Cedar Shopping Centers, Inc. (CEDAR) - 10-Q Summary
Business Context and Reporting Period
Company: Cedar Shopping Centers, Inc. (CEDAR)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: A fully-integrated REIT focused on the ownership, operation, development, and redevelopment of supermarket-anchored shopping centers, primarily in the coastal mid-Atlantic and New England states. As of September 30, 2009, the portfolio consisted of 124 properties totaling approximately 13.1 million square feet of gross leasable area (GLA), with an overall occupancy rate of approximately 92% (excluding ground-up development).
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2008 |
|---|---|---|---|
| Total Revenues | $45.85 million | $137.21 million | $129.29 million |
| Net Income (GAAP) | $3.81 million | $11.56 million | $15.47 million |
| Net Income Attributable to Common Shareholders | $1.45 million | $5.13 million | $7.61 million |
| Funds From Operations (FFO) | $12.97 million | $39.21 million | $42.57 million |
| FFO Per Common Share (Diluted) | $0.28 | $0.83 | $0.92 |
| Operating Cash Flow | N/A | $34.20 million | $40.44 million |
| Total Debt (Mortgages + Revolvers) | $1.12 billion | $1.12 billion | $1.01 billion |
| Cash and Cash Equivalents | $9.53 million | $9.53 million | $23.05 million (Dec 31, 2008) |
Debt Profile: Total secured debt includes $795.5 million in mortgage loans (weighted average rate 5.6%) and $323.5 million in secured revolving credit facilities (weighted average rate 2.1%). The weighted average interest rate on total debt is 4.5%.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 6% for the nine months ended September 30, 2009, compared to the prior year, driven primarily by acquisitions and development activities. However, revenues from properties held in both periods decreased slightly due to early lease terminations and lower percentage rent.
- Net Income Decline: Net income attributable to common shareholders decreased 33% year-over-year for the nine-month period ($5.13 million vs. $7.61 million). This was primarily due to increased interest costs from assumed debt and higher amortization of deferred financing costs, partially offset by lower interest rates on variable-rate debt.
- Operating Expenses: Property operating expenses increased 14% year-over-year, largely due to a higher provision for doubtful accounts ($1.39 million increase) reflecting challenging economic conditions for non-core tenants, and increased real estate taxes.
- Discontinued Operations: The company recorded impairment charges of $722,000 related to discontinued operations (Staples and CVS properties) in the first nine months of 2009, compared to no impairment charges in the same period of 2008.
- Dividend Suspension: In April 2009, the Board suspended cash dividends on common stock and OP Units for the remainder of 2009 to preserve liquidity, resulting in estimated cash savings of $37 million.
Outlook, Risks, and Unusual Items
- RioCan Transaction: On October 26, 2009, the company entered into definitive agreements with RioCan Real Estate Investment Trust. This includes a $40 million private placement, the creation of a joint venture for seven existing properties, and an agreement to acquire up to $500 million of new properties. The company expects to recognize an impairment charge of approximately $23 million in Q4 2009 related to the joint venture transaction.
- Debt Refinancing: The company is negotiating an amended and restated $265 million secured revolving stabilized property credit facility, expected to close in Q4 2009. The new facility will have higher interest rates (LIBOR + 350 bps) and fees compared to the expiring facility.
- Liquidity: The company maintains approximately $22.5 million in availability under its current stabilized credit facility and $84.5 million drawn on its development facility. Management expects sufficient liquidity to manage operations through operating cash flows and credit facilities.
- Risks: Key risks include the availability of capital in constrained markets, tenant creditworthiness (increased bad debt provisions), and the ability to refinance debt maturing in 2010 and 2011.
Investor Verification Checklist
- Dividend Policy: Confirm the status of the dividend suspension and the timeline for potential resumption in 2010.
- RioCan Deal Impact: Verify the final accounting treatment and the magnitude of the estimated $23 million impairment charge in Q4 2009.
- Debt Refinancing Terms: Monitor the final terms of the new $265 million credit facility, specifically the interest rate floor and leverage covenants.
- Tenant Credit Quality: Review the allowance for doubtful accounts ($4.82 million at Sep 30, 2009) and trends in tenant defaults or rent relief requests.
- Development Pipeline: Assess the progress and funding requirements for ground-up development projects, given the reduced acquisition activity in 2009.