Cedar Shopping Centers, Inc. - 10-Q Summary (Period Ended June 30, 2009)
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Cedar Shopping Centers, Inc., a real estate investment trust (REIT) focused on supermarket-anchored shopping centers in the coastal mid-Atlantic and New England regions. The report covers the three and six months ended June 30, 2009. As of the reporting date, the Company owned 121 operating properties totaling approximately 12.7 million square feet of gross leasable area (GLA), with a portfolio occupancy rate of approximately 92%.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $91,569,000 | $86,367,000 |
| Net Income (Consolidated) | $7,743,000 | $9,661,000 |
| Net Income Attributable to Common Shareholders | $3,683,000 | $4,336,000 |
| Funds From Operations (FFO) | $26,236,000 | $28,134,000 |
| Net Cash Provided by Operating Activities | $25,012,000 | $28,859,000 |
| Total Debt (Mortgage + Revolving) | $1,113,536,000 | $1,013,473,000 |
| Cash and Cash Equivalents | $15,711,000 | $8,231,000 |
| Weighted Average Shares Outstanding | 44,971,000 | 44,461,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 6% ($5.2 million) compared to the prior year, driven primarily by acquisitions and increased tenant recoveries, partially offset by decreases in straight-line rental income and amortization of intangible lease liabilities.
- Profitability Decline: Net income attributable to common shareholders decreased by approximately 15% ($653,000). This was largely due to increased interest costs from acquired debt, higher amortization of deferred financing costs, and a $3.9 million charge for terminated projects and acquisition transaction costs.
- Expense Increases: Property operating expenses rose 13% due to higher real estate taxes, snow removal costs, and a significant increase in the provision for doubtful accounts ($843,000 increase) reflecting challenging economic conditions for non-core tenants.
- Debt Expansion: Total debt increased by approximately $100 million, primarily due to the assumption of mortgages in connection with two new joint venture acquisitions (New London Mall and San Souci Plaza) and increased utilization of revolving credit facilities.
Guidance, Outlook, and Risks
- Dividend Suspension: In April 2009, the Board of Directors suspended common stock dividends for the remainder of 2009 to preserve liquidity. This decision is expected to save approximately $21.2 million in the second half of the year.
- Capital Markets: Management notes a fundamental contraction in U.S. credit markets, restricting the availability of mortgage financing and construction loans. There is no assurance that the Company will be able to refinance existing debt or secure new financing on favorable terms.
- Strategic Shift: Due to economic conditions, the Company expects to substantially reduce acquisition, development, and redevelopment activities for the remainder of 2009.
- Debt Refinancing: The Company is negotiating an amended and restated secured revolving stabilized property credit facility. The proposed terms include a higher interest rate (LIBOR + 350 bps) and a leverage ratio limit of 67.5%. The existing facility expires in January 2010.
- Unusual Items: The Company recorded a $2.4 million write-off for a terminated development opportunity in Milford, Delaware, and a $170,000 impairment charge related to a property held for sale.
Investor Verification Checklist
- Dividend Policy: Confirm the status of the dividend suspension and the timeline for potential resumption given the REIT distribution requirements.
- Debt Maturity Wall: Verify the terms and likelihood of closing the new revolving credit facility before the current one expires in January 2010.
- Tenant Credit Quality: Review the specific tenants contributing to the increased provision for doubtful accounts and the potential for further lease terminations.
- Liquidity Position: Assess the availability under the current credit facilities ($23.5 million available on stabilized facility) against upcoming capital expenditure and debt service obligations.
- Joint Venture Terms: Examine the "promote" fee structures and buy/sell provisions in the new joint ventures with Prime Commercial Properties PLC.