SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-K

 

ANNUAL REPORT UNDER SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

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

 

 

Indicate by check mark whether the registrant in an accelerated filer (as defined in Exchange Act Rule 12b-2).

 

Yes o  No ý

 

 

PART I

 

ITEM 1.          DESCRIPTION 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”), 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.

 

ITEM 2.          PROPERTIES

 

The Partnership presently owns two properties as follows:

 

Paragon Restaurant Group, Inc., Mountain Jack’s Restaurant - Lafayette, Indiana

 

This property was acquired September 29, 1987 is located at 2411 State Road 26 East, Lafayette, Indiana.  Lafayette is located between Chicago, Illinois to the north and Indianapolis, Indiana to the south.  The property is situated on 1.72 acres, contains 8,274 gross square feet.  The annual lease payment is the greater of $107,800 or 5% of the gross sales.  The lease expires on September 28, 2005.  In 2002, Paragon Steakhouse filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.

 

Autoworks - Bellevue, Nebraska

 

This property was acquired on July 5, 1988 is located at a shopping center at 915 Fort Crook Road, Bellevue, Nebraska, a suburb of Omaha, Nebraska.  The improvements consist of a free standing concrete block and glass building containing 4,870 square feet.  The base minimum annual rent is $87,058 per year with scheduled rental increases occurring every third year of the lease based on increases in the Consumer Price Index not to exceed a 10% increase.  The lease expires on July 5, 2008.

 

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ITEM 3.                             LEGAL PROCEEDINGS

 

None.

 

ITEM 4.                             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable.

 

ITEM 5.                             MARKET FOR REGISTRANT’S LIMITED PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS

 

A)       A public market for the Partnership’s units does not exist.

 

B)       As of December 31, 2002, there were 1,589 investors holding 135,199 units.

 

C)                      The Partnership made its first cash flow distribution from operations in May 1987.  Since that date, cash distributions have been made at the end of each calendar quarter through December 31, 2001.  In 2002, the Partnership decided to make cash distributions on an annual basis or upon a capital event, which generates excess cash available for distribution.

 

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PART II

 

ITEM 6.          SELECTED FINANCIAL DATA

 

The following information has been selected from the financial statements of the Partnership:

 

INCOME STATEMENT DATA

 

		2002			2001			2000			1999			1998
Total rental revenue		$	286,895		$	493,522		$	532,483		$	598,103		$	670,691
Interest and other income		68,673			91,833			102,066			120,217			119,518
Operating expenses:
Property expenses		2,825			6,788			(21,612		)	37,234			32,240
General and administrative		98,774			60,282			88,935			46,763			49,893
Depreciation		48,673			78,209			89,582			98,669			126,485
Net income before real estate sales		205,295			440,076			477,644			535,654			581,591
Gain on sale of real estate		108,181			727,913			—			389,300			99,986
Net income		$	313,476		$	1,167,989		$	477,644		$	924,954		$	681,577
Per Unit Data:
Net income		2.29			8.64			3.49			6.77			4.71
Distributions		5.49			14.89			4.47			16.83			15.05
BALANCE SHEET DATA
Net real estate		1,212,012			1,852,504			3,182,259			3,271,841			4,452,546
Cash		1,181,015			917,409			265,054			289,446			412,033
Accounts receivable, net		8,983			12,584			11,184			2,222			8,998
Total assets		3,264,141			3,719,495			4,595,140			4,717,775			6,041,019
Total liabilities		466			19,294			49,926			46,172			19,369
Partners’ equity		3,263,675			3,700,201			4,545,214			4,671,603			6,021,650

 

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ITEM 7.                             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

Results of Operations

 

Certain statements in this Form 10-K may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended.  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.

 

The following discussion should be read in conjunction with the financial statements and the notes thereto.  Historical results and percentage relationships set forth in the Statements of Income contained in the Financial Statements, including trends which might appear, should not be taken as indicative of future operations.

 

Comparison of year ended December 31, 2002 to year ended December 31, 2001.

 

The net income of the Partnership decreased by $854,513 in 2002 when compared to 2001.  The differences in income and expenses are explained below.

 

Rental revenue decreased by $206,627 or 42% to $286,895 in 2002 from $493,522 in 2001.  The decrease in rental revenue was primarily attributed to the property sales in 2002 and 2001. In 2001, the Partnership sold five properties throughout the year which contributed $197,672 of rental revenue in 2001 and $0 in 2002.  In December 2002, the Partnership sold another property which decreased rents by $4,357 in 2002.

 

Interest income decreased $23,160 or 25% over 2001.  This decrease was mostly due to lower interest rates on cash balances and notes repaid in 2001.

 

Operating expenses increased by $4,994 or 3% in 2002 from 2001. Depreciation expense decreased by $29,536 or 38% due primarily to property sales in 2001.  Accounting and legal expenses decreased by $8,443 due to minimal legal matters in 2002.  Bad debt expense was $50,000 in 2002 compared to $1,987 in 2001. The bad debt expense in 2002 related to a $50,000 note receivable.  The obligor has stopped making payments and has declared bankruptcy.  As such, the partnership has reserved against the full note. Other expenses and other income varied very little between the two accounting periods.

 

Comparison of year ended December 31, 2001 to year ended December 31, 2000.

 

The net income of the Partnership increased by $690,345 in 2001 when compared to 2000.  The differences in income and expenses are explained below.

 

Rental revenue decreased by $38,961 or 7% to $493,522 in 2001 from $532,483 in 2000.  The decrease in rental revenue was primarily attributed to the property sales in 2001.  During 2001, the Partnership sold five properties.  These properties accounted for $247,023 in rental revenue in 2000 as compared to $197,672 in 2001.  There were no property sales in 2000.

 

Interest income decreased $10,233 or 10% over 2000.  This decrease was largely due to cash balances from proceeds relating to the 2000 property sales before the funds were distributed to the partners, and the decrease of interest rates paid on the bank accounts balances.

 

Operating expenses decreased by $11,626 or 7% in 2001 from 2000.  Of this, depreciation expense decreased by $11,373 or 13% due to property sales in 2001.  Accounting and legal expenses decreased by $26,523 or 39% due to legal matters related to the transfer and ownership of certain partnership units in 2000.  Bad debt expense

 

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increased by $28,955 as compared to 2000.  The increase in bad debt expense relates to a reversal of expense in 2000 for rents collected that were previously written off.  In 2001, the Partnership wrote off $1,987 in finance charges that were assessed in 2000.  Other expenses and other income did not significantly change between the two accounting periods.

 

In December 2002, the Partnership sold a building in Ann Arbor, Michigan that was on lease to Ponderosa Restaurant.  The sales price of the building was $700,000 and a $108,181 gain was recognized on the sale.  During 2001, the Partnership sold five properties.  Gains from sales of properties accounted for $727,913 of net income.  In April 2001, the Partnership sold a building in West Carrollton, Ohio that was formerly on lease to Kindercare.  The net sale price for the building was $283,333 and a $148,012 gain was recognized on the sale.  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.  In September 2001, the Partnership sold two properties.  The building in Columbus, Ohio was on lease to South Eastern Education.  The sale prices was $253,000.  The building in Middleberg, Ohio was on lease to Mountain Jack’s.  The sale price was $900,000. The Partnership recognized a gain of $123,231and $149,014, respectively, on the September sales.  In December 2001, the Partnership sold two buildings that were on lease to Kindercare.   The sale price on the building in Dayton, Ohio was  $283,333.    The Partnership recognized a gain of $151,817 on the sale. The sale price on the building in Indianapolis, Indiana was  $283,333.  The Partnership recognized a gain of $135,550 on the sale.  There were no property sales in 2000.

 

Liquidity and Capital Resources

 

The Partnership has  $1,181,015 in cash at December 31 2002, with no debt on any of the properties it owns.  The Partnership currently recognizes approximately $16,788 a month from rental revenue.  In 2003, the Partnership distributed cash of $900,000.  Management does not expect the Partnership to incur any significant operational expenses as the Partnership properties are subject to triple-net leases.

 

At December 31, 2002, the Partnership had $906,817 outstanding in notes receivable.  One note has a balance due of $165,750.  Although the note bears interest at 10%, the Partnership has not recognized any interest income from the note since no interest payments have been made.  The note is secured by land located in Las Vegas, Nevada.  Another note has a balance outstanding of $50,000 Steakhouse Partners, Inc. The obligor has stopped making interest payments on this note and has filed bankruptcy.  The Partnership has reserved against the collectibility of this note.  One of the Partnership’s tenants, Paragon Steakhouse, is a subsidiary of Steakhouse Partners.  At December 31, 2002, Paragon Steakhouse was current with their rent.

 

The Partnership’s primary source of cash is from rental of the two 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 is attempting to sell these properties which would provide cash for distribution.   Prior to 2002, the Partnership has paid 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, as only two properties remain.  The Partnership may pay additional distributions if it receives cash from a significant capital event.  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 two 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, proceeds will be distributed to the partners instead of reinvested, and future distributions are expected to decrease. Once all the assets are sold, there will no longer be any cash flows for distributions.

 

Inflation is not expected to negatively impact the operations of the Partnership due to the structure of its

 

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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.

 

Critical Accounting Policies and Estimates

 

General

 

The financial statements including in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).  Preparation of our financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related notes.  The Partnership believes that the following accounting policies are critical because they affect the more significant judgments and estimates used in the preparation of our financial statements.  Actual results may differ from these estimates under different assumptions or conditions.  For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Notes to Financial Statements in this Form 10-K.

 

Revenue Recognition

 

Recognition of revenue is dependent upon the quality and ability of the tenants to pay their rent in a timely manner.  Rental revenues include minimum annual rentals, adjusted for the straight-line method for the recognition of fixed future increases.  Gain or loss on sale of real estate is recognized when the sales contract is executed, title has passed, payment is received, and the Partnership no longer has continuing involvement in the asset.

 

Real Estate Assets

 

Real estate assets are recorded at historical costs and adjusted for recognition of impairment losses.  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 reviews long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered.  We consider assets to be impaired and write them down to fair value if their expected associated future undiscounted cash flows are less than their carrying amounts.

 

Asset Disposal

 

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  SFAS No. 144 addresses financial accounting for the impairment or disposal of long-lived assets and is effective in fiscal years beginning after December 15, 2001.  The Partnership adopted this statement but had no discontinued operations in 2002.

 

Certain Cautionary Statements

 

Certain statements in this Annual Report on Form 10-K, 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

 

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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.  Such risks, 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, if the Partnership were unable to lease a significant amount of space in its buildings on economically favorable lease terms, or as the properties are sold.  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). In February, 2002, Paragon Steakhouse, one of the Partnership’s two remaining tenants at December 31, 2002, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.

 

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.

 

Item 7A.               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 December 31, 2002.

 

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Item 7B.            Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Within 90 days prior to the date of this annual report, we carried out an evaluation, under the supervision and with the participation of our management, including our General Partner and Principal Accounting Officer, of the effectiveness of the design and operation of the company’s disclosure controls and procedures.  Based on the foregoing, our General Partner and Principal Accounting Officer concluded that the Partnership’s disclosure controls and procedures were effective.

 

There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.

 

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The Partnership is filing as part of this report, its financial statements which contain the following:

 

1)	Report of Independent Accountants
2)	Balance Sheets December 31, 2002 and 2001
3)	Statements of Income Years Ended December 31, 2002, 2001 and 2000
4)	Statements of Changes in Partners’ Equity Years Ended December 31, 2002, 2001 and 2000
5)	Statements of Cash Flows Years Ended December 31, 2002, 2001 and 2000
6)	Notes to Financial Statements
7)	Financial Statement Schedules:
	II -	Valuation and Qualifying Accounts Years Ended December 31, 2002, 2001 and 2000
	III -	Real Estate and Accumulated Depreciation December 31, 2002

 

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PART III

 

ITEM 10.                      GENERAL PARTNERS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP

 

The general partners of the Partnership are New Plan Excel Realty Trust, Inc., a Maryland corporation (“New Plan”), and Gary B. Sabin. 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.  Neither Gary B. Sabin nor the executive officers of the company receive compensation from the Partnership. The Company has indemnified New Plan of any general partner liability in exchange for an assignment of their partnership interest.  The General Partner and the officers and employees of the Company spend such time in the administration of Partnership affairs to the extent deemed necessary.

 

The names, ages and positions of responsibility held by the executive officers of the Company who spend time in the Partnership affairs are as follows:

 

Name		Age		Position
Gary B. Sabin		48		President and Co-chairman of the Board
Graham R. Bullick, Ph.D		52		President and Chief Operating Officer
Richard B. Muir		47		Vice Chairman and Director
Mark T. Burton		42		Senior Vice President
James Y. Nakagawa		37		Chief Financial Officer
S. Eric Otteson		47		Senior Vice President
John Visconsi		58		Senior Vice President

 

Family Relationships

 

Not Applicable.

 

Business Experience

 

The following is a brief background of the directors and executive officers of the Company.

 

Gary B. Sabin has served as Chief Executive Officer, President and Chairman of the Board of Directors since January 1989.  He is a graduate of Brigham Young University and Stanford University’s Graduate School of Business where he received a master’s degree as a Sloan Fellow.  Mr. Sabin has extensive experience in the financial services industry with emphasis in the areas of commercial real estate and marketable securities.

 

Graham R. Bullick, Ph.d.  has served as President and Chief Operating Officer of the Company since September 2001. Mr. Bullick served as Senior Vice President — Capital Markets of the Company since November 1999 and in the same position with Excel Legacy since its formation. Mr. Bullick served as Senior Vice President — Capital Markets of Excel Realty Trust and then New Plan Excel from January 1991 to April 1999. Previously, Mr. Bullick was associated with Excel Realty Trust as a Director from 1991 to 1992. From 1985 to 1991, Mr. Bullick served as Vice President and Chief Operations Officer for a real estate investment firm, where his responsibilities included acquisition and financing of investment real estate projects.

 

Richard B. Muir has served as Vice Chairman of the Company since September 2001 and Executive Vice President, Secretary and Director of New Plan and/or the Company since January 1989.  Mr. Muir has worked extensively in the field of commercial real estate, developing expertise in real estate acquisition, property management, leasing and project financing.

 

Mark T. Burton has served as Vice President of New Plan and /or the Company since January 1989 and as a Senior Vice President since January 1996.  Mr. Burton’s duties for the Company primarily consist of the

 

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evaluation and selection of property acquisitions and dispositions.  Mr. Burton has served in various capacities with other affiliated companies since 1984.

 

James Y. Nakagawa has served as Chief Financial Officer of the Company since October 1998.  Prior to March 1998 to October 1998, Mr. Nakagawa served as Controller of the Company since its formation.  Mr. Nakagawa served as Controller of New Plan from September 1994 to April 1999.  Prior to joining New Plan, Mr. Nakagawa was a manager at Coopers & Lybrand LLP.  He is a certified public accountant.

 

S. Eric Otteson has served as Senior Vice President , General Counsel and Assistant Secretary since the Company’s formation.  Mr. Otteson served as Senior Vice President - Legal Affairs and Secretary of New Plan Excel from September 1998 to April 1999.  Mr. Otteson also served as Senior Vice President, General Counsel and Assistant Secretary of Excel Realty Trust from September 1996 to September 1998.  From 1987 to 1995, he was a senior partner in a San Diego law firm.

 

John A. Visconsi has served as Legacy’s Senior Vice President -Leasing/Asset Management since May 1999.  Mr. Visconsi served as Vice President - Leasing with Excel Realty Trust and then New Plan Excel from January 1995 to April 1999.  He also served as Senior Vice President of Price Enterprises from January 1994 to March 1995.  From 1981 to 1994, Mr. Visconsi was Director of Leasing and Land Development of Ernest W. Hahn, Inc.

 

ITEM 11.                      EXECUTIVE COMPENSATION

 

The Partnership has no executive officers and has not paid nor proposes to pay any compensation or retirement benefits to the directors or executive officers of New Plan or the Company.  See ITEM 13 for compensation to the general partner.

 

ITEM 12.                      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

No person is known by the Partnership to be the beneficial owner of more than 5% of the limited partner units.  The following information sets forth the number of units owned directly or indirectly by affiliates.

 

Title of Class		Beneficial Owner		Number of Units		Percent of Units at 12/31/01
Units of Limited Partnership Interest		Gary B. Sabin		None		None
Units of Limited Partnership Interest		Price Legacy Corporation		853		0.631	%

 

ITEM 13.                      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The table below reflects compensation paid to the Company, or their affiliates during the years ended December 31, 2002, 2001, and 2000:

 

Description		2002			2001			2000
Management fees		$	2,825		$	4,801		$	5,356
Administrative fees		10,800			10,800			10,800
Accounting		6,480			6,480			6,480

 

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ITEM 14 – Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Within 90 days prior to the date of this Form 10-K, the Partnership carried out an evaluation of the effectiveness of the design and operation of the its disclosure controls and procedures.  Based on the foregoing, it was concluded that the partnership’s disclosure controls and procedures were effective.

 

There have been no significant changes in the Partnership’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date that the evaluation was completed.

 

ITEM 15.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

 

	(A)	Documents filed as part of this report:
		(1) (2)	Financial statements under Item 8 in Part II hereof.
		(3)	Exhibits: None
	(B)	Reports on Form 8-K
		No reports on Form 8-K have been filed during the past year.

 

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SIGNATURES

 

Pursuant to the requirement of Section 13 or 15(d) 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.

 

 

	Date: March 21, 2003	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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CERTIFICATIONS

 

I, Gary B. Sabin, certify that:

 

1.                    I have reviewed this annual report on Form 10-K of Excel Property Ltd.;

 

2.                    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3.                    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4.                    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)      designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)                 evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

 

c)                  presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.                    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors, and managers:

 

a)                  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)                 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.                    The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:	March 21, 2003
			/s/ Gary B. Sabin
				Gary B. Sabin
				General Partner

 

14

 

I, James Y. Nakagawa, certify that:

 

1.                    I have reviewed this annual report on Form 10-K of Excel Property Ltd.;

 

2.                    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3.                    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4.                    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)                  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)                 evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

 

c)                  presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.                    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors, and managers:

 

a)                  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)                 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.                    The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:	March 21, 2003
			/s/ James Y. Nakagawa
				James Y. Nakagawa
				Principal Accounting Officer

 

15

 

INDEX TO FINANCIAL STATEMENTS

 

1.   FINANCIAL STATEMENTS:
	Report of Independent Accountants - Squire & Company, PC.
	Balance Sheets December 31, 2002 and 2001
	Statements of Income Years Ended December 31, 2002, 2001 and 2000
	Statements of Changes in Partners’ Equity Years Ended December 31, 2002, 2001 and 2000.
	Statements of Cash Flows Years Ended December 31, 2002, 2001 and 2000
	Notes to Financial Statements
2.   FINANCIAL STATEMENT SCHEDULES:
	Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 2002, 2001 and 2000
	Schedule III - Real Estate and Accumulated Depreciation December 31, 2002

 

F-1

 

REPORT OF INDEPENDENT ACCOUNTANTS

 

 

To the Partners of

Excel Properties, Ltd.

 

We have audited the accompanying balance sheets of Excel Properties, Ltd., as of December 31, 2002 and 2001, and the related statements of income, changes in partners’ equity, and cash flows for each of the three years in the period ended December 31, 2002.  These financial statements are the responsibility of the Partnership’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Excel Properties, Ltd., as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

 

Our audits were made for the purposes of forming an opinion on the basic financial statements taken as a whole.  Financial statement Schedules II and III are presented for the purpose of additional analysis and are not a required part of the basic financial statements.  Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

 

SQUIRE & COMPANY PC

 

February 13, 2003

Orem, Utah

 

F-2

 

EXCEL PROPERTIES, LTD.

 

BALANCE SHEETS

December 31, 2002 and 2001

 

		2002			2001
ASSETS
Real estate:
Land		$	599,460		$	979,270
Buildings		1,169,216			1,549,025
Less:  accumulated depreciation		(556,664		)	(675,791		)
Net real estate		1,212,012			1,852,504
Cash		1,181,015			917,409
Accounts receivable, less allowance for bad debts of $0 at December 31, 2002 and 2001		8,983			12,584
Notes receivable, net of allowance of $50,000 at December 31, 2002		856,817			930,290
Interest receivable		4,895			6,596
Other assets		419			112
Total assets		$	3,264,141		$	3,719,495
LIABILITIES AND PARTNERS’ EQUITY
Liabilities:
Accounts payable:
Affiliates		$	238		$	18,677
Other		228			617
Total liabilities		466			19,294
Partners’ Equity:
General partner’s equity		17,035			20,914
Limited partners’ equity, 235,308 units authorized, 135,199 units issued and outstanding		3,246,640			3,679,287
Total partners’ equity		3,263,675			3,700,201
Total liabilities and partners’ equity		$	3,264,141		$	3,719,495

 

The accompanying notes are an integral part of the financial statements

 

F-3

 

EXCEL PROPERTIES, LTD.

 

STATEMENTS OF INCOME

For the Years Ended December 31, 2002, 2001, and 2000

 

		2002			2001			2000
Revenue:
Rental Income		$	286,895		$	493,522		532,483
Interest and other income		68,673			91,833			102,066
Total revenue		355,568			585,355			634,549
Operating Expenses:
Depreciation		48,673			78,209			89,582
Accounting and legal		32,792			41,235			67,758
Administrative		10,800			10,800			10,800
Office expenses		5,183			8,247			10,377
Management fees		2,825			4,801			5,356
Bad debts		50,000			1,987			(26,968		)
Total operating expenses		150,273			145,279			156,905
Net income before real estate sales		205,295			440,076			477,644
Gain - sales of real estate		108,181			727,913			—
Net income		$	313,476		$	1,167,989		$	477,644
Net income allocated to:
General partner		$	3,621		$	12,462		$	5,672
Limited partners		309,855			1,155,527			471,972
Total		$	313,476		$	1,167,989		$	477,644
Net income per weighted average limited partnership unit		$	2.29		$	8.55		$	3.49

 

The accompanying notes are an integral part of the financial statements

 

F-4

 

EXCEL PROPERTIES, LTD.

 

STATEMENTS OF CHANGES IN PARTNERS’ EQUITY

For the Years Ended December 31, 2002, 2001, and 2000

 

		General Partners			Limited Partners			Total
Balance at January 1, 2000		$	28,950		$	4,642,653		$	4,671,603
Net Income - 2000			5,672			471,972			477,644
Partner distributions - 2000		(6,040		)	(597,993		)	(604,033		)
Balance at December 31, 2000		28,582			4,516,632			4,545,214
Net Income - 2001		12,462			1,155,527			1,167,989
Partner distributions - 2001		(20,130		)	(1,992,872		)	(2,013,002		)
Balance at December 31, 2001		20,914			3,679,287			3,700,201
Net income - 2002		3,621			309,855			313,476
Partner distributions - 2002		(7,500		)	(742,502		)	(750,002		)
Balance at December 31, 2002		$	17,035		$	3,246,640		$	3,263,675

 

The accompanying notes are an integral part of the financial statements

 

F-5

 

EXCEL PROPERTIES, LTD.

 

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2002, 2001, and 2000

 

		2002			2001			2000
Cash flows from operating activities:
Net income		$	313,476		$	1,167,989		$	477,644
Adjustments to reconcile net income to net cash provided by operations:
Depreciation		48,673			78,209			89,582
Allowance for doubtful accounts		50,000			—			(26,968		)
Gain on sale of real estate		(108,181		)	(727,913		)	—
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable		3,602			(1,400		)	18,006
Interest receivable		1,701			5,695			(6,654		)
Other assets		(308		)	2,381			(2,493		)
Increase (decrease) in liabilities:
Accounts payable		(18,828		)	(15,118		)	12,184
Property Taxes Payable		—			—			(5,174		)
Deferred rental income		—			(15,514		)	(3,256		)
Net cash provided by operating activities		290,135			494,329			552,871
Cash flows from investing activities:
Proceeds from real estate sales		700,000			1,929,459			—
Collection of notes receivable		23,473			241,569			26,770
Net cash provided by investing activities		723,473			2,171,028			26,770
Cash flows from financing activities:
Cash distributions		(750,002		)	(2,013,002		)	(604,033		)
Net cash used by financing activities		(750,002		)	(2,013,002		)	(604,033		)
Net increase (decrease) in cash		263,606			652,355			(24,392		)
Cash at beginning of year		917,409			265,054			289,446
Cash at end of year		$	1,181,015		$	917,409		$	265,054

 

The accompanying notes are an integral part

of the financial statements

 

F-6

 

EXCEL PROPERTIES, LTD.

 

NOTES TO FINANCIAL STATEMENTS

 

1.                 Summary of Significant Accounting Policies:

 

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 the 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 December 31, 2002, the carrying amount of the Partnership’s cash deposits total $1,181,015.  The bank balances are $1,279,078 of which  $200,000 which is covered by federal depository insurance.

 

Statement of Cash Flows - Supplemental Disclosure

 

There was no interest or taxes paid for the years ended December 31, 2002, 2001, or 2000. The Partnership issued a note receivable as part of a sale of real estate during the year ended December 31, 2001.  The Partnership had no noncash investing or financing transactions in 2002 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 and Notes Receivable

 

All net accounts receivable are deemed to be collectible within the next 12 months.  A note receivable of $50,000 is deemed uncollectible during the year ended December 31, 2002, as the debtor has filed for bankruptcy.  An allowance for bad debts of $50,000 has been established.

 

F-7

 

Financial Statement Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles generally accepted in the United States of America 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 reporting period.  Actual results could differ from those estimates.

 

2.                 Financial Statement and Tax Return Differences

 

The Partnership had the following differences between the financial statements and the Partnership tax return.

 

		2002			2001			2000
Net income:
Financial statements		$	313,476		$	1,167,989		477,644
Tax returns		372,443			1,176,228			454,216
Difference		$	(58,967	)	$	(8,239	)	$	23,428
Difference is due to:
Allowance for bad debts		$	(50,000	)	$	—		$	30,999
Deferred gain - sale of building		(8,967		)	(8,239		)	(7,571		)
		$	(58,967	)	$	(8,239	)	$	23,428
Partners’ equity:
Financial statements		$	3,263,675		$	3,700,201		$	4,545,214
Tax returns		4,546,477			4,924,036			5,760,809
Difference		$	(1,282,802	)	$	(1,223,835	)	$	(1,215,595	)
Difference is due to:
Syndication costs		$	(1,496,818	)	$	(1,496,818	)	$	(1,496,818	)
Allowance for bad debts		(50,000		)	—			—
Deferred gain on sale of building		264,016			272,983			281,223
Distributions payable		—			—			—
		$	(1,282,802	)	$	(1,223,835	)	$	(1,215,595	)

 

F-8

 

3.      Fees Paid to General Partner:

 

The Partnership has paid the General Partner or its affiliates the following fees:

 

		2002			2001			2000
Management fees		$	2,825		$	4,801		$	5,356
Administrative fees		10,800			10,800			10,800
Accounting		6,480			6,480			6,480

 

4.      Notes Receivable:

 

The Company had the following notes receivable at December 31, 2002 and 2001:

 

		2002			2001
Note from the sale of land.  Secured by the 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.		691,067			714,540
Note from sale of building.  Currently due.  Interest at 10% interest. Payee has declared bankruptcy. Amount fully reserved for.		50,000			50,000
Total notes receivable		906,817			930,290
Allowance for Bad Debts		(50,000		)	—
		$	856,817		$	930,290

 

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 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 five years for the commercial real estate currently owned and subject to noncancelable operating leases is as follows:

 

F-9

 

Year ending December 31
2003		194,858
2004		194,858
2005		167,309
2006		87,058
2007		87,058
Thereafter		50,784

 

6.      Real Estate:

 

In December 2002, the Partnership sold a building in Ann Arbor, Michigan that was on lease to Ponderosa Restaurant.  The sales price of the building was $700,000 and a $108,181 gain was recognized on the sale.

 

During 2001, the Partnership sold five properties.  In April 2001, the Partnership sold a building in West Carrollton, Ohio that was formerly on lease to Kindercare.  The net sale price for the building was $283,333 and a $148,012 gain was recognized on the sale.  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.  In September 2001, the Partnership sold a two properties.  The building in Columbus, Ohio was on lease to South Eastern Education.  The sale prices was $253,000.  The Partnership recognized a gain of $123,231 on the sale.  The building in Middleberg, Ohio was on lease to  Mountain Jack’s.  The sale price was $900,000.  The Partnership recognized a gain of $149,014 on the sale.  In December 2001, the Partnership sold two buildings that were on lease to Kindercare.   The sale price on the  building in Dayton, Ohio was  $283,333.    The Partnership recognized a gain of $151,817 on the sale. The sale price on the  building in Indianapolis, Indiana was  $283,333.    The Partnership recognized a gain of $135,550 on the sale.  There were no property sales during 2000.

 

The following unaudited Pro Forma Condensed Statements of Income have been presented as if all the property dispositions that occurred in the past three years had occurred on January 1, 2000.  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, 2000.

 

		For the Year Ended December 31
		(Company Pro forma)
		2002			2001			2000
Rental Revenue:		$	210,206		$	220,510		$	195,533
Other revenue:		68,673			91,833			102,066
Operating expenses:		(137,908		)	(112,169		)	(113,260		)
Operating Income:		$	140,971		$	200,174		$	184,339

 

7.      Subsequent Events:

 

On March 14, 2003, the Partnership sold a building located in Bellevue, Nebraska for $539,835.  A gain of approximately $30,000 was recognized.

 

F-10

 

EXCEL PROPERTIES, LTD.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

 

					Additions		Deductions
Description		Balance at Beginning of Year			Charged to Expense		Description		Amount			Balance at End of Year
Year ended December 31, 2002:
Allowance for bad debts		$	0		50,000		Written-off bad debts		$	0		$	50,000
Year ended December 31, 2001:
Allowance for bad debts		$	0		1,987		Written-off bad debts		$	1,987		$	0
Year ended December 31, 2000:
Allowance for bad debts		$	30,999		(26,968	)	Recovery of Previously Written-off bad debts		$	4,031		$	0

 

F-11

 

EXCEL PROPERTIES, LTD.

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2002

 

Description		Encumbrances			Initial Cost						Cost Capitalized Subsequent to Acquisition			Gross Amount at Which Carried at Close of Period						Total (a)(b)			Accumulated Depreciation(c)			Date Acquired		Life on Which Depreciation in Latest Income Statements is Computed
					Land			Buildings and Improvements			Improvements			Land			Buildings and Improvements
Paragon Restaurant:
Lafayette, Indiana		—			324,028			756,068						324,028			756,068			1,080,096			367,031			1987		31.5 years
Autoworks:
Omaha, Nebraska		—			275,432			413,148						275,432			413,148			688,580			189,633			1988		31.5 years
		$	—		$	599,460		$	1,169,216		$	—		$	599,460		$	1,169,216		$	1,768,676		$	556,664

 

(a)  Also represents cost for federal income tax purposes.

(b)  Reconciliation of total real estate carrying value for the three years ended December 31, 2002 is as follows:

 

		2002			2001			2000
Balance at beginning of year		$	2,528,295		$	4,346,607		$	4,346,047
Acquistions		—			—			—
Cost of property sold		(759,619		)	(1,818,312		)	—
Balance at end of year		$	1,768,676		$	2,528,295		$	4,346,047

 

(c)  Reconciliation of accumulated depreciation for the three years ended December 31, 2002 is as follows:

 

		2002			2001			2000
Balance at beginning of year		$	675,791		$	1,164,348		$	1,074,766
Expense		48,673			78,209			89,582
Deletions		(167,800		)	(566,766		)	—
Balance at end of year		$	556,664		$	675,791		$	1,164,348

 

F-12