Attached files
file | filename |
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EX-31.2 - EX-31.2 - INLAND LAND APPRECIATION FUND II LP | d907394dex312.htm |
EX-31.1 - EX-31.1 - INLAND LAND APPRECIATION FUND II LP | d907394dex311.htm |
EXCEL - IDEA: XBRL DOCUMENT - INLAND LAND APPRECIATION FUND II LP | Financial_Report.xls |
EX-32.1 - EX-32.1 - INLAND LAND APPRECIATION FUND II LP | d907394dex321.htm |
EX-32.2 - EX-32.2 - INLAND LAND APPRECIATION FUND II LP | d907394dex322.htm |
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, 2015
¨ | 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: 0-19220
Inland Land Appreciation Fund II, L.P.
(Exact name of registrant as specified in its charter)
Delaware | 36-3664407 | |
(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
(Registrants 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 II, L.P.
(a limited partnership)
Balance Sheets
March 31, 2015 and December 31, 2014
(unaudited)
Assets |
2015 | 2014 | ||||||
|
|
|||||||
Current assets: |
||||||||
Cash and cash equivalents (Note 1) |
$ | 2,351,239 | 2,282,333 | |||||
Other assets |
2,631 | 3,601 | ||||||
|
|
|||||||
Total current assets |
2,353,870 | 2,285,934 | ||||||
|
|
|||||||
Investment properties at cost (including acquisition fees paid to affiliates of $221,844 at March 31, 2015 and December 31, 2014) (Note 4): |
||||||||
Land and improvements |
11,038,701 | 11,038,345 | ||||||
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|
|||||||
Total assets |
$ | 13,392,571 | 13,324,279 | |||||
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|
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Liabilities and Partners Capital | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 20,407 | 3,250 | |||||
Accrued real estate taxes |
43,147 | 32,902 | ||||||
Due to affiliates (Note 3) |
15,226 | 11,557 | ||||||
Unearned income |
110,422 | 0 | ||||||
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|
|||||||
Total current liabilities |
189,202 | 47,709 | ||||||
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|
|||||||
Partners capital: |
||||||||
General Partner: |
||||||||
Capital contribution |
500 | 500 | ||||||
Cumulative net income |
14,072,059 | 14,072,791 | ||||||
Cumulative cash distributions |
(13,713,195 | ) | (13,713,195 | ) | ||||
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|
|||||||
359,364 | 360,096 | |||||||
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|
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Limited Partners: |
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Units of $1,000. Authorized 60,000 Units, 50,068 Units outstanding at March 31, 2015 and December 31, 2014, (net of offering costs of $7,532,439, of which $2,535,445 was paid to affiliates) |
42,559,909 | 42,559,909 | ||||||
Cumulative net income |
66,714,941 | 66,787,410 | ||||||
Cumulative cash distributions |
(96,430,845 | ) | (96,430,845 | ) | ||||
|
|
|||||||
12,844,005 | 12,916,474 | |||||||
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|
|||||||
Total Partners capital |
13,203,369 | 13,276,570 | ||||||
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|
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Total liabilities and Partners capital |
$ | 13,392,571 | 13,324,279 | |||||
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|
See accompanying notes to financial statements.
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INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Statements of Operations
For the three months ended March 31, 2015 and 2014
(unaudited)
2015 | 2014 | |||||||
|
|
|||||||
Revenues: |
||||||||
Rental income (Note 5) |
$ | 36,138 | 38,037 | |||||
|
|
|||||||
Total revenues |
36,138 | 38,037 | ||||||
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|
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Expenses: |
||||||||
Professional services to affiliates |
11,865 | 8,956 | ||||||
Professional services to non-affiliates |
66,945 | 40,167 | ||||||
General and administrative expenses to affiliates |
10,378 | 8,747 | ||||||
General and administrative expenses to non-affiliates |
10,763 | 9,879 | ||||||
Marketing expenses to affiliates |
0 | 1,076 | ||||||
Marketing expenses to non-affiliates |
0 | 300 | ||||||
Land operating expenses to affiliates |
252 | 567 | ||||||
Land operating expenses to non-affiliates |
11,216 | 7,866 | ||||||
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|
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Total expenses |
111,419 | 77,558 | ||||||
|
|
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Operating loss |
(75,281 | ) | (39,521 | ) | ||||
Interest income |
1,380 | 1,516 | ||||||
Other income |
700 | 2,000 | ||||||
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|
|||||||
Loss from continuing operations |
(73,201 | ) | (36,005 | ) | ||||
Discontinued operations (Note 2): |
||||||||
Loss from discontinued operations |
0 | (605 | ) | |||||
Gain on sale of investment property |
0 | 1,812,539 | ||||||
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|
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Income from discontinued operations |
0 | 1,811,934 | ||||||
Net income (loss) |
$ | (73,201 | ) | 1,775,929 | ||||
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Net income (loss) allocated to: |
||||||||
General Partner |
$ | (732 | ) | (366 | ) | |||
Limited Partners |
(72,469 | ) | 1,776,295 | |||||
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|
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Net income (loss) |
$ | (73,201 | ) | 1,775,929 | ||||
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Net loss allocated to the one General Partner Unit |
$ | (732 | ) | (366 | ) | |||
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|
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Net income (loss) per Unit, allocated to Limited Partners per weighted average Limited Partnership Units (50,068 for the three months ended March 31, 2015 and 2014): |
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Continuing operations |
$ | (1.45 | ) | (.71 | ) | |||
Discontinued operations |
0 | 36.19 | ||||||
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|
|||||||
$ | (1.45 | ) | 35.48 | |||||
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See accompanying notes to financial statements.
-3-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the three months ended March 31, 2015 and 2014
(unaudited)
2015 | 2014 | |||||||
|
|
|||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (73,201 | ) | 1,775,929 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities (including discontinued operations): |
||||||||
Gain on sale of investment property |
0 | (1,812,539 | ) | |||||
Changes in assets and liabilities: |
||||||||
Other assets |
970 | 1,195 | ||||||
Accounts payable |
17,157 | 9,905 | ||||||
Accrued real estate taxes |
10,245 | 1,719 | ||||||
Due to affiliates |
3,669 | (18,084 | ) | |||||
Unearned income |
110,422 | 114,528 | ||||||
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|
|
|
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Net cash provided by operating activities |
69,262 | 72,653 | ||||||
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|
|
|
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Cash flows from investing activities: |
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Additions to investment properties |
(356 | ) | (23,273 | ) | ||||
Proceeds from sale of investment property |
0 | 3,872,152 | ||||||
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|
|
|
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Net cash provided by (used in) investing activities |
(356 | ) | 3,848,879 | |||||
|
|
|
|
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Net increase in cash and cash equivalents |
68,906 | 3,921,532 | ||||||
Cash and cash equivalents at beginning of period |
2,282,333 | 2,552,882 | ||||||
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|
|
|
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Cash and cash equivalents at end of period |
$ | 2,351,239 | 6,474,414 | |||||
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|
|
|
See accompanying notes to financial statements.
-4-
INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 2015
(unaudited)
Readers of this quarterly report should refer to the Partnerships audited financial statements for the fiscal year ended December 31, 2014, which are included in the Partnerships 2014 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. Between October 25, 1989 and October 24, 1991, the Partnership sold 50,476.17 Limited Partnership Units (Units) at $1,000 per Unit resulting in gross offering proceeds of $50,476,170, not including the General Partners capital contribution of $500. The Amended and Restated Agreement of Limited Partnership (the Partnership Agreement) provides for Inland Real Estate Investment Corporation to be the General Partner. Through March 31, 2015, the Partnership had repurchased a total of 408.65 Units for $383,822 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 exceed the Federal Deposit Insurance Corporation (FDIC) insurance coverage of $250,000 on 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 institutions non-performance.
The Partnership recognizes income from the sale of land parcels in accordance with the full accrual method of accounting.
The Partnerships escrow agent holds earnest money deposits from a prospective purchaser when an agreement for sale is executed. Generally, these funds are not the Partnerships 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.
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.
Recently Issued Accounting Guidance
In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, which includes amendments that change the requirements for reporting discontinued operations and require additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations - that is, a major effect on the organizations operations and financial results - should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. Additionally, the ASU requires expanded disclosures about discontinued operations that will
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provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The guidance is effective for transactions that occur in annual periods beginning on or after December 15, 2014, and in interim periods within those years. There were no sales during the three months ended March 31, 2015. During the three months ended March 31, 2014, the Partnership sold Parcel 4, resulting in net sales proceeds of $3,872,152 and a gain on sale of $1,812,539. Sales that occurred within the three months ended March 31, 2014 are included within discontinued operations. The Partnership expects the new guidance to eliminate the reporting of discontinued operations from sales of parcels on a going forward basis.
In May 2014, the FASB issued ASU 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. The Partnership is currently evaluating the new guidance to determine the impact it will have on its financial statements.
(2) Discontinued Operations and Investment Property Held for Sale
During the three months ended March 31, 2014, the Partnership sold Parcel 4, resulting in net sales proceeds of $3,872,152 and a gain on sale of $1,812,539. The operations related to Parcel 4 for the three months ended March 31, 2014 are included in discontinued operations on the accompanying statements of operations. There were no land sales during the three months ended March 31, 2015. As of March 31, 2015 and December 31, 2014, we have not classified any investment property as held for sale.
(3) Transactions with Affiliates
The General Partner and its affiliates are entitled to reimbursement for salaries and expenses of employees of the General Partner and its affiliates relating to the administration of the Partnership. Such costs of $22,243 and $17,703 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, 2015 and 2014, respectively. There are $13,840 and $7,726 in unpaid professional services to affiliates and general and administrative expenses to affiliates as of March 31, 2015 and December 31, 2014, 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 $0 and $1,076 have been incurred and are included in marketing expenses to affiliates for the three months ended March 31, 2015 and 2014, respectively, of which $0 and $523 was unpaid as of March 31, 2015 and December 31, 2014, respectively.
An affiliate of the General Partner performed land improvements, rezoning, annexation and other activities to prepare the Partnerships investment properties for sale and was reimbursed (as set forth under terms of the Partnership Agreement) for salaries and direct costs. Such costs of $1,336 and $4,611 have been incurred for the three months ended March 31, 2015 and 2014, respectively. Such costs are included in investment properties, of which $1,336 and $3,185 was unpaid as of March 31, 2015 and December 31, 2014, respectively. Also, an affiliate of the General Partner supervises the maintenance of the parcels. Such costs of $252 and $567 are included in land operating expenses to affiliates for the three months ended March 31, 2015 and 2014, respectively, of which $50 and $123 was unpaid as of March 31, 2015 and December 31, 2014, respectively.
As of March 31, 2015, the Partnership held all cash and cash equivalents with Inland Bank and Trust, an affiliate of the General Partner.
(4) Investment Properties
As of March 31, 2015, the Partnership owned two parcels of land consisting of approximately 544 acres.
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(a) | The Partnership has taken the steps necessary to reduce costs and maintain sufficient reserves of cash and cash equivalents to cover all 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 such, the Partnership has the ability and management has the intent to hold on to the remaining parcels until such time as reasonable and acceptable offers are received. In addition, on a quarterly basis, the Partnership reviews impairment indicators and if necessary, conducts an impairment analysis to ensure that the carrying value of each investment property does not exceed its estimated fair value. If this were to occur, the Partnership would be required to record an impairment loss equal to the excess of the 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 managements intent to hold on to a property until such time as reasonable and acceptable offers are received. The aforementioned 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 managements 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 managements continuous process of analyzing each property. For the three months ended March 31, 2015 and 2014, respectively, the Partnership had recorded no such impairment.
(b) | Reconciliation of investment properties owned: |
March 31, 2015 |
December 31, 2014 |
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|
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Balance at January 1, |
$ | 11,038,345 | 13,044,616 | |||||
Additions during period |
356 | 53,342 | ||||||
Sales during period |
0 | (2,059,613 | ) | |||||
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|
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Balance at end of period, |
$ | 11,038,701 | 11,038,345 | |||||
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(5) 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, 2015, unearned income was $110,422.
As of March 31, 2015, the Partnership had farm leases of generally one year in duration, for approximately 426 acres of the approximately 544 acres owned.
(6) Litigation
On or about December 16, 2011, the Partnership received service of a Third Party Complaint filed by Bond Safeguard Insurance Company (Bond) against the Partnership and Inland Real Estate Investment Corporation along with six other third party defendants. The lawsuit has been brought in the Circuit Court of the Sixteenth Judicial Circuit in Kane County, Illinois (the Lawsuit). In the Lawsuit, the County of Kane (the County) alleges that B&B Enterprises and/or Blackberry Creek Development Corporation (collectively B&B) are responsible for the relocation of approximately twenty-three power poles at an alleged cost of $819,740. Alternatively, the County alleges that either Bond or Commonwealth Edison Company (ComEd) is responsible for the cost of the pole relocation. On November 23, 2011, Bond filed an Answer denying the Countys allegations and has pled five affirmative defenses. The affirmative defenses generally allege that the bond did not cover the pole relocation, that only one pole needs to be relocated at significantly less cost, and alternatively, that ComEd is responsible for any pole relocation costs. As alternative relief, Bond filed a Counterclaim against B&B and ComEd and a Third Party Complaint against the Partnership and four individuals (the Individuals) contending that, if Bond is deemed responsible for or settles the Countys allegations, then B&B, the
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Partnership, and/or the Individuals bear some or all of this responsibility under a General Agreement of Indemnity. Bond also seeks its attorneys fees based on such General Agreement of Indemnity.
On February 21, 2012, the Partnership filed an Answer and Affirmative Defenses denying the material allegations asserted by Bond. Bond has not replied to the Affirmative Defenses. The County has served discovery requests to B&B, Bond and ComEd. Bond has served discovery requests on the County. The County has produced a limited amount of documents and provided interrogatory responses to Bond which have been provided to us. ComEd produced limited documents and responses in March 2013 and produced additional documents in June 2013 following entry of a protective order. The Countys counsel previously informed counsel for the other parties that between five and eight of the poles at issue have been moved by ComEd as part of a different project. Thus, these poles were not expected to be a continued issue in this case. In October 2014, the Countys counsel informed counsel for the other parties that seven of these poles were only partially removed by ComEd as part of the different project. The County has not yet indicated whether it will pursue removal of these seven partial poles as part of this lawsuit. Thus, the number of poles at issue remains under investigation and may be subject to further dispute.
On April 10, 2015, Bond filed a Motion for Summary Judgment (the Motion) against the County seeking the dismissal with prejudice of the sole count alleged against Bond. Dismissal of the Countys complaint against Bond would result in the dismissal of Bonds Third Party Complaint against the Partnership, and thus, the Partnership co-filed the Motion. The Countys response to the Motion was due on May 1, 2015. The next status hearing will be held on May 21, 2015.
The investigation of the claims and defenses in the Lawsuit is ongoing. It is not possible at this time to evaluate the likelihood of an outcome. For this same reason, any effort to estimate the range of potential loss is limited, other than $0 (based on a judgment in favor of the Partnership), to the approximately $819,740 alleged by the County in its Complaint for the relocation of the poles plus Bonds allegations for attorneys fees.
(7) 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 Partnerships 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. There are no subsequent events to report that would have a material impact on the Partnerships financial statements.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Managements 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 SECs 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 our 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 managements 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 managements 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 managements continuous process of analyzing each property. For the three months ended March 31, 2015 and 2014, respectively, there were no impairments recorded. Subsequent costs incurred above the estimated fair value for any parcels that may be deemed to be impaired will be expensed and included in land operating expenses.
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.
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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 per 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.
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. As of March 31, 2015 and December 31, 2014, we have not classified any investment property as held for sale.
Liquidity and Capital Resources
Between October 25, 1989 and October 24, 1991, we sold 50,476.17 limited partnership units to the public at $1,000 per unit resulting in $50,476,170 in gross offering proceeds, not including the general partners capital contribution of $500.
We 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. On September 16, 2002, we completed a tax-deferred exchange of Parcels 9 and 12 for 50 acres in Kendall County (Parcel 28). Through March 31, 2015, we have had multiple sales, exchange transactions, and conveyances through which we have disposed of the buildings and approximately 3,986 acres of the approximately 4,530 acres originally owned. As of March 31, 2015, cumulative distributions have totaled $96,430,845 to the limited partners, which is equivalent to 191% of the original capital raised which was $50,476,170, and $13,713,195 to the general partner. Of the $96,430,845 distributed to the limited partners, $95,709,845 was net sales proceeds and $721,000 was from operations. As of March 31, 2015, we have used $47,478,957 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, 2015, we own in part, two parcels, consisting of approximately 544 acres of which 426 are leased to local farmers and are generating sufficient cash flow from leases to cover real estate taxes and insurance expense.
During the three months ended March 31, 2015, there were no land sales. During the three months ended March 31, 2014, we sold Parcel 4, resulting in net sales proceeds of $3,872,152 and a gain on sale of $1,812,539. Net sales proceeds, including previously undistributed net sales proceeds, will be used to fund our operations including land improvements and land use activities.
At March 31, 2015, we had cash and cash equivalents of $2,351,239. The remaining cash balance is available to be used for our costs and liabilities and other activities with respect to our two remaining land parcels. We will evaluate our cash needs during the upcoming year to determine any future distributions.
We continue to closely monitor the real estate market trends, especially within the areas where our remaining parcels are located. We have seen continued improvements in the residential real estate market including new construction with national homebuilders entering back into the marketplace. There have been 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. We believe we have taken the steps necessary to reduce costs and maintain sufficient reserves of cash and
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cash equivalents to cover all our costs for an extended period of time as we continue to market the remaining parcels for sale. 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 such, the Partnership has the ability and management has the intent to hold on to the remaining parcels until such time as reasonable and acceptable offers are received.
Transactions with Related Parties
Our general partner and its affiliates are entitled to reimbursement for salaries and expenses of employees of the general partner and its affiliates relating to our administration. Such costs of $22,243 and $17,703 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, 2015 and 2014, respectively. There are $13,840 and $7,726 in unpaid professional services to affiliates and general and administrative expenses to affiliates as of March 31, 2015 and December 31, 2014, respectively.
An affiliate of our general partner performed marketing and advertising services for us and was reimbursed for direct costs. Such costs of $0 and $1,076 have been incurred and are included in marketing expenses to affiliates for the three months ended March 31, 2015 and 2014, respectively, of which $0 and $523 was unpaid as of March 31, 2015 and December 31, 2014, respectively.
An affiliate of the general partner performed land improvements, rezoning, annexation and other activities to prepare the Partnerships investment properties for sale and was reimbursed (as set forth under terms of the Partnership Agreement) for salaries and direct costs. Such costs of $1,336 and $4,611 have been incurred for the three months ended March 31, 2015 and 2014, respectively. Such costs are included in investment properties, of which $1,336 and $3,185 was unpaid as of March 31, 2015 and December 31, 2014, respectively. Also, an affiliate of the general partner supervises the maintenance of the parcels. Such costs of $252 and $567 are included in land operating expenses to affiliates for the three months ended March 31, 2015 and December 31, 2014, respectively, of which $50 and $123 was unpaid as of March 31, 2015 and December 31, 2014, respectively. The affiliate did not recognize a profit on any project.
As of March 31, 2015, 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, 2015, we owned two parcels of land consisting of approximately 544 acres. Of the approximately 544 acres owned, 426 acres are tillable, leased to local farmers and generate sufficient cash flow to cover real estate taxes and insurance expense. Rental income was $36,138 and $38,037 for the three months ended March 31, 2015 and 2014, respectively. 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, 2015, unearned income was $110,422. Rental income for 2015 decreased due to slightly lower lease rates.
Professional services to affiliates and non-affiliates were $78,810 and $49,123 for the three months ended March 31, 2015 and 2014, respectively. Professional services to affiliates and non-affiliates include accounting and legal services. The increase is due primarily to an increase in legal fees due to the litigation described above and due to the timing of provided accounting services.
General and administrative expenses to affiliates and non-affiliates were $21,141 and $18,626 for the three months ended March 31, 2015 and 2014, respectively. General and administrative expenses include data processing costs, postage, printing expenses, farm management fees and investor services. The increase is due primarily to an increase in investor services.
Marketing expenses to affiliates and non-affiliates were $0 and $1,376 for the three months ended March 31, 2015 and 2014, respectively. Marketing expenses are costs incurred for preparing and marketing parcels for sale. The marketing expenses in 2014 were due to internet advertising costs.
Land operating expenses to affiliates and non-affiliates were $11,468 and $8,433 for the three months ended March 31, 2015 and 2014, respectively. These costs typically include real estate tax expense and insurance. The increase is due to an increase in real estate taxes.
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Interest income was $1,380 and $1,516 for the three months ended March 31, 2015 and 2014, respectively. Interest income is primarily a result of cash available to invest on a short term basis during the year as a result of sales proceeds received.
Other income was $700 and $2,000 for the three months ended March 31, 2015 and 2014, respectively. Other income is due primarily to transfer fee income as a result of the number of completed unit transfers. The decrease in 2015 is due to less transfer fee income as a result of a decreased number of completed unit transfers.
Loss from discontinued operations was $0 and $605 for the three months ended March 31, 2015 and 2014, respectively. Included in loss from discontinued operations are the rental income, insurance, real estate taxes, and land operating expenses pertaining to sold parcels.
There were no land sales for the three months ended March 31, 2015. For the three months ended March 31, 2014, the operations pertaining to Parcel 4 are included in loss from discontinued operations. The gain on sale of investment property for the three months ended March 31, 2014 of $1,812,539 is due to the sale of Parcel 4 on March 14, 2014.
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Investment Properties
We acquired fee ownership of the following real property investments. The following table summarizes the detail activity of all the parcels owned by the Partnership from the purchase date through the three months ended March 31, 2015.
Investment properties activity:
Gross Acres | Initial Costs | Costs Capitalized |
Costs of | Total Remaining Costs of |
2015 Gain | |||||||||||||||||||||||||||||||
Parcel | Illinois | Purchased | Purchase/Sales | Original | Acquisition | Total | Subsequent to | Property | Parcels at | on Sale | ||||||||||||||||||||||||||
# | County | (Sold) | Date | Costs | Costs | Costs | Acquisition | Sold/Impaired | 03/31/15 | Recognized | ||||||||||||||||||||||||||
1 |
McHenry | 372.7590 | 04/25/90 | $ | 2,114,295 | 114,070 | 2,228,365 | 630,703 | 2,859,068 | 0 | 0 | |||||||||||||||||||||||||
(372.7590 | ) | 02/23/04 | ||||||||||||||||||||||||||||||||||
2 |
Kendall | 41.1180 | 07/06/90 | 549,639 | 43,889 | 593,528 | 75,199 | 668,727 | 0 | 0 | ||||||||||||||||||||||||||
(3.4730 | ) | 08/29/03 | ||||||||||||||||||||||||||||||||||
(37.6450 | ) | 02/17/05 | ||||||||||||||||||||||||||||||||||
3/27 |
Kendall | 120.8170 | 11/06/90 | 2,591,268 | 156,709 | 2,747,977 | 9,880,850 | 12,628,827 | 0 | 0 | ||||||||||||||||||||||||||
83.5250 | 03/11/93 | |||||||||||||||||||||||||||||||||||
(3.3900 | ) | 05/17/05 | ||||||||||||||||||||||||||||||||||
(31.0000 | ) | 07/14/05 | ||||||||||||||||||||||||||||||||||
(74.7000 | ) | Var 2006 | ||||||||||||||||||||||||||||||||||
(36.8500 | ) | Var 2007 | ||||||||||||||||||||||||||||||||||
(6.6000 | ) | Var 2008 | ||||||||||||||||||||||||||||||||||
(36.1262 | ) | Var 2009 | ||||||||||||||||||||||||||||||||||
(1.7230 | ) | 06/25/10 | ||||||||||||||||||||||||||||||||||
(3.1200 | ) | 12/28/10 | ||||||||||||||||||||||||||||||||||
(10.8328 | ) | 06/10/13 | ||||||||||||||||||||||||||||||||||
4 |
Kendall | 299.0250 | 06/28/91 | 1,442,059 | 77,804 | 1,519,863 | 539,750 | 2,059,613 | 0 | 0 | ||||||||||||||||||||||||||
(299.0250 | ) | 03/14/14 | ||||||||||||||||||||||||||||||||||
5 |
Kane | 189.0468 | 02/28/91 | 1,954,629 | 94,569 | 2,049,198 | 349,845 | 2,399,043 | 0 | 0 | ||||||||||||||||||||||||||
(189.0468 | ) | 05/16/01 | ||||||||||||||||||||||||||||||||||
6 |
Lake | 57.3345 | 04/16/91 | 904,337 | 71,199 | 975,536 | 55,628 | 1,031,164 | 0 | 0 | ||||||||||||||||||||||||||
(.2580 | ) | 10/01/94 | ||||||||||||||||||||||||||||||||||
(57.0765 | ) | 03/22/07 | ||||||||||||||||||||||||||||||||||
7 |
McHenry | 56.7094 | 04/22/91 | 680,513 | 44,444 | 724,957 | 3,210,451 | 3,935,408 | 0 | 0 | ||||||||||||||||||||||||||
(12.6506 | ) | Var 1997 | ||||||||||||||||||||||||||||||||||
(15.7041 | ) | Var 1998 | ||||||||||||||||||||||||||||||||||
(19.6296 | ) | Var 1999 | ||||||||||||||||||||||||||||||||||
(8.7251 | ) | Var 2000 | ||||||||||||||||||||||||||||||||||
8 |
Kane | 325.3940 | 06/14/91 | 3,496,700 | 262,275 | 3,758,975 | 79,248 | 1,909,034 | 1,929,189 | 0 | ||||||||||||||||||||||||||
(.8700 | ) | 04/03/96 | ||||||||||||||||||||||||||||||||||
(63.0000 | ) | 01/23/01 | ||||||||||||||||||||||||||||||||||
(80.0000 | ) | 05/11/04 |
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Investment properties activity (continued):
Gross Acres | Initial Costs | Costs Capitalized |
Costs of | Total Remaining Costs of |
2015 Gain | |||||||||||||||||||||||||||||||
Parcel | Illinois | Purchased | Purchase/Sales | Original | Acquisition | Total | Subsequent to | Property | Parcels at | on Sale | ||||||||||||||||||||||||||
# | County | (Sold) | Date | Costs | Costs | Costs | Acquisition | Sold/Impaired | 03/31/15 | Recognized | ||||||||||||||||||||||||||
9 (c) |
Will | 9.8670 | 08/13/91 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
(9.8670 | ) | 09/16/02 | ||||||||||||||||||||||||||||||||||
10 |
Will | 150.6600 | 08/20/91 | 1,866,716 | 89,333 | 1,956,049 | 23,897 | 1,979,946 | 0 | 0 | ||||||||||||||||||||||||||
(150.6600 | ) | 01/10/05 | ||||||||||||||||||||||||||||||||||
11 |
Will | 138.4470 | 08/20/91 | 289,914 | 20,376 | 310,290 | 2,700 | 312,990 | 0 | 0 | ||||||||||||||||||||||||||
(138.4470 | ) | 05/03/93 | ||||||||||||||||||||||||||||||||||
12 (c) |
Will | 44.7320 | 08/20/91 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||
(44.7320 | ) | 09/16/02 | ||||||||||||||||||||||||||||||||||
13 |
Will | 6.3420 | 09/23/91 | 139,524 | 172 | 139,696 | 0 | 139,696 | 0 | 0 | ||||||||||||||||||||||||||
(6.3420 | ) | 05/03/93 | ||||||||||||||||||||||||||||||||||
14 |
Kendall | 44.4030 | 09/03/91 | 888,060 | 68,210 | 956,270 | 1,259,583 | 2,215,853 | 0 | 0 | ||||||||||||||||||||||||||
(15.3920 | ) | 04/16/01 | ||||||||||||||||||||||||||||||||||
(14.2110 | ) | Var 2002 | ||||||||||||||||||||||||||||||||||
(13.6000 | ) | 04/11/03 | ||||||||||||||||||||||||||||||||||
(1.2000 | ) | 02/19/04 | ||||||||||||||||||||||||||||||||||
15 |
Kendall | 100.3640 | 09/04/91 | 1,050,000 | 52,694 | 1,102,694 | 117,829 | 1,220,523 | 0 | 0 | ||||||||||||||||||||||||||
(5.0000 | ) | 09/01/93 | ||||||||||||||||||||||||||||||||||
(11.0000 | ) | 12/01/94 | ||||||||||||||||||||||||||||||||||
(84.3640 | ) | 08/14/98 | ||||||||||||||||||||||||||||||||||
16 |
McHenry | 168.9050 | 09/13/91 | 1,402,058 | 69,731 | 1,471,789 | 97,766 | 1,569,555 | 0 | 0 | ||||||||||||||||||||||||||
(168.9050 | ) | 08/03/01 | ||||||||||||||||||||||||||||||||||
17 |
Kendall | 3.4620 | 10/30/91 | 435,000 | 22,326 | 457,326 | 113,135 | 570,461 | 0 | 0 | ||||||||||||||||||||||||||
(2.1130 | ) | 03/06/01 | ||||||||||||||||||||||||||||||||||
(1.3490 | ) | 08/23/02 |
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Investment properties activity (continued):
Gross Acres | Initial Costs | Costs Capitalized |
Costs of | Total Remaining Costs of |
2015 Gain | |||||||||||||||||||||||||||||||
Parcel | Illinois | Purchased | Purchase/Sales | Original | Acquisition | Total | Subsequent to | Property | Parcels at | on Sale | ||||||||||||||||||||||||||
# | County | (Sold) | Date | Costs | Costs | Costs | Acquisition | Sold/Impaired | 03/31/15 | Recognized | ||||||||||||||||||||||||||
18 |
McHenry | 139.1697 | 11/07/91 | $ | 1,160,301 | 58,190 | 1,218,491 | 9,456,992 | 10,675,483 | 0 | 0 | |||||||||||||||||||||||||
(9.2500 | ) | Var 2004 | ||||||||||||||||||||||||||||||||||
(33.3197 | ) | Var 2005 | ||||||||||||||||||||||||||||||||||
(62.0200 | ) | Var 2006 | ||||||||||||||||||||||||||||||||||
(12.8800 | ) | Var 2007 | ||||||||||||||||||||||||||||||||||
(2.2400 | ) | Var 2008 | ||||||||||||||||||||||||||||||||||
.2188 | 03/02/11 | |||||||||||||||||||||||||||||||||||
(19.6788 | ) | 11/18/13 | ||||||||||||||||||||||||||||||||||
19 |
Kane | 436.2360 | 12/13/91 | 4,362,360 | 321,250 | 4,683,610 | 187,211 | 4,870,821 | 0 | 0 | ||||||||||||||||||||||||||
(436.2360 | ) | 05/16/01 | ||||||||||||||||||||||||||||||||||
20 |
Kane & | |||||||||||||||||||||||||||||||||||
Kendall | 400.1290 | 01/31/92 | 1,692,623 | 101,318 | 1,793,941 | 9,505,846 | 2,190,275 | 9,109,512 | 0 | |||||||||||||||||||||||||||
(21.1380 | ) | 06/30/99 | ||||||||||||||||||||||||||||||||||
(7.0000 | ) | 07/21/08 | ||||||||||||||||||||||||||||||||||
(3.1085 | ) | 03/21/11 | ||||||||||||||||||||||||||||||||||
(4.0770 | ) | 09/19/12 | ||||||||||||||||||||||||||||||||||
(2.3160 | ) | 08/16/13 | ||||||||||||||||||||||||||||||||||
21 |
Kendall | 15.0130 | 05/26/92 | 250,000 | 23,844 | 273,844 | 43,063 | 316,907 | 0 | 0 | ||||||||||||||||||||||||||
(1.0000 | ) | 03/16/99 | ||||||||||||||||||||||||||||||||||
(14.0130 | ) | 09/06/06 | ||||||||||||||||||||||||||||||||||
22 |
Kendall | 391.9590 | 10/30/92 | 3,870,000 | 283,186 | 4,153,186 | 1,763,629 | 5,916,815 | 0 | 0 | ||||||||||||||||||||||||||
(10.0000 | ) | 01/06/94 | ||||||||||||||||||||||||||||||||||
(5.5380 | ) | 01/05/96 | ||||||||||||||||||||||||||||||||||
(2.4000 | ) | 07/27/99 | ||||||||||||||||||||||||||||||||||
(73.3950 | ) | Var 2001 | ||||||||||||||||||||||||||||||||||
(136.0000 | ) | 08/14/02 | ||||||||||||||||||||||||||||||||||
(34.1400 | ) | 05/27/03 | ||||||||||||||||||||||||||||||||||
(101.4900 | ) | 01/09/04 | ||||||||||||||||||||||||||||||||||
(28.9960 | ) | 11/13/13 |
-15-
Investment properties activity (continued):
Gross Acres | Initial Costs | Costs Capitalized |
Costs of | Total Remaining Costs of |
2015 Gain | |||||||||||||||||||||||||||||||
Parcel | Illinois | Purchased | Purchase/Sales | Original | Acquisition | Total | Subsequent to | Property | Parcels at | on Sale | ||||||||||||||||||||||||||
# | County | (Sold) | Date | Costs | Costs | Costs | Acquisition | Sold/Impaired | 03/31/15 | Recognized | ||||||||||||||||||||||||||
23 |
Kendall | 133.2074 | 10/30/92 | $ | 3,231,942 | 251,373 | 3,483,315 | 4,665,998 | 8,149,313 | 0 | 0 | |||||||||||||||||||||||||
(11.5250 | ) | 07/16/93 | ||||||||||||||||||||||||||||||||||
(44.0700 | ) | Var 1995 | ||||||||||||||||||||||||||||||||||
(8.2500 | ) | Var 1996 | ||||||||||||||||||||||||||||||||||
(2.6100 | ) | Var 1997 | ||||||||||||||||||||||||||||||||||
(10.6624 | ) | Var 1998 | ||||||||||||||||||||||||||||||||||
(5.8752 | ) | Var 1999 | ||||||||||||||||||||||||||||||||||
(49.0120 | ) | Var 2000 | ||||||||||||||||||||||||||||||||||
(.2028 | ) | Var 2001 | ||||||||||||||||||||||||||||||||||
(1.0000 | ) | Var 2002 | ||||||||||||||||||||||||||||||||||
23A(a) |
Kendall | .2676 | 10/30/92 | 170,072 | 12,641 | 182,713 | 0 | 182,713 | 0 | 0 | ||||||||||||||||||||||||||
(.2676 | ) | 03/16/93 | ||||||||||||||||||||||||||||||||||
24 |
Kendall | 3.9080 | 01/21/93 | 645,000 | 56,316 | 701,316 | 30,436 | 731,752 | 0 | 0 | ||||||||||||||||||||||||||
(3.9080 | ) | 04/16/01 | ||||||||||||||||||||||||||||||||||
24A(b) |
Kendall | .4060 | 01/21/93 | 155,000 | 13,533 | 168,533 | 0 | 168,533 | 0 | 0 | ||||||||||||||||||||||||||
(.4060 | ) | 04/16/01 | ||||||||||||||||||||||||||||||||||
25 |
Kendall | 656.6870 | 01/28/93 | 1,625,000 | 82,536 | 1,707,536 | 22,673 | 1,730,209 | 0 | 0 | ||||||||||||||||||||||||||
(656.6870 | ) | 10/31/95 | ||||||||||||||||||||||||||||||||||
26 |
Kane | 89.5110 | 03/10/93 | 1,181,555 | 89,312 | 1,270,867 | 5,135,895 | 6,406,762 | 0 | 0 | ||||||||||||||||||||||||||
(2.1080 | ) | Var 1999 | ||||||||||||||||||||||||||||||||||
(34.2550 | ) | Var 2000 | ||||||||||||||||||||||||||||||||||
(7.8000 | ) | Var 2001 | ||||||||||||||||||||||||||||||||||
(29.1200 | ) | Var 2002 | ||||||||||||||||||||||||||||||||||
(11.3100 | ) | Var 2003 | ||||||||||||||||||||||||||||||||||
(4.9180 | ) | 01/28/04 | ||||||||||||||||||||||||||||||||||
28 (c) |
Kendall | 50.0000 | 09/16/02 | 661,460 | 22,976 | 684,436 | 230,630 | 915,066 | 0 | 0 | ||||||||||||||||||||||||||
(50.0000 | ) | 04/17/12 | ||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
$ | 38,810,025 | 2,504,276 | 41,314,301 | 47,478,957 | 77,754,557 | 11,038,701 | 0 | |||||||||||||||||||||||||||||
|
|
-16-
(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. The building was sold in 2001. |
(c) | On September 16, 2002, the Partnership completed a tax-deferred exchange of Parcels 9 and 12 for 50 acres in Kendall County (Parcel 28). |
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 Partnerships financial statements and footnotes. The financial statements are considered to be available to be issued at the time that they are filed with the SEC. There are no subsequent events to report that would have a material impact on the Partnerships financial statements.
Other Items
In accordance with Article XVI Section 16.1 of the Inland Land Appreciation Fund II, L.P. Partnership Agreement and Treasury Regulation Section 1.7704-1(j), we have not reached the maximum threshold of limited partnership units that may be transferred/assigned directly between parties during 2015. Therefore, we may authorize additional sales of partnership units directly between parties during 2015. 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. Payment of the required withholding amount of $46,811 was made to the Illinois Department of Revenue in April 2015. We are also required to pay a withholding tax to the Internal Revenue Service with respect to a partners 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. For the three months ended March 31, 2015 and 2014, respectively, there were no withholdings paid.
Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments
None
Litigation
On or about December 16, 2011, the Partnership received service of a Third Party Complaint filed by Bond Safeguard Insurance Company (Bond) against the Partnership and Inland Real Estate Investment Corporation along with six other third party defendants. The lawsuit has been brought in the Circuit Court of the Sixteenth Judicial Circuit in Kane County, Illinois (the Lawsuit). In the Lawsuit, the County of Kane (the County) alleges that B&B Enterprises and/or Blackberry Creek Development Corporation (collectively B&B) are responsible for the relocation of approximately twenty-three power poles at an alleged cost of $819,740. Alternatively, the County alleges that either Bond or Commonwealth Edison Company (ComEd) is responsible for the cost of the pole relocation. On November 23, 2011, Bond filed an Answer denying the Countys allegations and has pled five affirmative defenses. The affirmative defenses
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generally allege that the bond did not cover the pole relocation, that only one pole needs to be relocated at significantly less cost, and alternatively, that ComEd is responsible for any pole relocation costs. As alternative relief, Bond filed a Counterclaim against B&B and ComEd and a Third Party Complaint against the Partnership and four individuals (the Individuals) contending that, if Bond is deemed responsible for or settles the Countys allegations, then B&B, the Partnership, and/or the Individuals bear some or all of this responsibility under a General Agreement of Indemnity. Bond also seeks its attorneys fees based on such General Agreement of Indemnity.
On February 21, 2012, the Partnership filed an Answer and Affirmative Defenses denying the material allegations asserted by Bond. Bond has not replied to the Affirmative Defenses. The County has served discovery requests to B&B, Bond and ComEd. Bond has served discovery requests on the County. The County has produced a limited amount of documents and provided interrogatory responses to Bond which have been provided to us. ComEd produced limited documents and responses in March 2013 and produced additional documents in June 2013 following entry of a protective order. The Countys counsel previously informed counsel for the other parties that between five and eight of the poles at issue have been moved by ComEd as part of a different project. Thus, these poles were not expected to be a continued issue in this case. In October 2014, the Countys counsel informed counsel for the other parties that seven of these poles were only partially removed by ComEd as part of the different project. The County has not yet indicated whether it will pursue removal of these seven partial poles as part of this lawsuit. Thus, the number of poles at issue remains under investigation and may be subject to further dispute.
On April 10, 2015, Bond filed a Motion for Summary Judgment (the Motion) against the County seeking the dismissal with prejudice of the sole count alleged against Bond. Dismissal of the Countys complaint against Bond would result in the dismissal of Bonds Third Party Complaint against the Partnership, and thus, the Partnership co-filed the Motion. The Countys response to the Motion was due on May 1, 2015. The next status hearing will be held on May 21, 2015.
The investigation of the claims and defenses in the Lawsuit is ongoing. It is not possible at this time to evaluate the likelihood of an outcome. For this same reason, any effort to estimate the range of potential loss is limited, other than $0 (based on a judgment in favor of the Partnership), to the approximately $819,740 alleged by the County in its Complaint for the relocation of the poles plus Bonds allegations for attorneys fees.
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 managements evaluation as of March 31, 2015, 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 SECs rules and forms.
Managements 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 (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (1992), our management concluded that our internal control over financial reporting was effective as of March 31, 2015. This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
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There were no changes to our internal controls over financial reporting during the three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II Other Information
Item 1. Legal Proceedings
On or about December 16, 2011, the Partnership received service of a Third Party Complaint filed by Bond Safeguard Insurance Company (Bond) against the Partnership and Inland Real Estate Investment Corporation along with six other third party defendants. The lawsuit has been brought in the Circuit Court of the Sixteenth Judicial Circuit in Kane County, Illinois (the Lawsuit). In the Lawsuit, the County of Kane (the County) alleges that B&B Enterprises and/or Blackberry Creek Development Corporation (collectively B&B) are responsible for the relocation of approximately twenty-three power poles at an alleged cost of $819,740. Alternatively, the County alleges that either Bond or Commonwealth Edison Company (ComEd) is responsible for the cost of the pole relocation. On November 23, 2011, Bond filed an Answer denying the Countys allegations and has pled five affirmative defenses. The affirmative defenses generally allege that the bond did not cover the pole relocation, that only one pole needs to be relocated at significantly less cost, and alternatively, that ComEd is responsible for any pole relocation costs. As alternative relief, Bond filed a Counterclaim against B&B and ComEd and a Third Party Complaint against the Partnership and four individuals (the Individuals) contending that, if Bond is deemed responsible for or settles the Countys allegations, then B&B, the Partnership, and/or the Individuals bear some or all of this responsibility under a General Agreement of Indemnity. Bond also seeks its attorneys fees based on such General Agreement of Indemnity.
On February 21, 2012, the Partnership filed an Answer and Affirmative Defenses denying the material allegations asserted by Bond. Bond has not replied to the Affirmative Defenses. The County has served discovery requests to B&B, Bond and ComEd. Bond has served discovery requests on the County. The County has produced a limited amount of documents and provided interrogatory responses to Bond which have been provided to us. ComEd produced limited documents and responses in March 2013 and produced additional documents in June 2013 following entry of a protective order. The Countys counsel previously informed counsel for the other parties that between five and eight of the poles at issue have been moved by ComEd as part of a different project. Thus, these poles were not expected to be a continued issue in this case. In October 2014, the Countys counsel informed counsel for the other parties that seven of these poles were only partially removed by ComEd as part of the different project. The County has not yet indicated whether it will pursue removal of these seven partial poles as part of this lawsuit. Thus, the number of poles at issue remains under investigation and may be subject to further dispute.
On April 10, 2015, Bond filed a Motion for Summary Judgment (the Motion) against the County seeking the dismissal with prejudice of the sole count alleged against Bond. Dismissal of the Countys complaint against Bond would result in the dismissal of Bonds Third Party Complaint against the Partnership, and thus, the Partnership co-filed the Motion. The Countys response to the Motion was due on May 1, 2015. The next status hearing will be held on May 21, 2015.
The investigation of the claims and defenses in the Lawsuit is ongoing. It is not possible at this time to evaluate the likelihood of an outcome. For this same reason, any effort to estimate the range of potential loss is limited, other than $0 (based on a judgment in favor of the Partnership), to the approximately $819,740 alleged by the County in its Complaint for the relocation of the poles plus Bonds allegations for attorneys fees.
Items 2 through 5 are omitted because of the absence of conditions under which they are required.
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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, 2015 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. |
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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 | |
Its: | General Partner | |
By: | /S/ GUADALUPE GRIFFIN | |
By: | Guadalupe Griffin | |
Its: | Senior Vice President and Principal Executive Officer of the Partnership | |
Date: | May 8, 2015 | |
By: | /S/ DONNA URBAIN | |
By: | Donna Urbain | |
Its: | Principal Financial Officer of the Partnership | |
Date: | May 8, 2015 |
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