CDR-PB

Cedar Income Fund, Ltd. - 10-Q Summary (Period Ended June 30, 1998)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 1998, for Cedar Income Fund, Ltd. (the "Company"), an equity-based Real Estate Investment Trust (REIT). During this period, the Company underwent a significant reorganization. On June 26, 1998, the former Iowa corporation merged into a new Maryland corporation, which subsequently transferred substantially all assets and liabilities to a newly formed Delaware limited partnership (the "Operating Partnership"). As of June 30, 1998, the Company owned three office properties in Jacksonville, FL; Salt Lake City, UT; and Bloomington, IL, plus a 50% interest in a retail property in Louisville, KY.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Income Decline: Net income for the six months ended June 30, 1998, decreased by approximately 36% compared to the prior year period. This decline is primarily attributed to a significant increase in "Other administrative expenses" ($289,739 in 1998 vs. $30,983 in 1997) resulting from the costs associated with the Company's reorganization, change of domicile, and formation of the Operating Partnership.
• Revenue Growth: Total revenues increased by 11% year-over-year, driven by an 11.4% increase in rental income. This growth was due to the leasing of previously vacant space and increased base rent from a major tenant.
• Expense Efficiency: Despite the reorganization costs, property expenses (excluding depreciation) as a percentage of rental income improved, dropping to 34% in the first half of 1998 from 43% in the same period in 1997. Repairs and maintenance costs decreased by approximately $44,500.
• Liquidity Improvement: Cash and cash equivalents increased by $524,985 to $932,201. This increase was bolstered by the sale of a mortgage receivable balance in March 1998, the proceeds of which were invested in a money market fund.

Guidance, Outlook, and Risks

• Capital Strategy: Management is actively seeking a line of credit and equity capital to fund future growth and acquisitions. There is no assurance that such financing will be obtained.
• Dividend Policy: The Company paid dividends of $0.20 per share for the six-month period, which exceeded net income per share ($0.09). The Company intends to maintain its REIT status, requiring the distribution of taxable income.
• Related Party Transactions: The Company entered into new agreements with affiliates of Chairman Leo S. Ullman (Cedar Bay Realty Advisors and Brentway Management) for advisory and property management services, replacing previous agreements with AEGON USA entities. A new Financial Advisory Agreement was also signed with B.V. Capital Markets, Inc.
• Year 2000 Issue: While the Company does not employ its own computer systems, it relies on third-party service providers. Management believes these providers are taking adequate steps to address Year 2000 compliance, though no assurance can be given regarding the systems of other entities the Company relies upon.

Investor Verification Checklist

• Reorganization Costs: Verify the specific nature and one-time status of the $289,739 in "Other administrative expenses" to assess future earnings potential.
• Dividend Coverage: Confirm the sustainability of the $0.20 per share dividend given that it currently exceeds net income per share.
• Related Party Fees: Review the fee structures in the new Advisory and Management agreements to understand ongoing cost impacts.
• Capital Availability: Monitor progress on securing the line of credit and equity capital mentioned as necessary for future acquisitions.
• Asset Concentration: Note that the portfolio consists of only three office properties and a partial retail interest, creating concentration risk.