CEDAR REALTY TRUST, INC. quarterly report, Q2 FY2014

Cedar Realty Trust, Inc. — Q2 2014 Form 10-Q

Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2014, compared with the same periods in 2013. Cedar is a REIT focused primarily on grocery-anchored shopping centers from Washington, D.C., to Boston. At quarter-end it owned and managed 60 operating properties totaling approximately 9.4 million square feet; the portfolio was 93.3% leased and 92.2% occupied.

Financial performance

MetricQ2 2014Q2 2013Six months 2014Six months 2013
Total revenue$37.1 million$33.9 million$74.4 million$69.5 million
Operating income$11.0 million$11.3 million$19.9 million$23.8 million
Income from continuing operations$6.7 million$2.3 million$7.4 million$6.2 million
Net income attributable to Cedar$17.1 million$4.6 million$18.8 million$8.4 million
Net income attributable to common shareholders$13.5 million$1.0 million$11.6 million$0.1 million
Basic and diluted EPS$0.17$0.01$0.15Approximately $0.00 loss
Same-property NOI$18.9 million$18.5 million$37.9 million$37.1 million
Cash from operating activitiesNot provided for quarter$22.9 million$24.2 million

Same-property NOI increased 2.0% for Q2 and 2.4% for the half year. Excluding the re-tenanting effect of the Walmart Neighborhood Market at Oakland Commons, growth was 1.0% and 1.3%, respectively. Same-property occupancy was 93.5%, versus 93.2%; leased occupancy was 93.8% in both periods. Operating income as a share of revenue was approximately 29.8% in Q2 and 26.8% for the first half, versus 33.2% and 34.2% in 2013, respectively.

At June 30, total assets were $1.335 billion and total equity was $579.5 million. Cash and equivalents were $4.0 million; restricted cash of $10.3 million is generally reserved for property-level needs. Six-month investing cash flow was positive $18.7 million and financing cash flow was negative $41.6 million. Cash increased $64,000 in the period.

Debt totaled approximately $708.4 million, including $6.6 million associated with properties held for sale/conveyance; debt excluding those properties was $701.7 million. The latter comprised $425.2 million of mortgage debt, $76.5 million drawn on the revolving facility, and $200 million of unsecured term loans. Weighted-average interest was 4.4% on the reported debt excluding held-for-sale properties. The $260 million revolver had $165.8 million available; the company reported compliance with its financial covenants. Scheduled for the remainder of 2014 were approximately $3.2 million of principal amortization and $28.7 million of mortgage balloon payments.

Material changes versus prior periods

  • Revenue rose 9.3% in Q2 and 7.1% in the first half, reflecting acquisitions and modest same-property growth. Property operating expenses increased faster, up 11.0% and 11.2%, respectively; management cited repairs and maintenance, snow removal, and acquired properties.
  • Interest expense fell 9.0% in Q2 and 9.2% for the first half, primarily due to lower average borrowing rates.
  • Common-shareholder income and EPS improved substantially, but results were materially affected by dispositions: first-half gains on sales totaled $11.8 million, including $8.0 million in discontinued operations and $3.8 million in continuing operations.
  • First-half operating cash flow decreased by $1.3 million year over year despite higher reported net income. The filing attributes working-capital movements to insurance premium timing and the timing of receivable collections and liability payments.
  • Quartermaster Plaza was acquired for approximately $92.3 million in March. During the first half, Cedar sold properties for aggregate stated proceeds of $74.8 million; two properties were transferred to lenders by deeds-in-lieu of foreclosure. The company also raised approximately $41.3 million net from a January common-stock offering.

Outlook, commentary, risks and unusual items

  • Management provided no numerical earnings or operating guidance. It expects to fund near-term needs primarily from operations and may use the revolver; longer-term needs may be funded through debt, equity, OP Units, or property sales. Management cautioned that financing availability cannot be assured.
  • The $150 million unsecured term loans were hedged with swaps effective July 1, 2014, fixing rates at 3.37% for the five-year loan and 4.27% for the seven-year loan, based on the quarter-end leverage ratio. The filing estimates a 100-basis-point rate move on $126.5 million of variable-rate debt would change annual interest cost by approximately $1.3 million.
  • Unusual items include $2.9 million in acquisition costs, $1.8 million of first-half continuing-operations impairment charges, gains from property sales, and $1.4 million of gains on extinguishment of debt in discontinued operations. The new discontinued-operations standard was adopted prospectively in 2014, so presentation may not be directly comparable for newly classified disposals.
  • Management said it intends to continue regular quarterly dividends, subject to board discretion, cash flow, capital needs, REIT distribution requirements, and other factors. The common dividend was $0.05 per share quarterly; the Series B preferred dividend was $0.453 per share quarterly. A July 21 declaration set the next payments for August 20, 2014.
  • Risks include tenant payment and occupancy performance, refinancing and financing availability, interest-rate exposure, covenant compliance, property-sale valuations, and the potential effects of prolonged significant inflation. Management did not expect normal-course legal actions to have a material adverse effect. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.

Most important facts for investors to verify

  • How much of the improvement in earnings and EPS reflects recurring property operations versus sale, debt-extinguishment, and other nonrecurring gains.
  • Whether same-property NOI growth, leasing spreads, occupancy, and rent collections remain sustained after acquisition and disposition effects.
  • The timing and funding of the $28.7 million in 2014 balloon payments, and the company’s access to refinancing or other capital.
  • Available revolver capacity and covenant headroom, as well as the cost and effectiveness of the term-loan interest-rate hedges.
  • Cash available for dividends after debt service, property improvements, tenant costs, and required REIT distributions.