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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A AMENDMENT NO. 1
ANNUAL REPORT UNDER SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: Commission File Number:
DECEMBER 31, 1995 33-2320
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EXCEL PROPERTIES, LTD.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 87-0426335
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
16955 VIA DEL CAMPO, SUITE 110 SAN DIEGO, CALIFORNIA 92127
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (619) 485-9400
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ITEM 2. PROPERTIES
The Partnership presently owns twenty properties as follows:
KINDER-CARE LEARNING CENTERS
The Partnership owns seven properties on lease to Kinder-Care, Inc., the
nation's largest provider of day care centers.
KINDER-CARE LEARNING CENTER - GAHANNA, OHIO
Date of purchase: May 28, 1987
Purchase price: $216,822
Property description: This property is located approximately fifteen miles
northeast of Columbus, Ohio in the suburb of Gahanna. The building is located on
.551 acres and contains 4,528 square feet.
The current lease expires June 30, 1998 with gross rents of $21,000 per
year.
KINDER-CARE LEARNING CENTER - GROVE CITY, OHIO
Date of purchase: May 28, 1987
Purchase price: $222,340
Property description: This property is located in Grove City, Ohio, seven
miles south of Columbus, Ohio. The building is located on .8939 acres and
contains 4,528 square feet.
The current lease expires November 30, 1998 with gross rents of $21,000 per
year.
KINDER-CARE LEARNING CENTER - WEST CARROLLTON, OHIO
Date of purchase: May 28, 1987
Purchase price: $190,337
Property description: This property is located approximately eight miles
southwest of Dayton, Ohio in the suburb of West Carrollton. The building
contains 4,560 square feet and is situated on .55 acres of land.
The current lease expires December 31, 2001. The annual rent over the
remainder of the lease is as follows:
January 1, 1996 to December 31, 1998 $ 33,202
January 1, 1999 to December 31, 2001 $ 35,526
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KINDER-CARE LEARNING CENTER - COLUMBUS, OHIO
Date of purchase: May 28, 1987
Purchase price: $190,337
Property description: This property is located in Columbus, Ohio. The
building is situated on .538 acres and contains 4,650 square feet. The property
has been sublet by Kinder-Care to Children Today, another child-care provider.
The property is on lease until December 31, 2001. The annual rent over the
remainder of the lease is as follows:
January 1, 1996 to December 31, 1998 $ 33,202
January 1, 1999 to December 31, 2001 $ 35,526
KINDER-CARE LEARNING CENTER - DAYTON, OHIO
Date of purchase: May 28, 1987
Purchase price: $190,337
Property description: This property is located approximately thirty miles
northeast of Dayton, Ohio in the Mud River Township. The building is situated on
.645 acres and contains 4,650 square feet.
The current lease expires December 31, 2001. The annual base rent
over the remaining term of the lease is as follows:
January 1, 1996 to December 31, 1998 $ 33,202
January 1, 1999 to December 31, 2001 $ 35,526
KINDER-CARE LEARNING CENTER - INDIANAPOLIS, INDIANA
Date of purchase: May 2, 1989
Purchase price: $201,079
Property description: This property is located at 1034 N. Whitcomb
Ave. in Indianapolis, Indiana. The building contains 4,487 square feet
and is situated on .598 acres.
The current lease expires December 31, 2000 with gross rents of
$49,694 per year.
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KINDER-CARE LEARNING CENTER - INDIANAPOLIS, INDIANA
Date of purchase: May 2, 1989
Purchase price: $201,079
Property description: This property is located at 29 N. Coronado in
Indianapolis, Indiana. The building contains 4,487 square feet and is
situated on 1.106 acres. The gross rents are $18,000 per year and the lease
expires December 31, 2000.
PARAGON RESTAURANT GROUP, INC.
The Partnership owns two properties operated as Mountain Jack's
Restaurants, on lease to Paragon Steakhouse Restaurants, Inc. The company,
headquartered in San Diego, California, is one of the nation's premier
specialty restaurant chain operators. Their trade names include Mountain
Jacks's and Hungry Hunter.
MOUNTAIN JACK'S RESTAURANT - MIDDLEBURG HEIGHTS, OHIO
Date of purchase: July 21, 1987
Purchase price: $1,046,222
Property description: The property, situated on 1.72 acres and containing
6,331 square feet, is an upscale steak and seafood restaurant located in
Middleburg Heights, Ohio, a suburb of Cleveland. It has seating for
approximately 163 persons and parking for approximately 115 cars.
The annual lease payment is the greater of $104,500 or 5% of the gross
sales. The lease expires on July 20, 2005.
MOUNTAIN JACK'S RESTAURANT - LAFAYETTE, INDIANA
Date of purchase: September 29, 1987
Purchase price: $1,080,097
Property description: This property is located at 2411 State Road 26
East, Lafayette, Indiana. Lafayette is strategically located between Chicago,
Illinois to the north and Indianapolis, Indiana to the south. It is the home
of Purdue University. The property is situated on 1.72 acres, contains 8,112
gross square feet, and has seating for approximately 294 persons. The site is
ideally located along a main commercial artery and is surrounded by seven
hotels.
The annual lease payment is the greater of $107,800 or 5% of the gross
sales. The lease expires on September 28, 2005.
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KENTUCKY FRIED CHICKEN - BLAINE, MINNESOTA
Date of purchase: May 6, 1988
Purchase price: $424,762
Property description: This property is located at 8770 University Avenue
N.E., Blaine, Minnesota. It contains 3,090 square feet, and has seating for
92 persons. The surrounding area is predominantly commercial and includes
such major retail stores as K-Mart and Club Food stores, in addition to the
Northtown Shopping Center.
The lease in guaranteed by Kentucky Fried Chicken. The annual lease
payment is the greater of $48,240 or 5% of the gross sales. The lease expires
on February 29, 2000.
WENDY'S - BLAINE, MINNESOTA
Date of Purchase: May 6, 1988
Purchase price: $398,478
Property description: The property is located at 8780 University Avenue
N.E., Blaine, Minnesota. Blaine is located eight miles north of Minneapolis.
The property is across the street from a major regional shopping mall. The
building contains 2,474 square feet and has seating for 92 persons.
The lease is guaranteed by Wendy's International, Inc., the parent
corporation. The annual lease payment is the greater of $45,360 or 5% of the
gross sales. The lease expires on February 29, 2000.
NORTHERN AUTOMOTIVE CORPORATION
The Partnership owns two auto parts stores leased to Northern Automotive
Corporation, the nation's largest auto parts chain. Northern Automotive
markets its specialty automotive parts and accessories through its retail
outlets located throughout the country under the trade names of Checker,
Kragen, and Schuck's Autoworks stores. Northern Automotive operates over 475
retail outlets. The company caters to the do-it-yourself market and maintains
a broad product line of both private label and national brand names.
AUTOWORKS - BELLEVUE, NEBRASKA
Date of purchase: July 5, 1988
Purchase price: $688,579
Property description: The property is located at a major shopping center
at 915 Fort Crook Road, Bellevue, Nebraska, a suburb of Omaha, Nebraska.
Bellevue is the home of the Strategic Air Command (SAC) which contributes
largely to the area economy. The improvements consist of a free standing
concrete block and glass building containing 4,870 square feet.
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The base minimum annual rent is $80,484 per year with scheduled rental
increases occurring every third year of the lease based on increases in the
Consumer Price Index not to exceed a 10% increase. The lease expires on July
5, 2008.
AUTOWORKS - LITTLETON, COLORADO
Date of purchase: July 5, 1988
Purchase price: $715,925
Property description: This property is located at 8219 South Holly in
Littleton, Colorado and is surrounded by new commercial complexes and
extensive single and multi-family developments. The property is situated on
approximately .75 acres and contains 4,960 square feet.
The base minimum annual rent is $83,720 per year with scheduled rental
increases occurring every third year of the lease based on increases in the
Consumer Price Index not to exceed a 10% increase. The lease expires on July
6, 2008.
DENNY'S RESTAURANT - LAKEWOOD, COLORADO
Date of purchase: July 27, 1988
Purchase price: $603,992
Property description: The property is located at 565 Union Blvd.,
Lakewood, Colorado. The area is extensively developed in commercial, retail
and office uses. The property, located on approximately .75 acres, contains
improvements of 4,489 square feet.
The lease is guaranteed by Denny's Inc. and calls for minimum rent of
$47,420 to be paid annually or 6% of the tenant's gross sales, whichever is
greater. The Partnership received $36,994 in percentage rent from this
property in 1995. The lease expires on July 23, 1996 and calls for a full CPI
increase from the inception of the lease upon exercise of a 10-year lease
option.
PONDEROSA RESTAURANT - ANN ARBOR, MICHIGAN
Date of purchase: January 20, 1989
Purchase price: $759,619
Property description: The property, containing 5,033 square feet, is
situated on approximately one acre located at 3354 East Washtenaw Street, Ann
Arbor, Michigan. The property is surrounded by numerous commercial
enterprises including the Arbor Land enclosed shopping mall.
The lease calls for a minimum rent of $77,400 plus 6.5% of the annual
gross sales in excess of the average annual sales for the years 1989 and 1990.
The lease expires September 22, 2003.
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PONDEROSA RESTAURANT - ALTON, ILLINOIS
Date of purchase: January 31, 1989
Purchase price: $924,379
Description of property: The building, containing 5,587 square feet, is
situated on approximately one acre at 3354 Homer-Adams Parkway along Highway
111, which is the major east/west road system through the city. Alton,
Illinois is situated across the Mississippi River from St. Louis, Missouri.
The property is in the center of one of the city's prime commercial areas.
The lease calls for a minimum annual rent of $94,070 plus 6.5% of the
gross sales generated by the property in excess of the average annual sales
for the year 1989 and 1990. The lease expires September 22, 2003. The tenant
has vacated the premises but continues to pay the monthly base rent.
PAYLESS SHOE STORE - PLANT CITY, FLORIDA
Date of purchase: December 1, 1989
Purchase price: $648,123
Property description: The property is located at 1801 Jim Redman Parkway,
Plant City, Florida. Plant City is located approximately 18 miles northeast
of the central business district of Tampa, Florida. The property is situated
on .89 acres and contains 2,989 square feet.
The lease is guaranteed by the May Department Store Co. which has a net
worth in excess of $3 billion. The property is on lease until November 30,
1999 with four additional 5-year options. The minimum rent is $70,785 per
year. The rent would be $82,682, $94,578, $106,495 and $118,372 for each
option period should the options be exercised by the tenant.
TIMBER LODGE STEAKHOUSE - BURNSVILLE, MINNESOTA
Date of purchase: February 12, 1990
Purchase price: $722,040
Property description: This family restaurant is located at 13050 Aldrich
Avenue South. Burnsville is a suburb approximately 11 miles south of
Minneapolis. The property contains 6,916 square feet and is situated on 1.43
acres. The current rent is $60,000 per year and the lease expires on July 14,
2001.
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TODDLE HOUSE RESTAURANT - KENNER, LOUISIANA
Date of purchase: November 26, 1991
Purchase price: $218,738
Property description: Toddle House Restaurants is a national restaurant
chain. It features 24-hour service with a cook-to-order menu. Toddle House
Restaurants, Inc. is a wholly owned subsidiary of Diversified Hospitality
Group, Inc. (DHG) which also operates the Steak 'N' Eggs Kitchen restaurants.
The property is located at 2841 Loyola, Kenner, Louisiana and contains 2,175
square feet. The land on which the restaurant is located is 16,800 square
feet.
The current annual rent is $34,998 and the lease expires on November 25,
2011. Toddle House is currently in Chapter 11 Bankruptcy and did not pay any
rent in 1995. The Partnership has been in negotiations with the company to
begin collecting rent again. The Partnership collected $3,168 in rent in
February 1996.
LAND - LAS VEGAS, NEVADA
Date of purchase: March 9, 1995
Purchase price: $195,152
Property description: A 39% undivided interest in two parcels of land
located on Sahara Avenue in Las Vegas, Nevada. The land is not currently
generating any rental income. The parcels are being held for sale which is
expected to happen in 1996.
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PART II
ITEM 6. SELECTED FINANCIAL DATA
The following information has been selected from the financial statements
of the Partnership.
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
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1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total rental revenue $ 1,185,371 $ 1,145,656 $ 1,226,545 $ 1,225,912 $ 1,242,524
Operating expenses:
Property operating expenses 63,761 (2,438) 56,091 57,054 167,542
General and administrative 36,972 43,955 50,845 51,119 56,687
Depreciation 193,696 212,716 227,306 230,087 234,383
Gain (loss) on sale
of real estate 450,293 -- 273,251 (17,325) 26,767
Net operating income 1,341,235 891,423 1,119,609 870,601 810,679
Interest income 129,399 112,772 41,354 25,550 26,906
Net income 1,470,634 1,004,195 1,210,413 896,151 841,707
Per Unit Data:
Net income 10.77 7.33 8.82 6.52 6.12
Distributions 8.50 8.90 8.37 8.16 8.98
BALANCE SHEET DATA
- ------------------
Net real estate 8,414,719 9,451,413 9,664,128 10,649,877 11,048,449
Cash 1,817,201 641,053 626,726 483,003 395,493
Accounts receivable, net 165,083 19,135 44,029 15,369 35,211
Total assets 11,417,867 11,138,851 11,367,996 11,303,070 11,480,497
Total liabilities 50,213 79,274 61,722 57,588 5,484
Partners' equity 11,367,654 11,059,577 11,306,274 11,245,482 11,475,013
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto as noted in Item 8 below.
Comparison of year ended December 31, 1995 to year ended December 31, 1994.
The net income of the Partnership increased by $466,439 in 1995 when
compared to 1994. The differences in income and expenses are explained below.
Rental revenue increased by $48,348 in 1995 from 1994. In February 1995,
the Partnership sold the Childrens World building that generated $109,000 of
gross rental income in 1994 but only $14,223 in 1995. In 1995, the Partnership
also purchased a parcel of land in March and sold the same parcel in November.
While the land was owned in 1995, the Partnership collected $115,446 in base
rent. The additional rental revenue came from rent increases from existing
tenants.
Operating expenses increased by $59,216 from 1994 to 1995. The net increase
was primarily attributed to the $67,257 increase in bad debt expense and the
decrease of $6,386 in accounting and legal expense. The bad debt expense
increased $50,031 due to the nonpayment of rent by Toddle House Restaurants in
1995 and by $16,640 from the negative bad debt expense in 1994. Legal expense
decreased due the reduction of efforts needed to collect the Toddle House rent
amounts.
Interest income increased by $16,627 in 1995 from 1994. This increase was
due to the additional amounts of cash on hand which the Partnership invested in
interest bearing accounts.
In February 1995, the Partnership sold a building in Phoenix, Arizona that
was on lease to Childrens World. The sales price was $1,135,000 less $28,729 in
selling expenses. The Partnership recognized a $99,141 gain on the sale. In
November 1995, the Partnership sold for $1,566,264, part of the ground that had
been purchased in February 1995. Prior to the Partnership's acquisition, there
were no operations relating to this ground. The Partnership recognized a
$351,152 gain on the sale. In 1994, there were no gains or losses on the sale of
real estate.
The following unaudited Pro Forma Condensed Statements of Income has been
presented as if these transactions had occurred on January 1, 1995. The
unaudited Pro Forma Condensed Statements of Income should be read in conjunction
with the audited financial statements included elsewhere herein. In management's
opinion, all adjustments necessary to reflect these transactions have veen made.
The unaudited Pro Forma Condensed Statements of Income are not necessarily
indicative of what actual results of operations of the partnership would have
been had this transaction actually occurred as of January 1, 1995 nor do they
purport to represent the results of operations of the Partnership for future
periods.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-----------------------------------------------
Pro Forma Company
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenue: $ 1,185,371 $ (128,829) $ 1,056,542
Operating Expenses: 294,429 (2,717) 291,712
Interest Income: 129,399 -- 129,399
Gain on Sale of Real Estate: 450,293 -- 450,293
----------- ------------ -----------
Net Income: $ 1,470,634 $ (126,112) $ 1,344,522
=========== =========== ===========
</TABLE>
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Based on current leases in place, management believes that the revenues and
expenses of the Partnership in 1995 should be indicative of the operations of
the Partnership in 1996. The Partnership has continued to make distributions to
the limited partners at an annual rate of over 8% since 1989. The Partnership
distributions were at an 8.50% rate for the year 1995. Distributions should
remain at approximately 8% through 1996.
Inflation is not expected to negatively 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 (CPI) 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 received will not be eroded away as operating expenses
increase due to inflation.
Comparison of year ended December 31, 1994 to year ended December 31, 1993.
The net income of the Partnership decreased $206,218 in 1994 when compared
to 1993. However, the net income before real estate sales increased by $67,033
in 1994 when compared to 1993. The difference in revenues and expenses are
explained below.
Base rental revenue decreased $82,058 in 1994 from 1993. The decrease was
primarily due to the sale in November 1993 of the Fuddruckers building in
Tucson, Arizona which decreased net rental revenue by approximately $84,000 in
1994. The Partnership also sold the Rax Restaurant building in 1993, however,
net rental revenue did not decrease significantly as the tenant was not paying
rent in 1993.
Operating expenses decreased by $61,914 in 1994 from 1993. The net decrease
was primarily attributed to the decrease in bad debts of $42,202 due to the sale
of the Rax building and the decrease of $14,325 in property taxes and $2,606 in
repairs and maintenance which the Partnership did not have to pay for the Rax
building.
The increase in interest income of $71,418 in 1994 from 1993 resulted from
the sale of the Fuddruckers building and the Rax Restaurant building in November
1993 for which the Partnership received two notes receivable totaling $857,500.
LIQUIDITY
The Partnership is in an excellent liquid position as it has $1,817,201 in
cash at December 31, 1995, with no debt on any of the properties that it owns.
The Partnership made its quarterly cash distribution of $290,000 in January
1996, which was the cash that has accumulated during the fourth quarter of 1995
from operating income. After the distributions, the Partnership still had
approximately $1,527,000 in cash reserves to pay any unexpected liabilities. The
Partnership has no debt and currently has income of approximately $95,000 per
month from rental income. This should be enough for any expenses which might
need to be paid by the Partnership. However, the Partnership does not expect to
use much money for operational expenses because the Partnership properties are
leased on a triple-net lease basis.
The Partnership's primary source of cash in 1996 will continue to come from
the rental of the real estate properties currently owned. 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
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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 does not expect the
quarterly distributions to increase or decrease dramatically in the future.
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.
The cash of the Partnership increased by $1,176,148 in 1995 when compared to
the previous year. This increase was due primarily to the $2,703,525 collected
from real estate sold less $1,410,234 from real estate purchased. The net
accounts receivable of the Partnership also increased $145,948 which was a use
of cash. Included in accounts receivable at year end was $156,000 that was due
from a property sale. The amount was collected in January 1996.
In 1995, the Partnership had one tenant, Toddle House Restaurants, that did
not pay rent. The tenant recently affirmed its lease in its Chapter 11
bankruptcy proceeding and in February 1996, began paying rent again.
The cash and liquidity position of the Partnership has continued to increase
over the past three years. The Partnership is in a very stable liquidity
position since it owns all of its real estate free of debt. Management expects
that the liquidity of the Partnership will change in the future as excess cash
is distributed to the unit holders (partners).
CAPITAL RESOURCES
The Partnership is in the business of purchasing and holding improved
commercial properties for long-term investment income. The Partnership currently
owns and manages 20 properties. Nineteen of the properties are single tenant
buildings and one property is vacant land.
Each of the Partnership's present properties, with the exception of the
land, is leased to an operator/lessee on an absolute net basis, whereby the
lessee pays all maintenance, repairs, property taxes and insurance. These leases
provide a minimum rental plus a percentage of the lessee's gross revenues from
the property operation, and/or a cost of living increase, and/or a fixed rental
increase. The total cost of the properties to the Partnership is $9,838,437. The
Partnership also had cash of $1,817,201 at December 31, 1995.
RECENT ACCOUNTING PRONOUNCMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("FAS 121") "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which becomes effective for fiscal years beginning after December 15, 1995.
FAS 121 establishes standards for determining when impairment losses on
long-lived assets have occurred and how impairment losses should be measured.
The Company intends to adopt FAS 121 in 1996. The financial statement impact of
adopting FAS 121 is not expected to be material.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Partnership is filing as part of this report, its financial statements
which contain the following:
<TABLE>
<CAPTION>
Page
----
<S> <C>
1) Report of Independent Accountants F-2
2) Balance Sheets
December 31, 1995 and 1994 F-3
3) Statements of Income
Years Ended December 31, 1995, 1994 and 1993 F-4
4) Statements of Changes in Partners' Equity
Years Ended December 31, 1995, 1994 and 1993 F-5
5) Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 F-6
6) Notes to Financial Statements F-7
7) Financial Statement Schedules:
II - Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1994 and 1993 F-11
III - Real Estate and Accumulated Depreciation
December 31, 1995 F-12
</TABLE>
13
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SIGNATURES
Pursuant to the requirement 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.
Date: January 30, 1997 Excel Properties, Ltd.
(Registrant)
Excel Realty Trust, Inc.
(General Partner)
By: /s/ David A. Lund
------------------------------
David A. Lund
Principal Financial Officer
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. FINANCIAL STATEMENTS:
Report of Independent Accountants - Squire & Co. ............... F-2
Balance Sheets
December 31, 1995 and 1994................................... F-3
Statements of Income
Years Ended December 31, 1995, 1994 and 1993................. F-4
Statements of Changes in Partners' Equity
Years Ended December 31, 1995, 1994 and 1993................. F-5
Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993................. F-6
Notes to Financial Statements................................... F-7
2. FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1994 and 1993................. F-11
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995........................................... F-12
</TABLE>
F-1
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Excel Properties, Ltd.
We have audited the accompanying balance sheets of Excel Properties, Ltd., as of
December 31, 1995 and 1994, and the related statements of income, changes in
partners' equity, and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Excel Properties, Ltd., as of
December 31, 1995 and 1994, and the results of operations and its cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principals.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Financial statement Schedules II and III
are presented for the purpose of additional analysis and are not a required part
of the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
SQUIRE & CO.
February 9, 1996
Poway, California
F-2
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EXCEL PROPERTIES, LTD.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
----------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
ASSETS
<S> <C> <C>
Real estate:
Land $ 3,822,602 $ 4,114,928
Buildings 6,015,835 6,700,552
Less: accumulated depreciation (1,423,718) (1,364,067)
------------ ------------
Net real estate 8,414,719 9,451,413
Cash 1,817,201 641,053
Accounts receivable, less allowance for bad debts of
$51,595 and $978 in 1995 and 1994, respectively 165,083 19,135
Notes receivable 1,015,672 1,022,012
Interest receivable 5,192 5,238
------------ ------------
Total assets $ 11,417,867 $ 11,138,851
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable:
Affiliates $ 867 $ 988
Other 3,169 2,480
Property taxes payable 939 8,776
Tenant security deposits 5,000 5,000
Deferred rental income 40,238 62,030
------------ ------------
Total liabilities 50,213 79,274
------------ ------------
Partners' Equity:
General partner's equity 8,691 5,000
Limited partners' equity, 235,308 units
authorized, 135,299 and 135,319 units
issued and outstanding in 1995 and
1994, respectively 11,358,963 11,054,577
------------ ------------
Total partners' equity 11,367,654 11,059,577
------------ ------------
Total liabilities and partners' equity $ 11,417,867 $ 11,138,851
============ ============
</TABLE>
F-3
<PAGE> 18
EXCEL PROPERTIES, LTD.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Base rent $ 1,146,919 $ 1,098,571 $ 1,180,629
Percentage rents 38,452 47,085 45,916
----------- ----------- -----------
Total revenue 1,185,371 1,145,656 1,226,545
----------- ----------- -----------
Operating Expenses:
Depreciation 193,696 212,716 227,306
Accounting and legal 18,969 25,355 27,307
Administrative 10,800 10,800 10,800
Bad debts 50,617 (16,640) 25,562
Management fees 10,186 11,959 12,166
Miscellaneous 2,536 2,129 945
Office expenses 7,203 7,800 9,233
Property taxes -- 114 14,439
Rent guarantees -- -- 333
Repairs and maintenance 422 -- 2,606
Utilities -- -- 40
----------- ----------- -----------
Total operating expenses 294,429 254,233 330,737
----------- ----------- -----------
Gain - sale of real estate 450,293 -- 273,251
----------- ----------- -----------
Net Operating income 1,341,235 891,423 1,169,059
Interest income 129,399 112,772 41,354
----------- ----------- -----------
Net income $ 1,470,634 $ 1,004,195 $ 1,210,413
=========== =========== ===========
Net income allocated to:
General partner $ 15,303 $ 12,169 $ 13,538
Limited partners 1,455,331 992,026 1,196,875
----------- ----------- -----------
Total $ 1,470,634 $ 1,004,195 $ 1,210,413
=========== =========== ===========
Net income per weighted average
limited partnership unit $ 10.77 $ 7.33 $ 8.82
=========== =========== ===========
</TABLE>
F-4
<PAGE> 19
EXCEL PROPERTIES, LTD.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1, 1993 $ 2,969 $ 11,242,513 $ 11,245,482
Liquidation of Limited Partnership
units - 1993 -- (2,000) (2,000)
Syndication fees - 1993 -- 395 395
Net income - 1993 13,538 1,196,875 1,210,413
Partner distributions - 1993 (11,480) (1,136,536) (1,148,016)
------------ ------------ ------------
Balance at December 31, 1993 5,027 11,301,247 11,306,274
Liquidation of Limited Partnership
units - 1994 -- (39,000) (39,000)
Syndication fees - 1994 -- 7,800 7,800
Net income - 1994 12,169 992,026 1,004,195
Partner distributions - 1994 (12,196) (1,207,496) (1,219,692)
------------ ------------ ------------
Balance at December 31, 1994 5,000 11,054,577 11,059,577
Liquidation of Limited Partnership
units - 1995 -- (2,000) (2,000)
Syndication fees - 1995 -- 600 600
Net income - 1995 15,303 1,455,331 1,470,634
Partner distributions - 1995 (11,612) (1,149,545) (1,161,157)
------------ ------------ ------------
Balance at December 31, 1995 $ 8,691 $ 11,358,963 $ 11,367,654
============ ============ ============
</TABLE>
F-5
<PAGE> 20
EXCEL PROPERTIES, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,470,634 $ 1,004,195 $ 1,210,413
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 193,696 212,716 227,306
Allowance for doubtful accounts 50,617 (98,192) 25,562
Gain on sale of real estate (450,293) -- (273,251)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (196,565) 123,086 (54,222)
Interest receivable 46 41 (4,129)
Prepaid expenses -- -- 333
Increase (decrease) in liabilities:
Accounts payable 568 (4,308) 2,582
Property taxes payable (7,837) 7,074 1,702
Deferred rental income (21,792) 14,786 (150)
----------- ----------- -----------
Net cash provided by operating activities 1,039,074 1,259,398 1,136,146
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from real estate sales 2,703,525 -- 154,194
Purchase of real estate (1,410,234) -- --
Collection of notes receivable 6,340 5,821 3,004
----------- ----------- -----------
Net cash provided by investing activities 1,299,631 5,821 157,198
----------- ----------- -----------
Cash flows from financing activities:
Redemption of partnership units (2,000) (39,000) (2,000)
Syndication costs reimbursed 600 7,800 395
Cash distributions (1,161,157) (1,219,692) (1,148,016)
----------- ----------- -----------
Net cash used by financing activities (1,162,557) (1,250,892) (1,149,621)
----------- ----------- -----------
Net increase in cash 1,176,148 14,327 143,723
Cash at beginning of year 641,053 626,726 483,003
----------- ----------- -----------
Cash at end of year $ 1,817,201 $ 641,053 $ 626,726
=========== =========== ===========
</TABLE>
F-6
<PAGE> 21
EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
REAL ESTATE
Land and buildings are recorded at lower of cost or net realizable value.
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 December 31, 1995, the carrying amount of the Partnership's cash
deposits total $1,817,201. The bank balances are $1,855,566 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 years ended December 31, 1995,
1994 or 1993. The Partnership had no noncash investing or financing
transactions in 1995 or 1994. The Partnership received notes receivable of
$877,500 in 1993 from the sale of two buildings.
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.
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 reporting period. Actual results could differ from those
estimates.
Continued F-7
<PAGE> 22
EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("FAS 121")
"Accounting for the Impairment of Long-Lived Assets and for Long Lived
Assets to Be Disposed Of," which becomes effective for fiscal years
beginning after December 15, 1995. The financial statement impact of
adopting FAS 121 is not expected to be material.
2. FINANCIAL STATEMENT AND TAX RETURN DIFFERENCES
The Partnership had the following differences between the financial
statements and the Partnership tax return.
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
Financial statements $ 1,470,634 $ 1,004,195 $ 1,210,413
Tax returns 1,521,251 906,004 946,580
------------ ------------ ------------
Difference $ (50,617) $ 98,191 $ 263,833
============ ============ ============
Difference is due to:
Allowance for bad debts $ (50,617) $ 98,191 $ (25,562)
Installment sale of buildings -- -- 289,395
------------ ------------ ------------
$ (50,617) $ 98,191 $ 263,833
============ ============ ============
Partners' equity:
Financial statements $ 11,367,654 $ 11,059,577 $ 11,306,274
Tax returns 12,616,064 12,270,479 12,623,168
------------ ------------ ------------
Difference $ (1,248,410) $ (1,210,902) $ (1,316,894)
============ ============ ============
Difference is due to:
Syndication costs $ (1,498,718) $ (1,499,319) $ (1,507,119)
Allowance for bad debts (51,595) (978) (99,170)
Deferred gain - like-kind exchange 12,508 -- --
Deferred gain on sale of building 289,395 289,395 289,395
------------ ------------ ------------
$ (1,248,410) $ (1,210,902) $ (1,316,894)
============ ============ ============
</TABLE>
Continued F-8
<PAGE> 23
EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
----------
3. FEES PAID TO GENERAL PARTNER:
The Partnership has paid the General Partner or its affiliates the
following fees:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Management fees $10,186 $11,959 $12,166
Administrative fees 10,800 10,800 10,800
Accounting 6,480 6,480 6,480
</TABLE>
4. NOTES RECEIVABLE:
The Company had the following notes receivable at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Note from sale of building, receipts of $1,390 per month
at 9% interest. Secured by building sold. Due July 1997. $ 143,455 $ 147,049
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. 114,717 117,463
---------- ----------
Total notes receivable $1,015,672 $1,022,012
========== ==========
</TABLE>
5. 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 $1,016,266
1997 991,011
1998 981,830
1999 954,052
2000 814,550
Thereafter 3,217,044
</TABLE>
Continued F-9
<PAGE> 24
6. PURCHASE OF PROPERTY:
In March 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
November 1995 as described in Note 7 below. The Partnership still has a
39% undivided interest in the remaining two parcels of land. The
Partnership has recorded on its books, its pro rata share of the cost of
these land parcels.
7. SALES OF PROPERTIES:
In November 1995, the Partnership sold part of the ground that had been
purchased in March 1995. The sales price was $1,566,234 and the
Partnership recognized a $351,152 gain on the sale.
In February 1995, the Partnership sold a building in Phoenix, Arizona that
was on lease to Childrens World. The sales price was $1,135,000 less
$28,729 in selling expenses. The Partnership recognized a gain of $99,141.
In November 1993, the Partnership sold a building in Tucson, Arizona, that
was on lease to Fuddruckers. The sales price was $937,500 less $39,267 in
selling expenses. The Partnership recognized a gain of $358,155 on the
sale. As part of the sale, the Partnership received a note receivable of
$757,500 from the purchaser as mentioned in Note 4.
In November 1993, the Partnership sold a building in Eagan, Minnesota,
that was on lease to Rax Restaurant. The sales price was $150,000 less
$16,539 in selling expenses. The Partnership recognized a loss of $84,903
on the sale. As part of the sale, the Partnership received a note
receivable of $120,000 from the purchaser as mentioned in Note 4.
F-10
<PAGE> 25
EXCEL PROPERTIES, LTD.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additions Deductions
--------- --------------------------------
Balance at Balance at
Beginning Charged to End
Description of Year Expense Description Amount of Year
----------- ---------- ---------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for bad debts $ 978 $ 50,617 $ -- $ 51,595
======== ======== ======== ========
Year ended December 31, 1994:
Allowance for bad debts $ 99,170 $(16,640) Write off account $ 81,552 $ 978
======== ======== ======== ========
Year ended December 31, 1993:
Allowance for bad debts $ 73,608 $ 25,562 $ - $ 99,170
======== ======== ======== ========
</TABLE>
F-11
<PAGE> 26
EXCEL PROPERTIES, LTD.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Cost
Capitalized
Subsequent
to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period
----------------------------- ------------ ---------------------------------------
Buildings Buildings
and and Total
Description Encumbrances Land Improvements Improvements Land Improvements (a)(b)
----------- ------------- ---------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kinder Care:
Columbus, Ohio $ -- $ 57,101 $ 133,236 $ -- $ 57,101 $ 133,236 $ 190,337
Gahanna, Ohio -- 65,047 151,776 -- 65,047 151,776 216,823
West Carrollton, Ohio -- 57,101 133,236 -- 57,101 133,236 190,337
Grove City, Ohio -- 66,702 155,638 -- 66,702 155,638 222,340
Dayton, Ohio -- 57,101 133,236 -- 57,101 133,236 190,337
Indianapolis, Indiana -- 60,324 140,756 -- 60,324 140,756 201,080
Indianapolis, Indiana -- 60,324 140,755 -- 60,324 140,755 201,079
Paragon Restaurant:
Middleburg Heights, Ohio -- 313,867 732,355 -- 313,867 732,355 1,046,222
Lafayette, Indiana -- 324,028 756,068 -- 324,028 756,068 1,080,096
Autoworks:
Omaha, Nebraska -- 275,432 413,148 -- 275,432 413,148 688,580
Denver, Colorado -- 286,370 429,555 -- 286,370 429,555 715,925
Ponderosa:
Ann Arbor, Michigan -- 379,809 379,809 -- 379,809 379,809 759,618
Alton, Illinois -- 369,740 554,639 -- 369,740 554,639 924,379
Kentucky Fried Chicken-
Blaine, Minnesota -- 160,605 264,157 -- 160,605 264,157 424,762
Wendys-Blaine, Minnesota -- 150,091 248,387 -- 150,091 248,387 398,478
Dennys-Denver, Colorado -- 241,597 362,395 -- 241,597 362,395 603,992
Volume Shoe-Plant City, FL -- 398,104 250,018 -- 398,104 250,018 648,122
Benjamins-Burnsville, MN -- 216,612 505,428 -- 216,612 505,428 722,040
Toddle House-Kenner, LA -- 87,495 131,243 -- 87,495 131,243 218,738
Land-Las Vegas, NV -- 195,152 -- -- 195,152 -- 195,152
-------- ---------- ---------- -------- ---------- ---------- ----------
$ -- $3,822,602 $6,015,835 $ -- $3,822,602 $6,015,835 $9,838,437
======== ========== ========== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation
Accumu- in Latest
lated Date of Income
Depreci- Construc- Date Statements
Description ation (c) tion Acquired is Computed
----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Kinder Care:
Columbus, Ohio $ 36,481 1987 31.5 years
Gahanna, Ohio 41,558 1987 31.5 years
West Carrollton, Ohio 36,481 1987 31.5 years
Grove City, Ohio 42,615 1987 31.5 years
Dayton, Ohio 36,481 1987 31.5 years
Indianapolis, Indiana 29,603 1989 31.5 years
Indianapolis, Indiana 29,603 1987 31.5 years
Paragon Restaurant:
Middleburg Heights, Ohio 196,651 1987 31.5 years
Lafayette, Indiana 199,017 1987 31.5 years
Autoworks:
Omaha, Nebraska 97,822 1988 31.5 years
Denver, Colorado 101,707 1988 31.5 years
Ponderosa:
Ann Arbor, Michigan 83,900 1989 31.5 years
Alton, Illinois 122,520 1989 31.5 years
Kentucky Fried Chicken-
Blaine, Minnesota 63,943 1988 31.5 years
Wendys-Blaine, Minnesota 60,125 1988 31.5 years
Dennys-Denver, Colorado 85,805 1988 31.5 years
Volume Shoe-Plant City, FL 47,953 1989 31.5 years
Benjamins-Burnsville, MN 94,266 1990 31.5 years
Toddle House-Kenner, LA 17,187 1991 31.5 years
Land-Las Vegas, NV -- 1995
----------
$1,423,718
==========
</TABLE>
F-12
<PAGE> 27
EXCEL PROPERTIES, LTD.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(Continued)
(a) Also represents cost for federal income tax purposes.
(b) Reconciliation of total real estate carrying value for the three years
ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 10,815,480 $ 10,815,480 $ 11,670,124
Acquisitions 1,410,234 -- --
Cost of property sold (2,387,277) -- (854,644)
------------ ------------ ------------
Balance at end of year $ 9,838,437 $ 10,815,480 $ 10,815,480
============ ============ ============
</TABLE>
(c) Reconciliation of accumulated depreciation for the three years ended
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 1,364,067 $ 1,151,352 $ 1,020,247
Expense 193,696 212,715 227,306
Deletions (134,045) -- (96,201)
----------- ----------- -----------
Balance at end of year $ 1,423,718 $ 1,364,067 $ 1,151,352
=========== =========== ===========
</TABLE>
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,817,201
<SECURITIES> 0
<RECEIVABLES> 216,678
<ALLOWANCES> (51,595)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,838,437
<DEPRECIATION> (1,423,718)
<TOTAL-ASSETS> 11,417,867
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,367,654
<TOTAL-LIABILITY-AND-EQUITY> 11,417,867
<SALES> 0
<TOTAL-REVENUES> 1,185,371
<CGS> 0
<TOTAL-COSTS> 100,733
<OTHER-EXPENSES> 193,696
<LOSS-PROVISION> 50,617
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,470,634
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,470,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,470,634
<EPS-PRIMARY> 10.77
<EPS-DILUTED> 0
</TABLE>
