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, 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
September 30, 1999 and December 31, 1998
(unaudited)
Assets
------
1999 1998
---- ----
Current assets:
Cash and cash equivalents (Note 1).............. $ 1,084,931 1,133,942
Accounts and accrued interest receivable
(Note 5)...................................... 447,060 181,821
Current portion of mortgage loans
receivable (Note 5)........................... 600,000 20,371
Other current assets............................ 2,163 1,584
------------ ------------
Total current assets.............................. 2,134,154 1,337,718
------------ ------------
Other assets...................................... 19,915 19,915
Mortgage loans receivable, less current
portion (Note 5)................................ 3,419,748 3,010,823
Investments in land and improvements, at cost
(including acquisition fees paid to Affiliates
of $884,556 and $970,132 at September 30,
1999 and December 31, 1998, respectively)
(Notes 1, 2 and 3).............................. 20,420,554 21,440,929
------------ ------------
Total assets...................................... $25,994,371 25,809,385
============ ============
See accompanying notes to financial statements.
-2-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1999 and December 31, 1998
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1999 1998
---- ----
Current liabilities:
Accounts payable................................ $ 1,666 2,497
Accrued real estate taxes....................... 33,691 42,174
Due to Affiliates (Note 2)...................... 29,503 275,297
Notes payable to Affiliate (Note 6)............. 2,493,750 2,493,750
Unearned income................................. 662 54,024
------------ ------------
Total current liabilities......................... 2,559,272 2,867,742
------------ ------------
Deferred gain on sale (Note 5).................... 328,051 376,302
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 171,436 168,478
Cumulative cash distributions................. (153,743) (153,743)
------------ ------------
18,193 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......................... 6,636,508 6,090,926
Cumulative cash distributions................. (9,422,838) (9,422,838)
------------ ------------
23,088,855 22,550,106
------------ ------------
Total Partners' capital........................... 23,107,048 22,565,341
------------ ------------
Total liabilities and Partners' capital........... $25,994,371 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 nine months ended September 30, 1999 and 1998
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
Income: ---- ---- ---- ----
Sale of investments in land and
improvements (Notes 1 and 3)... $1,308,726 859,753 1,792,856 5,764,179
Recognition of deferred gain on
sale of investments in land
and improvements (Note 5)...... 22,024 10,638 89,525 38,964
Rental income (Note 4)........... 70,278 58,957 198,791 178,972
Interest income.................. 105,504 177,279 268,437 282,338
Other income..................... - - 3,500 17,500
---------- ---------- ---------- ----------
1,506,532 1,106,627 2,353,109 6,281,953
---------- ---------- ---------- ----------
Expenses:
Cost of land sold................ 1,308,726 787,088 1,629,687 5,493,948
Professional services to
Affiliates..................... 8,114 12,685 23,669 37,085
Professional services to
non-affiliates................. - 123 28,732 31,903
General and administrative
expenses to Affiliates......... 6,517 2,007 20,640 11,229
General and administrative
expenses to non-affiliates..... (2,400) 1,541 24,753 13,537
Marketing expenses to Affiliates. (17,759) 12,148 14,967 46,426
Marketing expenses to
non-affiliates................. 3,963 7,044 15,524 33,690
Land operating expenses to
Affiliates..................... - - - 25,858
Land operating expenses to
non-affiliates................. 17,105 62,486 46,597 120,066
---------- ---------- ---------- ----------
1,324,266 885,122 1,804,569 5,813,742
---------- ---------- ---------- ----------
Net income....................... $ 182,266 221,505 548,540 468,211
========== ========== ========== ==========
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, 1999 and 1998
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Net income (loss) allocated to:
General Partner.................. $ 1,602 1,382 2,958 1,590
Limited Partners................. 180,664 220,123 545,582 466,621
---------- ---------- ---------- ----------
Net income......................... $ 182,266 221,505 548,540 468,211
========== ========== ========== ==========
Net income (loss) allocated to the
one General Partner Unit......... $ 1,602 1,382 2,958 1,590
========== ========== ========== ==========
Net income per Unit, basic and
diluted, allocated to Limited
Partners per weighted average
Limited Partnership Units
(29,596.24 and 29,619.72 for the
three months ended September 30,
1999 and 1998, and 29,600.63 and
29,626.03 for the nine months
ended September 30, 1999 and
1998, respectively).............. $ 6.10 7.43 18.43 15.75
========== ========== ========== ==========
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, 1999 and 1998
(unaudited)
1999 1998
Cash flows from operating activities: ---- ----
Net income...................................... $ 548,540 468,211
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) (231,267)
Recognition of deferred gain on sale of
investments in land and improvements........ (89,525) (38,964)
Changes in assets and liabilities:
Accounts and accrued interest receivable.... (265,239) (180,355)
Other current assets........................ (579) (5,278)
Accounts payable............................ (831) (23,130)
Accrued real estate taxes.................. (8,483) (16,463)
Due to Affiliates........................... (245,794) 151,020
Unearned income............................. (53,362) (8,203)
------------ ------------
Net cash provided by (used in) operating
activities...................................... (278,442) 115,571
------------ ------------
Cash flows from investing activities:
Additions to investments in land and
improvements.................................. (609,312) (513,445)
Principal payments collected on mortgage
loans receivable.............................. 361,446 743,031
Proceeds from disposition of investments in
land and improvements......................... 484,130 768,593
------------ ------------
Net cash provided by investing activities......... 236,264 998,179
------------ ------------
Cash flows from financing activities:
Repurchase of Limited Partnership Units......... (6,833) (18,378)
------------ ------------
Net cash used in financing activities............. (6,833) (18,378)
------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... (49,011) 1,095,372
Cash and cash equivalents at beginning of period.. 1,133,942 15,502
------------ ------------
Cash and cash equivalents at end of period........ $ 1,084,931 1,110,874
============ ============
See accompanying notes to financial statements.
-6-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
September 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 September 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 $1,085,000 and $1,134,000 at September 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)
September 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)
September 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 $12,143 and $65,066 were unpaid as of September 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 $14,967 and $46,426
have been incurred and are included in marketing expenses to Affiliates for the
nine months ended September 30, 1999 and 1998, respectively. As of September
30, 1999 and December 31, 1998, $0 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, of
which $17,360 and $0 were unpaid as of September 30, 1999 and December 31,
1998, respectively.
-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 Cumulative Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Parcel Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at On Sale
# County /(Sold) Date Costs Costs Costs Acquisition Sold 09/30/99 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 23,468 611,505 156,977 -
(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 67,362 235,275 378,409 -
(.4860) 02/28/91
(27.5750) 08/25/95
5 Kendall 372.2230 05/03/89 2,532,227 135,943 2,668,170 189,734 160,313 2,697,591 -
(a) (Option) 04/06/90
6 Kendall 78.3900 06/21/89 416,783 31,691 448,474 204,404 - 652,878 -
(b)
7 Kendall 77.0490 06/21/89 84,754 8,163 92,917 189,588 - 282,505 -
(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 4,860 - 614,187 -
(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 8,979 - 352,836 -
(b)
12 Kendall 90.2710 10/31/89 907,389 41,908 949,297 3,061 7,456 944,902 -
(.7090) 04/26/91
13 McHenry 92.7800 11/07/89 251,306 19,188 270,494 6,311 6,136 270,669 -
(2.0810) 09/18/97
14 McHenry 76.2020 11/07/89 419,111 23,402 442,513 45,565 - 488,078 -
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 7,867,865 10,139,342 6,839,032 -
-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 Cumulative Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Parcel Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at On Sale
# County /(Sold) Date Costs Costs Costs Acquisition Sold 09/30/99 Recognized
- ------ --------- --------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
Subtotal $ 8,499,401 611,108 9,110,509 7,867,865 10,139,342 6,839,032 -
16 Kane/Kendall 72.4187 01/29/90 1,273,537 55,333 1,328,870 649,712 815,516 1,163,066 -
(30.9000) 07/10/98
17 McHenry 99.9240 01/29/90 739,635 61,038 800,673 411,403 320,961 891,115 163,169
(27.5100) 01/29/99
18 McHenry 71.4870 01/29/90 496,116 26,259 522,375 23,254 11,109 534,520 -
(1.0000) Var 1990
(.5200) 03/11/93
19 McHenry 63.6915 02/23/90 490,158 29,158 519,316 9,939 - 529,255 -
20 Kane 224.1480 02/28/90 2,749,800 183,092 2,932,892 572,872 3,651 3,502,113 -
(.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 35,838 - 2,781,278 -
23 Kendall 140.0210 05/08/90 1,480,000 116,240 1,596,240 909,395 2,505,635 - -
(4.4100) Var 1993
(35.8800) Var 1994
(3.4400) Var 1995
(96.2910) 08/26/99
24 Kendall 298.4830 05/23/90 1,359,774 98,921 1,458,695 21,281 83,663 1,396,313 -
(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 15,084 - 2,783,862 -
------------ ------------ ------------ -------------- ------------ ------------ -----------
$23,624,761 1,562,308 25,187,069 11,471,058 16,237,573 20,420,554 163,169
============ ============ ============ ============== ============ ============ ===========
</TABLE>
-11-
-11-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 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:
September 30, December 31,
1999 1998
------------ ------------
Balance at January 1,............ $21,440,929 25,848,790
Additions during period.......... 609,312 1,131,328
Sales during period.............. (1,629,687) (5,539,189)
------------ ------------
Balance at end of period......... $20,420,554 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 September 30, 1999, the Partnership had farm leases of generally one year
in duration, for approximately 2,034 acres of the approximately 2,178 acres
owned.
-12-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 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 September 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 of
the original note 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, 1999, the remaining mortgage loan receivable balance
was $1,427,057 and accrued interest receivable totaled $142,158.
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 September 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 September 30, 1999, the Partnership had received $91,517, which
represented all principal and partial accrued interest on this loan. There is
remaining accrued interest of $4,784 as of September 30, 1999.
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 $18,514
has been recognized as of September 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 September 30, 1999, the remaining mortgage loan
receivable balance was $2,106 and accrued interest receivable was $0.
-13-
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 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 $454,327
has been recognized as of September 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. As of September 30, 1999, the remaining
accrued interest receivable totaled $59,029. The remaining $798,451 of the
original note (increased from $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, 1999, the remaining mortgage
loan receivable balance was $747,666 and accrued interest receivable totaled
$90,761.
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
$46,446 has been recognized as of September 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 of the original note
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, 1999, the remaining mortgage loan receivable balance was $492,918 and
accrued interest receivable totaled $89,126.
As a result of the sale of the remaining approximately 96 acres of Parcel 23
for a sales price of $1,350,000 on August 26, 1999, the Partnership received
mortgage loans receivable totaling $1,350,000 and recorded a deferred gain on
sale of $41,274. The deferred gain will be recognized over the life of the
related mortgage loans receivable as principal payments are received, of which
$0 has been recognized as of September 30, 1999. Of the $1,350,000 mortgage
loans receivable received, $600,000 accrues interest at 9% per annum and has a
maturity date of November 6, 1999 (extended from October 30, 1999), at which
time the principal is due, and the remaining $750,000 accrues interest at 9%
per annum and has a maturity date of August 26, 2003 at which time all accrued
interest as well as principal, is due. As of September 30, 1999, the remaining
mortgage loan receivable balance was $1,350,000 and accrued interest
receivable totaled $11,318.
At September 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)
September 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
nine months ended September 30, 1999, interest of $135,161 was capitalized, all
of which was paid as of September 30, 1999.
(7) Subsequent Event
On November 2, 1999, the Partnership received $600,000 for the principal
paydown on the mortgage receivable for Parcel 23.
-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 September 30, 1999, the Partnership has had multiple sales transactions,
through which it has disposed of approximately 922 acres of the approximately
3,102 acres originally owned. As of September 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 September 30, 1999, the Partnership
has used $11,471,058 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, 1999, the Partnership owns, in whole or in part,
eighteen 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 September 30, 1999, the Partnership had cash and cash equivalents of
$1,084,931, of which approximately $41,700 is reserved for the repurchase of
Units through the Unit Repurchase Program. The remaining approximately
$1,043,231 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. The Partnership sold the remaining acres of Parcels 1, 15, 21 and 23
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 nine months ended September 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 nine
months ended September 30, 1998 is the result of the sale of the remaining
acreage of Parcels 15 and 21 and the sale of approximately thirty-one acres of
Parcel 16.
As of September 30, 1999, the Partnership owned eighteen parcels of land
consisting of approximately 2,178 acres. Of the 2,178 acres owned,
approximately 2,034 acres are tillable, leased to local farmers and generate
sufficient cash flow to cover property taxes, insurance and other miscellaneous
expenses.
Interest income decreased for the three and nine months ended September 30,
1999, as compared to the three and nine months ended September 30, 1998,
primarily as a result of less interest income earned on the mortgage loans
receivable as the Partnership received paydowns on the mortgages from the sales
of Parcels 15, 16 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. The decrease for the three and nine months ended September 30,
1999, was partially offset by an increase in investment interest income as
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 nine months
ended September 30, 1999, as compared to the three and nine months ended
September 30, 1998, due to a decrease in legal services and accounting
services.
-17-
General and administrative expenses to Affiliates increased for the three and
nine months ended September 30, 1999, as compared to the three and nine months
ended September 30, 1998, due to increases in data processing and investor
service expenses. General and administrative expenses to non-affiliates
increased for the nine months ended September 30, 1999, as compared to the nine
months ended September 30, 1998, due to an increase in the Illinois Replacement
Tax. General and administrative expenses to non-affiliates decreased for the
three months ended September 30, 1999, as compared to the three months ended
September 30, 1998, due to accounting reclassifications.
Marketing expenses to non-affiliates decreased for the three and nine months
ended September 30, 1999, as compared to the three and nine months ended
September 30, 1998, due to a decrease in non recurring advertising and travel
expenses relating to marketing the land portfolio to prospective purchasers.
Marketing expenses to Affiliates decreased for the three and nine months ended
September 30, 1999, as compared to the three and nine months ended September
30, 1998, due to an increase in the capitalization of marketing costs to the
specifically related land parcels.
Land operating expenses to Affiliates decreased for the nine months ended
September 30, 1999, as compared to the nine months ended September 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 nine
months ended September 30, 1999, as compared to the three and nine months ended
September 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.
-18-
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.
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.
-19-
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
-20-
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, 1999
/S/ PATRICIA A. DELROSSO
By: Patricia A. DelRosso
Senior Vice President
Date: November 12, 1999
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: November 12, 1999
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1084931
<SECURITIES> 0
<RECEIVABLES> 1049223
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2134154
<PP&E> 20420554
<DEPRECIATION> 0
<TOTAL-ASSETS> 25994371
<CURRENT-LIABILITIES> 2559272
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 23107048
<TOTAL-LIABILITY-AND-EQUITY> 25994371
<SALES> 1792856
<TOTAL-REVENUES> 2353109
<CGS> 1629687
<TOTAL-COSTS> 46597
<OTHER-EXPENSES> 128285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 548540
<INCOME-TAX> 0
<INCOME-CONTINUING> 548540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 548540
<EPS-BASIC> 18.43
<EPS-DILUTED> 18.43
</TABLE>
