CDR-PB

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

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2006. Cedar Shopping Centers, Inc. is a fully-integrated, self-administered REIT focused on owning, operating, developing, and redeveloping supermarket-anchored community shopping centers and drug store-anchored convenience centers. As of June 30, 2006, the Company owned 85 properties aggregating approximately 8.9 million square feet of gross leasable area (GLA) across nine states, primarily in the Northeast and mid-Atlantic regions. The portfolio was approximately 92% leased.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 79% to $60.3 million for the six months ended June 30, 2006, compared to $33.6 million in the prior year period. This growth was driven primarily by acquisitions completed between January 2005 and June 2006, which added approximately 4.3 million square feet of GLA.
• Expense Increases: Operating expenses and depreciation/amortization rose significantly (76% and 110%, respectively) due to the larger property portfolio and the placement of development properties into service.
• Interest Expense: Non-operating expenses increased 131% to $15.4 million, reflecting higher borrowings used to finance acquisitions and higher short-term interest rates.
• Capital Structure: The Company settled a forward sales agreement and sold shares under its DOCS program, raising approximately $61.6 million in net proceeds during the first six months of 2006.

Guidance, Outlook, and Risks

Outlook and Strategy: Management continues to seek opportunities to acquire stabilized properties and those suited for development/redevelopment. The Company is in the process of expanding its secured revolving credit facility from $225 million to $300 million, expected to be completed by September 2006. A $57.4 million bridge loan was secured in July 2006 to fund the acquisition program pending the expansion.

Risks and Contingencies:

• Interest Rate Risk: The Company has significant variable-rate debt ($168.9 million). A 1% change in interest rates would impact net income by approximately $1.7 million annually.
• Market Risk: Performance depends on the financial viability of tenants and general economic conditions in the Company's market areas.
• Development Risks: Ongoing development projects face risks of cost overruns, weather delays, and market factors affecting material and labor pricing.
• Refinancing: The Company must maintain financial flexibility to repay or refinance debt obligations when due.

Investor Verification Checklist

• Acquisition Integration: Verify the occupancy rates and rental performance of the 55 properties acquired since January 2005 to ensure they are meeting projected cash flow targets.
• Debt Maturity Profile: Review the maturity schedule of the $537.2 million in debt, specifically the $124.5 million outstanding on the revolving credit facility expiring in January 2008.
• Dividend Coverage: Confirm that Funds From Operations (FFO) of $19.5 million for the six-month period sufficiently cover the $17.5 million in preferred and common dividend distributions paid during the same period.
• Development Progress: Assess the status of the six development/redevelopment properties (1.3 million sq. ft.), which were only 73% leased as of June 30, 2006.
• Forward Sales Agreement: Note that the forward sales agreement was fully settled in June 2006; verify if new equity capitalization plans are in place to fund future growth.