UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
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 (I.R.S. Employer Identification Number)
incorporation or organization)
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
----- -----
Based on the closing sales price on June 30, 1999 of $4.47 per share, the
aggregate market value of the voting stock held by non-affiliates of the
registrant was $1,537,470.
The number of shares outstanding of the registrant's common stock $.01 par value
was 542,111 on June 30, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
INDEX
Cedar Income Fund, Ltd.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999 (unaudited)
and December 31, 1998
Consolidated Statements of Shareholders' Equity - June
30, 1999 (unaudited) and December 31, 1998
Consolidated Statements of Operations - Three Months Ended
June 30, 1999 and 1998 (unaudited); Six Months Ended
June 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended June
30, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements -
June 30, 1999 (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Part III. Signatures
Cedar Income Fund, Ltd.
Consolidated Balance Sheets
June 30, 1999
(Unaudited) December 31, 1998
------------ -----------------
Assets
Real estate
Land $ 4,144,705 $ 4,144,705
Buildings and improvements 14,789,715 14,759,062
------------ ------------
18,934,420 18,903,767
Less accumulated depreciation (4,967,365) (4,698,109)
------------ ------------
Real estate 13,967,055 14,205,658
Cash and cash equivalents 412,467 678,196
Rent and other receivables 241,363 108,196
Deposit on specialty retail complex 250,000 --
Prepaid expenses 121,114 107,283
Deferred leasing commissions 117,870 131,350
Due from co-tenancy partner 42,118 61,323
Deferred financing costs 34,028 --
Deferred rental income 37,928 21,500
Taxes held in escrow 7,901 9,809
------------ ------------
Total assets $ 15,231,844 $ 15,323,315
============ ============
Liabilities and Shareholders' Equity
Liabilities
Mortgage loan payable $ 1,361,076 $ 1,374,751
Accounts payable and accrued expenses 228,584 172,358
Due to co-tenancy partner 17,162 46,570
Security deposits 95,253 84,466
Advance rents 85,487 46,334
------------ ------------
Total liabilities 1,787,562 1,724,479
Limited partner's interest in consolidated
Operating Partnership 10,206,698 10,309,316
Shareholders' Equity
Common stock ($.01 par value,
5,020,000 shares authorized,
542,111 issued and outstanding) 5,421 5,421
Additional paid-in capital 3,232,163 3,284,099
------------ ------------
Total shareholders' equity 3,237,584 3,289,520
------------ ------------
Total liabilities and shareholders' equity $ 15,231,844 $ 15,323,315
============ ============
1
Cedar Income Fund, Ltd.
Consolidated Statements of Shareholders' Equity (Unaudited)
Additional Undistributed Total
Common Paid-In Net Shareholders'
Stock Capital Income Equity
----------- ----------- ------------- -----------
Balance at December 31, 1998 $ 5,421 $ 3,284,099 $ -- $ 3,289,520
Net income after limited
partner's interest -- -- 56,486 56,486
Dividends to shareholders -- (51,936) (56,486) (108,422)
----------- ----------- ----------- -----------
Balance at June 30, 1999 $ 5,421 $ 3,232,163 $ -- $ 3,237,584
=========== =========== =========== ===========
2
Cedar Income Fund, Ltd.
Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- ----------
Revenue
Rents $ 594,825 $ 632,324 $ 1,248,076 $ 1,272,394
Other income 75,000 -- 75,000 --
Interest 6,116 10,922 13,136 42,208
----------- ----------- ----------- ----------
Total revenue 675,941 643,246 1,336,212 1,314,602
----------- ----------- ----------- ----------
Expenses
Property expenses:
Real estate taxes 62,877 59,609 125,160 119,218
Repairs and maintenance 72,427 46,887 125,782 118,346
Utilities 35,871 36,101 73,219 71,766
Management fees 31,435 31,758 61,984 63,710
Insurance 3,557 3,504 7,943 8,413
Other 32,515 24,425 52,174 46,944
----------- ----------- ----------- ----------
Property expenses excluding
depreciation and amortization 238,682 202,284 446,262 428,397
Depreciation and amortization 146,728 119,743 272,707 241,678
----------- ----------- ----------- ----------
Total property expenses 385,410 322,027 718,969 670,075
Interest 32,009 32,625 64,177 65,396
Administrative and advisory fees 24,468 24,468 48,936 50,244
Directors' fees and expenses 23,558 12,733 51,426 33,738
Other administrative 94,315 230,707 157,973 298,739
----------- ----------- ----------- ----------
Total expenses 559,760 622,560 1,041,481 1,118,192
----------- ----------- ----------- ----------
Net income before limited partner's
interest in Operating Partnership $ 116,181 20,686 294,731 196,410
Limited partner's interest (96,659) -- (238,245) --
----------- ----------- ----------- ----------
Net income $ 19,522 $ 20,686 $ 56,486 $ 196,410
=========== =========== =========== ===========
Basic and diluted net income per share $ 0.04 $ 0.01 $ 0.10 $ 0.09
=========== =========== ========== ===========
Dividends to shareholders $ 54,211 $ 224,541 $ 108,422 $ 449,082
=========== =========== =========== ==========
Dividends to shareholders per share $ 0.10 $ 0.10 $ 0.20 $ 0.20
=========== =========== =========== ==========
Average number of shares outstanding 542,111 2,245,111 542,111 2,245,411
=========== =========== =========== ==========
3
Cedar Income Fund, Ltd.
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
1999 1998
--------- ---------
Operating Activities
Net income $ 56,486 $ 196,410
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Limited partner's interest in Operating Partnership 238,245 --
Depreciation and amortization 272,707 241,678
Increase in deferred rental receivable (16,428) --
Changes in operating assets and liabilities:
(Decrease) increase in rent and other receivables (133,167) 54,706
Decrease in interest receivable -- 3,881
Increase in prepaid expenses (17,285) (56,983)
Decrease in deferred leasing commissions 13,480 4,925
Increase in tax held in escrow 1,908 --
Increase in accounts payable 56,226 116,677
Decrease (increase) in amounts due from co-tenancy partner 19,205 (58,027)
Increase in amounts due to co-tenancy partner (29,408) --
Security deposits collected, net 10,787 1,770
Increase in advance rents 39,153 18,000
--------- ---------
Net cash provided by operating activities 511,909 523,037
Cash Flow from Investing Activities
Capital expenditures (30,652) (100,951)
Sale and collection of mortgage loan receivable -- 561,920
Principal portion of scheduled mortgage loan receivable -- 2,517
Deposit on specialty retail complex (250,000) --
--------- ---------
Net cash (used in) provided by investing activities (280,652) 463,486
Cash Flow from Financing Activities
Principal portion of scheduled mortgage payments (13,675) (12,456)
Dividends paid (108,422) (449,082)
Distributions to limited partner (340,862) --
Financing costs (34,027) --
--------- ---------
Net cash used in financing activities (496,986) (461,538)
(Decrease) increase in cash and cash equivalents (265,729) 524,985
Cash and cash equivalents at beginning of the period 678,196 407,216
--------- ---------
Cash and cash equivalents at end of the period $ 412,467 $ 932,201
========= =========
Supplemental Disclosure of Cash Activities
Interest paid 64,177 65,396
4
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
June 30, 1999 (Unaudited)
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Background, Organization and Reorganization of the Company
Cedar Income Fund, Ltd. ("Old Cedar") was incorporated in Iowa on December 10,
1984. Old Cedar's public offerings of Common Stock, completed in 1986 and 1988,
raised nearly $19,000,000. Old Cedar invested the proceeds from these offerings
in four real estate properties and a mortgage loan participation, utilizing
only a minimum amount of indebtedness against the properties. The mortgage loan
participation has since been liquidated (See Note 4).
On April 2, 1998, Cedar Bay Company, a New York general partnership ("CBC"),
pursuant to a tender offer to purchase all of the outstanding shares of Common
Stock of Old Cedar for $7.00 per share in cash (the "Offer"), acquired
1,893,038.335 shares of Old Cedar's outstanding Common Stock, $0.01 par value
per share ("Old Common Stock"), representing approximately 85% of the then
outstanding shares.
On June 26, 1998, Old Cedar merged with and into Cedar Income Fund, Ltd., a
Maryland corporation (the "Company") newly formed as a wholly-owned subsidiary
of Old Cedar. Immediately thereafter, the Company assigned substantially all of
its assets and liabilities to a newly-formed Delaware limited partnership, Cedar
Income Fund Partnership, L.P. (the "Operating Partnership"), in exchange for an
aggregate of 2,245,411 units of the Operating Partnership ("Units"), which
constituted the sole general partnership interest and all of the limited
partnership interests in the Operating Partnership. After such assignment, CBC
exchanged 1,703,300 shares of the Company's Common Stock, $0.01 par value per
share ("New Common Stock"), for 1,703,300 limited partnership Units in the
Operating Partnership owned by the Company. The shares of New Common Stock were
cancelled by the Company upon their exchange by CBC. Following these
transactions, CBC owned 189,737 shares of New Common Stock, aggregating
approximately 35% of the issued and outstanding shares of New Common Stock.
There were 542,111 shares of New Common Stock outstanding as of June 30, 1999.
The Company's shares are currently traded on the NASDAQ Small Cap Market under
the symbol "CEDR". However, the Company has received notice from the NASDAQ
stating that the "public float" of Common Stock of the Company is less than the
minimum requirements of the NASDAQ, and that, accordingly, the Company's shares
will be delisted if the Company continues to fail to comply with such
requirements. The "public float" (shares not held by insiders or "affiliates" of
the Company) as of June 30, and as of this date is approximately 345,000 shares;
the current minimum requirement of the NASDAQ is 500,000 shares. The Company has
appealed such proposed delisting. The Company is attempting to come into
compliance; however there can be no assurance that compliance by the Company can
in fact be achieved. A continued failure to maintain such listing will result in
a breach of certain covenants in the shareholder loan of CBC secured by the O.P.
units and shares owned by CBC.
5
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies
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 operates as a real estate investment trust ("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 its shareholders with a
professionally managed, diversified portfolio of commercial real estate
investments which will provide the best available cash flow and present an
opportunity for capital appreciation.
The Company, through its Operating Partnership, owns and operates three office
properties aggregating approximately 224,000 square feet, located in
Jacksonville, Florida, Salt Lake City, Utah and Bloomington, Illinois; and a 50%
undivided interest in a 74,000 square foot retail property located in
Louisville, Kentucky.
Cedar Bay Realty Advisors, Inc. ("CBRA" or "Advisor") serves as investment
advisor to the Company pursuant to an Administrative and Advisory Agreement with
the Company substantially similar to the terms of that agreement previously in
effect between Old Cedar and AEGON USA Realty Advisors, Inc. of Cedar Rapids,
Iowa ("AEGON"), which served as investment advisor to the Company from formation
until April 3, 1998. Brentway Management LLC ("Brentway" or "Property Manager"),
a New York limited liability company provides property management services for
the Company's properties pursuant to a management agreement with the Company on
substantially the same terms as the agreement previously in effect with AEGON.
Brentway and CBRA are both affiliates of CBC, SKR Management Corp. and Leo S.
Ullman. Leo S. Ullman is Chairman of the Board of Directors and President of the
Company.
6
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies (continued)
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for year
ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company's Annual Report on Form
10-K for the year ended December 31, 1998.
Consolidation Policy and Related Matters
The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership as of June 30,
1999. All significant intercompany balances and transactions have been
eliminated in consolidation.
As the Company owns the sole general partnership interest in the Operating
Partnership, which provides the Company with effective control over all
significant activities of the Operating Partnership, the Operating Partnership
is consolidated with the Company in the accompanying financial statements as of
June 30, 1999.
The limited partner's interest as of June 30, 1999 (currently owned entirely by
CBC) represents approximately a 76% limited partnership interest in the equity
of the Operating Partnership.
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.
7
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies (continued)
The accompanying financial statements include its 50% co-tenancy interest in the
assets, liabilities and operations of the retail property.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term of
the lease. The excess of rents recognized over amounts contractually due are
included in deferred 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 indexed
rental increases, which are recorded on an accrual basis.
Real Estate
Depreciation is computed utilizing the straight-line method over the estimated
useful lives of ten to forty years for buildings and improvements. Tenant
improvements, which are included in buildings and improvements, are amortized on
a straight-line basis over the term of the relevant lease.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three months
or less when purchased, to be cash equivalents.
Deferred Costs
Leasing fees and loan costs are capitalized and amortized over the life of the
relevant lease or loan.
8
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies (continued)
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123) requires use of option valuation
models that were not developed for use in valuing employee stock options.
The Company established a stock option plan (the "Plan") for the purpose of
attracting and retaining executive officers, directors and other key employees.
Five Hundred Thousand (500,000) of the Company's authorized shares of Common
Stock have been reserved for issuance under the Plan. The Plan is administered
by a committee of the Board of Directors, which committee will, among other
things, select the number of shares subject to each grant, the vesting period
for each grant and the exercise price (subject to applicable regulations with
respect to incentive stock options) for the options. As of June 30, 1999, no
options have been granted under the Plan.
Earnings Per Share
Statement of Financial Accounting Standard Board ("FASB") No. 128, "Earnings per
Share", was issued and adopted by the Company during 1997. Statement No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Since the Company has no potentially
dilutive securities outstanding, basic and diluted net income per share in
accordance with Statement No. 128 are the same and do not differ from amounts
previously reported as net income per share (primary earnings per share).
Accordingly, basic and diluted net income per share are computed using the
weighed average number of shares outstanding during the year.
Basic and diluted net income per share are based on the weighted average number
of shares outstanding (542,111 in the first and second quarters of 1999 and
2,245,411 for the first and second quarters of 1998). Dividends to shareholders
per share are based on the actual number of shares outstanding on the respective
dates.
Recent Pronouncements
In 1997, the FASB issued the following statements (i) Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130") which is effective for fiscal
years beginning after December 15, 1997. SFAS 130 established standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 130 requires that all
9
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies (continued)
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 (ii) Statement No. 131 "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS 131") which is effective for fiscal years
beginning after December 15, 1997. SFAS 131 establishes standards for reporting
information about operating segments in annual financial statements and in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The adoption
of this standard had no impact on the Company's financial position or results of
operations, but did affect the disclosure of segment information.
Income Taxes
The Company generally will not be subject to federal income taxes as long as it
qualifies as a REIT under Section 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 95% of its REIT
taxable income to maintain qualification as a REIT. As distributions, for
federal income tax purposes, have exceeded REIT taxable income, no federal
income tax provision has been made.
Impairment of Long-Lived Assets
The Company reviews its real estate assets if indicators of impairment are
present to determine whether the carrying amount of the asset will be recovered.
Recognition of impairment is required if the undiscounted cash flows estimated
to be generated by the asset are less than the asset's carrying amount.
Measurement is based upon the fair value of the asset. As of June 30, 1999,
management determined that no impairment indicators exist.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
10
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
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. During
the first and second quarters of 1999, the Company incurred capital expenditures
of $18,976 and $11,676, respectively, at Broadbent Business Center, Salt Lake
City, Utah ("Broadbent").
Note 4. Mortgage Loan Payable
On October 30, 1992 the Company borrowed $1,500,000 to finance an existing
property. As of June 30, 1999, the mortgage outstanding principal balance is
$1,361,076. This loan is collateralized by Broadbent, with a carrying amount of
$3,296,398. The mortgage requires the repayment of principal based on a thirty
year amortization schedule at an interest rate of 9.375% and matures
November 1, 2002. At maturity there will be a balloon payment of $1,254,779.
There is a prepayment provision which permits repayment from October 1997 to
October 1998, subject to a prepayment penalty of 5%. Such prepayment penalty is
reduced by 1% per year thereafter.
Principal payments on the outstanding balance are summarized as follows:
Principal
Year Payments
----------------------------------
1999-balance $ 14,329
2000 30,742
2001 33,755
2002 1,282,250
----------
$1,361,076
==========
Note 5. Related Party Transactions
The Company has entered into an agreement with CBRA to provide administrative
and advisory services for a monthly base fee of 1/12 of 3/4 of 1% of the
estimated current value of real estate plus 1/12 of 1/4 of 1% of the estimated
current value of all assets of the Company other than real estate, and an annual
subordinated incentive fee equal to 15% of the gain on property sold, subject to
certain limitations. This agreement is substantially the same as the previous
agreement entered into with AEGON, which expired on April 3, 1998. CBRA also
provides real estate acquisition services for a fee equal to 5% of the gross
purchase price of property acquired and disposition services for a fee equal to
3% of the gross sales price of property sold, subject to certain limitations.
The Administrative and Advisory Agreement is for a period of one year,
automatically renewed annually and cancelable on 60 days' prior written notice
by either party.
11
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 5. Related Party Transactions (continued)
With the exception of Germantown Square Shopping Center in Louisville, Kentucky
("Germantown"), Brentway (or the Property Manager) provides property management
services to the Company's real property for a monthly fee equal to 5% of the
gross income from properties managed. The Property Manager also provides leasing
services to the Company for a fee of up to 6% of the rent to be paid during the
term of the lease procured. The management agreement is for a period of one
year, automatically renewed annually and cancelable on 60 days' prior written
notice by either party. This agreement is essentially the same as the previous
agreement with AEGON. Due to continuing ownership by Life Investors Insurance
Company of America ("Life Investors") of the other 50% co-tenancy interest
therein, AEGON continues to manage Germantown upon terms similar to those
described above.
The Company, has entered into a Financial Advisory Agreement (the "HVB
Agreement") with BV Capital Markets, Inc., since renamed HVB Capital Markets,
Inc. ("HVB"), a wholly-owned subsidiary of Hypo Vereinsbank of Germany, of which
Jean-Bernard Wurm, a director of the Company, serves as director. HVB has agreed
to perform the following services as financial advisor to the Company:
(a) advise on acquisition financing and/or lines of credit for future
acquisitions; (b) advise on acquisitions of United States real property
interests and the consideration to be paid therefor; (c) advise on private
placements of the shares of the Company; (d) assist the Board of Directors in
developing suitable investment parameters for the Company; (e) develop and
maintain contacts on behalf of the Company with institutions with substantial
interests in real estate and capital markets; (f) advise the Board with respect
to additional private or public offerings of equity securities of the Company;
(g) review certain financial policy matters with consultants, accountants,
lenders, attorneys and other agents of the Company; and (h) prepare periodic
reports of its performance of the foregoing services. As compensation for the
foregoing services, the Company is required to pay HVB, (i) .25% of the
Company's net asset value, less any indebtedness affecting such net value, but
in any event, not less than $100,000 per year; (ii) a one-time payment of 1.5%
of 90% of the agreed value of properties contributed to the Company or its
affiliates by persons introduced to the Company by HVB; and (iii) upon the
Company becoming self-administered, a one-time payment equal to five times the
annual fee income attributable to fee receipts from clients or contacts of HVB
that have contributed property to the Company. The HVB Agreement, dated as of
June 1, 1998, remains in effect, according to its terms, for successive one-year
periods unless terminated by either party upon 60 days' prior written notice. No
such notice of termination has been given by either party to date.
12
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 5. Related Party Transactions (continued)
The following schedule represents amounts paid or accrued to related parties:
Cedar Income Fund, Ltd.
Schedule of Management, Administrative and Advisory and Leasing Fees
January 1 - January 1 -
June 30, 1999 June 30, 1998
-------------------------------------
Management Fees
AEGON $ 8,802 $37,597
Brentway 27,547 3,166
Leasing Fees
AEGON -- 23,561
Administrative and Advisory
CBRA 48,936 24,468
AEGON -- 25,770
HVB 50,000 8,333
Note 6. Co-tenancy Interest
On September 28, 1988, the Company purchased a 50% co-tenancy interest in
Germantown. The remaining 50% co-tenancy interest is owned by Life Investors, an
affiliate of AEGON. Germantown is managed solely by AEGON. The Company paid
management fees of $8,802 for the six month period ended June 30, 1999. As of
June 30, 1999, amounts due to co-tenancy partner, and amounts due from
co-tenancy partner were $17,612 and $42,118, respectively. As of June 30, 1998,
amounts due to co-tenancy partner, and amounts due from co-tenancy partner were
$46,570 and $61,323, respectively.
Note 7. Segment Disclosures
The Company owns all of the interests in real estate properties through the
Operating Partnership. The Company's portfolio consists of three commercial
properties and one retail property, located in Illinois, Utah, Florida and
Kentucky. Each of the properties are evaluated on an individual basis by the
President and Treasurer, who have been identified as the Chief Operating
Decision Makers because of their final authority over resource allocation.
13
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 7. Segment Disclosures (continued)
The following table sets forth the components of the Company's revenue and
expenses and other related disclosures as required by SFAS Statement No. 131 for
the three months and six months ended June 30, 1999 and June 30, 1998:
Cedar Income Fund, Ltd.
Combining Statement of Operations
Three Months Ended June 30, 1999
Broadbent Southpoint Corporate Germantown Financial Consolidated
Business Ctr. Parkway Center East Square and Other Totals
------------- ---------- ----------- ---------- --------- ------------
REVENUE
Rents $192,733 $247,657 $ 54,280 $100,155 $ - $ 594,825
Other income - - 75,000 - - 75,000
Interest - - - - 6,116 6,116
-------- -------- --------- -------- -------- -----------
Total revenues 192,733 247,657 129,280 100,155 6,116 675,941
-------- -------- --------- -------- -------- -----------
EXPENSES
Real estate tax 14,493 28,409 13,289 6,686 - 62,877
Repairs and
maintenance 15,374 42,026 7,006 8,021 - 72,427
Utilities 5,032 22,546 7,011 1,282 - 35,871
Management fee 9,340 13,221 4,844 4,030 - 31,435
Insurance 1,364 1,165 396 632 - 3,557
Other 12,325 7,492 10,693 2,005 - 32,515
Depreciation 27,210 50,980 48,165 19,401 972 146,728
Interest 32,009 - - - - 32,009
Directors' fees
and expenses - - - - 23,558 23,558
Administrative fee - - - - 24,468 24,468
Other administrative
expenses - - - - 94,315 94,315
-------- -------- --------- -------- -------- -----------
Total expenses 117,147 165,839 91,404 42,057 143,313 559,760
-------- -------- --------- -------- -------- -----------
Net income (loss) $ 75,586 $ 81,818 $ 37,876 $ 58,098 $(137,197) $ 116,181
======== ======== ========= ======== ======== ===========
Three Months Ended June 30, 1998
Broadbent Southpoint Corporate Germantown Financial Consolidated
Business Ctr. Parkway Center East Square and Other Totals
------------- ---------- ----------- ---------- --------- ------------
REVENUE
Rents $197,186 $245,260 $ 76,978 $112,900 $ - $ 632,324
Other income - - - - - -
Interest - - - - 10,922 10,922
-------- -------- --------- -------- -------- -----------
Total revenues 197,186 245,260 76,978 112,900 10,922 643,246
-------- -------- --------- -------- -------- -----------
EXPENSES
Real estate tax 15,000 24,000 12,999 7,610 - 59,609
Repairs and
maintenance 11,101 28,667 3,861 3,258 - 46,887
Utilities 5,279 21,920 7,497 1,405 - 36,101
Management fee 9,910 12,262 3,941 5,645 - 31,758
Insurance 1,404 1,124 265 711 - 3,504
Other 6,838 12,645 4,115 1,744 - 25,342
Depreciation 27,959 53,422 18,316 19,129 - 118,826
Interest 32,625 - - - - 32,625
Directors' fees
and expenses - - - - 12,733 12,733
Administrative fee - - - - 24,468 24,468
Other administrative
expenses - - - - 230,707 230,707
-------- -------- --------- -------- -------- -----------
Total expenses 110,116 154,040 50,994 39,502 267,908 622,560
-------- -------- --------- -------- -------- -----------
Net income (loss) $ 87,070 $ 91,220 $ 25,984 $ 73,398 $(256,986) $ 20,686
======== ======== ========= ======== ======== ===========
Six Months Ended June 30, 1999
Broadbent Southpoint Corporate Germantown Financial Consolidated
Business Ctr. Parkway Center East Square and Other Totals
------------- ---------- ----------- ---------- --------- ------------
REVENUE
Rents $371,024 $529,251 $138,469 $209,332 $ - $1,248,076
Other income - - 75,000 - - 75,000
Interest - - - - 13,136 13,136
---------- ---------- ---------- ---------- -------- -----------
Total revenues 371,024 529,251 213,469 209,332 13,136 1,336,212
---------- ---------- ---------- ---------- -------- -----------
EXPENSES
Real estate tax 28,986 56,817 25,985 13,372 - 125,160
Repairs and
maintenance 33,109 65,268 12,490 14,915 - 125,782
Utilities 12,416 43,122 13,969 3,712 - 73,219
Management fee 18,385 26,488 8,309 8,802 - 61,984
Insurance 3,201 2,607 793 1,342 - 7,943
Other 20,190 14,669 13,970 3,345 - 52,174
Depreciation 55,194 109,723 68,640 38,178 972 272,707
Interest 64,177 - - - - 64,177
Directors' fees
and expenses - - - - 51,426 51,426
Administrative fee - - - - 48,936 48,936
Other administrative
expenses - - - - 157,973 157,973
---------- ---------- ---------- ---------- -------- -----------
Total expenses 235,658 318,694 144,156 83,666 259,307 1,041,481
---------- ---------- ---------- ---------- -------- -----------
Net income (loss) $ 135,366 $ 210,557 $ 69,313 $ 125,666 $(246,171) $ 294,731
========== ========== ========== ========== ======== ===========
Total Assets $3,393,431 $5,932,462 $2,098,857 $3,055,435 $751,659 $15,231,844
---------- ---------- ---------- ---------- -------- -----------
Six Months Ended June 30, 1998
Broadbent Southpoint Corporate Germantown Financial Consolidated
Business Ctr. Parkway Center East Square and Other Totals
------------- ---------- ----------- ---------- --------- ------------
REVENUE
Rents $402,028 $491,369 $155,149 $ 223,848 $ - $1,272,394
Other income - - - - - -
Interest - - - - 42,208 42,208
---------- ---------- ---------- ---------- -------- -----------
Total revenues 402,028 491,369 155,149 223,848 42,208 1,314,602
---------- ---------- ---------- ---------- -------- -----------
EXPENSES
Real estate tax 30,000 48,000 25,998 15,220 - 119,218
Repairs and
maintenance 36,918 61,160 8,352 11,916 - 118,346
Utilities 10,571 42,095 15,174 3,926 - 71,766
Management fee 20,101 24,567 7,850 11,192 - 63,710
Insurance 2,532 3,817 592 1,472 - 8,413
Other 17,632 19,937 7,589 3,620 - 48,778
Depreciation 56,104 108,850 36,632 38,258 - 239,844
Interest 65,396 - - - - 65,396
Directors' fees
and expenses - - - - 33,738 33,738
Administrative fee - - - - 50,244 50,244
Other administrative
expenses - - - - 298,739 298,739
---------- ---------- ---------- ---------- -------- -----------
Total expenses 239,254 308,426 102,187 85,604 382,721 1,118,192
---------- ---------- ---------- ---------- -------- -----------
Net income (loss) $ 162,774 $ 182,943 $ 52,962 $ 138,244 $(340,513) $ 196,410
========== ========== ========== ========== ======== ===========
Total Assets $3,393,240 $6,061,972 $2,119,423 $3,102,363 $646,317 $15,323,315
---------- ---------- ---------- ---------- -------- -----------
14
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the historical
financial statements of the Company and related notes.
Results of Operations
The Company owns office, office/warehouse, and retail properties in four U.S.
cities. The Company's properties continue to compete with centers and office
buildings of similar size, tenant mix and location. As of June 30, 1999, the
combined lease occupancy of the Company's four properties was 90%. Operating
results in the forthcoming year will be influenced by the ability of current
tenants to continue paying rent, and the Company's ability to renew expiring
tenant leases and obtain new leases at competitive rental rates.
Rental income for the three month and six month periods ended June 30, 1999 were
$594,825 and $1,248,076 compared to $632,324 and $1,272,394 for the
corresponding periods in 1998, a decrease of 6% and 2%, respectively. This
decrease is attributable to the accounting write-off of a Project Receivable
relating to a vacating tenant at Corporate Center East Phase I, Bloomington,
Illinois ("Corporate Center") (see next paragraph). Rental income at Broadbent
decreased by approximately 8.4% due to increased vacancies and the downsizing of
a major tenant. This decrease is significantly offset by the increase in rental
income at Southpoint Parkway, by approximately 7.2%, which increase is
attributable to higher tenant base rent and operating expense recovery.
Other income of $75,000 in the second quarter of 1999 represents the surrender
payment due from the aforementioned vacating tenant at Corporate Center East.
A surrender agreement, effective as of June 15, 1999, terminates the tenant's
original lease dated June 10, 1996, which was due to expire on October 31, 2002.
The Company has entered into a ten year lease with Merrill Lynch, Pierce, Fenner
& Smith, Inc. ("Merrill Lynch") for the space formerly occupied by the vacating
tenant. Merrill Lynch will occupy 4,455 square feet at a net rental of $10 per
square foot for the first five years, with an increase to $12 per square foot
for the remainder of the primary lease term. The rent commencement date is the
earlier of opening for business or 150 days after possession/lease date of July
21, 1999. The Company is required to contribute $35 per square foot, or a total
of $155,925, for tenant improvements. Leasing fees of $27,520 are due to third
party brokers.
Interest income decreased by approximately $31,000 due mostly to the liquidation
in March 1998 of the mortgage receivable from Life
Investors.
Total property expenses, excluding depreciation, were $238,682 and $446,262 for
the three month and six month periods ended June 30, 1999, compared to $203,201
and $430,231 for the corresponding periods in 1998.
15
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Net income for the three month and six month periods ended June 30, 1999 was
$19,522 and $56,486 ($0.04 and $0.10 per share) compared to $20,686 and $196,410
($0.01 and $0.09 per share) for the corresponding periods in 1998. The decline
in net income is attributable to the accounting treatment, not applicable during
the first two quarters of 1998, of the limited partner's interest in income of
the Operating Partnership ("UPREIT") which was created as of June 26, 1998. Net
income before limited partner's interest in the Operating Partnership for the
three month and six month periods ended June 30, 1999 was $116,181 and $294,731.
The increase in net income before limited partner's interest in the Operating
Partnership for the six months ended June 30, 1999 is directly related to the
absence of the one-time costs incurred in connection with the reorganization and
tender offer for the six months ended June 30, 1998.
Other administrative expenses decreased by approximately $68,000. This decrease
is attributable to higher administrative costs during the first two quarters of
1998 resulting from expenses incurred in connection with the April 1998 tender
offer and the Company's reorganization in June 1998 (See Note 1).
Liquidity and Capital Resources
The Company's liquidity at June 30, 1999 represented by cash and cash
equivalents was $412,467 compared to $678,196 at December 31, 1998, a decrease
of $265,729. This decrease is primarily attributable to a fully refundable
$250,000 deposit made by the Company in connection with the pending acquisition
of a certain retail property (see next paragraph). Cash flow from operating
activities for the six month period ended June 30, 1999 was $511,909 compared to
$523,037 for the corresponding period in 1998.
The Company has entered into negotiations to purchase a high-profile specialty
retail complex, consisting of approximately 75,000 square feet in downtown
Orlando, Florida. The acquisition of this property, if concluded in accordance
with such negotiations, would increase the gross asset value of the Operating
Partnership by $15,000,000. The sale price of $15,000,000 is payable in cash or
operating units of the Operating Partnership, valued at $7.50 per unit or a
combination of both. Contemporaneously with the closing of the purchase, it is
expected that the property will be refinanced with debt in the amount of
$11,000,000, including an escrow of up to $1,000,000 for future tenant
improvements and commissions, with an interest rate not to exceed 8.5%.
As proposed, the Company would issue Operating Partnership units for such amount
at a value of $7.50 per unit (or 666,667 units). The individual limited partners
and the general partners in the limited partnership which presently own the
property will then have a certain limited period
16
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
of time during which they may elect to receive cash or retain all or any portion
of such operating units. The cash portion of the purchase price, therefore,
would be a maximum $5,000,000 over the new debt of $11,000,000 (of which up to $
1,000,000, as indicated above, will be held by the Lender as an escrow deposit).
In order to fund the Operating Partnership the $5,000,000 required for the
Orlando property, the Company has requested certain financing arrangements or
credit facilities which would potentially result in mortgage liens or other
(additional) hypothecation of the Company's properties. There can be no
assurances that any such proposed purchase and/or financing will be concluded.
The Company has continued its policy to date of distributing dividends equal to
$0.10 per share, an amount generally equal to $54,211 per quarter. Such
distributions are substantially in excess of amounts presently required to be
distributed in order to meet the tests for continued REIT status which generally
require distributions of 95% of qualified REIT taxable income, as defined in the
Internal Revenue Code of 1986 and Regulations thereto. During the three month
and six month periods ended June 30, 1999, for example, earnings per share were
approximately $0.04 and $0.10, respectively. If the Company's dividend policy is
to continue, absent further growth in income of the Operating Partnership, the
ability to distribute dividends substantially in excess of current income could
impair the cash reserves which the Directors would deem to be appropriate to the
business of the Company.
Inflation
Low to moderate levels of inflation during the past few years have favorably
impacted the Company's operations by stabilizing operating expenses. At the same
time, low inflation has the indirect effect of reducing the Company's ability to
increase tenant rents. The Company's properties have tenants whose leases
include expense reimbursements and other provisions to minimize the affect 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.
17
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000 Issue
Although the Company does not employ any computer systems in its business, the
Company could be adversely affected if the computer systems used by the Advisor
(CBRA), Property Manager (Brentway), and other service providers do not properly
process and calculate the date-related information from and after January 1,
2000. The Advisor and Property Manager have taken steps that they believe are
reasonably designed to address this issue. These steps include an upgrade of
their computer software to a version that will properly process and calculate
the date related information from and after January 1, 2000. The upgrade was
completed on January 15, 1999. The Advisor and Property Manager are satisfied
that the properties have no year 2000 issues since there are no elevators or
other date sensitive equipment that would have an adverse effect on the
operation of the buildings. In addition, the Advisor and Property Manager will
endeavor to obtain reasonable assurances that comparable steps are being taken
by the Company's other major service providers. While the Advisor and Property
Manager believe their efforts are adequate to address the Company's year 2000
concerns, there can be no assurances that the systems of the other companies on
which the Company's operations rely will be converted on a timely basis and will
not have a material effect on the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The primary market risk facing the Company is the interest rate risk on its
mortgage loan payable. The Company does not hedge interest rate risks using
financial instruments, nor is the Company subject to foreign currency risks.
The following table sets forth the Company's long-term debt obligations,
principal cash flows by scheduled maturity, weighted average interest rates and
estimated fair market value ("FMV") at June 30, 1999:
For the Year Ended December 31,
-----------------------------------------------------
1999-balance 2000 2001 2002 Total FMV
-------------------------------------------------------------------------------
Long-term debt:
Fixed rate $14,329 $30,742 $33,755 $1,282,250 $1,361,076 $1,466,113
Average interest rate 9.38% 9.38% 9.38% 9.38% 9.38%
The fair value of the Company's mortgage loan payable is estimated based on the
discounting of future cash flows at interest rates which management believes
reflect the risks associated with mortgage loans payable with similar risks and
duration.
18
Part II. Other Information
Item 1. Legal Proceedings
Legal Proceedings
The Company is not a party to any pending legal proceedings, which, in the
opinion of management, are material to the Company's financial position.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
19
CEDAR INCOME FUND, LTD.
June 30, 1999
Part III. 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.
- ------------------------------ --------------------------------------
Leo S. Ullman Brenda J. Walker
Chairman of the Board Vice President, Treasurer and Director
(principal executive officer) (principal financial officer)
--------------------------------------
Ann Maneri
Controller
(principal accounting officer)
June 30, 1999
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.
- ------------------------------ --------------------------------------
Jean-Bernard Wurm Everett B. Miller, III
Director Director
- ------------------------------ --------------------------------------
J.A.M.H. der Kinderen Theodore Fichtenholz
Director Director
June 30, 1999
20