<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 September 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
September 30, 1999 and December 31, 1998
----------------------------------------
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
INVESTMENT PROPERTIES AND EQUIPMENT:(Note 3)
Land $ 7,388,421 $ 7,406,721
Buildings 12,750,244 12,736,444
Equipment 707,378 707,378
Accumulated depreciation (5,638,339) (5,356,448)
----------- -----------
Net investment properties and equipment 15,207,704 15,494,095
----------- -----------
OTHER ASSETS:
Cash and cash equivalents 1,008,124 1,256,165
Cash restricted for real estate taxes 0 4,404
Cash held in Indemnification Trust (Note 8) 331,786 321,207
Rents and other receivables 360,020 369,715
Deferred rent receivable 134,188 134,899
Prepaid insurance 1,989 19,892
Deferred charges 87,325 91,158
Notes receivable from lessees 0 2,317
----------- -----------
Total other assets 1,923,432 2,199,757
----------- -----------
Total assets $17,131,136 $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
September 30, 1999 and December 31, 1998
----------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued expenses $ 48,044 $ 45,050
Due to current General Partner 1,847 2,723
Security deposits 117,850 102,017
Unearned rental income 85,980 61,179
Real estate taxes payable 16,551 73,469
------------ ------------
Total liabilities 270,272 284,438
------------ ------------
CONTINGENT LIABILITIES: (Note 7)
PARTNERS' CAPITAL: (Notes 1, 4 and 9)
Current General Partner -
Cumulative net income 132,471 117,145
Cumulative cash distributions (55,059) (48,929)
------------ ------------
77,412 68,216
------------ ------------
Limited Partners (46,280.3 interests outstanding)
Capital contributions, net of offering costs 39,358,468 39,358,468
Cumulative net income 19,480,481 17,963,227
Cumulative cash distributions (41,215,268) (39,140,268)
Reallocation of former general partners' deficit capital (840,229) (840,229)
------------ ------------
16,783,452 17,341,198
------------ ------------
Total partners' capital 16,860,864 17,409,414
------------ ------------
Total liabilities and partners' capital $ 17,131,136 $ 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 Nine Months Ended
------------------ -----------------
September 30, September 30,
-------------- --------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income (Note 5) $697,497 $495,847 $2,061,152 $1,834,137
Interest income 12,308 32,463 41,569 107,536
Recovery of amount previously written off (17,146) 9,465 20,472 31,550
Other income 1,266 12,521 88,138 38,134
Gain on disposal of assets 0 0 0 556,227
-------- -------- ---------- ----------
693,925 550,296 2,211,331 2,567,584
-------- -------- ---------- ----------
EXPENSES:
Partnership management fees 45,880 45,231 137,306 135,219
Disposition fees 0 0 0 66,000
Appraisal fees 0 1,500 0 59,825
Insurance 5,968 5,794 17,903 17,380
General and administrative 21,848 18,965 59,926 93,667
Advisory Board fees and expenses 2,600 3,947 8,825 12,022
Environmental Inspections 0 0 0 49,500
Land title surveys 0 67,400 0 67,400
Ground lease payments (Note 3) 31,372 31,372 94,468 95,169
Expenses incurred due to default by lessee 1,994 925 5,885 1,259
Real estate taxes 829 0 (44,381) 0
Professional services 25,565 34,882 79,487 122,664
Professional services related to investigation 167 168 167 1,279
Depreciation 93,988 102,384 281,891 310,566
Amortization 2,048 2,313 37,274 6,939
-------- -------- ---------- ----------
232,259 314,881 678,751 1,038,889
-------- -------- ---------- ----------
NET INCOME $461,666 $235,415 $1,532,580 $1,528,695
======== ======== ========== ==========
NET INCOME - CURRENT GENERAL PARTNER $ 4,617 $ 2,354 $ 15,326 $ 15,287
NET INCOME - LIMITED PARTNERS 457,049 233,061 1,517,254 1,513,408
-------- -------- ---------- ----------
$461,666 $235,415 $1,532,580 $1,528,695
======== ======== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
INTEREST, based on 46,280.3 Interests outstanding $ 9.88 $ 5.04 $ 32.78 $ 32.70
======== ======== ========== ==========
</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>
Nine Months Ended September 30,
---------------------------------------
1999 1998
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,532,580 $ 1,528,695
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 319,165 317,505
Recovery of amounts previously written off (20,472) (31,550)
Net (gain) on disposal of assets 0 (556,227)
Interest applied to Indemnification Trust account (10,579) (13,541)
Decrease in rents and other receivables 9,695 225,267
Withdrawals/(Deposits) for payment of real estate taxes 4,404 (1,891)
Decrease in prepaids 17,903 17,380
Decrease in deferred rent receivable 711 42,483
(Decrease) in due to current General Partner (876) (1,568)
Increase/(Decrease) in accounts payable and other 2,994 (22,126)
Increase/(Decrease) in security deposits 15,833 (48,595)
Increase/(Decrease) in real estate taxes payable (56,918) 2,564
Increase (Decrease) in unearned rental income 24,801 (40,327)
----------- ------------
Net cash from operating activities 1,839,241 1,418,069
----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Principal payments received on direct financing leases 16,300 31,551
Principal payments received on notes receivable 2,317 12,975
Investment in leasing commissions (33,441) (13,976)
Proceeds from sale of investment properties 18,300 2,217,724
Investment in building improvements (13,800) 0
Recoveries from former affiliates 4,172 0
----------- -----------
Net cash from investing activities (6,152) 2,248,274
----------- -----------
CASH FLOWS (USED IN) FINANCING ACTIVITIES:
Cash distributions to Limited Partners (2,075,000) (3,575,000)
Cash distributions to current General Partner (6,130) (6,115)
----------- -----------
Net cash (used in) financing activities (2,081,130) (3,581,115)
----------- -----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (248,041) 85,228
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,256,165 1,438,534
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,008,124 $ 1,523,762
=========== ===========
</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 September 30, 1999, and the results of
operations for the three and nine-month periods ended September 30, 1999, and
1998, and cash flows for the nine-month periods ended September 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 September 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 September 30, 1999, $5,772,000 of recoveries have
been received which exceeded the original estimate of $3 million. As a result,
the Partnership has recognized $1,112,000 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 September 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.
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 entered into a contract for the sale of the property. The sale took
place on October 1, 1999, resulting in a gain of approximately $12,000.
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.
During the First Quarter of 1999, 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.
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 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
8
<PAGE>
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 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.
9
<PAGE>
Aggregate minimum lease payments to be received under the leases for the
Partnership's properties are as follows:
<TABLE>
<S> <C>
Year ending
December 31, $ 2,196,032
1999 2,211,950
2000 2,112,947
2001 2,056,080
2002 2,014,549
2003 12,229,389
Thereafter ------------
$ 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 nine-month periods ended
September 30, 1999 and 1998 are as follows.
<TABLE>
<CAPTION>
Incurred as of Incurred as of
Current General Partner September 30, 1999 September 30, 1998
- - ----------------------- ---------------------- ------------------------
<S> <C> <C>
Management fees $137,306 $135,219
Disposition fees 0 66,000
Overhead allowance 11,084 10,909
Reimbursement for out-of-pocket expenses 7,008 25,072
Cash distribution 6,130 6,115
-------- --------
$161,528 $243,315
======== ========
</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 Partner
if the $6,000,000 recovery level is met. As of September 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.
10
<PAGE>
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
September 30, 1999. Funds are invested in U.S. Treasury securities. In
addition, $81,786 of earnings have been credited to the Trust as of September
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 November 15, 1999, the Partnership made distributions to the Limited Partners
for the Third Quarter of 1999 of $500,000 amounting to approximately $10.80 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
September 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 sold the property on
October 1, 1999 resulting in a gain of approximately $12,000.
During the First Quarter of 1999, a land easement was granted to the City of
Cedar Rapids, Iowa on a
11
<PAGE>
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 $1,008,000 at September 30, 1999, compared to $1,260,000 at
December 31, 1998. The Partnership designated cash of $500,000 to fund the
Third Quarter 1999 distributions to Limited Partners, $241,000 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 September 30, 1999, in the amount of
$48,000, primarily represented the accrual of legal and auditing fees.
Real estate taxes payable decreased $57,000 from December 31, 1998 to September
30, 1999, due to the reversal of an accrual for taxes which are now expected to
be paid by a tenant.
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 $2,075,000 and $6,130, respectively, have also been in accordance
with the amended Partnership Agreement. The Third Quarter 1999 distribution of
$500,000 was paid to the Limited Partners on November 15, 1999.
Results of Operations:
- - ----------------------
The Partnership reported net income for the quarter ended September 30, 1999, in
the amount of $462,000 compared to net income for the quarter ended September
30, 1998, of $235,000. For the nine months ended September 30, 1999 and 1998,
net income totaled $1,533,000 and $1,529,000, respectively.
Revenues
- - --------
Total revenues were $694,000 and $550,000, for the quarters ended September 30,
1999 and 1998, respectively, and were $2,211,000 and $2,568,000 for the nine
months ended September 30, 1999 and
12
<PAGE>
1998, respectively. The 1999 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. Percentage
rent accruals have increased approximately $200,000 from 1998 to 1999 due to
improved tenant sales.
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 September 30, 1999 and 1998, cash expenses amounted to
approximately 20% and 38%, of total revenues, respectively. For the nine months
ended September 30, 1999 and 1998, cash expenses totaled 16% and 28%,
respectively. Total expenses, including non-cash items, amounted to
approximately 33% and 57%, of total revenues for the quarters ended September
30, 1999 and 1998, respectively, and totaled 31% and 40% for the nine months
ended September 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 $60,000, land survey
fees totaling $67,000, 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 for the Year
2000 should have minimal impact on the Partnership and are not expected to be
material to
13
<PAGE>
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 has
developed and will 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 November 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 third 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
By: /s/ Bruce A. Provo
---------------------------------------
Bruce A. Provo, President
Date: November 12, 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
By: /s/ Bruce A. Provo
---------------------------------------
Bruce A. Provo, President
Date: November 12, 1999
By: /s/ Kristin J. Atkinson
---------------------------------------
Kristin J. Atkinson
Vice President - Finance and Administration
Date: November 12, 1999
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 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 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 1,008,124 1,008,124
<SECURITIES> 331,786 331,786
<RECEIVABLES> 583,522 583,522
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,923,432 1,923,432
<PP&E> 20,846,043 20,846,043
<DEPRECIATION> 5,638,339 5,638,339
<TOTAL-ASSETS> 17,131,136 17,131,136
<CURRENT-LIABILITIES> 270,272 270,272
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 16,860,864 16,860,864
<TOTAL-LIABILITY-AND-EQUITY> 17,131,136 17,131,136
<SALES> 680,351 2,081,624
<TOTAL-REVENUES> 693,925 2,211,331
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 232,259 678,751
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 461,666 1,532,580
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 461,666 1,532,580
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 461,666 1,532,580
<EPS-BASIC> 9.88 32.78
<EPS-DILUTED> 9.88 32.78
</TABLE>
<PAGE>
Exhibit 99
DiVall Insured Income Properties 2, L.P.
QUARTERLY NEWS
================================================================================
A publication of The Provo Group, Inc. THIRD QUARTER 1999
First, the REALLY Good News
The "No Vacancy" sign was on display October 1st at all DiVall 2 properties
for the first time since 1995. Also, related distributions remain stabilized,
providing a return to investors of approximately 9% based on net asset values as
of December 31, 1998. A long-vacant property also was sold on October 1, 1999,
which will provide a return of capital distribution to investors of
approximately $450,000 as part of the Fourth Quarter distribution, payable
February 15, 2000. Enjoy the details of these developments, along with the
usual highlights, statements and minor problem areas discussed in other parts of
the "Quarterly News" report, starting with some of the most frequently asked
questions ...
What's the Status? Probably the most common question we get from investors is,
"What's the status of the Partnership?" Our response, "Business as usual."
Many investors seem to be under the impression that after last year's sealed bid
process we continued to market the portfolio for sale. We did not. If you'll
recall, we offered investors a "match-up" process - in an effort to help put
together those investors wishing to buy more units and those investors
interested in selling their units. Most of the sales resulting from this process
took place during the First Quarter of 1999.
The next most popular question, "When will you try to sell again?" We can't
predict the next good opportunity to maximize value, but we are constantly re-
evaluating "sell" vs. "hold". We will again be reviewing the most appropriate
options with the Advisory Board during the First Quarter of 2000. We do believe,
however, that a 9-10% return on net asset value would be difficult to replace
(for the same risk) in the investment market.
-----------------------------------------------------------
Distribution Highlights
. 9% (approx.) annualized return from operations and other sources based on
$22,000,000 (estimated net asset value as of December 31, 1998).
. $500,000 total amount distributed for the Third Quarter 1999 which was $20,000
less than projected.
. $10.80 per unit (approx.) for the Third Quarter 1999.
. $998.00 to $800.00 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.)
<PAGE>
Page 2 DiVall 2 3 Q 99
Statements of Income and Cash Flow Highlights
. 2% increase in "total" . A 4% increase in . A $47,000 investment
operating revenues net income from in new lease
from projections. projections. procurement.
. Revenues were higher than projected . Leasing commissions and tenant
because percentage rent accruals are improvements were incurred in
higher than originally planned. with a new lease on the
former Denny's in Phoenix, Arizona.
- - --------------------------------------------------------------------------------
Property Highlights
Vacancies
---------
. There were no vacancies as of September 30, 1999.
Rents Receivable
----------------
. Denny's (N. 7/th/ Street, Phoenix, AZ) was delinquent at September 30, 1999
in an amount of $55,713. This balance remains unpaid as there is a dispute
over converting from a "percentage rent" lease to a fixed rent. We may have
an opportunity to resolve this outside the courts, because various Denny's
properties owned by Phoenix Foods are being transferred to a major
shareholder of Phoenix Foods in exchange for publicly traded stock.
. Miami Subs (Palm Beach, FL) was delinquent at September 30, 1999 in the
amount of $7,755. Management has defaulted this tenant and is currently
working with counsel to collect these charges.
Property Issues
---------------
. Red Apple Restaurant (Cedar Rapids, IA) which has been a vacant property
since May 1998, was sold at a price of $450,000. The closing took place on
October 1, 1999. Proceeds from this sale will be distributed next quarter.
. Denny's (Indian School Road - Phoenix, AZ) which has been vacant since
their lease expired in May 1998 was subleased to Mr. Munchies in July.
Rent will commence on November 1, 1999.
<PAGE>
Page 3 DiVall 2 3 Q 99
Questions & Answers
1. When can I expect my next distribution mailing?
Your distribution correspondence for the Fourth Quarter of 1999 is
scheduled to be mailed on February 15, 2000. Remember ... There will be a
$450,000 return of capital distribution with this distribution.
2. When will we be nominating a new Advisory Board?
Advisory Board nomination materials will be distributed before year-end. We
had temporarily delayed the nomination process, due to the upcoming sale of
the DiVall 3 portfolio. Should the portfolio liquidate by year-end, we will
proceed with nominating two new DiVall 2 members to the Board. If, however,
the liquidation does not occur, we will then nominate one new DiVall 2
member, as well as one member who can represent both DiVall 2 and DiVall 3.
Look to receive these materials some time in December.
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 SEPTEMBER 30, 1999
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------
PROJECTED ACTUAL VARIANCE
------------------------------------
3RD 3RD
QUARTER QUARTER BETTER
OPERATING REVENUES 9/30/99 9/30/99 (WORSE)
---------- ---------- ---------
<S> <C> <C> <C>
Rental income $ 640,640 $ 697,498 $ 56,858
Interest income 15,123 12,307 (2,816)
Other income 22,990 (15,880) (38,870)
---------- ---------- ---------
TOTAL OPERATING REVENUES $ 678,753 $ 693,925 $ 15,172
---------- ---------- ---------
OPERATING EXPENSES
Insurance $ 6,096 $ 5,970 $ 126
Management fees 46,587 45,880 707
Overhead allowance 3,699 3,707 (8)
Advisory Board 3,849 2,600 1,249
Administrative 16,995 18,629 (1,634)
Professional services 7,250 7,481 (231)
Auditing 12,000 12,000 0
Legal 7,500 6,176 1,324
Defaulted tenants 1,860 2,334 (474)
---------- ---------- ---------
TOTAL OPERATING EXPENSES $ 105,836 $ 104,777 $ 1,059
---------- ---------- ---------
GROUND RENT $ 31,800 $ 31,372 $ 428
---------- ---------- ---------
INVESTIGATION AND RESTORATION EXPENSES $ 474 $ 74 $ 400
---------- ---------- ---------
NON-OPERATING EXPENSES
Depreciation $ 93,951 $ 93,988 $ (37)
Amortization 2,459 2,048 411
---------- ---------- ---------
TOTAL NON-OPERATING EXPENSES $ 96,410 $ 96,036 $ 374
---------- ---------- ---------
TOTAL EXPENSES $ 234,520 $ 232,259 $ 2,261
---------- ---------- ---------
NET INCOME (LOSS) $ 444,233 $ 461,666 $ 17,433
OPERATING CASH RECONCILIATION: VARIANCE
---------
Depreciation and amortization 96,410 96,036 (374)
Recovery of amounts previously written
off 0 (1,854) (1,854)
(Increase) Decrease in current assets (49,988) (72,054) (22,066)
Increase (Decrease) in current
liabilities (17,333) 42,058 59,391
(Increase) Decrease in cash reserved
for payables 3,156 (28,000) (31,156)
Advance from current cash flows for
future distributions 53,500 53,500 0
---------- ---------- ---------
Net Cash Provided From Operating
Activities $ 529,978 $ 551,352 $ 21,374
---------- ---------- ---------
CASH FLOWS FROM (USED IN) INVESTING
AND FINANCING ACTIVITIES
Recoveries from former general partners 0 1,854 1,854
Investment in leasing commissions 0 (33,441) (33,441)
Investment in property improvements 0 (13,800) (13,800)
---------- ---------- ---------
Net Cash Provided From Investing And
Financing Activities $ 0 $ (45,387) $ (45,387)
---------- ---------- ---------
Total Cash Flow For Quarter $ 529,978 $ 505,965 $ (24,013)
Cash Balance Beginning of Period 1,100,387 1,177,660 77,273
Less 2nd quarter distributions paid 8/99 (520,000) (650,000) (130,000)
Change in cash reserved for payables or
future distributions (56,656) (25,500) 31,156
---------- ---------- ---------
Cash Balance End of Period $1,053,709 $1,008,125 $ (45,584)
Cash reserved for 3rd quarter L.P.
distributions (520,000) (500,000) 20,000
Cash reserved for payment of payables (218,261) (241,100) (22,839)
---------- ---------- ---------
Unrestricted Cash Balance End of Period $ 315,448 $ 267,025 $ (48,423)
</TABLE>
<TABLE>
<CAPTION>
PROJECTED ACTUAL VARIANCE
----------- ---------- ---------
<S> <C> <C> <C>
*Quarterly Distribution $ 520,000 $ 500,000 $ (20,000)
Mailing Date 11/15/99 (enclosed) -
</TABLE>
* Refer to distribution letter for detail of quarterly distribution.
I approve the above distribution in the amount of $________________
- - ------------------- ------------------
Bruce A. Provo Date
<PAGE>
<TABLE>
<CAPTION>
PROJECTIONS FOR
DISCUSSION PURPOSES DIVALL INSURED INCOME PROPERTIES 2 LP
1999 PROPERTY SUMMARY
AND RELATED ESTIMATED RECEIPTS
PORTFOLIO (Note 1)
--------------------------------- ----------------------------------------------
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>
APPLEBEE'S COLUMBUS, OH 1,059,465 135,780 12.82% 84,500 0 0.00%
BLOCKBUSTER OGDEN, UT 646,425 100,554 15.56%
RED APPLE REST. CEDAR RAPIDS, IA 660,156 0.00%
DENNY'S (3) PHOENIX, AZ 295,750 0 0.00% 224,376 0 0.00%
DENNY'S PHOENIX, AZ 972,726 65,000 6.68% 183,239 0 0.00%
DENNY'S (2) PHOENIX, AZ 865,900 86,000 9.93% 221,237 0 0.00%
DENNY'S TWIN FALLS, ID 699,032 83,200 11.90% 190,000 0 0.00%
DENNY'S (2)(3) PHOENIX, AZ 500,000 37,000 7.40% 14,259 0 0.00%
HARDEE'S (5) S MILWAUKEE, WI 808,032 64,000 7.92%
HARDEE'S (5) HARTFORD, WI 686,563 64,000 9.32%
HARDEE'S (5) MILWAUKEE, WI 1,010,045 76,000 7.52% (4) 260,000 0 0.00%
" " 151,938 0 0.00%
HARDEE'S (5) FOND DU LAC, WI 849,767 88,000 10.36% (4) 290,469 0 0.00%
HARDEE'S (5) MILWAUKEE, WI 0 0 0.00% 780,000 0 0.00%
HOOTER'S R. HILLS, TX 1,246,719 95,000 7.62%
HOSTETTLER'S DES MOINES, IA 845,000 66,000 7.81% 52,813 0 0.00%
KFC SANTA FE, NM 451,230 60,000 13.30%
MIAMI SUBS PALM BEACH, FL 743,625 48,000 6.45%
- - -------------------------------------- --------------------------------- ----------------------------------------------
<CAPTION>
---------------------------------
TOTALS
---------------------------------
- - ---------------- ANNUAL
CONCEPT COST RECEIPTS RETURN
- - ---------------- ---------------------------------
<S> <C> <C> <C>
APPLEBEE'S 1,143,965 135,780 11.87%
BLOCKBUSTER 646,425 100,554 15.56%
RED APPLE REST. 660,156 0 0.00%
DENNY'S (3) 520,126 0 0.00%
DENNY'S 1,155,965 65,000 5.62%
DENNY'S (2) 1,087,137 86,000 7.91%
DENNY'S 889,032 83,200 9.36%
DENNY'S (2)(3) 514,259 37,000 7.19%
HARDEE'S (5) 808,032 64,000 7.92%
HARDEE'S (5) 686,563 64,000 9.32%
HARDEE'S (5) 1,421,983 76,000 5.34%
"
HARDEE'S (5) 1,140,236 88,000 7.72%
HARDEE'S (5) 780,000 0 0.00%
HOOTER'S 1,246,719 95,000 7.62%
HOSTETTLER'S 897,813 66,000 7.35%
KFC 451,230 60,000 13.30%
MIAMI SUBS 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 580,938 77,280 13.30%
SUNRISE PS PHOENIX, AZ 1,084,503 127,920 11.80% 79,219 0 0.00%
19,013 0 0.00%
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, GA 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 2,201,15 10.42% 2,551,063 0 0.00%
</TABLE>
PORTFOLIO (Note 1)
<TABLE>
<CAPTION>
TOTALS
----------------------------------------
TOTAL
CONCEPT LOCATION COST RECEIPTS RETURN
- - ------- -------- ---- -------- ------
<S> <C> <C> <C> <C>
POPEYE'S PARK FOREST, IL 580,938 77,280 13.30%
SUNRISE PS PHOENIX, AZ 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, GA 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
