CDR-PB

Business Context and Reporting Period

Company: Cedar Shopping Centers, Inc. (Cedar Realty Trust, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: A fully-integrated Real Estate Investment Trust (REIT) focused on supermarket-anchored shopping centers in the mid-Atlantic and Northeast coastal states. As of year-end 2008, the portfolio consisted of 121 operating properties totaling approximately 12.1 million square feet of Gross Leasable Area (GLA), with an occupancy rate of 92% (95% for the stabilized portfolio).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 13% to $174.5 million, driven primarily by property acquisitions and development activities, despite a decline in revenues from properties held in both years due to lease expirations and lower tenant sales.
• Net Income Decline: Net income applicable to common shareholders decreased 25% to $10.5 million. This was primarily due to increased interest expense ($46.0 million vs. $39.5 million) resulting from higher debt levels used to fund acquisitions and joint venture purchases.
• Acquisitions: The company acquired four shopping centers and 182 acres of land for development in 2008 for a total cost of approximately $109.6 million. It also purchased minority interests in four joint venture properties for $17.5 million.
• Dividend Reduction: In January 2009, the Board reduced the quarterly dividend by 50% to an annualized rate of $0.45 per share (from $0.90) in response to economic conditions and constrained capital markets.

Guidance, Outlook, Risks, and Unusual Items

Management Commentary and Outlook

Management expects to substantially reduce acquisition and development activities in the foreseeable future due to current economic conditions. The company is actively seeking to replace its $300 million stabilized property credit facility, which matures in January 2010, though the facility has been extended to that date. Liquidity is being managed through operating cash flows and existing credit facilities.

Risks and Contingencies

• Credit Market Instability: Significant risk regarding the ability to refinance existing debt or obtain new financing due to the near-complete disappearance of Commercial Mortgage-backed Securities (CMBS) and tightened bank lending standards.
• Tenant Concentration: Giant Foods (and its affiliate Stop & Shop) accounted for approximately 15% of total revenues in 2008.
• Geographic Concentration: A substantial portion of properties are located in the mid-Atlantic and Northeast, exposing the company to regional economic downturns.
• Development Risks: Ongoing development projects face risks of cost overruns, delays, and inability to achieve targeted leasing rates.

Unusual Items

• Write-offs: Approximately $1.1 million was written off in Q4 2008 related to terminated transactions, including a land parcel in Ephrata, PA, and a canceled joint venture with Homburg Invest Inc.
• Asset Demolition: A one-time depreciation charge of $1.9 million was taken for the razing of the Value City Shopping Center building in April 2008.

Investor Verification Checklist

• Debt Refinancing: Verify the status of the $300 million stabilized property credit facility maturing in January 2010 and the terms of any new facility secured.
• Dividend Sustainability: Assess the impact of the 50% dividend cut on future cash flow requirements and REIT distribution compliance.
• Occupancy Trends: Monitor vacancy rates and lease renewal success, particularly for anchor tenants like Giant Foods, given the economic downturn.
• Development Pipeline: Review the progress and funding status of the $85–$112 million in planned development expenditures for 2009.
• Interest Rate Exposure: Evaluate the impact of rising interest rates on the $357.8 million of variable-rate debt outstanding.