UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20212022

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)

1900 W 75^th Street, Suite 100 Prairie Village, Kansas 66208

(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:

Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ No ☒

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

The aggregate market value of the voting securities held by non-affiliates of the Registrant: The aggregate market value of limited partnership interests held by non-affiliates is not determinable since there is 0no public trading market for the limited partnership interests.

As of March 1, 20222023 the registrant had 46,280.3 units issued and outstanding.

TABLE OF CONTENTS

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 20212022

PART I

Item 1. Business

Background

DiVall Insured Income Properties 2 Limited Partnership (the “Partnership”), is a limited partnership organized under the Wisconsin Uniform Limited Partnership Act pursuant to a Certificate of Limited Partnership dated as of November 20, 1987, and governed by a Limited Partnership Agreement, as amended from time to time (collectively, the “Partnership Agreement”). The Partnership is managed by its general partner, The Provo Group, Inc. (“TPG” or the “General Partner”). As of December 31, 2021,2022, the Partnership had 1,0811,041 limited partners owning an aggregate of 46,280.3 Limited Partnership Interests (the “Interests”).

The Partnership is engaged in the business of owning and operating its investment portfolio of commercial real estate properties (each a “Property” and collectively, the “Properties”). At December 31, 2021,2022, the Partnership owned 98 Properties, located in a total of three states.

At December 31, 2021, eight2022, seven of the nineeight Properties were (and continue to be) leased to three Wendy’s franchisees, with fivethree of the Properties being leased to Wendgusta, LLC (“Wendgusta”), two of the Properties being leased to JAI Hospitality RG, LLC (“JAI Hospitality”),Hospitality) and onetwo of the Properties being leased to Wendcharles I,JAI Augusta, LLC (“Wendcharles I”)JAI Augusta). Operating base rents from these eightseven leases during the year ended December 31, 20212022 comprised approximately 90% of the total 20212022 operating base rents. During the year ended December 31, 2021,2022, additional percentage rents were also generated from these eightseven Wendy’s Properties and totaled $366,473.$342,359. Additionally, those eightseven Properties exceeded 80% of the Partnership’s total Properties, both by historical asset value and number. Six of the Properties that are currently leased to Wendy’s franchisees feature lease expiration dates of December 31, 2040. The other two PropertiesProperty that areis currently leased to a Wendy’s franchiseesfranchisee feature a lease expiration date of November 6, 2026.

See Properties under Item 2 below for the table of all Properties and lease expirations and a discussion of Properties with significant developments during the year ended December 31, 2021.2022.

During the process of leasing the Properties, the Partnership may experience competition from owners and managers of other properties. As a result, in connection with negotiating tenant leases, along with recognizing market conditions, the General Partner may offer rental concessions, or other inducements, which may have an adverse impact on the results of the Partnership’s operations. The Partnership is also in competition with sellers of similar properties who from time to time attempt to locate suitable purchasers for its Properties.

The Partnership Agreement provides that the Partnership is scheduled to be dissolved on November 30, 2023, or earlier upon the prior occurrence of any of the following events: (a) the disposition of all its Properties; (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 of the limited partners.

During the 20202021 consent solicitation process, the Limited Partners approved two separate amendments to the Partnership Agreement. The amendments served to: (i) extend the term of the Partnership by three (3) years to November 30, 2023, and (ii) permit the General Partner to effect distributions at times that it deems appropriate, but no less often than semi-annually. In addition, the Limited Partners approved a resolution granting the General Partner the authority to, at any time prior to November 30, 2023, sell all or substantially all of the Partnership’s assets and then liquidate and dissolve the Partnership without further approval from the Limited Partners.

The Permanent Manager Agreement

The Permanent Manager Agreement (“PMA”) was entered into on February 8, 1993, between the Partnership, DiVall 1 (which was dissolved in December 1998), DiVall 3 (which was dissolved in December 2003), the now former general partners, Gary J. DiVall and Paul E. Magnuson, their controlled affiliates, and TPG, naming TPG as the Permanent Manager. The PMA contains provisions allowing TPG to submit to the PMA, election of TPG as General Partner, and the issue of acceptance of the resignations of the former general partners to a vote of the limited partners through a solicitation of written consents.

TPG, as the General Partner, has been operating and managing the affairs of the Partnership in accordance with the provisions of the PMA and the Partnership Agreement since February 8, 1993.

Effective January 1, 2021,2023, the PMA was renewed by the General Partner for a two-year period ending December 31, 2022.2024. The PMA can be terminated earlier (a) by a vote at any time by a majority interest of the limited partners, (b) upon the dissolution and winding up of the Partnership, (c) upon the entry of an order of a court finding that TPG has engaged in fraud or other like misconduct or has shown itself to be incompetent in carrying out its duties under the Partnership Agreement, or (d) upon 60 days’ written notice from TPG to the limited partners of the Partnership.

Advisory Board

The concept of the Advisory Board was first introduced by TPG during the solicitation of written consents seeking to elect TPG as the General Partner. The first Advisory Board was established in October 1993. Among other functions, the three-person Advisory Board has the following rights and duties: to review operational policies and practices; to review extraordinary transactions; to review internal financial controls and practices; and to review the performance of the independent auditors of the Partnership. The Advisory Board’s powers are advisory only and the Advisory Board does not have the authority to direct management decisions or policies of the Partnership or remove the General Partner. The Advisory Board has full and free access to the Partnership’s books and records, and individual Advisory Board members have the right to communicate directly with the limited partners concerning Partnership business. Members of the Advisory Board are compensated $1,500 annually and $500 for each quarterly meeting attended.

The Advisory Board currently consists of limited partners of the Partnership: Jesse Small and Albert Kramer. For a brief description of each Advisory Board member, refer to Item 10, Directors and Executive Officers of the Registrant.

No Employees; Location of Business Operations

The Partnership has no employees.

All of the Partnership’s business is conducted in the United States.

Available Information

The Partnership is required to file with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, along with any related amendments and supplements to these periodic and current reports. The SEC maintains a website containing these reports and other information regarding our electronic filings at www.sec.gov.

We also make these reports and other information available either on or through our Internet Website at www.divallproperties.com as soon as reasonably practicable after such reports are available. Please note that any internet addresses provided in this Annual Report on Form 10-K are for information purposes only and are not intended to be hyperlinks. Accordingly, no information found and/or provided at such internet addresses is intended or deemed to be incorporated by reference herein.

Item 1A. Risk Factors

The Partnership’s business, the ownership and lease of the Properties, is subject to a variety of risks attendant to the ownership and lease of commercial real property, including risks related to: (i) changes in general economic conditions both nationally and in the local markets where the Properties are located, (ii) changes in real estate conditions, including without limitation, decreases in valuations of real properties, increases in property taxes and lack of buyers should the Partnership want to dispose of a Property, (iv) lease-up risks, (v) ability of tenants to fulfill their obligations to the Partnership under existing leases, (vi) declines in sales for tenants whose leases include a percentage rent component, (vii) adverse changes to the restaurant market, (viii) entrance of competitors to the Partnership’s lessees in markets in which the Properties are located, (ix) inability to obtain new tenants upon the expiration of existing leases, (x) the potential need to fund tenant improvements or other capital expenditures out of operating cash flows, (xi) the Partnership’s ability to realize value for Limited Partners upon disposition of the Properties, (xii) adverse effects on our Properties and tenants caused by the COVID-19 pandemic, and (xiii) various other factors.

In addition to the general risks identified above, the Partnership is also subject to various cyber security risks, including those generally described below.

Our business operations could be disrupted if our information technology systems fail to perform adequately or are breached.

Information technology serves an important role in the efficient and effective operation of our business. We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information to manage a variety of business processes and to comply with regulatory, legal, and tax requirements. Our information technology systems and infrastructure are critical to effectively manage our key business processes including finance, administration and other business processes. These technologies enable internal and external communication among our locations, supplies, customers, and others and include the receipt and storage of personal information about our investors and proprietary business information. Our information technology systems, some of which are dependent on services provided by third parties, may be vulnerable to damage, interruption, or shutdown due to any number of causes such as catastrophic events, natural disasters, fires, power outages, systems failures, telecommunications failures, security breaches, computer viruses, hackers, and other causes. Increased cyber-security threats pose a potential risk to the security and viability of our information technology systems, as well as the confidentiality, integrity, and availability of the data stored on those systems. The failure of our information technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies, data loss, legal claims or proceedings, regulatory penalties, and the loss of sales and customers. Any interruption of our information technology systems could have operational, reputational, legal and financial impacts that may have a material adverse effect on our business.

A cyber-attack or other information security breach could have a material adverse effect on our operations and result in financial losses.

We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. If we are unable to prevent cyber-attacks and other information security breaches, we may encounter significant disruptions in our operations which could adversely impact our business, financial condition and results of operations or result in the unauthorized disclosure of confidential information. Such breaches may also harm our reputation, result in financial losses or subject us to litigation or other costs or penalties.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

All nineeight Properties are leased to franchisees of national, regional and local fast food, family style and casual/theme restaurants.

Original lease terms for the leased Properties are generally five to 20 years from their inception. All leases are triple-net, which require the tenant to pay all property operating costs including maintenance, repairs, utilities, property taxes, and insurance. All of the leases contain percentage rent provisions, which require the tenant to pay a specified percentage (six percent to seven percent) of gross sales above a threshold amount. None of the Properties are mortgaged. The Partnership owns the buildings and land, and all improvements for all the Properties. The Partnership owned the following Properties as of March 1, 2022:2023:

Footnotes:

The following summarizes significant developments during 2021,2022, by Property, for Properties with such developments.

Applebee’s - Columbus, OH Property

In April 2020, a short term lease amendment was signed which granted the tenant rent relief due to the coronavirus outbreak. The tenant paid 6% of sales in lieu of fixed rent for the months of April and May 2020. In June 2020 the tenant paid 50% of the fixed rent amount due under the original lease. Full fixed rent resumed in July 2020.

Wendy’s – Peach Orchard Road, Augusta, GA Property

On April 23, 2020, the Partnership executed an Amended and Restated Restaurant Absolutely Net Lease to the Original Lease dated December 20, 1988, by and between the Partnership andOctober 30, 2022, the tenant Wendgusta, LLC closed on an asset purchase agreement with JAI Augusta, LLC to sell substantially all the intent that this lease amended, restated and replaced the original lease. Effective January 1, 2021,assets of the tenant pays $188,000 annually in rent, in additionand pursuant thereto, the lease was also assigned to 7% of sales over an annual breakpoint of $2,350,000 overJAI Augusta under the termsame terms and conditions of the lease extension (January 1, 2021 to December 31, 2040).

Wendy’s – Whiskey Road, Aiken, SC Property

On April 23, 2020, the Partnership executed an Amended and Restated Restaurant Absolutely Net Lease to the Original Lease dated January 30, 1989, by and between the Partnership and Wendgusta LLC with the intent that this Lease amended, restated and replaced the original lease. Effectiveamendment effected January 1, 2021, for the restaurant property located at 1901 Whiskey Road, Aiken, South Carolina. Per the terms of the amended and restated lease, the tenant will pay $210,632 annually in rent, in addition to 7% of sales over an annual breakpoint of $2,632,900 over the term of the lease extension (January 1, 2021 to December 31, 2040). In addition, the tenant will be entitled to a rent credit equal to the lesser of $100,000 or 20% of the actual substantiated cost of capital improvements completed no later than December 31, 2021. The entire rent credit was applied against the 2020 percentage rent amount.

Wendy’s – Richland Ave, Aiken, SC

On April 23, 2020, the Partnership executed an Amended and Restated Restaurant Absolutely Net Lease to the Original Lease dated January 30, 1989, by and between the Partnership and Wendgusta LLC with the intent that this Lease amended, restated and replaced the original lease. Effective January 1, 2021, for the restaurant property located at 1004 Richland Ave, Aiken, South Carolina, per the terms of the amended and restated lease, the tenant will pay $167,500 annually in rent, in addition to 7% of sales over an annual breakpoint of $2,093,750 over the term of the lease extension (January 1, 2021 to December 31, 2040).

Wendy’s – Highway 17 Bypass, Mt. Pleasant, SC

On July 21, 2020, the Partnership executed an Amended and Restated Restaurant Absolutely Net Lease to the Original Lease dated January 30, 1989, by and between the Partnership and Wendcharles I, LLC with the intent that this Lease amended, restated and replaced the original lease. Effective January 1, 2021, for the restaurant property located at 361 Highway 17 Bypass, Mt. Pleasant, South Carolina, per the terms of the amended and restated lease, the tenant will pay $146,520 annually in rent, in addition to 7% of sales over an annual breakpoint of $1,831,500 over the term of the lease extension (January 1, 2021 to December 31, 2040). In addition, the amended and restated lease also states tenant is entitled to a credit against Rent in the amount of $18,289 arising from a partial condemnation of the Premises. The Rent Credit may be applied until it is exhausted against tenant’s obligation to pay percentage rent under the lease.

On December 14, 2021, the tenant Wendcharles I closed on an asset purchase agreement with JAI Hospitality RG, LLC to sell substantially all the assets of the tenant and pursuant thereto, the lease was also assigned to JAI Hospitality under the same terms and conditions of the lease amendment effected January 1, 2021.

Wendy’s – Folly Road, Charleston, SC

On July 21, 2020,December 19, 2022, the “Partnership executed an Amended and Restated Restaurant Absolutely Net Lease to the Original Lease dated January 30, 1989, by and between the Partnership andtenant Wendcharles I, LLC closed on an asset purchase agreement with JAI Augusta, LLC to sell substantially all the intent that this Lease will amend, restate and replace the Original Lease. Effective January 1, 2021, for the restaurant property located at 343 Folly Road, Charleston, South Carolina, per the termsassets of the amendment,tenant and pursuant thereto, the tenant will pay $136,000 annually in rent, in additionlease was also assigned to 7% of sales over an annual breakpoint of $1,700,000 overJAI Augusta under the termsame terms and conditions of the lease extension (Januaryamendment effected January 1, 2021 to December 31, 2040). In addition, the tenant is entitled to a rent credit equal to the lesser of $100,000 or 20% of the actual substantiated cost of capital improvements completed no later than December 31, 2021. The rent credit may be applied until it is exhausted, against tenant’s obligation to pay percentage rent under this lease. The rent credit of $77,771 was applied against the 2020 percentage rent amount. The remaining $22,229 in rent credit was applied to 2021 percentage rent payable in 2022.

Wendy’s – Sam Rittenberg, Charleston, SC

On July 21, 2020, the Partnership executed an Amended and Restated Restaurant Absolutely Net Lease to the Original Lease dated December 20, 1988, by and between the Partnership and Wendcharles II, LLC with the intent that this Lease amended, restated and replaced the original lease. Effective January 1, 2021, for the restaurant property located at 1721 Sam Rittenberg, Charleston, South Carolina, per the terms of the amended and restated lease, the tenant will pay $166,848 annually in rent, in addition to 7% of sales over an annual breakpoint of $2,085,600 over the term of the lease extension (January 1, 2021 to December 31, 2040).

On December 14, 2021, the tenant Wendcharles II closed on an asset purchase agreement with JAI Hospitality RG, LLC to sell substantially all the assets of the tenant and pursuant thereto, the lease was also assigned to JAI Hospitality under the same terms and conditions of the lease amendment effected January 1, 2021.

Brakes 4 LessWendy’s – Martinez,Walton Way, Augusta, GA

On April 22, 2022, the Partnership sold the property located at 1730 Walton Way, Augusta, GA for $1,600,000. The Brakes 4 Lessgain on the sale was approximately $1,103,000.

Wendy’s – Martintown Rd, N.Augusta, SC

On December 22, 2021 the Martintown Rd property in Martinez, GA, was listed for sale on July 5, 2021. A signed offer of $890,000 was accepted on September 27, 2021. The sale closed on October 29, 2021 and the Partnership recognized a gain of $484,319.sale.

Other Property Information

Property taxes, general maintenance, insurance and ground rent on the Properties are the responsibility of the respective tenants. However, when a tenant fails to make the required tax payments or when a property becomes vacant, the Partnership makes the appropriate property tax payments to avoid possible foreclosure of the property. During a property vacancy, the Partnership pays for insurance and maintenance related to the vacant property.

Item 3. Legal Proceedings

As of the date of this report there are no material pending legal proceedings to which the Partnership is a party.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6. (Reserved)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but are the intent, belief or current expectations of the Partnership’s management based on its knowledge and understanding of the business and industry. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

Examples of forward-looking statements include, but are not limited to, statements we make regarding:

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations is based upon the Partnership’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires persons performing the functions of the Partnership’s management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates, including investment impairment. These estimates are based on the General Partner’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The Partnership believes that its most significant accounting policies pertain to:

Depreciation methods and lives- Depreciation of the properties is provided on a straight-line basis over the estimated useful life of the buildings and improvements. Additionally, the value of real estate is typically based on market conditions and property performance. As a result, depreciated book value of real estate may not reflect the market value of real estate assets.

Revenue recognition- Rental revenue from investment properties is recognized on the straight-line basis over the life of the respective lease when collectability is reasonably assured. Percentage rents are accrued only when the tenant has reached the sales breakpoint stipulated in the lease and collectability is reasonably assured.

Impairment-The Partnership periodically reviews its long-lived assets, primarily real estate, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Partnership’s review involves comparing current and future operating performance of the assets, the most significant of which is undiscounted operating cash flows, to the carrying value of the assets of the individual properties. Based on this analysis, if deemed necessary, a provision for possible loss is recognized.

Investment Properties

As of December 31, 2021,2022, the Partnership owned nineeight Properties, all of which feature tenants that are franchisees of casual restaurants. The following are operated at the aforementioned nineeight Properties: eightseven Wendy’s restaurants, and an Applebee’s restaurant. The Properties are located in a total of three states.

Property taxes, general maintenance, insurance and ground rent on the Properties are the responsibility of the respective tenants. A more detailed discussion of tax payments, insurance and ground rent is provided in Item 2, and incorporated herein by this reference.

There were no building improvements capitalized during 20212022 or 2020.2021.

Further Information

A summary of significant developments as of December 31, 2021,2022, by Property, for Properties with such developments, can be found in Item 2, Properties.

Net Income

Net income for the fiscal years ended December 31, 2022 and 2021 was $2,069,792 and 2020 were $1,575,407, and $724,705, respectively. Net income per Limited Partner Interest for the fiscal years ended December 31, 2022 and 2021 was $44.28 and 2020 were $33.70, and $15.50, respectively.

Results of Operations

Net income for the fiscal years ended December 31, 2022 and 2021 was $2,069,792 and 2020 were $1,575,407, and $724,705, respectively. See the paragraphs below for further information as to variances in individual operating income and expense items. We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally that may reasonably be expected to have a material impact, favorable or unfavorable, on Partnership revenues and investment property value. The COVID-19 pandemic, to date, has not had a material adverse impact on the Partnership or the Property tenants. As restrictions continue to ease, we do not forsee any material impact of COVID-19 on the Partnership or the Property tenants.

Fiscal year ended December 31, 20212022 as compared to fiscal year ended December 31, 2020:2021:

Operating Rental Income: Operating rental income for the fiscal years ended December 31, 2022 and 2021 was $1.611 and 2020 was $1.753 and $1.464 million, respectively. The rental income was comprised of monthly lease obligations per the tenant leases straight line rent adjustments and percentage rents obligations related to operating tenants who had reached their sales breakpoint. The increasedecrease in 20212022 compared to 20202021 was due to the higherlower base rental income from the six Wendy’s tenants whose lease amendments effective January 1, 2021 provide for higher base rents and higher percentage rent income breakpoints.due to property sales in each of 2021 and 2022.

Management expects total base operating rental income to be approximately $1,338,060$1,241,280 for the 20222023 fiscal year based on operating leases currently in place and dodoes not include rents from properties held for sale. Future operating rental income has the potential to either decrease or increase. Future operating rental income may decrease with a tenant default and/or we may reclassify certain additional properties as properties held for sale. Future operating rental income may also increase with additional rents due from tenants, if those tenants experience increased sales levels, which require the payment of additional rent to the Partnership. Operating percentage rents included in operating rental income in the fiscal years ended December 31, 2022 and 2021 were $342,359 and 2020 were $388,701, and $785,370, respectively. However, the 2021 additional rent earned was reduced by a capital improvements rent credit to the tenantstenant of the Folly Road Property and Whiskey Road Property, so, the actual revenue earned from 2021 and 2020 was $366,473, and $607,599, net of the $22,229 and $177,771 rent credits, respectively.credit. Management expects percentage rents for the fiscal year ending December 31, 20222023 to be about the same as those received in 20212022 because the same strong sales performance from 20212022 is expected again in 2022.2023.

Partnership Management Fees Expense: Partnership management fees expense for the fiscal years ended December 31, 2022 and 2021 were $272,316 and 2020 were $274,980, and $287,446, respectively. The General Partner receives a fee for managing the Partnership. See Note 5, Transactions with General Partner and Its Affiliates, for further information.

General and Administrative Expense: General and administrative expenses for the fiscal years ended December 31, 2022 and 2021 were $120,470 and 2020 were $66,038, and $84,090, respectively. General and administrative expenses were comprised of management expense, state/city registration and annual report filing fees, office supplies and printing costs, outside storage expenses, copy/fax costs, postage and shipping expenses, long-distance telephone expenses, website fees, bank fees and state income tax expenses. Total operating general and administrative expenses for the fiscal year ended December 31, 20202022 were higher than in the fiscal year ended December 31, 2021, primarily due to $5,983 in increased postage and shipping fees related to the consent solicitation, as well as about $14,000$50,000 in higher state income tax expense paid on behalf of the limited partners related to 20202021 income. Management expects the total operating general and administrative expenses for the fiscal year ending December 31, 20222023 to be much higher than for the fiscal year ended December 31, 2021 due to an expected increase in state income taxes due for 20212022 income as a result of the sale of the Brakes 4 LessWalton Way property, and 20222023 increased quarterly estimated state income tax payments.

Professional Services: Professional services expenses for the fiscal years ended December 31, 2022 and 2021 were $240,302 and 2020 were $197,792, and $245,340, respectively. Professional service expenses were primarily comprised of investor relations data processing, investor mailings processing, website design, legal, auditing and tax preparation fees, electronic tax filings, and SEC report conversion and processing fees. The General Partner anticipates that total professional services expenses for the fiscal year ending December 31, 20222023 will be about $24,000 higher$90,000 lower than incurred for the fiscal year ended December 31, 2021.2022. The costs in 20222023 are expected to increasedecrease due to switching investor relations firms and the related to legal fees and increaseddecrease in contract costs for the new investor relations services.services firm.

Cash Flow Analysis

Net cash flows provided by operating activities for the fiscal years ended December 31, 2022 and 2021 were $993,976 and 2020 were $1,512,480, and $840,153, respectively. Cash flows from operating activities was higherlower in 20212022 primarily due to the increase in net income year over year offset by the gain on the sale of the Walton Way property and the decrease in percentage rent receivable year over year.

Depreciation and amortization are non-cash items and do not affect the current operating cash flow of the Partnership or distributions to the limited partners.

Cash flows provided by (used in)from investing activities for the fiscal years ended December 31, 2022 and 2021 were $1,448,425 and 2020 were $584,379, and $(4,231), respectively. The 2022 amount is largely comprised of proceeds from the sale of the Walton Way property. The 2021 amount is comprised of proceeds from the sale of the Martinez, GA property, offset by a leasing commission paid to the General Partner related to the six Wendy’s leases that were extended thru December 31, 2040 as of January 1, 2021. The 2020 amount was comprised entirely of interest applied to the indemnification trust account.

For the fiscal year ended December 31, 2022, cash flows used in financing activities were $3,237,003 and consisted of aggregate limited partner distributions of $3,225,000 and General Partner distributions of $12,003. For the fiscal year ended December 31, 2021, cash flows used in financing activities were $1,203,265 and consisted of aggregate limited partner distributions of $1,200,000 and General Partner distributions of $3,265. For the fiscal year ended December 31, 2020, cash flows used in financing activities were $803,526 and consisted of aggregate limited partner distributions of $800,000 and General Partner distributions of $3,526. Both limited partner and General Partner distributions have been, and will continue to be, made in accordance with the Partnership Agreement. Management anticipates that aggregate limited partner distributions will be approximately $1,800,000$1,000,000 during 2022.2023.

Liquidity and Capital Resources

The Partnership’s cash balance was $965,838$171,236 at December 31, 2021.2022. Cash of approximately $31,744$38,709 is anticipated to be used in 20222023 for the payment of quarter-end accrued liabilities which are included in the balance sheets.sheet.

The Partnership’s principal demands for funds historically have been, and are expected to continue to be, for the payment of operating expenses and distributions. Management anticipates that cash generated through the operations of the Properties and potential sales of Properties will primarily provide the sources for future liquidity and limited partner distributions. During the process of leasing the Properties, the Partnership may experience competition from owners and managers of other similarly situated properties. As a result, in connection with negotiating tenant leases, along with recognizing market conditions, management may offer rental concessions, or other inducements, which may have an adverse impact on the results of the Partnership’s operations. The Partnership is also in competition with sellers of similar properties to locate suitable purchasers for its Properties. The two primary liquidity risks in the absence of mortgage debt are the Partnership’s inability to collect rent receivables and near- term or chronic property vacancies. The amount of cash to be distributed to our limited partners is determined by the General Partner and is dependent on a number of factors, including funds available for payment of distributions, capital expenditures, and taxable income recognition matching, which is primarily attributable to percentage rents and property sales.

As of December 31, 20212022 and 2020,2021, the Properties were 100% leased. In addition, the Partnership collected 100% of its base rent due from current operating tenants for the years ended December 31, 20212022 and 2020,2021, which we believe is a good indication of overall tenant quality and stability.

EightSeven of the nineeight Properties are operated as Wendy’s fast food restaurants and are franchises of the international Wendy’s Company. Operating base rents from these eightseven leases comprised approximately 90%89% of the total 20212022 operating base rents included in operating rental income of the Partnership. During the year ended December 31, 2021,2022, additional percentage rents totaled $388,701, $366,473$342,359, $319,565 of which were unbilled and were accrued in relation to the Properties operated as Wendy’s restaurants. The remaining $22,229 was applied against capital improvement rent credits for the Folly Road Wendy’s Property. Therefore, during 2021,2022, the Partnership generated approximately 92%90% of its total operating revenues from those eightseven Properties.

Since the Properties are leased to restaurant tenants, the restaurant market is the major market segment with a material impact on Partnership operations. The success of customer marketing and the operating effectiveness of the Partnership’s lessees will impact the Partnership’s future operating success in a very competitive restaurant and food service marketplace.

Off-Balance Sheet Arrangements

The Partnership does not have any off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Disposition Policies

In deciding whether to sell a Property, the General Partner considers factors such as potential capital appreciation or depreciation, market and economic conditions and the general strength of the real estate market, cash flow and federal income tax considerations, including possible adverse federal income tax consequences to the limited partners. The General Partner may exercise its discretion as to whether and when to sell a Property, and there is no obligation to sell any of the Properties at any particular time, except upon Partnership dissolution currently scheduled for November 30, 2023 pursuant to the Partnership Agreement.

Inflation

To the extent that tenants can pass through commodity inflation in their sales prices, the Partnership will benefit from additional percentage rent from increased sales. The majority of the Partnership’s leases have percentage rental clauses. Revenues from operating percentage rentals represented 21% of operating rental income for the fiscal year ended December 31, 2021, and 42% of operating rental income for the fiscal years ended December 31, 2020.2022 and 2021. If, however, inflation causes sales to decrease, operating margins to deteriorate for lessees, or if expenses grow faster than revenues, then, inflation may well negatively impact the portfolio through tenant defaults.

Due to the “triple-net” nature of the property leases, asset values generally move inversely with interest rates.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Partnership is not subject to market risk as defined by Item 305 of Regulation S-K.

Item 8. Financial Statements and Supplementary Data

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

(A Wisconsin limited partnership)

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

of DiVall Insured Income Properties 2 Limited Partnership

Opinion on the Financial Statements

We have audited the accompanying balance sheets of DiVall Insured Income Properties 2 Limited Partnership (the Partnership) as of December 31, 20212022 and 2020,2021, and the related statements of income, partners’ capital and cash flows for each of the year thenyears in the two-year period ended December 31, 2022 and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 20212022 and 2020,2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021,2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The criticalCritical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication ofWe determined that there were no critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Investment Properties

Description of the matter:

The Partnership’s investment properties totaled $1.9 million as of December 31, 2021. As more fully described in Note 1 to the financial statements, the Partnership reviews each investment property held for use for impairment whenever events or circumstances indicate that the carrying value of an investment property may not be recoverable. The Partnership’s policy is to record impairment losses when indicators of impairment are present and the future undiscounted net cash flows expected to be generated by those properties are less than the properties’ carrying amount. If management determines that the carrying value of investment properties is impaired, a loss is recognized in the amount by which the carrying amount of the properties exceeds the estimated fair value of the property.

No single indicator would necessarily result in management preparing an estimate to determine if the future undiscounted cash flows are less than the book value of the property investments. Management used judgement to determine if the severity of any single indicator or when there are a number of indicators of less severity when combined would result in an indication that a property investment subject to impairment evaluation requires an estimate of the undiscounted cash flows to determine if an impairment of a property investment has occurred.

How We Addressed the Matter in Our Audit:

We obtained an understanding and evaluated the design of the controls related to the property investment impairment assessment process, including controls over management’s identification of indicators of impairment. As part of our evaluation of indicators of impairment, the measurement of the Partnership’s undiscounted future cash flows and fair value of the properties, we considered property operations, management’s capital investment, hold period, disposition strategy, current industry and economic trends and other relevant factors and assumptions.

We performed additional audit procedures surrounding the valuation of the Partnership’s investment properties by obtaining current property appraisals prepared by a nationally recognized appraisal firm for each of the nine properties and compared the appraised values to the carrying value of the properties. In addition, we evaluated the data and assumptions the appraisal firm used for reasonableness.matters.

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

BALANCE SHEETS

ASSETS

The accompanying notes are an integral part of these financial statements.

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

BALANCE SHEETS

LIABILITIES AND PARTNERS’ CAPITAL

The accompanying notes are an integral part of these financial statements.

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

STATEMENTS OF INCOME

For the Years Ended December 31, 20212022 and 20202021

The accompanying notes are an integral part of these financial statementstatements.

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

STATEMENTS OF PARTNERS’ CAPITAL

For the Years Ended December 31, 20212022 and 20202021