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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003; Commission file number 0-14510
CEDAR SHOPPING CENTERS, INC.
(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 Number)
44 South Bayles Avenue, Port Washington, NY 11050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 767-6492
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, $0.06 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2).
Yes __ No _X_
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing sales price on June 30, 2003 of $16.39 per share, the
aggregate market value of the voting stock held by non-affiliates of the
registrant was $ 2,009,447.
The number of shares outstanding of the registrant's Common Stock $.06 par value
was 16,456,011 on March 26, 2004.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement relating to its 2004
annual meeting of shareholders are incorporated herein by reference.
TABLE OF CONTENTS
Item No.
- --------
PART I
1. Business...................................................................... 3
2. Properties.................................................................... 17
3. Legal Proceedings............................................................. 18
4. Submission of Matters to a Vote of Security Holders........................... 18
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters......... 22
6. Selected Financial Data....................................................... 23
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 24
7(a). Quantitative and Qualitative Disclosures about Market Risk.................... 32
8. Financial Statements and Supplemental Data.................................... 33
9. Changes in, and Disagreements with Accountants on, Accounting
and Financial Disclosure................................................. 57
9(a). Controls and Procedures....................................................... 57
PART III
10. Directors and Executive Officers of the Registrant............................ 58
11. Compensation of Directors and Executives...................................... 58
12. Security Ownership of Certain Beneficial Owners and Management................ 58
13. Certain Relationships and Related Party Transactions.......................... 58
14. Principal Accountant Fees and Services ....................................... 58
PART IV
15 Exhibits, Financial Statement Schedules, Reports on
Form 8-K and Signatures.................................................. 58
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the securities laws. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general and specific economic and
business conditions, which will, among other things, affect demand for rental
space, the availability and creditworthiness of prospective tenants, lease rents
and the availability of financing; adverse changes in the Company's real estate
markets, including, among other things, competition with other companies; risks
of real estate development and acquisition; risks of adverse operating results
and creditworthiness of current tenants; governmental actions and initiatives;
and environmental/safety requirements. Such forward-looking statements speak
only as of the date of this report. The Company does not intend, and disclaims
any duty or obligation, to update or revise any forward-looking statements set
forth in this report to reflect any change in expectations, change in
information, new information, future events or circumstances on which such
information was based.
2
Part I.
Item 1. Business
Cedar Shopping Centers, Inc., formerly Cedar Income Fund, Ltd. (the
"Company"), was organized in 1984 and elected to be taxed as a real estate
investment trust ("REIT") in 1986. The Company is now a fully-integrated,
self-administered and self-managed real estate company, and focuses on the
ownership, operation and redevelopment of community and neighborhood shopping
centers located primarily in Pennsylvania, with additional properties in
Connecticut, Maryland and New Jersey. As of December 31, 2003, the Company owned
22 properties, aggregating approximately 3.5 million square feet of gross
leasable area ("GLA").
Originally incorporated in Iowa in 1984, the Company's common stock was
listed on the NASDAQ securities market shortly thereafter. In June 1998,
following a tender offer for the purchase of the Company's shares by Cedar Bay
Company ("CBC"), the Company was reorganized as a Maryland corporation and
included in an "umbrella partnership" structure through the contribution of
substantially all of its assets to a Delaware limited partnership, Cedar
Shopping Centers Partnership, L.P, formerly Cedar Income Fund Partnership, L.P.
(the "Operating Partnership"). At the time of the tender offer, the Company
owned four properties, which it had held since shortly after its incorporation.
During the years 2000, 2001 and 2002, the Company sold those four properties and
reinvested the net proceeds, together with newly-borrowed funds, in a portfolio
of primarily supermarket-anchored shopping centers. This marked a change of
focus away from the prior concentration in office and office/warehouse
properties dispersed throughout the United States to retail properties, mostly
supermarket-anchored shopping centers, located primarily in Pennsylvania.
The Company, the Operating Partnership, their subsidiaries and
affiliated partnerships are separate legal entities. For ease of reference, the
terms "Company" and "Operating Partnership" (including their respective
subsidiaries and affiliates), as well as the terms "we", "us", "our", and "ours"
refer to the business and properties of all these entities, unless the context
otherwise requires. The Company's executive offices are located at 44 South
Bayles Avenue, Port Washington, New York 10050 (Telephone 516-767-6492). The
Company's website can be accessed at www.cedarshoppingcenters.com, where a copy
of the Company's forms 10-K, 10-Q, 8-K and other filings can be obtained free of
charge. These SEC filings are added to the website as soon as reasonably
practicable. The Company's Code of Ethics and committee charters are also listed
on the website. This information is also available by written request to
Investor Relations at our executive office address set forth above.
In early 2003, management of the Company made a strategic decision to
significantly expand the Company's capital base and its portfolio of
shopping-center properties. In connection therewith, the Company (1) identified
an appropriate underwriter and planned for a public offering of shares of its
common stock, (2) identified and targeted a number of real estate investment
opportunities, (3) arranged for the temporary financing that would be required
in the interim, and (4) identified banking institutions and received a
commitment for a term line of credit to be concluded following the completion of
the public offering. As a result of discussions with the underwriter and the
Company's financial advisor, management determined that it was appropriate to
acquire the companies that had previously provided the Company with advisory,
management, and legal services, and to acquire the ownership interests in the
Operating Partnership and certain other remaining partnership interests that
were held by related parties.
3
On July 14, 2003, in order to maintain the minimum "float" requirement
for purposes of the Company's listing on the NASDAQ small cap market, the
Company paid a stock dividend of one new share for each share of common stock
outstanding to shareholders of record on July 7, 2003. On October 20, 2003 the
Company effectuated a one-for-six "reverse" stock split, intended to facilitate
efficient trading of the Company's stock in connection with the intended public
offering and listing of its shares on the New York Stock Exchange.
In October 2003, the Company completed a public offering ("the
Offering") of 13,500,000 shares of its common stock at a price of $11.50 per
share pursuant to a registration statement filed with the Securities and
Exchange Commission, and realized approximately $141,200,000 after underwriting
fees and Offering costs. The Company's shares were listed on the New York Stock
Exchange and commenced trading on October 24, 2003; the listing of the Company's
stock on the NASDAQ was simultaneously terminated. In November 2003, the
underwriter exercised its over-allotment option to purchase an additional
2,025,000 shares at $11.50 per share less underwriting fees, and the Company
received an additional $21,700,000.
Prior to the Offering, the Company was externally advised and, in this
connection, Cedar Bay Realty Advisors, Inc. ("CBRA"), SKR Management Corp.
("SKR") and Brentway Management, LLC ("Brentway") provided advisory, management
and legal services to the Company. Contemporaneously with the Offering, CBRA and
SKR merged into the Company and Brentway merged into the Operating Partnership.
Each of the Company's executive officers was also a principal or officer of our
advisors and each became an employee of the Company upon consummation of the
Offering, together with the employees of the acquired companies. An independent
committee of our Board retained a financial advisor who advised it as to the
fairness from a financial perspective of the consideration to be paid in
connection with the merger. The merger was approved at the annual meeting of
stockholders held on October 9, 2003, with approximately 93% of the shares
voting in favor. The total consideration paid for CBRA, SKR and Brentway was
$11.96 million, comprised of 693,333 shares of the Company's common stock and
346,667 units of the Operating Partnership ("OP Units"), each valued at $11.50
per share/unit. The consideration was distributed to the owners, who are also
executive officers of the Company, and to substantially all other officers and
employees of the Company.
Prior to the Offering, CBC owned approximately 78% of the Company's
common stock and OP Units (comprised of approximately 63,000 shares of common
stock and approximately 568,000 OP Units). CBC received $9.0 million of the
proceeds from the Offering in connection with the repurchase of all the OP Units
owned by it ($15.85 per unit). The same financial advisor that opined as to the
fairness from a financial perspective of the consideration paid for the merged
entities also advised the independent committee of the Board as to the fairness
from a financial perspective of the consideration paid to CBC.
The Company used $3.96 million of the proceeds from the Offering to
redeem the 3,300 Preferred OP Units owned by Homburg Invest USA Inc. (see
below). As a result of these redemptions, the conversion of $1,000,000 of
outstanding debt into OP Units, and the aforementioned issuances of common stock
and OP Units in connection with the mergers of the management companies, the
Company now owns approximately 97% of the Operating Partnership.
General
The Company has elected to be taxed as a REIT under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). To
qualify as a REIT under those provisions, the Company must have a significant
percentage of its assets invested in, and income derived from, real estate and
related sources. The Company's objectives are to provide to its shareholders a
professionally managed, diversified portfolio of commercial real estate
investments (primarily supermarket-anchored shopping centers), which will
provide the best available cash flow, currently or in the future, and present an
opportunity for capital appreciation.
4
The Company as of December 31, 2003, had 16,456,011 shares outstanding;
in addition, the Operating Partnership had outstanding 439,421 OP Units
convertible into shares of common stock of the Company on a one-to-one basis.
The Company's shares are traded on the New York Stock Exchange under
the symbol "CDR".
Acquisitions in 2003
Fairview Plaza, Halifax Plaza and Newport Plaza
In January and February of 2003, the Company acquired a 30% general
partnership interest in Fairview Plaza, Halifax Plaza and Newport Plaza. These
properties, located in New Cumberland, Halifax and Newport, Pennsylvania,
respectively, contain an aggregate of 191,000 square feet of GLA, and are leased
to 28 tenants, including Giant Foods, Rite Aid, the Pennsylvania Liquor Control
Board, and McDonald's. The properties were originally built in 1992, 1994 and
1996, respectively, and were acquired for an aggregate purchase price of $20.5
million, including closing costs. Kimco Preferred Investors III ("Kimco") is the
70% limited partner.
The properties were acquired with a combination of first mortgage
financing and cash equity provided by the purchasers. As of December 31, 2003,
the outstanding principal balances on the mortgage loans for Fairview Plaza,
Halifax Plaza and Newport Plaza were $6.0 million, $4.2 million and $5.3
million, respectively. The interest rate on the Fairview Plaza mortgage is
5.71%. Through interest rate swaps, the interest rates on the Halifax Plaza and
Newport Plaza mortgages have been fixed at 6.83% throughout the terms of the
mortgages. The maturity dates for the mortgages are February 2013 for Fairview
Plaza, and February 2010 for Halifax Plaza and Newport Plaza. The amortization
schedule for Fairview Plaza is 30 years, while Halifax Plaza and Newport Plaza
have annual principal amortization payments of $90,000 and $109,000,
respectively.
The partnership agreements for each of the respective properties
essentially provide that Kimco is entitled to receive a 12.5% preferred return,
after which the Operating Partnership is entitled to receive a 12.5% preferred
return, after which the next $100,000 is payable to Kimco, and thereafter, any
excess cash flow is divided 50% to Kimco and 50% to the Operating Partnership.
In the event of a sale, refinancing or other capital transaction, the initial
proceeds of such transaction after repayment of third party debt shall be
distributed generally to Kimco until its initial capital contribution is reduced
to zero, then to Kimco until it achieves a 12.5% internal rate of return
("IRR"), then to the Operating Partnership until its capital contribution
balance is reduced to zero, then until it receives a 12.5% IRR, and then in
accordance with the residual sharing ratio (30% to the Operating Partnership and
70% to Kimco). Pursuant to the partnership agreements, any shortfall in required
priority payments by any one of the three properties can be offset by excess
payments from any of the other properties. Any shortfall in Kimco's preferred
IRR arrangements may expose the Company's contributed capital.
Pine Grove Shopping Center
In April 2003, the Company acquired a 15% general partnership interest
in the Pine Grove Shopping Center. The property, located in Pemberton Township,
New Jersey, contains 79,000 square feet of GLA and is leased to 15 tenants,
including Peebles, Fashion Bug and others. It is "shadow anchored" (i.e., a
tenant located on adjacent property not owned by the Company) by an
approximately 45,000 square foot Acme supermarket. The center was constructed in
2001 and 2002.
5
The purchase price for the property was approximately $8.6 million,
including closing costs, which the Company financed in part by a $6.0 million
first mortgage. Homburg Invest USA Inc., a wholly-owned subsidiary of Homburg
Invest Inc. ("Homburg Invest"), which owned approximately 21% of the Company's
common stock prior to the Offering and which is approximately 62% owned by Mr.
Richard Homburg, a director of the Company, purchased an 85% limited partnership
interest for $2.1 million and received a 10% origination fee. Following the
Offering, the Company exercised its option to acquire the 85% limited
partnership interest, whereby Homburg Invest received a return of its $2.1
million plus a 15% annualized rate of return.
As of December 31, 2003, the outstanding principal balance on the
mortgage was approximately $5.9 million. Through an interest rate swap, the
interest rate on the mortgage was fixed at 6.24% throughout the term of the
mortgage. The mortgage has annual principal amortization payments of $150,000
and matures in April 2010.
Swede Square Shopping Center
In May 2003, the Company acquired a 15% general partnership interest in
the Swede Square Shopping Center. The property, located in East Norriton,
Pennsylvania, contains 103,000 square feet of GLA and is leased to 12 tenants,
including LA Fitness Center, Panera Bread and others. The center was originally
constructed in 1980 and is currently in the final stages of a complete
redevelopment, including re-tenanting with multiple new tenant build-outs,
upgrading common areas, redesigning the parking lot, improving access and
traffic flow, and installing new facades and signage.
The purchase price for the property was approximately $8.1 million,
including closing costs, which the Company financed in part by a $5.6 million,
two-year, interest-only first mortgage. The principal amount of the mortgage may
be increased to a total of $7.5 million based on certain leasing and
redevelopment achievements. Homburg Invest purchased an 85% limited partnership
interest for $3.0 million, and received a 10% origination fee. Following the
Offering, the Company exercised its option to acquire the 85% limited
partnership interest, whereby Homburg Invest received a return of its $3.0
million plus a 15% annualized rate of return.
The balance of the mortgage was repaid without penalty in March 2004,
and had carried a floating rate of LIBOR plus 585 basis points, with a minimum
rate of 7.25%.
Valley Plaza Shopping Center
In June 2003, the Company acquired Valley Plaza Shopping Center. The
property, located in Hagerstown, Maryland, contains 191,000 square feet of GLA
and is leased to seven tenants, including K-Mart, Ollie's, Tractor Supply
Company and McDonald's. The center was originally constructed in 1975, and was
redeveloped in 1994.
The purchase price was $9.4 million, including closing costs, which
the Company 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, $3.5 million
subordinated bank loan with interest at 12%. Commitment fees of $65,000 for the
senior bank loan and $346,000 for the subordinated bank loan were included in
the loan amounts. Following the Offering, the Company repaid the subordinated
bank loan together with an exit fee of $104,000. Homburg Invest received from
the lender one-half of the commitment fees and exit fees, and 40% of the
interest on the subordinated loan, in consideration for arranging the loan and
for providing the lender with certain repayment guarantees with respect to both
loans.
6
Wal-Mart Shopping Center
In August 2003, the Company acquired a 15% general partnership interest
in the Wal-Mart Shopping Center. The property, located in Southington,
Connecticut, contains 155,000 square feet of GLA, and is subject to a ground
lease that expires in 2071. Tenants include Wal-Mart, which occupies
approximately 94,000 square feet with a lease extending through 2020, Namco,
Southington Wine & Spirits, Connecticut Lighting Center and Sovereign Bank. The
property was built in 1972 and was redeveloped in 2000.
The purchase price for the property was approximately $8.7 million,
including closing costs. Homburg Invest purchased an 85% limited partnership
interest for $825,000, and received a 10% origination fee. The Company also
obtained a subordinated loan of $2.9 million and a senior loan of $5.4 million,
with both loans maturing in two years. Commitment fees of $102,000 for the
senior bank loan and $293,000 for the subordinated bank loan were included in
the loan amounts. The subordinated loan bore interest at a rate of 12%, while
the senior loan bears interest at 250 basis points over 30-day LIBOR. Following
the Offering, the Company exercised its option to acquire Homburg Invest's
limited partnership interest for $990,000 plus a 12% annualized rate of return.
In addition, the Company repaid the subordinated loan together with an exit fee
of $88,000. Homburg Invest received from the lender one-half of the commitment
fees and exit fees, and 40% of the interest on the subordinated loan, in
consideration for arranging the loan and for providing the lender with certain
repayment guarantees with respect to both loans.
South Philadelphia Shopping Plaza
In October 2003, following the Offering, the Company entered into a net
lease for the South Philadelphia Shopping Plaza for a term of 29 years, 11
months. The Company has an option to purchase the property at fair market value
at any time after ten years, subject to an acceleration right in certain
instances, such as the bankruptcy of the existing owner.
The property, located in Philadelphia, Pennsylvania, contains 283,000
square feet of GLA. Tenants include a 54,000 square foot Shop Rite, Bally's
Total Fitness, Ross Stores and Strauss Auto Zone. The property was built in 1950
and was redeveloped from 1998 through 2003. Simultaneously with the execution of
the net lease, the Company loaned $39 million to the existing owner, secured by
a first mortgage on the owner's fee interest in the property; interest payments
under the loan will approximate the fixed rent under the net lease.
River View Plaza I, River View Plaza II, and River View Plaza III
Shopping Centers
In November 2003, the Company acquired operating control of the River
View Plaza I, River View Plaza II and River View Plaza III shopping centers for
approximately $50.3 million, including closing costs. In connection with the
transaction, the Company defeased the existing first mortgage at a cost of
approximately $4.8 million, which was charged to expense in 2003. These shopping
centers, located in Philadelphia, Pennsylvania, consist of three separate
properties containing an aggregate of approximately 247,000 square feet of GLA.
River View I is anchored by a United Artists Theatre, River View II is anchored
by Staples and West Marine, and River View III is anchored by Pep Boys and
Athlete's Foot. The properties were built in 1991 and were redeveloped from 1993
through 1998.
7
In exchange for their contribution of the properties to a newly
formed-partnership, each of the prior owners received a preferred limited
partnership interest in the partnership, and the Company became the managing
general partner. In addition, the Company made a $26.7 million loan to the prior
owners, which must be repaid at the time their interests in the partnership are
redeemed. The return on the preferred interests will approximate the interest
payable under the loan. The Company has an option to redeem the preferred
interests in ten years in the event and to the extent the prior owners have not
previously redeemed their interests.
The Point Shopping Center
In November 2003, the Company increased its ownership in The Point
Shopping Center to 100% by acquiring the remaining 50% interest from an
affiliate of CBC for a purchase price of approximately $2.4 million. The
property, located in Harrisburg, Pennsylvania, contains approximately 255,000
square feet of GLA, and is subject to a 7.63% first mortgage with an outstanding
balance of approximately $19.6 million at December 31, 2003. The mortgage is
scheduled for repayment in September 2012.
Columbus Crossing Shopping Center
In December 2003, the Company acquired operating control of the
Columbus Crossing Shopping Center for approximately $24.2 million, including
closing costs. The property, located in Philadelphia, Pennsylvania, is fully
leased, contains approximately 142,000 square feet of GLA, and was completed in
2001. Tenants include a 62,000 square foot Super Fresh supermarket, Old Navy,
A.C. Moore and Famous Footwear.
The interests of the prior partners in the partnership that owns the
property were recast to preferred limited partnership interests, and the Company
became the managing general partner. In addition, the Company made a $6.4
million loan to the prior owners, which must be repaid at the time their
interests in the partnership are redeemed. The return on the preferred interests
will approximate the interest payable under the loan. The Company has an option
to redeem the preferred interests in ten years in the event and to the extent
the existing owners have not previously redeemed their interests.
Sunset Crossings Shopping Center
In December 2003, the Company acquired the Sunset Crossings Shopping
Center for a purchase price of approximately $11.4 million, including closing
costs. The property, located in Dickson City, Pennsylvania, contains
approximately 74,000 square feet of GLA, was built in 2002, and is anchored by a
54,000 square foot Giant Foods supermarket.
Golden Triangle Shopping Center
In December 2003, the Company acquired, from an affiliate of CBC, the
Golden Triangle Shopping Center in Lancaster, Pennsylvania. This property
contains 229,000 square feet of GLA, was built in 1960, was redeveloped in 1985,
1990 and 1997, and is currently undergoing a complete redevelopment, including
re-tenanting with multiple new tenant build-outs, upgrading of common areas,
redesigning the parking lot, and improving access and traffic flow. Tenants
include a 30,000 square foot Marshalls and a 24,000 square foot Staples. The
Company has entered into a lease for a new 46,000 square foot L.A. Fitness
Center, and expects to redesign the parking lot and install new facades and
signage. The purchase price for the property was approximately $11.4 million,
including closing costs, and the assumption of a $9.8 million 7.39% first
mortgage loan. The mortgage is amortized over a thirty year schedule with the
balance due in April 2008.
8
Options
The Company has an option to acquire an undeveloped 16.5 acre parcel
of land located between Harrisburg and Hershey, Pennsylvania for $1.84 million.
The option, which cost $150,000, was originally scheduled to expire in March
2004, but was extended for an additional six-month period. It is the Company's
present intention to exercise the option and to build a supermarket-anchored
shopping center on the site. In this connection, the Company has entered into a
letter of intent with Giant Foods for a 55,000 square foot store on the site.
The Company has an option to acquire the Shore Mall in Egg Harbor
Township, New Jersey, a 620,000 square foot shopping center, subject to a right
of first refusal of a former owner. The option, which expires in 2013, provides
that the purchase price will be the appraised value at the time the option is
exercised. The option also provides the Company with a right of first refusal if
the owner receives a bona fide third-party offer. Following the Offering, the
Company has been providing property management, leasing, construction management
and legal services to the property, and expects to continue to provide these
services, and to receive fees at standard rates until the property is acquired
or sold or otherwise disposed of by the existing owners. An affiliate of CBC
owns 92% of this property and Mr. Ullman, the Company's Chief Executive Officer,
owns 8%.
Competition
The Company believes that competition for the acquisition and operation
of retail shopping centers is highly fragmented. It faces competition from
institutional investors, public and private REITs and owner-operators engaged in
the acquisition, ownership and leasing of shopping centers, as well as from
numerous local, regional and national real estate developers and owners in each
of our markets.
The Company encounters competition for acquisitions of existing
income-producing properties. It also faces competition in leasing available
space at its properties to prospective tenants. The actual competition for
tenants varies depending upon the characteristics of each local market in which
it owns and manages property. The Company believes that the principal
competitive factors in attracting tenants in its market areas are location,
price, the presence of anchor tenants, the mix and quality of tenants, and
maintenance of properties.
Environmental Matters
Under various federal, state, and local laws, ordinances, and
regulations, an owner or operator of real estate may be required to investigate
and clean up hazardous or toxic substances or petroleum product releases at such
property, and may be held liable to a governmental entity or to third parties
for property damage, and for investigation and clean up costs incurred by such
parties in connection with contamination. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate such substances, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. In connection with the ownership, operation and
management of real properties, the Company is potentially liable for removal or
remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property.
9
The Company believes that environmental studies made with respect to
substantially all of its properties have not revealed environmental liabilities
that would have a material adverse affect on its business, results of operations
and liquidity. However, no assurances can be given that existing environmental
studies with respect to any of the properties reveal all environmental
liabilities, that any prior owner of a property did not create a material
environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist at any one or more of its
properties. If a material environmental condition does in fact exist, it could
have an adverse impact upon the Company's financial condition, results of
operations and liquidity.
Employees
As of March 26, 2004 the Company had 43 employees. The Company believes that its
relations with its employees are good.
The Company's Properties
The following table and notes set forth information relating to the
Company's properties and major tenants as of December 31, 2003:
10
Gross Percent Occupied Major Tenants
Percent Leasable Net Book Mortgage at December 31, Greater than
Property Description Owned (1) Area Value Balance 2003 2002 10% of GLA
- -----------------------------------------------------------------------------------------------------------------------------------
The Point Shopping Center 100% 255,000 $22,625,000 $19,575,000 93% 93% Burlington Coat
Harrisburg, PA Giant Foods
Port Richmond Village 100% 157,000 14,322,000 11,292,000 100% 89% Thriftway
Philadelphia, PA Pep Boys
Academy Plaza 100% 155,000 11,893,000 10,422,000 99% 89% Acme Markets
Philadelphia, PA Raising Horizons
Washington Center Shoppes 100% 158,000 9,273,000 5,826,000 98% 87% Acme Markets
Washington Township, NJ Powerhouse Gym
Red Lion Shopping Center 20% 224,000 19,799,000 16,590,000 95% 91% Best Buy Stores
Philadelphia, PA Sports Authority
Staples
Loyal Plaza 25% 293,000 18,957,000 13,677,000 92% 92% K-Mart
Williamsport, PA Giant Foods
Camp Hill Mall (2) 100% 522,000 22,694,000 14,000,000 66% 90% Boscov's
Camp Hill, PA
LA Fitness Facility 50% 41,000 5,692,000 4,559,000 100% N/A LA Fitness
Fort Washington, PA
Fairview Plaza 30% 70,000 8,904,000 6,018,000 97% N/A Giant Foods
New Cumberland, PA
Halifax Plaza 30% 54,000 5,634,000 4,190,000 100% N/A Giant Foods
Halifax, PA Rite Aid
Newport Plaza 30% 67,000 6,514,000 5,346,000 100% N/A Giant Foods
Newport, PA Rite Aid
Pine Grove Plaza Shopping Center 100% 79,000 8,379,000 6,301,000 97% N/A Peebles
Pemberton Township, NJ
Swede Square Shopping Center (2) 100% 103,000 7,875,000 5,560,000 78% N/A LA Fitness
East Norriton, PA
Valley Plaza Shopping Center 100% 191,000 9,619,000 6,361,000 100% N/A K-Mart
Hagerstown, MD Ollie's
Tractor Supply
[RESTUBBED TABLE]
Square Lease
Property Description Feet Expiration
- -------------------------------- ----------------------
The Point Shopping Center 77,000 2016
Harrisburg, PA 55,000 2021
Port Richmond Village 40,000 2008
Philadelphia, PA 21,000 2009
Academy Plaza 51,000 2018
Philadelphia, PA 20,000 2004
Washington Center Shoppes 66,000 2020
Washington Township, NJ 21,000 2012
Red Lion Shopping Center 46,000 2014
Philadelphia, PA 44,000 2005
24,000 2015
Loyal Plaza 103,000 2006
Williamsport, PA 67,000 2019
Camp Hill Mall (2) 168,000 2010
Camp Hill, PA
LA Fitness Facility 41,000 2018
Fort Washington, PA
Fairview Plaza 59,000 2017
New Cumberland, PA
Halifax Plaza 32,000 2019
Halifax, PA 8,000 2009
Newport Plaza 43,000 2021
Newport, PA 10,000 2016
Pine Grove Plaza Shopping Center 25,000 2022
Pemberton Township, NJ
Swede Square Shopping Center (2) 37,000 2016
East Norriton, PA
Valley Plaza Shopping Center 96,000 2004
Hagerstown, MD 42,000 2011
32,000 2010
11
Gross Percent Occupied
Percent Leasable Net Book Mortgage at December 31,
Property Description Owned (1) Area Value Balance 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Wal-Mart Shopping Center 100% 155,000 11,735,000 $ 5,441,000 100% N/A
Southington, CT
South Philadelphia Shopping 100% 283,000 41,117,000 - 82% N/A
Plaza
Philadelphia, PA
River View Plaza I, II and III 100% 247,000 48,389,000 - 95% N/A
Philadelphia, PA
Columbus Crossing Shopping 100% 142,000 22,869,000 - 100% N/A
Center
Philadelphia, PA
Sunset Crossings Shopping 100% 74,000 10,744,000 - 96% N/A
Center
Dickson City, PA
Golden Triangle Shopping (2) 100% 229,000 11,590,000 9,825,000 68% N/A
Center
Lancaster, PA
--------------------------------------------
Totals 3,499,000 $318,624,000 $144,983,000
============================================
[RESTUBBED TABLE]
Major Tenants
Greater than Square Lease
Property Description 10% of GLA Feet Expiration
- ------------------------------ ---------------------------------------------
Wal-Mart Shopping Center Wal-Mart 94,000 2020
Southington, CT Namco 20,000 2011
South Philadelphia Shopping Shop Rite 54,000 2018
Plaza Bally's Total Fitness 31,000 2017
Philadelphia, PA Ross Stores 31,000 2013
River View Plaza I, II and III United Artists 78,000 2018
Philadelphia, PA
Columbus Crossing Shopping
Center Super Fresh Supermarkets 62,000 2020
Philadelphia, PA Old Navy 25,000 2009
A.C. Moore 22,000 2011
Sunset Crossings Shopping Giant Foods 54,000 2017
Center
Dickson City, PA
Golden Triangle Shopping (2) Marshalls 30,000 2010
Center Staples 24,000 2012
Lancaster, PA
Totals
(1) Other than Red Lion, the terms of the several joint venture agreements
provide, among other things, that the limited partners receive certain
preferential returns on their investments prior to any distributions to the
Company.
(2) These properties are redevelopment properties. The occupancy rates for
these properties may include month-to-month and seasonal tenants.
The terms of the Company's retail leases vary from tenancies at will
to 25 years, excluding options. Anchor tenant leases are typically for 10 to 25
years, with one or more extension options available to the lessee upon
expiration of the initial lease term. By contrast, smaller store leases are
typically negotiated for 5-year terms. The longer terms of major tenant leases
serve to protect the Company against significant vacancies and to assure the
presence of strong tenants who draw consumers to its centers. The shorter terms
of smaller store leases allow the Company under appropriate circumstances to
adjust rental rates periodically for non-major store space and, where possible,
to upgrade the overall tenant mix.
Leases to anchor tenants generally provide lower minimum rents per
square foot than smaller shop leases. The Company believes that minimum rental
rates for most anchor tenant leases entered into several years ago are at or
below current market rates, while recent anchor tenant leases and most
non-anchor leases provide for minimum rental rates that more closely reflect
current market conditions.
Risk Factors
General
Income from the Company's real property investments and its
resulting ability to service debt and to meet other obligations as they become
due may be adversely affected by general and specific economic and business
conditions, which will, among other things, affect demand for rental space, the
availability and creditworthiness of prospective tenants, lease rents and the
availability of financing, adverse changes in the Company's real estate markets,
including, among other things, competition with other companies, risks of real
estate development and acquisition, risks of adverse operating results and
creditworthiness of current tenants, governmental actions and initiatives, and
environmental/safety requirements.
12
Insurance
The Company carries comprehensive liability and all-risk property
insurance with respect to its assets (fire, flood, extended coverage, terrorism
and rental loss insurance). There can be no assurance, however, that the policy
limits will in fact be adequate to cover all possible losses.
Dependence on Rental Income
Substantially all of the Company's revenues are derived from rental
income from its properties. The Company competes with other shopping centers for
tenants within the same geographic marketplace. The Company's ability to attract
new tenants and keep existing tenants may be affected by its ability to fund
tenant improvements, grant rent concessions, pay leasing commissions, pay for
capital improvements, and to periodically upgrade and modernize the shopping
centers. As a result, the Company's ability to service its debt and to meet its
other obligations may be adversely affected if a major tenant or a significant
number of smaller tenants were unable to meet their obligations, or if a
significant amount of space at the Company's properties were to become vacant.
Several of the Company's properties (Camp Hill, Fairview Plaza, Halifax
Plaza, Loyal Plaza, Newport Plaza, The Point and Sunset Crossings) have Giant
Food Stores, Inc. supermarkets ("Giant Foods") as anchor tenants. In all, rents
and expense recoveries from Giant Foods in 2003 represented approximately 12% of
the Company's total revenues. Ahold N.V., a Netherlands corporation and Giant
Food's parent company, generally guarantees the Giant Foods leases. During 2003,
there were published reports indicating that there had been accounting
irregularities at certain of Ahold's U.S. and foreign operations, which did not
necessarily include the supermarket stores or the Giant Foods supermarket
affiliates. Ahold's debt rating was downgraded, which may adversely affect the
resulting value of the Company's properties having such tenancies.
Market Liquidity
Real estate investments are relatively illiquid. The Company is
limited in its ability to vary its real estate portfolio in response to economic
changes, and may encounter difficulty in recovering its investment in properties
if vacancy rates rise.
Leverage
At December 31, 2003, the Company had gross assets of approximately
$341.3 million with approximately 3.5 million square feet of GLA. The Company
has financed its growth with a combination of the proceeds from the Offering and
third-party debt. At December 31, 2003, the Company had approximately $145.0
million in mortgage indebtedness outstanding and approximately $17.0 million
outstanding under its line of credit; the percentage of debt to total assets at
December 31, 2003 was approximately 47.5%. Principal payments of approximately
$21.2 million are scheduled to be paid over the next twelve months on such debt
(see notes to consolidated financial statements contained in this report).
13
The Company is subject to risks normally associated with debt
financing, including the risk that its cash flow will be insufficient to meet
required payments of principal and interest. The Company is also subject to the
risk that existing indebtedness on the properties (which, in most cases, will
not have been fully amortized at maturity) will not be able to be refinanced, or
that the terms of such refinancing, if in fact available, will not be as
favorable as the terms of the Company's existing indebtedness. If the Company is
not successful in refinancing such debt when it becomes due, it may be forced to
dispose of properties at disadvantageous terms, which might adversely affect the
Company's ability to service other debt and to meet its other obligations. If
prevailing interest rates, or other factors at the time of refinancing result in
higher interest rates, the Company's interest expense would increase, which
could also adversely affect its ability to service other debt and to meet its
other obligations.
In addition to the risks associated with debt financing, the terms of
certain of the Company's joint venture partnership agreements provide for
minimum priority cumulative returns to the limited partners. To the extent that
these specified minimum returns are not achieved, the Company's equity interest
in these partnerships can be negatively affected.
Adverse Consequences of Failure to Qualify as a REIT
The Company has elected since 1986 to be taxed as a REIT under the
Code. A REIT will generally not be subject to federal income taxation on that
portion of its income that qualifies as REIT taxable income, to the extent that
it distributes at least 90% of its taxable income to its shareholders and
complies with certain other requirements. Under applicable provisions of the
Code governing REITs, a REIT, among other things, may not own more than ten
percent in value or voting power of a corporation other than a qualifying
"taxable REIT subsidiary". During the course of the Company's preparation of
this report, it was determined that the Company indirectly owned more than 10%
of one company with an equity value of approximately $8,000, for which it had
inadvertently failed to file a timely election to be treated as a taxable REIT
subsidiary. The Company has filed with the Internal Revenue Service an election
to treat such entity as a taxable REIT subsidiary retroactive to June 2002 when
it was formed, and has filed a request for a ruling to permit late filing of
such election. The Company, based on opinion of counsel, believes that it will
receive a favorable ruling and that the likelihood of an unfavorable ruling is
remote.
Rents and Occupancy Information
Five of our properties either contributed more than 10% of our
aggregate gross revenues during 2003 or had a book value equal to more than 10%
of our total assets at year-end 2003. Except for Giant Foods, no tenant leases
more than 10% of the Company's total GLA. The following table shows certain
information for these properties during the shorter of the prior three years or
the period of our ownership.
Average Average Annual
Occupancy Gross Revenues
Property Year Rate PerSquare Foot
- ------------------------------------------------------------- ---------------
The Point Shopping Center 2003 93% $ 12.24
2002 93% 11.44
2001 82% 8.94
Red Lion Shopping Center 2003 93% 13.73
Port Richmond Village Shopping Center 2003 95% 17.32
2002 89% 15.46
Camp Hill Mall 2003 78% 9.29
South Philadelphia Shopping Center 2003 82% n/a
The following tables show lease expiration data as of December 31, 2003
for each of the above properties for the next ten years (assuming that none of
the tenants exercise renewal options). Annualized expiring rents represents the
contractual rent for expiring leases, calculated on a straight-line basis in
accordance with GAAP.
14
The Point Shopping Center
Number of Annualized Percentage of
Year of Lease Leases Square Footage of Expiring Rents Annualized Property Rent
Expiration Expiring Leases Expiring per Sq Ft Expiring Rents Expiring
- -------------------------------------------------------------------------------------------------------
2004 1 2,550 $ 10.09 $ 25,733 1.04%
2005 1 1,600 8.13 13,000 0.52%
2006 2 11,640 3.65 42,512 1.71%
2007 3 14,648 15.99 234,231 9.43%
2008 1 6,635 8.17 54,241 2.18%
2011 1 5,000 7.50 37,500 1.51%
2012 4 15,664 15.76 246,793 9.94%
2013 2 44,000 10.25 451,046 18.16%
Thereafter 3 134,865 10.22 1,378,605 55.51%
- -------------------------------------------------------------------------------------------------------
18 236,602 $ 10.50 $ 2,483,661 100.00%
=========================================================================
Red Lion Shopping Center
Number of Annualized Percentage of
Year of Lease Leases Square Footage of Expiring Rents Annualized Property Rent
Expiration Expiring Leases Expiring per Sq Ft Expiring Rents Expiring
- -------------------------------------------------------------------------------------------------------
2004 1 29,483 $ 2.85 $ 84,000 3.46%
2005 3 50,546 11.86 599,553 24.69%
2006 1 3,600 15.00 54,000 2.22%
2007 3 26,815 10.64 285,297 11.75%
2008 1 1,410 17.00 23,970 0.99%
2009 1 4,310 14.96 64,489 2.66%
2013 3 12,550 16.75 210,191 8.66%
2014 2 59,500 13.13 781,244 32.17%
Thereafter 1 23,942 13.60 325,708 13.41%
- -------------------------------------------------------------------------------------------------------
Total 16 212,156 $ 11.45 $ 2,428,452 100.00%
=========================================================================
Port Richmond Village Shopping Center
Number of Annualized Percentage of
Year of Lease Leases Square Footage of Expiring Rents Annualized Property Rent
Expiration Expiring Leases Expiring per Sq Ft Expiring Rents Expiring
- -------------------------------------------------------------------------------------------------------
2004 5 8,631 $ 27.29 $ 235,516 12.60%
2005 3 3,150 19.25 60,645 3.24%
2006 2 10,403 14.69 152,769 8.17%
2007 5 19,917 8.73 173,813 9.30%
2008 9 76,625 11.17 856,133 45.81%
2009 7 36,182 10.78 390,053 20.87%
- -------------------------------------------------------------------------------------------------------
Total 31 154,908 $ 12.06 $ 1,868,929 100.00%
=========================================================================
15
Camp Hill Mall
Number of Annualized Percentage of
Year of Lease Leases Square Footage of Expiring Rents Annualized Property Rent
Expiration Expiring Leases Expiring per Sq Ft Expiring Rents Expiring
- -------------------------------------------------------------------------------------------------------
2004 28 61,040 $ 11.71 $ 714,917 26.62%
2005 3 3,479 19.94 69,388 2.58%
2006 2 8,276 11.19 92,597 3.45%
2008 1 1,297 18.32 23,759 0.88%
2009 1 3,639 17.16 62,438 2.32%
2010 3 173,662 4.90 851,508 31.71%
2011 5 74,646 8.98 669,956 24.95%
2012 2 3,466 15.42 53,462 1.99%
Thereafter 1 3,700 39.86 147,468 5.49%
- -------------------------------------------------------------------------------------------------------
Total 46 333,205 $ 8.06 $ 2,685,492 100.00%
=========================================================================
South Philadelphia Shopping Center
Number of Annualized Percentage of
Year of Lease Leases Square Footage of Expiring Rents Annualized Property Rent
Expiration Expiring Leases Expiring per Sq Ft Expiring Rents Expiring
- --------------------------------------------------------------------------------------------------------
2004 3 9,100 $ 13.49 $ 122,775 3.79%
2005 3 16,830 12.90 217,114 7.01%
2006 2 4,410 22.73 100,247 1.84%
2007 3 14,880 15.98 237,744 6.20%
2008 2 12,577 17.39 218,678 5.24%
2009 3 13,383 17.08 228,552 5.58%
2011 1 1,300 30.35 39,461 0.54%
2012 1 3,100 22.96 71,167 1.29%
2013 2 51,349 11.10 569,963 21.40%
Thereafter 4 112,988 13.54 1,529,597 47.09%
- -------------------------------------------------------------------------------------------------------
Total 24 239,917 $ 13.90 $ 3,335,298 100.00%
=========================================================================
16
Depreciation on The Point Shopping Center, Red Lion Shopping Center,
Port Richmond Shopping Center, Camp Hill Mall and South Philadelphia Shopping
Center is calculated using the straight-line method over the estimated useful
life of the real property and improvements, which ranges from ten to 40 years.
At December 31, 2003, the Federal tax basis in these centers was as follows:
approximately $22.6 million for The Point Shopping Center, approximately $19.7
for Red Lion Shopping Center, approximately $14.3 million for Port Richmond
Shopping Center, approximately $18.9 million for Camp Hill Mall and
approximately $39 million for a mortgage loan receivable on South Philadelphia
Shopping Center.
The real estate tax rate is approximately $8.27 per $100 of assessed
value for Red Lion Shopping Center; $1.74 per $100 for The Point Shopping
Center; $1.61 per $100 for Camp Hill Mall, $8.27 per $100 for Port Richmond
Village Shopping Center, and $8.27 per $100 for South Philadelphia Shopping
Center.
Item 2. Properties
The properties the Company owned at December 31, 2003 are described
under Item 1 and in the notes to consolidated financial statements contained in
this report.
The Company's executive office is located in 6,200 square feet at 44
South Bayles Avenue, Port Washington, New York, which it leases from a
partnership owned 24% by the Company's Chief Executive Officer. The lease
expires in October 2007. The Company also maintains property management and
leasing offices at two of its shopping-center properties.
17
Item 3. Legal Proceedings
The Company is not presently involved in any litigation, nor, to its
knowledge, is any litigation threatened against the Company or its subsidiaries,
that in management's opinion would result in any material adverse effect on the
Company's ownership, management or operation of its properties, or which is not
covered by the Company's liability insurance.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held an annual meeting of stockholders on October 9, 2003,
at which the following matters were voted upon:
1. Election of three directors.
2. Approval of issuance of stock.
3. Approval of an amendment to the 1998 Stock Option Plan
4. Approval of merger of Cedar Bay Realty Advisors, Inc. and SKR
Management Corp. into the Company and Brentway Management, LLC
into Cedar Shopping Centers Partnership, L.P.
5. Authorize amendments to articles of incorporation to effect a
reverse stock split, declassify the Board of Directors, and
increase ownership limit of the Company's stock.
6. Approval of appointment of Ernst & Young, LLP as independent
auditors for the fiscal year ending December 31, 2003.
The results of the meeting were as follows:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
Proposal 1:
James J. Burns 1,315,160 22,772
Richard Homburg 1,317,186 20,747
Everett B. Miller 1,315,160 22,772
Proposal 2:
Issuance of Stock 1,004,198 60,296 7,890 265,549
Proposal 3:
Amendment to Employee
Stock Option Plan 974,854 91,814 6,516 264,749
Proposal 4:
Mergers 1,000,252 65,753 7,179 264,749
Proposal 5:
Amendments to Articles of
Incorporation 1,032,415 30,088 10,681 264,749
Proposal 6:
Independent Auditors 1,318,528 6,506 12,899
18
Messrs. Leo S. Ullman, Frank Matheson and J.A.M.H. der Kinderen and Ms. Brenda
Walker continued as directors after the meeting.
Directors and Executive Officers of the Company
Information regarding our directors and executive officers is set forth below:
Name Age Position
- --------------------------------------------------------------------------------------------------------------------
Leo S. Ullman 64 Chairman of the Board of Directors, Chief Executive Officer and President
Brenda J. Walker 51 Director and Vice President
James J. Burns 64 Director
Johannes A.M.H. der Kinderen 63 Director
Richard Homburg 54 Director
Everett B. Miller, III 58 Director
Roger M. Widmann 64 Director
Thomas J. O'Keeffe 59 Chief Financial Officer
Thomas B. Richey 48 Vice President and Director of Development and Construction Services
Stuart H. Widowski 43 Secretary and General Counsel
Leo S. Ullman, chief executive officer, president and chairman of the
board of directors, has been involved in real estate property and asset
management for approximately twenty-five years. He was chairman and president of
SKR and chairman of Brentway from 1994 (and its predecessors since 1978), and
president of CBRA since the latter company's formation in January 1998. He is
also president and sole director of a number of companies affiliated with CBC.
Mr. Ullman was first elected as the Company's chairman in April 1998 and served
until November 1999. He was re-elected in December 2000. Mr. Ullman also has
been chief executive officer and president from April 1998 to date. He has been
a member of the New York Bar since 1966 and was in private legal practice until
1998. From 1984 until 1993, he was a partner in the New York law firm of Reid &
Priest, and served as initial director of its real estate group. Mr. Ullman
received an A.B. from Harvard University and a J.D. and M.B.A. from Columbia
University.
Brenda J. Walker, has been vice president and a director since 1998,
and was treasurer from April 1998 until November 1999. She was president of
Brentway and vice president of SKR from 1994; vice president of API Management
Services Corp. and API Asset Management, Inc. from 1992 through 1995; and vice
president of CBRA from 1998. Ms. Walker has been involved in real estate
property and asset management for more than twenty years. Ms. Walker received a
B.A. from Lincoln University.
19
James J. Burns, a director since 2001, has been chief financial officer
and senior vice president of Wellsford Real Properties, Inc. since December
2000. He joined Wellsford in October 1999 as chief accounting officer upon his
retirement from Ernst & Young in September 1999. At Ernst & Young, Mr. Burns was
a senior audit partner in the E&Y Kenneth Leventhal Real Estate Group for 22
years. Mr. Burns also serves as a director of One Liberty Properties, Inc., a
REIT listed on the New York Stock Exchange. Mr. Burns is a certified public
accountant and a member of the American Institute of Certified Public
Accountants.
Johannes A.M.H. der Kinderen, a director since 1998, was the director
of investments from 1984 through 1994 for Rabobank Pension Fund, and has been or
is chairman and/or a member of the board of the following entities: Noord
Amerika Real Estate B.V. (1995-to date); Noord Amerika Vast Goed B.V. (1985-to
date); Mass Mutual Pierson (M.M.P.) (1988 to 1997); Warner Building Corporation
(1996 to date); GIM Vastgoed (1998 to date); Fellion Investments B.V. (2001 to
date); and N.V. Maatschappij voor Trustzaken Ameuro (2002 to date).
Richard Homburg, a director and chairman from November 1999 to August
2000, and a director again since December 2002, was born and educated in the
Netherlands. Mr. Homburg was the president and CEO of Uni-Invest N.V., a
publicly listed Dutch real estate fund from 1991 until 2000. In 2002, an
investment group purchased 100% of the shares of Uni-Invest N.V., taking it
private, at which time it was one of the largest real estate funds in the
Netherlands with assets of approximately $2.5 billion CDN. Mr. Homburg is
chairman and CEO of Homburg Invest Inc. and president of Homburg Invest USA Inc.
(a wholly-owned subsidiary of Homburg Invest Inc.). In addition to his varied
business interests, Mr. Homburg has served on many boards, including as past
president and director of the Investment Property Owners of Nova Scotia,
Evangeline Trust and World Trade Center in Eindhoven, the Netherlands, and also
has sat on the board of directors or advisory boards of large charitable
organizations.
Everett B. Miller, III, a director since 1998, is vice president of
alternative investments at YMCA Retirement Fund. In March 2003, Mr. Miller was
appointed to the Real Estate Advisory Committee of the New York State Common
Retirement Fund. Prior to his retirement from Commonfund Realty, Inc., a
registered investment advisor, and his appointment to the board of directors of
such company in May 2002, Mr. Miller served as the chief operating officer of
that company from 1997 until May 2002. Prior to such time, commencing in March
1997, Mr. Miller was the senior vice president and chief executive officer of
two privately held REITs, Endowment Realty Investors and Endowment Realty
Investors II, sponsored by Commonfund, which is located in Wilton, Connecticut.
From January 1995 through March 1997, Mr. Miller was the principal investment
officer for real estate and alternative investment at the Office of the
Treasurer of the State of Connecticut. Before that, Mr. Miller was employed for
eighteen years at affiliates of the Travelers Insurance Company, at which his
last position was senior vice president of the Travelers Realty
Investment Company.
20
Roger M. Widmann, a director since October 2003, is a principal of the
investment banking firm of Tanner & Co., Inc., which specializes in providing
advice to corporations ranging from Fortune 200 companies to mid-sized firms.
From 1986 to 1995, Mr. Widmann was a senior managing director of Chemical
Securities Inc., a subsidiary of Chemical Banking Corporation (now JPMorgan
Chase Corporation). Prior to joining Chemical Securities Inc., Mr. Widmann was a
founder and managing director of First Reserve Corporation, the largest
independent energy investing firm in the U.S. Previously, he was senior vice
president with the investment banking firm of Donaldson, Lufkin & Jenrette,
responsible for the firm's domestic and international investment banking
business. He has also been a vice president with New Court Securities
Corporation (now Rothschild, Inc.). Mr. Widmann is a senior moderator of the
Executive Seminar in the Humanities at The Aspen Institute, is Chairman of
Lydall, Inc. (NYSE), Manchester, Connecticut, a manufacturer of thermal,
acoustical and filtration materials, and is president of the March of Dimes of
Greater New York.
Thomas J. O'Keeffe, joined the Company in November 2002 as the chief
financial officer. Prior to joining, Mr. O'Keeffe served as a financial
consultant from 1997 to 2002, as chief financial officer of Bradley Real Estate,
Inc., a shopping center REIT, from 1985 to 1996, as chief financial officer of
R.M. Bradley & Co., Inc., a full service real estate management company from
1981 to 1997, and as audit manager for Deloitte & Touche from 1975 to 1981. Mr.
O'Keeffe, a certified public accountant, is also a director of the John
Fitzgerald Kennedy Library Foundation and serves on its executive, audit and
investment committees. Mr. O'Keeffe received a B.S.A. from Bentley College and
an M.B.A. from Babson College.
Thomas B. Richey, joined the Company in 1998 as vice president and
director of development and construction services. Mr. Richey has been involved
in the real estate business for approximately 25 years. He served as director of
a historic site service project in Muncy, Pennsylvania, from 1978 through 1980,
and as economic development director of the city of Williamsport, Pennsylvania,
from 1980 through 1983. From 1983 to 1986, Mr. Richey was involved with
acquisitions and construction for Lundy Construction Company and for Shawnee
Management Inc. From 1988 through 1996, Mr. Richey was a partner in two
companies involved in renovating and providing other services to hotel
properties. From 1996 through 1998, Mr. Richey was business and project manager
for Grove Associates, Inc., an engineering and surveying company. Mr. Richey
received a B.A. from Lycoming College.
Stuart H. Widowski, joined the Company in 1996 as vice president and
general counsel. He was in private practice for seven years, including five
years with the law firm of Reid & Priest in New York, New York. From 1991
through 1996, Mr. Widowski served in the legal department of the Federal Deposit
Insurance Corporation. Mr. Widowski received a B.A. from Brandeis University and
a J.D. from the University of Michigan.
21
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Dividend Information
A corporation electing REIT status is required to distribute at least
90% of its "REIT taxable income", as defined in the Code, to continue
qualification as a REIT. The Company was not required to, and did not, pay
dividends in 2003 or 2002. On January 27, 2004, the Company's Board of Directors
approved a dividend of $0.16 per share, which was paid on February 16, 2004 to
shareholders of record as of February 9, 2004. This amount reflects an annual
dividend rate of $0.90 per share, which was the estimated dividend rate set
forth in the Offering prospectus. While the Company intends to continue paying
regular quarterly dividends, future dividend declarations will be at the
discretion of the Board of Directors, and will depend on the cash flow and
financial condition of the Company, capital requirements, annual distribution
requirements, where applicable, under the REIT provisions of the Code, covenant
limitations under our revolving line of credit, and such other factors as the
Board of Directors deems relevant.
Market Information
The Company had 16,456,011 shares of common stock outstanding held by
292 shareholders of record at December 31, 2003. The Company believes it has
more than 2,000 beneficial holders of its common stock. The Company's shares
trade on the NYSE under the symbol "CDR". Prior to the Offering and the
Company's listing on the NYSE, the Company's shares were thinly traded on the
NASDAQ small cap market, and as such, the price could vary significantly
depending on the size and the "spread" between the inside bid and asked
quotations and the quantity of shares actually being traded. The following table
sets forth the high, low, and closing prices of the Company's stock during each
quarter for last two years. All share and per share data have been adjusted to
reflect the 2-for-1 stock split that was paid as a stock dividend on July 14,
2003 and the 1-for-6 reverse stock split effectuated on October 20, 2003.
Market Price Range
Quarter Ended High Low Close
- ------------------ --------------------------
2003
----
March 31 $18.69 $12.66 $16.41
June 30 17.81 12.97 16.39
September 30 31.19 12.50 23.26
December 31 23.31 11.28 12.42
2002
----
March 31 $15.16 $13.28 $14.81
June 30 27.50 14.81 15.66
September 30 20.25 11.09 13.22
December 31 13.44 8.16 12.50
22
Item 6. Selected Financial Data
Years ended December 31,
--------------------------------------------------------------------
Operations statement data 2003 2002 2001 2000 1999
------- -------- -------- -------- -------
Revenues
Rents and expense recoveries $ 26,279,000 $ 12,964,000 $ 4,817,000 $ 3,037,000 $ 2,489,000
Interest and other 227,000 25,000 282,000 179,000 26,000
-------------- ------------ ------------ ------------ ------------
Total revenues 26,506,000 12,989,000 5,099,000 3,216,000 2,515,000
-------------- ------------ ------------ ------------ ------------
Expenses
Operating, maintenance and management 7,190,000 3,158,000 1,091,000 745,000 587,000
Real estate and other property-related taxes 2,861,000 1,527,000 494,000 308,000 259,000
General and administrative 3,161,000 1,160,000 731,000 635,000 669,000
Depreciation and amortization 5,023,000 2,546,000 991,000 622,000 493,000
Interest 9,412,000 5,523,000 1,888,000 604,000 128,000
Costs incured in acquiring external advisor 11,960,000 - - - -
Early extinguishment of debt 6,935,000 487,000 264,000 50,000 -
Other 1,893,000 - - - -
-------------- ------------ ------------ ------------ ------------
Total expenses 48,435,000 14,401,000 5,459,000 2,964,000 2,136,000
-------------- ------------ ------------ ------------ ------------
(Loss) income before the following: (21,929,000) (1,412,000) (360,000) 252,000 379,000
Minority interest (983,000) (159,000) (44,000) 8,000 -
Limited partners' interest in consolidated Operating
Partnership 1,637,000 1,152,000 263,000 (160,000) (315,000)
Distributions on Preferred OP Units
(net of limited partners' interest of $178,000) (76,000) - - - -
Loss on impairment - - (1,342,000) (204,000) -
(Loss) gain on sale of properties - (49,000) 1,342,000 91,000 -
-------------- ------------ ------------ ------------ ------------
Net (loss) income before cumulative effect adjustment (21,351,000) (468,000) (141,000) (13,000) 64,000
Cumulative effect of change in accounting principles
(net of limited partners' interest of $15,000) - - (6,000) - -
-------------- ------------ ------------ ------------ ------------
Net (loss) income $ (21,351,000) $ (468,000) $ (147,000) $ (13,000) $ 64,000
============== ============ ============ ============ ============
Per share:
Net (loss) income before cumulative effect adjustment ($7.09) ($2.03) ($0.61) ($0.04) $0.32
Cumulative effect of change in accounting principles 0.00 0.00 (0.03) 0.00 0.00
-------------- ------------ ------------ ------------ ------------
Net (loss) income before cumulative effect adjustment ($7.09) ($2.03) ($0.64) ($0.04) $0.32
============== ============ ============ ============ ============
Dividends to shareholders $ - $ - $ - $ 268,000 $ 257,000
Dividends to shareholders per share $ - $ - $ - $ 0.92 $ 1.30
Average number of shares outstanding 3,010,000 231,000 231,000 290,000 198,000
23
Item 6. Selected Financial Data (continued)
As Of December 31,
-------------------------------------------------------------------------------------
Balance Sheet Data 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Land, buildings and improvements,
net of accumulated $ 318,624,000 $121,238,000 $ 56,948,000 $ 24,095,000 $13,995,000
Real estate held for sale - - 4,402,000 1,850,000 -
Other assets 22,683,000 11,900,000 7,000,000 9,622,000 2,698,000
------------- ------------ ------------ ------------ -----------
Total assets $341,307,000 $133,138,000 $ 68,350,000 $ 35,567,000 $16,693,000
============= ============ ============ ============ ===========
Mortgages and other loans payable $ 161,983,000 $101,001,000 $ 52,110,000 $ 19,416,000 $ 1,347,000
Other liabilities 11,706,000 7,765,000 1,374,000 803,000 542,000
Minority interests 12,435,000 10,238,000 2,235,000 2,291,000 -
Limited partners' interest in consolidated
Operating Partnership 4,035,000 7,889,000 8,964,000 9,242,000 9,561,000
Preferred OP Units - 3,000,000 - - -
Shareholders' equity 151,148,000 3,245,000 3,667,000 3,815,000 5,243,000
------------- ------------ ------------ ------------ -----------
Total liabilities and shareholders' equity $ 341,307,000 $133,138,000 $ 68,350,000 $ 35,567,000 $16,693,000
============= ============ ============ ============ ===========
Funds From Operations (1) $ (20,537,000) $ (451,000) $ 153,000 $ 754,000 $ 872,000
Total properties - square feet 3,499,000 1,806,000 807,000 484,000 298,000
Total properties - percent leased 88% 92% 92% 83% 92%
(1) See Item 7 - "Operating Activities" for discussion of Funds From Operations
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
historical financial statements of the Company and the related notes thereto.
Executive Summary
The Company is a fully integrated, self-administered and self-managed
real estate company. As of December 31, 2003, the Company had a portfolio of 22
properties totaling approximately 3.5 million square feet of GLA, including 16
wholly-owned properties comprising approximately 2.8 million square feet of GLA
and six properties owned through joint ventures comprising approximately 700,000
square feet of GLA. The portfolio, excluding three properties currently under
redevelopment, was approximately 95% leased as of that date.
The Company, organized as a Maryland corporation, has established an
umbrella partnership structure through the contribution of substantially all of
its assets to the Operating Partnership. On December 31, 2003, the Company owned
approximately 97.4% of the Operating Partnership, is its sole general partner,
and through which it conducts all of its business. OP units are economically
equivalent to the Company's common stock and are convertible into the Company's
common stock at the option of the holders on a one-for-one basis.
24
The Company derives substantially all of its revenues from rents and
expense reimbursements received pursuant to long term leases. The Company's
operating results therefore depend on the ability of its tenants to make the
payments required by the terms of their leases. The Company focuses its
investment activities on community and neighborhood shopping centers, anchored
principally by regional and national grocery store chains. The Company believes,
because of the need of consumers to purchase food and other staple goods and
services generally available at supermarket anchored shopping centers, that the
nature of its investments provide for relatively stable revenue flows even
during difficult economic times.
The Company continues to seek acquisition opportunities where 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 would also consider investment opportunities in markets
beyond the Pennsylvania, New Jersey, Connecticut and Maryland areas in the event
such opportunities were consistent with its focus, could be effectively
controlled and managed by it, and provided that the investment has the potential
for favorable investment returns and can contribute to increased shareholder
value.
Summary of Critical Accounting Policies
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States ("GAAP")
requires the Company 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, the Company has identified the
following critical accounting policies, the application of which requires
significant judgments and estimates.
On an ongoing basis, management evaluates its 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 the consolidated financial statements. Management's estimates are
based on information that is currently available and on various other
assumptions management believes 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 respective terms 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 rents and other receivables on
the consolidated balance sheet. Leases generally contain provisions under which
the tenants reimburse the Company for a portion of property operating expenses
and real estate taxes incurred. In addition, certain 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. The Company
defers recognition of contingent rental income until those specified targets are
met.
The Company must make estimates as to the collectibility of its
accounts receivable related to minimum rent, straight-line rent, expense
reimbursements and other revenues. Management analyzes accounts receivable and
historical bad debts, tenant creditworthiness, current economic trends and
changes in the tenants' payment patterns when evaluating the adequacy of the
allowance for doubtful accounts receivable. These estimates have a direct impact
on net income, because a higher bad debt allowance would result in lower net
income.
25
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.
The Company is required to make subjective estimates as to the useful
lives of its 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.
Effective January 1, 2002, the Company adopted, on a prospective basis,
Statement of Accounting Standard ("SFAS") No. 141 "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangibles". In connection therewith, the
fair value of the real estate acquired is allocated to land, building and
building improvements. The fair value of in-place leases, consisting of above
and below market rents, tenant relationships, and other intangibles is allocated
to intangible assets and liabilities.
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.
The value of in-place leases 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. Above 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 the contractual amounts to be
received and management's estimate of fair market lease rates, measured over the
non-cancelable terms. This aggregate value is allocated between above and below
market lease rates, tenant relationships, and other intangibles based on
management's evaluation of the specific characteristics of each lease.
The value of tenant relationships and other intangibles is amortized to
expense, and the above and below market lease values is amortized to rental
income over the remaining non-cancelable terms 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 immediately recognized in earnings.
The Company applies SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" to recognize and measure impairment of long-lived
assets. Management reviews 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 an
impairment event 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 estimated fair value,
less cost to sell. Depreciation and amortization are suspended during the period
held for sale. Management is required to make subjective assessments as to
whether there are impairments in the value of its 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.
26
Hedging Activities
From time to time, the Company uses derivative financial instruments to
manage its exposure to changes in interest rates. Derivative instruments are
carried on the consolidated balance sheet at their estimated fair values. Any
change in the value of a derivative is reported as accumulated other
comprehensive income or loss, whereas the ineffective portion of a derivative's
change in fair value is immediately recognized in earnings. 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 accumulated other
comprehensive income or loss could be affected.
27
Results of Operations
Comparison of 2003 to 2002
Schedule of changes in revenues and expenses
Properties
Increase Percentage Acquisitions/ held in
2003 2002 (decrease) change dispositions both years
------ ------ ---------- ----------- --------------- -----------
Rents and expense recoveries $26,279,000 $12,964,000 $13,315,000 103% $12,686,000 $629,000
Property expenses 10,051,000 4,685,000 5,366,000 115% 4,780,000 586,000
Depreciation and amortization 5,023,000 2,546,000 2,477,000 97% 2,311,000 166,000
Interest expense 9,412,000 5,523,000 3,889,000 70% 3,947,000 (58,000)
General and administrative 3,161,000 1,160,000 2,001,000 173%
Costs incurred in acquiring external advisor 11,960,000 - 11,960,000 N/A
Early extinguishment of debt 6,935,000 487,000 6,448,000 1324%
Other 1,893,000 - 1,893,000 N/A
Acquisitions/dispositions. Differences in results of operations between
2003 and 2002 were driven largely by the transactions in connection with the
Offering described elsewhere in this report and acquisition activity. During
2003, the Company acquired 14 shopping centers aggregating approximately 1.7
million square feet of GLA for a total cost of approximately $193.4 million,
including closing costs, and the assumption of a $9.8 million mortgage. In
addition the Company also completed the acquisition of the remaining 50%
interest in The Point for a purchase price of $2.4 million. Net loss before
minority interest, limited partners' interest, gain (loss) on sale of
properties, and Preferred OP Unit distributions increased from $1.4 million in
2002 to $21.9 million in 2003.
Properties held in both years. The Company held four properties
throughout both 2003 and 2002. The increase in revenues and operating expenses
for the four properties is attributable to an increased occupancy rate during
2003 as compared to 2002. (97% at December 31, 2003 versus 90% at December 31
2002) Interest expense declined as a result of lower debt levels achieved
through scheduled principal amortization.
General and administrative expenses. General and administrative
expenses increased from approximately $1.2 million in 2002 to approximately $3.2
million in 2003. The increase is primarily the result of the Company's growth
throughout both years.
Costs incurred in acquiring external advisor. During the fourth quarter
of 2003, the Company completed an Offering of 15,250,000 shares of its common
stock at a price of $11.50 per share pursuant to a registration statement filed
with the Securities and Exchange Commission, and received approximately $162.5
million after underwriting fees and Offering costs. Contemporaneously with the
Offering, the Company merged with its advisor and became self-advised and
self-managed. The total consideration for the merger was $11.96 million
(1,040,000 shares of stock and OP Units) at the public offering price of $11.50
per share/unit. The Company accounted for the merger as the termination of a
contract and accordingly the full consideration was charged to operations.
Early extinguishment of debt. In connection with the Offering, the
Company refinanced certain of its debt financings and defeased a mortgage in
connection with a property acquisition for an aggregate cost of approximately
$6.9 million, which was charged to operations during 2003.
28
Other. The Company redeemed the $3 million Preferred OP Units for $3.96
million of which $960,000 was charged to operations during 2003. In connection
with the distribution of shares to certain non-executive employees, the
Company's chairman and the principal owner of the advisory companies agreed to
reimburse these employees for the personal income taxes incurred as a result of
receiving the shares. Prior to December 31, 2003, the chairman contributed
$633,000 to the Company which was credited to shareholders' equity and charged
to operations during 2003.
Comparison of 2002 to 2001
Schedule of changes in revenues and expenses
Properties
Increase Percentage Acquisitions/ held in
2002 2001 (decrease) change dispositions both years
------------ ---------- ----------- ------------- -------------- -------------
Rents and expense recoveries $12,964,000 $4,817,000 $8,147,000 169% $7,304,000 $843,000
Property expenses 4,685,000 1,585,000 3,100,000 196% 2,906,000 194,000
Depreciation and amortization 2,546,000 991,000 1,555,000 157% 1,195,000 360,000
Interest expense 5,523,000 1,888,000 3,635,000 193% 3,531,000 104,000
General and administrative 1,160,000 731,000 429,000 59% N/A N/A
Acquisitions and dispositions. Differences in results of operations
between 2002 and 2001 were driven largely by the Company's acquisition and
disposition activity. At December 31, 2002, the Company owned eight properties.
During 2002, the Company acquired three shopping centers aggregating
approximately 1,039,000 square feet of GLA and the land for a 41,000 square foot
LA Fitness facility for an aggregate cost of approximately $61 million. During
May 2002, the Company sold its last office building for a net sales price of
$4.4 million. Net loss before minority interest, limited partners' interest,
gain (loss) on sale of properties, and Preferred OP Unit distributions increased
from $360,000 in 2001 to $1.4 million in 2002.
Properties held in both years. Results of operations for properties
held throughout both 2002 and 2001 included one property. Revenues and property
operating expenses increased as a redevelopment project started in August 2001
was fully in service during 2002. Interest expense increased as a result of
financing the redevelopment costs.
General and administrative expenses. General and administrative
expenses increased from $731,000 in 2001 to approximately $1.2 million in 2002.
The increase was primarily the result of the Company's growth throughout both
years.
29
Liquidity and Capital Resources
The Company funds operating expenses and other short-term liquidity
requirements including debt service payments, tenant improvements, leasing
commissions, and dividend distributions primarily from operating cash flows,
although, if needed, the Company may also use its line of credit for these
purposes. The Company expects to fund long-term liquidity requirements for
property acquisitions, redevelopment costs and capital improvements, initially
with its line of credit and ultimately through a combination of issuing
additional mortgage debt and equity securities. The Company may also acquire
properties through the issuance of limited partnership Units of the Operating
Partnership.
Under the terms of its three-year syndicated secured revolving credit
facility with Fleet National Bank as agent, the Company will have available,
subject to certain covenants and collateral requirements, $100 million on a
revolving basis. As of March 26, 2004, based on collateral in place, the Company
is permitted to draw up to approximately $70 million. Borrowings under the
facility will incur interest at a rate of LIBOR plus 225 basis points, ("bps"),
subject to increases to a maximum of 275 bps depending upon the Company's
overall leverage. The credit facility may be used to fund acquisitions,
re-development activities, capital expenditures, mortgage repayments, dividend
distributions, and for general corporate purposes.
At December 31, 2003, the Company's financial liquidity was provided by
$6.2 million in cash and cash equivalents and by the line of credit. Mortgage
debt outstanding at December 31, 2003 consisted of fixed-rate notes totaling
$110.2 million and floating rate debt totaling $34.8 million, with a combined
weighted average interest rate of 6.6%, and maturing at various dates through
2013.
In March 2004, the Company acquired two properties aggregating
approximately 406,000 square feet of GLA. The properties cost approximately
$34.5 million, including closing costs. Funding was provided by the Company's
line of credit and by the assumption of a $10.0 million first mortgage.
Portions of the Company's assets are owned through joint venture
partnership arrangements which require, among other things, that the Company
maintain separate cash accounts for the operations of the joint venture
partnerships. The terms of certain of the Company's mortgage agreements require
it to deposit replacement and other reserves with its lenders. These joint
venture and reserve accounts are separately classified on the Company's balance
sheet as restricted cash and are available for the specific purpose for which
they were established; they are not available to fund other Company obligations.
30
Contractual obligations and commercial commitments
The following table sets forth the Company's significant debt repayment
and operating lease obligations at December 31, 2003 (in thousands):
2004 2005 2006 2007 2008 Thereafter Total
-------- --------- -------- -------- -------- ----------- --------
Mortgage notes payable $ 21,200 $ 13,500 $ 2,200 $12,000 $ 20,900 $ 75,200 $ 145,000
Line of credit - - 17,000 - - 17,000
Operating lease obligations 301 306 307 281 129 8,049 9,373
-------- -------- ------- ------- -------- -------- ---------
Total $ 21,501 $ 13,806 $ 2,507 $29,281 $ 21,029 $ 83,249 $ 171,373
======== ======== ======= ======= ======== ======== =========
Net Cash Flows
Operating Activities
Net cash flows used in operating activities amounted to ($4.9 million)
during 2003 compared to cash flows provided by operating activities of $1.3
million during 2002 and $0.6 million during 2001. The 2003 change in operating
cash flows is primarily due to transactions associated with the Offering,
including debt defeasance costs, the cost of interim financing associated with
the property acquisition program, and costs above par value to redeem Preferred
OP Units (see note 2 to the consolidated financial statements). These cash flows
used in operating activities are offset, in part, by net revenues generated from
property acquisitions. During 2002 and 2001, the change in cash flows from
operating activities was primarily the result of net revenues generated by the
Company's property acquisition program.
Investing Activities
Net cash flows used in investing activities increased to $199.9 million
in 2003 from $40.5 million during 2002, and $2.1 million in 2001. These
increases are the result of an active acquisition program. Dring 2003, the
Company acquired 12 shopping centers and two redevelopment properties; during
2002, the Company acquired three shopping centers and one redevelopment
property; and during 2001, the Company acquired three shopping centers. During
2002, the Company sold one property for net proceeds of $4.4 million and during
2001, the Company sold two properties for net proceeds of $6.6 million.
Financing Activities
Net cash flows provided by financing activities increased to $207.1
million in 2003 from $40.8 million in 2002 and $3.4 million in 2001. The
increase in 2003 is primarily due to the $162.5 million net proceeds from the
Offering, $49.3 million net proceeds from mortgage financings, net capital
contributions from minority interest partners of $8.8 million, net proceeds from
the Company's line of credit and interim financings of $10.5 million, offset by
$12.0 million in redemptions of OP Units, other financing costs of $4.3 million,
and the repayment of mortgage obligations of $7.7 million. During 2002, the
Company received $32.7 million in mortgage financings, $9.0 million in minority
interest capital contributions and $3.0 million from the issuance of Preferred
OP Units. During 2001 the Company received $4.5 million from mortgage
financings.
Funds From Operations
The Company considers Funds From Operations ("FFO") to be a relevant
and meaningful supplemental measure of the performance of the Company because it
is predicated on a cash flow analysis, contrasted with net income, a measure
predicated on GAAP, which gives effect to non-cash items such as depreciation.
The Company computes FFO in accordance with the "White Paper" on FFO published
by the National Association of Real Estate Investment Trusts ("NAREIT"), as
income before allocation to minority interests (computed in accordance with
GAAP), excluding gains or losses from debt restructurings and sales of property,
plus depreciation and amortization, and after preferred stock distributions and
adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are computed to reflect FFO on
the same basis. In computing FFO, the Company does not add back to net income
the amortization of costs incurred in connection with its financing activities
or depreciation of non-real estate assets, but does add back to net income those
items that are defined as "extraordinary" under GAAP. FFO does not represent
cash generated from operating activities in accordance with GAAP and should not
be considered as an alternative to cash flow as a measure of liquidity. Since
the NAREIT White Paper only provides guidelines for computing FFO, the
computation of FFO may vary from one company to another. FFO is not necessarily
indicative of cash available to fund ongoing cash needs. The following table
sets forth the Company's calculations of FFO for the years ended December 31:
2003 2002 2001
------------ ------------- -----------
Net (loss) $(21,351,000) $ (468,000) $ (147,000)
Add (deduct):
Depreciation 3,751,000 1,720,000 697,000
Limited partners' interest (1,637,000) (1,152,000) (263,000)
Impairment loss - - 1,342,000
Loss (gain) on sale of real estate - 49,000 (1,342,000)
Minority interests 983,000 159,000 44,000
Amount distributable to minority partners (2,283,000) (759,000) (178,000)
------------ ---------- ---------
Funds (used in) from operations $(20,537,000) $ (451,000) $ 153,000
============ ========== =========
Weighted average shares/units outstanding 3,557,000 799,000 799,000
31
Inflation
Low to moderate levels of inflation during the past several years have
favorably impacted the Company's operations by stabilizing operating expenses.
At the same time, low inflation had an indirect effect of reducing the Company's
ability to increase tenant rents. The Company's properties have tenants whose
leases include expense reimbursements and other provisions to minimize the
effect of inflation. These factors, in the long run, are expected to result in
more attractive returns from the Company's real estate portfolio as compared to
short-term investment vehicles.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The primary market risk facing the Company is interest rate risk on its
mortgages and loans 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 through (i)
the line of credit used to maintain liquidity, fund capital expenditures and
expand its real estate investment portfolio, and (ii) floating rate 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's interest rate risk is monitored using a variety of
techniques. As of December 31, 2003, long-term debt consisted of fixed-rate
secured mortgage indebtedness, variable-rate secured mortgage indebtedness, and
a variable-rate line of credit facility. The average interest rate on the $110.2
million of fixed rate indebtedness outstanding was 7.2%, with maturities at
various dates through 2013. The weighted average interest rate on the Company's
$34.8 million of variable-rate debt was 4.6%, with maturities at various dates
through 2007.
32
Item 8. Financial Statements and Supplemental Data
Report of Independent Auditors....................................................... 34
Consolidated Balance Sheets as of December 31, 2003 and
December 31, 2002........................................................... 35
Consolidated Statements of Operations for the years ended December 31, 2003,
2002 and 2001............................................................... 36
Consolidated Statements of Shareholders' Equity for the years ended December 31,
2003, 2002 and 2001 ........................................................ 37
Consolidated Statements of Cash Flows for the years ended December 31, 2003,
2002 and 2001 .............................................................. 38
Notes to Consolidated Financial Statements........................................... 39-56
33
Report of Independent Auditors
The Board of Directors and Shareholders
Cedar Shopping Centers, Inc.
We have audited the accompanying consolidated balance sheets of Cedar
Shopping Centers, Inc. as of December 31, 2003 and 2002, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2003. We have also
audited the financial statement schedule listed in the Index at Item 15(a).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cedar
Shopping Centers, Inc. at December 31, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Ernst & Young, LLP
----------------------
New York, NY
March 26, 2004
34
Cedar Shopping Centers, Inc
Consolidated Balance Sheets
December 31, December 31,
2003 2002
------------ ------------
Assets
Real estate
Land $ 61,717,000 $ 24,741,000
Buildings and improvements 263,054,000 98,893,000
------------ ------------
324,771,000 123,634,000
Less accumulated depreciation (6,147,000) (2,396,000)
------------ ------------
Real estate, net 318,624,000 121,238,000
Cash and cash equivalents 6,154,000 3,827,000
Cash at joint ventures and restricted cash 6,208,000 2,883,000
Rents and other receivables, net 3,269,000 736,000
Other assets 3,773,000 1,467,000
Deferred charges, net 3,279,000 2,987,000
------------ ------------
Total Assets $341,307,000 $133,138,000
============ ============
Liabilities and Shareholders' Equity
Mortgage loans payable $144,983,000 $93,537,000
Loans payable 17,000,000 7,464,000
Accounts payable, accrued expenses, and other 5,616,000 2,570,000
Deferred liabilities 6,090,000 5,195,000
------------ ------------
Total Liabilities 173,689,000 108,766,000
------------ ------------
Minority interest 12,435,000 10,238,000
Limited partners' interest in consolidated
Operating Partnership 4,035,000 7,889,000
Series A preferred 9% convertible, redeemable
Operating Partnership Units - 3,000,000
------------ ------------
16,470,000 10,889,000
Shareholders' Equity
Common stock ($0.06 par value, 50,000,000 shares
authorized, 16,456,000 and 232,000 shares issued
and outstanding, respectively) 987,000 14,000
Treasury stock (319,000 shares, at cost) (3,669,000) -
Accumulated other comprehensive gain (loss) 47,000 (65,000)
Additional paid-in capital 153,783,000 3,296,000
------------ ------------
Total Shareholders' Equity 151,148,000 3,245,000
------------ ------------
Total Liabilities and Shareholders' Equity $341,307,000 $133,138,000
============ ============
See accompanying notes to consolidated financial statements.
35
Cedar Shopping Centers, Inc
Consolidated Statements of Operations
For the years ended December 31,
2003 2002 2001
----------- ----------- -----------
Revenues
Rents $ 20,770,000 $ 9,974,000 $ 3,913,000
Expense recoveries 5,509,000 2,990,000 904,000
Interest and other 227,000 25,000 282,000
------------ ----------- -----------
Total revenues 26,506,000 12,989,000 5,099,000
------------ ----------- -----------
Expenses
Operating, maintenance and management 7,190,000 3,158,000 1,091,000
Real estate and other property-related taxes 2,861,000 1,527,000 494,000
General and administrative 3,161,000 1,160,000 731,000
Depreciation and amortization 5,023,000 2,546,000 991,000
Interest 9,412,000 5,523,000 1,888,000
Costs incurred in acquiring external advisor (see Note 2) 11,960,000 - -
Early extinguishment of debt (see Note 2) 6,935,000 487,000 264,000
Other (see Note 2) 1,893,000 - -
------------ ----------- -----------
Total expenses 48,435,000 14,401,000 5,459,000
------------ ----------- -----------
Loss before the following: (21,929,000) (1,412,000) (360,000)
Minority interests (983,000) (159,000) (44,000)
Limited partners' interest 1,637,000 1,152,000 263,000
Distribution to preferred shareholders (net of
limited partners' interest of $178,000) (76,000) - -
Loss on impairment - - (1,342,000)
(Loss) gain on sale of properties - (49,000) 1,342,000
------------ ----------- -----------
Net loss before cumulative effect adjustment $(21,351,000) $ (468,000) $ (141,000)
Cumulative effect of change in accounting
principles (net of limited partners' interest of $15,000) - - (6,000)
------------ ----------- -----------
Net loss $(21,351,000) $ (468,000) $ (147,000)
============ ========== ==========
Per share:
Net loss before cumulative effect adjustment ($7.09) ($2.03) ($0.61)
Cumulative change in accounting principles - - (0.03)
------------ ----------- -----------
Net loss ($7.09) ($2.03) ($0.64)
============ ========== ==========
Average number of shares outstanding 3,010,000 231,000 231,000
See accompanying notes to consolidated financial statements.
36
Cedar Shopping Centers, Inc
Consolidated Statements of Shareholders' Equity
Common Stock Treasury Additional
-------------------------------- Stock, Paid-In
Shares Par Value At Cost Capital
---------------------------------------------------------------------------
Balance at December 31, 2000 232,000 $ 14,000 $ - $ 3,800,000
Net loss (147,000)
---------------------------------------------------------------------------
Balance at December 31, 2001 232,000 14,000 3,653,000
Net loss (468,000)
Unrealized loss on change in fair value of
cash flow hedge
Issuance of warrants 100,000
Conversion of OP Units to stock 11,000
---------------------------------------------------------------------------
Balance at December 31, 2002 232,000 14,000 3,296,000
Net loss (21,351,000)
Unrealized gain on change in fair value of
cash flow hedges
Issuance of warrants 70,000
Issuances of stock for services 6,000 95,000
Conversion of OP Units to stock 46,000 3,000 500,000
Conversion of stock to OP Units (46,000) (3,000) (500,000)
Proceeds from public offering 15,525,000 931,000 161,982,000
Redemption of limited partners' interest in
excess of basis (2,542,000)
Issuance of stock in connection with
acquiring external advisor 693,000 42,000 7,931,000
Contribution from Company's chairman
relating to employee payroll taxes 633,000
Deferred compensation program funded by
treasury stock (3,669,000) 3,669,000
---------------------------------------------------------------------------
Balance at December 31, 2003 16,456,000 $987,000 $(3,669,000) $153,783,000
===========================================================================
[RESTUBBED TABLE]
Accumulated
Other Total
Comprehensive Shareholders'
Gain (Loss) Equity
---------------------------------------
Balance at December 31, 2000 $ - $ 3,814,000
Net loss (147,000)
---------------------------------------
Balance at December 31, 2001 3,667,000
Net loss (468,000)
Unrealized loss on change in fair value of
cash flow hedge (65,000) (65,000)
Issuance of warrants 100,000
Conversion of OP Units to stock 11,000
---------------------------------------
Balance at December 31, 2002 (65,000) 3,245,000
Net loss (21,351,000)
Unrealized gain on change in fair value of
cash flow hedges 112,000 112,000
Issuance of warrants 70,000
Issuances of stock for services 95,000
Conversion of OP Units to stock 503,000
Conversion of stock to OP Units (503,000)
Proceeds from public offering 162,913,000
Redemption of limited partners' interest in
excess of basis (2,542,000)
Issuance of stock in connection with
acquiring external advisor 7,973,000
Contribution from Company's chairman
relating to employee payroll taxes 633,000
Deferred compensation program funded by
treasury stock -
---------------------------------------
Balance at December 31, 2003 $ 47,000 $151,148,000
=======================================
See accompanying notes to consolidated financial statements.
37
Cedar Shopping Centers, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
2003 2002 2001
------------- ----------- -----------
Cash Flow From Operating Activities
Net loss $ (21,351,000) $ (468,000) $ (147,000)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Non-cash provisions:
Acquisition of external advisor for stock and OP Units 11,960,000 - -
Minority interests 193,000 - -
Straight-line rents (739,000) (385,000) (48,000)
Limited partners' interests (1,637,000) (806,000) (75,000)
Early extinguishment of debt 1,442,000 487,000 264,000
Depreciation and amortization 5,023,000 2,546,000 991,000
Amortization of intangible lease liabilities (706,000) (146,000) -
Other 927,000 222,000 21,000
Changes in operating assets and liabilities:
Decrease (increase) in joint venture cash 225,000 (601,000) (108,000)
(Increase) decrease in rents and other receivables (1,794,000) (87,000) 39,000
(Increase) in other assets (1,470,000) (663,000) (832,000)
Increase in accounts payable and accrued expenses 3,046,000 1,199,000 531,000
------------- ----------- -----------
Net cash (used in) provided by operating activities (4,881,000) 1,298,000 636,000
------------- ----------- -----------
Cash Flow From Investing Activities
Expenditures for real estate and improvements (188,111,000) (44,584,000) (14,566,000)
(Increase) decrease in construction/improvement escrows (3,427,000) (252,000) 5,896,000
Acquisitions of minority interests (8,360,000) - -
Net proceeds from sales of properties - 4,353,000 6,562,000
------------- ----------- -----------
Net cash (used in) investing activities (199,898,000) (40,483,000) (2,108,000)
------------- ----------- -----------
Cash Flow from Financing Activities
Net proceeds from public offering 162,508,000 - -
Proceeds from mortgage financings 49,321,000 32,708,000 4,484,000
Mortgage repayments (7,700,000) (617,000) (111,000)
Line of credit and other interim financings 40,573,000 - -
Repayments of interim financings (30,037,000) - -
Contributions from minority interest partners 9,665,000 9,030,000 -
Distributions to minority interest partners (867,000) (1,026,000) (56,000)
Redemption of Operating Partnership Units (9,000,000) - -
Distributions on Preferred Operating Partnership Units (254,000) - -
(Redemption) sale of Preferred Operating Partnership Units (3,000,000) 3,000,000 -
Deferred financing costs and other, net (4,103,000) (2,328,000) (923,000)
------------- ----------- -----------
Net cash provided by financing activities 207,106,000 40,767,000 3,394,000
------------- ----------- -----------
Net increase in cash and cash equivalents 2,327,000 1,582,000 1,922,000
Cash and cash equivalents at beginning of the period 3,827,000 2,245,000 323,000
------------- ----------- -----------
Cash and cash equivalents at end of period $ 6,154,000 $ 3,827,000 $2,245,000
============= =========== ===========
Supplemental Disclosure of Cash Activities:
Interest paid $ 9,806,000 $ 5,144,000 $2,017,000
============= =========== ===========
Supplemental Disclosure of Non-Cash Financing Activities:
Conversion of debt to OP Units $ 1,000,000 $ - $ -
============= =========== ===========
Assumptions of mortgage loans payable $ 9,825,000 $16,800,000 $28,321,000
============= =========== ===========
See accompanying notes to consolidated financial statements.
38
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 1. Organization
Cedar Shopping Centers, Inc., formerly Cedar Income Fund, Ltd. (the
"Company"), was organized in 1984 and elected to be taxed as a real estate
investment trust ("REIT") in 1986. The Company focuses on the ownership,
operation and redevelopment of community and neighborhood shopping centers
located primarily in Pennsylvania, with additional properties in Connecticut,
Maryland and New Jersey. As of December 31, 2003, the Company owned 22
properties, aggregating approximately 3.5 million square feet of gross leasable
area ("GLA").
Cedar Shopping Centers Partnership, L.P., formerly Cedar Income Fund
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. As of December 31, 2003,
the Company owned approximately a 97.4% economic interest in, and is the sole
general partner of, the Operating Partnership. The limited partners' interest in
the Operating Partnership is adjusted at the end of the reporting period to an
amount equal to the limited partners' ownership percentage of the Operating
Partnership's net equity. Such ownership percentage was approximately 2.6% and
71.0% at December 31, 2003 and 2002, respectively.
As used herein, the "Company" refers to Cedar Shopping Centers, Inc.
and its subsidiaries on a consolidated basis, including the Operating
Partnership or, where the context so requires, Cedar Shopping Centers, Inc.
only.
Stock Split and Reverse Stock Split
On July 14, 2003, in order to maintain the minimum "float" requirement
for purposes of the Company's listing on the NASDAQ small cap market, the
Company paid a stock dividend of one new share for each share of common stock
outstanding to shareholders of record on July 7, 2003. On October 20, 2003, the
Company effectuated a one-for-six "reverse" stock split, intended to facilitate
efficient trading of the Company's stock in connection with the intended public
offering and listing of its shares on the New York Stock Exchange (see below).
The accompanying financial statements and all share and per share data have been
retroactively adjusted to give effect to the stock dividend and the reverse
stock split.
Note 2. Public Offering, New York Stock Exchange Listing, Related-Party
Transactions, Allocation of Costs and Expenses, and Pro Forma Financial
Information
Public Offering
In October 2003, the Company completed a public offering ("the
Offering") of 13,500,000 shares of its common stock at a price of $11.50 per
share pursuant to a registration statement filed with the Securities and
Exchange Commission, and received approximately $141,200,000 after underwriting
fees and Offering costs. The Company's shares were listed on the New York Stock
Exchange and commenced trading on October 24, 2003; the listing of the Company's
stock on the NASDAQ was simultaneously terminated. In November 2003, the
underwriter exercised its over-allotment option to purchase an additional
2,025,000 shares at $11.50 per share less underwriting fees, and the Company
received approximately $21,700,000.
39
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 2. Public Offering, New York Stock Exchange Listing, Related-Party
Transactions, Allocation of Costs and Expenses, and Pro Forma Financial
Information (continued)
Transactions with CBRA, SKR and Brentway, related parties
Prior to the Offering, the Company was externally advised and, in this
connection, Cedar Bay Realty Advisors, Inc. ("CBRA"), SKR Management Corp.
("SKR") and Brentway Management, LLC ("Brentway") (collectively the "external
advisor") provided advisory, management and legal services to the Company. The
Company paid fees in connection with these services of approximately $2.2
million, $1.9 million, and $1.4 million during 2003, 2002, and 2001,
respectively. Contemporaneously with the Offering, CBRA and SKR merged into the
Company and Brentway merged into the Operating Partnership. Each of the
Company's executive officers was also a principal or officer of the external
advisor and each became an employee of the Company together with the other
employees of the external advisor. An independent committee of the Board
retained a financial advisor who advised it as to the fairness from a financial
perspective of the consideration paid in connection with the merger. The merger
was also approved at the annual meeting of stockholders held on October 9, 2003;
approximately 93% of the shares voted were voted in favor of the merger. The
total consideration paid for the external advisor was $11.96 million, comprised
of 693,333 shares of the Company's common stock and 346,667 units of the
Operating Partnership ("OP Units"), each valued at $11.50 per share/unit and
such consideration was charged to operations during 2003. The consideration was
distributed to the owners, who are also executive officers of the Company, and
to other officers and employees of the Company. In connection with the merger,
an aggregate of 319,000 shares of the consideration with a value of $3.7 million
was transferred to a Rabbi Trust for the benefit of certain of the Company's
executive officers; such shares have been classified as treasury stock in the
Company's consolidated financial statements, and are accounted for pursuant to
Emerging Issues Task Force ("EITF") No. 97-14, "Accounting for Deferred
Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and
Invested". Also in connection with the merger, 90,000 shares, with an aggregate
value $1.04 million were distributed to non-executive employees. At the time the
aggregate consideration for the external advisor was being negotiated with the
independent committee of the Board, the Company's chairman and the principal
owner of the external advisor agreed to reimburse these non-executive employees
for their personal income taxes incurred as a result of receiving the shares.
The chairman paid $633,000 to the Company which in accordance with AIN-APB 25
"Accounting for Stock Issued to Employees", was credited to shareholders' equity
and charged to operations during 2003.
40
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 2. Public Offering, New York Stock Exchange Listing, Related-Party
Transactions, Allocation of Costs and Expenses, and Pro Forma Financial
Information (continued)
Transactions with CBC, a related party
Prior to the Offering, Cedar Bay Company ("CBC") owned approximately
78% of the Company's common stock and OP Units (comprised of approximately
63,000 shares of common stock and approximately 568,000 OP Units). CBC received
$9.0 million of the proceeds from the Offering in connection with the repurchase
all the OP Units owned by them ($15.85 per unit). The same financial advisor who
opined as to the fairness from a financial perspective of the consideration paid
for the merged entities also advised the independent committee of the Board as
to the fairness from a financial perspective of the consideration paid to CBC.
In May 2003, an affiliate of CBC loaned $750,000 to the Company, which
was used to partially fund the deposit requirement for the South Philadelphia
Shopping Center. The principal, plus interest at an annual rate of 15%, was
repaid in full with the proceeds from the Offering.
In November 2003, the Company used approximately $2.4 million of the
proceeds from the Offering to purchase the remaining 50% interest in The Point
Shopping Center owned by an affiliate of CBC. The purchase price for this
interest was arrived at through negotiation with the owner of CBC.
In December 2003, the Company used approximately $1.6 million of the
proceeds from the Offering to acquire the Golden Triangle Shopping Center from
an affiliate of CBC. In connection with the acquisition, the Company assumed a
$9.8 million 7.39% existing first mortgage.
In connection with the June 2002 acquisition of the Red Lion
partnership interest from an affiliate of CBC, the Company agreed to pay
$887,000 in three equal annual installments, plus interest at 7.5%. This loan
was repaid in full with the proceeds from the Offering.
Transactions with Homburg Invest, a related party
In December 2002, Homburg Invest USA Inc., a wholly-owned subsidiary of
Homburg Invest Inc. ("Homburg Invest"), which is owned approximately 62% by Mr.
Richard Homburg, a director of the Company, purchased 3,300 Preferred OP Units
for $3.0 million ($909.09 each), with a liquidation value of $1,000 each and a
preferred distribution rate of 9%. Mr. Homburg was subsequently elected a
Director of the Company. In October 2003, the Company exercised its option and
redeemed the Preferred OP Units at $1,200 per unit, an aggregate of $3.96
million from the proceeds of the Offering. The $960,000 redemption premium was
charged to operations during 2003.
Homburg Invest supplied substantially all the equity (through the
purchase of joint venture interests) in connection with the Company's
acquisitions of Pine Grove Shopping Center, Swede Square Shopping Center and
Wal-Mart Shopping Center. Homburg Invest received 10% origination fees for
providing the equity in each acquisition. The Company had the option to buy the
Homburg Invest limited partnership interest in the Wal-Mart Shopping Center for
120% of Homburg Invest's original investment plus the 12% preferential return.
41
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 2. Public Offering, New York Stock Exchange Listing, Related-Party
Transactions, Allocation of Costs and Expenses, and Pro Forma Financial
Information (continued)
Transactions with Homburg Invest, a related party (continued)
In the case of Pine Grove and Swede Square, the Company had the option to
purchase the Homburg Invest limited partnership interests provided that Homburg
Invest receive a 15% annualized rate of return from the date each center was
acquired. The Company exercised these options and used the proceeds from the
Offering to purchase the Homburg Invest limited partnership interests.
Homburg Invest provided to the Company a one-year, $1.1 million, 9%
interest-only loan. The loan included a $100,000 entrance fee and required
payment of a $220,000 exit fee. The loan was used to partially fund the deposit
requirements for the South Philadelphia Shopping Center. This loan was repaid in
full with the proceeds from the Offering and the entrance and exit fees were
charged to operations during 2003. In addition, Homburg Invest arranged for and
guaranteed the third-party financing for the acquisition of Valley Plaza and the
Wal-Mart Shopping Center and received approximately $325,000 in fees from the
third-party lender.
The entrance and exit fees paid to Homburg Invest, either directly or
indirectly, in connection with the aforementioned transactions aggregated
approximately $2.6 million.
Allocation of Costs and Expenses
Costs and expenses charged to operations during 2003 in connection with
the above transactions are as follows:
Contract Early
Termination Extinguishment Other
Total Costs of Debt Costs
--------------------------------------------------------------------------
Acquisition of external advisor $ 11,960,000 $ 11,960,000 $ - $ -
Preferred OP Unit redemption 960,000 - - 960,000
Mortgage defeasance 4,754,000 - 4,754,000 -
Contribution for employee income taxes 633,000 - - 633,000
Early extinguishment of debt 2,181,000 - 2,181,000 -
Other 300,000 - - 300,000
--------------------------------------------------------------------------
$ 20,788,000 $ 11,960,000 $ 6,935,000 $ 1,893,000
==========================================================================
Pro Forma Financial Information (Unaudited)
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended December 31,
2003 and 2002 as though the transactions described above and the 2003 and 2002
property acquisitions were completed as of January 1, 2002.
42
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 2. Public Offering, New York Stock Exchange Listing, Related-Party
Transactions, Allocation of Costs and Expenses, and Pro Forma Financial
Information (continued)
This unaudited pro forma information does not purport to represent what
the actual results of operations of the Company would have been had the above
occurred as of January 1, 2002, nor do they purport to predict the results of
operations of future periods.
2003 2002
---- ----
Pro forma revenues $41,857,000 $39,200,000
Pro forma net income $ 6,004,000 $ 5,452,000
Pro forma basic net income per common share $ 0.37 $ 0.33
Pro forma fully diluted net income per common share $ 0.37 $ 0.33
Common shares outstanding 16,456,000 16,456,000
Note 3. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation Policy
The accompanying financial statements are prepared on the accrual basis
in accordance with accounting principles generally accepted in the United States
("GAAP"). 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, 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.
The consolidated financial statements include the accounts and operations of the
Company, the Operating Partnership, its subsidiaries, and joint venture
partnerships in which it participates. With respect to its joint ventures, the
Company has general partnership interests ranging from 20% to 50% and, since the
Company is the sole general partner and exercises substantial operating control
over these entities, such partnerships are included in the consolidated
financial statements. In January 2003, the FASB issued FIN 46, "Consolidation of
Variable Interest Entities". FIN 46 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
FIN 46 were immediately effective for all variable interest entities created
after January 31, 2003. The Company has evaluated the effects of FIN 46 on the
accounting for its joint venture partnerships created after January 31, 2003,
and has concluded that all such joint ventures should be included in the
consolidated financial statements. In December 2003, the FASB issued FIN 46R,
deferring the effective date for variable interest entities created before
February 1, 2003 until the period ending March 31, 2004. Management has not yet
determined whether the three consolidated joint ventures affected thereby
represent variable interest entities pursuant to FIN 46, which could result in a
change in the Company's consolidation policy with respect thereto.
43
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 3. Summary of Significant Accounting Policies (continued)
Real Estate Investments
Real estate investments are carried at cost less accumulated
depreciation. The provision for depreciation and amortization has been
calculated using the straight-line method based upon the following estimated
useful lives of assets:
Buildings and Improvements 40 years
Tenant Improvements Over the lives of the leases
Expenditures for maintenance, repairs, and betterments that do not
materially prolong the normal useful life of an asset are charged to operations
as incurred, and amounted to approximately $1,903,000, $827,000, and $435,000
for 2003, 2002, and 2001, respectively.
Additions and betterments that substantially extend the useful lives of
the properties are capitalized. Upon sale or other disposition of assets, the
cost and related accumulated depreciation and amortization are removed from the
accounts and the resulting gain or loss, if any, is reflected in earnings. Real
estate investments include capitalized interest, costs of development and
redevelopment activities, and construction in progress. Capitalized costs are
included in the cost of the related asset and charged to operations through
depreciation over the asset's estimated useful life. Interest capitalized
amounted to $184,000, none, and $181,000, in 2003, 2002, and 2001, respectively.
In October 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". The Company applies SFAS
No. 144 to recognize and measure impairment of long-lived assets. Management
reviews 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 an impairment trigger 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. The Company adopted SFAS No. 144 on January 1,
2002; it has had no material affect on the Company's results of operations.
Real estate investments held for sale are carried at the lower of
carrying amount or estimated fair value, less cost to sell. Depreciation and
amortization are suspended during the period held for sale.
Intangible Lease Asset/Liability
In July 2001 and January 2002, the Company adopted SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Intangibles",
respectively. These standards govern business combinations and asset
acquisitions, and the accounting for acquired intangibles. As part of the
44
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 3. Summary of Significant Accounting Policies (continued)
Intangible Lease Asset/Liability (continued)
acquisition of real estate assets, the Company determines whether an intangible
asset or liability, related to above or below market leases, was acquired as
part of the transaction. 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.
The value of in-place leases 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. Above 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 the contractual amounts to be
received and management's estimate of fair market lease rates, measured over the
non-cancelable terms. This aggregate value is allocated between above and below
market lease rates, tenant relationships, and other intangibles based on
management's evaluation of the specific characteristics of each lease. The
intangible assets or liabilities are recorded at their estimated fair market
values at the dates of acquisition, are amortized over the remaining terms of
the respective leases to rental income, and are included in deferred liabilities
in the consolidated balance sheet. If a lease were to be terminated prior to its
stated expiration, all unamortized amounts relating to that lease would be
immediately recognized in earnings.
During 2003 and 2002, respectively, amounts totaling $947,000 and
$5,117,000 were recorded as intangible lease liabilities relating to above and
below market lease arrangements, with a weighted average amortization period of
approximately 10 years. Revenues include $706,000 and $146,000 during 2003 and
2002, respectively, relating to amortization of intangible lease liabilities.
45
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 3. Summary of Significant Accounting Policies (continued)
Intangible Lease Asset/Liability (continued)
The balance of intangible lease liabilities at December 31, 2003 will be
amortized as follows:
Year ending December 31,
------------------------
2004 $ 168,000
2005 152,000
2006 121,000
2007 429,000
2008 594,000
Thereafter 3,748,000
----------
$5,212,000
==========
Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term
investments with original maturities of less than ninety days.
Cash at Joint Ventures and Restricted Cash
Joint venture partnership agreements require, among other things, that
the Company maintain separate cash accounts for the operation of the joint
venture, and distributions to the general and limited partners are strictly
controlled. Cash at joint ventures amounted to $1,003,000 and $1,228,000 at
December 31, 2003 and 2002, respectively.
The terms of the Company's mortgage agreements require it to deposit
certain replacement and other reserves with its lenders. This restricted cash is
generally available for property-level capital requirements for which the
reserve was established. This cash is not, however, available to fund other
property-level or Company-level obligations. Restricted cash amounted to
$5,205,000 and $1,655,000 at December 31, 2003 and 2002, respectively.
Rents and Other Receivables
Management has determined that all of the Company's leases with its
various tenants are operating leases. Minimum rents are recognized on a
straight-line basis over the terms of the related leases, net of valuation
adjustments based on management's assessment of credit, collection and other
business risks. The excess of rents recognized over amounts contractually due is
included in rents and other receivables on the consolidated balance sheet and,
where applicable, are evaluated under the provisions of SFAS No. 144. The leases
also typically provide for tenant reimbursements of common area maintenance and
other operating expenses, and real estate taxes. Ancillary and
46
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 3. Summary of Significant Accounting Policies (continued)
Rents and Other Receivables (continued)
other property-related income is recognized in the period earned. The Company
makes estimates as to the collectibility of its accounts receivables, customer
creditworthiness, current economic trends and changes in customer payment
patterns when evaluating the adequacy of its allowance for doubtful accounts.
Such estimates have a direct impact on the Company's net income.
Deferred Charges
Deferred charges consist of lease origination costs, the costs incurred
in connection with securing the Company's line of credit and other long-term
debt, and the cost of interest rate protection agreements. Such costs are
amortized over the term of the related agreement and, where applicable, are
evaluated under the provisions of SFAS No. 144.
Income Taxes
The Company has elected since 1986 to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). A REIT will generally
not be subject to federal income taxation on that portion of its income that
qualifies as REIT taxable income, to the extent that it distributes at least 90%
of its taxable income to its shareholders and complies with certain other
requirements. Under applicable provisions of the Code governing REITs, a REIT,
among other things, may not own more than ten percent in value or voting power
of a corporation other than a qualifying "taxable REIT subsidiary". During the
course of the Company's preparation of its 2003 financial statements, it was
determined that the Company indirectly owned more than 10% of one such
subsidiary, with an equity value of approximately $8,000, for which it had
inadvertently failed to file a timely election to be treated as a taxable REIT
subsidiary. The Company has filed with the Internal Revenue Service an election
to treat such entity as a taxable REIT subsidiary retroactive to June 2002 when
it was formed, and has filed a request for a ruling to permit late filing of
such election. The Company, based on opinion of counsel, believes that it will
receive a favorable ruling and that the likelihood of an unfavorable ruling is
remote.
Derivative Financial Instruments
Effective January 1, 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which requires
the Company to measure derivative instruments at fair value and to record them
in the consolidated balance sheet as an asset or liability, depending on the
Company's rights or obligations under the applicable derivative contract. The
Company's derivative investments are primarily cash flow hedges that limit the
base rate of variable rate debt. For cash flow hedges, the ineffective portion
of a derivative's change in fair value is immediately recognized in earnings, if
applicable, and the effective portion of the fair value difference of the
derivative is reflected separately in shareholders' equity as accumulated other
comprehensive gain (loss).
47
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 3. Summary of Significant Accounting Policies (continued)
Derivative Financial Instruments (continued)
The Company utilizes derivative financial instruments to manage its
exposure to fluctuations in interest rates. The Company has established policies
and procedures for risk assessment, and the approval, reporting and monitoring
of derivative financial instrument activities. The Company has not entered into,
and does not plan to enter into, derivative financial instruments for trading or
speculative purposes. Additionally, the Company has a policy of only entering
into derivative contracts with major financial institutions. The principal
derivative financial instruments used by the Company are interest rate swaps and
interest rate caps.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the Company to disclose fair value information of all financial
instruments for which it is practicable to estimate fair value, whether or not
recognized in the consolidated balance sheet. The Company's financial
instruments, other than debt, are generally short-term in nature and contain
minimal credit risk. These instruments consist of cash and cash equivalents,
rents and other receivables, and accounts payable. The carrying amount of these
assets and liabilities are assumed to be at fair value.
The fair value of mortgage loans payable is estimated utilizing
discounted cash flow analysis, using interest rates reflective of current market
conditions and the risk characteristics of the loans. The following sets forth a
comparison of the fair values and carrying values of the Company's financial
instruments:
2003 2002
---- ----
Carrying Value Fair Value Carrying Value Fair Value
-----------------------------------------------------------------
Assets
- ------
Cash and cash equivalents $ 6,154,000 $ 6,154,000 $ 3,827,000 $ 3,827,000
Cash at joint ventures and restricted cash $ 6,208,000 $ 6,208,000 $ 2,883,000 $ 2,883,000
Liabilities
- -----------
Mortgages payable $144,983,000 $152,037,000 $93,537,000 $100,647,000
Loans payable $ 17,000,000 $ 17,000,000 7,464,000 7,464,000
48
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 3. Summary of Significant Accounting Policies (continued)
Earnings Per Share
In accordance with SFAS No. 128, "Earnings Per Share", basic earnings
per share ("EPS") are computed by dividing net income available to common
shareowners by the weighted average number of common shares 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. Since the Company reported a net loss in 2003, 2002 and 2001,
diluted EPS are not presented.
Stock-Based Compensation
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure", which amended SFAS No.
123, "Accounting for Stock-Based Compensation". It provided alternative methods
of transition for an entity that voluntarily adopts the fair value recognition
method of recording stock option expense. It also amended the disclosure
provisions of SFAS 123 and 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 EPS in annual and interim financial statements.
SFAS No. 123 established 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 No. 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, "Accounting for Stock Issued to
Employees". The Company has elected to continue using APB Opinion No. 25 and
make pro forma disclosures of net income and EPS as if the fair value method of
accounting defined in SFAS No. 123 had been applied.
In 1998, the Company's shareholders approved an incentive stock option
plan authorizing the issuance of option grants for up to 166,666 shares. In
2003, the Company's shareholders approved an amendment to the plan authorizing
the Company to issue option grants for a total of 2,000,000 shares. In 2001, the
Company granted to each of its five directors options to purchase 3,333 shares
at $10.50 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
No. 123 had been applied.
49
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 3. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation (continued)
2003 2002 2001
------------------------------------
Net loss as reported $21,351,000 $468,000 $147,000
Adjustment to amortize the value of options
granted 17,000 17,000 8,000
------------------------------------
Pro forma net loss $21,368,000 $485,000 $155,000
====================================
Weighted average outstanding shares 3,010,000 231,000 231,000
Pro forma basic net loss per share ($7.10) ($2.10) ($0.67)
====================================
The Company accounts for non-employee stock-based awards in which goods
or services are the consideration received for the equity instruments issued in
accordance with SFAS No. 123 and EITF No. 96-18, "Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services". The fair value of the
consideration received, or the fair value of the equity instruments issued,
whichever is more reliably measurable, is charged to earnings over the period
the goods or services are received.
In connection with the Red Lion acquisition, the Operating Partnership
issued to ARC Properties, Inc., a limited partner in the property, warrants to
purchase 83,333 OP Units with an exercise price of $13.50 per unit, subject to
anti-dilution adjustments. The warrants became fully vested in January 2004, and
expire in May 2012. The first 27,778 warrants were capitalized at fair value as
part of the Red Lion acquisition cost; approximately $173,000 was charged to
earnings during each of 2003 and 2002.
Recent Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS 149 amends and
clarifies the accounting treatment of (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 No. 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 No. 149 is effective
prospectively (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 Company adopted SFAS No. 149, which has had no material affect on
its results of operations.
50
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 3. Summary of Significant Accounting Policies (continued)
Reclassifications
Prior years' consolidated financial statements have been reclassified to conform
to the 2003 presentation.
Note 4. Real Estate and Accumulated Depreciation
The following table details the activity in real estate and
accumulated depreciation for 2003 and 2002:
Cost 2003 2002
---- ------------- ------------
Beginning of year $ 123,634,000 $ 57,622,000
Property acquisitions 194,308,000 64,640,000
Improvements and betterments 6,829,000 1,372,000
------------- ------------
End of year $ 324,771,000 $123,634,000
============= ============
Accumulated depreciation
------------------------
Beginning of year $ 2,396,000 $ 674,000
Depreciation 3,751,000 1,722,000
------------- ------------
End of year $ 6,147,000 $ 2,396,000
============= ============
During 2003 and 2002, the Company acquired 14 and 4 properties,
respectively. One of the 2003 acquisitions is a redevelopment property on which
the Company expects to spend approximately $5 million; one of the 2002
acquisitions is also a redevelopment project on which the Company expects to
spend approximately $24 million.
At December 31, 2003, all of the Company's real estate was pledged as
collateral for mortgage loans and the line of credit.
Note 5. Rentals Under Operating Leases
Annual minimum future rentals due to be received under non-cancelable
operating leases in effect at December 31, 2003 are as follows:
Year ending December 31,
------------------------
2004 $ 30,430,000
2005 28,006,000
2006 26,216,000
2007 23,778,000
2008 21,415,000
Thereafter 149,551,000
------------
$279,396,000
============
51
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 5. Rentals Under Operating Leases (continued)
Total minimum future rentals do not include contingent rentals based
upon tenants' sales volume, or contributions for real estate taxes and operating
costs. Such contingent rentals amounted to approximately $5,724,000, $2,990,000,
and $811,000 in 2003, 2002, and 2001, respectively.
Giant Food Stores, Inc. ("Giant Foods") accounted for 12% of the
Company's total revenues in 2003, and 10% of total revenues in 2002 and 2001.
The leases are generally guaranteed by Ahold N.V., a Netherlands corporation,
and Giant Food's parent company. During 2003, there were published reports
indicating that there had been accounting irregularities at certain of Ahold's
U.S. and foreign operations, which did not necessarily include the supermarket
stores or the Giant Foods supermarket affiliates. Ahold's debt rating was
downgraded, which may adversely affect the resulting value of the Company's
properties having such tenancies.
52
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 6. Mortgage Loans, Line of Credit, and Other Loans Payable
Mortgage loans outstanding consist of the following:
Balance outstanding at
--------------------------------
Original Interest December 31, December 31,
Collateral Property Amount Rate Maturity 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
The Point Shopping Center $ 20,000,000 7.63% Sep 2012 $ 19,575,000 $19,864,000
Red Lion Shopping Center 16,800,000 8.86% Feb 2010 16,590,000 16,715,000
Camp Hill Mall 7,000,000 4.74% Nov 2004 7,000,000 14,000,000
Camp Hill Mall 7,000,000 LIBOR+1.95% Nov 2004 7,000,000 Combined above
Loyal Plaza 13,877,000 7.18% Jun 2011 13,677,000 13,814,000
Port Richmond Village 11,610,000 7.17% Mar 2008 11,292,000 11,439,000
Academy Plaza 10,715,000 7.28% Mar 2013 10,422,000 10,558,000
Washington Center Shoppes 6,236,000 7.53% Nov 2007 5,826,000 5,900,000
LA Fitness Center 5,000,000 LIBOR+2.75% Dec 2007 4,559,000 1,247,000
Fairview Plaza 6,080,000 5.71% Feb 2013 6,018,000 N/A
Halifax Plaza 4,265,000 6.83% Feb 2010 4,190,000 N/A
Newport Plaza 5,424,000 6.83% Feb 2010 5,346,000 N/A
Pine Grove Shopping Center 6,000,000 6.24% Apr 2010 5,888,000 N/A
Pine Grove Out Parcel 388,000 8.50% Mar 2006 413,000 N/A
Swede Square Shopping Center 5,560,000 7.25% May 2005 5,560,000 N/A
Valley Plaza Shopping Center 6,430,000 LIBOR+2.50% Jun 2005 6,361,000 N/A
Wal-Mart Shopping Center 5,444,000 LIBOR+2.50% Aug 2005 5,441,000 N/A
Golden Triangle Shopping Center 9,825,000 7.39% Apr 2008 9,825,000 N/A
- ------------------------------------------------------------------------------------------------------------------------------
Totals $147,654,000 $144,983,000 $93,537,000
==============================================================================================================================
Scheduled principal payments on mortgages outstanding at December 31,
2003 are as follows: 2004 - $21,170,000, 2005 - $13,527,000, 2006 - $2,245,000,
2007 - $11,975,000, 2008 - $20,871,000, and thereafter - $75,195,000.
Line of Credit
In December 2003, Fleet National Bank ("Fleet") provided a six-month
$40 million secured bridge line of credit. In January 2004, the Company
concluded a three-year $100 million syndicated secured revolving credit facility
with Fleet and several other banks, and Fleet as agent, pursuant to which the
Company pledged certain of its shopping center properties. Borrowings under the
facility bear interest at a rate of LIBOR plus 225 to 275 basis points ("bps")
depending on the Company's overall leverage ratio as defined. The facility is
subject to customary financial covenants including limits on leverage and
collateral requirements. As of March 26, 2004, based on collateral in place, the
Company is permitted to draw up to approximately $70 million. Repayment of
amounts drawn under the facility may be extended for an additional year. The
Company expects to use the facility, among other things, to finance acquisitions
of shopping centers, capital improvements, redevelopment and new development
projects, working capital and other corporate purposes. The Company paid
facility and arrangement fees to the banks, plus legal and other closing costs,
aggregating approximately $1.6 million. Borrowings under the bridge loan, which
were repaid when the syndicated facility was completed, aggregated $17 million
53
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 6. Mortgage Loans, Line of Credit, and Other Loans Payable (continued)
Line of Credit (continued)
at December 31, 2003, and bore interest at an average rate of 3.39% per annum.
The facility requires an unused portion fee of 1/4 of 1% per annum, and limits
dividends to 95% of funds from operations, as defined.
Other Loans Payable
The December 31, 2002 balance of other loans payable of $7.5
million, together with $22.5 million of additional interim financing during
2003, were repaid in full with $30.0 million in funds from the Offering and the
line of credit. The remaining $1.0 million of interim financing was converted,
at the election of the lender, into approximately 93,000 OP Units.
Note 7. Interest Rate Hedges
In 2002, the Company completed an interest rate swap to hedge the
Company's exposure to changes in interest rates with respect to $14 million of
LIBOR-based variable rate debt that it incurred in connection with the
acquisition of the Camp Hill Mall. The swap agreement provided for a fixed
all-in rate of 4.74% through November 2003 on $7 million of notional principal,
and through November 2004 on the remaining $7 million.
In 2003, the Company entered into interest rate swaps in connection
with the Newport Plaza, Halifax Plaza and Pine Grove acquisitions converting
LIBOR-based variable rate debt to fixed annual rates.
In November and December 2003, respectively, the Company entered into
$20 million and $10 million non-specific five-year interest rate hedges capping
LIBOR at 4.5%. Since these caps do not relate to specific debt, they are
ineffective for accounting purposes and, accordingly, changes in their fair
values are charged to operations.
In December 2003, the Company entered into a fair value hedge with
respect to its mortgage at Washington Center. The derivative swaps a fixed rate
amortization schedule on $5,788,000 at 7.53% to a variable rate of LIBOR plus
250 bps through November, 2007. The change in fair value of this hedge is
charged to operations.
The following table summarizes the notional values and fair values of
the Company's derivative financial instruments as of December 31, 2003:
54
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 7. Interest Rate Hedges (continued)
Hedge Type Value Rate Date 2003 2002
----- ---- ----- ---- ---- ---- ----
Interest Rate Swap Cash Flow Hedge $ 7,000,000 4.74% Nov 2003 $ - $ 75,000
Interest Rate Swap Cash Flow Hedge 7,000,000 4.74% Nov 2004 93,000 149,000
Interest Rate Swap Cash Flow Hedge 4,190,000 6.83% Feb 2010 125,000 -
Interest Rate Swap Cash Flow Hedge 5,346,000 6.83% Feb 2010 122,000 -
Interest Rate Swap Cash Flow Hedge 5,888,000 6.24% Apr 2010 38,000 -
Interest Rate Cap Cash Flow Hedge 20,000,000 4.50% Nov 2008 609,000 -
Interest Rate Cap Cash Flow Hedge 10,000,000 4.50% Oct 2008 335,000 -
Interest Rate Swap Fair Value Hedge 5,788,000 LIBOR +2.50% Nov 2007 395,000 -
During 2003, the Company recognized unrealized losses of $367,000,
representing the change in fair value of the aforementioned derivatives. A
$112,000 gain was recorded in accumulated other comprehensive gain (loss), a
$266,000 loss was charged to limited partners' interest, and the $213,000
ineffective portion of net loss was charged to earnings. During 2002, an
unrealized loss resulting from a change in the fair value of the derivatives
totaled $224,000, of which $65,000 was reflected in accumulated other
comprehensive gain (loss) and $159,000 was charged to limited partners'
interest.
Note 8. Commitments and Contingencies
The Company is a party to certain legal actions arising in the normal
course of business. Management does not expect there to be adverse consequences
from these actions that would be material to the Company's consolidated
financial statements.
Under various federal, state, and local laws, ordinances, and
regulations, an owner or operator of real estate may be required to investigate
and clean up hazardous or toxic substances, or petroleum product releases, at
its properties. The owner may be liable to governmental entities or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with any contamination. Management is unaware of any
environmental matters that would have a material impact on the Company's
consolidated financial statements.
The Company's principal office is located in 6,200 square feet at 44
South Bayles Avenue, Port Washington, New York, which it leases from a
partnership owned 24% by the Company's CEO. Future minimum rents payable under
the terms of the lease amount to $172,000, $177,000, $178,000, and $152,000
during 2004, 2005, 2006, and through October 31, 2007, respectively. The
Company's Wal-Mart Shopping Center is subject to a ground lease running through
May 2071. Future minimum rents payable under the terms of the lease amount to
$129,000 per annum.
55
Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Note 9. Selected Quarterly Financial Data (Unaudited)
Quarter Ended Year Ended
- -------------------------------------------------------------------------------------------------------------------------------
Year March 31 June 30 September 30 December 31 December 31
- -------------------------------------------------------------------------------------------------------------------------------
2003
Revenue $5,284,000 $6,138,000 $6,672,000 $8,412,000 $26,506,000
Net loss (199,000) (40,000) (228,000) (20,884,000) (21,351,000)
Basic and diluted net loss per share ($0.73) ($0.14) ($0.91) ($5.31) ($7.09)
- -------------------------------------------------------------------------------------------------------------------------------
2002
Revenue $2,510,000 $2,657,000 $3,614,000 $4,208,000 $12,989,000
Net loss (53,000) (222,000) (45,000) (148,000) (468,000)
Basic and diluted net loss per share ($0.23) ($0.96) ($0.20) ($0.64) ($2.03)
- -------------------------------------------------------------------------------------------------------------------------------
2001
Revenue $983,000 $966,000 $ 861,000 $2,289,000 $5,099,000
Net (loss) income (9,000) 336,000 (27,000) (447,000) (147,000)
Basic and diluted net (loss) income per share ($0.04) $1.45 ($0.12) ($1.93) ($0.64)
- -------------------------------------------------------------------------------------------------------------------------------
Note 10. Subsequent Events
On January 27, 2004, the Company's Board of Directors approved a
dividend of $.16 per share, which was paid on February 16, 2004 to shareholders
of record as of February 9, 2004.
In March 2004, the Company acquired two properties aggregating
approximately 406,000 square feet of GLA. The properties cost approximately
$34.5 million, including closing costs. Funding was provided by the Company's
line of credit and by the assumption of a $10.0 million first mortgage.
In March 2004, the Company utilized its line of credit to repay the
first mortgage on the Swede Square Shopping Center amounting to approximately
$5.8 million.
56
Item 9. Changes in, and Disagreements with Accountants on, Accounting and
Financial Disclosure
None
Item 9 (a) 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 meets
regularly and reports to the Audit Committee on a quarterly or more frequent
basis. The Company's principal executive and financial officers have evaluated
its disclosure controls and procedures as of December 31, 2003 and have
determined that such disclosure controls and procedures are effective.
During the year ended December 31, 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.
57
Part III.
Item 10. Directors and Executive Officers of the Registrant
This item is incorporated by reference to the definitive proxy
statement for the 2004 Annual Meeting of Shareholders, to be filed pursuant to
Regulation 14A.
Item 11. Compensation of Directors and Executives
This item is incorporated by reference to the definitive proxy
statement for the 2004 Annual Meeting of Shareholders, to be filed pursuant to
Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This item is incorporated by reference to the definitive proxy
statement for the 2004 Annual Meeting of Shareholders, to be filed pursuant to
Regulation 14A.
Item 13. Certain Relationships and Related Party Transactions
This item is incorporated by reference to the definitive proxy
statement for the 2004 Annual Meeting of Shareholders, to be filed pursuant to
Regulation 14A.
Item 14. Principal Accountant Fees and Services
This item is incorporated by reference to the definitive proxy
statement for the 2004 Annual Meeting of Shareholders, to be filed pursuant to
Regulation 14A.
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The response to this portion of Item 15 is included in Item 8 of this
report.
2. Financial Statement Schedules
III. Real Estate and Accumulated Depreciation
All other schedules have been omitted because the required
information is not present, is not present in amounts
sufficient to require submission of the schedule, or is
included in the consolidated financial statements or notes
thereto.
58
3. Exhibits
Item Title or Description
---- ----------------------------------------------------------------
3.1 Articles of Incorporation of the Company, incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form S-11 filed on August
20, 2003, as amended.
3.2 Articles of Amendment of Articles of Incorporation of the Company,
incorporated by reference to Exhibit 3.2 of the Registration Statement
on Form S-11 filed on August 20, 2003, as amended.
3.3 By-laws of the Company, as amended, incorporated by reference to
Exhibit 3.3 of the Registration Statement on Form S-11 filed on August
20, 2003, as amended.
3.4 Agreement of Limited Partnership of Cedar Shopping Centers Partnership,
L.P., incorporated by reference to Exhibit 3.4 of the Registration
Statement on Form S-11 filed on August 20, 2003, as amended.
3.5 Amendment No. 1 to Agreement of Limited Partnership of Cedar Shopping
Center Partnership L.P. incorporated by reference to Exhibit 3.5 of
the Registration Statement on Form S-11 filed on August 20, 2003, as
amended.
10.1 Agreement of Purchase and Sale by and between SAGD-11 Associates, L.P.
and Cedar Shopping Centers Partnership, L.P., dated as of October 27,
2003.
10.2 Amendment to Agreement of Purchase and Sale by and between SAGD-11
Associates, L.P. and Cedar Shopping Centers Partnership, L.P., dated
December 1, 2003.
10.3 Promissory Note between Cedar Sunset Crossings, LLC as Maker and Cedar
Lender, LLC as Payee, dated December 22, 2003.
10.4 Loan Agreement by and among Cedar Shopping Centers Partnership, L.P.,
Fleet National Bank, Commerzbank AG New York Branch, PB Capital
Corporation, Manufacturers and Traders Trust Company, Sovereign Bank,
Raymond James Bank, FSB, Citizens Bank and the other lending
institutions which are or may become parties to the Loan Agreement (the
"Lenders") and Fleet National Bank (as Administrative Agent), dated
January 30, 2004, incorporated by reference to Exhibit 10.1 of Form 8-K
filed on March 22, 2004.
10.5 Real Estate Purchase and Sale Agreement regarding the sale of
Southpoint Parkway, Jacksonville, Florida, by and between Cedar
Shopping Centers Partnership, L.P. and Southpoint Parkway Center, L.C.,
dated February 1, 2002, incorporated by reference to Exhibit 10.1 to
Form 8-K filed June 10, 2002; and Addendum Number One to Real Estate
Purchase and Sale Agreement by and between Cedar Shopping Centers
Partnership, L.P. and Southpoint Parkway Center, L.C., incorporated by
reference to Exhibit 10.2 of Form 8-K filed on June 20, 2002.
10.6 Property Management Agreement by and between API Red Lion Shopping
Center Associates and SKR Management Corp., dated as of January 1,
1995, incorporated by reference to Exhibit 10.1 of Form 8-K filed on
June 13, 2002.
10.7 Assignment of Property Management Agreement by and between SKR
Management Corp. and Brentway Management LLC, dated as of January 1,
1996, incorporated by reference to Exhibit 10.2 of Form 8-K filed on
June 13, 2002.
10.8 Standstill Agreement by and between Robert J. Ambrosi of ARC
Properties, Inc. and Cedar Shopping Centers, Inc., dated May 31, 2002,
incorporated by reference to Exhibit 10.3 of Form 8-K filed on June 13,
2002.
10.9 Purchase and Sale Agreement by and between Silver Circle Management
Corp. and Leo S. Ullman and Philadelphia Cedar-RL, LLC, dated as of
February 6, 2002, incorporated by reference to Exhibit 10.4 of Form 8-K
filed on June 13, 2002.
10.10 Indemnity Agreement by Cedar-RL, LLC to and for the benefit of Leo S.
Ullman, dated as of May 31, 2002, incorporated by reference to Exhibit
10.5 of Form 8-K filed on June 13, 2002.
59
10.11 Promissory Note from Cedar-RL, LLC to Silver Circle Management Corp.,
dated as of May 31, 2002, incorporated by reference to Exhibit 10.6 of
Form 8-K filed on June 13, 2002.
10.12 Subordinate Pledge and Security Agreement by Cedar-RL, LLC and Silver
Circle Management Corp., dated as of May 31, 2002, incorporated by
reference to Exhibit 10.7 of Form 8-K filed on June 13, 2002.
10.13 Compensation Agreement between Cedar Shopping Centers, Inc., Cedar
Shopping Centers Partnership, L.P. SKR Management Corp., Cedar Bay
Realty Advisors, Inc., Brentway Management LLC, Leo S. Ullman and ARC
Properties, Inc., dated May 31, 2002, incorporated by reference to
Exhibit 10.8 of Form 8-K filed on June 13, 2002.
10.14 Amended and Restated Limited Partnership Agreement of API Red Lion
Shopping Center Associates, L.P., a New York Limited Partnership, among
Cedar-RL, LLC and Silver Circle Management Corp. and Philadelphia
ARC-Cedar, LLC, dated as of May 31, 2002, incorporated by reference to
Exhibit 11.11 of Form 8-K filed on June 13, 2002.
10.15 Warrant by Cedar Shopping Centers Partnership, L.P. to ARC Properties,
Inc., dated as of May 31, 2002, incorporated by reference to Exhibit
10.12 of Form 8-K filed on June 13, 2002.
10.16 Property Management Agreement by and between The Point Associates, L.P.
and SKR Management Corp., dated as of December 1, 1994, incorporated by
reference to Exhibit 10.17 of Form 8-K filed on June 13, 2002.
10.17 Assignment of Property Management Agreement by and between SKR
Management Corp. and Brentway Management LLC, dated as of January 1,
1996, incorporated by reference to Exhibit 10.18 of Form 8-K filed on
June 13, 2002.
10.18 Agreement to Purchase Real Estate by and between Loyal Plaza Venture,
L.P. and Cedar Shopping Centers Partnership, L.P. dated January 7,
2002; First Amendment to Agreement to Purchase Real Estate by and
between Loyal Plaza Venture, L.P. and Cedar Shopping Centers
Partnership, L.P., dated February 22, 2002; Second Amendment to
Agreement to Purchase Real Estate by and between Loyal Plaza Venture,
L.P. and Cedar Shopping Centers Partnership, L.P., dated February 24,
2002; Third Amendment to Agreement to Purchase Real Estate between
Loyal Plaza Venture, L.P. and Cedar Shopping Centers Partnership, L.P.,
dated March 1, 2002; Fourth Amendment to Agreement to Purchase Real
Estate by and between Loyal Plaza Venture, L.P. and Cedar Shopping
Centers Partnership, L.P., dated March 8, 2002; Fifth Amendment to
Agreement to Purchase Real Estate by and between Loyal Plaza Venture,
L.P. and Cedar Shopping Centers Partnership, L.P., dated March 13,
2002; Sixth Amendment to Agreement to Purchase Real Estate by and
between Loyal Plaza Venture, L.P. and Cedar Shopping Centers
Partnership, L.P., dated March 15, 2002; and Seventh Amendment to
Agreement to Purchase Real Estate by and between Loyal Plaza Venture,
L.P. and Cedar Shopping Centers Partnership, L.P., dated March 22, 2002
(collectively, the "Purchase Contract"), incorporated by reference to
Exhibit 10.1 of Form 8-K filed on July 17, 2002.
10.19 Agreement to Assign Agreement between Cedar Shopping Centers
Partnership, L.P. as Assignor to Loyal Plaza Associates, L.P. as
Assignee, made by and between Assignor and Loyal Plaza Venture, L.P.,
dated June 2002, incorporated by reference to Exhibit 10.2 of Form 8-K
filed on July 17, 2002.
10.20 Limited Partnership Agreement of Loyal Plaza Associates, L.P. between
CIF-Loyal Plaza Associates, L.P. and Kimco Preferred Investor IV Trust,
dated June 28, 3002, incorporated by reference to Exhibit 10.3 of Form
8-K filed on July 17, 2002.
10.21 Limited Partnership Agreement of CIF-Loyal Plaza Associates, L.P. by
and among CIF-Loyal Plaza Associates, L.P. and Cedar Shopping Centers
Partnership, L.P., dated as of June 28, 2002, incorporated by reference
to Exhibit 10.4 of Form 8-K filed on July 17, 2002.
60
10.22 Open-End Mortgage and Security Agreement in the amount of $14 million
(Original Mortgage) by Loyal Plaza Venture, L.P. (Borrower) and
Glimcher Loyal Plaza Tenant, L.P. (Tenant) (collectively referred to as
Mortgagor) to Lehman Brothers Bank, FSB (Lender), dated May 31, 2001,
incorporated by reference to Exhibit 10.5 of Form 8-K file don July 17,
2002.
10.23 Loan Assumption and Modification Agreement by and among Loyal Plaza
Associates, L.P. (Assuming Borrower), Cedar Shopping Centers, Inc.
(Assuming Principal), Loyal Plaza Venture, L.P. (Original Borrower),
Glimcher Properties Limited Partnership (Glimcher) and Glimcher Loyal
Plaza Tenant, L.P. (Tenant), in favor of LaSalle Bank National
Association (Trustee) and LB-UBS Commercial Mortgage Trust 2001-C3
(Lender), dated as of July 2, 2002, incorporated by reference to
Exhibit 10.6 of Form 8-K filed on July 17, 2002.
10.24 Property Management Agreement [Loyal Plaza] by and between Loyal Plaza
Associates, L.P. and Brentway Management LLC, dated as of June 2002,
incorporated by reference to Exhibit 10.11 of Form 8-K filed on July
17, 2002.
10.25 Post Closing Agreement regarding the Assumption by Loyal Plaza
Associates, L.P. (Assuming Borrower) of that certain Loan evidenced by
that certain Note dated May 31, 2001, payable by Loyal Plaza Venture,
L.P. (Original Borrower) to Lehman Brothers Bank, FSB (Original Lender)
as secured by that certain Open-End Mortgage and Security Agreement of
even date to Glimcher Loyal Plaza Tenant, L.P. (Mortgage) currently
held and owned by LaSalle Bank National Association (Trustee) of LB-UBS
Commercial Trust (Lender), dated July 2, 2002, incorporated by
reference to Exhibit 10.13 of Form 8-K filed on July 17, 2002.
10.26 Agreement of Purchase and Sale between Connecticut General Life
Insurance Company and Cedar Shopping Centers Partnership, L.P., dated
September 12, 2002, incorporated by reference to Exhibit 10.1 of Form
8-K filed on December 9, 2002.
10.27 First Amendment to Agreement of Purchase and Sale between Connecticut
General Life Insurance Company and Cedar Shopping Centers Partnership,
L.P., dated September 122, 2002, incorporated by reference to Exhibit
10.2 of Form 8-K filed on December 9, 2002.
10.28 Second Amendment to Agreement of Purchase and Sale between Connecticut
General Life Insurance Company and Cedar Shopping Centers Partnership,
L.P., dated September 12, 2002, incorporated by reference to Exhibit
10.3 of Form 8-K filed on December 9, 2002.
10.29 Third Amendment to Agreement of Purchase and Sale between Connecticut
General Life Insurance Company and Cedar Shopping Centers Partnership,
L.P., dated as of November 15, 2002, incorporated by reference to
Exhibit 10.4 of Form 8-K filed on December 9, 2002.
10.30 Assignment and Assumption of Contract of Sale between Cedar Shopping
Centers Partnership, L.P. and Cedar-Camp Hill, LLC, dated November
2002, incorporated by reference to Exhibit 10.5 of Form 8-K filed on
December 9, 2002.
10.31 Limited Liability Company Agreement of Cedar-Camp Hill, LLC by Cedar
Shopping Centers Partnership, L.P., effective as of November 1, 2002,
incorporated by reference to Exhibit 10.6 of Form 8-K filed on December
9, 2002.
10.32 Property Management Agreement by and between Cedar-Camp Hill, LLC and
Brentway Management LLC dated as of ____, 2002, incorporated by
reference to Exhibit 10.7 of Form 8-K filed on December 9, 2002.
61
10.33 Loan Agreement by and between SWH Funding Corp and Cedar Shopping
Centers Partnership, L.P., dated as of November 2002, incorporated by
reference to Exhibit 10.9 of Form 8-K filed on December 9, 2002.
10.34 Loan Agreement by and between Cedar-Camp Hill, LLC and Citizens Bank of
Pennsylvania, executed on November 14, 2002, incorporated by reference
to Exhibit 10.10 of Form 8-K filed on December 9, 2002.
10.35 Open-End Mortgage and Security Agreement between Cedar-Camp Hill, LLC,
Cedar Bay Realty Advisors, Inc. and Citizens Bank of Pennsylvania,
executed on November 14, 2002, incorporated by reference to Exhibit
10.11 of Form 8-K filed on December 9, 2002.
10.36 Pledge and Security Agreement by Cedar Shopping Centers Partnership,
L.P. and SWH Funding Corp. regarding that certain Loan Agreement; dated
as of November 22, 2002; incorporated by reference to Exhibit 10.22 of
Form 8-K filed on December 9, 2002.
10.37 Employment Agreement between Cedar Shopping Centers, Inc. and Leo S.
Ullman, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.39 of the Registration Statement on Form S-11 filed on
August 20, 2003, as amended.
10.38 Employment Agreement between Cedar Shopping Centers, Inc. and Brenda J.
Walker, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.40 of the Registration Statement on Form S-11 filed on
August 20, 2003, as amended.
10.39 Employment Agreement between Cedar Shopping Centers, Inc. and Thomas J.
O'Keeffe, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.41 of the Registration Statement on Form S-11 filed on
August 20, 2003, as amended.
10.40 Employment Agreement between Cedar Shopping Centers, Inc. and Thomas B.
Richey, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.42 of the Registration Statement on Form S-11 field on
August 20, 2003, as amended.
10.41 Employment Agreement between Cedar Shopping Centers, Inc. and Stuart H.
Widowski, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.43 of the Registration Statement on Form S-11 filed on
August 20, 2003, as amended.
10.42 Recapitalization Agreement dated October 2, 2003 by and among Delaware
1851 Associates, L.P., Indenture of Trust of Bart Blatstein dated as of
June 9, 1998, Irrevocable Indenture of Trust of Barton Blatstein dated
July 13, 1999, Welsh-Square, Inc. and CSC-Columbus, LLC, incorporated
by reference to Exhibit 10.45 of the Registration Statement on Form
S-11 filed on August 20, 2003, as amended.
10.43 Agreement to enter into Net Lease dated April 23, 2003, between SPSP
Corporation, Passyunk Supermarket, Inc., Twenty Fourth Street Passyunk
Partners, L.P. and Cedar-South Philadelphia I, LLC, incorporated by
reference to Exhibit 10.46 of the Registration Statement on Form S-11
filed on August 10, 2003, as amended.
21.1 List of Subsidiaries of the Registrant
31.1 Section 302 Chief Executive Officer Certification
31.2 Section 302 Chief Financial Officer Certification
32.1 Section 906 Chief Executive Officer Certification
32.2 Section 906 Chief Financial Officer Certification
62
(b) Reports on Form 8-K.
During the last quarter of the period covered by this report, the Company
filed the following reports on Form 8-K:
None
(c) Exhibits
The response to this portion of Item 15 is included in Item 15(a)(3)
above.
(d) The following documents are filed as part of the report:
None.
63
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.
/s/ /s/
- -------------------------------- ---------------------------------
Leo S. Ullman Thomas J. O'Keeffe
President and Chairman Chief Financial Officer
(principal executive officer) (principal financial officer)
/s/
- --------------------------------
Ann Maneri
Controller
(principal accounting officer)
March 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities and as of
the date indicated this report has been signed by the below.
/s/ /s/
- -------------------------------- ---------------------------------
Leo S. Ullman James J. Burns
Director Director
/s/ /s/
- -------------------------------- ---------------------------------
J.A.M.H. der Kinderen Brenda J. Walker
Director Director
/s/ /s/
- -------------------------------- ---------------------------------
Everett B. Miller, III Roger M Widmann
Director Director
/s/
- --------------------------------
Richard Homburg
Director
March 29, 2004
64
CEDAR SHOPPING CENTERS, INC.
SCHEDULE III
Real Estate And Accumulated Depreciation
Year Ended December 31, 2003
Initial Cost To Company
Gross --------------------------- Subsequent
Percent Leasable Year Built/ Year Buildings & Cost
Property Description Owned Area Renovated Acquired Land Improvements Capitalized
- ---------------------------------------------------------------------------------------------------------------------
The Point Shopping Center 100% 255,000 1972/ 2000 $2,700,000 $10,800,000 $10,664,000
Harrisburg, PA 2000-2001
Port Richmond Village 100% 157,000 1988 2001 2,942,000 11,769,000 284,000
Philadelphia, PA
Academy Plaza 100% 155,000 1965/ 2001 2,406,000 9,623,000 416,000
Philadelphia, PA 1998
Washington Center Shoppes 100% 158,000 1979/ 2001 2,061,000 7,314,000 330,000
Washington Township, NJ 1995
Red Lion Shopping Center 20% 224,000 1991/ 2002 4,213,000 16,531,000 (274,000)
Philadelphia, PA 1990;
1998-2000
Loyal Plaza 25% 293,000 1969/ 2002 3,852,000 15,620,000 72,000
Williamsport, PA 1999-2000
Camp Hill Mall 100% 522,000 1958/ 2002 4,460,000 17,857,000 892,000
Camp Hill, PA 1986; 1991
2003-2004
LA Fitness Facility 50% 41,000 2003 2002 2,107,000 - 3,585,000
Fort Washington, PA
Fairview Plaza 30% 70,000 1992 2003 1,810,000 7,272,000 -
New Cumberland, PA
Halifax Plaza 30% 54,000 1994 2003 1,102,000 4,609,000 29,000
Halifax, PA
Newport Plaza 30% 67,000 1996 2003 1,316,000 5,320,000 -
Newport, PA
[RESTUBBED TABLE]
Gross Amount At Which Carried At
December 31, 2003
---------------------------------------------
Buildings & Accumulated Amount Of Depreciation
Property Description Land Improvements Total Depreciation Encumbrance Life (Years)
- ------------------------------------------------------------------------------------------------------------------
The Point Shopping Center $2,996,000 $21,168,000 $24,164,000 $1,539,000 $19,575,000 10-40
Harrisburg, PA
Port Richmond Village 2,942,000 12,053,000 14,995,000 673,000 11,292,000 10-40
Philadelphia, PA
Academy Plaza 2,406,000 10,039,000 12,445,000 552,000 10,422,000 10-40
Philadelphia, PA
Washington Center Shoppes 2,061,000 7,644,000 9,705,000 432,000 5,826,000 10-40
Washington Township, NJ
Red Lion Shopping Center 4,221,000 16,249,000 20,470,000 671,000 16,590,000 10-40
Philadelphia, PA
Loyal Plaza 3,852,000 15,692,000 19,544,000 587,000 13,677,000 10-40
Williamsport, PA
Camp Hill Mall 4,460,000 18,749,000 23,209,000 515,000 14,000,000 10-40
Camp Hill, PA
LA Fitness Facility 2,107,000 3,585,000 5,692,000 - 4,559,000 10-40
Fort Washington, PA
Fairview Plaza 1,810,000 7,272,000 9,082,000 178,000 6,018,000 10-40
New Cumberland, PA
Halifax Plaza 1,102,000 4,638,000 5,740,000 106,000 4,190,000 10-40
Halifax, PA
Newport Plaza 1,316,000 5,320,000 6,636,000 122,000 5,346,000 10-40
Newport, PA
Real Estate And Accumulated Depreciation (Continued)
Year Ended December 31, 2003
Initial Cost To Company
Gross --------------------------- Subsequent
Percent Leasable Year Built/ Year Buildings & Cost
Property Description Owned Area Renovated Acquired Land Improvements Capitalized
- ---------------------------------------------------------------------------------------------------------------------
Pine Grove Plaza
Shopping Center 100% 79,000 2001/ 2003 2,010,000 6,489,000 -
Pemberton Township, NJ 2002
Swede Square
Shopping Center 100% 103,000 1980/ 2003 1,555,000 6,232,000 210,000
East Norriton, PA 2003-2004
Valley Plaza
Shopping Center 100% 191,000 1975/ 2003 1,950,000 7,766,000 -
Hagerstown, MD 1994
Wal-Mart Shopping
Center 100% 155,000 1972/ 2003 - 11,834,000 -
Southington, CT 2000
South Philadelphia
Shopping Plaza 100% 283,000 1950/ 2003 8,173,000 33,083,000 -
Philadelphia, PA 1998-2003
River View Plaza I, II
and III 100% 247,000 1991/ 2003 9,710,000 38,840,000 -
Philadelphia, PA 1993-1998
Columbus Crossing
Shopping Center 100% 142,000 2001 2003 4,579,000 18,318,000 -
Philadelphia, PA
Sunset Crossings
Shopping Center 100% 74,000 2002 2003 2,149,000 8,601,000 -
Dickson City, PA
Golden Triangle
Shopping Center 100% 229,000 1960/ 2003 2,318,000 9,272,000 -
Lancaster, PA 1985; 1990;
1997;
2003-2004
--------- ---------------------------------------
Totals 3,499,000 $61,413,000 $247,150,000 $16,208,000
========= =======================================
[RESTUBBED TABLE]
Gross Amount At Which Carried At
December 31, 2003
---------------------------------------------
Buildings & Accumulated Amount Of Depreciation
Property Description Land Improvements Total Depreciation Encumbrance Life (Years)
- ------------------------------------------------------------------------------------------------------------------
Pine Grove Plaza
Shopping Center 2,010,000 6,489,000 8,499,000 120,000 6,301,000 10-40
Pemberton Township, NJ
Swede Square
Shopping Center 1,555,000 6,442,000 7,997,000 122,000 5,560,000 10-40
East Norriton, PA
Valley Plaza
Shopping Center 1,950,000 7,766,000 9,716,000 97,000 6,361,000 10-40
Hagerstown, MD
Wal-Mart Shopping
Center - 11,834,000 11,834,000 99,000 5,441,000 10-40
Southington, CT
South Philadelphia
Shopping Plaza 8,173,000 33,083,000 41,256,000 139,000 - 10-40
Philadelphia, PA
River View Plaza I, II
and III 9,710,000 38,840,000 48,550,000 161,000 - 10-40
Philadelphia, PA
Columbus Crossing
Shopping Center 4,579,000 18,318,000 22,897,000 28,000 - 10-40
Philadelphia, PA
Sunset Crossings
Shopping Center 2,149,000 8,601,000 10,750,000 6,000 - 10-40
Dickson City, PA
Golden Triangle
Shopping Center 2,318,000 9,272,000 11,590,000 - 9,825,000 10-40
Lancaster, PA
------------------------------------------------------------------------
Totals $61,717,000 $263,054,000 $324,771,000 $6,147,000$144,983,000
========================================================================
EXHIBIT INDEX
Item Title or Description
---- ----------------------------------------------------------------
3.1 Articles of Incorporation of the Company, incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form S-11 filed on August
20, 2003, as amended.
3.2 Articles of Amendment of Articles of Incorporation of the Company,
incorporated by reference to Exhibit 3.2 of the Registration Statement
on Form S-11 filed on August 20, 2003, as amended.
3.3 By-laws of the Company, as amended, incorporated by reference to
Exhibit 3.3 of the Registration Statement on Form S-11 filed on August
20, 2003, as amended.
3.4 Agreement of Limited Partnership of Cedar Shopping Centers Partnership,
L.P., incorporated by reference to Exhibit 3.4 of the Registration
Statement on Form S-11 filed on August 20, 2003, as amended.
3.5 Amendment No. 1 to Agreement of Limited Partnership of Cedar Shopping
Center Partnership L.P. incorporated by reference to Exhibit 3.5 of
the Registration Statement on Form S-11 filed on August 20, 2003, as
amended.
10.1 Agreement of Purchase and Sale by and between SAGD-11 Associates, L.P.
and Cedar Shopping Centers Partnership, L.P., dated as of October 27,
2003.
10.2 Amendment to Agreement of Purchase and Sale by and between SAGD-11
Associates, L.P. and Cedar Shopping Centers Partnership, L.P., dated
December 1, 2003.
10.3 Promissory Note between Cedar Sunset Crossings, LLC as Maker and Cedar
Lender, LLC as Payee, dated December 22, 2003.
10.4 Loan Agreement by and among Cedar Shopping Centers Partnership, L.P.,
Fleet National Bank, Commerzbank AG New York Branch, PB Capital
Corporation, Manufacturers and Traders Trust Company, Sovereign Bank,
Raymond James Bank, FSB, Citizens Bank and the other lending
institutions which are or may become parties to the Loan Agreement (the
"Lenders") and Fleet National Bank (as Administrative Agent), dated
January 30, 2004, incorporated by reference to Exhibit 10.1 of Form 8-K
filed on March 22, 2004.
10.5 Real Estate Purchase and Sale Agreement regarding the sale of
Southpoint Parkway, Jacksonville, Florida, by and between Cedar
Shopping Centers Partnership, L.P. and Southpoint Parkway Center, L.C.,
dated February 1, 2002, incorporated by reference to Exhibit 10.1 to
Form 8-K filed June 10, 2002; and Addendum Number One to Real Estate
Purchase and Sale Agreement by and between Cedar Shopping Centers
Partnership, L.P. and Southpoint Parkway Center, L.C., incorporated by
reference to Exhibit 10.2 of Form 8-K filed on June 20, 2002.
10.6 Property Management Agreement by and between API Red Lion Shopping
Center Associates and SKR Management Corp., dated as of January 1,
1995, incorporated by reference to Exhibit 10.1 of Form 8-K filed on
June 13, 2002.
10.7 Assignment of Property Management Agreement by and between SKR
Management Corp. and Brentway Management LLC, dated as of January 1,
1996, incorporated by reference to Exhibit 10.2 of Form 8-K filed on
June 13, 2002.
10.8 Standstill Agreement by and between Robert J. Ambrosi of ARC
Properties, Inc. and Cedar Shopping Centers, Inc., dated May 31, 2002,
incorporated by reference to Exhibit 10.3 of Form 8-K filed on June 13,
2002.
10.9 Purchase and Sale Agreement by and between Silver Circle Management
Corp. and Leo S. Ullman and Philadelphia Cedar-RL, LLC, dated as of
February 6, 2002, incorporated by reference to Exhibit 10.4 of Form 8-K
filed on June 13, 2002.
10.10 Indemnity Agreement by Cedar-RL, LLC to and for the benefit of Leo S.
Ullman, dated as of May 31, 2002, incorporated by reference to Exhibit
10.5 of Form 8-K filed on June 13, 2002.
67
10.11 Promissory Note from Cedar-RL, LLC to Silver Circle Management Corp.,
dated as of May 31, 2002, incorporated by reference to Exhibit 10.6 of
Form 8-K filed on June 13, 2002.
10.12 Subordinate Pledge and Security Agreement by Cedar-RL, LLC and Silver
Circle Management Corp., dated as of May 31, 2002, incorporated by
reference to Exhibit 10.7 of Form 8-K filed on June 13, 2002.
10.13 Compensation Agreement between Cedar Shopping Centers, Inc., Cedar
Shopping Centers Partnership, L.P. SKR Management Corp., Cedar Bay
Realty Advisors, Inc., Brentway Management LLC, Leo S. Ullman and ARC
Properties, Inc., dated May 31, 2002, incorporated by reference to
Exhibit 10.8 of Form 8-K filed on June 13, 2002.
10.14 Amended and Restated Limited Partnership Agreement of API Red Lion
Shopping Center Associates, L.P., a New York Limited Partnership, among
Cedar-RL, LLC and Silver Circle Management Corp. and Philadelphia
ARC-Cedar, LLC, dated as of May 31, 2002, incorporated by reference to
Exhibit 11.11 of Form 8-K filed on June 13, 2002.
10.15 Warrant by Cedar Shopping Centers Partnership, L.P. to ARC Properties,
Inc., dated as of May 31, 2002, incorporated by reference to Exhibit
10.12 of Form 8-K filed on June 13, 2002.
10.16 Property Management Agreement by and between The Point Associates, L.P.
and SKR Management Corp., dated as of December 1, 1994, incorporated by
reference to Exhibit 10.17 of Form 8-K filed on June 13, 2002.
10.17 Assignment of Property Management Agreement by and between SKR
Management Corp. and Brentway Management LLC, dated as of January 1,
1996, incorporated by reference to Exhibit 10.18 of Form 8-K filed on
June 13, 2002.
10.18 Agreement to Purchase Real Estate by and between Loyal Plaza Venture,
L.P. and Cedar Shopping Centers Partnership, L.P. dated January 7,
2002; First Amendment to Agreement to Purchase Real Estate by and
between Loyal Plaza Venture, L.P. and Cedar Shopping Centers
Partnership, L.P., dated February 22, 2002; Second Amendment to
Agreement to Purchase Real Estate by and between Loyal Plaza Venture,
L.P. and Cedar Shopping Centers Partnership, L.P., dated February 24,
2002; Third Amendment to Agreement to Purchase Real Estate between
Loyal Plaza Venture, L.P. and Cedar Shopping Centers Partnership, L.P.,
dated March 1, 2002; Fourth Amendment to Agreement to Purchase Real
Estate by and between Loyal Plaza Venture, L.P. and Cedar Shopping
Centers Partnership, L.P., dated March 8, 2002; Fifth Amendment to
Agreement to Purchase Real Estate by and between Loyal Plaza Venture,
L.P. and Cedar Shopping Centers Partnership, L.P., dated March 13,
2002; Sixth Amendment to Agreement to Purchase Real Estate by and
between Loyal Plaza Venture, L.P. and Cedar Shopping Centers
Partnership, L.P., dated March 15, 2002; and Seventh Amendment to
Agreement to Purchase Real Estate by and between Loyal Plaza Venture,
L.P. and Cedar Shopping Centers Partnership, L.P., dated March 22, 2002
(collectively, the "Purchase Contract"), incorporated by reference to
Exhibit 10.1 of Form 8-K filed on July 17, 2002.
10.19 Agreement to Assign Agreement between Cedar Shopping Centers
Partnership, L.P. as Assignor to Loyal Plaza Associates, L.P. as
Assignee, made by and between Assignor and Loyal Plaza Venture, L.P.,
dated June 2002, incorporated by reference to Exhibit 10.2 of Form 8-K
filed on July 17, 2002.
10.20 Limited Partnership Agreement of Loyal Plaza Associates, L.P. between
CIF-Loyal Plaza Associates, L.P. and Kimco Preferred Investor IV Trust,
dated June 28, 3002, incorporated by reference to Exhibit 10.3 of Form
8-K filed on July 17, 2002.
10.21 Limited Partnership Agreement of CIF-Loyal Plaza Associates, L.P. by
and among CIF-Loyal Plaza Associates, L.P. and Cedar Shopping Centers
Partnership, L.P., dated as of June 28, 2002, incorporated by reference
to Exhibit 10.4 of Form 8-K filed on July 17, 2002.
68
10.22 Open-End Mortgage and Security Agreement in the amount of $14 million
(Original Mortgage) by Loyal Plaza Venture, L.P. (Borrower) and
Glimcher Loyal Plaza Tenant, L.P. (Tenant) (collectively referred to as
Mortgagor) to Lehman Brothers Bank, FSB (Lender), dated May 31, 2001,
incorporated by reference to Exhibit 10.5 of Form 8-K file don July 17,
2002.
10.23 Loan Assumption and Modification Agreement by and among Loyal Plaza
Associates, L.P. (Assuming Borrower), Cedar Shopping Centers, Inc.
(Assuming Principal), Loyal Plaza Venture, L.P. (Original Borrower),
Glimcher Properties Limited Partnership (Glimcher) and Glimcher Loyal
Plaza Tenant, L.P. (Tenant), in favor of LaSalle Bank National
Association (Trustee) and LB-UBS Commercial Mortgage Trust 2001-C3
(Lender), dated as of July 2, 2002, incorporated by reference to
Exhibit 10.6 of Form 8-K filed on July 17, 2002.
10.24 Property Management Agreement [Loyal Plaza] by and between Loyal Plaza
Associates, L.P. and Brentway Management LLC, dated as of June 2002,
incorporated by reference to Exhibit 10.11 of Form 8-K filed on July
17, 2002.
10.25 Post Closing Agreement regarding the Assumption by Loyal Plaza
Associates, L.P. (Assuming Borrower) of that certain Loan evidenced by
that certain Note dated May 31, 2001, payable by Loyal Plaza Venture,
L.P. (Original Borrower) to Lehman Brothers Bank, FSB (Original Lender)
as secured by that certain Open-End Mortgage and Security Agreement of
even date to Glimcher Loyal Plaza Tenant, L.P. (Mortgage) currently
held and owned by LaSalle Bank National Association (Trustee) of LB-UBS
Commercial Trust (Lender), dated July 2, 2002, incorporated by
reference to Exhibit 10.13 of Form 8-K filed on July 17, 2002.
10.26 Agreement of Purchase and Sale between Connecticut General Life
Insurance Company and Cedar Shopping Centers Partnership, L.P., dated
September 12, 2002, incorporated by reference to Exhibit 10.1 of Form
8-K filed on December 9, 2002.
10.27 First Amendment to Agreement of Purchase and Sale between Connecticut
General Life Insurance Company and Cedar Shopping Centers Partnership,
L.P., dated September 122, 2002, incorporated by reference to Exhibit
10.2 of Form 8-K filed on December 9, 2002.
10.28 Second Amendment to Agreement of Purchase and Sale between Connecticut
General Life Insurance Company and Cedar Shopping Centers Partnership,
L.P., dated September 12, 2002, incorporated by reference to Exhibit
10.3 of Form 8-K filed on December 9, 2002.
10.29 Third Amendment to Agreement of Purchase and Sale between Connecticut
General Life Insurance Company and Cedar Shopping Centers Partnership,
L.P., dated as of November 15, 2002, incorporated by reference to
Exhibit 10.4 of Form 8-K filed on December 9, 2002.
10.30 Assignment and Assumption of Contract of Sale between Cedar Shopping
Centers Partnership, L.P. and Cedar-Camp Hill, LLC, dated November
2002, incorporated by reference to Exhibit 10.5 of Form 8-K filed on
December 9, 2002.
10.31 Limited Liability Company Agreement of Cedar-Camp Hill, LLC by Cedar
Shopping Centers Partnership, L.P., effective as of November 1, 2002,
incorporated by reference to Exhibit 10.6 of Form 8-K filed on December
9, 2002.
10.32 Property Management Agreement by and between Cedar-Camp Hill, LLC and
Brentway Management LLC dated as of ____, 2002, incorporated by
reference to Exhibit 10.7 of Form 8-K filed on December 9, 2002.
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10.33 Loan Agreement by and between SWH Funding Corp and Cedar Shopping
Centers Partnership, L.P., dated as of November 2002, incorporated by
reference to Exhibit 10.9 of Form 8-K filed on December 9, 2002.
10.34 Loan Agreement by and between Cedar-Camp Hill, LLC and Citizens Bank of
Pennsylvania, executed on November 14, 2002, incorporated by reference
to Exhibit 10.10 of Form 8-K filed on December 9, 2002.
10.35 Open-End Mortgage and Security Agreement between Cedar-Camp Hill, LLC,
Cedar Bay Realty Advisors, Inc. and Citizens Bank of Pennsylvania,
executed on November 14, 2002, incorporated by reference to Exhibit
10.11 of Form 8-K filed on December 9, 2002.
10.36 Pledge and Security Agreement by Cedar Shopping Centers Partnership,
L.P. and SWH Funding Corp. regarding that certain Loan Agreement; dated
as of November 22, 2002; incorporated by reference to Exhibit 10.22 of
Form 8-K filed on December 9, 2002.
10.37 Employment Agreement between Cedar Shopping Centers, Inc. and Leo S.
Ullman, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.39 of the Registration Statement on Form S-11 filed on
August 20, 2003, as amended.
10.38 Employment Agreement between Cedar Shopping Centers, Inc. and Brenda J.
Walker, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.40 of the Registration Statement on Form S-11 filed on
August 20, 2003, as amended.
10.39 Employment Agreement between Cedar Shopping Centers, Inc. and Thomas J.
O'Keeffe, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.41 of the Registration Statement on Form S-11 filed on
August 20, 2003, as amended.
10.40 Employment Agreement between Cedar Shopping Centers, Inc. and Thomas B.
Richey, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.42 of the Registration Statement on Form S-11 field on
August 20, 2003, as amended.
10.41 Employment Agreement between Cedar Shopping Centers, Inc. and Stuart H.
Widowski, dated as of October 1, 2003, incorporated by reference to
Exhibit 10.43 of the Registration Statement on Form S-11 filed on
August 20, 2003, as amended.
10.42 Recapitalization Agreement dated October 2, 2003 by and among Delaware
1851 Associates, L.P., Indenture of Trust of Bart Blatstein dated as of
June 9, 1998, Irrevocable Indenture of Trust of Barton Blatstein dated
July 13, 1999, Welsh-Square, Inc. and CSC-Columbus, LLC, incorporated
by reference to Exhibit 10.45 of the Registration Statement on Form
S-11 filed on August 20, 2003, as amended.
10.43 Agreement to enter into Net Lease dated April 23, 2003, between SPSP
Corporation, Passyunk Supermarket, Inc., Twenty Fourth Street Passyunk
Partners, L.P. and Cedar-South Philadelphia I, LLC, incorporated by
reference to Exhibit 10.46 of the Registration Statement on Form S-11
filed on August 10, 2003, as amended.
21.1 List of Subsidiaries of the Registrant
31.1 Section 302 Chief Executive Officer Certification
31.2 Section 302 Chief Financial Officer Certification
32.1 Section 906 Chief Executive Officer Certification
32.2 Section 906 Chief Financial Officer Certification
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