<PAGE>
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission file number 0-17686
DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Wisconsin 39-1606834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 W. 11th Street, Suite 1110, Kansas City, Missouri 64105
(Address of principal executive offices, including zip code)
(816) 421-7444
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Interests
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 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. Yes X No
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1999 and December 31, 1998
-----------------------------------
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
----------- ------------
<S> <C> <C>
INVESTMENT PROPERTIES AND EQUIPMENT: (Note 3)
Land $ 7,388,421 $ 7,406,721
Buildings 12,736,444 12,736,444
Equipment 707,378 707,378
Accumulated depreciation (5,544,351) (5,356,448)
----------- -----------
Net investment properties and equipment 15,287,892 15,494,095
----------- -----------
OTHER ASSETS:
Cash and cash equivalents 1,173,470 1,256,165
Cash restricted for real estate taxes 4,190 4,404
Cash held in Indemnification Trust (Note 8) 328,257 321,207
Rents and other receivables 295,319 369,715
Deferred rent receivable 124,116 134,899
Prepaid insurance 7,957 19,892
Deferred charges 55,932 91,158
Notes receivable from lessees 0 2,317
----------- -----------
Total other assets 1,989,241 2,199,757
----------- -----------
Total assets $17,277,133 $17,693,852
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1999 and December 31, 1998
-----------------------------------
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued expenses $ 35,382 $ 45,050
Due to current General Partner 2,308 2,723
Security deposits 102,017 102,017
Unearned rental income 63,203 61,179
Real estate taxes payable 23,178 73,469
------------ ------------
Total liabilities 226,088 284,438
------------ ------------
CONTINGENT LIABILITIES: (Note 7)
PARTNERS' CAPITAL: (Notes 1, 4 and 9)
Current General Partner -
Cumulative net income 127,854 117,145
Cumulative cash distributions (53,212) (48,929)
------------ ------------
74,642 68,216
------------ ------------
Limited Partners (46,280.3 interests outstanding)
Capital contributions, net of offering costs 39,358,468 39,358,468
Cumulative net income 19,023,432 17,963,227
Cumulative cash distributions (40,565,268) (39,140,268)
Reallocation of former general partners' deficit capital (840,229) (840,229)
------------ ------------
16,976,403 17,341,198
------------ ------------
Total partners' capital 17,051,045 17,409,414
------------ ------------
Total liabilities and partners' capital $ 17,277,133 $ 17,693,852
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -----------------------
June 30, June 30,
-------- --------
1999 1998 1999 1998
-------- -------- ---------- ----------
REVENUES:
<S> <C> <C> <C> <C>
Rental income (Note 5) $681,275 $663,970 $1,363,655 $1,338,290
Interest income 14,398 36,235 29,261 75,073
Recovery of amount previously written off 25,835 9,465 37,618 22,085
Other income 73,866 12,277 86,872 25,613
Gain on disposal of assets 0 0 0 556,227
-------- -------- ---------- ----------
795,374 721,947 1,517,406 2,017,288
-------- -------- ---------- ----------
EXPENSES:
Partnership management fees 45,954 45,231 91,426 89,988
Disposition fees 0 0 0 66,000
Appraisal fees 0 2,175 0 58,325
Insurance 5,967 5,793 11,935 11,586
General and administrative 23,123 40,114 38,078 74,702
Advisory Board fees and expenses 3,625 3,917 6,225 8,075
Environmental Inspections 0 49,500 0 49,500
Ground lease payments (Note 3) 31,372 31,304 63,096 63,797
Expenses incurred due to default by lessee 1,607 1,345 3,891 334
Real estate taxes (45,210) 0 (45,210) 0
Professional services 25,015 45,175 53,922 87,782
Professional services related to investigation 0 697 0 1,111
Depreciation 93,952 102,385 187,903 208,182
Amortization 32,913 2,313 35,226 4,626
-------- -------- ---------- ----------
218,318 329,949 446,492 724,008
-------- -------- ---------- ----------
NET INCOME $577,056 $391,998 $1,070,914 $1,293,280
======== ======== ========== ==========
NET INCOME - CURRENT GENERAL PARTNER $5,771 $3,920 $10,709 $12,933
NET INCOME - LIMITED PARTNERS 571,285 388,078 1,060,205 1,280,347
-------- -------- ---------- ----------
$577,056 $391,998 $1,070,914 $1,293,280
======== ======== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
INTEREST, based on 46,280.3 Interests outstanding $12.34 $8.39 $22.91 $27.67
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,070,914 $ 1,293,280
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 223,129 212,808
Recovery of amounts previously written off (37,618) (22,085)
Net (gain) on disposal of assets 0 (556,227)
Interest applied to Indemnification Trust account (7,050) (8,179)
Decrease in rents and other receivables 74,396 92,455
Withdrawals/(Deposits) for payment of real estate taxes 214 (1,767)
Decrease in prepaids 11,935 11,587
Decrease in deferred rent receivable 10,783 37,091
(Decrease) in due to current General Partner (415) (942)
Increase/(Decrease) in accounts payable and other (9,668) 15,752
(Decrease) in security deposits 0 (38,675)
Increase/(Decrease) in real estate taxes payable (50,291) 3,916
Increase (Decrease) in unearned rental income 2,024 (11,896)
----------- -----------
Net cash from operating activities 1,288,353 1,027,118
----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Principal payments received on direct financing leases 35,300 22,086
Principal payments received on notes receivable 2,317 24,934
Investment in leasing commissions 0 (13,976)
Proceeds from sale of investment properties 18,300 1,665,625
Recoveries from former affiliates 2,318 0
----------- -----------
Net cash from investing activities 58,235 1,698,669
----------- -----------
CASH FLOWS (USED IN) FINANCING ACTIVITIES:
Cash distributions to Limited Partners (1,425,000) (3,200,000)
Cash distributions to current General Partner (4,283) (5,173)
----------- -----------
Net cash (used in) financing activities (1,429,283) (3,205,173)
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (82,695) (479,386)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,256,165 1,438,534
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,173,470 $ 959,148
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
These unaudited interim financial statements should be read in conjunction with
DiVall Insured Income Properties 2 Limited Partnership's (the "Partnership")
1998 annual audited financial statements within Form 10-K.
These unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of the
Partnership's financial position as of June 30,1999, and the results of
operations for the three and six-month periods ended June 30,1999, and 1998, and
cash flows for the six-month periods ended June 30, 1999 and 1998. Results of
operations for the periods are not necessarily indicative of the results to be
expected for the full year.
1. ORGANIZATION AND BASIS OF ACCOUNTING:
-------------------------------------
The Partnership was formed on November 18, 1987, pursuant to the Uniform Limited
Partnership Act of the State of Wisconsin. The initial capital which was
contributed during 1987, consisted of $300, representing aggregate capital
contributions of $200 by the former general partners and $100 by the Initial
Limited Partner. The minimum offering requirements were met and escrowed
subscription funds were released to the Partnership as of April 7, 1988. On
January 23, 1989, the former general partners exercised their option to increase
the offering from 25,000 interests to 50,000 interests and to extend the
offering period to a date no later than August 22, 1989. On June 30, 1989, the
general partners exercised their option to extend the offering period to a date
no later than February 22, 1990. The offering closed on February 22, 1990, at
which point 46,280.3 interests had been sold, resulting in total offering
proceeds, net of underwriting compensation and other offering costs, of
$39,358,468.
The Partnership is currently engaged in the business of owning and operating its
investment portfolio (the "Properties") of commercial real estate. The
Properties are leased on a triple net basis to, and operated by, franchisors or
franchisees of national, regional, and local retail chains under long-term
leases. The lessees consist primarily of fast-food, family style, and casual/
theme restaurants, but also include a video rental store and a child care
center. At June 30, 1999, the Partnership owned 29 properties with specialty
leasehold improvements in 12 of these properties.
Rental revenue from investment properties is recognized on the straight-line
basis over the life of the respective lease. Percentage rents are accrued
throughout the year based on the tenant's actual reported year-to-date sales
along with management's estimate of the tenant's sales for any remaining
unreported periods during the year.
The Partnership considers its operations to be in only one segment and therefore
no segment disclosure is made.
Depreciation of the properties is provided on a straight-line basis over 31.5
years, which is the estimated useful lives of the buildings and improvements.
Equipment is depreciated on a straight-line basis over the estimated useful
lives of 5 to 7 years.
Deferred charges consist of leasing commissions paid when properties are leased
to tenants other than the original tenant. Leasing commissions are capitalized
and amortized over the life of the lease.
Real estate taxes on the Partnership's investment properties are the
responsibility of the tenant. However, when a tenant fails to make the required
tax payments or when a property becomes vacant, the Partnership makes the
appropriate payment to avoid possible foreclosure of the property. Taxes are
accrued in the period in which the liability is incurred.
6
<PAGE>
Cash and cash equivalents include cash on deposit with financial institutions
and highly liquid temporary investments with initial maturities of 90 days or
less.
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.
During 1996, the Partnership adopted Statement of Financial Accounting Standards
No.121 ("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, which requires that all long-lived assets
be reviewed for impairment in value whenever changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
SFAS 121 had no impact on the Partnership's financial statements.
The Partnership will be dissolved on November 30, 2010, or earlier upon the
prior occurrence of any of the following events: (a) the disposition of all
properties of the Partnership; (b) the written determination by the General
Partner that the Partnership's assets may constitute "plan assets" for purposes
of ERISA; (c) the agreement of Limited Partners owning a majority of the
outstanding interests to dissolve the Partnership; or (d) the dissolution,
bankruptcy, death, withdrawal, or incapacity of the last remaining General
Partner, unless an additional General Partner is elected previously by a
majority in interest of the Limited Partners. During the Second Quarter of
1998, the General Partner received the consent of the Limited Partners to
liquidate the Partnership's assets and dissolve the Partnership. However, a
buyer was not found for the Partnership's assets, and no current liquidation or
dissolution plans are in effect. Management plans to continue normal operations
for the Partnership for the forseeable future.
No provision for Federal income taxes has been made, as any liability for such
taxes would be that of the individual partners rather than the Partnership. At
December 31, 1998, the tax basis of the Partnership's assets exceeded the
amounts reported in the accompanying financial statements by approximately
$8,400,000.
2. REGULATORY INVESTIGATION:
-------------------------
A preliminary investigation during 1992 by the Office of Commissioner of
Securities for the State of Wisconsin and the Securities and Exchange Commission
(the "Investigation") revealed that during at least the four years ended
December 31, 1992, the former general partners of the Partnership, Gary J.
DiVall ("DiVall") and Paul E. Magnuson ("Magnuson") had transferred substantial
cash assets of the Partnership and two affiliated publicly registered
partnerships, DiVall Insured Income Fund Limited Partnership ("DiVall 1")
(dissolved effective December 31, 1998) and DiVall Income Properties 3 Limited
Partnership ("DiVall 3") (collectively the "Partnerships") to various other
entities previously sponsored by or otherwise affiliated with DiVall and
Magnuson. The unauthorized transfers were in violation of the respective
Partnership Agreements and resulted, in part, from material weaknesses in the
internal control system of the Partnerships.
Subsequent to discovery, and in response to the regulatory inquiries, a third-
party Permanent Manager, The Provo Group, Inc. ("TPG"), was appointed (effective
February 8, 1993) to assume responsibility for daily operations and assets of
the Partnerships as well as to develop and execute a plan of restoration for the
Partnerships. Effective May 26, 1993, the Limited Partners, by written consent
of a majority of interests, elected the Permanent Manager, TPG, as General
Partner. TPG terminated the former general partners by accepting their tendered
resignations.
In 1993, the current General Partner estimated an aggregate recovery of $3
million for the Partnerships. At that time, an allowance was established
against amounts due from former general partners and their affiliates reflecting
the estimated $3 million receivable. This net receivable was allocated among
the Partnerships based on each Partnership's pro rata share of the total
misappropriation. Through June 30, 1999, $5,768,000 of recoveries have been
received which exceeded the original estimate of $3 million. As a result, the
Partnership has recognized $1,110,000 as income over the past four years, which
represents its share of the excess recovery. No further significant recoveries
are anticipated.
7
<PAGE>
3. INVESTMENT PROPERTIES:
----------------------
As of June 30, 1999, the Partnership owned 27 fully constructed fast-food
restaurants, a video store, and a preschool. The properties are comprised of
the following: ten (10) Wendy's restaurants, four (4) Hardee's restaurants,
five (5) Denny's restaurants, one (1) Applebee's restaurant, one (1) Popeye's
Famous Fried Chicken restaurant, one (1) Red Apple restaurant, one (1) Hooter's
restaurant, one (1) Kentucky Fried Chicken restaurant, one (1) Hostettler's
restaurant, one (1) Miami Subs restaurant, one (1) Village Inn restaurant, one
(1) Blockbuster Video store, and one (1) Sunrise Preschool. The 29 properties
are located in a total of thirteen (13) states.
From time to time, the Partnership experiences interruptions in rental receipts
due to tenant delinquencies and vacancies. At June 30, 1999, two of the
Partnership's properties were unoccupied.
DenAmerica did not renew its lease on the Denny's property in Phoenix, Arizona
when it expired on May 30, 1998. Management is currently marketing the property
for lease to a new tenant.
The tenant operating the Red Apple Restaurant in Cedar Rapids, Iowa, vacated the
property during 1998 and ceased paying rent. The tenant cannot be located, and
Management has entered into a contract for the sale of the property during the
Third Quarter.
The total cost of the investment properties and specialty leasehold improvements
includes the original purchase price plus acquisition fees and other capitalized
costs paid to an affiliate of the former general partners.
According to the Partnership Agreement, the former general partners were to
commit 80% of the original offering proceeds to investment in properties. Upon
full investment of the net proceeds of the offering, approximately 75% of the
original proceeds was invested in the Partnership's properties.
The current General Partner receives a fee for managing the Partnership equal to
4% of gross receipts, with a maximum reimbursement for office rent and related
office overhead of $25,000 between the three original affiliated Partnerships as
provided in the Permanent Manager Agreement ("PMA"), which amount has been
reduced due to the 1998 sale of DiVall 1. Effective March 1, 1999, the minimum
management fee and the maximum reimbursement for office rent and overhead
increased by 1.6% representing the allowable annual Consumer Price Index
adjustment per the PMA. For purposes of computing the 4% overall fee, gross
receipts includes amounts recovered in connection with the misappropriation of
assets by the former general partners and their affiliates. TPG has received
fees from the Partnership totaling $54,870 to date on the amounts recovered,
which has been offset against the 4% minimum fee.
The Partnership owns three (3) restaurants located on parcels of land where it
has entered into long-term ground leases. One (1) of these leases is paid by
the tenant and two (2) are paid by the Partnership. The leases paid by the
Partnership are considered operating leases and the lease payments are expensed
in the periods to which they apply. The lease terms require aggregate minimum
annual payments of approximately $126,000 and expire in the years 2003 and 2008.
The tenant operating a Denny's restaurant on Camelback Road in Phoenix, Arizona,
has not formally exercised its option to extend its lease which expired on
January 30, 1993, but continues to operate the restaurant and pay rent.
Management is currently negotiating a possible new lease.
Several of the Partnership's property leases contain purchase option provisions
with stated purchase prices in excess of the original cost of the properties.
The current General Partner is not aware of any unfavorable purchase options in
relation to original cost.
4. PARTNERSHIP AGREEMENT:
----------------------
The Partnership Agreement, prior to an amendment effective May 26, 1993,
provided that, for financial reporting and income tax purposes, net profits or
losses from operations were allocated 90% to the Limited Partners and
8
<PAGE>
10% to the general partners. The Partnership Agreement also provided for
quarterly cash distributions from Net Cash Receipts, as defined, within 60 days
after the last day of the first full calendar quarter following the date of
release of the subscription funds from escrow, and each calendar quarter
thereafter, in which such funds were available for distribution with respect to
such quarter. Such distributions were to be made 90% to Limited Partners and 10%
to the former general partners, provided, however, that quarterly distributions
were to be cumulative and were not to be made to the former general partners
unless and until each Limited Partner had received a distribution from Net Cash
Receipts in an amount equal to 10% per annum, cumulative simple return on his or
her Adjusted Original Capital, as defined, from the Return Calculation Date, as
defined.
Net Proceeds, as originally defined, were to be distributed as follows: (a) to
the Limited Partners, an amount equal to 100% of their Adjusted Original
Capital; (b) then, to the Limited Partners, an amount necessary to provide each
Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative
simple return on Adjusted Original Capital from the Return Calculation date
including in the calculation of such return all prior distributions of Net Cash
Receipts and any prior distributions of Net Proceeds under this clause; and (c)
then, to Limited Partners, 90% and to the General Partners, 10%, of the
remaining Net Proceeds available for distribution.
On May 26, 1993, pursuant to the results of a solicitation of written consents
from the Limited Partners, the Partnership Agreement was amended to replace the
former general partners and amend various sections of the agreement. The former
general partners were replaced as General Partner by The Provo Group, Inc., an
Illinois corporation. Under the terms of the amendment, net profits or losses
from operations are allocated 99% to the Limited Partners and 1% to the current
General Partner. The amendment also provided for distributions from Net Cash
Receipts to be made 99% to Limited Partners and 1% to the current General
Partner provided, that quarterly distributions will be cumulative and will not
be made to the current General Partner unless and until each Limited Partner has
received a distribution from Net Cash Receipts in an amount equal to 10% per
annum, cumulative simple return on his or her Adjusted Original Capital, as
defined, from the Return Calculation Date, as defined, except to the extent
needed by the General Partner to pay its federal and state income taxes on the
income allocated to it attributable to such year. Distributions paid to the
General Partner are based on the estimated tax liability resulting from
allocated income. Subsequent to the filing of the General Partner's income tax
returns, a true-up with actual distributions is made.
The provisions regarding distribution of Net Proceeds, as defined, were also
amended to provide that Net Proceeds are to be distributed as follows: (a) to
the Limited Partners, an amount equal to 100% of their Adjusted Original
Capital; (b) then, to the Limited Partners, an amount necessary to provide each
Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative
simple return on Adjusted Original Capital from the Return Calculation Date
including in the calculation of such return on all prior distributions of Net
Cash Receipts and any prior distributions of Net Proceeds under this clause,
except to the extent needed by the General Partner to pay its federal and state
income tax on the income allocated to it attributable to such year; and (c)
then, to Limited Partners, 99%, and to the General Partner, 1%, of remaining Net
Proceeds available for distribution.
Additionally, per the amendment of the Partnership Agreement dated May 26, 1993,
the total compensation paid to all persons for the sale of the investment
properties shall be limited to a competitive real estate commission, not to
exceed 6% of the contract price for the sale of the property. The General
Partner may receive up to one-half of the competitive real estate commission,
not to exceed 3%, provided that the General Partner provides a substantial
amount of services in the sales effort. It is further provided that a portion
of the amount of such fees payable to the General Partner is subordinated to its
success in recovering the funds misappropriated by the former general partners.
(See Note 7.)
5. LEASES:
-------
Lease terms for the majority of the investment properties are 20 years from
their inception. The leases generally provide for minimum rents and additional
rents based upon percentages of gross sales in excess of specified breakpoints.
The lessee is responsible for occupancy costs such as maintenance, insurance,
real estate taxes, and utilities. Accordingly, these amounts are not reflected
in the statements of income except in circumstances where, in management's
opinion, the Partnership will be required to pay such costs to preserve its
assets (i.e., payment
9
<PAGE>
of past-due real estate taxes). Management has determined that the leases are
properly classified as operating leases; therefore, rental income is reported
when earned and the cost of the property, excluding the cost of the land, is
depreciated over its estimated useful life.
Aggregate minimum lease payments to be received under the leases for the
Partnership's properties are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C>
1999 $ 2,196,032
2000 2,211,950
2001 2,112,947
2002 2,056,080
2003 2,014,549
Thereafter 12,229,389
-----------
$22,820,947
===========
</TABLE>
Ten (10) of the properties are leased to Wensouth Orlando, a franchisee of
Wendy's restaurants. Wensouth base rents accounted for 35% of total base rents
for 1998.
6. TRANSACTIONS WITH CURRENT GENERAL PARTNER:
------------------------------------------
Amounts paid to the current General Partner for the six-month periods ended June
30, 1999 and 1998 are as follows.
<TABLE>
<CAPTION>
Incurred as of Incurred as of
Current General Partner June 30, 1999 June 30, 1998
- - ----------------------- -------------- --------------
<S> <C> <C>
Management fees $ 91,426 $ 89,988
Disposition fees 0 66,000
Overhead allowance 7,376 7,260
Reimbursement for out-of-pocket expenses 5,314 18,371
Cash distribution 4,283 5,173
-------- --------
$108,399 $186,792
======== ========
</TABLE>
7. CONTINGENT LIABILITIES:
-----------------------
According to the Partnership Agreement, as amended, the current General Partner
may receive a disposition fee not to exceed 3% of the contract price of the sale
of investment properties. Fifty percent (50%) of all such disposition fees
earned by the current General Partner is to be escrowed until the aggregate
amount of recovery of the funds misappropriated from the Partnerships by the
former general partners is greater than $4,500,000. Upon reaching such recovery
level, full disposition fees will thereafter be payable and fifty percent (50%)
of the previously escrowed amounts will be paid to the current General Partner.
At such time as the recovery exceeds $6,000,000 in the aggregate, the remaining
escrowed disposition fees shall be paid to the current General Partner. If such
levels of recovery are not achieved, the current General Partner will contribute
the amounts escrowed towards the recovery. In lieu of an escrow, 50% of all
such disposition fees have been paid directly to the restoration account and
then distributed among the three Partnerships. Fifty percent (50%) of the total
amount paid to the recovery was refunded to the current General Partner during
March 1996 after surpassing the recovery level of $4,500,000. The remaining
amount allocated to the Partnership may be owed to the current General
10
<PAGE>
Partner if the $6,000,000 recovery level is met. As of June 30, 1999, the
Partnership may owe the current General Partner $16,296, which is currently
reflected as a recovery, if the $6,000,000 recovery level is achieved, which is
considered unlikely.
8. PMA INDEMNIFICATION TRUST:
--------------------------
The PMA provides that the Permanent Manager will be indemnified from any claims
or expenses arising out of or relating to the Permanent Manager serving in such
capacity or as substitute general partner, so long as such claims do not arise
from fraudulent or criminal misconduct by the Permanent Manager. The PMA
provides that the Partnership fund this indemnification obligation by
establishing a reserve of up to $250,000 of Partnership assets which would not
be subject to the claims of the Partnership's creditors. An Indemnification
Trust ("Trust") serving such purposes has been established at United Missouri
Bank, N.A. The Trust has been fully funded with Partnership assets as of June
30, 1999. Funds are invested in U.S. Treasury securities. In addition, $78,257
of earnings have been credited to the Trust as of June 30, 1999. The rights of
the Permanent Manager to the Trust shall be terminated upon the earliest to
occur of the following events: (i) the written release by the Permanent Manager
of any and all interest in the Trust; (ii) the expiration of the longest statute
of limitations relating to a potential claim which might be brought against the
Permanent Manager and which is subject to indemnification; or (iii) a
determination by a court of competent jurisdiction that the Permanent Manager
shall have no liability to any person with respect to a claim which is subject
to indemnification under the PMA. At such time as the indemnity provisions
expire or the full indemnity is paid, any funds remaining in the Trust will
revert back to the general funds of the Partnership.
9. FORMER GENERAL PARTNERS' CAPITAL ACCOUNTS:
------------------------------------------
The capital account balance of the former general partners as of May 26, 1993,
the date of their removal as general partners pursuant to the results of a
solicitation of written consents from the Limited Partners, was a deficit of
$840,229. At December 31, 1993, the former general partners' deficit capital
account balance in the amount of $840,229 was reallocated to the Limited
Partners.
10. SUBSEQUENT EVENTS:
------------------
On August 15, 1999, the Partnership made distributions to the Limited Partners
for the Second Quarter of 1999 of $650,000 amounting to approximately $14.04 per
limited partnership interest.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources:
- - --------------------------------
Investment Properties and Net Investment in Direct Financing Leases
- - -------------------------------------------------------------------
The investment properties, including equipment held by the Partnership at June
30, 1999, were originally purchased at a price, including acquisition costs, of
approximately $23,955,000.
The tenant of the former Red Apple Restaurant in Cedar Rapids, Iowa vacated the
property during 1998 and ceased paying rent. Management has entered into a
contract for the sale of the property during the Third Quarter.
11
<PAGE>
DenAmerica, Inc. did not renew the lease on its Denny's store in Phoenix,
Arizona upon the original lease's expiration on May 30, 1998. Management is
currently marketing the property for lease to a new tenant.
A land easement was granted to the City of Cedar Rapids, Iowa on a portion of
the land at the former Red Apple Restaurant property in exchange for a payment
to the Partnership of $18,300.
Other Assets
- - ------------
Cash and cash equivalents, including cash restricted for real estate taxes was
approximately $1,178,000 at June 30, 1999, compared to $1,260,000 at December
31, 1998. The Partnership designated cash of $650,000 to fund the Second
Quarter 1999 distributions to Limited Partners, $267,000 for the payment of
accounts payable and accrued expenses, and the remainder represents reserves
deemed necessary to allow the Partnership to operate normally. Cash generated
through the operations of the Partnership's investment properties and sales of
investment properties will provide the sources for future fund liquidity and
Limited Partner distributions.
The Partnership established the Trust during the Fourth Quarter of 1993,
deposited $100,000 in the Trust during 1993 and completed funding of the Trust
with $150,000 during 1994. The provision to establish the Trust was included in
the PMA for the indemnification of TPG, in the absence of fraud or gross
negligence, from any claims or liabilities that may arise from TPG acting as
Permanent Manager. The Trust is owned by the Partnership. For additional
information regarding the Trust refer to Note 8 to the financial statements.
Liabilities
- - -----------
Accounts payable and accrued expenses at June 30, 1999, in the amount of
$35,000, primarily represented the accrual of legal and auditing fees.
Partners' Capital
- - -----------------
Net income for the quarter was allocated between the General Partner and the
Limited Partners, 1% and 99%, respectively, as provided in the Partnership
Agreement and the Amendment to the Partnership Agreement, as discussed more
fully in Note 4 of the financial statements. The former general partners'
deficit capital account balance was reallocated to the Limited Partners at
December 31, 1993. Refer to Note 9 to the financial statements for additional
information regarding the reallocation.
Cash distributions paid to the Limited Partners and to the General Partner
during 1999 of $1,425,000 and $4,283, respectively, have also been in accordance
with the amended Partnership Agreement. The Second Quarter 1999 distribution of
$650,000 was paid to the Limited Partners on August 15, 1999.
Results of Operations:
- - ----------------------
The Partnership reported net income for the quarter ended June 30, 1999, in the
amount of $577,000 compared to net income for the quarter ended June 30, 1998,
of $392,000. For the six months ended June 30, 1999 and 1998, net income
totaled $1,071,000 and $1,293,000, respectively.
12
<PAGE>
Revenues
- - --------
Total revenues were $795,000 and $722,000, for the quarters ended June 30, 1999
and 1998, respectively, and were $1,517,000 and $2,017,000 for the six months
ended June 30, 1999 and 1998 , respectively. The 1999 Second Quarter revenue
included a $73,000 note payment from a former tenant which had previously been
written off. The 1998 revenue included a gain of $556,000 on the sale of two
Denny's properties to the tenant.
Total revenues should approximate $2,700,000 annually or $675,000 quarterly
based on leases currently in place. Future revenues may decrease with tenant
defaults and/or sales of Partnership properties. They may also increase with
additional rents due from tenants, if those tenants experience sales levels
which require the payment of additional rent to the Partnership.
Expenses
- - --------
For the quarters ended June 30, 1999 and 1998, cash expenses amounted to
approximately 11% and 31%, of total revenues, respectively. For the six months
ended June 30, 1999 and 1998, cash expenses totaled 15% and 25%, respectively.
Total expenses, including non-cash items, amounted to approximately 27% and 46%,
of total revenues for the quarters ended June 30, 1999 and 1998, respectively,
and totaled 29% and 36% for the six months ended June 30, 1999 and 1998,
respectively.
Disposition fees were recorded during 1998 as a result of the sale of two
Denny's properties to the tenant. Appraisal fees totaling $58,000 and
environmental inspections of $50,000 were incurred during 1998 for the appraisal
of all of the Partnership's properties. A reversal of a property tax accrual
was recorded during 1999 due to the assumption of liability for these taxes by a
tenant who assumed the lease.
Inflation:
- - ----------
Inflation has a minimal effect on operating earnings and related cash flows from
a portfolio of triple net leases. By their nature, such leases actually fix
revenues and are not impacted by rising costs of maintenance, insurance, or real
estate taxes. If inflation causes operating margins to deteriorate for lessees
if expenses grow faster than revenues, then, inflation may well negatively
impact the portfolio through tenant defaults.
It would be misleading to associate inflation with asset appreciation for real
estate, in general, and the Partnership's portfolio, specifically. Due to the
"triple net" nature of the property leases, asset values generally move
inversely with interest rates.
Year 2000
- - ---------
The Partnership's operations are not dependent on date sensitive software. The
Partnership is not aware of any Year 2000 problems with its current software.
Accounting and Partnership records software are owned and operated by third
parties who provide services to the Partnership under contract and any cost to
make the software Year 2000 compliant will be borne by the third parties. The
Partnership has received assurances from a majority of these third party
providers that such software is Year 2000 compliant or will be by January 1,
2000. The Partnership believes, however, that even if any Year 2000 problems
are not corrected on schedule, the cost and disruption to operations of the
Partnership are expected to be minimal.
Tenants are responsible for the operation of any equipment located at the
Partnership's properties. While the Partnership is not fully aware of the
compliance attainment efforts of its tenants, tenant preparedness
13
<PAGE>
for the Year 2000 should have minimal impact on the Partnership and are not
expected to be material to the Partnership's operations, financial condition or
liquidity. The Partnership is evaluating the efforts of its tenants to prepare
for the Year 2000. While the Partnership has received assurances from some
tenants regarding Year 2000 compliance, to the extent the Partnership is not
satisfied with the status of a tenant's or third party provider's Year 2000
compliance, the Partnership expects to develop and implement appropriate
contingency plans.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
None.
14
<PAGE>
PART II - OTHER INFORMATION
Items 1 - 5.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
99.0 Correspondence to the Limited Partners dated August 15, 1999,
regarding the Second Quarter 1999 distribution.
(b) Reports on Form 8-K:
The Registrant filed no reports on Form 8-K during the second quarter of
fiscal year 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
By: The Provo Group, Inc., General Partner
/s/ Bruce A. Provo
By: _______________________________________________
Bruce A. Provo, President
Date: August 14, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: The Provo Group, Inc., General Partner
/s/ Bruce A. Provo
By: _________________________________________________
Bruce A. Provo, President
Date: August 14, 1999
/s/ Kristin J. Atkinson
By: ______________________________________
Kristin J. Atkinson
Vice President - Finance and Administration
Date: August 14, 1999
16
<PAGE>
EXHIBIT 99
DiVall Insured Income Properties 2, L.P.
QUARTERLY NEWS
================================================================================
A publication of The Provo Group, Inc. SECOND QUARTER 1999
Distribution Highlights
. 11.8% (approx.) annualized return from operations and other sources based on
$22,000,000 (estimated net asset value as of December 31, 1998).
. $650,000 total amount distributed for the Second Quarter 1999 which was
$130,000 more than projected.
. $14.04 per unit (approx.) for the Second Quarter 1999.
. $987.00 to $789.00 range of distributions per unit from the first unit sold
to the last unit sold before the offering closed (February 1990),
respectively. (NOTE: Distributions are from both cash flow from operations
and "net" cash activity from financing and investing activities.)
---------------------------------------------
Statements of Income and Cash Flow Highlights
. 17% increase in "total" operating revenues from projections.
. A 33% increase in net income from projections.
. An 11% decrease in "total" expenses from projections.
. Revenues were higher than projected because percentage rent accruals are
higher than originally planned. Additionally, a note receivable related to
the Popeye's - Park Forest property was paid in full in connection with the
assignment of the lease.
. The decrease in expenses is primarily because the Popeye's - Park Forest
property assigned their lease. Therefore, we were able to reverse a charge
for taxes which weren't paid by the former tenant, as the new tenant as
assumed all liability for taxes.
<PAGE>
Page 2 DiVall 2 2 Q 99
Property Highlights
Vacancies
---------
. Red Apple Restaurant (Cedar Rapids, IA) remains vacant at June 30, 1999.
Management is pursuing other possible tenants for this location.
. Denny's (Phoenix, AZ) was vacant at June 30, 1999. The tenant did not renew
their lease which expired on May 31, 1998. Management continues to pursue
other possible tenants for this property.
Rents Receivable
----------------
. Denny's (N. 7/th/ Street, Phoenix, AZ) was delinquent at June 30, 1999 in an
amount of $63,846. Which includes a disputed charge for a change in lease
terms with which the tenant hasn't complied.
. Miami Subs (Palm Beach, FL) was delinquent at June 30, 1999 in the amount of
$8,337. Management has sent this tenant a default notice and will pursue all
legal remedies if the balance due is not paid in full.
. Denny's (Northern, Phoenix, AZ) was delinquent at June 30, 1999 in the amount
of $5,533. Management anticipates collecting this balance on or before
July 31, 1999.
. Denny's (Twin Falls, ID) was delinquent at June 30, 1999 in the amount of
$19,526. This amount represents a balloon payment for an Equipment Lease
which expired in May. If the balance is not collected during the month of
July, this tenant will be sent a default notice by management.
Property Issues
---------------
. Popeye's (Park Forest, IL) sold their business to Quality Foods, Inc.
effective June 1, 1999. All rent charges, percentage rents, escrow taxes and
note payments were paid in full on or before June 1, 1999.
-------------------------------------------------------
Questions & Answers
1. When can I expect my next distribution mailing?
Your distribution correspondence for the Third Quarter of 1999 is
scheduled to be mailed on November 15, 1999.
<PAGE>
Page 3 DiVall 2 2 Q 99
Changes to the Advisory Board
During the last Advisory Board Meeting we discussed amending the Advisory Board
Charter due to the dissolution of DiVall Insured Income Fund, L.P. Additionally,
management has been working diligently with a potential buyer for DiVall Income
Properties 3, L.P. We have negotiated a price and as a result, we are in receipt
of a fully executed contract. Therefore, Management felt the structure needed to
be modified to accommodate greater representation for DiVall Insured Income
Properties 2, L.P. We have since revised the Charter to reflect the following
changes:
. There shall be an Advisory Board composed of not less than three
persons, appointed initially by the General Partner. At least 2 of the
3 members must be Limited Partners.
(Therefore, if DiVall 3 is indeed sold, two DiVall 2 limited partners
will serve on the board. Previously the members of the Advisory Board
did not need to be Limited Partners).
. The annual retainer paid to members who are also Limited Partners has
been lowered from $3,000 to $1,500;
. The fees for attending meetings for members who are also Limited
Partners has been lowered from $1,200 to $500;
. The annual retainer paid to members who are not also Limited Partners
was structured according to how many Partnerships exist; and
. The fees for attending meetings for members who are not also Limited
Partners was also lowered and modified according to how many
Partnerships exist.
*No employees of The Provo Group who attend the Advisory Board meeting are
paid by the Partnership.
We will circularize for nominations in August. At that time you will receive
information on how to nominate fellow investors or brokers to the Advisory
Board. Additionally, we will continue update you on the liquidation of DiVall
Income Properties 3, L.P. as we receive information. At this time, we expect the
Partnership to liquidate by year-end (if everything goes according to the
contract). At this stage, the buyer does have the option to forfeit the earnest
money deposit and withdraw the offer to purchase.
For questions or additional information, please contact Investor Relations at:
1-800-547-7686 or 1-816-421-7444
All written inquiries may be mailed or faxed to:
The Provo Group, Inc.
101 West 11th Street, Suite 1110
Kansas City, Missouri 64105
(FAX 816-221-2130)
E-Mail: [email protected]
<PAGE>
- - -------------------------------------------------------------------------------
DIVALL INSURED INCOME PROPERTIES 2 L.P.
STATEMENTS OF INCOME AND CASH FLOW CHANGES
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1999
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED ACTUAL VARIANCE
---------------------------------------
2ND 2ND
QUARTER QUARTER BETTER
6/30/99 6/30/99 (WORSE)
---------- ---------- ---------
<S> <C> <C> <C>
OPERATING REVENUES
Rental income $ 640,641 $ 681,275 $ 40,634
Interest income 15,389 14,398 (991)
Other income 22,723 99,702 76,979
---------- ---------- ---------
TOTAL OPERATING REVENUES $ 678,753 $ 795,375 $ 116,622
---------- ---------- ---------
OPERATING EXPENSES
Insurance $ 6,096 $ 5,970 $ 126
Management fees 46,587 45,954 633
Overhead allowance 3,699 3,707 (8)
Advisory Board 3,849 3,626 223
Administrative 27,470 20,121 7,349
Professional services 7,150 7,913 (763)
Auditing 12,000 12,000 0
Legal 7,500 4,394 3,106
Real Estate Taxes 0 (45,210) 45,210
Defaulted tenants 2,610 1,607 1,003
---------- ---------- ---------
TOTAL OPERATING EXPENSES $ 116,961 $ 60,082 $ 56,879
---------- ---------- ---------
GROUND RENT $ 31,800 $ 31,372 $ 428
---------- ---------- ---------
INVESTIGATION AND RESTORATION EXPENSES $ 474 $ 0 $ 474
---------- ---------- ---------
NON-OPERATING EXPENSES
Depreciation $ 93,951 $ 93,951 $ 0
Amortization 2,313 32,913 (30,600)
---------- ---------- ---------
TOTAL NON-OPERATING EXPENSES $ 96,264 $ 126,864 $ (30,600)
---------- ---------- ---------
TOTAL EXPENSES $ 245,499 $ 218,318 $ 27,181
---------- ---------- ---------
NET INCOME (LOSS) $ 433,254 $ 577,057 $ 143,803
VARIANCE
OPERATING CASH RECONCILIATION: --------
Depreciation and amortization 96,264 126,864 30,600
(Increase) Decrease in current assets 5,262 (108,840) (114,102)
Increase (Decrease) in current liabilities 22,889 (39,438) (62,327)
(Increase) Decrease in cash reserved for payables (12,022) 38,000 50,022
Advance from current cash flows for future distributions (23,200) 61,800 85,000
---------- ---------- ---------
Net Cash Provided From Operating Activities $ 522,447 $ 655,443 $ 132,996
---------- ---------- ---------
CASH FLOWS FROM (USED IN) INVESTING
AND FINANCING ACTIVITIES
Proceeds from repayment of notes receivable 0 0 0
Recoveries from former general partners 0 0 0
Proceeds from property sales 0 0 0
---------- ---------- ---------
Net Cash Provided From Investing And Financing
Activities $ 0 $ 0 $ 0
---------- ---------- ---------
Total Cash Flow For Quarter $ 522,447 $ 655,443 $ 132,996
Cash Balance Beginning of Period 1,062,717 1,222,017 159,300
Less 1st quarter distributions paid 5/99 (520,000) (600,000) (80,000)
Change in cash reserved for payables or future distributions 35,222 (99,800) (135,022)
---------- ---------- ---------
Cash Balance End of Period $1,100,386 $1,177,660 $ 77,274
Cash reserved for 2nd quarter L.P. distributions (520,000) (650,000) (130,000)
Cash reserved for payment of payables (274,917) (266,600) 8,317
---------- ---------- ---------
Unrestricted Cash Balance End of Period $ 305,469 $ 261,060 $ (44,409)
========== ========== =========
PROJECTED ACTUAL VARIANCE
---------------------------------------
* Quarterly Distribution $ 520,000 $ 650,000 $ 130,000
Mailing Date 8/15/99 (enclosed) --
</TABLE>
-------------------------------------------------------------------------------
* Refer to distribution letter for detail of quarterly distribution.
<PAGE>
PROJECTIONS FOR
DISCUSSION PURPOSES
DIVALL INSURED INCOME PROPERTIES 2 LP
1999 PROPERTY SUMMARY
AND RELATED ESTIMATED RECEIPTS
PORTFOLIO (Note 1)
<TABLE>
<CAPTION>
---------------------------- ---------------------------------------- --------------------------
REAL ESTATE EQUIPMENT TOTALS
---------------------------- ---------------------------------------- --------------------------
ANNUAL LEASE ANNUAL
- - --------------------------------- BASE % EXPIRATION LEASE % * ANNUAL
CONCEPT LOCATION COST RENT YIELD DATE COST RECEIPTS RETURN COST RECEIPTS RETURN
- - --------------------------------- ---------------------------- ---------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APPLEBEE'S COLUMBUS, OH 1,059,465 135,780 12.82% 84,500 0 0.00% 1,143,965 135,780 11.87%
BLOCKBUSTER OGDEN, UT 646,425 100,554 15.56% 646,425 100,554 15.56%
RED APPLE REST. CEDAR RAPIDS, IA 660,156 0.00% 660,156 0 0.00%
DENNY'S (3) PHOENIX, AZ 295,750 0 0.00% 224,376 0 0.00% 520,126 0 0.00%
DENNY'S PHOENIX, AZ 972,726 65,000 6.68% 183,239 0 0.00% 1,155,965 65,000 5.62%
DENNY'S (2) PHOENIX, AZ 865,900 86,000 9.93% 221,237 0 0.00% 1,087,137 86,000 7.91%
DENNY'S TWIN FALLS, ID 699,032 83,200 11.90% 04/30/99 190,000 0 0.00% 889,032 83,200 9.36%
DENNY'S (2)(3) PHOENIX, AZ 500,000 37,000 7.40% 14,259 0 0.00% 514,259 37,000 7.19%
HARDEE'S (5) S MILWAUKEE, WI 808,032 64,000 7.92% 808,032 64,000 7.92%
HARDEE'S (5) HARTFORD, WI 686,563 64,000 9.32% 686,563 64,000 9.32%
HARDEE'S (5) MILWAUKEE, WI 1,010,045 76,000 7.52% (4) 260,000 0 0.00% 1,421,983 76,000 5.34%
" " 151,938 0 0.00%
HARDEE'S (5) FOND DU LAC, WI 849,767 88,000 10.36% (4) 290,469 0 0.00% 1,140,236 88,000 7.72%
HARDEE'S (5) MILWAUKEE, WI 0 0 0.00% 780,000 0 0.00% 780,000 0 0.00%
HOOTER'S R. HILLS, TX 1,246,719 95,000 7.62% 1,246,719 95,000 7.62%
HOSTETTLER'S DES MOINES, IA 845,000 66,000 7.81% 52,813 0 0.00% 897,813 66,000 7.35%
KFC SANTA FE, NM 451,230 60,000 13.30% 451,230 60,000 13.30%
MIAMI SUBS PALM BEACH, FL 743,625 48,000 6.45% 743,625 48,000 6.45%
- - --------------------------------- ---------------------------- ---------------------------------------- --------------------------
</TABLE>
Note 1: This property summary includes only current property and equipment held
by the Partnership.
Equipment lease receipts shown include a return of capital.
2: Rent is based on 12.5% of monthly sales. Rent projected for 1999 is
based on 1998 sales levels.
3: The Partnership entered into a long-term ground lease in which the
Partnership is responsible for payment of rent.
The annual base rent shown is net of the underlying ground lease rent.
4: The lease was terminated and the equipment sold to Hardee's Food Systems
in conjunction with their assumption of the Terratron leases in November
1996.
5: These leases were assumed by Hardee's Food Systems at a reduced rental
rate from that stated in the original leases.
Page 1 of 2
<PAGE>
PROJECTIONS FOR
DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP
1999 PROPERTY SUMMARY
AND RELATED ESTIMATED RECEIPTS
PORTFOLIO (Note 1)
<TABLE>
<CAPTION>
--------------------------------- ----------------------------------------------
REAL ESTATE EQUIPMENT
--------------------------------- ----------------------------------------------
ANNUAL LEASE ANNUAL
- - ------------------------------- BASE % EXPIRATION LEASE %
CONCEPT LOCATION COST RENT YIELD DATE COST RECEIPTS RETURN
- - ------------------------------- --------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
POPEYE'S PARK FOREST, IL 580,936 77,280 13.30%
SUNRISE PS PHOENIX, AS 1,084,503 127,920 11.80% 79,219 0 0.00%
VILLAGE INN GRAND FORKS, ND 739,375 84,000 11.36% 19,013 0 0.00%
WENDY'S AIKEN, SC 633,750 90,480 14.28%
WENDY'S CHARLESTON, SC 580,938 78,920 13.24%
WENDY'S N. AUGUSTA, SC 660,156 87,780 13.30%
WENDY'S AUGUSTA, GA 728,813 96,780 13.28%
WENDY'S CHARLESTON, SC 596,781 76,920 12.89%
WENDY'S AIKEN, SC 776,344 96,780 12.47%
WENDY'S AUGUSTA, SC 649,594 86,160 13.26%
WENDY'S CHARLESTON, SC 528,125 70,200 13.29%
WENDY'S MT. PLEASANT, SC 580,938 77,280 13.30%
WENDY'S MARTINEZ, GA 633,750 84,120 13.27%
- - -------------------------------- --------------------------------- ----------------------------------------------
- - -------------------------------- --------------------------------- ----------------------------------------------
PORTFOLIO TOTALS (29 Properties) 21,114,440 2,201,154 10.42% 2,551,063 0 0.00%
- - -------------------------------- --------------------------------- ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - -----------------------------------
TOTALS
-----------------------------------
- - ------------------------------- TOTAL %
CONCEPT LOCATION COST RECEIPTS RETURN
- - ------------------------------- -----------------------------------
<S> <C> <S> <C> <C>
POPEYE'S PARK FOREST, IL 580,938 77,280 13.30%
SUNRISE PS PHOENIX, AS 1,182,735 127,920 10.82%
VILLAGE INN GRAND FORKS, ND 739,375 84,000 11.36%
WENDY'S AIKEN, SC 633,750 90,480 14.28%
WENDY'S CHARLESTON, SC 580,938 76,920 13.24%
WENDY'S N. AUGUSTA, SC 660,156 87,780 13.30%
WENDY'S AUGUSTA, GA 728,813 96,780 13.28%
WENDY'S CHARLESTON, SC 596,781 76,920 12.89%
WENDY'S AIKEN, SC 776,344 96,780 12.47%
WENDY'S AUGUSTA, SC 649,594 86,160 13.26%
WENDY'S CHARLESTON, SC 528,125 70,200 13.29%
WENDY'S MT. PLEASANT, SC 580,938 77,280 13.30%
WENDY'S MARTINEZ, GA 633,750 84,120 13.27%
- - -------------------------------- -----------------------------------
- - -------------------------------- -----------------------------------
PORTFOLIO TOTALS (29 Properties) 23,665,503 2,201,155 9.30%
- - -------------------------------- -----------------------------------
</TABLE>
Note 1: This property summary includes only current property and equipment held
by the Partnership.
Equipment lease receipts shown include a return of capital.
Page 2 of 2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
June 30, 1999 Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 1,177,660 1,177,660
<SECURITIES> 328,257 328,257
<RECEIVABLES> 483,324 483,324
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,989,241 1,989,241
<PP&E> 20,832,243 20,832,243
<DEPRECIATION> 5,544,351 5,544,351
<TOTAL-ASSETS> 17,277,133 17,277,133
<CURRENT-LIABILITIES> 226,088 226,088
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 17,051,045 17,051,045
<TOTAL-LIABILITY-AND-EQUITY> 17,277,133 17,277,133
<SALES> 681,275 1,363,655
<TOTAL-REVENUES> 795,374 1,517,406
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 218,318 446,492
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 577,056 1,070,914
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 577,056 1,070,914
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 577,056 1,070,914
<EPS-BASIC> 12.34 22.91
<EPS-DILUTED> 12.34 22.91
</TABLE>
