SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
FORM 10-Q
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 31, 2001
CEDAR INCOME FUND, LTD.
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(Exact name of registrant as specified in charter)
Maryland 0-14510 42-1241468
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(State or other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
44 South Bayles Avenue, Port Washington, New York 11050
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 767-6492
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(Former name or former address, if changed since last report)
Cedar Income Fund, Ltd.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2001 (unaudited) and
December 31, 2000
Consolidated Statements of Shareholders' Equity -
March 31, 2001 (unaudited) and December 31, 2000
Consolidated Statements of Operations - Three
Months Ended March 31, 2001 and 2000 (unaudited)
Consolidated Statements of Cash Flow - Three Months Ended
March 31, 2001 and 2000 (unaudited)
Notes to Consolidated Financial Statements - March 31, 2001
(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Cedar Income Fund, Ltd.
Consolidated Balance Sheets
March 31, December 31,
2001 2000
(Unaudited)
-------------------------------------
Assets
Real Estate
Land $ 5,082,028 $ 5,681,696
Buildings and improvements 19,622,434 22,589,834
------------ ------------
24,704,462 28,271,530
Less accumulated depreciation (2,809,921) (4,176,607)
------------ ------------
Real estate 21,894,541 24,094,923
Real estate held for sale 5,060,723 1,850,000
Cash and cash equivalents 1,072,881 841,111
Restricted cash 5,944,365 7,298,671
Rents and other receivables 195,303 211,685
Deferred financing costs, net 766,091 831,128
Deferred legal, net 61,733 98,833
Prepaid expenses, net 94,671 100,720
Deferred leasing commissions 71,187 79,960
Deferred rental income 25,474 43,762
Taxes held in escrow 141,423 152,963
------------ ------------
Total Assets $ 35,328,392 $ 35,603,756
============ ============
Liabilities and Shareholders' Equity
Liabilities
Mortgage loan payable $ 17,900,000 $ 17,900,000
Line of credit 1,515,644 1,515,644
Accounts payable and accrued expenses 409,417 670,351
Security deposits 72,773 66,980
Advance rents 67,656 103,261
------------ ------------
Total Liabilities 19,965,490 20,256,236
------------ ------------
Minority interest 2,316,906 2,291,110
Limited partner's interest in consolidated
Operating Partnership 9,239,726 9,241,509
Shareholders' Equity
Common stock ($.01 par value
50,000,000 shares authorized, 692,111
shares outstanding 6,921 6,921
Additional paid-in-capital 3,799,349 3,807,980
------------ ------------
Total Shareholders' Equity 3,806,270 3,814,901
------------ ------------
Total liabilities and Shareholders' Equity $ 35,328,392 $ 35,603,756
============ ============
Cedar Income Fund, Ltd.
Consolidated Statements of Shareholders' Equity
(Unaudited)
Additional Undistributed Total
Common Paid-In Net Shareholders'
Stock Capital Income Equity
----------- ----------- ------ -----------
Balance at December 31, 2000 $ 6,921 $ 3,807,980 $-- $ 3,814,901
Net loss -- (8,631) -- (8,631)
----------- ----------- ----- -----------
Balance at March 31, 2001 $ 6,921 $ 3,799,349 -- $ 3,806,270
=========== =========== ===== ===========
Cedar Income Fund, Ltd.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
March 31,
-------------------------------
2001 2000
---- ----
Revenue
Rents $ 712,208 $ 544,477
Expense recoveries 163,427 111,415
Interest 107,644 40,548
--------- ---------
Total Revenue 983,279 696,440
--------- ---------
Expenses
Property expenses:
Payroll 14,010 --
Real estate taxes 91,988 65,930
Repairs and maintenance 87,405 56,588
Utilities 67,117 38,796
Management fee 31,918 34,736
Insurance 10,358 6,714
Leasing 21,202 10,246
Other 26,432 3,853
--------- ---------
Property expenses, excluding depreciation 350,430 216,863
Depreciation 130,985 114,829
Amortization 41,571 --
--------- ---------
Total property expenses 522,986 331,692
Interest 377,479 31,507
Administrative fees 24,468 24,468
Directors' fees and expenses 18,086 21,334
Legal and accounting 32,220 21,745
Advisory fee -- 25,000
Other administrative 20,605 33,645
--------- ---------
Total Expenses 995,844 489,391
--------- ---------
Net income (loss) before minority interest (12,565) 207,049
Minority interest share of loss 22,888 --
--------- ---------
Net income before limited partner's interest
in Operating Partnership 10,323 207,049
Limited partner's interest (12,940) (143,474)
--------- ---------
Net (loss) income before cumulative effect adjustment (2,617) 63,575
Cumulative effect of change in accounting principles, net
of limited partnership share of ($14,723) (6,014) --
--------- ---------
Net (loss) income (8,631) 63,575
========= =========
Net (loss) earnings per share before cumulative effect adjustment $ (0.01) $ 0.07
Cumulative effect of change in accounting principle (0.01) --
--------- ---------
Net (loss) earnings per share (0.02) 0.07
========= =========
Dividends to shareholders $ -0- $ 94,211
========= =========
Dividends to shareholders per share -0- 0.10
========= =========
Average number of shares outstanding 692,111 942,111
========= =========
Cedar Income Fund, Ltd.
Consolidated Statement of Cash Flow
(Unaudited)
Three Months Ended
-------------------------------------
March 31, 2001 March 31, 2000
-------------- --------------
Net (loss) income $ (8,631) $ 63,575
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle 6,014 --
Minority interest share of loss (22,888) --
Limited partner's interest in Operating Partnership 12,940 43,474
Depreciation and amortization 173,479 114,835
Decrease in deferred rental receivable 18,288 --
Changes in operating assets and liabilities:
Decrease (increase) in rent and other receivables 16,382 (2,619)
Decrease in prepaid expenses 6,049 19,020
Decrease (increase) in deferred leasing commissions 8,773 (711)
Income (decrease) in taxes held in escrow 11,539 --
Increase (decrease) in accounts payable 82,096 (26,338)
Decrease in amounts due from co-tenancy partner -- 27,682
Decrease in amounts due to co-tenancy partner -- (39,087)
Security deposits collected, net 5,793 2,002
(Decrease) increase in advance rents (35,605) 26,592
----------- -----------
Net cash provided by operating activities 274,229 328,425
----------- -----------
Cash Flow From Investing Activities
Capital Expenditures (1,053,735) (35,816)
Decrease in restricted cash 1,354,306 --
Decrease in construction payable (343,030) --
----------- -----------
Net cash used in investing activities (42,459) (35,816)
----------- -----------
Cash Flow from Financing Activities
Principal portion of scheduled mortgage payments -- (7,422)
Dividends paid -- (94,211)
Distributions to limited partner -- (170,446)
Financing costs -- (100,000)
Deferred legal costs -- (13,234)
----------- -----------
Net cash used in financing activities -- (385,313)
----------- -----------
Net increase (decrease) in cash and cash equivalents 231,770 (92,704)
Cash and cash equivalents at beginning of the period 841,111 2,298,334
----------- -----------
Cash and cash equivalents at end of the period $ 1,072,881 $ 2,205,630
=========== ===========
Supplemental Disclosure of Cash Activities
Interest Paid $ 363,603 $ 31,507
=========== ===========
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 1. Background, Organization and Reorganization of the Company
Cedar Income Fund, Ltd. (the "Company") was originally incorporated in
Iowa on December 10, 1984 and qualified to operate as a real estate investment
trust ("REIT"). Shortly thereafter, the Company's Common Stock was listed on the
NASDAQ securities market. In June 1998, the Company was reorganized and included
in an "umbrella partnership REIT" structure through the contribution of
substantially all of its assets to a limited partnership (the "Operating
Partnership") in exchange for the sole general partnership interest and all
2,245,411 limited partnership interests ("Units") of the Operating Partnership.
Immediately thereafter, Cedar Bay Company, ("CBC"), a New York general
partnership, which, as a result of a tender offer completed in April 1998,
became the largest stockholder of the Company, exchanged 1,703,300 shares of
Common Stock for 1,703,300 Units owned by the Company. Following these
transactions, substantially all of the Company's assets consisted of the
controlling general partnership interest of the Operating Partnership and
approximately 24% of the Units; substantially all of CBC's assets consisted of
189,737 shares of Common Stock (approximately 35% of the then-issued and
outstanding shares of Common Stock) and approximately 76% of the Units.
Pursuant to certain arrangements by and between the Company and
Uni-Invest Holdings (U.S.A.) B.V., as further described in the Company's 1999
and 2000 Form 10-K, the Company undertook to register 150,000 shares of stock in
the Company owned by seven shareholders introduced by Uni-Invest Holdings
(U.S.A.) B.V., and to use its best efforts to purchase or find replacement
purchasers for the remaining 150,000 shares owned by such seven shareholders at
the same price per share described above, subject to the NASDAQ and SEC rules.
The shares held by such seven shareholders were acquired by Uni-Invest Holdings
N.V., an affiliate of Uni-Invest Holdings (U.S.A.) B.V., subsequent to March 31,
2001, and Uni-Invest Holdings N.V. has requested that the Company arrange to
register such shares to permit their sale without further restriction.
On May 11, 2000, pursuant to the provisions of a "buy-sell" provision
in its tenancy-in-common agreement with Life Investors Insurance Company of
America ("Life Investors"), an affiliate of the Company's former management
company and advisor, the Company sold an undivided 50% interest in Germantown
Square, a 74,267 s.f. retail property to Life Investors for $3,000,000. As of
July 1, 2000, the Company, through its Operating Partnership, invested a
substantial portion of the proceeds from such sale for the purchase of a 50%
sole general partnership interest in The Point Shopping Center in Harrisburg,
Pennsylvania ("The Point") for approximately $2.1 million over then-existing
indebtedness of $9.3 million plus closing costs of approximately $385,000. That
property interest was purchased from an affiliate of CBC, which owns the balance
as a limited partner, after receipt by the Company of a "fairness opinion" with
respect to the terms of such purchase.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 1. Background, Organization and Reorganization of the Company (Continued)
On May 10, 2000, the Company obtained a $10 million line of credit from
a national commercial bank secured by first mortgage liens on properties of the
Operating Partnership. The first drawdown in the amount of $1,515,644 was used
to retire the then-existing first mortgage on the Company's Utah property and to
pay related loan closing costs.
The Company continues to operate as a REIT. To qualify as a REIT under
applicable provisions of the Internal Revenue Code of 1986, as amended, and
Regulations thereto, the Company must have a significant percentage of its
assets invested in, and income derived from, real estate and related sources.
The Company's objectives are to provide to its shareholders a professionally
managed, diversified portfolio of commercial real estate investments which will
provide the best available cash flow and present an opportunity for capital
appreciation.
The Company's shares are traded on the NASDAQ (Small Cap Market) under
the symbol "CEDR".
The Company, through its Operating Partnership, owns and operates four
office/retail properties aggregating approximately 484,000 s.f., located in
Jacksonville, Florida, Salt Lake City, Utah, Bloomington, Illinois and
Harrisburg, Pennsylvania.
On March 7, 2001, the Company entered into a contract for the sale of
the Broadbent Business Center. This transaction is discussed further in Note 4
to the financial statements.
Currently, a Unit in the Operating Partnership and a share of Common
Stock of the Company have essentially the same economic characteristics, as they
effectively share equally in net income or loss and distributions of the
Operating Partnership.
Cedar Bay Realty Advisors, Inc. ("CBRA") serves as investment advisor
to the Company pursuant to an Administrative and Advisory Agreement with the
Company on terms substantially similar to the terms of that agreement previously
in effect between the Company and AEGON USA Realty Advisors, Inc. ("AEGON") of
Cedar Rapids, Iowa, which served as investment advisor to the Company from
formation until April 3, 1998. Brentway Management LLC ("Brentway" and/or
"Property Manager"), a New York limited liability company provides property
management services for the Company's properties pursuant to a Management
Agreement with the Company on substantially the same terms as the agreement
previously in effect with AEGON. Brentway and CBRA are both affiliates of CBC,
SKR Management Corp. ("SKR") and Leo S. Ullman. Leo S. Ullman is President and
Chairman of the Board of the Company.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 1. Background, Organization and Reorganization of the Company (Continued)
The terms of the Administrative and Advisory Agreement and Management
Agreement are further discussed in Related Party Transactions below.
CBRA agreed to defer until termination of its services as investment
advisor to the Company, any acquisition fees to which it would otherwise be
entitled with respect to the acquisition by the Company or the Operating
Partnership of the 50% general partnership interest in The Point Shopping Center
property, from CBC or its affiliates, described above and in Note 6 below.
Note 2. Description of Business and Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 2001 are not necessarily indicative of the results that
may be expected for year ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant Company's Annual Report on Form
10-K for the year ended December 31, 2000.
Consolidation Policy and Related Matters
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating Partnership as
of March 31, 2001. All significant intercompany balances and transactions have
been eliminated in consolidation.
As the Company owns the sole general partnership interest in the
Operating Partnership, which provides the Company with effective control over
all significant activities of the Operating Partnership, the Operating
Partnership is consolidated with the Company in the accompanying financial
statements as of
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 2. Description of Business and Significant Accounting Policies (Continued)
Consolidation Policy and Related Matters (Continued)
March 31, 2001. The limited partner's interest as of March 31, 2001 (currently
owned entirely by CBC) represents approximately a 71% limited partnership
interest in the equity of the Operating Partnership. The Company owns the sole
general partnerships interest in The Point Shopping Center Associates, L.P. The
Point is consolidated with the Company in the accompanying financial statements,
as of December 31, 2000. The minority interest represents the limited partner's
50% interest in The Point Shopping Center.
The accompanying 2000 financial statements include its 50% co-tenancy
interest in the assets, liabilities and operations of the Germantown property.
During the second quarter of 2000, the Company sold its 50% co-tenancy interest
in this property.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the
term of the lease. The excess of rents recognized over amounts contractually due
are included in deferred rental income on the accompanying balance sheets.
Contractually due but unpaid rents are included in rents and other receivables
on the accompanying balance sheets. Certain lease agreements provide for
reimbursement of real estate taxes, insurance, common area maintenance costs and
indexed rental increases, which are recorded on an accrual basis.
Real Estate
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to forty years for buildings and improvements.
Tenant improvements, which are included in buildings and improvements, are
amortized on a straight-line basis over the term of the relevant lease.
Cash Equivalents
The Company considers highly liquid investments with a maturity of
three months or less when purchased, to be cash equivalents.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 2. Description of Business and Significant Accounting Policies (Continued)
Deferred Costs
Leasing fees and loan costs are capitalized and amortized over the life
of the relevant lease or loan.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, the
alternative fair value accounting provided for under Financial Accounting
Standard Board ("FASB") Statement No. 123, "Accounting for Stock-Based
Compensation, ("SFAS 123") requires use of option valuation models that were not
developed for use in valuing employee stock options.
The Company established a stock option plan (the "Plan") for the
purpose of attracting and retaining executive officers, directors and other key
employees. Five Hundred Thousand (500,000) of the Company's authorized shares of
Common Stock have been reserved for issuance under the Plan. The Plan is
administered by a committee of the Board of Directors, which committee will,
among other things, select the number of shares subject to each grant, the
vesting period for each grant and the exercise price (subject to applicable
regulations with respect to incentive stock options) for the options. As of
March 31, 2001, no options have been granted under the Plan.
Earnings Per Share
FASB Statement No. 128, "Earnings per Share", ("SFAS 128") was issued
and adopted by the Company during 1997. SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Since the Company has no potentially dilutive securities outstanding,
basic and diluted net income per share in accordance with SFAS 128 are the same
and do not differ from amounts previously reported as net income per share
(primary earnings per share). Accordingly, basic and diluted net income per
share are computed using the weighted average number of shares outstanding
during the year.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 2. Description of Business and Significant Accounting Policies (Continued)
Earnings Per Share (Continued)
Basic and diluted net income per share are based on the weighted
average number of shares outstanding (692,111 for the three months ended March
31, 2001 and 942,111 for the three months ended March 31, 2000). Dividends to
shareholders per share are based on the actual number of shares outstanding on
the respective dates.
In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130") which is effective for fiscal years beginning after
December 15, 1997. SFAS 130 established standards for reporting
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 130 requires that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The adoption of this standard
had no impact on the Company's financial position or results of operations.
Segment Reporting
In 1997, the FASB issued Statement No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") which is effective for
fiscal years beginning after December 15, 1997. SFAS 131 establishes standards
for reporting information about operating segments in annual financial
statements and in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The adoption of this standard had no impact on the Company's
financial position or results of operations. The Company owns all of the
interests in real estate properties through the Operating Partnership. The
Company has one segment.
Recent Pronouncements - Change in Accounting Policy
FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"), establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If a
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the changes in fair value
of the hedges asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. As of January 1, 2001, the hedge was
written-down to fair value with a cumulative effect of change in accounting
principle adjustment of $6,014, which is net of the operating partnership's
share of $14,723.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 2. Description of Business and Significant Accounting Policies (Continued)
Recent Pronouncements (Continued)
In June 1999, the FASB issued Statement No. 137, amending SFAS 133
which extended the required date of adoption to the years beginning after June
15, 2000. The Statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Company adopted the new Statement effective
January 1, 2001.
Income Taxes
The Company generally will not be subject to federal income taxes as
long as it qualifies as a REIT under Sections 856-869 of The Internal Revenue
Code of 1986, as amended (the "Code"). A REIT will generally not be subject to
federal income taxation on that portion of income that qualifies as REIT taxable
income and to the extent that it distributes such taxable income to its
stockholders and complies with certain requirements of the Code relating to
income and assets. As a REIT, the Company is allowed to reduce taxable income by
all or a portion of distributions to stockholders and must distribute at least
90% of its REIT taxable income to maintain qualification as a REIT. As
distributions for federal income tax purposes have exceeded REIT taxable
income, no federal income tax provision has been made.
Impairment of Long-Lived Assets
The Company's real estate assets are reviewed for impairment whenever
events or changes in circumstances indicate that the net carrying amount may not
be recoverable. When such events occur, the Company measures impairment by
comparing the carrying value of the long-lived asset to the estimated
undiscounted future cash flows expected to result from use of the assets and
their eventual disposition. If the sum of the expected undiscounted future cash
flows is less than the carrying amount of the assets, the Company would
recognize an impairment loss. Management during the quarter ended June 30, 2000
recognized a $203,979 impairment loss related to the Corporate Center East
property. No provision was required during the quarter ended March 31, 2001.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 2. Description of Business and Significant Accounting Policies (Continued)
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents: The carrying amounts of cash and cash
equivalents approximate their fair values.
Mortgage loan payable: The fair value of the mortgage loan payable is
estimated utilizing discounted cash flow analysis, using interest rates
reflective of current market conditions and the risk characteristics of the
loans.
Interest Cap: The fair value of the interest rate cap approximates its
carrying value.
Note 3. Real Estate and Accumulated Depreciation
The Company's properties are leased to various tenants, whereby the
Company incurs normal real estate operating expenses associated with ownership.
Note 4. Real Estate Held For Sale
In 2000 the Company received an offer of $1,850,000 for the sale of
this 25,200 s.f. Bloomington, Illinois office facility. The offer was subject to
a thirty (30) day purchaser "due diligence" period. If concluded, the sale would
have occurred on or before September 1, 2000 and brokerage fees in the amount of
$50,000 would have been payable to an outside broker. The proposed purchaser of
the subject office facility elected not to proceed with the acquisition. The
property then had 3,917 s.f. (16%) vacant and a 8,309 s.f. (33%) tenant in
default and in arrears of its rent payments. The property's book value at that
time was $2,053,979. In accordance with FASB Statement No. 121, "Accounting for
the Impairment of Long Lived Assets to be Disposed Of", the Company reduced the
carrying value of the asset to its estimated fair value. Accordingly, an
impairment loss of approximately $204,000 was recorded in the second quarter of
2000. The asset was reclassified to "Real Estate Held For Sale". The Company is
still actively marketing this property for sale.
The Company engaged the services of a national brokerage company to
assist in seeking to sell Broadbent Business Center. The Company has received
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 4. Real Estate Held For Sale (Continued)
and accepted an offer to purchase the property for $5,300,000. The property's
(depreciated cost basis) book value as of March 31, 2001 is approximately
$3,200,000, resulting in an estimated potential gain after certain legal and
brokerage fees of approximately $1,800,000. Upon such sale of Broadbent, the
Company will be obligated to pay a brokerage commission in the amount of 5% of
the sales price. The Contract of Sale was executed by both parties as of March
7, 2001. The closing date is expected to be on or about May 15, 2001. The
Company expects to defer recognition of the gain for federal income tax purposes
under Section 1031 of the Internal Revenue Code.
Note 5. Mortgage Loan Payable
On October 30, 1992, the Company borrowed $1,500,000 to finance an
existing property. The Company paid off the mortgage loan on May 10, 2000 with a
drawdown on its commercial bank line of credit. The total due to the mortgagee
was $1,358,789 which amount was net of the real estate tax escrow and included
accrued interest and a 3% pre-payment penalty of $40,104. Such prepayment
penalty along with unamortized loan fees were included in the Consolidated
Statement of Operations as an extraordinary item.
On July 1, 2000, The Point Shopping Center was encumbered by a first
mortgage loan in the amount of $9,300,000. On November 17, 2000, The Point
increased its first mortgage from $9,300,000 to $17,900,000. The proceeds of
which are to be used for the redevelopment of the shopping center. Included in
restricted cash are the reserve and escrow accounts associated with the loan.
Deferred financing costs of $519,774 (net of accumulated amortization) are
attributable to The Point loan. As a result, the Company has $5,944,365 of cash
restricted for interest, taxes and future tenant improvements.
As discussed in Note 1, the Company has a $10,000,000 line of credit,
of which $1,515,644 was outstanding at March 31, 2001. There were $404,938 in
deferred financing costs incurred on this loan. Any further drawdowns on the
line of credit are subject to restrictions which may limit the Company's ability
to obtain additional drawdowns under the line of credit.
Note 6. Related Party Transactions
Advisory Services
The Company does not have any employees and has contracted with Cedar
Bay Realty Advisors, Inc., a New York corporation ("CBRA"), to provide
administrative, advisory, acquisition and divestiture services to the Company
pursuant to an Administrative and Advisory Agreement (the "Advisory Agreement")
entered into in April 1998, and amended as of August 21, 2000. CBRA is wholly
owned by Mr. Ullman. Mr. Ullman is President and a director of, and Brenda J.
Walker is Vice President of, CBRA. Mr. Ullman is President and Chairman of the
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 6. Related Party Transactions (Continued)
Company. The term of the amended Advisory Agreement is for five (5) years and is
automatically renewed annually thereafter for additional one-year periods,
subject to the right of a majority of independent directors to cancel the
Advisory Agreement upon sixty (60) days' written notice.
Further, such Advisory Agreement may be terminated (i) for cause upon
not less than sixty (60) days' written notice and (ii) by vote of at least 75%
of the independent directors at the end of the third or fourth year of such five
year term in the event gross assets fail to increase by 15% per annum.
CBRA has agreed to defer certain acquisition fees to which it may
otherwise be entitled with respect to the possible acquisition by the Company or
the Operating Partnership of certain properties owned by CBC and/or its
affiliates. This includes acquisition fees otherwise payable with respect to the
purchase by the Operating Partnership of its 50% interest in The Point
Associates, L.P. Further, CBRA has agreed to defer certain fees otherwise
payable with respect to the sale in 2000 of the Operating Partnership's interest
in a property in Germantown, Kentucky, as further described in the Form 10-K for
the year 2000.
Such deferred acquisition or disposition fees otherwise payable to CBRA
will be reduced to 50% if the Administrative Advisory Agreement with CBRA is
continued beyond December 31, 2004 and by an additional 10% for each year such
agreement remains in effect thereafter.
Under the Advisory Agreement, CBRA is obligated to: (a) provide office
space and equipment, personnel and general office services necessary to conduct
the day-to-day operations of the Company; (b) select and conduct relations with
accountants, attorneys, brokers, banks and other lenders, and such other
parties as may be considered necessary in connection with the Company's business
and investment activities, including, but not limited to, obtaining services
required in the acquisition, management and disposition of investments,
collection and disbursement of funds, payment of debts and fulfillment of
obligations of the Company, and prosecuting, handling and settling any claims of
the Company; (c) provide property acquisition and disposition services,
research, economic and statistical data, and investment and financial advice to
the Company; and (d) maintain appropriate legal, financial, tax accounting and
general business records of activities of the Company and render appropriate
periodic reports to the Directors and stockholders of the Company and to
regulatory agencies, including the Internal Revenue Service, the Securities and
Exchange Commission, and similar state agencies.
CBRA receives fees for its administrative and advisory services as
follows: (a) a monthly administrative and advisory fee equal to 1/12 of 3/4 of
1% of the estimated current value of real estate assets of the Company, plus
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 6. Related Party Transactions (Continued)
1/12 of 1/4 of 1% of the estimated current value of all other assets of the
Company; (b) an acquisition fee equal to 5% of the gross purchase price (before
expenses and without deducting indebtedness assumed) of any real property
acquired during the term of the Advisory Agreement; provided that the total of
all such acquisition fees plus acquisition expenses in connection with the
purchase of any real property shall be reasonable and shall not exceed 6% of the
amount paid or allocated to the purchase, development, construction or
improvement of a property, exclusive of acquisition fees and acquisition
expenses; and (c) a disposition fee equal to 3% of the gross sales price (before
expenses but without deducting any indebtedness against the property) of any
real property disposed of during the term of the Advisory Agreement; provided
that no disposition fee shall be paid unless and until the stockholders have
received certain distributions from the Company. In addition, CBRA may receive
one-half of the brokerage commission on such a disposition but only up to 3% of
the price actually paid for the property, subject to certain limitations. Those
fees are essentially the same as those previously applicable under the
Administrative and Advisory Agreement between the Company and AEGON U.S.A.
Realty Advisors, Inc. ("AEGON") from the date of formation until April 3, 1998.
The Company paid $24,468 in administrative fees during the quarter ended March
31, 2001. A disposition fee for the sale of Germantown in the amount of $22,500
was paid to CBRA during the second quarter of 2000. No incentive or acquisition
fees were paid during the first quarter of 2001.
Management Services
Brentway Management LLC, a New York limited liability company
("Brentway"), provides property management and leasing services to the Company's
real properties pursuant to a Management Agreement entered into in April 1998
(the "Management Agreement"). Brentway is owned by Mr. Ullman and Ms. Walker,
who are also Chairman and President of Brentway, respectively. Mr. Ullman is
President and Chairman of the Company. The term of the Management Agreement is
for one (1) year and is automatically renewed annually for an additional one (1)
year subject to the right of either party to cancel the Management Agreement
upon sixty (60) days' written notice. Under the Management Agreement, Brentway
is obligated to provide property management services, which include leasing and
collection of rent, maintenance of books and records, establishment of bank
accounts and payment of expenses, maintenance and operation of property,
reporting and accounting the Company regarding property operations, and
maintenance of insurance. All of the duties of Brentway are to be fulfilled at
the Company's expense, provided, however, that the Company is not required to
reimburse Brentway for personnel expenses other than for on-site personnel at
the properties managed. Brentway receives fees for its property management
services as follows: with the exception of The Point, a monthly management fee
equal to 5% of the gross income from properties managed and leasing fees of up
to 6% of the rent to be paid during the term of the lease procured. In the case
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
Unaudited
Note 6. Related Party Transactions (Continued)
of The Point, the monthly management fee is equal to 3% of the gross income and
the leasing fees are limited to 4.5% of the rent to be paid during the term of
the lease procured.
Brentway was paid $21,218 in property management fees and no leasing
fees during the first quarter of 2001. Leasing fees paid by the Company during
the first quarter of 2001 were paid to third parties. Brentway has subcontracted
with various local management companies for site management and leasing services
for the Company's office properties.
Schedule of Management, Administrative and Advisory and Leasing Fees
January 1 - January 1 -
March 31, 2001 March 31, 2000
-------------- --------------
Management Fees
AEGON $ -- 6,556
Brentway 21,218 28,180
Leasing Fees
AEGON 552
Administrative and Advisory
CBRA 24,468 24,468
Uni-Invest Holdings (U.S.A.) B.V -- 25,000
Legal
SKR 2,138 525
Fees of $2,138 were paid to Stuart H. Widowski, Esq., SKR Management
Corp.'s in-house counsel and Secretary of the Company, through SKR, an affiliate
of CBRA, Brentway, CBC and Leo S. Ullman, for legal services provided.
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
historical financial statements of the Company and related notes.
Results of Operations
The Company owns office, office/warehouse, and retail properties in
four U.S. cities. The Company's properties continue to compete with centers and
office buildings of similar size, tenant mix and location. As of March 31, 2001,
the combined lease occupancy of the Company's three office properties (Corporate
Center East, Southpoint Parkway Center and Broadbent Business Center) was
approximately 84%. The Company's fourth property, The Point Shopping Center,
is currently undergoing a redevelopment, including construction of a new 54,000
square foot Giant Food store, the elimination of approximately 100,000 square
feet of internal mall area, and construction of a number of new stores. Upon
completion, expected in September 2001, the center will measure approximately
260,000 rentable s.f. and will be approximately 88% occupied. Operating results
in the forthcoming year will be influenced by the ability of current tenants to
continue paying rent, and the Company's ability to renew expiring tenant leases
and obtain new leases at competitive rental rates.
Rental income for the three months ended March 31, 2001 was $875,635
compared to $655,892 for the corresponding period in 2000. This increase is
attributable to the additional rental income generated by the acquisition of The
Point as of July 1, 2000, and offset, in part, by the sale of Germantown.
Interest income increased by approximately $67,000 due to the
additional escrow funds made available by the November 2000 mortgage refinancing
of The Point.
Total property expenses, excluding depreciation and amortization, were
$350,430 for the three month period ended March 31, 2001, compared to $216,863
for the corresponding period in 2000, an increase of approximately $130,000.
This increase is attributable to the additional expenses generated by the
acquisition of The Point in July 2000.
Net loss before cumulative effect adjustment for the three month period
ended March 31, 2001 was $(2,617) (($0.01) per share) compared to a net income
of $63,575 ($0.07 per share) for the corresponding period in 2000. This decrease
is primarily attributable to the increase in interest, amortization, and
financing costs associated with the $10 million line of credit and the November
2000 mortgage refinancing of The Point.
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources
The Company's capital resources consist of its current equity in real
estate investments (carrying value less mortgage indebtedness). The Company
maintains the real estate in good condition and provides adequate insurance
coverage. The Company's redevelopment costs for one Pennsylvania Shopping Center
are being funded by the Company's existing tenant reserve funds.
Real estate before deduction for accumulated depreciation equals $10.31
per share/OP Unit based on shares/OP Units outstanding as of March 31, 2001.
Real Estate at cost, less accumulated deductions for depreciation equals $9.14
per share/OP Unit on shares/OP Units outstanding as of March 31, 2001.
The Company's liquidity at March 31, 2001 represented by cash and cash
equivalents was $1,072,881 compared to $841,111 at December 31, 2000, an
increase of $231,770. This increase is a result of the dividend/distribution
suspension in December 2000.
Net cash provided by operating activities, as shown in the Statements
of Cash Flow, was $274,229 for the quarter ended March 31, 2001, compared to
$328,425 for the corresponding period in 2000. This decrease of approximately
$54,000 is attributable to the decline in net income resulting from expenses
relating to the $10 million line of credit.
The Company has entered into an agreement dated March 7, 2001 to sell
the Broadbent Business Center, Salt Lake City, Utah, to Business Property Trust
for $5,300,000. In the event that sale is successfully concluded, the Company
would expect to receive approximately $4.9 million in net proceeds of sale after
payment of closing costs and commissions. Of that amount, the Company would
expect to pay off the then-outstanding principal balance of the amounts
outstanding under the Company's line of credit with KeyBank in the approximate
amount of $1,500,000. Of the then-remaining approximately $3,400,000, the
Company would expect to invest approximately $2,000,000-$2,500,000 for the
purchase of three shopping centers in Pennsylvania and New Jersey, in accordance
with discussions presently pending. The balance of cash received would be
expected also to be invested in the acquisition of suitable properties, probably
retail properties in the Midlantic area and perhaps Michigan, pursuant to other
negotiations presently pending. It is further expected that the sale of the
Broadbent Business Center property and the purchase of other properties would be
structured in a manner to defer federal and state income taxes on any gain which
might otherwise be recognized for tax purposes on the sale of the Broadbent
property through the use of escrow mechanisms and otherwise in accordance with
the provisions of Section 1031 of the Internal Revenue Code and regulations
thereto.
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
As of January 1, 2001, the Company is required to distribute at least
90% of its "REIT taxable income", as defined in the Internal Revenue Code, to
continue qualification as a real estate investment trust. Subject to the current
90% test described above (95% in 2000), as of December 2000, the Board of
Directors of the Company voted unanimously to suspend payment of any dividend on
shares and distributions on operating partnership units for the four quarterly
periods from July 1, 2000 through June 30, 2001. The Company has distributed
amounts during the last two calendar years significantly in excess of both
distributions required under applicable rules and the Company's net income.
Inflation
Low to moderate levels of inflation during the past few years have
favorably impacted the Company's operations by stabilizing operating expenses.
At the same time, low inflation has the indirect effect of reducing the
Company's ability to increase tenant rents. The Company's properties have
tenants whose leases include expense reimbursements and other provisions to
minimize the effect of inflation. These factors, in the long run, are expected
to result in more attractive returns from the Company's real estate portfolio as
compared to short-term investment vehicles.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company uses an interest rate cap to reduce the Company's exposure
to interest rate fluctuations on a certain variable rate loan. The intention is
for the cap agreement to be held to maturity and the Company does not use
derivative financial instruments for trading purposes.
The Company is exposed to changes in interest rates primarily from its
floating debt arrangements. The Company's primary strategy is to protect against
this risk by using derivative transactions as appropriate to minimize the
variability that floating rate interest fluctuations could have on cash flow. In
November 2000, the Company through a subsidiary it controls, entered into an
interest rate cap agreement effective December 1, 2000 with a financial
institution for a notional amount of $17,900,000 to hedge against unfavorable
fluctuations in the LIBOR rates of its secured mortgage loan facility. The hedge
has a 7.5% fixed rate and expires on June 1, 2002. As of March 31, 2001, the
hedge effectively has no value and has been adjusted in accordance with SFAS 133
(See Note 2 to the Consolidated Financial Statements).
Cedar Income Fund, Ltd.
Item 3. Quantitative and Qualitative Disclosures about Market Risk (Continued)
Because of the Company's minimal use of derivatives, management does
not anticipate that the adoption of the new Statement will have a significant
effect on earnings or on the financial position of the Company.
The following table sets forth the Company's long-term debt
obligations, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value ("FMV") at March 31, 2001.
Expected Maturity Date
2001 2002 2003 Total FMV
- -------------------------------------------------------------------------------------------------------------
Variable Rate Debt: -- $19,415,644 -0- $19,415,644 $19,415,644
Average Interest Rate 9.656% 9.656% 9.656%
Cedar Income Fund, Ltd.
Part II Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
Cedar Income Fund, Ltd.
CEDAR INCOME FUND, LTD.
March 31, 2001
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 INCOME FUND, LTD.
By: /s/ Leo S. Ullman By: /s/ Brenda J. Walker
- ------------------------------ -------------------------------
Leo S. Ullman Brenda J. Walker
President Vice President and Director
(principal executive officer) (principal financial officer)
By: /s/ Ann Maneri
-------------------------------
Ann Maneri
Controller
(principal accounting officer)
May 11, 2001