Cedar Shopping Centers, Inc. - 10-Q Summary (Period Ended Sep 30, 2007)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2007, 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 community shopping centers and drug store-anchored convenience centers, primarily in the Northeast and Mid-Atlantic regions. As of September 30, 2007, the portfolio consisted of 112 properties totaling approximately 11.4 million square feet of gross leasable area (GLA), with an overall occupancy rate of approximately 93%.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2006 |
|---|---|---|---|
| Total Revenues | $37,477,000 | $109,876,000 | $91,169,000 |
| Net Income | $5,894,000 | $16,408,000 | $10,826,000 |
| Net Income Applicable to Common Shareholders | $3,925,000 | $10,501,000 | $4,919,000 |
| Funds From Operations (FFO) | $14,150,000 | $40,621,000 | $30,231,000 |
| FFO Per Common Share (Diluted) | $0.31 | $0.88 | $0.90 |
| Operating Cash Flow (9 months) | N/A | $36,831,000 | $26,607,000 |
| Total Debt (Mortgage + Revolver) | $823,935,000 | $823,935,000 | $568,073,000 |
| Cash and Cash Equivalents | $21,148,000 | $21,148,000 | $17,885,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 19% for the quarter and 21% for the nine-month period compared to the prior year, driven primarily by property acquisitions and lease commencements at development and redevelopment properties.
- Profitability: Net income applicable to common shareholders increased significantly, rising from $1.8 million to $3.9 million for the quarter and from $4.9 million to $10.5 million for the nine-month period.
- Debt Levels: Total secured debt increased from $568.1 million at December 31, 2006, to $823.9 million at September 30, 2007. This increase was due to new mortgage financings and increased utilization of the secured revolving credit facility to fund acquisitions.
- Acquisitions: During the nine months ended September 30, 2007, the Company acquired 14 shopping and convenience centers and land for future expansion, totaling approximately $134 million in expenditures for real estate and improvements.
- Discontinued Operations: The Company classified the Stadium Plaza property in East Lansing, Michigan, as "held for sale" in May 2007. Results for this property are reported as discontinued operations.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the increase in operating results to the Company's property acquisition program and continuing development activities. The Company continues to seek opportunities to acquire stabilized properties and those suited for development to achieve long-term cash flow growth.
Liquidity and Capital Resources: The Company maintains a $300 million secured revolving credit facility (expandable to $400 million), with approximately $107.7 million available as of September 30, 2007. Liquidity is also supported by $21.1 million in cash and cash equivalents. The Company anticipates additional liquidity from a joint venture with Homburg Invest Inc., expected to contribute approximately $50 million in net proceeds.
Risks and Contingencies:
- Interest Rate Risk: The Company has significant variable-rate debt ($191.6 million). A 1% change in interest rates would impact net income by approximately $1.9 million per annum.
- Market Risk: Forward-looking statements are subject to risks including economic conditions, tenant financial viability, availability of capital, and interest rate changes.
- Joint Venture: The Company entered into a joint venture with Homburg Invest Inc. regarding nine properties. While the transaction does not qualify as a sale for financial reporting purposes, the Company expects to close the sale of its interests prior to December 31, 2007.
Key Facts for Investor Verification
- Dividend Coverage: Verify the sustainability of the $0.225 per share quarterly common dividend against the reported FFO and cash flow from operations.
- Debt Covenants: Review the financial covenants associated with the $300 million revolving credit facility, specifically the leverage limits and the restriction on distributions to 95% of Funds From Operations.
- Acquisition Integration: Assess the performance of the 14 properties acquired in the first nine months of 2007 to ensure they meet projected return targets.
- Joint Venture Closing: Monitor the closing of the Homburg joint venture transaction to confirm the expected $50 million in net proceeds and the impact on the Company's balance sheet.
- Property Held for Sale: Track the sale progress of the Stadium Plaza property classified as held for sale to ensure it is disposed of within the expected timeframe.