<PAGE>
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:
SEPTEMBER 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
--- ---
(1) Yes X No
--- ---
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EXCEL PROPERTIES, LTD.
INDEX TO FINANCIAL STATEMENTS
----------
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
<S> <C>
Balance Sheets
September 30, 2000 (Unaudited)
December 31, 1999.............................................3
Statements of Income
Three Months Ended September 30, 2000 (Unaudited)
Three Months Ended September 30, 1999 (Unaudited)
Nine Months Ended September 30, 2000 (Unaudited)
Nine Months Ended September 30, 1999 (Unaudited).............4
Statements of Changes in Partners' Equity
Nine Months Ended September 30, 2000 (Unaudited)
Nine Months Ended September 30, 1999 (Unaudited).............5
Statements of Cash Flows
Nine Months Ended September 30, 2000 (Unaudited)
Nine Months Ended September 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
</TABLE>
2
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EXCEL PROPERTIES, LTD.
BALANCE SHEETS
----------
<TABLE>
<CAPTION>
SEPTEMBER 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 (1,141,952) (1,074,766)
----------- -----------
Net real estate 3,204,655 3,271,841
Cash 276,768 289,446
Accounts receivable, less allowance for bad debts of
$0 and $30,999 in 2000 and 1999, respectively 1,987 2,222
Notes receivable 1,128,425 1,148,629
Interest receivable and other assets 9,955 5,637
----------- -----------
Total assets $ 4,621,790 $ 4,717,775
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable:
Affiliates $ 516 $ 20,708
Other 963 1,520
Property Taxes -- 5,174
Deferred rental income 10,110 18,770
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Total liabilities 11,589 46,172
----------- -----------
Partners' Equity:
General partner's equity 29,008 28,950
Limited partners' equity, 235,308 units
authorized, 135,199 units issued
and outstanding in 2000 and 1999 4,581,193 4,642,653
----------- -----------
Total partners' equity 4,610,201 4,671,603
----------- -----------
Total liabilities and partners' equity $ 4,621,790 $ 4,717,775
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
3
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EXCEL PROPERTIES, LTD.
STATEMENTS OF INCOME - UNAUDITED
----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Base rent $ 134,724 $ 147,072 $ 395,335 $ 464,898
Interest income 25,241 27,522 75,960 89,232
--------- --------- --------- ---------
Total revenue 159,965 174,594 471,295 554,130
--------- --------- --------- ---------
Expenses:
Depreciation 22,396 24,474 67,186 76,026
Bad debts -- 23,283 (26,968) 23,283
Office expenses 1,659 2,125 6,803 7,350
Administrative 3,316 2,700 8,716 8,100
Accounting and legal 2,065 2,530 22,386 23,437
Management fees 1,404 2,016 4,028 5,194
Property tax -- (12,318) -- 216
--------- --------- --------- ---------
Total expenses 30,840 44,810 82,151 143,606
--------- --------- --------- ---------
Income before real estate sales 129,125 129,784 389,144 410,524
Gain (loss) - sale of real estate -- 282,239 -- 388,085
--------- --------- --------- ---------
Net income $ 129,125 $ 412,023 $ 389,144 $ 798,609
========= ========= ========= =========
Net income allocated to:
General partner $ 1,515 $ 4,365 $ 4,563 $ 8,746
Limited partners 127,610 407,658 384,581 789,863
--------- --------- --------- ---------
Total $ 129,125 $ 412,023 $ 389,144 $ 789,609
========= ========= ========= =========
Net income per weighted average
limited partnership unit $ 0.96 $ 3.02 $ 2.88 $ 5.84
========= ========= ========= =========
</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
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Balance at January 1 $ 4,671,603 $ 6,021,650
Net income 389,144 798,609
Partner distributions (450,546) (1,512,273)
----------- -----------
Balance at September 30 $ 4,610,201 $ 5,307,986
=========== ===========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 389,144 $ 798,609
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 67,186 76,026
Provision for bad debts (26,968) 23,283
Gain on sale of real estate -- (388,085)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 27,203 (15,357)
Interest receivable and other assets (4,318) 1,983
Increase (decrease) in liabilities:
Accounts payable (20,749) 3,753
Property taxes payable (5,174) (4,106)
Deferred rental income (8,660) (7,570)
----------- -----------
Net cash provided by operating activities 417,664 488,536
----------- -----------
Cash flows from investing activities:
Collection of notes receivable 20,204 6,621
Proceeds from real estate sales -- 1,469,307
----------- -----------
Net cash provided by investing activities 20,204 1,475,928
----------- -----------
Cash flows from financing activities:
Cash distributions (450,546) (1,512,273)
----------- -----------
Net cash used by financing activities (450,546) (1,512,273)
----------- -----------
Net (decrease) increase in cash (12,678) 452,191
Cash at January 1 289,446 412,033
----------- -----------
Cash at September 30 $ 276,768 $ 864,224
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
6
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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 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 September 30, 2000, the carrying amount of the Partnership's cash
deposits total $276,768. The bank balances are $326,323 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 nine months ended September
30, 2000 or 1999. The Partnership also had no noncash investing or
financing transactions for the nine months ended September 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
7
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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Management fees $ 4,028 $ 5,194
Administrative fees 8,100 8,100
Accounting 4,860 4,860
</TABLE>
3. SALE OF PROPERTY
There were no property sales in the nine months ended September 30, 2000.
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. In September 1999, the Partnership sold two buildings
that were on lease to Kindercare. The sale price for the Kindercare
located in Gahanna, Ohio was $374,052 and the sale price for the
Kindercare located in Grove City, Ohio was $314,991. The partnership
recognized a gain of $169,222 and $113,016, respectively, on the sale.
There were no property sales in the nine months ended September 30, 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 September 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<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. 121,205 125,378
Note from sale of building, interest only receipts of
$5,366 per month at 8.5% interest. Secured by building
sold. Due November 2003. 741,220 755,923
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
---------- ----------
Total notes receivable $1,128,425 $1,148,629
========== ==========
</TABLE>
5. MINIMUM FUTURE RENTALS
The Company leases single-tenant buildings to tenants under noncancellable
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 noncancellable operating leases
is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000, remaining three months $ 135,371
2001 546,621
2002 544,051
2003 522,105
2004 467,770
Thereafter 754,831
</TABLE>
Continued
9
<PAGE>
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. Certain 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. 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 were originally 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 Partnership is currently attempting to sell all of the properties held by
the Partnership. The selling of the properties could take several years as the
Partnership attempts 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 plans of the
Partnership may change in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has $276,768 at September 30, 2000, with no debt on any of the
properties it owns. In October 2000, the Partnership distributed cash to the
partners in the amount of approximately $150,000. The Partnership currently
recognizes approximately $45,675 a month from rental revenue. Also, management
does not expect the Partnership to incur any significant operational expenses as
the Partnership 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 partners unless buildings become vacant. 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 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.
10
<PAGE>
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 SEPTEMBER 30, 2000 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
Base rent decreased $12,348 or 8% 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 third
quarter of 1999.
In September 1999, the Partnership sold two buildings that were on lease to
Kindercare. The sale price for the Kindercare located in Gahanna, Ohio was
$374,052 and the sale price for the Kindercare located in Grove City, Ohio
was $314,991. The partnership recognized a gain of $169,222 and $113,016,
respectively, on the sales. There were no property sales in the three months
ended September 30, 2000.
Operating expenses decreased by $13,970 or 31% from the three months ended
September 30, 1999 to the three months ended September 30, 2000. The net
decrease was largely due to the $23,283 decrease in bad debt expense which
was partially offset by the increase of $12,318 in property tax expense in
2000 when compared to 1999. The decrease in bad debt expense relates to
reserves for a tenant which was delinquent on their rent, but paid current in
May 2000. The increase in property tax expense relates to payments made in
1999 by the Company for taxes that would have been made by a tenant.
Subsequently, the Company charged the tenant for the amount of the property
taxes paid on their behalf. There were no property tax expense incurred in
2000. Depreciation expense decreased by $2,078 or 8% due to property sales
in 1999. Other expenses and other income varied very little between the two
periods.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Base rent decreased $69,563 or 15% 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 $71,227 in the nine months ended September 30, 1999.
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. In March
1999, the Partnership sold a building previously leased to Payless Shoe Store,
in Plant City, Florida. The sale price for the building was $670,000. The
Partnership recognized a gain of $71,313. In September 1999, the Partnership
sold two buildings that were on lease to Kindercare. The sale price for the
Kindercare located in Gahanna, Ohio was $374,052 and the sale price for the
Kindercare located in Grove City, Ohio was $314,991. The partnership recognized
a gain of $169,222 and $113,016, respectively, on the sale. There were no
property sales in the nine months ended September 30, 2000.
Operating expenses decreased by $61,455 or 43%. Bad debt expense decreased by
$50,251 as compared to 1999. The decrease in bad debt expense relates to
reserves for a tenant which was delinquent on their rent, but paid current in
May 2000. Depreciation expense decreased by $8,840 or 12% due to property
sales in 1999. Other expenses and other income varied very little between the
two periods.
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
11
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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
September 30, 2000.
PART II. OTHER INFORMATION
Items 4 and 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
September 30, 2000.
12
<PAGE>
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: November 1, 2000 EXCEL PROPERTIES, LTD.
(Registrant)
By: /s/ Gary B. Sabin
----------------------------------
Gary B. Sabin, General Partner
By: /s/ James Y. Nakagawa
----------------------------------
James Y. Nakagawa
Principal Accounting Officer
13
