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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-12538
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First Capital Institutional Real Estate, Ltd. - 1
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(Exact name of registrant as specified in its charter)
Florida 59-2197264
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
- -------------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 207-0020
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Securities registered pursuant to
Section 12(b) of the Act: NONE
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Securities registered pursuant to
Section 12(g) of the Act: Limited Partnership Units
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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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated October 25, 1982, included
in the Registrant's Registration Statement on Form S-11 (Registration
No. 2-79092), is incorporated herein by reference in Part IV of this report.
Exhibit Index - Page A-1
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PART I
ITEM 1. BUSINESS
- ------- --------
The registrant, First Capital Institutional Real Estate, Ltd.- 1 (the
"Partnership") is a limited partnership organized in 1982 under the Florida
Uniform Limited Partnership Law. The Partnership sold $60,000,000 in Limited
Partnership Units (the "Units") to the public from November 1982 through March
1983, pursuant to a Registration Statement on Form S-11 filed with the
Securities and Exchange Commission (Registration Statement No. 2-79092).
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement.
The business of the Partnership is to invest primarily in existing, improved,
income-producing commercial real estate, such as shopping centers, warehouses,
office buildings, and, to a lesser extent, in other types of income-producing
commercial real estate. From May 1983 to January 1985, the Partnership made
three real property investments and purchased 50% interests in three joint
ventures with an Affiliated partnership. Each of these joint ventures was formed
for the purpose of acquiring a 100% interest in certain real property and are
operated under the common control of First Capital Financial Corporation (the
"Managing General Partner"). As of December 31, 1995, the Partnership has sold
two of the real property investments.
Property management services for one of the Partnership's real estate
investments is provided by an independent real estate management company for
fees calculated as a percentage of gross rents received from the property. In
addition, Affiliates of the Managing General Partner provide property management
and/or supervisory services for fees calculated as a percentage of gross rents
received from each of the Partnership's properties.
The real estate business is highly competitive. The results of operations of the
Partnership will depend upon the availability of suitable tenants, real estate
market conditions and general economic conditions which may impact the success
of those tenants. Properties owned by the Partnership frequently compete for
tenants with similar properties owned by others.
As of March 1, 1996, there were nine employees at the Partnership's properties
for on-site property maintenance and administration.
ITEM 2. PROPERTIES(a)(b)
- ------- ----------------
As of December 31, 1995, the Partnership owned, directly or through joint
venture interests, the following four property interests, all of which were
owned in fee simple, except as noted in note (e).
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ---------------------------- -------------------- ------------ -----------
Shopping Center:
- ----------------
Lakewood Square (d) Lakewood, California 150,711 30(1)
Office Buildings:
- -----------------
Foxhall Square (d) Washington, D.C. 141,902 63
Peachtree Palisades East (e) Atlanta, Georgia 128,276 30(2)
12621 Featherwood (d) Houston, Texas 88,811 1(1)
2
ITEM 2. PROPERTIES(a)(b) - Continued
- ------- ----------------------------
Notes:
------
(a) For a discussion of significant operating results and major capital
expenditures planned for the Partnership's properties refer to Item
7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(b) For Federal income tax purposes, the Partnership depreciates the
portion of the acquisition costs of its properties allocable to real
property (exclusive of land) and all improvements thereafter, over
useful lives ranging from 18 years utilizing Accelerated Cost
Recovery System ("ACRS") to 39 years utilizing Modified ACRS
straight-line method. The Partnership's portion of real estate taxes
for Foxhall Square Building ("Foxhall"), Lakewood Square Shopping
Center ("Lakewood"), 12621 Featherwood Building ("Featherwood") and
Peachtree Palisades East Office Building ("Peachtree") was
$184,600, $68,900, $59,800 and $30,700, respectively, for the year
ended December 31, 1995. In the opinion of the Managing General
Partner, the Partnership's properties are adequately insured and
serviced by all necessary utilities.
(c) Represents the total number of tenants, as well as the number of
tenants, in parenthesis, that individually occupy more than 10% of
the net leasable square footage of the property.
(d) The Partnership owns a 50% joint venture interest in this property.
(e) The Partnership leases the land on which this property is situated.
The following table presents each of the Partnership's properties' occupancy
rates as of December 31 for each of the last five years:
Property Name 1995 1994 1993 1992 1991
- ----------------- ------ ------ ------ ------ ------
Lakewood 96% 84% 86% 94% 94%
Foxhall 83% 88% 85% 82% 81%
Peachtree 90% 81% 77% 85% 86%
Featherwood 100% 100% 100% 100% 100%
The amounts in the following table represent each of the Partnership properties'
average annual rental rate per square foot for each of the last five years ended
December 31 which were computed by dividing each property's base rental revenues
by its average occupied square footage:
Property Name 1995 1994 1993 1992 1991
- ----------------- ------ ------ ------ ------ ------
Lakewood $13.67 $14.56 $14.17 $15.15 $15.22
Foxhall $22.99 $22.64 $21.94 $21.94 $26.01
Peachtree $11.73 $11.62 $11.95 $12.41 $12.18
Featherwood $11.18 $10.61 $10.05 $10.23 $10.23
3
ITEM 2. PROPERTIES - Continued
- ------- ----------------------
The following table summarizes the principal provisions of the leases for the
tenants which occupy ten percent or more of the rentable square footage at each
of the Partnership's properties. No individual tenant at Foxhall, the
Partnership's other property, occupies ten percent or more of the rentable
square footage of this building.
Partnership's Share of Percentage
per Annum Base Rents (a) for of Net Renewal
---------------------------- Leasable Options
Final Twelve Expiration Square (Renewal
Months of Date of Footage Options/
1996 Lease Lease Occupied Years)
--------- ------------ ---------- ---------- ---------
Lakewood
- --------
Cost Plus
(specialty store) $123,500 $123,500 10/28/07 13% 2/10
Peachtree
- ---------
Railcar Management, Inc.
(railway management) $198,100 $213,400 4/30/98 12% NONE
Jacor
Communications, Inc.
(radio broadcasting) $270,800 $367,500 8/31/07 15% NONE
Featherwood
- -----------
Parsons S.I.P, Inc.
(engineering firm) $496,500 $496,500 12/14/96 100% NONE
(a) The Partnership's share of per annum base rents for each of the
tenants listed above for the years between 1996 and the final twelve
months of each of the above leases is no lesser or greater than the
amounts listed in the above table.
The amounts in the following table represent the Partnership's portion of leases
in the year of expiration (assuming no lease renewals) for the Partnership
through the year ended December 31, 2005:
Number Base Rents
of in Year of % of Total
Year Tenants Square Feet Expiration(a) Base Rents(b)
------ --------- ----------- ------------- -------------
1996 25 140,623 $809,669 19.75%
1997 15 19,722 $147,850 4.47%
1998 27 92,820 $481,852 17.84%
1999 15 28,777 $285,759 13.38%
2000 10 27,208 $168,985 9.45%
2001 4 15,698 $ 79,077 5.31%
2002 3 8,223 $ 67,231 4.89%
2003 11 23,521 $159,154 13.10%
2004 1 2,913 $ 43,551 4.08%
2005 7 38,364 $250,037 47.86%
4
ITEM 2. PROPERTIES - Continued
- ------- ------------------------
(a) Represents the Partnership's portion of base rents to be collected
each year on expiring leases.
(b) Represents the Partnership's portion of base rents to be collected
each year on expiring leases as a percentage of the Partnership's
portion of the total base rents to be collected on leases existing
as of December 31, 1995.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
(a & b) The Partnership and its properties were not a party to, nor the subject
of, any material pending legal proceedings, nor were any such proceedings
terminated during the quarter ended December 31, 1995. Ordinary routine
litigation incidental to the business which is not deemed material was
maintained during the quarter ended December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
(a,b,c & d) None.
5
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER
MATTERS
There has not been, nor is there expected to be, a public market for Units.
As of March 1, 1996, there were 8,809 Holders of Units.
ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ------------ ----------- ------------
Total revenues $ 4,877,200 $ 4,604,600 $ 4,682,700 $ 5,742,100 $ 6,133,500
Net income (loss) $ 173,300 $ 434,400 $ 1,167,800 $ (194,800) $ 1,966,100
Net income (loss) allocated to Limited Partners $ 276,900 $ 532,200 $ 1,262,200 $ (199,800) $ 2,066,700
Net income (loss) allocated to Limited
Partners per Unit (60,000 Units issued
and outstanding) $ 4.62 $ 8.87 $ 21.04 $ (3.33) $ 34.45
Total assets $28,553,900 $29,792,600 $ 30,524,900 $30,432,200 $36,630,300
Distributions to Limited Partners per Unit
(60,000 Units issued and outstanding) (a) $ 25.68 $ 23.32 $ 13.32 $ 102.12 $ 32.12
Return of capital to Limited Partners per Unit
(60,000 Units issued and outstanding) (b) $ 21.06 $ 14.45 N/A $ 102.12 N/A
Other data:
Investment in commercial rental properties
(net of accumulated depreciation and
amortization) $24,149,000 $25,324,600 $ 25,990,100 $26,455,500 $34,554,400
Number of real property interests
owned at December 31 4 4 4 4 5
6
ITEM 6. SELECTED FINANCIAL DATA -- Continued
Notes:
(a) Distributions per Unit to Limited Partners for the year ended December
31, 1992 included Sale Proceeds of $70.00.
(b) For purposes of this table, return of capital represents either: 1) the
amount by which distributions, if any, exceed net income for the
respective year or 2) total distributions, if any, when the Partnership
incurs a net loss for the respective year. Pursuant to the Partnership
Agreement, Capital Investment is only reduced by distributions of Sale
Proceeds. Accordingly, return of capital as used in this table does not
impact Capital Investment.
The following table is a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by generally accepted accounting principles ("GAAP"):
For the Years Ended December 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
Cash Flow (as defined in the Partnership
Agreement) (a) $ 2,443,600 $ 2,069,000 $ 2,346,700 $ 2,953,900 $ 3,302,300
Items of reconciliation:
Changes in assets and liabilities:
Decrease (increase) in current assets 79,400 59,500 (29,000) (21,100) 184,700
Increase (decrease) in current liabilities 85,600 61,000 7,600 69,000 (110,600)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities $ 2,608,600 $ 2,189,500 $ 2,325,300 $ 3,001,800 $ 3,376,400
=========== =========== =========== =========== ===========
Net cash (used for) provided by investing
activities $(1,094,700) $ (969,200) $ (713,500) $ 5,025,000 $ (495,800)
=========== =========== =========== =========== ===========
Net cash (used for) financing activities $(1,497,600) $(1,227,600) $(1,082,700) $(6,147,100) $(2,312,400)
=========== =========== =========== =========== ===========
(a) Cash Flow is defined in the Partnership Agreement as Partnership
revenues earned from operations (excluding tenant deposits and proceeds
from the sale or disposition of any Partnership properties), minus all
expenses incurred (including Operating Expenses and any reserves deemed
reasonably necessary by the Managing General Partner), except
depreciation and amortization expenses and capital expenditures, lease
acquisition expenditures and the General Partners' Subordinated
Partnership Management Fee.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing on pages A-1 through A-7
in this report and the supplemental schedule on pages A-8 and A-9.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through three
phases: (i) Offering of Units and investment in properties, (ii) operation of
properties and (iii) sale or other disposition of properties.
The Partnership commenced the Offering of Units on November 16, 1982 and began
operations on January 3, 1983, after reaching the required minimum subscription
level. In March, 1983, the Offering was terminated upon the sale of 60,000
Units. During the period of 1983 to 1985 the Partnership purchased a total of
six properties, including three 50% joint venture interests.
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
1990 the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle. During the disposition
phase of the Partnership's life cycle, comparisons of operating results are
complicated due to the timing and effect of property sales. Partnership
operating results are generally expected to decline as real property interests
are sold since the Partnership no longer receives income generated from such
real property interests. As of December 31, 1995 the Partnership has sold two
real property investments.
The Partnership's three office buildings accounted for 73% of the Partnership's
total revenue for the year ended December 31, 1995. Several factors have had an
effect on operating performance and market values of the Partnership's office
buildings. While occupancy rates have generally continued to gradually improve,
the age of the Partnership's office properties and increased competition from
newer buildings with higher vacancy has caused rental rates to either decline
or remain relatively flat in most instances. 12621 Featherwood ("Featherwood")
is occupied by one tenant, whose lease expires in December 1996. It is unknown
whether the tenant will vacate the property upon expiration of its lease. Costs
to the Partnership of retenanting the property could be substantial.
The General Partner has historically reviewed significant factors regarding the
properties, such as those mentioned above, to determine that the properties are
carried at lower of cost or fair market value, and where appropriate has made
value impairment adjustments. These factors include, but are not limited to 1)
recent and/or budgeted operating performance; 2) research of market conditions;
3) economic trends affecting major tenants; 4) economic factors related to the
region where the properties are located and 5) when available, recent property
appraisals. As a result of the current year review, the Partnership has
recorded provisions for value impairment totaling $1,100,000 related to the
Partnership's office properties for the year ended December 31, 1995. For more
details related to these provisions, see Note 7 of Notes to Financial
Statements. The General Partner will continue to evaluate real estate market
conditions affecting each of the Partnership's properties, in its efforts to
maximize the realization of proceeds on their eventual disposition. The
recording of the provisions for value impairment does not impact cash flows as
defined by generally accepted accounting principles or Cash Flow (as defined in
the Partnership Agreement).
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1995, 1994 and 1993.
The discussion following the table should be read in conjunction with the
Financial Statements and Notes thereto appearing in this report.
Comparative Operating Results
(a)
For the Years Ended December 31,
---------------------------------
1995 1994 1993
- -----------------------------------------------------------------
PEACHTREE PALISADES OFFICE BUILDING
Rental revenues $1,402,200 $1,249,000 $1,408,600
- -----------------------------------------------------------------
Property net income (loss) (b) $ 9,300 $ (67,700) $ 156,500
- -----------------------------------------------------------------
Average occupancy 84% 80% 83%
- -----------------------------------------------------------------
LAKEWOOD SQUARE SHOPPING CENTER
Rental revenues $1,170,100 $1,168,900 $1,121,700
- -----------------------------------------------------------------
Property net income $ 602,500 $ 496,600 $ 473,000
- -----------------------------------------------------------------
Average occupancy 91% 84% 85%
- -----------------------------------------------------------------
FOXHALL SQUARE BUILDING
Rental revenues $1,574,000 $1,554,700 $1,619,000
- -----------------------------------------------------------------
Property net income (b) $ 483,800 $ 449,400 $ 429,900
- -----------------------------------------------------------------
Average occupancy 85% 86% 83%
- -----------------------------------------------------------------
12621 FEATHERWOOD BUILDING
Rental revenues $ 498,700 $ 456,600 $ 417,900
- -----------------------------------------------------------------
Property net income (b) $ 154,400 $ 94,800 $ 248,700
- -----------------------------------------------------------------
Average occupancy 100% 100% 100%
- -----------------------------------------------------------------
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income
and general and administrative expenses or are related to properties
previously owned by the Partnership.
(b) Property net income (loss) excludes provisions for value impairment which
were included in the Statements of Income and Expenses for the years ended
December 31, 1995 and 1994 (see Note 7 of Notes to Financial Statements for
additional information).
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net income for the year ended December 31, 1995 decreased $261,100 when
compared to the year ended December 31, 1994. The effects of the provisions for
value impairment recorded for the years ended December 31, 1995 and December
31, 1994 of $1,100,000 and $500,000, respectively, had significant impact on
the comparison of net income. For additional information see Note 7 of Notes to
Financial Statements.
Net income for the year ended December 31, 1995, exclusive of the provisions
for value impairment, increased $338,900 when compared to the year ended
December 31, 1994. The increase in net income for the years under comparison
was primarily due to: 1) improved operating results at all of the Partnership's
properties totaling $276,900; 2) increased interest income of $57,900 resulting
from an increase in
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
rates available on the Partnership's short-term investments and 3) decreased
general and administrative costs of $4,100 resulting from a decrease in data
processing and appraisal fees partially offset by increases in salaries and
printing and mailing costs.
Total rental revenues increased $215,700, or 4.9%, for the year ended December
31, 1995, when compared to the year ended December 31, 1994. Rental revenues
increased at all of the Partnership's properties due to: 1) increased base
rents and tenant expense reimbursements for real estate tax expense at
Peachtree Palisades Office Building ("Peachtree") resulting from an increase in
occupancy; 2) increased base rents, tenant expense reimbursements and net
income from the operations of the parking garage at Foxhall Square Building
("Foxhall"); 3) increased base rents and tenant expense reimbursements for real
estate taxes and common area costs charged to the sole tenant at Featherwood
and 4) increased base rents at Lakewood Square Shopping Center ("Lakewood")
primarily due to an increase in occupancy, partially offset by a decrease in
tenant expense reimbursements for real estate taxes due to the receipt of real
estate tax refunds for the 1993/1994 and 1994/1995 tax years.
Total real estate tax expense decreased $89,100 for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The decrease was
primarily due to the receipt of refunds in 1995 of $27,800 for 1993/1994 and
$29,400 for 1994/1995 real estate taxes at Lakewood and $38,700 for 1992 real
estate taxes at Peachtree. Also contributing to the decrease was a decrease in
real estate taxes at Featherwood resulting from a decrease in both the assessed
value and tax rate imposed by the taxing authority. Although the assessed value
at Foxhall has decreased and the actual taxes paid in 1995 were lower than in
1994, real estate tax expense was higher in 1995 due to the fact that 1994
included a refund for real estate taxes for the 1992/1993 tax year.
Total property operating expenses for the year ended December 31, 1995
increased $18,800 when compared to the year ended December 31, 1994. The
primary factors which caused this increase were: 1) increased personnel costs
(due to the hiring of a full time on-site property manager), utilities and
professional fees at Peachtree; 2) increased security costs at Peachtree,
Featherwood and Lakewood and 3) increased professional fees at Foxhall.
Partially offsetting the increase in property operating expenses was a decrease
in utilities at Foxhall and a decrease in Affiliated management fees at
Lakewood and Foxhall. Although management fee payments were higher in 1995 than
1994, the Affiliated management fees decreased for the comparable periods due
to the fact that leasing related costs, which are ordinarily paid to and
provided by an Affiliate of the Managing General Partner as part of its
property management fee, were paid to outside brokers and the expense was
capitalized as lease commissions and amortized over the respective lease terms
of new tenants.
Total insurance expense decreased $17,300 for the year ended December 31, 1995,
when compared to the year ended December 31, 1994. This decrease was primarily
due to lower group rates on the Partnership's combined insurance coverage as a
result of a minimal amount of claims made over the past several years.
Total repairs and maintenance expense decreased $9,100 for the year ended
December 31, 1995 when compared to the year ended December 31, 1994. The
decrease was primarily due to a decrease in repairs to the HVAC system and
decreased architectural costs associated with space planning for new and
relocating tenants at Peachtree and a decrease in janitorial costs at Foxhall.
Partially offsetting the above decrease was increased repairs and maintenance
expense at Featherwood resulting from an increase in minor repairs required to
maintain the HVAC system and increased expenses associated with patching,
resurfacing and striping of the parking lots at Foxhall and Lakewood.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 TO THE YEAR ENDED DECEMBER 31,
1993
Net income for the Partnership decreased by $733,400 for the year ended
December 31, 1994 when compared to the year ended December 31, 1993. The
provision for value impairment recorded for the year ended December 31, 1994 of
$500,000 had a significant impact on the comparison of net income. For
additional information see Note 7 of Notes to the Financial Statements.
Net income, exclusive of the provision for value impairment, decreased $233,400
for the comparable periods. The significant factors causing the decrease were
lower operating results at Peachtree and Featherwood of $224,200 and $153,900,
respectively. Partially offsetting the decrease in net income was: 1) improved
operating results at Lakewood and Foxhall of $23,600 and $19,500, respectively;
2) increased interest income of $57,800 due to a trend in higher rates earned
on short-term investments and 3) decreased general and administrative costs of
$10,200 resulting primarily from a decrease in printing and mailing costs.
Rental revenues decreased by $135,900, or 3%, for the year ended December 31,
1994 when compared to the year ended December 31, 1993. The decrease in rental
revenues was primarily due to: 1) lower escalation income at Foxhall resulting
from overpayments by tenants in prior years as well as changes in tenants' base
years caused by lease rollovers, partially offset by an increase in base rents
and 2) a decrease in the average annual occupancy rate at Peachtree. Partially
offsetting the decrease in rental revenues was: 1) increased rental revenues at
Lakewood primarily due to the write-off in 1993 of approximately $51,000 in
uncollectible tenant receivables and 2) increased rental revenues at
Featherwood due to an increase in base rents resulting from the expiration of
the prior tenant's lease, which was on a net basis, as discussed below.
On December 14, 1993, the lease expired for the sole tenant at Featherwood. On
December 14, 1993, the Partnership and First Capital Institutional Real Estate,
Ltd.--2, an Affiliated partnership, (collectively "FCIRE 1 & 2") entered into a
three-year lease agreement with one of the former subtenants to occupy the
entire building. The terms of the new lease provided for minimum rents to be
earned by FCIRE 1 & 2 of approximately $992,900 per annum throughout the term
of the lease, of which the Partnership has a 50% interest. The Partnership's
share of total operating expenses, real estate taxes, and repairs and
maintenance increased for the year ended December 31, 1994 when compared to the
year ended December 31, 1993 due to the assumption of these obligations by the
Partnership resulting from the expiration of the prior tenant's lease, which
was on a net basis.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
Total repairs and maintenance expense increased $144,800 for the year ended
December 31, 1994 when compared to the year ended December 31, 1993. The
increase was primarily due to: 1) increased repairs and maintenance at
Peachtree due to repairs made to the HVAC and fire protection systems and minor
tenant improvements; 2) increased repairs and maintenance at Featherwood as
discussed above and 3) increased personnel costs at Foxhall resulting from an
increase in janitorial payroll.
Total property operating expenses increased $66,100 for the year ended December
31, 1994 when compared to the year ended December 31, 1993. The increase was
primarily due to: 1) increased utility expenses at Featherwood for the reasons
discussed above and 2) increased personnel costs resulting from increased
common area security at Lakewood. Partially offsetting the increase in property
operating expenses was decreased promotional and advertising expenditures at
Foxhall.
Total real estate tax expense and insurance expense remained relatively flat
for the year ended December 31, 1994 when compared to the year ended December
31, 1993.
To increase and/or maintain occupancy levels at the Partnership's properties,
the Managing General Partner, through its Affiliated asset and property
management groups, continues to take the following actions: 1) implementation
of marketing programs, including hiring of third-party leasing agents or
providing on-site leasing personnel, advertising, direct mail campaigns and
development of building brochures; 2) early renewal of existing tenant leases
and addressing any expansion needs these tenants may have; 3) promotion of
local broker events and networking with local brokers; 4) networking with
national level retailers; 5) cold-calling other businesses and tenants in the
market area; and 6) providing rental concessions or competitively pricing
rental rates depending on market conditions.
The rate of inflation has remained relatively stable during the years under
comparison and has had a minimal impact on the operating results of the
Partnership. The nature of various tenants lease clauses protects the
Partnership, to some extent, from increases in the rate of inflation. Certain
of the lease clauses provide for the following: 1) annual rent increases based
on the Consumer Price Index or graduated rental increases; 2) percentage
rentals at shopping centers, for which the Partnership receives as additional
rent a percentage of a tenant's sales over predetermined breakeven amounts and
3) total or partial tenant reimbursement of property operating expenses (e.g.,
common area maintenance, real estate taxes, etc.).
LIQUIDITY AND CAPITAL RESOURCES
A primary objective of the Partnership is to provide cash distributions to
Partners from Partnership operations. Cash Flow (as defined in the Partnership
Agreement) is generally not equal to Partnership net income or cash flow as
defined by GAAP, since certain items are treated differently under the
Partnership Agreement than under GAAP. The Managing General Partner believes
that to facilitate a clear understanding of the Partnership's operations, an
analysis of Cash Flow (as defined in the Partnership Agreement) should be
examined in conjunction with an analysis of net income or cash flow as defined
by GAAP. The table in Item 6. Selected Financial Data includes a reconciliation
of Cash Flow (as defined in the Partnership Agreement) to cash flow provided by
operating activities as defined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not necessarily be considered as an
alternative to the results disclosed in the Statements of Income and Expenses
and Statements of Cash Flows.
Cash Flow (as defined in the Partnership Agreement) for the year ended December
31, 1995 was $2,443,600, a $374,600 increase when compared to the year ended
December 31, 1994. This increase was primarily due to the increase in net
income, exclusive of depreciation, amortization, and provisions for value
impairment for the comparable periods, as previously discussed.
The increase in the Partnership's cash position of $16,300 as of December 31,
1995 when compared to December 31, 1994 was primarily the result of net cash
provided by operating activities exceeding payments made for capital and tenant
improvements and leasing costs and distributions paid to Limited Partners.
Liquid assets of the Partnership as of December 31, 1995 were comprised of
undistributed cash from operations retained for working capital purposes.
Net cash provided by operating activities continues to be the Partnership's
primary source of funds. Net cash provided by operating activities for the year
ended December 31, 1995 was $2,608,600, a $419,100 increase when compared to
the year ended December 31, 1994. This increase was primarily due to the
increase in net income as previously discussed, and the decrease in other
assets due to the receipt of a rebate for a previous purchase at Foxhall in the
amount of $155,000, which previously has been included in other assets on the
Partnership's balance sheet.
The increase in net cash used for investing activities of $125,500 for the year
ended December 31, 1995 when compared to the year ended December 31, 1994 was
due to an increase in expenditures for capital and tenant improvements and
leasing costs for the Partnership's properties. The Partnership maintains
working capital reserves to pay for these types of capital expenditures. During
the year ended December 31, 1995, the Partnership spent $1,094,700 for building
and tenant improvements and leasing costs and has budgeted to spend
approximately $1,164,000 during the year ending December 31, 1996. Included in
the 1996 budgeted amount are capital and tenant improvements and leasing costs
of approximately $425,000, $374,000, $332,000 and $33,000 at Foxhall, Lakewood,
Peachtree and Featherwood, respectively. The Managing General Partner believes
these expenditures are necessary to increase and/or maintain occupancy levels
in very competitive markets, maximize rental rates charged to new and renewing
tenants and prepare the properties for eventual disposition.
The increase in net cash used for financing activities of $270,000 for the year
ended December 31, 1995 when compared to the year ended December 31, 1994 was
due primarily to an increase in distributions paid to Limited Partners.
The Managing General Partner continues to take a conservative approach to
projections of future rental income and to maintain higher levels of cash
reserves due to the anticipated capital and tenant improvements and leasing
costs necessary to be made at the Partnership's properties during the next
several years. As a result of this, cash continues to be retained to supplement
working capital reserves. For the year ended December 31, 1995, Cash Flow (as
defined in the Partnership Agreement) retained to supplement working capital
was $902,800.
10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report.
See page A-1 "Index of Financial Statements, Schedule and Exhibits."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
(a) DIRECTORS
---------
The Partnership has no directors. First Capital Financial Corporation
("FCFC") is the Managing General Partner. The directors of FCFC, as of
March 29, 1996, are shown in the table below. Directors serve for one year
or until their successors are elected. The next annual meeting of FCFC will
be held in June 1996.
Name Office
---- ------
Samuel Zell........................................ Chairman of the Board
Douglas Crocker II................................. Director
Sheli Z. Rosenberg................................. Director
Sanford Shkolnik................................... Director
Samuel Zell, 54, has been a Director of the Managing General Partner since
1983 (Chairman of the Board since December 1985) and is Chairman of the
Board of Great American Management and Investment, Inc. ("Great American").
Mr. Zell is also Chairman of the Board of Equity Financial and Management
Company ("EFMC") and Equity Group Investments, Inc. ("EGI"), and is a
trustee and beneficiary of a general partner of Equity Holdings Limited, an
Illinois Limited Partnership, a privately owned investment partnership. He
is also Chairman of the Board of Directors of Anixter International Inc.,
Falcon Building Products, Inc. and American Classic Voyages Co. He is
Chairman of the Board of Trustees of Equity Residential Properties Trust.
He is a director of Quality Food Centers, Inc. and Sealy Corporation.
He is Chairman of the Board of Directors and Chief Executive Officer of
Capsure Holdings Corp. and Manufactured Home Communities, Inc. and Co-
Chairman of the Board of Revco D.S., Inc. Mr. Zell was President of Madison
Management Group, Inc. ("Madison") prior to October 4, 1991. Madison filed
for protection under the Federal bankruptcy laws on November 8, 1991.
Douglas Crocker II, 55, has been President and Chief Executive Officer
since December 1992 and a Director since January 1993 of the Managing
General Partner. Mr. Crocker has been an Executive Vice President of EFMC
since November 1992. Mr. Crocker has been President, Chief Executive
Officer and trustee of Equity Residential Properties Trust since March 31,
1993. He was President of Republic Savings Bank, F.S.B. ("Republic") from
1989 to June 1992 at which time the Resolution Trust Company took control
of Republic. Mr. Crocker is a member of the Board of Directors of Horizon
Group, Inc.
Sheli Z. Rosenberg, 54, was President and Chief Executive Officer of the
Managing General Partner from December 1990 to December 1992 and has been a
Director of the Managing General Partner since September 1983; was
Executive Vice President and General Counsel for EFMC from October 1980 to
November 1994; has been President and Chief Executive Officer of EFMC and
EGI since November 1994; has been a Director of Great American since June
1984 and is a director of various subsidiaries of Great American. She is
also a director of Anixter International Inc., Capsure Holdings Corp.,
American Classic Voyages Co., Falcon Building Products, Inc., Jacor
Communications, Inc., Revco D.S., Inc., Sealy Corporation and CFI
Industries, Inc. She was Chairman of the Board from January 1994 to
September 1994; Co-Chairman of the Board from September 1994 until March
1995 of CFI Industries, Inc. She is also a trustee of Equity Residential
Properties Trust. Ms. Rosenberg is a Principal of Rosenberg & Liebentritt,
P.C., counsel to the Partnership, the Managing General Partner and certain
of their Affiliates. Ms. Rosenberg was Vice President of Madison prior to
October 4,
12
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -- Continued
- -------- --------------------------------------------------
(a) DIRECTORS (continued)
---------------------
1991. Madison filed for protection under the Federal bankruptcy laws on
November 8, 1991. She has been Vice President of First Capital Benefit
Administrators, Inc. ("Benefit Administrators") since July 22, 1987.
Benefit Administrators filed for protection under the Federal Bankruptcy
laws on January 3, 1995.
Sanford Shkolnik, 57, has been a Director of the Managing General Partner
since December 1985. Mr. Shkolnik has been Executive Vice President of EFMC
since 1976. He is Chairman of the Board and Chief Executive Officer of SC
Management, Inc., which is general partner of Equity Properties and
Development Limited Partnership, a nationally ranked shopping center
management company.
(b,c & e) EXECUTIVE OFFICERS
------------------
The Partnership does not have any executive officers. The executive
officers of the Managing General Partner as of March 29, 1996 are shown in
the table. All officers are elected to serve for one year or until their
successors are elected and qualified.
Name Office
---- ------
Douglas Crocker II.................. President and Chief Executive Officer
Arthur A. Greenberg................. Senior Vice President
Norman M. Field..................... Vice President - Finance and Treasurer
PRESIDENT AND CEO -- See Table of Directors above.
Arthur A. Greenberg, 55, has been Senior Vice President of the Managing
General Partner since August 1986. Mr. Greenberg was Executive Vice
President and Chief Financial Officer of Great American from December 1986
to March 1995. Mr. Greenberg also is an Executive Vice President of EFMC
since 1971, and President of Greenberg & Pociask, Ltd. He is Senior Vice
President since 1989 and Treasurer since 1990 of Capsure Holdings Corp. Mr.
Greenberg is a director of American Classic Voyages Co. and Chairman of the
Board of Firstate Financial A Savings Bank. Mr. Greenberg was Vice
President of Madison prior to October 4, 1991. Madison filed for protection
under the Federal bankruptcy laws on November 8, 1991.
Norman M. Field, 47, has been Vice President of Finance and Treasurer of
the Managing General Partner since February 1984, and also served as Vice
President and Treasurer of Great American from July 1983 until March 1995.
Mr. Field has been Treasurer of Benefit Administrators since July 22, 1987.
He also served as Vice President of Madison until October 4, 1991. He was
Chief Financial Officer of Equality Specialties, Inc. ("Equality"),
subsidiary of Great American, from August 1994 to April 1995. Equality was
sold in April 1995.
(d) FAMILY RELATIONSHIPS
--------------------
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
----------------------------------------
With the exception of the bankruptcy matters disclosed under Items 10 (a),
(b), (c) and (e), there are no involvements in certain legal proceedings
among any of the foregoing directors and officers.
13
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors.
Neither the Managing General Partner, nor any director or officer of the
Managing General Partner, received any direct remuneration from the Partnership
during the year ended December 31, 1995. However, the Managing General Partner
and Affiliates of the Managing General Partner do compensate the directors and
officers of the Managing General Partner. For additional information see Item
13 (a) Certain Relationships and Related Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(a) As of March 1, 1996 no person owned of record or was known by the
Partnership to own beneficially more than 5% of the Partnership's 60,000 Units
then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1, 1996,
the executive officers and directors of First Capital Financial Corporation, the
Managing General Partner, as a group, did not own any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
(a) On February 23, 1993, First Capital Properties Corporation changed its name
to First Capital Financial Corporation.
Certain Affiliates of the Managing General Partner, provide leasing, property
management and supervisory services to the Partnership. Compensation for these
property management services may not exceed 6% of the gross receipts from the
property being managed where the Managing General Partner or Affiliates provide
leasing, re-leasing, or leasing related services, or 3% of gross receipts where
the Managing General Partner or Affiliates do not perform leasing, re-leasing or
leasing related services. For the year ended December 31, 1995, these Affiliates
were entitled to supervisory and property management and leasing fees of
approximately $168,100. In addition, other Affiliates of the Managing General
Partner were entitled to compensation and reimbursement of approximately $93,400
from the Partnership for insurance, personnel, and other miscellaneous services.
Services of Affiliates shall be on terms which are fair, reasonable and no less
favorable to the Partnership than reasonably could be obtained from unaffiliated
persons. As of December 31, 1995, total fees and reimbursements of $21,900 were
due to Affiliates.
Jacor Communications, Inc. ("Jacor"), a radio broadcasting company, of which an
approximate 65% interest is owned by Zell Chilmark Fund L.P., an Affiliate of
the Managing General Partner, is obligated to the Partnership under a lease for
office space at Peachtree. During the year ended December 31, 1995, Jacor paid
rent of $59,800. The rent paid by Jacor is comparable to that paid by other
tenants at Peachtree.
As of December 31, 1995, the Partnership has a recorded liability in the total
amount of $403,000 payable to the Managing General Partner for real estate
commissions earned in connection with the sale of Partnership properties. Under
the terms of the Partnership Agreement, these commissions will not be paid until
such time as Limited Partners have received cumulative distributions of Sale or
Refinancing Proceeds equal to 100% of their Original Capital Contribution plus a
cumulative return
14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Continued
- -------- -----------------------------------------------------------
(including all Cash Flow which has been distributed to the Limited Partners from
the initial date of investment) of 6% simple interest per annum on their Capital
Investment from the initial date of investment.
In accordance with the Partnership Agreement, subsequent to March 31, 1983, the
Termination of the Offering, the General Partners are entitled to 10% of
distributable Cash Flow (as defined by the Partnership Agreement) as their
Subordinated Partnership Management Fee, provided that Limited Partners first
receive specified non-cumulative annual rates of return on their Capital
Investment.
In accordance with the Partnership Agreement, Net Profits (exclusive of
depreciation and Net Profits from the sale or disposition of Partnership
properties) are allocated: first, to the General Partners, in an amount equal to
the greater of the General Partners' Subordinated Partnership Management Fee or
1% of such Net Profits; second, the balance, if any, to the Limited Partners.
Net Profits from the sale or disposition of a Partnership property are
allocated: first, to the General Partners, in an amount equal to the aggregate
amount of depreciation previously allocated to them; second, to the General
Partners and the Limited Partners with negative balances in their capital
accounts pro rata in proportion to such respective negative balances, to the
extent of the total of such negative balances; third, to the General Partners,
in an amount necessary to make the aggregate amount of their capital accounts
equal to the greater of the Sale Proceeds to be distributed to the General
Partners with respect to the sale or disposition of such property or 1% of such
Net Profits; and fourth, the balance, if any, to the Limited Partners. Net
Losses (exclusive of depreciation and Net Losses from the sale or disposition of
Partnership properties) are allocated 1% to the General Partners and 99% to the
Limited Partners. All depreciation is allocated 10% to the General Partners and
90% to the Limited Partners. Net Losses from the sale or disposition of
Partnership properties are allocated: first, to the extent that the balance in
the General Partners' capital accounts exceeds their Capital Investment or the
balance in the capital accounts of the Limited Partners exceeds the amount of
their Capital Investment (the "Excess Balances"), to the General Partners and
the Limited Partners pro rata in proportion to such Excess Balances until such
Excess Balances are reduced to zero; second, to the General Partners and the
Limited Partners and among them (in the ratio which their respective capital
account balances bear to the aggregate of all capital account balances) until
the balance in their capital accounts shall be reduced to zero; third, the
balance, if any, 99% to the Limited Partners and 1% to the General partners. In
all events there shall be allocated to the General Partners not less than 1% of
Net Profits and Net Losses from the sale or disposition of a Partnership
property. The General Partners were not entitled to cash distributions but were
allocated a Net (Loss) of $(103,600) which included a (loss) from
provisions for value impairment of $(11,000) for the year ended December 31,
1995.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the Managing General Partner and certain of their Affiliates. Sheli
Z. Rosenberg, President and Chief Executive Officer of the Managing General
Partner from December 1990 to December 1992 and a director of the Managing
General Partner since September 1983, is a Principal of Rosenberg. Compensation
for these services are on terms which are fair, reasonable and no less favorable
to the Partnership than reasonably could have been obtained from unaffiliated
persons. Total legal fees paid to Rosenberg for the year ended December 31, 1995
were $37,600.
(c) No management person is indebted to the Partnership.
(d) None.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a,c & d) (1,2 & 3) See Index of Financial Statements, Schedule and Exhibits on
page A-1 of Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended December 31,
1995.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 1
BY: FIRST CAPITAL FINANCIAL CORPORATION
MANAGING GENERAL PARTNER
Dated: March 29, 1996 By: /s/ DOUGLAS CROCKER II
------------------- --------------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ SAMUEL ZELL March 29, 1996 Chairman of the Board and
- ----------------------- -------------- Director of the Managing
SAMUEL ZELL General Partner
/s/ DOUGLAS CROCKER II March 29, 1996 President, Chief Executive
- ----------------------- -------------- Officer and Director of the
DOUGLAS CROCKER II Managing General Partner
/s/ SHELI Z. ROSENBERG March 29, 1996 Director of the Managing
- ----------------------- -------------- General Partner
SHELI Z. ROSENBERG
/s/ SANFORD SHKOLNIK March 29, 1996 Director of the Managing
- ----------------------- -------------- General Partner
SANFORD SHKOLNIK
/s/ NORMAN M. FIELD March 29, 1996 Vice President - Finance and
- ----------------------- -------------- Treasurer
NORMAN M. FIELD
INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Pages
----------
Report of Independent Auditors A-2
Balance Sheets at December 31, 1995 and 1994 A-3
Statements of Partners' Capital for the Years Ended
December 31, 1995, 1994, and 1993 A-3
Statements of Income and Expenses for the Years Ended
December 31, 1995, 1994, and 1993 A-4
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 A-4
Notes to Financial Statements A-5 to A-7
SCHEDULE FILED AS PART OF THIS REPORT
III -- Real Estate and Accumulated Depreciation as of
December 31, 1995 A-8 to A-9
All other schedules have been omitted as inapplicable, or for the reason that
the required information is shown in the financial statements or notes thereto.
EXHIBITS FILED AS PART OF THIS REPORT
EXHIBITS (3 & 4) First Amended and Restated Certificate and Agreement of Limited
Partnership as set forth on pages A-1 through A-29 of the Partnership's
definitive Prospectus dated October 25, 1982; Registration Statement No.
2-79092, filed pursuant to Rule 424 (b), is incorporated herein by reference.
The Partnership agreement as filed has subsequently been amended to reflect the
admission, withdrawal and substitution of Limited Partners, the reduction of
Limited Partners' Capital Contributions, and the withdrawal of an individual
General Partner.
EXHIBIT (10) Lease Agreement for a tenant that occupies more than 10% of the net
leasable square footage of one of the Partnership's properties.
EXHIBIT (13) Annual Report to Security Holders
The 1994 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (27) Financial Data Schedule
A-1
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Institutional Real Estate, Ltd. - 1
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Institutional
Real Estate, Ltd. - 1 as of December 31, 1995 and 1994, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 1995, and the schedule listed
in the accompanying index. These financial statements and schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Institutional
Real Estate, Ltd. - 1 at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 1, 1996
A-2
BALANCE SHEETS
December 31, 1995 and 1994
(All dollars rounded to nearest 00s)
1995 1994
- --------------------------------------------------------------------------
ASSETS
Investment in commercial rental properties:
Land $ 5,501,700 $ 5,501,700
Buildings and improvements 30,584,800 30,590,100
36,086,500 36,091,800
Accumulated depreciation and amortization (11,937,500) (10,767,200)
- --------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 24,149,000 25,324,600
Cash and cash equivalents 4,254,900 4,238,600
Rents receivable 149,800 67,300
Other assets 200 162,100
- --------------------------------------------------------------------------
$28,553,900 $29,792,600
- --------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 432,500 $ 363,000
Due to Affiliates 21,900 44,700
Real estate commissions due to Managing General
Partner 403,000 403,000
Security deposits 145,800 138,000
Distributions payable 385,200 349,800
Other liabilities 109,000 70,100
- --------------------------------------------------------------------------
1,497,400 1,368,600
- --------------------------------------------------------------------------
Partners' (deficit) capital:
General Partners (359,300) (255,700)
Limited Partners (60,000 Units issued and
outstanding) 27,415,800 28,679,700
- --------------------------------------------------------------------------
27,056,500 28,424,000
- --------------------------------------------------------------------------
$28,553,900 $29,792,600
- --------------------------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s)
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
January 1, 1993 $ (63,500) $29,083,700 $29,020,200
Net (loss) income for the
year ended December 31, 1993 (94,400) 1,262,200 1,167,800
Distributions for the year ended December
31, 1993 (799,200) (799,200)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1993 (157,900) 29,546,700 29,388,800
Net (loss) income for the
year ended December 31, 1994 (97,800) 532,200 434,400
Distributions for
the year ended December 31, 1994 (1,399,200) (1,399,200)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1994 (255,700) 28,679,700 28,424,000
Net (loss) income for the
year ended December 31, 1995 (103,600) 276,900 173,300
Distributions for the year ended December
31, 1995 (1,540,800) (1,540,800)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1995 $(359,300) $27,415,800 $27,056,500
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
A-3
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s except per Unit amounts)
1995 1994 1993
- -----------------------------------------------------------------------------
Income:
Rental $4,644,000 $4,429,300 $4,565,200
Interest 233,200 175,300 117,500
- -----------------------------------------------------------------------------
4,877,200 4,604,600 4,682,700
- -----------------------------------------------------------------------------
Expenses:
Depreciation and amortization 1,170,300 1,134,600 1,178,900
Property operating:
Affiliates 199,200 221,900 251,400
Nonaffiliates 950,500 909,000 813,400
Real estate taxes 344,000 433,100 427,500
Insurance--Affiliate 46,300 63,600 70,300
Repairs and maintenance 685,300 694,400 549,600
General and administrative:
Affiliates 47,300 37,000 30,100
Nonaffiliates 161,000 176,600 193,700
Provisions for value impairment 1,100,000 500,000
- -----------------------------------------------------------------------------
4,703,900 4,170,200 3,514,900
- -----------------------------------------------------------------------------
Net income $ 173,300 $ 434,400 $1,167,800
- -----------------------------------------------------------------------------
Net (loss) allocated to General Partners $ (103,600) $ (97,800) $ (94,400)
- -----------------------------------------------------------------------------
Net income allocated to Limited Partners $ 276,900 $ 532,200 $1,262,200
- -----------------------------------------------------------------------------
Net income allocated to Limited Partners
per Unit (60,000 Units outstanding) $ 4.62 $ 8.87 $ 21.04
- -----------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s)
1995 1994 1993
- ----------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 173,300 $ 434,400 $1,167,800
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,170,300 1,134,600 1,178,900
Provisions for value impairment 1,100,000 500,000
Changes in assets and liabilities:
(Increase) decrease in rents receivable (82,500) 179,300 (85,000)
Decrease (increase) in other assets 161,900 (119,800) 56,000
Increase in accounts payable and accrued
expenses 69,500 41,500 62,300
(Decrease) increase in due to Affiliates (22,800) 16,000 (9,400)
Increase (decrease) in other liabilities 38,900 3,500 (45,300)
- ----------------------------------------------------------------------------------
Net cash provided by operating activities 2,608,600 2,189,500 2,325,300
- ----------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for capital and tenant improvements (1,094,700) (969,200) (713,500)
- ----------------------------------------------------------------------------------
Net cash (used for) investing activities (1,094,700) (969,200) (713,500)
- ----------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (1,505,400) (1,249,100) (1,081,200)
Increase (decrease) in security deposits 7,800 21,500 (1,500)
- ----------------------------------------------------------------------------------
Net cash (used for) financing activities (1,497,600) (1,227,600) (1,082,700)
- ----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 16,300 (7,300) 529,100
Cash and cash equivalents at the beginning of
the year 4,238,600 4,245,900 3,716,800
- ----------------------------------------------------------------------------------
Cash and cash equivalents at the end of the
year $4,254,900 $4,238,600 $4,245,900
- ----------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
A-4
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms in
the Partnership's Registration Statement filed with the Securities and Exchange
Commission on Form S-11. Definitions of these terms are contained in Article
III of the First Amended and Restated Certificate and Agreement of Limited
Partnership, which is included in the Registration Statement and incorporated
herein by reference.
ORGANIZATION:
The Partnership was formed on June 6, 1982, by the filing of a Certificate and
Agreement of Limited Partnership with the Department of State of the State of
Florida, and commenced the Offering of Units on November 16, 1982. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of up to 50,000 Units (with the Managing General Partner's option to
increase to 60,000 Units) and not less than 1,300 Units. On January 3, 1983,
the required minimum subscription level was reached and the Partnership
operations commenced. The Managing General Partner exercised its option to
increase the Offering to 60,000 Units, which amount was sold prior to the
Termination of the Offering in March 1983. The Partnership was formed to invest
primarily in existing, improved, income-producing commercial real estate.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 31, 2013. The Limited Partners, by a majority vote, may
dissolve the Partnership at any time.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles. Under this method of accounting, revenues are
recorded when earned and expenses are recorded when incurred.
The preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles 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.
The financial statements include the Partnership's 50% interest in three joint
ventures. The joint ventures are operated under the control of the Managing
General Partner. Accordingly, the Partnership's pro rata share of the ventures'
revenues, expenses, assets, liabilities and capital is included in the
financial statements.
The Partnership is not liable for Federal income taxes as the Partners
recognize their proportionate share of the Partnership income or loss on their
individual tax returns; therefore, no provision for income taxes is made in the
financial statements of the Partnership. It is not practicable for the
Partnership to determine the aggregate tax bases of the Limited Partners;
therefore, the disclosure of the difference between the tax bases and the
reported assets and liabilities of the Partnership would not be meaningful.
Commercial rental properties are recorded at cost, net of any provision for
value impairment, and depreciated (exclusive of amounts allocated to land) on
the straight-line method over their estimated useful lives. Lease acquisition
fees are recorded at cost and amortized over the life of the lease. Maintenance
and repair costs are expensed against operations as incurred; expenditures for
improvements are capitalized and depreciated over the estimated life of the
improvements.
The Managing General Partner periodically reviews significant factors regarding
the properties to determine that the properties are carried at lower of cost or
fair market value. These factors include, but are not limited to, the Managing
General Partner's experience in the real estate industry, an evaluation of
recent operating performance against expected results, economic trends or
factors affecting major tenants or the regions in which the properties are
located and, where available, information included in recent appraisals of
properties.
Based on this analysis, where it is anticipated that the carrying value of an
investment property will not be recovered, the Managing General Partner has
deemed it appropriate to reduce the basis of the properties for financial
reporting purposes to fair market value. Such fair market value is the Managing
General Partner's best estimate of the amounts expected to be realized were
such properties sold as of the Balance Sheet date, based on current information
available. The ultimate realization may differ from these amounts. Provisions,
where applicable, are reflected in the accompanying Statements of Income and
Expenses in the year such evaluations have been made. See Note 7 for additional
information.
Property sales or dispositions are recorded when title transfers and sufficient
consideration has been received by the Partnership. Upon disposition, the
related costs and accumulated depreciation are removed from the respective
accounts. Any gain or loss on disposition is recognized in accordance with
generally accepted accounting principles.
Cash equivalents are considered all highly liquid investments with an original
maturity of three months or less when purchased.
The Partnership's financial statements include financial instruments, including
receivables and trade liabilities. The fair value of all financial instruments,
including cash and cash equivalents, was not materially different from their
carrying value at December 31, 1995 and 1994.
Certain reclassifications have been made to the previously reported 1994 and
1993 statements in order to provide comparability with the 1995 statements.
These reclassifications have no effect on net (loss) income or Partners'
(deficit) capital.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, subsequent to March 31, 1983, the
Termination of the Offering, the General Partners are entitled to 10% of
distributable Cash Flow (as defined by the Partnership Agreement) as their
Subordinated Partnership Management Fee, provided that Limited Partners first
receive specified non-cumulative annual rates of return on their Capital
Investment.
A-5
In accordance with the Partnership Agreement, Net Profits (exclusive of
depreciation and Net Profits from the sale or disposition of Partnership
properties) are allocated: first, to the General Partners, in an amount equal
to the greater of the General Partners' Subordinated Partnership Management Fee
or 1% of such Net Profits; second, the balance, if any, to the Limited
Partners. Net Profits from the sale or disposition of a Partnership property
are allocated: first, to the General Partners, in an amount equal to the
aggregate amount of depreciation previously allocated to them; second, to the
General Partners and the Limited Partners with negative balances in their
capital accounts pro rata in proportion to such respective negative balances,
to the extent of the total of such negative balances; third, to the General
Partners, in an amount necessary to make the aggregate amount of their capital
accounts equal to the greater of the Sale Proceeds to be distributed to the
General Partners with respect to the sale or disposition of such property or 1%
of such Net Profits; and fourth, the balance, if any, to the Limited Partners.
Net Losses (exclusive of depreciation and Net Losses from the sale or
disposition of Partnership properties) are allocated 1% to the General Partners
and 99% to the Limited Partners. All depreciation is allocated 10% to the
General Partners and 90% to the Limited Partners. Net Losses from the sale or
disposition of Partnership properties are allocated: first, to the extent that
the balance in the General Partners' capital accounts exceeds their Capital
Investment or the balance in the capital accounts of the Limited Partners
exceeds the amount of their Capital Investment (the "Excess Balances"), to the
General Partners and the Limited Partners pro rata in proportion to such Excess
Balances until such Excess Balances are reduced to zero; second, to the General
Partners and the Limited Partners and among them (in the ratio which their
respective capital account balances bear to the aggregate of all capital acount
balances) until the balance in their capital accounts shall be reduced to zero;
third, the balance, if any, 99% to the Limited Partners and 1% to the General
Partners. In all events there shall be allocated to the General Partners not
less than 1% of Net Profits and Net Losses from the sale or disposition of a
Partnership property. The General Partners were not entitled to cash
distributions for the years ended December 31, 1995, 1994 and 1993. During the
year ended December 31, 1995, the General Partners were allocated a Net (Loss)
of $(103,600) which included a (loss) from provisions for value impairment of
$(11,000). During the year ended December 31, 1994, the General Partners were
allocated a Net (Loss) of $(97,800), which included a (loss) from provision for
value impairment of $(5,000). For the year ended December 31, 1993, the General
Partners were allocated a Net (Loss) of $(94,400).
Affiliates of the Managing General Partner provide property management services
to the Partnership. They receive management fees ranging from 1% to 6% of rents
collected plus reimbursement of specified costs.
Fees and reimbursements paid and payable by the Partnership to Affiliates for
the years ended December 31, 1995, 1994 and 1993 were as follows:
1995 1994 1993
---------------- ---------------- ----------------
Paid Payable Paid Payable Paid Payable
- ------------------------------------------------------------------------------
Property management and
leasing fees $195,400 $13,000 $179,200 $40,300 $247,400 $19,600
Reimbursement of property
insurance premiums, at
cost 46,300 61,700 58,300
Reimbursement of expenses,
at cost:
--Accounting 18,600 5,900 19,800 2,000 17,600 2,100
--Investor communication 23,200 3,000 14,900 2,400 11,300 1,100
--Legal 37,600 38,400 31,300 5,900
- ------------------------------------------------------------------------------
$321,100 $21,900 $314,000 $44,700 $365,900 $28,700
- ------------------------------------------------------------------------------
As of December 31, 1995, the Partnership has recorded a liability in the total
amount of $403,000 payable to the Managing General Partner for real estate
commissions earned in connection with the sale of Partnership properties in
prior years. Under the terms of the Partnership Agreement, these commissions
will not be paid until such time as Limited Partners have received cumulative
distributions of Sale or Refinancing Proceeds equal to 100% of their Original
Capital Contribution plus a cumulative return (including all Cash Flow which
has been distributed to the Limited Partners from the initial date of
investment) of 6% simple interest per annum on their Capital Investment from
the initial date of investment.
Jacor Communications, Inc. ("Jacor"), a radio broadcasting company, which is
approximately 65% owned by Zell Chilmark Fund L.P., an Affiliate of the
Managing General Partner, is obligated to the Partnership under a lease for
office space at Peachtree Palisades Office Building for the year ended December
31, 1995, Jacor paid approximately $59,800 in total rents. The rents paid by
Jacor are comparable to those paid by other tenants at Peachtree Palisades
Office Building.
3. FUTURE MINIMUM RENTALS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1995 was as follows:
1996 $ 4,098,700
1997 3,309,300
1998 2,701,400
1999 2,136,100
2000 1,788,900
Thereafter 7,247,200
--------------
$21,281,600
--------------
The Partnership is subject to the usual business risks associated with the
collection of the above-scheduled rentals. In addition to the amounts scheduled
above, the Partnership expects to receive rental revenue from operating expense
and real estate tax reimbursements and percentage rents. Percentage rents
earned for the years ended December 31, 1995, 1994 and 1993 were $30,800,
$22,800 and $4,400, respectively.
A-6
4. NET LEASE AGREEMENT:
The Partnership acquired the 12621 Featherwood Building, formerly known as
Houston Lighting and Power Building, under a net lease agreement with a single
tenant (the "Tenant"). The Tenant was responsible for the maintenance and
operating expenses of the property and the payment of real estate taxes and
insurance costs. On December 14, 1993, the Tenant's lease expired. The
Partnership received a final payment for amounts due under the net lease
agreement in January 1994. On December 14, 1993, the Partnership executed a
three-year gross lease with a former subtenant (the "Lessee"). Amounts due
under this lease for 1996 are included in Note 3.
5. INCOME TAX:
The Partnership utilizes the accrual basis of accounting for both tax reporting
and financial statement purposes. Financial statement results will differ from
tax results due to the use of differing depreciation lives and methods, the
recognition of rents received in advance as taxable income, the use of
differing methods in computing the gain on sale of property and the
Partnership's provision for value impairment. The net effect of these
accounting differences for the year ended December 31, 1995 was that net income
for tax reporting purposes was less than the net income for financial statement
purposes by $574,000. The aggregate cost of commercial rental properties for
federal income tax purposes at December 31, 1995 was $39,796,600.
6. MANAGEMENT AGREEMENT:
On-site management for the Lakewood Square Shopping Center is provided by an
independent real estate management company for fees calculated as a percentage
of gross rents received from the property.
An Affiliate of the Managing General Partner provides supervisory management
for this property for fees calculated as a percentage of gross rents received
from this property.
7. PROVISIONS FOR VALUE IMPAIRMENT:
Due to regional factors and other matters affecting the Partnership's office
properties, there is uncertainty as to the Partnership's ability to recover the
net carrying value of certain of its properties during the remaining estimated
holding periods. Accordingly, it was deemed appropriate to reduce the bases of
such properties in the Partnership's financial statements during the years
ended December 31, 1995 and 1994. The provisions for value impairment were
considered non-cash for the purposes of the Statements of Cash Flows and were
not utilized in the determination of Cash Flow (as defined in the Partnership
Agreement). The following is a summary of the provisions for value impairment
reported by the Partnership for the years ended December 31, 1995 and 1994.
Property 1995 1994
----------------------------
12621
Featherwood $ 300,000 $500,000
Peachtree
Palisades 600,000
Foxhall Square 200,000
----------------------------
$1,100,000 $500,000
----------------------------
The provisions for value impairment were material fourth quarter adjustments
pursuant to Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting". No other material adjustments were made in the fourth quarters.
Beginning on January 1, 1996, the Partnership will adopt the Financial
Accounting Standards Board Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (the
"Standard"). The Standard established guidance for determining if the value
defined assets are impaired, and if so, how impairment losses should be
measured and reported in the financial standared. The Standard is effective for
fiscal years beginning after December 15, 1995. The Managing General Partner
believes that based on current circumstances, the adoption on January 1, 1996
of the Standard will not materially affect the Partnership's financial position
or results of operations.
A-7
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 1
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
Column Column Column Column Column Column Column Column
A C D E F G H I
- ---------------- ---------------------- -------------------- ------------------------------------ ----------- ---- ---- -------
Life on
which de-
Costs capitalized preciation
Initial cost to subsequent Gross amount at which in latest
Partnership to acquisition carried at close of period income
---------------------- -------------------- ------------------------------------ Accum- Date state-
Buildings Buildings ulated of con- Date ments
and Im- Improve- Carrying and Im- Deprecia- struc- Ac- is com-
Description Land provements ments Costs(1) Land provements Total(2)(3) tion (2) tion quired puted
- ---------------- ---------- ----------- ---------- -------- ---------- ----------- ----------- ----------- ---- ---- -------
SHOPPING CENTER:
Lakewood Square
Shopping Center
(Lakewood, CA) 35(4)
(50% interest) $2,652,800 $ 7,988,700 $ 444,600 $ 40,200 $2,652,800 $ 8,473,500 $11,126,300 $ 2,664,000 1982 5/84 2-10(5)
OFFICE BUILDINGS:
Foxhall Square
Building
(Washington, D.C.) 35(4)
(50% interest) 2,351,100 5,893,400 2,011,400 188,500 2,351,100 7,893,300(6) 10,244,400 3,018,000 1972 6/84 1-10(5)
Peachtree Palisades
Office Building 35(4)
(Atlanta, GA) (7) 8,273,500 4,111,700 46,400 (7) 11,831,600(8) 11,831,600 4,965,200 1965 9/83 1-10(5)
12621 Featherwood
Building
(Houston, TX)
(50% interest) 497,800 5,037,700 91,300 57,400 497,800 2,386,400(9) 2,884,200 1,290,300 1983 1/85 35(4)
---------- ----------- ---------- -------- ---------- ----------- ----------- -----------
$5,501,700 $27,193,300 $6,659,000 $332,500 $5,501,700 $30,584,800 $36,086,500 $11,937,500
========== =========== ========== ======== ========== =========== =========== ===========
Column B - Not Applicable.
See accompanying notes on following page.
A-8
FIRST CAPITAL INSTITUTIONAL REAL ESTATE , LTD. - 1
NOTES TO SCHEDULE III
Note 1. Consists of legal fees, appraisal fees, title costs and other related
professional fees.
Note 2. The following is a reconciliation of activity in columns E and F:
December 31, 1995 December 31, 1994 December 31, 1993
-------------------------- -------------------------- --------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
----------- ------------ ----------- ------------ ----------- -----------
Balance at
beginning of year $36,091,800 $10,767,200 $35,622,600 $ 9,632,500 $34,909,100 $8,453,600
Additions during
year:
Improvements 1,094,700 969,200 713,500
Provision for
depreciation
and amortization 1,170,300 1,134,700 1,178,900
Deductions
during year:
Provisions for value
impairment (1,100,000) (500,000)
----------- ----------- ----------- ----------- ----------- ----------
Balance at
end of year $36,086,500 $11,937,500 $36,091,800 $10,767,200 $35,622,600 $9,632,500
=========== =========== =========== =========== =========== ==========
Note 3. The aggregate cost for Federal income tax purposes as of December 31,
1995 was $39,796,600.
Note 4. Estimated useful life for building.
Note 5. Ranges of estimated useful life for improvements.
Note 6. Includes provision for value impairment of $200,000.
Note 7. The Partnership leases the land on which this property is situated. The
lease expires on December 31, 2021.
Note 8. Includes provision for value impairment of $600,000.
Note 9. Includes provisions for value impairment of $2,800,000.
A-9