Exhibit 99.0
November 15, 2002
Re: DiVall Income Properties 3, L.P.
Dear Limited Partner:
The Partnership has one remaining property ... a former Denny's in Colorado
Springs. We haven't identified a buyer offering a fair price. It is unlikely
that anything can happen in 2002. We will obviously continue to aggressively
market this final property. We want to liquidate this Partnership.
We continue to believe the sale of three properties earlier in the year was
appropriate in light of a "window of opportunity" in pricing due to low interest
rates and before the economy created more uncertainty.
A few things you should be aware of...
. We have reduced the operating costs dramatically for this Partnership
by reducing our fees 75% until the wind-up process can commence.
. Unlike other public partnerships that must continue their existence
even after all assets have been sold (because of continuing contingent
liabilities after sale and for future General Partner indemnification); we
have always been successful in completely ending a Partnership (no more
audits, tax returns, K-1s, etc) because of "wind-up insurance".
Unfortunately, we have been unable to find anyone to underwrite such
coverage for DiVall 3 when the time comes. This will necessitate some
creativity in extinguishing the General Partner liability exposure to
facilitate distribution of the Indemnification Fund.
. Although there are no longer operating activities with DiVall 3
properties, we will not experience audit savings. The demise of Xxxxxx
Xxxxxxxx has resulted in the retention of another firm, Deloitte Touche. In
the absence of the prospect for continuing services to this entity in
future years, there is no incentive to absorb costs during the first year
of an engagement anticipating amortizing a recovery over future years. This
is a case where the Department of Justice and SEC have created hardship
DiVall Income Properties 3, L.P.
November 15, 2001
Page 2
for small investors. I'm sure this was an unintended consequence of
destroying Xxxxxxxx.
The Schedule K-1 will be mailed on or before February 28, 2003 and the Annual
Report will be mailed in April 2003.
Should you have any questions or require any additional information, please feel
free to contact our offices toll-free at 000-000-0000 xxx 000. Any
correspondence should be mailed to: The Provo Group, Inc., 000 X. 00/xx/ Xxxxxx,
Xxxxx 0000, Xxxxxx Xxxx, XX 00000.
Sincerely,
Xxxxx X. Xxxxx
DIVALL INCOME PROPERTIES 3 L.P.
STATEMENTS OF INCOME AND CASH FLOW CHANGES
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2002
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PROJECTED ACTUAL VARIANCE
-----------------------------------------------
3RD 3RD
QUARTER QUARTER BETTER
OPERATING REVENUES 09/30/2002 09/30/2002 (WORSE)
------------- ------------ -----------
Rental income $ 51,875 $ 0 ($51,875)
Interest income 5,400 6,414 1,014
Gain on Sale of Property 0 0 0
Other income 0 2,350 2,350
------------- ------------ -----------
TOTAL OPERATING REVENUES $ 57,275 $ 8,764 ($48,511)
------------- ------------ -----------
OPERATING EXPENSES
Insurance $ 1,224 $ 1,225 ($1)
Management fees 17,757 4,379 13,378
Overhead allowance 1,434 1,444 (10)
Advisory Board 1,314 1,313 2
Administrative 3,588 4,042 (454)
Professional services 4,100 10,961 (6,861)
Auditing 11,350 9,250 2,100
Legal 2,250 10,936 (8,686)
Real Estate taxes 0 0 0
Defaulted tenants 600 563 37
------------- ------------ -----------
TOTAL OPERATING EXPENSES $ 43,617 $ 44,112 ($495)
------------- ------------ -----------
INVESTIGATION AND RESTORATION EXPENSES $ 0 $ 94 ($94)
------------- ------------ -----------
NON-OPERATING EXPENSES
Depreciation $ 14,647 $ 2,110 $ 12,537
Amortization 264 0 264
Commissions on sale of properties 0 0
Loss on disposition of properties 0 0
------------- ------------ -----------
TOTAL NON-OPERATING EXPENSES $ 14,911 $ 2,110 $ 12,801
------------- ------------ -----------
TOTAL EXPENSES $ 58,528 $ 46,316 $ 12,212
------------- ------------ -----------
NET (LOSS) INCOME ($1,253) ($37,551) ($36,298)
------------- ------------ -----------
OPERATING CASH RECONCILIATION: VARIANCE
-----------
Depreciation and amortization 14,911 2,110 (12,801)
Recovery of amounts previously written off 0 (2,350) (2,350)
Gain on sale of property 0 0 0
Loss on disposition of property 0 0 0
(Increase) Decrease in current assets 1,359 1,069 (290)
Increase (Decrease) in current liabilities 10,537 8,930 (1,607)
(Increase) Decrease in cash reserved for payables (10,532) (8,780) 1,752
Advance from future distribution reserve for current distributions 5,900 5,900 0
------------- ------------ -----------
Net Cash Provided From (Used in) Operating Activities $ 20,922 ($30,674) ($51,595)
------------- ------------ -----------
CASH FLOWS (USED IN) FROM INVESTING
AND FINANCING ACTIVITIES
Investment in Indemnification Trust (interest earnings) (4,500) (1,674) 2,826
Security deposit 0 0 0
Recovery of amounts previously written off 2,350 2,350
------------- ------------ -----------
Net Cash (used in) from Investing And
Financing Activities ($4,500) $ 676 $ 5,176
------------- ------------ -----------
Total Cash Flow For Quarter $ 16,423 ($29,997) ($46,418)
Cash Balance Beginning of Period 226,154 2,740,301 2,514,147
Less 2nd quarter distributions paid 8/02 (15,000) (2,140,000) (2,125,000)
Change in cash reserved for payables or distributions 4,632 2,880 (1,752)
------------- ------------ -----------
Cash Balance End of Period $232,209 $ 573,184 $ 340,977
Cash reserved for 3rd quarter L.P. distributions (15,000) 0 15,000
Cash reserved for future distributions (49,100) (439,100) (390,000)
Cash reserved for payment of payables (34,725) (32,018) 2,707
------------- ------------ -----------
Unrestricted Cash Balance End of Period $133,384 $ 102,066 ($31,316)
============= ============ ===========
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PROJECTED ACTUAL VARIANCE
----------------------------------------------
* Quarterly Distribution $ 15,000 $ 0 ($15,000)
Mailing Date 11/15/2002 -
-----------------------------------------------------------------------------------------------------------------------------
* Refer to distribution letter for detail of quarterly distribution.
THIRD QUARTER 2002
Operating Summary
Quarter Year-to-Date
------- ------------
------------------------------------------------------------------------------------------------------------------------------------
Cash Cash
Better/ Better/
Budget Actual (Worse) Budget Actual (Worse)
Operating (Loss) Income ($1,253) ($37,551) ($36,298) ($15,707) $ 214,204 $ 229,911
Non-Cash Charges 14,911 (241) (15,152) 44,732 (438,970) (483,702)
Working Capital Changes 2,764 5,445 2,681 (24,919) (370,080) (345,161)
Investing Activities 0 2,350 2,350 45,250 2,745,421 2,700,171
Financing Activities 0 0 0 0 0 0
------- ---------- ----------- --------- ----------- -----------
Increase(Decrease) in Cash 16,423 (29,997) (46,420) 49,358 2,150,575 2,101,218
Beginning Cash 226,154 2,740,301 2,514,147 240,879 240,148 (731)
Distributions Paid (15,000) (2,140,000) (2,125,000) (70,000) (2,165,000) (2,095,000)
Cash Reserved for (advanced from) 4,632 2,880 (1,752) 11,972 347,461 335,489
Future Payables -------- ---------- ---------- -------- ----------- -----------
Ending Cash $232,209 $ 573,184 $ 340,975 $232,209 $ 573,184 $ 340,975
======== ========== ========== ======== =========== ===========
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Operating Variances
Quarter Year-to-Date
------- ------------
Cash Cash
Better/ Better/
Budget Actual (Worse) Budget Actual (Worse)
-----------------------------------------------------------------------------------------------------------------------------------
Operating (Loss) Income:
Income
Rental Income $ 51,875 $ 0 ($51,875) (A) $ 155,626 $ 108,434 ($47,192)
Gain On Sale of Property 0 0 0 (B) 0 716,958 716,958
Other 5,400 6,414 1,014 16,200 15,677 (523)
Expenses
Administrative Expenses 3,588 4,042 (454) 18,895 20,768 (1,873)
Management Fees 1 7,757 4,473 13,284 (C) 56,039 39,834 16,205
Legal Expenses 2,250 10,936 (8,686) (D) 6,750 32,239 (25,489)
Property Expenses 600 563 37 (E) 1,800 25,805 (24,005)
Loss on Disposition of Property 0 0 0 (F) 0 240,838 (240,838)
Commissions on Sale of Property 0 0 0 (G) 0 164,650 (164,650)
Other 34,333 23,951 10,382 (H) 104,049 102,732 1,317
-------- ---------- -------- -------- --------- ---------
($1,253) ($37,551) ($36,298) ($15,707) $ 214,204 $ 229,911
======== ========== ======== ======== ========= =========
(A) The Applebee's- Pittsburgh and the Hardee's- St. Xxxxxxx properties were
sold in aggregate at the end of the Second Quarter.
(B) The Applebee's- Pittsburgh property was sold at a gain at the end of the
Second Quarter.
(C) Beginning in the Third Quarter, management fees were lowered 75% due to
the aggregate sale of three of the Partnership's properties at the end of
the Second Quarter.
(D) Legal expenses incurred have been higher than anticipated due to tenant
defaults, property sales, and Partnership dissolution and change in
auditor issues.
(E) Approximately six months of 2002 real estate taxes were paid by the
Partnership upon the sale of the vacant Oak Creek property at the end of
the Second Quarter. Property expenses incurred in relation to the vacant
Colorado Springs property were higher than anticipated in the First
Quarter.
(F) The Hardee's- St. Xxxxxxx and the vacant Oak Creek properties were sold at
a loss at the end of the Second Quarter.
(G) Sales commissions were paid by the Partnership in relation to the
aggregate sales of the Applebee's- Pittsburgh, Hardee's- St. Xxxxxxx and
the vacant Oak Creek properties at the end of the Second Quarter.
(H) The aggregate sale of the three of the Partnership's properties at the end
of the Second Quarter resulted in lower depreciation being taken in the
Third Quarter. The remaining deferred leasing commission balance related
to the Hardee's- St. Xxxxxxx property was removed upon the properties sale
at the end of the Second Quarter.
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Working Capital Changes:
Source (Use) of Cash:
(Inc)Dec in Current Assets ($3,141) ($605) $ 2,536 (A) $ 14,577 $ 6,126 ($8,451)
Inc(Dec) in Current Liab. 10,537 8,930 (1,607) (27,524) (28,745) (1,221)
Other (4,632) (2,880) 1,752 (B) (11,972) (347,461) (335,489)
-------- ------- -------- -------- --------- ---------
$ 2,764 $ 5,445 $ 2,681 ($24,919) ($370,080) ($345,161)
======== ======= ======== ======== ========= =========
(A) Lower yield rates have resulted in less Indemnification Trust reinvested
interest earnings in the First through Third Quarters. The overpayment of
prior year SEC filing fees resulted in an increase in current assets in
the First Quarter.
(B) The retention of a portion of the Second Quarter net sale proceeds until
Partnership liquidation and dissolution resulted in an increase in the
year-to-date cash reserved for future distributions.
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Source (Use) of Cash:
Proceeds from Notes Receivable $ 0 $ 0 $ 0 $45,250 $ 45,250 $ 0
Tenant Security Deposit 0 0 0 (A) 0 (8,425) (8,425)
Proceeds from Sale of Properties 0 0 0 (B) 0 2,705,978 2,705,978
Recoveries from Former GP's 2,350 2,350 (C) 0 2,618 (2,618)
-------- ------- -------- ------- ---------- ----------
$ 0 $ 2,350 $ 2,350 $45,250 $2,745,421 $2,694,935
======== ======= ======== ======= ========== ==========
(A) The Applebee's- Pittsburgh security deposit was relinquished upon the sale
of the property at the end of the Second Quarter.
(B) The Applebee's- Pittsburgh, Hardee's- St. Xxxxxxx and the vacant Oak Creek
properties were sold in aggregate at the end of the Second Quarter.
(C) Unexpected recoveries from the former general partners were received in
the Second and Third Quarters.
--------------------------------------------------------------------------------
PROJECTIONS FOR
DISCUSSION PURPOSES
DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
2002 PROPERTY SUMMARY
AND RELATED RECEIPTS
PORTFOLIO (Note 1)
--------------------------- --------------------------------------- --------------------------
REAL ESTATE EQUIPMENT TOTALS
--------------------------- --------------------------------------- --------------------------
RENT LEASE ANNUAL
CHARGED % EXPIRATION LEASE % RECEIPTS %
----------------------------------
CONCEPT LOCATION COST YIELD DATE COST RECEIPTS RETURN COST COLLECTED RETURN
---------------------------------- --------------------------- --------------------------------------- --------------------------
APPLEBEE'S (4) PITTSBURGH, PA 0 57,053 6.40% 0 0.00% 0 57,053 4.60%
- - 0 0.00%
VACANT (3) CO SPRINGS, CO 580,183 0 0.00% 0 0 0.00% 0 0 0.00%
HARDEE'S (4) ST. XXXXXXX, WI 0 45,233 3.79% 0 0 0.00% 0 45,233 2.74%
- - 0 0 0.00%
VACANT (2) (4) OAK CREEK, WI 0 0 0.00% 482,078 0 0.00% 587,566 0 0.00%
- - 105,488 0 0.00%
---------------------------------- --------------------------- -------------------------------- --------------------------
---------------------------------- --------------------------- -------------------------------- --------------------------
PORTFOLIO TOTALS 580,183 102,286 2.42% 587,566 0 0.00% 587,566 102,286 1.20%
---------------------------------- --------------------------- -------------------------------- --------------------------
Note 1: This property summary includes only property and equipment held by the
Partnership during 2002.
2: The lease with Hardee's Food Systems was terminated as of April 30,
2001.
3: The lease with Denny's- Colorado Springs was terminated in the Fourth
Quarter of 2001 due to bankruptcy proceedings. The contract to sale the
vacant property in May 2002 at a purchase price of $775,000 was not
consummated and the contract was terminated. Management has remarketed
the property for sale by December 31, 2002.
4: Managment sold these three (3) properties in late June 2002 at an
aggregate purchase price of $2,755,000, following the majority consent
of the Limited Partners.
