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 . AtSeptember 30, 2020 , the Company owned and managed a portfolio of 54 operating properties (excluding properties "held for sale") totaling 8.2 million square feet of gross leasable area ("GLA"). The portfolio was 89.8% leased and 88.8% occupied atSeptember 30, 2020 . 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
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 evaluated, and continues to evaluate, each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests have resulted in modification agreements, nor is the Company forgoing its contractual rights under its lease agreements. The Company has entered into lease modifications that deferred approximately$2.7 million and waived approximately$0.9 million of rental income for the nine months endedSeptember 30, 2020 , respectively. To date, the weighted average payback period of deferred rent is approximately 10 months, beginning at various time commencing inJuly 2020 throughMarch 2021 . The Company has collected approximately 91% and 77% of contractual base rents and monthly tenant reimbursements for the quarters endedSeptember 30, 2020 andJune 30, 2020 , respectively. The Company currently remains in active discussions and negotiations with its impacted tenants and anticipates the need to grant additional rent concessions or other lease-related relief, such as the deferral of lease payments for a period of time to be paid over the remaining term of the lease. The nature and financial impact of such additional rent relief is currently unknown as negotiations are in progress. The extent to which COVID-19 impacts the Company's business, operations and financial results will depend on numerous evolving factors that the Company is not able to predict at this time.
As a result of the COVID-19 pandemic, the Company took the following actions:
• In
revolving credit facility to preserve financial flexibility. In August
2020 , the Company repaid substantially all of this borrowing.
• In
quarterly common dividend of
share from the
cash per quarter.
• Dramatically reduced near-term redevelopment and other non-essential
capital expenditures. The Company currently estimates full year 2020
capital spend for its mixed-use urban redevelopments and value add
renovations combined to be approximately $20 million (excluding
approximately $7.5 million of capitalized overhead, interest and real
estate taxes under GAAP).
• Transitioned all but a limited number of essential employees to remote
work and does not anticipate any adverse impact on its ability to
continue to operate its business. Currently, the Company has a limitednumber of employees coming into offices as needed and has employees
visiting properties only as necessary to ensure that the properties with
essential businesses that are open and operating are able to conduct
business and serve their communities.
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Real Estate
OnJuly 23, 2020 , the Company entered into a commercial lease agreement (the "Lease") with the Government of theDistrict of Columbia (the "District"), for the lease by the District of office space in a new six-story building to be constructed by the Company atSenator Square . The building is planned to house the new office headquarters for theDistrict of Columbia's Department of General Services' ("DGS") 700-member workforce. The term of the Lease is 20 years and 10 months, to commence upon substantial completion and delivery to DGS. The Company anticipates commencement of construction to occur in the first quarter of 2021 and currently estimates that the space will be delivered during the end of the fourth quarter 2022. Upon completion of the building, the District 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 the District with a tenant credit of approximately$6.8 million to be applied, at the District'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 landlord 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 Company will contribute$9.38 per rentable square foot in additional tenant improvement allowance between the 10th and 12th Lease years, upon the District's timely election. The obligations of the District under the Lease are subject to annual budget appropriation. As ofSeptember 30, 2020 , Carll's Corner, located inBridgeton, New Jersey ,Glen Allen Shopping Center , located inGlen Allen, Virginia ,Suffolk Plaza , located inSuffolk, Virginia , and The Commons, located inDubois Pennsylvania , have been classified as "real estate held for sale" on the accompanying consolidated balance sheet. OnOctober 8, 2020 , the Company sold Glen Allen Shopping for$8.5 million . OnJanuary 31, 2020 , the Company agreed to a cash payment in consideration for permitting a dark anchor tenant to terminate its lease prior to the contractual expiration atMetro Square . As a result of this termination, revenues for the nine months endedSeptember 30, 2020 , included approximately$7.1 million of other income. Further, onJuly 9, 2020 , the Company sold this property for$4.3 million .
On
During the nine months endedSeptember 30, 2020 , the Company recorded impairment charges of$7.6 million in relation to properties classified as real estate held for sale, which are included in continuing operations in the accompanying consolidated statement of operations.
Unsecured Revolving Credit Facility and Term Loans
OnAugust 4, 2020 , the Company amended its existing$300 million unsecured credit facility and term loans. After such amendments, the Company's financial ratios and borrowing base are now all computed using trailing four quarters as opposed to the current quarter annualized and interest rate swaps that are a hedge of existing debt are now excluded from the definition of debt. OnOctober 27, 2020 , the Company utilized its revolving credit facility to repay the$75.0 million term loan which was set to mature inFebruary 2021 . The revolving credit facility matures inSeptember 2021 , and may be extended, at the Company's option, for an additional one-year period, subject to customary conditions. Common Stock OnOctober 27, 2020 , the Company's Board of Directors approved a plan to amend the Company's articles of incorporation to effect a reverse stock split of the issued and outstanding shares of common stock. Each 6.6 shares of the Company's issued and outstanding common stock will be combined into one share of the Company's common stock. The number of authorized shares and the par value of the common stock were not changed. Fractional shares of common stock resulting from the reverse stock split will be settled in cash. In addition, the Company will amend the Limited Partnership Agreement of ourOperating Partnership to effect a corresponding reverse split of the partnership interests of theOperating Partnership . The approved plan provides the Company with the ability to execute the reverse stock split before the deadline ofDecember 31, 2020 . 23 --------------------------------------------------------------------------------
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 impairments, 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. 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, 2019 . See Note 2 - "Summary of Significant Accounting Policies" for recently-adopted accounting pronouncements. Results of Operations
Comparison of three months ended
Change
2020 2019 Dollars Percent
Revenues $ 31,175,000 $ 35,912,000 $ (4,737,000 ) -13.2%
Property operating expenses (10,832,000 ) (11,499,000 ) 667,000 -5.8%
Property operating income 20,343,000 24,413,000 (4,070,000 )
General and administrative (3,925,000 ) (4,886,000 ) 961,000 -19.7%
Depreciation and amortization (10,035,000 ) (10,547,000 ) 512,000 -4.9%
Gain on sales 679,000 - 679,000 n/a
Interest expense (5,658,000 ) (6,033,000 ) 375,000 -6.2%
Net income 1,404,000 2,947,000 (1,543,000 )
Net (income) attributable to
noncontrolling interests (137,000 ) (167,000 ) 30,000
Net income attributable to Cedar Realty
Trust, Inc. $ 1,267,000 $ 2,780,000 $ (1,513,000 )
Revenues were lower primarily as a result of the negative impact of the COVID-19
pandemic, which resulted in (1) a decrease of $1.9 million in rental revenues
and expense recoveries and a decrease of $0.5 million in straight-line rental
and amortization of intangible lease liabilities revenues attributable to
same-center properties, (2) a decrease of $1.5 million in rental revenues and
expense recoveries and a decrease of $0.6 million in straight-line rental and
the amortization of intangible lease liabilities revenues attributable to
redevelopment properties. In addition, there was a decrease of $0.3 million in
rental revenues and expense recoveries attributable to properties that were sold
or held for sale in 2020 and 2019.
Property operating expenses were lower as a result of a decrease of
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 a decrease of$0.3 million attributable to properties that were sold or held for sale in 2020 and 2019 and (2) a decrease of$0.2 million attributable to redevelopment properties.
Gain on sales in 2020 relates to the sale of an outparcel building at
Interest expense was lower as a result of (1) a decrease in the overall weighted average interest rate which resulted in a decrease in interest expense of$0.7 million , and (2) an increase in capitalized interest of$0.2 million , partially offset by increase in the overall weighted average principal balance which resulted in an increase in interest expense of$0.5 million . 24 --------------------------------------------------------------------------------
Comparison of nine months ended
Change
2020 2019 Dollars Percent
Revenues $ 102,280,000 $ 108,455,000 $ (6,175,000 ) -5.7%
Property operating expenses (34,161,000 ) (35,925,000 ) 1,764,000 -4.9%
Property operating income 68,119,000 72,530,000 (4,411,000 )
General and administrative (12,833,000 ) (15,102,000 ) 2,269,000 -15.0%
Depreciation and amortization (38,208,000 ) (31,022,000 ) (7,186,000 ) 23.2%
Gain on sales 679,000 2,942,000 (2,263,000 ) n/a
Impairment charges (7,607,000 ) - (7,607,000 ) n/a
Interest expense (16,853,000 ) (17,868,000 ) 1,015,000 -5.7%
Net (loss) income (6,703,000 ) 11,480,000 (18,183,000 )
Net (income) attributable to
noncontrolling interests (373,000 ) (435,000 ) 62,000
Net (loss) income attributable to Cedar
Realty Trust, Inc. $ (7,076,000 ) $ 11,045,000 $ (18,121,000 )
Revenues were lower primarily as a result of the negative impact of the COVID-19
pandemic, which resulted in (1) a decrease of $4.8 million in rental revenues
and expense recoveries and a decrease of $1.8 million in straight-line rental
and the amortization of intangible lease liabilities revenues attributable to
same-center properties, (2) a decrease of $4.2 million in rental revenues and
expense recoveries and a decrease of $1.0 million in straight-line rental and
the amortization of intangible lease liabilities revenues attributable to
redevelopment properties. In addition, there was a (1) decrease of $1.6 million
in rental revenues and expense recoveries attributable to properties that were
sold or held for sale in 2019 and 2018, and (2) a decrease in other income of
$0.3 million . These negative results were partially offset by (1) $7.1 million
in revenue in the quarter ended March 31, 2020 relating to a dark anchor tenant
terminating its lease prior to the contractual expiration in 2020 at Metro
Square , and (2) an increase of $0.4 million in rental revenues and expense
recoveries attributable to a property acquired in 2019.
Property operating expenses were lower primarily as a result of (1) a decrease
of $1.1 million in property operating expenses attributable to redevelopment
properties, (2) a decrease of $0.4 million in property operating expenses
attributable to same-center properties, and (3) a decrease of $0.4 million in
property operating expenses attributable to properties that were sold or held
for sale in 2020 and 2019, partially offset by an increase of $0.2 million in
property operating expenses attributable to a property acquired in 2019.
General and administrative costs were lower primarily as a result of (1) cost
savings of $1.0 million as a result of the COVID-19 pandemic, predominately
related to the cancellation of leasing conventions along with the related travel
expenses, (2) a decrease of $1.0 million in payroll related costs, and (3) a
decrease of $0.3 million in legal and professional fees.
Depreciation and amortization expenses were higher as a result (1) accelerated
depreciation of tenant improvements and leasing commissions of $4.2 million as a
result of tenants vacating their spaces, (2) accelerated depreciation of $2.1
million in the quarter ended March 31, 2020 relating to the demolition of
certain existing buildings at a redevelopment property, (3) an increase of $1.0
million attributable to same-center properties, (4) a $0.8 million write-off in
the quarter ended March 31, 2020 arising from a lease termination for permitting
a dark anchor to terminate its lease prior to the contractual expiration at a
property that was classified held for sale in 2020, and (5) an increase of $0.1
million attributable to a property acquired in 2019, partially offset by (1) a
decrease of $0.6 million attributable to properties that were sold or held for
sale in 2020 and 2019, and (2) a decrease of $0.4 million attributable to
redevelopment properties.
Gain on sales in 2020 relates to the sale of an outparcel building at Oakland
Mills , located in Columbia, Maryland . Gain on sales in 2019 relates to the sale
of Maxatawny Marketplace , located in Maxatawny, Pennsylvania .
Impairment charges in 2020 relates to
Interest expense was lower as a result of (1) a decrease in the overall weighted average interest rate which resulted in a decrease in interest expense of$1.7 million , and (2) an increase in capitalized interest of$0.7 million , partially offset by increase in the overall weighted average principal balance which resulted in an increase in interest expense of$1.3 million . 25
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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 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 September 30, Nine months ended September 30,
2020 2019 2020 2019
Operating income $ 7,062,000 $ 8,980,000 $ 10,150,000 $ 29,348,000
Add (deduct):
General and administrative 3,925,000 4,886,000 12,833,000 15,102,000
Gain on sales (679,000 ) - (679,000 ) (2,942,000 )
Impairment charges - - 7,607,000 -
Depreciation and amortization 10,035,000 10,547,000 38,208,000 31,022,000
Straight-line rents 277,000 (76,000 ) 1,222,000 (411,000 )
Amortization of intangible lease
liabilities (299,000 ) (990,000 ) (1,065,000 ) (2,212,000 )
Other adjustments 165,000 (61,000 ) (341,000 ) (434,000 )
NOI related to properties not
defined as same-property (3,841,000 ) (4,976,000 ) (18,494,000 ) (15,495,000 )
Same-property NOI $ 16,645,000 $ 18,310,000 Number of same properties 46 46 45 45 Same-property occupancy, end of period 90.5 % 91.1 % 90.4 % 91.0 % Same-property leased, end of period 91.7 % 92.9 % 91.6 % 92.9 % Same-property average base rent, end of period $ 13.66$ 13.71 $ 13.64$ 13.71
Same-property NOI for the comparable three and nine month periods decreased 9.1% and 8.4%, respectively 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
nine months ended
Tenant
New rent Prior rent Cash basis improvements
Leases per per % per
signed GLA sq.ft. ($) sq.ft. ($) change sq.ft. ($)
Renewals 58 607,600 13.16 13.14 0.2 % 1.11
New Leases -
Comparable 24 122,700 13.19 13.68 -3.5 % 22.07 (a)
New Leases -
Non-Comparable (b) 2 10,700 14.16 n/a n/a 28.98 (a)
Total (c) 84 741,000 13.18 n/a n/a 4.99
(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.
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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. As a result of the COVID-19 pandemic which has created significant economic uncertainty, the Company took the following actions: (1) inMarch 2020 , the Company borrowed an aggregate$75.0 million under its revolving credit facility to preserve financial flexibility, (2) in April, July andOctober 2020 , the Company's Board of Directors declared a quarterly common dividend of$0.01 per share, reduced from$0.05 per share from theFebruary 2020 dividend, which preserves$3.6 million of cash per quarter, and (3) dramatically reduced near-term redevelopment and other non-essential capital expenditures. The Company currently estimates capital spend in 2020 to be approximately$15 million for its three ongoing mixed-use urban redevelopment projects. EffectiveApril 28, 2020 , the average closing price of the Company's common stock had been less than$1.00 over the prior 30-consecutive trading day period, and as a result, the Company received notice from the NYSE that the Company has untilDecember 31, 2020 to regain compliance with the minimum share price requirement. The threat of delisting and/or a delisting of the Company's common stock could have adverse effects, such as restricting the Company's ability to obtain equity financing. OnOctober 27, 2020 , to regain compliance with the minimum NYSE share price requirement, the Company's Board of Directors approved a plan to amend the Company's articles of incorporation to effect a reverse stock split of the issued and outstanding shares of common stock. Each 6.6 shares of the Company's issued and outstanding common stock will be combined into one share of the Company's common stock. The number of authorized shares and the par value of the common stock were not changed. Fractional shares of common stock resulting from the reverse stock split will be settled in cash. In addition, the Company will amend the Limited Partnership Agreement of ourOperating Partnership to effect a corresponding reverse split of the partnership interests of theOperating Partnership . The approved plan provides the Company with the ability to execute the reverse stock split before the deadline ofDecember 31, 2020 . All shares of common stock, restricted stock units, OP Units and per share/unit information that will be presented in the Company's Form10-K for the year endedDecember 31, 2020 will be adjusted to reflect the reverse split on a retroactive basis for all periods presented. OnAugust 4, 2020 , the Company amended its existing$300 million unsecured credit facility and term loans. After such amendments, the Company's financial ratios and borrowing base are now all computed using the trailing four quarters as opposed to the current quarter annualized and interest rate swaps that are a hedge of existing debt are now excluded from the definition of debt. The$300 million unsecured credit facility consists of (1) a$250 million revolving credit facility, and (2) a$50 million term loan. The revolving credit facility may be extended, at the Company's option, for an additional one-year period, subject to customary conditions. Under an accordion feature, the facility can be increased to$750 million , subject to customary conditions and lending commitments. Interest on borrowings under the unsecured credit facility and term loans are based on the Company's leverage ratio. 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$185.0 million outstanding and$44.1 available for additional borrowings under its revolving credit facility, and was in compliance with all financial covenants. However, the COVID-19 pandemic may negatively impact the Company's future ability to remain compliant with all financial covenants, including the ability to generate sufficient unencumbered property adjusted net operating income to support current borrowings (See "Item 1A - Risk Factors" in the Company's Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 ). The Company's unencumbered property adjusted net operating income was not significantly impacted by the COVID-19 pandemic until the quarter endedJune 30, 2020 . Accordingly, not until the quarter endedMarch 31, 2021 , will the unencumbered property adjusted net operating income for the trailing twelve months fully reflect the negative impact of the COVID-19 pandemic. 27 -------------------------------------------------------------------------------- Debt and finance lease obligations are composed of the following atSeptember 30, 2020 : September 30, 2020 Contractual Maturity Balance interest rates Description dates outstanding weighted-average Fixed-rate mortgage Jun 2026$ 45,907,000 3.9% Finance lease obligation Sep 2050 5,640,000 5.3% Unsecured credit facilities (a): Variable-rate: Revolving credit facility Sep 2021 (b) 120,900,000 2.3% Term loan Sep 2022 50,000,000 1.9% Fixed-rate (c): Term loan (d) Feb 2021 75,000,000 3.9% Term loan Feb 2022 50,000,000 3.3% Term loan Sep 2022 50,000,000 3.5% Term loan Apr 2023 100,000,000 3.5% Term loan Sep 2024 75,000,000 3.9% Term loan Jul 2025 75,000,000 4.8% 647,447,000 3.4% Unamortized issuance costs (2,194,000 )$ 645,253,000
(a) During the third quarter of 2020, the weighted average interest rate for
the Company's unsecured credit facilities increased 15 bps as a result of
an increase in the Company's leverage ratio.
(b) The revolving credit facility is subject to a one-year extension 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.
(d) On
repay this term loan.
The Company is currently exploring secured and unsecured refinancing options with various lenders. Reflecting theOctober 27, 2020 repayment of the$75.0 million term loan utilizing the Company's revolving credit facility, the following table details the Company's debt and finance lease obligation maturities atSeptember 30, 2020 : Mortgage Loan Finance Lease Revolving Term Year Payable Obligation Credit Facility Loans Total 2020$ 262,000 $ 8,000 $ - $ -$ 270,000 2021 1,074,000 35,000 195,900,000 (a) - 197,009,000 2022 1,116,000 37,000 - 150,000,000 151,153,000 2023 1,160,000 39,000 - 100,000,000 101,199,000 2024 1,206,000 41,000 - 75,000,000 76,247,000 Thereafter 41,089,000 5,480,000 - 75,000,000 121,569,000$ 45,907,000 $ 5,640,000 $ 195,900,000 $ 400,000,000 $ 647,447,000
(a) The revolving credit facility is subject to a one-year extension at the
Company's option.
The remaining property-specific mortgage loan payable matures in 2026. Mortgage
loans payable may require the Company to deposit certain replacement and other
reserves with its lenders. Such "restricted cash" is generally available only
for property-level requirements for which the reserves have been established,
and is not available to fund other property-level or Company-level obligations.
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 2019, and has continued to declare and pay common and
preferred stock dividends during 2020. While the Company intends to continue
paying regular quarterly dividends, future dividend declarations will continue
to be at the discretion of the Board of
28
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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
the May 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 for
U.S. federal income tax requirements.
Net Cash Flows
Nine months ended September 30,
2020 2019
Cash flows provided by (used in):
Operating activities $ 26,169,000 $ 36,394,000
Investing activities $ (24,802,000 ) $ (14,248,000 )
Financing activities $ (546,000 ) $ (22,140,000 )
Operating Activities
Net cash provided by operating activities, before net changes in operating
assets and liabilities, was $43.4 million for the nine months ended September
30, 2020 and $41.3 million for the nine months ended September 30, 2019 . The
increase was primarily a result of the Company accepting a payment of $8.0
million in consideration for permitting a dark anchor tenant to terminate its
lease prior to the contractual expiration in 2020, which was partially offset by
(1) the negative impact of the COVID-19 pandemic in 2020, and (2) property
dispositions in 2019.
Investing Activities
Net cash flows used in investing activities were primarily the result of the
Company's property acquisitions, expenditures for property improvements and
property disposition activities. During the nine months ended September 30, 2020
the Company incurred expenditures of $29.8 million for property improvements,
which was partially offset by $5.0 million in proceeds from the sale of
properties. During the nine months ended September 30, 2019 , the Company
incurred expenditures of $23.8 million for property improvements, and acquired a
property for $9.1 million , which was partially offset by $18.7 million in
proceeds from the sales of properties.
Financing Activities
During the nine months endedSeptember 30, 2020 , the Company had$14.3 million of preferred and common stock distributions,$0.8 million of mortgage repayments, and$0.3 million of debt financing costs, which were partially offset by net advances of$14.9 million under the revolving credit facility. During the nine months endedSeptember 30, 2019 , the Company paid$21.4 million of preferred and common stock distributions, had$6.8 million of common stock repurchases, and$0.8 million of mortgage repayments, which were partially offset by net borrowings of$7.0 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 the National
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.
29
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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 by comparable to such REITs.
A reconciliation of net (loss) income attributable to common shareholders to FFO
and Operating FFO for the three and nine months ended September 30, 2020 and
2019 is as follows:
Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
Net (loss) income attributable to
common shareholders $ (1,421,000 ) $ 92,000 $ (15,140,000 ) $ 2,981,000
Real estate depreciation and
amortization 10,010,000 10,501,000 38,115,000 30,884,000
Limited partners' interest (7,000 ) 1,000 (87,000 ) 20,000
Gain on sales (679,000 ) - (679,000 ) (2,942,000 )
Impairment charges - - 7,607,000 -
Consolidated minority interests:
Share of income 144,000 166,000 460,000 415,000
Share of FFO (15,000 ) (130,000 ) (276,000 ) (316,000 )
FFO applicable to diluted common
shares 8,032,000 10,630,000 30,000,000 31,042,000
Redevelopment costs (a) - - 483,000 -
Operating FFO applicable to diluted
common shares $ 8,032,000 $ 10,630,000 FFO per diluted common share $ 0.09$ 0.12 $ 0.33$ 0.34 Operating FFO per diluted common share $ 0.09$ 0.12 $ 0.33$ 0.34 Weighted average number of diluted common shares (b): Common shares and equivalents 90,819,000 90,521,000 90,805,000 90,636,000 OP Units 537,000 544,000 537,000 550,000 91,356,000 91,065,000 91,342,000 91,186,000
(a) Includes redevelopment project costs expensed pursuant to GAAP such as
certain demolition and lease termination costs.
(b) The weighted average number of diluted common shares used to compute FFO
and Operating FFO applicable to diluted common shares includes OP Units and
unvested restricted shares/units that are excluded from the computation of
diluted EPS.
Inflation
Inflation has been relatively low in recent years and has not had a significant
detrimental impact on the Company's results of operations. There have been mixed
indications of an increase in inflation in the U.S. economy. If inflation rates
increase, substantially all of the Company's tenant leases contain provisions
designed to partially mitigate the negative impact of inflation in the near
term. Such lease provisions include clauses that require tenants to reimburse
the Company for inflation-sensitive costs such as real estate taxes and many of
the operating expenses it incurs. Significant inflation rate increases over a
prolonged period of time may have a material adverse impact on the Company's
business.
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