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 June 30, 1999
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
June 30, 1999 and December 31, 1998
(unaudited)
Assets
------
1999 1998
Current assets: ---- ----
Cash and cash equivalents (Note 1).............. $ 1,329,031 1,133,942
Accounts and accrued interest receivable
(Note 5)...................................... 311,918 181,821
Current portion of mortgage loans
receivable (Note 5)........................... 8,332 20,371
Other current assets............................ - 1,584
------------ ------------
Total current assets.............................. 1,649,281 1,337,718
------------ ------------
Other assets...................................... 19,915 19,915
Mortgage loans receivable, less current
portion (Note 5)................................ 2,815,549 3,010,823
Investments in land and improvements, at cost
(including acquisition fees paid to Affiliates
of $955,865 and $970,132 at June 30, 1999
and December 31, 1998, respectively) (Notes 1,
2 and 3)........................................ 21,323,389 21,440,929
------------ ------------
Total assets...................................... $25,808,134 25,809,385
============ ============
See accompanying notes to financial statements.
-2-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Balance Sheets
(continued)
June 30, 1999 and December 31, 1998
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1999 1998
---- ----
Current liabilities:
Accounts payable................................ $ 7,113 2,497
Accrued real estate taxes....................... 44,599 42,174
Due to Affiliates (Note 2)...................... 15,063 275,297
Notes payable to Affiliate (Note 6)............. 2,493,750 2,493,750
Unearned income................................. 14,027 54,024
------------ ------------
Total current liabilities......................... 2,574,552 2,867,742
Deferred gain on sale of investments in land and
improvements (Note 5)........................... 308,800 376,302
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 169,834 168,478
Cumulative cash distributions................. (153,743) (153,743)
------------ ------------
16,591 15,235
Limited Partners: ------------ ------------
Units of $1,000. Authorized 30,001 Units,
29,619.25 Units outstanding (net of offering
costs of $3,768,113, of which $1,069,764 was
paid to Affiliates)......................... 25,875,185 25,882,018
Cumulative net income......................... 6,455,844 6,090,926
Cumulative cash distributions................. (9,422,838) (9,422,838)
------------ ------------
22,908,191 22,550,106
------------ ------------
Total Partners' capital........................... 22,924,782 22,565,341
------------ ------------
Total liabilities and Partners' capital........... $25,808,134 25,809,385
============ ============
See accompanying notes to financial statements.
-3-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Statements of Operations
For the three and six months ended June 30, 1999 and 1998
(unaudited)
Three months Six months
ended ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
Income: ---- ---- ---- ----
Sale of investments in land and
improvements (Notes 1 and 3).. $ - 4,675,946 484,130 4,904,426
Recognition of deferred gain on
sale of investments in land
and improvements (Note 5)..... 62,498 28,326 67,501 28,326
Rental income (Note 4).......... 68,580 60,583 128,513 120,015
Interest income................. 81,402 55,296 162,933 105,059
Other income.................... - 16,500 3,500 17,500
----------- ---------- ---------- ----------
212,480 4,836,651 846,577 5,175,326
----------- ---------- ---------- ----------
Expenses:
Cost of land sold............... - 4,615,627 320,961 4,706,860
Professional services to
Affiliates.................... 5,155 13,100 15,555 24,400
Professional services to
non-affiliates................ 57 3,011 28,732 31,780
General and administrative
expenses to Affiliates........ 2,349 1,320 14,123 9,222
General and administrative
expenses to non-affiliates.... 8,252 8,086 27,153 11,996
Marketing expenses to Affiliates 5,577 6,951 32,726 34,278
Marketing expenses to
non-affiliates................ 5,869 19,217 11,561 26,646
Land operating expenses to
Affiliates.................... - 12,072 - 25,858
Land operating expenses to
non-affiliates................ 15,723 37,390 29,492 57,580
----------- ---------- ---------- ----------
42,982 4,716,774 480,303 4,928,620
----------- ---------- ---------- ----------
Net income (loss)................. $ 169,498 119,877 366,274 246,706
=========== ========== ========== ==========
See accompanying notes to financial statements.
-4-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the three and six months ended June 30, 1999 and 1998
(unaudited)
Three months Six months
ended ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Net income (loss) allocated to:
General Partner................. $ 1,070 312 1,356 208
Limited Partners................ 168,428 119,565 364,918 246,498
----------- ---------- ---------- ----------
Net income (loss)................. $ 169,498 119,877 366,274 246,706
=========== ========== ========== ==========
Net income (loss) allocated to the
one General Partner Unit........ $ 1,070 312 1,356 208
=========== ========== ========== ==========
Net income (loss) per Unit, basic
and diluted, allocated to Limited
Partners per weighted average
Limited Partnership Units
(29,599.54 and 29,629.24 for the
three months ended June 30, 1999
and 1998, and 29,602.87 and
29,629.24 for the six months
ended June 30, 1999 and 1998,
respectively)................... $ 5.69 4.04 12.33 8.32
=========== ========== ========== ==========
See accompanying notes to financial statements.
-5-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Statements of Cash Flows
For the six months ended June 30, 1999 and 1998
(unaudited)
1999 1998
Cash flows from operating activities: ---- ----
Net income...................................... $ 366,274 246,706
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of investments in land
and improvements............................ (163,169) (225,892)
Recognition of deferred gain on sale of
investments in land and improvements........ (67,502) (28,326)
Changes in assets and liabilities:
Accounts and accrued interest receivable.... (130,097) (99,446)
Other current assets........................ 1,584 (2,759)
Accounts payable............................ 4,616 (5,010)
Accrued real estate taxes.................. 2,425 (7,213)
Due to Affiliates........................... (260,234) 55,386
Unearned income............................. (39,997) 1,935
Net cash provided by (used in) operating ------------ ------------
activities...................................... (286,100) (64,619)
------------ ------------
Cash flows from investing activities:
Additions to investments in land and
improvements.................................. (203,421) (423,215)
Principal payments collected on mortgage
loans receivable.............................. 207,313 575,000
Proceeds from disposition of investments in
land and improvements......................... 484,130 929,580
------------ ------------
Net cash provided by investing activities......... 488,022 1,081,365
------------ ------------
Cash flows from financing activities:
Repurchase of Limited Partnership Units......... (6,833) -
Proceeds from notes payable to Affiliate, net... - (218,448)
------------ ------------
Net cash provided by financing activities......... (6,833) (218,448)
------------ ------------
Net increase in cash and cash equivalents......... 195,089 798,298
Cash and cash equivalents at beginning of period.. 1,133,942 15,502
------------ ------------
Cash and cash equivalents at end of period........ $ 1,329,031 813,800
============ ============
See accompanying notes to financial statements.
-6-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
June 30, 1999
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1998, which are
included in the Partnership's 1998 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 June 30, 1999, the
Partnership has repurchased a total of 384.75 Units for $357,701 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. Such investments are
carried at cost which approximates market. Cash and cash equivalents are
approximately $1,329,000 and $1,134,000 at June 30, 1999 and December 31, 1998,
respectively.
A presentation of information about operating segments as required in Statement
of Financial Accounting Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information" would not be material to an understanding
of the Partnership's business taken as a whole as the Partnership is engaged in
the business of real estate investment which management considers to be a
single operating segment.
-7-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
June 30, 1999
(unaudited)
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.
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. The
Partnership has not recognized any such impairment.
Statement of Financial Accounting Standards No. 128 "Earnings per Share" was
adopted by the Partnership and has been applied to all prior earnings periods
presented in the financial statements. The Partnership has no dilutive
securities.
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.
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.
-8-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
June 30, 1999
(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 $5,063 and $65,066 were unpaid as of June 30, 1999 and December 31, 1998,
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 have been incurred for the
six months ended June 30, 1998 and are included in land operating expenses to
Affiliates. Cumulative asset management fees of $81,136 were unpaid as of
December 31, 1998. No such fees were incurred in 1999.
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 $32,726 and $34,278
have been incurred and are included in marketing expenses to Affiliates for the
six months ended June 30, 1999 and 1998, respectively. As of June 30, 1999 and
December 31, 1998, $14,000 and $14,829, respectively, were unpaid.
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, all of
which have been paid.
-9-
<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 06/30/99 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 - -
(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 22,765 611,505 156,274 -
(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 65,741 235,275 376,788 -
(.4860) 02/28/91
(27.5750) 08/25/95
5 Kendall 372.2230 05/03/89 2,532,227 135,943 2,668,170 144,143 160,313 2,652,000 -
(a) (Option) 04/06/90
6 Kendall 78.3900 06/21/89 416,783 31,691 448,474 202,672 - 651,146 -
(b)
7 Kendall 77.0490 06/21/89 84,754 8,163 92,917 188,120 - 281,037 -
(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 4,000 - 613,327 -
(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 8,205 - 352,062 -
(b)
12 Kendall 90.2710 10/31/89 907,389 41,908 949,297 2,382 7,456 944,223 -
(.7090) 04/26/91
13 McHenry 92.7800 11/07/89 251,306 19,188 270,494 5,553 6,136 269,911 -
(2.0810) 09/18/97
14 McHenry 76.2020 11/07/89 419,111 23,402 442,513 44,848 - 487,361 -
15 Lake 84.5564 01/03/90 1,056,955 85,283 1,142,238 1,661,344 2,803,582 - -
(10.5300) Var 1996
(5.4680) Var 1997
(68.5584) Var 1998
------------ ------------ ------------ -------------- ------------ ------------ -------------
Subtotal $ 8,499,401 611,108 9,110,509 7,812,962 10,139,342 6,784,129 -
-10-
-10-
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 06/30/99 Recognized
- ------ --------- ---------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal $ 8,499,401 611,108 9,110,509 7,812,962 10,139,342 6,784,129 -
16 Kane/Kendall 72.4187 01/29/90 1,273,537 55,333 1,328,870 648,403 815,516 1,161,757 -
(30.9000) 07/10/98
17 McHenry 99.9240 01/29/90 739,635 61,038 800,673 394,211 320,961 873,923 163,169
(27.5100) 01/29/99
18 McHenry 71.4870 01/29/90 496,116 26,259 522,375 22,336 11,109 533,602 -
(1.0000) Var 1990
(.5200) 03/11/93
19 McHenry 63.6915 02/23/90 490,158 29,158 519,316 9,365 - 528,681 -
20 Kane 224.1480 02/28/90 2,749,800 183,092 2,932,892 527,535 3,651 3,456,776 -
(.2790) 10/17/91
21 Kendall 172.4950 03/08/90 1,327,459 75,822 1,403,281 954,415 2,357,696 - -
(172.4950) Var 1998
22 McHenry 254.5250 04/11/90 2,608,881 136,559 2,745,440 35,065 - 2,780,505 -
23 Kendall 140.0210 05/08/90 1,480,000 116,240 1,596,240 625,741 1,196,909 1,025,072 -
(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 20,585 83,663 1,395,617 -
(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 14,549 - 2,783,327 -
------------ ------------ ------------ -------------- ------------ ------------ -----------
$23,624,761 1,562,308 25,187,069 11,066,167 14,928,847 21,323,389 163,169
============ ============ ============ ============== ============ ============ ===========
</TABLE>
-11-
-11-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
June 30, 1999
(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:
June 30, December 31,
1999 1998
------------ ------------
Balance at January 1,............ $21,440,929 25,848,790
Additions during period.......... 203,421 1,131,328
Sales during period.............. (320,961) (5,539,189)
------------ ------------
Balance at end of period......... $21,323,389 21,440,929
============ ============
(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 June 30, 1999, the Partnership had farm leases of generally one year in
duration, for approximately 2,043 acres of the approximately 2,274 acres owned.
-12-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
June 30, 1999
(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 June 30, 1999. Of the $2,170,089 mortgage
loans receivable received, $575,000 accrued interest at 9% per annum and had a
maturity date of July 1, 1998, at which time all accrued interest, as well as
principal, was 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 June 30, 1999, the
remaining mortgage loan receivable balance was $1,427,057 and accrued interest
receivable totaled $109,786.
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 $56,426 has been
recognized as of June 30, 1999. The mortgage loan receivable accrues interest
at 9% per annum, paid monthly, and has a maturity date of July 1, 2001. As of
June 30, 1999, the Partnership had received $91,517, which represented all
principal and interest on this loan.
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 $13,372
has been recognized as of June 30, 1999. The mortgage loan receivable accrues
interest at 9% per annum, paid monthly, and has a maturity date of October 1,
1999. As of June 30, 1999, the remaining mortgage loan receivable balance was
$8,332 and accrued interest receivable totaled $62.
-13-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
June 30, 1999
(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 which $440,769
has been recognized as of June 30, 1999. Of the $2,449,451 mortgage loans
receivable received, $1,651,000 (originally $1,983,000) accrues interest at 9%
per annum and had a maturity date of November 16, 1998 (extended from September
30, 1998), at which time all principal was due. On November 17, 1998, the
Partnership received $1,651,000. The remaining $798,451 (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 June 30,
1999, the remaining mortgage loan receivable balance was $798,451 and accrued
interest receivable totaled $72,648.
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 $63,317. The deferred gain will be recognized over the life of the
related mortgage loans receivable as principal payments are received, of which
$43,122 has been recognized as of June 30, 1999. Of the $1,850,000 mortgage
loans receivable received, $1,152,749 accrues interest at 9% per annum and had
a maturity date of November 16, 1998 (extended from September 30, 1998), at
which time all principal was due. On November 17, 1998, the Partnership
received $1,152,749. 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 June 30, 1999, the remaining mortgage loan
receivable balance was $590,041 and accrued interest receivable totaled
$61,560.
At June 30, 1999, the fair market value of the mortgage loans receivable
approximated their carrying values.
-14-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
June 30, 1999
(unaudited)
(6) Notes Payable to Affiliate
Through December 30, 1998, the General Partner had made additional 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 distributed 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 accrued interest at 10%
per annum and had a maturity date of January 1, 1999. On December 30, 1998,
this note was paid in full by the Partnership. For the year ended December 31,
1998, interest of $263,428 was capitalized, of which $114,266 was unpaid as of
December 31, 1998.
On December 31, 1998, the Partnership obtained a loan from the General Partner
in the amount of $2,493,750 solely collateralized by Parcel 5. The note
accrues interest at 7.2% and has a maturity date of December 29, 2001. For the
six months ended June 30, 1999, interest of $90,273 was capitalized, all of
which was paid as of June 30, 1999.
-15-
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 "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 June 30, 1999, the Partnership has had multiple sales transactions, through
which it has disposed of approximately 826 acres of the approximately 3,102
acres originally owned. As of June 30, 1999, cumulative distributions to the
Limited Partners have totaled $9,422,838 (which represents a return of Invested
Capital, as defined in the Partnership Agreement) and $153,743 to the General
Partner. Through June 30, 1999, the Partnership has used $11,065,167 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 June 30, 1999, 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.
-16-
At June 30, 1999, the Partnership had cash and cash equivalents of $1,329,031,
of which approximately $41,000 is reserved for the repurchase of Units through
the Unit Repurchase Program. The remaining approximately $1,288,000 is
available to be used for 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.
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. Parcel 16 has 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
Income from the sale of investments in land and improvements and the cost of
land sold for the six months ended June 30, 1999 is the result of the sale of
approximately 28 acres of Parcel 17. Income from the sale of investments in
land and improvements and the cost of land sold for the six months ended June
30, 1998 is the result of the sale of approximately three acres, including the
sale of two lots of Parcel 15 and one lot of Parcel 21.
As of June 30, 1999, the Partnership owned nineteen parcels of land consisting
of approximately 2,274 acres. Of the 2,274 acres owned, approximately 2,043
acres are tillable, leased to local farmers and generate sufficient cash flow
to cover property taxes, insurance and other miscellaneous expenses.
Interest income increased for the three and six months ended June 30, 1999, as
compared to the three and six months ended June 30, 1998, 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. See
Note 5 of the Notes to Financial Statements for further discussion of the terms
of the mortgage loans receivable received from these sales. In addition, for
the six months ended June 30, 1999, there was more cash available for investing
due to the payments received on the mortgage loans receivable during 1998 and
1999.
Professional services to Affiliates decreased for the three and six months
ended June 30, 1999, as compared to the three and six months ended June 30,
1998, due to a decrease in legal services and accounting services.
General and administrative expenses to Affiliates increased for the three and
six months ended June 30, 1999, as compared to the three and six months ended
June 30, 1998, due to increases in data processing and investor service
expenses. General and administrative expenses to non-affiliates increased for
the six months ended June 30, 1999, as compared to the six months ended June
30, 1998, due to an increase in the Illinois Replacement Tax.
-17-
Marketing expenses to non-affiliates decreased for the three and six months
ended June 30, 1999, as compared to the three and six months ended June 30,
1998, due to a decrease in non recurring advertising and travel expenses
relating to marketing the land portfolio to prospective purchasers.
Land operating expenses to Affiliates decreased for the six months ended June
30, 1999, as compared to the six months ended June 30, 1998, 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 decreased for the three and six months ended June
30, 1999, as compared to the three and six months ended June 30, 1998, due to a
decrease in maintenance and utility 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.
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.
-18-
Suppliers and other Parties: The Partnership is in the process of surveying
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. At this time, the
Partnership is not aware of any party that is anticipating a material Year 2000
compliance issue. However, 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 ongoing, and
currently the Partnership is not aware of any material impact on its business,
operations or financial condition even if one or more parties is not Year 2000
compliant in a timely manner, due to the number and nature of the Partnership's
diverse supplier base.
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.
YEAR 2000 COSTS
- ---------------
The Partnership's General Partner and its Affiliates estimate that costs to
achieve year 2000 compliance will not exceed $100,000. 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 costs
are not expected to be significant.
CONTINGENCY PLAN
- ----------------
The Partnership expects to be Year 2000 compliant in advance of the year 2000.
The Partnership will continue to monitor its progress and state of readiness,
and is in the process of formulating a contingency plan which the Partnership
will be prepared to adopt with respect to areas in which evidence arises that
it may not become Year 2000 compliant in sufficient time. With respect to its
suppliers and other parties with whom the Partnership conducts business, the
Partnership does not yet have sufficient information to identify the types of
problems it may encounter in the event these third parties are not Year 2000
compliant. As information is obtained that may indicate such parties may not
become Year 2000 compliant in sufficient time, the Partnership is prepared to
develop contingency plans, accordingly.
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) Reports on Form 8-K:
None
-19-
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: August 11, 1999
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: August 11, 1999
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: August 11, 1999
-20-
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