 million, and total equity $582.0 million. Debt carrying value was $607.7 million (approximately $610.3 million before unamortized debt costs and premiums). Cash and cash equivalents were $2.9 million, with an additional $2.9 million of restricted cash. The company reported $168.0 million available under its revolving credit facility and compliance with its financial covenants.
Cash from investing activities was $51.1 million, principally reflecting $96.2 million of property-sale proceeds, offset by acquisitions and property improvements. Financing activities used $107.8 million, including substantial mortgage repayments and common and preferred distributions.
Material changes versus 2015
- Net income attributable to Cedar fell $13.2 million; common shareholders moved from $7.7 million of income to a $5.5 million loss.
- The decline reflected a $6.3 million impairment charge related to Upland Square, higher general and administrative and acquisition-pursuit costs, higher depreciation, and $2.6 million of early debt-extinguishment costs. Lower interest expense and modestly higher revenue partly offset these items.
- Operating FFO rose 6.0%, despite FFO declining, partly because Operating FFO excludes certain costs, including acquisition pursuit, debt extinguishment, redevelopment, and management transition costs.
- Debt carrying value declined from $673.8 million to $607.7 million. The company repaid $218.8 million of mortgage obligations and added a $100 million term loan and a $50 million mortgage loan.
- Occupancy declined from 90.5% to 89.9%; average annualized base rent increased from $13.35 to $13.50 per square foot.
Outlook, risks, and unusual items
- No quantified earnings or operating guidance is provided. Management said it intends to continue regular quarterly dividends, but declarations remain at the Board’s discretion and depend on cash flow, financial condition, capital needs, and REIT distribution requirements.
- Management’s stated capital-migration strategy is to sell properties and reinvest proceeds in higher-quality target-market assets, redevelopment, or debt reduction. The filing cautions that near-term earnings may be diluted if replacement investments earn less than the assets sold.
- During 2016, Cedar acquired Shoppes at Arts District and Glenwood Village and sold Liberty Marketplace and Upland Square. After year-end, it acquired Christina Crossing for $29.3 million.
- A forward sale agreement for 5.75 million common shares was expected to produce estimated net proceeds of $44.2 million before adjustments. It had not been physically settled as of the filing, and the company expected settlement before its August 1, 2017 expiration.
- Debt maturities are concentrated in 2019–2021: scheduled amounts include approximately $150.5 million in 2019, $103.7 million in 2020, and $100.6 million in 2021. The 2019 amount includes the revolving facility and a term loan; refinancing and credit availability remain important risks.
- Key risks include retail-sector weakness, tenant defaults or bankruptcies, online retail competition, regional concentration, vacancies and leasing costs, redevelopment execution, interest-rate and refinancing exposure, environmental and weather events, and REIT qualification. Three Ahold-owned grocery brands together represented approximately 11% of GLA and 12% of 2016 revenue.
- The company recorded a $6.3 million impairment charge on Upland Square. Management reported no litigation or environmental matters expected to materially affect the financial statements. The independent auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether occupancy and same-property NOI stabilize or improve, and whether leasing activity converts into occupied, rent-paying space.
- How Cedar funds the 2019–2021 maturities, maintains covenant compliance, and manages variable-rate exposure; a 100-basis-point move in rates was estimated to affect annual interest cost by approximately $1.2 million.
- Whether the 5.75 million-share forward sale is settled, and the resulting dilution and net proceeds.
- Whether recurring cash generation supports common and preferred dividends, especially given 2016 common-shareholder GAAP losses and the Board’s discretion over distributions.
- Whether asset sales, reinvestment, and redevelopment deliver the returns assumed in the capital-migration strategy, and whether additional impairments or one-time costs arise.