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SECURITIES AND EXCHANGE
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: Commission File Number:
--------------------- -----------------------
SEPTEMBER 30, 1998 33-2320
EXCEL PROPERTIES, LTD.
(Exact name of registrant as specified in its charter)
CALIFORNIA 87-0426335
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
16955 VIA DEL CAMPO, SUITE 110 SAN DIEGO, CALIFORNIA 92127
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (619) 485-9400
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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 [ ]
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EXCEL PROPERTIES, LTD.
INDEX TO FINANCIAL STATEMENTS
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PAGE
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Balance Sheets
September 30, 1998 (Unaudited)
December 31, 1997 ..............................................................3
Statements of Income
Three Months Ended September 30, 1998 (Unaudited)
Three Months Ended September 30, 1997 (Unaudited)
Nine Months Ended September 30, 1998 (Unaudited)
Nine Months Ended September 30, 1997 (Unaudited)................................4
Statements of Changes in Partners' Equity
Nine Months Ended September 30, 1998 (Unaudited)
Nine Months Ended September 30, 1997 (Unaudited)................................5
Statements of Cash Flows
Nine Months Ended September 30, 1998 (Unaudited)
Nine Months Ended September 30, 1997 (Unaudited)................................6
Notes to Financial Statements......................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................10
PART II. OTHER INFORMATION................................................................13
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EXCEL PROPERTIES, LTD.
BALANCE SHEETS
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SEPTEMBER 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
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ASSETS
Real estate:
Land $ 2,142,112 $ 2,728,464
Buildings 3,510,518 4,417,200
Less: accumulated depreciation (1,171,573) (1,367,861)
----------- -----------
Net real estate 4,481,057 5,777,803
Cash 1,035,044 444,616
Accounts receivable, less allowance for bad debts of
$0 and $191,764 in 1998 and 1997, respectively -- 19,897
Notes receivable 1,161,195 1,167,273
Interest receivable and other assets 8,719 5,814
----------- -----------
Total assets $ 6,686,015 $ 7,415,403
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable:
Affiliates $ 592 $ 697
Other 12,088 2,139
Tenant security deposits -- 5,000
Property taxes payable 1,906 19,089
Deferred rental income 15,010 10,408
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Total liabilities 29,596 37,333
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Partners' Equity:
General partner's equity 8,479 16,376
Limited partners' equity, 235,308 units
authorized, 135,199 units issued
and outstanding in 1998 and 1997,
respectively 6,647,940 7,361,694
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Total partners' equity 6,656,419 7,378,070
----------- -----------
Total liabilities and partners' equity $ 6,686,015 $ 7,415,403
=========== ===========
The accompanying notes are an integral part
of the financial statements.
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EXCEL PROPERTIES, LTD.
STATEMENTS OF INCOME - UNAUDITED
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenue:
Base rent $ 165,162 $ 213,659 $ 504,261 $ 643,686
Interest income 27,741 22,330 89,369 123,135
--------- --------- --------- ---------
Total revenue 192,903 235,989 593,630 766,821
--------- --------- --------- ---------
Expenses:
Depreciation 30,367 35,503 97,975 107,852
Property taxes 20,812 -- 20,812 --
Office expenses 3,188 4,536 9,919 12,082
Administrative 2,700 2,700 8,100 8,100
Accounting and legal 2,473 13,650 9,778 56,105
Management fees 1,652 2,464 5,163 5,842
Bad debts (2,524) (52,042) 3,521 39,777
--------- --------- --------- ---------
Total expenses 58,668 6,811 155,268 229,758
--------- --------- --------- ---------
Income before real estate sales 134,235 229,178 438,362 537,063
Gain (loss) - sale of real estate (108) 17,593 99,986 17,593
--------- --------- --------- ---------
Net income $ 134,127 $ 246,771 $ 538,348 $ 554,656
========= ========= ========= =========
Net income allocated to:
General partner $ 1,645 $ 2,468 $ 6,363 $ 5,547
Limited partners 132,482 244,303 531,985 549,109
--------- --------- --------- ---------
Total $ 134,127 $ 246,771 $ 538,348 $ 554,656
========= ========= ========= =========
Net income per weighted average
limited partnership unit $ 0.98 $ 1.81 $ 3.93 $ 4.06
========= ========= ========= =========
The accompanying notes are an integral part of the
financial statements.
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EXCEL PROPERTIES, LTD.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY - UNAUDITED
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NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
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Balance at January 1 $ 7,378,070 $9,619,405
Net income 538,348 554,656
Partner distributions (1,259,999) (2,571,678)
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Balance at September 30 $ 6,656,419 $ 7,602,383
========= =========
The accompanying notes are an integral part of the
financial statements.
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EXCEL PROPERTIES, LTD.
STATEMENTS OF CASH FLOWS - UNAUDITED
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NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
1998 1997
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Cash flows from operating activities:
Net income $ 538,348 $ 554,656
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 97,975 107,852
Allowance for doubtful accounts 3,521 39,777
Gain on sale of real estate (99,986) (17,593)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 16,376 19,245
Interest receivable and other assets (5,665) (1,816)
Increase (decrease) in liabilities:
Accounts payable (859) 6,959
Property taxes payable (8,721) --
Deferred rental income 4,603 (28,691)
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Net cash provided by operating activities 545,592 680,389
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Cash flows from investing activities:
Proceeds from escrow deposits -- 963,968
Proceeds from real estate sales 1,298,757 181,807
Collection of notes receivable 6,078 5,565
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Net cash provided by investing activities 1,304,835 1,151,340
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Cash flows from financing activities:
Cash distributions (1,259,999) (2,571,678)
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Net cash used by financing activities (1,259,999) (2,571,678)
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Net increase (decrease) in cash 590,428 (739,949)
Cash at January 1 444,616 1,393,367
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Cash at September 30 $ 1,035,044 $ 653,418
=========== ===========
The accompanying notes are an integral part of the
financial statements.
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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
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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, 1997 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
and operating commercial real estate.
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 the dispositions are reported as income or expense.
CASH DEPOSITS
At September 30, 1998, the carrying amount of the Partnership's cash
deposits total $1,035,044. The bank balances are $1,062,402 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 nine months ended September 30,
1998 or 1997. Also, the Partnership had no noncash investing or financing
transactions for the nine months ended September 30, 1998 or 1997.
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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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 nine months ended September 30, 1998 and 1997:
1998 1997
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Management fees $ 5,163 $ 5,842
Administrative fees 8,100 8,100
Accounting 4,860 4,860
3. SALE OF PROPERTY
In May 1998, the Partnership sold a building in Burnsville, Minnesota that
was on lease to Timberlodge Steakhouse. The sales price for the building
was $689,760. The Partnership recognized a gain of $100,094 on the sale. In
September 1998, the Partnership sold a vacant building in Alton, Illinois,
formerly on lease to Ponderosa Restaurant. The sale price for the building
was $610,000. The Partnership recognized a loss of $108 on the sale. In
1997, the Partnership sold a property leased by Kindercare in Indianapolis,
Indiana. The net proceeds for the building were $181,807 and a gain of
$17,593 was recognized on the sale.
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EXCEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
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4. NOTES RECEIVABLE
The Partnership had the following notes receivable at September 30, 1998
and December 31, 1997:
1998 1997
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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, interest only receipts of $1,390
per month at 9% interest. Secured by real estate. Currently due. 131,737 135,225
Note from sale of building, interest only receipts of
$5,366 per month at 8.5% interest. Secured by building
sold. Due November 2003. 757,500 757,500
Note from sale of building, receipts of $1,004 per month
at 8% interest. Secured by building sold. Due December
2001. 106,208 108,798
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Total notes receivable $1,161,195 $1,167,273
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5. MINIMUM FUTURE RENTALS
The Partnership leases single-tenant buildings to tenants under
noncancellable 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.
Minimum future rental revenue for the next five years for the commercial
real estate currently owned and subject to noncancellable operating leases
is as follows:
YEAR ENDING DECEMBER 31,
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1998, remaining three months $ 165,162
1999 670,386
2000 605,500
2001 541,003
2002 449,228
Thereafter 1,117,228
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EXCEL PROPERTIES, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 long-term investment. The Partnership currently owns twelve
properties. The general partners of the Partnership are New Plan Excel Realty
Trust, Inc., a Maryland corporation, 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.
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, the net effect
being that, under normal circumstances, no expenses will offset the rental
payment. Most of the 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.
Properties have been acquired free and clear of liens and encumbrances. The
Partnership may seek to finance one or more of the properties and distribute the
financing proceeds to the partners, but only if the financing proceeds equal or
exceed 100% of the Partnership's capital invested in the property or properties
(including a prorata amount of the Partnership's public offering unit selling
commissions and organization expenses). To date, no properties owned by the
Partnership have been the subject of any mortgage financing, therefore, at the
present time, all properties remain free and clear from any mortgage loan, lien
or encumbrance.
The principal investment objectives of the Partnership are to provide to its
limited partners: (1) preservation, protection and eventual return of the
investment, (2) distributions of cash from operations including property sales,
some of which may be a return of capital for tax purposes rather than taxable
income, (3) distributions of cash from financing the properties, and (4)
realization of long-term appreciation in value of the properties.
The general partners are currently attempting to sell all of the properties held
by the Partnership. The selling of the properties could take several years as
the general partners attempt 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. The general partners may change
its plans in the future.
LIQUIDITY AND CAPITAL RESOURCES
As the Partnership has $1,035,044 in cash at September 30, 1998, with no debt on
any of the properties it owns, management believes that the Partnership
liquidity remains in a good position. In October 1998, the Partnership
distributed accumulated cash to the partners in the amount of $775,000. The
Partnership has no debt and approximately $56,000 a month from rental revenue,
net of bad debts as of September 30, 1998. Management anticipates that rental
revenue should be enough to cover any Partnership expenses. Also, management
does not expect the Partnership to incur any significant operational expenses as
the Partnership properties are subject to triple-net leases.
Management anticipates that the Partnership's primary source of cash in 1998
will continue to come from rental of the real estate properties currently owned.
The Partnership is attempting to sell all its properties which would provide
additional cash for distribution. Management anticipates that rental revenue
will be sufficient to cover the operating expenses of the Partnership and allow
for cash distributions to be made to the limited partners. 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. Management expects
that the liquidity of the Partnership
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will change if properties are sold and/or excess cash is distributed to the unit
holders (partners).
The cash of the Partnership increased by $590,428 at September 30, 1998 when
compared to December 31, 1997. This increase was largely due to the receipt of
$689,760 in May 1998 relating to the property sold in Burnsville, Minnesota.
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 September 30, 1998 to the three months
ended September 30, 1997
Base rent decreased $48,497 or 23% from the previous year. The decrease was
primarily due to the sale in August 1997 of a building that was leased to
Kindercare, and to Toddle House Restaurant, which is bankrupt and no longer
being charged rents. These properties accounted for approximately $13,105 of
rents in the third quarter of 1997. In May 1998, the sale of a property leased
to Timberlodge accounted for approximately $17,991 of rents in the third quarter
1997. In September 1998, the sale of a property leased to Ponderosa Restaurant
accounted for approximately $23,453 in rents in the third quarter in 1997.
Interest income increased $5,411 or 24% over 1997 due to larger cash balances in
1998 than 1997 from proceeds relating to property sales before the funds were
distributed to the partners.
Operating expenses increased by $51,857 from the three months ended September
30, 1997 to the three months ended September 30, 1998. The net increase was
primarily due to the $49,518 increase in bad debt expense. This increase in bad
debt expense relates to reserves for Toddle House Restaurants, which is in
Chapter 11 Bankruptcy, but was being charged rents in 1997. In September 1997,
Ponderosa paid $85,000 to settle outstanding amounts which were previously
reserved for. As such net bad debt expense was a negative $52,042 in 1997.
Accounting and legal expenses decreased by $11,177 or 82%. This decrease is
primarily due to approximately $11,500 paid in legal fees in 1997 for Ponderosa
Restaurant. No such legal expenses were incurred in 1998. Property tax expense
increased by $20,812 or 100%. The increase is attributable to the Company paying
for the property taxes that would have been paid by the Ponderosa Restaurant and
Toddle House. Other expenses and other income varied very little between the two
accounting periods.
In 1998, the company recognized a loss of $108 relating to the sale of a vacant
building in Alton, Illinois that was formerly leased to Ponderosa Restaurant. In
1997, the Company recognized a gain of $17,593 relating to the sale of a
building leased to Kindercare in Indianapolis, Indiana.
Comparison of the nine months ended September 30, 1998 to the nine months ended
September 30, 1997
Base rent decreased $139,425 or 22% from the previous year. The decrease was
primarily due to the sale in August 1997 of a building that was previously
leased to Kindercare and to Toddle House Restaurant, which is bankrupt and no
longer being charged rents. These properties accounted for approximately $44,715
of rents in the first nine months of 1997 and none in 1998. In May 1998, the
sale of a property leased to Timberlodge accounted for approximately $30,201 of
rents in the nine months of 1998 and $52,506 of rents in 1997. In September
1998, the sale of a building formerly leased to Ponderosa Restaurant accounted
for approximately $70,360 of rents in 1997 and none in 1998.
Operating expenses decreased by $74,490 from the nine months ended September 30,
1997 to the nine months ended September 30, 1998. The net decrease was primarily
due to the $36,256 or 91% decrease in bad debts expense as discussed above. Bad
debt expense relating to the Ponderosa Restaurant and Toddle House totaled
$39,777 in 1997. Accounting and legal expense decreased by $46,327 or 83%. In
1997, the partnership paid $46,870 in legal fees relating to Ponderosa
Restaurant. Property tax expense increased by $20,812 or 100%. This increase is
attributable to the Company incurring property tax expenses that would have been
paid by the Ponderosa Restaurant and Toddle House. Other expenses and other
income varied very little between the two accounting periods. In 1998, the
company recognized a gain of $99,986 relating to the sale of two buildings. In
1997, the company recognized a gain
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of $17,593 relating to the sale of one property.
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.
CERTAIN CAUTIONARY STATEMENTS
Certain statements in this Form 10-Q are not historical fact and constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results of the Partnership to be materially different from historical results or
from any results expressed or implied by such forward-looking statements. Such
risk, uncertainties and other factors include, but are not limited to, the
following risks:
Economic Performance and Value of Properties Dependent on Many Factors. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climates, local conditions
such as an oversupply of space or reductions in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs.
Dependence on Rental Revenue from Real Property. Since substantially all of the
Partnership's income is derived from rental revenue from real property, the
Partnership's income and funds for distribution would be adversely affected if a
significant number of the Partnership's tenants were unable to meet their
obligations to the Partnership or if the Partnership were unable to lease a
significant amount of space in its buildings on economically favorable lease
terms. There can be no assurance that any tenant whose lease expires in the
future will renew such lease or that the Partnership will be able to re-lease
space on economically advantageous terms.
Illiquidity of Real Estate Investments. Equity real estate investments are
relatively illiquid and therefore tend to limit the ability of the Partnership
to vary its portfolio promptly in response to changes in economic or other
conditions.
Risk of Bankruptcy of Tenants. The bankruptcy or insolvency of a tenant would
have an adverse impact on the property affected and on the income produced by
such property. Under bankruptcy law, a tenant has the option of assuming
(continuing) or rejecting (terminating) any unexpired lease. If the tenant
assumes its lease with the Partnership, the tenant must cure all defaults under
the lease and provide the Partnership with adequate assurance of its future
performance under the lease. If the tenant rejects the lease, the Partnership's
claim for breach of the lease would (absent collateral securing the claim) be
treated as a general unsecured claim. The amount of the claim would be capped at
the amount owed for unpaid pre-petition lease payments unrelated to the
rejection, plus the greater of one years' lease payments or 15% of the remaining
lease payments payable under the lease (but not to exceed the amount of three
years' lease payments). At September 30, 1998, the Company had one tenant under
bankruptcy. The Company is attempting to sell or lease this property.
Environmental Risks. Under various federal, state and local laws, ordinances and
regulations, the Partnership may be considered an owner or operator of real
property or may have arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property or
disposed of by it, as well as certain other potential costs which could relate
to hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the
Partnership knew of, or was responsible for, the presence of such hazardous
toxic substances.
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PART II. OTHER INFORMATION
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: 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
The Partnership filed no reports on Form 8-K during the quarter ended
September 30, 1998.
SIGNATURES
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: November 12, 1998 EXCEL PROPERTIES, LTD.
(Registrant)
New Plan Excel Realty Trust, Inc.
(General Partner)
By: /s/ Gary B. Sabin
---------------------------------------------
Gary B. Sabin, President
By: /s/ David A. Lund
---------------------------------------------
David A. Lund, Principal Financial Officer
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