<PAGE>
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 March 31, 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
incorporation or organization) Identification Number)
44 South Bayles Avenue, #304, Port Washington, NY 11050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 767-6492
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- -------------------------
Common Stock, $0.01 par value The NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Based on the closing sales price on May 10, 1999 of $4.75 per share, the
aggregate market value of the voting stock held by non-affiliates of the
registrant was $1,633,777.
The number of shares outstanding of the registrant's common stock $.01 par value
was 542,111 on May 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
1
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate
Land $ 4,144,705 $ 4,144,705
Buildings and improvements 14,778,037 14,759,062
------------ ------------
18,922,742 18,903,767
Less accumulated depreciation (4,822,524) (4,698,109)
------------ ------------
Total real estate 14,100,218 14,205,658
Cash and cash equivalents 754,704 678,196
Rent and other receivables 132,920 108,196
Prepaid expenses 81,693 107,283
Deferred leasing commissions 122,993 131,350
Due from co-tenancy partner 35,553 61,323
Deferred rental receivables 37,929 21,500
Taxes held in escrow 24,155 9,809
------------ ------------
Total assets $ 15,290,165 $ 15,323,315
============= ============
Liabilities and Shareholders' Equity
Liabilities
Mortgage loan payable $ 1,367,994 $ 1,374,751
Accounts payable and accrued expenses 225,144 172,358
Due to co-tenancy partner 3,294 46,570
Security deposits 86,089 84,466
Advance rents 55,138 46,334
------------ ------------
Total liabilities 1,737,659 1,724,479
------------ ------------
Limited partner's interest in consolidated
Operating Partnership 10,280,572 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 3,266,513 3,284,099
------------ ------------
Total shareholders' equity 3,271,934 3,289,520
------------ ------------
Total liabilities and shareholders' equity $ 15,290,165 $ 15,323,315
============ ============
</TABLE>
2
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue
Rents $ 653,246 $ 639,038
Interest 7,020 31,286
------------ ------------
Total Revenue 660,266 670,324
------------ ------------
Expenses
Property expenses
Real estate taxes 62,283 59,609
Repairs and maintenance 53,355 71,459
Utilities 37,348 35,666
Management fees 30,550 31,952
Insurance 4,386 4,909
Other 19,661 21,488
------------ ------------
Property expenses, excluding depreciation 207,583 225,083
Depreciation 126,310 121,016
------------ ------------
Total property expenses 333,893 346,099
Interest 32,168 33,687
Administrative fees 49,468 25,776
Directors' fees and expenses 27,868 21,005
Other administrative 38,658 68,031
------------ ------------
Total Expenses 482,055 494,598
------------ ------------
Net income before limited partner's
interest in Operating Partnership $ 178,211 $ 175,726
Limited partner's interest (141,586) -
------------ ------------
Net income 36,625 175,726
============ ============
Basic and diluted net income per share $ 0.07 $ 0.08
============ ============
Dividends to shareholders $ 54,211 $ 224,541
============ ============
Dividends to shareholders per share $ 0.10 $ 0.10
============ ============
Average number of shares outstanding 542,111 2,245,411
============ ============
</TABLE>
3
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Shareholders' Equity (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Additional Undistributed Total
Common Paid-In Net Shareholders'
Stock Capital Earnings Equity
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 5,421 $3,284,099 $ - $3,289,520
Net earnings after limited
partner's interest - - 36,625 36,625
Dividends to shareholders - (17,586) (36,625) (54,211)
------- ---------- ---------- ----------
Balance at March 31, 1999 $ 5,421 $3,266,513 $ - $3,271,934
======= ========== ========== ==========
</TABLE>
4
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Income $ 36,625 $ 175,726
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Limited partner's interest in Operating Partnership 141,586 -
Depreciation and amortization 138,536 141,412
Increase in deferred rental receivable (16,429) -
Changes in operating assets and liabilities:
Increase in rent and other receivable (24,724) (97,589)
Decrease in interest receivable - 3,881
Decrease in prepaid expenses 25,590 1,691
Increase in deferred lease commissions (5,764) (23,730)
Increase in tax held in escrow (14,346) -
Increase (decrease) in accounts payable 52,786 (22,090)
Decrease in amounts due from co-tenancy partner 25,770 -
Decrease in due to co-tenancy partner (43,275) (62,570)
Security deposits collected, net 1,623 1,170
Increase in advance rents 8,805 3,028
---------- ----------
Net cash provided by operating activities 326,783 120,929
Cash Flow from Investing Activities
Capital expenditures (18,975) -
Sale and collection of mortgage loan receivable - 564,437
---------- ----------
Net cash provided by (used) in investing activities (18,975) 564,437
Cash Flow from Financing Activities
Principal portion of scheduled mortgage payments (6,759) (6,155)
Escrow funds received - 1,000,000
Dividends paid (54,211) (224,541)
Distributions to limited partner (170,330) -
---------- ----------
Net cash used in financing activities (231,300) 769,304
Net increase in cash and cash equivalents 76,508 1,454,670
Cash and cash equivalents at beginning of the period 678,196 407,216
---------- ----------
Cash and cash equivalents at end of the period $ 754,704 $1,861,886
========== ==========
Supplemental Disclosure of Cash Activities
Interest paid 32,168 33,687
</TABLE>
5
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
March 31, 1999 (Unaudited)
1. Description of Business and Significant Accounting Policies
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 million. 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, $1.00 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, $.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 March 31, 1999.
The Company's shares are traded on the NASDAQ Small Cap Market under the symbol
"CEDR".
Description of Business
The Company is engaged in ownership, management, operation and leasing of real
estate properties, principally office and retail located in four U.S. states:
Utah, Illinois, Florida and Kentucky.
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%
co-tenancy interest in a 74,000 square foot retail property located in
Louisville, Kentucky.
6
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
1. 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 three month period ended March 31, 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 and Subsidiaries' 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 March 31,
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
March 31, 1999.
The limited partner's interest as of March 31, 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.
The accompanying financial statements include its 50% co-tenancy interest in the
assets, liabilities and operations of the retail property.
7
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
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
on 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 related lease.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three months
or less when purchased, to be cash equivalents.
Deferred Costs
Leasing fees and loan costs are capitalized and amortized over the life of the
related lease or loan.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, the alternative fair value
accounting provided for 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.
8
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
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 the issuance under the Plan. The Plan is
administered by a committee of the Board of Directors, which committee will,
among other things, select the number of shares subject to each grant, the
vesting period for each grant and the exercise price (subject to applicable
regulations with respect to incentive stock options) for the options. As of
March 31, 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 quarter of 1999 and 2,245,411 for
the first quarter 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 17, 1997. SFAS 130 established standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 130 requires that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The adoption of this standard
had no impact on the Company's financial position or results of operations (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. Since we are in the first year of adoption, we have not made any
disclosure of segment information in accordance with SFAS 131.
9
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Income Taxes
The Company generally will not be subject to federal income taxes as long as it
qualifies as a real estate investment trust ("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
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 March 31, 1999,
management determined that no impairment indicators exist.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. 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 quarter of 1999, the Company incurred capital expenditures of $18,975
at Broadbent Business Center.
3. Mortgage Loan Receivable
On September 20, 1993, Old Cedar purchased a 30% participation in a promissory
note from Life Investors Insurance Company of America ("Life Investors"), an
affiliate of AEGON USA Realty Advisors, Inc. ("AEGON"), the Company's former
advisor. The participation was acquired for an investment of $600,000 with a
yield of 8.25% to Old Cedar. The promissory note which was to mature in August
2000, and was secured by a deed of trust on the Woodbury Office Plaza in
Woodbury, Minnesota, was repurchased by Life Investors, as permitted under the
note, for cash in the amount of $561,920 on March 30, 1998.
10
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
4. Mortgage Loan Payable
On October 30, 1992 the Company borrowed $1,500,000 to finance an existing
property. As of March 31, 1999, the mortgage outstanding principal balance is
$1,367,994. This loan is collateralized by Broadbent Business Center, with a
carrying amount of $3,309,266. The mortgage requires the repayment of principal
based on a 30 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 states from October 1997 to
October 1998 5% will be charged which declines by 1% per year thereafter.
Principal payments on the outstanding balance due in the next four years are
summarized as follows:
Principal
Year Payments
--------------------------
1999-balance $ 21,247
2000 30,742
2001 33,755
2002 1,282,250
----------
$1,367,994
==========
11
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
5. Related Party Transactions
The Company has entered into an agreement with Cedar Bay Realty Advisors, Inc.
("Cedar Bay") 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. Cedar Bay 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' written notice by either party.
With the exception of Germantown Square Shopping Center in Louisville, Kentucky
("Germantown Square"), Brentway Management LLC (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' written notice by either party. This agreement is essentially the same as
the previous agreement with AEGON. Due to Life Investors' continuing ownership
of the other 50% co-tenancy interest therein, AEGON continues to manage
Germantown Square upon similar terms as described above.
The Company, has entered into a Financial Advisory Agreement with HVB Capital
Markets Inc., as successor to B.V. Capital Markets, Inc. ("HVB") pursuant to
which 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
12
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
5. Related Party Transactions (continued)
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. One of the
directors of the Company is an officer of HVB.
In September 1993, Old Cedar purchased participations in promissory notes owned
by various affiliates of AEGON. In March 1998, the affiliates of AEGON exercised
their right to repurchase the entire mortgage receivable from the Company. The
Company invested the proceeds in the Company's money market fund. The Company
received interest income from the participations of $2,517, $46,933 and $47,691
for the first quarter of 1998, and the full years 1997 and 1996 respectively.
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 -
March 31, 1999 March 31, 1998
-----------------------------------
Management Fees
AEGON $ 4,772 $ 31,952
Brentway 10,664 -
Leasing Fees
AEGON 1,222 23,561
Administrative and Advisory
Cedar Bay Realty Advisors, Inc. 24,468 -
AEGON - 25,770
HVB 25,000 -
6. Co-tenancy Interest
On September 28, 1988, the Company purchased a 50% co-tenancy interest in
Germantown Square Shopping Center in Louisville, Kentucky. 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
$4,772 for the first quarter ended March 31, 1999. As of March 31, 1999, due to
co-tenancy partner, and due from co-tenancy partner was $3,294 and $35,553
respectively.
13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the historical
financial statements of the Company and related notes.
Results of Operations
The Company owns office, office/warehouse, and retail properties in four U.S.
cities. The Company's properties continue to compete with centers and office
buildings of similar size, tenant mix and location. As of March 31, 1999, the
combined lease occupancy of the Company's four properties was 91%. Operating
results in the forthcoming year will be influenced by the ability of current
tenants to continue paying rent, and the Company's ability to renew expiring
tenant leases and obtain new leases at competitive rental rates.
Rental income for the three months ended March 31, 1999 was $653,246 compared to
$639,038 for the same period in 1998.
Total property expenses, excluding depreciation, decreased to 32% of rental
income for the quarter ended March 1999 from 35% of rental income for the same
period in 1998. Repairs and maintenance decreased approximately $18,000 over the
same period in 1998 primarily due to reduced costs at Southpoint Parkway and
Broadbent Business Center.
Net income (loss) for the three months ended March 31, 1999 was $36,625 ($.07
per share) compared to $175,726 ($.08 per share) for the same period in 1998.
The decline in net income is attributed primarily to the accounting treatment,
not applicable during the first quarter of 1998, of the limited partner's
interest in the income of the Operating Partnership (UPREIT) which was created
as of June 26, 1998.
Interest income decreased by approximately $24,000 due to the liquidation in
March 1998 of the mortgage receivable formerly with Life Investors.
Administrative fees increased by approximately $24,000. This increase is
attributed to financial advisory fees paid to HVB in the Agreement effective
June 1, 1998 (see Note 7). Other administrative expenses decreased by
approximately $29,000. This decrease is attributed to higher administrative
costs during the first quarter of 1998 resulting from expenses incurred in
connection with the April 1998 tender offer (see Note 1).
Liquidity and Capital Resources
The Company's liquidity at March 31, 1999 represented by cash and cash
equivalents was $754,704 compared to $678,196 at December 31, 1998, an increase
of $76,508. Cash flow from operating activities for the three month period ended
March 31, 1999 was $326,783 compared to $120,929 over the same period in 1998,
an increase of $205,854.
Management estimates that during 1999 the Company will incur approximately
$175,000 in tenant improvement costs to lease up expected vacancies at Broadbent
Business Center.
In addition, the Company has commenced a lease negotiation at Corporate Center
East in Bloomington, Illinois, pursuant to which a very large national
creditworthy company would become the principal tenant in the building, with
attendant costs, which we would expect to pay out of cash flow, of approximately
$250,000-$300,000.
The Company is also reviewing the possibility of acquiring certain shopping
centers. Any such acquisitions would require substantial commitments of cash for
deposits and due diligence costs. In order to conclude any such arrangements,
the Company is considering, among other things, entering into 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 of the proposed purchases and/or financings will be
concluded. Any such proposed arrangements, furthermore, would in any event be
subject to negotiation and execution of agreements, approval by the Board of
Directors and, where applicable, consent of third party lenders.
The Company has continued its policy to date of distributing dividends equal to
$0.10 per share and per operating unit in the operating partnership, an amount
generally equal to $225,411 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 and
regulations thereto. During the quarter ended March 31, 1999 for example, the
earnings per share for shareholders in Cedar Income Fund, Ltd. are approximately
$0.06. If our dividend policy is to continue, absent further growth in income of
the Fund, 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 Fund.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The Company is seeking a line of credit and equity capital to be used for future
growth and acquisitions. There can be no assurance that any such credit or
capital will be obtained, or that they can be obtained on terms favorable to 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 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
(Cedar Bay Realty Advisors, Inc.), Property Manager (Brentway Management LLC),
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.
Quantitative and Qualitative Disclosures about Market Risk
The primary market risk facing the Company is interest rate risk on its mortgage
loan payable. The Company does not hedge interest rate risk using financial
instrument nor is the Company subject to foreign currency risk.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The following table sets for the Company's long term debt obligations, principal
cash flows by scheduled maturity, weighted average interest rates and estimated
fair market value ("FMV") at March 31, 1999:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999-balance 2000 2001 2002 Total FMV
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate $21,247 $30,742 $33,755 $1,282,250 $1,367,994 $1,466,113
Average interest rate 9.38% 9.38% 9.38% 9.38% 9.38%
</TABLE>
The fair value of the Company's mortgage loan payable is estimated based on the
discounting of future cash flows at interest rates that management believes
reflects the risks associated with mortgage loan payable at similar risk and
duration.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 754,704
<SECURITIES> 0
<RECEIVABLES> 132,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,189,947
<PP&E> 18,922,743
<DEPRECIATION> (4,822,524)
<TOTAL-ASSETS> 15,290,165
<CURRENT-LIABILITIES> 369,665
<BONDS> 0
0
0
<COMMON> 5,421
<OTHER-SE> 3,271,934
<TOTAL-LIABILITY-AND-EQUITY> 15,290,165
<SALES> 0
<TOTAL-REVENUES> 660,266
<CGS> 0
<TOTAL-COSTS> 338,893
<OTHER-EXPENSES> 113,994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,168
<INCOME-PRETAX> 178,211
<INCOME-TAX> 0
<INCOME-CONTINUING> 36,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,625
<EPS-PRIMARY> .7
<EPS-DILUTED> .7
</TABLE>
