Table of Contents

 
 
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
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
OR
     
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
incorporation or organization)
  (I.R.S. Employer
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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o       Accelerated filer þ       Non-accelerated filer o
     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 November 2, 2007, there were 44,230,766 shares of Common Stock, $0.06 par value, outstanding.
 
 

 


 

CEDAR SHOPPING CENTERS, INC.
INDEX
         
    3  
 
       
Part I. Financial Information
       
 
Item 1. Financial Statements
       
 
    4  
 
    5  
 
    6  
 
    7  
 
    8-23  
 
    24-34  
 
    34  
 
    34  
 
       
       
 
    36  
 
    36  
 
    37  
 Articles of Incorporation of the Company
 Amendment to Articles of Incorporation of the Company filed on September 18, 2007
 Section 302 Certifications
 Section 906 Certifications

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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; the continuing availability of suitable acquisitions, and development and redevelopment opportunities, on favorable terms; the availability of equity and debt capital (including the availability of property-specific construction financing) in the public and private markets; the availability of suitable joint venture partners; changes in interest rates; returns from development, redevelopment and acquisition 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 related thereto, and market factors involved in the pricing of material and labor; the need to renew leases or re-let space upon the expiration of current leases; and the financial flexibility to repay or refinance debt obligations when due.

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CEDAR SHOPPING CENTERS, INC.
Consolidated Balance Sheets
                 
    September 30,     December 31,  
    2007     2006  
    (unaudited)          
Assets
               
Real estate:
               
Land
  $ 296,372,000     $ 248,108,000  
Buildings and improvements
    1,194,368,000       982,294,000  
 
           
 
    1,490,740,000       1,230,402,000  
Less accumulated depreciation
    (91,781,000 )     (64,458,000 )
 
 
           
Real estate, net
    1,398,959,000       1,165,944,000  
Property and related assets held for sale, net of accumulated depreciation
    11,805,000       11,493,000  
Investment in unconsolidated joint venture
    3,718,000       3,644,000  
 
Cash and cash equivalents
    21,148,000       17,885,000  
Restricted cash
    12,806,000       11,507,000  
Rents and other receivables, net
    5,086,000       4,187,000  
Straight-line rents receivable
    10,492,000       7,870,000  
Other assets
    10,749,000       6,921,000  
Deferred charges, net
    27,874,000       22,268,000  
 
           
Total assets
  $ 1,502,637,000     $ 1,251,719,000  
 
           
 
               
Liabilities and shareholders’ equity
               
Mortgage loans payable
  $ 637,045,000     $ 499,603,000  
Secured revolving credit facility
    186,890,000       68,470,000  
Accounts payable, accrued expenses, and other
    22,755,000       17,435,000  
Unamortized intangible lease liabilities
    56,052,000       53,160,000  
 
           
Total liabilities
    902,742,000       638,668,000  
 
           
 
               
Minority interests in consolidated joint ventures
    10,321,000       9,132,000  
Limited partners’ interest in Operating Partnership
    25,352,000       25,969,000  
 
               
Shareholders’ equity:
               
Preferred stock ($.01 par value, $25.00 per share liquidation value, 12,500,000 and 5,000,000 shares, respectively, authorized, 3,550,000 shares issued and outstanding)
    88,750,000       88,750,000  
Common stock ($.06 par value, 150,000,000 and 50,000,000 shares, respectively, authorized, 44,231,000 and 43,773,000 shares, respectively, issued and outstanding)
    2,654,000       2,626,000  
Treasury stock (613,000 and 502,000 shares, respectively, at cost)
    (8,156,000 )     (6,378,000 )
Additional paid-in capital
    572,017,000       564,637,000  
Cumulative distributions in excess of net income
    (91,153,000 )     (71,831,000 )
Accumulated other comprehensive income
    110,000       146,000  
 
           
Total shareholders’ equity
    564,222,000       577,950,000  
 
           
Total liabilities and shareholders’ equity
  $ 1,502,637,000     $ 1,251,719,000  
 
           
See accompanying notes to consolidated financial statements.

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CEDAR SHOPPING CENTERS, INC.
Consolidated Statements of Income
(unaudited)
                                 
    Three months ended September 30,   Nine months ended September 30,
    2007   2006   2007   2006
             
Revenues:
                               
Rents
  $ 30,487,000     $ 25,899,000     $ 88,486,000     $ 73,860,000  
Expense recoveries
    6,875,000       5,446,000       20,822,000       16,570,000  
Other
    115,000       246,000       568,000       739,000  
             
Total revenues
    37,477,000       31,591,000       109,876,000       91,169,000  
             
Expenses:
                               
Operating, maintenance and management
    5,660,000       5,231,000       18,317,000       16,666,000  
Real estate and other property-related taxes
    3,869,000       3,265,000       10,928,000       9,219,000  
General and administrative
    1,847,000       1,431,000       7,065,000       4,220,000  
Depreciation and amortization
    10,065,000       8,923,000       29,696,000       25,428,000  
             
Total expenses
    21,441,000       18,850,000       66,006,000       55,533,000  
             
Operating income
    16,036,000       12,741,000       43,870,000       35,636,000  
Non-operating income and expense:
                               
Interest expense
    (9,618,000 )     (8,556,000 )     (26,371,000 )     (23,655,000 )
Amortization of deferred financing costs
    (423,000 )     (341,000 )     (1,152,000 )     (1,003,000 )
Interest income
    82,000       155,000       580,000       392,000  
Equity in income (loss) of unconsolidated joint ventures
    150,000             463,000       (40,000 )
Gain on sale of interest in unconsolidated joint venture
                      141,000  
             
Total non-operating income and expense
    (9,809,000 )     (8,742,000 )     (26,480,000 )     (24,165,000 )
             
Income before minority and limited partners’ interests and discontinued operations
    6,227,000       3,999,000       17,390,000       11,471,000  
Minority interests in consolidated joint ventures
    (333,000 )     (324,000 )     (1,028,000 )     (943,000 )
             
Limited partners’ interest in Operating Partnership
    (169,000 )     (86,000 )     (450,000 )     (234,000 )
             
Income from continuing operations
    5,725,000       3,589,000       15,912,000       10,294,000  
Discontinued operations, net of limited partners’ interest
    169,000       165,000       496,000       532,000  
             
Net income
    5,894,000       3,754,000       16,408,000       10,826,000  
Preferred distribution requirements
    (1,969,000 )     (1,969,000 )     (5,907,000 )     (5,907,000 )
             
Net income applicable to common shareholders
  $ 3,925,000     $ 1,785,000     $ 10,501,000     $ 4,919,000  
             
Per common share (basic):
                               
Income from continuing operations, net of preferred distribution requirements
  $ 0.09     $ 0.05     $ 0.23     $ 0.14  
Discontinued operations, net of limited partners’ interest
                0.01       0.02  
             
Net income applicable to common shareholders
  $ 0.09     $ 0.05     $ 0.24     $ 0.16  
             
Per common share (diluted)
                               
Income from continuing operations, net of preferred distribution requirements
  $ 0.09     $ 0.05     $ 0.23     $ 0.14  
Discontinued operations, net of limited partners’ interest
                0.01       0.01  
             
Net income applicable to common shareholders
  $ 0.09     $ 0.05     $ 0.24     $ 0.15  
             
Dividends to common shareholders
  $ 9,952,000     $ 7,752,000     $ 29,823,000     $ 21,320,000  
             
Per common share
  $ 0.225     $ 0.225     $ 0.675     $ 0.675  
             
Weighted average number of common shares outstanding:
                               
Basic
    44,231,000       34,484,000       44,179,000       31,660,000  
             
Diluted
    44,234,000       34,488,000       44,183,000       31,831,000  
             
See accompanying notes to consolidated financial statements.

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CEDAR SHOPPING CENTERS, INC.
Consolidated Statement of Shareholders’ Equity
Nine months ended September 30, 2007
(unaudited)
                                                                         
    Preferred stock     Common stock                     Cumulative     Accumulated        
            $25.00                     Treasury     Additional     distributions     other     Total  
            Liquidation             $0.06     stock,     paid-in     in excess of     comprehensive     shareholders’  
    Shares     value     Shares     Par value     at cost     capital     net income     income     equity  
                     
Balance, December 31, 2006
    3,550,000     $ 88,750,000       43,773,000     $ 2,626,000     $ (6,378,000 )   $ 564,637,000     $ (71,831,000 )   $ 146,000     $ 577,950,000  
Net income
                                                    16,408,000               16,408,000  
Unrealized gain (loss) on change in fair value of cash flow hedges
                                                            (36,000 )     (36,000 )
 
                                                                     
Total comprehensive income
                                                                    16,372,000  
 
                                                                     
Deferred compensation activity, net
                    179,000       11,000       (1,778,000 )     3,496,000                       1,729,000  
Net proceeds from common stock sales
                    275,000       17,000               4,115,000                       4,132,000  
Conversion of OP Units into common stock
                    4,000                     45,000                       45,000  
Preferred distribution requirements
                                                    (5,907,000 )             (5,907,000 )
Dividends to common shareholders
                                                    (29,823,000 )             (29,823,000 )
Reallocation adjustment of limited partners’ interest
                                            (276,000 )                     (276,000 )
                     
Balance, September 30, 2007
    3,550,000     $ 88,750,000       44,231,000     $ 2,654,000     $ (8,156,000 )   $ 572,017,000     $ (91,153,000 )   $ 110,000     $ 564,222,000  
                     
See accompanying notes to consolidated financial statements.

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CEDAR SHOPPING CENTERS, INC.
Consolidated Statements of Cash Flows
(unaudited)
                 
    Nine months ended September 30,  
    2007     2006  
Cash flow from operating activities:
               
Net income
  $ 16,408,000     $ 10,826,000  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Non-cash provisions:
               
Earnings in excess of distributions of consolidated joint venture minority interests
    231,000       118,000  
Equity in (income) loss of unconsolidated joint ventures
    (463,000 )     40,000  
Distributions from unconsolidated joint venture
    397,000        
Gain on sale of interest in unconsolidated joint venture
          (141,000 )
Limited partners’ interest in Operating Partnership
    472,000       262,000  
Straight-line rents receivable
    (2,686,000 )     (2,452,000 )
Depreciation and amortization
    29,921,000       25,659,000  
Amortization of intangible lease liabilities
    (7,624,000 )     (7,713,000 )
Amortization relating to stock-based compensation
    1,456,000       447,000  
Amortization of deferred financing costs
    1,152,000       1,003,000  
Increases/decreases in operating assets and liabilities:
               
Cash at consolidated joint ventures
    40,000       652,000  
Rents and other receivables, net
    (899,000 )     (1,087,000 )
Other assets
    (5,343,000 )     (4,270,000 )
Accounts payable, accrued expenses and other
    3,769,000       3,263,000  
 
           
Net cash provided by operating activities
    36,831,000       26,607,000  
 
           
 
               
Cash flow from investing activities:
               
Expenditures for real estate and improvements
    (134,014,000 )     (150,468,000 )
Investment in unconsolidated joint ventures
    (8,000 )      
Proceeds from sale of interest in unconsolidated joint venture
          1,466,000  
Construction escrows and other
    (1,033,000 )     (3,621,000 )
 
           
Net cash (used in) investing activities
    (135,055,000 )     (152,623,000 )
 
           
 
               
Cash flow from financing activities:
               
Net advances (repayments) from line of credit
    118,420,000       67,650,000  
Proceeds from sales of common stock
    3,910,000       74,053,000  
Proceeds from mortgage financings
    25,693,000       26,333,000  
Mortgage repayments
    (8,468,000 )     (5,263,000 )
Contribution from minority interest partner
    1,048,000        
Distributions in excess of earnings from consolidated joint venture minority interests
          (176,000 )
Distributions to limited partners
    (1,336,000 )     (1,111,000 )
Preferred distribution requirements
    (5,907,000 )     (5,907,000 )
Distributions to common shareholders
    (29,823,000 )     (21,320,000 )
Payment of deferred financing costs
    (2,050,000 )     (926,000 )
 
           
Net cash provided by financing activities
    101,487,000       133,333,000  
 
           
 
               
Net increase in cash and cash equivalents
    3,263,000       7,317,000  
Cash and cash equivalents at beginning of period
    17,885,000       8,601,000  
 
           
Cash and cash equivalents at end of period
  $ 21,148,000     $ 15,918,000  
 
           
See accompanying notes to consolidated financial statements.

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(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 has focused primarily on the ownership, operation, development and redevelopment of supermarket-anchored community shopping centers and drug store-anchored convenience centers located in nine states, largely in the Northeast and Mid-Atlantic regions. At September 30, 2007, the Company owned 112 properties, aggregating approximately 11.4 million square feet of gross leasable area (“GLA”).
     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, 2007 and December 31, 2006, the Company owned a 95.7% economic interest in, and is the sole general partner of, the Operating Partnership. The limited partners’ interest in the Operating Partnership (4.3% at September 30, 2007 and December 31, 2006) is represented by Operating Partnership Units (“OP Units”), and 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 1,982,000 OP Units outstanding at September 30, 2007 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.
     The consolidated financial statements include the accounts and operations of the Company, the Operating Partnership, its subsidiaries, and joint venture partnerships in which it participates. With respect to its four consolidated operating joint ventures, the Company has general partnership interests of 25% and 30% and, (1) as such entities are not variable-interest entities pursuant to the Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”), and (2) as the Company is the sole general partner and exercises substantial operating control over these entities pursuant to Emerging Issues Task Force (“EITF”) 04-05, “Determining Whether a General Partner, or General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights”, the Company has determined that such partnerships should be consolidated for financial statement purposes. EITF 04-05 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 also has a 49% interest, acquired in 2006, in an unconsolidated joint venture which owns a single-tenant office property, and which the Company has determined is not a variable-interest entity pursuant to FIN 46R. Although the Company exercises influence over this joint venture, it does not have operating control; accordingly, it accounts for its investment in this joint venture under the equity method.
     The accompanying interim unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
accordance with accounting principles generally accepted in the United States (“GAAP”) may have been condensed or omitted pursuant to such rules and regulations. The unaudited financial statements as of September 30, 2007 and for the three and nine months ended September 30, 2007 and 2006 include, in the opinion of management, all adjustments, consisting of normal recurring adjustments necessary to present fairly the financial information set forth therein. The 2006 financial statements have been revised, where necessary, to conform to the 2007 presentation, relating principally to the discontinued operation and the consolidated statement of cash flows. The results of operations for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2006.
     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.
Note 2. Summary of Significant Accounting Policies
     The accompanying financial statements are prepared on the accrual basis in accordance with GAAP, which requires management to make estimates and assumptions that affect the disclosure of contingent assets and liabilities, the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods covered by the financial statements. Actual results could differ from these estimates.
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. Expenditures for betterments that substantially extend the useful lives of the properties are capitalized. Expenditures for maintenance, repairs, and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred.
     Upon the sale or other disposition of assets, the cost and related accumulated depreciation and amortization would be removed from the accounts and the resulting gain or loss, if any, would be reflected as discontinued operations. In addition, prior periods’ financial statements would be reclassified to eliminate the operations of sold properties. Real estate investments include costs of development and redevelopment activities, and construction in progress. Capitalized costs, including interest and other carrying costs during the development and/or renovation periods, are included in the costs of the related assets and charged to operations through depreciation over the respective assets’ estimated useful lives.

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
     Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, requires that management review each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment’s use and eventual disposition. These estimates of 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. A real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value, less the cost of a potential sale. Depreciation and amortization are suspended during the period the property is held for sale.
     In May 2007, the Company decided to dispose of Stadium Plaza, located in East Lansing, Michigan. The property, with 78,000 sq. ft. of GLA, is being actively marketed, is expected to be sold within one year from the date classified as held for sale, and, in accordance with SFAS No. 144, the carrying value of the property’s assets (principally the net book value of the real estate) have been classified as “held for sale” on the Company’s consolidated balance sheets at September 30, 2007 and December 31, 2006 (there were no related “held for sale” liabilities associated with the property). In addition, the property’s results of operations have been classified as “discontinued operations” for all periods presented in the consolidated statements of income. No impairment provision was required as of September 30, 2007. The following is a summary of the components of income from discontinued operations for the three and nine months ended September 30, 2007 and 2006, respectively:
                                 
    Three months ended September 30,   Nine months ended September 30,
    2007   2006   2007   2006
           
Revenues:
                               
Rents
  $ 297,000     $ 288,000     $ 877,000     $ 866,000  
Expense recoveries
    71,000       50,000       233,000       194,000  
           
Total revenues
    368,000       338,000       1,110,000       1,060,000  
           
Expenses:
                               
Operating, maintenance and management
    32,000       27,000       142,000       94,000  
Real estate and other property-related taxes
    84,000       58,000       225,000       175,000  
Depreciation and amortization
    75,000       79,000       225,000       231,000  
           
 
    191,000       164,000       592,000       500,000  
           
Operating income
    177,000       174,000       518,000       560,000  
Limited partners’ interest
    (8,000 )     (9,000 )     (22,000 )     (28,000 )
       
Income from discontinued operations
  $ 169,000     $ 165,000     $ 496,000     $ 532,000  
           

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
     FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”, provides clarification of the term “conditional asset retirement obligation” as used in SFAS No. 143, “Asset Retirement Obligations”, to be a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The Interpretation requires that the Company record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. Environmental studies generally conducted at the time of acquisition with respect to substantially all of the Company’s properties did not reveal any material environmental liabilities, 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.
Intangible Lease Asset/Liability
     SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangibles”, require that management allocate 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 value of in-place leases is measured by the excess of (1) the purchase price paid for a property after adjusting existing in-place leases to market rental rates, over (2) the estimated fair value of the property as if vacant. Above-market and below-market in-place lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received and management’s estimate of market lease rates, measured over the non-cancelable terms of the respective leases. The value of other intangibles is amortized to expense, and the above-market and below-market lease values are amortized to rental income, over the remaining non-cancelable terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recognized in operations at that time.

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Table of Contents

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
     With respect to substantially all of the Company’s acquisitions through September 30, 2007, the fair value of in-place leases and other intangibles has been allocated, on a preliminary basis where applicable for recent acquisitions, to the intangible asset and liability accounts. Unamortized intangible lease liabilities relate primarily to below-market leases, and amounted to $56,052,000 and $53,160,000 at September 30, 2007 and December 31, 2006, respectively.
     As a result of recording the intangible lease assets and liabilities, (1) revenues were increased by $2,526,000 and $3,042,000 for the three months ended September 30 2007 and 2006, respectively, relating to the amortization of intangible lease liabilities, and (2) depreciation and amortization expense was increased correspondingly by $3,579,000 and $3,313,000 for the respective three-month periods. For the nine months ended September 30, 2007 and 2006, (1) revenues were increased by $7,624,000 and $7,713,000, respectively, relating to the amortization of intangible lease liabilities, and (2) depreciation and amortization expense was increased correspondingly by $10,348,000 and $8,865,000 for the respective nine-month periods.
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.
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 reserve was established, is not available to fund other property-level or Company-level obligations, and amounted to $12,248,000 and $10,909,000 at September 30, 2007 and December 31, 2006, respectively. In addition, joint venture partnership agreements require, among other things, that the Company maintain separate cash accounts for the operation of the joint ventures, and that distributions to the general and minority interest partners be strictly controlled. Cash at consolidated joint ventures amounted to $558,000 and $598,000 at September 30, 2007 and December 31, 2006, respectively.
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- line method over the respective terms of the leases. The aggregate excess of rental revenue recognized on a straight-line basis over base rents under applicable lease provisions is included in rents and other receivables 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; such income is recognized in the periods earned. In

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Table of Contents

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
addition, certain operating leases contain contingent rent provisions under which tenants are required to pay a percentage of their sales in excess of a specified amount as additional rent. The Company defers recognition of contingent rental income until those specified targets are met.
     The Company must make estimates as to the collectibility of its accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable and the allowance for bad debts by considering historical bad debts, tenant creditworthiness, current economic trends, and changes in tenants’ payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable. The allowance for doubtful accounts was $1,253,000 and $1,439,000 at September 30, 2007 and December 31, 2006, 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 requires certain tenants to provide security deposits and performs ongoing tenant credit evaluations. Although these security deposits are insufficient to meet the terminal value of a tenant’s lease obligations, they are a measure of good faith and a source of funds to offset at least in small part the economic costs associated with lost rents and other charges, and the costs associated with releasing the premises.
Deferred Charges, Net
     Deferred charges at September 30, 2007 and December 31, 2006 are net of accumulated amortization and are comprised of the following:
                 
    Sep 30,     Dec 31,  
    2007     2006  
     
Deferred lease origination costs (1)
  $ 16,867,000     $ 14,877,000  
Deferred financing costs (2)
    6,837,000       5,939,000  
Other deferred charges
    4,170,000       1,452,000  
     
 
  $ 27,874,000     $ 22,268,000  
     
 
(1)   Deferred lease origination costs include intangible lease assets resulting from purchase accounting allocations of $12,501,000 and $11,523,000, respectively.
 
(2)   Deferred financing costs are incurred in connection with the Company’s secured revolving credit facility and other long-term debt.
     Such costs are amortized over the terms of the related agreements. Amortization expense

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Table of Contents

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
related to deferred charges (including amortization of deferred charges applicable to discontinued operations and amortization of deferred financing costs included in non-operating income and expense) amounted to $1,196,000 and $1,138,000 for the three months ended September 30, 2007 and 2006, respectively, and $3,525,000 and $3,238,000 for the nine months ended September 30, 2007 and 2006, respectively.
Income Taxes
          The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. 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 certain other requirements.
     In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN 48”), regarding accounting for, and disclosure of, uncertain tax positions. This interpretation prescribes a recognition threshold and measurement in the financial statements of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance as to its application and related transition, and is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 as of January 1, 2007 did not have a material effect on the Company’s consolidated financial statements.
SAB 108
     In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”), which provides guidance on the consideration of the effects of prior period misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 provides for the quantification of the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. If a misstatement is material to the current year financial statements, the prior year financial statements should also be corrected, even though such revision was, and continues to be, immaterial to the prior year financial statements. Correcting prior year financial statements for immaterial errors would not require previously-filed reports to be amended; such correction should be made in the current period filings. The adoption of SAB 108 as of December 31, 2006 did not have a material effect on the Company’s consolidated financial statements.
Fair Value of Financial Assets and Liabilities
     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which provides guidance for using fair value to measure assets and liabilities, and clarifies the principle

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Table of Contents

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
that fair value should be based on the assumptions that market participants would use when pricing assets or liabilities. The statement establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data, and applies whenever other standards require assets or liabilities to be measured at fair value. The Company does not expect the adoption of SFAS No. 157, which becomes effective for fiscal years beginning after November 15, 2007, to have a material effect on its consolidated financial statements.
     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, which provides companies with an option to report selected financial assets and liabilities at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The statement does not eliminate the disclosure requirements of other accounting standards, including requirements for disclosures about fair value measurements in SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, and SFAS No. 157. The Company is currently evaluating the effect of adopting the statement, which becomes effective for fiscal years beginning after November 15, 2007.
Earnings Per Share
     In accordance with SFAS No. 128, “Earnings Per Share”, basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period (including shares held by the 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; such additional dilutive shares amounted to 3,000 and 4,000, respectively, for the three months ended September 30, 2007 and 2006, and 4,000 and 171,000, respectively, for the nine months ended September 30, 2007 and 2006.
Stock-Based Compensation
     The Company adopted the provisions of SFAS No. 123R, “Share-Based Payments”, effective January 1, 2006. SFAS No. 123R established financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer, or the employer incurs liabilities to employees in amounts based on the price of the employer’s stock. The statement also defined a fair value-based method of accounting for an employee stock option or similar equity instrument.
     The Company’s 2004 Stock Incentive Plan (the “Incentive Plan”) provides for the granting of incentive stock options, stock appreciation rights, restricted shares, performance units

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
and performance shares. The maximum number of shares of the Company’s common stock that may be issued pursuant to the Incentive Plan is 850,000, and the maximum number of shares that may be subject to grants to any single participant is 250,000. Substantially all grants issued pursuant to the Incentive Plan are “restricted stock grants” which specify vesting (1) upon the third anniversary of the date of grant for time-based grants, or (2) upon the completion of a designated period of performance for performance-based grants. 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 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 February 2007, the Company issued 37,000 shares of common stock as performance-based grants, which will vest if the total annual return on an investment in the Company’s common stock over the three-year period ending December 31, 2009 is equal to, or greater than, an average of 8% per year. The independent appraisal determined the value of the performance-based shares to be $10.09 per share, compared to a market price at the date of grant of $16.45 per share. The 142,000 additional restricted shares issued during the nine months ended September 30, 2007 were time-based grants. The value of such grants is being amortized on a straight-line basis over the respective vesting periods. Those grants of restricted shares that are transferred to Rabbi Trusts are classified as treasury stock in the Company’s consolidated balance sheet, and are accounted for pursuant to EITF No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested”. The following table sets forth certain stock-based compensation information for the three and nine months ended September 30, 2007 and 2006:
                                 
    Three months ended Sep 30,     Nine months ended Sep 30,  
    2007     2006     2007     2006  
     
Restricted share grants
          4,000       179,000       15,000  
Average fair value per share
  $     $ 14.89     $ 14.52     $ 14.72  
Recorded as deferred compensation
  $     $ 63,000     $ 2,606,000     $ 228,000  
Total charged to operations
  $ 302,000     $ 176,000     $ 1,456,000     $ 447,000  
 
Non-vested shares:
                               
Non-vested, beginning of period
    382,000       107,000       203,000       96,000  
Grants
          4,000       179,000       15,000  
Vested during period
    (9,000 )     (3,000 )     (9,000 )     (3,000 )
Forfeitures
                       
     
Non-vested, end of period
    373,000       108,000       373,000       108,000  
     
 
                               
Value of shares vested during the period (based on grant date fair value)
  $ 120,000     $ 40,000     $ 120,000     $ 40,000  
     

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
     At September 30, 2007, 456,000 shares remained available for grants pursuant to the Incentive Plan, and $3,106,000 remained as deferred compensation, to be amortized over various periods ending in June 2010.
     During 2001, pursuant to the 1998 Stock Option Plan (the “Option Plan”), the Company granted to directors options to purchase an aggregate of approximately 13,000 shares of common stock at $10.50 per share, the market value of the Company’s common stock on the date of the grant. The options are fully exercisable and expire in 2011. In connection with the adoption of the Incentive Plan, the Company agreed that it would not grant any more options under the Option Plan.
     In connection with an acquisition of a shopping center in 2002, the Operating Partnership issued warrants to purchase approximately 83,000 OP Units to a then minority interest partner in the property. Such warrants have an exercise price of $13.50 per unit, subject to certain anti-dilution adjustments, are fully vested, and expire in 2012.

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Table of Contents

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
Supplemental consolidated statement of cash flows information
                 
    Nine months ended Sep 30,  
    2007     2006  
Supplemental disclosure of cash activities:
               
Interest paid (including interest capitalized of $3,066,000 and $2,625,000, respectively)
  $ 28,892,000     $ 24,644,000  
 
               
Supplemental disclosure of non-cash activities:
               
Additions to deferred compensation plans
    2,606,000       228,000  
Assumption of mortgage loans payable
    (120,664,000 )     (55,983,000 )
Issuance of OP Units
    (18,000 )     (4,260,000 )
Conversion of OP Units into common stock
    45,000        
Purchase accounting allocations:
               
Intangible lease assets
    21,001,000       25,826,000  
Intangible lease liabilities
    (10,516,000 )     (30,532,000 )
Net valuation decreases (increases) in assumed mortgage loans payable (a)
    447,000       (484,000 )
 
               
De-consolidation of Red Lion joint venture:
               
Real estate, net
          $ 18,365,000  
Mortgage loans payable
            (16,310,000 )
Other assets/liabilities, net
            1,721,000  
Minority interest
            (2,411,000 )
 
             
Investment in and advances to unconsolidated joint venture, as of January 1, 2006
          $ 1,365,000  
 
             
 
(a)   The net valuation decreases (increases) in assumed mortgage loans payable result from adjusting the contract rates of interest (ranging from 4.9% to 6.2% per annum in 2007 and from 5.6% to 7.3% per annum in 2006) to market rates of interest (ranging from 5.5% to 6.5% in 2007 and from 5.7 to 6.0% per annum in 2006).
     In connection with preparation of the Company’s June 30, 2007 consolidated financial statements, the Company determined that cash flows from changes in accounts payable and accrued expenses relating to real estate expenditures should have been included in investing, rather than operating, cash flow activities. Accordingly, the consolidated statement of cash flows for the nine months ended September 30, 2006 has been revised by (1) cash flows provided by operating activities being changed from $22,945,000 to $26,607,000, and (2) cash flows from investing activities being changed from ($148,961,000) to ($152,623,000).
Note 3. Common/Preferred Stock Issuances
     The Company’s 8-7/8% Series A Cumulative Redeemable Preferred Stock has no stated maturity, is not convertible into any other security of the Company, and is redeemable at the

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
Company’s option on or after July 28, 2009 at a price of $25.00 per share, plus accrued and unpaid distributions.
     In December 2006, the Company sold 7,500,000 shares of its common stock at a price of $16.00 per share, and realized net proceeds, after underwriting fees and offering costs, of approximately $113.8 million, substantially all of which were used initially to repay amounts outstanding under the Company’s secured revolving credit facility (in January 2007, the underwriters exercised their over-allotment option to the extent of 275,000 shares, and the Company realized additional net proceeds of $4.1 million).
     Pursuant to a registration statement filed in June 2005 and prospectus supplements thereto (applicable to a total of 7,000,000 shares), the Company is authorized to sell shares of its common stock through registered deferred offering programs. Pursuant to these programs, the Company sold 3,295,000 shares of its common stock during 2006, at an average price of $15.64 per share, resulting in net proceeds to the Company, after issuance expenses, of approximately $49.9 million. The Company has not authorized any sales under these programs during 2007.
     On September 12, 2007, stockholders approved amendments to the Company’s Articles of Incorporation increasing the number of authorized shares of common stock to 150,000,000 and the number of authorized shares of preferred stock to 12,500,000.
Note 4. Real Estate
     On January 18, 2007, the Company acquired the Fairview Commons shopping center in New Cumberland, Pennsylvania, an approximately 60,000 sq. ft. shopping center adjacent to its Fairview Plaza shopping center , for a purchase price of approximately $4.3 million, including closing costs. The acquisition cost was funded from the Company’s secured revolving credit facility.
     On January 30, 2007, the Company acquired the Oakland Commons shopping center in Bristol, Connecticut, an approximately 90,000 sq. ft. supermarket-anchored shopping center, for a purchase price of approximately $12.5 million, including closing costs. The acquisition cost was funded from the Company’s secured revolving credit facility.
     On April 4, 2007, the Company acquired five supermarket-anchored shopping centers located in Eastern Pennsylvania, aggregating approximately 354,000 sq. ft. of GLA. The aggregate purchase price was approximately $91.9 million, including closing costs, financed by (1) the assumption of approximately $42.8 million of existing first-mortgage financing bearing interest at rates ranging from 4.94% to 5.89% per annum, a weighted average of 5.62% per annum, and maturing over periods ending principally in 2015, (2) new financing of approximately $14.3 million bearing interest at 5.53% per annum and maturing in 2017, and (3) approximately $34.8 million from the Company’s secured revolving credit facility.

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Table of Contents

Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
     On June 7, 2007, the Company acquired Grove City Discount Drug Mart Plaza in Grove City, Ohio, an approximately 41,000 sq. ft. convenience center, for a purchase price of approximately $4.4 million, including closing costs. The acquisition cost was funded from the Company’s secured revolving credit facility.
     On September 5, 2007, the Company acquired Hilliard Discount Drug Mart Plaza in Hilliard, Ohio, an approximately 41,000 sq. ft. convenience center, for a purchase price of approximately $5.4 million, including closing costs. The acquisition cost was funded from the Company’s secured revolving credit facility.
     On several dates during the three months ended September 30, 2007, the Company acquired five shopping center properties, located in Groton, Connecticut, Cockeysville, Maryland, West Bridgewater, Massachusetts, Massapequa, New York and Shamokin Dam, Pennsylvania, having a total of approximately 698,000 sq. ft. of GLA. The five properties were part of a six property portfolio being acquired from one selling group (the “WP Realty Properties”); the acquisition of the sixth property closed in October 2007. The combined purchase price for the five properties was approximately $106.1 million, including closing costs, which the Company financed by (1) assuming approximately $77.9 million of existing first mortgage loans bearing interest at an average rate of 6.0% per annum and maturing in 2014 to 2016, and (2) funding approximately $28.2 million from its secured revolving credit facility.
Joint Venture Arrangements
     Effective April 2, 2007, the Company entered into an agreement to form a joint venture with a wholly-owned U.S. subsidiary of Homburg Invest Inc., a publicly-traded Canadian corporation listed on the Toronto and Euronext Amsterdam Stock Exchanges (“Homburg”), with respect to four shopping centers then owned and managed by the Company and the five shopping centers acquired by the Company on April 4, 2007 as described above; the aggregate valuation for the nine properties was approximately $170 million. Richard Homburg, a director of the Company, is Chairman and CEO of Homburg. In connection with the joint venture investment, the independent members of the Company’s Board of Directors obtained appraisals in support of the transfer values of the then-owned properties. The Company will hold a 20% interest in, and be the sole general partner of, the joint venture and Homburg, through such subsidiary, will acquire the remaining 80% interest. The joint venture is structured in limited partnerships such that, at Homburg’s election, it may sell a portion of its ownership interests to individual investors in Europe, and Homburg will be entitled to certain fees with respect thereto, payable by the Company. The Company will be entitled to a “promote” structure, applicable separately to each property, which, if certain targets are met, will permit the Company to receive at least 40% of the returns in excess of a leveraged 9.25% threshold. Additionally, the Company will receive fees for ongoing property management, leasing, construction management, acquisitions, dispositions, financings and refinancings. Closing of the sale of the Company’s interests in the nine properties to the joint venture is expected prior to December 31, 2007. The transactions contemplated by

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
this joint venture do not qualify as a sale for financial reporting purposes; accordingly, the Company will continue to consolidate the properties.
     Effective April 5, 2007, the Company entered into a joint venture agreement for the construction and development of an estimated 700,000 sq. ft. shopping center in Pottsgrove, Pennsylvania, approximately 40 miles northwest of Philadelphia. Total project costs, including purchase of the land parcels, are estimated at $105 million. The Company is committed to paying a development fee of $2.0 million and providing up to $17.5 million of equity capital for a 60% interest in the joint venture, with a preferred rate of return of 9.25% per annum on such amounts.
Pro Forma Financial Information (unaudited)
     During the period January 1, 2006 through September 30, 2007, the Company acquired 27 shopping and convenience centers aggregating approximately 3.0 million sq. ft. of GLA, approximately 195 acres of land for expansion and/or future development, and a 49% interest in an unconsolidated joint venture which owns a single-tenant office property, for a total cost of approximately $439.5 million. The following table summarizes, on an unaudited pro forma basis before purchase accounting allocations, the combined results of operations of the Company for the three and nine months ended September 30, 2007 and 2006 as if all of these property acquisitions were completed as of January 1, 2006. This unaudited pro forma information does not purport to represent what the actual results of operations of the Company would have been had all the above occurred as of January 1, 2006, nor does it purport to predict the results of operations for future periods.
                                 
    Three months ended Sep 30,   Nine months ended Sep 30,
    2007   2006   2007   2006
         
Revenues
  $ 39,646,000     $ 38,306,000     $ 119,475,000     $ 115,436,000  
Net income applicable to common shareholders
  $ 3,468,000     $ 1,130,000     $ 8,721,000     $ 2,790,000  
Per common share:
                               
Basic
  $ 0.08     $ 0.03     $ 0.20     $ 0.09  
Diluted
  $ 0.08     $ 0.03     $ 0.20     $ 0.09  
 
                               
Weighted average number of common shares outstanding:
                               
Basic
    44,231,000       34,484,000       44,179,000       31,660,000  
Diluted
    44,234,000       34,488,000       44,183,000       31,831,000  
Real Estate Pledged
     At September 30, 2007 and December 31, 2006, a substantial number of the Company’s real estate properties were pledged as collateral for either property-specific mortgage loans payable or for the secured revolving credit facility.

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
Note 5. Mortgage Loans Payable and Secured Revolving Credit Facility
     Secured debt consisted of the following at September 30, 2007 and December 31, 2006:
                                                 
    Sep 30, 2007   Dec 31, 2006
            Interest rates           Interest rates
    Balance     Weighted             Balance     Weighted        
Description   outstanding     average     Range     outstanding     average     Range  
     
Fixed-rate mortgages
  $ 632,268,000       5.7 %     4.8% - 7.6 %   $ 494,764,000       5.7 %     4.8% - 7.6 %
Variable-rate mortgage
    4,777,000       7.9 %     7.9 %     4,839,000       8.1 %     8.1 %
                         
 
    637,045,000       5.8 %             499,603,000       5.7 %        
Secured revolving credit facility
    186,890,000       6.7 %             68,470,000       6.6 %        
                         
 
  $ 823,935,000       6.0 %           $ 568,073,000       5.8 %        
                         
Secured Revolving Credit Facility
     The Company has a $300 million secured revolving credit facility with Bank of America, N.A. (as agent) and several other banks, pursuant to which the Company has pledged certain of its shopping center properties as collateral for borrowings thereunder. The facility, as amended (including the latest amendment effective as of October 17, 2007), is expandable to $400 million, subject to certain conditions, and will expire in January 2009, subject to a one-year extension option. Borrowings outstanding under the facility aggregated $186.9 million at September 30, 2007, and such borrowings bore interest at an average rate of 6.7% per annum. Borrowings under the facility bear interest at a rate of LIBOR plus a basis points (“bps”) spread ranging from 110 to 145 bps depending upon the Company’s leverage ratio, as defined (the spread as of September 30, 2007 was 110 bps). The facility also requires an unused portion fee of 15 bps. Based on covenant measurements and collateral in place as of September 30, 2007 (including the additional collateral pledged as of October 17, 2007), the Company was permitted to draw up to approximately $294.6 million, of which approximately $107.7 million remained available as of September 30, 2007.
     The credit facility is used to fund acquisitions, development and redevelopment activities, capital expenditures, mortgage repayments, dividend distributions, working capital and other general corporate purposes. The facility is subject to customary financial covenants, including limits on leverage and distributions (limited to 95% of funds from operations, as defined), and other financial statement ratios. The Company plans to add additional properties, when available, to the collateral pool with the intent of making the full facility available.

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Cedar Shopping Centers, Inc.
Notes to Consolidated Financial Statements
September 30, 2007
(unaudited)
Note 6. Subsequent Events
     On October 5, 2007, the Company closed on the purchase of the sixth WP Realty Property, a 168,000 sq. ft. shopping center located in New Bedford, Massachusetts. The purchase price for the property was approximately $12.1 million, including closing costs, which the Company financed by (1) assuming an approximate $8.1 million existing first mortgage loan bearing interest at 6.0% per annum and maturing in 2014, and (2) funding approximately $4.0 million from its secured revolving credit facility.
     On October 18, 2007, the Company’s Board of Directors approved a dividend of $0.225 per share with respect to its common stock as well as an equal distribution per unit on its outstanding OP Units. At the same time, the Board approved a dividend of $0.554688 per share with respect to the Company’s 8-7/8% Series A Cumulative Redeemable Preferred Stock. The distributions are payable on November 20, 2007 to shareholders of record on November 9, 2007.
     On November 6, 2007, the Company closed on the purchase of a 102,000 sq. ft. shopping center located in Webster, Massachusetts. The purchase price for the property was approximately $17.8 million, including closing costs, which the Company funded from its secured revolving credit facility.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following discussion should be read in conjunction with the Company’s consolidated financial statements and related notes thereto included elsewhere in this report.
Executive Summary
     The Company is a fully-integrated real estate company which focuses primarily on ownership, operation, development and redevelopment of supermarket-anchored community shopping centers and drug store-anchored convenience centers. The Company’s existing properties are located in nine states, largely in the Northeast and Mid-Atlantic regions. At September 30, 2007, the Company had a portfolio of 112 properties totaling approximately 11.4 million square feet of GLA, including 107 wholly-owned properties comprising approximately 10.8 million square feet and four properties owned in joint venture comprising approximately 485,000 square feet. At September 30, 2007, the portfolio of wholly-owned properties consisted of (1) 98 “stabilized” properties (those properties at least 80% leased and not designated as “development/redevelopment” properties as of September 30, 2007), with an aggregate of 9.6 million square feet of GLA, which were approximately 96% leased, (2) four development/redevelopment properties with an aggregate of 890,000 square feet of GLA, which were approximately 67% leased, (3) five non-stabilized properties with an aggregate of 329,000 square feet of GLA, which are presently being re-tenanted and which were approximately 71% leased, and (4) one property held for sale with an aggregate of 78,000 square feet of GLA, which was 100% leased. The four properties owned in joint venture are all “stabilized” properties and are 100.0% leased. The entire 112 property portfolio was approximately 93% leased at September 30, 2007. In addition, the Company has a 49% interest in an unconsolidated joint venture which owns a single-tenant office property.
     The Company, organized as a Maryland corporation, has established an umbrella partnership structure through the contribution of substantially all of its assets to the Operating Partnership, organized as a limited partnership under the laws of Delaware. The Company conducts substantially all of its business through the Operating Partnership. At September 30, 2007, the Company owned a 95.7% economic interest in, and is the sole general partner of, the Operating Partnership. OP Units 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.
     The Company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to long-term leases. The Company’s operating results therefore depend on the ability of its tenants to make the payments required by the terms of their leases. The Company focuses its investment activities on supermarket-anchored community shopping centers and drug store-anchored convenience centers. The Company believes, because of the need of consumers to purchase food and other staple goods and services generally available at such centers, that the nature of its investments provide relatively stable revenue flows even during difficult economic times.

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     The Company continues to seek opportunities to acquire stabilized properties and properties suited for development and/or redevelopment where it can utilize its experience in shopping center development, renovation, expansion, re-leasing and re-merchandising to achieve long-term cash flow growth and favorable investment returns. The Company would consider investment opportunities in regions beyond its present markets only in the event such opportunities were consistent with its focus, could be effectively controlled and managed, have the potential for favorable investment returns, and would contribute to increased shareholder value.
Summary of Critical Accounting Policies
     The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition and the allowance for doubtful accounts receivable, real estate investments and purchase accounting allocations related thereto, asset impairment, and derivatives used to hedge interest-rate risks. Management’s estimates are based both on information that is currently available and on various other assumptions management believes to be reasonable under the circumstances. Actual results could differ from those estimates and those estimates could be different under varying assumptions or conditions.
     The Company has identified the following critical accounting policies, the application of which requires significant judgments and estimates:
Revenue Recognition
     Rental income with scheduled rent increases is recognized using the straight-line method over the respective terms of the leases. The aggregate excess of rental revenue recognized on a straight-line basis over base rents under applicable lease provisions is included in rents and other receivables 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; such income is recognized in the periods earned. In addition, certain operating leases contain contingent rent provisions under which tenants are required to pay a percentage of their sales in excess of a specified amount as additional rent. The Company defers recognition of contingent rental income until those specified targets are met.
     The Company must make estimates as to the collectibility of its accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable by considering tenant creditworthiness, current economic conditions, and changes in tenants’ payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable. These estimates have a direct impact on net income, because a higher bad debt allowance would result in lower net income, whereas a lower bad debt allowance would result in higher net income.

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Real Estate Investments
     Real estate investments are carried at cost less accumulated depreciation. The provision for depreciation is calculated using the straight-line method based on estimated useful lives. Expenditures for maintenance, repairs and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred. Expenditures for betterments that substantially extend the useful lives of real estate assets are capitalized. 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. The Company is required to make subjective estimates as to the useful lives of its real estate assets for purposes of determining the amount of depreciation to reflect on an annual basis. These assessments have a direct impact on net income. A shorter estimate of the useful life of an asset would have the effect of increasing depreciation expense and lowering net income, whereas a longer estimate of the useful life of an asset would have the effect of reducing depreciation expense and increasing net income.
     The Company applies SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangibles”, in valuing real estate acquisitions. In connection therewith, the fair value of real estate acquired is allocated 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 such 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 value of in-place leases is measured by the excess of (1) the purchase price paid for a property after adjusting existing in-place leases to market rental rates, over (2) the estimated fair value of the property as if vacant. Above-market and below-market in-place lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received and management’s estimate of market lease rates, measured over the non-cancelable terms of the respective leases. The value of other intangibles is amortized to expense, and the above-market and below-market lease values are amortized to rental income, over the remaining non-cancelable terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recognized in operations at that time.
     Management is required to make subjective assessments in connection with its valuation of real estate acquisitions. These assessments have a direct impact on net income, because (1) above-market and below-market lease intangibles are amortized to rental income, and (2) the value of other intangibles is amortized to expense. Accordingly, higher allocations to below-

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market lease liability and other intangibles would result in higher rental income and amortization expense, whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense.
     The Company applies SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to recognize and measure impairment of long-lived assets. 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 estimates of 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. A real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value, less the cost of a potential sale. Depreciation and amortization are suspended during the period the property is held for sale. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties. These assessments have a direct impact on net income, because an impairment loss is recognized in the period that the assessment is made.
Stock-Based Compensation
     The Company adopted the provisions of SFAS No. 123R, “Share-Based Payments”, effective January 1, 2006. SFAS No. 123R established financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer, or the employer incurs liabilities to employees in amounts based on the price of the employer’s stock. The statement also defined a fair value-based method of accounting for an employee stock option or similar equity instrument.
     The Company’s Incentive Plan provides 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 850,000, and the maximum number of shares that may be subject to grants to any single participant is 250,000. Substantially all grants issued pursuant to the Incentive Plan are “restricted stock grants” which specify vesting (1) upon the third anniversary of the date of grant for time-based grants, or (2) upon the completion of a designated period of performance for performance-based grants. 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 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. The value of such grants is being amortized on a straight-line basis over the respective vesting periods. These value estimates have a direct impact on net income, because higher valuations would result in lower net income, where lower valuations would result in higher net income.

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Results of Operations
     Differences in results of operations between 2007 and 2006, respectively, were primarily the result of the Company’s property acquisition program and continuing development/redevelopment activities. During the period January 1, 2006 through September 30, 2007, the Company acquired 27 shopping and convenience centers aggregating approximately 3.0 million sq. ft. of GLA, approximately 195 acres of land for expansion and/or future development, and a 49% interest in an unconsolidated joint venture which owns a single-tenant office property, for a total cost of approximately $439.5 million. In addition, the Company completed and placed into service two ground-up developments having an aggregate cost of approximately $9.2 million. Income from continuing operations before minority and limited partners’ interests and preferred distribution requirements increased to $6.2 million during the three months ended September 30, 2007 from $4.0 million during the three months ended September 30, 2006. Income from continuing operations before minority and limited partners’ interests and preferred distribution requirements increased to $17.4 million during the nine months ended September 30, 2007 from $11.5 million during the nine months ended September 30, 2006.
Comparison of the quarter ended September 30, 2007 to the quarter ended September 30, 2006
                                                 
                                            Properties
                                            held
    Three months ended Sep 30,           Percentage           throughout
    2007   2006   Increase   change   Acquisitions   both periods
Rents and expense recoveries
  $ 37,362,000     $ 31,345,000     $ 6,017,000       19 %   $ 5,279,000     $ 738,000  
Property operating expenses
    9,529,000       8,496,000       1,033,000       12 %     1,060,000       (27,000 )
Depreciation and amortization
    10,065,000       8,923,000       1,142,000       13 %     1,708,000       (566,000 )
General and administrative
    1,847,000       1,431,000       416,000       29 %     n/a       n/a  
Non-operating (income) and expense, net (1)
    9,809,000       8,742,000       1,067,000       12 %     n/a       n/a  
 
(1)   Non-operating income and expense consists principally of interest expense, amortization of deferred financing costs, and equity in income (loss) of unconsolidated joint ventures.
     Properties held throughout both periods. The Company held 85 properties throughout the three months ended September 30, 2007 and 2006. Rents and expense recoveries increased primarily as a result of (1) lease commencements at the Company’s development, redevelopment and stabilized properties ($883,000), (2) an increase in expense recoveries ($478,000), and (3) an increase in percentage rents ($349,000), offset by (4) a decrease in the amortization of intangible lease liabilities ($910,000), resulting principally from acceleration of amortization in 2006 relating to prematurely-terminated leases (which also resulted in a decrease in depreciation and amortization expense), and (5) a decrease in straight-line rents ($62,000). Property operating expenses decreased as a result of (1) a decrease in the provision for doubtful accounts ($556,000), offset by (2) an increase in real estate and other property-related taxes ($227,000), (3) an increase in non-billable expenses ($139,000), (4) an increase in repairs and maintenance ($87,000), and (5) an increase in other operating expenses ($76,000).

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     General and administrative expenses. General and administrative expenses increased primarily as a result of increased compensation costs, and the Company’s continued growth.
     Non-operating income and expense, net. Non-operating income and expense, net, increased primarily as a result of (1) increased interest costs from borrowings related to property acquisitions, partially offset by (2) earnings from an unconsolidated joint venture acquired in November 2006.
Comparison of the nine months ended September 30, 2007 to the nine months ended September 30, 2006
                                                 
                                            Properties
                                            held
    Nine months ended Sep 30,           Percentage   Acquisitions/   throughout
    2007   2006   Increase   change   dispositions   both periods
Rents and expense recoveries
  $ 109,308,000     $ 90,430,000     $ 18,878,000       21 %   $ 17,476,000     $ 1,402,000  
Property operating expenses
    29,245,000       25,885,000       3,360,000       13 %     3,571,000       (211,000 )
Depreciation and amortization
    29,696,000       25,428,000       4,268,000       17 %     5,523,000       (1,255,000 )
General and administrative
    7,065,000       4,220,000       2,845,000       67 %     n/a       n/a  
Non-operating (income) and expense, net (1)
    26,480,000       24,165,000       2,315,000       10 %     n/a       n/a  
 
(1)   Non-operating income and expense consists principally of interest expense, amortization of deferred financing costs, and equity in income (loss) of unconsolidated joint ventures.
     Properties held throughout both periods. The Company held 82 properties throughout the nine months ended September 30, 2007 and 2006. Rents and expense recoveries increased primarily as a result of (1) lease commencements at the Company’s development, redevelopment and stabilized properties ($2,342,000), (2) an increase in expense recoveries ($1,363,000) and (3) an increase in percentage rents ($32,000), offset by (4) a decrease in the amortization of intangible lease liabilities ($1,719,000), resulting from (a) the impact of purchase accounting allocations in the first quarter of 2006 applicable to properties acquired during 2005 (which also resulted in a decrease in depreciation and amortization expense) and (b) acceleration of amortization in 2006 relating to prematurely-terminated leases, and (5) a decrease in straight-line rents ($616,000). Property operating expenses decreased as a result of (1) a decrease in the provision for doubtful accounts ($1,352,000), offset by (2) an increase in snow removal costs ($534,000), (3) an increase in real estate and other property-related taxes ($420,000), (4) an increase in billable expenses ($113,000), and (5) an increase in other operating expenses ($74,000).
     General and administrative expenses. General and administrative expenses increased primarily as a result of costs associated with the retirement of a senior executive and the initial compensation/relocation costs of his replacement ($1,535,000), increased compensation costs, and the Company’s continued growth.

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     Non-operating income and expense, net. Non-operating income and expense, net, increased primarily as a result of (1) increased interest costs (a) from borrowings related to property acquisitions, as reduced by (b) the impact on interest costs of proceeds from common stock sales throughout 2006 used initially to reduce outstanding borrowings under the Company’s secured revolving credit facility, partially offset by (2) earnings from an unconsolidated joint venture acquired in November 2006.
Liquidity and Capital Resources
     The Company funds operating expenses and other short-term liquidity requirements, including debt service, tenant improvements, leasing commissions, and preferred and common dividend distributions, primarily from operating cash flows; the Company has also used its secured revolving credit facility for these purposes. The Company expects to fund long-term liquidity requirements for property acquisitions, development and/or redevelopment costs, capital improvements, and maturing debt initially with the secured revolving credit facility and property-specific construction financing, and ultimately through a combination of issuing and/or assuming additional mortgage debt, the sale of equity securities, the issuance of additional OP Units, and the sale of properties or interests therein (including joint venture arrangements).
     The Company has a $300 million secured revolving credit facility with Bank of America, N.A. (as agent) and several other banks, pursuant to which the Company has pledged certain of its shopping center properties as collateral for borrowings thereunder; the facility, as amended, is expandable to $400 million, subject to certain conditions, and will expire in January 2009, subject to a one-year extension option. As of September 30, 2007, based on covenant measurements and collateral in place (including the additional collateral pledged as of October 17, 2007), the Company was permitted to draw up to approximately $294.6 million, of which approximately $107.7 million remained available as of that date. The credit facility is used to fund acquisitions, development and redevelopment activities, capital expenditures, mortgage repayments, dividend distributions, working capital and other general corporate purposes. The facility is subject to customary financial covenants, including limits on leverage and distributions (limited to 95% of funds from operations, as defined), and other financial statement ratios. The Company plans to add additional properties, when available, to the collateral pool with the intent of making the full facility available.
     At September 30, 2007, the Company’s financial liquidity was provided principally by (1) $21.1 million in cash and cash equivalents, and (2) $107.7 million available under the secured revolving credit facility. In addition, the Company anticipates the availability of additional construction financing, excess funds from the refinancing of existing debt as it becomes due, and approximately $50 million in net proceeds from the contribution of properties to the joint venture with Homburg Invest Inc.
     Mortgage loans payable at September 30, 2007 consisted of fixed-rate notes totaling $632.3 million (with a weighted average interest rate of 5.7%) and variable-rate notes totaling $191.6 million, including $186.9 million under the secured revolving credit facility (with a combined weighted average interest rate of 6.7%). Total mortgage loans payable have an overall weighted average interest rate of 6.0% and mature at various dates through 2021.

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     In December 2006, the Company sold 7,500,000 shares of its common stock at a price of $16.00 per share, and realized net proceeds, after underwriting fees and offering costs, of approximately $113.8 million; in January 2007, the underwriters exercised their over-allotment option to the extent of 275,000 shares, and the Company realized additional net proceeds of $4.1 million. Pursuant to a registration statement filed in June 2005 and prospectus supplements related thereto (applicable to a total of 7,000,000 shares), the Company is authorized to sell shares of its common stock through registered deferred offering programs. No shares were sold pursuant to the current program during the nine months ended September 30, 2007. On September 12, 2007, stockholders approved amendments to the Company’s Articles of Incorporation increasing the number of authorized shares of common stock to 150,000,000 and the number of authorized shares of preferred stock to 12,500,000.
     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 reserve was established, and is not available to fund other property-level or Company-level obligations. In addition, joint venture partnership agreements require, among other things, that the Company maintain separate cash accounts for the operation of the joint ventures, and that distributions to the general and minority interest partners be strictly controlled.
Net Cash Flows
     In connection with preparation of the Company’s June 30, 2007 consolidated financial statements, the Company determined that cash flows from changes in accounts payable and accrued expenses relating to real estate expenditures should have been included in investing, rather than operating, cash flow activities. As a result, the consolidated statement of cash flows for the nine months ended September 30, 2006 has been revised by (1) cash flows provided by operating activities being changed from $22,945,000 to $26,607,000, and (2) cash flows from investing activities being changed from ($148,961,000) to ($152,623,000).
Operating Activities
     Net cash flows provided by operating activities amounted to $36.8 million during the nine months ended September 30, 2007, compared to net cash flows provided by operating activities of $26.6 million during the nine months ended September 30, 2006. The increase in operating cash flows during the first nine months of 2007, as compared with the first nine months of 2006, was primarily the result of (1) property acquisitions, and (2) the impact of the common stock offering in December 2006.
Investing Activities
     Net cash flows used in investing activities were $135.0 million during the nine months ended September 30, 2007 and $152.6 million during the nine months ended September 30, 2006, and were primarily the result of the Company’s property acquisition program and continuing development/redevelopment activities. During the first nine months of 2007, the

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Company acquired 14 shopping and convenience centers and land for future expansion and development. During the first nine months of 2006, the Company acquired nine shopping centers, the remaining 50% interest in a third, land for future expansion and development, and sold its interest in an unconsolidated joint venture.
Financing Activities
     Net cash flows provided by financing activities were $101.5 million during the nine months ended September 30, 2007 and $133.3 million during the nine months ended September 30, 2006. During the first nine months of 2007, the Company received the proceeds of net borrowings of $118.4 million under the Company’s secured revolving credit facility, $25.7 million in proceeds from mortgage financings, $3.9 million in net proceeds from sales of common stock, and a $1.0 million contribution from a minority interest partner, offset by preferred and common stock dividend distributions of $35.7 million, repayment of mortgage obligations of $8.5 million, distributions paid with respect to limited partners’ interests of $1.3 million, and payment of deferred financing costs of $2.0 million. During the first nine months of 2006, the Company received $74.0 million in net proceeds from the settlement of a forward sales agreement relating to an August 2005 public offering and sales of common stock under registered deferred offering programs, the proceeds of net borrowings of $67.7 million under the Company’s secured revolving credit facility, and $26.3 million in proceeds from mortgage financings, offset by preferred and common stock dividend distributions of $27.2 million, repayment of mortgage obligations of $5.3 million, distributions paid with respect to minority and limited partners’ interests of $1.3 million, and payment of deferred financing costs of $0.9 million.
Funds From Operations
     Funds From Operations (“FFO”) is a widely-recognized non-GAAP financial measure for REITs that the Company believes, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding financial performance and providing a relevant basis for comparison among REITs. In addition, FFO is useful to investors as it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets. Investors should review FFO, along with GAAP net income, when trying to understand an equity REIT’s operating performance. The Company presents FFO because the Company considers it an important supplemental measure of its operating performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Among other things, the Company uses FFO or an FFO-based measure (1) as one of several criteria to determine performance-based bonuses for members of senior management, (2) in performance comparisons with other shopping center REITs, and (3) to measure compliance with certain financial covenants under the terms of the Loan Agreement relating to the Company’s secured revolving credit facility.
     The Company computes FFO in accordance with the “White Paper” on FFO published by the National Association of Real Estate Investment Trusts (“NAREIT”), which defines FFO as net income applicable to common shareholders (determined in accordance with GAAP),

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excluding gains or losses from debt restructurings and sales of properties, plus real estate-related depreciation and amortization, and after adjustments for partnerships and joint ventures (which are computed to reflect FFO on the same basis).
     FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income applicable to common shareholders or to cash flow from operating activities. FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Although FFO is a measure used for comparability in assessing the performance of REITs, as the NAREIT White Paper only provides guidelines for computing FFO, the computation of FFO may vary from one company to another. The following table sets forth the Company’s calculations of FFO for the three and nine months ended September 30, 2007 and 2006:
                                 
    Three months ended September 30,   Nine months ended September 30,
    2007   2006   2007   2006
         
Net income applicable to common shareholders
  $ 3,925,000     $ 1,785,000     $ 10,501,000     $ 4,919,000  
Add (deduct):
                               
Real estate depreciation and amortization
    10,078,000       8,963,000       29,745,000       25,563,000  
Limited partners’ interest
    179,000       95,000       474,000       262,000  
Minority interests in consolidated joint ventures
    333,000       324,000       1,028,000       943,000  
Minority interests’ share of FFO applicable to consolidated joint ventures
    (448,000 )     (438,000 )     (1,365,000 )     (1,350,000 )
Equity in (income) loss of unconsolidated joint ventures
    (150,000 )           (463,000 )     40,000  
Gain on sale of interest in unconsolidated joint venture
                      (141,000 )
FFO from unconsolidated joint ventures
    233,000             701,000       (5,000 )
         
Funds from operations
  $ 14,150,000     $ 10,729,000     $ 40,621,000     $ 30,231,000  
         
 
                               
FFO per common share (assuming conversion of OP Units):
                               
Basic
  $ 0.31     $ 0.30     $ 0.88     $ 0.91  
         
Diluted
  $ 0.31     $ 0.30     $ 0.88     $ 0.90  
         
 
                               
Weighted average number of common shares:
                               
Shares used in determination of basic earnings per share
    44,231,000       34,484,000       44,179,000       31,660,000  
Additional shares assuming conversion of OP Units (basic)
    1,982,000       1,837,000       1,984,000       1,675,000  
         
 
Shares used in determination of basic FFO per share
    46,213,000       36,321,000       46,163,000       33,335,000  
         
 
Shares used in determination of diluted earnings per share
    44,234,000       34,488,000       44,183,000       31,831,000  
Additional shares assuming conversion of OP Units (diluted)
    1,981,000       1,846,000       1,993,000       1,683,000  
         
 
                               
Shares used in determination of diluted FFO per share
    46,215,000       36,334,000       46,176,000       33,514,000  
         

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Inflation
     Low to moderate levels of inflation during the past several years have favorably impacted the Company’s operations by stabilizing operating expenses. At the same time, low inflation has had the indirect effect of reducing the Company’s ability to increase tenant rents. However, the Company’s properties have tenants whose leases include expense reimbursements and other provisions to minimize the effect of inflation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     The primary market risk facing the Company is interest rate risk on its variable-rate mortgage loan payable and secured revolving credit facility. The Company will, when advantageous, hedge its interest rate risk using derivative financial instruments. The Company is not subject to foreign currency risk.
     The Company is exposed to interest rate changes primarily through (1) the secured floating-rate revolving credit facility used to maintain liquidity, fund capital expenditures and expand its real estate investment portfolio, and (2) floating-rate construction financing. The Company’s objectives with respect to interest rate risk are to limit the impact of interest rate changes on operations and cash flows, and to lower its overall borrowing costs. To achieve these objectives, the Company may borrow at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and/or treasury locks in order to mitigate its interest rate risk on a related variable-rate financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.
     At September 30, 2007, long-term debt consisted of fixed and variable-rate mortgage loans payable, and the variable-rate secured revolving credit facility. The average interest rate on the $632.3 million of fixed rate indebtedness outstanding was 5.7%, with maturities at various dates through 2021. The average interest rate on the Company’s $191.6 million of variable-rate debt was 6.7%, with maturities at various dates through 2009. Based on the amount of variable-rate debt outstanding at September 30, 2007, if interest rates either increase or decrease by 1%, the Company’s net income would decrease or increase respectively by approximately $1,916,000 per annum.
Item 4. Controls and Procedures
     The Company maintains disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in its filings under the Securities Exchange Act of 1934 is reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. In this regard, the Company has formed a Disclosure Committee currently comprised of several of the Company’s executive officers as well as certain other employees with knowledge of information that may be considered in the SEC reporting process. The Committee has responsibility for the development and assessment of the financial and non-financial information to be included in the reports filed with the SEC, and assists the Company’s Chief Executive Officer and Chief Financial Officer in connection with their certifications contained in the Company’s SEC filings. The Committee meets regularly and

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reports to the Audit Committee on a quarterly or more frequent basis. The Company’s principal executive and financial officers have evaluated its disclosure controls and procedures as of September 30, 2007, and have determined that such disclosure controls and procedures are effective.
     During the three months ended September 30, 2007, there have been no changes in the internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

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Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
     The Company held a special meeting of stockholders on September 12, 2007, at which the following matters were voted upon and approved by stockholders:
  1.   The approval of an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock.
 
  2.   The approval of an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of preferred stock and to prohibit use of such preferred stock for anti-takeover purposes.
The results of the vote were as follows:
                                 
            Withheld/           Broker
    For   Against   Abstain   Non-Votes
1. Increasing authorized shares of common stock
    32,976,877       8,057,167       72,500       0  
 
2. Increasing authorized shares of preferred stock and prohibiting use of such preferred stock for anit-takeover purposes
    33,524,817       2,239,274       100,464       5,241,989  
Item 6. Exhibits
     
Exhibit 3.1.a
  Articles of Incorporation of the Company, including all amendments and articles supplementary previously filed
 
   
Exhibit 3.1.b
  Amendment to Articles of Incorporation of the Company filed on September 18, 2007
 
   
Exhibit 31
  Section 302 Certifications
 
   
Exhibit 32
  Section 906 Certifications

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CEDAR SHOPPING CENTERS, INC.
                     
By:
  /s/ LEO S. ULLMAN
 
Leo S. Ullman
      By:   /s/ LAWRENCE E. KREIDER, JR.
 
Lawrence E. Kreider, Jr.
   
 
  Chairman of the Board, Chief Executive Officer and President
(Principal executive officer)
          Chief Financial Officer
(Principal financial officer)
   
November 7, 2007

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