Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER: 001-31817
CEDAR REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
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Maryland |
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42-1241468 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
44 South Bayles Avenue, Port Washington, New York 11050-3765
(Address of principal executive offices) (Zip Code)
(516) 767-6492
(Registrants telephone number, including area code)
Cedar Shopping Centers, Inc.
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: At October 31, 2011, there were 68,009,775 shares of Common Stock,
$0.06 par value, outstanding.
CEDAR REALTY TRUST, INC.
INDEX
2
Forward-Looking Statements
The information contained in this Form 10Q is unaudited and does not purport to disclose all
items required by accounting principles generally accepted in the United States (GAAP). In
addition, statements made or incorporated by reference herein may include certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1934 and Section 21E of the
Securities Exchange Act of 1934 and, as such, may involve known and unknown risks, uncertainties
and other factors which may cause the Companys actual results, performance or achievements to be
materially different from future results, performance or achievements expressed or implied by such
forward-looking statements. Forward-looking statements, which are based on certain assumptions and
describe the Companys future plans, strategies and expectations, are generally identifiable by use
of the words may, will, should, estimates, projects, anticipates, believes,
expects, intends, future, and words of similar import, or the negative thereof. Factors which
could have a material adverse effect on the operations and future prospects of the Company are as
set forth under the heading Risk Factors in the Companys Annual Report on Form 10-K and include,
but are not limited to, the following: real estate investment considerations, such as the effect of
economic and other conditions in general and in the Companys market areas in particular; the
financial viability of the Companys tenants (including an inability to pay rent, filing for
bankruptcy protection, closing stores and/or vacating the premises); the continuing availability of
acquisition, ground-up development and redevelopment opportunities, on favorable terms; the
availability of equity and debt capital (including the availability of construction financing) in
the public and private markets; the availability of suitable joint venture partners and potential
purchasers of the Companys properties if offered for sale; the ability of the Companys joint
venture partner to fund its share of future property acquisitions; the adequacy of impairment
provisions for properties treated as held for sale/conveyance; changes in interest rates; the fact
that returns from acquisition, ground-up development and redevelopment activities may not be at
expected levels or at expected times; risks inherent in ongoing ground-up development and
redevelopment projects including, but not limited to, cost overruns resulting from weather delays,
changes in the nature and scope of ground-up development and redevelopment efforts, changes in
governmental regulations relating thereto, and market factors involved in the pricing of material
and labor; the need to renew leases or re-let space upon the expiration or termination of current
leases and incur applicable required replacement costs; and the financial flexibility of the
Company and our joint venture partners to repay or refinance debt obligations when due and to fund
tenant improvements and capital expenditures.
3
CEDAR REALTY TRUST, INC.
Consolidated Balance Sheets
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September 30, |
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December 31, |
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2011 |
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2010 |
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(unaudited) |
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Assets |
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Real estate: |
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Land |
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$ |
271,907,000 |
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$ |
261,673,000 |
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Buildings and improvements |
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1,088,396,000 |
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1,028,443,000 |
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1,360,303,000 |
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1,290,116,000 |
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Less accumulated depreciation |
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(183,274,000 |
) |
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(157,803,000 |
) |
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Real estate, net |
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1,177,029,000 |
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1,132,313,000 |
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Real estate held for sale/conveyance |
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242,844,000 |
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348,743,000 |
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Investment in unconsolidated joint ventures |
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45,087,000 |
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52,466,000 |
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Cash and cash equivalents |
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11,642,000 |
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14,166,000 |
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Restricted cash |
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13,773,000 |
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12,493,000 |
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Receivables: |
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Rents and other tenant receivables, net |
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9,456,000 |
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7,048,000 |
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Straight-line rents |
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13,335,000 |
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12,471,000 |
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Loans and other receivables ($4.3 million and $0.8 million,
respectively) and
joint venture settlements |
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5,939,000 |
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6,868,000 |
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Other assets |
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16,570,000 |
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9,411,000 |
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Deferred charges, net |
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20,893,000 |
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24,456,000 |
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Assets relating to real estate held for sale/conveyance |
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2,299,000 |
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2,052,000 |
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Total assets |
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$ |
1,558,867,000 |
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$ |
1,622,487,000 |
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Liabilities and equity |
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Mortgage loans payable |
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$ |
590,965,000 |
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$ |
550,525,000 |
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Mortgage loans payable real estate held for sale/conveyance |
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148,114,000 |
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156,991,000 |
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Secured revolving credit facilities |
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166,317,000 |
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132,597,000 |
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Accounts payable and accrued liabilities |
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36,080,000 |
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29,026,000 |
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Unamortized intangible lease liabilities |
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36,409,000 |
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40,253,000 |
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Liabilities relating to real estate held for sale/conveyance |
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6,923,000 |
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7,571,000 |
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Total liabilities |
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984,808,000 |
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916,963,000 |
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Limited partners interest in Operating Partnership |
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4,715,000 |
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7,053,000 |
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Commitments and contingencies |
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Equity: |
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Cedar Realty Trust, Inc. shareholders equity: |
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Preferred stock ($.01 par value, $25.00 per share
liquidation value, 12,500,000 shares authorized, 6,400,000 shares
issued and outstanding) |
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158,575,000 |
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158,575,000 |
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Common stock ($.06 par value, 150,000,000 shares authorized
68,010,000 and 66,520,000 shares, respectively, issued and
outstanding) |
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4,081,000 |
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3,991,000 |
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Treasury stock (1,325,000 and 1,120,000 shares, respectively, at cost) |
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(10,692,000 |
) |
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(10,367,000 |
) |
Additional paid-in capital |
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718,495,000 |
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712,548,000 |
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Cumulative distributions in excess of net income |
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(359,784,000 |
) |
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(231,275,000 |
) |
Accumulated other comprehensive loss |
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(3,659,000 |
) |
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(3,406,000 |
) |
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Total Cedar Realty Trust, Inc. shareholders equity |
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507,016,000 |
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630,066,000 |
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Noncontrolling interests: |
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Minority interests in consolidated joint ventures |
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56,793,000 |
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62,050,000 |
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Limited partners interest in Operating Partnership |
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5,535,000 |
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6,355,000 |
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Total noncontrolling interests |
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62,328,000 |
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68,405,000 |
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Total equity |
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569,344,000 |
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698,471,000 |
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Total liabilities and equity |
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$ |
1,558,867,000 |
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$ |
1,622,487,000 |
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See accompanying notes to consolidated financial statements.
4
CEDAR REALTY TRUST, INC.
Consolidated Statements of Operations
(unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Revenues: |
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Rents |
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$ |
26,504,000 |
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$ |
24,384,000 |
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$ |
78,156,000 |
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$ |
77,565,000 |
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Expense recoveries |
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6,271,000 |
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5,735,000 |
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20,365,000 |
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19,637,000 |
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Other |
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685,000 |
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1,591,000 |
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2,138,000 |
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1,926,000 |
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Total revenues |
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33,460,000 |
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31,710,000 |
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100,659,000 |
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99,128,000 |
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Expenses: |
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Operating, maintenance and management |
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6,430,000 |
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5,674,000 |
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20,780,000 |
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18,993,000 |
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Real estate and other property-related taxes |
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4,147,000 |
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3,986,000 |
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12,307,000 |
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12,151,000 |
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General and administrative |
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2,899,000 |
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2,421,000 |
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8,115,000 |
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6,738,000 |
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Management transition charges |
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6,530,000 |
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Impairment charges |
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7,419,000 |
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|
155,000 |
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7,419,000 |
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2,272,000 |
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Acquisition transaction costs and terminated projects |
|
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2,043,000 |
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1,169,000 |
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3,365,000 |
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Depreciation and amortization |
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9,801,000 |
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8,846,000 |
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27,844,000 |
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26,942,000 |
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Total expenses |
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30,696,000 |
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23,125,000 |
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84,164,000 |
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70,461,000 |
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Operating income |
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2,764,000 |
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8,585,000 |
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16,495,000 |
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28,667,000 |
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Non-operating income and expense: |
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Interest expense, including amortization of
deferred financing costs |
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(10,475,000 |
) |
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(10,523,000 |
) |
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(31,155,000 |
) |
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(33,174,000 |
) |
Accelerated write-off of deferred financing costs |
|
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(2,552,000 |
) |
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(2,552,000 |
) |
Interest income |
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41,000 |
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3,000 |
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216,000 |
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12,000 |
|
Unconsolidated joint ventures: |
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Equity in income (loss) |
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327,000 |
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(288,000 |
) |
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1,152,000 |
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|
547,000 |
|
Write-off of investment |
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(7,961,000 |
) |
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Gain on sale of land parcel |
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130,000 |
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130,000 |
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Total non-operating income and expense |
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(9,977,000 |
) |
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(13,360,000 |
) |
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(37,618,000 |
) |
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(35,167,000 |
) |
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Loss before discontinued operations |
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(7,213,000 |
) |
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(4,775,000 |
) |
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(21,123,000 |
) |
|
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(6,500,000 |
) |
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Discontinued operations: |
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Income from operations |
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619,000 |
|
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|
318,000 |
|
|
|
2,821,000 |
|
|
|
1,408,000 |
|
Impairment charges |
|
|
(64,671,000 |
) |
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(34,000 |
) |
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(87,287,000 |
) |
|
|
(3,276,000 |
) |
Gain on sales |
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|
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|
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|
502,000 |
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|
170,000 |
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Total discontinued operations |
|
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(64,052,000 |
) |
|
|
284,000 |
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|
(83,964,000 |
) |
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(1,698,000 |
) |
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Net loss |
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(71,265,000 |
) |
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|
(4,491,000 |
) |
|
|
(105,087,000 |
) |
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(8,198,000 |
) |
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Less, net loss (income) attributable to noncontrolling
interests: |
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|
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|
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|
|
|
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|
Minority interests in consolidated joint ventures |
|
|
3,285,000 |
|
|
|
194,000 |
|
|
|
3,332,000 |
|
|
|
(194,000 |
) |
Limited partners interest in Operating Partnership |
|
|
1,455,000 |
|
|
|
196,000 |
|
|
|
2,294,000 |
|
|
|
488,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss attributable to noncontrolling interests |
|
|
4,740,000 |
|
|
|
390,000 |
|
|
|
5,626,000 |
|
|
|
294,000 |
|
|
|
|
|
|
|
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|
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|
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|
|
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|
Net loss attributable to Cedar Realty Trust, Inc. |
|
|
(66,525,000 |
) |
|
|
(4,101,000 |
) |
|
|
(99,461,000 |
) |
|
|
(7,904,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred distribution requirements |
|
|
(3,580,000 |
) |
|
|
(2,679,000 |
) |
|
|
(10,621,000 |
) |
|
|
(6,617,000 |
) |
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Net loss attributable to common shareholders |
|
$ |
(70,105,000 |
) |
|
$ |
(6,780,000 |
) |
|
$ |
(110,082,000 |
) |
|
$ |
(14,521,000 |
) |
|
|
|
|
|
|
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Per common share attributable to common shareholders
(basic
and diluted): |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.09 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.40 |
) |
|
$ |
(0.20 |
) |
Discontinued operations |
|
|
(0.96 |
) |
|
|
0.00 |
|
|
$ |
(1.27 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1.05 |
) |
|
$ |
(0.10 |
) |
|
$ |
(1.67 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Cedar Realty Trust, Inc.
common shareholders, net of limited partners interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(7,334,000 |
) |
|
$ |
(7,057,000 |
) |
|
$ |
(27,797,000 |
) |
|
$ |
(12,862,000 |
) |
(Loss) income from discontinued operations |
|
|
(62,771,000 |
) |
|
|
277,000 |
|
|
|
(82,777,000 |
) |
|
|
(1,825,000 |
) |
Gain on sales of discontinued operations |
|
|
|
|
|
|
|
|
|
|
492,000 |
|
|
|
166,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(70,105,000 |
) |
|
$ |
(6,780,000 |
) |
|
$ |
(110,082,000 |
) |
|
$ |
(14,521,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.27 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
66,800,000 |
|
|
|
65,835,000 |
|
|
|
66,253,000 |
|
|
|
62,999,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
CEDAR REALTY TRUST, INC.
Consolidated Statements of Equity
Nine months ended September 30, 2011
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cedar Realty Trust, Inc. Shareholders |
|
|
|
Preferred stock |
|
|
Common stock |
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
$25.00 |
|
|
|
|
|
|
|
|
|
|
Treasury |
|
|
Additional |
|
|
distributions |
|
|
other |
|
|
|
|
|
|
|
|
|
|
Liquidation |
|
|
|
|
|
|
$0.06 |
|
|
stock, |
|
|
paid-in |
|
|
in excess of |
|
|
comprehensive |
|
|
|
|
|
|
Shares |
|
|
value |
|
|
Shares |
|
|
Par value |
|
|
at cost |
|
|
capital |
|
|
net income |
|
|
(loss) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
6,400,000 |
|
|
$ |
158,575,000 |
|
|
|
66,520,000 |
|
|
$ |
3,991,000 |
|
|
$ |
(10,367,000 |
) |
|
$ |
712,548,000 |
|
|
$ |
(231,275,000 |
) |
|
$ |
(3,406,000 |
) |
|
$ |
630,066,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,461,000 |
) |
|
|
|
|
|
|
(99,461,000 |
) |
Unrealized gain on change in fair value
of cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253,000 |
) |
|
|
(253,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(99,714,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation activity, net |
|
|
|
|
|
|
|
|
|
|
759,000 |
|
|
|
46,000 |
|
|
|
(325,000 |
) |
|
|
1,208,000 |
|
|
|
|
|
|
|
|
|
|
|
929,000 |
|
Net proceeds from sale of common stock |
|
|
|
|
|
|
|
|
|
|
39,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
223,000 |
|
|
|
|
|
|
|
|
|
|
|
225,000 |
|
Net proceeds from dividend reinvestment and
direct stock purchase plan |
|
|
|
|
|
|
|
|
|
|
692,000 |
|
|
|
42,000 |
|
|
|
|
|
|
|
4,046,000 |
|
|
|
|
|
|
|
|
|
|
|
4,088,000 |
|
Preferred distribution requirements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,621,000 |
) |
|
|
|
|
|
|
(10,621,000 |
) |
Distributions to common shareholders/
noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,427,000 |
) |
|
|
|
|
|
|
(18,427,000 |
) |
Contribution from minority interest partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reallocation adjustment of limited
partners interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470,000 |
|
|
|
|
|
|
|
|
|
|
|
470,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2011 |
|
|
6,400,000 |
|
|
$ |
158,575,000 |
|
|
|
68,010,000 |
|
|
$ |
4,081,000 |
|
|
$ |
(10,692,000 |
) |
|
$ |
718,495,000 |
|
|
$ |
(359,784,000 |
) |
|
$ |
(3,659,000 |
) |
|
$ |
507,016,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
Limited |
|
|
|
|
|
|
|
|
|
|
Minority |
|
|
partners |
|
|
|
|
|
|
|
|
|
|
interests in |
|
|
interest in |
|
|
|
|
|
|
|
|
|
|
consolidated |
|
|
Operating |
|
|
|
|
|
|
Total |
|
|
|
joint ventures |
|
|
Partnership |
|
|
Total |
|
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
62,050,000 |
|
|
$ |
6,355,000 |
|
|
$ |
68,405,000 |
|
|
$ |
698,471,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(3,332,000 |
) |
|
|
(1,238,000 |
) |
|
|
(4,570,000 |
) |
|
|
(104,031,000 |
) |
Unrealized gain on change in fair value
of cash flow hedges |
|
|
|
|
|
|
(7,000 |
) |
|
|
(7,000 |
) |
|
|
(260,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss |
|
|
(3,332,000 |
) |
|
|
(1,245,000 |
) |
|
|
(4,577,000 |
) |
|
|
(104,291,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation activity, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
929,000 |
|
Net proceeds from sale of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000 |
|
Net proceeds from dividend reinvestment and
direct stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,088,000 |
|
Preferred distribution requirements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,621,000 |
) |
Distributions to common shareholders/
noncontrolling interests |
|
|
(2,193,000 |
) |
|
|
(207,000 |
) |
|
|
(2,400,000 |
) |
|
|
(20,827,000 |
) |
Contribution from minority interest partners |
|
|
268,000 |
|
|
|
|
|
|
|
268,000 |
|
|
|
268,000 |
|
Reallocation adjustment of limited
partners interest |
|
|
|
|
|
|
632,000 |
|
|
|
632,000 |
|
|
|
1,102,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2011 |
|
$ |
56,793,000 |
|
|
$ |
5,535,000 |
|
|
$ |
62,328,000 |
|
|
$ |
569,344,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
CEDAR REALTY TRUST, INC.
Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(105,087,000 |
) |
|
$ |
(8,198,000 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Equity in income of unconsolidated joint ventures |
|
|
(1,152,000 |
) |
|
|
(547,000 |
) |
Distributions from unconsolidated joint ventures |
|
|
865,000 |
|
|
|
759,000 |
|
Write-off of investment in unconsolidated joint venture |
|
|
7,961,000 |
|
|
|
|
|
Impairment charges |
|
|
7,419,000 |
|
|
|
2,272,000 |
|
Acquisition transaction costs and terminated projects |
|
|
1,169,000 |
|
|
|
1,322,000 |
|
Impairments charges discontinued operations |
|
|
87,287,000 |
|
|
|
3,276,000 |
|
Gain on sales of real estate |
|
|
(632,000 |
) |
|
|
(170,000 |
) |
Straight-line rents |
|
|
(1,266,000 |
) |
|
|
(1,622,000 |
) |
Provision for doubtful accounts |
|
|
2,572,000 |
|
|
|
2,484,000 |
|
Depreciation and amortization |
|
|
32,917,000 |
|
|
|
35,644,000 |
|
Amortization of intangible lease liabilities |
|
|
(5,055,000 |
) |
|
|
(7,478,000 |
) |
Amortization (including accelerated write-off) and market price adjustments
relating to stock-based compensation |
|
|
3,907,000 |
|
|
|
2,068,000 |
|
Amortization (including accelerated write-off) of deferred financing costs |
|
|
3,212,000 |
|
|
|
6,620,000 |
|
Increases/decreases in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Rents and other receivables, net |
|
|
(5,066,000 |
) |
|
|
(4,518,000 |
) |
Joint venture settlements |
|
|
(377,000 |
) |
|
|
(3,383,000 |
) |
Prepaid expenses and other |
|
|
(5,843,000 |
) |
|
|
(6,935,000 |
) |
Accounts payable and accrued expenses |
|
|
(1,464,000 |
) |
|
|
(1,349,000 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
21,367,000 |
|
|
|
20,245,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Expenditures for real estate and improvements |
|
|
(76,064,000 |
) |
|
|
(20,874,000 |
) |
Net proceeds from sales of real estate |
|
|
11,708,000 |
|
|
|
2,056,000 |
|
Net proceeds from transfers to unconsolidated Cedar/RioCan joint venture,
less
cash at dates of transfer |
|
|
4,787,000 |
|
|
|
31,395,000 |
|
Investments in and advances to unconsolidated joint ventures |
|
|
(4,185,000 |
) |
|
|
(30,396,000 |
) |
Distributions of capital from unconsolidated joint ventures |
|
|
3,990,000 |
|
|
|
7,725,000 |
|
Increase in loans and other receivables |
|
|
(4,647,000 |
) |
|
|
|
|
Construction escrows and other |
|
|
(2,661,000 |
) |
|
|
4,632,000 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(67,072,000 |
) |
|
|
(5,462,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
Net advances/(repayments) from/(to) revolving credit facilities |
|
|
33,720,000 |
|
|
|
(131,239,000 |
) |
Proceeds from mortgage financings |
|
|
45,791,000 |
|
|
|
16,272,000 |
|
Mortgage repayments |
|
|
(9,255,000 |
) |
|
|
(18,594,000 |
) |
Payments of debt financing costs |
|
|
|
|
|
|
(1,141,000 |
) |
Termination payment related to interest rate swaps |
|
|
|
|
|
|
(5,476,000 |
) |
Noncontrolling interests: |
|
|
|
|
|
|
|
|
Contribution from consolidated joint venture minority interests |
|
|
268,000 |
|
|
|
|
|
Distributions to consolidated joint venture minority interests |
|
|
(2,193,000 |
) |
|
|
(2,186,000 |
) |
Redemptions of Operating Partnership Units |
|
|
|
|
|
|
(2,834,000 |
) |
Distributions to limited partners |
|
|
(386,000 |
) |
|
|
(526,000 |
) |
Net proceeds from the sales of common stock |
|
|
4,313,000 |
|
|
|
138,296,000 |
|
Exercise of warrant |
|
|
|
|
|
|
10,000,000 |
|
Preferred stock distributions |
|
|
(10,650,000 |
) |
|
|
(5,907,000 |
) |
Distributions to common shareholders |
|
|
(18,427,000 |
) |
|
|
(16,470,000 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
43,181,000 |
|
|
|
(19,805,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents |
|
|
(2,524,000 |
) |
|
|
(5,022,000 |
) |
Cash and cash equivalents at beginning of period |
|
|
14,166,000 |
|
|
|
17,164,000 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
11,642,000 |
|
|
$ |
12,142,000 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
7
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Note 1. Organization and Basis of Preparation
Cedar Realty Trust, Inc. (formerly known as Cedar Shopping Centers, Inc. the Company) was
organized in 1984 and elected to be taxed as a real estate investment trust (REIT) in 1986. The
Company currently focuses primarily on ownership and operation of supermarket-anchored shopping
centers. The Company has recently determined (1) to exit the Ohio market, principally the Discount
Drug Mart portfolio of drugstore/convenience centers, and concentrate on the mid-Atlantic and
Northeast coastal regions (12 properties held for sale as of September 30, 2011), (2) to
concentrate on grocery-anchored strip centers, by disposing of its mall and
single-tenant/triple-net-lease properties (14 properties held for sale as of September 30, 2011),
and (3) to focus on improving operations and performance at the Companys remaining properties, and
to reduce development activities, by disposing of certain development projects, land acquired for
development, and other non-core assets (seven properties held for sale/conveyance as of September
30, 2011). In addition, discontinued operations reflect the anticipated consummation of the Homburg
joint venture buy/sell transactions (seven properties held for sale as of September 30, 2011). At
September 30, 2011, the Company owned and managed 92 operating properties (excluding properties
held for sale/conveyance), including 22 properties in the unconsolidated Cedar/RioCan joint
venture.
Cedar Realty Trust Partnership, L.P. (formerly known as Cedar Shopping Centers Partnership,
L.P. the Operating Partnership) is the entity through which the Company conducts substantially
all of its business and owns (either directly or through subsidiaries) substantially all of its
assets. At September 30, 2011 the Company owned a 98.0% economic interest in, and was the sole
general partner of, the Operating Partnership. The limited partners interest in the Operating
Partnership (2.0% at September 30, 2011) is represented by Operating Partnership Units (OP
Units). The carrying amount of such interest is adjusted at the end of each reporting period to an
amount equal to the limited partners ownership percentage of the Operating Partnerships net
equity. Allocations of amounts between the Company and its limited partners include the impact of
the equity award shares discussed in Note 2 Stock- Based Compensation. The approximately 1.4
million OP Units outstanding at September 30, 2011 are economically equivalent to the Companys
common stock and are convertible into the Companys common stock at the option of the respective
holders on a one-to-one basis.
As used herein, the Company refers to Cedar Realty Trust, Inc. and its subsidiaries on a
consolidated basis, including the Operating Partnership or, where the context so requires, Cedar
Realty Trust, Inc. only.
8
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
The consolidated financial statements include the accounts and operations of the Company, the
Operating Partnership, its subsidiaries, and certain joint venture partnerships in which it
participates. The Company consolidates all variable interest entities (VIEs) for which it is the
primary beneficiary. Generally, a VIE is an entity with one or more of the following
characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to
finance its activities without additional subordinated financial support, (b) as a group, the
holders of the equity investment at risk (i) lack the power to make decisions about the entitys
activities that significantly impacts the entitys performance through voting or similar rights,
(ii) have no obligation to absorb the expected losses of the entity, or (iii) have no right to
receive the expected residual returns of the entity, or (c) the equity investors have voting rights
that are not proportional to their economic interests, and substantially all of the entitys
activities either involve, or are conducted on behalf of, an investor that has disproportionately
few voting rights. The Company follows the accounting guidance for determining whether an entity is
a VIE, which requires the performance of a qualitative rather than a quantitative analysis to
determine the primary beneficiary of a VIE. The guidance requires an entity to consolidate a VIE if
it has (i) the power to direct the activities that most significantly impact the entitys economic
performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits
from the VIE that could be significant to the VIE. Significant judgments related to these
determinations include estimates about the current and future fair values and performance of real
estate held by these VIEs and general market conditions.
With respect to its 13 consolidated operating joint ventures, the Company has general
partnership interests of 20% in nine properties, 40% in two properties, 50% in one property, and
75% in one property. As (i) such entities are not VIEs, and (ii) the Company is the sole general
partner and exercises substantial operating control over these entities, the Company has determined
that such entities should be consolidated for financial statement purposes. Current accounting
guidance provides a framework for determining whether a general partner controls, and should
consolidate, a limited partnership or similar entity in which it owns a minority interest. Seven of
the nine 20%-owned properties, and the 50%-owned and 75%-owned properties are treated as held for
sale/conveyance at September 30, 2011 (see note 3 Real Estate Discontinued Operations and
Land Dispositions).
The Companys three 60%-owned joint ventures originally formed as development projects in
Limerick, Pottsgrove and Stroudsburg, Pennsylvania, are consolidated as they are deemed to be VIEs
and the Company is the primary beneficiary in each case. At September 30, 2011, these VIEs owned
real estate with a carrying value of $140.0 million. The assets of the consolidated VIEs can be
used to settle obligations other than those of the consolidated VIEs. At that date, one of the
VIEs had a property-specific mortgage loan payable aggregating $63.8 million, and the real estate
owned by the other two VIEs partially collateralized the secured revolving development property
credit facility (the development property credit facility) to the extent of $28.1 million. Such
obligations are guaranteed by, and are recourse to, the Company. For such development projects, the
Company reviews the applicable budgets and provides supervisory support. The development project
located in Limerick, Pennsylvania is treated as held for sale/conveyance at September 30, 2011
(see note 3 Real Estate Discontinued Operations and Land Dispositions).
9
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
With respect to its unconsolidated joint ventures, the Company has a 20% interest in a joint
venture with RioCan Real Estate Investment Trust of Toronto, Canada, a publicly-traded Canadian
real estate investment trust (RioCan) formed initially for the acquisition of seven shopping
center properties owned by the Company; all seven properties had been transferred to the joint
venture by May 2010 and, as of September 30, 2011, the joint venture owned 22 properties. Although
the Company provides management and other services, RioCan has significant management participation
rights. The Company has determined that this joint venture is not a VIE and, accordingly, the
Company accounts for its investment in this joint venture under the equity method. The accounting
treatment presentation on the accompanying consolidated statements of operations for the nine
months ended September 30, 2010 reflects the results of the properties operations through the
respective dates of transfer in current operations and, prospectively following their transfer to
the joint venture, as equity in income (loss) of unconsolidated joint ventures. Accordingly, the
accompanying statements of operations for the nine months ended September 30, 2010 includes
revenues of $3.3 million applicable to the periods prior to the dates of transfer.
Until June 2011, the Company had an approximate 85% limited partners interest in an
unconsolidated joint venture (increased from approximately 76% in the second quarter of 2011 for a
payment of $745,000) which owned a single-tenant property in Philadelphia, Pennsylvania (together
with an adjacent property 100%-owned by the Company, and leased to the same tenant, both properties
originally acquired for future redevelopment). The Company had determined that this joint venture
was not a VIE, as the Company had no control over the entity, did not provide any management or
other services to the entity, and had no substantial participating or kick out rights. The
Company had accounted for its investment in this joint venture under the equity method. The tenant
vacated both premises in April 2011, at which time both the joint venture and the Companys
wholly-owned subsidiary had CMBS non-recourse first mortgage loans secured by the properties in the
amounts of $14.7 million due for payment in May 2011 and $12.9 million due for payment in March
2012, respectively. The Company reviewed its investment alternatives and determined that it would
not be prudent to proceed with the development, sale or lease of the properties, or to advance the
funds necessary to pay off the mortgages. Such determination was based on the uncertainty in
obtaining favorable revisions to zoning, difficult existing deed restrictions, the uncertainty in
achieving required economic returns given the extensive additional capital investments required,
and uncertain current market conditions for sale or lease. As a result, in exchange for a payment
by the Company of $838,000 to its joint venture partners, the Company (a) obtained appropriate
releases, and (b) assigned its limited partnership interest to other partners of the joint venture.
Accordingly, the Company wrote off its investment in the joint venture ($8.0 million recorded
during the three months ended June 30, 2011), and recorded an impairment charge, included in
discontinued operations, related to the value of the 100%-owned adjacent property ($9.1 million
recorded during the three months ended June 30, 2011, as more fully discussed in Note 3 Real
Estate Discontinued Operations and Land Dispositions).
10
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
At September 30, 2011, the Company had a deposit of $0.5 million on a land parcel (which is
its maximum exposure) to be purchased for future expansion at an existing property. Although the
entity holding the deposit is considered a VIE, it is not consolidated as the Company is not the
primary beneficiary.
Note 2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and include all of the information and disclosures required by U.S.
Generally Accepted Accounting Principles (GAAP) for interim reporting. Accordingly, they do not
include all of the disclosures required by GAAP for complete financial statements. In the opinion
of management, all adjustments necessary for fair presentation (including normal recurring
accruals) have been included. The consolidated financial statements in this Form 10-Q should be
read in conjunction with the audited consolidated financial statements and related notes contained
in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
The consolidated financial statements reflect certain reclassifications of prior period
amounts to conform to the 2011 presentation, principally to reflect the sale and/or treatment as
held for sale/conveyance of certain operating properties and the treatment thereof as
discontinued operations. The reclassifications had no impact on previously-reported net income
(loss) attributable to common shareholders or earnings per share.
Real Estate Investments
Real estate investments are carried at cost less accumulated depreciation. The provision for
depreciation is calculated using the straight-line method based upon the estimated useful lives of
the respective assets of between 3 and 40 years. Depreciation expense amounted to $9.0 million and
$8.1 million for the three months ended September 30, 2011 and 2010, respectively, and $25.6
million and $25.0 million for the nine months ended September 30, 2011 and 2010, respectively.
Expenditures for betterments that substantially extend the useful lives of the assets are
capitalized. Expenditures for maintenance, repairs, and betterments that do not substantially
prolong the normal useful life of an asset are charged to operations as incurred.
Upon the sale (or treatment as held for sale/conveyance) or other disposition of assets, the
cost and related accumulated depreciation and amortization are removed from the accounts (or
reclassified) and the resulting gain or impairment loss, if any, are reflected as discontinued
operations. In addition, prior periods financial statements are reclassified to reflect the
operations of the properties sold (or treated as held for sale/conveyance) as discontinued
operations.
11
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Real estate investments include costs of ground-up development and redevelopment activities,
and construction in progress. Capitalized costs, including interest and other carrying costs during
the construction and/or renovation periods, are included in the cost of the related asset and
charged to operations through depreciation over the assets estimated useful life. Interest and
financing costs capitalized amounted to $0.9 million and $0.4 million for the three months ended
September 30, 2011 and 2010, respectively, and $2.0 million and $1.7 million for the nine months
ended September 30, 2011 and 2010, respectively. A variety of costs are incurred in the
acquisition, development and leasing of a property, such as pre-construction costs essential to the
development of the property, development costs, construction costs, interest costs, real estate
taxes, salaries and related costs, and other costs incurred during the period of development. After
a determination is made to capitalize a cost, it is allocated to the specific component of a
project that is benefited. The Company ceases capitalization on the portions substantially
completed and occupied, or held available for occupancy, and capitalizes only those costs
associated with the portions under development. The Company considers a construction project to be
substantially completed and held available for occupancy upon the completion of tenant
improvements, but not later than one year from cessation of major construction activity.
Management reviews each real estate investment for impairment whenever events or circumstances
indicate that the carrying value of a real estate investment may not be recoverable. The review of
recoverability is based on an estimate of the future cash flows that are expected to result from
the real estate investments use and eventual disposition. These cash flows consider factors such
as expected future operating income, trends and prospects, as well as the effects of leasing
demand, competition and other factors. If an impairment event exists due to the projected inability
to recover the carrying value of a real estate investment, an impairment loss is recorded to the
extent that the carrying value exceeds estimated fair value. Real estate investments held for
sale/conveyance are carried at the lower of their respective carrying amounts or estimated fair
values, less costs to sell. Depreciation and amortization are suspended during the periods held for
sale/conveyance.
During the three months ended March 31, 2010, the Company wrote-off (included in acquisition
transaction costs and terminated projects in the consolidated statements of operations)
approximately $1.3 million of costs incurred in prior years for a potential development project in
Williamsport, Pennsylvania that the Company determined would not go forward.
12
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Conditional asset retirement obligation
A conditional asset retirement obligation is a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement is conditional on a future event that may
or may not be within the control of the Company. The Company would record a liability for a
conditional asset retirement obligation if the fair value of the obligation can be reasonably
estimated. Environmental studies conducted at the time of acquisition with respect to all of the
Companys properties did not reveal any material environmental liabilities, and the Company is
unaware of any subsequent environmental matters that would have created a material liability. The
Company believes that its properties are currently in material compliance with applicable
environmental, as well as non-environmental, statutory and regulatory requirements. There were no
conditional asset retirement obligation liabilities recorded by the Company during the three and
nine months ended September 30, 2011 and 2010, respectively.
Fair Value Measurements
The fair value measurement accounting guidance establishes a fair value hierarchy that
prioritizes observable and unobservable inputs used to measure fair value into three levels:
|
|
|
Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets. |
|
|
|
Level 2 Inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the
financial instrument. |
|
|
|
Level 3 Inputs to the valuation methodology are unobservable and significant to
the fair value measurement. |
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority
to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible while also considering counterparty credit risk in the assessment of fair value. Financial
liabilities measured at fair value in the consolidated financial statements consist of interest
rate swaps. The fair values of interest rate swaps are determined using widely accepted valuation
techniques, including discounted cash flow analysis, on the expected cash flows of each derivative.
The analysis reflects the contractual terms of the swaps, including the period to maturity, and
uses observable market-based inputs, including interest rate curves (significant other observable
inputs). The fair value calculation also includes an amount for risk of non-performance using
significant unobservable inputs such as estimates of current credit spreads to evaluate the
likelihood of default. The Company has concluded, as of September 30, 2011, that the fair value
associated with the significant unobservable inputs relating to the Companys risk of
non-performance was insignificant to the overall fair value of the interest rate swap agreements
and, as a result, the Company has determined that the relevant inputs for purposes of calculating
the fair value of the interest rate swap agreements, in their entirety, were based upon
significant other observable inputs. Nonfinancial assets and liabilities measured at fair value
in the consolidated financial statements consists of real estate held for sale/conveyance-
discontinued operations.
13
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
The carrying amounts of cash and cash equivalents, restricted cash, rents and other
receivables, certain other assets, accounts payable and accrued expenses approximate fair value.
The fair value of the Companys investments ($3.4 million and $0 at September 30, 2011 and December
31, 2010, respectively) and liabilities related to deferred compensation plans ($3.4 million and $0
at September 30, 2011 and December 31, 2010, respectively) were determined to be a Level 1 within
the valuation hierarchy, and were based on independent values provided by financial institutions.
The valuation of the liability for the Companys interest rate swaps ($2.2 million and $1.6 million
at September 30, 2011 and December 31, 2010, respectively), which is measured on a recurring basis,
was determined to be a Level 2 within the valuation hierarchy, and was based on independent values
provided by financial institutions. The valuation of the assets for the Companys real estate held
for sale/conveyance discontinued operations, which is measured on a nonrecurring basis, have
been determined to be (i) a Level 2 within the valuation hierarchy, based on the respective
contracts of sale or (ii) Level 3 within the valuation hierarchy, where applicable, based on
estimated sales prices determined by discounted cash flow analyses if no contract amounts were as
yet being negotiated. The discounted cash flow analyses included all estimated cash inflows and
outflows over a specific holding period and where applicable, any estimated debt premiums. These
cash flows were comprised of unobservable inputs which included contractual rental revenues and
forecasted rental revenues and expenses based upon market conditions and expectations for growth.
Capitalization rates and discount rates utilized in these analyses were based upon observable rates
that the Company believed to be within a reasonable range of current market rates for the
respective properties.
The fair value of the Companys fixed rate mortgage loans was estimated using available market
information and discounted cash flows analyses based on borrowing rates the Company believes it
could obtain with similar terms and maturities. As of September, 2011 and December 31, 2010, the
aggregate fair values of the Companys fixed rate mortgage loans were approximately $541.3 million
and $490.1 million, respectively; the carrying values of such loans were $527.2 million and $488.0
million, respectively, at those dates.
14
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
The following tables show the hierarchy for those assets measured at fair value on a
non-recurring basis as of September 30, 2011 and December 31, 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Fair Value on a |
|
|
|
Non-Recurring Basis |
|
|
|
September 30, 2011 |
|
Asset Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Real estate held
for sale/conveyance |
|
$ |
|
|
|
$ |
111,835,000 |
|
|
$ |
131,009,000 |
|
|
$ |
242,844,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Fair Value on a |
|
|
|
Non-Recurring Basis |
|
|
|
December 31, 2010 |
|
Asset Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Real estate held
for sale/conveyance |
|
$ |
|
|
|
$ |
22,773,000 |
|
|
$ |
47,186,000 |
|
|
$ |
69,959,000 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes $278.8 million relating to properties subsequently treated as held for
sale/conveyance as of September 30, 2011 and recorded at fair value as of that date. |
Intangible Lease Asset/Liability
The Company allocates the fair value of real estate acquired to land, buildings and
improvements. In addition, the fair value of in-place leases is allocated to intangible lease
assets and liabilities.
The fair value of the tangible assets of an acquired property is determined by valuing the
property as if it were vacant, which value is then allocated to land, buildings and improvements
based on managements determination of the relative fair values of these assets. In valuing an
acquired propertys intangibles, factors considered by management include an estimate of carrying
costs during the expected lease-up periods, such as real estate taxes, insurance, other operating
expenses, and estimates of lost rental revenue during the expected lease-up periods based on its
evaluation of current market demand. Management also estimates costs to execute similar leases,
including leasing commissions, tenant improvements, legal and other related costs.
15
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
The values of acquired above-market and below-market leases are recorded based on the present
values (using discount rates which reflect the risks associated with the leases acquired) of the
differences between the contractual amounts to be received and managements estimate of market
lease rates, measured over the terms of the respective leases that management deemed appropriate at
the time of the acquisitions. Such valuations include a consideration of the non-cancellable terms
of the respective leases as well as any applicable renewal period(s). The fair values associated
with below-market rental renewal options are determined based on the Companys experience and the
relevant facts and circumstances that existed at the time of the acquisitions. The values of
above-market leases are amortized to rental income over the terms of the respective non-cancelable
lease periods. The portion of the values of below-market leases associated with the original
non-cancelable lease terms are amortized to rental income over the terms of the respective
non-cancelable lease periods. The portion of the values of the leases associated with below-market
renewal options that are likely of exercise are amortized to rental income over the respective
renewal periods. The value of other intangible assets (including leasing commissions, tenant
improvements, etc.) is amortized to expense over the applicable terms of the respective leases. If
a lease were to be terminated prior to its stated expiration or not renewed, all unamortized
amounts relating to that lease would be recognized in operations at that time.
With respect to the Companys acquisitions, the fair values of in-place leases and other
intangibles have been allocated to the intangible asset and liability accounts. Such allocations
are preliminary and are based on information and estimates available as of the respective dates of
acquisition. As final information becomes available and is refined, appropriate adjustments are
made to the purchase price allocations, which are finalized within twelve months of the respective
dates of acquisition.
Unamortized intangible lease liabilities that relate to below-market leases amounted to $36.4
million and $40.3 million at September 30, 2011 and December 31, 2010, respectively. Unamortized
intangible lease assets that relate to above-market leases amounted to $0.8 million and $0 at
September 30, 2011 and December 31, 2010, respectively.
As a result of recording the intangible lease assets and liabilities, (i) revenues were
increased by $1.9 million and $1.7 million for the three months ended September 30, 2011 and 2010,
respectively, and $4.3 million and $6.1 million for the nine months ended September 30, 2011 and
2010, respectively, relating to the amortization of intangible lease liabilities, and (ii)
depreciation and amortization expense was increased correspondingly by $2.2 million and $2.6
million for the three months ended September 30, 2011 and 2010, respectively, and $5.9 million and
$7.3 million for the nine months ended September 30, 2011 and 2010, respectively.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term investments with original
maturities of less than ninety days, and include cash at consolidated joint ventures of $6.9
million and $6.7 million at September 30, 2011 and December 31, 2010, respectively.
16
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Restricted Cash
The terms of several of the Companys mortgage loans payable 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.
Rents and Other
Receivables
Management has determined that all of the Companys leases with its various tenants are
operating leases. Rental income with scheduled rent increases is recognized using the straight-line
method over the respective non-cancelable terms of the leases. The aggregate excess of rental
revenue recognized on a straight-line basis over the contractual base rents is included in
straight-line rents on the consolidated balance sheet. Leases also generally contain provisions
under which the tenants reimburse the Company for a portion of property operating expenses and real
estate taxes incurred, generally attributable to their respective allocable portions of gross
leasable area (GLA). Such income is recognized in the periods earned. In addition, a limited
number of operating leases contain contingent rent provisions under which tenants are required to
pay, as additional rent, a percentage of their sales in excess of a specified amount. The Company
defers recognition of contingent rental income until those specified sales targets are met. Other
contingent fees are recognized when earned.
The Company must make estimates as to the collectability of its accounts receivable related to
base rent, straight-line rent, percentage rent, expense reimbursements and other revenues. When
management analyzes accounts receivable and evaluates the adequacy of the allowance for doubtful
accounts, it considers such things as historical bad debts, tenant creditworthiness, current
economic trends, current developments relevant to a tenants business specifically and to its
business category generally, and changes in tenants payment patterns. The allowance for doubtful
accounts was $4.6 million and $5.4 million at September 30, 2011 and December 31, 2010,
respectively. The provision for doubtful accounts (included in operating, maintenance and
management expenses) was $0.5 million and $0.6 million for the three months ended September 30,
2011 and 2010, respectively, and $1.5 million and $1.3 million for the nine months ended September
30, 2011 and 2010, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents in excess of insured amounts and tenant receivables.
The Company places its cash and cash equivalents with high quality financial institutions.
Management performs ongoing credit evaluations of its tenants and requires certain tenants to
provide security deposits and/or suitable guarantees.
17
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Other Assets
Other assets at September 30, 2011 and December 31, 2010 are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
$ |
9,922,000 |
|
|
$ |
5,258,000 |
|
Investments and cumulative mark-to-market
adjustments
related to stock-based compensation |
|
|
3,421,000 |
|
|
|
2,101,000 |
|
Property and other deposits |
|
|
1,370,000 |
|
|
|
1,527,000 |
|
Leasehold improvements, furniture and fixtures |
|
|
1,037,000 |
|
|
|
525,000 |
|
Intangible lease assets (i) |
|
|
820,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,570,000 |
|
|
$ |
9,411,000 |
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Represents unamortized balances relating to above-market leases resulting from purchase
accounting allocations. |
Deferred Charges, Net
Deferred charges at September 30, 2011 and December 31, 2010 are net of accumulated
amortization and are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Lease origination costs (i) |
|
$ |
13,496,000 |
|
|
$ |
13,282,000 |
|
Financing costs (ii) |
|
|
6,688,000 |
|
|
|
9,623,000 |
|
Other |
|
|
709,000 |
|
|
|
1,551,000 |
|
|
|
|
|
|
|
|
|
|
$ |
20,893,000 |
|
|
$ |
24,456,000 |
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Includes unamortized balances of intangible lease assets ($5.6 million and $5.9 million,
respectively) resulting from purchase accounting allocations. |
|
(ii) |
|
Represents costs incurred in connection with the Companys credit facilities and other
long-term debt. |
Deferred charges are amortized over the terms of the related agreements. Amortization expense
related to deferred charges (including amortization of deferred financing costs included in
non-operating income and expense) amounted to $1.9 million and $4.9 million relating to for the
three months ended September 30, 2011 and 2010, respectively, and $5.4 million and $8.9 million for
the nine months ended September 30, 2011 and 2010, respectively (the amounts for the 2010 periods
include the $2.6 million accelerated write-off related to the reduction in commitments under the
stabilized property credit facility).
18
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended (the Code). A REIT will generally not be subject to federal income taxation on that
portion of its income that qualifies as REIT taxable income, to the extent that it distributes at
least 90% of such REIT taxable income to its shareholders and complies with certain other
requirements. As of September 30, 2011, the Company was in compliance with all REIT requirements.
The Company follows a two-step approach for evaluating uncertain tax positions. Recognition
(step one) occurs when an enterprise concludes that a tax position, based solely on its technical
merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines
the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of
a tax position that was previously recognized would occur when a company subsequently determines
that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use
of a valuation allowance as a substitute for derecognition of tax positions is prohibited. The
Company has not identified any uncertain tax positions which would require an accrual.
Derivative Financial Instruments
The Company occasionally utilizes derivative financial instruments, principally interest rate
swaps, to manage its exposure to fluctuations in interest rates. The Company has established
policies and procedures for risk assessment, and the approval, reporting and monitoring of
derivative financial instruments. Derivative financial instruments must be effective in reducing
the Companys interest rate risk exposure in order to qualify for hedge accounting. When the terms
of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all
changes in the fair value of the instrument are marked-to-market with changes in value included in
net income for each period until the derivative financial instrument matures or is settled. Any
derivative financial instrument used for risk management that does not meet the hedging criteria is
marked-to-market with the changes in value included in net income. The Company has not entered
into, and does not plan to enter into, derivative financial instruments for trading or speculative
purposes. Additionally, the Company has a policy of entering into derivative contracts only with
major financial institutions. On January 20, 2010, the Company paid approximately $5.5 million to
terminate interest rate swaps applicable to the financing for its development joint venture project
in Stroudsburg, Pennsylvania.
19
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
As of September 30, 2011, the Company believes it has no significant risk associated with
non-performance of the financial institutions which are the counterparties to its derivative
contracts. Additionally, based on the rates in effect as of September 30, 2011, if a counterparty
were to default, the Company would receive a net interest benefit. At September 30, 2011, the
Company had approximately $36.2 million of mortgage loans payable subject to interest rate swaps.
Such interest rate swaps converted LIBOR-based variable rates to fixed annual rates of 5.2% and
6.5% per annum. At that date, the Company had accrued liabilities of $2.2 million (included in
accounts payable and accrued expenses on the consolidated balance sheet) relating to the fair value
of interest rate swaps applicable to existing mortgage loans payable. Charges and/or credits
relating to the changes in fair values of such interest rate swaps are made to accumulated other
comprehensive (loss) income, noncontrolling interests (minority interests in consolidated joint
ventures and limited partners interest), or operations (included in interest expense), as
appropriate.
The following is a summary of the derivative financial instruments held by the Company at
September 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional values |
|
|
|
|
|
|
Balance |
|
|
Fair value |
|
Designation/ |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
December 31, |
|
|
Expiration |
|
|
sheet |
|
|
September 30, |
|
|
December 31, |
|
Cash flow |
|
Derivative |
|
|
Count |
|
|
2011 |
|
|
Count |
|
|
2010 |
|
|
dates |
|
|
location |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying |
|
rate swaps |
|
|
3 |
|
|
$ |
32,255,000 |
|
|
|
2 |
|
|
$ |
20,218,000 |
|
|
|
2011 - 2020 |
|
|
Accounts payable and accrued expenses |
|
$ |
2,210,000 |
|
|
$ |
1,642,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following presents the effect of the Companys derivative financial instruments on
the consolidated statements of operations and the consolidated statements of equity for the three
and nine months ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) recognized in other |
|
|
Amount of (loss) recognized in other |
|
|
|
|
|
|
|
comprehensive (loss) (effective portion) |
|
|
comprehensive (loss) (effective portion) |
|
Designation/ |
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
Cash flow |
|
Derivative |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying |
|
swaps |
|
$ |
(676,000 |
) |
|
$ |
(133,000 |
) |
|
$ |
(265,000 |
) |
|
$ |
(420,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no ineffectiveness recorded in earnings for the three and nine months ended
September 30, 2011 and 2010.
20
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Limited Partners Interest In Operating Partnership (Mezz OP Units)
The Company follows the accounting guidance related to noncontrolling interests in
consolidated financial statements, which clarifies that a noncontrolling interest in a subsidiary
(minority interests or certain limited partners interest, in the case of the Company), subject to
the classification and measurement of redeemable securities, is an ownership interest in a
consolidated entity which should be reported as equity in the parent companys consolidated
financial statements. The guidance requires a reconciliation of the beginning and ending balances
of equity attributable to noncontrolling interests and disclosure, on the face of the consolidated
income statement, of those amounts of consolidated net income attributable to the noncontrolling
interests. The Company classifies the balances related to minority interests in consolidated joint
ventures and limited partners interest in the Operating Partnership into the consolidated equity
accounts, as appropriate (certain non-controlling interests of the Company are classified in the
mezzanine section of the balance sheet (the Mezz OP Units) as such Mezz OP Units do not meet the
requirements for equity classification, as certain of the holders of OP Units have registration
rights that provide such holders with the right to demand registration under the federal securities
laws of the common stock of the Company issuable upon conversion of such OP Units). The Company
adjusts the carrying value of the Mezz OP Units each period to equal the greater of its historical
carrying value or its redemption value. Through September 30, 2011, there have been no cumulative
net adjustments recorded to the carrying amounts of the Mezz OP Units.
The following is an analysis of the activity relating to the Mezz OP units:
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
7,053,000 |
|
|
|
|
|
|
Net loss |
|
|
(1,056,000 |
) |
Unrealized gain on change in fair value
of cash flow hedges |
|
|
(5,000 |
) |
|
|
|
|
Total other comprehensive loss |
|
|
(1,061,000 |
) |
|
|
|
|
|
|
|
|
|
Distributions |
|
|
(174,000 |
) |
Reallocation adjustment of limited partners interest |
|
|
(1,103,000 |
) |
|
|
|
|
|
|
|
|
|
Balance, September 30, 2011 |
|
$ |
4,715,000 |
|
|
|
|
|
Management Transition Charges
In June 2011, the Companys then Chairman of the Board, CEO and President retired, and the
employment of the Companys then Chief Financial Officer ended. Pursuant to their respective
employment and/or separation agreements, (a) they are to receive an aggregate of approximately $3.7
million in cash severance payments (including the cost of related payroll
taxes and benefits, and substantially all of which has been funded), and (b) all of their
unvested restricted share grants became vested and all related amounts were written off (an
aggregate of approximately $2.0 million see Stock-Based Compensation below). Together with
approximately $0.8 million of other costs, primarily professional fees and expenses related to the
hiring of a new President/CEO and Chief Financial Officer, the Company recorded an aggregate of
approximately $6.5 million as management transition charges.
21
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Stock-Based Compensation
The Companys 2004 Stock Incentive Plan (the Incentive Plan) establishes the procedures for
the granting of incentive stock options, stock appreciation rights, restricted shares, performance
units and performance shares. The maximum number of shares of the Companys common stock that may
be issued pursuant to the Incentive Plan is 4,850,000 (including a 2,100,000 share increase
approved by shareholders on June 15, 2011), and the maximum number of shares that may be granted to
a participant in any calendar year may not exceed 250,000. All grants issued pursuant to the
Incentive Plan are restricted stock grants which generally vest (i) at the end of designated time
periods for time-based grants, or (ii) upon the completion of a designated period of performance
for performance-based grants and satisfaction of performance criteria. Timebased grants are
valued according to the market price for the Companys common stock at the date of grant. The value
of all grants is being expensed on a straight-line basis over the respective vesting periods
(irrespective of achievement of the performance grants) adjusted, as applicable, for forfeiture
assumptions. Those grants of restricted shares that are transferred to Rabbi Trusts are classified
as treasury stock on the Companys consolidated balance sheet, and have been adjusted, as
applicable, for fluctuations in the market value of the Companys common stock. For
performance-based grants, the Company generally engages an independent appraisal company to
determine the value of the shares at the date of grant, taking into account the underlying
contingency risks associated with the performance criteria.
In January 2009, the Company issued 218,000 shares of common stock as performance-based
grants, based on the total annual return on an investment in the Companys common stock (TSR)
over the three-year period ending December 31, 2011, with 75% to vest if such TSR is equal to, or
greater than an average of 6% TSR per year on the Companys common stock, and 25% to vest based on
a comparison of TSR for such three years to the Companys peer group. The independent appraisal
determined the values of the performance-based shares to be $5.44 and $6.48 per share,
respectively, compared to a market price at the date of grant of $7.02 per share. After the
accelerated vesting in June 2011 of certain of these shares, as discussed below, 82,000 shares
remain of the 2009 performance-based award.
In January 2010, the Company issued 227,000 shares of common stock as performance-based
grants. As modified in September 2010, one-half of these amounts will vest upon the satisfaction of
the following conditions: (a) if the TSR on the Companys common stock is at least an average of 6%
per year for the three years ending December 31, 2012, and (b) if there is a positive comparison of
TSR on the Companys common stock to the median of the TSR for the Companys peer group for the
three years ending December 31, 2012. The independent appraisal determined the values of the
category (a) and (b) performance-based shares to be $4.56 per share and $6.00 per share,
respectively, compared to a market price at the date of grant of $6.70 per share. After the
accelerated vesting in June 2011 of certain of these shares, as discussed below, 84,000 shares
remain of the 2010 performance-based award.
22
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
In January 2011, the Company issued 275,000 shares of common stock as performance-based
grants. One-half of these amounts will vest upon the satisfaction of the following conditions: (a)
if the TSR on the Companys common stock is at least an average of 8% per year for the three years
ending December 31, 2013, and (b) if there is a positive comparison of TSR on the Companys common
stock to the median of the TSR for the Companys peer group for the three years ending December 31,
2013. The independent appraisal determined the values of the category (a) and (b) performance-based
shares to be $4.40 per share and $5.91 per share, respectively, compared to a market price at the
date of grant of $6.54 per share. After the accelerated vesting in June 2011 of certain of these
shares, as discussed below, 123,000 shares remain of the 2011 performance-based award.
In connection with the retirement of the Companys Chairman of the Board, CEO and President,
and the end of the employment of the Companys Chief Financial Officer (see Management Transition
Charges above), all of their outstanding restricted share grants, consisting of time-based grants
(284,000 shares) and performance-based grants (422,000 shares) became vested (an aggregate of
706,000 shares), and were expensed in full at the then market value of the shares (an aggregate of
approximately $2.0 million).
The Companys new President and CEO is to receive restricted share grants totaling 2.5 million
shares, one-half of which are to be time-based, vesting upon the seventh anniversary of the date of
grant (vesting on June 15, 2018), and the other half to be performance-based, to be earned if the
TSR on the Companys common stock is at least an average of 6.5% per year for the seven years
ending June 15, 2018. The independent appraisal determined the value of the performance-based award
to be $4.39 per share compared to a market price at the date of grant of $4.98 per share. As a
result of existing limitations within the Incentive Plan, only 250,000 shares have been issued,
1,750,000 shares are being accounted for as an equity award, and 500,000 shares are being
accounted for as a liability award. The values of the equity and liability awards are being
expensed on a straight-line basis over the vesting period. Consistent with such awards to other
recipients, dividends are paid on all the shares, including the equity and liability award shares,
with the dividends paid on the equity award shares treated as distributions to common shareholders
and included in the statement of equity, and the dividends paid on the liability award shares
treated as compensation and included in the statement of operations. In addition, with respect to
the liability award, adjustments to reflect changes in the fair value of the award (based on
changes in the market price of the Companys common stock) are also charged to operations. It is
the Companys intention to seek a modification of the terms of the Incentive Plan (or to adopt a
new stock incentive plan) so as to permit the grant of the entire 2.5 million shares. Until such
changes are effectuated, the Company will issue 250,000 shares each calendar year, thereby reducing
the liability established for the equity award. If, by June 15, 2018, the entire 2.5 million shares
have not been issued, the parties have agreed to satisfy any remaining Company obligations on a
mutually-agreeable economic basis.
23
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
The Companys new Chief Financial Officer received a time-based restricted share grant
totaling 137,000 shares, vesting 25% annually on each of the next four anniversary dates of June 7,
2011.
In addition to the above, there were other time-based restricted shares issued, which amounted
to 0 shares and 1,000 shares for the three months ended September 30, 2011 and 2010, respectively,
and 299,000 shares and 279,000 shares for the nine months ended September 30, 2011 and 2010,
respectively. The following table sets forth certain stock-based compensation information for the
three and nine months ended September 30, 2011 and 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Restricted share grants (a) |
|
|
|
|
|
|
4,000 |
|
|
|
961,000 |
|
|
|
509,000 |
|
Weighted average per-share value |
|
$ |
|
|
|
$ |
6.17 |
|
|
$ |
5.40 |
|
|
$ |
6.54 |
|
Grant date values of restricted stock awards : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted share grants |
|
$ |
|
|
|
$ |
22,000 |
|
|
$ |
5,192,000 |
|
|
$ |
3,330,000 |
|
Equity award |
|
$ |
|
|
|
$ |
|
|
|
$ |
8,199,000 |
|
|
$ |
|
|
Liability award |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,490,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense relating to stock-based compensation |
|
$ |
978,000 |
|
|
$ |
856,000 |
|
|
$ |
4,789,000 |
|
|
$ |
2,446,000 |
|
Adjustments to reflect changes in market
price of
Companys common stock |
|
|
(39,000 |
) |
|
|
(2,000 |
) |
|
|
(707,000 |
) |
|
|
(377,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charged to operations |
|
$ |
939,000 |
|
|
$ |
854,000 |
|
|
$ |
4,082,000 |
(b) |
|
$ |
2,069,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, beginning of period |
|
|
1,209,000 |
|
|
|
1,344,000 |
|
|
|
1,280,000 |
|
|
|
980,000 |
|
Restricted share grants |
|
|
|
|
|
|
4,000 |
|
|
|
961,000 |
|
|
|
509,000 |
|
Vested during period |
|
|
|
|
|
|
|
|
|
|
(1,017,000 |
) |
|
|
(141,000 |
) |
Forfeitures/cancellations |
|
|
|
|
|
|
(1,000 |
) |
|
|
(15,000 |
) |
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, end of period |
|
|
1,209,000 |
|
|
|
1,347,000 |
|
|
|
1,209,000 |
|
|
|
1,347,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average value of non-vested shares
(based on valuation at date of grant) |
|
$ |
5.36 |
|
|
$ |
6.33 |
|
|
$ |
5.36 |
|
|
$ |
6.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average value of shares forfeited
(based on valuation at date of grant) |
|
$ |
|
|
|
$ |
7.93 |
|
|
$ |
5.68 |
|
|
$ |
7.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average value of shares vested
during the
period (based on valuation at date of grant) |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,611,000 |
(c) |
|
$ |
2,193,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Does not include the equity or liability award shares. |
|
(b) |
|
Includes $1,980,000 applicable to the accelerated vestings. |
|
(c) |
|
Includes $3,775,000 applicable to the accelerated vestings. |
24
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
At September 30, 2011, 2.3 million shares remained available for grants pursuant to the
Incentive Plan (before consideration of the 1,750,000 shares and 500,000 shares, respectively,
applicable to the equity and liability awards), and an aggregate of $13.9 million applicable to all
such grants and awards remains to be expensed over various periods ending in June 2018.
Earnings/ Dividends Per Share
Basic earnings per share (EPS) is calculated by dividing net income (loss) attributable to
the Companys common shareholders by the weighted average number of common shares outstanding for
the period including participating securities (restricted shares issued pursuant to the Companys
stock-based compensation program are considered participating securities, as such shares have
non-forfeitable rights to receive dividends). Unvested restricted shares are not allocated net
losses and/or any excess of dividends declared over net income, as such amounts are allocated
entirely to the common shareholders. For the three and nine months ended September 30, 2011, the
Company had 3.0 million and 2.1 million, respectively, weighted average unvested restricted shares
outstanding (including the weighted average impact of the 2.0 million shares awarded to the
Companys new President/CEO in June 2011). EPS for the 2010 periods is calculated based on the data
presented in the consolidated statements of operations for those periods. The following table
provides a reconciliation of the numerator and denominator of the EPS calculations for the 2011
periods:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, 2011 |
|
|
September 30, 2011 |
|
Numerator |
|
|
|
|
|
|
|
|
(Loss) from continuing operations |
|
$ |
(7,213,000 |
) |
|
$ |
(21,123,000 |
) |
Preferred distribution requirements |
|
|
(3,580,000 |
) |
|
|
(10,621,000 |
) |
Less, net loss attribuatble to noncontrolling interests |
|
|
4,740,000 |
|
|
|
5,626,000 |
|
Less, earnings allocated to unvested shares |
|
|
(266,000 |
) |
|
|
(546,000 |
) |
|
|
|
|
|
|
|
Loss from continuing operations available for common
shareholders |
|
|
(6,319,000 |
) |
|
|
(26,664,000 |
) |
Results from discontinued operations |
|
|
(64,052,000 |
) |
|
|
(83,964,000 |
) |
|
|
|
|
|
|
|
Net (loss) available for common shareholders, basic and diluted |
|
$ |
(70,371,000 |
) |
|
$ |
(110,628,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
Weighted average number of vested common shares outstanding |
|
|
66,800,000 |
|
|
|
66,253,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share, basic and diluted |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.09 |
) |
|
|
(0.40 |
) |
Discontinued operations |
|
|
(0.96 |
) |
|
|
(1.27 |
) |
|
|
|
|
|
|
|
|
|
$ |
(1.05 |
) |
|
$ |
(1.67 |
) |
|
|
|
|
|
|
|
25
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Fully-diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into shares of common stock. The net
loss attributable to noncontrolling interests of the Operating Partnership has been excluded from
the numerator and the related OP Units have been excluded from the denominator for the purpose of
calculating diluted EPS as there would have been no effect had such amounts been included. The
weighted average number of OP Units outstanding for the three months ended September 30, 2011 and
2010 were 1,415,000 and 1,892,000, respectively, and the weighted average number of OP Units
outstanding for the nine months ended September 30, 2011 and 2010 were 1,415,000 and 1,941,000,
respectively. In addition, warrants for the purchase of OP Units (83,000 for all periods) have been
excluded as they were anti-dilutive.
Dividends to common shareholders declared were $6.3 million ($0.09 per share) and $5.9 million
($0.09 per share) for the three months ended September 30, 2011 and 2010, respectively, and $18.4
million ($0.27 per share) and $11.8 million ($0.18 per share) for the nine months ended September
30, 2011 and 2010, respectively.
Supplemental consolidated statements of cash flows information
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
Supplemental disclosure of cash activities: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
35,630,000 |
|
|
$ |
37,206,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
|
|
|
|
Assumption of mortgage loans payable upon disposition |
|
|
(4,975,000 |
) |
|
|
(7,740,000 |
) |
Conversion of OP Units into common stock |
|
|
|
|
|
|
177,000 |
|
Purchase accounting allocations: |
|
|
|
|
|
|
|
|
Intangible lease assets |
|
|
(5,764,000 |
) |
|
|
|
|
Intangible lease liabilities |
|
|
753,000 |
|
|
|
(2,600,000 |
) |
Other non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Accrued interest rate swap liabilities |
|
|
568,000 |
|
|
|
(1,450,000 |
) |
Accrued real estate improvements and construction escrows |
|
|
3,557,000 |
|
|
|
(1,777,000 |
) |
Accrued financing costs and other |
|
|
|
|
|
|
(463,000 |
) |
Capitalization of deferred financing costs |
|
|
568,000 |
|
|
|
674,000 |
|
|
|
|
|
|
|
|
|
|
Deconsolidation of properties transferred to joint venture: |
|
|
|
|
|
|
|
|
Real estate, net |
|
|
|
|
|
|
139,745,000 |
|
Mortgage loans payable |
|
|
|
|
|
|
(94,058,000 |
) |
Other assets/liabilities, net |
|
|
|
|
|
|
(3,574,000 |
) |
Investment in and advances to unconsolidated joint venture |
|
|
|
|
|
|
9,423,000 |
|
Settlement receivable from unconsolidated joint venture |
|
|
|
|
|
|
3,824,000 |
|
26
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Recently-Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued ASU No. 2011-04, Fair
Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S GAAP and IFRS. This update defines fair value, clarifies a framework to measure fair value,
and requires specific disclosures of fair value measurements. The guidance is effective for interim
and annual reporting periods beginning after January 1, 2012 and is required to be applied
prospectively. The Company does not expect adoption of this guidance to have a material impact on
its financial condition or results of operations.
In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of
Comprehensive Income. This standard eliminates the current requirement to report other
comprehensive income and its components in the statement of equity and instead requires the
components of other comprehensive income to be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. The guidance is effective for
interim and annual reporting periods beginning after January 1, 2012 and is required to be applied
retrospectively. Other than presentation in the financial statements, the adoption of this guidance
will have no effect on the Companys financial position or results of operations.
Note 3. Real Estate/Investment in Cedar/RioCan Joint Venture/Discontinued Operations
At September 30, 2011 a substantial portion of the Companys real estate was pledged as
collateral for mortgage loans payable and the revolving credit facilities. The following are the
significant real estate transactions that occurred during the nine months ended September 30, 2011.
Wholly-owned properties
On January 14, 2011, the Company acquired Colonial Commons, a shopping center located in Lower
Paxton Township, Pennsylvania. The purchase price for the property was approximately $49.1 million.
At closing, the Company entered into a first mortgage in the amount of $28.1 million, which bears
interest at 5.6% per annum and matures in February 2021.
RioCan Joint Venture
The Company and RioCan have entered into an 80% (RioCan) and 20% (Cedar) joint venture (i)
initially for the purchase of seven supermarket-anchored properties previously owned by the Company
(completed in May 2010), and (ii) then to acquire additional primarily supermarket-anchored
properties in the Companys primary market areas, in the same joint venture format. The joint
venture agreement provides that, any time after December 10, 2012,
either the Company or RioCan may initiate a buy/sell arrangement pursuant to which the
initiating party can designate a value for all the joint ventures properties (in the aggregate),
and the other party may then elect either to sell its proportionate ownership interest in the joint
venture based on that value or to purchase the initiating partys ownership interest based on such
valuation.
27
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
On April 15, 2011, the joint venture acquired Northwoods Crossing shopping center, located
near Boston, Massachusetts. The purchase price was approximately $23.4 million, including the
assumption of a $14.4 million first mortgage maturing in 2016 and bearing interest at 6.4% per
annum.
The Company earned fees from the joint venture of approximately $0.7 million and $1.7 million
for the three months ended September 30, 2011 and 2010, respectively, and $1.9 million and $2.0
million for the nine months ended September 30, 2011 and 2010, respectively, representing
accounting fees, management fees, acquisition fees and financing fees. Such fees are included in
other revenues in the accompanying statements of operations. At September 30, 2011, the Company
was owed approximately $1.6 million related principally to such fees.
During the three and nine months ended September 30, 2010, the Company recorded impairment
charges of approximately $0.2 million and $2.3 million, respectively, related principally to the
remaining completion work at the Blue Mountain Commons property transferred to the joint venture in
December 2009. In connection with the joint venture transactions, the Company paid fees to its
investment advisor of approximately $2.2 million for the nine months ended September 30, 2010,
which are included in transaction costs in the accompanying statement of operations.
28
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
The following summarizes certain financial information related to the Companys investment in
the Cedar/RioCan unconsolidated joint venture at September 30, 2011 and December 31, 2010,
respectively, and for the three and nine months ended September 30, 2011 and 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
December 31, 2010 |
|
Assets: |
|
|
|
|
|
|
|
|
Real estate, net (a) |
|
$ |
536,662,000 |
|
|
$ |
524,447,000 |
|
Cash and cash equivalents |
|
|
11,215,000 |
|
|
|
5,934,000 |
|
Restricted cash |
|
|
3,488,000 |
|
|
|
4,464,000 |
|
Rent and other receivables |
|
|
3,365,000 |
|
|
|
2,074,000 |
|
Straight-line rent |
|
|
2,282,000 |
|
|
|
1,000,000 |
|
Deferred charges, net |
|
|
6,959,000 |
|
|
|
13,269,000 |
|
Other assets |
|
|
13,166,000 |
|
|
|
8,514,000 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
577,137,000 |
|
|
$ |
559,702,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital: |
|
|
|
|
|
|
|
|
Mortgage loans payable (a) (b) |
|
$ |
318,960,000 |
|
|
$ |
293,400,000 |
|
Due to the Company |
|
|
1,626,000 |
|
|
|
6,036,000 |
|
Unamortized lease liability |
|
|
23,483,000 |
|
|
|
24,573,000 |
|
Other liabilities |
|
|
7,966,000 |
|
|
|
7,738,000 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
352,035,000 |
|
|
|
331,747,000 |
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
97,000 |
|
|
|
97,000 |
|
|
|
|
|
|
|
|
|
|
Partners capital: |
|
|
|
|
|
|
|
|
RioCan |
|
|
179,918,000 |
|
|
|
181,239,000 |
|
The Company |
|
|
45,087,000 |
|
|
|
46,619,000 |
|
|
|
|
|
|
|
|
Total partners capital |
|
|
225,005,000 |
|
|
|
227,858,000 |
|
|
|
|
|
|
|
|
Total liabilities and partners
capital |
|
$ |
577,137,000 |
|
|
$ |
559,702,000 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The joint ventures property-specific mortgage loans payable are collateralized by all of the
joint ventures real estate, and bear interest at rates ranging from 4.1% to 6.4% per annum, a
weighted average of 5.0% per annum. |
|
(b) |
|
In June 2011, the joint venture refinanced a $12.3 million, 7.2% fixed-rate mortgage originally
due in June 2011. The new $14.8 million fixed-rate mortgage bears interest at 5.0% per annum, with
principal and interest payments based on a 30-year amortization schedule, and matures in July 2021.
In August 2011, the joint venture refinanced a $43.3 million, 4.8% fixed-rate mortgage originally
due in November 2011. The new $44.0 million fixed-rate mortgage bears interest at 4.1% per annum,
with principal and interest payments based on a 30-year amortization schedule, and matures in
August 2016. |
29
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Revenues |
|
$ |
15,538,000 |
|
|
$ |
6,812,000 |
|
|
$ |
46,827,000 |
|
|
$ |
15,058,000 |
|
Property operating and other expenses |
|
|
1,361,000 |
|
|
|
629,000 |
|
|
|
5,327,000 |
|
|
|
1,837,000 |
|
Management fees to the Company |
|
|
501,000 |
|
|
|
228,000 |
|
|
|
1,451,000 |
|
|
|
503,000 |
|
Real estate taxes |
|
|
1,826,000 |
|
|
|
841,000 |
|
|
|
5,377,000 |
|
|
|
1,659,000 |
|
Acquisition transaction costs |
|
|
55,000 |
|
|
|
3,867,000 |
|
|
|
913,000 |
|
|
|
4,461,000 |
|
General and administrative |
|
|
87,000 |
|
|
|
56,000 |
|
|
|
219,000 |
|
|
|
155,000 |
|
Depreciation and amortization |
|
|
5,339,000 |
|
|
|
1,665,000 |
|
|
|
15,479,000 |
|
|
|
3,460,000 |
|
Interest and other non-operating
expenses, net |
|
|
4,835,000 |
|
|
|
2,335,000 |
|
|
|
13,914,000 |
|
|
|
4,166,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,534,000 |
|
|
$ |
(2,809,000 |
) |
|
$ |
4,147,000 |
|
|
$ |
(1,183,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
RioCan |
|
|
1,207,000 |
|
|
|
(2,243,000 |
) |
|
|
3,318,000 |
|
|
|
(946,000 |
) |
The Company |
|
|
327,000 |
|
|
|
(566,000 |
) |
|
|
829,000 |
|
|
|
(237,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,534,000 |
|
|
$ |
(2,809,000 |
) |
|
$ |
4,147,000 |
|
|
$ |
(1,183,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, land dispositions and write-off of investment in unconsolidated joint
venture
In connection with managements review of the Companys portfolio and operations, the Company
has determined (1) to exit the Ohio market, principally the Discount Drug Mart portfolio of
drugstore/convenience centers, and concentrate on the mid-Atlantic and Northeast coastal regions
(12 properties held for sale as of September 30, 2011), (2) to concentrate on grocery-anchored
strip centers, by disposing of its mall and single-tenant/triple-net-lease properties (14
properties held for sale as of September 30, 2011), and (3) to focus on
improving operations and performance at the Companys remaining properties, and to reduce
development activities, by disposing of certain development projects, land acquired for
development, and other non-core assets (seven properties held for sale/conveyance as of September
30, 2011). In addition, discontinued operations reflect the anticipated consummation of the Homburg
joint venture buy/sell transactions (seven properties held for sale as of September 30, 2011).
30
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
The carrying values of the assets and liabilities of these properties, principally the net
book values of the real estate and the related mortgage loans payable to be assumed by the buyers
(or conveyed to the mortgagee), have been reclassified as held for sale/conveyance on the
Companys consolidated balance sheets at September 30, 2011 and December 31, 2010. In addition, the
properties results of operations have been classified as discontinued operations for all periods
presented. Impairment charges relating to operating properties are included in discontinued
operations in the accompanying statements of operations; impairment charges relating to land
parcels are included in operating income in the accompanying statements of operations. The
impairment charge amounts included in operating income for the 2010 periods relate to properties
transferred to the Cedar/RioCan joint venture. The following is a summary of these charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges land parcels |
|
$ |
7,419,000 |
|
|
$ |
|
|
|
$ |
7,419,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges properties transferred
to Cedar/RioCan joint venture |
|
$ |
|
|
|
$ |
155,000 |
|
|
$ |
|
|
|
$ |
2,272,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of investment in unconsolidated
joint venture |
|
$ |
|
|
|
$ |
|
|
|
$ |
7,961,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges properties held for
sale/conveyance |
|
$ |
64,671,000 |
|
|
$ |
34,000 |
|
|
$ |
87,287,000 |
|
|
$ |
3,276,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges included in discontinued operations for the three months ended
September 30, 2011 included $1.4 million related to the Discount Drug Mart portfolio, $31.4 million
related to malls, $2.7 million related to single-tenant/triple-net-lease properties, $26.8 million
related to development projects and other non-core properties, and $2.4 million related to the
Homburg joint venture properties. Impairment charges for the nine months ended September 30, 2011
included $11.2 million related to the Discount Drug Mart portfolio, $33.0 million related to malls,
$4.8 million related to single-tenant/triple-net-lease properties, $35.9 million related to
development projects and other non-core properties, and $2.4 million related to the Homburg joint
venture properties.
The impairment charges were based on a comparison of the carrying values of the properties
with either (1) the actual sales price less costs to sell for the properties sold or contract
amounts for properties in the process of being sold, (2) estimated sales prices based on discounted
cash flow analyses if no contract amounts were as yet being negotiated, as discussed in more detail
in Note 2 Fair Value Measurements, (3) an as is appraisal with respect to the single-tenant
property in Philadelphia, Pennsylvania to be conveyed to the mortgagee, or (4) with
respect to the land parcels, estimated sales prices. Prior to the Companys plan to dispose of
properties reclassified to held for sale/conveyance, the Company performed recoverability
analyses based on the estimated undiscounted cash flows that were expected to result from the real
estate investments use and eventual disposal. The projected undiscounted cash flows of each
property reflected that the carrying value of each real estate investment would be recovered.
However, as a result of the properties meeting the held for sale criteria in 2011, such
properties were written down to their estimated fair values as described above.
31
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
The following is a summary of the components of loss from discontinued operations for the
three and nine months ended September 30, 2011 and 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
6,427,000 |
|
|
$ |
7,280,000 |
|
|
$ |
20,691,000 |
|
|
$ |
22,390,000 |
|
Expense recoveries |
|
|
1,651,000 |
|
|
|
1,725,000 |
|
|
|
5,090,000 |
|
|
|
5,359,000 |
|
Other |
|
|
10,000 |
|
|
|
36,000 |
|
|
|
369,000 |
|
|
|
131,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
8,088,000 |
|
|
|
9,041,000 |
|
|
|
26,150,000 |
|
|
|
27,880,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, maintenance and management |
|
|
2,021,000 |
|
|
|
2,264,000 |
|
|
|
7,098,000 |
|
|
|
7,567,000 |
|
Real estate and other property-related taxes |
|
|
1,334,000 |
|
|
|
1,389,000 |
|
|
|
4,129,000 |
|
|
|
4,076,000 |
|
Depreciation and amortization |
|
|
1,645,000 |
|
|
|
3,034,000 |
|
|
|
5,236,000 |
|
|
|
8,695,000 |
|
Interest expense |
|
|
2,469,000 |
|
|
|
2,036,000 |
|
|
|
6,866,000 |
|
|
|
6,134,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,469,000 |
|
|
|
8,723,000 |
|
|
|
23,329,000 |
|
|
|
26,472,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before
impairment charges |
|
|
619,000 |
|
|
|
318,000 |
|
|
|
2,821,000 |
|
|
|
1,408,000 |
|
Impairment charges |
|
|
(64,671,000 |
) |
|
|
(34,000 |
) |
|
|
(87,287,000 |
) |
|
|
(3,276,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations |
|
$ |
(64,052,000 |
) |
|
$ |
284,000 |
|
|
$ |
(84,466,000 |
) |
|
$ |
(1,868,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales of discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
502,000 |
|
|
$ |
170,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the three and 12 Ohio property transactions discussed below, during the
nine months ended September 30, 2011, the Company completed the following sales of properties held
for sale/conveyance: on February 14, 2011, the sale of a development land parcel for approximately
$1.9 million, which approximated its adjusted carrying value; on March 30, 2011, the sale of two
properties for approximately $3.8 million, which approximated their adjusted carrying values; and
on April 15, 2011, the sale of one property for approximately $10.8 million, which was
approximately $0.5 million in excess of its adjusted carrying value.
32
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Homburg Joint Venture. In February 2011, Homburg Invest Inc. (HII) exercised its buy/sell
option pursuant to the terms of the joint venture agreements for each of the nine properties owned
by the venture. The offered values for the properties, in the aggregate, amounted to approximately
$55.0 million over existing property-specific financing (approximately $101.2 million at September
30, 2011). Currently, the Company has made elections to purchase HIIs 80% interest in two of the
nine properties, Meadows Marketplace, located in Hershey, Pennsylvania and Fieldstone Marketplace,
located in New Bedford, Massachusetts. At the closing, the Company will pay approximately $5.5
million to HII for its 80% interest in the two properties; the outstanding balances of the mortgage
loans payable on the properties were approximately $27.8 million at September 30, 2011. The Company
also determined not to meet HIIs buy/sell offers for each of the remaining seven properties, which
are now being treated as held for sale/conveyance. At the closing, the Company will receive
proceeds of approximately $8.3 million from HII for its 20% interest in the seven properties; the
outstanding balances of the mortgage loans payable on the properties aggregated approximately $73.5
million at September 30, 2011. The Companys property management agreements for the seven
properties will terminate upon the closing of the sale. Although there are still uncertainties with
respect to the obtaining of the required approvals of the lenders holding mortgages on the
properties, the Company now believes that the contemplated transactions will close in early 2012,
thus meeting the held for sale criteria as of September 30, 2011.
Philadelphia Redevelopment Property. As more fully discussed in Note 1 Organization and
Basis of Preparation, the tenant at two properties, one owned in an unconsolidated joint venture
and the other owned 100% by the Company, vacated both premises in April 2011, at which time the
Companys wholly-owned subsidiary had a CMBS non-recourse first mortgage loan secured by the
property in the amount of $12.9 million, maturing in March 2012 (and guaranteed by the Company to
the extent of $250,000). No payments have been made on the 100%-owned property mortgage since May
2011, although the Company has been accruing interest expense and will pay real estate taxes and
other property-maintenance expenses as they become due. The Company is arranging a conveyance of
the property to the mortgagee by a deed-in-lieu of foreclosure process, whereby the Companys
subsidiary would be released from all obligations, including any unpaid principal and interest
(other than the aforementioned $250,000 guaranty). At the time of such conveyance, although the
Company recorded an impairment charge of $9.1 million, the Company would recognize a gain based on
the excess of the carrying amount of the liabilities (mortgage principal, accrued interest and
accrued real estate taxes) over the carrying amount of the property (approximately $6.4 million as
of September 30, 2011).
Ohio Properties. Impairment charges related to these properties recorded in the nine months
ended September 30, 2011 included additional charges of approximately $7.9 million and $2.6 million
for the three month periods ended March 31 and June 30, 2011, respectively, principally
representing adjustments to the net realizable values of certain of the properties treated as held
for sale/conveyance as of December 31, 2010. The additional charges were based principally on
changes in the structure of previously-negotiated transactions, whereby (1) the Company terminated
a contract to swap three properties for certain land parcels in Ohio and instead entered into a new
agreement to sell the properties for cash and assumption of existing debt, and (2) as a result of
amending its contract for the sale of additional held for sale/conveyance properties (now 12 in
number see below), the Company revalued the properties on an individual, and not portfolio, basis
(the buyers in both cases being members of the group from which the Company originally acquired
substantially all of its drug store/convenience centers).
33
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
On April 27, 2011, the Company made a two-year $4.1 million loan to the developers of a site
located in Columbus, Ohio (the developers are certain other members of the group from which the
Company acquired substantially all of its drug store/convenience centers). The loan was made in
consideration of the borrowers facilitating (but not being parties to) the contract for the sale of
the 12 properties. The loan (which may be increased, under certain conditions, by an additional
$300,000) bears interest at 6.25% per annum and is collateralized by a first mortgage on the
development parcel, which has an appraised value in excess of $8 million.
On April 29, 2011, the Company entered into a contract, as subsequently amended, for the sale
of 12 properties, subject to the obtaining of approvals of the lenders holding mortgages on the
properties, with a closing anticipated during the latter part of 2011. The $28.0 million net
aggregate sales price for the properties, after reflecting estimated closing costs and expenses,
includes mortgage loans payable to be assumed (approximately $19.4 million at September 30, 2011),
and approximates the properties carrying values.
34
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Note 4. Mortgage Loans Payable and Secured Revolving Credit Facilities
Secured debt is comprised of the following at September 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
December 31, 2010 (a) |
|
|
|
|
|
|
|
Interest rates |
|
|
|
|
|
|
Interest rates |
|
|
|
Balance |
|
|
Weighted |
|
|
|
|
|
|
Balance |
|
|
Weighted |
|
|
|
|
Description |
|
outstanding |
|
|
average |
|
|
Range |
|
|
outstanding |
|
|
average |
|
|
Range |
|
Fixed-rate mortgages (a) |
|
$ |
527,197,000 |
|
|
|
5.8 |
% |
|
|
5.0% - 7.6% |
|
|
$ |
487,957,000 |
|
|
|
5.9 |
% |
|
|
5.0% - 7.6% |
|
Variable-rate mortgage (a) |
|
|
63,768,000 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
62,568,000 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property-specific mortgages |
|
|
590,965,000 |
|
|
|
5.6 |
% |
|
|
|
|
|
|
550,525,000 |
|
|
|
5.6 |
% |
|
|
|
|
Stabilized property credit facility |
|
|
74,035,000 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
29,535,000 |
|
|
|
5.5 |
% |
|
|
|
|
Development property credit facility |
|
|
92,282,000 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
103,062,000 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
757,282,000 |
|
|
|
5.2 |
% |
|
|
|
|
|
$ |
683,122,000 |
|
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans payable related to real estate held for sale/conveyance discontinued operations (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate mortgages |
|
$ |
129,214,000 |
|
|
|
5.6 |
% |
|
|
5.0% - 6.5% |
|
|
$ |
135,991,000 |
|
|
|
5.6 |
% |
|
|
5.0% - 6.5% |
|
Variable-rate mortgage |
|
|
18,900,000 |
|
|
|
5.9 |
% |
|
|
|
|
|
|
21,000,000 |
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
148,114,000 |
|
|
|
5.6 |
% |
|
|
|
|
|
$ |
156,991,000 |
|
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Restated to reflect the reclassifications of properties subsequently treated as held for sale/conveyance. |
On July 6, 2011, the Company refinanced a property that had collateralized the
development property credit facility. The new fixed-rate mortgage, aggregating $16.5 million, bears
interest at 5.2% per annum, with principal payments based on a 25-year amortization schedule, and
maturing in July 2021. The proceeds reduced the balances under the development property credit
facility and the stabilized property credit facility by $10.8 million and $5.7 million,
respectively.
The variable-rate mortgage represents a $64.0 million construction facility, as amended, with
Manufacturers and Traders Trust Company (as agent) and several other banks, pursuant to which the
Company has pledged its joint venture ground-up development property in Pottsgrove, Pennsylvania as
collateral for borrowings thereunder. The facility is guaranteed by the Company and will expire, as
extended, on November 26, 2011. Borrowings under the facility bear interest at the Companys option
at either LIBOR plus a spread of 325 basis points (bps), or the agent banks prime rate.
Borrowings outstanding under the facility aggregated $63.8 million at September 30, 2011, and such
borrowings bore interest at a rate of 3.5% per annum. As of
September 30, 2011, the Company was in compliance with the financial covenants as required by the
terms of the construction facility. Subsequent to September 30, 2011, the Company
concluded an amended and restated facility with principally the same lenders, for an availability
of up to $70.7 million, bearing interest at the Companys option at either LIBOR plus a spread of
275 bps or the agent banks prime rate plus a spread of 125 bps, with principal payable based on a
30-year amortization schedule, and maturing in October 2013, subject to a one-year extension
option.
35
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Stabilized Property Revolving Credit Facility
The Company has a $185 million stabilized property revolving credit facility with Bank of
America, N.A. as administrative agent, together with three other lead lenders and other
participating banks (the stabilized property credit facility). The facility is expandable to $400
million, subject principally to acceptable collateral and the availability of additional lender
commitments, and will expire on January 31, 2012, subject to a one-year extension option. The
principal terms of the facility include (i) an availability based primarily on appraisals, with a
67.5% advance rate, (ii) an interest rate based on LIBOR plus 350 bps, with a 200 bps LIBOR floor,
(iii) a leverage ratio limited to 67.5%, and (iv) an unused portion fee of 50 bps.
Borrowings outstanding under the facility aggregated $74.0 million at September 30, 2011. Such
borrowings bore interest at an average rate of 5.5% per annum, and the Company had pledged 22 of
its shopping center properties as collateral for such borrowings, including six properties which
are being treated as real estate held for sale/conveyance.
The stabilized property credit facility is available to fund acquisitions, remaining
development and redevelopment activities, capital expenditures, mortgage repayments, dividend
distributions, working capital and other general corporate purposes. The facility is subject to
customary financial covenants, including limits on leverage and distributions (limited to 95% of
funds from operations, as defined), and other financial statement ratios. Based on covenant
measurements and collateral in place as of September 30, 2011, the Company was permitted to draw up
to approximately $137.4 million ($122.1 million if the collateral properties being treated as held
for sale/conveyance were removed), of which approximately $63.4 million remained
available as of that date. As of September 30, 2011, the Company was in compliance with the
financial covenants as required by the terms of the stabilized property credit facility.
36
Cedar Realty Trust, Inc.
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
Development Property Revolving Credit Facility
The Company has a $150 million development property credit facility with KeyBank, National
Association (as agent) and several other banks, pursuant to which the Company has pledged certain
of its ground-up development projects and redevelopment properties as collateral for borrowings
thereunder. The facility, as amended, is expandable to $250 million, subject principally to
acceptable collateral and the availability of additional lender commitments. In June 2011, the
Company exercised its one-year extension option and the loan is now due on June 13, 2012.
Borrowings under the facility bear interest at the Companys option at either LIBOR or the
agent banks prime rate, plus a spread of 225 bps or 75 bps, respectively. Advances under the
facility are calculated at the least of 70% of aggregate project costs, 70% of as stabilized
appraised values, or costs incurred in excess of a 30% equity requirement on the part of the
Company. The facility also requires an unused portion fee of 15 bps. This facility has been, and
will be, used to fund in part the Companys and certain consolidated joint ventures development
activities. In order to draw funds under this construction facility, the Company must meet certain
pre-leasing and other conditions. Borrowings outstanding under the facility aggregated $92.3
million at September 30, 2011, and such borrowings bore interest at a rate of 2.5% per annum. As of
September 30, 2011, the Company was in compliance with the as financial covenants required by the
terms of the development property credit facility.
Note 5. Common Stock
The Company has a Dividend Reinvestment and Direct Stock Purchase Plan (DRIP) covering up to
5.0 million shares of its common stock. The DRIP offers a convenient method for shareholders to
invest cash dividends and/or make optional cash payments to purchase shares of the Companys common
stock at 98% of their market value. On March 17, 2011, an amendment to the DRIP became effective to
have all stock purchased at 100% of their market value which was approved by the Board of Directors
of the Company. During the nine months ended September 30, 2011, the Company issued 692,000 shares
of its common stock at an average price of $6.02 per share and realized proceeds after expenses of
approximately $4.1 million.
In connection with an acquisition of a shopping center in 2002, the Operating Partnership
issued warrants to purchase approximately 83,000 OP Units to a then minority interest partner in
the property. Such warrants have an exercise price of $13.50 per unit, subject to certain
anti-dilution adjustments, are fully vested, and will expire on May 31, 2012.
Note 6. Subsequent Events
In determining subsequent events, management reviewed all activity from October 1, 2011
through the date of filing this Quarterly Report on Form 10-Q.
On October 27, 2011, the Companys Board of Directors declared a dividend of $0.09 per share
with respect to its common stock as well as an equal distribution per unit on its outstanding OP
Units. At the same time, the Board declared a dividend of $0.5546875 per share with respect to the
Companys 8-7/8% Series A Cumulative Redeemable Preferred Stock. The distributions are payable on
November 21, 2011 to shareholders of record on November 11, 2011. The Company presently anticipates
that the quarterly dividend rate for 2012 may be reduced to $0.05 per share, although each dividend
payment must be approved by the Companys Board of Directors.
37
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with the Companys consolidated
financial statements and related notes thereto included elsewhere in this report.
Executive Summary
The Company is a fully-integrated real estate investment trust which currently focuses primarily on
ownership and operation of supermarket-anchored shopping centers. The Company has determined (1) to
exit the Ohio market, principally the Discount Drug Mart portfolio of drugstore/convenience
centers, and concentrate on the mid-Atlantic and Northeast coastal regions (12 properties held for
sale as of September 30, 2011), (2) to concentrate on grocery-anchored strip centers, by disposing
of its mall and single-tenant/triple-net-lease properties (14 properties held for sale as of
September 30, 2011), and (3) to focus on improving operations and performance at the Companys
remaining properties, and to reduce development activities, by disposing of certain development
projects, land acquired for development, and other non-core assets (seven properties held for
sale/conveyance as of September 30, 2011). In addition, discontinued operations reflect the
anticipated consummation of the Homburg joint venture buy/sell transactions (seven properties held
for sale as of September 30, 2011). At September 30, 2011, the Company owned and managed a
portfolio of 70 operating properties (excluding properties held for sale/conveyance) totaling
approximately 9.5 million square feet of GLA. In addition, the Company has an ownership interest in
22 operating properties, with approximately 3.7 million square feet of GLA, through its
Cedar/RioCan joint venture in which the Company has a 20% interest. The entire managed portfolio,
including the Cedar/RioCan properties, was approximately 92.9% leased at September 30, 2011.
The Company, organized as a Maryland corporation, has established an umbrella partnership
structure through the contribution of substantially all of its assets to the Operating Partnership,
organized as a limited partnership under the laws of Delaware. The Company conducts substantially
all of its business through the Operating Partnership. At September 30, 2011, the Company owned
98.0% of the Operating Partnership and is its sole general partner. The approximately 1.4 million
OP Units are economically equivalent to the Companys common stock and are convertible into the
Companys common stock at the option of the holders on a one-to-one basis.
Summary of 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.
Managements 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.
38
The Company has identified the following critical accounting policies, the application of
which requires significant judgments and estimates:
Revenue Recognition
Rental income with scheduled rent increases is recognized using the straight-line method over
the respective terms of the leases. The aggregate excess of rental revenue recognized on a
straight-line basis over base rents under applicable lease provisions is included in straight-line
rents receivable on the consolidated balance sheet. Leases also generally contain provisions under
which the tenants reimburse the Company for a portion of property operating expenses and real
estate taxes incurred; such income is recognized in the periods earned. In addition, certain
operating leases contain contingent rent provisions under which tenants are required to pay a
percentage of their sales in excess of a specified amount as additional rent. The Company defers
recognition of contingent rental income until those specified targets are met. Other contingent
fees are recognized when earned.
The Company must make estimates as to the collectability of its accounts receivable related to
base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes
accounts receivable by considering tenant creditworthiness, current economic conditions, and
changes in tenants payment patterns when evaluating the adequacy of the allowance for doubtful
accounts receivable. These estimates have a direct impact on net income, because a higher bad debt
allowance would result in lower net income, whereas a lower bad debt allowance would result in
higher net income.
Real Estate Investments
Real estate investments are carried at cost less accumulated depreciation. The provision for
depreciation is calculated using the straight-line method based on estimated useful lives.
Expenditures for maintenance, repairs and betterments that do not materially prolong the normal
useful life of an asset are charged to operations as incurred. Expenditures for betterments that
substantially extend the useful lives of real estate assets are capitalized. Real estate
investments include costs of ground-up development and redevelopment activities, and construction
in progress. Capitalized costs, including interest and other carrying costs during the construction
and/or renovation periods, are included in the cost of the related asset and charged to operations
through depreciation over the assets estimated useful life. The Company is required to make
subjective estimates as to the useful lives of its real estate assets for purposes of determining
the amount of depreciation to reflect on an annual basis. These assessments have a direct impact on
net income. A shorter estimate of the useful life of an asset would have the effect of increasing
depreciation expense and lowering net income, whereas a longer estimate of the useful life of an
asset would have the effect of reducing depreciation expense and increasing net income.
39
A variety of costs are incurred in the acquisition, development and leasing of a property,
such as pre-construction costs essential to the development of the property, development costs,
construction costs, interest costs, real estate taxes, salaries and related costs, and other
costs incurred during the period of development. After a determination is made to capitalize a
cost, it is allocated to the specific component of a project that is benefited. The Company ceases
capitalization on the portions substantially completed and occupied, or held available for
occupancy, and capitalizes only those costs associated with the portions under construction. The
Company considers a construction project as substantially completed and held available for
occupancy upon the completion of tenant improvements, but not later than one year from cessation of
major development activity. Determination of when a development project is substantially complete
and capitalization must cease involves a degree of judgment. The effect of a longer capitalization
period would be to increase capitalized costs and would result in higher net income, whereas the
effect of a shorter capitalization period would be to reduce capitalized costs and would result in
lower net income.
The Company allocates the fair value of real estate acquired to land, buildings and
improvements. In addition, the fair value of in-place leases is allocated to intangible lease
assets and liabilities.
The fair value of the tangible assets of an acquired property is determined by valuing the
property as if it were vacant, which value is then allocated to land, buildings and improvements
based on managements determination of the relative fair values of such assets. In valuing an
acquired propertys intangibles, factors considered by management include an estimate of carrying
costs during the expected lease-up periods, such as real estate taxes, insurance, other operating
expenses, and estimates of lost rental revenue during the expected lease-up periods based on its
evaluation of current market demand. Management also estimates costs to execute similar leases,
including leasing commissions, tenant improvements, legal and other related costs.
The values of acquired above-market and below-market leases are recorded based on the present
values (using discount rates which reflect the risks associated with the leases acquired) of the
differences between the contractual amounts to be received and managements estimate of market
lease rates, measured over the terms of the respective leases that management deemed appropriate at
the time of the acquisitions. Such valuations include a consideration of the non-cancellable terms
of the respective leases as well as any applicable renewal period(s). The fair values associated
with below-market rental renewal options are determined based on the Companys experience and the
relevant facts and circumstances that existed at the time of the acquisitions. The values of
above-market leases are amortized to rental income over the terms of the respective non-cancelable
lease periods. The portion of the values of below-market leases associated with the original
non-cancelable lease terms are amortized to rental income over the terms of the respective
non-cancelable lease periods. The portion of the values of the leases associated with below-market
renewal options that are likely of exercise are amortized to rental income over the respective
renewal periods. The value of other intangible assets (including leasing commissions, tenant
improvements, etc.) is amortized to expense over the applicable terms of the respective leases. If
a lease were to be terminated prior to its stated expiration or not renewed, all unamortized
amounts relating to that lease would be recognized in operations at that time.
40
Management is required to make subjective assessments in connection with its valuation of real
estate acquisitions. These assessments have a direct impact on net income, because (i) above-market
and below-market lease intangibles are amortized to rental income, and (ii) the value of other
intangibles is amortized to expense. Accordingly, higher allocations to below-market lease
liability and other intangibles would result in higher rental income and amortization expense;
whereas lower allocations to below-market lease liability and other intangibles would result in
lower rental income and amortization expense.
Management reviews each real estate investment for impairment whenever events or circumstances
indicate that the carrying value of a real estate investment may not be recoverable. The review of
recoverability is based on an estimate of the future cash flows that are expected to result from
the real estate investments use and eventual disposition. These estimates of cash flows consider
factors such as expected future operating income, trends and prospects, as well as the effects of
leasing demand, competition and other factors. If an impairment event exists due to the projected
inability to recover the carrying value of a real estate investment, an impairment loss is recorded
to the extent that the carrying value exceeds estimated fair value. A real estate investment held
for sale/conveyance is carried at the lower of its carrying amount or estimated fair value, less
the cost of a potential sale. Depreciation and amortization are suspended during the period the
property is held for sale/conveyance. Management is required to make subjective assessments as to
whether there are impairments in the value of its real estate properties. These assessments have a
direct impact on net income, because an impairment loss is recognized in the period that the
assessment is made.
Stock-Based Compensation
The Companys 2004 Stock Incentive Plan (the Incentive Plan) establishes the procedures for
the granting of incentive stock options, stock appreciation rights, restricted shares, performance
units and performance shares. The maximum number of shares of the Companys common stock that may
be issued pursuant to the Incentive Plan is 4,850,000 (including a 2,100,000 share increase
approved by shareholders on June 15, 2011), and the maximum number of shares that may be granted to
a participant in any calendar year is 250,000. All grants issued pursuant to the Incentive Plan are
restricted stock grants which generally vest (i) at the end of designated time periods for
time-based grants, or (ii) upon the completion of a designated period of performance for
performance-based grants. Timebased grants are valued according to the market price for the
Companys common stock at the date of grant. For performance-based grants, the Company engages an
independent appraisal company to determine the value of the shares at the date of grant, taking
into account the underlying contingency risks associated with the performance criteria. These value
estimates have a direct impact on net income, because higher valuations would result in lower net
income, whereas lower valuations would result in higher net income. The value of such grants is
being expensed on a straight-line basis over the respective vesting periods.
41
Results of Operations
Differences in results of operations between 2011 and 2010 were primarily the result of the
Companys property disposition program resulting from its determination (1) to exit the Ohio
market, principally the Discount Drug Mart portfolio of drugstore/convenience centers, and
concentrate on the mid-Atlantic and Northeast coastal regions (12 properties held for sale as of
September 30, 2011), (2) to concentrate on grocery-anchored strip centers, by disposing of its mall
and single-tenant/triple-net-lease properties (14 properties held for sale as of September 30,
2011), and (3) to focus on improving operations and performance at the Companys remaining
properties, and to reduce development activities, by disposing of certain development projects,
land acquired for development, and other non-core assets (seven properties held for
sale/conveyance as of September 30, 2011). In addition, the Company determined not to proceed with
the redevelopment of two vacant single-tenant, adjacent land parcels in Philadelphia, Pennsylvania
(one owned in joint venture and the other 100%-owned by the Company). Since January 1, 2010, the
Company has sold, or has treated as held for sale/conveyance, 47 properties aggregating
approximately 3.1 million square feet of GLA. Properties held for sale/conveyance also reflect
the anticipated consummation of the Homburg joint venture buy/sell transactions. As a result, in
addition to an $8.0 million write-off of its redevelopment joint venture investment in June 2011,
the Company has recorded impairment charges related to discontinued operations of $72.1 million and
$34,000 during the three months ended September 30, 2011 and 2010, respectively and $94.7 million
and $3.3 million during the nine months ended September 30, 2011 and 2010, respectively. Results
for the nine months ended September 30, 2011 also include management transition charges of
approximately $6.5 million. Differences in results of operations between 2011 and 2010 also reflect
increased results from a greater number of properties owned by the unconsolidated Cedar/RioCan
joint venture, as well as more ground-up development and redevelopment projects coming on line.
Net (loss) attributable to common shareholders was $(70.1) million and $(6.8) million for the
three months ended September 30, 2011 and 2010, respectively, and $(110.1) million and $(14.5)
million for the nine months ended September 30, 2011 and 2010, respectively.
42
Comparison of the three months ended September 30, 2011 to 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Percent |
|
|
|
|
|
|
held in |
|
|
|
2011 |
|
|
2010 |
|
|
(decrease) |
|
|
change |
|
|
Other |
|
|
both periods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
33,460,000 |
|
|
$ |
31,710,000 |
|
|
$ |
1,750,000 |
|
|
|
6 |
% |
|
$ |
1,331,000 |
|
|
$ |
419,000 |
|
Property operating expenses |
|
|
10,577,000 |
|
|
|
9,660,000 |
|
|
|
917,000 |
|
|
|
9 |
% |
|
|
371,000 |
|
|
|
546,000 |
|
Depreciation and amortization |
|
|
9,801,000 |
|
|
|
8,846,000 |
|
|
|
955,000 |
|
|
|
11 |
% |
|
|
530,000 |
|
|
|
425,000 |
|
General and administrative |
|
|
2,899,000 |
|
|
|
2,421,000 |
|
|
|
478,000 |
|
|
|
20 |
% |
|
|
|
|
|
|
|
|
Impairments |
|
|
7,419,000 |
|
|
|
155,000 |
|
|
|
7,264,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction costs and
terminated projects |
|
|
|
|
|
|
2,043,000 |
|
|
|
(2,043,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income and
expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and financing cost
amortization |
|
|
10,475,000 |
|
|
|
10,523,000 |
|
|
|
(48,000 |
) |
|
|
0 |
% |
|
|
|
|
|
|
|
|
Accelerated write-off of deferred
financing costs |
|
|
|
|
|
|
2,552,000 |
|
|
|
(2,552,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income (loss) of
unconsolidated joint ventures |
|
|
327,000 |
|
|
|
(288,000 |
) |
|
|
615,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
171,000 |
|
|
|
3,000 |
|
|
|
168,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
619,000 |
|
|
|
318,000 |
|
|
|
301,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
|
|
64,671,000 |
|
|
|
34,000 |
|
|
|
64,637,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties held in both periods. The Company held 67 properties (excluding properties held
for sale/conveyance) throughout the three months ended September 30, 2011 and 2010.
Total revenues were higher primarily as a result of increases in (i) base rents related to
continued leasing at ground-up and redevelopment properties ($0.4 million), (ii) base rents at
operating properties ($0.3 million), (iii) straight-line rents at operating properties ($0.2
million), (iv) amortization of intangible lease liabilities, based on the mix of scheduled
amortization being completed for above-market and below-market leases ($0.3 million), (v) expense
recoveries at ground-up and redevelopment properties ($0.2 million), (vi) expense recoveries at
operating properties ($0.1 million), offset by (vii) lower other income, predominately lower
acquisition fees in 2011 compared with 2010 ($0.9 million), and (viii) less straight-line rent
adjustments at ground-up and redevelopment properties ($0.2 million).
Property operating expenses were higher primarily as a result of increases in (i) payroll
expense ($0.2 million), (ii) unallocated corporate expenses ($0.2 million), (iii) management fees
($0.1 million), and (iv) other operating expenses ($0.2 million), offset by decreases in (v) bad
debt expense ($0.1 million), and (vi) utility expenses ($0.1 million).
43
Depreciation and amortization expenses increased primarily as a result of additional ground-up
and redevelopment properties being placed into service.
General and administrative expenses were higher primarily as a result of increases in (i)
payroll and payroll related expenses ($0.2 million), and (ii) legal, accounting and other
professional fees ($0.3 million).
Impairments for 2011 relate principally to land parcels treated as held for sale, as more
fully discussed elsewhere in this report. Impairments for 2010 relate principally to properties
initially transferred to the Cedar/RioCan joint venture.
Acquisition transaction costs and terminated projects were lower in 2011 primarily due to fees
accrued in 2010 to the Companys advisor related to the RioCan joint venture transactions.
Accelerated write-off of deferred financing fees in 2010 resulted from the Company, at its
option, reducing the commitments under the stabilized property credit facility from $285.0 million
to $185.0 million.
Equity in income (loss) of unconsolidated joint ventures was higher in 2011 as a result of an
increase in operating results from the Cedar/RioCan joint venture, primarily lower acquisition
transaction costs in 2011 compared to those incurred in 2010 ($0.9 million), offset by no operating
results in 2011 as compared with 2010 from the joint venture redevelopment property in Philadelphia
(as more fully discussed elsewhere in this report $0.3 million).
Other increased primarily as a result of (i) gain on sale of a land parcel ($0.1 million) and
(ii) interest income related to loans receivable ($0.1 million).
Discontinued operations for 2011 and 2010 include the results of operations, impairment
charges and gain on sales for properties sold or treated as held for sale/conveyance, as more
fully discussed elsewhere in this report.
The Other column includes the results of operations for properties acquired after January 1,
2010.
44
Comparison of the nine months ended September 30, 2011 to 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Percent |
|
|
|
|
|
|
held in |
|
|
|
2011 |
|
|
2010 |
|
|
(decrease) |
|
|
change |
|
|
Other |
|
|
both periods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
100,659,000 |
|
|
$ |
99,128,000 |
|
|
$ |
1,531,000 |
|
|
|
2 |
% |
|
$ |
686,000 |
|
|
|
845,000 |
|
Property operating expenses |
|
|
33,087,000 |
|
|
|
31,144,000 |
|
|
|
1,943,000 |
|
|
|
6 |
% |
|
|
200,000 |
|
|
|
1,743,000 |
|
Depreciation and amortization |
|
|
27,844,000 |
|
|
|
26,942,000 |
|
|
|
902,000 |
|
|
|
3 |
% |
|
|
1,605,000 |
|
|
|
(703,000 |
) |
General and administrative |
|
|
8,115,000 |
|
|
|
6,738,000 |
|
|
|
1,377,000 |
|
|
|
20 |
% |
|
|
|
|
|
|
|
|
Management transition charges |
|
|
6,530,000 |
|
|
|
|
|
|
|
6,530,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments |
|
|
7,419,000 |
|
|
|
2,272,000 |
|
|
|
5,147,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction costs and
terminated projects, net |
|
|
1,169,000 |
|
|
|
3,365,000 |
|
|
|
(2,196,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income and
expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and financing cost
amortization |
|
|
31,155,000 |
|
|
|
33,174,000 |
|
|
|
(2,019,000 |
) |
|
|
-6 |
% |
|
|
|
|
|
|
|
|
Accelerated write-off of deferred
financing costs |
|
|
|
|
|
|
2,552,000 |
|
|
|
(2,552,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated joint ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income |
|
|
1,152,000 |
|
|
|
547,000 |
|
|
|
605,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Write off of investment |
|
|
7,961,000 |
|
|
|
|
|
|
|
7,961,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
346,000 |
|
|
|
12,000 |
|
|
|
334,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
2,821,000 |
|
|
|
1,408,000 |
|
|
|
1,413,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
|
|
87,287,000 |
|
|
|
3,276,000 |
|
|
|
84,011,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales |
|
|
502,000 |
|
|
|
170,000 |
|
|
|
332,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties held in both periods. The Company held 67 properties (excluding properties held
for sale/conveyance) throughout the nine months ended September 30, 2011 and 2010.
Total revenues were higher primarily as a result of increases in (i) base rents related to
continued leasing at ground-up and redevelopment properties ($1.2 million), (ii) base rents at
operating properties ($0.6 million), (iii) tenant recoveries at ground-up and redevelopment
properties ($0.5 million), (iv) tenant recoveries at operating properties ($0.2 million), (v)
percentage rent ($0.1 million), (vi) other income, predominately from nine months of management of
the Cedar/RioCan joint venture properties acquired throughout 2010, reduced by lower acquisition
fees in 2011 compared with 2010 ($0.1 million), offset by decreases in (vii) amortization of
intangible lease liabilities, based on the mix of scheduled amortization being completed for
above-market and below-market leases ($1.5 million), (viii) straight-line rent adjustments at
ground-up and redevelopment properties ($0.3 million), and (ix) straight-line rent adjustments at
operating properties ($0.1 million).
45
Property operating expenses were higher primarily as a result of increases in (i) unallocated
corporate expenses ($0.9 million), (ii) snow removal costs ($0.4 million), (iii) management fees
($0.2 million), (iv) bad debt expense ($0.2 million), (v) other operating
expenses ($0.1 million), and (vi) billable tenant charges ($0.1 million), offset by decreases in
utility expenses ($0.2 million).
Depreciation and amortization expenses were lower primarily as a result of decreases (i)
related to completion of scheduled amortization of lease intangibles ($1.6 million), offset by
increases (ii) resulting from ground-up and redevelopment properties being placed into service
($0.5 million) and (iii) depreciation expense at operating properties ($0.4 million).
General and administrative expenses were higher primarily as a result of (i) a legal
settlement received in 2010 in the Companys favor ($0.5 million), and increases in (ii) legal,
accounting and other professional fees ($0.4 million), (iii) payroll and payroll related expenses
($0.3 million), and (iv) computer and other office expenses ($0.3 million), offset by a decrease in
mark-to-market adjustments related to stock-based compensation ($0.1 million).
Management transition charges in 2011 relate to the retirement of the Companys then Chairman
of the Board, CEO and President, and the end of the employment of the Companys then Chief
Financial Officer, and include (i) an aggregate of approximately $3.7 million in cash severance
payments (including the cost of related payroll taxes and benefits), (ii) the write off of all
amounts related to the vesting of restricted share grants (an aggregate of approximately $2.0
million), and (iii) approximately $0.8 million of other costs, primarily professional fees and
expenses related to the hiring of a new President/CEO and Chief Financial Officer.
Impairments for 2011 relate principally to land parcels treated as held for sale, as more
fully discussed elsewhere in this report. Impairments for 2010 relate principally to properties
initially transferred to the Cedar/RioCan joint venture.
Acquisition transaction costs and terminated projects in 2011 relate principally to (i) the
acquisition of one property ($0.3 million), and (ii) the write-off of costs related to development
projects that the Company determined would not go forward ($0.9 million). Acquisition transaction
costs and terminated projects in 2010 relate principally to (i) fees accrued to the Companys
advisor related to the RioCan joint venture transactions ($2.0 million), and (ii) the write-off of
a development project that the Company determined would not go forward ($1.3 million).
Accelerated write-off of deferred financing fees in 2010 resulted from the Company, at its
option, reducing the commitments under the stabilized property credit facility from $285.0 million
to $185.0 million.
Equity in income of unconsolidated joint ventures was higher in 2011 as a result of an
increase in operating results ($0.4 million) and lower acquisition transaction costs in 2011
compared to those incurred in 2010 ($0.7 million) from the Cedar/RioCan joint venture, offset by
lower operating results in 2011 as compared with 2010 from the joint venture redevelopment property
in Philadelphia (as more fully discussed elsewhere in this report $0.5 million).
46
Write-off of investment in unconsolidated joint venture relates to the aforementioned
redevelopment joint venture, as more fully discussed elsewhere in this report.
Other increased primarily as a result of (i) gain on the sale of a land parcel ($0.1 million)
and (ii) interest income related to loans receivable ($0.2 million).
Discontinued operations for 2011 and 2010 include the results of operations, impairment
charges and gain on sales of properties sold or treated as held for sale/conveyance, as more
fully discussed elsewhere in this report.
The Other column includes the results of operations for properties acquired after January 1,
2010.
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, if made, and distributions to minority interest partners, if made, primarily from
its operations and distributions received from the Cedar/RioCan joint venture. The Company has also
used its stabilized property credit facility for these purposes. The Company expects to fund
long-term liquidity requirements for property acquisitions, development and/or redevelopment costs,
capital improvements, joint venture contributions, and maturing debt initially with its credit
facilities and construction financing, and ultimately through a combination of issuing and/or
assuming additional mortgage debt, the sale of equity securities, the issuance of additional OP
Units, distributions from the Cedar/RioCan joint venture, and the sale of properties or interests
therein (including joint venture arrangements). Although the Company believes it has access to
secured financing, there can be no assurance that the Company will have the availability of
mortgage financing on completed development projects, additional construction financing, net
proceeds from the contribution of properties to joint ventures, or proceeds from the refinancing of
existing debt.
The Company has a $185 million stabilized property credit facility with Bank of America, N.A.
as administrative agent, together with three other lead lenders and other participating banks. The
facility is expandable to $400 million, subject principally to acceptable collateral and the
availability of additional lender commitments and will expire on January 31, 2012, subject to a
one-year extension option. The principal terms of the facility include (i) an availability based
primarily on appraisals, with a 67.5% advance rate, (ii) an interest rate based on LIBOR plus 350
bps, with a 200 bps LIBOR floor, (iii) a leverage ratio limited to 67.5%, and (iv) an unused
portion fee of 50 bps. Borrowings outstanding under the facility aggregated $74.0 million at
September 30, 2011; such borrowings bore interest at a rate of 5.5% per annum. The Company had
pledged 22 of its shopping center properties as collateral for such borrowings, including six
properties which are being treated as held for sale/conveyance.
47
The stabilized property credit facility is available to fund acquisitions, remaining
redevelopment activities, capital expenditures, mortgage repayments, dividend distributions,
working capital and other general corporate purposes. The facility is subject to customary
financial covenants, including limits on leverage and distributions (limited to 95% of funds from
operations, as defined), and other financial statement ratios. Based on covenant measurements
and collateral in place as of September 30, 2011, the Company was permitted to draw up to
approximately $137.4 million ($122.1 million if the collateral properties being treated as held
for sale/conveyance were removed), of which approximately $63.4 million remained available as of
that date. As of September 30, 2011, the Company was in compliance with the financial covenants as
required by the terms of the stabilized property credit facility.
The Company has a $150 million development property credit facility with KeyBank, National
Association (as agent) and several other banks, pursuant to which the Company has pledged certain
of its ground-up development projects and redevelopment properties as collateral for borrowings
thereunder. The facility, as amended, is expandable to $250 million, subject to certain conditions,
including acceptable collateral, and the availability of additional lender commitments. In June
2011, the Company exercised its one-year extension option and the loan is now due on June 13, 2012.
Borrowings under the facility bear interest at the Companys option at either LIBOR or the agent
banks prime rate, plus a spread of 225 bps or 75 bps, respectively. Advances under the facility
are calculated at the least of 70% of aggregate project costs, 70% of as stabilized appraised
values, or costs incurred in excess of a 30% equity requirement on the part of the Company. The
facility also requires an unused portion fee of 15 bps. This facility has been and will be used to
fund in part the Companys and certain joint ventures development activities. In order to draw
funds under this construction facility, the Company must meet certain pre-leasing and other
conditions. Borrowings outstanding under the facility aggregated $92.3 million at September 30,
2011, and such borrowings bore interest at a rate of 2.5% per annum. As of September 30, 2011, the
Company was in compliance with the financial covenants as required by the terms of the development
property credit facility.
The variable-rate mortgage represents a $64.0 million construction facility, as amended, with
Manufacturers and Traders Trust Company (as agent) and several other banks, pursuant to which the
Company has pledged its joint venture ground-up development property in Pottsgrove, Pennsylvania as
collateral for borrowings thereunder. The facility is guaranteed by the Company and will expire, as
extended, on November 26, 2011. Borrowings under the facility bear interest at the Companys option
at either LIBOR plus a spread of 325 bps, or the agent banks prime rate. Borrowings outstanding
under the facility aggregated $63.8 million at September 30, 2011, and such borrowings bore
interest at a rate of 3.5% per annum. As of September 30, 2011, the Company was in compliance with
the financial covenants as required by the terms of the construction facility. Subsequent to
September 30, 2011, 2011, the Company concluded an amended and restated facility with principally
the same lenders, for an availability of up to $70.7 million, bearing interest at the Companys
option at either LIBOR plus a spread of 275 bps or the agent banks prime rate plus a spread of 125
bps, with principal payable based on a 30-year amortization schedule, and maturing in October 2013,
subject to a one-year extension option.
Other property-specific mortgage loans payable at September 30, 2011 consisted of fixed-rate
notes totaling $527.2 million, with a weighted average interest rate of 5.8%. For the remainder of
2011, the Company has approximately $2.0 million of scheduled debt principal amortization payments
and no additional balloon payments.
48
Total mortgage loans payable and secured revolving credit facilities have an overall weighted
average interest rate of 5.2% and mature at various dates through 2029. The terms of
several of the Companys mortgage loans payable 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.
The Company has a Dividend Reinvestment and Direct Stock Purchase Plan (DRIP) covering up to
5.0 million shares of its common stock. The DRIP offers a convenient method for shareholders to
invest cash dividends and/or make optional cash payments to purchase shares of the Companys common
stock at 98% of their market value. On March 17, 2011, an amendment to the DRIP became effective to
have all stock purchased at 100% of their market value which was approved by the Board of Directors
of the Company. During the nine months ended September 30, 2011, the Company issued 692,000 shares
of its common stock at an average price of $6.02 per share and realized proceeds after expenses of
approximately $4.1 million.
The Company expects to have sufficient liquidity to effectively manage its business. Such
liquidity sources include, amongst others (i) cash on hand, (ii) operating cash flows, (iii)
availability under its secured revolving credit facilities, (iv) property-specific financings, (v)
sales of properties, (vi) proceeds from contributions of properties to joint ventures, and/or (vi)
issuances of additional shares of common or preferred stock.
Net Cash Flows
Operating Activities
Net cash flows provided by operating activities amounted to $21.4 million and $20.2 million
during the nine months ended September 30, 2011 and 2010, respectively. The comparative changes on
operating cash flows during the respective periods were primarily the result of increased operating
cash flows from (a) the larger portfolio of properties owned by the Cedar/RioCan joint venture,
resulting in greater distributions, (b) ground-up development and redevelopment projects coming on
line, and (c) collections of joint venture settlements, offset by (d) disbursements relating to
management transition charges, and (e) reduced operating cash flows from properties sold or treated
as held for sale/conveyance, including the two vacant Philadelphia single-tenant properties (one
owned in joint venture and the other wholly-owned), the redevelopment of which the Company
determined would not go forward.
49
Investing Activities
Net cash flows used in investing activities were $67.1 million and $5.4 million for the nine
months ended September 30, 2011 and September 30, 2010, respectively. During the nine months ended
September 30, 2011, the Company (i) acquired one shopping center and incurred expenditures for
property improvements (an aggregate of $76.1 million), (ii) made loans and other advances ($4.6
million), and (iii) investments in and advances to unconsolidated joint ventures ($4.2 million)
(iv) construction escrows and other ($2.7 million) , offset by the receipt of net proceeds from (v)
the sales of properties treated as discontinued operations and other real estate ($11.7 million),
(vi) additional settlement payments related to the original transfers of properties to the
Cedar/RioCan joint venture ($4.8 million), and (vii) distributions of capital from
unconsolidated joint ventures ($4.0 million). During the nine months ended September 30, 2010, the
Company (i) made investments in the Cedar/RioCan joint venture ($30.4 million) and (ii) incurred
expenditures for property improvements ($20.8 million), offset by (iii) proceeds from the transfer
of five properties to the Cedar/RioCan joint venture ($31.4 million net of a settlement receivable
of $0.9 million), (iv) distributions of capital from unconsolidated joint ventures ($7.7 million),
(v) construction escrows and other ($4.6 million) and (vi) the sales of properties treated as
discontinued operation and other real estate ($2.1 million).
Financing Activities
Net cash flows provided by financing activities were $43.2 million for the nine months ended
September 30, 2011 and net cash flows used in financing activities were $19.8 million for the nine
months ended September 30, 2010. During the nine months ended September 30, 2011, the Company had
net proceeds from (i) mortgage financings ($45.8 million), (ii) net advances from its revolving
credit facilities ($33.7 million), (iii) sales of common stock ($4.3 million), and (iv) a
contribution from consolidated joint venture minority interest ($0.3 million), offset by (v)
preferred and common stock dividend distributions ($29.0 million), (vi) repayment of mortgage
obligations ($9.3 million), and (vii) distributions paid to noncontrolling interests (minority
interests and limited partners $2.6 million). During the nine months ended September 30, 2010,
the Company (i) had net repayments to its revolving credit facilities ($131.2 million), (ii)
preferred and common stock distributions ($22.4 million), (iii) repayment of mortgage obligations
($18.6 million, including $11.0 million of mortgage balloon payments), (iv) termination payments
relating to interest rate swaps ($5.5 million), (v) redemptions of OP Units ($2.8 million), (vi)
distributions paid to noncontrolling interests (consolidated minority interest and limited partners
- $2.7 million), and (vii) the payment of debt financing costs ($1.1 million), offset by (viii) the
proceeds from sales of preferred and common stock ($138.3 million), (ix) the proceeds of mortgage
financings ($16.2 million), and (x) the proceeds from the exercise of the RioCan warrant ($10.0
million).
50
Funds From Operations
Funds From Operations FFO is a widely-recognized non-GAAP financial measure for REITs that
the Company believes, when considered with financial statements determined in accordance with GAAP,
is useful to investors in understanding financial performance and providing a relevant basis for
comparison among REITs. In addition, FFO is useful to investors as 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 do other depreciable assets. Investors
should review FFO, along with GAAP net income, when trying to understand a REITs operating
performance. The Company considers FFO an important supplemental measure of its operating
performance and believes that it is frequently used by securities analysts, investors and other
interested parties in the evaluation of REITs.
The Company computes FFO in accordance with the White Paper published by the National
Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income applicable
to common shareholders (determined in accordance with GAAP), excluding gains or losses from debt
restructurings and sales of properties, plus real estate-related
depreciation and amortization, and after adjustments for partnerships and joint ventures
(which are computed to reflect FFO on the same basis). In addition, NAREIT has recently clarified
its computation of FFO so as to exclude impairment charges for all periods presented. FFO
51
does not
represent cash generated from operating activities and should not be considered as an alternative to net income applicable to common shareholders or to cash flow from operating activities. FFO is
not indicative of cash available to fund ongoing cash needs, including the ability to make cash
distributions. Although FFO is a measure used for comparability in assessing the performance of
REITs, as the NAREIT White Paper only provides guidelines for computing FFO, the computation of FFO
may vary from one company to another. The following table is a reconciliation of net loss
attributable to common shareholders to FFO for the three and nine months ended September 30, 2011
and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
|
$ |
(70,105,000 |
) |
|
$ |
(6,780,000 |
) |
|
$ |
(110,082,000 |
) |
|
$ |
(14,521,000 |
) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation and amortization |
|
|
11,393,000 |
|
|
|
11,831,000 |
|
|
|
32,926,000 |
|
|
|
35,486,000 |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest |
|
|
(1,455,000 |
) |
|
|
(196,000 |
) |
|
|
(2,294,000 |
) |
|
|
(488,000 |
) |
Minority interests in consolidated joint ventures |
|
|
(3,285,000 |
) |
|
|
(194,000 |
) |
|
|
(3,332,000 |
) |
|
|
194,000 |
|
Minority interests share of FFO applicable to
consolidated joint ventures |
|
|
418,000 |
|
|
|
(1,340,000 |
) |
|
|
(2,146,000 |
) |
|
|
(4,717,000 |
) |
Impairment charges and write off of joint venture interest |
|
|
70,210,000 |
|
|
|
189,000 |
|
|
|
100,371,000 |
|
|
|
5,548,000 |
|
Gain on sales of discontinued operations |
|
|
|
|
|
|
|
|
|
|
(502,000 |
) |
|
|
(170,000 |
) |
Equity in (income) loss of unconsolidated joint ventures |
|
|
(327,000 |
) |
|
|
288,000 |
|
|
|
(1,152,000 |
) |
|
|
(547,000 |
) |
FFO from unconsolidated joint ventures |
|
|
1,374,000 |
|
|
|
146,000 |
|
|
|
4,438,000 |
|
|
|
1,566,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO |
|
|
8,223,000 |
|
|
|
3,944,000 |
|
|
|
18,227,000 |
|
|
|
22,351,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of diluted common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares |
|
|
69,759,000 |
|
|
|
65,835,000 |
|
|
|
68,368,000 |
|
|
|
63,025,000 |
|
OP units |
|
|
1,415,000 |
|
|
|
1,892,000 |
|
|
|
1,415,000 |
|
|
|
1,941,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,174,000 |
|
|
|
67,727,000 |
|
|
|
69,783,000 |
|
|
|
64,966,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per share available for common shareholders, basic
and diluted |
|
$ |
0.12 |
|
|
$ |
0.06 |
|
|
$ |
0.26 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation
Low to moderate levels of inflation during the past several years have favorably impacted the
Companys operations by stabilizing operating expenses. However, the Companys properties have
tenants whose leases include expense reimbursements and other provisions to minimize the effect of
inflation. At the same time, low inflation has had the indirect effect of reducing the Companys
ability to increase tenant rents upon the signing of new leases and/or lease renewals.
52
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
One of the principal market risks facing the Company is interest rate risk on its credit
facilities. The Company may, when advantageous, hedge its interest rate risk by using derivative
financial instruments. The Company is not subject to foreign currency risk.
The Company is exposed to interest rate changes primarily through (i) the variable-rate credit
facilities used to maintain liquidity, fund capital expenditures, ground-up
development/redevelopment activities, and expand its real estate investment portfolio, (ii)
property-specific variable-rate construction financing, and (iii) other property-specific
variable-rate mortgages. The Companys objectives with respect to interest rate risk are to limit
the impact of interest rate changes on operations and cash flows, and to lower its overall
borrowing costs. To achieve these objectives, the Company may borrow at fixed rates and may enter
into derivative financial instruments such as interest rate swaps, caps, etc., in order to mitigate
its interest rate risk on a related variable-rate financial instrument. The Company does not enter
into derivative or interest rate transactions for speculative purposes. Additionally, the Company
has a policy of entering into derivative contracts only with major financial institutions. At
September 30, 2011, the Company had approximately $36.2 million of mortgage loans payable subject
to interest rate swaps which converted LIBOR-based variable rates to fixed annual rates ranging
from 5.2% and 6.5% per annum. At that date, the Company had accrued liabilities of $2.2 million
(included in accounts payable and accrued expenses on the consolidated balance sheet) relating to
the fair value of interest rate swaps applicable to these mortgage loans payable.
At September 30, 2011, long-term debt consisted of fixed-rate mortgage loans payable and
variable-rate debt (principally the Companys variable-rate credit facilities). The average
interest rate on the $527.2 million of fixed-rate indebtedness outstanding was 5.8%, with
maturities at various dates through 2029. The average interest rate on the $230.1 million of
variable-rate debt (including $166.3 million in advances under the Companys revolving credit
facilities) was 3.7%. The stabilized property credit facility matures in January 2012, subject to a
one-year extension option. The development property credit facility matures on June 13, 2012. With
respect to $156.1 million of variable-rate debt outstanding at September 30, 2011, if interest
rates either increase or decrease by 1%, the Companys interest cost would increase or decrease
respectively by approximately $1.6 million per annum. With respect to the remaining $74.0 million
of variable-rate debt outstanding at September 30, 2011, represented by the Companys stabilized
property credit facility, interest is based on LIBOR with a 200 bps LIBOR floor. Accordingly, if
interest rates either increase or decrease by 1%, the Companys interest cost applicable on this
line would increase by approximately $0.7 million per annum only if LIBOR was in excess of 2.0% per
annum (as of September 30, 2011, LIBOR was 0.24%).
53
|
|
|
Item 4. |
|
Controls and Procedures |
The Company maintains disclosure controls and procedures and internal controls designed to
ensure that information required to be disclosed in its filings under the Securities Exchange Act
of 1934 is reported within the time periods specified in the rules and regulations of the
Securities and Exchange Commission (SEC). In this regard, the Company has formed a Disclosure
Committee currently comprised of several of the Companys executive officers as well as certain
other employees with knowledge of information that may be considered in the SEC reporting process.
The Committee has responsibility for the development and assessment of the financial and
non-financial information to be included in the reports filed with the SEC, and assists the
Companys Chief Executive Officer and Chief Financial Officer in connection with their
certifications contained in the Companys SEC filings. The Committee meets regularly and reports to
the Audit Committee on a quarterly or more frequent basis. The Companys principal executive and
financial officers have evaluated its disclosure controls and procedures as of September 30, 2011,
and have determined that such disclosure controls and procedures are effective.
During the nine months ended September 30, 2011, there have been no changes in the internal
controls over financial reporting or in other factors that have materially affected, or are
reasonably likely to materially affect, these internal controls over financial reporting.
54
Part II Other Information
|
|
|
Exhibit 10.1
|
|
Amended and Restated Employment Agreement between Cedar
Shopping Centers, Inc. and Nancy H. Mozzachio, dated as of
July 21, 2011 |
Exhibit 10.2
|
|
Amended and Restated Employment Agreement between Cedar
Shopping Centers, Inc. and Brenda J. Walker, dated as of
September 28, 2011 |
Exhibit 10.3
|
|
Amended and Restated Employment Agreement between Cedar
Shopping Centers, Inc. and Thomas B. Richey, dated as of
October 3, 2011 |
Exhibit 10.4
|
|
Amendment No. 4 to the 2005 Cedar Shopping Centers, Inc.
Deferred Compensation Plan, effective as of June 30, 2011 |
Exhibit 31
|
|
Section 302 Certifications |
Exhibit 32
|
|
Section 906 Certifications |
Exhibit 101.INS
|
|
XBRL Instance Document |
Exhibit 101.SCH
|
|
XBRL Taxonomy Extension Schema Document |
Exhibit 101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document |
Exhibit 101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document |
Exhibit 101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document |
Exhibit 101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CEDAR REALTY TRUST, INC.
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ BRUCE J. SCHANZER
Bruce J. Schanzer
|
|
|
|
By:
|
|
/s/ PHILIP R. MAYS
Philip R. Mays
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
(Principal executive officer)
|
|
|
|
|
|
(Principal financial officer) |
|
|
November 9, 2011
55