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, 1999
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, 1999 and December 31, 1998
(unaudited)
Assets
------
1999 1998
Current assets: ---- ----
Cash and cash equivalents (Note 1).............. $ 1,886,506 340,191
Accounts and accrued interest receivable
(Note 5)...................................... 149,989 3,208
Other current assets............................ 3,380 2,229
------------ ------------
Total current assets.............................. 2,039,875 345,628
Mortgage loans receivable (Note 5)................ 1,265,618 1,287,151
Investment properties (including acquisition
fees paid to Affiliates of $1,877,820 and
$1,915,424 at September 30, 1999 and December
31, 1998, respectively) (Notes 1 and 3):
Land and improvements........................... 38,783,447 39,216,282
Buildings....................................... 93,082 93,082
------------ ------------
38,876,529 39,309,364
Less accumulated depreciation................... 20,814 18,487
Total investment properties, net of accumulated ------------ ------------
depreciation.................................... 38,855,715 39,290,877
------------ ------------
Total assets...................................... $42,161,208 40,923,656
============ ============
See accompanying notes to financial statements.
-2-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1999 and December 31, 1998
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1999 1998
---- ----
Current liabilities:
Accounts payable................................ $ 15,388 29,019
Accrued real estate taxes....................... 80,245 104,137
Due to Affiliates (Note 2)...................... 69,863 26,249
Unearned income................................. 11,577 39,233
------------ ------------
Total current liabilities......................... 177,073 198,638
------------ ------------
Deferred gain on sale of investment
properties (Note 5)............................. 782,883 796,203
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution........................... 500 500
Cumulative net income.......................... 617,775 617,144
Cumulative cash distributions.................. (259,531) (259,531)
------------ ------------
358,744 358,113
Limited Partners: ------------ ------------
Units of $1,000. Authorized 60,000 Units,
50,089.52 and 50,164.52 Units outstanding
as of September 30, 1999 and December 31,
1998, respectively (net of offering costs of
$7,532,439, of which $2,535,445 was paid
to Affiliates)................................ 42,574,139 42,597,492
Cumulative net income.......................... 10,105,122 8,809,963
Cumulative cash distributions.................. (11,836,753) (11,836,753)
------------ ------------
40,842,508 39,570,702
------------ ------------
Total Partners' capital........................... 41,201,252 39,928,815
------------ ------------
Total liabilities and Partners' capital........... $42,161,208 40,923,656
============ ============
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, 1999 and 1998
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
-------------- --------------
1999 1998 1999 1998
Income: ---- ---- ---- ----
Sale of investment properties
(Notes 1 and 3)................ $1,179,325 2,241,271 3,854,611 3,544,010
Recognition of deferred gain on
sale of investment properties
(Note 5)....................... 7,563 - 13,320 -
Rental income (Note 4)........... 105,374 92,933 305,026 277,413
Interest income.................. 58,337 71,460 135,288 124,326
Other income..................... - - - 160,057
---------- ---------- ---------- ----------
1,350,599 2,405,664 4,308,245 4,105,806
---------- ---------- ---------- ----------
Expenses:
Cost of investment properties
sold........................... 735,678 1,859,588 2,635,194 2,784,808
Professional services to
Affiliates..................... 10,487 12,336 36,502 28,521
Professional services to
non-affiliates................. 60 207 36,264 32,166
General and administrative
expenses to Affiliates......... 5,272 1,200 19,355 10,948
General and administrative
expenses to non-affiliates..... 2,093 4,805 31,393 23,891
Marketing expenses to Affiliates. (13,930) 12,484 5,292 21,369
Marketing expenses to
non-affiliates................. (16,031) 37,548 26,416 98,687
Land operating expenses to
Affiliates..................... 20,609 22,286 63,804 67,636
Land operating expenses to
non-affiliates................. 78,188 60,128 155,908 145,038
Depreciation..................... 776 775 2,327 2,327
---------- ---------- ---------- ----------
823,202 2,011,357 3,012,455 3,215,391
---------- ---------- ---------- ----------
Net income......................... $ 527,397 394,307 1,295,790 890,415
========== ========== ========== ==========
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, 1999 and 1998
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
-------------- --------------
1999 1998 1999 1998
Net income (loss) allocated to: ---- ---- ---- ----
General Partner.................. $ 762 126 631 1,312
Limited Partners................. 526,635 394,181 1,295,159 889,103
---------- ---------- ---------- ----------
Net income......................... $ 527,397 394,307 1,295,790 890,415
========== ========== ========== ==========
Net income (loss) allocated to the
one General Partner Unit......... $ 762 126 631 1,312
========== ========== ========== ==========
Net income per Unit, basic and
diluted, allocated to Limited
Partners per weighted average
Limited Partnership Units (50,092.89
and 50,133.00 for the three months
ended September 30, 1999 and 1998,
respectively, and 50,110.55 and
50,152.78 for the nine months
ended September 30, 1999 and 1998,
respectively).................... $ 10.51 7.86 25.85 17.73
========== ========== ========== ==========
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, 1999 and 1998
(unaudited)
1999 1998
Cash flows from operating activities: ---- ----
Net income...................................... $ 1,295,790 890,415
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation.................................. 2,327 2,327
Gain on sale of investment properties......... (1,219,417) (759,202)
Recognition of deferred gain on sale of
investment properties....................... (13,320) -
Changes in assets and liabilities:
Accounts and accrued interest receivable.... (146,781) (110,985)
Other current assets........................ (1,151) (6,147)
Accounts payable............................ (13,631) (7,229)
Accrued real estate taxes................... (23,892) (23,349)
Due to Affiliates........................... 43,614 28,056
Unearned income............................. (27,656) (99,639)
------------ ------------
Net cash used in operating activities............. (104,117) (85,753)
------------ ------------
Cash flows from investing activities:
Additions to investment properties.............. (2,202,359) (569,958)
Sale (purchase) of short-term investments, net.. - 431,682
Principal payment collected on mortgage loans
receivable.................................... 21,533 -
Proceeds from sale of investment properties..... 3,854,611 2,495,100
------------ ------------
Net cash provided by investing activities......... 1,673,785 2,356,824
------------ ------------
Cash flows from financing activities:
Repurchase of Limited Partnership Units......... (23,353) (39,518)
------------ ------------
Net cash used in financing activities............. (23,353) (39,518)
Net increase (decrease) in cash and ------------ ------------
cash equivalents................................ 1,546,315 2,231,553
Cash and cash equivalents at beginning of
period.......................................... 340,191 961,428
------------ ------------
Cash and cash equivalents at end of period........ $ 1,886,506 3,192,981
============ ============
See accompanying notes to financial statements.
-6-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
September 30, 1999
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1998, which are
included in the Partnership's 1998 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, 1999, the Partnership has
repurchased a total of 386.65 Units for $369,592 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. Such investments are
carried at cost which approximates market. Cash and cash equivalents are
approximately $1,886,507 and $340,000 at September 30, 1999 and December 31,
1998, respectively.
A presentation of information about operating segments as required in Statement
of Financial Accounting Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information" would not be material to an understanding
of the Partnership's business taken as a whole as the Partnership is engaged in
the business of real estate investment which management considers to be a
single operating segment.
-7-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1999
(unaudited)
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.
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. The
Partnership has not recognized any such impairment.
Statement of Financial Accounting Standards No. 128 "Earnings per Share" was
adopted by the Partnership and has been applied to all prior earnings periods
presented in the financial statements. The Partnership has no dilutive
securities.
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, 1999
(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 $16,420 and $5,473 was unpaid as of September 30, 1999 and December 31,
1998, 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 $63,804 and
$67,636 have been incurred for the nine months ended September 30, 1999 and
1998, respectively. As of September 30, 1999 and December 31, 1998, $20,609 and
$20,776, respectively, was unpaid.
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 $5,292 and $21,369
have been incurred for the nine months ended September 30, 1999 and 1998,
respectively, and are included in marketing expenses to Affiliates. As of
September 30, 1999 and December 31, 1998, $70 and $0, respectively, was unpaid.
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. As
of September 30, 1999 and December 31, 1998, $32,764 and $0, respectively, was
unpaid.
-9-
<TABLE> INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(3) Investment Properties
<CAPTION>
Total
Gross Initial Costs Costs Cumulative Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Parcel Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at On Sale
# County /(Sold) Date Costs Costs Costs Acquisition Sold 09/30/99 Recognized
- ------ --------- --------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 McHenry 372.759 04/25/90 $ 2,114,295 114,070 2,228,365 531,431 - 2,759,796 -
2 Kendall 41.118 07/06/90 549,639 43,889 593,528 9,965 - 603,493 -
3 Kendall 120.817 11/06/90 1,606,794 101,863 1,708,657 31,521 - 1,740,178 -
4 Kendall 299.025 06/28/91 1,442,059 77,804 1,519,863 2,651 - 1,522,514 -
5 Kane 189.0468 02/28/91 1,954,629 94,569 2,049,198 208,526 - 2,257,724 -
6 Lake 57.3345 04/16/91 904,337 71,199 975,536 20,844 4,457 991,923 -
(.258) 10/01/94
7 McHenry 56.7094 04/22/91 680,513 44,444 724,957 3,051,158 2,880,305 895,810 381,264
(12.6506) Var 1997
(15.7041) Var 1998
(16.1400) Var 1999
8 Kane 325.394 06/14/91 3,496,700 262,275 3,758,975 28,397 10,000 3,777,372 -
(.870) 04/03/96
9 Will 9.867 08/13/91 217,074 988 218,062 9,751 - 227,813 -
10 Will 150.66 08/20/91 1,866,716 89,333 1,956,049 9,222 - 1,965,271 -
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 7,982 - 474,356 -
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 42,161 - 998,431 -
15 Kendall 100.364 09/04/91 1,050,000 52,694 1,102,694 117,829 1,220,523 - 13,320
(5.000) 09/01/93
(11.000) 12/01/94
(84.364) 08/14/98
16 McHenry 168.905 09/13/91 1,402,058 69,731 1,471,789 85,640 - 1,557,429 -
17 Kendall 3.462 10/30/91 435,000 22,326 457,326 16,854 - 474,180 -
18 McHenry 139.1697 11/07/91 1,160,301 58,190 1,218,491 268,709 - 1,487,200 -
------------ ------------ ------------ -------------- ------------ ------------ ------------
Subtotal $20,641,999 1,214,121 21,856,120 4,445,341 4,567,971 21,733,490 394,584
-10-
-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 Cumulative Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Parcel Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at On Sale
# County /(Sold) Date Costs Costs Costs Acquisition Sold 09/30/99 Recognized
- ------ --------- --------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
Subtotal $20,641,999 1,214,121 21,856,120 4,445,341 4,567,971 21,733,490 394,584
19 Kane 436.236 12/13/91 4,362,360 321,250 4,683,610 168,963 - 4,852,573 -
20 Kane &
Kendall 400.129 01/31/92 1,692,623 101,318 1,793,941 1,168,932 911,016 2,051,857 354,051
(21.138) 06/30/99
21 Kendall 15.013 05/26/92 250,000 23,844 273,844 9,221 18,798 264,267 30,662
(1.000) 03/16/99
22 Kendall 391.959 10/30/92 3,870,000 283,186 4,153,186 110,354 190,683 4,072,857 269,607
(10.000) 01/06/94
(5.538) 01/05/96
(2.400) 07/27/99
23 (c) Kendall 133.2074 10/30/92 3,231,942 251,373 3,483,315 4,584,396 6,442,853 1,624,858 183,833
(11.525) 07/16/93
(44.070) Var 1995
(8.250) Var 1996
(2.610) Var 1997
(10.6624) Var 1998
(3.917) Var 1999
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 5,172 - 706,488 -
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 1,079,109 - 2,349,976 -
27 Kendall 83.525 03/11/93 984,474 54,846 1,039,320 12,310 - 1,051,630 -
------------ ------------ ------------ -------------- ------------ ------------ -----------
$38,810,025 2,504,276 41,314,301 11,606,471 14,044,243 38,876,529 1,232,737
============ ============ ============ ============== ============ ============ ===========
</TABLE>
-11-
-11-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1999
(unaudited)
(3) Investment Properties (continued)
(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 is 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, 1999, 191 of
the 243 single-family lots.
(d) Reconciliation of investment properties and improvements owned:
September 30, December 31,
1999 1998
------------ ------------
Balance at January 1,........................... $39,309,364 41,858,671
Additions during period......................... 2,202,359 946,007
Sales during period............................. 2,635,194 3,495,314
------------ ------------
Balance at end of period........................ $38,876,529 39,309,364
============ ============
(e) Reconciliation of accumulated depreciation:
1999 1998
---- ----
Balance at January 1,........................... $ 18,487 15,384
Depreciation expense............................ 2,327 3,103
------------ ------------
Balance at end of period........................ $ 20,814 18,487
============ ============
(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, 1999, the Partnership had farm leases of generally one year
in duration, for approximately 2,849 acres of the approximately 3,411 acres
owned.
-12-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1999
(unaudited)
(5) Mortgage Loans Receivable
As a result of the sale of the remaining approximately 84 acres of Parcel 15
for a sales price of $2,750,000 on August 14, 1998, the Partnership received a
mortgage loan receivable of $2,750,000 and recorded a deferred gain on sale of
$1,701,090, of which $918,206 has been recognized as of September 30, 1999.
The deferred gain will be recognized over the life of the related mortgage loan
receivable as principal payments are received. The mortgage loan receivable
accrues interest at 9% per annum and has a maturity date of July 31, 2001, at
which time all accrued interest, as well as principal, is due. On December 21,
1998, the purchaser paid down the mortgage loan receivable in the principal
amount of $1,462,849 plus accrued interest, resulting in a mortgage loan
receivable balance of $1,287,151 at December 31, 1998. As of September 30,
1999, the principal balance was $1,265,618 and accrued interest receivable
totaled $90,212. At September 30, 1999, the fair market value of the mortgage
loan receivable approximated its carrying value.
(6) Subsequent Events
On October 5, 1999, the Partnership sold 18 lots of Parcel 26, the Sugar grove
Parcel to an unaffiliated third party for $699,000. The Partnership received
net sales proceeds of $469,554 and accepted a purchase money note of $228,000.
The note bears interest of 8% per annum with interest accruing and payable at
September 30, 2002 and with principal and any remaining interest due October 1,
2004. The Partnership recorded a gain on sale of $207,642, of which 67,899
will be deferred.
On November 2, 1999, the Partnership sold an additional 8 lots of Parcel 7, the
Olde Mill Ponds on Boone Creek subdivision, to an unaffiliated third party for
$347,912. The Partnership received net sales proceeds of $346,566 and recorded
a gain on sale of $94,584.
-13-
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 "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, 1999, the Partnership has had multiple sales transactions through
which it has disposed of approximately 1,069 acres of the approximately 4,480
acres originally owned. As of September 30, 1999, cumulative distributions
have totaled $11,836,753 to the Limited Partners and $259,531 to the General
Partner. Of the $11,836,753 distributed to the Limited Partners, $11,115,753
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, 1999, the Partnership has used $11,606,471 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, 1999, the Partnership owns, in whole or in part,
twenty-three 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.
-14-
At September 30, 1999, the Partnership had cash and cash equivalents of
$1,886,506 of which approximately $255,000 is reserved for the repurchase of
Units through the Unit Repurchase Program. The remaining approximately
$1,631,506 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.
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 3 is zoned for various manufacturing uses and preliminary
planning is in progress. Parcels 5 and 19 are under contract for sale and the
purchaser is in the planning process with the Village of Elburn. Parcel 7, the
Olde Mill Ponds on Boone Creek subdivision, has all of the total 130 single-
family lots under contract with a homebuilder, of which one hundred two have
already closed (see Note 3 of the Notes to Financial Statements). Parcels 14,
17 and 24 were rezoned for commercial and multi-family uses in 1999 and are
currently being marketed for sale. Parcel 18, zoned for multi- and single-
family use, is being marketed to potential homebuilders. As of September 30,
1999, the Partnership has sold 191 of the 243 single-family lots at the Ponds
of Mill Race Creek (Parcel 23) in addition to the multi-family portion, the
Winding Waters of Mill Race Creek. The Partnership has forty-nine of the
remaining fifty-two single-family lots under contract with homebuilders (see
Note 3 of the Notes to Financial Statements). Parcel 26 is under development
for single family homes with all 170 lots under contract for sale.
Results of Operations
Income from the sale of investment properties and cost of investment properties
sold for the nine months ended September 30, 1999 is the result of the sale of
approximately sixteen acres, consisting of additional lots at the Olde Mill
Ponds on Boone Creek subdivision (Parcel 7), the sale of additional lots at the
Ponds of Mill Race Creek subdivision (Parcel 23), the sale of approximately 21
acres of Parcel 20, the sale of one acre of Parcel 21 and the sale of
approximately two acres of Parcel 22. Income from the sale of investment
properties and the cost of investment properties sold for the nine months ended
September 30, 1998 is the result of the sale of approximately three acres,
consisting of additional lots at the Olde Mill Ponds at Boone Creek subdivision
(Parcel 7), the sale of additional lots at the Ponds of Mill Race Creek
subdivision (Parcel 23) and the sale of the remaining approximately 84 acres of
Parcel 15.
As of September 30, 1999, the Partnership owned twenty-three parcels of land
consisting of approximately 3,411 acres and one office building. Of the
approximately 3,411 acres owned, 2,849 acres are tillable, leased to local
farmers and generate sufficient cash flow to cover property taxes, insurance
and other miscellaneous expenses. Rental income increased for the three and
nine months ended September 30, 1999, as compared to the three and nine months
ended September 30, 1998, due to the annual increase in lease amounts from
tenants.
-15-
Interest income increased for the nine months ended September 30, 1999, as
compared to the nine months ended September 30, 1998, due primarily to the
interest income earned on the mortgage loan receivable the Partnership received
from the sale of the remaining acres of Parcel 15. See Note 5 of the Notes to
Financial Statements for further discussion of the terms of the mortgage loan
receivable received from this sale.
The other income recorded for the six months ended June 30, 1998 relates to a
penalty charged to one of the homebuilders on Parcel 23. No such fees were
charged in 1999.
Professional services to Affiliates increased for the nine months ended
September 30, 1999, as compared to the nine months ended September 30, 1998,
due to increases in legal and accounting services required by the Partnership.
Professional services to non-affiliates increased for the nine months ended
September 30, 1999, as compared to the nine months ended September 30, 1998,
due to an increase in accounting fees.
General and administrative expenses to Affiliates increased for the three and
nine months ended September 30, 1999, as compared to the three and nine months
ended September 30, 1998, due to increases in data processing and investor
services expenses. General and administrative expenses to non-affiliates
increased for the nine months ended September 30, 1999, as compared to the nine
months ended September 30, 1998, due primarily to an increase in the Illinois
Replacement Tax.
Marketing expenses to Affiliates and non-affiliates decreased for the three and
nine months ended September 30, 1999, as compared to the three and nine months
ended September 30, 1998, due to a decrease in non recurring advertising and
travel expenses relating to marketing the land portfolio to prospective
purchasers, as well as a substantial increase in marketing costs capitalized to
individual land parcels.
Land operating expenses to Affiliates decreased for the three and nine months
ended September 30, 1999, as compared to the three and nine months ended
September 30, 1998, due to a decrease in tillable acres due to land sales.
Land operating expenses to non-affiliates increased for the three and nine
months ended September 30, 1999, as compared to the three and nine months ended
September 30, 1998, due to an increase in maintenance expenses.
Year 2000 Issues
GENERAL
- -------
Many computer operating systems and software applications were designed such
that the year 1999 is the maximum date that can be processed accurately. In
conducting business, the Partnership relies on computers and operating systems
provided by equipment manufacturers, and also on application software developed
internally and, to a limited extent, by outside software vendors. The
Partnership has assessed its vulnerability to the so-called "Year-2000 Issue"
with respect to its equipment and computer systems.
STATE OF READINESS
- ------------------
The Partnership has identified the following two areas for "Year-2000"
compliance efforts:
-16-
Business Computer Systems: The majority of the Partnership's information
technology systems were developed internally and include accounting, lease
management, investment portfolio tracking, and tax return preparation. The
Partnership has rights to the source code for these applications and employs
programmers who are knowledgeable regarding these systems. The process of
testing these internal systems to determine year 2000 compliance is nearly
complete. The Partnership does not anticipate any material costs relating to
its business computer systems regarding year 2000 compliance since the
Partnership's critical hardware and software systems use four digits to
represent the applicable year. The Partnership does use various computers, so-
called "PC's", that may run software that may not use four digits to represent
the applicable year. The Partnership is in the process of testing the PC
hardware and software to determine year 2000 compliance, but it must be noted
that such PC's are incidental to the Partnership's critical systems. The
Partnership is considering independent testing of its critical systems.
Suppliers and other Parties: The Partnership is in the process of surveying
suppliers and other parties with whom the Partnership does a significant amount
of business to identify the Partnership's potential exposure in the event such
parties are not year 2000 compliant in a timely manner. At this time, the
Partnership is not aware of any party that is anticipating a material Year 2000
compliance issue. However, since this area involves some parties over which
the Partnership has no control, such as public utility companies, it is
difficult, at best, to judge the status of the outside companies' year 2000
compliance. The Partnership is working closely with all suppliers of goods and
services in an effort to minimize the impact of the failure of any supplier to
become year 2000 compliant by December 31, 1999. The Partnership's
investigations and assessments of possible year 2000 issues are ongoing, and
currently the Partnership is not aware of any material impact on its business,
operations or financial condition even if one or more parties is not Year 2000
compliant in a timely manner, due to the number and nature of the Partnership's
diverse supplier base.
YEAR 2000 RISKS
- ---------------
The most reasonable likely worst case scenario for the Partnership with respect
to the year 2000 non-compliance of its business computer systems would be the
inability to access information which could result in the failure to issue
financial reports.
YEAR 2000 COSTS
- ---------------
The Partnership's General Partner and its Affiliates estimate that costs to
achieve year 2000 compliance will not exceed $100,000. However, only
approximately 1% of these costs will be directly allocated to and paid by the
Partnership. The balance of the year 2000 compliance costs, approximately 99%,
will be paid by the General Partner and its Affiliates. Total year 2000 costs
are not expected to be significant.
-17-
CONTINGENCY PLAN
- ----------------
The Partnership expects to be Year 2000 compliant in advance of the year 2000.
The Partnership will continue to monitor its progress and state of readiness,
and is in the process of formulating a contingency plan which the Partnership
will be prepared to adopt with respect to areas in which evidence arises that
it may not become Year 2000 compliant in sufficient time. With respect to its
suppliers and other parties with whom the Partnership conducts business, the
Partnership does not yet have sufficient information to identify the types of
problems it may encounter in the event these third parties are not Year 2000
compliant. As information is obtained that may indicate such parties may not
become Year 2000 compliant in sufficient time, the Partnership is prepared to
develop contingency plans, accordingly.
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
-18-
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, 1999
/S/ PATRICIA A. DELROSSO
By: Patricia A. DelRosso
Senior Vice President
Date: November 12, 1999
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: November 12, 1999
-19-
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1886506
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