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: June 30, 2008
Business Overview: A fully-integrated REIT focused on the ownership, operation, development, and redevelopment of supermarket-anchored shopping centers in nine mid-Atlantic and New England states. As of June 30, 2008, the portfolio consisted of 119 properties totaling approximately 12.0 million square feet of gross leasable area (GLA), with an overall occupancy rate of approximately 92%.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2008 |
Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $42.9 million | $86.6 million |
| Net Income | $3.2 million | $8.3 million |
| Net Income Applicable to Common Shareholders | $1.2 million | $4.3 million |
| Funds From Operations (FFO) | $14.4 million | $28.1 million |
| FFO Per Common Share (Diluted) | $0.31 | $0.61 |
| Operating Cash Flow | N/A | $28.4 million |
| Total Debt (Mortgage + Revolver) | $934.6 million | $934.6 million |
| Cash and Cash Equivalents | $7.2 million | $7.2 million |
| Dividends to Common Shareholders | $10.0 million | $20.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 16% ($5.9 million) for the quarter and 18% ($13.4 million) for the six months compared to the prior year periods, driven primarily by property acquisitions and development activities.
- Net Income Decline: Net income applicable to common shareholders decreased significantly, falling from $2.9 million to $1.2 million for the quarter and from $6.6 million to $4.3 million for the six months. This decline was primarily due to increased interest expenses from borrowings related to acquisitions and development, as well as a one-time depreciation charge of $1.9 million for the demolition of a building in Wyoming, Michigan.
- Expense Increases: Property operating expenses rose 27% (quarter) and 24% (six months), largely due to higher real estate taxes and increased provisions for doubtful accounts. Depreciation and amortization increased 42% (quarter) and 29% (six months) due to new assets and the aforementioned demolition charge.
- Debt Levels: Total secured debt increased from $851.5 million at year-end 2007 to $934.6 million at June 30, 2008. Borrowings under the secured revolving credit facility increased to $254.4 million.
Guidance, Outlook, and Risks
- Capital Resources: The company maintains a $300 million secured revolving credit facility (expandable to $400 million) with approximately $44.9 million available as of June 30, 2008. A new $150 million construction facility was closed in June 2008.
- Joint Ventures: The company entered into an agreement in principle to form joint ventures with Homburg Invest Inc. involving 32 convenience centers, expected to close in Q4 2008. This transaction is not expected to qualify as a sale for financial reporting purposes.
- Development Pipeline: Active development projects include a shopping center in Pottsgrove, PA, and a redevelopment in Bloomsburg, PA. The company also acquired land in South Londonderry Township, PA, and Naugatuck, CT.
- Risks: Key risks include interest rate fluctuations on variable-rate debt (approximately $257 million outstanding), tenant creditworthiness, and the ability to refinance maturing debt. The company utilizes interest rate swaps to hedge approximately $18.9 million of mortgage debt.
- Subsequent Events: On July 17, 2008, the company refinanced a $10.5 million mortgage with a new $15.0 million loan. On July 23, 2008, the Board declared a common dividend of $0.225 per share.
Investor Verification Checklist
- Debt Maturities: Verify the maturity schedule of the $300 million revolving credit facility (expires Jan 2009) and the refinancing status of maturing mortgages.
- Joint Venture Closing: Monitor the status of the proposed joint venture with Homburg Invest Inc. and its impact on leverage and cash flow.
- Occupancy Trends: Track occupancy rates, particularly for the "stabilized" portfolio (96% leased) versus the overall portfolio (92% leased), given the redevelopment activities.
- Interest Rate Exposure: Assess the impact of rising interest rates on the $257 million of variable-rate debt, despite hedging efforts.
- Dividend Coverage: Confirm that Funds From Operations (FFO) continue to support the quarterly dividend of $0.225 per share, noting that dividends paid ($20.0 million for six months) exceeded net income applicable to common shareholders ($4.3 million).