10-K 1 FORM 10-K 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, 1994 --------------------------------------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to ---------------- ---------------- Commission file number 0-14122 ------------------- First Capital Institutional Real Estate, Ltd. - 3 ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 36-3330657 --------------------------------- ------------------------------------------ (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 ----------------------------- Securities registered pursuant to Section 12(b) NONE of the Act: ----------------------------- Securities registered pursuant to Section 12(g) Limited Partnership Units of the Act: ----------------------------- 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. [ ] Document incorporated by reference: The First Amended and Restated Certificate and Agreement of Limited Partnership filed as Exhibit A to the definitive Prospectus dated January 17, 1985 included in the Registrant's Registration Statement on Form S-11, is incorporated herein by reference in Part IV of this report. Exhibit Index--Page A-1 2 PART I ITEM 1. BUSINESS The registrant, First Capital Institutional Real Estate, Ltd.-3 (the "Partnership"), is a limited partnership organized in 1984 under the Florida Uniform Limited Partnership Act. The Partnership sold $45,737,000 in Limited Partnership Units ("the Units") to the public from January, 1985 to May, 1986, pursuant to a Registration Statement on Form S-11 filed with the Securities and Exchange Commission (Registration Statement No. 2-94419). Capitalized terms used in this report have the same meaning as those terms have in this Registration Statement. The business of the Partnership is to invest primarily in existing, income- producing commercial real estate such as shopping centers and office buildings, and to a lesser extent, in other types of real estate. From March, 1986 to March, 1989, the Partnership made three real property investments (including two 50% joint venture interests and one 25% joint venture interest) and one participating mortgage loan investment, which was recognized as of July 1, 1990 as being foreclosed in-substance and was recorded as two real property investments, (the North Valley Office Center Phase I ("North Valley") and the Wellington North Office Complex ("Wellington A, B and C")) in which the Partnership had a 50% joint venture interest. In addition, in January 1987 the Partnership, with an Affiliated partnership, formed a joint venture ("Joint Venture"), in which they are each 50% partners, 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, Holiday Office Park North and South ("Holiday"), in order to obtain a preferred majority interest in the limited partnership. This Joint Venture is operated under the control of the General Partner. On November 5, 1992, North Valley was disposed of as a result of a conveyance of the title to the mortgage holder in lieu of foreclosure. On March 17, 1993, Wellington A was disposed of in conjunction with the mortgage holder, to a third party. On March 23, 1993 Wellington B was sold, and on June 8, 1994, Wellington C was sold. Property management services for certain of the Partnership's real estate investments are provided by an Affiliate of the General Partner for fees calculated as a percentage of gross rents received from the properties. The real estate business is highly competitive. The results of operations of the Partnership 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. The Partnership employs directly or through joint ventures 17 people for on-site property maintenance and administration. 3 ITEM 2. PROPERTIES (a) (b) ------ ---------- As of December 31, 1994, the Partnership owns through joint ventures, the following four real property interests, all of which are owned in fee simple: Net Number Leasable of Property Name Location Sq. Footage Tenants (c) ---------------------- ----------------- ------------ ------------- Office Buildings: ----------------- Ellis Building (d) Sarasota, Florida 130,189 39 (2) Holiday Office Park North and South (e) Lansing, Michigan 398,228 70 (1) Park Plaza Professional Building (d) Houston, Texas 177,395 64 (1) 3120 Southwest Freeway (f) Houston, Texas 89,346 37 Notes: (a) For a discussion of significant operating results and major capital expenditures planned for the Partnership's properties refer to Item 7 on pages 11 through 15. (b) For Federal income tax purposes, the Partnership depreciates the portion of the acquisition costs of its properties allocable to real property, and all improvements thereafter, over useful lives ranging from 19 years utilizing Accelerated Cost Recovery System to 40 years utilizing the straight-line method. The Partnership's portion of real estate taxes for the Ellis Building ("Ellis"), Holiday and Park Plaza Professional Building ("Park Plaza"), the Partnership's most significant properties, were approximately $79,700, $159,700, and $185,700, respectively for the year ended December 31, 1994. 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 majority preferred interest in this property. (f) The Partnership owns a 25% joint venture interest in this property. 4 ITEM 2. PROPERTIES -- Continued ------ ---------- The following table presents the Partnership's significant properties' occupancy rates as of December 31 for each of the last five years: Property Name 1994 1993 1992 1991 1990 ------------- ---- ---- ---- ---- ---- Ellis Building 95% 86% 96% 98% 97% Holiday Office Park North and South 73% 84% 76% 85% 83% Park Plaza Professional Building 82% 91% 91% 89% 89% The following table sets forth the Partnership's significant properties' average annual rentals per square foot for each of the last five years ended December 31 which are computed by dividing each property's base rental revenues by its average occupied square footage. Property Name 1994 1993 1992 1991 1990 -------------- ------ ------ ------ ------ ------ Ellis Building $13.32 $13.08 $12.57 $13.07 $12.71 Holiday Office Park North and South $ 9.32 $ 8.57 $ 8.36 $ 8.15 $ 8.45 Park Plaza Professional Building $18.44 $17.65 $16.99 $16.63 $15.82 The following table summarizes the principal provisions of the leases for tenants occupying ten percent or more of the rentable square footage at the Partnership's most significant properties.
Percentage of Net Partnership's Leasable Portion of Expiration Square Rent Date of Footage Renewal Options for 1995 Lease Occupied (Renewal Options/Years) ------------- ---------- ---------- ----------------------- Ellis Building -------------- NationsBank $384,800 03/09/01 42% 4/5 (banking) University Club $ 50,600 04/28/01 10% None (restaurant/banquet facility) Park Plaza Professional Building ----------------------- AMI Park Plaza Hospital $186,900 05/31/95 12% None (health care services)
5 ITEM 2. PROPERTIES -- Continued ------- ----------
Percentage of Net Partnership's Leasable Portion of Expiration Square Rent Date of Footage Renewal Options for 1995 Lease Occupied (Renewal Options/Years) ------------ ---------- ---------- ----------------------- Holiday Office Park North and South ------------------- Michigan Public Service Commission $270,700 (a) 14% None (state government administration)
(a) See note (c) below The following table sets forth the Partnership's portion of lease expirations (assuming no lease renewals) for the Partnership's significant properties through the year ended December 31, 2004:
Number Base Rents % of Total of in Year of Base Rents Year Tenants Square Feet Expiration(a) Collected(b) ---- ------- ----------- ------------- ------------ 1995 39 104,900 $425,200 13.08% 1996 40 54,900 $214,500 8.12% 1997 30 65,000 $257,700 11.47% 1998 20 43,300 $155,600 8.34% 1999 27 61,000 $234,600 15.56% 2000(c) 11 130,100 $ 52,700 7.55% 2001 4 71,200 $ 87,100 31.37% 2002 1 19,100 $ 97,500 53.67% 2003 None None None None 2004 1 9,149 $ 35,100 100.00%
(a) Represents Partnership's portion of rents to be received, through the date of expiration, on expiring leases for each year. (b) Represents the rents to be received on expiring leases as a percentage of the total rents expected to be collected for each year. (c) Included in this year are amounts for a tenant whose lease expired on 5/31/94. As of December 31, 1994 the tenant continues to occupy the premises and pay rent as the Partnership and the tenant negotiate the terms of a new lease. The amounts shown in the above table and the table on the preceding page are based on the terms of the expired lease which are expected to approximate the terms of the new lease. 6 ITEM 3. LEGAL PROCEEDINGS ------- ----------------- (a & b) The Partnership and its properties are 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, 1994. Ordinary routine litigation incidental to the business which is not deemed material was maintained during the quarter ended December 31, 1994. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------ --------------------------------------------------- (a, b, c & d) None. 7 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 the Units. As of March 1, 1995, there were 7,620 Holders of the Units. 8 ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31, ------------------------------------------------------------- 1994 1993 1992 1991 1990 ---------------------------------------------------------------------------------------- Total revenues $ 3,761,600 $ 3,916,200 $ 4,263,800 $ 4,388,600 $ 3,593,600 Net (loss) income $(1,019,100) $ 1,032,000 $(2,487,800) $ 610,900 $(3,927,400) Net (loss) income allocated to Limited Partners $(1,159,500) $ 977,900 $(2,462,900) $ 604,800 $(3,888,100) Net (loss) income allocated to Limited Partners per Unit (45,737 Units issued and outstanding)(a) $ (25.35) $ 21.38 $ (53.85) $ 13.22 $ (85.01) Investment in commercial rental properties (net of accumulated depreciation and amortization) $15,597,800 $19,577,300 $22,700,600 $29,106,500 $29,585,100 Mortgage loan(s) payable None None $ 2,419,000 $ 5,569,000 $ 5,581,500 Number of real properties owned at December 31 4 5 5 6 6(b) Total assets $30,120,200 $32,409,600 $35,171,600 $40,808,400 $40,067,700 Cash Flow (as defined by the Partnership Agreement)(c) $ 2,425,700 $ 2,164,900 $ 1,795,300 $ 1,972,500 $ 2,097,600 Distributions to Limited Partners per Unit (45,737 Units issued and outstanding) $ 30.67 $ 29.05 None None $ 20.00 Return of Capital to Limited Partners per Unit (45,737 Units issued and outstanding)(d) $ 30.67 $ 7.67 None None $ 20.00 ----------------------------------------------------------------------------------------
Reconciliation of Cash Flow (as defined by the Partnership Agreement) to net cash provided by operating activities:
For the Years Ended December 31, ---------------------------------------------------------- 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------- Cash Flow (as defined by the Partnership Agreement)(c) $2,425,700 $2,164,900 $1,795,300 $1,972,500 $2,097,600 Items of reconciliation: Principal payments on mortgage loans payable 12,500 10,200 Cash received from in- substance foreclosure 698,400 Distribution from joint venture (493,000) (471,800) (269,400) (783,700) (765,900) Income from participation in joint venture(e) 202,600 117,000 182,800 326,600 517,400 Changes in assets and liabilities: Decrease (increase) in current assets 69,200 162,700 (35,200) 18,600 (255,900) (Decrease) increase in current liabilities (120,200) 38,500 263,400 392,200 (63,700) ------------------------------------------------------------------------------------- Net cash provided by operating activities $2,084,300 $2,011,300 $1,936,900 $1,938,700 $2,238,100 -------------------------------------------------------------------------------------
(a) Net income (loss) allocated to Limited Partners per Unit for 1993 and 1992 included an extraordinary gain on extinguishment of debt. (b) Included two real property investments accounted for as an in-substance foreclosure in 1990. Actual title was obtained in 1991. (c) Cash Flow is defined in the Partnership Agreement as all revenues from operations (excluding tenant deposits, proceeds from the sale, disposition or financing of any Partnership properties), minus all expenses (including Operating Expenses, payments of principal and interest on any Partnership indebtedness, and any reserves of revenues from operations deemed reasonably necessary by the General Partner), except depreciation and amortization expenses, capital expenditures and payments of Acquisition Fees made from Offering Proceeds. (d) To the extent cash distributions exceed net income, such excess distributions are treated as a return of capital. (e) Excludes provision for value impairment of $672,400 for Holiday. The above selected financial data should be read in conjunction with the financial statements and the related notes appearing on pages A-1 to A-7 in this report and the supplemental schedules on pages A-8 through A-9. 9 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 January 17, 1985 and began operations on March 4, 1985 after achieving the required minimum subscription level. In May, 1986, the Offering was terminated upon the sale of 45,737 Units. From March, 1986 to March, 1989 the Partnership made a total of four real property investments (including two 50% joint venture interests, one 25% joint venture interest and one 50% interest in a joint venture that owns a 75% preferred majority interest in a property) and one mortgage loan investment. As of July 1, 1990 the mortgage loan investment was recognized as being foreclosed in-substance and was recorded as two real property investments. The Partnership entered the disposition phase of its life cycle with the November 5, 1992 disposition of North Valley Phase I, as a result of a conveyance of the title to the mortgage holder in lieu of foreclosure. On March 17, 1993 Wellington A was disposed of in conjunction with the mortgage holder, to a third party. On March 23, 1993 Wellington B was sold. On June 8, 1994, the Partnership, through a joint venture, disposed of the last building in the Wellington North Office Complex, Wellington C. OPERATIONS One of the primary objectives of the Partnership is to provide cash distributions to Limited Partners from Cash Flow generated by Partnership operations. To the extent cash distributions exceed net income, such excess distributions will be treated as a return of capital. The Statements of Cash Flows presented in the financial statements represent a reconciliation of the changes in cash balances. Cash Flow, as defined by the Partnership Agreement, is generally not equal to Partnership net income or cash flows as determined under generally accepted accounting principles, since certain items are treated differently under the Partnership Agreement than under generally accepted accounting principles. Management believes that in order to facilitate a clear understanding of Partnership operations, an analysis of Cash Flow (as defined by the Partnership Agreement) should be examined in conjunction with an analysis of net income or cash flows as defined by generally accepted accounting principles. The amount of Cash Flow and the return on Capital Investment are not indicative of actual distributions and actual returns on Capital Investment. As the Partnership progresses through the disposition phase, the General Partner continues to analyze, and if necessary adjust for, the differences between the market values and the carrying bases of the Partnership's properties. As a result of the current year analysis, the Partnership has recorded provisions for value impairment for the Ellis Building and the Park Plaza Professional Building in the amounts of $1,000,000 and $500,000, respectively, for the year ended December 31, 1994. 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 by the Partnership Agreement (see Note 9 of Notes to Financial Statements for additional information).
Comparative Cash Flow Results For the Years Ended ----------------------------------- 12/31/94 12/31/93 12/31/92 ------------------------------------------------------------------------------- Amount of Cash Flow (as defined by the Partnership Agreement) $ 2,425,700 $ 2,164,900 $ 1,795,300 Average Capital Investment $44,893,000 $45,245,000 $45,737,000 Return on average Capital Investment (Cash Flow/average Capital Investment) 5.40% 4.78% 3.93% -------------------------------------------------------------------------------
Comparisons of Cash Flow between the years presented in the above table are complicated with the disposition of North Valley Phase I in 1992, the disposition of Wellington A and sale of Wellington B in 1993 and the sale of Wellington C in 1994. Partnership Cash Flow is generally expected to decline as real property interests are sold since the Partnership no longer receives Cash Flow generated from such real property interests. Accordingly, rental income, property operating expenses, repairs and maintenance and real estate taxes are expected to decline as well, but will continue to comprise the significant components of Cash Flow and operating results until the final property sale. Also, during the disposition phase, cash and cash equivalents increase as sale proceeds are received and decrease as the Partnership utilizes such proceeds for the purposes of distributions to Limited Partners, mortgage debt repayments or making improvements to the Partnership's remaining properties. Sale proceeds are excluded from the determination of Cash Flow. Exclusive of the effect of the sale of Wellington C, Cash Flow results increased $304,500 for the year ended December 31, 1994 when compared to the year ended December 31, 1993. The primary factors which contributed to the increase in Cash Flow results were: 1) an increase in Cash Flow results at Ellis and Southwest Freeway of $108,200 and $38,100, respectively; 2) an increase in Cash Flow results from the Partnership's investment in the joint venture which owns Holiday of $22,700, primarily due to a decrease in real estate tax expense resulting from a decrease in the property's assessed value and 3) an increase in interest income of $132,600 due to a trend in higher interest rates earned on short-term investments. Partially offsetting the increase in Cash Flow was lower Cash Flow results at Park Plaza of $25,400. The increase in Cash Flow results of $369,600 for the year ended December 31, 1993 when compared to the year ended December 31, 1992 was due primarily to: 1) a decrease in real estate tax and insurance, property operating and repairs and maintenance expenses due to the disposition and sale of Wellington A and Wellington B, respectively; 2) a decrease in interest expense of approximately $127,800 due to the extinguishment of debt in connection with the disposition of Wellington A; 3) a higher return from the Partnership's investment in the joint venture which owns Holiday due to increased rental revenues and 4) an increase in interest income of approximately $35,400 due to an increase in funds available for short-term investments resulting from withholding Cash Flow to supplement working capital reserves. The increase in Cash Flow results was partially offset by a decrease in rental income of $383,000 due to the disposition of Wellington A and sale of Wellington B and a decrease in rental revenues at Ellis of approximately $43,000. Rental revenues at Ellis for the years ended December 31, 1994, 1993 and 1992 were approximately $1,118,300 $1,084,300, and $1,127,300, respectively. The increase in rental revenues in 1994 when compared to 1993 was primarily due to an increase in base rents as well as an increase in the average annual occupancy rate. The average annual occupancy rate for 1994 and 1993 was 94% and 90%, respectively. Also contributing to the increase in Cash Flow for this property for 1994 when compared to 1993 was a decrease in property operating expenses of $65,000 primarily due to decreases in utilities, professional fees and advertising and promotional costs and a decrease in real estate tax expense of $6,400. The primary reason for the decrease in Cash Flow results for this property for 1993 when compared to 1992 was the decrease in rental revenues. Rental revenues decreased in 1993 due to a current year credit adjustment given to a major tenant for a 1992 real estate tax reimbursement which when previously billed had been based on an estimate and also to a decrease in occupancy. The average annual occupancy rate in 1992 and 1993 was 97% and 90%, respectively. Rental revenues at Park Plaza for the years ended December 31, 1994, 1993 and 1992 were approximately $1,815,400, $1,889,200 and $1,732,800, respectively. The changes in rental revenues from 1992 through 1994 were the result of: 1) the significant fluctuations of real estate tax and operating expense reimbursements earned of approximately $19,600 in 1992 (which included a credit to tenants for reimbursements of approximately $71,700 related to 1989 and 1990 that were determined in 1992 to be overestimated), $115,200 in 1993 and $52,100 in 1994; 2) average annual occupancy rates of 90% in 1992, 93% in 1993 and 89% in 1994; 3) a decrease in parking income in 1993 of approximately $37,400 when compared to 1992 and 4) the write off of tenant receivables as uncollectible in 1992 of approximately $24,100. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED) These changes in rental revenues are in part due to the recent legislative uncertainties surrounding the health care industry. As a result, in order to maintain occupancy levels, the Partnership has begun to offer to new and renewing tenants reduced lease rates and the use of the current year as a base year for tenant expense reimbursements. In addition, the increase in 1994 Cash Flow results was impacted by lower property operating expenses as a result of lower utilities, advertising and promotional fees and property management fees, which are based on a percentage of gross rents received by the property. Rental revenues at 3120 Southwest Freeway for the years ended December 31, 1994, 1993 and 1992 were approximately $237,700, $202,700 and $206,900, respectively. The increase in rental revenues in 1994 when compared to 1993 was primarily due to an increase in the average annual occupancy rate from 86% in 1993 to 91% in 1994 as well as an increase in the average effective base rental rate charged to new and renewing tenants and the recovery of certain tenant receivables which were previously written off as uncollectible. Despite the increase in the average annual occupancy from 84% in 1992 to 86% in 1993 as well as an increase in the average effective base rental rate charged to new and renewing tenants, rental revenues decreased in 1993 when compared to 1992 primarily due to an adjustment in 1993 of real estate tax reimbursements billed to tenants in 1992 which were based on an estimate of real estate tax expense that was higher than the actual real estate taxes paid. Other factors affecting the decrease in Cash Flow results in 1993 were increases in property operating expenses of approximately $8,200, primarily due to increases in professional fees and utilities and an increase in repair and maintenance expenses of approximately $6,300. Collectively, rental revenues at North Valley and Wellington A, B and C for the years ended December 31, 1994, 1993 and 1992 were approximately $215,400, $497,800 and $990,000, respectively. As previously discussed, these four buildings were sold or disposed of individually between November 1992 and June 1994 and account for the significant decreases in rental revenues and operating expenses. In addition, interest expense decreased approximately $127,900 in 1993 due to the extinguishment of debt in connection with the sale of Wellington A. Partially offsetting the decrease in 1993 rental revenues when compared to 1992 was an increase in the Wellington C average annual occupancy rate from 46% in 1992 to 78% in 1993 as well as the receipt in May 1993 of a lease settlement payment from a tenant who vacated Wellington C in April 1993. Rental revenue at North Valley Phase I for the year ended December 31, 1992 was $668,700. The sale of North Valley Phase I occurred on November 5, 1992. To increase and maintain occupancy levels at the Partnership's properties, the General Partner, through its affiliated asset and property management groups, continues to take the necessary actions deemed appropriate for the properties discussed above. Some of these actions include: 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) cold-calling other businesses and tenants in the market area; and 5) providing rental concessions or competitively pricing rental rates depending on market conditions. The rate of inflation has remained relatively stable during the years under comparison and has had a minimal impact on the operating results of the Partnership. The nature of various tenants' lease clauses protects the Partnership, to some extent, from increases in the rate of inflation. Certain of the lease clauses provide for the following: 1) annual rent increases based on the Consumer Price Index or graduated rental increases; 2) percentage rentals at shopping centers, for which the Partnership receives as additional rent a percentage of a tenant's sales over predetermined breakeven amounts and 3) total or partial tenant reimbursement of property operating expenses (e.g., common area maintenance, real estate taxes, etc.). LIQUIDITY AND CAPITAL RESOURCES The increase in the Partnership's cash position as of December 31, 1994 when compared to December 31, 1993 was primarily the result of the receipt of net Sales Proceeds from the sale of Wellington C and the net cash provided by operating activities exceeding expenditures for capital and tenant improvements and distributions paid to Partners. Liquid assets of the Partnership as of December 31, 1994 were comprised of amounts held for working capital purposes and undistributed Cash Flow. Net cash provided by operating activities continues to be the Partnership's primary source of funds. Net cash provided by operating activities increased from $2,011,300 for the year ended December 31, 1993 to $2,084,300 for the year ended December 31, 1994. The increase was primarily due to the net increase in Cash Flow as discussed above, partially offset by the effects of the disposition and sale of Wellington A and B, respectively in 1993, as well as the sale of Wellington C in June 1994, and to a lesser extent, the timing of the collection of tenant's rental payments and the payment of certain Partnership expenses. Net cash (used for) provided by investing activities changed from ($86,000) for the year ended December 31, 1993 to $1,677,600 for the year ended December 31, 1994. This change was primarily the result of proceeds received from the sale of Wellington C being greater than the proceeds received from the disposition of Wellington A and the sale of Wellington B in 1993 partially offset by a decrease in expenditures for capital and tenant improvements. During the year ended December 31, 1994, the Partnership spent approximately $670,600 for capital and tenant improvements and has budgeted to spend approximately $1,036,000 during 1995. Included in the 1995 budget are building and tenant improvements for: 1) Ellis of approximately $158,000; 2) Park Plaza of approximately $242,000; 3) Holiday of approximately $596,000 and 4) Southwest Freeway of approximately $40,000. The General Partner believes these improvements are necessary in order to maintain occupancy levels in very competitive markets, as well as to maximize rental rates charged to new and renewing tenants. On June 8, 1994, Farmington Hills Associates, a joint venture in which the Partnership and an Affiliated partnership each have a 50% interest, sold Wellington C in the Wellington North Office Complex for the sale price of $4,500,000. The Partnership's share of the net proceeds from this sale approximated $2,168,200. The proceeds from this sale were added to the Partnership's working capital. Net cash used for financing activities decreased from $1,249,100 for the year ended December 31, 1993 to $1,150,100 for the year ended December 31, 1994. This decrease was due primarily to the decrease in the payment of cash distributions to Limited Partners in 1994. The General Partner continues to take a conservative approach to projections of future rental income and to maintain higher levels of cash reserves for the Partnership. The higher levels of cash reserves are needed due to the anticipated capital and tenant improvements necessary to be made to the Partnership's properties during the next several years. As a result of this, the Partnership continues to reserve amounts from Cash Flow to supplement working capital reserves. For the year ended December 31, 1994, Cash Flow retained to supplement working capital reserves approximated $867,100. The General Partner believes that the Partnership's current cash position along with any additional amounts retained from future Cash Flow will be sufficient to cover budgeted expenditures as well as any other requirements which may be reasonably foreseen. Distributions to Limited Partners for 1994 were made at an annualized rate of 3.12% on total Capital Investment. Cash distributions are made 60 days after the quarter-end. The amount of future distributions to the Limited Partners will ultimately be dependent upon the performance of the Partnership's investments as well as the amount of Cash Flow retained for future cash requirements. Therefore, there can be no assurance of the availability or the amount of Cash Flow for distribution to investors. 11 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, Schedules and Exhibits". ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. 12 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 27, 1995, 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 May, 1995. Name Office ---- ------ Samuel Zell....................................... Chairman of the Board Douglas Crocker II................................ Director Sheli Z. Rosenberg................................ Director Sanford Shkolnik.................................. Director Samuel Zell, 53, 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., and is a trustee and beneficiary of a general partner of Equity Holding Limited, an Illinois Limited Partnership, a privately owned investment partnership. He is also Chairman of the Board of Directors of Itel Corporation, Broadway Stores, 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 Jacor Communications, Inc., Sealy Corporation and The Vigoro Corporation, 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 a petition under the Federal bankruptcy laws on November 8, 1991. Douglas Crocker II, 54, 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 and Chief Executive Officer 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. Sheli Z. Rosenberg, 53, 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 Equity Group Investments, Inc. 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 Itel Corporation, Capsure Holdings Corp., American Classic Voyages Co., Falcon Building Products, Inc., Jacor Communications, Inc., Revco D.S., Inc. and The Vigoro Corporation. She was Chairman of the Board from January, 1994 to September, 1994; and has been Co-Chairman of the Board since September, 1994 of CFI Industries, Inc., She is also a trustee of Equity Residential Properties Trust. Ms. Rosenberg is Chairman of the Board of Rosenberg & Liebentritt, P.C., counsel to the Partnership, the General Partner and certain of their Affiliates. Ms. Rosenberg was 13 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -- Continued -------- -------------------------------------------------- (a) DIRECTORS (continued) --------- Vice President of Madison prior to October 4, 1991. Madison filed for a petition under the Federal bankruptcy laws on November 8, 1991. She has been Vice President of First Capital Benefit Administrators, Inc. ("Benefit Administrators") since July 22, 1987. Benefit Administrators filed for a petition under the Federal Bankruptcy laws on January 3, 1995. Sanford Shkolnik, 56, 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 company. He is also a director of Broadway Stores, Inc. (b, c & e) EXECUTIVE OFFICERS ------------------ The Partnership does not have any executive officers. The executive officers of the General Partner as of March 27, 1995 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, 53, 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 a Director and Executive Vice President/Treasurer 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., The Vigoro Corporation, 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 a petition under the Federal bankruptcy laws on November 8, 1991. Norman M. Field, 46, has been Vice President 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. Benefit Administrators filed for a petition under the Federal Bankruptcy laws on January 3, 1995. He has also been Chief Financial Officer of Equality Specialties, Inc., a subsidiary of Great American, since August, 1994. (d) FAMILY RELATIONSHIPS -------------------- There are no family relationships among any of the foregoing officers. (f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS ---------------------------------------- There are no involvements in certain legal proceedings among any of the foregoing officers. 14 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------- -------------------------------------------------------------- (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, 1994. However, Affiliates of the General Partner do compensate the directors and officers of the General Partner. (e) None. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------- -------------------------------------------------------------- (a) As of March 1, 1995, no person owned of record or was known by the Partnership to own beneficially more than 5% of the Partnership's 45,737 Units then outstanding. (b) The Partnership has no directors or executive officers as of March 1, 1995. The executive officers and directors of First Capital Financial Corporation, the General Partner, did not own any Units. (c) None. 15 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. Affiliates of the General Partner provide leasing, supervisory and property management 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 leasing related services, or 3% of gross receipts where the General Partner or Affiliates do not perform leasing, re-leasing, and leasing related services for a particular property. For the year ended December 31, 1994, these Affiliates were entitled to leasing, supervisory, and property management fees of approximately $156,600. In addition, other Affiliates of the General Partner were entitled to receive approximately $63,400 for fees, compensation and reimbursements from the Partnership for personnel, mailing, insurance 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. A total of approximately $107,400 of these amounts was due to Affiliates as of December 31, 1994. Subsequent to May 16, 1986, the Termination of the Offering, the General Partner is entitled to 10% of Cash Flow as its Partnership Management Fee. This fee is to be paid annually and any amounts not paid in any year may be deferred and paid in subsequent years subject to certain limitations set forth in the Partnership Agreement. For the year ended December 31, 1994, the General Partner was allocated a Partnership Management Fee of approximately $155,900. In accordance with the Partnership Agreement, Net Profits are first allocated to the General Partner in an amount equal to the greater of the General Partner's Partnership Management Fee, or 1% of Net Profits. The balance of Net Profits is allocated to the Limited Partners. Net Losses (exclusive of Net Losses from the sale or disposition of a Partnership property) shall be allocated 1% to the General Partner and 99% to the Limited Partners. For the year ended December 31, 1994, the General Partner was allocated Net Profits of $155,900. Net Losses from the sale or disposition of a Partnership property are allocated first, to the General Partner and Limited Partners pro rata, in proportion to the positive balance in their capital accounts until the positive balance is reduced to zero and second, the balance, if any, ninety-nine percent (99%) to the Limited Partners and one percent (1%) to the General Partner. Notwithstanding anything to the contrary, the General Partner shall be allocated not less than one percent (1%) of Net Losses from the sale or disposition of a Partnership property. In addition, provisions for value impairment are allocated ninety-nine percent (99%) to the Limited Partners and one percent (1%) to the General Partner. For the year ended December 31, 1994, the General Partner was allocated a Net Loss from the sale of a Partnership property of $500 along with a Net Loss from provisions for value impairment of $15,000. 16 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - (Continued) -------- ---------------------------------------------- (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 this firm. 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. (c) No management person is indebted to the Partnership. (d) None. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K -------- ----------------------------------------------------------------- (a,c & d) (1,2 & 3) See Index of Financial Statements, Schedules 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, 1994. 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. - 3 BY: FIRST CAPITAL FINANCIAL CORPORATION GENERAL PARTNER Dated: March 30, 1995 By: -------------- ------------------------------------------- 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. March 30, 1995 Chairman of the Board and --------------------- -------------- Director of the General Partner SAMUEL ZELL March 30, 1995 President, Chief Executive Officer and --------------------- -------------- Director of the General Partner DOUGLAS CROCKER II March 30, 1995 Director of the General Partner --------------------- -------------- SHELI Z. ROSENBERG March 30, 1995 Director of the General Partner --------------------- -------------- SANFORD SHKOLNIK March 30, 1995 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 ----- Independent Auditors' Report A - 2 Balance Sheets at December 31, 1994 and 1993 A - 3 Statements of Partners' Capital for the Years Ended December 31, 1994, 1993, and 1992 A - 3 Statements of Income and Expenses for the Years Ended December 31, 1994, 1993, and 1992 A - 4 Statements of Cash Flows for the Years Ended December 31, 1994, 1993, and 1992 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, 1994 A - 8 to A - 9 All other schedules have been omitted as inapplicable, or for the reason that the required information is shown in the financial statements or notes thereto, or in other schedules. 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-33 of the Partnership's definitive Prospectus dated January 17, 1985, as supplemented through March 4, 1986, Registration No. 2-94419, filed pursuant to Rule 424(b), 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 significant properties, filed as exhibits to the Partnership's Reports on Form 10-K dated December 31, 1992 and 1993, incorporated herein by reference. EXHIBIT (13) Annual Report to Security Holders The 1993 Annual Report to holders of Units is being sent under separate cover, not via EDGAR, for the information of the Commission. EXHIBIT (27) Financial Data Schedule EXHIBIT (99) Additional Exhibits The audited financial statements for First Capital Lansing Properties Limited Partnership for the year ended December 31, 1994 are attached hereto for the information of the Commission and not as a filed document. A-1 INDEPENDENT AUDITORS' REPORT Partners First Capital Institutional Real Estate, Ltd. - 3 Chicago, Illinois We have audited the accompanying balance sheets of First Capital Institutional Real Estate, Ltd. - 3 as of December 31, 1994 and 1993, and the related statements of income and expenses, Partners' Capital and cash flows for the years ended December 31, 1994, 1993 and 1992 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. - 3 as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the years ended December 31, 1994, 1993 and 1992 in conformity with generally accepted accounting principles. Further, it is our opinion that the schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Kenneth Leventhal & Company Chicago, Illinois February 17, 1995 A-2 BALANCE SHEETS December 31, 1994 and 1993 (All dollars rounded to nearest 00s)
1994 1993 ---------------------------------------------------------------------------- ASSETS Investment in commercial rental properties: Land $ 1,908,600 $ 2,538,600 Buildings and improvements 18,713,300 21,487,500 ---------------------------------------------------------------------------- 20,621,900 24,026,100 Accumulated depreciation and amortization (5,024,100) (4,448,800) ---------------------------------------------------------------------------- Total investment properties, net of accumulated depreciation and amortization 15,597,800 19,577,300 Cash and cash equivalents 8,442,900 5,831,100 Restricted Cash 62,500 62,500 Investment in joint venture 5,234,600 6,022,300 Rents receivable 24,800 52,700 Other assets (including amounts due from joint venture of $725,500 and $790,300, respectively) 757,600 863,700 ---------------------------------------------------------------------------- $30,120,200 $32,409,600 ---------------------------------------------------------------------------- LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ 360,000 $ 473,000 Due to Affiliates 107,400 66,300 Security deposits 51,500 67,300 Other liabilities 3,500 51,800 Distributions payable 559,000 134,700 ---------------------------------------------------------------------------- 1,081,400 793,100 ---------------------------------------------------------------------------- Partners'(deficit) capital: General Partner (163,300) (147,800) Limited Partners (45,737 Units authorized, issued and outstanding) 29,202,100 31,764,300 ---------------------------------------------------------------------------- 29,038,800 31,616,500 ---------------------------------------------------------------------------- $30,120,200 $32,409,600 ----------------------------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL For the years ended December 31, 1994, 1993 and 1992 (All dollars rounded to nearest 00s)
General Limited Partner Partners Total ---------------------------------------------------------------------------- Partners'(deficit) capital, January 1, 1992 $(123,200) $34,578,000 $34,454,800 Net (loss) for the year ended December 31, 1992 (24,900) (2,462,900) (2,487,800) ---------------------------------------------------------------------------- Partners'(deficit) capital, December 31, 1992 (148,100) 32,115,100 31,967,000 Net income for the year ended December 31, 1993 54,100 977,900 1,032,000 Distributions for the year ended December 31, 1993 (53,800) (1,328,700) (1,382,500) ---------------------------------------------------------------------------- Partners'(deficit) capital, December 31, 1993 (147,800) 31,764,300 31,616,500 Net income (loss) for the year ended December 31, 1994 140,400 (1,159,500) (1,019,100) Distributions for the year ended December 31, 1994 (155,900) (1,402,700) (1,558,600) ---------------------------------------------------------------------------- Partners'(deficit) capital, December 31, 1994 $(163,300) $29,202,100 $29,038,800 ----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. A-3 STATEMENTS OF INCOME AND EXPENSES For the years ended December 31, 1994, 1993 and 1992 (All dollars rounded to nearest 00s except per Unit amounts)
1994 1993 1992 ------------------------------------------------------------------------------ Income: Rental $ 3,386,800 $ 3,674,000 $ 4,057,000 Interest 374,800 242,200 206,800 ------------------------------------------------------------------------------ 3,761,600 3,916,200 4,263,800 ------------------------------------------------------------------------------ Expenses: Interest 127,800 Depreciation and amortization 933,100 812,200 947,600 Real estate taxes and insurance 350,800 382,500 519,400 Repairs and maintenance 459,000 570,900 667,600 Property operating 818,000 1,073,800 1,232,700 General and administrative 201,100 195,900 190,400 ------------------------------------------------------------------------------ 2,762,000 3,035,300 3,685,500 ------------------------------------------------------------------------------ Income before (loss) income from participation in joint venture 999,600 880,900 578,300 (Loss) income from participation in joint venture (469,800) 117,000 182,800 ------------------------------------------------------------------------------ Income before other gains (losses) 529,800 997,900 761,100 (Loss) on sale or disposition of properties (48,900) (1,429,900) (2,293,900) Provisions for value impairment (1,500,000) (3,065,000) ------------------------------------------------------------------------------ Net (loss) before extraordinary gain on extinguishment of debt (1,019,100) (432,000) (4,597,800) Extraordinary gain on extinguishment of debt 1,464,000 2,110,000 ------------------------------------------------------------------------------ Net (loss) income $(1,019,100) $ 1,032,000 $(2,487,800) ------------------------------------------------------------------------------ Net income (loss) allocated to General Partner $ 140,400 $ 54,100 $ (24,900) ------------------------------------------------------------------------------ Net (loss) income allocated to Limited Partners $(1,159,500) $ 977,900 $(2,462,900) ------------------------------------------------------------------------------ Net (loss) before extraordinary gain on extinguishment of debt allocated to Limited Partners per Unit (45,737 Units authorized, issued and outstanding) $ (25.35) $ (9.35) $ (99.52) ------------------------------------------------------------------------------ Net (loss) income allocated to Limited Partners per Unit (45,737 Units authorized, issued and outstanding) $ (25.35) $ 21.38 $ (53.85) ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS For the years ended December 31, 1994, 1993 and 1992 (All dollars rounded to nearest 00s)
1994 1993 1992 ----------------------------------------------------------------------------- Cash flows from operating activities: Net (loss) income $(1,019,100) $ 1,032,000 $(2,487,800) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 933,100 812,200 947,600 Provisions for value impairment 1,500,000 3,065,000 Provision for value impairment for Holiday 672,400 Loss on sale or disposition of properties 48,900 1,429,900 2,293,900 Extraordinary gain on extinguishment of debt (1,464,000) (2,110,000) Changes in assets and liabilities: Decrease (increase) in rents receivable 27,900 114,300 (40,400) Decrease in other assets 41,300 48,400 5,200 (Decrease) increase in accounts payable and accrued expenses (113,000) 31,600 263,800 Increase (decrease) in due to Affiliates 41,100 (30,500) (12,700) (Decrease) increase in other liabilities (48,300) 37,400 12,300 ----------------------------------------------------------------------------- Net cash provided by operating activities 2,084,300 2,011,300 1,936,900 ----------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from the sale or disposition of properties 2,168,200 840,000 Payments for capital and tenant improvements (670,600) (1,078,200) (930,000) Distributions received from joint venture in excess of loss or income allocated 115,200 379,400 285,900 Collection of (funding of) loans to joint venture 64,800 (227,200) (211,000) ----------------------------------------------------------------------------- Net cash provided by (used for) investing activities 1,677,600 (86,000) (855,100) ----------------------------------------------------------------------------- Cash flows from financing activities: Distributions paid to Partners (1,134,300) (1,247,800) (Decrease) increase in security deposits (15,800) (1,300) 20,100 Cash paid on disposition of property (139,300) ----------------------------------------------------------------------------- Net cash (used for) financing activities (1,150,100) (1,249,100) (119,200) ----------------------------------------------------------------------------- Net increase in cash and cash equivalents 2,611,800 676,200 962,600 Cash and cash equivalents at the beginning of the year 5,831,100 5,154,900 4,192,300 ----------------------------------------------------------------------------- Cash and cash equivalents at the end of the year $ 8,442,900 $ 5,831,100 $ 5,154,900 -----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. A-4 NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DEFINITION OF SPECIAL TERMS: Capitalized terms used in this report have the same meaning as those terms have 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 incorporated herein by reference. ORGANIZATION: The Partnership was formed on November 6, 1984, 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 January 17, 1985. The Certificate and Agreement, as amended and restated, authorized the sale to the public of up to 50,000 Units with the General Partner's option to increase the Offering by an additional 50,000 Units and not less than 1,400 Units. On March 4, 1985, the required minimum subscription level was reached and Partnership operations commenced. A total of 45,737 Units were sold prior to Termination of the Offering in May, 1986. 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 include the Partnership's interest in four joint ventures with Affiliated partnerships. These joint ventures were formed for the purpose of acquiring a 100% interest in certain real properties. These joint ventures are operated under the control of the General Partner. Accordingly, the Partnership's pro rata share of such ventures' revenues, expenses, assets, liabilities and capital are included in the financial statements. 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 majority preferred 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. 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 any 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 against operations as incurred; expenditures for improvements are capitalized to the appropriate property accounts and depreciated over the estimated life of the improvements. 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 purchased with an original maturity of three months or less. Certain reclassifications have been made to the previously reported 1993 and 1992 statements in order to provide comparability with the 1994 statements. These reclassifications have no effect on net income, net (loss) or Partner's capital. 2. RELATED PARTY TRANSACTIONS: Subsequent to May 16, 1986, 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 are first allocated to the General Partner in an amount equal to the greater of the General Partner's Partnership Management Fee, or 1% of Net Profits. The balance of Net Profits is allocated to the Limited Partners. Net Losses (exclusive of Net Losses from the sale or disposition of a Partnership property) shall be allocated 1% to the General Partner and 99% to the Limited Partners. For the years ended December 31, 1994 and 1993, the General Partner was allocated a Partnership Management Fee of approximately $155,900 and $53,800, respectively, in conjunction with the declaration of cash distributions to Limited Partners. Due to the suspension of cash distributions to the Limited Partners for the year December 31, 1992 the General Partner was not allocated a Partnership Management Fee for the year ended December 31, 1992. For the years ended December 31, 1994, 1993 and 1992, the General Partner was allocated Net Profits of approximately $155,900, $53,800 and $7,600, respectively. Net (Losses) from the sale or disposition of a Partnership property are allocated first, to the General Partner and Limited Partners pro rata, in proportion to the positive balance in their capital accounts until the positive balance is reduced to zero and second, the balance, if any, ninety-nine percent (99%) to the Limited Partners and one percent (1%) to the General Partner. Notwithstanding anything to the contrary, the General Partner shall be allocated not less than one percent (1%) of Net (Losses) from the sale or disposition of a Partnership property. In addition, extraordinary gain on extinguishment of debt and provisions for value impairment are allocated ninety-nine percent (99%) to the Limited Partners and one percent (1%) to the General Partner. For the years ended December 31, 1994, 1993 and 1992, the General Partner was allocated total Net (Loss) Profit from the sale or disposition of Partnership properties along with an extraordinary gain on extinguishment of debt and provisions for value impairment of approximately ($15,500), $300 and ($32,500), respectively. Fees and reimbursements paid and payable by the Partnership to Affiliates for the years ended December 31, 1994, 1993 and 1992 were as follows:
For the Years Ended December 31, --------------------------------------------------- 1994 1993 1992(a) ----------------- ---------------- ---------------- Paid Payable Paid Payable Paid Payable ------------------------------------------------------------------------------- Property management and leasing fees $115,700 $ 62,600 $252,600 $21,700 $266,100 $31,200 Real estate commissions(b) None 40,200 None 40,200 None None Reimbursement of property insurance premiums, at cost 28,000 None 35,900 None 49,000 None Reimbursement of expenses, at cost: (1) Accounting 20,300 2,300 21,700 2,600 24,200 3,700 (2) Investor communication 14,900 2,300 9,400 1,800 7,800 1,000 (3) Legal 15,700 None 37,800 None 10,700 4,400 ------------------------------------------------------------------------------- $194,600 $107,400 $357,400 $66,300 $357,800 $40,300 -------------------------------------------------------------------------------
A-5 (a) Property management reimbursements previously reported in 1992 have been excluded from the above table and amounts previously included in 1992 in due to Affiliates have been reclassified to accounts payable and accrued expenses in order to provide comparability to the fees presented for 1993 and 1994. (b) As of December 31, 1994, $40,200 was due to the General Partner for real estate commissions earned in connection with the disposition and sale of Partnership property. These commissions have been accrued but not paid. Under the terms of the Partnership Agreement, these commissions will not be paid until such time as the 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 which has been distributed to Limited Partners) of 6% simple interest per annum on their Capital Investment from the initial date of investment. On-site property management for the Partnership's properties is provided by an Affiliate of the General Partner for fees based upon various percentage rates of gross rents received from the properties. 3. 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, 1994 is as follows: ASSETS Investment property, net of accumulated depreciation and amortization $10,874,800 Cash and cash equivalents 496,300 Loans receivable 525,600 Rents receivable 202,500 Escrow deposit 46,600 Other assets 92,000 ---------------------------------------------- $12,237,800 ---------------------------------------------- LIABILITIES AND PARTNERS' CAPITAL Loan payable to Affiliate $ 1,451,000 Accounts payable and accrued expenses 155,900 Due to Affiliates 62,600 Distribution payable 406,000 Security deposits 33,900 Other liabilities 3,800 Partners' capital 10,124,600 ---------------------------------------------- $12,237,800 ---------------------------------------------- STATEMENT OF INCOME AND EXPENSES Total income $ 2,995,200 ---------------------------------------------- Expenses: Property operating 1,913,900 Depreciation and amortization 466,600 Provision for value impairment 2,000,000 Interest 140,000 ---------------------------------------------- Net (loss) $(1,525,300) ----------------------------------------------
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 $672,400. For additional details see Note 9. 4. FUTURE MINIMUM RENTALS: The Partnership's share of future minimum rentals due on noncancelable operating leases as of December 31, 1994 was as follows: 1995 $2,181,900 1996 1,681,400 1997 1,326,900 1998 975,400 1999 706,700 Thereafter 973,400 ------------- $7,845,700 -------------
The Partnership is subject to the usual business risks associated with the collection of the above scheduled rentals. In addition to the amounts scheduled above, the Partnership expects to receive rental revenue from operating expense and real estate tax reimbursements. 5. MANAGEMENT AGREEMENTS: On-site property management for the Partnership's properties is provided by an Affiliate of the General Partner for fees based upon various percentage rates of gross rents received from the properties. 6. RESTRICTED CASH: Restricted cash includes negotiable certificates of deposit in the amount of $37,500 which has been pledged as collateral for security deposits to the Houston Lighting & Power Company and $25,000 which has been pledged as collateral for security deposits to the Florida Lighting & Power Company. A-6 7. INCOME TAX: The Partnership utilizes an accrual basis method of accounting for both tax reporting and financial statement purposes. Financial statement results will differ from tax results due to the use of differing depreciation lives and methods, the recognition of rents received in advance as taxable income, the use of differing methods in computing the gain on sale of property and the Partnership's provisions for value impairment. The net effect of these accounting differences for the year ended December 31, 1994 was that the loss for tax reporting purposes was approximately $156,200 more than the net loss for financial statement purposes. 8. PROPERTY SALES AND DISPOSITIONS: On June 8, 1994, Farmington Hills Associates ("FHA"), the joint venture which owned North Valley Office Center Phase I ("North Valley Phase I") and Wellington A, B and C in the Wellington North Office Complex ("Wellington A, B and C"), in which the Partnership owns a 50% interest, sold Wellington C for the sale price of $4,500,000. The Partnership's share of selling expenses was approximately $81,800. The Partnership's share of the net proceeds from this sale was approximately $2,168,200. The Partnership recorded a total loss on the sale of this property of approximately $2,048,900 for financial statement purposes, of which $2,000,000 was recorded as of December 31, 1992 as a provision for value impairment. For tax reporting purposes the Partnership recorded a total loss in 1994 of approximately $1,980,700 on this sale. The sale was on all-cash terms with no further involvement on the part of the Partnership. On March 23, 1993, FHA sold Wellington B for a total sale price of approximately $1,680,000. The Partnership's share of selling expenses were approximately $64,600, including $45,900 of accrued expenses. The Partnership's share of the net proceeds from this sale approximated $821,300. The Partnership recorded a loss on the disposition of this property of approximately $463,600 for financial statement purposes. Due to the anticipated loss in connection with this sale, the Partnership recorded $300,000 of the total loss as of December 31, 1992 as a provision for value impairment and the remaining portion of the loss in 1993. For tax purposes the Partnership recorded a loss in 1993 of approximately $446,500 on this sale. The sale was on all-cash terms with no further involvement on the part of the Partnership. On March 17, 1993, FHA disposed of Wellington A in conjunction with the mortgage holder, to a third party for a total sale price of approximately $2,060,000. Of this amount, FHA remitted $1,910,000 to the mortgage holder (the Partnership's share of this amount was $955,000) which relieved the Partnership of its share of the obligation of approximately $2,419,000 under the mortgage loan and any interest in the assets therein. This extinguishment of debt was considered a noncash event for the purposes of the Statement of Cash Flows, and was not included in the Partnership's calculation of Cash Flow (as defined by the Partnership Agreement) for the year ended December 31, 1993. The Partnership incurred transaction costs of approximately $63,500, including $10,600 of accrued expenses. The Partnership's share of the net proceeds from this transaction approximated $22,100. The Partnership recorded a loss on the disposition of this property of approximately $2,027,900 for financial statement purposes. This loss represented the net book value of this property and transaction costs incurred by the Partnership in excess of the sale price of the property. Due to an anticipated loss in connection with this disposition, the Partnership recorded $765,000 as a provision for value impairment in 1992. Upon sale of the property in 1993, an additional loss of $1,262,900 was recorded. In addition, the Partnership also recorded an extraordinary gain on extinguishment of debt in connection with the disposition of this property of approximately $1,464,000 for financial statement purposes. This extraordinary gain on extinguishment of debt represented the excess property indebtedness over the amount remitted to the mortgage holder upon sale of the property. For the year ended December 31, 1993, the Partnership recorded a loss of approximately $597,300 on this disposition for tax purposes. On November 5, 1992, FHA disposed of North Valley Phase I as a result of a conveyance of the title to the mortgage holder in lieu of foreclosure. The disposition of the property relieved the Partnership of its share of the obligation under the mortgage loan of approximately $3,150,000 and any interest in the assets therein. For the years ended December 31, 1993 and 1992, the Partnership recorded a loss on the disposition of North Valley Phase I of approximately $3,400 and $2,293,900, respectively, for financial statement purposes. The loss of $2,297,300 represented the net book value of this property, the net cash outlay and transaction costs incurred by the Partnership in excess of the estimated market value of the property. In addition, for the year ended December 31, 1992 the Partnership also recorded an extraordinary gain on extinguishment of debt in connection with the disposition of this property of approximately $2,110,000 for financial statement purposes. This extraordinary gain on extinguishment of debt represented the excess property indebtedness over the estimated market value of the property. For the year ended December 31, 1992, the Partnership recorded a loss of approximately $85,100 on this disposition for tax purposes. 9. PROVISIONS FOR VALUE IMPAIRMENT: In 1995, the Financial Accounting Standards Board agreed to issue a new standard entitled "Accounting for the Impairment of Long-Lived Assets" (the "Standard"). This Standard establishes guidance for determining if defined assets are impaired, and if so, how impairment losses should be measured and reported in the financial statements of companies. The carrying amounts of impaired assets will be required to be reduced to fair value. The Standard is effective for fiscal years beginning after December 15, 1995. The General Partner believes that implementation will not materially affect the Partnership's financial position or results of operations once the Standard becomes effective. The Partnership recorded provisions for value impairment for the Ellis Building and Park Plaza in the amounts of $1,000,000 and $500,000, respectively, for the year ended December 31, 1994. Due to the uncertainty of the Partnership's ability to recover the net carrying value of these investment properties (prior to provision for value impairment) during the estimated remaining holding periods, it was appropriate to reduce the basis of these properties for financial statement purposes. The joint venture which owns Holiday 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 for value impairment was allocated to the limited partners of the joint venture that owns Holiday, and not to the Partnership in 1993. 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 to reduce their capital account to zero and the remaining amount was allocated to the General Partner's of which the Partnership's share is $672,400. With respect to the disposition of Wellington C mentioned above, and the loss incurred, the Partnership had recorded a provision for value impairment in the amount of $2,000,000 for the year ended December 31, 1992. The provision amounts were in part based on the General Partner's estimate of the current market value. These provisions for value impairment were considered non-cash events for the purposes of the Statements of Cash Flows, and were not included in the Partnership's calculation of Cash Flow (as defined by the Partnership Agreement) for the years ended December 31, 1994 and 1992, respectively. Copies of the Partnership's Form 10-K are available upon written request to the General Partner at no charge. A-7
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. -- 3 SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1994 Column A Column C Column D Column E --------- ---------------------------- -------------------------- ---------------------------------------------- Initial cost Costs capitalized Gross amount carried to Partnership subsequent to acquisition at close of period ---------------------------- -------------------------- ---------------------------------------------- Buildings Buildings and and Improve- Carrying and Description Land Improvements ments Costs(1) Land Improvements Total(2)(3) ----------- ---------- ------------- ----------- ------------ ---------- -------------- ---------------- Office Buildings: Ellis Building (Sarasota, FL) $ 860,000 $ 5,405,600 $1,269,700 $ 25,900 $ 860,000 $ 5,701,200 $ 6,561,200(4) (50% interest) Park Plaza Professional Building (Houston, TX) 802,900 10,750,400 1,826,800 82,400 802,900 12,159,600 12,962,500(7) (50% interest) 3120 Southwest Freeway (Houston, TX) 245,700 440,600 401,700 10,200 245,700 852,500 1,098,200 (25% interest) ---------- ----------- ---------- -------- ---------- ---------- ------------ $1,908,600 $16,596,600 $3,498,200 $118,500 $1,908,600 $18,713,300 $20,621,900 ========== =========== ========== ======== ========== =========== =========== Colmnn F Column G Column H Column I -------------- --------- -------- ------------ Life on which depreciation in latest Accumulated Date income Depreciation of con- Date statement (2) struction Acquired is computed -------------- --------- -------- ------------ Office Buildings: Ellis Building 35(5) (Sarasota, FL) $ 1,696,000 1969 3/86 3-10(6) (50% interest) Park Plaza Professional Building 35(5) (Houston, TX) 3,072,300 1976 11/86 3-10(6) (50% interest) 3120 Southwest Freeway 35(5) (Houston, TX) 255,800 1972 3/89 3-10(6) (25% interest) ---------- $5,024,100 ==========
Column B - Not Applicable. See accompanying notes on the following page. A-8 FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. -- 3 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, 1994 December 31, 1993 December 31, 1992 -------------------------- --------------------------- --------------------------- Accumulated Accumulated Accumulated Cost Depreciation Cost Depreciation Cost Depreciation ----------- ------------- ------------ ------------ ----------- ------------- Balance at beginning of year $24,026,100 $4,448,800 $26,592,300 $3,891,700 $32,212,300 $3,105,800 Additions during year: Improvements 670,600 1,078,200 930,000 Provisions for depreciation 933,000 812,200 947,600 Deductions during year: Basis of real estate disposed (2,574,800) (3,644,400) (3,485,000) Accumulated depreciation of real estate disposed (357,700) (255,100) (161,700) Provisions for value impairment (1,500,000) (3,065,000) ----------- ---------- ----------- ---------- ----------- ---------- Balance at end of year $20,621,900 $5,024,100 $24,026,100 $4,448,800 $26,592,300 $3,891,700 =========== ========== =========== ========== =========== ==========
Note 3. The aggregate cost for Federal income tax purposes at December 31, 1994 is $22,121,900. Note 4. Includes provision for value impairment of $1,000,000. Note 5. Estimated useful life of building. Note 6. Estimated useful life of improvements. Note 7. Includes provision for value impairment of $500,000. A-9 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000757528 FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD-3 1 U.S. DOLLARS 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 1 8,505,400 0 24,800 0 0 8,530,200 20,621,900 5,024,100 30,120,200 919,000 0 0 0 0 29,038,800 30,120,200 0 3,761,600 0 1,627,800 201,100 0 0 (1,019,100) 0 (1,019,100) 0 0 0 (1,019,100) (25.35) (25.35)
EX-99 3 AUDITED FINANCIAL STATEM EXHIBIT (99) FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP AUDITED FINANCIAL STATEMENTS (With Independent Auditors' Report Thereon) FOR THE YEAR ENDED DECEMBER 31, 1994 INDEX OF FINANCIAL STATEMENTS Pages ------- Independent Auditors' Report 1 Balance Sheet at December 31, 1994 2 Statement of Partners' Capital for the year ended December 31, 1994 3 Statement of Income and Expenses for the year ended December 31, 1994 4 Statement of Cash Flows for the year ended December 31, 1994 5 Notes to Financial Statements 6 through 8 FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31, 1994 (All dollars rounded to nearest 00s) ASSETS Investment in commercial rental property: Land $ 1,999,600 Buildings and improvements 13,259,700 ----------- 15,259,300 Accumulated depreciation and amortization (4,384,500) ----------- Total investment property, net of accumulated depreciation and amortization 10,874,800 Cash and cash equivalents 496,300 Loans receivable 525,600 Rents receivable 202,500 Escrow deposit 46,600 Other assets 92,000 ----------- $12,237,800 =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Loans payable to Affiliate $ 1,451,000 Accounts payable and accrued expenses 155,900 Due to Affiliates 62,600 Distribution payable 406,000 Security deposits 33,900 Other liabilities 3,800 ----------- 2,113,200 Partners' capital 10,124,600 ----------- $12,237,800 =========== The accompanying notes are an integral part of the financial statements. - 2 - FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP STATEMENT OF PARTNERS' CAPITAL FOR THE YEAR ENDED DECEMBER 31, 1994 (All dollars rounded to nearest 00s)
GENERAL LIMITED PARTNER PARTNERS TOTAL ---------- ----------- ---------- Partners' capital, January 1, 1994 $12,050,400 $ 585,700 $12,636,100 Net (loss) for the year ended December 31, 1994 (939,600) (585,700) (1,525,300) Distributions for the year ended December 31, 1994 (986,200) (986,200) ----------- --------- ----------- Partners' capital, December 31, 1994 $10,124,600 $ 0 $10,124,600 =========== ========= ===========
The accompanying notes are an integral part of the financial statements. - 3 - FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP STATEMENT OF INCOME AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1994 (All dollars rounded to nearest 00s) Income: Rental $ 2,928,600 Interest 66,600 ----------- 2,995,200 Expenses: Interest 140,000 Depreciation and amortization 466,600 Real estate taxes and insurance 505,200 Repairs and maintenance 626,900 Property operating 776,200 General and administrative 5,600 ----------- 2,520,500 ----------- Income before provision for value impairment 474,700 Provision for value impairment (2,000,000) ----------- Net (loss) $(1,525,300) =========== Net (loss) allocated to General Partner $ (939,600) =========== Net (loss) allocated to Limited Partners $ (585,700) =========== The accompanying notes are an integral part of the financial statements. - 4 - FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1994 (All dollars rounded to nearest 00s) Cash flows from operating activities: Net (loss) $(1,525,300) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization 466,600 Provision for value impairment 2,000,000 Changes in assets and liabilities: (Increase) in rents receivable (30,000) (Increase) in other assets (10,500) Increase in accounts payable and accrued expenses 50,800 (Decrease) in accrued interest payable to Affiliate (40,300) Increase in due to Affiliate 2,300 Increase in other liabilities 3,800 ----------- Net cash provided by operating activities 917,400 ----------- Cash flows from investing activities: Payments for capital and tenant improvements (175,500) (Increase) in escrow deposits (2,400) ----------- Net cash (used for) investing activities (177,900) ----------- Cash flows from financing activities: (Decrease) in loan payable to Affiliate (129,700) Decrease in loan receivable 76,400 Increase in security deposits 400 Distributions paid to Partners (635,800) ----------- Net cash (used for) financing activities (688,700) ----------- Net increase in cash and cash equivalents 50,800 Cash and cash equivalents at the beginning of the year 445,500 ----------- Cash and cash equivalents at the end of the year $ 496,300 =========== Supplemental information: Interest paid during the year $ 175,800 =========== The accompanying notes are an integral part of the financial statements. - 5 - FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP 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 have in the Agreement of Limited Partnership (the "Agreement"). Definitions of these terms are contained in Article III of the Agreement. Organization: First Capital Lansing Properties Limited Partnership (the "Partnership") was formed on December 1, 1986 as a limited partnership pursuant to the laws of the State of Illinois. First Capital Lansing Associates, whose joint venture partners are First Capital Institutional Real Estate, Ltd. - 2 and First Capital Institutional Real Estate, Ltd. - 3, is the General Partner. The Limited Partners consist of four Michigan limited partnerships. The Partnership purchased the Holiday Office Park North and South (the "Property") in Lansing, Michigan in January 1987. The General Partner made an Initial Capital contribution of $14,250,000 representing an undivided 75% interest in the Property. The Limited Partners contributed, as their Initial Capital, property valued at $4,750,000 representing the remaining undivided 25% interest, as tenants in common, in the Property. In addition, the General Partner paid an acquisition fee to an Affiliate of the General Partner and closing costs in the amount of approximately $996,200. The Agreement provides that the Partnership will be dissolved on or before December 31, 2020, unless terminated sooner under provisions of the Agreement. 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 Partnership is not liable for Federal income taxes as the Partners recognize their proportionate share of the Partnership income or loss on their individual tax returns; therefore, no provision for income taxes is made in the financial statements of the Partnership. It is not practicable for the Partnership to determine the aggregate tax bases of the Partners; therefore, the disclosure of the difference between the tax bases and the reported assets and liabilities of the Partnership would not be meaningful. The Property is recorded at cost and depreciated (exclusive of amounts allocated to land) on the straight-line method over its estimated useful life of 35 years. Maintenance and repair costs are expensed against operations as incurred and expenditures for improvements are capitalized to the appropriate property accounts and depreciated over the estimated life of the improvements. Lease acquisition fees are recorded at cost and amortized over the life of the leases. Cash equivalents are considered all highly liquid investments purchased with an original maturity of three months or less. - 6 - FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS - Continued 2. Related party transactions: In accordance with the Agreement, Cash Flow from Operations is first distributed to the General Partner in that amount necessary to provide the General Partner cumulatively with per annum returns (per section 10.1 (a)) on its Capital Balance. Next, to the extent available, Distributions of Cash Flow from Operations are distributed to the Limited Partners in that amount necessary to provide the Limited Partners with the same per annum returns on their respective Capital Balances. However, to the extent the Limited Partners do not receive, in any fiscal year, the specified return, such deficiency shall not accumulate from year to year. The balance, if any, of Cash Flow from Operations will be distributed 75% to the General Partner and 25% to the Limited Partners. For the year ended December 31, 1994, the rate of the preferred annual return was 11.50% and the General Partner was allocated Cash Flow from Operations of approximately $986,200, of which approximately $406,000 was payable as of December 31, 1994. The Limited Partners were not allocated Cash Flow from Operations for the year ended December 31, 1994. Net Operating Profits and Net Operating Losses for each fiscal year are allocated to the respective Partners in the same ratio of such respective Partner's cumulative Distributions to total Partnership cumulative Distributions. For the year ended December 31, 1994 Net Operating Profits allocated to the General Partner and Limited Partners were approximately $405,300 and $69,400, respectively. In addition, pursuant to the Agreement, Sale Losses (including any provision for value impairment) shall be allocated among the Partners as follows: (i) first, to Limited Partners with positive Capital Account balances, in proportion to and to the extent of such positive balances; (ii) second, if the General Partner has a positive Capital Account balance, to the General Partner, to the extent of such positive balance; and (iii) the balance, if any, will be allocated 75% to the General Partner, and 25% to the Limited Partners (in proportion to the respective Percentage Interests of the Limited Partners as of the date of such allocation). As of December 31, 1994, a provision for value impairment was allocated to the General Partner and Limited Partners of approximately $1,344,900 and $655,100, respectively (See Note 5 for more information on value impairment). Fees and reimbursements paid and payable by the Partnership to Affiliates for the year ended December 31, 1994 were as follows: Paid Payable --------- --------- Property management and leasing fees $ 138,200 $ 62,600 Reimbursement of property insurance premiums, at cost 39,600 None Legal fees 10,000 None --------- -------- $ 187,800 $ 62,600 ========= ======== In addition, through December 31, 1994 the General Partner has made cumulative loans of approximately $1,715,400 to the Partnership. Of this amount approximately $264,400 was repaid as of December 31, 1994. These loans were made to pay for capital and tenant improvements. Total interest expense incurred on these loans during 1994 was approximately $140,000. - 7 - FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS - Continued 2. Related party transactions: (continued) On-site property management for the Property is provided by an Affiliate of the General Partner for fees based on a percentage of gross rents received from the Property. 3. Future minimum rentals: Future minimum rentals due on noncancelable operating leases as of December 31, 1994 were as follows: 1995 $1,317,200 1996 896,400 1997 755,700 1998 565,100 1999 289,600 Thereafter 620,400 ----------- $4,444,400 =========== The Partnership is subject to the usual business risks associated with the collection of the above scheduled rentals. In addition to the amounts scheduled above, the Partnership expects to receive rental revenue from operating expense reimbursements. 4. Income tax: The Partnership utilizes an accrual basis method of accounting for both tax reporting and financial statement purposes. Financial statement results will differ from taxable results due to the use of differing depreciation lives and methods and the recognition of prepaid rents as taxable income. The net effect of these accounting differences for the year ended December 31, 1994 is that taxable income for tax reporting purposes was greater than the net (loss) for financial statement purposes by approximately $1,845,900. 5. Provision for value impairment: The Partnership recorded a provision for value impairment for the Property in the amount of $2,000,000 as of December 31, 1994. Due to the uncertainty of the Partnership's ability to recover the net carrying value of its investment in the Property (prior to any provision for value impairment) during the remaining estimated holding period, it was deemed appropriate to reduce the basis of the Property for financial statement purposes. The transaction was considered a noncash event for purposes of the Statement of Cash Flows, and was not included in the Partnership's calculation of Cash Flow (as defined by the Agreement) for the year ended December 31, 1994. The provision amount was in part based on a third party appraisal prepared as of December 31, 1994. In addition, the General Partner considered estimates of future cash flow and capital improvements, as well as the anticipated remaining holding period of the Property. - 8 -