CEDAR REALTY TRUST The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes thereto included elsewhere in this report.
Executive Summary The Company is a fully-integrated real estate investment trust that focuses primarily on ownership, operation and redevelopment of grocery-anchored shopping centers in high-density urban markets fromWashington, D.C. toBoston . AtMarch 31, 2022 , the Company owned and managed a portfolio of 50 operating properties (excluding properties "held for sale") totaling 7.4 million square feet of gross leasable area ("GLA"). The portfolio was 91.6% leased and 89.3% occupied atMarch 31, 2022 . The Company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to leases. The Company's operating results therefore depend on the ability of its tenants to make the payments required by the terms of their leases. The Company focuses its investment activities on grocery-anchored shopping centers. The Company believes that, because of the need of consumers to purchase food and other staple goods and services generally available at such centers, its type of "necessities-based" properties should provide relatively stable revenue flows even during difficult economic times.
Significant Circumstances and Transactions
Transaction Agreements
OnMarch 2, 2022 , the Company announced that following its previously announced review of strategic alternatives, it had entered into definitive agreements for the sale of the Company and its assets in a series of related all-cash transactions. Specifically, onMarch 2, 2022 , the Company and certain of its subsidiaries,DRA Fund X-B LLC andKPR Centers LLC (together with their respective designees, the "Grocery-Anchored Purchasers") entered into an asset purchase and sale agreement (the "Asset Purchase Agreement"), pursuant to which the Grocery-Anchored Purchasers will acquire a portfolio of 33 grocery-anchored shopping centers from the Company for a cash purchase price of$840.0 million (the "Grocery-Anchored Portfolio Sale"). The Asset Purchase Agreement provides that to the extent specified redevelopment assets (Riverview Plaza ,East River Park andSenator Square , which have been classified as "real estate held for sale" as ofMarch 31, 2022 ) of the Company are not sold by the Company to third parties prior to the closing of the Grocery-Anchored Portfolio Sale, these assets will be acquired by the Grocery-Anchored Purchasers for an additional cash purchase price of up to$80.5 million . In addition, onMarch 2, 2022 , the Company entered into an agreement and plan of merger (the "Merger Agreement") with Wheeler Real Estate Investment Trust, Inc. ("Wheeler") and certain of its affiliates pursuant to which, following closing of the Grocery-Anchored Portfolio Sale, Wheeler will acquire the balance of the Company's shopping center assets by way of an all-cash merger transaction that values the remaining portfolio at$291.3 million . Following completion of the transactions contemplated by the Merger Agreement, the Company will survive as a wholly-owned subsidiary of Wheeler. The Company's currently outstanding 7.25% Series B Preferred Stock and 6.50% Series C Preferred Stock will remain outstanding as shares of preferred stock in the surviving company following the transactions and are expected to remain listed on theNew York Stock Exchange . The transactions contemplated by the Asset Purchase Agreement and the Merger Agreement are collectively referred to as the "Transactions". The Transactions were unanimously approved by the Company's Board of Directors (the "Board") and are estimated to generate total net proceeds, after all transaction expenses, of more than$29.00 per share in cash, which will be distributed to shareholders upon completion. The Transactions are expected to close by the end of the second quarter of 2022, subject to satisfaction of customary closing conditions, including approval by the Company's common stockholders at a special meeting of stockholders to be held onMay 27, 2022 .
COVID-19 Pandemic
As a result of COVID-19, the Company has received numerous rent relief requests, most often in the form of rent deferrals. The Company has entered into lease modifications that deferred approximately$3.5 million and waived approximately$2.4 million of rental income throughMarch 31, 2022 , respectively. To date, the weighted average payback period of deferred rent is approximately 10 months, beginning at various times fromJuly 2020 throughJune 2021 . The Company has collected approximately 97% of contractual base rents and monthly tenant reimbursements for each of the quarters endedMarch 31, 2022 andDecember 31, 2021 . Real Estate
On
20
--------------------------------------------------------------------------------Investment in unconsolidated joint venture
OnMay 5, 2021 , the Company formed a joint venture withGoldman Sachs Urban Investment Group andAsland Capital Partners (the "Joint Venture") for the construction of an approximately 258,000 square foot six-story commercial building inWashington, D.C. consisting of approximately 240,000 square feet of office space which is 100% leased to theWashington, D.C. ,Department of General Services ("DGS") for its headquarters and approximately 18,000 square feet of street-level retail. The term of the lease with DGS is for 20 years and 10 months, to commence upon substantial completion and delivery to the DGS. This building is planned as the first phase ofNortheast Heights , a redevelopment of two existing shopping centers,East River Park andSenator Square , into a mixed-use residential, office and retail property. Further, the Joint Venture has secured construction financing from JP Morgan not to exceed$105 million . The construction loan initially bears interest at LIBOR plus 200 basis points and has an initial term of three years with two, one-year extension options subject to customary conditions. The Company has a 10% interest in the joint venture and is a co-general partner along withAsland Capital Partners . The Company has contributed approximately$4.8 million of capital to the Joint Venture as ofMarch 31, 2022 . The Company has sold approximately$8.0 million of development costs to the Joint Venture as part of its formation onMay 5, 2021 . The Joint Venture currently estimates that the space will be delivered during the end of the fourth quarter 2022. Upon completion of the building, DGS will be obligated to pay initial annual net rent of approximately$5.4 million per year, subject to a 2.5% annual escalator on each anniversary of rent commencement, plus certain operating costs, property taxes and amortization of tenant improvements together totaling approximately an additional$8.1 million per year, for an aggregate total annual rent of approximately$13.5 million . The lease provides for a free rent period of 10 months immediately following rent commencement. The lease also provides DGS with a tenant credit of approximately$6.8 million to be applied, at DGS's election, against either annual rent or any other tenant payment obligations including tenant improvement costs, in excess of the tenant improvement allowance. Pursuant to the lease, the Joint Venture will contribute up to$155 per rentable square foot toward the cost of tenant improvements, to be amortized over 240 months. In addition, the lease provides that the Joint Venture will contribute$9.38 per rentable square foot in additional tenant improvement allowance between the 10th and 12th lease years, upon DGS's timely election. The obligations of DGS under the lease are subject to annual budget appropriation. As ofMarch 31, 2022 , Carll's Corner, located inBridgeton, New Jersey ,Riverview Plaza , located inPhiladelphia, Pennsylvania andEast River Park andSenator Square , both located inWashington, D.C. have been classified as "real estate held for sale" on the accompanying consolidated balance sheet.
Unsecured Revolving Credit Facility and Term Loans
OnAugust 30, 2021 , the Company amended its existing$300 million unsecured credit facility and$50 million term loan. After the amendment, the new unsecured revolving credit facility is$185 million with an expiration inAugust 2024 . The new unsecured revolving credit facility may be extended, at the Company's option for two additional one-year periods, subject to customary conditions. Interest on the borrowings under the new unsecured revolving credit facility component can range from LIBOR plus 135 bps to 195 bps (150 bps atMarch 31, 2022 ), based on the Company's leverage ratio. The Company extended its$50 million term loan four years with an expiration inAugust 2026 .
Mortgage Loans Payable
OnMay 5, 2021 , the Company closed a non-recourse mortgage for$114.0 million . The mortgage maturesJune 1, 2031 , bears interest at a fixed-rate of 3.49% and requires payment of interest only for the first five years followed by payments of principal and interest based on thirty-year amortization for the remainder of the term. The loan is secured by five shopping centers consisting ofLawndale Plaza , The Shops at Suffolk Downs,Christina Crossing ,Trexlertown Plaza , and The Point. These properties had no pre-existing debt and the proceeds from this new loan were used to reduce amounts outstanding under the Company's revolving credit facility. Critical Accounting Policies The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition and the allowance for doubtful accounts receivable, real estate investments and purchase accounting allocations related thereto, asset impairment, and derivatives used to hedge interest-rate risks. Management's estimates are based both on information that is currently available and on various other assumptions management believes to be reasonable under the circumstances. Actual results could differ from those estimates and those estimates could be different under varying assumptions or conditions. 21 -------------------------------------------------------------------------------- The Company believes there have been no material changes to the items disclosed as its critical accounting policies under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . See Note 2 - "Summary of Significant Accounting Policies" for recently-adopted accounting pronouncements. Results of Operations
Comparison of three months ended
Change
2022 2021 Dollars Percent
Revenues $ 30,464,000 $ 33,551,000 $ (3,087,000 ) -9.2%
Property operating expenses (11,627,000 ) (12,900,000 ) 1,273,000 -9.9%
Property operating income 18,837,000 20,651,000 (1,814,000 )
General and administrative (2,972,000 ) (4,528,000 ) 1,556,000 -34.4%
Depreciation and amortization (8,263,000 ) (11,211,000 ) 2,948,000 -26.3%
Gain on sales - 1,047,000 (1,047,000 ) n/a
Impairment charges (707,000 ) - (707,000 ) n/a
Transaction costs (3,735,000 ) - (3,735,000 ) n/a
Interest expense (4,237,000 ) (4,706,000 ) 469,000 -10.0%
Net (loss) income (1,077,000 ) 1,253,000 (2,330,000 )
Net loss (income) attributable to
noncontrolling interests 20,000 (141,000 ) 161,000
Net (loss) income attributable to Cedar
Realty Trust, Inc. $ (1,057,000 ) $ 1,112,000 $ (2,169,000 ) Revenues were lower as a result of (1) a decrease of
Property operating expenses were lower as a result of (1) a decrease of$0.5 million in property operating expenses attributable to redevelopment properties and (2) a decrease of$0.9 million in property operating expenses attributable to properties sold or held for sale during 2022 and 2021, partially off-set by (3) an increase of$0.1 million in property operating expenses attributable to same center properties.
General and administrative costs were lower primarily as a result of (1) a
decrease of
Depreciation and amortization expenses were lower as a result of (1) a decrease of$1.4 million attributable to redevelopment properties, (2) a decrease of$0.8 million attributable to properties that were sold or held for sale in 2022 and 2021 and (3) a decrease of$0.7 million attributable to same center properties.
Gain on sales in 2021 relates to the sale of an outparcel building at
Impairment charges in 2022 relates to
Transaction costs in 2022 relate to costs incurred related to the previously announced dual-track strategic alternatives process.
Interest expense was lower as a result of (1) a decrease in the overall weighted average principal balance which resulted in a decrease in interest expense of$0.8 million , (2) a decrease in amortization expense of deferred financing costs$0.1 million , partially off-set by (3) an increase in the overall weighted average interest rate which resulted in an increase in interest expense of$0.4 million and (4) a decrease in capitalized interest of$0.1 million .
Same-Property Net Operating Income
Same-property net operating income ("same-property NOI") is a widely-used non-GAAP financial measure for REITs that the Company believes, when considered with financial statements prepared in accordance with GAAP, is useful to investors as it provides
22
--------------------------------------------------------------------------------
an indication of the recurring cash generated by the Company's properties by
excluding certain non-cash revenues and expenses, as well as other infrequent
items such as lease termination income which tends to fluctuate more than rents
from year to year. Properties are included in same-property NOI if they are
owned and operated for the entirety of both periods being compared, except for
properties undergoing significant redevelopment and expansion until such
properties have stabilized, and properties classified as held for sale.
Consistent with the capital treatment of such costs under GAAP, tenant
improvements, leasing commissions and other direct leasing costs are excluded
from same-property NOI.
The most directly comparable GAAP financial measure is consolidated operating
income. Same-property NOI should not be considered as an alternative to
consolidated operating income prepared in accordance with GAAP or as a measure
of liquidity. Further, same-property NOI is a measure for which there is no
standard industry definition and, as such, it is not consistently defined or
reported on among the Company's peers, and thus may not provide an adequate
basis for comparison among REITs.
The following table reconciles same-property NOI to the Company's consolidated
operating income:
Three months ended March 31,
2022 2021
Operating income $ 3,160,000 $ 5,959,000
Add (deduct):
General and administrative 2,972,000 4,528,000
Gain on sales - (1,047,000 )
Transaction costs 3,735,000 -
Impairment charges 707,000 -
Depreciation and amortization 8,263,000 11,211,000
Straight-line rents (101,000 ) (131,000 ) Amortization of intangible lease liabilities (269,000 ) (277,000 ) Other adjustments 224,000 (22,000 ) NOI related to properties not defined as same-property (1,799,000 ) (3,604,000 ) Same-property NOI$ 16,892,000 $ 16,617,000 Number of same properties 45 45 Same-property occupancy, end of period 91.5 % 89.4 % Same-property leased, end of period 92.7 % 90.1 % Same-property average base rent, end of period $ 13.58$ 13.53
Same-property NOI for the comparable three month periods increased 1.7% as a result of the negative impact of the COVID-19 pandemic which reduced rental revenues for the same-property portfolio.
Leasing Activity
The following is a summary of the Company's retail leasing activity during the
three months ended
Tenant
Leases New rent Prior rent Cash basis improvements
signed GLA per sq.ft. per sq.ft. % change per sq.ft.
Renewals 24 142,200 14.49 13.68 5.9 % 0.29
New Leases -
Comparable 10 75,600 21.34 13.74 55.3 % 99.38 (a)
New Leases -
Non-Comparable (b) 2 3,400 34.60 n/a n/a 212.87 (a)
Total (c) 36 221,200 17.13 n/a n/a 37.38
(a) Includes both tenant allowance and landlord work. Excludes first
generation space.
(b) Includes leases signed at first generation and expansion spaces.
(c) Legal fees and leasing commissions averaged a combined total of
square foot.
23
--------------------------------------------------------------------------------Liquidity and Capital Resources
The Company funds operating expenses and other short-term liquidity requirements, including debt service, tenant improvements, leasing commissions, preferred and common dividend distributions and distributions to minority interest partners, if made, primarily from its operations. The Company may also use its revolving credit facility for these purposes. The Company expects to fund long-term liquidity requirements for property acquisitions, redevelopment costs, capital improvements, and maturing debt initially with its revolving credit facility, and ultimately through a combination of issuing and/or assuming additional debt, the sale of equity securities, the issuance of additional OP Units, and/or the sale of properties. Although the Company believes it has access to secured and unsecured financing, there can be no assurance that the Company will have access to financing for development projects, financing for additional construction projects, or proceeds from refinancing of existing debt. OnAugust 30, 2021 , the Company amended its existing$300 million unsecured credit facility and$50 million term loan. After the amendment, the new unsecured revolving credit facility is$185 million with an expiration inAugust 2024 . The new unsecured revolving credit facility may be extended, at the Company's option for two additional one-year periods, subject to customary conditions. Interest on the borrowings under the new unsecured revolving credit facility component can range from LIBOR plus 135 bps to 195 bps (150 bps atMarch 31, 2022 ), based on the Company's leverage ratio. Interest on borrowings under the unsecured credit facility is based on the Company's leverage ratio. The Company extended its$50 million term loan four years with an expiration inAugust 2026 . The Company's unsecured credit facility and term loans contain financial covenants including, but not limited to, maximum debt leverage, maximum secured debt, minimum fixed charge coverage, and minimum net worth. In addition, the facility contains restrictions including, but not limited to, limits on indebtedness, certain investments and distributions. The Company's failure to comply with the covenants or the occurrence of an event of default under the facilities could result in the acceleration of the related debt and exercise of other lender remedies. Although the credit facility is unsecured, borrowing availability is based on unencumbered property adjusted net operating income for the trailing twelve months, as defined in the agreements. As of the date of filing this Quarterly Report on Form 10-Q, the Company had$70.0 million outstanding and$110.1 million available for additional borrowings under its revolving credit facility, and was in compliance with all financial covenants. OnMay 5, 2021 , the Company closed a non-recourse mortgage for$114.0 million . The mortgage maturesJune 1, 2031 , bears interest at a fixed-rate of 3.49% and requires payment of interest only for the first five years followed by payments of principal and interest based on thirty-year amortization for the remainder of the term. The loan is secured by five shopping centers consisting ofLawndale Plaza , The Shops at Suffolk Downs,Christina Crossing ,Trexlertown Plaza , and The Point. These properties had no pre-existing debt and the proceeds from this new loan were used to reduce amounts outstanding under the Company's revolving credit facility. 24
-------------------------------------------------------------------------------- Debt and finance lease obligations are composed of the following atMarch 31, 2022 : March 31, 2022 Contractual Maturity Balance interest rates Description dates outstanding weighted-average Fixed-rate mortgage Franklin Village Jun 2026$ 44,296,000 3.9% Shops at Suffolk Downs (a) Jun 2031 15,600,000 3.5% Trexlertown Plaza (a) Jun 2031 36,100,000 3.5% The Point (a) Jun 2031 29,700,000 3.5% Christina Crossing (a) Jun 2031 17,000,000 3.5% Lawndale Plaza (a) Jun 2031 15,600,000 3.5%Senator Square finance lease obligation Sep 2050 5,587,000 5.3% 163,883,000 3.6% Unsecured credit facilities: Variable-rate: Revolving credit facility (b) Aug 2024 70,000,000 2.0% Fixed-rate (c): Term loan Apr 2023 100,000,000 3.3% Term loan Sep 2024 75,000,000 3.8% Term loan Jul 2025 75,000,000 4.7% Term loan Aug 2026 50,000,000 3.3% 533,883,000 3.5% Unamortized issuance costs (2,979,000 )$ 530,904,000 (a) The mortgages for these properties are cross-collateralized. (b) The revolving credit facility is subject to two one-year extensions at the Company's option. (c) The interest rates on these term loans consist of LIBOR plus a credit spread based on the Company's leverage ratio, for which the Company has interest rate swap agreements which convert the LIBOR rates to fixed rates. Accordingly, these term loans are presented as fixed-rate debt. The following table details the Company's debt and finance lease obligation maturities atMarch 31, 2022 : Mortgage Loan Finance Lease Revolving Term Year Payable Obligation Credit Facility Loans Total 2022$ 841,000 $ 28,000 $ - $ -$ 869,000 2023 1,160,000 39,000 - 100,000,000 101,199,000 2024 1,206,000 41,000 70,000,000 (a) 75,000,000 146,247,000 2025 1,253,000 44,000 - 75,000,000 76,297,000 2026 40,922,000 48,000 - 50,000,000 90,970,000 Thereafter 112,914,000 5,387,000 - - 118,301,000$ 158,296,000 $ 5,587,000 $ 70,000,000 $ 300,000,000 $ 533,883,000
(a) The revolving credit facility is subject to two one-year extensions at the
Company's option.
In order to continue qualifying as a REIT, the Company is required to distribute at least 90% of its "REIT taxable income", as defined in the Internal Revenue Code of 1986, as amended (the "Code"). The Company paid common and preferred stock dividends during 2021, and has continued to declare and pay common and preferred stock dividends through the first quarter of 2022. Future dividend declarations will continue to be at the discretion of the Board of Directors, and will depend on the cash flow and financial condition of the Company, capital requirements, annual distribution requirements under the REIT provisions of the Code, and such other factors as the Board of Directors may deem relevant. Additionally, the Board of Directors may reduce, as it did with theMay 2020 common stock dividend of$0.01 per common share, or suspend payment of dividends to retain cash and reduce debt obligations and/or to fund redevelopments and other capital needs. The Company intends to continue to operate its business in a manner that will allow it to qualify as a REIT forU.S. federal income tax requirements. 25 --------------------------------------------------------------------------------
Net Cash Flows
Three months ended March 31,
2022 2021
Cash flows provided by (used in):
Operating activities $ 8,705,000 $ 9,542,000
Investing activities $ (9,768,000 ) $ (5,701,000 )
Financing activities $ 117,000 $ (2,340,000 )
Operating Activities
Net cash provided by operating activities, before net changes in operating
assets and liabilities, was $8.4 million for the three months ended March 31,
2022 and $12.3 million for the three months ended March 31, 2021 . The decrease
was primarily a result of property dispositions in 2021 and transaction costs
related to the previously announced dual-track strategic alternatives process.
Investing Activities
Net cash flows used in investing activities were primarily the result of the Company's expenditures for property improvements and property disposition activities. During the three months endedMarch 31, 2022 the Company incurred expenditures of$9.6 million for property improvements and$0.2 million relating to contributions to the Company's unconsolidated joint venture. During the three months endedMarch 31, 2021 , the Company incurred expenditures of$6.9 million for property improvements, which was partially offset by$1.2 million in proceeds from the sale of properties.
Financing Activities
During the three months endedMarch 31, 2022 , the Company had$3.6 million of preferred and common stock distributions, and$0.3 million of mortgage repayments, which were partially offset by net advances of$4.0 million under the revolving credit facility. During the three months endedMarch 31, 2021 , the Company had$3.6 million of preferred and common stock distributions,$0.3 million of mortgage repayments, and$2.5 million of debt financing costs, which were partially offset by net advances of$4.0 million under the revolving credit facility. Funds From Operations Funds From Operations ("FFO") is a widely recognized supplemental non-GAAP measure utilized to evaluate the financial performance of a REIT. The Company presents FFO in accordance with the definition adopted by theNational Association of Real Estate Investment Trusts ("Nareit"). Nareit generally defines FFO as net income (determined in accordance with GAAP), excluding gains (losses) from sales of real estate properties, impairment write-downs on real estate properties directly attributable to decreases in the value of depreciable real estate, plus real estate related depreciation and amortization, and adjustments for partnerships and joint ventures to reflect FFO on the same basis. The Company considers FFO to be an appropriate measure of its financial performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than other depreciable assets. The Company also considers Operating Funds From Operations ("Operating FFO") to be an additional meaningful financial measure of financial performance because it excludes items the Company does not believe are indicative of its core operating performance, such as non-capitalized acquisition pursuit costs, amounts relating to early extinguishment of debt and preferred stock redemption costs, management transition costs and certain redevelopment costs. The Company believes Operating FFO further assists in comparing the Company's performance across reporting periods on a consistent basis by excluding such items. FFO and Operating FFO should be reviewed with net income attributable to common shareholders, the most directly comparable GAAP financial measure, when trying to understand the Company's operating performance. FFO and Operating FFO do not represent cash generated from operating activities and should not be considered as an alternative to net income attributable to common shareholders or to cash flow from operating activities. The Company's computations of FFO and Operating FFO may differ from the computations utilized by other REITs and, accordingly, may not be comparable to such REITs. 26 --------------------------------------------------------------------------------
A reconciliation of net (loss) attributable to common shareholders to FFO and
Operating FFO for the three months ended
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