Cedar Shopping Centers, Inc. - 10-Q Summary (Period Ended June 30, 2010)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2010, for Cedar Shopping Centers, Inc. (the "Company"), a Maryland corporation organized as a Real Estate Investment Trust (REIT). The Company focuses on the ownership, operation, development, and redevelopment of supermarket-anchored shopping centers, primarily in the coastal mid-Atlantic and New England states. As of June 30, 2010, the Company owned and managed 118 operating properties totaling approximately 13.0 million square feet of gross leasable area (GLA), with a portfolio occupancy rate of approximately 90% (excluding ground-up development properties).
Key Financial Metrics
| Metric | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $85.2 million | $89.0 million |
| Net Income (Loss) Attributable to Common Shareholders | ($7.7 million) | $3.6 million |
| Funds From Operations (FFO) | $13.0 million | $26.2 million |
| FFO Per Common Share (Diluted) | $0.21 | $0.56 |
| Net Cash Provided by Operating Activities | $16.8 million | $25.3 million |
| Total Debt (Mortgage Loans + Revolving Facilities) | $856.1 million | $946.0 million |
| Cash and Cash Equivalents | $13.8 million | $17.2 million |
| Weighted Average Interest Rate (Total Debt) | 5.2% | 5.3% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 4% ($3.8 million) compared to the prior year. This was primarily driven by the transfer of seven properties to the Cedar/RioCan joint venture, a decrease in base rents, and reduced amortization of intangible lease liabilities.
- Net Loss: The Company reported a net loss attributable to common shareholders of $7.7 million for the six months ended June 30, 2010, compared to net income of $3.6 million in the prior year. This shift was significantly impacted by $3.2 million in impairment charges related to discontinued operations (specifically the Long Reach Village shopping center) and $2.1 million in impairments related to properties transferred to the joint venture.
- Debt Reduction: Total debt decreased by approximately $90 million. The Company utilized proceeds from property transfers to the Cedar/RioCan joint venture ($31.5 million net) and equity issuances to repay secured revolving credit facilities.
- Discontinued Operations: The Company classified ten drug store/convenience centers and one supermarket-anchored center as discontinued operations, resulting in a net loss from these operations of $2.9 million for the quarter and $2.9 million for the six-month period.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management resumed common stock dividends in December 2009 at $0.09 per share ($0.36 annualized) following a review of the economic climate. The Company continues to pursue a strategy of transferring stabilized properties to the Cedar/RioCan joint venture to reduce leverage and fund development. Subsequent to the reporting period, the joint venture acquired two additional properties (Exeter Commons and a Connecticut property), and the Company declared a quarterly dividend of $0.09 per share.
Risks and Contingencies:
- Market Conditions: The filing highlights risks associated with the contraction of U.S. credit markets, which may restrict access to mortgage financing and refinancing options.
- Tenant Viability: Economic conditions continue to impact tenant ability to pay rent, leading to requests for rent relief and potential vacancies.
- Interest Rate Risk: The Company has significant variable-rate debt ($251.4 million). A 1% increase in interest rates would increase annual interest costs by approximately $2.5 million, though some exposure is hedged via interest rate swaps.
- Development Risks: Ongoing development projects face risks of cost overruns, weather delays, and changes in market demand.
Investor Verification Checklist
- Impairment Charges: Verify the specific valuation assumptions used for the $3.0 million impairment on the Long Reach Village property and the $2.1 million impairment on the Blue Mountain Commons property.
- Joint Venture Terms: Review the specific terms of the Cedar/RioCan joint venture, particularly the 80/20 ownership split and the Company's 20% retained interest in transferred assets.
- Debt Covenants: Confirm compliance with the leverage ratio (limited to 67.5%) and distribution limits (95% of FFO) under the secured revolving stabilized property credit facility.
- Equity Issuances: Verify the net proceeds and dilution impact from the public offering of 7.5 million shares and the Standby Equity Purchase Agreement (SEPA) transactions.
- Discontinued Operations: Assess the timeline and expected proceeds for the sale of the remaining properties classified as "held for sale."