Cedar Income Fund, Ltd. - 10-K Summary (Fiscal Year Ended Dec 31, 2002)
Business Context and Reporting Period
Cedar Income Fund, Ltd. (CEDR) is an "advised" Real Estate Investment Trust (REIT) focused on owning, operating, and redeveloping community and neighborhood shopping centers, primarily in Pennsylvania and New Jersey. The company has no employees and relies on Cedar Bay Realty Advisors, Inc. (CBRA) for management. The reporting period covers the fiscal year ended December 31, 2002. During this period, the company significantly expanded its portfolio, shifting focus from office properties to supermarket-anchored retail centers.
Key Financial Metrics
| Metric | 2002 | 2001 |
|---|---|---|
| Total Revenues | $12,989,000 | $5,099,000 |
| Net Loss | $(468,000) | $(147,000) |
| Net Loss Per Share | $(0.67) | $(0.21) |
| Funds From Operations (FFO) | $11,000 | $122,000 |
| Operating Cash Flow | $1,159,000 | $1,000,000 |
| Total Assets | $133,138,000 | $68,350,000 |
| Total Debt (Mortgage + Other) | $101,001,000 | $58,090,000 |
| Debt-to-Asset Ratio | ~76% | ~85% |
| Cash and Equivalents | $3,827,000 | $2,245,000 |
Note: The company reported a net loss primarily due to high interest expenses ($5.5M) and depreciation ($2.5M) associated with new acquisitions, despite a 155% increase in rental revenue.
Material Changes vs. Prior Period
- Portfolio Expansion: Acquired four properties in 2002 (Red Lion, Loyal Plaza, Camp Hill Mall, and LA Fitness land) totaling approximately $60 million in cost, increasing total rentable square footage to 1.8 million sq. ft. (from 807,000 sq. ft. in 2001).
- Dispositions: Sold the remaining original office property, Southpoint Parkway Center, in May 2002 for a net loss of $49,000. Proceeds were used to repay debt.
- Revenue Growth: Rental revenue increased by $8.1 million (169%) year-over-year, driven almost entirely by new acquisitions.
- Expense Increases: Interest expense more than doubled to $5.5 million, and General & Administrative expenses nearly tripled to $2.0 million due to portfolio growth and advisory fees.
- Dividends: No dividends were paid in 2002 or 2001. The company does not expect to pay dividends in 2003 due to lack of taxable income and debt covenants.
Outlook, Risks, and Management Commentary
- Capital Structure & Liquidity: The company secured a $6 million loan from SWH Funding Corp. at 12.5% interest to fund acquisitions and working capital. It also raised $3 million via preferred units from Homburg Invest USA Inc. Liquidity is supported by $3.8 million in cash and a $1 million line of credit (expanded to $2 million in March 2003).
- REIT Status Risk: Management warns that the issuance of common stock to Homburg USA may cause the company to fail the "five or fewer" shareholder test for REIT qualification in 2003. Loss of REIT status would subject the company to corporate income tax.
- Development Projects: Significant capital is required for the redevelopment of Camp Hill Mall ($17-$19 million) and the construction of the LA Fitness facility ($8.8 million). Success depends on securing joint venture partners or additional financing.
- Tenant Risks: Kmart, a major tenant at Loyal Plaza, filed for Chapter 11 bankruptcy. Giant Food Stores (10% of rental income) is owned by Ahold N.V., which has faced accounting irregularities; a downgrade in Ahold's credit rating could impact property values.
- Environmental Contingency: Loyal Plaza has known environmental contamination (petroleum and dry cleaning solvents). Sellers have provided a $950,000 escrow and indemnification, but remediation costs could exceed this.
Investor Verification Checklist
- REIT Qualification: Verify if the company successfully maintained REIT status in 2003 given the Homburg equity concentration.
- Debt Service Coverage: Assess the ability to service the high-interest SWH loan (12.5%) and the $1.4 million principal payment due in 2003 without refinancing.
- Joint Venture Financing: Confirm if the company secured the necessary $17-$19 million financing for the Camp Hill Mall redevelopment.
- Tenant Stability: Monitor the status of Kmart at Loyal Plaza and the creditworthiness of Ahold N.V. (Giant Food parent).
- Dividend Policy: Confirm if the company remains unable to pay dividends due to debt covenants and lack of taxable income.