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, 2011

 

¨	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: 0-18431

Inland Land Appreciation Fund, L.P.

(Exact name of registrant as specified in its charter)

 

Delaware		36-3544798
(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

(Registrant’s 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 definition 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

 

 

 

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Balance Sheets

September 30, 2011 and December 31, 2010

(unaudited)

Assets

 

						2011				2010
Current assets:
Cash and cash equivalents (Note 1)		$					1,904,317				1,912,181
Accounts receivable							53,295				0
Total current assets							1,957,612				1,912,181
Investment properties, at cost (including acquisition fees paid to affiliates of $459,426 at September 30, 2011 and December 31, 2010) (Note 3):
Land and improvements							13,238,394				13,228,867
Total assets		$					15,196,006				15,141,048

 

 

See accompanying notes to financial statements.

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Balance Sheets

(continued)

September 30, 2011 and December 31, 2010

(unaudited)

 

Liabilities and Partners’ Capital

 

						2011				2010
Current liabilities:
Accounts payable		$					12,043				10,000
Accrued real estate taxes							11,767				12,870
Due to affiliates (Note 2)							4,980				5,756
Unearned income							116				0
Total current liabilities							28,906				28,626
Partners’ capital:
General Partner:
Capital contribution							500				500
Cumulative net income							4,761,238				4,760,691
Cumulative cash distributions							(4,745,451	)			(4,745,451	)
							16,287				15,740
Limited Partners:
Units of $1,000. Authorized 30,001 Units, 29,593 Units outstanding at September 30, 2011 and December 31, 2010, (net of offering costs of $3,768,113, of which $1,069,764 was paid to affiliates)							25,873,403				25,873,403
Cumulative net income							27,951,903				27,897,772
Cumulative cash distributions							(38,674,493	)			(38,674,493	)
							15,150,813				15,096,682
Total Partners’ capital							15,167,100				15,112,422
Total liabilities and Partners’ capital		$					15,196,006				15,141,048

See accompanying notes to financial statements.

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Statements of Operations

For the three and nine months ended September 30, 2011 and 2010

(unaudited)

 

						Three months				Three months				Nine months				Nine months
						ended				ended				ended				ended
						September 30, 2011				September 30, 2010				September 30, 2011				September 30, 2010
Revenues:
Rental income (Note 4)		$					54,294				52,181				161,112				155,375
Total revenues							54,294				52,181				161,112				155,375
Expenses:
Professional services to affiliates							3,686				8,174				25,982				37,232
Professional services to non-affiliates							11,801				6,430				61,871				44,700
General and administrative expenses to affiliates							1,168				1,042				7,187				7,551
General and administrative expenses to non- affiliates							2,497				3,273				18,320				20,877
Marketing expenses to affiliates							0				375				335				3,785
Marketing expenses to non-affiliates							0				500				0				500
Land operating expenses to non-affiliates							4,320				2,443				13,575				65,681
Total expenses							23,472				22,237				127,270				180,326
Operating income (loss)							30,822				29,944				33,842				(24,951	)
Interest income							5,226				5,402				15,211				16,012
Other income							2,225				1,051				5,625				6,508
Net income (loss)		$					38,273				36,397				54,678				(2,431	)
Net income (loss) allocated to:
General Partner		$					383				364				547				(24	)
Limited Partners							37,890				36,033				54,131				(2,407	)
Net income (loss)		$					38,273				36,397				54,678				(2,431	)
Net income (loss) allocated to the one General Partner Unit		$					383				364				547				(24	)
Net income (loss) per Unit, allocated to Limited Partners per weighted average Limited Partnership Units (29,593 for the three and nine months ended September 30, 2011 and 2010)		$					1.28				1.22				1.83				(.08	)

See accompanying notes to financial statements.

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Statements of Cash Flows

For the nine months ended September 30, 2011 and 2010

(unaudited)

 

						2011				2010
Cash flows from operating activities:
Net income (loss)		$					54,678				(2,431	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Changes in assets and liabilities:
Accounts receivable							(53,295	)			(51,223	)
Accounts payable							2,043				(16,806	)
Accrued real estate taxes							(1,103	)			(2,329	)
Due to affiliates							(776	)			(3,428	)
Unearned income							116				(426	)
Net cash provided by (used in) operating activities							1,663				(76,643	)
Cash flows from investing activities:
Additions to investment properties							(9,527	)			(2,792	)
Net cash used in investing activities							(9,527	)			(2,792	)
Net decrease in cash and cash equivalents							(7,864	)			(79,435	)
Cash and cash equivalents at beginning of period							1,912,181				1,931,278
Cash and cash equivalents at end of period		$					1,904,317				1,851,843

See accompanying notes to financial statements.

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

September 30, 2011

(unaudited)

Readers of this quarterly report should refer to the Partnership’s audited financial statements for the fiscal year ended December 31, 2010 which are included in the Partnership’s 2010 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, L.P. (the “Partnership”), was formed in October 1987, 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 12, 1988 and October 6, 1989, the Partnership sold 30,000 Limited Partnership Units (“Units”) at $1,000 per Unit, which does not include the General Partner or the Initial Limited Partner, resulting in gross offering proceeds of $30,000,000. Inland Real Estate Investment Corporation is the General Partner. The Limited Partners of the Partnership share in their portion of benefits of ownership of the Partnership’s real property investments according to the number of Units held. Through September 30, 2011, the Partnership had repurchased a total of 407.75 Units for $359,484 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 balance at the financial institution periodically exceeds the Federal Depository Insurance Corporation (“FDIC”) insurance coverage of $250,000 on interest bearing 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 institution’s non-performance.

The Partnership recognizes income from the sale of land parcels in accordance with the full accrual method of accounting.

The Partnership’s escrow agent holds earnest money deposits from a prospective purchaser when an agreement for sale is executed. Generally, these funds are not the Partnership’s 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.

Except as described in footnote (b) to Note 3 of these notes, 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.

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

 

(2) 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 $33,169 and $44,783 have been incurred and are included in professional services to affiliates and general and administrative expenses to affiliates for the nine months ended September 30, 2011 and 2010, respectively, of which $4,963 and $5,618 was unpaid as of September 30, 2011 and December 31, 2010, 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 $335 and $3,785 have been incurred and are included in marketing expenses to affiliates for the nine months ended September 30, 2011 and 2010, respectively, of which $17 and $138 was unpaid as of September 30, 2011 and December 31, 2010, respectively.

An affiliate of the General Partner performed land improvements, rezoning, annexation and other activities to prepare the Partnership’s investment properties for sale and was reimbursed (as set forth under terms of the Partnership Agreement) for salaries and direct costs. For the nine months ended September 30, 2011 and 2010, the Partnership incurred $0 and $712, respectively, of such costs. When incurred, such costs are included in investment properties, of which all was paid as of December 31, 2010. The affiliate did not recognize a profit on any project.

As of September 30, 2011, the Partnership held all cash and cash equivalents with Inland Bank and Trust, an affiliate of the General Partner.

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

 

(3) Investment properties

 

												Initial Costs
		Illinois		Gross Acres Purchased				Purchase/Sales								Original				Acquisition				Total				Costs Capitalized Subsequent to				Costs of Property				Total Remaining Costs of Parcels at				Current Year Gain on Sale
Parcel		County		(Sold)				Date								Costs				Costs				Costs				Acquisition				Sold				09/30/11				Recognized
1		Kendall			84.7360				01/19/89			$					423,680				61,625				485,305				5,462,589				5,947,894				0				0
					(3.5200	)			12/24/96
					(.3520	)			11/25/97
					(80.8640	)			12/29/97
2		McHenry			223.4121				01/19/89								650,000				95,014				745,014				26,816				771,830				0				0
					(183.3759	)			12/27/90
					(40.0362	)			05/11/00
3		Kendall			20.0000				02/09/89								189,000				13,305				202,305				0				202,305				0				0
					(20.0000	)			05/08/90
4		Kendall			69.2760				04/18/89								508,196				38,126				546,322				1,223,376				1,769,698				0				0
					(.4860	)			02/28/91
					(27.5850	)			08/25/95
					(4.4017	)			Var 2001
					(2.1400	)			Var 2002
					(23.0933	)			Var 2003
					(6.7800	)			Var 2004
					(4.7900	)			Var 2005
5		Kendall (a)			372.2230				05/03/89								2,532,227				135,943				2,668,170				456,398				3,124,568				0				0
					(Option	)			04/06/90
					(372.2230	)			06/20/03
6		Kendall (b)			78.3900				06/21/89								416,783				31,691				448,474				1,461,256				1,909,730				0				0
					(3.9500	)			11/01/00
					(30.0000	)			07/12/05
					(33.4270	)			07/27/06
					(11.0130	)			08/22/07
7		Kendall (b)			77.0490				06/21/89								84,754				8,163				92,917				1,438,727				1,531,644				0				0
					(71.2070	)			08/22/07
					(5.8420	)			03/20/08

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

 

(3) Investment properties (continued)

 

												Initial Costs
		Illinois		Gross Acres Purchased				Purchase/Sales								Original				Acquisition				Total				Costs Capitalized Subsequent to				Costs of Property				Total Remaining Costs of Parcels at				Current Year Gain on Sale
Parcel		County		(Sold)				Date								Costs				Costs				Costs				Acquisition				Sold				09/30/11				Recognized
8		Kendall (b)			5.0000				06/21/89			$					60,000				5,113				65,113				0				65,113				0				0
					(5.0000	)			10/06/89
9		McHenry (b)			51.0300				08/07/89								586,845				22,482				609,327				94,659				0				703,986				0
10		McHenry (b)			123.9400				08/07/89								91,939				7,224				99,163				600				99,763				0				0
					(123.9400	)			12/06/89
11		McHenry (b)			30.5920				08/07/89								321,216				22,641				343,857				94,534				0				438,391				0
12		Kendall			90.2710				10/31/89								907,389				41,908				949,297				246,964				1,196,261				0				0
					(.7090	)			04/26/91
					(89.5620	)			03/10/04
13		McHenry			92.7800				11/07/89								251,306				19,188				270,494				18,745				289,239				0				0
					(2.0810	)			09/18/97
					(90.6990	)			02/15/01
14		McHenry			76.2020				11/07/89								419,111				23,402				442,513				206,595				0				649,108				0
15		Lake			84.5564				01/03/90								1,056,955				85,283				1,142,238				1,661,344				2,803,582				0				0
					(10.5300	)			Var 1996
					(5.4680	)			Var 1997
					(68.5584	)			Var 1998
16		Kane/			72.4187				01/29/90								1,273,537				55,333				1,328,870				706,718				2,035,588				0				0
		Kendall			(30.9000	)			07/10/98
					(10.3910	)			12/15/99
					(3.1000	)			12/12/00
					(28.0277	)			05/19/03
17		McHenry			99.9240				01/29/90								739,635				61,038				800,673				1,254,202				320,961				1,733,914				0
					(27.5100	)			01/29/99

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

 

(3) Investment properties (continued)

 

												Initial Costs
		Illinois		Gross Acres Purchased				Purchase/Sales								Original				Acquisition				Total				Costs Capitalized Subsequent to				Costs of Property				Total Remaining Costs of Parcels at				Current Year Gain on Sale
Parcel		County		(Sold)				Date								Costs				Costs				Costs				Acquisition				Sold				09/30/11				Recognized
18		McHenry			71.4870				01/29/90			$					496,116				26,259				522,375				517,216				11,109				1,028,482				0
					(1.0000	)			Var 1990
					(.5200	)			03/11/93
19		McHenry			63.6915				02/23/90								490,158				29,158				519,316				648,402				0				1,167,718				0
20		Kane			224.1480				02/28/90								2,749,800				183,092				2,932,892				1,938,930				4,871,822				0				0
					(.2790	)			10/17/91
					(223.8690	)			02/20/04
21		Kendall			172.4950				03/08/90								1,327,459				75,822				1,403,281				954,415				2,357,696				0				0
					(172.4950	)			Var 1998
22		McHenry			254.5250				04/11/90								2,608,881				136,559				2,745,440				577,489				0				3,322,929				0
					(51.000	)			10/02/08
23		Kendall			140.0210				05/08/90								1,480,000				116,240				1,596,240				909,395				2,505,635				0				0
					(4.4100	)			Var 1993
					(35.8800	)			Var 1994
					(3.4400	)			Var 1995
					(96.2910	)			08/26/99
24		Kendall			298.4830				05/23/90								1,359,774				98,921				1,458,695				101,991				436,638				1,124,048				0
					(12.4570	)			05/25/90
					(4.6290	)			04/01/96
					(69.8200	)			11/26/02
25		Kane			225.0000				06/01/90								2,600,000				168,778				2,768,778				301,040				0				3,069,818				0
		Totals										$					23,624,761				1,562,308				25,187,069				20,302,401				32,251,076				13,238,394				0

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

(3) Investment properties (continued)

 

(a)	Included in the purchase agreement of Parcel 5 was a condition that required the Partnership to buy an option to purchase an additional 243 acres immediately to the west of this parcel. The 1990 sale transaction relates to the sale of this option.

 

(b)

The Partnership purchased from two third parties, two sets of three contiguous parcels of land (Parcels 6, 7 and 8; and Parcels 9, 10 and 11). The General Partner believes that the total value of this land will be maximized if it is treated and marketed to buyers as six separate parcels and closed the transactions as six separate purchases to facilitate this. Parcels 6, 7 and 8 will be treated as one parcel and Parcels 9, 10 and 11 will be treated as one parcel for purposes of computing Parcel Capital (as defined in the Partnership Agreement) and distributions to the partners.

 

(c)	Reconciliation of investment properties owned:

						September 30, 2011				December 31, 2010
Balance at January 1,		$					13,228,867				13,226,075
Additions during period							9,527				2,792
Balance at end of period		$					13,238,394				13,228,867

 

(d)

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 and assessment of current economic conditions. 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 management’s 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 management’s continuous process of analyzing each property. For the nine months ended September 30, 2011 and 2010, respectively, the Partnership had recorded no such impairment.

(4) Rental Income

The Partnership has determined that all leases relating to the farm parcels are operating leases. Accordingly, rental income is reported when earned.

As of September 30, 2011, the Partnership had farm leases of generally one year in duration, for approximately 921 acres of the approximately 1,004 acres owned.

 

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INLAND LAND APPRECIATION FUND, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

 

(5) 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 Partnership’s 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 Partnership’s financial statements.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this “Management’s 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 SEC’s 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 Securities and Exchange Commission 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 and classify our investment properties, the allocation of costs of 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 and assessment of current economic conditions. 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 management’s 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 management’s continuous process of analyzing each property. For the nine months ended September 30, 2011 and 2010, respectively, we have not recorded any such impairment.

 

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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.

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) we are actively marketing the asset for sale at a price that is reasonable in relation to its current value; and (vi) 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 classified on 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 September 30, 2011 and December 31, 2010, we have not classified any properties as held for sale.

Liquidity and Capital Resources

Between October 12, 1988 and October 6, 1989, we sold 30,000 limited partnership units to the public at $1,000 per unit resulting in $30,000,000 in gross offering proceeds.

We used $25,187,069 of gross offering proceeds to purchase on an all-cash basis twenty-five parcels of undeveloped land and an option to purchase undeveloped land. These investments include the payment of the purchase price, acquisition fees and acquisition costs of such properties. Fourteen of the parcels were purchased during 1989 and eleven during 1990. Through September 30, 2011, we have had multiple sales transactions disposing of approximately 2,098 acres of the approximately 3,102 acres originally owned. As of September 30, 2011, cumulative distributions to the limited partners have totaled $38,674,493, which is equivalent to 129% of the original capital raised which was $30,000,000 and $4,745,451 to the general partner. Through September 30, 2011, we have used $20,302,401 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 September 30, 2011, we own, in whole or in part, nine of our twenty-five original parcels, the majority of which are leased to local farmers and are generating sufficient cash flow from farm leases to cover real estate taxes and insurance expense.

At September 30, 2011, we had cash and cash equivalents of $1,904,317, which is available to be used for our costs and liabilities, cash distributions to partners and other activities with respect to some or all of our land parcels.

During the nine months ended September 30, 2011, there were no land sales. If land sales occur, net sales proceeds will be used to cover our current and future operations, including land improvements and land use activities. We will evaluate our cash needs throughout the year to determine future distributions.

We plan to enhance the value of our remaining land through pre-development activities such as rezoning, annexation and land planning. We have already been successful in pre-development activity on several of our remaining land investments, specifically Parcels 17, 18, 19 and 22, being approximately 410 acres in McHenry County, Illinois.

 

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We continue to closely monitor the real estate market trends, especially within the areas where our remaining parcels are located. We have not seen an increase in the residential real estate market, and new home starts in these middle class communities remain weak. That, coupled with stricter lender requirements, adversely impact sales activity, especially sales of residential lots and sales of vacant land for retail purposes. We realize it could take some time for these current trends to improve which could result in an even longer holding period. However, we believe we have taken the steps necessary to reduce costs and maintain sufficient reserves of cash and cash equivalents to cover all our 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.

Transactions with Related Parties

Our general partner and its affiliates are entitled to reimbursement for salaries and expenses of their employees relating to our administration. Such costs of $33,169 and $44,783 have been incurred and are included in professional services to affiliates and general and administrative expenses to affiliates for the nine months ended September 30, 2011 and 2010, respectively, of which $4,963 and $5,618 was unpaid as of September 30, 2011 and December 31, 2010, respectively.

An affiliate of our general partner performed marketing and advertising services for us and was reimbursed for direct costs. Such costs of $335 and $3,785 have been incurred and are included in marketing expenses to affiliates for the nine months ended September 30, 2011 and 2010, respectively, of which $17 and $138 was unpaid as of September 30, 2011 and December 31, 2010, respectively.

An affiliate of our general partner performed land improvements, rezoning, annexation and other activities to prepare our investment properties for sale and was reimbursed for salaries and direct costs. For the nine months ended September 30, 2011 and 2010, we incurred $0 and $712, respectively, of such costs. When incurred, such costs are included in investment properties, of which all was paid as of December 31, 2010. The affiliate did not recognize a profit on any project.

As of September 30, 2011, the Partnership held all cash and cash equivalents with Inland Bank and Trust, an affiliate of the General Partner.

Results of Operations

As of September 30, 2011, we owned nine parcels of land consisting of approximately 1,004 acres. Of the 1,004 acres owned, approximately 921 acres are leased to local farmers and generate sufficient cash flow to cover real estate taxes and insurance expense. Rental income was $161,112 and $155,375 for the nine months ended September 30, 2011 and 2010, respectively. Rental income increased due to an increase in the farm rental rates.

There were no sales of land parcels for the nine months ended September 30, 2011 and 2010. The lack of sales activity for the nine months ended September 30, 2011 and 2010 is a continued result of the depressed real estate market and the slow down in the sales of vacant land.

There has been no change in the status of the land planning process for the three contiguous parcels 17, 18, and 22. Parcels 17 and 18 are within the planning jurisdiction of the City of Woodstock. Parcel 22 was forcibly annexed into the corporate limits of the Village of Bull Valley and subject to that village’s restrictions. For land planning purposes, it was our intent to have most if not all three parcels annexed to the City of Woodstock. In a prior year, we entered into a Settlement and Annexation Agreement with the Village of Bull Valley which moved the boundary line favorably for us allowing us to proceed with the land planning for these parcels with the City of Woodstock. The settlement with Bull Valley provided the prospect of allowing us to develop the property with sewer and water facilities from the City of Woodstock and with a land use that could not have been developed in Bull Valley. In consideration for the release of land, we simultaneously conveyed approximately 51 acres of Parcel 22 to the Village of Bull Valley. Also as part of the settlement, we received favorable zoning for the remaining land that lies within the limits of the Village of Bull Valley.

 

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Parcel 19 previously received approval from the required Village of McHenry municipal departments for a preliminary plan approving a 41 unit well and septic residential subdivision to be called Hunters Woods. Following the downturn in the real estate market, we sought an extension in the time limit for recording the final plat for the Hunters Woods Subdivision. The extension expired on May 5, 2011. During the first quarter of 2011, we formally submitted a request for an additional one year extension as allowed by the Village of McHenry. We are addressing minor storm water issues raised by the McHenry County Department of Planning and Development and expect to receive approval for plat extension later this year. It is our intent to preserve the validity of our preliminary plan until such time as the market rebounds and homebuilders resume new home construction in this area.

Parcel 25 previously received approval from the subdivision and zoning department of Kane County for the preliminary plan for a residential development to be known as the Stonefield Subdivision located in Campton Township within the jurisdiction of Kane County. Similar to Parcel 19 above, following the downturn in the real estate market, we sought an extension in the time limit for recording the final plat for the Stonefield Subdivision. An extension was granted and runs through October 20, 2011. On October 11, 2011 we submitted a formal request for an additional extension which, if granted, will allow us to preserve the validity of our preliminary plan until such time as the market rebounds and homebuilders resume new home construction in this area.

Professional services to affiliates and non-affiliates were $87,853 and $81,932 for the nine months ended September 30, 2011 and 2010, respectively. Professional services primarily include accounting and legal fees. Professional services to affiliates and non-affiliates increased due to an increase in accounting and legal fees.

General and administrative expenses to affiliates and non-affiliates were $25,507 and $28,428 for the nine months ended September 30, 2011 and 2010, respectively. General and administrative expenses primarily include data processing costs, postage, and printing expenses. General and administrative expenses to affiliates and non-affiliates decreased primarily due to a decrease in printing and data processing expenses.

Marketing expenses to affiliates and non-affiliates were $335 and $4,285 for the nine months ended September 30, 2011 and 2010, respectively. Marketing expenses to affiliates are costs incurred for preparing and marketing parcels for sale. The decrease in marketing expenses is due to the continued slow down in real estate sales.

Land operating expenses to non-affiliates were $13,575 and $65,681 for the nine months ended September 30, 2011 and 2010, respectively. These costs primarily include real estate tax expense on the parcels we own, however, in 2010, we paid approximately $56,000 to the United City of Yorkville for the required future water main extension improvements relative to the Yorkville Business Center. This obligation was secured by a performance bond guaranteed by the Partnership, which was then fully released.

Interest income was $15,211 and $16,012 for the nine months ended September 30, 2011 and 2010, respectively. Interest income is primarily a result of the cash available to invest on a short term basis. The decrease in interest income is due to a decrease in interest rates.

Other income was $5,625 and $6,508 for the nine months ended September 30, 2011 and 2010, respectively. Other income is due primarily to transfer fee income as a result of the number of completed Unit transfers. The decrease is due to less transfer fee income as a result of a decrease in the number of completed Unit transfers.

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 Partnership’s 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 Partnership’s financial statements.

 

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Other Items

In accordance with Article XVI Section 16.1 of the Inland Land Appreciation Fund, L.P. Partnership Agreement and Treasury Regulation Section 1.7704-1(j), we have not yet reached the maximum threshold of limited partnership units that may be transferred/assigned directly between parties during 2011. Therefore, we may authorize additional sales of partnership units directly between parties during 2011. 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 finalized regulations in regards to Illinois income tax withholding requirements for nonresident partners. The withholding requirements were effective for the taxable years ending on or after December 31, 2008. For the taxable year ending December 31, 2010, there were no withholdings required. We are also required to pay a withholding tax to the Internal Revenue Service with respect to a partner’s 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 nine months ended September 30, 2011 and 2010, respectively, there were no withholdings paid.

Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments

None

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 management’s evaluation as of September 30, 2011, 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 Securities and Exchange Commission’s rules and forms.

Management’s 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 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework

 

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in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of September 30, 2011. This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

There were no changes to our internal controls over financial reporting during the nine months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - Other Information

Items 1 through 5 are omitted because of the absence of conditions under which they are required.

Item 6. Exhibits

Exhibits:

 

 

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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, L.P.
By:		Inland Real Estate Investment Corporation
Its:		General Partner
By:		/S/ BRENDA G. GUJRAL
By:		Brenda G. Gujral
Its:		Principal Executive Officer
Date:		November 2, 2011
By:		/S/ GUADALUPE GRIFFIN
By:		Guadalupe Griffin
Its:		Vice President
Date:		November 2, 2011
By:		/S/ DONNA URBAIN
By:		Donna Urbain
Its:		Principal Financial Officer
Date:		November 2, 2011

 

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