EX-99 3 dex99.txt CORRESPONDENCE TO LIMITED PARTNERS DATED 5/15/2002 EXHIBIT 99 DiVall Insured Income Properties 2, L.P. QUARTERLY NEWS ================================================================================ A publication of The Provo Group, Inc. FIRST QUARTER 2002 Partnership Overview As you will see in the Property Highlights section, we have a lot of activity in the Partnership right now. We currently have four vacancies, but two of the vacant properties continue to pay rent and abide by the terms of the Lease. Certainly, a vacancy can be seen as a negative (especially if the tenant is not abiding by the terms of the Lease), however in the long term a vacancy can sometimes add value to the Partnership. Here's how .. --- If the Partnership owns properties occupied by Tenants that have poor sales and/or a weak concept, this affects the value of the portfolio. If that property is replaced by a stronger restaurant, we have both increased the value of the portfolio and will likely collect higher rents. (If the sales are higher, percentage rents may be collected when they weren't previously). If this is done with no vacancy cost (keeping in mind that both of the Hardee's continue to pay the monthly rent), it is a win-win situation. We want to assure you that even given some of the less positive activity which has occurred during the First Quarter, we continue to expect to distribute two million dollars during 2002 (or $43 per unit). We feel we budget conservatively and have taken into consideration possible vacancies and legal situations. See Inside Distribution Highlights .................................................... 2 Fourth Quarter Statements of Income & Cash Flow Changes .................... 2 Property Highlights ........................................................ 2-3 Questions & Answers ........................................................ 3 Advisory Board Information ................................................. 4 Page 2 DiVall 2 1 Q 02 DISTRIBUTION HIGHLIGHTS .. $500,000 total amount distributed . $10.80 per unit (approx.) for the for the First Quarter 2002 which is First Quarter 2002. $15,000 lower than originally projected. .. The First Quarter distribution . $1,110.00 to $912.00 range of represents an approximate 8.8% distributions per unit from the annualized return from operations first unit sold to the last unit ----- ---- based on $22,680,000 (estimated net sold before the offering closed asset value as of 12/31/01). (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 .. Operating Revenues were $22,000 higher than anticipated. We received notice from Village Inn of their intent to vacate, and therefore, we budgeted accordingly. However, we have continued to bill Village Inn for the rents as their Lease does not expire until 2009. .. Operating expenses were 7% higher than expected. This increase is primarily due to legal expenses due to the Denny's bankruptcy and the Mulberry Street Grill lawsuit. Property Highlights .. Hardee's (South Milwaukee, WI) has vacated the property. The Lease expired on November 30, 2001. We are actively seeking a new tenant for this location. .. Village Inn (Grand Forks, ND) was delinquent at December 31, 2001, in the amount of $24,921.50. This amount represents January, February and March rent and late fees. We have defaulted this tenant and retained an attorney in Grand Forks to file suit on our behalf. .. Miami Subs (Palm Beach, FL) was delinquent at March 31, 2002 in the amount of $6,921.88. A portion of this represents percentage rent which was billed in January. The remaining amount of $3,180 is the balance due for rent. The rent increased in January and the tenant has failed to pay the increase. The tenant has been defaulted. .. Denny's (Phoenix, AZ) was delinquent at March 31, 2002 in the amount of $499.78. This amount is for property repairs which the Landlord paid directly. .. Popeye's (Park Forest, IL) was delinquent at March 31, 2002 in the amount of $72,077. This amount represents percentage rent which was billed in January. The tenant has been defaulted, and we anticipate receiving the full amount during the 2/nd/ quarter consistent with prior years. Page 3 DiVall 2 1 Q 02 PROPERTY HIGHLIGHTS .. Mulberry Street Grill (Formerly Mr. Munchies, Phoenix, AZ) As indicated last quarter, the Ground Landlord has filed suit against us. Although they have re-leased the property to a new Tenant, they continue to seek damages and filed for Summary Judgement. The Court ruled in favor of the Ground Landlord and awarded damages in the amount of $92,000. We are appealing this ruling as the major issue here has not previously been decided in Arizona law; and the court awarded damages including tenant improvement contributions by the Ground Landlord which we adamantly dispute because they are effectively financed through the new tenant's rent. .. Denny's (Twin Falls, ID) has filed bankruptcy. We have received verification from the courts for our claim. However, we are an unsecured creditor in a large bankruptcy proceeding. Therefore, it is unknown how much of our claim we will receive. Denny's subtenant, Fiesta Time, continues to operate at this location. This subtenant has no rights to possession of the property. The Bankruptcy Court has previously approved Denny's "rejection" of this Lease. We have filed an Unlawful Detainer with the courts and anticipate gaining possession of the property back during the 2/nd/ quarter. .. Hardee's (Hartford, WI). We received notice from the operator that they had ceased operations in November 2001. This operator is a subtenant of Hardee's Corporate. Hardee's Corporate remains liable for all obligations under the Lease. They have continued to pay the rents and there is no balance due. .. Hardee's (Fond du Lac, WI). We received notice from the operator that they had ceased operations in April 2002. This operator is a subtenant of Hardee's Corporate. Hardee's Corporate remains liable for all obligations under the Lease. We anticipate that they will continue to pay the rents due under the Lease. QUESTIONS & ANSWERS .. When can I expect my next distribution mailing? Your distribution correspondence for the Second Quarter of 2002 is scheduled to be mailed on August 15, 2002. .. What is the new net unit value as of December 31, 2001. As indicated in the net asset value letters mailed on February 28, 2002, the value is $490 per unit as of December 31, 2002 .. If I have questions or comments, how can I reach your office? Please feel free to contact us at our toll-free number (800) 547-7686 or (816) 421-7444 or you may contact us by mail at: The Provo Group, Inc. 101 W. 11/th/ Street, Suite 1110, Kansas City, MO 64105. Finally, we can also be reached via e-mail at mevans@theprovogroup.com. Page 4 DiVall 2 1 Q 02 Advisory Board Nominations At this time we are requesting nominations for available positions on the Advisory Board. With the pending liquidation of the DiVall Income Properties 3, L.P., we will be looking for two limited partners to represent DiVall Insured Income Properties 2, L.P. If you are interested in serving on the Board or know an investor who would make a good Board member, please send in your nomination by mailing your name and the name of the nominated investor (If different); telephone number; and number of units invested in the Partnership. Nominations should be mailed or faxed to: The Provo Group, Inc., 101 West 11/th/ Street, Suite 1110, Kansas City, MO 64105. FAX: (816) 221.2130 Nominations must be submitted on or before Monday, June 10, 2002. Criteria to consider for a potential candidate should include the following: .. To serve as a member representing DiVall 2, the individual must be a Limited Partner in DiVall and own at least fifty (50) units. (Original units were sold at $1,000 each.) .. Individual has no conflict of interest by serving on the Board. (A "Conflict of Interest" Policy will be forwarded to the nominated Board member for their review.) .. Individual is available to serve on the Board for two (2) consecutive years. .. Individual is familiar with his or her investment and demonstrates a strong desire for sharing in the governance of the DiVall "Public" Partnerships -- keeping in mind all the investors' best interests. --- We will also be seeking nominations for a Broker/Dealer Representative. Please forward nominations for this person in the same fashion. Criteria include: .. Individual was originally involved in selling DiVall Public Limited Partnership interests or currently has clients who are Limited Partners in the Partnerships. .. Individual is familiar with the Partnerships; is actively involved in his or her clients' investments in the Partnerships; and demonstrates a strong desire for sharing in the governance of the Partnerships, bearing in mind the investors' best interest. .. Individual has no conflict of interest by serving on the Board. (A "Conflict of Interest" Policy will be forwarded to the nominated Board member for their review.) .. Individual is available to serve on the Board for two (2) consecutive years. Upon receipt of the written nomination requests, we will contact the nominees ------- with a follow-up letter, a Conflict of Interest Policy, and qualification form to complete. If you have served on the Board in previous years, please don't hesitate to nominate yourself again. Due to the limited response during the last few board nominations, we will be entertaining nominations of previous board members. -------------------------------------------------------------------------------- DIVALL INSURED INCOME PROPERTIES 2 L.P. STATEMENTS OF INCOME AND CASH FLOW CHANGES FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2002 --------------------------------------------------------------------------------
PROJECTED ACTUAL VARIANCE ----------------------------------------- 1ST 1ST QUARTER QUARTER BETTER OPERATING REVENUES 03/31/2002 03/31/2002 (WORSE) ----------- ----------- ----------- Rental income $ 487,371 $ 506,385 $ 19,014 Interest income 9,000 4,013 (4,987) Other income 0 8,059 8,059 ----------- ----------- ----------- TOTAL OPERATING REVENUES $ 496,371 $ 518,457 $ 22,086 ----------- ----------- ----------- OPERATING EXPENSES Insurance $ 6,612 $ 6,611 $ 2 Management fees 48,885 49,014 (129) Overhead allowance 3,944 3,954 (10) Advisory Board 4,289 3,736 553 Administrative 17,667 16,892 775 Professional services 12,701 13,315 (614) Auditing 19,800 18,085 1,715 Legal 6,000 18,596 (12,596) Defaulted tenants 2,100 705 1,395 ----------- ----------- ----------- TOTAL OPERATING EXPENSES $ 121,998 $ 130,908 ($8,910) ----------- ----------- ----------- INVESTIGATION AND RESTORATION EXPENSES $ 0 $ 0 $ 0 ----------- ----------- ----------- NON-OPERATING EXPENSES Uncollectible Receivable $ 0 $ 2,017 ($2,017) Depreciation 86,100 84,235 1,865 Amortization 3,563 3,304 259 ----------- ----------- ----------- TOTAL NON-OPERATING EXPENSES $ 89,663 $ 89,556 $ 107 ----------- ----------- ----------- TOTAL EXPENSES $ 211,661 $ 220,464 ($8,803) ----------- ----------- ----------- NET INCOME (LOSS) $ 284,710 $ 297,993 $ 13,283 OPERATING CASH RECONCILIATION: VARIANCE ----------- Depreciation and amortization 89,663 87,539 (2,124) Recovery of amounts previously written off 0 0 0 (Increase) Decrease in current assets 283,052 458,177 175,125 Increase (Decrease) in current liabilities (8,096) (140,998) (132,902) (Increase) Decrease in cash reserved for payables 14,832 139,806 124,974 Advance from/(to) current cash flows for future distributions (184,250) (379,250) (195,000) ----------- ----------- ----------- Net Cash Provided From Operating Activities $ 479,911 $ 463,268 ($ 16,644) ----------- ----------- ----------- CASH FLOWS FROM (USED IN) INVESTING AND FINANCING ACTIVITIES Indemnification Trust (Interest earnings reinvested) (4,500) (1,601) 2,899 Principal payments received 39,250 39,250 0 ----------- ----------- ----------- Net Cash Provided From Investing And Financing Activities $ 34,750 $ 37,649 $ 2,899 ----------- ----------- ----------- Total Cash Flow For Quarter $ 514,661 $ 500,917 ($ 13,745) Cash Balance Beginning of Period 775,134 818,606 43,472 Less 4th quarter distributions paid 2/02 (500,000) (485,000) 15,000 Change in cash reserved for payables or future distributions 169,418 239,444 70,026 ----------- ----------- ----------- Cash Balance End of Period $ 959,213 $ 1,073,967 $ 114,753 Cash reserved for 1st quarter L.P. distributions (515,000) (500,000) 15,000 Cash reserved for payment of accrued expenses (196,300) (144,748) 51,552 Cash advanced from (reserved for) future distributions (184,250) (379,250) (195,000) ----------- ----------- ----------- Unrestricted Cash Balance End of Period $ 63,665 $ 49,969 ($13,695) =========== =========== =========== ------------------------------------------------------------------------------------------------------------- PROJECTED ACTUAL VARIANCE ------------------------------------------ * Quarterly Distribution $ 515,000 $ 500,000 ($15,000) Mailing Date 5/15/02 (enclosed) - -------------------------------------------------------------------------------------------------------------
* Refer to distribution letter for detail of quarterly distribution. PROJECTIONS FOR DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP 2002 PROPERTY SUMMARY AND RELATED RECEIPTS
PORTFOLIO (Note 1) ------------------------------------- ---------------------------------------------- REAL ESTATE EQUIPMENT ------------------------------------- ---------------------------------------------- ANNUAL LEASE ANNUAL BASE % EXPIRATION LEASE % -------------------------------------------- CONCEPT LOCATION COST RENT YIELD DATE COST RECEIPTS RETURN -------------------------------------------- ------------------------------------- ---------------------------------------------- APPLEBEE'S COLUMBUS, OH 1,059,465 135,780 12.82% 84,500 0 0.00% BLOCKBUSTER OGDEN, UT 646,425 99,000 15.32% DENNY'S PHOENIX, AZ 972,726 65,000 6.68% 183,239 0 0.00% DENNY'S PHOENIX, AZ 865,900 90,000 10.39% 221,237 0 0.00% VACANT TWIN FALLS, ID 699,032 0 0.00% 190,000 0 0.00% VACANT S MILWAUKEE, WI 808,032 0 0.00% HARDEE'S (3) HARTFORD, WI 686,563 64,000 9.32% HARDEE'S (3) (6) FOND DU LAC, WI 849,767 88,000 10.36% (2) 290,469 0 0.00% HARDEE'S (3) MILWAUKEE, WI 0 0 0.00% 780,000 0 0.00% HOOTER'S R. HILLS, TX 1,246,719 95,000 7.62% HOSTETTLER'S DES MOINES, IA 845,000 60,000 7.10% 52,813 0 0.00% KFC SANTA FE, NM 451,230 60,000 13.30% MIAMI SUBS PALM BEACH, FL 743,625 60,000 8.07% -------------------------------------------- ------------------------------------- ---------------------------------------------- ---------------------------------------------- TOTALS ---------------------------------------------- ANNUAL -------------------------------------------- CONCEPT LOCATION COST RECEIPTS RETURN -------------------------------------------- ---------------------------------------------- APPLEBEE'S COLUMBUS, OH 1,143,965 135,780 11.87% BLOCKBUSTER OGDEN, UT 646,425 99,000 15.32% DENNY'S PHOENIX, AZ 1,155,965 65,000 5.62% DENNY'S PHOENIX, AZ 1,087,137 90,000 8.28% VACANT TWIN FALLS, ID 889,032 0 0.00% VACANT S MILWAUKEE, WI 808,032 0 0.00% HARDEE'S (3) HARTFORD, WI 686,563 64,000 9.32% HARDEE'S (3) (6) FOND DU LAC, WI 1,140,236 88,000 7.72% HARDEE'S (3) MILWAUKEE, WI 780,000 0 0.00% HOOTER'S R. HILLS, TX 1,246,719 95,000 7.62% HOSTETTLER'S DES MOINES, IA 897,813 60,000 6.68% KFC SANTA FE, NM 451,230 60,000 13.30% MIAMI SUBS PALM BEACH, FL 743,625 60,000 8.07% -------------------------------------------- ----------------------------------------------
Note 1: This property summary includes only property and equipment held by the Partnership as of March 31, 2002. 2: 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. 3: These leases were assumed by Hardee's Food Systems at a reduced rental rate from that stated in the original leases. 4: The lease with Hardee's Food Systems was terminated as of April 30, 2001. A new lease with Omega Restaurants was negotiated and monthly rent commmenced in October 2001. 5: The tenant vacated the property in February 2002, however, Village Inn remains liable until a lease termination agreement with Management is executed. 6: Management received notice that Hardee's Food Systems intends to close this restaurant in April 2002. Hardee's will remain liable until a lease termination agreement with Management is executed. Page 1 of 2
PROJECTIONS FOR DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP 2001 PROPERTY SUMMARY AND RELATED RECEIPTS PORTFOLIO (Note 1) --------------------------------------- ----------------------------------------- REAL ESTATE EQUIPMENT --------------------------------------- ----------------------------------------- ANNUAL LEASE ANNUAL ------------------------------------------------ BASE % EXPIRATION LEASE % CONCEPT LOCATION COST RENT YIELD DATE COST RECEIPTS RETURN ------------------------------------------------ --------------------------------------- ----------------------------------------- OMEGA RESTAURANT (4) MILWAUKEE, WI 1,010,045 84,840 8.40% 260,000 0 0.00% " " 151,938 0 0.00% POPEYE'S PARK FOREST, IL 580,938 77,280 13.30% SUNRISE PS PHOENIX, AZ 1,084,503 123,318 11.37% 79,219 0 0.00% 19,013 0 0.00% VILLAGE INN (5) GRAND FORKS, ND 739,375 96,600 13.07% 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 (26 Properties) 19,658,534 2,042,598 10.39% 2,312,428 0 0.00% ------------------------------------------------ --------------------------------------- ------------------------------- -------------------------------- TOTALS -------------------------------- ------------------------------------------------------ TOTAL CONCEPT LOCATION COST RECEIPTS RETURN ------------------------------------------------------ -------------------------------- OMEGA RESTAURANT (4) MILWAUKEE, WI 1,421,983 84,840 5.97% " " POPEYE'S PARK FOREST, IL 580,938 77,280 13.30% SUNRISE PS PHOENIX, AZ 1,182,735 123,318 10.43% VILLAGE INN (5) GRAND FORKS, ND 739,375 96,600 13.07% 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 (26 Properties) 21,970,962 2,042,598 9.30% ------------------------------------------------------ --------------------------------
Note 1: This property summary includes only property and equipment held by the Partnership as of March 31, 2002. 2: 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. 3: These leases were assumed by Hardee's Food Systems at a reduced rental rate from that stated in the original leases. 4: The lease with Hardee's Food Systems was terminated as of April 30, 2001. A new lease with Omega Restaurants was negotiated and monthly rent commmenced in October 2001. 5: The tenant vacated the property in February 2002, however, Village Inn remains liable until a lease termination agreement with Management is executed. 6: Management received notice that Hardee's Food Systems intends to close this restaurant in April 2002. Hardee's will remain liable until a lease termination agreement with Management is executed. Page 2 of 2