<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1996
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-12945
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FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 2
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(Exact name of registrant as specified in its charter)
Florida 59-2313852
- -------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
DOCUMENTS INCORPORATED BY REFERENCE:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated October 19, 1983,
included in the Partnership's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
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<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $10,237,400 $10,237,400
Buildings and improvements 35,737,500 35,221,500
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45,974,900 45,458,900
Accumulated depreciation and amortization (13,181,600) (12,556,200)
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Total investment properties, net of accumulated
depreciation and amortization 32,793,300 32,902,700
Cash and cash equivalents 3,843,000 12,268,000
Investments in debt securities 7,311,800
Restricted cash 50,000 25,000
Investment in joint venture 4,835,100 4,620,200
Rents receivable 59,400 169,800
Other assets (including amount due from joint
venture of $817,200 and $785,000, respectively) 897,200 817,400
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$49,789,800 $50,803,100
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 457,500 $ 491,000
Due to Affiliates 79,400 74,900
Distributions payable 6,281,700 1,273,300
Security deposits 132,000 136,200
Other liabilities 67,700 112,200
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7,018,300 2,087,600
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Partners' capital:
General Partners (deficit) (131,300) (131,300)
Limited Partners (84,886 Units issued and
outstanding) 42,902,800 48,846,800
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42,771,500 48,715,500
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$49,789,800 $50,803,100
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 1996 (Unaudited)
and the year ended December 31, 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1995 $(121,300) $51,849,600 $51,728,300
Net income for the year ended
December 31, 1995 471,000 1,326,300 1,797,300
Distributions for the year ended
December 31, 1995 (481,000) (4,329,100) (4,810,100)
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Partners' (deficit) capital,
December 1, 1995 (131,300) 48,846,800 48,715,500
Net income for the six months ended
June 30, 1996 254,700 1,356,200 1,610,900
Distributions for the six months ended
June 30, 1996 (254,700) (7,300,200) (7,554,900)
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Partners' (deficit) capital,
June 30, 1996 $(131,300) $42,902,800 $42,771,500
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $1,561,400 $1,518,300
Interest 182,300 273,100
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Net Income 1,743,700 1,791,400
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Expenses:
Depreciation and amortization 311,600 326,900
Property operating:
Affiliates 82,000 82,000
Nonaffiliates 236,300 237,600
Real estate taxes 140,400 95,900
Insurance--Affiliate 19,300 10,900
Repairs and maintenance 160,300 173,800
General and administrative:
Affiliates 12,900 10,500
Nonaffiliates 86,200 73,500
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1,049,000 1,011,100
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Net income before income from participation in joint
venture 694,700 780,300
Income from participation in joint venture 151,100 121,500
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Net income $ 845,800 $ 901,800
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Net income allocated to General Partner $ 127,500 $ 117,900
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Net income allocated to Limited Partners $ 718,300 $ 783,900
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Net income allocated to Limited Partners per Unit
(84,886 Units outstanding) $ 8.46 $ 9.23
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Income:
Rental $3,190,200 $3,118,500
Interest 356,500 478,800
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Net income 3,546,700 3,597,300
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Expenses:
Depreciation and amortization 625,400 665,100
Property operating:
Affiliates 203,800 202,500
Nonaffiliates 465,600 421,500
Real estate taxes 276,800 254,400
Insurance--Affiliate 38,700 32,400
Repairs and maintenance 341,900 332,800
General and administrative:
Affiliates 31,500 22,300
Nonaffiliates 164,100 144,900
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2,147,800 2,075,900
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Net income before income from participation in
joint venture 1,398,900 1,521,400
Income from participation in joint venture 212,000 190,800
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Net income $1,610,900 $1,712,200
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Net income allocated to General Partner $ 254,700 $ 231,100
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Net income allocated to Limited Partners $1,356,200 $1,481,100
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Net income allocated to Limited Partners per Unit
(84,886 Units outstanding) $ 15.98 $ 17.45
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</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,610,900 $ 1,712,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 625,400 665,100
(Income) from participation in joint venture (212,000) (190,800)
Changes in assets and liabilities:
Decrease (increase) in rents receivable 110,400 (14,800)
(Increase) decrease in other assets (47,600) 132,100
(Decrease) in accounts payable and accrued expenses (33,500) (17,000)
Increase in due to Affiliates 4,500 28,700
(Decrease) increase in other liabilities (44,500) 100
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Net cash provided by operating activities 2,013,600 2,315,600
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Cash flows from investing activities:
Payments for capital and tenant improvements (516,000) (168,900)
(Increase) in investments in debt securities (7,311,800)
(Increase) in restricted cash (25,000)
(Funding of) loans to joint venture (32,200) (56,300)
(Contributions to) distributions received from joint
venture (2,900) 341,900
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Net cash (used for) provided by investing activities (7,887,900) 116,700
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Cash flows from financing activities:
Distributions paid to Partners (2,546,500) (2,169,300)
(Decrease) increase in security deposits (4,200) 9,200
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Net cash (used for) financing activities (2,550,700) (2,160,100)
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Net (decrease) increase in cash and cash equivalents (8,425,000) 272,200
Cash and cash equivalents at the beginning of the
period 12,268,000 12,560,400
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Cash and cash equivalents at the end of the period $ 3,843,000 $12,832,600
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and six months ended June 30, 1996 are not necessarily indicative
of the operating results for the year ending December 31, 1996.
The financial statements include the Partnership's 50% interest in four joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of each acquiring a 100% interest in certain real property and are
operated under the common control of the General Partner. Accordingly, the
Partnership's pro rata share of the ventures' revenues, expenses, assets,
liabilities and Partners' capital is included in the financial statements.
Investment in joint venture represents the recording of the Partnership's
interest, under the equity method of accounting, in a joint venture with an
Affiliated partnership. The joint venture acquired a preferred majority
interest in a joint venture with the seller of the Lansing, Michigan property.
Under the equity method of accounting, the Partnership recorded its initial
interest at cost and adjusts its investment account for its share of joint
venture income or loss and its distributions of cash flow (as defined in the
joint venture agreement).
Commercial rental properties held for investment are recorded at cost, net of
any provisions for value impairment, and depreciated (exclusive of amounts, if
any, allocated to land and value impairments) on the straight-line method over
their estimated useful lives. Upon classifying a commercial rental property as
held for disposition, no further depreciation or amortization of such property
is provided for in the financial statements. 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.
During the first quarter of 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (the "Standard"). The
Standard established guidance for determining if the value of defined assets
are impaired, and if so, how impairment losses should be measured and reported
in the financial statements. The Standard also addressed the accounting for
long-lived assets that are expected to be disposed of. The adoption of the
Standard did not have a material effect on the Partnership's financial
statements.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
Investments in debt securities are comprised of corporate debt securities and
are classified as held-to-maturity. These investments are carried at their
amortized cost basis in the financial statements. At June 30, 1996, these
securities had a fair market value of $7,301,600 and unrealized losses of
$10,200. Substantially all of these securities had maturities of less than one
year when purchased.
Certain reclassifications have been made to the previously reported 1995
statements in order to provide comparability with the 1996 statements. These
reclassifications have no effect on net income or Partners' (deficit) capital.
Reference is made to the Partnership's annual report for the year ended
December 31, 1995 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' capital and changes in cash balances for the year then
ended. The details provided in the notes thereto have not changed except as a
result of normal transactions in the interim or as otherwise disclosed herein.
2.RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, subsequent to October 19, 1984,
the Termination of the Offering, the General Partner is entitled to 10% of
distributable Cash Flow (as defined in the Partnership Agreement) as a
Partnership Management Fee. Net Profits (exclusive of Net Profits from the sale
or disposition of Partnership properties) are allocated: first, to the General
Partner, in an amount equal to the greater of the General Partner's Partnership
Management Fee or 1% of such Net Profits; second, the balance, if any, to the
Limited Partners. Net Profits from the sale or disposition of a Partnership
property are allocated: first, prior to giving effect to any distributions of
Sale Proceeds from the transaction, to the General Partner and the Limited
Partners with negative balances in their capital accounts pro rata in
proportion to such respective negative balances, to the extent of the total of
such negative balances; second, to the General Partner, in an amount necessary
to make the balance in its capital account equal to the amount of Sale Proceeds
to be distributed to the General Partner with respect to the sale or
disposition of such property and third, the balance, if any, to the Limited
Partners. Net Losses (exclusive of Net Losses from the sale, disposition or
provision for value impairment of Partnership properties) are allocated 1% to
the General Partner and 99% to the Limited Partners. Net Losses from the sale,
disposition or provision for value impairment of Partnership properties are
allocated: first, prior to giving effect to any distributions of Sale Proceeds
from the transaction, to the extent that the balance in the General Partner's
capital account exceeds its Capital Investment or the balance in the capital
accounts of
4
<PAGE>
the Limited Partners exceeds the amount of their Capital Investment (the
"Excess Balances"), to the General Partner and the Limited Partners pro rata in
proportion to such Excess Balances until such Excess Balances are reduced to
zero; second, to the General Partner and the Limited Partners and among them
(in the ratio which balances) until the balance in their capital accounts shall
be reduced to zero; third, the balance, if any, 99% to the Limited Partners and
1% to the General Partner. Notwithstanding the foregoing, in all events there
shall be allocated to the General Partner not less than 1% of Net Profits and
Net Losses from the sale, disposition or provision for value impairment of a
Partnership property. For the quarter and six months ended June 30, 1996, the
General Partner was entitled to a Partnership Management Fee, and accordingly,
allocated Net Profits, of $127,500 and $254,700, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Paid
-------------------
Quarter Six Months Payable
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $ 83,200 $169,900 $32,700
Reimbursement of property insurance premiums, at
cost 38,700 38,700
Real estate commissions (a) None None 40,300
Reimbursement of expenses, at costs
--Accounting 10,300 23,900 4,500
--Investor communications 4,700 10,800 1,900
--Legal 14,000 30,800
--Other 2,900 2,900
- -----------------------------------------------------------------------------
$153,800 $277,000 $79,400
- -----------------------------------------------------------------------------
</TABLE>
(a) As of June 30, 1996, the Partnership owed $40,300 to the General Partner
for real estate commissions earned in connection with the sales of
Partnership properties. These commissions have been accrued but not paid.
In accordance with the Partnership Agreement, the Partnership will not pay
the General Partner or any Affiliate a real estate commission from the sale
of a Partnership property until Limited Partners have received cumulative
distributions of Sale or Financing Proceeds equal to 100% of their Original
Capital Contribution, plus a cumulative return (including all Cash Flow (as
defined in the Partnership Agreement) which has been distributed to the
Limited Partners from the initial investment date) of 6% simple interest
per annum on their Capital Investment from the initial investment date.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1995 for a discussion of the Partnership's business.
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the quarters and six months ended June 30, 1996
and 1995. The discussion following the table should be read in conjunction with
the financial statements and notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative
Operating Results (a)
For the Quarters For the Six
Ended Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
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<S> <C> <C> <C> <C>
FOXHALL SQUARE BUILDING (50%)
Rental revenues $371,600 $411,300 $785,600 $836,700
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Property net income $106,700 $116,100 $251,500 $241,200
- --------------------------------------------------------
Average occupancy 83% 86% 83% 85%
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LAKEWOOD SQUARE SHOPPING CENTER (50%)
Rental revenues $327,800 $282,300 $654,400 $595,100
- --------------------------------------------------------
Property net income $155,400 $180,200 $309,400 $337,900
- --------------------------------------------------------
Average occupancy 96% 88% 96% 86%
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ELLIS BUILDING (50%)
Rental revenues $294,200 $276,100 $582,200 $564,700
- --------------------------------------------------------
Property net income $106,500 $ 76,300 $196,200 $154,200
- --------------------------------------------------------
Average occupancy 94% 96% 94% 96%
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MARKET PLACE AT RIVERGATE SHOPPING CENTER
Rental revenues $242,500 $244,000 $523,700 $484,100
- --------------------------------------------------------
Property net income $114,900 $111,800 $237,900 $237,400
- --------------------------------------------------------
Average occupancy 97% 92% 99% 92%
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BANANA RIVER SQUARE SHOPPING CENTER
Rental revenues $183,000 $180,300 $374,700 $383,300
- --------------------------------------------------------
Property net income $ 63,000 $ 62,800 $129,200 $151,400
- --------------------------------------------------------
Average occupancy 93% 96% 95% 96%
- --------------------------------------------------------
12621 FEATHERWOOD BUILDING (50%)
Rental revenues $142,200 $124,300 $269,500 $254,600
- --------------------------------------------------------
Property net income $ 64,300 $ 38,700 $113,000 $ 82,800
- --------------------------------------------------------
Average occupancy 100% 100% 100% 100%
- --------------------------------------------------------
</TABLE>
(a) The above table excludes certain income and expense items which are either
not directly related to individual property operating results such as
interest income, general and administrative expenses and income from
participation in joint venture or are related to properties previously
owned by the Partnership.
Unless otherwise disclosed, discussions of fluctuations between 1996 and 1995
refer to both the quarters and six months ended June 30, 1996 and 1995.
Net income decreased $56,000 for the quarter ended June 30, 1996 when compared
to the quarter ended June 30, 1995. The primary reasons for the decrease were:
1) decreased interest income of $90,800 as a result of a decrease in cash
available for the Partnership's short-term investments and to a lesser extent
to a decrease in rates available on such investments; 2) diminished operating
results at Lakewood Square Shopping Center ("Lakewood") and Foxhall Square
Building ("Foxhall") totaling $34,200 and 3) increased general and
administrative expense of $15,100 as a result of increased state and county
taxes, printing and mailing costs and salaries, partially offset by an decrease
in data processing fees. Partially offsetting the decrease in net income was
improved operating results at 12621 Featherwood Building ("Featherwood"), Ellis
Building ("Ellis") and Marketplace at Rivergate ("Rivergate") totaling $58,900
and an increase in net income from the Partnership's equity investment in
Holiday North and South Office Park ("Holiday") of $29,600.
Net income for the Partnership decreased $101,300 for the six month periods
under comparison. The decrease in net income was primarily the result of: 1)
decreased interest income of $122,300 due to reasons stated above: 2)
diminished operating results at Banana River Square Shopping Center ("Banana
River") and Lakewood totaling $50,700 and 3) increased general and
administrative expenses of $28,400 as a result of reasons stated above.
Partially offsetting the above decreases were improved operating results at
Foxhall, Featherwood and Ellis totaling $82,500 and an increase in the
Partnership's equity investment in the joint venture which owns Holiday of
$21,200.
Rental revenues increased $43,100 or 2.8% for the quarter ended June 30, 1996
when compared to the quarter ended June 30, 1995. The primary factors which
caused the increase in rental revenues for the quarterly periods under
comparison were: 1) increased rental revenues at Lakewood due to increases in
base rents and tenant expense reimbursements for common area maintenance as a
result of an increase in the average occupancy rate and 2) increased tenant
expense reimbursements for real estate taxes at Featherwood, Foxhall and Ellis.
Partially offsetting the above increases was decreased rental revenues at
Foxhall as a result of : 1) decreased base rents as a result of a decrease in
the average occupancy rate and 2) a decrease in revenues generated by the
parking facility.
Rental revenues increased $71,700 or 2.3% for the six months ended June 30,
1996 when compared to the six months ended June 30, 1995. The primary reasons
for the increases were: 1) increased rental revenues at Lakewood, Featherwood
and Ellis for reasons stated above and 2) increased rental revenues at
Rivergate due to an increase in base rental income as a result of an increase
in occupancy. Partially offsetting the increases were: 1) decreased rental
revenues at Foxhall for reasons previously stated and 2) decreased base rental
rates and tenant expense
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
reimbursements for real estate taxes at Banana River due to a decrease in the
average occupancy.
Real estate tax expense increased $44,500 and $22,400, respectively, for the
quarter and six months ended June 30, 1996 when compared to the quarter and six
months ended June 30, 1995. The increase in real estate tax expense for the
quarterly periods under comparison was primarily due to the receipt of refunds
in 1995 for 1993/1994 real estate taxes at Lakewood and Rivergate. Partially
offsetting the increase in real estate tax expense was decreased real estate
tax expense at Foxhall and Featherwood as a result of a decrease in the
assessed valuations of the properties.
Repairs and maintenance expense decreased $13,500 for the quarter ended June
30, 1996 when compared to the quarter ended June 30, 1995. The primary factors
which caused the decrease were: 1) a decrease in the amount of expenses
incurred in 1996 to improve the interior and exterior appearance of Rivergate
and 2) decreased repairs and maintenance expense at Featherwood as a result of
a decrease in repairs to the HVAC system.
Repairs and maintenance increased $9,100 for the six months ended June 30, 1996
when compared to the six months ended June 30, 1995. The primary reason for the
increase was increased architectural costs at Lakewood. Partially offsetting
the increase was decreased repairs and maintenance expense at Featherwood as a
result of the reason stated above and decreased janitorial and cleaning costs
at Foxhall.
Property operating expenses increased $45,400 for the six months ended June 30,
1996 when compared to the six months ended June 30,1995. The primary factors
which caused the increase were: 1) increased leasing fees resulting from an
increase in rental revenues at Rivergate; 2) increased professional fees at
Banana River and Rivergate and 3) increased security expense at Lakewood and
Featherwood. Partially offsetting the above increases were decreased utilities
at Ellis and decreased property management fees at Foxhall. For the quarterly
periods under comparison property operating expenses remained relatively
stable.
Depreciation and amortization decreased $15,300 and $39,700, respectively for
the quarterly and six-month periods under comparison. The decreases were
primarily due to the effects of the provisions for value impairment recorded
for all of the Partnership properties, excluding Lakewood, during the year
ended December 31, 1995.
The Partnership's share of net income from Holiday increased $29,600 and
$21,200, respectively for the quarterly and six-month periods under comparison
as a result of increased rental revenues and decreased property operating
expense. Partially offsetting these increases were increased repairs and
maintenance and an increase in taxes paid.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenants and addressing any
expansion needs these tenants may have; 3) promotion of local broker events and
networking with local brokers; 4) networking with national level retailers; 5)
cold-calling other businesses and tenants in the market area; and 6) providing
rental concessions or competitively pricing rental rates depending on market
conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
properties. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions are treated as
a return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as defined by generally
accepted accounting principles ("GAAP"), since certain items are treated
differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows,
as defined by GAAP. The following table includes a reconciliation of Cash Flow
(as defined in the Partnership Agreement) to cash flow provided by operating
activities as defined by GAAP. Such amounts are not indicative of actual
distributions to Partners and should not necessarily be considered as an
alternative to the results disclosed in the Statements of Income and Expenses
and Statements of Cash Flows.
<TABLE>
<CAPTION>
Comparative Cash Flow
Results For the Six
Months Ended
6/30/96 6/30/95
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 2,323,600 $ 2,356,500
Less: Cash Flow from joint venture (299,300) (170,000)
Items of reconciliation:
Decrease in current assets 62,800 117,300
(Decrease) increase in current liabilities (73,300) 11,800
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 2,013,600 $ 2,315,600
- -------------------------------------------------------------------------------
Net cash (used for) provided by investing activities $(7,887,900) $ 116,700
- -------------------------------------------------------------------------------
Net cash (used for) financing activities $(2,550,700) $(2,160,100)
- -------------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $32,900
for the six months ended June 30, 1996 when compared to six months ended June
30, 1995 was primarily due to diminished operating results at Banana River,
Lakewood and Foxhall, exclusive of depreciation and amortization, decreased
interest income and increased general and administrative expenses, as
previously discussed. Partially offsetting the decrease was improved operating
results, exclusive of depreciation and amortization, at Ellis, Featherwood and
Rivergate.
The decrease in the Partnership's cash position of $8,425,000 as of June 30,
1996 when compared to December 31, 1995 was primarily the result of the
investments in debt securities, payments made for capital, tenant improvement
and leasing costs and distributions paid to partners exceeding net cash
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
provided by operating activities. Liquid assets (including cash, cash
equivalents and investment in debt securities) as of June 30, 1996 were
comprised of amounts held for working capital purposes.
The decrease of $302,000 in net cash provided by operating activities for the
six months ended June 30, 1996 when compared to the six months ended June 30,
1995 was primarily due to the decrease in net income, previously discussed,
partially offset by the timing of the collection of tenant's rental payments.
Net cash provided by (used for) investing activities changed from $116,700 for
the six months ended June 30, 1995 to $(7,887,900) for the six months ended
June 30, 1996 primarily due to the increase in investments in debt securities,
increased payments made for capital, tenant improvement and leasing costs at
the Partnership's properties and the timing of distributions received from the
Partnership's equity investment in joint venture. The increase in investments
in debt securities is a result of the extension of the maturities of certain of
the Partnership's short-term investments in an effort to maximize the return on
these amounts as they are held for working capital purposes. These investments
are of investment-grade and generally mature less than one year from their date
of purchase. The Partnership maintains working capital reserves to pay for
capital expenditures such as capital, tenant improvement and leasing costs.
During the six months ended June 30, 1996, the Partnership spent $516,000 for
capital, tenant improvement and leasing costs and has projected to spend
approximately $500,000 during the remainder of 1996. Of the projected amount,
$220,000, $150,000, $70,000, $45,000 and $15,000, relates to anticipated
capital, tenant improvement and leasing costs expected to be incurred at
Foxhall, Lakewood, Ellis, Banana River and Rivergate, respectively. In
addition, approximately $270,000 is projected at Holiday for capital, tenant
improvement and leasing costs, some of which may be advanced by the
Partnership. Actual amounts expended in 1996 may vary depending on a number of
factors including leasing activity and other market conditions throughout the
year. The General Partner believes these expenditures are necessary to increase
and/or maintain occupancy levels in very competitive markets, maximize rental
rates charged to new and renewing tenants and prepare the remaining properties
for eventual disposition.
The increase of $390,600 in net cash used for financing activities for the six
months ended June 30, 1996 when compared to the six months ended June 30, 1995
was due primarily to an increase in distributions paid to Partners in 1996.
The General Partner continues to take a conservative approach to projections of
future rental income in its determination of adequate levels of cash reserves
due to the anticipated capital, tenant improvement and leasing costs necessary
to be made at the Partnership's properties during the next several years. For
the six months ended June 30, 1996, the Partnership included $223,000 of
previously undistributed Cash Flow (as defined in the Partnership Agreement) in
its distributions to Partners.
Distributions to Limited Partners for the six months ended June 30, 1996 were
declared in the amount of $1,145,900, or $13.50 per Unit. Cash distributions
are made 60 days after the last day of each fiscal quarter. The amount of
future distributions to Partners will ultimately be dependent upon the
performance of the Partnership's investments as well as the General Partner's
determination of the amount of cash necessary to supplement working capital
reserves to meet future liquidity requirements of the Partnership. Accordingly,
there can be no assurance as to the amounts and/or availability of cash for
future distributions to Partners.
As a result of the performance of the Partnership's remaining properties, the
General Partner has determined that Sales Proceeds previously reserved for
working capital purposes can be distributed to the Limited Partners.
Accordingly, the Partnership has declared a special distribution in the amount
of $5,008,300, or $59.00, per Unit, to Limited Partners of record as of October
1, 1996. This special distribution will be included with the third quarter
distribution to Limited Partners on November 30, 1996.
8
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
- ------- ---------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter
ended June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 2
By: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: August 14, 1996 By: /s/ DOUGLAS CROCKER II
--------------- -----------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 14, 1996 By: /s/ NORMAN M. FIELD
--------------- -----------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,893,000
<SECURITIES> 7,311,800
<RECEIVABLES> 59,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,264,200
<PP&E> 45,974,900
<DEPRECIATION> 13,181,600
<TOTAL-ASSETS> 49,789,800
<CURRENT-LIABILITIES> 6,910,300
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 42,771,500
<TOTAL-LIABILITY-AND-EQUITY> 49,789,800
<SALES> 0
<TOTAL-REVENUES> 3,546,700
<CGS> 0
<TOTAL-COSTS> 1,326,800
<OTHER-EXPENSES> 195,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,610,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,610,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,610,900
<EPS-PRIMARY> 15.98
<EPS-DILUTED> 15.98
</TABLE>
