CEDAR REALTY TRUST, INC. - Quarter Report: 2010 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 001-31817

CEDAR SHOPPING CENTERS, INC.

(Exact name of registrant as specified in its charter)

Maryland		42-1241468
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

44 South Bayles Avenue, Port Washington, New York 11050-3765
(Address of principal executive offices) (Zip Code)

(516) 767-6492
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At October 29, 2010, there were 66,213,546 shares of Common Stock, $0.06 par value, outstanding.

 

 

CEDAR SHOPPING CENTERS, INC.

INDEX

Forward-Looking Statements			3
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets — September 30, 2010 (unaudited) and December 31, 2009			4
Consolidated Statements of Operations (unaudited) — Three and nine months ended September 30, 2010 and 2009			5
Consolidated Statement of Equity (unaudited) — Nine months ended September 30, 2010			6
Consolidated Statements of Cash Flows (unaudited) — Nine months ended September 30, 2010 and 2009			7
Notes to Consolidated Financial Statements (unaudited) — September 30, 2010			8-34
Item 2. Management’s Discussion and Analysis of Financial Condition And Results of Operations			35-51
Item 3. Quantitative and Qualitative Disclosures About Market Risk			52
Item 4. Controls and Procedures			52-53
Part II. Other Information
Item 6. Exhibits			54
Signatures			55

Forward-Looking Statements

     Certain statements contained in this Form 10-Q constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements containing the words “anticipates”, “believes”, “expects”, “intends”, “future”, and words of similar import which express the Company’s beliefs, expectations or intentions regarding future performance or future events or trends. While forward-looking statements reflect good faith beliefs, expectations or intentions, they are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements as a result of factors outside of the Company’s control. Certain factors that might cause such differences include, but are not limited to, the following: real estate investment considerations, such as the effect of economic and other conditions in general and in the Company’s market areas in particular; the financial viability of the Company’s tenants (including an inability to pay rent, filing for bankruptcy protection, closing stores and/or vacating the premises); the continuing availability of acquisition, development and redevelopment opportunities, on favorable terms; the availability of equity and debt capital (including the availability of construction financing) in the public and private markets; the availability of suitable joint venture partners and potential purchasers of the Company’s properties if offered for sale; the ability of the Company’s joint venture partners to fund their respective shares of property acquisitions, tenant improvements and capital expenditures; changes in interest rates; the fact that returns from acquisition, development and redevelopment activities may not be at expected levels or at expected times; risks inherent in ongoing development and redevelopment projects including, but not limited to, cost overruns resulting from weather delays, changes in the nature and scope of development and redevelopment efforts, changes in governmental regulations relating thereto, and market factors involved in the pricing of material and labor; the need to renew leases or re-let space upon the expiration or termination of current leases and incur applicable required replacement costs; and the financial flexibility of ourselves and our joint venture partners to repay or refinance debt obligations when due and to fund tenant improvements and capital expenditures.

CEDAR SHOPPING CENTERS, INC.
Consolidated Balance Sheets

		September 30,				December 31,
		2010				2009
		(unaudited)
Assets
Real estate:
Land		$	348,715,000			$	356,366,000
Buildings and improvements			1,341,668,000				1,316,315,000
			1,690,383,000				1,672,681,000
Less accumulated depreciation			(195,944,000	)			(163,879,000	)
Real estate, net			1,494,439,000				1,508,802,000
Real estate to be transferred to a joint venture			—				139,743,000
Real estate held for sale — discontinued operations			8,325,000				21,380,000
Investment in unconsolidated joint ventures			44,029,000				14,113,000
Cash and cash equivalents			12,142,000				17,164,000
Restricted cash			11,617,000				14,075,000
Receivables:
Rents and other tenant receivables, net			9,485,000				7,423,000
Straight-line rents			15,999,000				14,545,000
Joint venture settlements			9,533,000				2,322,000
Other assets			11,818,000				9,315,000
Deferred charges, net			29,717,000				36,236,000
Total assets		$	1,647,104,000			$	1,785,118,000
Liabilities and equity
Mortgage loans payable		$	686,179,000			$	688,289,000
Mortgage loans payable — real estate to be transferred to a joint venture			—				94,018,000
Mortgage loans payable — real estate held for sale — discontinued operations			4,626,000				12,455,000
Secured revolving credit facilities			126,446,000				257,685,000
Accounts payable and accrued liabilities			30,335,000				46,902,000
Unamortized intangible lease liabilities			49,304,000				53,733,000
Liabilities — real estate held for sale and, at December 31, 2009, real estate to be transferred to a joint venture			1,275,000				5,634,000
Total liabilities			898,165,000				1,158,716,000
Limited partners’ interest in Operating Partnership			8,473,000				12,638,000
Commitments and contingencies			—				—
Equity:
Cedar Shopping Centers, Inc. shareholders’ equity:
Preferred stock ($.01 par value, $25.00 per share liquidation value, 12,500,000 shares authorized, 6,400,000 and 3,550,000 shares, respectively, issued and outstanding)			158,575,000				88,750,000
Common stock ($.06 par value, 150,000,000 shares authorized 66,035,000 and 52,139,000 shares, respectively, issued and outstanding)			3,962,000				3,128,000
Treasury stock (1,120,000 and 981,000 shares, respectively, at cost)			(10,419,000	)			(9,688,000	)
Additional paid-in capital			708,310,000				621,299,000
Cumulative distributions in excess of net income			(188,336,000	)			(162,041,000	)
Accumulated other comprehensive loss			(3,924,000	)			(2,992,000	)
Total Cedar Shopping Centers, Inc. shareholders’ equity			668,168,000				538,456,000
Noncontrolling interests:
Minority interests in consolidated joint ventures			65,237,000				67,229,000
Limited partners’ interest in Operating Partnership			7,061,000				8,079,000
Total noncontrolling interests			72,298,000				75,308,000
Total equity			740,466,000				613,764,000
Total liabilities and equity		$	1,647,104,000			$	1,785,118,000

See accompanying notes to consolidated financial statements.

CEDAR SHOPPING CENTERS, INC.
Consolidated Statements of Operations
(unaudited)

		Three months ended September 30,								Nine months ended September 30,
		2010				2009				2010				2009
Revenues:
Rents		$	31,380,000			$	36,878,000			$	98,877,000			$	107,462,000
Expense recoveries			7,370,000				7,688,000				24,692,000				25,831,000
Other			1,628,000				146,000				2,056,000				443,000
Total revenues			40,378,000				44,712,000				125,625,000				133,736,000
Expenses:
Operating, maintenance and management			7,788,000				8,231,000				26,033,000				24,878,000
Real estate and other property-related taxes			5,347,000				5,171,000				16,103,000				15,535,000
General and administrative			2,421,000				2,521,000				6,738,000				6,813,000
Impairments			155,000				—				2,272,000				—
Acquisition transaction costs and terminated projects, net			2,043,000				—				3,365,000				3,948,000
Depreciation and amortization			11,854,000				12,473,000				35,485,000				36,925,000
Total expenses			29,608,000				28,396,000				89,996,000				88,099,000
Operating income			10,770,000				16,316,000				35,629,000				45,637,000
Non-operating income and expense:
Interest expense, including amortization of deferred financing costs			(12,495,000	)			(12,436,000	)			(39,052,000	)			(35,503,000	)
Write-off of deferred financing costs			(2,552,000	)			—				(2,552,000	)			—
Interest income			6,000				10,000				25,000				27,000
Equity in (loss) income of unconsolidated joint ventures			(288,000	)			260,000				547,000				802,000
Gain on sale of land parcel			—				—				—				236,000
Total non-operating income and expense			(15,329,000	)			(12,166,000	)			(41,032,000	)			(34,438,000	)
(Loss) income before discontinued operations			(4,559,000	)			4,150,000				(5,403,000	)			11,199,000
Income (loss) from discontinued operations			68,000				(389,000	)			(2,965,000	)			(79,000	)
Gain on sale of discontinued operations			—				—				170,000				277,000
Total discontinued operations			68,000				(389,000	)			(2,795,000	)			198,000
Net (loss) income			(4,491,000	)			3,761,000				(8,198,000	)			11,397,000
Less, net loss (income) attributable to noncontrolling interests:
Minority interests in consolidated joint ventures			194,000				(332,000	)			(194,000	)			(287,000	)
Limited partners’ interest in Operating Partnership			196,000				(64,000	)			488,000				(224,000	)
Total net loss (income) attributable to noncontrolling interests			390,000				(396,000	)			294,000				(511,000	)
Net (loss) income attributable to Cedar Shopping Centers, Inc.			(4,101,000	)			3,365,000				(7,904,000	)			10,886,000
Preferred distribution requirements			(2,679,000	)			(1,969,000	)			(6,617,000	)			(5,907,000	)
Net (loss) income attributable to common shareholders		$	(6,780,000	)		$	1,396,000			$	(14,521,000	)		$	4,979,000
Per common share attributable to common sharehoders (basic and diluted):
Continuing operations		$	(0.10	)		$	0.04			$	(0.19	)		$	0.11
Discontinued operations			—				(0.01	)			(0.04	)			—
		$	(0.10	)		$	0.03			$	(0.23	)		$	0.11
Amounts attributable to Cedar Shopping Centers, Inc. common shareholders, net of limited partners’ interest:
(Loss) income from continuing operations		$	(6,846,000	)		$	1,768,000			$	(11,810,000	)		$	4,790,000
(Loss) income from discontinued operations			66,000				(372,000	)			(2,876,000	)			(76,000	)
Gain on sale of discontinued operations			—				—				165,000				265,000
Net (loss) income		$	(6,780,000	)		$	1,396,000			$	(14,521,000	)		$	4,979,000
Dividends declared per common share		$	0.0900			$	—			$	0.1800			$	0.1125
Weighted average number of common shares outstanding			65,835,000				45,066,000				62,999,000				45,003,000

See accompanying notes to consolidated financial statements.

CEDAR SHOPPING CENTERS, INC.
Consolidated Statement of Equity
Nine months ended September 30, 2010
(unaudited)

		Cedar Shopping Centers, Inc. Shareholders
																										Cumulative				Accumulated
		Preferred stock								Common stock								Treasury				Additional				distributions				other
														$0.06				stock,				paid-in				in excess of				comprehensive
		Shares				Amount				Shares				Par value				at cost				capital				net income				loss				Total
Balance, December 31, 2009			3,550,000			$	88,750,000				52,139,000			$	3,128,000			$	(9,688,000	)		$	621,299,000			$	(162,041,000	)		$	(2,992,000	)		$	538,456,000
Net (loss) income																											(7,904,000	)							(7,904,000	)
Unrealized loss on change in fair value of cash flow hedges																															(932,000	)			(932,000	)
Total other comprehensive loss																																			(8,836,000	)
Deferred compensation activity, net											498,000				30,000				(731,000	)			2,875,000												2,174,000
Net proceeds from sale of preferred stock			2,850,000				69,825,000																(2,519,000	)											67,306,000
Net proceeds from sales of common stock											11,953,000				717,000								75,272,000												75,989,000
Exercise of warrant											1,429,000				86,000								9,914,000												10,000,000
Conversion of OP units into common stock											16,000				1,000								176,000												177,000
Preferred distribution requirements																											(6,617,000	)							(6,617,000	)
Distributions to common shareholders/ noncontrolling interests																											(11,774,000	)							(11,774,000	)
Reallocation adjustment of limited partners’ interest																							1,293,000												1,293,000
Balance, September 30, 2010			6,400,000			$	158,575,000				66,035,000			$	3,962,000			$	(10,419,000	)		$	708,310,000			$	(188,336,000	)		$	(3,924,000	)		$	668,168,000

		Noncontrolling Interests
						Limited
		Minority				partners’
		interests in				interest in
		consolidated				Operating								Total
		joint ventures				Partnership				Total				equity
Balance, December 31, 2009		$	67,229,000			$	8,079,000			$	75,308,000			$	613,764,000
Net (loss) income			194,000				(213,000	)			(19,000	)			(7,923,000	)
Unrealized loss on change in fair value of cash flow hedges			—				(23,000	)			(23,000	)			(955,000	)
Total other comprehensive loss			194,000				(236,000	)			(42,000	)			(8,878,000	)
Deferred compensation activity, net			—				—				—				2,174,000
Net proceeds from sale of preferred stock			—				—				—				67,306,000
Net proceeds from sales of common stock			—				—				—				75,989,000
Exercise of warrant			—				—				—				10,000,000
Conversion of OP units into common stock			—				(177,000	)			(177,000	)			—
Preferred distribution requirements			—				—				—				(6,617,000	)
Distributions to common shareholders/ noncontrolling interests			(2,186,000	)			(138,000	)			(2,324,000	)			(14,098,000	)
Reallocation adjustment of limited partners’ interest			—				(467,000	)			(467,000	)			826,000
Balance, September 30, 2010		$	65,237,000			$	7,061,000			$	72,298,000			$	740,466,000

See accompanying notes to consolidated financial statements.

CEDAR SHOPPING CENTERS, INC.
Consolidated Statements of Cash Flows
(unaudited)

		Nine months ended September 30,
		2010				2009
Cash flow from operating activities:
Net (loss) income		$	(8,198,000	)		$	11,397,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Non-cash provisions:
Equity in income of unconsolidated joint ventures			(547,000	)			(802,000	)
Distributions from unconsolidated joint ventures			759,000				716,000
Impairments			2,272,000				—
Terminated projects			1,324,000				3,139,000
Impairment — discontinued operations			3,274,000				—
Gain on sales of real estate			(170,000	)			(513,000	)
Straight-line rents			(1,622,000	)			(2,048,000	)
Provision for doubtful accounts			2,484,000				2,770,000
Depreciation and amortization			35,644,000				37,965,000
Amortization of intangible lease liabilities			(7,478,000	)			(10,620,000	)
Amortization/market price adjustments relating to stock-based compensation			2,068,000				1,713,000
Amortization and accelerated write-off of deferred financing costs			6,620,000				2,410,000
Increases/decreases in operating assets and liabilities:
Rents and other receivables, net			(4,518,000	)			(5,108,000	)
Joint venture settlements			(3,383,000	)			—
Prepaid expenses and other			(6,935,000	)			(4,718,000	)
Accounts payable and accrued expenses			(1,349,000	)			(2,098,000	)
Net cash provided by operating activities			20,245,000				34,203,000
Cash flow from investing activities:
Expenditures for real estate and improvements			(20,874,000	)			(86,049,000	)
Net proceeds from sales of real estate			2,056,000				3,472,000
Net proceeds from transfers to unconsolidated joint venture, less cash at dates of transfer			31,395,000				—
Investments in and advances to unconsolidated joint ventures			(30,396,000	)			(350,000	)
Distributions of capital from unconsolidated joint venture			7,725,000				—
Construction escrows and other			4,632,000				(901,000	)
Net cash used in investing activities			(5,462,000	)			(83,828,000	)
Cash flow from financing activities:
Net (repayments)/advances (to)/from revolving credit facilities			(131,239,000	)			18,989,000
Proceeds from mortgage financings			16,272,000				51,588,000
Mortgage repayments			(18,594,000	)			(15,753,000	)
Payments of debt financing costs			(1,141,000	)			(2,821,000	)
Termination payments related to interest rate swaps			(5,476,000	)			—
Noncontrolling interests:
Contributions from consolidated joint venture minority interests, net			—				12,212,000
Distributions to consolidated joint venture minority interests			(2,186,000	)			(2,113,000	)
Redemption of Operating Partnership Units			(2,834,000	)			—
Distributions to limited partners			(526,000	)			(229,000	)
Net proceeds from the sales of preferred and common stock			138,296,000				—
Exercise of warrant			10,000,000				—
Preferred stock distributions			(5,907,000	)			(5,907,000	)
Distributions to common shareholders			(16,470,000	)			(5,046,000	)
Net cash (used in) provided by financing activities			(19,805,000	)			50,920,000
Net (decrease) increase in cash and cash equivalents			(5,022,000	)			1,295,000
Cash and cash equivalents at beginning of period			17,164,000				8,231,000
Cash and cash equivalents at end of period		$	12,142,000			$	9,526,000

See accompanying notes to consolidated financial statements.

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

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 coastal mid-Atlantic and New England states. At September 30, 2010, the Company owned and managed 125 operating properties (15 properties in an unconsolidated joint venture).

     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 September 30, 2010 the Company owned a 97.7% economic interest in, and was the sole general partner of, the Operating Partnership. The limited partners’ interest in the Operating Partnership (2.3% at September 30, 2010) 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. The approximately 1.5 million OP Units outstanding at September 30, 2010 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. In January 2010, the Company adopted the updated 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 updated guidance requires an entity to consolidate a VIE if it has (i) the power to direct the activities that most

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

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. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements. 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 13 consolidated operating joint ventures, the Company has general partnership interests of 20% in nine properties, 40% in two properties, 50% in one property and 75% 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 for 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 September 30, 2010, these VIEs owned real estate with a carrying value of $135.9 million. The assets of the consolidated VIEs can be used to settle obligations other than those of the consolidated VIE. At that date, one of the VIEs had a property-specific mortgage loan payable aggregating $62.6 million, and the real estate owned by the other two VIEs partially collateralized the secured revolving development property credit facility to the extent of $28.1 million. Such obligations are guaranteed by, and are recourse to, the Company.

     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 June 30, 2010. The accounting treatment presentation on the accompanying consolidated balance sheet is to reflect the Company’s applicable carrying values as “real estate to be transferred to a joint venture” retroactively for all periods presented, whereas the accounting treatment presentation on the accompanying consolidated statement of operations 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”. 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. The Company accounts for its investment in this joint venture under the equity method.

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

     In addition, the Company has a 76.3% limited partner’s interest in a joint venture which owns a single-tenant office property in Philadelphia, Pennsylvania. The Company has determined that this joint venture is not a VIE. The Company has no control over the entity, does not provide any management or other services to the entity, and has no substantial participating or “kick out” rights. The Company accounts for its investment in this joint venture under the equity method.

     At September 30, 2010, the Company had deposits of $0.9 million on five land parcels 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.

Note 2. Summary of Significant Accounting Policies

     The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring accruals) have been included. The consolidated financial statements in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (as amended in Form 10-K/A).

     During the first quarter of 2010, the Company determined that at the time it acquired certain properties during 2003 through 2009, it had underprovided for certain identifiable intangible lease liabilities relating to fixed-price renewal options that were at below-market rates. At the time such properties were acquired, the Company determined the fair value of such renewal options to be immaterial, based upon the Company’s assessment of a very low probability that any of such renewal options would be exercised. Accordingly, the Company assigned a zero value to such renewal options. The Company reconsidered these determinations during the first quarter of 2010, and concluded that option renewal periods should have been valued with respect to certain of the leases. Using the updated assumptions, the Company determined that the December 31, 2009 carrying amounts of unamortized intangible lease liabilities and real estate, net, were understated by $8,429,000 and $7,688,000, respectively (the latter amount net of $741,000, representing the cumulative understated depreciation expense for the periods 2003 through 2009). In addition, total equity and limited partners’ interest in the Operating Partnership were overstated by $723,000 and $18,000, respectively, as of December 31, 2009, reflecting the aforementioned cumulative depreciation adjustment.

     Pursuant to the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these adjustments were immaterial to any full year’s consolidated financial statements. However, the Company did determine that recording the adjustments entirely in the three months ended March 31, 2010 would have been material to the consolidated statement of operations for that period. Accordingly, as provided by SAB 108, such adjustments were reflected retroactively in the Company’s consolidated financial statements for all prior periods, including the December 31, 2009 consolidated balance sheet and the consolidated statement of operations for the three and nine months ended September 30, 2009 included in this report.

     The following tables summarize the impact of the adjustments on the Company’s consolidated balance sheet as of December 31, 2009 and consolidated statement of operations for the three and nine months ended September 30, 2009:

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

		December 31, 2009
		As reported				Adjustment				As revised
Real estate (a)		$	1,675,322,000			$	8,429,000			$	1,683,751,000
Less accumulated depreciation (a)			(164,615,000	)			(741,000	)			(165,356,000	)
Real estate, net		$	1,510,707,000			$	7,688,000			$	1,518,395,000
Unamortized intangible lease liabilities (a)		$	46,643,000			$	8,429,000			$	55,072,000
Limited partners’ interest in Operating Partnership		$	12,656,000			$	(18,000	)		$	12,638,000
Total equity		$	614,487,000			$	(723,000	)		$	613,764,000

		Three months ended September 30, 2009
		As reported				Adjustment				As revised
Depreciation and amortization expense (a)		$	12,730,000			$	53,000			$	12,783,000
Net income attributable to common shareholders		$	1,447,000			$	(51,000)	(b)		$	1,396,000
Per common share (basic and diluted)		$	0.03			$	—			$	0.03

		Nine months ended September 30, 2009
		As reported				Adjustment				As revised
Depreciation and amortization expense (a)		$	37,705,000			$	158,000			$	37,863,000
Net income attributable to common shareholders		$	5,130,000			$	(151,000)	(b)		$	4,979,000
Per common share (basic and diluted)		$	0.11			$	—			$	0.11

Real Estate Investments and Discontinued Operations

     Real estate investments are carried at cost less accumulated depreciation. The provision for depreciation is calculated using the straight-line method based upon the estimated useful lives of the respective assets of between 3 and 40 years. Depreciation expense amounted to $10.9 million and $11.4 million for the three months ended September 30, 2010 and 2009, respectively, and $32.9 million and $34.0 million for the nine months ended September 30, 2010 and 2009, respectively. Expenditures for betterments that substantially extend the useful lives of the assets are capitalized. Expenditures for maintenance, repairs, and betterments that do not substantially prolong the normal useful life of an asset are charged to operations as incurred.

Cedar Shopping Centers, Inc.

Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

     Upon the sale (or treatment as “held for sale”) or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or impairment loss, if any, is reflected as discontinued operations. In addition, prior periods’ financial statements would be reclassified to reflect the sold properties’ operations as discontinued.

     Real estate investments include costs of development and redevelopment activities, and construction in progress. Capitalized costs, including interest and other carrying costs during the construction and/or renovation periods, are included in the cost of the related asset and charged to operations through depreciation over the asset’s estimated useful life. Interest and financing costs capitalized amounted to $0.6 million and $1.8 million for the three months ended September 30, 2010 and 2009, respectively, and $2.2 million and $5.0 million for the nine months ended September 30, 2010 and 2009, respectively. A variety of costs are incurred in the acquisition, development and leasing of a property, such as pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs, and other costs incurred during the period of development. After a determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. The Company ceases capitalization on the portions substantially completed and occupied, or held available for occupancy, and capitalizes only those costs associated with the portions under development. The Company considers a construction project to be substantially completed and held available for occupancy upon the completion of tenant improvements, but not later than one year from cessation of major construction activity.

     Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected 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 value. Real estate investments held for sale are carried at the lower of their respective carrying amounts or estimated fair values, less costs to sell. Depreciation and amortization are suspended during the periods held for sale.

     During the three months ended March 31, 2010 and the nine months ended September 30, 2010, the Company wrote off approximately $1.3 million of costs incurred in prior years for a potential development project in Williamsport, Pennsylvania that the Company determined would not go forward. During the three months ended March 31, 2009 and the nine months ended September 30, 2009, the Company wrote off costs incurred related to the acquisitions of San Souci Plaza and New London Mall (net of minority interest share) and the costs primarily associated with a cancelled acquisition (an aggregate of approximately $1.5 million).

Cedar Shopping Centers, Inc.

Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

     In connection with the Cedar/RioCan joint venture transactions, the Company recorded additional impairment charges related principally to the remaining completion work at the Blue Mountain Commons property transferred to the joint venture in December 2009 ($0.2 million and $2.3 million for the three and nine months ended September 30, 2010, respectively). The accounting treatment presentation on the accompanying consolidated statements of operations 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 statement of operations includes revenues prior to the properties being transferred to the Cedar/RioCan joint venture in the amounts of $0.0 million and $4.4 million, respectively, for three months ended September 30, 2010 and 2009, and $3.3 million and $13.6 million, respectively, for the nine months ended September 30, 2010 and 2009.

     As of June 30, 2010, the Company treated as “held for sale” its 105,000 square foot Long Reach Village shopping center, located in Columbia, Maryland, with a sales price of approximately $5.5 million; the sale of the property was concluded on October 29, 2010. In connection with the decision to sell the property, the Company has recorded an impairment charge of approximately $3.0 million during the nine months ended September 30, 2010 ($3.0 million was recorded during the three months ended June 30, 2010 and $34,000 was recorded during the three months ended September 30, 2010). On February 25, 2010, the Company sold its 7,000 square foot Family Dollar convenience center, located in Zanesville, Ohio, for a sales price of $575,000; the Company realized a net gain on the transaction of approximately $170,000. During the year ended December 31, 2009, the Company sold, or treated as “held for sale”, nine of its drug store/convenience centers, located in Ohio and New York. Of these, three centers were sold during the three months ended March 31, 2010 for an aggregate sales price of approximately $10.1 million. In connection with these transactions, the Company recorded an additional impairment charge of approximately $248,000 during the three months ended March 31, 2010 and the nine months ended September 30, 2010. The properties’ results of operations have been classified as “discontinued operations” for all periods presented.

     The following is a summary of the components of (loss) income from discontinued operations for the three and nine months ended September 30, 2010 and 2009, respectively:

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010

		Three months ended September 30,								Nine months ended September 30,
		2010				2009				2010				2009
Revenues:
Rents		$	282,000			$	924,000			$	1,078,000			$	2,944,000
Expense recoveries			90,000				279,000				304,000				976,000
Total revenues			372,000				1,203,000				1,382,000				3,920,000
Expenses:
Operating, maintenance and management			149,000				228,000				539,000				661,000
Real estate and other property-related taxes			28,000				177,000				124,000				617,000
Depreciation and amortization			26,000				325,000				152,000				1,046,000
Interest expense			67,000				310,000				256,000				953,000
			270,000				1,040,000				1,071,000				3,277,000
Income from discontinued operations before impairment charges			102,000				163,000				311,000				643,000
Impairment charges			34,000				552,000				3,276,000				722,000
(Loss) income from discontinued operations		$	68,000			$	(389,000	)		$	(2,965,000	)		$	(79,000	)
Gains on sale of discontinued operations		$	—			$	—			$	170,000			$	277,000

Conditional asset retirement obligation

     A conditional asset retirement obligation is a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement is conditional on a future event that may or may not be within the control of the Company. The Company would record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. Environmental studies conducted at the time of acquisition with respect to all of the Company’s properties did not reveal any material environmental liabilities (the principal conditional asset retirement obligation), and the Company is unaware of any subsequent environmental matters that would have created a material liability. The Company believes that its properties are currently in material compliance with applicable environmental, as well as non-environmental, statutory and regulatory requirements. There were no conditional asset retirement obligation liabilities recorded by the Company during the three and nine months ended September 30, 2010 and 2009, respectively.

Fair Value Measurements

     The Company follows the updated accounting guidance relating to fair value measurements and disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements.

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010

These standards did not materially affect how the Company determines fair value, but resulted in certain additional disclosures.

     The guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:

	•		Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	•		Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	•		Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

     The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible while also considering counterparty credit risk in the assessment of fair value. Financial liabilities measured at fair value in the consolidated financial statements consist of interest rate swaps. The fair values of interest rate swaps are determined using widely accepted valuation techniques, including discounted cash flow analysis, on the expected cash flows of each derivative. The analysis reflects the contractual terms of the swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves (“significant other observable inputs”). The fair value calculation also includes an amount for risk of non-performance using “significant unobservable inputs” such as estimates of current credit spreads to evaluate the likelihood of default. The Company has concluded, as of September 30, 2010, that the fair value associated with the “significant unobservable inputs” relating to the Company’s risk of non-performance was insignificant to the overall fair value of the interest rate swap agreements and, as a result, the Company has determined that the relevant inputs for purposes of calculating the fair value of the interest rate swap agreements, in their entirety, were based upon “significant other observable inputs”. Nonfinancial assets and liabilities measured at fair value in the consolidated financial statements consist of real estate to be transferred to a joint venture and real estate held for sale — discontinued operations.

     The carrying amounts of cash and cash equivalents, restricted cash, rents and other receivables, other assets, accounts payable and accrued expenses approximate fair value. The valuation of the liability for the Company’s interest rate swaps ($1.9 million at September 30, 2010 and $5.9 million at December 31, 2009), which is measured on a recurring basis, was determined to be a Level 2 within the valuation hierarchy, and was based on independent values provided by financial institutions. The valuations of the assets for the Company’s real estate to be transferred to a joint venture and real estate held for sale — discontinued operations ($0.0 million and $8.3 million, respectively, at September 30, 2010, and $139.7 million and $21.4

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010

million, respectively, at December 31, 2009), which is measured on a nonrecurring basis, have been determined to be a Level 2 within the valuation hierarchy, and were based on the respective contracts of transfer and/or sale.

     The fair value of the Company’s fixed rate mortgage loans was estimated using “significant other observable inputs” such as available market information and discounted cash flows analyses based on borrowing rates the Company believes it could obtain with similar terms and maturities. As of September 30, 2010 and December 31, 2009, the aggregate fair values of the Company’s fixed rate mortgage loans were approximately $599.4 million and $579.2 million, respectively; the carrying values of such loans were $602.6 million and $606.1 million, respectively, at those dates.

Intangible Lease Asset/Liability

     The Company allocates the fair value of real estate acquired to land, buildings and improvements. In addition, the fair value of in-place leases is allocated to intangible lease assets and liabilities.

     The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management’s determination of the relative fair values of these assets. In valuing an acquired property’s intangibles, factors considered by management include an estimate of carrying costs during the expected lease-up periods, such as real estate taxes, insurance, other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand. Management also estimates costs to execute similar leases, including leasing commissions, tenant improvements, legal and other related costs.

     The values of acquired above-market and below-market leases are recorded based on the present values (using discount rates which reflect the risks associated with the leases acquired) of the differences between the contractual amounts to be received and management’s estimate of market lease rates, measured over the terms of the respective leases that management deemed appropriate at the time of the acquisitions. Such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal period(s). The fair values associated with below-market rental renewal options are determined based on the Company’s experience and the relevant facts and circumstances that existed at the time of the acquisitions. The values of above-market leases are amortized to rental income over the terms of the respective non-cancelable lease periods. The portion of the values of below-market leases associated with the original non-cancelable lease terms are amortized to rental income over the terms of the respective non-cancelable lease periods. The portion of the values of the leases associated with below-market renewal options that are likely of exercise are amortized to rental income over the respective renewal periods. The value of other intangible assets (including

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010

leasing commissions, tenant improvements, etc.) is amortized to expense over the applicable terms of the respective leases. If a lease were to be terminated prior to its stated expiration or not renewed, all unamortized amounts relating to that lease would be recognized in operations at that time.

     With respect to the Company’s acquisitions, the fair values of in-place leases and other intangibles are allocated to the intangible asset and liability accounts. Such allocations are preliminary and are based on information and estimates available as of the respective dates of acquisition. As final information becomes available and is refined, appropriate adjustments are made to the purchase price allocations, which are finalized within twelve months of the respective dates of acquisition.

     Unamortized intangible lease liabilities relate primarily to below-market leases, and amounted to $49.3 million and $53.7 million (as revised) at September 30, 2010 and December 31, 2009, respectively.

     As a result of recording the intangible lease assets and liabilities, (i) revenues were increased by $2.0 million and $3.9 million for the three months ended September 30, 2010 and 2009, respectively, and $7.0 million and $10.4 million for the nine months ended September 30, 2010 and 2009, respectively, relating to the amortization of intangible lease liabilities, and (ii) depreciation and amortization expense was increased correspondingly by $3.1 million and $3.5 million for the three months ended September 30, 2010 and 2009, respectively, and $8.8 million and $10.6 million for the nine months ended September 30, 2010 and 2009, respectively.

Cash and Cash Equivalents

     Cash and cash equivalents consist of cash in banks and short-term investments with original maturities of less than ninety days from the date of purchase, and include cash at consolidated joint ventures of $6.2 million and $7.4 million at September 30, 2010 and December 31, 2009, respectively.

Restricted Cash

     The terms of several of the Company’s mortgage loans payable require the Company to deposit certain replacement and other reserves with its lenders. Such “restricted cash” is generally available only for property-level requirements for which the reserves have been established and is not available to fund other property-level or Company-level obligations.

Rents and Other Receivables

     Management has determined that all of the Company’s leases with its various tenants are operating leases. Rental income with scheduled rent increases is recognized using the straight-

18

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010

line method over the respective non-cancelable terms of the leases. The aggregate excess of rental revenue recognized on a straight-line basis over the contractual base rents is included in straight-line rents on the consolidated balance sheet. Leases also generally contain provisions under which the tenants reimburse the Company for a portion of property operating expenses and real estate taxes incurred generally attributable to their respective allocable portions of the total gross leaseable area (“GLA”); under certain leases, such reimbursements are “capped”, i.e., limited to a specified dollar or percentage amount. Such income is recognized in the periods earned. In addition, a limited number of operating leases contain contingent rent provisions under which tenants are required to pay, as additional rent, a percentage of their sales in excess of a specified amount. The Company defers recognition of contingent rental income until such specified sales targets are met.

     The Company must make estimates as to the collectibility of its accounts receivable related to base rent, straight-line rent, percentage rent, expense reimbursements and other revenues. When management analyzes accounts receivable and evaluates the adequacy of the allowance for doubtful accounts, it considers such things as historical bad debts, tenant creditworthiness, current economic trends, current developments relevant to a tenant’s business specifically and to its business category generally, and changes in tenants’ payment patterns. The allowance for doubtful accounts was $4.4 million and $5.3 million at September 30, 2010 and December 31, 2009, respectively. The provision for doubtful accounts (included in operating, maintenance and management expenses) was $1.0 million and $1.2 million for the three months ended September 30, 2010 and 2009, respectively, and $2.5 million and $2.8 million for the nine month periods ended September 30, 2010 and 2009, respectively.

Concentration of Credit Risk

     Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents in excess of insured amounts and tenant receivables. The Company places its cash and cash equivalents with high-quality financial institutions. Management performs ongoing credit evaluations of its tenants and requires certain tenants to provide security deposits and/or suitable guarantees.

Other Assets

     Other assets at September 30, 2010 and December 31, 2009 are comprised of the following:

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

		September 30,				December 31,
		2010				2009
Prepaid expenses		$	8,246,000			$	5,279,000
Cumulative mark-to-market adjustments related to stock-based compensation			2,246,000				2,100,000
Property deposits			859,000				1,430,000
Other			467,000				506,000
		$	11,818,000			$	9,315,000

Deferred Charges, Net

     Deferred charges at September 30, 2010 and December 31, 2009 are net of accumulated amortization and are comprised of the following:

		September 30,				December 31,
		2010				2009
Lease origination costs (i)		$	17,176,000			$	17,696,000
Financing costs (ii)			11,103,000				16,833,000
Other			1,438,000				1,707,000
		$	29,717,000			$	36,236,000

     Deferred charges are amortized over the terms of the related agreements. Amortization expense related to deferred charges (including amortization of deferred financing costs included in non-operating income and expense) amounted to $5.1 million and $2.0 million for the three months ended September 30, 2010 and 2009, respectively, and $9.2 million and $5.4 million for the nine months ended September 30, 2010 and 2009, respectively.

     On September 13, 2010, the Company elected to reduce the total commitments under its secured revolving stabilized property credit facility by $100.0 million. In this connection, the Company accelerated the write-off of approximately $2.6 million of deferred financing costs.

Income Taxes

     The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). A REIT will generally not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income, to the extent that it distributes at least 90% of such REIT taxable income to its shareholders and complies with

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

certain other requirements. As of September 30, 2010, the Company was in compliance with all REIT requirements.

     The Company follows a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited. The Company has not identified any uncertain tax positions which would require an accrual.

Derivative Financial Instruments

     The Company occasionally utilizes derivative financial instruments, principally interest rate swaps, to manage its exposure to fluctuations in interest rates. The Company has established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. Derivative financial instruments must be effective in reducing the Company’s interest rate risk exposure in order to qualify for hedge accounting. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income for each period until the derivative instrument matures or is settled. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with the changes in value included in net income. The Company has not entered into, and does not plan to enter into, derivative financial instruments for trading or speculative purposes. Additionally, the Company has a policy of entering into derivative contracts only with major financial institutions. On January 20, 2010, the Company paid approximately $5.5 million to terminate interest rate swaps applicable to the financing for its development joint venture property in Stroudsburg, Pennsylvania.

     As of September 30, 2010, the Company believes it has no significant risk associated with non-performance of the financial institutions which are the counterparties to its derivative contracts. Additionally, based on the rates in effect as of September 30, 2010, if a counterparty were to default, the Company would receive a net interest benefit. At September 30, 2010, the Company had approximately $20.2 million of mortgage loans payable subject to interest rate swaps. Such interest rate swaps converted LIBOR-based variable rates to fixed annual rates of 5.4% and 6.5% per annum. As of September 30, 2010, the Company had accrued liabilities of $1.9 million (included in accounts payable and accrued expenses on the consolidated balance sheet) relating to the fair value of interest rate swaps applicable to mortgage loans payable. Charges and/or credits relating to the changes in fair values of such interest rate swaps are made to accumulated other comprehensive (loss) income, noncontrolling interests (minority interests in

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

consolidated joint ventures and limited partners’ interest), or operations (included in interest expense), as appropriate.

     The following is a summary of the derivative financial instruments held by the Company at September 30, 2010 and December 31, 2009:

										Notional values																Balance				Fair value
Designation/										September 30,								December 31,				Expiration				sheet				September 30,				December 31,
Cash flow		Derivative				Count				2010				Count				2009				dates				location				2010				2009
																										Accounts payable
Non-qualifying		Interest					—			$	—				1			$	23,891,000				2011			and				$	—			$	1,297,000
Qualifying		rate swaps					2			$	20,192,000				8			$	56,925,000				2010 - 2020			accrued expenses				$	1,926,000			$	4,655,000

     The following presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and the consolidated statements of equity for the three and nine months ended September 30, 2010 and 2009:

						Amount of gain (loss) recognized in other								Amount of gain (loss) recognized in other
						comprehensive (loss) income (effective portion)								comprehensive (loss) income (effective portion)
Designation/						Three months ended September 30,								Nine months ended September 30,
Cash flow		Derivative				2010 (a)				2009				2010 (a)				2009
		Interest rate
Qualifying		swaps				$	(133,000	)		$	(983,000	)		$	(420,000	)		$	2,917,000

						Amount of gain (loss) recognized in interest expense								Amount of gain (loss) recognized in interest expense
						(ineffectve portion)								(ineffectve portion)
		Interest rate
Qualifying		swaps				$	—			$	(48,000	)		$	—			$	67,000

Earnings Per Share

     Basic earnings per share (“EPS”) is computed by dividing net (loss) income attributable to the Company’s common shareholders by the weighted average number of common shares outstanding for the period (including restricted shares and shares held by Rabbi Trusts). Fully-diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock. The calculation of the number of such additional shares related to the warrants issued to RioCan prior to exercise was 0 and 26,000, respectively, for the three and nine months ended September 30, 2010; however such

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

amounts were anti-dilutive as the Company reported a net loss in both periods. The calculation of the number of such additional shares related to other warrants and stock options was anti-dilutive for the three and nine months ended September 30, 2010 and 2009. Fully-dilutive EPS was the same as basic EPS for all periods.

Stock-Based Compensation

     The Company’s 2004 Stock Incentive Plan (the “Incentive Plan”) establishes the procedures for the granting of incentive stock options, stock appreciation rights, restricted shares, performance units and performance shares. The maximum number of shares of the Company’s common stock that may be issued pursuant to the Incentive Plan is 2,750,000, and the maximum number of shares that may be granted to a participant in any calendar year may not exceed 250,000. Substantially all grants issued pursuant to the Incentive Plan are “restricted stock grants” which specify vesting (i) upon the third anniversary of the date of grant for time-based grants, or (ii) upon the completion of a designated period of performance for performance-based grants and satisfaction of the performance criteria. The shares granted in March 2010 in connection with the Company’s performance-based target bonus compensation arrangements for 2009 will vest one year from the date of grant. Time—based grants are valued according to the market price for the Company’s common stock at the date of grant. For performance-based grants, the Company generally engages an independent appraisal company to determine the value of the shares at the date of grant, taking into account the underlying contingency risks associated with the performance criteria.

     In January 2008 and June 2008, the Company issued 53,000 shares and 7,000 shares of common stock, respectively, as performance-based grants, based on the total annual return on an investment in the Company’s common stock (“TSR”) over the three-year period ending December 31, 2010, which will vest if such TSR is equal to, or greater than, an average of 8% per year. The independent appraisal determined the value of the January 2008 performance-based shares to be $6.05 per share, compared to a market price at the date of grant of $10.07 per share; similar methodology determined the value of the June 2008 performance-based shares to be $10.31 per share, compared to a market price at the date of grant of $12.13 per share.

     In January 2009, the Company issued 218,000 shares of common stock as performance-based grants, based on the TSR over the three-year period ending December 31, 2011, with 75% to vest if such TSR is equal to, or greater than an average of 6% TSR per year on the Company’s common stock, and 25% to vest based on a comparison of TSR for such three years to the Company’s peer group. The independent appraisal determined the values of the performance-based shares to be $5.44 and $6.48 per share, respectively, compared to a market price at the date of grant of $7.02 per share.

     In January 2010, the Company issued 227,000 shares of common stock as performance-based grants. As modified in September 2010, one-half of these amounts will vest upon the

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

satisfaction of the following conditions: (a) if the TSR on the Company’s common stock is at least an average of 6% per year for the three years ending December 31, 2012, and (b) if there is a positive comparison of TSR on the Company’s common stock to the median of the TSR for the Company’s peer group for the three years ending December 31, 2012. The independent appraisal determined the values of the category (a) and (b) performance-based shares to be $4.56 per share and $6.00 per share, respectively, compared to a market price at the date of grant of $6.70 per share. In September 2010, the Company issued 3,000 shares of performance-based grants which will vest the same as the January 2010 grants. The Company has valued these shares at the market price of $6.17 per share on the date of grant.

     The additional restricted shares issued during the three and nine months ended September 30, 2010 and 2009 were time-based grants, and amounted to 1,000 shares and 20,000 shares for the three months September 30, 2010 and 2009, respectively, and 279,000 shares and 396,000 shares for the nine months ended September 30, 2010 and 2009, respectively. The value of all grants is being amortized on a straight-line basis over the respective vesting periods (irrespective of achievement of the performance grants) adjusted, as applicable, for fluctuations in the market value of the Company’s common stock. Those grants of restricted shares that are transferred to Rabbi Trusts are classified as treasury stock on the Company’s consolidated balance sheet. The following table sets forth certain stock-based compensation information for the three and nine months ended September 30, 2010 and 2009, respectively:

		Three months ended Sept. 30,								Nine month ended Sept. 30,
		2010				2009				2010				2009
Restricted share grants			4,000				20,000				509,000				614,000
Average per-share grant price		$	6.17			$	6.00			$	6.54			$	4.94
Recorded as deferred compensation, net		$	20,000			$	120,000			$	3,325,000			$	3,034,000
Charged to operations:
Amortization relating to stock-based compensation		$	856,000			$	850,000			$	2,446,000			$	2,271,000
Adjustments to reflect changes in market price of Company’s common stock			(2,000	)			517,000				(377,000	)			(558,000	)
Total charged to operations		$	854,000			$	1,367,000			$	2,069,000			$	1,713,000
Non-vested shares:
Non-vested, beginning of period			1,344,000				1,090,000				980,000				508,000
Grants			4,000				20,000				509,000				614,000
Vested during period			—				(38,000	)			(141,000	)			(49,000	)
Forfeitures/cancellations			(1,000	)			—				(1,000	)			(1,000	)
Non-vested, end of period			1,347,000				1,072,000				1,347,000				1,072,000
Average value of non-vested shares (based on grant price)		$	6.33			$	8.11			$	6.33			$	8.11
Value of shares vested during the period (based on grant price)		$	4,000			$	398,000			$	2,193,000			$	564,000

     At September 30, 2010, 1.0 million shares remained available for grants pursuant to the Incentive Plan, and $3.8 million remained as deferred compensation, to be amortized over various periods ending in September 2013.

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

Supplemental consolidated statements of cash flows information

		Nine months ended Sept. 30,
		2010				2009
Supplemental disclosure of cash activities:
Interest paid		$	37,206,000			$	37,785,000
Supplemental disclosure of non-cash activities:
Additions to deferred compensation plans			3,325,000				3,034,000
Assumption of mortgage loans payable — acquisitions			—				(54,565,000	)
Assumption of mortgage loans payable — disposition			7,740,000				2,258,000
Conversion of OP Units into common stock			177,000				90,000
Purchase accounting allocations:
Intangible lease assets			—				7,174,000
Intangible lease liabilities			(2,600,000	)			(3,265,000	)
Net valuation decrease in assumed mortgage loan payable (a)			—				1,649,000
Other non-cash investing and financing activities:
Accrued interest rate swap liabilities			(1,450,000	)			3,064,000
Accrued real estate improvement costs			—				1,349,000
Accrued construction escrows			(1,777,000	)			1,026,000
Accrued financing costs and other			(463,000	)			22,000
Capitalization of deferred financing costs			674,000				1,242,000
Deconsolidation of properties transferred to joint venture:
Real estate, net			139,745,000				—
Mortgage loans payable			(94,058,000	)
Other assets/liabilties, net			(3,574,000	)			—
Investment in and advances to unconsolidated joint venture			9,423,000				—
Settlement receivable from unconsolidated joint venture			3,824,000				—

Recently-Issued Accounting Pronouncements

     In January 2010, the FASB issued updated guidance on fair value measurements and disclosures, which requires disclosure of details of significant asset or liability transfers in and out of Level 1 and Level 2 measurements within the fair value hierarchy and inclusion of gross purchases, sales, issuances, and settlements in the rollforward of assets and liabilities valued using Level 3 inputs within the fair value hierarchy. The guidance also clarifies and expands existing disclosure requirements related to the disaggregation of fair value disclosures and inputs used in arriving at fair values for assets and liabilities using Level 2 and Level 3 inputs within the fair value hierarchy. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward, which is required for annual reporting periods beginning after December 15, 2010, and for the

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

respective interim periods within those years. The adoption of that portion of the guidance that became effective on January 1, 2010 did not have a material effect on the consolidated financial statements; the Company does not expect the adoption of that portion of the guidance which becomes effective on January 1, 2011 to have a material effect on the consolidated financial statements.

Note 3. Real Estate/Investment in Unconsolidated Joint Ventures

     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, and (ii) then to acquire additional primarily supermarket-anchored properties in the Company’s primary market areas, in the same joint venture format. The transfers of the initial seven properties, which commenced in December 2009, were completed in May 2010. The 2010 property transfers resulted in net proceeds to the Company of approximately $29.9 million, all of which were used to repay/reduce the outstanding balances under the Company’s secured revolving credit facilities.

     On January 26, 2010, the Cedar/RioCan joint venture acquired the Town Square Plaza shopping center located in Temple, Pennsylvania, an approximately 128,000 square foot supermarket-anchored shopping center which was completed in 2008. The purchase price for the property, which was unencumbered, was approximately $19.0 million.

     On July 2, 2010, the Company placed approximately $33.0 million of mortgage financing, which bears interest at 5.0% per annum, on three previously unencumbered Cedar/RioCan joint venture properties.

     On August 3, 2010, the Cedar/RioCan joint venture acquired the Exeter Commons shopping center located in Exeter Township, Pennsylvania, an approximately 361,000 square foot supermarket-anchored shopping center which was completed in 2009. The purchase price for the property was approximately $53.0 million. At the closing, the joint venture placed an approximate $30.0 million first mortgage, which bears interest at 5.30% per annum, on the property.

     On September 29, 2010, the Cedar/RioCan joint venture acquired the Montville Commons shopping center located in Uncasville, Connecticut, an approximate 118,000 square foot shopping which was completed in 2005. The purchase price for the property, which was unencumbered, was approximately $18.9 million.

     On September 29, 2010, the Cedar/RioCan joint venture acquired a five shopping center portfolio for approximately $133.3 million. The five centers, Monroe Marketplace, located in Selinsgrove, Pennsylvania, Creekview Shopping Center, located in Warrington, Pennsylvania, Pitney Road Plaza, located in Lancaster, Pennsylvania, Sunrise Plaza, located in Forked River,

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

New Jersey and New River Valley Center, located in Christiansburg, Virginia, comprise approximately 936,000 square feet of primarily supermarket and big box anchored shopping centers. At the closing, the joint venture placed an approximate $72.5 million first mortgage, which bears interest at 4.75% per annum, on the five properties.

     In connection with the Cedar/RioCan joint venture transactions, the Company earned from the joint venture an acquisition fee of approximately $1.1 million and financing fees of approximately $0.3 million, which are included in other income in the accompanying statements of operations. In addition, the Company incurred fees due its investment advisor of approximately $2.2 million, which are included in transaction costs in the accompanying statements of operations.

     In connection with September 29, 2010, portfolio acquisition, the Cedar/RioCan joint venture agreed to purchase two additional properties, with an aggregate of 821,000 square feet, for an aggregate purchase price of approximately $67.8 million above a $11.8 million first mortgage bearing interest at 7.0% per annum and maturing in November 2018, subject to certain conditions. One property, Red Rose Commons, located in Lancaster, Pennsylvania, is subject to the terms of an existing partnership agreement between a third party joint-venture partner and the seller. This property would be purchased by the existing Cedar/RioCan joint venture. The other property, The Whitehall Mall, located in Allentown, Pennsylvania, would be owned by Cedar and RioCan on a 50-50 basis with the expectation that the parties will eventually redevelop this property. Closing of this purchase is also subject to reaching agreement with a third partner joint-venture partner of the seller.

     The following summarizes certain financial information related to the Company’s investment in the Cedar/RioCan unconsolidated joint venture at September 30, 2010 and December 31, 2009, respectively, and for the three and nine months ended September 30, 2010:

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2010
(unaudited)

		Cedar/RioCan Joint Venture
		September 30, 2010				December 31, 2009
Assets:
Real estate, net		$	399,325,000			$	41,158,000
Cash and cash equivalents			3,338,000				404,000
Restricted cash			3,942,000				812,000
Due from RioCan			7,476,000				2,322,000
Other assets			12,069,000				1,162,000
Total assets		$	426,150,000			$	45,858,000
Liabilities and partners’ capital:
Mortgage loans payable (a)		$	228,804,000			$	—
Due to the Company			9,533,000				2,322,000
Other liabilities			7,287,000				345,000
Preferred stock			97,000				—
Partners’ capital:
RioCan			142,245,000				34,553,000
The Company			38,184,000				8,638,000
Total partners’ capital			180,429,000				43,191,000
Total liabilties and partners’ capital		$	426,150,000			$	45,858,000

		Three months ended				Nine months ended
		September 30, 2010				September 30, 2010
Statements of operations:
Revenues		$	6,812,000			$	15,057,000
Property operating and other expenses			1,469,000				3,495,000
Management fees to the Company			228,000				503,000
Acquisition transaction costs (b)			3,867,000				4,462,000
Depreciation and amortization			1,665,000				3,460,000
Interest and other non-operating expenses, net			2,392,000				4,334,000
Net loss		$	(2,809,000	)		$	(1,197,000	)
RioCan			(2,243,000	)			(921,000	)
The Company			(566,000	)			(276,000	)
		$	(2,809,000	)		$	(1,197,000	)