-----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, WG9ZsAqOn8WaivRQLFPVeT6gzEvbuT6INU8BNW4VW7ls95Nkol5y6/39Lun5NrvB Gn1PUOeKvM7swrr8wW30xw== 0000950131-99-002803.txt : 19990513 0000950131-99-002803.hdr.sgml : 19990513 ACCESSION NUMBER: 0000950131-99-002803 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000825788 STANDARD INDUSTRIAL CLASSIFICATION: 6500 IRS NUMBER: 391606834 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17686 FILM NUMBER: 99611429 BUSINESS ADDRESS: STREET 1: 101 W 11TH STREET STE 1110 CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 6088292992 MAIL ADDRESS: STREET 1: 101 WEST 11TH ST STREET 2: STE 1110 CITY: KANSAS CITY STATE: MO ZIP: 64105 FORMER COMPANY: FORMER CONFORMED NAME: DIVALL INSURED INCOME FUND-2 LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19880229 10-Q 1 FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 --------------------------- 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 0-17686 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Wisconsin 39-1606834 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 W. 11th Street, Suite 1110, Kansas City, Missouri 64105 (Address of principal executive offices, including zip code) (816) 421-7444 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests 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 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. Yes X No --- --- PART I - FINANCIAL INFORMATION Item 1. Financial Statements DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP BALANCE SHEETS March 31, 1999 and December 31, 1998 ------------------------------------ ASSETS
(Unaudited) March 31, December 31, 1999 1998 ----------- ------------ INVESTMENT PROPERTIES AND EQUIPMENT:(Note 3) Land $ 7,388,421 $ 7,406,721 Buildings 12,736,444 12,736,444 Equipment 707,378 707,378 Accumulated depreciation (5,450,400) (5,356,448) ----------- ----------- Net investment properties and equipment 15,381,843 15,494,095 ----------- ----------- OTHER ASSETS: Cash and cash equivalents 1,222,017 1,256,165 Cash restricted for real estate taxes 0 4,404 Cash held in Indemnification Trust (Note 8) 324,550 321,207 Rents and other receivables 178,169 369,715 Deferred rent receivable 129,508 134,899 Prepaid insurance 14,753 19,892 Deferred charges 88,845 91,158 Notes receivable from lessees 8 2,317 ----------- ----------- Total other assets 1,957,850 2,199,757 ----------- ----------- Total assets $17,339,693 $17,693,852 =========== ===========
The accompanying notes are an integral part of these statements. 2 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP BALANCE SHEETS March 31, 1999 and December 31, 1998 ------------------------------------ LIABILITIES AND PARTNERS' CAPITAL
(Unaudited) March 31, December 31, 1999 1998 ------------ ------------ LIABILITIES: Accounts payable and accrued expenses $ 47,724 $ 45,050 Due to current General Partner 1,975 2,723 Security deposits 102,017 102,017 Unearned rental income 50,143 61,179 Real estate taxes payable 61,537 73,469 ------------ ------------ Total liabilities 263,396 284,438 ------------ ------------ CONTINGENT LIABILITIES: (Note 7) PARTNERS' CAPITAL: (Notes 1, 4 and 9) Current General Partner - Cumulative net income 122,084 117,145 Cumulative cash distributions (50,904) (48,929) ------------ ------------ 71,180 68,216 ------------ ------------ Limited Partners (46,280.3 interests outstanding) Capital contributions, net of offering costs 39,358,468 39,358,468 Cumulative net income 18,452,146 17,963,227 Cumulative cash distributions (39,965,268) (39,140,268) Reallocation of former general partners' deficit capital (840,229) (840,229) ------------ ------------ 17,005,117 17,341,198 ------------ ------------ Total partners' capital 17,076,297 17,409,414 ------------ ------------ Total liabilities and partners' capital $ 17,339,693 $ 17,693,852 ============ ============
The accompanying notes are an integral part of these statements. 3 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP STATEMENTS OF INCOME (Unaudited) -----------
Three Months Ended March 31, ---------------------------- 1999 1998 -------- ---------- REVENUES: Rental income (Note 5) $682,380 $ 674,320 Interest income 14,863 38,838 Recovery of amount previously written off 11,783 12,620 Other income 13,006 13,336 Gain on disposal of assets 0 556,227 -------- ---------- 722,032 1,295,341 -------- ---------- EXPENSES: Partnership management fees (Note 6) 45,472 44,757 Disposition fees (Note 6) 0 66,000 Restoration fees (Note 6) 93 0 Appraisal fees 0 56,150 Insurance 5,968 5,793 General and administrative 14,955 34,588 Advisory Board fees and expenses 2,600 4,158 Ground lease payments (Note 3) 31,724 32,493 Expenses incurred due to default by lessee 2,284 (1,011) Professional services 28,814 42,607 Professional services related to investigation 0 414 Depreciation 93,951 105,797 Amortization 2,313 2,313 -------- ---------- 228,174 394,059 -------- ---------- NET INCOME $493,858 $ 901,282 ======== ========== NET INCOME - CURRENT GENERAL PARTNER $ 4,939 $ 9,013 NET INCOME - LIMITED PARTNERS 488,919 892,269 -------- ---------- $493,858 $ 901,282 ======== ========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST, based on 46,280.3 Interests $ 10.56 $ 19.28 outstanding ======== ==========
The accompanying notes are an integral part of these statements. 4 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited) -----------
Three Months Ended March 31, ---------------------------- 1999 1998 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 493,858 $ 901,282 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 96,264 108,110 Recovery of amounts previously written off (11,783) (12,620) Net (gain) on disposal of assets 0 (556,227) Interest applied to Indemnification Trust account (3,343) (4,716) Decrease in rents and other receivables 191,546 153,316 (Deposits) Withdrawals for payment of real estate taxes 4,404 (105) Decrease in prepaids 5,139 5,793 (Increase) Decrease in deferred rent receivable 5,391 31,699 Increase (Decrease) in due to current General Partner (748) 1,095 Increase in accounts payable and other 2,675 33,858 (Decrease) in security deposits 0 (29,675) (Decrease) in real estate taxes payable (11,932) (7,604) Increase/(Decrease) in unearned rental income (11,036) 5,948 ---------- ---------- Net cash from operating activities 760,435 630,154 ---------- ---------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Principal payments received on direct financing leases 9,465 12,620 Principal payments received on notes receivable 2,309 20,610 Proceeds from sale of investment properties 18,300 1,665,625 Recoveries from former affiliates 2,318 0 ---------- ---------- Net cash from investing activities 32,392 1,698,855 ---------- ---------- CASH FLOWS (USED IN) FINANCING ACTIVITIES: Cash distributions to Limited Partners (825,000) (875,000) Cash distributions to current General Partner (1,975) (3,605) ---------- ---------- Net cash (used in) financing activities (826,975) (878,605) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (34,148) 1,450,404 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,256,165 1,438,534 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,222,017 $2,888,938 ========== ==========
The accompanying notes are an integral part of these statements. 5 DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS These unaudited interim financial statements should be read in conjunction with DiVall Insured Income Properties 2 Limited Partnership's (the "Partnership") 1998 annual audited financial statements within Form 10-K. These unaudited financial statements include all adjustments which are, in the opinion of management, necessary to present a fair statement of financial position as of March 31, 1999, and the results of operations for the three-month periods ended March 31, 1999, and 1998, and cash flows for the three-month periods ended March 31, 1999 and 1998. Results of operations for the periods are not necessarily indicative of the results to be expected for the full year. 1. ORGANIZATION AND BASIS OF ACCOUNTING: ------------------------------------- The Partnership was formed on November 18, 1987, pursuant to the Uniform Limited Partnership Act of the State of Wisconsin. The initial capital which was contributed during 1987, consisted of $300, representing aggregate capital contributions of $200 by the former general partners and $100 by the Initial Limited Partner. The minimum offering requirements were met and escrowed subscription funds were released to the Partnership as of April 7, 1988. On January 23, 1989, the former general partners exercised their option to increase the offering from 25,000 interests to 50,000 interests and to extend the offering period to a date no later than August 22, 1989. On June 30, 1989, the general partners exercised their option to extend the offering period to a date no later than February 22, 1990. The offering closed on February 22, 1990, at which point 46,280.3 interests had been sold, resulting in total offering proceeds, net of underwriting compensation and other offering costs, of $39,358,468. The Partnership is currently engaged in the business of owning and operating its investment portfolio (the "Properties") of commercial real estate. The Properties are leased on a triple net basis to, and operated by, franchisors or franchisees of national, regional, and local retail chains under long-term leases. The lessees consist primarily of fast-food, family style, and casual/theme restaurants, but also include a video rental store and a child care center. At March 31, 1999, the Partnership owned 29 properties with specialty leasehold improvements in 12 of these properties. Rental revenue from investment properties is recognized on the straight-line basis over the life of the respective lease. Percentage rents are accrued throughout the year based on the tenant's actual reported year-to-date sales along with management's estimate of the tenant's sales for any remaining unreported periods during the year. The Partnership considers its operations to be in only one segment and therefore no segment disclosure is made. Depreciation of the properties is provided on a straight-line basis over 31.5 years, which is the estimated useful lives of the buildings and improvements. Equipment is depreciated on a straight-line basis over the estimated useful lives of 5 to 7 years. Deferred charges consist of leasing commissions paid when properties are leased to tenants other than the original tenant. Leasing commissions are capitalized and amortized over the life of the lease. Real estate taxes on the Partnership's investment properties are the responsibility of the tenant. However, when a tenant fails to make the required tax payments or when a property becomes vacant, the Partnership makes the appropriate payment to avoid possible foreclosure of the property. Taxes are accrued in the period in which the liability is incurred. 6 Cash and cash equivalents include cash on deposit with financial institutions and highly liquid temporary investments with initial maturities of 90 days or less. 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 reporting period. Actual results could differ from those estimates. During 1996, the Partnership adopted Statement of Financial Accounting Standards No.121 ("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, which requires that all long-lived assets be reviewed for impairment in value whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS 121 had no impact on the Partnership's financial statements. The Partnership will be dissolved on November 30, 2010, or earlier upon the prior occurrence of any of the following events: (a) the disposition of all properties of the Partnership; (b) the written determination by the General Partner that the Partnership's assets may constitute "plan assets" for purposes of ERISA; (c) the agreement of Limited Partners owning a majority of the outstanding interests to dissolve the Partnership; or (d) the dissolution, bankruptcy, death, withdrawal, or incapacity of the last remaining General Partner, unless an additional General Partner is elected previously by a majority in interest of the Limited Partners. During the Second Quarter of 1998, the General Partner received the consent of the Limited Partners to liquidate the Partnership's assets and dissolve the Partnership. However, a buyer was not found for the Partnership's assets, and no current liquidation or dissolution plans are in effect. Management plans to continue normal operations for the Partnership for the forseeable future. No provision for Federal income taxes has been made, as any liability for such taxes would be that of the individual partners rather than the Partnership. At December 31, 1998, the tax basis of the Partnership's assets exceeded the amounts reported in the accompanying financial statements by approximately $8,400,000. 2. REGULATORY INVESTIGATION: ------------------------- A preliminary investigation during 1992 by the Office of Commissioner of Securities for the State of Wisconsin and the Securities and Exchange Commission (the "Investigation") revealed that during at least the four years ended December 31, 1992, the former general partners of the Partnership, Gary J. DiVall ("DiVall") and Paul E. Magnuson ("Magnuson") had transferred substantial cash assets of the Partnership and two affiliated publicly registered partnerships, DiVall Insured Income Fund Limited Partnership ("DiVall 1") (dissolved effective December 31, 1998)and DiVall Income Properties 3 Limited Partnership ("DiVall 3") (collectively the "Partnerships") to various other entities previously sponsored by or otherwise affiliated with DiVall and Magnuson. The unauthorized transfers were in violation of the respective Partnership Agreements and resulted, in part, from material weaknesses in the internal control system of the Partnerships. Subsequent to discovery, and in response to the regulatory inquiries, a third- party Permanent Manager, The Provo Group, Inc. ("TPG"), was appointed (effective February 8, 1993) to assume responsibility for daily operations and assets of the Partnerships as well as to develop and execute a plan of restoration for the Partnerships. Effective May 26, 1993, the Limited Partners, by written consent of a majority of interests, elected the Permanent Manager, TPG, as General Partner. TPG terminated the former general partners by accepting their tendered resignations. In 1993, the current General Partner estimated an aggregate recovery of $3 million for the Partnerships. At that time, an allowance was established against amounts due from former general partners and their affiliates reflecting the estimated $3 million receivable. This net receivable was allocated among the Partnerships based on each Partnership's pro rata share of the total misappropriation. Through March 31, 1999, $5,768,000 of recoveries have been received which exceeded the original estimate of $3 million. As a result, the Partnership has recognized $1,110,000 as income over the past three years, which represents its share of the excess recovery. No further significant recoveries are anticipated. 7 3. INVESTMENT PROPERTIES: ---------------------- As of March 31, 1999, the Partnership owned 27 fully constructed fast-food restaurants, a video store, and a preschool. The properties are comprised of the following: ten (10) Wendy's restaurants, four (4) Hardee's restaurants, five (5) Denny's restaurants, one (1) Applebee's restaurant, one (1) Popeye's Famous Fried Chicken restaurant, one (1) Red Apple restaurant, one (1) Hooter's restaurant, one (1) Kentucky Fried Chicken restaurant, one (1) Hostettler's restaurant, one (1) Miami Subs restaurant, one (1) Village Inn restaurant, one (1) Blockbuster Video store, and one (1) Sunrise Preschool. The 29 properties are located in a total of thirteen (13) states. From time to time, the Partnership experiences interruptions in rental receipts due to tenant delinquencies and vacancies. At March 31, 1999, two of the Partnership's properties were unoccupied. DenAmerica did not renew its lease on the Denny's property in Phoenix, Arizona when it expired on May 30, 1998. Management is currently marketing the property for lease to a new tenant. The tenant operating the Red Apple Restaurant in Cedar Rapids, Iowa, vacated the property during 1998 and ceased paying rent. The tenant cannot be located, and Management is currently marketing the property for lease to a new tenant. The total cost of the investment properties and specialty leasehold improvements includes the original purchase price plus acquisition fees and other capitalized costs paid to an affiliate of the former general partners. According to the Partnership Agreement, the former general partners were to commit 80% of the original offering proceeds to investment in properties. Upon full investment of the net proceeds of the offering, approximately 75% of the original proceeds was invested in the Partnership's properties. The current General Partner receives a fee for managing the Partnership equal to 4% of gross receipts, with a maximum reimbursement for office rent and related office overhead of $25,000 between the three original affiliated Partnerships as provided in the Permanent Manager Agreement ("PMA"). Effective March 1, 1999, the minimum management fee and the maximum reimbursement for office rent and overhead increased by 1.6% representing the allowable annual Consumer Price Index adjustment per the PMA. For purposes of computing the 4% overall fee, gross receipts includes amounts recovered in connection with the misappropriation of assets by the former general partners and their affiliates. TPG has received fees from the Partnership totaling $54,870 to date on the amounts recovered, which has been offset against the 4% minimum fee. The Partnership owns three (3) restaurants located on parcels of land where it has entered into long-term ground leases. One (1) of these leases is paid by the tenant and two (2) are paid by the Partnership. The leases paid by the Partnership are considered operating leases and the lease payments are expensed in the periods to which they apply. The lease terms require aggregate minimum annual payments of approximately $126,000 and expire in the years 2003 and 2008. The tenant operating a Denny's restaurant on Camelback Road in Phoenix, Arizona, has not formally exercised its option to extend its lease which expired on January 30, 1993, but continues to operate the restaurant and pay rent. Management is currently negotiating a possible new lease. Several of the Partnership's property leases contain purchase option provisions with stated purchase prices in excess of the original cost of the properties. The current General Partner is not aware of any unfavorable purchase options in relation to original cost. 4. PARTNERSHIP AGREEMENT: ---------------------- The Partnership Agreement, prior to an amendment effective May 26, 1993, provided that, for financial reporting and income tax purposes, net profits or losses from operations were allocated 90% to the Limited Partners and 10% to the general partners. The Partnership Agreement also provided for quarterly cash distributions from Net 8 Cash Receipts, as defined, within 60 days after the last day of the first full calendar quarter following the date of release of the subscription funds from escrow, and each calendar quarter thereafter, in which such funds were available for distribution with respect to such quarter. Such distributions were to be made 90% to Limited Partners and 10% to the former general partners, provided, however, that quarterly distributions were to be cumulative and were not to be made to the former general partners unless and until each Limited Partner had received a distribution from Net Cash Receipts in an amount equal to 10% per annum, cumulative simple return on his or her Adjusted Original Capital, as defined, from the Return Calculation Date, as defined. Net Proceeds, as originally defined, were to be distributed as follows: (a) to the Limited Partners, an amount equal to 100% of their Adjusted Original Capital; (b) then, to the Limited Partners, an amount necessary to provide each Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative simple return on Adjusted Original Capital from the Return Calculation date including in the calculation of such return all prior distributions of Net Cash Receipts and any prior distributions of Net Proceeds under this clause; and (c) then, to Limited Partners, 90% and to the General Partners, 10%, of the remaining Net Proceeds available for distribution. On May 26, 1993, pursuant to the results of a solicitation of written consents from the Limited Partners, the Partnership Agreement was amended to replace the former general partners and amend various sections of the agreement. The former general partners were replaced as General Partner by The Provo Group, Inc., an Illinois corporation. Under the terms of the amendment, net profits or losses from operations are allocated 99% to the Limited Partners and 1% to the current General Partner. The amendment also provided for distributions from Net Cash Receipts to be made 99% to Limited Partners and 1% to the current General Partner provided, that quarterly distributions will be cumulative and will not be made to the current General Partner unless and until each Limited Partner has received a distribution from Net Cash Receipts in an amount equal to 10% per annum, cumulative simple return on his or her Adjusted Original Capital, as defined, from the Return Calculation Date, as defined, except to the extent needed by the General Partner to pay its federal and state income taxes on the income allocated to them attributable to such year. Distributions paid to the General Partner are based on the estimated tax liability resulting from allocated income. Subsequent to the filing of the General Partner's income tax returns, a true-up with actual distributions is made. The provisions regarding distribution of Net Proceeds, as defined, were also amended to provide that Net Proceeds are to be distributed as follows: (a) to the Limited Partners, an amount equal to 100% of their Adjusted Original Capital; (b) then, to the Limited Partners, an amount necessary to provide each Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative simple return on Adjusted Original Capital from the Return Calculation Date including in the calculation of such return on all prior distributions of Net Cash Receipts and any prior distributions of Net Proceeds under this clause, except to the extent needed by the General Partner to pay its federal and state income tax on the income allocated to its attributable to such year; and (c) then, to Limited Partners, 99%, and to the General Partner, 1%, of remaining Net Proceeds available for distribution. Additionally, per the amendment of the Partnership Agreement dated May 26, 1993, the total compensation paid to all persons for the sale of the investment properties shall be limited to a competitive real estate commission, not to exceed 6% of the contract price for the sale of the property. The General Partner may receive up to one-half of the competitive real estate commission, not to exceed 3%, provided that the General Partner provides a substantial amount of services in the sales effort. It is further provided that a portion of the amount of such fees payable to the General Partner is subordinated to its success in recovering the funds misappropriated by the former general partners. (See Note 7.) 5. LEASES: ------- Lease terms for the majority of the investment properties are 20 years from their inception. The leases generally provide for minimum rents and additional rents based upon percentages of gross sales in excess of specified breakpoints. The lessee is responsible for occupancy costs such as maintenance, insurance, real estate taxes, and utilities. Accordingly, these amounts are not reflected in the statements of income except in circumstances where, in management's opinion, the Partnership will be required to pay such costs to preserve its assets (i.e., payment of past-due real estate taxes). Management has determined that the leases are properly classified as operating 9 leases; therefore, rental income is reported when earned and the cost of the property, excluding the cost of the land, is depreciated over its estimated useful life. Aggregate minimum lease payments to be received under the leases for the Partnership's properties are as follows:
Year ending December 31, 1999 $ 2,196,032 2000 2,211,950 2001 2,112,947 2002 2,056,080 2003 2,014,549 Thereafter 12,229,389 ----------- $22,820,947 ===========
Ten (10) of the properties are leased to Wensouth Orlando, a franchisee of Wendy's restaurants. Wensouth base rents accounted for 35% of total base rents for 1998. 6. TRANSACTIONS WITH CURRENT GENERAL PARTNER: ------------------------------------------ Amounts paid to the current General Partner for the three-month periods ended March 31, 1999 and 1998 are as follows.
Incurred as of Incurred as of Current General Partner March 31, 1999 March 31, 1998 - - ----------------------- -------------- -------------- Management fees $45,472 $ 44,757 Disposition fees 0 66,000 Restoration fees 93 0 Overhead allowance 3,669 3,611 Reimbursement for out-of-pocket expenses 2,717 7,790 Cash distribution 1,975 3,605 ------- -------- $53,926 $125,763 ======= ========
7. CONTINGENT LIABILITIES: ----------------------- According to the Partnership Agreement, as amended, the current General Partner may receive a disposition fee not to exceed 3% of the contract price of the sale of investment properties. Fifty percent (50%) of all such disposition fees earned by the current General Partner is to be escrowed until the aggregate amount of recovery of the funds misappropriated from the Partnerships by the former general partners is greater than $4,500,000. Upon reaching such recovery level, full disposition fees will thereafter be payable and fifty percent (50%) of the previously escrowed amounts will be paid to the current General Partner. At such time as the recovery exceeds $6,000,000 in the aggregate, the remaining escrowed disposition fees shall be paid to the current General Partner. If such levels of recovery are not achieved, the current General Partner will contribute the amounts escrowed towards the recovery. In lieu of an escrow, 50% of all such disposition fees have been paid directly to the restoration account and then distributed among the three Partnerships. Fifty percent (50%) of the total amount paid to the recovery was refunded to the current General Partner during March 1996 after surpassing the recovery level of $4,500,000. The remaining amount allocated to the Partnership may be owed to the current General 10 Partner if the $6,000,000 recovery level is met. As of March 31, 1999, the Partnership may owe the current General Partner $16,296, which is currently reflected as a recovery, if the $6,000,000 recovery level is achieved, which is considered unlikely. 8. PMA INDEMNIFICATION TRUST: -------------------------- The PMA provides that the Permanent Manager will be indemnified from any claims or expenses arising out of or relating to the Permanent Manager serving in such capacity or as substitute general partner, so long as such claims do not arise from fraudulent or criminal misconduct by the Permanent Manager. The PMA provides that the Partnership fund this indemnification obligation by establishing a reserve of up to $250,000 of Partnership assets which would not be subject to the claims of the Partnership's creditors. An Indemnification Trust ("Trust") serving such purposes has been established at United Missouri Bank, N.A. The Trust has been fully funded with Partnership assets as of March 31, 1999. Funds are invested in U.S. Treasury securities. In addition, $74,550 of earnings have been credited to the Trust as of March 31, 1999. The rights of the Permanent Manager to the Trust shall be terminated upon the earliest to occur of the following events: (i) the written release by the Permanent Manager of any and all interest in the Trust; (ii) the expiration of the longest statute of limitations relating to a potential claim which might be brought against the Permanent Manager and which is subject to indemnification; or (iii) a determination by a court of competent jurisdiction that the Permanent Manager shall have no liability to any person with respect to a claim which is subject to indemnification under the PMA. At such time as the indemnity provisions expire or the full indemnity is paid, any funds remaining in the Trust will revert back to the general funds of the Partnership. 9. FORMER GENERAL PARTNERS' CAPITAL ACCOUNTS: ------------------------------------------ The capital account balance of the former general partners as of May 26, 1993, the date of their removal as general partners pursuant to the results of a solicitation of written consents from the Limited Partners, was a deficit of $840,229. At December 31, 1993, the former general partners' deficit capital account balance in the amount of $840,229 was reallocated to the Limited Partners. 10. SUBSEQUENT EVENTS: ------------------ On May 15, 1999, the Partnership made distributions to the Limited Partners for the First Quarter of 1999 of $600,000 amounting to approximately $12.96 per limited partnership interest. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources: - - -------------------------------- Investment Properties and Net Investment in Direct Financing Leases - - ------------------------------------------------------------------- The investment properties, including equipment held by the Partnership at March 31, 1999, were originally purchased at a price, including acquisition costs, of approximately $23,955,000. The tenant of the former Red Apple Restaurant in Cedar Rapids, Iowa vacated the property during 1998 and ceased paying rent. Management is currently marketing the property for lease to a new tenant. 11 DenAmerica, Inc. did not renew the lease on its Denny's store in Phoenix, Arizona upon the original lease's expiration on May 30, 1998. Management is currently marketing the property for lease to a new tenant. A land easement was granted to the City of Cedar Rapids, Iowa on a portion of the land at the former Red Apple Restaurant property in exchange for a payment to the Partnership of $18,300. Other Assets - - ------------ Cash and cash equivalents, including cash restricted for real estate taxes was approximately $1,222,000 at March 31, 1999, compared to $1,260,000 at December 31, 1998. The Partnership designated cash of $600,000 to fund the First Quarter 1999 distributions to Limited Partners, $366,000 for the payment of accounts payable and accrued expenses, and the remainder represents reserves deemed necessary to allow the Partnership to operate normally. Cash generated through the operations of the Partnership's investment properties and sales of investment properties will provide the sources for future fund liquidity and Limited Partner distributions. The Partnership established an Indemnification Trust (the "Trust") during the Fourth Quarter of 1993, deposited $100,000 in the Trust during 1993 and completed funding of the Trust with $150,000 during 1994. The provision to establish the Trust was included in the PMA for the indemnification of TPG, in the absence of fraud or gross negligence, from any claims or liabilities that may arise from TPG acting as Permanent Manager. The Trust is owned by the Partnership. For additional information regarding the Trust refer to Note 8 to the financial statements. Liabilities - - ----------- Accounts payable and accrued expenses at March 31, 1999, in the amount of $48,000, primarily represented the accrual of legal and auditing fees. Partners' Capital - - ----------------- Net income for the quarter was allocated between the General Partner and the Limited Partners, 1% and 99%, respectively, as provided in the Partnership Agreement and the Amendment to the Partnership Agreement, as discussed more fully in Note 4 of the financial statements. The former general partners' deficit capital account balance was reallocated to the Limited Partners at December 31, 1993. Refer to Note 9 to the financial statements for additional information regarding the reallocation. Cash distributions paid to the Limited Partners and to the General Partner during 1999 of $825,000 and $1,975, respectively, have also been in accordance with the amended Partnership Agreement. The First Quarter 1999 distribution of $600,000 was paid to the Limited Partners on May 15, 1999. Results of Operations: - - ---------------------- The Partnership reported net income for the quarter ended March 31, 1999, in the amount of $494,000 compared to net income for the quarter ended March 31, 1998, of $901,000. 12 Revenues - - -------- Total revenues were $722,000 and $1,295,000, for the quarters ended March 31, 1999 and 1998, respectively. 1998 revenue included a gain of $556,000 on the sale of two Denny's properties to the tenant. Total revenues should approximate $2,700,000 annually or $675,000 quarterly based on leases currently in place. Future revenues may decrease with tenant defaults and/or sales of Partnership properties. They may also increase with additional rents due from tenants, if those tenants experience sales levels which require the payment of additional rent to the Partnership. Expenses - - -------- For the quarters ended March 31, 1999 and 1998, cash expenses amounted to approximately 18% and 22%, of total revenues, respectively. Total expenses, including non-cash items, amounted to approximately 32% and 30%, of total revenues for the quarters ended March 31, 1999 and 1998, respectively. Disposition fees were recorded during 1998 as a result of the sale of two Denny's properties to the tenant, and appraisal fees totaling $56,000 were incurred during 1998 for the appraisal of all of the Partnership's properties. Inflation: - - ---------- Inflation has a minimal effect on operating earnings and related cash flows from a portfolio of triple net leases. By their nature, such leases actually fix revenues and are not impacted by rising costs of maintenance, insurance, or real estate taxes. If inflation causes operating margins to deteriorate for lessees if expenses grow faster than revenues, then, inflation may well negatively impact the portfolio through tenant defaults. It would be misleading to associate inflation with asset appreciation for real estate, in general, and the Partnership's portfolio, specifically. Due to the "triple net" nature of the property leases, asset values generally move inversely with interest rates. Year 2000 - - --------- The Partnership's operations are not dependent on date sensitive software. The Partnership is not aware of any Year 2000 problems with its current software. Accounting and Partnership records software are owned and operated by third parties who provide services to the Partnership under contract and any cost to make the software Year 2000 compliant will be borne by the third parties. The Partnership is currently in the process of evaluating Year 2000 issues with these third party providers. The Partnership believes, however, that even if any Year 2000 problems are not corrected on schedule, the cost and disruption to operations of the Partnership are expected to be minimal. Tenants are responsible for the operation of any equipment located at the Partnership's properties. While the Partnership is not fully aware of the compliance attainment efforts of its tenants, tenant preparedness for the Year 2000 should have minimal impact on the Partnership and are not expected to be material to the Partnership's operations, financial condition or liquidity. The Partnership is evaluating the efforts of its tenants to prepare for the Year 2000. To the extent the Partnership is not satisfied with the status of 13 a tenant's or third party provider's Year 2000 compliance, the Partnership expects to develop and implement appropriate contingency plans. Item 3. Quantitative and Qualitative Disclosure About Market Risk None. 14 PART II - OTHER INFORMATION Items 1 - 5. Not Applicable. Item 6. Exhibits and Reports on Form 8-K (a) Listing of Exhibits: 99.0 Correspondence to the Limited Partners dated May 15, 1999, regarding the First Quarter 1999 distribution. (b) Reports on Form 8-K: The Registrant filed no reports on Form 8-K during the first quarter of fiscal year 1999. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP By: The Provo Group, Inc., General Partner By: /s/Bruce A. Provo ------------------------------------ Bruce A. Provo, President Date: May 14, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: The Provo Group, Inc., General Partner By: /s/ Bruce A. Provo ------------------------------------ Bruce A. Provo, President Date: May 14, 1999 By: /s/ Kristin J. Atkinson ------------------------------------ Kristin J. Atkinson Vice President - Finance and Administration Date: March 14, 1999 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the March 31, 1999 Form 10-Q and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1,222,017 324,550 411,283 0 0 1,957,850 20,832,243 5,450,400 17,339,693 263,396 0 0 0 0 17,076,297 17,339,693 682,380 722,032 0 0 228,174 0 0 493,858 0 493,858 0 0 0 493,858 10.56 10.56
EX-99 3 CORRESPONSENCE TO THE LIMITED PARTNERS DiVall Insured Income Properties 2, L.P. QUARTERLY NEWS ================================================================================ A publication of The Provo Group, Inc. FIRST QUARTER 1999 Distribution Highlights . 10.9% (approx.) annualized return from operations and other sources based on $22,000,000 (estimated net asset value as of December 31, 1998). . $600,000 total amount distributed for the First Quarter 1999 which was $80,000 more than projected. The higher than budgeted distributions are primarily due to the percentage rents collected during the quarter as well as the proceeds from a land easement. . $12.96 per unit (approx.) for the First Quarter 1999 from both cash flow from operations and "net" cash activity from financing and investing activities. . $973.00 to $775.00 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.) ------------------------------------------------------------- The Advisory Board felt the following information was important for their fellow Limited Partners to be aware of. Exactly how does DiVall 2 compare to some of today's other investment income alternatives? - - -------------------------------------------------------------------------------- Market Yield Comparison Based on a Net Asset Value per unit of $475 Available for Investment
DiVall 2 Available Market Return -------- ----------------------- (Based on current expectations for 1999 distributions)........................................... 9.8% Certificate of Deposit ---------------------- Six Month........................................................................................ 4.0% Five Year........................................................................................ 4.5% Government Bonds ---------------- One Year......................................................................................... 4.9% Five Year........................................................................................ 5.2% Corporate Bonds --------------- AT&T - Two Year.................................................................................. 5.2% AT&T - Five Year................................................................................. 6.5%
=============================================================================== The Advisory Board noted that the recent mini-tender offer for $350 per unit would yield the "purchaser" 13.5% from expected 1999 distributions. The Board was pleased that only a handful of small investors tendered their shares for this heavily discounted price. Page 2 DiVall 2 1 Q 99 Statements of Income and Cash Flow Highlights
. 6% increase in "total" . A $66,000 increase . A decrease of $23,000 operating revenues in net income in "total" expenses from projections. from projections. from projections. . Revenues were higher than . Expenses varied from budget because projected because the actual the printing and income tax costs 1998 percentage rents charged budgeted for March (the first quarter) during the first quarter of 1999 were not incurred until April (the were higher than expected. second quarter). In addition, legal fees have not been to the extent expected.
----------------------------- Property Highlights Vacancies --------- . Red Apple Restaurant (Cedar Rapids, IA) unexpectedly vacated the premises on May 30, 1998. Management has written off the outstanding balance as uncollectable and will continue to pursue other tenants for this location. . Denny's (Phoenix, AZ) was vacant at March 31, 1999. The tenant did not renew their lease which expired on May 31, 1998. Management is pursuing other possible tenants for this property, including other Denny's operators. Rents Receivable ---------------- . Denny's (Phoenix, AZ) was delinquent at March 31, 1999 in an amount of $52,900. . Miami Subs (Palm Beach, FL) was delinquent at March 31, 1999 in the amount of $2,700. . Popeye's (Park Forest, IL) was delinquent $52,900 in percentage rents as of March 31, 1999. Property Issues --------------- . Hostetler's BBQ (Des Moines, IA) Management has consented to a sublease agreement between this tenant and Daytona's Inc. effective November 1, 1998. Hostetler's will remain liable for all rent charges. Page 3 DiVall 2 1 Q 99 Just to Clarify Things . . . The Provo Group, Inc., ("TPG") would like to use this section of the newsletter to clarify some misunderstandings about the Partnership. Selling Your Units & Tender Offers: - - ---------------------------------- 1. When you receive offers in the mail to purchase your units, those offers are not from TPG or endorsed by TPG. These companies are in no way affiliated with TPG. 2. TPG cannot "buy back" your units nor can we find a buyer for you. TPG is not a licensed broker. Furthermore, it would be a potential conflict of interest for us to represent you, the investor, and a potential buyer of your units. The most competitive arena for immediate liquidation is the secondary market. 3. When you sell your units on the secondary market, it is highly unlikely you will receive full liquidation value for the units. Why? The person or company purchasing your units is doing so as an investment. For example, if they purchase your units for $350 per unit and we liquidate in 2 years for $475 per unit, the buyer has earned $125 per unit plus quarterly distributions collected along the way. This would be considered a good investment. However, offering to purchase your units at $475, just to liquidate at $475 would not give the purchaser any upside potential ... just "downside risk". 4. When you do sell your units, the buyer will pay you for those units not TPG. TPG plays no role in the exchanging of money for a sale of units. Once we have received a written contract to sell units, we transfer the units and issue a new certificate. If you do not receive your money from the buyer in a timely fashion, feel free to contact our offices and we will try to put you in touch with the buyer of your units. Other Common Misunderstandings: - - ------------------------------- 1. As an investor, you own units in DiVall Insured Income Properties 2, L.P., you do not own "shares", "stock", or an "interest" in The Provo Group, Inc. 2. When TPG sells DiVall, we will not be out of business. TPG manages your limited partnership, as well as many other portfolios of properties. TPG was in business long before taking on the DiVall challenges and we will be around long after the DiVall Partnerships are liquidated. 3. Your capital account does not represent a guaranteed "balance" available for distribution. 4. Less than 5% of DiVall 2 Investors sell their units each year. The vast majority of limited partners are comfortable with their position in DiVall 2. Page 4 DiVall 2 1 Q 99 --------------------------- Questions & Answers 1. What is the value of my units? Management calculated the estimated Net Unit Value for the Partnership to be $475 per unit as of December 31, 1998. 2. When can I expect my next distribution mailing? Your distribution correspondence for the Second Quarter of 1999 is scheduled to be mailed on August 13, 1999. ***** For questions or additional information, please contact Investor Relations at: 1-800-547-7686 or 1-816-421-7444 All written inquiries may be mailed or faxed to: The Provo Group, Inc. 101 West 11th Street, Suite 1110 Kansas City, Missouri 64105 (FAX 816-221-2130) www.tpgdivall.com - - -------------------------------------------------------------------------------- DIVALL INCOME PROPERTIES 2 L.P. STATEMENTS OF INCOME AND CASH FLOW CHANGES FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999 - - --------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------- PROJECTED ACTUAL VARIANCE --------------------------------- 1ST 1ST QUARTER QUARTER BETTER 3/31/99 3/31/99 (WORSE) OPERATING REVENUES ---------- ---------- --------- Rental income $ 640,641 $ 682,380 $ 41,739 Interest income 15,664 14,863 (801) Other income 22,462 24,788 2,326 ---------- ---------- --------- TOTAL OPERATING REVENUES $ 678,767 $ 722,031 $ 43,264 ---------- ---------- --------- OPERATING EXPENSES Insurance $ 6,096 $ 5,968 $ 128 Management fees 45,683 45,472 211 Overhead allowance 3,665 3,669 (4) Advisory Board 3,849 2,600 1,249 Administrative 28,945 11,286 17,659 Professional services 6,150 5,649 501 Auditing 18,100 19,071 (971) Legal 7,500 4,187 3,313 Defaulted tenants 2,610 2,184 326 ---------- ---------- --------- TOTAL OPERATING EXPENSES $ 122,598 $ 100,186 $ 22,412 ---------- ---------- --------- GROUND RENT $ 31,800 $ 31,724 $ 76 ---------- ---------- --------- INVESTIGATION AND RESTORATION EXPENSES $ 474 $ 0 $ 474 ---------- ---------- --------- NON-OPERATING EXPENSES Depreciation $ 93,951 $ 93,951 $ 0 Amortization 2,313 2,313 0 ---------- ---------- --------- TOTAL NON-OPERATING EXPENSES $ 96,264 $ 96,264 $ 0 ---------- ---------- --------- TOTAL EXPENSES $ 251,136 $ 228,174 $ 22,962 ---------- ---------- --------- NET INCOME (LOSS) $ 427,631 $ 493,857 $ 66,226 OPERATING CASH RECONCILIATION: VARIANCE --------- Depreciation and amortization 96,264 96,264 0 Recoveries of amounts previously written off 0 (2,318) (2,318) (Increase) Decrease in current assets 127,761 199,546 71,785 Increase (Decrease) in current liabilities (45,268) (23,829) 21,439 (Increase) Decrease in cash reserved for payables 31,157 24,000 (7,157) Advance from current cash flows for future distributions (119,400) (204,400) (85,000) ---------- ---------- --------- Net Cash Provided From Operating Activities $ 518,145 $ 583,120 $ 64,975 ---------- ---------- --------- CASH FLOWS FROM (USED IN) INVESTING AND FINANCING ACTIVITIES Proceeds from repayment of notes receivable 2,317 2,309 (8) Recoveries from former general partners 0 2,318 2,318 Proceeds from property sales 0 18,300 18,300 ---------- ---------- --------- Net Cash Provided From Investing And Financing Activities $ 2,317 $ 22,927 $ 20,610 ---------- ---------- --------- Total Cash Flow For Quarter $520,462 $ 606,047 $ 85,585 Cash Balance Beginning of Period 1,229,012 1,260,570 31,558 Less 4th quarter distributions paid 2/99 (775,000) (825,000) (50,000) Change in cash reserved for payables or future distributions 88,243 180,400 92,157 ---------- ---------- --------- Cash Balance End of Period $1,062,717 $1,222,017 $ 159,300 Cash reserved for 1st quarter L.P. distributions (520,000) (600,000) (80,000) Cash reserved for payment of payables (239,695) (366,400) (126,750) -------- ---------- --------- Unrestricted Cash Balance End of Period $ 303,022 $ 255,617 $( 47,405) ========== ========== ========= - - ------------------------------------------------------------------------------------------------------------ PROJECTED ACTUAL VARIANCE ------------------------------------- * Quarterly Distribution $ 520,000 $ 600,000 $ 80,000 Mailing Date 5/15/99 (enclosed) -- - - ------------------------------------------------------------------------------------------------------------
* Refer to distribution letter for detail of quarterly distribution. PROJECTIONS FOR DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP 1999 PROPERTY SUMMARY AND RELATED ESTIMATED 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 646,425 100,554 15.56% RED APPLE REST. CEDAR RAPIDS, IA 660,156 - 0.00% DENNY'S (3) PHOENIX, AZ 295,750 0 0.00% 224,376 0 0.00% DENNY'S PHOENIX, AZ 972,726 65,000 6.68% 183,239 0 0.00% DENNY'S (2) PHOENIX, AZ 865,900 86,000 9.93% 221,237 0 0.00% DENNY'S TWIN FALLS, ID 699,032 83,000 11.90% 04/30/99 190,000 37,860 19.93% DENNY'S (2) (3) PHOENIX, AZ 500,000 37,000 7.40% 14,259 0 0.00% HARDEE'S (5) S MILWAUKEE, WI 808,032 64,000 7.92% HARDEE'S (5) HARTFORD, WI 686,563 64,000 9.32% HARDEE'S (5) MILWAUKEE, WI 1,010,045 76,000 7.52% (4) 260,000 0 0.00% " " 151,938 0 0.00% HARDEE'S (5) FOND DU LAC, WI 849,767 88,000 10.36% (4) 290,469 0 0.00% HARDEE'S (5) 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 66,000 7.81% 52,813 0 0.00% KFC SANTA FE, NM 451,230 60,000 13.30% MIAMI SUBS PALM BEACH, FL 743,625 48,000 6.45%
TOTALS ------------------------------ ANNUAL CONCEPT LOCATION COST RECEIPTS RETURN - - ----------------------------------- ------------------------------ APPLEBEE'S COLUMBUS,OH 1,143,965 135,780 11.87% BLOCKBUSTER OGDEN, UT 646,425 100,554 15.56% RED APPLE REST. CEDAR RAPIDS, IA 660,156 0 0.00% DENNY'S (3) PHOENIX, AZ 520,126 0 0.00% DENNY'S PHOENIX, AZ 1,155,965 65,000 5.62% DENNY'S (2) PHOENIX, AZ 1,087,737 86,000 7.91% DENNY'S TWIN FALLS, ID 889,032 121,060 13.62% DENNY'S (2) (3) PHOENIX, AZ 514,259 37,000 7.19% HARDEE'S (5) S MILWAUKEE, WI 808,032 64,000 7.92% HARDEE'S (5) HARTFORD, WI 686,563 64,000 9.32% HARDEE'S (5) MILWAUKEE, WI 1,421,983 76,000 5.34% " " HARDEE'S (5) FOND DU LAC, WI 1,140,236 88,000 7.72% HARDEE'S (5) 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 66,000 7.35% KFC SANTA FE, NM 451,230 60,000 13.30% MIAMI SUBS PALM BEACH FL 743,625 48,000 6.45%
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 1999 is based on 1998 sales levels. 3: The Partnership entered into a long-term ground lease in which the Partnership is responsible for payment of rent. The annual base rent shown is net of the underlying ground lease 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 System at a reduced rental rate from that stated in the original leases. Page 1 of 2 PROJECTIONS FOR DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP 1999 PROPERTY SUMMARY AND RELATED ESTIMATED RECEIPTS ------------------------------- REAL ESTATE PORTFOLIO (Note 1) ------------------------------- ANNUAL - - --------------------------------- BASE % CONCEPT LOCATION COST RENT YIELD - - --------------------------------- ------------------------------- POPEYE'S PARK FOREST, IL 580,938 77,280 13.30% SUNRISE PS PHOENIX, AZ 1,084,503 127,920 11.80% VILLAGE INN GRAND FORKS, ND 739,375 84,000 11.36% WENDY'S AIKEN, SC 633,750 90,480 14.28% WENDY'S CHARLESTON, SC 580,938 76,920 13.24% 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 (29 Properties) 21,114,440 2,201,154 10.42% - - --------------------------------- ------------------------------- - - ----------------------------------------- ------------------------------- EQUIPMENT TOTALS - - ----------------------------------------- ------------------------------- LEASE ANNUAL EXPIRATION LEASE % TOTAL DATE COST RECEIPTS RETURN COST RECEIPTS RETURN - - ----------------------------------------- ------------------------------- 580,938 77,280 13.30% 79,219 0 0.00% 1,182,735 127,920 10.82% 19,013 0 0.00% 739,375 84,000 11.36% 633,750 90,480 14.28% 580,938 76,920 13.24% 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% - - ----------------------------------------- ------------------------------- - - ----------------------------------------- ------------------------------- 2,551,063 37,860 1.48% 23,665,503 2,239,015 9.46% - - ----------------------------------------- ------------------------------- Note 1: This property summary includes only current property and equipment held by the Partnership. Equipment lease receipts shown include a return of capital. Page 2 of 2 -----END PRIVACY-ENHANCED MESSAGE-----