Real Estate/Investment In Cedar/RioCan Joint Venture/Discontinued Operations

9 Months Ended

Sep. 30, 2011

Real Estate/Investment In Cedar/RioCan Joint Venture/Discontinued Operations

Real Estate/Investment In Cedar/RioCan Joint Venture/Discontinued Operations

Note 3. Real Estate/Investment in Cedar/RioCan Joint Venture/Discontinued Operations

At September 30, 2011 a substantial portion of the Company's real estate was pledged as collateral for mortgage loans payable and the revolving credit facilities. The following are the significant real estate transactions that occurred during the nine months ended September 30, 2011.

Wholly-owned properties

On January 14, 2011, the Company acquired Colonial Commons, a shopping center located in Lower Paxton Township, Pennsylvania. The purchase price for the property was approximately $49.1 million. At closing, the Company entered into a first mortgage in the amount of $28.1 million, which bears interest at 5.6% per annum and matures in February 2021.

RioCan Joint Venture

The Company and RioCan have entered into an 80% (RioCan) and 20% (Cedar) joint venture (i) initially for the purchase of seven supermarket-anchored properties previously owned by the Company (completed in May 2010), and (ii) then to acquire additional primarily supermarket-anchored properties in the Company's primary market areas, in the same joint venture format. The joint venture agreement provides that, any time after December 10, 2012, either the Company or RioCan may initiate a "buy/sell" arrangement pursuant to which the initiating party can designate a value for all the joint venture's properties (in the aggregate), and the other party may then elect either to sell its proportionate ownership interest in the joint venture based on that value or to purchase the initiating party's ownership interest based on such valuation.

On April 15, 2011, the joint venture acquired Northwoods Crossing shopping center, located near Boston, Massachusetts. The purchase price was approximately $23.4 million, including the assumption of a $14.4 million first mortgage maturing in 2016 and bearing interest at 6.4% per annum.

The Company earned fees from the joint venture of approximately $0.7 million and $1.7 million for the three months ended September 30, 2011 and 2010, respectively, and $1.9 million and $2.0 million for the nine months ended September 30, 2011 and 2010, respectively, representing accounting fees, management fees, acquisition fees and financing fees. Such fees are included in other revenues in the accompanying statements of operations. At September 30, 2011, the Company was owed approximately $1.6 million related principally to such fees.

During the three and nine months ended September 30, 2010, the Company recorded impairment charges of approximately $0.2 million and $2.3 million, respectively, related principally to the remaining completion work at the Blue Mountain Commons property transferred to the joint venture in December 2009. In connection with the joint venture transactions, the Company paid fees to its investment advisor of approximately $2.2 million for the nine months ended September 30, 2010, which are included in transaction costs in the accompanying statement of operations.

            The following summarizes certain financial information related to the Company's investment in the Cedar/RioCan unconsolidated joint venture at September 30, 2011 and December 31, 2010, respectively, and for the three and nine months ended September 30, 2011 and 2010, respectively:

	September 30, 2011	December 31, 2010
Assets:
Real estate, net (a)	$           536,662,000	$           524,447,000
Cash and cash equivalents	11,215,000	5,934,000
Restricted cash	3,488,000	4,464,000
Rent and other receivables	3,365,000	2,074,000
Straight-line rent	2,282,000	1,000,000
Deferred charges, net	6,959,000	13,269,000
Other assets	13,166,000	8,514,000
Total assets	$           577,137,000	$           559,702,000
Liabilities and partners' capital:
Mortgage loans payable (a) (b)	$           318,960,000	$           293,400,000
Due to the Company	1,626,000	6,036,000
Unamortized lease liability	23,483,000	24,573,000
Other liabilities	7,966,000	7,738,000
Total liabilities	352,035,000	331,747,000
Preferred stock	97,000	97,000
Partners' capital:
RioCan	179,918,000	181,239,000
The Company	45,087,000	46,619,000
Total partners' capital	225,005,000	227,858,000
Total liabilities and partners' capital	$           577,137,000	$           559,702,000
(a) The joint venture's property-specific mortgage loans payable are collateralized by all of the joint venture's real estate, and bear interest at rates ranging from 4.1% to 6.4% per annum, a weighted average of 5.0% per annum.  (b) In June 2011, the joint venture refinanced a $12.3 million, 7.2% fixed-rate mortgage originally due in June 2011. The new $14.8 million fixed-rate mortgage bears interest at 5.0% per annum, with principal and interest payments based on a 30-year amortization schedule, and matures in July 2021. In August 2011, the joint venture refinanced a $43.3 million, 4.8% fixed-rate mortgage originally due in November 2011. The new $44.0 million fixed-rate mortgage bears interest at 4.1% per annum, with principal and interest payments based on a 30-year amortization schedule, and matures in August 2016.

	Three months ended September 30,		Nine months ended September 30,
	2011	2010	2011	2010
Revenues	$15,538,000	$6,812,000	$46,827,000	$15,058,000
Property operating and other expenses	1,361,000	629,000	5,327,000	1,837,000
Management fees to the Company	501,000	228,000	1,451,000	503,000
Real estate taxes	1,826,000	841,000	5,377,000	1,659,000
Acquisition transaction costs	55,000	3,867,000	913,000	4,461,000
General and administrative	87,000	56,000	219,000	155,000
Depreciation and amortization	5,339,000	1,665,000	15,479,000	3,460,000
Interest and other non-operating expenses, net	4,835,000	2,335,000	13,914,000	4,166,000
Net income (loss)	$1,534,000	$(2,809,000)	$4,147,000	$(1,183,000)
RioCan	1,207,000	(2,243,000)	3,318,000	(946,000)
The Company	327,000	(566,000)	829,000	(237,000)
	$1,534,000	$(2,809,000)	$4,147,000	$(1,183,000)

 Discontinued operations, land dispositions and write-off of investment in unconsolidated joint venture

In connection with management's review of the Company's portfolio and operations, the Company has determined (1) to exit the Ohio market, principally the Discount Drug Mart portfolio of drugstore/convenience centers, and concentrate on the mid-Atlantic and Northeast coastal regions (12 properties "held for sale" as of September 30, 2011), (2) to concentrate on grocery-anchored strip centers, by disposing of its mall and single-tenant/triple-net-lease properties (14 properties "held for sale" as of September 30, 2011), and (3) to focus on improving operations and performance at the Company's remaining properties, and to reduce development activities, by disposing of certain development projects, land acquired for development, and other non-core assets (seven properties "held for sale/conveyance" as of September 30, 2011). In addition, discontinued operations reflect the anticipated consummation of the Homburg joint venture buy/sell transactions (seven properties "held for sale" as of September 30, 2011).

The carrying values of the assets and liabilities of these properties, principally the net book values of the real estate and the related mortgage loans payable to be assumed by the buyers (or conveyed to the mortgagee), have been reclassified as "held for sale/conveyance" on the Company's consolidated balance sheets at September 30, 2011 and December 31, 2010. In addition, the properties' results of operations have been classified as "discontinued operations" for all periods presented. Impairment charges relating to operating properties are included in discontinued operations in the accompanying statements of operations; impairment charges relating to land parcels are included in operating income in the accompanying statements of operations. The impairment charge amounts included in operating income for the 2010 periods relate to properties transferred to the Cedar/RioCan joint venture. The following is a summary of these charges:

	Three months ended September 30,		Nine months ended September 30,
	2011	2010	2011	2010
Impairment charges - land parcels	$7,419,000	$-	$7,419,000	$-
Impairment charges - properties transferred
to Cedar/RioCan joint venture	$-	$155,000	$-	$2,272,000
Write-off of investment in unconsolidated
joint venture	$-	$-	$7,961,000	$-
Impairment charges - properties held for
sale/conveyance	$64,671,000	$34,000	$87,287,000	$3,276,000

Impairment charges included in discontinued operations for the three months ended September 30, 2011 included $1.4 million related to the Discount Drug Mart portfolio, $31.4 million related to malls, $2.7 million related to single-tenant/triple-net-lease properties, $26.8 million related to development projects and other non-core properties, and $2.4 million related to the Homburg joint venture properties. Impairment charges for the nine months ended September 30, 2011 included $11.2 million related to the Discount Drug Mart portfolio, $33.0 million related to malls, $4.8 million related to single-tenant/triple-net-lease properties, $35.9 million related to development projects and other non-core properties, and $2.4 million related to the Homburg joint venture properties.

The impairment charges were based on a comparison of the carrying values of the properties with either (1) the actual sales price less costs to sell for the properties sold or contract amounts for properties in the process of being sold, (2) estimated sales prices based on discounted cash flow analyses if no contract amounts were as yet being negotiated, as discussed in more detail in Note 2 – "Fair Value Measurements", (3) an "as is" appraisal with respect to the single-tenant property in Philadelphia, Pennsylvania to be conveyed to the mortgagee, or (4) with respect to the land parcels, estimated sales prices. Prior to the Company's plan to dispose of properties reclassified to "held for sale/conveyance", the Company performed recoverability analyses based on the estimated undiscounted cash flows that were expected to result from the real estate investments' use and eventual disposal. The projected undiscounted cash flows of each property reflected that the carrying value of each real estate investment would be recovered. However, as a result of the properties' meeting the "held for sale" criteria in 2011, such properties were written down to their estimated fair values as described above.

            The following is a summary of the components of loss from discontinued operations for the three and nine months ended September 30, 2011 and 2010, respectively:

	Three months ended September 30,		Nine months ended September 30,
	2011	2010	2011	2010
Revenues:
Rents	$6,427,000	$7,280,000	$20,691,000	$22,390,000
Expense recoveries	1,651,000	1,725,000	5,090,000	5,359,000
Other	10,000	36,000	369,000	131,000
Total revenues	8,088,000	9,041,000	26,150,000	27,880,000
Expenses:
Operating, maintenance and management	2,021,000	2,264,000	7,098,000	7,567,000
Real estate and other property-related taxes	1,334,000	1,389,000	4,129,000	4,076,000
Depreciation and amortization	1,645,000	3,034,000	5,236,000	8,695,000
Interest expense	2,469,000	2,036,000	6,866,000	6,134,000
	7,469,000	8,723,000	23,329,000	26,472,000
Income from discontinued operations before
impairment charges	619,000	318,000	2,821,000	1,408,000
Impairment charges	(64,671,000)	(34,000)	(87,287,000)	(3,276,000)
(Loss) income from discontinued operations	$(64,052,000)	$284,000	$(84,466,000)	$(1,868,000)
Gain on sales of discontinued operations	$-	$-	$502,000	$170,000

In addition to the three and 12 Ohio property transactions discussed below, during the nine months ended September 30, 2011, the Company completed the following sales of properties "held for sale/conveyance": on February 14, 2011, the sale of a development land parcel for approximately $1.9 million, which approximated its adjusted carrying value; on March 30, 2011, the sale of two properties for approximately $3.8 million, which approximated their adjusted carrying values; and on April 15, 2011, the sale of one property for approximately $10.8 million, which was approximately $0.5 million in excess of its adjusted carrying value.

Homburg Joint Venture. In February 2011, Homburg Invest Inc. ("HII") 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 (approximately $101.2 million at September 30, 2011). Currently, the Company has made elections to purchase HII's 80% interest in two of the nine properties, Meadows Marketplace, located in Hershey, Pennsylvania and Fieldstone Marketplace, located in New Bedford, Massachusetts. At the closing, the Company will pay approximately $5.5 million to HII for its 80% interest in the two properties; the outstanding balances of the mortgage loans payable on the properties were approximately $27.8 million at September 30, 2011. The Company also determined not to meet HII's buy/sell offers for each of the remaining seven properties, which are now being treated as "held for sale/conveyance". At the closing, the Company will receive proceeds of approximately $8.3 million from HII for its 20% interest in the seven properties; the outstanding balances of the mortgage loans payable on the properties aggregated approximately $73.5 million at September 30, 2011. The Company's property management agreements for the seven properties will terminate upon the closing of the sale. Although there are still uncertainties with respect to the obtaining of the required approvals of the lenders holding mortgages on the properties, the Company now believes that the contemplated transactions will close in early 2012, thus meeting the "held for sale criteria" as of September 30, 2011.

Philadelphia Redevelopment Property. As more fully discussed in Note 1 - "Organization and Basis of Preparation", the tenant at two properties, one owned in an unconsolidated joint venture and the other owned 100% by the Company, vacated both premises in April 2011, at which time the Company's wholly-owned subsidiary had a CMBS non-recourse first mortgage loan secured by the property in the amount of $12.9 million, maturing in March 2012 (and guaranteed by the Company to the extent of $250,000). No payments have been made on the 100%-owned property mortgage since May 2011, although the Company has been accruing interest expense and will pay real estate taxes and other property-maintenance expenses as they become due. The Company is arranging a conveyance of the property to the mortgagee by a deed-in-lieu of foreclosure process, whereby the Company's subsidiary would be released from all obligations, including any unpaid principal and interest (other than the aforementioned $250,000 guaranty). At the time of such conveyance, although the Company recorded an impairment charge of $9.1 million, the Company would recognize a gain based on the excess of the carrying amount of the liabilities (mortgage principal, accrued interest and accrued real estate taxes) over the carrying amount of the property (approximately $6.4 million as of September 30, 2011).

Ohio Properties. Impairment charges related to these properties recorded in the nine months ended September 30, 2011 included additional charges of approximately $7.9 million and $2.6 million for the three month periods ended March 31 and June 30, 2011, respectively, principally representing adjustments to the net realizable values of certain of the properties treated as "held for sale/conveyance" as of December 31, 2010. The additional charges were based principally on changes in the structure of previously-negotiated transactions, whereby (1) the Company terminated a contract to swap three properties for certain land parcels in Ohio and instead entered into a new agreement to sell the properties for cash and assumption of existing debt, and (2) as a result of amending its contract for the sale of additional "held for sale/conveyance" properties (now 12 in number - see below), the Company revalued the properties on an individual, and not portfolio, basis (the buyers in both cases being members of the group from which the Company originally acquired substantially all of its drug store/convenience centers).

On April 27, 2011, the Company made a two-year $4.1 millionloan to the developers of a site located in Columbus, Ohio (the developers are certain other members of the group from which the Company acquired substantially all of its drug store/convenience centers). The loan was made in consideration of the borrowers facilitating (but not being parties to) the contract for the sale of the 12 properties. The loan (which may be increased, under certain conditions, by an additional $300,000) bears interest at 6.25% per annum and is collateralized by a first mortgage on the development parcel, which has an appraised value in excess of $8 million.

On April 29, 2011, the Company entered into a contract, as subsequently amended, for the sale of 12 properties, subject to the obtaining of approvals of the lenders holding mortgages on the properties, with a closing anticipated during the latter part of 2011. The $28.0 million net aggregate sales price for the properties, after reflecting estimated closing costs and expenses, includes mortgage loans payable to be assumed (approximately $19.4 million at September 30, 2011), and approximates the properties' carrying values.