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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: June 30, 2001 | Commission File Number: 33-2320 |
EXCEL PROPERTIES, LTD.
(Exact name of registrant as specified in its charter)
CALIFORNIA (State or other jurisdiction of incorporation or organization) | 87-0426335 (IRS Employer Identification Number) |
17140 Bernardo Center Drive, Suite 300, San Diego, California 92128
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:(858) 675-9400
Securities registered pursuant to Section 12(b) of the Act:NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
- (1)
- Yes/X/ No
- (2)
- Yes/X/ No
EXCEL PROPERTIES, LTD.
| Page | |||
---|---|---|---|---|
PART I. FINANCIAL INFORMATION: | ||||
Item 1. Financial Statements: | ||||
Balance Sheets June 30, 2001 (Unaudited) December 31, 2000 | 3 | |||
Statements of Income Three Months Ended June 30, 2001 (Unaudited) Three Months Ended June 30, 2000 (Unaudited) Six Months Ended June 30, 2001 (Unaudited) Six Months Ended June 30, 2000 (Unaudited) | 4 | |||
Statements of Changes in Partners' Equity Six Months Ended June 30, 2001 (Unaudited) Six Months Ended June 30, 2000 (Unaudited) | 5 | |||
Statements of Cash Flows Six Months Ended June 30, 2001 (Unaudited) Six Months Ended June 30, 2000 (Unaudited) | 6 | |||
Notes to Financial Statements | 7 | |||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 12 | |||
PART II. OTHER INFORMATION | 12 |
2
EXCEL PROPERTIES, LTD.
BALANCE SHEETS
| June 30, 2001 | December 31, 2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | | ||||||||
ASSETS | ||||||||||
Real estate: | ||||||||||
Land | 1,467,663 | 1,524,764 | ||||||||
Buildings | 2,688,607 | 2,821,843 | ||||||||
Less: accumulated depreciation | (1,149,395 | ) | (1,164,348 | ) | ||||||
Net real estate | 3,006,875 | 3,182,259 | ||||||||
Cash | 854,894 | 265,054 | ||||||||
Accounts receivable, less allowance for bad debts of $0 in 2001 and 2000, respectively | 3,314 | 11,184 | ||||||||
Notes receivable | 891,302 | 1,121,859 | ||||||||
Interest receivable and other assets | 8,243 | 14,784 | ||||||||
Total assets | $ | 4,764,628 | $ | 4,595,140 | ||||||
LIABILITIES AND PARTNERS' EQUITY | ||||||||||
Liabilities: | ||||||||||
Accounts payable: | ||||||||||
Affiliates | $ | 388 | $ | 6,562 | ||||||
Other | 169,006 | 27,850 | ||||||||
Deferred rental income | 10,110 | 15,514 | ||||||||
Total liabilities | 179,504 | 49,926 | ||||||||
Partners' Equity: | ||||||||||
General partner's equity | 6,510 | 28,582 | ||||||||
Limited partners' equity, 235,308 units authorized, 135,199 units issued and outstanding in 2001 and 2000, respectively | 4,578,614 | 4,516,632 | ||||||||
Total partners' equity | 4,585,124 | 4,545,214 | ||||||||
Total liabilities and partners' equity | $ | 4,764,628 | $ | 4,595,140 | ||||||
The accompanying notes are an integral part of the financial statements.
3
EXCEL PROPERTIES, LTD.
STATEMENTS OF INCOME—UNAUDITED
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | |||||||||||
Revenue: | |||||||||||||||
Base rent | $ | 127,647 | $ | 127,406 | $ | 264,496 | $ | 260,611 | |||||||
Interest income | 22,329 | 23,630 | 52,469 | 50,719 | |||||||||||
Total revenue | 149,976 | 151,036 | 316,965 | 311,330 | |||||||||||
Expenses: | |||||||||||||||
Depreciation | 21,514 | 22,395 | 43,910 | 44,791 | |||||||||||
Bad debts | — | (26,968 | ) | — | (26,968 | ) | |||||||||
Office expenses | 3,419 | 3,170 | 4,458 | 4,423 | |||||||||||
Administrative | 2,700 | 2,700 | 5,400 | 5,400 | |||||||||||
Accounting and legal | (7,941 | ) | 18,000 | 28,288 | 20,321 | ||||||||||
Management fees | 1,272 | 1,555 | 2,732 | 2,624 | |||||||||||
Other property expenses | 386 | 388 | 674 | 720 | |||||||||||
Total expenses | 21,350 | 21,240 | 85,462 | 51,311 | |||||||||||
Income before real estate sales | 128,626 | 129,796 | 231,503 | 260,019 | |||||||||||
Gain — sale of real estate | 169,158 | — | 169,158 | — | |||||||||||
Net income | $ | 297,784 | $ | 129,796 | $ | 400,661 | $ | 260,019 | |||||||
Net income allocated to: | |||||||||||||||
General partner | $ | 3,193 | $ | 1,522 | $ | 4,446 | $ | 3,048 | |||||||
Limited partners | 294,591 | 128,274 | 396,215 | 256,971 | |||||||||||
Total | $ | 297,784 | $ | 129,796 | $ | 400,661 | $ | 260,019 | |||||||
Net income per weighted average limited partnership unit | $ | 2.20 | $ | 0.95 | $ | 2.96 | $ | 1.90 | |||||||
The accompanying notes are an integral part of the financial statements.
4
EXCEL PROPERTIES, LTD.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY—UNAUDITED
| Six Months Ended June 30 | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||
Balance at January 1 | $ | 4,545,214 | $ | 4,671,603 | |||
Net income | 400,661 | 260,019 | |||||
Partner distributions | (360,751 | ) | (302,045 | ) | |||
Balance at June 30 | $ | 4,585,124 | $ | 4,629,577 | |||
The accompanying notes are an integral part of the financial statements.
5
EXCEL PROPERTIES, LTD.
STATEMENTS OF CASH FLOWS—UNAUDITED
| Six Months Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | ||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 400,661 | $ | 260,019 | ||||||
Adjustments to reconcile net income to net cash provided by operations: | ||||||||||
Depreciation | 43,910 | 44,791 | ||||||||
Provision for bad debts | — | (30,999 | ) | |||||||
Gain on sale of real estate | (169,158 | ) | — | |||||||
Changes in operating assets and liabilities: | ||||||||||
(Increase) decrease in assets: | ||||||||||
Accounts receivable | 7,657 | 28,151 | ||||||||
Interest receivable and other assets | 6,754 | (2,685 | ) | |||||||
Increase (decrease) in liabilities: | ||||||||||
Accounts payable | 134,982 | (20,895 | ) | |||||||
Property taxes payable | — | (5,174 | ) | |||||||
Deferred rental income | (5,403 | ) | (8,708 | ) | ||||||
Net cash provided by operating activities | 419,403 | 264,500 | ||||||||
Cash flows from investing activities: | ||||||||||
Collection of notes receivable | 230,556 | 13,777 | ||||||||
Proceeds from real estate sales | 300,632 | — | ||||||||
Net cash provided by investing activities | 531,188 | 13,777 | ||||||||
Cash flows from financing activities: | ||||||||||
Cash distributions | (360,751 | ) | (302,045 | ) | ||||||
Net cash used by financing activities | (360,751 | ) | (302,045 | ) | ||||||
Net (decrease) increase in cash | 589,840 | (23,768 | ) | |||||||
Cash at January 1 | 265,054 | 289,446 | ||||||||
Cash at June 30 | $ | 854,894 | $ | 265,678 | ||||||
The accompanying notes are an integral part of the financial statements.
6
EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS—UNAUDITED
1. Summary of Significant Accounting Policies:
The financial statements reflect all adjustments of a recurring nature which are, in the opinion of management, necessary for a fair presentation of the financial statements. No adjustments were necessary which were not of a recurring nature. These financial statements should be read in conjunction with the financial statements and accompanying footnotes included in the Partnership's December 31, 2000 Form 10-K.
Organization
Excel Properties, Ltd. was formed in the State of California on September 19, 1985, for the purpose of, but not limited to, acquiring real property and syndicating such property.
Real Estate
Land and buildings are recorded at cost. Buildings are depreciated using the straight-line method over the tax life of 31.5 years. The tax life does not differ materially from the economic useful life. Expenditures for maintenance and repairs are charged to expense as incurred. Significant renovations are capitalized. The cost and related accumulated depreciation of real estate are removed from the accounts upon disposition. Gains and losses arising from dispositions are reported as income or expense.
Cash Deposits
At June 30, 2001, the carrying amount of the Partnership's cash deposits total $854,894. The bank balances are $1,686,939 of which $200,000 is covered by federal depository insurance.
Statement of Cash Flows—Supplemental Disclosure
There was no interest or taxes paid for the six months ended June 30, 2001 or 2000. The Partnership also had no noncash investing or financing transactions for the six months ended June 30, 2001 or 2000.
Income Taxes
The Partnership is not liable for payment of any income taxes because as a partnership, it is not subject to income taxes. The tax effects of its activities accrue directly to the partners.
Accounts Receivable
All net accounts receivable are deemed to be collectible within the next 12 months.
Financial Statement Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
7
2. Fees Paid to General Partner
The Partnership has paid the General Partner or its affiliates the following fees for the six months ended June 30, 2001 and 2000:
| 2001 | 2000 | ||||
---|---|---|---|---|---|---|
Management fees | $ | 2,732 | $ | 2,624 | ||
Administrative fees | 5,400 | 5,400 | ||||
Accounting | 3,240 | 3,240 |
3. Sale of Property
In April 2001, the Partnership sold a building in West Carrollton, Ohio that was on lease to Kindercare. The sale price for the building was $283,333. The Partnership recognized a gain of $148,869 on the sale.
There were no property sales in the six months ended June 30, 2000.
4. Notes Receivable
The Company had the following notes receivable at June 30, 2001 and December 31, 2000:
| 2001 | 2000 | ||||
---|---|---|---|---|---|---|
Note from the sale of land, interest at 10%. Due upon the occurrence of certain events. | $ | 165,750 | $ | 165,750 | ||
Note from sale of building, receipts of $1,390 per month at 9% interest. Secured by building sold. Repaid in May 2001 | — | 119,752 | ||||
Note from sale of building, interest only receipts of $5,366 per month at 8.5% interest. Secured by building sold. Due November 2003. | 725,552 | 736,107 | ||||
Note from sale of building, receipts of $1,004 per month at 8% interest. Secured by building sold. Repaid in February 2001. | — | 100,250 | ||||
Total notes receivable | $ | 891,302 | $ | 1,121,859 | ||
5. Minimum Future Rentals
The Company leases single-tenant buildings to tenants under noncancelable operating leases requiring the greater of fixed or percentage rents. The leases are triple-net, requiring the tenant to pay all expenses of operating the property such as insurance, property taxes, repairs and utilities.
8
Minimum future rental revenue for the next five years for the commercial real estate currently owned and subject to noncancelable operating leases is as follows:
Year ending December 31, | | ||
---|---|---|---|
2001, remaining six months | $ | 261,600 | |
2002 | 506,991 | ||
2003 | 483,984 | ||
2004 | 426,850 | ||
2005 | 326,192 | ||
Thereafter | 421,580 |
9
ITEM 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations
Nature of Business
Excel Properties, Ltd., a California limited partnership (the "Partnership"), was organized to purchase commercial real estate properties for cash and to hold these assets for investment. The general partners of the Partnership are New Plan Excel Realty Trust, Inc., a Maryland corporation ("New Plan"), and Gary B. Sabin. The Partnership was formed on September 19, 1985 and will continue in existence until December 31, 2015, unless dissolved earlier under certain circumstances. In 1999, Excel Legacy Corporation (the "Company") began managing the assets of the Partnership when certain officers of New Plan resigned. The Company has indemnified New Plan of any general partner liability in exchange for an assignment of their partnership interest.
Properties that have been acquired by the Partnership are subject to long-term triple-net leases. Such leases require the lessee to pay the prescribed minimum rental plus all costs and expenses associated with the operations and maintenance of the property. These expenses include real property taxes, property insurance, repairs and maintenance and similar expenses. Certain leases also provide some form of inflation hedge which calls for the minimum rent to be increased, based upon adjustments in the consumer price index, fixed rent escalation, or by receipt of a percentage of the gross sales of the tenant.
The principal investment objectives of the Partnership were originally to provide to its limited partners: (1) preservation, protection and eventual return of the investment, (2) distributions of cash from operations, some of which may be a return of capital for tax purposes rather than taxable income, and (3) realization of long-term appreciation in value of properties. The Partnership is currently attempting to sell all of the properties held by the Partnership. The selling of the properties could take several years as the Partnership attempts to maximize the sales price of each property. There can be no assurance that the general partners will be successful in selling all of the properties or what price they can obtain. Additionally, the plans of the Partnership may change in the future.
Liquidity and Capital Resources
The Partnership has $854,894 in cash at June 30, 2001, with no debt on any of the properties it owns. In July 2001, the Partnership distributed accumulated cash to the partners in the amount of $550,000. The Partnership currently recognizes approximately $45,959 a month from rental revenue. Management anticipates that rental revenue should be enough to cover any Partnership and operating expenses. Also, management does not expect the Partnership to incur any significant operational expenses as the Partnership properties are subject to triple-net leases.
The Partnership's primary source of cash is from rental of the real estate properties currently owned. The Partnership may also sell properties which would provide cash for distribution. Management believes that rental revenue should cover the recurring operating expenses of the Partnership and allow for cash distributions to be made to the limited partners unless buildings become vacant. The Partnership has the policy of paying quarterly distributions to the limited partners of the actual cash earned by the Partnership in the preceding quarter. Therefore, if expenses were to increase or revenue were to decrease, the Partnership would decrease the quarterly distributions to the limited partners.
The Partnership has continued to distribute cash flows to the limited partners since 1989. Management anticipates that distributions from cash flows will continue in 2001. The distributions may be supplemented by proceeds from property sales or principal repayment of notes receivable, if any. If additional properties are sold or notes receivable are repaid, proceeds are distributed to the partners instead of reinvested, future distributions are expected to decrease.
10
Inflation is not expected to negatively impact the operations of the Partnership due to the structure of its investment portfolio. The leases all provide a minimum rental which the lessee is obligated to pay. Additionally, most leases contain some form of inflation hedge which provides for the rent to be increased. The rent increases may be in the form of scheduled fixed minimum rent increases, Consumer Price Index (CPI) adjustments or by participating in a percentage of the gross sales volume of the tenant. Since the triple-net leases require the lessees to pay for all property operating expenses, the net effect is that the revenue received will not be eroded away as operating expenses increase due to inflation. Should buildings become vacant, however, the Partnership may be responsible for certain expenses, including property taxes which are now being paid by tenants.
Results of Operations
The following discussion should be read in conjunction with the financial statements and the notes thereto.
Comparison of the three months ended June 30, 2001 to the three months ended June 30, 2000
Base rent did not significantly change from the previous year.
In April 2001, the company recognized a gain of $148,869 relating to the sale of a building formerly leased to Kindercare, in West Carrollton, Ohio. In June 2001, the Company received $20,289 for the holdback on the 1999 sale of Kindercare in Grove City, Ohio which was recognized as income in 2001. There were no sales in the three months end June 30, 2000.
Overall operating expenses increased by $110 from the three months ended June 30, 2001 to the three months ended June 30, 2000. Accounting and legal expenses decreased by $25,941 over 2000. The decrease in accounting and legal expenses are largely attributable to an accrual of legal expenses, which was reversed in April 2001. Bad debt expense was $0 in 2001. In May 2000, $26,968 that was reserved for potential bad debt for a tenant, which was delinquent on their rents, was reversed when the tenant became current. Other expenses and other income did not vary significantly between the two accounting periods.
Comparison of the six months ended June 30, 2001 to the six months ended June 30, 2000
Base rent did not significantly change from the previous year and decreased $3,885.
In April 2001, the company recognized a gain of $148,869 relating to the sale of a building formerly leased to Kindercare, in West Carrollton, Ohio. In June 2001, the Company received $20,289 for the holdback on the 1999 sale of Kindercare in Grove City, Ohio which was recognized as income in 2001. There were no sales in the six months end June 30, 2000.
Operating expenses increased by $34,151 or 67%. Accounting and legal expenses increased by $7,967 or 39% over 2000. The increase in accounting and legal expenses are largely attributable to amounts paid for legal matters related to the transfer and ownership of certain partnership units. Bad debt expense was $0 in 2001. In May 2000, $26,968 that was reserved for potential bad debt for a tenant, which was delinquent on their rents, was reversed when the tenant became current. Other expenses and other income did not vary significantly between the two accounting.
Management does not expect inflation to significantly impact the operations of the Partnership due to the structure of its investment portfolio. The leases all provide a minimum rental which the lessee is obligated to pay. Additionally, most leases contain some form of inflation hedge which provides for the rent to be increased. The rent increases may be in the form of scheduled fixed minimum rent increases, Consumer Price Index adjustments, or by participating in a percentage of the gross sales volume of the tenant. Since the triple-net leases require the lessees to pay for all property operating expenses, the net effect is that the income should increase as operating expenses increase due to inflation.
11
Certain Cautionary Statements
Certain statements in this Quarterly Report on Form 10-Q, including, but not limited to, "Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations," contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts, but rather reflect current expectations concerning future results and events. The words "believes," "expects," "intends," "plans," "anticipates," "likely," "will" and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors, some of which are beyond the Partnership's control that could cause actual results to differ materially from those forecast or anticipated in such forward-looking statements. These factors include, but are not limited to, the Partnership's market effect on property sales, reliance on tenants, and environmental risks. These factors are discussed in greater detail under the caption "Certain Cautionary Statements" in the Partnership's annual Report on Form 10-K for the year ended December 31, 2000.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership's balance sheet contains financial instruments in the form of interest-earning notes receivable. The notes contain fixed interest rates and are thus not subject to changes in market interest rates. The Partnership estimates that the fair value of the notes approximates market value at June 30, 2001.
Items 1 through 5 have been omitted since no events occurred with respect to these items.
Item 6. Exhibits and Reports on Form 8-K
- (a)
- Exhibits
- (b)
- Reports on Form 8-K
None
The Partnership filed no reports on Form 8-K during the quarter ended June 30, 2001.
12
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: August 14, 2001 | EXCEL PROPERTIES, LTD. (Registrant) | ||
By: | /s/ GARY B. SABIN Gary B. Sabin General Partner | ||
By: | /s/ JAMES Y. NAKAGAWA James Y. Nakagawa Principal Accounting Officer |
13
INDEX TO FINANCIAL STATEMENTS
BALANCE SHEETS
STATEMENTS OF INCOME—UNAUDITED
STATEMENTS OF CHANGES IN PARTNERS' EQUITY—UNAUDITED
STATEMENTS OF CASH FLOWS—UNAUDITED
NOTES TO FINANCIAL STATEMENTS—UNAUDITED
- ITEM 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION