<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1995
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-12945
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First Capital Institutional Real Estate, Ltd. - 2
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(Exact name of registrant as specified in its charter)
Florida 59-2313852
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
Documents incorporated by reference:
The First Amended and Restated Agreement of Limited Partnership filed as Exhibit
A to the Partnership's Prospectus dated October 19, 1983, included in the
Partnership's Registration Statement on Form S-11, is incorporated herein by
reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
September 30,
1995 December 31,
(Unaudited) 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $10,237,400 $10,237,400
Buildings and improvements 35,888,900 35,605,600
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46,126,300 45,843,000
Accumulated depreciation and amortization (12,226,400) (11,222,700)
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Total investment properties, net of accumulated
depreciation and amortization 33,899,900 34,620,300
Cash and cash equivalents 12,676,400 12,560,400
Marketable securities, at cost which approximates
market 25,000 25,000
Investment in joint venture 5,032,300 5,234,600
Rents receivable 88,100 100,400
Other assets (including amounts due from joint
venture of $810,900 and $725,500, respectively) 826,000 901,400
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$52,547,700 $53,442,100
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 446,900 $ 389,200
Due to Affiliates 125,800 92,800
Security deposits 124,600 116,400
Distributions payable 1,226,100 1,037,500
Other liabilities 67,300 77,900
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1,990,700 1,713,800
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Partners' (deficit) capital:
General Partner (121,300) (121,300)
Limited Partners (84,886 Units authorized, issued
and outstanding) 50,678,300 51,849,600
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50,557,000 51,728,300
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$52,547,700 $53,442,100
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1995
and the year ended December 31, 1994
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1994 $ (93,500) $56,187,300 $56,093,800
Net income (loss) for the year ended
December 31, 1994 307,000 (1,324,200) (1,017,200)
Distributions for the year ended December
31, 1994 (334,800) (3,013,500) (3,348,300)
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Partners' (deficit) capital,
December 31, 1994 (121,300) 51,849,600 51,728,300
Net income for the nine months ended
September 30, 1995 353,700 2,011,900 2,365,600
Distributions for the nine months ended
September 30, 1995 (353,700) (3,183,200) (3,536,900)
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Partners' (deficit) capital,
September 30, 1995 $(121,300) $50,678,300 $50,557,000
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1995 and 1994
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Income:
Rental $1,502,600 $1,447,900
Interest 199,200 166,800
Income from participation in joint venture 61,200 159,400
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1,763,000 1,774,100
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Expenses:
Depreciation and amortization 338,600 350,600
Property operating:
Affiliates 79,700 62,700
Nonaffiliates 259,600 252,400
Real estate taxes 143,300 125,000
Insurance--Affiliate 16,200 21,300
Repairs and maintenance 191,300 147,700
General and administrative:
Affiliates 32,800 19,900
Nonaffiliates 48,100 59,900
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1,109,600 1,039,500
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Net income $ 653,400 $ 734,600
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Net income allocated to General Partners $ 122,600 $ 89,600
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Net income allocated to Limited Partners $ 530,800 $ 645,000
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Net income allocated to Limited Partners per Unit
(84,886 Units issued and outstanding) $ 6.25 $ 7.60
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1995 and 1994
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Income:
Rental $4,621,100 $4,612,100
Interest 678,000 368,000
Income from participation in joint venture 252,000 272,900
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5,551,100 5,253,000
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Expenses:
Depreciation and amortization 1,003,700 1,042,200
Property operating:
Affiliates 282,200 268,400
Nonaffiliates 681,100 726,800
Real estate taxes 397,700 491,600
Insurance--Affiliate 48,600 68,800
Repairs and maintenance 524,100 543,300
General and administrative:
Affiliates 55,100 48,700
Nonaffiliates 193,000 181,100
Loss on sale of property 1,275,800
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3,185,500 4,646,700
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Net income $2,365,600 $ 606,300
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Net income allocated to General Partners $ 353,700 $ 218,300
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Net income allocated to Limited Partners $2,011,900 $ 388,000
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Net income allocated to Limited Partners per Unit
(84,886 Units issued and outstanding) $ 23.70 $ 4.57
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</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended
September 30, 1995 and 1994
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,365,600 $ 606,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,003,700 1,042,200
Loss on sale of property 1,275,800
Changes in assets and liabilities:
Decrease in rents receivable 12,300 126,900
Decrease in other assets 160,800 104,900
Increase in accounts payable and accrued expenses 57,700 41,500
Increase (decrease) in due to Affiliates 33,000 (22,900)
(Decrease) in other liabilities (10,600) (55,200)
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Net cash provided by operating activities 3,622,500 3,119,500
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Cash flows from investing activities:
Net proceeds from sale of property 3,006,400
Payments for capital and tenant improvements (283,300) (962,200)
Distributions received from joint venture in excess
of income allocated 202,300 24,600
(Funding of) collection of loans to joint venture,
net (85,400) 59,600
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Net cash (used for) provided by investing
activities (166,400) 2,128,400
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Cash flows from financing activities:
Distributions paid to Partners (3,348,300) (1,914,700)
Increase (decrease) in security deposits 8,200 (8,000)
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Net cash (used for) financing activities (3,340,100) (1,922,700)
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Net increase in cash and cash equivalents 116,000 3,325,200
Cash and cash equivalents at the beginning of the
period 12,560,400 9,502,400
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Cash and cash equivalents at the end of the period $12,676,400 $12,827,600
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1995
1. 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 included in the Registration Statement and
incorporated herein by reference.
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 financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 1995 are not necessarily
indicative of the operating results for the year ending December 31, 1995.
Certain reclassifications have been made to the previously reported 1994
statements in order to provide comparability with the 1995 statements. These
reclassifications have no effect on net income or Partners' capital.
The financial statements include the Partnership's 50% interest in four joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of each acquiring a 100% interest in certain real property and are
operated under the common control of the General Partner. Accordingly, the
Partnership's pro rata share of the ventures' revenues, expenses, assets,
liabilities and capital is included in the financial statements.
Cash equivalents are considered all highly liquid investments purchased with a
maturity of three months or less.
Investment in joint venture represents the Partnership's interest accounted for
under the equity method of accounting, in a joint venture with an Affiliated
partnership. The joint venture was formed for the purpose of acquiring a
preferred majority interest in a joint venture with the seller of the Holiday
Office Park North and South in Lansing, Michigan. Under the equity method of
accounting, the Partnership recorded its initial interest in the joint venture
at cost and adjusts its investment account for its pro rata share of the
venture's income or loss and its distributions of cash flow (as defined by the
joint venture limited partnership agreement).
Reference is made to the Partnership's annual report for the year ended
December 31, 1994 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' capital and changes in cash balances for the year then
ended. The details provided in the notes thereto have not changed except as a
result of normal transactions in the interim or as otherwise disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, subsequent to October 19, 1984,
the Termination of the Offering, the General Partner is entitled to 10% of
distributable Cash Flow (as defined by the Partnership Agreement) as a
Partnership Management Fee. In addition, Net Profits (exclusive of Net Profits
from the sale or disposition of Partnership properties) are allocated: first,
to the General Partner, in an amount equal to the greater of the General
Partner's Partnership Management Fee or 1% of such Net Profits; second, the
balance, if any, to the Unit Holders. Net Profits from the sale or disposition
of a Partnership property are allocated: first, prior to giving effect to any
distributions of Sale Proceeds from the transaction, to the General Partner and
the Unit Holders with negative balances in their capital accounts pro rata in
proportion to such respective negative balances, to the extent of the total of
such negative balances; second, to the General Partner, in an amount necessary
to make the balance in its capital account equal to the amount of Sale Proceeds
to be distributed to the General Partner with respect to the sale or
disposition of such property and third, the balance, if any, to the Unit
Holders. Net Losses (exclusive of Net Losses from the sale or disposition of
Partnership properties) are allocated 1% to the General Partner and 99% to the
Unit Holders. Net Losses from the sale or disposition of Partnership properties
are allocated: first, prior to giving effect to any distributions of Sale
Proceeds from the transaction, to the extent that the balance in the General
Partner's capital account exceeds its Capital Investment or the balance in the
capital accounts of the Unit Holders exceeds the amount of their Capital
Investment (the "Excess Balances"), to the General Partner and the Unit Holders
pro rata in proportion to such Excess Balances until such Excess Balances are
reduced to zero; second, to the General Partner and the Unit Holders and among
them (in the ratio which their respective positive capital account balances
bear to the aggregate of all positive capital acount balances) until the
balance in their capital accounts shall be reduced to zero; third, the balance,
if any, 99% to the Unit Holders and 1% to the General Partner. Notwithstanding
the foregoing, in all events there shall be allocated to the General Partner
not less than 1% of Net Profits and Net Losses from the sale or disposition of
a Partnership property. For the quarter and nine months ended September 30,
1995, the General Partner was entitled to a Partnership Management Fee and,
accordingly, Net Profits of approximately $122,600 and $353,700, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Paid
--------------------
Quarter Nine Months Payable
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<S> <C> <C> <C>
Property management and leasing fees $ 80,100 $239,600 $ 55,700
Reimbursement of property insurance premiums, at
cost 16,200 48,600 None
Real estate commissions (a) None None 40,300
Reimbursement of expenses, at cost:
(1)Accounting 5,800 17,000 9,900
(2)Investor communication 4,300 13,800 19,900
(3)Legal 22,300 39,600 None
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$128,700 $358,600 $125,800
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</TABLE>
(a) As of September 30, 1995, the Partnership owed approximately $40,300 to the
General Partner for real estate commissions earned in connection with the
sales of Partnership properties. These commissions have been accrued but not
paid. In accordance with the Partnership Agreement, no Affiliate of the
General Partner may receive payment of a real estate commission upon the sale
of a Partnership property until Unit Holders have received cumulative
distributions of Sale or Financing Proceeds equal to 100% of their Original
Capital Contribution, plus a cumulative return (including all Cash Flow (as
defined by the Partnership Agreement) which has been distributed to the Unit
Holders) of 6% simple interest per annum on their Capital Investment from the
initial investment date.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1994, for a discussion of the Partnership's business.
As the Partnership progresses through the disposition phase of its life cycle,
management's discussion and analysis of financial condition and results of
operations is complicated to compare between periods. Results of net income and
cash flows as defined by generally accepted accounting principles ("GAAP") as
well as Cash Flow (as defined by the Partnership Agreement) are generally
expected to decline as real property interests are sold or disposed of since
the Partnership no longer receives the results generated from such real
property interests. Accordingly, rental income, depreciation and amortization
expense, property operating expenses, repairs and maintenance expenses, real
estate taxes and insurance are expected to decline as well, but will continue
to comprise the significant components of net income and cash flows (as defined
by GAAP) as well as Cash Flow (as defined by the Partnership Agreement) until
the final property is sold. Also, during the disposition phase, cash and cash
equivalents increase as Sale and Refinancing Proceeds are received and decrease
as the Partnership utilizes these proceeds for the purposes of distributions to
Limited Partners, making capital improvements and incurring leasing costs at
the Partnership's remaining properties or other working capital requirements.
Prior to being utilized for such purposes, these proceeds are invested in
short-term money market instruments. Sale and Refinancing Proceeds are excluded
from the determination of Cash Flow (as defined by the Partnership Agreement).
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the quarters and nine months ended September 30,
1995 and 1994. The discussion following the table should be read in conjunction
with the Financial Statements and Notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative Operating Results (a)
For the Quarters For the Nine Months
Ended Ended
9/30/95 9/30/94 9/30/95 9/30/94
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
FOXHALL SQUARE BUILDING
Rental revenues $386,500 $394,600 $1,223,200 $1,169,900
- ------------------------------------------------------------
Property net income $ 96,900 $148,100 $ 338,100 $ 352,100
- ------------------------------------------------------------
Average occupancy 86.4% 85.8% 85.8% 85.2%
- ------------------------------------------------------------
LAKEWOOD SQUARE SHOPPING CENTER
Rental revenues $280,800 $279,400 $ 875,900 $ 869,000
- ------------------------------------------------------------
Property net income $ 97,700 $116,300 $ 435,600 $ 378,400
- ------------------------------------------------------------
Average occupancy 89.5% 83.9% 87.1% 83.2%
- ------------------------------------------------------------
ELLIS BUILDING
Rental revenues $281,800 $291,800 $ 846,400 $ 827,000
- ------------------------------------------------------------
Property net income $ 68,500 $ 90,400 $ 222,700 $ 224,000
- ------------------------------------------------------------
Average occupancy 90.8% 97.9% 94.1% 93.1%
- ------------------------------------------------------------
MARKET PLACE AT RIVERGATE SHOPPING CENTER
Rental revenues $236,000 $215,900 $ 720,100 $ 626,900
- ------------------------------------------------------------
Property net income $103,300 $ 87,600 $ 340,700 $ 237,800
- ------------------------------------------------------------
Average occupancy 93.4% 89.3% 92.3% 86.4%
- ------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
BANANA RIVER SQUARE SHOPPING CENTER
Rental revenues $190,300 $172,700 $ 573,600 $ 515,000
- ------------------------------------------------------------
Property net income $ 77,100 $ 53,000 $ 228,500 $ 154,100
- ------------------------------------------------------------
Average occupancy 96.1% 93.7% 95.8% 93.9%
- ------------------------------------------------------------
12621 FEATHERWOOD BUILDING
Rental revenues $127,300 $102,900 $ 381,900 $ 331,900
- ------------------------------------------------------------
Property net income $ 30,700 $ 10,100 $ 113,500 $ 56,800
- ------------------------------------------------------------
Average occupancy 100.0% 100.0% 100.0% 100.0%
- ------------------------------------------------------------
NORWEST PLAZA (B)
Rental revenues $ 272,400
- ------------------------------------------------------------
Property net income $ 68,800
- ------------------------------------------------------------
Average occupancy (b)
- ------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income,
general and administrative expenses and income from participation in joint
venture or are related to properties previously owned by the Partnership.
(b) Norwest Plaza ("Norwest"), formerly known as the United Bank of Arizona,
was sold on June 8, 1994. The property net income excludes the loss on the
sale of the property of approximately $1,275,800 which is included in the
Statements of Income and Expenses for the nine months ended September 30,
1994.
Net income, exclusive of the effects of the sale of Norwest, decreased $97,400
or 13.3% for the quarter ended September 30, 1995 when compared to the quarter
ended September 30, 1994. The primary reasons for the decrease in net income
were: 1) decreased income from the Partnership's equity investment in the joint
venture which owns Holiday Office Park North and South ("Holiday") of
approximately $98,200 and 2) decreased property operating results at Foxhall
Square Building ("Foxhall"), Ellis Building ("Ellis") and Lakewood Square
Shopping Center ("Lakewood") totaling $91,700. Partially offsetting the
decrease in net income for the quarterly periods under comparison was improved
property operating results at Banana River Square Shopping Center ("Banana
River"), Marketplace at Rivergate Shopping Center ("Rivergate") and 12621
Featherwood Building ("Featherwood") totaling $60,400 and increased interest
income of $32,400 resulting from an increase in rates available on the
Partnership's short-term investments.
Net income, exclusive of the effects of the sale of Norwest, for the
Partnership increased $552,300 or 30.1% for the nine months ended September 30,
1995 when compared to the nine months ended September 30, 1994. The increase in
net income was primarily due to the following: 1) increased interest income of
$310,000, for the reason previously discussed and 2) improved property
operating results at Rivergate, Banana River, Featherwood and Lakewood totaling
approximately $291,200. Partially offsetting the increase in net income for the
nine-month comparable periods was: 1) decreased income from the Partnership's
equity investment in the joint venture which owns Holiday of $20,900; 2)
decreased property operating results at Foxhall and Ellis totaling $15,300 and
3) increased general and administrative costs due to an increase in salaries,
printing and mailing costs, offset by a decrease in data processing costs.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For purposes of the following discussion, the comparative operating results of
Norwest have been excluded.
Rental revenues increased $45,400 or 3.1% for the quarter ended September 30,
1995 when compared to the quarter ended September 30, 1994. The primary factors
which contributed to the increase in rental revenues for the quarterly periods
under comparison were: 1) increased base rental income at Rivergate due to an
increase in the average occupancy rate; 2) increased rental income at Banana
River due to increases in base rents and tenant expense reimbursements for
common area costs resulting from an increase in the average occupancy rate; 3)
increased base rental rates and tenant expense reimbursements for real estate
tax escalations and common area costs at Featherwood and 4) an increase in
parking income at Foxhall, as discussed below. Partially offsetting the
increase in rental revenues for the quarterly comparable periods was decreased
rental revenues at Ellis due to a decrease in average occupancy and tenant
expense reimbursements for real estate tax escalations.
Rental revenues increased $281,400 or 6.5% for the nine months ended September
30, 1995 when compared to the nine months ended September 30, 1994. The primary
factors which contributed to the increase in rental revenues for the nine-month
periods under comparison were: 1) increased rental income at Featherwood and
Banana River due to increases in base rents and tenant expense reimbursements
for real estate tax escalations and common area costs; 2) increased base rental
income and increased tenant expense reimbursements for real estate tax
escalations due to an increase in occupancy at Rivergate; 3) increased base
rental income at Ellis and Lakewood due to an increase in the average occupancy
rates and 4) increased parking income at Foxhall, as discussed below. Partially
offsetting the increase in rental revenues for the nine-month comparable
periods was decreased tenant expense reimbursement for real estate tax
escalations at: 1) Ellis due to credits issued to tenants in 1995 for 1994 real
estate tax escalations and 2) Lakewood due to a decrease in real estate taxes.
The increase in parking income at Foxhall for the nine-month periods under
comparison was primarily the result of discharging the third-party management
agent and bringing the operations in-house. Parking income was previously
recorded net of the agent's fees. Currently, the operations are reflected on a
gross basis in income and property operating expenses, respectively.
Real estate tax expense increased by $18,300 for the quarter ended September
30, 1995 when compared to the quarter ended September 30, 1994 primarily due to
an increase in real estate tax expense at Foxhall. Although the assessed value
at Foxhall has decreased and the actual taxes paid in 1995 were lower than in
1994, real estate tax expense was higher in 1995 due to the fact that 1994
included a partial refund of real estate taxes for the 1992/1993 tax year. Real
estate tax expense decreased by approximately $58,600 for the nine months ended
September 30, 1995 when compared to the nine months ended September 30, 1994.
The decrease in real estate tax expense for the nine-month periods under
comparison was primarily due to the receipt of partial refunds in 1995 of
1993/1994 real estate taxes for Lakewood and Rivergate. Partially offsetting
the decrease in real estate tax expense for the nine-month comparable periods
was an increase at Foxhall, as previously discussed.
Repairs and maintenance expense increased $44,200 and $28,100 respectively, for
the quarter and nine months ended September 30, 1995 when compared to the
quarter and nine months ended September 30, 1994. The primary factors which
caused the increase for the quarterly and nine-month periods under comparison
were: 1) an increase in roof repairs and supplies at Banana River; 2) increased
cleaning supplies and uniforms at Ellis; 3) increased repairs and maintenance
associated with patching and resurfacing and striping of the parking lots at
Lakewood and Rivergate; 4) increased repairs and maintenance expense at
Featherwood resulting from increased janitorial costs due to an increase in
square footage to be cleaned and increased minor repairs required to maintain
the HVAC system and 5) increased parking garage expenses at Foxhall, as
previously discussed. Partially offsetting the increase in repairs and
maintenance for the quarterly comparable periods was decreased expenses related
to the maintenance of the HVAC system at Banana River.
Property operating expenses increased by $28,600 and $42,300, respectively, for
the quarter and nine months ended September 30, 1995 when compared to the
quarter and nine months ended September 30, 1994. The primary factors which
caused the increases in property operating expenses for the quarterly periods
under comparison were: 1) increased security costs at Featherwood and Lakewood
and 2) increased professional fees and personnel costs related to the
operations of the parking garage, partially offset by a decrease in property
management and leasing fees at Foxhall; 3) increased utilities, professional
fees and management fees at Rivergate and 4) an increase in salaries, utilities
and management fees at Ellis. Partially offsetting the increase in property
operating expenses for the quarterly comparable periods was decreased
professional fees and advertising and promotional expenditures at Banana River.
The primary factors which caused the increases in property operating expenses
for the nine-month periods under comparison were: 1) increased professional
fees and personnel costs at Foxhall, as discussed above, partially offset by a
decrease in property management and leasing fees and 2) increased utilities and
management fees at Ellis. Partially offsetting the nine-month increase in
property operating expenses was: 1) decreased professional fees, offset by an
increase in management fees at Rivergate and 2) decreased utilities at
Featherwood.
Insurance expense decreased $5,600 and $16,600, respectively, for the quarter
and nine months ended September 30, 1995, when compared to the prior year
periods. These decreases were primarily due to lower group rates on the
Partnership's combined insurance coverage as a result of a minimal amount of
claims made over the past several years, which provided a good loss experience
relative to Partnership's properties.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenants and addressing any
expansion needs these tenants may have; 3) promotion of local broker events and
networking with local brokers; 4) networking with national level retailers; 5)
cold-calling other businesses and tenants in the market area; and 6) providing
rental
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
concessions or competitively pricing rental rates depending on market
conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
properties. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions will be treated
as a return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to Partnership net income or cash flows as defined by
generally accepted accounting principles ("GAAP"), since certain items are
treated differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
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 GAAP). The following table includes a reconciliation of Cash
Flow (as defined by the Partnership Agreement) to cash flow provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not neccessarily be considered as
an alternative to the results disclosed in the Statements of Income and
Expenses and Statements of Cash Flows.
<TABLE>
<CAPTION>
Comparative Cash Flow
Results for the Nine
Months Ended
9/30/95 9/30/94
- -----------------------------------------------------------------------------
<S> <C> <C>
Amount of Cash Flow (as defined in the Partnership
Agreement) $ 3,463,300 $ 3,091,500
Items of reconciliation:
Income from participation in joint venture 252,000 272,900
Distributions from joint venture (346,000) (440,100)
Decrease in current assets 173,100 231,800
Increase (decrease) in current liabilities 80,100 (36,600)
- -----------------------------------------------------------------------------
Net cash provided by operating activities $ 3,622,500 $ 3,119,500
- -----------------------------------------------------------------------------
Net cash (used for) provided by investing
activities $ (166,400) $ 2,128,400
- -----------------------------------------------------------------------------
Net cash (used for) financing activities $(3,340,100) $(1,922,700)
- -----------------------------------------------------------------------------
</TABLE>
The increase in Cash Flow (as defined by the Partnership Agreement) of $371,800
for the nine months ended September 30, 1995 when compared to nine months ended
September 30, 1994 was primarily due to the increase in net income, as
previously discussed, exclusive of the loss on sale of Norwest and depreciation
and amortization.
The increase in the Partnership's cash position of $116,000 as of September 30,
1995 when compared to December 31, 1994 was primarily the result of net cash
provided by operating activities exceeding distributions paid to Partners and
expenditures for capital and tenant improvements and leasing costs. Liquid
assets of the Partnership as of September 30, 1995 were comprised of amounts
held for working capital purposes.
The increase of $503,000 in net cash provided by operating activities for the
nine months ended September 30, 1995 when compared to the nine months ended
September 30, 1994 was primarily due to the increase in Cash Flow (as defined
by the Partnership Agreement), partially offset by the timing of the collection
of tenant's rental payments.
Net cash provided by (used for) investing activities changed from $2,128,400 to
$(166,400) for the nine months ended September 30, 1994 when compared to the
nine months ended September 30, 1995, primarily due to the net proceeds
received from the sale of Norwest on September 8, 1994. Partially offsetting
this change was the decrease in payments made for capital and tenant
improvements and leasing costs at the Partnership's properties. The Partnership
maintains working capital reserves to pay for capital expenditures such as
building and tenant improvements and leasing costs. During the nine months
ended September 30, 1995, the Partnership spent approximately $283,300 for
capital and tenant improvements and leasing costs and has budgeted to spend an
additional $643,000 during the remainder of 1995. Of the remaining budgeted
amount, approximately $390,000, $150,000, $44,000, and $32,000, relates to
anticipated capital and tenant improvements and leasing costs expected to be
incurred at Ellis, Foxhall, Rivergate and Lakewood, respectively. In addition,
approximately $490,000 is budgeted to be advanced to the Partnership's joint
venture investment in Holiday for capital and tenant improvements and leasing
costs. The General Partner believes these expenditures are necessary to
increase and/or maintain occupancy levels in very competitive markets, maximize
rental rates charged to new and renewing tenants and prepare the remaining
properties for eventual disposition.
The increase of $1,417,400 in net cash used for financing activities for the
nine months ended September 30, 1995 when compared to the nine months ended
September 30, 1994 was due primarily to an increase in distributions paid to
Partners in 1995.
The General Partner continues to take a conservative approach to projections of
future rental income and to maintain higher levels of cash reserves due to the
anticipated capital and tenant improvements and leasing costs necessary to be
made at the Partnership's properties during the next several years. As a result
of this, cash continues to be retained to supplement working capital reserves.
For the nine months ended September 30, 1995, Cash Flow (as defined by the
Partnership Agreement) withdrawn from reserves for future cash requirements
approximated $73,600.
Distributions to Limited Partners for the quarter ended September 30, 1995 were
declared in the amount of $13.00 per Unit. Cash distributions are made 60 days
after the last day of each fiscal quarter. The amount of future distributions
to Partners will ultimately be dependent upon the performance of the
Partnership's investments as well as the General Partner's determination of the
amount of cash necessary to supplement working capital reserves to meet future
liquidity requirements of the Partnership.
7
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter ended
September 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 2
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: November 14, 1995 By: /s/ DOUGLAS CROCKER II
----------------- -----------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 14, 1995 By: /s/ NORMAN M. FIELD
----------------- -----------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000727087
<NAME> First Capital Institutional Real Estate, Ltd. -- 2
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 12,676,400
<SECURITIES> 25,000
<RECEIVABLES> 88,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,789,500
<PP&E> 46,126,300
<DEPRECIATION> 12,226,400
<TOTAL-ASSETS> 52,547,700
<CURRENT-LIABILITIES> 1,883,100
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 50,557,000
<TOTAL-LIABILITY-AND-EQUITY> 52,547,700
<SALES> 0
<TOTAL-REVENUES> 5,551,100
<CGS> 0
<TOTAL-COSTS> 1,933,700
<OTHER-EXPENSES> 248,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,365,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,365,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,365,600
<EPS-PRIMARY> 23.70
<EPS-DILUTED> 23.70
</TABLE>
