EXCEL PROPERTIES LTD - 10-K Annual Report

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

For the Fiscal Year Ended:		Commission File Number:
December 31, 2004			33-2320

EXCEL PROPERTIES, LTD.

(Exact name of registrant as specified in its charter)

CALIFORNIA		87-0426335
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

17140 Bernardo Center Drive, Suite 310; San Diego, California 92128
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (858) 613-1800

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), (2) has been subject to such filing requirements for the past 90 days and (3) is an accelerated filer (as defined in Exchange Act Rule 12 b-2).

(1) Yes ý No o

(2) Yes ý No o

(3) Yes o No ý

FORWARD LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 which provides a “safe harbor” for these types of statements. You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “should,” “would,” “likely,” “will” and similar expressions in this Annual Report on Form 10-K. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about Excel Properties, Ltd, including, among other things: the effect of economic, credit and market conditions in general and on real estate companies in particular, developments in the real estate industry, the ability to successfully complete real estate transactions, government approvals, actions and initiatives, reliance on tenants, and environmental risks.

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 Partnership has dissolved and completed winding up its affairs and completed distributions to its partners in December 2004. The Partnership filed its cancellation of certificate of limited partnership in February 2005 and anticipates it will file its final federal and California state tax returns by March 2005. The Partnership’s certificate of Limited Partnership will be cancelled and its existence terminated upon the State of California’s issuance of a tax clearance certificate. 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. In 2003, Excel Realty Holdings, LLC (formerly Kausay Holdings, LLC) began managing the assets of the Partnership.

The Partnership has been subject to certain risks, uncertainties and other factors including, but not limited to:

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 or Obligors. 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, the obligor of a note to the Partnership, 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 2. PROPERTIES

The Partnership sold its last two real properties in 2003. In 2004, the Partnership received payment on two promissory notes, which were its last remaining investment assets and made it final distribution to the partners after the last promissory note was paid in December 2004. The Partnership continues to earn interest on some outstanding checks which it intends to offset against any final miscellaneous expenses

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, 2004, 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. In December 2004, the Partnership made its final distribution.

PART II

ITEM 6. SELECTED FINANCIAL DATA

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

	2004		2003		2002		2001		2000
INCOME STATEMENT DATA

Total rental revenue	$	—	$	68,966	$	286,895	$	493,522	$	532,483
Interest and other income	63,705		50,724		68,673		91,833		102,066

Operating expenses:
Property expenses	—		773		52,825		6,788		(21,612		)
General and administrative	40,694		52,277		48,775		60,282		88,935
Depreciation	—		17,734		48,673		78,209		89,582

Net income before real estate sales	23,011		48,906		205,295		440,076		477,644

Gain on sale of real estate	—		229,622		108,181		727,913		—

Net income	23 011		278,528		313,476		1,167,989		477,644
Per Unit Data:
Net income	0.09		2.01		2.29		8.55		3.49
Distributions	8.28		17.83		5.49		14.74		4.42

BALANCE SHEET DATA

Net real estate	—		—		1,212,012		1,852,504		3,182.259
Cash	92		941,198		1,181,015		917,409		265,054
Accounts receivable, net	—		—		8,983		12,584		11,184
Total assets	92		1,107,355		3,264,141		3,719,495		4,595,140

Total liabilities	—		3		466		19,294		49,926
Partners’ equity	92		1,107,352		3,263,675		3,700,201		4,545,214

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

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 had been dependent upon the quality and ability of the tenants to pay their rent in a timely manner. Rental revenues included minimum annual rentals, adjusted for the straight-line method for the recognition of fixed future increases. Gain or loss on sale of real estate was recognized when the sales contract was executed, title passed, payment was received, and the Partnership no longer had continuing involvement in the asset. In December 2004, the Partnership’s remaining investment asset, a notes receivable, was repaid. The Partnership did not recognize any interest income prior to the payment on the note since it did not receive any prior interest payments and the land, which secured this note receivable, did not produce any income.

Real Estate Assets

Real estate assets were recorded at historical costs and adjusted for recognition of impairment losses. Buildings were depreciated using the straight-line method over the tax life of 31.5 years. The tax life did not differ materially from the economic useful life. Expenditures for maintenance and repairs were charged to expense as incurred. Significant renovations were capitalized. The cost and related accumulated depreciation of real estate were removed from the accounts upon disposition. Gains and losses arising from dispositions were reported as income or expense.

The Partnership reviewed long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. The Partnership considered assets to be impaired and wrote them down to fair value if their expected associated future undiscounted cash flows were 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 no longer has any operating assets. Since there are no remaining operating properties, operations from discontinued operations have not been separately identified.

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, 2004 to year ended December 31, 2003.

The net income of the Partnership decreased by $255,517 in 2004 when compared to 2003. The differences in income and expenses are explained below.

Rental revenue was $0 in 2004 compared to $68,966 since the remaining Partnership operating properties were sold in 2003.

Interest income increased to $63,705 or 26% in 2004 from $50,724 in 2003. In 2004, interest income of $60,250 was recognized when the final note receivable was collected in December 2004. The Partnership was not recognizing income on this note since it was secured only by vacant land. In 2003, the Partnership recognized interest on higher cash balances and other outstanding notes receivable.

Operating expenses decreased by $40,694 or 43%. Depreciation expense decreased $17,734 to $0 in 2004 since the Partnership no longer owned any operating properties in 2004. Accounting and legal expenses $40,005 or 121%. Due to the Partnership’s dissolution, the Partnership paid fees for the 2004 audit and tax

return in December 2004 and recognized the expense in the same period. These fees were paid in the following year in past years. In addition, the Partnership paid for legal fees related to the dissolution. Bad debt expense was $50,000 in 2002 related to a $50,000 note receivable where the obligor stopped making payments and declared bankruptcy. In 2004, the Partnership recovered $48,644 and reversed this reserve. Bad debt expense was $0 in 2003. Office and other expenses decreased to $5,412 or 35% in 2004 from $8,356 in 2003. This was primarily due to less operations in 2004 as the Partnership no longer owned any operating properties. Management fees were $0 in 2004 compared to $773 in 2003.

In 2003, the partnership recognized a gain of $229,622 on the sale of two properties. In 2004, there were no property sales.

Comparison of year ended December 31, 2003 to year ended December 31, 2002.

The net income of the Partnership decreased by $34,948 in 2003 when compared to 2002. The differences in income and expenses are explained below.

Rental revenue decreased by $217,929 or 76% to $68,966 in 2003 from $286,895 in 2002. The decrease in rental revenue was primarily attributed to the property sales in 2003 and 2002. The Partnership sold its last operating property in August 2003 and no longer receives any rents.

Interest income decreased $17,949 or 26% when compared to 2002. This decrease was mostly due to lower interest rates on cash balances and notes receivable repaid in 2003 and 2002.

Operating expenses decreased by $79,489 or 53%. Depreciation expense decreased $30,939 or 64% and management fee expenses decreased $2,052 or 73% in 2003 when compared to 2002. These decreases are attributable to the property sales in 2003 and 2002. Bad debt expense was $50,000 in 2002 compared to $0 in 2003. The bad debt expense in 2002 related to a $50,000 note receivable. The obligor stopped making payments and declared bankruptcy. As such, the partnership reserved against the full note in 2002. Other expenses and other income did not vary significantly between the two accounting periods.

In 2003, the partnership recognized a gain of $229,622 on the sale of two properties. In 2002, the partnership recognized a gain of $108,181 on the sale of one property.

Liquidity and Capital Resources

The Partnership has $92 in cash at December 31, 2004 and no other assets or liabilities. In December 2004, the Partnership made its final distribution to its partners after paying for anticipated expenses related to year-end audit and tax services as well as anticipated costs to dissolve the Partnership.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2004, the Partnership’s only asset is $92 in cash.

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, 2004 and 2003

3)	Statements of Income Years Ended December 31, 2004, 2003 and 2002

4)	Statements of Changes in Partners’ Equity Years Ended December 31, 2004, 2003 and 2002

5)	Statements of Cash Flows Years Ended December 31, 2004, 2003 and 2002

6)	Notes to Financial Statements

7)	Financial Statement Schedules:
	II - Valuation and Qualifying Accounts Years Ended December 31, 2004, 2003 and 2002

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 (“Price Legacy”), began managing the assets of the Partnership when certain officers of New Plan resigned. Price Legacy indemnified New Plan of any general partner liability in exchange for an assignment of their partnership interest. In 2003, Excel Realty Holdings, LLC (“Excel RH”) began managing the assets of the Partnership. Neither Gary B. Sabin nor the executive officers of Excel RH receive compensation from the Partnership. The General Partner and the officers and employees of Excel RH 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 Excel RH who spend time in the Partnership affairs are as follows:

Name	Age	Position

Gary B. Sabin	50	Principal and Managing Member
Graham R. Bullick, Ph.D	54	Principal and Member
Richard B. Muir	49	Principal and Member
Mark T. Burton	44	Principal and Member
James Y. Nakagawa	39	Principal, Member and Chief Financial Officerr
S. Eric Ottesen	49	Principal and Member

Family Relationships

Not Applicable.

Business Experience

The following is a brief background of the officers of Excel RH.

Gary B. Sabin has been a principal and member of Excel RH since October 2003 and served as Chief Executive Officer, President and Chairman of the Board of Directors of Price Legacy from January 1989 to October 2003. 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 been a principal and member of Excel RH since October 2003 and served as President and Chief Operating Officer of Price Legacy from September 2001 to October 2003. Mr. Bullick served as Senior Vice President –– Capital Markets of Price Legacy since November 1999 and in the same position with Excel Legacy Corporation since its formation. Mr. Bullick served as Senior Vice President –– Capital Markets of Excel Realty Trust and then New Plan 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 been a principal and member of Excel RH since October 2003 and served as Vice Chairman of Price Legacy from September 2001 to October 2003 and Executive Vice President, Secretary and Director of New Plan and/or the Price Legacy 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. Mr. Muir sold his interest in Excel RH in December 2004.

Mark T. Burton has been a principal and member of Excel RH since October 2003 and served as Vice President of New Plan and/or Price Legacy since January 1989 and as a Senior Vice President since January 1996.

Mr. Burton’s duties for Excel RH primarily consist of the 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 been a principal, member and Chief Financial Officer of Excel RH since October 2003 and served as Chief Financial Officer of Price Legacy from October 1998 to December 2003. From March 1998 to October 1998, Mr. Nakagawa served as Controller of the Price Legacy and 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 Ottesen has been a principal and member of Excel RH since October 2003 and served as Senior Vice President, General Counsel and Assistant Secretary of Price Legacy since October 1998. Mr. Ottesen served as Senior Vice President - Legal Affairs and Secretary of New Plan from September 1998 to April 1999. Mr. Ottesen 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.

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, Price Legacy, or Excel RH. 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 12/31/04

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 Excel RH, Price Legacy Corporation, or their affiliates during the years ended December 31, 2004, 2003, and 2002:

Description	2004		2003		2002

Management fees	$	—	$	773	$	2,825
Administrative fees	10,800		10,800		10,800
Accounting	6,480		6,480		6,480

ITEM 14 CONTROLS AND PROCEDURES

The Partnership maintains 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 the General Partner and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Partnership recognizes 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:

		Exhibit 31.1 and 31.2.	302 Officers’ Certifications
		Exhibit 32.1 and 32.2	906 Officers’ Certifications

(B)	Reports on Form 8-K

	No reports on Form 8-K have been filed during the past year.

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: February 23, 2005	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

INDEX TO FINANCIAL STATEMENTS

1.	FINANCIAL STATEMENTS:

	Report of Independent Accountants - Squire & Company, PC

	Balance Sheets December 31, 2004 and 2003

	Statements of Income Years Ended December 31, 2004, 2003 and 2002

	Statements of Changes in Partners’ Equity Years Ended December 31, 2004, 2003 and 2002

	Statements of Cash Flows Years Ended December 31, 2004, 2003 and 2002

	Notes to Financial Statements

2.	FINANCIAL STATEMENT SCHEDULES:

	Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 2004, 2003 and 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, 2004 and 2003, 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, 2004. 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, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, 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 Schedule II is presented for the purpose of additional analysis and is 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 7, 2005

Orem, Utah

F-2

EXCEL PROPERTIES, LTD.

BALANCE SHEETS
December 31, 2004 and 2003

	2004			2003
ASSETS
Cash	$		92	$		941,198

Notes receivable, net of allowance of $50,000 at December 31, 2003	—			165,750

Other assets	—			407

Total assets	$		—	$		1,107,355

LIABILITIES AND PARTNERS’ EQUITY

Liabilities:
Accounts payable	$	—		$		3
Total liabilities	—			3

Partners’ Equity:
General partner’s equity	1			150
Limited partners’ equity, 235,308 units authorized, 135,199 units issued and outstanding	91			1,107,202
Total partners’ equity	92			1,107,352
Total liabilities and partners’ equity	$		92	$	1,107,355

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, 2004, 2003, and 2002

	2004			2003		2002
Revenue:
Rental Income	$	—		$	68,966	$	286,895
Interest and other income	63,705			50,724		68,673
Total revenue	63,705			119,690		355,568
Operating Expenses:
Depreciation	—			17,734		48,673
Accounting and legal	73,126			33,121		32,792
Administrative	10,800			10,800		10,800
Office and other expenses	5,412			8,356		5,183
Management fees	—			773		2,825
Bad debts	(48,644		)	—		50,000

Total operating expenses	40,694			70,784		150,273

Net income before real estate sales	23,011			48,906		205,295
Gain - sales of real estate	—			229,622		108,181

Net income	$	23,011		$	278,528	$	313,476

Net income allocated to:
General partner	$	11,265		$	7,315	$	3,621
Limited partners	11,746			271,213		309,855
Total	$	23,011		$	278,528	$	313,476
Net income per weighted average limited partnership unit	$	0.09		$	2.01	$	2.29

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, 2004, 2003, and 2002

	General Partners				Limited Partners				Total


Balance at January 1, 2002	$	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
Net income - 2003	7,315				271,213				278,528
Partner distributions - 2003	(24,200			)	(2,410,651			)	(2,434,851		)
Balance at December 31, 2003	150				1,107,202				1,107,352
Net income - 2004	11,265				11,746				23,011
Partner distributions - 2004	(11,414			)	(1,118,857			)	(1,130,271		)
Balance at December 31, 2004	$		1		$		91		$	92

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, 2004, 2003, and 2002

	2004			2003			2002

Cash flows from operating activities:
Net income	$	23,011		$	278,528		$	313,476
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	—			17,734			48,673
Allowance for doubtful accounts	(48,644		)	—			50,000
Gain on sale of real estate	—			(229,622		)	(108,181		)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable	—			8,983			3,602
Interest receivable	—			4,895			1,701
Other assets	407			12			(308		)
Decrease in liabilities:
Accounts payable	(3		)	(463		)	(18,828		)

Net cash provided by operating activities	(25,229		)	80,067			290,135

Cash flows from investing activities:
Proceeds from real estate sales	—			1,423,900			700,000
Collection of notes receivable	214,394			691,067			23,473

Net cash provided by investing activities	214,394			2,114,967			723,473

Cash flows from financing activities:
Cash distributions	(1,130,271		)	(2,434,851		)	(750,002		)

Net cash used by financing activities	(1,130,271		)	(2,434,851		)	(750,002		)

Net increase (decrease) in cash	(941,106		)	(239,817		)	263,606

Cash at beginning of year	941,198			1,181,015			917,409
Cash at end of year	$	92		$	941,198		$	1,181,015

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, 2004, the carrying amount of the Partnership’s cash deposits total $92. The bank balance was $349,247 related primarily to outstanding distribution checks of which $100,000 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, 2004, 2003, or 2002. There were no noncash investing or financing transactions in the years ended December 31, 2004, 2003 or 2002.

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 was deemed uncollectible during the year ended December 31, 2002, as the debtor has filed for bankruptcy and an allowance for bad debts of $50,000 was established. In 2004, $48,644 was collected and this amount was reversed from the allowance account.

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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.

	2004			2003			2002
Net income:
Financial statements	$	23,010		$	278,528		$	313,476
Tax returns	(1,523,808		)	542,543			372,443
Difference	$	1,546,818		$	(264,015	)	$	(58,967	)

Difference is due to:
Allowance for bad debts	$	50,000		$	—		$	(50,000	)
Syndication costs	1,496,818			—			—
Deferred gain - sale of building	—			(264,015		)	(8,967		)
	$	1,546,818		$	(264,015	)	$	(58,967	)

Partners’ equity:
Financial statements	$	92		$	1,107,352		$	3,263,675
Tax returns	92			2,654,120			4,546,477
Difference	$	—		$	(1,546,768	)	$	(1,282,802	)

Difference is due to:
Syndication costs	$	—		$	(1,496,818	)	$	(1,496,818	)
Allowance for bad debts	—			(50,000		)	(50,000		)
Deferred gain on sale of building	—			—			264,016
Distributions payable	—			50			—
	$	—		$	(1,546,768	)	$	(1,282,802	)

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3. Fees Paid to General Partner:

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

	2004		2003		2002

Management fees	$	—	$	773	$	2,825
Administrative fees	10,800		10,800		10,800
Accounting	6,480		6,480		6,480
Dissolution costs	6,185		—		—

4. Notes Receivable:

The Company had the following notes receivable at December 31, 2004 and 2003:

	2004		2003

Note from the sale of land. Secured by land. Repaid December 2004.	$	—	$	165,750

Note from sale of building. Currently due. Interest at 10% interest. Payee has declared bankruptcy. Amount fully reserved for. Received $48,644 in 2004.	—		50,000

Total notes receivable	—		215,750

Allowance for Bad Debts	—		(50,000		)
	$	—	$	165,750

5. Real Estate:

In August 2003, the Partnership sold a property leased to Mountain Jack’s Restaurant which was located in Lafayette, Indiana. The net sales price for the property was $897,181 and a gain of $199,117 was recognized on the sale. In March 2003, the Partnership sold a property leased to Autoworks, which was located in Bellevue, Nebraska. The net sales price for the building was $543,893 and a gain of $30,505 was recognized on the sale.

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.

6. Dissolution of Partnership:

In December 2004, the Partnership made its final distribution to its partners after paying for anticipated expenses related to year-end audit and tax services as well as anticipated expenses to dissolve the Partnership. Anticipated expenses recorded and paid in December 2004 totaled $32,985.

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EXCEL PROPERTIES, LTD.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

	Balance at		Additions						Balance at
	Beginning		Charged to			Deductions			End
Description	of Year		Expense			Description	Amount		of Year

Year ended December 31, 2004:

Allowance for bad debts	$	50,000	$	(48,644	)	Recovery of bad debts	$	—	$	—

Year ended December 31, 2003:

Allowance for bad debts	$	50,000	$	—		Written-off bad debts	$	—	$	50,000

Year ended December 31, 2002:

Allowance for bad debts	$	—	$	50,000		Written-off bad debts	$	—	$	50,000

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