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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 0-12945
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FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 2
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2313852
- ------------------------------- ------------------------------------
(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 19, 1983, included
in the Registrant's Registration Statement on Form S-11 (Registration No.
2-86361), is incorporated herein by reference in Part IV of this report.
EXHIBIT INDEX - PAGE A-1
- ------------------------
PART I
ITEM 1. BUSINESS
- ------- --------
The registrant, First Capital Institutional Real Estate, Ltd.- 2 (the
"Partnership"), is a limited partnership organized in 1983 under the Florida
Uniform Limited Partnership Law. The Partnership sold $84,886,000 in Limited
Partnership Units (the "Units") to the public from November 1983 to October
1984, pursuant to a Registration Statement on Form S-11 filed with the
Securities and Exchange Commission (Registration Statement No. 2-86361).
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 real estate, such as shopping centers, warehouses and office
buildings, and, to a lesser extent, in other types of income-producing real
estate. From May 1984 to May 1986, the Partnership made seven real property
investments and purchased 50% interests in four joint ventures which were each
formed with an Affiliated partnership for the purpose of acquiring a 100%
interest in certain real property. In addition, in January 1987 the Partnership
formed a joint venture with an Affiliated partnership (the "Joint Venture"), in
which they are each 50% partners. The Joint Venture was formed for the purpose
of entering into a limited partnership agreement with an unaffiliated third
party to which the Joint Venture contributed 75% of the total purchase price of
a property in order to obtain a preferred majority interest in the limited
partnership. All the Partnership's joint ventures are operated under the common
control of First Capital Financial Corporation (the "General Partner"). As of
December 31, 1995, the Partnership has sold five 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 General Partner provide property management and
supervisory services for fees calculated as a percentage of gross rents received
from the remaining six Partnership 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 these tenants. Properties owned by the Partnership frequently compete for
tenants with similar properties owned by others.
As of March 1, 1996, there were 15 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 a joint
venture, the following seven property interests, all of which were owned in fee
simple.
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ------------------------- -------------------- ------------ -----------
Shopping Centers:
- -----------------
Lakewood Square (d) Lakewood, California 150,711 30 (1)
Market Place at Rivergate Nashville, Tennessee 104,411 16 (2)
Banana River Square Cocoa Beach, Florida 83,233 21 (2)
2
ITEM 2. PROPERTIES (a)(b) - Continued
- ------- -----------------------------
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- --------------------------------------- ----------------- ------------ -----------
Office Buildings:
- -----------------
Foxhall Square Building (d) Washington, D.C. 141,902 63
Ellis Building (d) Sarasota, Florida 130,189 30 (2)
12621 Featherwood Building (d) Houston, Texas 88,811 1 (1)
Holiday Office Park North and South (e) Lansing, Michigan 398,228 77 (1)
(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 to 40 years utilizing the straight-line method. The
Partnership's portion of real estate taxes for Holiday Office Park
North and South ("Holiday"), Foxhall Square Building ("Foxhall"),
Banana River Square ("Banana River"), Ellis Building ("Ellis"),
Lakewood Square ("Lakewood"), Market Place at Rivergate ("Rivergate"),
the Partnership's most significant properties, was $204,300, $184,600,
$83,300, $79,300, $69,000 and $43,400, respectively. In the opinion of
the 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 owns a 50% interest in a joint venture which owns a 75%
preferred majority interest in this property.
3
ITEM 2. PROPERTIES - Continued
- ------- ----------------------
The following table presents each of the Partnership's most significant
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%
Rivergate 100% 88% 82% 62% 62%
Banana River 97% 93% 95% 93% 95%
Holiday 82% 73% 84% 76% 85%
Foxhall 83% 88% 85% 82% 81%
Ellis 93% 95% 86% 96% 98%
The amounts in the following table represent each of the Partnership's most
significant properties' average annual rentals 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
Rivergate $ 7.96 $ 7.39 $ 6.86 $ 6.25 $ 6.19
Banana River $ 7.64 $ 7.26 $ 6.80 $ 7.51 $ 7.53
Holiday $ 8.86 $ 9.32 $ 8.57 $ 8.36 $ 8.15
Foxhall $22.99 $22.64 $21.94 $21.94 $26.01
Ellis $13.79 $13.32 $13.08 $12.57 $13.07
4
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 most significant properties. No individual tenant at
Foxhall, one of the significant properties, occupies ten percent or more of the
rentable square footage.
Partnership's Share
of the Range of Percentage
per Annum Base Rents (a) for of Net Renewal
---------------------------- Leasable Options
Final Twelve Expiration Square (Renewal
Months of Date of Footage Options/
Lakewood 1996 Lease Lease Occupied Years)
- -------- ----------- ----------- ---------- ---------- ---------
Cost Plus
(specialty store) $ 123,500 $ 123,500 10/28/07 13% 2/10
Rivergate
- ---------
Marshalls
(department store) $ 188,500 $ 188,500 1/31/00 25% 2/5
Office Max
(office supply store) $ 141,000 $ 141,000 01/31/04 23% 3/5
Banana River
- ------------
Eckerd Drugs
(drugstore) $ 64,800 $ 64,800 03/12/03 13% 4/5
Publix
(grocery store) $ 203,200 $ 203,200 06/30/03 46% 4/5
Holiday
- -------
Michigan Public Service
Commission
(state government
administration) $ 373,700 $ 373,700 8/31/00 18% None
Ellis
- -----
NationsBank
(banking) $ 401,800 $ 403,700 03/09/01 42% 4/5
University Club
(restaurant / banquet
facility) $ 50,300 $ 50,300 04/28/01 10% 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.
5
ITEM 2. PROPERTIES -- Continued
- ------- -----------------------
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's
most significant properties 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 62 178,779 $ 879,400 14.28%
1997 31 56,405 $ 284,800 5.15%
1998 47 130,061 $ 569,600 11.64%
1999 31 83,230 $ 425,200 10.37%
2000 25 179,606 $ 653,700 20.28%
2001 10 113,928 $ 146,100 7.41%
2002 5 29,555 $ 166,300 9.37%
2003 13 72,153 $ 271,600 20.14%
2004 3 36,933 $ 95,600 10.72%
2005 7 38,364 $ 250,000 39.06%
(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.
6
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 14,307 Holders of Units.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
For the Years Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ----------- ------------
Total revenues $ 6,984,900 $ 6,636,400 $ 7,725,700 $ 6,768,700 $ 7,051,900
Net income (loss) $ 1,797,300 $ (1,017,200) $ 3,222,100 $ (439,300) $ (3,154,300)
Net income
(loss) allocated to
Limited Partners $ 1,326,300 $ (1,324,200) $ 3,025,800 $ (738,200) $ (3,425,400)
Net income (loss)
allocated to Limited
Partners per Unit
(84,886 Units issued
and outstanding) $ 15.62 $ (15.60) $ 35.65 $ (8.70) $ (40.35)
Total assets $ 50,803,100 $ 53,442,100 $ 57,394,300 $ 56,366,300 $ 60,060,600
Distributions to Limited
Partners per Unit
(84,886 Units issued
and outstanding) $ 51.00 $ 35.50 $ 21.20 $ 35.00 $ 35.00
Return of capital
to Limited Partners
per Unit (84,886 Units
issued and
outstanding (a) $ 35.38 $ 35.50 None $ 35.00 $ 35.00
Other data:
- -----------
Investment in
commercial rental
properties (net of
accumulated
depreciation and
amortization) $ 32,902,700 $ 34,630,300 $ 40,639,300 $ 42,321,900 $ 47,077,800
Number of real
property interests
owned at December 31 7 7 8 9 10
7
ITEM 6. SELECTED FINANCIAL DATA - Continued
- ------- -----------------------------------
(a) For the 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 the above table does
not impact Capital Investment.
The following table includes 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) $ 4,742,800 $ 4,118,700 $ 5,360,100 $ 4,266,900 $ 4,836,700
Items of reconciliation:
(Distributions) from
joint venture (490,900) (493,100) (471,800) (269,400) (783,700)
Changes in current
assets and liabilities:
Decrease (increase)
in current assets 74,100 138,700 (43,700) 76,800 48,900
Increase (decrease)
in current liabilities 118,200 (118,500) 117,200 51,500 34,100
------------ ----------- ----------- ------------- -------------
Net cash provided by
operating activities $ 4,444,200 $ 3,645,800 $ 4,961,800 $ 4,125,800 $ 4,136,000
============ =========== =========== ============= =============
Net cash (used for)
provided by investing
activities $ (182,100) $ 2,228,700 $ 168,600 $ 401,300 $ 1,349,200
============ =========== =========== ============= =============
Net cash (used for)
financing activities $ (4,554,400) $(2,816,500) $(2,311,300) $ (3,313,800) $ (3,813,100)
============ =========== =========== ============= =============
(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 of
revenues from operations deemed reasonably necessary by the General
Partner), except depreciation and amortization expenses and capital
expenditures, lease acquisition expenditures and the General Partner's
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.
8
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 10, 1983 and began
operations on December 5, 1983, after achieving the required minimum
subscription level. On October 15, 1984, the Offering was terminated upon the
sale of 84,886 Units. From May 1984 to January 1987, the Partnership made seven
real property investments and purchased 50% interests in four joint ventures
which were each formed with an Affiliated partnership for the purpose of
acquiring a 100% interest in certain real property. In addition, in January
1987 the Partnership formed a joint venture with an Affiliated partnership (the
"Joint Venture"), in which they are each 50% partners. The Joint Venture was
formed for the purpose of entering into a limited partnership agreement with an
unaffiliated third party to which the Joint Venture contributed 75% of the
total purchase price of a property in order to obtain a preferred majority
interest in the limited partnership. All the Partnership's joint ventures are
operated under the common control of First Capital Financial Corporation (the
"General Partner").
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
1991 the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle with the disposal of one
real property investment. 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. In
addition, as of December 31, 1995, the Partnership has sold five real property
investments.
The Partnership's three office properties accounted for 53% of the
Partnership's total rental revenues for the year ended December 31, 1995.
Several factors have had an effect on operating performance and market values
of certain office properties. While occupancy rates have generally continued to
gradually improve, the age of the Partnership's office buildings 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
Building ("Featherwood") is occupied by one tenant, whose lease expires in
December 1996. It is unknown whether this 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 market, 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 $1,000,000 related to the
Partnership's office properties for the year ended December 31, 1995. For
further information related to these provisions, see Note 9 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
- ---------------------------------------------------------
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%
- ---------------------------------------------------------
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%
- ---------------------------------------------------------
ELLIS BUILDING
Rental revenues $1,121,400 $1,118,300 $1,084,400
- ---------------------------------------------------------
Property net income (b) $ 289,400 $ 324,900 $ 269,500
- ---------------------------------------------------------
Average occupancy 93% 94% 90%
- ---------------------------------------------------------
MARKET PLACE AT RIVERGATE SHOPPING CENTER
Rental revenues $ 956,000 $ 835,200 $ 703,100
- ---------------------------------------------------------
Property net income $ 464,600 $ 322,600 $ 322,100
- ---------------------------------------------------------
Average occupancy 94% 87% 76%
- ---------------------------------------------------------
BANANA RIVER SQUARE SHOPPING CENTER
Rental revenues $ 779,500 $ 691,400 $ 660,100
- ---------------------------------------------------------
Property net income $ 320,800 $ 236,100 $ 231,900
- ---------------------------------------------------------
Average occupancy 96% 94% 95%
- ---------------------------------------------------------
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%
- ---------------------------------------------------------
NORWEST PLAZA (C)
Rental revenues $ 272,400 $1,699,600
- ---------------------------------------------------------
Property net income $ 67,200 $1,490,100
- ---------------------------------------------------------
Average occupancy 94% 100%
- ---------------------------------------------------------
WESTINGHOUSE
Rental revenues $ 115,000
- ---------------------------------------------------------
Property net income (d) $ 87,800
- ---------------------------------------------------------
Average occupancy 100%
- ---------------------------------------------------------
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
such as interest income and general and administrative expenses or are
related to properties previously owned by the Partnership. Income (loss)
from participation in joint venture is also excluded from the table above.
(b) Property net income excludes a loss from provisions for value impairment
which are included in the Statement of Income and Expenses for the year
ended December 31, 1995. For additional information see Note 9 of Notes to
the Financial Statements.
(c) Norwest Plaza ("Norwest"), formerly known as the United Bank of Arizona,
was sold on June 8, 1994. The property net income excludes the (loss) on
the sale of the property of $(1,276,600) which was included in the
Statement of Income and Expenses for the year ended December 31, 1994. For
additional information regarding this transaction see Note 8 of Notes to
Financial Statements.
(d) Westinghouse, formerly known as the Carlsbad Building, was sold on August
5, 1993. The property net income excludes the (loss) on the sale of
$(366,000) which was included in the Statement of Income and Expense for
the year ended December 31, 1993. For additional information regarding this
transaction see Note 8 of Notes to Financial Statements.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net income increased $2,814,500 for the year ended December 31, 1995 when
compared to the year ended December 31, 1994. The sale of Partnership property
together with the provisions for value impairment reported for the years ended
December 31, 1995 and 1994 had a significant impact on the comparison of net
income (loss). During 1994 the Partnership sold Norwest. The 1994 operating
results of Norwest, together with the (loss) on sale amounted to $(1,209,400).
As disclosed in Note 9 of Notes to Financial Statements, the Partnership
reported provisions for value impairment in the amount of $1,000,000 and
$1,500,000 for the years ended December 31, 1995 and 1994, respectively.
Net income, exclusive of the provisions for value impairment and the effects of
the operating results and (loss) on sale of Norwest, increased $1,098,800 for
the year ended December 31, 1995 when compared to the year ended December 31,
1994. The primary reasons for the increase in net income were: 1) improved
operating results at Foxhall Square Building ("Foxhall"), Lakewood Square
Shopping Center ("Lakewood"), Banana River Square Shopping Center ("Banana
River"), Marketplace at Rivergate Shopping Center ("Rivergate") and Featherwood
totaling $426,600; 2) increased interest income of $346,500 resulting from an
increase in rates available on the Partnership's short-term investments; 3)
decreased losses of $348,700 from the Partnership's equity investment in
Holiday Office Park North and South ("Holiday") and 4) decreased general and
administrative expenses of $13,100 primarily due to a decrease in data
processing costs. Partially offsetting the increase in net income for the years
under comparison was decreased operating results at Ellis Building ("Ellis") of
$35,500.
For purposes of the following discussion, the operating results of Norwest have
been excluded.
Rental revenues increased $274,600, or 4.7%, for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The primary factors
which contributed to the increase in rental revenues were: 1) increased base
rental income at Rivergate due to an increase in the average occupancy rate; 2)
increased base rents and tenant expense reimbursements for common area costs
and real estate taxes at Banana River resulting from an increase in the average
occupancy rate; 3) increased base rental rates and tenant expense
reimbursements for real estate tax escalations and common area costs at
Featherwood and 4) increased base rental income, tenant expense reimbursements
and net income from the operations of the parking garage at Foxhall.
Real estate tax expense decreased $69,400 for the year ended December 31, 1995
when compared to the year ended December 31, 1994. The decrease was primarily
due to: 1) lower expense at Lakewood and Rivergate totaling $86,500 due to the
receipt of partial refunds in 1995 of 1993/1994 real estate taxes and 2) lower
expense of $11,700 at Featherwood due to a decrease in the assessed value of
the property. Partially offsetting the above decreases was an increase in
expense of $31,800 at Foxhall. 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
partial refund of real estate taxes for the 1992/1993 tax year.
Insurance expense decreased $22,200 for the year ended December 31, 1995, when
compared to the prior year. 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.
Property operating expenses decreased $55,200 for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The primary factors
which caused the decrease in property operating expenses for the comparable
periods were: 1) decreased professional fees at Rivergate of $24,400; 2)
decreased utilities at Foxhall and Featherwood of $10,100 and $13,000,
respectively; and 3) decreased management fees at Lakewood, Rivergate and
Foxhall of $33,400, $20,100 and $10,700, respectively. 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 General
Partner as part of its property management fee were paid to outside brokers in
1995 and the expense was capitalized and amortized over the respective lease
terms of new tenants. Partially offsetting the decrease in property operating
expenses was: 1) increased security costs of $15,800 and $7,500 at Lakewood and
Featherwood, respectively and 2) increased management fees at Ellis of $35,300.
Although management fee payments were higher at Ellis in 1994 than in 1995, the
Affiliated management fees increased for the comparable periods due to the fact
that leasing related costs, which are ordinarily paid to and provided by an
Affiliate of the General Partner as part of its property management fee were
paid to outside brokers in 1994 and the expense was capitalized and amortized
over the respective lease terms of new tenants.
Repairs and maintenance expense increased $47,800 for the year ended December
31, 1995 when compared to the year ended December 31, 1994. The primary factors
which caused the increase for the comparable periods were: 1) increased
supplies and minor roof and plumbing repairs at Banana River of $5,400; 2)
increased cleaning supplies and uniforms of $10,700 at Ellis; 3) increased
repairs and maintenance associated with patching and resurfacing and striping
of the parking lots at Lakewood and Rivergate of $5,600 and $11,500,
respectively and 4) increased repairs and maintenance expense of $10,700 at
Featherwood resulting from an increase in minor repairs required to maintain
the HVAC system.
Exclusive of the provisions for value impairment, net income at Holiday
increased $41,600 for the year ended December 31, 1995 when compared to the
year ended December 31, 1994. The increase in net income was due to decreased
repairs and maintenance, real estate taxes and insurance expense. Partially
offsetting the increase in net income was decreased rental revenues.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 TO THE YEAR ENDED DECEMBER 31,
1993
Net income (loss) changed from net income of $3,222,100 for the year ended
December 31, 1993 to a net (loss) of $(1,017,200) for the year ended December
31, 1994. The sales of Partnership properties, together with the provisions for
value impairment reported in 1994 had a significant impact on the comparison of
net income (loss). As disclosed in Note 8 of Notes to Financial Statements, the
Partnership sold Westinghouse and Norwest in 1993 and 1994, respectively. The
operating results for the year ended December 31, 1993 for Norwest and
Westinghouse, exclusive of the loss on the sale of Westinghouse, amounted to
$1,211,900. As disclosed above, the Partnership reported provisions for value
impairment for the year ended December 31, 1994 of $1,500,000.
Net income, exclusive of the provisions for value impairment and the effects of
the operating results and losses on sale of Norwest and Westinghouse, decreased
$317,800 for the year ended December 31, 1994 when compared to the year ended
December 31, 1993. The primary reasons for the decrease in net income were: 1)
decreased income of $586,800 from the Partnership's equity investment in
Holiday and 2) decreased operating results at Featherwood primarily due to the
expiration and subsequent renegotiation of a certain lease, whereby the tenant
was no longer responsible for the payment of all the expenses related to the
property. Partially offsetting the above decreases in net income was: 1)
improved operating results at Foxhall, Lakewood, Banana River, Rivergate and
Ellis totaling $103,200; 2) increased interest income of $233,800 resulting
from an increase in rates on and amounts available for short-term investments
and 3) decreased general and administrative expenses of $34,400 primarily due
to a decrease in printing and mailing costs and accounting fees.
For purposes of the following discussion, the comparative operating results of
Norwest and Westinghouse have been excluded.
Rental revenues for the Partnership increased $219,100, or 3.9%, for the year
ended December 31, 1994 when compared to the year ended December 31, 1993. The
increase was primarily due to the following: 1) increased base rental revenues
at Rivergate and Ellis due to an increase in the average annual occupancy rate;
2) higher rental revenues at Lakewood due to the write-off in 1993 of $51,000
in uncollectible tenant receivables and 3) increased base rental revenues at
Featherwood due to increased rental rates, as described in the following
paragraph. Partially offsetting the increase in rental revenues was a decrease
in escalation income at Foxhall resulting from overpayments from tenants in
prior years, as well as changes in tenants' base years caused by lease
rollovers, partially offset by an increase in base rents.
On December 14, 1993, the net lease expired for the sole tenant at Featherwood.
The Partnership and First Capital Institutional Real Estate, Ltd.--1, an
Affiliated partnership, (collectively "FCIRE 1 & 2") entered into a three-year
gross 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.
Repairs and maintenance expense increased by $120,000 for the year ended
December 31, 1994 when compared to the year ended December 31, 1993. The
primary factors which caused the increase for the comparable periods were: 1)
increased repairs and maintenance of $73,300 at Featherwood due to an increase
in the Partnership's share of expenses resulting from the expiration of the
prior tenant's lease, as discussed above; 2) increased repairs and maintenance
associated with patching and resurfacing and striping of the parking lot,
janitorial services, roof repairs, plumbing and other minors repairs to the
exterior of the building at Lakewood totaling $13,000; 3) increased janitorial
services and snow removal at Rivergate totaling $17,500 and 4) increased
expenditures required to maintain the HVAC system at Banana River of $16,500.
Property operating expenses increased $80,400 for the year ended December 31,
1994 when compared to the year ended December 31, 1993. The primary factors
which caused the increase in property operating expenses for the comparable
periods were: 1) increased property operating expenses at Featherwood of
$113,300 due to the reasons previously discussed; 2) increased professional
fees, management fees and advertising and promotional expenses totaling $51,200
at Rivergate and 3) increased security costs at Lakewood of $15,900. Partially
offsetting the above increases was: 1) decreased personnel costs, management
fees, security, office expenses and advertising and promotional costs totaling
$65,000 at Ellis and 2) decreased utilities and advertising and promotional
expenses at Foxhall totaling $33,400.
Real estate tax expense increased $29,400 for the years under comparison. The
primary reasons for the increase were: 1) increased expense at Featherwood of
$75,600 due to reasons previously discussed and 2) increased expense at
Rivergate of $28,500 primarily due to the receipt in 1993 of a refund for 1991
taxes. Partially offsetting the increase in real estate tax expense was a
decrease in expense at Foxhall of $71,100 due to the receipt of a refund in
1994 relating to the 1992/1993 tax year.
Insurance expense remained relatively stable for the year ended December 31,
1994 when compared to the year ended December 31, 1993.
Exclusive of the provisions for value impairment, net income at Holiday
increased $98,100 for the year ended December 31, 1994 when compared to the
year ended December 31, 1993. The increase in net income was due to decreased
repairs and maintenance and real estate tax expense. Partially offsetting the
increase was decreased rental revenues.
To increase and/or maintain occupancy levels at the Partnership's properties,
the 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 tenants 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 and 2) total or
partial tenant reimbursement of property operating expenses (e.g., common area
maintenance, real estate taxes, etc.).
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
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 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 $4,742,800, a $624,100 increase when compared to the year ended
December 31, 1994. This increase was primarily due to the increase in net
income, as previously discussed, exclusive of the loss on sale of Norwest,
depreciation, amortization and provisions for value impairment.
The decrease in the Partnership's cash position of $292,400 as of December 31,
1995 when compared to December 31, 1994 was primarily the result of
distributions paid to Partners and expenditures for capital and tenant
improvements and leasing costs exceeding net cash provided by operating
activities. Liquid assets of the Partnership as of December 31, 1995 were
comprised of amounts held for working capital purposes.
Net cash provided by operating activities continues to be the Partnership's
primary source of funds. The increase of $798,400 in net cash provided by
operating activities for the year ended December 31, 1995 when compared to the
year ended December 31, 1994 was primarily due to the increase in net income,
as previously discussed, and the timing of the payment of Partnership expenses,
partially offset by the timing of the collection of tenant's rental payments
and a decrease in other assets due to the receipt of a rebate for a previous
purchase at Foxhall in the amount of $155,000, which had been included in other
assets on the Partnership's balance sheet.
Net cash provided by (used for) investing activities changed from $2,228,700
for the year ended December 31, 1994 to $(182,100) for the year ended December
31, 1995. This change was primarily due to the net proceeds received from the
sale of Norwest on June 8, 1994. Partially offsetting this change was a
decrease in payments made for capital and tenant improvements and leasing costs
at the Partnership's properties. The Partnership maintains working capital
reserves to pay for capital expenditures such as building and tenant
improvements and leasing costs. For the year ended December 31, 1995, the
Partnership spent $615,900 for capital and tenant improvements and leasing
costs and has budgeted to spend $1,570,000 during the year ending December 31,
1996. Included in the 1996 budgeted amount are capital improvements and leasing
costs of approximately $424,000, $374,000, $151,000, $85,000, $44,000 and
$30,000, which relate to anticipated capital and tenant improvements and
leasing costs expected to be incurred at Foxhall, Lakewood, Ellis, Banana
River, Rivergate and Featherwood, respectively. In addition, $466,200 was spent
in 1995 and approximately $461,000 is budgeted to be advanced to the
Partnership's joint venture investment in Holiday for capital and tenant
improvements and leasing costs for the year ending December 31, 1996. The
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 remaining properties for
eventual disposition.
The increase of $1,738,000 in net cash used for financing activities 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 Partners in 1995.
The 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. For the
year ended December 31, 1995, the Partnership withdrew $67,300 of previously
undistributed Cash Flow (as defined in the Partnership Agreement) for its 1995
distributions to Partners.
Distributions to Limited Partners for the quarter ended December 31, 1995 were
declared in the amount of $13.50 per Unit. Cash distributions are made 60 days
after the last day of each fiscal quarter. The amount of future distributions
to Partners will ultimately be dependent upon the performance of the
Partnership's investments as well as the General Partner's determination of the
amount of cash necessary to supplement working capital reserves to meet future
liquidity requirements of the Partnership. Accordingly, there can be no
assurance as to the amounts and/or availability of future cash distributions to
Partners.
12
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.
13
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 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 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 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
General Partner from December 1990 to December 1992 and has been a Director
of the 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 General
Partner and certain of their Affiliates. Ms. Rosenberg was Vice President of
Madison prior to October 4, 1991. Madison filed for protection under the
14
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
- -------- --------------------------------------------------
(a) DIRECTORS (continued)
---------
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 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 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, 54, has been Senior Vice President of the 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
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"), a 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.
15
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors.
Neither the General Partner, nor any director or officer of the General Partner,
received any direct remuneration from the Partnership during the year ended
December 31, 1995. However, Affiliates of the General Partner do compensate the
directors and officers. 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 84,886 Units
then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1, 1996,
the executive officers and directors of the General Partner, as a group, did not
own any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
(a) On September 25, 1992, the entity formerly named First Capital Financial
Corporation and certain subsidiaries which may be or may have been entitled to
receive certain compensation, fees or reimbursements from the Partnership were
merged or liquidated into First Capital Properties Corporation. On February 23,
1993, First Capital Properties Corporation changed its name to First Capital
Financial Corporation.
During 1994, an Affiliate of the General Partner provided real estate brokerage
services to the Partnership in connection with the sale of a property. Total
real estate brokerage commissions for all such services shall not exceed the
lesser of the compensation customarily charged in arm's-length transactions in
the same geographic location for a comparable property, or 6% of the sales price
of the property. Real estate commissions paid to any Affiliate of the General
Partner may not exceed 50% of the compensation customarily charged in arm's-
length transactions in the same geographical location for comparable property,
or 3% of the total selling price of the property; provided, further, that no
Affiliate of the General Partner may receive payment of a real estate commission
until Limited Partners have received cumulative distributions of Sale or
Financing Proceeds equal to 100% of their Original Capital Contributions, plus a
cumulative return (including all Cash Flow which has been distributed to the
Limited Partners) of 6% simple interest per annum on their Capital Investment
from the date upon which their investment in the Partnership was made. To the
extent that real estate commissions are not currently paid in full by the
Partnership because of any of the foregoing provisions, the unpaid commissions
will remain accrued and will be paid at such time as the provisions have been
satisfied. As of December 31, 1995, the Partnership owed a total of $40,300 to
the General Partner for real estate commissions earned in connection with the
sales of four Partnership properties.
Certain Affiliates of the 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 General Partner or Affiliates provide leasing, re-
leasing, and/or leasing related services, or 3% of gross receipts where the
General Partner or Affiliates do not perform leasing, re-leasing and/or leasing
related services. Provided further, that in the event the Partnership leases
properties on a long-term net
16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
- -------- ----------------------------------------------------------
basis (10 years or more), the maximum property management fee from such leases
shall be 1% of the gross revenues from such properties. For the year ended
December 31, 1995, these Affiliates were entitled to supervisory and property
management and leasing fees of $262,500. In addition, other Affiliates of the
General Partner were entitled to compensation and reimbursements of $134,100
from the Partnership for insurance, personnel, and other miscellaneous services.
Compensation for these services are 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
$74,900 were due to Affiliates.
Subsequent to the Termination of the Offering, the General Partner is entitled
to 10% of Cash Flow as its Partnership Management Fee. In accordance with the
Partnership Agreement, Net Profits (exclusive of Net Profits from the sale or
disposition of Partnership properties) are allocated first to the General
Partner in an amount equal to the greater of the General Partner's Partnership
Management Fee or 1% of such Net Profits. The balance of Net Profits, if any, is
allocated to the Limited Partners. Net Losses from the sale or disposition of
Partnership properties are allocated: first, prior to giving effect to any
distributions of Sale or Financing Proceeds, to the extent that the balance in
the General Partner's or Limited Partners' capital accounts exceeds the amount
of their Capital Investment (the "Excess Balances"), to the General Partner and
Limited Partners pro rata in proportion to such Excess Balances until such
Excess Balances are reduced to zero; second, to the General Partner and Limited
Partners (in a ratio which their respective positive capital account balances
bear to the aggregate of all positive 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 Partner. In all events
the General Partner will be allocated at least 1% of Net Losses from the sale or
disposition of a Partnership property. In addition, provisions for value
impairment are allocated 99% to the Limited Partners and 1% to the General
Partners. For the year ended December 31, 1995 the General Partner was entitled
to a Partnership Management Fee of $481,000 and was allocated Net Profits of
$471,000, which included a (loss) from provisions for value impairment of
($10,000).
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the General Partner and certain of their Affiliates. Sheli Z.
Rosenberg, President and Chief Executive Officer of the General Partner from
December 1990 to December 1992 and a director of the 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 was $53,300.
(c) No management person is indebted to the Partnership.
(d) None.
17
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.
18
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. - 2
BY: FIRST CAPITAL FINANCIAL CORPORATION
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 General Partner
SAMUEL ZELL
/s/ DOUGLAS CROCKER II March 29, 1996 President, Chief Executive Officer and
- ----------------------- -------------- Director of the General Partner
DOUGLAS CROCKER II
/s/ SHELI Z. ROSENBERG March 29, 1996 Director of the General Partner
- ----------------------- --------------
SHELI Z. ROSENBERG
/s/ SANFORD SHKOLNIK March 29, 1996 Director of the General Partner
- ----------------------- --------------
SANFORD SHKOLNIK
/s/ NORMAN M. FIELD March 29, 1996 Vice President - Finance and Treasurer
- ----------------------- --------------
NORMAN M. FIELD
19
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, 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 and 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-31 of the Partnership's
definitive Prospectus dated October 19, 1983, Registration No. 2-86361, filed
pursuant to Rule 424(b), is incorporated herein by reference.
EXHIBIT (10) Material Contracts
Lease agreements for tenants that individually occupy more than 10% of the net
leasable square footage of the Partnership's most significant properties, filed
as exhibits to the Partnership's Reports on Form 10-K dated December 31, 1993,
are incorporated herein by reference.
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
EXHIBIT (99) Other
The audited financial statements for First Capital Lansing Properties for the
year ended December 31, 1995 are attached hereto for the information of the
Commission and not as a filed document.
A-1
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Institutional Real Estate, Ltd. - 2
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Institutional
Real Estate, Ltd. - 2 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. - 2 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 $10,237,400 $10,237,400
Buildings and improvements 35,221,500 35,605,600
- ---------------------------------------------------------------------------
45,458,900 45,843,000
Accumulated depreciation and amortization (12,556,200) (11,222,700)
- ---------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 32,902,700 34,620,300
Cash and cash equivalents 12,268,000 12,560,400
Restricted cash 25,000 25,000
Rents receivable 169,800 100,400
Investment in joint venture 4,620,200 5,234,600
Other assets (including amounts due from joint
venture of $785,000 and $725,500, respectively) 817,400 901,400
- ---------------------------------------------------------------------------
$50,803,100 $53,442,100
- ---------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 491,000 $ 389,200
Due to Affiliates 74,900 92,800
Security deposits 136,200 116,400
Distributions payable 1,273,300 1,037,500
Other liabilities 112,200 77,900
- ---------------------------------------------------------------------------
2,087,600 1,713,800
- ---------------------------------------------------------------------------
Partners' (deficit) capital:
General Partner (131,300) (121,300)
Limited Partners (84,886 Units issued and
outstanding) 48,846,800 51,849,600
- ---------------------------------------------------------------------------
48,715,500 51,728,300
- ---------------------------------------------------------------------------
$50,803,100 $53,442,100
- ---------------------------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s)
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
Partners' (deficit) capital, January 1,
1993 $ (89,800) $54,961,100 $54,871,300
Net income for the year ended December
31, 1993 196,300 3,025,800 3,222,100
Distributions for the year ended December
31, 1993 (200,000) (1,799,600) (1,999,600)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1993 (93,500) 56,187,300 56,093,800
Net income (loss) for the year ended
December 31, 1994 307,000 (1,324,200) (1,017,200)
Distributions for the year ended December
31, 1994 (334,800) (3,013,500) (3,348,300)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1994 (121,300) 51,849,600 51,728,300
Net income for the year ended December
31, 1995 471,000 1,326,300 1,797,300
Distributions for the year ended December
31, 1995 (481,000) (4,329,100) (4,810,100)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1995 $(131,300) $48,846,800 $48,715,500
- -------------------------------------------------------------------------------
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 $6,099,700 $ 6,097,700 $7,420,800
Interest 885,200 538,700 304,900
- ------------------------------------------------------------------------------
6,984,900 6,636,400 7,725,700
- ------------------------------------------------------------------------------
Expenses:
Depreciation and amortization 1,333,500 1,396,400 1,417,200
Property operating:
Affiliates 332,500 350,900 400,800
Nonaffiliates 804,300 916,600 814,600
Real estate taxes 513,200 618,000 586,700
Insurance--Affiliate 64,800 90,600 95,700
Repairs and maintenance 731,800 735,200 605,700
General and administrative:
Affiliates 69,300 61,900 41,000
Nonaffiliates 217,100 237,600 292,900
Loss on sale of properties 1,276,600 366,000
Provisions for value impairment 1,000,000 1,500,000
- ------------------------------------------------------------------------------
5,066,500 7,183,800 4,620,600
- ------------------------------------------------------------------------------
Net income (loss) before (loss) income
from participation in joint venture 1,918,400 (547,400) 3,105,100
(Loss) income from participation in joint
venture (121,100) (469,800) 117,000
- ------------------------------------------------------------------------------
Net income (loss) $1,797,300 $(1,017,200) $3,222,100
- ------------------------------------------------------------------------------
Net income allocated to General Partners $ 471,000 $ 307,000 $ 196,300
- ------------------------------------------------------------------------------
Net income (loss) allocated to Limited
Partners $1,326,300 $(1,324,200) $3,025,800
- ------------------------------------------------------------------------------
Net income (loss) allocated to Limited
Partners per Unit (84,886 Units
outstanding) $ 15.62 $ (15.60) $ 35.65
- ------------------------------------------------------------------------------
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 (loss) $ 1,797,300 $(1,017,200) $3,222,100
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 1,333,500 1,396,400 1,417,200
Loss on sale of properties 1,276,600 366,000
Provisions for value impairment 1,000,000 1,500,000
Loss (income) from participation in
joint venture 121,100 469,800 (117,000)
Changes in assets and liabilities:
(Increase) decrease in rents receivable (69,400) 170,300 (55,700)
Decrease (increase) in other assets 143,500 (31,600) 11,900
Increase (decrease) in accounts payable
and accrued expenses 101,800 (61,700) 95,900
(Decrease) increase in due to
Affiliates (17,900) (10,000) 4,900
Increase (decrease) in other
liabilities 34,300 (46,800) 16,400
- ---------------------------------------------------------------------------------
Net cash provided by operating
activities 4,444,200 3,645,800 4,961,700
- ---------------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds from sale of properties 3,005,600 717,100
Payments for capital and tenant
improvements (615,900) (1,159,500) (817,700)
Distributions received from joint venture 493,300 317,800 496,400
(Funding of) collection of loans to joint
venture (59,500) 64,800 (227,200)
- ---------------------------------------------------------------------------------
Net cash (used for) provided by
investing activities (182,100) 2,228,700 168,600
- ---------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (4,574,300) (2,810,700) (2,325,000)
Increase (decrease) in security deposits 19,800 (5,800) 13,700
- ---------------------------------------------------------------------------------
Net cash (used for) financing
activities (4,554,500) (2,816,500) (2,311,300)
- ---------------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (292,400) 3,058,000 2,819,000
Cash and cash equivalents at the beginning
of the year 12,560,400 9,502,400 6,683,400
- ---------------------------------------------------------------------------------
Cash and cash equivalents at the end of
the year $12,268,000 $12,560,400 $9,502,400
- ---------------------------------------------------------------------------------
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 August 22, 1983, 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 10, 1983. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of up to 85,000 Units and not less than 1,400 Units pursuant to the
Prospectus. On December 5, 1983, the required minimum subscription level was
reached and Partnership operations commenced. A total of 84,886 Units were sold
prior to Termination of the Offering in October, 1984. The Partnership was
formed to invest primarily in existing, income-producing commercial real
estate.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 31, 2014. 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 as well as 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 four joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of each acquiring a 100% interest in certain real property and are
operated under the common control of the 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's income or loss on
their 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 provisions 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 as incurred; expenditures for improvements are
capitalized and depreciated over the estimated life of the improvements.
The 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 General
Partner's experience in the real estate industry, an evaluation of recent
operating performance against expected results, economic trends or factors
impacting either major tenants or the regions in which respective 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 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 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 Statement of Income and Expenses
in the year such evaluations have been made. For additional information see
Note 9.
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 sale or 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, trade liabilities and investment in joint venture. The Partnership
considers the disclosure of the fair value of its investment in joint venture
to be impracticable due to the illiquid nature of the investment. The fair
value of financial instruments, including cash and cash equivalents, was not
materially different from their carrying value at December 31, 1995 and 1994.
Investment in joint venture represents the recording of the Partnership's
interest, under the equity method of accounting, in a joint venture with an
Affiliated partnership. The joint venture acquired a preferred majority
interest in a joint venture with the seller of the Lansing, Michigan property.
Under the equity method of accounting, the Partnership records its initial
interest at cost and adjusts its investment account for its share of joint
venture income or loss and its distribution of cash flow.
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 income (loss) or Partners'
(deficit) capital.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, subsequent to October 19, 1984,
the Termination of the Offering, the General Partner is entitled to 10% of
distributable Cash Flow (as defined in the Partnership Agreement) as a
Partnership Management Fee. In addition, Net Profits (exclusive of Net Profits
from the sale or disposition of Partnership properties) are allocated: first,
to the General Partner, in an amount equal to the greater of the General
Partner's Partnership Management Fee or 1% of such Net Profits; second, the
balance, if any, is allocated to the Limited Partners. Net Profits from the
sale or disposition of a Partnership property are allocated: first, prior to
giving effect to any distributions of Sale Proceeds from the transaction, to
the General Partner 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; second, to the General
Partner, in an amount necessary to make the balance in its capital account
equal to the amount of Sale Proceeds to be
A-5
distributed to the General Partner with respect to the sale or disposition of
such property and third, the balance, if any, to the Limited Partners. Net
Losses (exclusive of Net Losses from the sale or disposition of Partnership
properties) are allocated 1% to the General Partner and 99% to the Limited
Partners. Net Losses from the sale, disposition or provision for value
impairment of Partnership properties are allocated: first, prior to giving
effect to any distributions of Sale Proceeds from the transaction, to the
extent that the balance in the General Partner's capital account exceeds its
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 Partner and the Limited Partners pro rata in
proportion to such Excess Balances until such Excess Balances are reduced to
zero; second, to the General Partner and the Limited Partners and among them
(in the ratio which their respective positive capital account balances bear to
the aggregate of all positive 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 Partner. Notwithstanding the
foregoing, in all events there shall be allocated to the General Partner not
less than 1% of Net Profits and Net Losses from the sale or disposition of a
Partnership property. For the year ended December 31, 1995, the General Partner
was entitled to a Partnership Management Fee of $481,000 and allocated Net
Profits of $471,000, which included a (loss) from provisions for value
impairment of $(10,000). For the year ended December 31, 1994, the General
Partner was entitled to a Partnership Management Fee of $334,800 and allocated
Net Profits of $307,000, which included (losses) from provisions for value
impairment of $(15,000) and the sale or disposition of Partnership property of
$(12,800). For the year ended December 31, 1993, the General Partner was
entitled to a Partnership Management Fee of $200,000 and allocated Net Profits
of $196,300, which included a (loss) from the sale or disposition of
Partnership property of $(3,700).
Fees and reimbursements paid and payable by the Partnership to Affiliates for
the years ended December 31, 1995, 1994, 1993 were as follows:
For the Years Ended December 31,
---------------------------------------------------
1995 1994 1993
---------------- ---------------- -----------------
Paid Payable Paid Payable Paid Payable
- ------------------------------------------------------------------------------
Property management and
leasing fees $286,100 $21,800 $307,800 $45,400 $382,400 $ 48,300
Reimbursement of property
insurance premiums, at
cost 64,800 None 87,700 None 85,700 None
Real estate commissions
(a) None 40,300 None 40,300 None 40,300
Reimbursement of
expenses, at cost
--Accounting 27,700 9,400 28,400 4,100 23,900 3,600
--Investor communication 33,300 3,400 16,500 3,000 11,300 1,600
--Legal 53,300 None 91,400 None 38,800 9,000
--Other 2,600 None None None None None
- ------------------------------------------------------------------------------
$467,800 $74,900 $531,800 $92,800 $542,100 $102,800
- ------------------------------------------------------------------------------
(a) As of December 31, 1995, the Partnership owed $40,300 to the General
Partner for real estate commissions earned in connection with the sales of
Partnership properties. These commissions have been accrued but not paid.
In accordance with the Partnership Agreement, no Affiliate of the General
Partner may receive payment of a real estate commission upon the sale of a
Partnership property until Limited Partners have received cumulative
distributions of Sale or Financing Proceeds equal to 100% of their Original
Capital Contribution, plus a cumulative return (including all Cash Flow (as
defined in the Partnership Agreement) which has been distributed to the
Limited Partners) of 6% simple interest per annum on their Capital
Investment from the initial investment date.
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 $ 6,159,900
1997 5,531,500
1998 4,895,300
1999 4,100,700
2000 3,224,000
Thereafter 7,353,600
--------------
$31,265,000
--------------
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 (i) operating
expense and real estate tax reimbursements and (ii) percentage rents.
Percentage rents earned for the years ended December 31, 1995, 1994 and 1993
were $57,200, $46,300 and $10,900, respectively.
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. 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 prepaid rents as taxable income and the Partnership's provisions
for value impairment. The net effect of these differences for the year ended
December 31, 1995 was that the income for tax reporting purposes was greater
than the income for financial statement purposes by $1,660,600. The aggregate
cost in commerical rental properties for federal income tax purposes at
December 31, 1995 was $52,458,900.
6. MANAGEMENT AGREEMENTS:
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 General Partner
provides supervisory management for this property for fees calculated as a
percentage of gross rents received from this property.
A-6
On-site property management for the Partnership's other properties is provided
by an Affiliate of the General Partner for fees based on a percentage of gross
rents received from the properties.
7. INVESTMENT IN JOINT VENTURE:
A summary of the financial information for First Capital Lansing Properties
Limited Partnership, which owns the Holiday Office Park North and South
("Holiday"), for the year ended December 31, 1995 is as follows:
ASSETS
Investment property, net of
accumulated depreciation and
amortization $10,175,500
Cash and cash equivalents 388,900
Loans receivable 603,300
Rents receivable 101,700
Other assets 102,600
----------------------------------------------
$11,372,000
----------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Loan payable to Affiliate $ 1,570,000
Accounts payable and accrued expenses 446,500
Due to Affiliates 49,000
Distribution payable 339,700
Security deposits 25,700
Other liabilities 40,300
Partners' capital 8,900,800
----------------------------------------------
$11,372,000
----------------------------------------------
STATEMENT OF INCOME AND EXPENSES
Total income $ 2,918,800
Expenses:
Property operating 1,816,200
Depreciation and amortization 365,500
Provision for value impairment 800,000
Interest 179,200
----------------------------------------------
Net (loss) $ (242,100)
----------------------------------------------
The information presented above represents 100% of the activity of Holiday. The
Partnership purchased a 50% interest in a joint venture which acquired a 75%
preferred interest in this property. The provision for value impairment was
allocated in accordance with the joint venture agreement. The Partnership's
share of the provision for value impairment was $400,000 for the year ended
December 31, 1995. For additional details see Note 9.
8. PROPERTY SALES:
On June 8, 1994, the Partnership sold Norwest Plaza (formerly known as United
Bank of Arizona Building) for a total sale price of $3,225,000. The Partnership
incurred selling expenses of $219,400. Proceeds received by the Partnership
from the sale were $3,005,600. The total (loss) to the Partnership in
connection with this sale for financial statement purposes was $(1,276,600).
For income tax reporting purposes the Partnership recorded a (loss) in 1994 of
$(314,500) on this sale.
On August 5, 1993, the Partnership sold Westinghouse (formerly known as the
Carlsbad Building) located in Carlsbad, New Mexico, for a sale price of
$775,000. Proceeds received by the Partnership from the sale were $717,100. The
total (loss) recognized by the Partnership for financial statement purposes was
$(1,466,000). The Partnership recorded $(1,100,000) of this (loss) as a
provision for value impairment in 1992 and the remaining $(366,000) upon sale
of the property in 1993. For income tax reporting purposes the Partnership
recorded a (loss) in 1993 of $(894,200) on this sale.
The above sales were on all-cash terms with no further involvement on the part
of the Partnership.
9. 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 basis of
these properties in the Partnership's financial statements during the years
ended December 31, 1995 and 1994. These provisions for value impairment were
considered non-cash events for purposes of the Statement of Cash Flows, and was
not utilized in the determination of Cash Flow (as defined in the Partnership
Agreement).
The following is a summary of the amounts and years in which provisions for
value impairment were recorded by the Partnership:
Property 1995 1994
-----------------------------------
Ellis Building $ 500,000 $1,000,000
12621 Featherwood 300,000 500,000
Foxhall Square 200,000
-----------------------------------
$1,000,000 $1,500,000
-----------------------------------
The joint venture which owns Holiday recorded a provision for value impairment
in the amount of $800,000 for the year ended December 31, 1995. This provision
was allocated to the general partners of the joint venture. Accordingly, the
Partnership's share of this provision was $400,000 and is reflected in the net
loss from participation in joint venture. For the year ended December 31, 1994,
an additional provision for value impairment for Holiday was recorded in the
amount of $2,000,000. Of this amount, $655,200 was allocated to the limited
partners of the joint venture which reduced their capital account to zero and
the remaining amount was allocated to the general partners, of which the
Partnership's share is $672,400. The joint venture also recorded a provision
for value impairment in the amount of $4,000,000 as of December 31, 1993.
Pursuant to the joint venture agreement, this provision was allocated to the
limited partners of the joint venture that own Holiday.
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 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 of defined assets
are impaired, and if so, how impairment losses should be measured and reported
in the financial statements. 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. - 2
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
Column A Column C Column D Column E Column F
- ----------------------- ------------------------ ------------------------- -------------------------------------- ------------
Initial cost Costs capitalized Gross amount at which
to Partnership subsequent to acquisition carried at close of period
------------------------ ------------------------- --------------------------------------
Buildings Buildings Accumulated
and Improve- Carrying and Depreciation
Description Land Improvements ments Costs (1) Land Improvements Total (2)(3) (2)
- ----------------------- ----------- ------------ ---------- --------- ----------- ------------ ------------ ------------
SHOPPING CENTERS:
- -----------------
Lakewood Square
(Lakewood, CA)
(50% interest) $ 2,652,800 $ 7,988,700 $ 444,600 $ 40,200 $ 2,652,800 $ 8,473,500 $11,126,300 $ 2,664,000
Banana River Square
(Cocoa Beach, FL) 887,400 5,297,600 262,300 54,200 887,400 5,614,100 6,501,500 1,737,300
Market Place at Rivergate
(Nashville, TN) 2,954,400 6,554,700 1,517,400 47,200 2,988,300 5,585,400 8,573,700(6) 1,874,500
OFFICE BUILDINGS:
- -----------------
Foxhall Square Building
(Washington, D.C.)
(50% interest) 2,351,100 5,893,400 2,011,400 188,500 2,351,100 7,893,300 10,244,400(7) 3,018,100
12621 Featherwood Building
(Houston, TX)
(50% interest) 497,800 5,037,700 91,300 57,400 497,800 2,386,400 2,884,200(8) 1,290,300
Ellis Building
(Sarasota, FL)
(50% interest) 860,000 5,405,600 1,337,300 25,900 860,000 5,268,800 6,128,800(9) 1,972,000
----------- ----------- ---------- -------- ----------- ----------- ----------- -----------
$10,203,500 $36,177,700 $5,664,300 $413,400 $10,237,400 $35,221,500 $45,458,900 $12,556,200
=========== =========== ========== ======== =========== =========== =========== ===========
Column A Column G Column H Column I
- ------------------- --------- -------- ------------
Life on
which
depreciation
in latest
Date income
of con- Date statements
Description struction Acquired is computed
- ------------------- --------- -------- ------------
SHOPPING CENTERS:
- -----------------
Lakewood Square
(Lakewood, CA) 35(4)
(50% interest) 1982 5/84 2-10(5)
Banana River Square 35(4)
(Cocoa Beach, FL) 1982 6/84 2-10(5)
Market Place at Rivergate 35(4)
(Nashville, TN) 1970 5/86 2-15(5)
OFFICE BUILDINGS:
- -----------------
Foxhall Square Building
(Washington, D.C.) 35(4)
(50% interest) 1972 6/84 1-10(5)
12621 Featherwood Building
(Houston, TX)
(50% interest) 1983 1/85 35(4)
Ellis Building
(Sarasota, FL) 35(4)
(50% interest) 1969 3/86 1-10(5)
Column B - Not Applicable.
See accompanying notes on the following page,
A-8
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 2
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 $45,843,000 $11,222,700 $51,404,300 $10,765,000 $52,588,300 $10,266,400
Additions during year:
Improvements 615,900 1,159,500 817,700
Provision for depreciation
and amortization 1,333,500 1,396,300 1,417,200
Deductions during year:
Cost of real estate sold (5,220,800) (2,001,700)
Provisions for value impairment (1,000,000) (1,500,000)
Accumulated depreciation on
real estate sold (938,600) (918,600)
----------- ----------- ----------- ----------- ----------- -----------
Balance at end of year $45,458,900 $12,556,200 $45,843,000 $11,222,700 $51,404,300 $10,765,000
=========== =========== =========== =========== =========== ===========
Note 3. The aggregate cost for Federal income tax purposes as of December 31,
1995 is $52,458,900.
Note 4. Estimated useful life for building.
Note 5. Estimated useful life for improvements.
Note 6. Includes a provision for value impairment of $2,500,000.
Note 7. Includes provision for value impairment of $200,000.
Note 8. Includes provisions for value impairment of $2,800,000.
Note 9. Includes provisions for value impairment of $1,500,000.
A-9