Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Company’s condensed consolidated financial statements and related notes thereto included elsewhere in this report.
Executive Summary
The Company is a fully-integrated real estate investment trust that focuses on owning and operating income producing retail properties with a primary focus on grocery-anchored shopping centers primarily in the Northeast. At September 30, 2022, the Company owned a portfolio of 19 operating properties.
The Company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to leases. The Company’s operating results therefore depend on the ability of its tenants to make the payments required by the terms of their leases. The Company primarily focuses its investment activities on grocery-anchored shopping centers. The Company believes that, because of the need of consumers to purchase food and other staple goods and services generally available at such centers, its type of “necessities-based” properties should provide relatively stable revenue flows even during difficult economic times.
Significant Circumstances and Transactions
Transaction Agreements
On March 2, 2022, the Company announced that following its previously announced review of strategic alternatives, it had entered into definitive agreements for the sale of the Company and its assets in a series of related all-cash transactions. Specifically, on March 2, 2022, the Company and certain of its subsidiaries entered into an asset purchase and sale agreement (the “Asset Purchase Agreement”) with DRA Fund X-B LLC and KPR Centers LLC (together with their respective designees, the “Grocery-Anchored Purchasers”) for the sale of a portfolio of 33 grocery-anchored shopping centers for cash (the “Grocery-Anchored Portfolio Sale”). In addition, on March 2, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Wheeler Real Estate Investment Trust, Inc. (“Wheeler”) and certain of its affiliates pursuant to which, following closing of the Grocery-Anchored Portfolio Sale, Wheeler would acquire the balance of the Company’s shopping center assets by way of an all-cash merger transaction.
The transactions contemplated by the Asset Purchase Agreement and the Merger Agreement are collectively referred to as the “Transactions”. The Transactions were unanimously approved by the Company’s Board of Directors and were approved by the Company’s common stockholders at a special meeting of stockholders held on May 27, 2022.
On July 7, 2022, the Company and certain of its subsidiaries completed the Grocery-Anchored Portfolio Sale and the East River Park and Senator Square redevelopment asset sales for total gross proceeds of approximately $879 million, including the assumed debt. There were no material relationships among the Company, the Grocery-Anchored Purchasers, or any of their respective affiliates. On August 22, 2022, the Company completed the merger with Wheeler. As a result of the merger, Wheeler acquired all of the outstanding shares of the Company's common stock, which ceased to be publicly traded on the New York Stock Exchange ("NYSE"). The Company's outstanding 7.25% Series B Preferred Stock and 6.50% Series C Preferred Stock remain outstanding and continue to trade on the NYSE. Each outstanding share of common stock of the Company and outstanding common unit of the Operating Partnership held by persons other than the Company immediately prior to the merger were cancelled and converted into the right to receive a cash payment of $9.48 per share or unit. In addition, prior to consummation of the merger, the Company's Board of Directors declared a special dividend on shares of the Company's outstanding common stock of $19.52 per share, payable to holders of record of the Company's common stock at the close of business on August 19, 2022.
In connection with the Transactions, the Company incurred transaction costs of $58.2 million for the nine months ended September 30, 2022, included in the accompanying condensed consolidated statement of operations, of which $33.5 million relates to employee severance payments.
Real Estate
On October 14, 2021, the Company acquired the 60% minority ownership percentage in the San Souci Plaza joint venture. On June 28, 2022, the Company acquired the 40% minority ownership percentage in the Crossroads joint venture. The Company's interest in Crossroads was included in the Grocery-Anchored Portfolio Sale that occurred on July 7, 2022.
23
Investment in Unconsolidated Joint Venture
On May 5, 2021, the Company formed a joint venture with Goldman Sachs Urban Investment Group and Asland Capital Partners (the “Joint Venture”) for the construction of an approximately 258,000 square foot six-story commercial building in Washington, D.C. consisting of approximately 240,000 square feet of office space which is 100% leased to the Washington, D.C., Department of General Services (“DGS”) for its headquarters and approximately 18,000 square feet of street-level retail. The term of the lease with DGS is for 20 years and 10 months, to commence upon substantial completion and delivery to the DGS. The Company contributed approximately $4.8 million of capital to the Joint Venture as of September 30, 2022. The Company sold approximately $8.0 million of development costs to the Joint Venture as part of its formation on May 5, 2021.
During the third quarter of 2022, the Joint Venture was sold to the Grocery-Anchored Purchasers in connection with the Grocery-Anchored Portfolio Sale.
Unsecured Revolving Credit Facility and Term Loans
On August 30, 2021, the Company amended its then-existing $300 million unsecured credit facility and $50 million term loan. After the amendment, the unsecured revolving credit facility was $185 million with an expiration in August 2024. The unsecured revolving credit facility was able to be extended, at the Company’s option for two additional one-year periods, subject to customary conditions. Interest on the borrowings under the unsecured revolving credit facility component could range from LIBOR plus 135 bps to 195 bps (150 bps at June 30, 2022), based on the Company’s leverage ratio. The Company extended its $50 million term loan four years with an expiration in August 2026. The unsecured revolving credit facility and term loans were paid off and terminated on July 11, 2022, in connection with the Grocery-Anchored Portfolio Sale.
Mortgage Loans Payable
On May 5, 2021, the Company closed a non-recourse mortgage for $114.0 million. The mortgage matures June 1, 2031, bears interest at a fixed-rate of 3.49% and requires payment of interest only for the first five years followed by payments of principal and interest based on thirty-year amortization for the remainder of the term. The loan is secured by five shopping centers consisting of Lawndale Plaza, The Shops at Suffolk Downs, Christina Crossing, Trexlertown Plaza, and The Point. These properties had no pre-existing debt and the proceeds from this loan were used to reduce amounts outstanding under the Company’s revolving credit facility. The mortgage loans payable were assumed by the Grocery-Anchored Purchasers, in connection with the Grocery-Anchored Portfolio Sale.
Critical Accounting Policies
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition and the allowance for doubtful accounts receivable, real estate investments and purchase accounting allocations related thereto, asset impairment, and derivatives used to hedge interest-rate risks. Management’s estimates are based both on information that is currently available and on various other assumptions management believes to be reasonable under the circumstances. Actual results could differ from those estimates and those estimates could be different under varying assumptions or conditions.
The Company believes there have been no material changes to the items disclosed as its critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. See Note 2, Summary of Significant Accounting Policies, for recently-adopted accounting pronouncements.
24
Results of Operations
Comparison of three months ended September 30, 2022 to September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Dollars |
|
|
Percent |
Revenues |
|
$ |
7,984,000 |
|
|
$ |
8,495,000 |
|
|
$ |
(511,000 |
) |
|
-6.0% |
Property operating expenses |
|
|
(3,811,000 |
) |
|
|
(2,779,000 |
) |
|
|
(1,032,000 |
) |
|
37.1% |
Property operating income |
|
|
4,173,000 |
|
|
|
5,716,000 |
|
|
|
(1,543,000 |
) |
|
|
General and administrative |
|
|
(3,875,000 |
) |
|
|
(3,965,000 |
) |
|
|
90,000 |
|
|
-2.3% |
Depreciation and amortization |
|
|
(4,010,000 |
) |
|
|
(3,038,000 |
) |
|
|
(972,000 |
) |
|
32.0% |
Impairment charges |
|
|
(9,151,000 |
) |
|
|
(58,987,000 |
) |
|
|
49,836,000 |
|
|
n/a |
Transaction costs |
|
|
(23,971,000 |
) |
|
|
— |
|
|
|
(23,971,000 |
) |
|
n/a |
Interest income (expense) |
|
|
615,000 |
|
|
|
(3,152,000 |
) |
|
|
3,767,000 |
|
|
-119.5% |
Loss from continuing operations |
|
|
(36,219,000 |
) |
|
|
(63,426,000 |
) |
|
|
27,207,000 |
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
356,000 |
|
|
|
6,292,000 |
|
|
|
(5,936,000 |
) |
|
-94.3% |
Impairment charges |
|
|
- |
|
|
|
(23,749,000 |
) |
|
|
23,749,000 |
|
|
n/a |
Gain on sales |
|
|
125,500,000 |
|
|
|
— |
|
|
|
125,500,000 |
|
|
n/a |
Net income (loss) |
|
|
89,637,000 |
|
|
|
(80,883,000 |
) |
|
|
170,520,000 |
|
|
|
Net (income) loss attributable to noncontrolling interests |
|
|
(328,000 |
) |
|
|
367,000 |
|
|
|
(695,000 |
) |
|
n/a |
Net income (loss) attributable to Cedar Realty Trust, Inc. |
|
$ |
89,309,000 |
|
|
$ |
(80,516,000 |
) |
|
$ |
169,825,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues were lower as a result of (1) a decrease of $0.6 million in rental revenues and expense recoveries attributable to properties that were sold or held for sale in 2022 and 2021 not deemed to be discontinued operations and (2) a decrease of $0.1 million in expense recoveries attributable to same center properties, partially offset by (3) an increase in other income of $0.2 million attributable to one-time transactions for properties that were sold in 2022.
Property operating expenses were higher as a result of (1) an increase of $1.0 million in property operating expenses attributable to same center properties and (2) an increase of $0.3 million attributable to one-time property operating expenses for properties that were sold in 2022, partially offset by (3) a decrease of $0.3 million in property operating expenses attributable to properties that were sold or held for sale in 2022 and 2021 not deemed to be discontinued operations.
Depreciation and amortization expenses were higher as a result of (1) an increase of $1.1 million attributable to same center properties, partially offset by (2) a decrease of $0.1 million attributable to properties that were sold or held for sale in 2022 and 2021 not deemed to be discontinued operations.
Impairment charges in 2022 relate to the Company's investment in the unconsolidated joint venture and the note receivable associated with Senator Square located in Washington D.C. Impairment charges in 2021 relate to the Company's dual-track strategic alternatives process.
Transaction costs in 2022 relate to costs incurred related to the Grocery-Anchored Portfolio Sale and the Company's merger with Wheeler.
Interest expense was lower as a result of (1) a decrease in the overall weighted average interest rate which resulted in a decrease in interest expense of $3.5 million, (2) a decrease in the overall weighted average principal balance which resulted in a decrease in interest expense of $0.3 million, partially offset by (3) an increase in amortization expense of deferred financing costs $0.1 million.
Discontinued operations for 2022 and 2021 include the results of operations, impairments and gain on sales for properties treated as discontinued operations.
25
Comparison of nine months ended September 30, 2022 to September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Dollars |
|
|
Percent |
Revenues |
|
$ |
24,765,000 |
|
|
$ |
30,274,000 |
|
|
$ |
(5,509,000 |
) |
|
-18.2% |
Property operating expenses |
|
|
(10,395,000 |
) |
|
|
(10,619,000 |
) |
|
|
224,000 |
|
|
-2.1% |
Property operating income |
|
|
14,370,000 |
|
|
|
19,655,000 |
|
|
|
(5,285,000 |
) |
|
|
General and administrative |
|
|
(9,648,000 |
) |
|
|
(13,465,000 |
) |
|
|
3,817,000 |
|
|
-28.3% |
Depreciation and amortization |
|
|
(9,361,000 |
) |
|
|
(9,475,000 |
) |
|
|
114,000 |
|
|
-1.2% |
Gain on sales |
|
|
— |
|
|
|
48,857,000 |
|
|
|
(48,857,000 |
) |
|
n/a |
Impairment charges |
|
|
(9,350,000 |
) |
|
|
(57,138,000 |
) |
|
|
47,788,000 |
|
|
n/a |
Transaction costs |
|
|
(58,163,000 |
) |
|
|
— |
|
|
|
(58,163,000 |
) |
|
n/a |
Interest expense |
|
|
(5,222,000 |
) |
|
|
(11,134,000 |
) |
|
|
5,912,000 |
|
|
-53.1% |
Loss from continuing operations |
|
|
(77,374,000 |
) |
|
|
(22,700,000 |
) |
|
|
(54,674,000 |
) |
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
14,302,000 |
|
|
|
17,236,000 |
|
|
|
(2,934,000 |
) |
|
-17.0% |
Impairment charges |
|
|
(16,629,000 |
) |
|
|
(23,749,000 |
) |
|
|
7,120,000 |
|
|
n/a |
Gain on sales |
|
|
125,500,000 |
|
|
|
1,047,000 |
|
|
|
124,453,000 |
|
|
n/a |
Net income (loss) |
|
|
45,799,000 |
|
|
|
(28,166,000 |
) |
|
|
73,965,000 |
|
|
|
Net income attributable to noncontrolling interests |
|
|
(132,000 |
) |
|
|
(183,000 |
) |
|
|
51,000 |
|
|
n/a |
Net income (loss) attributable to Cedar Realty Trust, Inc. |
|
$ |
45,667,000 |
|
|
$ |
(28,349,000 |
) |
|
$ |
74,016,000 |
|
|
|
Revenues were lower as a result of (1) a decrease of $5.1 million in rental revenues and expense recoveries attributable to properties that were sold or held for sale in 2022 and 2021 not deemed to be discontinued operations and (2) a decrease of $0.6 million in rental revenues and expense recoveries attributable to same center properties, partially offset by (3) an increase in other income of $0.2 million attributable to one-time transactions for properties that were sold in 2022.
Property operating expenses were lower as a result of (1) a decrease of $1.6 million in property operating expenses attributable to properties sold or held for sale during 2022 and 2021 not deemed to be discontinued operations, partially offset by (2) an increase of $1.1 million in property operating expenses attributable to same center properties and (3) an increase of $0.3 million attributable to one-time property operating expenses for properties that were sold in 2022.
General and administrative costs were lower primarily as a result of a decrease of $3.6 million in payroll related costs due to employee departure.
Depreciation and amortization expenses were lower as a result of (1) a decrease of $0.9 million attributable to properties that were sold or held for sale in 2022 and 2021 not deemed to be discontinued operations, partially offset by (2) an increase of $0.8 million attributable to same center properties.
Gain on sales in 2021 relates to the sale of the Camp Hill Shopping Center, located in Camp Hill, Pennsylvania.
Impairment charges in 2022 relate to Riverview Plaza, located in Philadelphia, Pennsylvania, the Company's investment in the unconsolidated joint venture and the note receivable associated with Senator Square located in Washington D.C. Impairment charges in 2021 relate to the Company's dual-track strategic alternatives process, partially offset by impairment reversal related to The Commons Plaza, located in Dubois, Pennsylvania.
Transaction costs in 2022 relate to costs incurred related to the Grocery-Anchored Portfolio Sale and the Company's merger with Wheeler.
Interest expense was lower as a result of (1) a decrease in the overall weighted average principal balance which resulted in a decrease in interest expense of $3.4 million and (2) a decrease in the overall weighted average interest rate which resulted in a decrease in interest expense of $2.5 million.
Discontinued operations for 2022 and 2021 include the results of operations, impairments and gain on sales for properties treated as discontinued operations.
26
Same-Property Net Operating Income
Same-property net operating income (“same-property NOI”) is a widely-used non-GAAP financial measure for REITs that the Company believes, when considered with financial statements prepared in accordance with GAAP, is useful to investors as it provides an indication of the recurring cash generated by the Company’s properties by excluding certain non-cash revenues and expenses, as well as other infrequent items such as lease termination income which tends to fluctuate more than rents from year to year. Properties are included in same-property NOI if they are owned and operated for the entirety of both periods being compared, except for properties undergoing significant redevelopment and expansion until such properties have stabilized, and properties classified as held for sale. Consistent with the capital treatment of such costs under GAAP, tenant improvements, leasing commissions and other direct leasing costs are excluded from same-property NOI.
The most directly comparable GAAP financial measure is consolidated operating income. Same-property NOI should not be considered as an alternative to consolidated operating income prepared in accordance with GAAP or as a measure of liquidity. Further, same-property NOI is a measure for which there is no standard industry definition and, as such, it is not consistently defined or reported on among the Company’s peers, and thus may not provide an adequate basis for comparison among REITs.
The following table reconciles same-property NOI to the Company’s consolidated operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Operating loss |
|
$ |
(36,834,000 |
) |
|
$ |
(60,274,000 |
) |
|
$ |
(72,152,000 |
) |
|
$ |
(11,566,000 |
) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
3,875,000 |
|
|
|
3,965,000 |
|
|
|
9,648,000 |
|
|
|
13,465,000 |
|
Gain on sales |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(48,857,000 |
) |
Transaction costs |
|
|
23,971,000 |
|
|
|
— |
|
|
|
58,163,000 |
|
|
|
— |
|
Impairment charges |
|
|
9,151,000 |
|
|
|
58,987,000 |
|
|
|
9,350,000 |
|
|
|
57,138,000 |
|
Depreciation and amortization |
|
|
4,010,000 |
|
|
|
3,038,000 |
|
|
|
9,361,000 |
|
|
|
9,475,000 |
|
Straight-line rents |
|
|
(318,000 |
) |
|
|
25,000 |
|
|
|
(231,000 |
) |
|
|
(146,000 |
) |
Amortization of intangible lease liabilities |
|
|
(90,000 |
) |
|
|
(163,000 |
) |
|
|
(411,000 |
) |
|
|
(487,000 |
) |
Other adjustments |
|
|
11,000 |
|
|
|
(154,000 |
) |
|
|
38,000 |
|
|
|
(535,000 |
) |
NOI related to properties not defined as same-property |
|
|
84,000 |
|
|
|
(254,000 |
) |
|
|
(365,000 |
) |
|
|
(4,051,000 |
) |
Same-property NOI |
|
$ |
3,860,000 |
|
|
$ |
5,170,000 |
|
|
$ |
13,401,000 |
|
|
$ |
14,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of same properties |
|
|
19 |
|
|
|
19 |
|
|
|
19 |
|
|
|
19 |
|
Same-property occupancy, end of period |
|
|
82.6 |
% |
|
|
83.5 |
% |
|
|
82.6 |
% |
|
|
83.5 |
% |
Same-property leased, end of period |
|
|
84.5 |
% |
|
|
83.5 |
% |
|
|
84.5 |
% |
|
|
83.5 |
% |
Same-property average base rent, end of period |
|
$ |
10.37 |
|
|
$ |
10.29 |
|
|
$ |
10.37 |
|
|
$ |
10.29 |
|
Same-property NOI for the comparable three and nine month periods decreased 25.3% and 7.2%, respectively.
27
Leasing Activity
The following is a summary of the Company’s 19 operating properties' retail leasing activity during the three months ended September 30, 2022:
|
|
|
|
|
|
|
Three months ended |
|
|
|
September 30, 2022 |
|
Renewals (a): |
|
|
|
Leases renewed with rate increase (sq feet) |
|
|
42,971 |
|
Leases renewed with rate decrease (sq feet) |
|
|
29,223 |
|
Leases renewed with no rate change (sq feet) |
|
|
— |
|
Total leases renewed (sq feet) |
|
|
72,194 |
|
|
|
|
|
Leases renewed with rate increase (count) |
|
|
8 |
|
Leases renewed with rate decrease (count) |
|
|
2 |
|
Leases renewed with no rate change (count) |
|
|
— |
|
Total leases renewed (count) |
|
|
10 |
|
|
|
|
|
Option exercised (count) |
|
|
5 |
|
|
|
|
|
Weighted average on rate increases (per sq foot) |
|
$ |
0.93 |
|
Weighted average on rate decreases (per sq foot) |
|
$ |
(0.28 |
) |
Weighted average on all renewals (per sq foot) |
|
$ |
0.44 |
|
|
|
|
|
Weighted average change over prior rates |
|
|
3.67 |
% |
|
|
|
|
New Leases (a) (b): |
|
|
|
New leases (sq feet) |
|
|
38,360 |
|
New leases (count) |
|
|
5 |
|
Weighted average rate (per sq foot) |
|
$ |
9.64 |
|
(a)Lease data presented is based on average rate per square foot over the renewed or new lease term.
(b)The Company does not include ground leases entered into for the purposes of new lease sq feet and weighted average rate (per sq foot) on new leases.
Liquidity and Capital Resources
The Company funds operating expenses and other short-term liquidity requirements, including debt service and loan maturities, tenant improvements, leasing commissions and preferred dividend distributions, primarily from its operations and the $11.4 million in restricted cash as of September 30, 2022.
The Company has considered its short-term (one year or less) liquidity needs and the adequacy of its estimated cash flows from operating activities and other expected financing sources to meet these needs. In particular, the Company has considered its scheduled debt maturities for the twelve months ending September 30, 2023 of $130 million. At September 30, 2022, debt obligations are composed of a $130 million secured, variable-rate term loan that was incurred in connection with consummation of the Company's merger with Wheeler, matures in August 2023 and is collateralized by the 19 property portfolio. The interest rate on this term loan consists of the term Secured Overnight Financing Rate plus 0.10% plus an applicable margin of 2.5% through February 2023, at which time increases to 4.0%. Subsequent to September 30, 2022, the Company refinanced a portion of this term loan, reducing the debt due within one year to $27 million. See Note 12, Subsequent Events, to our condensed consolidated financial statements included in this Form 10-Q for a discussion of the October 28, 2022 refinancing that occurred for a portion of the 19 property portfolio. The Company plans to pay the remainder of its obligations through refinancing and dispositions.
Additionally, the Company plans to undertake measures to grow its operations and increase liquidity through backfilling vacant anchor spaces, replacing tenants who are in default of their lease terms, increasing future lease revenue through tenant improvements partially funded by restricted cash, disposition of assets, refinancing properties and operating cash.
In order to continue qualifying as a REIT, the Company is required to distribute at least 90% of its “REIT taxable income”, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). The Company paid preferred stock dividends through the third quarter of 2022 and has continued to declare preferred stock dividends through the fourth quarter of 2022. Additionally, the Company
28
paid dividends to the common stockholders in the first quarter and third quarter of 2022. Future dividend declarations will continue to be at the discretion of the Board of Directors, and will depend on the cash flow and financial condition of the Company, capital requirements, annual distribution requirements under the REIT provisions of the Code, and such other factors as the Board of Directors may deem relevant. The Company intends to continue to operate its business in a manner that will allow it to qualify as a REIT for U.S. federal income tax requirements.
Net Cash Flows
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For the nine months ended September 30, |
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2022 |
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2021 |
|
Cash flows (used in) provided by: |
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|
|
|
|
|
Operating activities |
|
$ |
(22,424,000 |
) |
|
$ |
32,319,000 |
|
Investing activities |
|
$ |
677,489,000 |
|
|
$ |
81,692,000 |
|
Financing activities |
|
$ |
(644,868,000 |
) |
|
$ |
(110,687,000 |
) |
Operating Activities
Net cash (used in) provided by operating activities, before net changes in operating assets and liabilities, was $(30.2) million for the nine months ended September 30, 2022 and $37.0 million for the nine months ended September 30, 2021. The decrease was a result of the transaction costs related to the Grocery-Anchored Portfolio Sale and completion of the Company's merger with Wheeler.
Investing Activities
Net cash flows provided by investing activities were primarily the result of the Company's expenditures for property improvements and property disposition activities. During the nine months ended September 30, 2022, the Company received $667.4 million in proceeds from the Grocery-Anchored Portfolio Sale and $31.9 million in proceeds from the sale of Riverview Plaza, which was partially offset by $21.7 million of expenditures for property improvements. During the nine months ended September 30, 2021, the Company received $104.5 million in proceeds from the sale of properties, which was partially offset by $19.6 million for property improvements and $3.2 million in contributions to an unconsolidated joint venture.
Financing Activities
During the nine months ended September 30, 2022, the Company made $405.4 million of preferred and common stock distributions, a $300.0 million term loan payoff, net payments of $66.0 million under the revolving credit facility, payments of $3.8 million of debt financing costs, $1.4 million of distributions to limited partners, the purchase of a minority interest in a joint venture for $1.0 million and $0.7 million of mortgage repayments, which were partially offset by a $130 million new term loan and a $3.4 million benefit as a result of interest rate swap terminations. During the nine months ended September 30, 2021, the Company had net payments of $109.0 million under the revolving credit facility, $100.0 million of term note payoff, $11.1 million of preferred and common stock distributions, $0.8 million of mortgage repayments, $3.3 million of debt financing costs, and $0.5 million of termination payments related to a swap liability, which were partially offset by net property specific mortgage note payables of $114.0 million.
Funds From Operations
Funds From Operations (“FFO”) is a widely recognized supplemental non-GAAP measure utilized to evaluate the financial performance of a REIT. The Company presents FFO in accordance with the definition adopted by the National Association of Real Estate Investment Trusts (“Nareit”). Nareit generally defines FFO as net income (determined in accordance with GAAP), excluding gains (losses) from sales of real estate properties, impairment write-downs on real estate properties directly attributable to decreases in the value of depreciable real estate, plus real estate related depreciation and amortization, and adjustments for partnerships and joint ventures to reflect FFO on the same basis. The Company considers FFO to be an appropriate measure of its financial performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than other depreciable assets.
The Company also considers Operating Funds From Operations (“Operating FFO”) to be an additional meaningful financial measure of financial performance because it excludes items the Company does not believe are indicative of its core operating performance, such as non-capitalized acquisition pursuit costs, amounts relating to early extinguishment of debt and preferred stock redemption costs, management transition costs and certain redevelopment costs. The Company believes Operating FFO further assists in comparing the Company’s performance across reporting periods on a consistent basis by excluding such items.
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FFO and Operating FFO should be reviewed with net income attributable to common shareholders, the most directly comparable GAAP financial measure, when trying to understand the Company’s operating performance. FFO and Operating FFO do not represent cash generated from operating activities and should not be considered as an alternative to net income attributable to common shareholders or to cash flow from operating activities. The Company’s computations of FFO and Operating FFO may differ from the computations utilized by other REITs and, accordingly, may not be comparable to such REITs.
A reconciliation of net income (loss) attributable to common shareholders to FFO and Operating FFO for the three and nine months ended September 30, 2022 and 2021 is as follows:
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Three months ended September 30, |
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Nine months ended September 30, |
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2022 |
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2021 |
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2022 |
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|
2021 |
|
Net income (loss) attributable to common shareholders |
|
$ |
86,621,000 |
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|
$ |
(83,204,000 |
) |
|
$ |
37,603,000 |
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|
$ |
(36,413,000 |
) |
Real estate depreciation and amortization |
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|
3,973,000 |
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|
9,497,000 |
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|
19,039,000 |
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|
|
30,917,000 |
|
Limited partners' interest |
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|
328,000 |
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|
|
(492,000 |
) |
|
|
132,000 |
|
|
|
(214,000 |
) |
Gain on sales |
|
|
(125,500,000 |
) |
|
|
— |
|
|
|
(125,500,000 |
) |
|
|
(49,904,000 |
) |
Impairment charges |
|
|
9,151,000 |
|
|
|
82,736,000 |
|
|
|
25,979,000 |
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|
80,887,000 |
|
Consolidated minority interests: |
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Share of income |
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— |
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125,000 |
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— |
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397,000 |
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Share of FFO |
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— |
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(78,000 |
) |
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— |
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|
|
(279,000 |
) |
FFO applicable to diluted common shares |
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|
(25,427,000 |
) |
|
|
8,584,000 |
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|
|
(42,747,000 |
) |
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|
25,391,000 |
|
Transaction costs (a) |
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|
23,971,000 |
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|
|
— |
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58,163,000 |
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|
— |
|
Redevelopment costs (b) |
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— |
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— |
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— |
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|
230,000 |
|
Financing costs (c) |
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— |
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|
171,000 |
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— |
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|
|
215,000 |
|
Operating FFO applicable to diluted common shares |
|
$ |
(1,456,000 |
) |
|
$ |
8,755,000 |
|
|
$ |
15,416,000 |
|
|
$ |
25,836,000 |
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FFO per diluted common share |
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$ |
(1.85 |
) |
|
$ |
0.62 |
|
|
$ |
(3.10 |
) |
|
$ |
1.84 |
|
Operating FFO per diluted common share |
|
$ |
(0.11 |
) |
|
$ |
0.63 |
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|
$ |
1.12 |
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$ |
1.87 |
|
Weighted average number of diluted common shares (d): |
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Common shares and equivalents |
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|
13,697,000 |
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|
13,790,000 |
|
|
|
13,717,000 |
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|
13,751,000 |
|
OP Units |
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30,000 |
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|
|
81,000 |
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|
59,000 |
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|
|
81,000 |
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|
|
|
13,727,000 |
|
|
|
13,871,000 |
|
|
|
13,776,000 |
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|
|
13,832,000 |
|
(a)Includes costs incurred in connection with the previously announced dual-track strategic alternatives process.
(b)Includes redevelopment project costs expensed pursuant to GAAP such as certain demolition and lease termination costs.
(c)Represents acceleration of amortization and financing costs related to term note paid-off prior to maturity.
(d)The weighted average number of diluted common shares used to compute FFO and Operating FFO applicable to diluted common shares includes OP Units, unvested restricted stock units and unvested restricted shares/units that are excluded from the computation of diluted EPS.
Inflation
Prior to 2021, inflation was relatively low and did not have a significant detrimental impact on the Company’s results of operations. If inflation rates continue to increase, substantially all of the Company’s tenant leases contain provisions designed to partially mitigate the negative impact of inflation in the near term. Such lease provisions include clauses that require tenants to reimburse the Company for inflation-sensitive costs such as real estate taxes and many of the operating expenses it incurs. Significant inflation rate increases over a prolonged period of time may have a material adverse impact on the Company’s business.
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