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 MARCH 31, 2014
¨		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: 0-18431

Inland Land Appreciation Fund, L.P.

(Exact name of registrant as specified in its charter)

 

Delaware		36-3544798
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2901 Butterfield Road, Oak Brook, IL  60523

(Address of principal executive offices)(Zip Code)

630-218-8000

(Registrant’s telephone number, including area code)

 

 

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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes X         No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨		Accelerated filer  ¨
Non-accelerated filer ¨  (Do not check if a smaller reporting company)		Smaller reporting company X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨     No  X

 

 

 

---

INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Balance Sheets

March 31, 2014 and December 31, 2013

(unaudited)

 

Assets				2014				2013
Current assets:
Cash and cash equivalents (Note 1)		$			2,092,777				1,999,497
Other assets					1,885				2,580
Total current assets					2,094,662				2,002,077
Investment properties (including acquisition fees paid to affiliates of $216,239 at March 31, 2014 and December 31, 2013) (Note 3):
Land and improvements					5,374,539				8,410,087
Total assets		$			7,469,201				10,412,164
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable		$			8,897				2,629
Accrued real estate taxes					11,797				9,280
Due to affiliates (Note 2)					10,010				9,621
Unearned income					107,660				0
Total current liabilities					138,364				21,530
Partners’ capital:
General Partner:
Capital contribution					500				500
Cumulative net income					5,351,003				5,351,241
Cumulative cash distributions					(5,335,451	)			(5,335,451)
					16,052				16,290
Limited Partners:
Units of $1,000. Authorized 30,001 Units, 29,593 Units outstanding at March 31, 2014 and December 31, 2013, (net of offering costs of $3,768,113, of which $1,069,764 was paid to affiliates)					25,873,403				25,873,403
Cumulative net income					24,921,605				27,981,164
Cumulative cash distributions					(43,480,223	)			(43,480,223)
					7,314,785				10,374,344
Total Partners’ capital					7,330,837				10,390,634
Total liabilities and Partners’ capital		$			7,469,201				10,412,164

See accompanying notes to financial statements.

 

-2-

---

INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Statements of Operations

For the three months ended March 31, 2014 and 2013

(unaudited)

 

				2014				2013
Revenues:
Rental income (Note 4)		$			35,609				36,234
Total revenues					35,609				36,234
Expenses:
Professional services to affiliates					13,279				14,346
Professional services to non-affiliates					31,173				37,331
General and administrative expenses to affiliates					5,883				4,266
General and administrative expenses to non-affiliates					8,445				17,354
Marketing expenses to affiliates					55				130
Land operating expenses to non-affiliates					3,212				2,883
Impairment loss on land					3,035,973				0
Total expenses					3,098,020				76,310
Operating loss					(3,062,411	)			(40,076)
Interest income					1,214				1,236
Other income					1,400				1,500
Net loss		$			(3,059,797	)			(37,340)
Net loss allocated to:
General Partner		$			(238	)			(373)
Limited Partners					(3,059,559	)			(36,967)
Net loss		$			(3,059,797	)			(37,340)
Net loss allocated to the one General Partner Unit		$			(238	)			(373)
Net loss per Unit, allocated to Limited Partners per weighted average   Limited Partnership Units (29,593 for the three months ended March 31,   2014 and 2013)		$			(103.39	)			(1.25)

See accompanying notes to financial statements.

 

-3-

---

INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Statements of Cash Flows

For the three months ended March 31, 2014 and 2013

(unaudited)

 

				2014				2013
Cash flows from operating activities:
Net loss		$			(3,059,797	)			(37,340)
Adjustments to reconcile net loss to net cash provided by     operating activities:
Impairment loss on land					3,035,973				0
Changes in assets and liabilities:
Other assets					695				658
Accounts payable					6,268				(5,861)
Accrued real estate taxes					2,517				1,975
Due to affiliates					389				2,011
Unearned income					107,660				109,570
Net cash provided by operating activities					93,705				71,013
Cash flows from investing activities:
Additions to investment properties					(425	)			(6,235)
Net cash used in investing activities					(425	)			(6,235)
Cash flows from financing activities:
Distributions					0				(1,106)
Net cash used in financing activities					0				(1,106)
Net increase in cash and cash equivalents					93,280				63,672
Cash and cash equivalents at beginning of period					1,999,497				2,070,810
Cash and cash equivalents at end of period		$			2,092,777				2,134,482

See accompanying notes to financial statements.

 

-4-

---

INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

March 31, 2014

(unaudited)

Readers of this quarterly report should refer to the Partnership’s audited financial statements for the fiscal year ended December 31, 2013 which are included in the Partnership’s 2013 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, L.P. (the “Partnership”), was formed in October 1987, 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. Between October 12, 1988 and October 6, 1989, the Partnership sold 30,000 Limited Partnership Units (“Units”) at $1,000 per Unit, which does not include the General Partner or the Initial Limited Partner, resulting in gross offering proceeds of $30,000,000. Inland Real Estate Investment Corporation is the General Partner. The Limited Partners of the Partnership share in their portion of benefits of ownership of the Partnership’s real property investments according to the number of Units held. Through March 31, 2014, the Partnership had repurchased a total of 407.75 Units for $359,484 from various Limited Partners through a unit repurchase program.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In the opinion of management, the financial statements contain all the adjustments necessary to present fairly the financial position and results of operations for the periods presented herein. Results of interim periods are not necessarily indicative of results to be expected for the year.

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 value. The Partnership maintains its cash and cash equivalents at a financial institution. The account balances at the financial institution periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage of $250,000 on interest bearing and non-interest bearing accounts and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Partnership believes that the risk is not significant, and the Partnership does not anticipate the financial institution’s non-performance.

The Partnership recognizes income from the sale of land parcels in accordance with the full accrual method of accounting.

The Partnership’s escrow agent holds earnest money deposits from a prospective purchaser when an agreement for sale is executed. Generally, these funds are not the Partnership’s until the closing has occurred or the buyer under the sale agreement has committed a default which would entitle the Partnership to the earnest money.

Except as described in footnote (b) under “Investment properties” on page 15, the Partnership uses the area 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. Repairs and maintenance expenses are charged to operations as incurred.

 

-5-

---

INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

March 31, 2014

(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 of $19,162 and $18,612 have been incurred and are included in professional services to affiliates and general and administrative expenses to affiliates for the three months ended March 31, 2014 and 2013, respectively, of which $9,585 and $9,621 was unpaid as of March 31, 2014 and December 31, 2013, respectively.

An affiliate of the General Partner performed 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 $55 and $130 have been incurred and are included in marketing expenses to affiliates for the three months ended March 31, 2014 and 2013, respectively, all of which was paid as of March 31, 2014 and December 31, 2013, respectively.

An affiliate of the General Partner performed activities to prepare our investment properties for sale and was reimbursed for salaries and direct costs. Such costs of $425 have been incurred for the three months ended March 31, 2014. Such costs are included in investment properties, of which $425 was unpaid as of March 31, 2014. The affiliate did not recognize a profit on any project.

As of March 31, 2014, the Partnership held all cash and cash equivalents with Inland Bank and Trust, an affiliate of the General Partner.

(3) Investment Properties

As of March 31, 2014, the Partnership owned four parcels of land consisting of approximately 491 acres. There were no land sales during the three months ended March 31, 2014.

 

(a)	Reconciliation of investment properties owned:

 

				March 31, 2014				December 31, 2013
Balance at January 1,		$			8,410,087				8,403,480
Additions during period					425				6,607
Impairment loss on land					(3,035,973	)			0
Balance at end of period,		$			5,374,539				8,410,087

 

(b)

The Partnership has taken the steps necessary to reduce costs and maintain sufficient reserves of cash and cash equivalents to cover all our costs for an extended period of time. We have farm leases in place which generate sufficient income to cover the costs of insurance expense and real estate taxes. Our remaining land is not encumbered by debt and is located in areas that we believe are in the paths of future development. During the first quarter of 2014, management formally changed its intent to hold the remaining parcels for an indefinite period of time. As a result, the Partnership records its investment properties at the lower of cost or market value as of March 31, 2014. Based on sales offers and the estimated market value of the remaining parcels, management estimates a decrease in current land value, which results in an impairment loss on land of $3,035,973 as of March 31, 2014.

 

-6-

---

INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

March 31, 2014

(unaudited)

 

In determining the value of an investment property and whether the property is impaired, management considers several indicators which require difficult, complex and/or subjective judgments, such as projected sales prices,

capital expenditures, assessment of current economic conditions and management’s intent to hold the remaining parcels until such time as reasonable and acceptable offers are received. These indicators are considered by management in determining the value of any particular property. The value of any particular property is sensitive to the actual results of any of these uncertain indicators, either individually or taken as a whole. Should the actual results differ from management’s judgment, the valuation could be negatively or positively affected.

 

The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on management’s continuous process of analyzing each property.

(4) Rental Income

The Partnership has determined that all leases relating to the farm parcels are operating leases. Accordingly, rental income is reported when earned. Farm rent is fully collected during the first quarter. As such, a portion of the farm rent is classified as unearned income. As of March 31, 2014, unearned income was $107,660.

As of March 31, 2014, the Partnership had farm leases of generally one year in duration, for approximately 425 acres of the approximately 491 acres owned.

(5) Subsequent Events

The Partnership evaluates subsequent events occurring between the most recent balance sheet date and the date that the financial statements are available to be issued in order to determine whether the subsequent events are to be recorded in and/or disclosed in the Partnership’s financial statements and footnotes. The financial statements are considered to be available to be issued at the time that they are filed with the Securities and Exchange Commission.

On April 16, 2014, the Partnership entered into a sale contract with a third party purchaser to sell the remaining acreage of Parcel 17/18/22. The contract sales price is approximately $4.2 million. Provided the buyer performs pursuant to the terms of the contract, the sale is expected to occur during the second quarter of 2014.

There are no other subsequent events to report that would have a material impact on the Partnership’s financial statements.

 

-7-

---

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 our 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, adverse changes in real estate, financing and general economic or local conditions; the ability to obtain annexation and zoning approvals required to develop our properties; the approval of local governing bodies to develop our properties; successful lobbying of local “no growth” or limited development homeowner groups; eminent domain proceedings; changes in the environmental conditions or changes in the environmental positions of governmental bodies; and potential conflicts of interest between us and our affiliates, including our general partner.

We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (SEC). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330. The SEC maintains an Internet site at (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Critical Accounting Policies

The SEC previously issued Financial Reporting Release (FRR) or FRR No. 60 “Cautionary Advice Regarding Disclosure About Critical Accounting Policies.” A critical accounting policy is one that would materially affect our operations or financial condition, and requires management to make estimates or judgments in certain circumstances. We believe that our most critical accounting policies relate to how we value, classify, and allocate costs of investment properties and revenue recognition. These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain. The purpose of the FRR is to provide investors with an understanding of how management forms these policies. Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with accounting principles generally accepted in the United States of America or GAAP. GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates. The following disclosure discusses judgments known to management pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions.

Valuation of Investment Properties - On a quarterly basis, we review impairment indicators and if necessary, conduct an impairment analysis to ensure that the carrying value of each investment property does not exceed its estimated fair value. If an investment property is considered impaired, we would be required to record an impairment loss equal to the excess of carrying value over the estimated fair value.

In determining the value of an investment property and whether the property is impaired, management considers several indicators which require difficult, complex and/or subjective judgments, such as projected sales prices, capital expenditures, assessment of current economic conditions, and management’s intent to hold the remaining parcels until such time as reasonable and acceptable offers are received. These indicators are considered by management in determining the value of any particular property. The value of any particular property is sensitive to the actual results of any of these uncertain indicators, either individually or taken as a whole. Should the actual results differ from management’s judgment, the valuation could be negatively or positively affected.

The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on management’s continuous process of analyzing each property. During the first quarter of 2014, management formally changed its intent to hold the remaining parcels for an indefinite period of time. As a result, the Partnership records its investment properties at the lower of cost or market value as of March 31, 2014. Based on sales offers and the estimated market value of the remaining parcels, management estimates a decrease in current land value which results in an impairment loss on land of $3,035,973 as of March 31, 2014.

 

-8-

---

Cost Allocation – We use the area method of cost 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.

Revenue Recognition - We recognize income from the sale of land parcels in accordance with the full accrual method of accounting.

Assets Held for Sale - In determining whether to classify an asset as held for sale, we consider whether: (i) management has committed to a plan to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii) we have initiated a program to locate a buyer; (iv) we believe that the sale of the asset is probable; (v) the due diligence period as defined in the sales agreement has expired and a closing date has been set; (vi) we are actively marketing the asset for sale at a price that is reasonable in relation to its current value; and (vii) actions required for us to complete the plan indicate that it is unlikely that any significant changes will be made to the plan.

If all of the above criteria are met, we classify the asset as held for sale. The assets and liabilities associated with those assets that are held for sale are classified separately on the balance sheets for the most recent reporting period. Additionally, the operations for the periods presented are included in the statements of operations as discontinued operations for all periods presented. As of March 31, 2014 and December 31, 2013, we have not classified any investment properties as investment property held for sale.

From time to time, we may determine that a “held for sale property” no longer meets the criteria to continue to be classified as held for sale. If this occurs, we record the property at the lower of the carrying amount before the property was classified as held for sale or the fair value at the decision date not to sell.

Liquidity and Capital Resources

Between October 12, 1988 and October 6, 1989, we sold 30,000 limited partnership units to the public at $1,000 per unit resulting in $30,000,000 in gross offering proceeds.

We used $25,187,069 of gross offering proceeds to purchase on an all-cash basis twenty-five parcels of undeveloped land and an option to purchase undeveloped land. These investments include the payment of the purchase price, acquisition fees and acquisition costs of such properties. Fourteen of the parcels were purchased during 1989 and eleven during 1990. Through March 31, 2014, we have had multiple sales transactions disposing of approximately 2,611 acres of the approximately 3,102 acres originally owned. As of March 31, 2014, cumulative distributions to the limited partners have totaled $43,480,223, which is equivalent to 145% of the original capital raised which was $30,000,000, and $5,335,451 to the general partner. Through March 31, 2014, we have used $20,317,708 of working capital for rezoning and other activities. Such amounts have been capitalized and are included in investment properties.

Our capital needs and resources will vary depending upon a number of factors, including the extent to which we conduct 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 our land, and the amount of revenue received from leasing. As of March 31, 2014, we own, in whole or in part, four of our twenty-five original parcels, the majority of which are leased to local farmers and are generating sufficient cash flow from farm leases to cover real estate taxes and insurance expense.

At March 31, 2014, we had cash and cash equivalents of $2,092,777, which is available to be used for our costs and liabilities, cash distributions to partners and other activities with respect to some or all of our land parcels.

There were no land sales for the three months ended March 31, 2014 and 2013, respectively. We believe we have taken the steps necessary to reduce costs and maintain sufficient reserves of cash and cash equivalents to cover all our costs for an extended period of time. We have farm leases in place which generate sufficient income to cover the costs of insurance expense and real estate taxes. Our remaining land is not encumbered by debt and is located in areas that we believe are in the paths of future development. As land sales occur, net sales proceeds will be used to cover our current and future operations, including land improvements and land use activities. We will evaluate our cash needs throughout the year to determine future distributions.

 

-9-

---

On April 16, 2014, the Partnership entered into a sale contract with a third party purchaser to sell the remaining acreage of Parcel 17/18/22. The contract sales price is approximately $4.2 million. Provided the buyer performs pursuant to the terms of the contract, the sale is expected to occur during the second quarter of 2014.

We continue to closely monitor the real estate market trends, especially within the areas where our remaining parcels are located. Although we have seen improvements in the residential resale real estate markets, new home starts in these middle class communities remain weak. That, coupled with strict lender requirements, continues to adversely impact sales activity, especially sales of residential lots and sales of vacant land for retail purposes. We are aware of farm parcel sales in surrounding communities from both speculators looking to hold land until the market rebounds, as well as farmers looking to increase their farming businesses. Inquiries on the Partnership’s land holdings continue to increase as evidenced by recent offers received from current farm tenants.

Transactions with Related Parties

Our general partner and its affiliates are entitled to reimbursement for salaries and expenses of their employees relating to our administration. Such costs of $19,162 and $18,612 have been incurred and are included in professional services to affiliates and general and administrative expenses to affiliates for the three months ended March 31, 2014 and 2013, respectively, of which $9,585 and $9,621 was unpaid as of March 31, 2014 and December 31, 2013, respectively.

An affiliate of our general partner performed marketing and advertising services for us and was reimbursed for direct costs. Such costs of $55 and $130 have been incurred and are included in marketing expenses to affiliates for the three months ended March 31, 2014 and 2013, respectively, all of which was paid as of March 31, 2014 and December 31, 2013, respectively.

An affiliate of the general partner performed activities to prepare our investment properties for sale and was reimbursed for salaries and direct costs. Such costs of $425 have been incurred for the three months ended March 31, 2014. Such costs are included in investment properties, of which $425 was unpaid as of March 31, 2014. The affiliate did not recognize a profit on any project.

As of March 31, 2014, the Partnership held all cash and cash equivalents with Inland Bank and Trust, an affiliate of the general partner.

Results of Operations

As of March 31, 2014, we owned four parcels of land consisting of approximately 491 acres. Of the 491 acres owned, approximately 425 acres are leased to local farmers and generate sufficient cash flow to cover real estate taxes and insurance expense. Rental income was $35,609 and $36,234 for the three months ended March 31, 2014 and 2013, respectively. Rental income decreased due to a small decrease in tillable acreage. Farm rent payments are fully collected during the first quarter. A portion of the farm rent collected is classified as unearned income of $107,660 as of March 31, 2014.

On April 16, 2014, the Partnership entered into a sale contract with a third party purchaser to sell the remaining acreage of Parcel 17/18/22. The contract sales price is approximately $4.2 million. Provided the buyer performs pursuant to the terms of the contract, the sale is expected to occur during the second quarter of 2014.

Parcel 19 previously received approval required from certain Village of McHenry municipal departments for a preliminary plan approving a 41 unit well and septic residential subdivision to be called Hunters Woods. Following the downturn in the real estate market, we sought an extension in the time limit for recording the final plat for the Hunters Woods Subdivision. The extension expired on May 5, 2011. During the first quarter of 2011, we submitted a formal request for an additional extension as allowed by the Village of McHenry. We received a response which required addressing minor storm water comments raised by the McHenry County Department of Planning and Development. These matters have been addressed in a formal response. During May 2013 we received notice of a recent policy change by the Planning and Development Committee of the County Board regarding subdivisions extensions. The Committee will no longer grant extensions to subdivisions, as had become common practice over the last five years. Instead, subdivision applicants that are currently in the final plat stage will now have the option of suspending the subdivision application for a

 

-10-

---

period of up to four years. We have accepted this option and as a result of this policy change we have until April 18, 2017 to reinitiate our request to proceed with the previously approved plan.

Professional services to affiliates and non-affiliates were $44,452 and $51,677 for the three months ended March 31, 2014 and 2013, respectively. Professional services primarily include accounting and legal fees. Professional services to affiliates and non-affiliates decreased primarily due to a decrease in accounting fees.

General and administrative expenses to affiliates and non-affiliates were $14,328 and $21,620 for the three months ended March 31, 2014 and 2013, respectively. General and administrative expenses primarily include data processing costs, postage, printing expenses and farm management fees. General and administrative expenses to affiliates and non-affiliates decreased primarily due to a decrease in printing and postage costs as a result of the mini-tender offer in 2013, as well as a decrease in farm management fees in 2014.

Marketing expenses to affiliates were $55 and $130 for the three months ended March 31, 2014 and 2013, respectively. Marketing expenses to affiliates were for signage costs and for preparing the parcels for sale.

Land operating expenses to non-affiliates were $3,212 and $2,883 for the three months ended March 31, 2014 and 2013, respectively. These costs primarily include real estate taxes and insurance. The increase is due to an increase in real estate taxes.

During the first quarter of 2014, management formally changed its intent to hold the remaining parcels for an indefinite period of time. As a result, the Partnership records its investment properties at the lower of cost or market value as of March 31, 2014. Based on sales offers and the estimated market value of the remaining parcels, management estimates a decrease in current land value, which results in an impairment loss on land of $3,035,973 as of March 31, 2014.

Interest income was $1,214 and $1,236 for the three months ended March 31, 2014 and 2013, respectively. Interest income is primarily a result of the cash available to invest on a short term basis.

Other income was $1,400 and $1,500 for the three months ended March 31, 2014 and 2013, respectively. Other income is due primarily to transfer fee income as a result of the number of completed unit transfers. The decrease is due to less transfer fee income as a result of a decrease in the number of completed unit transfers.

 

-11-

---

Investment properties

We acquired fee ownership of the following real property investments. The table below summarizes the detail activity of all the land parcels owned by the Partnership from the purchase date through the quarter ending March 31, 2014.

Investment properties activity:

 

						Gross Acres										Initial Costs												Costs Capitalized				Costs of				Total Remaining Costs of				Current Year   Gain(Loss)
				Illinois		Purchased				Purchase/Sales						Original				Acquisition				Total				Subsequent to				Property				Parcels at				on Sale
Parcel				County		(Sold)				Date						Costs				Costs				Costs				Acquisition				Sold/Impaired				3/31/14				Recognized
	1			Kendall			84.7360				01/19/89			$			423,680				61,625				485,305				5,462,589				5,947,894				0				0
							(3.5200	)			12/24/96
							(.3520	)			11/25/97
							(80.8640	)			12/29/97
	2			McHenry			223.4121				01/19/89						650,000				95,014				745,014				26,816				771,830				0				0
							(183.3759	)			12/27/90
							(40.0362	)			05/11/00
	3			Kendall			20.0000				02/09/89						189,000				13,305				202,305				0				202,305				0				0
							(20.0000	)			05/08/90
	4			Kendall			69.2760				04/18/89						508,196				38,126				546,322				1,223,376				1,769,698				0				0
							(.4860	)			02/28/91
							(27.5850	)			08/25/95
							(4.4017	)			Var 2001
							(2.1400	)			Var 2002
							(23.0933	)			Var 2003
							(6.7800	)			Var 2004
							(4.7900	)			Var 2005
	5			Kendall (a)			372.2230				05/03/89						2,532,227				135,943				2,668,170				456,398				3,124,568				0				0
							(Option	)			04/06/90
							(372.2230	)			06/20/03
	6			Kendall (b)			78.3900				06/21/89						416,783				31,691				448,474				1,461,256				1,909,730				0				0
							(3.9500	)			11/01/00
							(30.0000	)			07/12/05
							(33.4270	)			07/27/06
							(11.0130	)			08/22/07
	7			Kendall (b)			77.0490				06/21/89						84,754				8,163				92,917				1,438,727				1,531,644				0				0
							(71.2070	)			08/22/07
							(5.8420	)			03/20/08

 

-12-

---

INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Investment properties activity (continued):

 

						Gross Acres										Initial Costs												Costs Capitalized				Costs of				Total Remaining Costs of				Current Year   Gain(Loss)
				Illinois		Purchased				Purchase/Sales						Original				Acquisition				Total				Subsequent to				Property				Parcels at				on Sale
Parcel				County		(Sold)				Date						Costs				Costs				Costs				Acquisition				Sold/Impaired				3/31/14				Recognized
	8			Kendall (b)			5.0000				06/21/89			$			60,000				5,113				65,113				0				65,113				0				0
							(5.0000	)			10/06/89
	9			McHenry (b)			51.0300				08/07/89						586,845				22,482				609,327				94,784				146,176				557,935				0
	10			McHenry (b)			123.9400				08/07/89						91,939				7,224				99,163				600				99,763				0				0
							(123.9400	)			12/06/89
	11			McHenry (b)			30.5920				08/07/89						321,216				22,641				343,857				94,659				87,631				350,885				0
	12			Kendall			90.2710				10/31/89						907,389				41,908				949,297				246,964				1,196,261				0				0
							(.7090	)			04/26/91
							(89.5620	)			03/10/04
	13			McHenry			92.7800				11/07/89						251,306				19,188				270,494				18,745				289,239				0				0
							(2.0810	)			09/18/97
							(90.6990	)			02/15/01
	14			McHenry			76.2020				11/07/89						419,111				23,402				442,513				206,810				649,323				0				0
							(76.2020	)			09/13/12
	15			Lake			84.5564				01/03/90						1,056,955				85,283				1,142,238				1,661,344				2,803,582				0				0
							(10.5300	)			Var 1996
							(5.4680	)			Var 1997
							(68.5584	)			Var 1998
	16			Kane/			72.4187				01/29/90						1,273,537				55,333				1,328,870				706,718				2,035,588				0				0
				Kendall			(30.9000	)			07/10/98
							(10.3910	)			12/15/99
							(3.1000	)			12/12/00
							(28.0277	)			05/19/03
	17/18/22			McHenry			425.9360				Var 1990						3,844,632				223,856				4,068,488				2,348,907				2,550,076				3,867,319				0
							(1.0000	)			Var 1990
							(0.5200	)			03/11/93
							(27.5100	)			01/29/99
							(51.0000	)			10/02/08

 

-13-

---

INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Investment properties activity (continued):

 

						Gross Acres										Initial Costs												Costs Capitalized				Costs of				Total Remaining Costs of				Current Year   Gain(Loss)
				Illinois		Purchased				Purchase/Sales						Original				Acquisition				Total				Subsequent to				Property				Parcels at				on Sale
Parcel				County		(Sold)				Date						Costs				Costs				Costs				Acquisition				Sold/Impaired				3/31/14				Recognized
	19			McHenry			63.6915				02/23/90			$			490,158				29,158				519,316				663,244				584,160				598,400				0
	20			Kane			224.1480				02/28/90						2,749,800				183,092				2,932,892				1,938,930				4,871,822				0				0
							(.2790	)			10/17/91
							(223.8690	)			02/20/04
	21			Kendall			172.4950				03/08/90						1,327,459				75,822				1,403,281				954,415				2,357,696				0				0
							(172.4950	)			Var 1998
	23			Kendall			140.0210				05/08/90						1,480,000				116,240				1,596,240				909,395				2,505,635				0				0
							(4.4100	)			Var 1993
							(35.8800	)			Var 1994
							(3.4400	)			Var 1995
							(96.2910	)			08/26/99
	24			Kendall			298.4830				05/23/90						1,359,774				98,921				1,458,695				101,991				1,560,686				0				0
							(12.4570	)			05/25/90
							(4.6290	)			04/01/96
							(69.8200	)			11/26/02
							(211.577	)			05/04/12
	25			Kane			225.0000				06/01/90						2,600,000				168,778				2,768,778				301,040				3,069,818				0				0
							(225.0000	)			09/07/12
				Totals										$			23,624,761				1,562,308				25,187,069				20,317,708				40,130,238				5,374,539				0

 

-14-

---

(a)

Included in the purchase agreement of Parcel 5 was a condition that required the Partnership to buy an option to purchase an additional 243 acres immediately to the west of this parcel. The 1990 sale transaction relates to the sale of this option.

 

(b)

The Partnership purchased from two third parties, two sets of three contiguous parcels of land (Parcels 6, 7 and 8; and Parcels 9, 10 and 11). The General Partner believes that the total value of this land will be maximized if it is treated and marketed to buyers as six separate parcels and closed the transactions as six separate purchases to facilitate this. Parcels 6, 7 and 8 were treated as one parcel and Parcels 9, 10 and 11 will continue to be treated as one parcel for purposes of computing Parcel Capital (as defined in the Partnership Agreement) and distributions to the partners.

Subsequent Events

The Partnership evaluates subsequent events occurring between the most recent balance sheet date and the date that the financial statements are available to be issued in order to determine whether the subsequent events are to be recorded in and/or disclosed in the Partnership’s financial statements and footnotes. The financial statements are considered to be available to be issued at the time that they are filed with the Securities and Exchange Commission.

On April 16, 2014, the Partnership entered into a sale contract with a third party purchaser to sell the remaining acreage of Parcel 17/18/22. The contract sales price is approximately $4.2 million. Provided the buyer performs pursuant to the terms of the contract, the sale is expected to occur during the second quarter of 2014.

There are no other subsequent events to report that would have a material impact on the Partnership’s financial statements.

Other Items

In accordance with Article XVI Section 16.1 of the Inland Land Appreciation Fund, L.P. Partnership Agreement and Treasury Regulation Section 1.7704-1(j), we have not yet reached the maximum threshold of limited partnership units that may be transferred/assigned directly between parties during 2014. Therefore, we may authorize additional sales of partnership units directly between parties during 2014. For the benefit of interested limited partners, we have a relationship with a “qualified matching service” as defined under Treasury Regulation Section 1.7704-1(g). In accordance with this Treasury Regulation and the IRS private letter ruling obtained by the “qualified matching service”, we understand that limited partnership units may be transferred/assigned up to a separate maximum threshold each taxable year (in addition to the maximum threshold that may be transferred/assigned directly between parties discussed above). However, there can be no assurance that the IRS private letter ruling will apply to transfers of our units, or that any particular transfer will not violate the transfer restrictions contained in our partnership agreement or the provisions of Treasury Regulation Section 1.7704-1(g). If you have any interest in participating in a transfer/assignment of partnership units through this “qualified matching service,” please contact American Partnership Board directly at 800-736-9797. You are strongly encouraged to consult your personal legal, financial and tax advisors in connection with any such transfer/assignment.

The Illinois Department of Revenue regulates Illinois income tax withholding requirements for nonresident partners. We are also required to pay a withholding tax to the Internal Revenue Service with respect to a partner’s allocable share of our taxable net income, if the partner is a foreign person. We will first pay the withholding tax from the distributions to any nonresident and/or foreign partners, 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 such nonresident and/or foreign partners. There were no withholding payments necessary as of March 31, 2014.

Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments

None

 

-15-

---

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us is made known to the members of senior management and the Audit Committee.

Based on management’s evaluation as of March 31, 2014, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of March 31, 2014. This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

There were no changes to our internal controls over financial reporting during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

-16-

---

PART II - Other Information

Items 1 through 5 are omitted because of the absence of conditions under which they are required.

Item 6. Exhibits

Exhibits:

 

31.1		Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
32.1		Section 1350 Certification by Principal Executive Officer
32.2		Section 1350 Certification by Principal Financial Officer
101		The following financial information from our Quarterly Report on Form 10-Q for the three months ended March 31, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) related notes.

 

-17-

---

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.

 

 

-18-