-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IABm0TDihWNHeNkZQeGUqKafMoRcpaMoq95rAgHhgJuycuV+lrsB6W1VvDYlqtp6 I3EhzEQbrJTQR1NsFkWm3w== 0000936392-98-000781.txt : 19980513 0000936392-98-000781.hdr.sgml : 19980513 ACCESSION NUMBER: 0000936392-98-000781 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXCEL PROPERTIES LTD CENTRAL INDEX KEY: 0000785932 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 870426335 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-02320 FILM NUMBER: 98616752 BUSINESS ADDRESS: STREET 1: 16955 VIA DEL CAMPO #200 CITY: SAN DIEGO STATE: CA ZIP: 92127 BUSINESS PHONE: 6194859400 MAIL ADDRESS: STREET 1: 16955 VIA DEL CAMPO STREET 2: STE 110 CITY: SAN DIEGO STATE: CA ZIP: 92127 10-Q 1 FORM 10-Q FOR PERIOD ENDING 3-31-98 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended: Commission File Number: MARCH 31, 1998 33-2320 EXCEL PROPERTIES, LTD. (Exact name of registrant as specified in its charter) CALIFORNIA 87-0426335 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 16955 VIA DEL CAMPO, SUITE 110 SAN DIEGO, CALIFORNIA 92127 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (619) 485-9400 Securities registered pursuant to Section 12(b) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes [X] No [ ] 2 EXCEL PROPERTIES, LTD. INDEX TO FINANCIAL STATEMENTS ----------
PAGE ---- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Balance Sheets March 31, 1998 (Unaudited) December 31, 1997...............................................3 Statements of Income Three Months Ended March 31, 1998 (Unaudited) Three Months Ended March 31, 1997 (Unaudited)...................4 Statements of Changes in Partners' Equity Three Months Ended March 31, 1998 (Unaudited) Three Months Ended March 31, 1997 (Unaudited)...................5 Statements of Cash Flows Three Months Ended March 31, 1998 (Unaudited) Three Months Ended March 31, 1997 (Unaudited)...................6 Notes to Financial Statements......................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................10 PART II. OTHER INFORMATION..................................................12
2 3 EXCEL PROPERTIES, LTD. BALANCE SHEETS ----------
MARCH 31, 1998 DECEMBER 31, (UNAUDITED) 1997 ----------- ------------ ASSETS Real estate: Land $ 2,728,464 $ 2,728,464 Buildings 4,417,200 4,417,200 Less: accumulated depreciation (1,402,918) (1,367,861) ----------- ----------- Net real estate 5,742,746 5,777,803 Cash 444,642 444,616 Accounts receivable, less allowance for bad debts of $819 and $191,764 in 1998 and 1997, respectively 16 19,897 Notes receivable 1,165,290 1,167,273 Interest receivable and other assets 9,053 5,814 ----------- ----------- Total assets $ 7,361,747 $ 7,415,403 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable: Affiliates $ 1,490 $ 697 Other 1,793 2,139 Property taxes payable 9,314 19,089 Tenant security deposits 5,000 5,000 Deferred rental income 13,175 10,408 ----------- ----------- Total liabilities 30,772 37,333 =========== =========== Partners' Equity: General partner's equity 15,905 16,376 Limited partners' equity, 235,308 units authorized, 135,299 units issued and outstanding in 1998 and 1997, respectively 7,315,070 7,361,694 ----------- ----------- Total partners' equity 7,330,975 7,378,070 ----------- ----------- Total liabilities and partners' equity $ 7,361,747 $ 7,415,403 =========== ===========
The accompanying notes are an integral part of the financial statements. 3 4 EXCEL PROPERTIES, LTD. STATEMENTS OF INCOME -- UNAUDITED ----------
THREE MONTHS ENDED MARCH 31, 1998 1997 ------- ------ Revenue: Base rent $ 175,012 $ 213,630 Interest and other income 27,327 70,098 --------- --------- Total revenue 202,339 283,728 --------- --------- Operating Expenses: Depreciation 35,057 36,174 Accounting and legal 4,920 5,182 Office expenses 3,360 4,016 Administrative 2,700 2,700 Management fees 1,775 1,635 Bad debts 1,622 61,639 --------- ------ Total operating expenses 49,434 111,346 --------- --------- Net income $ 152,905 $ 172,382 ========= ========= Net income allocated to: General partner $ 1,880 $ 2,086 Limited partners 151,025 170,296 -------- -------- Total $ 152,905 $ 172,382 ========= ========= Net income per weighted average limited partnership unit $ 1.12 $ 1.26 ========= =========
The accompanying notes are an integral part of the financial statements. 4 5 EXCEL PROPERTIES, LTD. STATEMENTS OF CHANGES IN PARTNERS' EQUITY -- UNAUDITED ----------
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ------ ------ Balance at January 1 $7,378,070 $ 9,619,405 Net income 152,905 172,382 Partner distributions (200,000) (1,000,000) ---------- ---------- Balance at March 31 $7,330,975 $ 8,791,787 ========== ===========
The accompanying notes are an integral part of the financial statements. 5 6 EXCEL PROPERTIES, LTD. STATEMENTS OF CASH FLOWS -- UNAUDITED ----------
THREE MONTHS ENDED MARCH 31, ---------------------------------------- 1998 1997 --------- --------- Cash flows from operating activities: Net income $ 152,905 $ 172,382 Adjustments to reconcile net income to net cash provided by operations: Depreciation 35,057 36,174 Provision for bad debts 1,622 61,639 Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable 18,259 17,578 Interest receivable and other assets (3,239) 18 Increase (decrease) in liabilities: Accounts payable (2,317) 3,627 Property taxes payable (7,011) 6,716 Deferred rental income 2,767 (17,692) --------- ----------- Net cash provided by operating activities 198,043 280,442 --------- ----------- Cash flows from investing activities: Proceeds from escrow deposits -- 963,968 Collection of notes receivable 1,983 1,816 --------- ----------- Net cash provided by investing activities 1,983 965,784 --------- ----------- Cash flows from financing activities: Cash distributions (200,000) (1,000,000) --------- ----------- Net cash used by financing activities (200,000) (1,000,000) --------- ----------- Net increase in cash 26 246,226 Cash at January 1 444,616 1,817,201 --------- ----------- Cash at March 31 $ 444,642 $ 2,063,427 ========= ===========
The accompanying notes are an integral part of the financial statements. 6 7 EXCEL PROPERTIES, LTD. NOTES TO FINANCIAL STATEMENTS - UNAUDITED ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The financial statements reflect all adjustments of a recurring nature which are, in the opinion of management, necessary for a fair presentation of the financial statements. No adjustments were necessary which were not of a recurring nature. These financial statements should be read in conjunction with the financial statements and accompanying footnotes included in the Partnership's December 31, 1997 Form 10-K. ORGANIZATION Excel Properties, Ltd. was formed in the State of California on September 19, 1985, for the purpose of, but not limited to, acquiring real property and syndicating such property. REAL ESTATE Land and buildings are recorded at cost. Buildings are depreciated using the straight-line method over the tax life of 31.5 years. The tax life does not differ materially from the economic useful life. Expenditures for maintenance and repairs are charged to expense as incurred. Significant renovations are capitalized. The cost and related accumulated depreciation of real estate are removed from the accounts upon disposition. Gains and losses arising from dispositions are reported as income or expense. CASH DEPOSITS At March 31, 1998, the carrying amount of the Partnership's cash deposits total $444,642. The bank balances are $471,654 of which $200,000 is covered by federal depository insurance. STATEMENT OF CASH FLOWS -- SUPPLEMENTAL DISCLOSURE There was no interest or taxes paid for the three months ended March 31, 1998 or 1997. The Partnership also had no noncash investing or financing transactions for the three months ended March 31, 1998 or 1997. INCOME TAXES The Partnership is not liable for payment of any income taxes because as a partnership, it is not subject to income taxes. The tax effects of its activities accrue directly to the partners. Continued 7 8 EXCEL PROPERTIES, LTD. NOTES TO FINANCIAL STATEMENTS -- UNAUDITED, CONTINUED ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: ACCOUNTS RECEIVABLE All net accounts receivable are deemed to be collectible within the next 12 months. FINANCIAL STATEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. 2. Fees Paid to General Partner The Partnership has paid the General Partner or its affiliates the following fees for the three months ended March 31, 1998 and 1997:
1998 1997 ------- ------- Management fees $ 1,775 $ 1,635 Administrative fees 2,700 2,700 Accounting 1,620 1,620
3. NOTES RECEIVABLE The Company had the following notes receivable at March 31, 1998 and December 31, 1997:
1998 1997 -------- -------- Note from the sale of land, interest at 10%. Due upon the $165,750 $165,750 occurrence of certain events. Note from sale of building, receipts of $1,390 per month at 9% interest. Secured by building sold. Currently Due. 134,088 135,225 Note from sale of building, interest only receipts of $5,366 per month at 8.5% interest. Secured by building sold. Due November 2003. 757,500 757,500
Continued 8 9 EXCEL PROPERTIES, LTD. NOTES TO FINANCIAL STATEMENTS -- UNAUDITED, CONTINUED ---------- 3. NOTES RECEIVABLE, CONTINUED: Note from sale of building, receipts of $1,004 per month at 8% interest. Secured by building sold. Due December 2001.
107,952 108,798 ---------- ---------- Total notes receivable $1,165,290 $1,167,273 ========== ==========
4. MINIMUM FUTURE RENTALS The Company leases single-tenant buildings to tenants under noncancelable operating leases requiring the greater of fixed or percentage rents. The leases are triple-net, requiring the tenant to pay all expenses of operating the property such as insurance, property taxes, repairs and utilities. Minimum future rental revenue for the next five years for the commercial real estate currently owned and subject to noncancelable operating leases is as follows:
YEAR ENDING DECEMBER 31, ------------------------ 1998, remaining nine months $ 516,201 1999 669,012 2000 608,019 2001 506,875 2002 369,988 Thereafter 1,062,515
9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS NATURE OF BUSINESS Excel Properties, Ltd., a California limited partnership (the "Partnership"), was organized to purchase commercial real estate properties for cash and to hold these assets for long-term investment. The Partnership currently owns fourteen properties. The general partners of the Partnership are Excel Realty Trust, Inc., a Maryland corporation, and Gary B. Sabin, an individual. The Partnership was formed on September 19, 1985, and will continue in existence until December 31, 2015, unless dissolved earlier under certain circumstances. Properties that have been acquired by the Partnership are subject to long-term triple-net leases. Such leases require the lessee to pay the prescribed minimum rental plus all costs and expenses associated with the operations and maintenance of the property. These expenses include real property taxes, property insurance, repairs and maintenance and similar expenses, the net effect being that, under normal circumstances, no expenses will offset the rental payment. Most of the leases also provide some form of inflation hedge which calls for the minimum rent to be increased, based upon adjustments in the consumer price index, fixed rent escalation, or by receipt of a percentage of the gross sales of the tenant. Properties have been acquired free and clear of liens and encumbrances. The Partnership may seek to finance one or more of the properties and distribute the financing proceeds to the partners, but only if the financing proceeds equal or exceed 100% of the Partnership's capital invested in the property or properties (including a prorata amount of the Partnership's public offering unit selling commissions and organization expenses). To date, no properties owned by the Partnership have been the subject of any mortgage financing, therefore, at the present time, all properties remain free and clear from any mortgage loan, lien or encumbrance. The principal investment objectives of the Partnership are to provide to its limited partners: (1) preservation, protection and eventual return of the investment, (2) distributions of cash from operations including property sales, some of which may be a return of capital for tax purposes rather than taxable income, (3) distributions of cash from financing the properties, and (4) realization of long-term appreciation in value of the properties. The general partners have selected properties they believe meet certain minimum investment standards and that are most likely to accomplish the investment objectives of the Partnership. LIQUIDITY AND CAPITAL RESOURCES As the Partnership has $444,642 at March 31, 1998, with no debt on any of the properties it owns, management believes that the Partnership liquidity remains in a good position. In April 1998, the Partnership distributed accumulated cash to the partners in the amount of $183,000. The Partnership has no debt and currently approximately $58,000 a month from rental revenue. Management anticipates that rental revenue should be enough to cover any Partnership expenses. Also, management does not expect the Partnership to incur any significant operational expenses as the Partnership properties are subject to triple-net leases. Management anticipates that the Partnership's primary source of cash in 1998 will continue to come from rental of the real estate properties currently owned. The Partnership may also, from time to time, sell certain properties which would provide cash for distribution. Management anticipates that rental revenue will be sufficient to cover the operating expenses of the Partnership and allow for cash distributions to be made to the limited partners. The Partnership has the policy of paying quarterly distributions to the limited partners of the actual cash earned by the Partnership in the preceding quarter. Therefore, if expenses were to increase or revenue were to decrease, the Partnership would decrease the quarterly distributions to the limited partners. Management expects that the liquidity of the Partnership will change if properties are sold and/or excess cash is distributed to the unit holders (partners). The Partnership has purchased its properties for all cash. The Partnership may finance one or more of its existing properties if, among other conditions: (1) the property is held for at least two years (all properties have been owned by the Partnership for more than two years), (2) the financing proceeds equal or exceed the Partnership's investment in the property, and (3) the Partnership distributes the financing proceeds to the partners. To date, the Partnership has not leveraged any of its 10 11 properties. RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and the notes thereto. Comparison of the three months ended March 31, 1998 to the three months ended March 31, 1997 Base rent decreased $38,618 or 18% from the previous year. The decrease was attributable to (i) the sale in August 1997 of a vacant building that was previously leased to Ponderosa Restaurant and (ii) to Toddle House Restaurant,which is bankrupt and no longer being charged rents. Collectively, these properties accounted for approximately $38,355 of rental revenue in the first quarter of 1997. Operating expenses decreased by $61,912 or 56% from the three months ended March 31, 1997 to the three months ended March 31, 1998. The net decrease was primarily due to the $60,017 decrease in bad debt expense. This decrease was due to bad debt reserves for Toddle House Restaurant, which is in Chapter 11 Bankruptcy but was being charged rents in 1997. Interest income decreased by $42,771 or 61% from the three months ended March 31, 1997 to the three months ended March 31, 1998. The net decrease was due to finance charges for Toddle House Restaurants in 1997 and the increase in cash which averaged $1,940,314 in 1997 compared to $444,629 in 1998. Other expenses and other income varied very little between the two accounting periods. Management does not expect inflation to significantly impact the operations of the Partnership due to the structure of its investment portfolio. The leases all provide a minimum rental which the lessee is obligated to pay. Additionally, most leases contain some form of inflation hedge which provides for the rent to be increased. The rent increases may be in the form of scheduled fixed minimum rent increases, Consumer Price Index adjustments, or by participating in a percentage of the gross sales volume of the tenant. Since the triple-net leases require the lessees to pay for all property operating expenses, the net effect is that the income should increase as operating expenses increase due to inflation. CERTAIN CAUTIONARY STATEMENTS Certain statements in this Form 10-Q that are not historical fact and constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Partnership to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Such risk, uncertainties and other factors include, but are not limited to, the following risks: Economic Performance and Value of Properties Dependent on Many Factors. Real property investments are subject to varying degrees of risk. The economic performance and values of real estate can be affected by many factors, including changes in the national, regional and local economic climates, local conditions such as an oversupply of space or reductions in demand for real estate in the area, the attractiveness of the properties to tenants, competition from other available space, the ability of the owner to provide adequate maintenance and insurance and increased operating costs. Dependence on Rental Revenue from Real Property. Since substantially all of the Partnership's income is derived from rental revenue from real property, the Partnership's income and funds for distribution would be adversely affected if a significant number of the Partnership's tenants were unable to meet their obligations to the Partnership or if the Partnership were unable to lease a significant amount of space in its buildings on economically favorable lease terms. There can be no assurance that any tenant whose lease expires in the future will renew such lease or that the Partnership will be able to release space on economically advantageous terms. Illiquidity of Real Estate Investments. Equity real estate investments are relatively illiquid and therefore tend to limit the ability of the Partnership to vary its portfolio promptly in response to changes in economic or other conditions. Risk of Bankruptcy of Tenants. The bankruptcy or insolvency of a tenant would have an adverse impact on the property affected and on the income produced by such property. Under bankruptcy law, a tenant has the option of assuming 11 12 (continuing) or rejecting (terminating) any unexpired lease. If the tenant assumes its lease with the Partnership, the tenant must cure all defaults under the lease and provide the Partnership with adequate assurance of its future performance under the lease. If the tenant rejects the lease, the Partnership's claim for breach of the lease would (absent collateral securing the claim) be treated as a general unsecured claim. The amount of the claim would be capped at the amount owed for unpaid pre-petition lease payments unrelated to the rejection, plus the greater of one years' lease payments or 15% of the remaining lease payments payable under the lease (but not to exceed the amount of three years' lease payments). At March 31, 1998, the Company had one tenant under bankruptcy. The Company is attempting to sell or lease this property. Environmental Risks. Under various federal, state and local laws, ordinances and regulations, the Partnership may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property or disposed of by it, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). Such liability may be imposed whether or not the Partnership knew of, or was responsible for, the presence of such hazardous toxic substances. PART II. OTHER INFORMATION Items 1 through 5 have been omitted since no events occurred with respect to these items. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27.1 -- Financial Data Schedule (b) Reports on Form 8-K The Partnership filed no reports on Form 8-K during the quarter ended March 31, 1998. 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. Dated: May 12, 1998 EXCEL PROPERTIES, LTD. (Registrant) Excel Realty Trust, Inc. (General Partner) By: /s/ Gary B. Sabin ------------------------------------ Gary B. Sabin, President By: /s/ David A. Lund ------------------------------------ David A. Lund, Principal Financial Officer 12 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 444,642 0 1,175,178 (819) 0 1,619,001 7,145,664 (1,402,918) 7,361,747 30,772 0 0 0 0 7,330,975 7,361,747 0 202,339 0 35,057 12,755 1,622 0 0 0 0 0 0 0 152,905 1.12 0
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