FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended............................September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from..............to................
Commission file number............................................0-14510
CEDAR INCOME FUND, LTD.
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(Exact name of registrant as specified in charter)
Maryland 42-1241468
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(State or other (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
44 South Bayles Avenue, Port Washington, New York 11050
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 767-6492
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(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's Common Stock $0.01
par value was 694,411 on November 12, 2002.
Cedar Income Fund, Ltd.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002
(unaudited) and December 31, 2001
Consolidated Statements of Shareholders' Equity for the
nine months ended September 30, 2002 (unaudited)
Consolidated Statements of Operations for the three
months and nine months ended September 30, 2002 and 2001
(unaudited)
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2001 (unaudited)
Notes to Consolidated Financial Statements - September
30, 2002 (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I. Financial Information
Item 1. Financial Statements
Cedar Income Fund, Ltd.
Consolidated Balance Sheet
(unaudited)
September 30, December 31,
2002 2001
-----------------------------
(unaudited)
Assets
Real estate
Land $ 17,974,039 $ 10,108,717
Buildings and improvements 80,357,963 47,513,267
------------------------------
98,332,002 57,621,984
Less accumulated depreciation (1,822,911) (674,256)
------------------------------
Real estate 96,509,091 56,947,728
Real estate held for sale - 4,401,800
Property deposits 684,000 -
Cash and cash equivalents 1,633,915 2,872,289
Restricted cash 1,305,081 1,402,654
Rents and other receivables 561,241 217,104
Deferred financing costs, net 1,452,963 1,195,047
Deferred legal, net 38,087 98,749
Prepaid expenses, net 865,024 130,557
Deferred lease commissions 684,909 392,823
Deferred rental income 296,177 47,924
Taxes held in escrow 581,822 641,715
------------------------------
Total Assets $ 104,612,310 $ 68,348,390
==============================
Liabilities and Shareholders' Equity
Liabilities
Mortgage loans payable $ 79,459,112 $ 46,129,760
Loans payable 1,387,142 5,980,000
Accounts payable and accrued expenses 1,688,854 876,456
Security deposits 285,649 243,089
Advance rents 444,930 252,294
------------------------------
Total Liabilities 83,265,687 53,481,599
------------------------------
Minority interests 9,550,201 2,235,239
Limited partner's interest in consolidated
Operating Partnership 8,359,311 8,964,366
Shareholders' Equity
Common stock ($.01 par value 50,000,000
shares authorized, 694,411 and 692,111 shares
issued and outstanding, respectively) 6,944 6,921
Additional paid-in capital 3,430,167 3,660,265
------------------------------
Total Shareholders' Equity 3,437,111 3,667,186
------------------------------
Total Liabilities and Shareholders' Equity $ 104,612,310 $ 68,348,390
==============================
Total Shareholders' Equity in the Company
and limited partner's (equity) interest in
Operating Partnership and minority interests $ 21,346,623 $ 14,866,791
==============================
See the accompanying notes to consolidated financial statements.
Cedar Income Fund, Ltd.
Consolidated Statements of Shareholders' Equity
(unaudited)
Additional Total
Common Paid-In Undistributed Shareholders'
Stock Capital Net Earnings Equity
- ----------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 6,921 $ 3,660,265 $ - $ 3,667,186
Issuance of warrants - 78,566 - 78,566
Conversion of Operating
Partnership units to Common
Stock 23 11,287 - 11,310
Net (loss) - (319,951) - (319,951)
---------------------------------------------------------
Balance at September 30, 2002 $ 6,944 $ 3,430,167 $ - $ 3,437,111
=========================================================
See the accompanying notes to consolidated financial statements.
Cedar Income Fund, Ltd.
Consolidated Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
REVENUE ---------------------------- ------------------------------
Rents $2,820,545 $ 723,424 $6,674,517 $ 2,141,433
Expense recoveries 785,782 98,908 2,086,685 419,862
Other 7,673 - 7,673 21,498
Interest 325 38,380 11,507 226,930
---------- --------- ---------- -----------
Total Revenue 3,614,325 860,712 8,780,382 2,809,723
---------- --------- ---------- -----------
EXPENSES
Property expenses:
Payroll 45,118 17,831 99,756 45,258
Real estate taxes 446,104 69,362 1,038,909 244,674
Repairs and maintenance 147,476 54,991 535,817 228,098
Utilities 85,257 49,775 262,204 168,738
Management fee 144,542 26,362 359,442 92,534
Insurance 85,538 7,152 156,164 28,853
Leasing commissions 11,605 - 48,352 -
Other 270,377 48,551 560,433 157,710
---------- --------- ---------- -----------
Property expenses, excluding depreciation
and amortization 1,236,017 274,024 3,061,077 965,865
Depreciation 505,998 148,398 1,147,849 400,907
Amortization 101,296 10,226 571,938 63,809
---------- --------- ---------- -----------
Total property expenses 1,843,311 432,648 4,780,864 1,430,581
Interest 1,592,835 293,425 3,561,580 960,081
Directors' fees, directors' and officers'
insurance and expenses 55,839 24,468 118,845 73,404
Administrative and advisory fees 90,000 41,397 270,000 89,567
Other administrative 46,175 92,840 331,437 201,069
Loan repayment fee - - 268,500 -
---------- --------- ---------- -----------
Total Expenses 3,628,160 884,778 9,331,226 2,754,702
---------- --------- ---------- -----------
Net income (loss) before minority interests and limited partner's
interest in Operating Partnership and gain (loss) on sale (13,835) (24,066) (550,844) 55,021
Minority interests (142,044) (26,183) (21,397) (20,254)
Limited partner's interest in loss and (gain) loss on sale 96,310 23,449 441,417 (996,532)
Gain on sale - - - 1,638,416
Loss on sale - - (48,511) (295,610)
---------- --------- ---------- -----------
(Loss) before cumulative effect adjustment (59,569) (26,800) (179,335) 381,041
Cumulative effect of change in accounting principles
(net of limited partner's share of ($14,732)) - - - (6,014)
---------- --------- ---------- -----------
Net (loss) income before extraordinary items $ (59,569) $ (26,800) $ (179,335) $ 375,027
Extraordinary items
Early extinguishment of debt (net of limited
partner's share of $346,110) $ - $ - $ (140,616) $ -
Early extinguishment of debt (net of limited
partner's share of $187,834) - - - (76,312)
---------- --------- ---------- -----------
Net (loss) income $ (59,569) $ (26,800) $ (319,951) $ 298,715
========== ========= ========== ===========
Net (loss) income per share before cumulative
effect adjustment (0.09) (0.04) (0.26) 0.55
Cumulative change in accounting principle per share - - - (0.01)
---------- --------- ---------- -----------
Net (earnings) loss per share before extraordinary item (0.09) (0.04) (0.26) 0.54
Extraordinary (loss) per share - - (0.20) (0.11)
---------- --------- ---------- -----------
Net (loss) earnings per share $ (0.09) $ (0.04) $ (0.46) $ 0.43
========== ========= ========== ===========
Average number of shares outstanding 694,411 692,111 693,175 692,111
========== ========= ========== ===========
See the accompanying notes to consolidated financial statements.
Cedar Income Fund, Ltd.
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30, 2002 September 30, 2001
--------------------------------------
Net (loss) income $ (319,951) $ 298,715
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Cumulative effect of change in accounting principle - 20,737
Minority interest 21,397 20,254
Limited partner's interest in Operating Partnership (441,417) 996,532
Gain on sale of Broadbent Business Center - (1,638,416)
Loss on sale of Corporate Center East - 295,610
Loss on sale of Southpoint Parkway 48,511 -
Early extinguishment of debt 486,726 264,146
Depreciation and amortization 1,719,787 464,716
(Increase) decrease in deferred rental receivable (248,253) 18,288
Changes in operating assets and liabilites:
(Increase) decrease in rent and other receivables (344,137) 96,137
Decrease in deferred legal 60,662 39,231
(Increase) decrease in prepaid expenses (635,406) (45,241)
(Increase) decrease in deferred lease commissions (292,086) 33,936
(Increase) decrease in taxes held in escrow 59,893 46,362
Increase (decrease) in accounts payable 812,398 (98,886)
Security deposits collected, net 42,560 (47,367)
(Decrease) increase in advance rents 192,636 (80,116)
-------------------------------
Net cash provided by operating activities 1,163,320 684,638
-------------------------------
Cash Flow from Investing Activities
Capital expenditures (1,079,941) (5,656,784)
Decrease (increase) in restricted cash 97,573 2,861,130
Property deposits (684,000) (350,000)
Decrease in construction payable - (343,090)
Payment of long-term leasing commissions - (391,844)
Sale of Broadbent Business Center - 4,839,941
Sale of Southpoint Parkway 4,353,289 -
Sale of Corporate Center East - 1,722,458
Acquisition of Red Lion Associates net of cash at acquisition (3,174,623) -
Acquisition of Loyal Plaza (5,408,453) -
-------------------------------
Net cash (used in) provided by investing activities (5,896,155) 2,681,811
-------------------------------
Cash Flow from Financing Activities
Repayment of The Point financing (17,900,000) -
Principal portion of scheduled mortgage payments (251,990) -
Proceeds from The Point mortgage financing 20,000,000 -
Proceeds from line of credit 500,000 (1,515,644)
Contribution from minority interest - Red Lion 4,030,290 -
Contribution from minority interest - Loyal Plaza 4,000,000 -
Distribution to minority interest (736,725) -
Repayment of loans payable (5,092,858) -
Deferred financing costs (1,054,256) (160,928)
-------------------------------
Net cash provided by (used in) financing activities 3,494,461 (1,676,572)
-------------------------------
Net (decrease) increase in cash and cash equivalents (1,238,374) 1,689,877
Cash and cash equivalents at beginning of the period 2,872,289 841,111
-------------------------------
Cash and cash equivalents at end of the period $ 1,633,915 $ 2,530,988
===============================
Supplemental Disclosure of Cash Activities
Interest paid $ 3,528,871 $ 2,530,988
===============================
Non-Cash Activities
Warrants $ 198,095 $ -
===============================
Red Lion acquisition note payable $ 887,142 $ -
===============================
Red Lion mortgage assumed $ 16,778,156 $ -
===============================
Loyal Plaza mortgage assumed $ 13,877,087 $ -
===============================
See the accompanying notes to consolidated financial statements.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 1. Background, Organization and Reorganization of the Company
Cedar Income Fund, Ltd. (the "Company") was originally incorporated in
Iowa on December 10, 1984, and qualified to operate as a real estate investment
trust ("REIT"). Shortly thereafter, the Company's Common Stock was listed on the
NASDAQ securities market. In June 1998, the Company was reorganized and included
in an umbrella partnership REIT structure through the contribution of
substantially all of its assets to a limited partnership (the "Operating
Partnership") in exchange for the sole general partnership interest and all
2,245,411 limited partnership interests ("Units") of the Operating Partnership.
Immediately thereafter, Cedar Bay Company, ("CBC") a New York general
partnership, which, as a result of a tender offer completed in April 1998,
became the largest stockholder of the Company, exchanged 1,703,300 shares of
Common Stock for 1,703,300 Units owned by the Company. Following these
transactions, substantially all of the Company's assets consisted of the
controlling interest as the sole general partner of the Operating Partnership
and approximately 24% of the Units; substantially all of CBC's assets consisted
of 189,737 shares of Common Stock (approximately 35% of the then-issued and
outstanding shares of Common Stock) and approximately 76% of the Units.
The Company's shares are traded on the NASDAQ (Small Cap) Market under
the symbol "CEDR".
Currently, a Unit in the Operating Partnership and a share of Common
Stock of the Company have essentially the same economic characteristics, as they
effectively share equally in net income or loss and distributions of the
Operating Partnership.
The Company continues to operate as a REIT. To qualify as a REIT under
applicable provisions of the Internal Revenue Code of 1986, as amended, and
Regulations thereto (the "Code"), the Company must have a significant percentage
of its assets invested in, and income derived from, real estate and related
sources.
The Company's objectives are to provide to its shareholders a
professionally-managed, diversified portfolio of commercial (primarily shopping
center) real estate investments which will provide the best available cash flow
and present an opportunity for capital appreciation.
The Company, through its Operating Partnership, directly or indirectly
through partnership interests or limited liability companies, as of September
30, 2002 owned and operated the following shopping center properties:
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 1. Background, Organization and Reorganization of the Company (continued)
Ownership
Name Location Square Footage Interest (as G.P.)
---- -------- -------------- ------------------
Academy Plaza Philadelphia, PA 154,067 sq. ft. 100%
Port Richmond Village Philadelphia, PA 156,651 sq. ft. 100%
Washington Center Shoppes Sewell, NJ 157,146 sq. ft. 100%
Greentree Road (parcel) Sewell, NJ 47,000 sq. ft. 100%
The Point Shopping Center Harrisburg, PA 255,230 sq. ft. 50%
Red Lion Shopping Center Philadelphia, PA 224,309 sq. ft. 20%
Loyal Plaza Shopping Center Williamsport, PA 293,270 sq. ft. 25%
Cedar Bay Realty Advisors, Inc., a New York corporation ("CBRA"),
serves as investment advisor to the Company pursuant to an Administrative and
Advisory Agreement (the "Advisory Agreement") with the Company. Brentway
Management LLC, a New York limited liability company ("Brentway"), provides
property management services for the Company's properties pursuant to a
Management Agreement dated April 1998 (the "Management Agreement") and through
individual management agreements for the respective properties with the Company
on arm's-length terms. SKR Management Corp., a New York corporation ("SKR"),
provides certain legal services to the Company through its in-house counsel and
Secretary of the Company, Stuart H. Widowski. CBRA and SKR are wholly-owned by
Leo S. Ullman. Brentway is owned by Leo Ullman and Brenda Walker. Leo S. Ullman
is President and Chairman of the Board of the Company and of the corporate
partners of CBC. Brenda Walker is Vice President and a Director of the Company
and Vice President of the corporate partners of CBC. The terms of the Advisory
Agreement and Management Agreement are further discussed in Note 8 to the
Consolidated Financial Statements.
Note 2. Description of Significant Accounting Policies
General
The accompanying interim unaudited financial statements have been
prepared by the Company's management pursuant to the rules and regulations of
the SEC. Certain information and footnote disclosure normally included in the
financial statements prepared in accordance with accounting principles generally
accepted in the United States ("GAAP") may have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading. The
unaudited financial statements as of September 30, 2002, and for the three month
and nine month periods ended September 30, 2002 and 2001 include, in the opinion
of management, all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial information set forth herein. The
results of operations for the interim periods are not necessarily indicative of
the results that may be expected for
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 2. Description of Significant Accounting Policies (continued)
General (continued)
the year ending December 31, 2002. These financial statements should be read in
conjunction with the Company's audited financial statements and the notes
thereto included in the Company's Form 10-K for the year ended December 31,
2001.
Consolidation Policy and Related Matters
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating Partnership as
of September 30, 2002 and December 31, 2001, the results of their operations for
the three months and nine months ended September 30, 2002, and their cash flows
for the nine months ended September 30, 2002 and 2001, respectively. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The Company owns an approximate 29% partnership interest as sole
general partner in the Operating Partnership, which provides the Company with
control over all significant activities of the Operating Partnership, and
accordingly, the Operating Partnership in turn is consolidated with the Company
in the accompanying financial statements as of September 30, 2002.
The Operating Partnership has a 50% general partnership interest in The
Point Associates, L.P. ("The Point Associates") a 20% general partnership
interest in API Red Lion Shopping Center Associates ("Red Lion Associates") and
a 25% general partnership interest in Loyal Plaza Associates, L.P. ("Loyal Plaza
Associates"); all such entities are consolidated in the accompanying financial
statements as a result of similar control attributes as exist with respect to
the Operating Partnership.
The limited partner's interest as of September 30, 2002 (currently
owned entirely by CBC) represents approximately a 71% limited partnership
interest in the equity of the Operating Partnership. The minority interests
represent the limited partner's 50% interest in The Point Associates, the 69%
and 11% limited partner's interests in Red Lion Associates and the 75% limited
partner's interest in Loyal Plaza Associates. The limited partner in The Point
Associates is an affiliate of CBC. The 11% limited partner in Red Lion
Associates is also an affiliate of CBC, and the 69% limited partner is an
affiliate of ARC Properties, Inc.; the 75% limited partner interest in Loyal
Plaza Associates is an affiliate of Kimco Realty Corp. (see Note 2).
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 2. Description of Significant Accounting Policies (continued)
Use of Estimates (continued)
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Revenue Recognition
Rental income is recognized on a straight-line basis over the term of
the lease. The excess of rents recognized over amounts contractually due is
included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
of real estate taxes, insurance, common area maintenance costs and certain other
costs which are recorded on an accrual basis.
Sales of real estate are recorded when title is conveyed to the buyer,
subject to the buyer's financial commitment being sufficient to provide economic
substance to the sale.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for maintenance and repairs
are charged to operations as incurred. Renovations and/or replacements, which
improve or extend the life of the asset are capitalized and depreciated over
their estimated useful lives. Construction period interest and real estate taxes
are capitalized during the relevant construction period.
Depreciation is computed utilizing the straight-line method over the
estimated useful life of ten to forty years for buildings and improvements, and
five to ten years for furniture, fixtures and equipment. Tenant improvements are
amortized on a straight-line basis over the term of the related leases.
The Company is required to make subjective assessments as to the useful
lives of its properties for purpose of determining the amounts of depreciation
to be reflected on an annual basis with respect to those properties. These
assessments have a direct impact on the Company's net income. Should the Company
lengthen the expected useful life of a particular asset, it would be depreciated
over more years, and result in less depreciation expense and higher annual net
income.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 2. Description of Significant Accounting Policies (continued)
Real Estate (continued)
Assessments by the Company of certain other lease-related costs as well
as any recorded straight-line rent receivable must be made when the Company has
a reason to believe that the tenant will not be able to perform under the terms
of the lease as originally expected.
Cash Equivalents
The Company considers highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents. The cash held by
certain individual partnerships is restricted for use for operations of those
partnerships and for distribution to all partners of the respective partnership,
including the Operating Partnership. Such partnership cash included in cash and
cash equivalents amounts to $1,309,115 at September 30, 2002.
Deferred Costs
Leasing fees and loan costs are capitalized and amortized over the life
of the related lease or loan.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, the
alternative fair value accounting provided for by the Financial Accounting
Standard Board ("FASB") under Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options.
The Company established a stock option plan (the "Plan") for the
purpose of attracting and retaining executive officers, directors and other key
employees. Of the Company's authorized shares of Common Stock, 500,000 have been
reserved for issuance under the Plan. The Plan is administered by a committee of
the Board of Directors, which committee will, among other things, select the
number of shares subject to each grant, the vesting period for each grant and
the exercise price (subject to applicable regulations with respect to incentive
stock options) for the options.
Effective July 10, 2001, the Board of Directors authorized the issuance
of options to purchase 10,000 shares at $3.50 per share, the stock price as of
that date, to each of the five Directors then in office and valid for ten years
thereafter.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 2. Description of Significant Accounting Policies (continued)
Warrants
Warrants that are issued to non-employees are accounted for under EITF
96-18 "Accounting for Equity Instruments that are issued to other than Employees
for Acquiring or in conjunction with selling Goods or Services or Services" are
recorded at fair value. The value of the Warrants are expensed or capitalized
based on the nature of the service provided.
Earnings Per Share
FASB Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share", was issued and adopted by the Company during 1997. SFAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Since the Company's financial
statements reflect a net loss for the period, dilutive securities are not
considered in the computation of basic and diluted net loss per share in
accordance with SFAS 128. Accordingly, basic and diluted net income (loss) per
share is computed using the weighted average number of shares outstanding during
the periods (692,111 in 2001 and 693,175 in 2002).
Income Taxes
The Company generally will not be subject to federal income taxes as
long as it qualifies as a REIT under Sections 856-869 of the Code. A REIT will
generally not be subject to federal income taxation on that portion of income
that qualifies as REIT taxable income and to the extent that it distributes such
taxable income to its stockholders and complies with certain requirements of the
Code relating to income and assets. As a REIT, the Company is allowed to reduce
taxable income by all or a portion of distributions to stockholders and must
distribute at least 90% of its taxable income to qualify as a REIT.
Impairment of Long-Lived Assets
The Company's real estate assets are reviewed for impairment whenever
events or changes in circumstances indicate that the net carrying amount may not
be recoverable. When such events occur, the Company measures impairment by
comparing the carrying value of the long-lived asset to the estimated
undiscounted future cash flows expected to result from use of the assets and
their eventual disposition. If the sum of the expected undiscounted future cash
flows is less than the carrying amount of the assets, the Company would
recognize an impairment loss based upon an estimate of value of the respective
property.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 2. Description of Significant Accounting Policies (continued)
Recent Pronouncements
In June 2001, the FASB approved Statement of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations", and Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets". SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS 142
changes the accounting for goodwill from an amortization method to an
impairment-only approach. The provisions of SFAS 142 are effective for fiscal
years beginning after December 15, 2001. The Company has adopted SFAS 142 as of
January 1, 2002. The Company believes that the adoption of this standard will
have no impact on the Company's financial position or results of operations.
In August 2001, the FASB approved Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS 144 supersedes SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of business. SFAS 144 retains the
requirements of SFAS 121 for recognition and measurement of an impairment loss
on long-lived assets, and establishes a single accounting model for all
long-lived assets to be disposed of by sale, whether previously held and used or
newly-acquired. The provisions of SFAS 144 are effective for fiscal years
beginning after December 15, 2001. The Company has adopted SFAS 144 as of
January 1, 2002. The Company believes that the adoption of this Standard will
have no impact on the Company's financial position or results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Derivative Financial Instruments
On January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," as amended by Statement of Financial
Accounting Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments. Specifically,
SFAS 133 requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and to measure those
instruments at fair value. In the normal course of business, the Company is
exposed to the effect of interest rate changes. The Company limits these risks
by following established risk
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 2. Description of Significant Accounting Policies (continued)
Derivative Financial Instruments (continued)
management policies and procedures including those for the use of derivatives.
The only hedging transaction entered into by the Company was the purchase of an
interest rate cap during 2000. The Company does not use derivatives for trading
or speculative purposes. Further, the Company has a policy of only entering into
contracts with major financial institutions based upon their credit ratings and
other factors. There are no hedging transactions in effect at September 30,
2002.
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters
Red Lion Shopping Center, Philadelphia, PA
On May 31, 2002, Cedar-RL, LLC ("Cedar-RL"), a newly-formed special
purpose, wholly-owned subsidiary of the Operating Partnership, purchased from
affiliates of Leo S. Ullman and CBC, a 20% interest in Red Lion Associates,
owner of the Red Lion Shopping Center, a 218,000 sq. ft. shopping center in
Philadelphia, Pennsylvania (with Best Buy, Staples, Sports Authority and Pep
Boys as anchor tenants), for $1,182,857, payable $295,714 at closing (paid out
of the Company's available cash), with the balance evidenced by a promissory
note (the "Note") payable in three equal annual installments commencing one year
after closing and bearing interest at 7.5% due annually with each installment
payment. The Note is secured by a pledge by Cedar-RL of its interest in Red Lion
Associates.
Also on May 31, 2002, Silver Circle Management Corp. ("Silver Circle")
and Leo S. Ullman sold an aggregate 69% limited partnership interest in Red Lion
Associates to Philadelphia ARC-Cedar LLC ("ARC Cedar") for $4,360,500. As a
result of such transactions, Leo S. Ullman has no continuing ownership interest
in Red Lion Associates.
Silver Circle has entered into a master lease for a period ending on
the earlier of (i) 10 years or (ii) the date on which approximately 49,600 sq.
ft. of gross leaseable area (vacant space formerly occupied by Ross Dress for
Less and Cost Less stores) has been leased to third parties meeting certain
criteria at a minimum rent of $11.50 per sq. ft. ($570,262 per annum) plus
taxes, common area maintenance and utilities payable by occupant. As security
for such obligations, Silver Circle has deposited $1.5 million into escrow to be
drawn upon pursuant to the master lease.
In addition, Silver Circle will guarantee monthly minimum rental
payments of the Sports Authority lease during the term of its existing lease
($43,825 per month) until the earlier to occur of (i) exercise by Sports
Authority of a renewal option, (ii) new leases to tenants approved by Red Lion
Associates or (iii) five years after the earlier to occur of the date of any
Sports Authority default or
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters (continued)
Red Lion Shopping Center, Philadelphia, PA (continued)
August 14, 2005, subject in each case to a maximum of $200,000. To date, Silver
Circle has paid $177,301 in master lease payments, which have been recorded as
reductions in the cost basis of the property. This obligation and certain other
obligations are secured by Silver Circle's partnership interest in Red Lion
Associates.
As previously reported, the purchases by Cedar-RL and ARC-Cedar were
determined on an arm's-length basis, and reflected certain appraisals and a
"fairness" opinion from qualifying third parties.
On May 31, 2002, contemporaneous with the closing of the Red Lion
Associates transaction, an Operating Unit Purchase Warrant was issued by the
Operating Partnership to ARC Properties, Inc., to purchase Units of the
Operating Partnership at an exercise price of $4.50 per Unit. Such Warrants were
issued and vested one-third on the closing of the transaction (83,333 warrants),
with the balance to vest one-third each on January 1, 2003 and 2004 (83,333,
respectively), provided that ARC Properties, Inc. performs future services for
the Company.
The first 83,333 Warrants issued were capitalized as part of the Red
Lion transaction using the fair value method. The accounting treatment of the
subsequent issuance of Warrants will be determined by future services performed
by ARC Properties, Inc. ARC Properties continues to provide services to the
Company, and, as such, the second tranche of Warrants is being accrued and
capitalized as prepaid expense.
As a condition for the issuance of the Warrant, the holder has entered
into a "standstill" agreement which prohibits the holder from, among other
things, purchasing directly or indirectly any additional Shares or Units,
conducting a proxy contest or a tender offer to the Company's
shareholders/unitholders without the prior approval of the Company, or selling,
transferring, or pledging the Warrant or any Units or Shares except under
Securities and Exchange Commission ("SEC") Rule 144 volume restrictions or
through a broker/dealer, subject to certain restrictions to prevent
disqualification as a REIT.
Silver Circle, ARC-Cedar and Cedar-RL entered into an amended
partnership agreement for Red Lion Associates effective as of the closing date
with respect to the operation of the Red Lion Shopping Center. Cedar-RL under
such agreement is the sole general partner of Red Lion Associates; ARC-Cedar and
Silver Circle are limited partners.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters (continued)
Red Lion Shopping Center, Philadelphia, PA (continued)
Pursuant to the terms of the agreement, income and loss of the
partnership will be allocated to the respective partners in accordance with
their percentage interests. Silver Circle has a continuing right to receive on a
priority basis upon a capital event, an amount equal to cash left in the
partnership at closing in the amount of approximately $185,000, which amount
constitutes the approximate amount payable to the first mortgagee for one
month's debt service and reserves, respectively. Cash distributions from
operations or from liquidation will also be allocated in accordance with their
percentage interests.
The general partner will be reimbursed only for actual costs and
expenses (including administrative) incurred for the partnership's operations.
Brentway, an affiliate of Mr. Ullman and Ms. Walker, will continue to provide
management services in accordance with the existing management agreement for the
property, which provides for leasing fees, construction management fees, and
property management fees at customary rates.
The Company's 20% indirect ownership interest as sole general partner
of Red Lion Associates, provides the Company with control over all significant
activities of Red Lion Associates. Accordingly, the Company has reported
consolidated results of Red Lion Associates.
The fee to which CBRA would otherwise be entitled with respect to the
purchase of the 20% interest in Red Lion Associates by the Operating Partnership
(generally 1% of the purchase price) has been waived by CBRA.
Loyal Plaza Shopping Center, Williamsport, PA
On July 2, 2002, pursuant to an assignment under the Purchase Agreement
entered into by and between the Operating Partnership, of which the Company is
the managing general partner, and Loyal Plaza Venture, L.P. dated January 7,
2002, as subsequently amended, Loyal Plaza Associates, a Delaware limited
partnership formed by CIF-Loyal Plaza Associates L.P., a Delaware limited
partnership, the partners of which are a wholly-owned affiliate of the Company
as general partner, and Kimco Preferred Investor IV Trust ("Kimco Trust"), a
Pennsylvania business trust, as limited partner, purchased the Loyal Plaza
Shopping Center, 1915 East Third Street, Loyalsock (Williamsport), Lycoming
County, Pennsylvania ("Loyal Plaza"), from Loyal Plaza Venture, L.P., an
affiliate of Glimcher Properties Limited Partnership of Columbus, Ohio. The
purchase price, exclusive of closing costs, was $18,300,000. Closing costs were
approximately $985,540. Loyal Plaza Associates purchased the property subject to
a first mortgage, the balance of
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters (continued)
Loyal Plaza Shopping Center, Williamsport, PA (continued)
which as of the closing date was $13,877,087. The purchase price and other terms
of the transaction were negotiated with third parties on an arm's-length basis.
The Company commissioned and received an independent certified appraisal from
Integra Realty Resources - Philadelphia of Philadelphia, Pennsylvania, for Loyal
Plaza at a value in excess of the purchase price.
The existing first mortgage loan on Loyal Plaza with Lehman Brothers
Bank, FSB ("Lehman Brothers"), carries an interest rate of 7.18%, an
amortization schedule of thirty years and matures in June 2011. Annual debt
service is approximately $1,138,091. Prepayment of that mortgage requires a
"defeasance" ("make whole") deposit equal generally to the amount in government
securities or other acceptable securities which will not result in a
downgrading, withdrawal or qualification of the ratings of the rating agencies
in effect for the loan, and which will generate amounts equal to or greater than
the payments required by the loan agreement for the remaining period of the
loan.
The total cash requirements, including the purchase price above the
first mortgage balance plus closing costs, were approximately $5,410,000. Of the
cash requirements at closing, Kimco Trust funded $4,000,000. The Company funded
or will have funded approximately $1,410,000. The source of funds for this
purchase was cash on deposit in the Company's operating accounts.
CBRA, the investment advisor to the Company and the Operating
Partnership, wholly-owned by Leo S. Ullman, Chairman and President of the
Company, will receive an acquisition fee of $183,000 (1% of the purchase price
in accordance with the Advisory Agreement, as amended, currently in effect
between the Company and CBRA), which will be paid by the Company out of
available cash flow.
The Company intends to continue to operate Loyal Plaza as a shopping
center.
Loyal Plaza has approximately 293,000 sq. ft. of gross leaseable area.
Its principal tenants include K-Mart (approximately 103,000 sq. ft.) (see
below), Giant Food Stores (approximately 67,000 sq. ft.), and a free-standing
Eckerd drug store (approximately 11,000 sq. ft.). The estimated gross rental
income for Loyal Plaza, annualized for the year 2002, is approximately
$2,277,000 excluding any rent for Family Toy Warehouse (which vacated the
premises in May and paid rent only through that month) (see below). The
projected net operating income for 2002 (excluding Family Toy Warehouse for the
period June 1 - December 31, 2002) is approximately $1,657,000.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters (continued)
Loyal Plaza Shopping Center, Williamsport, PA (continued)
CIF-Loyal Plaza Associates, L.P. (the "CIF Entity") is the sole general
partner responsible for managing the affairs of the partnership and making all
decisions relevant thereto. Accordingly, the operation of the property is
consolidated into the accompanying financial statements. Management of the
shopping center will be vested with Brentway, an affiliate of the Company.
Brentway will be entitled to standard arm's-length fees for property management,
leasing and construction management. Brentway is owned by Leo S. Ullman and
Brenda Walker, directors and officers of the Company.
The Company's indirect ownership interest, ranges from 25% initially to
a 50% residual interest as sole general partner of Loyal Plaza Associates.
The Loyal Plaza Associates partnership agreement provides essentially
that Kimco Trust will be entitled to receive an amount which accrues on its
capital contributions as a "preferred return" of 12%, after which the CIF Entity
will be entitled to receive an amount which accrues on its capital contributions
as a "preferred return" of 10%; thereafter, any excess cash flow is divided 70%
to Kimco Trust and 30% to the CIF Entity. In the event of a "capital
transaction" (sale or refinancing, for example) the initial proceeds of such
transaction after repayment of third party debt shall be distributed as follows:
first to repayment of "default capital contributions", as described below, then
to "additional capital contributions", next to Kimco Trust until its initial
capital contribution is reduced to zero, then to Kimco Trust until it achieves a
14% internal rate of return ( "IRR"), then to the CIF Entity until its capital
contribution balance is reduced to zero, then until it receives a 14% IRR, and
then in accordance with the residual sharing ratio (50% - 50%).
The effect of the preferred internal rate of return arrangements with
Kimco Trust will expose the Company's contributed capital in the event of a
capital transaction to cover any shortfall in Kimco Trust's rate of return.
There will not be any exposure beyond the potential inability of the CIF Entity
to realize repayment of such contributed amounts (and any undistributed income).
Management believes, based on its income projections, that, absent unforeseen
negative results for the shopping center, such as a prolonged vacancy of a
substantial portion of the shopping center, for example, and/or a dramatic
reduction in rents, the shopping center, if sold or refinanced, should generate
sufficient funds to pay such preferred returns. Each partner shall be required
to make additional contributions in proportion to its respective sharing ratio
(initially 75% for Kimco Trust and 25% for the CIF Entity) if approved by the
partners for the conduct of the partnership's business. The failure by a partner
to make any additional capital contributions will not give rise to recourse by
one partner against another except as otherwise provided generally in the
agreement, as further described below.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters (continued)
Loyal Plaza Shopping Center, Williamsport, PA (continued)
If one partner fails to make any portion of the required additional
contributions, any funds advanced by the other partner to cover the portion
which is in default will constitute a loan to the defaulting partner for a
period of ten years at the lesser of the maximum lawful rate of interest or
prime plus 4%. The obligation of a defaulting partner will be secured by a
security interest in the defaulting partner's partnership interest in favor of
the non-defaulting partner.
In the event a capital call is required for the partnership, and in the
event Kimco Trust funds an amount greater than its proportionate ownership
interest in Loyal Plaza, any such contributed funds will have a "super"
priority, and will thus be due before any preferred returns to the partners. If
the CIF Entity fails to make additional capital contributions in excess of
$300,000, its residual sharing ratio will be automatically reduced to 35% (and
Kimco Trust's increased to 65%). For every $2,000 in additional capital
contributions beyond $300,000 which the CIF Entity fails to fund, the CIF
Entity's residual sharing ratio will be decreased by 0.1% (and Kimco Trust's
residual sharing ratio increased by a corresponding amount), but in no event
shall the CIF Entity's residual sharing ratio be reduced ("crammed down") to a
percentage of less than 25%. If the unpaid capital contributions of the CIF
Entity equals or exceeds $600,000 (i.e. Kimco Trust contributes in excess of
$2,400,000 and the CIF Entity fails to contribute at least $600,000), Kimco
Trust shall have the right to purchase the CIF Entity's interest as described
below.
In the event the CIF Entity, management or the management company
commits certain egregiously harmful acts to the detriment of the partnership and
Loyal Plaza, and without the consent of Kimco Trust, then Kimco Trust shall have
the right to remove the CIF Entity. Those acts, if reasonably determined by
Kimco Trust to have occurred, include certain criminal acts, misapplication of
funds, certain fraud, misrepresentation, gross negligence or willful misconduct,
bankruptcy of the CIF Entity, failure of the CIF Entity to make additional
capital contributions so that its unpaid capital contributions exceed $600,000
and Major Decisions made without Kimco Trust's consent. The CIF Entity has at
least thirty days to cure or commence to cure those actions asserted by Kimco
Trust against the CIF Entity which are in fact capable of being cured.
In the case of such removal event, Kimco Trust shall have the right to
purchase the CIF Entity's interest for an amount equal to the lesser of the fair
market value less imputed closing costs, or the unreturned capital contributions
of the CIF Entity less damages and costs incurred by the partnership. The
existence of removal events and values, if unagreed, shall be determined by
arbitration.
If the CIF Entity is removed as general partner, then the partnership
may also terminate the management agreement with Brentway.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters (continued)
Loyal Plaza Shopping Center, Williamsport, PA (continued)
Either party shall have the right after June 30, 2007 to initiate a
procedure for offering Loyal Plaza for sale for amounts in excess of any debt
secured by Loyal Plaza plus unreturned capital contributions, or to initiate a
"buy-sell" option.
The largest tenant at Loyal Plaza is K-Mart, with a store of
approximately 103,000 sq. ft. Its annual base rent is approximately $280,000,
and its contribution to common area maintenance charges, real estate taxes and
insurance costs is approximately $75,000, which, in turn, may be offset against
its percentage rent payments. K-Mart has filed for protection under the
bankruptcy laws and, while having disaffirmed a large number of leases and
closed a substantial number of stores throughout the country, K-Mart has
continued to operate the store at Loyal Plaza and has not disaffirmed this
lease. The K-Mart store at Loyal Plaza has been in existence for approximately
26 years. In the event K-Mart should close this store, management believes that
it will be able to improve substantially on the rental income for such premises.
However, the cost of redeveloping the premises for other tenants, which may
include demolition and substantial new building, plus lost rents pending such
re-leasing and payment by one or more new tenants of sufficient rents, plus
leasing commissions, may require substantial additional funds in excess of funds
available to Loyal Plaza Associates or the Company.
Family Toy Warehouse, a junior anchor tenant at Loyal Plaza, had
occupied a 20,000 sq. ft. store premises until May 2002, at which time it
vacated the premises. Its rent for the premises has been approximately $6.75 per
sq. ft. ($135,000 per annum, increasing to $140,000 as of 10/1/02); its
contribution to common area maintenance, real estate taxes and insurance,
expenses was approximately $37,000 per year. It has filed a petition in
bankruptcy, and petitioned the court for disaffirmance of its lease at Loyal
Plaza. That petition was granted and so ordered effective June 25, 2002.
Management estimates that the cost of re-finishing the Family Toy Warehouse into
a standard fit-out for a new tenant will be approximately $300,000. The Loyal
Plaza Associates partnership agreement provides that Kimco Trust will fund an
additional $300,000 for re-tenanting of the Family Toy Warehouse space. Any
funds expended for that purpose will be treated as additional contributions by
Kimco Trust entitled to the same rates of preferred returns and "look-back"
internal rates of return as and when funded as the original $4,000,000 funded at
the closing.
With the exception of the Family Toy Warehouse status as described
above, the only existing vacancies in the shopping center consist of two 2,000
sq. ft. store premises. (Management believes it will be able to lease the 4,000
sq. ft. premises promptly and has already submitted proposals with respect
thereto). Accordingly, Loyal Plaza, taking into account the Family Toy Warehouse
vacant space, is approximately 92% leased.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters (continued)
Loyal Plaza Shopping Center, Williamsport, PA (continued)
There are certain environmental contamination matters which affect the
shopping center. Those matters have been extensively reviewed by EMG of
Baltimore, Maryland for Lehman Brothers, as lenders on Loyal Plaza and in a
Phase I report dated January 31, 2002, prepared by Brinkerhoff Environmental
Services, Inc., retained by the Company. Additional reports have been prepared
for the sellers by Civil and Environmental Consultants, Inc. of Pittsburgh,
Pennsylvania. The two principal matters here involved are (i) certain
petroleum-impacted soil at the newly-built, free-standing Eckerd drug store
building on an outparcel of the property; and (ii) a concentration of dry
cleaning solvents, tetrachloroethene (PCE) and trichloroethene (TCE), at levels
in excess of amounts permitted by the Pennsylvania Department of Environmental
Protection (PADEP).
The Company has been advised by its environmental consultants that the
Eckerd site remediation should be essentially completed with no further problems
and that no remediation should be required with respect thereto. The sellers
have proposed a program to institute certain engineering and property controls
at the site, using the Eckerd building and parking lot as a "cap" and creating a
deed restriction to prohibit consumption of groundwater on Loyal Plaza . There
will also be additional investigations through air quality checks, monitoring
wells, collection of additional hydro geologic data, etc. An "attainment"
monitoring program will be instituted to demonstrate the effectiveness of the
"cap". The time periods contemplated for the Eckerd site remediation, as
proposed to PADEP could take until March 2003 in their normal course. The
Company has been advised by its consultants that they would expect a "No Further
Action" letter to be issued by PADEP in due course.
With respect to the chlorinated solvents, PCE and TCE concentrations
above the PADEP Soil Cleanup Criteria were found in soil sampling results at or
near the former coin laundry and dry cleaning establishment then-operated by
Norge Village, Inc. at the premises presently leased to Advanced Auto Parts. In
addition to the soil contamination, groundwater sampling has indicated that PCE,
TCE and dichloroethene (DCE) are in fact present at levels above the PADEP's
Groundwater Quality Standard. The dry cleaning solvent contamination in the
groundwater appears to have migrated in a southerly direction with the
groundwater flow to East Third Street and perhaps offsite beyond East Third
Street. The Company has been advised that it does not appear that there is any
groundwater use as a potable water source downgradient of the site. The land
development downgradient of the site is predominantly commercial and the area is
serviced by public-supplied water. Based on sampling data provided in the draft
work plan submitted to PADEP by the seller's environmental consultants, it
appears that the highest level of chlorinated compound detected at the
downgradient edge of Loyal Plaza was 84 parts per billion (ppb). The Company's
consultants have advised the Company that, based on such concentration, it is
not likely the downgradient water body will be affected by the discharge.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 3. Fiscal Year 2002 Property Acquisitions and Related Matters (continued)
Loyal Plaza Shopping Center, Williamsport, PA (continued)
Pending further completion of vertical delineation at the site, which
will be required before the PADEP will approve any remedial plan for the site
(including a natural attenuation program), the Company's consultants have
advised that given the relatively low concentration of PCE, extensive impact to
the lower portion of the aquifer is not anticipated. The Company has been
advised that based on the data received to date, it would expect a "No Further
Action" letter for the soil relevant to the chlorinated solvent contamination at
the former dry cleaning site, and that if the groundwater contaminant levels
stay consistent with sampling events to date, the amount of $450,000 (see
discussion below), should be sufficient to complete delineation and any
necessary sampling and reporting for a natural attenuation program. They have
further advised that it does not appear that PADEP will require active
groundwater remediation.
Under the loan agreement documents between Glimcher Realty Limited
Partnership and Lehman Brothers, the sellers had maintained an escrow deposit of
$450,000 for clean-up and testing of environmental contamination at the site.
Pursuant to the purchase agreements for the purchase of Loyal Plaza by Loyal
Plaza Associates, seller will remain liable for all costs up to and including a
satisfactory "Release of Liability" letter issued by PADEP with respect to all
such contamination at Loyal Plaza. Pursuant to the purchase agreement, the
sellers have also increased the environmental escrow deposit to $950,000.
Further, in the event that the escrows are insufficient to cover all required
testing and remediation, sellers have undertaken to expend any and all monies
required to complete such testing and remediation including monitoring, etc.
without limits as to time. The Company has obtained opinion of counsel to the
effect that an anticipated "Release of Liability" letter from the PADEP will
operate to relieve the new owner of any further liability for remediation of the
site under Pennsylvania environmental statutes or for any contamination
identified in reports submitted to and approved by PADEP and shall not be
subject to citizens' suits or other contribution actions.
The above descriptive purchase and partnership arrangements and related
matters with respect to the Loyal Plaza acquisition are subject to the actual
terms set forth in the Agreements.
Note 4. Real Estate and Accumulated Depreciation
The Company's properties are leased to various tenants, whereby the
Company incurs normal real estate operating expenses associated with ownership.
The Company incurred capital expenditures of $1,079,941 and $5,656,784 for the
nine months ended September 30, 2002 and 2001, respectively.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 5. Real Estate Held for Sale and Sales of Real Estate
The Company's Southpoint Parkway property in Jacksonville, Florida
("Southpoint"), was sold on May 24, 2002 for $4.7 million. That property was
sold in connection with certain mandatory payments pursuant to a financing from
SWH Funding Corp. ("SWH") (see note 7).
None of the properties of the Company are currently being marketed for
sale, and no sales were effected during the quarter ended September 30, 2002 or
thereafter to the date hereof.
Note 6. Commitments and Contingencies
L.A. Fitness Facility, Fort Washington, PA
The Operating Partnership has entered into agreements to purchase an
approximate 7 acre parcel of land in Fort Washington, Pennsylvania, on which it
has agreed to build a 41,000 sq. ft. health club facility, net-leased pursuant
to an executed lease agreement to L.A. Fitness International, L.L.C. ("L.A.
Fitness"), subject to certain governmental approvals. L.A. Fitness has advised
the Company that it has obtained the required governmental approvals.
The Fort Washington development is expected to be financed with a
third-party construction loan, which, upon completion, will become a permanent
loan of $5 million (the aggregate term of the loan including the construction
period will be five years), third-party participating equity of $1 million, and
approximately $300,000 in equity contributions from the Company out of
currently-available cash. The project has been appraised at $7,300,000 upon
completion and stabilization. The closing is expected to occur by mid-December.
L.A. Fitness will commence rent payment nine months after closing/acquisition of
the land.
Fairview Plaza, New Cumberland, PA; Halifax Plaza, Halifax, PA; Newport Plaza,
Newport, PA
The Company has entered into an agreement dated August 2002 with
affiliates of Caldwell Development Corp to purchase Newport Plaza (Newport, PA),
Fairview Plaza (New Cumberland, PA) and Halifax Plaza (Halifax, PA). Due
diligence has been completed for two of the three properties and deposits of
$200,000 thereon have become non-refundable. The three properties represent
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 6. Commitments and Contingencies (continued)
Fairview Plaza, New Cumberland, PA; Halifax Plaza, Halifax, PA; Newport Plaza,
Newport, PA (continued)
approximately 200,000 sq. ft. of gross leaseable area and each of the properties
is anchored by a Giant supermarket. The aggregate purchase price for the three
properties is approximately $18,040,000, plus closing costs of approximately
$1,000,000. In addition, the Company is expected to exercise an option to
purchase the building owned by Giant Food Stores at the Newport Plaza property
(presently subject to a ground lease) for an additional amount estimated at $1.6
million. Estimated net operating income for the three properties for 2003 is
approximately $1,672,000 before exercise of the option to purchase the Giant
building at Newport Plaza and approximately $1,832,000 after the Giant/Newport
building acquisition.
The Giant supermarkets represent approximately 70% of the gross
leaseable area of the properties. Each of the Giant supermarket leases extends
for at least 15 years. Other tenants include McDonald's, Rite Aid, the
Pennsylvania Liquor Control Board and regional banks.
Closings of the purchase of the three properties are expected to be
completed in early-December.
Camp Hill Mall, Camp Hill, PA
The Company has entered into an agreement dated August 12, 2002, with a
non-refundable deposit of $400,000, for the purchase of the Camp Hill Mall in
Camp Hill, Pennsylvania.
The Camp Hill Mall is a 523,000+/- sq. ft. enclosed shopping mall
located on approximately 44 acres at the intersection of Route 15 and Trindle
Road. Principal tenants include Boscov's, a Giant supermarket, Barnes & Noble
and Zany Brainy. It also has a vacant 89,000 sq. ft. former Montgomery Ward
store. Management contemplates redevelopment of the former Montgomery Ward store
and of the mall property generally. The purchase price is approximately $17.2
million. Closing costs are
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 6. Commitments and Contingencies (continued)
Camp Hill Mall, Camp Hill, PA
estimated at $1 million. The Company is considering several redevelopment
possibilities for this property which may involve expenditures, subject to
execution of leases, of as much as $14 million or more. The seller is an
affiliate of the Connecticut General Life Insurance Company. Closing of the
purchase is expected in mid-November.
The Company has identified various sources of funding these
acquisitions. Those sources may involve substantial risk to the Company in terms
of demands on cash and other assets of the Company, as well as security
interests in the Company's properties, which may expose the Company to severe
risks of default with respect to the financing arrangements for this particular
acquisition and/or those previously concluded.
Note 7. Mortgage Loans, Other Loans Payable, and Line of Credit
Properties owned by the Company are subject to certain mortgages or
other security interests as described below:
o Academy Plaza, Philadelphia, Pennsylvania, has a first mortgage with a
principal balance of approximately $10,591,121 as of September 30, 2002, at
7.275% due March 10, 2013, with a 30-year amortization schedule.
o Port Richmond Village, Philadelphia, Pennsylvania, has a first mortgage with
a principal balance of approximately $11,475,481 as of September 30, 2002,
at 7.174% due April 10, 2007, with a 30-year amortization schedule.
o Washington Center Shoppes, Sewell, New Jersey, has a first mortgage with a
principal balance of approximately $5,917,849 as of September 30, 2002, at
7.53% with an anticipated repayment date of November 11, 2007, with a
30-year amortization schedule with a contractual maturity date of November
11, 2027.
o The approximate principal balance of the SWH financing, as further described
below, at September 30, 2002 was $949,768. Deferred financing costs of
approximately $487,000 were written off as an extraordinary item during the
second quarter of 2002 in connection with a $4.6 million principal payment
of the debt from the Southpoint proceeds.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 7. Mortgage Loans, Other Loans Payable, and Line of Credit (continued)
A wholly-owned subsidiary of SWH and the Operating Partnership have together
formed Cedar Center Holdings L.L.C. 3, which, in turn, is the sole member of
each of the four limited liability companies which own, indirectly through
other limited liability companies, the three shopping center properties and
development parcel acquired by the Operating Partnership in October 2001.
SWH has no interest in profits or assets of Cedar Center Holdings L.L.C. 3;
however, SWH has the right to acquire operating control of the
above-mentioned three shopping center properties in the event of a default
by the Operating Partnership or its affiliates of certain terms of the SWH
financing.
As additional security for the SWH financing, the Operating Partnership has
pledged to SWH, its rights to distributions from the entity which controls
the limited liability companies which own each of the three shopping center
properties. Under the pledge, SWH has no rights to such distributions unless
and until an event of default occurs.
The SWH financing arrangements involve a term of three years, maturing
November 1, 2004, with a right to extend for two additional eighteen month
periods upon payment of certain fees, and subject to certain additional
minimum monthly and annual or "back-end" payments, and to certain additional
participations in gain in value payable at the earliest of the repayment
date, maturity or the date of sale of the three shopping center properties
described above.
Payments to SWH pursuant to the financing arrangements shall be at a rate of
12.5% per annum on the outstanding balance. In addition, an "equity fee" in
an amount equal to the greater of $350,000 or 10% of the gain in value of
the properties as determined by appraisal is payable at maturity. Further,
SWH shall be entitled to "exit fees" of $120,000 if the entire principal is
paid prior to October 2002, thereafter additional amounts accrue at 1/3% per
month during the period October 2002 - November 2004; 1/2% per month during
the extension period from November 2004 - November 2005; and 2/3% per month
during the extension periods from November 2005 - November 2007. A loan fee
of $225,000 was paid to SWH at closing.
Commencing as of December 1, 2001, amortization payments of $10,000 are
required during each of the first three months, $20,000 for each of the 4th
through 6th months, $35,000 for each of the 7th through the 12th months,
$45,833.33 for the 13th through the 24th months, and $41,666.67 for the 25th
through the 36th months.
The obligations of the Operating Partnership under the SWH financing
agreement are guaranteed by the Company.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 7. Mortgage Loans, Other Loans Payable, and Line of Credit (continued)
The Company expects to repay to SWH the outstanding principal balance, the
"equity fee" and "exit fee" during the month of November 2002 in connection
with a refinancing by SWH or other third-party sources, of the three
properties acquired in October 2001.
o The Point Associates, in which the Company has a 50% general partnership
interest, completed a refinancing of the property on May 29, 2002, with
Protective Life Insurance Company of Birmingham, Alabama, at a ceiling loan
amount of $21 million, of which a floor loan amount of $20 million was drawn
down on May 29, 2002. The additional $1 million ceiling amount can be earned
by the borrower with a lease-up, within two years of the date of closing, of
approximately 22,500 sq. ft. (consisting primarily of the former Eckerd drug
store premises) at $11.50 per sq. ft. for a 10-year period to an acceptable
creditworthy tenant. In the event the lease-up conditions are not satisfied
and the $1 million ceiling amount has not been funded within such two year
period, borrower's rights to any of such ceiling amounts will be terminated.
The interest rate on the initial $20 million funding is 7.625%. The maturity
date of the loan is 25 years. The call date (at which time the lender can
call for replacement of the loan and the borrower shall have the continuing
option of repaying the loan without penalty) is 10 years. The amortization
is on a 25-year schedule.
o Red Lion Associates, in which the Company has a 20% general partnership
interest, has a first mortgage with a principal balance of approximately
$16,745,000 as of September 30, 2002, at 8.6% due February 2010, with a
30-year amortization schedule.
o The Company purchased a 20% interest in Red Lion Associates for $1,182,857,
of which $295,714 was paid at closing on May 31, 2002, from available cash,
with the balance evidenced by a promissory note in the amount of $887,143,
payable in three equal annual installments commencing one year after closing
and bearing interest at 7.5% due annually with each installment payment.
o The Operating Partnership obtained a line of credit, effective March 4,
2002, in the amount of $1,000,000 from North Fork Bank, Melville, New York.
The term of the line of credit is for one year with a maturity date of March
4, 2003. The line, at the sole discretion of the bank, may be used for (i)
real estate investment, (ii) real estate management, (iii) working capital
and (iv) other purposes as applicable and as approved by the bank. The
interest rate on any drawdown will be the greater of 6% or the bank's prime
rate plus 1%. Interest on the outstanding loan balance is to be paid to the
bank monthly in arrears. The line of credit's availability is subject to
certain conditions as defined. The outstanding loan balance at September 30,
2002 was $500,000. The proceeds of the drawdowns were used primarily to
acquire the 20% general partnership interest in Red Lion
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 7. Mortgage Loans, Other Loans Payable, and Line of Credit (continued)
Associates and for deposits on contracts to acquire additional properties
and on third party fees (lenders, appraisers, counsel) in connection
therewith.
o Loyal Plaza Associates, in which the Company has a 25% general partnership
interest, ranging from an initial 25% interest to a 50% residual interest,
has a first mortgage with a principal balance of approximately $13,850,000
at September 30, 2002, at 7.15% due June 2011, with a 30-year amortization
schedule. Annual debt service is approximately $1,140,000.
The combined aggregate future principal payments of mortgage loans and other
loans at September 30, 2002, are as follows:
Year Mortgage loans payable Other loans payable
---------- ---------------------- -------------------
2002 $ 361,958 $ -
2003 1,745,274 795,714
2004 997,652 295,714
2005 1,085,190 295,714
2006 1,170,809 -
Thereafter 74,098,229 -
------------ -----------
$ 79,459,112 $ 1,387,142
============ ===========
Note 8. Related Party Transactions
Ownership
In June 1998, CBC, following a tender offer completed in April 1998 for
the purchase of the Company's shares, became the Company's largest shareholder.
CBC is a New York general Partnership. CBC is owned 55% by Duncomb
Corp., 40% by Lindsay Management Corp. and 5% by Hicks Corp. Mr. Ullman,
President and Chairman of the Board of Directors of the Company, is an executive
officer and a Director of each of those corporations. Ms. Walker, Vice President
and Director of the Company, is an executive officer of each of the corporations
which own CBC. Neither Mr. Ullman nor Ms. Walker have any ownership interest in
CBC or the corporations that own CBC.
CBC is an affiliate of the limited partner in The Point Associates, in
which the Operating Partnership acquired a 50% general partnership interest in
July 2000.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 8. Related Party Transactions (continued)
Ownership (continued)
CBC is also an affiliate of the 11% limited partner in Red Lion
Associates, in which the Operating Partnership acquired a 20% general
partnership interest on May 31, 2002 (see Note 2).
Advisory Services
The Company does not have any employees and has contracted with CBRA to
provide administrative, advisory, acquisition and divestiture services to the
Company pursuant to the Advisory Agreement entered into in April 1998, and
amended as of August 21, 2000 and January 1, 2002. CBRA is wholly-owned by Leo
S. Ullman. Mr. Ullman is President and a director of, and Brenda J. Walker is
Vice President of, CBRA. The term of the amended Advisory Agreement commenced as
of August 21, 2000, and extends for a period of five years. The Advisory
Agreement is automatically renewed annually thereafter for additional one-year
periods, subject to the right of a majority of independent directors to cancel
the Advisory Agreement upon sixty days' written notice. While Mr. Ullman and Ms.
Walker are not employed by the Company, they do receive remuneration from CBRA,
Brentway, and SKR each of which receives fees from the Company.
Under the Advisory Agreement, CBRA is obligated, among other things, to
conduct the day-to-day operations of the Company in connection with its business
and investment activities, and to provide property acquisition and disposition
services, as well as investment and financial advice, to the Company.
The Advisory Agreement may be terminated (i) for cause upon not less
than sixty days' prior written notice and (ii) by vote of at least 75% of the
independent directors at the end of the third or fourth year of such five year
term in the event gross assets fail to increase by 15% per annum
Pursuant to the Advisory Agreement, effective as of January 1, 2002,
CBRA will earn a disposition or acquisition fee, as applicable, equal to 1% of
the sale/purchase price; no other fees will be payable in connection with such
transactions.
In connection with the purchase of Loyal Plaza, CBRA is entitled to
receive an acquisition fee payable by the Operating Partnership equal to 1% of
the purchase price or $183,000. This fee is included in accrued expenses at
September 30, 2002.
The following is a schedule of acquisition and disposition fees payable
by the Company to CBRA reflecting an amendment dated December 18, 2001 to the
Advisory Agreement and the agreed reduced acquisition and disposition fees
related to the shopping centers set forth in that Amendment:
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 8. Related Party Transactions (continued)
Property Deferred Accrued Paid Total
- ----------------------------------------------------------------------------------------------------------------
2002 Transactions (through 9/30/02)
- -----------------------------------
Southpoint Parkway $ - $ - $ 46,750 $ 46,750
Loyal Plaza Shopping Center (3) - 183,000 - 183,000
2001 Transactions
- -----------------
Broadbent Business Center 106,000 - 53,000 159,000
Corporate Center 37,200 - 18,600 55,800
The three supermarket-anchored
shopping centers (2) - - 347,500 347,500
2000 Transaction
- ----------------
Germantown 52,500 - 22,500 75,000
-----------------------------------------------------------------
Total fees $ 195,700(1) $ 183,000 $ 488,350 $ 867,050
=================================================================
(1) Amount owed if the Administrative and Advisory Agreement with CBRA is not
continued beyond December 31, 2004.
(2) The three supermarket-anchored shopping centers consist of Academy Plaza,
Port Richmond Village and Washington Center (including development parcel
adjacent to Washington Center).
(3) An acquisition fee of $183,000 has been accrued at September 30, 2002,
relating to the purchase of Loyal Plaza.
Certain deferred disposition and acquisition fees incurred prior to the
December 2001 agreement modification will be reduced by 50% if CBRA remains
investment advisor to the Company for any period extending beyond December 31,
2004, but ending on or prior to December 31, 2005. In the event of termination
or expiration of the Advisory Agreement after December 31, 2005, such fees
payable to Advisor shall be reduced by ten percentage points for each subsequent
calendar year the Advisory Agreement remains in effect, until reduced to zero in
any event after December 31, 2009. Any deferred disposition and acquisition fees
payable to CBRA will also be waived as of the effective date of termination of
services by CBRA if the services of CBRA are terminated voluntarily by CBRA.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 8. Related Party Transactions (continued)
Advisory Services (continued)
Based on the above, it is probable that a liability has been incurred.
However, the liability at this point can only be estimated to be in the range of
zero and the full fee. There is no best estimate within the range. This reflects
the fact that depending on how long CBRA's services are being used, the ultimate
fee amount payable may well be zero. Accordingly, none of the deferred fees have
been reflected in the accompanying financial statements.
In addition to acquisition and disposition fees payable to CBRA, CBRA
also receives a monthly administrative and advisory fee equal to 1/12 of 3/4 of
1% of the estimated current value of real estate assets of the Company, plus
1/12 of 1/4 of 1% of the estimated current value of all other assets of the
Company.
Property Management Services
Brentway provides property management, leasing, construction management
and loan placement services to the Company's real properties pursuant to the
Management Agreement between Brentway and the Company and through individual
management agreements between Brentway and each of the Company's respective
properties on arm's-length terms. Brentway is owned by Mr. Ullman and Ms.
Walker, who are also Chairman and President of Brentway, respectively. Mr.
Ullman is President and Chairman of the Company and Ms. Walker is Vice President
and Director of the Company. The term of the Management Agreement is for one
year and is automatically renewed annually for additional one-year periods
subject to the right of either party to cancel the Management Agreement upon
sixty days' written notice. Under the Management Agreement, Brentway is
obligated to provide property management services, which include leasing and
collection of rent, maintenance of books and records, establishment of bank
accounts and payment of expenses, maintenance and operation of property,
reporting and accounting for the Company regarding property operations, and
maintenance of insurance.
As discussed above, Brentway has entered into individual management
agreements with each entity holding title to the properties owned by the
Company. Such individual management agreements are required by the properties'
first mortgage lenders and in some instances by the individual partnership
agreements. The following table outlines the fees provided in the Management
Agreement and the fees provided in each property's Management Agreement
(Greentree Road is vacant land and as such there is no individual management
agreement):
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 8. Related Party Transactions (continued)
Property Management Services (continued)
Subject Management Leasing Construction Loan Placement
Fee Fee (3) Management Fee Fee
- -------------------------------------------------------------------------------------------------------
Management Agreement of April 1998 5% 6% N/A N/A
Academy Plaza (4) 4% 4.5% 5% 1%
Port Richmond Village (4) 4% 4.5% 5% 1%
Washington Center (4) 4% 4.5% 5% 1%
The Point Shopping Center (4) 3% 4.5% 5% 1% (1)
Red Lion Shopping Center (2) (4) 4% 4.5% 5% 1% (1)
Loyal Plaza Shopping Center (5) 3% 4% 5% N/A
- -----------------------------------------------------------------------------------------------------
(1) Up to a maximum of $100,000.
(2) As of May 31, 2002, 20% of all fees paid to Brentway are in turn paid to
ARC-Cedar Manager LLC pursuant to terms of the purchase agreement regarding
the acquisition by ARC-Cedar of a 69% limited partnership interest in Red
Lion Associates.
(3) Only if no outside broker.
(4) In the event an outside broker is involved, then the fee to Brentway is
generally 2.25%. In the event Brentway can achieve savings vis-a-vis the
outside broker's full commission, then Brentway shall be entitled to
one-half of the savings on the outside broker's otherwise full commission.
(5) 4% for leases of less than 5,000 sq. ft.; 3% for leases of more than 5,000
sq. ft.
Cedar Income Fund, Ltd.
Notes to Consolidated Financial Statements
September 30, 2002
(unaudited)
Note 8. Related Party Transactions (continued)
Property Management Services (continued)
Schedule of Administrative and Advisory, Property Management, Leasing and Other
Fees Paid or Accrued to Related Parties:
January 1 - January 1 -
September 30, 2002 September 30, 2001
---------------------------------------------
Administrative and Advisory Fees
Cedar Bay Realty Advisors, Inc. $ 270,000 $ 73,404
-------------------------------------
Property Management Fees
Brentway $ 421,261 $ 69,328
-------------------------------------
Construction Management Fees
Brentway $ 20,000 $ -
-------------------------------------
Leasing Fees (1)
Brentway $ 276,349 $ 100,000
-------------------------------------
Legal Fees
Stuart H. Widowski / SKR Management Corp. (2) $ 127,981 $ 72,308
-------------------------------------
Loan Placement Fees
Brentway (3) $ 100,000 $ -
-------------------------------------
(1) The Company also paid leasing fees to third parties during the periods ended
September 30, 2002 and 2001.
(2) Fees of $127,981 were paid to Stuart H. Widowski, Esq., SKR's in-house
counsel and Secretary of the Company, through SKR Management Corp., an
affiliate of CBRA, Brentway, CBC and Leo S. Ullman, for legal services
provided.
(3) Paid in connection with the refinancing of The Point Loan on May 29, 2002
(see Note 7).
See prior discussion of acquisition and disposition fees.
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
historical financial statements of the Company and related notes.
The Company considers certain statements set forth herein to be
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, with respect to the Company's expectations for future periods.
Certain forward-looking statements, including, without limitation, statements
related to the timing and success of acquisitions and the completion of
development or redevelopment of properties, the financing of the Company's
operations, the ability to lease vacant space and the ability to renew or relet
space under expiring leases, involve certain risks and uncertainties. Although
the Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the actual results may differ
materially from those set forth in the forward-looking statements and the
Company can give no assurance that its expectations will be achieved. Certain
factors that might cause the results of the Company to differ materially from
those indicated by such forward looking statements include, among other factors,
general economic conditions, general real estate industry risks, tenant default
and bankruptcies, loss of major tenants, the impact of competition and
acquisition, redevelopment and development risks including delays in completion
and cost overruns, the ability to finance business opportunities, increase in
interest rates and local real estate markets. Consequently, such forward-looking
statements should be regarded solely as reflections of the Company's current
operating and development plans and estimates. These plans and estimates are
subject to revisions from time to time as additional information becomes
available, and actual results may differ from those indicated in the referenced
statement.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the Company's consolidated financial statements and related notes. In
preparing these financial statements, management has utilized information
available including its past history, industry standards and the current
economic environment among other factors in forming its estimates and judgments
of certain amounts included in the consolidated financial statements, giving due
consideration to materiality. It is possible that the ultimate outcome as
anticipated by management in formulating its estimates inherent in these
financial statements might not materialize. However, application of the critical
accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Company's results of operations
to those of similar businesses.
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Consolidation Policy
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating Partnership as
of September 30, 2002 and December 31, 2001, the results of their operations for
the three months and nine months ended September 30, 2002, and their cash flows
for the nine months ended September 30, 2002 and 2001, respectively. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The Company owns an approximate 29% partnership interest as sole
general partner in the Operating Partnership, which provides the Company with
control over all significant activities of the Operating Partnership, and,
accordingly, the Operating Partnership in turn is consolidated with the Company
in the accompanying financial statements as of September 30, 2002.
The Operating Partnership has a 50% general partnership interest in The
Point Associates, a 20% general partnership interest in Red Lion Associates and
a 25% general partnership interest in Loyal Plaza Associates; all such entities
are consolidated in the accompanying financial statements as a result of similar
control attributes as exist with respect to the Operating Partnership.
The limited partner's interest as of September 30, 2002 (currently
owned entirely by CBC) represents approximately a 71% limited partnership
interest in the equity of the Operating Partnership. The minority interests
represent the limited partner's 50% interest in The Point Associates, the 69%
and 11% limited partners' interests in Red Lion Associates and the 75% limited
partner's interest in Loyal Plaza Associates. The limited partner in The Point
Associates is an affiliate of CBC. The 11% limited partner in Red Lion
Associates is also an affiliate of CBC, and the 69% limited partner is an
affiliate of ARC Properties, Inc.; the 75% limited partner in Loyal Plaza
Associates is an affiliate of Kimco Realty Corp. (see Note 3).
Revenue Recognition and Accounts Receivable
Rental revenue is recognized on a straight-line basis, which averages
minimum rents over the terms of the leases. The excess of rents recognized over
amounts contractually due are included in deferred rents receivable on the
Company's balance sheets. The leases also typically provide for tenant
reimbursements of common area maintenance and other operating expenses and real
estate taxes. Ancillary and other property related income is recognized in the
period earned.
The Company makes estimates of the collectibility of its accounts
receivable related to base rent, tenant escalations and reimbursements and other
revenue or income. The Company specifically analyzes tenant receivables and
analyzes historical bad debts, customer creditworthiness, current economic
trends and changes in customer payment terms when evaluating the adequacy of its
allowance for doubtful accounts. In addition, when tenants are in bankruptcy,
the Company makes
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Revenue Recognition and Accounts Receivable (continued)
estimates of the expected recovery of pre-petition administrative and damage
claims. In some cases, the ultimate resolution of those claims may extend beyond
a year. Such estimates may have a direct impact on the Company's net income, as
a greater bad debt reserve will result in less net income.
Sales of real estate are recorded when title is conveyed to the buyer,
subject to the buyer's financial commitment being sufficient to provide economic
substance to the sale.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for maintenance and repairs
are charged to operations as incurred. Renovations and/or replacements, which
improve or extend the life of the asset are capitalized and depreciated over
their estimated useful lives. Construction period interest and real estate taxes
are capitalized during the relevant construction period.
Depreciation is computed utilizing the straight-line method over the
estimated useful life of ten to forty years for buildings and improvements, and
five to ten years for furniture, fixtures and equipment. Tenant improvements are
amortized on a straight-line basis over the term of the related leases.
The Company is required to make subjective assessments as to the useful
lives of its properties for purpose of determining the amounts of depreciation
to be reflected on an annual basis with respect to those properties. These
assessments have a direct impact on the Company's net income. Should the Company
lengthen the expected useful life of a particular asset, it would be depreciated
over more years, and result in less depreciation expense and higher annual net
income.
Assessments by the Company of certain other lease-related costs as well
as any recorded straight-line rent receivable must be made when the Company has
a reason to believe that the tenant will not be able to perform under the terms
of the lease as originally expected.
Impairment of Long-Lived Assets
On a periodic basis, management assesses whether there are any
indicators that the value of the real estate properties may be impaired. A
property's value is impaired only if management's estimate of the aggregate
future cash flows (undiscounted and without interest charges) to be generated by
the property are less than the carrying value of the property. Such cash flows
consider factors such as expected future operating income, trends and prospects,
as well as the effects of demand, competition
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Impairment of Long-Lived Assets (continued)
and other factors. To the extent impairment has occurred, the loss will be
measured as the excess of the carrying amount of the property over the fair
value of the property.
The Company is required to make subjective assessments as to whether
there are impairments in the value of its real estate properties and other
investments. Any assessment resulting in a determination of impairment will have
a direct negative impact on the Company's net income and financial position.
Overview and Background
The Company is an advised REIT specializing in the acquisition,
leasing, financing, management and development of retail properties. The
Company's growth strategy is focused primarily on the real estate markets in
Pennsylvania and southern New Jersey.
The Company owns all of its interests in real property, directly or
indirectly, through the Operating Partnership. As of September 30, 2002, the
Company owned and operated six retail properties (five located in Pennsylvania
and one, with an adjacent separate development parcel, in southern New Jersey).
As of September 30, 2002, the six retail properties had combined lease occupancy
of approximately 93%.
The Company, as earlier indicated, is in contract (and has made certain
deposits, which, after completion of due diligence reviews by management, have
become non-refundable), to acquire five additional properties in Pennsylvania.
The aggregate size of such properties to be acquired is approximately 765,000
sq. ft. at an aggregate purchase price, including closing costs, of
approximately $45 million. The Company is expected to retain controlling general
partnership interests in each of such properties with an aggregate investment of
at least $5.3 million, to be funded primarily from proceeds of financings
secured by interest in the three supermarket-anchored properties acquired in
2001 and in the properties to be acquired.
Management expects the Company to continue to seek acquisition
opportunities primarily with respect to supermarket-anchored shopping center
properties in the Pennsylvania and southern New Jersey markets. It is expected
that those acquisition opportunities will be premised primarily on shared-equity
participations and, if possible, certain additional equity investments in the
Company by third parties.
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations
Property operating revenues for the three months and nine months ended
September 30, 2002 and 2001 were $3,614,325 and $8,780,382 compared to $860,712
and $2,753,613 for the corresponding periods in 2001, an increase of $2,753,613
and $5,970,659, respectively. This increase is attributable to the acquisition
of the three supermarket-anchored shopping center properties in October 2001,
the increase in rental revenue at The Point as a result of the opening of the
Giant supermarket in July 2001, and the additional revenue generated by the
newly-acquired equity ownership participations in Red Lion Associates and Loyal
Plaza Associates. This increase is offset, in part, by the sales of Corporate
Center and Broadbent during the second quarter of 2001 and the sale of
Southpoint during the second quarter of 2002.
Property operating expenses (excluding depreciation and amortization)
and real estate taxes ("Property Expenses") were $1,236,017 and $3,061,077 for
the three and nine months ended September 30, 2002 compared to $274,024 and
$965,865 for the corresponding periods in 2001, an increase of $961,993 and
$2,095,212, respectively. This increase is similarly attributable to the
acquisition of the three supermarket-anchored shopping centers, the full year's
operation of The Point, and the additional expenses applicable to Red Lion
Associates and Loyal Plaza Associates, and is offset, in part, by the sales of
Corporate Center, Broadbent and Southpoint.
Interest expense for the three months and nine months ended September
30, 2002 was $1,592,835 and $3,561,580 compared to $293,425 and $960,081 for the
corresponding periods in 2001, an increase of $1,299,410 and $2,601,499,
respectively. This increase is attributable to the October 2001 acquisition of
the aforementioned shopping center properties with the assumption of $28.3
million of mortgage debt, $6 million SWH financing and the assumption of the
$16,771,000 mortgage on the Red Lion property and the assumption of the
$13,877,000 mortgage on Loyal Plaza. As a result of the increase in estimated
value of the Company's assets, administrative fees increased by approximately
$49,000 and $138,000 for the three months and nine months ended September 30,
2002, over the corresponding periods in 2001.
Net losses were ($59,569) and ($319,951) for the three months and nine
months ended September 30, 2002, compared to net (loss) income of ($26,800) and
$298,715 for the corresponding periods in 2001.
Summary of Cash Flows
The Company's rental revenues for the three and nine months ended
September 30, 2002 were $3,614,000 and $8,768,875 compared to $822,332 and
$2,582,793 for the corresponding periods in 2001. Vacancy within the 1,240,673
sq. ft. (excluding the 47,000 sq. ft. land parcel) of the Company's properties
for the period ended September 30, 2002 was 93,737 sq. ft., or 7.6%. The vacancy
is
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Summary of Cash Flows (continued)
projected to be 65,977 sq. ft. or 5.3% by the end of 2002. Such projection
reflects management's expectation that certain leasing discussions will
ultimately be consummated lease deals.
Net cash provided by operating activities totaled $1,163,320 for the
nine months ended September 30, 2002, and $684,638 for the corresponding period
in 2001. The increase in 2002 compared to 2001 is due to the Company's increase
in net income before depreciation and amortization as a result of the purchase
in October 2001 of the three supermarket-anchored shopping centers, the purchase
of the 20% interest in Red Lion in June 2002, and the purchase of the 25%
initial interest in Loyal Plaza in July 2002.
Net cash (used in) provided by investing activities totaled
($5,896,155) for the nine months ended September 30, 2002, and $2,681,811 for
the corresponding period in 2001.
Net cash provided by (used in) financing activities totaled $3,494,461
for the nine months ended September 30, 2002, and ($1,676,572) for the
corresponding period in 2001.
The net differential in cash and cash equivalents for the nine months
ended September 30, 2002 and 2001 were ($1,238,374) and $1,689,877,
respectively. This reduction in the change in cash and cash equivalents is
attributable to a decrease in cash provided by investing activities during 2002,
resulting from the purchase of the 20% interest in Red Lion and the 25% initial
interest in Loyal Plaza. This decrease in cash from investing activities is
offset, in part, by the cash proceeds from the sale of Southpoint during the
second quarter of 2002.
The cash and cash equivalents of $1,633,915 include $841,769 in The
Point partnership, in which the Company has a 50% interest, $211,266 in Red Lion
partnership, in which the Company has a 20% interest, and $256,400 in the Loyal
Plaza partnership, in which the Company has a 25% interest. The cash held by the
individual partnerships is restricted for use for operations of those
partnerships and for distribution to all partners of the respective partnership,
including the Operating Partnership. Such cash totaled $1,309,435 at September
30, 2002.
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources
Real estate before deduction for accumulated depreciation amounted to
$41.07 per share/OP Unit based on shares/OP Units outstanding as of September
30, 2002. Real estate at cost, less accumulated deductions for depreciation,
amounted to $40.31 per share/OP Unit on shares/OP Units outstanding as of
September 30, 2002.
Historically, rental revenue has been the principal source of funds to
pay operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Company.
The Company's indebtedness at September 30, 2002 was approximately $80
million. The Company funded the two mandatory payments due with respect to the
SWH financing ($4,370,000 and $300,000 due by November 2002 and May 2003,
respectively) from a combination of (i) net proceeds of the sale of the
Southpoint property, and (ii) a portion of the net proceeds of the refinancing
of The Point.
The Operating Partnership obtained a line of credit, effective March 4,
2002, in the amount of $1,000,000 from North Fork Bank, Melville, New York. The
term of the loan is for one (1) year with a maturity date of March 4, 2003. The
loan, at the sole discretion of the bank, may be used for (i) real estate
investment, (ii) real estate management, (iii) working capital and (iv) other
purposes as applicable and as approved by the bank. The interest rate is the
greater of 6% or the bank's prime rate plus 1%. Interest on the outstanding loan
balance is to be paid to the bank monthly in arrears. The line of credit's
availability is subject to certain conditions, including, but not limited to,
quarterly submission of 10-Q filings, annual submission of 10-K filings and a
30-day annual "clean up" (i.e. the outstanding balance of drawdowns under the
line of credit must be reduced to zero for 30 days). The line of credit does not
require any fees to be paid by the Company or the Operating Partnership. The
Company views the availability of this line of credit to be sound business
practice and an augment to its liquidity. Of the line of credit, $500,000 has
been drawn down, primarily to acquire the 20%
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
general partnership interest in Red Lion Associates and for deposits on
contracts to acquire additional properties, and on third party fees (lenders,
appraisers, counsel) in connection therewith. The Company expects to repay such
balance out of available cash and proceeds of the refinancing of the three
properties acquired in October 2001.
As discussed in Note 3, the Company on July 2, 2002, acquired a
controlling general partnership interest in Loyal Plaza from an affiliate of
Glimcher Properties Limited Partnership. That property includes a K-Mart store
of approximately 103,000 sq. ft., paying approximately $280,000 per annum in
base rent and paying contributions to common area maintenance charges, real
estate taxes and insurance costs of approximately $75,000. In the event K-Mart
should close this store, management believes that it will be able to improve
substantially on the rental income for such premises. However, the cost of
redeveloping the premises may require substantial additional funds in excess of
funds available to Loyal Plaza Associates or the Company. This, in turn, may
jeopardize the Company's abilities to meet its payment obligations to the Kimco
Trust partner in Loyal Plaza Associates and potentially to the first mortgage
lender on the property.
Also as discussed in Note 3, there are certain environmental
contamination matters which affect the Loyal Plaza property. With respect to
certain hydrocarbon contamination, the Company has been advised by its
consultants that they expect a "No Further Action" letter to be issued by the
Pennsylvania Department of Environmental Protection in due course.
With respect to certain dry cleaning solvent contamination, while the
contamination has reached the ground water and appears to have migrated off
site, the Company has been advised that there does not appear to be any
groundwater use as a potable water source and that it is not likely that a
downgradient water body would be affected by the contamination. The Company has
also been further advised that PADEP will require active ground water
remediation. Pursuant to purchase agreements, the seller will remain liable for
all costs up to and including a satisfactory "release of liability" letter by
PADEP. Also pursuant to the purchase agreement, the sellers have increased the
environmental escrow deposit to $950,000. Moreover, sellers have undertaken to
expend any and all monies required to complete all testing and remediation
without limits as to time.
As previously announced and discussed in Note 6, the Company is under
contract to purchase the approximate 522,000 sq. ft. Camp Hill Mall in Camp
Hill, Pennsylvania, three Giant supermarket-anchored shopping centers in and
around the Harrisburg, Pennsylvania area, as well as a development site in Fort
Washington, Pennsylvania, on which the Company has agreed to build a 41,000 sq.
ft. health club facility. The Company has identified various sources of funding
these acquisitions, including, without limitation, new first mortgage financing,
preferred equity participation arrangements, renegotiation and recapitalization
of the SWH financing and the sale of a property or of a partial interest in one
or more properties. Certain of those sources may involve substantial risk to the
Company in terms of demands on cash and other assets of the Company, as well as
security interests in the Company's properties, which may expose the Company to
severe risks of default with respect to the financing arrangements for these
particular acquisitions and/or those previously concluded.
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
The Company believes that its liquidity and expected potential sources
of future cash, including (i) the $1.6 million of cash and cash equivalents
($1,309,435 of which is restricted for specific use by partnerships), (ii)
drawdowns on the remaining $500,000 available line of credit, (iii) net proceeds
of sales of partial interests in one or more of the Company's properties, (iv)
proceeds of refinancing the Company's equity interests in the three
supermarket-anchored properties acquired in October 2001, and (v) potential
private placement of Common Stock, Operating Partnership Units and (convertible)
preferred stock (subject to shareholder approval where applicable), will be
sufficient to meet current and near-term obligations, which include capital
expenditures, property acquisition commitments, and debt service payments. There
can be no assurances that the Company will be able to sell (interests in) any of
its properties or to place any Common Stock, Operating Partnership Units or
(convertible) preferred stock on terms acceptable to the Company. If the Company
is in fact unable to generate sufficient liquidity or to arrange additional
sources of future cash sufficient to meet its current and near-term obligations,
the Company will be exposed to severe risks of default with respect to the
financing arrangements for its existing properties and for the properties to be
acquired and consequent exposure of its assets to foreclosure or other remedies
available to the Company's lenders and equity providers.
The Company expects that capital markets in the United States will
continue to be active and will provide funds for the refinancing of its
properties' first mortgages as such mortgages mature. However, there can be no
assurances that the Company will be able in fact to refinance any of its
mortgages. All such mortgages are amortizing loans. The balances due at
maturity, and the annual amortization payments due are summarized below.
The combined aggregate future principal payments of mortgage loans and other
loans at September 30, 2002, are as follows:
Year Mortgage loans payable Other loans payable
---------- ---------------------- -------------------
2002 $ 361,958 $ -
2003 1,745,274 795,714
2004 997,652 295,714
2005 1,085,190 295,714
2006 1,170,809 -
Thereafter 74,098,229 -
------------ -----------
$ 79,459,112 $ 1,387,142
============ ===========
Cedar Income Fund, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
The real estate industry has been experiencing a significant change in
the property insurance markets that has resulted in significantly higher
premiums. The Company renewed its insurance coverages effective July 1, 2002.
Generally, such premiums, exclusive of terrorism coverage, increased 35% over
the prior one year period. The Company has opted to purchase $50 million of
blanket terrorism coverage for its properties; a potential liability not
previously covered by insurance. Such increase in insurance premiums will be
recovered in large part through the 2002 and future tenant escalation billings.
Also, as a result of widely-publicized financial reporting irregularities,
insurance coverage and premium costs for officers' and directors' insurance has
increased by approximately 29%.
In order to qualify as a REIT for federal income tax purposes, the
Company is required to make distributions to its stockholders of at least 90% of
REIT taxable income. The Company expects to use its cash on-hand and cash flow
from operating activities for this purpose if distributions to partners and
stockholders are required in order to continue to qualify as a REIT.
Inflation
Low-to-moderate levels of inflation during the past several years have
favorably impacted the Company's operations by stabilizing operating expenses.
At the same time, low inflation had the indirect effect of reducing the
Company's ability to increase tenant rents. The Company's properties have
tenants whose leases include expense reimbursements and other provisions to
minimize the effect of inflation. These factors, in the long run, are expected
to result in more attractive returns from the Company's real estate portfolio as
compared to short-term investment vehicles.
Management's Summaries
The materials herein include summaries prepared by management of
written agreements with respect to a number of transactions. Such summaries are
intended in many cases to reflect and describe terms and provisions of various
agreements with respect to the transactions described, and are subject in each
case, to the terms and provisions of the underlying agreements, where
applicable, previously filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to changes in interest rates primarily from its
floating debt arrangements. The Company's $1 million line of credit from North
Fork Bank, which outstanding balance was $500,000 as of September 30, 2002, is
the only floating rate debt. The rate payable is the greater of 6% or the bank's
prime rate plus 1%. At September 30, 2002, the interest rate was 6%. The line of
credit is further discussed above in Note 7.
Cedar Income Fund, Ltd.
Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
The Company does not use derivative financial instruments for trading
purposes.
The Company has an aggregate of $80,346,254 of mortgage loans and other
loans payable at fixed interest rates. A substantial increase in general
interest rates would potentially prevent the Company from refinancing the
mortgage loans and the other loan at rates favorable to the Company.
Item 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer,
based on their evaluation of the Company's disclosure controls and procedures
within the past ninety days, have concluded that such disclosure controls and
procedures were effective to ensure that material information relating to the
Company and required to be disclosed by the Company has been made known to them
and has been recorded, processed, summarized and reported timely. There have not
been any significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
evaluation.
Cedar Income Fund, Ltd.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
8-K reporting under Item 2 on the acquisition of Loyal Plaza Shopping
Center, dated July 2, 2002; and
8-K/A reporting under Item 7 on the financial statements, revenues and
certain expenses in connection with the acquisition of Loyal Plaza
Shopping Center, dated September 16, 2002.
Cedar Income Fund, Ltd.
September 30, 2002
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CEDAR INCOME FUND, LTD.
/s/ Leo S. Ullman /s/ Brenda J. Walker
- ----------------------------------- --------------------------------
Leo S. Ullman Brenda J. Walker
Chairman of the Board and President Vice President and Director
(principal executive officer) (principal financial officer)
/s/ Thomas J. O'Keeffe /s/ Ann Maneri
- ----------------------------------- --------------------------------
Thomas J. O'Keeffe Ann Maneri
Chief Financial Officer Controller
(principal accounting officer)
November 14, 2002
CERTIFICATION
I, Leo S. Ullman, Chief Executive Officer of Cedar Income Fund, Ltd.
(the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this quarterly
report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Leo S. Ullman
--------------------------------
Leo S. Ullman
Chief Executive Officer
CERTIFICATION
I, Thomas J. O'Keeffe, Chief Financial Officer of Cedar Income Fund,
Ltd. (the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this quarterly
report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Thomas J. O'Keeffe
-------------------------------
Thomas J. O'Keeffe
Chief Financial Officer
CERTIFICATION
I, Leo S. Ullman, Chief Executive Officer of the Cedar Income Fund, Ltd. (the
"Company"), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby
certify as follows:
1. The quarterly report on Form 10-Q of the Company for the period ended
September 30, 2002, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in such Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, I have executed this Certification this 14th day of
November, 2002.
/s/ Leo S. Ullman
---------------------------------------
Leo S. Ullman, Chief Executive Officer
I, Thomas J. O'Keeffe, Chief Financial Officer of the Cedar Income Fund, Ltd.
(the "Company"), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do
hereby certify as follows:
3. The quarterly report on Form 10-Q of the Company for the period ended
September 30, 2002, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
4. The information contained in such Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, I have executed this Certification this 14th day of
November, 2002.
/s/ Thomas J. O'Keeffe
-------------------------------------------
Thomas J. O'Keeffe, Chief Financial Officer