Cedar Income Fund, Ltd. - 10-Q Summary (Period Ended June 30, 2002)
Business Context and Reporting Period
Cedar Income Fund, Ltd. (CEDR) is an advised Real Estate Investment Trust (REIT) focused on acquiring, leasing, and managing retail properties, primarily supermarket-anchored shopping centers in Pennsylvania and southern New Jersey. This report covers the quarterly period ended June 30, 2002, and the six-month period ended on that date. The Company operates through an umbrella partnership REIT structure, consolidating its Operating Partnership and specific joint ventures (The Point Associates and Red Lion Associates).
Key Financial Metrics
| Metric | Six Months Ended June 30, 2002 | Six Months Ended June 30, 2001 |
|---|---|---|
| Total Revenue | $5,166,140 | $1,949,197 |
| Net Loss | $(274,134) | $325,682 (Income) |
| Net Loss Per Share | $(0.39) | $0.47 (Earnings) |
| Net Cash from Operating Activities | $235,484 | $510,462 |
| Total Assets | $86,435,244 | $68,348,390 |
| Total Liabilities | $69,021,540 | $53,481,599 |
| Total Debt (Mortgage + Other Loans) | $67,276,976 | $52,109,760 |
| Cash and Cash Equivalents | $3,265,566 | $2,872,289 |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased by approximately 165% year-over-year, driven by the acquisition of three supermarket-anchored shopping centers in late 2001, the full operation of "The Point" shopping center, and the new 20% interest in Red Lion Associates.
- Net Loss: The Company reported a net loss of $274,134 for the six months ended June 30, 2002, compared to net income of $325,682 in the prior year. This reversal is primarily due to a significant increase in interest expense ($1.97M vs $0.67M), a $268,500 loan repayment fee for refinancing The Point, and higher administrative and legal fees.
- Portfolio Changes: The Company sold the Southpoint Parkway Center in May 2002 for approximately $4.7 million, incurring a capital loss of roughly $49,000. Proceeds were used to pay down a $6 million SWH financing facility. Conversely, the Company acquired a 20% interest in Red Lion Shopping Center in May 2002.
- Debt Refinancing: The Company refinanced the $17.9 million mortgage on The Point Shopping Center, replacing a floating-rate loan with a $20 million fixed-rate loan at 7.625% maturing in 25 years.
Guidance, Outlook, and Risks
- Outlook: Management expects to continue seeking acquisition opportunities for supermarket-anchored shopping centers in Pennsylvania and New Jersey. Vacancy is projected to be 5.2% by year-end 2002, assuming successful leasing of vacant space.
- Liquidity: The Company maintains approximately $3.3 million in cash and cash equivalents and has a $1 million line of credit (with $500,000 drawn). Management believes these resources, combined with potential partial property sales, are sufficient to meet near-term obligations.
- Risks and Contingencies:
- Insurance Costs: Post-September 11, 2001, insurance premiums have risen significantly. General premiums increased 35%, and directors' and officers' insurance increased 29%. The Company purchased $50 million in blanket terrorism coverage.
- Debt Maturity: The Company has significant debt obligations, including a $6 million SWH financing with mandatory payments and exit fees. Refinancing risks exist if capital markets tighten.
- Related Party Transactions: Significant fees are paid to affiliates (Cedar Bay Realty Advisors, Brentway Management) for advisory, management, and legal services. Some acquisition fees were waived or deferred.
- Unusual Items: The financial statements include an extraordinary loss of $140,616 related to the early extinguishment of debt (write-off of deferred financing costs) associated with the SWH financing paydown.
Investor Verification Checklist
- Debt Service Coverage: Verify that rental revenues from the new portfolio are sufficient to cover the increased interest expense and mandatory payments on the SWH financing.
- Related Party Fees: Review the specific terms of the Advisory and Management agreements to understand the impact of fees paid to Leo S. Ullman's affiliates on net income.
- Lease-Up Progress: Monitor the leasing status of the vacant space at The Point and Red Lion Shopping Center, as these are critical to meeting occupancy projections.
- Insurance Exposure: Assess the long-term impact of rising insurance premiums and the adequacy of the new terrorism coverage on operating margins.
- Refinancing Capability: Evaluate the Company's ability to refinance the SWH facility and other maturing debt at favorable rates given current market conditions.