UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File #0-15743
Inland Real Estate Growth Fund, L.P.
(Exact name of registrant as specified in its charter)
Delaware #36-3371418
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2901 Butterfield Road, Oak Brook, Illinois 60523
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: 630-218-8000
N/A
(Former name, former address and former fiscal
year, if changed since last report)
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), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-1-
INLAND REAL ESTATE GROWTH FUND, L.P.
(a limited partnership)
Balance Sheets
September 30, 1998 and December 31, 1997
(unaudited)
Assets
------
1998 1997
Current assets: ---- ----
Cash and cash equivalents (Note 1).............. $ 376,560 201,051
Rent and other receivables...................... 2,304 1,639
Prepaid expenses................................ - 6,548
------------ ------------
Total current assets.............................. 378,864 209,238
------------ ------------
Property (including acquisition fees paid
to Affiliates of $463,000) (Notes 1, 2 and 3):
Land............................................ - 1,608,458
Buildings and improvements...................... - 5,497,534
------------ ------------
- 7,105,992
Less accumulated depreciation................... - 2,307,385
------------ ------------
Net investment property........................... - 4,798,607
------------ ------------
Deferred financing costs (net of accumulated
amortization of $32,784 and $24,659 for
September 30, 1998 and December 31, 1997,
respectively) (Note 1).......................... - 8,125
------------ ------------
Total assets...................................... $ 378,864 5,015,970
============ ============
See accompanying notes to financial statements.
-2-
INLAND REAL ESTATE GROWTH FUND, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1998 and December 31, 1997
(unaudited)
Liabilities and Partners' Capital (Deficit)
-------------------------------------------
1998 1997
Current liabilities: ---- ----
Current portion of long-term debt............... $ - 104,836
Accounts payable and accrued expenses........... 484 14,078
Accrued real estate taxes....................... - 26,076
Prepaid rents................................... - 13,719
Due to Affiliates (Note 2)...................... 6,500 1,312
Tenant security deposits........................ - 21,609
------------ ------------
Total current liabilities......................... 6,984 181,630
Long-term debt, less current portion (Notes 1
and 3).......................................... - 496,539
------------ ------------
Total liabilities................................. 6,984 678,169
------------ ------------
Partners' capital (deficit) (Notes 1 and 2):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 39,788 9,447
Cumulative cash distributions................. (43,895) (14,813)
------------ ------------
(3,607) (4,866)
Limited Partners: ------------ ------------
Units of $1,000. Authorized 16,000 Units,
9,246.62 Units outstanding (net of offering
costs of $1,379,705, of which $337,307 was
paid to Affiliates)......................... 7,874,967 7,874,967
Cumulative net income......................... 4,168,578 1,164,840
Cumulative cash distributions................. (11,668,058) (4,697,140)
------------ ------------
375,487 4,342,667
------------ ------------
Total Partners' capital........................... 371,880 4,337,801
------------ ------------
Total liabilities and Partners' capital........... $ 378,864 5,015,970
============ ============
See accompanying notes to financial statements.
-3-
INLAND REAL ESTATE GROWTH FUND, L.P.
(a limited partnership)
Statements of Operations
For the three and nine months ended September 30, 1998 and 1997
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Income:
Rental income.................... $ - 215,658 398,732 770,777
Interest income.................. 18,734 1,663 82,216 4,117
Other income..................... 151 13,981 6,166 30,190
---------- ---------- ---------- ----------
18,885 231,302 487,114 805,084
Expenses: ---------- ---------- ---------- ----------
Professional services to
Affiliates..................... 4,899 2,801 10,973 7,711
Professional services to
non-affiliates................. 2,300 - 25,700 17,889
General and administrative
expenses to Affiliates......... 3,327 3,264 14,176 12,210
General and administrative
expenses to non-affiliates..... 992 842 3,614 4,305
Property operating expenses to
Affiliates..................... - 10,894 19,509 35,823
Property operating expenses to
non-affiliates................. (5,740) 127,945 189,671 416,057
Mortgage and other interest...... - 13,723 13,081 44,951
Amortization..................... - 1,640 8,125 4,918
---------- ---------- ---------- ----------
5,778 161,109 284,849 543,864
---------- ---------- ---------- ----------
Operating income................... 13,107 - 202,265 -
Gain on sale of investment property
(Note 3)......................... - - 2,831,814 -
---------- ---------- ---------- ----------
Net income......................... $ 13,107 70,193 3,034,079 261,220
========== ========== ========== ==========
Net income allocated to:
General Partner.................. 28,449 702 30,341 2,612
Limited Partners................. (15,342) 69,491 3,003,738 258,608
---------- ---------- ---------- ----------
Net income......................... $ 13,107 70,193 3,034,079 261,220
========== ========== ========== ==========
See accompanying notes to financial statements.
-4-
INLAND REAL ESTATE GROWTH FUND, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the three and nine months ended September 30, 1998 and 1997
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Net income allocated to the one
General Partner Unit:
Operating income................. $ 130 702 2,022 2,612
Gain on sale of investment
property....................... 28,319 - 28,319 -
---------- ---------- ---------- ----------
$ 28,449 702 30,341 2,612
========== ========== ========== ==========
Net income per Unit, basic and
diluted, allocated to Limited
Partners per weighted average
Limited Partnerships Units of
9,246.62:
Operating income................. 1.40 - 21.66 -
Gain on sale of investment
property....................... (3.06) - 303.19 -
---------- ---------- ---------- ----------
$ (1.66) 7.52 324.85 27.97
========== ========== ========== ==========
See accompanying notes to financial statements.
-5-
INLAND REAL ESTATE GROWTH FUND, L.P.
(a limited partnership)
Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net income...................................... $ 3,034,079 261,220
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investment property........... (2,831,814) -
Amortization of loan fees..................... 8,125 4,918
Changes in assets and liabilities:
Rents and other receivables................. (665) (228)
Other current assets........................ 6,548 (2,256)
Accounts payable and accrued expenses....... (13,594) (6,056)
Accrued real estate taxes................... (26,076) -
Prepaid rents............................... (13,719) (2,600)
Due to Affiliates........................... 5,188 2,973
Tenant security deposits.................... (21,609) (2,204)
------------ ------------
Net cash provided by operating activities......... 146,463 255,767
------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment property....... 7,630,421 -
------------ ------------
Net cash provided by investing activities......... 7,630,421 -
------------ ------------
Cash flows from financing activities:
Principal payments of long-term debt............ (601,375) (240,877)
Cash distributions.............................. (7,000,000) (45,700)
------------ ------------
Net cash used in financing activities............. (7,601,375) (286,577)
Net increase (decrease) in cash and ------------ ------------
cash equivalents................................ 175,509 (30,810)
Cash and cash equivalents at beginning of period.. 201,051 169,026
------------ ------------
Cash and cash equivalents at end of period........ $ 376,560 138,216
============ ============
See accompanying notes to financial statements.
-6-
INLAND REAL ESTATE GROWTH FUND, L.P.
(a limited partnership)
Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(unaudited)
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 13,081 44,951
============ ============
Supplemental disclosure of non-cash investing activities:
Sale of investment property:
Reduction of investment in property............ $ 7,105,992 -
Reduction of accumulated depreciation relating
to investment property sold................... (2,307,385) -
Gain on sale.................................... 2,831,814 -
------------ ------------
Proceeds from sale of investment property......... $ 7,630,421 -
============ ============
See accompanying notes to financial statements.
-7-
INLAND REAL ESTATE GROWTH FUND, L.P.
(a limited partnership)
Notes to Financial Statements
September 30, 1998
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1997, which are
included in the Partnership's 1997 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this Report.
(1) Organization and Basis of Accounting
Inland Real Estate Growth Fund, L.P. (the "Partnership"), is a limited
partnership formed in June 1985 pursuant to the Delaware Revised Uniform
Limited Partnership Act, to invest in income-producing multi-family residential
properties. On December 9, 1985, the Partnership commenced an Offering of
25,000 (decreased to 16,000 Units in 1986) Limited Partnership Units (the
"Units") pursuant to a Registration under the Securities Act of 1933. The
Partnership terminated its Offering in August 1987 with a total of 9,465 Units
sold, yielding gross offering proceeds of $9,465,000, of which $5,633,955 was
invested in two properties, Country Club Apartments and Scottsdale Sierra
Apartments. All of the holders of these Units were admitted to the Partnership.
In January 1988, the Partnership repurchased a total of 90 Units ($90,000) from
certain investors who were deemed not eligible to be partners in this
Partnership under the Partnership Agreement. As of September 30, 1998, the
Partnership had repurchased 128 Units ($120,328) through the Unit Repurchase
Program from various Limited Partners. In addition, the General Partner has
repurchased 21.57 Units ($18,064) with its own funds from cash distributions
received through September 30, 1998. The Limited Partners of the Partnership
share in the benefits of ownership of the Partnership's real property
investments in proportion to the number of Units held. Inland Real Estate
Investment Corporation is the General Partner.
The preparation of financial statements in conformity with generally accepted
accounting principles 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 periods.
Actual results could differ from those estimates.
Offering costs have been offset against the Limited Partners' capital accounts.
The Partnership considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents and are carried at
cost, which approximates market.
Deferred financing costs were amortized on a straight-line basis over the terms
of the related loan.
-8-
INLAND REAL ESTATE GROWTH FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
Statement of Financial Accounting Standards No. 128 "Earnings per Share" was
adopted by the Partnership for the year ended December 31, 1997 and has been
applied to all prior earnings periods presented in the financial statements.
The Partnership has no dilutive securities.
No provision for Federal income taxes has been made as the liability for such
taxes is that of the Partners rather than the Partnership.
In the opinion of management, the financial statements contain all the
adjustments necessary, which are of a normal recurring nature, to present
fairly the financial position and results of operations. Interim periods are
not necessarily indicative of results to be expected for the year.
(2) Transactions with Affiliates
The General Partner and its Affiliates are entitled to reimbursement for
salaries and expenses of employees of the General Partner and its Affiliates
relating to the administration of the Partnership. Such costs are included in
professional services and general and administrative expenses to Affiliates, of
which $6,500 and $1,312 was unpaid as of September 30, 1998 and December 31,
1997, respectively.
The Partnership's property was managed by an Affiliate of the General Partner
pursuant to a management agreement which provided for annual fees not to exceed
4.5% of gross rental receipts. The Affiliate earned Property Management Fees of
$19,509 and $35,823 for the nine months ended September 30, 1998 and 1997,
respectively. Such fees are included in property operating expenses to
Affiliates, all of which have been paid as of September 30, 1998.
(3) Sale of Investment Property
On May 6, 1998, the Partnership sold its remaining asset, Scottsdale Sierra
Apartments to an unaffiliated third-party for $7,800,000 on an all cash basis.
The property had a basis of $4,798,607, net of depreciation, resulting in a
gain of $2,831,814, net of closing costs. The balance on the related debt of
$374,624 was paid at closing.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this quarterly report on
Form 10-Q constitute of "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the Partnership's actual results, performance, or
achievements to be materially different from any future results, performance,
or achievements expressed or implied by these forward-looking statements.
These factors include, among other things, competition for tenants; federal,
state or local regulations; adverse changes in general economic or local
conditions; inability of borrower to meet financial obligations; uninsured
losses; and potential conflicts of interest between the Partnership and its
Affiliates, including the General Partner.
Liquidity and Capital Resources
On December 9, 1985, the Partnership commenced an Offering of 25,000 (decreased
to 16,000 in 1986 as described in Item 1 above) Limited Partnership Units
pursuant to a Registration Statement on Form S-11 under the Securities Act of
1933. The Offering terminated in August 1987 with a total of 9,465 Units sold
to the public at $1,000 per Unit resulting in $9,465,000 in gross offering
proceeds, which does not include the General Partner's contribution of $500.
All of the holders of these Units were admitted to the Partnership. Of the
$9,465,000 of gross offering proceeds, $5,633,955 was invested in two
properties, Country Club Apartments and Scottsdale Sierra Apartments. In
addition, proceeds from the Offering were used to pay debt service on certain
notes payable incurred with property acquisitions, offering and organization
costs and distributions to Limited Partners. In January 1988, the Partnership
repurchased a total of 90 Units ($90,000) from certain investors who were not
deemed eligible to be partners in this Partnership under the terms of the
Partnership Agreement. As of September 30, 1998, the Partnership had
repurchased 128 Units ($120,328) through the Unit Repurchase Program from
various Limited Partners. In addition, the General Partner has repurchased
21.57 Units ($18,064) with its own funds from cash distributions received as of
September 30, 1998.
At September 30, 1998, the Partnership had cash and cash equivalents of
$376,560. The Partnership intends to use such funds to pay final expenses of
the Partnership and to provide cash distributions to Partners after a final
reconciliation of property and Partnership expenses.
On July 10, 1998, the Partnership distributed $7,000,000 of net sales proceeds
resulting from the sale of Scottsdale Sierra Apartments. Of the $7,000,000,
$6,970,918 was distributed to the Limited Partners and $29,082 was distributed
to the General Partner. Remaining net sales proceeds will be distributed to the
Partners during the fourth quarter of 1998 after a final reconciliation of
property and Partnership expenses.
-10-
Results of Operations
As of January 1, 1997, the Partnership listed and was actively marketing
Scottsdale Sierra Apartments for sale at an amount in excess of its carrying
value, and accordingly, suspended depreciation at that time. On May 6, 1998,
the Partnership sold its remaining asset, Scottsdale Sierra Apartments to an
unaffiliated third-party for $7,800,000 on an all cash basis. The property had
a basis of $4,798,607, net of depreciation, resulting in a gain of $2,831,814,
net of closing costs. The balance of the debt encumbering the property of
$374,624 was paid at closing. Net sales proceeds of $7,000,000 were distributed
to the Partners on July 10, 1998. Remaining net sales proceeds will be
distributed to the Partners after a final reconciliation of property and
Partnership expenses. This is expected to occur before December 31, 1998.
Rental and other income, property operating expenses to Affiliates and non-
affiliates and mortgage and other interest decreased for the three and nine
months ended September 30, 1998, as compared to the three and nine months ended
September 30, 1997 due to the sale of the Scottsdale Sierra Apartments on May
6, 1998.
Interest income increased for the three and nine months ended September 30,
1998, as compared to the three and nine months ended September 30, 1997, due to
the Partnership investing net sales proceeds received from the sale of
Scottsdale Sierra Apartments before being distributed to the Partners.
Professional services to Affiliates and non-affiliates increased for the three
and nine months ended September 30, 1998, as compared to the three and nine
months ended September 30, 1997, due to the increase in legal and accounting
services required relating to the sale of the Scottsdale Sierra Apartments,
distribution of proceeds from the sale and services relating to the anticipated
liquidation of the Partnership.
General and administrative expenses to Affiliates increased for the three and
nine months ended September 30, 1998, as compared to the three and nine months
ended September 30, 1997, due primarily to increases in investor service
expenses.
The following is a list of approximate occupancy levels for the Partnership's
investment property as of the end of each quarter during 1997 and 1998:
1997 1998
------------------------ ------------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
---------- ----- ----- ----- ----- ----- ----- ----- -----
Scottsdale Sierra
Apartments
Scottsdale, Arizona 98% 85% 81% 91% 94% N/A N/A
-11-
Year 2000 Issues
GENERAL
Many computer operating systems and software applications were designed such
that the year 1999 is the maximum date that can be processed accurately. In
conducting business, the Partnership relies on computers and operating systems
provided by equipment manufacturers, and also on application software developed
internally and, to a limited extent, by outside software vendors. The
Partnership has assessed its vulnerability to the so-called "Year-2000 Issue"
with respect to its equipment and computer systems.
STATE OF READINESS
The Partnership has identified the following three areas for "Year-2000"
compliance efforts:
Business Computer Systems: The majority of the Partnership's information
technology systems were developed internally and include accounting, lease
management, investment portfolio tracking, and tax return preparation. The
Partnership has rights to the source code for these applications and employs
programmers who are knowledgeable regarding these systems. The process of
testing these internal systems to determine year 2000 compliance is nearly
complete. The Partnership does not anticipate any material costs relating to
its business computer systems regarding year 2000 compliance since the
Partnership's critical hardware and software systems use four digits to
represent the applicable year. The Partnership does use various computers, so-
called "PC's", that may run software that may not use four digits to represent
the applicable year. The Partnership is in the process of testing the PC
hardware and software to determine year 2000 compliance, but it must be noted
that such PC's are incidental to the Partnership's critical systems. The
Partnership is considering independent testing of its critical systems.
Tenants and Suppliers: The Partnership is in the process of surveying tenants,
suppliers and other parties with whom the Partnership does a significant amount
of business to identify the Partnership's potential exposure in the event such
parties are not year 2000 compliant in a timely manner. Since this area involves
some parties over which the Partnership has no control, such as public utility
companies, it is difficult, at best, to judge the status of the outside
companies' year 2000 compliance. The Partnership is working closely with all
suppliers of goods and services in an effort to minimize the impact of the
failure of any supplier to become year 2000 compliant by December 31, 1999. The
Partnership's investigations and assessments of possible year 2000 issues are in
a preliminary stage, and currently the Partnership is not aware of any material
impact on its business, operations or financial condition due to year 2000 non-
compliance by any of the Partnership's tenants or suppliers.
Non-Information Technology Systems: In the operation of its properties, the
Partnership has acquired equipment with embedded technology such as
microcontrollers, which operate heating, ventilation, and air conditioning
systems, fire alarms, security systems, telephones and other equipment utilizing
time-sensitive technology. The Partnership is in the process of evaluating its
potential exposure and costs if such non-information technology systems are not
year 2000 compliant and expects to be able to complete its assessment during the
second quarter of 1999.
-12-
YEAR 2000 COSTS
The Partnership's General Partner and its Affiliates estimate that costs to
achieve year 2000 compliance will not exceed $50,000. However, only
approximately 1% of these costs will be directly allocated to and paid by the
Partnership. The balance of the year 2000 compliance costs, approximately 99%,
will be paid by the General Partner and its Affiliates. Total year 2000
compliance costs incurred through September 30, 1998 are estimated at
approximately $5,000.
YEAR 2000 RISKS
The most reasonable likely worst case scenario for the Partnership with respect
to the year 2000 non-compliance of its business computer systems would be the
inability to access information which could result in the failure to issue
financial reports. The most reasonable likely worst case scenario for the
Partnership with respect to the year 2000 non-compliance of its tenants is
failure to receive rental income which could result in the Partnership being
unable to meet cash requirements for monthly expenses. The most reasonable
likely worst case scenario for the Partnership with respect to the year 2000
non-compliance of its suppliers is the failure to supply necessary utilities;
including, but not limited to heating, as a result of a malfunctioning of non-
information technology systems in some of the Partnership's properties.
CONTINGENCY PLAN
The Partnership is in the process of formulating a contingency plan which will
be developed by July of 1999.
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under which
they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Report on Form 8-K dated May 6, 1998
Item 2. Acquisition or Disposition of Assets
-13-
SIGNATURES
Pursuant to the requirements 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.
INLAND REAL ESTATE GROWTH FUND, L.P.
By: Inland Real Estate Investment Corporation
General Partner
/S/ ROBERT D. PARKS
By: Robert D. Parks
Chairman
Date: November 12, 1998
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: November 12, 1998
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: November 12, 1998
-14-
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<PERIOD-END> SEP-30-1998
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0
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