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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: | Commission File Number: | |
March 31, 2002 | 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 ý No o
(2) Yes ý No o
EXCEL PROPERTIES LTD.
INDEX TO FINANCIAL STATEMENTS
| | Page | |||
---|---|---|---|---|---|
PART I. FINANCIAL INFORMATION: | |||||
Item 1. | Financial Statements: | ||||
Balance Sheets | |||||
March 31, 2002 (Unaudited) December 31, 2001 | 3 | ||||
Statements of Income | |||||
Three Months Ended March 31, 2002 (Unaudited) Three Months Ended March 31, 2001 (Unaudited) | 4 | ||||
Statements of Changes in Partners' Equity | |||||
Three Months Ended March 31, 2002 (Unaudited) Three Months Ended March 31, 2001 (Unaudited). | 5 | ||||
Statements of Cash Flows | |||||
Three Months Ended March 31, 2002 (Unaudited) Three Months Ended March 31, 2001 (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 |
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EXCEL PROPERTIES, LTD.
BALANCE SHEETS
| March 31, 2002 | December 31, 2001 | |||||||
---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | | |||||||
ASSETS | |||||||||
Real estate: | |||||||||
Land | $ | 979,270 | $ | 979,270 | |||||
Buildings | 1,549,025 | 1,549,025 | |||||||
Less: accumulated depreciation | (688,085 | ) | (675,791 | ) | |||||
Net real estate | 1,840,210 | 1,852,504 | |||||||
Cash | 216,125 | 917,409 | |||||||
Accounts receivable, less allowance for bad debts of $0 in both 2002 and 2001 | 8,988 | 12,584 | |||||||
Notes receivable | 924,607 | 930,290 | |||||||
Interest receivable | 5,718 | 6,596 | |||||||
Other assets | — | 112 | |||||||
Total assets | $ | 2,995,648 | $ | 3,719,495 | |||||
LIABILITIES AND PARTNERS' EQUITY | |||||||||
Liabilities: | |||||||||
Accounts payable: | |||||||||
Affiliates | $ | 489 | $ | 18,677 | |||||
Other | 1,550 | 617 | |||||||
Total liabilities | 2,039 | 19,294 | |||||||
Partners' Equity: | |||||||||
General partner's equity | 13,971 | 20,914 | |||||||
Limited partners' equity, 235,308 units authorized, 135,199 units issued and outstanding in 2002 and 2001, respectively. | 2,979,638 | 3,679,287 | |||||||
Total partners' equity | 2,993,609 | 3,700,201 | |||||||
Total liabilities and partners' equity | $ | 2,995,648 | $ | 3,719,495 | |||||
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EXCEL PROPERTIES, LTD.
STATEMENTS OF INCOME—UNAUDITED
| Three Months Ended March 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | ||||||
Revenue: | ||||||||
Base rent | $ | 67,032 | $ | 136,849 | ||||
Interest and other income | 19,230 | 30,140 | ||||||
Total revenue | 86,262 | 166,989 | ||||||
Operating Expenses: | ||||||||
Accounting and legal | 24,679 | 36,229 | ||||||
Depreciation | 12,294 | 22,396 | ||||||
Administrative | 2,700 | 2,700 | ||||||
Office expenses | 2,473 | 1,327 | ||||||
Management fees | 706 | 1,460 | ||||||
Total operating expenses | 42,852 | 64,112 | ||||||
Net income | $ | 43,410 | $ | 102,877 | ||||
Net income allocated to: | ||||||||
General partner | $ | 557 | $ | 1,253 | ||||
Limited partners | 42,853 | 101,624 | ||||||
Total | $ | 43,410 | $ | 102,877 | ||||
Net income per weighted average limited partnership unit | $ | 0.32 | $ | 0.76 | ||||
4
EXCEL PROPERTIES, LTD.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY—UNAUDITED
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
| 2002 | 2001 | |||||
Balance at January 1 | $ | 3,700,201 | $ | 4,545,214 | |||
Net income | 43,410 | 102,877 | |||||
Partner distributions | (750,002 | ) | (138,000 | ) | |||
Balance at March 31 | $ | 2,993,609 | $ | 4,510,091 | |||
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EXCEL PROPERTIES, LTD.
STATEMENTS OF CASH FLOWS—UNAUDITED
| Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 43,410 | $ | 102,877 | ||||||||
Adjustments to reconcile net income to net cash provided by operations: | ||||||||||||
Depreciation | 12,294 | 22,396 | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||
Decrease in assets: | ||||||||||||
Accounts receivable | 3,597 | 8,469 | ||||||||||
Interest receivable and other assets | 988 | 5,314 | ||||||||||
Decrease in liabilities: | ||||||||||||
Accounts payable | (17,254 | ) | (7,237 | ) | ||||||||
Property taxes payable | — | — | ||||||||||
Deferred rental income | — | (5,403 | ) | |||||||||
Net cash provided by operating activities | 43,035 | 126,416 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Collection of notes receivable | 5,683 | 106,959 | ||||||||||
Net cash provided by investing activities | 5,683 | 106,959 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Cash distributions | (750,002 | ) | (138,000 | ) | ||||||||
Net cash used by financing activities | (750,002 | ) | (138,000 | ) | ||||||||
Net increase in cash | (701,284 | ) | 95,375 | |||||||||
Cash at January 1 | 917,409 | 265,054 | ||||||||||
Cash at March 31 | $ | 216,125 | $ | 360,429 | ||||||||
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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 December 31, 2001 Form 10-K.
Organization
Excel Properties, Ltd. ("the Partnership") 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.
The Partnership assesses whether there has been an impairment in the value of its real estate by considering factors such as expected future operating income, trends, and prospects, as well as the effects of the demand, competition and other economic factors. Such factors include a lessee's ability to pay rent under the terms of the lease. If a property is leased at a significantly lower rent, the Partnership may recognize a permanent impairment loss if the income stream is not sufficient to recover its investment.
Cash Deposits
At March 31, 2002, the carrying amount of the Partnership's cash deposits total $216,125. The bank balances are $552,332 of which $200,000 is covered by federal depository insurance.
Statement of Cash Flows—Supplemental Disclosure
There was no interest or income taxes paid for the three months ended March 31, 2002 or 2001. The Partnership also had no noncash investing or financing transactions for the three months ended March 31, 2002 or 2001.
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.
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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.
2. Fees Paid to General Partner
The Partnership has paid the General Partner or its affiliates the following fees for the three months ended March 31, 2002 and 2001:
| 2002 | 2001 | ||||
---|---|---|---|---|---|---|
Administrative fees | $ | 2,700 | $ | 2,700 | ||
Accounting | 1,620 | 1,620 | ||||
Management fees | 706 | 1,460 |
3. Notes Receivable
The Partnership had the following notes receivable at March 31, 2002 and December 31, 2001:
Note from the sale of land, interest at 10%. Secured by land sold. Currently due. | $ | 165,750 | $ | 165,750 | |||
Note from sale of building, receipts of $5,366 per month at 8.5% interest. Secured by building sold. Due November 2003. | 708,857 | 714,540 | |||||
Note from sale of building. Due December 2002. Interest at 10% interest. | 50,000 | 50,000 | |||||
Total notes receivable | $ | 924,607 | $ | 930,290 | |||
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The Partnership leases single-tenant buildings to tenants under noncancelable operating leases requiring the greater of fixed or percentage rents. The leases are primarily triple-net, requiring the tenant to pay all expenses of operating the property such as insurance, property taxes, repairs and utilities.
Minimum future rental revenue for the next four years for the commercial real estate currently owned and subject to noncancelable operating leases is as follows:
Year ending December 31, | | ||
---|---|---|---|
2002, remaining nine months | $ | 211,877 | |
2003 | 221,199 | ||
2004 | 107,800 | ||
2005 | 80,251 |
5. Sale of Property
There were no property sales in 2002 and 2001.
The following unaudited Pro Forma Condensed Statements of Income have been presented as if all the property dispositions that occurred since January 1, 2001 had occurred on January 1, 2001. This information is presented for comparative purposes only and may not be indicative of the actual results had the property dispositions occurred on January 1, 2001.
| For the Three Months Ended | ||||||
---|---|---|---|---|---|---|---|
| March 31, 2002 | March 31, 2001 | |||||
| Actual | Proforma | |||||
Rental Revenue: | $ | 67,032 | $ | 70,629 | |||
Other revenue: | 19,230 | 30,140 | |||||
Operating expenses: | (42,852 | ) | (56,415 | ) | |||
Net Income: | $ | 43,410 | $ | 44,354 | |||
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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 APartnership"), 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"), formerly known as Excel Realty Trust and Gary B. Sabin, an individual. 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, now known as Price 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 have been primarily 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. In recent years, the Partnership has been attempting to sell all of its properties. The selling of the properties remaining 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 the remaining 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 $216,125 in cash at March 31, 2002, with no debt on any of the properties it owns. The Partnership currently has approximately $23,543 a month from rental revenue. Management does not expect the Partnership to incur 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 three real estate properties currently owned. 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 may sell one or more of its properties which would provide cash for distribution. The Partnership has historically paid the quarterly distributions to the limited partners of the actual cash earned by the Partnership in the preceding quarter. In 2002, the Partnership adopted a policy of paying distributions from operating cash flows annually instead of quarterly distributions, as only three properties remain. The Partnership may pay additional distributions if it receives cash from a significant capital event. Therefore, if expenses were to increase or revenue were to decrease, the Partnership would decrease the distributions to the limited partners.
The Partnership has continued to distribute cash flows to the limited partners since 1989. The Partnership has been attempting to sell it properties and owns three remaining real estate properties. Although future distributions may be supplemented by proceeds from property sales or principal repayment of notes receivable, as additional properties are sold or notes receivable are repaid,
10
proceeds will be distributed to the partners instead of reinvested, and future distributions are expected to decrease. Eventually, there may no longer be enough cash flows for distributions.
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 March 31, 2002 to the three months ended March 31, 2001
Base rent decreased $69,818 or 51% from the previous year. The net decrease was primarily due to property sales in 2001. These properties accounted for approximately $66,220 in rental revenue in the first three months of 2001.
In the three months ended March 31, 2002 to the three months ended March 31, 2001, operating expenses decreased by $21,259 or 33%. Depreciation expense decreased by $10,102 or 45% due to property sales in 2001. Accounting and legal expenses decreased by $11,550 or 32% in the first quarter of 2002 as compared to the first quarter of 2001. The decrease in accounting and legal expenses are largely attributable to amounts paid for legal matters related to the transfer and ownership of certain partnership units in 2001. Property management fees decreased by $753 or 52% as a result of property sales in 2001. Overall, other expenses and other income did not significantly vary between the two periods.
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, 2001.
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 March 31, 2002.
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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: None.
- (b)
- Reports on Form 8-K
The Partnership filed no reports on Form 8-K during the quarter ended March 31, 2002.
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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: May 3, 2002 | 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 |
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EXCEL PROPERTIES LTD. INDEX TO FINANCIAL STATEMENTS
EXCEL PROPERTIES, LTD. BALANCE SHEETS
EXCEL PROPERTIES, LTD. STATEMENTS OF INCOME—UNAUDITED
EXCEL PROPERTIES, LTD. STATEMENTS OF CHANGES IN PARTNERS' EQUITY—UNAUDITED
EXCEL PROPERTIES, LTD. STATEMENTS OF CASH FLOWS—UNAUDITED
EXCEL PROPERTIES, LTD. NOTES TO FINANCIAL STATEMENTS—UNAUDITED
PART II. OTHER INFORMATION
SIGNATURES