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
For the transition period from ........ to ........
Commission file number 0-19198
FIRST DEARBORN INCOME PROPERTIES L.P. II
(Exact name of registrant as specified in its charter)
Delaware 36-3591517
(State of organization) (IRS Employer Identification No.)
154 West Hubbard Street, Suite 250, Chicago, IL 60610
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 464-0100
Securities registered pursuant to Section 12(b) of the Act:
Names of each exchange
Title of each class 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 non-affiliates of
the registrant. Not applicable.
<PAGE>
PART 1
Item 1. Business
The registrant, First Dearborn Income Properties L.P. II (the "Partnership"),
is a limited partnership formed in May 1988 under the Revised Uniform Limited
Partnership Act of the State of Delaware to invest in income producing
commercial and residential real estate consisting principally of existing
shopping centers and office buildings, as well as apartment complexes,
parking garages and lots and warehouse and industrial buildings. On
February 1, 1989, the Partnership commenced an offering of $10,000,000
(subject to increase by an additional $5,000,000) of its limited partnership
interests (the "Units") at $500 per Unit, pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933 (File No. 33-23048).
A total of 10,000 Units was sold. The holders of 3,345 Units were admitted
to the Partnership in 1989, holders of 4,444 Units were admitted to the
Partnership in 1990, and holders of 2,211 Units were admitted in 1991. Of
the 2,211 Units purchased in 1991, 1,669 Units were purchased by an
affiliate of the General Partners pursuant to its Agreement to Purchase
Units. The offering terminated on January 31, 1991 (extended from its
originally scheduled termination date of January 31, 1990). Since admission
to the Partnership, no holder of Units (hereinafter, a "Limited Partner")
has made any additional capital contributions. 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.
Net of offering costs, Limited Partners have contributed a total of $4,058,963
to the Partnership. The Partnership is engaged solely in the business of
real estate investment. It is the Partnership's objective to realize cash
flow from operations and appreciation in the value of the real estate. The
Partnership has entered into three joint venture agreements with partnerships
sponsored by affiliates of the General Partners. Pursuant to such agreements,
the Partnership has made capital contributions aggregating $3,652,066 through
December 31, 1998. The Partnership has acquired, through these ventures,
interests in two shopping centers and a mixed use apartment/retail building.
No investments have been made since 1991. The Country Isles property was
sold in December 1997. As of December 31, 1998, the Partnership had made the
real property investments set forth in the following table:
<TABLE>
<CAPTION>
Name, Type of Property Date of Type of
and Location Size Purchase Ownership
<S> <C> <C> <C>
Evanston Galleria 36,068 S.F. 11/1/89 23.87% interest in a
Retail/Apartments and partnership that has
Evanston, Illinois 55 apartments fee ownership of land
and improvements
Country Isles 106,000 S.F. 7/21/91 21.00% interest in a
Shopping Center partnership that has
Ft. Lauderdale, Florida fee ownership of land
and improvements
Sold December 1997
Sycamore Mall 240,206 S.F. 10/26/90 53.40% interest in a
Shopping Center partnership that has
Iowa City, Iowa fee ownership of land
and improvements
<FN>
(a) Reference is made to Note 3 of Notes to Consolidated Financial Statements
filed with this annual report for the current outstanding principal balance
and a description of the long-term mortgage indebtedness secured by the
Partnership's real property investments.
Note: "S.F." represents the amount of rentable square feet of retail area in
each of the properties.
</TABLE>
<PAGE>
Sycamore Mall represents the most significant investment made by the
Partnership. A total of $2,275,000 has been invested by the Partnership
which represents 62% of the Partnership's real estate investments. Since
acquiring the Sycamore Mall investment in 1990, the Partnership has received
cash distributions of $1,423,351 from Sycamore Mall Associates. Country
Isles represents an investment of $775,000 or 21% of the Partnership's real
estate investments. Since acquiring the Country Isles investment in 1991,
the Partnership had received distributions of $1,536,718, including
distributions from the sale of the property. Evanston Galleria accounts
for $602,066 or 17% of the Partnership's real estate investments. Since
acquiring the Evanston Galleria investment in 1989, the Partnership has
received distributions of $50,133.
During the past five years, operations at the Partnership's three properties
have provided sufficient cash flow to meet the obligations of the Partnership
and continue to make distributions to its partners. Each of the properties
has been able to sustain adequate cash flow even though they have each had
some releasing issues over the last few years. The real estate market in
general had suffered from overbuilding which occurred during the 1980's.
This increased the competition for the Partnership's properties, which
resulted in a decrease in rental rates from 1990 to 1994. Since 1994, the
market rental rates have continued to increase moderately.
During 1996, Randall's, a tenant at Sycamore Mall, vacated its leased
premises of 19,800 square feet. As a result of the Randall's vacancy,
occupancy at Sycamore Mall fell to approximately 86% during the second
quarter of 1996. However, Randall's continued to pay rent through December,
1996. Sears, Roebuck and Co. was a tenant under a lease which had an
original termination date of March 31, 1992. Prior to that termination, a
ten-year extension was agreed to which provided Sears an option to terminate
the lease at any time after March 31, 1997 by giving landlord a one year
written notice. Sears gave such notice on September 17, 1997 and terminated
its lease on September 1, 1998. Management is currently negotiating with a
potential replacement tenant, however there can be no assurance that a new
lease will be entered into. If this space is not released, the ability of
Sycamore Mall to meet its financial obligations could be effected, as a
result of the decreased revenues. In response to the uncertainty relative
to Sycamore Mall Associates ability to recover the net carrying value of
Sycamore Mall through future operations and sale, Sycamore Mall Associates,
as a matter of prudent accounting practices and for financial reporting
purposes, recorded a provision for value impairment in 1998 in the amount
of $1,100,000.
During 1995, the Evanston Galleria experienced a problem with retail tenants.
There was 13,635 square feet of retail space of which the tenants were in
default of their leases for non payment of rent. Occupancy in the apartments
at Evanston Galleria has remained in the 94% - 100% range during the last
five years. The retail space has had a problem with tenant defaults, which
has reduced overall occupancy to as low as 80% in 1991. As of December 31,
1996, occupancy was 84%. During the fourth quarter of 1997, Evanston
Galleria collected $50,000 as a settlement for past due rents. Management
has settled its legal actions against the previously defaulted tenants.
Also during the fourth quarter of 1997, management was successful in signing
two new leases. As of December 31, 1997 occupancy was 83%. During 1998, a
lease was entered into to lease the lower level space of 11,300 square feet
which has increased occupancy to over 93%, as of December 31, 1998.
As of October 1, 1997, the Evanston Galleria property was considered to be
held for sale. In accordance with SFAS 121, no depreciation expense relative
to the property was recorded by the Partnership from October 1, 1997 through
December 31, 1998. The net book value of the Evanston Galleria property at
December 31, 1998 and 1997 was $8,422,717 and $8,408,900, respectively, and
net loss from operations for the years ended December 31, 1998, 1997 and
1996, net of the Venture Partners share were $35,661, $90,086 and $78,686
respectively.
On February 16, 1999, a contract was entered into for the sale of the
Evanston Galleria. The purchase price, net of closing costs and prorations,
should be sufficient to repay all liabilities of the Evanston Galleria
Limited Partnership. However there will not be a significant distribution
to the Partnership. The Partnership is expected to recognize a gain on the
sale of approximately $100,000.
The Partnership's real property investments are subject to competition from
similar types of properties in the vicinities in which they are located.
Approximate occupancy levels for the Partnership's properties are set forth
on a quarterly basis in the table set forth in Item 2 below to which
reference is hereby made. The Partnership has no real property investments
located outside the United States.
<PAGE>
Only one of the three Partnership's investments is consolidated for financial
reporting purposes. Information is presented below in order to illustrate
applicable information about each of the three properties individually and
does not relate to financial information presented about the Partnership in
Item 6 and Item 8.
<TABLE>
<CAPTION>
Sycamore Mall,
Iowa City, Iowa 1998 1997 1996
<S> <C> <C> <C>
Total revenue 1,515,937 1,828,997 1,947,827
Operating profit (loss) (1,010,483) 222,766 380,405
Total assets 6,484,454 8,113,686 8,425,247
Mortgage indebtedness 4,408,025 4,574,933 4,728,868
<CAPTION>
Country Isles Shopping Center (sold December 1997)
Ft. Lauderdale, Florida 1998 1997 1996
<S> <C> <C> <C>
Total revenue - 1,708,274 1,734,027
Operating profit - 385,746 159,718
Gain on sale of investment property - 9,116,946 -
Total assets - 165,311 4,007,615
Mortgage indebtedness - - 8,028,160
<CAPTION>
Evanston Galleria
Evanston, Illinois 1998 1997 1996
<S> <C> <C> <C>
Total revenue 1,384,467 1,346,682 1,467,431
Operating loss (149,393) (377,401) (329,645)
Total assets 8,719,746 8,686,165 9,027,234
Mortgage indebtedness 8,486,740 8,486,740 8,486,740
</TABLE>
The Partnership has no employees and is largely dependent on the General
Partners and their affiliates for services. A description of the terms of
transactions between the Partnership and affiliates of the General Partners
is set forth in Item 11 below to which reference is hereby made.
Evanston Galleria Limited Partnership
On October 31, 1989, the Partnership acquired an interest in Evanston
Galleria Limited Partnership (the "Galleria Partnership") which owns a 100%
beneficial interest in the Evanston Galleria, a mixed-use residential and
retail property located in Evanston, Illinois. The property, located on a
0.79 acre site, contains 36,068 square feet of rentable retail space and 55
loft apartments. The Partnership's acquisition of its interest was effected
through its acquisition of an 18.30% general partnership interest in the
Galleria Partnership from First Dearborn Evanston Associates Limited
Partnership ("Evanston Associates"), an affiliate of the General Partners.
Evanston Associates originally agreed to purchase a 76.67% interest in the
Galleria Partnership by agreeing to contribute an aggregate $2,313,125 to
the Galleria Partnership. The Partnership acquired a portion of the 76.67%
general partnership interest on the same terms by contributing $552,066 for
its 18.30% general partnership interest. The seller retained a 23.33%
limited partnership interest.
The Partnership and Evanston Associates, as general partners of the Galleria
Partnership, have certain preferences from operating cash flow and
distributions from sales or refinancing. Profits are generally allocated
in accordance with cash distributions (including preferences) and then in
accordance with the respective partner's interest. Losses are allocated
first to partners with positive capital account balances and then in
accordance with the respective partner's interest.
<PAGE>
The limited partners ("Guarantors") of the Galleria Partnership had provided
the Partnership and Evanston Associates with a guaranty of minimum rentals
on certain retail space, maximum debt service levels and maximum real estate
tax expenses in the Galleria Partnership. The property has failed to perform
as expected and the Galleria Partnership has called upon the Guarantors to
satisfy their obligations under the guaranties. The Guarantors have failed
to fulfill their obligations to the Partnership, and the General Partners
have taken actions to protect the rights of the Partnership, including
receipt of an assignment in favor of the Partnership of the Guarantors'
limited partnership interests in the Galleria Partnership of 5.57% and the
receipt of security interests in certain other limited partnership interests
owned by the Guarantors. Amounts owed pursuant to such guaranties which are
secured by the limited partners' partnership interests will be recorded upon
receipt.
The property is managed by an affiliate of the General Partners. During
1998, 1997 and 1996, management fees totaling $41,681 $41,550 and $25,091,
respectively, were paid to an affiliate of the General Partners.
In connection with the loan modification to the first mortgage on the
Evanston Galleria, which closed in February of 1993 and was effective August
1, 1992, the Galleria Partnership received an infusion of additional capital
and obtained modifications of the terms of its loans. $202,000 of additional
capital was contributed to the Galleria Partnership by Evanston Associates,
of which the Partnership's share was $50,000, in exchange for a preferred
equity position. The preferred equity holders shall receive an annual
preferred return from cash distributions in an amount equal to the lesser of:
a) prime rate plus 2%, or b) 10% per annum. For financial reporting purposes,
the Partnership has a 23.87% interest in the Galleria Partnership.
Evanston Galleria is located in downtown Evanston, Illinois, a short distance
from Northwestern University. Demand for the apartments has been strong over
the past five years with occupancy averaging 98%. Apartment rents have been
rising approximately 3% per year. The ground floor retail space had been
100% occupied during the past five years, except for several instances where
tenants defaulted. This resulted in vacancies and a reduction in rental
income. Demand for the ground floor retail space has generally been strong.
The lower level retail space, however, has been vacant since 1995. One
retail tenant, with a lease for 11,500 square feet, filed a petition for
bankruptcy on January 11, 1994. The tenant stopped paying rent and vacated
the premises during the third quarter of 1995. During the fourth quarter of
1995, a second tenant representing 2,135 square feet defaulted under the
terms of its lease and vacated the space. Management has taken legal action
against the defaulted tenants, but currently has no estimate of the amount,
if any, or timing of collection of amounts due from these tenants. During
the fourth quarter of 1997, Evanston Galleria collected $50,000 as a
settlement for past due rents. Management has settled its legal actions
against the previously defaulted tenants. As of December 31, 1997 occupancy
was 83%. During 1998, a lease was entered into to lease the lower level
space of 11,300 square feet which has increased occupancy to over 93%, as
of December 31, 1998.
The property is subject to a first mortgage which matured May 1, 1996.
Effective May 1, 1996, a modification of the first mortgage was entered
into which, among other modifications, extended the maturity of the loan
until May 1, 1998. Commencing on May 1, 1996, monthly payments were
adjusted to $57,143, which represents interest only payments at an annual
rate of 8.25%, based on the outstanding principal balance of the loan as of
May 1, 1996. Notwithstanding the pay rate of 8.25%, interest on the loan
continues to accrue and compound monthly on the unpaid principal balance
at the annual rate of 9.00%. The interest differential, as defined, will
be paid only from proceeds resulting from a sale or refinancing of the
property or from any remaining funds in the cash flow escrow. The unpaid
interest together with the unpaid principal balance of the loan was due
and payable May, 1 1998. The first mortgage loan maturity has been extended
to August 1, 1999. All net cash flow from the property, in excess of the
payments due for interest, shall be deposited into a cash flow escrow account.
If cash flow in any month is insufficient to pay amounts due under the loan,
then the amounts may be withdrawn from the cash flow escrow account.
On February 16, 1999, a contract was entered into for the sale of the
Evanston Galleria. The purchase price, net of closing costs and prorations
should be sufficient to repay all liabilities of the Evanston Galleria
Limited Partnership. However there will not be a significant distribution
to the Partnership. If the sale is consummated, the Partnership is expected
to recognize a gain on the sale of approximately $100,000. The closing is
currently scheduled to occur on April 30, 1999. However, the Purchaser has
requested a 90 day extension.
<PAGE>
Sycamore Mall Associates
On October 26, 1990, the Partnership contributed $2,275,000 to acquire a
53.40% general partnership interest in Sycamore Mall Associates, a general
partnership formed to acquire the Sycamore Mall Shopping Center in Iowa City,
Iowa. The property, situated on an approximate 21.2 acre site, includes a
main building containing 213,206 square feet and an out parcel building
containing 27,000 square feet. A 14,000 square foot parcel which contains
a 4,590 square foot building is under a ground lease to McDonald's. Sycamore
Mall Associates acquired the property on October 26, 1990 for a purchase
price of $9,400,000, subject to a purchase money note of $5,140,000 bearing
interest at 10% payable interest only until maturity on October 26, 1995.
On August 8, 1991, Sycamore Mall Associates obtained a first mortgage in the
amount of $5,140,000 which bore interest at a rate of 9.625% payable in
monthly installments of principal and interest of $45,355 commencing October
1, 1991 for 60 months until September 30, 1996. The proceeds of this first
mortgage were used to repay the original purchase money note. In October
1995, the first mortgage loan was modified. The terms of the modification
reduced the interest rate to 8.125%, reduced the monthly payments of
principal and interest to $44,375 and extended the maturity to March 1, 2002.
First Dearborn Income Properties L.P., a public limited partnership
affiliated with the General Partners of the Partnership, and First Dearborn
Sycamore Associates Limited Partnership ("FDSALP"), a privately offered
limited partnership also affiliated with the General Partners, are the joint
venture partners in Sycamore Mall Associates and contributed a total of
$1,075,000 and $910,000 for 25.24% and 21.36% of the general partner
interests, respectively. The terms of the Sycamore Mall Associates
partnership agreement provide that cash flow, sale or refinancing proceeds
and profit and loss will be distributed or allocated in proportion to the
partner's ownership interests.
The property is managed by an affiliate of the General Partners and an
affiliate of the seller under a five year management agreement that provides
for a fee equal to 5% of the effective gross income, of which 1% is paid to
an affiliate of the General Partners. During 1998, 1997 and 1996 the
property incurred management fees of $84,679, $93,053 and $96,048,
respectively.
During 1996, Randall's vacated its leased premises of 19,800 square feet.
Occupancy fell to 86%, however, Randall's continued to pay rent through
December, 1996 so that there was no adverse financial impact in 1996 Sears,
Roebuck and Co. was a tenant under a lease which had an original termination
date of March 31, 1992. Prior to that termination, a ten-year extension was
agreed to which provided Sears an option to terminate the lease at any time
after March 31, 1997 by giving landlord a one year written notice. Sears
gave such notice on September 17, 1997, and terminated its lease on September
1, 1998. The Sears lease comprised 82,605 square feet which is 34% of the
leaseable area of the shopping center. However, the annual rental income
received from Sears was approximately $109,000 or approximately 6% of total
revenues.
The Partnership has, so far, been unsuccessful in its efforts to find new
tenants for the property, although it continues its leasing efforts.
Sycamore Mall is located in Iowa City, Iowa. A new 1,000,000 square foot
regional mall has opened, which created additional competition for Sycamore
Mall. As of December 31, 1998, the property was 47% occupied, and it has
needed to provide concessions to the remaining tenants in order to keep them
from leaving. Management is currently negotiating with potential replacement
tenants, however there can be no assurance that a new lease will be entered
into. If this space is not released, the ability of Sycamore Mall to meet
its financial obligations could be effected, as a result of decreased
revenues. In response to the uncertainty relative to Sycamore Mall
Associates ability to recover the net carrying value of Sycamore Mall
through future operations and sale, Sycamore Mall Associates, as a matter
of prudent accounting practices and for financial reporting purposes,
recorded a provision for value impairment in 1998 in the amount of $1,100,000.
As a precautionary measure, the partners of Sycamore Mall Associates have
maintained additional working capital reserves. It is believed that the
additional working capital might be necessary to help maintain existing
tenants and attract new tenants, due to the increased competition from the
new shopping center. The partners of Sycamore Mall Associates have agreed
to maintain these additional reserves and will contribute these amounts back
to Sycamore Mall Associates if it is considered appropriate by the partners.
The Partnership has no definite plans for improvements to the property at
this time. Distributions to the partners in 1998 were $420,000 as compared
to $295,000 in 1997 and $408,000 in 1996.
<PAGE>
Country Isles
On July 12, 1991 the Partnership acquired from an unaffiliated seller, a 21%
interest in Country Isles Associates, an Illinois general partnership owning
Country Isles Shopping Center. The Partnership paid $775,000 for its 21%
interest in the joint venture. The remaining interest in the joint venture
is held by the Seller. The partners of Country Isles Associates are the
Partnership and Arvida/JMB Partners. Arvida/JMB Partners, which owns a 79%
interest in Country Isles Associates, is the managing general partner. All
profits, losses and cash distributions of Country Isles Associates were
allocated between its partners in accordance with their percentage interests,
described above, except that, in the case of the Partnership, a special
preferential distribution of cash was to be made to the Partnership to
compensate it for certain rental discounts granted by the Seller in
connection with the lease of the property.
The Country Isles Shopping Center, located in Fort Lauderdale, Florida, was
an approximately 106,000 square foot retail shopping center containing
approximately 71,000 square feet which opened in 1986 and an additional
expansion of approximately 35,000 square feet which opened in 1989. The
Country Isles Shopping Center was managed by an affiliate of the Seller.
On December 17, 1997, Country Isles Associates, sold the Country Isles
Shopping Center in Fort Lauderdale, Florida, to Principal Mutual Life
Insurance Company ("Buyer"). The total purchase price received by Country
Isles was $13.2 million, which price was determined through arm's length
negotiations with Buyer. Of this total purchase price, approximately $7.9
million was used to repay amounts owed to the lender holding the mortgage
on the shopping center and approximately $595,000 was used for customary
additional selling expenses and prorations. The net proceeds to Country
Isles after these deductions were approximately $4.7 million. Of these
proceeds, the Partnership received approximately $991,000 for its 21%
interest.
Country Isles Shopping Center was managed by JMB Property Management, an
affiliate of Arvida/JMB Partners, the Seller. The Management Agreement
provided that the Manager rent and manage the project for an initial term of
five years, and thereafter for yearly periods, unless otherwise terminated by
the parties in accordance with the management agreement. Country Isles
Associates paid the Manager a management fee in an amount equal to 4% of the
monthly operating revenues from the operation of the property.
Notwithstanding the foregoing, until such time as the management agent
notifies owner of its election to receive the management fee discussed
immediately above, Country Isles Associates was to pay the Manager, in
lieu of the management fee, an amount equal to 15% of amounts paid by
tenants at the property on account of reimbursement of operating expenses,
excluding taxes and insurance. During 1997 and 1996 the property incurred
management fees of $68,600 and $68,053, respectively.
<PAGE>
Item 2. Properties
The Partnership owns through joint venture partnerships the properties
referred to in Item 1. The three properties in which the Partnership has
held an interest in are described below:
Sycamore Mall Associates
The property is a retail shopping center located in Iowa City, Iowa, and is
situated on an approximate 21.2 acre site. It includes a main building
containing 213,206 square feet and an out parcel building containing 27,000
square feet. A 14,000 square foot parcel which contains a 4,590 square
foot building is under a ground lease. The property is owned fee simple
by a partnership of which the Partnership is a partner. It is subject to a
first mortgage in the amount of $4,574,933 which bears interest at a rate
of 8.125% payable in monthly installments of principal and interest of
$44,375 until March 1, 2002, when the balance comes due.
The major tenant is Von Maur which occupies approximately 17% of the net
rentable area. Occupancy at Sycamore Mall had remained in the 94% - 99%
range through 1995. During 1996, Randall's vacated its leased premises of
19,800 square feet. Occupancy fell to 86%, however, Randall's continued to
pay rent through December, 1996 so that there was no adverse financial impact
in 1996. Sears, Roebuck and Co. was a tenant under a lease which had an
original termination date of March 31, 1992. Prior to that termination, a
ten-year extension was agreed to which provided Sears an option to terminate
the lease at any time after March 31, 1997 by giving landlord a one year
written notice. Sears gave such notice on September 17, 1997 and terminated
its lease on September 1, 1998. Management is currently negotiating with
potential replacement tenants, however there can be no assurance that a new
lease will be entered into. As of December 31, 1998, the property is over
50% vacant. If this space is not released, the ability of Sycamore Mall to
meet its financial obligations could be effected, as a result of decreased
revenues. The Sears lease comprised 82,605 square feet which is 34% of the
leaseable area of the shopping center. However, the annual rental income
received from Sears is approximately $109,000 or approximately 6% of total
revenues. The Von Maur lease expires in 2009 and the annual rent is
approximately $210,000. Average total rents received per square foot at
the property during the last three years are $6.98 in 1998, $7.65 in 1997,
and $8.15 in 1996.
There are currently no plans for any significant improvements to the property.
However, construction has begun on a new regional shopping center in the
area. The location of the new mall will create additional competition for
Sycamore Mall. Management is closely monitoring the situation.
The following table illustrates the scheduled lease expirations for Sycamore
Mall, over the next ten years:
<TABLE>
<CAPTION>
# of % of total
leases square annual annual
expiring feet rent rent
<S> <C> <C> <C> <C>
1999 11 18,675 48,940 7%
2000 4 11,623 69,666 10%
2001 3 6,100 95,200 13%
2002 5 21,321 184,710 26%
2003 1 1,203 12,000 2%
2004 1 3,464 54,212 8%
2005 - - - -
2006 - - - -
2007 - - - -
2008 - - - -
</TABLE>
Management believes that the Sycamore Mall property has adequate insurance
coverage.
<PAGE>
Country Isles
The Country Isles Shopping Center, located in the Weston community of Fort
Lauderdale, Florida, was an approximately 106,000 square foot retail shopping
center containing approximately 71,000 square feet which opened in 1986 and
an additional expansion of approximately 35,000 square feet which opened in
1989. On April 25, 1996, Country Isles Associates completed the refinancing
of Country Isles Plaza in Ft. Lauderdale, Florida. The new mortgage provided
funding of $8,100,000, the proceeds of which were used to repay the
outstanding balance of $6,807,669 on the previous mortgage, pay the costs of
completing the new loan (approximately $174,000), and provide for property
tax escrow and working capital. Out of the remaining proceeds, the
Partnership received a distribution of $210,650 from Country Isles
Associates. The Partnership made a special distribution to the Limited
Partners. As a result of the refinancing, the interest rate was reduced
from 9.75% to 7.00%, the monthly payments decreased from $60,141 to $57,250.
The mortgage was due to mature on May 1, 2001.
On December 17, 1997, Country Isles Associates, sold the Country Isles
Shopping Center in Fort Lauderdale, Florida, to Principal Mutual Life
Insurance Company ("Buyer"). The total purchase price received by Country
Isles was $13.2 million, which price was determined through arm's length
negotiations with Buyer. Of this total purchase price, approximately $7.9
million was used to repay amounts owed to the lender holding the mortgage
on the shopping center and approximately $595,000 was used for customary
additional selling expenses and prorations. The net proceeds to Country
Isles after these deductions were approximately $4.7 million. Of these
proceeds, the Partnership received approximately $991,000 for its 21%
interest.
Evanston Galleria Limited Partnership
Evanston Galleria is a mixed-use residential and retail property located in
Evanston, Illinois. The property, located on a 0.79 acre site, contains
36,068 square feet of rentable retail space and 55 loft apartments
containing a total of 45,190 square feet of rentable area. The apartments
are leased on a one or two year lease term. The retail space is generally
leased with 5 to 10 year leases.
The property is owned fee simple by a partnership of which the Partnership
is a partner. The property is subject to a first mortgage which matured
May 1, 1996. Effective May 1, 1996, a modification of the first mortgage
was entered into which, among other modifications, extended the maturity of
the loan until May 1, 1998. Commencing on May 1, 1996, monthly payments were
adjusted to $57,143, which represents interest only payments at an annual
rate of 8.25%, based on the outstanding principal balance of the loan as of
May 1, 1996. Notwithstanding the pay rate of 8.25%, interest on the loan
continues to accrue and compound monthly on the unpaid principal balance at
the annual rate of 9.00%. The interest differential, as defined, will be
paid only from proceeds resulting from a sale or refinancing of the property
or from any remaining funds in the cash flow escrow. The unpaid interest
together with the unpaid principal balance of the loan was due and payable
May, 1 1998. The first mortgage loan maturity has been extended to August 1,
1999. All net cash flow from the property, in excess of the payments due for
interest, shall be deposited into a cash flow escrow account. If cash flow
in any month is insufficient to pay amounts due under the loan, then the
amounts may be withdrawn from the cash flow escrow account.
On February 16, 1999, a contract was entered into for the sale of the
Evanston Galleria. The purchase price, net of closing costs and prorations
should be sufficient to repay all liabilities of the Evanston Galleria
Limited Partnership, including the first mortgage. However there will not
be a significant distribution to the Partnership. If the sale is consummated,
the Partnership is expected to recognize a gain on the sale of approximately
$100,000. The closing is currently scheduled to occur on April 30, 1999.
However, the Purchaser has requested a 90 day extension.
Evanston Galleria has no single tenant which accounts for more then 10% of
the rentable area. Occupancy in the apartments at Evanston Galleria has
remained in the 94% - 100% range during the last five years. The retail
space has had a problem with tenant defaults, which has reduced overall
occupancy to as low as 80% in 1991. As of December 31, 1996, occupancy
was 84% and as of December 31, 1998 had increased to 97%. Average total
rents received per square foot at the property during the last three years
were $16.83 in 1998, $19.57 in 1997, and $21.85 in 1996.
<PAGE>
The residential leases have terms typically expiring in one year. During
1998 residential leases representing $698,640 of annual rent will expire.
During the fourth quarter of 1997, Evanston Galleria collected $50,000 as a
settlement for past due rents. Management has settled its legal actions
against the previously defaulted tenants. Also during the fourth quarter of
1997, management was successful in signing two new leases. As of December 31,
1997 occupancy was 83%. During 1998, a lease was entered into to lease the
lower level space of 11,300 square feet which has increased occupancy to over
93%, as of December 31, 1998. The Evanston Bible Fellowship has leased the
lower level through September 30, 2002. Rents will be $45,142 in 1998,
$69,486 in 1999, $71,571 in 2000, $73,718 in 2001 and $56,523 in 2002.
The following table illustrates the scheduled lease expirations relating to
the retail space, for Evanston Galleria, over the next ten years:
<TABLE>
<CAPTION>
# of % of total
leases expiring square feet annual rent annual rent
<C> <S> <S> <S> <S>
1998 2 5,133 78,675 15%
1999 - - - -
2000 1 3,362 135,402 26%
2001 1 2,135 51,879 10%
2002 2 12,213 93,012 18%
2003 1 1,421 22,471 4%
2004 - - - -
2005 - - - -
2006 - - - -
2007 1 3,920 131,594 26%
</TABLE>
As of October 1, 1997, the Evanston Galleria property was considered to be
held for sale. In accordance with SFAS 121, no depreciation expense relative
to the property was recorded by the Partnership from October 1, 1997 through
December 31, 1998. The net book value of the Evanston Galleria property at
December 31, 1998 and 1997 was $8,422,717 and $8,408,908, respectively, and
net loss from operations for the years ended December 31, 1998, 1997 and
1996, net of the Venture Partners share were $35,661, $90,086 and $78,686,
respectively.
Management believes that the Evanston Galleria property has adequate
insurance coverage.
Occupancy Summary
The following is a list of approximate occupancy levels by quarter for the
Partnership's investment properties:
<TABLE>
<CAPTION>
1997 1998
at at at at at at at at
03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Evanston Galleria
Evanston,
Illinois 86% 86% 77% 83% 95% 94% 94% 97%
Country Isles
(sold December 1997)
Ft. Lauderdale,
Florida 100% 99% 100% n/a n/a n/a n/a n/a
Sycamore Mall
Iowa City,
Iowa 88% 89% 89% 90% 85% 79% 84% 47%
</TABLE>
<PAGE>
Item 3. Legal Proceedings
The Partnership is not aware of any material pending legal proceedings to
which it or its properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of December 31, 1998, there were 532 Limited Partners holding 10,000
Units. There is no public market for Units and it is not anticipated that a
public market for Units will develop. Pursuant to the terms of the Limited
Partnership Agreement of the Partnership (the "Partnership Agreement"), there
are restrictions on the ability of the Limited Partners to transfer their
Units. In all cases, the General Partners must consent to the substitution
of a Limited Partner.
Distributions to Limited Partners, through December 31, 1997, have totaled
$1,394,298 since the Partnership's formation. This is approximately $139.43
of cash distributions per Unit. Each Unit originally sold for $500 and the
offering was closed on January 31, 1991. Reference is made to Item 6 herein
for a summary of annual cash distributions, per Unit, made to the Limited
Partners.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
December 31, 1998, 1997, 1996, 1995 and 1994
(not covered by Independent Auditors' Report)
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Total revenues 1,596,719 1,847,296 1,955,397 1,965,788 1,786,895
Operating income (loss) (997,364) 173,953 303,285 201,314 125,828
Partnership's share of operations
of unconsolidated ventures (35,661) (9,079) (45,145) (99,645) (68,131)
Partnership's share of gain on sale
of investment property of
unconsolidated venture - 698,447 - - -
Venture partners' share of
consolidated venture's operations 470,886 (103,809) (177,269) (124,786) (96,382)
Net income (loss) (562,139) 759,512 80,871 (23,117) (38,685)
Net income (loss) per Unit (55.65) 75.19 8.01 (2.29) (3.83)
Total assets 7,277,641 9,541,824 9,144,952 9,515,465 9,696,537
Long-term debt 4,227,032 4,408,018 4,574,933 4,728,865 4,881,129
Cash distributions per Unit (a) 80.24 8.25 29.30 12.38 16.49
<FN>
The above selected financial data should be read in conjunction with the
Consolidated Financial Statements and the related notes appearing elsewhere
in this annual report.
(a) The net income (loss) per Unit and cash distributions per Unit are
based on the number of Units outstanding at the end of each period (10,000).
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources:
On February 1, 1989, the Partnership commenced a public offering of
$10,000,000 of units of Limited Partnership interest (the "Units") (subject
to increase by an additional $5,000,000 of Units) pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. The Partnership
terminated the offering of Units on January 31, 1991, having issued 10,000
Units, resulting in gross proceeds of $5,000,000 and net proceeds to the
Partnership (after deducting offering costs and selling discounts related
to the purchase of Units by the General Partners and their affiliates) of
$4,058,963.
At December 31, 1998, the Partnership had cash and cash equivalents of
$968,437 as compared to $1,659,443 as of December 31, 1997. The decrease
in cash and cash equivalents results primarily because the partnership made
a distribution, to its Limited Partners, during the first quarter of 1998,
in the amount of $740,600 resulting from $991,000 of net cash provided from
the sale of Country Isles shopping center. Cash Flow from operations has
been sufficient to meet the Partnerships' obligations in the past, however,
past performance is not necessarily indicative of future performance.
As of December 31, 1998, the Partnership has no material commitments for
capital expenditures. The Partnership does not anticipate any need for
external sources of liquidity. As of October 1, 1997, the Evanston Galleria
property was considered to be held for sale. In accordance with SFAS 121,
no depreciation expense relative to the property was recorded by the
Partnership from October 1, 1997 through December 31, 1998. The net book
value of the Evanston Galleria property at December 31, 1998 and 1997 was
$8,422,717 and $8,408,908, respectively, and net loss from operations for
the years ended December 31, 1998, 1997 and 1996, net of the Venture
Partners share were $41,715, $90,086 and $78,686 respectively.
As the Partnership intends to distribute all "net cash receipts" and "sales
proceeds" in accordance with the terms of the Partnership Agreement, and
does not intend to reinvest any such proceeds, the Partnership is intended
to be self-liquidating in nature. The Partnership's future source of
liquidity and distributions is expected to come from cash generated by the
Partnership's investment properties and from the sale and refinancing of
such properties. To the extent a property does not generate adequate cash
flow to meet its working capital requirements, the Partnership may (i)
withdraw funds from the working capital reserve it maintains, (ii) fund
such shortfall from excess cash generated by other properties owned or
(iii) pursue outside financing sources. However, the Partnership may
decide not to, or may not be able to, commit additional funds to certain
of its investment properties. Nonetheless, it is anticipated that the
current and future capital resources of the Partnership will be adequate to
fund currently anticipated short and long-term requirements of its investment
portfolio taken as a whole.
There are certain risks and uncertainties associated with the Partnership's
investments made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable or
unwilling to fulfill their financial or other obligations, or that such joint
venture partners may have economic or business interests or goals that are
inconsistent with those of the Partnership. To date, the Partnership has
not experienced any significant detrimental impact from these uncertainties
and risks, except at Evanston Galleria as more fully described in Note 2 (b)
to the Notes to Consolidated Financial Statements included in Item 8.
In response to the weakness of the U.S. economy in general and the problems
being experienced at the Sycamore Mall property in particular, the
Partnership is taking steps to preserve its working capital. Therefore,
the Partnership carefully scrutinizes the appropriateness of any possible
discretionary expenditures, particularly as such expenditures relate to the
amount of working capital reserves the Partnership has available. By
conserving working capital, the Partnership expect to be in a better position
to meet future needs of its properties without having to rely on external
financing sources.
<PAGE>
Results of Operations:
The results of operations for the years ended December 31, 1998, reflect the
consolidated operations of the Partnership and Sycamore Mall Associates
(the "Sycamore Partnership") and the Partnership's equity investments in
Evanston Galleria Limited Partnership (the "Galleria Partnership. The
results of operations for the years ended December 31, 1997 and December 31,
1996 reflect the consolidated operations of the Partnership and Sycamore Mall
Associates (the "Sycamore Partnership") and the Partnership's equity
investments in Evanston Galleria Limited Partnership (the "Galleria
Partnership") and Country Isles Associates ("Country Isles"). The results
of operations of the Sycamore Partnership reflect the operations of the
Sycamore Mall Shopping Center. The equity investment in the Galleria
Partnership reflects the Partnership's share of the operations of the
Evanston Galleria. The equity investment in Country Isles reflects the
Partnership's share of the operations of the Country Isles Plaza Shopping
Center.
Changes from 1997 to 1998:
The Partnership's net income in 1998 decreased $1,321,651 to ($562,139) in
1998 from $759,512 in 1997. This decrease resulted primarily from the
Partnership's recognition of its share of the loss of value impairment from
Sycamore Mall Associates of approximately $583,000 and the gain on the sale
of the Country Isles property in December 1997. The Partnership's share of
the gain was $698,447. The loss allocated from Evanston Galleria was $90,086
in 1997 as compared to $35,661 in 1998. The improvement in operating results
from the Evanston Galleria resulted from increased occupancy in the
commercial spaces at Evanston Galleria. In response to the uncertainty
relative to Sycamore Mall Associates ability to recover the net carrying
value of Sycamore Mall through future operations and sale, Sycamore Mall
Associates, as a matter of prudent accounting practices and for financial
reporting purposes, recorded a provision for value impairment in 1998 in
the amount of $1,100,000.
The Partnership's rental income decreased $153,213 (12%), from $1,293,749
in 1997 to $1,140,536 in 1998. Revenue from tenant charges decreased
$172,219 (32%) from $530,597 in 1997 to $358,378 in 1998. This decrease is
due to a decrease in occupancy at Sycamore Mall, and a decrease in property
tax expense.
Interest income increased $22,094 (96%) from $22,950 in 1997 to $45,044 in
1998. The increase results from the increase in cash reserves which have
been held and invested by the Partnership.
Property operating expenses decreased to $682,200 for the year ended December
31, 1998 from $912,456 for the year ended December 31, 1997. This $230,256
(25%) decrease results primarily from a decrease of property taxes at
Sycamore Mall.
Interest expense decreased $13,068 (3%) from $377,530 in 1997 to $364,462 in
1998. The reduction results from the repayment of mortgage indebtedness
throughout the year.
The Partnership's share of operations of unconsolidated venture resulted in
a loss of $35,661 in 1998 compared to $9,079 in 1997. This decrease is
attributable to the elimination of income which had previously been allocated
from Country Isles.
General and administrative expenses increased $76,109 (96%) from $79,647 in
1997 to $155,756 in 1998. The increase results from the increase in
professional and legal fees.
Changes from 1996 to 1997:
The Partnership's net income in 1997 increased $678,641 from $80,871 in 1996
to $759,512 in 1997. This increase resulted primarily from the Partnership's
recognition of its share of the gain on the sale of the Country Isles
property, in December 1997. The Partnership's share of the gain was
$698,447. The loss allocated from Evanston Galleria was $90,086 in 1997 as
compared to $78,686 in 1996. The decrease in operating results from the
Evanston Galleria resulted from increased vacancy in the commercial spaces
at Evanston Galleria. The income allocated from Country Isles in 1996 was
$33,541 as compared to a gain of $81,007 in 1997. Operations at Country
Isles continued to improve from increased rental rates and increased
occupancy.
<PAGE>
The Partnership's rental income decreased $62,046 (5%) from $1,355,795 in
1996 to $1,293,749 in 1997. The decrease in rental income results from an
increase in vacancy at Sycamore Mall. Occupancy fell during the second
quarter of 1996, although occupancy has been increasing slightly since then,
the overall average for the year was a decrease in occupancy.
Revenue from tenant charges decreased $51,337 (9%) from $581,934 in 1996 to
$530,597 in 1997. The decrease in rental income results from an increase in
the average vacancy at Sycamore Mall, over the year.
Interest income increased $5,282 (30%) from $17,668 in 1996 to $22,950 in
1997. The increase results from the increase in cash reserves which have
been held and invested by the Partnership.
Property operating expenses increased to $912,456 for the year ended December
31, 1997 from $871,550 for the year ended December 31, 1996. This $40,906
(5%) increase results primarily from an increase in maintenance and
landscaping expenses at Sycamore Mall.
Interest expense decreased $12,056 (3%) from $389,586 in 1996 to $377,530 in
1997. The reduction results from the repayment of $153,932 of mortgage
indebtedness throughout the year. Interest expense in 1998 is expected to
decrease further as a result of the continued repayment of the mortgage
indebtedness.
General and administrative expense decreased $7,205 (8%) from $86,852 during
the year ended December 31, 1996 to $79,647 during the year ended December
31, 1997. This decrease resulted in a decrease in administrative costs
charged by an affiliate of the General Partner.
Inflation:
The Partnership has completed its tenth full year of operations. During
the ten years the annual inflation rate has ranged from 3.01% to 5.40% with
an average of 4.21%. The effect which inflation has had on income from
operations is minimal primarily due to the weak real estate market.
Inflation in future periods may increase rental income levels (from leases
to new tenants or renewals of existing leases) in accordance with normal
market conditions. Such increases in rental income should offset most of
the adverse impact that inflation has on property operating expenses with
little effect on operating income. Continued inflation may also tend to
cause capital appreciation of the Partnership's investment properties over
a period of time as rental rates and replacement costs of properties
continue to increase.
Year 2000:
The General Partner has determined that it does not expect that the
consequences of the Partnership's year 2000 issues will have a material
effect on the Partnership's business, results of operations or financial
condition.
Item 7a. Quantitative and Qualitative Disclosures about Market Rate:
The Partnership has identified interest rate changes as a potential market
risk. However, as a majority of the Partnership`s long-term debt bears
interest at a fixed rate, the Partnership does not believe that it is
exposed to market risk relative to interest rate changes.
<PAGE>
Item 8. Financial Statements and Supplementary Data
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
INDEX
<TABLE>
<S> <C>
Independent Auditors' Report 18
Consolidated Balance Sheets, December 31, 1998 and 1997 19 - 20
Consolidated Statements of Operations,
years ended December 31, 1998, 1997 and 1996 21
Consolidated Statements of Partners' Capital Accounts (Deficits),
years ended December 31, 1998, 1997 and 1996 22
Consolidated Statements of Cash Flows,
years ended December 31, 1998, 1997 and 1996 23
Notes to Consolidated Financial Statements 24 - 31
Consolidated Real Estate and Accumulated Depreciation Schedule III 32
</TABLE>
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 the related notes.
Evanston Galleria, L.P.
(a limited partnership)
INDEX
<TABLE>
<S> <C>
Independent Auditors' Report 33
Balance Sheets, December 31, 1998 and 1997 34 - 35
Statements of Operations,
years ended December 31, 1998, 1997 and 1996 36
Statements of Partners' Capital Accounts (Deficits),
years ended December 31, 1998, 1997 and 1996 37
Statements of Cash Flows,
years ended December 31, 1998, 1997 and 1996 38
Notes to Financial Statements 39 - 41
Real Estate and Accumulated Depreciation Schedule III 42
</TABLE>
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 the related notes.
<PAGE>
Independent Auditors' Report
The Partners
First Dearborn Income Properties L.P. II
We have audited the consolidated financial statements of First Dearborn
Income Properties L.P. II (a limited partnership) and consolidated venture
as listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are the
responsibility of the General Partners of the Partnership. Our
responsibility is to express an opinion on these consolidated 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 the General Partners of the Partnership, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Dearborn Income Properties L.P. II and consolidated venture as of December
31, 1998 and 1997 and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Chicago, Illinois
April 14, 1999
<PAGE>
<TABLE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
<CAPTION>
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) 968,437 1,659,443
Rents and other receivables 168,676 317,315
Due from affiliates 13,147 14,122
Prepaid expense 21,279 19,122
Total current assets 1,171,539 2,010,002
Investment property:
Land 1,201,880 1,201,880
Buildings and improvements 7,273,400 8,372,099
8,475,280 9,573,979
Less accumulated depreciation (2,315,063) (2,032,976)
6,160,217 7,541,003
Investment in unconsolidated ventures,
at equity (notes 2 and 7) (94,330) (58,669)
Deferred leasing and loan costs 40,215 49,488
Total assets 7,277,641 9,541,824
<FN>
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Consolidated Balance Sheets - Continued
December 31, 1998 and 1997
Liabilities and Partners' Capital Accounts (Deficits)
<CAPTION>
1998 1997
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses 297,921 328,632
Accrued interest 29,846 30,976
Current portion of long-term debt (note 3) 180,993 166,915
Total current liabilities 508,760 526,523
Long-term liabilities:
Long-term debt (note 3) 4,227,032 4,408,018
Venture partners' equity
in consolidated venture (note 2) 807,336 1,508,231
Tenant security deposits 5,433 5,433
Total long-term liabilities 5,039,801 5,921,682
Total liabilities 5,548,561 6,448,205
Partners' capital accounts (deficits)
General partners:
Capital contributions 1,000 1,000
Cumulative net income (losses) (1,341) 4,280
Total general partners' capital (deficits) (341) 5,280
Limited partners (10,000 units):
Capital contributions 4,058,963 4,058,963
Cumulative net income (losses) (132,844) 423,674
Cumulative cash distributions (2,196,698) (1,394,298)
Total limited partners' capital 1,729,421 3,088,339
Total partners' capital accounts 1,729,080 3,093,619
Commitments and contingencies (notes 2 and 6)
Total liabilities and partners' capital 7,277,641 9,541,824
<FN>
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Consolidated Statements of Operations
Years ended December 31, 1998, 1997, and 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Rental income 1,140,536 1,293,749 1,355,795
Tenant charges 358,378 530,597 581,934
Interest income 45,044 22,950 17,668
Miscellaneous income 52,761 - -
Total revenues 1,596,719 1,847,296 1,955,397
Expenses:
Property operating expenses 682,200 912,456 871,550
Interest 364,462 377,530 389,586
Depreciation 282,087 293,925 293,925
Amortization 9,578 9,785 10,199
Provision for value impairment 1,100,000 - -
General and administrative expense 155,756 79,647 86,852
Total expenses 2,594,083 1,673,343 1,652,112
Operating income (loss) (997,364) 173,953 303,285
Partnership's share of operations
of unconsolidated ventures (35,661) (9,079) (45,145)
Partnership's share of gain
on sale of investment property
of unconsolidated venture - 698,447 -
Venture partners' share of
consolidated venture's operations 470,886 (103,809) (177,269)
Net income (loss) (562,139) 759,512 80,871
Net income (loss) per
limited partnership unit (note 1) (55.65) 75.19 8.01
<FN>
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Consolidated Statements of Partners' Capital Accounts (Deficits)
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
General Partners . Limited Partners (10,000 Units) .
Net Contributions, Net Cash
income net of income distrib-
Contributions (loss) Total offering costs (loss) utions Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance (deficit)
at December 31, 1995 1,000 (4,124) (3,124) 4,058,963 (408,305) (1,018,750) 2,631,908
Net income - 809 809 - 80,062 - 80,062
Cash distributions - - - - - (293,045) (293,045)
Balance (deficit)
at December 31, 1996 1,000 (3,315) (2,315) 4,058,963 (328,243) (1,311,795) 2,418,925
Net income - 7,595 7,595 - 751,917 - 751,917
Cash distributions - - - - - (82,503) (82,503)
Balance (deficit)
at December 31, 1997 1,000 4,280 5,280 4,058,963 423,674 (1,394,298) 3,088,339
Net loss - (5,621) (5,621) - (556,518) - (556,518)
Cash distributions - - - - - (802,400) (802,400)
Balance (deficit)
at December 31, 1998 1,000 (1,341) (341) 4,058,963 (132,844) (2,196,698) 1,729,421
<FN>
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) (562,139) 759,512 80,871
Items not requiring cash
or cash equivalents:
Depreciation 282,087 293,925 293,925
Amortization 9,578 9,785 10,199
Provision for value impairment 1,100,000 - -
Partnership's share of operations
of unconsolidated ventures,
net of distributions 35,661 104,686 341,931
Partnership's share of gain
on sale of investment property
of unconsolidated venture - (698,447) -
Venture partners' share of
consolidated venture's operations (470,886) 103,809 177,269
Changes in:
Rents and other receivables 148,639 (12,271) (15,651)
Due from affiliates 975 (9,186) 2,063
Prepaid expense (2,157) 12,380 (9,946)
Deferred leasing and loan costs (305) - -
Accounts payable and accrued expense (30,711) (84,348) 6,840
Due to affiliates - (7,160) (3,155)
Accrued interest (1,130) (1,042) (962)
Tenant security deposits - (6) (894)
Net cash provided by operating activities 509,612 471,637 882,490
Cash flows from investing activities:
Additions to investment property (1,301) (21,643) (13,538)
Distribution from sale
of investment property
of unconsolidated venture - 991,341 -
Net cash provided by (used in)
investing activities (1,301) 969,698 (13,538)
Cash flows from financing activities:
Venture partners' distributions
from consolidated venture (230,009) (137,458) (195,479)
Distributions to limited partners (802,400) (82,503) (293,045)
Principal payments on long-term debt (166,908) (153,932) (141,958)
Net cash used in financing activities (1,199,317) (373,893) (630,482)
Net increase in cash
and cash equivalents (691,006) 1,067,442 238,470
Cash and cash equivalents
at beginning of year 1,659,443 592,001 353,531
Cash and cash equivalents
at end of year 968,437 1,659,443 592,001
Supplemental disclosure of
cash flow information:
Cash paid for mortgage
and other interest 365,592 378,572 390,548
<FN>
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Organization and Basis of Accounting
The Partnership was formed under the Delaware Revised Uniform Limited
Partnership Act by the recording of a Certificate of Limited Partnership as
of May 19, 1988. Initial capital contributions were $1,000 by the General
Partners and $1,000 by the Initial Limited Partner. The Initial Limited
Partner (an affiliate of the Managing General Partner) withdrew as a Limited
Partner upon the admission of the first additional Limited Partners on
October 16, 1989 when the initial closing of the offering was consummated.
The Agreement of Limited Partnership authorized the issuance of up to 20,000
additional Units (subject to increase by an additional 10,000 Units) at
$500 per Unit. A total of 7,789 Units was subscribed for and issued between
February 1, 1989 and December 31, 1990. An additional 2,211 Units were
issued during 1991 of which 1,669 Units were purchased by an affiliate of
the General Partners pursuant to its Agreement to Purchase Units. The
offering terminated on January 31, 1991 at which time an aggregate 10,000
Units had been sold.
The accompanying consolidated financial statements include the accounts of
the Partnership and its consolidated venture - Sycamore Mall Associates.
The effect of all transactions between the Partnership and the venture has
been eliminated.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Partnership's interest
in Evanston Galleria Limited Partnership, for the years ended December 31,
1998, 1997 and 1996, and in Country Isles Associates, for the years ended
December 31, 1997 and 1996.
The Partnership records are maintained on the accrual basis of accounting
as adjusted for Federal income tax reporting purposes. The accompanying
Consolidated Financial Statements have been prepared from such records
after making appropriate adjustments, where applicable, to present the
Partnership's accounts in accordance with generally accepted accounting
principles (GAAP). Such adjustments are not recorded for the Partnership.
The net effect of these is as follows:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1998 1998 1997 1997
GAAP Tax GAAP Tax
Basis Basis Basis Basis
<S> <C> <C> <C> <C>
Total assets 7,277,641 3,377,803 9,541,824 4,255,943
Partners' capital:
General partners (341) (8,782) 5,280 0
Limited partners 1,729,421 3,323,584 3,088,339 4,077,621
Net income (loss):
General partners (5,621) (758) 7,595 2,796
Limited partners (556,518) (75,005) 751,917 759,652
Net income per
limited partnership unit (55.65) (7.50) 75.19 75.97
<FN>
The net income (loss) per limited partnership unit presented is based on the
limited partnership units outstanding at the end of each period (10,000).
All distributions to partners through December 31, 1998 have been considered
to be a return of capital.
</TABLE>
<PAGE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
Partnership distributions from unconsolidated ventures are considered cash
flow from operating activities to the extent of the Partnership's cumulative
share of net income. In addition, the Partnership records amounts held in
U.S. Government obligations, commercial paper and certificates of deposit at
cost which approximates market. For the purposes of these statements, the
Partnership's policy is to consider all such investments, with an original
maturity of three months or less ($788,980 and $1,400,707 at December 31,
1998 and 1997, respectively), as cash equivalents.
Deferred loan costs are amortized over the terms of the related agreements
using the straight-line method. Leasing commissions are amortized over the
terms of the related tenant leases using the straight-line method.
Depreciation on the investment properties acquired has been provided over
the estimated useful lives of 5 to 30 years using the straight-line method.
No provision for Federal income taxes has been made as any liability for
such taxes would be that of the partners rather than the Partnership.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner 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.
The Partnership adopted Statement of Financial Accounting Standards No. 121
("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long Lived Assets to be Disposed Of", on January 1, 1996. SFAS 121 requires
that the Partnership record an impairment loss on its property held for
investment whenever the property's carrying value cannot be fully recovered
through estimated undiscounted cash flows from its 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. In addition, SFAS 121 provides that a property may not be
depreciated while being held for sale. As of October 1, 1997, the Evanston
Galleria property was considered to be held for sale. In accordance with
SFAS 121, no depreciation expense relative to the property was recorded by
the Partnership from October 1, 1997 through December 31, 1998. The net
book value of the Evanston Galleria property at December 31, 1998 and 1997
was $8,422,717 and $8,408,908, respectively, and net loss from operations
for the years ended December 31, 1998, 1997 and 1996, net of the Venture
Partners share were $35,661, $90,086 and $78,686 respectively. The
remaining properties are considered to be held for investment at December
31, 1998.
The Partnership has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Partnership defines each of its
property investments as an individual operating segment and has determined
such property investments exhibit substantially identical economic
characteristics and meet the other criteria specified by SFAS No. 131
which permits the property investments to be aggregated into one reportable
segment. The Partnership assesses and measures operating results based on
net operating income (rental income less property operating expenses).
With the exception of interest expense, professional services and general
and administrative expenses, substantially all other components of net
earnings (loss) of the Partnership relate to property investments. With
the exception of cash and cash equivalents, substantially all other assets
of the Partnership relate to property investments.
<PAGE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
(2) Venture Agreements
(a) General
The Partnership has entered into three joint venture agreements with
partnerships sponsored by affiliates of the General Partners. Pursuant to
such agreements, the Partnership has made capital contributions aggregating
$3,652,066 through December 31, 1998. The Partnership has acquired,
through these ventures, interests in a mixed use retail/residential property
and two shopping centers.
(b) Evanston Galleria Limited Partnership
On October 31, 1989, the Partnership acquired an interest in Evanston
Galleria Limited Partnership (the "Galleria Partnership") which owns a 100%
beneficial interest in the Evanston Galleria, a mixed-use residential and
retail property located in Evanston, Illinois. The property, located on a
.79 acre site, contains 36,068 square feet of rentable retail space and 55
loft apartments. The Partnership's acquisition of its interest was effected
through its acquisition of an 18.30% general partnership interest in the
Galleria Partnership from First Dearborn Evanston Associates Limited
Partnership ("Evanston Associates"), an affiliate of the General Partners.
Evanston Associates originally agreed to purchase a 76.67% interest in the
Galleria Partnership by agreeing to contribute an aggregate $2,313,125 to
the Galleria Partnership. The Partnership acquired a portion of the 76.67%
general partnership interest on the same terms by contributing $552,066 for
its 18.30% general partnership interest. The seller retained a 23.33%
limited partnership interest.
The Partnership and Evanston Associates, as general partners of the Galleria
Partnership, have certain preferences from operating cash flow and
distributions from sales or refinancing. Profits are generally allocated
in accordance with cash distributions (including preferences) and then in
accordance with the respective partner's interest. Losses are allocated
first to partners with positive capital account balances and then in
accordance with the respective partner's interest.
The limited partners ("Guarantors") of the Galleria Partnership had provided
the Partnership and Evanston Associates with a guaranty of minimum rentals
on certain retail space, maximum debt service levels and maximum real estate
tax expenses in the Galleria Partnership. The property has failed to
perform as expected and the Galleria Partnership has called upon the
Guarantors to satisfy their obligations under the guaranties. The
Guarantors have failed to fulfill their obligations to the Partnership,
and the General Partners have taken actions to protect the rights of the
Partnership, including receipt of an assignment in favor of the Partnership
of the Guarantors' limited partnership interests in the Galleria Partnership
of 5.57% and the receipt of security interests in certain other limited
partnership interests owned by the Guarantors. Amounts owned pursuant to
such guaranties which are secured by the limited partners' partnership
interests will be recorded upon receipt.
The property is managed by an affiliate of the General Partners. During
1998, 1997 and 1996, management fees totaling $41,681, $41,550 and $25,091,
respectively, were paid to an affiliate of the General Partners.
The property was subject to a first mortgage which matured May 1, 1996.
Effective May 1, 1996, a modification of the first mortgage was entered
into which, among other modifications, extended the maturity of the loan
until May 1, 1998. Commencing on May 1, 1996, monthly payments were
adjusted to $57,143, which represents interest only payments at an annual
rate of 8.25%, based on the outstanding principal balance of the loan as of
May 1, 1996. Notwithstanding the pay rate of 8.25%, interest on the loan
continues to accrue and compound monthly on the unpaid principal balance at
the annual rate of 9.00%. The interest differential, as defined, will be
paid only from proceeds resulting from a sale or refinancing of the property
or from any remaining funds in the cash flow escrow. The unpaid interest
together with the unpaid principal balance of the loan was due and payable
May 1, 1998. The first mortgage maturity was extended to August 1, 1999.
All net cash flow from the property, in excess of the payments due for
interest, shall be deposited into a cash flow escrow account. If cash flow
in any month is insufficient to pay amounts due under the loan, then the
amounts may be withdrawn from the cash flow escrow account.
<PAGE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
On February 16, 1999, a contract was entered into for the sale of the
Evanston Galleria. The purchase price, met of closing costs and prorations
should be sufficient to repay all liabilities of the Evanston Galleria
Limited Partnership, including the first mortgage. However there will not
be a significant distribution to the Partnership. The Partnership is
expected to recognize a gain on the sale of approximately $100,000. The
Purchaser has satisfied all of the contingencies under the contract and
closing is currently expected to occur on April 30, 1999.
(c) Sycamore Mall Associates
On October 26, 1990, the Partnership contributed $2,275,000 to acquire a
53.40% general partnership interest in Sycamore Mall Associates, a general
partnership formed to acquire the Sycamore Mall Shopping Center in Iowa City,
Iowa. The property, situated on an approximate 21.2 acre site, includes a
main building containing 213,206 square feet and an out parcel building
containing 27,000 square feet. A 14,000 square foot parcel which contains
a 4,590 square foot building is under a ground lease. Sycamore Mall
Associates acquired the property on October 26, 1990 for a purchase price
of $9,400,000, subject to a purchase money note of $5,140,000 bearing
interest at 10% payable interest only until maturity on October 26, 1995.
On August 8, 1991, Sycamore Mall Associates obtained a first mortgage in
the amount of $5,140,000 which bore interest at a rate of 9.625% payable in
monthly installments of principal and interest of $45,355 commencing
October 1, 1991 for 60 months until September 30, 1996. The proceeds of
this first mortgage were used to repay the original purchase money note.
In October 1995, the first mortgage loan was modified. The terms of the
modification reduced the interest rate to 8.125%, reduced the monthly
payments of principal and interest to $44,375 and extended the maturity
to March 1, 2002.
First Dearborn Income Properties L.P., a public limited partnership
affiliated with the General Partners of the Partnership, and First Dearborn
Sycamore Associates Limited Partnership ("FDSALP"), a privately offered
limited partnership also affiliated with the General Partners, are the
joint venture partners in Sycamore Mall Associates and contributed a total
of $1,075,000 and $910,000 for 25.24% and 21.36% of the general partner
interests, respectively.
The terms of the Sycamore Mall Associates partnership agreement provide
that cash flow, sale or refinancing proceeds and profit and loss will be
distributed or allocated in proportion to the partners' ownership interests.
The property is managed by an affiliate of the General Partners and an
affiliate of the seller under a five year management agreement that
provides for a fee equal to 5% of the effective gross income, of which 1%
is paid to an affiliate of the General Partners. During 1998, 1997 and
1996 the property incurred management fees of $84,679, $93,053 and $96,048,
respectively.
(d) Country Isles
The Country Isles Shopping Center, located in the Weston community of Fort
Lauderdale, Florida, is an approximately 106,000 square foot retail
shopping center containing approximately 71,000 square feet which opened
in 1986 and an additional expansion of approximately 35,000 square feet
which opened in 1989. The Country Isles Shopping Center was managed by an
affiliate of the seller.
On April 25, 1996, Country Isles Associates completed the refinancing of
Country Isles Plaza in Ft. Lauderdale, Florida. The new mortgage provided
funding of $8,100,000, the proceeds of which were used to repay the
outstanding balance of $6,807,669 on the previous mortgage, pay the costs
of completing the new loan (approximately $174,000), and provide for
property tax escrow and working capital. Out of the remaining proceeds,
the Partnership received a distribution of $210,650 from Country Isles
Associates. The Partnership made a special distribution to the Limited
Partners.
<PAGE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
On December 17, 1997, Country Isles Associates, sold the Country Isles
Shopping Center in Fort Lauderdale, Florida, to Principal Mutual Life
Insurance Company ("Buyer"). The total purchase price received by Country
Isles was $13.2 million, which price was determined through arm's length
negotiations with Buyer. Of this total purchase price, approximately $7.9
million was used to repay amounts owed to the lender holding the mortgage
on the shopping center and approximately $595,000 was used for customary
additional selling expenses and prorations. The net proceeds to Country
Isles after these deductions were approximately $4.7 million. Of these
proceeds, the Partnership received approximately $991,000 for its 21%
interest.
Country Isles Shopping Center was managed by JMB Property Management, an
affiliate of Arvida/JMB Partners, the Seller. The Management Agreement
provided that the Manager rent and manage the project for an initial term
of five years, and thereafter for yearly periods, unless otherwise
terminated by the parties in accordance with the management agreement.
Country Isles Associates paid the Manager a management fee in an amount
equal to 4% of the monthly operating revenues from the operation of the
property. Notwithstanding the foregoing, until such time as the management
agent notifies owner of its election to receive the management fee
discussed immediately above, Country Isles Associates was to pay the
Manager, in lieu of the management fee, an amount equal to 15% of amounts
paid by tenants at the property on account of reimbursement of operating
expenses, excluding taxes and insurance. During 1997 and 1996 the property
incurred management fees of $68,600 and $68,053, respectively.
(3) Long-Term Debt
Long-term debt consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
$4,899,448 mortgage note, bearing interest
at 8.125%, payable in monthly installments
of principal and interest of $44,375 until
maturity on March 1, 2002 when the
remaining principalbalance of $3,780,785
is payable; secured by the real and personal
property of Sycamore Mall Shopping Center. 4,408,025 4,574,933
Less current portion of long-term debt 180,993 166,915
Total long-term debt 4,227,032 4,408,018
</TABLE>
Five year maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1999 180,993
2000 179,290
2001 211,382
2002 3,836,360
</TABLE>
<PAGE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
(4) Partnership Agreement
Pursuant to the terms of the Partnership Agreement, net profits or losses
of the Partnership for Federal income tax purposes from operations generally
will be allocated 99% to the Limited Partners and 1% to the General
Partners. Net profits for Federal income tax purposes from the sale or
refinancing of properties will be allocated as follows: (i) first, to the
Partners who have a deficit capital account balance in an amount equal to
their deficit balance; (ii) second, to the Limited Partners in an amount
equal to their contributed capital plus a stipulated return thereon; and
(iii) thereafter, 90% to the Limited Partners and 10% to the General
Partners. Net losses from the sale or refinancing of properties will be
allocated as follows: (i) first, to the Partners who have a positive
capital account balance in an amount equal to their positive balance;
and (ii) thereafter, 99% to the Limited Partners and 1% to the General
Partners.
Operating Cash Flow, as defined in the Partnership Agreement, prior to the
date the public offering terminated was distributed 100% to the Limited
Partners. Operating Cash Flow subsequent to termination of the public
offering will be distributed during the first five years, 99% to the
Limited Partners and 1% to the General Partners and, thereafter, 90% to
the Limited Partners and 10% to the General Partners subject to certain
limitations. Sale or refinancing proceeds will be distributed 100% to the
Limited Partners until the Limited Partners have received their contributed
capital plus a stipulated return thereon. Any remaining sale or refinancing
proceeds will then be distributed 90% to the Limited Partners and 10% to
the General Partners.
For financial reporting purposes, net profits or losses from operations are
allocated 99% to the Limited Partners and 1% to the General Partners. The
General Partners are not required to make any capital contributions except
under certain limited circumstances upon dissolution and termination of the
Partnership.
(5) Leases
The Partnership has determined that all leases relating to the properties
are properly classified as operating leases; therefore, rental income is
reported when earned and the cost of the property, excluding the cost of
the land, is depreciated over the estimated useful life of the property.
Leases with tenants range in term from one to thirty years and provide for
fixed minimum rent and partial to full reimbursement of operating costs.
In addition, many of the leases provide for additional rent based upon
percentages of tenants' sales volume.
Minimum lease payments, including amounts representing executory costs
(e.g. taxes, maintenance, insurance) and any related profit, to be received
in the future under the operating leases are as follows:
<TABLE>
<S> <C>
1999 714,231
2000 610,792
2001 531,875
2002 433,229
2003 321,895
Thereafter 1,316,463
3,928,485
</TABLE>
Percentage rents (based on tenants' sales volume) included in rental income
were $204,819, $192,100 and $180,846 for the years ended December 31, 1998,
1997 and 1996, respectively.
<PAGE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
(6) Transactions with Affiliates
Affiliates of the General Partners are entitled to receive from the
Partnership acquisition fees, equal to 9% of the gross proceeds from the
offering of Units, in connection with the evaluation, investigation,
negotiation, selection and purchase of the Partnership's investment
properties. The Managing General Partner and its affiliates are entitled
to reimbursement for salaries and direct expenses of officers and employees
of the Managing General Partner and its affiliates relating to the
administration of the Partnership.
Fees, commissions and other expenses required to be paid by the Partnership
to affiliates of the General Partners for the years ended December 31, 1998,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Unpaid at
1998 1997 1996 Dec. 31, 1998
<S> <C> <C> <C> <C>
Reimbursement (at cost)
for out of pocket expenses 35 1,168 1,168 0
Reimbursement (at cost)
for administrative services 975 1,364 14,992 0
1,010 2,532 16,160 0
</TABLE>
(7) Investment in Unconsolidated Ventures
Summary combined financial information for Evanston Galleria Limited
Partnership, for 1998 and Evanston Galleria Limited Partnership and Country
Isle Associates, for 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current assets 265,025 234,398
Current liabilities (9,222,523) (9,044,675)
Working capital (8,957,498) (8,810,277)
Deferred expenses 32,004 42,859
Ventures partners' equity 483,283 369,547
Investment property, net 8,422,717 8,408,908
Long-term liabilities (132,036) (126,907)
Partnership's capital (151,530) (115,870)
Represented by:
Invested capital 1,548,815 1,548,815
Cumulative cash distributions (1,588,495) (1,588,495)
Cumulative loss (18,989) (18,989)
(151,530) (115,870)
Total revenues 1,384,467 1,346,682
Total expenses 1,533,860 1,724,083
Net loss (149,393) (377,401)
</TABLE>
<PAGE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
The total revenues, expenses and net loss for the above ventures for the
year ended December 31, 1996 were $3,198,453, $3,368,380 and $169,927,
respectively.
(8) Subsequent Event
In March 1999, the Partnership paid cash distributions of $20,600 to the
Limited Partners.
<PAGE>
<TABLE>
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
December 31, 1998
Schedule III
Consolidated Real Estate and Accumulated Depreciation
<CAPTION>
Initial Cost to Partnership Additions Gross amount of asset at period end
Building & Building & Building & Accumulated
Encumbrance Land Improvements Improvements Land Improvements Total Depreciation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center
Iowa City, IA 4,408,025 1,201,880 6,810,902 462,498 1,201,880 7,273,400 8,475,280 2,315,063
<FN>
(a) The initial cost represents the original purchase price of the property
reduced by any provision for value impairment.
(b) The aggregate cost of the above real estate at December 31, 1998 for
Federal income tax purposes is $9,575,280.
(c) The property was constructed in 1972 and acquired in 1990. It is
depreciated over a useful life of between 5 and 30 years.
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
(d) Reconciliation of real estate owned
Balance at beginning of period 9,573,979 9,552,336 9,538,798
Reserve for value impairment (1,100,000) - -
Additions 1,301 21,643 13,538
Balance at end of period 8,475,280 9,573,979 9,552,336
(e) Reconciliation of accumulated depreciation
Balance at beginning of period 2,032,976 1,739,051 1,445,126
Depreciation expense 282,087 293,925 293,925
Balance at end of period 2,315,063 2,032,976 1,739,051
</TABLE>
<PAGE>
Independent Auditors' Report
The Partners
Evanston Galleria L.P.
We have audited the financial statements of Evanston Galleria L.P. (a
limited partnership) and as listed in the accompanying index. In connection
with our audits of the financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
financial statements and the financial statement schedule are the
responsibility of the General Partners of the Partnership. 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 the General Partners of the Partnership, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Evanston Galleria L.P.
as of December 31, 1998 and 1997 and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Chicago, Illinois
April 14, 1999
<PAGE>
<TABLE>
Evanston Galleria, L.P.
(a limited partnership)
Balance Sheets
December 31, 1998 and 1997
Assets
<CAPTION>
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents 260,440 231,434
Rents and other receivables 4,585 2,964
Total current assets 265,025 234,398
Investment property held for sale:
Land 1,121,354 1,121,354
Buildings and improvements 10,650,806 10,636,997
11,772,160 11,758,351
Less accumulated depreciation (3,349,443) (3,349,443)
8,422,717 8,408,908
Deferred leasing and loan costs 32,004 42,859
Total assets 8,719,746 8,686,165
<FN>
See accompanying notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Evanston Galleria, L.P.
(a limited partnership)
Consolidated Balance Sheets - Continued
December 31, 1998 and 1997
Liabilities and Partners' Capital Accounts (Deficits)
<CAPTION>
1998 1997
<S> <C> <C>
Current liabilities:
Current portion of long-term debt 8,486,740 8,486,740
Accounts payable and accrued expenses 447,198 411,526
Due to affiliates 22,545 22,545
Accrued interest 266,040 123,864
Total current liabilities 9,222,523 9,044,675
Long-term liabilities - tenant security deposits 132,036 126,910
Total liabilities 9,354,559 9,171,585
Partners' capital accounts (deficits):
General partners' capital (284,545) (170,005)
Limited partners' capital (350,268) (315,415)
Total partners' capital accounts (634,813) (485,420)
Commitments and contingencies
Total liabilities and partners' capital 8,719,746 8,686,165
<FN>
See accompanying notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Evanston Galleria, L.P.
(a limited partnership)
Consolidated Statements of Operations
Years ended December 31, 1998, 1997, and 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Rental income 1,172,061 1,128,042 1,197,475
Tenant charges 208,305 214,944 255,277
Miscellaneous - - 7,959
Interest income 4,101 3,696 3,720
Total revenues 1,384,467 1,346,682 1,464,431
Expenses:
Property operating expenses 683,336 665,808 612,183
Interest 827,892 703,216 757,068
Depreciation - 259,498 393,578
Amortization 19,075 90,379 26,599
General and administrative expense 3,557 5,182 4,648
Total expenses 1,533,860 1,724,083 1,794,076
Net loss (149,393) (377,401) (329,645)
<FN>
See accompanying notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Evanston Galleria, L.P.
(a limited partnership)
Consolidated Statements of Partners' Capital Accounts (Deficits)
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
General Partners Limited Partners Total
<S> <C> <C> <C>
Balance (deficit)
at December 31, 1995 372,087 (150,461) 221,626
Net loss (252,739) (76,906) (329,645)
Balance (deficit)
at December 31, 1996 119,348 (227,367) (108,019)
Net loss (289,353) (88,048) (377,401)
Balance (deficit)
at December 31, 1997 (170,005) (315,415) (485,420)
Net loss (114,540) (34,853) (149,393)
Balance (deficit)
at December 31, 1998 (284,545) (350,268) (634,813)
<FN>
See accompanying notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Evanston Galleria, L.P.
(a limited partnership)
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (149,393) (377,401) (329,645)
Items not requiring cash
or cash equivalents:
Depreciation and amortization 19,075 349,877 420,177
Changes in:
Rents and other receivables (1,621) 31,273 24,571
Accounts payable and accrued expense 35,672 18,810 (28,076)
Accrued interest 142,176 14,246 (5,411)
Tenant security deposits 5,129 7,382 833
Net cash provided by operating activities 51,038 44,187 82,449
Cash flows from investing activities:
Additions to investment property (13,810) - (24,480)
Payment of leasing commissions (8,222) (19,013) (21,990)
Net cash used in investing activities (22,032) (19,013) (46,470)
Cash flows for financing activities:
Payment of financing costs - - (32,032)
Principal payments on long-term debt - - (25,488)
Net cash used in financing activities - - (57,520)
Net increase in cash
and cash equivalents 29,006 25,174 (21,541)
Cash and cash equivalents
at beginning of year 231,434 206,260 227,801
Cash and cash equivalents
at end of year 260,440 231,434 206,260
Supplemental disclosure
of cash flow information:
Cash paid for mortgage
and other interest 685,716 688,970 762,479
<FN>
See accompanying notes to Financial Statements.
</TABLE>
<PAGE>
Evanston Galleria, L.P.
(a limited partnership)
Notes to Consolidated Financial Statements
(1) Organization and Basis of Accounting
The accompanying financial statements have been prepared for the purpose of
complying with Rule 3.09 of Regulation S-X of the Securities and Exchange
Commission. They include the accounts of the unconsolidated Partnership,
Evanston Galleria L.P. (the "Partnership"), in which First Dearborn
Properties L.P. II and Evanston Associates, an affiliate of the General
Partners of First Dearborn Income Properties L.P. II are partners. The
Partnership's acquisition of its interest was effected through its
acquisition of an 18.30% general partnership interest in the Partnership
from First Dearborn Evanston Associates Limited Partnership ("Evanston
Associates"), an affiliate of the General Partners. Evanston Associates
originally agreed to purchase a 76.67% interest in the Partnership by
agreeing to contribute an aggregate $2,313,125 to the Partnership. The
Partnership acquired a portion of the 76.67% general partnership interest
on the same terms by contributing $552,066 for its 18.30% general
partnership interest. The seller retained a 23.33% limited partnership
interest. The Partnership and Evanston Associates, as general partners of
the Partnership, have certain preferences from operating cash flow and
distributions from sales or refinancing. Profits are generally allocated in
accordance with cash distributions (including preferences) and then in
accordance with the respective partner's interest. Losses are allocated
first to partners with positive capital account balances and then in
accordance with the respective partner's interest.
The limited partners ("Guarantors") of the Partnership had provided the
Partnership and Evanston Associates with a guaranty of minimum rentals on
certain retail space, maximum debt service levels and maximum real estate
tax expenses in the Galleria Partnership. The property has failed to perform
as expected and the Partnership has called upon the Guarantors to satisfy
their obligations under the guaranties. The Guarantors have failed to
fulfill their obligations to the Partnership, and the General Partners have
taken actions to protect the rights of the Partnership, including receipt of
an assignment in favor of the Partnership of the Guarantors' limited
partnership interests in the Partnership of 5.57% and the receipt of
security interests in certain other limited partnership interests owned by
the Guarantors. Amounts owned pursuant to such guaranties which are secured
by the limited partners' partnership interests will be recorded upon receipt.
The Partnership owns a 100% beneficial interest in the Evanston Galleria, a
mixed-use residential and retail property located in Evanston, Illinois.
The property, located on a .79 acre site, contains 36,068 square feet of
rentable retail space and 55 loft apartments.
The Partnership records are maintained on the accrual basis of accounting
as adjusted for Federal income tax reporting purposes. The accompanying
financial statements have been prepared from such records after making
appropriate adjustments, where applicable to present the Partnership's
accounts in accordance with generally accepted accounting principles
(GAAP). Such adjustments are not recorded for the Partnership. The net
effect of these is as follows:
<TABLE>
<CAPTION>
1998 1997
GAAP Tax GAAP Tax
basis basis basis basis
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total assets 8,719,746 7,245,885 8,686,165 7,552,677
Partners' capital
accounts (deficits):
General partners (284,545) (1,651,427) (170,002) (1,327,132)
Limited partners (350,268) (322,260) (315,415) (242,961)
Net income (loss):
General partners (114,540) (324,295) (289,353) (297,777)
Limited partners (34,853) (79,299) (88,048) (93,525)
</TABLE>
<PAGE>
Evanston Galleria, L.P.
(a limited partnership)
Notes to Consolidated Financial Statements
Deferred loan costs are amortized over the terms of the related agreements
using the straight-line method. Leasing commissions are amortized over the
terms of the related tenant leases using the straight-line method.
Depreciation on buildings and improvements was provided over the estimated
useful lives of 5 to 30 years using the straight-line method.
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and were
depreciated over their estimated useful lives.
No provision for Federal income taxes has been made as any liability for
such taxes would be that of the partners rather than the Partnership.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner 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.
The Partnership adopted Statement of Financial Accounting Standards No. 121
("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", on January 1, 1996. SFAS 121 requires
that the Partnership record an impairment loss on its property held for
investment whenever the property's carrying value cannot be fully recovered
through estimated undiscounted cash flows from its 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. In addition, SFAS 121 provides that a property may not be depreciated
while being held for sale. As of October 1, 1997, the Evanston Galleria
property was considered to be held for sale. In accordance with SFAS 121,
no depreciation expense relative to the property was recorded by the
Partnership from October 1, 1997 through December 31, 1998.
On February 16, 1999, a contract was entered into for the sale of the
Evanston Galleria. The purchase price, net of closing costs and prorations
should be sufficient to repay all liabilities of the Evanston Galleria
Limited Partnership. However there will not be a significant distribution
to the Partnership. If the sale is consummated, the Partnership is expected
to recognize a gain on the sale of approximately $100,000. The closing is
currently scheduled to occur on April 30, 1999. However, the Purchaser has
requested a 90 day extension.
The property is managed by an affiliate of the General Partners. During 1998,
1997 and 1996, management fees totaling $41,681, $41,550 and $25,091,
respectively, were paid to an affiliate of the General Partners.
<PAGE>
Evanston Galleria, L.P.
(a limited partnership)
Notes to Consolidated Financial Statements
(2) Long-Term Debt
The property was subject to a first mortgage which matured May 1, 1996.
Effective May 1, 1996, a modification of the first mortgage was entered
into which, among other modifications, extended the maturity of the loan
until May 1, 1998. Commencing on May 1, 1996, monthly payments were
adjusted to $57,143, which represents interest only payments at an annual
rate of 8.25%, based on the outstanding principal balance of the loan as of
May 1, 1996. Notwithstanding the pay rate of 8.25%, interest on the loan
continues to accrue and compound monthly on the unpaid principal balance at
the annual rate of 9.00%. The interest differential, as defined, will be
paid only from proceeds resulting from a sale or refinancing of the property
or from any remaining funds in the cash flow escrow. The first mortgage
maturity was extended to August 1, 1999. The unpaid interest together
with the unpaid principal balance of the loan will be due and payable
August 1, 1999. All net cash flow from the property, in excess of the
payments due for interest, shall be deposited into a cash flow escrow
account. If cash flow in any month is insufficient to pay amounts due under
the loan, then the amounts may be withdrawn from the cash flow escrow
account. The first mortgage is expected to be retired from the proceeds of
the expected sale of the property.
(3) Leases
At December 31, 1998 the Partnership's principal asset is a residential and
retail building. The Partnership has determined that all leases related to
the property are properly classified as operating leases; therefore, rental
income is reported when earned and the cost of the property, excluding the
cost of the land, is depreciated over the estimated useful life of the
property. Leases with tenants range in term from one to thirty years and
provide for fixed minimum rent and partial to full reimbursement of
operating costs. In addition, many of the leases provide for additional
rent based upon percentages of tenants' sales volume.
Minimum lease payments, including amounts representing executory costs
(e.g., taxes, maintenance, insurance) and any related profit, to be
received in the future under the operating leases are as follows:
<TABLE>
<S> <C>
1999 1,162,166
2000 393,485
2001 306,256
2002 292,285
2003 168,272
Thereafter 359,268
2,681,732
</TABLE>
<PAGE>
<TABLE>
Evanston Gallaria, L.P.
(a limited partnership)
December 31, 1998
Schedule III
Real Estate and Accumulated Depreciation
<CAPTION>
Initial Cost to Partnership Additions Gross amount of asset at period end
Building & Building & Building & Accumulated
Encumbrance Land Improvements Improvements Land Improvements Total Depreciation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
retail property
Evanston, IL 8,486,740 1,121,354 10,602,516 48,290 1,121,354 10,650,806 11,772,160 3,349,443
<FN>
(a) The initial cost represents the original purchase price of the property.
(b) The aggregate cost of the above real estate at December 31, 1998 for
Federal income tax purposes is $6,943,143.
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
(c) Reconciliation of real estate owned
Balance at beginning of period 11,758,351 11,758,351 11,733,871
Additions 13,809 - 24,480
Balance at end of period 11,772,160 11,758,351 11,758,351
(d) Reconciliation of accumulated depreciation
Balance at beginning of period 3,349,443 3,089,945 2,696,367
Depreciation expense - 259,498 393,578
Balance at end of period 3,349,443 3,349,443 3,089,945
</TABLE>
<PAGE>
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Partnership are:
FDIP, Inc., an Illinois corporation, Managing General Partner; and FDIP
Associates, an Illinois general partnership, Associate General Partner.
FDIP, Inc., the Managing General Partner, is a corporation formed under the
laws of the State of Illinois. Its issued and outstanding shares are owned
by Messrs. Bruce H. Block and Robert S. Ross. The officers of the Managing
General Partner are Robert S. Ross, President, and Bruce H. Block, Vice
President and Secretary. Messrs. Block and Ross are its sole directors.
FDIP Associates, the Associate General Partner, was formed under the laws
of the State of Illinois and has a nominal net worth. Its constituent
partners are First Dearborn Partners, an Illinois general partnership
formed in January, 1984, whose constituent partners are Messrs. Block and
Ross, and Hampshire Syndications, Inc., a New Hampshire corporation.
Hampshire Syndications, Inc. is wholly owned by Jefferson-Pilot Investments,
Inc., a North Carolina corporation, which is a wholly-owned subsidiary of
Jefferson-Pilot Corporation. The officers and directors of Hampshire
Syndications, Inc. are Ronald Angarella, President and Director, Charles C.
Cornelio, Vice President and Director, Sheri J. Lease, Secretary, Dennis R.
Glass, Executive Vice President and Director, E. J. Yelton, Executive Vice
President and Director, John A. Weston, Treasurer.
Messrs. Block and Ross are not affiliated with Jefferson Pilot Securities
Corporation, except that each is affiliated with the Associate General
Partner.
The persons listed below occupy key management position with the General
Partners:
Mr. Bruce H. Block, age 61, has been a principal in numerous real estate
ventures which own, have an interest in, or have owned various types of
property that have included apartment and office buildings, shopping
centers and vacant land. Mr. Block is an Illinois licensed attorney, a
certified public accountant and a licensed real estate broker in the State
of Illinois. Mr. Block practiced corporate and real estate law in Chicago
for over 20 years and is a shareholder in the Chicago law firm of Ross &
Block, P.C.
Mr. Robert S. Ross, age 61, has been a principal in many real estate
ventures which own, have an interest in, or have owned various types of
property including apartment and office buildings, shopping centers and
vacant land. Mr. Ross is an Illinois licensed attorney, a licensed real
estate broker in the State of Illinois and is an affiliate member of Real
Estate Securities and Syndication Institute. He also practiced general
and real estate law in the Chicago area for over 22 years and is a
shareholder in the Chicago law firm of Ross & Block P.C.
Mr. Ronald R. Angarella, age 41, currently serves as President, Chairman
and Director of Jefferson Pilot Securities Corporation and Hampshire
Funding, Inc. and President and Director of Hampshire Syndications, Inc.
Mr. Angarella is also President and Director of Jefferson Pilot Variable
Fund and Senior Vice President and Chief Marketing Officer of Jefferson
Pilot Financial Insurance Company.
<PAGE>
Mr. Charles C. Cornelio, age 39, is Vice President, General Counsel and
Secretary of Jefferson Pilot Securities Corporation and Vice President and
Director of Hampshire Syndications, Inc. He is also Executive Vice
President of Jefferson Pilot Financial Insurance Company and Vice President
and General Counsel of Jefferson Pilot Variable Fund.
Shari J. Lease, age 44, was elected Assistant Secretary of Hampshire
Syndications, Inc. in May, 1994 and Secretary in May 1997. She was also
elected Secretary of Hampshire Funding, Inc. and Assistant Secretary of
Jefferson Pilot Securities Corporation in December 1994. Her principal
occupation since February 1998 has been as Vice President and Counsel of
Jefferson Pilot Financial Insurance Company. Ms. Lease served as Assistant
Vice President and Counsel of Jefferson Pilot Financial Insurance Company
from April 1995 to February 1998. Ms. Lease was elected Secretary of
Jefferson Pilot Variable Fund in April 1992. She served as Associate
Counsel of Jefferson Pilot Financial Insurance Company from April 1994
to April 1995, Assistant Counsel of Jefferson Pilot Financial Insurance
Company from October 1990 to April 1994 and Assistant Secretary of
Jefferson Pilot Variable Fund from July 1991 to April 1992.
John Weston, age 39, is Treasurer of Hampshire Funding, Inc., Jefferson
Pilot Securities Corporation, Hampshire Syndications, Inc., Jefferson Pilot
Variable Fund and Jefferson Pilot Advisory Corporation. His principal
occupation singe April 1995 has been as Assistant Vice President of
Jefferson Pilot Financial Insurance Company until his election as Vice
President of Jefferson Pilot Financial Insurance Company in February 1999.
Dennis R. Glass, age 49, was elected Executive Vice President and Director
of Hampshire Syndications, Inc. in May 1997. Mr. Glass is also a Director
of Hampshire Funding, Inc. Since October 1993 Mr. Glass has served as
Executive Vice President, Chief Financial Officer and Treasurer of
Jefferson-Pilot Corporation. From 1991 to October 1993, he was associated
with Protective Life Corporation, having last served as Executive Vice
President and Chief Financial Officer. From 1983 to 1991 he was associated
with the Portman Companies, having served as Executive Vice President and
Chief Financial Officer.
E.J. Yelton, age 59, was elected Executive Vice President and Director of
Hampshire Syndications, Inc. in May 1997. Mr. Yelton is also a Director of
Hampshire Funding, Inc. Since October 1993, Mr. Yelton has served as
Executive Vice President of Investments of Jefferson-Pilot Corporation and
for more than five years prior thereto was President of the Investment Centre.
Item 11. Executive Compensation
The Partnership has no officers or directors and instead is managed by FDIP,
Inc., its Managing General Partner.
Officers and directors of the Managing General Partner receive no direct
remuneration in such capacities from the Partnership. In addition, the
Partnership is a registrant that qualifies as a small business issuer as
defined in Item 10(a)(1) of Regulation S-B. Accordingly, certain of the
disclosures typically required by Item 402 are not applicable to the
Partnership and the information set forth herein has been appropriately
modified.
The Partnership is required to pay certain fees to the General Partners or
their affiliates and the General Partners are entitled to receive a share
of cash distributions, when and as cash distributions are made to the
Limited Partners, and a share of profits or losses as described under the
caption "Compensation Table" at pages 9-10 of the Prospectus, a copy of
which descriptions is filed herewith and is hereby incorporated herein by
reference. Reference is also made to Note 4 of Notes to Consolidated
Financial Statements filed with this annual report for a description of
such distributions and allocations.
Certain compensation has accrued to the General Partners and their
affiliates for services rendered on behalf of the Partnership. Affiliates
of the General Partners are entitled to receive from the Partnership
acquisition fees, equal to 9% of the gross proceeds from the offering of
Units, in connection with the evaluation, investigation, negotiation,
selection and purchase of the Partnership's investment properties.
<PAGE>
The Managing General Partner and its affiliates are entitled to reimbursement
for salaries and direct expenses of officers and employees of the Managing
General Partner and its affiliates relating to the administration of the
Partnership.
Fees, commissions and other expenses required to be paid by the
Partnership to affiliates of the General Partners for the years ended
December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Unpaid at
1998 1997 1996 Dec. 31, 1998
<S> <C> <C> <C> <C>
Reimbursement (at cost)
for out of pocket expenses 35 1,168 1,168 0
Reimbursement (at cost)
for administrative services 975 1,364 14,992 0
1,010 2,532 16,160 0
</TABLE>
There are no compensatory plans or arrangements regarding termination of
employment or change of control.
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 following table sets forth information regarding the beneficial
ownership of Units as of December 31, 1997 by directors and/or general
partners of the General Partners, and by all officers, directors and for
general partners of the General Partners as a group:
<TABLE>
<CAPTION>
Amount and
Title Name and address of nature of Percent
Class Beneficial Owner Ownership of Class
<S> <C> <C> <C>
Limited Robert S. Ross 0 Units 0%
Partnership 154 W. Hubbard
Units Chicago, IL
Limited Jefferson Pilot Financial 1,669 Units (1) 16.7%
Partnership Insurance Company
Units One Granite Place,
Concord, NH 03301
Limited Jefferson Pilot 20 Units (1) less than 1%
Partnership Securities Corporation
Units One Granite Place,
Concord, NH 03301
Limited All officers 15 Units (1) less than 1%
Partnership directors, and
Units general partners
as a group
<FN>
(1) During January 1991, Jefferson Pilot Insurance Company of America
(JPF), an affiliate of Hampshire Syndication, Inc., acquired 1,669 Units
under an agreement with the Partnership. During 1993, Jefferson Pilot
Securities Corporation, an affiliate of JPF, acquired 20 Units pursuant to
an arbitration order.
</TABLE>
<PAGE>
Item 13. Certain Relationships and Related Transactions
There were no significant transactions or business relationships with the
Managing General Partner, affiliates, or other management other than those
described in Item 10 and 11 above, and Note 6 to the Consolidated Financial
Statements.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1)(2) See Index to Financial Statements and Financial Statement
Schedules on page 16.
(3) Exhibits
(3-A) The Prospectus of the Partnership dated February 1, 1989
as supplemented February 24, 1989, October 27, 1989, April 26, 1990,
October 9, 1990 and December 24, 1990 filed pursuant to Rule 424(b) under
the Securities Act of 1933 as amended (File No. 33-23048), is hereby
incorporated herein by reference.
(3-B) Amended Agreement of Limited Partnership set forth as
Exhibit A to the Prospectus, pursuant to Rule 424(b) under the Securities
Act of 1933 as amended (File No. 33-23048), is hereby incorporated herein
by reference.
(b) No reports on Form 8-K were filed in the last quarter of 1998.
(c) An annual report for the fiscal year 1998 will be sent to the
Limited Partners subsequent to this filing and the Partnership
will furnish copies of such report to the Securities and Exchange
Commission at that time.
(d) Exhibits - See Item 14(a) - (3).
(e) Financial Statement Schedules. See Index to Financial Statements
and Financial Statement Schedules on page 16.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(Registrant)
BY: FDIP, Inc.
(Managing General Partner)
Date: April 14, 1999 BY: /s/ Robert S. Ross
Its: President
BY: FDIP Associates II
(Associate General Partner)
BY: First Dearborn Partners, a Partner
Date: April 14, 1999 BY: /s/ Bruce H. Block
a Partner
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.
Signatures Title Date
/s/ Robert S. Ross President and Director April 14, 1999
Robert S. Ross of FDIP, Inc. (Principal
Executive Officer)
/s/ Bruce H. Block Secretary and Director April 14, 1999
Bruce H. Block of FDIP, Inc. (Principal
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<PERIOD-TYPE> 12-mos
<CASH> 968,437
<SECURITIES> 0
<RECEIVABLES> 168,676
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,171,539
<PP&E> 8,475,280
<DEPRECIATION> 2,315,063
<TOTAL-ASSETS> 7,277,641
<CURRENT-LIABILITIES> 508,760
<BONDS> 4,227,032
0
0
<COMMON> 0
<OTHER-SE> 1,729,080
<TOTAL-LIABILITY-AND-EQUITY> 7,277,641
<SALES> 1,498,914
<TOTAL-REVENUES> 1,596,719
<CGS> 0
<TOTAL-COSTS> 682,200
<OTHER-EXPENSES> 1,547,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364,462
<INCOME-PRETAX> (562,139)
<INCOME-TAX> 0
<INCOME-CONTINUING> (562,139)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (562,139)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
