<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 Commission file number 0-14510
September 30, 1999
CEDAR INCOME FUND, LTD.
(Exact name of registrant as specified in its charter)
Maryland 42-1241468
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
44 South Bayles Avenue, #304, Port Washington, NY 11050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 767-6492
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $0.01 par value The NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's common stock $.01 par value
was 942,111 as of November 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
<PAGE>
INDEX
Cedar Income Fund, Ltd.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1999 (unaudited)
and December 31, 1998
Consolidated Statements of Shareholders' Equity - September
30, 1999 (unaudited) and December 31, 1998
Consolidated Statements of Operations - Three Months Ended
September 30, 1999 and 1998 (unaudited); Nine Months Ended
September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements - September 30,
1999 (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Part II. Signatures
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
(Unaudited)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate
Land $ 4,144,705 $ 4,144,705
Buildings and improvements 14,799,952 14,759,062
------------ -------------
18,944,657 18,903,767
Less accumulated depreciation (5,079,608) (4,698,109)
------------ -------------
Real estate 13,865,049 14,205,658
Cash and cash equivalents 411,498 678,196
Rent and other receivables 150,125 108,196
Property deposit 250,000 -
Prepaid expenses 116,107 107,283
Deferred leasing commissions 129,551 131,350
Due from co-tenancy partner 31,738 61,323
Deferred financing costs 31,112 -
Deferred rental income 37,929 21,500
Taxes held in escrow 7,901 9,809
------------ -------------
Total assets $ 15,031,010 $ 15,323,315
============ =============
Liabilities and Shareholders' Equity
Liabilities
Mortgage loan payable $ 1,353,995 $ 1,374,751
Accounts payable and accrued expenses 230,089 172,358
Due to co-tenancy partner 14,268 46,570
Security deposits 96,648 84,466
Advance rents 53,881 46,334
------------ -------------
Total liabilities 1,748,881 1,724,479
Limited partner's interest in consolidated
Operating Partnership 10,090,725 10,309,316
Shareholders' Equity
Common stock ($.01 par value,
50,000,000 shares authorized,
542,111 issued and outstanding) 5,421 5,421
Additional paid-in capital 3,185,983 3,284,099
------------ -------------
Total shareholders' equity 3,191,404 3,289,520
------------ -------------
Total liabilities and shareholders' equity $ 15,031,010 $ 15,323,315
============ =============
</TABLE>
1
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Shareholders' Equity (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Undistributed Total
Common Paid-In Net Shareholders'
Stock Capital Income Equity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 5,421 $3,284,099 - $3,289,520
Net income after limited
partner's interest - - 64,612 64,612
Dividends to shareholders - (98,116) (64,612) (162,728)
-------- --------- -------- ----------
Balance at September 30, 1999 $ 5,421 3,185,983 - 3,191,404
-------- --------- -------- ----------
</TABLE>
2
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Rents $ 600,899 $ 626,339 $ 1,848,975 $ 1,898,733
Other income - - 75,000 -
Interest 4,408 9,273 17,544 51,481
---------- ----------- ------------ ------------
Total revenue 605,307 635,612 1,941,519 1,950,214
---------- ----------- ------------ ------------
Expenses
Property expenses:
Real estate taxes 62,643 56,999 187,803 176,217
Repairs and maintenance 74,322 72,239 200,104 190,585
Utilities 53,856 53,657 127,073 125,423
Management fees 31,149 31,919 93,134 95,629
Insurance 3,614 4,040 11,555 12,453
Other 35,855 20,005 87,639 68,783
---------- ----------- ------------ ------------
Property expenses excluding
depreciation and amortization 261,439 238,859 707,308 669,090
Depreciation and amortization 113,162 119,502 384,897 359,346
---------- ----------- ------------ ------------
Total property expenses 374,601 358,361 1,092,205 1,028,436
Interest 31,845 32,477 96,022 97,873
Administrative and advisory fees 19,095 26,312 70,521 76,556
Directors' fees and expenses 24,468 10,642 73,404 44,380
Other administrative 93,115 188,172 252,060 487,570
---------- ----------- ------------ ------------
Total expenses 543,124 615,964 1,584,212 1,734,815
---------- ----------- ------------ ------------
Net income before limited partner's
interest in Operating Partnership $ 62,183 $ 19,648 $ 357,307 $ 215,399
Limited partner's interest (54,450) (28,229) (292,695) (28,229)
---------- ----------- ------------ ------------
Net income $ 7,733 $ (8,581) $ 64,612 $ 187,170
========== =========== ============ ============
Basic and diluted net income per share $ 0.01 $ (0.02) $ 0.12 $ 0.11
========== =========== ============ ============
Dividends to shareholders $ 54,211 $ 54,211 $ 162,728 $ 503,293
========== =========== ============ ============
Dividends to shareholders per share $ 0.10 $ 0.10 $ 0.30 $ 0.30
========== =========== ============ ============
Average number of shares outstanding 542,111 542,111 542,111 1,677,645
========== =========== ============ ============
</TABLE>
3
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 64,612 $ 187,170
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Limited partner's interest in Operating Partnership 292,695 28,229
Depreciation and amortization 384,897 359,346
Increase in deferred rental receivable (16,429) -
Changes in operating assets and liabilities:
(Increase) decrease in rent and other receivables (41,444) 9,252
Decrease in interest receivable - 3,881
Increase in prepaid expenses (8,823) (15,123)
Decrease in deferred leasing commissions 1,798 21,800
Decrease (Increase) in tax held in escrow 1,908 (38,861)
Increase in accounts payable 57,731 67,036
Decrease in amounts due from co-tenancy partner 29,585 -
Decrease in amounts due to co-tenancy partner (32,302) (17,570)
Security deposits collected, net 12,182 4,018
Increase in advance rents 7,548 9,609
---------- -----------
Net cash provided by operating activities 753,958 618,787
Cash Flow from Investing Activities
Capital expenditures (40,890) (120,678)
Sale and collection of mortgage loan receivable - 564,437
Deposit on specialty retail complex (250,000) -
---------- -----------
Net cash (used in) provided by investing activities (290,890) 443,759
Cash Flow from Financing Activities
Principal portion of scheduled mortgage payments (20,756) (18,906)
Dividends paid (162,728) (503,293)
Distributions to limited partner (511,286) (170,330)
Financing costs (35,000) -
---------- -----------
Net cash used in financing activities (729,770) (692,529)
(Decrease) increase in cash and cash equivalents (266,702) 370,017
Cash and cash equivalents at beginning of the period 678,200 407,216
---------- -----------
Cash and cash equivalents at end of the period $ 411,498 $ 777,233
========== ===========
Supplemental Disclosure of Cash Activities
Interest paid 96,022 97,873
</TABLE>
4
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
September 30, 1999 (Unaudited)
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Background, Organization and Reorganization of the Company
Cedar Income Fund, Ltd. ("Old Cedar") was incorporated in Iowa on December 10,
1984. Old Cedar's public offerings of Common Stock, completed in 1986 and 1988,
raised nearly $19,000,000. Old Cedar invested the proceeds from these offerings
in four real estate properties and a mortgage loan participation, utilizing only
a minimum amount of indebtedness against the properties. The mortgage loan
participation has since been liquidated.
On April 2, 1998, Cedar Bay Company, ("CBC") a New York general partnership,
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., (the
"Company") a Maryland corporation newly formed as a wholly-owned subsidiary of
Old Cedar. Immediately thereafter, the Company assigned substantially all of its
assets and liabilities to a newly-formed Delaware limited partnership, Cedar
Income Fund Partnership, L.P. (the "Operating Partnership"), in exchange for an
aggregate of 2,245,411 units of the Operating Partnership ("Units"), which
constituted the sole general partnership interest and all of the limited
partnership interests in the Operating Partnership. After such assignment, CBC
exchanged 1,703,300 shares of the Company's Common Stock, $0.01 par value per
share ("New Common Stock"), for 1,703,300 limited partnership Units in the
Operating Partnership owned by the Company. The shares of New Common Stock were
cancelled by the Company upon their exchange by CBC. Following these
transactions, CBC owned 189,737 shares of New Common Stock, aggregating
approximately 35% of the issued and outstanding shares of New Common Stock.
There were 542,111 shares of New Common Stock outstanding as of September 30,
1999.
The Company's shares are currently traded on the NASDAQ Small Cap Market under
the symbol "CEDR". The Company, in the spring of 1999, received notice from the
NASDAQ stating that the "public float" of Common Stock of the Company was less
than the minimum requirements of the NASDAQ, and that, accordingly, the
Company's shares would be delisted if the Company failed to satisfy such
requirements and to demonstrate its ability to continue to comply with such
requirements.
5
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
September 30, 1999 (Unaudited)
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Background, Organization and Reorganization of the Company (Continued)
A hearing before a NASDAQ Listing Qualifications Panel (the "Panel") was held on
September 16, 1999. In addition, the Company submitted certain supporting
documents and information prior to and subsequent to such hearing. By letter
dated October 27, 1999, the Company was advised that the Panel, relying on such
submissions by the Company, was of the opinion that the Company had presented a
definitive plan which would enable it to evidence compliance with all
requirements for continued listing on the NASDAQ Small Cap Market and to sustain
compliance with those requirements over the long-term. In this regard, the Panel
noted that certain pending private placements, of which the Company had advised
the Panel, would increase the total shares in the public float to at least
500,000 shares. Further, the Panel was of the belief that shareholder approval
did not appear to be necessary for such private placements as there will be no
resulting change in control or a below-market issuance.
The Panel's determination to continue the listing of the Company's securities on
the NASDAQ Small Cap Market was subject to the exception that on or before
November 5, 1999, the Company must have made a public filing with the Securities
and Exchange Commission and NASDAQ evidencing the consummation of the proposed
private placement and compliance with the public float requirements. Further,
the Company was required to provide NASDAQ with a list of all private placement
investors and the number of shares purchased by each, and to make certain
additional formal filings and pay certain fees. In the event the Company failed
to comply with the terms of such exception, the securities would be delisted
from the NASDAQ Stock Market. The date to meet the filing requirements was
subsequently extended by a letter to the Panel dated November 8, 1999 to
November 12, 1999. On November 12, 1999, the Company made the filings required
by the Panel, and accordingly, the Company and its counsel believe that the
Company has now fully complied with such requirements.
As a result of the private placement of 250,000 shares of newly issued Common
Stock of the Company with a number of private investors at $4.50 per share
(which price as of the date of issue was higher than the quoted price for such
shares on the NASDAQ Small Cap Market) as set forth in such filings, the
Company believes that the "public float" of shares of Common Stock of the
Company is now approximately 600,000 shares. None of the new shareholders, all
of whom are resident outside the United States, owns, directly or indirectly,
more than 10% of the shares of Common Stock of the Company.
6
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
September 30, 1999 (Unaudited)
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Background, Organization and Reorganization of the Company
As of November 5, 1999, a Subscription Agreement was entered into by and between
the Company and Uni-Invest Holdings (U.S.A.) B.V., pursuant to which Uni-Invest
Holdings (U.S.A.) B.V. would acquire, through a private placement, 150,000
shares of Common Stock of the Company at $4.50 per share. As a result of such
placement and the other private placements described above, as of November 15,
1999, Uni-Invest Holdings (U.S.A.) B.V. own approximately 16% of the Common
Stock of the Company; CBC's Common Stock ownership has been reduced from
approximately 35% to approximately 20%. Also in accordance with that Agreement,
and subject to Board of Directors' approval, and, if required, shareholder
approval, the Company would change its name to "Uni-Invest (U.S.A.), Ltd." and
cause the following persons to be elected to the positions respectively set
forth below:
Richard Homburg Chairman of the Board
Louis Ph. Marcus Treasurer
Lawrence W. Freeman, Esq. Assistant Secretary
In addition, Uni-Invest Holdings (U.S.A.) B.V. and CBC entered into a
Stockholders' Agreement effective as of the issuance of stock pursuant to the
Subscription Agreement, pursuant to which they agreed, among other things, to
hold their shares for a period of not less than five years and setting forth
certain provisions for the orderly sale or other disposition of shares under
certain circumstances, and also to provide certain other arrangements common to
such stockholders' agreements. The parties further agreed to vote their shares
in favor of a slate of directors pursuant to which each of the respective
parties would designate two persons for election as directors, of a board of
directors which would also include not less than three outside directors.
The Stockholders' Agreement also calls for the creation by the Board of
Directors, as reconstituted, of an executive committee of the Board, the members
of which would be Richard Homburg and Leo S. Ullman.
Further, the Subscription Agreement, provides for the transfer of 50% of the
stock of Cedar Bay Realty Advisors, Inc. ("CBRA") to Uni-Invest Holdings
(U.S.A.) B.V. and the participation by Uni-Invest Holdings (U.S.A.) B.V.
generally in any increases in income of CBRA attributable to growth of
management fees arising from services rendered to the Company and Cedar Income
Fund Partnership, L.P. (the "UPREIT Partnership"). The name of the UPREIT
Partnership will correspondingly be changed to Uni-Invest (U.S.A.) Partnership,
L.P.
The Subscription Agreement also provides for Uni-Invest Holdings (U.S.A.) B.V.
without additional consideration obtaining, a 50% interest in each of SKR
Management Corp. and Brentway Management LLC and to succeed HVB Capital Markets,
Inc. as financial advisor to the Company, after the expiration or other
termination of the existing agreement with HVB Capital Markets, Inc.
7
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
September 30, 1999 (Unaudited)
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Background, Organization and Reorganization of the Company (Continued)
Uni-Invest Holdings (U.S.A.) B.V. and Leo S. Ullman have entered into a
Stockholders' Agreement with respect to the ownership of CBRA. That Agreement,
in general, also provides for a 5-year holding period and other provisions
common to such stockholder agreements.
The Subscription Agreement also calls for the contribution by Uni-Invest
Holdings (U.S.A.) B.V. of $7.5 million in exchange for shares of the Company
and/or O.P. Units in the UPREIT Partnership at $4.50 per share/O.P. Unit. The
proceeds of such contribution, together with $7.5 million to be raised by the
Company from other private placements of shares of stock or O.P. Units, from
refinancing of its existing properties and/or the sale of its interests in one
or more of the existing properties would be used to purchase three anchored
strip shopping centers aggregating more than 700,000 square feet, substantially
fully leased with a preponderance of creditworthy tenants, in Harrisburg (The
Point Shopping Center), Lancaster (Golden Triangle Shopping Center) and
Philadelphia (Red Lion Shopping Center), Pennsylvania from CBC or entities
affiliated therewith. The purchase price for the three properties at $15 million
plus closing adjustments, where applicable, above existing first mortgage
liabilities estimated at approximately $33.3 million at this time, will be
subject to third-party appraisals and "fairness" opinions by a reputable
independent investment banking firm. The purchase agreements to reflect the
foregoing are presently in preparation and have not yet been concluded or
executed by the parties.
Affiliates of CBC will also contribute to the UPREIT Partnership their
interests, ranging from 43% to 54% in three office properties located in Great
Neck, New York aggregating more than 250,000 rentable square feet of office
space, substantially fully leased, in exchange for a new preferred stock issue,
with a face value of $8 million (8,000 shares at $1,000 each), with interest
payable at 9%, redeemable by the Company at par at any time and convertible into
O.P. Units of the UPREIT Partnership at $4.50 through December 31, 2000, $5.00
through December 31, 2001, $5.50 through December 31, 2002, $6.00 through
December 31, 2003, $6.50 through December 31, 2004 and $7.00 through December
31, 2005. The valuation of the interests contributed, again, will be subject to
third-party appraisals and "fairness" opinions by an unrelated investment
banking firm. The purchase agreements to reflect the foregoing are presently in
preparation and have not been concluded or executed by the parties.
Finally, the Company will receive an option to acquire certain interests in a
certain shopping center property and adjacent land in Pleasantville, New Jersey,
subject to certain contingencies.
The transactions described above are subject to a closing on or before May 15,
2000 and are subject to execution of final purchase agreements and agreement on
closing adjustments, due diligence reviews, and consents, where applicable, of
lenders and partners.
There can be no assurances that the closing of these transactions will in fact
be concluded. Among other things, there can be no assurances that the Company
will be able to raise its portion of the purchase price, that the due diligence
reviews will be satisfactory or that the necessary consents will in fact be
obtained. In the event that the funding by Uni-Invest Holdings (U.S.A.) B.V.
does not occur, the Company has the right to unwind the entire transaction with
Uni-Invest Holdings (U.S.A.) B.V., subject to certain conditions. CBC is
required to obtain the consent of the lender under a certain shareholder loan
secured by shares of Common Stock of the Company and O.P. Units of the UPREIT
Partnership for the transactions described above. That loan is expected to be
repaid on or prior to December 31, 1999.
The proposed change of name of the Company (and the UPREIT Partnership) will be
subject to Shareholder approval.
Uni-Invest Holdings (U.S.A.) B.V. is a private company organized and existing
under the laws of the Netherlands. Its stock is owned primarily by or for the
benefit of Richard Homburg and members of his family.
Mr. Homburg a Canadian citizen, resident in the Netherland, is
Chairman and Chief Executive Officer of Uni-Invest N.V., a publicly-traded real
estate fund organized in the Netherlands and listed on the Amsterdam Stock
Exchange. Uni-Invest N.V., which invests virtually exclusively in Netherlands
real estate has grown since Mr. Homburg's involvement in 1991 from approximately
$90 million in assets to an asset value of approximately $1.7 billion at this
time. Uni-Invest N.V. distributes substantially all of its income and has more
than 57 million shares outstanding. Its earnings, share values and the liquidity
of its stock on the Amsterdam Stock Exchange have increased substantially from
1991 to the present. Uni-Invest N.V.'s real estate investments in the
Netherlands include retail, office, industrial, residential (apartment) and
hotel properties.
<PAGE>
Substantial gains have generally been realized annually by Uni-Invest N.V. from
the sale of properties from its portfolio as part of its investment strategy.
Uni-Invest N.V. generally manages its own properties and generally does not
engage in development of properites.
CBRA has agreed to defer until termination of its services as investment advisor
to the Company, any acquisition fees to which it would otherwise be entitled
with respect to the acquisition by the Company or the UPREIT Partnership of
interests in the properties described above from CBC or its affiliates.
8
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies
Currently, a Unit in the Operating Partnership and a share of Common Stock of
the Company have essentially the same economic characteristics, as they
effectively share equally in net income or loss and distributions of the
Operating Partnership.
The Company operates as a real estate investment trust ("REIT"). To qualify as a
REIT under applicable provisions of the Internal Revenue Code of 1986, as
amended, and Regulations thereto, the Company must have a significant percentage
of its assets invested in, and income derived from, real estate and related
sources. The Company's objectives are to provide its shareholders with a
professionally managed, diversified portfolio of commercial real estate
investments which will provide the best available cash flow and present an
opportunity for capital appreciation.
The Company, through its Operating Partnership, owns and operates three office
properties aggregating approximately 224,000 square feet, located in
Jacksonville, Florida, Salt Lake City, Utah and Bloomington, Illinois; and a 50%
undivided interest in a 74,000 square foot retail property located in
Louisville, Kentucky.
Cedar Bay Realty Advisors, Inc. ("CBRA" and or "Advisor") serves as investment
advisor to the Company pursuant to an Administrative and Advisory Agreement with
the Company substantially similar to the terms of that agreement previously in
effect between Old Cedar and AEGON USA Realty Advisors, Inc. ("AEGON") of Cedar
Rapids, Iowa, which served as investment advisor to the Company from formation
until April 3, 1998. Brentway Management LLC ("Brentway" and or "Property
Manager"), a New York limited liability company provides property management
services for the Company's properties pursuant to a management agreement with
the Company on substantially the same terms as the agreement previously in
effect with AEGON. Brentway and CBRA are both affiliates of CBC, SKR Management
Corp. and Leo S. Ullman. Leo S. Ullman is Chairman of the Board of Directors and
President of the Company.
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
9
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for year
ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company's Annual Report on Form
10-K for the year ended December 31, 1998.
Consolidation Policy and Related Matters
The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership as of September
30, 1999. All significant intercompany balances and transactions have been
eliminated in consolidation.
As the Company owns the sole general partnership interest in the Operating
Partnership, which provides the Company with effective control over all
significant activities of the Operating Partnership, the Operating Partnership
is consolidated with the Company in the accompanying financial statements as of
September 30, 1999.
The limited partner's interest as of September 30, 1999 (currently owned
entirely by CBC) represents approximately a 76% limited partnership interest in
the equity of the Operating Partnership.
Currently, a Unit in the Operating Partnership and a share of Common Stock of
the Company have essentially the same economic characteristics, as they
effectively share equally in net income or loss and distributions of the
Operating Partnership.
The accompanying financial statements include its 50% co-tenancy interest in the
assets, liabilities and operations of the retail property.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts
10
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies (continued)
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term of
the lease. The excess of rents recognized over amounts contractually due are
included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
of real estate taxes, insurance, common area maintenance costs and indexed
rental increases, which are recorded on an accrual basis.
Real Estate
Depreciation is computed utilizing the straight-line method over the estimated
useful lives of ten to forty years for buildings and improvements. Tenant
improvements, which are included in buildings and improvements, are amortized on
a straight-line basis over the term of the relevant lease.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three months
or less when purchased, to be cash equivalents.
Deferred Costs
Leasing fees and loan costs are capitalized and amortized over the life of the
relevant lease or loan.
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.
11
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies (continued)
The Company established a stock option plan (the "Plan") for the purpose of
attracting and retaining executive officers, directors and other key employees.
Five Hundred Thousand (500,000) of the Company's authorized shares of Common
Stock have been reserved for issuance under the Plan. The Plan is administered
by a committee of the Board of Directors, which committee will, among other
things, select the number of shares subject to each grant, the vesting period
for each grant and the exercise price (subject to applicable regulations with
respect to incentive stock options) for the options. As of September 30, 1999,
no options have been granted under the Plan.
Earnings Per Share
Statement of Financial Accounting Standard Board ("FASB") No. 128, "Earnings per
Share", was issued and adopted by the Company during 1997. Statement No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Since the Company has no potentially
dilutive securities outstanding, basic and diluted net income per share in
accordance with Statement No. 128 are the same and do not differ from amounts
previously reported as net income per share (primary earnings per share).
Accordingly, basic and diluted net income per share are computed using the
weighed average number of shares outstanding during the year.
Basic and diluted net income per share are based on the weighted average number
of shares outstanding (542,111 for the nine months ended September 30, 1999 and
2,245,411 for the first and second quarters of 1998 and 1,677,645 for the third
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 15, 1997. SFAS 130 established standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 130 requires that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The adoption of this standard
had no impact on the Company's financial position or results of operations (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
12
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 2. Description of Business and Significant Accounting Policies (continued)
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The adoption of this
standard had no impact on the Company's financial position or results of
operations, but did affect the disclosure of segment information.
Income Taxes
The Company generally will not be subject to federal income taxes as long as it
qualifies as a REIT under Sections 856-869 of The Internal Revenue Code of 1986,
as amended (the "Code"). A REIT will generally not be subject to federal income
taxation on that portion of income that qualifies as REIT taxable income and to
the extent that it distributes such taxable income to its stockholders and
complies with certain requirements of the Code relating to income and assets. As
a REIT, the Company is allowed to reduce taxable income by all or a portion of
distributions to stockholders and must distribute at least 95% of its REIT
taxable income to maintain qualification as a REIT. As distributions, for
federal income tax purposes, have exceeded REIT taxable income, no federal
income tax provision has been made.
Impairment of Long-Lived Assets
The Company reviews its real estate assets if indicators of impairment are
present to determine whether the carrying amount of the asset will be recovered.
Recognition of impairment is required if the undiscounted cash flows estimated
to be generated by the asset are less than the asset's carrying amount.
Measurement is based upon the fair value of the asset. As of September 30, 1999,
management determined that no impairment indicators exist.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Note 3. Real Estate and Accumulated Depreciation
The Company's properties are leased to various tenants, whereby the Company
incurs normal real estate operating expenses associated with ownership.
13
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 4. Mortgage Loan Payable
On October 30, 1992 the Company borrowed $1,500,000 to finance an existing
property. As of September 30, 1999, the mortgage outstanding principal balance
is $1,353,995. This loan is collateralized by Broadbent, with a carrying amount
of $3,296,398. The mortgage requires the repayment of principal based on a
thirty year amortization schedule at an interest rate of 9.375% and matures
November 1, 2002. At maturity there will be a balloon payment of $1,254,779.
There is a prepayment provision which permits repayment beginning October 1997.
From October 1997 to October 1998, pre-repayment is subject to a prepayment
penalty of 5%. Such prepayment penalty is reduced by 1% per year thereafter.
Principal payments on the outstanding balance are summarized as follows:
Principal
Year Payments
----------------------------------
1999-balance $ 7,248
2000 30,742
2001 33,755
2002 1,282,250
----------
$1,353,995
==========
Note 5. Related Party Transactions
The Company has entered into an agreement with CBRA to provide administrative
and advisory services for a monthly base fee of 1/12 of 3/4 of 1% of the
estimated current value of real estate plus 1/12 of 1/4 of 1% of the estimated
current value of all assets of the Company other than real estate, and an annual
subordinated incentive fee equal to 15% of the gain on property sold, subject to
certain limitations. This agreement is substantially the same as the previous
agreement entered into with AEGON, which expired on April 3, 1998. CBRA also
provides real estate acquisition services for a fee equal to 5% of the gross
purchase price of property acquired and disposition services for a fee equal to
3% of the gross sales price of property sold, subject to certain limitations.
The Administrative and Advisory Agreement is for a period of one year,
automatically renewed annually and cancelable on 60 days' prior written notice
by either party.
With the exception of Germantown Square Shopping Center in Louisville, Kentucky
("Germantown"), Brentway (or the Property Manager) provides property management
services to the Company's real property for a monthly fee equal to 5% of the
gross income from properties managed. The Property Manager also provides leasing
services to the Company for a fee of up to 6% of the rent to be paid during the
term of the lease procured. The management agreement is for a period of one
year, automatically renewed annually and cancelable on 60 days' prior written
notice by either party. This agreement is essentially the same as the previous
14
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 5. Related Party Transactions (continued)
agreement with AEGON. Due to continuing ownership by Life Investors Insurance
Company of America ("Life Investors") of the other 50% co-tenancy interest
therein, AEGON continues to manage Germantown upon terms similar to those
described above. The Company, has entered into a Financial Advisory Agreement
(the "HVB Agreement") with BV Capital Markets, Inc., since renamed HVB Capital
Markets, Inc. ("HVB"), a wholly-owned subsidiary of Hypo Vereinsbank of Germany,
of which Jean-Bernard Wurm, a Director of the Company, serves as Director. HVB
has agreed to perform the following services as financial advisor to the
Company: (a) advise on acquisition financing and/or lines of credit for future
acquisitions; (b) advise on acquisitions of United States real property
interests and the consideration to be paid therefor; (c) advise on private
placements of the shares of the Company; (d) assist the Board of Directors in
developing suitable investment parameters for the Company; (e) develop and
maintain contacts on behalf of the Company with institutions with substantial
interests in real estate and capital markets; (f) advise the Board with respect
to additional private or public offerings of equity securities of the Company;
(g) review certain financial policy matters with consultants, accountants,
lenders, attorneys and other agents of the Company; and (h) prepare periodic
reports of its performance of the foregoing services. As compensation for the
foregoing services, the Company is required to pay HVB, (i) .25% of the
Company's net asset value, less any indebtedness affecting such net value, but
in any event, not less than $100,000 per year; (ii) a one-time payment of 1.5%
of 90% of the agreed value of properties contributed to the Company or its
affiliates by persons introduced to the Company by HVB; and (iii) upon the
Company becoming self-administered, a one-time payment equal to five times the
annual fee income attributable to fee receipts from clients or contacts of HVB
that have contributed property to the Company. The HVB Agreement, dated as of
June 1, 1998, remains in effect, according to its terms, for successive one-year
periods unless terminated by either party upon 60 days' prior written notice. No
such notice of termination has been given by either party to date. Under the
Subscription Agreement entered into by the Company with Uni-Invest Holdings
(U.S.A.) Ltd., Uni-Invest Holdings (U.S.A.) Ltd. will succeed to HVB's position
as "financial advisor" to the Company upon termination of the HVB Agreement,
upon substantially the same terms in that Agreement.
15
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 5. Related Party Transactions (continued)
The following schedule represents amounts paid or accrued to related parties:
Cedar Income Fund, Ltd.
Schedule of Management, Administrative and Advisory and Leasing Fees
January 1 - January 1 -
September 30, 1999 September 30, 1998
----------------------------------------
Management Fees
AEGON $ 14,044 $ 46,696
Brentway 40,029 27,892
Leasing Fees
AEGON - 23,561
Administrative and Advisory
CBRA 73,404 40,780
AEGON - 25,770
HVB 75,000 33,333
Note 6. Co-tenancy Interest
On September 28, 1988, the Company purchased a 50% co-tenancy interest in
Germantown. The remaining 50% co-tenancy interest is owned by Life Investors, an
affiliate of AEGON. Germantown is managed solely by AEGON. The Company paid
management fees of $14,041 for the nine month period ended September 30, 1999.
As of September 30, 1999, amounts due to co-tenancy partner, and amounts due
from co-tenancy partner were $14,268 and $31,738, respectively. As of September
30, 1998, amounts due to co-tenancy partner, and amounts due from co-tenancy
partner were $4,453 and $22,855, respectively.
Note 7. Segment Disclosures
The Company owns all of the interests in real estate properties through the
Operating Partnership. The Company's portfolio consists of three commercial
properties and one retail property, located in Illinois, Utah, Florida and
Kentucky. Each of the properties are evaluated on an individual basis by the
President and Treasurer, who have been identified as the Chief Operating
Decision Makers because of their final authority over resource allocation.
16
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 1. Financial Statements (Unaudited) (continued)
Note 7. Segment Disclosures (continued)
The following table sets forth the components of the Company's revenue and
expenses and other related disclosures as required by SFAS Statement No. 131 for
the three months and nine months ended September 30, 1999 and September 30,
1998:
Cedar Income Fund, Ltd.
Combining Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
Broadbent Southpoint Corporate Germantown Financial Consolidated
Business Ctr. Parkway Center East Square and Other Totals
------------- ------- ----------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Rents $175,763 $ 251,357 $ 68,907 $ 107,213 $ - $ 603,240
Other income - 90 - (2,431) - (2,341)
Interest - - - - 4,408 4,408
-------- --------- -------- --------- --------- ---------
Total revenues 175,763 251,447 68,907 104,782 4,408 605,307
-------- --------- -------- --------- --------- ---------
EXPENSES
Real estate tax 14,493 28,408 12,992 6,750 - 62,643
Repairs and
maintenance 18,043 35,868 4,005 16,406 - 74,322
Utilities 12,947 26,757 10,967 3,185 - 53,856
Management fee 8,091 12,460 5,359 5,239 - 31,149
Insurance (147) 2,427 702 632 - 3,614
Other 7,661 10,265 15,802 2,127 - 35,855
Depreciation 27,333 49,690 16,738 19,401 - 113,162
Interest 31,845 - - - - 31,845
Directors' fees
and expenses - - - - 19,095 19,095
Administrative fee - - - - 24,468 24,468
Other administrative
expenses - - - - 93,115 93,115
-------- --------- -------- --------- --------- ---------
Total expenses 120,266 165,875 66,565 53,740 136,678 543,124
-------- --------- -------- --------- --------- ---------
Net income (loss) before
limited partner's
interest in Operating
Partnership $ 55,497 $ 85,572 $ 2,342 $ 51,042 $(132,270) $ 62,183
======== ========= ======== ========= ========= =========
Three Months Ended September 30, 1998
Broadbent Southpoint Corporate Germantown Financial Consolidated
Business Ctr. Parkway Center East Square and Other Totals
------------- ------- ----------- ------ --------- ------
REVENUE
Rents $189,493 $ 243,728 $ 83,092 $110,026 $ - $ 626,339
Other income - - - - - -
Interest - - - - 9,273 9,273
-------- --------- -------- --------- --------- ---------
Total revenues 189,493 243,728 83,092 110,026 9,273 635,612
-------- --------- -------- --------- --------- ---------
EXPENSES
Real estate tax 15,000 24,000 12,999 5,000 - 56,999
Repairs and
maintenance 33,326 25,113 7,535 6,265 - 72,239
Utilities 12,737 26,523 11,538 2,859 - 53,657
Management fee 10,127 13,576 1,617 6,599 - 31,919
Insurance 1,550 1,443 336 711 - 4,040
Other 7,375 7,870 3,505 1,255 - 20,005
Depreciation 27,959 53,515 18,316 19,129 583 119,502
Interest 32,477 - - - - 32,477
Directors' fees
and expenses - - - - 10,642 10,642
Administrative fee - - - - 26,312 26,312
Other administrative
expenses - - - - 188,172 188,172
-------- --------- -------- --------- --------- ---------
Total expenses 140,551 152,040 55,846 41,818 225,709 615,964
-------- --------- -------- --------- --------- ---------
Net income (loss) before
limited partner's
interest in Operating
Partnership $ 48,942 $ 91,688 $ 27,246 $ 68,208 $(216,436) $ 19,648
======== ========= ======== ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
Broadbent Southpoint Corporate Germantown Financial Consolidated
Business Ctr. Parkway Center East Square and Other Totals
------------- ------- ----------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Rents $ 546,787 $ 780,439 $ 207,376 $ 317,796 $ - $ 1,852,398
Other income - 259 75,000 (3,682) - 71,577
Interest - - - - 17,544 17,544
---------- ---------- ---------- ---------- --------- -----------
Total revenues 546,787 780,698 282,376 314,114 17,544 1,941,519
---------- ---------- ---------- ---------- --------- -----------
EXPENSES
Real estate tax 43,479 85,225 38,977 20,122 - 187,803
Repairs and
maintenance 51,152 101,136 15,887 31,321 - 200,104
Utilities 25,363 69,879 24,936 6,895 - 127,073
Management fee 26,476 38,949 13,668 14,041 - 93,134
Insurance 3,054 5,034 1,495 1,972 - 11,555
Other 27,851 24,544 29,772 5,472 - 87,639
Depreciation 82,527 159,413 85,378 57,579 - 384,897
Interest 96,022 - - - - 96,022
Directors' fees
and expenses - - - - 70,521 70,521
Administrative fee - - - - 73,404 73,404
Other administrative
expenses - - - - 252,060 252,060
---------- ---------- ---------- ---------- --------- -----------
Total expenses 355,924 484,180 210,721 137,402 395,985 1,584,212
---------- ---------- ---------- ---------- --------- -----------
Net income (loss) 190,863 296,518 71,655 176,712 (378,441) 357,307
---------- ---------- ---------- ---------- --------- -----------
Total Assets $3,372,570 $5,846,081 $2,047,412 $3,014,097 $ 750,850 $15,031,010
========== ========== ========== ========== ========= ===========
Nine Months Ended September 30, 1998
Broadbent Southpoint Corporate Germantown Financial Consolidated
Business Ctr. Parkway Center East Square and Other Totals
------------- ------- ----------- ------ --------- ------
REVENUE
Rents $ 591,521 $ 735,097 $ 238,241 $ 333,874 $ - $ 1,898,733
Other income - - - - - -
Interest - - - - 51,481 51,481
---------- ---------- ---------- ---------- --------- -----------
Total revenues 591,521 735,097 238,241 333,874 51,481 1,950,214
---------- ---------- ---------- ---------- --------- -----------
EXPENSES
Real estate tax 45,000 72,000 38,997 20,220 - 176,217
Repairs and
maintenance 70,244 86,273 15,887 18,181 - 190,585
Utilities 23,308 68,618 26,712 6,785 - 125,423
Management fee 30,228 38,143 9,467 17,791 - 95,629
Insurance 4,082 5,260 928 2,183 - 12,453
Other 25,007 27,807 11,094 4,875 - 68,783
Depreciation 84,063 162,365 54,948 57,387 583 359,346
Interest 97,873 - - - - 97,873
Directors' fees
and expenses - - - - 44,380 44,380
Administrative fee - - - - 76,556 76,556
Other administrative
expenses - - - - 487,570 487,570
---------- ---------- ---------- ---------- --------- -----------
Total expenses 379,805 460,466 158,033 127,422 609,089 1,734,815
---------- ---------- ---------- ---------- --------- -----------
Net income (loss) 211,716 274,631 80,208 206,452 (557,608) 215,399
---------- ---------- ---------- ---------- --------- -----------
Total Assets $3,438,899 $6,089,847 $2,113,101 $3,060,334 $825,465 $15,527,646
========== ========== ========== ========== ========= ===========
</TABLE>
17
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the historical
financial statements of the Company and related notes.
Results of Operations
The Company owns office, office/warehouse, and retail properties in four U.S.
cities. The Company's properties continue to compete with centers and office
buildings of similar size, tenant mix and location. As of September 30, 1999,
the combined lease occupancy of the Company's four properties was 90%. Operating
results in the forthcoming year will be influenced by the ability of current
tenants to continue paying rent, and the Company's ability to renew expiring
tenant leases and obtain new leases at competitive rental rates.
Rental income for the three month and nine month periods ended September 30,
1999 were $600,899 and $1,848,975 compared to $626,339 and $1,898,733 for the
corresponding periods in 1998, a decrease of 4% and 2.7% respectively. This
decrease is due to the accounting write-off of a Project Receivable relating to
a vacating tenant at Corporate Center East - Phase I, Bloomington, Illinois
("Corporate Center") and also to the temporary loss of revenue attributable to
this same tenant (see next paragraph). Rental income at Broadbent decreased by
approximately 8.4% due to increased vacancies and the downsizing of a major
tenant. Further, the vacancies at Broadbent are persisting longer than historic
experience due to new warehouse/office construction in the Salt Lake City market
surrounding the airport which is offering to subdivide units to as small as
1,500 square feet creating direct competition for Broadbent. The Broadbent
decrease is partially offset by the increase in rental income at Southpoint
Parkway of approximately 5.8%, which increase is attributable to higher tenant
base rent and operating expense recoveries.
As a result of Hurricane Floyd, the Southpoint property had multiple roof leaks.
Upon investigation, it appeared that the cause of the leaks was the infiltration
of water at the "cap" of the parapet wall, the repair of which is expected to
result in an unbudgeted expenditure of approximately $54,000.
A surrender agreement, effective as of June 15, 1999, terminated the
aforementioned vacating tenant of Corporate Center East's original lease dated
June 10, 1996, which was due to expire on October 31, 2002. Pursuant to the
agreement, the tenant has paid a termination fee of $75,000. This is included in
the Company's other income and is therefore not reflected in rental income
discussed above. The Company has entered into a ten year lease with Merrill
Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") for the space formerly
occupied by the vacating tenant. Merrill Lynch will occupy 4,455 square feet at
a net rental of $10 per square foot for the first five years, with an increase
to $12 per square foot for the remainder of the primary lease term. The rent
commencement date, which is expected to be on or about December 1, 1999, is the
earlier of opening for business or 150 days after possession/lease date of July
21, 1999. The Company is required to contribute $35 per square foot, or a total
of $155,925, for tenant improvements. Leasing fees of $27,520 were paid to third
party-brokers.
A tenant in 12,226 square feet (49%) of Corporate Center experienced a financial
setback. At present, it is uncertain whether they will renew their lease, which
lease expires at the end of March 2000. Should the lease not be renewed, such
event will have an adverse affect on net income. In addition to the loss of
income, additional leasing costs (tenant improvements and leasing commissions)
can be expected.
Interest income decreased by approximately $34,000 due to the liquidation in
March 1998 of the mortgage receivable from Life Investors, and the Company's
lower cash balance.
18
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Total property expenses, excluding depreciation, were $261,439 and $707,308 for
the three month and nine month periods ended September 30, 1999, compared to
$238,859 and $669,090 for the corresponding periods in 1998, an increase of
approximately $23,000 and $38,000, respectively. This increase is attributable
to the expensing of prepaid commissions relating to the vacated Corporate Center
tenant and an increase in repairs and maintenance at Southpoint Parkway and
Germantown Square.
Net income for the three month and nine month periods ended September 30, 1999
was $7,733 and $64,612 ($0.01 and $0.12 per share) compared to ($8,581) and
$187,170 (($0.02) and $0.11 per share) for the corresponding period in 1998. The
increase in net income for the three months ended September 30, 1999 over 1998
is due primarily to the extraordinary administrative expense in 1998 relating to
the tender offer and the Company's reorganization. The decrease in net income
for the nine months ended September 30, 1999 is attributable to the accounting
treatment, not applicable during the first two quarters of 1998, of limited
partner's interest in income of the Operating Partnership ("UPREIT") which was
created as of June 26, 1998. Net income before limited partner's interest in the
Operating Partnership for the three months and nine months ended September 30,
1999 and 1998 were $62,183 and $357,307 and $19,648 and $215,399, respectively.
Other administrative expenses decreased by approximately $159,000 and $299,000
for the three months and nine months ended September 30, 1999 over the same
period in 1999. This decrease is attributable to the one-time costs incurred in
connection with the April 1998 tender offer and the Company's reorganization in
June 1998 (See Note 1).
Liquidity and Capital Resources
The Company's liquidity at September 30, 1999 represented by cash and cash
equivalents was $411,498 compared to $678,196 at December 31, 1998, a decrease
of $266,698. This decrease is primarily attributable to a fully refundable
$250,000 deposit made by the Company in connection with the pending acquisition
of a certain retail property (see next paragraph). Cash flow from operating
activities for the nine month period ended September 30, 1999 was $753,958
compared to $618,787 for the corresponding period in 1998.
During the second quarter, the Company had entered into negotiations to purchase
a high-profile specialty retail complex, consisting of approximately 75,000
square feet in downtown Orlando, Florida.
The sellers in this transaction have recently made the Company aware of several
unexpected vacancies which would significantly reduce the net operating income
and correspondingly the
19
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
value of the property. The Company has therefore withdrawn its $15,000,000 offer
to purchase the property. The $250,000 deposit was refunded on October 27, 1999.
The Company has continued its policy to date of distributing dividends equal to
$0.10 per share, an amount generally equal to $54,211 per quarter. In addition,
the Company has maintained a policy of distributing equal amounts per Operating
Partnership Unit of Cedar Income Fund Partnership, L.P. Such amounts generally
equal $170,330 per quarter. Such distributions are substantially in excess of
amounts presently required to be distributed in order to meet the tests for
continued REIT status which generally require distributions of 95% of qualified
REIT taxable income, as defined in the Internal Revenue Code of 1986 and
Regulations thereto. During the three month and nine month periods ended
September 30, 1999, for example, earnings per share were approximately $0.01 and
$0.12, respectively. If the Company's dividend policy is to continue, absent
further growth in income of the Operating Partnership, the ability to distribute
dividends substantially in excess of current income could impair the cash
reserves which the Directors would deem to be appropriate to the business of the
Company.
Inflation
Low to moderate levels of inflation during the past few years have favorably
impacted the Company's operations by stabilizing operating expenses. At the same
time, low inflation has the indirect effect of reducing the Company's ability to
increase tenant rents. The Company's properties have tenants whose leases
include expense reimbursements and other provisions to minimize the affect of
inflation. These factors, in the long run, are expected to result in more
attractive returns from the Company's real estate portfolio as compared to
short-term investment vehicles.
Year 2000 Issue
Although the Company does not employ any computer systems in its business, the
Company could be adversely affected if the computer systems used by the Advisor
(CBRA), Property Manager (Brentway), and other service providers do not properly
process and calculate the date-related information from and after January 1,
2000. The Advisor and Property Manager have
20
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000 Issue (continued)
taken steps that they believe are reasonably designed to address this issue.
These steps include an upgrade of their computer software to a version that will
properly process and calculate the date related information from and after
January 1, 2000. The upgrade was completed on January 15, 1999. The Advisor and
Property Manager are satisfied that the properties have no year 2000 issues
since there are no elevators or other date sensitive equipment that would have
an adverse effect on the operation of the buildings. In addition, the Advisor
and Property Manager will endeavor to obtain reasonable assurances that
comparable steps are being taken by the Company's other major service providers.
While the Advisor and Property Manager believe their efforts are adequate to
address the Company's year 2000 concerns, there can be no assurances that the
systems of the other companies on which the Company's operations rely will be
converted on a timely basis and will not have a material effect on the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The primary market risk facing the Company is the interest rate risk on its
mortgage loan payable. The Company does not hedge interest rate risks using
financial instruments, nor is the Company subject to foreign currency risks.
The following table sets forth the Company's long-term debt obligations,
principal cash flows by scheduled maturity, weighted average interest rates and
estimated fair market value ("FMV") at September 30, 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 $ 7,248 $30,742 $33,755 $1,282,250 $1,353,995 $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 which management believes
reflect the risks associated with mortgage loans payable with similar risks and
duration.
21
<PAGE>
CEDAR INCOME FUND, LTD.
September 30, 1999
Part II. Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CEDAR INCOME FUND, LTD.
_________________________________ ________________________________________
Leo S. Ullman Brenda J. Walker
Chairman of the Board Vice President, Treasurer and Director
(principal executive officer) (principal financial officer)
________________________________________
Ann Maneri
Controller
(principal accounting officer)
September 30, 1999
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 411,498
<SECURITIES> 0
<RECEIVABLES> 150,125
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,165,961
<PP&E> 18,944,657
<DEPRECIATION> (5,079,608)
<TOTAL-ASSETS> 15,031,010
<CURRENT-LIABILITIES> 394,886
<BONDS> 0
0
0
<COMMON> 5,421
<OTHER-SE> 3,185,983
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<INCOME-PRETAX> 64,612
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<EPS-BASIC> .12
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</TABLE>
