Cedar Realty Trust, Inc. — Q2 2013 Form 10-Q
Business context and reporting period
Quarter and six months ended June 30, 2013; unaudited. Cedar is a REIT focused on grocery-anchored shopping centers from Washington, D.C., to Boston. At quarter-end it owned and managed 67 operating properties, with approximately 9.8 million square feet of gross leasable area; the portfolio was 92.7% leased and 92.0% occupied.
Key financial metrics
| Metric | Three months ended June 30, 2013 | Six months ended June 30, 2013 |
|---|---|---|
| Total revenue | $35.4 million | $72.3 million |
| Operating income | $12.1 million | $25.3 million |
| Net income | $4.5 million | $8.3 million |
| Net income attributable to Cedar | $4.6 million | $8.4 million |
| Net income attributable to common shareholders | $1.0 million; $0.01 per share | $0.1 million; $0.00 per share |
| Operating cash flow | $24.2 million for the six months | |
| FFO, a non-GAAP measure | $10.3 million | $17.2 million |
Six-month same-property NOI was $39.0 million, up 0.6%; Q2 same-property NOI was $19.5 million, up 1.0%. Same-property occupancy was 93.4% and leased occupancy was 93.9%. At June 30, total debt was $717.2 million: $559.2 million of property mortgages and $158.0 million drawn on the credit facility. The weighted-average rate was 4.7%. Cash and cash equivalents were $5.0 million, plus $12.1 million of restricted cash; total assets were $1.336 billion and total liabilities $793.0 million.
Material changes versus prior periods
- Q2 revenue declined 4.1% year over year to $35.4 million, while six-month revenue rose 1.5% to $72.3 million. Management attributed the Q2 decrease chiefly to the prior-year $3.0 million lease-termination fee and lower joint-venture management fees, partly offset by rents from an acquired property.
- Six-month operating income increased to $25.3 million from $18.0 million, and Cedar-attributable net income improved to $8.4 million from a $0.6 million loss. Lower depreciation and interest expense, a $1.1 million impairment reversal, and lower debt-extinguishment costs contributed to the improvement.
- Six-month operating cash flow fell to $24.2 million from $28.0 million. Investing activities provided $10.6 million; financing activities used $37.3 million. Cash decreased $2.5 million during the period.
- Debt balances fell from year-end 2012: mortgage loans were $559.2 million versus $605.2 million, while the credit facility balance was $158.0 million versus $156.0 million.
Outlook, risks, contingencies, and unusual items
- No earnings or operating guidance is provided. Management targeted a 2013 common dividend of $0.20 per share annually; future declarations remain at the board’s discretion. The REIT must distribute at least 90% of REIT taxable income.
- On August 1, 2013, after quarter-end, Cedar replaced its facility with a $310 million unsecured arrangement: a $260 million revolver and $50 million term loan. At closing, $172.5 million was drawn and $117.3 million remained available. Initial pricing was LIBOR plus 195 basis points; fees and legal expenses were approximately $1.7 million. Availability depends partly on unencumbered-property NOI, and the facility has financial covenants and restrictions.
- For the remainder of 2013, scheduled debt principal amortization was approximately $4.4 million, with a $13.7 million balloon payment. A 1% change in rates on the $218.0 million variable-rate debt outstanding at June 30 would change annual interest cost by approximately $2.2 million.
- Three properties were being negotiated for conveyance through short sale, foreclosure, or deed-in-lieu. Related non-recourse mortgages, accrued interest, and property taxes totaled $21.5 million; the subsidiaries had stopped payments and were in default. The company estimated potential gains of approximately $10.7 million upon conveyance; realization and timing are uncertain.
- Cedar sold Westlake Discount Drug Mart Plaza through a short sale, with the lender accepting $2.1 million in full satisfaction of $3.4 million of mortgage-related amounts; the resulting $1.3 million gain was recorded in discontinued operations. Other property sales and dispositions also affected period comparisons.
- Management cited higher snow-removal costs and the temporary vacancy impact from replacing an anchor tenant as drags on same-property NOI. It estimated six-month NOI growth would have been 1.6% if snow-removal costs matched 2012. The filing warns that inflation, tenant payment capacity, financing access, interest rates, and covenant compliance may affect results. Management reported disclosure controls were effective and stated it did not expect normal-course legal actions to have a material adverse effect.
Important facts for investors to verify
- Progress, timing, and final debt treatment for the three properties in mortgage default, and whether estimated conveyance gains are realized.
- Compliance with the new credit-facility covenants, actual borrowing availability, and refinancing needs, including the 2013 balloon payment.
- Recurring property performance: leasing, occupancy, tenant credit, snow-removal costs, and same-property NOI trends, distinguishing them from dispositions and unusual items.
- Cash available for debt service, capital spending, and dividends, including the limited availability of restricted cash and the board’s future dividend decisions.
- The filing’s detailed EPS reconciliation presents common-shareholder amounts that differ from the consolidated statements of operations; confirm the applicable EPS numerator and allocation treatment when analyzing per-share results.