Cedar Realty Trust, Inc. — Second-Quarter 2017 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2017. Cedar is a REIT focused on owning, operating, and redeveloping grocery-anchored shopping centers in high-density markets from Washington, D.C. to Boston. At quarter-end, it owned and managed 61 operating properties totaling 9.0 million square feet; the portfolio was 92.4% leased and 90.7% occupied.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $35.7 million | $37.9 million | $72.5 million | $76.1 million |
| Net income (loss) | $(4.4) million | $4.8 million | $7.6 million | $6.4 million |
| Net income (loss) attributable to common shareholders | $(8.1) million | $1.3 million | $0.1 million | $(0.7) million |
| Basic and diluted EPS | $(0.10) | $0.01 | $(0.00) | $(0.01) |
| Operating cash flow | Not presented quarterly | $30.3 million | $27.6 million | |
| Same-property NOI | $20.3 million | $20.8 million | $40.0 million | $40.9 million |
| FFO per diluted share | $0.14 | $0.14 | $0.27 | $0.23 |
| Operating FFO per diluted share | $0.14 | $0.15 | $0.27 | $0.29 |
Quarterly operating income was $1.3 million, down from $11.8 million, principally reflecting a $9.9 million impairment charge. The filing does not provide a single headline profit-margin measure.
For the six months, investing activities used $27.3 million, including $28.8 million for an acquisition and $9.0 million for property improvements, partly offset by $10.4 million of property-sale proceeds. Financing activities used $2.9 million. Cash and cash equivalents were $2.9 million at June 30, 2017; restricted cash was a further $2.5 million.
At June 30, contractual principal debt was $623.2 million: $136.7 million of mortgages and $486.5 million of unsecured credit-facility and term-loan borrowings. Balance-sheet debt carrying value, net of unamortized items, was $621.0 million. The company reported $161.6 million available under its revolving facility and compliance with all financial covenants. Debt maturities include $165.0 million in 2019, including the $86.5 million revolving balance then outstanding.
Material changes versus prior periods
- Second-quarter revenue declined 5.7%; management attributed the decrease mainly to properties sold, with lower same-center rental revenue and expense recoveries partly offset by acquisitions.
- Same-property NOI declined 2.4% for the quarter and 2.1% for the six months. Management cited a 40-basis-point decrease in same-property occupancy, principally from two vacant anchors and related temporary co-tenancy rent reductions.
- Six-month revenue declined 4.8%, while net income attributable to Cedar increased to $7.3 million from $6.6 million. The comparison included a $7.1 million gain on a property sale and a $9.9 million impairment charge in 2017.
- Interest expense fell 20.5% in Q2 and 21.5% for the six months, which management attributed to lower average interest rates and lower debt principal.
Outlook, risks, contingencies, and unusual items
- The filing provides no numerical earnings, revenue, or occupancy guidance. Management expects to fund liquidity needs from operations and may use its revolving facility, debt, equity, OP Units, or property sales for longer-term needs; financing availability is not assured.
- On February 22, 2017, Cedar acquired Christina Crossing in Wilmington, Delaware, for $27.9 million plus $0.9 million in transaction costs. It sold a Camp Hill, Pennsylvania outparcel for $10.7 million, recognizing a $7.1 million gain.
- Fredericksburg Way was classified as held for sale at June 30, 2017 and written down by $9.9 million; its reported held-for-sale value was $1.8 million.
- Forward sale agreements for 5.75 million common shares were settled by August 1, 2017, after quarter-end, for approximately $43.2 million net. Cedar said proceeds would be used predominantly to redeem 1.5 million Series B preferred shares, announced for redemption on August 16, 2017, at approximately $25.47 per share including accrued dividends.
- Common dividends were $0.05 per share per quarter; Series B preferred dividends were $0.453125 per share per quarter. Future declarations remain subject to the board’s discretion and financial and REIT distribution requirements.
- Interest-rate risk is partly hedged with swaps. A 100-basis-point change in rates on $136.5 million of variable-rate debt would change annual interest cost by approximately $1.4 million. The company expects about $1.5 million of accumulated other comprehensive loss to be reclassified as an interest expense charge within 12 months.
- Key risks include tenant payment capacity and bankruptcies, retail-sector consolidation and e-commerce, consumer spending, refinancing and interest rates, redevelopment returns, and geographic concentration. Management did not expect pending ordinary-course legal matters to have a material adverse effect; the filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether the vacant anchors are leased and occupancy and same-property NOI recover from co-tenancy effects.
- The timing and completed sale proceeds for Fredericksburg Way relative to its impaired carrying value.
- Refinancing plans and available liquidity ahead of the 2019 maturities, as well as ongoing covenant compliance.
- Completion and use of the post-quarter common-share proceeds and the preferred-share redemption, including the resulting share count and financing cost.
- How recurring operating performance compares with GAAP results; FFO and Operating FFO are non-GAAP measures and are not substitutes for cash flow or net income.