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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:
JUNE 30, 2000 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)
17140 BERNARDO CENTER DRIVE, SUITE 300 SAN DIEGO, CALIFORNIA 92128
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (858) 675-9400
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Securities registered pursuant to Section 12(b) of the Act: NONE
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 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
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(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
June 30, 2000 (Unaudited)
December 31, 1999..................................................................................3
Statements of Income
Three Months Ended June 30, 2000 (Unaudited)
Three Months Ended June 30, 1999 (Unaudited)
Six Months Ended June 30, 2000 (Unaudited)
Six Months Ended June 30, 1999 (Unaudited).........................................................4
Statements of Changes in Partners' Equity
Six Months Ended June 30, 2000 (Unaudited)
Six Months Ended June 30, 1999 (Unaudited).........................................................5
Statements of Cash Flows
Six Months Ended June 30, 2000 (Unaudited)
Six Months Ended June 30, 1999 (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 12
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2
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BALANCE SHEETS
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<TABLE>
<CAPTION>
June 30,
2000 December 31,
(UNAUDITED) 1999
ASSETS ----------- -----------
<S> <C> <C>
Real estate:
Land 1,524,764 1,524,764
Buildings 2,821,843 2,821,843
Less: accumulated depreciation (1,119,557) (1,074,766)
----------- -----------
Net real estate 3,227,050 3,271,841
Cash 265,678 289,446
Accounts receivable 5,070 2,222
Notes receivables 1,134,852 1,148,629
Interest receivable and other assets 8,322 5,637
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Total assets $ 4,640,972 $ 4,717,775
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LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable:
Affiliates $ 416 $ 20,708
Other 917 1,520
Property taxes payable -- 5,174
Deferred rental income 10,062 18,770
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Total liabilities 11,395 46,172
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Partners' Equity:
General partner's equity 28,978 28,950
Limited partners' equity, 235,308 units
authorized, 135,199 units issued
and outstanding in 2000 and 1999,
respectively 4,600,599 4,642,653
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Total partners' equity 4,629,577 4,671,603
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Total liabilities and partners' equity $ 4,640,972 $ 4,717,775
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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EXCEL PROPERTIES, LTD.
STATEMENTS OF INCOME - UNAUDITED
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Base rent $ 127,406 $ 153,015 $ 260,611 $ 317,827
Interest an other income 23,630 30,949 50,719 61,710
--------- --------- --------- ---------
Total revenue 151,036 183,964 311,330 379,537
--------- --------- --------- ---------
Expenses:
Depreciation 22,395 24,982 44,791 51,552
Bad debts (26,968) -- (26,968) --
Office expenses 3,170 2,395 4,423 4,521
Administrative 2,700 2,700 5,400 5,400
Accounting and legal 18,000 7,234 20,321 20,907
Management fees 1,555 1,457 2,624 3,178
Property tax expenses -- 12,318 -- 12,534
Other property expenses 388 706 720 706
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Total expenses 21,240 51,792 51,311 98,798
--------- --------- --------- ---------
Income before real estate sales 129,796 132,172 260,019 280,739
Gain - sale of real estate -- -- -- 105,847
--------- --------- --------- ---------
Net income $ 129,796 $ 132,172 $ 260,019 $ 386,586
========= ========= ========= =========
Net income allocated to:
General partner $ 1,522 $ 1,572 $ 3,048 $ 4,381
Limited partners 128,274 130,600 256,971 382,205
--------- --------- --------- ---------
Total $ 129,796 $ 132,172 $ 260,019 $ 386,586
========= ========= ========= =========
Net income per weighted average
limited partnership unit $ 0.95 $ 0.97 $ 1.90 $ 2.83
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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EXCEL PROPERTIES, LTD.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY - UNAUDITED
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
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2000 1999
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<S> <C> <C>
Balance at January 1 $ 4,671,603 $ 6,021,650
Net income 260,019 386,586
Partner distributions (302,045) (1,272,136)
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Balance at June 30 $ 4,629,577 $ 5,136,100
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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EXCEL PROPERTIES, LTD.
STATEMENTS OF CASH FLOWS - UNAUDITED
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 260,019 $ 386,586
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 44,791 51,552
Provision for bad debts (30,999) --
Gain on sale of real estate -- (105,847)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 28,151 (106)
Interest receivable and other assets (2,685) (145)
Increase (decrease) in liabilities:
Accounts payable (20,895) (560)
Property taxes payable (5,174) 4,106
Deferred rental income (8,708) (2,423)
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Net cash provided by operating activities 264,500 333,163
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Cash flows from investing activities:
Collection of notes receivable 13,777 4,366
Proceeds from real estate sales -- 869,083
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Net cash provided by investing activities 13,777 873,449
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Cash flows from financing activities:
Cash distributions (302,045) (1,272,136)
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Net cash used by financing activities (302,045) (1,272,136)
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Net (decrease) increase in cash (23,768) (65,524)
Cash at January 1 289,446 412,033
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Cash at June 30 $ 265,678 $ 346,509
=========== ==========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
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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. These financial statements should be read in
conjunction with the financial statements and accompanying footnotes
included in the Partnership's December 31, 1999 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.
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. 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 dispositions are reported as income or expense.
CASH DEPOSITS
At June 30, 2000, the carrying amount of the Partnership's cash deposits
total $265,678. The bank balances are $459,158 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 six months ended June 30, 2000
or 1999. The Partnership also had no noncash investing or financing
transactions for the six months ended June 30, 2000 or 1999.
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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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 six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Management fees $ 2,624 $ 2,674
Administrative fees 5,400 5,400
Accounting 3,240 3,240
</TABLE>
3. SALE OF PROPERTY
In February 1999, the Partnership sold a vacant building in Kenner,
Louisiana that was formerly on lease to Toddle House Restaurant. The sale
price for the building was $237,500. The Partnership recognized a gain of
$34,534 on the sale. In March 1999, the Partnership sold a building in
Plant City, Florida that was on lease to Payless Shoe Store. The sale
price for the building was $670,000. The Partnership recognized a gain of
$71,313 on the sale. There were no sales in 2000.
continued
8
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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
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4. NOTES RECEIVABLE
The Company had the following notes receivable at June 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Note from the sale of land, interest at 10%. Secured by $ 165,750 $ 165,750
land sold. Currently due.
Note from sale of building, receipts of $1,390 per month
at 9% interest. Secured by building sold. Currently due. 122,627 125,378
Note from sale of building, receipts of $5,366 per month
at 8.5% interest. Secured by building sold. Due
November 2003. 746,225 755,923
Note from sale of building, receipts of $1,004 per month
at 8% interest. Secured by building sold. Due December
2001. 100,250 101,578
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Total notes receivable $1,134,852 $1,148,629
========== ==========
</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 triple-net, requiring the tenant to pay all expenses of
operating the property such as insurance, property taxes, repairs and
utilities.
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,
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<S> <C>
2000, remaining six months $ 267,438
2001 540,011
2002 537,441
2003 515,495
2004 461,159
Thereafter 731,606
</TABLE>
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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 investment. The general partners of the Partnership are New
Plan Excel Realty Trust, Inc., a Maryland corporation ("New Plan"), and Gary B.
Sabin. The Partnership was formed on September 19, 1985 and will continue in
existence until December 31, 2015, unless dissolved earlier under certain
circumstances. In 1999, Excel Legacy Corporation (the "Company") began managing
the assets of the Partnership when certain officers of New Plan resigned. The
Company has indemnified New Plan of any general partner liability in exchange
for an assignment of their partnership interest.
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
is that, under normal circumstances, no expenses will offset the rental revenue
from the property. 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 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, some of which may be a
return of capital for tax purposes rather than taxable income, and (3)
realization of long-term appreciation in value of properties.
The general partners are currently attempting to sell all of the properties held
by the Partnership. The selling of the properties could take several years as
the general partners attempt to maximize the sales price of each property. There
can be no assurance that the general partners will be successful in selling all
of the properties or what price they can obtain. Additionally, the general
partners may change its plans in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has $265,678 in cash at June 30, 2000, with no mortgage debt on
any of the properties it owns. In July 2000, the Partnership distributed
accumulated cash to the partners in the amount of $150,000. The Partnership
currently has approximately $44,573 a month from rental revenue. Management does
not expect the Partnership to incur any significant operational expenses on the
properties as the properties are subject to triple-net leases.
The Partnership's primary source of cash is from rental of the real estate
properties currently owned. The Partnership may also sell properties which would
provide cash for distribution. Management believes that rental revenue should
cover the recurring operating expenses of the Partnership and allow for cash
distributions to be made to the limited partners unless buildings become vacant.
The Partnership has the policy of paying quarterly distributions to the limited
partners of the actual cash
10
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earned by the Partnership in the preceding quarter. Therefore, if expenses were
to increase or revenue were to decrease, the Partnership would decrease the
quarterly distributions to the limited partners. It is anticipated that the
liquidity of the Partnership will decrease as properties are sold.
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 JUNE 30, 2000 TO THE THREE MONTHS ENDED
JUNE 30, 1999
Base rent decreased $25,609 or 17% from the previous year. The net decrease was
primarily due to the sale in September 1999 of two buildings that were both
previously leased to Kindercare in Gahanna, Ohio and in Grove City, Ohio. These
properties accounted for approximately $19,810 of rental revenue in the second
quarter of 1999.
Interest income decreased $7,319 or 24% over 1999. This decrease was largely due
to cash balances from proceeds relating to the 1999 property sales before the
funds were distributed to the partners.
Operating expenses decreased by $30,552 or 59% from the three months ended June
30, 1999 to the three months ended June 30, 2000. The net decrease was largely
due to the $26,968 decrease in bad debt expense. This decrease in bad debt
expense relates to reserves for a tenant which was delinquent on their rent, but
paid current in May 2000. In 1999, the Company did not record any bad debt
expense. Depreciation expense decreased by $2,587 or 10% due to property sales
in 1999. Accounting expense increased by $10,766 over 1999. This increase is
primarily due to $14,909 paid for tax preparation and audit fees. Property tax
expense decreased by $12,318 or 100%. The decrease is attributable to
reimbursement from Kindercare in Columbus, Ohio of property tax expenses that
the Company had paid for in 1999. Other expenses and other income varied very
little between the two accounting periods.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED
JUNE 30, 1999
Base rent decreased $57,216 or 18% from the previous year. The decrease was
primarily due to property sales in 1999. In March 1999, the Partnership sold a
building previously leased to Payless Shoe Store, in Plant City, Florida. In
September 1999, the Partnership sold two buildings that were both leased to
Kindercare in Gahanna, Ohio and in Grove City, Ohio. These properties accounted
for approximately $51,418 in the first half of 1999.
Interest income decreased $10,990 or 18% over 1999. This decrease was largely
due to cash balances from proceeds relating to the 1999 property sales before
the funds were distributed to the partners. There were no property sales in
2000.
Operating expenses decreased by $47,487 or 48%. The net decrease was largely due
to the $26,968 decrease in bad debt expense. This decrease in bad debt expense
relates to reserves for a tenant which was delinquent on their rent. In 1999,
the Company did not record any bad debt expense. Property tax expense decreased
by $12,534. The decrease is attributable to reimbursement from Kindercare in
Columbus, Ohio of property tax expenses that the Company had paid for in 1999.
Depreciation expense decreased by $6,761 or 13% due to property sales in 1999.
Other expenses and other income varied very little between the two accounting
periods.
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In 1999, the Company recognized a gain of $105,847 relating to the sale of a
building in Plant City, Florida, that was on lease to Payless Shoe Store. There
were no property sales in the six months of June 30, 2000.
The Partnership has continued to distribute cash flows to the limited partners
since 1989. Management anticipates that distributions from cash flows will
continue in 2000. The distributions may be supplemented by proceeds from
property sales, if any. If additional properties are sold and proceeds are
distributed to the partners instead of reinvested, future distributions are
expected to decrease.
Management believes that the effect of inflation on the Partnership is minimized
since 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 revenue received will not be
eroded away as operating expenses increase due to inflation. Should buildings
become vacant, however, the Partnership may be responsible for certain expenses,
including property taxes which are now being paid by tenants.
CERTAIN CAUTIONARY STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q, including, but not
limited to, "Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations," contain forward- looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that are not historical
facts, but rather reflect current expectations concerning future results and
events. The words "believes," "expects," "intends," "plans," "anticipates,"
"likely," "will" and similar expressions identify such forward-looking
statements. These forward-looking statements are subject to risks, uncertainties
and other factors, some of which are beyond the Partnership's control that could
cause actual results to differ materially from those forecast or anticipated in
such forward-looking statements. These factors include, but are not limited to,
the Partnership's market effect on property sales, reliance on tenants, and
environmental risks. These factors are discussed in greater detail under the
caption "Certain Cautionary Statements" in the Partnership's annual Report on
Form 10-K for the year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's balance sheet contains financial instruments in the form of
interest-earning notes receivable. The notes contain fixed interest rates and
are thus not subject to changes in market interest rates. The Partnership
estimates that the fair value of the notes approximates market value at June 30,
2000.
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
June 30, 2000.
12
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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: August 1, 2000 EXCEL PROPERTIES, LTD.
(Registrant)
By: /s/ Gary B. Sabin
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Gary B. Sabin, General Partner
By: /s/ James Y. Nakagawa
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James Y. Nakagawa,
Principal Accounting Officer
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