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 expense