Cedar Income Fund, Ltd. - 10-Q Summary (Period Ended September 30, 2002)
Business Context and Reporting Period
Cedar Income Fund, Ltd. (CEDR) is an advised Real Estate Investment Trust (REIT) specializing in the acquisition, leasing, and management of retail properties, primarily supermarket-anchored shopping centers in Pennsylvania and southern New Jersey. This report covers the quarterly period ended September 30, 2002, and the nine-month period ended on that date. As of the filing date (November 14, 2002), the Company had 694,411 shares of Common Stock outstanding.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 2002 | Nine Months Ended Sep 30, 2001 |
|---|---|---|
| Total Revenue | $8,780,382 | $2,809,723 |
| Net Loss | $(319,951) | $298,715 (Income) |
| Net Loss Per Share | $(0.46) | $0.43 (Earnings) |
| Net Cash from Operating Activities | $1,163,320 | $684,638 |
| Net Cash Used in Investing Activities | $(5,896,155) | $2,681,811 |
| Net Cash from Financing Activities | $3,494,461 | $(1,676,572) |
| Total Assets | $104,612,310 | $68,348,390 |
| Total Liabilities | $83,265,687 | $53,481,599 |
| Total Debt (Mortgage + Other Loans) | $80,846,254 | $52,109,760 |
| Cash and Cash Equivalents | $1,633,915 | $2,872,289 |
Note: The Net Loss for the nine months ended September 30, 2002, includes an extraordinary loss of $140,616 related to the early extinguishment of debt.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by approximately 212% year-over-year, driven by the acquisition of three supermarket-anchored shopping centers in October 2001, the opening of a Giant supermarket at The Point, and new equity participations in Red Lion Associates and Loyal Plaza Associates.
- Expense Increases: Property expenses (excluding depreciation) rose by 217% to $3.06 million, and interest expense surged by 271% to $3.56 million due to increased debt load from new acquisitions and refinancing.
- Profitability: The Company reported a net loss of $319,951 for the nine months ended September 30, 2002, compared to net income of $298,715 in the prior year period. This reversal is attributed to higher interest costs, acquisition-related fees, and extraordinary debt extinguishment charges.
- Balance Sheet Expansion: Total assets grew by 53% to $104.6 million, reflecting significant property acquisitions (Red Lion and Loyal Plaza) and capital expenditures.
Guidance, Outlook, Risks, and Unusual Items
- Acquisition Pipeline: The Company is under contract to acquire five additional properties (including Camp Hill Mall and three Giant-anchored centers) with an aggregate purchase price of approximately $45 million. Closings are expected in late 2002.
- Liquidity and Debt: Total indebtedness is approximately $80 million. The Company relies on a $1 million line of credit (with $500,000 drawn) and expects to refinance existing mortgages and the SWH financing to meet obligations. There is a risk of default if refinancing is not secured.
- Tenant Risks:
- K-Mart: A major tenant at Loyal Plaza (103,000 sq. ft.) has filed for bankruptcy protection. While currently operating, closure would require substantial redevelopment funds.
- Family Toy Warehouse: Vacated 20,000 sq. ft. at Loyal Plaza; re-tenanting costs are estimated at $300,000.
- Environmental Contingencies: Loyal Plaza has soil and groundwater contamination (petroleum and dry cleaning solvents). Sellers have increased the environmental escrow to $950,000 and remain liable for remediation costs, but the Company faces potential exposure if escrows are insufficient.
- Insurance Costs: Property insurance premiums increased by 35% effective July 1, 2002, and directors' and officers' insurance increased by 29%.
Investor Verification Checklist
- Refinancing Status: Verify the Company's ability to refinance the SWH financing and the three supermarket-anchored properties acquired in 2001 before maturity to avoid default.
- K-Mart Lease Status: Monitor the operational status of the K-Mart anchor at Loyal Plaza and the Company's plan for redevelopment if the store closes.
- Environmental Liability: Confirm the status of the "No Further Action" letter from the Pennsylvania Department of Environmental Protection regarding Loyal Plaza contamination.
- Capital Expenditures: Assess the funding sources for the $14 million+ redevelopment costs anticipated for Camp Hill Mall and the $300,000 re-tenanting cost for Loyal Plaza.
- Related Party Fees: Review the impact of advisory and management fees paid to affiliates (CBRA and Brentway) on net cash flow.