Cedar Shopping Centers, Inc. - Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010, for Cedar Shopping Centers, Inc. (the "Company"), a Maryland corporation organized as a Real Estate Investment Trust (REIT). The Company focuses on the ownership, operation, development, and redevelopment of supermarket-anchored shopping centers, primarily in coastal mid-Atlantic and New England states. As of March 31, 2010, the portfolio consisted of 119 operating properties totaling approximately 13.1 million square feet of gross leasable area (GLA), with a stabilized portfolio occupancy rate of approximately 95%.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $44.93 million | $45.86 million |
| Operating Income | $12.26 million | $16.38 million |
| Net (Loss) Income | ($1.16 million) | $5.73 million |
| Net (Loss) Income Attributable to Common Shareholders | ($3.49 million) | $3.95 million |
| Funds From Operations (FFO) | $6.56 million | $15.48 million |
| FFO Per Common Share (Diluted) | $0.11 | $0.33 |
| Cash and Cash Equivalents | $15.78 million | $17.16 million |
| Total Debt (Mortgages + Revolvers) | $896.0 million | $950.7 million |
| Weighted Average Interest Rate | 5.2% | 5.3% |
Material Changes vs. Prior Period
- Net Loss vs. Profit: The Company reported a net loss of $1.16 million for Q1 2010 compared to net income of $5.73 million in Q1 2009. This reversal was driven by increased interest expense, impairment charges, and terminated project costs.
- Revenue Decline: Total revenues decreased by 2% ($0.93 million) primarily due to reduced non-cash amortization of intangible lease liabilities ($0.9 million) and lower base rents ($0.5 million).
- Expense Increases:
- Impairments: $1.56 million in impairment charges were recorded in Q1 2010 (none in Q1 2009), related principally to the Blue Mountain Commons property transferred to a joint venture.
- Terminated Projects: $1.32 million in costs were written off for a cancelled development project in Williamsport, Pennsylvania.
- Interest Expense: Increased by $2.5 million due to higher amortization of deferred financing costs and increased interest rates on credit facilities.
- Debt Reduction: Total debt decreased by approximately $54.7 million, largely due to net repayments of $50.6 million on revolving credit facilities using proceeds from equity offerings and property transfers.
Guidance, Outlook, and Risks
- Dividend Resumption: The Board resumed common stock dividends in December 2009 at $0.09 per share. A subsequent dividend of $0.09 per share was declared on April 26, 2010, payable May 20, 2010.
- Capital Markets: Management notes a continued contraction in U.S. credit and capital markets, which may restrict access to mortgage financing and refinancing options. The Company relies on its credit facilities and equity issuances for liquidity.
- Joint Venture Activity: The Company is actively transferring properties to a joint venture with RioCan Real Estate Investment Trust. Two properties were transferred in Q1 2010, with two more transferred in April 2010 and one expected in Q2 2010. These transactions are expected to generate approximately $65 million in net proceeds over time.
- Equity Raises: In Q1 2010, the Company completed a public offering of 7.5 million shares (plus over-allotment) raising approximately $51.4 million in net proceeds. Additionally, RioCan exercised warrants for 1.43 million shares, raising $10.0 million in April 2010.
- Accounting Adjustments: The Company retroactively revised prior period financial statements to correct an under-provision for intangible lease liabilities related to below-market renewal options, impacting depreciation and equity balances.
Investor Verification Checklist
- Debt Covenants: Verify compliance with leverage ratios (limited to 67.5%) and distribution limits (95% of FFO) under the $285 million stabilized property credit facility.
- Joint Venture Transfers: Confirm the timing and net proceeds of the remaining property transfers to the RioCan joint venture scheduled for Q2 2010.
- Impairment Triggers: Monitor the status of development projects (e.g., Pottsgrove, Stroudsburg) for potential future impairment charges if market conditions deteriorate.
- Interest Rate Exposure: Assess the impact of rising LIBOR rates on the $290.4 million of variable-rate debt, noting the $1.7 million annual interest cost increase per 1% rate hike on unhedged portions.
- Dividend Sustainability: Evaluate the ability to maintain the $0.09 quarterly dividend given the Q1 net loss and reliance on FFO for distribution coverage.