Business Context and Reporting Period
Company: Cedar Shopping Centers, Inc. (Cedar Realty Trust, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2005
Business Overview: A self-administered and self-managed Real Estate Investment Trust (REIT) focused on owning, operating, developing, and redeveloping supermarket-anchored community shopping centers and drug store-anchored convenience centers. The portfolio is concentrated in nine states, primarily in the Northeast and mid-Atlantic regions.
Portfolio Status: As of December 31, 2005, the Company owned 84 properties totaling approximately 8.4 million square feet of Gross Leasable Area (GLA). The portfolio was approximately 91% leased, comprising 74 stabilized properties (96% leased), 7 development/redevelopment properties (74% leased), and 3 non-stabilized properties (64% leased).
Key Financial Metrics
| Financial Metric (in thousands) | 2005 | 2004 |
|---|---|---|
| Total Revenues | $78,941 | $51,078 |
| Operating Income | $30,940 | $20,504 |
| Net Income (Loss) Applicable to Common Shareholders | $6,027 | $5,702 |
| Funds From Operations (FFO) | $25,923 | $15,625 |
| FFO Per Common Share | $1.03 | $0.91 |
| Net Cash Provided by Operating Activities | $29,935 | $18,507 |
| Total Assets | $996,256 | $537,160 |
| Total Liabilities | $572,196 | $282,869 |
| Shareholders' Equity | $391,135 | $235,754 |
| Total Debt (Mortgages + Revolver) | $527,791 | $248,630 |
| Dividends Paid Per Common Share | $0.90 | $0.835 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 55% to $78.9 million, driven primarily by the acquisition of 53 properties (3.6 million sq. ft.) during 2005 for approximately $411.7 million.
- Expense Increases: Property operating expenses rose 43% and depreciation/amortization increased 81% due to the expanded portfolio and development properties being placed in service.
- Debt Expansion: Total indebtedness more than doubled to $527.8 million. This includes $380.3 million in mortgage loans and $147.5 million drawn on a $200 million secured revolving credit facility.
- Capital Raising: The Company raised approximately $168.5 million in net proceeds from public offerings of common and preferred stock in 2005, largely used to repay the revolving credit facility.
- Profitability: Net income applicable to common shareholders increased slightly to $6.0 million ($0.25 per share) from $5.7 million ($0.34 per share) in 2004, despite higher revenues, due to increased interest expense and preferred distribution requirements.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management intends to continue acquiring stabilized properties and pursuing development/redevelopment opportunities. The Company plans to utilize its revolving credit facility and future equity issuances to fund growth.
- Liquidity: As of December 31, 2005, liquidity sources included $8.6 million in cash, $33.3 million available on the revolving credit facility, and approximately $44.8 million available under a common stock forward sales agreement.
- Key Risks:
- Interest Rate Risk: The Company has significant variable-rate debt exposure. A 1% increase in interest rates would decrease net income by approximately $1.9 million annually.
- Tenant Concentration: Giant Foods and Stop & Shop (Ahold N.V.) collectively accounted for approximately 11% of total revenues and GLA.
- Refinancing Risk: Substantial debt maturities exist, requiring successful refinancing to avoid forced asset sales.
- Development Risk: Ongoing development projects face risks of cost overruns and delays.
- Unusual Items: No material unusual items were reported for 2005. The 2003 period included a one-time charge of $20.8 million related to the acquisition of an external advisor, which is not present in the 2005 results.
Investor Verification Checklist
- Debt Maturities: Verify the Company's ability to refinance $72.4 million of mortgage debt maturing in 2008 and the $147.5 million revolving credit facility maturing in 2008.
- Lease Expirations: Review the schedule of lease expirations, noting that 12.9% of GLA expires in 2010 and 34.5% thereafter, to assess re-leasing risks.
- Development Progress: Monitor the leasing status and cost performance of the seven development/redevelopment properties, which were only 74% leased at year-end.
- Dividend Coverage: Confirm that FFO ($1.03/share) continues to cover the dividend payout ($0.90/share) given the high leverage and interest rate sensitivity.
- Related Party Transactions: Note the lease of executive offices from a partnership owned 24% by the Chairman and the recent acquisition of Shore Mall (Jan 2006) where the Chairman held an interest in the selling entity.