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, 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 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 MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
September 30, 1997 and December 31, 1996
(unaudited)
Assets
------
1997 1996
---- ----
Current assets:
Cash and cash equivalents (Note 1).............. $ 919,486 1,043,462
Accounts and rents receivable................... 188,645 139,447
Current portion of deferred rent receivable
(Note 2)...................................... 1,329 1,366
Other assets.................................... 3,261 493
------------ ------------
Total current assets.......................... 1,112,721 1,184,768
------------ ------------
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............... 3,509,969 3,186,278
------------ ------------
Net investment properties..................... 14,302,365 14,626,056
------------ ------------
Other assets:
Deferred leasing fees to Affiliates (net of
accumulated amortization of $120,390 and
$106,820 at September 30, 1997 and December 31,
1996, respectively) (Note 1).................. 107,342 120,912
Deferred rent receivable, less current portion
(Note 2)...................................... 357,926 381,268
------------ ------------
Total other assets............................ 465,268 502,180
------------ ------------
Total assets...................................... $15,880,354 16,313,004
============ ============
See accompanying notes to financial statements.
-2-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1997 and December 31, 1996
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1997 1996
---- ----
Current liabilities:
Accounts payable................................ $ 6,169 14,122
Accrued real estate taxes....................... 141,547 183,965
Distributions payable (Note 4).................. 135,900 140,045
Due to Affiliates (Note 3)...................... 10,802 2,925
Deposits held for others........................ 266,377 340,767
Other current liabilities....................... 26,925 26,925
------------ ------------
Total current liabilities..................... 587,720 708,749
Commission payable to Affiliates (Note 3)......... 132,000 132,000
------------ ------------
Total liabilities................................. 719,720 840,749
------------ ------------
Partners' capital (Notes 1 and 4):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 65,353 68,590
------------ ------------
65,853 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......................... 12,397,833 11,469,545
Cumulative distributions...................... (19,219,562) (17,982,890)
------------ ------------
15,094,781 15,403,165
------------ ------------
Total Partners' capital..................... 15,160,634 15,472,255
------------ ------------
Total liabilities and Partners' capital........... $15,880,354 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 and nine months ended September 30, 1997 and 1996
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Income:
Rental income (Notes 1 and 2).... $ 480,653 475,680 1,437,430 1,427,514
Additional rental income......... 41,731 37,057 125,279 116,464
Interest income.................. 9,170 8,397 26,826 24,078
Other income..................... - - 17,489 -
---------- ---------- ---------- ----------
531,554 521,134 1,607,024 1,568,056
Expenses: ---------- ---------- ---------- ----------
Professional services to
Affiliates..................... 3,300 3,076 9,230 9,551
Professional services to
non-affiliates................. - - 27,230 23,665
General and administrative
expenses to Affiliates......... 6,870 8,436 20,368 24,499
General and administrative
expenses to non-affiliates..... 1,567 2,223 14,397 13,299
Property operating expenses to
Affiliates..................... 7,392 8,494 23,703 24,162
Property operating expenses to
non-affiliates................. 90,379 68,324 249,784 212,137
Depreciation..................... 107,897 107,896 323,691 323,690
Amortization..................... 4,524 4,523 13,570 13,569
---------- ---------- ---------- ----------
221,929 202,972 681,973 644,572
---------- ---------- ---------- ----------
Net income......................... $ 309,625 318,162 925,051 923,484
========== ========== ========== ==========
Net income (loss) allocated to:
General Partner.................. (1,079) (1,079) (3,237) (3,237)
Limited Partners................. 310,704 319,241 928,288 926,721
---------- ---------- ---------- ----------
Net income......................... $ 309,625 318,162 925,051 923,484
========== ========== ========== ==========
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........................ $ 6.20 6.37 18.53 18.50
========== ========== ========== ==========
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, 1997 and 1996
(unaudited)
1997 1996
---- ----
Cash flows from operating activities:
Net income...................................... $ 925,051 923,484
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation.................................. 323,691 323,690
Amortization.................................. 13,570 13,569
Deferred rent receivable...................... 23,379 4,673
Changes in assets and liabilities:
Accounts and rents receivable............... (49,198) 38,503
Other assets................................ (2,768) (579)
Accounts payable............................ (7,953) 8,931
Accrued real estate taxes................... (42,418) (42,051)
Due to Affiliates........................... 7,877 (6,996)
------------ ------------
Net cash provided by operating activities......... 1,191,231 1,263,224
------------ ------------
Cash flows from financing activities:
Deposits held for others........................ (74,390) (84,321)
Cash distributions.............................. (1,240,817) (1,292,705)
------------ ------------
Net cash used in financing activities............. (1,315,207) (1,377,026)
------------ ------------
Net decrease in cash and cash equivalents......... (123,976) (113,802)
Cash and cash equivalents at beginning of period.. 1,043,462 981,562
------------ ------------
Cash and cash equivalents at end of period........ $ 919,486 867,760
============ ============
See accompanying notes to financial statements.
-5-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
September 30, 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.
Statement of Financial Accounting Standards No. 121 ("SFAS 121") requires the
Partnership to record an impairment loss on its property to be held for
investment whenever its carrying value cannot be fully recovered through
estimated undiscounted future cash flows from their operations and sale. The
amount of the impairment loss to be recognized would be the difference between
the property's carrying value and the property's estimated fair value. As of
September 30, 1997, the Partnership has not recognized any such impairment.
-6-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 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 September 30, 1997 and
December 31, 1996, included in cash and cash equivalents is approximately
$253,500 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)
September 30, 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 $23,379 and $4,673 for the nine
months ended September 30, 1997 and 1996, respectively, of rental income for
the period of occupancy for which stepped rent increases apply and $359,255 and
$382,634 in related deferred rent receivable as of September 30, 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 $10,802 and $2,925 was unpaid as of September 30, 1997 and December 31,
1996, respectively.
An Affiliate of the General Partner earned Property Management Fees of $23,703
and $24,162 for the nine months ended September 30, 1997 and 1996,
respectively, in connection with managing the Partnership's properties. Such
fees are included in property operating expenses to Affiliates, all of which
have been paid.
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 October 1997, the Partnership paid a distribution of $135,900 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 September
30, 1997, cumulative distributions to Limited Partners totaled $19,219,562, of
which $4,395,565 represents proceeds from the sale of The Wholesale Club and
$14,823,997 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 September 30, 1997, the Partnership had cash and cash equivalents of
$919,486 which includes approximately $253,500 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
September 30, 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
September 30, 1997, there was one vacant space at Euro-Fresh Market Plaza for
1,246 square feet.
Results of Operations
At September 30, 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 and nine months ended
September 30, 1997, as compared to the three and nine months ended September
30, 1996, due to an increase in occupancy at Euro-Fresh Market Plaza. As of
September 30, 1997, there was one vacant space at Euro-Fresh Market Plaza for
1,246 square feet.
Interest income increased for the three and nine months ended September 30,
1997, as compared to the three and nine months ended September 30, 1996, due to
an increase in interest rates for the comparable periods.
Other income increased for the nine months ended September 30, 1997, as
compared to the nine months ended September 30, 1996, due to the Partnership
receiving real estate tax refunds for Colonial Manor Living Center.
Professional services to non-affiliates increased for the nine months ended
September 30, 1997, as compared to the nine months ended September 30, 1996,
due to an increase in legal and accounting services required by the
Partnership.
General and administrative expenses to Affiliates decreased for the three and
nine months ended September 30, 1997, as compared to the three and nine months
ended September 30, 1996, due to a decrease in investor services and data
processing expenses. General and administrative expenses to non-affiliates
increased for the nine months ended September 30, 1997, as compared to the nine
months ended September 30, 1996, due to increases in supplies, printing,
postage and state taxes.
Property operating expenses to non-affiliates increased for the three and nine
months ended September 30, 1997, as compared to the three and nine months ended
September 30, 1996, due to increases in repair and maintenance, supplies,
insurance and real estate taxes at Euro-Fresh Market Plaza. This increase was
partially offset by decreases in common area maintenance and marketing expenses
at the property.
-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 03/31 06/30 09/30 12/31 03/31 06/30 09/30 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 91%* 89% 93% 95% 93% 98% 98%
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.
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 12, 1997
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: November 12, 1997
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: November 12, 1997
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 919486
<SECURITIES> 0
<RECEIVABLES> 189974
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1112721
<PP&E> 17812334
<DEPRECIATION> 3509969
<TOTAL-ASSETS> 15880354
<CURRENT-LIABILITIES> 587720
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15160634
<TOTAL-LIABILITY-AND-EQUITY> 15880354
<SALES> 0
<TOTAL-REVENUES> 1607024
<CGS> 0
<TOTAL-COSTS> 273487
<OTHER-EXPENSES> 408486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 925051
<INCOME-TAX> 0
<INCOME-CONTINUING> 925051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 925051
<EPS-PRIMARY> 18.53
<EPS-DILUTED> 18.53
</TABLE>
