Cedar Income Fund, Ltd. - 1996 Annual Report (10-K) Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 1996, for Cedar Income Fund, Ltd. (the "Company"), an equity-based Real Estate Investment Trust (REIT) incorporated in Iowa. The Company is managed by AEGON USA Realty Advisors, Inc., and has no employees. Its portfolio consists of four commercial real estate properties (office, retail, and service centers) located in Florida, Utah, Illinois, and Kentucky, plus a mortgage loan participation. The Company's stated objective is to provide cash flow and capital appreciation, with a long-term intention to be self-liquidating.
Key Financial Metrics
| Metric | 1996 | 1995 |
|---|---|---|
| Total Revenue | $2,217,026 | $2,487,157 |
| Net Earnings | $561,616 | $769,621 |
| Net Earnings Per Share | $0.25 | $0.34 |
| Dividends Per Share | $0.40 | $0.40 |
| Cash from Operating Activities | $945,243 | $1,235,761 |
| Total Assets | $16,270,149 | $16,610,105 |
| Mortgage Loan Payable | $1,423,492 | $1,444,654 |
| Shareholders' Equity | $14,625,080 | $14,961,628 |
| Combined Occupancy Rate | 89% | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by 11% ($270,131) compared to 1995. Rental income specifically dropped 12% ($278,407), primarily due to the expiration of Hewlett Packard Corporation's lease at Corporate Center East (Bloomington, IL) in December 1995, which had contributed 11% of 1995 revenue.
- Profitability Drop: Net earnings fell 27% to $561,616. While property expenses (excluding depreciation) decreased by 5% to $884,104 due to lower maintenance and management fees, the reduction in revenue was more significant.
- Leasing Activity: The Company successfully re-leased the space vacated by Hewlett Packard in late 1996 and early 1997. Corporate Center East occupancy rose from 50% at year-end 1996 to 100% in Q1 1997.
- Expense Ratios: Property expenses as a percentage of rental income increased from 39% in 1995 to 42% in 1996, as expense reductions did not fully offset the revenue decline.
Outlook, Risks, and Management Commentary
- Liquidity: The Company maintains sufficient liquidity with $670,306 in cash and cash equivalents and a $573,991 mortgage loan receivable. Dividends of $0.40 per share were paid in 1996, though future dividends are not assured and depend on earnings and cash flow.
- Capital Expenditures: The Company anticipates incurring approximately $363,000 in 1997 for lease commissions and tenant improvements to secure new tenants at Corporate Center East and expand space at Southpoint Parkway Center.
- Valuation: Management estimates the current appraised value of real estate assets at $13.1 million, which is $1.6 million below the recorded book value. Management views this as a temporary market decline and has not established a valuation allowance.
- Liquidation Strategy: The Company remains on a self-liquidating trajectory, originally intended to occur ten years after the 1986 offering. The Board is exploring options for asset sales and distribution of proceeds.
- Risks: Key risks include the ability to renew expiring leases (51% of Broadbent and 11% of Southpoint leases expire in 1997) at competitive rates and the impact of local market competition.
Investor Verification Checklist
- Lease Renewals: Verify the renewal status of the 51% of square footage at Broadbent Business Center expiring in 1997.
- Valuation Gap: Assess the sustainability of the $1.6 million difference between book value and estimated current market value of real estate assets.
- Dividend Coverage: Confirm that net earnings ($561,616) and cash flow ($945,243) continue to support the $0.40 per share dividend policy, noting that dividends exceeded net earnings in 1996.
- Affiliate Transactions: Review fees paid to AEGON USA Realty Advisors and its affiliates, which totaled over $246,000 in 1996 for administrative, management, and leasing services.
- Debt Maturity: Note the mortgage loan payable on Broadbent Business Center matures in November 2002 with a balloon payment of approximately $1.26 million.