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, 1998
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, 1998: 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, 1998 and December 31, 1997
(Unaudited)
Assets
September 30, December 31,
1998 1997
Current assets:
Cash and cash equivalents (note 1) 1,010,135 1,659,443
Rents and other receivables 195,189 317,315
Due from affiliates 13,147 14,122
Prepaid expense 305 19,122
Total current assets 1,218,776 2,010,002
Investment property, at cost (note 1):
Land 1,201,880 1,201,880
Building 8,372,099 8,372,099
9,573,979 9,573,979
Less accumulated depreciation (2,248,085) (2,032,976)
7,325,894 7,541,003
Investment in unconsolidated venture,
at equity (note 2) (66,867) (58,669)
Deferred leasing and loan costs 42,305 49,488
Total assets 8,520,108 9,541,824
<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, 1998 and December 31, 1997
(Unaudited)
Liabilities and Partners' Capital Accounts
September 30, December 31,
1998 1997
Current liabilities:
Accounts payable and accrued expenses 358,620 328,632
Accrued interest 30,137 30,976
Current portion of long-term debt 172,500 166,915
Total current liabilities 561,257 526,523
Long-term debt 4,278,525 4,408,018
Venture partners' equity
in consolidated venture (note 2) 1,339,791 1,508,231
Tenant security deposits 5,433 5,433
Total long-term liabilities 5,623,749 5,921,682
Total liabilities 6,185,006 6,448,205
Partners' capital accounts (deficits):
General partners:
Capital contributions 1,000 1,000
Cumulative net income 4,513 4,280
5,513 5,280
Limited partners:
Capital contributions 4,058,963 4,058,963
Cumulative net income 446,724 423,674
Cumulative cash distributions (2,176,098) (1,394,298)
2,329,589 3,088,339
Total partners' capital accounts 2,335,102 3,093,619
Commitments and contingencies (note 2)
Total Liabilities and Partners' Capital 8,520,108 9,541,824
<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, 1998 and 1997
(Unaudited)
1998 1997
Revenues:
Rental income 252,990 302,937
Tenant charges 112,077 137,467
Interest income 9,912 5,894
Total revenues 374,979 446,298
Expenses:
Property operating expenses 169,406 190,267
Interest 90,698 93,999
Depreciation 72,908 72,879
Amortization 2,395 2,394
General and administrative expenses 18,556 7,957
Total expenses 353,963 367,496
Operating income 21,016 78,802
Partnership's share of operations
of unconsolidated ventures 43,640 (24,231)
Venture partner's share of consolidated
venture's operations (note 1) 1,013 (38,654)
Net income 65,669 15,917
Net income (loss)
per limited partnership unit 6.50 1.58
Cash distribution
per limited partnership unit 2.06 2.06
<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, 1998 and 1997
(Unaudited)
1998 1997
Revenues:
Rental income 833,045 937,944
Tenant charges 358,188 422,912
Interest income 34,964 15,587
Total revenues 1,226,197 1,376,443
Expenses:
Property operating expenses 626,558 671,288
Interest 274,628 284,331
Depreciation 215,109 218,638
Amortization 7,184 7,390
General and administrative expenses 91,536 70,578
Total expenses 1,215,015 1,252,226
Operating income 11,182 124,216
Partnership's share of operations
of unconsolidated ventures 30,977 (56,845)
Venture partner's share of consolidated
venture's operations (note 1) (18,876) (84,304)
Net income (loss) 23,283 (16,933)
Net income (loss)
per limited partnership unit 2.31 (1.68)
Cash distribution
per limited partnership unit 78.18 6.19
<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, 1998 and 1997
(Unaudited)
1998 1997
Cash flows from operating activities:
Net income (loss) 23,283 (16,933)
Items not requiring (providing)
cash or cash equivalents:
Depreciation 215,109 218,638
Amortization 7,184 7,390
Partnership's share of operations of
unconsolidated ventures 8,198 140,849
Venture partners' share of consolidated
venture's operations (168,440) (3,152)
Changes in:
Rents and other receivables 123,101 (3,357)
Prepaid expenses 18,817 4,483
Accounts payable and accrued expenses 29,149 (3,710)
Tenant deposits 0 (6)
Net cash provided by operating activities 256,401 434,642
Cash flow from investment activities:
Additions to building and deferred costs 0 0
Net cash used in investment activities 0 0
Cash flows from financing activities:
Distributions to limited partners (781,800) (61,903)
Principal payments on long-term debt (123,908) (114,270)
Net cash used in financing activities (905,708) (176,173)
Net increase (decrease) in cash
and cash equivalents (649,307) 257,696
<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, 1998 and 1997
(Unaudited)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1997,
which are included in the Partnership's 1997 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, 1998 and
September 30, 1997 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 for the three and nine months ended
September 30, 1998 and September 30, 1997 and Country Isle Associates for
the three and nine months ended September 30, 1997.
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, 1998 and 1997 is summarized as follows:
1998 1997
GAAP Tax GAAP Tax
Basis Basis Basis Basis
Net income (loss) 23,283 9,300 (14,696) (29,301)
Net income (loss) per
limited partnership unit 2.31 0.92 (1.45) (2.90)
The net 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 ($797,764 and $1,400,707 at September 30,
1998 and December 31, 1997, 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.
The Partnership adopted Statement of Financial Accounting Standards No. 121
(SFAS 121) Accounting for the Impairment of Long-Lived Assets and for
Long Lived Assets to be Disposed Of, on January 1, 1996. SFAS 121 requires
that the Partnership record an impairment loss on its property held for
investment whenever the property's carrying value cannot be fully recovered
through estimated undiscounted cash flows from its operations and sale. The
amount of the impairment loss to be recognized would be the difference
between the property's carrying value and the property's estimated fair
value. In addition, SFAS 121 provides that a property may not be
depreciated while being held for sale. As of October 1, 1997, the Evanston
Galleria property was considered to be held for sale. In accordance with
SFAS 121, no depreciation expense relative to the property was recorded
from October 1, 1997 through September 30, 1998.
(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, 1998. The Partnership has acquired,
through these ventures, interests in a mixed use retail/residential
property and two shopping centers.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Notes to Consolidated Financial Statements - Continued
(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, 1998 and 1997 are as follows:
Unpaid at
9/30,
1998 1997 1998
Reimbursement (at cost) for administrative services 15,000 15,000 0
(4) Unconsolidated Venture - Summary Information
Summary income statement information for Evanston Galleria Limited
Partnership for the nine months ended September 30, 1998 and Evanston
Galleria Limited Partnership and Country Isle Plaza for the nine months
ended September 30, 1997, is as follows:
1998 1997
Total revenue 1,087,386 2,264,085
Operating income (loss) 4,830 (218,310)
Partnership's share of income (loss) 30,977 (56,845)
(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, 1998 and 1997.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At June 30, 1998, the Partnership had cash and cash equivalents of
$1,052,765 which will be utilized for working capital requirements and
for future distributions to Partners. This is $653,941 less than the
$1,659,443 balance at December 31, 1997. The Partnership made a distribution
in the amount of $740,600 to Limited Partners during the first quarter of 1998.
The Partnership received a special distribution in the amount of $991,000
from the December 1997 sale of Country Isles Associates, which it then
distributed to the Limited Partners. During the three and six month
periods ended June 30, 1998, the Partnership distributed $20,600 ($2.06
per unit) and $761,200 ($76.12 per unit), respectively, to Limited Partners.
This compares to $20,600 ( $2.06 per unit) and $41,303 ( $4.13 per unit)
during the three and six month periods ended June 30, 1997. The Partnership
has continued to build additional cash reserves for Sycamore Mall's
anticipated releasing program.
Net cash provided by operating activities during the six months ended
June 30, 1998 was $236,592, a decrease of $27,048 from the $263,640 of cash
provided by operating activities during the six months ended June 30, 1997.
On December 17, 1997, Country Isles Associates, sold the Country Isles
Shopping Center in Fort Lauderdale, Florida, to Principal Mutual Life
Insurance Company ("Buyer"). The total purchase price received by Country Isles
was $13.2 million, which price was determined through arm's length
negotiations with Buyer. Of this total purchase price, approximately
$7.9 million was used to repay amounts owed to the lender holding the
mortgage on the shopping center and approximately $595,000 was used for
customary additional selling expenses and prorations. The net proceeds to
Country Isles after these deductions were approximately $4.7 million. Of
these proceeds, the Partnership received approximately $991,000 for its 21%
interest.
During 1997, the Evanston Galleria experienced occupancy rates which ranged
from 77% to 86%. As of December 31, 1997 occupancy was 83%. However, a lease
had been entered into to lease the lower level space of 11,300 square feet.
This tenant has taken occupancy along with one additional retail tenant.
This has increased occupancy to 95%, as of March 31, 1998. The first
mortgage on the property matured on May 1, 1998, however an amendment has
been entered into which extends the maturity of the loan to August 31, 1998.
Negotiations are currently underway for an additional extension of the
mortgage loan. There can be no assurance that such an extension will be
granted. The Evanston Galleria property is currently being marketed for sale.
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 - 1998 compared to 1997
For the three and nine month periods ended September 30, 1998 and September
30, 1997, 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 interest in Evanston Galleria Limited for the three and nine month
periods ended September 30, 1998 and September 30, 1997 and Country Isle
Associates for the three and nine months ended September 30, 1997.
Net income for the nine months ended September 30, 1998 was $23,283 as
compared to a loss of $16,933 during the nine months ended September 30, 1997.
The improvement is largely due to $39, 741 of income received from
Country Isles Associates during the three months ended September 30,
1998. Net income for the three months ended September 30, 1998 was $65,669
as compared to $15,917 during the three months ended September 30, 1997.
A decrease in operating results at Sycamore Mall was partially offset by
improvement at the Evanston Galleria, during both the three and nine month
periods ended September 30, 1998. The decreased profitability at Sycamore
Mall is a result of increased vacancy, averaging 83% in 1998 as compared to
87% in 1997. Management is continuing to search for new tenants for Sycamore
Mall, but no new leases have been signed. Sears has recently vacated
the Sycamore Mall, which will further reduce earnings until new tenants can
be obtained.
The $104,899 (11%) decrease in rental income and the $64,724 (15%) decrease
in tenant charges, for the nine month period ended September 30, 1998 as
compared to the nine month period ended September 30, 1997 is attributed to
an increase in vacancy at Sycamore Mall. The opening of a new regional
mall in the area of the Sycamore Mall has resulted in the loss of several
tenants.
The $19,377 (124%) increase in interest income for the nine month period
ended September 30, 1998 as compared to the nine month period ended
September 30, 1997 is attributed to the increase in cash reserves which are
being maintained since the sale of the Country Isles property in December
1997. The Partnership is maintaining these additional reserves in anticipation
of needed equity for the Sycamore Mall releasing efforts.
The $44,730 (7%) decrease in property operating expenses for the nine month
period ended September 30, 1998 as compared to the nine month period ended
September 30, 1997 is attributed to a decrease in property maintenance and
operating expenses at Sycamore Mall.
The $9,703 (3%) decrease in interest expenses for the nine month period
ended September 30, 1998 as compared to the nine month period ended
September 30, 1997 is attributable a reduction in the outstanding
indebtedness at Sycamore Mall.
The $20,958 (30%) increase in general and administrative expenses for
the nine month period ended September 30, 1998 as compared to the nine month
period ended September 30, 1997 is attributable to an increase in
professional fees related to the annual audit and tax return preparation
and legal fees incurred at Sycamore Mall related to the attempted collection
of past due rents.
The Partnership's share of operations of unconsolidated subsidiaries
resulted in a loss allocation of $12,663 during the nine month period
ended September 30, 1998, as compared to a loss allocation of $32,614
during the nine month period ended September 30, 1997. Evanston Galleria
has released most of its retail space. Occupancy is running at 94 % as
compared to 77 % in the prior year.
The Partnership's allocation of consolidated venture's operations to
the venture partners was an allocation of $18,876 during the nine month
period ended September 30, 1998 as compared to an allocation of $84,304
during the nine month period ended September 30, 1997. As a result of a
decrease in operating income at Sycamore Mall, the Partnership has decreased
the amount of the income, which is then allocated to the venture's partners.
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
03/31/97 06/30/97 09/30/97 12/31/97 03/31/98 06/30/98 09/30/98
Evanston Galleria
Evanston, IL 86% 86% 77% 83% 95% 94% 94%
Country Isles
Ft. Lauderdale, FL 100% 99% 100% n/a n/a n/a n/a
Sycamore Mall
Iowa City, Iowa 88% 89% 89% 90% 85% 79% 84%
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, 1998 By: Robert S. Ross
President
(Principal Executive Officer)
November 14, 1998 By: Bruce H. Block
Vice President
(Principal Financial Officer)