CDR-PB

Cedar Shopping Centers, Inc. - 10-Q Summary (Q1 2004)

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 2004. Cedar Shopping Centers, Inc. (the "Company") is a self-administered and self-managed Real Estate Investment Trust (REIT) focused on the ownership, operation, and redevelopment of community and neighborhood shopping centers. As of the reporting date, the portfolio consisted of 24 properties totaling approximately 3.9 million square feet of gross leasable area (GLA), primarily located in Pennsylvania, with additional holdings in Connecticut, Maryland, and New Jersey. The portfolio was approximately 88% leased.

Key Financial Metrics

Note: Total Debt includes $149,456,000 in mortgage loans and $53,650,000 drawn on the line of credit.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by 113% year-over-year, driven primarily by the acquisition of 16 shopping centers (approx. 2.1 million sq. ft.) between Jan 2003 and March 2004. Specifically, two properties were acquired in Q1 2004 (The Commons in DuBois, PA, and Townfair Center in Indiana, PA) for a combined cost of approximately $34 million.
• Profitability: The Company turned a net loss of $199,000 in Q1 2003 into a net income of $1.34 million in Q1 2004. This turnaround is attributed to the expanded property portfolio and improved occupancy levels at existing properties.
• Expense Increases: Operating expenses rose 58% and depreciation/amortization increased 224% due to the inclusion of newly acquired assets and the completion of the LA Fitness facility at Fort Washington, PA.
• Liquidity: Cash and cash equivalents decreased by $2.3 million, primarily due to significant investing activities ($30.6 million used for real estate expenditures) partially offset by financing activities ($26.4 million provided, largely from the line of credit).

Outlook, Risks, and Management Commentary

• Capital Resources: The Company maintains a $100 million syndicated secured revolving credit facility. As of March 31, 2004, $53.7 million was outstanding, with approximately $17.8 million available for draw based on current collateral. The Company intends to use this facility for acquisitions, redevelopment, and working capital.
• Dividends: A quarterly dividend of $0.16 per share was paid in Q1 2004. Subsequent to the period end, the Board approved a dividend of $0.225 per share payable in May 2004.
• Recent Acquisitions: On April 1, 2004 (post-period), the Company acquired Carbondale Shopping Center for approximately $4.4 million. On April 22, 2004, a shelf registration for $200 million of equity securities became effective.
• Risks:
  • Interest Rate Risk: The Company has $77.4 million in variable-rate debt. A 1% change in interest rates would impact quarterly net earnings by approximately $187,000.
  • Tenant Viability: Revenue depends on the financial stability of tenants, particularly supermarket anchors.
  • Refinancing: Risks associated with refinancing debt obligations when due and realizing expected proceeds from property sales.
• Unusual Items: The Company recognized an unrealized loss of $656,000 on derivative financial instruments in Q1 2004. Additionally, the Company is seeking a retroactive ruling from the IRS regarding a late election for a taxable REIT subsidiary, though management believes a favorable ruling is likely.

Investor Verification Checklist

• Verify the occupancy rates and lease expiration schedules for the two properties acquired in March 2004 (The Commons and Townfair Center).
• Confirm the status of the IRS ruling regarding the taxable REIT subsidiary election filed retroactively to June 2002.
• Review the specific covenants of the $100 million credit facility to ensure the Company remains in compliance as it adds properties to the collateral pool.
• Assess the impact of the $75 million in unhedged variable-rate debt on future interest expense given current market rate trends.
• Validate the progress and cost estimates for the redevelopment of the vacant Ames department store space at the Carbondale Shopping Center acquired in April 2004.