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DEL TACO RESTAURANT PROPERTIES II - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 13, 2014

Liquidity and Capital Resources

Del Taco Restaurant Properties II (the "Partnership" or the "Company") offered limited partnership units for sale between September 1984 and December 1985. $6.751 million was raised through the sale of limited partnership units and used to acquire sites and build seven restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (the General Partner or Del Taco) for offering costs incurred. Two restaurants were sold in 1994. The five restaurants leased to Del Taco make up all of the income producing assets of the Partnership. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties. The success of the restaurants is dependent on a large variety of factors, including, but not limited to, competition, consumer demand and preference for fast food, in general, and for Mexican-American food in particular.



Results of Operations

The Partnership owned seven properties that were under long-term lease to Del Taco for restaurant operations. Two restaurants were sold in 1994 and five are currently operating.

The following table sets forth rental revenue earned by restaurant (unaudited): Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Bear Valley Rd., Victorville, CA $ 18,665$ 18,822$ 37,202$ 36,722 West Valley Blvd., Colton, CA 39,143 36,685 75,914 70,405 Palmdale Blvd., Palmdale, CA 18,800 17,693 36,833 33,776 DeAnza Country Shopping Center, Pedley, CA 34,917 35,441 68,614 68,022 Varner Road, Thousand Palms, CA 34,051 30,643 64,993 58,940 Total $ 145,576$ 139,284$ 283,556$ 267,865 The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $145,576 during the three month period ended June 30, 2014, which represents an increase of $6,292 from the corresponding period in 2013. The Partnership earned rental revenue of $283,556 during the six month period ended June 30, 2014, which represents an increase of $15,691 from the corresponding period in 2013. The changes in rental revenues between 2014 and 2013 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors. - 8 -



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Table of Contents Item 2. Management's Discussion and Analysis of Financial Condition and Results

of Operations - continued The following table breaks down general and administrative expenses by type of expense: Percentage of Total General & Administrative Expense Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Accounting fees 46.82 % 47.23 % 67.47 % 67.83 % Distribution of information to limited partners 53.18 % 52.77 % 32.53 % 32.17 % 100.00 % 100.00 % 100.00 % 100.00 % General and administrative costs increased slightly during the three month period primarily due to increased printing costs. General and administrative costs increased during the six month period primarily due to increased costs for printing, distribution of information to limited partners and tax filings. For the three month period ended June 30, 2014, net income increased by $7,110 from 2013 to 2014 due to the increase in revenues of $6,292, the increase in interest and other income of $1,628, partially offset by the increase in general and administrative expenses of $810. For the six month period ended June 30, 2014, net income increased by $16,406 from 2013 to 2014 due to the increase in revenues of $15,691and the increase in interest and other income of $2,612, partially offset by the increase in general and administrative expenses of $1,897.



Significant Recent Accounting Pronouncements

None.

Off -Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations, as well as disclosures included elsewhere in this report on Form 10-Q are based upon the Partnership's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Partnership believes the critical accounting policies that most impact the financial statements are described below. A summary of the significant accounting policies of the Partnership can be found in Note 1 to the Financial Statements which is included in the Partnership's December 31, 2013 Form 10-K.



Revenue Recognition: Rental revenue is recognized based on 12 percent of gross sales of the restaurants for the corresponding period, and is earned at the point of sale.

- 9 -



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Table of Contents Item 2. Management's Discussion and Analysis of Financial Condition and Results

of Operations - continued Property and Equipment: Property and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives which are 20 years for land improvements, 35 years for buildings and improvements, and 10 years for machinery and equipment. The Partnership accounts for property and equipment in accordance with authoritative guidance issued by the Financial Accounting Standards Board that requires long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In evaluating long-lived assets held for use, an impairment loss is recognized if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the asset. Once a determination has been made that an impairment loss should be recognized for long-lived assets, various assumptions and estimates are used to determine fair value including, among others, estimated costs of construction and development, recent sales of comparable properties and the opinions of fair value prepared by independent real estate appraisers. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.


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Source: Edgar Glimpses


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