-----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, AS8TneWHBRS+Th+0NoGcXBR1e7D5c5/aqUPJwDa1IUGpHoPh35PGUwk8IugeJVTD iL+jjUnqz/N6YnheRcE9ew== 0000936392-98-001131.txt : 19980812 0000936392-98-001131.hdr.sgml : 19980812 ACCESSION NUMBER: 0000936392-98-001131 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 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: 98681710 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 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: JUNE 30, 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 June 30, 1998 (Unaudited) December 31, 1997 .............................................. 3 Statements of Income Three Months Ended June 30, 1998 (Unaudited) Three Months Ended June 30, 1997 (Unaudited) Six Months Ended June 30, 1998 (Unaudited) Six Months Ended June 30, 1997 (Unaudited)...................... 4 Statements of Changes in Partners' Equity Six Months Ended June 30, 1998 (Unaudited) Six Months Ended June 30, 1997 (Unaudited)...................... 5 Statements of Cash Flows Six Months Ended June 30, 1998 (Unaudited) Six Months Ended June 30, 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
JUNE 30, 1998 DECEMBER 31, (UNAUDITED) 1997 ----------- ----------- ASSETS Real estate: Land $ 2,511,852 $ 2,728,464 Buildings 3,911,772 4,417,200 Less: accumulated depreciation (1,303,095) (1,367,861) ----------- ----------- Net real estate 5,120,529 5,777,803 Cash 1,128,552 444,616 Accounts receivable, less allowance for bad debts of $2,524 and $236,017 in 1998 and 1997, respectively -- 19,897 Notes receivable 1,163,264 1,167,273 Interest receivable and other assets 5,830 5,814 ----------- ----------- Total assets $ 7,418,175 $ 7,415,403 =========== ----------- LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable: Affiliates $ 732 $ 697 Other 1,525 2,139 Tenant security deposits -- 5,000 Property tax payable 3,616 19,089 Deferred rental income 15,010 10,408 ----------- ----------- Total liabilities 20,883 37,333 ----------- ----------- Partners' Equity: General partner's equity 15,584 16,376 Limited partners' equity, 235,308 units authorized, 135,299 units issued and outstanding in 1998 and 1997, respectively 7,381,708 7,361,694 ----------- ----------- Total partners' equity 7,397,292 7,378,070 ----------- ----------- Total liabilities and partners' equity $ 7,418,175 $ 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 SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenue: Base rent $164,087 $216,397 $339,099 $430,027 Interest income 34,301 30,707 61,629 100,805 -------- -------- -------- -------- Total revenue 198,388 247,104 400,728 530,832 -------- -------- -------- -------- Expenses: Depreciation 32,550 36,175 67,607 72,349 Bad debts 4,423 30,180 6,045 91,819 Office expenses 2,754 3,530 6,115 7,546 Administrative 2,700 2,700 5,400 5,400 Accounting and legal 2,385 37,273 7,305 42,455 Management fees 1,736 1,743 3,511 3,378 Other property expenses 617 -- 617 -- -------- -------- -------- -------- Total expenses 47,165 111,601 96,600 222,947 -------- -------- -------- -------- Income before real estate sales 151,223 135,503 304,128 307,885 Gain - sale of real estate 100,094 -- 100,094 -- -------- -------- -------- -------- Net income $251,317 $135,503 $404,222 $307,885 ======== ======== ======== ======== Net income allocated to: General partner $ 2,513 $ 1,355 $ 4,042 $ 3,079 Limited partners 248,804 134,148 400,180 304,806 -------- -------- -------- -------- Total $251,317 $135,503 $404,222 $307,885 ======== ======== ======== ======== Net income per weighted average limited partnership unit $ 1.84 $ 0.99 $ 2.96 $ 2.25 ======== ======== ======== ========
The accompanying notes are an integral part of the financial statements. 4 5 EXCEL PROPERTIES, LTD. STATEMENTS OF CHANGES IN PARTNERS' EQUITY - UNAUDITED
SIX MONTHS ENDED JUNE 30, --------------------------------- 1998 1997 ----------- ----------- Balance at January 1 $ 7,378,070 $ 9,619,405 Net income 404,222 307,885 Partner distributions (385,000) (2,400,001) ----------- ----------- Balance at June 30 $ 7,397,292 $ 7,527,289 =========== ===========
The accompanying notes are an integral part of the financial statements. 5 6 EXCEL PROPERTIES, LTD. STATEMENTS OF CASH FLOWS - UNAUDITED
SIX MONTHS ENDED JUNE 30, --------------------------------- 1998 1997 ----------- ----------- Cash flows from operating activities: Net income $ 404,222 $ 307,885 Adjustments to reconcile net income to net cash provided by operations: Depreciation 67,607 72,349 Allowance for doubtful accounts 6,045 91,817 Gain on sale of real estate (100,094) -- Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable 13,852 (15,380) Interest receivable (2,776) 37 Increase (decrease) in liabilities: Accounts payable (11,279) 25,941 Property taxes payable (7,011) (5,334) Deferred rental income 4,601 (26,891) ----------- ----------- Net cash provided by operating activities 375,167 450,424 ----------- ----------- Cash flows from investing activities: Proceeds from escrow deposits -- 963,968 Proceeds from real estate sales 689,760 -- Collection of notes receivable 4,009 3,670 ----------- ----------- Net cash provided by investing activities 693,769 967,638 ----------- ----------- Cash flows from financing activities: Cash distributions (385,000) (2,400,001) ----------- ----------- Net cash used by financing activities (385,000) (2,400,001) ----------- ----------- Net increase (decrease) in cash 683,936 (981,939) Cash at January 1 444,616 1,393,367 ----------- ----------- Cash at June 30 $ 1,128,552 $ 411,428 =========== ===========
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 and operating commercial real estate. 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 the dispositions are reported as income or expense. CASH DEPOSITS At June 30, 1998, the carrying amount of the Partnership's cash deposits total $1,128,552. The bank balances are $1,152,997 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 six months ended June 30, 1998 or 1997. Also, the Partnership had no noncash investing or financing transactions for the six months ended June 30, 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. ACCOUNTS RECEIVABLE All net accounts receivable are deemed to be collectible within the next 12 months. Continued 7 8 EXCEL PROPERTIES, LTD. NOTES TO FINANCIAL STATEMENTS - UNAUDITED ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: 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 six months ended June 30, 1998 and 1997:
1998 1997 ------ ------ Management fees $3,511 $3,378 Administrative fees 5,400 5,400 Accounting 3,240 3,302
3. SALE OF PROPERTY In 1998, the Partnership sold a building in Burnsville, Minnesota that was on lease to Timberlodge Steakhouse. The sales price for the building was $689,760. The Partnership recognized a gain of $100,094 on the sale. In 1997, there were no property sales. 4. NOTES RECEIVABLE The Partnership had the following notes receivable at June 30, 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 real estate. Currently due. 132,926 135,225 Note from sale of building, interest only receipts of $5,366 per month at 8.5% interest. Secured by real estate. Due November 2003. 757,500 757,500 Note from sale of building, receipts of $1,004 per month at 8% interest. Secured by real estate. Due December 2001. 107,088 108,798 ---------- ---------- Total notes receivable $1,163,264 $1,167,273 ========== ==========
Continued 8 9 EXCEL PROPERTIES, LTD. NOTES TO FINANCIAL STATEMENTS - UNAUDITED ---------- 5. MINIMUM FUTURE RENTALS The Partnership leases single-tenant buildings to tenants under noncancellable 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 noncancellable operating leases is as follows: YEAR ENDING DECEMBER 31, 1998, remaining six months $ 319,790 1999 634,162 2000 569,276 2001 504,779 2002 413,004 Thereafter 1,084,022
9 10 EXCEL PROPERTIES, LTD. 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 thirteen 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. 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 or fixed rent escalation. 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. Properties were acquired through arms-length negotiations with third parties. LIQUIDITY AND CAPITAL RESOURCES As the Partnership has $1,128,552 in cash at June 30, 1998, with no debt on any of the properties it owns, management believes that the Partnership liquidity remains in a good position. In July 1998, the Partnership distributed accumulated cash to the partners in the amount of $875,000. The Partnership has no debt and approximately $39,000 a month from rental revenue, net of bad debts. 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 most of 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 as properties are sold and/or excess cash is distributed to the unit holders (partners). Continued 10 11 The Partnership has purchased its properties for all cash. To date, the Partnership has not leveraged any of its properties. The cash of the Partnership increased by $683,936 at June 30, 1998 when compared to December 31, 1997. This increase was largely due to the receipt of $689,760 in May 1998 relating to the property sold in Burnsville, Minnesota. 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 June 30, 1998 to the three months ended June 30, 1997 Base rent decreased $52,310 or 24% from the previous year. The decrease was primarily due to the sale in August 1997 of a vacant building that was previously leased to Ponderosa Restaurant, and to Toddle House Restaurant, which is bankrupt and no longer being charged rents. These properties accounted for approximately $38,358 of rents in the second quarter of 1997. In May 1998, the sale of a property leased to Timberlodge accounted for approximately $12,080 of rents in the second quarter of 1998 and $17,258 of rents in 1997. Interest income increased $3,594 or 12% over 1997 due to larger cash balances in 1998 than 1997 from proceeds relating to property sales before the funds were distributed to the partners. In 1998, the company recognized a gain of $100,094 relating to the sale of a building in Burnsville, Minnesota that was on lease to Timberlodge. There were no property sales in the three months ended June 30, 1997. Operating expenses decreased by $64,436 or 58% from the three months ended June 30, 1997 to the three months ended June 30, 1998. Bad debt expense decreased by $25,757 or 85%. This decrease in bad debt expense relates to reserves for Toddle House Restaurants, which is in Chapter 11 Bankruptcy, but was being charged rents in 1997. Accounting and legal expenses decreased by $34,888 or 94%. This decrease is primarily due to approximately $35,500 paid in legal fees in 1997 for Ponderosa Restaurant. No such legal expenses were incurred in 1998. Other expenses and other income varied very little between the two accounting periods. Comparison of the six months ended June 30, 1998 to the six months ended June 30, 1997 Base rent decreased $90,928 or 21% from the previous year. The decrease was primarily due to the sale in August 1997 of a vacant building that was previously leased to Ponderosa Restaurant and to Toddle House Restaurant, which is bankrupt and no longer being charged rents. These properties accounted for approximately $76,720 of rents in the first half of 1997. In May 1998, the sale of a property leased to Timberlodge accounted for approximately $30,201 of rents in the six months of 1998 and $34,515 of rents in 1997. Operating expenses decreased by $126,347 or 57% from the six months ended June 30, 1997 to the six months ended June 30, 1998. The net decrease was primarily due to the $85,774 or 93% decrease in bad debts expense and the $35,150 or 83% decrease in accounting and legal expense. Bad debt expense relating to the Ponderosa Restaurant and Toddle House totaled $91,819 in 1997. In 1997, the partnership paid $35,366 in legal fees relating to Ponderosa Restaurant. 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 or Consumer Price Index adjustments. 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. Continued 11 12 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 re-lease 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 (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 June 30, 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 June 30, 1998. Continued 12 13 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: August 11, 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 13 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1,128,552 0 1,171,618 (2,524) 0 2,297,646 6,423,624 (1,303,095) 7,418,175 20,883 0 0 0 0 7,397,292 7,418,175 0 400,728 0 67,607 22,948 6,045 0 0 0 0 0 0 0 404,222 2.96 0
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