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TheProvoGroup
DiVall Insured Income Properties 2, L.P.
QUARTERLY NEWS
================================================================================
A publication of The Provo Group, Inc. FOURTH QUARTER 2002
- --------------------------------------------------------------------------------
January 31, 2003
Dear Limited Partner:
Our portfolio is experiencing some signs of stress due to the soft economy and
threats of war. However, we expect to substantially resolve most of these issues
within the first six months of 2003 (see page 2 for more details).
Fortunately, on an overall basis, our portfolio owns assets that should hold up
well even during periods of shrinking consumer demand. A case in point, our 10
Wendy's showed outstanding growth in sales during 2002. Sales overall grew in
excess of 10% and every store improved year-over-year.
We are planning another year of returns in excess of 9%.
Sincerely,
Bruce Provo
- --------------------------------------------------------------------------------
Distribution Highlights
.. $1,055,000 total amount distributed for the Fourth Quarter 2002 which is
$540,000 higher than originally projected because it included a "return of
capital" of $614,000.
.. $22.80 per unit (approx.) for the Fourth Quarter 2002, of this
approximately $13 was "return of capital".
.. $1,148 to $950 range of distributions per unit from the first unit sold to
the last unit sold before the offering closed (2/90) respectively.
(Distributions are from both cash flow from operations and "net" cash
activity from financing and investing activities).
See Inside
Property Highlights
New Leases & Sales..........................................................2
Litigation Issues...........................................................2
Questions & Answers............................................................3
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Page 2 DIVALL 2 4 Q 02
Property Highlights
New Leases & Sales
.. Former Hardee's (S. Milwaukee, WI). We have an executed contract with QSRE,
L.L.C. (operator of Pizza Hut, Taco Bell and KFC) for a purchase price of
$450,000. This property has been vacant since last November. We hope to
close on this sale during the First Quarter of 2003 and distribute the net
proceeds in the May 15, 2003 distribution.
.. Hostetler's (Des Moines, IA). This lease expired December 31, 2002. We are
currently negotiating a new lease with the subtenant of this property and
expect to finalize within 30 days.
.. Former Village Inn (Grand Forks, ND). We have been successful in finding a
new tenant. We agreed on a lease proposal and a new lease is being drawn
up. This store will be operated as a Chinese Buffet.
Litigation Issues
.. Mulberry Street Grill (Phoenix, AZ). As we previously reported, our tenant,
Mulberry Street Grill, vacated the property and filed bankruptcy. We
returned the property to the Ground Lessor, who released the property but
sued us for related leasing costs and ground rent. We filed our appeal with
the courts on September 11, 2002. The Partnership was required to escrow
$140,000 at the clerk of court during this appeal process. Management and
counsel for the Partnership continue to believe the merits of our case are
strong. Oral arguments will be heard by the appellate court on March 5,
2003. Unfortunately, the ground lessor's tenant has vacated, which clouds
mitigation claims by us. We may take possession of this property again to
assure appropriate leasing motivation.
.. Village Inn (Grand Forks, ND). This tenant vacated the property and ceased
paying rent, although the Lease does not expire until November 2009. The
defendant clearly defaulted on the terms of the Lease when they vacated the
premises and ceased paying rent prior to the expiration date of the Lease.
There will be a pre-trial conference on February 12, 2003 at which time a
date will be set for trial.
.. Denny's/Fiesta Time (Twin Falls, ID). Phoenix Foods, Inc. filed bankruptcy
and rejected this Lease. The Bankruptcy court approved that rejection on
November 6, 2001. Thus, the Lease and any subsequent subleases were
effectively terminated. Phoenix Food's subtenant, Fiesta Time, has not only
refused to vacate the premises, they have never paid us rent. We obtained a
court order to evict the sub-tenant which was affirmed on appeal on January
29, 2003. However, the sub-tenant has appealed the decision to the Idaho
Supreme Court and is still occupying the property. Fiesta Time is "playing"
the judicial system for all its worth and any rights of the Landlord are
being trampled.
.. Popeye's (Park Forest, IL) This tenant was delinquent at December 31, 2002
in the amount of $89,374. We have defaulted this tenant and the case was
scheduled for October 10, 2002. However, the tenant's attorney contacted us
in an effort to settle this matter outside of the courts. We offered this
tenant the ability to pay the past due percentage rent ($72,075 plus late
fees) in installments.
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TheProvoGroup
Page 3 DIVALL 2 4 Q 02
Questions & Answers
.. When can I expect my next distribution mailing?
Your distribution correspondence for the First Quarter of 2003 is scheduled
to be mailed on May 15, 2003.
.. When can I expect to receive my 2002 Schedule K-1?
The K-1's will be mailed on or before February 28, 2003.
.. When will the December 31, 2002 net asset value be calculated?
The revised net asset valuation will be ready sometime in mid-February
2003. The net asset valuation letters will be mailed on February 28, 2003.
.. When will we "vote" again to either liquidate or continue the Partnership?
The last proxy statement was sent in May 2001. In that mailing we advised
investors that we would send out a proxy every other year (in May).
Therefore, as promised a revised proxy will be sent out sometime in May
2003.
.. If I have questions or comments, how can I reach your office?
MAIL: Investor Relations, 101 W. 11th Street, Suite 1110
Kansas City, MO 64105
PHONE: 800-547-7686 OR (816) 421-7444 EXTENSION 224
FAX: (816) 221.2130
E-MAIL: mevans@theprovogroup.com
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TheProvoGroup
DIVALL INSURED INCOME PROPERTIES 2 L.P.
STATEMENTS OF INCOME AND CASH FLOW CHANGES
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 2002.
PROJECTED ACTUAL VARIANCE
---------- ----------- ---------
4TH 4TH
QUARTER QUARTER BETTER
OPERATING REVENUES 12/31/2002 12/31/2002 (WORSE)
---------- ----------- ---------
Rental income $ 827,824 $ 820,768 ($7,056)
Interest income 9,000 5,133 (3,867)
Gain on sale of asset 0 142,939 142,939
Other income 0 1,840 1,840
--------- ----------- ---------
TOTAL OPERATING REVENUES $ 836,824 $ 970,680 $ 133,856
--------- ----------- ---------
OPERATING EXPENSES
Insurance $ 6,612 $ 7,991 ($1,379)
Management fees 49,533 49,875 (342)
Overhead allowance 3,996 4,028 (32)
Advisory Board 2,189 2,188 2
Administrative 6,388 9,873 (3,485)
Professional services 10,847 11,646 (799)
Auditing 14,350 28,750 (14,400)
Legal 6,000 24,305 (18,305)
Property Expenses 39,100 32,356 6,744
--------- ----------- ---------
TOTAL OPERATING EXPENSES $ 139,015 $ 171,012 ($31,997)
--------- ----------- ---------
INVESTIGATION AND RESTORATION EXPENSES $ 0 $ 135 ($135)
--------- ----------- ---------
NON-OPERATING EXPENSES
Uncollectible Receivable $ 0 $ 39,080 ($39,080)
Depreciation 86,100 76,659 9,441
Amortization 3,563 11,335 (7,772)
Commissions paid on sale of property 0 18,540 (18,540)
Judgement Expense 0 0 0
--------- ----------- ---------
TOTAL NON-OPERATING EXPENSES $ 89,663 $ 145,615 ($55,952)
--------- ----------- ---------
TOTAL EXPENSES $ 228,678 $ 316,763 ($88,085)
--------- ----------- ---------
NET INCOME $ 608,146 $ 653,918 $ 45,772
OPERATING CASH RECONCILIATION: VARIANCE
---------
Depreciation and amortization 89,663 87,995 (1,668)
Recovery of amounts previously written off 0 (1,115) (1,115)
Gain on sale of asset 0 (142,939) (142,939)
(Increase) Decrease in current assets (368,009) (355,227) 12,782
Increase (Decrease) in current liabilities 24,684 144,075 119,391
(Increase) Decrease in cash reserved for payables 27,177 (146,690) (173,867)
Current cash flows advanced from (reserved for) future distributions 191,450 191,450 0
--------- ----------- ---------
Net Cash Provided From Operating Activities $ 573,112 $ 431,468 ($141,644)
--------- ----------- ---------
CASH FLOWS (USED IN) FROM INVESTING AND FINANCING ACTIVITIES
Indemnification Trust (Interest earnings reinvested) (4,500) (1,521) 2,979
Leasing Commissions paid 0 0 0
Security Deposits 0 9,568 9,568
Net sale proceeds from sale of property 0 612,999 612,999
Recovery of amounts previously written off 0 1,115 1,115
--------- ----------- ---------
Net Cash (Used In) From Investing And Financing Activities ($4,500) $ 622,161 $ 626,661
--------- ----------- ---------
Total Cash Flow For Quarter $ 568,612 $ 1,053,628 $ 485,016
Cash Balance Beginning of Period 972,160 725,380 (246,780)
Less 3rd quarter distributions paid 11/02 (515,000) (365,000) 150,000
Change in cash reserved for payables or future distributions (218,627) (44,760) 173,867
--------- ----------- ---------
Cash Balance End of Period $ 807,145 $ 1,369,248 $ 562,103
Cash reserved for 4th quarter L.P. distributions (515,000) (1,055,000) (540,000)
Cash reserved for payment of accrued expenses (229,843) (261,736) (31,893)
Cash advanced from (reserved for) future distributions 0 0 0
--------- ----------- ---------
Unrestricted Cash Balance End of Period $ 62,302 $ 52,512 ($9,790)
========= =========== =========
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PROJECTED ACTUAL VARIANCE
---------- ----------- ---------
* Quarterly Distribution $ 515,000 $ 1,055,000 $ 540,000
Mailing Date 02/15/2003 (enclosed) --
* Refer to distribution letter for detail of quarterly distribution.
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TheProvoGroup
PROJECTIONS FOR
DISCUSSION PURPOSES
DIVALL INSURED INCOME PROPERTIES 2 LP
2002 PROPERTY SUMMARY
AND RELATED RECEIPTS
PORTFOLIO (Note 1)
---------------------------
REAL ESTATE
---------------------------
ANNUAL
- -------------------------------------------- BASE %
CONCEPT LOCATION COST RENT YIELD
- -------------------------------------------- ---------------------------
APPLEBEE'S COLUMBUS, OH 1,059,465 135,780 12.82%
BLOCKBUSTER OGDEN, UT 646,425 99,000 15.32%
DENNY'S PHOENIX, AZ 972,726 65,000 6.68%
CHINESE RESTAURANT (7)(10) PHOENIX, AZ 865,900 37,500 4.33%
(FORMERLY DENNY'S)
VACANT TWIN FALLS, ID 699,032 0 0.00%
VACANT (11) S MILWAUKEE, WI 808,032 0 0.00%
SOLD (3)(9) HARTFORD, WI 686,563 48,000 6.99%
HARDEE'S (3)(6) FOND DU LAC, WI 849,767 88,000 10.36%
HOOTER'S R. HILLS, TX 1,246,719 95,000 7.62%
VACANT (12) DES MOINES, IA 845,000 60,000 7.10%
KFC SANTA FE, NM 451,230 60,000 13.30%
MIAMI SUBS (8) PALM BEACH, FL 743,625 55,500 7.46%
- -------------------------------------------- ---------------------------
- ---------------------------------------- -----------------------------
EQUIPMENT TOTALS
- ---------------------------------------- -----------------------------
LEASE ANNUAL
EXPIRATION LEASE % ANNUAL
DATE COST RECEIPTS RETURN COST RECEIPTS RETURN
- ---------------------------------------- -----------------------------
84,500 0 0.00% 1,143,965 135,780 11.87%
646,425 99,000 15.32%
183,239 0 0.00% 1,155,965 65,000 5.62%
221,237 0 0.00% 1,087,137 37,500 3.45%
190,000 0 0.00% 889,032 0 0.00%
808,032 0 0.00%
686,563 48,000 6.99%
(2) 290,469 0 0.00% 1,140,236 88,000 7.72%
1,246,719 95,000 7.62%
52,813 0 0.00% 897,813 60,000 6.68%
451,230 60,000 13.30%
743,625 55,500 7.46%
- ---------------------------------------- -----------------------------
Note 1: This property summary includes only property and equipment held by the
Partnership during 2002.
2: The lease was terminated and the equipment sold to Hardee's Food
Systems in conjunction with their assumption of the Terratron leases
in November 1996.
3: These leases were assumed by Hardee's Food Systems at a reduced rental
rate from that stated in the original leases.
4: The lease with Hardee's Food Systems was terminated as of April 30,
2001. A new lease with Omega Restaurants was negotiated and monthly
rent commmenced in October 2001.
5: The tenant vacated the property in February 2002, however, Village Inn
remains liable until a lease termination agreement is executed.
6: Management received notice that Hardee's Food Systems closed this
restaurant in April 2002. Hardee's will remain liable until a lease
termination agreement is executed.
7: Due to the rejection of the Phoenix Restaurant Group, Inc. lease by
the Bankruptcy Court in the Fourth Quarter of 2001, the sublessee
chose not to continue to lease the property. Rent charges ceased as of
May 31, 2002.
8: Management agreed to reduce Miami Sub's monthly rent from $5,000 to
$4,000 for the months of July - October 2002. A new lease was executed
as of November 1, 2002 with rent of $4,500 per month.
9: The property was sold in early October 2002 at a sale price of
$618,000.
10: A new lease has been accepted at the vacant N. 7th property. The new
tenant obtained possession of the property in August 2002 and monthly
rent of $5,500 begins in January 2003.
11: A contract was executed in the Fourth Quarter of 2002 for the sale of
the property in the First Quarter of 2003 at a sale price of $450,000.
12: Hostetler's lease expired on December 31, 2002 and the former tenant
did not renew its lease on the property.
Page 1 of 2
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PROJECTIONS FOR
DISCUSSION PURPOSES
DIVALL INSURED INCOME PROPERTIES 2 LP
2002 PROPERTY SUMMARY
AND RELATED RECEIPTS
PORTFOLIO (Note 1)
------------------------------
REAL ESTATE
------------------------------
ANNUAL
- --------------------------------------- BASE %
CONCEPT LOCATION COST RENT YIELD
- --------------------------------------- ------------------------------
OMEGA RESTAURANT (4) MILWAUKEE, WI 1,010,045 84,840 8.40%
" " " "
" " " "
POPEYE'S PARK FOREST, LL 580,938 77,280 13.30%
SUNRISE PS PHOENIX, AZ 1,084,503 123,318 11.37%
VILLAGE INN (5) GRAND FORKS, ND 739,375 96,600 13.07%
WENDY'S AIKEN, SC 633,750 90,480 14.28%
WENDY'S CHARLESTION, SC 580,938 77,280 13.30%
WENDY'S N. AUGUSTA, SC 660,156 87,780 13.30%
WENDY'S AUGUSTA, GA 728,813 96,780 13.28%
WENDY'S CHARLESTON, SC 596,781 76,920 12.89%
WENDY'S AIKEN, SC 776,344 96,780 12.47%
WENDY'S AUGUSTA, GA 649,594 86,160 13.26%
WENDY'S CHARLESTON, SC 528,125 70,200 13.29%
WENDY'S MT. PLEASANT, SC 580,938 77,280 13.30%
WENDY'S MARTINEZ, GA 633,750 84,120 13.27%
- --------------------------------------- ------------------------------
- --------------------------------------- ------------------------------
PORTFOLIO TOTALS 19,658,534 1,969,598 10.02%
- --------------------------------------- ------------------------------
- ------------------------------------------ -------------------------------
EQUIPMENT TOTALS
- ------------------------------------------ -------------------------------
LEASE ANNUAL
EXPIRATION LEASE % TOTAL
DATE COST RECEIPTS RETURN COST RECEIPTS RETURN
- ------------------------------------------ -------------------------------
260,000 0 0.00% 1,421,983 84,840 5.97%
151,938 0 0.00%
780,000 0 0.00% 780,000 0 0.00%
580,938 77,280 13.30%
79,219 0 0.00% 1,182,735 123,318 10.43%
19,013 0 0.00%
739,375 96,600 13.07%
633,750 90,480 14.28%
580,938 77,280 13.30%
660,156 87,780 13.30%
728,813 96,780 13.28%
596,781 76,920 12.89%
776,344 96,780 12.47%
649,594 86,160 13.26%
528,125 70,200 13.29%
580,938 77,280 13.30%
633,750 84,120 13.27%
- ------------------------------------------ -------------------------------
- ------------------------------------------ -------------------------------
2,312,428 0 0.00% 21,970,962 1,969,598 8.96%
- ------------------------------------------ -------------------------------
Note 1: This property summary includes only property and equipment held by the
Partnership during 2002.
2: The lease was terminated and the equipment sold to Hardee's Food
Systems in conjunction with their assumption of the Terratron leases
in November 1996.
3: These leases were assumed by Hardee's Food Systems at a reduced rental
rate from that stated in the original leases.
4: The lease with Hardee's Food Systems was terminated as of April 30,
2001. A new lease with Omega Restaurants was negotiated and monthly
rent commmenced in October 2001.
5: The tenant vacated the property in February 2002, however, Village Inn
remains liable until a lease termination agreement is executed.
6: Management received notice that Hardee's Food Systems closed this
restaurant in April 2002. Hardee's will remain liable until a lease
termination agreement is executed.
7: Due to the rejection of the Phoenix Restaurant Group, Inc. lease by
the Bankruptcy Court in the Fourth Quarter of 2001, the sublessee
chose not to continue to lease the property. Rent charges ceased as of
May 31, 2002.
8: Management agreed to reduce Miami Sub's monthly rent from $5,000 to
$4,000 for the months of July - October 2002. A new lease was executed
as of November 1, 2002 with rent of $4,500 per month.
9: The property was sold in early October 2002 at a sale price of
$618,000.
10: A new lease has been accepted at the vacant N. 7th property. The new
tenant obtained possession of the property in August 2002 and monthly
rent of $5,500 begins in January 2003.
11: A contract was executed in the Fourth Quarter of 2002 for the sale of
the property in the First Quarter of 2003 at a sale price of $450,000.
12: Hostetler's lease expired on December 31, 2002 and the former tenant
did not renew its lease on the property.
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