As filed with the Securities and Exchange
Commission on August 20, 2003
File No.
333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Cedar Shopping Centers, Inc.
(Exact Name of Registrant as Specified in its
Governing Instruments)
44 South Bayles Avenue, Port Washington, New
York 11050
(516) 767-6492
(Address, Including Zip Code, and Telephone
Number, Including Area Code,
of Registrants Principal Executive
Offices)
Leo S. Ullman, Chairman and Chief Executive
Officer
44 South Bayles Avenue, Port Washington, New
York 11050
(516) 767-6492
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
|
|
|
Martin H. Neidell, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
(212) 806-5836
Facsimile (212) 806-7836
|
|
J. Gerard Cummins, Esq.
Sidley Austin Brown & Wood LLP
787 Seventh Avenue
New York, New York 10019
(212) 839-5374
Facsimile (212) 839-5599
|
Approximate date of commencement of the
proposed sale of the securities to the public:
As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
o
If delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the following
box.
o
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed Maximum
|
|
Proposed Maximum
|
|
|
Title of Securities
|
|
Amount Being
|
|
Offering Price
|
|
Aggregate
|
|
Amount Of
|
Being Registered
|
|
Registered(1)
|
|
Per Unit(2)
|
|
Offering Price(2)
|
|
Registration Fee
|
|
|
Common Stock, par value $0.01 per share
|
|
|
|
|
|
$187,450,000
|
|
$15,164.71
|
|
|
|
|
(1)
|
Includes shares of common stock which the
underwriters have the option to purchase solely to cover
over-allotments, if any.
|
(2)
|
Estimated solely for the purposes of calculating
the registration fee pursuant to Rule 457 under the
Securities Act of 1933, as amended.
|
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary
to delay its effective date until the Registrant shall file a
further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said
Section 8(a), may determine.
[Photos of aerial views of eight shopping centers
and facades of certain tenants]
The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting any offer to buy these securities in any state where
the offer or sale is not permitted.
|
Subject to
Completion
Preliminary Prospectus dated August 20,
2003
PROSPECTUS
Shares
Cedar Shopping Centers, Inc.
Common Stock
Cedar Shopping Centers, Inc. is a real estate
investment trust, or REIT, that focuses on the ownership,
operation and redevelopment of neighborhood and community
shopping centers.
We are
offering shares
of our common stock. We expect the public offering price to be
between $ and
$ per
share. We will receive all of the net proceeds from the sale of
these shares.
Our common stock is traded on the Nasdaq SmallCap
Market under the symbol CEDR.
On ,
2003, the last reported sale price of our common stock on the
Nasdaq SmallCap Market was
$ per
share.
On ,
2003, we effectuated
a -for- reverse
stock split. We intend to apply for listing of our common stock
on the New York Stock Exchange, Inc. under the symbol
[CDR] and expect that the shares of common stock
sold in this offering will trade on the NYSE.
In connection with this offering, we will be
changing our distribution policy and intend to commence the
making of quarterly distributions.
To assist us in complying with certain federal
income tax requirements applicable to REITs, our charter and
bylaws contain certain restrictions relating to the ownership
and transfer of our common stock, including an ownership limit
of 9.9% of our total outstanding common stock. See
Material Provisions of Maryland Law and of Our Charter and
Bylaws for a discussion of these restrictions.
Investing in our common stock involves risks that are
described in the Risk Factors section beginning on
page 16 of this prospectus. Some risks include:
|
|
|
|
|
All of our properties are located in the
Northeast, primarily in eastern Pennsylvania, which exposes us
to greater economic risks than if we owned properties in several
geographic regions.
|
|
|
|
We have substantial debt obligations that may
impede our operating performance, putting us at a competitive
disadvantage that may result in losses.
|
|
|
|
Since 2000, we have incurred net operating losses
and if we are not able to achieve and maintain profitability,
the market price of our common stock could decrease.
|
|
|
|
We may not be successful in identifying suitable
acquisitions that meet our criteria, which may impede our
growth; if we do identify suitable acquisition targets, we may
not be able to consummate such transactions on favorable terms.
|
|
|
|
Adverse market conditions and competition may
impede our ability to renew leases or re-let space.
|
|
|
|
Prior to the consummation of this offering, we
were externally managed by entities controlled by our executive
officers; we do not have any operating history as a REIT which
is self-administered and self-managed.
|
|
|
|
If we fail to remain qualified as a REIT, our
distributions will not be deductible by us, and our income will
be subject to taxation, reducing our earnings available for
distribution.
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
|
|
|
|
Public offering price
|
|
|
$
|
|
|
|
$
|
|
Underwriting discount
|
|
|
$
|
|
|
|
$
|
|
Proceeds, before expenses, to us
|
|
|
$
|
|
|
|
$
|
|
The underwriters also may purchase up to an
additional shares
from us at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus
to cover over-allotments.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
The shares of common stock will be ready for
delivery on or
about ,
2003.
Merrill Lynch & Co.
The date of this prospectus
is ,
2003.
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
Special Note Regarding Forward-Looking Statements
|
|
|
1
|
|
Prospectus Summary
|
|
|
2
|
|
Risk Factors
|
|
|
16
|
|
|
Risks Related to Our Properties and Our Business
|
|
|
16
|
|
|
|
All of our properties are located in the
Northeast, primarily in eastern Pennsylvania, which exposes us
to greater economic risks than if we owned properties in several
geographic regions
|
|
|
16
|
|
|
|
After this offering and the pending property
acquisitions described in this prospectus, we expect to have
approximately $181.9 million of consolidated debt, a
portion of which will be variable rate debt, which may impede
our operating performance and put us at a competitive
disadvantage
|
|
|
16
|
|
|
|
Any tenant bankruptcies or leasing delays we
encounter, particularly with respect to our anchor tenants,
could seriously harm our operating results and financial
condition
|
|
|
17
|
|
|
|
Since 2000, we have incurred net operating losses
and if we are not able to achieve and maintain profitability,
the market price of our common stock could decrease
|
|
|
17
|
|
|
|
We may not be successful in identifying suitable
acquisitions that meet our criteria, which may impede our
growth; if we do identify suitable acquisition targets, we may
not be able to consummate such transactions on favorable terms
|
|
|
17
|
|
|
|
We face competition for the acquisition of real
estate properties, which may impede our ability to make future
acquisitions or may increase the cost of these acquisitions
|
|
|
17
|
|
|
|
We have recently experienced and expect to
continue to experience rapid growth and may not be able to
integrate additional properties into our operations or otherwise
manage our growth, which may adversely affect our operating
results
|
|
|
18
|
|
|
|
Our current and future joint venture investments
could be adversely affected by our lack of sole decision-making
authority, our reliance on joint venture partners
financial condition and any disputes that may arise between us
and our joint venture partners
|
|
|
18
|
|
|
|
Adverse market conditions and competition may
impede our ability to renew leases or re-let space as leases
expire which could harm our business and operating results
|
|
|
18
|
|
|
|
Our properties consist of neighborhood and
community shopping centers. Our performance therefore is linked
to economic conditions in the market for retail space generally
|
|
|
19
|
|
|
|
If we have to borrow funds under the new line
of credit that we intend to enter into in connection with this
offering in order to make principal payments under our mortgage
and other indebtedness, the amount that we will have available
to borrow under this new line of credit for acquisitions and
other opportunities will be reduced, which could slow our
growth
|
|
|
19
|
|
|
|
The financial covenants in our loan agreements
may restrict our operating or acquisition activities, which may
harm our financial condition and operating results
|
|
|
19
|
|
|
|
Our performance and value are subject to risks
associated with real estate assets and with the real estate
industry
|
|
|
19
|
|
|
|
Redevelopment activities may be delayed or
otherwise may not perform as expected
|
|
|
20
|
|
|
|
We may be restricted from re-leasing space based
on existing exclusivity lease provisions with some of our tenants
|
|
|
20
|
|
|
|
Potential losses may not be covered by insurance
|
|
|
20
|
|
|
|
Future terrorist attacks in the United States
could harm the demand for, and the value of, our properties
|
|
|
20
|
|
|
|
Rising operating expenses could reduce our cash
flow and funds available for future distributions
|
|
|
21
|
|
|
|
We rely on Giant Food for 10.4% of our total
revenues
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
We may be unable to collect balances due from
any tenants in bankruptcy, which would harm our operating
results
|
|
|
21
|
|
|
|
We could incur significant costs related to
government regulation and private litigation over environmental
matters
|
|
|
21
|
|
|
|
We may incur significant costs complying with the
Americans with Disabilities Act and similar laws
|
|
|
22
|
|
|
|
We may incur significant costs complying with
other regulations
|
|
|
22
|
|
|
Risks Related to Our Organization and Structure
|
|
|
23
|
|
|
|
Prior to the consummation of this offering, we
were externally managed by entities controlled by our executive
officers; we do not have any operating history as a REIT that is
self-administered and self-managed
|
|
|
23
|
|
|
|
Our charter and Maryland law contain provisions
that may delay, defer or prevent a change of control transaction
and depress our stock price
|
|
|
23
|
|
|
|
If we fail to remain qualified as a REIT, our
distributions will not be deductible by us, and our income will
be subject to taxation, reducing our earnings available for
distribution
|
|
|
24
|
|
|
|
REIT distribution requirements could adversely
affect our liquidity
|
|
|
24
|
|
|
|
Dividends payable by REITS do not qualify for the
reduced tax rates under recently enacted tax legislation
|
|
|
25
|
|
|
|
Our success depends on key personnel whose
continued service is not guaranteed
|
|
|
25
|
|
|
Risks Related to this Offering
|
|
|
25
|
|
|
|
The market price for our common stock after this
offering may be lower than the offering price and our stock
price may fluctuate significantly after this offering
|
|
|
25
|
|
|
|
Shares of our common stock have been thinly
traded in the past
|
|
|
25
|
|
|
|
You should not rely on the underwriters
lock-up agreements to limit the number of shares sold into the
market by our affiliates
|
|
|
26
|
|
|
|
If you purchase shares of common stock in this
offering, you will experience immediate dilution
|
|
|
26
|
|
|
|
Estimated initial cash available for distribution
may not be sufficient to make distributions at expected levels
|
|
|
26
|
|
|
|
Market interest rates may have an effect on the
value of our common stock
|
|
|
26
|
|
|
|
Future sales of shares of our common stock could
lower the price of our shares
|
|
|
26
|
|
Use of Proceeds
|
|
|
27
|
|
Price Range of Common Stock and Distributions
|
|
|
29
|
|
Distribution Policy
|
|
|
30
|
|
Capitalization
|
|
|
33
|
|
Dilution
|
|
|
34
|
|
Selected Historical Financial Data
|
|
|
35
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
|
|
40
|
|
|
Overview
|
|
|
40
|
|
|
Summary of Critical Accounting Policies
|
|
|
40
|
|
|
Results of Operations
|
|
|
44
|
|
|
Pro Forma Operating Results
|
|
|
50
|
|
|
Liquidity and Capital Resources
|
|
|
52
|
|
|
Funds From Operations
|
|
|
55
|
|
ii
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
Inflation
|
|
|
56
|
|
|
Quantitative And Qualitative Disclosures About
Market Risk
|
|
|
56
|
|
Business and Properties
|
|
|
58
|
|
|
Industry Background
|
|
|
58
|
|
|
Our Competitive Strengths
|
|
|
59
|
|
|
Business and Growth Strategies
|
|
|
61
|
|
|
Financing Strategy
|
|
|
62
|
|
|
Acquisition and Market Selection Process
|
|
|
62
|
|
|
Our Properties
|
|
|
63
|
|
|
Tenant Diversification
|
|
|
64
|
|
|
Individual Property Descriptions
|
|
|
65
|
|
|
Pending Transactions
|
|
|
72
|
|
|
Rents and Occupancy Information
|
|
|
75
|
|
|
Competition
|
|
|
78
|
|
|
Office
|
|
|
78
|
|
|
Legal Proceedings
|
|
|
79
|
|
|
Environmental Matters
|
|
|
79
|
|
|
Employees
|
|
|
79
|
|
|
Outstanding Indebtedness
|
|
|
79
|
|
Management
|
|
|
84
|
|
|
Board Committees
|
|
|
86
|
|
|
Compensation of Directors
|
|
|
87
|
|
|
Compensation of Executive Officers
|
|
|
87
|
|
|
Stock Option Plan
|
|
|
87
|
|
|
Employment Agreements With Named Executive
Officers
|
|
|
88
|
|
|
Compensation Committee Interlocks and Insider
Participation
|
|
|
88
|
|
Certain Relationships and Related Transactions
|
|
|
89
|
|
|
Merger of Our Advisors
|
|
|
89
|
|
|
Property Management Services
|
|
|
90
|
|
|
Legal Services
|
|
|
91
|
|
|
Transactions with CBC
|
|
|
91
|
|
|
Transactions with Homburg USA and Homburg Invest
|
|
|
92
|
|
|
Transactions with Mr. Ullman
|
|
|
93
|
|
|
Shore Mall Option
|
|
|
94
|
|
Investment Policies and Policies with Respect to
Certain Activities
|
|
|
95
|
|
|
Investments in Real Estate or Interests in Real
Estate
|
|
|
95
|
|
|
Investments in Mortgages
|
|
|
95
|
|
|
Investments in Securities of or Interests in
Persons Primarily Engaged in Real Estate Activities And Other
Issuers
|
|
|
95
|
|
|
Dispositions
|
|
|
96
|
|
|
Financing Policies
|
|
|
96
|
|
iii
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
Lending Policies
|
|
|
97
|
|
|
Equity Capital Policies
|
|
|
97
|
|
|
Conflict of Interest Policy
|
|
|
97
|
|
|
Reporting Policies
|
|
|
97
|
|
Principal Stockholders
|
|
|
98
|
|
Description of Capital Stock
|
|
|
100
|
|
|
General
|
|
|
100
|
|
|
Common Stock
|
|
|
100
|
|
|
Preferred Stock
|
|
|
100
|
|
|
Power to Reclassify Unissued Shares of Common
Stock and Preferred Stock
|
|
|
101
|
|
|
Power to Issue Additional Shares of Common Stock
and Preferred Stock
|
|
|
101
|
|
|
Transfer Agent and Registrar
|
|
|
101
|
|
|
Transfer Restrictions
|
|
|
101
|
|
Structure and Description of Operating Partnership
|
|
|
104
|
|
|
Distributions, Allocations of Profits And Losses
|
|
|
104
|
|
|
Management
|
|
|
104
|
|
|
Transferability of Interests
|
|
|
105
|
|
|
Additional Capital Contributions; Issuance of
Additional Partnership Interests
|
|
|
105
|
|
|
Redemption Of Units
|
|
|
105
|
|
|
Fiduciary Standards and Indemnifications
|
|
|
105
|
|
Shares Eligible for Future Sale
|
|
|
106
|
|
|
Rule 144
|
|
|
106
|
|
|
Lock-Up
|
|
|
106
|
|
|
ARC Properties, Inc. Warrants
|
|
|
106
|
|
|
Christopher Weil & Co. Option
|
|
|
107
|
|
Material Provisions of Maryland Law and of our
Charter and Bylaws
|
|
|
108
|
|
|
Classification of Our Board of Directors
|
|
|
108
|
|
|
Removal of Directors
|
|
|
108
|
|
|
Business Combinations
|
|
|
108
|
|
|
Control Share Acquisitions
|
|
|
109
|
|
|
Amendment To Our Charter
|
|
|
110
|
|
|
Anti-Takeover Effect Of Certain Provisions Of
Maryland Law And Of Our Charter And Bylaws
|
|
|
110
|
|
|
Ownership Limit
|
|
|
110
|
|
|
Indemnification and Limitation of Directors
and Officers Liability
|
|
|
110
|
|
Material United States Federal Income Tax
Considerations
|
|
|
112
|
|
|
Taxation of the Company
|
|
|
112
|
|
|
Taxation of REITS in General
|
|
|
113
|
|
|
Requirements for Qualification General
|
|
|
115
|
|
|
Effect of Subsidiary Entities
|
|
|
115
|
|
|
Income Tests
|
|
|
116
|
|
|
Asset Tests
|
|
|
117
|
|
iv
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
Annual Distribution Requirements
|
|
|
118
|
|
|
Failure To Qualify
|
|
|
119
|
|
|
Prohibited Transactions
|
|
|
119
|
|
|
Tax Aspects of Investments in Affiliated
Partnerships
|
|
|
119
|
|
|
Taxation Of Stockholders
|
|
|
120
|
|
|
Other Tax Considerations
|
|
|
124
|
|
|
State and Local Taxes
|
|
|
124
|
|
ERISA Considerations
|
|
|
125
|
|
|
Regulation Under ERISA and the Code
|
|
|
125
|
|
|
Regulation Issued by the Department of Labor
|
|
|
125
|
|
|
The Shares of Our Common Stock as
Publicly-Offered Securities
|
|
|
126
|
|
|
General Investment Considerations
|
|
|
126
|
|
Underwriting
|
|
|
127
|
|
Experts
|
|
|
130
|
|
Legal Matters
|
|
|
130
|
|
Where You Can Find More Information
|
|
|
130
|
|
Index to Consolidated Financial Statements
|
|
|
F-1
|
|
You should rely only on the information contained
in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where that offer or sale is not
permitted. You should assume that the information appearing in
this prospectus is accurate only as of the date on the front
cover of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that
date.
v
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Some of the statements contained in
Prospectus Summary, Risk Factors,
Distribution Policy, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Business and Properties,
Investment Policies and Policies With Respect to Certain
Activities and elsewhere in this prospectus constitute
forward-looking statements. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies,
anticipated events or trends and similar expressions concerning
matters that are not historical facts. In some cases, you can
identify forward-looking statements by terms such as
may, will, should,
expects, plans, anticipates,
believes, estimates,
predicts, potential or the negative of
these terms or other comparable terminology.
The forward-looking statements contained in this
prospectus reflect our current views about future events and are
subject to risks, uncertainties, assumptions and changes in
circumstances that may cause our actual results to differ
significantly from those expressed in any forward-looking
statement. The factors that could cause actual results to differ
materially from expected results include changes in economic,
business, competitive market and regulatory conditions. For more
information regarding risks that may cause our actual results to
differ materially from any forward-looking statements, see
Risk Factors. We do not intend and disclaim any duty
or obligation to update or revise any industry information or
forward-looking statements set forth in this prospectus to
reflect new information, future events or otherwise.
1
PROSPECTUS SUMMARY
The following summary highlights information
contained elsewhere in this prospectus. This summary is not
complete and does not contain all of the information that you
should consider before investing in our common stock. References
in this prospectus to we, our,
us and our company refer to Cedar
Shopping Centers, Inc., a Maryland corporation, together with
our consolidated subsidiaries, including Cedar Shopping Centers
Partnership, L.P., a Delaware limited partnership of which we
are the sole general partner and which we refer to in this
prospectus as the operating partnership. All share and per share
information set forth in this prospectus has been adjusted to
reflect our 2-for-1 stock split which occurred July 7, 2003
and
our -for- reverse
stock split which occurred
on ,
2003. You should read the entire prospectus, including
Risk Factors and our historical and pro forma
consolidated financial statements and related notes appearing
elsewhere in this prospectus, before deciding to invest in our
common stock. Unless otherwise indicated, this prospectus
assumes that the underwriters over-allotment option is not
exercised.
Cedar Shopping Centers, Inc.
We are a REIT that will be fully integrated,
self-administered and self-managed upon consummation of this
offering. We acquire, own, manage, lease and redevelop primarily
neighborhood and community shopping centers. Upon consummation
of this offering and completion of the pending acquisitions
described below, we will have a portfolio of 23 properties
totaling approximately 3.6 million square feet of gross
leasable area, or GLA, including 17 wholly-owned centers
comprising approximately 2.8 million square feet of GLA and
six centers owned through joint ventures, comprising
approximately 730,000 square feet of GLA.
We currently own 14 properties totaling
approximately 2.4 million square feet of GLA. Our
portfolio, excluding two properties under development, was
approximately 94% leased as of June 30, 2003. We have
entered into agreements to acquire nine other shopping centers,
totaling approximately 1.2 million square feet of GLA for
an aggregate purchase price of $143.4 million. Upon
consummation of this offering and completion of our pending
acquisitions, our portfolio, excluding three properties under
development, will be approximately 92% leased. We intend to
close on these pending acquisitions shortly after consummation
of this offering.
We conduct our business through Cedar Shopping
Centers Partnership, L.P., or the operating partnership, a
Delaware limited partnership. Upon consummation of this offering
and completion of our pending acquisitions, we will own
a %
interest in the operating partnership. Prior to the offering, we
owned an approximate 30% interest in the operating partnership.
Our principal executive offices are located at 44
South Bayles Avenue, Port Washington, New York 11050, our
telephone number is (516) 767-6492 and our website address
is www.cedarshoppingcenters.com.
Our Competitive Strengths
We believe that we distinguish ourselves from
other owners and operators of community and neighborhood
shopping centers on account of the following:
|
|
|
|
|
High-Quality Neighborhood and Community
Shopping Center Portfolio.
Our primary
focus is on neighborhood and community shopping centers. We
believe supermarket anchors attract customers for several trips
per week and provide more stable revenues, especially in
uncertain economic environments. As of June 30, 2003,
approximately 77% of our centers were supermarket-anchored.
After this offering and completion of our pending acquisitions,
approximately 79% of our centers will be supermarket-anchored.
|
|
|
|
Pennsylvania as Core
Market.
Upon consummation of this
offering and completion of our pending acquisitions,
approximately 82% of our GLA will be located in eastern
|
2
|
|
|
|
|
Pennsylvania, a mature and densely populated
region. Based upon the 2000 United States Census, the average
population within a three-mile radius of our properties is
approximately 62,600 people and the average annual
household income in such area is $51,400. We believe that we
benefit from the limited opportunity for new competing
developments near our locations and from the high barriers to
entry for our asset class in our core markets.
|
|
|
|
Regional Asset
Clusters.
Upon consummation of this
offering and completion of our pending acquisitions, we expect
to have 13 properties, containing 1,587,200 square
feet of GLA, in the Philadelphia area, and nine properties,
containing 1,867,500 square feet of GLA, in the Harrisburg
area. We believe that our local presence in these areas provides
us with improved on-the-ground awareness of property
availability, tenanting opportunities, demographic trends and
evolving traffic patterns. Furthermore, our local presence
enables our management team to employ a hands-on
approach to administering our properties and satisfying our
tenants. Our local management offices in these regions enable us
to efficiently and intensively manage our assets and to develop
strategic relationships with regional grocers and retailers.
|
|
|
|
Redevelopment and Value Enhancement
Expertise.
We seek to leverage our
operating and redevelopment capabilities by acquiring assets
that offer redevelopment and value enhancement opportunities. In
particular, certain members of our senior management have
successfully completed the redevelopment of The Point Shopping
Center and Red Lion Shopping Center. At The Point Shopping
Center, for example, we completed a total redevelopment in 2000,
which increased revenues from $1.9 million in 2000 to
$2.9 million in 2002. We are currently redeveloping Camp
Hill Mall, Swede Square and Golden Triangle Shopping Center and
exploring redevelopment opportunities at South Philadelphia
Shopping Plaza, Valley Plaza Shopping Center and Halifax Plaza.
|
|
|
|
Experienced and Committed Management
Team.
Our senior management team is
comprised of executives with an average of more than
20 years experience in the acquisition, ownership,
management, leasing and redevelopment of commercial real estate
in the Northeast, including shopping center properties. Senior
management is expected to own a %
aggregate equity interest in our company on a fully diluted
basis after giving effect to this offering.
|
|
|
|
Strong Relationships with Our
Tenants.
We have strong relationships
with our tenants, including Giant Food. These relationships have
led to leasing opportunities with existing tenants that are
expanding as well as to acquisition opportunities sourced by
tenants.
|
|
|
|
Varied Tenant Base.
We believe that our diversity of tenants and lease expirations
enhance our ability to generate stable cash flows over time.
Upon consummation of this offering and completion of our pending
acquisitions, no single tenant, with the exception of Giant
Food, will represent more than 4.5% of our annualized revenues
on a pro forma basis for the period ended June 30, 2003.
For such period, we had approximately 366 leases with
297 distinct tenants, including national and regional
supermarkets, department stores, pharmacies, restaurants and
other retailers. Pro forma for this offering and the pending
acquisitions, the average lease term for our neighborhood and
community shopping centers will be eight years, with no
more than 9% of our total base rent expiring in any single year
through 2013.
|
|
|
|
Strategic Joint
Ventures.
We have had considerable
experience in creating strategic joint ventures in order to
mitigate acquisition and development risks, secure marquee
anchor tenants, and facilitate financing. Our joint venture
partners include affiliates of Kimco Realty Corporation, a
leading REIT specializing in the acquisition, development and
management of neighborhood and community shopping centers.
|
3
Our Business and Growth Strategies
Our business and growth strategy includes the
following elements:
|
|
|
|
|
Building and benefiting from our strong tenant
relationships.
|
|
|
|
Maximizing cash flow from our properties by
continuing to enhance the operating performance of each property.
|
|
|
|
Enhancing yield and productivity of existing
properties through hands-on intensive management.
|
|
|
|
|
|
Acquiring neighborhood and community shopping
centers.
|
|
|
|
Acquiring properties that offer value enhancement
opportunities.
|
|
|
|
Identifying acquisition targets through our
network of institutional and private real estate investors,
lenders, brokers and agents.
|
|
|
|
Focusing on traffic patterns in identifying
acquisitions.
|
|
|
|
Utilizing management expertise to structure
sophisticated acquisition transactions.
|
|
|
|
Forming strategic joint ventures.
|
Our Properties
Upon consummation of this offering and completion
of our pending acquisitions, we will have a portfolio of
23 properties totaling approximately 3.6 million
square feet of GLA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Annualized
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
Occupied
|
|
|
|
|
|
Base Rent
|
|
of Total
|
|
|
|
|
|
|
Percentage
|
|
|
|
as of
|
|
|
|
Annualized
|
|
Per
|
|
Annualized
|
|
|
Year Built/
|
|
Year
|
|
Owned
|
|
|
|
June 30,
|
|
Major
|
|
Base
|
|
Square
|
|
Base
|
Property
|
|
Renovated
|
|
Acquired
|
|
(Pro Forma)
|
|
GLA
|
|
2003
|
|
Tenants
|
|
Rent($)(1)
|
|
Foot($)
|
|
Rent(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Point Shopping Center
Harrisburg, PA
|
|
1972/
2000-2001
|
|
|
2000
|
|
|
|
100
|
|
|
255,000
|
|
|
93%
|
|
|
Burlington Coat Factory
Giant Food
|
|
|
2,492,294
|
|
|
|
9.76
|
|
|
|
7.87
|
|
Port Richmond Village
Philadelphia, PA
|
|
1988
|
|
|
2001
|
|
|
|
100
|
|
|
155,000
|
|
|
100%
|
|
|
Thriftway
Pep Boys
|
|
|
1,745,077
|
|
|
|
11.26
|
|
|
|
5.51
|
|
Academy Plaza
Philadelphia, PA
|
|
1965/1998
|
|
|
2001
|
|
|
|
100
|
|
|
155,000
|
|
|
100%
|
|
|
Acme Markets
|
|
|
1,681,208
|
|
|
|
10.85
|
|
|
|
5.31
|
|
Washington Center Shoppes
Washington Township, NJ
|
|
1979/1995
|
|
|
2001
|
|
|
|
100
|
|
|
158,000
|
|
|
96%
|
|
|
Acme Markets
Powerhouse Gym
|
|
|
1,028,390
|
|
|
|
6.51
|
|
|
|
3.25
|
|
Loyal Plaza Shopping Center
Williamsport, PA
|
|
1969/
1999-2000
|
|
|
2002
|
|
|
|
25
|
|
|
293,000
|
|
|
92%
|
|
|
K-Mart
Giant Food
|
|
|
1,977,741
|
|
|
|
6.74
|
|
|
|
6.24
|
|
Red Lion Shopping Center
Philadelphia, PA
|
|
1971/1990
and
1998-2000
|
|
|
2002
|
|
|
|
20
|
|
|
224,300
|
|
|
95%
|
|
|
Sports Authority
Best Buy
Staples
|
|
|
2,336,880
|
|
|
|
10.42
|
|
|
|
7.38
|
|
Camp Hill Mall
Camp Hill, PA
|
|
1958/1986,
1991 and
2003
|
|
|
2002
|
|
|
|
100
|
|
|
522,000
|
|
|
70%
|
*
|
|
Boscovs
Giant Food
Barnes & Noble
|
|
|
2,753,419
|
|
|
|
5.28
|
|
|
|
8.69
|
|
LA Fitness Center
Fort Washington, PA
|
|
N/A
|
|
|
2002
|
|
|
|
50
|
|
|
41,000
|
|
|
N/A
|
|
|
LA Fitness Center
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Halifax Plaza
Halifax, PA
|
|
1994
|
|
|
2003
|
|
|
|
30
|
|
|
54,000
|
|
|
100%
|
|
|
Giant Food
Rite Aid
|
|
|
521,361
|
|
|
|
9.62
|
|
|
|
1.65
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Annualized
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
Occupied
|
|
|
|
|
|
Base Rent
|
|
of Total
|
|
|
|
|
|
|
Percentage
|
|
|
|
as of
|
|
|
|
Annualized
|
|
Per
|
|
Annualized
|
|
|
Year Built/
|
|
Year
|
|
Owned
|
|
|
|
June 30,
|
|
Major
|
|
Base
|
|
Square
|
|
Base
|
Property
|
|
Renovated
|
|
Acquired
|
|
(Pro Forma)
|
|
GLA
|
|
2003
|
|
Tenants
|
|
Rent($)(1)
|
|
Foot($)
|
|
Rent(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newport Plaza
Newport, PA
|
|
1996
|
|
|
2003
|
|
|
|
30
|
|
|
67,000
|
|
|
100%
|
|
|
Giant Food
Rite Aid
|
|
|
538,692
|
|
|
|
8.06
|
|
|
|
1.70
|
|
Fairview Plaza
New Cumberland, PA
|
|
1992
|
|
|
2003
|
|
|
|
30
|
|
|
69,500
|
|
|
97%
|
|
|
Giant Food
|
|
|
811,991
|
|
|
|
11.67
|
|
|
|
2.56
|
|
Pine Grove Shopping Center
Pemberton Township, NJ
|
|
2001-2002
|
|
|
2003
|
|
|
|
100
|
|
|
79,000
|
|
|
97%
|
|
|
Peebles
|
|
|
814,909
|
|
|
|
10.28
|
|
|
|
2.57
|
|
Swede Square Center
East Norriton, PA
|
|
1980/2003
|
|
|
2003
|
|
|
|
100
|
|
|
102,500
|
|
|
74%
|
*
|
|
LA Fitness
|
|
|
906,374
|
|
|
|
8.84
|
|
|
|
2.86
|
|
Valley Plaza Shopping Center
Hagerstown, MD
|
|
1973-1975/
1994
|
|
|
2003
|
|
|
|
100
|
|
|
191,200
|
|
|
100%
|
|
|
K-Mart
Ollies Tractor
Supply Company
|
|
|
861,033
|
|
|
|
4.50
|
|
|
|
2.72
|
|
Pending Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Philadelphia Shopping Plaza
Philadelphia, PA
|
|
1950/
1998-2003
|
|
|
|
|
|
|
|
(2)
|
|
283,000
|
|
|
91%
|
|
|
Shop Rite
Ballys Total Fitness
Ross
|
|
|
3,590,832
|
|
|
|
12.68
|
|
|
|
11.33
|
|
Wal-Mart Shopping Center
Southington, CT
|
|
1972/2000
|
|
|
|
|
|
|
100
|
|
|
155,000
|
|
|
99%
|
|
|
Wal-Mart
Namco
|
|
|
948,582
|
|
|
|
6.13
|
|
|
|
2.99
|
|
Golden Triangle Shopping Center
Lancaster, PA
|
|
1960/1985,
1990, 1997
and 2003
|
|
|
|
|
|
|
100
|
|
|
229,000
|
|
|
47%*
|
|
|
Marshalls
Staples
|
|
|
1,098,930
|
|
|
|
4.80
|
|
|
|
3.47
|
|
Columbus Crossing Shopping Center
Philadelphia, PA
|
|
2001
|
|
|
|
|
|
|
|
(3)
|
|
142,200
|
|
|
100%
|
|
|
Super Fresh
Old Navy
A.C. Moore
|
|
|
2,253,224
|
|
|
|
15.85
|
|
|
|
7.11
|
|
River View Plaza I
Philadelphia, PA
|
|
Pre 1900/ 1991, 1995
|
|
|
|
|
|
|
|
(3)
|
|
117,600
|
|
|
83%
|
|
|
United Artists
Sega Gameworks
|
|
|
1,947,174
|
|
|
|
16.56
|
|
|
|
6.15
|
|
River View Plaza II
Philadelphia, PA
|
|
1991/1988, 1993 and 1995
|
|
|
|
|
|
|
|
(3)
|
|
46,600
|
|
|
91%
|
|
|
Staples
West Marine
|
|
|
886,056
|
|
|
|
19.01
|
|
|
|
2.80
|
|
River View Plaza III
Philadelphia, PA
|
|
1991/1995
|
|
|
|
|
|
|
|
(3)
|
|
89,400
|
|
|
98%
|
|
|
Pep Boys
Athletes Foot
|
|
|
1,413,756
|
|
|
|
17.16
|
|
|
|
4.46
|
|
Lake Raystown Plaza
Huntingdon, PA
|
|
1995
|
|
|
|
|
|
|
100
|
|
|
84,300
|
|
|
100%
|
|
|
Giant Food
Rite Aid
Fashion Bug
|
|
|
740,916
|
|
|
|
8.79
|
|
|
|
2.34
|
|
Huntingdon Plaza
Huntingdon, PA
|
|
1970
|
|
|
|
|
|
|
100
|
|
|
102,000
|
|
|
73%
|
(4)
|
|
Peebles
Auto Zone
|
|
|
334,692
|
|
|
|
3.28
|
|
|
|
1.06
|
|
Total current properties and pending transactions
|
|
|
|
|
|
|
|
|
|
|
|
3,609,400
|
|
|
|
|
|
|
|
|
31,683,541
|
|
|
|
8.78
|
|
|
|
100%
|
|
|
|
|
|
*
|
Properties under redevelopment
|
|
|
(1)
|
Annualized base rent represents the contractual
base rent for leases in place June 30, 2003, calculated on
a straight-line basis in accordance with U.S. generally accepted
accounting principles, or GAAP. This amount excludes operating
expense recoveries that would be applicable to such leases.
|
|
(2)
|
We have entered into a lease agreement to obtain
operating control of this property, along with an option to
acquire this property in ten years. A description of this
transaction is set forth below in Business and
Properties Pending Transactions.
|
|
(3)
|
We have entered into an agreement in principle to
acquire this property through a partnership in which we will own
100% of the common equity interest; the seller will retain a
preferred interest that will be entitled to a return that
approximates the interest payment on a loan that we will make to
the seller upon closing of the acquisition. A description of
this transaction is set forth below in Business and
Properties Pending Transactions
|
|
(4)
|
Includes approximately 22,000 square feet under
construction that has been leased to Peebles.
|
5
Pending Transactions
We intend to acquire all of the properties
discussed below shortly after consummation of this offering.
Although agreements have been executed or agreements in
principle reached, we cannot assure you that any of these
transactions will be consummated.
|
|
|
|
|
South Philadelphia Shopping
Plaza.
We have entered into a lease
agreement to obtain operating control of South Philadelphia
Shopping Plaza in Philadelphia, Pennsylvania, coupled with an
option to purchase the property in 10 years, which option we
currently intend to exercise. At the time we enter into the
lease, we will make a $39.0 million loan to the current
owners of the property, which would be repaid if and when we
exercise the purchase option. Our payments under the lease will
approximate interest payments due under the loan. This property
contains approximately 283,000 square feet of GLA and is
anchored by a Shop Rite supermarket, Drug Emporium, Ballys
Total Fitness, Ross and Strauss Auto Stores.
|
|
|
|
Wal-Mart Shopping
Center.
We have entered into an
agreement to acquire a Wal-Mart anchored shopping center in
Southington, Connecticut for a purchase price of approximately
$8.35 million, plus closing costs. This property contains
approximately 155,000 square feet of GLA.
|
|
|
|
Golden Triangle Shopping
Center.
We have entered into an
agreement to acquire Golden Triangle Shopping Center in
Lancaster, Pennsylvania for a purchase price of approximately
$11.5 million, plus closing costs subject to a
$9.9 million first mortgage. This property contains
approximately 229,000 square feet of GLA and is anchored by
Marshalls and Staples.
|
|
|
|
Columbus Crossing Shopping
Center.
We have entered into an
agreement in principle to acquire operating control of Columbus
Crossing Shopping Center in Philadelphia, Pennsylvania for
approximately $23.9 million, plus closing costs. This
property contains approximately 142,000 square feet of GLA and
is anchored by a Super Fresh supermarket.
|
|
|
|
River View Plaza I, II and
III.
We have entered into an agreement
in principle to acquire operating control of River View
Plaza I, II and III in Philadelphia, Pennsylvania for
approximately $49.1 million. River View I contains
approximately 118,000 square feet of GLA and is anchored by a
United Artists Theatre and Sega Gameworks. River View II
contains approximately 47,000 square feet of GLA and is anchored
by Staples and West Marine. River View III contains
approximately 82,400 square feet of GLA and is anchored by Pep
Boys and Athletes Foot. These centers are being acquired
in a single transaction together with the Columbus Crossing
Shopping Center.
|
|
|
|
Lake Raystown Plaza.
We have entered into an agreement to purchase the Lake Raystown
Plaza shopping center in Huntingdon, Pennsylvania for a purchase
price of approximately $7.0 million, plus closing costs.
This property contains approximately 84,000 square feet of GLA
and is anchored by a Giant Food supermarket.
|
|
|
|
Huntingdon Plaza.
We
have entered into an agreement to purchase the Huntingdon Plaza
in Huntingdon, Pennsylvania for a purchase price of
approximately $4.0 million, plus closing costs. This
property contains approximately 102,000 square feet of GLA and
is anchored by Peebles, a department store. This center is being
acquired in a single transaction together with Lake Raystown
Plaza.
|
In addition, we have entered into (a) an
option agreement to acquire an undeveloped 16.5 acre parcel
of land located between Harrisburg and Hershey, Pennsylvania for
$1.9 million; (b) an agreement in principle to acquire
the building occupied by a Giant Food supermarket located at our
Loyal Plaza Shopping Center for $4.9 million; and
(c) an agreement to acquire the 50% interest in The Point
Shopping Center in Harrisburg, Pennsylvania which is not owned
by us for a purchase price of approximately $2.4 million,
subject to a $19.7 million first mortgage. This property
contains approximately 255,000 square feet of GLA.
6
Summary Risk Factors
You should carefully consider the matters
discussed in the section Risk Factors prior to
deciding whether to invest in our common stock. Some of these
risks include:
|
|
|
|
|
All of our properties are located in the
Northeast, primarily in eastern Pennsylvania, which exposes us
to greater economic risks than if we owned properties in several
geographic regions.
|
|
|
|
After this offering and the pending acquisitions
described in this prospectus, we expect to have approximately
$181.9 million of consolidated debt, of which our share is
$146.4 million after accounting for minority interest, a
portion of which will be variable rate debt, which may impede
our operating performance and put us at a competitive
disadvantage.
|
|
|
|
Any tenant bankruptcies or leasing delays we
encounter, particularly with respect to our anchor tenants,
could seriously harm our operating results and financial
condition.
|
|
|
|
Since 2000, we have incurred net operating losses
and if we are not able to achieve and maintain profitability,
the market price of our common stock could decrease.
|
|
|
|
We may not be successful in identifying suitable
acquisitions that meet our criteria, which may impede our
growth; if we do identify suitable acquisition targets, we may
not be able to consummate such transactions on favorable terms.
Integral to our business strategy is our ability to expand
through acquisitions, which requires us to identify suitable
acquisition candidates or investment opportunities that meet our
criteria and are compatible with our growth strategy.
|
|
|
|
Future acquisitions of real properties or other
assets that we may make may not yield the returns we expect, may
result in disruptions to our business, may strain management
resources or may result in stockholder dilution.
|
|
|
|
After this offering and completion of our pending
acquisitions, we will own six of our properties through joint
ventures and in the future we may co-invest with third parties
through joint ventures. Joint venture investments could be
adversely affected by our lack of sole decision-making authority
and any disputes which may arise between us and our joint
venture partners.
|
|
|
|
Adverse market conditions and competition may
impede our ability to renew leases or re-let space as leases
expire, which could harm our business and operating results.
|
|
|
|
Our properties consist of neighborhood and
community shopping centers. Our performance therefore is linked
to economic conditions in the market for retail space generally.
|
|
|
|
We have recently experienced and expect to
continue to experience rapid growth and may not be able to
integrate additional properties into our operations or otherwise
manage our growth, which may adversely affect our operating
results.
|
|
|
|
Upon consummation of this offering and completion
of our pending acquisitions, we will rely on Giant Food for
approximately 10.4% of our total annual revenues.
|
|
|
|
Prior to the consummation of this offering, we
were externally managed by entities controlled by our executive
officers; we do not have any operating history as a REIT which
is self-administered and self-managed.
|
|
|
|
Our charter documents contain anti-takeover
provisions that would, with some exceptions, prohibit any person
from beneficially owning more than 9.9% of our outstanding
common stock upon consummation of this offering. These control
provisions may discourage third parties from conducting a tender
offer or seeking other change of control transactions that could
involve a premium price for our shares or otherwise benefit our
stockholders.
|
7
|
|
|
|
|
We have not made distributions on our common
stock since August 18, 2000. After completion of this
offering, we intend to make quarterly distributions; however,
there are no assurances of our ability to make distributions in
the future.
|
|
|
|
If we fail to remain qualified as a REIT, our
distributions will not be deductible by us, and our income will
be subject to taxation, reducing our earnings available for
distribution.
|
Restrictions on Ownership of Our Capital
Stock
Due to limitations on the concentration of
ownership of REIT stock imposed by the Internal Revenue Code of
1986, or the Code, and to address other concerns relating to
concentration of common stock ownership, our charter documents
generally prohibit any stockholder from beneficially owning more
than 9.9% of the outstanding shares of our common stock.
Our board of directors may, in its sole
discretion, waive the ownership limit if our board is presented
with evidence satisfactory to it that the ownership will not
then or in the future jeopardize our status as a REIT.
Our Tax Status
We elected to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with the
taxable year ended December 31, 1986. We are organized in
conformity with the requirements for qualification as a REIT
under the Code, and our manner of operation enables us to meet
the requirements for taxation as a REIT for Federal income tax
purposes. To maintain REIT status, we must meet a number of
organizational and operational requirements, including a
requirement that we currently distribute at least 90% of our
REIT taxable income to our stockholders. As a REIT, we generally
will not be subject to Federal income tax on REIT taxable income
we distribute currently to our stockholders.
If we fail to qualify as a REIT in any taxable
year, we will be subject to federal income tax at regular
corporate rates. Even if we qualify for taxation as a REIT, we
may be subject to some federal, state and local taxes on our
income and property.
Distribution Policy
We intend to make regular quarterly distributions
to our common stockholders. The initial distribution, covering a
partial quarter commencing on the closing of this offering and
ending on December 31, 2003, is expected to be
approximately
$ per
share. This initial partial distribution is based on a full
quarterly distribution of
$ per
share and represents an annualized distribution of
$ per
share. This initial expected annual distribution represents an
initial annual distribution rate
of %,
based upon the assumed public offering price of $ per share
of our common stock. We estimate that this initial distribution
will represent
approximately %
of our estimated cash available for distribution for the twelve
months ending June 30, 2004. See Distribution
Policy for information as to how we derived this estimate.
We cannot assure you that our estimated distribution will be
made or sustained. In addition, we are not estimating the amount
of any distribution we might make for any period after the
twelve months ending June 30, 2004. Our actual
distributions will be affected by a number of factors, including
the revenue we receive from our properties, our operating
expenses, interest expense, the ability of our tenants to meet
their obligations and unanticipated expenditures.
New Line of Credit
Upon consummation of this offering, we intend to
enter into a secured line of credit for $75 million, with a
maximum capacity of up to $100 million which we expect will
bear interest at LIBOR + 2.25%. Assuming that we enter into this
new line of credit, after the offering we will have
approximately $65 million available for borrowings under
this line of credit. The operating partnership will be the
8
borrower under this line of credit and we will
guarantee this line of credit. We intend to use the line of
credit principally to fund acquisitions. We also may use this
line of credit to fund payments under our existing mortgage
indebtedness and for general corporate purposes.
Our Corporate Structure
We were originally incorporated in Iowa on
December 10, 1984 and elected to be taxed as a REIT
commencing with the taxable year ended December 31, 1986.
In June 1998, following a tender offer completed in April 1998
for the purchase of our common stock by Cedar Bay Company, or
CBC, we reorganized as a Maryland corporation and established an
umbrella partnership REIT structure through the
contribution of substantially all of our assets to the operating
partnership, a Delaware limited partnership. We conduct our
business primarily through the operating partnership. We are the
sole general partner and, upon consummation of this offering, we
will own
a %
interest in the operating partnership. After this offering and
completion of our pending acquisitions, CBC will
own %
of our outstanding common stock and units of limited partnership
in the operating partnership, or units. CBC presently is the
owner of 72% of our outstanding common stock and units on a
fully diluted basis. CBC is a New York partnership owned 55% by
Duncomb Corp., 40% by Lindsay Management Corp. and 5% by Hicks
Corp. Leo S. Ullman, our Chairman of the Board, Chief Executive
Officer and President, is an executive officer and director, but
not an owner, of each of these entities.
We are a REIT that will be fully integrated,
self-administered and self-managed upon consummation of this
offering, since we are merging with our advisors in connection
with this offering, as discussed below. We are currently an
externally advised REIT. With the exception of a few
non-management employees at certain of our centers, we have no
employees and rely on our external advisors to manage our
affairs. Cedar Bay Realty Advisors, Inc., or CBRA, provides us
with management, acquisition, leasing, advisory services,
accounting systems, professional and support personnel and
office facilities. Brentway Management LLC, or Brentway,
provides property management, leasing, construction management
and loan placement services to our properties. SKR Management
Corp., or SKR, provides certain legal services to us and our
properties. CBRA, Brentway and SKR are owned by our executive
officers. We refer collectively to CBRA, Brentway and SKR as our
advisors.
Merger of Our Advisors
Concurrently with this offering, CBRA and SKR
will merge into us and Brentway will merge into the operating
partnership. The maximum aggregate consideration to be received
by CBRA, SKR and Brentway in connection with the merger is
$15.0 million in shares of our common stock and units. Each
of the principals of our advisors will become our employees and
executive officers upon consummation of this offering. As
consideration for the merger with CBRA and SKR we will issue
shares of our common stock having an aggregate value of up to
$8.0 million to the owners of CBRA and shares of our common
stock having an aggregate value of up to $2.0 million to
the owners of SKR. Each share of common stock issued pursuant to
the merger will be valued at
$ per
share, the midpoint of the estimated price range set forth on
the cover of this prospectus; provided that if the offering is
priced above the midpoint, then the number of shares to be
received will be equal to $10.0 million divided by the
public offering price per share. The shares will not be
registered, and may only be transferred pursuant to an effective
registration statement filed under the Securities Act of 1933 or
pursuant to an exemption from such registration.
As consideration for the merger of Brentway into
the operating partnership, the operating partnership will issue
units having an aggregate value of up to $5.0 million to
the owners of Brentway, with each unit valued at
$ per
share, the midpoint of the estimated price range set forth on
the cover of this prospectus; provided that if the offering is
priced above the midpoint, then the number of units to be
received will be equal to $5.0 million divided by the
public offering price per share. Each unit is exchangeable at
any time into two shares of our common stock. The units and the
shares of common stock into which the units may be exchanged
will not be registered, and may only be transferred pursuant to
an
9
effective registration statement filed under the
Securities Act of 1933 or pursuant to an exemption from such
registration.
An independent committee of our board consisting
of disinterested directors retained a financial advisor who
advised them as to the fairness of the consideration to be paid
in connection with the merger of our advisors from a financial
perspective. The independent committee and the board have
approved the merger. The merger is being submitted to our
stockholders for their approval prior to consummation of this
offering.
Consequences of the Merger of Our Advisors and
this Offering
We will be a REIT that is fully integrated,
self-administered and self-managed upon consummation of the
merger of our advisors. We intend to conduct our business and
hold all of our interests in our properties through the
operating partnership, either directly or indirectly through
partnerships or other entities holding title to our properties.
As the sole general partner of the operating partnership, we
have the exclusive power to manage and conduct the business of
the partnership, subject to customary exceptions described in
the partnership agreement.
The diagram below sets forth our corporate
structure after giving effect to the merger of our advisors and
this offering.
10
Benefits to Related Parties
In connection with the merger of our advisors
into us and upon consummation of this offering, the following
benefits will be received by related parties:
|
|
|
|
|
$3.6 million of the proceeds from this
offering will be used to redeem the 9% Series A preferred
partnership units, or the preferred units, owned by Homburg
Invest USA Inc., or Homburg USA, which currently owns 5.7% of
our common stock and units on a fully-diluted basis prior to
consummation of this offering and has two representatives on our
board of directors.
|
|
|
|
$6.2 million of the proceeds from this
offering will be used to purchase the interests owned by Homburg
Invest, Inc., or Homburg Invest, in Pine Grove Shopping Center,
Swede Square and Wal-Mart Shopping Center.
|
|
|
|
Homburg Invest will be released from guarantees
with regard to $7.4 million of subordinated loans on Valley
Plaza Shopping Center and Wal-Mart Shopping Center. Homburg
Invest will receive approximately $200,000 in fees from the
lender upon repayment of the loans.
|
|
|
|
$1.1 million and $750,000 (exclusive of
accrued interest) of the proceeds from this offering will be
used to repay loans we received from Homburg Invest and an
affiliate of CBC, respectively, which were used to make a
portion of the deposit in connection with the South Philadelphia
Shopping Plaza transaction. Homburg Invest will receive
approximately $220,000 in exit fees upon repayment of the
$1.1 million loan.
|
|
|
|
$9.0 million of the proceeds from this
offering will be used to repurchase all of the units owned by
CBC. An independent committee of our board consisting of
disinterested directors retained a financial advisor who advised
them as to the fairness of the consideration to be paid to CBC.
|
|
|
|
$2.4 million of the proceeds from this
offering will be used to purchase a 50% interest in The Point
Shopping Center from certain affiliates of CBC.
|
|
|
|
$11.5 million, plus closing costs, of the
proceeds from this offering will be used to acquire Golden
Triangle Shopping Center from certain affiliates of CBC,
including assumption of a $9.9 million first mortgage.
|
|
|
|
$887,000 (exclusive of accrued interest) of the
proceeds from this offering will be used to repay a promissory
note issued by the operating partnership in favor of CBC, which
we used to purchase a 20% interest in Red Lion Shopping Center.
|
|
|
|
Approximately $1,000,000 of the proceeds from
this offering will be used to pay accrued and unpaid fees owed
to, or loans made to us by, Mr. Ullman and Brenda J.
Walker, who are the owners of the advisors. This includes
repayment of a loan by Mr. Ullman to CBRA of $150,000,
which was used to pay certain of our obligations.
|
|
|
|
Mr. Ullman, Ms. Walker, Thomas J.
OKeeffe, Stuart H. Widowski, and Thomas B. Richey, our
directors and/or officers, who are the owners of and/or officers
of CBRA, SKR, and Brentway, will receive an aggregate of up to
$13.6 million of shares of our common stock and units of
the operating partnership in connection with the merger of our
advisors.
|
|
|
|
Messrs. Ullman, OKeeffe, Widowski and
Richey and Ms. Walker will enter into employment agreements
with us providing each of them with salary and other benefits.
|
11
The Offering
|
|
|
Common stock offered
|
|
shares
|
|
Shares of common stock outstanding after the
offering
|
|
shares
|
|
Shares of common stock and units outstanding
after the offering
|
|
shares
|
|
Use of proceeds
|
|
We estimate that our net proceeds from this
offering will be approximately $138.7 million. We intend to
use these net proceeds to consummate pending acquisitions, to
repurchase or redeem outstanding units, to repurchase interests
of joint ventures, to repay outstanding indebtedness, for
working capital purposes and for general corporate purposes.
|
|
Risk factors
|
|
See Risk Factors and other
information included in this prospectus for a discussion of
factors you should carefully consider before deciding to invest
in shares of our common stock.
|
|
Proposed New York Stock Exchange symbol
|
|
[CDR]
|
The number of shares of common stock to be
outstanding after this offering is based on the total number of
shares of common stock outstanding as of June 30, 2003, as
adjusted to give effect to this offering, the two-for-one stock
split effected in July 2003, the merger of our advisors and the
concurrent issuance of shares and units, the redemption or
repurchase of outstanding units and
the -for- reverse
stock split that occurred
on ,
2003. The number of shares of common stock to be outstanding
after this offering
excludes shares
reserved for issuance under our stock option plan, warrants to
purchase units
of the operating partnership, each of which are exchangeable for
two shares of common stock at an exercise price of
$ per
unit,
and shares
issuable upon exercise of the underwriters over-allotment
option.
The number of units to be outstanding after this
offering
is ,
including those issued in connection with the merger of Brentway
and the redemption or repurchase of outstanding units. Subject
to the limitations in the operating partnerships
partnership agreement, the units are exchangeable for shares of
our common stock on a two-to-one basis.
Summary Historical and Pro Forma Consolidated
Financial and Operating Data
The operating data for the years ended
December 31, 2000, 2001 and 2002 and the balance sheet data
as of December 31, 2001 and 2002 are derived from our
financial statements and notes thereto included in this
prospectus and which have been audited by Ernst &
Young, LLP, our independent auditors. The balance sheet data as
of December 31, 2000 is derived from our financial
statements that are not included in this prospectus. The
operating data for the six months ended June 30, 2003 and
2002, and the balance sheet as of June 30, 2003 are derived
from our unaudited financial statements and notes thereto
included elsewhere in this prospectus. The following selected
financial data should be read in conjunction with our financial
statements and the notes thereto, appearing elsewhere in this
prospectus and the information under Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
The following tables also set forth our selected
financial data on a pro forma basis, as if we completed the
offering transaction, acquired the properties and the management
companies and completed the refinancing transaction and we
qualified as a REIT, distributed 90% of our taxable income and,
therefore, incurred no income tax expense during the period. The
unaudited pro forma operating data for the six months ended
June 30, 2003 is presented as if we completed the offering
transaction and acquired
12
the properties and the management companies and
completed the refinancing transactions on January 1, 2003.
The unaudited pro forma operating data for the year ended
December 31, 2002 is presented as if we completed the
offering transaction and acquired the properties and the
management companies and completed the refinancing transactions
on January 1, 2002. The unaudited pro forma balance sheets
as of June 30, 2003 is presented as if we completed the
offering transaction and acquired the properties and the
management companies and completed the refinancing transactions
on June 30, 2003.
The pro forma information is based upon
assumptions that are included in the notes to the pro forma
financial statements included elsewhere in this prospectus. The
pro forma information is unaudited and is not necessarily
indicative of what our financial position and results of
operations would have been as of and for the dates or periods
indicated, nor does it purport to represent our future financial
position and results of operations for future dates or periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma Six
|
|
Six Months Ended
|
|
Pro forma
|
|
|
|
|
Months
|
|
June 30,
|
|
Year Ended
|
|
Years Ended December 31,
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
|
June 30, 2003
|
|
2003
|
|
2002
|
|
2002
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents
|
|
$
|
20,705,441
|
|
|
$
|
11,203,000
|
|
|
$
|
5,151,000
|
|
|
$
|
39,783,268
|
|
|
$
|
12,964,000
|
|
|
$
|
4,817,000
|
|
|
$
|
3,037,000
|
|
|
Interest and other income
|
|
|
632,601
|
|
|
|
219,000
|
|
|
|
16,000
|
|
|
|
584,030
|
|
|
|
25,000
|
|
|
|
282,000
|
|
|
|
179,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
21,338,042
|
|
|
|
11,422,000
|
|
|
|
5,167,000
|
|
|
|
40,367,298
|
|
|
|
12,989,000
|
|
|
|
5,099,000
|
|
|
|
3,216,000
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, maintenance and management(1)
|
|
|
8,283,258
|
|
|
|
3,206,000
|
|
|
|
1,207,000
|
|
|
|
14,049,499
|
|
|
|
2,313,000
|
|
|
|
1,091,000
|
|
|
|
745,000
|
|
|
Real estate taxes
|
|
|
2,063,033
|
|
|
|
1,232,000
|
|
|
|
593,000
|
|
|
|
4,016,863
|
|
|
|
1,527,000
|
|
|
|
494,000
|
|
|
|
308,000
|
|
|
General and administrative
|
|
|
1,500,000
|
|
|
|
1,172,000
|
|
|
|
554,000
|
|
|
|
3,000,000
|
|
|
|
2,005,000
|
|
|
|
731,000
|
|
|
|
635,000
|
|
|
Depreciation and amortization
|
|
|
3,474,599
|
|
|
|
1,767,000
|
|
|
|
1,112,000
|
|
|
|
6,895,696
|
|
|
|
2,546,000
|
|
|
|
991,000
|
|
|
|
622,000
|
|
|
Interest expense(2)
|
|
|
11,650,098
|
|
|
|
4,290,000
|
|
|
|
2,725,000
|
|
|
|
17,983,854
|
|
|
|
5,523,000
|
|
|
|
1,888,000
|
|
|
|
604,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
26,970,988
|
|
|
|
11,667,000
|
|
|
|
6,191,000
|
|
|
|
45,945,912
|
|
|
|
13,914,000
|
|
|
|
5,195,000
|
|
|
|
2,914,000
|
|
Operating (loss) income
|
|
|
(5,632,946
|
)
|
|
|
(245,000
|
)
|
|
|
(1,024,000
|
)
|
|
|
(5,578,614
|
)
|
|
|
(925,000
|
)
|
|
|
(96,000
|
)
|
|
|
302,000
|
|
Termination fees(3)
|
|
|
(15,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
(423,667
|
)
|
|
|
(422,000
|
)
|
|
|
121,000
|
|
|
|
(581,617
|
)
|
|
|
(159,000
|
)
|
|
|
(44,000
|
)
|
|
|
8,000
|
|
Limited partners interest
|
|
|
|
|
|
|
449,000
|
|
|
|
677,000
|
|
|
|
|
|
|
|
806,000
|
|
|
|
75,000
|
|
|
|
(192,000
|
)
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,342,000
|
)
|
|
|
(204,000
|
)
|
Gain on sale of properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,638,000
|
|
|
|
91,000
|
|
Loss on sale of properties
|
|
|
|
|
|
|
|
|
|
|
(49,000
|
)
|
|
|
|
|
|
|
(49,000
|
)
|
|
|
(296,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before cumulative effect
adjustment
|
|
$
|
(21,056,613
|
)
|
|
$
|
(218,000
|
)
|
|
$
|
(275,000
|
)
|
|
$
|
(21,160,231
|
)
|
|
$
|
(327,000
|
)
|
|
$
|
(65,000
|
)
|
|
$
|
5,000
|
|
Cumulative effect of change in accounting
principles (net of limited partners share of $15,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to preferred shareholders (net of
limited partners interest of $48,000)
|
|
|
|
|
|
|
(21,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before extraordinary items
|
|
|
(21,056,613
|
)
|
|
|
(239,000
|
)
|
|
|
(275,000
|
)
|
|
|
(21,160,231
|
)
|
|
|
(327,000
|
)
|
|
|
(71,000
|
)
|
|
|
5,000
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma Six
|
|
Six Months Ended
|
|
Pro forma
|
|
|
|
|
Months
|
|
June 30,
|
|
Year Ended
|
|
Years Ended December 31,
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
|
June 30, 2003
|
|
2003
|
|
2002
|
|
2002
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
Extraordinary items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Early extinguishment of debt (net of limited
partners share of $346,000, $188,000 and $32,000 in 2002,
2001 and 2000, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141,000
|
)
|
|
|
(76,000
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(21,056,613
|
)
|
|
$
|
(239,000
|
)
|
|
$
|
(275,000
|
)
|
|
$
|
(21,160,231
|
)
|
|
$
|
(468,000
|
)
|
|
$
|
(147,000
|
)
|
|
$
|
(13,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share before cumulative
effect adjustment
|
|
|
(1.97
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.20
|
)
|
|
|
(1.99
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.00
|
|
Cumulative change in accounting principle per
share
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.01
|
)
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share before
extraordinary item
|
|
|
(1.97
|
)
|
|
|
(0.15
|
)
|
|
|
(0.20
|
)
|
|
|
(1.99
|
)
|
|
|
(0.24
|
)
|
|
|
(0.06
|
)
|
|
|
0.00
|
|
Extraordinary (loss) per share
|
|
|
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
(0.10
|
)
|
|
|
(0.05
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share
|
|
|
(1.97
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.20
|
)
|
|
|
(1.99
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to shareholders
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
268,000
|
|
Dividends to shareholders per share
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding
|
|
|
10,689,000
|
|
|
|
1,620,000
|
|
|
|
1,386,000
|
|
|
|
10,633,000
|
|
|
|
1,388,000
|
|
|
|
1,384,000
|
|
|
|
1,738,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Pro forma
|
|
|
|
|
|
|
June 30, 2003
|
|
June 30, 2003
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate before accumulated depreciation
|
|
$
|
332,651,890
|
|
|
$
|
172,431,000
|
|
|
$
|
123,634,000
|
|
|
$
|
57,622,000
|
|
|
$
|
28,272,000
|
|
Real estate after accumulated depreciation
|
|
|
328,735,890
|
|
|
|
168,515,000
|
|
|
|
121,238,000
|
|
|
|
56,948,000
|
|
|
|
24,095,000
|
|
Real estate held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,402,000
|
|
|
|
1,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
342,923,697
|
|
|
|
182,496,000
|
|
|
|
133,138,000
|
|
|
|
68,350,000
|
|
|
|
35,567,000
|
|
Mortgage loans and loan payable(4)
|
|
|
171,826,591
|
|
|
|
140,333,000
|
|
|
|
101,001,000
|
|
|
|
52,110,000
|
|
|
|
19,416,000
|
|
Minority interest
|
|
|
12,656,511
|
|
|
|
18,915,000
|
|
|
|
10,238,000
|
|
|
|
2,235,000
|
|
|
|
2,291,000
|
|
Limited partners interest in consolidated
operating partnership
|
|
|
|
|
|
|
10,026,000
|
|
|
|
10,889,000
|
|
|
|
8,964,000
|
|
|
|
9,242,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
$
|
133,375,437
|
|
|
$
|
2,917,000
|
|
|
$
|
3,245,000
|
|
|
$
|
3,667,000
|
|
|
$
|
3,815,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
451,000
|
|
|
|
1,159,000
|
|
|
|
1,000,000
|
|
|
|
989,000
|
|
Cash flow from investing activities
|
|
|
|
|
|
|
(50,563,000
|
)
|
|
|
(41,380,000
|
)
|
|
|
(2,529,000
|
)
|
|
|
(8,850,000
|
)
|
Cash flow from financing activities
|
|
|
|
|
|
|
47,400,000
|
|
|
|
41,803,000
|
|
|
|
3,451,000
|
|
|
|
5,886,000
|
|
|
|
(1)
|
Includes $2,747,500 and $5,495,000 for the pro
forma six months ended June 30, 2003 and pro forma year
ended December 31, 2002, respectively, attributable to
one-time stock compensation charges incurred in connection with
this offering.
|
|
(2)
|
Includes $6,300,000 for both the pro forma six
months ended June 30, 2003 and pro forma year ended
December 31, 2002 attributable to one-time defeasance
expenses for the mortgages at River View Plaza I, II and III and
Washington Center Shoppes.
|
|
(3)
|
Reflects one time payment to external advisors as
consideration for merger into us; the $5,495,000 payment
referred to in footnote 1 above represents merger
consideration payable to Mr. Ullman that he is distributing
to employees in conjunction with this offering.
|
|
(4)
|
Represents consolidated indebtedness. See
indebtedness table in Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources for
our share of pro forma mortgage loans and loans payable.
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
Pro forma
|
|
Pro forma
|
|
|
Six Months
|
|
Year Ended
|
|
Year Ended
|
|
|
Ended
|
|
December 31,
|
|
June 30,
|
|
|
June 30, 2003
|
|
2002
|
|
2003
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations(1)(2)(3)
|
|
$
|
(17,934,613
|
)
|
|
$
|
(15,423,231
|
)
|
|
$
|
(14,726,000
|
)
|
|
|
(1)
|
Management believes that funds from operations,
or FFO, is a widely recognized and appropriate measure of
performance of an equity REIT. Although FFO is a non-GAAP
financial measure, management believes it provides useful
information to shareholders, potential investors, and
management. Management computes FFO in accordance with the
standards established by The National Association of Real Estate
Investment Trusts, or NAREIT. FFO is defined by NAREIT as net
income or loss excluding gains or losses from debt restructuring
and sales of properties plus real estate depreciation and
amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with
accounting principles generally accepted in the United States
and is not indicative of cash available to fund cash needs. FFO
should not be considered as an alternative to net income, as an
indicator of the Companys operating performance, or as an
alternative to cash flow as a measure of liquidity. As not all
companies and analysts calculate FFO in a similar fashion, the
Companys calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other
companies. For a reconciliation of pro forma FFO to pro forma
net (loss) income before limited partners interest in
operating partnership, see Managements Discussion
and Analysis of Financial Condition and Results of
Operations Funds From Operations.
|
|
(2)
|
The calculation of FFO includes the following
one-time charges that are added back in the calculation of Pro
Forma Cash Flows from Operating Activities for the twelve months
ending June 30, 2004, as set forth in the section below
captioned Distribution Policy:
|
|
|
|
|
|
$5,200,000 for defeasance of the mortgage debt on
River View Plaza I, II and III
|
|
|
|
$1,100,000 for defeasance of the mortgage debt on
Washington Center Shoppes
|
|
|
|
$5,495,000 for one-time stock compensation
charges incurred in connection with this offering
|
|
|
|
$15,000,000 one time payment to owners of
external advisors for merger into us.
|
|
|
(3)
|
The calculation of FFO excludes the following
items that are included in the calculation of Pro Forma Cash
Flows from Operating Activities for the twelve months ending
June 30, 2004, as set forth in the section below captioned
Distribution Policy:
|
|
|
|
|
|
$ of
capitalized development costs at certain properties being
redeveloped
|
|
|
|
$230,000 on account of seller lease guarantees at
South Philadelphia Shopping Plaza and Red Lion Shopping Center
|
15
RISK FACTORS
An investment in our common stock involves a high
degree of risk. You should carefully consider the following
information, together with the other information contained in
this prospectus, before buying shares of our common stock. In
connection with the forward-looking statements that appear in
this prospectus, you should also carefully review the cautionary
statement referred to under Special Note Regarding
Forward-Looking Statements.
Risks Related to Our Properties and Our
Business
|
|
|
All of our properties are located in the
Northeast, primarily in eastern Pennsylvania, which exposes us
to greater economic risks than if we owned properties in several
geographic regions.
|
Any adverse economic or real estate developments
in the Northeast resulting from the regions regulatory
environment, business climate, fiscal problems or weather, could
adversely impact our financial condition, results of operations,
cash flow, the per share trading price of our common stock, and
our ability to satisfy our debt service obligations and to make
distributions to our stockholders. We cannot assure you of the
continued growth of the Northeast economy, the national economy
or our further growth rate.
|
|
|
After this offering and the pending
property acquisitions described in this prospectus, we expect to
have approximately $181.9 million of consolidated debt of
which our share is $146.4 million, a portion of which will
be variable rate debt, which may impede our operating
performance and put us at a competitive
disadvantage.
|
Required repayments of debt and related interest
can adversely affect our operating performance. Approximately
$57.8 million of this consolidated debt will bear interest
at a variable rate of which our share is $57.0 million,
and, upon completion of this offering and the proposed property
acquisitions described in this prospectus, we expect to have
approximately $181.9 million of outstanding consolidated
indebtedness of which our share is $146.4 million. Failure
to hedge effectively against interest rate changes may adversely
affect results of operations.
We also intend to incur additional debt in
connection with future acquisitions of real estate. We may
borrow new funds to acquire properties. In addition, we may
incur or increase our mortgage debt by obtaining loans secured
by some or all of the real estate properties we acquire. We also
may borrow funds if necessary to satisfy the requirement that we
distribute to stockholders as distributions at least 90% of our
annual REIT taxable income or otherwise as is necessary or
advisable to ensure that we maintain our qualification as a REIT
for federal income tax purposes.
Our substantial debt may harm our business and
operating results by:
|
|
|
|
|
requiring us to use a substantial portion of our
funds from operations to pay interest, which reduces the amount
available for distributions;
|
|
|
|
placing us at a competitive disadvantage compared
to our competitors that have less debt;
|
|
|
|
making us more vulnerable to economic and
industry downturns and reducing our flexibility in responding to
changing business and economic conditions; and
|
|
|
|
limiting our ability to borrow more money for
operations, capital or to finance acquisitions in the future.
|
In addition to the risks discussed above and
those normally associated with debt financing, including the
risk that our cash flow will be insufficient to meet required
payments of principal and interest, we also are subject to the
risk that we will not be able to refinance the existing
indebtedness on our properties (which, in most cases, will not
have been fully amortized at maturity), or that the terms of any
refinancing we could obtain would not be as favorable as the
terms of our existing indebtedness. If we are not successful in
refinancing this debt when it becomes due, we may be forced to
dispose of properties on disadvantageous terms, which might
adversely affect our ability to service other debt and to meet
our other obligations. In addition to the above risks associated
with our debt financing, the terms of certain of our joint
venture partnership agreements provide for minimum priority
cumulative returns to the limited
16
partners. To the extent that these specified
minimum returns are not achieved, our equity interest in these
partnerships can be negatively affected.
|
|
|
Any tenant bankruptcies or leasing delays
we encounter, particularly with respect to our anchor tenants,
could seriously harm our operating results and financial
condition.
|
Substantially all our revenues are derived from
rental income from our properties. At any time, our tenants may
experience a downturn in their business that may weaken their
financial condition or become insolvent. As a result, our
tenants may delay lease commencement, fail to make rental
payments when due or declare bankruptcy. We are subject to the
risk that these tenants may be unable to make their lease
payments or may decline to extend a lease upon its expiration.
Any tenant bankruptcies, leasing delays or failure to make
rental payments when due could result in the termination of the
tenants lease and material losses to us and may harm our
operating results.
Our business may be seriously harmed if any
anchor tenant decides not to renew its lease or vacates a
property and prevents us from re-leasing that property by
continuing to pay base rent for the balance of the term. In
addition to the loss of rental payments from the anchor tenant,
a lease termination by an anchor tenant or a failure by that
anchor tenant to occupy the premises could result in lease
terminations or reductions in rent by other tenants in the same
shopping center whose leases permit cancellation or rent
reduction under these circumstances.
|
|
|
Since 2000, we have incurred net operating
losses and if we are not able to achieve and maintain
profitability, the market price of our common stock could
decrease.
|
Since 2000 we have incurred net operating losses.
We had net losses from operations of $147,000 and $468,000 for
the years ended December 31, 2001 and 2002 and a net loss
from operations of $239,000 for the six months ended
June 30, 2003. If we are not able to achieve and maintain
profitability, which will depend largely on our ability to
substantially increase revenues, reduce fixed operating costs
and interest charges on outstanding indebtedness, and limit the
growth of overhead and direct expenses, the market price of our
common stock could decrease and our business and operations
could be negatively impacted.
|
|
|
We may not be successful in identifying
suitable acquisitions that meet our criteria, which may impede
our growth; if we do identify suitable acquisition targets, we
may not be able to consummate such transactions on favorable
terms.
|
Integral to our business strategy is our ability
to expand through acquisitions, which requires us to identify
suitable acquisition candidates or investment opportunities that
meet our criteria and are compatible with our growth strategy.
We analyze potential acquisitions on a property-by-property and
market-by-market basis. We may not be successful in identifying
suitable real estate properties or other assets that meet our
acquisition criteria or consummating acquisitions or investments
on satisfactory terms. Failure to identify or consummate
acquisitions could reduce the number of acquisitions we complete
and slow our growth, which could in turn harm our stock price.
|
|
|
We face competition for the acquisition of
real estate properties, which may impede our ability to make
future acquisitions or may increase the cost of these
acquisitions.
|
We compete with many other entities engaged in
real estate investment activities for acquisitions of retail
shopping centers, including institutional investors, other REITs
and other owner-operators of shopping centers. These competitors
may drive up the price we must pay for real estate properties,
other assets or other companies we seek to acquire or may
succeed in acquiring those companies or assets themselves. In
addition, our potential acquisition targets may find our
competitors to be more attractive suitors because they may have
greater resources, may be willing to pay more, or may have a
more compatible operating philosophy. In addition, the number of
entities and the amount of funds competing for suitable
investment properties may increase. This will result in
increased demand for these assets and therefore increased prices
paid for them. If we pay higher prices for properties, our
profitability will be reduced, and purchasers in this offering
may experience a lower return on their investment.
17
|
|
|
We have recently experienced and expect to
continue to experience rapid growth and may not be able to
integrate additional properties into our operations or otherwise
manage our growth, which may adversely affect our operating
results.
|
We are currently experiencing a period of rapid
growth. Since 2000, we have acquired properties containing
approximately 2.3 million square feet of GLA for an
aggregate purchase price of approximately $117.0 million.
We also have entered into agreements to acquire additional
properties containing approximately 1.2 million square feet
of GLA that we expect to acquire on or shortly after the
consummation of this offering for an anticipated aggregate
transaction value of approximately $143.4 million. See
Our Business and Properties Pending
Transactions. As a result of the rapid growth of our
portfolio, we cannot assure you that we will be able to adapt
our management, administrative, accounting and operational
systems or hire and retain sufficient operational staff to
integrate these properties into our portfolio and manage any
future acquisitions of additional properties without operating
disruptions or unanticipated costs. Acquisition of any
additional portfolio of properties would generate additional
operating expenses that we would be required to pay. As we
acquire additional properties, we will be subject to risks
associated with managing new properties, including tenant
retention and mortgage default. Our failure to successfully
integrate any future acquisitions into our portfolio could have
a material adverse effect on our results of operations and
financial condition and our ability to pay dividends to
stockholders.
|
|
|
Our current and future joint venture
investments could be adversely affected by our lack of sole
decision-making authority, our reliance on joint venture
partners financial condition and any disputes that may
arise between us and our joint venture partners.
|
After this offering we will own six of our
properties through joint ventures and in the future we may
co-invest with third parties through joint ventures. We may not
be in a position to exercise sole decision-making authority
regarding the properties owned through joint ventures.
Investments in joint ventures may, under certain circumstances,
involve risks not present when a third party is not involved,
including the possibility that joint venture partners might
become bankrupt or fail to fund their share of required capital
contributions. Joint venture partners may have business
interests or goals that are inconsistent with our business
interests or goals and may be in a position to take actions
contrary to our policies or objectives. Such investments also
may have the potential risk of impasses on decisions, such as a
sale, because neither we nor the joint venture partner would
have full control over the joint venture. Any disputes that may
arise between us and joint venture partners may result in
litigation or arbitration that would increase our expenses and
prevent our officers and/or directors from focusing their time
and effort on our business. Consequently, actions by or disputes
with joint venture partners might result in subjecting
properties owned by the joint venture to additional risk. In
addition, we may in certain circumstances be liable for the
actions of our third-party joint venture partners.
|
|
|
Adverse market conditions and competition
may impede our ability to renew leases or re-let space as leases
expire, which could harm our business and operating
results.
|
The economic performance and value of our real
estate assets is subject to all of the risks associated with
owning and operating real estate, including risks related to
adverse changes in national, regional and local economic and
market conditions. Our properties currently are located
primarily in the Northeast. The economic condition of each of
our markets may be dependent on one or more industries. An
economic downturn in one of these industry sectors may result in
an increase in tenant bankruptcies, which may harm our
performance in the affected market. Economic and market
conditions also may impact the ability of our tenants to make
lease payments. If our properties do not generate sufficient
income to meet our operating expenses, including future debt
service, our income and results of operations would be
significantly harmed.
Also, we face competition from similar retail
centers within the neighborhood trade areas of each of our
centers to renew leases or re-let space as leases expire. In
addition, any new competitive properties that are developed
within the neighborhood trade areas of our existing properties
may result in increased competition for customer traffic and
creditworthy tenants. Increased competition for tenants may
require us
18
to make capital improvements to properties that
we would not have otherwise planned to make. Any unbudgeted
capital improvements we undertake may divert away cash that
would otherwise be available for distributions to stockholders.
Ultimately, to the extent we are unable to renew leases or
re-let space as leases expire, it would result in decreased cash
flow from tenants and harm our operating results.
|
|
|
Our properties consist of neighborhood and
community shopping centers. Our performance therefore is linked
to economic conditions in the market for retail space
generally.
|
The market for retail space has been and could be
adversely affected by weakness in the national, regional and
local economies, the adverse financial condition of some large
retailing companies, the ongoing consolidation in the retail
sector, the excess amount of retail space in a number of
markets, and increasing consumer purchases through catalogues or
the Internet. To the extent that any of these conditions occur,
they are likely to impact market rents for retail space.
|
|
|
If we have to borrow funds under the new
line of credit that we intend to enter into in connection with
this offering in order to make principal payments under our
mortgage and other indebtedness, the amount that we will have
available to borrow under this new line of credit for
acquisitions and other opportunities will be reduced, which
could slow our growth.
|
Upon consummation of this offering, we intend to
enter into a new secured line of credit for $75 million,
with a maximum capacity of up to $100 million, which we
expect will bear interest at LIBOR plus 2.25%. Assuming that we
enter into this line of credit, after this offering we will have
approximately $65 million available for borrowings under
the line of credit. Although we generally intend to refinance
our mortgage indebtedness upon maturity, we may be required to
borrow funds under this line of credit to make these principal
payments. If we do, this will reduce the amount available to us
under this line of credit to borrow for other purposes, such as
for acquisitions and other opportunities, which could slow our
growth.
|
|
|
The financial covenants in our loan
agreements may restrict our operating or acquisition activities,
which may harm our financial condition and operating
results.
|
The mortgages on our properties contain customary
negative covenants such as those that limit our ability, without
the prior consent of the lender, to further mortgage the
applicable property, to enter into leases or to discontinue
insurance coverage. In addition, our outstanding unsecured debt
contains customary limitations on our ability to incur
indebtedness. Our ability to borrow under our line of credit is
subject to compliance with these financial and other covenants.
If we breach covenants in our debt agreements, the lender can
declare a default and require us to repay the debt immediately
and, if the debt is secured, can immediately take possession of
the property securing the loan.
|
|
|
Our performance and value are subject to
risks associated with real estate assets and with the real
estate industry.
|
Our ability to make expected distributions to our
stockholders depends on our ability to generate revenues in
excess of expenses, scheduled principal payments on debt and
capital expenditure requirements. Events and conditions
generally applicable to owners and operators of real property
that are beyond our control may decrease cash available for
distribution and the value of our properties. These events
include:
|
|
|
|
|
local oversupply, increased competition or
reduction in demand for space;
|
|
|
|
inability to collect rent from tenants;
|
|
|
|
vacancies or our inability to rent space on
favorable terms;
|
|
|
|
inability to finance property development, tenant
improvements and acquisitions on favorable terms;
|
|
|
|
increased operating costs, including insurance
premiums, utilities and real estate taxes;
|
|
|
|
costs of complying with changes in governmental
regulations;
|
19
|
|
|
|
|
the relative illiquidity of real estate
investments;
|
|
|
|
changing submarket demographics; and
|
|
|
|
changing traffic patterns.
|
In addition, periods of economic slowdown or
recession, rising interest rates or declining demand for real
estate, or the public perception that any of these events may
occur, could result in a general decline in rents or an
increased incidence of defaults under existing leases, which
would adversely affect our financial condition, results of
operations, cash flow, per share trading price of our common
stock and ability to satisfy our debt service obligations and to
make distributions to our stockholders.
|
|
|
Redevelopment activities may be delayed or
otherwise may not perform as expected.
|
We are in the process of redeveloping certain of
our properties and expect to redevelop other properties in the
future. In connection with any redevelopment of our properties,
we will bear certain risks, including the risks of construction
delays or cost overruns that may increase project costs and
could make such project uneconomical, the risk that occupancy or
rental rates at a completed project will not be sufficient to
enable us to pay operating expenses or earn the targeted rate of
return on investment, and the risk of incurrence of
predevelopment costs in connection with projects that are not
pursued to completion. In addition, consents may be required
from various tenants in order to redevelop a center. In case of
an unsuccessful redevelopment project, our loss could exceed our
investment in the project.
|
|
|
We may be restricted from re-leasing space
based on existing exclusivity lease provisions with some of our
tenants.
|
In many cases, our tenant leases contain
provisions giving the tenant the exclusive right to sell
particular types of merchandise or provide specific types of
services within the particular retail center, or limit the
ability of other tenants within that center to sell that
merchandise or provide those services. When re-leasing space
after a vacancy by one of these other tenants, these provisions
may limit the number and types of prospective tenants for the
vacant space. The failure to re-lease or to re-lease on
satisfactory terms could harm our operating results.
|
|
|
Potential losses may not be covered by
insurance.
|
We carry comprehensive liability, fire, flood,
extended coverage and rental loss insurance covering all of the
properties in our portfolio under a blanket policy. We believe
the policy specifications and insured limits are appropriate and
adequate given the relative risk of loss, the cost of the
coverage and industry practice. We do not carry insurance for
generally uninsured losses such as loss from riots, war or acts
of God. Some of our policies, such as those covering losses due
to terrorism and floods, are insured subject to limitations
involving large deductibles or co-payments and policy limits
that may not be sufficient to cover losses. If we experience a
loss that is uninsured or that exceeds policy limits, we could
lose the capital invested in the damaged properties as well as
the anticipated future cash flows from those properties. In
addition, if the damaged properties are subject to recourse
indebtedness, we would continue to be liable for the
indebtedness, even if these properties were irreparably damaged.
|
|
|
Future terrorist attacks in the United
States could harm the demand for, and the value of, our
properties.
|
Future terrorist attacks in the U.S., such as the
attacks that occurred in New York, Pennsylvania and
Washington, D.C. on September 11, 2001, and other acts
of terrorism or war could harm the demand for and the value of
our properties. Terrorist attacks could directly impact the
value of our properties through damage, destruction, loss or
increased security costs, and the availability of insurance for
such acts may be limited or may cost more.
To the extent that our tenants are impacted by
future attacks, their ability to continue to honor obligations
under their existing leases with us could be adversely affected.
Additionally, certain tenants have termination rights in respect
of certain casualties. If we receive casualty proceeds, we may
not be
20
able to reinvest such proceeds profitably or at
all, and we may be forced to recognize taxable gain on the
affected property.
|
|
|
Rising operating expenses could reduce our
cash flow and funds available for future
distributions.
|
Our properties and any properties we buy in the
future are and will be subject to operating risks common to real
estate in general, any or all of which may negatively affect us.
If any property is not fully occupied or if rents are being paid
in an amount that is insufficient to cover operating expenses,
then we could be required to expend funds for that
propertys operating expenses. The properties will be
subject to increases in real estate and other tax rates, utility
costs, operating expenses, insurance costs, repairs and
maintenance and administrative expenses.
|
|
|
We rely on Giant Food for 10.4% of our
total revenues.
|
Upon consummation of this offering and completion
of our pending acquisitions, seven of our properties will have a
Giant Food supermarket as an anchor tenant. Giant Food leases at
the Newport Plaza, Halifax Plaza, and Fairview Plaza properties
that were purchased in early 2003 represent a substantial
majority of the gross leaseable area and income from these
properties. Upon consummation of this offering and completion of
our pending acquisitions, we expect Giant Food will account for
10.4% of our total revenue. Ahold N.V., a Netherlands
corporation and Giant Foods ultimate parent company,
generally guarantees the Giant Food leases. Recent published
reports indicate there have been accounting irregularities at
certain of Aholds U.S. and foreign operations, which do
not necessarily include the supermarket stores or the Giant Food
supermarket affiliates. Aholds debt rating has been
downgraded in 2003, which may adversely affect the resulting
value of our properties having such tenancies.
|
|
|
We may be unable to collect balances due
from any tenants in bankruptcy, which would harm our operating
results.
|
Any bankruptcy filings by or relating to one of
our tenants or a lease guarantor would bar all efforts by us to
collect pre-bankruptcy debts from that tenant, the lease
guarantor or their property, unless we receive an order
permitting us to do so from the bankruptcy court. A tenant or
lease guarantor bankruptcy could delay our efforts to collect
past due balances under the relevant leases, and could
ultimately preclude full collection of these sums. If a lease is
assumed by the tenant in bankruptcy, all pre-bankruptcy balances
due under the lease must be paid to us in full. However, if a
lease is rejected by a tenant in bankruptcy, we would have only
a general unsecured claim for damages. Any unsecured claim we
hold may be paid only to the extent that funds are available and
only in the same percentage as is paid to all other holders of
unsecured claims. It is possible that we may recover
substantially less than the full value of any unsecured claims
we hold, which may harm our financial condition.
|
|
|
We could incur significant costs related to
government regulation and private litigation over 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 owners 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, we
are potentially liable for removal or remediation costs, as well
as certain other related costs, including governmental fines and
injuries to persons and property.
There are two principal environmental matters
that affect our Loyal Plaza Shopping Center. These are
(a) certain petroleum-impacted soil at the newly-built,
free-standing Eckerd drug store building on an outparcel of the
property; and (b) a concentration of dry cleaning solvents,
tetrachloroethene, PCE, and
21
trichloroethene, or TCE, at levels in excess of
amounts permitted by the Pennsylvania Department of
Environmental Protection, or the PADEP.
Under loan agreements between the seller and its
lender, the seller had maintained an escrow deposit of $450,000
for clean up and testing of environmental contamination at the
site. Pursuant to the purchase agreement for the purchase of the
property by us, the seller will remain liable for all costs up
to and including a satisfactory Release of Liability
letter issued by the PADEP with respect to all such
contamination at the property. Pursuant to the environmental
escrow agreement, the seller increased the environmental escrow
deposit to $950,000. Further, in the event that the escrows are
insufficient to cover all required testing and remediation, the
seller has undertaken to expend any and all monies required to
complete such testing and remediation, including monitoring,
without limits as to time. While we believe an anticipated
Release of Liability letter from the PADEP will
operate to relieve us of any further liability for remediation
of the site under Pennsylvania environmental statutes, or for
any contamination identified in reports submitted to and
approved by the PADEP, to protect us from successful
citizens suits or other contribution actions, we cannot
assure you that we would not incur costs associated with the
investigation, remediation or removal of such contamination.
Moreover, the presence of such substances, or the failure to
properly remediate such substances, may adversely affect our
ability to sell or rent such property.
At the South Philadelphia Shopping Plaza, in
which we intend to obtain an interest upon consummation of this
offering, concentrations of PCE, TCE and cis-1,2-DCE (dry
cleaning solvents), at levels in excess of amounts permitted by
the PADEP, were found. Pursuant to the agreement we entered
into, the existing owner is responsible for all remediation
measures as may be required to meet statewide health standards
in connection with these contaminants. If the existing owner
fails to satisfy its obligations under the agreement we may be
liable for significant remediation cost, which could materially
adversely affect our financial condition, results of operations
and cash flow.
|
|
|
We may incur significant costs complying
with the Americans with Disabilities Act and similar
laws.
|
Under the Americans with Disabilities Act of
1990, or the ADA, all public accommodations must meet federal
requirements related to access and use by disabled persons.
Although we believe that our properties substantially comply
with present requirements of the ADA, we have not conducted an
audit or investigation of all of our properties to determine our
compliance. If one or more of our properties is not in
compliance with the ADA, then we would be required to incur
additional costs to bring the property into compliance.
Additional federal, state and local laws also may require
modifications to our properties or restrict our ability to
renovate our properties. We cannot predict the ultimate amount
of the cost of compliance with the ADA or other legislation. If
we incur substantial costs to comply with the ADA and any other
legislation, our financial condition, results of operations,
cash flow, per share trading price of our common stock, and our
ability to satisfy our debt service obligations and make
distributions to our stockholders could be adversely affected.
|
|
|
We may incur significant costs complying
with other regulations.
|
Our properties are subject to various federal,
state and local regulatory requirements, such as state and local
fire and life safety requirements. If we fail to comply with
these various requirements, we might incur governmental fines or
private damage awards. We believe that our properties are
currently in material compliance with all applicable regulatory
requirements. However, we do not know whether existing
requirements will change or whether future requirements will
require us to make significant unanticipated expenditures that
will adversely impact our financial condition, results of
operations, cash flow, the per share trading price of our common
stock, and our ability to satisfy our debt service obligations
and make distributions to our stockholders.
22
Risks Related to Our Organization and
Structure
|
|
|
Prior to consummation of this offering, we
were externally managed by entities controlled by our executive
officers; we do not have any operating history as a REIT that is
self-administered and self-managed.
|
We will be self-administered and self-managed
upon the merger of our advisors into us and our operating
partnership and consummation of this offering. We do not have
any operating history with internal management and do not know
if we will be able to successfully integrate our existing
external management through the merger. If we are unable to do
so this could increase our operating costs. In addition, the
transition from external to internal management may result in
additional expenses and increased operating costs in the short
term. We cannot assure you that our past performance with
external management will be indicative of internal
managements ability to function effectively and
successfully operate our company.
|
|
|
Our charter and Maryland law contain
provisions that may delay, defer or prevent a change of control
transaction and depress our stock price.
|
Our charter contains a 9.9% ownership
limit.
Our charter, subject to certain
exceptions, authorizes our directors to take such actions as are
necessary and desirable to preserve our qualification as a REIT
and to limit any person to beneficial ownership of no more than
9.9% of the outstanding shares of our common stock. Our board of
directors, in its sole discretion, may exempt a proposed
transferee from the ownership limit. However, our board of
directors may not grant an exemption from the ownership limit to
any proposed transferee whose direct or indirect ownership in
excess of 9.9% of the value of our outstanding shares of our
common stock could jeopardize our status as a REIT. See
Description of Capital Stock Transfer
Restrictions. These restrictions on transferability and
ownership will not apply if our board of directors determines
that it is no longer in our best interests to attempt to
qualify, or to continue to qualify, as a REIT. The ownership
limit may delay or impede a transaction or a change of control
that might involve a premium price for our common stock or
otherwise be in the best interest of our stockholders. See
Description of Capital Stock Transfer
Restrictions.
We could authorize and issue stock and units
without stockholder approval.
Our
charter authorizes our board of directors to authorize
additional shares of our common stock or preferred stock, issue
authorized but unissued shares of our common stock or preferred
stock, issue units and to classify or reclassify any unissued
shares of our common stock or preferred stock and to set the
preferences, rights and other terms of such classified or
unclassified shares. See Description of Capital
Stock Common Stock and
Preferred Stock. Although our board of
directors has no such intention at the present time, it could
establish a series of preferred stock that could, depending on
the terms of such series, delay, defer or prevent a transaction
or a change of control that might involve a premium price for
our common stock or otherwise be in the best interest of our
stockholders.
Certain provisions of Maryland law could
inhibit changes in control.
Certain
provisions of the Maryland General Corporation Law, or MGCL, may
have the effect of inhibiting a third party from making a
proposal to acquire us or of impeding a change of control under
circumstances that otherwise could provide the holders of shares
of our common stock with the opportunity to realize a premium
over the then-prevailing market price of such shares, including:
|
|
|
|
|
business combination provisions that,
subject to limitations, prohibit certain business combinations
between us and an interested stockholder (defined
generally as any person who beneficially owns 10% or more of the
voting power of our shares or an affiliate thereof) for five
years after the most recent date on which the stockholder
becomes an interested stockholder, and thereafter imposes
special appraisal rights and special stockholder voting
requirements on these combinations; and
|
|
|
|
control share provisions that provide
that our control shares (defined as shares that,
when aggregated with other shares controlled by the stockholder,
entitle the stockholder to exercise one of three increasing
ranges of voting power in electing directors) acquired in a
control share acquisition (defined as the direct or
indirect acquisition of ownership or
|
23
|
|
|
|
|
control of control shares) have no voting rights
except to the extent approved by our stockholders by the
affirmative vote of at least two-thirds of all the votes
entitled to be cast on the matter, excluding all interested
shares.
|
We have opted out of these provisions of the
MGCL. However, our board of directors may, by resolution, elect
to opt in to the business combination provisions of the MGCL and
we may, by amendment to our bylaws, opt in to the control share
provisions of the MGCL in the future.
|
|
|
If we fail to remain qualified as a REIT,
our distributions will not be deductible by us, and our income
will be subject to taxation, reducing our earnings available for
distribution.
|
We operate in a manner so as to qualify as a REIT
for federal income tax purposes. Although we do not intend to
request a ruling from the Internal Revenue Service, or the IRS,
as to our REIT status, we will receive the opinion of
Stroock & Stroock & Lavan LLP with respect to
our qualification as a REIT. This opinion will be issued in
connection with this offering of our common stock. Investors
should be aware, however, that opinions of counsel are not
binding on the IRS or any court. The opinion of
Stroock & Stroock & Lavan LLP represents only
the view of our counsel based on our counsels review and
analysis of existing law and on certain representations as to
factual matters and covenants made by us and our manager,
including representations relating to the values of our assets
and the sources of our income. Counsel has no obligation to
advise us or the holders of our common stock of any subsequent
change in the matters stated, represented or assumed, or of any
subsequent change in applicable law. Furthermore, both the
validity of the opinion of Stroock & Stroock &
Lavan LLP and our continued qualification as a REIT will depend
on our satisfaction of certain asset, income, organizational,
distribution, stockholder ownership and other requirements on a
continuing basis, the results of which will not be monitored by
Stroock & Stroock & Lavan LLP. Our ability to
satisfy the asset tests depends upon our analysis of the fair
market values of our assets, some of which are not susceptible
to a precise determination, and for which we will not obtain
independent appraisals. Our compliance with the REIT income and
quarterly asset requirements also depends upon our ability to
successfully manage the composition of our income and assets on
an ongoing basis. Accordingly, there can be no assurance that
the IRS will not contend that our interests in subsidiaries will
not cause a violation of the REIT requirements. If we were to
fail to qualify as a REIT in any taxable year, we would be
subject to federal income tax, including any applicable
alternative minimum tax, on our taxable income at regular
corporate rates, and distributions to stockholders would not be
deductible by us in computing our taxable income.
Any such corporate tax liability could be
substantial and would reduce the amount of cash available for
distribution to our stockholders, which in turn could have an
adverse impact on the value of, and trading prices for, our
stock. Unless entitled to relief under certain provisions of the
Code, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which we ceased
to qualify as a REIT. See Material United States Federal
Income Tax Considerations for a discussion of material
federal income tax consequences relating to us and our stock.
|
|
|
REIT distribution requirements could
adversely affect our liquidity.
|
We generally must distribute annually at least
90% of our net taxable income, excluding any net capital gain,
in order for corporate income tax not to apply to earnings that
we distribute. We intend to make distributions to our
stockholders to comply with the requirements of the Code.
However, differences in timing between the recognition of
taxable income and the actual receipt of cash could require us
to sell assets or borrow funds on a short-term or long-term
basis to meet the 90% distribution requirement of the Code.
Certain of our assets generate substantial mismatches between
taxable income and available cash. Such assets include operating
real estate that has been financed through financing structures
that require some or all of available cash flows to be used to
service borrowings. As a result, the requirement to distribute a
substantial portion of our net taxable income could cause us to:
(a) sell assets in adverse market conditions,
(b) borrow on unfavorable terms or (c) distribute
amounts that would otherwise be invested in future acquisitions,
capital expenditures or repayment of debt in order to comply
with REIT requirements.
24
Further, amounts distributed will not be
available to fund investment activities. If we fail to obtain
debt or equity capital in the future, it could limit our ability
to grow, which could have a material adverse effect on the value
of our common stock.
|
|
|
Dividends payable by REITs do not qualify
for the reduced tax rates under recently enacted tax
legislation.
|
Recently enacted tax legislation reduces the
maximum tax rate for dividends payable to individuals from 38.6%
to 15% (through 2008). Dividends payable by REITs, however, are
generally not eligible for the reduced rates. Although this
legislation does not adversely affect the taxation of REITs or
dividends paid by REITs, the more favorable rates applicable to
regular corporate dividends could cause investors who are
individuals to perceive investments in REITs to be relatively
less attractive than investments in the stocks of non-REIT
corporations that pay dividends, which could adversely affect
the value of the stock of REITs, including our common stock.
In addition, the relative attractiveness of
investments in real estate companies or real estate in general
may be adversely affected by the newly favorable tax treatment
given to corporate dividends, which could affect the value of
our real estate assets negatively.
|
|
|
Our success depends on key personnel whose
continued service is not guaranteed.
|
We depend on the efforts of key personnel,
particularly Mr. Ullman, our chairman, chief executive
officer and president, Mr. OKeeffe, our chief
financial officer, Ms. Walker, our vice president, who is
in charge of our property management activity, and
Mr. Richey, our vice president and director of construction
and maintenance services. The loss of their services could
materially and adversely affect our operations because of
diminished relationships with lenders, existing and prospective
tenants and industry personnel.
Risks Related to this Offering
|
|
|
The market price for our common stock after
this offering may be lower than the offering price and our stock
price may fluctuate significantly after this
offering.
|
The price at which the shares of our common stock
may sell in the public market after this offering may be lower
than the price at which they are sold by the underwriters. The
stock market in general has recently experienced extreme price
and volume fluctuations. Fluctuations in our stock price may not
be correlated in a predictable way to our performance or our
operating results. Our stock price may fluctuate as a result of
factors that are beyond our control or unrelated to our
operating results.
|
|
|
Shares of our common stock have been thinly
traded in the past.
|
As of June 30, 2003, there were 1,426,672
shares of common stock issued and outstanding. Although a
trading market for the common stock exists, the trading volume
has not been significant and there can be no assurance that an
active trading market for the common stock will be sustained in
the future. The average daily volume of shares traded during
2002 was less than 1,000 shares. As a result of the thin trading
market or float for our stock, the market price for
our common stock may fluctuate significantly more than the stock
market as a whole. Without a large float, our common stock is
less liquid than the stock of companies with broader public
ownership and, as a result, the trading prices of our common
stock may be more volatile. In addition, in the absence of an
active public trading market, an investor may be unable to
liquidate his investment in us. Trading of a relatively small
volume of our common stock may have a greater impact on the
trading price for our stock than would be the case if our public
float were larger. We cannot predict the prices at which our
common stock will trade in the future.
|
|
|
You should not rely on the
underwriters lock-up agreements to limit the number of
shares sold into the market by our affiliates.
|
The holders of
approximately %
of the shares of our common stock to be outstanding after this
offering have agreed with our underwriters to be bound by
180-day lock-up agreements that prohibit these holders from
selling or transferring their stock except in specified limited
circumstances. The lock-up
25
agreements signed by our stockholders are only
contractual agreements and Merrill Lynch, on behalf of the
underwriters, can waive the restrictions of the lock-up
agreements at an earlier time without prior notice or
announcement and allow stockholders to sell their shares. If the
restrictions of the lock-up agreement are waived,
approximately million
shares will be available for sale into the market, subject only
to applicable securities rules and regulations, which would
likely reduce the market price for our common stock.
|
|
|
If you purchase shares of common stock in
this offering, you will experience immediate
dilution.
|
We expect the public offering price of our common
stock to be higher than the book value per share of our
outstanding common stock. This means that investors who purchase
shares will pay a price per share that exceeds the book value of
our assets after subtracting our liabilities. Moreover, to the
extent that outstanding options to purchase our common stock are
exercised or options reserved for issuance are issued and
exercised, each person purchasing common stock in this offering
will experience further dilution.
|
|
|
Estimated initial cash available for
distribution may not be sufficient to make distributions at
expected levels.
|
Our estimated initial annual distributions
represent %
of our estimated initial cash available for distribution for the
twelve months ending June 30, 2004, as calculated in
Distribution Policy. We expect that the percentage
of our distributions representing a return of capital will
decrease substantially thereafter. Accordingly, we may be unable
to pay our estimated initial annual distribution to stockholders
out of cash available for distribution as calculated in
Distribution Policy. If sufficient cash is not
available for distribution from our operations, we may have to
fund distributions from working capital or to borrow to provide
funds for such distribution or to reduce the amount of such
distribution. In the event the underwriters over-allotment
option is exercised, pending investment of the proceeds
therefrom, our ability to pay such distribution out of cash from
our operations may be further adversely affected.
|
|
|
Market interest rates may have an effect on
the value of our common stock.
|
One of the factors that will influence the price
of our common stock will be the dividend yield on the common
stock (as a percentage of the price of our common stock)
relative to market interest rates. An increase in market
interest rates, which are currently at low levels relative to
historical rates, may lead prospective purchasers of our common
stock to expect a higher dividend yield and higher interest
rates would likely increase our borrowing costs and potentially
decrease funds available for distribution. Thus, higher market
interest rates could cause the market price of our common stock
to go down.
|
|
|
Future sales of shares of our common stock
could lower the price of our shares.
|
We may, in the future, sell additional shares of
our common stock in subsequent public offerings. Additionally,
shares of our common stock underlying options will be available
for future sale upon exercise of those options. Any sales of a
substantial number of our shares in the public market, or the
perception that such sales might occur, may cause the market
price of our shares to decline.
26
USE OF PROCEEDS
We estimate that the net proceeds to us from the
sale of the shares of common stock offered hereby will be
approximately $152,378,000, or approximately
$161,520,638 million if the underwriters exercise their
over-allotment option in full, based upon the public offering
price per share of $16.00, and after deducting the underwriting
discount and the estimated offering expenses payable by us. We
will contribute the net proceeds of this offering to the
operating partnership.
The table below assumes that this offering, the
merger of our advisors and the pending transactions will be
consummated and all payments by us set forth below will occur
on , 2003. Exact
payment amounts may differ from estimates due to amortization of
principal, accrual of additional prepayment fees and incurrence
of additional transaction expenses. This table identifies
sources of funds arising from this offering and our line of
credit with specific uses for the convenience of the reader;
however, sources of funds from this offering and our line of
credit may be commingled and have not been designated for
particular purposes.
|
|
|
|
|
|
|
|
Amount
|
|
|
|
Sources:
|
|
|
|
|
Proceeds from this offering
|
|
|
152,378,471
|
|
Assumed mortgages:
|
|
|
|
|
|
Golden Triangle Shopping Center
|
|
|
9,880,000
|
|
|
Columbus Crossing Shopping Center
|
|
|
17,500,000
|
|
New mortgages:
|
|
|
|
|
|
Huntingdon Plaza
|
|
|
2,400,000
|
|
|
Wal Mart Shopping Center Senior loan
|
|
|
5,443,750
|
|
|
Wal Mart Shopping Center Subordinated
loan
|
|
|
3,921,250
|
|
|
Columbus Crossing Shopping Center
|
|
|
1,000,000
|
|
|
Lake Raystown Plaza
|
|
|
5,600,000
|
|
|
Washington Center Shoppes
|
|
|
8,800,000
|
|
Hudson Realty Financing
|
|
|
2,350,000
|
|
Loan Christopher Weil &
Co.
|
|
|
1,000,000
|
|
Draw on the line of credit
|
|
|
10,000,000
|
|
|
|
|
|
|
Total Sources
|
|
|
220,273,471
|
|
|
Uses:
|
|
|
|
|
Redeem Preferred Units
|
|
|
3,600,000
|
|
Repurchase of CBC Limited Partnership Units
|
|
|
9,000,000
|
|
Funding of Pending Transactions:
|
|
|
|
|
|
Giant at Loyal Plaza Shopping Center
|
|
|
5,400,000
|
|
|
River View Plaza I, II and III
|
|
|
49,500,000
|
|
|
South Philadelphia Shopping Plaza
|
|
|
38,250,000
|
|
|
Columbus Crossing Shopping Center
|
|
|
26,500,000
|
|
|
Golden Triangle Shopping Center
|
|
|
11,980,000
|
|
|
Huntingdon Plaza
|
|
|
4,500,000
|
|
|
Lake Raystown Plaza
|
|
|
7,500,000
|
|
|
Wal-Mart Shopping Center
|
|
|
9,365,000
|
|
|
Wal-Mart Shopping Center Subordinated Loan
|
|
|
2,931,250
|
|
27
|
|
|
|
|
|
|
|
Amount
|
|
|
|
Purchase of Joint Ventures:
|
|
|
|
|
|
Swede Square
|
|
|
3,188,000
|
|
|
Pine Grove Shopping Center
|
|
|
2,175,000
|
|
|
The Point Shopping Center
|
|
|
2,400,000
|
|
Repayment of Outstanding Indebtedness:
|
|
|
|
|
|
Repayment of Hudson Realty Financing
|
|
|
8,000,000
|
|
|
Repayment of Citizens Bank of Pennsylvania
|
|
|
1,000,000
|
|
|
Repayment of BFV Interim Finance
|
|
|
3,500,000
|
|
|
Repayment of loans from related parties
|
|
|
750,000
|
|
|
Repayment of loans to Homburg Invest
|
|
|
1,320,000
|
|
|
Repayment of loan to CBC affiliate
|
|
|
887,000
|
|
|
Repayment of accrued fees and loans
|
|
|
1,000,000
|
|
|
Repayment of advisory fees
|
|
|
450,000
|
|
|
Pay-off of Washington Center Shoppes mortgage
|
|
|
5,863,159
|
|
|
Payment of defeasance fees related to River View
Plaza I, II and III
|
|
|
5,200,000
|
|
|
Payment of defeasance fees related to Washington
Center Shoppes mortgage
|
|
|
1,100,000
|
|
|
Repayment of Christopher Weil & Co. Loan
|
|
|
1,200,000
|
|
Fees and expenses
|
|
|
13,714,062
|
|
|
|
|
|
|
Total Uses
|
|
|
220,273,471
|
|
28
PRICE RANGE OF COMMON STOCK AND
DISTRIBUTIONS
Our common stock is listed and traded on the
Nasdaq SmallCap Market under the symbol CEDR. The
following table sets forth, for the periods indicated, the high
and low bid prices of our common stock with respect to the
periods indicated. Prices for shares of our common stock reflect
quotations between dealers without adjustment for retail
mark-ups, mark-downs or commissions and do not necessarily
represent actual transactions. The shares of our common stock
are thinly traded and as such, the quoted price at any time may
not have reflected the actual price at which our common stock
was bought or sold. The quoted price has varied significantly
from actual transactions depending on the size of the inside bid
and asked quotations and the quantity of shares actually being
traded.
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
|
|
|
|
Year ended December 31, 2001
|
|
|
|
|
|
|
|
|
|
1st quarter
|
|
$
|
1.66
|
|
|
$
|
1.66
|
|
|
2nd quarter
|
|
|
1.75
|
|
|
|
1.70
|
|
|
3rd quarter
|
|
|
3.97
|
|
|
|
2.30
|
|
|
4th quarter
|
|
|
2.13
|
|
|
|
2.13
|
|
Year ended December 31, 2002
|
|
|
|
|
|
|
|
|
|
1st quarter
|
|
$
|
2.40
|
|
|
$
|
2.13
|
|
|
2nd quarter
|
|
|
4.43
|
|
|
|
2.35
|
|
|
3rd quarter
|
|
|
3.20
|
|
|
|
1.78
|
|
|
4th quarter
|
|
|
2.00
|
|
|
|
1.31
|
|
Year ending December 31, 2003
|
|
|
|
|
|
|
|
|
|
1st quarter
|
|
$
|
2.71
|
|
|
$
|
2.00
|
|
|
2nd quarter
|
|
|
2.62
|
|
|
|
2.08
|
|
|
3rd quarter (through August 18, 2003)
|
|
|
4.51
|
|
|
|
2.00
|
|
No distributions to stockholders were made during
these periods.
On ,
2003, the closing sale price of our common stock, as reported on
the Nasdaq SmallCap Market, was
$ per
share. As
of ,
2003, there
were record
holders of our common stock. This figure does not reflect the
beneficial ownership of shares held in nominee name.
On ,
2003, we effectuated
a -for- reverse
stock split.
We intend to apply for listing of our common
stock on the New York Stock Exchange under the symbol
[CDR].
29
DISTRIBUTION POLICY
After this offering, we intend to make regular
quarterly distributions to our common stockholders. The initial
distribution, covering the partial three month period commencing
on the closing of this offering and ending on December 31,
2003, is expected to be approximately
$ per
share. This initial partial distribution is based on a full
quarterly distribution of
$ per
share and represents an annualized distribution of
$ per
share. This initial expected annual distribution represents an
initial annual distribution rate
of %,
based upon an assumed public offering price of
$ per
share of our common stock. You should read the following
discussion and the information set forth in the table and
footnotes below together with Managements Discussion
and Analysis of Financial Condition and Results of
Operations and the financial statements and related notes
beginning on page F-1 of this prospectus.
Our intended initial distribution has been
established based on our estimate of the cash flow that will be
available to us for distributions for the twelve months ending
June 30, 2004. This estimate is based on estimated cash
flows provided by our operations for the twelve months ended
June 30, 2003, as adjusted for those adjustments described
in the table and footnotes below. In estimating our cash
available for distribution for the twelve months ending
June 30, 2004, we have made certain assumptions as
reflected in the table below,
including .
We believe that our estimate of cash available
for distributions constitutes a reasonable basis for setting our
initial distribution. Any distributions we make will be at the
discretion of our board of directors. We cannot assure you that
our estimated distribution will be made or sustained. Our actual
results of operations may differ materially from our current
expectations. Our actual results of operations will be affected
by a number of factors, including the revenue we receive from
our properties, our operating expenses, interest expense, the
ability of our tenants to meet their obligations and
unanticipated expenditures. For more information regarding risk
factors that could materially adversely affect our actual
results of operations, please see Risk Factors. In
addition, variations in the net proceeds from this offering as a
result of a change in the public offering price or the exercise
of the underwriters over-allotment option may affect our
cash available for distributions and available reserves, which
may affect our ability to make the contemplated distribution.
The following table describes the calculation of
our pro forma funds from operations for the twelve months ended
June 30, 2003 and the adjustments to pro forma funds from
operations for the twelve months ended June 30, 2003 used
in estimating initial cash available for distribution for the
twelve months ending June 30, 2004.
|
|
|
|
|
|
|
Amount
|
|
|
|
Pro Forma Income Before Allocation to Minority
Interests for the twelve months ended December 31,
2002
|
|
$
|
(20,578,614
|
)
|
Add: Pro Forma Income Before Allocation to
Minority Interests for the six months ended June 30, 2003
|
|
|
(20,632,946
|
)
|
Less: Pro Forma Income Before Allocation to
Minority Interests for the six months ended June 30, 2002
|
|
|
21,254,146
|
|
|
|
|
|
|
Pro Forma Income Before Minority Interests for
the twelve months ended June 30, 2003
|
|
|
(19,957,414
|
)
|
Add: Real estate depreciation and amortization
|
|
|
6,572,044
|
|
Less: Amounts distributable to minority interest
|
|
|
(1,340,539
|
)
|
|
|
|
|
|
30
|
|
|
|
|
|
|
Amount
|
|
|
|
Pro Forma Funds from Operations for the twelve
months ended June 30, 2003(1)
|
|
|
(14,725,909
|
)
|
Add: Amortization of deferred debt financing
costs, net of allocation to minority partners(2)
|
|
|
452,465
|
|
Add: Non-recurring compensation expense(3)
|
|
|
5,495,000
|
|
Add: One-time defeasance costs related to River
View Plaza I, II and III and Washington Center Shoppes
|
|
|
6,300,000
|
|
Add: One time payment to owners of external
advisors for merger into us
|
|
|
15,000,000
|
|
Add: Amortization of acquired lease obligations,
net of allocation to minority partners(2)
|
|
|
561,232
|
|
Less: Straight line rents, net of allocation to
minority partners(4)
|
|
|
(988,410
|
)
|
|
|
|
|
|
Pro Forma Cash Flows from Operating Activities
for the twelve months ended June 30, 2004
|
|
|
12,094,378
|
|
Add: New leases and net increases in renewals,
net of allocation to minority partners(5)
|
|
|
3,227,646
|
|
Less: Provisions for lease expirations, assuming
no renewals, net of allocation to minority partners(6)
|
|
|
(1,458,432
|
)
|
Add: Seller lease payment guarantees, net of
minority interest(7)
|
|
|
230,000
|
|
|
|
|
|
|
Add: Expenses to be Capitalized as Development
Costs(8)
|
|
|
|
|
Estimated Cash Flows from Operating Activities
for the twelve months ended June 30, 2004
|
|
|
14,093,592
|
|
Estimated cash flows used in investing activities:
|
|
|
|
|
Less: Non-revenue enhancing capital expenditures,
net of allocation to minority partners(9)
|
|
|
|
|
Less: Tenant improvements and leasing
commissions, net of allocation to minority partners(10)
|
|
|
|
|
|
|
|
|
|
Estimated cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Estimated cash flows used in financing activities:
|
|
|
|
|
Less: Scheduled mortgage loan principal payments,
net of allocation to minority partners(11)
|
|
|
(1,215,977
|
)
|
|
|
|
|
|
Estimated Cash Available for Distribution for
the twelve months ended June 30, 2004
|
|
$
|
|
|
|
|
|
|
|
Estimated annual distribution per share(12)
|
|
$
|
|
|
|
|
|
|
|
Payout Ratio(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
FFO is defined by NAREIT as net income or loss
excluding gains or losses from debt restructuring and sales of
properties plus real estate depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint
ventures. FFO does not represent cash generated from operating
activities in accordance with accounting principles generally
accepted in the United States and is not indicative of cash
available to fund cash needs. FFO should not be considered as an
alternative to net income, as an indicator of our operating
performance or as an alternative to cash flow as a measure of
liquidity. We believe that FFO is an appropriate measure of
performance of an equity REIT. As all companies and analysts do
not calculate FFO in a similar fashion, our calculation of FFO
presented herein may not be comparable to similarly titled
measures as reported by other companies.
|
|
|
(2)
|
Represents non-cash item for the year ended
June 30, 2003.
|
|
|
(3)
|
Represents one-time stock compensation grant
given to senior management by Leo S. Ullman from stock received
for the advisors.
|
31
|
|
|
|
(4)
|
Represents the effect of adjusting straight-line
rental revenue included in pro forma net income on the accrual
basis under generally accepted accounting principles to amounts
currently being paid or due from tenants.
|
|
|
(5)
|
Represents contractual rental income from new
leases and net increases in contractual rental income from
renewals that were not in effect for the entire year ended
June 30, 2003, and new leases and net increases in
contractual rental income from renewals that went into effect
between July 1, 2003 and August 15, 2003.
|
|
|
(6)
|
Represents contractual rental income under leases
expiring between July 1, 2003 and June 30, 2004 unless
a renewal lease has been entered into by August 15, 2003.
|
|
|
(7)
|
Represents guaranteed lease payments made by
sellers for space which has not been rented by new tenants.
|
|
|
(8)
|
Represents expenses to be capitalized as project
costs with respect to certain properties that will be undergoing
redevelopment during the June 30, 2004 fiscal year.
|
|
|
(9)
|
Represents an assumed capital expenditure per
square foot for the twelve month pro forma period ending
June 30, 2004 of
$ multiplied
by the total company-owned GLA upon consummation of the offering
of 3.6 million square feet.
|
|
|
(10)
|
Represents assumed recurring tenant improvements
and leasing commissions for the year ending June 30, 2004
of
$ per
foot multiplied
by square
feet scheduled to expire during the twelve month period ending
June 30, 2004.
|
|
(11)
|
Represents scheduled payments of mortgage loan
principal due during the year ending June 30, 2004.
|
|
(12)
|
Based on a total
of shares
of common stock and units expected to be outstanding after this
offering.
|
|
(13)
|
Calculated as estimated initial annual
distribution to stockholders per share/unit divided by our share
of estimated cash available for distribution for the year ending
June 30, 2004.
|
32
CAPITALIZATION
The following table sets forth our capitalization
as of June 30, 2003, on an actual and as adjusted basis to
reflect the merger of our advisors, this offering and the use of
the net proceeds from this offering as described in Use of
Proceeds. You should read this table in conjunction with
Use of Proceeds, Selected Historical and Pro
Forma Consolidated Financial and Operating Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, our consolidated
financial statements, and the notes to our financial statements
appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
|
|
|
Actual
|
|
Adjusted
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Debt:
|
|
|
|
|
|
|
|
|
|
Mortgage loans payable
|
|
$
|
130,566
|
|
|
$
|
171,827
|
|
|
Line of credit
|
|
|
|
|
|
|
10,000
|
|
|
Loans payable
|
|
|
9,767
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
2,380
|
|
|
|
1,380
|
|
|
Security deposits
|
|
|
427
|
|
|
|
427
|
|
|
Deferred liabilities
|
|
|
6,581
|
|
|
|
12,341
|
|
|
Prepaid rents
|
|
|
917
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
150,638
|
|
|
|
196,892
|
|
Minority Interests
|
|
|
18,915
|
|
|
|
12,657
|
|
|
Limited partners interest in consolidated
operating partnership
|
|
|
7,026
|
|
|
|
|
|
|
Series A preferred 9% convertible,
redeemable units
|
|
|
3,000
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 50,000,000 shares
authorized; 1,427,000 and 11,900,000 shares issued and
outstanding, respectively
|
|
|
14
|
|
|
|
119
|
|
Accumulated other comprehensive loss
|
|
|
(276
|
)
|
|
|
(276
|
)
|
Additional paid-in-capital
|
|
|
3,179
|
|
|
|
133,533
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,917
|
|
|
|
133,376
|
|
Total capitalization
|
|
$
|
182,496
|
|
|
$
|
342,925
|
|
|
|
|
|
|
|
|
|
|
33
DILUTION
Purchasers of our common stock offered in this
prospectus will experience an immediate and substantial dilution
of the net tangible book value of their common stock from the
public offering price. At June 30, 2003, we had a combined
net tangible book value of approximately $228,347, or
$0.02 per share of our common stock held by existing
stockholders, assuming the exchange of units into shares of our
common stock on a two-to-one basis. After giving effect to the
sale of the shares of our common stock offered hereby, the
deduction of underwriting discounts and commissions and
estimated offering and related expenses, the receipt by us of
the net proceeds from this offering, and the use of these funds
by us as described in our pro forma financial statements
included elsewhere in this prospectus, the pro forma net
tangible book value at June 30, 2003 attributable to the
common stockholders would have been $(8,205,972), or
$(0.69) per share of our common stock. This amount
represents an immediate increase in net tangible book value of
$11.65 per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $5.02 per
share from the public offering price of $16.00 per share of
our common stock to new public investors. The following table
illustrates this per share dilution(1):
|
|
|
|
|
|
|
|
|
|
|
Assumed public offering price per share
|
|
|
|
|
|
|
$16.00
|
|
|
Net tangible book value per share before the
merger and this offering(2)
|
|
|
|
|
|
|
0.02
|
|
|
|
Decrease in pro forma net tangible book value per
share attributable to the merger, property acquisitions and
refinancing but before this offering(3)
|
|
|
(0.69
|
)
|
|
|
|
|
|
|
Increase in pro forma net tangible book value per
share attributable to this offering(4)
|
|
|
11.65
|
|
|
|
|
|
|
|
Net increase in pro forma net tangible book value
per share attributable to the merger and this offering
|
|
|
10.96
|
|
|
|
|
|
Pro forma net tangible book value per share after
the merger and this offering
|
|
|
|
|
|
|
10.98
|
|
Dilution in pro forma net tangible book value per
share to new investors
|
|
|
|
|
|
|
5.02
|
|
|
|
(1)
|
The number of shares and units reflected in the
calculations below assumes that the public offering price of our
common stock is within the range of prices set forth on the
cover page of this prospectus. We may choose to not consummate
this offering at prices below the bottom of the range. We do not
currently anticipate changing the number of shares or units if
we price above the range of prices set forth on the cover page
of the prospectus.
|
|
(2)
|
Net tangible book value per share of our common
stock before this offering and related transactions is
determined by dividing net tangible book value based on
June 30, 2003 net book value of the tangible assets
(consisting of total assets less intangible assets, which are
comprised of deferred loan and lease costs, net of liabilities
to be assumed, excluding our acquired lease obligations) by the
number of shares of our common stock held by continuing
investors after this offering, assuming the exchange in full of
the units to be issued to the continuing investors.
|
|
(3)
|
Decrease in net tangible book value per share of
our common stock attributable to the transactions provided for
herein, but before this offering, is determined by dividing the
difference between the June 30, 2003 pro forma net tangible
book value, excluding net offering proceeds, and our
June 30, 2003 net tangible book value by the number of
shares of our common stock held by continuing investors after
this offering, assuming the exchange in full of the units to be
issued to the continuing investors.
|
|
(4)
|
Represents increase in net tangible book value
per share of our common stock attributable to this offering,
adjusted to spread the negative net tangible book value existing
before this offering among investors in this offering. This
amount is calculated after deducting underwriters
discounts and commissions, financial advisory fees and estimated
expenses of this offering.
|
34
SELECTED FINANCIAL DATA
The operating data for the years ended
December 31, 2000, 2001 and 2002 and the balance sheet data
as of December 31, 2001 and 2002 are derived from our
financial statements and notes thereto included in this
prospectus and which have been audited by Ernst &
Young, LLP, our independent auditors. Operating data for the
years ended December 31, 1998, 1999 and 2000 and the
balance sheet data as of December 31, 1998, 1999 and 2000
are derived from our financial statements that are not included
in this prospectus. The operating data for the six months ended
June 30, 2003 and 2002, and the balance sheet as of
June 30, 2003 are derived from our unaudited financial
statements and notes thereto included elsewhere in this
prospectus. The following selected financial data should be read
in conjunction with our financial statements and the notes
thereto, appearing elsewhere in this prospectus and the
information under Managements Discussion and
Analysis of Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Statement of Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents
|
|
$
|
11,203,000
|
|
|
$
|
5,151,000
|
|
|
$
|
12,964,000
|
|
|
$
|
4,817,000
|
|
|
$
|
3,037,000
|
|
|
$
|
2,489,000
|
|
|
$
|
2,505,000
|
|
|
Interest
|
|
|
219,000
|
|
|
|
16,000
|
|
|
|
25,000
|
|
|
|
282,000
|
|
|
|
179,000
|
|
|
|
26,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
11,422,000
|
|
|
|
5,167,000
|
|
|
|
12,989,000
|
|
|
|
5,099,000
|
|
|
|
3,216,000
|
|
|
|
2,515,000
|
|
|
|
2,565,000
|
|
Operating Expenses Operating, maintenance and
management
|
|
|
3,206,000
|
|
|
|
1,207,000
|
|
|
|
2,313,000
|
|
|
|
1,091,000
|
|
|
|
745,000
|
|
|
|
587,000
|
|
|
|
560,000
|
|
|
Real estate taxes
|
|
|
1,232,000
|
|
|
|
593,00
|
|
|
|
1,527,000
|
|
|
|
494,000
|
|
|
|
308,000
|
|
|
|
259,000
|
|
|
|
263,000
|
|
|
General and administrative
|
|
|
1,172,000
|
|
|
|
554,000
|
|
|
|
2,005,000
|
|
|
|
731,000
|
|
|
|
635,000
|
|
|
|
669,000
|
|
|
|
861,000
|
|
|
Depreciation and amortization
|
|
|
1,767,000
|
|
|
|
1,112,000
|
|
|
|
2,546,000
|
|
|
|
991,000
|
|
|
|
622,000
|
|
|
|
493,000
|
|
|
|
480,000
|
|
|
Interest expense
|
|
|
4,290,000
|
|
|
|
2,725,000
|
|
|
|
5,523,000
|
|
|
|
1,888,000
|
|
|
|
604,000
|
|
|
|
128,000
|
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
11,667,000
|
|
|
|
6,191,000
|
|
|
|
13,914,000
|
|
|
|
5,195,000
|
|
|
|
2,914,000
|
|
|
|
2,136,000
|
|
|
|
2,294,000
|
|
Operating (loss) income
|
|
|
(245,000
|
)
|
|
|
(1,024,000
|
)
|
|
|
(925,000
|
)
|
|
|
(96,000
|
)
|
|
|
302,000
|
|
|
|
379,000
|
|
|
|
271,000
|
|
Minority interests
|
|
|
(422,000
|
)
|
|
|
121,000
|
|
|
|
(159,000
|
)
|
|
|
(44,000
|
)
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
Limited partners interest
|
|
|
449,000
|
|
|
|
677,000
|
|
|
|
806,000
|
|
|
|
75,000
|
|
|
|
(192,000
|
)
|
|
|
(315,000
|
)
|
|
|
(90,000
|
)
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,342,000
|
)
|
|
|
(204,000
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,638,000
|
|
|
|
91,000
|
|
|
|
|
|
|
|
|
|
Loss on sale of properties
|
|
|
|
|
|
|
(49,000
|
)
|
|
|
(49,000
|
)
|
|
|
(296,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before cumulative effect
adjustment
|
|
$
|
(218,000
|
)
|
|
$
|
(275,000
|
)
|
|
$
|
(327,000
|
)
|
|
$
|
(65,000
|
)
|
|
$
|
5,000
|
|
|
$
|
64,000
|
|
|
$
|
181,000
|
|
Cumulative effect of change in accounting
principles (net of limited partners share of $15,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Distribution to preferred shareholder (net of
limited partners interest of $48,000)
|
|
|
(21,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before extraordinary items
|
|
|
(239,000
|
)
|
|
|
(275,000
|
)
|
|
|
(327,000
|
)
|
|
|
(71,000
|
)
|
|
|
5,000
|
|
|
|
64,000
|
|
|
|
181,000
|
|
Extraordinary items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Early extinguishment of debt (net of limited
partners share of $346,000, $188,000 and $32,000 in 2002,
2001 and 2000, respectively)
|
|
|
|
|
|
|
|
|
|
|
(141,000
|
)
|
|
|
(76,000
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(239,000
|
)
|
|
$
|
(275,000
|
)
|
|
$
|
(468,000
|
)
|
|
$
|
(147,000
|
)
|
|
$
|
(13,000
|
)
|
|
$
|
64,000
|
|
|
$
|
181,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share before cumulative
effect adjustment
|
|
$
|
(0.15
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.00
|
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
Cumulative change in accounting principle per
share
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.01
|
)
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share before
extraordinary item
|
|
|
(0.15
|
)
|
|
|
(0.20
|
)
|
|
|
(0.24
|
)
|
|
|
(0.06
|
)
|
|
|
0.00
|
|
|
|
0.05
|
|
|
|
0.06
|
|
Extraordinary (loss) per share
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.10
|
)
|
|
|
(0.05
|
)
|
|
|
(0.01
|
)
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share
|
|
$
|
(0.15
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to shareholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
268,000
|
|
|
$
|
257,000
|
|
|
$
|
558,000
|
|
Dividends to shareholders per share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.15
|
|
|
$
|
0.22
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding
|
|
|
1,620,000
|
|
|
|
1,386,000
|
|
|
|
1,388,000
|
|
|
|
1,384,000
|
|
|
|
1,738,000
|
|
|
|
1,188,000
|
|
|
|
2,788,000
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
June 30,
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate before accumulated depreciation
|
|
$
|
172,431,000
|
|
|
$
|
123,634,000
|
|
|
$
|
57,622,000
|
|
|
$
|
28,272,000
|
|
|
$
|
19,186,000
|
|
|
$
|
18,904,000
|
|
Real estate after accumulated depreciation
|
|
|
168,515,000
|
|
|
|
121,238,000
|
|
|
|
56,948,000
|
|
|
|
24,095,000
|
|
|
|
13,995,000
|
|
|
|
14,206,000
|
|
Real estate held for sale
|
|
|
|
|
|
|
|
|
|
|
4,402,000
|
|
|
|
1,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
182,496,000
|
|
|
|
133,138,000
|
|
|
|
68,350,000
|
|
|
|
35,567,000
|
|
|
|
16,693,000
|
|
|
|
15,323,000
|
|
Mortgage loans and loan payable
|
|
|
140,333,000
|
|
|
|
101,001,000
|
|
|
|
52,110,000
|
|
|
|
19,416,000
|
|
|
|
1,347,000
|
|
|
|
1,375,000
|
|
Minority interest
|
|
|
18,915,000
|
|
|
|
10,238,000
|
|
|
|
2,235,000
|
|
|
|
2,291,000
|
|
|
|
|
|
|
|
|
|
Limited partners interest in consolidated
operating partnership
|
|
|
10,026,000
|
|
|
|
10,889,000
|
|
|
|
8,964,000
|
|
|
|
9,242,000
|
|
|
|
9,561,000
|
|
|
|
10,309,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
$
|
2,917,000
|
|
|
$
|
3,245,000
|
|
|
$
|
3,667,000
|
|
|
$
|
3,815,000
|
|
|
$
|
5,243,000
|
|
|
$
|
3,290,000
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
451,000
|
|
|
|
1,159,000
|
|
|
|
1,000,000
|
|
|
|
989,000
|
|
|
|
1,105,000
|
|
|
|
771,000
|
|
Cash flows from investing activities
|
|
|
(50,563,000
|
)
|
|
|
(41,380,000
|
)
|
|
|
(2,529,000
|
)
|
|
|
(8,850,000
|
)
|
|
|
(282,000
|
)
|
|
|
424,000
|
|
Cash flows from financing activities
|
|
|
47,402,000
|
|
|
|
41,803,000
|
|
|
|
3,451,000
|
|
|
|
5,886,000
|
|
|
|
797,000
|
|
|
|
(924,000
|
)
|
37
Unaudited Summary Selected Pro Forma Financial
Data
The following tables also set forth our selected
financial data on a pro forma basis, as if we completed the
offering transaction, acquired the properties and the management
companies and completed the refinancing transaction and we
qualified as a REIT, distributed 90% of our taxable income and,
therefore, incurred no income tax expense during the period. The
unaudited pro forma operating data for the six months ended
June 30, 2003 is presented as if we completed the offering
transaction and acquired the properties and the management
companies and completed the refinancing transactions on
January 1, 2003. The unaudited pro forma operating data for
the year ended December 31, 2002 is presented as if we
completed the offering transaction and acquired the properties
and the management companies and completed the refinancing
transactions on January 1, 2002. The unaudited pro forma
balance sheets as of June 30, 2003 is presented as if we
completed the offering transaction and acquired the properties
and the management companies and completed the refinancing
transactions on June 30, 2003.
The pro forma information is based upon
assumptions that are included in the notes to the pro forma
financial statements included elsewhere in this prospectus. The
pro forma information is unaudited and is not necessarily
indicative of what our financial position and results of
operations would have been as of and for the dates or periods
indicated, nor does it purport to represent our future financial
position and results of operations for future dates or periods.
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
Pro forma
|
|
|
Six Months Ended
|
|
Twelve Months Ended
|
|
|
June 30,
|
|
December 31,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Statement of Operating Data:
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Rents
|
|
|
20,705,441
|
|
|
|
39,783,268
|
|
|
Interest and other income
|
|
|
632,601
|
|
|
|
584,030
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
21,338,042
|
|
|
|
40,367,298
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Operating, maintenance and management
|
|
|
8,283,258
|
|
|
|
14,049,499
|
|
|
Real estate taxes
|
|
|
2,063,033
|
|
|
|
4,016,863
|
|
|
General and administrative
|
|
|
1,500,000
|
|
|
|
3,000,000
|
|
|
Depreciation and amortization
|
|
|
3,474,599
|
|
|
|
6,895,696
|
|
|
Interest expense
|
|
|
11,650,098
|
|
|
|
17,983,854
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
26,970,988
|
|
|
|
45,945,942
|
|
Operating (loss) income
|
|
|
(5,632,946
|
)
|
|
|
(5,578,614
|
)
|
Termination fees
|
|
|
(15,000,000
|
)
|
|
|
(15,000,000
|
)
|
Minority interests
|
|
|
(423,667
|
)
|
|
|
(581,617
|
)
|
Limited partners interest
|
|
|
|
|
|
|
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
Gain on sale of properties
|
|
|
|
|
|
|
|
|
Loss on sale of properties
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(21,056,613
|
)
|
|
|
(21,160,231
|
)
|
Basic and dilutive net income per share
|
|
|
$(1.97
|
)
|
|
|
$(1.99
|
)
|
38
|
|
|
|
|
|
|
Pro forma
|
|
|
June 30, 2003
|
|
|
|
|
|
(Unaudited)
|
Balance Sheet Data:
|
|
|
|
|
Real estate before accumulated depreciation
|
|
|
332,610,890
|
|
Real estate after accumulated depreciation
|
|
|
328,735,890
|
|
Real estate held for sale
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
342,923,697
|
|
Mortgage loans and loan payable
|
|
|
171,826,591
|
|
Minority interest
|
|
|
12,656,511
|
|
Limited partners interest in consolidated
operating partnership
|
|
|
|
|
Shareholders equity
|
|
|
133,375,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
Pro forma
|
|
|
Six Months Ended
|
|
Pro forma
|
|
Year Ended
|
|
|
June 30,
|
|
Year Ended
|
|
December 31,
|
|
|
2003
|
|
June 30, 2003
|
|
2002
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations(1)(2)(3)
|
|
|
(17,934,613)
|
|
|
|
(14,726,000)
|
|
|
|
(15,423,231
|
)
|
Total properties-square feet
|
|
|
3,609,400
|
|
|
|
3,609,400
|
|
|
|
3,609,400
|
|
Properties-percent leased(4)
|
|
|
92
|
%
|
|
|
92
|
%
|
|
|
92%
|
|
|
|
(1)
|
Management believes that FFO is a widely
recognized and appropriate measure of performance of an equity
REIT. Although FFO is a non-GAAP financial measure, management
believes it provides useful information to shareholders,
potential investors, and management. Management computes FFO in
accordance with the standards established by NAREIT. FFO is
defined by NAREIT as net income or loss excluding gains or
losses from debt restructuring and sales of properties plus real
estate depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not
represent cash generated from operating activities in accordance
with accounting principles generally accepted in the United
States and is not indicative of cash available to fund cash
needs. FFO should not be considered as an alternative to net
income, as an indicator of our operating performance, or as an
alternative to cash flow as a measure of liquidity. As not all
companies and analysts calculate FFO in a similar fashion, our
calculation of FFO presented herein may not be comparable to
similarly titled measures as reported by other companies.
|
|
(2)
|
The calculation of FFO includes the following
one-time charges that are added back in the calculation of Pro
Forma Cash Flows from Operating Activities for the twelve months
ending June 30, 2004, as set forth in the section captioned
Distribution Policy:
|
|
|
|
|
|
$5,200,000 for defeasance of the mortgage debt on
River View Plaza I, II and III
|
|
|
|
$1,100,000 for defeasance of the mortgage debt on
Washington Center Shoppes
|
|
|
|
$5,495,000 for one-time stock compensation
charges incurred in connection with this offering
|
|
|
|
$15,000,000 one time payment to owners of
external advisors for merger into us.
|
|
|
(3)
|
The calculation of FFO excludes the following
items that are included in the calculation of Pro Forma Cash
Flows from Operating Activities for the twelve months ending
June 30, 2004, as set forth in the section below captioned
Distribution Policy:
|
|
|
|
|
|
$ of
capitalized development costs at certain properties being
redeveloped
|
|
|
|
$230,000 on account of seller lease guarantees at
South Philadelphia Shopping Plaza and Red Lion Shopping Center
|
|
|
(4)
|
Excludes three properties currently being
re-developed.
|
39
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We are a REIT that will be fully integrated,
self-administered and self-managed upon consummation of this
offering. We acquire, own, manage, lease and redevelop
neighborhood and community shopping centers. Upon consummation
of this offering and completion of the pending acquisitions
described herein, we will have a portfolio of 23 properties
totaling approximately 3.6 million square feet of gross leasable
area, or GLA, including 17 wholly-owned centers comprising
approximately 2.8 million square feet of GLA and six
centers owned through joint ventures, comprising
730,000 square feet of GLA.
We currently own 14 properties totaling
approximately 2.4 million square feet of GLA. Our
portfolio, excluding two properties under development, was
approximately 94% leased as of June 30, 2003. We have
entered into agreements to acquire nine other shopping centers,
totaling approximately 1.2 million square feet of GLA for
an aggregate purchase price of $143.4 million. Upon
consummation of this offering and completion of our pending
acquisitions, our portfolio, excluding three properties under
development, will be approximately 92% leased. We intend to
close on these pending acquisitions shortly after consummation
of this offering.
We were originally incorporated in Iowa on
December 10, 1984 and elected to be taxed as a REIT
commencing with the taxable year ended December 31, 1986.
In June 1998, following a tender offer completed in April 1998
for the purchase of our common stock by CBC, we reorganized as a
Maryland corporation and established an umbrella
partnership REIT structure through the contribution of
substantially all of our assets to a Delaware limited
partnership, the operating partnership. We conduct our business
through the operating partnership. Upon consummation of this
offering we will own
a %
interest in the operating partnership. We are presently the sole
general partner and own an approximate 30% interest in the
operating partnership.
We derive substantially all of our revenues from
rents and reimbursement payments received from tenants under
existing leases on each of our properties. Our operating results
therefore depend materially on the ability of our tenants to
make required payments. We believe that the nature of the
properties we primarily own and in which we invest, neighborhood
and community shopping centers, provides a more stable revenue
flow in uncertain economic times, as they are more resistant to
economic down cycles. This is because consumers still need to
purchase food and other goods found at supermarkets, even in
difficult economic times.
In the future, we intend to focus on increasing
our internal growth and pursuing targeted acquisitions of
neighborhood and community shopping centers. We currently expect
to incur additional debt in connection with any future
acquisitions of real estate.
Summary of Critical Accounting
Policies
Basis of
Presentation and Consolidation Policy
The financial statements are prepared on an
accrual basis in accordance with GAAP. The accompanying interim
unaudited financial statements have been prepared by the
Companys management pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial
statements prepared in accordance with GAAP may have been
condensed or omitted pursuant to such rules and regulations,
although management believes that the disclosures are adequate
to make the information presented not misleading. The unaudited
financial statements as of June 30, 2003, and for the three
and six month periods ended June 30, 2003 and 2002,
include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary to present
fairly the financial information set forth herein. The results
of operations for the interim periods are not necessarily
indicative of the results that may be expected for the year
ending
40
December 31, 2003. These financial
statements should be read in conjunction with the Companys
audited financial statements and the notes thereto included in
the Companys Form 10-K for the year ended
December 31, 2002. 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 operating partnership is the entity through
which we conduct substantially all of our business and owns
(either directly or through subsidiaries) substantially all of
our assets. We own an approximate 30% economic interest in, and
are the sole general partner of, the operating partnership. As
of June 30, 2003, our consolidated financial statements
include the accounts and operations of us and the operating
partnership. The operating partnership has a 50% partnership
interest in The Point Shopping Center; a 20% general partnership
interest in Red Lion Shopping Center; a 25% general partnership
interest in Loyal Plaza Shopping Center; a 30% general
partnership interest in the three Giant supermarket-anchored
shopping centers, Fairview Plaza, Halifax Plaza, and Newport
Plaza; a 15% interest in Pine Grove Plaza Shopping Center; and a
15% general partnership interest in Swede Square.
Upon the merger of our advisors and consummation
of this offering, we will have
a %
general partnership interest in the operating partnership and
the operating partnership will have a 100% interest in The Point
Shopping Center, Pine Grove Shopping Center and Swede Square, a
20% general partnership interest in the Red Lion Shopping Center
and a 25% general partnership interest in Loyal Plaza Shopping
Center.
Revenue
Recognition
Rental income with scheduled rent increases is
recognized using the straight-line method over the term of the
leases. The aggregate excess of rental revenue recognized on a
straight-line basis over cash received under applicable lease
provisions is included in deferred rent receivable. Leases
generally contain provisions under which the tenants reimburse
us for a portion of property operating expenses and real estate
taxes incurred by us. In addition, certain of our operating
leases contain contingent rent provisions under which tenants
are required to pay a percentage of their sales in excess of a
specified amount as additional rent. We defer recognition of
contingent rental income until those specified targets are met.
We must make estimates as to the collectibility
of our accounts receivable related to minimum rent, deferred
rent, expense reimbursements and other revenue. We analyze
accounts receivable and historical bad debts, tenant credit
worthiness, current economic trends and changes in our
tenants payment patterns when evaluating the adequacy of
the allowance for doubtful accounts receivable. These estimates
have a direct impact on our net income, because a higher bad
debt allowance would result in lower net income.
Real Estate
Investments
Real estate investments are carried at cost less
accumulated depreciation. The provision for depreciation and
amortization is calculated using the straight-line method based
upon the estimated useful lives of assets. Expenditures for
maintenance, repairs and betterments that do not materially
prolong the normal useful life of an asset are charged to
operations as incurred. Additions and betterments that
substantially extend the useful lives of the properties are
capitalized.
We are required to make subjective estimates as
to the useful lives of our properties for purposes of
determining the amount of depreciation to reflect on an annual
basis. These assessments have a direct impact on net income. A
shorter estimate of the useful life of an investment would have
the effect of increasing depreciation expense and lowering net
income, whereas a longer estimate of the useful life of the
investment would have the effect of reducing depreciation
expense and increasing net income.
41
We apply SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, to
recognize and measure impairment of long-lived assets. We review
each real estate investment for impairment whenever events or
circumstances indicate that the carrying value of a real estate
investment may not be recoverable. The review of recoverability
is based on an estimate of the future cash flows that are
expected to result from the real estate investments use
and eventual disposition. These cash flows consider factors such
as expected future operating income, trends and prospects, as
well as the effects of leasing demand, competition and other
factors. If impairment exists due to the inability to recover
the carrying value of a real estate investment, an impairment
loss is recorded to the extent that the carrying value exceeds
estimated fair market value. Real estate investments held for
sale are carried at the lower of carrying amount or fair value,
less costs to sell. Depreciation and amortization are suspended
during the period held for sale. We are required to make
subjective assessments as to whether there are impairments in
the value of our real estate properties. These assessments have
a direct impact on net income, because an impairment loss is
recognized in the period that the assessment is made.
On July 1, 2001 and January 1, 2002, we
adopted SFAS No. 141 Business Combinations and
SFAS No. 142, Goodwill And Other Intangibles,
respectively. As part of the acquisition of real estate assets,
the fair value of the real estate acquired is allocated to the
acquired tangible assets, consisting of land, building and
building improvements, and identified intangible assets and
liabilities, consisting of the value of above-market and
below-market leases, other value of in-place leases and value of
tenant relationships, based in each case on their fair value.
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
managements determination of the relative fair values of
these assets. Management determines the as-if-vacant fair value
of a property using methods similar to those used by independent
appraisers. Factors considered by management in performing these
analyses include an estimate of carrying costs during the
expected lease-up periods considering current market conditions
and costs to execute similar leases. In estimating carrying
costs, management includes real estate taxes, insurance and
other operating expenses and estimates of lost rental revenue
during the expected lease-up periods based on current market
demand. Management also estimates costs to execute similar
leases, including leasing commissions, legal and other related
costs.
In allocating the fair value of the identified
intangible assets and liabilities of an acquired property,
above-market and below-market in-place lease values are recorded
based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid
pursuant to the in-place leases and (ii) managements
estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining
non-cancelable term or the lease. The capitalized above-market
lease values (included in deferred leasing costs in the
accompanying combined balance sheet) are amortized as a
reduction of rental income over the remaining non-cancelable
terms of the respective leases. The capitalized below-market
lease values (presented as acquired lease obligations in the
accompanying combined balance sheet) are amortized as an
increase to rental income over the remaining initial terms in
the respective leases.
The aggregate value of other acquired intangible
assets, consisting of in-place leases and tenant relationships,
is measured by the excess of (i) the purchase price paid
for a property after adjusting existing in-place leases to
market rental rates over (ii) the estimated fair value of
the property as if vacant, determined as set forth above. This
aggregate value is allocated between in-place lease values and
tenant relationships based on managements evaluation of
the specific characteristics of each tenants lease;
however, the value of tenant relationships has not been
separated from in-place lease value for the additional interests
in real estate entities acquired by the Predecessor because such
value and its consequence to amortization expense is immaterial
for these particular acquisitions. Should future acquisitions of
properties result in allocating material amounts to the value of
tenant relationships, an amount would be separately allocated
and amortized over the estimated life of the relationship. The
value of in-place leases exclusive of the value of above-market
and below-market in-place leases is amortized to expense over
the remaining non-cancelable periods of the respective leases.
If a lease were to be
42
terminated prior to its stated expiration, all
unamortized amounts relating to that lease would be written off.
Hedging
Activities
From time to time, we use derivative financial
instruments to limit our exposure to changes in interest rates
related to variable rate borrowings. Derivative instruments are
carried on the consolidated financial statements at their
estimated fair value and a change in the value of a derivative
is reported as other comprehensive income or loss. If interest
rate assumptions and other factors used to estimate a
derivatives fair value or methodologies used to determine
a derivatives effectiveness were different, amounts
included in the determination of net income or other
comprehensive income or loss could be affected.
|
|
|
Stock Option Plans and
Warrants
|
In December 2002, the FASB issued SFAS
No. 148 (SFAS 148), Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS
148 amends SFAS No. 123, or SFAS 123, Accounting
for Stock-Based Compensation, to provide alternative
methods of transition for an entity that voluntarily adopts the
fair value recognition method of recording stock option expense.
SFAS 148 also amends the disclosure provisions of
SFAS 123 and Accounting Principles Board (APB),
Opinion No. 28. Interim Financial Reporting, to
require disclosure in the summary of significant accounting
policies of the effects of an entitys accounting policy
with respect to stock options on reported net income and
earnings per share in annual and interim financial statements.
SFAS 123, as amended by SFAS 148,
establishes financial accounting and reporting standards for
stock-based employee compensation plans, including all
arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of the
employers stock. SFAS 123 defines a fair value based
method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to
continue to measure compensation cost using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25
(Opinion No. 25), Accounting for Stock
Issued to Employees. We have elected to continue using
Opinion No. 25 and to make pro forma disclosures of net
income and earnings per share as if the fair value method of
accounting defined in SFAS 123 had been applied.
|
|
|
Recent Accounting
Pronouncements
|
In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, or FIN 45. FIN 45
significantly changes the current practice in the accounting
for, and disclosure of, guarantees. Guarantees and
indemnification agreements meeting the characteristics described
in FIN 45 are required to be initially recorded as a
liability at fair value. FIN 45 also requires a guarantor
to make significant new disclosures for virtually all guarantees
even if the likelihood of the guarantor having to make payment
under the guarantee is remote. The disclosure requirements
within FIN 45 are effective for financial statements for
annual or interim periods ending after December 15, 2002.
The initial recognition and initial measurement provisions are
applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. We adopted FIN 45 on
January 1, 2003. The result of this adoption did not have a
material effect on our results of operations or financial
position.
In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities. The interpretation clarifies the application of
existing accounting pronouncements to certain entities in which
the equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
The provisions of the interpretation are immediately effective
for all variable interest entities created after
January 31, 2003. We have evaluated the effects of the
issuance of
43
the interpretation on the accounting for our
ownership interest in our joint venture partnerships created
after January 31, 2003 and have concluded that all five of
our joint ventures should be included in the consolidated
financial statements. We are currently in the process of
evaluating the impact that this interpretation will have on our
financial statements for all joint ventures created before
January 31, 2003.
In May 2003, the FASB issued SFAS No. 150
(SFAS 150) Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. This statement, which establishes standards for
the classification and measurements of certain financial
instruments with characteristics of both liabilities and equity,
is effective for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the
beginning of the first interim period starting after
June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of the
statement and still existing at the beginning of the interim
period of adoption. Management does not believe that the
implementation of SFAS 150 will have a material impact on
our condition, results of operations or cash flows.
Results of Operations
|
|
|
Comparison of Three Months Ended
June 30, 2003 to Three Months Ended June 30,
2002
|
Differences in results of operations between the
second quarter of 2003 and the second quarter of 2002 were
driven largely by our acquisition and disposition activities.
Net income (loss) before the loss on sale of properties, and
income allocated to minority interest and limited partner,
increased approximately $1,144,000 from a net loss of $921,000
in the second quarter of 2002 to net income of $223,000 in the
second quarter of 2003. Net loss attributable to common
shareholders decreased approximately $207,000 from a net loss of
$227,000 in the second quarter of 2002 to a net loss of $40,000
in the second quarter of 2003. Net loss per share decreased
$0.15 from a net loss per share of $0.16 in the second quarter
of 2002 to a net loss per share of $0.02 in the second quarter
of 2003.
Results of operations for properties consolidated
for financial reporting purposes and held throughout both the
second quarter of 2002 and the second quarter of 2003 included
four properties. As of June 30, 2002 and 2003, we owned ten
and 14 properties, respectively.
|
|
|
Property-Specific Revenue and
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
Acquisition/
|
|
Held in
|
|
|
2003
|
|
2002
|
|
Difference
|
|
Dispositions
|
|
Both Years
|
|
|
|
|
|
|
|
|
|
|
|
Rents and expense recoveries
|
|
$
|
6,005,000
|
|
|
$
|
2,651,000
|
|
|
$
|
3,354,000
|
|
|
$
|
3,182,000
|
|
|
$
|
172,000
|
|
Property expenses
|
|
|
2,088,000
|
|
|
|
907,000
|
|
|
|
1,181,000
|
|
|
|
1,133,000
|
|
|
|
48,000
|
|
Depreciation and amortization
|
|
|
926,000
|
|
|
|
561,000
|
|
|
|
365,000
|
|
|
|
523,000
|
|
|
|
(158,000
|
)
|
Interest expense
|
|
|
2,252,000
|
|
|
|
1,535,000
|
|
|
|
717,000
|
|
|
|
157,000
|
|
|
|
560,000
|
|
General and administrative expense
|
|
|
649,000
|
|
|
|
305,000
|
|
|
|
344,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Results Attributable To Acquisition And
Disposition Activities
|
Rents increased from approximately $2,651,000 in
the second quarter of 2002 to approximately $6,005,000 in the
second quarter of 2003, a net increase of approximately
$3,354,000 or 127%. Such net increase is attributable to our
acquisition and disposition activities.
Property expenses, excluding depreciation,
amortization and interest expense, increased from approximately
$907,000 in the second quarter of 2002 to approximately
$2,088,000 in the second quarter of 2003, a net increase of
approximately $1,181,000 or 130%. Such increase reflects
approximately $1,133,000 attributable to our acquisition
activities, and approximately $48,000 attributable to properties
held in both years.
44
Depreciation and amortization increased from
approximately $561,000 in the second quarter of 2002 to
approximately $926,000 in the second quarter of 2003, a net
increase of approximately $365,000 or 66%. Such increase is
attributable to our acquisition activities. Amortization expense
attributable to properties held both years decreased by
approximately $158,000 as a result of The Point Shopping
Centers loan refinancing and corresponding write down of
deferred costs during the second quarter of 2002.
Interest expense increased from approximately
$1,535,000 during the second quarter of 2002 to approximately
$2,252,000 in the second quarter of 2003, a net increase of
approximately $717,000 or 47%. Such increase reflects
approximately $157,000 attributable to our acquisition
activities, and approximately $560,000 attributable to
properties held in both years.
General and administrative expense increased
approximately $344,000 to $649,000 in the second quarter of 2003
from approximately $305,000 in the second quarter of 2002, a
change of 113%. The increase is primarily attributable to our
growth, resulting in increases in advisory fees of $135,000 and
an increase in legal and accounting fees of $204,000.
|
|
|
Results For Properties Fully Operating
Throughout Both Periods
|
Rental income for Port Richmond L.L.C. 1,
Academy Plaza L.L.C. 1, Washington Center L.L.C. 1,
and The Point Associates, L.P., the only properties fully
operating throughout the second quarter of both years, increased
by approximately $172,000 from $2,233,000 in the second quarter
of 2002 to $2,405,000 in the second quarter of 2003. Property
expenses increased $48,000 from approximately $752,000 during
the second quarter of 2002 to $799,000 during the second quarter
of 2003.
|
|
|
Comparison of Six Months Ended
June 30, 2003 to Six Months Ended June 30,
2002
|
During the second quarter of 2003, we acquired a
100% interest in one shopping center with a purchase price of
$9.5 million, and 15% general partnership interests in two
shopping centers with an aggregate purchase price, including
closing costs, of approximately $16.0 million. During the
first quarter of 2003, we acquired a 30% general partnership
interest in three shopping centers with an aggregate purchase
price of $20.8 million. During the second quarter of 2002,
we acquired a 20% general partnership interest in one shopping
center from a related party, based on a property value of
$23.0 million. We also sold one office property for a gross
sales price of approximately $4.4 million, which resulted
in a loss of $49,000.
Differences in results of operations between the
first half of 2003 and the first half of 2002 were driven
largely by our acquisition and disposition activity. Net loss
before the loss on sale of properties, distributions to
preferred stockholders and income allocated to minority interest
and limited partner, decreased approximately $779,000 from a net
loss of $1,024,000 in the first half of 2002 to a net loss of
$245,000 in the first half of 2003. Net loss attributable to
common shareholders decreased approximately $36,000 from a net
loss of $275,000 in the first half of 2002 to a net loss of
$239,000 in the first half of 2003. Net loss per share decreased
$0.05 from a net loss per share of $0.20 in the first half of
2002 to a net loss per share of $0.15 in the first half of 2003.
Results of operations for properties consolidated
for financial reporting purposes and held throughout both the
first half of 2002 and the first half of 2003 included four
properties. As of June 30, 2002 and 2003, we owned ten and
14 properties, respectively.
45
|
|
|
Property-Specific Revenue and
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
Acquisition/
|
|
Held in
|
|
|
2003
|
|
2002
|
|
Difference
|
|
Dispositions
|
|
Both Years
|
|
|
|
|
|
|
|
|
|
|
|
Rents and expense recoveries
|
|
$
|
11,383,000
|
|
|
$
|
5,151,000
|
|
|
$
|
6,232,000
|
|
|
$
|
6,076,000
|
|
|
$
|
156,000
|
|
Property expenses
|
|
|
4,438,000
|
|
|
|
1,800,000
|
|
|
|
2,638,000
|
|
|
|
2,297,000
|
|
|
|
341,000
|
|
Depreciation and amortization
|
|
|
1,767,000
|
|
|
|
1,112,000
|
|
|
|
655,000
|
|
|
|
786,000
|
|
|
|
(131,000
|
)
|
Interest expense
|
|
|
4,290,000
|
|
|
|
2,456,000
|
|
|
|
1,834,000
|
|
|
|
1,122,000
|
|
|
|
712,000
|
|
General and administrative expense
|
|
|
1,172,000
|
|
|
|
554,000
|
|
|
|
618,000
|
|
|
|
618,000
|
|
|
|
|
|
|
|
|
Results Attributable to Acquisition and
Disposition Activities
|
Rents increased from approximately $5,151,000 in
the first half of 2002 to approximately $11,383,000 in the first
half of 2003, a net increase of approximately $6,232,000 or
121%. Such net increase is attributable to our acquisition
activities.
Property expenses, excluding depreciation,
amortization and interest expense, increased from approximately
$1,800,000 in the first half of 2002 to approximately $4,438,000
in the first half of 2003, a net increase of approximately
$2,638,000 or 147%. Such increase reflects approximately
$2,297,000 attributable to our acquisition activities and
approximately $341,000 attributable to properties held in both
years.
Depreciation and amortization increased from
approximately $1,112,000 in the first half of 2002 to
approximately $1,767,000 in the first half of 2003, a net
increase of approximately $655,000 or 59%. Such increase is
attributable to our acquisition activities and is offset, in
part, by the reduction in amortization expense at The Point
Shopping Center.
Interest expense increased from approximately
$2,456,000 in the first half of 2002 to approximately $4,290,000
in the first half of 2003, a net increase of approximately
$1,834,000 or 75%. Such increase reflects approximately
$1,122,000 attributable to our acquisition activities, and
approximately $712,000 attributable to properties held in both
years. The increase attributable to properties held in both
years is due to the refinancing of our mortgage on The Point
Shopping Center.
General and administrative expense increased
approximately $618,000 to $1,172,000 in the first half of 2003
from approximately $554,000 in the first half of 2002, a change
of 112%. This is attributable to our overall growth, resulting
in an increase in advisory fees of $204,000, an increase in
legal and accounting fees of approximately $262,000,
directors fees of approximately $60,000 and an increase in
other administrative costs of $56,000.
|
|
|
Results for Properties Fully Operating
Throughout Both Years
|
Rental income for Port Richmond Village, Academy
Plaza, Washington Center Shoppes, and The Point Shopping Center,
the only properties fully operating throughout the first half of
both years, increased by approximately $156,000 from $4,452,000
in the first half of 2002 to $4,608,000 in the first half of
2003. Property expenses increased $342,000 from approximately
$1,490,000 during the first half of 2002 to $1,832,000 during
the first half of 2003. The increase in property expenses for
the six month period ended June 30, 2003 is attributable to
(1) an increase in snow removal costs of approximately
$94,000, (2) an increase in real estate taxes of $88,000
resulting from a second quarter 2002 re-assessment following the
completion of The Point Shopping Center redevelopment project,
and (3) an increase of $94,000 in bad debt expense
principally attributable to disputed common area maintenance
charges with a major tenant. These increases will, in part, be
recovered through future tenant escalations.
46
Operating
Activities.
Net cash flow (used in)
provided by operating activities increased from $(132,000)
during the six months ended June 30, 2002 to $451,000
during the six months ended June 30, 2003. The increase of
$583,000 is attributable to the increase in net income (loss)
before minority interests, limited partners interest,
distributions and loss on sale over the periods.
Investing
Activities.
Net cash flow used in
investing activities was approximately $(50,563,000) during the
six months ended June 30, 2003, compared to approximately
$326,000 in the six months ended June 30, 2002. During the
six months ended June 30, 2003, we completed the purchase
of six shopping center properties aggregating approximately
555,000 square feet at a cost of approximately $46,144,000,
while we sold our Southpoint property for approximately
$4,353,000 in May 2002.
Financing
Activities.
Cash flow provided by
financing activities increased to approximately $47,402,000 in
the six months ended June 30, 2003 from approximately
$199,000 during the six months ended June 30, 2002. The
change of approximately $47,203,000 was primarily the result of
our obtaining mortgage financing of approximately $37,612,000,
proceeds from the line of credit and other short-term borrowings
of approximately $2,880,000 and the receipt of $8,836,000 in
equity contributions from limited partners to fund the
acquisitions of six shopping centers including the capital
expenditures necessary to improve and lease our properties. This
increase is offset, in part, by payments of scheduled mortgage
amortization and the repayment of a secured line of credit.
|
|
|
Comparison of Year Ended December 31,
2002 to Year Ended December 31, 2001
|
During 2002, we acquired three shopping centers
aggregating approximately 1,039,000 rentable square feet and the
land for a 41,000 square feet LA Fitness Center facility
for an aggregate cost of approximately $60 million. During
May 2002, we sold one office property that did not meet our
strategic focus for a net sales price of $4.37 million.
During 2001, we completed the acquisitions of
three shopping centers for an aggregate purchase price of
approximately $36 million, and sold two properties for an
aggregate gross sales price of $7.2 million.
Differences in results of operations between 2002
and 2001 were driven largely by our acquisition and disposition
activity. Net loss before the loss on sale of properties, income
allocated to minority interest, and income before extraordinary
items increased by approximately $829,000 from a net loss of
$96,000 in 2001 to a net loss of $925,000 in 2002. Net loss
attributable to common shareholders increased by approximately
$321,000 from a net loss of $147,000 in 2001 to a net loss of
$468,000 in 2002. Net loss per share increased by $0.46 from net
loss per share of $.21 in 2001 to a net loss per share of $0.67
per share in 2002.
Results of operations for properties consolidated
for financial reporting purposes and held throughout both 2002
and 2001 included one property. Results of operations for
properties consolidated for financial reporting purposes and
purchased or sold subsequent to January 1, 2001 through
December 31, 2002 included only three properties. As of
December 31, 2002, we owned seven shopping center
properties.
|
|
|
Property-Specific Revenue and
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition/
|
|
Held in
|
|
|
2002
|
|
2001
|
|
Difference
|
|
Dispositions
|
|
Both Years
|
|
|
|
|
|
|
|
|
|
|
|
Rents
|
|
$
|
12,964,000
|
|
|
$
|
4,817,000
|
|
|
$
|
8,147,000
|
|
|
$
|
7,304,000
|
|
|
$
|
843,000
|
|
Property expenses
|
|
|
3,840,000
|
|
|
|
1,585,000
|
|
|
|
2,255,000
|
|
|
|
2,061,000
|
|
|
|
194,000
|
|
Depreciation & amortization
|
|
|
2,546,000
|
|
|
|
991,000
|
|
|
|
1,555,000
|
|
|
|
1,195,000
|
|
|
|
360,000
|
|
Interest expense
|
|
|
5,523,000
|
|
|
|
1,888,000
|
|
|
|
3,635,000
|
|
|
|
3,531,000
|
|
|
|
104,000
|
|
General & administrative expense
|
|
|
2,005,000
|
|
|
|
731,000
|
|
|
|
1,274,000
|
|
|
|
|
|
|
|
|
|
47
|
|
|
Results Attributable to Acquisition and
Disposition Activities
|
Rents increased from approximately $4,817,000 in
2001 to approximately $12,964,000 in 2002, a net increase of
approximately $8,147,000. Such increase reflects approximately
$7,304,000 attributable to our acquisition activities, and
approximately $843,000 attributable to properties held in both
years.
Property expenses, excluding depreciation,
amortization and interest expense, increased from approximately
$1,585,000 in 2001 to approximately $3,840,000 in 2002, an
increase of approximately $2,255,000. Approximately $2,061,000
of the net increase was attributable to acquisition and
disposition activities, while approximately $194,000 was
attributable to properties held both years.
Depreciation and amortization increased from
approximately $991,000 in 2001 to approximately $2,546,000 in
2002, an increase of approximately $1,555,000. Approximately
$1,195,000 of the net increase was attributable to acquisition
and disposition activities, while approximately $360,000 was
attributable to properties held both years.
Interest expense increased from approximately
$1,888,000 in 2001 to approximately $5,523,000 in 2002.
Approximately $3,531,000 of the net increase was attributable to
mortgage and other indebtedness incurred with respect to
acquisition and disposition activities, while approximately
$104,000 was attributable to properties held both years.
General and administrative expense increased
approximately $1,274,000, to $2,005,000 in 2002 from
approximately $731,000 in 2001. The increase is primarily the
result of our growth throughout both years.
|
|
|
Results for Properties Fully Operating
Throughout Both Years
|
Several factors affected the comparability of
results for The Point Shopping Center, the only property fully
operating throughout both years. Rental income for The Point
Shopping Center increased from approximately $2,066,000 in 2001
to approximately $2,910,000 in 2002. This is a result of the
completion of the redevelopment of the center and the
commencement in August 2001 of the Giant Food tenancy.
Correspondingly, property expenses increased from approximately
$629,000 in 2001 to approximately $823,000 in 2002.
Operating
Activities.
Net cash flows provided by
operating activities increased to $1,159,000 in 2002 from
$1,000,000 in 2001. This increase was due primarily to the
growth of our portfolio.
Investing
Activities.
Net cash flows used in
investing activities increased to approximately $41,380,000
during 2002 from approximately $2,529,000 in 2001. During 2002,
we completed the acquisitions of four shopping centers located
in Pennsylvania aggregating 1.1 million square feet for a
cost of approximately $60 million, and sold one office
property for a net sales price of $4.37 million.
Financing
Activities.
Net cash flows provided by
financing activities increased to approximately $41,803,000 in
2002 from approximately $3,451,000 in 2001. We funded the
acquisitions of four shopping centers and capital expenditures
necessary to improve and lease our properties with cash provided
by joint venture partners, mortgage and other indebtedness and
the sale of 3,300 preferred units in connection with the Homburg
Invest capital contribution. We used the net proceeds from the
sale of one property during 2002 to pay down the outstanding
balance on the 2001 SWH financing.
|
|
|
Comparison of Year Ended December 31,
2001 to Year ended December 31, 2000
|
During 2001, we acquired three shopping centers
aggregating approximately 440,000 rentable square feet and an
adjacent parcel of land (of approximately 34,000 square feet)
for a total cost of approximately $36 million. During 2001,
we sold two office properties that did not meet our strategic
focus for an aggregate gross sales price of $7.2 million.
48
During 2000, we completed the acquisition of a
50% interest in The Point Shopping Center at a purchase price of
$2.1 million (50% of the appraised value less the existing
first mortgage debt,
i.e.
$13,500,000
$9,300,000 x .50), and sold one 50% interest in the Germantown
Square property for a gross sales price of $3.0 million.
Differences in results of operations between 2001
and 2000 were driven largely by the acquisition and disposition
activity. Net loss attributable to common shareholders for 2001
totaled approximately $147,000, compared with a net loss of
approximately $13,000 for the prior year. Net income before
minority interest, limited partnerships interest, loss on
impairment and gain (loss) on sales decreased from net
income of approximately $302,000 in 2000 to a net loss of
approximately $96,000 in 2001. The computation of net loss per
share resulted in a $0.20 per share increase in net loss, from a
net loss of $0.01 in 2000 to a net loss of $0.21 for 2001. As we
had no dilutive securities outstanding during 2000 or 2001,
basic and diluted net loss per share figures are the same for
both years.
Results of operations for properties consolidated
for financial reporting purposes and held throughout both 2001
and 2000 included one property. Results of operations for
properties consolidated for financial reporting purposes and
purchased or sold during the period from January 1, 2000
through December 31, 2001 included nine properties. As of
December 31, 2001, we owned five properties.
|
|
|
Property-Specific Revenue and
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition/
|
|
Held in
|
|
|
2001
|
|
2000
|
|
Difference
|
|
Dispositions
|
|
Both Years
|
|
|
|
|
|
|
|
|
|
|
|
Rents
|
|
$
|
4,817,000
|
|
|
$
|
3,037,000
|
|
|
$
|
1,780,000
|
|
|
$
|
1,757,000
|
|
|
$
|
23,000
|
|
Property expenses
|
|
|
1,585,000
|
|
|
|
1,053,000
|
|
|
|
532,000
|
|
|
|
506,000
|
|
|
|
26,000
|
|
Depreciation & amortization
|
|
|
991,000
|
|
|
|
622,000
|
|
|
|
369,000
|
|
|
|
420,000
|
|
|
|
(51,000
|
)
|
Interest expense
|
|
|
1,888,000
|
|
|
|
604,000
|
|
|
|
1,284,000
|
|
|
|
1,284,000
|
|
|
|
|
|
|
|
|
Results attributable to acquisition and
disposition activities
|
Rents increased from approximately $3,037,000 in
2000 to approximately $4,817,000 in 2001, an increase of
approximately $1,780,000. Substantially all of the net increase
was attributable to our acquisition and disposition activities.
Property expenses increased from approximately
$1,053,000 in 2000 to approximately $1,585,000 in 2001, an
increase of approximately $532,000. Substantially all of the net
increase was attributable to acquisition and disposition
activities.
Depreciation and amortization increased from
approximately $622,000 in 2000 to approximately $991,000 in
2001, an increase of approximately $369,000. Substantially all
of the net increase was attributable to acquisition and
disposition activities.
Interest expense increased from approximately
$604,000 in 2000 to approximately $1,888,000 in 2001. The net
increase was attributable to mortgage and other indebtedness
incurred with respect to acquisition and disposition activities.
General and administrative fees increased from
approximately $635,000 in 2000 to approximately $731,000 in
2001. The increase is primarily the result of our growth
throughout both years.
During 2001, we incurred an extraordinary loss on
the early extinguishment of debt of approximately $76,000 (net
of the limited partners portion) in connection with The
Point Shopping Centers refinancing. During 2000, we
incurred an extraordinary loss of approximately $17,500 (net of
the limited partners interest portion) on the early
extinguishment of debt in connection with the prepayment of a
mortgage loan on an office property at the center owned
by us.
49
Operating
Activities.
Net cash provided by
operating activities totaled $787,000 in 2001 and $955,000 in
2000. The decrease from year to year is predominantly due to the
sales of two properties in 2001 and the acquisition of four new
properties over the past two years.
Investing
Activities.
Net cash used in investing
activities totaled $2.2 million in 2001 and
$8.3 million in 2000. The differences from year to year are
predominantly due to the acquisition of The Point Shopping
Center in 2000 and the three shopping centers in 2001.
Financing
Activities.
Net cash provided by
financing activities totaled $3.4 million in 2001 and
$6 million in 2000. The differences from year to year are
predominantly due to the acquisition of The Point Shopping
Center in 2000 and the three shopping centers in 2001.
Pro Forma Operating Results
|
|
|
Comparison of Pro Forma Six Months Ended
June 30, 2003 to Historical Six Months Ended June 30,
2003
|
The pro forma condensed consolidated statement of
operations for the six months ended June 30, 2003 is
presented as if this offering, the formation transactions, the
refinancing transactions, acquisitions of third party interests
and the termination of the management contracts had occurred on
January 1, 2003. The pro forma statement reflects the
acquisition of the Giant store at Loyal Plaza Shopping Center,
Golden Triangle Shopping Center (Lancaster, PA), Huntingdon
Plaza Shopping Center (Huntingdon, PA), Wal-Mart Shopping Center
(Southington, CT), Lake Raystown Shopping Center (Huntingdon,
PA), the remaining 50% interest in The Point Shopping Center
(Harrisburg, PA), controlling partnership interests in Columbus
Crossing Shopping Center (Philadelphia, PA), and the River View
Plaza I, II, and III properties (Philadelphia, PA), and the
operating leasehold position in the South Philadelphia Shopping
Center. The pro forma statement also includes the general
partnership interest in Fairview Plaza, Halifax Plaza, Newport
Plaza, Pine Grove Shopping Center, Swede Square and Valley Plaza
Shopping Center properties, all acquired during the first and
second quarters of 2003, as if they had been acquired at
January 1, 2003. In addition, such pro forma statement
reflects the pay-off of the SWH financing, the acquisition of
the limited partners interests, the acquisition of
preferred units from a related party, and the refinancing of
Washington Center Shoppes.
The significant changes that would have been
reflected in our financial statements on a pro forma basis for
the six months ended June 30, 2003 compared to the
historical results include the following:
The consolidation of the operating results of the
aforementioned properties resulted in significant increases in
various components of our statement of operations. The net
effect of all of our pro forma adjustments is to decrease income
to $(21,057,000) for the pro forma six months ended
June 30, 2003, as compared to $(239,000) for the same
historical period. The pro forma period includes an estimated
$6.3 million in defeasance payments and penalties
associated with the prepayment of the River View Plaza I,
II and III and Washington Center Shoppes loans and reflects one
time payment of $15,000,000 to owners of external advisors for
merger into us.
On a pro forma basis, total revenues would have
increased to approximately $21,338,000 for the six months ended
June 30, 2003, compared to $11,422,000 reported
historically for the same period, an increase of approximately
$10 million, or 87%. This increase is a result of
additional revenue from the acquired properties.
On a pro forma basis, total expenses would have
increased to approximately $26,971,000 for the six months ended
June 30, 2003, compared to approximately $11,667,000
reported historically for the same period, an increase of
approximately $15.3 million, or 131%. Pro forma interest
expense reflects a net increase of $7.4 million resulting
from defeasance and penalties in the amount of $5.2 million
in connection with the prepayment of the existing first mortgage
loan on River View Plaza I, II and III, and
$1.1 million in connection with the prepayment of the
Washington Center Shoppes loan, as well as the
50
additional interest payments associated with the
newly acquired properties. This increase is offset, in part, by
the prepayment of the secondary portion of the financing with
respect to Valley Plaza Shopping Center, and the repayment of
the $7.75 million financing with SWH secured by security
interest on the Camp Hill Mall, Academy Plaza, Washington Center
Shoppes and Port Richmond Village properties. Pro forma
operating expenses reflect a net increase of $5.1 million
due to additional expenses from the acquired properties and
$2.7 million in stock compensation.
On a pro forma basis, limited partners
interest and minority partners interests would have
decreased and increased to $0 and $(424,000), respectively,
compared to $449,000 and $(422,000) for the same period reported
historically. This decrease is attributable to acquisition of
all of CBCs limited partners interest and the
acquisition of the minority partners interests in The
Point Shopping Center.
|
|
|
Comparison of Pro Forma Year Ended
December 31, 2002 to Historical Year Ended
December 31, 2002
|
The pro forma condensed consolidated statement of
operations for the year ended December 31, 2002 is
presented as if this offering, the formation transactions, the
refinancing transactions, acquisitions of third party interests
and the termination of the management contracts had occurred on
January 1, 2002. The pro forma statement reflects the
acquisition of the Giant store at Loyal Plaza Shopping Center,
Golden Triangle Shopping Center (Lancaster, PA), Huntingdon
Plaza (Huntingdon PA), Wal-Mart Shopping Center (Southington,
CT) Lake Raystown Plaza (Huntingdon, PA), the remaining 50%
interest in The Point Shopping Center (Harrisburg, PA),
controlling partnership interests in Columbus Crossing Shopping
Center (Philadelphia, PA), and the River View Plaza I, II
and III properties (Philadelphia, PA), and the operating
leasehold position in the South Philadelphia Shopping Center.
The pro forma statement also includes the general partnership
interest in Fairview Plaza, Halifax Plaza, Newport Plaza, Pine
Grove Shopping Center, Swede Square, and Valley Plaza Shopping
Center properties, all acquired during the first and second
quarters of 2003, as if they had been acquired at
January 1, 2002. In addition, such pro forma statement
reflects the pay-off of the SWH financing, the acquisition of
the limited partners interests, the acquisition of
preferred units from a related party, and the refinancing of
Washington Center Shoppes.
The significant changes that would have been
reflected in our financial statements on a pro forma basis for
the year ended December 31, 2002 compared to the historical
results include the following:
The consolidation of the operating results of the
aforementioned properties resulted in significant increases in
various components of our statement of operations. The net
effect of all of our pro forma adjustments is to decrease income
to $(21,160,000) for the pro forma year ended December 31,
2002 as compared to $(468,000) for the same historical period.
The pro forma period includes an estimated $6.3 million in
defeasance payments and penalties associated with the prepayment
of the River View Plaza I, II and III and Washington Center
Shoppes loans and reflects one time payment of $15,000,000 to
owners of external advisors for merger into us.
On a pro forma basis, total revenues would have
increased to approximately $40,367,000 for the year ended
December 31, 2002, compared to $12,989,000 reported
historically for the same period, an increase of approximately
$27.4 million, or 212%. This increase is the result of
additional revenue from the acquired properties.
On a pro forma basis, total expenses would have
increased to approximately $45,946,000 for the year ended
December 31, 2002, compared to approximately $13,914,000
reported historically for the same period, an increase of
approximately $32.0 million, or 230%. Pro forma interest
expense reflects a net increase of $12.5 million resulting
from defeasance and penalties in the amount of $5.2 million
in connection with the prepayment of the existing first mortgage
loan on River View Plaza I, II and III, and
$1.1 million in connection with the prepayment of the
Washington Center Shoppes loan, as well as the additional
interest payments associated with the newly acquired properties.
This increase is offset, in part, by the prepayment of the
secondary portion of the financing with respect to Valley Plaza
Shopping Center and the repayment of the $7.75 million
financing with SWH secured by security interest on the Camp Hill
Mall, Academy Plaza, Washington Center Shoppes and Port Richmond
Village properties. Pro forma
51
operating expenses reflect a net increase of
$11.7 million due to additional expenses from the acquired
properties and $5.4 million in stock compensation.
On a pro forma basis, the limited partners
interest decreased to $0 compared to $806,000 for the same
period reported historically. This is attributable to the
acquisition of all of CBCs limited partners
interest. On a pro forma basis, minority partners
interests would have increased to $(582,000) from $(159,000) for
the same period reported historically. This increase is
attributable to the full year of operations on a pro forma basis.
Liquidity and Capital Resources
Analysis of Liquidity and Capital
Resources
We believe that this offering of our common stock
and financing and refinancing transactions described herein will
improve our capital structure and our financial performance
primarily as a result of the reduction of our overall debt, the
elimination of certain preferred partnership participations,
prepayment and repayment of certain secondary financings, and
the substantial reduction of the ratio of our debt to total
market capitalization. That ratio will be approximately 45% upon
completion of this offering. At completion of the offering and
the pending acquisitions the financing and the refinancing
transactions, the acquisition of preferred partnership
interests, prepayment and repayment of certain financings and
draw-downs on our credit facility, we anticipate that total
consolidated indebtedness will be approximately
$181.9 million and our share of total indebtedness after
accounting for minority interest will be approximately
$146.4 million.
Concurrently with this offering, we expect to
enter into a secured $75 million revolving credit facility,
expandable to as much as $100 million. We expect to use the
credit facility, among other things, to finance (a) certain
expected acquisitions of shopping centers or interim purchase
deposits with respect to new acquisitions, (b) certain
expected acquisitions of optioned properties, (c) capital
improvements, (d) costs of redevelopment and new
development projects and properties, and (e) working
capital and other corporate purposes. Security for such facility
is expected to be first mortgages on properties which will be
otherwise unencumbered at the offering.
At completion of the offering and the
consummation of the pending acquisitions, we expect to prepay
the existing first mortgage financing on Washington Center
Shoppes with defeasance and penalty costs of approximately
$1.1 million and to substitute therefor a new
$8.8 million floating rate financing. We also expect to
place new first mortgage fixed rate financing on Huntingdon
Plaza and Lake Raystown Plaza in the aggregate amount of
approximately $8.0 million. Further, we expect to expand
the existing floating rate financing on Columbus Crossing
Shopping Center from approximately $17.5 million to
$18.5 million.
There can be no assurances that any such
financings, re-financings, repayments or draw-downs on the
credit facility can be effected on favorable terms.
Our short-term liquidity requirements will
include funding of dividend payments to our stockholders to
maintain our REIT status, paying for certain capital
improvements and other expenditures as well as funding
acquisitions. Such short-term liquidity requirements, we
believe, will be met generally from cash from operations and, if
necessary, drawing on our credit facility.
Our properties generally require periodic
investments of capital for tenant improvements, leasing
commissions and certain capital improvements. For the twelve
months ending June 30, 2004, we anticipate tenant
improvements and leasing commissions to be
$ ,
representing
$ per
square foot multiplied by square
feet scheduled to expire during the twelve months ending
June 30, 2004. In addition, for the same period we expect
the cost of recurring capital improvements at our properties to
be approximately
$ ,
representing
$ per
square foot multiplied by square
feet in our portfolio upon consummation of the offering and
completion of our pending acquisitions.
52
We expect our long-term liquidity requirements
for development, redevelopment, expansion, site improvements,
property acquisitions and other non-recurring capital costs to
be funded through net cash from operations, long-term secured
and unsecured indebtedness, including our credit facility, and
potentially the issuance of additional debt and equity
securities. We further intend to fund such non-recurring capital
costs by using the credit facility on an interim basis, by
potentially financing and refinancing properties presently owned
and properties to be acquired, as well as by potentially raising
equity capital through joint venture participations with respect
to existing properties or properties to be acquired.
Commitments
Upon completion of this offering, the
acquisitions and certain prepayments, financing and refinancing
transactions described herein, we will have outstanding
long-term and short-term debt obligations of approximately
$181.9 million on a consolidated basis. Our share of these
debt obligations after accounting for minority interests is
approximately $146.4 million. The following table
summarizes our repayment obligations during the balance of 2003
and for the following five years pursuant to the terms of loans
which will be outstanding upon consummation of this offering,
the acquisition transactions, the financing and the refinancing
transactions:
|
|
|
|
|
|
Through December 31, 2003
|
|
$
|
762,000
|
|
2004
|
|
$
|
15,649,000
|
|
2005
|
|
$
|
37,657,000
|
|
2006
|
|
$
|
11,872,000
|
|
2007
|
|
$
|
3,612,000
|
|
Thereafter
|
|
$
|
112,313,000
|
|
|
|
|
|
|
|
Total
|
|
$
|
181,865,000
|
|
Consolidated Indebtedness to be Outstanding
After this Offering
Upon completion of this offering, the acquisition
transactions and the financing and refinancing transactions
described herein, we expect to have approximately
$181.9 million of outstanding consolidated long-term and
short-term debt obligations. Our share of these debt obligations
after accounting for minority interests is approximately
$146.4 million. Such indebtedness will consist of 17
mortgages secured by 17 of our properties, and approximately
$10 million under our credit facility. Of the scheduled
loan principal payments, approximately $762,000 will be due on
or before December 31, 2003.
Of our outstanding indebtedness upon completion
of this offering, the acquisition transactions, and the
financing and refinancing transactions, we expect that
approximately 39% of our share of outstanding long-term debt
would be floating rate financing in the absence of a fixed rate
swap or cap. We expect, however, to enter into interest rate
swap or cap agreements for a portion of such variable rate debt.
As a result, we expect that approximately 80% of our total
indebtedness upon completion of this offering will be subject to
fixed rates and or capped rates.
53
The following table sets forth certain
information with respect to the indebtedness that we expect to
be outstanding after this offering, the acquisition
transactions, and the financing and refinancing transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Share
|
|
|
Original
|
|
|
|
|
|
June 30,
|
|
Pro Forma
|
|
Pro Forma
|
Property
|
|
Amount
|
|
Interest Rate
|
|
Maturity
|
|
2003
|
|
June 30, 2003
|
|
June 30, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Point Shopping Center
|
|
$
|
20,000,000
|
|
|
7.63%
|
|
June 2027
|
|
$
|
19,722,000
|
|
|
|
19,722,000
|
|
|
$
|
19,722,000
|
|
Harrisburg, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Lion Shopping Center
|
|
|
16,800,000
|
|
|
8.86%
|
|
Feb 2010
|
|
|
16,652,000
|
|
|
|
16,652,000
|
|
|
|
3,330,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camp Hill Mall
|
|
|
14,000,000
|
|
|
4.74%(1)
|
|
Nov 2004
|
|
|
14,000,000
|
|
|
|
14,000,000
|
|
|
|
14,000,000
|
|
Camp Hill, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loyal Plaza
|
|
|
13,877,000
|
|
|
7.18%
|
|
June 2011
|
|
|
13,745,000
|
|
|
|
13,745,000
|
|
|
|
3,436,000
|
|
Williamsport, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port Richmond Village
|
|
|
11,610,000
|
|
|
7.17%
|
|
Apr 2007
|
|
|
11,366,000
|
|
|
|
11,366,000
|
|
|
|
11,366,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Academy Plaza
|
|
|
10,715,000
|
|
|
7.28%
|
|
Mar 2013
|
|
|
10,490,000
|
|
|
|
10,490,000
|
|
|
|
10,490,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Center Shoppes
|
|
|
6,236,000
|
|
|
7.53%
|
|
Nov 2027
|
|
|
5,863,000
|
|
|
|
8,800,000
|
|
|
|
8,800,000
|
(2)
|
Washington Township, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LA Fitness Facility
|
|
|
5,000,000
|
|
|
LIBOR + 2.75%
|
|
Dec 2007
|
|
|
1,626,000
|
|
|
|
1,626,000
|
|
|
|
813,000
|
|
Fort Washington, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairview Plaza
|
|
|
6,080,000
|
|
|
5.64%
|
|
Feb 2013
|
|
|
6,054,000
|
|
|
|
6,054,000
|
|
|
|
1,816,000
|
|
New Cumberland, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Halifax Plaza
|
|
|
4,265,000
|
|
|
6.43%
|
|
Feb 2010
|
|
|
4,235,000
|
|
|
|
4,235,000
|
|
|
|
1,271,000
|
|
Halifax, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newport Plaza
|
|
|
5,424,000
|
|
|
6.43%
|
|
Feb 2010
|
|
|
5,398,000
|
|
|
|
5,398,000
|
|
|
|
1,619,000
|
|
Newport, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pine Grove Shopping Center
|
|
|
6,000,000
|
|
|
6.24%
|
|
Apr 2010
|
|
|
5,963,000
|
|
|
|
5,963,000
|
|
|
|
5,963,000
|
|
Pemberton Township, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swede Square Shopping Center
|
|
|
5,560,000
|
|
|
7.25%
|
|
May 2005
|
|
|
5,560,000
|
|
|
|
5,560,000
|
|
|
|
5,560,000
|
|
East Norriton, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valley Plaza Shopping Center
|
|
|
6,430,000
|
|
|
LIBOR + 2.50%
|
|
Jun 2005
|
|
|
6,430,000
|
|
|
|
6,430,000
|
|
|
|
6,430,000
|
|
Hagerstown, MD
|
|
|
3,462,000
|
|
|
12.00%
|
|
Jun 2005
|
|
|
3,462,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wal-Mart Shopping Center
|
|
|
5,443,750
|
|
|
LIBOR + 2.50%
|
|
|
|
|
|
|
|
|
5,444,000
|
|
|
|
5,444,000
|
|
Southington, CT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golden Triangle Shopping Center
|
|
|
10,800,000
|
|
|
7.39%
|
|
|
|
|
|
|
|
|
9,880,000
|
|
|
|
9,880,000
|
|
Lancaster, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbus Crossing Shopping Center
|
|
|
18,500,000
|
|
|
LIBOR + 1.25%
|
|
|
|
|
|
|
|
|
18,500,000
|
|
|
|
18,500,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lake Raystown Plaza
|
|
|
5,600,000
|
|
|
6.00%
|
|
|
|
|
|
|
|
|
5,600,000
|
|
|
|
5,600,000
|
|
Huntingdon, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huntingdon Plaza
|
|
|
2,400,000
|
|
|
6.00%
|
|
|
|
|
|
|
|
|
2,400,000
|
|
|
|
2,400,000
|
|
Huntingdon, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
178,202,750
|
|
|
|
|
|
|
$
|
130,566,000
|
|
|
$
|
181,865,000
|
|
|
$
|
146,440,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
(1)
|
The interest rate on the entire loan amount is
fixed via an interest rate swap at 4.74% through November 2003
and $7.0 million of the loan is fixed at that same rate
through maturity. The remaining $7.0 million portion of the
loan will float at the 30-day LIBOR rate plus 195 basis points
from November 2003 through maturity. We have agreed in
connection with this loan to maintain a minimum net worth of
$13.0 million (including minority and limited partner
interests) and consolidated liquid assets of at least
$1.0 million.
|
|
(2)
|
This represents a refinanced mortgage in the
amount of $8,800,000 with an interest rate of LIBOR plus 2.5%.
|
Funds From Operations
Management believes that funds from operations,
or FFO, is an appropriate measure of performance of an equity
REIT. FFO is defined by the National Association of Real Estate
Investment Trusts as net income or loss excluding gains or
losses from debt restructuring and sales of properties plus real
estate depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not
represent cash generated from operating activities in accordance
with accounting principles generally accepted in the United
States and is not indicative of cash available to fund cash
needs. FFO should not be considered as an alternative to net
income as an indicator of our operating performance or as an
alternative to cash flow as a measure of liquidity.
As all companies and analysts do not calculate
FFO in a similar fashion, our calculation of FFO presented
herein may not be comparable to similarly titled measures as
reported by other companies.
The following table represents our pro forma FFO
calculation for the six months ended June 30, 2003 and the
year ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2003
|
|
|
|
|
|
|
|
Net (loss) income available to common shareholders
|
|
$
|
(21,056,613
|
)
|
|
$
|
(21,160,231
|
)
|
|
$
|
(21,051,000
|
)
|
Add (less) our share of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,475,000
|
|
|
|
6,896,000
|
|
|
|
6,572,000
|
|
Minority interest
|
|
|
424,000
|
|
|
|
582,000
|
|
|
|
1,094,000
|
|
Amount distributable to minority partners
|
|
|
(777,000
|
)
|
|
|
(1,741,000
|
)
|
|
|
(1,341,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted funds from operations(1)(2)(3)
|
|
$
|
(17,934,613
|
)
|
|
$
|
(15,423,231
|
)
|
|
$
|
(14,726,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Management believes that FFO is a widely
recognized and appropriate measure of performance of an equity
REIT. Although FFO is a non-GAAP financial measure, management
believes it provides useful information to shareholders,
potential investors and management. Management computes FFO in
accordance with the standards established by NAREIT. FFO is
defined by NAREIT as net income or loss excluding gains or
losses from debt restructuring and sales of properties plus real
estate depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not
represent cash generated from operating activities in accordance
with accounting principles generally accepted in the United
States and is not indicative of cash available to fund cash
needs. FFO should not be considered as an alternative to net
income, as an indicator of our operating performance or as an
alternative to cash flow as a measure of liquidity.
|
|
(2)
|
The calculation of FFO for the year ended
June 30, 2003 includes the following one-time charges that
are added back in the calculation of Pro Forma Cash Flows from
Operating Activities for the twelve months ending June 30,
2004, as set forth in the section below captioned
Distribution Policy:
|
|
|
|
|
|
$5,200,000 for defeasance of the mortgage debt on
River View Plaza I, II and III
|
55
|
|
|
|
|
Reflects one time payment of $15,000,000 to
owners of external advisors as consideration for merger into us.
|
|
|
|
$1,100,000 for defeasance of the mortgage debt on
Washington Center Shoppes
|
|
|
|
$5,495,000 for one-time stock compensation
charges incurred in connection with this offering
|
|
|
(3)
|
The calculation of FFO for the year ended
June 30, 2003 excludes the following items that are
included in the calculation of Pro Forma Cash Flows from
Operating Activities for the twelve months ending June 30,
2004, as set forth in the section below captioned
Distribution Policy:
|
|
|
|
|
|
$ of
capitalized development costs at certain properties being
redeveloped
|
|
|
|
$230,000 on account of seller lease guarantees at
South Philadelphia Shopping Plaza and Red Lion Shopping Center
|
As not all companies and analysts calculate FFO
in a similar fashion, our calculation of FFO presented herein
may not be comparable to similarly titled measures as reported
by other companies.
Inflation
Low to moderate levels of inflation during the
past several years have favorably impacted our operations by
stabilizing operating expenses. At the same time, low inflation
had an indirect effect of reducing our ability to increase
tenant rents. Our 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 our real
estate portfolio as compared to short-term investment vehicles.
Quantitative And Qualitative Disclosures About
Market Risk
The primary market risk facing us is interest
rate risk on our loans payable and mortgage notes payable. We
will, when advantageous, hedge our interest rate risk using
financial instruments. We are not subject to foreign currency
risk.
We are exposed to interest rate changes primarily
as a result of (1) the line of credit used to maintain
liquidity, fund capital expenditures and expand our real estate
investment portfolio and (2) the Camp Hill Mall and Valley
Plaza Shopping Center acquisition financing. Our interest rate
risk management objectives are to limit the impact of interest
rate changes on earnings and cash flows and to lower our overall
borrowing costs. To achieve these objectives, we borrow
primarily at fixed rates and may enter into derivative financial
instruments such as interest rate swaps, caps and treasury locks
in order to mitigate our interest rate risk on a related
financial instrument. We do not enter into derivative or
interest rate transactions for speculative purposes.
We will recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges will be
adjusted to fair value through income. If a derivative is a
hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against earnings,
or recognized in earnings. The ineffective portion of a
derivatives change in fair value will be immediately
recognized in earnings. As of June 30, 2003 historical, we
have interest rate swaps on four of our mortgage loans. These
derivatives had a fair value of approximately $860,000, of which
$276,000 was recognized in other comprehensive income and the
remaining $584,000 was recognized as the limited partners
interest in the consolidated operating partnership.
Our interest rate risk is monitored using a
variety of techniques. As of June 30, 2003 historical,
long-term debt consisted of fixed-rate secured mortgage notes
and a variable rate line of credit facility. The average
interest rate on the $123,000,000 of fixed rate secured mortgage
indebtedness outstanding at June 30, 2003 was 7.2%, with
maturities at various dates through 2013. The average interest
rate on our line of credit at June 30, 2003 was 6%. There
was $1,000,000 outstanding on the line of credit at
June 30, 2003.
56
Upon completion of this offering and the use of
the proceeds as described above, we expect to have outstanding
approximately $181.9 million of consolidated debt of which
our share will be approximately $146.4 million. We expect
approximately $57.8 million, or 32% of consolidated debt,
to be variable rate debt and $57 million or 39% of our
share of total debt, to be variable rate debt. With respect to
variable rate debt, we have entered into four interest rate
swaps for approximately $22.2 million to effectively fix
the base rate portion of the interest rate at approximately
6.10%.
As of pro forma June 30, 2003, we have
approximately $124.1 million of consolidated fixed rate
debt of which our share is $89.4 million. The average
interest rate on the consolidated fixed rate secured mortgage
indebtedness was 6.98%, with maturities at various dates through
2013.
Upon completion of this offering and use of the
proceeds as described above, approximately $57.8 million of
our consolidated outstanding indebtedness as of June 30,
2003 are loans based on the London Interbank Offered Rate, or
LIBOR, of which our share is $57.0 million. If LIBOR were
to increase 100 basis points, future earnings and cash
flows would decrease by approximately $570,000 annually for both
consolidated debt and our share of total debt.
57
BUSINESS AND PROPERTIES
We currently own 14 properties totaling
approximately 2.4 million square feet of GLA. Our
portfolio, excluding two properties under development, was
approximately 94% leased as of June 30, 2003. We have
entered into agreements to acquire nine other shopping centers,
totaling approximately 1.2 million square feet of GLA for
an aggregate purchase price of $143.4 million. Upon
consummation of this offering and completion of our pending
acquisitions, we will have a portfolio of 23 properties totaling
approximately 3.6 million square feet of GLA, and our
portfolio, excluding three properties under development, will be
approximately 92% leased. We intend to close on these pending
acquisitions shortly after consummation of this offering.
We derive substantially all of our revenues from
rents and reimbursement payments received from tenants under
existing leases on each of our properties. Our operating results
therefore depend materially on the ability of our tenants to
make required payments. We believe that the nature of the
properties we primarily own and in which we invest, neighborhood
and community shopping centers, provides a more stable revenue
flow in uncertain economic times, as they are more resistant to
economic down cycles. This is because consumers still need to
purchase food and other goods found at supermarkets, even in
difficult economic times.
In the future, we intend to focus on increasing
our internal growth and pursuing targeted acquisitions of
neighborhood and community shopping centers in attractive
markets with strong economic and demographic characteristics. We
currently expect to incur additional debt in connection with any
future acquisitions of real estate.
We were originally incorporated in Iowa on
December 10, 1984 and elected to be taxed as a REIT
commencing with the taxable year ended December 31, 1986.
In June 1998, following a tender offer completed in April 1998
for the purchase of our common stock by CBC, we reorganized as a
Maryland corporation and established an umbrella
partnership REIT structure through the contribution of
substantially all of our assets to a Delaware limited
partnership, the operating partnership. We conduct our business
through the operating partnership. Upon consummation of this
offering we will own
a %
interest in the operating partnership. We are presently the sole
general partner and own an approximate 30% interest in the
operating partnership.
Industry Background
The 2002 shopping center census by the National
Research Bureau, or NRB, estimates that retail shopping center
sales in the Northeast were approximately $250.4 billion in
2002. This is an increase of approximately $11.5 billion,
or 4.8%, from 2001. At the end of 2002, there were approximately
8,692 shopping centers containing 1.15 billion square feet
of GLA in the Northeast according to NRBs census, an
increase from 8,602 shopping centers with 1.14 billion
square feet of GLA in the Northeast at the end of 2001. The
Northeasts sales per square foot grew to $217.26 in 2002
from $210.18 the prior year, an increase of 3.37%.
Retail shopping centers typically are organized
in one of four formats: neighborhood shopping centers, community
centers, regional malls and super regional malls. These centers
are distinguished by various characteristics, which include
shopping center size, the number and type of anchor tenants,
types of products sold, distance and travel time, and customer
base.
Neighborhood shopping centers generally provide
consumers with convenience goods such as food and drugs and
services such as dry cleaning and laundry for the daily living
needs of residents in the immediate neighborhood. A supermarket
typically anchors these centers. In addition to the convenience
goods provided by a neighborhood center, a community shopping
center typically contains multiple anchors and may provide
facilities for the sale of apparel, accessories, home fashion,
hardware or appliances. In our experience, neighborhood and
community shopping centers are generally more resistant to
economic down cycles.
58
Our experience indicates that the key factors
that drive the success of neighborhood and community shopping
centers include strong market demographics, a diverse tenant mix
with multiple anchors, including supermarkets, the proper
positioning of the center to its customer base, traffic patterns
and a strong relationship between the owner of the shopping
center and the anchor tenants.
Pennsylvania
According to the NRB census, Pennsylvanias
1,745 retail shopping centers generated an estimated
$49.8 billion in sales in 2002. This is an increase of 4.6%
in sales from $47.7 billion in 2001. Pennsylvania shopping
center GLA increased 1.6% to 258.9 million square feet from
254.9 million square feet. The NRB census also estimates
that the sales per square feet increased 2.94% from $187.01 in
2001 to $192.50 in 2002.
Harrisburg
Harrisburg is the capital of Pennsylvania and is
a center for manufacturing and the health industry, as well as
for government services. According to The Pennsylvania State
University Data Center, the estimated population of the greater
Harrisburg metropolitan area in 2001 was 512,150. The population
is expected to grow to 526,000 by 2006 and to nearly 600,000 by
2020. Average household income for the area in 2001 was
approximately $59,200, according to Claritis, Inc., and is
projected to increase to approximately $70,250 by 2006.
According to Integra Realty Resources Philadelphia 2002,
retail sales per household for the greater Harrisburg
metropolitan area were approximately $38,000 in 2002 and are
expected to increase to approximately $43,500 by 2007.
Philadelphia
According to the Philadelphia Planning
Commission, the citys population in the 2000 census was
1,517,550. The largest employment sectors in Philadelphia are
services, government and retail trade. MPS Data Services
projects that average household income for the metropolitan
Philadelphia area will be $92,778 for 2003, increasing to
$111,000 in 2015. Philadelphia is ranked sixth (behind Chicago,
Los Angeles, New York, Detroit and Atlanta) of U.S. regions in
annual sales with $58.3 billion, according to MPS Data
Services and the Bureau of Labor Statistics.
Our Competitive Strengths
We believe that we distinguish ourselves from
other owners and operators of community and neighborhood
shopping centers on account of the following:
|
|
|
|
|
High-Quality Neighborhood and Community
Shopping Center Portfolio.
Our primary
focus is on neighborhood and community shopping centers. We
believe supermarket anchors attract customers for several trips
per week and provide more stable revenues, especially in
uncertain economic environments. As of June 30, 2003,
approximately 77% of our centers were supermarket-anchored.
After this offering and completion of our pending acquisitions,
approximately 79% of our centers will be supermarket-anchored.
|
|
|
|
Pennsylvania as Core
Market.
Upon consummation of this
offering and completion of our pending acquisitions,
approximately 82% of our GLA will be located in eastern
Pennsylvania, a mature and densely populated region. Based upon
the 2000 United States Census, the average population within a
three-mile radius of our properties is approximately
62,600 people and the average annual household income in
such area is $51,400. We believe that we benefit from the
limited opportunity for new competing development near our
locations and from the high barriers to entry for our asset
class in our core markets.
|
|
|
|
Regional Asset
Clusters.
Upon consummation of this
offering and completion of our pending acquisitions, we expect
to have 13 properties, containing 1,587,200 square
feet of GLA, in the Philadelphia area, and nine properties,
containing 1,867,000 square feet of
|
59
|
|
|
|
|
GLA, in the Harrisburg area. We believe that our
local presence in these areas provides us with improved
on-the-ground awareness of property availability,
tenanting opportunities, demographic trends and evolving traffic
patterns. Furthermore, our local presence enables our management
team to employ a hands-on approach to administering
our properties and satisfying our tenants. Our local management
offices in these regions enable us to efficiently and
intensively manage our assets and to develop strategic
relationships with regional grocers and retailers.
|
|
|
|
Redevelopment and Value Enhancement
Expertise.
We seek to leverage our
operating and redevelopment capabilities by acquiring assets
that offer redevelopment and value enhancement opportunities. In
particular, certain members of our senior management have
successfully completed the redevelopment of The Point Shopping
Center and Red Lion Shopping Center. At The Point Shopping
Center, for example, we completed a total redevelopment, which
increased revenues from $1.9 million in 2000 to
$2.9 million in 2002. We are currently redeveloping Camp
Hill Mall, Swede Square and Golden Triangle Shopping Center and
exploring redevelopment opportunities at South Philadelphia
Shopping Plaza, Valley Plaza Shopping Center and Halifax Plaza.
|
|
|
|
Experienced and Committed Management
Team.
Our senior management team is
comprised of executives with an average of more than
20 years experience in the acquisition, ownership,
management, leasing and redevelopment of commercial real estate
in the Northeast, including shopping center properties. Senior
management is expected to own
a %
aggregate equity interest in our company on a fully diluted
basis after giving effect to this offering.
|
|
|
|
Mr. Ullman, our chairman, chief executive
officer and president, and Ms. Walker, our vice president, who
is in charge of our property management activity, each have more
than 25 years of industry experience with us, our
predecessors and our affiliates. Mr. OKeeffe, our
chief financial officer, has more than 17 years of industry
experience. Mr. Widowski, our vice president and general
counsel, has been practicing law for more than 18 years,
with a focus on real estate transactions. Mr. Richey, our
vice president and director of construction and maintenance
services, has 22 years of industry experience in building,
construction, project management and acquisitions.
|
|
|
|
Strong Relationships with Our
Tenants.
We have strong relationships
with our tenants, including Giant Food. These relationships have
led to leasing opportunities with existing tenants that are
expanding as well as to acquisition opportunities sourced by
tenants.
|
|
|
|
|
|
Varied Tenant Base.
We believe that our diversity of tenants and lease expirations
enhance our ability to generate stable cash flows over time.
Upon consummation of this offering, no single tenant, with the
exception of Giant Food, will represent more than 4.5% of our
annualized revenues on a pro forma basis for the period ended
June 30, 2003. For such period, we had approximately
366 leases with 297 distinct tenants, including
national and regional supermarkets, department stores,
pharmacies, restaurants and other retailers. Pro forma for this
offering and the pending acquisitions, the average lease term
for our neighborhood and community shopping centers will be
eight years, with no more than 9% of our total base rent
expiring in any single year through 2013.
|
|
|
|
Strategic Joint
Ventures.
We have had considerable
experience in creating strategic joint ventures in order to
mitigate acquisition and development risks, secure marquee
anchor tenants, and facilitate financing. Our joint venture
partners include affiliates of Kimco Realty Corporation, a
leading REIT specializing in the acquisition, development and
management of neighborhood and community shopping centers.
|
60
Business and Growth Strategies
Our business and growth strategy includes the
following elements:
|
|
|
|
|
Building and benefiting from our strong tenant
relationships. We believe that the success of our business
greatly depends upon our ability to establish, maintain and
enhance on-going relationships with our tenants. Through our
direct involvement in management, we are able to meet the needs
of growing tenants and benefit from leasing opportunities
originating from this type of working relationship.
|
|
|
|
Maximizing cash flow from our properties by
continuing to enhance the operating performance of each
property. We are able to achieve operating, marketing and
leasing efficiencies through our property management and leasing
program. We actively monitor our lease expirations to maintain
high levels of occupancy.
|
|
|
|
Enhancing yield and productivity of existing
properties through hands-on intensive management. We take a
hands-on approach in order to expediently address operating,
marketing and leasing developments. Additionally, we maintain a
local presence in our markets and have significant experience
working with local governmental and regulatory agencies.
|
|
|
|
|
|
Acquiring neighborhood and community shopping
centers. We pursue opportunistic acquisitions of neighborhood
and community shopping centers, utilizing our knowledge of
regional markets in which we operate. As described in
Acquisition and Market Selection
Process, we focus our acquisition activities on the
Northeast, primarily in eastern Pennsylvania. We target
properties with the following characteristics:
(1) potential growth in cash flow, (2) attractive
investment yields, (3) improvable through hands-on
management, (4) possibly requiring redevelopment or
repositioning, and (5) consistent in quality, demographics
and location with our existing portfolio. Over the last twelve
months, we have successfully acquired eight properties, totaling
$70.0 million, and with combined GLA of 1,126,000 square
feet.
|
|
|
|
Acquiring properties that offer value enhancement
opportunities. We have internal capabilities to pursue
development, redevelopment, re-tenanting and upgrading
opportunities. Previous redevelopments successfully completed by
certain of our senior executives include The Point Shopping
Center and Red Lion Shopping Center. We are currently
redeveloping the Camp Hill Mall, Swede Square and Golden
Triangle Shopping Center, and exploring potential redevelopments
at the South Philadelphia Shopping Plaza, the Valley Plaza
Shopping Center and Halifax Plaza.
|
|
|
|
Identifying acquisition targets through our
network of institutional and private real estate investors,
lenders, brokers and agents. We are able to source and identify
acquisition opportunities through our partnerships and
relationships with institutional and private owners and
operators of shopping center properties.
|
|
|
|
Focusing on traffic patterns in identifying
acquisitions. Our senior management focuses on vehicle traffic
counts, access, stacking, distance and pedestrian access in
assessing potential acquisitions. We believe that
traffic-pattern conditions are often overlooked and are
important determining factors of long-term asset value.
|
|
|
|
Utilizing management expertise to structure
sophisticated acquisition transactions. Our senior
managements extensive real estate and legal background
allows us to enter into uniquely structured transactions, often
with tax sensitive sellers.
|
61
|
|
|
|
|
Forming strategic joint ventures. Where
appropriate, we establish joint ventures to mitigate acquisition
and development risk, secure marquee tenants and facilitate
refinancing.
|
Financing Strategy
Our financing strategy is to maintain a strong
and flexible financial position by maintaining a prudent level
of leverage and managing our variable interest rate exposure. We
intend to finance future growth with the most advantageous
source of capital available to us at the time of the
transaction. These sources may include selling common stock,
preferred stock or debt securities through public offerings or
private placements, incurring additional indebtedness through
secured or unsecured borrowings, issuing units in the operating
partnerships in exchange for contributed property and forming
joint ventures.
Acquisition and Market Selection
Process
We seek to acquire neighborhood and community
shopping centers in neighborhood trade areas with attractive
demographics. When specific markets are selected, we seek a
convenient and easily accessible location with abundant parking
facilities, preferably occupying the dominant corner, close to
residential communities, with excellent visibility for our
tenants and easy access for neighborhood shoppers. In
particular, we emphasize the following factors:
|
|
|
|
|
Geographic Focus.
Our acquisition activities are focused in the Northeast,
primarily in Pennsylvania and New Jersey. In the Northeast,
there were 8,692 shopping centers with 1.15 billion square
feet of GLA generating $250.4 billion of sales, or $217.26
per square foot, during 2002. In Pennsylvania, there were 1,745
shopping centers with 258.9 million square feet of GLA
generating $49.9 billion of sales, or $192.50 per square
foot, during 2002. In New Jersey, there were 1,324 shopping
centers with 181.4 million square feet of GLA generating
$35.8 billion of sales, or $197.50 per square foot, during
2002.
|
|
|
|
In general, our strategy is to target geographic
areas proximate to our existing neighborhood and community
shopping centers that allow us to maximize our current resources
and manage expenses. We also consider opportunities to expand
into other geographic markets where the opportunity presented
would allow us to reach an economy of scale. We will continue to
evaluate all potential acquisitions on a property-by-property
and market-by-market basis. We evaluate each market based on
different criteria, including:
|
|
|
|
|
|
density of population within a three to five mile
radius of the center;
|
|
|
|
mature transportation patterns;
|
|
|
|
limited opportunities for the development of
competing centers;
|
|
|
|
stable or growing population base;
|
|
|
|
positive job growth;
|
|
|
|
diverse economy; and
|
|
|
|
other competitive factors.
|
|
|
|
|
|
Property Focus.
We
target neighborhood and community shopping centers containing
approximately 100,000 to 300,000 square feet of GLA. In
particular, we focus on those shopping centers anchored by
market-leading supermarkets or those smaller operators who have
dominant positions in their trade areas. In the absence of a
supermarket anchor, we focus on the presence of other anchors
for these centers, including department stores, off-price
retailers, office superstores, and fabric and clothing
retailers, all of whom we believe to be generally beneficial to
the value of the center.
|
|
|
|
In addition to attractive anchors, we also seek
properties with a diverse tenant mix that includes service
retailers, such as banks, florists, video stores, restaurants,
apparel and specialty shops. The dominant characteristic we seek
is the ability of the center to generate
|
62
|
|
|
|
|
a steady, repetitive flow of traffic by providing
staple goods to the community and offering a high level of
convenience with ease of access and abundant parking.
|
|
|
|
Successful at Sourcing
Acquisitions.
We believe we have been
successful at sourcing new acquisitions based on the following
factors:
|
|
|
|
|
|
certain members of our management team have been
in the commercial real estate business in the Northeast for over
25 years and have developed good relationships with owners,
developers, lenders, brokers and tenants in the region;
|
|
|
|
we have been creative in structuring acquisitions
and creative in obtaining financing; and
|
|
|
|
we are knowledgeable about local market
developments.
|
Our Properties
Upon consummation of this offering and completion
of our pending acquisitions, we will have a portfolio of
23 properties totaling approximately 3.6 million
square feet of GLA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Annualized
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
Occupied
|
|
|
|
|
|
Base Rent
|
|
of Total
|
|
|
|
|
|
|
Percentage
|
|
|
|
as of
|
|
|
|
Annualized
|
|
Per
|
|
Annualized
|
|
|
Year Built/
|
|
Year
|
|
Owned
|
|
|
|
June 30,
|
|
Major
|
|
Base
|
|
Square
|
|
Base
|
Property(1)
|
|
Renovated
|
|
Acquired
|
|
(Pro Forma)
|
|
GLA
|
|
2003
|
|
Tenants
|
|
Rent($)(2)
|
|
Foot($)
|
|
Rent(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Point Shopping Center
Harrisburg, PA
|
|
1972/
2000-2001
|
|
|
2000
|
|
|
|
100
|
|
|
255,000
|
|
|
93%
|
|
|
Burlington Coat Factory
Giant Food
|
|
|
2,492,294
|
|
|
|
9.76
|
|
|
|
7.87
|
|
Port Richmond Village
Philadelphia, PA
|
|
1988
|
|
|
2001
|
|
|
|
100
|
|
|
155,000
|
|
|
100%
|
|
|
Thriftway
Pep Boys
|
|
|
1,745,077
|
|
|
|
11.26
|
|
|
|
5.51
|
|
Academy Plaza
Philadelphia, PA
|
|
1965/1998
|
|
|
2001
|
|
|
|
100
|
|
|
155,000
|
|
|
100%
|
|
|
Acme Markets
|
|
|
1,681,208
|
|
|
|
10.85
|
|
|
|
5.31
|
|
Washington Center Shoppes
Washington Township, NJ
|
|
1979/1995
|
|
|
2001
|
|
|
|
100
|
|
|
158,000
|
|
|
96%
|
|
|
Acme Markets
Powerhouse Gym
|
|
|
1,028,390
|
|
|
|
6.51
|
|
|
|
3.25
|
|
Loyal Plaza Shopping Center Williamsport, PA
|
|
1969/
1999-2000
|
|
|
2002
|
|
|
|
25
|
|
|
293,000
|
|
|
92%
|
|
|
K-Mart
Giant Food
|
|
|
1,977,741
|
|
|
|
6.74
|
|
|
|
6.24
|
|
Red Lion Shopping Center
Philadelphia, PA
|
|
1971/1990
and
1998-2000
|
|
|
2002
|
|
|
|
20
|
|
|
224,300
|
|
|
95%
|
|
|
Sports Authority
Best Buy
Staples
|
|
|
2,336,880
|
|
|
|
10.42
|
|
|
|
7.38
|
|
Camp Hill Mall
Camp Hill, PA
|
|
1958/1986,
1991 and
2003
|
|
|
2002
|
|
|
|
100
|
|
|
522,000
|
|
|
70%
|
*
|
|
Boscovs
Giant Food
Barnes & Noble
|
|
|
2,753,419
|
|
|
|
5.28
|
|
|
|
8.69
|
|
LA Fitness Center
Fort Washington, PA
|
|
N/A
|
|
|
2002
|
|
|
|
50
|
|
|
41,000
|
|
|
N/A
|
|
|
LA Fitness Center
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Halifax Plaza
Halifax, PA
|
|
1994
|
|
|
2003
|
|
|
|
30
|
|
|
54,000
|
|
|
100%
|
|
|
Giant Food
Rite Aid
|
|
|
521,361
|
|
|
|
9.62
|
|
|
|
1.65
|
|
Newport Plaza
Newport, PA
|
|
1996
|
|
|
2003
|
|
|
|
30
|
|
|
67,000
|
|
|
100%
|
|
|
Giant Food
Rite Aid
|
|
|
538,692
|
|
|
|
8.06
|
|
|
|
1.70
|
|
Fairview Plaza
New Cumberland, PA
|
|
1992
|
|
|
2003
|
|
|
|
30
|
|
|
69,500
|
|
|
97%
|
|
|
Giant Food
|
|
|
811,991
|
|
|
|
11.67
|
|
|
|
2.56
|
|
Pine Grove Shopping Center
Pemberton Township, NJ
|
|
2001-2002
|
|
|
2003
|
|
|
|
100
|
|
|
79,000
|
|
|
97%
|
|
|
Peebles
|
|
|
814,909
|
|
|
|
10.28
|
|
|
|
2.57
|
|
Swede Square Center
East Norriton, PA
|
|
1980/2003
|
|
|
2003
|
|
|
|
100
|
|
|
102,500
|
|
|
74%
|
*
|
|
LA Fitness
|
|
|
906,374
|
|
|
|
8.84
|
|
|
|
2.86
|
|
Valley Plaza Shopping Center
Hagerstown, MD
|
|
1973-1975/
1994
|
|
|
2003
|
|
|
|
100
|
|
|
191,200
|
|
|
100%
|
|
|
K-Mart
Ollies Tractor
Supply Company
|
|
|
861,033
|
|
|
|
4.50
|
|
|
|
2.72
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Annualized
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
Occupied
|
|
|
|
|
|
Base Rent
|
|
of Total
|
|
|
|
|
|
|
Percentage
|
|
|
|
as of
|
|
|
|
Annualized
|
|
Per
|
|
Annualized
|
|
|
Year Built/
|
|
Year
|
|
Owned
|
|
|
|
June 30,
|
|
Major
|
|
Base
|
|
Square
|
|
Base
|
Property(1)
|
|
Renovated
|
|
Acquired
|
|
(Pro Forma)
|
|
GLA
|
|
2003
|
|
Tenants
|
|
Rent($)(2)
|
|
Foot($)
|
|
Rent(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pending Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Philadelphia Shopping Plaza
Philadelphia, PA
|
|
1950/
1998-2003
|
|
|
|
|
|
|
|
(3)
|
|
283,000
|
|
|
91%
|
|
|
Shop Rite
Ballys Total Fitness
Ross
|
|
|
3,590,832
|
|
|
|
12.68
|
|
|
|
11.33
|
|
Wal-Mart Shopping Center
Southington, CT
|
|
1972/2000
|
|
|
|
|
|
|
100
|
|
|
155,000
|
|
|
99%
|
|
|
Wal-Mart
Namco
|
|
|
948,582
|
|
|
|
6.13
|
|
|
|
2.99
|
|
Golden Triangle Shopping Center
Lancaster, PA
|
|
1960/1985,
1990, 1997
and 2003
|
|
|
|
|
|
|
100
|
|
|
229,000
|
|
|
47%
|
*
|
|
Marshalls
Staples
|
|
|
1,098,930
|
|
|
|
4.80
|
|
|
|
3.47
|
|
Columbus Crossing Shopping Center
Philadelphia, PA
|
|
2001
|
|
|
|
|
|
|
|
(4)
|
|
142,200
|
|
|
100%
|
|
|
Super Fresh
Old Navy
A.C. Moore
|
|
|
2,253,224
|
|
|
|
15.85
|
|
|
|
7.11
|
|
River View Plaza I
Philadelphia, PA
|
|
Pre 1900/ 1991, 1995
|
|
|
|
|
|
|
|
(4)
|
|
117,600
|
|
|
83%
|
|
|
United Artists
Sega Gameworks
|
|
|
1,947,174
|
|
|
|
16.56
|
|
|
|
6.15
|
|
River View Plaza II
Philadelphia, PA
|
|
1991/1988, 1993 and 1995
|
|
|
|
|
|
|
|
(4)
|
|
46,600
|
|
|
91%
|
|
|
Staples
West Marine
|
|
|
886,056
|
|
|
|
19.01
|
|
|
|
2.80
|
|
River View Plaza III
Philadelphia, PA
|
|
1991/1995
|
|
|
|
|
|
|
|
(4)
|
|
89,400
|
|
|
98%
|
|
|
Pep Boys
Athletes Foot
|
|
|
1,413,756
|
|
|
|
17.16
|
|
|
|
4.46
|
|
Lake Raystown Plaza
Huntingdon, PA
|
|
1995
|
|
|
|
|
|
|
100
|
|
|
84,300
|
|
|
100%
|
|
|
Giant Food
Rite Aid
Fashion Bug
|
|
|
740,916
|
|
|
|
8.79
|
|
|
|
2.34
|
|
Huntingdon Plaza
Huntingdon, PA
|
|
1970
|
|
|
|
|
|
|
100
|
|
|
102,000
|
|
|
73%
|
(5)
|
|
Peebles
Auto Zone
|
|
|
334,692
|
|
|
|
3.28
|
|
|
|
1.06
|
|
Total current properties and pending transactions
|
|
|
|
|
|
|
|
|
|
|
|
3,609,400
|
|
|
|
|
|
|
|
|
31,683,541
|
|
|
|
8.78
|
|
|
|
100%
|
|
|
|
|
|
*
|
Properties under redevelopment
|
|
|
(1)
|
Our properties are generally owned by bankruptcy
remote special purpose entities. Accordingly, the assets of
these entities, including the properties, may not be available
to satisfy claims that a creditor may have against us.
|
|
(2)
|
Annualized base rent represents the contractual
base rent for leases in place June 30, 2003, calculated on
a straight-line basis in accordance with U.S. generally accepted
accounting principles, or GAAP. This amount excludes operating
expense recoveries that would be applicable to such leases.
|
|
(3)
|
We have entered into a lease agreement to obtain
operating control of this property, along with an option to
acquire this property in ten years. A description of this
transaction is set forth below in Pending
Transactions.
|
|
(4)
|
We have entered into an agreement in principle to
acquire this property through a partnership in which the seller
will retain a preferred interest. A description of this
transaction is set forth below in Our
Properties.
|
|
(5)
|
Includes approximately 22,000 square feet that
has been leased to Peebles but is under construction.
|
Tenant Diversification
Upon consummation of this offering and completion
of the pending acquisitions, we will have leases with more than
297 distinct tenants, many of which are nationally
recognized retailers. The
64
following table sets forth information regarding
the 15 largest tenants in our shopping centers based on
annualized base rent on a pro forma basis upon consummation of
this offering, as of June 30, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leased
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
GLA (sq.
|
|
Total Portfolio
|
|
Annualized
|
|
Total Annualized
|
Tenant
|
|
ft.)
|
|
GLA(%)
|
|
Base Rent($)
|
|
Base Rent(%)
|
|
|
|
|
|
|
|
|
|
Giant Food(1)
|
|
|
333,486
|
|
|
|
9.3
|
|
|
|
3,307,291
|
|
|
|
10.4
|
|
United Artists(2)
|
|
|
77,700
|
|
|
|
2.2
|
|
|
|
1,434,312
|
|
|
|
4.5
|
|
Staples(3)
|
|
|
90,002
|
|
|
|
2.5
|
|
|
|
1,293,108
|
|
|
|
4.1
|
|
Boscovs(2)
|
|
|
167,597
|
|
|
|
4.7
|
|
|
|
742,071
|
|
|
|
2.3
|
|
Super Fresh Food Market(2)
|
|
|
61,506
|
|
|
|
1.7
|
|
|
|
661,527
|
|
|
|
2.1
|
|
Shop Rite(2)
|
|
|
54,388
|
|
|
|
1.5
|
|
|
|
639,010
|
|
|
|
2.0
|
|
Best Buy(2)
|
|
|
46,000
|
|
|
|
1.3
|
|
|
|
627,571
|
|
|
|
2.0
|
|
A.C. Moore(4)
|
|
|
42,000
|
|
|
|
1.2
|
|
|
|
588,932
|
|
|
|
1.9
|
|
Dollar Tree(5)
|
|
|
48,820
|
|
|
|
1.4
|
|
|
|
550,566
|
|
|
|
1.7
|
|
Sports Authority(2)
|
|
|
43,825
|
|
|
|
1.2
|
|
|
|
525,900
|
|
|
|
1.7
|
|
K-Mart(4)
|
|
|
198,368
|
|
|
|
5.5
|
|
|
|
514,996
|
|
|
|
1.6
|
|
Pep Boys(6)
|
|
|
42,615
|
|
|
|
1.2
|
|
|
|
509,269
|
|
|
|
1.6
|
|
Acme Supermarket(4)
|
|
|
117,533
|
|
|
|
3.3
|
|
|
|
501,272
|
|
|
|
1.6
|
|
Rite Aid(3)
|
|
|
39,000
|
|
|
|
1.1
|
|
|
|
484,300
|
|
|
|
1.5
|
|
Old Navy(2)
|
|
|
25,000
|
|
|
|
0.7
|
|
|
|
472,222
|
|
|
|
1.5
|
|
|
|
(1)
|
Giant Food is located in seven of our properties.
|
|
(2)
|
United Artists, Boscovs, Super Fresh Food
Market, Best Buy, Shop Rite, Sports Authority and Old Navy are
each located in one of our properties.
|
|
(3)
|
Staples and Rite Aid are located in four of our
properties.
|
|
(4)
|
A.C. Moore, K-Mart and Acme Supermarket are each
located in two of our properties.
|
|
(5)
|
Dollar Tree is located in five of our properties.
|
|
(6)
|
Pep Boys is located in three of our properties.
|
Individual Property Descriptions
|
|
|
The Point Shopping Center
|
This property contains 255,000 square feet of GLA
and is leased to 20 tenants, including Burlington Coat Factory
and Giant Food. The operating partnership is the sole general
partner of this property with a 50% partnership interest. Upon
consummation of this offering, the operating partnership will
own 100% of this property.
The center was originally constructed in 1972 and
was substantially redeveloped from 2000 to 2001, including the
construction of a new 55,000 square foot Giant Food supermarket
in 2001 and a 24,000 square foot Staples in 1998.
The operating partnership acquired its
partnership interest in The Point Associates, L.P. on
July 1, 2000 for a purchase price of $2.5 million,
subject to a then-existing first mortgage of $9.3 million.
On May 29, 2002, the operating partnership
refinanced the existing mortgage with a new loan of
$21 million from Protective Life Insurance Company of
Birmingham, Alabama. The new loan carries an interest rate of
7.625%, has an amortization schedule of 25 years and
matures in June 2027. Notwithstanding the amortization term, the
lender has an option of accelerating the loan at any time after
June 2012. The loan is due and payable in full 90 days
after the lender notifies us that it has exercised the option.
The mortgage may be prepaid in full at any time during its term,
subject to a prepayment premium
65
equal to the greater of 1% of the unpaid
principal balance at the time of the prepayment or a yield
maintenance premium.
The operating partnership intends to use
$2.4 million of the proceeds from this offering to purchase
the outstanding 50% limited partnership interest.
This property contains 155,000 square feet of GLA
and is leased to 32 tenants, including Thriftway and Pep Boys.
The operating partnership owns 100% of this property.
The center was originally constructed in 1988.
The operating partnership acquired its interest
in this property in October 2001 for a purchase price of
$14.2 million, subject to a then-outstanding first mortgage
of $11.6 million. The operating partnerships interest
in this property will be pledged as security for repayment of
the Hudson Realty financing (see Hudson Realty
Financing below). Upon consummation of this offering, the
Hudson Realty financing will be repaid and the security interest
will be terminated.
As of June 30, 2003, the outstanding
principal balance on the mortgage was $11.4 million. The
mortgage carries an interest rate of 7.174%, has an amortization
schedule of 30 years and matures in April 2008.
This property contains 155,000 square feet
of GLA and is leased to 37 tenants, including Acme
supermarket and a charter school. The operating partnership owns
100% of this property.
The center was originally constructed in 1965 and
was substantially renovated in 1988, including the construction
of an expanded 50,000 square foot Acme supermarket.
The operating partnership acquired its interest
in this property in October 2001 for a purchase price of
$11.6 million, subject to a then-outstanding first mortgage
of $10.7 million. The operating partnerships interest
in this property will be pledged as security for repayment of
the Hudson Realty financing. Upon consummation of this offering,
the Hudson Realty financing will be repaid and the security
interest will be terminated.
As of June 30, 2003, the outstanding
principal balance on the mortgage was $10.5 million. The
mortgage carries an interest rate of 7.13%, has an amortization
schedule of 30 years and matures in March 2013.
|
|
|
Washington Center Shoppes
|
This property contains 158,000 square feet
of GLA and is leased to 28 tenants, including Acme Markets and
Powerhouse Gym. The operating partnership owns 100% of this
property.
The center was originally constructed in 1979 and
was substantially expanded and renovated in 1995, including a
new façade, roofs, lighting, signs and parking lot
renovations.
The operating partnership acquired its interest
in this property in October 2001 for a purchase price of
$8.9 million, subject to then-outstanding first mortgage
financing of $6.0 million. The operating partnerships
interest in this property is pledged as security for repayment
of the Hudson Realty financing. Upon consummation of this
offering, the financing will be repaid and the security interest
will be terminated. This property also includes an adjacent
unencumbered parcel of land that was acquired by us at the same
time as Washington Center Shoppes for a purchase price of
$250,000.
As of June 30, 2003, the outstanding
principal balance on the mortgage was $5.9 million. The
mortgage carries an interest rate of 7.53%, has an amortization
schedule of 30 years and matures in
66
November 2027. We intend to repay this mortgage
on consummation of this offering and replace it with
$8.8 million of floating rate debt.
This property contains 224,300 square feet of GLA
and is leased to 14 tenants, including Best Buy and Staples. The
operating partnership is the sole general partner of this
property with a 20% partnership interest.
The center was originally constructed in 1971 and
was substantially redeveloped during 1990 and subsequently
expanded from 1998 through 2000, including the construction of a
new 43,825 square foot Sports Authority store in 1990, a 46,000
square foot Best Buy in 1998 and a 24,000 square foot Staples in
2000.
The operating partnership acquired its interest
in this property on May 31, 2002 from an affiliate of CBC
for a purchase price of $1.2 million, subject to a
then-outstanding first mortgage of $17.0 million.
ARC Properties, Inc. (ARC Properties) acquired
a 69% limited partner interest, at the same time as our
acquisition, for $4.1 million. Silver Circle Management
Corp. (Silver Circle), an affiliate of CBC, has an
11% limited partnership interest in the property.
As of June 30, 2003, the outstanding
principal balance on the mortgage was $16.7 million. The
mortgage carries an interest rate of 8.86% and matures in
February 2010. The amortization schedule is 30 years.
Pursuant to the terms of the partnership
agreement for Red Lion Shopping Center, income and loss of the
partnership is allocated to the respective partners in
accordance with their percentage ownership interests. Silver
Circle has a continuing right to receive on a priority basis
upon a capital event, an amount equal to cash left in the
partnership at closing in the amount of approximately $185,000,
which amount approximates the amount payable to the mortgage
lender for one months debt service and reserves,
respectively. Cash distributions from operations or from
liquidation will also be allocated in accordance with the
percentage ownership interests.
ARC Properties also has the following rights:
|
|
|
|
|
To compel a sale after April 1, 2009 (the
operating partnership may match the designated sales price).
|
|
|
|
Right of first refusal for any third party offer
for the Red Lion Shopping Center property which the operating
partnership wishes to accept.
|
|
|
|
If Mr. Ullman no longer controls Cedar-RL,
LLC, the entity through which the operating partnership holds
its interest, it may require that the property be marketed or it
may terminate the property manager and choose a new third party
manager, subject to the operating partnerships reasonable
approval.
|
|
|
|
If by May 31, 2004, cumulative distributions
amount to less than 80% of certain targeted amounts and
ARC Properties determines in its reasonable discretion that
the operating partnership is not properly managing the property,
it may require marketing of the property or termination of the
operating partnership as manager. Such right continues until
cumulative distributions equal or exceed 80% of targeted amounts.
|
|
|
|
To compel refinancing if such refinancing can be
made available on a non-recourse basis, at a fixed rate, with a
minimum five year term and if economically more favorable than
the existing loan.
|
The operating partnership and an affiliate of
ARC Properties have independent options to purchase the
property or all of ARC Properties interest for fair
market value. Upon exercise of such option at a specified price,
either option holder may purchase the property or the other
partners interests based on such price.
67
Our 20% indirect ownership interest as sole
general partner API Red Lion Shopping Center Associates provides
us with control over the activities of API Red Lion Shopping
Center Associates, except with respect to limited significant
decisions where the consent of a majority of the limited
partners is required. Accordingly, we will report consolidated
results of API Red Lion Shopping Center Associates and will
eliminate intercompany balances and transactions.
|
|
|
Loyal Plaza Shopping Center
|
This property contains 293,000 square feet of GLA
and is leased to 24 tenants, including K-Mart and Giant Food.
The operating partnership is the sole general partner of this
property with a 25% partnership interest.
The center was originally constructed in 1969 and
was substantially redeveloped during 1999 and 2000, including
the construction of a new 67,000 square foot Giant Food
supermarket and a free standing Eckert drug store that opened in
2001.
The operating partnership acquired its interest
in this property in July 2002 for a purchase price of
$18.3 million, including the assumption of a
$14.0 million first mortgage loan. The operating
partnership contributed $1.4 million for its 25% partnership
interest and Kimco Preferred Investor IV Trust invested
$4.0 million for the remaining 75% limited partnership
interest in Loyal Plaza Associates, L.P.
As of June 30, 2003, the outstanding
principal balance on the mortgage was $13.7 million. The
mortgage carries an interest rate of 7.18%, has an amortization
schedule of 30 years and matures in June 2011. Prepayment
of the mortgage requires a defeasance or make-whole deposit
equal generally to the amount in government securities or other
acceptable securities that will not result in a downgrading,
withdrawal or qualification of the ratings of the rating
agencies in effect for the loan, and which will generate amounts
equal to or greater than the payments required by the loan
agreement for the remaining period of the loan.
The partnership agreements for Loyal Plaza
provides essentially that Kimco Investor is entitled to receive
a 12.0% preferred return, after which the operating partnership
is entitled to receive a 10% preferred return thereafter, any
excess cash flow is divided 70% to Kimco Investor and 30% 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 Investor until its initial
capital contribution is reduced to zero, then to Kimco Investor
until it achieves a 14% internal rate of return, or IRR, then to
the operating partnership until its capital contribution balance
is reduced to zero, then until it receives a 14% IRR, and then
in accordance with the residual sharing ratio (50% to the
operating partnership and 50% to Kimco Investor).
The effect of the preferred IRR arrangements with
Kimco Investor will expose the operating partnerships
contributed capital, in the event of a capital transaction, to
cover any shortfall in Kimco Investors rate of return.
There will not be any exposure beyond the potential inability of
the operating partnership to realize repayment of such
contributed amounts (and any undistributed income).
Either party has the right after June 30,
2007 to initiate a procedure for offering the property for sale
for amounts in excess of any debt secured by the property plus
unreturned capital contributions, or to initiate a
buy-sell option.
CIF-Loyal Plaza Associates, L.P. is the sole
general partner responsible for managing the affairs of the
partnership and making all decisions relevant thereto, except
with respect to limited significant decisions where the consent
of Kimco is required. Accordingly, the operation of the property
is consolidated into the accompanying financial statements.
68
This property contains 521,600 square feet of GLA
and is leased to approximately 50 tenants, including
Boscovs, Giant Food and Barnes and Noble. The operating
partnership owns 100% of this property.
The center was originally constructed in 1957 and
redeveloped in 1986. A 90,000 square foot addition was completed
in 1991. The operating partnership is currently in the process
of substantially redeveloping the property and expects the
redevelopment to be completed in the summer of 2005. To date,
the operating partnership intends to construct a new 65,300
square foot Giant Food supermarket, which will open in the
summer of 2004. The redevelopment costs are expected to be
between $22 million and $24 million, although actual
costs could deviate materially from this estimate.
The operating partnership acquired its interest
in this property in November 2002 for a purchase price of
$17.2 million plus closing costs. This regional shopping
mall has several outparcels and is located on approximately 44
acres at the intersection of Route 15 and Trindle Road at the
Harrisburg beltway on the west bank of the Susquehanna River.
SWH Financing has a second mortgage on this property to secure a
loan with a principal balance as of June 30, 2003 of
$5.15 million. We expect that the SWH Financing loan will
be refinanced with a loan of $7.75 million loan from Hudson
Realty with the same security interests as the SWH Financing
loan. Upon consummation of this offering, we expect that the
Hudson Realty financing will be repaid and their security
interest will be terminated.
The principal balance of the mortgage, which was
obtained in November 2002 and is due in November 2004, was
$14.0 million. The interest rate is fixed via an interest
rate swap at 4.74% for the entire loan from the date the
mortgage was obtained, through and including November 2003. From
December 2003 through November 2004, $7.0 million is fixed
at 4.74% and the remaining $7.0 million will bear interest
at a floating rate equal to 30-day LIBOR plus 195 basis points.
We have an option to extend the mortgage for an additional year.
The mortgage may be repaid at any time after six months in whole
or in part without penalty. If we prepaid the mortgage as of
July 31, 2003, the cost to terminate the interest rate swap
would have been approximately $185,000. The operating
partnership has guaranteed 20% of the principal of the mortgage.
The operating partnership acquired its interest
in this property, a 7-acre parcel of land, in December 2002 at a
cost of $280,000. An affiliate of ARC Properties, Inc. invested
$1.0 million for a limited partnership interest in Fort
Washington Fitness, L.P. and is entitled to receive a 12%
preferential return on its investment before any distributions
are made to us. The operating partnership is the sole general
partner of this property with a 50% partnership interest.
This property will contain 41,000 square feet of
GLA. The center is being developed into a health club facility,
which project is expected to be completed during the fourth
quarter of 2003. The property is leased to L.A. Fitness
International for 15 years with three additional five-year
renewal options. The operating partnership estimates that the
development project will cost $8.8 million. The development
is being funded by a $5.0 million construction loan
obtained by the operating partnership, $2.6 million from LA
Fitness International and $1.0 million from ARC Properties,
Inc. The terms of the agreement with L.A. Fitness
International provide that L.A. Fitness International is
responsible for any construction overruns that may occur.
ARC Properties also has the following rights:
|
|
|
|
|
To compel a sale after July 1, 2007 (the
operating partnership may match the designated sales price).
|
|
|
|
Right of first refusal for any third party offer
for the L.A. Fitness Center property which the operating
partnership wishes to accept.
|
69
|
|
|
|
|
If Mr. Ullman no longer controls Cedar-Fort
Washington, LLC, the entity through which the operating
partnership holds its interest, it may require that the property
be marketed or to terminate the property manager and to choose a
new third party manager, subject to the operating
partnerships reasonable approval.
|
|
|
|
If (a) at any time after the second
anniversary of the first day of the month immediately following
the first month that L.A. Fitness Center commences its rent
payment, cumulative distributions amount to less than 80% of
certain targeted amounts and ARC Properties determines in
its reasonable discretion that the operating partnership is not
properly managing the property, it may require marketing of the
property or termination of the operating partnership as manager.
Such right continues until cumulative distributions equal or
exceed 80% of targeted amounts.
|
|
|
|
To compel refinancing if such refinancing can be
made available on a non-recourse basis, at a fixed rate, with a
minimum five year term and if economically more favorable than
the existing loan.
|
As of June 30, 2003, the outstanding
principal balance on the mortgage was $1.6 million. The
mortgage carries an interest rate of 275 basis points over
90-day LIBOR with a minimum rate of 5.75%, has no amortization
schedule during construction and matures in December 2004.
|
|
|
Fairview Plaza, Halifax Plaza and Newport
Plaza
|
These properties contain an aggregate of 190,500
square feet of GLA and are leased to an aggregate of
23 tenants, including Giant Food, McDonalds, Subway,
Rite Aid and the Pennsylvania Liquor Control Board. The
operating partnership has a 30% general partnership interest in
these properties.
Fairview Plaza, Halifax Plaza and Newport Plaza
were originally built in 1992, 1994 and 1996, respectively.
The operating partnership acquired its interest
in Fairview Plaza, Halifax Plaza and Newport Plaza for the
aggregate purchase price of $21 million, including closing
costs. The operating partnerships interest in these
properties is held through an umbrella limited partnership,
Fairport Associates, L.P. CIF-Fairport Associates, LLC, a
limited liability company of which the operating partnership is
the sole member, is the sole general partner of Fairport
Associates L.P. Kimco Preferred Investors III, Kimco
Investor, is the limited partner of Fairport Associates, L.P.
Fairport Associates, L.P. in turn owns 99% as limited partner in
Fairview Plaza Associates, L.P., Newport Plaza Associates, L.P.
and Halifax Plaza Associates, L.P. The general partner, with a
1% general partnership interest, of each entity is a
single-purpose limited liability company of which the operating
partnership is the sole managing member.
As of June 30, 2003, the outstanding
principal balance on the mortgage loans for Fairview Plaza,
Halifax Plaza and Newport Plaza were $6.1 million,
$4.2 million and $5.4 million, respectively. The
interest rate on the Fairview Plaza mortgage is 5.64%. Through a
series of interest rate swaps, the interest rates for Fairview
Plaza, Halifax Plaza and Newport Plaza have been fixed at 6.43%.
The maturity dates for the mortgages are January 2013 for
Fairview Plaza and February 2010 for each of Halifax Plaza and
Newport Plaza. The amortization schedule for Fairview Plaza is
30 years, while Halifax Plaza has annual amortization
payments of $168,000 and Newport Plaza has annual amortization
payments of $199,200.
The partnership agreements for each of the
respective properties provide essentially that Kimco Investor is
entitled to receive a 12.5% preferred return, after which the
operating partnership is entitled to receive a 12.5% preferred
return thereafter, any excess cash flow is divided 50% to Kimco
Investor 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 Investor until its
initial capital contribution is reduced to zero, then to Kimco
Investor until it achieves a 12.5% internal rate of return, or
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
Investor). As each of the properties,
70
and the respective ownership entities, are all
under the Fairport partnership umbrella, any shortfall in
required priority payments by any one of the three properties
will be offset by excess cash receipts from any other of the
properties prior to any other distribution for the benefit of
any affiliate of the operating partnership.
The effect of the preferred IRR arrangements with
Kimco Investor will expose the operating partnerships
contributed capital, in the event of a capital transaction, to
cover any shortfall in Kimco Investors rate of return.
There will not be any exposure beyond the potential inability of
the operating partnership to realize repayment of such
contributed amounts (and any undistributed income).
Either party has the right after
December 31, 2007 to initiate a procedure for offering the
three properties (not just one or two of the properties) for
sale for amounts in excess of any debt secured by the three
properties plus unreturned capital contributions, or to initiate
a buy-sell option for the three properties.
Fairport Associates, L.P. is the sole general
partner responsible for managing the affairs of the partnership
and making all decisions relevant thereto, except with respect
to limited significant decisions where the consent of Kimco
Investor is required. Accordingly, the operation of the property
is consolidated into the accompanying financial statements.
|
|
|
Pine Grove Shopping Center
|
This property contains 79,000 square feet of GLA
and is leased to 17 tenants, including Peebles. The operating
partnership is the sole general partner of this property with a
15% interest. Upon consummation of this offering, the operating
partnership will own 100% of this property.
The center was originally constructed in 2001 and
substantially redeveloped during 2002.
The operating partnership acquired its interest
in this property in April 2003 at a cost of $8.0 million,
which was financed in part by a $6.0 million first
mortgage, of which the operating partnership guaranteed
$1.8 million. Homburg Invest purchased an 85% limited
partnership interest for $2.0 million. Homburg Invest
received a 10% placement fee and is entitled to receive a 12%
preferential return before we receive any distributions. The
operating partnership has an option to buy Homburg Invests
interest provided that Homburg Invest receives a 15% annualized
rate of return from the acquisition date through the effective
date of the exercise of the option. The operating partnership
intends to use $2.3 million (less any distributions
previously made) of the proceeds from this offering to purchase
Homburg Invests interests in this property.
As of June 30, 2003, the outstanding
principal balance on the mortgage was $6.0 million. Through
an interest rate swap, the interest rate on the mortgage was
fixed at 6.24%. The mortgage has annual amortization payments of
$150,000 and matures in February 2010. The operating partnership
has guaranteed 30% of the principal of the loan.
This property contains 102,500 square feet of GLA
and is leased to 13 tenants, including LA Fitness
Center. The operating partnership is the sole general partner of
this property with a 15% general partnership interest. Upon
consummation of this offering, the operating partnership will
own 100% of this property.
The center was originally constructed in 1980 and
is currently undergoing a complete redevelopment.
The operating partnership acquired its interest
in this property in May 2003 at a cost of $7.3 million,
subject to a first mortgage of approximately $5.6 million.
The principal amount of the mortgage may be increased for
additional construction successfully completed. Homburg Invest
purchased an 85% limited partnership interest for
$3.0 million. Homburg Invest received a 10% placement fee
and is entitled to receive a 12% preferential return before we
receive any distributions. The operating partnership
71
has an option to buy Homburg Invests
interest provided that Homburg Invest receives a 15% annualized
rate of return from the acquisition date through the effective
date of the exercise of the option. The operating partnership
intends to use $3.2 million (less any distributions paid)
of the proceeds from this offering to purchase Homburg
Invests limited partnership interest in this property.
As of June 30, 2003, the outstanding
principal balance on the mortgage was $5.6 million. The
mortgage can be increased to a total of $7.5 million in
connection with certain leasing and redevelopment achievements.
The mortgage carries a fixed rate of 7.25%, is interest only
during the initial term of the loan and matures in May 2005. The
mortgage can be repaid without penalty after January 2004 and we
currently expect to repay the loan at that time. We have
guaranteed 30% of the principal of this loan.
|
|
|
Valley Plaza Shopping Center
|
This property contains 191,200 square feet of GLA
and is leased to seven tenants, including K-Mart, Ollies
and Tractor Supply Company. The operating partnership owns 100%
of this property.
The center was originally constructed in 1975.
The operating partnership acquired its interest
in this property in June 2003 for $9.5 million, including
closing costs.
The purchase price plus certain lender fees was
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% annually. Commitment fees of $65,000 for the senior bank
loan and $346,000 for the subordinated bank loan were included
in the loan amounts. We are required to pay an exit fee of
$103,000 upon repayment. Homburg Invest is entitled to receive
one-half of the commitment fees and exit fees, and 4.75% of the
interest payments on the subordinated loan in consideration for
arranging the loan and for providing the lender with certain
repayment guarantees with respect to both loans.
Pending Transactions
|
|
|
South Philadelphia Shopping Plaza
|
In April 2003, we entered into a lease agreement
with regard to South Philadelphia Shopping Plaza, located in
Philadelphia, Pennsylvania. In connection therewith, we made a
non-refundable deposit of $3.0 million. South Philadelphia
Shopping Plaza is a 283,000 square foot shopping center built in
1950 with a 54,000 square foot Shop Rite as the anchor tenant
and a 26,000 square foot Drug Emporium. Additional tenants
include Ballys Total Fitness, Ross and Strauss Auto Store.
Currently, we, through a subsidiary of the
operating partnership, intend to net lease South Philadelphia
Shopping Plaza from the existing owner for a term of
29 years, 11 months. We will have the right to
exercise an option to purchase the property at fair market value
at any time after ten years, subject to acceleration of our
right to exercise the purchase option in certain instances, such
as the bankruptcy of the existing owner.
Simultaneously with the execution of the net
lease, the operating partnership will make a loan to the
existing owner in the amount of $39.0 million, secured by a
first mortgage on the owners fee interest in the property.
The interest payment under the loan will equal
the fixed rent under the net lease. The owner will direct us to
make all payments under the net lease directly to us. The
existing owners obligation under the loan is deemed to be
satisfied upon our payment of fixed rent under the net lease,
and the owners obligation under the loan is deemed excused
if we do not make our payment of fixed rent under the net lease.
72
In July 2003, we entered into a contract to
purchase Wal-Mart Shopping Center in Southington, Connecticut.
Closing for Wal-Mart Shopping Center property is expected during
August 2003.
Wal-Mart Shopping Center is a community shopping
center of approximately 155,000 square feet, of which Wal-Mart
represents approximately 94,400 square feet with a lease
extending through 2018. Other principal tenants include a
20,000 square foot Namco, a 14,600 square foot
Southington Wine & Spirits, a 10,000 square foot
Connecticut Lighting Center and Sovereign Bank on an outparcel.
We will acquire a ground lease of this property that expires in
2072.
The purchase price for the property will be
approximately $8.35 million, plus closing costs. We expect
to obtain a subordinated loan of $2.9 million and a senior
loan of $5.4 million for the purchase of this property.
Both loans will mature in two years. The subordinated loan will
bear interest at a rate of 12%, while the senior loan will bear
interest at a spread of 250 basis points over 30-day LIBOR. We
intend to use $2.9 million of the proceeds of this offering
to repay the subordinated loan. In addition, Homburg Invest
purchased an 85% limited partnership interest for $825,000,
which includes a 10% fee to Homburg Invest. Homburg Invest
received a 10% placement fee for the loans and is entitled to
receive a 12% preferential return before we receive any
distributions. The operating partnership has an option to buy
Homburg Invests interest provided that Homburg Invest
receives a 20% annualized rate of return from the acquisition
date through the effective date of the exercise of the option.
We intend to use
$ of
the proceeds from this offering to purchase Homburg
Invests limited partnership interests in this property.
|
|
|
Golden Triangle Shopping Center
|
In August 2003, we entered into an agreement to
acquire from affiliates of CBC Golden Triangle Shopping Center
in Lancaster, Pennsylvania. This is an approximately 229,000
square foot shopping center built in 1960 with a 30,000 square
foot Marshalls and a 24,060 square foot Staples. We are
currently in the process of negotiating leases for a 46,000
square foot L.A. Fitness Center and a 30,000 square foot Price
Rite grocer.
The purchase price for the property will be
approximately $11.5 million, plus closing costs, subject to
a $9.9 million first mortgage. The purchase is expected to
be funded from the proceeds of this offering. The seller also
will receive an extra $150,000 if we successfully lease existing
vacant space.
|
|
|
Columbus Crossing Shopping Center
|
In August 2003, we entered into an agreement in
principle to acquire operating control of Columbus Crossing
Shopping Center in Philadelphia, Pennsylvania. The interests of
the present partners in the partnership that owns the property
will be recast as preferred limited partnership interests. This
is a new, fully leased approximately 142,000 square foot
shopping center completed in 2001 with a 61,500 square foot
Super Fresh Supermarket as the principal anchor tenant.
Additional tenants include a 25,000 square foot Old Navy, a
22,000 square foot A.C. Moore and a 10,000 square foot
Famous Footwear. The property is located on the Delaware River
off Christopher Columbus Boulevard and abuts adjacent
free-standing Wal-Mart and Home Depot stores, which we are not
acquiring.
We have the option to redeem the preferred
interest of the existing owners in ten years, in the event and
to the extent the existing owners of the partnership have not
redeemed their interests prior to that time. We currently intend
to exercise such option. At the time we enter into the
agreement, we will make a $23.9 million loan to the current
owners of the partnership, which would be repaid if and when we
exercise the option to purchase. We will become the managing
general partner of the partnership that owns this property and
acquire 1% of the common interests of the partnership and we
will become a limited partner of the partnership and acquire 99%
of the common interests of the partnership.
The return to the existing owners on the
preferred interests will approximate the interest payable under
the loan.
73
This property is subject to a $17.5 million
first mortgage loan, which we intend to increase to
$18.5 million on consummation of the acquisition.
|
|
|
River View Plaza I, II and III
|
In August 2003, we entered into an agreement in
principle, under which we will acquire operating control of
River View Plaza I, River View Plaza II and River View
Plaza III in Philadelphia, Pennsylvania. These centers
consist of three separate properties with an aggregate of
approximately 246,772 square feet of GLA. River View I is
anchored by a United Artists theatre and Sega Gameworks, River
View II is anchored by Staples and West Marine and River
View III is anchored by Pep Boys and Athletes Foot.
All three properties are also located on
Christopher Columbus Boulevard (on the opposite side of the
Boulevard from the Columbus Crossing property) and there is a
northbound exit from Route I-95 adjacent to the properties.
The transaction will be structured so that the
existing owners will contribute the property to a newly formed
partnership, and, in exchange for their contribution, each of
the owners will acquire a preferred limited partnership interest
in the partnership. We will become the managing general partner
of the partnership and acquire 1% of the common interests of the
partnership and we will become a limited partner of the
partnership and acquire 99% of the common interests of the
partnership. We have an option to redeem the preferred interests
of the existing owners in ten years, in the event and to the
extent the existing owners of the partnership have not redeemed
their interests prior to that time. We currently intend to
exercise such option. At the time we enter into the agreement,
we will make a $49.1 million loan to the existing owners,
which would be repaid if and when we exercise the option to
purchase. The return to the existing owners on the preferred
interest will approximate the interest payable under the loan.
In August 2003, we entered into an agreement to
purchase Lake Raystown Plaza in Huntingdon, Pennsylvania. This
is a Giant Food supermarket-anchored center of approximately
84,300 square feet, completed in 1995, located approximately 20
miles east of Altoona, Pennsylvania. In addition to a 39,200
square foot Giant Food supermarket, other tenants include a
10,000 square foot Rite Aid drug store and a 9,100 square foot
Fashion Bug.
The purchase price for the property will be
approximately $7.0 million, plus closing costs. The
purchase is expected to be financed from the proceeds of this
offering and from a $5.6 million mortgage loan, which we
intend to enter into concurrently with the acquisition.
In August 2003, we entered into an agreement to
purchase Huntingdon Plaza in Huntingdon, Pennsylvania. This is
an approximately 92,000 square foot shopping center adjacent to
the Lake Raystown Plaza property and features a 22,000 square
foot Peebles, a 9,000 square foot Auto Zone and a 7,000 square
foot Family Dollar Store. Negotiations are pending to fill the
remaining vacancies.
The purchase price for the property will be
approximately $4.0 million, plus closing costs. The
purchase is expected to be financed from the proceeds of this
offering and from a $2.4 million mortgage loan, which we
intend to enter into concurrently with the acquisition.
We have entered into (a) an option agreement
to acquire an undeveloped 16.5 acre parcel of land located
between Harrisburg and Hershey, Pennsylvania for approximately
$1.9 million and (b) an agreement in principle to
acquire the building occupied by Giant Food at our Loyal Plaza
Shopping Center for $4.9 million; and (c) an agreement
to acquire the 50% interest in The Point Shopping Center in
Harrisburg, Pennsylvania which is not presently owned by us for
a purchase price of approximately
74
$2.4 million, subject to a $19.7 million first
mortgage. This property contains approximately 255,000 square
feet of GLA.
We received a 10-year option to acquire the Shore
Mall in Egg Harbor Township, New Jersey, a 620,000 square
foot shopping center, from an affiliate of CBC, subject to a
right of first refusal of a former owner, which expires in 2009.
The option provides that the purchase price will be the
appraised value at the time the option is exercised. The option
provides us with a right of first refusal if the owner receives
a bona fide third-party offer. If we do not exercise our option
in connection with a bona fide third party offer, the option
will terminate. Brentway and SKR presently provide property
management, leasing, construction management and legal services
to the Shore Mall property. Upon completion of this offering and
the merger of our advisors, we expect to continue to provide
management services to, and to receive fees at standard rates
from, the Shore Mall property until that property is acquired by
us (or sold or otherwise disposed of by the existing owners). An
affiliate of CBC owns 92% of this property and Mr. Ullman
owns 8%.
We currently do not intend to exercise our option
because the property is highly leveraged and the debt has
significant prepayment penalties. In addition, we are waiting
for additional road work in the area to be completed.
Rents and Occupancy Information
The following table shows certain information on
rents and occupancy rates for our properties during the period
of our ownership.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Aggregate
|
Year Ended
|
|
|
|
Average Base Rent
|
|
|
|
Operating
|
|
Base
|
December 31,
|
|
Occupancy
|
|
Per Square Foot
|
|
GLA
|
|
Properties
|
|
Rents
|
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
|
82%
|
|
|
|
5.11
|
|
|
|
260,000
|
|
|
|
1
|
|
|
$
|
80,700
|
|
2001
|
|
|
93%
|
|
|
|
9.03
|
|
|
|
728,000
|
|
|
|
4
|
|
|
$
|
53,300
|
|
2002
|
|
|
90%
|
|
|
|
8.76
|
|
|
|
1,803,000
|
|
|
|
7
|
|
|
$
|
39,100
|
|
The following table shows lease expiration data
as of June 30, 2003, for all of our properties upon
consummation of this offering and completion of our pending
transactions described in this prospectus, assuming no tenants
exercise renewal options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Rents
|
|
|
|
Percent of GLA
|
|
|
|
|
|
|
No. of Leases
|
|
Leased Represented
|
Expiration Year
|
|
Expiring GLA
|
|
Per Sq. Ft.($)
|
|
Total
|
|
Expiring
|
|
by Expiring Leases
|
|
|
|
|
|
|
|
|
|
|
|
2003 (second half)
|
|
|
194,910
|
|
|
|
5.50
|
|
|
$
|
1,071,742
|
|
|
|
37
|
|
|
|
3.35%
|
|
2004
|
|
|
262,597
|
|
|
|
9.53
|
|
|
|
2,503,387
|
|
|
|
55
|
|
|
|
7.82%
|
|
2005
|
|
|
203,914
|
|
|
|
13.96
|
|
|
|
2,848,188
|
|
|
|
45
|
|
|
|
8.90%
|
|
2006
|
|
|
344,249
|
|
|
|
8.52
|
|
|
|
2,931,242
|
|
|
|
46
|
|
|
|
9.16%
|
|
2007
|
|
|
204,264
|
|
|
|
12.65
|
|
|
|
2,583,940
|
|
|
|
46
|
|
|
|
8.07%
|
|
2008
|
|
|
178,055
|
|
|
|
12.14
|
|
|
|
2,161,492
|
|
|
|
29
|
|
|
|
6.75%
|
|
2009
|
|
|
95,011
|
|
|
|
12.96
|
|
|
|
1,231,681
|
|
|
|
13
|
|
|
|
3.85%
|
|
2010
|
|
|
286,577
|
|
|
|
5.52
|
|
|
|
1,582,550
|
|
|
|
13
|
|
|
|
4.94%
|
|
2011
|
|
|
199,266
|
|
|
|
10.49
|
|
|
|
2,089,469
|
|
|
|
15
|
|
|
|
6.53%
|
|
2012
|
|
|
128,175
|
|
|
|
13.99
|
|
|
|
1,792,570
|
|
|
|
19
|
|
|
|
5.60%
|
|
2013
|
|
|
114,218
|
|
|
|
11.11
|
|
|
|
1,268,915
|
|
|
|
9
|
|
|
|
3.96%
|
|
Thereafter
|
|
|
965,185
|
|
|
|
10.31
|
|
|
|
9,952,402
|
|
|
|
37
|
|
|
|
31.08%
|
|
Four of our properties either contributed more
than 10% of our aggregate gross revenues during 2002 or had a
book value equal to more than 10% of our total assets at
year-end 2002. Except for Giant
75
Food, no tenant at these properties leases more
than 10% of such centers GLA. The following charts show
certain information for these properties during the period of
our ownership.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Point Shopping Center
|
|
|
|
|
|
Avg. Occupancy
|
|
Avg. Annual Base
|
Fiscal Year
|
|
Rate
|
|
Rent per sq. ft.
|
|
|
|
|
|
2000
|
|
|
82
|
%
|
|
|
5.11
|
|
2001
|
|
|
91
|
%
|
|
|
7.70
|
|
2002
|
|
|
93
|
%
|
|
|
10.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Lion Shopping Center
|
|
|
|
|
|
Avg. Occupancy
|
|
Avg. Annual Base
|
Fiscal Year
|
|
Rate
|
|
Rent per sq. ft.
|
|
|
|
|
|
2002
|
|
|
85
|
%
|
|
|
11.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loyal Plaza Shopping Center
|
|
|
|
|
|
Avg. Occupancy
|
|
Avg. Annual Base
|
Fiscal Year
|
|
Rate
|
|
Rent per sq. ft.
|
|
|
|
|
|
2002
|
|
|
92
|
%
|
|
|
7.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camp Hill Mall
|
|
|
|
|
|
Avg. Occupancy
|
|
Avg. Annual Base
|
Fiscal Year
|
|
Rate
|
|
Rent per sq. ft.
|
|
|
|
|
|
2002
|
|
|
90
|
%
|
|
|
6.69
|
|
The following tables show lease expiration data
as of June 30, 2003 for each of the above properties for
the next ten years (assuming that none of the tenants exercise
renewal options).
The Point Shopping Center
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
|
|
|
|
% of Annual Base
|
|
|
|
|
% of Leased
|
|
Expiring
|
|
No. of Leases
|
|
Rent Represented by
|
Expiration Year
|
|
Expiring GLA
|
|
Property Square Feet
|
|
Rents
|
|
Expiring
|
|
Expiring Leases
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2004
|
|
|
2,550
|
|
|
|
1.07
|
|
|
|
24,910
|
|
|
|
1
|
|
|
|
1.02
|
|
2005
|
|
|
1,600
|
|
|
|
0.67
|
|
|
|
13,000
|
|
|
|
1
|
|
|
|
0.53
|
|
2006
|
|
|
88,305
|
|
|
|
37.13
|
|
|
|
387,178
|
|
|
|
3
|
|
|
|
15.78
|
|
2007
|
|
|
14,648
|
|
|
|
6.16
|
|
|
|
234,228
|
|
|
|
3
|
|
|
|
9.55
|
|
2008
|
|
|
26,635
|
|
|
|
11.20
|
|
|
|
229,092
|
|
|
|
2
|
|
|
|
9.34
|
|
2009
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2010
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2011
|
|
|
5,000
|
|
|
|
2.10
|
|
|
|
37,222
|
|
|
|
1
|
|
|
|
1.52
|
|
2012
|
|
|
16,909
|
|
|
|
7.11
|
|
|
|
253,760
|
|
|
|
5
|
|
|
|
10.34
|
|
2013
|
|
|
24,000
|
|
|
|
10.09
|
|
|
|
264,000
|
|
|
|
1
|
|
|
|
10.76
|
|
Thereafter
|
|
|
58,200
|
|
|
|
24.42
|
|
|
|
1,010,383
|
|
|
|
2
|
|
|
|
41.18
|
|
76
Red Lion Shopping Center
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
|
|
|
|
% of Annual Base
|
|
|
|
|
% of Leased
|
|
Expiring
|
|
No. of Leases
|
|
Rent Represented by
|
Expiration Year
|
|
Expiring GLA
|
|
Property Square Feet
|
|
Rents
|
|
Expiring
|
|
Expiring Leases
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
30,933
|
|
|
|
14.58
|
|
|
|
107,550
|
|
|
|
2
|
|
|
|
4.48
|
|
2004
|
|
|
1,800
|
|
|
|
0.85
|
|
|
|
28,168
|
|
|
|
1
|
|
|
|
1.17
|
|
2005
|
|
|
50,546
|
|
|
|
23.82
|
|
|
|
599,553
|
|
|
|
3
|
|
|
|
24.99
|
|
2006
|
|
|
3,600
|
|
|
|
1.70
|
|
|
|
54,000
|
|
|
|
1
|
|
|
|
2.25
|
|
2007
|
|
|
26,815
|
|
|
|
12.64
|
|
|
|
277,830
|
|
|
|
3
|
|
|
|
11.58
|
|
2008
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2009
|
|
|
4,310
|
|
|
|
2.03
|
|
|
|
63,861
|
|
|
|
1
|
|
|
|
2.66
|
|
2010
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2011
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2012
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2013
|
|
|
10,750
|
|
|
|
5.07
|
|
|
|
174,623
|
|
|
|
2
|
|
|
|
7.28
|
|
Thereafter
|
|
|
83,442
|
|
|
|
39.32
|
|
|
|
1,094,034
|
|
|
|
3
|
|
|
|
45.59
|
|
Loyal Plaza Shopping Center
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
|
|
|
|
% of Annual Base
|
|
|
|
|
% of Leased
|
|
Expiring
|
|
No. of Leases
|
|
Rent Represented by
|
Expiration Year
|
|
Expiring GLA
|
|
Property Square Feet
|
|
Rents
|
|
Expiring
|
|
Expiring Leases
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2004
|
|
|
8,350
|
|
|
|
3.10
|
|
|
|
118,258
|
|
|
|
3
|
|
|
|
5.99
|
|
2005
|
|
|
21,864
|
|
|
|
8.12
|
|
|
|
232,958
|
|
|
|
5
|
|
|
|
11.80
|
|
2006
|
|
|
109,538
|
|
|
|
40.68
|
|
|
|
401,549
|
|
|
|
5
|
|
|
|
20.34
|
|
2007
|
|
|
24,420
|
|
|
|
9.07
|
|
|
|
328,960
|
|
|
|
5
|
|
|
|
16.66
|
|
2008
|
|
|
2,500
|
|
|
|
0.93
|
|
|
|
33,846
|
|
|
|
1
|
|
|
|
1.71
|
|
2009
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2010
|
|
|
6,500
|
|
|
|
2.41
|
|
|
|
58,271
|
|
|
|
1
|
|
|
|
2.95
|
|
2011
|
|
|
9,900
|
|
|
|
3.68
|
|
|
|
81,720
|
|
|
|
1
|
|
|
|
4.14
|
|
2012
|
|
|
8,355
|
|
|
|
3.10
|
|
|
|
55,000
|
|
|
|
1
|
|
|
|
2.79
|
|
2013
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
Thereafter
|
|
|
77,843
|
|
|
|
28.91
|
|
|
|
663,765
|
|
|
|
2
|
|
|
|
33.62
|
|
77
Camp Hill Mall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
|
|
|
|
% of Annual Base
|
|
|
|
|
% of Leased
|
|
Expiring
|
|
No. of Leases
|
|
Rent Represented by
|
Expiration Year
|
|
Expiring GLA
|
|
Property Square Feet
|
|
Rents
|
|
Expiring
|
|
Expiring Leases
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
132,977
|
|
|
|
29.31
|
|
|
|
406,128
|
|
|
|
22
|
|
|
|
13.65
|
|
2004
|
|
|
22,026
|
|
|
|
4.85
|
|
|
|
279,768
|
|
|
|
8
|
|
|
|
9.40
|
|
2005
|
|
|
4,208
|
|
|
|
0.93
|
|
|
|
80,788
|
|
|
|
4
|
|
|
|
2.72
|
|
2006
|
|
|
10,459
|
|
|
|
2.30
|
|
|
|
111,634
|
|
|
|
3
|
|
|
|
3.75
|
|
2007
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
2008
|
|
|
1,297
|
|
|
|
0.29
|
|
|
|
22,692
|
|
|
|
1
|
|
|
|
0.76
|
|
2009
|
|
|
3,639
|
|
|
|
0.80
|
|
|
|
50,946
|
|
|
|
1
|
|
|
|
1.71
|
|
2010
|
|
|
180,576
|
|
|
|
39.79
|
|
|
|
910,882
|
|
|
|
4
|
|
|
|
30.62
|
|
2011
|
|
|
86,078
|
|
|
|
18.97
|
|
|
|
797,939
|
|
|
|
7
|
|
|
|
26.82
|
|
2012
|
|
|
3,466
|
|
|
|
0.76
|
|
|
|
50,329
|
|
|
|
2
|
|
|
|
1.69
|
|
2013
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
Thereafter
|
|
|
9,040
|
|
|
|
1.99
|
|
|
|
264,022
|
|
|
|
2
|
|
|
|
8.87
|
|
|
|
(1)
|
Annualized expiring rents represents the
contractual rent for expiring leases, calculated on a straight
line basis in accordance with GAAP.
|
Depreciation on The Point Shopping Center, Red
Lion Shopping Center, Loyal Plaza Shopping Center, and Camp Hill
Mall is calculated using the straight-line method over the
estimated useful life of the real property and improvements,
which ranges from three to 39 years. At December 31,
2002, the Federal tax basis in these centers was as follows:
approximately $21,600,000 for The Point Shopping Center,
approximately $20,500,000 for Red Lion Shopping Center,
approximately $19,300,000 for Loyal Plaza Shopping Center, and
approximately $22,300,000 for Camp Hill Mall.
The realty tax rate is approximately
$2.44 per $100 of assessed value for Loyal Plaza Shopping
Center; $8.27 per $100 of assessed value for Red Lion
Shopping Center; $1.74 per $100 for The Point Shopping
Center; and $1.61 per $100 for Camp Hill Mall.
Competition
We believe that competition for the acquisition
and operation of retail shopping centers is highly fragmented.
We face competition from institutional investors, other 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.
We encounter competition for acquisitions of
existing income-producing properties. We also face competition
in leasing available space at our properties to prospective
tenants. The actual competition for tenants varies depending
upon the characteristics of each local market in which we own
and manage property. We believe that the principal competitive
factors in attracting tenants in our market areas are location,
price, the presence of anchor tenants, mix and quality of
tenants and maintenance of properties.
Office
Our executive office is located at 44 South
Bayles Avenue, Port Washington, New York and contains
4,587 square feet under a lease at rentals consistent in
the building that expires on October 31, 2007.
Mr. Ullman owns a 25% interest in the building that houses
our executive offices. We also have an office located at the
Camp Hill Mall that contains 2,000 square feet. We expect
to open an office in the Philadelphia, Pennsylvania area during
2003.
78
Legal Proceedings
We are not presently involved in any litigation
nor to our knowledge is any litigation threatened against us or
our subsidiaries that, in managements opinion, would
result in any material adverse effect on our ownership,
management or operation of our properties, or is not covered by
our liability insurance.
Environmental Matters
There are two principal environmental matters
that affect our Loyal Plaza Shopping Center. These are
(a) certain petroleum-impacted soil at the newly-built,
free-standing Eckerd drug store building on an outparcel of the
property; and (b) a concentration of dry cleaning solvents,
PCE and TCE, at levels in excess of amounts permitted by the
PADEP.
Pursuant to the purchase agreement for the
purchase of the property by us, the seller will remain liable
for all costs up to and including a satisfactory Release
of Liability letter issued by the PADEP with respect to
all such contamination at the property. The seller has deposited
$950,000 in escrow to support its obligations. In the event that
the escrows are insufficient to cover all required testing and
remediation, the seller has undertaken to expend any and all
monies required to complete such testing and remediation
including monitoring, without limits as to time. While we
believe an anticipated Release of Liability letter
from the PADEP will operate to relieve us of any further
liability for remediation of the site under Pennsylvania
environmental statutes, or for any contamination identified in
reports submitted to and approved by the PADEP to protect us
from successful citizens suits or other contribution
actions, we cannot assure you that we would not incur costs
associated with the investigation, remediation or removal of
such contamination.
At the South Philadelphia Shopping Plaza, in
which we intend to obtain an interest upon consummation of this
offering, concentrations of PCE, TCE and cis-1,2-DCE (dry
cleaning solvents) at levels in excess of amounts permitted by
the PADEP were found. Pursuant to our agreement, the existing
owner is responsible for all remediation measures as may be
required to meet statewide health standards in connection with
these contaminants. If the existing owner fails to satisfy its
obligations under the agreement, we may be liable for
significant remediation cost.
Employees
Upon consummation of the merger of our advisors,
we will have 28 employees. We believe that our relations
with our employees are good. None of our employees are unionized.
Outstanding Indebtedness
|
|
|
Protective Life Insurance
Company
|
On May 29, 2002, we refinanced a loan used
to construct certain improvements to The Point Shopping Center.
The new loan, provided by Protective Life Insurance Company of
Birmingham, Alabama, is potentially for $21 million, of
which $20.0 million was drawn down upon completion of the
refinancing. The additional $1.0 million becomes available
to us if, within two years of the date of closing of the
refinancing, we lease generally not less than 20,000 square
feet in the shopping center at $14.00 per square foot for a
10-year period to an acceptable creditworthy tenant. If we are
unable to find such a tenant within the two year period, we lose
our right to access the additional $1.0 million of the loan.
The interest rate on the new loan is 7.625%. The
loan matures in June 2027 and has an amortization of
25 years. Notwithstanding the amortization term, the lender
has an option of accelerating the loan at any time after
June 2012. The loan is due and payable in full 90 days
after the lender notifies us that it has exercised the option.
Debt service under the loan for the initial $20.0 million
funding amount is $1.8 million per year. The loan may be
pre-paid in full at any time upon 90-days prior written
notice and payment of a prepayment premium equal to the greater
of 1% of the then-unpaid principal balance of the loan or a
yield maintenance formula. We are also required to escrow with
the lender amounts equal to annual real estate taxes and
insurance premium.
79
During November 2002, we entered into a financing
agreement with SWH for a $6.0 million loan of which
approximately $4.2 million was used to fund the Camp Hill
Mall acquisition and to provide approximately $100,000 of
working capital. The balance of the SWH financing, approximately
$1.3 million, was used to pay off the then-existing SWH
loan balance of approximately $880,000 together with certain
exit fees of approximately $500,000 attributable to
financing previously provided by SWH for the portfolio of
supermarket-anchored shopping centers that we purchased in
October 2001. The term of the SWH loan is through
November 30, 2005 and it carries interest at the rate of
12.5%, adjusting to an annual rate of 14% from December 1,
2004 through maturity.
SWH received a funding fee of $300,000 (equal to
5% of the loan amount) at closing and will receive an exit fee
of $120,000 if the loan is paid on or before February 28,
2004. The loan may be repaid at any time in whole or in part
without penalty.
The security for repayment of the SWH financing
is our equity interest in Port Richmond Village, Academy Plaza
and Washington Center Shoppes, together with a pledge of the
operating partnerships interest in the Camp Hill Mall.
Citizens Bank of Pennsylvania, which holds the first mortgage on
the Camp Hill Mall, and SWH have entered into certain
inter-creditor agreements that provide, among other things, for
notice and other procedures in the event of default under either
of the loan agreements.
We have received a commitment from Hudson Realty
Capital LLC, or Hudson Realty (the principals of which include
the principals of SWH), to provide $7.75 million of
financing. A portion of the proceeds of this loan would be used
to repay in full the SWH financing. The loan would be secured by
the security interest presently held by SWH. The loan would be
for 18 months at an interest rate of 12.5% per annum.
Hudson Realty would receive a five percent commitment fee and a
two percent exit fee. Amortization of principal would commence
at the seventh month and would commence at $200,000 per month
for the 7th through 9th months, $250,000 per month for the
10th through 12th months, $350,000 per month for the 13th
through 15th months and $450,000 per month thereafter. We
will have the right to prepay the loan at any time after Hudson
Realty shall have received at least four months interest. If we
obtain debt or equity financing on the Camp Hill Mall from a
party other than Hudson Realty or sell our interest in the
center prior to January 24, 2004, and the loan has not yet
been funded, we have agreed to pay to Hudson Realty a fee of
$200,000.
Fairview Plaza.
In
January 2003, we obtained a $6.1 million first
mortgage loan from GE Capital Corporation in connection
with the purchase of our interest in Fairview Plaza. The loan
matures in February 2013, bears interest at a rate of 5.64%
and has a 30-year amortization schedule. Annual debt service on
the loan, including interest and amortization, is approximately
$430,000. We entered into an interest rate swap for the entire
amount of the loan, together with the loans for Halifax Plaza
and Newport Plaza described below, resulting in a fixed rate of
6.43%. The loan is prepayable upon payment of penalty equal
essentially to the difference between the interest cost/yield of
the loan and the then-prevailing lending/borrowing rates,
discounted to then-present value, for the balance of the term of
the loan.
Golden Triangle Shopping
Center.
In August 2003, we entered
into an agreement to acquire this center from affiliates of CBC
for a purchase price of approximately $11.5 million, plus
closing costs, subject to a $9.9 million first mortgage.
The loan matures in April 2023, bears interest at a rate of
7.39% and has a 25-year amortization schedule. Annual debt
service on the loan, including interest and amortization, is
approximately $948,000.
Columbus Crossing Shopping
Center.
In August 2003, we entered
into an agreement in principle to acquire operating control of
this center. The property is subject to a $17.5 million
first mortgage loan,
80
with an interest rate of the greater of LIBOR
plus 2.9% or 4.8%. The loan matures in July 2005. We may extend
the loan for one year with notice to the lender and payment of a
fee of 0.5%. The loan carries an exit fee of 1%.
|
|
|
Citizens Bank of Pennsylvania
|
Halifax Plaza and Newport Plaza.
We obtained loans of $4.3 million
and $5.4 million from Citizens Bank of Pennsylvania in
connection with the purchase of our interests in Halifax Plaza
and Newport Plaza, respectively. Each loan is for a period of
seven years with amortization at $90,000 per annum for Halifax
Plaza and $78,000 per annum ($109,200 per annum after the
additional $1.6 million loan funding) for Newport Plaza.
Annual debt service on both loans, including interest and
amortization, is $800,000 in the aggregate. The loans are
prepayable without penalty except for applicable breakage fees
under certain interest rate protection agreements. The interest
rate on both loans is determined by a spread of
210 basis points over 30-day LIBOR. We entered into
interest rate swaps for the entire amounts and terms of the
respective loans, swapping 30-day LIBOR for a fixed rate of
4.33%, so as to result in a fixed rate of 6.43%.
Camp Hill Mall.
The
operating partnership acquired its interest in this property in
November 2002 for a purchase price of $17.2 million plus
closing costs. The principal balance of the mortgage from
Citizens Bank of Pennsylvania, which was obtained in November
2002 and is due in November 2004, was $14.0 million. The
interest rate is fixed via an interest rate swap at 4.74% for
the entire loan from the date the mortgage was obtained, through
and including November 2003. From December 2003 through November
2004, $7.0 million is fixed at 4.74% and the remaining
$7.0 million will bear interest at a floating rate equal to
30-day LIBOR plus 195 basis points. We have an option to
extend the mortgage for an additional year. The mortgage may be
repaid at any time after six months in whole or in part without
penalty. If we had prepaid the mortgage as of July 31,
2003, the cost to terminate the interest rate swap would have
been approximately $185,000. The operating partnership has
guaranteed 20% of the principal of the mortgage.
Pine Grove Shopping
Center.
The operating partnership
acquired its interest in this property in April 2003 at a cost
of $8.0 million, which was financed in part by a
$6.0 million first mortgage by Citizens Bank of
Pennsylvania, of which the operating partnership guaranteed
$1.8 million. The mortgage carries an interest rate of
6.24%, amortization is $150,000 annually and matures in February
2010. The operating partnership has guaranteed 30% of the
principal of the mortgage.
Effective March 16, 2003, we established a
secured line of credit for a one-year period with North Fork
Bank. The loan bears interest at a rate equal to the greater of
6% or North Fork Banks prime rate plus 1%. The line of
credit has a $2.0 million limit; provided, however, that
the line of credit above $1.0 million will be available
only when the SWH financing has been repaid in full. This loan
will be repaid with $1.0 million of proceeds from this
offering.
|
|
|
BFV Interim Finance B.V.
Financing
|
We obtained a subordinated loan of
$3.4 million and a senior loan of $6.4 million from
BFV Interim Finance B.V. (a Netherlands corporation that is
an affiliate of ABN Amro Bank) in connection with our purchase
of the Valley Plaza Shopping Center. Each loan is for a period
of two years. The subordinated loan bears interest at a rate of
12%. The interest rate on the senior loan is determined by a
spread of 250 basis points over 30-day LIBOR.
We paid origination fees of $346,220 and $64,298 in connection
with the subordinated loan and senior loan, respectively, and
will have to pay an exit fee of $103,860 in connection with the
subordinated loan upon repayment of the loans.
The loans are guaranteed by us and Homburg
Invest. In exchange for its guarantee, Homburg Invest receives
4.75% on the interest accrued on the subordinated loan, and 50%
of the origination and exit fees.
81
This indebtedness will be repaid with
$10.3 million of the proceeds of this offering, including
$225,040 payable to Homburg Invest as its portion of the
origination and exit fees.
A $5.0 million construction loan from
Farmers First Bank of Lititz, Pennsylvania has been obtained in
connection with the LA Fitness Center development project.
At June 30, 2003, the outstanding principal balance on the
loan was $1.6 million. The loan carries an interest rate of
275 basis points over 90-day LIBOR, with a minimum rate of
5.75%, has no amortization schedule during construction and
matures in December 2004. The borrower has the right, with
notice to the bank and payment of a 1/2% fee, to convert
the construction loan to a 36-month financing commencing in
January 2005 and ending on December 31, 2007. The rate for
the financing also will float at 275 basis points over
90-day LIBOR, with a minimum rate of 6.25%. At the
borrowers option, the borrower may fix the rate at 3.75%
above the three-year Treasury rate, with a minimum rate of 7%.
In addition, there are two one-year extensions available to the
borrower upon payment of a 1/4% fee for each year.
Academy Plaza.
The
operating partnership acquired its interest in this property in
October 2001 subject to a then-outstanding first mortgage of
$10.7 million from The Chase Manhattan Bank. The loan
matures in March 2013, bears interest at a rate of 7.275% and
has a 30-year amortization schedule. Annual debt service on the
loan is approximately $910,000.
Port Richmond
Village.
The operating partnership
acquired its interest in this property in October 2001 subject
to a then-outstanding first mortgage of $11.6 million from
The Chase Manhattan Bank. The loan matures in April 2007, bears
interest at a rate of 7.174% and has a 30-year amortization
schedule. Annual debt service on the loan is approximately
$975,000.
|
|
|
CS First Boston Mortgage Capital
Corporation
|
The operating partnership acquired its interest
in Washington Center Shoppes in October 2001 subject to a
then-outstanding first mortgage of $6.236 million from CS
First Boston Mortgage Capital Corporation. The loan matures in
November 2027, with an anticipated repayment date of
November 2007, bears interest at a rate of 7.53% and has a
30-year amortization schedule. Annual debt service on the loan
is approximately $522,000.
The operating partnership acquired its interest
in Swede Square in May 2003 at a cost of $7.3 million. As
of June 30, 2003, the outstanding principal balance on the
mortgage from RAIT Partnership, L.P. was $5.6 million. The
mortgage carries a fixed interest rate of 7.25%, and is interest
only during the initial term. The loan matures in May 2005. We
may extend the loan for one year with notice to the lender and
payment of a fee of 0.5%. We can prepay the mortgage at any time
upon 30 days notice to the lender; however, any prepayment
within the first eight months of the loans origination
would be subject to a 2% prepayment penalty.
|
|
|
Lehman Brothers Bank, FSB
|
The operating partnership acquired its interest
in Loyal Plaza Shopping Center in July 2002 at a cost of
$18.3 million, subject to a then-outstanding first mortgage
of $14.0 million from Lehman Brothers Bank, FSB. As of
June 30, 2003, the outstanding principal balance on the
mortgage was $13.7 million. The mortgage carries an
interest rate of 7.18%, has an amortization schedule of
30 years and matures in June 2011. Annual debt service on
the loan is $1,138,000. Prepayment of the mortgage requires a
defeasance or make-whole deposit equal generally to the amount
in government securities or other acceptable securities that
will not result in a downgrading, withdrawal or qualification of
the ratings of the
82
rating agencies in effect for the loan, and which
will generate amounts equal to or greater than the payments
required by the loan agreement for the remaining period of the
loan.
|
|
|
Bouwfonds Property Finance BV
|
In July 2003, we entered into a contract to
purchase Wal-Mart Shopping Center at a purchase price of
approximately $8.35 million, plus closing costs. We have
obtained a term sheet from Bouwfonds Property Finance BV with
respect to a subordinated loan of $2.9 million and a senior
loan of $5.4 million. The subordinated loan will bear
interest at a rate of 12%, while the senior loan will bear
interest at a spread of 250 basis points over 30-day LIBOR.
The loan contains a commitment fee of 1% to be paid at closing,
to be divided one-half to Bouwfonds Property Finance BV and
one-half to Homburg Invest. In addition, the subordinated loan
includes an up-front closing fee of approximately $293,000 due
at closing and a look-back provision of 3%, each to be divided
one-half to Bouwfonds Property Finance BV and one-half to
Homburg Invest. Of the total 12% interest rate on the
subordinated loan, 9.5% is to be divided one-half to Bouwfonds
Property Finance BV and one-half to Homburg Invest.
The operating partnership acquired its interest
in Red Lion Shopping Center in May 2002 from an affiliate of CBC
at a cost of $1.2 million, subject to a then-outstanding
first mortgage of $17.0 million from Orix Capital Markets
LLC. As of June 30, 2003, the outstanding principal balance
on the mortgage was $16.7 million. The mortgage carries an
interest rate of 8.86%, has an amortization schedule of
30 years and matures in February 2010.
|
|
|
Christopher Weil & Co.
Loan
|
In August 2003, we obtained a $1.0 million
loan from Christopher Weil & Co., which will be used to
fund the deposit for the acquisition of Columbus Crossing
Shopping Center and River View Plaza I, II and III. The
loan bears interest at the rate of 9% annually and is due on the
earlier to occur of one year from the date of advance or five
days after completion of any public offering. We have agreed to
pay an exit fee of 20% of the principal advanced. The lender, at
its sole option, shall have the right to convert all of the loan
to units valued at the public offering price, less the
underwriting commission.
83
MANAGEMENT
The following table sets forth certain
information about our directors and executive officers:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Leo S. Ullman
|
|
|
64
|
|
|
Chairman of the Board of Directors,
Chief Executive Officer and President
|
Brenda J. Walker
|
|
|
50
|
|
|
Director and Vice President
|
James J. Burns
|
|
|
63
|
|
|
Director
|
Johannes A.M.H. der Kinderen
|
|
|
63
|
|
|
Director
|
Richard Homburg
|
|
|
53
|
|
|
Director
|
Frank W. Matheson
|
|
|
58
|
|
|
Director
|
Everett B. Miller, III
|
|
|
58
|
|
|
Director
|
Thomas J. OKeeffe
|
|
|
58
|
|
|
Chief Financial Officer
|
Thomas B. Richey
|
|
|
48
|
|
|
Vice President and Director of Construction and
Maintenance Services
|
Stuart H. Widowski
|
|
|
43
|
|
|
Secretary and General Counsel
|
Upon consummation of this offering, our charter
will eliminate the classes of directors upon the expiration of
the current terms of the respective classes and each director
elected at our upcoming annual stockholders meeting or
thereafter will serve for a term of one year. Currently, our
board of directors is divided into three classes of directors.
The current terms of the Class I, Class II and
Class III directors will expire in 2005, 2003 and 2004,
respectively. The existing Class I, Class II and
Class III directors will serve their full terms. All
officers serve at the discretion of our board of directors. Our
bylaws provide that a majority of the entire board of directors
may establish, increase or decrease the number of directors,
provided that the number of directors shall never be less than
three or more than the maximum number allowed by the MGCL.
Information regarding our directors and executive
officers is set forth below.
Leo S. Ullman
, age
64, 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 has
been chairman and president of SKR and chairman of Brentway from
1994 (and its predecessors since 1978) through the current date,
and president of CBRA since the latter companys 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 our 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, 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
,
age 50, has been vice president and a director since 1998 and
was treasurer from April 1998 until November 1999. She has been
president of Brentway and vice president of SKR from 1994
through the current date; vice president of API Management
Services Corp. and API Asset Management, Inc. from 1992 through
1995; and vice president of CBRA from 1998 to date.
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.
James J. Burns
, age
63, 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. Mr. Burns is a certified public accountant and a
member of the American Institute of Certified Public Accountants.
84
Johannes A.M.H. der
Kinderen
, age 63, 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-present); Noord Amerika Vast Goed B.V.
(1985-present); Mass Mutual Pierson (M.M.P.) (1988-1997); 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 (from 2002 to date).
Richard Homburg
, age
53, a director and chairman from November 1999 to August 2000,
and a director again since December 18, 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 other large
charitable organizations. Mr. Homburg was designated to
serve on our board pursuant to a standstill agreement we entered
into with Homburg Invest, in which we agreed to support the
election of two designees of Homburg Invest Inc. to our board of
directors.
Frank W. Matheson
,
age 58, a director since April 2002, has been involved in the
real estate industry for the past 14 years, serving as
president and CEO of Homburg Canada Incorporated, an
international real estate company with holdings in residential,
commercial, industrial and retail properties. Before that time,
he was active in the general insurance industry. An active
community member, Mr. Matheson is past chairman of the
Halifax School Board and Halifax Forum Commission. He is
presently vice chairman and director of the Halifax
International Airport. He also has served on other community and
corporate boards. Mr. Matheson is an affiliate of Homburg
Invest Inc. Mr. Matheson was designated to serve on our
board pursuant to a standstill agreement we entered into with
Homburg Invest Inc., in which we agreed to support the election
of two designees of Homburg Invest Inc. to our board of
directors.
Everett B. Miller,
III
, age 58, a director since 1998, is
formerly a member of the board of directors of Commonfund
Realty, Inc., a registered investment advisor. 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 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. 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 most recent position was senior
vice president of the Travelers Realty Investment Company.
Thomas J.
OKeeffe
, age 58, joined us in
November 2002 as our chief financial officer. Prior to joining,
Mr. OKeeffe 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. OKeeffe, 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. OKeeffe received a B.S.A. from
Bentley College and an M.B.A. from Babson College.
85
Thomas B. Richey
,
age 48, joined us in 1998 as our vice president and director of
construction and maintenance 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 Widowski
, age
43, joined us in 1996 as our vice president and general counsel.
He was in private practice for seven years, including five years
with the law firm 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.
Board Committees
Our board of directors has appointed a nominating
and corporate governance committee, an audit committee and a
compensation committee. The composition of each committee must
comply with the listing requirements and other rules and
regulations of the NYSE, as amended or modified from time to
time. Each of these committees has at least three directors and
is composed exclusively of independent directors.
Audit Committee.
The
audit committee will help ensure the integrity of our financial
statements, the qualifications and independence of our
independent auditor and the performance of our internal audit
function and independent auditors. The audit committee will
select, assist and meet with the independent auditor, oversee
each annual audit and quarterly review, review with management
the committees assessment of internal audit controls and
discuss any weaknesses of such controls and prepare the report
that federal securities laws require be included in our annual
proxy statement. Mr. Burns, Mr. der Kinderen and
Mr. Miller have been appointed as members of the audit
committee.
Compensation
Committee.
The compensation committee
will review and approve the compensation and benefits of our
executive officers, administer and make recommendations to our
board of directors regarding our compensation and stock
incentive plans and produce an annual report on executive
compensation for inclusion in our proxy statement. has
been designated as chair
and and have
been appointed as members of the compensation committee.
Nominating and Corporate Governance
Committee.
The nominating and
corporate governance committee will develop and recommend to our
board of directors a set of corporate governance principles,
adopt a code of ethics, adopt policies with respect to conflicts
of interest, monitor our compliance with corporate governance
requirements of state and federal law and the rules and
regulations of the NYSE, establish criteria for prospective
members of our board of directors, conduct candidate searches
and interviews, oversee and evaluate our board of directors and
management, evaluate from time to time the appropriate size and
composition of our board of directors and recommend, as
appropriate, increases, decreases and changes in the composition
of our board of directors and formally propose the slate of
directors to be elected at each annual meeting of our
stockholders. has
been designated as chair
and and have
been appointed as members of the nominating and corporate
governance committee.
Our board of directors may from time to time
establish certain other committees to facilitate the management
of our company.
86
Compensation of Directors
During 2002, each of our directors not affiliated
with CBRA Mr. Miller, Mr. der Kinderen and
Mr. Burns received an annual fee of $10,000
plus $1,000 for each board meeting and $250 for each audit
committee meeting attended. Effective January 1, 2003,
independent directors fees were increased to $4,000 per
quarter; meeting attendance fees are $1,000 per regular board
meeting and audit committee meeting. In addition, members of the
audit committee each receive a quarterly fee of $1,000. We have
agreed to pay to our independent directors who are members of
our committee who approved the mergers of our advisors fees of
$25,000 each for service on the committee, plus an additional
$5,000 to the chairperson of such committee.
Compensation of Executive Officers
Because we were externally advised prior to the
consummation of this offering, we did not pay any compensation
to our executive officers for periods prior to this offering.
The following table sets forth the annual base salary and other
compensation expected to be paid in 2003 to our Chief Executive
Officer and President and our four other most highly compensated
executive officers. We have entered into employment agreements
with our executive officers that will become effective upon the
merger of our advisors and the consummation of this offering.
See Employment Agreements.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Compensation
|
|
Long Term
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
Stock
|
|
All Other
|
|
|
|
|
Salary(1)
|
|
Bonus
|
|
Compensation
|
|
Options
|
|
Compensation
|
Name and Principal Position
|
|
Year
|
|
$
|
|
$
|
|
$
|
|
#
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leo S. Ullman
|
|
|
2003
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. OKeeffe
|
|
|
2003
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brenda J. Walker
|
|
|
2003
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart H. Widowski
|
|
|
2003
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President and General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas B. Richey
|
|
|
2003
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President and Director of Construction and
Maintenance Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts given are annualized projections for the
year ending December 31, 2003 based on employment
agreements that will become effective upon the merger of our
advisors and the consummation of this offering. See
Employment Agreements.
|
Stock Option Plan
We established a stock option plan for the
purpose of attracting and retaining executive officers,
directors and other key employees. An aggregate of 1,000,000 of
our authorized shares of common stock have been reserved for
issuance under this plan. The plan is administered by a
committee of the board of directors, which committee will, among
other things, select the number of shares subject to each grant,
the vesting period for each grant and the exercise price
(subject to applicable regulations with respect to incentive
stock options) for the options.
87
The following table sets forth information
regarding our existing compensation plans and individual
compensation arrangements pursuant to which our equity
securities are authorized for issuance to employees or
non-employees (such as directors, consultants, advisors,
vendors, customers, suppliers or lenders) in exchange for
consideration in the form of goods or services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
B
|
|
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
Remaining Available
|
|
|
Number of Securities
|
|
|
|
for Future Issuances
|
|
|
to be Issued
|
|
Weighted-Average
|
|
Under Equity
|
|
|
Upon Exercise
|
|
Exercise Price of
|
|
Compensation Plans
|
|
|
of Outstanding Options,
|
|
Outstanding Options,
|
|
(Excluding Securities
|
Plan category
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
in Column A)
|
|
|
|
|
|
|
|
Equity compensation plans approved by security
holders
|
|
|
100,000
|
|
|
$
|
1.75
|
|
|
|
900,000
|
|
Equity compensation plans not approved by
security holders
|
|
|
333,332
|
|
|
$
|
2.25
|
|
|
|
166,666
|
|
Total
|
|
|
433,332
|
|
|
$
|
2.00
|
|
|
|
1,066,666
|
|
Employment Agreements With Named Executive
Officers
Effective on consummation of this offering, we
will enter into employment agreements with Messrs. Ullman,
OKeeffe, Widowski and Richey and Ms. Walker.
Each agreement will be for a term of four years
and will provide that in the event of termination by us without
cause or by the executive for good reason, the executive will be
entitled to receive from us within five days following
termination:
|
|
|
|
|
Any earned and unpaid base salary;
|
|
|
|
A cash payment of two and one-half times the
executives annual base salary;
|
|
|
|
Continuation of health insurance benefits for one
year; and
|
|
|
|
Acceleration of vesting of all options.
|
Good reason means:
|
|
|
|
|
Our material breach of the employment agreement;
|
|
|
|
A material reduction in the executives
duties or responsibilities;
|
|
|
|
The relocation of the executive or our
headquarters to any location outside of the New York City
metropolitan area; and
|
|
|
|
A change in control.
|
Each employment agreement also will provide that
each executive will not compete with us for a period of one year
after the termination of the executives employment, unless
employment is terminated by us without cause or by the executive
for good reason.
Compensation Committee Interlocks and Insider
Participation
There are no compensation committee interlocks
and none of our employees participates on our compensation
committee.
88
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Merger of Our Advisors
We have taken steps to internalize our advisors.
Concurrently with this offering, CBRA and SKR will merge into us
and Brentway will merge into the operating partnership. As
consideration for the merger with CBRA and SKR, we will issue
shares of our common stock having an aggregate value of
$10.0 million to the owners of CBRA and SKR. Each share of
common stock issued pursuant to the merger will be valued at the
per share public offering price of our common stock in this
offering. The shares will not be registered and may only be
transferred pursuant to an effective registration statement
filed under the Securities Act of 1933 or pursuant to an
exemption from such registration.
As consideration for the merger of Brentway into
the operating partnership, the operating partnership will issue
units of limited partnership in the operating partnership having
an aggregate value of $5.0 million to the owners of
Brentway, with each unit valued at the per share public offering
price of our common stock in this offering. Each unit is
exchangeable at any time into two shares of our common stock.
The units and the shares of common stock into which the units
may be exchanged will not be registered and may only be
transferred pursuant to an effective registration statement
filed under the Securities Act of 1933 or pursuant to an
exemption from such registration.
As a result of the above, each of
Messrs. Ullman, OKeeffe, Richey and Widowski and
Ms. Walker will receive shares and/or units having a value
of $8,855,000, $2,000,000, $650,000 and $500,000 and $1,600,000,
respectively.
An independent committee of our board consisting
of disinterested directors retained a financial advisor who
advised them as to the fairness of the consideration to be paid
in connection with the merger of our advisors from a financial
perspective and of the purchase price for the repurchase from
CBC of their units. The independent committee and the board have
approved the merger. Members of the independent committee
received $25,000 in fees for serving on the committee, while the
chairman received an additional $5,000.
The merger will be voted on by our stockholders
prior to consummation of this offering, at our annual meeting to
be held on September , 2003.
Reference is made to the proxy statement for a complete
description of the merger.
Prior to consummation of the merger, we were an
advised REIT. With the exception of a few non-management
employees at certain of our centers, we had no employees and
relied on CBRA and its affiliates to manage our affairs.
Pursuant to the terms of an administrative and advisory
agreement, CBRA provided us with management, acquisition,
leasing and advisory services, accounting systems, professional
and support personnel, and office facilities. Mr. Ullman,
our chairman, chief executive officer and president is also the
principal stockholder of CBRA. Ms. Walker, our vice
president and director, Mr. OKeeffe, our chief
financial officer, and Mr. Widowski, our secretary, are
also officers and employees of CBRA.
The advisory agreement provided that it may be
terminated (a) for cause upon not less than sixty
days prior written notice, and (b) by vote of at
least 75% of the independent directors at the end of the third
or fourth year of its five-year term in the event gross assets
fail to increase by 15% per annum.
Pursuant to the advisory agreement, effective as
of January 1, 2002, CBRA earned a disposition or
acquisition fee, as applicable, equal to 1% of the sale/purchase
price; no other fees would be payable in connection with such
transactions. All accrued acquisition fees are included in
accounts payable at December 31, 2002.
89
The following is a schedule of acquisition and
disposition fees paid, accrued or deferred by us to CBRA for the
six-month period ended June 30, 2003 and for the year ended
December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Paid
|
|
Accrued
|
|
Total
|
|
|
|
|
|
|
|
2003 Transactions
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Giant supermarket-anchored shopping centers
|
|
$
|
|
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
Pine Grove
|
|
|
74,000
|
|
|
|
|
|
|
|
74,000
|
|
Swede Square
|
|
|
79,000
|
|
|
|
|
|
|
|
79,000
|
|
Valley Plaza
|
|
|
92,000
|
|
|
|
|
|
|
|
92,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
245,000
|
|
|
$
|
180,000
|
|
|
$
|
242,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
Southpoint
|
|
$
|
47,000
|
|
|
$
|
|
|
|
$
|
47,000
|
|
Red Lion
|
|
|
44,000
|
|
|
|
|
|
|
|
44,000
|
|
Loyal Plaza
|
|
|
|
|
|
|
183,000
|
|
|
|
183,000
|
|
Camp Hill
|
|
|
|
|
|
|
172,000
|
|
|
|
172,000
|
|
LA Fitness
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
Total
|
|
$
|
151,000
|
|
|
$
|
355,000
|
|
|
$
|
506,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
During 2001, the advisory agreement was modified
and CBRA agreed to defer certain fees of $195,700 and to
ultimately waive such fees if the agreement is not terminated
before December 31, 2004. These fees are not included in
accrued expense at June 30, 2003.
|
Property Management Services
Brentway provided property management, leasing,
construction management and loan placement services to our real
properties pursuant to a management agreement dated April 1998
between Brentway and us and individual management agreements
between Brentway and each of our properties. Brentway is owned
by Mr. Ullman and Ms. Walker, who are also chairman
and president of Brentway, respectively. The term of the
management agreement was for one year and was automatically
renewed annually for additional one-year periods subject to the
right of either party to cancel the management agreement upon
sixty days written notice. Under the management agreement,
Brentway is obligated to provide property management services,
which include leasing and collection of rent, maintenance of
books and records, establishment of bank accounts and payment of
expenses, maintenance and operation of property, reporting and
accounting for us regarding property operations, and maintenance
of insurance.
As discussed above, Brentway had entered into
individual management agreements with each entity holding title
to the properties owned by us. Such individual management
agreements were required by the properties first mortgage
lenders and in some instances by the individual partnership
agreements.
The following is a schedule of management,
administrative, advisory, legal, leasing and loan placement fees
paid to CBRA or its affiliates.
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
Years Ended December 31,
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
Management Fees
|
|
(1)
|
|
$
|
393,000
|
|
|
$
|
536,000
|
|
|
$
|
103,000
|
|
|
$
|
70,000
|
|
Construction Management
|
|
(2)
|
|
$
|
2,000
|
|
|
$
|
20,000
|
|
|
$
|
180,000
|
|
|
$
|
28,000
|
|
Leasing Fees
|
|
(3)
|
|
$
|
17,000
|
|
|
$
|
135,000
|
|
|
$
|
135,000
|
|
|
$
|
44,000
|
|
Administrative and Advisory
|
|
(4)
|
|
$
|
384,000
|
|
|
$
|
360,000
|
|
|
$
|
163,000
|
|
|
$
|
98,000
|
|
Legal
|
|
(5)
|
|
$
|
82,000
|
|
|
$
|
210,000
|
|
|
$
|
182,000
|
|
|
$
|
33,000
|
|
Loan Placement Fees
|
|
(6)
|
|
$
|
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
|
|
|
|
(1)
|
Management fees are calculated at 3% - 4% of
gross revenues collected.
|
|
(2)
|
Construction management fees are calculated at 5%
of construction costs.
|
|
(3)
|
Leasing fees are calculated at 4% - 4.5% of
a new tenants base rent.
|
|
(4)
|
Annual administrative and advisory fees are equal
to 3/4 of 1% of the estimated current value of our real
estate assets plus 1/4 of 1% of the estimated current
value of all our other assets.
|
|
(5)
|
Legal fees are paid to an affiliate of CBRA for
the services provided by Stuart H. Widowski, Esq., in-house
counsel.
|
|
(6)
|
Loan placement fees are calculated at 1% of the
loan amount up to a maximum of $100,000.
|
Leasing and management fees paid by us during
these periods also were paid to third parties. Brentway
subcontracted with local management companies for site
management and leasing services for our office properties in
Jacksonville, Florida, and Salt Lake City, Utah, which
properties were sold as of May 24, 2002 and May 22,
2002, respectively.
Legal Services
SKR is wholly-owned by Mr. Ullman.
Mr. Widowski, through SKR, provided certain legal services
to us and our properties at rates that we believe to be less
than those prevailing in the market.
Transactions with CBC
CBC will receive $9.0 million of the
proceeds from this offering in connection with our repurchase of
units it owns. An independent committee of our board, consisting
of independent directors, retained a financial advisor that
advised them as to the fairness of the consideration to be paid
to CBC for the repurchase of their units. CBC currently owns 72%
of our common stock and units on a fully-diluted basis. Upon
consummation of this offering, CBC will
own % of our common stock.
|
|
|
Purchase of 20% interest in API Red Lion
Shopping Center Associates, L.P.
|
On May 31, 2002, Cedar-RL, LLC, a newly
formed special purpose, wholly-owned subsidiary of the operating
partnership, purchased from Silver Circle Management Corp., or
Silver Circle, an affiliate of Mr. Ullman and CBC, a 20%
interest in API Red Lion Shopping Center Associates, a
partnership owned by Mr. Ullman (as limited partner with an
8% ownership interest) and Silver Circle (as sole general
partner with a 92% ownership interest). The purchase price was
$1,182,857.
Also on May 31, 2002, Silver Circle and
Mr. Ullman sold an aggregate 69% limited partnership
interest in API Red Lion Shopping Center Associates, L.P. to
Philadelphia ARC-Cedar LLC, an unrelated party, for $4,360,500.
As a result of such transactions, Mr. Ullman no longer had
an ownership interest in API Red Lion Shopping Center
Associates. The proceeds of sale of Mr. Ullmans
interest in API Red Lion Shopping Center Associates, L.P. were
used in their entirety to repay certain loans to Silver Circle.
Mr. Ullman and Ms. Walker are officers of Silver
Circle, but have no ownership interest in that entity.
91
The purchase price was based on a third party
appraisal of the Red Lion Shopping Center property.
Our board of directors obtained a fairness
opinion from an investment banking firm with respect to the
purchase of the partnership interest in API Red Lion Associates,
L.P. by the operating partnership.
|
|
|
Acquisition of Interests in Shopping
Centers
|
In connection with the acquisition of our 20%
general partnership interest in Red Lion Shopping Center in 2002
from CBC, we issued to CBC a promissory note in the original
principal amount of $904,000, payable in three equal annual
installments. Repayment of the current installments has been
deferred until September 30, 2003. The outstanding balance
of this note will be repaid with $887,000 of the proceeds from
this offering.
Certain affiliates of CBC currently own a 50%
interest in The Point Shopping Center. We will use
$2.4 million of the proceeds from this offering to purchase
this 50% interest.
Certain affiliates of CBC currently own Golden
Triangle Shopping Center. We will use $1.5 million of the
proceeds from this offering to purchase this property.
|
|
|
Loan for South Philadelphia Shopping
Plaza
|
In connection with our lease agreement to obtain
operating control of South Philadelphia Shopping Plaza, in April
2002, an affiliate of CBC loaned us $750,000 to make a portion
of the deposit in connection with the proposed transaction. The
loan matures in October 2003 and bears interest at a rate of
15%. The proceeds from this offering will be used to repay this
loan.
Transactions with Homburg USA and Homburg
Invest
On December 18, 2002, we entered into a
subscription agreement with Homburg USA pursuant to which we
issued in a private placement to Homburg USA 3,300 preferred
units at a purchase price of $909.09 per preferred unit, for an
aggregate purchase price of $3.0 million. On
January 2, 2003, Homburg USA converted 552 preferred units
into 276,000 shares of our common stock. In order to maintain
our status as a REIT, in June 2003, Homburg USA exchanged the
276,000 shares of common stock for 552 preferred units. We will
use $3.6 million of the proceeds from this offering to
redeem the preferred units owned by Homburg USA.
Pursuant to the subscription agreement,
Mr. Richard Homburg was appointed as a director. We also
agreed to seek approval of our stockholders to enable us to
issue to Homburg USA 274,000 additional shares of our common
stock at a purchase price of $1.8183 per share, to cause 548
preferred units to be redeemed at their purchase price, and to
cause the balance of the 2,200 preferred units to be convertible
into our common stock at $2.045 per share. Each of CBC, Homburg
USA and Mr. Homburg agreed to vote all their shares in
favor of the proposal. The proposal will be considered by our
stockholders at our annual meeting scheduled to be held in
September 2003.
On or about January 18, 2002, Homburg
Invest, a Canadian corporation listed on the Toronto Stock
Exchange, acquired from Mr. Homburg, a Canadian national,
and/or affiliated persons, 300,000 shares of our common stock,
then representing in excess of 20% of our outstanding common
stock. Our charter and bylaws in effect at that time prohibited
the acquisition of more than 3.5% of our common stock without
consent of our board of directors. We, Homburg Invest, and
Mr. Homburg entered into a standstill agreement pursuant to
which Homburg Invest Inc, Mr. Homburg, and their respective
affiliates have agreed not to purchase more than 29.9% of our
common stock in the aggregate for a period of five
(5) years, not to commence or support a tender offer during
that period, and to vote for certain persons to
92
serve as our directors. We also agreed to support
the election of two designees of Homburg Invest Inc. to our
board of directors. Mr. Homburg and Mr. Matheson are
the current directors designated by Homburg Invest. Upon
consummation of this offering, Homburg Invest will own
approximately %
of our common stock and the standstill agreement will be
terminated.
|
|
|
Acquisition of Interests in Shopping
Centers
|
Homburg Invest supplied substantially all the
equity (through purchasing joint venture interests) in
connection with our acquisition of Pine Grove Shopping Center,
Swede Square and Wal-Mart Shopping Center. Homburg Invest
received a 10% origination fee for providing the equity in each
acquisition. Under the partnership agreement for each property,
Homburg Invest will receive a 12% preferential return on its
investment. We have the option to buy its interest in each
partnership provided it receives a 15% annualized rate of
return, 20% in the case of the Wal-Mart Shopping Center, from
the date each center was acquired until we repurchase its
interests. We currently intend to exercise this option and use
the proceeds from this offering to repurchase Homburg
Invests interests. Accordingly, Homburg USA will receive
$5.1 million plus a 15% return, or approximately
$5.5 million in the aggregate, less any distributions made,
as of October 31, 2003 in exchange for its interest in the
Pine Grove Shopping Center and Swede Square.
In addition, Homburg Invest jointly and severally
with us guaranteed $3.4 million of a loan we obtained from
BFV Interim Finance B.V. to acquire the Valley Plaza Shopping
Center and Wal-Mart Shopping Center. The terms of the Valley
Plaza Shopping Center guarantee provide that Homburg Invest will
receive 4.75% on the interest accrued on the junior loan and 50%
of the origination or exit fees. The proposed terms of the
Wal-Mart Shopping Center guarantee provide that Homburg Invest
will receive 4.75% on the interest accrued on the equity loan
and 50% of the closing fee and look-back provision. The loan
will be repaid with proceeds from this offering and the
guarantees will be terminated. Pursuant to the terms of the
guarantees, Homburg Invest will receive approximately $200,000
from BFV Interim Finance B.V. upon repayment of the loans.
|
|
|
Loan for South Philadelphia Shopping
Plaza
|
In connection with our lease agreement to obtain
operating control of South Philadelphia Shopping Plaza, in April
2002, Homburg Invest loaned us $1.1 million to make a
portion of the deposit in connection with the proposed
transaction. The loan matures in two years and bears interest at
a rate of 9%, has a 15% internal rate of return and has a 10%
origination fee and a 20% exit fee. The proceeds from this
offering will be used to repay this loan.
Transactions with Mr. Ullman
Our principal executive offices are located at
44 South Bayles Avenue, Port Washington, New York.
Mr. Ullman owns 25% of this building through general and
limited partner interests. Currently, CBRA pays the rent for our
principal executive offices. The lease, at rentals consistent
with the building, expires on October 31, 2007. Rent is
currently approximately $128,000 and escalates annually, up to
approximately $135,000 in the final year of the lease. We will
begin to pay rent after the merger upon the same terms as CBRA.
Mr. Ullman loaned CBRA $150,000 to pay
certain of our obligations. The loan charges no interest and has
no fees. The loan will be repaid from the proceeds of this
offering.
93
Shore Mall Option
We received a ten-year option to acquire the
Shore Mall, in Egg Harbor Township, New Jersey, a
620,000 square foot shopping center, anchored by
Boscovs, Circuit City, Value City and Burlington Coat
Factory from Rickson Corp., N.V., an affiliate of CBC, and
Mr. Ullman. The option, which is subject to a right of
first refusal of a former owner, expires in 2009, is for ten
years and provides that the purchase price will be the appraised
value at the time the option is exercised. The option provides
us with a right of first refusal if the owner receives a bona
fide third-party offer. If we do not exercise our option in
connection with a bona fide third party offer, the option will
terminate. We will manage this property during the option
period. An affiliate of CBC owns 92% of this property and
Mr. Ullman owns 8%.
Brentway and SKR presently provide property
management, leasing, construction management and legal services
to the Shore Mall property. Upon completion of this offering and
the merger of our advisors, we expect to continue to provide
management services to, and to receive fees at standard rates
from, the Shore Mall property until that property is acquired by
us (or sold or otherwise disposed of by the existing owners).
94
INVESTMENT POLICIES AND POLICIES WITH RESPECT
TO CERTAIN ACTIVITIES
The following is a discussion of our investment
policies and our policies with respect to certain activities,
including financing matters and conflicts of interest. These
policies may be amended or revised from time to time at the
discretion of our board of directors without a vote of our
stockholders. Any change to any of these policies would be made
by our board of directors, however, only after a review and
analysis of that change, in light of then existing business and
other circumstances, and then only if, in the exercise of their
business judgment, they believe that it is advisable to do so in
our and our stockholders best interests. We cannot assure
you that our investment objectives will be attained.
Investments in Real Estate or Interests in
Real Estate
As the result of the merger of our advisors, we
will be a REIT that is fully integrated, self-administered and
self-managed, which acquires, owns, manages, leases and
redevelops mainly neighborhood and community shopping centers
located primarily in eastern Pennsylvania. As of June 30,
2003, we had a portfolio of 14 properties totaling approximately
2.1 million square feet of gross rentable area.
In the future, we intend to focus on increasing
our internal growth and we expect to continue to pursue targeted
acquisitions of neighborhood and community shopping centers in
attractive markets with strong economic and demographic
characteristics. In evaluating future acquisitions of
neighborhood and community shopping centers, we seek a
convenient and easily accessible location with abundant parking
facilities, preferably occupying the dominant corner, close to
residential communities, with excellent visibility for our
tenants and easy access for neighborhood shoppers. We will also
consider future opportunities to acquire other properties on a
case-by-case basis. In evaluating future acquisitions of
properties other than neighborhood and community shopping
centers, we seek properties or transactions that have unique
characteristics which present a compelling case for investment.
Examples might include properties having high entry yields,
properties that are outside of our target markets but are being
sold as part of a portfolio package, properties which are
debt-free, a transaction in which we might issue units in the
operating partnership or properties which provide substantial
growth potential through redevelopment.
We currently expect to incur additional debt in
connection with any future acquisitions of real estate.
We conduct substantially all of our investment
activities through the operating partnership and our other
affiliates. Our policy is to acquire assets primarily for
current income generation. In general, our investment objectives
are:
|
|
|
|
|
to increase our value through increases in the
cash flows and values of our properties;
|
|
|
|
to achieve long-term capital appreciation, and
preserve and protect the value of our interest in our
properties; and
|
|
|
|
to provide quarterly cash distributions.
|
There are no limitations on the amount or
percentage of our total assets that may be invested in any one
property. Additionally, no limits have been set on the
concentration of investments in any one location or facility
type.
Investments in Mortgages
We have not, prior to this offering, engaged in
any significant investments in mortgages nor do we intend to
engage in this activity in the future.
Investments in Securities of or Interests in
Persons Primarily Engaged in Real Estate Activities And Other
Issuers
We have not, prior to this offering, generally
engaged in investment activities in other entities. Subject to
REIT qualification, we may in the future invest in securities of
entities engaged in real estate
95
activities or securities of other issuers. See
Material United States Federal Income Tax
Considerations. We may also invest in the securities of
other issuers in connection with acquisitions of indirect
interests in properties, which normally would include general or
limited partnership interests in special purpose partnerships
owning properties. We may in the future acquire some, all or
substantially all of the securities or assets of other REITs or
similar entities where that investment would be consistent with
our investment policies. Subject to the percentage of ownership
limitations and asset test requirements, there are no
limitations on the amount or percentage of our total assets that
may be invested in any one issuer. We do not anticipate
investing in other issuers of securities for the purpose of
exercising control or acquiring any investments primarily for
sale in the ordinary course of business or holding any
investments with a view to making short-term profits from their
sale. In any event, we do not intend that our investments in
securities will require us to register as an investment
company under the Investment Company Act, and we intend to
divest securities before any registration would be required.
We have not in the past acquired, and we do not
anticipate that we will in the future seek to acquire, loans
secured by properties and we have not, nor do we intend to,
engage in trading, underwriting, agency distribution or sales of
securities of other issuers.
Dispositions
Although we disposed of four office properties
that we had owned for a substantial period of time, we generally
will not seek to dispose of properties within our portfolio. We
will consider doing so, subject to REIT qualification rules, if
our management determines that a sale of a property would be in
our best interests based on the price being offered for the
property, the operating performance of the property, the tax
consequences of the sale and other factors and circumstances
surrounding the proposed sale. However, we may not be able to
dispose of properties we own through joint ventures without the
consent of our partners in the joint ventures.
Financing Policies
As disclosed elsewhere in this prospectus, we
have incurred debt in order to fund operations and acquisitions.
After this offering and the proposed property acquisitions
described in this prospectus, we expect to have total
consolidated indebtedness of $181.9 million, of which our
share will be $146.4 million after accounting for minority
interest. Our board will consider a number of factors when
evaluating our level of indebtedness and when making decisions
regarding the incurrence of indebtedness, including the purchase
price of properties to be acquired with debt financing, the
estimated market value of our properties upon refinancing and
the ability of particular properties, as well as our company as
a whole, to generate cash flow to cover expected debt service.
Generally speaking, although we may incur any of
the forms of indebtedness described below, we intend to focus
primarily on financing future growth through the incurrence of
secured debt on an individual property or a portfolio of
properties. We may incur debt in the form of purchase money
obligations to the sellers of properties, or in the form of
publicly or privately placed debt instruments, financing from
banks, institutional investors, or other lenders, any of which
may be unsecured or may be secured by mortgages or other
interests in our properties. This indebtedness may be recourse,
non-recourse or cross-collateralized and, if recourse, that
recourse may include our general assets and, if non-recourse,
may be limited to the particular property to which the
indebtedness relates. In addition, we may invest in properties
subject to existing loans secured by mortgages or similar liens
on the properties, or may refinance properties acquired on a
leveraged basis. We may use the proceeds from any borrowings for
working capital, to purchase additional interests in
partnerships or joint ventures in which we participate, to
refinance existing indebtedness or to finance acquisitions,
expansion, redevelopment of existing properties or development
of new properties. We may also incur indebtedness for other
purposes when, in the opinion of our board, it is advisable to
do so. In addition, we may need to borrow to meet the taxable
income distribution requirements under the Code if we do not
have sufficient cash available to meet those distribution
requirements.
96
Lending Policies
We do not have a policy limiting our ability to
make loans to other persons. We may consider offering purchase
money financing in connection with the sale of properties where
the provision of that financing will increase the value to be
received by us for the property sold. We and the operating
partnership may make loans to joint ventures in which we or they
participate or may participate in the future. We have not
engaged in any significant lending activities in the past nor do
we intend to in the future.
Equity Capital Policies
Our board has the authority, without further
stockholder approval, to issue additional authorized shares of
common stock and preferred stock or otherwise raise capital,
including through the issuance of senior securities, in any
manner and on those terms and for that consideration it deems
appropriate, including in exchange for property. Existing
stockholders will have no preemptive right to shares of common
stock or other shares of our capital stock issued in any
offering, and any offering might cause a dilution of a
stockholders investment in us. Although we have no current
plans to do so, we may in the future issue common stock in
connection with acquisitions. We also may issue units in the
operating partnership in connection with acquisitions of
property.
We may, under certain circumstances, purchase
shares of our common stock in the open market or in private
transactions with our stockholders, if those purchases are
approved by our board. Our board of directors has no present
intention of causing us to repurchase any shares, and any action
would only be taken in conformity with applicable federal and
state laws and the applicable requirements for qualifying as a
REIT.
Conflict of Interest Policy
Our board of directors is subject to certain
provisions of the MGCL that are designed to eliminate or
minimize conflicts. However, we cannot assure you that these
policies or provisions of law will be successful in eliminating
the influence of these conflicts.
Under the MGCL, a contract or other transaction
between us and any of our directors and any other entity in
which that director is also a director or has a material
financial interest is not void or voidable solely on the grounds
of the common directorship or interest, the fact that the
director was present at the meeting at which the contract or
transaction is approved or the fact that the directors
vote was counted in favor of the contract or transaction, if:
|
|
|
|
|
the fact of the common directorship or interest
is disclosed to our board of directors or a committee of our
board of directors, and our board of directors or that committee
authorizes the contract or transaction by the affirmative vote
of a majority of the disinterested directors, even if the
disinterested directors constitute less than a quorum;
|
|
|
|
the fact of the common directorship or interest
is disclosed to our stockholders entitled to vote, and the
contract or transaction is approved by a majority of the votes
cast by the stockholders entitled to vote, other than votes of
shares owned of record or beneficially by the interested
director, corporation, firm or other entity; or
|
|
|
|
the contract or transaction is fair and
reasonable to us.
|
Reporting Policies
We are subject to the full information reporting
requirements of the Securities Exchange Act of 1934, as amended.
Pursuant to these requirements, we file periodic reports, proxy
statements and other information, including certified financial
statements, with the Securities and Exchange Commission. See
Where You Can Find More Information.
97
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of
August , 2003 on an actual
basis, and assuming the offering and sale of
the shares
hereunder, the total number of shares of our common stock
beneficially owned, and the percent so owned, by (a) each
person known by us to own more than 5% of our common stock,
(b) each of our directors and executive officers and
(c) all directors and executive officers as a group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Offering Amount
|
|
After Offering Amount
|
|
|
and Nature of Beneficial
|
|
and Nature of Beneficial
|
|
|
Ownership(1)
|
|
Ownership(1)
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
Name and Address of Beneficial Owner
|
|
Shares
|
|
Percent(2)
|
|
Shares
|
|
Percent(2)
|
|
|
|
|
|
|
|
|
|
Cedar Bay Company(3)
|
|
|
3,781,874
|
|
|
|
78.3
|
%
|
|
|
379,874
|
|
|
|
|
|
|
c/o SKR Management Corp.
44 South Bayles Avenue
Port Washington, NY 11050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homburg Invest Inc.(4)
|
|
|
300,000
|
|
|
|
21.0
|
%
|
|
|
300,000
|
|
|
|
|
|
|
11 Akerley Boulevard
Halifax, Nova Scotia
Canada B3B1V7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Cedar Warrants, LLC(7)
|
|
|
333,333
|
|
|
|
18.9
|
%
|
|
|
333,333
|
|
|
|
|
|
|
1401 Broad Street
Clifton, NJ 07013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leo S. Ullman(5)(6)
|
|
|
18,133
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
James J. Burns(6)
|
|
|
13,333
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Richard Homburg(4)(6)
|
|
|
300,000
|
|
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
J.A.M.H. der Kinderen(6)
|
|
|
13,533
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Frank W. Matheson
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Everett B. Miller III(6)
|
|
|
13,433
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Thomas J. OKeeffe
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Thomas B. Richey
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Brenda J. Walker(6)
|
|
|
14,133
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Stuart H. Widowski
|
|
|
1,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(10 people)(8)
|
|
|
73,565
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities. Shares of common stock subject to options or
warrants currently exercisable or exercisable within
60 days of the date hereof, are deemed outstanding for
computing the percentage of the person holding such options or
warrants but are not deemed outstanding for computing the
percentage of any other person.
|
|
(2)
|
Percentage amount assumes the exercise by such
persons of all options to acquire shares of common stock and no
exercise by any other person.
|
|
(3)
|
Represents 379,874 shares of common stock
and 1,701,000 units convertible into 3,402,000 shares
of common stock owned by CBC. CBC is a New York partnership
owned 55% by Duncomb Corp., 40% by Lindsay Management Corp. and
5% by Hicks Corp. Mr. Ullman is an executive officer, but
not an owner, of each of those entities. Each of these entities
is beneficially owned by MeesPierson Intertrust, a trust company
which owns these interests on behalf of its clients.
|
|
(4)
|
Does not include 276,000 shares of common stock
that may be issued to Homburg USA upon approval by our
stockholders. Homburg USA, which is a wholly-owned subsidiary of
Homburg Invest,
|
98
|
|
|
is owned 49.29% by Uni-Invest Holdings N.V., a
company controlled by Richard Homburg and 14.48% by Homburg Euro
Inc., a company controlled by Mr. Homburg for the benefit
of a family trust.
|
|
(5)
|
Mr. Ullman may be deemed to be the
beneficial owner of all the shares of common stock and units
owned by CBC. Mr. Ullman disclaims beneficial ownership of
such securities.
|
|
(6)
|
Includes 13,333 shares of common stock
issuable on exercise of stock options.
|
|
(7)
|
Represents vested warrants to purchase 166,666
operating partnership units, which are exchangeable for 333,332
shares of common stock at an exercise price of $2.25 per share.
The holder is an affiliate of ARC Properties, Inc.
|
|
(8)
|
Includes 66,665 shares of common stock
issuable on exercise of options.
|
99
DESCRIPTION OF CAPITAL STOCK
The following description of the terms of our
stock is only a summary. For a complete description, we refer
you to the MGCL, our charter and our bylaws. We have filed our
charter and bylaws as exhibits to this registration statement.
General
Our charter provides that we may issue up to
50,000,000 shares of common stock, $0.01 par value per
share, and up to 5,000,000 shares of preferred stock, $.01
par value per share. As of August 1, 2003,
1,426,672 shares of our common stock were issued and
outstanding. Under the MGCL, our stockholders generally are not
liable for our debts or obligations.
Common Stock
All outstanding shares of our common stock are
duly authorized, fully paid and nonassessable. Holders of our
common stock are entitled to receive dividends when authorized
by our board of directors out of assets legally available for
the payment of dividends. They are also entitled to share
ratably in our assets legally available for distribution to our
stockholders in the event of our liquidation, dissolution or
winding up, after payment of or adequate provision for all of
our known debts and liabilities. These rights are subject to the
preferential rights of any other class or series of our stock
and to the provisions of our charter regarding restrictions on
transfer of our stock.
Subject to our charter restrictions on transfer
of our stock, each outstanding share of common stock entitles
the holder to one vote on all matters submitted to a vote of
stockholders, including the election of directors. Except as
provided with respect to any other class or series of stock, the
holders of our common stock will possess the exclusive voting
power. There is no cumulative voting in the election of
directors, which means that the holders of a majority of the
outstanding shares of common stock can elect all of the
directors then standing for election, and the holders of the
remaining shares will not be able to elect any directors.
Holders of our common stock have no preference,
conversion, exchange, sinking fund, redemption or appraisal
rights and have no preemptive rights to subscribe for any of our
securities. Subject to our charter restrictions on transfer of
stock, all shares of common stock will have equal dividend,
liquidation and other rights.
Under the MGCL, a Maryland corporation generally
cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or
engage in similar transactions outside the ordinary course of
business, unless approved by the affirmative vote of
stockholders holding at least two thirds of the shares entitled
to vote on the matter. However, a Maryland corporation may
provide in its charter for approval of these matters by a lesser
percentage but not less than a majority of all of the votes
entitled to be cast on the matter.
Preferred Stock
We currently have no shares of preferred stock
issued or outstanding. Our board of directors, by resolution, is
vested with the authority to provide for the issuance of shares
of our preferred stock in one or more classes or one or more
series, with such voting powers, full or limited, or no voting
powers, and with such designations, preferences and relative,
participating, optional and other special rights, and
qualifications, limitations or restrictions, if any, as will be
stated in the resolution providing for the issuance adopted by
our board of directors. Except as otherwise provided under the
MGCL, the holders of our preferred stock will only have voting
rights expressly provided for by our board of directors. Before
the issuance of any shares of our preferred stock, we will file
Articles Supplementary with the State Department of Assessment
and Taxation of Maryland in accordance with the MGCL.
100
Power to Reclassify Unissued Shares of Common
Stock and Preferred Stock
Our charter and bylaws authorize our board of
directors to classify and reclassify any unissued shares of our
common stock or preferred stock into other classes or series of
stock. Prior to issuance of shares of each class or series, our
board of directors is required by the MGCL and by our charter to
set, subject to our charter restrictions on transfer of stock,
the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of
redemption for each class or series. Therefore, our board of
directors could authorize the issuance of shares of another
class or series of preferred stock with terms and conditions
which also could have the effect of delaying, deferring or
preventing a transaction or a change in control that might
involve a premium price for holders of our common stock or
otherwise be in their best interest.
Power to Issue Additional Shares of Common
Stock and Preferred Stock
We believe that the power to issue additional
shares of common stock or preferred stock and to classify or
reclassify unissued shares of common stock or preferred stock
and thereafter to issue the classified or reclassified shares
provides us with increased flexibility in structuring possible
future financings and acquisitions and in meeting other needs
which might arise. These actions can be taken without
stockholder approval, unless stockholder approval is required by
applicable law or the rules of any stock exchange or automated
quotation system on which our securities may be listed or
traded. Although we have no present intention of doing so, we
could issue a class or series of stock that could delay, defer
or prevent a transaction or a change in control of us that might
involve a premium price for holders of common stock or otherwise
be in their best interest.
Transfer Agent and Registrar
The transfer agent and registrar for our common
stock is American Stock Transfer & Trust Company, New York,
New York.
Transfer Restrictions
In order for us to qualify as a REIT under the
Code, our stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of
12 months (other than the first year for which an election
to be a REIT has been made) or during a proportionate part of a
shorter taxable year. Also, not more than 50% of the value of
the outstanding shares of stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code
to include certain entities such as qualified pension plans)
during the last half of a taxable year (other than the first
year for which an election to be a REIT has been made).
Our charter contains restrictions on the
ownership and transfer of our common stock which are intended to
assist us in complying with these requirements and continuing to
qualify as a REIT. The relevant sections of our charter provide
that, subject to the exceptions described below, no person or
entity may beneficially own, or be deemed to own by virtue of
the applicable constructive ownership provisions of the Code,
more than 3.5% of the outstanding shares of our common stock,
provided, however, our board of directors may increase such
limit to 9.9%. We refer to this restriction as the
ownership limit. Upon consummation of this offering,
the ownership limit in our charter will be set at 9.9%. A person
or entity that becomes subject to the ownership limit by virtue
of a violative transfer that results in a transfer to a trust,
as set forth below, is referred to as a purported
beneficial transferee if, had the violative transfer been
effective, the person or entity would have been a record owner
and beneficial owner or solely a beneficial owner of our common
stock, or is referred to as a purported record
transferee if, had the violative transfer been effective,
the person or entity would have been solely a record owner of
our common stock.
The constructive ownership rules under the Code
are complex and may cause stock owned actually or constructively
by a group of related individuals and/or entities to be owned
constructively by one individual or entity. As a result, the
acquisition of less than 9.9% of our common stock (or the
101
acquisition of an interest in an entity that
owns, actually or constructively, our common stock) by an
individual or entity, could, nevertheless cause that individual
or entity, or another individual or entity, to own
constructively in excess of 9.9% of our outstanding common stock
and thereby subject the common stock to the applicable ownership
limit.
Our board of directors may, in its sole
discretion, waive the ownership limit with respect to a
particular stockholder if it:
|
|
|
|
|
determines that such ownership will not cause any
individuals beneficial ownership of shares of our common
stock to violate the ownership limit and that any exemption from
the ownership limit will not jeopardize our status as a REIT; and
|
|
|
|
determines that such stockholder does not and
will not beneficially own an interest in a tenant of ours (or a
tenant of any entity owned in whole or in part by us) that would
cause us to own, actually or constructively, more than a 9.9%
interest (as set forth in Section 856(d)(2)(B) of the Code)
in such tenant or that any such ownership would not cause us to
fail to qualify as a REIT under the Code.
|
As a condition of our waiver, our board of
directors may require an opinion of counsel or IRS ruling
satisfactory to our board of directors, and/or representations
or undertakings from the applicant with respect to preserving
our REIT status.
In connection with the waiver of the ownership
limit or at any other time, our board of directors may decrease
the ownership limit for all other persons and entities provided
that the decreased ownership limit will not be effective for any
person or entity whose percentage ownership in our common stock
is in excess of such decreased ownership limit until such time
as such person or entitys percentage of our common stock
equals or falls below the decreased ownership limit, but any
further acquisition of our common stock in excess of such
percentage ownership of our common stock will be in violation of
the ownership limit. Additionally, the new ownership limit may
not allow five or fewer stockholders to beneficially own more
than 49% in value of our outstanding common stock.
Our charter provisions further prohibit:
|
|
|
|
|
any person from beneficially owning shares of our
stock that would result in us being closely held
under Section 856(h) of the Code or otherwise cause us to
fail to qualify as a REIT; and
|
|
|
|
any person from transferring shares of our common
stock if such transfer would result in shares of our stock being
beneficially owned by fewer than 100 persons (determined without
reference to any rules of attribution).
|
Any person who acquires or attempts or intends to
acquire beneficial ownership of shares of our common stock that
will or may violate any of the foregoing restrictions on
transferability and ownership will be required to give notice
immediately to us and provide us with such other information as
we may request in order to determine the effect of such transfer
on our status as a REIT. The foregoing provisions on
transferability and ownership will not apply if our board of
directors determines that it is no longer in our best interests
to attempt to qualify, or to continue to qualify, as a REIT.
Pursuant to our charter, if any purported
transfer of our common stock or any other event would otherwise
result in any person violating the ownership limits or such
other limit as permitted by our board of directors, then any
such purported transfer will be void and of no force or effect
as to that number of shares in excess of the ownership limit
(rounded up to the nearest whole). That number of shares in
excess of the ownership limit will be automatically transferred
to, and held by, a trust for the exclusive benefit of the
American Cancer Society. The automatic transfer will be
effective as of the close of business on the business day prior
to the date of the violative transfer or other event that
results in a transfer to the trust. Any dividend or other
distribution paid to the purported record transferee, prior to
our discovery that the shares had been automatically transferred
to a trust as described above, must be repaid to the trustee
upon demand for distribution to the beneficiary of the trust. If
the transfer to the trust as described above
102
is not automatically effective, for any reason,
to prevent violation of the applicable ownership limit or as
otherwise permitted by our board of directors, then our charter
provides that the transfer of the excess shares will be void.
Shares of our common stock transferred to us as
trustee are deemed offered for sale to us, or our designee, at a
price per share equal to the lesser of (a) the price paid
by the purported record transferee for the shares and
(b) the market price on the date we, or our designee,
accepts such offer. We have the right to accept such offer until
we as trustee have sold the shares of our common stock held in
the trust pursuant to the clauses discussed below. Upon a sale
to us, the interest of the charitable beneficiary in the shares
sold terminates and we as trustee must distribute the net
proceeds of the sale to the purported record transferee and any
dividends or other distributions held by we as trustee with
respect to such common stock will be paid to the charitable
beneficiary.
Subject to the MGCL, effective as of the date
that the shares have been transferred to the trust, we as
trustee shall have the authority, at our sole discretion:
|
|
|
|
|
to rescind as void any vote cast by a purported
record transferee prior to our discovery that the shares have
been transferred to the trust; and
|
|
|
|
to recast the vote in accordance with the desires
of the trustee acting for the benefit of the beneficiary of the
trust.
|
However, if we have already taken irreversible
corporate action, then we as trustee may not rescind and recast
the vote.
Any beneficial owner or constructive owner of
shares of our common stock and any person or entity (including
the stockholder of record) who is holding shares of our common
stock for a beneficial owner must, on request, provide us with a
completed questionnaire containing the information regarding
their ownership of such shares, as set forth in the applicable
Treasury regulations. In addition, any person or entity that is
a beneficial owner or constructive owner of shares of our common
stock and any person or entity (including the stockholder of
record) who is holding shares of our common stock for a
beneficial owner or constructive owner shall, on request, be
required to disclose to us in writing such information as we may
request in order to determine the effect, if any, of such
stockholders actual and constructive ownership of shares
of our common stock on our status as a REIT and to ensure
compliance with the ownership limit, or as otherwise permitted
by our board of directors.
All certificates representing shares of our
common stock bear a legend referring to the restrictions
described above.
These ownership limits could delay, defer or
prevent a transaction or a change of control of our company that
might involve a premium price for our common stock or otherwise
be in the best interest of our stockholders.
103
STRUCTURE AND DESCRIPTION OF OPERATING
PARTNERSHIP
The operating partnership is the entity through
which we conduct our business and own (either directly or
through subsidiaries) all of our assets. As of June 30
2003, we owned an approximate 30% economic interest in, and are
the sole general partner of, the operating partnership. Upon
consummation of this offering, we will own an
approximate %
economic interest in the operating partnership.
As
of ,
2003, the operating partnership
has units
outstanding, of
which we own. The units are exchangeable at the holders
option at any time on a two-to-one basis into our common stock.
Upon consummation of this offering, there will
be units
outstanding, of
which we will own.
As
of ,
2003, the operating partnership also has
outstanding preferred
units, with a $1,000 par value per preferred unit. The preferred
units were issued during 2002 to Homburg USA at a price of
$909.09 per preferred unit. The preferred units are redeemable
by the operating partnership at any time at a redemption price
equal to 120% of par value plus an amount equal to all
accumulated, accrued and unpaid distributions or dividends
thereon to the date of redemption. Holders of the preferred
units have the right to exchange their preferred units for two
shares of our common stock at prices ranging from $1.82 to $2.05
per common share. These preferred units will be repurchased with
the proceeds of this offering.
In addition, the operating partnership has issued
warrants to purchase 250,000 units to ARC. The warrants, with an
exercise price of $2.25 per unit, are subject to adjustment for,
among other things, non-cash dividend payments, stock splits and
reorganizations. The warrants expire in May 2012. As of January
2003, 166,667 warrants have vested. The remaining 83,333
warrants will vest upon ARC rendering certain services to us
throughout the remaining vesting period.
In August 2003, we obtained a $1.0 million
loan from Christopher Weil & Co. This lender has the right
to convert all of the loan to units valued at the public
offering price, less the underwriting commission.
The following summarizes the material provisions
of the agreement of limited partnership of the operating
partnership.
Distributions, Allocations of Profits And
Losses
The operating partnership agreement provides that
we, as general partner of the operating partnership, will cause
the operating partnership to distribute all or such portion as
we determine of the available cash (as defined in the operating
partnership agreement) of the operating partnership each quarter
pro rata in accordance with respective number of units held by
each partner. Profits and losses for tax purposes will also
generally be allocated among the partners in accordance with
their percentage interests, subject to compliance with
applicable law and regulations.
Management
As the sole general partner of the operating
partnership, we will generally have the exclusive right,
responsibility and discretion in the management and control of
the operating partnership. The limited partners of the operating
partnership will generally have no authority to transact
business or take any action on behalf of, or make any decision
for, the operating partnership.
The operating partnership agreement provides that
we shall not, without the consent of the limited partners,
engage in any transaction or, in our capacity as the general
partner, authorize the operating partnership to take any action
to amend, modify or terminate the operating partnership
agreement; institute any proceeding for bankruptcy or similar
creditors relief on behalf of the operating partnership; to
approve the transfer of the general partners general
partnership interest to any person; or admit into the operating
partnership any additional or substitute general partners.
104
Transferability of Interests
The operating partnership agreement generally
provides that we may not withdraw from the operating
partnership, or transfer or assign our interest in the operating
partnership without the consent of all limited partners. The
limited partners may transfer their respective interests in the
operating partnership to accredited investors (as defined under
the Securities Act of 1933), subject to our right of first
refusal. No transferee, however, will be admitted to the
operating partnership as a substitute limited partner having the
right of a limited partner without our consent and the
satisfaction of certain other conditions, including agreeing to
be bound by the terms and conditions of the operating
partnership agreement.
Additional Capital Contributions; Issuance of
Additional Partnership Interests
No limited partner is required under the terms of
the operating partnership agreement to make additional capital
contributions to the operating partnership. We shall make
additional capital contributions to the operating partnership
for the acquisition or development of additional properties or
for other partnership purposes. The operating partnership
agreement authorizes us to issue on behalf of the operating
partnership additional partnership interests in the operating
partnership to any person other than us for any partnership
purposes from time to time for such capital contributions and
other consideration and on such terms and with such
designations, preferences and rights as we will determine. Such
additional interests in the operating partnership may not be
issued to us except in connection with an issuance of capital
stock by us with designations, preferences and rights
substantially similar to the additional partnership interests
that are issued, and we must make a capital contribution to the
operating partnership in an amount equal to the proceeds
received by us in connection with the issuance of such stock
and, in the case of an exercise of a right, warrant or option,
we will contribute to the operating partnership an amount equal
to the exercise price of such security. As additional
partnership interests are issued to new partners, the
partnership interests of all existing partners of the operating
partnership, including ours, will be diluted proportionately
based upon the amount of such contributions and the deemed value
of the operating partnership at such time.
Except in connection with the redemption rights
described below, we may not issue additional capital stock,
unless the proceeds of the issuance are contributed to the
operating partnership as an additional capital contribution.
Redemption Of Units
Generally, each limited partner shall have the
right to require the operating partnership to redeem its units
at a redemption price equal to the fair market value of two
shares of our common stock. We will have the right to redeem the
units for cash or to issue shares of our common stock.
Fiduciary Standards and
Indemnifications
The operating partnership agreement provides that
the general partner will act in the interest of the operating
partnership as an entity distinct from the individual interests
of the partners. The operating partnership agreement also
provides that the general partner and each person designated by
the general partner will be indemnified and held harmless by the
operating partnership for any act performed for or on behalf of
the operating partnership, or in furtherance of the operating
partnerships business, unless (a) the act or omission
of the indemnified person was material to the matter giving rise
to the proceeding and either was committed in bad faith or was
the result of active and deliberate dishonesty; (b) the
indemnified person actually received an improper personal
benefit in money, property or services; or (c) in the case
of any criminal proceeding, the indemnified person had
reasonable cause to believe that the act or omission was
unlawful.
105
SHARES ELIGIBLE FOR FUTURE SALE
Future sales in the public markets of substantial
amounts of common stock could adversely affect the market prices
prevailing from time to time for our common stock. It could also
impair our ability to raise capital through future sales of
equity securities.
After completion of this offering, we will
have shares
of common stock outstanding, assuming no exercise of the
underwriters over-allotment option. All of
the shares
of common stock sold in this offering will be freely
transferable without restriction or further registration under
the Securities Act, except for any of the shares that are
acquired by affiliates as that term is defined in Rule 144
under the Securities Act.
The shares of common stock held by our affiliates
and our officers and directors are restricted securities as that
term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rule 144, which is summarized below.
Rule 144
In general, under Rule 144 as currently in
effect, a person who has beneficially owned restricted shares of
our common stock for at least one year would be entitled to
sell, within any three-month period, that number of shares that
does not exceed the greater of:
|
|
|
|
|
1% of the shares of our common stock then
outstanding, which will equal
approximately shares
immediately after this offering
( shares
if the underwriters exercise their over-allotment option in
full); or
|
|
|
|
the average weekly trading volume of our common
stock on the NYSE during the four calendar weeks preceding the
date on which notice of the sale is filed with the SEC.
|
Sales under Rule 144 are also subject to
manner of sale provisions, notice requirements and the
availability of current public information about us.
Lock-Up
We, our executive officers and our directors have
agreed that, subject to specified exceptions (including
issuances of shares of common stock in connection with
acquisitions), without the consent of the underwriters, we will
not, directly or indirectly, offer, sell or otherwise dispose of
any shares of our common stock or any securities that may be
converted into or exchanged for any shares of our common stock
for a period of 180 days from the date of this prospectus.
See Underwriting No Sales of Similar
Securities.
ARC Properties, Inc. Warrants
The operating partnership, in connection with the
Red Lion acquisition, issued to ARC, a limited partner in API
Red Lion Shopping Center Associates, warrants to purchase
250,000 units. The warrants, with an exercise price of $2.25 per
unit, are subject to adjustment for, among other things,
non-cash dividend payments, stock splits and reorganizations.
The warrants expire in May 2012. As of January 2003, 166,667
warrants have vested. The remaining 83,333 warrants will vest
upon ARC rendering certain services to us throughout the
remaining vesting period.
The first 83,333 warrants issued were capitalized
as part of the Red Lion Shopping Center transaction using the
fair value method. The accounting treatment of the subsequent
issuance of warrants will be determined by future services
performed by ARC. Approximately $87,000 was charged to
106
operations for the six months ended June 30,
2003. If ARC continues to provide services to us pursuant to the
terms of the warrant agreement, the remaining warrants will be
accounted for over the vesting period.
Christopher Weil & Co. Loan
Option
In August 2003, we obtained a $1.0 million
loan from Christopher Weil & Co. This lender has the right
to convert all of the loan to units valued at the public
offering price, less the underwriting commission.
107
MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR
CHARTER AND BYLAWS
The following description of certain provisions
of Maryland law and of our charter and bylaws is only a summary.
For a complete description, we refer you to the MGCL, our
charter and our bylaws. We have filed our charter and bylaws as
exhibits to this registration statement.
Classification of Our Board of
Directors
Our bylaws provide that the number of our
directors may be established by our board of directors but may
not be fewer than three nor more than fifteen. Any vacancy will
be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the remaining
directors, except that a vacancy resulting from an increase in
the number of directors must be filled by a majority of the
entire board of directors.
Currently, our charter provides that our board of
directors is divided into three classes of directors. The
current terms of the Class I, Class II and
Class III directors will expire in 2005, 2003 and 2004,
respectively. Directors of each class will be chosen for
three-year terms upon the expiration of their current terms and
each year one class of directors will be elected by the
stockholders. Upon consummation of this offering, our charter
will eliminate the classes of directors upon the expiration of
the current terms of the respective classes and each director
elected at our upcoming annual stockholders meeting or
thereafter will serve for a term of one year. The current
Class I, Class II and Class III directors will
serve their full terms.
Holders of shares of our common stock will have
no right to cumulative voting in the election of directors.
Consequently, at each annual meeting of stockholders held after
consummation of this offering, the holders of a majority of the
shares of our common stock will be able to elect the successors
of the Class I and III directors, whose terms expire 2005
and 2004, respectively, and all other directors whose terms will
expire at each annual meeting.
Removal of Directors
Our charter provides that a director may be
removed only for cause (as defined in the charter) and only by
the affirmative vote of a majority of the votes entitled to be
cast in the election of directors. This provision, when coupled
with the provision in our bylaws authorizing our board of
directors to fill vacant directorships, precludes stockholders
from removing incumbent directors except for cause and by a
substantial affirmative vote and filling the vacancies created
by the removal with their own nominees.
Business Combinations
Under the MGCL, business combinations
between a Maryland corporation and an interested stockholder or
an affiliate of an interested stockholder are prohibited for
five years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange,
or, in circumstances specified in the statute, an asset transfer
or issuance or reclassification of equity securities. An
interested stockholder is defined as:
|
|
|
|
|
any person who beneficially owns 10% or more of
the voting power of our common stock; or
|
|
|
|
an affiliate or associate of ours who, at any
time within the two-year period prior to the date in question,
was the beneficial owner of 10% or more of the voting power of
our then outstanding voting stock.
|
A person is not an interested stockholder under
the statute if the board of directors approved in advance the
transaction by which he otherwise would have become an
interested stockholder. However, in approving a transaction, the
board of directors may provide that its approval is subject to
compliance, at or after the time of approval, with any terms and
conditions determined by the board of directors.
108
After the five-year prohibition, any business
combination between the Maryland corporation and an interested
stockholder generally must be recommended by the board of
directors of the corporation and approved by the affirmative
vote of at least:
|
|
|
|
|
80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the corporation voting
together as a single group; and
|
|
|
|
two-thirds of the votes entitled to be cast by
holders of voting stock of the corporation other than shares
held by the interested stockholder with whom or with whose
affiliate the business combination is to be effected or held by
an affiliate or associate of the interested stockholder.
|
These super-majority vote requirements do not
apply if our common stockholders receive a minimum price, as
defined under the MGCL, for their shares in the form of cash or
other consideration in the same form as previously paid by the
interested stockholder for its shares.
The statute permits various exemptions from its
provisions, including business combinations that are exempted by
the board of directors before the time that the interested
stockholder becomes an interested stockholder.
Pursuant to the statute, our board of directors
has by resolution opted out of these provisions of the MGCL and,
consequently, the five-year prohibition and the super-majority
vote requirements will not apply to business combinations
between us and any interested stockholder of ours. As a result,
anyone who later becomes an interested stockholder may be able
to enter into business combinations with us that may not be in
the best interest of our stockholders without compliance by our
company with the super-majority vote requirements and the other
provisions of the statute.
Control Share Acquisitions
We have also opted out of certain provisions the
MGCL that provide that control shares of a Maryland corporation
acquired in a control share acquisition have no voting rights
except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter. Shares owned by the
acquirer, by officers of the corporation or by directors who are
employees of the corporation are excluded from shares entitled
to vote on the matter. Control shares are voting shares of stock
which, if aggregated with all other shares of stock owned by the
acquirer or in respect of which the acquirer is able to exercise
or direct the exercise of voting power (except solely by virtue
of a revocable proxy), would entitle the acquirer to exercise
voting power in electing directors within one of the following
ranges of voting power:
|
|
|
|
|
one-tenth or more but less than one-third;
|
|
|
|
one-third or more but less than a majority; or
|
|
|
|
a majority or more of all voting power.
|
Control shares do not include shares the
acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval. A control share
acquisition means the acquisition of control shares, subject to
certain exceptions.
A person who has made or proposes to make a
control share acquisition may compel the board of directors of
the corporation to call a special meeting of stockholders to be
held within 50 days of demand to consider the voting rights
of the shares. The right to compel the calling of a special
meeting is subject to the satisfaction of certain conditions,
including an undertaking to pay the expenses of the meeting. If
no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting.
If voting rights are not approved at the meeting
or if the acquiring person does not deliver an acquiring person
statement as required by the statute, then the corporation may
redeem for fair value any or all of the control shares, except
those for which voting rights have previously been approved. The
right of the corporation to redeem control shares is subject to
certain conditions and limitations. Fair value is determined,
without regard to the absence of voting rights for the control
shares, as of the date of the last
109
control share acquisition by the acquirer or of
any meeting of stockholders at which the voting rights of the
shares are considered and not approved. If voting rights for
control shares are approved at a stockholders meeting and the
acquirer becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes
of appraisal rights may not be less than the highest price per
share paid by the acquirer in the control share acquisition.
The control share acquisition statute does not
apply (a) to shares acquired in a merger, consolidation or
share exchange if the corporation is a party to the transaction,
or (b) to acquisitions approved or exempted by the charter
or bylaws of the corporation.
Our bylaws contain a provision exempting from the
control share acquisition statute any and all acquisitions by
any person of shares of our stock. This provision may be amended
or eliminated at any time in the future.
Amendment To Our Charter
Our charter, including its provisions on
classification of our board of directors and removal of
directors, may be amended only by the affirmative vote of the
holders of not less than a majority of all of the votes entitled
to be cast on the matter.
Anti-Takeover Effect Of Certain Provisions Of
Maryland Law And Of Our Charter And Bylaws
The business combination provisions and, if the
applicable provision in our bylaws is rescinded, the control
share acquisition provisions of the MGCL, the provisions of our
charter on classification of our board of directors and removal
of directors could delay, defer or prevent a transaction or a
change in the control of us that might involve a premium price
for holders of our common stock or otherwise be in their best
interest.
Ownership Limit
Our charter provides that no person or entity may
beneficially own, or be deemed to own by virtue of the
applicable constructive ownership provisions of the Code, more
than 3.5% of the outstanding shares of our common stock,
provided, however, our board of directors may increase such
limit to 9.9%. We refer to this restriction as the
ownership limit. Upon consummation of this offering,
the ownership limit in our charter will be set at 9.9%. For a
fuller description of this restriction and the constructive
ownership rules, see Description of Capital
Stock Transfer Restrictions.
Indemnification and Limitation of
Directors and Officers Liability
Our charter and the partnership agreement provide
for indemnification of our officers and directors against
liabilities to the fullest extent permitted by the law, as
amended from time to time.
The MGCL permits a Maryland corporation to
include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders
for money damages except for liability resulting from actual
receipt of an improper benefit or profit in money, property or
services or active and deliberate dishonesty established by a
final judgment as being material to the cause of action. Our
charter contains such a provision which eliminates such
liability to the maximum extent permitted by the MGCL.
|
|
|
|
|
Our charter provides that, to the maximum extent
that the MGCL in effect from time to time permits limitation of
the liability of directors and officers of a corporation, no
director or officer shall be liable to us or our stockholders
for money damages. Our bylaws obligate us, to the fullest extent
permitted by the MGCL in effect from time to time, to indemnify
any person who was a director, officer, employee of agent of us.
|
110
The MGCL requires a corporation (unless its
charter provides otherwise, which our companys charter
does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any
proceeding to which he or she is made a party by reason of his
or her service in that capacity. The MGCL permits a corporation
to indemnify its present and former directors and officers,
among others, against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason
of their service in those or other capacities unless it is
established that:
|
|
|
|
|
the act or omission of the director or officer
was material to the matter giving rise to the proceeding and
|
|
|
|
|
|
was committed in bad faith, or
|
|
|
|
was the result of active and deliberate
dishonesty;
|
|
|
|
|
|
the director or officer actually received an
improper personal benefit in money, property or services; or
|
|
|
|
in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act
or omission was unlawful.
|
However, under the MGCL, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the
basis that personal benefit was improperly received, unless in
either case a court orders indemnification and then only for
expenses. In addition, the MGCL permits a corporation to advance
reasonable expenses to a director or officer upon the
corporations receipt of:
|
|
|
|
|
a written affirmation by the director or officer
of his good faith belief that he has met the standard of conduct
necessary for indemnification by the corporation; and
|
|
|
|
a written undertaking by the director or on the
directors behalf to repay the amount paid or reimbursed by
the corporation if it is ultimately determined that the director
did not meet the standard of conduct.
|
Insofar as the foregoing provisions permit
indemnification of directors, officers or persons controlling us
for liability arising under the Securities Act, we have been
informed that in the opinion of the SEC, this indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable.
111
MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS
The following is a summary of the material
federal income tax consequences relating to the acquisition,
holding, and disposition of our common stock. This summary is
based upon the Code, the regulations promulgated thereunder by
the U.S. Treasury Department, rulings and other
administrative pronouncements issued by the IRS, and judicial
decisions, all as currently in effect, and all of which are
subject to differing interpretations or to change, possibly with
retroactive effect. No assurance can be given that the IRS would
not assert, or that a court would not sustain, a position
contrary to any of the tax consequences described below. No
advance ruling has been or will be sought from the IRS regarding
any matter discussed in this prospectus. The summary is also
based upon the assumption that our operations will be in
accordance with our organizational documents. This summary is
for general information only, and does not purport to discuss
all aspects of federal income taxation that may be important to
a particular investor in light of its investment or tax
circumstances, or to investors subject to special tax rules,
such as:
|
|
|
|
|
financial institutions;
|
|
|
|
banks;
|
|
|
|
insurance companies;
|
|
|
|
broker-dealers;
|
|
|
|
regulated investment companies;
|
|
|
|
persons who hold our stock as a hedge
or as a position in a straddle or as part of a
conversion transaction;
|
|
|
|
persons who are required to mark-to-market for
tax purposes;
|
|
|
|
persons that have a functional
currency other than the U.S. dollar; and
|
|
|
|
holders who receive our stock through the
exercise of employee stock options or otherwise as compensation;
|
and, except to the extent discussed below:
|
|
|
|
|
tax-exempt organizations; and
|
|
|
|
foreign investors.
|
This summary assumes that investors will hold our
stock as capital assets, which generally means as property held
for investment.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF
OUR COMMON STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF
FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME
TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE
AVAILABLE. IN ADDITION, THE TAX CONSEQUENCES OF HOLDING OUR
COMMON STOCK TO ANY PARTICULAR STOCKHOLDER WILL DEPEND ON THE
STOCKHOLDERS PARTICULAR TAX CIRCUMSTANCES. YOU ARE URGED
TO CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL,
AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO YOU IN LIGHT OF
YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES OF ACQUIRING,
HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF OUR COMMON STOCK.
Taxation of the Company
We have elected to be taxed as a REIT, commencing
with our initial taxable year ending December 31, 1984,
upon the filing of our federal income tax return for that year.
We believe that we were organized and have operated in such a
manner as to qualify for taxation as a REIT, and intend to
continue to operate in such a manner.
112
The law firm of Stroock &
Stroock & Lavan LLP has acted as our tax counsel since
1998. We expect to receive an opinion of Stroock &
Stroock & Lavan LLP to the effect that we are organized
in conformity with the requirements for qualification as a REIT
under the Code, and that our actual method of operation will
enable us to meet the requirements for qualification and
taxation as a REIT. It must be emphasized that the opinion of
Stroock & Stroock & Lavan LLP is based on
various assumptions relating to our organization and operation,
and is conditioned upon representations and covenants made by
our management regarding our organization, assets and the past,
present and future conduct of our business operations. While we
intend to operate so that we will qualify as a REIT, given the
highly complex nature of the rules governing REITs, the ongoing
importance of factual determinations, and the possibility of
future changes in our circumstances, no assurance can be given
by Stroock & Stroock & Lavan LLP or us that we
will so qualify for any particular year. The opinion, a copy of
which will be filed as an exhibit to the registration statement
of which this prospectus is a part, is expressed as of the date
issued, and does not cover subsequent periods. Counsel will have
no obligation to advise us or the holders of our stock of any
subsequent change in the matters stated, represented or assumed,
or of any subsequent change in the applicable law. You should be
aware that opinions of counsel are not binding on the IRS or the
courts, and no assurance can be given that the IRS will not
challenge the conclusions set forth in such opinions or that a
court would not sustain such a challenge.
Qualification and taxation as a REIT depends on
our ability to meet on a continuing basis, through actual
operating results, distribution levels, and diversity of stock
ownership, various qualification requirements imposed upon REITs
by the Code, the compliance with which will not be reviewed by
Stroock & Stroock & Lavan LLP. In addition,
our ability to qualify as a REIT depends in part upon the
operating results, organizational structure and entity
classification for federal income tax purposes of certain
affiliated entities, the status of which may not have been
reviewed by Stroock & Stroock & Lavan LLP. Our
ability to qualify as a REIT also requires that we satisfy
certain asset tests, some of which depend upon the fair market
values of assets directly or indirectly owned by us. Such values
may not be susceptible to a precise determination. Accordingly,
no assurance can be given that the actual results of our
operations for any taxable year satisfy such requirements for
qualification and taxation as a REIT.
Taxation of REITs in General
As indicated above, qualification and taxation as
a REIT depends upon our ability to meet, on a continuing basis,
various qualification requirements imposed upon REITs by the
Code. The material qualification requirements are summarized
below under Requirements for
Qualification General.
While we intend to operate so that we qualify as
a REIT, no assurance can be given that the IRS will not
challenge our qualification, or that we will be able to operate
in accordance with the REIT requirements in the future. See
Failure to Qualify.
Provided that we qualify as a REIT, we will
generally be entitled to a deduction for dividends that we pay
and therefore will not be subject to federal corporate income
tax on our net income that is currently distributed to our
stockholders. This treatment substantially eliminates the
double taxation at the corporate and stockholder
levels that generally results from investment in a corporation.
Rather, income generated by a REIT generally is taxed only at
the stockholder level upon a distribution of dividends by the
REIT.
The Jobs and Growth Tax Relief Reconciliation Act
of 2003, or the 2003 Act, recently enacted by Congress and
signed by President Bush, reduces the rate at which individual
stockholders are taxed on corporate dividends from a maximum of
38.6% (as ordinary income) to a maximum of 15% (the same as
long-term capital gains) for the 2003 through 2008 tax years.
Dividends received by stockholders from us or from other
entities that are taxed as REITs, however, are generally not
eligible for the reduced rates and will continue to be taxed at
rates applicable to ordinary income.
Net operating losses, foreign tax credits and
other tax attributes of a REIT generally do not pass through to
the stockholders of the REIT, subject to special rules for
certain items such as capital gains
113
recognized by REITs. See Material United
States Federal Income Tax Considerations Taxation of
Stockholders.
If we qualify as a REIT, we will nonetheless be
subject to federal tax in the following circumstances:
|
|
|
|
|
We will be taxed at regular corporate rates on
any undistributed income, including undistributed net capital
gains.
|
|
|
|
We may be subject to the alternative
minimum tax on our items of tax preference, including any
deductions of net operating losses.
|
|
|
|
We will be subject to a 100% tax on net income
derived from prohibited transactions (which are, in
general, certain sales or other dispositions of property (other
than foreclosure property) held primarily for sale
to customers in the ordinary course of business).
|
|
|
|
If we should fail to satisfy the 75% gross income
test or the 95% gross income test, as discussed below, but
nonetheless maintain our qualification as a REIT because other
requirements are met, we will be subject to a 100% tax on the
amount by which we fail such test adjusted to reflect our
profitability.
|
|
|
|
If we should fail to distribute during each
calendar year at least the sum of (a) 85% of our REIT
ordinary income for such year, (b) 95% of our REIT capital
gain net income for such year, and (c) any undistributed
taxable income from prior periods, we would be subject to a 4%
excise tax on the excess of the required distribution over the
sum of (a) the amounts actually distributed, plus
(b) retained amounts on which income tax is paid at the
corporate level.
|
|
|
|
If we have (i) net income from the sale or
other disposition of foreclosure property (defined
generally as property acquired through foreclosure or otherwise
as a result of a default on a loan secured by the property or a
lease of such property) that is held primarily for sale to
customers in the ordinary course of business or (ii) other
non-qualifying income from foreclosure property, we will be
subject to tax on such income at the highest corporate income
tax rate.
|
|
|
|
We may be required to pay monetary penalties to
the IRS in certain circumstances, including if we fail to meet
record keeping requirements intended to monitor our compliance
with rules relating to the composition of a REITs
stockholders, as described below in
Requirements for Qualification
General.
|
|
|
|
A 100% tax may be imposed on some items of income
and expense that are directly or constructively paid between a
REIT and a taxable REIT subsidiary (as described below) if and
to the extent that the IRS successfully adjusts the reported
amounts of these items.
|
|
|
|
If we acquire appreciated assets from a
corporation that is not a REIT (i.e., a corporation taxable
under subchapter C of the Code) in a transaction in which
the adjusted tax basis of the assets in our hands is determined
by reference to the adjusted tax basis of the assets in the
hands of the subchapter C corporation, we may be subject to
tax on such appreciation at the highest corporate income tax
rate then applicable if we subsequently recognize gain on a
disposition of any such assets during the ten-year period
following their acquisition from the subchapter C
corporation.
|
|
|
|
We will be subject to tax at the highest
corporate income tax rate on the portion of any excess inclusion
we derive from REMIC residual interests that is equal to the
percentage of our stock that is owned by disqualified
organizations (generally, tax-exempt entities not subject
to tax on unrelated business income, including governmental
organizations).
|
114
In addition, we and our subsidiaries may be
subject to a variety of taxes, including payroll taxes and
state, local, and foreign income, property and other taxes on
their assets and operations. We could also be subject to tax in
situations and on transactions not presently contemplated.
Requirements for Qualification
General
The Code defines a REIT as a corporation, trust
or association:
|
|
|
(1) that is managed
by one or more trustees or directors;
|
|
|
(2) the beneficial
ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest;
|
|
|
(3) that would be
taxable as a domestic corporation but for the special Code
provisions applicable to REITs;
|
|
|
(4) that is neither
a financial institution nor an insurance company subject to
specific provisions of the Code;
|
|
|
(5) the beneficial
ownership of which is held by 100 or more persons;
|
|
|
(6) in which, during
the last half of each taxable year, not more than 50% in value
of the outstanding stock is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to
include specified entities); and
|
|
|
(7) which meets
other tests described below, including with respect to the
nature of its income and assets.
|
The Code provides that conditions (1)
through (4) must be met during the entire taxable year, and that
condition (5) must be met during at least 335 days of
a taxable year of 12 months, or during a proportionate part
of a shorter taxable year. Our charter provides restrictions
regarding transfers of our shares, which are intended to assist
us in satisfying the share ownership requirements described in
conditions (5) and (6) above.
To monitor compliance with the share ownership
requirements, we are generally required to maintain records
regarding the actual ownership of our shares. To do so, we must
demand written statements each year from the record holders of
significant percentages of our stock in which the record holders
are to disclose the actual owners of the shares, i.e., the
persons required to include in gross income the dividends paid
by us. A list of those persons failing or refusing to comply
with this demand must be maintained as part of our records.
Failure by us to comply with these record keeping requirements
could subject us to monetary penalties. A stockholder that fails
or refuses to comply with the demand is required by Treasury
regulations to submit a statement with its tax return disclosing
the actual ownership of the shares and other information.
In addition, a corporation generally may not
elect to become a REIT unless its taxable year is the calendar
year. We satisfy this requirement.
Effect of Subsidiary Entities
Ownership of Partnership
Interests.
In the case of a REIT that
is a partner in a partnership, Treasury regulations provide that
the REIT is deemed to own its proportionate share (based on its
capital interest) of the partnerships assets, and to earn
its proportionate share of the partnerships income, for
purposes of the asset and gross income tests applicable to REITs
as described below. In addition, the assets and gross income of
the partnership are deemed to retain the same character in the
hands of the REIT. Thus, our proportionate share of the assets
and items of income of any subsidiary partnership are treated as
our assets and items of income for purposes of applying the REIT
requirements described below. A summary of certain rules
governing the federal income taxation of partnerships and their
partners is provided below in Tax Aspects of Investments
in Affiliated Entities Partnerships.
115
Disregarded
Subsidiaries.
If a REIT owns a
corporate subsidiary that is a qualified REIT
subsidiary, that subsidiary is disregarded for federal
income tax purposes, and all assets, liabilities and items of
income, deduction and credit of the subsidiary are treated as
assets, liabilities and items of income, deduction and credit of
the REIT itself, including for purposes of the gross income and
asset tests applicable to REITs as summarized below. A qualified
REIT subsidiary is any corporation, other than a taxable
REIT subsidiary as described below, that is wholly-owned
by a REIT, or by other disregarded subsidiaries, or by a
combination of the two. Other entities that are wholly-owned by
a REIT, including single member limited liability companies, are
also generally disregarded as a separate entities for federal
income tax purposes, including for purposes of the REIT income
and asset tests. Disregarded subsidiaries, along with
partnerships in which we hold an equity interest, are sometimes
referred to herein as pass-through subsidiaries.
In the event that a disregarded subsidiary of
ours ceases to be wholly-owned for example, if any
equity interest in the subsidiary is acquired by a person other
than us or another disregarded subsidiary of ours
the subsidiarys separate existence would no longer be
disregarded for federal income tax purposes. Instead, it would
have multiple owners and would be treated as either a
partnership or a taxable corporation. Such an event could,
depending on the circumstances, adversely affect our ability to
satisfy the various asset and gross income requirements
applicable to REITs, including the requirement that REITs
generally may not own, directly or indirectly, more than 10% of
the securities of another corporation. See
Income Tests and Asset
Tests.
Taxable
Subsidiaries.
A REIT, in general, may
jointly elect with subsidiary corporations, whether or not
wholly-owned, to treat the subsidiary corporation as a taxable
REIT subsidiary, or TRS. The separate existence of a TRS or
other taxable corporation, unlike a disregarded subsidiary as
discussed above, is not ignored for federal income tax purposes.
Accordingly, such an entity would generally be subject to
corporate income tax on its earnings, which may reduce the cash
flow generated by us and our subsidiaries in the aggregate, and
our ability to make distributions to our stockholders.
A parent REIT is not treated as holding the
assets of a taxable subsidiary corporation or as receiving any
income that the subsidiary earns. Rather, the stock issued by
the subsidiary is an asset in the hands of the parent REIT, and
the REIT recognizes as income, the dividends, if any, that it
receives from the subsidiary. This treatment can affect the
income and asset test calculations that apply to the REIT, as
described below. Because a parent REIT does not include the
assets and income of such subsidiary corporations in determining
the parents compliance with the REIT requirements, such
entities may be used by the parent REIT to indirectly undertake
activities that the REIT rules might otherwise preclude it from
doing directly or through pass-through subsidiaries (for
example, activities that give rise to certain categories of
income such as management fees or foreign currency gains).
Income Tests
In order to maintain qualification as a REIT, we
annually must satisfy two gross income requirements. First, at
least 75% of our gross income for each taxable year, excluding
gross income from sales of inventory or dealer property in
prohibited transactions, must be derived from
investments relating to real property or mortgages on real
property, including rents from real property,
dividends from other REITs, interest derived from mortgage loans
secured by real property and gains from the sale of real estate
assets, as well as income from some kinds of temporary
investments. Second, at least 95% of our gross income in each
taxable year, excluding gross income from prohibited
transactions, must be derived from some combination of such
income from investments in real property (i.e., income that
qualifies under the 75% income test described above), as well as
other dividends, interest, and gain from the sale or disposition
of stock or securities, which need not have any relation to real
property.
Rents received by us will qualify as rents
from real property in satisfying the gross income
requirements described above, only if several conditions are
met, including the following. If rent is partly attributable to
personal property leased in connection with a lease of real
property, the portion of the total rent that is attributable to
the personal property will not qualify as rents from real
property unless it
116
constitutes 15% or less of the total rent
received under the lease. Moreover, for rents received to
qualify as rents from real property, the REIT
generally must not operate or manage the property or furnish or
render services to the tenants of such property, other than
through an independent contractor from which the
REIT derives no revenue. We and our affiliates are permitted,
however, to perform services that are usually or
customarily rendered in connection with the rental of
space for occupancy only and are not otherwise considered
rendered to the occupant of the property. In addition, we and
our affiliates may directly or indirectly provide non-customary
services to tenants of our properties without disqualifying all
of the rent from the property if the payment for such services
does not exceed 1% of the total gross income from the property.
For purposes of this test, the income received from such
non-customary services is deemed to be at least 150% of the
direct cost of providing the services. Moreover, we are
permitted to provide services to tenants or others through a TRS
without disqualifying the rental income received from tenants
for purposes of the REIT income requirements. Also, rental
income will qualify as rents from real property only to the
extent that we do not directly or constructively hold a 10% or
greater interest, as measured by vote or value, in the
lessees equity.
To the extent that a REIT derives income from the
rental of real property where all or a portion of the amount of
rental income payable is contingent, such income generally will
qualify for purposes of the gross income tests only if it is
based upon the sales, and not the profits, of the lessee. This
limitation does not apply, however, where the lessee leases
substantially all of its interest in the property to tenants or
subtenants, to the extent that the rental income derived by
lessee would qualify as rents from real property had it been
earned directly by a REIT.
If we fail to satisfy one or both of the 75% or
95% gross income tests for any taxable year, we may still
qualify as a REIT for the year if we are entitled to relief
under applicable provisions of the Code. These relief provisions
will be generally available if our failure to meet these tests
was due to reasonable cause and not due to willful neglect, we
attach to our tax return a schedule of the sources of our
income, and any incorrect information on the schedule was not
due to fraud with intent to evade tax. It is not possible to
state whether we would be entitled to the benefit of these
relief provisions in all circumstances. If these relief
provisions are inapplicable to a particular set of circumstances
involving us, we will not qualify as a REIT. As discussed above
under Taxation of REITs in General, even
where these relief provisions apply, a tax would be imposed upon
the amount by which we fail to satisfy the particular gross
income test.
Asset Tests
At the close of each calendar quarter, we must
also satisfy four tests relating to the nature of our assets.
First, at least 75% of the value of our total assets must be
represented by some combination of real estate
assets, cash, cash items, U.S. government securities, and,
under some circumstances, stock or debt instruments purchased
with new capital. For this purpose, real estate assets include
interests in real property, such as land, buildings, leasehold
interests in real property, stock of other corporations that
qualify as REITs, and some kinds of mortgage backed securities
and mortgage loans. Assets that do not qualify for purposes of
the 75% test are subject to the additional asset tests described
below.
The second asset test is that the value of any
one issuers securities owned by us (other than securities
issued by a TRS) may not exceed 5% of the value of our total
assets. Third, we may not own more than 10% of any one
issuers outstanding securities (other than securities of a
TRS), as measured by either voting power or value. Fourth, the
aggregate value of all securities issued by TRSs and held by us
may not exceed 20% of the value of our total assets. The 10%
value test does not apply to straight debt having
specified characteristics.
Notwithstanding the general rule, as noted above,
that for purposes of the REIT income and asset tests, a REIT is
treated as owning its share of the underlying assets of a
subsidiary partnership, if a REIT holds indebtedness issued by a
partnership, the indebtedness will be subject to, and may cause
a violation of the asset tests, unless it is a qualifying
mortgage asset or otherwise satisfies the rules for
straight debt.
117
Similarly, although stock of another REIT is a
qualifying asset for purposes of the REIT asset tests,
non-mortgage debt held by us that is issued by another REIT may
not so qualify.
We believe that our holdings of assets comply,
and will continue to comply, with the foregoing REIT asset
requirements, and we intend to monitor compliance on an ongoing
basis. No independent appraisals have been obtained, however, to
support our conclusions as to the value of our total assets.
Accordingly, there can be no assurance that the IRS will not
contend that our interests in our subsidiaries or in the
securities of other issuers will not cause a violation of the
REIT asset requirements.
Annual Distribution Requirements
In order to qualify as a REIT, we are required to
distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to:
|
|
|
(a) the sum of
(1) 90% of our REIT taxable income (computed
without regard to our deduction for dividends paid and net
capital gains) and (2) 90% of the after tax net income, if
any, from foreclosure property, minus
|
|
|
(b) the sum of
specified items of noncash income.
|
These distributions must be paid in the taxable
year to which they relate, or in the following taxable year if
declared before we timely file our tax return for the year and
if paid with or before the first regular dividend payment after
such declaration. In order for distributions to be counted for
this purpose, and to give rise to a tax deduction by us, they
must not be preferential dividends. A dividend is
not a preferential dividend if it is pro rata among all
outstanding shares of stock within a particular class, and is in
accordance with the preferences among different classes of stock
as set forth in our organizational documents.
To the extent that we distribute at least 90%,
but less than 100%, of our REIT taxable income, as
adjusted, we will be subject to tax at ordinary corporate tax
rates on the retained portion. We may elect to retain, rather
than distribute, our net long-term capital gains and pay tax on
such gains. In this case, we could elect to have our
stockholders include their proportionate share of such
undistributed long-term capital gains in income, and to receive
a corresponding credit for their share of the tax paid by us.
Our stockholders would then increase the adjusted basis of our
common stock by the difference between the designated amounts
included in their long-term capital gains and the tax deemed
paid with respect to their shares.
To the extent that a REIT has available net
operating losses carried forward from prior tax years, such
losses may reduce the amount of distributions that it must make
in order to comply with the REIT distribution requirements. Such
losses, however, will generally not affect the character, in the
hands of stockholders, of any distributions that are actually
made by the REIT, which are generally taxable to stockholders to
the extent that the REIT has current or accumulated earnings and
profits. See Taxation of
Stockholders Taxation of Taxable Domestic
Stockholders Distributions.
If we should fail to distribute during each
calendar year at least the sum of (a) 85% of our REIT
ordinary income for such year, (b) 95% of our REIT capital
gain net income for such year, and (c) any undistributed
taxable income from prior periods, we would be subject to a 4%
excise tax on the excess of such required distribution over the
sum of (x) the amounts actually distributed and
(y) the amounts of income retained on which we have paid
corporate income tax. We intend to make timely distributions so
that we are not subject to the 4% excise tax.
It is possible that we, from time to time, may
not have sufficient cash to meet the distribution requirements
due to timing differences between (a) the actual receipt of
cash, including receipt of distributions from our subsidiaries,
and (b) the inclusion of items in income by us for federal
income tax purposes. In the event that such timing differences
occur, in order to meet the distribution requirements, it might
be necessary to arrange for short-term, or possibly long-term,
borrowings, or to pay dividends in the form of taxable in-kind
distributions of property.
118
We may be able to rectify a failure to meet the
distribution requirements for a year by paying deficiency
dividends to stockholders in a later year, which may be
included in our deduction for dividends paid for the earlier
year. In this case, we may be able to avoid losing our REIT
status or being taxed on amounts distributed as deficiency
dividends. However, we will be required to pay interest and a
penalty based on the amount of any deduction taken for
deficiency dividends.
Failure To Qualify
If we fail to qualify for taxation as a REIT in
any taxable year, and the relief provisions do not apply, we
would be subject to tax, including any applicable alternative
minimum tax, on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we are not a
REIT would not be deductible by us, nor would they be required
to be made. In this situation, to the extent of current and
accumulated earnings and profits, all distributions to
stockholders that are individuals will generally be taxable at
capital gains rates (through 2008) pursuant to the 2003 Act,
and, subject to limitations of the Code, corporate distributees
may be eligible for the dividends received deduction. Unless we
are entitled to relief under specific statutory provisions, we
would also be disqualified from re-electing to be taxed as a
REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether, in
all circumstances, we would be entitled to this statutory relief.
Prohibited Transactions
Net income derived from a prohibited transaction
is subject to a 100% tax. The term prohibited
transaction generally includes a sale or other disposition
of property that is held primarily for sale to customers in the
ordinary course of a trade or business. We intend to conduct our
operations so that no asset owned by us or our pass-through
subsidiaries will be held for sale to customers, and that a sale
of any such asset will not be in the ordinary course of our
business. Whether property is held primarily for sale to
customers in the ordinary course of a trade or business
depends, however, on the particular facts and circumstances. No
assurance can be given that any property sold by us will not be
treated as property held for sale to customers, or that we can
comply with certain safe-harbor provisions of the Code that
would automatically prevent such treatment.
Tax Aspects of Investments in Affiliated
Partnerships
We may hold investments through entities that are
classified as partnerships for federal income tax purposes. In
general, partnerships are pass-through entities that
are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income,
gain, loss, deduction and credit of a partnership, and are
potentially subject to tax on these items, without regard to
whether the partners receive a distribution from the
partnership. We will include in our income our proportionate
share of these partnership items for purposes of the various
REIT income tests (based solely on our capital interest in the
partnership) and in the computation of our REIT taxable income
(based on the entire partnership agreement). Moreover, for
purposes of the REIT asset tests, we will include our
proportionate share of assets held by subsidiary partnerships
(based solely on our capital interest in the partnership). See
Taxation of the Company Effect of Subsidiary
Entities Ownership of Partnership Interests.
The investment by us in partnerships involves
special tax considerations, including the possibility of a
challenge by the IRS of the status of any of our subsidiary
partnerships as a partnership, as opposed to a corporation, for
federal income tax purposes. If any of our subsidiary
partnerships were treated as a corporation for federal income
tax purposes, it would be subject to an entity-level tax on its
income. In such a situation, the character of our assets and
items of gross income would change and could preclude us from
satisfying the REIT asset tests or the gross income tests as
discussed in Taxation of the Company Asset
Tests and Income Tests, and in
turn could prevent us from qualifying as a REIT.
119
See Taxation of the Company
Failure to Qualify, above, for a discussion of the effect
of our failure to meet these tests for a taxable year. In
addition, any change in the status of any subsidiary
partnerships of ours for tax purposes might be treated as a
taxable event, in which case we could have taxable income that
is subject to the REIT distribution requirements without
receiving any cash.
|
|
|
Tax Allocations With Respect To Partnership
Properties
|
Under the Code and the Treasury regulations,
income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated
for tax purposes in a manner such that the contributing partner
is charged with, or benefits from, the unrealized gain or
unrealized loss associated with the property at the time of the
contribution. The amount of the unrealized gain or unrealized
loss is generally equal to the difference between the fair
market value of the contributed property at the time of
contribution, and the adjusted tax basis of such property at the
time of contribution. Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts
or other economic or legal arrangements among the partners.
To the extent that any subsidiary partnership of
ours acquires appreciated (or depreciated) properties by way of
capital contributions from its partners, allocations would need
to be made in a manner consistent with these requirements. Where
a partner contributes cash to a partnership at a time when the
partnership holds appreciated (or depreciated) property, the
Treasury regulations provide for a similar allocation of these
items to the other (i.e. non-contributing) partners. These rules
may apply to the contribution by us to any subsidiary
partnerships of the cash proceeds received in any offerings of
our stock. As a result, partners, including us, in subsidiary
partnerships, could be allocated greater or lesser amounts of
depreciation and taxable income in respect of a
partnerships properties than would be the case if all of
the partnerships assets (including any contributed assets)
had a tax basis equal to their fair market values at the time of
any contributions to that partnership. This could cause us to
recognize, over a period of time, taxable income in excess of
cash flow from the partnership, which might adversely affect our
ability to comply with the REIT distribution requirements
discussed above.
Taxation of Stockholders
|
|
|
Taxation of Taxable Domestic
Stockholders
|
Distributions.
Provided that we qualify as a REIT,
distributions made to our taxable domestic stockholders out of
current or accumulated earnings and profits, and not designated
as capital gain dividends, will generally be taken into account
by them as ordinary income and will not be eligible for the
dividends received deduction for corporations. With limited
exceptions, dividends received from REITs are not eligible for
taxation at the preferential income tax rates for qualified
dividends received by individuals from taxable
C corporations pursuant to the 2003 Act. Stockholders that
are individuals, however, are taxed at the preferential rates on
dividends designated by and received from REITs to the extent
that the dividends are attributable to (a) income retained
by the REIT in the prior taxable year on which the REIT was
subject to corporate level income tax (less the amount of tax),
(b) dividends received by the REIT from taxable C
corporations (for example, TRSs), or (c) income in the
prior taxable years from the sales of built-in gain
property acquired by the REIT from C corporations in carryover
basis transactions (less the amount of corporate tax on such
income).
Distributions from us that are designated as
capital gain dividends will generally be taxed to stockholders
as long-term capital gains, to the extent that they do not
exceed our actual net capital gain for the taxable year, without
regard to the period for which the stockholder has held out
common stock. A similar treatment will apply to long-term
capital gains retained by us, to the extent that we elect the
application of provisions of the Code that treat stockholders of
a REIT as having received, for federal income tax purposes,
undistributed capital gains of the REIT, while passing through
to stockholders a corresponding credit for taxes paid by the
REIT on such retained capital gains. Corporate stockholders may
be required to treat up to 20% of some capital gain dividends as
ordinary income.
120
Long-term capital gains are generally taxable at
maximum federal rates of 15% (through 2008) in the case of
stockholders who are individuals, and 35% in the case of
stockholders that are corporations. Capital gains attributable
to the sale of depreciable real property held for more than one
year are subject to a 25% maximum federal income tax rate for
taxpayers who are individuals, to the extent of previously
claimed depreciation deductions.
Distributions in excess of current and
accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted
basis of the stockholders shares in respect of which the
distributions were made, but rather, will reduce the adjusted
basis of these shares. To the extent that such distributions
exceed the adjusted basis of a stockholders shares, they
will be included in income as long-term capital gain, or
short-term capital gain if the shares have been held for one
year or less. In addition, any dividend declared by us in
October, November or December of any year and payable to a
stockholder of record on a specified date in any such month will
be treated as both paid by us and received by the stockholder on
December 31 of such year, provided that the dividend is
actually paid by us before the end of January of the following
calendar year.
To the extent that a REIT has available net
operating losses and capital losses carried forward from prior
tax years, such losses may reduce the amount of distributions
that must be made in order to comply with the REIT distribution
requirements. See Taxation of the Company
Annual Distribution Requirements. Such losses, however,
are not passed through to stockholders and do not offset income
of stockholders from other sources, nor would they affect the
character of any distributions that are actually made by a REIT,
which are generally subject to tax in the hands of stockholders
to the extent that the REIT has current or accumulated earnings
and profits.
Dispositions of Our
Stock.
In general, capital gains
recognized by individuals upon the sale or disposition of shares
of our stock will, pursuant to the 2003 Act, be subject to a
maximum federal income tax rate of 15% (from May 6, 2003
through 2008) if our stock is held for more than one year, and
will be taxed at ordinary income rates (of up to 35% through
2010) if our stock is held for one year or less. Gains
recognized by stockholders that are corporations are subject to
federal income tax at a maximum rate of 35%, whether or not
classified as long-term capital gains. Capital losses recognized
by a stockholder upon the disposition of our stock held for more
than one year at the time of disposition will be considered
long-term capital losses, and are generally available only to
offset capital gain income of the stockholder but not ordinary
income (except in the case of individuals, who may offset up to
$3,000 of ordinary income each year). In addition, any loss upon
a sale or exchange of shares of our stock by a stockholder who
has held the shares for six months or less, after applying
holding period rules, will be treated as a long-term capital
loss to the extent that distributions received from us were
required to be treated by the stockholder as long-term capital
gain.
If a stockholder recognizes a loss upon a
subsequent disposition of our stock in an amount that exceeds a
prescribed threshold, it is possible that the provisions of
recently adopted Treasury regulations involving tax shelters
could apply, to require a disclosure filing with the IRS
concerning the loss generating transaction. While these
regulations are directed towards tax shelters, they
are written quite broadly, and apply to transactions that would
not typically be considered tax shelters. In addition,
legislative proposals have been introduced in Congress, that, if
enacted, would impose significant penalties for failure to
comply with these requirements. You should consult your tax
advisors concerning any possible disclosure obligation with
respect to the receipt or disposition of our stock, or
transactions that might be undertaken directly or indirectly by
us. Moreover, you should be aware that we and other participants
in the transactions we are involved in might be subject to
disclosure or other requirements pursuant to these regulations.
Information Reporting and Backup Withholding.
We will report to each of our U.S.
stockholders and the IRS the amount of distributions paid during
each calendar year to each such stockholder, and the amount of
tax withheld, if any. Withholding generally applies if the
stockholder (i) fails to furnish its social security number
or other taxpayer identification number (TIN),
(ii) furnishes an incorrect TIN, (iii) fails properly
to report interest or dividends, or (iv) under certain
circumstances, fails to provide a certified statement, signed
under penalty of perjury, that the TIN provided is its correct
number and that
121
it is not subject to backup withholding. The
current backup withholding rate is 28% and is scheduled to be
increased to 31% for the 2011 calendar year and thereafter.
Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results
in an overpayment of tax. Certain taxpayers, including, for
example, corporations and financial institutions, generally are
exempt from backup withholding.
|
|
|
Taxation of Foreign
Stockholders
|
The following is a summary of certain United
States federal income and estate tax consequences of the
ownership and disposition of our stock applicable to non-U.S.
holders of our stock. A non-U.S. holder is any
person other than:
|
|
|
(a) a citizen or
resident of the United States,
|
|
|
(b) a corporation or
partnership created or organized in the United States or under
the laws of the United States, or of any state thereof, or the
District of Columbia, unless, in the case of a partnership,
regulations provide otherwise,
|
|
|
(c) an estate, the
income of which is includable in gross income for U.S. federal
income tax purposes regardless of its source,
|
|
|
(d) a trust if a
United States court is able to exercise primary supervision over
the administration of such trust and one or more United States
fiduciaries have the authority to control all substantial
decisions of the trust, or
|
|
|
(e) a trust that has
validly elected to be treated as a domestic trust as provided by
regulations.
|
The discussion is based on current law and is for
general information only. The discussion addresses only
selective and not all aspects of United States federal income
and estate taxation.
Ordinary Dividends.
The portion of dividends received by non-U.S. holders payable
out of our earnings and profits which are not attributable to
our capital gains and which are not effectively connected with a
U.S. trade or business of the non-U.S. holder will be subject to
U.S. withholding tax at the rate of 30%, unless reduced by
treaty.
In general, non-U.S. holders will not be
considered to be engaged in a U.S. trade or business solely as a
result of their ownership of our stock. In cases where the
dividend income from a non-U.S. holders investment in our
stock is, or is treated as, effectively connected with the
non-U.S. holders conduct of a U.S. trade or business, the
non-U.S. holder generally will be subject to U.S. tax at
graduated rates, in the same manner as domestic stockholders are
taxed with respect to such dividends, and may also be subject to
the 30% branch profits tax in the case of a non-U.S. holder that
is a corporation.
Non-Dividend
Distributions.
Unless our stock
constitutes a U.S. real property interest, or a USRPI,
distributions by us which are not dividends out of our earnings
and profits will not be subject to U.S. income tax. If it cannot
be determined at the time at which a distribution is made
whether or not the distribution will exceed current and
accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends.
However, the non-U.S. holder may seek a refund from the IRS of
any amounts withheld if it is subsequently determined that the
distribution was, in fact, in excess of our current and
accumulated earnings and profits. If our stock constitutes a
USRPI, as described below, distributions by us in excess of the
sum of our earnings and profits plus the stockholders
basis in our stock will be taxed under the Foreign Investment in
Real Property Tax Act of 1980, or FIRPTA, at the rate of tax,
including any applicable capital gains rates, that would apply
to a domestic stockholder of the same type (e.g., an individual
or a corporation, as the case may be), and the collection of the
tax will be enforced by a refundable withholding at a rate of
10% of the amount by which the distribution exceeds the
stockholders share of our earnings and profits.
Consequently, although we generally intend to withhold at a rate
of 30% on the entire amount of any distribution, to the extent
we do not do so, the portion of any distribution not subject to
withholding at a rate of 30% will be subject to withholding at a
rate of 10%.
122
Capital Gain
Dividends.
Under FIRPTA, a
distribution made by us to a non-U.S. holder, to the extent
attributable to gains from dispositions of USRPIs held by us
directly or through pass-through subsidiaries, or USRPI capital
gains, will be considered effectively connected with a U.S.
trade or business of the non-U.S. holder and will be subject to
U.S. income tax at the rates applicable to U.S. individuals or
corporations, without regard to whether the distribution is
designated as a capital gain dividend. In addition, we will be
required to withhold tax equal to 35% of the amount of dividends
to the extent the dividends constitute USRPI capital gains.
Distributions subject to FIRPTA may also be subject to a 30%
branch profits tax in the hands of a non-U.S. holder that is a
corporation. Capital gain dividends received by a non-U.S.
holder from a REIT that are not USRPI capital gains are
generally not subject to U.S. income tax, but may be subject to
withholding tax.
Dispositions of Our
Stock.
Unless our stock constitutes a
USRPI, a sale of the stock by a non-U.S. holder generally will
not be subject to U.S. taxation under FIRPTA. The stock will not
be treated as a USRPI if less than 50% of our assets throughout
a prescribed testing period consist of interests in real
property located within the United States.
Even if the foregoing test is not met, our stock
nonetheless will not constitute a USRPI if we are a
domestically-controlled REIT. A
domestically-controlled REIT is a REIT in which, at all times
during a specified testing period, less than 50% in value of its
shares is held directly or indirectly by non-U.S. holders. We
believe that we are, and we expect to continue to be, a
domestically-controlled REIT and, therefore, the sale of our
stock should not be subject to taxation under FIRPTA. Because
our stock is publicly traded, however, no assurance can be given
that we will remain a domestically-controlled REIT.
In the event that we do not constitute a
domestically-controlled REIT, a non-U.S. holders sale of
stock nonetheless will generally not be subject to tax under
FIRPTA as a sale of a USRPI, provided that (a) the stock
owned is of a class that is regularly traded, as
defined by applicable Treasury Department regulations, on an
established securities market, and (b) the selling non-U.S.
holder held 5% or less of our outstanding stock of that class at
all times during a specified testing period.
If gain on the sale of our stock were subject to
taxation under FIRPTA, the non-U.S. holder would be subject to
the same treatment as a U.S. stockholder with respect to such
gain, subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of non-resident
alien individuals, and the purchaser of the stock could be
required to withhold 10% of the purchase price and remit such
amount to the IRS.
Gain from the sale of our stock that would not
otherwise be subject to FIRPTA will nonetheless be taxable in
the United States to a non-U.S. holder in two cases: (a) if
the non-U.S. holders investment in our stock is
effectively connected with a U.S. trade or business conducted by
such non-U.S. holder, the non-U.S. holder will be subject to the
same treatment as a U.S. stockholder with respect to such gain,
or (b) if the non-U.S. holder is a nonresident alien
individual who was present in the United States for
183 days or more during the taxable year, the nonresident
alien individual will be subject to a 30% tax on the
individuals capital gain.
Estate Tax.
Our
stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for U.S. federal
estate tax purposes) of the United States at the time of death
will be includable in the individuals gross estate for
U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise, and may therefore be subject to
U.S. federal estate tax.
|
|
|
Taxation of Tax-Exempt
Stockholders
|
Tax-exempt entities, including qualified employee
pension and profit sharing trusts and individual retirement
accounts, generally are exempt from federal income taxation.
However, they are subject to taxation on their unrelated
business taxable income, or UBTI. While many investments in real
estate may generate UBTI, the IRS has ruled that dividend
distributions from a REIT to a tax-exempt entity do not
constitute UBTI. Based on that ruling, and provided that
(1) a tax-exempt stockholder has not held our stock as
debt financed property within the meaning of the
Code (i.e. where the acquisition or holding of
123
the property is financed through a borrowing by
the tax-exempt stockholder), and (2) our stock is not
otherwise used in an unrelated trade or business, distributions
from us and income from the sale of our stock should not give
rise to UBTI to a tax-exempt stockholder.
Tax-exempt stockholders that are social clubs,
voluntary employee benefit associations, supplemental
unemployment benefit trusts, and qualified group legal services
plans exempt from federal income taxation under
sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the
Code, respectively, are subject to different UBTI rules, which
generally will require them to characterize distributions from
us as UBTI, unless such stockholders are able to properly deduct
amounts set aside or placed in reserve for certain purposes so
as to offset the income generated by such distributions.
If we were a pension-held REIT, a
pension trust that owns more than 10% of our stock could be
required to treat a percentage of the dividends it receives from
us as UBTI. We currently are not, and will continue not to be a
pension-held REIT unless either (A) one pension trust owns
more than 25% of the value of our stock, or (B) a group of
pension trusts, each individually holding more than 10% of the
value of our stock, collectively owns more than 50% of such
stock. Certain restrictions on ownership and transfer of our
stock should generally prevent us from becoming a pension-held
REIT.
TAX-EXEMPT STOCKHOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF OWNING OUR STOCK.
Other Tax Considerations
|
|
|
Legislative or Other Actions Affecting
REITs
|
The rules dealing with federal income taxation
are constantly under review by persons involved in the
legislative process and by the IRS and the Treasury Department.
Changes to the Federal tax laws and interpretations of federal
tax laws could adversely affect an investment in us.
The recently enacted 2003 Act reduced the maximum
tax rates at which individuals are taxed on capital gains from
20% to 15% (from May 6, 2003 through 2008) and for
dividends payable by taxable C corporations to individuals
generally from 38.6% to 15% (from January 1, 2003 through
2008). While gains from the sale of the stock of REITs are
eligible for the reduced tax rates, dividends payable by REITs
are not eligible for the reduced tax rates except in limited
circumstances. As a result, dividends received from REITs
generally will continue to be taxed at ordinary income rates
(now at a maximum of 35% through 2010). The more favorable tax
rates applicable to regular corporate dividends could cause
investors who are individuals to perceive investments in REITs
to be relatively less attractive than investments in the stocks
of non-REIT corporations that pay dividends, which could
adversely affect the value of the stock of REITs, including our
common stock.
H.R. 1890 introduced into Congress in April 2003
would modify certain provisions of the Code relating to REITs.
The legislation would, among other things, revise the REIT asset
test by expanding the straight-debt sale harbor, modify the
treatment of certain REIT distributions that are attributable to
gain from sales or exchange of USRPIs and expand the REIT
provisions dealing with a failure to satisfy the income or asset
tests. Whether any or all of these proposals will ultimately be
enacted cannot be determined at this time.
State and Local Taxes
We and our subsidiaries and stockholders may be
subject to state, local or foreign taxation in various
jurisdictions, including those in which we or our subsidiaries
transact business, own property or reside. We own properties
located in a number of jurisdictions, and may be required to
file tax returns in some or all of those jurisdictions. The
state, local or foreign tax treatment of us and our stockholders
may not conform to the federal income tax treatment discussed
above. Prospective investors should consult their tax advisors
regarding the application and effect of state and local income
and other tax laws on an investment in our stock.
124
ERISA CONSIDERATIONS
The following is a summary of certain
considerations associated with an investment in us by a pension,
profit sharing or other employee benefit plan subject to Title I
of the Employee Retirement Income Security Act, or ERISA, or
Section 4975 of the Code. THE FOLLOWING IS MERELY A
SUMMARY, HOWEVER, AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE OR
AS COMPLETE IN ALL RELEVANT RESPECTS. ALL INVESTORS ARE URGED TO
CONSULT THEIR LEGAL ADVISORS BEFORE INVESTING ASSETS OF AN
EMPLOYEE PLAN IN OUR COMPANY AND TO MAKE THEIR OWN INDEPENDENT
DECISIONS.
A plan fiduciary considering an investment in the
securities should consider, among other things, whether such an
investment might constitute or give rise to a prohibited
transaction under ERISA, the Code or any substantially similar
federal, state or local law. ERISA and the Code impose
restrictions on:
|
|
|
|
|
employee benefit plans as defined in
Section 3(3) of ERISA;
|
|
|
|
plans described in Section 4975(e)(1) of the
Code, including retirement accounts and Keogh Plans;
|
|
|
|
entities whose underlying assets include plan
assets by reason of a plans investment in such entities;
and
|
|
|
|
persons who have certain specified relationships
to a plan described as parties in interest under
ERISA and disqualified persons under the Code.
|
Regulation Under ERISA and the
Code
ERISA imposes certain duties on persons who are
fiduciaries of a plan. Under ERISA, any person who exercises any
authority or control over the management or disposition of a
plans assets is considered to be a fiduciary of that plan.
Both ERISA and the Code prohibit certain transactions involving
plan assets between a plan and parties in interest
or disqualified persons. Violations of these rules may result in
the imposition of an excise tax or penalty
The term plan assets is not defined
by ERISA or the Code. However, a plans assets may be
deemed to include an interest in the underlying assets of an
entity if the plan acquires an equity interest in
such an entity such as the shares. In that event, the operations
of such an entity could result in a prohibited transaction under
ERISA and the Code.
Regulation Issued by the Department of
Labor
The Department of Labor issued a regulation that
provides exceptions to this rule. Under this regulation, if a
plan acquires a publicly-offered security, the
issuer of the security is not deemed to hold plan assets. A
publicly-offered security is a security that:
|
|
|
|
|
is freely transferable;
|
|
|
|
is part of a class of securities that is owned by
100 or more investors independent of the issuer and of one
another; and
|
|
|
|
is either
|
|
|
|
|
1.
|
part of a class of securities registered under
Section 12(b) or 12(g) of the Exchange Act, or
|
|
|
2.
|
sold to the plan as part of an offering of
securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities
of which such security is part is registered under the Exchange
Act within the requisite time.
|
125
The Shares of Our Common Stock as
Publicly-Offered Securities
Our common stock currently meets the above
criteria and it is anticipated that the shares of our common
stock being offered hereby will continue to meet the criteria of
publicly-offered securities. Although no assurances can be
given, the underwriters expect that:
|
|
|
|
|
there will be no restrictions imposed on the
transfer of interests in our common stock;
|
|
|
|
our common stock will be held by at least 100
independent investors at the conclusion of the offering; and
|
|
|
|
our common stock being offered hereby will be
sold as part of an offering pursuant to an effective
registration statement under the Securities Act and then will be
timely registered under the Exchange Act.
|
General Investment Considerations
Prospective fiduciaries of a plan (including,
without limitation, an entity whose assets include plan assets,
including, as applicable, an insurance company general account)
considering the purchase of common stock should consult with
their legal advisors concerning the impact of ERISA and the Code
and the potential consequences of making an investment in these
shares with respect to their specific circumstances. Each plan
fiduciary should take into account, among other considerations:
|
|
|
|
|
whether the plans investment could give
rise to a non-exempt prohibited transaction under Title I of
ERISA or Section 4975 of the Code;
|
|
|
|
whether the fiduciary has the authority to make
the investment;
|
|
|
|
the composition of the plans portfolio with
respect to diversification by type of asset;
|
|
|
|
the plans funding objectives;
|
|
|
|
the tax effects of the investment;
|
|
|
|
whether our assets would be considered plan
assets; and
|
|
|
|
whether, under the general fiduciary standards of
investment prudence and diversification an investment in these
shares is appropriate for the plan taking into account the
overall investment policy of the plan and the composition of the
plans investment portfolio.
|
Certain employee benefit plans, such as
governmental plans and certain church plans are not subject to
the provisions of Title I of ERISA and Section 4975 of
the Code. Accordingly, assets of such plans may be invested in
the common stock without regard to the ERISA considerations
described here, subject to the provisions of any other
applicable federal and state law. It should be noted that any
such plan that is qualified and exempt from taxation under the
Code is subject to the prohibited transaction rules set forth in
the Code.
126
UNDERWRITING
We intend to offer the shares of common stock
being sold in this offering through the underwriters. Merrill
Lynch, Pierce, Fenner & Smith Incorporated is acting as
representative of the underwriters named below. Subject to the
terms and conditions described in a purchase agreement among us
and the underwriters, we have agreed to sell to the
underwriters, and the underwriters severally have agreed to
purchase from us, the number of shares listed opposite their
names below.
|
|
|
|
|
|
|
Number
|
|
|
of Shares
|
Underwriter
|
|
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
The underwriters have agreed to purchase all of
the shares sold under the purchase agreement if any of these
shares are purchased. If any underwriter defaults, the purchase
agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase
agreement may be terminated.
We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters
may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject
to prior sale, when, as and if issued to and accepted by them,
subject to approval of legal matters by their counsel, including
the validity of the shares, and other conditions contained in
the purchase agreement, such as the receipt by the underwriters
of officers certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representative has advised us that the
underwriters initially propose to offer the shares to the public
at the public offering price on the cover page of this
prospectus and to dealers at that price less a concession not in
excess of
$ per
share. The underwriters may allow, and the dealers may reallow,
a discount not in excess of
$ per
share to other dealers. After this offering, the public offering
price, concession and discount may be changed.
The following table shows the public offering
price, underwriting discount and proceeds before expenses to us.
The information assumes either no exercise or full exercise by
the underwriters of the over-allotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Without Option
|
|
With Option
|
|
|
|
|
|
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The expenses of the offering, not including the
underwriting discount, are estimated at approximately
$ million
and are payable by us.
Over-allotment Option
We have granted an option to the underwriters to
purchase up
to additional
shares at the public offering price less the underwriting
discount. The underwriters may exercise this option for
30 days from the date of this prospectus solely to cover
any over-allotments. If the underwriters exercise this option,
each will be obligated, subject to conditions contained in the
purchase agreement, to purchase a number of additional shares
proportionate to that underwriters initial amount
reflected in the above table.
127
No Sales Of Similar Securities
We, our executive officers and our directors who
beneficially own shares of our common stock as of the date of
this prospectus have agreed, with some exceptions, not to sell
or transfer any common stock for 180 days after the date of
this prospectus without first obtaining the written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Specifically, we and these other individuals have agreed not to
directly or indirectly
|
|
|
|
|
offer, pledge, sell or contract to sell any
common stock,
|
|
|
|
sell any option or contract to purchase any
common stock,
|
|
|
|
purchase any option or contract to sell any
common stock,
|
|
|
|
grant any option, right or warrant for the sale
of any common stock,
|
|
|
|
lend or otherwise dispose of or transfer any
common stock,
|
|
|
|
request or demand that we file a registration
statement related to the common stock, or
|
|
|
|
enter into any swap or other agreement that
transfers, in whole or in part, the economic consequence of
ownership of any common stock whether any such swap or
transaction is to be settled by delivery of shares of other
securities, in cash or otherwise.
|
This lockup provision applies to common stock and
to securities convertible into or exchangeable or exercisable
for or repayable with common stock. It also applies to shares of
our common stock owned now or acquired later by the person
executing the agreement or for which the person executing the
agreement later acquires the power of disposition.
Stock Exchange Listing
Our common stock is currently traded on the
Nasdaq SmallCap Market under the symbol CEDR. We
intend to apply for listing of our common stock on the New York
Stock Exchange, Inc. under the symbol [CDR] and
expect that the shares of common stock sold in this offering
will trade on the NYSE. In order to meet the requirements for
listing on the NYSE, the underwriters have undertaken to sell a
minimum number of shares to a minimum number of beneficial
owners as required by that exchange.
The public offering price will be determined
through negotiations between us and the representative. In
addition to prevailing market conditions and our then existing
stock price, the factors considered in determining the public
offering price will be
|
|
|
|
|
the valuation multiples and dividend yields of
publicly traded companies that the representatives believe to be
comparable to us,
|
|
|
|
our financial information,
|
|
|
|
the history of, and the prospects for, our
company and the industry in which we compete,
|
|
|
|
an assessment of our management, its past and
present operations, and the prospects for, and timing of, our
future revenues, and
|
|
|
|
the above factors in relation to market values
and various valuation measures of other companies engaged in
activities similar to ours.
|
An active trading market for the shares may not
develop. It is also possible that after the offering, the shares
of our common stock will not trade in the public market at or
above the public offering price.
The underwriters do not expect to sell more than
5% of the shares of our common stock in the aggregate to
accounts over which they exercise discretionary authority.
128
Price Stabilization, Short Positions and
Penalty Bids
Until the distribution of the shares is
completed, SEC rules may limit underwriters and selling group
members from bidding for and purchasing our common stock.
However, the representative may engage in transactions that
stabilize the price of the common stock, such as bids or
purchases to peg, fix or maintain that price.
If the underwriters create a short position in
our common stock in connection with this offering, that is, if
they sell more shares than are listed on the cover of this
prospectus, the representative may reduce that short position by
purchasing shares in the open market. The representative may
also elect to reduce any short position by exercising all or
part of the over-allotment option described above. Purchases of
our common stock to stabilize its price or to reduce a short
position may cause the price of our common stock to be higher
than it might be in the absence of such purchases.
The representative may also impose a penalty bid
on underwriters and selling group members. This means that if
the representative purchase shares in the open market to reduce
the underwriters short position or to stabilize the price
of those shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who
sold those shares. The imposition of a penalty bid may also
affect the price of the shares in that it discourages resales of
those shares.
Neither we nor any of the underwriters makes any
representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the
price of our common stock. In addition, neither we nor any of
the underwriters makes any representation that the
representative will engage in these transactions or that these
transactions, once commenced, will not be discontinued without
notice.
Electronic Prospectus
Merrill Lynch will be facilitating Internet
distribution for this offering to certain of its Internet
subscription customers. Merrill Lynch intends to allocate a
limited number of shares for sale to its online brokerage
customers. An electronic prospectus is available on the Internet
Web site maintained by Merrill Lynch and web sites maintained by
some of the other underwriters. Other than the prospectus in
electronic format, the information on the Merrill Lynch Web site
is not part of this prospectus.
Other Relationships
Some of the underwriters and their affiliates
have engaged in, and may in the future engage in, investment
banking and other commercial dealings in the ordinary course of
business with us. They have received customary fees and
commissions for these transactions.
129
EXPERTS
The consolidated financial statements of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income
Fund, Ltd.) at December 31, 2002 and 2001, and for
each of the three years in the period ended December 31,
2002, the statement of revenues and certain expenses of
Southington 84 Associates, LP for the year ended
December 31, 2002, the statement of revenues and certain
expenses of Delaware 1851 Associates, LP for the year ended
December 31, 2002, the combined statements of revenues and
certain expenses of Associates of Huntingdon, L.P., Greater
Raystown Associates LP and Lake Raystown Associates LP for the
year ended December 31, 2002, the combined statement of
Revenues and Expenses of Fairview Plaza Associates, L.P.,
Halifax Plaza Associates, LP and Newport Plaza Associates, LP
for the year ended December 31, 2002, the statement of
revenues and certain expenses of Pine Grove Plaza Associates,
LLC for the year ended December 31, 2002, the combined
statements of Revenues and Expenses of Firehouse Realty
Corporation, Riverview Development Corporation, South Riverview
Plaza, Inc. and Reed Development Associates, Inc. for the year
ended December 31, 2002, the statement of revenues and
expenses of Triangle Center Associates, LP for the three years
ended December 31, 2002, 2001 and 2000, the statement of
revenue and certain expense of Valley Real Estate LLC for the
year ended December 31, 2002, and the combined statement of
SPSP Corporation, Passyunk Supermarket, Inc. and Twenty Fourth
Street Passyunk Partners LP for the year ended December 31,
2002, appearing in the Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of our common stock to be sold in
this offering and certain other legal matters will be passed
upon for us by Stroock & Stroock & Lavan LLP, New York,
New York and for the underwriters by Sidley Austin Brown &
Wood LLP, New York, New York.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange
Commission a registration statement on Form S-11, including
exhibits, schedules and amendments filed with this registration
statement, under the Securities Act with respect to the shares
of our common stock to be sold in this offering. This prospectus
does not contain all of the information set forth in the
registration statement and exhibits and schedules to the
registration statement. For further information with respect to
us and the shares of our common stock to be sold in this
offering, reference is made to the registration statement,
including the exhibits and schedules to the registration
statement. Statements contained in this prospectus as to the
contents of any contract or other document referred to in this
prospectus are not necessarily complete and, where that contract
is an exhibit to the registration statement, each statement is
qualified in all respects by reference to the exhibit to which
the reference relates. Copies of the registration statement,
including the exhibits and schedules to the registration
statement, may be examined without charge at the public
reference room of the Securities and Exchange Commission, 450
Fifth Street, N.W. Room 1024, Washington, DC 20549. Information
about the operation of the public reference room may be obtained
by calling the Securities and Exchange Commission at
1-800-SEC-0300. Copies of all or a portion of the registration
statement can be obtained from the public reference room of the
Securities and Exchange Commission upon payment of prescribed
fees. Our Securities and Exchange Commission filings, including
this registration statement, are also available to you on the
Securities and Exchange Commissions Web site www.sec.gov.
We are subject to the informational requirements
of the Exchange Act, and in accordance with the Exchange Act
have filed annual, quarterly and current reports and other
information with the Securities and Exchange Commission. You may
read and copy any documents filed by us at the address set forth
above.
You may request copies of the filings, at no
cost, by telephone at (516) 767-6492 or by mail at: Cedar
Shopping Centers, Inc., 44 South Bayles Avenue, Port
Washington, New York 11050, Attention: Investor Relations.
130
INDEX TO CONSOLIDATED FINANCIAL
INFORMATION
|
|
|
|
|
Unaudited Pro Forma Condensed Combined
Information:
|
|
|
|
|
Pro Forma Condensed Combined Balance Sheet, as of
June 30, 2003 and related notes
|
|
|
F-3
|
|
Pro Forma Condensed Combined Statement of
Operations for the six months ended June 30, 2003 and
related notes
|
|
|
F-10
|
|
Pro Forma Condensed Combined Statement of
Operations for the twelve months ended December 31, 2002
and related notes
|
|
|
F-18
|
|
|
Consolidated Financial Statements:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-26
|
|
Consolidated Balance Sheets as of
December 31, 2002 and December 31, 2001
|
|
|
F-27
|
|
Consolidated Statements of Operations for the
years ended December 31, 2002, 2001 and 2000
|
|
|
F-28
|
|
Consolidated Statements of Shareholders
Equity for the years ended December 31, 2002, 2001 and 2000
|
|
|
F-29
|
|
Consolidated Statements of Cash Flows for the
years ended December 31, 2002, 2001 and 2000
|
|
|
F-30
|
|
Notes to Consolidated Financial Statements
|
|
|
F-31
|
|
Consolidated Balance Sheets as of June 30,
2003 and December 31, 2002
|
|
|
F-48
|
|
Consolidated Statements of Shareholders
Equity for the six months ended June 30, 2003 and 2002
|
|
|
F-49
|
|
Consolidated Statement of Operations for the
three and six months ended June 30, 2003 and 2002
|
|
|
F-50
|
|
Consolidated Statement of Cash Flows for the six
months ended June 30, 2003 and 2002
|
|
|
F-51
|
|
Notes to Consolidated Financial Statements
|
|
|
F-52
|
|
|
Southington 84 Associates L.P. Operating
as Wal-Mart Shopping Center:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-65
|
|
Statements of Revenues and Certain Expenses for
the six months ended June 30, 2003 (unaudited) and the year
ended December 31, 2002 and related notes
|
|
|
F-67
|
|
Notes to Statements of Revenue and Certain
Expenses
|
|
|
F-68
|
|
|
Delaware 1851 Associates, L.P. Operating as
Columbus Crossing Shopping Center:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-71
|
|
Statements of Revenues and Certain Expenses for
the six months ended June 30, 2003 (unaudited) and the year
ended December 31, 2002 and related notes
|
|
|
F-72
|
|
Notes to Statements of Revenue and Certain
Expenses
|
|
|
F-73
|
|
|
Associates of Huntingdon, L.P., Greater
Raystown Associates L.P. and Lake Raystown Associates L.P.
Operating as Huntingdon Plaza and Lake Raystown Plaza:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-77
|
|
Combined Statements of Revenues and Certain
Expenses for the six months ended June 30, 2003 (unaudited)
and the year ended December 31, 2002 and related notes
|
|
|
F-78
|
|
Notes to Combined Statements of Revenues and
Certain Expenses
|
|
|
F-79
|
|
Supplemental Information
|
|
|
F-81
|
|
Combining Statement of Revenues and Certain
Expenses for the six months ended June 30, 2003
|
|
|
F-82
|
|
Combining Statement of Revenues and Certain
Expenses for the year ended December 31, 2002
|
|
|
F-83
|
|
F-1
|
|
|
|
|
Fairview Plaza Associates, LP, Halifax Plaza
Associates, LP and Newport Plaza Associates, LP Operating as
Fairview Plaza Shopping Center, Halifax Plaza Shopping Center
and Newport Plaza Shopping Center, respectively:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-86
|
|
Combined Statements of Revenues and Certain
Expenses for the year ended December 31, 2002 and related
notes
|
|
|
F-87
|
|
Notes to Combined Statements of Revenues and
Certain Expenses
|
|
|
F-88
|
|
Supplemental Information
|
|
|
F-90
|
|
Combining Statement of Revenues and Certain
Expenses for the six months ended June 30, 2003
|
|
|
F-
|
|
Combining Statement of Revenues and Certain
Expenses for the year ended December 31, 2003
|
|
|
F-91
|
|
|
Pine Grove Plaza Associates, LLC Operating as
Pine Grove Shopping Center:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-94
|
|
Statements of Revenues and Certain Expenses for
the six months ended June 30, 2003 (unaudited) and the year
ended December 31, 2002
|
|
|
F-95
|
|
Notes to Statements of Revenues and Certain
Expenses
|
|
|
F-96
|
|
|
Firehouse Realty Corporation, Riverview
Development Corporation, South Riverview Plaza, Inc. and Reed
Development Associates, Inc. Operating as RiverView I, II
and III:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-100
|
|
Combined Statements of Revenues and Certain
Expenses for the six months ended June 30, 2003 (unaudited)
and the year ended December 31, 2002
|
|
|
F-101
|
|
Notes to Combined Statements of Revenue and
Certain Expenses
|
|
|
F-102
|
|
Supplemental Schedules
|
|
|
F-104
|
|
Combining Statement of Revenues and Certain
Expenses for the six months ended June 30, 2003
|
|
|
F-105
|
|
Combining Statement of Revenues and Certain
Expenses for the year ended December 31, 2002
|
|
|
F-106
|
|
|
Triangle Center Associates, L.P. Operating as
Golden Triangle Shopping Center:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-109
|
|
Statements of Revenues and Certain Expenses for
the six months ended June 30, 2003 (unaudited) and the
years ended December 31, 2002, 2001 and 2000
|
|
|
F-110
|
|
Notes to Statements of Revenues and Certain
Expenses
|
|
|
F-111
|
|
|
Valley Real Estate, LLC. Operating as Valley
Plaza Shopping Center:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-115
|
|
Combined Statements of Revenues and Certain
Expenses for the six months ended June 30, 2003 (unaudited)
and the year ended December 31, 2002
|
|
|
F-116
|
|
Notes to the Statements of Revenues and Certain
Expenses
|
|
|
F-117
|
|
|
SPSP Corporation, Passyunk Supermarket, Inc.,
and Twenty Fourth Street Passyunk Partners, LP. Operating as the
South Philadelphia Shopping Center:
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-121
|
|
Combined Statements of Revenues and Certain
Expenses for the six months ended June 30, 2003 (unaudited)
and the year ended December 31, 2002
|
|
|
F-122
|
|
Notes to Combined Statements of Revenues and
Certain Expenses
|
|
|
F-123
|
|
Supplemental Information
|
|
|
F-125
|
|
Combining Statements of Revenues and Certain
Expenses for the six months Ended June 30, 2003
|
|
|
F-126
|
|
Combining Statements of Revenues and Certain
Expenses for the year ended December 31, 2002
|
|
|
F-127
|
|
F-2
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Balance
Sheet
As of June 30, 2003
The following unaudited Pro Forma Condensed
Combined Balance Sheet is presented as if the Company had
completed the offering transaction, acquired the properties and
completed the refinancing transactions all on June 30,
2003. This Pro Forma Condensed Combined Balance Sheet should be
read in conjunction with the Pro Forma Condensed Combined
Statement of Operations of the Company and the historical
financial statements and notes thereto of the Company included
in this prospectus for the six months ended June 30, 2003.
The Pro Forma Condensed Combined Balance Sheet is unaudited and
is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and completed the
refinancing transactions on June 30, 2003, nor does it
purport to represent the future financial position of the
Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
|
|
|
|
|
|
|
|
|
|
|
the Remaining
|
|
|
|
Acquisition of
|
|
|
Cedar
|
|
|
|
|
|
50% Ownership
|
|
Acquisition of
|
|
Golden
|
|
|
Shopping
|
|
Draw on the
|
|
|
|
of The Point
|
|
the Giant
|
|
Triangle
|
|
|
Centers Inc.
|
|
Line of
|
|
This
|
|
Shopping
|
|
Building at
|
|
Shopping
|
|
|
Historical
|
|
Credit
|
|
Offering
|
|
Center
|
|
Loyal Plaza
|
|
Center
|
Description
|
|
(a)
|
|
(b)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
168,515,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,275,998
|
|
|
$
|
5,400,000
|
|
|
$
|
11,317,118
|
|
Cash and cash equivalents
|
|
|
1,117,000
|
|
|
|
10,000,000
|
|
|
|
152,378,471
|
|
|
|
(2,400,000
|
)
|
|
|
(5,400,000
|
)
|
|
|
(2,100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(13,714,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at joint ventures and restricted cash
|
|
|
2,818,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property deposits
|
|
|
3,438,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate tax deposits
|
|
|
1,015,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents and other receivables, net
|
|
|
495,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses, net
|
|
|
853,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rental income
|
|
|
739,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges, net
|
|
|
3,506,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
662,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
182,496,000
|
|
|
|
10,000,000
|
|
|
$
|
138,664,409
|
|
|
$
|
(1,124,002
|
)
|
|
$
|
|
|
|
$
|
9,880,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Notes Payable
|
|
$
|
130,566,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,880,000
|
|
Line of Credit
|
|
|
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Payable
|
|
|
9,767,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payable (repayment with offering proceeds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
2,380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Deposits
|
|
|
427,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Liabilities
|
|
|
6,581,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance Rents
|
|
|
917,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
150,638,000
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,880,000
|
|
Minority interest
|
|
|
18,915,000
|
|
|
|
|
|
|
|
|
|
|
|
(1,124,002
|
)
|
|
|
|
|
|
|
|
|
Limited partners interest in consolidated
Operating Partnership
|
|
|
7,026,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred 9% convertible,
redeemable Operating Partnership units
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,026,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
14,000
|
|
|
|
|
|
|
|
95,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(276,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
3,179,000
|
|
|
|
|
|
|
|
138,569,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders Equity
|
|
|
2,917,000
|
|
|
|
|
|
|
|
138,664,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
182,496,000
|
|
|
|
10,000,000
|
|
|
$
|
138,664,409
|
|
|
$
|
(1,124,002
|
)
|
|
$
|
|
|
|
$
|
9,880,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-3
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Balance
Sheet (Continued)
As of June 30, 2003
The following unaudited Pro Forma Condensed
Combined Balance Sheet is presented as if the Company had
completed the offering transaction acquired the properties and
completed the refinancing transactions all on June 30,
2003. This Pro Forma Condensed Combined Balance Sheet should be
read in conjunction with the Pro Forma Condensed Combined
Statement of Operations of the Company and the historical
financial statements and notes thereto of the Company included
in this prospectus for the six months ended June 30, 2003.
The Pro Forma Condensed Combined Balance Sheet is unaudited and
is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and completed the
refinancing transactions on June 30, 2003, nor does it
purport to represent the future financial position of the
Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
Acquisition of
|
|
Acquisition of
|
|
Acquisition of the
|
|
|
|
|
Valley Plaza
|
|
Pine Grove
|
|
Huntingdon Plaza
|
|
Wal-Mart
|
|
Acquisition of
|
|
|
Shopping Center
|
|
Shopping Center
|
|
Shopping Center
|
|
Shopping Center
|
|
Swede Square
|
Description
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
|
|
|
$
|
51,056
|
|
|
$
|
4,598,282
|
|
|
$
|
11,970,564
|
|
|
$
|
177,457
|
|
Cash and cash equivalents
|
|
|
(3,500,000
|
)
|
|
|
(2,175,000
|
)
|
|
|
(2,100,000
|
)
|
|
|
(2,931,250
|
)
|
|
|
(3,188,000
|
)
|
Cash at joint ventures and restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate tax deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents and other receivables, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rental income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(3,500,000
|
)
|
|
$
|
(2,123,944
|
)
|
|
$
|
2,498,282
|
|
|
$
|
9,039,314
|
|
|
$
|
(3,010,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Notes Payable
|
|
$
|
(3,500,000
|
)
|
|
$
|
|
|
|
$
|
2,400,000
|
|
|
$
|
5,443,750
|
|
|
$
|
|
|
Line of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,921,250
|
|
|
|
|
|
Loan payable (repayment with offering proceeds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,921,250
|
)
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Liabilities
|
|
|
|
|
|
|
|
|
|
|
98,282
|
|
|
|
3,595,564
|
|
|
|
|
|
Advance Rents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(3,500,000
|
)
|
|
|
|
|
|
|
2,498,282
|
|
|
|
9,039,314
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
(2,123,944
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,010,543
|
)
|
Limited partners interest in consolidated
Operating Partnership Series A preferred 9% convertible,
redeemable Operating Partnership units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
(3,500,000
|
)
|
|
$
|
(2,123,944
|
)
|
|
$
|
2,498,282
|
|
|
$
|
9,039,314
|
|
|
$
|
(3,010,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-4
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Balance
Sheet (Continued)
As of June 30, 2003
The following unaudited Pro Forma Condensed
Combined Balance Sheet is presented as if the Company had
completed the offering transaction acquired the properties and
completed the refinancing transactions all on June 30,
2003. This Pro Forma Condensed Combined Balance Sheet should be
read in conjunction with the Pro Forma Condensed Combined
Statement of Operations of the Company and the historical
financial statements and notes thereto of the Company included
in this prospectus for the six months ended June 30, 2003.
The Pro Forma Condensed Combined Balance Sheet is unaudited and
is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and completed the
refinancing transactions on June 30, 2003, nor does it
purport to represent the future financial position of the
Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Philadelphia
|
|
Acquisition of
|
|
Acquisition of
|
|
Acquisition of
|
|
|
Shopping Center
|
|
Columbus Crossing
|
|
Riverview I, II &
|
|
Lake Raystown
|
|
|
Transaction
|
|
Shopping Center
|
|
III Shopping Centers
|
|
Shopping Center
|
Description
|
|
(k)
|
|
(l)
|
|
(l)
|
|
(m)
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
42,557,110
|
|
|
$
|
25,109,884
|
|
|
$
|
47,502,219
|
|
|
$
|
8,287,202
|
|
Cash and cash equivalents
|
|
|
(41,320,000
|
)
|
|
|
(8,000,000
|
)
|
|
|
(54,900,000
|
)
|
|
|
(1,900,000
|
)
|
Cash at joint ventures and restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property deposits
|
|
|
(3,438,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate tax deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents and other receivables, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rental income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges, net
|
|
|
|
|
|
|
1,390,116
|
|
|
|
1,997,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(2,200,890
|
)
|
|
$
|
18,500,000
|
|
|
$
|
(5,400,000
|
)
|
|
$
|
6,387,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Notes Payable
|
|
$
|
|
|
|
$
|
18,500,000
|
|
|
$
|
|
|
|
$
|
5,600,000
|
|
Line of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Payable
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
Loan payable (repayment with offering proceeds)
|
|
|
(3,480,000
|
)
|
|
|
|
|
|
|
(1,000,000
|
)
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Liabilities
|
|
|
1,279,110
|
|
|
|
|
|
|
|
|
|
|
|
787,202
|
|
Advance Rents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(2,200,890
|
)
|
|
|
18,500,000
|
|
|
|
|
|
|
|
6,387,202
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in consolidated
Operating Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred 9% convertible,
redeemable Operating Partnership units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
|
|
|
|
|
|
|
|
(5,400,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
(5,400,000
|
)
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
(2,200,890
|
)
|
|
$
|
18,500,000
|
|
|
$
|
(5,400,000
|
)
|
|
$
|
6,387,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-5
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Balance
Sheet (Continued)
As of June 30, 2003
The following unaudited Pro Forma Condensed
Combined Balance Sheet is presented as if the Company had
completed the offering transaction acquired the properties and
completed the refinancing transactions all on June 30,
2003. This Pro Forma Condensed Combined Balance Sheet should be
read in conjunction with the Pro Forma Condensed Combined
Statement of Operations of the Company and the historical
financial statements and notes thereto of the Company included
in this prospectus for the six months ended June 30, 2003.
The Pro Forma Condensed Combined Balance Sheet is unaudited and
is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and completed the
refinancing transactions on June 30, 2003, nor does it
purport to represent the future financial position of the
Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-off of
|
|
Acquisition of
|
|
Acquisition of
|
|
Acquisition of
|
|
|
Hudson Realty/
|
|
Homburg OP
|
|
Cedar Bay
|
|
Mgmt
|
|
|
SWH Financing
|
|
Units
|
|
OP Units
|
|
Companies
|
Description
|
|
(n)
|
|
(o)
|
|
(p)
|
|
(q)
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,974,000
|
|
|
$
|
|
|
Cash and cash equivalents
|
|
|
(8,000,000
|
)
|
|
|
(3,600,000
|
)
|
|
|
(9,000,000
|
)
|
|
|
(1,450,000
|
)
|
|
|
|
2,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at joint ventures and restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate tax deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents and other receivables, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rental income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges, net
|
|
|
(405,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(6,055,972
|
)
|
|
$
|
(3,600,000
|
)
|
|
$
|
(7,026,000
|
)
|
|
$
|
(1,450,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Notes Payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Line of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Payable
|
|
|
2,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payable (repayment with offering proceeds)
|
|
|
(7,750,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000,000
|
)
|
Security Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance Rents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(5,400,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,000,000
|
)
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in consolidated
Operating Partnership
|
|
|
|
|
|
|
|
|
|
|
(7,026,000
|
)
|
|
|
|
|
Series A preferred 9% convertible,
redeemable Operating Partnership units
|
|
|
|
|
|
|
(3,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,000,000
|
)
|
|
|
(7,026,000
|
)
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,375
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
(655,972
|
)
|
|
|
(600,000
|
)
|
|
|
|
|
|
|
(459,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders Equity
|
|
|
(655,972
|
)
|
|
|
(600,000
|
)
|
|
|
|
|
|
|
(450,000
|
)
|
Total liabilities and shareholders equity
|
|
$
|
(6,055,972
|
)
|
|
$
|
(3,600,000
|
)
|
|
$
|
(7,026,000
|
)
|
|
$
|
(1,450,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Balance
Sheet (Continued)
As of June 30, 2003
The following unaudited Pro Forma Condensed
Combined Balance Sheet is presented as if the Company had
completed the offering transaction acquired the properties and
completed the refinancing transactions all on June 30,
2003. This Pro Forma Condensed Combined Balance Sheet should be
read in conjunction with the Pro Forma Condensed Combined
Statement of Operations of the Company and the historical
financial statements and notes thereto of the Company included
in this prospectus for the six months ended June 30, 2003.
The Pro Forma Condensed Combined Balance Sheet is unaudited and
is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and completed the
refinancing transactions on June 30, 2003, nor does it
purport to represent the future financial position of the
Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refinancing of
|
|
Pay-off Selbridge
|
|
|
|
|
Washington Center
|
|
Loans
|
|
Pro Forma
|
Description
|
|
Mortgage(r)
|
|
Payable(s)
|
|
June 30, 2003
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
328,735,890
|
|
Cash and cash equivalents
|
|
|
(6,963,159
|
)
|
|
|
(887,000
|
)
|
|
|
1,117,000
|
|
|
|
|
8,800,000
|
|
|
|
|
|
|
|
|
|
Cash at joint ventures and restricted cash
|
|
|
|
|
|
|
|
|
|
|
2,818,000
|
|
Property deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate tax deposits
|
|
|
|
|
|
|
|
|
|
|
1,015,000
|
|
Rents and other receivables, net
|
|
|
|
|
|
|
|
|
|
|
495,000
|
|
Prepaid expenses, net
|
|
|
|
|
|
|
|
|
|
|
853,000
|
|
Deferred rental income
|
|
|
|
|
|
|
|
|
|
|
739,000
|
|
Deferred charges, net
|
|
|
|
|
|
|
|
|
|
|
7,150,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,836,841
|
|
|
$
|
(887,000
|
)
|
|
$
|
342,923,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Notes Payable
|
|
$
|
8,800,000
|
|
|
$
|
|
|
|
$
|
171,826,591
|
|
|
|
|
(5,863,159
|
)
|
|
|
|
|
|
|
|
|
Line of Credit
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
Loan Payable
|
|
|
|
|
|
|
(887,000
|
)
|
|
|
|
|
Loan payable (repayment with offering proceeds)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
|
|
|
1,380,000
|
|
Security Deposits
|
|
|
|
|
|
|
|
|
|
|
427,000
|
|
Deferred Liabilities
|
|
|
|
|
|
|
|
|
|
|
12,341,158
|
|
Advance Rents
|
|
|
|
|
|
|
|
|
|
|
917,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,936,841
|
|
|
$
|
(887,000
|
)
|
|
$
|
196,891,749
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
12,656,511
|
|
Limited partners interest in consolidated
Operating Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred 9% convertible,
redeemable Operating Partnership units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
118,612
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(276,000
|
)
|
Additional paid in capital
|
|
|
(1,100,000
|
)
|
|
|
|
|
|
|
133,532,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders Equity
|
|
|
(1,100,000
|
)
|
|
|
|
|
|
|
133,375,437
|
|
Total liabilities and shareholders equity
|
|
$
|
1,836,841
|
|
|
$
|
(887,000
|
)
|
|
$
|
342,923,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-7
Cedar Shopping Centers, Inc.
Notes to Pro Forma Financial
Statements
Pro Forma Condensed Combined Balance
Sheet
|
|
|
a.
|
|
Reflects the Companys historical balance
sheet as of June 30, 2003.
|
b.
|
|
Reflects the Companys offering of
approximately 9,524,000 shares at $16 per share less costs to
complete the equity transaction of approximately $13,714,000 and
a draw on the line of credit of $10,000,000.
|
c.
|
|
Reflects the acquisition of the remaining 50%
interest of The Point Shopping Center through use of proceeds of
approximately $2,400,000.
|
d.
|
|
Reflects the acquisition of a Giant Shopping
Store located at Loyal Plaza Associates LP through the use
of proceeds of approximately $5,400,000 (including $500,000 of
closing costs).
|
e.
|
|
Reflects the acquisition of the Golden Triangle
Shopping Center for approximately $11,500,000 (including closing
costs of $600,000) through use of proceeds of approximately
$2,100,000 and the assumption of a mortgage note payable of
approximately $9,880,000. Included in real estate is an
additional asset of $662,882 related to a FAS 141/142
adjustment.
|
f.
|
|
Reflects the pay-off of the loan payable
associated with Valley Plaza Shopping Center for approximately
$3,500,000 of proceeds.
|
g.
|
|
Reflects the pay-off of the limited
partners equity associated with Pine Grove Shopping Center
for approximately $2,175,000 of proceeds.
|
h.
|
|
Reflects the acquisition of Huntingdon Plaza
Shopping Center for approximately $4,500,000 (including closing
costs of $500,000) through use of proceeds of approximately
$2,100,000 and the origination of a mortgage in the amount of
$2,400,000. Included in real estate is a liability of $98,282
related to a FAS 141/142 adjustment.
|
i.
|
|
Reflects the acquisition of Wal-Mart Shopping
Center for approximately $9,365,000 (including closing costs of
$875,000) through use of proceeds of approximately $3,921,000
and the assumption of a mortgage in the amount of $5,443,750.
Included in real estate is a liability of $3,595,564 related to
a FAS 141/142 adjustment.
|
j.
|
|
Reflects the pay-off of the limited
partners equity associated with Swede Square for
approximately $3,188,000 of proceeds.
|
k.
|
|
Reflects the South Philadelphia Shopping Center
transaction for approximately $41,600,000 (including closing
costs of approximately $2,600,000) through use of proceeds of
approximately $41,320,000. Included in real estate is a
liability of $1,279,110 related to a FAS 141/142 adjustment.
|
l.
|
|
Reflects the acquisition of Columbus Crossing
Shopping Center and Riverview I, II & III Shopping
Center for approximately $76,000,000 (including closing costs of
$2,500,000) through use of proceeds of approximately
$62,7000,000 and obtaining a new mortgage note payable in the
amount of $18,500,000 and a prepayment penalty in the amount of
$5,200,000 paid in relation to paying off the then existing
mortgage on the Riverview Property. Included in real estate is
an additional asset of $3,387,897 related to a FAS 141/142
adjustment.
|
m.
|
|
Reflects the acquisition of Lake Raystown
Shopping Center for approximately $7,500,000 (including closing
costs of $500,000) through use of proceeds of approximately
$1,900,000 and the origination of a new mortgage in the amount
of $5,600,000. Included in real estate is a liability of
$787,202 related to a FAS 141/142 adjustment.
|
n.
|
|
Reflects the obtaining of new financing of
approximately $2,350,000 and then pay-off of loan payable
related to Hudson Realty/ SWH financing of approximately
$8,000,000 (including exit fee of $250,000), through use of
proceeds.
|
F-8
|
|
|
o.
|
|
Reflects the acquisition of the Series A
preferred convertible redeemable operating partnership units for
approximately $3,600,000, through use of proceeds (including a
premium of 120% of liquidation value).
|
p.
|
|
Reflects the acquisition of the Cedar Bay
Operating Partnership Units at a value of
$ per unit for approximately
$9,000,000, through use of proceeds.
|
q.
|
|
Reflects the termination of the management
contracts with CBRA, SKR and Brentway Management for $15,000,000
of common stock at an offering price of $16 a share and the
payment of all accrued fees owed to the management companies of
approximately $1,000,000 and the payment of advisory fees
related to the consummation of the merger. For accounting
purposes the Mergers are not considered the acquisition of a
business for the purposes of applying Financial
Accounting Standards Board Statement 141 Business
Combinations and, therefore, the market value of the
common stock issued, valued as of the consummation of the
Mergers, in excess of the fair value of the net tangible assets
acquired will be charged to operating income rather than
capitalized as goodwill. The Company is in the process of
determining the value attributable to the joint venture and the
third party management contracts.
|
r.
|
|
Reflects the refinancing of the Washington Center
Shoppes mortgage note payable of $5,863,159 (including a
prepayment penalty of $1,100,000) with a new mortgage in the
amount of $8,800,000.
|
s.
|
|
Reflects the pay-off of a loan payable with
Selbridge related to the acquisition of the Red Lion Shopping
Center of approximately $1,000,000 (including exit fees of
approximately $113,000).
|
F-9
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations
For the six months ended June 30,
2003
The following unaudited Pro Forma Condensed
Combined Statement of Operations is presented as if the Company
completed the offering transaction, acquired the properties and
the management companies and completed the refinancing
transactions all as of January 1, 2003, and the Company
qualified as a REIT, distributed 90% of its taxable income and,
therefore, incurred no income tax expense during the period.
This Pro Forma Condensed Combined Statement of Operations should
be read in conjunction with the Pro Forma Condensed Combined
Balance Sheet of the Company and the historical financial
statements and notes thereto of the Company included in this
prospectus for the six months ended June 30, 2003. The Pro
Forma Condensed Combined Statement of Operations is unaudited
and is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and the management
companies and completed the refinancing transactions all as of
January 1, 2003, nor does it purport to represent the
future financial position of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
|
|
|
|
|
|
|
the remaining
|
|
Acquisition of
|
|
Acquisition of
|
|
|
Cedar
|
|
50% ownership
|
|
the Giant
|
|
Golden
|
|
|
Shopping
|
|
of The Point
|
|
Store at
|
|
Triangle
|
|
|
Centers Inc.
|
|
Shopping
|
|
Loyal
|
|
Shopping
|
Description
|
|
Historical (t)
|
|
Center (u)
|
|
Plaza (v)
|
|
Center (w)
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent
|
|
$
|
11,203,000
|
|
|
$
|
|
|
|
$
|
588,072
|
|
|
$
|
706,438
|
|
Interest and other
|
|
|
219,000
|
|
|
|
|
|
|
|
|
|
|
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
11,422,000
|
|
|
|
|
|
|
|
588,072
|
|
|
|
707,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
3,206,000
|
|
|
|
|
|
|
|
309,029
|
|
|
|
145,750
|
|
Real estate taxes
|
|
|
1,232,000
|
|
|
|
|
|
|
|
|
|
|
|
120,769
|
|
Administrative
|
|
|
1,172,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,290,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,767,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
11,667,000
|
|
|
|
|
|
|
|
309,029
|
|
|
|
266,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
(245,000
|
)
|
|
|
|
|
|
|
279,043
|
|
|
|
441,365
|
|
Termination fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest
|
|
|
449,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to preferred shareholders
|
|
|
(21,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
(422,000
|
)
|
|
|
23,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(239,000
|
)
|
|
$
|
23,314
|
|
|
$
|
279,043
|
|
|
$
|
441,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Income per Share
|
|
|
($0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-10
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations (Continued)
For the six months ended June 30,
2003
The following unaudited Pro Forma Condensed
Combined Statement of Operations is presented as if the Company
completed the offering transaction, acquired the properties and
the management companies and completed the refinancing
transactions all as of January 1, 2003, and the Company
qualified as a REIT, distributed 90% of its taxable income and,
therefore, incurred no income tax expense during the period.
This Pro Forma Condensed Combined Statement of Operations should
be read in conjunction with the Pro Forma Condensed Combined
Balance Sheet of the Company and the historical financial
statements and notes thereto of the Company included in this
prospectus for the six months ended June 30, 2003. The Pro
Forma Condensed Combined Statement of Operations is unaudited
and is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and the management
companies and completed the refinancing transactions all as of
January 1, 2003, nor does it purport to represent the
future financial position of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
|
|
|
|
|
Acquisition
|
|
Acquisition of
|
|
Huntingdon
|
|
Acquisition of
|
|
Acquisition of
|
|
|
of Valley Plaza
|
|
Pine Grove
|
|
Plaza
|
|
Wal-Mart
|
|
Swede Square
|
Description
|
|
Shopping Center (x)
|
|
Shopping Center (y)
|
|
Shopping Center (z)
|
|
Shopping Center (aa)
|
|
(bb)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent
|
|
$
|
526,167
|
|
|
$
|
284,672
|
|
|
$
|
194,624
|
|
|
$
|
492,934
|
|
|
$
|
387,359
|
|
Interest and other
|
|
|
141
|
|
|
|
|
|
|
|
4,272
|
|
|
|
36,296
|
|
|
|
61,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
526,308
|
|
|
|
284,672
|
|
|
|
198,896
|
|
|
|
529,230
|
|
|
|
449,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
79,400
|
|
|
|
133,438
|
|
|
|
115,156
|
|
|
|
221,832
|
|
|
|
65,757
|
|
Real estate taxes
|
|
|
35,271
|
|
|
|
|
|
|
|
33,154
|
|
|
|
76,651
|
|
|
|
47,857
|
|
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(94,441
|
)
|
|
|
|
|
|
|
|
|
|
|
(59,345
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
(43,725
|
)
|
|
|
|
|
|
|
|
|
|
|
(29,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
114,671
|
|
|
|
(4,728
|
)
|
|
|
148,310
|
|
|
|
298,483
|
|
|
|
24,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
411,637
|
|
|
|
289,400
|
|
|
|
50,586
|
|
|
|
230,747
|
|
|
|
424,347
|
|
Termination fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
411,637
|
|
|
$
|
289,400
|
|
|
$
|
50,586
|
|
|
$
|
230,747
|
|
|
$
|
424,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Income per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations (Continued)
For the six months ended June 30,
2003
The following unaudited Pro Forma Condensed
Combined Statement of Operations is presented as if the Company
completed the offering transaction, acquired the properties and
the management companies and completed the refinancing
transactions all as of January 1, 2003, and the Company
qualified as a REIT, distributed 90% of its taxable income and,
therefore, incurred no income tax expense during the period.
This Pro Forma Condensed Combined Statement of Operations should
be read in conjunction with the Pro Forma Condensed Combined
Balance Sheet of the Company and the historical financial
statements and notes thereto of the Company included in this
prospectus for the six months ended June 30, 2003. The Pro
Forma Condensed Combined Statement of Operations is unaudited
and is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and the management
companies and completed the refinancing transactions all as of
January 1, 2003, nor does it purport to represent the
future financial position of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
|
|
|
|
|
|
|
|
|
|
|
the Columbus
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
Crossing and
|
|
Acquisition
|
|
|
|
of Halifax,
|
|
|
|
|
South
|
|
Riverview
|
|
of Lake
|
|
Pay-off of
|
|
Fairview and
|
|
|
|
|
Philadelphia
|
|
I, II & III
|
|
Raystown
|
|
the Hudson
|
|
Newport
|
|
Refinancing of
|
|
|
Shopping Center
|
|
Shopping
|
|
Shopping
|
|
Realty/SWH
|
|
Shopping
|
|
Washington
|
Description
|
|
Transaction (cc)
|
|
Centers (dd)
|
|
Center (ee)
|
|
Financing (ff)
|
|
Centers (gg)
|
|
Center (hh)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent
|
|
$
|
1,915,174
|
|
|
$
|
4,082,404
|
|
|
$
|
405,083
|
|
|
$
|
|
|
|
$
|
136,585
|
|
|
$
|
|
|
Interest and other
|
|
|
357
|
|
|
|
586
|
|
|
|
718
|
|
|
|
|
|
|
|
29,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,915,531
|
|
|
|
4,082,990
|
|
|
|
405,801
|
|
|
|
|
|
|
|
165,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
270,093
|
|
|
|
691,769
|
|
|
|
103,177
|
|
|
|
|
|
|
|
34,783
|
|
|
|
|
|
Real estate taxes
|
|
|
228,646
|
|
|
|
246,305
|
|
|
|
25,389
|
|
|
|
|
|
|
|
16,991
|
|
|
|
|
|
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
5,200,000
|
|
|
|
|
|
|
|
(384,380
|
)
|
|
|
55,883
|
|
|
|
1,258,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222,602
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,469
|
)
|
|
|
28,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
498,739
|
|
|
|
6,138,074
|
|
|
|
128,566
|
|
|
|
(469,849
|
)
|
|
|
136,357
|
|
|
|
1,035,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
1,416,792
|
|
|
|
(2,055,084
|
)
|
|
|
277,235
|
|
|
|
469,849
|
|
|
|
29,390
|
|
|
|
(1,035,798
|
)
|
Termination fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
1,416,792
|
|
|
$
|
(2,055,084
|
)
|
|
$
|
277,235
|
|
|
$
|
469,849
|
|
|
$
|
4,409
|
|
|
$
|
(1,035,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Income per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-12
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations (Continued)
For the six months ended June 30,
2003
The following unaudited Pro Forma Condensed
Combined Statement of Operations is presented as if the Company
completed the offering transaction, acquired the properties and
the management companies and completed the refinancing
transactions all as of January 1, 2003, and the Company
qualified as a REIT, distributed 90% of its taxable income and,
therefore, incurred no income tax expense during the period.
This Pro Forma Condensed Combined Statement of Operations should
be read in conjunction with the Pro Forma Condensed Combined
Balance Sheet of the Company and the historical financial
statements and notes thereto of the Company included in this
prospectus for the six months ended June 30, 2003. The Pro
Forma Condensed Combined Statement of Operations is unaudited
and is not necessarily indicative of what the actual financial
results would have been had the Company completed the offering
transaction, acquired the properties and the management
companies and completed the refinancing transactions all as of
January 1, 2003, nor does it purport to represent the
future financial position of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
Acquisition of
|
|
|
|
|
|
|
Acquisition of
|
|
the Cedar Bay
|
|
Homburg
|
|
|
|
|
|
|
the Management
|
|
Limited Partner
|
|
OP Units
|
|
Pro Forma
|
|
Pro Forma
|
Description
|
|
Companies
|
|
Units (oo)
|
|
(pp)
|
|
Adjustments
|
|
June 30, 2003
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
79,095
|
(qq)
|
|
$
|
20,705,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(296,166
|
)(rr)
|
|
|
|
|
Interest and other
|
|
|
278,927
|
(ii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
278,927
|
|
|
|
|
|
|
|
|
|
|
|
(217,071
|
)
|
|
|
21,338,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(550,941
|
)(jj)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,283,258
|
|
|
|
|
2,747,500
|
(kk)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
710,515
|
(ll)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,063,033
|
|
Administrative
|
|
|
794,000
|
(mm)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
|
(466,000
|
)(jj)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,606,583
|
(ss)
|
|
|
11,650,098
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,837,654
|
(tt)
|
|
|
3,474,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,235,074
|
|
|
|
|
|
|
|
|
|
|
|
3,489,237
|
|
|
|
26,970,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
(2,956,147
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,706,308
|
)
|
|
|
(5,632,946
|
)
|
Termination fees
|
|
|
(15,000,000
|
)(nn)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,000,000
|
)
|
Limited partners interest
|
|
|
|
|
|
|
(449,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to preferred shareholders
|
|
|
|
|
|
|
|
|
|
|
21,000
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(423,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(17,956,147
|
)
|
|
$
|
(449,000
|
)
|
|
$
|
21,000
|
|
|
$
|
(3,706,308
|
)
|
|
$
|
(21,056,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Income per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations (Continued)
For the six months ended June 30,
2003
Pro Forma Condensed Combined Statement of
Operations for the six months ended June 30, 2003
|
|
t.
|
Reflects the historical operations of the Company
for the six months ended June 30, 2003, as previously filed.
|
|
u.
|
Reflects the acquisition of the remaining 50%
interest in The Point Associates Shopping Center for the six
months ended June 30, 2003.
|
|
v.
|
Reflects the operations of the Giants Foods Store
located at Loyal Plaza for the six months ended June 30,
2003.
|
|
w.
|
Reflects the operations of Golden Triangle
Shopping Center for the six months ended June 30, 2003.
|
|
x.
|
Reflects the operations of Valley Plaza Shopping
Center for the six months ended June 30, 2003.
|
|
y.
|
Reflects the operations of Pine Grove Shopping
Center for the six months ended June 30, 2003.
|
|
z.
|
Reflects the operations of Huntingdon Plaza
Shopping Center for the six months ended June 30, 2003.
|
|
aa.
|
Reflects the operations of Wal-Mart Shopping
Center for the six months ended June 30, 2003.
|
|
bb.
|
Reflects the operations of Swede Square for the
six months ended June 30, 2003.
|
|
cc.
|
Reflects the operations of South Philadelphia
Shopping Center for the six months ended June 30, 2003.
|
|
dd.
|
Reflects the operations of Columbus Crossing
Shopping Center and the Riverview I, II & III Shopping
Centers for the six months ended June 30, 2003 (including a
one-time loan defeasance cost of $5,200,000).
|
|
ee.
|
Reflects the operations of Lake Raystown Shopping
Center for the six months ended June 30, 2003.
|
|
ff.
|
Reflects the pay-down of the Hudson Realty/ SWH
loan payable for the six months ended June 30, 2003.
|
|
gg.
|
Reflects the operations for Halifax, Fairview and
Newport Shopping Centers for the period from January 1,
2003 through the date of their acquisitions.
|
|
hh.
|
Reflects the refinancing of the Washington Center
mortgage as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
Interest
|
|
|
Balance
|
|
Expense
|
|
|
|
|
|
Original Mortgage
|
|
$
|
5,863,159
|
|
|
$
|
(222,602
|
)
|
New Mortgage
|
|
|
8,800,000
|
|
|
|
158,400
|
|
One-time Defeasance Cost of Original Mortgage
|
|
|
|
|
|
|
1,100,000
|
|
|
|
ii.
|
Reflects the management fee income associated
with the continuance of the management of the joint venture
properties and properties outside of the Cedar Shopping Centers
Inc., as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
|
|
Minority
|
|
|
Property
|
|
Fees
|
|
Share
|
|
Fee Income
|
|
|
|
|
|
|
|
API Red Lion
|
|
$
|
69,353
|
|
|
|
80
|
%
|
|
$
|
55,824
|
|
Loyal Plaza
|
|
|
49,294
|
|
|
|
75
|
%
|
|
|
36,971
|
|
Halifax, Newport & Fairview
|
|
|
44,474
|
|
|
|
70
|
%
|
|
|
31,132
|
|
Shore Mall
|
|
|
155,000
|
|
|
|
|
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
318,121
|
|
|
|
|
|
|
$
|
278,927
|
|
F-14
|
|
jj.
|
Reflects the elimination of management, advisory
fees and legal fees paid to CBRA, SKR Management and other third
party management, as a result of the consummation of the Merger,
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
|
Legal and
|
Entity
|
|
Fees
|
|
Cedar Income Fund
|
|
Advisory
|
|
|
|
|
|
|
|
Cedar Income Fund
|
|
$
|
393,000
|
|
|
|
Legal
|
|
|
$
|
82,000
|
|
Golden Triangle
|
|
|
20,161
|
|
|
Advisory fees
|
|
|
384,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valley Plaza
|
|
|
12,000
|
|
|
|
|
|
|
$
|
466,000
|
|
Pine Grove
|
|
|
21,863
|
|
|
|
|
|
|
|
|
|
Huntingdon Plaza
|
|
|
27,800
|
|
|
|
|
|
|
|
|
|
Southington
|
|
|
19,109
|
|
|
|
|
|
|
|
|
|
Swede Square
|
|
|
3,508
|
|
|
|
|
|
|
|
|
|
South Philadelphia
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
Lake Raystown
|
|
|
29,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
550,941
|
|
|
|
|
|
|
|
|
|
|
|
kk.
|
Reflects the one-time changes for salary expense
related to the stock compensation given by Leo S. Ullman,
President, to current employees from the stock he received for
the Management Companies.
|
|
ll.
|
Reflects the management costs incurred to operate
all of the new acquisition properties.
|
|
mm.
|
Represents additional estimated general and
administrative costs expected to be incurred as a result of the
Merger and the acquisition of the new properties. Components of
such costs are as follows:
|
|
|
|
|
|
|
|
For the Six
|
|
|
Months Ended
|
Description
|
|
June 30, 2003
|
|
|
|
Employee compensation
|
|
$
|
1,200,000
|
|
Other General and administrative costs
|
|
|
300,000
|
|
|
|
|
|
|
|
|
$
|
1,500,000
|
|
|
|
nn.
|
Reflects the fair value of the management
companies being expensed as a current charge to operations. For
accounting purposes the Mergers are not considered the
acquisition of a business for the purposes of
applying Financial Accounting Standards Board Statement 141
Business Combinations and, therefore, the market
value of the common stock issued, valued as of the consummation
of the Mergers, in excess of the fair value of the net tangible
assets acquired will be charged to operating income rather than
capitalized as goodwill.
|
|
oo.
|
Reflects the acquisition of the Cedar Bay Limited
Partners Operating Partnership Units.
|
|
pp.
|
Reflects the acquisition of all of the Preferred
Operating Partners Units.
|
F-15
|
|
qq.
|
Reflects the increase in the straight line rental
income associated with the acquisitions of Valley Plaza, Pine
Grove, Southington Plaza, Swede Square, South Philadelphia,
Golden Triangle, Lake Raystown, Huntingdon Plaza, Riverview,
Columbus Crossing as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Straight Line
|
|
|
|
|
As acquired
|
|
Adjustment as
|
|
|
|
|
Straight Line
|
|
Acquired on
|
|
Pro Forma
|
Property
|
|
Adjustment
|
|
January 1, 2003
|
|
Adjustment
|
|
|
|
|
|
|
|
Golden Triangle
|
|
$
|
7,403
|
|
|
$
|
2,889
|
|
|
$
|
(4,514
|
)
|
Valley Plaza
|
|
|
9,501
|
|
|
|
21,557
|
|
|
|
12,056
|
|
Pine Grove
|
|
|
19,600
|
|
|
|
3,850
|
|
|
|
(15,750
|
)
|
Huntingdon Plaza
|
|
|
1,035
|
|
|
|
1,832
|
|
|
|
797
|
|
Wal-Mart
|
|
|
22,579
|
|
|
|
28,512
|
|
|
|
5,933
|
|
Swede Square
|
|
|
6,525
|
|
|
|
8,587
|
|
|
|
2,062
|
|
South Philadelphia
|
|
|
119,177
|
|
|
|
141,277
|
|
|
|
22,100
|
|
Columbus Crossing and Riverview I,
II & III
|
|
|
83,868
|
|
|
|
136,178
|
|
|
|
52,310
|
|
Lake Raystown
|
|
|
10,301
|
|
|
|
14,401
|
|
|
|
4,100
|
|
Giant at Loyal Plaza
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,094
|
|
|
|
rr.
|
Reflects the FAS 141/142 adjustment to
rental income related to the newly acquired properties.
|
|
ss.
|
Reflects the increase in interest expense related
to the acquisition of Golden Triangle, Valley Plaza, Pine Grove,
Southington, Swede Square and the Blattstein Properties as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
for the Six
|
|
|
Principal
|
|
|
|
Months Ended
|
Property
|
|
Amount
|
|
Interest Rate
|
|
June 30, 2003
|
|
|
|
|
|
|
|
Golden Triangle
|
|
$
|
9,880,000
|
|
|
|
7.69
|
%
|
|
$
|
379,886
|
|
Valley Plaza
|
|
|
6,429,800
|
|
|
|
LIBOR + 2.5
|
%
(1)
|
|
|
115,736
|
|
Pine Grove
|
|
|
5,963,000
|
|
|
|
6.24
|
%
|
|
|
186,046
|
|
Huntingdon Plaza
|
|
|
2,400,000
|
|
|
|
6.00
|
%
|
|
|
72,000
|
|
Lake Raystown
|
|
|
5,600,000
|
|
|
|
6.00
|
%
|
|
|
168,000
|
|
Wal-Mart
|
|
|
5,443,750
|
|
|
|
LIBOR + 2.5
|
%
(1)
|
|
|
97,988
|
|
Swede Square
|
|
|
5,560,000
|
|
|
|
7.25
|
%
|
|
|
201,551
|
|
Draw on line of credit
|
|
|
10,000,000
|
|
|
|
LIBOR + 2.25
|
%
(1)
|
|
|
168,000
|
|
Columbus Crossing
|
|
|
18,500,000
|
|
|
|
LIBOR + 1.25
|
%
(1)
|
|
|
217,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
102,517,500
|
|
|
|
|
|
|
$
|
1,606,583
|
|
|
|
|
|
(1)
|
As of June 30, 2003 the LIBOR
rate is 1.10%.
|
|
|
tt.
|
Reflects the increase in depreciation expense
associated with the acquisitions of Valley Plaza, Pine Grove,
Wal-Mart, Swede Square, South Philadelphia, Golden Triangle,
Lake Raystown, Huntingdon
|
F-16
|
|
|
Plaza, Riverview, Columbus Crossing and for
Halifax, Newport and Fairview from January 1, 2003 through
their respective dates of acquisition as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
|
Price
|
|
|
|
Depreciation Expense
|
|
|
Adjusted
|
|
Depreciable
|
|
for the Six Months
|
Property
|
|
FAS 14/142
|
|
Base(1)
|
|
Ended June 30, 2003
|
|
|
|
|
|
|
|
Golden Triangle
|
|
$
|
11,317,118
|
|
|
$
|
9,053,694
|
|
|
$
|
113,171
|
|
Halifax, Newport and Fairview
(2)
|
|
|
20,471,000
|
|
|
|
16,376,800
|
|
|
|
27,246
|
|
The Point
|
|
|
1,275,998
|
|
|
|
1,020,798
|
|
|
|
12,760
|
|
Valley Plaza
|
|
|
9,784,700
|
|
|
|
7,827,750
|
|
|
|
97,847
|
|
Pine Grove
|
|
|
8,065,080
|
|
|
|
6,452,064
|
|
|
|
80,651
|
|
Huntingdon Plaza
|
|
|
4,598,282
|
|
|
|
3,678,626
|
|
|
|
45,983
|
|
Wal-Mart
|
|
|
11,970,564
|
|
|
|
9,576,451
|
|
|
|
109,706
|
|
Swede Square
|
|
|
8,060,030
|
|
|
|
6,448,023
|
|
|
|
80,600
|
|
South Philadelphia
|
|
|
42,557,110
|
|
|
|
34,045,688
|
|
|
|
415,571
|
|
Columbus Crossing and Riverview I,
II & III
|
|
|
72,612,103
|
|
|
|
58,089,682
|
|
|
|
717,247
|
|
Lake Raystown
|
|
|
8,287,202
|
|
|
|
6,629,762
|
|
|
|
82,872
|
|
Giant at Loyal Plaza
|
|
|
5,400,000
|
|
|
|
4,320,000
|
|
|
|
54,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,837,654
|
|
|
|
|
|
(1)
|
The depreciable base represents 80% of the
purchase price of the property.
|
|
|
(2)
|
Represents the depreciation expense for the
period from January 1, 2003 through the dates of
acquisition.
|
F-17
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations
For the twelve months ended December 31,
2002
The following unaudited Pro Forma Condensed
Combined Statement of Operations is presented as if the Company
completed the offering transaction, acquired the properties and
the management companies and completed the refinancing
transactions all as of January 1, 2002, and the Company
qualified as a REIT, distributed 90% of its taxable income and,
therefore, incurred no income tax expense during the period.
This Pro Forma Condensed Combined Statement of Operations should
be read in conjunction with the Pro Forma Condensed Combined
Balance Sheet of the Company and the historical financial
statements and notes thereto of the Company included in this
prospectus for the twelve months ended December 31, 2002.
The Pro Forma Condensed Combined Statement of Operations is
unaudited and is not necessarily indicative of what the actual
financial results would have been had the Company completed the
offering transaction, acquired the properties and the management
companies and completed the refinancing transactions all as of
January 1, 2002, nor does it purport to represent the
future financial position of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
|
|
|
|
|
Cedar
|
|
|
|
the remaining
|
|
Acquisition of
|
|
Acquisition
|
|
|
Shopping
|
|
|
|
50% ownership
|
|
the Giant
|
|
of Golden
|
|
|
Centers Inc.
|
|
Completed
|
|
of The Point
|
|
Store at
|
|
Triangle
|
|
|
Historical
|
|
Transactions
|
|
Shopping Center
|
|
Loyal Plaza
|
|
Shopping
|
Description
|
|
(uu)
|
|
(vv)
|
|
(ww)
|
|
(xx)
|
|
Center (yy)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent
|
|
$
|
12,964,000
|
|
|
$
|
8,277,000
|
|
|
$
|
|
|
|
$
|
1,176,144
|
|
|
$
|
1,280,452
|
|
Interest and other income
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
12,989,000
|
|
|
|
8,277,000
|
|
|
|
|
|
|
|
1,176,144
|
|
|
|
1,280,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,313,000
|
|
|
|
2,417,000
|
|
|
|
|
|
|
|
618,057
|
|
|
|
236,217
|
|
Real estate taxes
|
|
|
1,527,000
|
|
|
|
701,000
|
|
|
|
|
|
|
|
|
|
|
|
233,102
|
|
Administrative
|
|
|
2,005,000
|
|
|
|
727,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
6,010,000
|
|
|
|
3,024,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,546,000
|
|
|
|
1,158,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
14,401,000
|
|
|
|
8,027,000
|
|
|
|
|
|
|
|
618,057
|
|
|
|
469,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
(1,412,000
|
)
|
|
|
250,000
|
|
|
|
|
|
|
|
558,087
|
|
|
|
811,133
|
|
Termination fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest
|
|
|
1,152,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
(159,000
|
)
|
|
|
(323,000
|
)
|
|
|
(99,617
|
)
|
|
|
|
|
|
|
|
|
Loss on sale of properties
|
|
|
(49,000
|
)
|
|
|
49,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(468,000
|
)
|
|
$
|
28,000
|
|
|
$
|
(99,617
|
)
|
|
$
|
558,087
|
|
|
$
|
811,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Income per Share
|
|
|
($0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations (Continued)
For the twelve months ended December 31,
2002
The following unaudited Pro Forma Condensed
Combined Statement of Operations is presented as if the Company
completed the offering transaction, acquired the properties and
the management companies and completed the refinancing
transactions all as of January 1, 2002, and the Company
qualified as a REIT, distributed 90% of its taxable income and,
therefore, incurred no income tax expense during the period.
This Pro Forma Condensed Combined Statement of Operations should
be read in conjunction with the Pro Forma Condensed Combined
Balance Sheet of the Company and the historical financial
statements and notes thereto of the Company included in this
prospectus for the twelve months ended December 31, 2002.
The Pro Forma Condensed Combined Statement of Operations is
unaudited and is not necessarily indicative of what the actual
financial results would have been had the Company completed the
offering transaction, acquired the properties and the management
companies and completed the refinancing transactions all as of
January 1, 2002, nor does it purport to represent the
future financial position of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
|
|
|
|
|
Acquisition
|
|
Acquisition of
|
|
Huntingdon
|
|
Acquisition of
|
|
|
|
|
of Valley Plaza
|
|
Pine Grove
|
|
Plaza
|
|
the Wal-Mart
|
|
Acquisition of
|
|
|
Shopping Center
|
|
Shopping Center
|
|
Shopping Center
|
|
Shopping Center
|
|
Swede Square
|
Description
|
|
(zz)
|
|
(aaa)
|
|
(bbb)
|
|
(ccc)
|
|
(ddd)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent
|
|
$
|
1,141,194
|
|
|
$
|
767,061
|
|
|
$
|
595,886
|
|
|
$
|
1,076,255
|
|
|
$
|
1,103,604
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
401
|
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,141,595
|
|
|
|
767,734
|
|
|
|
595,886
|
|
|
|
1,076,255
|
|
|
|
1,103,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
144,869
|
|
|
|
201,863
|
|
|
|
228,012
|
|
|
|
308,991
|
|
|
|
|
|
Real estate taxes
|
|
|
69,227
|
|
|
|
16,301
|
|
|
|
66,308
|
|
|
|
145,305
|
|
|
|
350,835
|
|
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
214,096
|
|
|
|
218,164
|
|
|
|
294,320
|
|
|
|
454,296
|
|
|
|
350,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
927,499
|
|
|
|
549,570
|
|
|
|
301,566
|
|
|
|
621,959
|
|
|
|
752,769
|
|
Termination fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
927,499
|
|
|
$
|
549,570
|
|
|
$
|
301,566
|
|
|
$
|
621,959
|
|
|
$
|
752,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Income per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations (Continued)
For the twelve months ended December 31,
2002
The following unaudited Pro Forma Condensed
Combined Statement of Operations is presented as if the Company
completed the offering transaction, acquired the properties and
the management companies and completed the refinancing
transactions all as of January 1, 2003, and the Company
qualified as a REIT, distributed 90% of its taxable income and,
therefore, incurred no income tax expense during the period.
This Pro Forma Condensed Combined Statement of Operations should
be read in conjunction with the Pro Forma Condensed Combined
Balance Sheet of the Company and the historical financial
statements and notes thereto of the Company included in this
prospectus for the twelve months ended December 31, 2002.
The Pro Forma Condensed Combined Statement of Operations is
unaudited and is not necessarily indicative of what the actual
financial results would have been had the Company completed the
offering transaction, acquired the properties and the management
companies and completed the refinancing transactions all as of
January 1, 2002, nor does it purport to represent the
future financial position of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
Acquisition
|
|
Acquisition
|
|
Acquisition
|
|
|
|
|
Philadelphia
|
|
of Columbus
|
|
of Riverview
|
|
of Lake
|
|
Pay-off of the
|
|
|
Shopping
|
|
Crossing
|
|
I, II & III
|
|
Raystown
|
|
Hudson
|
|
|
Center
|
|
Shopping
|
|
Shopping
|
|
Shopping
|
|
Realty/SWH
|
Description
|
|
Transaction (eee)
|
|
Center (fff)
|
|
Center (fff)
|
|
Center (ggg)
|
|
Financing (hhh)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent
|
|
$
|
3,085,134
|
|
|
$
|
2,576,713
|
|
|
$
|
5,291,659
|
|
|
$
|
822,010
|
|
|
$
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,086,414
|
|
|
|
2,576,713
|
|
|
|
5,291,659
|
|
|
|
822,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
459,453
|
|
|
|
310,672
|
|
|
|
580,822
|
|
|
|
188,222
|
|
|
|
|
|
Real estate taxes
|
|
|
364,208
|
|
|
|
147,264
|
|
|
|
345,259
|
|
|
|
51,054
|
|
|
|
|
|
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
5,200,000
|
|
|
|
|
|
|
|
(434,903
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(503,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
823,661
|
|
|
|
457,936
|
|
|
|
6,126,081
|
|
|
|
239,276
|
|
|
|
(938,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
2,262,753
|
|
|
|
2,118,777
|
|
|
|
(834,422
|
)
|
|
|
582,734
|
|
|
|
938,843
|
|
Termination fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
2,262,753
|
|
|
$
|
2,118,777
|
|
|
$
|
(834,422
|
)
|
|
$
|
582,734
|
|
|
$
|
938,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations (Continued)
For the twelve months ended December 31,
2002
The following unaudited Pro Forma Condensed
Combined Statement of Operations is presented as if the Company
completed the offering transaction, acquired the properties and
the management companies and completed the refinancing
transactions all as of January 1, 2002, and the Company
qualified as a REIT, distributed 90% of its taxable income and,
therefore, incurred no income tax expense during the period.
This Pro Forma Condensed Combined Statement of Operations should
be read in conjunction with the Pro Forma Condensed Combined
Balance Sheet of the Company and the historical financial
statements and notes thereto of the Company included in this
prospectus for the twelve months ended December 31, 2002.
The Pro Forma Condensed Combined Statement of Operations is
unaudited and is not necessarily indicative of what the actual
financial results would have been had the Company completed the
offering transaction, acquired the properties and the management
companies and completed the refinancing transactions all as of
January 1, 2002, nor does it purport to represent the
future financial position of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
|
|
|
|
|
|
|
|
|
the Cedar
|
|
|
|
|
|
|
|
|
Acquisition of
|
|
Bay Limited
|
|
Refinancing of
|
|
|
|
Pro Forma
|
|
|
the Management
|
|
Partners
|
|
Washington
|
|
Pro Forma
|
|
December 31,
|
Description
|
|
Companies
|
|
Units (ooo)
|
|
Center (ppp)
|
|
Adjustments
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
211,401
|
(qqq)
|
|
$
|
39,783,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(585,245
|
)(rrr)
|
|
|
|
|
Interest and other income
|
|
|
556,676
|
(iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
584,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
556,676
|
|
|
|
|
|
|
|
|
|
|
|
(373,844
|
)
|
|
|
40,367,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(873,709
|
)(jjj)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,049,499
|
|
|
|
|
5,495,000
|
(kkk)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,421,030
|
(lll)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,016,863
|
|
Administrative
|
|
|
838,000
|
(mmm)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
|
(570,000
|
)(jjj)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
1,416,800
|
|
|
|
3,213,161
|
(sss)
|
|
|
17,983,854
|
|
|
|
|
|
|
|
|
|
|
|
|
(445,204
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,695,636
|
(ttt)
|
|
|
6,895,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,310,321
|
|
|
|
|
|
|
|
971,596
|
|
|
|
6,908,797
|
|
|
|
45,945,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
(5,753,645
|
)
|
|
|
|
|
|
|
(971,596
|
)
|
|
|
(7,282,641
|
)
|
|
|
(5,578,614
|
)
|
Termination fees
|
|
|
(15,000,000
|
)(nnn)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,000,000
|
)
|
Limited partners interest
|
|
|
|
|
|
|
(1,204,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(581,617
|
)
|
Loss on sale of properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(20,753,645
|
)
|
|
$
|
(1,204,000
|
)
|
|
$
|
(971,596
|
)
|
|
$
|
(7,282,641
|
)
|
|
$
|
(21,160,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Income per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Cedar Shopping Centers, Inc.
Pro Forma Condensed Combined Statement of
Operations (Continued)
For the twelve months ended December 31,
2002
Pro Forma Condensed Combined Statement of
Operations for the twelve months ended December 31,
2002
|
|
uu.
|
Reflects the historical operations of the Company
for the twelve months ended December 31, 2002, as
previously filed.
|
|
vv.
|
Reflects the income statement effect of the sale
of Southpoint Parkway Center as of January 1, 2002, the
acquisition of Loyal Plaza, Red Lion and Camp Hill for the
period from January 1, 2002 through their dates of
acquisition, for Halifax, Newport and Fairview Shopping Centers
for the period from January 1, 2002 through
December 31, 2002 and for the refinancing of The Point
mortgage for the year ended December 31, 2002, as filed in
the 8-K dated April 17, 2003.
|
|
ww.
|
Reflects the acquisition of the remaining 50%
interest in The Point Shopping Center for the year ended
December 31, 2002.
|
|
xx.
|
Reflects the operations of the Giants Foods Store
located at Loyal Plaza for the year ended December 31, 2002.
|
|
yy.
|
Reflects the operations of Golden Triangle
Shopping Center for the year ended December 31, 2002.
|
|
zz.
|
Reflects the operations of Valley Plaza Shopping
Center for the year ended December 31, 2002.
|
|
aaa.
|
Reflects the operations of Pine Grove Shopping
Center for the year ended December 31, 2002.
|
|
bbb.
|
Reflects the operations of Huntingdon Plaza
Shopping Center for the year ended December 31, 2002.
|
|
ccc.
|
Reflects the operations of Wal-Mart Shopping
Center for the year ended December 31, 2002.
|
|
ddd.
|
Reflects the operations of Swede Square for the
year ended December 31, 2002.
|
|
eee.
|
Reflects the operations of South Philadelphia
Shopping Center for the year ended December 31, 2002.
|
|
fff.
|
Reflects the operations of the Columbus Crossing
Shopping Center and Riverview I, II and III Shopping
Centers for the year ended December 31, 2002 (including a
loan defeasance cost of $5,200,000).
|
|
ggg.
|
Reflects the operations of Lake Raystown Shopping
Center for the year ended December 31, 2002.
|
|
hhh.
|
Reflects the pay-down of the Hudson Realty/ SWH
loan payable for the year ended December 31, 2002.
|
|
iii.
|
Reflects the management fee income associated
with the continued management of the joint venture properties
and properties outside of the Cedar Shopping Centers Inc., as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
|
|
Property
|
|
Fees
|
|
Minority Interest
|
|
Minority Share
|
|
|
|
|
|
|
|
API Red Lion
|
|
$
|
142,258
|
|
|
|
80
|
%
|
|
$
|
113,806
|
|
Loyal Plaza
|
|
|
102,141
|
|
|
|
75
|
%
|
|
|
76,606
|
|
Halifax, Newport & Fairview
|
|
|
88,948
|
|
|
|
70
|
%
|
|
|
62,264
|
|
Shore Mall
|
|
|
304,000
|
|
|
|
|
|
|
|
304,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
637,347
|
|
|
|
|
|
|
$
|
556,676
|
|
F-22
|
|
jjj.
|
Reflects the elimination of management, advisory
fees and legal fees paid to CBRA, SKR Management and other third
party management, as a result of the consummation of the Merger
and the acquisition of the properties, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
|
Legal and
|
Entity
|
|
Fees
|
|
Cedar Income Fund
|
|
Advisory
|
|
|
|
|
|
|
|
Cedar Income Fund
|
|
$
|
536,000
|
|
|
|
Legal
|
|
|
$
|
210,000
|
|
Golden Triangle
|
|
|
40,866
|
|
|
Advisory fees
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valley Plaza
|
|
|
24,000
|
|
|
|
|
|
|
$
|
570,000
|
|
Pine Grove
|
|
|
22,016
|
|
|
|
|
|
|
|
|
|
Huntingdon Plaza
|
|
|
86,000
|
|
|
|
|
|
|
|
|
|
Wal-Mart
|
|
|
41,911
|
|
|
|
|
|
|
|
|
|
Swede Square
|
|
|
7,016
|
|
|
|
|
|
|
|
|
|
South Philadelphia
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
Lake Raystown
|
|
|
67,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
873,709
|
|
|
|
|
|
|
|
|
|
|
|
kkk.
|
Reflects the salary expense related to the stock
compensation given by Leo S. Ullman, President, from the
stock he received for the Management Companies.
|
|
lll.
|
Reflects additional management costs incurred to
operate all of the new acquisition properties.
|
|
mmm.
|
Represents the estimated general and
administrative costs expected to be incurred as a result of the
Merger. Components of such costs are as follows:
|
|
|
|
|
|
|
|
For the Year
|
|
|
Months Ended
|
|
|
December 31,
|
Description
|
|
2002
|
|
|
|
Employee compensation
|
|
$
|
2,400,000
|
|
Other general and administrative costs
|
|
|
600,000
|
|
|
|
|
|
|
|
|
$
|
3,000,000
|
|
|
|
nnn.
|
Reflects the fair value of the management
companies being expensed as a current charge to operations For
accounting purposes the Mergers are not considered the
acquisition of a business for the purposes of
applying Financial Accounting Standards Board Statement 141
Business Combinations and, therefore, the market
value of the common stock issued, valued as of the consummation
of the Mergers, in excess of the fair value of the net tangible
assets acquired will be charged to operating income rather than
capitalized as goodwill.
|
|
ooo.
|
Reflects the acquisition of Cedar Bay Limited
Partners Operating Partnership Units.
|
|
ppp.
|
Reflects the refinancing of the Washington Center
mortgage as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
Interest
|
|
|
Balance
|
|
Expense
|
|
|
|
|
|
Original Mortgage
|
|
$
|
5,863,159
|
|
|
$
|
(445,204
|
)
|
New Mortgage
|
|
|
8,800,000
|
|
|
|
316,800
|
|
Defeasance Cost of Original Mortgage
|
|
|
|
|
|
|
1,100,000
|
|
F-23
|
|
qqq.
|
Reflects the increase in the straight line rental
income associated with the acquisitions of Valley Plaza, Pine
Grove, Wal-Mart, Swede Square, South Philadelphia, Golden
Triangle, Lake Raystown, Huntingdon Plaza, Riverview I,
II & III, Columbus Crossing as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Straight Line
|
|
|
|
|
As acquired
|
|
Adjustment as
|
|
|
|
|
Straight Line
|
|
Acquired on
|
|
Pro Forma
|
Property
|
|
Adjustment
|
|
January 1, 2002
|
|
Adjustment
|
|
|
|
|
|
|
|
Golden Triangle
|
|
$
|
2,586
|
|
|
$
|
13,148
|
|
|
$
|
10,562
|
|
Valley Plaza
|
|
|
17,823
|
|
|
|
37,476
|
|
|
|
19,653
|
|
Pine Grove
|
|
|
25,323
|
|
|
|
79,133
|
|
|
|
53,810
|
|
Huntingdon Plaza
|
|
|
633
|
|
|
|
1,783
|
|
|
|
1,150
|
|
Southington
|
|
|
35,303
|
|
|
|
41,872
|
|
|
|
6,569
|
|
Swede Square
|
|
|
7,229
|
|
|
|
9,494
|
|
|
|
2,265
|
|
South Philadelphia
|
|
|
116,836
|
|
|
|
148,853
|
|
|
|
32,017
|
|
Columbus Crossing and Riverview I, II & III
|
|
|
183,555
|
|
|
|
262,679
|
|
|
|
79,124
|
|
Lake Raystown
|
|
|
13,223
|
|
|
|
19,474
|
|
|
|
6,251
|
|
Giant at Loyal Plaza
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
211,401
|
|
|
|
rrr.
|
Reflects the FAS 141/142 adjustment to rental
income related to the newly acquired properties.
|
|
sss.
|
Reflects the increase in interest expense related
to the acquisition of Golden Triangle, Valley Plaza, Pine Grove,
Wal-Mart, Swede Square and Columbus Crossing as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
for the Twelve
|
|
|
|
|
|
|
Months ended
|
|
|
Principal
|
|
|
|
December 31,
|
Property
|
|
Amount
|
|
Interest Rate
|
|
2002
|
|
|
|
|
|
|
|
Golden Triangle
|
|
$
|
9,880,000
|
|
|
|
7.69
|
%
|
|
$
|
759,772
|
|
Valley Plaza
|
|
|
6,429,800
|
|
|
|
LIBOR + 2.5
|
%
(1)
|
|
|
231,473
|
|
Pine Grove
|
|
|
5,963,000
|
|
|
|
6.24
|
%
|
|
|
372,091
|
|
Huntingdon Plaza
|
|
|
2,400,000
|
|
|
|
6.00
|
%
|
|
|
144,000
|
|
Lake Raystown
|
|
|
5,600,000
|
|
|
|
6.00
|
%
|
|
|
336,000
|
|
Wal-Mart
|
|
|
5,443,750
|
|
|
|
LIBOR + 2.5
|
%
(1)
|
|
|
195,975
|
|
Swede Square
|
|
|
5,560,000
|
|
|
|
7.25
|
%
|
|
|
403,100
|
|
Draw on line of credit
|
|
|
10,000,000
|
|
|
|
LIBOR + 2.5
|
%
(1)
|
|
|
336,000
|
|
Columbus Crossing
|
|
|
18,500,000
|
|
|
|
LIBOR + 1.25
|
%
(1)
|
|
|
434,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
102,517,500
|
|
|
|
|
|
|
$
|
3,213,161
|
|
|
|
|
|
(1)
|
As of June 30, 2003 the LIBOR rate is
1.10%.
|
|
|
ttt.
|
Reflects the increase in depreciation expense
associated with the acquisitions of Valley Plaza, Pine Grove,
Wal-Mart, Swede Square, South Philadelphia, Golden Triangle,
Lake Raystown, Hunting-
|
F-24
|
|
|
don Plaza, Riverview I,
II & III, Columbus Crossing and for Halifax,
Newport and Fairview from January 1, 2002 through their
respective dates of acquisition as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Purchase
|
|
|
|
expense for the
|
|
|
Price
|
|
|
|
Twelve Months
|
|
|
adjusted for
|
|
Depreciable
|
|
ended December 31,
|
Property
|
|
FAS 141/142
|
|
Base(1)
|
|
2003
|
|
|
|
|
|
|
|
Golden Triangle
|
|
$
|
11,317,118
|
|
|
$
|
9,053,694
|
|
|
$
|
226,342
|
|
Halifax, Newport and Fairview
|
|
|
20,471,000
|
|
|
|
16,376,800
|
|
|
|
74,820
|
|
The Point
|
|
|
1,275,998
|
|
|
|
1,020,798
|
|
|
|
25,520
|
|
Valley Plaza
|
|
|
9,784,700
|
|
|
|
7,827,750
|
|
|
|
195,694
|
|
Pine Grove
|
|
|
8,065,080
|
|
|
|
6,452,064
|
|
|
|
161,302
|
|
Huntingdon Plaza
|
|
|
4,598,282
|
|
|
|
3,678,626
|
|
|
|
91,966
|
|
Wal-Mart
|
|
|
11,970,564
|
|
|
|
9,576,451
|
|
|
|
219,412
|
|
Swede Square
|
|
|
8,060,030
|
|
|
|
6,448,023
|
|
|
|
161,200
|
|
South Philadelphia
|
|
|
42,557,110
|
|
|
|
34,045,688
|
|
|
|
831,142
|
|
Columbus Crossing and Riverview I, II & III
|
|
|
72,612,103
|
|
|
|
58,089,682
|
|
|
|
1,434,494
|
|
Lake Raystown
|
|
|
8,287,202
|
|
|
|
6,629,762
|
|
|
|
165,744
|
|
Giant at Loyal Plaza
|
|
|
5,400,000
|
|
|
|
4,320,000
|
|
|
|
108,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,695,636
|
|
|
|
|
|
(1)
|
The depreciable base represents
80% of the purchase price of the property.
|
F-25
Report of Independent Auditors
The Board of Directors and Shareholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the accompanying consolidated
balance sheets of Cedar Shopping Centers, Inc. (formerly known
as Cedar Income Fund, Ltd.) as of December 31, 2002 and
2001, and the related consolidated statements of operations,
shareholders equity and cash flows for each of the three
years in the period ended December 31, 2002. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements 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.
(formerly known as Cedar Income Fund, Ltd.) at December 31,
2002 and 2001, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
New York, NY
March 16, 2003
F-26
Cedar Shopping Centers, Inc.
(formerly known as Cedar Income Fund,
Ltd.)
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
(Audited)
|
Assets
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
24,741,000
|
|
|
$
|
10,109,000
|
|
|
Buildings and improvements
|
|
|
98,893,000
|
|
|
|
47,513,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,634,000
|
|
|
|
57,622,000
|
|
|
Less: accumulated depreciation
|
|
|
(2,396,000
|
)
|
|
|
(674,000
|
)
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
|
121,238,000
|
|
|
|
56,948,000
|
|
Real estate held for sale
|
|
|
|
|
|
|
4,402,000
|
|
Cash and cash equivalents
|
|
|
3,827,000
|
|
|
|
2,245,000
|
|
Cash at joint ventures and restricted cash
|
|
|
2,883,000
|
|
|
|
2,030,000
|
|
Property deposits
|
|
|
344,000
|
|
|
|
|
|
Real estate tax deposits
|
|
|
627,000
|
|
|
|
642,000
|
|
Rents and other receivables, net
|
|
|
304,000
|
|
|
|
217,000
|
|
Prepaid expenses
|
|
|
496,000
|
|
|
|
131,000
|
|
Deferred rental income
|
|
|
432,000
|
|
|
|
48,000
|
|
Deferred charges, net
|
|
|
2,987,000
|
|
|
|
1,687,000
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
133,138,000
|
|
|
$
|
68,350,000
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Mortgage loans payable
|
|
$
|
93,537,000
|
|
|
$
|
46,130,000
|
|
|
Loans payable
|
|
|
7,464,000
|
|
|
|
5,980,000
|
|
|
Accounts payable and accrued expenses
|
|
|
1,767,000
|
|
|
|
876,000
|
|
|
Security deposits
|
|
|
335,000
|
|
|
|
243,000
|
|
|
Deferred liabilities
|
|
|
5,195,000
|
|
|
|
|
|
|
Prepaid rents
|
|
|
468,000
|
|
|
|
255,000
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
108,766,000
|
|
|
|
53,484,000
|
|
Minority interests
|
|
|
10,238,000
|
|
|
|
2,235,000
|
|
Limited partners interest in consolidated
Operating Partnership
|
|
|
7,889,000
|
|
|
|
8,964,000
|
|
Series A preferred 9% convertible,
redeemable Operating Partnership Units
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,889,000
|
|
|
|
8,964,000
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Common stock ($.01 par value, 50,000,000 shares
authorized, 694,411 and 694,111 shares issued and outstanding,
respectively)
|
|
|
7,000
|
|
|
|
7,000
|
|
Accumulated other comprehensive loss
|
|
|
(65,000
|
)
|
|
|
|
|
Additional paid-in-capital
|
|
|
3,303,000
|
|
|
|
3,660,000
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
3,245,000
|
|
|
|
3,667,000
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders
Equity
|
|
$
|
133,138,000
|
|
|
$
|
68,350,000
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity in the Company
and limited partners (equity) interest in Operating
Partnership and minority interests
|
|
$
|
24,372,000
|
|
|
$
|
14,866,000
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to consolidated
financial statements.
F-27
Cedar Shopping Centers, Inc.
(formerly known as Cedar Income Fund,
Ltd.)
Consolidated Statements of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents
|
|
$
|
12,964,000
|
|
|
$
|
4,817,000
|
|
|
$
|
3,037,000
|
|
|
Interest
|
|
|
25,000
|
|
|
|
282,000
|
|
|
|
179,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
12,989,000
|
|
|
|
5,099,000
|
|
|
|
3,216,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, maintenance and management
|
|
|
2,313,000
|
|
|
|
1,091,000
|
|
|
|
745,000
|
|
|
Real estate taxes
|
|
|
1,527,000
|
|
|
|
494,000
|
|
|
|
308,000
|
|
|
General and administrative
|
|
|
2,005,000
|
|
|
|
731,000
|
|
|
|
635,000
|
|
|
Depreciation and amortization
|
|
|
2,546,000
|
|
|
|
991,000
|
|
|
|
622,000
|
|
|
Interest expense
|
|
|
5,523,000
|
|
|
|
1,888,000
|
|
|
|
604,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
13,914,000
|
|
|
|
5,195,000
|
|
|
|
2,914,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(925,000
|
)
|
|
|
(96,000
|
)
|
|
|
302,000
|
|
Minority interests
|
|
|
(159,000
|
)
|
|
|
(44,000
|
)
|
|
|
8,000
|
|
Limited partners interest
|
|
|
806,000
|
|
|
|
75,000
|
|
|
|
(192,000
|
)
|
Loss on impairment
|
|
|
|
|
|
|
(1,342,000
|
)
|
|
|
(204,000
|
)
|
Gain on sale of properties
|
|
|
|
|
|
|
1,638,000
|
|
|
|
91,000
|
|
Loss on sale of properties
|
|
|
(49,000
|
)
|
|
|
(296,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before cumulative effect
adjustment
|
|
|
(327,000
|
)
|
|
|
(65,000
|
)
|
|
|
5,000
|
|
Cumulative effect of change in accounting
principles, net of limited partnership share of ($15,000)
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before extraordinary items
|
|
|
(327,000
|
)
|
|
|
(71,000
|
)
|
|
|
5,000
|
|
Extraordinary items
|
|
|
|
|
|
|
|
|
|
|
|
|
Early extinguishment of debt (net of limited
partners share of $346,000, $188,000 and $32,000 in 2002,
2001 and 2000 respectively)
|
|
|
(141,000
|
)
|
|
|
(76,000
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(468,000
|
)
|
|
$
|
(147,000
|
)
|
|
$
|
(13,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share before
cumulative effect adjustment
|
|
$
|
(0.47
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.01
|
|
Cumulative change in accounting principle per
share
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share before
extraordinary item
|
|
|
(0.47
|
)
|
|
|
(0.10
|
)
|
|
|
0.01
|
|
Extraordinary (loss) per share
|
|
|
(0.20
|
)
|
|
|
(0.11
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per share
|
|
|
(0.67
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to shareholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
268,000
|
|
Dividends to shareholders per share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding
|
|
|
694,000
|
|
|
|
692,000
|
|
|
|
869,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to consolidated
financial statements.
F-28
Cedar Shopping Centers, Inc.
(formerly known as Cedar Income Fund,
Ltd.)
Consolidated Statements of Shareholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Accumulated Other
|
|
Total
|
|
|
Common
|
|
Paid-In
|
|
Undistributed
|
|
Comprehensive
|
|
Shareholders
|
|
|
Stock
|
|
Capital
|
|
Net Income
|
|
Loss
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 1999
|
|
$
|
9,000
|
|
|
$
|
5,234,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,243,000
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
(12,000
|
)
|
|
|
|
|
|
|
(12,000
|
)
|
|
Dividends to shareholders
|
|
|
|
|
|
|
(280,000
|
)
|
|
|
12,000
|
|
|
|
|
|
|
|
(268,000
|
)
|
|
Treasury stock
|
|
|
(2,000
|
)
|
|
|
(1,146,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,148,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2000
|
|
|
7,000
|
|
|
|
3,808,000
|
|
|
|
|
|
|
|
|
|
|
|
3,815,000
|
|
|
Net loss
|
|
|
|
|
|
|
(148,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(148,000
|
)
|
|
Dividends to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001
|
|
|
7,000
|
|
|
|
3,660,000
|
|
|
|
|
|
|
|
|
|
|
|
3,667,000
|
|
|
Net loss
|
|
|
|
|
|
|
(468,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(468,000
|
)
|
|
Unrealized loss on change of in fair value of
cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,000
|
)
|
|
|
(65,000
|
)
|
|
Dividends to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
Conversion of O.P. Units to stock
|
|
|
|
|
|
|
11,000
|
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
$
|
7,000
|
|
|
$
|
3,303,000
|
|
|
$
|
|
|
|
$
|
(65,000
|
)
|
|
$
|
3,245,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to consolidated
financial statements.
F-29
Cedar Shopping Centers, Inc.
(formerly known as Cedar Income Fund,
Ltd.)
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
Cash Flow From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(468,000
|
)
|
|
$
|
(148,000
|
)
|
|
$
|
(12,000
|
)
|
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
21,000
|
|
|
|
|
|
Minority interest
|
|
|
159,000
|
|
|
|
44,000
|
|
|
|
8,000
|
|
Distributions to minority interest partners
|
|
|
(1,185,000
|
)
|
|
|
(100,000
|
)
|
|
|
|
|
Limited partners interest in Operating
Partnership
|
|
|
(806,000
|
)
|
|
|
(75,000
|
)
|
|
|
192,000
|
|
Gain (loss) on sale of properties
|
|
|
49,000
|
|
|
|
(1,342,000
|
)
|
|
|
(91,000
|
)
|
Early extinguishment of debt
|
|
|
487,000
|
|
|
|
264,000
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,546,000
|
|
|
|
991,000
|
|
|
|
622,000
|
|
Impairment of real estate
|
|
|
|
|
|
|
1,342,000
|
|
|
|
204,000
|
|
Straight line rent
|
|
|
(385,000
|
)
|
|
|
(48,000
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in rent and other receivables
|
|
|
(87,000
|
)
|
|
|
39,000
|
|
|
|
(144,000
|
)
|
(Increase) decrease in prepaid expenses
|
|
|
(365,000
|
)
|
|
|
(30,000
|
)
|
|
|
1,000
|
|
(Increase) decrease in taxes held in escrow
|
|
|
15,000
|
|
|
|
(489,000
|
)
|
|
|
(147,000
|
)
|
Increase in accounts payable and accrued expense
|
|
|
891,000
|
|
|
|
206,000
|
|
|
|
305,000
|
|
(Increase) in amounts due from related parties
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
Security deposits collected, net
|
|
|
92,000
|
|
|
|
176,000
|
|
|
|
(21,000
|
)
|
Increase in prepaid rents
|
|
|
216,000
|
|
|
|
149,000
|
|
|
|
61,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,159,000
|
|
|
|
1,000,000
|
|
|
|
989,000
|
|
Cash Flow From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for real estate and improvements
|
|
|
(44,240,000
|
)
|
|
|
(14,566,000
|
)
|
|
|
(3,983,000
|
)
|
Decrease (increase) in joint venture and
restricted cash
|
|
|
(836,000
|
)
|
|
|
5,788,000
|
|
|
|
(7,818,000
|
)
|
Increase in property deposits
|
|
|
(344,000
|
)
|
|
|
|
|
|
|
|
|
Payment of deferred leasing costs
|
|
|
(313,000
|
)
|
|
|
(313,000
|
)
|
|
|
(32,000
|
)
|
Net proceeds from sale of properties
|
|
|
4,353,000
|
|
|
|
6,562,000
|
|
|
|
2,983,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(41,380,000
|
)
|
|
|
(2,529,000
|
)
|
|
|
(8,850,000
|
)
|
Cash Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from mortgages
|
|
|
32,708,000
|
|
|
|
4,484,000
|
|
|
|
10,116,000
|
|
Principal portion of scheduled mortgage payments
|
|
|
(617,000
|
)
|
|
|
(111,000
|
)
|
|
|
(1,347,000
|
)
|
Contributions from minority interest partners
|
|
|
9,030,000
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of preferred units
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
Distributions to limited partner
|
|
|
|
|
|
|
|
|
|
|
(511,000
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(268,000
|
)
|
Reacquisition of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(1,148,000
|
)
|
Deferred financing and legal costs (net)
|
|
|
(2,318,000
|
)
|
|
|
(922,000
|
)
|
|
|
(956,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
41,803,000
|
|
|
|
3,451,000
|
|
|
|
5,886,000
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
1,582,000
|
|
|
|
1,922,000
|
|
|
|
(1,975,000
|
)
|
Cash and cash equivalents at beginning of the
period
|
|
|
2,245,000
|
|
|
|
323,000
|
|
|
|
2,298,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,827,000
|
|
|
$
|
2,245,000
|
|
|
$
|
323,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
5,144,000
|
|
|
$
|
2,017,000
|
|
|
$
|
604,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption of mortgage loans payable
|
|
$
|
16,800,000
|
|
|
$
|
28,321,000
|
|
|
$
|
9,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to consolidated
financial statements.
F-30
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund,
Ltd.)
Notes to Consolidated Financial
Statements
December 31, 2002
Note
1. Organization
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)(Cedar or the
Company), organized in 1984 and qualified to operate
as a real estate investment trust (REIT), focuses on
the ownership, operation and redevelopment of community and
neighborhood shopping centers primarily located in the
Pennsylvania and New Jersey area. As of December 31, 2002,
the Company owned seven properties, aggregating approximately
1.8 million square feet of rentable space. The
Companys tenant mix is dominated by supermarkets and other
consumer necessity or value-oriented retailers.
The Company has no employees and accordingly
relies on Cedar Bay Realty Advisors, Inc. and its affiliates
(collectively, CBRA) to manage the affairs of the
Company. The Company is thus referred to as an
advised REIT. Pursuant to the terms of an
Administrative and Advisory Agreement and Property Management
Agreement, CBRA provides the Company with acquisition,
disposition, asset, construction and property management,
leasing, advisory services, loan placement, certain legal
services, accounting systems, professional and support personnel
and office facilities. Leo S. Ullman, the Companys
Chairman and Chief Executive Officer, is also the major
shareholder of CBRA. Certain of the Companys other
officers are also officers and employees of CBRA. The terms of
the Agreements are further discussed in Note 9.
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, 2002, Cedar owned an
approximate 29% economic interest in, and is the sole general
partner of, the Operating Partnership.
The Operating Partnership also has outstanding
3,300 Units of 9% Series A Cumulative Redeemable Perpetual
Preferred Units with a $1,000 par value. The Series A
Preferred Units were issued during 2002 to an investor at a
price of $909.09 per unit. The Units are redeemable by the
Operating Partnership at any time at a redemption price equal to
120% of par value plus an amount equal to all accumulated,
accrued and unpaid distributions or dividends thereon to the
date of redemption. Holders of the Series A Preferred Units
have the right to exchange their Units for shares of the
Companys common stock at prices ranging from $3.64 to
$4.09 per common share. On January 3, 2002, 552 of such
Preferred Units were converted to 138,000 shares of common stock
at $3.64 per share.
As used herein, the Company refers to
Cedar Shopping Centers, Inc. (formerly known as Cedar Income
Fund, Ltd.) and its subsidiaries on a consolidated basis,
including the Operating Partnership or, where the context so
requires, Cedar Shopping Centers, Inc. (formerly known as Cedar
Income Fund, Ltd.) only.
Note 2. Summary
of Significant Accounting Policies
Basis of
Presentation and Consolidation Policy
The 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 and
the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from these estimates.
F-31
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
The consolidated financial statements of the
Company include the accounts and operations of the Company and
the Operating Partnership. The Operating Partnership has a 50%
general partnership interest in The Point Shopping Center
(The Point), a 20% general partnership interest in
the Red Lion Shopping Center (Red Lion) and a 25%
general partnership interest in the Loyal Plaza Shopping Center
(Loyal Plaza). Since the Company has operating
control over the Operating Partnership, and the Operating
Partnership exercises similar control over the other entities,
all of the partnerships are included in the consolidated
financial statements.
Rents and
Other Receivables
Management has determined that all of the
Companys 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 managements assessment of credit,
collection and other business risks. The excess of rents
recognized over amounts contractually due is included in
deferred rents receivable on the Companys balance sheets.
The leases also typically provide for tenant reimbursements of
common area maintenance and other operating expenses and real
estate taxes. Ancillary and other property-related income is
recognized in the period earned. The Company makes estimates as
to the collectibility of its accounts receivables and assesses
historical bad debts, 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 Companys net
income.
Real Estate
Investments and Real Estate Held For Sale
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 life of the lease
|
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 $827,000, $435,000 and $248,000 for 2002, 2001, and
2000, 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
net income. Real estate investments include capitalized interest
and other costs on development and redevelopment activities and
on significant construction in progress. Capitalized costs are
included in the cost of the related asset and charged to
operations through depreciation over the assets estimated
useful life. Interest capitalized amounted to $0, $181,000, and
$92,000, in 2002, 2001, and 2000, respectively.
In October 2001, the FASB issued Statement of
Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 144 provides accounting
guidance for financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144
supersedes SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. It also supersedes the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions
related to the disposal of a segment of a business. The Company
adopted SFAS 144 on January 1, 2002. The adoption of
SFAS 144 has had no material affect on the operations of
the Company.
F-32
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
Real estate investments held for sale are carried
at the lower of cost or fair value less cost to sell.
Depreciation and amortization are suspended during the period
held for sale.
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. These arrangements to date have not resulted in any
significant liquidity shortfalls at the Company or the
partnership level, however; the Company or any combination of
the joint venture partnerships could suffer a liquidity crisis
while other members of the group have sufficient liquidity. Cash
at joint ventures amounted to $1.2 million at
December 31, 2002.
The terms of the Companys 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 $1.7 million at December 31,
2002.
Deferred
Charges
Deferred charges consist of leasing commissions
incurred in leasing the Companys properties. Such charges
are amortized using the straight-line method over the term of
the related lease. In addition, deferred charges include costs
incurred in connection with securing long-term debt, including
the costs of entering into interest rate protection agreements.
Such costs are amortized over the term of the related agreement.
Derivative
Financial Instruments
Effective January 1, 2001, the Company
adopted Statement of Financial Accounting Standard No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), as amended.
SFAS No. 133 establishes accounting and reporting standards
for derivative instruments. This accounting standard 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 Companys rights or obligations
under the applicable derivative contract. The Companys
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 derivatives 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 income (loss).
The Company utilizes derivative financial
instruments to reduce 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,
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.
F-33
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
Fair Value of
Financial Instruments
Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial
Instruments (SFAS 107), requires the
Company to disclose fair value information of all financial
instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate fair value. The
Companys 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 in the consolidated balance
sheets are assumed to be at fair value.
The carrying amounts of cash and cash equivalents
approximates their 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
Companys financial instruments subject to the provisions
of statement of Financial Accounting Standard No. 107
(SFAS 107):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
3,827,000
|
|
|
$
|
3,827,000
|
|
|
$
|
2,245,000
|
|
|
$
|
2,245,000
|
|
Cash at Joint Ventures and Restricted Cash
|
|
$
|
2,883,000
|
|
|
$
|
2,883,000
|
|
|
$
|
2,030,000
|
|
|
$
|
2,030,000
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Point
|
|
$
|
19,864,000
|
|
|
$
|
21,800,000
|
|
|
$
|
17,900,000
|
|
|
$
|
17,900,000
|
|
Academy Plaza
|
|
|
10,558,000
|
|
|
|
11,400,000
|
|
|
|
10,684,000
|
|
|
|
10,833,000
|
|
Washington Center
|
|
|
5,900,000
|
|
|
|
6,000,000
|
|
|
|
5,968,000
|
|
|
|
6,290,000
|
|
Port Richmond
|
|
|
11,439,000
|
|
|
|
12,100,000
|
|
|
|
11,577,000
|
|
|
|
11,767,000
|
|
Red Lion
|
|
|
16,715,000
|
|
|
|
19,400,000
|
|
|
|
|
|
|
|
|
|
Loyal Plaza
|
|
|
13,814,000
|
|
|
|
14,700,000
|
|
|
|
|
|
|
|
|
|
Camp Hill
|
|
|
14,000,000
|
|
|
|
14,000,000
|
|
|
|
|
|
|
|
|
|
L.A. Fitness
|
|
|
1,247,000
|
|
|
|
1,247,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,537,000
|
|
|
$
|
100,647,000
|
|
|
$
|
46,129,000
|
|
|
$
|
46,790,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
7,464,000
|
|
|
|
7,464,000
|
|
|
|
5,980,000
|
|
|
|
5,980,000
|
|
Earnings Per
Share
In accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per
Share (SFAS 128), basic EPS is computed by
dividing 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 or resulted in the
issuance of common stock that then shared in the earnings of the
entity. Since the Company reported a net loss in 2002, 2001 and
2000, the diluted EPS is not presented.
Stock Option
Plans and Warrants
In December 2002, the Financial Accounting
Standards Board, (FASB) issued SFAS 148,
Accounting for Stock-Based Compensation-Transition and
Disclosure (SFAS 148). SFAS 148
amends SFAS 123 Accounting for Stock-Based
Compensation (SFAS 123) to provide
alternative
F-34
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
methods of transition for an entity that
voluntarily adopts the fair value recognition method of
recording stock option expense. SFAS 148 also amends the
disclosure provisions of SFAS 123 and APB Opinion No. 28.
Interim Financial Reporting to require disclosure in
the summary of significant accounting policies of the effects of
an entitys accounting policy with respect to stock options
on reported net income and earnings per share in annual and
interim financial statements.
Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based
Compensation (SFAS 123) establishes
financial accounting and reporting standards for stock-based
employee compensation plans, including all arrangements by which
employees receive shares of stock or other equity instruments of
the employer or the employer incurs liabilities to employees in
amounts based on the price of the employers stock.
SFAS 123 defines a fair value based method of accounting
for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost using
the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(Opinion No. 25). The Company has elected to
continue using Opinion No. 25 and make pro forma
disclosures of net income and earnings per share as if the fair
value method of accounting defined in SFAS 123 had been
applied.
The Companys Shareholders approved, in
1998, an incentive stock option plan authorizing the issuance of
option grants for up to 500,000 shares. During 2001, the Company
granted to each of its five directors options to purchase 10,000
shares at $3.50 per share, the market value of the
Companys common stock on the date of the grant. The
following table sets forth, on a pro forma basis, the net loss
and net loss per share as if the fair value method of accounting
defined in SFAS 123 had been applied.
Pro forma
Basic Net Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
Net loss as reported
|
|
$
|
468,000
|
|
|
$
|
147,000
|
|
|
$
|
13,000
|
|
Adjustment to amortize the value of options
granted
|
|
|
17,000
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma loss
|
|
$
|
485,000
|
|
|
$
|
155,000
|
|
|
$
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares
|
|
|
694,000
|
|
|
|
692,000
|
|
|
|
869,000
|
|
Pro forma basic net loss per share
|
|
$
|
(0.70
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 123 and EITF 96-18 Accounting for Equity
Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services,
based on the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more
reliably measurable with charges taken into operations over the
period goods and services are received.
The Operating Partnership, in connection with the
Red Lion acquisition, issued to ARC Properties, Inc.
(ARC), a limited partner in API Red Lion Shopping
Center Associates, warrants to purchase 250,000 shares of the
Operating Partnership. The warrants, with an exercise price of
$4.50 per unit, are subject to adjustment for, among other
things, dividend payments, stock splits and reorganizations. The
Warrants expire in May 2012, and vest 83,333 units in May 2002,
83,333 units in January 2003 and 83,333 units in January 2004.
Such vesting is contingent upon ARC rendering certain services
to the Company throughout the vesting period.
F-35
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
The first 83,333 Warrants issued were capitalized
as part of the Red Lion transaction using the fair value method.
The accounting treatment of the subsequent issuance of Warrants
will be determined by future services performed by ARC.
Approximately $173,000 was charged to operations during 2002. If
ARC continues to provide services to the Company pursuant to the
terms of the Warrant agreement, the remaining Warrants will be
accounted for over the vesting period.
Recent
Accounting Pronouncements
In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45).
FIN 45 significantly changes the current practice in the
accounting for, and disclosure of, guarantees. Guarantees and
indemnification agreements meeting the characteristics described
in FIN 45 are required to be initially recorded as a
liability at fair value. FIN 45 also requires a guarantor
to make significant new disclosures for virtually all guarantees
even if the likelihood of the guarantor having to make payment
under the guarantee is remote. The disclosure requirements
within FIN 45 are effective for financial statements for
annual or interim periods ending after December 15, 2002.
The initial recognition and initial measurement provisions are
applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The Company is currently
evaluating the effects of FIN 45 on the Companys
results of operations or financial condition.
In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46), which
explains how to identify variable interest entities
(VIE) and how to assess whether to consolidate such
entities. The provisions of this interpretation are immediately
effective for VIEs formed after January 31, 2003. For
VIEs formed prior to January 31, 2003, the provisions of
this interpretation apply to the first fiscal year or interim
period beginning after June 15, 2003. Management has not
yet determined whether any of its consolidated entities
represent variable interest entities pursuant to such
interpretation. Such determination could result in a change in
the Companys consolidation policy related to such entities.
Certain reclassifications have been made to the
prior year consolidated financial statements to conform to the
classifications used in the current year.
|
|
|
Intangible Lease Asset/
Liability
|
On July 1, 2001 and January 1, 2002,
the Company adopted Statement of Financial Accounting Standards
No. 141 Business Combinations, and Statement of
Financial Accounting Standards No. 142 Goodwill and
Intangibles, respectively. These standards govern business
combinations and asset acquisitions, and the accounting for
acquired intangibles. As part of the 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 acquisition of the real estate. As a result of
adopting the standards, amounts totaling $5,117,000 have been
recorded as intangible lease liabilities, relating to above and
below market lease arrangements for properties acquired in 2002.
The intangible assets and liabilities are recorded at their
estimated fair market values at the date of acquisition, and are
amortized over the remaining term of the respective lease to
rental income. Such amortization amounted to $146,000 during
2002. The weighted average amortization period for the
intangible lease liabilities was approximately eight years.
F-36
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
These intangibles will be amortized as follows:
|
|
|
|
|
|
|
|
Intangible Lease Liability
|
|
|
|
For the year ending December 31:
|
|
|
|
|
|
2003
|
|
$
|
719,000
|
|
|
2004
|
|
|
678,000
|
|
|
2005
|
|
|
642,000
|
|
|
2006
|
|
|
577,000
|
|
|
2007
|
|
|
591,000
|
|
Thereafter
|
|
|
1,764,000
|
|
|
|
|
|
|
|
|
$
|
4,971,000
|
|
|
|
|
|
|
Note 3. Real
Estate and Accumulated Depreciation
The following is a summary of the Companys
real estate held for investment at December 31:
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
|
|
|
|
Land
|
|
$
|
24,741,000
|
|
|
$
|
10,109,000
|
|
Buildings
|
|
|
89,514,000
|
|
|
|
39,506,000
|
|
Redevelopment and Improvements
|
|
|
9,379,000
|
|
|
|
8,007,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,634,000
|
|
|
|
57,622,000
|
|
Accumulated depreciation
|
|
|
(2,396,000
|
)
|
|
|
(674,000
|
)
|
|
|
|
|
|
|
|
|
|
Net real estate held for investment
|
|
$
|
121,238,000
|
|
|
$
|
56,948,000
|
|
|
|
|
|
|
|
|
|
|
During 2002, the Company completed the
acquisition of four properties for an aggregate purchase price
of approximately $60 million. The L.A. Fitness property is
a ground up development project on which the Company expects to
spend an additional $5 million. Construction financing in
that amount was arranged before closing the acquisition. The
Camp Hill Mall acquisition is a redevelopment project on which
the Company expects to spend an additional $17 to
$19 million. The Company is currently exploring joint
venture or other financing partnership arrangements for this
redevelopment. No assurances, however, can be given that such a
joint venture or other financing can be arranged. The Company
also sold the Southpoint office property in Jacksonville,
Florida for $4,370,000. Impairment losses of $204,000 and
$1,342,000 were recorded in 2000 and 2001, respectively, and a
loss on sale of $49,000 was recognized in 2002.
The following table summarizes, on an unaudited
pro forma basis, the combined results of operations of the
Company for the years ended December 31, 2002 and 2001 as
though the 2001 acquisitions of Washington Center Shops L.P.,
Port Richmond Associates, LLC, Academy Stores LP, and Greentree
Road Inc., (all purchased on October 6, 2001) and the 2002
acquisitions of the Red Lion Shopping Center (purchased on
June 1, 2002), Loyal Plaza (purchased on July 1,
2002), and Camp Hill Mall (purchased on November 20,2002)
were completed as of January 1, 2001.
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
|
|
|
|
Proforma revenues
|
|
$
|
19,204,000
|
|
|
$
|
19,796,000
|
|
Proforma net income (loss)
|
|
$
|
(97,000
|
)
|
|
$
|
(53,000
|
)
|
Proforma net income per common share
|
|
$
|
(0.14
|
)
|
|
$
|
(0.08
|
)
|
Common shares outstanding
|
|
|
694,000
|
|
|
|
692,000
|
|
F-37
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
The following table sets forth detail with
respect to the properties owned by the Company at
December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount at Which Carried
|
|
|
Initial Cost to Company
|
|
|
|
December 31, 2002
|
|
|
|
|
Subsequent
|
|
|
Property
|
|
|
|
Buildings &
|
|
Cost
|
|
|
|
Buildings &
|
|
|
Description
|
|
Land
|
|
Improvements
|
|
Capitalized
|
|
Land
|
|
Improvements
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Point Shopping Center
|
|
$
|
2,700,000
|
|
|
$
|
10,800,000
|
|
|
$
|
9,101,000
|
|
|
$
|
2,700,000
|
|
|
$
|
19,901,000
|
|
|
$
|
22,601,000
|
|
Harrisburg, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Lion Shopping Center
|
|
|
4,213,000
|
|
|
|
16,531,000
|
|
|
|
3,000
|
|
|
|
4,213,000
|
|
|
|
16,534,000
|
|
|
|
20,747,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camp Hill Mall
|
|
|
4,460,000
|
|
|
|
17,857,000
|
|
|
|
|
|
|
|
4,460,000
|
|
|
|
17,857,000
|
|
|
|
22,317,000
|
|
Camp Hill, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loyal Plaza
|
|
|
3,852,000
|
|
|
|
15,620,000
|
|
|
|
|
|
|
|
3,852,000
|
|
|
|
15,620,000
|
|
|
|
19,472,000
|
|
Williamsport, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port Richmond Village
|
|
|
2,942,000
|
|
|
|
11,769,000
|
|
|
|
137,000
|
|
|
|
2,942,000
|
|
|
|
11,906,000
|
|
|
|
14,848,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Academy Plaza
|
|
|
2,406,000
|
|
|
|
9,623,000
|
|
|
|
77,000
|
|
|
|
2,406,000
|
|
|
|
9,700,000
|
|
|
|
12,106,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Center Shoppes (1)
|
|
|
2,061,000
|
|
|
|
7,314,000
|
|
|
|
61,000
|
|
|
|
2,061,000
|
|
|
|
7,375,000
|
|
|
|
9,436,000
|
|
Washington Township, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LA Fitness Property
|
|
|
2,107,000
|
|
|
|
|
|
|
|
|
|
|
|
2,107,000
|
|
|
|
|
|
|
|
2,107,000
|
|
Fort Washington, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
24,741,000
|
|
|
$
|
89,514,000
|
|
|
$
|
9,379,000
|
|
|
$
|
24,741,000
|
|
|
$
|
98,893,000
|
|
|
$
|
123,634,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Accumulated
|
|
Amount of
|
|
Date
|
|
Date
|
|
Depreciation
|
Description
|
|
Depreciation
|
|
Encumbrance
|
|
Built
|
|
Acquired
|
|
Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
The Point Shopping Center
|
|
$
|
1,004,000
|
|
|
$
|
19,864,000
|
|
|
|
1972
|
|
|
|
Jul-00
|
|
|
|
10-40
|
|
Harrisburg, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Lion Shopping Center
|
|
|
244,000
|
|
|
|
16,715,000
|
|
|
|
1971
|
|
|
|
Jun-02
|
|
|
|
10-40
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camp Hill Mall
|
|
|
51,000
|
|
|
|
14,000,000
|
|
|
|
1958
|
|
|
|
Nov-02
|
|
|
|
10-40
|
|
Camp Hill, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loyal Plaza
|
|
|
195,000
|
|
|
|
13,814,000
|
|
|
|
1969
|
|
|
|
Jul-02
|
|
|
|
10-40
|
|
Williamsport, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port Richmond Village
|
|
|
370,000
|
|
|
|
11,439,000
|
|
|
|
1988
|
|
|
|
Oct-01
|
|
|
|
10-40
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Academy Plaza
|
|
|
303,000
|
|
|
|
10,558,000
|
|
|
|
1965
|
|
|
|
Oct-01
|
|
|
|
10-40
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Center Shoppes (1)
|
|
|
229,000
|
|
|
|
5,900,000
|
|
|
|
1979
|
|
|
|
Oct-01
|
|
|
|
10-40
|
|
Washington Township, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LA Fitness Property
|
|
|
|
|
|
|
1,247,000
|
|
|
|
N/A
|
|
|
|
Dec-02
|
|
|
|
N/A
|
|
Fort Washington, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,396,000
|
|
|
$
|
93,537,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes adjacent unencumbered development parcel.
|
F-38
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
The activity in real estate and accumulated
depreciation for the years ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year real estate balance
|
|
$
|
57,622,000
|
|
|
$
|
28,272,000
|
|
|
$
|
19,186,000
|
|
Improvement additions
|
|
|
1,372,000
|
|
|
|
6,055,000
|
|
|
|
2,066,000
|
|
Acquisition of The Point property
|
|
|
|
|
|
|
|
|
|
|
13,500,000
|
|
Acquisition of Red Lion property
|
|
|
20,744,000
|
|
|
|
|
|
|
|
|
|
Acquisition of Loyal Plaza property
|
|
|
19,472,000
|
|
|
|
|
|
|
|
|
|
Acquisition of Camp Hill property
|
|
|
22,317,000
|
|
|
|
|
|
|
|
|
|
Acquisition of LA Fitness development property
|
|
|
2,107,000
|
|
|
|
|
|
|
|
|
|
Acquisition of three supermarket-anchored
shopping centers
|
|
|
|
|
|
|
36,114,000
|
|
|
|
|
|
Reclass Southpoint to real estate held for
sale
|
|
|
|
|
|
|
(8,111,000
|
)
|
|
|
|
|
Impairment loss
|
|
|
|
|
|
|
|
|
|
|
(2,715,000
|
)
|
Sale of Broadbent
|
|
|
|
|
|
|
(4,708,000
|
)
|
|
|
|
|
Sale of Germantown
|
|
|
|
|
|
|
|
|
|
|
(3,765,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Year
|
|
$
|
123,634,000
|
|
|
$
|
57,622,000
|
|
|
$
|
28,272,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year accumulated balance
|
|
$
|
674,000
|
|
|
$
|
4,177,000
|
|
|
$
|
5,191,000
|
|
Additional depreciation expense this year
|
|
|
1,722,000
|
|
|
|
697,000
|
|
|
|
521,000
|
|
Reclass Southpoint to real estate held for
sale
|
|
|
|
|
|
|
(2,702,000
|
)
|
|
|
|
|
Impairment property
|
|
|
|
|
|
|
|
|
|
|
(661,000
|
)
|
Sale of Broadbent
|
|
|
|
|
|
|
(1,498,000
|
)
|
|
|
|
|
Sale of Germantown
|
|
|
|
|
|
|
|
|
|
|
(874,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Year
|
|
$
|
2,396,000
|
|
|
$
|
674,000
|
|
|
$
|
4,177,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4. Rentals
Under Operating Leases
Annual minimum future rentals due to be received
under non-cancelable operating leases in effect at
December 31, 2002 are as follows:
|
|
|
|
|
|
|
Minimum Future Rental Income
|
|
2003
|
|
$
|
12,595,000
|
|
2004
|
|
|
11,636,000
|
|
2005
|
|
|
10,574,000
|
|
2006
|
|
|
9,225,000
|
|
2007
|
|
|
8,143,000
|
|
|
Thereafter
|
|
|
51,123,000
|
|
|
|
|
|
|
|
Total
|
|
$
|
103,296,000
|
|
|
|
|
|
|
Total minimum future rentals do not include
contingent rentals under certain leases based upon tenants
sales volume or contributions to real estate taxes and operating
costs. Such contingent rentals amounted to $2,990,000, $811,412,
and $450,470 in 2002, 2001, and 2000, respectively.
F-39
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
Giant Food Stores accounted for 10% of rental
income in 2002 and 2001. The Giant leases are generally
guaranteed by Ahold N.V., a Netherlands corporation and
Giants ultimate parent company. Recent published reports
indicate there have been accounting irregularities at certain of
Aholds U.S. and foreign operations, which do not
necessarily include the grocery stores, or the Giant supermarket
affiliates. However, a reduction in Aholds debt ratings
may adversely affect the resulting value of the Companys
properties having such tenancies.
Note
5. Commitments and
Contingencies
The Company is a party to several legal actions,
which arose in the normal course of business. Management does
not expect there to be adverse consequences from these actions
that would be material to the Companys financial position
or results of operations.
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 cleanup 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 owners 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.
With the exception of the Loyal Plaza
environmental matter discussed below, the Company believes that
environmental studies made with respect to substantially all of
its properties has 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
Companys financial condition, results of operations and
liquidity.
There are certain environmental contamination
matters that affect the Loyal Plaza property. Those matters have
been extensively reviewed by EMG of Baltimore, Maryland for
Lehman Brothers Bank, FSB as lenders on the property; and in a
Phase I report dated January 31, 2002, prepared by
Brinkerhoff Environmental Services, Inc., retained by the
Company. Additional reports have been prepared for the sellers
by Civil and Environmental Consultants, Inc. of Pittsburgh,
Pennsylvania.
The two principal matters involved are
(i) certain petroleum-impacted soil at the newly-built,
free-standing Eckerd drug store building on an outparcel of the
property; and (ii) a concentration of dry cleaning
solvents, tetrachloroethene (PCE) and trichloroethene
(TCE), at levels in excess of amounts permitted by the
Pennsylvania Department of Environmental Protection (PADEP).
Under loan agreements between the seller and its
lender, the sellers had maintained an escrow deposit of $450,000
for clean up and testing of environmental contamination at the
site. Pursuant to the purchase agreements for the purchase of
the property by Loyal Plaza Associates L.P., the seller will
remain liable for all costs up to and including a satisfactory
Release of Liability letter issued by PADEP with
respect to all such contamination at the property. Pursuant to
the purchase agreement, the sellers increased the environmental
escrow deposit to $950,000. Further, in the event that the
escrows are
F-40
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
insufficient to cover all required testing and
remediation, the sellers have undertaken to expend any and all
monies required to complete such testing and remediation
including monitoring, etc. without limits as to time. The
Company has obtained opinion of counsel to the effect that an
anticipated Release of Liability letter from the
PADEP will operate to relieve it of any further liability for
remediation of the site under Pennsylvania environmental
statutes, or for any contamination identified in reports
submitted to and approved by PADEP and shall not be subject to
citizens suits or other contribution actions.
Note 6. Mortgage
Loans, Other Loans Payable, and Line of Credit
Mortgage loans outstanding consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
|
|
|
|
December 31,
|
|
|
Mortgage
|
|
Effective
|
|
|
|
|
Property Description
|
|
Amount
|
|
interest rate
|
|
Maturity
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
The Point Shopping Center
|
|
$
|
20,000,000
|
|
|
|
7.625
|
%
|
|
|
05/29/2012
|
|
|
$
|
19,864,000
|
|
|
$
|
17,900,000
|
|
Harrisburg, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Lion Shopping Center
|
|
|
16,800,000
|
|
|
|
8.860
|
%
|
|
|
02/01/2010
|
|
|
|
16,715,000
|
|
|
|
N/A
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camp Hill Mall(1)
|
|
|
14,000,000
|
|
|
|
4.740
|
%
|
|
|
11/22/2004
|
|
|
|
14,000,000
|
|
|
|
N/A
|
|
Camp Hill, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loyal Plaza
|
|
|
13,877,000
|
|
|
|
7.180
|
%
|
|
|
07/11/2011
|
|
|
|
13,814,000
|
|
|
|
N/A
|
|
Williamsport, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port Richmond Village
|
|
|
12,000,000
|
|
|
|
7.174
|
%
|
|
|
04/10/2007
|
|
|
|
11,439,000
|
|
|
|
11,577,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Academy Plaza
|
|
|
11,080,000
|
|
|
|
7.275
|
%
|
|
|
03/10/2013
|
|
|
|
10,558,000
|
|
|
|
10,685,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Center Shoppes
|
|
|
6,192,000
|
|
|
|
7.530
|
%
|
|
|
11/11/2027
|
|
|
|
5,900,000
|
|
|
|
5,968,000
|
|
Washington Township, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LA Fitness facility(2)
|
|
|
5,000,000
|
|
|
|
LIBOR+
|
|
|
|
12/31/2007
|
|
|
|
1,247,000
|
|
|
|
N/A
|
|
Fort Washington, PA
|
|
|
|
|
|
|
.275 points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
98,949,000
|
|
|
|
|
|
|
|
|
|
|
$
|
93,537,000
|
|
|
$
|
46,130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The interest rate on the entire loan amount is
fixed via an interest rate swap at 4.74% through November 2003
and $7 million of the loan is fixed at that same rate
through maturity. The remaining $7 million portion of the
loan will float at the 30-day LIBOR rate plus 195 basis points
from November 2003 through maturity. The Company has agreed in
connection with this loan to maintain a minimum net worth of
$13,000,000 (including minority and limited partner interests)
and consolidated liquid assets of at least $1,000,000.
|
|
(2)
|
The Company obtained a $5 million LIBOR
based construction loan in connection with the LA Fitness
development project. The loan is due on December 31, 2007,
has a two-year extension option, and carries interest at LIBOR
plus 275 basis points.
|
The net book value of real estate pledged as
collateral for mortgage loans was approximately
$121 million.
|
|
|
Line of credit, and loans and other notes
payable are as follows:
|
During November 2002, the Company entered into a
financing agreement with SWH Funding Corp. (SWH) for
a $6 million loan. The term of the SWH loan is through
November 30, 2005 and the loan carries interest at the rate
of 12.5% (14% from December 1, 2004 through maturity). The
loan provides for monthly principal payments of $50,000
commencing January 1, 2003, a $2 million payment
F-41
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
(the first prepayment) on April 1, 2003,
continued payments of $50,000 on the fifth through 12th months
and $60,000 from the 13th through 17th months. A $3 million (the
second prepayment) is due on the 18th month, and monthly
principal payments of $60,000 continue from the 19th month until
the loan is fully amortized. The agreement provides for an
alternative amortization schedule which the Company is
considering adopting. Under the alternative amortization
schedule the first prepayment is not required but the monthly
principal payments are increased to $150,000 per month from
April 1, 2003 through and including the 12th month and
$200,000 commencing in the 13th month through the 17th month. If
the second prepayment (of $3 million) is not made on the
18th month, the Borrower will be required to pay $250,000 per
month commencing in the 19th month until the loan is fully
amortized.
The Companys financial liquidity is
provided by $3.8 million in cash and cash equivalents at
December 31, 2002 and by the unused balance of its $1
million bank line of credit. In March 2003 the Company entered
into a secured Line of credit that will contribute to its
liquidity during 2003 (see below). The Company also believes
that it has sufficient flexibility to fund the required payments
in connection with the SWH financing, property level capital
expenditures, tenant improvements, leasing costs and mortgage
and other scheduled principal payments, including the
$1.4 million (based on $150,000 alternative amortization
schedule) due with respect to the SWH financing in 2003. The
Companys ability, however, to meet these obligations is
dependent in large part on its ability to attract a joint
venture partner or suitable financing for the Camp Hill
redevelopment project. Based on preliminary discussions with
several potential partners, the Company believes it will be
successful in arranging a transaction that will allow it to
withdraw a significant portion of its equity investment in Camp
Hill while retaining a substantial portion of the upside
potential in the redevelopment. However, no assurances can be
given that such an arrangement will ultimately be finalized.
In addition to the interest and principal
payments, SWH received a funding fee equal to 5% of the loan
amount ($300,000) at closing and will receive an exit fee of
$120,000 if the loan is paid on or prior to February 28,
2004. If the loan is repaid after February 28, 2004, SWH
will receive the sum of $120,000 plus the product of (i) $30,000
and (ii) the number of months between February 2004 and the
date the loan is paid in full. The loan may be repaid at any
time after six months in whole or in part without penalty. In
the event of default, in addition to a default interest rate of
17.5%, Borrower will also be required to pay a late charge equal
to 5% of the amount overdue.
The security for repayment of the SWH financing
is the Companys equity interests in Port Richmond Village,
Academy Plaza, Washington Center Shoppes, and the Camp Hill Mall.
The December 31, 2001 SWH loan balance of
$5,980,000 was repaid during 2002.
In connection with the acquisition of the Red
Lion partnership interest from a related party, the Company
agreed to pay $888,000 in three equal annual installments of
$296,000 plus interest at 7.5%.
In March 2002, the Company entered into a
one-year $1 million unsecured line of credit facility with
North Fork Bank, Melville, New York. The line of credit bore
interest at the greater of 6% or the banks prime rate plus
1%. The line of credit was repaid on January 26, 2003. The
Company entered into a secured line of credit facility effective
as of March 16, 2003 for a 1-year period at the same rates
as the previous facility and with a $2 million limit,
provided, however, that the additional $1 million will be
available only when the SWH financing has been repaid.
F-42
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
Scheduled principal payments of debt outstanding
at December 31, 2002 are as follows:
The combined aggregate future principal payments
of mortgages, notes & loans at December 31, 2002 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit
|
|
|
|
|
|
|
and Loans and
|
|
|
|
|
Mortgages
|
|
other Notes
|
|
|
Year
|
|
Payable
|
|
Payable
|
|
Total
|
|
|
|
|
|
|
|
2003
|
|
$
|
933,000
|
|
|
$
|
2,273,000
|
|
|
$
|
3,206,000
|
|
2004
|
|
|
15,017,000
|
|
|
|
2,996,000
|
|
|
|
18,013,000
|
|
2005
|
|
|
1,106,000
|
|
|
|
2,195,000
|
|
|
|
3,301,000
|
|
2006
|
|
|
1,193,000
|
|
|
|
|
|
|
|
1,193,000
|
|
2007
|
|
|
2,448,000
|
|
|
|
|
|
|
|
2,448,000
|
|
Thereafter
|
|
|
72,840,000
|
|
|
|
|
|
|
|
72,840,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,537,000
|
|
|
$
|
7,464,000
|
|
|
$
|
101,001,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Interest
Rate Hedges
During 2002, the Company completed one interest
rate swap transaction to hedge the Companys exposure to
changes in interest rates with respect to $14 million of LIBOR
based variable rate debt. The swap agreement provides for a
fixed all-in rate of 4.74% (includes a credit spread of 1.95%).
The swap agreement extends through November 19, 2003, on
$7 million of notional principal and through
November 19, 2004 on the remaining $7 million.
As of December 31, 2002, unrealized losses
of $224,000 representing the change in fair value of the
aforementioned swaps were reflected 29% or approximately $65,000
in accumulated other comprehensive loss, a component of
shareholders equity, and 71% or approximately $159,000 is
reflected in the limited partners interest.
The Companys interest rate hedges are
designated as cash flow hedges and hedge the future cash
outflows on debt. Interest rate swaps that convert variable
payments to fixed payments, such as those held by the Company,
as well as interest rate caps, floors, collars, and forwards are
cash flow hedges. The unrealized gains/losses in the fair value
of these hedges are reported on the balance sheet with a
corresponding adjustment to either accumulated other
comprehensive income or earnings. For cash flow hedges, the
ineffective portion of a derivatives change in fair value
is immediately recognized in earnings.
The following table summarizes the notional value
and fair value of the Companys derivative financial
instrument, interest rate swap, as of December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notational
|
|
Interest
|
|
|
|
|
Hedge
|
|
Type
|
|
Value
|
|
Rate
|
|
Term
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap
|
|
|
Cash Flow Hedge
|
|
|
$
|
14,000,000
|
|
|
|
4.74
|
%
|
|
|
11/19/2002/11/19/2003
|
|
|
|
Combined Value
|
|
Interest Rate Swap
|
|
|
Cash Flow Hedge
|
|
|
$
|
7,000,000
|
|
|
|
4.74
|
%
|
|
|
11/19/2003/11/19/2004
|
|
|
$
|
224,000
|
|
Note 8. Income
Taxes
The Company believes that it has operated to
qualify as a REIT under the Internal Revenue Code. Qualification
as a REIT involves the application of technical and complex Code
provisions for which there are only limited judicial and
administrative interpretations. The determination of various
factual matters and circumstances not entirely within the
Companys control may affect its ability to qualify as a
REIT. If the Company fails to qualify as a REIT, it will be
subject to federal, state and local
F-43
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates
and would not be allowed a deduction in computing its taxable
income for amounts distributed to stockholders. In addition,
unless entitled to relief under certain statutory provisions,
the Company will be disqualified from treatment as a REIT for
the four taxable years following the year during which
qualification is lost.
The issuance of common stock to any shareholder
who directly or indirectly, together with the four other largest
shareholders of the Company, were to own, directly or
indirectly, more than 50% of the outstanding shares the Company
would fail to meet the five or fewer test (five or
fewer individual shareholders owning more than 50%) for
continued REIT status. The loss of REIT status, while creating
no immediate income taxes for the Company or its shareholders,
would mean, among other things, that the Company would be taxed
as if it were a C corporation on future net taxable income and
capital gains (See Note 9). Additionally, the Company would
generally be disqualified from federal income taxation as a REIT
for the four taxable years following disqualification. The
Company does not presently expect to have taxable income for the
year ended December 31, 2003, and as such does not
contemplate paying dividends during 2003.
Note 9. Related
Party Transactions
The Company has no employees and accordingly
relies on CBRA and its affiliates to manage the affairs of the
Company. The Company is thus referred to as an
advised REIT. Pursuant to the terms of an
Administrative and Advisory Agreement (the Advisory
Agreement), CBRA provides the Company with management,
acquisition, leasing, advisory services, accounting systems,
professional and support personnel and office facilities. Leo S.
Ullman, the Companys Chairman and Chief Executive Officer,
is also the principal stockholder of CBRA. Certain of the
Companys other officers are also officers and employees of
CBRA.
The Advisory Agreement may be terminated
(i) for cause upon not less than sixty days prior
written notice, and (ii) by vote of at least 75% of the
independent Directors at the end of the third or fourth year of
its five-year term in the event gross assets fail to increase by
15% per annum.
Pursuant to the Advisory Agreement, effective as
of January 1, 2002, CBRA will earn a disposition or
acquisition fee, as applicable, equal to 1% of the sale/purchase
price; no other fees will be payable in connection with such
transactions. All accrued acquisition fees are included in
accounts payable at December 31, 2002.
F-44
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
The following is a schedule of acquisition and
disposition fees paid, accrued, or deferred by the Company to
CBRA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Deferred
|
|
Paid
|
|
Accrued
|
|
Total
|
|
|
|
|
|
|
|
|
|
2002 Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southpoint
|
|
$
|
|
|
|
$
|
47,000
|
|
|
$
|
|
|
|
$
|
47,000
|
|
Red Lion
|
|
|
|
|
|
|
|
|
|
|
44,000
|
|
|
|
44,000
|
|
Loyal Plaza
|
|
|
|
|
|
|
|
|
|
|
183,000
|
|
|
|
183,000
|
|
Camp Hill
|
|
|
|
|
|
|
|
|
|
|
172,000
|
|
|
|
172,000
|
|
LA Fitness
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
107,000
|
|
|
$
|
399,000
|
|
|
$
|
506,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Transactions(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadbent
|
|
$
|
106,000
|
|
|
$
|
53,000
|
|
|
$
|
|
|
|
$
|
159,000
|
|
Corporate Center
|
|
|
37,000
|
|
|
|
19,000
|
|
|
|
|
|
|
|
56,000
|
|
The three supermarket-anchored shopping centers
|
|
|
|
|
|
|
348,000
|
|
|
|
|
|
|
|
348,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
143,000
|
|
|
$
|
420,000
|
|
|
$
|
|
|
|
$
|
563,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germantown
|
|
$
|
53,000
|
|
|
$
|
23,000
|
|
|
$
|
|
|
|
$
|
76,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During 2001 the Advisory Agreement was modified
and CBRA agreed to defer certain fees and to ultimately waive
such fees if the Agreement is not terminated before
December 31, 2004.
|
The following is a schedule of management,
administrative, advisory, legal, leasing and loan placement fees
paid to CBRA or its affiliates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
Management Fees(1)
|
|
$
|
536,000
|
|
|
$
|
103,000
|
|
|
$
|
70,000
|
|
Construction Management(2)
|
|
$
|
20,000
|
|
|
$
|
180,000
|
|
|
$
|
28,000
|
|
Leasing Fees(3)
|
|
$
|
135,000
|
|
|
$
|
135,000
|
|
|
$
|
44,000
|
|
Administrative and Advisory(4)
|
|
$
|
360,000
|
|
|
$
|
163,000
|
|
|
$
|
98,000
|
|
Legal(5)
|
|
$
|
210,000
|
|
|
$
|
182,000
|
|
|
$
|
33,000
|
|
Loan Placement Fees(6)
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
|
|
|
|
(1)
|
Management fees are calculated at 3%-4% of
prospective gross revenues.
|
|
(2)
|
Construction management fees are calculated at 5%
of construction costs.
|
|
(3)
|
Leasing fees are calculated at 4%-4.5% of a new
tenants base rent.
|
|
(4)
|
Administrative and advisory fees are equal
to 1/2 of 3/4 of 1% of the estimated current value
of real estate assets of the Company plus 1/12
of 1/4 of 1% of the estimated current value of all other
assets of the Company.
|
|
(5)
|
Legal fees are paid to an affiliate of CBRA for
the services provided by Stuart H. Widowski, Esq., in-house
counsel.
|
|
(6)
|
Loan placement fees are calculated at 1% of the
loan cost up to a maximum of $100,000.
|
F-45
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
During May 2002, the Company completed the
acquisition, from an affiliate of Cedar Bay Company
(CBC) the sole Operating Partnership limited unit
holder, of a 20% sole general partnership interest in the Red
Lion. The Companys general partnership interest cost
$1.2 million, payable $296,000 at closing with the balance
payable in three equal annual installments plus interest at
7.5%. The investment was based on a property value of
$23 million including a lease for certain vacant space from
the seller, subject to a $16.8 million, 8.86% first mortgage
loan due February 2010. The CBC affiliate retained an 11%
limited partnership interest in Red Lion. The Company also
purchased in 2000 a 50% general partnership interest in The
Point from another affiliate of CBC who retains a 50% limited
partnership interest.
Homburg Invest USA Inc. (Homburg
USA), a wholly-owned U.S. subsidiary of Homburg Invest
Inc. (approximately 62% owned by Mr. Richard Homburg), a
real estate company listed on the Toronto (Canada) Stock
Exchange, and which owns 21.6% of the Companys common
shares outstanding, purchased on December 24, 2002 for
$3 million, 3,300 convertible preferred Operating
Partnership Units at $909.09 with a liquidation value of $1,000
each and a preferred distribution rate of 9%. The Board
subsequently elected Mr. Homburg a Director of the Company
to serve alongside Mr. Frank Matheson who is also a
Director of the Company and an officer of Homburg Invest Inc.
The issuance of common stock to Homburg USA may
result in the disqualification of the Companys status as a
REIT in 2003. If Mr. Richard Homburg, directly or
indirectly, together with the four other largest shareholders of
the Company, were to own, directly or indirectly, more than 50%
of the value of the Company, it would fail to meet the
five or fewer test (five or fewer individual
shareholders owning more than 50%) for continued REIT status.
The loss of REIT status, while creating no immediate income
taxes for the Company or its shareholders, would mean, among
other things, that the Company would be taxed as if it were a
C corporation on future net taxable income and
capital gains. Additionally, the Company would generally be
disqualified for federal income tax purposes as a REIT for the
four taxable years following disqualification. The Company does
not presently expect to have taxable income for the year ended
December 31, 2003, and as such does not contemplate paying
dividends during 2003.
F-46
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
Note 10. Selected
Quarterly Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
Year Ended
|
Year
|
|
3/31
|
|
6/30
|
|
9/30
|
|
12/31
|
|
12/31
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,510,000
|
|
|
$
|
2,656,000
|
|
|
$
|
3,614,000
|
|
|
$
|
4,184,000
|
|
|
$
|
12,964,000
|
|
Net (loss)
|
|
|
(53,000
|
)
|
|
|
(226,000
|
)
|
|
|
(60,000
|
)
|
|
|
(129,000
|
)
|
|
|
(468,000
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
983,000
|
|
|
$
|
966,000
|
|
|
$
|
861,000
|
|
|
$
|
2,289,000
|
|
|
$
|
5,099,000
|
|
Net (loss) income
|
|
|
(9,000
|
)
|
|
|
336,000
|
|
|
|
(27,000
|
)
|
|
|
(448,000
|
)
|
|
|
(147,000
|
)
|
Basic and diluted net (loss) income per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.49
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.65
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
696,000
|
|
|
$
|
601,000
|
|
|
$
|
966,000
|
|
|
$
|
953,000
|
|
|
$
|
3,216,000
|
|
Net income (loss)
|
|
|
64,000
|
|
|
|
(56,000
|
)
|
|
|
(28,000
|
)
|
|
|
7,000
|
|
|
|
(13,000
|
)
|
Basic and diluted net income (loss) per share
|
|
$
|
0.07
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
11. Subsequent Events
In February 2003, the Company completed the
acquisition of a 30% general partnership interest in three Giant
supermarket-anchored shopping centers with an aggregate gross
leaseable area of approximately 190,000 sq. ft., in the
Pennsylvania area.
The centers cost approximately $19 million.
The Companys general partnership interest cost
$1.4 million and the limited partner, who is affiliated
with the limited partner in the Loyal Plaza partnership,
invested $3,740,000. The balance of the purchase price was
financed by three separate mortgage loans aggregating
approximately $15.9 million. One loan is for ten years with
a fixed rate of 5.64% and the Company entered into interest rate
swaps for the entire amounts and for the seven year terms of the
other two of the loans, which results in a fixed rate of 6.43%.
The blended interest rate for all three loans amounts to 6.09%.
The Company entered into a secured line of credit
facility effective as of March 16, 2003 for a one year
period with a $2 million limit, provided, however, that
$1 million will be available only when the SWH financing
has been repaid. The line bares interest on the outstanding
balance at the greater of 6% or the banks prime rate
plus 1%.
F-47
CEDAR SHOPPING CENTERS, INC.
(formerly known as Cedar Income Fund, Ltd.)
Notes to Consolidated Financial
Statements (Continued)
Cedar Shopping Centers, Inc.
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
34,575,000
|
|
|
$
|
24,741,000
|
|
|
Buildings and improvements
|
|
|
137,856,000
|
|
|
|
98,893,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,431,000
|
|
|
|
123,634,000
|
|
|
Less accumulated depreciation
|
|
|
(3,916,000
|
)
|
|
|
(2,396,000
|
)
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
|
168,515,000
|
|
|
|
121,238,000
|
|
|
Cash and cash equivalents
|
|
|
1,117,000
|
|
|
|
3,827,000
|
|
|
Cash in joint ventures and restricted cash
|
|
|
2,818,000
|
|
|
|
2,883,000
|
|
|
Property deposits and prepaid closing costs
|
|
|
3,438,000
|
|
|
|
344,000
|
|
|
Real estate tax deposits
|
|
|
1,015,000
|
|
|
|
627,000
|
|
|
Rents and other receivables, net
|
|
|
495,000
|
|
|
|
304,000
|
|
|
Prepaid expenses, net
|
|
|
853,000
|
|
|
|
496,000
|
|
|
Deferred rent receivable
|
|
|
739,000
|
|
|
|
432,000
|
|
|
Deferred charges, net
|
|
|
3,506,000
|
|
|
|
2,987,000
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
182,496,000
|
|
|
$
|
133,138,000
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Mortgage loans payable
|
|
$
|
130,566,000
|
|
|
$
|
93,537,000
|
|
|
Loans payable
|
|
|
9,767,000
|
|
|
|
7,464,000
|
|
|
Accounts payable and accrued expenses
|
|
|
2,380,000
|
|
|
|
1,767,000
|
|
|
Security deposits
|
|
|
427,000
|
|
|
|
335,000
|
|
|
Deferred liabilities
|
|
|
6,581,000
|
|
|
|
5,195,000
|
|
|
Advance tenant payments
|
|
|
917,000
|
|
|
|
468,000
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
150,638,000
|
|
|
|
108,766,000
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
18,915,000
|
|
|
|
10,238,000
|
|
Limited partners interest in consolidated
Operating Partnership
|
|
|
7,026,000
|
|
|
|
7,889,000
|
|
Series A preferred 9% convertible,
redeemable Operating Partnership units
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,026,000
|
|
|
|
10,889,000
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Common stock ($0.01 par value, 50,000,000 shares
authorized, 1,427,000 and 1,389,000 shares issued and
outstanding, respectively)
|
|
|
14,000
|
|
|
|
14,000
|
|
Accumulated other comprehensive loss
|
|
|
(276,000
|
)
|
|
|
(65,000
|
)
|
Additional paid-in capital
|
|
|
3,179,000
|
|
|
|
3,296,000
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
2,917,000
|
|
|
|
3,245,000
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders
Equity
|
|
$
|
182,496,000
|
|
|
$
|
133,138,000
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity in the Company
and limited partners (equity) interest in Operating
Partnership and minority interests
|
|
$
|
31,858,000
|
|
|
$
|
24,372,000
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated
financial statements.
F-48
Cedar Shopping Centers, Inc.
Consolidated Statements of Shareholders
Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Un-
|
|
Accumulated
|
|
|
|
|
|
|
Additional
|
|
Distributed
|
|
Other
|
|
Total
|
|
|
|
|
$0.01 par
|
|
Paid-In
|
|
Net
|
|
Comprehensive
|
|
Shareholders
|
|
|
Shares
|
|
value
|
|
Capital
|
|
Income
|
|
Loss
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
$
|
1,427,000
|
|
|
$
|
14,000
|
|
|
$
|
3,296,000
|
|
|
$
|
|
|
|
$
|
(65,000
|
)
|
|
$
|
3,245,000
|
|
|
Unrealized (loss) on change of fair value of
interest rate hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(211,000
|
)
|
|
|
(211,000
|
)
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
27,000
|
|
|
Issuance of stock
|
|
|
400
|
|
|
|
4
|
|
|
|
95,000
|
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
Conversion of OP units to stock
|
|
|
2,800
|
|
|
|
28
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
Conversion of stock to OP units
|
|
|
(2,800
|
)
|
|
|
(28
|
)
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(500,000
|
)
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
(239,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(239,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2003
|
|
$
|
1,427,400
|
|
|
$
|
14,004
|
|
|
$
|
3,179,000
|
|
|
$
|
|
|
|
$
|
(276,000
|
)
|
|
$
|
2,917,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated
financial statements.
F-49
Cedar Shopping Centers, Inc.
Consolidated Statement of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents
|
|
$
|
4,608,000
|
|
|
$
|
1,977,000
|
|
|
$
|
8,744,000
|
|
|
$
|
3,854,000
|
|
|
Expense recoveries
|
|
|
1,397,000
|
|
|
|
674,000
|
|
|
|
2,459,000
|
|
|
|
1,297,000
|
|
|
Interest and other
|
|
|
133,000
|
|
|
|
5,000
|
|
|
|
219,000
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
6,138,000
|
|
|
|
2,656,000
|
|
|
|
11,422,000
|
|
|
|
5,167,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, maintenance and management
|
|
|
1,476,000
|
|
|
|
603,000
|
|
|
|
3,206,000
|
|
|
|
1,207,000
|
|
|
Real estate taxes
|
|
|
612,000
|
|
|
|
304,000
|
|
|
|
1,232,000
|
|
|
|
593,000
|
|
|
General and administrative
|
|
|
649,000
|
|
|
|
305,000
|
|
|
|
1,172,000
|
|
|
|
554,000
|
|
|
Depreciation and amortization
|
|
|
926,000
|
|
|
|
561,000
|
|
|
|
1,767,000
|
|
|
|
1,112,000
|
|
|
Interest
|
|
|
2,252,000
|
|
|
|
1,535,000
|
|
|
|
4,290,000
|
|
|
|
2,456,000
|
|
|
Repayment fee
|
|
|
|
|
|
|
269,000
|
|
|
|
|
|
|
|
269,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
5,915,000
|
|
|
|
3,577,000
|
|
|
|
11,667,000
|
|
|
|
6,191,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests,
limited partners interest, distributions, and loss on sale
|
|
|
223,000
|
|
|
|
(921,000
|
)
|
|
|
(245,000
|
)
|
|
|
(1,024,000
|
)
|
Minority interests
|
|
|
(288,000
|
)
|
|
|
187,000
|
|
|
|
(422,000
|
)
|
|
|
121,000
|
|
Limited partners interest
|
|
|
46,000
|
|
|
|
556,000
|
|
|
|
449,000
|
|
|
|
677,000
|
|
Distribution to preferred shareholder (net of
limited partners interest of $48,000)
|
|
|
(21,000
|
)
|
|
|
|
|
|
|
(21,000
|
)
|
|
|
|
|
Loss on sale
|
|
|
|
|
|
|
(49,000
|
)
|
|
|
|
|
|
|
(49,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(40,000
|
)
|
|
$
|
(227,000
|
)
|
|
$
|
(239,000
|
)
|
|
$
|
(275,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
1,658,000
|
|
|
|
1,386,000
|
|
|
|
1,620,000
|
|
|
|
1,386,000
|
|
See the accompanying notes to the consolidated
financial statements.
F-50
Cedar Shopping Centers, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Cash Flow From Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(239,000
|
)
|
|
$
|
(275,000
|
)
|
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
422,000
|
|
|
|
(121,000
|
)
|
Limited partners interest in Operating
Partnership
|
|
|
(449,000
|
)
|
|
|
(331,000
|
)
|
Loss on sale of Southpoint Parkway
|
|
|
|
|
|
|
49,000
|
|
Early extinguishment of debt
|
|
|
|
|
|
|
487,000
|
|
Distribution to minority interest partners
|
|
|
(580,000
|
)
|
|
|
(598,000
|
)
|
Distributions to Operating Partnership preferred
unit holder
|
|
|
(68,000
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
1,767,000
|
|
|
|
1,112,000
|
|
Deferred rent
|
|
|
(307,000
|
)
|
|
|
(146,000
|
)
|
Market rent
|
|
|
(313,000
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in rent and other receivables
|
|
|
(191,000
|
)
|
|
|
(269,000
|
)
|
Increase in prepaid expenses
|
|
|
(357,000
|
)
|
|
|
(550,000
|
)
|
(Increase) decrease in taxes held in escrow
|
|
|
(388,000
|
)
|
|
|
137,000
|
|
Increase in accounts payable and accrued expense
|
|
|
613,000
|
|
|
|
207,000
|
|
Increase (decrease) in security deposits
collected, net
|
|
|
92,000
|
|
|
|
(16,000
|
)
|
Increase in advance tenant payments
|
|
|
449,000
|
|
|
|
182,000
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities
|
|
|
451,000
|
|
|
|
(132,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flow From Investing Activities
|
|
|
|
|
|
|
|
|
Expenditures for real estate and improvements
|
|
|
(47,534,000
|
)
|
|
|
(954,000
|
)
|
(Increase) in property deposits and advance
closing costs
|
|
|
(3,094,000
|
)
|
|
|
(250,000
|
)
|
Decrease in joint venture and restricted cash
|
|
|
65,000
|
|
|
|
352,000
|
|
Sale of Southpoint Parkway
|
|
|
|
|
|
|
4,353,000
|
|
Acquisition of Red Lion Associates
|
|
|
|
|
|
|
(3,175,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing
activities
|
|
|
(50,563,000
|
)
|
|
|
326,000
|
|
|
|
|
|
|
|
|
|
|
Cash Flow From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from mortgage financing
|
|
|
37,612,000
|
|
|
|
20,000,000
|
|
Repayment of mortgage financing
|
|
|
|
|
|
|
(17,900,000
|
)
|
Contributions from minority interest partners
|
|
|
8,836,000
|
|
|
|
4,030,000
|
|
Proceeds from line of credit and other short term
borrowings
|
|
|
2,880,000
|
|
|
|
500,000
|
|
Repayment of line of credit and other loans
payable
|
|
|
(577,000
|
)
|
|
|
(4,925,000
|
)
|
Principal portion of scheduled mortgage payments
|
|
|
(583,000
|
)
|
|
|
(166,000
|
)
|
Deferred financing and legal costs, net
|
|
|
(766,000
|
)
|
|
|
(1,340,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
47,402,000
|
|
|
|
199,000
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash
equivalents
|
|
|
(2,710,000
|
)
|
|
|
393,000
|
|
Cash and cash equivalents at beginning of the
period
|
|
|
3,827,000
|
|
|
|
2,872,000
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,117,000
|
|
|
$
|
3,265,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash
Activities
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
4,173,000
|
|
|
$
|
1,777,000
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated
financial statements.
F-51
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements
June 30, 2003
(Unaudited)
Note 1. Organization
and Basis of Presentation
Cedar Income Fund, Ltd. has changed its name to
Cedar Shopping Centers, Inc., at the same time, the name of the
Operating Partnership of which the Company is the sole general
partner, has been changed from Cedar Income Fund Partnership,
L.P. to Cedar Shopping Centers Partnership, L.P. The Board of
Directors and management determined that the change of names
more accurately reflects the nature of the current operations
and activities of the Company and of the Operating Partnership.
On June 25, 2003, the Company announced a
2-for-1 split of the Companys common shares. The split was
effected by paying a stock dividend of one new share for each
share of common stock outstanding. The stock dividend was
payable July 14, 2003 to shareholders of record on
July 7, 2003. All of the accompanying financial statements
have been adjusted to give retroactive effect to the stock
dividend.
Cedar Shopping Centers, Inc. (the
Company), organized in 1984 and qualified to operate
as a real estate investment trust (REIT), focuses on
the ownership, operation and redevelopment of community and
neighborhood shopping centers located primarily in Pennsylvania.
As of June 30, 2003, the Company owned 14 properties,
aggregating approximately 2,361,000 square feet of rentable
space. The Company has no administrative or executive employees
and accordingly relies on Cedar Bay Realty Advisors, Inc. and
its affiliates (collectively, CBRA) to manage the
affairs of, and provide other services to, the Company. The
terms of the agreements and other information are further
discussed in Note 7.
The accompanying interim unaudited financial
statements have been prepared by the Companys management
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure
normally included in the financial statements prepared in
accordance with accounting principles generally accepted in the
United States (GAAP) may have been condensed or
omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make
the information presented not misleading. The unaudited
financial statements as of June 30, 2003, and for the three
and six month periods ended June 30, 2003 and 2002,
include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary to present
fairly the financial information set forth herein. The results
of operations for the interim periods are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2003. These financial statements should
be read in conjunction with the Companys audited financial
statements and the notes thereto included in the Companys
Form 10-K for the year ended December 31, 2002.
The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the disclosure of contingent assets and
liabilities and the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from these estimates.
Cedar Shopping Centers Partnership, L.P. (the
Operating Partnership) is the entity through which
the Company conducts substantially all of its business and owns
(either directly or through subsidiaries) substantially all of
its assets. The Company owns an approximate 30% economic
interest in, and is the sole general partner of, the Operating
Partnership. As of June 30, 2003, the consolidated
financial statements of the Company include the accounts and
operations of the Company and the Operating Partnership. The
Operating Partnership has a 50% general partnership interest in
The Point Shopping Center (The Point); a 20% general
partnership interest in the Red Lion Shopping Center (Red
Lion); a 25% general partnership interest in the Loyal
Plaza Shopping Center (Loyal Plaza); a 30% general
partnership interest in the three Giant supermarket-anchored
shopping centers, Fairview Plaza (Fairview), Halifax
Plaza (Halifax), and Newport Plaza
(Newport); a 15% general partnership
F-52
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
interest in Pine Grove Plaza Shopping Center
(Pine Grove); and a 15% general partnership interest
in the Swede Square Shopping Center (Swede Square).
In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 46, Consolidation of Variable Interest
Entities. The Interpretation clarifies the application of
existing accounting pronouncements to certain entities in which
the equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
The provisions of the Interpretation are immediately effective
for all variable interest entities created after
January 31, 2003. The Company has evaluated the effects of
the issuance of the Interpretation on the accounting for its
ownership interest in its joint venture partnerships created
after January 31, 2003, and has concluded that all of the
Companys joint ventures should be included in the
consolidated financial statements. The Company is currently in
the process of evaluating the impact that this Interpretation
will have on its financial statements for all joint ventures
created before January 31, 2003.
On April 30, 2003, the FASB issued Statement
of Financial Accounting Standards (SFAS)
No. 149 (SFAS 149), Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities. SFAS 149 amends and clarifies the accounting
guidance on (1) derivative instruments (including certain
derivative instruments embedded in other contracts) and
(2) hedging activities that fall within the scope of SFAS
No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities. SFAS 149
also amends certain other existing pronouncements, which will
result in more consistent reporting of contracts that are
derivatives in their entirety, or that contain embedded
derivatives that warrant separate accounting. SFAS 149 is
effective (1) for contracts entered into or modified after
June 30, 2003, with certain exceptions, and (2) for
hedging relationships designated after June 30, 2003. The
guidance is to be applied prospectively. Management does not
expect the adoption of SFAS 149 to have a material impact on the
Companys financial condition, results of operations or
cash flows.
In May 2003, the FASB issued SFAS No. 150
(SFAS 150), Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. This Statement, which establishes standards for
the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity,
is effective for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the
beginning of the first interim period starting after
June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim
period of adoption. Management does not believe that the
implementation of SFAS 150 will have a material impact on
the Companys financial condition, results of operations or
cash flows.
In December 2002, the FASB issued SFAS
No. 148 (SFAS 148), Accounting for
Stock-Based Compensation-Transition and Disclosure.
SFAS 148 amends SFAS No. 123 (SFAS 123),
Accounting for Stock-Based Compensation, to provide
alternative methods of transition for an entity that voluntarily
adopts the fair value recognition method of recording stock
option expense. SFAS 148 also amends the disclosure
provisions of SFAS 123 and Accounting Principles Board
(APB) Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of
significant accounting policies of the effects of an
entitys accounting policy with respect to stock options on
reported net income and earnings per share in annual and interim
financial statements.
SFAS 123, as amended by SFAS 148, establishes
financial accounting and reporting standards for stock-based
employee compensation plans, including all arrangements by which
employees receive shares of stock or other equity instruments of
the employer or the employer incurs liabilities to employees in
amounts based on the price of the employers stock. SFAS
123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also
allows an
F-53
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
entity to continue to measure compensation cost
using the intrinsic value based method of accounting prescribed
by APB Opinion No. 25 (Opinion No. 25),
Accounting for Stock Issued to Employees. The
Company has elected to continue using Opinion No. 25 and to
make pro forma disclosures of net income and earnings per share
as if the fair value method of accounting defined in SFAS 123
had been applied.
In May 2002, the FASB issued
SFAS No. 145 (SFAS 145),
Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS 145 generally provided
for various technical corrections to previously issued
accounting pronouncements. The only impact to the Company
related to SFAS 145 provided that early extinguishment of
debt, including the write-off of unamortized deferred loan
costs, are generally no longer considered extraordinary items.
The Company has adopted the provisions of SFAS 145 and has
presented all previous early write-offs of unamortized loan
costs as a component of interest expense.
In 1998, the Companys shareholders approved
an incentive stock option plan authorizing the issuance of
option grants for up to 1,000,000 shares. During 2001, the
Company granted each of its five directors then in office
options to purchase 20,000 shares at $1.75 per share, the market
value of the Companys common stock on the date of the
grant.
The following table sets forth, on a pro forma
basis, the net loss and net loss per share as if the fair value
method of accounting defined in SFAS 123 had been applied:
Pro Forma Basic Net Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June
|
|
|
30,
|
|
|
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Net loss as reported
|
|
$
|
239,000
|
|
|
$
|
275,000
|
|
Adjustment to amortize the value of options
granted
|
|
|
8,000
|
|
|
|
8,000
|
|
Pro forma net loss
|
|
$
|
247,000
|
|
|
$
|
283,000
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares
|
|
|
1,427,000
|
|
|
|
1,389,000
|
|
Pro forma basic net loss per share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
During August 2003, the Company expects to file a
registration statement for a public offering of its common
stock. In order to refinance the Companys expansion plans
and to ensure that, in the event the public stock offering is
not successful. The Company has the necessary resources until it
can make other long-term financing arrangements, the Company
requested, and received on July 24, 2003, a non-binding term
sheet from Hudson Realty Capital Corporation, an affiliate of
SWH Funding Corp. (SWH), to refinance the existing
SWH loan. Although this financing has not been finalized as of
the date of this filing, it is expected to provide the Company
with approximately $2.0 million in cash after payment of
certain fees. The term sheet also provides for a moratorium on
principal payments for the first six months after the loan is
closed. The Company has also arranged with Homburg Participaties
B.V., an affiliate of Mr. Richard Homburg, a director of
the Company, on a best efforts basis, to syndicate the proposed
Philadelphia shopping center transaction in the event the
Company is unable to consummate the public share offering or
otherwise arrange appropriate financing. The Company also
contemplates the possibility of selling one or more of its
shopping centers to generate additional liquidity if required.
There can be no assurances, however, that any of these
arrangements will be successfully completed.
F-54
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
|
|
Note 2.
|
Supplemental Cash Flow Disclosures
|
During the first quarter of 2003, 276,000 shares
of common stock were issued in exchange for 552 Series A
cumulative redeemable preferred Operating Partnership units, and
38,000 shares of common stock were issued at $2.50 per share to
vendors for services rendered. During the second quarter of
2003, the 276,000 shares issued in the first quarter were
converted back to 552 Series A cumulative redeemable
preferred Operating Partnership units.
|
|
Note 3.
|
Cash in Joint Ventures and Restricted
Cash
|
Joint venture partnership agreements require,
among other things, that the Company maintain separate cash
accounts for the operation of each joint venture and that
distributions to the general and limited partners be strictly
controlled. These arrangements to date have not resulted in any
significant liquidity shortfalls at the Company or the
partnership level; however, the Company or any combination of
the joint venture partnerships could experience a liquidity
shortage while other members of the group have sufficient
liquidity. Cash in joint ventures and restricted cash amounted
to approximately $2,818,000 at June 30, 2003.
|
|
Note 4.
|
Acquisition Activity
|
During June 2003, the Company acquired Valley
Plaza Shopping Center (Valley Plaza) in Hagerstown,
MD, a 191,000 square foot shopping center, for approximately
$9.5 million. The purchase price plus certain lender fees
were financed by a $6.4 million two-year interest-only
senior bank loan with interest at LIBOR plus 250 basis points,
and a two-year $3.4 million junior bank loan with interest
at 12.5% annually. Commitment fees of $65,000 for the senior
bank loan and $346,000 for the junior bank loan were included in
the loan amounts. Substantially all of the net cash flow from
the property is required to be applied to the outstanding
principal balance of the junior loan until it is paid in full.
Additionally, the Company is required to pay an exit fee of
$103,000 upon repayment. Homburg Invest Inc. (Homburg
Invest), a real estate company listed on the Toronto
(Canada) Stock Exchange, is entitled to receive one-half of the
commitment fees and exit fees, and 4.75% of the interest
payments on the junior loan in consideration for arranging the
loan, and for providing the lender with certain repayment
guarantees with respect to both loans. Homburg Invest owns 21.6%
of the Companys common shares outstanding. Richard
Homburg, a director of the Company, owns approximately 72% of
Homburg Invest.
During April and May 2003, the Company acquired a
15% general partnership interest in both Pine Grove, a 79,000
square foot shopping center in Pemberton Township, NJ, and in
Swede Square, a 95,000 square foot shopping center in East
Norriton, PA. The purchase prices, including closing costs, for
these properties, were approximately $8.0 million and
$8.6 million, respectively. Pine Grove was financed by a
seven-year LIBOR-based first mortgage loan for
$6.0 million, with level principal payments of $12,500 per
month. The Company entered into an interest rate swap with the
lender fixing the interest rate at 6.24% annually for the term
of the loan. Swede Square was purchased subject to a two-year,
first mortgage loan with a balance of $5.6 million and
fixed interest-only payments at 7.25% annually. The loan
provides for additional borrowings up to a total loan amount of
$7.5 million to provide for tenant improvements and leasing
commissions as vacant space is occupied. Homburg Invest
(Delaware) LLC, (Homburg Delaware) the limited
partner in these transactions and an affiliate of Richard
Homburg, provided approximately $2.0 million and
$3.0 million of the purchase price of the Pine Grove and
Swede Square acquisitions, respectively. Homburg Delaware
received a 10% placement fee on this $5.0 million
investment and is entitled to receive a 12% preferential return
before the Company receives any distributions. The Company, in
addition to its 15% general partnership interest, received an
option to purchase the limited partner interest at any time,
provided the limited partner has received a 15% total annualized
rate of return at the time the option is exercised by the
Company.
F-55
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
In February 2003, the Company completed the
acquisition of a 30% general partnership interest in three Giant
supermarket-anchored shopping centers, Fairview, Newport and
Halifax, with an aggregate gross leaseable area of approximately
190,000 square foot in the Harrisburg, Pennsylvania area. The
centers cost approximately $20.8 million. The
Companys general partnership interest cost
$1.16 million and the limited partner, who is affiliated
with the limited partner in the Loyal Plaza partnership,
invested $3.74 million. The terms of the partnership
agreement provide that the limited partner receive a
preferential return of 12.5% on its investment before the
Company is entitled to receive any distributions. The balance of
the purchase price was financed by three separate mortgage loans
aggregating approximately $15.9 million. The first loan,
for $6.1 million with a term of ten years, has a fixed rate
of 5.64% annually. The Company entered into interest rate swaps
for the entire amount of the first loan, and for the seven-year
terms of the other two loans (approximately $ 4.3 million
and $5.5 million), resulting in a fixed rate of 6.43%
annually. The blended interest rate for the three loans is 6.09%
annually.
|
|
Note 5.
|
Mortgage Loans, Other Loans Payable, and Line
of Credit
|
Mortgage loans outstanding consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
Interest
|
|
|
|
June 30,
|
|
December 31,
|
Property
|
|
Amount
|
|
Rate
|
|
Maturity
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
The Point Shopping Center
|
|
$
|
20,000,000
|
|
|
7.63%
|
|
|
May 2012
|
|
|
$
|
19,722,000
|
|
|
$
|
19,864,000
|
|
Harrisburg, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Lion Shopping Center
|
|
|
16,800,000
|
|
|
8.86%
|
|
|
Feb 2010
|
|
|
|
16,652,000
|
|
|
|
16,715,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camp Hill Mall
|
|
|
14,000,000
|
|
|
4.74%(1)
|
|
|
Nov 2004
|
|
|
|
14,000,000
|
|
|
|
14,000,000
|
|
Camp Hill, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loyal Plaza
|
|
|
13,877,000
|
|
|
7.18%
|
|
|
Jul 2011
|
|
|
|
13,745,000
|
|
|
|
13,814,000
|
|
Williamsport, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port Richmond Village
|
|
|
11,610,000
|
|
|
7.17%
|
|
|
Apr 2007
|
|
|
|
11,366,000
|
|
|
|
11,439,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Academy Plaza
|
|
|
10,715,000
|
|
|
7.13%
|
|
|
Mar 2013
|
|
|
|
10,490,000
|
|
|
|
10,558,000
|
|
Philadelphia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Center Shoppes
|
|
|
6,236,000
|
|
|
7.53%
|
|
|
Nov 2027
|
|
|
|
5,863,000
|
|
|
|
5,900,000
|
|
Washington Township, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LA Fitness facility(2)
|
|
|
5,000,000
|
|
|
LIBOR+2.75%
|
|
|
Dec 2007
|
|
|
|
1,626,000
|
|
|
|
1,247,000
|
|
Fort Washington, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairview Plaza
|
|
|
6,080,000
|
|
|
5.64%
|
|
|
Jan 2013
|
|
|
|
6,054,000
|
|
|
|
N/A
|
|
New Cumberland, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Halifax Plaza
|
|
|
4,265,000
|
|
|
6.43%
|
|
|
Feb 2010
|
|
|
|
4,235,000
|
|
|
|
N/A
|
|
Halifax, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newport Plaza
|
|
|
5,424,000
|
|
|
6.43%
|
|
|
Feb 2010
|
|
|
|
5,398,000
|
|
|
|
N/A
|
|
Newport, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pine Grove Shopping Center
|
|
|
6,000,000
|
|
|
6.24%
|
|
|
Apr 2010
|
|
|
|
5,963,000
|
|
|
|
N/A
|
|
Pemberton Township, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swede Square Shopping Center
|
|
|
5,560,000
|
|
|
7.25%
|
|
|
May 2005
|
|
|
|
5,560,000
|
|
|
|
N/A
|
|
East Norriton, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
Interest
|
|
|
|
June 30,
|
|
December 31,
|
Property
|
|
Amount
|
|
Rate
|
|
Maturity
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
Valley Plaza Shopping Center
|
|
|
6,430,000
|
|
|
LIBOR+2.50%
|
|
|
Jun 2005
|
|
|
|
6,430,000
|
|
|
|
N/A
|
|
Hagerstown, MD
|
|
|
3,462,000
|
|
|
12.50%
|
|
|
Jun 2005
|
|
|
|
3,462,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
135,459,000
|
|
|
|
|
|
|
|
|
$
|
130,566,000
|
|
|
$
|
93,537,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The interest rate on the entire loan amount is
fixed via an interest rate swap at 4.74% through November 2003
and $7.0 million of the loan is fixed at that same rate
through maturity. The remaining $7.0 million portion of the
loan will float at the 30-day LIBOR rate plus 195 basis points
from November 2003 through maturity. The Company has agreed in
connection with this loan to maintain a minimum net worth of
$13.0 million (including minority and limited partner
interests) and consolidated liquid assets of at least
$1.0 million.
|
|
(2)
|
The Company obtained a $5.0 million
LIBOR-based construction loan in connection with the
LA Fitness development project. The loan is due on
December 31, 2007, has a two-year extension option, and
carries interest at LIBOR plus 275 basis points.
Construction is scheduled to be completed during 2003.
|
During November 2002, the Company entered into a
financing agreement with SWH for a $6.0 million loan. The
SWH loan matures on November 30, 2005 and carries interest
at the annual rate of 12.5% through November 30, 2003
adjusting to an annual rate of 14% from December 1, 2004
through maturity. The loan provides for, commencing
January 1, 2003, monthly principal payments of $50,000,
through and including the 4th month, $150,000 commencing in the
5th month through and including the 12th month,
$200,000 commencing in the 13th month through the
17th month and $250,000 per month commencing in the
18th month until the loan is fully paid.
In connection with the acquisition of the Red
Lion partnership interest from a related party, the Company
agreed to pay $888,000 in three equal annual installments of
$296,000 plus interest at 7.5%. During the second quarter of
2003, the related party agreed to extend the payment of the
current installment of $296,000 through September 30, 2003.
During March 2003, the Company entered into a new
credit facility with North Fork Bank for a one-year period. The
line of credit bears interest at the greater of 6% or the
banks prime rate plus 1%. The new credit facility has a
$2.0 million limit, provided, however, that only
$1.0 million will be available until the SWH financing has
been repaid.
As discussed in Note 4, during the second
quarter of 2003, Homburg Delaware provided the equity financing
for the acquisition of Pine Grove and Swede Square, and Homburg
Invest guaranteed the financing for Valley Plaza. In addition,
Homburg Invest (USA) Inc. (Homburg USA), a
wholly-owned U.S. subsidiary of Homburg Invest, provided to
the Company a one-year, $1.1 million 9% interest-only loan.
The loan includes a $100,000 entrance fee and requires payment
of a $200,000 exit fee. The loan was used to partially fund the
deposit requirements for the South Philadelphia Shopping Center
(see Note 11).
During the second quarter of 2003, Selbridge
Corporation, a related party, provided the Company with a
$750,000 loan. The principal plus interest, calculated at an
annual rate of 15%, is payable on or before October 31,
2003. The loan was used to partially fund the deposit
requirements for the South Philadelphia Shopping Center (see
Note 11).
F-57
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
Note
6. Intangible Lease Asset/
Liability
On July 1, 2001 and January 1, 2002,
the Company adopted SFAS No. 141 Business
Combinations and SFAS No. 142, Goodwill and
Other Intangibles, respectively. As part of the
acquisition of real estate assets, the fair value of the real
estate acquired is allocated to the acquired tangible assets,
consisting of land, building and building improvements, and
identified intangible assets and liabilities, consisting of the
value of above-market and below-market leases, other value of
in-place leases, and value of tenant relationships, based in
each case on their fair values.
The fair value of the tangible assets of an
acquired property is determined by valuing the property as if it
were vacant, and the as-if-vacant value is then
allocated to land, building and building improvements based on
managements determination of the relative fair values of
these assets. Management determines the as-if-vacant fair value
of a property using methods similar to those used by independent
appraisers. Factors considered by management in performing these
analyses include an estimate of carrying costs during the
expected lease-up periods considering current market conditions
and costs to execute similar leases. In estimating carrying
costs, management includes real estate taxes, insurance and
other operating expenses and estimates of lost rental revenue
during the expected lease-up periods based on current market
demand. Management also estimates costs to execute similar
leases, including leasing commissions, legal and other related
costs.
In allocating the fair value of the identified
intangible assets and liabilities of an acquired property,
above-market and below-market in-place lease values are recorded
based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid
pursuant to the in-place leases and (ii) managements
estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining
non-cancelable term of the lease. The capitalized above-market
lease values (included in deferred leasing costs in the
accompanying combined balance sheet) are amortized as a
reduction of rental income over the remaining non-cancelable
terms of the respective leases. The capitalized below-market
lease values (presented as acquired lease obligations in the
accompanying combined balance sheet) are amortized as an
increase to rental income over the remaining initial terms in
the respective leases.
The aggregate value of other acquired intangible
assets, consisting of in-place leases and tenant relationships,
is measured by the excess of (i) the purchase price paid
for a property after adjusting existing in-place leases to
market rental rates over (ii) the estimated fair value of
the property as if vacant, determined as set forth above. This
aggregate value is allocated between in-place lease values and
tenant relationships based on managements evaluation of
the specific characteristics of each tenants lease;
however, the value of tenant relationships has not been
separated from in-place lease value for the additional interests
in real estate entities acquired by the Predecessor because such
value and its consequence to amortization expense is immaterial
for these particular acquisitions. Should future acquisitions of
properties result in allocating material amounts to the value of
tenant relationships, an amount would be separately allocated
and amortized over the estimated life of the relationship. The
value of in-place leases exclusive of the value of above-market
and below-market in-place leases is amortized to expense over
the remaining non-cancelable periods of the respective leases.
If a lease were to be terminated prior to its stated expiration,
all unamortized amounts relating to that lease would be written
off.
As a result of adopting the standards, amounts
totaling $5,117,000 and $1,062,000 have been recorded as
intangible lease liabilities for properties acquired in 2002 and
2003, respectively. The intangible assets and liabilities are
amortized over the remaining terms of the respective leases to
rental income. Such amortization amounted to $169,000 and
$143,000 during the first and second quarters of 2003,
respectively, and $0 during each of the first and second
quarters of 2002. The weighted average amortization period for
the intangible lease liabilities was approximately eight years.
F-58
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
These intangibles will be amortized as follows:
|
|
|
|
|
|
For the year ending December 31:
|
|
|
|
|
|
2003
|
|
$
|
493,000
|
|
|
2004
|
|
|
818,000
|
|
|
2005
|
|
|
645,000
|
|
|
2006
|
|
|
476,000
|
|
|
2007
|
|
|
543,000
|
|
|
Thereafter
|
|
|
2,746,000
|
|
|
|
|
|
|
|
|
$
|
5,721,000
|
|
|
|
|
|
|
Note 7. Related
Party Transactions
The Company has no administrative or executive
employees and accordingly relies on CBRA and its affiliates to
manage the affairs of the Company. The Company is thus referred
to as an advised REIT. Pursuant to the terms of an
Administrative and Advisory Agreement (the Advisory
Agreement), CBRA provides the Company with management,
acquisition, leasing, advisory services, accounting systems,
professional and support personnel and office facilities. Leo S.
Ullman, the Companys Chairman and Chief Executive Officer,
is also the principal stockholder of CBRA. Certain of the
Companys other officers are also officers and employees of
CBRA.
The Advisory Agreement may be terminated
(i) for cause upon not less than sixty days prior
written notice, and (ii) by vote of at least 75% of the
Companys independent directors at the end of the third or
fourth year of its five-year term in the event gross assets fail
to increase by 15% per annum.
Pursuant to the Advisory Agreement, effective as
of January 1, 2002, CBRA will earn a disposition or
acquisition fee, as applicable, equal to 1% of the sale/purchase
price of the properties; no other fees will be payable in
connection with such transactions. All accrued acquisition fees
are included in accounts payable at June 30, 2003.
F-59
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
The following is a schedule of acquisition and
disposition fees paid, accrued, or deferred by the Company to
CBRA for the six-month period ended June 30, 2003 and for
the year ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Paid
|
|
Accrued
|
|
Total
|
|
|
|
|
|
|
|
2003 Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Giant supermarket-anchored shopping centers
|
|
$
|
|
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
Pine Grove
|
|
|
74,000
|
|
|
|
|
|
|
|
74,000
|
|
Swede Square
|
|
|
79,000
|
|
|
|
|
|
|
|
79,000
|
|
Valley Plaza
|
|
|
92,000
|
|
|
|
|
|
|
|
92,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
245,000
|
|
|
$
|
180,000
|
|
|
$
|
425,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Southpoint
|
|
$
|
47,000
|
|
|
$
|
|
|
|
$
|
47,000
|
|
Red Lion
|
|
|
44,000
|
|
|
|
|
|
|
|
44,000
|
|
Loyal Plaza
|
|
|
|
|
|
|
183,000
|
|
|
|
183,000
|
|
Camp Hill
|
|
|
|
|
|
|
172,000
|
|
|
|
172,000
|
|
LA Fitness
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
151,000
|
|
|
$
|
355,000
|
|
|
$
|
506,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2001, the Advisory Agreement was modified
and CBRA agreed to defer certain fees of $195,700 and to
ultimately waive such fees if the Agreement is not terminated
before December 31, 2004. These fees are not included in
accrued expense at June 30, 2003.
The following is a schedule of management,
administrative, advisory, legal, leasing and loan placement fees
paid or accrued to CBRA or its affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
Management Fees(1)
|
|
$
|
190,000
|
|
|
$
|
202,000
|
|
|
$
|
393,000
|
|
|
$
|
304,000
|
|
Construction Management(2)
|
|
$
|
2,000
|
|
|
$
|
20,000
|
|
|
$
|
2,000
|
|
|
$
|
40,000
|
|
Leasing Fees(3)
|
|
$
|
17,000
|
|
|
$
|
260,000
|
|
|
$
|
17,000
|
|
|
$
|
520,000
|
|
Administrative and Advisory(4)
|
|
$
|
225,000
|
|
|
$
|
180,000
|
|
|
$
|
384,000
|
|
|
$
|
270,000
|
|
Legal(5)
|
|
$
|
24,000
|
|
|
$
|
87,000
|
|
|
$
|
82,000
|
|
|
$
|
116,000
|
|
Loan Placement Fees(6)
|
|
$
|
|
|
|
$
|
100,000
|
|
|
$
|
|
|
|
$
|
100,000
|
|
|
|
(1)
|
Management fees are calculated at 3%-4% of gross
revenues collected.
|
|
(2)
|
Construction management fees are calculated at 5%
of construction costs.
|
|
(3)
|
Leasing fees are calculated at 4%-4.5% of a new
tenants base rent.
|
|
(4)
|
Monthly administrative and advisory fees are
equal to 1/12 of 3/4 of 1% of the estimated current
value of real estate assets of the Company plus 1/12
of 1/4 of 1% of the estimated current value of all other
assets of the Company.
|
|
(5)
|
Legal fees are paid to an affiliate of CBRA for
the services provided by Stuart H. Widowski, Esq., in-house
counsel.
|
|
(6)
|
Loan placement fees are calculated at 1% of the
loan cost up to a maximum of $100,000.
|
F-60
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
Homburg USA purchased on December 24, 2002,
for $3 million, 3,300 convertible Series A
preferred Operating Partnership units at $909.09 with a
liquidation value of $1,000 each and a preferred distribution
rate of 9%. After such acquisition of securities by Homburg USA,
the Companys Board of Directors appointed Richard Homburg
a director. Frank Matheson, another director of the Company is
an officer of Homburg USA. During January 2003,
276,000 shares of common stock were issued to Homburg USA
in exchange for 552 preferred Operating Partnership units.
The issuance of common stock to Homburg USA,
absent curative measures, could have resulted in the
disqualification of the Companys status as a REIT in 2003.
If Richard Homburg, directly or indirectly, together with the
four other largest shareholders of the Company, were to own,
during the second half of any calendar year, more than 50% of
the value of the Company, it would fail to meet the five
or fewer test. Five or fewer refers to five or
fewer individual shareholders owning more than 50% of the value
of the REIT required for continued REIT status. The loss of REIT
status, while creating no immediate income tax liability for the
Company or its shareholders, would mean, among other things,
that the Company would be taxed as if it were a C
corporation on future net taxable income and capital gains.
Additionally, the Company would generally be disqualified for
federal income tax purposes as a REIT for the four taxable years
following disqualification. In order to avoid the potential loss
of REIT status, during June 2003, Mr. Homburg re-converted
the 276,000 shares of common stock to Series A
preferred Operating Partnership units on the same terms and with
the same rights as they were originally issued. The Company
believes that as of the date of this filing, it is in full
compliance with the REIT provisions of the Internal Revenue Code.
During the second quarter of 2003, Homburg
Delaware provided the equity financing for the acquisition of
Pine Grove and Swede Square and Homburg Invest guaranteed the
financing for Valley Plaza (see Note 4). In addition,
Homburg USA provided to the Company a one-year
$1.1 million, 9% interest only loan. The loan includes a
$100,000 entrance fee and requires payment of a
$200,000 exit fee. The loan was used to partially fund the
deposit requirements for the South Philadelphia Shopping Center
(see Note 11).
In connection with the acquisition of the Red
Lion partnership interest from Silver Circle Management Corp, a
party related to Cedar Bay Company, the limited partner of the
Operating Partnership, the Company agreed to pay $888,000 in
three equal annual installments of $296,000 plus interest at
7.5%. During the second quarter of 2003, the related party
agreed to extend the payment of the current installment of
$296,000 through September 30, 2003.
During the second quarter of 2003, Selbridge
Corporation, also a party related to Cedar Bay Company, provided
the Company with a $750,000 loan. The principal, plus
interest calculated an annual rate of 15%, is payable on or
before October 30, 2003. The loan was used to partially
fund the deposit requirements for the South Philadelphia
Shopping Center (see Note 11).
|
|
Note 8.
|
Interest Rate Hedges
|
During 2002, the Company completed one interest
rate swap transaction to hedge the Companys exposure to
changes in interest rates with respect to $14.0 million of
LIBOR-based variable rate debt. The swap agreement provides for
a fixed all-in rate of 4.74% (includes a credit spread of
1.95%). The swap agreement extends through November 19,
2003 on $7.0 million of principal and through
November 19, 2004 on the remaining $7.0 million of
principal.
During the first quarter of 2003, the Company
entered into two interest rate swaps to hedge the Companys
exposure to changes in interest rates with respect to
$9.8 million of LIBOR-based variable rate debt. The swap
agreements provide for a fixed all-in rate of 6.43% for the
seven-year term of the Halifax and Newport loans. During the
second quarter of 2003, the Company entered into one swap
agreement to
F-61
CEDAR SHOPPING CENTERS, INC.
Notes to Consolidated Financial
Statements (Continued)
hedge a $6.0 million LIBOR-based variable
rate loan. The agreement fixes the rate at 6.24% for the
seven-year term of the loan.
As of June 30, 2003, unrealized losses of
$860,000 that represent the change in fair value of the
aforementioned swaps were reflected 30%, or approximately
$276,000 in accumulated other comprehensive loss, a component of
shareholders equity. The remaining 70% or approximately
$584,000 is reflected in the limited partners interest.
The Companys interest rate hedges are
designated as cash flow hedges and hedge the future cash
outflows on debt. Interest rate swaps that convert variable
payments to fixed payments, such as those held by the Company,
as well as interest rate caps, floors, collars, and forwards are
cash flow hedges. The unrealized gains/ losses in the fair value
of these hedges are reported on the balance sheet with a
corresponding adjustment to either accumulated other
comprehensive income or earnings. For cash flow hedges, the
ineffective portion of a derivatives change in fair value
is immediately recognized in earnings.
|
|
Note 9.
|
Earnings Per Share
|
In accordance with SFAS No. 128,
Earnings Per Share (SFAS 128),
basic earnings per share (EPS) are computed by
dividing income available to common shareholders by the weighted
average number of shares of common stock outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
entity. As the Company reported a net loss during the first and
second quarters of 2003 and 2002, diluted EPS are not presented.
|
|
Note 10.
|
Subsequent Events
|
The Company entered into an agreement on
July 17, 2003, to purchase a 155,000 square foot
shopping center in Southington, CT for approximately
$8.3 million, plus closing costs.
|
|
Note 11.
|
Commitments and Contingencies
|
During the second quarter of 2003, the Company
entered into an agreement to enter into a lease, purchase option
and loan transaction with regard to a shopping center in
Philadelphia, Pennsylvania. In connection therewith, the Company
made a non-refundable deposit of $3.0 million. The Company
is currently seeking a joint venture partner and or other
financing arrangements for this transaction, which is expected
to close on or before October 31, 2003. In the event that
the Company is unable to make such arrangements, the deposit
would be at risk.
As discussed in Note 10, the Company also
entered into an agreement on July 17, 2003, to purchase a
155,000 square foot shopping center in Southington, CT,
anchored by a 94,000 square foot Wal-Mart store, for
approximately $8.3 million, plus closing costs.
F-62
STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
Southington 84 Associates L.P. Operating
as Wal-Mart Shopping Center
For the six months ended June 30, 2003
(unaudited) and the year ended December 31,
2002
F-63
Southington 84 Associates L.P.
Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-65
|
|
Statements of Revenues and Certain Expenses
|
|
|
F-66
|
|
Notes to Statements of Revenue and Certain
Expenses
|
|
|
F-67
|
|
F-64
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the statement of revenues and
certain expenses of Southington 84 Associates L.P.
(the Partnership) which operated a property located
in Southington, Connecticut, for the year ended
December 31, 2002. The financial statement is the
responsibility of the Partnerships management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and
certain expenses was prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and is not intended to be a complete presentation of the
partnerships revenues and expenses.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Partnership as described in
Note 1 for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
New York, New York
July 15, 2003
F-65
Southington 84 Associates L.P.
Statements of Revenues and Certain
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
Year Ended
|
|
|
Ended
|
|
December 31,
|
|
|
June 30, 2003
|
|
2002
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
355,401
|
|
|
$
|
714,459
|
|
|
Tenant reimbursements
|
|
|
137,533
|
|
|
|
283,136
|
|
|
Other income
|
|
|
36,296
|
|
|
|
78,660
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
529,230
|
|
|
|
1,076,255
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
76,651
|
|
|
|
145,305
|
|
|
Management fees
|
|
|
19,109
|
|
|
|
41,911
|
|
|
Property operating expenses
|
|
|
202,723
|
|
|
|
267,080
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
298,483
|
|
|
|
454,296
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
230,747
|
|
|
$
|
621,959
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statement.
F-66
Southington 84 Associates L.P.
Notes to Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
1. Basis of
Presentation
Presented herein are the statements of revenues
and certain expenses related to the operation of a multi-tenant
shopping center. Southington 84 Associates L.P. (the
Partnership) operates a community shopping center
located in Southington, Connecticut (the Property).
The Property has approximately 154,733 square feet of leasable
retail space.
The statement of revenues and certain expenses
for the six months ended June 30, 2003 is unaudited;
however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary
for a fair presentation of the statement of revenues and certain
expenses for this interim period has been included. The results
of interim periods are not necessarily indicative of the results
to be obtained for a full fiscal year.
The accompanying financial statements have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Partnership in the proposed
future operations of the aforementioned Property. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statement in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
The Property is being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $23,000
(unaudited) for the six months ended June 30, 2003 and
$35,300 for the year ended December 31, 2002.
4. Management
Agreements
The Partnership incurs management fees based on
4% of gross collections. The management services provided by
Meadows Management Corp. was terminated simultaneous to the sale
of Property to Cedar in June 2002.
5. Property
Operating Expenses
Property operating expenses for the year ended
December 31, 2002, includes $28,923 for insurance, $6,045
for utilities, $127,351 for ground rent, $84,814 in repair and
maintenance costs and $19,947 in professional and other costs.
Property operating expenses for the six months
ended June 30, 2003 (unaudited) include $11,114 for
insurance, $11,060 for utilities, $64,475 for ground rent,
$88,469 for repairs and maintenance costs and $27,605 in
professional and other costs.
F-67
Southington 84 Associates L.P.
Notes to Statements of Revenues and Certain
Expenses (Continued)
6. Significant
Tenants
The two most significant tenants constitute
approximately 74% of rental revenue for the six months ended
June 30, 2003 (unaudited) and the year ended
December 31, 2002.
7. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
Partnership as of December 31, 2002 under noncancelable
operating leases are as follows:
|
|
|
|
|
2003
|
|
$
|
730,961
|
|
2004
|
|
|
786,247
|
|
2005
|
|
|
807,258
|
|
2006
|
|
|
795,640
|
|
2007
|
|
|
791,273
|
|
Thereafter
|
|
|
4,207,494
|
|
|
|
|
|
|
Total
|
|
$
|
8,118,873
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as fixed increases in rent.
F-68
STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
Delaware 1851 Associates, L.P. Operating as
Columbus Crossing Shopping Center
For the six months ended June 30, 2003
(unaudited) and the year ended December 31,
2002
F-69
Delaware 1851 Associates, L.P.
Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-72
|
|
Statements of Revenues and Certain Expenses
|
|
|
F-73
|
|
Notes to Statements of Revenue and Certain
Expenses
|
|
|
F-74
|
|
F-70
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the statement of revenues and
certain expenses of Delaware 1851 Associates, L.P. (the
Partnership) which operates a property in
Philadelphia, Pennsylvania, for the year ended December 31,
2002. The financial statement is the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and
certain expenses was prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and is not intended to be a complete presentation of the
partnerships revenues and expenses.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Partnership as described in
Note 1 for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
New York, New York
July 15, 2003
F-71
Delaware 1851 Associates, L.P.
Statements of Revenues and Certain
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
Year Ended
|
|
|
Ended
|
|
December 31,
|
|
|
June 30, 2003
|
|
2002
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
1,132,899
|
|
|
$
|
2,216,480
|
|
|
Tenant reimbursements
|
|
|
252,595
|
|
|
|
360,233
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
1,385,494
|
|
|
|
2,576,713
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
73,632
|
|
|
|
147,264
|
|
|
Property operating expenses
|
|
|
240,175
|
|
|
|
310,672
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
313,807
|
|
|
|
457,936
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
1,071,687
|
|
|
$
|
2,118,777
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statement.
F-72
Delaware 1851 Associates, L.P.
Notes to Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
1. Basis of
Presentation
Presented herein are the statements of revenues
and certain expenses related to the operation of a multi-tenant
shopping center. Delaware 1851 Associates, L.P. (the
Partnership) operates a community shopping center
located in Philadelphia, Pennsylvania (the
Property). The Property has approximately
142,166 square feet of leasable retail space.
The statements of revenues and certain expenses
for the six months ended June 30, 2003 is unaudited;
however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary
for a fair presentation of the statements of revenues and
certain expenses for this interim period has been included. The
results of interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
The accompanying financial statements have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Partnership in the proposed
future operations of the aforementioned Property. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statement in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
The Property is being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $36,000
(unaudited) for the six months ended June 30, 2003 and
$73,293 for the year ended December 31, 2002.
4. Property
Operating Expenses
Property operating expenses for the year ended
December 31, 2002, includes $57,272 for insurance, $11,311
for utilities, $3,100 for business privilege taxes, $193,583 in
repair and maintenance costs and $45,406 in professional
and other costs.
Property operating expenses for the six months
ended June 30, 2003 (unaudited) include $35,193 for
insurance, $16,550 for utilities, $8,500 for business privilege
taxes, $147,198 for repairs and maintenance costs and $32,734 in
professional and other costs.
6. Significant
Tenants
The three most significant tenants constituted
approximately 76% of rental revenue in for the six months ended
June 30, 2003 and the year ended December 31, 2002.
F-73
Delaware 1851 Associates, L.P.
Notes to Statements of Revenues and Certain
Expenses (Continued)
7. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
Partnership as of December 31, under noncancelable
operating leases are as follows:
|
|
|
|
|
2003
|
|
$
|
2,159,000
|
|
2004
|
|
|
2,164,000
|
|
2005
|
|
|
2,164,000
|
|
2006
|
|
|
2,172,000
|
|
2007
|
|
|
2,138,000
|
|
Thereafter
|
|
|
12,874,000
|
|
|
|
|
|
|
Total
|
|
$
|
23,671,000
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as fixed increases in rent.
F-74
COMBINED STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
Associates of Hungtingdon, L.P., Greater
Raystown Associates L.P. and Lake Raystown Associates,
L.P.
Operating as Huntingdon Plaza at Lake Raystown
Plaza
For the six months ended June 30, 2003
(unaudited) and the year ended
December 31, 2002
F-75
Associates of Huntingdon, L.P.
Greater Raystown Associates L.P.
Lake Raystown Associates L.P.
Combined Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-77
|
|
Combined Statements of Revenues and Certain
Expenses
|
|
|
F-78
|
|
Notes to Combined Statements of Revenue and
Certain Expenses
|
|
|
F-79
|
|
Supplemental Information
|
|
|
F-81
|
|
Combining Statement of Revenue and Certain
Expenses for the six months ended June 30, 2003
|
|
|
F-82
|
|
Combining Statement of Revenues and Certain
Expenses for the year ended December 31, 2002
|
|
|
F-83
|
|
F-76
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the combined statements of
revenues and certain expenses of Associates of Huntingdon L.P.,
Greater Raystown Associates L.P. and Lake Raystown Associates
L.P. which operate shopping center properties in Philadelphia,
Pennsylvania. (collectibly the Properties), for the
year ended December 31, 2002. The financial statement is
the responsibility of the Properties management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and
certain expenses was prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and is not intended to be a complete presentation of the
companys revenues and expenses.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Properties as described in
Note 1 for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
New York, New York
July 21, 2003
F-77
Associates of Huntingdon, L.P.
Greater Raystown Associates L.P.
Lake Raystown Associates L.P.
Combined Statements of Revenues and Certain
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
Year Ended
|
|
|
Ended
|
|
December 31,
|
|
|
June 30, 2003
|
|
2002
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
505,096
|
|
|
$
|
1,182,697
|
|
|
Tenant reimbursements
|
|
|
94,611
|
|
|
|
228,378
|
|
|
Other income
|
|
|
4,990
|
|
|
|
6,821
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
604,697
|
|
|
|
1,417,896
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
58,543
|
|
|
|
117,362
|
|
|
Property operating expenses
|
|
|
161,033
|
|
|
|
233,363
|
|
|
Management fee
|
|
|
57,300
|
|
|
|
153,900
|
|
|
Bad Debt expense
|
|
|
|
|
|
|
28,971
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
276,876
|
|
|
|
533,596
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
327,821
|
|
|
$
|
884,300
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statement.
F-78
Associates of Huntingdon, L.P.
Greater Raystown Associates L.P.
Lake Raystown Associates L.P.
Notes to Combined Statements of Revenues and
Certain Expenses
For the six months ended June 30, 2003
and the year ended December 31, 2002
1. Basis of
Presentation
Presented herein are the statements of revenues
and certain expenses related to the operation of four
multi-tenant shopping centers (collectibly the
Properties). Associates of Huntingdon, L.P.
(Huntingdon) and Greater Raystown Associates L.P.
and Lake Raystown Associates L.P. (Lake Raystown)
operate community shopping centers in Philadelphia, Pennsylvania
with approximately 98,920, 75,012 and 9,280 square feet of
leasable retail space, respectively.
The statements of revenues and certain expenses
for the six months ended June 30, 2003 is unaudited;
however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary
for a fair presentation of the statements of revenues and
certain expenses for this interim period has been included. The
results of interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
The accompanying financial statements have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Properties in the proposed future
operations of the aforementioned properties. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statement in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
The Properties are being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $11,000
(unaudited) for the six months ended June 30, 2003,
and $14,000 for the year ended December 31, 2002.
4. Management
Agreements
H.L. Libby Corporation earns management fees,
based on 10% of gross collections (as defined) and labor fee of
$750 per month. The management services provided by the
affiliate are terminable upon ninety days notice.
5. Property
Operating Expenses
Property operating expenses for the year ended
December 31, 2002, includes $63,059 for insurance, $56,030
for utilities, $216,934 in repair and maintenance costs and
$14,931 in professional and other costs.
Property operating expenses for the six months
ended June 30, 2003 (unaudited) include $24,466 for
insurance, $51,495 for utilities, $83,209 for repairs and
maintenance costs and $1,863 in professional and other costs.
F-79
Associates of Huntingdon, L.P.
Greater Raystown Associates L.P.
Lake Raystown Associates L.P.
Notes to Combined Statements of Revenues and
Certain Expenses (Continued)
6. Significant
Tenants
The seven most significant tenants constituted
approximately 75% of rental revenue for the six months ended
June 30, 2003 and the year ended December 31, 2002.
7. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
Properties as of December 31, 2002 under noncancelable
operating leases are as follows:
|
|
|
|
|
2003
|
|
$
|
995,000
|
|
2004
|
|
|
1,042,000
|
|
2005
|
|
|
966,000
|
|
2006
|
|
|
831,000
|
|
2007
|
|
|
752,000
|
|
Thereafter
|
|
|
3,221,000
|
|
|
|
|
|
|
Total
|
|
$
|
7,807,000
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as fixed increases in rent and
percentage rent.
F-80
Supplemental Information
F-81
Combining Statement of Revenues and Certain
Expenses
For the six months ended June 30,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater
|
|
Lake
|
|
|
|
|
Huntingdon
|
|
Raystown
|
|
Raystown
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
166,107
|
|
|
$
|
277,555
|
|
|
$
|
61,434
|
|
|
$
|
505,096
|
|
|
Tenant reimbursements
|
|
|
28,517
|
|
|
|
66,094
|
|
|
|
|
|
|
|
94,611
|
|
|
Other income
|
|
|
4,272
|
|
|
|
718
|
|
|
|
|
|
|
|
4,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
198,896
|
|
|
|
344,367
|
|
|
|
61,434
|
|
|
|
604,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
33,154
|
|
|
|
21,211
|
|
|
|
4,178
|
|
|
|
58,543
|
|
|
Property operating expenses
|
|
|
87,356
|
|
|
|
57,622
|
|
|
|
16,055
|
|
|
|
161,033
|
|
|
Management fee
|
|
|
27,800
|
|
|
|
29,500
|
|
|
|
|
|
|
|
57,300
|
|
|
Bad Debt expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
148,310
|
|
|
|
108,333
|
|
|
|
20,233
|
|
|
|
276,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
50,586
|
|
|
$
|
236,034
|
|
|
$
|
41,201
|
|
|
$
|
327,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-82
Combining Statement of Revenues and Certain
Expenses
For the year ended December 31,
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater
|
|
Lake
|
|
|
|
|
Huntingdon
|
|
Raystown
|
|
Raystown
|
|
Total
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
499,998
|
|
|
$
|
560,497
|
|
|
$
|
122,202
|
|
|
$
|
1,182,697
|
|
|
Tenant reimbursements
|
|
|
91,696
|
|
|
|
136,682
|
|
|
|
|
|
|
|
228,378
|
|
|
Other income
|
|
|
4,192
|
|
|
|
2,629
|
|
|
|
|
|
|
|
6,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
595,886
|
|
|
|
699,808
|
|
|
|
122,202
|
|
|
|
1,417,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
66,308
|
|
|
|
42,697
|
|
|
|
8,357
|
|
|
|
117,362
|
|
|
Property operating expenses
|
|
|
120,869
|
|
|
|
88,660
|
|
|
|
23,834
|
|
|
|
233,363
|
|
|
Management fee
|
|
|
86,000
|
|
|
|
67,900
|
|
|
|
|
|
|
|
153,900
|
|
|
Bad Debt expense
|
|
|
21,143
|
|
|
|
7,828
|
|
|
|
|
|
|
|
28,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
294,320
|
|
|
|
207,085
|
|
|
|
32,191
|
|
|
|
533,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
301,566
|
|
|
$
|
492,723
|
|
|
$
|
90,011
|
|
|
$
|
884,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-83
COMBINED STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
Fairview Plaza Associates, LP, Halifax Plaza
Associates, LP and Newport Plaza Associates, LP
Operating as Fairview Plaza Shopping Center,
Halifax Plaza Shopping Center and
Newport Plaza Shopping Center,
respectively
For the year ended December 31,
2002
F-84
Fairview Plaza Associates, LP
Halifax Plaza Associates, LP
Newport Plaza Associates, LP
Combined Statements of Revenues and Certain
Expenses For the year ended December 31, 2002
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-86
|
|
Combined Financial Statement
|
|
|
|
|
Statement of Combined Revenues and Certain
Expenses
|
|
|
F-87
|
|
Notes to Statements of Revenue and Certain
Expenses
|
|
|
F-88
|
|
Supplemental Information
|
|
|
F-90
|
|
Combining Statement of Revenue and Certain
Expenses
|
|
|
F-91
|
|
F-85
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the combined statements of
revenues and certain expenses of Fairview Plaza Associates, LP
(Fairview), Halifax Plaza Associates, LP
(Halifax) and Newport Plaza Associates LP
(Newport). Fairview operates a property located in
Fairview Township, Pennsylvania. Halifax operates a property
located in Halifax Township, Pennsylvania. Newport operates a
property located in Howe Township, Pennsylvania. These
aforementioned properties (the Properties), for the
year ended December 31, 2002. The financial statement is
the responsibility of the Properties management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and
certain expenses was prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and is not intended to be a complete presentation of the
companys revenues and expenses.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Company as described in Note 1 for
the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, New York
July 11, 2003
F-86
Fairview Plaza Associates, LP
Halifax Plaza Associates, LP
Newport Plaza Associates, LP
Combined Statements of Revenues and Certain
Expenses
For the year ended December 31,
2002
|
|
|
|
|
|
|
Base rents
|
|
$
|
1,949,392
|
|
Tenant reimbursements
|
|
|
430,918
|
|
Other income
|
|
|
5,006
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
2,385,316
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
Real estate taxes
|
|
|
158,488
|
|
|
Property operating expenses
|
|
|
402,694
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
561,182
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
1,824,134
|
|
|
|
|
|
|
See accompanying notes to combined financial
statement.
F-87
Fairview Plaza Associates, LP
Halifax Plaza Associates, LP
Newport Plaza Associates, LP
Notes to the Combined Statements of Revenues
and Certain Expenses
For the year ended December 31,
2002
1. Basis of
Presentation
Presented herein are the statements of revenues
and certain expenses related to the operation of three
multi-tenant shopping center (collectively the
Properties). Fairview Plaza Associates, LP
(Fairview) owned and operated as a multi-tenant
shopping center located in Fairview Township, Pennsylvania
(Fairview Property). Fairview Property has
approximately 69,579 square feet of leasable retail space. Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) (Cedar), on January 10, 2003 purchased
Fairview Property for approximately $8 million. Halifax
Plaza Associates, LP (Halifax) owned and operated a
multi-tenant shopping center located in Halifax Township,
Pennsylvania (Halifax Property). Halifax Property
has approximately 54,150 square feet of leasable retail space.
Cedar purchased Halifax Property for approximately
$5.2 million on February 6, 2003. Newport Plaza
Associates, LP (Newport) owned and operated a
multi-tenant shopping center located in Howe Township,
Pennsylvania (Newport Property). Newport Property
has approximately 66,789 square feet of leasable retail space.
Cedar purchased Newport Property for approximately $
7.8 million on February 6, 2003.
The accompanying financial statement have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Properties in the proposed future
operations of the aforementioned Properties. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statement in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
The Properties are being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $158,023, for the
year ended December 31, 2002.
4. Property
Operating Expenses
Property operating expenses for the year ended
December 31, 2002, includes $30,099 for insurance, $100,944
for utilities, $149,305 in repair and maintenance costs, and
$122,346 in professional and other costs.
5. Significant
Tenants
The most significant common tenant of the
Properties constitutes approximately 63.2% of the combined
rental revenue for the year ended December 31, 2002.
F-88
Fairview Plaza Associates, LP
Halifax Plaza Associates, LP
Newport Plaza Associates, LP
Notes to the Combined Statements of Revenues
and Certain Expenses (Continued)
6. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
the Properties as of December 31, 2002 under noncancelable
operating leases are as follows:
|
|
|
|
|
2003
|
|
$
|
1,801,937
|
|
2004
|
|
|
1,781,393
|
|
2005
|
|
|
1,680,805
|
|
2006
|
|
|
1,592,911
|
|
2007
|
|
|
1,526,233
|
|
Thereafter
|
|
|
16,328,062
|
|
|
|
|
|
|
Total
|
|
$
|
24,711,341
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as fixed increases in rent.
F-89
Supplemental Information
F-90
Combining Statement of Revenues and Certain
Expenses
For the year ended December 31,
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairview
|
|
Halifax
|
|
Newport
|
|
Total
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
|
793,900
|
|
|
|
577,145
|
|
|
|
578,347
|
|
|
|
1,949,392
|
|
|
Tenant reimbursements
|
|
|
99,038
|
|
|
|
157,497
|
|
|
|
174,383
|
|
|
|
430,918
|
|
|
Other income
|
|
|
4,974
|
|
|
|
16
|
|
|
|
16
|
|
|
|
5,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
897,912
|
|
|
|
734,658
|
|
|
|
752,746
|
|
|
|
2,385,316
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
40,878
|
|
|
|
57,282
|
|
|
|
60,328
|
|
|
|
158,488
|
|
|
Property operating expenses
|
|
|
114,470
|
|
|
|
140,986
|
|
|
|
147,238
|
|
|
|
402,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Certain Expenses
|
|
|
155,348
|
|
|
|
198,268
|
|
|
|
207,566
|
|
|
|
561,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue in Excess of Certain Expenses
|
|
|
742,564
|
|
|
|
536,390
|
|
|
|
545,180
|
|
|
|
1,824,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-91
STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
Pine Grove Plaza Associates, LLC
Operating as Pine Grove Shopping
Center
For the six months ended June 30, 2003
(unaudited) and the year ended December 31,
2002
F-92
Pine Grove Plaza Associates, LLC
Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-94
|
|
Statements of Revenues and Certain Expenses
|
|
|
F-95
|
|
Notes to Statements of Revenue and Certain
Expenses
|
|
|
F-96
|
|
F-93
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the statements of revenues and
certain expenses of Pine Grove Plaza Associates, LLC (the
Company), which operates a property located in Brown
Hills, New Jersey, for the year ended December 31, 2002.
The financial statement is the responsibility of the
Companys management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and
certain expenses was prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and is not intended to be a complete presentation of the
companys revenues and expenses.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Company as described in Note 1
for the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
July 17, 2003
F-94
Pine Grove Plaza Associates, LLC
Statements of Revenues and Certain
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
Year Ended
|
|
|
Ended
|
|
December 31,
|
|
|
June 30, 2003
|
|
2002
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
403,604
|
|
|
$
|
552,349
|
|
|
Tenant reimbursements
|
|
|
103,776
|
|
|
|
214,186
|
|
|
Other income
|
|
|
277
|
|
|
|
1,199
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
507,657
|
|
|
|
767,734
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
15,480
|
|
|
|
16,301
|
|
|
Management fees
|
|
|
21,863
|
|
|
|
22,016
|
|
|
Property operating expenses
|
|
|
153,241
|
|
|
|
172,745
|
|
|
Bad debt expense
|
|
|
|
|
|
|
7,102
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
190,584
|
|
|
|
218,164
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
317,073
|
|
|
$
|
549,570
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statement.
F-95
Pine Grove Plaza Associates, LLC
Notes to Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and December 31, 2002
1. Basis of
Presentation
Presented herein are the statements of revenues
and certain expenses related to the operation of a multi-tenant
shopping center. Pine Grove Plaza Associates, LLC (the
Company) operates a community shopping center called
the Pine Grove Shopping Center, located in Pemberton, New Jersey
(the Property). The Property has approximately
79,000 square feet of leasable retail space. Cedar Shopping
Centers, Inc. (formerly known as Cedar Income Fund, Ltd.)
(Cedar), on April 2, 2003 purchased the
Property for approximately $8.00 million.
The statements of revenues and certain expenses
for the six months ended June 30, 2003 is unaudited;
however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary
for a fair presentation of the statements of revenues and
certain expenses for this interim period has been included. The
results of interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
The accompanying financial statements have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Company in the proposed future
operations of the aforementioned Property. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statement in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
The Property is being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $19,600 (unaudited)
for the six months ended June 30, 2003 and $25,300, for the
year ended December 31, 2002.
4. Management
Agreements
J. Lowe Property Management Inc., earns
management fees based on 4% of gross collections, as defined.
The management services were terminated simultaneous to the sale
of Property to Cedar on April 2, 2003.
5. Property
Operating Expenses
Property operating expenses for the year ended
December 31, 2002, includes $21,332 for insurance, $18,233
for utilities,$108,369 in repair and maintenance costs and
$24,811 in professional and other costs.
Property operating expenses for the six months
ended June 30, 2003 (unaudited) include $15,967 for
insurance, $13,674 for utilities, $119,587 for repairs and
maintenance costs, $4,013 in professional and other costs.
F-96
Pine Grove Plaza Associates, LLC
Notes to Statements of Revenues and Certain
Expenses (continued)
6. Significant
Tenants
The five most significant tenants constitute
approximately 66% and 70% of rental revenue for the six months
ended June 30, 2003 (unaudited) and the year ended
December 31, 2002, respectively.
7. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
Company as of December 31, 2002 under noncancelable
operating leases are as follows:
|
|
|
|
|
2003
|
|
$
|
807,200
|
|
2004
|
|
|
809,000
|
|
2005
|
|
|
820,000
|
|
2006
|
|
|
815,100
|
|
2007
|
|
|
374,000
|
|
Thereafter
|
|
|
2,809,839
|
|
|
|
|
|
|
Total
|
|
$
|
6,435,139
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as fixed increases in rent.
F-97
COMBINED STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
Firehouse Realty Corporation, Riverview
Development Corporation,
Reed Development Associates, Inc. and South
Riverview Plaza Inc.
Operating as River View I, II and
III
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
F-98
Firehouse Realty Corporation
Riverview Development Corporation
South Riverview Plaza, Inc.
Reed Development Associates, Inc.
Combined Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-101
|
|
Combined Statements of Revenues and Certain
Expenses
|
|
|
F-102
|
|
Notes to Combined Statements of Revenue and
Certain Expenses
|
|
|
F-103
|
|
Supplemental Information
|
|
|
F-105
|
|
Combining Statement of Revenues and Certain
Expenses for the six months Ended June 30, 2003
|
|
|
F-106
|
|
Combining Statement of Revenues and Certain
Expenses for the year ended December 31, 2002
|
|
|
F-107
|
|
F-99
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the combined statements of
revenues and certain expenses of Firehouse Realty Corporation,
Riverview Development Corporation, South Riverview Plaza, Inc.
and Reed Development Associates, Inc. which operate shopping
center properties in Philadelphia, Pennsylvania. (collectibly
the Properties), for the year ended
December 31, 2002. The financial statement is the
responsibility of the Properties management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and
certain expenses was prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and is not intended to be a complete presentation of the
companys revenues and expenses.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Properties as described in
Note 1 for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
New York, New York
July 17, 2003
F-100
Firehouse Realty Corporation
Riverview Development Corporation
South Riverview Plaza Inc.
Reed Development Associates, Inc.
Combined Statements of Revenues and Certain
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
Year Ended
|
|
|
Ended
|
|
December 31,
|
|
|
June 30, 2003
|
|
2002
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
2,150,656
|
|
|
$
|
4,366,014
|
|
|
Tenant reimbursements
|
|
|
546,254
|
|
|
|
918,668
|
|
|
Other income
|
|
|
586
|
|
|
|
6,977
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
2,697,496
|
|
|
|
5,291,659
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
172,673
|
|
|
|
345,259
|
|
|
Property operating expenses
|
|
|
451,594
|
|
|
|
580,822
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
624,267
|
|
|
|
926,081
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
2,073,229
|
|
|
$
|
4,365,578
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statement.
F-101
Firehouse Realty Corporation
Riverview Development Corporation
South Riverview Plaza, Inc.
Reed Development Associates, Inc.
Notes to Combined Statements of Revenues and
Certain Expenses
December 31, 2002
Presented herein are the statements of revenues
and certain expenses related to the operation of four
multi-tenant shopping centers (collectibly the
Properties). Firehouse Realty Corp
(Firehouse), Riverview Development Corporation
(Riverview), South Riverview Plaza, Inc.
(South Riverview) and Reed Development Associates,
Inc. (Reed) operate community shopping centers in
Philadelphia, Pennsylvania with approximately 7,300, 82,424,
46,748 and 110,300 square feet of leasable retail space,
respectively.
The statements of revenues and certain expenses
for the six months ended June 30, 2003 is unaudited;
however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary
for a fair presentation of the statements of revenues and
certain expenses for this interim period has been included. The
results of interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
The accompanying financial statements have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Company in the proposed future
operations of the aforementioned property. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statement in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
The Property is being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $47,000
(unaudited) for the six months ended June 30, 2003 and
$110,000 for the year ended December 31, 2002.
4. Property
Operating Expenses
Property operating expenses for the year ended
December 31, 2002, includes $164,849 for insurance, $53,785
for utilities, $14,200 for business privilege taxes, $334,273 in
repair and maintenance costs and $13,715 in professional and
other costs.
Property operating expenses for the six months
ended June 30, 2003 (unaudited) include $98,505 for
insurance, $31,705 for utilities, $14,000 for business privilege
taxes, $292,102 for repairs and maintenance costs and $15,282 in
professional and other costs.
F-102
5. Significant
Tenants
The ten most significant tenants constituted
approximately 76% of rental revenue for the three months ended
June 30, 2003 and the year ended December 31, 2002.
6. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
Partnership as of December 31, under noncancelable
operating leases are as follows:
|
|
|
|
|
2003
|
|
$
|
4,050,000
|
|
2004
|
|
|
3,645,000
|
|
2005
|
|
|
2,840,000
|
|
2006
|
|
|
2,247,000
|
|
2007
|
|
|
1,994,000
|
|
Thereafter
|
|
|
18,540,000
|
|
|
|
|
|
|
Total
|
|
$
|
33,316,000
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as fixed increases in rent.
F-103
Supplemental Information
F-104
Combining Statement of Revenues and Certain
Expenses
For the six months ended June 30,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
|
|
|
|
|
|
|
|
|
Riverview
|
|
Riverview
|
|
Firehouse
|
|
Reed
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
513,819
|
|
|
$
|
718,795
|
|
|
$
|
106,850
|
|
|
$
|
811,192
|
|
|
$
|
2,150,656
|
|
|
Tenant reimbursements
|
|
|
96,321
|
|
|
|
180,804
|
|
|
|
|
|
|
|
269,129
|
|
|
|
546,254
|
|
|
Other income
|
|
|
37
|
|
|
|
289
|
|
|
|
1
|
|
|
|
259
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
610,177
|
|
|
|
899,888
|
|
|
|
106,851
|
|
|
|
1,080,580
|
|
|
|
2,697,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
30,152
|
|
|
|
62,475
|
|
|
|
3,600
|
|
|
|
76,446
|
|
|
|
172,673
|
|
|
Property operating expenses
|
|
|
107,022
|
|
|
|
145,458
|
|
|
|
10,379
|
|
|
|
188,735
|
|
|
|
451,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
137,174
|
|
|
|
207,933
|
|
|
|
13,979
|
|
|
|
265,181
|
|
|
|
624,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
473,003
|
|
|
$
|
691,955
|
|
|
$
|
92,872
|
|
|
$
|
815,399
|
|
|
$
|
2,073,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-105
Combining Statement of Revenues and Certain
Expenses
For the year ended December 31,
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
|
|
|
|
|
|
|
|
|
Riverview
|
|
Riverview
|
|
Firehouse
|
|
Reed
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
1,044,865
|
|
|
$
|
1,473,415
|
|
|
$
|
208,308
|
|
|
$
|
1,639,426
|
|
|
$
|
4,366,014
|
|
|
Tenant reimbursements
|
|
|
170,287
|
|
|
|
276,819
|
|
|
|
7,315
|
|
|
|
464,247
|
|
|
|
918,668
|
|
|
Other income
|
|
|
165
|
|
|
|
5,785
|
|
|
|
164
|
|
|
|
863
|
|
|
|
6,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
1,215,317
|
|
|
|
1,756,019
|
|
|
|
215,787
|
|
|
|
2,104,536
|
|
|
|
5,291,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
60,215
|
|
|
|
124,951
|
|
|
|
7,200
|
|
|
|
152,893
|
|
|
|
345,259
|
|
|
Property operating expenses
|
|
|
139,650
|
|
|
|
169,225
|
|
|
|
16,884
|
|
|
|
255,063
|
|
|
|
580,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
199,865
|
|
|
|
294,176
|
|
|
|
24,084
|
|
|
|
407,956
|
|
|
|
926,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
1,015,452
|
|
|
$
|
1,461,843
|
|
|
$
|
191,703
|
|
|
$
|
1,696,580
|
|
|
$
|
4,365,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-106
STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
Triangle Center Associates, L.P.
Operating as Golden Triangle Shopping
Center
For the six months ended June 30, 2003
(unaudited) and the years ended December 31, 2002, 2001 and
2000
F-107
Triangle Center Associates, L.P.
Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited)
and the years ended December 31, 2002,
2001 and 2000
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-110
|
|
Statements of Revenues and Certain Expenses
|
|
|
F-111
|
|
Notes to Statements of Revenue and Certain
Expenses
|
|
|
F-112
|
|
F-108
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the statements of revenues and
certain expenses of Triangle Center Associates, L.P. (the
Property) located in Lancaster, Pennsylvania, which
has been acquired by Cedar Shopping Centers, Inc., as described
in Note 1, for the years ended December 31, 2002, 2001
and 2000. The financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements 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 audits 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.
The accompanying statements of revenues and
certain expenses were prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and are not intended to be a complete presentation of the
companys revenues and expenses.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Company as described in Note 1
for the years ended December 31, 2002, 2001 and 2000, in
conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
New York, New York
July 11, 2003
F-109
Triangle Center Associates, L.P.
Statements of Revenues and Certain
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
Years Ended December 31,
|
|
|
Ended
|
|
|
|
|
June 30, 2003
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
561,780
|
|
|
$
|
1,070,441
|
|
|
$
|
1,642,522
|
|
|
$
|
1,598,522
|
|
|
Tenant reimbursements
|
|
|
144,658
|
|
|
|
206,806
|
|
|
|
324,928
|
|
|
|
335,410
|
|
|
Other income
|
|
|
1,446
|
|
|
|
3,205
|
|
|
|
3,559
|
|
|
|
11,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
707,884
|
|
|
|
1,280,452
|
|
|
|
1,971,009
|
|
|
|
1,945,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
120,769
|
|
|
|
233,102
|
|
|
|
260,751
|
|
|
|
219,757
|
|
|
Management fees
|
|
|
20,161
|
|
|
|
40,886
|
|
|
|
62,065
|
|
|
|
55,720
|
|
|
Property operating expenses
|
|
|
125,589
|
|
|
|
195,331
|
|
|
|
207,398
|
|
|
|
225,900
|
|
|
Bad debt expense
|
|
|
|
|
|
|
|
|
|
|
74,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
266,519
|
|
|
|
469,319
|
|
|
|
604,940
|
|
|
|
501,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
441,365
|
|
|
$
|
811,133
|
|
|
$
|
1,366,069
|
|
|
$
|
1,443,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statement.
F-110
Triangle Center Associates, LP
Notes to Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the years ended December 31, 2002, 2001 and
2000
1. Basis of
Presentation
Presented herein are the statements of revenues
and certain expenses related to the operation of a multi-tenant
shopping center. Triangle Center Associates, L.P. operates a
community shopping center (Triangle) located in
Lancaster, Pennsylvania. Triangle has approximately
222,000 square feet of leasable retail space.
The statements of revenues and certain expenses
for the six months ended June 30, 2003 is unaudited;
however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary
for a fair presentation of the statements of revenues and
certain expenses for this interim period has been included. The
results of interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
The accompanying financial statements have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Company in the proposed future
operations of the aforementioned property. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
Triangle is being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $7,400
(unaudited) for the six months ended June 30, 2003,
$2,500, ($10,700) and ($6,200) for the years ended
December 31, 2002, 2001 and 2000, respectively.
4. Management
Agreements
Triangle incurs management fees, based on 3% of
gross collections (as defined). The management services provided
by the affiliate are terminable upon ninety days notice.
5. Property
Operating Expenses
Property operating expenses for the years ended
December 31, 2002, 2001 and 2000, respectively include
$40,210, $26,501 and $21,830 for insurance, $41,829, $38,106 and
$34,471 for utilities, $50,805, $55,765 and $58,565 in repair
and maintenance costs, $30,396, $40,381 and $65,414 in
professional and other, $32,091, $46,645 and $45,620 for payroll
(maintenance).
Property operating expenses for the six months
ended June 30, 2003 (unaudited) include $20,161 for
insurance, $29,881 for utilities, $43,780 for repairs and
maintenance costs, $18,446 for professional and other and
$13,321 for payroll (maintenance).
F-111
Triangle Center Associates, LP
Notes to Statements of Revenues and Certain
Expenses Continued
6. Significant Tenants
The three most significant tenants constitute
approximately 49%, 32%, and 33% of rental revenue in 2002, 2001
and 2000, respectively.
7. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
Triangle as of December 31, under noncancelable operating
leases are as follows:
|
|
|
|
|
2003
|
|
$
|
915,253
|
|
2004
|
|
|
822,132
|
|
2005
|
|
|
566,419
|
|
2006
|
|
|
341,815
|
|
2007
|
|
|
294,764
|
|
Thereafter
|
|
|
1,164,197
|
|
|
|
|
|
|
Total
|
|
$
|
4,104,580
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as fixed increases in rent.
F-112
STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
Valley Real Estate, LLC
Operating as Valley Plaza Shopping
Center
For the six months ended June 30, 2003
(unaudited) and the year ended December 31,
2002
F-113
Valley Real Estate LLC
Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-116
|
|
Statements of Revenues and Certain Expenses
|
|
|
F-117
|
|
Notes to Statements of Revenues and Certain
Expenses
|
|
|
F-118
|
|
F-114
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the statements of revenues and
certain expenses of Valley Real Estate LLC (the
Company), which operates a property located in Hagerstown,
Maryland, for the year ended December 31, 2002. The
financial statement is the responsibility of the Companys
management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and
certain expenses was prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and is not intended to be a complete presentation of the
companys revenues and expenses.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Company as described in Note 1
for the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, New York
July 11, 2003
F-115
Valley Real Estate, LLC
Statements of Revenues and Certain
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
Year Ended
|
|
|
Ended
|
|
December 31,
|
|
|
June 30, 2003
|
|
2002
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
422,395
|
|
|
$
|
843,610
|
|
|
Tenant reimbursements
|
|
|
103,772
|
|
|
|
297,584
|
|
|
Other income
|
|
|
141
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
526,308
|
|
|
|
1,141,595
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
35,271
|
|
|
|
69,227
|
|
|
Management fees
|
|
|
12,000
|
|
|
|
24,000
|
|
|
Property operating expenses
|
|
|
67,400
|
|
|
|
117,269
|
|
|
Bad debt expense
|
|
|
|
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
114,671
|
|
|
|
214,096
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
411,637
|
|
|
$
|
927,499
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statement.
F-116
Valley Real Estate, LLC
Notes to Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
1. Basis of
Presentation
Presented herein are the statements of revenues
and certain expenses related to the operation of a multi-tenant
shopping center. Valley Real Estate, LLC (the
Company) operates a community shopping center
located in Hagerstown Maryland (the Property). The
Property has approximately 191,200 square feet of leasable
retail space. Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.) (Cedar), on June 27,
2003 purchased the Property for approximately $9.5 million.
The statements of revenues and certain expenses
for the six months ended June 30, 2003 is unaudited;
however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary
for a fair presentation of the statements of revenues and
certain expenses for this interim period have been included. The
results of interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
The accompanying financial statements have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Company in the proposed future
operations of the aforementioned Property. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statement in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
The Property is being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $9,500 (unaudited)
for the six months ended June 30, 2003 and $17,800 for the
year ended December 31, 2002.
4. Management
Agreements
Paragon Management Group LLC and Kline Scott
Visco Commercial Real Estate Inc. earn management fees amounting
to $1,000 a month each or $12,000 a year each. The management
services were terminated simultaneous to the sale of the
Property to Cedar on June 27, 2003.
5. Property
Operating Expenses
Property operating expenses for the year ended
December 31, 2002, includes $17,034 for insurance, $6,144
for utilities, $43,692 in repair and maintenance costs and
$50,399 in professional and other costs.
Property operating expenses for the six months
ended June 30, 2003 (unaudited) include $6,645 for
insurance, $4,662 for utilities, $45,710 for repairs and
maintenance costs and $10,383 in professional and other costs.
F-117
Valley Real Estate, LLC
Notes to Statements of Revenues and Certain Expenses
(continued)
6. Significant
Tenants
The five most significant tenants constitute
approximately 89% of rental revenue for the six months ended
June 30, 2003 (unaudited) and the year ended
December 31, 2002.
7. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
Company as of December 31, 2002 under noncancelable
operating leases are as follows:
|
|
|
|
|
2003
|
|
$
|
825,787
|
|
2004
|
|
|
768,687
|
|
2005
|
|
|
557,557
|
|
2006
|
|
|
556,633
|
|
2007
|
|
|
556,633
|
|
Thereafter
|
|
|
1,759,230
|
|
|
|
|
|
|
Total
|
|
$
|
5,024,527
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as well as fixed increases in
rent and percentage rent.
F-118
COMBINED STATEMENTS OF REVENUES AND CERTAIN
EXPENSES
SPSP Corporation, Passyunk Supermarket, Inc.
and Twenty Fourth Street Passyunk Partners, L.P.
Operating as the South Philadelphia Shopping
Center
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
F-119
SPSP Corporation
Passyunk Supermarket, Inc.
Twenty Fourth Street Passyunk Partners,
L.P.
Combined Statements of Revenues and Certain
Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
Contents
|
|
|
|
|
Report of Independent Auditors
|
|
|
F-121
|
|
Combined Statements of Revenues and Certain
Expenses
|
|
|
F-122
|
|
Notes to Combined Statements of Revenue and
Certain Expenses
|
|
|
F-123
|
|
Supplemental Information
|
|
|
F-125
|
|
Combining Statement of Revenues and Certain
Expenses for the six months ended June 30, 2003
|
|
|
F-126
|
|
Combining Statement of Revenues and Certain
Expenses for the year ended December 31, 2002
|
|
|
F-127
|
|
F-120
Report of Independent Auditors
Board of Directors and Stockholders
Cedar Shopping Centers, Inc. (formerly known as
Cedar Income Fund, Ltd.)
We have audited the combined statements of
revenues and certain expenses of SPSP Corporation, Passyunk
Supermarket, Inc. and Twenty Fourth Street Passyunk Partners,
L.P. (collectibly the Owners) which operate a
shopping center property in South Philadelphia, Pennsylvania,
for the year ended December 31, 2002. The financial
statement is the responsibility of the Owners management.
Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. 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 audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and
certain expenses was prepared for the purpose of complying with
Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in Form S-11 of Cedar
Shopping Centers, Inc. (formerly known as Cedar Income Fund,
Ltd.) and is not intended to be a complete presentation of the
companys revenues and expenses.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the revenues
and certain expenses of the Owners as described in Note 1 for
the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
Our audit was conducted for the purposes of
forming an opinion on the combined statement of revenues and
certain expenses taken as a whole. The supplemental combining
statement of revenues and certain expenses is presented for the
purposes of additional analysis and is not a required part of
the combined statement of revenues and certain expenses. Such
information has been subject to the auditing procedures applied
in our audit of the combined statement of revenues and certain
expenses, and, in our opinion, is fairly stated in all material
respects in relation to the combined statement of revenues and
certain expenses taken as a whole.
/s/ ERNST & YOUNG LLP
New York, New York
July 31, 2003
F-121
SPSP Corporation
Passyunk Supermarket, Inc.
Twenty Fourth Street Passyunk Partners,
L.P.
Combined Statements of Revenues and Certain
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
Ended
|
|
|
|
|
June 30,
|
|
Year Ended
|
|
|
2003
|
|
December 31,
|
|
|
(Unaudited)
|
|
2002
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
1,557,581
|
|
|
$
|
2,622,420
|
|
|
Tenant reimbursements
|
|
|
357,593
|
|
|
|
462,714
|
|
|
Other income
|
|
|
357
|
|
|
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
1,915,531
|
|
|
|
3,086,414
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
228,646
|
|
|
|
364,208
|
|
|
Property operating expenses
|
|
|
246,093
|
|
|
|
411,453
|
|
|
Management fee
|
|
|
24,000
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
498,739
|
|
|
|
823,661
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
1,416,792
|
|
|
$
|
2,262,753
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statement.
F-122
SPSP Corporation
Passyunk Supermarket, Inc.
Twenty Fourth Street Passyunk Partners,
L.P.
Notes to Combined Statements of Revenues and
Certain Expenses
For the six months ended June 30, 2003
(unaudited) and the year ended December 31, 2002
Presented herein are the statements of revenues
and certain expenses related to the operation of a multi-tenant
shopping center (the Property). SPSP Corporation,
Passyunk Supermarket, Inc. and Twenty Fourth Street Passyunk
Partners, L.P. (collectibly the Owners) operate a
community shopping center in South Philadelphia, Pennsylvania
with approximately 309,000 square feet of leasable retail space,
respectively.
The statements of revenues and certain expenses
for the six months ended June 30, 2003 is unaudited;
however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary
for a fair presentation of the statements of revenues and
certain expenses for this interim period has been included. The
results of interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
The accompanying financial statements have been
prepared in accordance with the applicable rules and regulations
of the Securities and Exchange Commission for the acquisition of
real estate properties. Accordingly, the financial statements
exclude certain expenses that may not be comparable to those
expected to be incurred by the Company in the proposed future
operations of the aforementioned property. Items excluded
consist of interest, depreciation and general and administrative
expenses not directly related to the future operations.
2. Use of
Estimates
The preparation of financial statement in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
3. Revenue
Recognition
The Properties are being leased to tenants under
operating leases. Minimum rental income is generally recognized
on a straight-line basis over the term of the lease. The excess
of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $119,000
(unaudited) for the 6 months ended June 30, 2003, and
$117,000 for the year ended December 31, 2002.
4. Management
Agreements
Equity Properties, Inc. earns management fee
equal to $4,000 per month. The management services are
terminable upon thirty days notice.
5. Property
Operating Expenses
Property operating expenses for the year ended
December 31, 2002, includes $100,138 for insurance,
$119,857 for utilities, $25,226 for business privilege taxes,
$162,183 in repair and maintenance costs and $4,049 in
professional and other costs.
Property operating expenses for the six months
ended June 30, 2003 (unaudited) include $70,273 for
insurance, $41,925 for utilities, $130,492 for repairs and
maintenance costs and $3,403 in professional and other costs.
F-123
SPSP Corporation
Passyunk Supermarket, Inc.
Twenty Fourth Street Passyunk Partners,
L.P.
Notes to Combined Statements of Revenues and
Certain Expenses (continued)
6. Significant
Tenants
The four most significant tenants constituted
approximately 60% of rental revenue for the three months ended
June 30, 2003 (unaudited) and the year ended
December 31, 2002.
7. Future Minimum
Rents Schedule
Future minimum lease payments to be received by
Owners as of December 31, 2002 under noncancelable
operating leases are as follows:
|
|
|
|
|
2003
|
|
$
|
3,084,000
|
|
2004
|
|
|
3,274,000
|
|
2005
|
|
|
3,235,000
|
|
2006
|
|
|
3,089,000
|
|
2007
|
|
|
2,923,000
|
|
Thereafter
|
|
|
23,468,000
|
|
|
|
|
|
|
Total
|
|
$
|
39,073,000
|
|
|
|
|
|
|
The lease agreements generally contain provisions
for reimbursement of real estate taxes and operating expenses
over base year amounts, as well as fixed increases in rent.
F-124
Supplemental Information
F-125
Combining Statement of Revenues and Certain
Expenses
For the six months ended June 30,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passyunk
|
|
Twenty Fourth
|
|
|
|
|
SPSP
|
|
Supermarket
|
|
Street
|
|
Total
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
1,133,975
|
|
|
$
|
156,572
|
|
|
$
|
267,034
|
|
|
$
|
1,557,581
|
|
|
Tenant reimbursements
|
|
|
214,526
|
|
|
|
83,576
|
|
|
|
59,491
|
|
|
|
357,593
|
|
|
Other income
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
1,348,858
|
|
|
|
240,148
|
|
|
|
326,525
|
|
|
|
1,915,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
172,319
|
|
|
|
32,765
|
|
|
|
23,562
|
|
|
|
228,646
|
|
|
Property operating expenses
|
|
|
181,135
|
|
|
|
28,886
|
|
|
|
36,072
|
|
|
|
246,093
|
|
|
Management fee
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
377,454
|
|
|
|
61,651
|
|
|
|
59,634
|
|
|
|
498,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
971,404
|
|
|
$
|
178,497
|
|
|
$
|
266,891
|
|
|
$
|
1,416,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-126
Combining Statement of Revenues and Certain
Expenses
For the year ended December 31,
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passyunk
|
|
Twenty Fourth
|
|
|
|
|
SPSP
|
|
Supermarket
|
|
Street
|
|
Total
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
2,417,577
|
|
|
$
|
57,705
|
|
|
$
|
147,138
|
|
|
$
|
2,622,420
|
|
|
Tenant reimbursements
|
|
|
398,463
|
|
|
|
19,895
|
|
|
|
44,356
|
|
|
|
462,714
|
|
|
Other income
|
|
|
1,180
|
|
|
|
56
|
|
|
|
44
|
|
|
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue
|
|
|
2,817,220
|
|
|
|
77,656
|
|
|
|
191,538
|
|
|
|
3,086,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
279,574
|
|
|
|
37,490
|
|
|
|
47,144
|
|
|
|
364,208
|
|
|
Property operating expenses
|
|
|
307,649
|
|
|
|
36,943
|
|
|
|
66,861
|
|
|
|
411,453
|
|
|
Management Fee
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain expenses
|
|
|
635,223
|
|
|
|
74,433
|
|
|
|
114,005
|
|
|
|
823,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain expenses
|
|
$
|
2,181,997
|
|
|
$
|
3,223
|
|
|
$
|
77,533
|
|
|
$
|
2,262,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-127
Shares
Cedar Shopping Centers, Inc.
Common Stock
PROSPECTUS
Merrill Lynch & Co.
,
2003
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
|
|
Item 31.
|
Other Expenses of Issuance and
Distribution
|
The following table itemizes the expenses
incurred by us in connection with the issuance and registration
of the securities being registered hereunder. All amounts shown
are estimates except the Securities and Exchange Commission
registration fee.
|
|
|
|
|
|
SEC Registration Fee
|
|
$
|
15,165
|
|
NYSE Listing Fee
|
|
|
*
|
|
NASD filling fee
|
|
|
*
|
|
Printing and Engraving Expenses
|
|
|
*
|
|
Legal Fees and Expenses (other than Blue Sky)
|
|
|
*
|
|
Accounting and Fees and Expenses
|
|
|
*
|
|
Blue Sky Fees and Expenses
|
|
|
*
|
|
Transfer Agent and registrar fees
|
|
|
*
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
*
|
To be filed by amendment.
|
|
|
Item 32.
|
Sales to Special Parties
|
None
|
|
Item 33.
|
Recent Sales of Unregistered
Securities
|
The following is a summary of the sales during
the past three years by us of common stock that was not
registered under the Securities Act of 1933.
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
|
|
Date
|
|
Consideration
|
|
Number of Shares
|
|
|
|
|
|
|
|
Milt Ciplet
|
|
|
1/3/03
|
|
|
|
*
|
|
|
|
10,000
|
|
Johannes van de Pol
|
|
|
1/3/03
|
|
|
|
*
|
|
|
|
6,000
|
|
John P. Fasciano
|
|
|
1/3/03
|
|
|
|
*
|
|
|
|
20,000
|
|
Homburg Invest USA Inc.
|
|
|
1/3/03
|
|
|
|
**
|
|
|
|
276,000
|
|
|
|
**
|
Conversion of Preferred Units
|
In addition, we issued an aggregate of 100,000
stock options to directors pursuant to our stock option plan.
All of the foregoing securities were issued in
reliance on the exemption from registration under
Section 4(2) of the Securities Act of 1933.
Item 34.
Indemnification
of Directors and Officers
Our charter contains a provision permitted under
the MGCL giving us the power to eliminate, with limited
exceptions, each directors and officers personal
liability for monetary damages for breach of any duty as a
director or officer. In addition, to the maximum extent
permitted under the MGCL, our bylaws require us to indemnify our
directors and officers and pay or reimburse reasonable expenses
in advance of final disposition of a proceeding if such director
or officer is made a party to the proceeding by reason of his or
her service in that capacity. These rights are contract rights
fully enforceable by each
II-1
beneficiary of those rights, and are in addition
to, and not exclusive of, any other right to indemnification.
Furthermore, our officers and directors are indemnified against
specified liabilities by the underwriters, and the underwriters
are indemnified against certain liabilities by us, under the
purchase agreements relating to this offering. See
Underwriting.
Item 35.
Treatment
of Proceeds from Stock Being Registered
None
Item 36.
Financial
Statements and Exhibits
(A)
Financial
Statements.
See Index to Consolidated Financial
Statements and the related notes thereto.
(B)
Exhibits.
The
following exhibits are filed as part of, or incorporated by
reference into, this registration statement on Form S-11:
Exhibits
|
|
|
|
|
Item
|
|
Title or Description
|
|
|
|
|
**1.1
|
|
|
Form of Underwriting Agreement among Cedar
Shopping Centers, Inc. (the Company), and the
underwriters named therein.
|
|
**3.1
|
|
|
Articles of Incorporation of the Company, as
amended.
|
|
3.2
|
|
|
By-laws of the Company. Incorporated by reference
to Exhibit 3.2 of Form 10-K for the year ended 1998.
|
|
3.3
|
|
|
Agreement of Limited Partnership for the
Operating Partnership. Incorporated by reference to
Exhibit 3.3 to Form 10-K for the year ended 1998.
|
|
**5.1
|
|
|
Opinion of Stroock & Stroock & Lavan
LLP with respect to the legality of the shares being registered.
|
|
**8.1
|
|
|
Opinion of Stroock & Stroock & Lavan
LLP regarding certain federal income tax matters.
|
|
10.1
|
|
|
Administrative and Advisory Agreement dated
April 2, 1998 between Cedar Bay Realty Advisors, Inc. and
the Company. Incorporated by reference to Exhibit 10.1 of
Form 10-K for the year ended 1998.
|
|
10.2
|
|
|
Management Agreement dated April 2, 1998
between Brentway Management LLC and the Company. Incorporated by
reference to Exhibit 10.2 of Form 10-K for the year
ended 1998.
|
|
10.3
|
|
|
Assignment of Administrative and Advisory
Agreement dated April 30, 1999, between Cedar Shopping
Centers, Inc. and Cedar Shopping Centers Partnership, L.P.;
Amendment of Administrative and Advisory Agreement dated
August 21, 2000, between Cedar Shopping Centers
Partnership, L.P. and Cedar Bay Realty Advisors, Inc.; Second
Amendment of Administrative and Advisory Agreement dated
August 21, 2000, between Cedar Shopping Centers
Partnership, L.P. and Cedar Bay Realty Advisors, Inc.; and Third
Amendment of the Administrative and Advisory Agreement dated as
of January 1, 2002 between Cedar Shopping Centers
Partnership, L.P. and Cedar Bay Realty Advisors, Inc.
Incorporated by reference to Exhibit 10.3 of Form 10-K
for the year ended 2001.
|
|
10.4
|
|
|
Standstill Agreement between Homburg Invest Inc.,
Richard Homburg and the Company dated January 18, 2002.
Incorporated by reference to Exhibit 10.4 of Form 10-K
for the year ended 2001.
|
|
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.
|
II-2
|
|
|
|
|
Item
|
|
Title or Description
|
|
|
|
|
10.6
|
|
|
Subscription Agreement by and between Cedar
Shopping Centers, Inc. and Homburg Invest USA Inc., dated as of
December 18, 2002. Incorporated by reference to
Exhibit 10.1 of Form 8-K filed on January 7, 2003.
|
|
10.7
|
|
|
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.
|
|
10.8
|
|
|
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.
|
|
10.9
|
|
|
Standstill Agreement by and between Robert J.
Ambrosi and 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.
|
|
10.10
|
|
|
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.
|
|
10.11
|
|
|
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.
|
|
10.12
|
|
|
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.
|
|
10.13
|
|
|
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.
|
|
10.14
|
|
|
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.
|
|
10.15
|
|
|
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.
|
|
10.16
|
|
|
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.
|
|
10.17
|
|
|
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.
|
|
10.18
|
|
|
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.
|
II-3
|
|
|
|
|
Item
|
|
Title or Description
|
|
|
|
|
10.19
|
|
|
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.
|
|
10.20
|
|
|
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.
|
|
10.21
|
|
|
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, 2002.
Incorporated by reference to Exhibit 10.3 of Form 8-K
filed on July 17, 2002.
|
|
10.22
|
|
|
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.
|
|
10.23
|
|
|
Open-End Mortgage and Security Agreement in the
amount of $14.0 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
filed on July 17, 2002.
|
|
10.24
|
|
|
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.
|
|
10.25
|
|
|
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.
|
|
10.26
|
|
|
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 2001-C3 (Lender) dated July 2, 2002.
Incorporated by reference to Exhibit 10.13 of Form 8-K
filed on July 17, 2002.
|
|
10.27
|
|
|
Agreement of Purchase and Sale between
Connecticut General Life Insurance Company and Cedar Shopping
Centers Partnership, L.P., dated August 12, 2002.
Incorporated by reference to Exhibit 10.1 of Form 8-K
filed on December 9, 2002.
|
|
10.28
|
|
|
First 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 10.2 of
Form 8-K filed on December 9, 2002.
|
II-4
|
|
|
|
|
Item
|
|
Title or Description
|
|
|
|
|
10.29
|
|
|
Second Amendment to Agreement of Purchase and
Sale between Connecticut General Life Insurance Company and
Cedar Shopping Centers Partnership, L.P., dated as of
October 31, 2002. Incorporated by reference to
Exhibit 10.3 of Form 8-K filed on December 9,
2002.
|
|
10.30
|
|
|
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.
|
|
10.31
|
|
|
Assignment and Assumption of Contract of sale
between Cedar Shopping Centers Partnership, L.P. and Cedar-Camp
Hill, LLC dated as of November , 2002.
Incorporated by reference to Exhibit 10.5 of Form 8-K
filed on December 9, 2002.
|
|
10.32
|
|
|
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.
|
|
10.33
|
|
|
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.
|
|
10.34
|
|
|
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.
|
|
10.35
|
|
|
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.
|
|
10.36
|
|
|
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.
|
|
10.37
|
|
|
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.
|
|
10.38
|
|
|
Intercreditor Recognition Agreement among
Citizens Bank of Pennsylvania, SWH Funding Corp., Cedar-Camp
Hill, LLC and Cedar Shopping Centers Partnership, L.P., dated as
of November 22, 2002. Incorporated by reference to
Exhibit 10.26 of Form 8-K filed on December 9,
2002.
|
|
**10.39
|
|
|
Employment agreement between Cedar Shopping
centers, Inc. and Leo S. Ullman, dated as
of ,
2003.
|
|
**10.40
|
|
|
Employment agreement between Cedar Shopping
Centers, Inc. and Brenda J. Walker, dated as
of ,
2003.
|
|
**10.41
|
|
|
Employment agreement between Cedar Shopping
Centers, Inc. and Thomas J. OKeeffe, dated as
of ,
2003.
|
|
**10.42
|
|
|
Employment agreement between Cedar Shopping
Centers, Inc. and Thomas B. Richey, dated as
of ,
2003.
|
|
**10.43
|
|
|
Employment agreement between Cedar Shopping
Centers, Inc. and Stuart H. Widowski, dated as
of ,
2003.
|
|
**21.1
|
|
|
List of Subsidiaries of the Registrant.
|
|
*23 .1
|
|
|
Consent of Ernst & Young, LLP
|
|
**23.2
|
|
|
Consent of Stroock & Stroock & Lavan
LLP (included in Exhibit 5.1).
|
|
*24.1
|
|
|
Power of Attorney (included on the Signature
Page).
|
|
|
**
|
To be filed by amendment.
|
II-5
Item 37.
Undertakings
The undersigned registrant hereby undertakes that:
|
|
|
(1) For purposes of
determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of
this registration statement in reliance under Rule 430A and
contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
|
|
|
(2) For the purpose
of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
|
The undersigned registrant hereby further
undertakes to provide to the underwriter at the closing
specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification of liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the Registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for
filing on Form S-11 and has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Port Washington, State of New
York, on August 20, 2003.
|
|
|
CEDAR SHOPPING CENTERS, INC.
|
|
|
|
|
|
Leo S. Ullman
|
|
Chairman of the Board of Directors
|
|
and President
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints Leo S.
Ullman, Brenda J. Walker and Thomas J. OKeeffe,
and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution for
him and in his name, place and stead, in any and all capacities,
to sign any or all amendments (including post-effective
amendments) of and supplements to this Registration Statement
and any Registration Statement relating to any offering made
pursuant to this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities
Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and
agents and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, to all intents and purposes
and as fully as they might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been signed below
by the following persons in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ LEO S. ULLMAN
Leo S. Ullman
|
|
Chairman of the Board of
Directors and President
(Principal Executive Officer)
|
|
August 20, 2003
|
|
/s/ BRENDA J. WALKER
Brenda J. Walker
|
|
Vice President and Director
|
|
August 20, 2003
|
|
/s/ THOMAS J. OKEEFFE
Thomas J. OKeeffe
|
|
Chief Financial Officer
|
|
August 20, 2003
|
|
/s/ ANN MANERI
Ann Maneri
|
|
Controller
(Principal Accounting Officer)
|
|
August 20, 2003
|
|
/s/ JAMES J. BURNS
James J. Burns
|
|
Director
|
|
August 20, 2003
|
II-7
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
Richard Homburg
|
|
Director
|
|
|
|
/s/ J. A. M. H. DER KINDEREN
J. A. M. H. der Kinderen
|
|
Director
|
|
August 20, 2003
|
|
Frank W. Matheson
|
|
Director
|
|
|
|
/s/ EVERETT B. MILLER, III
Everett B. Miller, III
|
|
Director
|
|
August 20, 2003
|
II-8
EXHIBIT INDEX
|
|
|
|
|
Item
|
|
Title or Description
|
|
|
|
|
**1
|
.1
|
|
Form of Underwriting Agreement among Cedar
Shopping Centers, Inc. (the Company), and the
underwriters named therein.
|
|
**3
|
.1
|
|
Articles of Incorporation of the Company, as
amended.
|
|
3
|
.2
|
|
By-laws of the Company. Incorporated by reference
to Exhibit 3.2 of Form 10-K for the year ended 1998.
|
|
3
|
.3
|
|
Agreement of Limited Partnership for the
Operating Partnership. Incorporated by reference to
Exhibit 3.3 to Form 10-K for the year ended 1998.
|
|
**5
|
.1
|
|
Opinion of Stroock & Stroock & Lavan LLP
with respect to the legality of the shares being registered.
|
|
**8
|
.1
|
|
Opinion of Stroock & Stroock & Lavan LLP
regarding certain federal income tax matters.
|
|
10
|
.1
|
|
Administrative and Advisory Agreement dated
April 2, 1998 between Cedar Bay Realty Advisors, Inc. and
the Company. Incorporated by reference to Exhibit 10.1 of
Form 10-K for the year ended 1998.
|
|
10
|
.2
|
|
Management Agreement dated April 2, 1998
between Brentway Management LLC and the Company. Incorporated by
reference to Exhibit 10.2 of Form 10-K for the year
ended 1998.
|
|
10
|
.3
|
|
Assignment of Administrative and Advisory
Agreement dated April 30, 1999, between Cedar Shopping
Centers, Inc. and Cedar Shopping Centers Partnership, L.P.;
Amendment of Administrative and Advisory Agreement dated
August 21, 2000, between Cedar Shopping Centers
Partnership, L.P. and Cedar Bay Realty Advisors, Inc.; Second
Amendment of Administrative and Advisory Agreement dated
August 21, 2000, between Cedar Shopping Centers
Partnership, L.P. and Cedar Bay Realty Advisors, Inc.; and Third
Amendment of the Administrative and Advisory Agreement dated as
of January 1, 2002 between Cedar Shopping Centers
Partnership, L.P. and Cedar Bay Realty Advisors, Inc.
Incorporated by reference to Exhibit 10.3 of Form 10-K
for the year ended 2001.
|
|
10
|
.4
|
|
Standstill Agreement between Homburg Invest Inc.,
Richard Homburg and the Company dated January 18, 2002.
Incorporated by reference to Exhibit 10.4 of Form 10-K
for the year ended 2001.
|
|
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
|
|
Subscription Agreement by and between Cedar
Shopping Centers, Inc. and Homburg Invest USA Inc., dated as of
December 18, 2002. Incorporated by reference to
Exhibit 10.1 of Form 8-K filed on January 7, 2003.
|
|
10
|
.7
|
|
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
|
.8
|
|
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
|
.9
|
|
Standstill Agreement by and between Robert J.
Ambrosi and 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
|
.10
|
|
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
|
.11
|
|
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.
|
|
|
|
|
|
Item
|
|
Title or Description
|
|
|
|
|
10
|
.12
|
|
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
|
.13
|
|
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
|
.14
|
|
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
|
.15
|
|
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
|
.16
|
|
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
|
.17
|
|
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
|
.18
|
|
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
|
.19
|
|
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
|
.20
|
|
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
|
.21
|
|
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, 2002.
Incorporated by reference to Exhibit 10.3 of Form 8-K
filed on July 17, 2002.
|
|
10
|
.22
|
|
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.
|
|
10
|
.23
|
|
Open-End Mortgage and Security Agreement in the
amount of $14.0 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
filed on July 17, 2002.
|
|
|
|
|
|
Item
|
|
Title or Description
|
|
|
|
|
10
|
.24
|
|
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
|
.25
|
|
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
|
.26
|
|
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 2001-C3 (Lender) dated July 2, 2002.
Incorporated by reference to Exhibit 10.13 of Form 8-K
filed on July 17, 2002.
|
|
10
|
.27
|
|
Agreement of Purchase and Sale between
Connecticut General Life Insurance Company and Cedar Shopping
Centers Partnership, L.P., dated August 12, 2002. Incorporated
by reference to Exhibit 10.1 of Form 8-K filed on
December 9, 2002.
|
|
10
|
.28
|
|
First 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 10.2 of
Form 8-K filed on December 9, 2002.
|
|
10
|
.29
|
|
Second Amendment to Agreement of Purchase and
Sale between Connecticut General Life Insurance Company and
Cedar Shopping Centers Partnership, L.P., dated as of
October 31, 2002. Incorporated by reference to
Exhibit 10.3 of Form 8-K filed on December 9,
2002.
|
|
10
|
.30
|
|
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
|
.31
|
|
Assignment and Assumption of Contract of sale
between Cedar Shopping Centers Partnership, L.P. and Cedar-Camp
Hill, LLC dated as of November , 2002.
Incorporated by reference to Exhibit 10.5 of Form 8-K
filed on December 9, 2002.
|
|
10
|
.32
|
|
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
|
.33
|
|
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.
|
|
10
|
.34
|
|
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
|
.35
|
|
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
|
|
10
|
.36
|
|
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
|
.37
|
|
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
|
.38
|
|
Intercreditor Recognition Agreement among
Citizens Bank of Pennsylvania, SWH Funding Corp., Cedar-Camp
Hill, LLC and Cedar Shopping Centers Partnership, L.P., dated as
of November 22, 2002. Incorporated by reference to
Exhibit 10.26 of Form 8-K filed on December 9,
2002.
|
|
|
|
|
|
Item
|
|
Title or Description
|
|
|
|
|
**10
|
.39
|
|
Employment agreement between Cedar Shopping
centers, Inc. and Leo S. Ullman, dated as
of ,
2003.
|
|
**10
|
.40
|
|
Employment agreement between Cedar Shopping
Centers, Inc. and Brenda J. Walker, dated as
of ,
2003.
|
|
**10
|
.41
|
|
Employment agreement between Cedar Shopping
Centers, Inc. and Thomas J. OKeeffe, dated as
of ,
2003.
|
|
**10
|
.42
|
|
Employment agreement between Cedar Shopping
Centers, Inc. and Thomas B. Richey, dated as
of ,
2003.
|
|
**10
|
.43
|
|
Employment agreement between Cedar Shopping
Centers, Inc. and Stuart H. Widowski, dated as
of ,
2003.
|
|
**21
|
.1
|
|
List of Subsidiaries of the Registrant.
|
|
*23
|
.1
|
|
Consent of Ernst & Young, LLP
|
|
**23
|
.2
|
|
Consent of Stroock & Stroock & Lavan LLP
(included in Exhibit 5.1).
|
|
*24
|
.1
|
|
Power of Attorney (included on the Signature
Page).
|
|
|
**
|
To be filed by amendment.
|