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, 1996
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 #0-17593
Inland Monthly Income Fund II, L.P.
(Exact name of registrant as specified in its charter)
Delaware #36-3587209
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2901 Butterfield Road, Oak Brook, Illinois 60521
(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-
PART I
Item 1. Financial Statements
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
September 30, 1996 and December 31, 1995
(unaudited)
Assets
------
1996 1995
---- ----
Current assets:
Cash and cash equivalents (Note 1).............. $ 867,760 981,562
Accounts and rents receivable................... 121,472 159,975
Current portion of deferred rent receivable
(Note 2)...................................... 1,516 2,968
Other assets.................................... 1,249 670
------------ ------------
Total current assets.......................... 991,997 1,145,175
------------ ------------
Investment properties (including acquisition fees
paid to Affiliates of $1,430,682)(Note 1):
Land.......................................... 3,998,149 3,998,149
Buildings and improvements.................... 13,814,185 13,814,185
------------ ------------
17,812,334 17,812,334
Less accumulated depreciation............... 3,078,381 2,754,691
------------ ------------
Net investment properties..................... 14,733,953 15,057,643
------------ ------------
Other assets:
Deferred leasing fees to Affiliates (net of
accumulated amortization of $102,297 and
$88,728 at September 30, 1996 and December 31,
1995, respectively) (Note 1).................. 125,435 139,004
Deferred rent receivable, less current portion
(Note 2)...................................... 375,379 378,600
------------ ------------
Total other assets............................ 500,814 517,604
------------ ------------
Total assets...................................... $16,226,764 16,720,422
============ ============
See accompanying notes to financial statements.
-2-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1996 and December 31, 1995
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1996 1995
---- ----
Current liabilities:
Accounts payable................................ $ 14,425 5,494
Accrued real estate taxes....................... 137,974 180,025
Distributions payable (Note 4).................. 135,525 140,426
Due to Affiliates (Note 3)...................... 402 7,398
Deposits held for others........................ 237,534 321,855
Other current liabilities....................... 26,925 26,925
------------ ------------
Total current liabilities..................... 552,785 682,123
Commission payable to Affiliates (Note 3)......... 132,000 132,000
------------ ------------
Total liabilities................................. 684,785 814,123
------------ ------------
Partners' capital (Notes 1 and 4):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 69,669 72,906
------------ ------------
70,169 73,406
------------ ------------
Limited Partners:
Units of $500. Authorized 80,000 Units,
50,095.50 Units outstanding (net of
offering costs of $3,148,734, of which
$653,165 was paid to Affiliates)............ 21,916,510 21,916,510
Cumulative net income......................... 11,122,575 10,195,854
Cumulative distributions...................... (17,567,275) (16,279,471)
------------ ------------
15,471,810 15,832,893
------------ ------------
Total Partners' capital..................... 15,541,979 15,906,299
------------ ------------
Total liabilities and Partners' capital........... $16,226,764 16,720,422
============ ============
See accompanying notes to financial statements.
-3-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Operations
For the three and nine months ended September 30, 1996 and 1995
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Income:
Rental income (Notes 1 and 2).... $ 475,680 479,401 1,427,514 1,437,075
Additional rental income......... 37,057 36,725 116,464 111,341
Interest income.................. 8,397 8,369 24,078 25,238
Other income..................... - - - 1,709
---------- ---------- ---------- ----------
521,134 524,495 1,568,056 1,575,363
---------- ---------- ---------- ----------
Expenses:
Professional services to
Affiliates..................... 3,076 4,620 9,551 15,253
Professional services to
non-affiliates................. - - 23,665 24,550
General and administrative
expenses to Affiliates......... 8,436 7,972 24,499 26,762
General and administrative
expenses to non-affiliates..... 2,223 1,951 13,299 11,604
Property operating expenses to
Affiliates..................... 8,494 6,956 24,162 22,394
Property operating expenses to
non-affiliates................. 68,324 57,814 212,137 185,386
Depreciation..................... 107,896 107,897 323,690 323,690
Amortization..................... 4,523 4,524 13,569 13,570
---------- ---------- ---------- ----------
202,972 191,734 644,572 623,209
---------- ---------- ---------- ----------
Net income......................... $ 318,162 332,761 923,484 952,154
========== ========== ========== ==========
Net income (loss) allocated to:
General Partner.................. (1,079) (1,079) (3,237) (3,237)
Limited Partners................. 319,241 333,840 926,721 955,391
---------- ---------- ---------- ----------
Net income......................... $ 318,162 332,761 923,484 952,154
========== ========== ========== ==========
Net loss allocated to the one
General Partner Unit............. $ (1,079) (1,079) (3,237) (3,237)
========== ========== ========== ==========
Net income allocated to Limited
Partners per weighted average
Limited Partnership Units of
50,095.50........................ $ 6.37 6.66 18.50 19.07
========== ========== ========== ==========
See accompanying notes to financial statements.
-4-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For nine months ended September 30, 1996 and 1995
(unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net income...................................... $ 923,484 952,154
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation.................................. 323,690 323,690
Amortization.................................. 13,569 13,570
Deferred rent receivable...................... 4,673 (16,439)
Changes in assets and liabilities:
Accounts and rents receivable............... 38,503 (22,540)
Other assets................................ (579) (1,775)
Accounts payable............................ 8,931 (29,448)
Accrued real estate taxes................... (42,051) 52,279
Due to Affiliates........................... (6,996) 2,254
Other current liabilities................... - (25,000)
------------ ------------
Net cash provided by operating activities......... 1,263,224 1,248,745
------------ ------------
Cash flows from financing activities:
Deposits held for others........................ (84,321) 50,156
Cash distributions.............................. (1,292,705) (1,291,129)
------------ ------------
Net cash used in financing activities............. (1,377,026) (1,240,973)
------------ ------------
Net increase (decrease) in cash
and cash equivalents............................ (113,802) 7,772
Cash and cash equivalents at beginning of period.. 981,562 1,043,893
------------ ------------
Cash and cash equivalents at end of period........ $ 867,760 1,051,665
============ ============
See accompanying notes to financial statements.
-5-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
September 30, 1996
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1995, which are
included in the Partnership's 1995 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this Report.
(1) Organization and Basis of Accounting
Inland Monthly Income Fund II, L.P. (the "Partnership") was organized on June
20, 1988 by filing a Certificate of Limited Partnership under the Revised
Uniform Limited Partnership Act of the State of Delaware. On August 4, 1988,
the Partnership commenced an Offering of 50,000 (subject to increase to 80,000)
Limited Partnership Units pursuant to a Registration under the Securities Act
of 1933. The Offering terminated on August 4, 1990, with total sales of
50,647.14 Units at $500 per Unit, resulting in gross offering proceeds of
$25,323,569, not including the General Partner's contribution for $500. All of
the holders of these Units have been admitted to the Partnership. Inland Real
Estate Investment Corporation is the General Partner. The Limited Partners of
the Partnership share in the benefits of ownership of the Partnership's real
property investments in proportion to the number of Units held. The Partnership
had repurchased 551.64 Units for $260,285 from various Limited Partners through
the Unit Repurchase Program. There are no funds remaining for the repurchase of
Units through this program.
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's policy is to reduce the cost basis of investment properties,
including deferred leasing fees and deferred rent receivable, to its estimated
net realizable value when the investment properties are judged to have suffered
an impairment in value that is other than temporary. Estimated net realizable
value is measured by the recoverability of the Partnership's investment through
expected future cash flows on an undiscounted basis. Net realizable value is
inherently subjective and is based on management's best estimate of current
conditions and assumptions about expected future conditions, including lease-up
periods, rental rates, interest rates and capitalization rates. As of September
30, 1996, no reduction to the cost basis of the investment properties has been
recorded as the estimated net realizable value of the investment properties
exceeds their cost basis.
-6-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
Depreciation expense is computed using the straight-line method. Buildings and
improvements are based upon estimated useful lives of 30 to 40 years, while
furniture and fixtures are based upon estimated useful lives of 5 to 12 years.
Maintenance and repair expenses are charged to operations as incurred.
Significant improvements are capitalized and depreciated over their estimated
useful lives.
Deferred leasing fees are amortized on a straight-line basis over the term of
the related lease.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned and the cash rent due under
the provisions of the lease agreements is recorded as deferred rent receivable.
The Partnership considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. For the periods ended
September 30, 1996 and December 31, 1995, included in cash and cash equivalents
is approximately $227,000 and $311,000, respectively, held in an unrestricted
escrow account for the payment of real estate taxes for Colonial Manor Living
Center. The carrying amount of cash, cash equivalents and distribution payable
approximates fair value because of the short maturity of those instruments.
No provision for Federal income taxes has been made as the liability for such
taxes is that of the Partners rather than the Partnership.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" was issued in March 1995 and
is effective for fiscal years beginning after December 15, 1995. This
pronouncement is not expected to have a material effect on the financial
position or results of operations of 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
the results to be expected for the year.
-7-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
(2) Deferred Rent Receivable
Certain tenant leases contain provisions providing for stepped rent increases.
Generally accepted accounting principles require that rental income be recorded
for the period of occupancy using the straight-line basis. The accompanying
financial statements include a decrease of $4,673 and an increase of $16,439
for the nine months ended September 30, 1996 and 1995, respectively, of rental
income for the period of occupancy for which stepped rent increases apply and
$376,895 and $381,568 in related accounts receivable as of September 30, 1996
and December 31, 1995, respectively. These amounts will be collected over the
terms of the related leases as scheduled rent payments are made.
(3) 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 to Affiliates and general and administrative expenses to
Affiliates, of which $402 and $7,398 was unpaid as of September 30, 1996 and
December 31, 1995, respectively.
An Affiliate of the General Partner earned Property Management Fees of $24,162
and $22,394 for the nine months ended September 30, 1996 and 1995,
respectively, in connection with managing the Partnership's properties. Such
fees are included in property operating expenses to Affiliates, all of which
has been paid as of September 30, 1996.
In connection with the sale of The Wholesale Club on January 8, 1991, the
Partnership recorded $132,000 of sales commission payable to an Affiliate of
the General Partner. Such commission has been deferred until the Limited
Partners receive their Original Capital plus a return as specified in the
Partnership Agreement. Due to the terms and the nature of the sales commission
payable to the Affiliate, it is not practicable for the Partnership to estimate
the fair value of such amount.
(4) Subsequent Events
During October 1996, the Partnership paid a distribution of $135,525 to the
Limited Partners.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
On August 4, 1988, the Partnership commenced an Offering of 50,000 (subject to
increase to 80,000) Limited Partnership Units pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. The Offering
terminated on August 4, 1990, with total sales of 50,647.14 Units at $500 per
Unit, resulting in gross offering proceeds of $25,323,569, not including the
General Partner's contribution of $500. All of the holders of these Units have
been admitted to the Partnership. The Partnership has acquired five properties
utilizing $21,224,542 of capital proceeds collected. On January 8, 1991, the
Partnership sold one of its properties, The Wholesale Club. As of September 30,
1996, cumulative distributions to Limited Partners totaled $17,567,275, of
which $4,395,565 represents proceeds from the sale of The Wholesale Club and
$13,171,710 represents distributable cash flow from the properties. The
Partnership has repurchased 551.64 Units for $260,285 from various Limited
Partners through the Unit Repurchase Program. There are no funds remaining for
the repurchase of Units through this program.
As of September 30, 1996, the Partnership had cash and cash equivalents of
$867,760, which includes approximately $227,000 held in an unrestricted escrow
account for the payment of real estate taxes for Colonial Manor Living Center.
The Partnership intends to use such remaining funds for distributions and for
working capital requirements.
The properties owned by the Partnership are generating cash flow in excess of
the 8% annualized distributions to the Limited Partners (paid monthly), in
addition to covering all the operating expenses of the Partnership. In 1995,
the Partnership distributed a total of $50,000 in addition to the 8% annualized
return to the Limited Partners from 1994 excess cash flow. In May 1996, the
Partnership distributed $50,000 in addition to the 8% annualized return to the
Limited Partners from 1995 excess cash flow. To the extent that these sources
are insufficient to meet the Partnership's needs, the Partnership may rely on
advances from Affiliates of the General Partner, other short-term financing, or
may sell a property.
During May 1996, Euro-Fresh Market ("Euro-Fresh") began its occupancy of the
anchor store of Water Tower Market Plaza in Palatine, Illinois and the shopping
center has been renamed Euro-Fresh Market Plaza. Eagle Foods had assigned the
lease on February 4, 1994 to Certified Grocers Midwest, Inc. ("Certified") who
vacated in August 1995. Under the original lease, as well as the assignment of
the lease, Eagle Foods has guaranteed payments until November 1998. At
September 30, 1996, there were two vacant spaces totaling 3,745 square feet, of
which 1,245 square feet was leased with an expected commencement date of
November 1, 1996.
-9-
Results of Operations
At September 30, 1996, the Partnership owns four operating properties. Two of
the Partnership's four operating properties, Scandinavian Health Spa and
Colonial Manor Living Center, are leased on a "triple-net" basis which means
that all expenses of the property are passed through to the tenant. The leases
of the other two properties owned by the Partnership, K mart and Euro-Fresh
Market Plaza, provide that the Partnership be responsible for maintenance of
the structure and the parking lot and the tenants are required to reimburse the
Partnership for portions of insurance, real estate taxes and common area
maintenance. The Partnership sold one of its properties, The Wholesale Club,
on January 8, 1991.
Professional services to Affiliates decreased for the three and nine months
ended September 30, 1996, as compared to the three and nine months ended
September 30, 1995, due to a decrease in legal and accounting services required
by the Partnership.
General and administrative expenses to Affiliates decreased for the nine months
ended September 30, 1996, as compared to the nine months ended September 30,
1995, due to decreases in marketing and data processing expenses. General and
administrative expenses to non-affiliates increased for the three and nine
months ended September 30, 1996, as compared to the three and nine months ended
September 30, 1995, due to increases in filing fees and state taxes.
Property operating expenses to non-affiliates increased for the three and nine
months ended September 30, 1996, as compared to the three and nine months ended
September 30, 1995, due to the increase in operating expenses at Euro-Fresh
Market Plaza. Such expenses include repair and maintenance and marketing
expenses. This increase was partially offset by decreases in common area
maintenance, painting and real estate taxes.
-10-
The following is a list of approximate occupancy levels for the Partnership's
investment properties as of the end of each quarter during 1995 and 1996:
______ _ 1995_______ ______ __1996______ _
at at at at at at at at
Properties 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
Scandinavian Health Spa 100% 100% 100% 100% 100% 100% 100%
Broadview Heights, Ohio
Colonial Manor 100% 100% 100% 100% 100% 100% 100%
LaGrange, Illinois
K mart 100% 100% 100% 100% 100% 100% 100%
Chandler, Arizona
Euro-Fresh Market Plaza
(formerly known as Water
Tower Market Plaza) 91% 89% 89%* 89%* 91%* 89% 93%
Palatine, Illinois
* Certified Grocers Midwest, Inc. vacated Water Tower Market Plaza in August
1995. Certified occupied 29,317 square feet, or approximately 56%, of the
shopping center. This occupancy reflects the payment of guaranteed rental
income received under the original lease to Eagle Foods.
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
-11-
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 MONTHLY INCOME FUND II, L.P.
By: Inland Real Estate Investment Corporation
General Partner
/S/ ROBERT D. PARKS
By: Robert D. Parks
Chairman
Date: November 13, 1996
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: November 13, 1996
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: November 13, 1996
-12-
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