Cedar Shopping Centers, Inc. - 10-Q Summary (Period Ended Sept 30, 2004)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2004, for Cedar Shopping Centers, Inc. (the "Company"), a self-administered and self-managed Real Estate Investment Trust (REIT). The Company focuses on the ownership, operation, and redevelopment of community and neighborhood shopping centers, primarily in Pennsylvania, with additional holdings in Connecticut, Maryland, and New Jersey. As of the reporting date, the portfolio consisted of 28 properties totaling approximately 4.3 million square feet of gross leasable area (GLA), with an occupancy rate of approximately 85% overall and 95% excluding redevelopment properties.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2004 | Nine Months Ended Sept 30, 2004 |
|---|---|---|
| Total Revenues | $12,464,000 | $36,406,000 |
| Net Income (Loss) | $1,208,000 | $4,454,000 |
| Net Income Per Share (Basic) | $0.07 | $0.27 |
| Funds From Operations (FFO) | $3,691,000 | $11,313,000 |
| FFO Per Share/Unit | $0.22 | $0.67 |
| Cash and Cash Equivalents | $7,093,000 (as of Sept 30, 2004) | |
| Total Debt (Mortgage + Revolver) | $177,552,000 (as of Sept 30, 2004) | |
| Dividends Paid (Common) | $3,703,000 | $10,038,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 86% for the quarter and 100% for the nine-month period compared to 2003. This growth is primarily driven by the acquisition of six shopping centers during the first nine months of 2004, adding approximately 842,000 square feet of GLA.
- Profitability: The Company reported a net income of $1.2 million for the quarter, a significant improvement from a net loss of $228,000 in the same period in 2003. Similarly, nine-month net income was $4.5 million compared to a loss of $467,000 in 2003.
- Expense Increases: Operating expenses and depreciation/amortization increased significantly due to the expanded property portfolio. Depreciation and amortization rose 175% for the quarter and 199% for the nine-month period.
- Capital Structure: In July 2004, the Company completed a public offering of 2,350,000 shares of 8-7/8% Series A Cumulative Redeemable Preferred Stock, raising net proceeds of approximately $56.7 million. These proceeds were used to repay amounts on the secured revolving credit facility.
Guidance, Outlook, and Risks
Outlook and Capital Allocation: Management projects expending approximately $50 million to $60 million on redevelopment activities over the next 12 months. The Company intends to fund long-term liquidity requirements through its secured revolving credit facility, additional mortgage debt, and equity issuances. The Company continues to seek acquisition opportunities in its target markets.
Recent Developments (Subsequent Events):
- Acquired Franklin Village Plaza in Massachusetts for $72.5 million in November 2004.
- Amended its secured revolving credit facility in November 2004 to reduce interest rate margins (LIBOR + 150 to 205 bps) and potentially increase the facility size to $200 million.
- Declared a common stock dividend of $0.225 per share and a preferred stock dividend of $0.69 per share, payable in November 2004.
Risks and Contingencies:
- Interest Rate Risk: The Company has approximately $50.2 million of variable-rate debt not covered by hedges. A 1% change in interest rates would impact net earnings by approximately $502,000 annually.
- Refinancing Risk: A $14 million mortgage loan secured by the Camp Hill Mall matures in late 2004. The Company expects to arrange new financing or temporarily refinance via its credit facility.
- Development Risks: Ongoing redevelopment projects face risks of cost overruns, weather delays, and market factors affecting material and labor pricing.
Investor Verification Checklist
- Refinancing of Camp Hill Mall: Verify the status of the $14 million mortgage maturing in December 2004 and the progress of the redevelopment program.
- Acquisition Integration: Review the performance of the six properties acquired in 2004 to ensure they are meeting projected cash flow targets.
- Debt Covenants: Confirm compliance with financial covenants on the $100 million secured revolving credit facility, particularly regarding leverage ratios.
- Preferred Stock Obligations: Monitor the impact of the new $58.75 million preferred stock issuance on future cash flow available for common dividends.
- Redevelopment Costs: Track actual spending against the projected $50-$60 million redevelopment budget for the upcoming 12 months.