EX-99 3 dex99.txt CORRESPONDENCE TO LIMITED PARTNERS DATED 8/15/2001 DiVall Insured Income Properties 2, L.P. QUARTERLY NEWS ================================================================================ A publication of The Provo Group, Inc. SECOND QUARTER 2001 Consent Results: DON'T SELL! The results of the consents have been tabulated. The majority of partners voted not to sell the Partnership. Twenty-six percent (26%) of investors voted to --- sell, which was significantly below the majority required of fifty-one percent (51%). Therefore, we will continue to operate the Partnership. As noted in the previous Quarterly Newsletter, another consent will be sent out in May 2003, unless an earlier sale opportunity is deemed appropriate by the General Partner and the Advisory Board. I voted to sell. now what? So far this year, 3 tender offers have been made for DiVall 2. There is a lot of interest in this Partnership, and therefore, offers will likely continue to be made. One option is to wait for one of these offers. A second option is to contact our offices. We have a listing of secondary market brokers we can forward to you. Please note, when selling on the secondary market (or in the case of a tender offer), you will be selling at a discounted rate. A final option is to continue to hold your units. Last year the Partnership paid over a 9% return (based on a value of $500 per unit). Therefore, if you plan to reinvest the money after you sell your units, investigate the marketplace first! For example, if you sell your units for $425 and you own 10 units; you would receive $4,250. If you reinvest the proceeds in a five year corporate bond at a 6.5% yield, you would earn $266 per year. Last year ten units earned $460 in DiVall 2. To sell or not to sell was the investors decision. We feel this majority decision was appropriate given the uncertainty, in the marketplace, of alternative investments. For the most part, investors understand what has happened with this portfolio. However, we do still receive calls from investors who cannot understand why, how, or when the value went from $1,000 per unit to $500 per unit. Therefore, we would like to take the time to show how the portfolio has actually appreciated in value. Initial Investment............................................ $1,000 Offering Costs (See Note 1 below)............................. (150) Dollars misappropriated by original General Partner........... (80) ------ Remaining initial investment.................................. $ 770 Return of capital paid to date (See Note 2 below)............. (315) ------ Remaining initial investment.................................. $ 455 ====== The estimated net unit value as of December 31, 2000 was $505 per unit or $50 more than the actual remaining investment at cost. The Partnership has paid out a range of distributions from $1,079 to $881, the amount includes return of capital payments. The range depends on when an investor purchased their units. (The offering lasted from June 30, 1988 - February 1990). Note 1: When your investment was made, 15% was immediately taken off the top as fees per the offering circular. This was for marketing costs and brokers' commissions. These costs could only be recovered over time by "appreciation" in the assets. Note 2: This money is an actual return of your original investment. It occurs when a property is sold or principal payments are received on equipment leases. The return of capital paid to each investor varies according to when you received your first distribution payment. The range of return of capital payments is from $289 to $326. Page 2 DiVall 2 2 Q 01 Distribution Highlights . The Second Quarter distribution represents an approximate 9.5% annualized return from operations based on $23,800,000 (estimated net asset value as of 12/31/00). . $565,000 total amount distributed for the Second Quarter 2001 which is $40,000 higher than originally projected. . $12.21 per unit (approx.) for the Second Quarter 2001. . $1,079.00 to $881.00 range of distributions per unit from the first unit ----- sold to the last unit sold before the offering closed (February 1990), ---- respectively. (NOTE: Distributions are from both cash flow from operations ---- and "net" cash activity from financing and investing activities.) _________________________________________ Statements of Income and Cash Flow Highlights . There was a 37% increase in operating revenues. This is primarily due to the termination fees of $157,000 received from the Hardee's (Milwaukee, WI) property. Although only one installment has been recorded, accounting procedures require us to recognize the entire amount as income. For more information see Hardee's under Property Highlights. Additionally, Blockbuster renewed their lease, which was not expected. . There was a 4% increase in operating expenses. This is primarily due to higher than anticipated legal fees. Property Highlights Receivables: . Mulberry Street Grill (Formerly Mr. Munchies, Phoenix, AZ) was delinquent at June 30, 2001, in the amount of $32,263.30. We have moved forward with a lawsuit against this tenant. Additionally, we are holding a security deposit of $15,833.33 which will be applied to past due rent once the lawsuit is settled. . Village Inn (Grand Forks, ND) was delinquent at June 30, 2001, in the amount of $530. This amount represents late fees. . KFC ( Santa Fe, NM) was delinquent at June 30, 2001, in the amount of $5,000. One-half of the balance due was collected in the month of July and we fully expect to collect the remaining balance within the next several weeks. Page 3 DiVall 2 2 Q 01 HARDEE'S Terminates, But New Tenants Arrive!! As we reported to you last quarter, the Hardee's in Milwaukee, WI terminated their lease and vacated the property. The termination fee of $157,000 (or two years rent) will be paid in four installments and the first installment has already been received. We had a lot of interest in this property and have already signed a ten (10) year lease deal with Omega Restaurants. The concept will be Greek restaurant and it is the owner's third location in the area. The annual rent is $84,000 with 4% annual increases and rent will commence in October of this year. (Hardee's was paying an annual rent of $76,000 with no increases). The Hardee's in South Milwaukee, WI has also vacated the property. However, this lease expires in November of this year, and therefore, no termination fee was collected. We will continue to collect rent on this property through the lease expiration. We have had interest in this property from various restaurant operators. _________________________________________________________________ Contact Us: ------------------------------------------------------------ The Provo Group, Inc. 101 W. 11/th/ Street, Suite 1110 Kansas City, MO 64105 TOLL FREE 800-547-7686 OR (816) 421-7444 (816) 221-2130 FAX mevans@theprovogroup.com ------------------------------------------------------------ The Next distribution will be mailed on November 15, 2001.
---------------------------------------------------------------------------------------------------------------- DIVALL INSURED INCOME PROPERTIES 2 L.P. STATEMENTS OF INCOME AND CASH FLOW CHANGES FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001 ------------------------------------------------------------------------------------------------------------------ PROJECTED ACTUAL VARIANCE ----------- ------------ ---------- 2nd 2nd QUARTER QUARTER BETTER OPERATING REVENUES 06/30/01 06/30/01 (WORSE) ----------- ------------ ------- Rental income $ 528,624 $ 577,644 $ 49,020 Interest income 14,600 11,584 (3,016) Lease Termination Fee 0 157,000 157,000 Other income 0 1,525 1,525 ----------- ------------ ---------- TOTAL OPERATING REVENUES $ 543,224 $ 747,753 $ 204,529 ----------- ------------ ---------- OPERATING EXPENSES Insurance $ 4,908 $ 6,827 $ (1,919) Management fees 47,910 48,505 (595) Overhead allowance 3,870 3,918 (48) Advisory Board 3,989 2,188 1,802 Administrative 27,400 26,491 909 Professional services 10,210 11,733 (1,523) Auditing 13,175 13,538 (363) Legal 6,000 8,206 (2,206) Defaulted tenants 300 1,205 (905) ----------- ------------ ---------- TOTAL OPERATING EXPENSES $ 117,762 $ 122,609 $ (4,847) ----------- ------------ ---------- GROUND RENT $ 16,650 $ 18,951 $ (2,301) ----------- ------------ ---------- INVESTIGATION AND RESTORATION EXPENSES $ 0 $ 56 $ (56) ----------- ------------ ---------- NON-OPERATING EXPENSES Uncollectible Receivable $ 0 $ 7,561 $ (7,561) Depreciation 86,100 86,100 (0) Amortization 2,787 11,947 (9,160) ----------- ------------ ---------- TOTAL NON-OPERATING EXPENSES $ 88,887 $ 105,608 $ (16,721) ----------- ------------ ---------- TOTAL EXPENSES $ 223,299 $ 247,224 $ (23,925) ----------- ------------ ---------- NET INCOME (LOSS) $ 319,925 $ 500,529 $ 180,604 OPERATING CASH RECONCILIATION: VARIANCE ---------- Depreciation and amortization 88,887 98,047 9,160 Recovery of amounts previously written off 0 (1,391) (1,391) (Increase) Decrease in current assets 585 22,813 22,228 Increase (Decrease) in current liabilities 11,267 (16,564) (27,831) (Increase) Decrease in cash reserved for payables (12,547) 21,561 34,108 Advance from/(to) current cash flows for future distributions 117,500 117,500 0 ----------- ------------ ----------- Net Cash Provided From Operating Activities $ 525,617 $ 742,495 $ 216,878 ----------- ------------ ----------- CASH FLOWS FROM (USED IN) INVESTING AND FINANCING ACTIVITIES Recoveries from former general partners 0 1,391 1,391 Notes Receivable- Hardee's Food Systems 0 (117,750) (117,750) Investment in Deferred Leasing Commissions 0 (59,069) (59,069) ----------- ------------- ----------- Net Cash Provided From Investing And Financing Activities $ 0 (175,429) $ (175,429) ----------- ------------- ----------- Total Cash Flow For Quarter $ 525,617 $ 567,067 $ 41,450 Cash Balance Beginning of Period 1,038,148 1,025,117 (13,031) Less 1st quarter distributions paid 5/01 (525,000) (540,000) (15,000) Change in cash reserved for payables or future distributions (104,953) (139,061) (34,108) ----------- ------------- ----------- Cash Balance End of Period $ 933,812 $ 913,123 $ (20,689) Cash reserved for 2nd quarter L.P. distributions (525,000) (565,000) (40,000) Cash reserved for payment of accrued expenses (135,435) (136,950) (1,515) Cash advanced from (reserved for) future distributions (156,250) (156,250) 0 ----------- ------------ ---------- Unrestricted Cash Balance End of Period $ 117,127 $ 54,923 $ (62,204) =========== ============ ========== ------------------------------------------------------------------------------------------------------------------ PROJECTED ACTUAL VARIANCE ---------------------------------------- * Quarterly Distribution $ 525,000 $ 565,000 $ 40,000 Mailing Date 08/15/01 (enclosed) - ------------------------------------------------------------------------------------------------------------------------ * Refer to distribution letter for detail of quarterly distribution.
PROJECTIONS FOR DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP 2001 PROPERTY SUMMARY AND RELATED ESTIMATED RECEIPTS
PORTFOLIO (Note 1) -------------------------- -------------------------------------- ---------------------------- REAL ESTATE EQUIPMENT TOTALS -------------------------- -------------------------------------- --------------------------- ANNUAL LEASE ANNUAL ---------------------------------- BASE % EXPIRATION LEASE % * ANNUAL CONCEPT LOCATION COST RENT YIELD DATE COST RECEIPTS RETURN COST RECEIPTS RETURN ---------------------------------- -------------------------- -------------------------------------- --------------------------- APPLEBEE'S COLUMBUS, OH 1,059,465 135,780 12.82% 84,500 0 0.00% 1,143,965 135,780 11.87% BLOCKBUSTER OGDEN, UT 646,425 100,670 15.57% 646,425 100,670 15.57% DENNY'S PHOENIX, AZ 972,726 65,000 6.68% 183,239 0 0.00% 1,155,965 65,000 5.62% DENNY'S PHOENIX, AZ 865,900 90,000 10.39% 221,237 0 0.00% 1,087,137 90,000 8.28% FIESTA TIME TWIN FALLS, ID 699,032 85,800 12.27% 190,000 0 0.00% 889,032 85,800 9.65% MULBERRY ST GRILL PHOENIX, AZ 500,000 61,200 12.24% 14,259 0 0.00% 514,259 61,200 11.90% HARDEE'S (5) S MILWAUKEE, WI 808,032 58,667 7.26% 808,032 58,667 7.26% HARDEE'S (5) HARTFORD, WI 686,563 64,000 9.32% 686,563 64,000 9.32% HARDEE'S (5) (6) MILWAUKEE, WI 1,010,045 25,333 2.51% (4) 260,000 0 0.00% 1,421,983 25,333 1.78% 151,938 0 0.00% HARDEE'S (5) FOND DU LAC, WI 849,767 88,000 10.36% (4) 290,469 0 0.00% 1,140,236 88,000 7.72% HARDEE'S (5) MILWAUKEE, WI 0 0 0.00% 780,000 0 0.00% 780,000 0 0.00% HOOTER'S R. HILLS, TX 1,246,719 95,000 7.62% 1,246,719 95,000 7.62% HOSTETTLER'S DES MOINES, IA 845,000 60,000 7.10% 52,813 0 0.00% 897,813 60,000 6.68% KFC SANTA FE, NM 451,230 60,000 13.30% 451,230 60,000 13.30% MIAMI SUBS PALM BEACH, FL 743,625 54,000 7.26% 743,625 54,000 7.26% -------------------------------------------------------------- -------------------------------------- ----------------------------
Note 1: This property summary includes only current property and equipment held by the Partnership. Equipment lease receipts shown include a return of capital. 2: Rent is based on 12.5% of monthly sales. Rent projected for 2000 is based on 1999 sales levels. 3: The Partnership entered into a long-term ground lease in which the Partnership is responsible for payment of rent. 4: The lease was terminated and the equipment sold to Hardee's Food Systems in conjunction with their assumption of the Terratron leases in November 1996. 5: These leases were assumed by Hardee's Food Systems at a reduced rental rate from that stated in the original leases. 6: The lease with Hardee's Food Systems was terminated as of April 30, 2001. A new lease with Omega Restaurants was negotiated. Rent will commence October 2001. Page 1 of 2 PROJECTIONS FOR DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP 2001 PROPERTY SUMMARY AND RELATED ESTIMATED RECEIPTS PORTFOLIO (Note 1)
---------------------------------------------------- REAL ESTATE ---------------------------------------------------- ANNUAL BASE % ------------------------------------------------------------------------ CONCEPT LOCATION COST RENT YIELD ------------------------------------------------------------------------ ---------------------------------------------------- OMEGA RESTAURANTS (6) MILWAUKEE, WI 1,010,045 21,000 2.08% POPEYE'S PARK FOREST, IL 580,938 77,280 13.30% SUNRISE PS PHOENIX, AZ 1,084,503 134,136 12.37% VILLAGE INN GRAND FORKS, ND 739,375 60,000 8.11% WENDY'S AIKEN, SC 633,750 90,480 14.28% WENDY'S CHARLESTION, SC 580,938 77,280 13.30% WENDY'S N. AUGUSTA, SC 660,156 87,780 13.30% WENDY'S AUGUSTA, GA 728,813 96,780 13.28% WENDY'S CHARLESTON, SC 596,781 76,920 12.89% WENDY'S AIKEN, SC 776,344 96,780 12.47% WENDY'S AUGUSTA, GA 649,594 86,160 13.26% WENDY'S CHARLESTON, SC 528,125 70,200 13.29% WENDY'S MT. PLEASANT, SC 580,938 77,280 13.30% WENDY'S MARTINEZ, GA 633,750 84,120 13.27% ------------------------------------------------------------------------ --------------------------------------------------- ------------------------------------------------------------------------ --------------------------------------------------- PORTFOLIO TOTALS (27 Properties) 21,168,579 2,179,646 10.30% ------------------------------------------------------------------------ --------------------------------------------------- ------------------------------------------------------------------------------------- EQUIPMENT ------------------------------------------------------------------------------------- LEASE ANNUAL EXPIRATION LEASE % DATE COST RECEIPTS RETURN ------------------------------------------------------------------------------------- 260,000 0 0.00% 79,219 0 0.00% 19,013 0 0.00% ------------------------------------------------------------------------------------- --------------------------------------------------------- 2,586,687 0 0.00% --------------------------------------------------------- ------------------------------------------------ TOTALS ------------------------------------------------ TOTAL COST RECEIPTS RETURN ------------------------------------------------ 1,270,045 21,000 1.65% 580,938 77,280 13.30% 1,182,735 134,136 11.34% 739,375 60,000 8.11% 633,750 90,480 14.28% 580,938 77,280 13.30% 660,156 87,780 13.30% 728,813 96,780 13.28% 596,781 76,920 12.89% 776,344 96,780 12.47% 649,594 86,160 13.26% 528,125 70,200 13.29% 580,938 77,280 13.30% 633,750 84,120 13.27% ------------------------------------------------ ------------------------------------------------ 23,755,266 2,179,647 9.18% ------------------------------------------------
Note 1: This property summary includes only curent property and equipment held by the Partnership. Equipment lease receipts shown include a return of capital. Page 2 0f 2