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 March 31, 1997
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
March 31, 1997 and December 31, 1996
(unaudited)
Assets
------
1997 1996
---- ----
Current assets:
Cash and cash equivalents (Note 1).............. $ 1,059,586 1,043,462
Accounts and rents receivable................... 175,957 139,447
Current portion of deferred rent receivable
(Note 2)...................................... 1,329 1,366
Other assets.................................... 149 493
------------ ------------
Total current assets.......................... 1,237,021 1,184,768
------------ ------------
Investment properties (including acquisition fees
paid to Affiliates of $1,430,682)(Notes 1 and 3):
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............... 3,294,175 3,186,278
------------ ------------
Net investment properties..................... 14,518,159 14,626,056
------------ ------------
Other assets:
Deferred leasing fees to Affiliates (net of
accumulated amortization of $111,343 and
$106,820 at March 31, 1997 and December 31,
1996, respectively)(Notes 1 and 3)............ 116,389 120,912
Deferred rent receivable, less current portion
(Note 2)...................................... 372,867 381,268
------------ ------------
Total other assets............................ 489,256 502,180
------------ ------------
Total assets...................................... $16,244,436 16,313,004
============ ============
See accompanying notes to financial statements.
-2-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
March 31, 1997 and December 31, 1996
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1997 1996
---- ----
Current liabilities:
Accounts payable................................ $ 33,457 14,122
Accrued real estate taxes....................... 144,653 183,965
Distributions payable (Note 4).................. 140,427 140,045
Due to Affiliates (Note 3)...................... 20,307 2,925
Deposits held for others........................ 305,300 340,767
Other current liabilities....................... 107,637 26,925
------------ ------------
Total current liabilities..................... 751,781 708,749
Commission payable to Affiliate (Note 3).......... 132,000 132,000
------------ ------------
Total liabilities................................. 883,781 840,749
------------ ------------
Partners' capital (Notes 1, 3 and 4):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 67,511 68,590
------------ ------------
68,011 69,090
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......................... 11,766,715 11,469,545
Cumulative distributions...................... (18,390,581) (17,982,890)
------------ ------------
15,292,644 15,403,165
------------ ------------
Total Partners' capital..................... 15,360,655 15,472,255
------------ ------------
Total liabilities and Partners' capital........... $16,244,436 16,313,004
============ ============
See accompanying notes to financial statements.
-3-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Operations
For the three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
---- ----
Income:
Rental income (Notes 1 and 2)................... $ 476,759 475,358
Additional rental income........................ 41,784 38,649
Interest income................................. 8,367 7,622
------------ ------------
526,910 521,629
Expenses: ------------ ------------
Professional services to Affiliates............. 3,541 3,467
Professional services to non-affiliates......... 24,380 20,000
General and administrative expenses to
Affiliates.................................... 9,352 11,965
General and administrative expenses to
non-affiliates................................ 8,348 6,095
Property operating expenses to Affiliates....... 7,535 7,104
Property operating expenses to non-affiliates... 65,243 65,582
Depreciation.................................... 107,897 107,897
Amortization.................................... 4,523 4,522
------------ ------------
230,819 226,632
------------ ------------
Net income........................................ $ 296,091 294,997
============ ============
Net income (loss) allocated to:
General Partner................................. (1,079) (1,079)
Limited Partners................................ 297,170 296,076
------------ ------------
Net income........................................ $ 296,091 294,997
============ ============
Net loss allocated to the one General Partner Unit $ (1,079) (1,079)
============ ============
Net income allocated to Limited Partners per
weighted average Limited Partnership Units of
50,095.50....................................... $ 5.93 5.91
============ ============
See accompanying notes to financial statements.
-4-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
---- ----
Cash flows from operating activities:
Net income...................................... $ 296,091 294,997
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation.................................. 107,897 107,897
Amortization.................................. 4,523 4,522
Deferred rent receivable...................... 8,438 2,680
Changes in assets and liabilities:
Accounts and rents receivable............... (36,510) (24,813)
Other assets................................ 344 (1,340)
Accounts payable............................ 19,335 20,200
Accrued real estate taxes................... (39,312) (38,470)
Due to Affiliates........................... 17,382 7,346
Other current liabilities................... 80,712 -
------------ ------------
Net cash provided by operating activities......... 458,900 373,019
------------ ------------
Cash flows from financing activities:
Deposits held for others........................ (35,467) (66,092)
Cash distributions.............................. (407,309) (411,478)
------------ ------------
Net cash used in financing activities............. (442,776) (477,570)
Net increase (decrease) in cash and cash ------------ ------------
equivalents..................................... 16,124 (104,551)
Cash and cash equivalents at beginning of period.. 1,043,462 981,562
------------ ------------
Cash and cash equivalents at end of period........ $ 1,059,586 877,011
============ ============
See accompanying notes to financial statements.
-5-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1996, which are
included in the Partnership's 1996 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
The Registrant, Inland Monthly Income Fund II, L.P. (the "Partnership"), was
formed on June 20, 1988 pursuant to the Delaware Revised Uniform Limited
Partnership Act, to invest in improved residential, retail, industrial and
other income producing properties. 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 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 adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121") as required in the first quarter of 1996. SFAS
121 requires that the Partnership 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 adoption of SFAS 121 did not have any effect on the
Partnership's financial position, results of operations or liquidity.
-6-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 1997
(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 on the straight-line basis
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 and are carried at
cost, which approximates market. For the periods ended March 31, 1997 and
December 31, 1996, included in cash and cash equivalents is approximately
$293,000 and $327,800, respectively, held in an unrestricted escrow account for
the payment of real estate taxes for Colonial Manor Living Center.
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
the results to be expected for the year.
-7-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 1997
(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 decreases of $8,438 and $2,680 for the three
months ended March 31, 1997 and 1996, respectively, of rental income for the
period of occupancy for which stepped rent increases apply and $374,196 and
$382,634 in related deferred rent receivable as of March 31, 1997 and December
31, 1996, 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 and general and administrative expenses to Affiliates, of
which $17,112 and $2,925 was unpaid as of March 31, 1997 and December 31, 1996,
respectively.
An Affiliate of the General Partner earned Property Management Fees of $7,535
and $7,104 for the three months ended March 31, 1997 and 1996, respectively, in
connection with managing the Partnership's properties. Such fees are included
in property operating expenses to Affiliates, of which $3,195 was unpaid as of
March 31, 1997.
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.
(4) Subsequent Events
During April 1997, the Partnership paid a distribution of $140,427 to the
Limited Partners.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this quarterly report on
Form 10-Q constitute of "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the Partnership's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, federal, state or local regulations;
adverse changes in general economic or local conditions; inability of borrower
to meet financial obligations; uninsured losses; and potential conflicts of
interest between the Partnership and its Affiliates, including the General
Partner.
Liquidity and Capital Resources
On 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 March 31,
1997, cumulative distributions to Limited Partners totaled $18,390,581, of
which $4,395,565 represents proceeds from the sale of The Wholesale Club and
$13,995,016 represents distributable cash flow from the properties. The
Partnership 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 March 31, 1997, the Partnership had cash and cash equivalents of
$1,059,586 which includes approximately $293,000 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. As of
March 31, 1997, the Partnership has made cumulative distributions of $253,868
in addition to the 8% annualized return to the Limited Partners from excess
cash flow. To the extent that the cash flow from the properties is 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 one
or more of the properties.
-9-
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. As of
March 31, 1997, there were two vacant spaces at Euro-Fresh Market Plaza for
3,745 square feet.
Results of Operations
At March 31, 1997, 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.
Rental and additional income increased for the three months ended March 31,
1997, as compared to the three months ended March 31, 1996, due to an increase
in occupancy at Euro-Fresh Market Plaza. As of March 31, 1997, there were two
vacant spaces at Euro-Fresh Market Plaza for 3,745 square feet.
Professional services to non-affiliates increased for the three months ended
March 31, 1997, as compared to the three months ended March 31, 1996, due to an
increase in legal and accounting services required by the Partnership.
General and administrative expenses to Affiliates decreased for the three
months ended March 31, 1997, as compared to the three months ended March 31,
1996, due to a decrease in investor service expenses. General and
administrative expenses to non-affiliates increased for the three months ended
March 31, 1997, as compared to the three months ended March 31, 1996, due to
increases in printing, postage and state 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 1996 and 1997:
1996 1997
------------------------ -----------------------
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%
Broadview Heights, Ohio
Colonial Manor 100% 100% 100% 100% 100%
LaGrange, Illinois
K mart 100% 100% 100% 100% 100%
Chandler, Arizona
Euro-Fresh Market Plaza 91%* 89% 93% 95% 93%**
Palatine, Illinois
* Certified Grocers Midwest, Inc. vacated Euro-Fresh 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.
** As of the date of this report, Euro-Fresh Market Plaza's approximate
occupancy level has increased to 98% from the addition of a new tenant
occupying 2,500 square feet.
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: May 14, 1997
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: May 14, 1997
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: May 14, 1997
-12-
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