10-Q: Cedar Realty Trust Reports Q3 2024 Results, Impacted by Property Sales and Big Lots Bankruptcy

Cedar Realty Trust's Q3 2024 results reflect decreased revenues and net income, influenced by property dispositions, increased interest expenses, and impairment charges, alongside the impact of the Big Lots bankruptcy.

Summary

• Cedar Realty Trust, Inc., a REIT focused on grocery-anchored shopping centers, reported its Q3 2024 financial results.
• The company owned 17 properties as of September 30, 2024.
• Rental revenues decreased to $7.949 million in Q3 2024 from $8.340 million in Q3 2023.
• Net income decreased to $357,000 in Q3 2024 from $2.930 million in Q3 2023.
• The company recorded impairment charges of approximately $1.1 million on Oregon Avenue in Philadelphia, Pennsylvania.
• The company sold Kings Plaza for $14.2 million and Oakland Commons for $6.0 million during the nine months ended September 30, 2024.
• The company repurchased 77,075 shares of Series C Preferred Stock during the three months ended September 30, 2024.
• A tender offer was commenced on September 25, 2024, to purchase up to $9.0 million of Series C Preferred Stock.
• Big Lots filed for bankruptcy, impacting Cedar Realty Trust with approximately 0.53% of the portfolio's annualized base rent.
• The company's Board of Directors declared dividends of $0.453125 and $0.406250 per share with respect to the Company's Series B Preferred Stock and Series C Preferred Stock, respectively, payable on November 20, 2024.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to decreased revenues and net income, impairment charges, and the Big Lots bankruptcy, offset by cost-cutting measures and strategic asset sales.

Positives

• Corporate general and administrative costs were lower primarily as a result of a decrease of $0.18 million in legal and professional fees for the quarter and $0.64 million for the nine month period.
• Depreciation and amortization expenses were lower primarily as a result of a decrease of $0.38 million attributable to same center properties, including a $0.06 million decrease attributable to a same center property held for sale in 2024, and (2) a decrease of $0.09 million in depreciation and amortization attributable to properties that were sold in 2024.
• Net cash provided by operating activities increased to $5.755 million for the nine months ended September 30, 2024, from $4.925 million for the nine months ended September 30, 2023.
• Same-property occupancy increased 150 basis points.

Negatives

• Rental revenues decreased to $7.949 million in Q3 2024 from $8.340 million in Q3 2023.
• Net income decreased to $357,000 in Q3 2024 from $2.930 million in Q3 2023.
• The company recorded impairment charges of approximately $1.1 million on Oregon Avenue in Philadelphia, Pennsylvania.
• Interest expense, net was higher as a result of (1) an increase of $0.30 million in amortization expense of deferred financing costs, (2) an increase of $0.11 million in interest expense due to an increase in the overall weighted average principal debt balance, (3) an increase of $0.07 million in interest expense due to an increase in the overall weighted average interest rate, partially offset by (4) $0.02 million in interest income.
• Same-Property NOI for the three months ended September 30, 2024 decreased 10.1% compared to the same period in the prior year.

Risks

• The company's operating results depend on the ability of its tenants to make payments required by the terms of their leases.
• Big Lots' bankruptcy filing could negatively impact rental income if leases are rejected.
• The company is involved in various legal proceedings in the ordinary course of its business, including, but not limited to commercial disputes.
• The company's ability to continue to pay quarterly dividends on its preferred stock is not guaranteed.
• The company's ability and willingness to maintain its qualification as a real estate investment trust ('REIT') in light of economic, market, legal, tax and other considerations is not guaranteed.

Future Outlook

The company is working to increase revenue by improving occupancy, which includes backfilling vacant anchor spaces and replacing defaulted tenants, and will continue to declare preferred stock dividends at the discretion of the Board of Directors.

Industry Context

The report reflects the challenges faced by REITs in the current economic climate, including tenant bankruptcies (Big Lots), rising interest rates, and the need to adapt to changing consumer behavior and e-commerce trends. The focus on grocery-anchored centers is a common strategy to provide stable revenue flows.

Comparison to Industry Standards

• It is difficult to compare Cedar Realty Trust directly to industry standards without more specific information on its portfolio composition and geographic focus.
• However, the focus on grocery-anchored centers is a common strategy among retail REITs to provide stable revenue streams.
• Simon Property Group (SPG) and Kimco Realty (KIM) are larger, more diversified REITs that can serve as benchmarks for operational efficiency and capital allocation.
• Comparing Cedar Realty Trust's occupancy rates, rental rates, and NOI growth to these peers would provide valuable insights.
• The impact of the Big Lots bankruptcy should be compared to how other REITs have managed similar situations with anchor tenants.

Legal Proceedings

• The company is involved in various legal proceedings in the ordinary course of its business, including, but not limited to commercial disputes.
• A class action complaint against the Company, the Board of Directors prior to the Merger, and WHLR in Montgomery County Circuit Court, Maryland entitled Sydney, et al. v. Cedar Realty Trust, Inc., et al. , (Case No. C-15-CV-22-001527) was dismissed by the Fourth Circuit.

Related Party Transactions

• The Company is a subsidiary of WHLR.
• WHLR performs property management and leasing services for the Company pursuant to the Wheeler Real Estate Company Management Agreement.
• The Operating Partnership and WHLR's operating partnership, Wheeler REIT, L.P., are party to a cost sharing and reimbursement agreement pursuant to which the parties agreed to share costs and expenses associated with certain employees, certain facilities and property, and certain arrangements with third parties (the 'Cost Sharing Agreement').

Stakeholder Impact

• Shareholders: The decrease in net income and potential impact of the Big Lots bankruptcy could negatively impact shareholder value.
• Preferred Stockholders: The company's ability to continue paying preferred stock dividends is subject to the Board of Directors' discretion.
• Tenants: The company's focus on maintaining occupancy and replacing defaulted tenants could impact existing tenants.
• Employees: The company's strategic dispositions and cost-cutting measures could impact employees.

Next Steps

• The company will continue to evaluate and manage its portfolio, including strategic dispositions and leasing activities.
• The company will continue to monitor the Big Lots bankruptcy and its potential impact.
• The company will complete the Tender Offer and repurchase shares of Series C Preferred Stock.
• Future dividend declarations will continue to be at the discretion of the Board of Directors.

Key Dates

Keywords

REIT, retail properties, grocery-anchored shopping centers, financial results, property sales, preferred stock, bankruptcy, leasing activity, dividends, Cedar Realty Trust