Business context and reporting period
Cedar Realty Trust, Inc. is a REIT focused on owning, operating and redeveloping grocery-anchored shopping centers in the Washington, D.C.–Boston corridor. This Form 10-K covers the fiscal year ended December 31, 2017; fourth-quarter figures are noted below. At year-end, the company owned and managed 61 operating properties totaling 9.0 million square feet. The portfolio was 92.9% leased and 91.3% occupied.
Key financial metrics
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Total revenue | $146.0 million | $151.1 million |
| Operating income | $42.1 million | $37.9 million |
| Net income | $19.7 million | $8.8 million |
| Net income (loss) attributable to common shareholders | $(2.4) million; $(0.04) per share | $(5.5) million; $(0.08) per share |
| FFO / Operating FFO | $40.0 million / $48.3 million | $41.1 million / $49.2 million |
| Cash from operating activities | $57.5 million | $57.5 million |
| Debt, net carrying amount | $580.1 million | $607.7 million |
| Cash and cash equivalents | $3.7 million | $2.9 million |
| Common dividend per share | $0.20 | $0.20 |
Q4 2017 revenue was $37.1 million, net income was $5.7 million, and net income attributable to common shareholders was $2.6 million ($0.03 per share). Year-end assets were $1.25 billion and equity was $630.1 million. Annualized base rent averaged $13.51 per occupied square foot. Same-property NOI, a non-GAAP measure, was $79.3 million, down 1.3% year over year.
Material changes versus the prior comparable period
- Revenue declined 3.4%, mainly because of $8.8 million less revenue from properties sold in 2017 and 2016 and $0.7 million lower same-center revenue; acquisitions and redevelopment partly offset the decline.
- Operating income rose to $42.1 million, reflecting lower general and administrative and acquisition-pursuit costs and a $7.1 million gain on sale, partly offset by $9.5 million of impairment charges.
- Interest expense fell 16.3% to $22.2 million, largely due to lower debt balances and borrowing rates. Debt declined by $27.6 million from year-end 2016.
- Occupancy increased to 91.3% from 89.9%; same-property occupancy improved to 92.5% from 92.0%, while same-property average base rent slipped to $13.10 from $13.17 per square foot.
- Operating cash flow was essentially unchanged. Investing cash flow shifted to a $46.4 million use from a $51.1 million source in 2016, when the company received substantial property-sale proceeds.
Capital, outlook, risks and unusual items
- The company acquired Christina Crossing for $27.9 million and a parcel adjacent to its South Philadelphia center for $3.3 million. It sold a Camp Hill outparcel for $10.7 million, recognizing a $7.1 million gain, and sold Fredericksburg Way after recording a $9.5 million impairment related to the property.
- In September 2017, the company amended and extended its unsecured credit arrangements: a $250 million revolver due September 2021 and a $50 million term loan due September 2022. At year-end, $177.2 million remained available under the revolver; the company reported compliance with all financial covenants.
- Gross debt was approximately $583.0 million, with a 3.4% weighted-average rate. Of $105 million of variable-rate debt, a 100-basis-point rate change would affect annual interest cost by approximately $1.1 million. Principal maturities are concentrated in 2021–2022; the filing lists $155.2 million and $199.9 million, respectively, before unamortized debt adjustments.
- The company issued $120.4 million net of Series C preferred stock and redeemed $112.5 million of Series B preferred stock during 2017. It also settled forward sales of 5.75 million common shares for approximately $43.2 million net proceeds. A further $50 million Series B redemption occurred January 12, 2018.
- Common dividends were $0.20 per share annually in 2015–2017. Management intended to continue quarterly dividends, but future declarations remain at the board’s discretion and depend on cash flow, financial condition, capital needs and REIT requirements. The filing provides no earnings or FFO guidance.
- Management cited vacant anchor stores and related temporary co-tenancy rent reductions as key pressures on same-property NOI. Major risks include retail-sector and tenant distress, online sales, geographic concentration (26 properties and 49.6% of GLA in Pennsylvania), debt refinancing and interest rates, redevelopment execution, and environmental, weather and insurance exposures. Three Ahold-owned grocery groups together represented about 11% of GLA and 12% of 2017 revenue.
- The December 2017 Tax Cuts and Jobs Act may affect the company, tenants and REIT tax/distribution considerations; management had not determined whether to elect the real-property-business exception to the business interest deduction limit. The company reported no litigation expected to have a material adverse effect and no known material environmental liability.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether anchor vacancies are resolved and same-property NOI and rent trends improve.
- Tenant credit quality and lease exposure, particularly the combined Ahold-owned grocery tenants and upcoming expirations.
- Plans and funding capacity for the 2021–2022 debt maturities, revolver availability, covenant headroom and refinancing costs.
- Dividend coverage from recurring cash generation, considering preferred dividends, capital spending and debt service; FFO and Operating FFO are non-GAAP measures and are not cash flow.
- Execution and returns from redevelopment and portfolio repositioning, including future impairments and asset-sale proceeds.
- The effect of the preferred-stock refinancing, common-share issuance and subsequent Series B redemption on future financing costs and common shareholders.