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

 

 

EXCEL PROPERTIES, LTD.

(Exact name of registrant as specified in its charter)

 

 

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 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, Kausay Holdings, LLC began managing the assets of the Partnership.

 

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 assets. As of December 31, 2003, the Partnership sold all of its real estate properties and has one remaining note receivable.  The Partnership is attempting to collect this final note receivable that is secured by land.

 

The Partnership is 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.

 

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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

 

As of December 31, 2003, the Partnership sold all of its real estate properties and has one remaining note receivable.  The Partnership is attempting to collect this final note receivable that is secured by land.

 

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, 2003, 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:

 

		2003			2002			2001			2000			1999
INCOME STATEMENT DATA
Total rental revenue		$	68,966		$	286,895		$	493,522		$	532,483		$	598,103
Interest and other income		50,724			68,673			91,833			102,066			120,217
Operating expenses:
Property expenses		773			52,825			6,788			(21,612		)	37,234
General and administrative		52,277			48,774			60,282			88,935			46,763
Depreciation		17,734			48,673			78,209			89,582			98,669
Net income before real estate sales		48,906			205,295			440,076			477,644			535,654
Gain on sale of real estate		229,622			108,181			727,913			—			389,300
Net income		278,528			313,476			1,167,989			477,644			924,954
Per Unit Data:
Net income		2.01			2.29			8.64			3.49			6.77
Distributions		17.90			5.49			14.89			4.47			16.83
BALANCE SHEET DATA
Net real estate		—			1,212,012			1,852,504			3,182,259			3,271,841
Cash		941,198			1,181,015			917,409			265,054			289,446
Accounts receivable, net		—			8,983			12,584			11,184			2,222
Total assets		1,107,355			3,264,141			3,719,495			4,595,140			4,717,775
Total liabilities		3			466			19,294			49,926			46,172
Partners’ equity		1,107,352			3,263,675			3,700,201			4,545,214			4,671,603

 

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

 

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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 has been 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.  The Partnership only has one remaining note receivable that is secured by land.  The Partnership does not recognize interest income on this note receivable since it does not receive interest payments and the land, which secures this note receivable, does not produce income.

 

Real Estate Assets

 

Real estate assets were 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 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 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 no longer has any operating assets.  Since there are no remaining operating properties, operations from discontinued operatio