Cedar Shopping Centers, Inc. - 10-Q Summary
Business Context and Reporting Period
Company: Cedar Shopping Centers, Inc. (Cedar Realty Trust, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: A fully-integrated REIT focused on the ownership, operation, development, and redevelopment of supermarket-anchored shopping centers and drug-store-anchored convenience centers in nine mid-Atlantic and New England states. As of September 30, 2008, the portfolio consisted of 119 operating properties totaling approximately 12.0 million square feet of gross leasable area (GLA), with an overall occupancy rate of approximately 92% (96% for the stabilized portfolio).
Key Financial Metrics
| Metric (Nine Months Ended Sep 30, 2008) | Amount ($) |
|---|---|
| Total Revenues | 129,872,000 |
| Net Income | 13,520,000 |
| Net Income Applicable to Common Shareholders | 7,613,000 |
| Funds From Operations (FFO) | 42,574,000 |
| Net Cash Provided by Operating Activities | 39,225,000 |
| Total Debt (Mortgage Loans + Credit Facilities) | 957,551,000 |
| Cash and Cash Equivalents | 5,989,000 |
| Weighted Average Interest Rate (Total Debt) | 5.2% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 17% to $129.9 million for the nine months ended September 30, 2008, compared to $111.0 million in the prior year period. This increase was primarily driven by property acquisitions and development activities.
- Net Income Decline: Net income applicable to common shareholders decreased 27% to $7.6 million from $10.5 million in the prior year period. This decline was largely due to increased interest expenses from borrowings related to acquisitions and higher general and administrative costs (including stock-based compensation), which offset revenue growth.
- Expense Increases: Property operating expenses rose 24% and depreciation/amortization increased 25% year-over-year, reflecting the expanded portfolio and a one-time $1.9 million depreciation charge for a demolished property in Wyoming, Michigan.
- Debt Levels: Total secured debt increased from $851.5 million at December 31, 2007, to $957.6 million at September 30, 2008, driven by new mortgage financings and increased utilization of credit facilities to fund acquisitions and development.
Outlook, Risks, and Management Commentary
- Market Conditions: Management notes unprecedented turmoil in U.S. and global financial markets, citing a contraction in credit availability and tightened lending standards. While the company's "necessities-based" tenant mix (supermarkets/drug stores) is expected to provide stability, risks regarding refinancing and capital availability remain high.
- Joint Venture Update: On November 3, 2008, the company announced that Homburg Invest Inc. would not proceed with a proposed joint venture for 32 properties due to the collapse of global capital markets. This deal was previously in principle since February 2008.
- Liquidity and Financing: The company has extended its $300 million stabilized property credit facility for one year (maturing January 2010) and maintains a $150 million development facility. However, management explicitly states there can be no assurance that mortgage financing for completed projects or refinancing of maturing debt will be available on acceptable terms given current market conditions.
- Dividends: The Board declared a quarterly common dividend of $0.225 per share and a preferred dividend of $0.554688 per share, payable November 20, 2008.
- Acquisitions: Subsequent to the period end, the company acquired Metro Square in Maryland and the remaining portion of Smithfield Plaza in Virginia.
Investor Verification Checklist
- Refinancing Risk: Verify the status of the $300 million stabilized credit facility extension and the company's ability to refinance maturing debt in a constrained credit market.
- Development Pipeline Funding: Confirm the availability of construction financing for the Pottsgrove, Stroudsburg, and Limerick joint venture projects, particularly given the cancellation of the Homburg Invest joint venture.
- Tenant Credit Quality: Monitor the allowance for doubtful accounts (increased to $2.4 million) and potential vacancies among non-anchor tenants as economic conditions deteriorate.
- Interest Rate Exposure: Assess the impact of rising interest rates on the $316.1 million of variable-rate debt, noting the company's use of interest rate swaps to hedge a portion of this exposure.
- FFO vs. Net Income: Review the divergence between GAAP Net Income ($7.6M) and Funds From Operations ($42.6M) to understand the impact of non-cash depreciation and amortization on reported earnings.