Cedar Shopping Centers (CDR)

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Lawrence Gu

Cedar Shopping Centers is a fully integrated Real Estate Investment Trust (REIT) which owns, operates, develops and redevelops supermarket-anchored shopping centers primarily in the mid-Atlantic and Northeast coastal states. The company owns and manages roughly 115 operating properties totally 14.5 million square feet of gross leasable areas. It makes money by increasing total space leased, which currently stands at around 92.5%.^[1] As it primarily centers around supermarkets, macroeconomic factors such as Unemployment (U.S.) is critical for operating health.

Business Growth

Critical to Cedar's growth is the sustainability of revenues from rents and operating expense reimbursements as associated with securing long-term leases. Therefore, quality of tenants to make payments in a timely basis is highly important.

Trends and Forces

Tenants' Ability to Pay through Long-Term Contracts are Impacted by Macroeconomic Factors

For Cedar, the biggest source of revenue is its ability for tenants to pay, but lease term is just as important. Long-term leases from stable tenants preserve a steady stream of revenues for Cedar for years down the row. On the other hand, short-term leases means that Cedar must search for more tenants, raising vacancy rates. As a result, the ability to secure stable tenants for long-term leases is dependent upon macroeconomic factors. While supermarkets are considered a necessity, other large tenants include Staples (SPLS), which are dependent more upon macroeconomic factors such as unemployment.

Volatility and Instability in Credit Markets bring High Barriers to Financing for REITS

Because REITS are obligated to pay out 90% of income to shareholders, which therefore allow it to become a pass-through entity, REITS such as Cedar have difficulty simply retaining cash on hand. Without a large surplus of cash at hand to fund growth, Cedar must resort to external financing from either credit or equity markets. Equity markets tend to be dilutive to shareholders, and as such stable credit markets are necessary to insure a continuance of refinancing opportunities as REITS are traditionally unable to keep large amounts of cash at hand to pay off balloon payments.

Competition

Cedar competes with other REITS and privately owned shopping centers, such as:

• Equity One (EQY) is a REIT that principally owns, manages, acquires and develops neighborhood and community shopping centers.^[2]
• Glimcher Realty Trust (GRT) is a self-administered and self-managed real estate investment trust (REIT) and its affiliates, of owning, leasing, acquiring, developing and operating a portfolio of retail properties consisting of regional and super regional malls, and community shopping centers.^[3]
• Macerich Company (MAC) is involved in acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. ^[4]

References

1. ↑ CDR FY2010 10-K, Pg 21
2. ↑ EQY Business Description
3. ↑ GRT Business Description
4. ↑ MAC Business Description