Cedar Income Fund, Ltd. (CEDR) - 10-K Summary
Business Context and Reporting Period
Period: Fiscal year ended December 31, 1998.
Entity: Cedar Income Fund, Ltd. (a Maryland corporation operating as a Real Estate Investment Trust or REIT).
Structure Change: In June 1998, the Company reorganized into an "umbrella partnership REIT" structure. Old Cedar merged into a new entity, which transferred assets to the Cedar Income Fund Partnership, L.P. (Operating Partnership). Cedar Bay Company (CBC) acquired approximately 85% of the old stock via tender offer in April 1998 and now holds a controlling interest in the Operating Partnership.
Portfolio: The Company owns three office properties (Jacksonville, FL; Salt Lake City, UT; Bloomington, IL) and a 50% interest in a retail shopping center (Louisville, KY). Total portfolio size is approximately 298,000 square feet.
Key Financial Metrics
| Metric | 1998 | 1997 |
|---|---|---|
| Total Revenue | $2,565,025 | $2,467,858 |
| Net Income | $179,948 | $500,186 |
| Net Income Per Share | $0.13 | $0.22 |
| Funds From Operations (FFO) | $750,308 | $962,873 |
| Dividends Per Share | $0.40 | $0.40 |
| Total Assets | $15,323,315 | $15,941,683 |
| Mortgage Debt | $1,374,751 | $1,400,259 |
| Cash & Equivalents | $678,196 | $407,216 |
| Occupancy Rate | 95% | 98% |
Material Changes vs. Prior Period
- Net Income Decline: Net income dropped 64% to $179,948. This was primarily driven by $632,199 in "Other administrative expenses" (up $434,000 from 1997) related to the tender offer, reorganization, and due diligence for potential acquisitions. Additionally, the new accounting treatment for the limited partner's interest reduced reported net income.
- Revenue Growth: Total revenue increased 4% to $2.57 million. Rental income rose 5% due to full-year occupancy at Corporate Center East (Bloomington) and increased expense recoveries at Southpoint (Jacksonville). Interest income fell due to the liquidation of a mortgage receivable in March 1998.
- Expense Reduction: Property operating expenses (excluding depreciation) decreased 12% to $896,953, largely due to the absence of significant tenant remodeling and parking lot repairs incurred in 1997.
- Dividend Coverage: Dividends paid ($0.40/share) significantly exceeded net income ($0.13/share) and taxable income requirements, funded by cash reserves and return of capital.
Outlook, Risks, and Management Commentary
- Revenue Outlook: Management expects 1999 rental revenue to decline by approximately $120,000 (to ~$2.39 million) due to expected vacancies. Vacant square footage is projected to rise from 13,500 to 31,500 sq. ft. if re-leasing does not occur.
- Market Conditions: The office market in Salt Lake City (Broadbent) and Jacksonville (Southpoint) has softened. Tenants are seeking shorter lease terms (1-2 years) rather than standard 3-5 year terms. New construction in Jacksonville (500,000 sq. ft.) is expected to increase competition in late 1999.
- Tenant Risks:
- Broadbent: Largest tenant, Cyclopss, reduced space due to financial constraints. If their financial issues persist, revenue could be adversely affected.
- Southpoint: The General Services Administration (GSA) lease (21% of 1998 revenue) is secure through 2001, though the GSA has solicited proposals for downtown space.
- Liquidity: Cash and cash equivalents of $678,196 are deemed sufficient to meet obligations, including an estimated $175,000 in tenant improvement costs for 1999.
- Year 2000 Issue: The Company relies on third-party advisors and managers for computer systems. While upgrades were completed by January 1999, there is no assurance that all service providers are fully compliant.
Investor Verification Checklist
- Dividend Sustainability: Verify if the $0.40/share dividend can be maintained given that 1998 net income was only $0.13/share and 1999 revenue is projected to decline.
- Reorganization Costs: Confirm that the $632k in administrative expenses were one-time costs associated with the 1998 tender offer and reorganization, and will not recur in 1999.
- Lease Renewals: Monitor the re-leasing status of the 31% of Broadbent Business Center square footage expiring in 1999 and the 13% of Southpoint Parkway Center expiring in 1999.
- Tenant Concentration: Assess the financial stability of Cyclopss (Broadbent) and the GSA (Southpoint), which collectively represent a significant portion of revenue.
- Related Party Fees: Review the ongoing fees paid to Cedar Bay Realty Advisors, Brentway Management, and HVB Capital Markets to ensure they remain competitive post-reorganization.