<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: Commission File Number:
MARCH 31, 1996 33-2320
EXCEL PROPERTIES, LTD.
(Exact name of registrant as specified in its charter)
CALIFORNIA 87-0426335
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
16955 VIA DEL CAMPO, SUITE 110 SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (619) 485-9400
Securities registered pursuant to Section 12(b) of the Act: NONE
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No
--- ---
(2) Yes X No
--- ---
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EXCEL PROPERTIES, LTD.
INDEX TO FINANCIAL STATEMENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Balance Sheets
March 31, 1996 (Unaudited)
December 31, 1995 ................................................. 3
Statements of Income
Three Months Ended March 31, 1996 (Unaudited)
Three Months Ended March 31, 1995 (Unaudited)...................... 4
Statements of Changes in Partners' Equity
Three Months Ended March 31, 1996 (Unaudited)
Three Months Ended March 31, 1995 (Unaudited)...................... 5
Statements of Cash Flows
Three Months Ended March 31, 1996 (Unaudited)
Three Months Ended March 31, 1995 (Unaudited)...................... 6
Notes to Financial Statements......................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 10
PART II. OTHER INFORMATION...................................................... 13
</TABLE>
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EXCEL PROPERTIES, LTD.
BALANCE SHEETS
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<TABLE>
<CAPTION>
MARCH 31,
1996 DECEMBER 31,
(UNAUDITED) 1995
----------- -----------
<S> <C> <C>
ASSETS
Real estate:
Land $ 3,822,602 $ 3,822,602
Buildings 6,015,835 6,015,835
Less: accumulated depreciation (1,471,463) (1,423,718)
----------- -----------
Net real estate 8,366,974 8,414,719
Cash 1,954,390 1,817,201
Accounts receivable, less allowance for bad debts of
$68,645 and $51,595 in 1996 and 1995, respectively 26,749 165,083
Notes receivable 1,014,242 1,015,672
Interest receivable 5,948 5,192
----------- -----------
Total assets $11,368,303 $11,417,867
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable:
Affiliates $ 1,074 $ 867
Other 3,185 3,169
Property taxes payable 10,689 939
Tenant security deposits 5,000 5,000
Deferred rental income 40,530 40,238
----------- -----------
Total liabilities 60,478 50,213
----------- -----------
Partners' Equity:
General partner's equity 8,570 8,691
Limited partners' equity, 235,308 units
authorized, 135,299 units issued
and outstanding in 1996 and 1995,
respectively. 11,299,255 11,358,963
----------- -----------
Total partners' equity 11,307,825 11,367,654
----------- -----------
Total liabilities and partners' equity $11,368,303 $11,417,867
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
3
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EXCEL PROPERTIES, LTD.
STATEMENTS OF INCOME - UNAUDITED
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue:
Base rent $266,619 $277,148
Percentage rents -- 1,458
-------- --------
Total revenue 266,619 278,606
-------- --------
Operating Expenses:
Accounting and legal 8,897 10,320
Administrative 2,700 2,700
Bad debts 17,050 7,650
Management fees 2,377 2,475
Office expenses 4,931 2,863
Depreciation 47,745 50,462
-------- --------
Total operating expenses 83,700 76,470
-------- --------
Operating income 182,919 202,136
Interest income 47,254 31,824
-------- --------
Income before real estate sales 230,173 233,960
Gain - sale of real estate -- 99,141
-------- --------
Net income $230,173 $333,101
======== ========
Net income allocated to:
General partner $ 2,779 $ 2,495
Limited partners 227,394 330,606
-------- --------
Total $230,173 $333,101
======== ========
Net income per weighted average
limited partnership unit $ 1.68 $ 2.44
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
4
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EXCEL PROPERTIES, LTD.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY - UNAUDITED
----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Balance at January 1 $ 11,367,654 $ 11,059,577
Net income 230,173 333,101
Partner distributions (290,002) (294,058)
------------ ------------
Balance at March 31 $ 11,307,825 $ 11,098,620
============ ============
</TABLE>
The accompanying notes are an integral part
of the financial statements.
5
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EXCEL PROPERTIES, LTD.
STATEMENTS OF CASH FLOWS - UNAUDITED
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 230,173 $ 333,101
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 47,745 50,462
Allowance for doubtful accounts 17,050 7,650
Gain on sale of real estate -- (99,141)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 121,284 (10,822)
Interest receivable (756) (1,474)
Increase (decrease) in liabilities:
Accounts payable 223 8,106
Property taxes payable 9,750 3,378
Deferred rental income 292 (20,915)
----------- -----------
Net cash provided by operating activities 425,761 270,345
----------- -----------
Cash flows from investing activities:
Proceeds from real estate sales -- 1,106,291
Real estate purchased -- (1,410,233)
Collection of notes receivable 1,430 1,535
----------- -----------
Net cash provided (used) by investing activities 1,430 (302,407)
----------- -----------
Cash flows from financing activities:
Cash distributions (290,002) (294,058)
----------- -----------
Net cash used by financing activities (290,002) (294,058)
----------- -----------
Net increase (decrease) in cash 137,189 (326,120)
Cash at January 1 1,817,201 641,053
----------- -----------
Cash at March 31 $ 1,954,390 $ 314,933
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements reflect all adjustments of a recurring nature
which are, in the opinion of management, necessary for a fair presentation
of the financial statements. No adjustments were necessary which were not
of a recurring nature. Certain reclassifications have been made to the
financial statements for the three months ended March 31, 1995 in order to
conform with the current period's presentation. These financial statements
should be read in conjunction with the financial statements and
accompanying footnotes included in the Partnership's December 31, 1995
Form 10-K.
ORGANIZATION
Excel Properties, Ltd. was formed in the State of California on September
19, 1985, for the purpose of, but not limited to, acquiring real property
and syndicating such property.
OFFERING COSTS
Offering costs and selling expenses have been charged to the limited
partners' capital accounts as limited partners' interests were sold.
REAL ESTATE
Land and buildings are recorded at cost. Buildings are depreciated using
the straight-line method over the tax life of 31.5 years. The tax life
does not differ materially from the economic useful life. Expenditures for
maintenance and repairs are charged to expense as incurred. Significant
renovations are capitalized. The cost and related accumulated depreciation
of real estate are removed from the accounts upon disposition. Gains and
losses arising from the dispositions are reported as income or expense.
CASH DEPOSITS
At March 31, 1995, the carrying amount of the Partnership's cash deposits
total $1,954,390. The bank balances are $1,986,914 of which $200,000 is
covered by federal depository insurance.
STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE
There was no interest or taxes paid for the three months ended March 31,
1996 or 1995. The Partnership also had no noncash investing or financing
transactions for the three months ended March 31, 1996 or 1995.
INCOME TAXES
The Partnership is not liable for payment of any income taxes because as a
partnership, it is not subject to income taxes. The tax effects of its
activities accrue directly to the partners.
Continued
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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ACCOUNTS RECEIVABLE
All net accounts receivable are deemed to be collectible within the next
12 months.
FINANCIAL STATEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
2. FEES PAID TO GENERAL PARTNER
The Partnership has paid the General Partner or its affiliates the
following fees for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Management fees $ 2,377 $ 2,475
Administrative fees 2,700 2,700
Accounting 1,620 1,620
</TABLE>
3. NOTES RECEIVABLE
The Company had the following notes receivable at March 31, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Note from sale of building, receipts of $1,390 per month
at 9% interest. Secured by building sold. Due July 1997. $ 142,505 $ 143,455
Note from sale of building, interest only receipts of
$5,366 per month at 8.5% interest. Secured by building
sold. Due November 2003. 757,500 757,500
Note from sale of building, receipts of $1,004 per month
at 8% interest. Secured by building sold. Due December
2001. 114,237 114,717
---------- ----------
Total notes receivable $1,014,242 $1,015,672
========== ==========
</TABLE>
Continued
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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
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4. MINIMUM FUTURE RENTALS
The Company leases single-tenant buildings to tenants under noncancelable
operating leases requiring the greater of fixed or percentage rents. The
leases are either: (1) triple-net, requiring the tenant to pay all
expenses of operating the property such as insurance, property taxes,
repairs and utilities, or (2) requiring the tenant to reimburse the
Company for substantially all of the tenant's share of real estate taxes
and other common area maintenance expenses.
Minimum future rental revenue for the next five years for the commercial
real estate currently owned and subject to noncancelable operating leases
is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1996, remaining nine months $ 711,707
1997 930,613
1998 921,432
1999 895,978
2000 834,476
Thereafter 3,237,768
</TABLE>
5. SALE OF PROPERTY
On February 17, 1995, the Partnership sold a building in Phoenix, Arizona
that was on lease to Children's World. The sales price was $1,135,000 less
$28,709 in selling expenses. The Partnership recognized a gain of $99,141
on the sale which was part of a tax deferred exchange. The Partnership was
able to defer the gain on the sale for tax purposes and to exchange the
proceeds for another real estate asset as described in Note 6. No real
estate sales were made in the first quarter of 1996.
6. PURCHASE OF PROPERTY
On March 10, 1995, the Partnership purchased a 39% undivided interest in a
parcel of ground in Las Vegas, Nevada for $1,410,233. The ground was
leased with the Partnership's share of rent equaling $169,228 per year.
The ground was subdivided into three building lots and the lessee
constructed a building on one of the three lots. The building was sold in
the fourth quarter of 1995. The Partnership still has a 39% undivided
interest in the remaining two parcels of land. No real estate purchases
were made in the first quarter of 1996.
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EXCEL PROPERTIES, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
NATURE OF BUSINESS
Excel Properties, Ltd., a California limited partnership (the "Partnership"),
was organized to purchase commercial real estate properties for cash and to hold
these assets for long-term investment. The Partnership currently owns twenty
properties. The general partners of the Partnership are Excel Realty Trust,
Inc., a Maryland corporation, and Gary B. Sabin, an individual. The Partnership
was formed on September 19, 1985, and will continue in existence until December
31, 2015, unless dissolved earlier under certain circumstances.
Properties that have been acquired by the Partnership are subject to long-term
triple-net leases. Such leases require the lessee to pay the prescribed minimum
rental plus all costs and expenses associated with the operations and
maintenance of the property. These expenses include real property taxes,
property insurance, repairs and maintenance and similar expenses, the net effect
being that, under normal circumstances, no expenses will offset the rental
payment. Most of the leases also provide some form of inflation hedge which
calls for the minimum rent to be increased, based upon adjustments in the
consumer price index, fixed rent escalation, or by receipt of a percentage of
the gross sales of the tenant.
Properties have been acquired free and clear of liens and encumbrances. The
Partnership may seek to finance one or more of the properties and distribute the
financing proceeds to the partners, but only if the financing proceeds equal or
exceed 100% of the Partnership's capital invested in the property or properties
(including a prorata amount of the Partnership's public offering unit selling
commissions and organization expenses). To date, no properties owned by the
Partnership have been the subject of any mortgage financing, therefore, at the
present time, all properties remain free and clear from any mortgage loan, lien
or encumbrance.
The principal investment objectives of the Partnership are to provide to its
limited partners: (1) preservation, protection and eventual return of the
investment, (2) distributions of cash from operations including property sales,
some of which may be a return of capital for tax purposes rather than taxable
income, (3) distributions of cash from financing the properties, and (4)
realization of long-term appreciation in value of the properties.
The general partners have selected properties they believe meet certain minimum
investment standards and that are most likely to accomplish the investment
objectives of the Partnership. Properties were acquired through arms-length
negotiations with third parties.
LIQUIDITY AND CAPITAL RESOURCES
As the Partnership has $1,954,390 at March 31, 1996, with no debt on any of the
properties it owns, management believes that the Partnership liquidity remains
in a good position. In April 1996, the Partnership distributed accumulated cash
to the partners in the amount of $1,800,000. Also, in April 1996, the
Partnership sold two properties for net proceeds of $898,887 and thus had cash
on hand of $1,142,977
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at April 30, 1996. The Partnership has no debt, and currently has monthly income
(after the two April property sales) of approximately $82,000 from rental
income. Management anticipates that income should be enough to cover any
Partnership expenses. Also, management does not expect the Partnership to incur
any significant operational expenses as the Partnership properties are subject
to triple-net leases.
Management anticipates that the Partnership's primary source of cash in 1996
will continue to come from rental of the real estate properties currently owned.
The Partnership may also, from time to time, sell certain properties which would
provide cash for distribution. Management anticipates that rental income will be
sufficient to cover the operating expenses of the Partnership and allow for cash
distributions to be made to the limited partners. The Partnership has the policy
of paying quarterly distributions to the limited partners of the actual cash
earned by the Partnership in the preceding quarter. Therefore, if expenses were
to increase or income were to decrease, the Partnership would decrease the
quarterly distributions to the limited partners. Management expects that the
liquidity of the Partnership will change as excess cash is distributed to the
unit holders (partners).
The cash of the Partnership increased by $137,189 at March 31, 1996 when
compared to the December 31, 1996. This increase was partly due to a decrease in
accounts receivable of $121,284 which was a source of cash. Included in the
change in accounts receivable was $156,000 that was due from a property sale in
1995 that was collected in January 1996. Additionally, the partnership paid
distributions of $290,002 in January 1996 which was offset in part by net income
of $230,173 and depreciation of $47,745 which provided an increase in cash of
$277,918.
The Partnership has purchased its properties for all cash. The Partnership may
finance one or more of its existing properties if, among other conditions: (1)
the property is held for at least two years (all properties have been owned by
the Partnership for more than two years), (2) the financing proceeds equal or
exceed the Partnership's investment in the property, and (3) the Partnership
distributes the financing proceeds to the partners. To date, the Partnership has
not leveraged any of its properties.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto.
Comparison of the three months ended March 31, 1996 to the three months ended
March 31, 1995
Base rent decreased $10,529 or 4% from the previous year. Although additional
rental revenue came from rent increases from existing tenants, in the prior
year, the Partnership received rent from land that was purchased in February
1995 and sold in November 1995. Total rental revenue that was recognized in the
first quarter of 1995 from this land was $17,000.
Operating expenses increased by $9,947 from the three month ended March 31, 1995
to the three months ended March 31, 1996. The net increase was primarily due to
the $9,400 increase in bad debt expense. Bad debt expense increased $4,994 due
to the non-payment by Toddle House Restaurants of January rents and 1995
property tax reimbursements that were billed in 1996. Toddle House Restaurants,
which is currently in Chapter 11 Bankruptcy, began paying monthly rents of
$3,168 again in February 1996. Bad debt expense also increased $4,406 in the
anticipation of not collecting certain rents from Ponderosa Restaurant which has
vacated its premises. Other expenses and other income varied very little between
the two accounting periods, except depreciation expense which decreased due to
the sale of the Children's
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World building in 1995.
Net income decreased $102,928 during the first quarter in 1996, primarily due to
a $99,141 gain on the sale of the Children's World property in 1995. Without the
Children's World sale the net income of the Partnership would have decreased by
$3,787 for the three months ended March 31, 1996 when compared to the same
period a year ago.
Management does not expect inflation to significantly impact the operations of
the Partnership due to the structure of its investment portfolio. The leases all
provide a minimum rental which the lessee is obligated to pay. Additionally,
most leases contain some form of inflation hedge which provides for the rent to
be increased. The rent increases may be in the form of scheduled fixed minimum
rent increases, Consumer Price Index adjustments, or by participating in a
percentage of the gross sales volume of the tenant. Since the triple-net leases
require the lessees to pay for all property operating expenses, the net effect
is that the income should increase as operating expenses increase due to
inflation.
CERTAIN CAUTIONARY STATEMENTS
Certain statements in this Form 10-Q that are not historical fact and constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forwardlooking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results of the Partnership to be materially different from historical results or
from any results expressed or implied by such forward-looking statements. Such
risk, uncertainties and other factors include, but are not limited to, the
following risks:
Economic Performance and Value of Properties Dependent on Many Factors. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climates, local conditions
such as an oversupply of space or a reductions in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs.
Dependence on Rental Income from Real Property. Since substantially all of the
Partnership's income is derived from rental income from real property, the
Partnership's income and funds for distribution would be adversely affected if a
significant number of the Partnership's tenants were unable to meet their
obligations to the Partnership or if the Partnership were unable to lease a
significant amount of space in its buildings on economically favorable lease
terms. There can be no assurance that any tenant whose lease expires in the
future will renew such lease or that the Partnership will be able to re-lease
space on economically advantageous terms.
Illiquidity of Real Estate Investments. Equity real estate investments are
relatively illiquid and therefore tend to limit the ability of the Partnership
to vary its portfolio promptly in response to changes in economic or other
conditions.
Risk of Bankruptcy of Major Tenants. The bankruptcy or insolvency of a tenant
would have an adverse impact on the property affected and on the income produced
by such property. Under bankruptcy law, a tenant has the option of assuming
(continuing) or rejecting (terminating) any unexpired lease. If the tenant
assumes its lease with the Partnership, the tenant must cure all defaults under
the lease and provide the
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Partnership with adequate assurance of its future performance under the lease.
If the tenant rejects the lease, the Partnership's claim for breach of the lease
would (absent collateral securing the claim) be treated as a general unsecured
claim. The amount of the claim would be capped at the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of one
years' lease payments or 15% of the remaining lease payments payable under the
lease (but not to exceed the amount of three years' lease payments).
Environmental Risks. Under various federal, state and local laws, ordinances and
regulations, the Partnership may be considered an owner or operator of real
property or may have arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property or
disposed of by it, as well as certain other potential costs which could relate
to hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the
Partnership knew of, or was responsible for, the presence of such hazardous
toxic substances.
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since no events occurred with respect to
these items.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
The Partnership filed no reports on Form 8-K during the quarter
ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 10, 1996 EXCEL PROPERTIES, LTD.
(Registrant)
Excel Realty Trust, Inc.
(General Partner)
By: /s/ Gary B. Sabin
Gary B. Sabin, President
By: /s/ David A. Lund
David A. Lund, Principal Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1954390
<SECURITIES> 0
<RECEIVABLES> 1109636
<ALLOWANCES> (68645)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9838437
<DEPRECIATION> (1471463)
<TOTAL-ASSETS> 11368303
<CURRENT-LIABILITIES> 60478
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11307825
<TOTAL-LIABILITY-AND-EQUITY> 11368303
<SALES> 0
<TOTAL-REVENUES> 266619
<CGS> 0
<TOTAL-COSTS> 83700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17050
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 230173
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230173
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 0
</TABLE>
