UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission file number 0-19198
FIRST DEARBORN INCOME PROPERTIES L.P. II
(Exact name of registrant as specified in its charter)
Delaware 36-3591517
(State of organization) (IRS Employer Identification No.)
154 West Hubbard Street, Suite 250, Chicago, IL 60610
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 464-0100
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 ____
Units outstanding as of September 30, 1996: 10,000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Balance Sheets
September 30, 1996 and December 31, 1995
(Unaudited)
Assets
September 30, December 31,
1996 1995
Current assets:
Cash and cash equivalents (note 1) 578,955 353,531
Rents and other receivables 268,069 289,393
Due from affiliates 4,814 6,999
Prepaid expense 1,205 21,556
Total current assets 853,043 671,479
Investment property, at cost (note 1):
Land 1,201,880 1,201,880
Building 8,350,456 8,336,918
9,552,336 9,538,798
Less accumulated depreciation (1,645,557) (1,445,126)
7,906,779 8,093,672
Investment in unconsolidated
ventures, at equity (note 2) 291,730 680,842
Deferred leasing and loan costs 61,823 69,472
Total assets 9,113,375 9,515,465
<FN>
See accompanying notes to the financial statements.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Balance Sheets
September 30, 1996 and December 31, 1995
(Unaudited)
Liabilities and Partners' Capital Accounts
September 30, December 31,
1996 1995
Current liabilities:
Accounts payable and accrued expenses 324,901 406,140
Due to affiliates (note 3) 4,527 10,315
Accrued interest 32,266 32,980
Current portion of long-term debt 142,500 141,958
Total current liabilities 504,194 591,393
Long-term debt 4,552,226 4,728,865
Venture partners' equity
in consolidated venture (note 2) 1,641,333 1,560,090
Tenant security deposits 5,433 6,333
Total long-term liabilities 6,198,992 6,295,288
Total liabilities 6,703,186 6,886,681
Partners' capital accounts (deficits) (note 1):
General partners:
Capital contributions 1,000 1,000
Cumulative net losses (3,586) (4,124)
(2,586) (3,124)
Limited partners:
Capital contributions 4,058,963 4,058,963
Cumulative net losses (354,993) (408,302)
Cumulative cash distributions (1,291,195) (1,018,750)
2,412,775 2,631,908
Total partners' capital accounts 2,410,189 2,628,784
Commitments and contingencies (note 2)
Total Liabilities and Partners' Capital 9,113,375 9,515,465
<FN>
See accompanying notes to the financial statements.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Consolidated Statement of Operations
Three months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
Revenues:
Rental income 326,452 342,707
Tenant charges 151,157 140,140
Interest income 11,038 1,481
Total revenues 488,647 484,328
Expenses:
Property operating expenses 220,128 203,075
Interest 97,041 118,038
Depreciation 57,210 63,798
Amortization 2,650 5,281
General and administrative expenses 9,015 7,412
Total expenses 386,044 397,604
Operating income (loss) 102,603 86,724
Partnership's share of operations
of unconsolidated ventures (52,261) (6,295)
Venture partner's share of consolidated
venture's operations (note 1) (47,779) (43,843)
Net income (loss) 2,563 36,586
Net income (loss) per
limited partnership unit (note 1) 0.25 3.62
Cash distribution per
limited partnership unit 2.06 2.07
<FN>
See accompanying notes to the financial statements.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Consolidated Statement of Operations
Nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
Revenues:
Rental income 989,699 984,953
Tenant charges 449,376 427,313
Interest income 11,038 7,173
Total revenues 1,450,113 1,419,439
Expenses:
Property operating expenses 636,438 593,560
Interest 293,281 355,383
Depreciation 200,431 204,361
Amortization 7,649 15,842
General and administrative expenses 73,659 64,995
Total expenses 1,211,458 1,234,141
Operating income (loss) 238,655 185,298
Partnership's share of operations
of unconsolidated ventures (42,990) (52,090)
Venture partner's share of consolidated
venture's operations (note 1) (141,818) (112,905)
Net income (loss) 53,847 20,303
Net income (loss) per
limited partnership unit (note 1) 5.33 2.01
Cash distribution per
limited partnership unit 27.24 10.31
<FN>
See accompanying notes to the financial statements.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
Cash flows from operating activities:
Net income (loss) 53,847 20,303
Items not requiring (providing)
cash or cash equivalents:
Depreciation 200,431 204,361
Amortization 7,649 15,842
Partnership's share of operations of
unconsolidated ventures 389,112 75,297
Venture partners' share of
consolidated venture's operations 81,243 7,750
Changes in:
Rents and other receivables 21,324 37,777
Prepaid expenses 20,351 24,900
Accounts payable and accrued expenses (81,953) (44,553)
Due to affiliates (3,603) (5,555)
Tenant deposits (900) (325)
Net cash provided by (used in)
operating activities 687,501 335,797
Cash flow from investment activities:
Additions to building and deferred costs (13,538) (77,254)
Net cash provided by (used in)
investment activities (13,538) (77,254)
Cash flows from financing activities:
Distributions to limited partners (272,445) (103,117)
Principal payments on long-term debt (176,097) (52,397)
Net cash used in financing activities (448,542) (155,514)
Net increase (decrease) in
cash and cash equivalents 225,424 103,029
<FN>
See accompanying notes to the financial statements.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements
September 30, 1996 and 1995
(Unaudited)
Readers of this quarterly report should refer to the
Partnership's audited financial statements for the fiscal year ended
December 31, 1995, which are included in the Partnership's 1995 Annual
Report, as certain footnote disclosures which would substantially
duplicate those contained in such audited financial statements have
been omitted from this report.
(1) Basis of Accounting
For the three and nine month periods ended September 30, 1996 and
September 30, 1995, the accompanying consolidated financial statements
include the accounts of the Partnership and its consolidated venture -
Sycamore Mall Associates (the "Venture"). The effect of all
transactions between the Partnership and the Venture has been
eliminated.
The equity method of accounting has been applied in the
accompanying consolidated financial statements with respect to the
Partnership's interest in Evanston Galleria Limited Partnership and
Country Isle Associates for the three and nine month periods ended
September 30, 1996 and September 30, 1995.
The Partnership records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes.
The accompanying consolidated financial statements have been prepared
from such records after making appropriate adjustments, where
applicable, to present the Partnership's accounts in accordance with
generally accepted accounting principles (GAAP). Such adjustments are
not recorded on the records of the Partnership. The net effect of
these adjustments for the nine months ended September 30, 1996 and
1995 is summarized as follows:
1996 1995
GAAP Tax GAAP Tax
Basis Basis Basis Basis
Net income (loss) 53,847 50,000 (16,285) 6,500
Net income (loss) per
limited partnership unit 5.33 4.95 (1.61) 0.65
The net income (loss) per limited partnership unit presented is
based on the weighted limited partnership units outstanding at the end
of each period (10,000).
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
Partnership distributions from unconsolidated ventures are
considered cash flow from operating activities to the extent of the
Partnership's cumulative share of net operating earnings before
depreciation and non-cash items. In addition, the Partnership records
amounts held in U.S. Government obligations, commercial paper and
certificates of deposit at cost which approximates market. For the
purposes of these statements, the Partnership's policy is to consider
all such investments with an original maturity of three months or less
($440,061 and $94,912 at September 30, 1996 and December 31, 1995,
respectively) as cash equivalents.
Deferred offering costs were charged to the partners' capital
accounts upon consummation of the offering. Deferred loan costs are
amortized over the terms of the related agreements using the straight-
line method.
Depreciation on the investment properties acquired has been
provided over the estimated useful lives of 5 to 30 years using the
straight-line method.
No provision for Federal income taxes has been made as any
liability for such taxes would be that of the partners rather than the
Partnership.
(2) Venture Agreements
The Partnership has entered into three joint venture agreements
with partnerships sponsored by affiliates of the General Partners.
Pursuant to such agreements, the Partnership has made capital
contributions aggregating $3,652,066 through September 30, 1996. The
Partnership has acquired, through these ventures, interests in a mixed
use retail/residential property and two shopping centers.
(3) Transactions with Affiliates
Fees, commissions and other expenses required to be paid by the
Partnership to affiliates of the General Partners for the nine months
ended September 30, 1996 and 1995 are as follows:
Unpaid at
September 30,
1996 1995 1996
Reimbursement (at cost) for
administrative services 15,000 15,000 4,527
15,000 15,000 4,527
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
(4) Unconsolidated Ventures - Summary Information
Summary income statement information for the combined operations
of Evanston Galleria Limited Partnership and Country Isle Plaza for
the nine months ended September 30, 1996 and 1995 is as follows:
1996 1995
Total revenue 2,391,634 2,149,134
Operating income (loss) (160,100) (235,000)
Partnership's share of income (loss) (42,990) (55,597)
(5) Adjustments
In the opinion of the Managing General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a
fair presentation have been made to the accompanying consolidated
financial statements as of September 30, 1996 and 1995.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At September 30, 1996, the Partnership had cash and cash
equivalents of $578,955 which will be utilized for working capital
requirements and for future distributions to Partners. This is
$225,424 more than the $353,531 balance at December 31, 1995. The
Partnership has reduced its regular distribution to Limited Partners.
The Partnership is attempting to accumulate additional cash reserves
to be utilized, if needed, during leasing efforts at Sycamore Mall.
However, the Partnership made a special distribution to Limited
Partners during the second quarter of 1996. The Partnership received
a special distribution in the amount of $210,650 from Country Isles
Asssociates, which it then distributed to the Limited Partners, as
more fully described below. During the three and nine month periods
ended September 30, 1996, the Partnership distributed $20,600 ($2.06
per unit) and $272,445 ($27.24 per unit), respectively, to Limited
Partners. This compares to $20,667 ($2.07 per unit) and $103,117
($10.31) per unit during the three and nine month periods ended
September 30, 1995. The Partnership plans to continue regular
quarterly distributions of $20,594 ($2.06 per unit), from the
operating cash flows of the Partnership.
Net cash provided by operating activities during the nine months
ended September 30, 1996 was $703,327, an increase of $335,797 from
the $367,530 of cash provided by operating activities during the nine
months ended September 30, 1995. The increase results primarily from
(1) a $210,650 special distribution received from Country Isles
Associates, (2) $73,498 in additional cash flow from the Venture
Partner's share of consolidated operations and (3) an additional
$103,600 of cash flow from unconsolidated ventures.
On April 25,1996, Country Isles Associates completed the
refinancing of Country Isles Plaza in Ft. Lauderdale, Florida. The
new mortgage funded $8,100,000, the proceeds of which were used to
repay the outstanding balance of $6,807,669 on the existing mortgage,
pay the costs of completing the new loan (approximately $98,700), and
provide for property tax escrow and working capital. Out of the
remaining proceeds, the Partnership received a distribution of
$210,650 from Country Isles Associates. The Partnership made a
special distribution to the Limited Partners. No significant impact
to the property is anticipated as a result of the increased mortgage
indebtedness. As a result of a reduction in the interest rate from
9.75% to 7.00%, the monthly payments have decreased from $60,141 to
$57,250. The mortgage matures on May 1, 2001.
The Evanston Galleria continues to search for a replacement
tenant for approximately 11,500 square feet of retail space, which is
approximately 14% of the total rentable space in the building. One
retail tenant, which filed a petition for bankruptcy on January 11,
1994, stopped paying rent and vacated the premises during the third
quarter of 1995. As a result, monthly revenues have been reduced by
$12,657 since the tenant stopped paying rent. Management is currently
negotiating with prospective replacement tenants. Additionally,
management is continuing to take legal action against the former
tenant, although there is currently no estimate of the amount of or
timing of any payments which may be received. The maturity of the
mortgage indebtedness at Evanston Galleria has been extended to May 1,
1998. The interest rate on the loan remains at 9% per annum, however,
the monthly payments have been reduced to $57,143. This payment is
based on an interest rate of 8.25%. The amount of interest which is
not being paid currently is accruing to the principal amount of the
loan. The interest shortfall will be due at the maturity of the loan,
along with the outstanding principal balance.
As the Partnership intends to distribute all "net cash receipts"
and "sales proceeds" in accordance with the terms of the Partnership
Agreement, and does not intend to reinvest any such proceeds, the
Partnership is intended to be self-liquidating in nature. The
Partnership's future source of liquidity and distributions is expected
to be through cash generated by the Partnership's investment
properties and from the sale and refinancing of such properties. To
the extent that additional payments are required under a purchase
agreement or a property does not generate an adequate cash flow to
meet its requirements, the Partnership may withdraw funds from the
working capital reserve which it maintains.
Results of Operations
For the three and nine month periods ended September 30, 1996 and
September 30, 1995, the accompanying consolidated financial statements
include the accounts of the Partnership and its consolidated venture -
Sycamore Mall Associates. The effect of all transactions between the
Partnership and the Venture has been eliminated. The equity method of
accounting has been applied in the accompanying consolidated financial
statements with respect to the Partnership's uncolidated ventures, its
interest in Evanston Galleria Associates and Country Isles.
Net Income for the three months ended September 30, 1996 was
$2,563 as compared to $20,303 during the three months ended September
30, 1995. Net Income for the nine months ended September 30, 1996 was
$53,847 as compared to $20,303 during the nine months ended September
30, 1995. The improved operating results for the comparable nine
month periods are a result of increased profitability at Sycamore Mall
and Country Isles. In addition, cash flow from operations increased
by $351,797, from the prior year. The increase in cash flow is
largely impacted by the receipt of the special distribution in the
amount of $210,650 from Country Isles Associates. The special
distribution resulted from a refinancing of the mortgage indebtedness
at Country Isles. For the three month period ended September 30,
1996, profitability was $34,000 lower than the comparable 1995 period
primarily due to increased losses at Evanston Galleria.
The $16,255 (5%) decrease in rental income for the three month
period ended September 30, 1996 as compared to the three month period
ended September 30, 1995 is attributed to a decrease in occupancy at
Sycamore Mall. Occupancy at Sycamore Mall decreased from 95% to 86%
during the three month period ended June 30, 1996. Randall's a drug
store operation vacated its leased space, which totaled approximately
19,800 square feet. Its lease term expires January 10, 1997 and rent
is being paid currently. The partnership anticipates no additional
adverse financial impact during the remainder of 1996 and management
is currently searching for a replacement tenant for the vacant space.
The total monthly rent, including tax and operating expense
reimbursements, which is being paid under the terms of the Randall's
lease is $3,300.
The 11,017 (8%) increase in tenant charges revenue for the three
month period and the $22,063 (5%) increase for the nine month periods
ended September 30, 1996 as compared to the three month and nine month
periods ended September 30, 1995 is attributed to an increase in
property operating expenses at Sycamore Mall. These costs are
partially recoverable from the tenants through tenant charges.
The $17,053 (8%) increase in property operating expenses for the
three month and the $42,878 (7%) increase for the nine month periods
ended September 30, 1996 as compared to the three month and nine month
periods ended September 30, 1995 is attributed to an increase in
insurance and property maintenance expenses at Sycamore Mall.
The $20,997 (18%) decrease in interest expenses for the three
month period and the $62,102 (17%) decrease during the nine month
period ended September 30, 1996 as compared to the three and nine
month periods ended September 30, 1995 is attributable to the
refinancing of the mortgage indebtedness at Sycamore Mall. In
conjunction with the refinancing, which occurred in October 1995, the
interest rate was reduced from 9.925% to 8.125%.
The $8,664 (13%) increase in general and administrative expenses
for the nine month period ended September 30, 1996 as compared to the
nine month period ended September 30, 1995, is attributable to an
increase in professional fees related to the annual audit and tax
return preparation as well as an increase in partnership accounting
expenses.
The Partnership's share of operations of unconsolidated
subsidiaries resulted in an income allocation of $12,271 during the
six months ended June 30, 1996, as compared to a loss allocation of
$45,795 during the six month period ended June 30, 1995. Evanston
Galleria had two tenants vacate the property in 1995 which increased
the property's operating losses. One of these tenants has been
replaced which has resulted in improved operating results. In
addition, the operations of Country Isles have continued to improve,
resulting in an income allocation of $37,393 during the six months
ended June 30, 1996 as compared to a loss allocation of $14,265 during
the six months ended June 30, 1995.
The Partnership's allocation of consolidated venture's operations
to the venture partners was an allocation of $94,039 during the six
months ended June 30, 1996 as compared to an allocation of $69,062
during the six months ended June 30, 1995. As a result of improved
operations at Sycamore Mall during the first six months of the year,
the Partnership has increased the amount of the income which is then
allocated to the venture's partners. Occupancy at Sycamore Mall
decreased from 95% to 86% during the three month period ended June 30,
1996. Randall's a drug store operation vacated its leased space,
which totaled approximately 19,800 square feet. Its lease term
expires January 10, 1997 and rent is being paid currently. The total
monthly rent, including tax and operating expense reimbursements,
which is being paid under the terms of the Randall's lease is
approximately $3,300. The partnership anticipates no adverse
financial impact during the remainder of 1996 and management is
currently searching for a replacement tenant for the vacant space.
OCCUPANCY
The following is a list of approximate occupancy levels by
quarter for the Partnership's investment properties:
at at at at at at at
03/31/95 06/30/95 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96
Evanston Galleria
Evanston, IL 98% 99% 86% 84% 86% 86% 86%
Country Isles
Ft. Lauderdale, FL 99% 98% 98% 99% 99% 98% 98%
Sycamore Mall
Iowa City, Iowa 99% 98% 97% 97% 95% 86% 87%
Part II - OTHER INFORMATION
Items 1, 2, 3, 4, and 5 of Part II are omitted because of the absence
of conditions under which they are required.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
No reports on Form 8-K were filed for the period covered by this
report.
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.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(Registrant)
By: FDIP, Inc.
(Managing General Partner)
November 14, 1996 By: Robert S. Ross
President
(Principal Executive Officer)
November 14, 1996 By: Bruce H. Block
Vice President
(Principal Financial Officer)