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 #0-18431
Inland Land Appreciation Fund, L.P.
(Exact name of registrant as specified in its charter)
Delaware #36-3544798
(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 LAND APPRECIATION 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).............. $ 1,110,874 15,502
Accounts and accrued interest receivable
(Note 5)...................................... 181,716 1,361
Current portion of mortgage loans
receivable (Note 5)........................... 4,497,898 575,000
Other current assets............................ 7,519 2,241
------------ ------------
Total current assets.............................. 5,798,007 594,104
------------ ------------
Other assets...................................... 19,915 19,915
Mortgage loans receivable, less current
portion (Note 5)................................ 2,705,037 1,595,089
Investments in land and improvements, at cost
(including acquisition fees paid to Affiliates
of $970,132 and $1,430,329 at September 30,
1998 and December 31, 1997, respectively)
(Notes 1, 2 and 3).............................. 20,868,287 25,848,790
------------ ------------
Total assets...................................... $29,391,246 28,057,898
============ ============
See accompanying notes to financial statements.
-2-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1998 and December 31, 1997
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1998 1997
---- ----
Current liabilities:
Accounts payable................................ $ 2,055 25,185
Accrued real estate taxes....................... 31,426 47,889
Due to Affiliates (Note 2)...................... 746,675 595,655
Notes payable to Affiliate (Note 6)............. 2,670,400 3,283,471
Unearned income................................. 11,075 19,278
------------ ------------
Total current liabilities......................... 3,461,631 3,971,478
------------ ------------
Deferred gain on sale (Note 5).................... 1,500,267 106,905
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 167,539 165,949
Cumulative cash distributions................. (153,743) (153,743)
------------ ------------
14,296 12,706
Limited Partners: ------------ ------------
Units of $1,000. Authorized 30,001 Units,
29,606.25 and 29,629.25 Units outstanding
at September 30, 1998 and December 31, 1997,
respectively (net of offering costs of
$3,768,113, of which $1,069,764 was
paid to Affiliates)......................... 25,882,018 25,900,396
Cumulative net income......................... 4,529,253 4,062,632
Cumulative cash distributions................. (5,996,219) (5,996,219)
------------ ------------
24,415,052 23,966,809
------------ ------------
Total Partners' capital........................... 24,429,348 23,979,515
------------ ------------
Total liabilities and Partners' capital........... $29,391,246 28,057,898
============ ============
See accompanying notes to financial statements.
-3-
INLAND LAND APPRECIATION 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: ---- ---- ---- ----
Land sales (Notes 1 and 3)....... $ 870,391 116,517 5,803,143 418,074
Rental income (Note 4)........... 58,957 60,033 178,972 181,819
Interest income.................. 177,279 61 282,338 209
Other income..................... - - 17,500 5,000
---------- ---------- ---------- ----------
1,106,627 176,611 6,281,953 605,102
---------- ---------- ---------- ----------
Expenses:
Cost of land sold................ 787,088 42,464 5,493,948 138,701
Professional services to
Affiliates..................... 12,685 11,800 37,085 37,300
Professional services to
non-affiliates................. 123 339 31,903 46,652
General and administrative
expenses to Affiliates......... 2,007 5,567 11,229 21,050
General and administrative
expenses to non-affiliates..... 1,541 2,724 13,537 18,442
Marketing expenses to Affiliates. 12,148 30,300 46,426 105,587
Marketing expenses to
non-affiliates................. 7,044 24,944 33,690 85,988
Land operating expenses to
Affiliates..................... - 14,107 25,858 42,347
Land operating expenses to
non-affiliates................. 62,486 28,568 120,066 55,789
---------- ---------- ---------- ----------
885,122 160,813 5,813,742 551,856
---------- ---------- ---------- ----------
Net income....................... $ 221,505 15,798 468,211 53,246
========== ========== ========== ==========
See accompanying notes to financial statements.
-4-
INLAND LAND APPRECIATION 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 (loss) allocated to:
General Partner.................. $ 1,382 (582) 1,590 (2,261)
Limited Partners................. 220,123 16,380 466,621 55,507
---------- ---------- ---------- ----------
Net income......................... $ 221,505 15,798 468,211 53,246
========== ========== ========== ==========
Net income (loss) allocated to the
one General Partner Unit......... $ 1,382 (582) 1,590 (2,261)
========== ========== ========== ==========
Net income per Unit, basic and
diluted, allocated to Limited
Partners per weighted average
Limited Partnership Units
(29,619.72 and 29,629.24 for the
three months ended September 30,
1998 and 1997, and 29,626.03 and
29,642.43 for the nine months
ended September 30, 1998 and
1997, respectively).............. $ 7.43 .55 15.75 1.87
========== ========== ========== ==========
See accompanying notes to financial statements.
-5-
INLAND LAND APPRECIATION 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...................................... $ 468,211 53,246
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of land.......................... (309,195) (279,373)
Changes in assets and liabilities:
Accounts and accrued interest receivable.... (180,355) (45,713)
Other current assets........................ (5,278) (962)
Accounts payable............................ (23,130) (57,739)
Accrued real estate taxes.................. (16,463) (12,309)
Due to Affiliates........................... 151,020 472,300
Unearned income............................. (8,203) (23,239)
Deferred gain on sale....................... 38,964 -
------------ ------------
Net cash provided by operating activities........ 115,571 106,211
------------ ------------
Cash flows from investing activities:
Additions to investments in land and
improvements.................................. (513,445) (1,851,945)
Principal payments collected on mortgage
loans receivable.............................. 743,031 -
Proceeds from disposition of investments in
land and improvements......................... 768,593 418,074
Net cash provided by (used in) investing ------------ ------------
activities...................................... 998,179 (1,433,871)
------------ ------------
Cash flows from financing activities:
Repurchase of Limited Partnership Units......... (18,378) (25,847)
Proceeds from notes payable to Affiliate, net... - 3,150,239
Cash distributions.............................. - (1,849,816)
Net cash provided by (used in) financing ------------ ------------
activities...................................... (18,378) 1,274,576
Net increase (decrease) in cash and cash ------------ ------------
equivalents..................................... 1,095,372 (53,084)
Cash and cash equivalents at beginning of period.. 15,502 89,672
------------ ------------
Cash and cash equivalents at end of period........ $ 1,110,874 36,588
============ ============
See accompanying notes to financial statements.
-6-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(unaudited)
Supplemental schedule of non-cash investing and financing activities:
1998 1997
---- ----
Mortgage loans receivable......................... $(5,775,877) -
Reduction in investments in land and improvements. 5,493,948 -
Gain on sale of land.............................. 309,195 -
Assumption of note payable to Affiliate........... (613,071) -
Deferred gain on sale............................. 1,354,398 -
Proceeds from disposition of investments in land ------------ ------------
and improvements................................ $ 768,593 -
============ ===========
See accompanying notes to financial statements.
-7-
INLAND LAND APPRECIATION 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 duplicate those contained in such audited financial
statements have been omitted from this Report.
(1) Organization and Basis of Accounting
The Registrant, Inland Land Appreciation Fund, L.P. (the "Partnership"), was
formed in October 1987, pursuant to the Delaware Revised Uniform Limited
Partnership Act, to invest in undeveloped land on an all-cash basis and realize
appreciation of such land upon resale. On October 12, 1988, the Partnership
commenced an Offering of 10,000 (subject to increase to 30,000) Limited
Partnership Units ("Units") pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933. Inland Real Estate Investment Corporation is
the General Partner. The Offering terminated on October 6, 1989, with total
sales of 30,000 Units, at $1,000 per Unit, not including the General Partner or
the Initial Limited Partner. All of the holders of these Units have been
admitted to this Partnership. The Limited Partners of the Partnership share in
their portion of benefits of ownership of the Partnership's real property
investments according to the number of Units held. As of September 30, 1998,
the Partnership has repurchased a total of 394.75 Units for $350,868 from
various Limited Partners through the Unit Repurchase Program. Under this
program Limited Partners may under certain circumstances have their Units
repurchased for an amount equal to their Invested Capital.
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.
-8-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
Statement of Financial Accounting Standards No. 121 ("SFAS 121") requires the
Partnership to record an impairment loss on its property to be held for
investment whenever its carrying value cannot be fully recovered through
estimated undiscounted future cash flows from their operations and sale. The
amount of the impairment loss to be recognized would be the difference between
the property's carrying value and the property's estimated fair value. As of
September 30, 1998, the Partnership has not recognized any such impairment.
Except as described in footnote (b) to Note 3 of these notes, the Partnership
uses the area method of allocation, which approximates the relative sales
method of allocation, whereby a per acre price is used as the standard
allocation method for land purchases and sales. The total cost of the parcel
is divided by the total number of acres to arrive at a per acre price.
The Partnership is required to pay a withholding tax to the Internal Revenue
Service with respect to a Partner's allocable share of the Partnership's
taxable net income, if the Partner is a foreign person. The Partnership will
first pay the withholding tax from the distributions to any foreign partner,
and to the extent that the tax exceeds the amount of distributions withheld, or
if there have been no distributions to withhold, the excess will be accounted
for as a distribution to the foreign partner. Withholding tax payments are made
every April, June, September and December.
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 for the periods
presented herein. Results of interim periods are not necessarily indicative of
results to be expected for the year.
-9-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
(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 $129,192 and $90,278 were unpaid as of September 30, 1998 and December
31, 1997, respectively.
The General Partner is entitled to receive Asset Management Fees equal to one-
quarter of 1% of the original cost to the Partnership of undeveloped land
annually, limited to a cumulative total over the life of the Partnership of 2%
of the land's original cost to the Partnership. As of June 30, 1998, the
Partnership had met this limit. Such fees of $25,858 and $42,347 have been
incurred for the nine months ended September 30, 1998 and 1997, respectively,
and are included in land operating expenses to Affiliates, of which $81,136 and
$55,279 were unpaid as of September 30, 1998 and December 31, 1997,
respectively.
An Affiliate of the General Partner performed marketing and advertising
services for the Partnership and was reimbursed (as set forth under terms of
the Partnership Agreement) for direct costs. Such costs of $46,426 and
$105,587 have been incurred and are included in marketing expenses to
Affiliates for the nine months ended September 30, 1998 and 1997, respectively,
of which $135,582 and $151,908 were unpaid as of September 30, 1998 and
December 31, 1997, respectively.
An Affiliate of the General Partner performed property upgrades, rezoning,
annexation and other activities to prepare the Partnership's land investments
for sale and was reimbursed (as set forth under terms of the Partnership
Agreement) for salaries and direct costs. The Affiliate did not recognize a
profit on any project. Such costs are included in investments in land, of
which $123,710 and $113,878 were unpaid as of September 30, 1998 and December
31, 1997, respectively.
-10-
<TABLE> INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(3) Investments in Land and Improvements
<CAPTION>
Total
Gross Initial Costs Costs Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at on Sale
Parcel County (Sold) Date Costs Costs Costs Acquisition Sold 9/30/98 Recognized
- ------ --------- ---------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Kendall 84.7360 01/19/89 $ 423,680 61,625 485,305 5,462,589 5,947,894 - 36,604
(3.5200) 12/24/96
(.3520) 11/25/97
(80.8640) 12/29/97
2 McHenry 223.4121 01/19/89 650,000 95,014 745,014 21,556 611,505 155,065 -
(183.3759) 12/27/90
3 Kendall 20.0000 02/09/89 189,000 13,305 202,305 - 202,305 - -
(20.0000) 05/08/90
4 Kendall 69.2760 04/18/89 508,196 38,126 546,322 60,819 235,275 371,866 -
(.4860) 02/28/91
(27.5750) 08/25/95
5 Kendall 372.2230 05/03/89 2,532,227 135,943 2,668,170 26,350 160,313 2,534,207 -
(a) (Option) 04/06/90
6 Kendall 78.3900 06/21/89 416,783 31,691 448,474 198,404 - 646,878 -
(b)
7 Kendall 77.0490 06/21/89 84,754 8,163 92,917 183,691 - 276,608 -
(b)
8 Kendall 5.0000 06/21/89 60,000 5,113 65,113 - 65,113 - -
(b) (5.0000) 10/06/89
9 McHenry 51.0300 08/07/89 586,845 22,482 609,327 2,043 - 611,370 -
(b)
10 McHenry 123.9400 08/07/89 91,939 7,224 99,163 600 99,763 - -
(b) (123.9400) 12/06/89
11 McHenry 30.5920 08/07/89 321,216 22,641 343,857 6,354 - 350,211 -
(b)
12 Kendall 90.2710 10/31/89 907,389 41,908 949,297 1,052 7,456 942,893 -
(.7090) 04/26/91
13 McHenry 92.7800 11/07/89 251,306 19,188 270,494 4,189 6,136 268,547 -
(2.0810) 09/18/97
14 McHenry 76.2020 11/07/89 419,111 23,402 442,513 43,499 - 486,012 -
15 Lake 84.5564 01/03/90 1,056,955 85,283 1,142,238 1,576,806 2,719,044 - 111,704
(10.5300) Var 1996
(5.4680) Var 1997
(68.5584) Var 1998 ------------ ------------ ------------ -------------- ------------ ------------ ------------
Subtotal $ 8,499,401 611,108 9,110,509 7,587,952 10,054,804 6,643,657 148,308
-11-
-11-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(3) Investments in Land and Improvements (continued)
Total
Gross Initial Costs Costs Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at on Sale
Parcel County (Sold) Date Costs Costs Costs Acquisition Sold 9/30/98 Recognized
- ------ --------- ---------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal $ 8,499,401 611,108 9,110,509 7,587,952 10,054,804 6,643,657 148,308
16 Kane/Kendall 72.4187 01/29/90 1,273,537 55,333 1,328,870 164,989 787,087 706,772 72,665
(30.9000 07/10/98)
17 McHenry 99.9240 01/29/90 739,635 61,038 800,673 340,747 - 1,141,420 -
18 McHenry 71.4870 01/29/90 496,116 26,259 522,375 20,595 11,109 531,861 -
(1.0000) Var 1990
(.5200) 03/11/93
19 McHenry 63.6915 02/23/90 490,158 29,158 519,316 7,933 - 527,249 -
20 Kane 224.1480 02/28/90 2,749,800 183,092 2,932,892 431,314 3,651 3,360,555 -
(.2790) 10/17/91
21 Kendall 172.4950 03/08/90 1,327,459 75,822 1,403,281 1,022,141 2,425,422 - 88,222
(1.7968) 03/27/98
(170.6982) Var 1998
22 McHenry 254.5250 04/11/90 2,608,881 136,559 2,745,440 32,840 - 2,778,280 -
23 Kendall 140.0210 05/08/90 1,480,000 116,240 1,596,240 602,693 1,196,909 1,002,024 -
(4.4100) Var 1993
(35.8800) Var 1994
(3.4400) Var 1995
24 Kendall 298.4830 05/23/90 1,359,774 98,921 1,458,695 19,194 83,663 1,394,226 -
(12.4570) 05/25/90
(4.6290) 04/01/96
25 Kane 225.0000 06/01/90 2,600,000 168,778 2,768,778 13,465 - 2,782,243 -
------------ ------------ ------------ -------------- ------------ ------------ ----------
$23,624,761 1,562,308 25,187,069 10,243,863 14,562,645 20,868,287 309,195
============ ============ ============ ============== ============ ============ ==========
</TABLE>
-12-
-12-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
(3) Investments in Land and Improvements (continued)
(a) Included in the purchase agreement of Parcel 5 was a condition that
required the Partnership to buy an option to purchase an additional 243
acres immediately to the west of this parcel. The sale transaction relates
to the sale of this option.
(b) The Partnership purchased from two third parties, two sets of three
contiguous parcels of land (Parcels 6, 7 and 8; and Parcels 9, 10 and 11).
The General Partner believes that the total value of this land will be
maximized if it is treated and marketed to buyers as six separate parcels
and closed the transactions as six separate purchases to facilitate this.
Parcels 6, 7 and 8 will be treated as one parcel and Parcels 9, 10 and 11
will be treated as one parcel for purposes of computing Parcel Capital (as
defined) and distributions to the Partners.
(c) Reconciliation of investments in land and improvements owned:
1998 1997
------------ ------------
Balance at January 1,............ $25,848,790 28,676,326
Additions during period.......... 513,445 3,018,999
Sales during period.............. (5,493,948) (5,846,535)
------------ ------------
Balance at end of period......... $20,868,287 25,848,790
============ ============
(4) Farm Rental Income
The Partnership has determined that all leases relating to the farm parcels are
operating leases. Accordingly, rental income is reported when earned.
As of September 30, 1998, the Partnership had farm leases of generally one year
in duration, for approximately 2,070 acres of the approximately 2,302 acres
owned.
-13-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
(5) Mortgage Loans Receivable
As a result of the sale of the remaining approximately 81 acres of Parcel 1 for
a sales price of $5,750,000 on December 29, 1997, the purchaser assumed the
note payable to an Affiliate on this parcel totaling $3,325,515 and the
interest payable to the Affiliate of $254,396. The Partnership received
mortgage loans receivable totaling $2,170,089 and recorded a deferred gain on
sale of $106,905. The deferred gain will be recognized over the life of the
related mortgage loans receivable as principal payments are received, of which
$36,604 has been recognized as of September 30, 1998. Of the $2,170,089
mortgage loans receivable received, $575,000 accrues interest at 9% per annum
and has a maturity date of July 1, 1998, at which time all accrued interest, as
well as principal, is due. On June 19, 1998, this mortgage loan receivable of
$575,000 was paid in full and the Partnership received $599,528 which
represented the loan balance and accrued interest. The remaining $1,595,089
accrues interest at 9% per annum and has a maturity date of December 30, 2000,
at which time all accrued interest, as well as principal, is due. As of
September 30, 1998, the remaining mortgage loan receivable balance was
$1,427,057 and accrued interest totaled $14,075.
As a result of the sale of Lot #7 of Parcel #15 for a sales price of $89,100 on
June 9, 1998, the Partnership received net sales proceeds of $490, a mortgage
loan receivable of $88,101 and recorded a deferred gain on sale of $56,426. The
deferred gain will be recognized over the life of the related mortgage loan
receivable as principal payments are received, of which $10 has been recognized
as of September 30, 1998. The mortgage loan receivable accrues interest at 9%
per annum, paid monthly, and has a maturity date of July 1, 2001. As of
September 30, 1998, the remaining mortgage loan receivable balance was $88,086.
As a result of the sale of Lot #9 of Parcel #15 for a sales price of $92,691 on
June 11, 1998, the Partnership received net sales proceeds of $62,173, a
mortgage loan receivable of $30,000 and recorded a deferred gain on sale of
$18,514. The deferred gain will be recognized over the life of the related
mortgage loan receivable as principal payments are received, of which $2,350
has been recognized as of September 30, 1998. The mortgage loan receivable
accrues interest at 9% per annum, paid monthly, and has a maturity date of
October 1, 1999. As of September 30, 1998, the remaining mortgage loan
receivable balance was $26,192.
-14-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
As a result of the sale of the remaining approximately 126 acres of Parcel 21
for a sales price of $2,900,000 on June 25, 1998, the purchaser assumed the
note payable to an Affiliate on this parcel totaling $394,623 and the interest
payable to the Affiliate of $55,926. The Partnership received mortgage loans
receivable totaling $2,449,451 and recorded a deferred gain on sale of
$653,933. The deferred gain will be recognized over the life of the related
mortgage loans receivable as principal payments are received. Of the $2,449,451
mortgage loans receivable received, $1,651,000 (originally $1,983,000) accrues
interest at 9% per annum and has a maturity date of November 16, 1998 (extended
from September 30, 1998), at which time all principal is due. The remaining
$791,451 (originally $466,451) accrues interest at 9% per annum and has a
maturity date of June 30, 2003, at which time all accrued interest, as well as
principal, is due. As of September 30, 1998, accrued interest totaled $59,189.
As a result of the sale of the remaining approximately 50 acres of Parcel 15
for a sales price of $1,850,000 on June 25, 1998, the Partnership received
mortgage loans receivable totaling $1,850,000 and recorded a deferred gain on
sale of $80,130. The deferred gain will be recognized over the life of the
related mortgage loans receivable as principal payments are received. Of the
$1,850,000 mortgage loans receivable received, $1,152,749 accrues interest at
9% per annum and has a maturity date of November 16, 1998 (extended from
September 30, 1998), at which time all principal is due. The remaining $697,251
accrues interest at 9% per annum and has a maturity date of June 30, 2002, at
which time all accrued interest, as well as principal, is due. As of September
30, 1998, accrued interest totaled $44,704.
As a result of the sale of approximately 31 acres of Parcel 16 for a sales
price of $1,890,000 on July 10, 1998, the Partnership received net sales
proceeds of $137,740, a mortgage loan receivable of $1,362,149 and recorded a
deferred gain on sale of $640,135. The deferred gain will be recognized over
the life of the related mortgage loan receivable as principal payments are
received. The mortgage loan receivable accrues interest at 9.5% per annum and
has a maturity date of July 1, 1999, at which time all accrued interest, as
well as principal, is due.
-15-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
(6) Notes Payable to Affiliate
On May 1, 1996, the Partnership obtained a line of credit from the General
Partner, Inland Real Estate Investment Corporation, in the aggregate amount of
$1,000,000 to be used specifically for the pre-development improvements on
Parcel 15. The Partnership is required to pay a 1% loan fee to the General
Partner as money is funded. The note accrues interest at 10.9%, and required a
principal paydown of $150,000 on October 1, 1996, and thereafter Net Sales
Proceeds from Parcel 15 are being applied first to paydown the note. This note
had an original maturity date of May 1, 1997, but had been extended to January
1, 1999 at the same interest rate. On May 27, 1998, this note was paid off. For
the nine months ended September 30, 1998 and 1997, interest of $7,544 and
$28,690, respectively, was capitalized, of which $0 and $20,292 was unpaid as
of September 30, 1998 and December 31, 1997, respectively. For the nine months
ended September 30, 1998, loan fees incurred and paid to the General Partner
totaled $324 and are included in investment in land and improvements.
On May 12, 1997, the Partnership obtained a line of credit from the General
Partner, Inland Real Estate Investment Corporation, in the aggregate amount of
$744,000 to be used specifically for the pre-development improvements on Parcel
21. The note accrues interest at 9.625% and has a maturity date of May 12,
1998. Interest-only payments on this note are due quarterly and the loan may be
prepaid at any time without penalty. On June 25, 1998, this note was assumed by
the purchaser of Parcel 21. The balance of this note at assumption was
$394,623. For the nine months ended September 30, 1998, interest of $26,756 was
capitalized, of which $0 and $29,170 was unpaid as of September 30, 1998 and
December 31, 1997, respectively.
As of September 30, 1998, Inland Real Estate Investment Corporation has made
loans to the Partnership totaling $2,670,400. Net sales proceeds totaling
$1,849,815 from Parcels 1, 4, 12, 15, 20, 23, and 24 were previously retained
and used to fund pre-development activity on certain of the Partnership's land
investments. In July 1997, the Partnership replenished these net sales proceeds
by obtaining a loan from the General Partner. The remainder of funds loaned to
the Partnership were for Partnership operations. The note accrues interest at
10% per annum and has a maturity date of January 1, 1999. For the nine months
ended September 30, 1998, interest of $196,119 was capitalized, of which
$277,055 and $134,850 was unpaid as of September 30, 1998 and December 31,
1997, respectively.
-16-
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, 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 October 12, 1988, the Partnership commenced an Offering of 10,000 (subject
to increase to 30,000) Limited Partnership Units pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. On October 6, 1989,
the Offering terminated with a total of 30,000 Units sold to the public at
$1,000 per Unit resulting in $30,000,000 in gross offering proceeds, which does
not include the Initial Limited Partner and the General Partner. All of the
holders of these Units have been admitted to the Partnership. The Limited
Partners of the Partnership share in their portion of benefits of ownership of
the Partnership's real property investments according to the number of Units
held.
The Partnership used $25,187,069 of gross offering proceeds to purchase on an
all-cash basis twenty-five parcels of undeveloped land and an option to
purchase undeveloped land. These investments include the payment of the
purchase price, acquisition fees and acquisition costs of such properties.
Fourteen of the parcels were purchased during 1989 and eleven during 1990. As
of September 30, 1998, the Partnership has had multiple sales transactions,
through which it has disposed of approximately 800 acres of the approximately
3,102 acres originally owned. As of September 30, 1998, cumulative
distributions to the Limited Partners have totaled $5,996,219 (which represents
a return of Invested Capital, as defined in the Partnership Agreement) and
$153,743 to the General Partner. Through September 30, 1998, the Partnership
has used $10,243,863 of working capital reserve for rezoning and other
activities. Such amounts have been capitalized and are included in investments
in land.
The Partnership's capital needs and resources will vary depending upon a number
of factors, including the extent to which the Partnership conducts rezoning and
other activities relating to utility access, the installation of roads,
subdivision and/or annexation of land to a municipality, changes in real estate
taxes affecting the Partnership's land, and the amount of revenue received from
leasing. As of September 30, 1998, the Partnership owns, in whole or in part,
nineteen of its twenty-five original parcels, the majority of which are leased
to local farmers and are generating sufficient cash flow from farm leases to
cover property taxes and insurance.
-17-
At September 30, 1998, the Partnership had cash and cash equivalents of
$1,110,874, of which approximately $46,140 is reserved for the repurchase of
Units through the Unit Repurchase Program. The remaining $1,064,734 is
available to be used for the Partnership expenses and liabilities, cash
distributions to partners and other activities with respect to some or all of
its land parcels. The Partnership has increased its parcel sales effort in
anticipation of rising land values.
Net sales proceeds totaling $1,849,826 from Parcels 1, 4, 12, 15, 20, 23 and 24
were previously retained and used to fund pre-development activity on certain
of the Partnership's land investments. In July 1997, the Partnership
replenished these net sales proceeds by obtaining a loan from the General
Partner. This note accrues interest at 10% and will be repaid with future net
sales proceeds as parcels are sold. On July 7, 1997, the Partnership
distributed these net sales proceeds to the Limited Partners resulting in
cumulative distributions of $5,996,219.
The Partnership plans to enhance the value of its land through pre-development
activities such as rezoning annexation and land planning. The Partnership has
already been successful in, or is in the process of pre-development activity on
a majority of the Partnership's land investments. Parcels 4, 6 and 7 have
completed one phase of improvements for an industrial park and sites are being
marketed. Parcels 16, 21 and 23 have been zoned with development and sales
marketing underway. The Partnership sold the remaining acres of Parcels 1, 15
and 21 to unaffiliated third-parties (see Note 3 of the Notes to Financial
Statements.)
Results of Operations
As of September 30, 1998, the Partnership owned nineteen parcels of land
consisting of approximately 2,302 acres. Of the 2,302 acres owned,
approximately 2,070 acres are tillable, leased to local farmers and generate
sufficient cash flow to cover property taxes, insurance and other miscellaneous
expenses. Land sales income and cost of land sold for the nine months ended
September 30, 1998 is a result of the sale of the remaining acreage of Parcels
15 and 21 and the sale of approximately 31 acres of Parcel 16. The decrease in
rental income for the three and nine months ended September 30, 1998, as
compared to the three and nine months ended September 30, 1997, is due to the
decrease in tillable acres due to land sales and pre-development activity on
the Partnership's land investments. This decrease is partially offset by the
annual increase in lease amounts from tenants.
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
primarily as a result of the interest income earned on the mortgage loans
receivable the Partnership received from the sales of the remaining acreage of
Parcels 1, 15 and 21 and the sale of approximately 31 acres of Parcel 16. See
Note 5 of the Notes to Financial Statements for further discussion of the terms
of the mortgage loans receivable received from these sales.
Professional services to non-affiliates 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 an decrease in outside legal services.
-18-
General and administrative expenses to Affiliates 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 decreases in postage and investor service
expenses. General and administrative expenses to non-affiliates 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 decreases in printing and
state tax expenses.
Marketing expenses to Affiliates 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 identification of such costs which are specific to a
particular parcel, and accordingly, have been capitalized and are included in
investments in land. Marketing expenses to non-affiliates 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 a decrease in advertising and
travel expenses relating to marketing the land portfolio to prospective
purchasers.
Land operating expenses to Affiliates 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 a decrease in Asset Management Fees incurred. Asset
Management Fees are limited to a cumulative total over the life of the
Partnership of 2% of the land's original cost. As of June 30, 1998, the
Partnership had met this limit. Land operating expenses to 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 an increase in
real estate taxes and maintenance expenses of the Partnership's land
investments.
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.
-19-
STATE OF READINESS
The Partnership has identified the following two 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.
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.
-20-
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 6(b) are omitted because of the absence of conditions under
which they are required.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
-21-
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 LAND APPRECIATION 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
-22-
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