Investment Properties

12 Months Ended

Dec. 31, 2016

(5) Investment properties

As of December 31, 2016, the Partnership owned one parcel of land consisting of approximately 44 acres. On April 15, 2016, the Partnership sold the remaining acreage of Parcel 8, resulting in net sales proceeds of $1,614,552. On November 17, 2016, the Partnership sold the farmland portion of Parcel 20, resulting in net sales proceeds of $2,084,246.

(a)

The Partnership has taken the steps necessary to reduce costs and maintain sufficient reserves of cash and cash equivalents to cover all costs for an extended period of time. During April 2016, a farm lease was signed for the tillable portion of Parcel 20. The rental income from this lease covered the real estate taxes and insurance expense for 2016. There were farm leases in place during 2015 which generated sufficient income to cover the costs of insurance expense and real estate taxes. The General Partner has agreed to make a supplemental capital contribution to the Partnership if and to the extent that real estate taxes and insurance payable with respect to the Partnership’s land during a given year exceed the revenue earned by the Partnership from leasing its land during such year. Any supplemental capital contribution will be repaid only after limited partners have received, over the life of the Partnership, a return of their original capital plus the 15% cumulative return. The Partnership’s remaining land is not encumbered by debt and is located in an area that it believes is in the path of future development. As such, the Partnership has the ability to hold on to the remaining parcel until such time as a reasonable and acceptable offer is received; however, management has formally changed its intent from holding the remaining parcel for an indefinite period of time to attempting to sell the parcel in the next year, if possible.

In addition, on a quarterly basis, the Partnership reviews impairment indicators and if necessary, conducts an impairment analysis to ensure that the carrying value of the 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, assessment of current economic conditions, and management’s intent to hold on to a property until such time as a reasonable and acceptable offer is received. 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. During the first quarter of 2016, management formally changed its intent from holding the remaining parcels for an indefinite period of time to attempting to sell the parcels in the next year, if possible. Management deemed the change in intent as a trigger for impairment. In addition, as a result of the sale of Parcel 8 on April 15, 2016, the Partnership has only one remaining land parcel. Based on offers and the knowledge of the real estate market gathered for the auction of Parcel 20, management determined the value of the parcel was impaired. For the years ended December 31, 2016 and 2015, the Partnership recorded an impairment of $2,680,000 and $0, respectively on Parcel 20, which reduced the remaining book value to the estimated fair value. Subsequent costs incurred above the estimated fair value for the parcel that may be deemed to be impaired will be expensed and included in land operating expenses.

(b)	Reconciliation of investment properties owned:


	2016			2015
Balance at January 1,	$	11,063,438			11,038,345
Additions during year		1,289			25,093
Provision for loss on investment property held for sale		(585,937	)		0
Impairment loss on land		(2,680,000	)		0
Sale of investment property		(3,676,366	)		0


Balance at December 31,	$	4,122,424			11,063,438

(c)	The aggregate cost of investment properties owned at December 31, 2016 for Federal income tax purposes was approximately $6,800,000 (unaudited).

- Definition

The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures.

+ References + Details

INLAND LAND APPRECIATION FUND II LP 10-K