<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 March 31, 2000
----------------------------------
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
March 31, 2000 and December 31, 1999
------------------------------------
ASSETS
<TABLE>
(Unaudited)
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
INVESTMENT PROPERTIES AND EQUIPMENT:(Note 3)
Land $7,298,596 $7,298,596
Buildings 12,198,213 12,198,213
Equipment 669,778 669,778
Accumulated depreciation (5,575,275) (5,487,177)
----------- -----------
Net investment properties and equipment 14,591,312 14,679,410
----------- -----------
OTHER ASSETS:
Cash and cash equivalents 1,233,623 1,387,306
Cash held in Indemnification Trust (Note 8) 340,166 335,845
Rents and other receivables 91,282 489,412
Deferred rent receivable 125,644 134,063
Prepaid insurance 10,270 14,392
Deferred charges 81,632 84,960
----------- -----------
Total other assets 1,882,617 2,445,978
----------- -----------
Total assets $16,473,929 $17,125,388
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
BALANCE SHEETS
March 31, 2000 and December 31, 1999
------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
----------- ----------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued expenses $34,759 $50,286
Due to current General Partner 1,778 1,968
Security deposits 117,850 117,850
Unearned rental income 65,080 81,540
Real estate taxes payable 13,867 0
----------- ----------
Total liabilities 233,334 251,644
----------- ----------
CONTINGENT LIABILITIES: (Note 7)
PARTNERS' CAPITAL: (Notes 1, 4 and 9)
Current General Partner -
Cumulative net income 141,153 137,620
Cumulative cash distributions (58,533) (57,119)
------------ -----------
82,620 80,501
------------ -----------
Limited Partners (46,280.3 interests outstanding)
Capital contributions, net of offering costs 39,358,468 39,358,468
Cumulative net income 20,340,004 19,990,272
Cumulative cash distributions (42,700,268) (41,715,268)
Reallocation of former general partners' deficit capital (840,229) (840,229)
------------ ------------
16,157,975 16,793,243
------------ ------------
Total partners' capital 16,240,595 16,873,744
------------ ------------
Total liabilities and partners' capital $16,473,929 $17,125,388
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Rental income (Note 5) $566,813 $682,380
Interest income 15,197 14,863
Recovery of amount previously written off 1,391 11,783
Other income 267 13,006
-------- --------
583,668 722,032
-------- --------
EXPENSES:
Partnership management fees (Note 6) 46,235 45,472
Restoration fees (Note 6) 56 93
Insurance 4,375 5,968
General and administrative 21,258 14,955
Advisory Board fees and expenses 4,017 2,600
Ground lease payments (Note 3) 31,372 31,724
Expenses incurred due to default by lessee 0 2,284
Professional services 31,664 28,814
Depreciation 88,098 93,951
Amortization 3,328 2,313
-------- --------
230,403 228,174
-------- --------
NET INCOME $353,265 $493,858
======== ========
NET INCOME - CURRENT GENERAL PARTNER $3,533 $4,939
NET INCOME - LIMITED PARTNERS 349,732 488,919
-------- --------
$353,265 $493,858
======== ========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
INTEREST, based on 46,280.3 Interests outstanding $7.56 $10.56
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $353,265 $493,858
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 91,426 96,264
Recovery of amounts previously written off (1,391) (11,783)
Interest applied to Indemnification Trust account (4,321) (3,343)
Decrease in rents and other receivables 398,130 191,546
(Deposits) Withdrawals for payment of real estate taxes 0 4,404
Decrease in prepaids 4,122 5,139
Decrease in deferred rent receivable 8,419 5,391
(Decrease) in due to current General Partner (190) (748)
Increase/(Decrease) in accounts payable and other (15,527) 2,675
Increase/(Decrease) in real estate taxes payable 13,867 (11,932)
(Decrease) in unearned rental income (16,460) (11,036)
---------- ----------
Net cash from operating activities 831,340 760,435
---------- ----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Principal payments received on direct financing leases 0 9,465
Principal payments received on notes receivable 0 2,309
Proceeds from sale of investment properties 0 18,300
Recoveries from former affiliates 1,391 2,318
---------- ----------
Net cash from investing activities 1,391 32,392
---------- ----------
CASH FLOWS (USED IN) FINANCING ACTIVITIES:
Cash distributions to Limited Partners (985,000) (825,000)
Cash distributions to current General Partner (1,414) (1,975)
---------- ----------
Net cash (used in) financing activities (986,414) (826,975)
---------- ----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (153,683) (34,148)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,387,306 1,256,165
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,233,623 $1,222,017
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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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")
1999 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 financial
position as of March 31, 2000, and the results of operations for the three-month
periods ended March 31, 2000, and 1999, and cash flows for the three-month
periods ended March 31, 2000 and 1999. 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, franchisers 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 March 31, 2000, the Partnership owned 28 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 were previously
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. However, effective January 1, 2000, the
Partnership adopted Staff Accounting Bulletin 101, which requires the recording
of percentage rents only when the tenant has reached the breakpoint stipulated
in its lease.
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.
The Partnership follows 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 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, 1999, 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 March 31, 2000, $5,783,000 of recoveries have been
received which exceeded the original estimate of $3 million. As a result,
since 1996, the Partnership has recognized $1,115,000 as income, which
represents its share of the excess recovery. No further significant recoveries
are anticipated.
7
<PAGE>
3. INVESTMENT PROPERTIES:
----------------------
As of March 31, 2000, the Partnership owned 26 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,
three (3) Denny's restaurants, one (1) Fiesta Time restaurant, one (1) Mr.
Munchies restaurant, one (1) Applebee's restaurant, one (1) Popeye's Famous
Fried Chicken 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 28 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 March 31, 2000, one of the
Partnership's properties was unoccupied.
DenAmerica did not renew its lease on the Denny's property, on Camelback Road in
Phoenix, Arizona when it expired on January 30, 1998, but continued to operate
the restaurant and pay rent through December 31, 1999. During January 2000, the
tenant notified Management that it had vacated the premises and ceased paying
rent. Management is currently marketing the property for lease to a new
tenant.
Management has been in a dispute with DenAmerica, the tenant of the Denny's on
North 7/th/ Street in Phoenix, Arizona, regarding the rental terms of its lease.
The tenant was $76,000 delinquent at March 31, 2000, as a result of this
dispute. Management entered into a settlement agreement with the tenant to
provide fixed rents in exchange for the removal of a right of first refusal in
the tenant's lease.
During April 2000, Hardee's Food Systems, Inc. notified Management of its intent
to close its restaurant in South Milwaukee, Wisconsin. Hardeee's lease on this
property does not expire until 2002, and they will be required to continue
making rent payments until that time or until a lease termination agreement is
entered into. Management is marketing the property for lease to a new tenant.
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"). Effective March 1, 2000,
the minimum management fee and the maximum reimbursement for office rent and
overhead increased by 2.2% 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 $55,093 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.
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.
8
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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 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 them 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 its 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
9
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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.
Aggregate minimum lease payments to be received under the leases for the
Partnership's properties are as follows:
Year ending
December 31,
2000 $ 2,259,600
2001 2,161,547
2002 2,104,680
2003 2,063,149
2004 2,064,619
Thereafter 10,340,927
----------
$20,994,522
==========
Ten (10) of the properties are leased to Wensouth Orlando, a franchisee of
Wendy's restaurants. Wensouth base rents accounted for 37% of total base rents
for 1999.
6. TRANSACTIONS WITH CURRENT GENERAL PARTNER:
------------------------------------------
Amounts paid to the current General Partner for the three-month periods ended
March 31, 2000 and 1999 are as follows.
Incurred as of Incurred as of
Current General Partner March 31, 2000 March 31, 1999
- - ----------------------- -------------- --------------
Management fees $46,235 $45,472
Restoration fees 56 93
Overhead allowance 3,735 3,669
Reimbursement for out-of-pocket expenses 4,186 2,717
Cash distribution 1,414 1,975
----- -----
$55,626 $53,926
======= =======
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
10
<PAGE>
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 March 31,
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 March
31, 2000. Funds are invested in U.S. Treasury securities. In addition, $90,166
of earnings have been credited to the Trust as of March 31, 2000. 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 May 15, 2000, the Partnership made distributions to the Limited Partners for
the First Quarter of 2000 of $575,000 amounting to approximately $12.42 per
limited partnership interest.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources:
- - --------------------------------
Investment Properties
- - ---------------------
The investment properties, including equipment held by the Partnership at March
31,2000, were originally purchased at a price, including acquisition costs, of
approximately $23,295,000.
11
<PAGE>
DenAmerica, Inc. did not renew the lease on its Denny's store, on Camelback Road
in Phoenix, Arizona upon the original lease's expiration on January 30, 1998,
but continued to operate the restaurant and pay rent through December 31, 1999.
During January 2000, the tenant notified Management that it had vacated the
premises and ceased paying rent. Management is currently marketing the property
for lease to a new tenant.
Management has been in a dispute with DenAmerica, the tenant of the Denny's on
North 7/th/ Street in Phoenix, Arizona, regarding the rental terms of its lease.
The tenant was $76,000 delinquent at March 31, 2000, as a result of this
dispute. Management entered into a settlement agreement with the tenant to
provide fixed rents in exchange for the removal of a right of first refusal in
the tenants lease.
During April 2000, Hardee's Food Systems, Inc. notified Management of its intent
to close its restaurant in South Milwaukee, Wisconsin. Hardeee's lease on this
property does not expire until 2002, and they will be required to continue
making rent payments until that time or until a lease termination agreement is
entered into. Management is marketing the property for lease to a new tenant.
Other Assets
- - ------------
Cash and cash equivalents were approximately $1,234,000 at March 31, 2000,
compared to $1,387,000 at December 31, 1999. The Partnership designated cash of
$575,000 to fund the First Quarter 2000 distributions to Limited Partners,
$391,000 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 an Indemnification Trust (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 March 31, 2000, 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 2000 of $985,000 and $1,414, respectively, have also been in accordance
with the amended Partnership Agreement. The First Quarter 2000 distribution of
$575,000 was paid to the Limited Partners on May 15, 2000.
12
<PAGE>
Results of Operations:
- - ----------------------
The Partnership reported net income for the quarter ended March 31, 2000, in the
amount of $353,000 compared to net income for the quarter ended March 31, 1999,
of $494,000.
Revenues
- - --------
Total revenues were $584,000 and $722,000, for the quarters ended March 31, 2000
and 1999, respectively. The decrease is primarily due to an accounting change
which precludes the recognition of percentage rents until the tenant has reached
its specified breakpoint. In the past, percentage rents were accrued throughout
the year in which they were earned.
Total revenues should approximate $2,700,000 annually, 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 March 31, 2000 and 1999, cash expenses amounted to
approximately 24% and 18%, of total revenues, respectively. Total expenses,
including non-cash items, amounted to approximately 39% and 32%, of total
revenues for the quarters ended March 31, 2000 and 1999, respectively.
Although total expenses have remained constant from year to year, these
percentages are adversely affected by the reduced revenue recorded during the
first quarter of 2000 as a result of the aforementioned accounting change.
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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
None.
13
<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 May 15, 2000, regarding
the First Quarter 2000 distribution.
(b) Reports on Form 8-K:
The Registrant filed no reports on Form 8-K during the first quarter of
fiscal year 2000.
14
<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, there unto 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: May 15, 2000
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: May 15, 2000
By: /s/Kristin J. Atkinson
------------------------------------------
Kristin J. Atkinson
Vice President - Finance and Administration
Date: March 15, 2000
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 2000, FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,233,623
<SECURITIES> 340,166
<RECEIVABLES> 308,828
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,882,617
<PP&E> 20,166,587
<DEPRECIATION> 5,575,275
<TOTAL-ASSETS> 16,473,929
<CURRENT-LIABILITIES> 233,334
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,240,595
<TOTAL-LIABILITY-AND-EQUITY> 16,473,929
<SALES> 566,813
<TOTAL-REVENUES> 583,668
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 230,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 353,265
<INCOME-TAX> 0
<INCOME-CONTINUING> 353,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 353,265
<EPS-BASIC> 7.56
<EPS-DILUTED> 7.56
</TABLE>
<PAGE>
DiVall Insured Income Properties 2, L.P.
QUARTERLY NEWS
- - --------------------------------------------------------------------
A publication of The Provo Group, Inc. FIRST QUARTER 2000
No News is Good News
In the Fourth Quarter Newsletter we provided investors with a estimated
liquidation timeline. Just to reiterate, we anticipate having this Partnership
fully liquidated by year-end 2001. The following is a brief update on the status
of the Partnership:
. As you may already be aware, the net unit value actually increased
---------
this year from $475 to $510 per unit. Investors - this should be
telling you something! This investment is stable and by waiting
until 2001 to sell this portfolio, we believe we will be maximizing
your values.
. As you will note from page 3 of this newsletter there are a few
delinquencies this quarter. Most of these are for percentage rent
charges which were billed in February and have since been collected.
Management has every confidence that those receivables which have
not yet been collected, are forthcoming.
There is little other news to report to you, and rest assured that in this case
- - -------------------------------------------------------------------------------
... No News is Good News!
- - --------------------------
DISTRIBUTION HIGHLIGHTS
. 9.77% (approx.) annualized return from
operations based on $23,550,000
(estimated net asset value as of
December 31, 1999).
. $575,000 total amount distributed for the
First Quarter 2000 which was consistent
with projections.
. $12.42 per unit (approx.) for the First
Quarter 2000, this was all distributions
from operations.
. $1,021.00 to $823.00 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.)
_________________________________________________________
<TABLE>
<CAPTION>
WHAT'S INSIDE:
<S> <C>
Meet the New Advisory Board Members........................... Page 2
Statements of Income & Cash Flow Highlights................... Page 2
Questions & Answers........................................... Page 2
Property Highlights........................................... Page 3
</TABLE>
<PAGE>
Page 2 DiVall 2 1 Q 00
Advisory Board
Please join me in welcoming the new Advisory Board members. They are as
follows:
. Jesse Small (Representing DiVall Insured Income Properties 2, L.P.).
-----------
Mr. Small is the President of a small Accounting Firm. In addition to
being a CPA, he has a Master's Degree in Economics.
. Albert Kramer (Representing DiVall Income Properties 3, L.P.). Mr.
-------------
Kramer is now retired, but previously worked as Tax Litigation Manager
for Phillips Petroleum Company. His education includes undergraduate
and MBA degrees from Harvard and a J.D. degree from South Texas College
of Law.
. William Arnold (Representing the Broker/Dealer community). Mr. Arnold
--------------
works as a financial planner and investment advisor at his company,
Arnold & Company. Mr. Arnold graduated with a Master's Degree from the
University of Wisconsin and is a Certified Financial Planner. He
indicates on his nomination form, "I am committed to providing those
investors ("DiVall") the best possible outcome given the fraud that has
occurred."
Additionally, Mr. Richard Otte will continue to serve on the Board on an interim
basis, to assure continuity of Board knowledge.
- - --------------------------------------------------------------------------------
STATEMENTS OF INCOME AND CASH FLOW HIGHLIGHTS
. 17% decrease in "total" operating
revenues from projections.
. Expenses were consistent with the budget.
. The decrease in revenues is almost entirely due to an accounting change,
which doesn't impact cash. Percentage rents cannot be accrued until the
tenant actually reaches their breakpoint. In the past, this income was
recorded throughout the year.
________________________________________________________________
Questions & Answers
1. What is the net unit value as of December 31, 1999?
We have estimated the net unit value of each interest of the Partnership to
approximate $510.00 at December 31, 1999. The reason for the increased
amount (last year's value was $475.00) is primarily due to increased
percentage rent figures.
2. When can I expect my next distribution mailing?
Your distribution and correspondence for the Second quarter of 2000 is
scheduled to be mailed on August 15, 2000.
<PAGE>
Page 3 DiVall 2 1 Q 00
PROPERTY HIGHLIGHTS
RENTS RECEIVABLE
----------------
. Denny's (N. 7/th/ Street, Phoenix, AZ) We have had a dispute over lease
ambiguities for several years. All open issues were resolved by Lease
Amendment on April 26, 2000, and accordingly past delinquencies have been
settled.
. Mr. Munchies (Indian School Road) was delinquent at March 31, 2000 in the
amount of $14,758. The operator of this restaurant has since been bought
out. We have made arrangements to assign the Lease to the new operator,
who assures us he will pay the balance in full.
. Denny's (Northern Avenue) was delinquent at March 31, 2000 in the amount of
$3,066. This amount was the 1999 percentage rent charge and was paid in
full on April 7/th/.
. Popeye's (Park Forest, IL) was delinquent at March 31, 2000 in the amount
of $41,697. The amount is the balance for the 1999 percentage rent charge.
Management has sent this tenant a default notice.
. Village Inn (Grand Forks, ND) was delinquent at March 31, 2000 in the
amount of $7,000 (one month's rent). This tenant is having some financial
difficulties, and therefore, we have been receiving the rent 15 - 30 days
late each month.
__________________________________________________
PERCENTAGE RENTS
. Fiesta Time (Twin Falls, Idaho) - In last quarters newsletter we reported
to you that this tenant (A sublessee of Denny's) would be paying upwards of
$65,000 in percentage rent. Unfortunately, this was an error. The actual
store sales were much lower than the figures we were using to calculate the
percentage rent charge. Therefore, we will not be collecting any
percentage rent from this property as previously reported to you.
-------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
DIVALL INSURED INCOME PROPERTIES 2 L.P
STATEMENTS OF INCOME AND CASH FLOW CHANGES
FOR THE THREE MONTH PERIOD ENDING MARCH 31, 2000
- - -------------------------------------------------------------------------------------------------------------------------
PROJECTED ACTUAL VARIANCE
-------------------------------------------------------
1ST 1ST
QUARTER QUARTER BETTER
3/31/00 3/31/00 (WORSE)
-------------- ---------------- ---------------
<S> <C> <C> <C>
OPERATING REVENUES
Rental income $ 695,537 $ 566,813 ($128,724)
Interest income 13,600 15,197 1,597
Other income 0 1,658 1,658
-------------- --------------- -------------
TOTAL OPERATING REVENUES $ 709,137 $ 583,668 $ (125,469)
-------------- --------------- -------------
OPERATING EXPENSES
Insurance $ 4,317 $ 4,375 $ (58)
Management fees 45,954 46,235 (281)
Overhead allowance 3,708 3,735 (27)
Advisory Board 3,700 4,017 (317)
Administrative 17,152 17,523 (371)
Professional services 6,000 5,946 54
Auditing 20,000 18,298 1,702
Legal 4,500 7,419 (2,919)
Defaulted tenants 1,650 0 1,650
-------------- --------------- -------------
TOTAL OPERATING EXPENSES $ 106,981 $ 107,548 $ (567)
-------------- --------------- -------------
GROUND RENT $31,650 $31,372 $ 278
-------------- --------------- -------------
INVESTIGATION AND RESTORATION EXPENSES $0 $56 $ (56)
-------------- --------------- -------------
NON-OPERATING EXPENSES
Depreciation $ 88,098 $ 88,098 $ $0
Amortization 2,364 3,328 (964)
-------------- --------------- -------------
TOTAL NON-OPERATING EXPENSES $ 90,462 $ 91,426 $ (964)
-------------- --------------- -------------
TOTAL EXPENSES $ 229,093 $ 230,402 $ (1,309)
-------------- --------------- -------------
NET INCOME (LOSS) $ 480,044 $ 353,266 $ (126,778)
OPERATING CASH RECONCILIATION: VARIANCE
-------------
Depreciation and amortization 90,462 91,426 964
Recovery of amounts previously written off 0 (1,390) (1,390)
(Increase) Decrease in current assets 315,697 405,441 89,744
Increase (Decrease) in current liabilities (32,939) (18,816) 14,123
(Increase) Decrease in cash reserved for payables 31,019 19,000 (12,019)
Advance from current cash flows for future distributions (310,500) (275,500) 35,000
-------------- --------------- -------------
Net Cash Provided From Operating Activities $ 573,783 $ 573,427 $ (356)
-------------- --------------- -------------
CASH FLOWS FROM (USED IN) INVESTING
AND FINANCING ACTIVITIES
Recoveries from former general partners 0 1,391 1,391
Proceeds from sale of property and equipment 0 0 0
-------------- --------------- -------------
Net Cash Provided From Investing And Financing
Activities $ 0 $ 1,391 $ 1,391
-------------- --------------- -------------
Total Cash Flow For Quarter $ 573,783 $ 574,818 $ 1,035
Cash Balance Beginning of Period 1,357,233 1,387,306 30,073
Less 4th quarter distributions paid 2/00 (950,000) (985,000) (35,000)
Change in cash reserved for payables or future distributions 279,481 256,500 (22,981)
-------------- --------------- -------------
Cash Balance End of Period $ 1,260,497 $ 1,233,624 $ (26,873)
Cash reserved for 1st quarter L.P. distributions (575,000) (575,000) 0
Cash reserved for payment of payables (384,224) (391,293) (7,069)
-------------- --------------- -------------
Unrestricted Cash Balance End of Period $ 301,273 $ 267,331 $ (33,942)
- - ----------------------------------------------------------------------------------------------------------------------
PROJECTED ACTUAL VARIANCE
------------------------------------------------------
* Quarterly Distribution $ 575,000 $ 575,000 $ 0
Mailing Date 5/15/00 (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
<TABLE>
<CAPTION>
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%
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 PHOENIX, AZ 865,900 115,200 13.30% 221,237 0 0.00%
DENNY'S TWIN FALLS, ID 699,032 83,200 11.90% 190,000 0 0.00%
MR. MUNCHIES (3) PHOENIX, AZ 500,000 50,800 10.16% 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 55,584 6.58% 52,813 0 0.00%
KFC SANTA FE, NM 451,230 60,000 13.30%
MIAMI SUBS PALM BEACH, FL 743,625 39,000 5.24%
- - --------------------------------------- ------------------------------------- --------------------------------------------------
<CAPTION>
-----------------------------------
TOTALS
-----------------------------------
ANNUAL
- - -------------------------------------------
CONCEPT LOCATION COST RECEIPTS RETURN
- - ------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
APPLEBEE'S COLUMBUS, OH 1,143,965 135,780 11.87%
BLOCKBUSTER OGDEN, UT 646,425 100,554 15.56%
DENNY'S (3) PHOENIX, AZ 520,126 0 0.00%
DENNY'S PHOENIX, AZ 1,155,965 65,000 5.62%
DENNY'S PHOENIX, AZ 1,087,137 115,200 10.60%
DENNY'S TWIN FALLS, ID 889,032 83,200 9.36%
MR. MUNCHIES (3) PHOENIX, AZ 514,259 50,800 9.88%
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 1,421,983 76,000 5.34%
" "
HARDEE'S (5) FOND DU LAC, WI 1,140,236 88,000 7.72%
HARDEE'S (5) MILWAUKEE, WI 780,000 0 0.00%
HOOTER'S R. HILLS, TX 1,246,719 95,000 7.62%
HOSTETTLER'S DES MOINES, IA 897,813 55,584 6.19%
KFC SANTA FE, NM 451,230 60,000 13.30%
MIAMI SUBS PALM BEACH, FL 743,625 39,000 5.24%
- - ------------------------------------------- -----------------------------------
</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 2000 is
based on 1999 sales levels.
3: The Partnership entered into a long-term ground lease in which the
Partnership is responsible for payment of 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
<TABLE>
<CAPTION>
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>
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 CHARLESTION, 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 (28 Properties) 20,454,284 2,224,738 10.88% 2,551,063 0 0.00%
- - ------------------------------------------- --------------------------------- -----------------------------------
<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 CHARLESTION, 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 (28 Properties) 23,005,347 2,224,739 9.67%
- - ------------------------------------------- -----------------------------------------
</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
