UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Fiscal Year Ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File #0-17593
Inland Monthly Income Fund II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-3587209
(State of organization) (I.R.S. Employer Identification Number)
2901 Butterfield Road, Oak Brook, Illinois 60523
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 630-218-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. Not applicable.
The Prospectus of the Registrant dated August 4, 1988, as supplemented and
filed pursuant to Rule 424(b) and 424(c) under the Securities Act of 1933 is
incorporated by reference in Parts I, II and III of this Annual Report on Form
10-K.
-1-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
TABLE OF CONTENTS
Part I Page
------ ----
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 7
Item 4. Submission of Matters to a Vote of Security Holders........... 7
Part II
-------
Item 5. Market for the Partnership's Limited Partnership
Units and Related Security Holder Matters.................... 7
Item 6. Selected Financial Data....................................... 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 9
Item 8. Financial Statements and Supplementary Data................... 14
Item 9. Changes in and Disagreements with Independent Auditors on
Accounting and Financial Disclosure.......................... 29
Part III
--------
Item 10. Directors and Executive Officers of the Registrant............ 29
Item 11. Executive Compensation........................................ 34
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 35
Item 13. Certain Relationships and Related Transactions................ 35
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................................... 36
SIGNATURES............................................................. 37
-2-
PART I
Item 1. Business
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 Limited Partnership Units (subject to an increase of up
to 30,000 additional 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 of $500. All of
the holders of these Units were admitted to the Partnership. Inland Real Estate
Investment Corporation is the General Partner. The Partnership 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. 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 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 Partnership is engaged in the business of real estate investment which
management considers to be a single operating segment. A presentation of
information about operating segments would not be material to an understanding
of the Partnership's business taken as a whole.
The Partnership acquired fee ownership of the following real property
investments:
Property and Location Square Feet Date of Purchase
- ------------------------------- ------------------- -----------------------
Scandinavian Health Spa 26,040 10/19/88
Health & Racquet Club
Broadview Heights, Ohio
Wholesale Club 103,000 12/06/88
Commercial Warehouse (sold 01/08/91)
Fort Wayne, Indiana
Colonial Manor 107,867 06/07/89
Nursing Home Facility
LaGrange, Illinois
K mart 84,146 12/29/89
Retail Store
Chandler, Arizona
Euro-Fresh Market Plaza 52,475 12/31/90
Shopping Center
Palatine, Illinois
Reference is made to Note 4 of the Notes to Financial Statements (Item 8 of
this Annual Report) for additional descriptions of the Partnership's real
property investments.
-3-
The Partnership's real property investments are subject to competition from
similar types of properties in the vicinity in which each is located.
Approximate occupancy levels for the properties are set forth on a year-end
basis in the table in Item 2 below to which reference is hereby made. The
Partnership's real property investments are located in Arizona, Illinois and
Ohio. The Partnership has no real property investments located outside the
United States. The Partnership does not segregate revenues or assets by
geographic region, and such a presentation would not be material to an
understanding of the Partnership's business taken as a whole.
The Partnership currently has significant net operating leases with Elite Care
Corporation ("Elite"), K mart Corporation ("K mart") and Scandinavian Health
Spa, Inc. ("SHS"). Revenues from the Elite lease for the Colonial Manor Nursing
Home, the K mart lease for the K mart store and the SHS lease for the
Scandinavian Health Spa represents approximately 42%, 22% and 17%,
respectively, of the Partnership's income for the year ended December 31, 1998,
approximately 40%, 21% and 17%, respectively, of the Partnership's income for
the year ended December 31, 1997 and approximately 41%, 21% and 17%,
respectively, of the Partnership's income for the year ended December 31, 1996.
The Partnership has utilized its proceeds for investment to acquire properties.
The leases at certain of the Partnership's properties entitle the Partnership
to participate in gross receipts of lessees above fixed minimum amounts. The
Partnership's receipt of such amounts will depend in part on the ability of
those lessees to compete with similar businesses in their respective
vicinities.
The Partnership also competes with many other entities engaged in real estate
investment activities in the disposition of property. The ability to locate
purchasers for the properties will depend primarily on the operations of the
properties and the desirability of the locations of the operating properties.
The Partnership had no employees during 1998.
The terms of transactions between the Partnership and Affiliates of the General
Partner of the Partnership are set forth in Item 11 below and Note 3 of the
Notes to Financial Statements (Item 8 of this Annual Report) to which reference
is hereby made for a description of such terms and transactions.
Item 2. Properties
The Partnership owns directly the properties referred to in Item 1 above and in
Note 4 of the Notes to Financial Statements (Item 8 of this Annual Report) to
which reference is hereby made for a description of said properties.
-4-
The following is a list of approximate occupancy levels for the Partnership's
investment properties as of the end of each of the last five years:
Properties 1998 1997 1996 1995 1994
---------- ---- ---- ---- ---- ----
Scandinavian Health Spa 100% 100% 100% 100% 100%
Health & Racquet Club
Broadview Heights, Ohio
Colonial Manor 100% 100% 100% 100% 100%
Nursing Home Facility
LaGrange, Illinois
K mart 100% 100% 100% 100% 100%
Retail Store
Chandler, Arizona
Euro-Fresh Market Plaza 85% 95% 95% 89%* 89%
Shopping Center
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. (See Liquidity and Capital
Resources.)
The following is a list of average effective annual rents per square foot for
the Partnership's investment properties for each of the last five years:
Properties 1998 1997 1996 1995 1994
---------- ---- ---- ---- ---- ----
Scandinavian Health Spa $ 13.79 13.79 13.79 13.79 12.54
Health & Racquet Club
Broadview Heights, Ohio
Colonial Manor 8.00 8.00 8.00 8.00 8.00
Nursing Home Facility
LaGrange, Illinois
K mart 5.37 5.37 5.37 5.37 5.37
Retail Store
Chandler, Arizona
Euro-Fresh Market Plaza 3.96 4.64 4.66 4.18 4.92
Shopping Center
Palatine, Illinois
-5-
<TABLE>The following tables set forth certain information with respect to the
amount and expiration of leases for the Partnership's investment properties:
<CAPTION>
Square
Feet Renewal Current Rent Per
Lessee Leased Lease Ends Options Annual Rent Square Foot
------ -------- -------------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Scandinavian Health Spa, 26,040 12/2004 2/5 years $359,094 $13.79
Inc.
Elite Care Corporation 107,867 1/2001 1/10 years 909,383 8.43
K Mart Corporation 84,146 7/2013 4/5 years 452,000 5.37
Euro-Fresh Market Plaza:
Euro-Fresh Market 29,317 11/2003 2/5 years 109,939 3.75
Edelweiss Delicatessen 2,000 Month to Month None 16,253 8.13
Land of Pets Pet Shop 4,000 3/1999 None 39,240 9.81
Lim's Dry Cleaners 1,500 12/2002 None 18,075 12.05
TLC Medical Center 1,275 11/2003 None 8,925 7.13
TLC Medical Center 1,700 7/2003 None 12,197 7.17
TLC Medical Center 2,294 11/2003 None 22,389 9.76
Donka Chiropractic 2,500 5/2002 1/5 years 24,000 9.60
Vacant 7,889
Approx. Annual Annual Base % of Total % of Annual
Number Gross Leasable Base Total Rent Per GLA Base Rent
Year of Area ("GLA") of Rent of Annual Sq. Ft Under Represented Represented
Ending Leases Expiring Leases Expiring Base Expiring By Expiring By Expiring
Property Dec 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
-------- ------- -------- --------------- -------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scandinavian Health Spa 1999- - - $ - $359,094 $ - - -
2003
2004 1 26,040 359,094 359,094 13.79 100% 100%
Colonial Manor Living Center 1999 - - - 927,348 - - -
2000 - - - 946,947 - - -
2001 1 107,867 970,139 970,139 8.99 100% 100%
K Mart 1999- - - - 452,000 - - -
2008
Euro-Fresh Market Plaza 1999 1 4,000 39,240 236,005 9.81 7.62% 16.63%
2000 - - - 198,549 - - -
2001 - - - 200,413 - - -
2002 2 4,000 31,898 185,348 7.97 7.62% 17.21%
2003 4 34,586 153,450 153,450 4.44 65.91% 100%
(1) No assumptions have been made regarding the releasing of expired leases. It is the opinion of the General
Partner that the space will be released at market prices.
</TABLE>
-6-
-6-
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during 1998.
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1998, there were 2,056 holders of Units of the Partnership.
There is no public market for Units nor is it anticipated that any public
market for Units will develop. Reference is made to Item 6 below for a
discussion of cash distributions made to the Limited Partners.
Although the Partnership had established a Unit Repurchase Program, there are
no funds remaining for the repurchase of Units through this program.
-7-
Item 6. Selected Financial Data
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
For the years ended December 31, 1998, 1997, 1996, 1995 and 1994
(not covered by Independent Auditors' Report)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total assets........... $15,621,400 15,973,079 16,313,004 16,720,422 17,242,725
=========== ========== ========== ========== ==========
Total income........... $ 2,071,413 2,148,859 2,108,760 2,072,835 2,109,593
=========== ========== ========== ========== ==========
Net income............. $ 1,258,738 1,277,365 1,269,375 1,250,956 1,297,389
=========== ========== ========== ========== ==========
Net loss per the one
General Partner Unit. $ (4,297) (4,316) (4,316) (4,316) (4,316)
=========== ========== ========== ========== ==========
Net income allocated per
Limited Partnership
Unit (b)............. $ 25.21 25.58 25.43 25.06 25.98
=========== ========== ========== ========== ==========
Distributions to
Limited Partners..... $ 1,653,426 1,653,426 1,703,419 1,703,356 1,756,765
=========== ========== ========== ========== ==========
Distributions per
Limited Partnership
Unit (b)............. $ 33.01 33.01 34.00 34.00 35.07
=========== ========== ========== ========== ==========
(a) The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
(b) The net income per Unit and distribution per Unit data is based upon the
weighted average number of Units outstanding of 50,095.50.
-8-
Item 7. 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 annual report on
Form 10-K 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, competition for tenants; federal,
state, or local regulations; adverse changes in general economic or local
conditions; 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 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 December 31,
1998, cumulative distributions to Limited Partners totaled $21,289,742, of
which $4,395,565 represents proceeds from the sale of The Wholesale Club and
$16,894,177 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 December 31, 1998, the Partnership had cash and cash equivalents of
$1,161,470 which includes approximately $446,800 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
December 31, 1998, 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 was 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 had guaranteed payments until November 1998. As of
December 1, 1998, Eurofresh Market Inc. entered into a lease which expires
November 30, 2003 for the same space. Under the terms of the new lease, annual
rental income for this space has increased 40%. As of December 31, 1998, there
were five vacant spaces at Euro-Fresh Market Plaza for 7,889 square feet.
Results of Operations
At December 31, 1998, 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 and property operating expenses to Affiliates
decreased for the year ended December 31, 1998, as compared to the years ended
December 31, 1997 and 1996, due to three additional tenants leaving Euro-Fresh
Market Plaza as well as the two already vacant spaces that have not yet been
released. In addition, additional rental income decreased due to a write-off
of $25,200 of real estate tax recovery income receivable owed by vacated
tenants.
Interest income increased for the year ended December 31, 1998, as compared to
the years ended December 31, 1997 and 1996, due to an increase in interest
rates.
Other income was higher for the year ended December 31, 1997, as compared to
the years ended December 31, 1998 and 1996, due to the Partnership receiving
miscellaneous receipts relating to Colonial Manor Living Center.
Professional services to Affiliates increased for the year ended December 31,
1998 as compared to 1997 due to an increase in in-house accounting services.
Professional services to Affiliates decreased for the year ended December 31,
1997, as compared to the year ended December 31, 1996, due to decreases in in-
house legal and accounting services required by the Partnership. Professional
services to non-affiliates increased for the years ended December 31, 1998 and
1997, as compared to the year ended December 31, 1996, due to increases in
legal services and accounting fees.
General and administrative expenses to Affiliates decreased for the years ended
December 31, 1998 and 1997, as compared to the year ended December 31, 1996,
due to decreases in investor services and data processing expenses. General
and administrative expenses to non-affiliates was higher for the year ended
December 31, 1997, as compared to the years ended December 31, 1998 and 1996,
due to greater printing, supplies and state tax expenses.
-10-
Property operating expenses to non-affiliates decreased for the year ended
December 31, 1998, as compared to the year ended December 31, 1997, due to a
decrease in operating expenses at Euro-Fresh Market Plaza. Such expenses
include repairs and maintenance, painting, supplies and real estate taxes.
This decrease was partially offset by an increase in common area maintenance
and marketing. Property operating expenses to non-affiliates increased for the
year ended December 31, 1997, as compared to the year ended December 31, 1996,
due to an increase in operating expenses at Euro-Fresh Market Plaza. Such
expenses include repair and maintenance, insurance, legal and other
professional fees and real estate taxes. This increase was partially offset by
decreases in common area maintenance and marketing.
Year 2000 Issues
GENERAL
- -------
Many computer operating systems and software applications were designed such
that the year 1999 is the maximum date that can be processed accurately. In
conducting business, the Partnership relies on computers and operating systems
provided by equipment manufacturers, and also on application software developed
internally and, to a limited extent, by outside software vendors. The
Partnership has assessed its vulnerability to the so-called "Year-2000 Issue"
with respect to its equipment and computer systems.
STATE OF READINESS
- ------------------
The Partnership has identified the following three 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.
-11-
Tenants and Suppliers: The Partnership is in the process of surveying tenants,
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 in a
preliminary stage, 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 tenant base.
Non-Information Technology Systems: In the operation of its properties, the
Partnership has acquired equipment with embedded technology such as
microcontrollers, which operate heating, ventilation, and air conditioning
systems, fire alarms, security systems, telephones and other equipment
utilizing time-sensitive technology. The Partnership is in the process of
evaluating its potential exposure and costs if such non-information technology
systems are not year 2000 compliant and expects to be able to complete its
assessment during the second quarter of 1999.
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. The most reasonable likely worst case scenario for the
Partnership with respect to the year 2000 non-compliance of its tenants is
failure to receive rental income which could result in the Partnership being
unable to meet cash requirements for monthly expenses. The most reasonable
likely worst case scenario for the Partnership with respect to the year 2000
non-compliance of its suppliers is the failure to supply necessary utilities;
including, but not limited to heating, as a result of a malfunctioning of non-
information technology systems in some of the Partnership's properties.
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
compliance costs incurred through December 31, 1998 are estimated at
approximately $5,000.
-12-
CONTINGENCY PLAN
- ----------------
The Partnership is 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 tenants, 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.
Inflation
In general, rental income and operating expenses for those Partnership
properties operated under triple-net leases, Scandinavian Health Spa and
Colonial Manor Living Center, are not likely to be directly affected by future
inflation, since rents are fixed under the leases and property expenses are the
responsibility of tenants. The capital appreciation of triple-net-leased
properties is likely to be influenced by interest rate fluctuations. To the
extent that inflation affects interest rates, future inflation may have an
effect on the capital appreciation of triple-net-leased properties.
Both the K mart and Euro-Fresh Market Plaza properties are subject to net
leases containing rental escalation clauses which take effect when specified
sales volumes are achieved by the tenants. If inflation, over time, increases
the prices of goods sold by these tenants, this may result in increased rental
income for the Partnership. In addition to the grocery store which is its
anchor tenant, Euro-Fresh Market Plaza also includes smaller commercial spaces
which are subject to renewal under short-term leases. For these spaces,
inflation is likely to increase rental income from leases to new tenants and
lease renewals, subject to normal market conditions.
Item 7(a). Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
-13-
Item 8. Financial Statements and Supplementary Data
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Index
-----
Page
----
Independent Auditors' Report............................................. 15
Financial Statements:
Balance Sheets, December 31, 1998 and 1997............................. 16
Statements of Operations, for the years ended
December 31, 1998, 1997 and 1996..................................... 18
Statements of Partners' Capital, for the years ended
December 31, 1998, 1997 and 1996..................................... 19
Statements of Cash Flows, for the years ended
December 31, 1998, 1997 and 1996..................................... 20
Notes to Financial Statements.......................................... 21
Real Estate and Accumulated Depreciation (Schedule III).................. 28
Schedules not filed:
All schedules other than those indicated in the index have been omitted as the
required information is inapplicable or the information is presented in the
financial statements or related notes.
-14-
INDEPENDENT AUDITORS' REPORT
To the Partners of
Inland Monthly Income Fund II, L.P.
We have audited the accompanying balance sheets of Inland Monthly Income Fund
II, L.P. (a limited partnership) as of December 31, 1998 and 1997, and the
related statements of operations, partners' capital, and cash flows for each of
the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(c).
These financial statements and financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Inland Monthly Income Fund II, L.P. as of
December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
January 29, 1999
-15-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
December 31, 1998 and 1997
Assets
------
1998 1997
Current assets: ---- ----
Cash and cash equivalents (Note 1).............. $ 1,161,470 1,151,954
Accounts and rents receivable................... 162,558 170,804
Current portion of deferred rent
receivable (Note 5)........................... - 1,103
Other assets.................................... 1,875 2,061
------------ ------------
Total current assets.............................. 1,325,903 1,325,922
------------ ------------
Investment properties (including acquisition
fees paid to Affiliates of $1,430,682)
(Notes 1, 3 and 4):
Land............................................ 3,998,149 3,998,149
Buildings and improvements...................... 13,957,812 13,814,185
------------ ------------
17,955,961 17,812,334
Less accumulated depreciation................. 4,047,610 3,617,865
------------ ------------
Net investment properties......................... 13,908,351 14,194,469
------------ ------------
Other assets:
Deferred leasing fees to Affiliates (net of
accumulated amortization of $143,005 and
$124,912 for 1998 and 1997, respectively)
(Notes 1 and 3)............................... 84,727 102,820
Deferred rent receivable, less current portion
(Notes 1 and 5)............................... 302,419 349,868
------------ ------------
Total other assets................................ 387,146 452,688
------------ ------------
Total assets...................................... $15,621,400 15,973,079
============ ============
See accompanying notes to financial statements.
-16-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
December 31, 1998 and 1997
Liabilities and Partners' Capital
---------------------------------
1998 1997
---- ----
Current liabilities:
Accounts payable................................ $ 3,007 2,708
Accrued real estate taxes....................... 185,785 188,729
Distributions payable (Note 7).................. 140,427 140,427
Due to Affiliates (Note 3)...................... 472 1,648
Deposits held for others........................ 458,203 384,448
Other current liabilities....................... - 26,925
------------ ------------
Total current liabilities......................... 787,894 744,885
Commission payable to Affiliate (Note 3).......... 132,000 132,000
------------ ------------
Total liabilities................................. 919,894 876,885
------------ ------------
Partners' capital (Notes 1, 2 and 3):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 59,977 64,274
------------ ------------
60,477 64,774
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......................... 14,014,261 12,751,226
Cumulative distributions...................... (21,289,742) (19,636,316)
------------ ------------
14,641,029 15,031,420
------------ ------------
Total Partners' capital........................... 14,701,506 15,096,194
------------ ------------
Total liabilities and Partners' capital........... $15,621,400 15,973,079
============ ============
See accompanying notes to financial statements.
-17-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Operations
For the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Income: ---- ---- ----
Rental income (Notes 1, 4 and 5).. $ 1,897,476 1,917,095 1,918,275
Additional rental income.......... 113,886 165,331 157,981
Interest income................... 40,280 36,424 32,504
Other income...................... 19,771 30,009 -
------------ ------------ ------------
2,071,413 2,148,859 2,108,760
Expenses: ------------ ------------ ------------
Professional services to
Affiliates...................... 12,485 11,850 14,024
Professional services to
non-affiliates.................. 27,258 27,230 25,541
General and administrative
expenses to Affiliates.......... 23,447 25,632 30,024
General and administrative
expenses to non-affiliates...... 12,591 15,115 13,781
Property operating expenses
to Affiliates................... 32,041 33,150 31,848
Property operating expenses
to non-affiliates............... 257,015 308,838 274,488
Depreciation...................... 429,745 431,587 431,587
Amortization...................... 18,093 18,092 18,092
------------ ------------ ------------
812,675 871,494 839,385
------------ ------------ ------------
Net income.......................... $ 1,258,738 1,277,365 1,269,375
============ ============ ============
Net income (loss) allocated to
(Note 2):
General Partner................... $ (4,297) (4,316) (4,316)
Limited Partners.................. 1,263,035 1,281,681 1,273,691
------------ ------------ ------------
Net income.......................... $ 1,258,738 1,277,365 1,269,375
============ ============ ============
Net loss allocated to the
one General Partner Unit.......... $ (4,297) (4,316) (4,316)
============ ============ ============
Net income per Unit allocated to
Limited Partners per weighted
average Limited Partnership
Units of 50,095.50................ $ 25.21 25.58 25.43
============ ============ ============
See accompanying notes to financial statements.
-18-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Partners' Capital
For the years ended December 31, 1998, 1997 and 1996
General Limited
Partner Partners Total
------------ ------------ ------------
Balance January 1, 1996............. $ 73,406 15,832,893 15,906,299
Net income (loss)................... (4,316) 1,273,691 1,269,375
Distributions ($34.00 per weighted
average of Limited Partnership
Units of 50,095.50)............... - (1,703,419) (1,703,419)
------------ ------------ ------------
Balance December 31, 1996........... 69,090 15,403,165 15,472,255
Net income (loss)................... (4,316) 1,281,681 1,277,365
Distributions ($33.01 per weighted
average of Limited Partnership
Units of 50,095.50)............... - (1,653,426) (1,653,426)
------------ ------------ ------------
Balance December 31, 1997........... 64,774 15,031,420 15,096,194
Net income (loss)................... (4,297) 1,263,035 1,258,738
Distributions ($33.01 per weighted
average of Limited Partnership
Units of 50,095.50)............... - (1,653,426) (1,653,426)
------------ ------------ ------------
Balance December 31, 1998........... $ 60,477 14,641,029 14,701,506
============ ============ ============
See accompanying notes to financial statements.
-19-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities: ---- ---- ----
Net income........................ $ 1,258,738 1,277,365 1,269,375
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation.................... 429,745 431,587 431,587
Amortization.................... 18,093 18,092 18,092
Changes in assets and liabilities:
Accounts and rents receivable. 8,246 (31,357) 20,528
Other assets.................. 186 (1,568) 177
Deferred rent receivable...... 48,552 31,663 (1,066)
Accounts payable.............. 299 (11,414) 8,628
Accrued real estate taxes..... (2,944) 4,764 3,940
Due to Affiliates............. (1,176) (1,277) (4,473)
Other current liabilities..... (26,925) - -
Net cash provided by operating ------------ ------------ ------------
activities........................ 1,732,814 1,717,855 1,746,788
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures.............. (143,627) - -
Net cash used by investing ------------ ------------ ------------
activities...................... (143,627) - -
------------ ------------ ------------
Cash flows from financing activities:
Deposits held for others.......... 73,755 43,681 18,912
Cash distributions ............... (1,653,426) (1,653,044) (1,703,800)
Net cash used in financing ------------ ------------ ------------
activities...................... (1,579,671) (1,609,363) (1,684,888)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents................ 9,516 108,492 61,900
Cash and cash equivalents at
beginning of year................. 1,151,954 1,043,462 981,562
Cash and cash equivalents at end ------------ ------------ ------------
of year........................... $ 1,161,470 1,151,954 1,043,462
============ ============ ============
See accompanying notes to financial statements.
-20-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
For the years ended December 31, 1998, 1997 and 1996
(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 period.
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 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("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 December 31, 1998 and 1997, the Partnership has
not recognized any such impairment.
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.
Repair and maintenance expenses are charged to operations as incurred.
Significant improvements are capitalized and depreciated over their estimated
useful lives.
-21-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
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 years ended December 31, 1998 and
1997, included in cash and cash equivalents is approximately $446,800 and
$372,200, 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.
The Partnership records are maintained on the accrual basis of accounting in
accordance with generally accepted accounting principles ("GAAP"). The Federal
income tax return has been prepared from such records after making appropriate
adjustments, if any, to reflect the Partnership's accounts as adjusted for
Federal income tax reporting purposes. Such adjustments are not recorded in the
records of the Partnership. The net effect of these items is summarized as
follows:
1998 1997
------------------------ ------------------------
Tax Tax
GAAP Basis GAAP Basis
Basis (unaudited) Basis (unaudited)
----------- ------------ ----------- ------------
Total assets................ $15,621,400 18,770,133 15,973,079 19,121,812
Partners' capital:
General Partner........... 60,477 7,700 64,774 11,997
Limited Partners.......... 14,641,029 17,842,538 15,031,420 18,232,931
Net income (loss):
General Partner........... (4,297) (4,297) (4,316) (4,316)
Limited Partners.......... 1,263,035 1,263,035 1,281,681 1,359,396
Net income per Limited
Partnership Unit.......... 25.21 25.21 25.58 27.14
The net income per Unit is based upon the weighted average number of Units of
50,095.50.
-22-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
Statement of Financial Accounting Standards No. 128 "Earnings per Share" was
adopted by the Partnership for the year ended December 31, 1997 and has been
applied to all prior earnings periods presented in the financial statements.
The Partnership has no dilutive securities.
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.
(2) Partnership Agreement
The Partnership Agreement defines the allocation of distributable available
cash and profits and losses. Limited Partners will receive 100% of cash
available for distribution until the Limited Partners have received a
Cumulative Preferred Return of 8% per annum through August 4, 1993 and a
Preferential Return of 10% per annum for the period after August 4, 1993.
Thereafter, the General Partner shall be allocated an amount equal to any
Supplemental Capital Contributions outstanding at the time of the distribution
and then 95% of cash available for distribution will be allocated to the
Limited Partners and 5% will be allocated to the General Partner. Net Sale
Proceeds will be distributed to the Limited Partners until they have received
an amount equal to their Invested Capital and any deficiency in the 10%
Preferential Return. Thereafter, any remaining Net Sale Proceeds will be
distributed 85% to the Limited Partners and 15% to the General Partner.
Distributions of Net Sale Proceeds to the Limited Partners represent a return
of Invested Capital.
Pursuant to the terms of the Partnership Agreement, the profits and losses from
operations are allocated as follows:
(a) Depreciation shall be allocated 99% to the taxable Limited Partners and 1%
to the General Partner.
(b) To the extent the minimum distribution of 8% per annum through August 4,
1993 to the Limited Partners is funded by Supplemental Capital
Contributions, the distribution shall be treated as a guaranteed payment,
and the resulting deduction shall be allocated to the General Partner.
(c) The remaining net profits shall be allocated 100% to the Limited Partners
until the Limited Partners have been allocated an amount equal to the
distribution required to provide them a Cumulative Preferred Return of 8%
per annum through August 4, 1993 and a Preferential Return of 10% per annum
for the period after August 4, 1993.
(d) The remainder, if any, shall be allocated 95% to the Limited Partners and
5% to the General Partner
-23-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
The General Partner was required to make Supplemental Capital Contributions, if
necessary, in sufficient amounts to allow the Partnership to make distributions
to the Limited Partners to provide a non-compounded return on their invested
capital equal to 8% per annum through August 4, 1993. The amount of such
Supplemental Capital Contributions was $30,155. The entire amount was paid to
the Partnership in April of 1990. The General Partner was repaid on August 4,
1993, after the Limited Partners received a Cumulative Preferred Return of 8%
per annum through August 4, 1993.
(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 $472 and $1,648 was unpaid as of December 31, 1998 and
1997, respectively.
An Affiliate of the General Partner earned Property Management Fees of $32,041,
$33,150, and $31,848 for the years ended December 31, 1998, 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 as of December 31, 1998.
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) Investment Properties
Colonial Manor Living Center, LaGrange, Illinois
- ------------------------------------------------
On June 7, 1989, the Partnership took title to this property which an Affiliate
of the General Partner purchased on behalf of the Partnership from an
unaffiliated third party for $6,787,232. The property consists of a 107,867
square-foot nursing care facility located in LaGrange, Illinois. The total cost
of this property to the Partnership was $7,521,881, which includes acquisition
fees of $601,675 and acquisition costs of $132,974. The center is currently
100% leased to Elite Care Corporation. The lease is a triple-net lease and
expires January 2001. The tenant has the right to extend the lease for an
additional ten-year term. The rent per annum is $909,372 and adjusts annually.
In 1992, the current operator of this facility negotiated with a new operator
to sublease the facility. The General Partner approved the transaction with no
significant changes to the terms of the lease.
-24-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
Scandinavian Health Spa, Inc., Broadview Heights, Ohio
- ------------------------------------------------------
On October 19, 1988, the Partnership took title to this property which an
Affiliate of the General Partner purchased on behalf of the Partnership from an
unaffiliated third party for $2,760,000. The property consists of a 26,040 net
rentable square-foot, two-story masonry building including a pool, whirlpool,
two saunas, suspended running track, two racquet ball courts, extensive locker
room areas, a nursery and offices. The total cost of this property to the
Partnership was $3,016,527, which includes acquisition fees of $241,500 and
acquisition costs of $15,027. The lease expires in December 2004 and the tenant
has the option to extend the lease for two additional five-year periods. The
tenant has leased 100% of the rentable space on a triple-net basis for a
current monthly amount of $29,925.
K mart Retail Store, Chandler, Arizona
- --------------------------------------
On December 29, 1989, the Partnership took title to this property which an
Affiliate of the General Partner purchased on behalf of the Partnership from an
unaffiliated third party for $4,568,000. The property consists of an 84,146
square-foot retail building. The total cost of this property to the Partnership
was $5,072,473, which includes acquisition fees of $406,862 and related
acquisition costs of $97,611. The tenant has a lease for 100% of the rentable
space on a net basis and is responsible for payment of the real estate taxes,
insurance and all utilities. The Partnership will be responsible for
maintenance of the structure and the parking lot. The lease requires a base
rent of $452,000 per annum and additional rent equal to 1% of gross sales in
excess of $14,000,000. The lease expires in July 2013 and the tenant has the
option to extend the lease for four additional five-year periods.
Euro-Fresh Market Plaza, Palatine, Illinois
- -------------------------------------------
On December 31, 1990, the Partnership took title to this property from an
unaffiliated third party for $2,000,000. The property consists of two buildings
aggregating 52,475 square feet. One of the buildings is a food store and the
other is a multi-tenant building containing twelve commercial units. The total
initial cost of this property to the Partnership was $2,186,383, which includes
acquisition fees of $180,645 and related acquisition costs of $5,738. The
property is 85% leased on a net basis with the tenants responsible for their
portion of real estate taxes and common area maintenance. The Partnership is
responsible for its share of real estate taxes and common area maintenance plus
the maintenance of the structures and the parking lot. Then anchor tenant,
Eagle Food Store, had a lease through May 1997 with an annual rent of $78,600.
-25-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
The current tenants in the 12-unit building have leases ranging from one to
five years at an average monthly rent of $1,883 per tenant. In January 1994,
the anchor tenant at the shopping center, Eagle Foods, closed its store. In
February 1994, with the approval of the General Partner, Eagle Foods assigned
its lease to Certified Grocers Midwest, Inc. ("Certified"). Certified occupied
the store from March 1994 until August 1995. In May 1996, Euro-Fresh Market
("Euro-Fresh") began its occupancy of the anchor store and the shopping center
was renamed Euro-Fresh Market Plaza. Under the original lease, as well as the
assignment of the lease, Eagle Foods had guaranteed payments until November
1998. As of December 1, 1998, Euro-Fresh Market, Inc. negotiated a new lease
which expires November 30, 2003 for an annual rent of $109,939.
Cost and accumulated depreciation of the above properties as of December 31,
are summarized as follows:
1998 1997
Health and Racquet Club: ------------ ------------
Cost.............................. $ 3,016,527 3,016,527
Less accumulated depreciation..... 740,015 667,817
------------ ------------
2,276,512 2,348,710
Retail Store: ------------ ------------
Cost.............................. 5,072,473 5,072,473
Less accumulated depreciation..... 954,366 849,298
------------ ------------
4,118,107 4,223,175
Nursing Home: ------------ ------------
Cost.............................. 7,521,881 7,521,881
Less accumulated depreciation..... 1,968,920 1,763,468
------------ ------------
5,552,961 5,758,413
Shopping Center: ------------ ------------
Cost.............................. 2,345,080 2,201,453
Less accumulated depreciation..... 384,309 337,282
------------ ------------
1,960,771 1,864,171
------------ ------------
Total.................................. $13,908,351 14,194,469
============ ============
-26-
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(5) Operating Leases
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 $48,552, a decrease of $31,663, and
an increase of $1,066 in 1998, 1997 and 1996, respectively, of rental income
for the period of occupancy for which stepped rent increases apply and $302,419
and $350,971 in related deferred rent receivable as of December 31, 1998 and
1997, respectively. These amounts will be collected over the terms of the
related leases as scheduled rent payments are made. Deferred rent receivable of
$3,719 was written off against rental income for the year ended December 31,
1997, due to two tenants vacating at Euro-Fresh Market Plaza.
Minimum lease payments to be received in the future from operating leases are
as follows:
1999.......................................... $ 1,945,018
2000.......................................... 1,956,591
2001.......................................... 1,090,556
2002.......................................... 996,443
2003.......................................... 947,691
Thereafter.................................... 4,653,094
------------
Total......................................... $11,589,393
============
Pursuant to the lease agreements, tenants of Euro-Fresh Market Plaza are
required to reimburse the Partnership for their pro rata share of the real
estate taxes and operating expenses of the property. Such amounts are included
in additional rental income.
The Partnership currently has significant net operating leases with Elite Care
Corporation ("Elite"), K mart Corporation ("K mart") and Scandinavian Health
Spa, Inc. ("SHS"). Revenues from the Elite lease for the Colonial Manor Nursing
Home, the K mart lease for the K mart store and the SHS lease for the
Scandinavian Health Spa represents approximately 42%, 22% and 17%,
respectively, of the Partnership's income for the year ended December 31, 1998,
approximately 40%, 21% and 17%, respectively, of the Partnership's income for
the year ended December 31, 1997 and approximately 41%, 21% and 17%,
respectively, of the Partnership's income for the year ended December 31, 1996.
(6) Subsequent Events
During January 1999, the Partnership paid a distribution of $140,427 to the
Limited Partners.
-27-
<TABLE> INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Schedule III
Real Estate and Accumulated Depreciation
December 31, 1998
<CAPTION>
Initial cost
to Partnership Gross amount at which carried
(A) at end of period (B)
----------------------- Costs ------------------------------------------------- Life on which
capitalized Date depreciation
Buildings subsequent Buildings Accumulated Con- in latest Stmt
and to and Total Depreciation stru-Date of Operations
Land improvements acquisition Land improvements (C) (D) cted Acq is computed
---------- ------------ ------------ --------- ------------- ---------- -------------- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Health & Racquet Club:
Scandinavian Health
Spa, Inc. 10/19
Broadview Hts., OH $ 850,609 2,165,039 879 850,609 2,165,918 3,016,527 740,015 1984 1988 30 years
Nursing Home Facility:
Colonial Manor 06/07
LaGrange, IL 416,390 7,105,491 - 416,390 7,105,491 7,521,881 1,968,920 1924 1989 40 years
Retail Store:
K mart 12/29
Chandler, AZ 1,920,439 3,152,034 - 1,920,439 3,152,034 5,072,473 954,366 1986 1989 30 years
Shopping Center:
Euro-Fresh Market Plaza
12/31
Palatine, IL 810,711 1,375,672 158,697 810,711 1,534,369 2,345,080 384,309 1973 1990 30 years
---------- ------------ ------------ --------- ------------ ---------- -------------
Totals $3,998,149 13,798,236 159,576 3,998,149 13,957,812 17,955,961 4,047,610
========== ============ ============ ========= =========== ========== =============
Notes:
(A) The initial cost to the Partnership represents the original purchase price of the properties, including amounts incurred
subsequent to acquisition which were contemplated at the time the property was acquired.
(B) The aggregate cost of real estate owned at December 31, 1998 for Federal income tax purposes was approximately $17,956,000
(unaudited.)
(C) Reconciliation of real estate owned:
1998 1997 1996
---- ---- ----
Balance at beginning of year.................... $ 17,812,334 17,812,334 17,812,334
Capital expenditures............................ 143,627 - -
------------- ------------- -------------
Balance at end of year.......................... $ 17,955,961 17,812,334 17,812,334
============= ============= =============
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year.................... $ 3,617,865 3,186,278 2,754,691
Depreciation expense............................ 429,745 431,587 431,587
------------- ------------- -------------
Balance at end of year.......................... $ 4,047,610 3,617,865 3,186,278
============= ============= =============
</TABLE>
-28-
-28-
Item 9. Changes in and Disagreements with Independent Auditors on Accounting
and Financial Disclosure
There were no disagreements on accounting or financial disclosure matters
during 1998.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partner of the Partnership, Inland Real Estate Investment
Corporation, was organized in 1984 for the purpose of acting as general partner
of limited partnerships formed to acquire, own and operate real properties.
The General Partner is a wholly-owned subsidiary of The Inland Group, Inc. In
1990, Inland Real Estate Investment Corporation became the replacement General
Partner for an additional 301 privately-owned real estate limited partnerships
syndicated by Affiliates. The General Partner has responsibility for all
aspects of the Partnership's operations. The relationship of the General
Partner to its Affiliates is described under the caption "Conflicts of
Interest" at pages 11 to 13 of the Prospectus, a copy of which description is
hereby incorporated herein by reference.
Officers and Directors
The officers, directors, and key employees of The Inland Group, Inc. and its
Affiliates ("Inland") that are likely to provide services to the Partnership
are as follows:
Functional Title
Daniel L. Goodwin....... Chairman and Chief Executive Officer
Robert H. Baum.......... Executive Vice President-General Counsel
G. Joseph Cosenza....... Senior Vice President-Acquisitions
Robert D. Parks......... Senior Vice President-Investments
Norbert J. Treonis...... Senior Vice President-Property Management
Brenda G. Gujral........ President and Chief Operating Officer-IREIC
Catherine L. Lynch...... Treasurer
Paul J. Wheeler......... Vice President-Personal Financial Services Group
Roberta S. Matlin....... Assistant Vice President-Investments
Mark Zalatoris.......... Assistant Vice President-Due Diligence
Patricia A. Challenger.. Vice President-Asset Management
Kelly Tucek............. Assistant Vice President-Partnership Accounting
Venton J. Carlston...... Assistant Controller
-29-
DANIEL L. GOODWIN (age 55) is Chairman of the Board of Directors of The
Inland Group, Inc., a billion-dollar real estate and financial organization
located in Oak Brook, Illinois. Among Inland's subsidiaries is the largest
property management firm in Illinois and one of the largest commercial real
estate and mortgage banking firms in the Midwest.
Mr. Goodwin has served as Director of the Avenue Bank of Oak Park and as a
director of the Continental Bank of Oakbrook Terrace. He was Chairman of the
Bank Holding Company of American National Bank of DuPage. Currently he is the
Chairman of the Board of Inland Mortgage Investment Corporation.
Mr. Goodwin has been in the housing industry for more than 28 years, and has
demonstrated a lifelong interest in housing-related issues. He is a licensed
real estate broker and a member of the National Association of Realtors. Mr.
Goodwin has developed thousands of housing units in the Midwest, New England,
Florida, and the Southwest. He is also the author of a nationally recognized
real estate reference book for the management of residential properties.
Mr. Goodwin has served on the Board of the Illinois State Affordable Housing
Trust Fund for the past six years. He is an advisor for the Office of Housing
Coordination Services of the State of Illinois, and a member of the Seniors
Housing Committee of the National Multi-Housing Council. Recently, Governor
Edgar appointed Mr. Goodwin as Chairman of the Housing Production Committee for
the Illinois State Affordable Housing Conference. He also served as a member
of the Cook County Commissioner's Economic Housing Development Committee, and
he was the Chairman of the DuPage County Affordable Housing Task Force. The
1992 Catholic Charities Award was presented to Mr. Goodwin for his work in
addressing affordable housing needs. The City of Hope designated him as the
Man of the Year for the Illinois construction industry. In 1989, the Chicago
Metropolitan Coalition on Aging presented Mr. Goodwin with an award in
recognition of his efforts in making housing more affordable to Chicago's
Senior Citizens. On May 4, 1995, PADS, Inc. (Public Action to Deliver Shelter)
presented Mr. Goodwin with an award, recognizing The Inland Group as the
leading corporate provider of transitional housing for the homeless people of
DuPage County. Mr. Goodwin also serves as Chairman of New Directions Housing
Corporation, a leading provider of affordable housing in northern Illinois.
Mr. Goodwin is a product of Chicago-area schools, and obtained his Bachelor's
and Master's Degrees from Illinois Universities. Following graduation, he
taught for five years in the Chicago Public Schools. His commitment to
education has continued through his work with the BBF Family Services' Pilot
Elementary School in Chicago, and the development of the Inland Vocational
Training Center for the Handicapped located at Little City in Palatine,
Illinois. He personally established an endowment which funds a perpetual
scholarship program for inner-city disadvantaged youth. In 1990 he received
the Northeastern Illinois University President's Meritorious Service Award.
Mr. Goodwin holds a Master's Degree in Education from Northern Illinois
University, and in 1986, he was awarded an Honorary Doctorate from Northeastern
Illinois University College of Education. More than 12 years ago, under Mr.
Goodwin's direction, Inland instituted a program to educate disabled students
about the workplace. Most of these original students are still employed at
Inland today, and Inland continues as one of the largest employers of the
disabled in DuPage County. Mr. Goodwin has served as a member of the Board of
Governors of Illinois State Colleges and Universities, and he is currently a
trustee of Benedictine University. He was elected Chairman of the Northeastern
Illinois University Board of Trustees in January 1996.
-30-
In 1988 he received the Outstanding Business Leader Award from the Oak Brook
Jaycees and in March 1994, he won the Excellence in Business Award from the
DuPage Area Association of Business and Industry. Additionally, he was honored
with a dinner sponsored by Little Friends on May 17, 1995 for rescuing their
Parent-Handicapped Infant Program when they lost their lease. He was the
recipient of the 1995 March of Dimes Life Achievement Award and was recently
recognized as the 1998 Corporate Leader of the Year by the Oak Brook Area
Association of Commerce and Industry. The Ray Graham Association for People
with Disabilities honored Mr. Goodwin as the 1999 Employer of the Year. For
many years, he has been Chairman of the National Football League Players
Association Mackey Awards for the benefit of inner-city youth and he served as
the recent Chairman of the Speakers Club of the Illinois House of
Representatives.
ROBERT H. BAUM (age 55) has been with The Inland Group, Inc. and its
affiliates since 1968 and is one of the four original principals. Mr. Baum is
Vice Chairman and Executive Vice President-General Counsel of The Inland Group,
Inc. In his capacity as General Counsel, Mr. Baum is responsible for the
supervision of the legal activities of The Inland Group, Inc. and its
affiliates. This responsibility includes the supervision of The Inland Law
Department and serving as liaison with outside counsel. Mr. Baum has served as
a member of the North American Securities Administrators Association Real
Estate Advisory Committee and as a member of the Securities Advisory Committee
to the Secretary of State of Illinois. He is a member of the American
Corporation Counsel Association and has also been a guest lecturer for the
Illinois State Bar Association. Mr. Baum has been admitted to practice before
the Supreme Court of the United States, as well as the bars of several federal
courts of appeals and federal district courts and the State of Illinois. He
received his B.S. Degree from the University of Wisconsin and his J.D. Degree
from Northwestern University School of Law. Mr. Baum has served as a director
of American National Bank of DuPage and currently serves as a director of
Westbank. Mr. Baum also is a member of the Governing Council of Wellness
House, a charitable organization that provides emotional support for cancer
patients and their families.
G. JOSEPH COSENZA (age 55) has been with The Inland Group, Inc. and its
affiliates since 1968 and is one of the four original principals. Mr. Cosenza
is a Director and Vice Chairman of The Inland Group, Inc. and oversees,
coordinates and directs Inland's many enterprises. In addition, Mr. Cosenza
immediately supervises a staff of nine persons who engage in property
acquisition. Mr. Cosenza has been a consultant to other real estate entities
and lending institutions on property appraisal methods.
Mr. Cosenza received his B.A. Degree from Northeastern Illinois University and
his M.S. Degree from Northern Illinois University. From 1967 to 1968, he
taught at the LaGrange School District in Hodgkins, Illinois and from 1968 to
1972, he served as Assistant Principal and taught in the Wheeling, Illinois
School District. Mr. Cosenza has been a licensed real estate broker since 1968
and an active member of various national and local real estate associations,
including the National Association of Realtors and the Urban Land Institute.
Mr. Cosenza has also been Chairman of the Board of American National Bank of
DuPage, and has served on the Board of Directors of Continental Bank of
Oakbrook Terrace. He is presently a Director on the Board of Westbank in
Westchester and Hillside, Illinois.
-31-
ROBERT D. PARKS (age 55) is a Director of The Inland Group, Inc.,
President, Chairman and Chief Executive Officer of Inland Real Estate
Investment Corporation and President, Chief Executive Officer, Chief Operating
Officer and Affiliated Director of Inland Real Estate Corporation.
Mr. Parks is responsible for the ongoing administration of existing investment
programs, corporate budgeting and administration for Inland Real Estate
Investment Corporation. He oversees and coordinates the marketing of all
investments and investor relations.
Prior to joining Inland, Mr. Parks was a school teacher in Chicago's public
schools. He received his B.A. degree from Northeastern Illinois University and
his M.A. degree from the University of Chicago. He is a member of the Real
Estate Investment Association and a member of NAREIT.
NORBERT J. TREONIS (age 48) joined The Inland Group, Inc. and its
affiliates in 1975 and he is currently Chairman and Chief Executive Officer of
The Inland Property Management Group, Inc. and a Director of The Inland Group,
Inc. He serves on the Board of Directors of all Inland subsidiaries involved
in the property management, acquisitions and maintenance of real estate,
including Mid-America Property Management Corporation, Metropolitan
Construction Services, Inc. and Inland Commercial Property Management, Inc.
Mr. Treonis is charged with the responsibility of the overall management and
leasing of all apartment units, retail, industrial and commercial properties
nationwide.
Mr. Treonis is a licensed real estate broker. He is a past member of the Board
of Directors of American National Bank of DuPage, the Apartment Building Owners
and Managers Association, the National Apartment Association and the
Chicagoland Apartment Association.
BRENDA G. GUJRAL (age 56) is President and Chief Operating Officer of
Inland Real Estate Investment Corporation (IREIC), the parent company of the
Advisor. She is also President and Chief Operating Officer of the Dealer-
Manager, Inland Securities Corporation (ISC), a member firm of the National
Association of Securities Dealers (NASD).
Mrs. Gujral has overall responsibility for the operations of IREIC, including
the distribution of checks to over 50,000 investors, review of periodic
communications to those investors, the filing of quarterly and annual reports
for Inland's publicly registered investment programs with the Securities and
Exchange Commission, compliance with other SEC and NASD securities regulations
both for IREIC and ISC, review of asset management activities, and marketing
and communications with the independent broker/dealer firms selling Inland's
current and prior programs. Mrs. Gujral works with internal and outside legal
counsel in structuring and registering the prospectuses for IREIC's investment
programs.
Mrs. Gujral has been with Inland for 18 years, becoming an officer in 1982.
Prior to joining Inland, she worked for the Land Use Planning Commission
establishing an office in Portland, Oregon, to implement land use legislation
for that state.
She is a graduate of California State University. She holds Series 7, 22, 39
and 63 licenses from the NASD and is a member of the National Association of
Real Estate Investment Trusts (NAREIT) and the National Association of Female
Executives.
-32-
CATHERINE L. LYNCH (age 40) joined Inland in 1989 and is the Treasurer of
Inland Real Estate Investment Corporation. Ms. Lynch is responsible for
managing the Corporate Accounting Department. Prior to joining Inland, Ms.
Lynch worked in the field of public accounting for KPMG Peat Marwick since
1980. She received her B.S. degree in Accounting from Illinois State
University. Ms. Lynch is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants and the Illinois CPA
Society. She is registered with the National Association of Securities Dealers
as a Financial Operations Principal.
PAUL J. WHEELER (age 46) joined Inland in 1982 and is currently the
President of Inland Real Estate Equities, Inc., the entity responsible for all
corporately owned real estate. Mr. Wheeler received his B.A. degree in
Economics from DePauw University and an M.B.A. in Finance/Accounting from
Northwestern University. Mr. Wheeler is a Certified Public Accountant and
licensed real estate broker. For three years prior to joining Inland, Mr.
Wheeler was Vice President/Finance at the real estate brokerage firm of Quinlan
& Tyson, Inc.
ROBERTA S. MATLIN (age 54) joined Inland in 1984 as Director of Investor
Administration and currently serves as Senior Vice President-Investments.
Prior to that, Ms. Matlin spent 11 years with the Chicago Region of the Social
Security Administration of the United States Department of Health and Human
Services. She is a Director of Inland Real Estate Investment Corporation,
Inland Securities Corporation, and Inland Real Estate Advisory Services, Inc.
As Senior Vice President-Investments, she directs the day-to-day internal
operations of the General Partner. Ms. Matlin received her B.A. degree from
the University of Illinois. She is registered with the National Association of
Securities Dealers, Inc. as a General Securities Principal.
MARK ZALATORIS (age 41) joined Inland in 1985 and currently serves as Vice
President of Inland Real Estate Investment Corporation. His responsibilities
include the coordination of due diligence activities by selling broker/dealers
and is also involved with limited partnership asset management including the
mortgage funds. Mr. Zalatoris is a graduate of the University of Illinois
where he received a Bachelors degree in Finance and a Masters degree in
Accounting and Taxation. He is a Certified Public Accountant and holds a
General Securities License with Inland Securities Corporation.
PATRICIA A. CHALLENGER (age 46) joined Inland in 1985. Ms. Challenger
serves as Senior Vice President of Inland Real Estate Investment Corporation in
the area of Asset Management. As head of the Asset Management Department, she
develops operating and disposition strategies for all investment-owned
properties. Ms. Challenger received her Bachelor's degree from George
Washington University and her Master's from Virginia Tech University. Ms.
Challenger was selected and served from 1980-1984 as Presidential Management
Intern, where she was part of a special government-wide task force to eliminate
waste, fraud and abuse in government contracting and also served as Senior
Contract Specialist responsible for capital improvements in 109 government
properties. Ms. Challenger is a licensed real estate broker, NASD registered
securities sales representative and is a member of the Urban Land Institute.
-33-
KELLY TUCEK (age 36) joined Inland in 1989 and is an Assistant Vice
President of Inland Real Estate Investment Corporation. As of August 1996, Ms.
Tucek is responsible for the Investment Accounting Department which includes
all public partnership accounting functions along with quarterly and annual SEC
filings. Prior to joining Inland, Ms. Tucek was on the audit staff of Coopers
and Lybrand since 1984. She received her B.A. Degree in Accounting and
Computer Science from North Central College.
VENTON J. CARLSTON (age 41) joined Inland in 1985 and is the Assistant
Controller of Inland Real Estate Investment Corporation where he supervises the
corporate bookkeeping staff and is responsible for financial statement
preparation and budgeting for Inland Real Estate Investment Corporation and its
subsidiaries. Prior to joining Inland, Mr. Carlston was a partnership
accountant with JMB Realty. He received his B.S. degree in Accounting from
Southern Illinois University. Mr. Carlston is a Certified Public Accountant
and a member of the Illinois CPA Society. He is registered with the National
Association of Securities Dealers, Inc. as a Financial Operations Principal.
Item 11. Executive Compensation
The General Partner is entitled to receive a share of cash distributions when a
Preferential Return of 10% of Cash Available for Distribution has been made to
the Limited Partners, and a share of profits or losses as described under the
caption "Cash Distributions" at page 42 and "Allocation of Profits and Losses"
at pages 41 and 42 of the Prospectus, and at pages A-6 to A-10 of the
Partnership Agreement, included as an exhibit to the Prospectus, which is
incorporated herein by reference. Reference is also made to Note 2 of the Notes
to Financial Statements (Item 8 of this Annual Report) for a description of
such distributions and allocations for 1997.
The Partnership is permitted to engage in various transactions involving
Affiliates of the General Partner of the Partnership, as described under the
captions "Compensation and Fees" at pages 7-9 and "Conflicts of Interest" at
pages 9-11 of the Prospectus, and at pages A-12 through A-20 of the Partnership
Agreement, included as an exhibit to the Prospectus, which is incorporated
herein by reference. The relationship of the General Partner (and its directors
and officers) to its Affiliates is set forth above in Item 10.
The General Partner of the Partnership and its Affiliates may be reimbursed for
their expenses or out-of-pocket expenses relating to administration of the
Partnership and salaries and direct expenses of employees of the General
Partner and its Affiliates for the administration of the Partnership. Such
costs for 1998 were $35,932, of which $472 was unpaid as of December 31, 1998.
During 1998, Affiliates of the General Partner earned $32,041 in management
fees in connection with managing the Partnership's properties, all of which is
paid as of December 31, 1998.
-34-
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) No person or group is known by the Partnership to own beneficially more
than 5% of the outstanding Units of the Partnership.
(b) The officers and directors of the General Partner of the Partnership own as
a group the following Units of the Partnership:
Amount and Nature
of Beneficial Percent
Title of Class Ownership of Class
-------------- ----------------- --------------
Limited Partnership 58.76 Units directly Less than 1/2%
Units
No officer or director of the General Partner of the Partnership possesses
a right to acquire beneficial ownership of Units of the Partnership.
All of the outstanding shares of the General Partner of the Partnership are
owned by an Affiliate or its officers and directors as set forth above in
Item 10.
(c) There exists no arrangement, known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
There were no significant transactions or business relationships with the
General Partner, Affiliates or their management other than those described in
Items 10 and 11 above. Reference is made to Note 3 of the Notes to Financial
Statements (Item 8 of this Annual Report) for information regarding related
party transactions.
-35-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The Financial Statements listed in the index at page 14 of this Annual
Report are filed as part of this Annual Report.
(b) Exhibits. The following documents are filed as part of this Report:
3 Amended and Restated Agreement of Limited Partnership, and Certificate of
Limited Partnership included as Exhibits A and B of the Prospectus dated
August 4, 1988, as supplemented, are incorporated herein by reference
thereto.
4 Form of Certificate of Ownership representing interests in the registrant
filed as Exhibit 4 to Registration Statement on Form S-11, File No. 33-
22513, is incorporated herein by reference thereto.
28 Prospectus dated August 4, 1988, as supplemented, included in Post-
effective Amendment No. 2 to Form S-11 Registration Statement, File No. 33-
22513, is incorporated herein by reference thereto.
(c) Financial Statement Schedules.
Financial statement schedules for the years ended December 31, 1998, 1997
and 1996 are submitted herewith:
Page
Real Estate and Accumulated Depreciation, (Schedule III)........ 28
All schedules other than those indicated in the index have been omitted as
the required information is inapplicable or the information is presented in
the financial statements or related notes.
(d) Reports on Form 8-K.
None.
No Annual Report or proxy material for the year 1998 has been sent to the
Partners of the Partnership. An Annual Report will be sent to the Partners
subsequent to this filing and the Partnership will furnish copies of such
report to the Commission when it is sent to the Partners.
-36-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Inland Real Estate Investment Corporation
General Partner
/s/ Robert D. Parks
By: Robert D. Parks
Chairman of the Board
and Chief Executive Officer
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
By: Inland Real Estate Investment Corporation
General Partner
/s/ Robert D. Parks
By: Robert D. Parks
Chairman of the Board
and Chief Executive Officer
Date: March 29, 1999
/s/ Patricia A. Challenger
By: Patricia A. Challenger
Senior Vice President
Date: March 29, 1999
/s/ Kelly Tucek
By: Kelly Tucek
Principal Financial Officer
and Principal Accounting Officer
Date: March 29, 1999
/s/ Daniel L. Goodwin
By: Daniel L. Goodwin
Director
Date: March 29, 1999
/s/ Robert H. Baum
By: Robert H. Baum
Director
Date: March 29, 1999
-37-
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