EX-99.0 4 dex990.htm CORRESPONDENCE TO THE LIMITED PARTNERS RE: FOURTH QUARTER 2006 DISTRIBUTION Correspondence to the Limited Partners re: Fourth Quarter 2006 distribution

Exhibit 99.0

DiVall Insured Income Properties 2, L.P

QUARTERLY NEWS

 

A publication of The Provo Group, Inc.    FOURTH QUARTER 2006

TOTAL 2006 OPERATING CASH FLOW DISTRIBUTIONS 13% HIGHER THAN ORIGINAL PROJECTIONS…

Good news—We projected total distributions of $975,000 ($21.07 per unit) from cash flow for the first three quarters of 2006, but actual distributions were $1.1 million ($23.77 per unit). The Fourth Quarter distribution is $8 per unit rather than the $7.56 per unit we estimated in the Third Quarter Newsletter. This is 14% more than we originally projected in the 2006 budget. The increased cash flow distributions for 2006 are primarily due to the renewal of the Blockbuster Video store in Ogden, Utah.

STABLE PERFORMANCE PROJECTED FOR 2007…

Stability—All of the properties owned by the Partnership, with the exception of the Park Forest, IL property (Popeye’s; see Property Highlights on page 2), appear to be stable and tenant performance in 2007 is projected to be generally satisfactory. Distributions from 2007 operating cash flows are estimated to total approximately $28 per unit, for an annualized operating return slightly under 7% (based on the $405 per unit Net Asset Value as of December 31, 2006). These distributions will be adjusted upward for any 2007 collections from Popeye’s.

POTENTIAL PROPERTY SALE…

Sale—Although a property was not sold in 2006 as originally anticipated in last year’s Fourth Quarter newsletter; we are planning to sell a Phoenix, AZ property in 2007 (see Property Highlights on page 2). Although at this point there is no assurance of a completed sale, net sale proceeds could approximate $32 per unit.

 

 

DISTRIBUTION HIGHLIGHTS

 

•      $370,000 distributed for the Fourth Quarter of 2006 which is approximately $45,000 higher than originally projected.

  

•      Quarterly distributions from 2006 operating cash flows total $1,470,000, which is $170,000 ($3.67 per unit) higher than originally projected.

   

•      The Fourth Quarter distribution is approximately $8
per unit. The annualized “operating return” for the total 2006 cash flow distributions was about 7.7%, based on the Net Asset Value (“NAV”) of $410 per unit as of December 31, 2005.

  

•      $1,380 to $1,231 range of cumulative distributions per unit from the first unit sold to the last unit sold before the initial offering closed (3/90), respectively. (Distributions are from both cash flow from operations and “net” cash activity from financing and investing activities).

 

In December, we engaged the public accounting firm of McGladrey and Pullen, LLP (“M&P”) to perform the 2006 audit and 2007 interim quarterly reviews. A majority of the partners of Altshculer, Melvoin and Glasser LLP (“AM&G”), our previous accounting firm, became partners of M&P in November of 2006 and therefore the client-auditor relationship between the Partnership and AM&G ceased. The Partnership separately engaged M&P affiliate, RSM McGladrey, Inc., to provide tax consultation and return preparation services related to 2006.

 

SEE INSIDE

   

    Property Highlights

    2

    Answers to Frequently Asked Questions

    2

    Investor Relations Contact Information

    2

 

PAGE 2

 

   

 

DIVALL 2 QUARTERLY NEWS

   

 

4 Q 06

PROPERTY HIGHLIGHTS

DEFAULTED TENANT

Park Forest, IL (operates as a Popeye’s restaurant): The tenant was delinquent on December 31, 2006 in the amount of $22,390. As stated in previous newsletters, the Partnership has defaulted Popeye’s and has filed for possession of the property in the Cook County Courts. Monthly rent and escrow payments totaling approximately $34,000 were received from the tenant during the Fourth Quarter. Popeye’s remains liable for rent and property tax obligations through the remainder of its lease (expiration is 12/31/2009).

PROPERTY HELD FOR SALE

Phoenix, Arizona (operates as Sunrise Preschool): A sales contract was executed in early January of 2007 for the sale of the property at a sales price of $1.6 million. Closing is anticipated to be during the summer of 2007 and total commissions of 6% are expected to be paid from the sale proceeds.

ANSWERS TO FREQUENTLY ASKED QUESTIONS:

 

•  

When can I expect my next quarterly distribution mailing?

Your distribution check and correspondence for the First Quarter of 2007 is scheduled to be mailed on May 15, 2007. It is important to cash all distribution checks in a timely manner.

 

•  

When can I expect the December 31, 2006 Net Asset Value (NAV)?

The Net Asset Value letter from the General Partner is scheduled to be mailed in February of 2007.

 

•  

When can I expect to receive my 2006 Schedule K-1?

According to IRS regulations we are not required to mail K-1’s until April 15th. The 2006 K-1’s are scheduled to be mailed out by mid- March of 2007.

 

•  

When can I expect to receive my 2006 Annual Form 10-K Report?

Your Annual Report is scheduled to be mailed in May of 2007.

 

•  

When will I receive my reissue check(s) for outstanding check(s) issued prior to November 15, 2006?

All reissue checks were issued from our new Bank of the West distribution account and were mailed in either late December of 2006 or early January of 2007.

 

•  

What should I do with my original uncashed distribution check(s) issued from Comerica Bank?

Destroy all checks dated prior to November 15, 2006. (Do not attempt to cash any old outstanding check(s) as the Comerica Bank account has been closed.)

 

•  

I’ve moved. How do I update my account registration?

Please mail or fax to DiVall Investor Relations (see contact information below), a signed letter stating your new address and telephone number. Updates cannot be accepted over the telephone or via voicemail messages.

 

•  

If I have questions or comments, how can I reach DiVall Investor Relations?

You can reach DiVall Investor Relations via the contact information listed below.

INVESTOR RELATIONS CONTACT INFORMATION:

 

MAIL:    DiVall Investor Relations    PHONE:    1-800-547-7686
   c/o Phoenix American Financial Services, Inc.    FAX:    1-415-485-4553
   2401 Kerner Blvd.      
   San Rafael, CA 94901      

DIVALL INSURED INCOME PROPERTIES 2 L.P.

STATEMENTS OF INCOME AND CASH FLOW CHANGES

FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 2006

 

      PROJECTED     ACTUAL     VARIANCE  
     

4TH

QUARTER
12/31/2006

     4TH
QUARTER
12/31/2006		     BETTER
(WORSE)		  

OPERATING REVENUES

       

Rental income

    $ 622,713     $ 659,932     $ 37,219  

Interest income

      4,800       8,123       3,323  

Other income

      0       5,986       5,986  
                        

TOTAL OPERATING REVENUES

    $ 627,513     $ 674,041     $ 46,528  
                        

OPERATING EXPENSES

       

Insurance

    $ 9,768     $ 12,056     ($ 2,288 )

Management fees

      54,849       54,932       (83 )

Overhead allowance

      4,425       4,442       (17 )

Advisory Board

      3,500       2,625       875  

Administrative

      6,848       4,905       1,943  

Professional services

      14,920       16,795       (1,875 )

Auditing

      16,500       18,950       (2,450 )

Legal

      9,000       14,228       (5,228 )

Property Expenses

      8,225       3,194       5,031  
                        

TOTAL OPERATING EXPENSES

    $ 128,035     $ 132,127     $ (4,092 )
                        

INVESTIGATION AND RESTORATION EXPENSES

    $ 0     $ 124     $ (124 )
                        

NON-OPERATING EXPENSES

       

Depreciation

      62,292       55,862       6,430  

Amortization

      3,198       4,296       (1,098 )

Settlement Expense

      0       0       0  
                        

TOTAL NON-OPERATING EXPENSES

    $ 65,490     $ 60,158     $ 5,332  
                        

TOTAL EXPENSES

   $ 193,525     $ 192,409     $ 1,116  
                        

NET INCOME

   $ 433,987     $ 481,632     $ 47,645  
                 VARIANCE  

OPERATING CASH RECONCILIATION:

       

Depreciation and amortization

      65,490       60,158       (5,332 )

Recovery of amounts previously written off

      0       (3,107 )     (3,107 )

(Increase) Decrease in current assets

      (264,845 )     (282,239 )     (17,394 )

Increase (Decrease) in current liabilities

      10,330       16,836       6,506  

(Increase) Decrease in cash reserved for payables

      (12,066 )     (18,762 )     (6,696 )

Current cash flows advanced from (reserved for) future distributions

      97,000       117,186       20,186  
                        

Net Cash Provided From Operating Activities

   $ 329,896     $ 371,703     $ 41,807  
                        

CASH FLOWS (USED IN) FROM INVESTING AND FINANCING ACTIVITIES

       

Indemnification Trust (Interest earnings reinvested)

      (3,600 )     (5,025 )     (1,425 )

Building improvements

      0       0       0  

Recovery of amounts previously written off

      0       3,107       3,107  
                        

Net Cash (Used In) From Investing And Financing Activities

   $ (3,600 )   $ (1,918 )   $ 1,682  
                        

Total Cash Flow For Quarter

   $ 326,296     $ 369,785     $ 43,489  

Cash Balance Beginning of Period

      616,838       724,231       107,393  

Less 3rd quarter distributions paid 11/06

      (325,000 )     (370,000 )     (45,000 )

Change in cash reserved for payables or future distributions

      (86,670 )     (98,424 )     (11,754 )
                        

Cash Balance End of Period

   $ 531,464     $ 625,592     $ 94,128  

Cash reserved for 4th quarter 2006 L.P. distributions

      (325,000 )     (370,000 )     (45,000 )

Cash reserved for payment of accrued expenses

      (76,233 )     (117,605 )     (41,372 )

Cash advanced from (reserved for) future distributions

      0       (4,814 )     (4,814 )
                        

Unrestricted Cash Balance End of Period

    $ 130,232     $ 133,173     $ 2,941  
                        
     PROJECTED     ACTUAL     VARIANCE  

*       Quarterly Distribution

   $ 325,000     $ 370,000     $ 45,000  

         Mailing Date

      02/15/2007       (enclosed )     —    
* Refer to distribution letter for detail of quarterly distribution.

 

PROJECTIONS FOR

    DIVALL INSURED INCOME PROPERTIES 2 LP   

DISCUSSION PURPOSES

    2007 PROJECTED PROPERTY SUMMARY   

AND RELATED RECEIPTS

FOR CURRENT OPERATING PROPERTIES

AS OF DECEMBER 31, 2006

 

PORTFOLIO

    (Note 1)                               
          REAL ESTATE     EQUIPMENT     TOTALS  

CONCEPT

   

LOCATION

    COST    ANNUAL
BASE
RENT		    %
YIELD		     LEASE
EXPIRATION
DATE		    COST    PRINCIPAL
RETURNED
AS OF 1/1/94		    ANNUAL
LEASE
RECEIPTS		    %
RETURN		     COST    ANNUAL
RECEIPTS		    RETURN  

APPLEBEE'S

    COLUMBUS, OH    1,059,465    135,780    12.82 %      84,500    29,849    0    0.00 %   1,143,965    135,780    11.87 %

BLOCKBUSTER

    OGDEN, UT    646,425    108,000    16.71 %                 646,425    108,000    16.71 %

DENNY'S (2)

    PHOENIX, AZ    972,726    65,000    6.68 %      183,239    0    0    0.00 %   1,155,965    65,000    5.62 %

CHINESE SUPER BUFFET

    PHOENIX, AZ    865,900    66,000    7.62 %      221,237    0    0    0.00 %   1,087,137    66,000    6.07 %

DAYTONA'S All SPORTS CAFÉ

    DES MOINES, IA    845,000    72,000    8.52 %      52,813    0    0    0.00 %   897,813    72,000    8.02 %

KFC

    SANTA FE, NM    451,230    60,000    13.30 %                 451,230    60,000    13.30 %

Note:

1: This property summary includes only operating property and equipment held by the Partnership as of December 31, 2006.
2: The Denny's lease expires as of October 31, 2007. Management anticipates the lease to be renewed, therefore, twelve months of rent are projected.
3: In June of 2006, Management executed a six-month listing agreement for the sale of the Sunrise Preschool property in Phoenix, AZ.

A sales contract was executed in early January of 2007 for the sale of the property at a sales price of $1,600,000. Closing is expected to be during the summer of 2007. Until closing, the Partnership will receive monthly rent of approximately $11,726 from the tenant. For report purposes, since there is no assurance of a completed sale, the annual base rent shown includes a full twelve months of rent.

PROJECTIONS FOR

   

            DIVALL INSURED INCOME PROPERTIES 2 LP

   

DISCUSSION PURPOSES

   

            2007 PROJECTED PROPERTY SUMMARY

   

AND RELATED RECEIPTS

FOR CURRENT OPERATING PROPERTIES

AS OF DECEMBER 31, 2006

 

PORTFOLIO    (Note 1)                               
         

REAL ESTATE

     EQUIPMENT    

TOTALS

  

CONCEPT

   

LOCATION

    COST    ANNUAL
BASE
RENT		    %
YIELD		     LEASE
EXPIRATION
DATE		    COST    PRINCIPAL
RETURNED
AS OF 1/1/94		    ANNUAL
LEASE
RECEIPTS		    %
RETURN		     COST    TOTAL
RECEIPTS		    RETURN  

POPEYE'S

    PARK FOREST, IL    580,938    77,280    13.30 %                 580,938    77,280    13.30 %

SUNRISE PRESCHOOL (3)

    PHOENIX, AZ    1,084,503    140,706    12.97 %      79,219    33,047    0    0.00 %   1,182,735    140,706    11.90 %
                 19,013    6,710    0    0.00 %        

PANDA BUFFET

    GRAND FORKS, ND    739,375    36,000    4.87 %                 739,375    36,000    4.87 %

WENDY'S

    AIKEN, SC    633,750    90,480    14.28 %                 633,750    90,480    14.28 %

WENDY'S

    CHARLESTON, SC    580,938    77,280    13.30 %                 580,938    77,280    13.30 %

WENDY'S

    N. AUGUSTA, SC    660,156    87,780    13.30 %                 660,156    87,780    13.30 %

WENDY'S

    AUGUSTA, GA    728,813    96,780    13.28 %                 728,813    96,780    13.28 %

WENDY'S

    CHARLESTON, SC    596,781    76,920    12.89 %                 596,781    76,920    12.89 %

WENDY'S

    AIKEN, SC    776,344    96,780    12.47 %                 776,344    96,780    12.47 %

WENDY'S

    AUGUSTA, GA    649,594    86,160    13.26 %                 649,594    86,160    13.26 %

WENDY'S

    CHARLESTON, SC    528,125    70,200    13.29 %                 528,125    70,200    13.29 %

WENDY'S

    MT. PLEASANT, SC    580,938    77,280    13.30 %                 580,938    77,280    13.30 %

WENDY'S

    MARTINEZ, GA    633,750    84,120    13.27 %                 633,750    84,120    13.27 %
                                                             

PORTFOLIO TOTALS

       13,614,751    1,604,546    11.79 %      640,021    69,606    0    0.00 %   14,254,772    1,604,546    11.26 %

Note:

1: This property summary includes only operating property and equipment held by the Partnership as of December 31, 2006.
2: The Denny's lease expires as of October 31, 2007. Management anticipates the lease to be renewed, therefore, twelve months of rent are projected.
3: In June of 2006, Management executed a six-month listing agreement for the sale of the Sunrise Preschool property in Phoenix, AZ.

A sales contract was executed in early January of 2007 for the sale of the property at a sales price of $1,600,000. Closing is expected to be during the summer of 2007. Until closing, the Partnership will receive monthly rent of approximately $11,726 from the tenant. For report purposes, since there is no assurance of a completed sale, the annual base rent shown includes a full twelve months of rent.