CDR-PB

Cedar Income Fund, Ltd. - 10-Q Summary (Period Ended June 30, 1999)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 1999, for Cedar Income Fund, Ltd. (the "Company"), a Maryland corporation operating as a Real Estate Investment Trust (REIT). The Company owns and operates three office properties in Jacksonville, Florida; Salt Lake City, Utah; and Bloomington, Illinois, plus a 50% interest in a retail property in Louisville, Kentucky. As of June 30, 1999, the Company had 542,111 shares of common stock outstanding. The Company is currently facing a potential delisting from the NASDAQ due to insufficient public float (approx. 345,000 shares vs. the required 500,000), though an appeal is pending.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: Total revenue increased slightly by 1.6% year-over-year ($1.336M vs $1.315M). However, rental income decreased by 2% due to vacancies and a tenant downsizing at the Broadbent property, partially offset by higher rents at Southpoint Parkway and a $75,000 surrender payment from a vacating tenant at Corporate Center East.
• Net Income: Net income attributable to shareholders decreased significantly to $56,486 from $196,410 in the prior year. This decline is primarily due to the accounting treatment of the limited partner's interest in the Operating Partnership (UPREIT structure), which was established in June 1998. On a pre-limited partner interest basis, net income actually increased to $294,731 from $196,410.
• Expenses: "Other administrative expenses" dropped by approximately $140,000 compared to the prior year, reflecting the absence of one-time costs associated with the 1998 tender offer and reorganization.
• Liquidity: Cash and cash equivalents decreased by $265,729, primarily due to a $250,000 refundable deposit placed for a potential acquisition of a retail complex in Orlando, Florida.

Outlook, Risks, and Management Commentary

• Acquisition Activity: The Company is negotiating to purchase a 75,000 sq. ft. specialty retail complex in Orlando, Florida, for $15 million. The deal structure involves issuing Operating Partnership units and potentially refinancing the property with $11 million in debt. Closing is not guaranteed.
• Dividend Policy: The Company continues to pay dividends of $0.10 per share quarterly ($0.20 for the six months). Management notes that these distributions exceed current earnings ($0.10 EPS for the six months), which could impair cash reserves if income does not grow.
• Listing Risk: The Company faces delisting from NASDAQ due to low public float. Failure to regain compliance could breach covenants in the shareholder loan held by Cedar Bay Company (CBC).
• Year 2000 Compliance: The Company relies on third-party service providers (Advisor and Property Manager) for computer systems. While these providers have upgraded their software, there is no assurance that all external systems will function correctly post-January 1, 2000.
• Market Risk: The primary market risk is interest rate exposure on the fixed-rate mortgage loan (9.375%). The Company does not hedge interest rate risks.

Investor Verification Checklist

• Verify the status of the NASDAQ delisting appeal and the Company's plan to increase public float.
• Confirm the final terms and closing status of the proposed $15 million Orlando retail property acquisition.
• Assess the sustainability of the $0.10 quarterly dividend given that it currently exceeds net income per share.
• Review the lease renewal status for the vacated space at Corporate Center East (leased to Merrill Lynch) and the impact of the $35/sq. ft. tenant improvement contribution.
• Monitor the relationship with Cedar Bay Company (CBC), which holds a significant limited partnership interest and is the primary shareholder.