Organization And Basis Of Preparation

6 Months Ended

Jun. 30, 2011

Organization And Basis Of Preparation

Organization And Basis Of Preparation

Note 1.  Organization and Basis of Preparation

Cedar Shopping Centers, Inc. (the "Company") was organized in 1984 and elected to be taxed as a real estate investment trust ("REIT") in 1986. The Company focuses primarily on ownership, operation, development and redevelopment of supermarket-anchored shopping centers predominantly in mid-Atlantic and Northeast coastal states. At June 30, 2011, the Company owned and managed 131 operating properties, including 22 properties in the  unconsolidated Cedar/RioCan joint venture, and 17 properties "held for sale/conveyance".

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. At June 30, 2011 the Company owned a 98.0% economic interest in, and was the sole general partner of, the Operating Partnership. The limited partners' interest in the Operating Partnership (2.0% at June 30, 2011) is represented by Operating Partnership Units ("OP Units"). The carrying amount of such interest is adjusted at the end of each reporting period to an amount equal to the limited partners' ownership percentage of the Operating Partnership's net equity. Allocations of amounts between the Company and its limited partners include the impact of the equity award shares discussed in Note 2 – "Stock- Based Compensation". The approximately 1.4 million OP Units outstanding at June 30, 2011 are economically equivalent to the Company's common stock and are convertible into the Company's common stock at the option of the respective holders on a one-to-one basis.

As used herein, the "Company" refers to Cedar Shopping Centers, Inc. and its subsidiaries on a consolidated basis, including the Operating Partnership or, where the context so requires, Cedar Shopping Centers, Inc. only.

The consolidated financial statements include the accounts and operations of the Company, the Operating Partnership, its subsidiaries, and certain joint venture partnerships in which it participates. The Company consolidates all variable interest entities ("VIEs") for which it is the primary beneficiary. Generally, a VIE is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) as a group, the holders of the equity investment at risk (i) lack the power to make decisions about the entity's activities that significantly impacts the entity's performance through voting or similar rights, (ii) have no obligation to absorb the expected losses of the entity, or (iii) have no right to receive the expected residual returns of the entity, or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The Company follows the accounting guidance for determining whether an entity is a VIE, which requires the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE. The guidance requires an entity to consolidate a VIE if it has (i) the power to direct the activities that most significantly impact the entity's economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.

With respect to its 12 consolidated operating joint ventures, the Company has general partnership interests of 20% in nine properties, 40% in two properties and 50% in one property. As (i) such entities are not VIEs, and (ii) the Company is the sole general partner and exercises substantial operating control over these entities, the Company has determined that such entities should be consolidated for financial statement purposes. Current accounting guidance provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership or similar entity in which it owns a minority interest.

The Company's three 60%-owned joint ventures originally formed as development projects in Limerick, Pottsgrove and Stroudsburg, Pennsylvania, are consolidated as they are deemed to be VIEs and the Company is the primary beneficiary in each case. At June 30, 2011, these VIEs owned real estate with a carrying value of $138.3 million. The assets of the consolidated VIEs can be used to settle obligations other than those of the consolidated VIEs.  At that date, one of the VIEs had a property-specific mortgage loan payable aggregating $63.8 million, and the real estate owned by the other two VIEs partially collateralized the secured revolving development property credit facility (the "development property credit facility") to the extent of $28.1 million.  Such obligations are guaranteed by, and are recourse to, the Company. For such development projects, the Company reviews the applicable budgets and provides supervisory support.

On February 15, 2011, Homburg Invest Inc. ("HII"), one of the Company's joint venture partners, exercised its buy/sell option pursuant to the terms of the joint venture agreements for each of the nine properties owned by the venture. The offered values for the properties, in the aggregate, amounted to approximately $55.0 million over existing property-specific financing of approximately $101.6 million and $102.3 million at June 30, 2011 and December 31, 2010, respectively. The Company has elected to purchase HII's 80% interest in one of the nine properties, Meadows Marketplace, located in Hershey, Pennsylvania. The offered purchase price for the 80% interest is approximately $5.3 million, and the outstanding balance of the mortgage loan payable on the property was approximately $10.1 million and $10.2 million at June 30, 2011 and December 31, 2010, respectively. The Company also determined not to meet HII's buy/sell offers for each of the remaining eight properties. Accordingly, at closing, the Company will receive proceeds of approximately $9.7 million from HII for its 20% interest in these properties. The outstanding balances of the mortgage loans payable on the eight properties was approximately $91.5 million and $92.1 million at June 30, 2011 and December 31, 2010, respectively. The Company's property management agreements for the eight properties will terminate upon the closing of the sale. In addition to normal closing conditions, these transactions are subject to the obtaining of approvals of the lenders holding mortgages on the properties, which create significant uncertainties. Accordingly, there can be no assurance that any of these transactions will be consummated.

With respect to its unconsolidated joint ventures, the Company has a 20% interest in a joint venture with RioCan Real Estate Investment Trust of Toronto, Canada, a publicly-traded Canadian real estate investment trust ("RioCan") formed initially for the acquisition of seven shopping center properties owned by the Company; all seven properties had been transferred to the joint venture by May 2010 and, as of June 30, 2011, the joint venture owned 22 properties. The accounting treatment presentation on the accompanying consolidated statements of operations for the three and six months ended June 30, 2010 is to reflect the results of the properties' operations through the respective dates of transfer in current operations and, prospectively following their transfer to the joint venture, as "equity in income (loss) of unconsolidated joint ventures". Accordingly, the accompanying statements of operations for the three and six months ended June 30, 2010 includes revenues of $0.7 million and $4.4 million, respectively, applicable to the periods prior to the dates of transfer to the RioCan joint venture. Although the Company provides management and other services, RioCan has significant management participation rights. The Company has determined that this joint venture is not a VIE and, accordingly, the Company accounts for its investment in this joint venture under the equity method.

The Company had an approximate 85% limited partner's interest in an unconsolidated joint venture (increased from approximately 76% in the second quarter of 2011 for a payment of $745,000) which owned a single-tenant property in Philadelphia, Pennsylvania. The Company had determined that this joint venture was not a VIE. In addition, the Company had no control over the entity, did not provide any management or other services to the entity, and had no substantial participating or "kick out" rights.  The Company had accounted for its investment in this joint venture under the equity method. The tenant vacated the premises in April 2011 at which time the joint venture had a CMBS non-recourse first mortgage loan secured by the property in the amount of $14.7 million due for payment in May 2011. In May and June 2011, the Company reviewed its investment alternatives and determined that it would not be prudent to proceed with the development, sale or lease of both the joint venture property and an adjacent property 100% owned by the Company (the adjacent property had been leased to the same tenant which also vacated the premises in April 2011). In addition, it was determined that it would also not be prudent to advance the funds necessary to pay off the joint venture's mortgage. Such determination was based on the uncertainty in obtaining favorable revisions to zoning, difficult existing deed restrictions, the uncertainty in achieving required economic returns given the extensive additional capital investments required, and uncertain current market conditions for sale or lease. As a result, in exchange for a payment by the Company of $838,000, the Company (a) obtained appropriate releases, and (b) assigned its limited partnership interest to other partners of the joint venture. Accordingly, as of June 30, 2011, the Company wrote off its investment in the joint venture ($8.0 million) , and recorded an impairment charge, included in discontinued operations, related to the value of the 100%-owned adjacent property ($9.1 million, as more fully discussed in Note 3 -  "Discontinued Operations").

At June 30, 2011, the Company had deposits of $0.8 million on four land parcels (which is its maximum exposure) to be purchased for future development. Although each of the entities holding the deposits is considered a VIE, the Company has not consolidated any of them as the Company is not the primary beneficiary in each case.