SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: June 30, 2003
Commission File No. 0-14510
CEDAR SHOPPING CENTERS, INC.
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(Exact name of registrant as specified in its charter)
Maryland 42-1241468
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
44 South Bayles Avenue, Port Washington, New York 11050
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(Address of principal executive offices) (Zip Code)
(516) 767-6492
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(Registrant's telephone number, including area code)
Cedar Income Fund, Ltd.
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes __ No X
---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 13, 2003
- ------------------------ ------------------------------
Common Shares 1,427,000
Cedar Shopping Centers, Inc.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2003
(unaudited) and December 31, 2002
Consolidated Statements of Shareholders' Equity -
June 30, 2003 (unaudited) and December 31, 2002
Consolidated Statements of Operations - Three and
Six Month Periods Ended June 30, 2003 and 2002
(unaudited)
Consolidated Statements of Cash Flows - Six Month
Period Ended June 30, 2003 and 2002 (unaudited)
Notes to Consolidated Financial Statements -
June 30, 2003 (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of
Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
Part I. Financial Information
Item1. Financial Statements
Cedar Shopping Centers, Inc.
Consolidated Balance Sheet
June 30,
2003 December 31,
(unaudited) 2002
------------------ -----------------
Assets
Real estate
Land $34,575,000 $24,741,000
Buildings and improvements 137,856,000 98,893,000
------------------ -----------------
172,431,000 123,634,000
Less accumulated depreciation (3,916,000) (2,396,000)
------------------ -----------------
Real estate, net 168,515,000 121,238,000
Cash and cash equivalents 1,117,000 3,827,000
Cash in joint ventures and restricted cash 2,818,000 2,883,000
Property deposits and prepaid closing costs 3,438,000 344,000
Real estate tax deposits 1,015,000 627,000
Rents and other receivables, net 495,000 304,000
Prepaid expenses, net 853,000 496,000
Deferred rent receivable 739,000 432,000
Deferred charges, net 3,506,000 2,987,000
------------------ -----------------
Total Assets $182,496,000 $133,138,000
================== =================
Liabilities and Shareholders' Equity
Liabilities
Mortgage loans payable $130,566,000 $93,537,000
Loans payable 9,767,000 7,464,000
Accounts payable and accrued expenses 2,380,000 1,767,000
Security deposits 427,000 335,000
Deferred liabilities 6,581,000 5,195,000
Advance tenant payments 917,000 468,000
------------------ -----------------
Total Liabilities 150,638,000 108,766,000
------------------ -----------------
Minority interests 18,915,000 10,238,000
Limited partner's interest in consolidated
Operating Partnership 7,026,000 7,889,000
Series A preferred 9% convertible, redeemable
Operating Partnership units 3,000,000 3,000,000
------------------ -----------------
10,026,000 10,889,000
Shareholders' Equity Common stock ($0.01 par value,
50,000,000 shares authorized,
1,427,000 and 1,389,000 shares issued
and outstanding, respectively) 14,000 14,000
Accumulated other comprehensive loss (276,000) (65,000)
Additional paid-in capital 3,179,000 3,296,000
------------------ -----------------
Total Shareholders' Equity 2,917,000 3,245,000
------------------ -----------------
Total Liabilities and Shareholders' Equity $182,496,000 $133,138,000
================== =================
Total Shareholders' Equity in the Company
and limited partner's (equity) interest in
Operating Partnership and minority interests $31,858,000 $24,372,000
================== =================
See the accompanying notes to the consolidated financial statements.
3
Cedar Shopping Centers, Inc.
Consolidated Statements of Shareholders' Equity
(unaudited)
Common Stock Accumulated
----------------------- Additional Un- Other Total
$0.01 par Paid-In Distributed Comprehensive Shareholders'
Shares value Capital Net Income Loss Equity
----------- --------- -------------- ------------ ---------------- ---------------
Balance at December 31, 2002 $1,427,000 $14,000 $3,296,000 $ - $(65,000) $3,245,000
Unrealized (loss) on change of
fair value of interest rate hedge - - - - (211,000) (211,000)
Issuance of warrants - - 27,000 - - 27,000
Issuance of stock 400 4 95,000 - - 95,000
Conversion of OP units to stock 2,800 28 500,000 - - 500,000
Conversion of stock to OP units (2,800) (28) (500,000) - - (500,000)
Net (loss) - - (239,000) - - (239,000)
----------- --------- -------------- ------------ ---------------- ---------------
Balance at June 30, 2003 $1,427,400 $14,004 $3,179,000 $ - $(276,000) $2,917,000
=========== ========= ============== ============ ================ ===============
See the accompanying notes to the consolidated financial statements.
4
Cedar Shopping Centers, Inc.
Consolidated Statement of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenue
Rents $ 4,608,000 $ 1,977,000 $ 8,744,000 $ 3,854,000
Expense recoveries 1,397,000 674,000 2,459,000 1,297,000
Interest and other 133,000 5,000 219,000 16,000
------------ ------------ ------------ ------------
Total Revenue 6,138,000 2,656,000 11,422,000 5,167,000
------------ ------------ ------------ ------------
Expenses
Operating, maintenance and management 1,476,000 603,000 3,206,000 1,207,000
Real estate taxes 612,000 304,000 1,232,000 593,000
General and administrative 649,000 305,000 1,172,000 554,000
Depreciation and amortization 926,000 561,000 1,767,000 1,112,000
Interest 2,252,000 1,535,000 4,290,000 2,456,000
Repayment fee -- 269,000 -- 269,000
------------ ------------ ------------ ------------
Total Expenses 5,915,000 3,577,000 11,667,000 6,191,000
------------ ------------ ------------ ------------
Income (loss) before minority interests, limited
partner's interest, distributions, and loss on sale 223,000 (921,000) (245,000) (1,024,000)
Minority interests (288,000) 187,000 (422,000) 121,000
Limited partner's interest 46,000 556,000 449,000 677,000
Distribution to preferred shareholder (net of
limited partner's interest of $48,000) (21,000) -- (21,000) --
Loss on sale -- (49,000) -- (49,000)
------------ ------------ ------------ ------------
Net loss $ (40,000) $ (227,000) $ (239,000) $ (275,000)
============ ============ ============ ============
Net loss per share $( 0.02) $( 0.16) $( 0.15) $( 0.20)
============ ============ ============ ============
Weighted average number of shares outstanding 1,658,000 1,386,000 1,620,000 1,386,000
See the accompanying notes to the consolidated financial statements.
5
Cedar Shopping Centers, Inc.
Consolidated Statement of Cash Flows
(unaudited)
For the Six Months Ended
June 30, June 30,
2003 2002
------------ ------------
Cash Flow From Operating Activities
Net loss $( 239,000) $( 275,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Minority interests 422,000 (121,000)
Limited partner's interest in Operating Partnership (449,000) (331,000)
Loss on sale of Southpoint Parkway -- 49,000
Early extinguishment of debt -- 487,000
Distribution to minority interest partners (580,000) (598,000)
Distributions to Operating Partnership preferred unit holder (68,000) --
Depreciation and amortization 1,767,000 1,112,000
Deferred rent (307,000) (146,000)
Market rent (313,000) --
Changes in operating assets and liabilities:
Increase in rent and other receivables (191,000) (269,000)
Increase in prepaid expenses (357,000) (550,000)
(Increase) decrease in taxes held in escrow (388,000) 137,000
Increase in accounts payable and accrued expense 613,000 207,000
Increase (decrease) in security deposits collected, net 92,000 (16,000)
Increase in advance tenant payments 449,000 182,000
------------ ------------
Net cash provided by (used in) operating activities 451,000 (132,000)
------------ ------------
Cash Flow From Investing Activities
Expenditures for real estate and improvements (47,534,000) (954,000)
(Increase) in property deposits and advance closing costs (3,094,000) (250,000)
Decrease in joint venture and restricted cash 65,000 352,000
Sale of Southpoint Parkway -- 4,353,000
Acquisition of Red Lion Associates -- (3,175,000)
------------ ------------
Net cash (used in) provided by investing activities (50,563,000) 326,000
------------ ------------
Cash Flow From Financing Activities
Proceeds from mortgage financing 37,612,000 20,000,000
Repayment of mortgage financing -- (17,900,000)
Contributions from minority interest partners 8,836,000 4,030,000
Proceeds from line of credit and other short term borrowings 2,880,000 500,000
Repayment of line of credit and other loans payable (577,000) (4,925,000)
Principal portion of scheduled mortgage payments (583,000) (166,000)
Deferred financing and legal costs, net (766,000) (1,340,000)
------------ ------------
Net cash provided by financing activities 47,402,000 199,000
------------ ------------
Net (decrease) increase in cash and cash equivalents (2,710,000) 393,000
Cash and cash equivalents at beginning of the period 3,827,000 2,872,000
------------ ------------
Cash and cash equivalents $ 1,117,000 $ 3,265,000
============ ============
Supplemental Disclosure of Cash Activities
Interest paid $ 4,173,000 $ 1,777,000
============ ============
See the accompanying notes to the consolidated financial statements.
6
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 1. Organization and Basis of Presentation
Cedar Income Fund, Ltd. has changed its name to Cedar Shopping Centers,
Inc., at the same time, the name of the Operating Partnership of which the
Company is the sole general partner, has been changed from Cedar Income Fund
Partnership, L.P. to Cedar Shopping Centers Partnership, L.P. The Board of
Directors and management determined that the change of names more accurately
reflects the nature of the current operations and activities of the Company and
of the Operating Partnership.
On June 25, 2003, the Company announced a 2-for-1 split of the
Company's common shares. The split was effected by paying a stock dividend of
one new share for each share of common stock outstanding. The stock dividend was
payable July 14, 2003 to shareholders of record on July 7, 2003. All of the
accompanying financial statements have been adjusted to give retroactive effect
to the stock dividend.
Cedar Shopping Centers, Inc. (the "Company"), organized in 1984 and
qualified to operate as a real estate investment trust ("REIT"), focuses on the
ownership, operation and redevelopment of community and neighborhood shopping
centers located primarily in Pennsylvania. As of June 30, 2003, the Company
owned 14 properties, aggregating approximately 2,361,000 square feet of rentable
space. The Company has no administrative or executive employees and accordingly
relies on Cedar Bay Realty Advisors, Inc. and its affiliates (collectively,
"CBRA") to manage the affairs of, and provide other services to, the Company.
The terms of the agreements and other information are further discussed in Note
7.
The accompanying interim unaudited financial statements have been
prepared by the Company's management pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosure normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States ("GAAP") may
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. The unaudited financial statements as of June 30,
2003, and for the three and six month periods ended June 30, 2003 and 2002,
include, in the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial information set
forth herein. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. These financial statements should be read in conjunction with
the Company's audited financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 2002.
7
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 1. Organization and Basis of Presentation (continued)
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the disclosure
of contingent assets and liabilities and the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from these estimates.
Cedar Shopping Centers Partnership, L.P. (the "Operating
Partnership") is the entity through which the Company conducts substantially all
of its business and owns (either directly or through subsidiaries) substantially
all of its assets. The Company owns an approximate 30% economic interest in, and
is the sole general partner of, the Operating Partnership. As of June 30, 2003,
the consolidated financial statements of the Company include the accounts and
operations of the Company and the Operating Partnership. The Operating
Partnership has a 50% general partnership interest in The Point Shopping Center
("The Point"); a 20% general partnership interest in the Red Lion Shopping
Center ("Red Lion"); a 25% general partnership interest in the Loyal Plaza
Shopping Center ("Loyal Plaza"); a 30% general partnership interest in the three
Giant supermarket-anchored shopping centers, Fairview Plaza ("Fairview"),
Halifax Plaza ("Halifax"), and Newport Plaza ("Newport"); a 15% general
partnership interest in Pine Grove Plaza Shopping Center ("Pine Grove"); and a
15% general partnership interest in the Swede Square Shopping Center ("Swede
Square").
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest Entities". The
Interpretation clarifies the application of existing accounting pronouncements
to certain entities in which the equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The provisions of the
Interpretation are immediately effective for all variable interest entities
created after January 31, 2003. The Company has evaluated the effects of the
issuance of the Interpretation on the accounting for its ownership interest in
its joint venture partnerships created after January 31, 2003, and has concluded
that all of the Company's joint ventures should be included in the consolidated
financial statements. The Company is currently in the process of evaluating the
impact that this Interpretation will have on its financial statements for all
joint ventures created before January 31, 2003.
On April 30, 2003, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 149 ("SFAS 149"), "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS 149 amends and clarifies
the accounting guidance on (1) derivative instruments (including certain
derivative instruments embedded in other contracts) and (2) hedging activities
that fall within the scope of SFAS No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities". SFAS 149 also amends certain
other existing pronouncements, which will result in more consistent reporting of
contracts that are derivatives in their entirety, or that contain embedded
derivatives that warrant separate accounting. SFAS 149 is effective (1) for
contracts entered into or modified after June 30, 2003, with certain exceptions,
and (2) for hedging relationships designated after June 30, 2003. The guidance
is to be applied prospectively. Management does not expect the adoption of SFAS
149 to have a material impact on the Company's financial condition, results of
operations or cash flows.
8
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 1. Organization and Basis of Presentation (continued)
In May 2003, the FASB issued SFAS No. 150 ("SFAS 150"), "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement, which establishes standards for the classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity, is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period starting after June 15, 2003. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of the Statement and
still existing at the beginning of the interim period of adoption. Management
does not believe that the implementation of SFAS 150 will have a material impact
on the Company's financial condition, results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation-Transition and Disclosure". SFAS 148
amends SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", to
provide alternative methods of transition for an entity that voluntarily adopts
the fair value recognition method of recording stock option expense. SFAS 148
also amends the disclosure provisions of SFAS 123 and Accounting Principles
Board ("APB") Opinion No. 28, "Interim Financial Reporting", to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock options on reported net
income and earnings per share in annual and interim financial statements.
SFAS 123, as amended by SFAS 148, establishes financial accounting and
reporting standards for stock-based employee compensation plans, including all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. SFAS 123 defines a fair
value based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25 ("Opinion No. 25"),
"Accounting for Stock Issued to Employees". The Company has elected to continue
using Opinion No. 25 and to make pro forma disclosures of net income and
earnings per share as if the fair value method of accounting defined in SFAS 123
had been applied.
9
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 1. Organization and Basis of Presentation (continued)
In May 2002, the FASB issued SFAS No. 145 ("SFAS 145"), "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS 145 generally provided for various technical
corrections to previously issued accounting pronouncements. The only impact to
the Company related to SFAS 145 provided that early extinguishment of debt,
including the write-off of unamortized deferred loan costs, are generally no
longer considered extraordinary items. The Company has adopted the provisions of
SFAS 145 and has presented all previous early write-offs of unamortized loan
costs as a component of interest expense.
In 1998, the Company's shareholders approved an incentive stock option
plan authorizing the issuance of option grants for up to 1,000,000 shares.
During 2001, the Company granted each of its five directors then in office
options to purchase 20,000 shares at $1.75 per share, the market value of the
Company's common stock on the date of the grant.
The following table sets forth, on a pro forma basis, the net loss and
net loss per share as if the fair value method of accounting defined in SFAS 123
had been applied:
Pro Forma Basic Net Loss Per Share
Six Months Ended June 30,
2003 2002
----------- -----------
Net loss as reported $ 239,000 $ 275,000
Adjustment to amortize the value of options granted 8,000 8,000
Pro forma net loss $ 247,000 $ 283,000
=========== ===========
Outstanding shares 1,427,000 1,389,000
Pro forma basic net loss per share $( 0.17) $( 0.20)
=========== ===========
During August 2003, the Company expects to file a registration
statement for a public offering of its common stock. In order to finance the
Company's expansion plans and to ensure that, in the event the public stock
offering is not successful, the Company has the necessary resources until it can
make other long-term financing arrangements, the Company requested, and received
on July 24, 2003, a non-binding term sheet from Hudson Realty Capital
Corporation, an affiliate of SWH Funding Corp. ("SWH"), to refinance the
existing SWH loan. Although this financing has not been finalized as of the date
of this filing, it is expected to provide the Company with approximately $2.0
million in cash after payment of certain fees. The term sheet also provides for
a moratorium on principal payments for the first six months after the loan is
closed. The Company has also arranged with Homburg Participaties B. V., an
affiliate of Mr. Richard Homburg, a director of the Company, on a best efforts
basis, to syndicate the proposed Philadelphia shopping center transaction in the
event the Company is unable to consummate the public share offering or otherwise
arrange appropriate financing. The Company also contemplates the possibility of
selling one or more of its shopping centers to generate additional liquidity if
required. There can be no assurances, however, that any of these arrangements
will be successfully completed.
Note 2. Supplemental Cash Flow Disclosures
During the first quarter of 2003, 276,000 shares of common stock were
issued in exchange for 552 Series A cumulative redeemable preferred Operating
Partnership units, and 38,000 shares of common stock were issued at $2.50 per
share to vendors for services rendered. During the second quarter of 2003, the
276,000 shares issued in the first quarter were converted back to 552 Series A
cumulative redeemable preferred Operating Partnership units.
Note 3. Cash in Joint Ventures and Restricted Cash
Joint venture partnership agreements require, among other things, that
the Company maintain separate cash accounts for the operation of each joint
venture and that distributions to the general and limited partners be strictly
controlled. These arrangements to date have not resulted in any significant
liquidity shortfalls at the Company or the partnership level; however, the
Company or any combination of the joint venture partnerships could experience a
liquidity shortage while other members of the group have sufficient liquidity.
Cash in joint ventures and restricted cash amounted to approximately $2,818,000
at June 30, 2003.
10
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 4. Acquisition Activity
During June 2003, the Company acquired Valley Plaza Shopping Center
("Valley Plaza") in Hagerstown, MD, a 191,000 square foot shopping center, for
approximately $9.5 million. The purchase price plus certain lender fees were
financed by a $6.4 million two-year interest-only senior bank loan with
interest at LIBOR plus 250 basis points, and a two-year $3.4 million junior
bank loan with interest at 12.5% annually. Commitment fees of $65,000 for the
senior bank loan and $346,000 for the junior bank loan were included in the loan
amounts. Substantially all of the net cash flow from the property is required to
be applied to the outstanding principal balance of the junior loan until it is
paid in full. Additionally, the Company is required to pay an exit fee of
$103,000 upon repayment. Homburg Invest Inc. ("Homburg Invest"), a real estate
company listed on the Toronto (Canada) Stock Exchange, is entitled to receive
one-half of the commitment fees and exit fees, and 4.75% of the interest
payments on the junior loan in consideration for arranging the loan, and for
providing the lender with certain repayment guarantees with respect to both
loans. Homburg Invest owns 21.6% of the Company's common shares outstanding.
Richard Homburg, a director of the Company, owns approximately 72% of Homburg
Invest.
During April and May 2003, the Company acquired a 15% general
partnership interest in both Pine Grove, a 79,000 square foot shopping center in
Pemberton Township, NJ, and in Swede Square, a 95,000 square foot shopping
center in East Norriton, PA. The purchase prices, including closing costs, for
these properties, were approximately $8.0 million and $8.6 million,
respectively. Pine Grove was financed by a seven-year LIBOR-based first mortgage
loan for $6.0 million, with level principal payments of $12,500 per month. The
Company entered into an interest rate swap with the lender fixing the interest
rate at 6.24% annually for the term of the loan. Swede Square was purchased
subject to a two-year, first mortgage loan with a balance of $5.6 million and
fixed interest-only payments at 7.25% annually. The loan provides for additional
borrowings up to a total loan amount of $7.5 million to provide for tenant
improvements and leasing commissions as vacant space is occupied. Homburg Invest
(Delaware) LLC, ("Homburg Delaware") the limited partner in these transactions
and an affiliate of Richard Homburg, provided approximately $2.0 million and
$3.0 million of the purchase price of the Pine Grove and Swede Square
acquisitions, respectively. Homburg Delaware received a 10% placement fee on
this $5.0 million investment and is entitled to receive a 12% preferential
return before the Company receives any distributions. The Company, in addition
to its 15% general partnership interest, received an option to purchase the
limited partner interest at any time, provided the limited partner has received
a 15% total annualized rate of return at the time the option is exercised by the
Company.
11
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 4. Acquisition Activity (continued)
In February 2003, the Company completed the acquisition of a 30%
general partnership interest in three Giant supermarket-anchored shopping
centers, Fairview, Newport and Halifax, with an aggregate gross leaseable area
of approximately 190,000 square foot in the Harrisburg, Pennsylvania area. The
centers cost approximately $20.8 million. The Company's general partnership
interest cost $1.16 million and the limited partner, who is affiliated with the
limited partner in the Loyal Plaza partnership, invested $3.74 million. The
terms of the partnership agreement provide that the limited partner receive a
preferential return of 12.5% on its investment before the Company is entitled to
receive any distributions. The balance of the purchase price was financed by
three separate mortgage loans aggregating approximately $15.9 million. The first
loan, for $6.1 million with a term of ten years, has a fixed rate of 5.64%
annually. The Company entered into interest rate swaps for the entire amount of
the first loan, and for the seven-year terms of the other two loans
(approximately $ 4.3 million and $5.5 million), resulting in a fixed rate of
6.43% annually. The blended interest rate for the three loans is 6.09% annually.
12
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 5. Mortgage Loans, Other Loans Payable, and Line of Credit
Mortgage loans outstanding consist of the following:
Balance outstanding at
---------------------------
Original Interest June 30, December 31,
Property Amount Rate Maturity 2003 2002
- -----------------------------------------------------------------------------------------------------------
The Point Shopping Center $20,000,000 7.63% May 2012 $19,722,000 $19,864,000
Harrisburg, PA
Red Lion Shopping Center 16,800,000 8.86% Feb 2010 16,652,000 16,715,000
Philadelphia, PA
Camp Hill Mall 14,000,000 4.74% (1) Nov 2004 14,000,000 14,000,000
Camp Hill, PA
Loyal Plaza 13,877,000 7.18% Jul 2011 13,745,000 13,814,000
Williamsport, PA
Port Richmond Village 11,610,000 7.17% Apr 2007 11,366,000 11,439,000
Philadelphia, PA
Academy Plaza 10,715,000 7.13% Mar 2013 10,490,000 10,558,000
Philadelphia, PA
Washington Center Shoppes 6,236,000 7.53% Nov 2027 5,863,000 5,900,000
Washington Township, NJ
LA Fitness facility(2) 5,000,000 LIBOR+2.75% Dec 2007 1,626,000 1,247,000
Fort Washington, PA
Fairview Plaza 6,080,000 5.64% Jan 2013 6,054,000 N/A
New Cumberland, PA
Halifax Plaza 4,265,000 6.43% Feb 2010 4,235,000 N/A
Halifax, PA
Newport Plaza 5,424,000 6.43% Feb 2010 5,398,000 N/A
Newport, PA
Pine Grove Shopping Center 6,000,000 6.24% Apr 2010 5,963,000 N/A
Pemberton Township, NJ
Swede Square Shopping Center 5,560,000 7.25% May 2005 5,560,000 N/A
East Norriton, PA
Valley Plaza Shopping Center 6,430,000 LIBOR+2.50% Jun 2005 6,430,000 N/A
Hagerstown, MD 3,462,000 12.50% Jun 2005 3,462,000
- -----------------------------------------------------------------------------------------------------------
Totals $135,459,000 $130,566,000 $93,537,000
===========================================================================================================
(1) The interest rate on the entire loan amount is fixed via an interest
rate swap at 4.74% through November 2003 and $7.0 million of the loan
is fixed at that same rate through maturity. The remaining $7.0 million
portion of the loan will float at the 30-day LIBOR rate plus 195 basis
points from November 2003 through maturity. The Company has agreed in
connection with this loan to maintain a minimum net worth of $13.0
million (including minority and limited partner interests) and
consolidated liquid assets of at least $1.0 million.
(2) The Company obtained a $5.0 million LIBOR-based construction loan in
connection with the LA Fitness development project. The loan is due on
December 31, 2007, has a two-year extension option, and carries
interest at LIBOR plus 275 basis points. Construction is scheduled to
be completed during 2003.
13
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 5. Mortgage Loans, Other Loans Payable, and Line of Credit (continued)
During November 2002, the Company entered into a financing agreement
with SWH for a $6.0 million loan. The SWH loan matures on November 30, 2005 and
carries interest at the annual rate of 12.5% through November 30, 2003 adjusting
to an annual rate of 14% from December 1, 2004 through maturity. The loan
provides for, commencing January 1, 2003, monthly principal payments of $50,000,
through and including the 4th month, $150,000 commencing in the 5th month
through and including the 12th month, $200,000 commencing in the 13th month
through the 17th month and $250,000 per month commencing in the 18th month until
the loan is fully paid.
In connection with the acquisition of the Red Lion partnership
interest from a related party, the Company agreed to pay $888,000 in three equal
annual installments of $296,000 plus interest at 7.5%. During the second quarter
of 2003, the related party agreed to extend the payment of the current
installment of $296,000 through September 30, 2003.
During March 2003, the Company entered into a new credit facility with
North Fork Bank for a one-year period. The line of credit bears interest at the
greater of 6% or the bank's prime rate plus 1%. The new credit facility has a
$2.0 million limit, provided, however, that only $1.0 million will be available
until the SWH financing has been repaid.
As discussed in Note 4, during the second quarter of 2003, Homburg
Delaware provided the equity financing for the acquisition of Pine Grove and
Swede Square, and Homburg Invest guaranteed the financing for Valley Plaza . In
addition, Homburg Invest (USA) Inc. ("Homburg USA"), a wholly-owned U.S.
subsidiary of Homburg Invest, provided to the Company a one-year, $1.1 million
9% interest-only loan. The loan includes a $100,000 entrance fee and requires
payment of a $200,000 exit fee. The loan was used to partially fund the deposit
requirements for the South Philadelphia Shopping Center (see Note 11).
14
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 5. Mortgage Loans, Other Loans Payable, and Line of Credit (continued)
During the second quarter of 2003, Selbridge Corporation, a related
party, provided the Company with a $750,000 loan. The principal plus interest,
calculated at an annual rate of 15%, is payable on or before October 31, 2003.
The loan was used to partially fund the deposit requirements for the South
Philadelphia Shopping Center (see Note 11).
Note 6. Intangible Lease Asset/Liability
On July 1, 2001 and January 1, 2002, the Company adopted SFAS No. 141
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangibles",
respectively. As part of the acquisition of real estate assets, the fair value
of the real estate acquired is allocated to the acquired tangible assets,
consisting of land, building and building improvements, and identified
intangible assets and liabilities, consisting of the value of above-market and
below-market leases, other value of in-place leases, and value of tenant
relationships, based in each case on their fair values.
The fair value of the tangible assets of an acquired property is
determined by valuing the property as if it were vacant, and the "as-if-vacant"
value is then allocated to land, building and building improvements based on
management's determination of the relative fair values of these assets.
Management determines the as-if-vacant fair value of a property using methods
similar to those used by independent appraisers. Factors considered by
management in performing these analyses include an estimate of carrying costs
during the expected lease-up periods considering current market conditions and
costs to execute similar leases. In estimating carrying costs, management
includes real estate taxes, insurance and other operating expenses and estimates
of lost rental revenue during the expected lease-up periods based on current
market demand. Management also estimates costs to execute similar leases,
including leasing commissions, legal and other related costs.
In allocating the fair value of the identified intangible assets and
liabilities of an acquired property, above-market and below-market in-place
lease values are recorded based on the present value (using an interest rate
which reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) management's estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining non-cancelable
term of the lease. The capitalized above-market lease values (included in
deferred leasing costs in the accompanying combined balance sheet) are amortized
as a reduction of rental income over the remaining non-cancelable terms of the
respective leases. The capitalized below-market lease values (presented as
acquired lease obligations in the accompanying combined balance sheet) are
amortized as an increase to rental income over the remaining initial terms in
the respective leases.
15
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 6. Intangible Lease Asset/Liability (continued)
The aggregate value of other acquired intangible assets, consisting of
in-place leases and tenant relationships, is measured by the excess of (i) the
purchase price paid for a property after adjusting existing in-place leases to
market rental rates over (ii) the estimated fair value of the property as if
vacant, determined as set forth above. This aggregate value is allocated between
in-place lease values and tenant relationships based on management's evaluation
of the specific characteristics of each tenant's lease; however, the value of
tenant relationships has not been separated from in-place lease value for the
additional interests in real estate entities acquired by the Predecessor because
such value and its consequence to amortization expense is immaterial for these
particular acquisitions. Should future acquisitions of properties result in
allocating material amounts to the value of tenant relationships, an amount
would be separately allocated and amortized over the estimated life of the
relationship. The value of in-place leases exclusive of the value of
above-market and below-market in-place leases is amortized to expense over the
remaining non-cancelable periods of the respective leases. If a lease were to be
terminated prior to its stated expiration, all unamortized amounts relating to
that lease would be written off.
As a result of adopting the standards, amounts totaling $5,117,000 and
$1,062,000 have been recorded as intangible lease liabilities for properties
acquired in 2002 and 2003, respectively. The intangible assets and liabilities
are amortized over the remaining terms of the respective leases to rental
income. Such amortization amounted to $169,000 and $143,000 during the first and
second quarters of 2003, respectively, and $0 during each of the first and
second quarters of 2002. The weighted average amortization period for the
intangible lease liabilities was approximately eight years.
These intangibles will be amortized as follows:
For the year ending December 31:
2003 $ 493,000
2004 818,000
2005 645,000
2006 476,000
2007 543,000
Thereafter 2,746,000
-------------
$ 5,721,000
=============
Note 7. Related Party Transactions
The Company has no administrative or executive employees and
accordingly relies on CBRA and its affiliates to manage the affairs of the
Company. The Company is thus referred to as an "advised" REIT. Pursuant to the
terms of an Administrative and Advisory Agreement (the "Advisory Agreement"),
CBRA provides the Company with management, acquisition, leasing, advisory
services, accounting systems, professional and support personnel and office
facilities. Leo S. Ullman, the Company's Chairman and Chief Executive Officer,
is also the principal stockholder of CBRA. Certain of the Company's other
officers are also officers and employees of CBRA.
16
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 7. Related Party Transactions (continued)
The Advisory Agreement may be terminated (i) for cause upon not less
than sixty days' prior written notice, and (ii) by vote of at least 75% of the
Company's independent directors at the end of the third or fourth year of its
five-year term in the event gross assets fail to increase by 15% per annum.
Pursuant to the Advisory Agreement, effective as of January 1, 2002,
CBRA will earn a disposition or acquisition fee, as applicable, equal to 1% of
the sale/purchase price of the properties; no other fees will be payable in
connection with such transactions. All accrued acquisition fees are included in
accounts payable at June 30, 2003.
The following is a schedule of acquisition and disposition fees paid,
accrued, or deferred by the Company to CBRA for the six-month period ended June
30, 2003 and for the year ended December 31, 2002:
Property Paid Accrued Total
------------------------- -------- -------- --------
2003 Transactions
Three Giant supermarket-
anchored shopping centers $ -- $180,000 $180,000
Pine Grove 74,000 -- 74,000
Swede Square 79,000 -- 79,000
Valley Plaza 92,000 -- 92,000
-------- -------- --------
Totals $245,000 $180,000 $425,000
======== ======== ========
2002 Transactions
Southpoint $ 47,000 $ -- $ 47,000
Red Lion 44,000 -- 44,000
Loyal Plaza -- 183,000 183,000
Camp Hill -- 172,000 172,000
LA Fitness 60,000 -- 60,000
-------- -------- --------
Totals $151,000 $355,000 $506,000
======== ======== ========
During 2001, the Advisory Agreement was modified and CBRA agreed to
defer certain fees of $195,700 and to ultimately waive such fees if the
Agreement is not terminated before December 31, 2004. These fees are not
included in accrued expense at June 30, 2003.
17
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 7. Related Party Transactions (continued)
The following is a schedule of management, administrative, advisory,
legal, leasing and loan placement fees paid or accrued to CBRA or its
affiliates:
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
-------- -------- -------- --------
Management Fees (1) $190,000 $202,000 $393,000 $304,000
Construction Management (2) $ 2,000 $ 20,000 $ 2,000 $ 40,000
Leasing Fees (3) $ 17,000 $260,000 $ 17,000 $520,000
Administrative and Advisory (4) $225,000 $180,000 $384,000 $270,000
Legal (5) $ 24,000 $ 87,000 $ 82,000 $116,000
Loan Placement Fees (6) $ -- $100,000 $ -- $100,000
(1) Management fees are calculated at 3%-4% of gross revenues collected.
(2) Construction management fees are calculated at 5% of construction costs.
(3) Leasing fees are calculated at 4%-4.5% of a new tenant's base rent.
(4) Monthly administrative and advisory fees are equal to 1/12 of 3/4 of 1% of
the estimated current value of real estate assets of the Company plus 1/12
of 1/4 of 1% of the estimated current value of all other assets of the
Company.
(5) Legal fees are paid to an affiliate of CBRA for the services provided by
Stuart H. Widowski, Esq., in-house counsel.
(6) Loan placement fees are calculated at 1% of the loan cost up to a maximum
of $100,000.
Homburg USA purchased on December 24, 2002, for $3 million, 3,300
convertible Series A preferred Operating Partnership units at $909.09 with a
liquidation value of $1,000 each and a preferred distribution rate of 9%. After
such acquisition of securities by Homburg USA, the Company's Board of Directors
appointed Richard Homburg a director. Frank Matheson, another director of the
Company is an officer of Homburg USA. During January 2003, 276,000 shares of
common stock were issued to Homburg USA in exchange for 552 preferred Operating
Partnership units.
The issuance of common stock to Homburg USA, absent curative measures,
could have resulted in the disqualification of the Company's status as a REIT in
2003. If Richard Homburg, directly or indirectly, together with the four other
largest shareholders of the Company, were to own, during the second half of any
calendar year, more than 50% of the value of the Company, it would fail to meet
the "five or fewer" test. "Five or fewer" refers to five or fewer individual
shareholders owning more than 50% of the value of the REIT required for
continued REIT status. The loss of REIT status, while creating no immediate
income tax liability for the Company or its shareholders, would mean, among
other things, that the Company would be taxed as if it were a "C" corporation on
future net taxable income and capital gains. Additionally, the Company would
generally be disqualified for federal income tax purposes as a REIT for the four
taxable years following disqualification. In order to avoid the potential loss
of REIT status, during June 2003, Mr. Homburg re-converted the 276,000 shares of
common stock to Series A preferred Operating Partnership units on the same terms
and with the same rights as they were originally issued. The Company believes
that as of the date of this filing, it is in full compliance with the REIT
provisions of the Internal Revenue Code.
18
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 7. Related Party Transactions (continued)
During the second quarter of 2003, Homburg Delaware provided the equity
financing for the acquisition of Pine Grove and Swede Square and Homburg Invest
guaranteed the financing for Valley Plaza (see Note 4). In addition, Homburg USA
provided to the Company a one-year $1.1 million, 9% interest only loan. The loan
includes a $100,000 entrance fee and requires payment of a $200,000 exit fee.
The loan was used to partially fund the deposit requirements for the South
Philadelphia Shopping Center (see Note 11).
In connection with the acquisition of the Red Lion partnership interest
from Silver Circle Management Corp, a party related to Cedar Bay Company, the
limited partner of the Operating Partnership, the Company agreed to pay $888,000
in three equal annual installments of $296,000 plus interest at 7.5%. During the
second quarter of 2003, the related party agreed to extend the payment of the
current installment of $296,000 through September 30, 2003.
During the second quarter of 2003, Selbridge Corporation, also a party
related to Cedar Bay Company, provided the Company with a $750,000 loan. The
principal, plus interest calculated an annual rate of 15%, is payable on or
before October 30, 2003. The loan was used to partially fund the deposit
requirements for the South Philadelphia Shopping Center (see Note 11).
Note 8. Interest Rate Hedges
During 2002, the Company completed one interest rate swap transaction
to hedge the Company's exposure to changes in interest rates with respect to
$14.0 million of LIBOR-based variable rate debt. The swap agreement provides for
a fixed all-in rate of 4.74% (includes a credit spread of 1.95%). The swap
agreement extends through November 19, 2003 on $7.0 million of principal and
through November 19, 2004 on the remaining $7.0 million of principal.
During the first quarter of 2003, the Company entered into two
interest rate swaps to hedge the Company's exposure to changes in interest rates
with respect to $9.8 million of LIBOR-based variable rate debt. The swap
agreements provide for a fixed all-in rate of 6.43% for the seven-year term of
the Halifax and Newport loans. During the second quarter of 2003, the Company
entered into one swap agreement to hedge a $6.0 million LIBOR-based variable
rate loan. The agreement fixes the rate at 6.24% for the seven-year term of the
loan.
As of June 30, 2003, unrealized losses of $860,000 that represent the
change in fair value of the aforementioned swaps were reflected 30%, or
approximately $276,000 in accumulated other comprehensive loss, a component of
shareholder's equity. The remaining 70% or approximately $584,000 is reflected
in the limited partner's interest.
19
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
June 30, 2003
(unaudited)
Note 8. Interest Rate Hedges (continued)
The Company's interest rate hedges are designated as cash flow hedges
and hedge the future cash outflows on debt. Interest rate swaps that convert
variable payments to fixed payments, such as those held by the Company, as well
as interest rate caps, floors, collars, and forwards are cash flow hedges. The
unrealized gains/losses in the fair value of these hedges are reported on the
balance sheet with a corresponding adjustment to either accumulated other
comprehensive income or earnings. For cash flow hedges, the ineffective portion
of a derivative's change in fair value is immediately recognized in earnings.
Note 9. Earnings Per Share
In accordance with SFAS No. 128, "Earnings Per Share" ("SFAS 128"),
basic earnings per share ("EPS") are computed by dividing income available to
common shareholders by the weighted average number of shares of common stock
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. As the Company reported a
net loss during the first and second quarters of 2003 and 2002, diluted EPS are
not presented.
Note 10. Subsequent Events
The Company entered into an agreement on July 17, 2003, to purchase a
155,000 square foot shopping center in Southington, CT for approximately $8.3
million, plus closing costs.
Note 11. Commitments and Contingencies
During the second quarter of 2003, the Company entered into an
agreement to enter into a lease, purchase option and loan transaction with
regard to a shopping center in Philadelphia, Pennsylvania. In connection
therewith, the Company made a non-refundable deposit of $3.0 million. The
Company is currently seeking a joint venture partner and or other financing
arrangements for this transaction, which is expected to close on or before
October 31, 2003. In the event that the Company is unable to make such
arrangements, the deposit would be at risk.
As discussed in Note 10, the Company also entered into an agreement on
July 17, 2003, to purchase a 155,000 square foot shopping center in Southington,
CT, anchored by a 94,000 square foot Wal-Mart store, for approximately $8.3
million, plus closing costs.
20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
Statements made or incorporated in this Form 10-Q include certain
forward-looking statements. Forward-looking statements include, without
limitation, statements containing the words "anticipates," "believes,"
"expects," "intends," "future," and words of similar import which express the
Company's belief, expectations or intentions regarding future performance or
future events or trends. We caution you that, while forward-looking statements
reflect good faith beliefs, they are not guarantees of future performance and
involve known and unknown risks, uncertainties and other factors, which may
cause actual results, performance or achievements to differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements as a result of factors outside of the Company's
control. Certain factors that might cause such a difference include, but are not
limited to, the following: real estate investment considerations, such as the
effect of economic and other conditions in general and in the eastern United
States in particular; the financial viability of our tenants; the continuing
availability of retail center acquisitions, development and redevelopment
opportunities on favorable terms; the availability of equity and debt capital in
the public markets; the fact that returns from development, redevelopment and
acquisition activity may not be at expected levels; the Company's potential
inability to realize the level of proceeds from property sales as initially
expected; inherent risks in ongoing redevelopment and development projects
including, but not limited to, cost overruns resulting from weather delays,
changes in the nature and scope of redevelopment and development efforts, and
market factors involved in the pricing of material and labor; the need to renew
leases or relet space upon the expiration of current leases; and the financial
flexibility to refinance debt obligations when due. Reference is made to the
statements under the caption "Risk Factors" included in the Company's Form 10-K
for 2002.
Summary of Critical Accounting Policies
The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States ("GAAP")
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. In response to recent guidance from the
Securities and Exchange Commission, we have identified the following critical
accounting policies, the application of which requires significant judgments and
estimates.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest Entities". The
Interpretation clarifies the application of existing accounting pronouncements
to certain entities in which the equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The provisions of the
Interpretation are immediately effective for all variable interest entities
created after January 31, 2003. The Company has evaluated the effects of the
issuance of the Interpretation on the accounting for its ownership interest in
its joint venture partnerships created after January 31, 2003, and has concluded
that all of the Company's joint ventures should be included in the consolidated
financial statements. The Company is currently in the process of evaluating the
impact that this Interpretation will have on its financial statements for all
joint ventures created before January 31, 2003.
21
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Summary of Critical Accounting Policies (continued)
On an ongoing basis, we evaluate our estimates, including those related
to revenue recognition and the allowance for doubtful accounts receivable, real
estate investments and asset impairment, and derivatives used to hedge
interest-rate risks. These accounting policies are further described in the
notes to our consolidated financial statements. Our estimates are based on
information that is currently available to us and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results could
differ from those estimates and those estimates could be different under varying
assumptions or conditions.
Revenue Recognition
Rental income with scheduled rent increases is recognized using the
straight-line method over the term of the leases. The aggregate excess of rental
revenue recognized on a straight-line basis over cash received under applicable
lease provisions is included in deferred rent receivable. Leases generally
contain provisions under which the tenants reimburse us for a portion of
property operating expenses and real estate taxes incurred by us. In addition,
certain of our operating leases contain contingent rent provisions under which
tenants are required to pay a percentage of their sales in excess of a specified
amount as additional rent. We defer recognition of contingent rental income
until those specified targets are met.
We must make estimates as to the collectibility of our accounts
receivable related to minimum rent, deferred rent, expense reimbursements and
other revenue. We analyze accounts receivable and historical bad debts, tenant
creditworthiness, current economic trends and changes in our tenant's payment
patterns when evaluating the adequacy of the allowance for doubtful accounts
receivable. These estimates have a direct impact on our net income, because a
higher bad debt allowance would result in lower net income.
Real Estate Investments
Real estate investments are carried at cost less accumulated
depreciation. The provision for depreciation and amortization is calculated
using the straight-line method based upon the estimated useful lives of assets.
Expenditures for maintenance, repairs and betterments that do not materially
prolong the normal useful life of an asset are charged to operations as
incurred. Additions and betterments that substantially extend the useful lives
of the properties are capitalized.
We are required to make subjective estimates as to the useful lives of
our properties for purposes of determining the amount of depreciation to reflect
on an annual basis. These assessments have a direct impact on net income. A
shorter estimate of the useful life of an investment would have the effect of
increasing depreciation expense and lowering net income, whereas a longer
estimate of the useful life of the investment would have the effect of reducing
depreciation expense and increasing net income.
22
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Summary of Critical Accounting Policies (continued)
Real Estate Investments (continued)
On July 1, 2001 and January 1, 2002, the Company adopted SFAS No. 141
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangibles",
respectively. As part of the acquisition of real estate assets, the fair value
of the real estate acquired is allocated to the acquired tangible assets,
consisting of land, building and building improvements, and identified
intangible assets and liabilities, consisting of the value of above-market and
below-market leases, other value of in-place leases, and value of tenant
relationships, based in each case on their fair values.
The fair value of the tangible assets of an acquired property is
determined by valuing the property as if it were vacant, and the "as-if-vacant"
value is then allocated to land, building and building improvements based on
management's determination of the relative fair values of these assets.
Management determines the as-if-vacant fair value of a property using methods
similar to those used by independent appraisers. Factors considered by
management in performing these analyses include an estimate of carrying costs
during the expected lease-up periods considering current market conditions and
costs to execute similar leases. In estimating carrying costs, management
includes real estate taxes, insurance and other operating expenses and estimates
of lost rental revenue during the expected lease-up periods based on current
market demand. Management also estimates costs to execute similar leases,
including leasing commissions, legal and other related costs.
In allocating the fair value of the identified intangible assets and
liabilities of an acquired property, above-market and below-market in-place
lease values are recorded based on the present value (using an interest rate
which reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) management's estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining non-cancelable
term of the lease. The capitalized above-market lease values (included in
deferred leasing costs in the accompanying combined balance sheet) are amortized
as a reduction of rental income over the remaining non-cancelable terms of the
respective leases. The capitalized below-market lease values (presented as
acquired lease obligations in the accompanying combined balance sheet) are
amortized as an increase to rental income over the remaining initial terms in
the respective leases.
The aggregate value of other acquired intangible assets, consisting of
in-place leases and tenant relationships, is measured by the excess of (i) the
purchase price paid for a property after adjusting existing in-place leases to
market rental rates over (ii) the estimated fair value of the property as if
vacant, determined as set forth above. This aggregate value is allocated between
in-place lease values and tenant relationships based on management's evaluation
of the specific characteristics of each tenant's lease; however, the value of
tenant relationships has not been separated from in-place lease value for the
additional interests in real estate entities acquired by the Predecessor because
such value and its consequence to amortization expense is immaterial for these
particular acquisitions. Should future acquisitions of properties result in
allocating material amounts to the value of tenant relationships, an amount
would be separately allocated and amortized over the estimated life of the
relationship. The value of in-place leases exclusive of the value of
above-market and below-market in-place leases is amortized to expense over the
remaining non-cancelable periods of the respective leases. If a lease were to be
terminated prior to its stated expiration, all unamortized amounts relating to
that lease would be written off.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Summary of Critical Accounting Policies (continued)
Real Estate Investments (continued)
We apply SFAS No. 144 to recognize and measure impairment of long-lived
assets. We review each real estate investment for impairment whenever events or
circumstances indicate that the carrying value of a real estate investment may
not be recoverable. The review of recoverability is based on an estimate of the
future cash flows that are expected to result from the real estate investment's
use and eventual disposition. These cash flows consider factors such as expected
future operating income, trends and prospects, as well as the effects of leasing
demand, competition and other factors. If impairment exists due to the inability
to recover the carrying value of a real estate investment, an impairment loss is
recorded to the extent that the carrying value exceeds estimated fair market
value. Real estate investments held for sale are carried at the lower of
carrying amount or fair value, less cost to sell. Depreciation and amortization
are suspended during the period held for sale. We are required to make
subjective assessments as to whether there are impairments in the value of our
real estate properties. These assessments have a direct impact on net income,
because an impairment loss is recognized in the period that the assessment is
made.
Hedging Activities
From time to time, we use derivative financial instruments to limit our
exposure to changes in interest rates related to variable rate borrowings.
Derivative instruments are carried on the consolidated financial statements at
their estimated fair value and a change in the value of a derivative is reported
as other comprehensive income or loss. If interest rate assumptions and other
factors used to estimate a derivative's fair value or methodologies used to
determine a derivative's effectiveness were different, amounts included in the
determination of net income or other comprehensive income or loss could be
affected.
23
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations
During the second quarter of 2003, the Company acquired a 100% interest
in one shopping center with a purchase price of $9.5 million, and 15% general
partnership interests in two shopping centers with an aggregate purchase price,
including closing costs, of approximately $16 million. During the first quarter
of 2003, the Company acquired a 30% general partnership interest in three
shopping centers with an aggregate purchase price of $20.8 million. During the
second quarter of 2002, the Company acquired a 20% general partnership interest
in one shopping center from a related party, based on a property value of $23
million. The Company also sold one office property for a gross sales price of
approximately $4.4 million, which resulted in a loss of $49,000.
Results of operations for the six months ended June 30, 2003 compared to
June 30, 2002
Differences in results of operations between the first half of 2003 and
the first half of 2002 were driven largely by the Company's acquisition and
disposition activity. Net loss before the loss on sale of properties,
distributions to preferred shareholders, and income allocated to minority
interest and limited partner, decreased approximately $779,000, from a net loss
of $1,024,000 in the first half of 2002 to a net loss of $245,000 in the first
half of 2003. Net loss attributable to common shareholders decreased
approximately $36,000, from a net loss of $275,000 in the first half of 2002 to
a net loss of $239,000 in the first half of 2003. Net loss per share decreased
$0.05, from a net loss per share of $0.20 in the first half of 2002 to a net
loss per share of $0.15 in the first half of 2003.
Results of operations for properties consolidated for financial
reporting purposes and held throughout both the first half of 2002 and the first
half of 2003 included four properties. As of June 30, 2002 and 2003, the Company
owned 10 and 14 properties, respectively.
Revenue and Expenses
Six months ended
June 30, June 30, Held in
2003 2002 Difference Acquisitions both years
-----------------------------------------------------------------------
Rents and expense recoveries $ 11,383,000 $ 5,151,000 $ 6,232,000 $ 6,076,000 $ 156,000
Property expenses 4,438,000 1,800,000 2,638,000 2,297,000 341,000
Depreciation and amortization 1,767,000 1,112,000 655,000 786,000 (131,000)
Interest expense 4,290,000 2,456,000 1,834,000 1,122,000 712,000
General and administrative expense 1,172,000 554,000 618,000 - -
Results attributable to acquisition activities
Rents increased from approximately $5,151,000 in the first half of 2002
to approximately $11,383,000 in the first half of 2003, a net increase of
approximately $6,232,000, or 121%. Such net increase is attributable primarily
to the Company's acquisition activities.
24
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results attributable to acquisition activities (continued)
Property expenses, excluding depreciation, amortization and interest
expense, increased from approximately $1,800,000 in the first half of 2002 to
approximately $4,438,000 in the first half of 2003, a net increase of
approximately $2,638,000, or 147%. Such increase reflects approximately
$2,297,000 attributable to the Company's acquisition activities, and
approximately $341,000 attributable to properties held in both years.
Depreciation and amortization increased from approximately $1,112,000
in the first half of 2002 to approximately $1,767,000 in the first half of 2003,
a net increase of approximately $655,000, or 59%. Such increase is attributable
to the Company's acquisition activities and is offset, in part, by the reduction
in amortization expense at The Point.
Interest expense increased from approximately $2,456,000 in the first
half of 2002 to approximately $4,290,000 in the first half of 2003, a net
increase of approximately $1,834,000, or 75%. Such increase reflects
approximately $1,122,000 attributable to the Company's acquisition activities,
and approximately $712,000 attributable to properties held in both years. The
increase attributable to properties held in both years is due to the refinancing
of The Point loan.
General and administrative expense increased approximately $618,000 to
$1,172,000 in the first half of 2003 from approximately $554,000 in the first
half of 2002, a change of 112%. This is attributable to overall growth of the
Company resulting in an increase in advisory fees of $204,000, an increase in
legal and accounting fees of approximately $262,000, directors fees of
approximately $60,000, and an increase in other administrative costs of $56,000.
Results for properties fully operating throughout the first half of both years
Rental income for Port Richmond L.L.C. 1 ("Port Richmond"), Academy
Plaza L.L.C. 1 ("Academy Plaza"), Washington Center L.L.C. 1 ("Washington
Center'), and The Point Associates, L.P. ("The Point"), the only properties
fully operating throughout the first half of both years, increased by
approximately $156,000 from $4,452,000 in the first half of 2002 to $4,608,000
in the first half of 2003. Property expenses increased $342,000, from
approximately $1,490,000 during the first half of 2002 to $1,832,000 during the
first half of 2003. The increase in property expenses for the six-month period
ended June 30, 2003 is attributable to (1) an increase in snow removal costs of
approximately $94,000, (2) an increase in real estate taxes of $88,000 resulting
from a second quarter 2002 reassessment following the completion of The Point
redevelopment project, and (3) an increase of $94,000 in expense principally
attributable to common area maintenance charges disputed with a major tenant.
These increases will, in part, be recovered through future tenant escalations.
Results of operations for the three months ended June 30, 2003 compared to June
30, 2002
Differences in results of operations between the second quarter of 2003
and the second quarter of 2002 were driven largely by the Company's acquisition
and disposition activities. Net income (loss) before the loss on sale of
properties, and income allocated to minority interest and limited partner,
increased approximately $1,144,000, from a net loss of $921,000 in the second
quarter of 2002 to net income of $223,000 in the second quarter of 2003. Net
loss attributable to common shareholders decreased approximately $187,000, from
a net loss of $227,000 in the second quarter of 2002 to a net loss of $40,000 in
the second quarter of 2003. Net loss per share decreased $0.14, from a net loss
per share of $0.16 in the second quarter of 2002 to a net loss per share of
$0.02 in the second quarter of 2003.
25
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of operations for the three months ended June 30, 2003 compared to June
30, 2002 (continued)
Results of operations for properties consolidated for financial
reporting purposes and held throughout both the second quarter of 2002 and the
second quarter of 2003 included four properties. As of June 30, 2002 and 2003,
the Company owned 10 and 14 properties, respectively.
Revenue and Expenses
Quarter ended
June 30, June 30, Acquisitions/ Held in
2003 2002 Difference dispositions both years
---------------------------------------------------------------------------------
Rents and expense recoveries $ 6,005,000 $ 2,651,000 $ 3,354,000 $ 3,182,000 $ 172,000
Property expenses 2,088,000 907,000 1,181,000 1,133,000 48,000
Depreciation and amortization 926,000 561,000 365,000 523,000 (158,000)
Interest expense 2,252,000 1,535,000 717,000 157,000 560,000
General and administrative expense 649,000 305,000 344,000 - -
Results attributable to acquisition and disposition activities
Rents increased from approximately $2,651,000 in the second quarter of
2002 to approximately $6,005,000 in the second quarter of 2003, a net increase
of approximately $3,354,000 or 127%. Such net increase is attributable primarily
to the Company's acquisition and disposition activities.
Property expenses, excluding depreciation, amortization and interest
expense, increased from approximately $907,000 in the second quarter of 2002 to
approximately $2,088,000 in the second quarter of 2003, a net increase of
approximately $1,181,000 or 130%. Such increase reflects approximately
$1,133,000 attributable to the Company's acquisition activities, and
approximately $48,000 attributable to properties held in both years.
Depreciation and amortization increased from approximately $561,000 in
the second quarter of 2002 to approximately $926,000 in the second quarter of
2003, a net increase of approximately $365,000 or 66%. Such increase is
attributable to the Company's acquisition activities. Amortization expense
attributable to properties held both years decreased by approximately $158,000
as a result of the Point's loan refinancing and corresponding write down of
deferred costs during the second quarter of 2002.
Interest expense increased from approximately $1,535,000 during the
second quarter of 2002 to approximately $2,252,000 in the second quarter of
2003, a net increase of approximately $717,000 or 47%. Such increase reflects
approximately $157,000 attributable to the Company's acquisition activities, and
approximately $560,000 attributable to properties held in both years.
26
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results attributable to acquisition and disposition activities (continued)
General and administrative expense increased approximately $344,000 to
$649,000 in the second quarter of 2003 from approximately $305,000 in the second
quarter of 2002, a change of 113%. The increase is primarily attributable to the
Company's growth resulting in increases in advisory fees of $135,000 and an
increase in legal and accounting fees of $204,000.
Results for properties fully operating throughout the second quarter of both
years
Rental income for Port Richmond, Academy Plaza, Washington Center, and
The Point, the only properties fully operating throughout the second quarter of
both years, increased by approximately $172,000, from $2,233,000 in the second
quarter of 2002 to $2,405,000 in the second quarter of 2003. Property expenses
for those properties increased $48,000, from approximately $752,000 during the
second quarter of 2002 to $799,000 during the second quarter of 2003.
Net Cash Flows
Operating Activities
Net cash flow (used in) provided by operating activities increased from
($132,000) during the first half of 2002 to $451,000 during the first half of
2003. The increase of $583,000 is attributable to the increase in net income
(loss) before minority interests, limited partner's interest, distributions, and
loss on sale for the period.
Investing Activities
Net cash flow used in investing activities was $50,563,000 during the
first half of 2003, compared to approximately $326,000 provided by investing
activities during the first half of 2002. During the first half of 2003, the
Company completed the purchase of six shopping center properties aggregating
approximately 556,000 square feet at a cost of approximately $46,144,000, while
the Company sold the Southpoint property for approximately $4,353,000 in May
2002.
Financing Activities
Cash flow provided by financing activities increased to approximately
$47,402,000 in the first half of 2003 from approximately $199,000 of cash
provided during the first half of 2002. The change of approximately $47,203,000
was primarily the result of the Company obtaining mortgage financing of
approximately $37,612,000, proceeds from a line of credit and other short term
borrowings of approximately $2,880,000, and the receipt of $8,836,000 in equity
contributions from limited partners to fund the acquisitions of six shopping
centers, including the capital expenditures necessary to improve and lease the
Company's properties. This increase is offset, in part, by payments of scheduled
mortgage amortization and the repayment of a line of credit.
27
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources
The Company funds its operating expenses primarily from operating cash
flows, although, if needed, the Company may also use its bank line of credit for
this purpose. The Company funds acquisitions, developments, and other capital
expenditures primarily from available cash, property-specific mortgage
indebtedness, joint venture partner equity contributions, its line of credit
and, to a lesser extent, operating cash flows. The Company also may acquire
properties through the issuance of limited partnership units of the Operating
Partnership. Additionally, the Company may dispose of certain properties,
reinvesting the proceeds from such dispositions into properties with better
growth potential or that are more consistent with its strategic focus.
The Company's financial liquidity is provided by $1,117,000 in cash and
cash equivalents at June 30, 2003. The Company believes that it has sufficient
flexibility to fund its operations for at least the next twelve months,
including required property-level capital expenditures, tenant improvements,
leasing costs, and mortgage and other scheduled principal payments. The
Company's ability, however, to continue to meet these obligations is dependent
in large part on its ability to attract joint venture partners or make other
suitable financing arrangements.
During March 2003, the Company entered into a credit facility with
North Fork Bank for a one-year period. The line of credit bears interest at the
greater of 6% or the bank's prime rate plus 1%. The new credit facility has a
$2.0 million limit; provided, however, that only $1.0 million will be available
until the SWH financing has been repaid. At June 30, 2003, $1.0 million was
borrowed.
During the second quarter of 2003, the Company entered into an
agreement to enter into a lease, purchase option and loan transaction with
regard to a shopping center in Philadelphia, Pennsylvania. In connection
therewith, the Company made a non-refundable deposit of $3.0 million, fully
utilizing the amount available from its unsecured line of credit, and borrowed
$1.75 million from related parties. The Company is currently seeking a joint
venture partner and/or other financing arrangements for this transaction, which
is scheduled to close on or before October 31, 2003. In the event that the
Company is unable to make such arrangements, the deposit would be at risk.
During August 2003, the Company expects to file a registration
statement for a public offering of its common stock. In order to finance the
Company's expansion plans and to ensure that, in the event the public stock
offering is not successful, the Company has the necessary resources until it can
make other long term financing arrangements, the Company requested, and received
on July 24, 2003, a non-binding term sheet from Hudson Realty Capital
Corporation, an affiliate of SWH, to refinance the existing SWH loan. Although
this financing has not been finalized as of the date of this filing, it is
expected to provide the company with approximately $2.0 million in cash after
payment of certain fees. The term sheet also provides for a moratorium on
principal payments for the first six months after the loan is closed. The
Company has also arranged with Homburg Participaties B.V., an affiliate of Mr.
Richard Homburg, a director of the Company, on a best efforts basis, to
syndicate the proposed Philadelphia shopping center transaction in the event the
Company is unable to consummate the public share offering or otherwise arrange
appropriate financing. The Company also contemplates the possibility of selling
one or more of its shopping centers to generate additional liquidity if
required. There can be no assurance, however, that any of these arrangements
will be successfully completed.
28
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Capital Strategy
The Company focuses its investment activities on community and
neighborhood shopping centers, primarily located in Pennsylvania, anchored
principally by regional and national grocery store chains. The Company continues
to seek acquisition opportunities in which it can utilize its experience in
shopping center renovation, expansion, re-leasing and re-merchandising to
achieve long-term cash flow growth and favorable investment returns. The Company
also would consider investment opportunities in markets beyond the Pennsylvania
area, provided such opportunities were consistent with its focus, had the
potential to create favorable investment returns and increased value to its
shareholders, and could be effectively controlled and managed.
Funds from Operations
Management believes that funds from operations ("FFO") is a widely
recognized and appropriate measure of performance of an equity REIT. Although
FFO is a non-GAAP financial measure, Management believes it provides useful
information to shareholders, potential investors, and management. Management
computes FFO in accordance with the standards established by the National
Association of Real Estate Investment Trusts ("NAREIT"). FFO is defined by
NAREIT as net income or loss excluding gains or losses from debt restructuring
and sales of properties plus real estate depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. FFO does
not represent cash generated from operating activities in accordance with
accounting principles generally accepted in the United States and is not
indicative of cash available to fund cash needs. FFO should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.
As not all companies and analysts calculate FFO in a similar fashion,
the Company's calculation of FFO presented herein may not be comparable to
similarly titled measures as reported by other companies.
29
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cedar Shopping Centers, Inc.
The following table represents the Company's FFO calculation for the following
periods:
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net (loss) income before limited partner's
interest in Operating Partnership $ (86,000) $ (437,000) $ (688,000) $ (952,000)
Add (less):
Limited partner's interest in the
Operating Partnership 46,000 210,000 449,000 677,000
----------- ----------- ----------- -----------
Net (loss) income available to common shareholders (40,000) (227,000) (239,000) (275,000)
Add (less) Company's share of the following items:
Depreciation 239,000 99,000 478,000 185,000
Loss on sale of real estate -- 14,000 -- 14,000
Loss on early extinguishment of debt -- 141,000 -- 141,000
Minority interest 86,000 (54,000) 130,000 (35,000)
Amount distributable to minority partners (215,000) (12,000) (344,000) (49,000)
----------- ----------- ----------- -----------
Basic and diluted funds from operations $ 70,000 $ (39,000) $ 25,000 $ (19,000)
=========== =========== =========== ===========
Weighted average shares outstanding 1,658,000 1,386,000 1,620,000 1,386,000
The following table represents the Operating Partnership's FFO calculation for
the following periods:
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net (loss) income before limited partner's
interest in Operating Partnership $ (86,000) $ (783,000) $ (688,000) $ (952,000)
Add (less):
Limited partner's interest in the
Operating Partnership 46,000 556,000 449,000 677,000
----------- ----------- ----------- -----------
Net (loss) income available to common shareholders (40,000) (227,000) (239,000) (275,000)
Add (less) Company's share of the following items:
Limited partner's interest (46,000) (556,000) (448,000) (677,000)
Depreciation 798,000 340,000 1,523,000 642,000
Loss on sale -- 49,000 -- 49,000
Loss on early extinguishment of debt -- 487,000 -- 487,000
Minority interest 286,000 (187,000) 421,000 (120,000)
Amount distributable to minority partners (715,000) (43,000) (1,106,000) (171,000)
----------- ----------- ----------- -----------
Basic and diluted funds from operations $ 283,000 $ (137,000) $ 151,000 $ (65,000)
=========== =========== =========== ===========
Weighted average shares outstanding 1,658,000 1,386,000 1,620,000 1,386,000
30
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The primary market risk facing the Company is interest rate risk on its
loans payable and mortgage notes payable. The Company will, when advantageous,
hedge its interest rate risk using financial instruments. The Company is not
subject to foreign currency risk.
The Company is exposed to interest rate changes primarily as a result
of (1) the line of credit used to maintain liquidity, fund capital expenditures
and expand its real estate investment portfolio and (2) the Camp Hill and Valley
Plaza acquisition financing. The Company's interest rate risk management
objectives are to limit the impact of interest rate changes on earnings and cash
flows and to lower its overall borrowing costs. To achieve these objectives, the
Company borrows primarily at fixed rates and may enter into derivative financial
instruments such as interest rate swaps, caps and treasury locks in order to
mitigate its interest rate risk on a related financial instrument. The Company
does not enter into derivative or interest rate transactions for speculative
purposes.
The Company will recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges will be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedged assets, liability or firm commitment through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. As of June 30, 2003, the
Company has interest rate swaps on four of its mortgage loans. These derivatives
had a fair value of approximately $860,000 of which $276,000 was recognized in
other comprehensive income and the remaining $584,000 was recognized as the
limited partner's interest in consolidated Operating Partnership.
The Company's interest rate risk is monitored using a variety of
techniques. As of June 30, 2003, long-term debt consisted of fixed-rate secured
mortgage indebtedness, fixed-rate unsecured notes, variable rate secured
mortgage notes, and a variable rate line of credit facility. The average
interest rate on the $123,000,000 of fixed rate secured mortgage indebtedness
outstanding at June 30, 2003 was 7.2%, with maturities at various dates through
2013. The average interest rate on the Company's line of credit at June 30, 2003
was 6%. There was $1,000,000 outstanding balance on the line of credit at June
30, 2003.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in its
filings under the Securities Exchange Act of 1934 is reported within the time
periods specified in the Securities and Exchange Commission's ("SEC") rules and
forms. In this regard, the Company has formed a Disclosure Committee currently
comprised of all of the Company's executive officers as well as certain other
employees with knowledge of information that may be considered in the SEC
reporting process. The Committee has responsibility for the development and
assessment of the financial and non-financial information to be included in the
reports filed by the Company with the SEC and assists the Company's Chief
Executive Officer and Chief Financial Officer in connection with their
certifications contained in the Company's SEC reports. The Committee
31
Item 4. Controls and Procedures (continued)
meets regularly and reports to the Audit Committee on at least a quarterly
basis. The Company's principal executive and financial officers have evaluated
the Company's disclosure controls and procedures within ninety days prior to the
filing of this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective as of the end of the period
covered by this report.
During the quarter ended June 30, 2003, there have been no significant
changes in the internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
32
Cedar Shopping Centers, Inc.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
None
Exhibit 31.1 Section 302 Certifications
Exhibit 32.1 Section 906 Certifications
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CEDAR SHOPPING CENTERS, INC.
Leo S. Ullman Thomas J O'Keeffe
- ----------------------------------- -----------------------------------
Leo S. Ullman Thomas J O'Keeffe
Chairman of the Board and President Chief Financial Officer
(Principal executive officer) (Principal financial officer)
Ann Maneri
- -----------------------------------
Ann Maneri
Controller
(Principal accounting officer)
August 13, 2003
34