Cedar Shopping Centers, Inc. 2010 10-K Summary
Business Context and Reporting Period
Company: Cedar Shopping Centers, Inc. (Cedar)
Reporting Period: Fiscal year ended December 31, 2010
Business Overview: Cedar is a fully-integrated REIT focused on owning, operating, developing, and redeveloping supermarket-anchored shopping centers, primarily in the mid-Atlantic and Northeast coastal states. As of December 31, 2010, the portfolio consisted of 115 operating properties totaling approximately 14.5 million square feet of gross leasable area (GLA). The portfolio was approximately 92.5% leased, excluding ground-up development properties.
Structure: The Company operates through an umbrella partnership structure (Cedar Shopping Centers Partnership L.P.), in which it holds a 97.9% interest.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total Revenues | $157.2 million | $168.3 million |
| Net Loss (GAAP) | ($44.2 million) | ($17.0 million) |
| Net Loss Attributable to Common Shareholders | ($51.5 million) | ($24.7 million) |
| Funds From Operations (FFO) | ($10.3 million) | $24.6 million |
| FFO Per Share (Diluted) | ($0.16) | $0.51 |
| Operating Cash Flow | $41.7 million | $51.9 million |
| Total Assets | $1.62 billion | $1.79 billion |
| Total Debt (Mortgages & Credit Facilities) | $807.3 million | $912.6 million |
| Shareholders' Equity | $630.1 million | $538.5 million |
Material Changes vs. Prior Period
- Net Loss Increase: The net loss attributable to common shareholders increased significantly from $24.7 million in 2009 to $51.5 million in 2010. This was primarily driven by a $39.5 million impairment charge related to properties classified as "discontinued operations" (primarily drug store/convenience centers in Ohio) and a $2.5 million impairment charge related to properties transferred to the Cedar/RioCan joint venture.
- Revenue Decline: Total revenues decreased by 7% to $157.2 million. This was due to the completion of amortization of intangible lease liabilities at certain properties, decreased tenant recovery income, and the impact of the RioCan joint venture transactions.
- Debt Reduction: Total debt decreased by approximately $105 million. The Company utilized proceeds from equity offerings and property transfers to the RioCan joint venture to repay secured revolving credit facilities.
- Equity Capitalization: The Company raised significant capital in 2010, including a $47.0 million common stock offering, a $67.4 million preferred stock offering, and proceeds from a Standby Equity Purchase Agreement (SEPA) and Dividend Reinvestment Plan (DRIP).
Guidance, Outlook, and Risks
Management Commentary: Management highlighted the impact of the difficult retail environment and credit market instability. The Company resumed quarterly dividends in 2010 at $0.09 per share ($0.36 annualized) after suspending them in 2009. However, management cautioned that future dividends depend on cash flow and economic conditions.
Joint Venture Activity:
- RioCan: Completed the transfer of seven properties to an 80/20 joint venture with RioCan, generating net proceeds of approximately $63.1 million and transferring $94 million in mortgages.
- Homburg Invest: On February 15, 2011 (subsequent to year-end), Homburg Invest exercised a "buy/sell" option on nine joint venture properties. Cedar elected to sell its 20% interest in eight of these properties (receiving approx. $9.7 million) and purchase Homburg's 80% interest in one property (Meadows Marketplace).
Risks and Contingencies:
- Economic Conditions: High unemployment and reduced consumer spending in the mid-Atlantic and Northeast regions pose risks to tenant solvency and rental income.
- Discontinued Operations: The Company is actively disposing of 28 properties (primarily in Ohio) that were disproportionately impacted by the decline in the automobile industry. Significant impairment charges were recognized in 2010.
- Liquidity: While the Company has $110.7 million available under its stabilized property credit facility and $103.1 million outstanding on its development facility, access to capital markets remains a concern.
Key Facts for Investor Verification
- Impairment Charges: Verify the valuation assumptions used for the $39.5 million impairment on discontinued operations and the $2.5 million impairment on RioCan transfers.
- Dividend Sustainability: Assess the Company's ability to maintain the $0.36 annual dividend given the negative FFO and reliance on credit facilities.
- Joint Venture Resolution: Monitor the closing of the Homburg Invest "buy/sell" transaction and the impact on the portfolio's revenue and debt load.
- Debt Maturities: Review the scheduled principal payments of $195.4 million due in 2011, including $103.1 million and $62.6 million subject to one-year extension options.
- Occupancy Trends: Track the 92.5% occupancy rate and the specific performance of the Ohio drug store/convenience centers being divested.