<PAGE>
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
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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
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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
--------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 207-0020
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Securities registered pursuant to Section 12(b)
of the Act: NONE
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Securities registered pursuant to Section 12(g)
of the Act: Limited Partnership Units
-------------------------
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. [ ]
<PAGE>
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated October 19, 1983, included
in the Registrant's Registration Statement on Form S-11, is incorporated herein
by reference in Part IV of this report.
Exhibit Index - Page A-1
------------------------
2
<PAGE>
PART I
ITEM 1. BUSINESS
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The registrant, First Capital Institutional Real Estate, Ltd. - 2 (the
"Partnership"), is a limited partnership organized in August 1983 under the
Florida Uniform Limited Partnership Act. The Partnership sold $84,886,000 in
Limited Partnership Units (the "Units") to the public from November 1983 until
October 1984, pursuant to a Registration Statement on Form S-11 filed with the
Securities and Exchange Commission (Registration Statement No. 2-86361).
Capitalized terms used in this report have the same meaning as those terms have
in this Registration Statement.
The business of the Partnership is to invest primarily in existing, improved,
income-producing commercial real estate such as shopping centers, warehouses and
office buildings and, to a lesser extent, in other types of income-producing
real estate. From May 1984 through May 1986 the Partnership made seven real
property investments and purchased a 50% interest in four joint ventures with an
Affiliated partnership each of which owns one real property investment. These
joint ventures are operated under the control of First Capital Financial
Corporation (the "General Partner"). 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. As of December 31, 1994, the Partnership has
sold five real property investments.
Property management services for certain of the Partnership's real estate
investments are provided by Affiliates 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 will depend upon the availability of suitable tenants, real estate
market conditions and general economic conditions which may impact the success
of these tenants. Properties owned by the Partnership frequently compete for
tenants with similar properties owned by others.
The Partnership employs directly or through joint ventures 16 people for on-site
property maintenance and administration.
ITEM 2. PROPERTIES (a)(b)
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As of December 31, 1994, the Partnership owns, directly or through a joint
venture, the following seven property interests, all of which are owned in fee
simple:
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
------------- -------------------- ------------- ------------
<S> <C> <C> <C>
Shopping Centers:
-----------------
Lakewood Square (d) Lakewood, California 147,544 25 (1)
Banana River Square Cocoa Beach, Florida 83,209 22 (2)
Market Place at Rivergate Nashville, Tennessee 104,411 12 (2)
</TABLE>
3
<PAGE>
ITEM 2. PROPERTIES - Continued
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<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
------------- ------------------ ------------- -----------
<S> <C> <C> <C>
Office Buildings:
-----------------
12621 Featherwood Building
f/k/a Houston Lighting and
Power Building (d) Houston, Texas 88,811 1
Ellis Building (d) Sarasota, Florida 130,189 39(2)
Holiday Office Park
North and South (e) Lansing, Michigan 398,228 70(1)
Foxhall Square Building (d) Washington, D.C. 141,902 68
</TABLE>
Notes:
------
(a) For discussion of significant operating results and major capital
expenditures planned for the Partnership's properties refer to Item 7 on
pages 10 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 18 years utilizing
Accelerated Cost Recovery System to 40 years utilizing the straight-line
method. The Partnership's portion of real estate taxes for Lakewood Square
("Lakewood"), Market Place at Rivergate ("Rivergate"), Foxhall Square
Building ("Foxhall"), Banana River Square ("Banana River"), Ellis Building
("Ellis"), and Holiday, the Partnership's most significant properties, were
approximately $138,300, $60,500, $152,800, $86,000, $79,700 and $157,700,
respectively. In the opinion of the General Partner, the Partnership's
properties are adequately insured and serviced by all necessary utilities.
(c) Represents the total number of tenants as well as the number of tenants, in
parenthesis, that individually occupy more than 10% of the net leasable
square footage of the property.
(d) The Partnership owns a 50% joint venture interest in this property.
(e) The Partnership owns a 50% interest in a joint venture which owns a 75%
preferred majority interest in this property.
4
<PAGE>
ITEM 2. PROPERTIES - Continued
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The following table presents the Partnership's significant properties' occupancy
rates as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
Property Name 1994 1993 1992 1991 1990
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Lakewood Square 81% 86% 94% 94% 93%
Market Place at Rivergate 88% 82% 62% 62% 62%
Foxhall Square Building 80% 85% 82% 81% 85%
Ellis Building 95% 86% 96% 98% 97%
Holiday Office Park
North and South 73% 84% 76% 85% 83%
Banana River Square 93% 95% 93% 95% 94%
</TABLE>
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.
<TABLE>
<CAPTION>
Property Name 1994 1993 1992 1991 1990
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Lakewood Square $14.56 $14.17 $15.15 $15.22 $14.98
Market Place at Rivergate $ 7.39 $ 6.86 $ 6.25 $ 6.19 $ 8.20
Foxhall Square Building $22.64 $21.94 $21.94 $26.01 $24.39
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
Banana River Square $ 7.26 $ 6.80 $ 7.51 $ 7.53 $ 8.05
</TABLE>
5
<PAGE>
ITEM 2. PROPERTIES -- Continued
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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. No individual tenant at Foxhall, one
of the most significant properties, occupies ten percent or more of the rentable
square footage.
<TABLE>
<CAPTION>
Percentage
of Net
Partnership's Leasable
Portion of Expiration Square
Rent Date of Footage Renewal Options
for 1995 Lease Occupied (Renewal Options/Years)
------------ ---------- ---------- -----------------------
<S> <C> <C> <C> <C>
Lakewood Square
---------------
Cost Plus $121,400 10/28/07 14% 2/10
(specialty store sales)
Market Place at Rivergate
-------------------------
Marshalls $179,400 (a) 25% 1/5
(department store sales)
Office Max $141,000 01/31/04 23% 3/5
(office supply sales)
Ellis Building
--------------
NationsBank $384,600 03/09/01 42% 4/5
(banking)
University Club $ 50,600 04/28/01 10% None
(restaurant/banquet facility)
Banana River Square
-------------------
Eckerd Drugs $ 64,800 03/12/03 13% 4/5
(drugstore)
Publix $173,200 06/30/03 44% 4/5
(grocery store)
Holiday Office Park
North and South
-------------------
Michigan Public Service Commission
(state government administration) $270,700 (b) 14% None
</TABLE>
(a) See note (c) on page 7.
(b) See note (d) on page 7.
6
<PAGE>
ITEM 2. PROPERTIES -- Continued
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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:
<TABLE>
<CAPTION>
Number Base Rents % of Total
of in Year of Base Rents
Year Tenants Square Feet Expiration(a) Collected(b)
---- ------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
1995 53 101,400 $442,400 7.97%
1996 48 65,500 $339,700 6.94%
1997 32 60,000 $311,700 7.00%
1998 30 103,900 $403,300 10.80%
1999 29 73,900 $384,500 12.40%
2000(c)(d) 16 169,000 $168,700 8.69%
2001 6 73,900 $ 93,800 6.80%
2002 4 27,100 $163,000 13.15%
2003 10 61,800 $217,500 24.75%
2004 3 35,600 $ 90,400 18.88%
</TABLE>
(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
1/31/95. On February 1, 1995 the tenant exercised one of its options to
renew their lease for a five year term. The Partnership and the tenant
negotiated the terms of a new lease on February 1, 1995. The new lease
expires January 31, 2000. The amounts shown in the above table and the
table on the preceding page are based on the terms of the new lease.
(d) 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.
ITEM 3. LEGAL PROCEEDINGS
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(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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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(a, b, c & d) None.
7
<PAGE>
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 31, 1995, there were 14,521 holders of the Units.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 6,636,400 $ 7,725,700 $ 6,768,700 $ 7,051,900 $ 7,477,000
Net (loss) income $(1,017,200) $ 3,222,100 $ (439,300) $(3,154,300) $ 3,670,500
Net (loss) income
allocated to Limited
Partners $(1,324,200) $ 3,025,800 $ (738,200) $(3,425,400) $ 3,122,200
Net (loss) income
allocated to Limited
Partners per Unit
(84,886 Units issued
and outstanding) $ (15.60) $ 35.65 $ (8.70) $ (40.35) $ 36.78
Investment in commercial
rental properties (net
of accumulated
depreciation and
amortization) $34,620,300 $40,639,300 $42,321,900 $47,077,800 $55,203,700
Number of real
properties owned at
December 31 7 8 9 10 12
Total assets $53,442,100 $57,394,300 $56,366,300 $60,060,600 $66,960,900
Cash Flow (as defined by
the Partnership
Agreement)(a) $ 4,118,700 $ 5,360,100 $ 4,266,900 $ 4,836,700 $ 5,483,100
Distributions to Limited
Partners per Unit
(84,886 Units issued
and outstanding) $ 35.50 $ 21.20 $ 35.00 $ 35.00 $ 57.50
Return of Capital to
Limited Partners per
Unit (84,886 Units
issued and
outstanding)(b) $ 35.50 N/A $ 35.00 $ 35.00 $ 20.72
----------------------------------------------------------------------------------------
</TABLE>
Reconciliation of Cash Flow (as defined by the Partnership Agreement) (a) to
net cash provided by operating activities:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flow (as defined by
the Partnership
Agreement)(a) $4,118,700 $5,360,100 $4,266,900 $4,836,700 $5,483,100
Items of reconciliation:
Distributions from
joint venture (493,100) (471,800) (269,400) (783,700) (765,900)
Income from
participation in joint
venture(c) 202,600 117,000 182,800 326,500 517,400
Changes in assets and
liabilities:
Decrease (increase) in
current assets 138,700 (43,700) 76,800 48,900 33,500
(Decrease) increase in
current liabilities (118,500) 117,200 51,500 34,100 (825,400)
-------------------------------------------------------------------------------------
Net cash provided by
operating activities $3,848,400 $5,078,800 $4,308,600 $4,462,500 $4,442,700
-------------------------------------------------------------------------------------
</TABLE>
(a) Cash Flow is defined in the Partnership Agreement as all revenues from
operations (excluding tenant deposits, proceeds from the sale, disposition
or the financing of any Partnership properties or the refinancing of any
Partnership indebtedness), 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 the General Partner's
Partnership Management Fee.
(b) To the extent cash distributions exceed net income, such excess
distributions are treated as a return of capital.
(c) 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 through A-7
in this report and the supplemental schedule on pages A-8 through A-9.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through three
phases: (i) Offering of Units and investment in properties, (ii) operation of
properties and (iii) sale or other disposition of properties.
The Partnership commenced the Offering of Units on November 10, 1983 and began
operations on December 5, 1983 after achieving the required minimum
subscription level. In October 1984 the Offering was terminated upon the sale
of 84,886 Units. During the period of May 1984 through January 1987, the
Partnership purchased 12 properties (including four 50% joint venture interests
and one 50% interest in a joint venture that owns a 75% preferred majority
interest in a property). In 1991 the Partnership, in addition to being in the
operation of properties phase, entered the disposition phase of its life cycle.
Through December 31, 1994, the Partnership has sold five of its real property
interests. On March 18, 1992 the Partnership sold the American Bank Building.
On August 5, 1993 the Carlsbad Building was sold. On June 8, 1994 the
Partnership sold Norwest, formerly known as United Bank of Arizona.
OPERATIONS
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 seven
remaining properties. Notwithstanding the Partnership's intentions relative to
property sales, another primary objective 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 in the Partnership Agreement,
is generally not equal to Partnership net income or cash flows as determined by
generally accepted accounting principles, since certain items are treated
differently under the Partnership Agreement than under generally accepted
accounting principles. 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 and/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 ("Ellis") and
the 12621 Featherwood Building ("Featherwood"), formerly known as Houston
Lighting and Power 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).
<TABLE>
<CAPTION>
Comparative Cash Flow Results
For the Years Ended
-----------------------------------
12/31/94 12/31/93 12/31/92
---------------------------------------------------------------------------
<S> <C> <C> <C>
Amount of Cash Flow (as defined by the
Partnership Agreement) $ 4,118,700 $ 5,360,100 $ 4,266,900
Capital Investment $84,886,000 $84,886,000 $84,886,000
Return on Capital Investment (Cash
Flow/Capital Investment) 4.85% 6.31% 5.03%
---------------------------------------------------------------------------
</TABLE>
Comparisons of Cash Flow and operating results between the years presented in
the above table are complicated with the sales of the American Bank Building in
1992, the Carlsbad Building in 1993 and Norwest Plaza 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 or making improvements to the Partnership's remaining properties. Sale
proceeds are excluded from the determination of Cash Flow.
Cash flow results for the Partnership decreased $1,241,400 for the year ended
December 31, 1994 when compared to December 31, 1993. The significant factors
affecting the decrease in Cash Flow were: 1) decreased Cash Flow results of
$1,427,200 at Norwest Plaza due to a partial lease buy-out on August 31, 1993
and the sale of the property on June 8, 1994; 2) a decrease in Cash Flow of
$223,500 at Featherwood, due to an expiration of a certain lease agreement
whereby the tenant was no longer responsible for the payment of real estate
taxes and property operating expenses and 3) decreased Cash Flow results of
$88,200 at the Carlsbad Building due to its sale on August 5, 1993. Partially
offsetting the decrease in Cash Flow was: 1) higher Cash Flow results at Ellis,
Foxhall, Rivergate, Lakewood and Banana River of $108,300, $40,200, $39,900,
$19,100 and $11,900, respectively; 2) an increase in Cash Flow 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 $240,700 due to a trend in higher interest rates earned on short-term
investments.
Cash Flow results decreased approximately $69,300 for the year ended December
31, 1993 when compared to the year ended December 31, 1992 exclusive of the
tenant's partial lease buy-out at Norwest, as discussed below. Factors which
contributed to the decrease in Cash Flow results in 1993 were: (1) decreased
rental revenues at all of the Partnership's properties, except Rivergate; (2)
increased property operating expenses at Foxhall of approximately $22,000 and
(3) increased property operating expenses and real estate taxes at Norwest and
Featherwood due to the amendment and expiration of the net lease agreements
whereby the tenants were no longer responsible for the payment of real estate
taxes and property operating expenses. The decrease in Cash Flow results was
partially offset by: (1) a higher return from the Partnership's investment in
the joint venture which owns Holiday; (2) a decrease in real estate taxes at
Foxhall and Rivergate of approximately $51,000 and $20,800, respectively, due
to the receipt of refunds in 1993 for 1992 taxes and (3) a decrease in general
and administrative expenses of approximately $22,600 due to reduced legal fees.
Rental revenues at Foxhall for the years ended December 31, 1994, 1993 and 1992
were approximately $1,554,700, $1,619,000 and $1,656,000, respectively. The
decrease in rental revenue in 1994 when compared to 1993 was primarily due to
lower escalation income in 1994, resulting from overpayments from tenants in
prior years, as well as changes in tenants' base years caused by lease
rollovers. This decrease was partially offset by an increase in base rents.
Offsetting the decrease in rental revenues for this property from 1993 to 1994
was: 1) a decrease in real estate tax expense of $71,100 due to the receipt of
a refund in 1994 relating to the 1992/1993 tax year and 2) a decrease of
$33,400 in property operating expenses, resulting primarily from reduced
utility expenses. Rental revenues decreased slightly from 1992 to 1993 as a
result of a 1993 adjustment of the previously billed 1992 tenant expense
reimbursements which had been overestimated. The average annual occupancy rate
at Foxhall has remained relatively stable at 85%, 82% and 83% for 1994, 1993
and 1992, respectively.
Rental revenues at Lakewood for the years ended December 31, 1994, 1993 and
1992 were approximately $1,168,900, $1,121,700 and $1,309,600, respectively.
Rental revenues were higher in 1994 primarily due to the write-off in 1993 of
approximately $51,000 in uncollectible tenant receivables. Partially offsetting
the increase in Cash Flow results for this property from 1993 to 1994 was an
increase in repairs and maintenance and property operating expenses of $12,000
and $16,200, respectively. Rental revenues decreased from 1992 to 1993 due
primarily to decreases in occupancy and in base rents charged to new and
renewing tenants. The average annual occupancy rate for 1994, 1993 and 1992 was
84%, 85% and 96% respectively. The average annual occupancy rate declined
significantly in 1993 as compared to 1992 due to a loss of a bankrupt tenant.
Rental revenues at Featherwood for the years ended December 31, 1994, 1993 and
1992 were $456,600, $418,000 and $453,000, respectively. The Partnership's
share of total operating expenses, including real estate taxes, and repairs and
maintenance, increased approximately $262,200 for the year ended December 31,
1994 when compared to the year ended December 31, 1993 due to the assumption of
these obligations by the Partnership. Property operating and repairs and
maintenance expenses at Featherwood increased significantly due to an increase
in the Partnership's share of these expenses resulting from the expiration of
the prior tenant's lease, which was on a net basis.
Featherwood remained 100% occupied during 1992 and 1993. On December 14, 1993,
the sole tenant's (the "Tenant") lease expired. Since April 1, 1992, two
subtenants occupied approximately 84% of the building and the Tenant occupied
the remaining 16% of the building. On December 14, 1993, the Partnership and
First Capital Institutional Real Estate, Ltd.--1, an Affiliated partnership,
(collectively "FCIRE 1 & 2") entered into a three-year lease agreement with one
of the former subtenants, Parsons S.I.P., Inc. ("Parsons"), an engineering
firm, to occupy the entire building. The terms of the new lease provide for
minimum rents to be earned by FCIRE 1 & 2 of approximately $992,900 per annum
throughout the term of the lease, of which the Partnership has a 50% interest.
Included in the lease terms is the option for Parsons to cancel the lease after
two years provided that FCIRE 1 & 2 are notified nine months prior to
cancellation. In addition, Parsons took the space "as is" with only a small
capital improvement allowance for an expanded parking facility on a parcel of
land adjacent to the Featherwood building which FCIRE 1 & 2
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
purchased on July 18, 1994, for approximately $7,500 plus $600 of closing
costs.
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 credit adjustment given to a major
tenant for a 1992 real estate tax reimbursement which when previously billed
had been based on an estimate as well as a decrease in occupancy. The average
annual occupancy rate in 1992 and 1993 was 97% and 90%, respectively.
Rental revenues at Norwest for the years ended December 31, 1994, 1993 and 1992
were $217,200, $1,699,600 and $508,200, respectively. The decrease in Cash Flow
results of $1,487,600 for this property for the year ended December 31, 1994
when compared to the year ended December 31, 1993 was primarily due to the
partial lease buy-out as well as to a decrease in rental revenues resulting
from the sale of Norwest on June 8, 1994. The increase in Cash Flow results for
this property for the year ended December 31, 1993 when compared to the year
ended December 31, 1992 was primarily due to the receipt of $1,162,500 from a
tenant at Norwest in consideration of buying out a portion of the tenant's
lease. The average annual occupancy rate at this property dropped slightly to
98% in 1993 as compared to 100% in 1992 due primarily to the partial lease buy-
out.
On August 31, 1993 the Partnership entered into an agreement ("Agreement") with
the tenant under the net lease agreement ("Net Lease") at Norwest. Under the
terms of the Agreement, the Net Lease which consisted of a bank lease, that
represented approximately 13,200 rentable square feet, and the master/market
lease, that represented approximately 25,500 rentable square feet, was amended
to reflect that the master/market lease was terminated for consideration of
$1,162,500 ("Buy-Out Fee"). This Agreement relieved the tenant of any and all
obligations and rights under the master/market lease; however the tenant
continued to be obligated under the bank lease, which included basic annual
rent and additional rent in accordance with the terms of the Net Lease.
Exclusive of the Buy-Out Fee, the initial impact of this Agreement to the
Partnership was a reduction in rental income from the master/market premises
(the master/market lease required the payment of a significantly above market
rental rate) and increased operating expenses due to the assumption of these
obligations by the Partnership.
Rental revenues at Banana River for the years ended December 31, 1994, 1993 and
1992 were $691,400, $660,100, and $737,000, respectively. Despite a slight
decrease in the average annual occupancy rate to 94% in 1994 from 95% in 1993,
rental revenues increased in 1994 when compared to 1993 primarily due to an
increase in base rental revenues. Partially offsetting the increase in Cash
Flow for this property in 1994 when compared to 1993 was an increase in repairs
and maintenance and property operating expenses of $17,000 and $2,400,
respectively. Rental revenues decreased in 1993 when compared to 1992 due to
rental concessions granted to certain new tenants that took occupancy in 1993.
In addition, 1992 rental revenue was slightly higher than 1993 due to an
adjustment in 1992 of previously billed tenant expense reimbursements which
were underestimated. The average annual occupancy rate in 1992 was 93%.
Rental revenues at Rivergate for the years ended December 31, 1994, 1993, and
1992 were $835,200, $703,100 and $511,000, respectively. The increase in rental
revenues in 1994 when compared to 1993 was primarily due to an increase in the
average annual occupancy rate. Partially offsetting the increase in Cash Flow
for this property was: 1) an increase in real estate tax expense of $28,500
primarily due to the receipt in 1993 of a refund for 1991 taxes; 2) an increase
in repairs and maintenance of $12,500 and 3) an increase in property operating
expenses of $51,200 due to an increase in professional fees, management fees
and advertising and promotional expenses. The increase in rental revenue in
1993 when compared to 1992 was due to a significant increase in occupancy. The
average annual occupancy rate in 1994, 1993 and 1992 was 87%, 76% and 64%,
respectively.
Rental revenues at the Carlsbad Building for the years ended December 31, 1993
and 1992 were $115,000 and $180,000, respectively. The decrease in rental
revenues in 1993 when compared to 1992 was due to the sale of this property on
August 5, 1993.
To increase occupancy levels at the Partnership's properties, the General
Partner, through its Affiliated asset and property management groups, continues
to take necessary actions deemed appropriate for the properties discussed
above. Some of these actions included: 1) providing on-site leasing personnel,
advertising, direct mail campaigns and development of building brochures; 2)
early renewal of existing tenants and addressing any expansion needs these
tenants may have; 3) promotion of local broker events and networking with local
brokers; 4) networking with national level retailers; 5) cold-calling other
businesses and tenants in the market area and 6) providing rental concessions
or competively 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 amounts being
withheld from Cash Flow to supplement working capital reserves exceeding
expenditures made for capital and tenant improvements and the retaining by the
Partnership of the Sale Proceeds from Norwest. Liquid assets of the Partnership
at December 31, 1994 represent working capital reserves 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 decreased
approximately $1,230,300 during the year ended December 31, 1994 when compared
to 1993 primarily due to the net decrease in Cash Flow as discussed above, and
to a lesser extent, the timing of the collection of tenant receivables and
payment of certain Partnership expenses.
Net cash provided by investing activities increased approximately $1,974,500
during the year ended December 31, 1994 when compared to 1993 due primarily to
the receipt of $3,005,600 from the sale of Norwest on June 8, 1994 and the
collection during 1994 of loans previously made to Holiday, reduced by
decreased distributions received from Holiday in excess of income allocated to
the Partnership from 1993 to 1994. Partially offsetting the increase in cash
provided by investing activities was an increase in expenditures made for
building and tenant improvements during 1994.
The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements. For the year ended
December 31, 1994, the Partnership spent approximately $1,159,500 for building
and tenant improvements and has budgeted to spend approximately $1,615,100 in
1995. Included in the 1995 budget are building and tenant improvements for
Ellis, Foxhall, Rivergate, Holiday and Lakewood of $158,000, $238,000,
$117,000, $596,000 and $415,000, respectively. The General Partner believes
these expenditures are necessary to maintain occupancy levels in very
competitive markets and ready the remaining properties for ultimate
disposition.
Net cash used for financing activities increased approximately $505,200 during
the year ended December 31, 1994 when compared to 1993. This increase was due
primarily to an increase in distributions paid to Limited Partners.
The General Partner continues to take a conservative approach to projections of
future rental income and continues to maintain higher levels of cash reserves
due to the anticipated capital and tenant improvements necessary to be made at
the Partnership's remaining 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 withheld to supplement working capital reserves approximated $770,400. The
General Partner believes 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
3.55% on Capital Investment. Cash distributions are made 60 days after the
quarter end. The amount of future Cash Flow available for distribution to
Limited Partners will ultimately be dependent upon the performance of the
Partnership's investments as well as the amount of Cash Flow withheld for
future cash requirements. Therefore, there can be no assurance of the
availability or the amount of Cash Flow for distribution to investors.
11
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
-------- ----------------------
(a, b, c & d) As stated in Item 10, the Partnership has no officers or
directors. Neither the General Partner, nor any director or officer of the
General Partner, received any direct remuneration from the Partnership during
the year ended December 31, 1994. However, Affiliates of the General Partner do
compensate the directors and officers.
(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 84,886 Units
then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1,
1995, the executive officers and directors of the General Partner, as a group,
did not own any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------- ----------------------------------------------
(a) On September 25, 1992, the entity formerly named First Capital Financial
Corporation and certain subsidiaries which may be or may have been entitled to
receive certain compensation, fees or reimbursements from the Partnership were
merged or liquidated into First Capital Properties Corporation. On February 23,
1993, First Capital Properties Corporation changed its name to First Capital
Financial Corporation.
During 1994, an Affiliate of the General Partner provided real estate brokerage
services to the Partnership in connection with the sale of a property. Total
real estate brokerage commissions for all such services shall not exceed the
lesser of the compensation customarily charged in arm's-length transactions in
the same geographic location for a comparable property, or 6% of the sales price
of the property. Real estate commissions paid to any Affiliate of the General
Partner may not exceed 50% of the compensation customarily charged in arm's-
length transactions in the same geographical location for comparable property,
or 3% of the total selling price of the property; provided, further, that no
Affiliate of the General Partner may receive payment of a real estate commission
until Limited Partners have received cumulative distributions of Sale or
Financing Proceeds equal to 100% of their Original Capital Contributions, plus a
cumulative return (including all Cash Flow which has been distributed to the
Limited Partners) of 6% simple interest per annum on their Capital Investment
from the date upon which their investment in the Partnership was made. To the
extent that real estate commissions are not currently paid in full by the
Partnership because of any of the foregoing provisions, the unpaid commissions
will be accrued and will be paid at such time as the provisions have been
satisfied. As of December 31, 1994, the Partnership owed a total of $40,300 to
the General Partner for real estate commissions earned in connection with the
sales of four Partnership properties. These commissions have been accrued, but
not paid.
Certain Affiliates of the General Partner provide leasing, property management
and supervisory services to the Partnership. Compensation for these property
management services may not exceed 6% of the gross receipts from the property
being managed where the General Partner or Affiliates provide leasing, re-
leasing, and leasing related services, or 3% of gross receipts where the General
Partner or Affiliates do not perform leasing, re-leasing and leasing related
services. Provided further, that in the event the Partnership leases properties
on a long-term net basis (10 years or more), the maximum property management fee
from such leases shall be 1% of the gross revenues from such properties. For the
year ended December 31, 1994, these Affiliates were entitled to supervisory and
property
15
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Continued
-------- -----------------------------------------------------------
management and leasing fees of approximately $304,900. In addition, other
Affiliates of the General Partner were entitled to compensation and
reimbursements of approximately $134,500 from the Partnership for insurance,
personnel, and other miscellaneous services. Compensation for these services
are on terms which are fair, reasonable and no less favorable to the
Partnership than reasonably could be obtained from unaffiliated persons. As of
December 31, 1994, total fees and reimbursements of $92,800 were due to
Affiliates.
Subsequent to the Termination of the Offering, the General Partner is entitled
to 10% of Cash Flow as its Partnership Management Fee. In accordance with the
Partnership Agreement, Net Profits (exclusive of Net Profits from the sale or
disposition of Partnership properties) are allocated first to the General
Partner in an amount equal to the greater of the General Partner's Partnership
Management Fee or 1% of such Net Profits. The balance of Net Profits, if any,
is allocated to the Limited Partners. Net Losses from the sale or disposition
of Partnership properties are allocated: first, prior to giving effect to any
distributions of Sale or Financing Proceeds, to the extent that the balance in
the General Partner's or Limited Partners' capital accounts exceeds the amount
of their Capital Investment (the "Excess Balances"), to the General Partner and
Limited Partners pro rata in proportion to such Excess Balances until such
Excess Balances are reduced to zero; second, to the General Partner and Limited
Partners (in a ratio which their respective positive capital account balances
bear to the aggregate of all positive capital account balances) until the
balance in their capital accounts shall be reduced to zero; third, the balance,
if any, 99% to the Limited Partners and 1% to the General Partner. In all
events the General Partner will be allocated at least 1% of Net Losses from the
sale or disposition of a Partnership property. In addition, provisions for
value impairment are allocated 99% to the Limited Partners and 1% to the General
Partners. For the year ended December 31, 1994 the General Partner was entitled
to cash distributions and, accordingly, was allocated Net Profits from
operations of $334,800. In addition, the General Partner was allocated $12,800
in Net Loss from the sale of a Partnership property and $15,000 in Net Loss from
provisions for value impairment.
(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 have been obtained from unaffiliated persons.
(c) No management person is indebted to the Partnership.
(d) None.
16
<PAGE>
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.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 2
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Dated: March 30, 1995 By: /s/ DOUGLAS CROCKER II
------------------ -------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ SAMUEL ZELL March 30, 1995 Chairman of the Board and
-------------------------- -------------- Director of the General Partner
SAMUEL ZELL
/s/ DOUGLAS CROCKER II March 30, 1995 President, Chief Executive
-------------------------- -------------- Officer and Director of the
DOUGLAS CROCKER II General Partner
/s/ SHELI Z. ROSENBERG March 30, 1995 Director of the General Partner
-------------------------- --------------
SHELI Z. ROSENBERG
/s/ SANFORD SHKOLNIK March 30, 1995 Director of the General Partner
-------------------------- --------------
SANFORD SHKOLNIK
/s/ NORMAN M. FIELD March 30, 1995 Vice President - Finance and
-------------------------- -------------- Treasurer
NORMAN M. FIELD
18
<PAGE>
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 A-8 and A-9
All other schedules have been omitted as inapplicable, or for the reason that
the required information is shown in the financial statements or notes thereto,
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-31 of the Partnership's
definitive Prospectus dated October 19, 1983, Registration No. 2-86361, 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 most 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) Other
The audited financial statements for First Capital Lansing Properties for the
year ended December 31, 1994 are attached hereto for the information of the
Commission and not as a filed document.
A-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
First Capital Institutional Real Estate, Ltd. - 2
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Institutional
Real Estate, Ltd. - 2 as of December 31, 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. - 2 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
<PAGE>
BALANCE SHEETS
December 31, 1994 and 1993
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $10,237,400 $11,177,700
Buildings and improvements 35,605,600 40,226,600
----------------------------------------------------------------------------
45,843,000 51,404,300
Accumulated depreciation and amortization (11,222,700) (10,765,000)
----------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 34,620,300 40,639,300
Cash and cash equivalents 12,560,400 9,502,400
Restricted cash 25,000 25,000
Rents receivable 100,400 270,700
Investment in joint venture 5,234,600 6,022,300
Other assets (including amounts due from joint
venture of $725,500 and $790,300, respectively) 901,400 934,600
----------------------------------------------------------------------------
$53,442,100 $57,394,300
----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 389,200 $ 450,900
Due to Affiliates 92,800 102,800
Security deposits 116,400 122,200
Distributions payable 1,037,500 499,900
Other liabilities 77,900 124,700
----------------------------------------------------------------------------
1,713,800 1,300,500
----------------------------------------------------------------------------
Partners' (deficit) capital:
General Partner (121,300) (93,500)
Limited Partners (84,886 Units authorized, issued
and outstanding) 51,849,600 56,187,300
----------------------------------------------------------------------------
51,728,300 56,093,800
----------------------------------------------------------------------------
$53,442,100 $57,394,300
----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1994, 1993 and 1992
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
---------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1992 $ (58,600) $58,670,300 $58,611,700
Net income (loss) for the year ended
December 31, 1992 298,900 (738,200) (439,300)
Distributions for
the year ended December 31, 1992 (330,100) (2,971,000) (3,301,100)
---------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1992 (89,800) 54,961,100 54,871,300
Net income for
the year ended December 31, 1993 196,300 3,025,800 3,222,100
Distributions for
the year ended December 31, 1993 (200,000) (1,799,600) (1,999,600)
---------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1993 (93,500) 56,187,300 56,093,800
Net income (loss)
for the year ended December 31, 1994 307,000 (1,324,200) (1,017,200)
Distributions for
the year ended December 31, 1994 (334,800) (3,013,500) (3,348,300)
---------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1994 $(121,300) $51,849,600 $51,728,300
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-3
<PAGE>
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)
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $ 6,097,700 $7,420,800 $ 6,482,100
Interest 538,700 304,900 286,600
------------------------------------------------------------------------------
6,636,400 7,725,700 6,768,700
------------------------------------------------------------------------------
Expenses:
Depreciation and amortization 1,396,400 1,417,200 1,500,400
Property operating 1,267,500 1,215,400 1,074,300
Real estate taxes and insurance 708,600 682,400 742,700
Repairs and maintenance 735,200 605,700 597,700
General and administrative 299,500 333,900 356,500
------------------------------------------------------------------------------
4,407,200 4,254,600 4,271,600
------------------------------------------------------------------------------
Income before (loss) income from
participation in joint venture 2,229,200 3,471,100 2,497,100
(Loss) income from participation in
joint venture (469,800) 117,000 182,800
------------------------------------------------------------------------------
Income before (loss) on sale of
properties and provisions for value
impairment 1,759,400 3,588,100 2,679,900
(Loss) on sale of properties (1,276,600) (366,000) (19,200)
Provisions for value impairment (1,500,000) (3,100,000)
------------------------------------------------------------------------------
Net (loss) income $(1,017,200) $3,222,100 $ (439,300)
------------------------------------------------------------------------------
Net income allocated to General Partner $ 307,000 $ 196,300 $ 298,900
------------------------------------------------------------------------------
Net (loss) income allocated to Limited
Partners $(1,324,200) $3,025,800 $ (738,200)
------------------------------------------------------------------------------
Net (loss) income allocated to Limited
Partners per Unit (84,886 Units
authorized, issued and outstanding) $ (15.60) $ 35.65 $ (8.70)
------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,017,200) $ 3,222,100 $ (439,300)
Adjustments to reconcile net (loss)
income to net cash provided by operating
activities:
Depreciation and amortization 1,396,400 1,417,200 1,500,400
Loss on sale of properties 1,276,600 366,000 19,200
Provisions for value impairment 1,500,000 3,100,000
Provision for value impairment for
Holiday 672,400
Changes in assets and liabilities:
Decrease (increase) in rents receivable 170,300 (55,700) 117,300
(Increase) decrease in other assets (31,600) 11,900 (40,500)
(Decrease) increase in accounts payable
and accrued expenses (61,700) 95,900 19,800
(Decrease) increase in due to
Affiliates (10,000) 4,900 (200)
(Decrease) increase in other
liabilities (46,800) 16,400 31,900
----------------------------------------------------------------------------------
Net cash provided by operating
activities 3,848,400 5,078,700 4,308,600
----------------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds from sale of properties 3,005,600 717,100 668,000
Payments for capital and tenant
improvements (1,159,500) (817,700) (524,400)
Distributions received from joint venture
in excess of income (loss) 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 investing
activities 2,026,100 51,600 218,500
----------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (2,810,700) (2,325,000) (3,301,100)
(Decrease) increase in security deposits (5,800) 13,700 (12,700)
----------------------------------------------------------------------------------
Net cash (used for) financing
activities (2,816,500) (2,311,300) (3,313,800)
----------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,058,000 2,819,000 1,213,300
Cash and cash equivalents at the beginning
of the year 9,502,400 6,683,400 5,470,100
----------------------------------------------------------------------------------
Cash and cash equivalents at the end of
the year $12,560,400 $ 9,502,400 $ 6,683,400
----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-4
<PAGE>
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 August 22, 1983, by the filing of a Certificate
and Agreement of Limited Partnership with the Department of State of the State
of Florida, and commenced the Offering of Units on November 10, 1983. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of up to 85,000 Units and not less than 1,400 Units pursuant to the
Prospectus. On December 5, 1983, the required minimum subscription level was
reached and Partnership operations commenced. A total of 84,886 Units were sold
prior to Termination of the Offering in October, 1984. The Partnership was
formed to invest primarily in existing, income-producing commercial real
estate.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 31, 2014. The Limited Partners, by a majority vote, may
dissolve the Partnership at any time.
ACCOUNTING POLICIES:
The financial statements include the Partnership's interest in four joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of acquiring 100% interests in certain real properties. These joint
ventures are operated under the control of the General Partner. Accordingly,
the Partnership's pro rata share of the ventures' revenues, expenses, assets,
liabilities and capital is included in the financial statements.
The Partnership is not liable for Federal income taxes as the Partners
recognize their proportionate share of the Partnership's income or loss on
their tax returns; therefore, no provision for income taxes is made in the
financial statements of the Partnership. It is not practicable for the
Partnership to determine the aggregate tax bases of the Limited Partners;
therefore, the disclosure of the difference between the tax bases and the
reported assets and liabilities of the Partnership would not be meaningful.
Commercial rental properties are recorded at cost, net of provisions for value
impairment, and depreciated (exclusive of amounts allocated to land) on the
straight-line method over their estimated useful lives. Lease acquisition fees
are recorded at cost and amortized over the life of the lease. Maintenance and
repair costs are expensed 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.
Investment in joint venture represents the recording of the Partnership's
interest, under the equity method of accounting, in a joint venture with an
Affiliated partnership. The joint venture acquired a preferred majority
interest in a joint venture with the seller of the Lansing, Michigan property.
Under the equity method of accounting, the Partnership records its initial
interest at cost and adjusts its investment account for its share of joint
venture income or loss and its distribution of cash flow.
Certain reclassifications have been made to the previously reported 1993 and
1992 statements in order to provide comparability with the 1994 statements.
These reclassifications have no effect on net income, net (loss) or Partners'
capital.
2. RELATED PARTY TRANSACTIONS:
Subsequent to October 19, 1984, the Termination of the Offering, the General
Partner became entitled to 10% of Cash Flow as its Partnership Management Fee.
In accordance with the Partnership Agreement, Net Profits (exclusive of Net
Profits from the sale or disposition of Partnership properties) are allocated
first to the General Partner in an amount equal to the greater of the General
Partner's Partnership Management Fee or 1% of such Net Profits. The balance of
Net Profits, if any, is allocated to the Limited Partners. Net Losses from the
sale or disposition of Partnership properties are allocated: first, prior to
giving effect to any distributions of Sale or Financing Proceeds, to the extent
that the balance in the General Partner's or Limited Partners' capital accounts
exceeds the amount of their Capital Investment (the "Excess Balances"), to the
General Partner and Limited Partners pro rata in proportion to such Excess
Balances until such Excess Balances are reduced to zero; second, to the General
Partner and Limited Partners (in a ratio which their respective positive
capital account balances bear to the aggregate of all positive capital account
balances) until the balance in their capital accounts shall be reduced to zero;
third, the balance, if any, 99% to the Limited Partners and 1% to the General
Partner. In all events the General Partner will be allocated at least 1% of Net
Losses from the sale or disposition of a Partnership property. In addition,
provisions for value impairment are allocated 99% to the Limited Partners and
1% to the General Partners. For the years ended December 31, 1994, 1993 and
1992 the General Partner was entitled to cash distributions and, accordingly,
was allocated Net Profits from operations of approximately $334,800, $200,000
and $330,100, respectively. In addition, for the years ended December 31, 1994,
1993 and 1992 the General Partner was allocated Net Losses from the sale and/or
provisions for value impairment of Partnership properties of approximately
$27,800, $3,700 and $31,200, respectively.
A-5
<PAGE>
Fees and reimbursements paid and payable by the Partnership to Affiliates for
the years ended December 31, 1994, 1993, 1992 were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1994 1993 1992(a)
---------------- ----------------- ----------------
Paid Payable Paid Payable Paid Payable
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $307,800 $45,400 $382,400 $ 48,300 $352,800 $51,600
Reimbursement of property
insurance premiums, at
cost 87,700 None 85,700 None 107,600 None
Real estate commissions(b) None 40,300 None 40,300 None 40,300
Reimbursement of expenses,
at cost
(1) Accounting 28,400 4,100 23,900 3,600 27,000 3,900
(2) Investor communication 16,500 3,000 11,300 1,600 11,700 2,100
(3) Legal 91,400 None 38,800 9,000 66,600 None
-------------------------------------------------------------------------------
$531,800 $92,800 $542,100 $102,800 $565,700 $97,900
-------------------------------------------------------------------------------
</TABLE>
(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 1994 and 1993.
(b) As of December 31, 1994, the Partnership owed $40,300 to the General
Partner for real estate commissions earned in connection with the sales of
Partnership properties. These commissions have been accrued but not paid. Under
the terms of the Partnership Agreement, these commissions will not be paid
until such time as Limited Partners have received cumulative distributions of
Sale or Refinancing Proceeds equal to 100% of their Original Capital
Contribution plus a cumulative return (including all Cash Flow which has been
distributed to the Limited Partners from the initial date of investment) of 6%
simple interest per annum on their Capital Investment from the initial date of
investment.
3. FUTURE MINIMUM RENTALS:
The Partnership's share of future minimum rentals due on noncancelable
operating leases (exclusive of amounts due under net leases) as of December 31,
1994 was as follows:
<TABLE>
<S> <C>
1995 $ 4,604,000
1996 4,076,800
1997 3,214,700
1998 2,597,900
1999 2,087,700
Thereafter 6,203,600
--------------
$22,784,700
--------------
</TABLE>
The Partnership is subject to the usual business risks associated with the
collection of the above scheduled rentals. In addition to the amounts scheduled
above, the Partnership expects to receive rental revenue from (i) operating
expense and real estate tax reimbursements and (ii) percentage rents.
4. NET LEASE AGREEMENTS:
The Partnership acquired the 12621 Featherwood Building ("Featherwood"),
formerly known as Houston Lighting and Power Building, under a net lease
agreement with a single tenant (the "Tenant"). The Tenant was responsible for
the maintenance and operating expenses of the property and the payment of real
estate taxes and insurance costs. On December 14, 1993, the Tenant's lease
expired. The Partnership received a final payment for amounts due under the net
lease agreement in January 1994. On December 14, 1993, the Partnership executed
a gross lease with a former subtenant (the "Lessee"). Included in the lease
terms is the ability of the Lessee to cancel the lease after two years provided
that the Partnership is notified nine months prior to cancellation. Amounts due
under this lease, for the first two years, are included in Note 3.
5. 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 prepaid rents as taxable income and the
Partnership's provisions for value impairment. The net effect of these
differences for the year ended December 31, 1994 was that the income for tax
reporting purposes was greater than the loss for financial statement purposes
by approximately $2,349,600.
6. MANAGEMENT AGREEMENTS:
On-site management for the Lakewood Square Shopping Center is provided by an
independent real estate management company for fees calculated as a percentage
of gross rents received from the property. An Affiliate of the General Partner
provides supervisory management for this property for fees calculated as a
percentage of gross rents received from this property.
On-site property management for the Partnership's other properties is provided
by an Affiliate of the General Partner for fees based on a percentage of gross
rents received from the properties.
A-6
<PAGE>
7. INVESTMENT IN JOINT VENTURE:
A summary of the financial information for First Capital Lansing Properties
Limited Partnership, which owns the Holiday Office Park North and South
("Holiday"), for the year ended December 31, 1994 is as follows:
<TABLE>
<S> <C>
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 & 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)
----------------------------------------------
</TABLE>
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.
8. PROPERTY SALES:
On June 8, 1994 the Partnership sold Norwest Plaza (formerly known as United
Bank of Arizona Building) for a total sale price of approximately $3,225,000.
The Partnership incurred selling expenses of approximately $219,400. Proceeds
received by the Partnership from the sale were approximately $3,005,600. The
total loss to the Partnership in connection with this sale for financial
statement purposes was approximately $1,276,600. For tax reporting purposes the
Partnership recorded a loss in 1994 of approximately $314,500 on this sale.
On March 18, 1992, the Partnership sold the American Bank Building in Rio
Rancho, New Mexico. The sale price of the property was $725,000. The
Partnership incurred selling expenses of approximately $64,300 including $7,300
of accrued expenses. Proceeds received by the Partnership from the sale were
approximately $668,000, excluding such accrued expenses. The loss for tax
reporting purposes on this sale was approximately $933,200 and the loss for
financial statement purposes was approximately $1,495,600. Due to an
anticipated loss on the sale of this property for financial statement purposes,
the Partnership recorded $1,476,400 of the total loss as of December 31, 1991
as a provision for value impairment and the remaining portion of the loss in
1992.
On August 5, 1993, the Partnership sold the Carlsbad Building, located in
Carlsbad, New Mexico, for a sale price of $775,000. Proceeds received by the
Partnership from the sale were approximately $717,100. The total loss
recognized by the Partnership for financial statement purposes was
approximately $1,466,000. The Partnership recorded $1,100,000 of this amount as
a provision for value impairment in 1992 and the remaining $366,000 upon sale
of the property in 1993. For tax reporting purposes the Partnership recorded a
loss in 1993 of approximately $894,200 on this sale.
The above sales were on all-cash terms with no further involvement on the part
of the Partnership.
9. PROVISIONS FOR VALUE IMPAIRMENT:
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 amount 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.
Provisions for value impairment were recorded for the Ellis Building and
Featherwood for the year ended December 31, 1994 in the amounts of $1,000,000
and $500,000, respectively. Provisions for value impairment were also recorded
for the Carlsbad Building and Featherwood in the amounts of $1,100,000 and
$2,000,000, respectively, as of December 31, 1992.
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.
Due to the uncertainty of the Partnership's ability to recover the Net Carrying
Value of its investment in these properties (prior to any provisions for value
impairment) during the remaining estimated holding periods, it was deemed
appropriate to reduce the basis of these properties for financial statement
purposes. These provisions were considered noncash events for purposes of the
Statement of Cash Flows, and are 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.
Copies of the Partnership's Form 10-K are
available upon written request to the
General Partner at no charge.
A-7
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. -- 2
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
Column A Column C Column D Column E
---------- --------- -------- --------
Initial cost to Costs capitalized Gross amount at which
Partnership subsequent to acquisition carried at close of period
------------------------ ------------------------- -----------------------------------------
Buildings Buildings
and Improve- Carrying and
Description Land Improvements ments Costs (1) Land Improvements Total (2)(3)
----------- ---- ------------ --------- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers:
Lakewood Square
(Lakewood, CA)
(50% interest) $ 2,652,800 $ 7,988,700 $ 247,300 $ 40,200 $ 2,652,800 $ 8,276,200 $10,929,000
Banana River Square
(Cocoa Beach, FL) 887,400 5,297,600 234,300 54,200 887,400 5,586,100 6,473,500
Market Place at Rivergate
(Nashville, TN) 2,954,400 6,554,700 1,405,600 47,200 2,988,300 5,473,600 (6) 8,461,900
Office Buildings:
Foxhall Square
Building
(Washington, D.C.)
(50% interest) 2,351,100 5,893,400 1,807,800 188,500 2,351,100 7,889,700 10,240,800
12621 Featherwood
Building
(Houston, TX)
(50% interest) 497,800 5,037,700 83,700 57,400 497,800 2,678,800 (7) 3,176,600
Ellis Building
(Sarasota, FL)
(50% interest) 860,000 5,405,600 1,269,700 25,900 860,000 5,701,200 (8) 6,561,200
----------- ----------- ---------- -------- ----------- ----------- -----------
$10,203,500 $36,177,700 $5,048,400 $413,400 $10,237,400 $35,605,600 $45,843,000
=========== =========== ========== ======== =========== =========== ===========
Column F Column G Column H Column I
-------- -------- -------- --------
Life on
which
depreciation
in latest
Accumulated income
Depreciation Date of Date statements
Description (2) construction Acquired is computed
----------- -------------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Shopping Centers:
Lakewood Square
(Lakewood, CA) 35(4)
(50% interest) $ 2,425,600 1982 5/84 2-10(5)
Banana River Square 35(4)
(Cocoa Beach, FL) 1,563,600 1982 6/84 2-10(5)
Market Place at Rivergate 35(4)
(Nashville, TN) 1,628,000 1970 5/86 2-15(5)
Office Buildings:
Foxhall Square
Building
(Washington, D.C.) 35(4)
(50% interest) 2,672,000 1972 6/84 1-10(5)
12621 Featherwood
Building
(Houston, TX)
(50% interest) 1,237,500 1983 1/85 35(4)
Ellis Building
(Sarasota, FL) 35(4)
(50% interest) 1,696,000 1969 3/86 1-10(5)
-----------
$11,222,700
===========
</TABLE>
Column B - Not Applicable.
See accompanying notes on the following page,
A-8
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. -- 2
NOTES TO SCHEDULE III
Note 1. Consists of legal fees, appraisal fees, title costs and other related
professional fees.
Note 2. The following is a reconciliation of activity in columns E and F:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993 December 31, 1992
------------------------- ------------------------- -------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
beginning of year $51,404,300 $10,765,000 $52,588,300 $10,266,400 $56,240,500 $ 9,162,700
Additions
during year:
Improvements 1,159,500 817,700 524,400
Provision for
depreciation
and amortization 1,396,300 1,417,200 1,500,400
Deductions
during year:
Cost of real
estate sold (5,220,800) (2,001,700) (1,076,600)
Provisions for
value impairment (1,500,000) (3,100,000)
Accumulated
depreciation on
real estate sold (938,600) (918,600) (396,700)
----------- ----------- ----------- ----------- ----------- -----------
Balance at
end of year $45,843,000 $11,222,700 $51,404,300 $10,765,000 $52,588,300 $10,266,400
=========== =========== =========== =========== =========== ===========
</TABLE>
Note 3. The aggregate cost for Federal income tax purposes as of December 31,
1994 is $51,843,000.
Note 4. Estimated useful life for building.
Note 5. Estimated useful life for improvements.
Note 6. Includes provision for value impairment of $2,500,000.
Note 7. Includes provision for value impairment of $2,500,000.
Note 8. Includes provision for value impairment of $1,000,000.
A-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000727087
<NAME> FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD-2
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 12,585,400
<SECURITIES> 0
<RECEIVABLES> 100,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,685,800
<PP&E> 45,843,000
<DEPRECIATION> 11,222,700
<TOTAL-ASSETS> 53,442,100
<CURRENT-LIABILITIES> 1,426,700
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 51,728,300
<TOTAL-LIABILITY-AND-EQUITY> 53,442,100
<SALES> 0
<TOTAL-REVENUES> 6,636,400
<CGS> 0
<TOTAL-COSTS> 2,711,300
<OTHER-EXPENSES> 299,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,017,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,017,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,017,200)
<EPS-PRIMARY> (15.60)
<EPS-DILUTED> (15.60)
</TABLE>
<PAGE>
EXHIBIT (99)
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
AUDITED FINANCIAL STATEMENTS
(With Independent Auditors' Report Thereon)
FOR THE YEAR ENDED DECEMBER 31, 1994
<PAGE>
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
<PAGE>
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 -
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1994
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
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
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 3 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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.
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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.
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<PAGE>
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.
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