Cedar Income Fund, Ltd. (CEDR) - 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 1999. Cedar Income Fund, Ltd. is a Real Estate Investment Trust (REIT) engaged in the ownership and operation of office and retail properties in Utah, Illinois, Florida, and Kentucky. The company operates through an Operating Partnership (UPREIT structure) established in June 1998, where a limited partner (Cedar Bay Company) holds approximately 76% of the partnership interest.
Key Financial Metrics
| Metric | Q1 1999 | Q1 1998 |
|---|---|---|
| Total Revenue | $660,266 | $670,324 |
| Net Income | $36,625 | $175,726 |
| Net Income Per Share (Basic/Diluted) | $0.07 | $0.08 |
| Dividends Per Share | $0.10 | $0.10 |
| Cash Flow from Operations | $326,783 | $120,929 |
| Cash and Equivalents (Ending) | $754,704 | $1,861,886 |
| Total Debt (Mortgage Payable) | $1,367,994 | $1,374,751 |
| Occupancy Rate | 91% | N/A |
Material Changes vs. Prior Period
- Net Income Decline: Net income dropped significantly from $175,726 to $36,625. Management attributes this primarily to the accounting treatment of the limited partner's interest in the Operating Partnership (UPREIT), which was created in June 1998 and was not present in the prior year comparison.
- Revenue Composition: While rental income increased slightly ($653,246 vs. $639,038), total revenue decreased due to a $24,000 drop in interest income following the liquidation of a mortgage receivable in March 1998.
- Expense Management: Total property expenses (excluding depreciation) decreased to 32% of rental income from 35% in the prior year, driven by reduced repairs and maintenance costs.
- Administrative Costs: Administrative fees increased by approximately $24,000 due to new financial advisory fees paid to HVB Capital Markets, partially offset by a $29,000 decrease in other administrative expenses related to the 1998 tender offer.
Outlook, Risks, and Management Commentary
- Dividend Policy: The company maintains a dividend policy of $0.10 per share. Management notes that current distributions exceed current earnings ($0.06 EPS vs. $0.10 dividend), which could impair cash reserves if income does not grow.
- Capital Needs: The company anticipates approximately $175,000 in tenant improvement costs for 1999 and is negotiating a lease with a major national tenant that may require $250,000–$300,000 in costs. The company is seeking a line of credit and equity capital for future acquisitions.
- Debt Maturity: The company has a single mortgage loan of $1.37 million maturing in November 2002 with a balloon payment of $1.25 million. The interest rate is fixed at 9.375%.
- Year 2000 Risk: While the company does not use internal computer systems, it relies on third-party advisors and managers. These parties have upgraded their systems, but there is no assurance that all service providers will be compliant.
Investor Verification Checklist
- Dividend Sustainability: Verify if the company can sustain $0.10 quarterly dividends given that earnings per share ($0.07) are currently below the dividend payout.
- Debt Refinancing: Assess the ability to refinance or pay the $1.25 million balloon payment due in November 2002.
- Acquisition Pipeline: Confirm the status of the proposed shopping center acquisitions and the availability of the sought-after credit facilities.
- Lease Renewals: Monitor the 91% occupancy rate and the success of the lease negotiation with the "large national creditworthy company" in Bloomington, Illinois.