UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File #0-19220
Inland Land Appreciation Fund II, L.P.
(Exact name of registrant as specified in its charter)
Delaware #36-3664407
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2901 Butterfield Road, Oak Brook, Illinois 60523
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 630-218-8000
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-1-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Balance Sheets
September 30, 1997 and December 31, 1996
(unaudited)
Assets
------
1997 1996
Current assets: ---- ----
Cash and cash equivalents (Note 1).............. $ 922,435 3,904,046
Investments in marketable securities (Note 1)... 757,320 2,232,785
Accounts and accrued interest receivable........ 149,013 28,778
Other current assets............................ 3,765 2,477
------------ ------------
Total current assets.............................. 1,832,533 6,168,086
------------ ------------
Investment properties (including acquisition
fees paid to Affiliates of $2,004,510 and
$2,020,973 at September 30, 1997 and December
31, 1996, respectively) (Notes 1 and 3):
Land and improvements........................... 41,353,071 40,514,211
Buildings....................................... 93,082 93,082
------------ ------------
41,446,153 40,607,293
Less accumulated depreciation................... 14,609 12,282
Total investment properties, net of accumulated ------------ ------------
depreciation.................................... 41,431,544 40,595,011
------------ ------------
Total assets...................................... $43,264,077 46,763,097
============ ============
See accompanying notes to financial statements.
-2-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1997 and December 31, 1996
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1997 1996
---- ----
Current liabilities:
Accounts payable................................ $ 20,775 65,387
Accrued real estate taxes....................... 75,962 104,059
Due to Affiliates (Note 2)...................... 71,700 4,307
Unearned income................................. 86,170 70,088
------------ ------------
Total current liabilities......................... 254,607 243,841
------------ ------------
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution........................... 500 500
Cumulative net income.......................... 448,683 449,394
Cumulative cash distributions.................. (93,034) (93,034)
------------ ------------
356,149 356,860
Limited Partners: ------------ ------------
Units of $1,000. Authorized 60,000 Units,
50,164.52 and 50,184.52 Units outstanding
as of September 30, 1997 and December 31,
1996, respectively (net of offering costs of
$7,532,439, of which $2,535,445 was paid
to Affiliates)................................ 42,637,010 42,655,371
Cumulative net income.......................... 6,853,064 6,343,988
Cumulative cash distributions.................. (6,836,753) (2,836,963)
------------ ------------
42,653,321 46,162,396
------------ ------------
Total Partners' capital........................... 43,009,470 46,519,256
------------ ------------
Total liabilities and Partners' capital........... $43,264,077 46,763,097
============ ============
See accompanying notes to financial statements.
-3-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Statements of Operations
For the three and nine months ended September 30, 1997 and 1996
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
Income: ---- ---- ---- ----
Sale of investment properties
(Notes 1 and 3)................ $ 367,870 39,265 1,414,487 1,291,491
Rental income (Note 4)........... 90,731 94,183 274,441 267,804
Interest income.................. 25,076 81,671 175,583 236,974
Other income..................... 20 166 20 166
---------- ---------- ---------- ----------
483,697 215,285 1,864,531 1,796,435
---------- ---------- ---------- ----------
Expenses:
Cost of investment properties
sold........................... 241,073 29,084 834,974 882,162
Professional services to
Affiliates..................... 10,200 6,793 28,794 16,734
Professional services to
non-affiliates................. 340 289 52,559 30,657
General and administrative
expenses to Affiliates......... 5,120 12,413 21,347 33,268
General and administrative
expenses to non-affiliates..... 4,004 3,813 25,093 32,966
Marketing expenses to Affiliates. 33,147 9,192 100,483 35,569
Marketing expenses to
non-affiliates................. 51,970 37,034 104,541 45,621
Land operating expenses to
Affiliates..................... 22,778 22,712 68,532 69,092
Land operating expenses to
non-affiliates................. 46,501 46,736 117,516 124,601
Depreciation..................... 776 776 2,327 2,327
---------- ---------- ---------- ----------
415,909 168,842 1,356,166 1,272,997
---------- ---------- ---------- ----------
Net income......................... $ 67,788 46,443 508,365 523,438
========== ========== ========== ==========
See accompanying notes to financial statements.
-4-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the three and nine months ended September 30, 1997 and 1996
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
Net income (loss) allocated to: ---- ---- ---- ----
General Partner.................. $ (590) 362 (711) 1,141
Limited Partners................. 68,378 46,081 509,076 522,297
---------- ---------- ---------- ----------
Net income......................... $ 67,788 46,443 508,365 523,438
========== ========== ========== ==========
Net income (loss) allocated to the
one General Partner Unit......... $ (590) 362 (711) 1,141
========== ========== ========== ==========
Net income per weighted average
Limited Partner Unit (50,164.52
and 50,184.52 for the three months
ended September 30, 1997 and 1996,
respectively, and 50,175.55 and
50,186.49 for the nine months
ended September 30, 1997 and 1996,
respectively).................... $ 1.37 .92 10.15 10.41
========== ========== ========== ==========
See accompanying notes to financial statements.
-5-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the nine months ended September 30, 1997 and 1996
(unaudited)
1997 1996
Cash flows from operating activities: ---- ----
Net income...................................... $ 508,365 523,438
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation.................................. 2,327 2,327
Gain on sale of investment properties......... (579,513) (409,329)
Changes in assets and liabilities:
Accounts and accrued interest receivable.... (120,235) (125,430)
Other current assets........................ (1,288) (9,615)
Accounts payable............................ (44,612) (7,508)
Accrued real estate taxes................... (28,097) (19,323)
Due to Affiliates........................... 67,393 (10,765)
Unearned income............................. 16,082 23,320
------------ ------------
Net cash used in operating activities............. (179,578) (32,885)
------------ ------------
Cash flows from investing activities:
Additions to investment properties.............. (1,673,834) (437,030)
Sale (purchase) of short-term investments, net.. 1,475,465 (2,025,000)
Proceeds from sale of investment properties..... 1,414,487 1,291,491
Net cash provided by (used in) investing ------------ ------------
activities...................................... 1,216,118 (1,170,539)
------------ ------------
Cash flows from financing activities:
Cash distributions.............................. (4,000,000) -
Foreign Partners' withholding................... 210 (55)
Repurchase of Limited Partnership Units......... (18,361) (8,621)
------------ ------------
Net cash used in financing activities............. (4,018,151) (8,676)
------------ ------------
Net decrease in cash and cash equivalents......... (2,981,611) (1,212,100)
Cash and cash equivalents at beginning of
period.......................................... 3,904,046 5,097,705
------------ ------------
Cash and cash equivalents at end of period........ $ 922,435 3,885,605
============ ============
See accompanying notes to financial statements.
-6-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
September 30, 1997
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1996, which are
included in the Partnership's 1996 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this Report.
(1) Organization and Basis of Accounting
The Registrant, Inland Land Appreciation Fund II, L.P. (the "Partnership"), is
a limited partnership formed on June 28, 1989, pursuant to the Delaware Revised
Uniform Limited Partnership Act, to invest in undeveloped land on an all-cash
basis and realize appreciation of such land upon resale. On October 25, 1989,
the Partnership commenced an Offering of 30,000 (subject to increase to 60,000)
Limited Partnership Units pursuant to a Registration under the Securities Act
of 1933. The Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement") provides for Inland Real Estate Investment Corporation
to be the General Partner. On October 24, 1991, the Partnership terminated its
Offering of Units, with total sales of 50,476.17 Units, at $1,000 per Unit,
resulting in $50,476,170 in gross offering proceeds, not including the General
Partner's capital contribution of $500. All of the holders of these Units have
been admitted to the Partnership. As of September 30, 1997, the Partnership has
repurchased a total of 311.65 Units for $306,721 from various Limited Partners
through the Unit Repurchase Program. Under this program, Limited Partners may,
under certain circumstances, have their Units repurchased for an amount equal
to their Invested Capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Offering costs have been offset against the Limited Partners' capital accounts.
The Partnership considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents and are carried at
cost, which approximates market.
Investments purchased with a maturity of three months or more are considered to
be investments in marketable securities and are carried at cost, which
approximates market.
-7-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1997
(unaudited)
Statement of Financial Accounting Standards No. 121 ("SFAS 121") requires the
Partnership to record an impairment loss on its property to be held for
investment whenever its carrying value cannot be fully recovered through
estimated undiscounted future cash flows from their operations and sale. The
amount of the impairment loss to be recognized would be the difference between
the property's carrying value and the property's estimated fair value. As of
September 30, 1997, the Partnership has not recognized any such impairment.
For vacant land parcels and parcels with insignificant buildings and
improvements, the Partnership uses the area method of allocation, which
approximates the relative sales method of allocation, whereby a per acre price
is used as the standard allocation method for land purchases and sales. The
total cost of the parcel is divided by the total number of acres to arrive at a
per acre price. For parcels with significant buildings and improvements
(Parcel 24, described in Note 3), the Partnership records the buildings and
improvements at a cost based upon the appraised value at the date of
acquisition. Building and improvements are depreciated using the straight-line
method of depreciation over a useful life of thirty years. Repair and
maintenance expenses are charged to operations as incurred. Significant
improvements are capitalized and depreciated over their estimated useful lives.
The Partnership is required to pay a withholding tax to the Internal Revenue
Service with respect to a Partner's allocable share of the Partnership's
taxable net income, if the Partner is a foreign person. The Partnership will
first pay the withholding tax from the distributions to any foreign partner,
and to the extent that the tax exceeds the amount of distributions withheld, or
if there have been no distributions to withhold, the excess will be accounted
for as a distribution to the foreign partner. Withholding tax payments are made
every April, June, September and December.
No provision for Federal income taxes has been made as the liability for such
taxes is that of the Partners rather than the Partnership.
In the opinion of management, the financial statements contain all the
adjustments necessary, which are of a normal recurring nature, to present
fairly the financial position and results of operations for the period
presented herein. Results of interim periods are not necessarily indicative of
results to be expected for the year.
-8-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1997
(unaudited)
(2) Transactions with Affiliates
The General Partner and its Affiliates are entitled to reimbursement for
salaries and expenses of employees of the General Partner and its Affiliates
relating to the administration of the Partnership. Such costs are included in
professional services and general and administrative expenses to Affiliates, of
which $15,902 and $4,307 was unpaid as of September 30, 1997 and December 31,
1996, respectively.
The General Partner is entitled to receive Asset Management Fees equal to one-
quarter of 1% of the original cost to the Partnership of undeveloped land
annually, limited to a cumulative total over the life of the Partnership of 2%
of the land's original cost to the Partnership. Such fees of $68,532 and
$69,092 have been incurred for the nine months ended September 30, 1997 and
1996, respectively, and are included in land operating expenses to Affiliates,
of which $22,778 was unpaid as of September 30, 1997.
An Affiliate of the General Partner performed sales marketing and advertising
services for the Partnership and was reimbursed (as set forth under terms of
the Partnership Agreement) for direct costs. Such costs of $100,483 and
$35,569 have been incurred and are included in marketing expenses to Affiliates
for the nine months ended September 30, 1997 and 1996, respectively, of which
$33,020 was unpaid as of September 30, 1997.
An Affiliate of the General Partner performed property upgrades, rezoning,
annexation and other activities to prepare the Partnership's land investments
for sale and was reimbursed (as set forth under terms of the Partnership
Agreement) for salaries and direct costs. The Affiliate did not recognize a
profit on any project. Such costs are included in investment properties, all
of which have been paid.
-9-
<TABLE>
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(3) Investment Properties
<CAPTION>
The following real property investments are owned by the Partnership as of September 30, 1997:
Total
Gross Initial Costs Costs Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Parcel Location: Purchased Sales Original Acquisition Subsequent to Property Parcels at on Sale
# County (Sold) Date Costs Costs Total Acquisition Sold 9/30/97 Recognized
- ------ --------- --------- ---------- ------------ ------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 McHenry 372.759 04/25/90 $ 2,114,295 114,070 2,228,365 353,061 - 2,581,426 -
2 Kendall 41.118 07/06/90 549,639 43,889 593,528 7,327 - 600,855 -
3 Kendall 120.817 11/06/90 1,606,794 101,863 1,708,657 5,893 - 1,714,550 -
4 Kendall 299.025 06/28/91 1,442,059 77,804 1,519,863 661 - 1,520,524 -
5 Kane 189.0468 02/28/91 1,954,629 94,569 2,049,198 151,474 - 2,200,672 -
6 Lake 57.3345 04/16/91 904,337 71,199 975,536 16,172 4,457 987,251 -
(.258) 10/01/94
7 McHenry 56.7094 04/22/91 680,513 44,444 724,957 1,993,208 483,567 2,234,598 454,163
(10.9057) Var 1997
8 Kane 325.394 06/14/91 3,496,700 262,275 3,758,975 24,171 10,000 3,773,146 -
(.870) 04/03/96
9 Will 9.867 08/13/91 217,074 988 218,062 1,415 - 219,477 -
10 Will 150.66 08/20/91 1,866,716 89,333 1,956,049 651 - 1,956,700 -
11 Will 138.447 08/20/91 289,914 20,376 310,290 2,700 312,990 - -
(138.447) 05/03/93
12 Will 44.732 08/20/91 444,386 21,988 466,374 585 - 466,959 -
13 Will 6.342 09/23/91 139,524 172 139,696 - 139,696 - -
(6.342) 05/03/93
14 Kendall 44.403 09/03/91 888,060 68,210 956,270 1,486 - 957,756 -
15 Kendall 100.364 09/04/91 1,050,000 52,694 1,102,694 102,067 177,298 1,027,463 -
(5.000) 09/01/93
(11.000) 12/01/94
16 McHenry 168.905 09/13/91 1,402,058 69,731 1,471,789 80,004 - 1,551,793 -
17 Kendall 3.462 10/30/91 435,000 22,326 457,326 1,141 - 458,467 -
18 McHenry 139.1697 11/07/91 1,160,301 58,190 1,218,491 263,709 - 1,482,200 -
------------ ------------ ------------ -------------- ------------ ------------ ------------
Subtotal $20,641,999 1,214,121 21,856,120 3,005,725 1,128,008 23,733,837 454,163
-10-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(3) Investment Properties (continued)
Total
Gross Initial Costs Costs Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Parcel Location: Purchased Sales Original Acquisition Subsequent to Property Parcels at on Sale
# County (Sold) Date Costs Costs Total Acquisition Sold 9/30/97 Recognized
- ------ --------- --------- ---------- ------------ ------------ ------------ ------------- ------------ ------------ ------------
Subtotal $20,641,999 1,214,121 21,856,120 3,005,725 1,128,008 23,733,837 454,163
19 Kane 436.236 12/13/91 4,362,360 321,250 4,683,610 129,892 - 4,813,502 -
20 Kane &
Kendall 400.129 01/31/92 1,692,623 101,318 1,793,941 77,454 - 1,871,395 -
21 Kendall 15.013 05/26/92 250,000 23,844 273,844 6,331 - 280,175 -
22 Kendall 391.959 10/30/92 3,870,000 283,186 4,153,186 90,526 164,804 4,078,908 -
(10.000) 01/06/94
(5.538) 01/05/96
23 (c) Kendall 133.2074 10/30/92 3,231,942 251,373 3,483,315 4,301,392 4,355,287 3,429,420 125,350
(11.525) 07/16/93
(44.070) Var 1995
(8.250) Var 1996
(2.606) Var 1997
23A(a) Kendall .2676 10/30/92 170,072 12,641 182,713 - 182,713 - -
(.2676) 03/16/93
24 Kendall 3.908 01/21/93 645,000 56,316 701,316 1,388 - 702,704 -
24A(b) Kendall .406 01/21/93 155,000 13,533 168,533 - - 168,533 -
25 Kendall 656.687 01/28/93 1,625,000 82,536 1,707,536 22,673 1,730,209 - -
(656.687) 10/31/95
26 Kane 89.511 03/10/93 1,181,555 89,312 1,270,867 56,661 - 1,327,528 -
27 Kendall 83.525 03/11/93 984,474 54,846 1,039,320 831 - 1,040,151 -
------------ ------------ ------------ ------------- ------------ ------------ -----------
$38,810,025 2,504,276 41,314,301 7,692,873 7,561,021 41,446,153 579,513
============ ============ ============ ============= ============ ============ ===========
(a) Included in the purchase of Parcel 23 was a newly constructed 2,500 square foot house. The house was sold in March 1993.
(b) Included in the purchase of Parcel 24 was a 2,400 square foot office building.
(c) Parcel 23, annexed and zoned to Oswego, Illinois as part of the Mill Race Creek subdivision, consists of two parts: a 28-acre
multi-family portion and a 105-acre single-family portion. The Partnership sold the 28-acre multi-family portion on June 7, 1995
and as of September 30, 1997, 124 of the 243 single-family lots. Of the 119 remaining single-family lots, 110 are under contract
for sale with homebuilders.
</TABLE>
-11-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1997
(unaudited)
(3) Investment Properties (continued)
(d) Reconciliation of real estate owned:
1997 1996
---- ----
Balance at January 1,........................... $40,607,293 40,892,494
Additions during period......................... 1,673,834 888,754
Sales during period............................. 834,974 1,173,955
------------ ------------
Balance at end of period........................ $41,446,153 40,607,293
============ ============
(e) Reconciliation of accumulated depreciation:
1997 1996
---- ----
Balance at January 1,........................... $ 12,282 9,179
Depreciation expense............................ 2,327 3,103
Sales during period............................. - -
------------ ------------
Balance at end of period........................ $ 14,609 12,282
============ ============
(4) Farm Rental Income
The Partnership has determined that all leases relating to the farm parcels are
operating leases. Accordingly, rental income is reported when earned.
As of September 30, 1997, the Partnership had farm leases of generally one year
in duration, for approximately 3,045 acres of the approximately 3,568 acres
owned.
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this quarterly report on
Form 10-Q constitute of "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the Partnership's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, federal, state or local regulations;
adverse changes in general economic or local conditions; inability of borrower
to meet financial obligations; uninsured losses; and potential conflicts of
interest between the Partnership and its Affiliates, including the General
Partner.
Liquidity and Capital Resources
On October 25, 1989, the Partnership commenced an Offering of 30,000 (subject
to increase to 60,000) Limited Partnership Units pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. On October 24, 1991,
the Partnership terminated its Offering of Units, with total sales of 50,476.17
Units, at $1,000 per Unit, resulting in $50,476,170 in gross offering proceeds,
not including the General Partner's capital contribution of $500. All of the
holders of these Units have been admitted to the Partnership. The Limited
Partners of the Partnership will share in their portion of benefits of
ownership of the Partnership's real property investments according to the
number of Units held.
The Partnership used $41,314,301 of gross offering proceeds to purchase, on an
all-cash basis, twenty-seven parcels of undeveloped land and two buildings.
These investments include the payment of the purchase price, acquisition fees
and acquisition costs of such properties. Three of the parcels were purchased
during 1990, sixteen during 1991, four during 1992 and four during 1993. As of
September 30, 1997, the Partnership has had multiple sales transactions through
which it has disposed of approximately 912 acres of the approximately 4,480
acres originally owned. As of September 30, 1997, cumulative distributions
have totaled $6,836,753 to the Limited Partners and $93,034 to the General
Partner. Of the $6,836,753 distributed to the Limited Partners, $6,115,753 was
net sales proceeds (which represents a return of Invested Capital, as defined
in the Partnership Agreement) and $721,000 was from operations. As of
September 30, 1997, the Partnership has used $7,692,873 of working capital
reserve for rezoning and other activities. Such amounts have been capitalized
and are included in investment properties.
The Partnership's capital needs and resources will vary depending upon a number
of factors, including the extent to which the Partnership conducts rezoning and
other activities relating to utility access, the installation of roads,
subdivision and/or annexation of land to a municipality, changes in real estate
taxes affecting the Partnership's land, and the amount of revenue received from
leasing. As of September 30, 1997, the Partnership owns, in whole or in part,
twenty-four of its twenty-seven original parcels and one office building, the
majority of which are leased to local tenants and are generating sufficient
cash flow from leases to cover property taxes and insurance.
-13-
At September 30, 1997, the Partnership had cash, cash equivalents and
investments in marketable securities of $1,679,755, of which approximately
$288,800 is reserved for the repurchase of Units through the Unit Repurchase
Program. The remaining $1,390,955 is available to be used for the Partnership
expenses and liabilities, cash distributions to partners and other activities
with respect to some or all of its land parcels. The Partnership has increased
its parcel sales effort in anticipation of rising land values.
On July 7, 1997, the Partnership paid a distribution of $4,000,000 to the
Limited Partners resulting in cumulative distributions of $6,836,753. This
distribution was from net sales proceeds previously held on sales from Parcels
23 and 25.
The Partnership plans to enhance the value of its land through pre-development
activities such as rezoning, annexation and land planning. The Partnership has
already been successful in, or is in the process of, pre-development activity
on a majority of the Partnership's land investments. Parcel 1, annexed to the
Village of Huntley and zoned for residential and commercial development, has
improvements in planning stage and sites are being marketed to potential
buyers. Parcel 7, the Olde Mill Ponds on Boone Creek subdivision, has sixty-
five of the total 130 single-family lots under contract with a homebuilder, of
which twenty-four have already closed (see Note 3 of the Notes to Financial
Statements for further discussion of Parcel 7). Parcel 18, zoned for multi-
and single-family use, is being marketed to potential homebuilders. Parcel 15
has been zoned with development and sales marketing underway. Parcel 23, the
Ponds at Mill Race Creek Subdivision, has 234 of the total 243 single-family
lots under contract with homebuilders, of which 124 have already closed (see
Note 3 of the Notes to Financial Statements for further discussion on Parcel
23).
Results of Operations
Income from the sale of investment properties and cost of investment properties
sold recorded for the three and nine months ended September 30, 1997 is the
result of the sale of twenty-four lots in the Olde Mill Ponds on Boone Creek
subdivision (Parcel 7) and the sale of additional lots at the Ponds of Mill
Race Creek subdivision (Parcel 23). Income from the sale of investment
properties and cost of investment properties sold recorded for the three and
nine months ended September 30, 1996 is the result of lot sales at the Ponds at
Mill Race Creek subdivision (Parcel 23) and the sale of approximately 5 1/2
acres of Parcel 22.
As of September 30, 1997, the Partnership owned twenty-four parcels of land
consisting of approximately 3,568 acres and one office building. Of the
approximately 3,568 acres owned, 3,045 acres are tillable, leased to local
farmers and generate sufficient cash flow to cover property taxes, insurance
and other miscellaneous expenses. The increase in rental income for the nine
months ended September 30, 1997, as compared to the nine months ended September
30, 1996, is due to annual increases in lease amounts from tenants. Land
operating expenses to non-affiliates decreased for the nine months ended
September 30, 1997, as compared to the nine months ended September 30, 1996,
due to a decrease in real estate taxes. This decrease was partially offset by
an increase in assessment fees and repair and maintenance expenses on
incidental rental buildings located on the Partnership's investment properties.
-14-
Interest income decreased for the three and nine months ended September 30,
1997, as compared to the three and nine months ended September 30, 1996, due to
the Partnership distributing net sales proceeds of $4,000,000 and using its
working capital reserve to fund pre-development activity on the Partnership's
investment properties.
Professional services to Affiliates increased for the three and nine months
ended September 30, 1997, as compared to the three and nine months ended
September 30, 1996, due to an increase in legal and accounting services related
to the increase in sales activity within the Partnership. Professional
services to non-affiliates increased for the nine months ended September 30,
1997, as compared to the nine months ended September 30, 1996, due primarily to
an increase in outside legal services.
General and administrative expenses to Affiliates decreased for the three and
nine months ended September 30, 1997, as compared to the three and nine months
ended September 30, 1996, due to decreases in postage and data processing
expenses. General and administrative expenses to non-affiliates decreased for
the nine months ended September 30, 1997, as compared to the nine months ended
September 30, 1996, due primarily to a decrease in the Illinois Replacement Tax
paid by the Partnership in 1997. This decrease was partially offset by an
increase in printing expenses.
Marketing expenses to Affiliates increased for the three and nine months ended
September 30, 1997, as compared to the three and nine months ended September
30, 1996, due to an increase in expenses relating to marketing and advertising
the Partnership's land investments for sale. Marketing expenses to non-
affiliates increased for the three and nine months ended September 30, 1997, as
compared to the three and nine months ended September 30, 1996, due to an
increase in advertising and travel expenses relating to marketing the land
portfolio to prospective purchasers.
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under which
they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INLAND LAND APPRECIATION FUND II, L.P.
By: Inland Real Estate Investment Corporation
General Partner
/S/ ROBERT D. PARKS
By: Robert D. Parks
Chairman
Date: November 12, 1997
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: November 12, 1997
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: November 12, 1997
-16-
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