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 June 30, 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 June 30, 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
June 30, 1999 and December 31, 1998
(Unaudited)
Assets
June 30, December 31,
1999 1998
Current assets:
Cash and cash equivalents (note 1) 909,780 968,437
Rents and other receivables 109,445 168,676
Due from affiliates 12,653 13,147
Prepaid expense 3,040 21,279
Total current assets 1,034,918 1,171,539
Investment property, at cost (note 1):
Land 1,201,880 1,201,880
Building 7,280,566 7,273,400
8,482,446 8,475,280
Less accumulated depreciation (2,456,103) (2,315,063)
6,026,343 6,160,217
Investment in unconsolidated venture,
at equity (note 2) (95,966) (94,330)
Deferred leasing and loan costs 35,426 40,215
Total assets 7,000,721 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
June 30, 1999 and December 31, 1998
(Unaudited)
Liabilities and Partners' Capital Accounts
June 30, December 31,
1999 1998
Current liabilities:
Accounts payable and accrued expenses 254,781 297,921
Accrued interest 29,246 29,846
Current portion of long-term debt 188,500 180,993
Total current liabilities 472,427 508,760
Long-term debt 4,130,860 4,227,032
Venture partners' equity
in consolidated venture (note 2) 746,347 807,336
Tenant security deposits 5,433 5,433
Total long-term liabilities 4,882,640 5,039,801
Total liabilities 5,355,067 5,548,561
Partners' capital accounts (deficits):
General partners:
Capital contributions 1,000 1,000
Cumulative net income (2,599) (1,341)
(1,599) (341)
Limited partners:
Capital contributions 4,121,964 4,058,963
Cumulative net income (257,413) (132,844)
Cumulative cash distributions (2,217,298) (2,196,698)
1,647,253 1,729,421
Total partners' capital accounts 1,645,654 1,729,080
Commitments and contingencies (note 2)
Total Liabilities and Partners' Capital 7,000,721 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 June 30, 1999 and 1998
(Unaudited)
1999 1998
Revenues:
Rental income 217,726 286,969
Tenant charges 100,117 109,625
Interest income 9,005 9,915
Total revenues 326,848 406,509
Expenses:
Property operating expenses 219,273 219,694
Interest 88,042 91,548
Depreciation 70,520 71,100
Amortization 2,394 2,394
General and administrative expenses 45,875 26,962
Total expenses 426,104 411,698
Operating income (loss) (99,256) (5,189)
Partnership's share of operations
of unconsolidated ventures 5,620 (3,141)
Venture partner's share of consolidated
venture's operations (note 1) 31,681 (7,421)
Net income (loss) (61,955) (15,751)
Net income (loss)
per limited partnership unit (6.13) (1.56)
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
Six months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
Revenues:
Rental income 425,665 580,055
Tenant charges 188,075 246,111
Interest income 17,818 25,052
Total revenues 631,558 851,218
Expenses:
Property operating expenses 418,015 457,152
Interest 176,987 183,930
Depreciation 141,040 142,201
Amortization 4,789 4,789
General and administrative expenses 75,907 72,970
Total expenses 816,739 861,042
Operating income (loss) (185,180) (9,824)
Partnership's share of operations
of unconsolidated ventures (1,636) (12,663)
Venture partner's share of consolidated
venture's operations (note 1) 60,989 (19,889)
Net income (loss) (125,827) (42,376)
Net income (loss)
per limited partnership unit (12.46) (4.20)
Cash distribution
per limited partnership unit 2.06 76.12
<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
Six months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
Cash flows from operating activities:
Net income (loss) (125,827) (42,376)
Items not requiring (providing)
cash or cash equivalents:
Depreciation 141,040 142,201
Amortization 4,789 4,789
Partnership's share of operations of
unconsolidated ventures 1,636 12,663
Venture partners' share of
consolidated venture's operations (60,989) (141,613)
Changes in:
Rents and other receivables 59,725 161,958
Prepaid expenses 18,239 15,794
Accounts payable and accrued expenses (43,740) 83,176
Net cash provided by (used in)
operating activities (5,127) 236,592
Cash flow from investment activities:
Additions to building and deferred costs (7,166) (305)
Net cash provided by (used in)
investment activities (7,166) (305)
Cash flows from financing activities:
Distributions to limited partners (20,600) (761,200)
Capital provided by reduction
in syndication costs 63,000 -
Principal payments on long-term debt (88,665) (81,765)
Net cash used in financing activities (46,265) (842,965)
Net increase (decrease)
in cash and cash equivalents (58,558) (606,678)
<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
June 30, 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 and six month periods ended June 30, 1999 and June 30,
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 and six months ended
June 30, 1998 and June 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
six months ended June 30, 1999 and 1998 is summarized as follows:
1999 1999 1998 1998 -
GAAP Tax GAAP Tax
Basis Basis Basis Basis
Net income (loss) (125,827) (118,000) (42,376) (39,300)
Net income (loss) per
limited partnership unit (12.46) (11.68) (4.20) (3.90)
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 $790,001 and $788,980 at June 30, 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 June 30, 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 June 30, 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 six months
ended June 30, 1998 and 1997 are as follows:
Unpaid at
June 30,
1999 1998 1999
Reimbursement (at cost)
for administrative services 10,000 10,000 -
10,000 10,000 -
(4) Unconsolidated Venture - Summary Information
Summary income statement information for Evanston Galleria Limited
Partnership for the six months ended June 30, 1999 and June 30, 1998, is
as follows:
1999 1998
Total revenue 740,757 672,404
Operating income (loss) (7,717) (46,635)
Partnership's share of income (loss) (1,636) (12,663)
(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 June 30, 1999 and 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At June 30, 1999, the Partnership had cash and cash equivalents of
$909,780 which will be utilized for working capital requirements and for
future distributions to Partners. This is $58,657 less than the $968,437
balance at December 31, 1998. The Partnership made a distribution in the
amount of $20,600 ($2.06 per unit) to Limited Partners during the second
quarter of 1999. 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.
Net cash provided by operating activities during the six months ended
June 30, 1998 was $236,592, as compared to cash utilized by operations in
the amount of $5,127 during the six months ended June 30, 1999. Poor
operating results at the Sycamore Mall property is the primary reason for
the decrease in cash from operations. During the first quarter of 1999,
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 cntinues 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.
Prior to July 30, 1999 the prospective purchaser notified management that
it was defulting undr the purchase contract and forfeited $50,000 of earnest
money. The first mortgage on the Evanston Galleria property matured on
August 1, 1999, however an amendment is currently being negotiated which
would extend the maturity of the loan.
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 and six month periods ended June 30, 1999 and June 30,
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
and six months ended June 30, 1999 and June 30, 1998.
The $154,390 (27%) decrease in rental income for the six month period
ended June 30, 1999 as compared to the six month period ended June 30, 1998
is attributed to an increase in the vacancy at Sycamore Mall. Occupancy
at Sycamore Mall has fallen to 47% as of June 30, 1999 from 85% as of
March 31, 1998. Income from tenant charges decreased $58,036 (24%) during
the six months ended June 30, 1999 as compared to the six months ended
June 30, 1998. This decrease results from the decreased occupancy levels
at Sycamore Mall.
The $38,716 (16%) decrease in property operating expenses for the six
month period ended June 30, 1999 as compared to the six month period ended
June 30, 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 $6,943 (4%) decrease in interest expense for the six month period
ended June 30, 1999 as compared to six month period ended June 30, 1998 is
attributable to reductions in the outstanding balance of the mortgage
indebtedness at the Sycamore property.
The $2,937 (4%) increase in general and administrative expenses for
the six month period ended June 30, 1999 as compared to the six month
period ended June 30, 1998 is attributable to an increase in the amount
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 $1,636, during the six month period ended
June 30, 1999, as compared to a loss allocation of $12,663 during six
month period ended June 30, 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 $60,989 during the six
month period ended June 30, 1999 as compared to an income allocation of
$29,308 during six month period ended June 30. 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 at
03/31/98 06/30/98 09/30/98 12/31/98 03/31/99 06/30/99
Evanston Galleria
Evanston, IL 95% 94% 94% 97% 92% 97%
Sycamore Mall
Iowa City, Iowa 85% 79% 84% 47% 47% 44%
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)
August 9, 1999 By: Robert S. Ross
President
(Principal Executive Officer)
August 9, 1999 By: Bruce H. Block
Vice President
(Principal Financial Officer)