CDR-PB

Cedar Shopping Centers, Inc. - 10-Q Summary (Q1 2008)

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 2008. Cedar Shopping Centers, Inc. (the "Company") is a fully-integrated Real Estate Investment Trust (REIT) focused on the ownership, operation, development, and redevelopment of supermarket-anchored shopping centers and drug store-anchored convenience centers. As of March 31, 2008, the Company owned 119 properties totaling approximately 12.0 million square feet of gross leasable area (GLA) across nine mid-Atlantic and New England states. The portfolio was approximately 92% leased overall, with the stabilized portfolio at 96% leased.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by 21% ($7.4 million) compared to Q1 2007, driven primarily by the acquisition of 21 shopping and convenience centers and land parcels totaling approximately $353.9 million between Jan 1, 2007, and March 31, 2008.
• Net Income Decline: Despite revenue growth, Net Income applicable to common shareholders decreased by 15% ($0.54 million). This was primarily due to a 48% increase in non-operating expenses, specifically interest expense ($11.4 million in 2008 vs. $7.9 million in 2007), resulting from increased borrowings to fund acquisitions and development.
• FFO Stability: Funds From Operations (FFO) remained relatively flat, increasing slightly by 0.6% to $13.7 million, indicating that the core operating performance of the portfolio remained stable despite the dilution from new debt.
• Debt Levels: Total secured debt increased by approximately $52 million. The Company utilized its secured revolving credit facility, increasing the outstanding balance from $190.4 million to $226.7 million.

Guidance, Outlook, and Risks

• Development and Acquisitions: The Company continues to pursue an aggressive acquisition and development program. Notable recent activities include a joint venture agreement to contribute 32 convenience centers to a new group of joint ventures with Homburg Invest Inc., expected to close in Q3 2008, and the acquisition of land in Pottsgrove, PA, for a new development.
• Liquidity: The Company maintains a $300 million secured revolving credit facility (expandable to $400 million), with approximately $66.5 million available as of March 31, 2008. A new $150 million master secured revolving construction facility is in the syndication process.
• Dividends: The Board declared a quarterly dividend of $0.225 per common share and $0.554688 per preferred share, payable May 20, 2008.
• Risks:
  • Interest Rate Risk: The Company has significant exposure to variable rates via its revolving credit facility ($226.7 million). A 1% change in interest rates would impact annual income by approximately $2.3 million.
  • Refinancing Risk: The revolving credit facility expires in January 2009. The Company relies on the ability to refinance or extend this facility.
  • Tenant Viability: Operating results depend on the financial viability of tenants, particularly supermarket and drug store anchors.

Investor Verification Checklist

• Verify the status and closing timeline of the proposed joint venture with Homburg Invest Inc. involving 32 convenience centers.
• Confirm the final terms and closing of the $150 million construction facility commitment.
• Monitor the utilization of the $300 million revolving credit facility and the Company's leverage ratios relative to covenants.
• Review the occupancy rates and lease renewal terms for the newly acquired properties to ensure they meet projected cash flow assumptions.
• Assess the impact of rising interest rates on the variable-rate portion of the debt portfolio.