UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001; Commission file number 0-14510
CEDAR INCOME FUND, LTD.
(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 Number)
44 South Bayles Avenue, #304, Port Washington, NY 11050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 767-6492
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $0.01 par value The NASDAQ Stock Market
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 X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sales price on March 18, 2002 of $4.74 per share, the
aggregate market value of the voting stock held by non-affiliates of the
registrant was $2,369,877.
----------
The number of shares outstanding of the registrant's Common Stock $.01 par value
was 692,111 on March 18, 2002.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
1
TABLE OF CONTENTS
Item No.
- --------
PART I
1. Business...........................................................
2. Properties.........................................................
3. Legal Proceedings..................................................
4. Submission of Matters to a Vote of Security Holders................
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................
6. Selected Financial Data............................................
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................
7(a). Quantitative and Qualitative Disclosures about Market Risk.........
8. Financial Statements and Supplemental Data.........................
9. Changes in, and Disagreements with Accountants on, Accounting
and Financial Disclosure..................................
PART III
10. Directors and Executive Officers of the Registrant.................
11. Compensation of Directors and Executives...........................
12. Security Ownership of Certain Beneficial Owners and
Management................................................
13. Certain Relationships and Related Party Transactions...............
PART IV
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................
15. Signatures........................................................
2
Part I.
Item 1. Business
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, following a tender offer completed in
April 1998, for the purchase of the Company's shares by Cedar Bay Company
("CBC"), the Company was reorganized as a Maryland corporation and included in
an "umbrella partnership REIT" structure through the contribution of
substantially all of its assets to a Delaware limited partnership (the
"Operating Partnership"). (See Note 1 to the Consolidated Financial Statements).
Following these transactions, the Company's assets consisted primarily of the
controlling general partnership interest of the Operating Partnership and
approximately 24% of the limited partnership interests ("Units") in the
Operating Partnership.
The Company continues to operate as a REIT. To qualify as a REIT under
applicable provisions of the Internal Revenue Code, 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
(primarily shopping center) real estate investments which will provide the best
available cash flow and present an opportunity for capital appreciation.
As the Company's principal assets consist of its general and limited
partnership interests in the Operating Partnership, and as the Operating
Partnership owns all the real property interests, including partial ownership
interests, where applicable, the consolidated financial statements of the
Company and of the Operating Partnership will evidence the assets, equity, net
worth, income and losses attributable to their combined operations and financial
position.
The Company as of December 31, 2001, had 692,111 shares outstanding; in
addition, 1,703,300 Units of the Operating Partnership, convertible into shares
of common stock of the Company on a one-to-one basis, were held as of December
31, 2001, by CBC, as sole limited partner. 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.
The Company's shares are traded on the NASDAQ (Small Cap) Market under
the symbol "CEDR".
During the years 2000 and 2001, the Company sold three of the four
original properties, acquired by the Company and held in each case for
approximately 15 years, and reinvested the net proceeds, together with certain
newly-borrowed funds, in certain supermarket-anchored shopping centers, as
described below. This marked a change of focus away from the prior concentration
in office and office/warehouse properties dispersed throughout the United States
(Utah, Illinois, Kentucky and Florida) to retail properties, primarily
supermarket-anchored shopping centers, in Pennsylvania and New Jersey.
3
The Company, through its Operating Partnership, as of the date of this
filing owns and operates one office property of approximately 79,000 sq. ft.,
located in Jacksonville, Florida (which it has owned for nearly 15 years and for
which a contract of sale is presently pending), three supermarket-anchored
shopping center properties aggregating approximately 470,000 sq. ft. (two in
Philadelphia, Pennsylvania and the third in Sewell, New Jersey) which the
Company acquired in October 2001, and a 50% sole general partnership interest in
a partnership owning a supermarket-anchored shopping center property of
approximately 260,000 sq. ft. located in Harrisburg, Pennsylvania, which the
Company acquired in July 2000.
The Operating Partnership has entered into agreements to purchase (i)
an approximate 7 acre parcel of land in Fort Washington, Pennsylvania, on which
it has agreed to build a 41,000 sq. ft. health club facility, net-leased
pursuant to an executed lease agreement to L.A. Fitness International, L.L.C.;
(ii) subject to mortgagee approval of the assumption of existing first mortgage
financing, a 293,000 sq. ft. supermarket-anchored shopping center in north
central Pennsylvania; and (iii) subject to a fairness opinion, a 20% sole
general partnership interest in a partnership owning a 220,000 sq. ft. shopping
center in Philadelphia, Pennsylvania presently owned by an affiliate of CBC.
The Fort Washington development is expected to be financed with a
third-party construction loan, which, upon completion of construction, will
become a permanent loan, of $5 million (the aggregate term of the loan including
the construction period will be five years), third-party participating equity of
$1 million, approximately $1.7 million from the tenant and approximately
$300,000 in equity contributions from the Company out of currently available
cash. The supermarket-anchored center is expected to be acquired by assumption
of existing third-party financing of approximately $14 million, $4 million from
a third-party participating equity co-venturer, and $1.4 million from the
Company's currently available cash. The 20% sole general partnership interest
will be purchased in four equal annual installments of approximately
$300,000-$400,000 each, again from currently available cash.
Prior to the reorganization in 1998, the Company had gross assets of
approximately $15 million and a total of slightly less than 300,000 rentable sq.
ft. of properties. As of December 31, 2001, and as a result of a total of the
acquisitions described above, the Company had gross assets of approximately
$68.6 million and interests in properties of more than 800,000 rentable sq. ft.
in the aggregate. As further described below, the Company has financed such
acquisitions with considerable third-party financings secured by the properties.
The Company competes with other public and private real estate owners
and developers for new acquisitions. Many of such other entities have greater
available financial resources than the Company with which to conclude such
acquisitions. The Company has relied, and expects to continue to rely, to a very
considerable extent on third-party lenders and equity sources to fund most of
the purchase price for new acquisitions.
The Company's properties also compete with other shopping centers (or
office buildings in the case of Southpoint) for tenants within the same
geographic marketplace. The Company's ability to attract new tenants and keep
existing tenants may be affected by its ability to fund tenant improvements, to
grant rent concessions, or to pay commissions for new tenants or current tenants
seeking to expand or extend their tenancies. Also, the Company's capacity to pay
for capital improvements to periodically upgrade/modernize the shopping centers
(or office building) may affect its ability to attract and retain tenants.
4
The Company has not been required to make any material capital
expenditures for environmental compliance.
Neither the Company nor the Operating Partnership has any employees.
Both are advised and administered (managed) by a separate management company
with employees who conduct the various activities of the Company and the
Operating Partnership, as further discussed below. The Company and the Operating
Partnership are thus referred to generally as an "advised" REIT (and/or
Operating Partnership) rather than a "self-administered" REIT (and/or Operating
Partnership). Cedar Bay Realty Advisors, Inc., a New York corporation ("CBRA"),
serves as investment advisor to the Company (and the Operating Partnership)
pursuant to an Administrative and Advisory Agreement with the Company which
generally provides for certain asset management fees and acquisition/disposition
fees. Brentway Management LLC ("Brentway"), a New York limited liability company
provides property management, leasing, construction management and loan
placement services for the Company's (and the Operating Partnership's)
properties pursuant to a Management Agreement with the Company on terms
generally applicable in the industry. SKR Management Corp., a New York S
corporation ("SKR") provides certain legal services to the Company through its
in-house counsel and Secretary of the Company, Stuart H. Widowski. CBRA and SKR
are wholly-owned by Leo S. Ullman. Brentway is owned by Leo S. Ullman and Brenda
Walker. Leo S. Ullman is President and Chairman of the Board of the Company and
of the corporate partners of CBC. Brenda Walker is Vice President and a Director
of the Company and Vice President of the corporate partners of CBC. The terms of
the Administrative and Advisory Agreement and Management Agreement are further
discussed in Note 7 to the Consolidated Financial Statements and in Item 13.
5
Item 2. Properties
Retail Properties
The Point Shopping Center
Harrisburg, Pennsylvania
In July 2000, the Operating Partnership purchased a 50% general
partnership interest in The Point Associates, L.P., the partnership entity that
owns The Point Shopping Center, Harrisburg, Pennsylvania ("The Point") for
$2,100,000 plus closing adjustments of approximately $385,000, above
then-existing first mortgage financing of approximately $9.3 million.
The Operating Partnership has the right to acquire an additional 39%
partnership interest from the limited partner at any time at a price equal to
the fractional interest to be acquired, multiplied by ten times net operating
income, less the outstanding first mortgage debt. The limited partner is
prohibited from selling its remaining interest in The Point Associates, L.P.
without first offering to sell such interest to the Operating Partnership based
upon the aforementioned formula.
The Point Shopping Center has been redeveloped during the past two
years into approximately 260,000 sq. ft. of retail space as the result of the
construction of a new Giant supermarket of approximately 55,000 sq. ft. The
Giant supermarket lease required, among other things, construction of the new
Giant premises, demolition and reconstruction of certain then-existing portions
of the shopping center, relocation of certain then-existing tenants, new stores
for certain new tenants, installation of a new traffic signal, development of a
new pad site for a bank, reconfiguration/installation of new drainage systems,
and repaving of the parking lot. Except for interior tenant finishes,
redevelopment of The Point is substantially complete at this time.
As of December 31, 2001, the first mortgage loan balance on The Point
was $17.9 million. New first mortgage financing is expected to be concluded for
The Point during the second quarter of 2002 in a maximum amount of $20.75
million with a holdback of $1 million pending lease-up of an additional 22,600
sq. ft. of rentable space of the center (consisting of an expanded former drug
store space) at a minimum annual rental of $316,400 with the tenant in place and
paying rent within two years of the effective date of the new loan. Net proceeds
of such refinancing will be used primarily to retire existing debt on The Point.
As of December 31, 2001, The Point represented approximately 31% of
the Operating Partnership's total assets, and approximately 45% of its revenues.
Also as of that date, the property was 92% leased to 16 tenants with terms
ranging from 9 months to 20 years (not including renewal options) and annual
base rents ranging from $4.50 to $24.00 per sq. ft..
6
Academy Plaza and Port Richmond Village, Philadelphia, Pennsylvania
Washington Center Shoppes and 304 Greentree Road, Sewell, New Jersey
In October 2001, the Operating Partnership purchased three
supermarket-anchored shopping center properties and a certain land parcel for an
aggregate purchase price of $35,034,353 plus closing costs, adjustments, and
reserves of approximately $2.8 million.
The properties purchased at that time are the following:
o Academy Plaza, Philadelphia, Pennsylvania - a 154,836 sq. ft. community
shopping center anchored by a 50,000 sq. ft. Acme supermarket, at a contract
purchase price of $11,607,515; subject to then-outstanding first mortgage
financing of approximately $10,715,000;
o Port Richmond Village, Philadelphia, Pennsylvania - a 156,471 sq. ft.
community shopping center anchored by a 40,000 sq. ft. Thriftway
supermarket, at a contract purchase price of $14,216,502; subject to
then-outstanding first mortgage financing of approximately $11,610,000;
o Washington Center Shoppes, Sewell, New Jersey - a 157,146 sq. ft. community
shopping center anchored by a 66,046 sq. ft. Acme supermarket, at a contract
purchase price of $8,960,336; subject to then-outstanding first mortgage
financing of approximately $5,986,000; and
o 304 Greentree Road, Sewell, New Jersey - a development parcel of
approximately 34,500 sq. ft., adjacent to the Washington Center Shoppes, at
a contract purchase price of $250,000 (unencumbered).
The balance of the purchase price for the properties above the
respective first mortgage balances was funded primarily with approximately
$3,365,000 of the net proceeds of the sale of the Broadbent Business Center in
Salt Lake City, Utah completed on May 22, 2001, and financing in the amount of
$6 million made available by SWH Funding Corp. of Hackensack, New Jersey
("SWH"). Such financing is secured, among other things, by a first mortgage on
Southpoint Parkway Center, Jacksonville, Florida ("Southpoint") (see discussion
below). The Southpoint property was unencumbered immediately prior to such
financing. Approximately $150,000 of additional monies required at closing were
funded from available cash.
A wholly-owned subsidiary of SWH and the Operating Partnership have
together formed Cedar Center Holdings L.L.C. 3, which, in turn, is the sole
member of each of the four limited liability companies which own, indirectly
through other limited liability companies, the three shopping center properties
and development parcel acquired by the Operating Partnership in October 2001.
SWH has no interest in profits or assets of Cedar Center Holdings L.L.C. 3;
however, SWH has the right to acquire operating control of the above mentioned
three shopping center properties in the event of a default by the Operating
Partnership or its affiliates of certain terms of the SWH financing.
As additional security for the SWH financing, the Operating Partnership
has pledged to SWH its rights to distributions from the entity which controls
the limited liability companies which own each of the three shopping center
properties. Under the pledge, SWH has no rights to such distributions unless and
until an event of default occurs.
As a result of the SWH financing and the related mandatory payments
discussed below, Southpoint, a 79,000 sq. ft. office property in Jacksonville,
Florida has been actively marketed for sale and was classified as "real estate
held for sale" effective October 9, 2001. A contract for the sale of Southpoint
to an unrelated party for $4.7 million is pending as of the date of this filing.
7
The SWH financing arrangements involve a term of three years, maturing
November 1, 2004, with a right to extend for two additional eighteen-month
periods upon payment of certain fees, and subject to certain additional minimum
monthly and annual or "back-end" payments, and to certain additional
participations in gain in value payable at the earliest of the repayment date,
maturity or the date of sale of the three shopping center properties described
above.
Payments to SWH pursuant to the financing arrangements are at a rate of
12.5% per annum on the outstanding balance. In addition, an "equity fee" in an
amount equal to the greater of $350,000 or 10% of the gain in value of the
properties as determined by appraisal is payable at maturity. Further, SWH shall
be entitled to "exit fees" of $120,000 if the entire principal is paid prior to
October 2002; thereafter, additional amounts accrue at 1/3% per month during the
period October 2002 - November 2004; 1/2% per month during the extension period
from November 2004 - November 2005; and 2/3% per month during the extension
periods from November 2005 - November 2007. A loan fee of $225,000 was paid to
SWH at closing.
Amortization payments of $10,000 are required during each of the first
three months, $20,000 for each of the 4th through 6th months, $35,000 for each
of the 7th through the 12th months, $45,833.33 for the 13th through the 24th
months, and $41,666.67 for the 25th through the 36th months. Those payments, as
and when required, are expected to be made out of cash flow. In addition there
is a mandatory payment of $4.5 million due on or prior to the 12th month,
November 2002. An additional mandatory payment of $300,000 is required on or
prior to the 18th month, May 2003. The payments are expected to be met largely
from a combination of (i) net proceeds from the currently-pending sale of
Southpoint as further discussed below, (ii) $2.8 million of cash and cash
equivalents presently on hand, (iii) drawdowns on a $1 million line of credit ,
(iv) net proceeds of sales of partial interests in one or more of the Company's
other properties and (v) net proceeds of the pending refinancing of The Point's
mortgage loan.
The obligations of the Operating Partnership under the SWH financing
agreement are guaranteed by the Company.
As of December 31, 2001, Academy Plaza represented approximately 19% of
the Operating Partnership's total assets, and approximately 10% of its revenues.
Also as of that date, the property was 95% leased to 35 tenants with terms
ranging from month-to-month to 16 years (not including renewal options) and
annual base rents ranging from $1.25 to $35 per sq. ft.
As of December 31, 2001, Port Richmond Village represented
approximately 24% of the Operating Partnership's total assets, and approximately
11% of its revenues. Also as of that date, the property was 88% leased to 29
tenants with terms ranging from month-to-month to 7 years (not including renewal
options) and annual base rents ranging from $3.28 to $25.00 per sq. ft.
As of December 31, 2001, Washington Center represented approximately
15% of the Operating Partnership's total assets, and approximately 8% of its
revenues. Also as of that date, the property was 95% leased to 28 tenants with
terms ranging from month-to-month to 18 years (not including renewal options)
and annual base rents ranging from $1.95 to $17.53 per sq. ft.
8
Office Property
Southpoint Parkway Center
Jacksonville, Florida
The Southpoint property was purchased in May 1986 for $6,505,495 in
cash. Capital expenditures made since the purchase date have increased the
property's recorded cost to $8,371,700. Southpoint is a single-story office
service center consisting of approximately 79,010 sq. ft. of net leaseable area
on approximately 11.73 acres which includes 467 parking spaces. Southpoint
represented approximately 8% of the Company's total assets at December 31, 2001,
and provided approximately 21% of its revenue.
At December 31, 2001, Southpoint was 86% leased to nine tenants with
remaining terms ranging from one month to five years (not including renewal
options) and annual base rents ranging from $11.00 to $18.46 per sq. ft.
A contract of sale for Southpoint in the amount of $4.7 million,
entered into as of February 1, 2002, is presently pending. The deposit on the
contract became non-refundable as of March 20, 2002. The sale is expected to be
completed during the second quarter of 2002. Net proceeds of the sale are
expected to be approximately $4,400,000, after credits to purchaser for certain
tenant and capital improvements in the aggregate amount of approximately
$25,000, and after deduction of sales costs of $273,000, including estimated
commissions of $169,000, legal fees of $10,000 and a disposition fee payable to
CBRA in the amount of $47,000.
SWH has agreed to accept payment of the net proceeds from the pending sale of
Southpoint, in lieu of the mandatory payment of $4,500,000 otherwise payable on
or before the twelfth loan month, in reduction of the then-outstanding principal
balance of its loan pursuant to the terms of its loan agreement, as generally
described above. The remaining balance of amounts otherwise payable to SWH will
remain payable pursuant to the financing agreement in accordance with its terms
as generally described above.
Properties Sold in 2001
Broadbent Business Center
Salt Lake City, Utah
On May 22, 2001, the Operating Partnership sold its interest in the
Broadbent Business Center, Salt Lake City, Utah ("Broadbent") for $5.3 million.
The Operating Partnership incurred closing expenses of approximately $500,000,
including a broker's commission of $250,000, a "Rent Guarantee Deposit" of
$100,000, a disposition fee of $53,000 and legal and other closing adjustments
of approximately $100,000.
The net cost basis of Broadbent on the books of the Operating
Partnership as of the closing date was $3,210,723, resulting in a gain of
approximately $1.6 million during the quarter ended June 30, 2001.
9
Corporate Center East
Bloomington, Illinois
On June 28, 2001, the Operating Partnership sold its interest in
Corporate Center East, Bloomington, Illinois ("Corporate Center") for $1.86
million. The Operating Partnership incurred closing expenses of approximately
$86,000, including a broker's commission of $55,800 and legal and other closing
adjustments of approximately $30,000. The net sales proceeds received by the
Operating Partnership, after the aforementioned closing costs, and property
taxes of approximately $51,000, were approximately $1.72 million.
The net cost basis of Corporate Center on the books of the Operating
Partnership as of the closing date was approximately $2,000,000, net of an
impairment reserve of $203,979 recorded during the year ended December 31, 2000.
The net sales price, after closing costs and the write-off of deferred leasing
costs and prepaid expense of approximately $81,000, was $1,692,087 resulting in
a loss of approximately $300,000 during the quarter ended June 30, 2001.
10
Summary of Properties Presently Owned
Properties owned as of December 31, 2001 by the Company through the
Operating Partnership are summarized in the table below.
2001 Revenue
----------------------
Occupancy at
Name and Location Size (Sq. Ft) 12/31/01 Lease Expiration Amount Percent
- -----------------------------------------------------------------------------------------------------------------
Southpoint Parkway Center 79,010 86% 2002-2006 $1,025,290 21%
Jacksonville, Florida
The Point Shopping Center 260,000 92% 2002-2013 2,066,314 45%
Harrisburg, Pennsylvania
Port Richmond Village 156,471 88% 2002-2009 527,804 11%
Philadelphia, Pennsylvania
Academy Plaza 154,836 95% 2002-2018 459,130 10%
Philadelphia, Pennsylvania
Washington Center Shoppes 157,146 95% 2002-2020 373,577 8%
Washington Township, NJ (1)
- -----------------------------------------------------------------------------------------------------------------------------
Totals 807,463 $4,452,115 92% (2)(3)
(1) Includes an adjacent development parcel of approximately 34,500 sq. ft.
(2) Broadbent Business Center was sold on May 22, 2001, and accounted for
approximately 5% of total revenue in 2001.
(3) Corporate Center East was sold on June 28, 2001, and accounted for
approximately 2% of total revenue in 2001.
Item 3. Legal Proceedings
The Company is not a party to any pending legal proceeding which, in
the opinion of management, is material to the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Dividend Information
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. The Company paid no dividends in 2001.
11
The SWH financing arrangement restricts the Company's ability to make
distributions from the three supermarket-anchored shopping centers to the
Operating Partnership. The effect of such restriction, during the period the SWH
financing remains outstanding, is to limit the Company's ability to pay
dividends/distributions to shareholders/Unit holders during such period.
Where applicable, a Form 1099 is mailed to shareholders at the end of
each year reflecting the dividends paid by the Company in that year. The
percentages indicated below, multiplied by the amount of dividends paid for that
year, result in the amount to be reported for income tax purposes.
Dividend Character
2001 2000 1999
-----------------------------------------------------------
Ordinary
income 0% 28.07% 43.57%
Non-taxable
return of
capital 0% 71.93% 56.43%
Total 0% 100% 100%
Dividends
paid, per share $0 $0.30 $0.40
----------------------------------------------------------
Market Information
The Company had 692,111 shares of Common Stock outstanding to 505
shareholders of record at December 31, 2001. The Company's shares trade on the
NASDAQ under the symbol "CEDR".
12
The following table sets forth the high and low bid prices and
closing prices for each quarter for the Company's last two fiscal years. Prices
for shares of the Company reflect quotations between dealers without adjustment
for retail mark-ups, mark-downs or commissions and do not necessarily represent
actual transactions.
Market Price Range
Over-the-Counter Bid Prices
Quarter Ended High Low Close
- --------------------------------------------------------------------------
2001
March 31 3.31 3.31 3.31
June 30 3.50 3.45 3.50
September 30 7.94 4.60 6.50
December 31 4.25 4.25 4.25
2000
March 31 6.19 6.13 6.19
June 30 4.00 4.00 4.00
September 30 4.50 3.75 5.00
December 31 2.75 2.75 2.75
13
Item 6. Selected Financial Data
Years ended December 31,
2001 2000 1999 1998 1997
------------------------------------------------------------------------
REVENUE
Rents $ 4,816,868 $ 3,036,943 $ 2,413,958 $ 2,505,372 $ 2,386,549
Other - - 75,000 - -
Interest 281,897 178,838 26,329 59,653 81,309
------------------------------------------------------------------------
Total Revenue 5,098,765 3,215,781 2,515,287 2,565,025 2,467,858
------------------------------------------------------------------------
EXPENSES
Property expenses:
Payroll 71,065 23,966 - - -
Real estate taxes 494,348 308,386 258,597 262,761 233,160
Repairs and maintenance 435,093 247,896 273,253 252,320 385,806
Utilities 250,828 235,740 167,886 163,279 159,762
Management fee 186,283 127,826 124,358 126,520 130,084
Insurance 63,271 36,385 21,764 18,336 19,270
Other 234,162 182,390 124,883 73,737 92,396
------------------------------------------------------------------------
Property expenses, excluding depreciation 1,735,050 1,162,589 970,741 896,953 1,020,478
Depreciation 697,234 520,934 492,716 480,410 462,687
Amortization 294,100 100,575 - - -
------------------------------------------------------------------------
Total property expenses 2,726,384 1,784,098 1,463,457 1,377,363 1,483,165
Interest 1,887,837 604,182 127,700 130,197 136,137
Administrative fees 163,404 97,872 102,397 99,180 101,192
Directors' fees, Directors' and Officers' insurance,
and expenses 99,170 82,636 97,872 100,703 49,417
Other administrative 318,863 344,661 343,901 587,684 197,851
------------------------------------------------------------------------
Total Expenses 5,195,658 2,913,449 2,135,327 2,295,127 1,967,762
------------------------------------------------------------------------
Net (loss) income before minority interest, limited
partnership's interest, loss on impairment, and
gain (loss) on sales (96,893) 302,332 379,960 269,898 500,096
------------------------------------------------------------------------
Minority interest (44,129) 7,669 - - -
Limited partner's interest 74,586 (191,615) (315,490) (89,950) -
Loss on impairment (1,341,759) (203,979) - - -
Gain on sale 1,638,416 91,012 - - -
Loss on sale (295,610) - - - -
------------------------------------------------------------------------
Net income before cumulative effect adjustment (65,389) 5,419 64,470 179,948 500,096
Cumulative effect of change in accounting principles,
net of limited partner's share of ($14,723) (6,014) - - - -
------------------------------------------------------------------------
Net (loss) income before extraordinary items (71,403) 5,419 64,470 179,948 500,096
Extraordinary items
Early extinguishment of debt (net of limited partner's
share of $187,834) (76,312) - - - -
Early extinguishment of debt (net of limited partner's
share of $32,073) - (17,502) - - -
------------------------------------------------------------------------
Net income (loss) $ (147,715) $ (12,083) $ 64,470 $ 179,948 $ 500,096
========================================================================
Net (loss) earnings per share before cumulative
effect adjustment and extraordinary items $ (0.09) $ 0.01 $ 0.11 $ 0.13 $ 0.22
Cumulative change in accounting principles (0.01) - - - -
------------------------------------------------------------------------
Net (loss) earnings per share before
extraordinary items (0.10) 0.01 0.11 0.13 0.22
Extraordinary loss per share (0.11) (0.02) - - -
------------------------------------------------------------------------
Net (loss) earnings per share $ (0.21) $ (0.01) $ 0.11 $ 0.13 $ 0.22
========================================================================
Dividends to shareholders $ - $ 267,951 $ 256,990 $ 557,504 $ 896,164
Dividends to shareholders per share $ - $ 0.31 $ 0.43 $ 0.40 $ 0.40
Average number of shares outstanding 692,111 869,481 593,618 1,393,761 2,245,411
========================================================================
14
Item 6. Selected Financial Data (continued)
Years Ended December 31,
Balance Sheet Data 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Real estate before accumulated depreciation $57,621,984 $28,271,530 $19,186,022 $18,903,767 $18,762,887
Real estate after accumulated depreciation $56,947,728 $24,094,923 $13,995,197 $14,205,658 $14,545,188
Real estate held for sale $4,401,800 $1,850,000 $0 $0 $0
Total assets $68,348,390 $35,567,317 $16,692,560 $15,323,315 $15,941,683
Mortgage loans and loan payable $52,109,760 $19,415,644 $1,346,750 $1,374,751 $1,400,259
Minority interest $2,235,239 $2,291,210 $0 $0 $0
Limited partner's intererst in
consolidated Operating Partnership $8,964,366 $9,241,509 $9,560,913 $10,309,316 $ -
Shareholders' equity $3,667,186 $3,814,901 $5,242,935 $3,289,520 $14,227,102
Other Data
Funds from operations for the
Operating Partnership (1) $507,273 $823,266 $872,676 $750,308 $ -
Funds from operations for the Company (1) $121,598 $197,434 $196,276 $477,324 $962,873
Total properties - square feet 807,463 483,710 297,977 297,977 297,977
Total properties - percent leased 92% 83% 92% 95% 98%
- -------------------------------------------
(1) See "Management's Discussion and Analysis" for discussion of funds from
operations.
Item 7. 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.
The Company considers certain statements set forth herein to be forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, with respect to the Company's expectations for future periods. Certain
forward looking statements, including, without limitation, statements related to
the timing and success of acquisitions and the completion of development or
redevelopment of properties, the financing of the Company's operations, the
ability to lease vacant space and the ability to renew or relet space under
expiring leases, involve certain risks and uncertainties. Although the Company
believes that the expectations reflected in such forward looking statements are
based on reasonable assumptions, the actual results may differ materially from
those set forth in the forward looking statements and the Company can give no
assurance that its expectations will be achieved. Certain factors that might
cause the results of the Company to differ materially from those indicated by
such forward looking statements include, among other factors, general economic
conditions, general real estate industry risks, tenant default and bankruptcies,
loss of major tenants, the impact of competition and acquisition, redevelopment
and development risks including delays in completion and cost overruns, the
ability to finance business opportunities, increase in interest rates and local
real estate markets. Consequently, such forward-looking statements should be
regarded solely as reflections of the Company's current operating and
development plans and estimates. These plans and estimates are subject to
revisions from time to time as additional information becomes available, and
actual results may differ from those indicated in the referenced statement.
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the Company's consolidated financial statements and related notes. In
preparing these financial statements, management has utilized information
available including its past history, industry standards and the current
economic environment among other factors in forming its estimates and judgments
of certain amounts included in the consolidated financial statements, giving due
consideration to materiality. It is possible that the ultimate outcome as
anticipated by management in formulating its estimates inherent in these
financial statements might not materialize. However, application of the critical
accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Company's results of operations
to those of similar businesses.
Consolidation Policy
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating Partnership as
of December 31, 2001. All significant intercompany balances and transactions
have been eliminated in consolidation.
The Company owns an approximate 29% partnership interest as sole
general partner in the Operating Partnership, which provides the Company with
control over all significant activities of the Operating Partnership. As per the
Agreement of Limited Partnership of Cedar Income Fund Partnership, L.P. dated
June 1998, the general partner has exclusive control over the business affairs
of the Operating Partnership, including, without limitation, the following: (1)
the making of any expenditures, the lending or borrowing of money, the
assumption or guarantee of or any other contracting of indebtedness and other
liabilities; (2) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental agencies; (3) the acquisition,
disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any
assets; (4) the negotiation, execution and performance of any contracts, leases,
conveyances or other instruments; (5) the appointment of a manager or advisor to
manage the business of the Operating Partnership; (6) the maintenance of
insurance; (7) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general partnerships, joint
ventures or other relationships that it deems desirable; (8) the control of all
matters affecting the rights and obligations of the Operating Partnership; and
(9) the general partner may not be removed by the limited partners, with or
without cause, except with the consent of the general partner.
Based on the above nine items noted from the Limited Partnership
Agreement and the fact that the limited partners have no significant rights, the
Company has control over the Operating Partnership based on its general
partnership interest, and, accordingly, the Operating Partnership is
consolidated with the Company in the accompanying financial statements as of
December 31, 2001. The Operating Partnership in turn owns a 50% general
partnership interest in The Point Associates, L.P. which entity is also included
in the consolidated financial statements of the Company.
16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Revenue Recognition and Accounts Receivable
Rental revenue is recognized on a straight-line basis, which averages
minimum rents over the terms of the leases. The excess of rents recognized over
amounts contractually due are included in deferred rents receivable on the
Company's balance sheets. The leases also typically provide for tenant
reimbursements of common area maintenance and other operating expenses and real
estate taxes. Ancillary and other property related income is recognized in the
period earned.
The Company makes estimates of the collectibility of its accounts
receivable related to base rent, tenant escalations and reimbursements and other
revenue or income. The Company specifically analyzes tenant receivables and
analyzes historical bad debts, customer credit worthiness, current economic
trends and changes in customer payment terms when evaluating the adequacy of its
allowance for doubtful accounts. In addition, when tenants are in bankruptcy,
the Company makes estimates of the expected recovery of pre-petition
administrative and damage claims. In some cases, the ultimate resolution of
those claims may extend beyond a year. Such estimates may have a direct impact
on the Company's net income, as a greater bad debt reserve will result in less
net income.
Sales of real estate are recorded when title is conveyed to the buyer,
subject to the buyer's financial commitment being sufficient to provide economic
substance to the sale.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for maintenance and repairs
are charged to operations as incurred. Renovations and/or replacements, which
improve or extend the life of the asset are capitalized and depreciated over
their estimated useful lives.
Depreciation is computed utilizing the straight-line method over the
estimated useful life of ten to forty years for buildings and improvements, and
five to ten years for furniture, fixtures and equipment. Tenant improvements are
amortized on a straight-line basis over the term of the related leases.
The Company is required to make subjective assessments as to the useful
lives of its properties for purpose of determining the amounts of depreciation
to be reflected on an annual basis with respect to those properties. These
assessments have a direct impact on the Company's net income. Should the Company
lengthen the expected useful life of a particular asset, it would be depreciated
over more years, and result in less depreciation expense and higher annual net
income.
Assessments by the Company of certain other lease-related costs as well
as any recorded straight-line rent receivable must be made when the Company has
a reason to believe that the tenant will not be able to perform under the terms
of the lease as originally expected.
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Impairment of Long-Lived Assets
On a periodic basis, management assesses whether there are any
indicators that the value of the real estate properties may be impaired. A
property's value is impaired only if management's estimate of the aggregate
future cash flows (undiscounted and without interest charges) to be generated by
the property are less than the carrying value of the property. Such cash flows
consider factors such as expected future operating income, trends and prospects,
as well as the effects of demand, competition and other factors. To the extent
impairment has occurred, the loss will be measured as the excess of the carrying
amount of the property over the fair value of the property.
The Company is required to make subjective assessments as to whether
there are impairments in the value of its real estate properties and other
investments. Any assessment resulting in a determination of impairment will have
a direct negative impact on the Company's net income.
Overview and Background
The Company is an advised REIT specializing in the acquisition,
leasing, financing, management and development of retail properties. The
Company's growth strategy is focused on the real estate markets in Pennsylvania
and New Jersey.
The Company owns all of its interests in real property, directly or
indirectly, through the Operating Partnership. As of December 31, 2001 the
Company owns and operates four retail properties (three located in Pennsylvania
and one, with an adjacent separate development parcel, in southern New Jersey)
and one office property located in Jacksonville, Florida. As of December 31,
2001, the lease occupancy of the Company's one office property was approximately
86%. The four retail properties have combined lease occupancy of approximately
92% as of December 31, 2001.
In July 2000 the Company acquired a 50% general partnership interest in
The Point Associates L.P., the partnership entity that owns The Point, for $2.1
million at closing above the then-existing first mortgage financing of
approximately $9.3 million plus closing costs of approximately $385,000. The
Point has been redeveloped during the past two years into approximately 260,000
sq. ft. of retail space, based primarily upon construction of a new 55,000 sq.
ft. Giant supermarket. The lease for the Giant supermarket required, among other
things, construction of the new premises, demolition and reconstruction of
certain then-existing portions of the shopping center, relocation of certain
then-existing tenants, new stores for certain new tenants and reconfiguration
and repaving of the parking lot. Except for certain interior tenant finishes the
redevelopment of The Point has been substantially completed.
On May 22, 2001, the Company sold its interest in Broadbent for $5.3
million. The Company incurred closing expenses of approximately $500,000,
including a broker's commission of $250,000.
On June 28, 2001, the Company sold its interest in Corporate Center for
$1.86 million. The Company incurred closing expenses of approximately $86,000,
including a broker's commission of $55,800.
18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
In October 2001, the Company purchased three shopping center properties
and a certain parcel of land for an aggregate purchase price of approximately
$35 million, plus closing costs, adjustments and reserves of approximately $2.8
million. The properties are: (i) Academy Plaza a 155,000 sq. ft. community
shopping center anchored by a 50,000 sq. ft. Acme supermarket, (ii) Port
Richmond Village a 156,000 sq. ft. community shopping center anchored by a
40,000 sq. ft. Thriftway Supermarket, (iii) Washington Center Shoppes a 157,000
sq. ft. community shopping center anchored by a 66,000 sq. ft. Acme Supermarket,
and (iv) a development parcel of approximately 34,500 sq. ft. adjacent to
Washington Center Shoppes.
In connection with the October 2001 acquisition of three shopping
centers and the land parcel, the Company assumed approximately $28.3 million in
first mortgages on the three shopping center properties. The balance of the
purchase price for the properties was funded primarily with the approximately
$3.36 million of net proceeds from the sale of the Broadbent property completed
on May 22, 2001 and from net proceeds of certain financing in the amount of $6
million made available by SWH, secured, among other things, by a first mortgage
on the Southpoint property, which was unencumbered immediately prior to such
financing.
Results of Operations
The Company's total revenues increased by $1.88 million, or 58.6%, from
2000 to 2001 and $700,000 or 27.8% from 1999 to 2000. Property operating
revenues, which include base rents and tenant escalations and reimbursements
("Property Operating Revenues") increased by $1.78 million, or 58.6%, from 2000
to 2001 and $623,000, or 25.8%, from 1999 to 2000. The increase in 2000 of
Property Operating Revenues is substantially attributable to the acquisition of
The Point on July 1, 2000. The increase in 2001 of Property Operating Revenues
is substantially attributable to a full year of operations of The Point and the
acquisition of the three supermarket-anchored shopping center properties in
October of 2001, offset by the sales of the Broadbent property (May 22, 2001)
and the Corporate Center property (June 28, 2001).
Property operating expenses and real estate taxes ("Property Expenses")
increased by $572,000 or 49.2% from 2000 to 2001 and $192,000 or 19.8% from 1999
to 2000. The increase in 2000 Property Expenses is substantially attributable to
the acquisition of The Point on July 1, 2000. The increase in 2001 of Property
Expenses is substantially attributable to a full year of operations of The Point
and the acquisition of the three supermarket-anchored shopping center properties
in October of 2001, offset by the sales of Broadbent (May 22, 2001) and
Corporate Center (June 28, 2001).
Interest expense was $1.89 million in 2001, $604,000 in 2000 and
$128,000 in 1999. The increase in 2000 is substantially due to the acquisition
of The Point on July 1, 2000, with the assumption of a $9.3 million mortgage
payable and the use of a $1.55 million line of credit. The increase in 2001 is
primarily due to the full year of activity of The Point mortgage payable and the
acquisition of the three supermarket-anchored shopping center properties in
October 2001, with the assumption of $28.3 million mortgages payable and $6
million of financing from SWH.
Extraordinary losses, net of the limited partner's share, were $76,000
in 2001 and, $17,500 in 2000; there were no extraordinary losses in 1999. The
extraordinary losses were all attributable to the write-off of certain deferred
mortgage costs, incurred in connection with the Company's prepayment of lines of
credit in 2001 and 2000.
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Summary of Cash Flows
The Company's rental revenues for 2001 were $4,816,868. The rental
revenues for 2002 are expected to increase by approximately $3,700,000, to
approximately $8,500,000, reflecting twelve months of ownership of the three
shopping centers acquired in October 2001, the anticipated sale of Southpoint
Parkway Center and estimates for leasing current and expected vacancies during
the year. As a result, vacancy at the end of 2002 is expected to increase from
58,439 sq. ft. to approximately 63,800 sq. ft. The leasing time-table, between
getting a lease signed, building-out the space and the tenant taking possession,
varies depending on the market in the geographic location of the property as
well as the nature of the tenant's business. Management estimates that the
Company will incur approximately $890,000 in tenant improvement and leasing
costs to lease-up vacancies during 2002. Such amounts have been included in the
respective properties' 2002 operating budgets.
The operating expenses of the five properties owned by the Company
through its Operating Partnership are paid from the respective properties'
rental revenues. Management has prepared 2002 operating budgets for each of the
five properties and the aggregate revenues more than cover the operating
expenses, first mortgage debt service, tenant improvements and commissions.
Net cash provided by operating activities totaled $787,000 in 2001,
$955,000 in 2000 and $1.1 million in 1999. The decrease from year to year is
predominantly due to the sales of two properties in 2001 and the acquisition of
four new properties over the past two years.
Net cash used in investing activities totaled $2.2 million in 2001,
$8.3 million in 2000 and $282,000 in 1999. The differences from year to year are
predominantly due to the acquisition of The Point in 2000 and the three shopping
centers in 2001.
Net cash provided by financing activities totaled $3.4 million in 2001,
$6 million in 2000 and $797,000 in 1999. The differences from year to year are
predominantly due to the acquisition of The Point in 2000 and the three shopping
centers in 2001.
Liquidity and Capital Resources
Real estate before deduction for accumulated depreciation equals $24.06
per share/OP Unit based on shares/OP Units outstanding as of December 31, 2001.
Real Estate at cost, less accumulated deductions for depreciation equals $23.77
per share/OP Unit on shares/OP Units outstanding as of December 31, 2001.
Historically, rental revenue has been the principal source of funds to
pay operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Company.
20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Operating Partnership has entered into agreements to purchase (i)
an approximate 7 acre parcel of land in Fort Washington, Pennsylvania, on which
it has agreed to build a 41,000 sq. ft. health club facility, net-leased
pursuant to an executed lease agreement to L.A. Fitness International, L.L.C.;
(ii) subject to mortgagee approval of the assumption of existing first mortgage
financing, a 293,000 sq. ft. supermarket-anchored shopping center in north
central Pennsylvania; and (iii) subject to a fairness opinion, a 20% sole
general partnership interest in a partnership owning a 220,000 sq. ft. shopping
center in Philadelphia, Pennsylvania presently owned by an affiliate of CBC.
The Fort Washington development is expected to be financed with a
third-party construction loan, which, upon completion of construction, will
become a permanent loan, of $5 million (the aggregate term of the loan including
the construction period will be five years), third-party participating equity of
$1 million, approximately $1.7 million from the tenant and approximately
$300,000 in equity contributions from the Company out of currently available
cash. The supermarket-anchored center is expected to be acquired by assumption
of existing third-party financing of approximately $14 million, $4 million from
a third-party participating equity co-venturer, and $1.4 million from the
Company's currently available cash. The 20% sole general partnership interest
will be purchased in four equal annual installments of approximately
$300,000-$400,000 each, again from currently available cash.
The Company's indebtedness at December 31, 2001 was approximately $52.1
million, including $6 million in financing payable to SWH. The SWH financing
requires a $4.5 million payment to be made as of November, 2002, among other
required payments.
The Company expects to fund the two mandatory payments due with respect
to the SWH financing ($4,500,000 and $300,000 due by November 2002 and May 2003,
respectively) from a combination of (i) net proceeds of the currently-pending
sale of the Southpoint property, (ii) $2.8 million in cash and cash equivalents
presently on hand, (iii) drawdowns on a $1 million line of credit (iv) net
proceeds of sales of partial interests in one or more of the Company's other
properties and (v) net proceeds of the pending refinancing of The Point's
mortgage loan.
The Operating Partnership obtained a line of credit, effective March 4,
2002, in the amount of $1,000,000 from North Fork Bank, Melville, New York. The
term of the loan is for one (1) year with a maturity date of March 4, 2003. The
loan, at the sole discretion of the bank, may be used for (i) real estate
investment, (ii) real estate management, (iii) working capital and (iv) other
purposes as applicable and as approved by the bank. The interest rate is the
greater of 6% or the bank's prime rate plus 1%. Interest on the outstanding loan
balance is to be paid to the bank monthly in arrears. The line of credit's
availability is subject to certain conditions, including, but not limited to,
quarterly submission of 10-Q filings, annual submission of 10K filings and a
30-day annual "clean up" (i.e. the outstanding balance of drawdowns under the
line of credit must be reduced to zero for 30 days). The line of credit does not
require any fees to be paid by the Company or the Operating Partnership. The
Company views the availability of this line of credit to be sound business
practice and an augment to its liquidity.
The Company expects that capital markets in the United States will
continue to be active and will provide funds for the refinancing of its four
(retail) properties' first mortgages as such mortgages mature over the next 5
months to 11 years. With the exception of the Point's mortgage, all such
mortgages are amortizing loans. The balances due at maturity, and the annual
amortization payments due are summarized below.
21
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Company believes that its liquidity and expected sources of future
cash, including the (i) net proceeds from the currently-pending sale of
Southpoint as further discussed below, (ii) $2.8 million of cash and cash
equivalents presently on hand, (iii) drawdowns on a $1 million line of credit,
(iv) net proceeds of sales of partial interests in one or more of the Company's
other properties, and (v) net proceeds of the pending refinancing of The Point's
mortgage loan are sufficient to meet current and short-term obligations, which
include capital expenditures, property acquisition commitments, SWH amortization
payments and repayment of The Point's existing mortgage loan.
The tragedy of September 11, 2001 had a significant effect on the real
estate industry. The real estate industry has been experiencing a significant
change in the property insurance markets that has resulted in significantly
higher premiums for landlords whose policies are subject to renewal in 2002,
primarily in the area of terrorism insurance coverage. The Company does not know
if sufficient insurance coverage will be available when the current policy
expires, or the costs for obtaining a policy containing terms similar to our
current policy. This may have an impact on the availability and cost of secured
financing in the future. Also, the Company expects, as a result of
investigations of Enron and other reported investigations of financial
reporting, that insurance coverage and premium costs for officers and directors
insurance will be adversely affected.
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The following table sets forth the Company's significant debt
obligations at December 31, 2001 by scheduled principal cash flow payments and
maturity date:
The combined aggregate future principal payments of mortgages and loans at
December 31, are as follows:
Year Mortgage loan payable Other loan payable
- -------------- --------------------- ------------------
2002 $ 18,242,311 (1) $4,871,667 (2)
2003 368,197 841,667
2004 391,499 266,666
2005 425,651 -
2006 457,842 -
Thereafter 26,244,260 -
------------ ----------
$ 46,129,760 $5,980,000
============ ==========
(1) The Point's $17.9 million loan has two six-month extensions through June 1,
2003. The Company expects to refinance The Point in an amount equal to or
greater than $17.9 million on or before June 1, 2002.
(2) Substantially all of amount due is expected to be paid from the proceeds of
the sale of Southpoint (see Note 4).
In order to qualify as a REIT for federal income tax purposes, the
Company is required to make distributions to its stockholders of at least 90% of
REIT taxable income. The Company expects to use its cash on hand and cash flow
from operating activities for this purpose if distributions to partners and
stockholders are required in order to continue to qualify as a REIT.
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 had 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.
Funds from Operations
Management believes that funds from operations ("FFO") is an
appropriate measurement of performance of the REIT. FFO is defined by the
National Association of Real Estate Investment Trusts ("NAREIT") as net income
or loss, excluding gains or losses from debt restructuring and sale of
properties plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
indicative of cash available to fund cash needs. FFO should not be considered an
alternative to cash flow as a measure of liquidity (See Selected Financial
Data).
Since all companies and analysts do not calculate FFO in a similar
fashion, the Company's calculation of FFO presented herein may not be comparable
to similarly titled measures reported by other companies.
23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The following table represents the Company's FFO calculation for the years ended
December 31,
2001 2000 1999
-----------------------------------------------
Net (loss) before limited partner's
interest in Operating Partnership $ (139,975) $ 197,034 $ 379,960
-----------------------------------------------
Add (Less):
Limited partner's interest in
Operating Partnership 74,586 (191,615) (315,490)
-----------------------------------------------
Net income available to common shareholders (65,389) 5,419 64,470
Adjustment for funds from operations
Add (less) Company's share of the following items:
Depreciation 201,431 150,498 131,806
Impairment loss 387,634 70,026 -
Loss on sale of real estate 85,399 - -
Minority interest 12,749 (2,216) -
Gain on sale of real estate (473,338) (26,293) -
Amount distributable to Minority Partners
upon consolidation (26,888) - -
-----------------------------------------------
Basic and diluted funds from operations $ 121,598 $ 197,434 $ 196,276
===============================================
Weighted average shares/units outstanding (1) 692,111 869,481 593,618
===============================================
The following table represents the Operating Partnership's FFO calculation for
the years ended December 31,
2001 2000 1999
-----------------------------------------------
Net (loss) before limited partner's
interest in Operating Partnership $ (139,975) $ 197,034 $ 379,960
-----------------------------------------------
Add (less):
Limited partner's interest in
Operating Partnership 74,586 (191,615) (315,490)
-----------------------------------------------
Net (loss) income available to common shareholders (65,389) 5,419 64,470
Adjustment for funds from operations:
Add (less) Company's share of the following items:
Limited partner's interest (74,586) 191,615 315,490
Depreciation 697,234 520,934 492,416
Loss on sale of real estate 295,610 - -
Impairment loss 1,341,759 203,979 -
Minority interest 44,129 (7,669) -
Gain on sale of real estate (1,638,416) (91,012) -
Amount distributable to Minority Partners
upon consolidation (93,068) - -
-----------------------------------------------
Basic and diluted funds from operations $ 507,273 $ 823,266 $ 872,376
===============================================
Weighted average shares/units outstanding (1) 2,395,411 2,572,781 2,296,918
- -------------------------------------------------------------------------------
(1) Assumes conversion of limited partnership Units of the Operating
Partnership; reflects the issuance of 400,000 new shares of Common Stock on
November 15, 1999, and the repurchase of 150,000 shares of Common Stock on
November 22, 2000, and the repurchase of 100,000 shares of Common Stock on
December 14, 2000.
24
Item 7(a). Quantitative and Qualitative Disclosures about Market Risk
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 a derivative transaction to limit the adverse impact that
floating LIBOR rate interest fluctuations could have on cash flow. In November
2000, the Company, through a partnership 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, capping the interest rate of its secured
mortgage loan facility which provides for interest at LIBOR plus 3.25% (interest
rate at December 31, 2001 was 5.39%). The cap limits interest to 7.5% and
expires on June 1, 2002. The intention is for the cap agreement to be held to
maturity. The Company does not use derivative financial instruments for trading
purposes. As of December 31, 2001, the hedge effectively had no value and has
been adjusted in accordance with SFAS 133 (See Note 2, "Recent Pronouncements"
to the consolidated financial statements). Because of the Company's minimal use
of derivatives, management's adoption of SFAS 137 (See Note 2, "Recent
Pronouncements" to the consolidated financial statements) did not have a
significant effect on earnings or on the financial position of the Company. If
the base interest rates would increase by 1%, there would be an approximate
$179,000 decrease in net income prior to minority interest and limited partner's
interest.
In addition, the Company has an aggregate of $34,209,760 of mortgage
loans and one other loan payable at fixed interest rates. A substantial increase
in general interest rates would potentially prevent the Company from refinancing
the mortgage loans and the other loan at rates favorable to the Company.
25
Item 8. Financial Statements and Supplemental Data
Report of Independent Auditors..........................................
Consolidated Balance Sheets as of December 31, 2001 and
December 31, 2000................................................
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999............................
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999.....................
Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999 .............................
Notes to Financial Statements.............................................
26
Report of Independent Auditors
The Board of Directors and Shareholders
Cedar Income Fund, Ltd.
We have audited the accompanying consolidated balance sheets of Cedar
Income Fund, Ltd. as of December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cedar
Income Fund, Ltd. at December 31, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young, LLP
----------------------
New York, NY
March 8, 2002
except for Note 4,
as to which the date
is March 20, 2002.
27
Cedar Income Fund, Ltd.
Consolidated Balance Sheets
December 31,
2001 2000
-----------------------------
Assets
Real estate
Land $ 10,108,717 $ 5,681,696
Buildings and improvements 47,513,267 22,589,834
-----------------------------
57,621,984 28,271,530
Less accumulated depreciation (674,256) (4,176,607)
-----------------------------
Real estate 56,947,728 24,094,923
Real estate held for sale 4,401,800 1,850,000
Cash and cash equivalents 2,872,289 841,111
Restricted cash 1,402,654 7,298,671
Rents and other receivables 217,104 211,685
Deferred financing costs, net 1,195,047 831,128
Deferred legal, net 98,749 98,833
Prepaid expenses, net 130,557 100,720
Deferred leasing commissions 392,823 79,960
Deferred rental income 47,924 43,762
Taxes held in escrow 641,715 152,963
-----------------------------
Total Assets $ 68,348,390 $ 35,603,756
=============================
Liabilities and Shareholders' Equity
Liabilities
Mortgage loans payable $ 46,129,760 $ 17,900,000
Loan payable 5,980,000 -
Line of credit - 1,515,644
Accounts payable and accrued expenses 876,456 670,351
Security deposits 243,089 66,980
Advance rents 252,294 103,261
-----------------------------
Total Liabilities 53,481,599 20,256,236
-----------------------------
Minority Interest 2,235,239 2,291,110
Limited partner's interest in consolidated
Operating Partnership 8,964,366 9,241,509
Shareholders' Equity
Common stock ($0.01 par value)
50,000,000 shares authorized, 692,111
shares outstanding 6,921 6,921
Additional paid-in-capital 3,660,265 3,807,980
Undistributed net income - -
-----------------------------
Total Shareholders' Equity 3,667,186 3,814,901
-----------------------------
Total Liabilities and Shareholders' Equity $ 68,348,390 $ 35,603,756
=============================
Total Shareholders' Equity in the Company
and limited partner's (equity) interest in
Operating Partnership and minority interest $ 14,866,791 $ 15,347,520
=============================
See the accompanying notes to financial statements.
28
Cedar Income Fund, Ltd.
Consolidated Statements of Operations
Years ended December 31,
2001 2000 1999
------------------------------------------
REVENUE
Rents $ 4,816,868 $ 3,036,943 $ 2,413,958
Other - - 75,000
Interest 281,897 178,838 26,329
------------------------------------------
Total Revenue 5,098,765 3,215,781 2,515,287
------------------------------------------
EXPENSES
Property expenses:
Payroll 71,065 23,966 -
Real estate taxes 494,348 308,386 258,597
Repairs and maintenance 435,093 247,896 273,253
Utilities 250,828 235,740 167,886
Management fee 186,283 127,826 124,358
Insurance 63,271 36,385 21,764
Other 234,162 182,390 124,883
------------------------------------------
Property expenses, excluding depreciation and amortization 1,735,050 1,162,589 970,741
Depreciation 697,234 520,934 492,716
Amortization 294,100 100,575 -
------------------------------------------
Total property expenses 2,726,384 1,784,098 1,463,457
Interest 1,887,837 604,182 127,700
Administrative fees 163,404 97,872 102,397
Directors' fees, Directors' and Officers' insurance
and expenses 99,170 82,636 97,872
Other administrative 318,863 344,661 343,901
------------------------------------------
Total Expenses 5,195,658 2,913,449 2,135,327
------------------------------------------
Net (loss) income before minority interest, limited
partnership's interest, loss on impairment, and
gain (loss) on sales (96,893) 302,332 379,960
------------------------------------------
Minority interest (44,129) 7,669 -
Limited partner's interest 74,586 (191,615) (315,490)
Loss on impairment (1,341,759) (203,979) -
Gain on sale 1,638,416 91,012 -
Loss on sale (295,610) - -
------------------------------------------
Net (loss) income before cumulative effect adjustment (65,389) 5,419 64,470
Cumulative effect of change in accounting principles,
net of limited partner's share of ($14,723) (6,014) - -
------------------------------------------
Net (loss) income before extraordinary items (71,403) 5,419 64,470
Extraordinary items
Early extinguishment of debt (net of limited partner's
share of $187,834) (76,312) - -
Early extinguishment of debt (net of limited partner's
share of $32,073) - (17,502) -
------------------------------------------
Net (loss) income $ (147,715) $ (12,083) $ 64,470
==========================================
Net (loss) earnings per share before cumulative
effect adjustment $ (0.09) $ 0.01 $ 0.11
Cumulative effect of change in accounting principles (0.01) - -
------------------------------------------
Net (loss) earnings per share before
extraordinary items (0.10) 0.01 0.11
Extraordinary loss per share (0.11) -
Extraordinary loss per share - (0.02) -
------------------------------------------
Net (loss) earnings per share $ (0.21) $ (0.01) $ 0.11
==========================================
Dividends to shareholders $ - $ 267,951 $ 256,990
Dividends to shareholders per share $ - $ 0.31 $ 0.43
Average number of shares outstanding 692,111 869,481 593,618
==========================================
See the accompanying notes to the financial statements.
29
Cedar Income Fund, Ltd.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 2001, 2000, 1999
- --------------------------------------------------------------------------------------------------
Total
Additional Paid-In Undistributed Shareholders'
Common Stock Capital Net Earnings Equity
- --------------------------------------------------------------------------------------------------
Balance at January 1, 1999 $ 5,421 $ 3,284,099 $ - $ 3,289,520
Net earnings - - 64,470 64,470
Dividends to shareholders - (192,520) (64,470) (256,990)
Sale of additional shares 4,000 2,141,935 - 2,145,935
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1999 9,421 5,233,514 - 5,242,935
Net loss - - (12,083) (12,083)
Dividends to shareholders - (280,034) 12,083 (267,951)
Treasury stock (2,500) (1,145,500) - (1,148,000)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 2000 6,921 3,807,980 - 3,814,901
Net loss - (147,715) - (147,715)
Dividends to shareholders - - - -
Treasury stock - - - -
- --------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 6,921 $ 3,660,265 $ - $ 3,667,186
=============================================================
See the accompanying notes to the financial statements.
30
Cedar Income Fund, Ltd.
Consolidated Statements of Cash Flows
Operating Activities
YEARS ENDED DECEMBER 31,
2001 2000 1999
-----------------------------------------------
Operating Activities
Net (loss) income $ (147,715) $ (12,083) $ 64,470
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Limited partner's interest in Operating Partnership (74,586) 191,615 315,490
Minority interest 44,129 7,669 -
Gain on sale of Germantown - (91,012) -
Gain on sale of Broadbent (1,638,416) - -
Loss on sale of Corporate Center 295,610
Loss on real estate impairment 1,341,759 203,979 -
Cumulative effect of change in accounting principle 20,737 - -
Early extinguishment of debt 264,146 - -
Depreciation and amortization 991,334 621,509 496,992
Decrease (increase) in deferred rental receivable (4,162) (31,450) 9,188
Changes in operating assets and liabilities:
(Decrease) increase in deferred legal 84 (98,833) -
(Increase) decrease in rent and other receivable (5,419) (113,056) 9,567
(Increase) decrease in prepaid expenses (29,837) 1,172 1,115
(Increase) decrease in deferred lease commissions (312,863) (32,016) 8,406
(Increase) decrease in tax held in escrow (488,752) (146,704) 3,550
Increase in accounts payable and accrued expenses 206,105 304,561 193,432
(Increase) decrease in amounts due from co-tenancy partner - 56,993 4,330
(Increase) decrease in amounts due to co-tenancy partner - (46,158) (412)
Security deposits collected, net 176,109 (20,939) 3,453
Increase in advance rents 149,033 61,166 (4,239)
-----------------------------------------------
Net cash provided by operating activities 787,296 856,413 1,105,342
Cash flow from investing activities
Capital expenditures (6,054,658) (2,066,268) (282,255)
(Decrease) increase in restricted cash 5,896,017 (7,298,670) -
Distribution to minority partner (100,000) - -
Sale of Germantown Square - 2,982,641 -
Sale of Broadbent 4,839,941 - -
Sale of Corporate Center 1,722,458 - -
Acquisition of three supermarket-anchored shopping centers (8,510,761) - -
Acquisition of The Point Associates L.P. - (1,916,559) -
-----------------------------------------------
Net cash used in investing activities (2,207,003) (8,298,856) (282,255)
Cash flow from financing activities
Proceeds from mortgages 6,000,000 8,600,000 -
Principal portion of scheduled mortgage payments (111,306) (1,346,750) (28,001)
(Repayment of) proceeds from line of credit (1,515,644) 1,515,644 -
Dividends paid - (267,951) (256,990)
Distributions to limited partner - (511,019) (681,681)
Financing costs (922,165) (856,704) -
Gross proceeds from sale of stock - - 1,800,000
Costs associated with sale of stock - - (36,277)
Reacquisition of treasury stock - (1,148,000) -
-----------------------------------------------
Net cash provided by financing activities 3,450,885 5,985,220 797,051
Net increase (decrease) in cash and cash equivalents 2,031,178 (1,457,223) 1,620,138
Cash and cash equivalents at beginning of the year 841,111 2,298,334 678,196
-----------------------------------------------
Cash and cash equivalents at end of the year $ 2,872,289 $ 841,111 $ 2,298,334
===============================================
Supplemental disclosure of cash activities
Interest paid $ 2,017,455 $ 604,182 $ 127,700
===============================================
Supplemental disclosure of non-cash financing activities
Reallocation of limited partner's interest for sale of shares
below book value $ - $ - $ 382,211
===============================================
Assumption of mortgage payable $ 28,321,066 $ 9,300,000 $ -
===============================================
See the accompanying notes to financial statements.
31
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
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.
The Company's shares are traded on the NASDAQ (Small Cap) Market under
the symbol "CEDR".
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.
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 (primarily shopping center) real
estate investments which will provide the best available cash flow and present
an opportunity for capital appreciation.
The Company, through its Operating Partnership, owns and operates one
office property of approximately 79,000 sq. ft., located in Jacksonville,
Florida, a shopping center property of approximately 260,000 sq. ft. located in
Harrisburg, Pennsylvania through a 50% sole general partnership interest, and
three shopping center properties aggregating approximately 470,000 sq. ft., two
of which are located in Philadelphia, Pennsylvania and the third of which is
located in Sewell, New Jersey.
32
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 1. Background, Organization and Reorganization of the Company (continued)
Cedar Bay Realty Advisors, Inc., a New York corporation ("CBRA"),
serves as investment advisor to the Company pursuant to an Administrative and
Advisory Agreement with the Company. Brentway Management LLC ("Brentway") a New
York limited liability company provides property management services for the
Company's properties pursuant to a Management Agreement with the Company on
terms standard in the industry. SKR Management Corp., a New York corporation
("SKR") provides certain legal services to the Company through its in-house
counsel and Secretary of the Company, Stuart H. Widowski. CBRA and SKR are
wholly-owned by Leo S. Ullman. Brentway is owned by Leo Ullman and Brenda
Walker. Leo S. Ullman is President and Chairman of the Board of the Company and
of the corporate partners of CBC. Brenda Walker is Vice President and a Director
of the Company and Vice President of the corporate partners of CBC. The terms of
the Administrative and Advisory Agreement and Management Agreement are further
discussed in Note 7 to the Consolidated Financial Statements and in Item 13.
The Company believes that its liquidity and expected sources of future
cash including the (i) net proceeds from the currently-pending sale of
Southpoint as further discussed below, (ii) $2.8 million of cash and cash
equivalents presently on hand, (iii) drawdowns on a $1 million line of credit
(iv) net proceeds of sales of partial interests in one or more of the Company's
other properties, and (v) net proceeds of the pending refinancing of The Point's
mortgage loan are sufficient to meet current and short-term obligations, which
include capital expenditures, property acquisition commitments, SWH amortization
payments and repayment of The Point's existing mortgage loan. (See Notes 4, 5
and 6).
Note 2. Description of Significant Accounting Policies
Consolidation Policy and Related Matters
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating Partnership as
of December 31, 2001. All significant intercompany balances and transactions
have been eliminated in consolidation.
The Company owns an approximate 29% partnership interest as sole
general partner in the Operating Partnership, which provides the Company with
control over all significant activities of the Operating Partnership. The terms
of the Agreement of Limited Partnership of Cedar Income Fund Partnership, L.P.
dated June 1998, provide that the general partner has exclusive control over the
business affairs of the Operating Partnership, including, without limitation,
the following: (1) the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of or any other contracting of indebtedness
and other liabilities; (2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental agencies; (3) the
acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or
exchange of any assets; (4) the negotiation, execution and performance of any
contracts, leases, conveyances or other instruments; (5) the appointment of a
manager or advisor to manage the business of the Operating Partnership; (6) the
maintenance of insurance; (7) the formation of, or acquisition of an interest
in, and the contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems desirable; (8)
33
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 2. Description of Significant Accounting Policies (continued)
Consolidation Policy and Related Matters (continued)
the control of all matters affecting the rights and obligations of the Operating
Partnership; and (9) the general partner may not be removed by the limited
partners, with or without cause, except with the consent of the general partner.
Based on the above nine items noted from the Limited Partnership
Agreement and the fact that the limited partners have no significant rights, the
Company has control over the Operating Partnership based on its general
partnership interest, and, accordingly, the Operating Partnership is
consolidated with the Company in the accompanying financial statements as of
December 31, 2001.
The limited partner's interest as of December 31, 2001 (currently owned
entirely by CBC) represents approximately a 71% limited partnership interest in
the equity of the Operating Partnership.
The minority interest represents the limited partner's 50% interest in
The Point Associates, LP ("The Point Associates"). The Operating Partnership has
a 50% general partnership interest in such partnership, which is consolidated in
the accompanying financial statements for similar reasons as set forth for the
Operating Partnership. The limited partner in The Point Associates is an
affiliate of CBC.
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
Rental income is recognized on a straight-line basis over the term of
the lease. The excess of rents recognized over amounts contractually due is
included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
of real estate taxes, insurance, common area maintenance costs and certain other
costs which are recorded on an accrual basis.
Sales of real estate are recorded when title is conveyed to the buyer,
subject to the buyer's financial commitment being sufficient to provide economic
substance for the sale.
34
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 2. Description of Significant Accounting Policies (continued)
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 related lease.
Cash Equivalents
The Company considers highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
Deferred Costs
Leasing fees and loan costs are capitalized and amortized over the life
of the related 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 by the Financial Accounting
Standard Board ("FASB") under Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation," 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. 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.
Effective July 10, 2001, the Board of Directors authorized the issuance
of options to purchase 10,000 shares at $3.50 per share, the stock price as of
that date, to each of the five Directors then in office and valid for ten years
thereafter.
Earnings Per Share
FASB Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share", 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
35
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 2. Description of Significant Accounting Policies (continued)
Earnings Per Share (continued)
Company has no 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 (loss) per share is computed using the
weighted average number of shares outstanding during the year.
Basic and diluted net income per share is based on the weighted average
number of shares outstanding (692,111 in 2001, 869,481 in 2000, and 593,618 in
1999). Dividends to shareholders per share are based on the actual number of
shares outstanding on the respective dates.
36
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 2. Description of Significant Accounting Policies (continued)
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 taxable income to qualify as a REIT.
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 based upon an estimate of value of the respective
property.
Comprehensive Income
In 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income", 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.
Recent Pronouncements
In June 2001, the FASB approved Statement of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations", and Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets". SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS 142
changes the accounting for goodwill from an amortization method to an
impairment-only approach. The provisions of SFAS 142 are effective for fiscal
years beginning after December 15, 2001. The Company will adopt SFAS 142 at the
beginning of its fiscal year ending December 31, 2002. The Company believes that
the adoption of this standard will have no impact on the Company's financial
position or results of operations.
37
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 2. Description of Significant Accounting Policies (continued)
In August 2001, the FASB approved Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS 144 supercedes SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of business. SFAS 144 retains the
requirements of SFAS 121 for recognition and measurement of an impairment loss
on long-lived assets, and establishes a single accounting model for all
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. The provisions of SFAS 144 are effective for fiscal years
beginning after December 15, 2001. The Company will adopt SFAS 144 at the
beginning of its fiscal year ending December 31, 2002. The Company is assessing
the impact of the adoption of SFAS 144.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Derivative Financial Instruments
On January 1, 2001 the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," as amended by Statement of Financial
Accounting Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments. Specifically,
SFAS 133 requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and to measure those
instruments at fair value. In the normal course of business, the Company is
exposed to the effect of interest rate changes. The Company limits these risks
by following established risk management policies and procedures including those
for the use of derivatives. The only hedging transaction entered into by the
Company was the purchase of an interest rate cap during 2000. The Company does
not use derivatives for trading or speculative purposes. Further, the Company
has a policy of only entering into contracts with major financial institutions
based upon their credit ratings and other factors.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
38
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 2. Description of Significant Accounting Policies (continued)
Fair Values of Financial Instruments (continued)
Interest Rate Cap: The following table summarizes the notional value
and fair value of the Company's derivative financial instrument, interest rate
cap, as of December 31, 2001:
Notional Interest
Hedge Type Value Rate Maturity Fair Value
-------------------------------------------------------------------------------------------------
Interest Rate Cash Flow $17,900,000 7.5% June 1, 2002 $ 0
Cap Hedge
For an interest rate cap, which is a cash flow hedge, the unrealized
gain/loss in the fair value of these hedges are reported on the balance sheet
with a corresponding adjustment to either accumulated other comprehensive income
or earnings, depending on the type of hedging relationship. At January 1, 2001,
the fair value of the interest rate cap decreased by $20,737, which was recorded
as a cumulative effect adjustment. At December 31, 2001 the fair value of the
interest rate cap decreased by $926, which was recorded as interest expense.
Cash and cash equivalents: The carrying amounts of cash and cash
equivalents approximate their fair values.
Mortgage loans payable: The fair value of mortgage loans payable is
estimated utilizing discounted cash flow analysis, using interest rates
reflective of current market conditions and the risk characteristics of the
loans.
The following sets forth a comparison of the fair values and carrying
values of the Company's financial instruments subject to the provisions of
Statement of Financial Accounting Standard No. 107 ("SFAS 107"):
39
2001 2000
----------------------------------------------------------------------
Carrying Value Fair Value Carrying Value Fair Value
Assets
Cash and cash equivalents $ 2,872,276 $ 2,872,276 $ 841,111 $ 841,111
Liabilities
Mortgage loans payable
The Point $ 17,900,000 $ 17,900,000 $ 17,900,000 $ 17,900,000
Academy Plaza 10,684,372 10,833,005 - -
Washington Center 5,968,342 6,289,936 - -
Port Richmond 11,577,046 11,767,040 $ - $ -
---------------------------------------------------------------------
$ 46,129,760 $ 46,789,981 $ 17,900,000 $ 17,900,000
=====================================================================
Line of Credit $ - $ - $ 1,515,644 $ 1,515,644
Loan Payable $ 5,980,000 $ 5,980,000 $ - $ -
40
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
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.
In 2001, the Company incurred capital expenditures of $6,054,658, exclusive of
the purchases of operating properties. In 2000, the Company incurred capital
expenditures of $2,066,268. The Company acquired the Port Richmond Village,
Academy Plaza, and Washington Center (and the adjacent development parcel)
properties on October 9, 2001 for an aggregate purchase price of $36,831,627,
including debt assumed of $28,321,066. Information regarding the Company's
investment in each property is presented in the Schedule of Real Estate and
Accumulated Depreciation that follows:
Information on Real Estate and Accumulated Depreciation
Gross Amount at Which Carried
Initial Cost to Company December 31, 2001
----------------------- ---------------------------------
Amount of Buildings and Subsequent Cost Buildings and
Property Description(1) Encumbrance Land Improvements Capitalized Land Improvements Total
- ----------------------------------------------------------------------------------------------------------------------------
The Point Shopping Center $17,900,000 $ 2,700,000 $10,800,000 $7,988,968 $ 2,700,000 $18,788,968 $21,488,968
Harrisburg, Pennsylvania
Port Richmond Village 11,577,046 2,942,342 11,769,365 13,200 2,942,342 11,782,565 14,724,907
Philadelphia, Pennsylvania
Academy Plaza 10,648,372 2,405,662 9,622,646 - 2,405,662 9,622,646 12,028,308
Philadelphia, Pennsylvania
Washington Center Shoppes 5,968,342 2,060,713 7,314,338 4,750 2,060,713 7,319,088 9,379,801
Washington Township, NJ (2)
----------- ----------- ----------- ---------- ----------- ----------- -----------
Totals $46,093,760 $10,108,717 $39,506,349 $8,006,918 $10,108,717 $47,513,267 $57,621,984
==============================================================================================
Life on which
Depreciation is
Accumulated Date Date Computed (in
Depreciation Built Acquired years)
----------------------------------------------------------
The Point Shopping Center $494,811 1972 Jul-00 10-40
Harrisburg, Pennsylvania (3)
Port Richmond Village 73,609 1988 Oct-01 10-40
Philadelphia, Pennsylvania
Academy Plaza 60,142 1965 Oct-01 10-40
Philadelphia, Pennsylvania
Washington Center Shoppes 45,694 1979 Oct-01 10-40
Washington Township, NJ (2)
Totals $674,256
============
(1) Does not include Southpoint, which was classified as "real estate held for
sale" at December 31, 2001.
(2) Includes adjacent unencumbered development parcel.
(3) Redeveloped in 2001.
41
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 3. Real Estate and Accumulated Depreciation (continued)
The activity in real estate and related accumulated depreciation for
the three year period ended December 31, 2001, is summarized in the table below:
2001 2000 1999
---------------------------------------------
Cost
Beginning of year improvements $ 28,271,530 19,186,022 18,903,767
Improvement additions 6,054,658 2,066,268 282,255
The Point acquisition - 13,500,000 -
Acquisition of 3 supermarket-anchored
shopping centers 36,115,316 - -
Reclass Southpoint to real estate held for sale (8,111,127) - -
Impairment loss - (2,715,386) -
Sale of Broadbent (4,708,393) -
Sale of Germantown - (3,765,374) -
---------------------------------------------
End of Year $ 57,621,984 $ 28,271,530 $ 19,186,022
=============================================
Accumulated depreciation
Beginning of year $ 4,176,607 $ 5,190,825 $ 4,698,109
Additional depreciation expense this year 697,234 520,934 492,716
Reclass Southpoint to real estate held for sale (2,701,914) - -
Impairment property - (661,407) -
Sale of Broadbent (1,497,671) - -
Sale of Germantown - (873,745) -
---------------------------------------------
End of Year $ 674,256 $ 4,176,607 $ 5,190,825
=============================================
Pro Forma
The following table summarizes, on an unaudited pro forma basis, the combined
results of operations of the Company for the years ended December 31, 2001 and
2000 as though the 2001 acquisitions of Washington Center Shops L.P., Port
Richmond Associates, LLC, Academy Stores LP, and Greentree Road Inc., (all
purchased on October 6, 2001) were completed as of January 1, 2000.
2001 2000
------------------------
Pro forma revenues $9,507,765 $8,681,236
Pro forma net income (loss) (141,689) (214,086)
Pro forma basic earnings per common share $ (0.20) $ (0.25)
Common shares - basic 692,111 869,481
42
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 4. Real Estate Held for Sale and Sales of Real Estate
As a result of the SWH financing and the related mandatory payments
(see Note 6), the Company's Southpoint property in Jacksonville, Florida has
been actively marketed for sale and was classified as "real estate held for
sale" effective October 9, 2001 (see Notes 1 and 6). A contract of sale for
Southpoint with an unrelated purchaser in the amount of $4.7 million, entered
into as of February 1, 2002, is presently pending. The deposit on the contract
became non-refundable as of March 20, 2002. The sale is expected to be completed
in the second quarter of 2002. Net proceeds of the sale are expected to be
approximately $4,400,000, after credits to purchaser for certain tenant and
capital improvements in the aggregate amount of approximately $25,000, and after
deduction of sales costs of $273,000, including estimated commissions of
$169,000, legal fees of $10,000 and a disposition fee payable to CBRA in the
amount of $47,000. Management, during the year ended December 31, 2001,
recognized an impairment loss of $1,341,759 related to the Southpoint property.
That impairment loss reflects the difference between the book value of the
Southpoint property, as of December 31, 2001, and the present market value of
the property less estimated sales costs.
The cost basis of Corporate Center was reduced by approximately
$204,000 to $1,850,000 on the books of the Company during the second quarter of
2000, to adjust the property's value to fair market when the property was
reclassified to "Real Estate Held for Sale", and was classified as such at
December 31, 2000.
In 2001, the Company sold two of its office properties, Broadbent
Business Center, Salt Lake City, Utah and Corporate Center, Bloomington,
Illinois for $5.3 million and $1.86 million, respectively. The gain (loss) on
the sale of those properties were $1,638,416 and ($295,610), respectively.
Note 5. Commitments and Contingencies
The Company's properties are leased to tenants under short-term,
non-cancelable operating lease agreements. Future minimum lease rentals to be
received under the terms of these lease agreements are approximately as follows:
43
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 5. Commitments and Contingencies (continued)
Year Amount
-----------------------------------------
2002 $ 5,759,000
2003 5,149,000
2004 4,668,000
2005 4,421,000
2006 3,812,000
Thereafter 27,116,000
------------
$ 50,925,000
============
Contingent rentals (expense recoveries and percentage rent) provided by
various leases were included in rental income for 2001, 2000 and 1999 in the
amounts of $811,412, $450,470 and $253,755, respectively.
The Company derived approximately 26% of its revenue from three major
tenants in 2001. Revenue from GSA, a tenant at Southpoint, was $535,692 in 2001.
Revenue from Giant Food Stores, a tenant at The Point with rent commencing July
30, 2001, was $389,580. Revenue from Burlington Coat Factory, another tenant at
The Point, was $344,988 in 2001.
The Operating Partnership has entered into agreements to purchase (i)
an approximate 7 acre parcel of land in Fort Washington, Pennsylvania, on which
it has agreed to build a 41,000 sq. ft. health club facility, net-leased
pursuant to an executed lease agreement to L.A. Fitness International, L.L.C.;
(ii) subject to mortgagee approval of the assumption of existing first mortgage
financing, a 293,000 sq. ft. supermarket-anchored shopping center in north
central Pennsylvania; and (iii) subject to a fairness opinion, a 20% sole
general partnership interest in a partnership owning a 220,000 sq. ft. shopping
center in Philadelphia, Pennsylvania presently owned by an affiliate of CBC.
The Fort Washington development is expected to be financed with a
third-party construction loan, which, upon completion, will become a permanent
loan, of $5 million (the aggregate term of the loan including the construction
period will be five years), third-party participating equity of $1 million,
approximately $1.7 million from the tenant and approximately $300,000 in equity
contributions from the Company out of currently available cash. The
supermarket-anchored center is expected to be acquired by assumption of existing
third-party financing of approximately $14 million, $4 million from a
third-party participating equity co-venturer and $1.4 million from the Company's
currently available cash. The 20% sole general partnership interest will be
purchased in four equal annual installments of approximately $300,000-$400,000
each, again from currently available cash.
See notes 1, 6 and 7 for additional commitments and contingencies.
44
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 6. Mortgage Loans, Other Loans Payable, and Line of Credit
Properties owned by the Company are subject to the following
property-specific mortgage loans payable:
o Academy Plaza, Philadelphia, Pennsylvania, has a first mortgage with a
principal balance of approximately $10,715,000 as of December 31, 2001, at
7.275% due March 10, 2013, with a 30-year amortization schedule.
o Port Richmond Village, Philadelphia, Pennsylvania, has a first mortgage
with a principal balance of approximately $11,610,000 as of December 31,
2001, at 7.174% due April 10, 2007, with a 30-year amortization schedule.
o Washington Center Shoppes, Sewell, New Jersey, has a first mortgage with a
principal balance of approximately $5,986,000 as of December 31, 2001, at
7.53% with an anticipated payment date of November 11, 2007, with a 30-year
amortization schedule with a contractual maturity date of November 11,
2027.
o The Point Shopping Center, Harrisburg, Pennsylvania, in which the Company
has a 50% general partnership interest, has a first mortgage in the amount
of $17,900,000 as of December 31, 2001, at LIBOR plus 3.25%, due June 1,
2002.
o Southpoint Parkway Center, Jacksonville, Florida, became encumbered on
October 9, 2001, by a first mortgage in the amount of $6 million in
connection with financing in such amount, by SWH Funding Corp. of
Hackensack, New Jersey. The Southpoint property was unencumbered
immediately prior to such financing. Net proceeds of such $6 million
financing were applied to the acquisition of the three supermarket-anchored
shopping centers in Pennsylvania and southern New Jersey as described in
Note 3.
A wholly-owned subsidiary of SWH and the Operating Partnership have
together formed Cedar Center Holdings L.L.C. 3, which, in turn, is the sole
member of each of the four limited liability companies which own, indirectly
through other limited liability companies, the three shopping center properties
and development parcel acquired by the Operating Partnership in October 2001.
SWH has no interest in profits or assets of Cedar Center Holdings L.L.C. 3;
however, SWH has the right to acquire operating control of the above mentioned
three shopping center properties in the event of a default by the Operating
Partnership or its affiliates of certain terms of the SWH financing.
45
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 6. Mortgage Loans, Other Loans Payable, and Line of Credit (continued)
As additional security for the SWH loan, the Operating Partnership has
pledged to SWH Funding Corp., its rights to distributions from the entity which
controls the limited liability companies which own each of the three shopping
center properties. Under the pledge, SWH has no rights to such distributions
unless and until an event of default occurs.
The SWH financing arrangements involve a term of three years, maturing
November 1, 2004, with a right to extend for two additional eighteen month
periods upon payment of certain fees, and subject to certain additional minimum
monthly and annual or "back-end" payments, and to certain additional
participations in gain in value payable at the earliest of the repayment date,
maturity or the date of sale of the three shopping center properties described
above.
Payments to SWH pursuant to the financing arrangements shall be at a
rate of 12.5% per annum on the outstanding balance. In addition, an "equity fee"
in an amount equal to the greater of $350,000 or 10% of the gain in value of the
properties as determined by appraisal is payable at maturity. Further, SWH shall
be entitled to "exit fees" of $120,000 if the entire principal is paid prior to
October 2002, thereafter additional amounts accrue at 1/3% per month during the
period October 2002 - November 2004; 1/2% per month during the extension period
from November 2004 - November 2005; and 2/3% per month during the extension
periods from November 2005 - November 2007. A loan fee of $225,000 was paid to
SWH at closing.
Commencing as of December 1, 2001, amortization payments of $10,000 are
required during each of the first three months, $20,000 for each of the 4th
through 6th months, $35,000 for each of the 7th through the 12th months,
$45,833.33 for the 13th through the 24th months, and $41,666.67 for the 25th
through the 36th months. In addition there is a mandatory payment of $4.5
million on or prior to the 12th month (November 2002) and an additional
mandatory payment of $300,000 on or prior to the 18th month.
The obligations of the Operating Partnership under the SWH financing
agreement are guaranteed by the Company.
46
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 6. Mortgage Loans, Other Loans Payable, and Line of Credit (continued)
The combined aggregate future principal payments of mortgages & loans at
December 31, are as follows:
Year Mortgage loans payable Other loan payable
- -------------- ---------------------- ------------------
2002 $18,242,311 (1) $4,871,667 (2)
2003 368,197 841,667
2004 391,499 266,666
2005 425,651 -
2006 457,842 -
Thereafter 26,244,260 -
----------- ----------
$46,129,760 $5,980,000
=========== ==========
(1) The Point's $17.9 million loan has two six-month extensions through June 1,
2003. The Company expects to refinance in an amount equal to or greater than
$17.9 million on or before June 1, 2002.
(2) Substantially all of amount due is expected to be paid from the proceeds of
the sale of Southpoint (see Note 4).
The Operating Partnership obtained a line of credit, effective March 4,
2002, in the amount of $1,000,000 from North Fork Bank, Melville, New York. The
term of the loan is for one (1) year with a maturity date of March 4, 2003. The
loan, at the sole discretion of the bank, may be used for (i) real estate
investment, (ii) real estate management, (iii) working capital and (iv) other
purposes as applicable and as approved by the bank. The interest rate is the
greater of 6% or the bank's prime rate plus 1%. Interest on the outstanding loan
balance is to be paid to the bank monthly in arrears. The line of credit's
availability is subject to certain conditions, including, but not limited to,
quarterly submission of 10-Q filings, annual submission of 10K filings and a
30-day annual "clean up". The line of credit does not require any fees to be
paid by the Company or the Operating Partnership.
Note 7. Related Party Transactions
Tender Offer
In June 1998, CBC, following a tender offer completed in April 1998 for
the purchase of the Company's shares, became the Company's largest shareholder.
CBC is a New York general Partnership. CBC is owned 55% by Duncomb
Corp., 40% by Lindsay Management Corp. and 5% by Hicks Corp. Mr. Ullman,
President and Chairman of the Board of Directors of the Company, is an executive
officer and a director of each of those corporations.
CBC is also an affiliate of the limited partner in The Point
Associates, L.P. in which the Operating Partnership acquired a 50% general
partnership interest in July 2000 for $2.1 million plus closing costs of
approximately $385,000.
47
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 7. Related Party Transactions (continued)
The 50% interest in The Point Associates, was purchased from Selbridge
Corp., then the sole general partner of The Point Associates, L.P. by assignment
of its 42% general partnership interest and from Mr. Ullman, then the sole
limited partner, by assignment of his entire 8% limited partnership interest.
Simultaneously with the assignment of partnership interests, Selbridge Corp.
became a 50% limited partner and the Company became a 50% general partner.
The proceeds of Mr. Ullman's 8% limited partnership interest were used
to repay a loan from Selbridge Corp. to Mr. Ullman to buy such partnership
interest. Selbridge Corp. paid a disposition fee to SKR in the amount of
$67,500.
The Operating Partnership has the right to acquire an additional 39%
partnership interest from Selbridge Corp. at any time at a price equal to the
fractional interest to be acquired, multiplied by ten times net operating
income, less the outstanding first mortgage debt. Selbridge Corp. is prohibited
from selling its remaining interest in The Point Associates, without first
offering to sell such interest to the Operating Partnership based upon the
aforementioned formula.
Advisory Services
The Company does not have any employees and has contracted with 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 and
January 1, 2002. CBRA is wholly-owned by Leo S. Ullman. Mr. Ullman is President
and a director of, and Brenda J. Walker is Vice President of, CBRA. The term of
the amended Advisory Agreement commenced as of August 21, 2000, and is for five
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 days' written notice. While Mr. Ullman and Ms.
Walker are not employed by the Company, they do receive remuneration from CBRA,
Brentway, and SKR each of which receives fees from the Company.
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 (subject to audit committee approval), 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
48
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 7. Related Party Transactions (continued)
stockholders of the Company and to regulatory agencies, including the Internal
Revenue Service, the Securities and Exchange Commission, and similar state
agencies.
The Advisory Agreement may be terminated (i) for cause upon not less
than sixty 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.
Pursuant to the Advisory Agreement as in effect through December 31,
2001, CBRA was generally entitled to receive acquisition and disposition fees of
5% of the gross purchase price and 3% of the gross sales price, respectively.
CBRA had 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. Further, CBRA has agreed to defer certain fees otherwise payable
with respect to the sales in 2001 of the Operating Partnership's Corporate
Center and Broadbent properties.
With respect to the sales of these two properties, the Operating
Partnership paid to CBRA aggregate disposition fees of $61,600, representing 1%
of the sales prices. CBRA agreed with the Board of Directors and management to
defer an additional 2% (aggregate $143,200) to which it would otherwise be
entitled pursuant to the terms of the agreement, which provided generally that
the deferred amounts would be reduced and eventually eliminated if CBRA remained
investment advisor to the Company beyond December 31, 2009.
On December 18, 2001 the Board of Directors approved an Amendment to
the Administrative and Advisory Agreement, reflecting a reduction in acquisition
and disposition fees payable to CBRA by the Company. Effective as of January 1,
2002, CBRA will earn a disposition or acquisition fee, as applicable, equal to
1% of the sale/purchase price; no other fees will be payable in connection with
such transactions.
Pursuant to the Advisory Agreement CBRA was originally entitled to
receive an acquisition fee in the maximum amount of $1,737,500 (5%) with respect
to the acquisition of the three supermarket-anchored shopping centers and land
parcel acquired on October 9, 2001. Initially, CBRA agreed to accept a cash fee
in the amount of $173,750 (one-half of 1%). As for the balance of the fee, CBRA
had agreed to (1) waive a portion in the amount of $868,750 (2.5%) and (2) defer
a portion in the amount of $696,000 (2%). Subsequently, with agreement of the
Board of Directors, the cash fee portion paid to CBRA was increased to 1%
(aggregate $347,500), and the deferred portion was waived in its entirety by
CBRA.
As a result of the amendment, it is expected that there will be no
further deferrals or waivers of fees payable by the Company to CBRA.
49
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 7. Related Party Transactions (continued)
The following is a schedule of fees payable by the Company to CBRA
reflecting the impact of the amendment and the reduced fees related to the
shopping centers:
Property Deferred Paid Total
- -------------------------------------------------------------------------------------------------------
2001 Transactions
Broadbent Business Center $ 106,000 $ 53,000 $ 159,000
Corporate Center 37,200 18,600 55,800
The three supermarket-anchored shopping centers (2)
- 347,500 347,500
2000 Transaction
Germantown 52,500 22,500 75,000
-----------------------------------------------
Total fees $ 195,700 (1) $ 441,600 $ 637,300
===============================================
(1) Amount owed if the Administrative and Advisory Agreement with CBRA is not
continued beyond December 31, 2004.
(2) The three supermarket anchored shopping centers consist of Academy Plaza,
Port Richmond Village and Washington Center (including development parcel
adjacent to Washington Center).
As indicated above, deferred disposition and acquisition fees will be
reduced by 50% if CBRA remains investment advisor to the Company for the period
after December 31, 2004, but prior to December 31, 2005. In the event of
termination or expiration of the Agreement after December 31, 2005, such fees
payable to Advisor shall be reduced by 10 percentage points for each subsequent
calendar year the Agreement remains in effect, until reduced to zero in any
event after December 31, 2009. Any deferred disposition and acquisition fees
payable to CBRA will also be waived as of the effective date of termination of
services by CBRA if the services of CBRA are terminated voluntarily by CBRA.
Based on the above, it is probable that a liability has been incurred.
However, the liability at this point can only be estimated to be in the range of
zero and the full fee. There is no best estimate within the range. This reflects
the fact that depending on how long CBRA's services are being used, the ultimate
fee amount payable may well be zero. Accordingly, none of the deferred fees have
been reflected in the accompanying financial statements.
In addition to acquisition and disposition fees payable to CBRA, CBRA
also receives 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
1/12 of 1/4 of 1% of the estimated current value of all other assets of the
Company.
50
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 2001
Note 7. Related Party Transactions (continued)
Property Management Services
Brentway provides property management, leasing, construction management
and loan placement 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 and Ms. Walker is Vice President and Director of the Company. The term
of the Management Agreement is for one year and is automatically renewed
annually for additional one-year periods subject to the right of either party to
cancel the Management Agreement upon sixty 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 for 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: a monthly management fee equal to 4% of
the gross income for the four supermarket-anchored shopping centers, and 5% of
the gross income for Southpoint (2.5% of which is paid to an unrelated party).
Brentway also receives leasing fees of up to 6% of the rent to be paid during
the term of the lease procured except in the case of the supermarket-anchored
shopping centers, where leasing fees are limited to 4.5%. Construction
management fees are 5% of the hard costs of construction. Loan placement fees
are 1% of the amount financed, subject to a maximum fee of $100,000 per
transaction.
Leasing fees paid by the Company during this period were also paid to
third parties. Brentway has subcontracted with a local management company for
site management and leasing services for the Company's office property in
Jacksonville, Florida.
51
Schedule of Administrative and Advisory, Property Management, Leasing and Other
Fees Paid to Related Parties:
Years ended December 31,
2001 2000 1999
-------------------------------------
Administrative and Advisory Fees
Cedar Bay Realty Advisors, Inc. $ 163,404 $ 97,872 $ 97,872
HVB (1) $ - $ - $ 100,000
-------------------------------------
Property Management Fees
AEGON $ - $ 9,118 $ 18,705
Brentway $ 103,149 $ 69,611 $ 50,683
-------------------------------------
Construction Management Fees
Brentway (2) $ 180,000 $ 28,239 $ -
-------------------------------------
Leasing Fees
Brentway $ 135,354 $ 44,063 $ -
-------------------------------------
Legal Fees
Stuart H. Widowski / SKR Management Corp. (3) $ 181,525 $ 33,088 $ 28,350
-------------------------------------
Loan Placement Fees
Brentway (4) $ 100,000 $ - $ -
-------------------------------------
(1) The fee paid to HVB Capital Markets, Inc. was for services rendered pursuant
to a Financial Advisory Agreement terminated as of December 31, 1999. Jean
Bernard Wurm, a Director of HVB, was also a Director of the Company prior to
December 31, 1999.
(2) Brentway was entitled to a construction management fee of 5% of the hard
costs of construction ($7,266,835). Brentway agreed on a fee of $200,000 of
which $180,000 was paid in 2001.
(3) Fees of $181,525 were paid to Stuart H. Widowski, Esq., SKR in-house counsel
and Secretary of the Company, through SKR, an affiliate of CBRA, Brentway,
and Leo S. Ullman, for legal services provided. $85,000 of such fee was
attributable to the acquisition of the three supermarket-anchored shopping
centers and negotiation of the corresponding SWH financing.
(4) A placement fee of $100,000 was paid to Brentway in 2001 for services
rendered in obtaining a refinancing of The Point Associates, L.P.'s first
mortgage loan.
52
Note 8. Selected Quarterly Financial Data (Unaudited)
Selected Quarterly Financial Data
Quarter Ended Year Ended
-----------------------------------------------------------------------
Year 03/31/01 06/30/01 09/30/01 12/31/01 12/31/01
- --------------------------------------------------------------------------------------------------------------------------
2001
Revenue $ 983,279 $ 965,918 $ 860,712 $ 2,288,856 $ 5,098,765
Net income (loss) (8,631) 335,787 (26,800) (448,071) (147,715)
Basic and diluted net income per share (0.01) 0.49 (0.04) (0.65) (.21)
- --------------------------------------------------------------------------------------------------------------------------
2000
Revenue $ 696,440 $ 600,838 $ 965,963 $ 952,540 $ 3,215,781
Net income (loss) 63,575 (55,615) (28,373) 8,330 (12,083)
Basic and diluted net income per share 0.07 (0.06) (0.03) 0.01 (0.01)
- --------------------------------------------------------------------------------------------------------------------------
1999
Revenue $ 660,226 $ 675,946 $ 605,307 $ 573,808 $ 2,515,287
Net income (loss) 37,356 19,522 7,733 (141) 64,470
Basic and diluted net income per share 0.07 0.04 0.01 (0.01) 0.11
- --------------------------------------------------------------------------------------------------------------------------
Item 9. Changes in, and Disagreements with Accountants on, Accounting and
Financial Disclosure
None.
53
Part III.
Item 10. Directors and Executive Officers of the Registrant
LEO S. ULLMAN, age 62, President and Chairman of the Board of Directors
of the Company has been involved in real estate property and asset management
for approximately twenty-four years. He has been Chairman and President of SKR
Management Corp. and Chairman of Brentway Management LLC from 1994 through the
current date, and President of Cedar Bay Realty Advisors, Inc. since the latter
company's formation in January 1998. He is also President and sole director of a
number of companies affiliated with CBC. Mr. Ullman was first elected as
Chairman of the Company in April 1998 and served until November 1999. He was
re-elected in December 2000. Mr. Ullman has been President of the Company from
April 1998 to date. He has been a member of the New York Bar since 1966 and in
private legal practice until 1998. From 1984 until 1993, he was a partner in the
New York law firm, Reid & Priest, and served as initial director of its real
estate group. From 1993 until the end of 1998, in addition to his real estate
management affiliations, Mr. Ullman was "of counsel" to the New York office of
the law firm Schnader Harrison Segal & Lewis, LLP.
JOHANNES A.M.H. DER KINDEREN, age 62, a Director of the Company since
1998 was the Director of Investments from 1984 through 1994 for Rabobank Pension
Fund, and has been or is Chairman and/or a member of the Board of the following
entities: Noord Amerika Real Estate B.V. (1995-present); Noord Amerika Vast Goed
B.V. (1985-present); Mass Mutual Pierson (M.M.P.) (1988-1997); Warner Building
Corporation (1996 to date). GIM Vastgoed (1998 to date); Fellion Investments
B.V. (2001 to date); and N.V. Maatschappij voor Trustzaken Ameuro (from 2002 to
date).
EVERETT B. MILLER, III, age 54, a Director of the Company since 1998,
is currently the Senior Vice President and Chief Executive Officer of Common
Fund Realty, Inc. a regulated investment advisor. Prior to that, starting in
March 1997, Mr. Miller was the Senior Vice President and Chief Executive Officer
of two finite REITs, Endowment Realty Investors and Endowment Realty Investors
II. From January 1995 through March 1997, Mr. Miller was the Principal
Investment Officer for Real Estate and Alternative Investment at the Office of
the Treasurer of the State of Connecticut. Prior to that, Mr. Miller was
employed for twenty years at Travelers Realty Investment Co., at which his last
position was Senior Vice President.
BRENDA J. WALKER, age 49, has been Vice President and a Director of the
Company since 1998 and Treasurer of the Company from April 1998 until November
1999: she has been President of Brentway Management LLC and Vice President of
SKR Management Corp. from 1994 through the current date; Vice President of API
Management Services Corp. and API Asset Management, Inc. from 1992 through 1995,
and Vice President of CBRA from 1998 to date. Ms. Walker has been involved in
real estate property and asset management for approximately twenty years.
JAMES J. BURNS, age 62, a Director of the Company since 2001, has been
Chief Financial Officer and Senior Vice President, of Wellsford Real Properties,
Inc. since December 2000. He joined Wellsford in October 1999 as Chief
Accounting Officer upon his retirement from Ernst & Young in September 1999. At
Ernst & Young, Mr. Burns was a senior audit partner in the E&Y Kenneth Leventhal
Real Estate Group for 22 years. Mr. Burns also serves as a director of One
Liberty Properties, Inc., a real estate investment trust. Mr. Burns is a
Certified Public Accountant and a member of the American Institute of Certified
Public Accountants.
54
Item 11. Compensation of Directors and Executives
The officers and directors of the Company who are affiliated with CBC
and the former officers and directors of the Company who were affiliated with
Uni-Invest Holdings (U.S.A.) B.V. do not/did not receive any direct remuneration
for their services to the Company other than reimbursement of travel and other
out of pocket expenses incurred in connection with their duties. Mr. Ullman and
Ms. Walker receive remuneration from CBRA, Brentway and SKR, each of which
receives fees from the Company. During 2001, directors not affiliated with CBC,
Mr. Miller, Mr. der Kinderen and Mr. Burns, each received an annual fee of
$5,000 plus $750 for each board meeting attended. Effective January 1, 2002,
independent directors' fees shall be $2,500 per quarter; meeting attendance fees
shall be $1,000 per regular Board meeting and $250 per telephonic Audit
Committee meeting.
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.
On July 10, 2001, the Board of Directors of the Company granted to each
then-current member of the Board (five members), options to purchase 10,000
shares of Common Stock of the Company at $3.50 per share (the quoted price on
the NASDAQ (Small Cap) Stock Market on that date). The options shall remain
outstanding for a period of ten years from July 10, 2001. The options shall vest
ratably 33.3% after one year of service commencing on July 10, 2001, and an
additional 33.3% as of each of the next two following anniversary dates,
provided, in each case, that the respective Director has remained a director of
the Company for the entire one-year period preceding the respective date.
55
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table sets forth information with respect to each person
and group (as that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934) known by the Company to be the beneficial owner of more than 5% of
the outstanding Shares of the Company as of March 20, 2002. Each such owner has
sole voting and investment powers with respect to the shares owned by such
person.
Number of Shares
Name and Address Beneficially Owned Percent of Class
- ---------------- ------------------ ----------------
Cedar Bay Company c/o SKR Management Corp. 1,893,037(1) 79%
44 South Bayles Avenue
Port Washington, NY 11050
Homburg Invest Inc.
200 - 11 Akerley Boulevard 150,000 21.7%
Halifax, Nova Scotia
Canada B3B 1V7
Security Ownership of Management
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 20, 2002, by each Director and officer and by
all Directors and executive officers as a group (5 persons).(1)
Amount and Nature
Name of Beneficial Ownership Percent of Class
- ---- ----------------------- ----------------
Leo S. Ullman 1,895,437(1)(2)(3) 79%
J.A.M.H. der kinderen 200(2) 0
Everett B. Miller III 200(2) 0
Brenda J. Walker 300(2) 0
James J. Burns 0
Directors and Executive Officers as a group
(5 persons) (2) 0
- --------
(1) Represents 189,737 shares of Common Stock and 1,703,300 units convertible
into shares of Common Stock owned by Cedar Bay Company plus 2,400 shares
owned personally.
(2) Excludes options to purchase 10,000 shares of common stock granted to each
of the Company's five directors.
(3) Mr. Ullman may be deemed to be the beneficial owner of all the shares of
Common Stock and Units owned by Cedar Bay Company. Mr. Ullman disclaims
beneficial ownership of such securities.
56
Section 16(a) Beneficial Reporting Compliance
The Company believes that during 2001 all of its officers, Directors
and holders of more than 10% of its Common Stock complied with all filing
requirements under Section 16(a) of the Securities Exchange Act of 1934, except
that each of the five directors failed to file in a timely manner a Form 5
reporting on the grant of stock options during 2001.
Item 13. Certain Relationships and Related Party Transactions
The Company does not have any employees and has contracted with 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 and
January 1, 2002. CBRA is wholly-owned by Leo S. Ullman. Mr. Ullman is President
and sole director of, and Brenda J. Walker is Vice President of, CBRA. Mr.
Ullman is President and Chairman of the Company. Ms. Walker is Vice President
and a Director of the Company. The term of the amended Advisory Agreement
commenced as of August 21, 2000, and is for five (5) years, automatically
renewed annually thereafter for additional 1-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.
CBC, which owns approximately 79% of the aggregate of shares and Units,
is a New York general partnership. CBC is owned 55% by Duncomb Corp., 40% by
Lindsay Management Corp. and 5% by Hicks Corp. Mr. Ullman is an executive
officer and a director of each of those corporations. CBC is an affiliate of the
limited partner in The Point Associates. Mr. Ullman is an executive officer and
director of that entity, but disclaims any beneficial ownership.
CBRA is wholly-owned by Leo S. Ullman. Mr. Ullman is President and sole
director of, and Brenda J. Walker is Vice President of, CBRA.
Brentway is owned by Mr. Ullman and Ms. Walker. Mr. Ullman is Chairman
and Ms. Walker is President of Brentway. Brentway provides property management,
leasing, construction management and loan placement services to the Company.
SKR is wholly-owned by Mr. Ullman. Mr. Widowski through SKR provides
certain legal services to the Company and its properties at rates which the
Company believes to be less than those prevailing in the market.
_______________________________________________________________________________
57
Advisory Services
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 (subject to audit committee approval),
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 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. Further, CBRA has agreed to defer certain fees otherwise payable
with respect to the sales in 2001 of Corporate Center and Broadbent.
With respect to the sales of these two properties, the Operating
Partnership paid to CBRA aggregate disposition fees of $61,600, representing 1%
of the sales prices. CBRA agreed with the Board of Directors and management to
defer an additional 2% (aggregate $143,200) to which it would otherwise be
entitled pursuant to the terms of the Administrative and Advisory Agreement,
which provide generally that the deferred amounts are reduced and eventually
eliminated if CBRA remains investment advisor to the Company beyond December 31,
2009.
On December 18, 2001 the Board of Directors approved an Amendment to
the Administrative and Advisory Agreement, reflecting a reduction in acquisition
and disposition fees payable to CBRA by the Company, effective as of January 1,
2002, CBRA will earn a disposition or acquisition fee, as applicable, equal to
1% of the sale/purchase price; no other fees will be payable in connection with
such transactions.
Pursuant to the Advisory Agreement CBRA was originally entitled to
receive an acquisition fee in the maximum amount of $1,737,500 (5%) with respect
to the acquisition of the three supermarket-anchored shopping centers and land
parcel acquired on October 9, 2001. Initially, CBRA agreed to accept a cash fee
in the amount of $173,750 (one-half of 1%). As for the balance of the fee, CBRA
had agreed to (1) waive a portion in the amount of $868,750 (2.5%) and (2) defer
a portion in the amount of $696,000 (2%). Subsequently, with agreement of the
Board of Directors, the cash fee portion paid to CBRA was increased to 1%
(aggregate $347,500), and the deferred portion was waived in its entirety by
CBRA.
58
Advisory Services (continued)
As a result of the amendment, it is expected that there will be no
further deferrals or waivers of fees payable by the Company to CBRA.
The following is a schedule of fees payable by the Company to CBRA
reflecting the amendment to the Administrative and Advisory Agreement and the
reduction in fees described above:
Property Deferred Paid Total
- -------------------------------------------------------------------------------------------------------
2001 Transactions
Broadbent $ 106,000 $ 53,000 $ 159,000
Corporate Center 37,200 18,600 55,800
The three supermarket-anchored shopping centers (1)
- 347,500 347,500
2000 Transaction
Germantown 52,500 22,500 75,000
-----------------------------------------------
Total fees $ 195,700 (2) $ 441,600 $ 637,300
===============================================
(1) The three supermarket anchored shopping centers consist of Academy Plaza,
Port Richmond Village and Washington Center (including the Greentree Road
development parcel).
(2) Amount owed if the Administrative and Advisory Agreement with CBRA is not
continued beyond December 31, 2004.
As indicated above, deferred disposition and acquisition fees will be
reduced by 50% if CBRA remains investment advisor to the Company for the period
after December 31, 2004, but prior to December 31, 2005. In the event of
expiration or termination of the Agreement after December 31, 2005, such fees
payable to Advisor shall be reduced by 10 percentage points for each subsequent
calendar year the Agreement remains in effect, until reduced to zero in the
event of expiration or termination after December 31, 2009. Any deferred
disposition and acquisition fees payable to CBRA will also be waived as of the
effective date of termination of services by CBRA if the services of CBRA are
terminated voluntarily by CBRA.
Based on the above it is probable that a liability has been incurred.
However, the liability at this point can only be estimated to be in the range of
zero and the full fee; there is no best estimate within the range. This reflects
the fact that depending on how long CBRA's services are being used, the ultimate
fee amount payable may well be zero. Accordingly, none of the deferred fees have
been reflected in the Company's financial statements.
In addition to acquisition and disposition fees payable to CBRA, CBRA
also receives 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
1/12 of 1/4 of 1% of the estimated current value of all other assets of the
Company.
59
Property Management Services
Brentway provides property management, leasing, construction management
and loan placement 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 and Ms. Walker is Vice President and Director of the Company. The term
of the Management Agreement is for one year and is automatically renewed
annually for additional one-year periods subject to the right of either party to
cancel the Management Agreement upon sixty 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 for 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: a monthly management fee equal to 4% of
the gross income for the shopping centers, and 5% of the gross income for
Southpoint (2.5% of which is paid to an unrelated party). Brentway also receives
leasing fees of up to 6% of the rent to be paid during the term of the lease
procured except in the case of the shopping centers, where leasing fees are
limited to 4.5%. Construction management fees are 5% of the hard costs of
construction. Loan placement fees are 1% of the amount financed, subject to a
maximum fee of $100,000 per transaction.
Leasing fees paid by the Company during this period were also paid to
third parties. Brentway has subcontracted with a local management company for
site management and leasing services for the Company's office property in
Jacksonville, Florida.
60
Schedule of Administrative and Advisory, Property Management, Leasing and Other
Fees Paid to Related Parties as follows:
Years ended December 31,
2001 2000 1999
-------------------------------------
Administrative and Advisory Fees
Cedar Bay Realty Advisors, Inc. $ 163,404 $ 97,872 $ 97,872
HVB (1) $ - $ - $ 100,000
-------------------------------------
Property Management Fees
AEGON $ - $ 9,118 $ 18,705
Brentway $ 103,149 $ 69,611 $ 50,683
-------------------------------------
Construction Management Fees
Brentway (2) $ 180,000 $ 28,239 $ -
-------------------------------------
Leasing Fees
Brentway $ 135,354 $ 44,063 $ -
-------------------------------------
Legal Fees
Stuart H. Widowski / SKR Management Corp. (3) $ 181,525 $ 33,088 $ 28,350
-------------------------------------
Loan Placement Fees
Brentway (4) $ 100,000 $ - $ -
-------------------------------------
(1) The fee paid to HVB Capital Markets, Inc. was for services rendered pursuant
to a Financial Advisory Agreement terminated as of December 31, 1999. Jean
Bernard Wurm, a Director of HVB, was also a Director of the Company prior to
December 31, 1999.
(2) Brentway was entitled to a construction management fee of 5% of the hard
costs of construction ($7,266,835). Brentway agreed on a fee of $200,000 of
which $180,000 was paid in 2001.
(3) Fees of $181,525 were paid to Stuart H. Widowski, Esq., SKR in-house counsel
and Secretary of the Company, through SKR, an affiliate of CBRA, Brentway,
and Leo S. Ullman, for legal services provided. $85,000 of such fee was
attributable to the acquisition of the three supermarket-anchored shopping
centers and negotiation of the corresponding SWH financing.
(4) A placement fee of $100,000 was paid to Brentway in 2001 for services
rendered in obtaining a refinancing of The Point Associates, L.P.'s first
mortgage loan.
61
The Company has entered into an agreement to purchase, from affiliates
of CBC a 20% interest as managing general partner in API Red Lion Associates,
L.P., ("Red Lion") a Pennsylvania limited partnership which owns the Red Lion
Shopping Center in Philadelphia, Pennsylvania. That center is a community strip
center of approximately 218,000 rentable sq. ft. on approximately 18.72 acres of
land located at the intersection of Route 1 (Roosevelt Boulevard) and Red Lion
Road. It is anchored by Best Buys, Sports Authority, Staples and Pep Boys. The
purchase arrangements contemplate a valuation of $23 million for the property,
which is encumbered by a first mortgage of approximately $16.8 million at 8.86%
due in February 2010. A sixty-nine percent limited partnership interest in the
partnership will be sold simultaneously to a newly-formed limited liability
company owned by third parties at the same valuation. An affiliate of CBC will
continue to own an 11% limited partnership interest and will master-lease
certain presently vacant store premises aggregating approximately 50,000 sq. ft.
at rentals of $11.50; further it will fund a reserve deposit of $1.5 million for
such purposes. The valuation is supported by an MAI appraisal at a higher value.
Mr. Ullman presently owns an 8% limited partnership interest in Red Lion, it is
contemplated that Mr. Ullman's entire interest will be sold as part of the
transaction described above. The net proceeds of such sale by Mr. Ullman are
expected to be paid to such affiliate of CBC in repayment of a loan to Mr.
Ullman to purchase such interest in the property. The purchase agreement is
subject to receipt by the Board of Directors of a "fairness" opinion from a
reputable independent investment banking firm.
The Company will purchase its 20% interest in API Red Lion Associates
for $1.2 million payable in four equal annual installments of $300,000 with
interest at 7.5%. The Company expects to fund those payments out of available
cash or cash flow.
On or about January 18, 2002, Homburg Invest Inc., a Canadian
corporation listed on the Toronto Stock Exchange, acquired from Richard Homburg,
a Canadian national, and/or affiliated persons, 150,000 shares of the Company
(approximately 21.7%). As the Articles and By-Laws of the Company prohibit
acquisition of more than 3.5% of the stock of the Company without consent of the
Board of Directors, the Company, Homburg Invest Inc. and Richard Homburg entered
into a certain "standstill" agreement pursuant to which Homburg Invest Inc., Mr.
Homburg and their respective affiliates have agreed not to purchase more than
29.9% of the stock of the Company in the aggregate for a period of five (5)
years, not to commence or support a "hostile" tender offer during that period,
and to vote for certain directors of the Company. The Company has agreed to
support the election of a designee of Homburg Invest Inc. to its Board of
Directors. The first designee is expected to be Mr. Frank Matheson and Mr.
Matheson is expected to be appointed as of April 1, 2002 by the Board of the
Company to fill a vacancy on the Board pending election to a full term by the
shareholders at the next annual meeting of shareholders.
62
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. The response to this portion of Item 14 is submitted as a separate
section of this report.
3. Exhibits
(3.1) Articles of Incorporation of the Company. Incorporated by reference
to Exhibit 3.1 to Form 10-K for the year ended 1998 ("1998 10-K").
(3.2) By-laws of the Company. Incorporated by reference to Exhibit 3.2 to
Form 10-K for the year ended 1998 ("1998 10-K").
(3.3) Agreement of Limited Partnership for the Operating Partnership.
Incorporated by reference to Exhibit 3.3 to Form 10-K for the year
ended 1998 ("1998 10-K").
(10.1) Administrative and Advisory Agreement dated April 2, 1998 between
Cedar Bay Realty Advisors, Inc. and the Company. Incorporated by
reference Exhibit 3.4 to Form 10-K for the year ended 1998 ("1998
10-K").
(10.2) Management Agreement dated April 2, 1998 between Brentway Management
LLC and the Company. Incorporated by reference Exhibit 3.5 to Form
10-K for the year ended 1998 ("1998 10-K").
(10.3) Assignment of Administrative and Advisory Agreement dated April 30,
1999, between Cedar Income Fund, Ltd. and Cedar Income Fund
Partnership, L.P.; Amendment of Administrative and Advisory
Agreement dated August 21, 2000, between Cedar Income Fund
Partnership, L.P. and Cedar Bay Realty Advisors, Inc.; Second
Amendment of Administrative and Advisory Agreement dated August 21,
2000, between Cedar Income Fund Partnership, L.P. and Cedar Bay
Realty Advisors, Inc.; and Third Amendment of the Administrative and
Advisory Agreement dated as of January 1, 2002, between Cedar Income
Fund Partnership, L.P. and Cedar Bay Realty Advisors, Inc.
(10.4) Standstill Agreement between Homburg Invest Inc., Richard Homburg
and the Company dated January 18, 2002.
(10.5) For the sale of Southpoint Parkway, Jacksonville, Florida, Real
Estate Purchase and Sale Agreement by and between Cedar Income Fund
Partnership, L.P. and Southpoint Parkway Center, L.C. dated February
1, 2002; Addendum Number One by and between Cedar Income Fund
Partnership, L.P. and Southpoint Parkway Center, L.C.
(21) Listing of the Company's subsidiaries.
63
(b) Reports on Form 8-K. Report on Form 8-K filed on October 24, 2001,
reporting on an event listed under Item 2. Report on Form 8-K/A
filed on November 14, 2001, reporting on an event listed under Items
2 and 7.
(c) Exhibits The response to this portion of Item 14 is submitted in a
separate section of this report.
(d) Financial Statement Schedules The response to this portion of Item
14 is submitted in a separate section of this report
64
Item 15.
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.
/s/ Leo S. Ullman /s/ Brenda J. Walker
- --------------------------- ------------------------------------
Leo S. Ullman Brenda J. Walker
President and Chairman Vice President and Director
(principal executive officer) (principal financial officer)
/s/ Ann Maneri
------------------------------------
Ann Maneri
Controller
(principal accounting officer)
_______________, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and as of the date indicated.
/s/ J.A.M.H. der Kinderen /s/ James J. Burns
- --------------------------- ---------------------------
J.A.M.H. der Kinderen James J. Burns
Director Director
- ------------------------
Everett B. Miller, III
Director
______________, 2002
65
EXHIBIT INDEX
Exhibit
Item Title or Description
- ------- --------------------
(3.1) Articles of Incorporation of the Company. Incorporated by reference
to Exhibit 3.1 to Form 10-K for the year ended 1998 ("1998 10-K").
(3.2) By-laws of the Company. Incorporated by reference to Exhibit 3.2 to
Form 10-K for the year ended 1998 ("1998 10-K").
(3.3) Agreement of Limited Partnership for the Operating Partnership.
Incorporated by reference to Exhibit 3.3 to Form 10-K for the year
ended 1998 ("1998 10-K").
(10.1) Administrative and Advisory Agreement dated April 2, 1998 between
Cedar Bay Realty Advisors, Inc. and the Company. Incorporated by
reference to Exhibit 10.1 to Form 10-K for the year ended 1998
("1998 10-K").
(10.2) Management Agreement dated April 2, 1998 between Brentway Management
LLC and the Company. Incorporated by reference to Exhibit 10.2 to
Form 10-K for the year ended 1998 ("1998 10-K").
(10.3) Assignment of Administrative and Advisory Agreement dated April 30,
1999, between Cedar Income Fund, Ltd. and Cedar Income Fund
Partnership, L.P.; Amendment of Administrative and Advisory
Agreement dated August 21, 2000, between Cedar Income Fund
Partnership, L.P. and Cedar Bay Realty Advisors, Inc.; Second
Amendment of Administrative and Advisory Agreement dated August 21,
2000, between Cedar Income Fund Partnership, L.P. and Cedar Bay
Realty Advisors, Inc.; and Third Amendment of the Administrative and
Advisory Agreement dated as of January 1, 2002 between Cedar Income
Fund Partnership, L.P. and Cedar Bay Realty Advisors, Inc.
(10.4) Standstill Agreement between Homburg Invest Inc., Richard Homburg
and the Company dated January 18, 2002.
(10.5) For the sale of Southpoint Parkway, Jacksonville, Florida, Real
Estate Purchase and Sale Agreement by and between Cedar Income Fund
Partnership, L.P. and Southpoint Parkway Center, L.C. dated February
1, 2002; Addendum Number One by and between Cedar Income Fund
Partnership, L.P. and Southpoint Parkway Center, L.C.
(10.6) Agreement of Sale between Washington Centre Shops, L.P., Port
Richmond Associates, LLC, Academy Stores, L.P. and Greentree Road
Land, Inc., as seller, and Cedar Income Fund Partnership, L.P., as
Purchaser. Incorporated by reference to Form 8-K filed October 24,
2001.
(21) Listing of the Company's subsidiaries.
66