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, 1997 Commission file number 0-14510
CEDAR INCOME FUND, LTD.
(Exact name of registrant as specified in its charter)
Iowa 42-1241468
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4333 Edgewood Road N.E., Cedar Rapids, IA 52499
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 398-8975
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Common Stock, $1 Par Value
(Title of Class)
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. [ X ]
The aggregate market value of the voting shares of the registrant
held by non-affiliates at March 3, 1998 was $11,173,950.
The number of shares of common stock of the registrant
outstanding at March 3, 1998 was 2,245,411.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Part I.
Item 1. Business
Cedar Income Fund, Ltd. (the "Company") was incorporated in Iowa
on December 10, 1984. The Company operates as an equity-based
real estate investment trust ("REIT"). To qualify as a REIT
under 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. Cedar Income Fund
2, Ltd. ("Cedar 2") was incorporated in Iowa on October 30, 1986,
and merged with and into the Company on October 1, 1989. 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's public offering of common stock commenced on May
29, 1985 and was completed on November 25, 1986. Net offering
proceeds, after commissions and registration costs, were
$12,410,658. Cedar 2's public offering of common stock commenced
on February 24, 1987 and was completed on August 22, 1988. Net
offering proceeds after commissions and registration costs, were
$6,335,765. The Company has 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. (See Note 7 to the Financial
Statements.)
The Company has no employees, as all services necessary to
conduct the day-to-day operations are performed by AEGON USA
Realty Advisors, Inc. ("AEGON Realty Advisors") and its
affiliates.
The Company's real estate investments are not expected to be
substantially affected by current federal, state or local laws
and regulations establishing ecological or environmental
restrictions on the development and operations of such property.
However, the enactment of new provisions or laws may reduce the
Company's ability to fulfill its investment objectives.
The Company has entered into a Memorandum of Understanding (the
"Memorandum of Understanding"), dated as of December 5, 1997,
between the Company and SKR Management Corp. ("SKR") pursuant to
which Cedar Bay Company (the "Bidder"), an affiliate of SKR,
commenced, on January 12, 1998, a tender offer (the "Offer") to
purchase all of the outstanding shares of common stock of the
Company for $7.00 per share in cash. Pursuant to a letter
agreement dated February 24, 1998 (the "Letter Agreement"), the
Company has agreed to the extension of the Offer by the Bidder
until 12:00 Midnight, New York City time, on March 27, 1998. SKR
has deposited $1,000,000 with the Company as an earnest money
deposit, to be returned to SKR upon the successful completion of
the Offer. The Memorandum of Understanding provides that the
Company shall cause its current officers and directors to resign
effective upon consummation of the Offer. Additionally, the
Company has agreed to cause the termination of the Administrative
and Advisory Agreement between the Company and AEGON USA Realty
Advisors, Inc., and the Management Agreement between the Company
and AEGON USA Realty Management, Inc. effective upon consummation
of the Offer.
Mortgage Loan Receivable
On September 20, 1993, the Company purchased a 30% participation
in a promissory note from Life Investors Insurance Company of
America ("Life Investors"), an affiliate of AEGON Realty
Advisors. The participation was acquired for an investment of
$600,000 and yields 8.25% to the Company. The promissory note
matures in August 2000, and is secured by a deed of trust on the
Woodbury Office Plaza in Woodbury, Minnesota. Life Investors has
the right to repurchase principal sums of their discretion upon
thirty days written notice.
Item 2. Properties
Real Estate Investments
Germantown Square Shopping Center
Louisville, Kentucky
On September 28, 1988, the Company purchased a 50% undivided
interest in a neighborhood shopping center known as Germantown
Square Shopping Center in Louisville, Kentucky ("Germantown").
The remaining 50% undivided interest was purchased by Life
Investors. Germantown consists of two single-story buildings
totaling 74,267 square feet on a 9.0 acre site which includes
parking for 428 vehicles. The total acquisition cost of the
Company's 50% interest in Germantown was $3,707,599. Subsequent
improvements have increased the Company's recorded cost to
$3,717,017.
Germantown represented 19% of the Company's total assets at
December 31, 1997, and provided 18% of total revenue. At
December 31, 1997, Germantown was 98% leased to ten tenants under
leases having a minimum term of one year (not including renewal
options). Annual base rents range from $7.94 to $16.52 per
square foot. Four leases representing 19% of the square feet at
Germantown expire during 1998. The anchor tenant, Winn Dixie (a
grocery store), pays a fixed base rent plus 1% of gross sales in
excess of a specified base. Winn Dixie occupies 59% of
Germantown under a lease term expiring in September 2008, with
five five-year options to renew. Winn Dixie provided 8% of the
Company's 1997 revenue.
Germantown experiences competition in attracting tenants in its
primary trade area from a number of shopping centers ranging in
size from 35,000 square feet to 600,000 square feet. The effect
of this competition is mitigated by the high occupancy rates
experienced in the area, as well as the locational attributes of
the Germantown site. Germantown's primary market area is mostly
developed, thereby limiting the possibility of additional retail
development.
Corporate Center East
Bloomington, Illinois
On March 24, 1988, the Company acquired Corporate Center East, a
25,200 square foot office building in Bloomington, Illinois for
$2,221,783 cash. Capital improvements have increased the
property's recorded cost to $2,536,123. The Hewlett Packard
Corporation occupied 20,400 square feet in Corporate Center East
until December 31, 1995, providing 11% of the Company's 1995
revenue. During the fourth quarter of 1996 and the first quarter
of 1997, the Company was successful in locating two replacement
tenants for this space.
In 1997, the Company incurred tenant improvements, lease
commissions and other costs of approximately $194,000 in securing
one of the tenants, Goshen Fidelity, for 12,666 square feet.
Included in this cost is the development of additional parking as
required by Goshen Fidelity. Goshen Fidelity also had an option
to purchase Corporate Center East during the first year of their
lease term at a price of $1,900,000. This option expired
unexercised in February 1998.
Corporate Center East represented 14% of the Company's total
assets at December 31, 1997, and provided 10% of 1997 revenue.
At December 31, 1997, Corporate Center East was 100% leased to
four tenants under leases having a minimum term of three years
(not including renewal options). Annual base rents range from
$10.50 to $12.75 per square foot. One lease representing 10% of
the square feet at Corporate Center East expires in 1998. Goshen
Fidelity, Corporate Center East's largest tenant, occupies 12,666
square feet under a lease which expires in February 2000. Goshen
Fidelity provided 6% of the Company's 1997 revenue. The property
is subject to competition from several office projects in the
same geographic area.
Broadbent Business Center
Salt Lake City, Utah
Broadbent Business Center in Salt Lake City, Utah ("Broadbent"),
was acquired on March 31, 1987, for $4,057,950, subject to
mortgage loan indebtedness of $1,966,110. Approximately $300,000
was expended to upgrade the property immediately after
acquisition and subsequent improvements have increased the
property's recorded cost to $4,533,017. The original mortgage
indebtedness was scheduled to mature in September 2008. However,
this loan was called by the lender pursuant to the terms of the
note. New financing was obtained in October 1992 in the amount
of $1,500,000 to retire the original mortgage which had a balance
of $1,300,472 at the date of retirement.
Broadbent consists of eight single-story buildings totaling
119,500 square feet, approximately half of which is office use
and half service/warehouse, on a 12.5 acre site which includes
parking for approximately 320 vehicles. Broadbent represented
22% of the Company's total assets at December 31, 1997, and
provided 32% of 1997 revenue.
At December 31, 1997, Broadbent was 96% occupied by 54 tenants
under leases having a minimum term of one month (not including
renewal options) with annual base rents ranging from $3.50 to
$8.40 per square foot. Leases representing 51% of the square
footage of Broadbent expire during 1998. The Company anticipates
most of these leases will be renewed or the space will be leased
to new tenants, resulting in stable occupancy during 1998.
Cyclopss Corporation, Broadbent's largest tenant, occupies 13,250
square feet under a lease which expires in December 1998.
Cyclopss provided 4% of the Company's 1997 revenue.
There is no direct competition in Broadbent's immediate
geographic area; however, there is significant competition from
newer projects within its market, most notably the Salt Lake
International Center, a 900 acre business park adjoining the Salt
Lake City International Airport.
Southpoint Parkway Center
Jacksonville, Florida
Southpoint Parkway Center in Jacksonville, Florida ("Southpoint")
was acquired on May 6, 1986, for $6,505,495 cash. Capital
expenditures made since the purchase date have increased the
property's recorded cost to $7,976,730. Southpoint is a single-
story office service center consisting of 79,010 square feet of
net leasable area on approximately 10.8 acres which includes 467
parking spaces. Southpoint represented 39% of the Company's
total assets at December 31, 1997, and provided 37% of its
revenue.
At December 31, 1997, the property was 99% leased to eight
tenants with terms ranging from two to ten years (not including
renewal options) and annual base rents ranging from $9.50 to
$13.21 per square foot. Two leases representing 11% of the
square footage of Southpoint expire in 1998. The Company
anticipates these leases will be renewed or the space will be
leased to new tenants, resulting in stable occupancy during 1998.
The General Services Administration ("GSA"), a United States
government agency, occupies 40,447 square feet in Southpoint
under a ten-year lease which expires in December 2001, with an
option to terminate any time after providing a ninety day notice.
The GSA lease was negotiated in 1991 and, in connection
therewith, the Company purchased 2.9 acres of adjacent land,
constructed a parking lot and made interior building improvements
at a total cost of $988,832 (included in the above $7,976,730).
The GSA provided 19% of the Company's 1997 revenue.
In 1997, the Company leased an additional 17,116 square feet to
an existing tenant, Intuition, Inc., expanding their total space
to 20,827 square feet at Southpoint. The Company incurred lease
commissions and tenant improvements of approximately $179,500 for
the Intuition expansion.
Southpoint competes with other office buildings in the suburban
Jacksonville office market. During the early 1990's,
Jacksonville experienced an oversupply of office space due to new
office construction and consolidations by two major financial
services firms, both of which occurred in the late 1980's. Net
new absorption of office space in recent years has resulted in
improved office occupancies and stabilized rents in the
Southpoint market area.
The Company's properties are summarized in the table below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Occupancy
At Assets at
Square December 31, Lease December 31, 1997 1997 Revenue
Name and Location Footage 1997 Expiration Amount Percent Amount Percent
Managed
Southpoint Parkway Center
Jacksonville, Florida 79,010 99% 1998-2006 $ 6,197,259 39% $ 900,930 37%
Broadbent Business Center
Salt Lake City, Utah 119,500 96 1998-2002 3,454,608 22 793,329 32
Corporate Center East
Bloomington, Illinois 25,200 100 1998-2002 2,168,397 14 244,478 10
Germantown Square
Louisville, Kentucky 74,267 98 1998-2008 3,095,435 19 447,812 18
297,977 14,915,699 94 2,386,549 97
Financial and other 1,025,984 6 81,309 3
$15,941,683 100% $2,467,858 100%
</TABLE>
Item 3. 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 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 95% of its taxable
income to continue qualification as a real estate investment
trust. In 1997, the Company paid dividends of $.10 per share in
February, May, August and November, totaling $.40 per share.
While the Company expects to continue paying dividends to
shareholders, there is no assurance of future dividends, as they
are dependent upon earnings, cash flow, the financial condition
of the Company and other factors.
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
1997 1996 1995
Ordinary income 66.23% 71.24% 94.35%
Nontaxable return
of capital 33.77% 28.76% 5.65%
Total 100.00% 100.00% 100.00%
Dividends paid,
per share $.40 $.40 $.40
Market Information
At March 3, 1998, the Company had 2,245,411 shares of common
stock issued and outstanding to 1,025 shareholders of record.
The Company's shares began trading on The Nasdaq Stock Market
under the symbol CEDR on December 17, 1986. At March 3, 1998,
the Company's per share high and low sales prices were $6.75, as
obtained from Wedbush/Morgan Securities, Inc., Newport Beach,
California and Herzog, Heine, Geduld, Inc., New York, New York,
the principal market makers for shares of the Company. These
prices reflect quotations between dealers without adjustment for
retail mark-up, mark-down or commission and do not necessarily
represent actual transactions.
Market Price Range
Over-the-Counter Sales Prices
Quarter Ended High Low Close
1997
March 31 4 3/4 3 7/8 4 5/8
June 30 6 4 1/8 5 5/8
September 30 6 3/8 5 3/8 5 7/8
December 31 7 1/4 5 7/8 6 1/2
1996
March 31 4 1/2 4 4 1/4
June 30 4 1/2 3 7/8 3 7/8
September 30 4 1/2 3 3/4 4
December 31 4 1/2 3 5/8 4 1/4
Advisor
AEGON USA Realty Advisors, Inc.
Cedar Rapids, Iowa
Property Manager
AEGON USA Realty Management, Inc.
Cedar Rapids, Iowa
Stock Transfer and Dividend
Reinvestment Agent
Cedar Income Fund, Ltd.
c/o Boston EquiServe, L.P.
P.O. Box 8200
Boston, MA 02266-8200
Telephone: 1-800-426-5523
10-K Information
The 1997 Form 10-K filed with the Securities and Exchange
Commission (exclusive of certain exhibits) is available without
charge upon written request to Roger L. Schulz, Controller, Cedar
Income Fund, Ltd., 4333 Edgewood Road N.E., Cedar Rapids, Iowa
52499-5441.
Item 6. Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended December 31,
1997 1996 1995 1994 1993
Revenue $ 2,467,858 2,217,026 2,487,157 2,383,889 2,228,371
Net Earnings $ 500,186 561,616 769,621 659,553 467,196
Dividends to Shareholders $ 898,164 898,164 898,164 898,164 898,165
Per Share
Basic and Diluted Net
Earnings* $ .22 .25 .34 .29 .21
Dividends to
Shareholders** $ .40 .40 .40 .40 .40
Total Assets $ 15,941,683 16,270,149 16,610,105 16,786,232 17,026,932
Mortgage Loan Payable $ 1,400,259 1,423,492 1,444,654 1,463,929 1,481,486
Shareholders' Equity $ 14,227,102 14,625,080 14,961,628 15,090,171 15,328,782
</TABLE>
* Based on weighted average number of shares outstanding.
** Based on number of shares outstanding on respective record dates.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussion that follows should be read in the general context
of the discussion on "Item 1. Business" and "Item 2. Properties."
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 December 31, 1997, the combined leased
occupancy of the Company's four properties was 98%. During the
first quarter of 1997, the Company was successful in releasing
the remaining space vacated at the end of 1995 by the Hewlett
Packard Corporation at Corporate Center East. 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.
The Company has entered into a Memorandum of Understanding (the
"Memorandum of Understanding"), dated as of December 5, 1997,
between the Company and SKR Management Corp. ("SKR") pursuant to
which Cedar Bay Company (the "Bidder"), an affiliate of SKR,
commenced, on January 12, 1998, a tender offer (the "Offer") to
purchase all of the outstanding shares of common stock of the
Company for $7.00 per share in cash. Pursuant to a letter
agreement dated February 24, 1998 (the "Letter Agreement"), the
Company has agreed to the extension of the Offer by the Bidder
until 12:00 Midnight, New York City time, on March 27, 1998. SKR
has deposited $1,000,000 with the Company as an earnest money
deposit, to be returned to SKR upon the successful completion of
the Offer. The Memorandum of Understanding provides that the
Company shall cause its current officers and directors to resign
effective upon consummation of the Offer. Additionally, the
Company has agreed to cause the termination of the Administrative
and Advisory Agreement between the Company and AEGON USA Realty
Advisors, Inc., and the Management Agreement between the Company
and AEGON USA Realty Management, Inc. effective upon consummation
of the Offer.
1997 compared to 1996
The Company's net earnings for the year ended December 31, 1997,
were $500,186 ($.22 per share) compared to $561,616 ($.25 per
share) for the year ended December 31, 1996. (All per share
amounts are on a basic and diluted basis.) The decrease in net
earnings from 1996 to 1997 was primarily due to legal and
consulting expenses incurred in connection with the recent tender
offer for all shares of the Company.
Rental income was $2,386,549 in 1997 compared to $2,121,866 in
1996, an increase of $264,683 or 12%. Rental income at
Corporate Center East in Bloomington, Illinois increased by
$175,000 due to the Company's success in locating replacement
tenants for the 20,000 square feet of space that had been vacant
since the end of 1995. Corporate Center East is currently 100%
occupied. Rental income increased by $51,000 at Broadbent
Business Center in Salt Lake City, Utah due to higher base rents.
Rents also increased at Germantown Square in Louisville, Kentucky
and at Southport Parkway Center in Jacksonville, Florida due to
an increase in tenant expense recoveries.
Interest income decreased by $14,000 due to a lower balance of
funds available for investment throughout 1997.
Property expenses, excluding depreciation, increased from
$884,104 in 1996 to $1,020,388 in 1997. The increase in property
expenses is attributed to the following items. Wages and
salaries decreased by 51% due to the reduction of property
management personnel at Broadbent. Repairs and maintenance
increased by $130,000 primarily due to tenant remodeling, parking
lot improvements and other expenses incurred in 1997 that were
not required in 1996. Management fees increased by $13,000 in
1997, an increase of 12%, corresponding to the 12% increase in
rental income.
Directors' fees and expenses increased by $7,000 primarily due to
an increase in directors and officers insurance coverage and an
increase in the annual insurance premium. Other administrative
expenses increased by $144,000 primarily due to legal and
consulting expenses incurred in connection with the recent tender
off for all Cedar shares.
1996 compared to 1995
Rental income was $2,121,866 in 1996 compared to $2,400,273 in
1995, a decrease of 12% or $278,407. This decrease was
attributed to the Hewlett Packard Corporation vacating 20,400
square feet of space at Corporate Center East, upon their
December 31, 1995, lease expiration. In 1995, Hewlett Packard
contributed rents of $279,000. Rental income at Southpoint
decreased by $60,000 during 1996 due to tenants vacating their
space upon lease expiration. This was offset by an increase in
rental income at Broadbent and Germantown of $29,000 and $30,000,
respectively, due to increased rental rates at both properties
and improved occupancy at Broadbent. Interest income increased
by 10% from 1995 to 1996 due to a higher balance of cash
available for investment.
Property expenses, excluding depreciation, declined from $932,431
in 1995 to $884,104 in 1996, representing 39% of rental income in
1995 and 42% of rental income in 1996. Repairs and maintenance
declined by $63,000 primarily due to pest control services
required at Southpoint in 1995, painting the Broadbent buildings
in 1995, and tenant remodeling and other expenses incurred in
1995 that were not required in 1996. The increase in utilities
of $12,000 or 9% from 1995 to 1996 is primarily because Hewlett
Packard was responsible for their own utilities at Corporate
Center East, but this expense became the Company's after Hewlett
Packard vacated at the end of 1995. Management fees decreased by
$14,000 or 12% from 1995 to 1996, corresponding to the decrease
in rental income.
Other administrative expenses decreased by 18% from 1995 to 1996
due to lower than anticipated printing and mailing costs.
The net effect of the lower revenues and expenses was a 27%
decrease in net earnings from $769,621 in 1995 compared to
$561,616 in 1996.
Cash Flow and Funds from Operations
In 1994, the Company adopted "funds from operations" as a
measurement of operating performance. Funds from operations is
defined by the Company as earnings from operations plus
depreciation expense. Funds from operations does not represent
operating income or cash flows from operations as defined by
generally accepted accounting principles, and should not be
construed as an alternative to operating income as an indicator
of operating performance or to cash flows as a measure of
liquidity. Management generally considers funds from operations
to be a useful financial performance measure which, together with
earnings, cash flows and other information, may be used by
investors to evaluate the Company. Funds from operations as
presented by the Company may not be comparable to similarly
titled measures reported by other companies. The Company's funds
from operations for the three years ended December 31, 1997, is
presented in the table below.
<TABLE>
<S> <C> <C> <C>
Funds from operations*
Name and Location 1997 1996 1995
Southpoint Parkway Center, Jacksonville, Florida $ 450,346 486,745 526,622
Broadbent Business Center, Salt Lake City, Utah 364,542 326,607 261,435
Corporate Center East, Bloomington, Illinois 94,366 (47,600) 222,665
Germantown Square, Louisville, Kentucky 320,770 333,801 317,024
Total 1,230,024 1,099,553 1,327,746
Non-property Company operations, net (267,151) (101,198) (121,849)
Funds from operations $ 962,873 998,355 1,205,897
*Earnings from operations plus depreciation
</TABLE>
Liquidity and Capital Resources
The Company's capital resources consist of its current equity in
real estate investments (current value less mortgage
indebtedness) and a participation in a mortgage loan receivable.
The Company maintains the real estate in good condition and
provides adequate insurance coverage. Liquidity is considered
sufficient to meet current obligations, which include capital
expenditures, and is represented by cash and cash equivalents of
$407,216 and a mortgage loan participation of $564,437 as of
December 31, 1997.
Net cash provided by operating activities, as shown in the
Statements of Cash Flows, was $935,308 for the year ended
December 31, 1997. The major uses of cash in 1997 were dividends
to shareholders of $898,164 and capital expenditures of $299,985
($124,000 at Southpoint Parkway and $175,985 at Corporate Center
East) in connection with leasing activities. Dividends to
shareholders of $224,541 were also paid in the first quarter of
1998. The Board of Directors continues to closely monitor
occupancies, leasing activity, overall Company operations, and
liquidity in determining quarterly dividends.
The Company's debt service commitments for the mortgage loan
payable are described in Note 7 to the Financial Statements.
There are no other material commitments at December 31, 1997.
Inflation
Low to moderate levels of inflation during the past few years
have favorably impacted the Company's operations by stabilizing
operating expenses. At the same time, low inflation has the
indirect effect of reducing the Company's ability to increase
tenant rents. The Company's properties have tenants whose leases
include expense reimbursements and other provisions to minimize
the effect of inflation. These factors, in the long run, are
expected to result in more attractive returns from the Company's
real estate portfolio as compared to short-term investment
vehicles.
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 (AEGON USA Realty Advisors, Inc.),
Property Manager (AEGON USA Realty Management, Inc.), and other
service providers do not properly process and calculate date-
related information and data from and after January 1, 2000. The
Advisor and Property Manager are taking steps which they believe
are reasonably designed to address this issue with respect to
computer systems they use and to obtain reasonable assurances
that comparable steps are being taken by the Company's other
major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any
adverse impact to the Company.
Item 8. Financial Statements and Supplementary Data
Balance Sheets
<TABLE>
<S> <C> <C>
December 31,
1997 1996
Assets
Real Estate
Land $ 4,126,044 4,126,044
Buildings and improvements 14,636,843 14,336,858
18,762,887 18,462,902
Less accumulated depreciation (4,217,699) (3,755,012)
14,545,188 14,707,890
Mortgage loan receivable 564,437 573,991
15,109,625 15,281,881
Cash and cash equivalents 407,216 670,306
Rent and other receivables 130,615 95,413
Interest receivable 3,881 3,946
Prepaid expenses 109,624 84,758
Deferred lease commissions 164,826 116,148
Taxes held in escrow 15,896 17,697
$ 15,941,683 16,270,149
Liabilities and Shareholders' Equity
Liabilities
Mortgage loan payable $ 1,400,259 1,423,492
Accounts payable and accrued expenses 162,320 103,337
Due to affiliates 62,570 36,538
Security deposits 80,085 66,655
Advance rents 9,347 15,047
1,714,581 1,645,069
Shareholders' equity
Common stock, $1 par value, 5,020,000
shares authorized, 2,245,411 shares
issued and outstanding 2,245,411 2,245,411
Additional paid-in capital 11,981,691 12,379,669
14,227,102 14,625,080
$ 15,941,683 16,270,149
</TABLE>
See the accompanying notes to financial statements.
Statements of Operations
<TABLE>
<S> <C> <C> <C>
Years Ended December 31,
1997 1996 1995
Revenue
Rents $ 2,386,549 2,121,866 2,400,273
Interest 81,309 95,160 86,884
2,467,858 2,217,026 2,487,157
Expenses
Property expenses
Real estate taxes 233,160 239,324 228,006
Repairs and maintenance 385,806 255,621 318,633
Utilities 159,672 146,772 134,362
Management fee 119,328 106,093 120,013
Wages and salaries 10,756 21,960 19,911
Insurance 19,270 18,817 16,521
Other 92,396 95,517 94,985
Property expenses, excluding depreciation 1,020,388 884,104 932,431
Depreciation 462,687 436,739 436,276
Total property expenses 1,483,075 1,320,843 1,368,707
Interest 136,137 138,209 140,096
Administrative fees 101,192 100,363 99,359
Directors' fees and expenses 49,417 42,382 44,228
Other administrative 197,851 53,613 65,146
1,967,672 1,655,410 1,717,536
Net earnings $ 500,186 561,616 769,621
Basic and diluted net earnings per share* $ .22 .25 .34
Dividends to shareholders $ 898,164 898,164 898,164
Dividends to shareholders per share* $ .40 .40 .40
</TABLE>
* Basic and diluted net earnings per share are based on the
weighted average number of shares outstanding (2,245,411) for the
years 1997, 1996, and 1995. Dividends to shareholders per share
are based on the actual number of shares outstanding on the
respective record dates.
See the accompanying notes to financial statements.
Statements of Cash Flows
<TABLE>
<S> <C> <C> <C> <C>
Years Ended December 31,
1997 1996 1995
Cash flows from operating activities
Rents collected $ 2,345,647 2,113,074 2,328,138
Interest received 81,374 95,221 88,980
Payments for operating expenses (1,359,242) (1,128,510) (1,044,928)
Interest paid (132,471) (134,542) (136,429)
Net cash provided by operating activities 935,308 945,243 1,235,761
Cash flows from investing activities
Capital expenditures (299,985) (136,319) ---
Principal portion of scheduled
mortgage loan collections 9,554 8,778 8,065
Security deposits collected, net 13,430 (214) (1,258)
Net cash provided (used) by investing activities (277,001) (127,755) 6,807
Cash flows from financing activities
Principal portion of scheduled
mortgage loan payments (23,233) (21,162) (19,275)
Dividends paid to shareholders (898,164) (898,164) (898,164)
Net cash used by financing activities (921,397) (919,326) (917,439)
Net increase (decrease) in cash and cash equivalents (263,090) (101,838) 325,129
Cash and cash equivalents at beginning of year 670,306 772,144 447,015
Cash and cash equivalents at end of year $ 407,216 670,306 772,144
Reconciliation of net earnings to net
cash provided by operating activities
Net earnings $ 500,186 561,616 769,621
Add (deduct) reconciling adjustments
Depreciation 462,687 436,739 436,276
Amortization 3,666 3,667 3,667
Increase in rent and
other operating receivables (33,401) (29,317) (10,946)
Decrease in interest receivable 65 61 2,096
Decrease (increase) in prepaid expenses (28,532) (44,150) 5,641
Decrease (increase) in deferred lease commissions (48,678) (1,341) 56,457
Increase in operating accounts payable
and accrued expenses 58,983 3,664 13,614
Increase (decrease) in due to affiliates 26,032 7,776 (300)
Increase (decrease) in advance rents (5,700) 6,528 (40,365)
Net cash provided by operating activities $ 935,308 945,243 1,235,761
</TABLE>
See the accompanying notes to financial statements.
Statements of Shareholders' Equity
<TABLE>
<S> <C> <C> <C> <C>
Years Ended December 31, 1997, 1996, and 1995
Additional Undistributed Total
Common Paid-In Net Shareholders'
Stock Capital Earnings Equity
Balance at January 1, 1995 $2,245,411 12,844,760 --- 15,090,171
Net earnings --- --- 769,621 769,621
Dividends to shareholders --- (128,543) (769,621) (898,164)
Balance at December 31, 1995 2,245,411 12,716,217 --- 14,961,628
Net earnings --- --- 561,616 561,616
Dividends to shareholders --- (336,548) (561,616) (898,164)
Balance at December 31, 1996 2,245,411 12,379,669 --- 14,625,080
Net earnings --- --- 500,186 500,186
Dividends to shareholders --- (397,978) (500,186) (898,164)
Balance at December 31, 1997 $2,245,411 11,981,691 --- 14,227,102
</TABLE>
See the accompanying notes to financial statements.
Notes to Financial Statements
1. Organization and Accounting Policies
The Company is in the business of investing in real estate.
Investments in real estate are stated at cost. The Company will
provide an allowance for valuation if it is ever determined that
the value of real estate has permanently declined below recorded
book value.
Statement of Financial Accounting Standard No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of
fair value information about financial instruments. The methods
and assumptions used by the Company in estimating its fair value
disclosures are described in Note 2.
Financial Accounting Standard No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, was issued during 1995. Statement No. 121 requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected
to be disposed of. The Company's adoption of Statement No. 121
during 1995 had no impact on the Company's operations for that
year.
A provision for possible losses on rents receivable is made when
it is determined that collection of the receivable is doubtful.
Rent receivable is stated net of an allowance for uncollectible
accounts of $7,240 in 1997 and $19,926 in 1996. The Company
follows the operating method of accounting for leases, whereby
scheduled rental income is recognized on a straight-line basis
over the lease term. Contingent rental income is recognized in
the period in which it arises.
Cash equivalents include investments with original maturities of
three months or less.
Expenditures for repairs and maintenance which do not add to the
value or extend the useful life of property are expensed when
incurred. Expenditures which do add to the value or extend the
useful life of property are capitalized. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the respective assets.
Expenditures for lease commissions are being amortized on a
straight-line basis over the lease term as an operating expense.
Statement of Financial Accounting Standard 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 earnings per share in
accordance with Statement No. 128 are the same and do not differ
from amounts previously reported as net earnings per share
(primary earnings per share). Accordingly, basic and diluted net
earnings per share are computed using the weighted average number
of shares outstanding during the year.
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. The actual
results of the Company could differ as a result of those
estimates.
Certain amounts in the 1996 and 1995 financial statements have
been reclassified to conform to the 1997 financial statement
presentation.
2.Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Mortgage loan receivable: The fair value of the mortgage loan
receivable is estimated utilizing discounted cash flow analysis,
using interest rates reflective of current market conditions and
the risk characteristics of the loans.
Cash and cash equivalents: The carrying amounts of cash and cash
equivalents approximates their fair values.
Mortgage loan payable: The fair value of the mortgage loan
payable is estimated utilizing discounted cash flow analysis,
using interest rates reflective of current market conditions and
the risk characteristics of the loans.
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:
<TABLE>
<S> <C> <C> <C> <C>
1997 1996
Carrying Carrying
Value Fair Value Value Fair Value
Assets
Mortgage loan receivable 564,437 581,013 573,991 583,560
Cash and cash equivalents 407,216 407,216 670,306 670,306
Liabilities
Mortgage loan payable 1,400,259 1,526,689 1,423,492 1,508,688
</TABLE>
3. Cash and Cash Equivalents
At December 31, 1997, the Company had $1,319 in cash and $405,897
invested in a money market fund. At December 31, 1996, the
Company had $11,785 in cash and $658,521 invested in a money
market fund.
4. Real Estate
The Company's properties are leased to various tenants, whereby
the Company incurs normal real estate operating expenses
associated with ownership. In 1997, the Company incurred capital
expenditures of $299,985. The improvements consisted of tenant
build-outs and the development of additional parking.
Information regarding the Company's investment in each property
is presented in the Schedule of Real Estate and Accumulated
Depreciation below.
Schedule of Real Estate and Accumulated Depreciation
<TABLE>
<S> <C> <C> <C> <C>
Initial Cost to Company
Subsequent
Property Description Amount of Buildings & Cost
Name and Location of Property Encumbrance Land Improvements Capitalized
Southpoint Parkway Center $ --- 2,005,495 4,500,000 1,471,235
Jacksonville, Florida
(Office/Service Facility)
Broadbent Business Center 1,400,259 595,000 3,462,950 475,067
Salt Lake City, Utah
(Office/Service Facility)
Corporate Center East --- 475,000 1,746,783 314,340
Bloomington, Illinois
(Office Building)
Germantown Square --- 678,675 2,284,999 753,343
Louisville, Kentucky
(Shopping Center)
$ 1,400,259 3,754,170 11,994,732 3,013,985
</TABLE>
<TABLE>
<S> <C> <C> <C>
Gross Amount at Which Carried
December 31, 1997
Property Description Buildings &
Name and Location of Property Land Improvements Total
Southpoint Parkway Center $ 2,377,369 5,599,361 7,976,730
Jacksonville, Florida
(Office/Service Facility)
Broadbent Business Center 595,000 3,938,017 4,533,017
Salt Lake City, Utah
(Office/Service Facility)
Corporate Center East 475,000 2,061,123 2,536,123
Bloomington, Illinois
(Office Building)
Germantown Square 678,675 3,038,342 3,717,017
Louisville, Kentucky
(Shopping Center)
$ 4,126,044 14,636,843 18,762,887
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Life on Which
Depreciation
is Computed
Property Description Accumulated Date Date (in years)
Name and Location of Property Depreciation Built Acquired
Southpoint Parkway Center 1,924,459 1984 5/86 10-40
Jacksonville, Florida
(Office/Service Facility)
Broadbent Business Center 1,154,125 1978 3/87 10-40
Salt Lake City, Utah
(Office/Service Facility)
Corporate Center East 450,897 1987 3/88 10-40
Bloomington, Illinois
(Office Building)
Germantown Square 688,218 1988 9/88 10-40
Louisville, Kentucky
(Shopping Center)
4,217,699
</TABLE>
The activity in real estate and related accumulated depreciation
for the three year period ended December 31, 1997 is summarized
in the table below.
Years Ended December 31,
Real Estate 1997 1996 1995
Cost
Beginning of year $ 18,462,902 18,326,583 18,326,583
Additions during year
Improvements 299,985 136,319 ---
End of year $ 18,762,887* 18,462,902 18,326,583
Accumulated Depreciation
Beginning of year $ 3,755,012 3,318,273 2,881,997
Additions during year
Depreciation expense 462,687 436,739 436,276
End of year $ 4,217,699 3,755,012 3,318,273
* Also represents cost for federal income tax purposes.
5. Mortgage Loan Receivable
On September 20, 1993, the Company purchased a $600,000
participation in a promissory note owned by Life Investors
Insurance Company of America, an affiliate of AEGON Realty
Advisors (see Note 9). The note is secured by real estate and
the participation yields 8.25% to the Company. Principal
payments reduced the receivable balance to $564,437 at December
31, 1997 and $573,991 at December 31, 1996.
Information regarding the mortgage loan receivable at December
31, 1997 is presented in the Schedule of Mortgage Loan Receivable
below.
Schedule of Mortgage Loan Receivable
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Periodic Payment
Terms
Face Amount Carrying Amount
Stated Final Annual Balloon of Mortgage of Mortgage
Property Description Date of Interest Maturity Principal and Payment at Receivable at December 31,
Name and Location of Property Mortgage Rate Date Interest Maturity Acquisition 1997
Woodbury Plaza
Woodbury, Minnesota 8-1-93 8.25% 8-1-00 $56,577 $535,664 $600,000 $564,437
</TABLE>
The activity for the mortgage loan receivable for the three year
period ended December 31, 1997, is summarized as follows:
Years Ended December 31,
Mortgage Loan Receivable 1997 1996 1995
Principal
Beginning of year $573,991 582,769 590,834
Deductions during year
Scheduled payments (9,554) (8,778) (8,065)
End of year $564,437 573,991 582,769
6. Leased Assets
The Company's properties are leased to tenants under short-term,
non-cancellable operating lease agreements. Future minimum lease
rentals to be received under the terms of these lease agreements
are as follows:
Year Amount
1998 $ 1,946,731
1999 1,303,232
2000 974,151
2001 830,601
2002 526,664
Thereafter 2,082,697
$ 7,664,076
Contingent rentals provided by various leases were included in
rental income for 1997, 1996, and 1995 of $284,219, $238,461, and
$284,887, respectively. The Company derived 10% or more of its
revenue from one major tenant in 1997 and 1996, and two major
tenants in 1995. Revenues from these tenants were $477,323 in
1997, $505,134 in 1996, and $541,814 and $278,553 in 1995.
One of the Company's major tenants, Hewlett Packard Corporation,
vacated 20,400 square feet in Corporate Center East when their
lease expired on December 31, 1995. The Hewlett Packard
Corporation provided 11% of the Company's 1995 revenue. During
the fourth quarter of 1996 and the first quarter of 1997, the
Company was successful in releasing all of this space.
7. Mortgage Loan Payable
Broadbent was acquired on March 31, 1987 subject to a mortgage
loan obligation. The mortgage was scheduled to mature in
September 2008; however, the lender elected to call the loan
pursuant to terms of the note. A payment of $1,300,472 was paid
to the lender on October 30, 1992 to retire the obligation, at
which time new financing was obtained. Information regarding the
new mortgage is presented in the Schedule of Mortgage Loan on
Real Estate below.
Schedule of Mortgage Loan on Real Estate
<TABLE>
<S> <C> <C> <C> <C> <C>
Annual
Date Stated Final Principal Balloon
Property Description of Interest Maturity and Payment at
Name and Location of Property Note Rate Date Interest Maturity
Broadbent Business Center 10/92 9.375% 11/02 $155,704 1,254,779
Salt Lake City, Utah
</TABLE>
<TABLE>
<S> <C> <C> <C>
Face Amount Carrying Amount
Property Description Prepayment Penalty of Mortgage of Mortgage
Name and Location of Property Provisions at Acquisition December 31, 1997
Broadbent Business Center from 10/97 to 10/98 $1,500,000 $1,400,259
Salt Lake City, Utah 5%, declining 1%
per year thereafter
</TABLE>
The activity in mortgage loans payable for the three year period
ended December 31, 1997, is summarized in the table below.
Years Ended December 31,
Mortgage Loan Payable 1997 1996 1995
Principal
Beginning of year $1,423,492 1,444,654 1,463,929
Deductions during year
Principal payments (23,233) (21,162) (19,275)
End of year $1,400,259 1,423,492 1,444,654
Scheduled monthly payments will partially amortize the principal
balance of the mortgage loan over its term, leaving a balloon
payment at maturity in November 2002. Amortized payments on the
outstanding balance due in the next five years are summarized as
follows:
Amortized Balloon
Year Payments Payment
1998 $25,507 ---
1999 28,004 ---
2000 30,742 ---
2001 33,755 ---
2002 27,472 1,254,779
8. Federal Income Taxes
The Company conducts its operations so as to qualify as a real
estate investment trust under the Internal Revenue Code which
requires, among other things, that at least 95% of the Company's
taxable income be distributed to shareholders. The Company has
distributed all of its taxable income for 1997, 1996 and 1995;
accordingly, no provision has been made for federal income taxes
since the Company did not have taxable income after the
deductions allowed for dividends paid to shareholders.
Differences between taxable income and financial accounting
income result from different methods required for depreciation of
real estate; such differences are relatively insignificant.
9. Transactions with Affiliates
The Company has entered into an agreement with AEGON USA Realty
Advisors, Inc. ("AEGON Realty Advisors") 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. AEGON Realty Advisors 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 cancellable upon 60 days
written notice by either party. The Company paid AEGON Realty
Advisors $101,192, $100,363 and $99,359 in administrative fees
for 1997, 1996, and 1995, respectively. No acquisition fees were
paid in 1997, 1996 and 1995 and no incentive or disposition fees
have been paid since the Company's inception.
AEGON USA Realty Management, Inc. (the "Property Manager"), a
wholly-owned subsidiary of AEGON Realty Advisors, provides
property management services to the Company 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 cancellable upon 60
days written notice by either party. The Company paid the
Property Manager $119,328, $106,093, and $120,013 in management
fees for 1997, 1996, and 1995, respectively, and $44,906,
$36,901, and $18,809 in leasing fees for 1997, 1996 and 1995,
respectively.
AEGON Realty Advisors provides dividend disbursement, stock
certificate preparation, recordkeeping and other shareholder
services to the Company for a quarterly fee of $.875 per
shareholder account (as defined) and $1.00 per shareholder
account for dividends processed. The Company paid AEGON Realty
Advisors $8,947, $9,578 and $10,281 in shareholder service fees
for 1997, 1996, and 1995, respectively. AEGON Realty Advisors
has subcontracted with Boston EquiServe, L.P., a subsidiary of
State Street Bank and Trust Company, for delivery of these
services.
The Company has purchased participations in promissory notes
owned by various affiliates of AEGON Realty Advisors (see note
5). The Company received interest income from the participations
of $46,933, $47,691, and $48,388 for 1997, 1996 and 1995,
respectively.
AEGON Realty Advisors is a wholly-owned subsidiary of AEGON USA,
Inc. which, through AEGON Realty Advisors and various other
wholly-owned subsidiaries, beneficially owns 584,567 shares of
the Company, representing approximately 26% of the shares
outstanding at December 31, 1997.
10. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Quarter Ended Year Ended
Year 3/31 6/30 9/30 12/31 12/31
1997
Revenue $ 560,915 623,622 626,237 657,084 2,467,858
Net earnings 124,207 182,421 181,052 12,506 500,186
Basic and diluted net
earnings per share .06 .08 .08 .00 .22
1996
Revenue 582,292 544,903 557,005 532,826 2,217,026
Net earnings 166,021 128,924 132,676 133,995 561,616
Basic and diluted net
earnings per share .07 .06 .06 .06 .25
1995
Revenue 619,893 621,256 629,480 616,528 2,487,157
Net earnings 184,870 171,659 205,710 207,382 769,621
Basic and diluted net
earnings per share .08 .08 .09 .09 .34
</TABLE>
11. Subsequent Event
Cedar Bay Company, an affiliate of SKR Management Corp.
(collectively, "SKR"), commenced a tender offer (the "Offer"), on
January 12, 1998, to acquire all, but not less than a majority,
of the outstanding shares of the Company for $7.00 per share in
cash. The Offer is scheduled to expire at 12:00 Midnight, New
York City time, on March 27, 1998, unless the Offer is extended.
SKR has deposited $1,000,000 with the Company as an earnest money
deposit, to be returned to SKR upon the successful completion of
the Offer. Upon completion of the Offer, the current directors
and officers of the Company will resign and new directors and
officers will be appointed by SKR until the next annual meeting
of shareholders. In addition, the agreements the Company has
entered into with AEGON Realty Advisors and the Property Manager
to provide administrative and advisory services and property
management services, respectively, will terminate upon the
completion of the Offer. It is anticipated the Company will
enter into similar agreements with affiliates of SKR.
Report of Independent Auditors
The Board of Directors and Shareholders
Cedar Income Fund, Ltd.
We have audited the accompanying balance sheets of Cedar Income
Fund, Ltd. as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997.
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 generally accepted
auditing standards. 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 financial position
of Cedar Income Fund, Ltd. at December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 20, 1998
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
Part III.
Item 10. Directors and Executive Officers of the Registrant
Information About Directors
Certain information about the nominees for Director appears
below. (See "Item 13. Certain Relationships and Related
Transactions" for a description of the Company's relationship
with AEGON USA Realty Advisors, Inc. and other subsidiaries of
AEGON USA, Inc.)
PATRICK E. FALCONIO, age 56, has served as Chairman of the Board
and a Director of the Company since 1988. He is an Executive
Vice President of AEGON USA, Inc. (insurance and financial
services), Cedar Rapids, Iowa, where he has been employed since
1987. Mr. Falconio is a Director of AEGON USA Realty Advisors,
Inc. and various other subsidiaries of AEGON USA, Inc. He is
also Chairman of the Board of Trustees of USP Real Estate
Investment Trust (real estate investment company) and a Director
of Firstar Bank Cedar Rapids, N.A. (commercial bank).
EDWIN L. INGRAHAM, age 71, has served as a Director of the
Company from inception to 1988, and again since 1991. He retired
in 1988 as Executive Vice President, Treasurer and Chief
Investment Officer of AEGON USA, Inc., where he had been employed
since 1982. He is a Trustee of USP Real Estate Investment Trust
(real estate investment company). Mr. Ingraham is a member of
the Audit Committee.
ALEX A. MEYER, age 67, has served as a Director of the Company
since its inception. He retired in 1992 as Senior Vice President
of Amana Refrigeration, Inc., Amana, Iowa, a subsidiary of
Raytheon Company (manufacturing), where he had been employed in
various executive and marketing positions since 1956. He is a
Director of the Toro Company (equipment manufacturing). Mr.
Meyer is a member of the Audit Committee.
JAMES L. ROBERTS, age 55, has served as a Director of the Company
since 1996. He is President and Chief Executive Officer of
Perpetual Savings Bank, FSB (federal savings and loan
corporation), Cedar Rapids, Iowa, where he has been employed
since 1993. From 1990 to 1993, Mr. Roberts was Executive Vice
President and Director of Corporate Finance for Kemper
Securities, Inc.'s Eastern Region (brokerage firm). He is a
Director of Perpetual Savings Bank, FSB. Mr. Roberts is a member
of the Audit Committee.
Information About Other Executive Officers
Certain information about the executive officers of the Company
who are not also nominees appears below. The term of office of
each executive officer will expire at the Annual Meeting of the
Board of Directors which will follow the Annual Meeting of
Shareholders. (See "Item 13. Certain Relationships and Related
Transactions" for a description of the Company's relationship
with AEGON USA Realty Advisors, Inc. and other subsidiaries of
AEGON USA, Inc.)
DAVID L. BLANKENSHIP, age 47, has served as President of the
Company since its inception. He has been employed by AEGON USA,
Inc. since 1977 in various administrative and management
positions related to real estate investment activities and is
Chairman of the Board and President of AEGON USA Realty Advisors,
Inc.
MAUREEN DEWALD, age 47, has served as Vice President and
Secretary of the Company since its inception. She has been
employed by AEGON USA, Inc. since 1983 as an attorney for real
estate investment activities and is Senior Vice President,
Secretary and General Counsel of AEGON USA Realty Advisors, Inc.
ALAN F. FLETCHER, age 48, has served as Vice President and
Treasurer of the Company since its inception and as Assistant
Secretary since 1987. He has been employed by AEGON USA, Inc.
since 1981 in various financial and administrative positions
related to investment activities and is Senior Vice President and
Chief Financial Officer of AEGON USA Realty Advisors, Inc.
ROGER L. SCHULZ, age 36, has served as Controller and Assistant
Secretary of the Company since 1996. He has been employed by
AEGON USA, Inc. since 1985 in real estate accounting and
financial reporting activities and is Manager - Financial
Reporting for AEGON USA Realty Advisors, Inc.
Item 11. Executive Compensation
The officers and Directors of the Company who are also affiliated
with AEGON USA Realty Advisors, Inc. (see "Item 10. Directors and
Executive Officers of the Registrant") receive no remuneration
for their services to the Company other than reimbursement of
travel and other expenses incurred in connection with their
duties. During 1997, with the exception of Mr. Falconio, each
Director received an annual fee of $5,000 plus $750 for each
Board meeting attended. There is an additional fee of $500 for
any special activity (property inspection, committee meeting,
etc.) unless such activity coincides with a meeting of the Board
of Directors. Mr. Falconio has waived all fees for his services
as a Director so long as he continues to be affiliated with AEGON
USA, Inc. (see "Item 10. Directors and Executive Officers of the
Registrant"). Total fees paid to all Directors as a group were
$21,000 for 1997. (See "Item 13. Certain Relationships and
Related Transactions" for information regarding compensation to
AEGON USA Realty Advisors, Inc.)
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 five percent (5%) of the
outstanding Shares of the Company as of March 3, 1998. Each such
owner has sole voting and investment powers with respect to the
Shares owned by it.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
AEGON USA, Inc. 584,567 26.03%
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499
AEGON USA, Inc. is an indirect, wholly-owned subsidiary of AEGON
N.V., a holding company organized under the laws of The
Netherlands which is controlled by Vereniging AEGON, an
association organized under the laws of The Netherlands. AEGON
USA, Inc. has sole voting and investment powers with respect to
the above Shares.
Security Ownership of Management
The following table sets forth the number of Shares of the
Company beneficially owned as of March 3, 1998 by each Director,
nominee, and officer and by all Directors, nominees and officers
as a group (8 persons).
Name of Amount and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
Patrick E. Falconio(1) 584,567 26.03%
Edwin L. Ingraham(2) 300 *
Alex A. Meyer(3) 300 *
James L. Roberts 0 *
David L. Blankenship(4) 1,052 *
Maureen DeWald(5) 2,892 *
Alan F. Fletcher(6) 500 *
Roger L. Schulz(7) 400 *
Directors, nominees and
officers as a group 590,011 26.28%
(1) Mr. Falconio may be deemed to be the beneficial owner
of 584,567 Shares owned beneficially by AEGON USA, Inc. by
reason of his position as Executive Vice President of AEGON
USA, Inc. (see "Principal Shareholders" and "Information About
the Nominees"). Mr. Falconio disclaims beneficial ownership
of such Shares.
(2) Mr. Ingraham is the direct owner of 300 Shares held
jointly with his wife and shares voting and investment powers
with respect to such Shares.
(3) Mr. Meyer is the direct owner of 300 Shares for which
he has sole voting and investment powers.
(4) Mr. Blankenship may be deemed to be the beneficial
owner of 1,052 Shares held in an individual retirement account
owned by his wife for which she has sole voting and investment
powers through the custodian.
(5) Ms. DeWald is the direct owner of 2,892 Shares for
which she has sole voting and investment powers.
(6) Mr. Fletcher is the direct owner of 200 Shares for
which he has sole voting and investment powers and is the
beneficial owner of 300 Shares held in an individual
retirement account for which he has sole voting and investment
powers through the custodian.
(7) Mr. Schulz is the direct owner of 400 Shares for which
he has sole voting and investment powers.
*Such holdings represent less than one percent of the outstanding Shares.
Item 13. Certain Relationships and Related Transactions
The Company has no employees and has contracted with various
subsidiaries of AEGON USA, Inc., to provide the Company with
administrative, advisory, acquisition, divestiture, property
management, leasing and shareholder services. A description of
the relationships between AEGON USA, Inc. and its various
subsidiaries and of such subsidiaries' agreements with the
Company follows. The description of the agreements is qualified
in its entirety by reference to the terms and provisions of such
agreements. (See "Item 12. Security Ownership of Certain
Beneficial Owners and Management" for a description of the
relationship between AEGON USA, Inc. and AEGON N.V.)
Administrative and Advisory Services
AEGON USA Realty Advisors, Inc. ("AEGON Advisors"), a wholly-
owned subsidiary of AEGON USA, Inc., provides administrative,
advisory, acquisition and divestiture services to the Company
pursuant to an Administrative and Advisory Agreement (the
"Advisory Agreement"). The term of the Advisory Agreement is for
one (1) year and is automatically renewed annually for an
additional year subject to the right of either party to cancel
the Advisory Agreement upon 60 days written notice.
Under the Advisory Agreement, AEGON Advisors is obligated to:
(a) provide office space and equipment, personnel and general
office services necessary to conduct the day-to-day operations of
the Company; (b) select and conduct relations with accountants,
attorneys, brokers, banks and other lenders, and such other
parties as may be considered necessary in connection with the
Company's business and investment activities, including, but not
limited to, obtaining services required in the acquisition,
management and disposition of investments, collection and
disbursement of funds, payment of debts and fulfillment of
obligations of the Company, and prosecuting, handling and
settling any claims of the Company; (c) provide property
acquisition and disposition services, research, economic and
statistical data, and investment and financial advice to the
Company; and (d) maintain appropriate legal, financial, tax,
accounting and general business records of activities of the
Company and render appropriate periodic reports to the directors
and shareholders of the Company and to regulatory agencies,
including the Internal Revenue Service, Securities and Exchange
Commission, and similar state agencies.
AEGON Advisors receives fees for its administrative and advisory
services as follows: (a) 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 a subordinated incentive fee equal to
15% of the gain on property sold (as defined). No subordinated
incentive fee is payable until cumulative cash distributions have
been paid to shareholders representing the total proceeds raised
by the Company in its initial public offering (less certain
amounts) plus an annual 10% cumulative return on such amount.
The incentive fee is further limited to 15% of the remaining gain
from the sale of the Company's assets after payment to
shareholders of the original issue price plus an annual 6%
cumulative return on the original issue price. Notwithstanding
the foregoing, the combined base and incentive fees for any year
cannot exceed the amount permitted by the limitation on operating
expenses as provided in the Company's Articles of Incorporation,
which limitation is the greater of 2% of the Company's average
invested assets or 25% of its net income for such year. In
addition, AEGON Advisors receives acquisition fees equal to 5% of
the gross purchase price of property acquired and disposition
fees equal to 3% of the gross sales price of property sold,
subject to certain limitations. The Company paid AEGON Advisors
$101,192 in administrative fees for 1997. No incentive,
acquisition or disposition fees were paid in 1997.
Management Services
AEGON USA Realty Management, Inc. ("AEGON Management"), a wholly-
owned subsidiary of AEGON Advisors, provides property management
and leasing services to the Company pursuant to a Management
Agreement. The term of the Management Agreement is for one (1)
year and is automatically renewed annually for an additional year
subject to the right of either party to cancel the Management
Agreement upon 60 days written notice. Under the Management
Agreement, AEGON Management 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 to the Company regarding
property operations, and maintenance of insurance. All of the
duties of AEGON Management are to be fulfilled at the Company's
expense; provided, however, the Company is not required to
reimburse AEGON Management for personnel expenses other than for
on-site personnel at the properties managed. AEGON Management
receives fees for its property management services as follows: a
monthly management fee equal to 5% of the gross income from
properties managed and leasing fees of up to 6% of the rent to be
paid during the term of the lease procured. The Company paid
AEGON Management $119,328 in management fees and $44,906 in
leasing fees for 1997.
Shareholder Services
AEGON Advisors provides shareholder services to the Company
pursuant to a Shareholder Services Agreement (the "Agreement").
Under the Agreement, AEGON Advisors is obligated to provide
dividend disbursement, stock certificate preparation,
recordkeeping and other shareholder services for which AEGON
Advisors receives the following fees: a quarterly fee of $.375
per shareholder account based on the total number of active and
inactive accounts, a quarterly fee of $.50 per shareholder
account based on the number of active accounts, a fee of $1.00
per shareholder account for each dividend processed and such
other compensation as from time to time agreed upon by the
Company and AEGON Advisors. The Company paid AEGON Advisors
$8,947 in shareholder service fees for 1997. AEGON Advisors has
subcontracted for stock transfer and dividend disbursement
services with Boston EquiServe, L.P., a subsidiary of State
Street Bank and Trust Company.
Other
On September 20, 1993, the Company purchased from Life Investors
Insurance Company of America, a wholly-owned subsidiary of AEGON
USA, Inc., a $600,000 participation in a promissory note secured
by a mortgage on real estate. The note matures in 2000 and the
participation yields 8.25% to the Company. The Company received
$9,554 in principal and $46,933 in interest from the mortgage
participation in 1997.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) List of Documents
1. Financial Statements.
The following financial statements are included in Item 8:
Balance Sheets, December 31, 1997 and 1996.
Statements of Operations, Years Ended December 31, 1997, 1996,and 1995.
Statements of Cash Flows, Years Ended December 31, 1997, 1996,and 1995.
Statements of Shareholders' Equity, Years Ended December 31, 1997, 1996,
and 1995.
Notes to Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedules.
Financial Statement Schedules. (Included in Notes to Financial Statements)
(III) Schedule of Real Estate and Accumulated Depreciation. Note 4
(IV) Schedule of Mortgage Loans on Real Estate. Note 7
All other schedules have been omitted because they are not
required, or because the required information, where
material, is included in the financial statements or
accompanying notes.
3.Exhibits
(3) Articles of Incorporation dated September 14, 1989,
incorporated herein by reference to Item
14(a)3, Exhibit (3) of Form 10-K for the
year ended December 31, 1989.
(3.1) Bylaws, as amended July 24, 1991,
incorporated herein by reference to Item
14(a)3, Exhibit (3.1) of Form 10-K for
the year ended December 31, 1991.
(4) Article III of the Articles of Incorporation dated
September 14, 1989, incorporated herein
by reference to Item 14(a)3, Exhibit (4)
of Form 10-K for the year ended
December 31, 1989.
(4.1) Articles II, V, and VII of the Bylaws, as
amended July 24, 1991, incorporated
herein by reference to Item 14(a)3,
Exhibit (4.1) of Form 10-K for the year ended December 31, 1991.
(10) Administrative and Advisory Agreement
dated October 1, 1989, incorporated
herein by reference to Item 14(a)3,
Exhibit (10) of Form 10-K for the year ended December 31, 1989.
(10.1) Management Agreement dated October 1, 1989,
incorporated herein by reference to Item
14(a)3, Exhibit (10.1) of Form 10-K for
the year ended December 31, 1989.
(10.2) Shareholder Services Agreement dated
October 1, 1989, as amended January 1,
1992 and assigned January 27, 1992,
incorporated herein by reference to Item
14(a)3, Exhibit (10.2) of Form 10-K for
the year ended December 31, 1991.
(10.3) Memorandum of Understanding, dated as of
December 5, 1997, by and between Cedar
Income Fund, Ltd. and SKR Management
Corp., incorporated by reference to
Exhibit No. 2.1 of the Company's Current
Report on Form 8-K filed on December 8,
1997, File No. 0-14510.
(10.4) Tender Agreement, dated as of December 5,
1997, by and among SKR Management Corp.
and certain stockholders listed therein
of Cedar Income Fund, Ltd., incorporated
by reference to Exhibit No. 2.3 of the
Company's Current Report on Form 8-K
filed on December 8, 1997, File No. 0-
14510.
(10.5) Escrow Agreement, dated as of December
5, 1997, by and among Cedar Income Fund,
Ltd., SKR Management Corp. and American
Title Company, incorporated by reference
to Exhibit No. 2.2 of the Company's
Current Report on Form 8-K filed on
December 8, 1997, File No. 0-14510.
(10.6) Letter Agreement, dated as of February
24, 1998, between Cedar Income Fund, Ltd.
and Cedar Bay Company, incorporated
herein by reference to Exhibit 9 to
Amendment 1 to the Schedule 14D-9 filed
on February 26, 1998.
(b) Reports on Form 8-K.
The Company reported on a Form 8-K, dated
December 8, 1997, that it entered into a
Memorandum of Understanding with an
unaffiliated entity.
(c) The required exhibits applicable to this section are listed in Item 14(a)3.
(d) There are no financial statement schedules applicable
to this section.
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/ Patrick E. Falconio /s/ Alan F. Fletcher
Patrick E. Falconio Alan F. Fletcher
Chairman of the Board Vice President and Treasurer
(principal executive officer) (principal financial officer)
/s/ Roger L. Schulz
Roger L. Schulz
Controller
(principal accounting officer)
March 26, 1998
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/ Patrick E. Falconio /s/ James L. Roberts
Patrick E. Falconio James L. Roberts
Director Director
/s/ Edwin L. Ingraham /s/ Alex A. Meyer
Edwin L. Ingraham Alex A. Meyer
Director Director
March 26, 1998
EXHIBIT INDEX
Exhibit
Item Title or Description
(3) Articles of Incorporation dated September 14, 1989,
incorporated herein by reference to Item 14(a)3,
Exhibit (3) of Form 10-K for the year ended December
31, 1989.
(3.1) Bylaws, as amended July 24, 1991, incorporated herein
by reference to Item 14(a)3, Exhibit (3.1) of Form 10-
K for the year ended December 31, 1991.
(4) Article III of the Articles of Incorporation dated
September 14, 1989, incorporated herein by reference
to Item 14(a)3, Exhibit (4) of Form 10-K for the year
ended December 31, 1989.
(4.1) Articles II, V, and VII of the Bylaws, as amended July
24, 1991, incorporated herein by reference to Item
14(a)3, Exhibit (4.1) of Form 10-K for the year ended
December 31, 1991.
(10) Administrative and Advisory Agreement dated October 1,
1989, incorporated herein by reference to Item
14(a)3, Exhibit (10) of Form 10-K for the year ended
December 31, 1989.
(10.1) Management Agreement dated October 1, 1989,
incorporated herein by reference to Item 14(a)3, Exhibit (10.1) of
Form 10-K for the year ended December 31, 1989.
(10.2) Shareholder Services Agreement dated October 1, 1989,
as amended January 1, 1992 and assigned January 27,
1992, incorporated herein by reference to Item
14(a)3, Exhibit (10.2) of Form 10-K for the year
ended December 31, 1991.
(10.3) Memorandum of Understanding, dated as of December 5,
1997, by and between Cedar Income Fund, Ltd. and SKR
Management Corp., incorporated by reference to
Exhibit No. 2.1 of the Company's Current Report on
Form 8-K filed on December 8, 1997, File No. 0-14510.
(10.4) Tender Agreement, dated as of December 5, 1997, by
and among SKR Management Corp. and certain
stockholders listed therein of Cedar Income Fund,
Ltd., incorporated by reference to Exhibit No. 2.3 of
the Company's Current Report on Form 8-K filed on
December 8, 1997, File No. 0-14510.
(10.5) Escrow Agreement, dated as of December 5, 1997, by
and among Cedar Income Fund, Ltd., SKR Management
Corp. and American Title Company, incorporated by
reference to Exhibit No. 2.2 of the Company's Current
Report on Form 8-K filed on December 8, 1997,
File No. 0-14510.
(10.6) Letter Agreement, dated as of February 24, 1998,
between Cedar Income Fund, Ltd. and Cedar Bay
Company, incorporated herein by reference to Exhibit
9 to Amendment 1 to the Schedule 14D-9 filed on
February 26, 1998.
All Exhibit Items are omitted from this report, but a copy will be
furnished upon payment of $13.00, representing a charge of fifty
cents ($.50) per page, accompanying a written request to Roger L.
Schulz, Controller, Cedar Income Fund, Ltd., 4333 Edgewood Road
N.E., Cedar Rapids, Iowa 52499.
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