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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission file 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 March 31, 1999: 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
March 31, 1999 and December 31, 1998
(Unaudited)
Assets
March 31, December 31,
1999 1998
Current assets:
Cash and cash equivalents (note 1) 853,863 968,437
Rents and other receivables 188,084 168,676
Due from affiliates 12,883 13,147
Prepaid expense 12,159 21,279
Total current assets 1,066,989 1,171,539
Investment property, at cost (note 1):
Land 1,201,880 1,201,880
Building 7,273,400 7,273,400
8,475,280 8,475,280
Less accumulated depreciation (2,385,583) (2,315,063)
6,089,697 6,160,217
Investment in unconsolidated venture,
at equity (note 2) (98,314) (94,330)
Deferred leasing and loan costs 37,821 40,215
Total assets 7,096,193 7,277,641
<FN>
See accompanying notes to the financial statements.
FIRST DEARBORN INCOME PROPERTIES L.P. II
(a limited partnership)
and Consolidated Venture
Balance Sheets
March 31, 1999 and December 31, 1998
(Unaudited)
Liabilities and Partners' Capital Accounts
March 31, December 31,
1999 1998
Current liabilities:
Accounts payable and accrued expenses 187,631 297,921
Accrued interest 29,549 29,846
Current portion of long-term debt 184,225 180,993
Total current liabilities 401,405 508,760
Long-term debt 4,197,585 4,227,032
Venture partners' equity
in consolidated venture (note 2) 760,289 807,336
Tenant security deposits 5,433 5,433
Total long-term liabilities 4,963,307 5,039,801
Total liabilities 5,364,712 5,548,561
Partners' capital accounts (deficits) (note 1):
General partners:
Capital contributions 1,000 1,000
Cumulative net income (loss) (1,947) (1,341)
(947) (341)
Limited partners:
Capital contributions 4,121,964 4,058,963
Cumulative net income (loss) (192,838) (132,844)
Cumulative cash distributions (2,196,698) (2,196,698)
1,732,428 1,729,421
Total partners' capital accounts 1,731,481 1,729,080
Commitments and contingencies (note 2)
Total Liabilities and Partners' Capital 7,096,193 7,277,641
<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 March 31, 1999 and 1998
(Unaudited)
1999 1998
Revenues:
Rental income 207,939 293,086
Tenant charges 87,958 136,486
Interest income 8,813 15,101
Total revenues 304,710 444,673
Expenses:
Property operating expenses 198,742 237,458
Interest 88,945 92,382
Depreciation 70,520 71,101
Amortization 2,395 2,395
General and administrative expenses 30,032 46,008
Total expenses 390,634 449,343
Operating income (loss) (85,924) (4,671)
Partnership's share of operations
of unconsolidated ventures (3,984) (9,522)
Venture partner's share of consolidated
venture's operations (note 1) 29,308 (12,468)
Net loss (60,600) (26,661)
Net loss per limited partnership unit (6.00) (2.64)
Cash distribution per limited partnership unit 0.00 74.06
<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
Three months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
Cash flows from operating activities:
Net income (loss) (60,600) (26,661)
Items not requiring (providing)
cash or cash equivalents:
Depreciation 70,520 71,101
Amortization 2,395 2,395
Partnership's share of operations of
unconsolidated ventures 3,984 9,522
Venture partners' share of consolidated
venture's operations (47,047) (11,176)
Changes in:
Rents and other receivables (19,408) (3,914)
Due from affiliates 264 325
Prepaid expenses 9,120 7,897
Accounts payable and accrued expenses (110,587) 77,638
Tenant deposits - -
Net cash provided by (used in)
operating activities (151,359) 50,309
Cash flow from investment activities:
Additions to building and deferred costs - -
Net cash provided by (used in)
investment activities - -
Cash flows from financing activities:
Distributions to limited partners - (740,600)
Capital provided by reduction
in deferred syndication costs 63,000 -
Principal payments on long-term debt (26,215) (40,467)
Net cash used in financing activities 36,785 (781,067)
Net decrease in cash and cash equivalents (114,574) (653,941)
<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
March 31, 1999 and 1998
(Unaudited)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1998,
which are included in the Partnership's 1998 Annual Report, as certain
footnote disclosures which would substantially duplicate those contained in
such audited financial statements have been omitted from this report.
(1) Basis of Accounting
For the three months ended March 31, 1999 and March 31, 1998 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 months ended March 31, 1999 and
March 31, 1998.
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 three months ended
March 31, 1999 and 1998 is summarized as follows:
1999 1998
GAAP Tax GAAP Tax
Basis Basis Basis Basis
Net loss (60,600) (57,000) (26,661) (29,000)
Net loss per
limited partnership unit (6.00) (5.64) (2.64) (2.87)
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 ($804,228 and $788,980 at March 31, 1999 and December
31, 1998, 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 March 31, 1999.
(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 March 31, 1999. 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 three months
ended March 31, 1999 and 1998 are as follows:
Unpaid at
Mar 31,
1999 1998 1999
Reimbursement for administrative services 5,000 5,000 -
(4) Unconsolidated Venture - Summary Information
Summary income statement information for Evanston Galleria Limited
Partnership for the three months ended March 31, 1999 and the three months
ended March 31, 1998, is as follows:
1999 1998
Total revenue 342,494 326,573
Operating loss (15,809) (35,068)
Partnership's share of loss (3,984) (12,468)
(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 March 31, 1999 and 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At March 31, 1999, the Partnership had cash and cash equivalents of
$853,863 which will be utilized for working capital requirements and for
future distributions to Partners. This is $114,574 less than the $968,437
balance at December 31, 1998. Net cash utilized by operating activities
during the quarter ended March 31, 1999 was $151,359, a difference of
$201,668 from the $50,309 of cash provided by operating activities during
the quarter ended March 31, 1998. This reduction relates to the timing of
property tax payments at Sycamore Mall. Further, accounts payable was
reduced by $63,000 as a result of a write off of amounts which had been
accrued from the organization of the Partnership. Certain legal fees and
printing costs were eventually forgiven by the vendors. This amount was
recorded as an increase in capital contributions, since it reduced amounts
capitalized as syndication costs, which are deducted from capital for GAAP
purposes.
During the first quarter of 1999, the Sycamore Mall continued to suffer
from a lack of occupancy. Management is currently searching for replacement
tenants, but there can be no assurance that a replacement tenant will be
found. If this vacant space is not released, the ability of the Sycamore
Mall to meet its financial obligations could be effected as a result of
decreased revenues.
On February 16, 1999, a contract was entered into for the sale of the
Evanston Galleria. The purchase price, net of closing costs and prorations
should be sufficient to repay all liabilities of the Evanston Galleria
Limited Partnership, including the first mortgage. However there will not
be a significant distribution to the Partnership. If the sale is
consummated, the Partnership is expected to recognize a gain on the sale of
approximately $100,000. The closing was currently scheduled to occur on
April 30, 1999. However, the Purchaser has granted a 90-day extension.
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.
Year 2000:
The General Partner has determined that it does not expect that the
consequences of the Partnership's year 2000 issues will have a material
effect on the Partnership's business, results of operations or financial
condition.
Results of Operations - 1999 compared to 1998
For the three-month periods ended March 31, 1999 and March 31, 1998,
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 months
ended March 31, 1999 and March 31, 1998.
The $85,147 (29%) decrease in rental income for the three month period
ended March 31, 1999 as compared to the three month period ended March 31,
1998 is attributed to an increase in the vacancy at Sycamore Mall.
Occupancy at Sycamore Mall has fallen to 47% as of March 31, 1999 from 85%
as of March 31, 1998. Income from tenant charges decreased $48,528 (36%)
during the three months ended March 31, 1999 as compared to the three months
ended March 31, 1998. This decrease results from the decreased occupancy
levels at Sycamore Mall.
The $38,716 (16%) decrease in property operating expenses for the three
months ended March 31, 1999 as compared to the three months ended March 31,
1998 is attributable to a decrease in property taxes at Sycamore Mall. Due
to the low occupancy levels, the property was reassessed to a lower
valuation. Property operating expenses were also reduced due to lower
expenses attributable to the low occupancy.
The $3,437 (4%) decrease in interest expense for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998 is
attributable to reductions in the outstanding balance of the mortgage
indebtedness at the Sycamore property.
The $15,976 (35%) decrease in general and administrative expenses for
the three month periods ended March 31, 1999 as compared to the three month
periods ended March 31, 1998 is attributable to the timing of payment of the
professional and accounting fees related to the 1998 year-end.
The Partnership's share of operations of unconsolidated subsidiaries
resulted in a loss allocation of $3,984, during the three months ended March
31, 1999, as compared to a loss allocation of $9,522 during the three month
period ended March 31, 1998. Evanston Galleria's allocation shows an
improvement which results from the impoved operations at Evanston Galleria.
The Partnership's allocation of consolidated venture's operations to
the venture partners was an income allocation of $29,308 during the three
months ended March 31, 1999 as compared to a loss allocation of $12,468
during the three months ended March 31, 1998. Sycamore Mall is now operating
at a net loss due to the high vacancy rates. The Partnership allocates a
share of the income or loss from the Sycamore Mall property to its 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
03/31/97 06/30/97 09/30/97 12/31/97 03/31/98
Evanston Galleria
Evanston, IL 95% 94% 94% 97% 92%
Sycamore Mall
Iowa City, Iowa 85% 79% 84% 47% 47%
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)
May 21, 1998 By: Robert S. Ross
President
(Principal Executive Officer)
May 21, 1998 By: Bruce H. Block
Vice President
(Principal Financial Officer)