Cedar Income Fund, Ltd. - 10-Q Summary (Q1 2003)
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2003. Cedar Income Fund, Ltd. (the "Company") is a Real Estate Investment Trust (REIT) focused on owning, operating, and redeveloping community and neighborhood shopping centers, primarily in Pennsylvania and New Jersey. As of the reporting date, the Company owned eleven properties aggregating approximately 2,000,000 square feet. The Company operates as an "advised" REIT, relying on Cedar Bay Realty Advisors, Inc. (CBRA) for management services.
Key Financial Metrics
| Metric | Q1 2003 | Q1 2002 |
|---|---|---|
| Total Revenue | $5,284,000 | $2,510,000 |
| Net Loss | $(199,000) | $(53,000) |
| Net Loss Per Share | $(0.24) | $(0.08) |
| Operating Cash Flow | $(743,000) | $302,000 |
| Total Assets | $151,337,000 | $133,138,000 |
| Total Liabilities | $124,244,000 | $108,766,000 |
| Shareholders' Equity | $3,519,000 | $3,245,000 |
| Cash and Equivalents | $1,658,000 | $3,827,000 |
| Mortgage Loans Payable | $109,047,000 | $93,537,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 112% to $5.28 million, driven primarily by the acquisition of a 30% interest in three Giant supermarket-anchored shopping centers in February 2003 for approximately $20.8 million.
- Expense Increases: Total expenses rose to $5.75 million from $2.61 million. Interest expense more than doubled to $2.04 million due to new debt financing for acquisitions. Operating expenses increased by $1.48 million, largely attributable to the new properties.
- Net Loss Expansion: Net loss attributable to common shareholders increased to $199,000 from $53,000. This was driven by higher interest costs and depreciation associated with the new portfolio, despite significant revenue growth.
- Cash Flow Shift: Operating cash flow turned negative ($743,000 used) compared to a positive $302,000 in the prior year, due to increases in receivables and prepaid expenses. Investing activities consumed $20.1 million for acquisitions, while financing activities provided $18.7 million through new mortgages and equity contributions.
Outlook, Risks, and Management Commentary
- Acquisition Strategy: Management continues to seek acquisition opportunities in Pennsylvania and New Jersey, utilizing joint venture partners and debt financing. Subsequent to the quarter, the Company acquired interests in two additional centers (Pine Grove and Swede Square) and made a $1 million non-refundable deposit on a Philadelphia net lease transaction.
- REIT Status Risk: The Company notes a potential risk to its REIT status. The issuance of common stock to Homburg USA (a related party owning 21.6% of shares) in exchange for preferred units could cause the Company to fail the "five or fewer" shareholder test if ownership concentrations exceed 50% in the second half of the year. Loss of REIT status would subject the Company to corporate income tax.
- Liquidity: The Company maintains a $2 million line of credit (with $1 million currently available pending repayment of other financing). Management believes it has sufficient flexibility to fund operations for the next 12 months, though this depends on securing joint venture partners for redevelopment projects.
- Interest Rate Risk: The Company utilizes interest rate swaps to hedge variable rate debt. As of March 31, 2003, unrealized losses on these hedges totaled $616,000, with $203,000 reflected in accumulated other comprehensive loss.
Investor Verification Checklist
- REIT Compliance: Verify the current ownership structure to ensure the Company remains compliant with the "five or fewer" shareholder test required for REIT status.
- Debt Service Coverage: Assess the ability of the newly acquired properties to generate sufficient cash flow to service the $15.9 million in new mortgage debt incurred in Q1.
- Deposit Risk: Monitor the status of the $1 million non-refundable deposit made for the Philadelphia net lease transaction, which is at risk if financing or joint venture partners are not secured.
- Related Party Fees: Review the Advisory Agreement with CBRA, noting the 1% acquisition fee ($180,000 accrued in Q1) and the potential for fee deferrals or waivers based on asset growth targets.
- Dividend Policy: Note that the Company does not expect to pay dividends in 2003 due to an expectation of no taxable income for the year.