<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, 1996
-------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- ---------------------
Commission File Number 0-12945
----------------------------------------------------
First Capital Institutional Real Estate, Ltd. - 2
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Florida 59-2313852
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1100, Chicago, Illinois 60606-2607
- -------------------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 207-0020
-------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
-------------------------
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units
-------------------------
</TABLE>
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. [ x ]
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated October 19, 1983,
included in the Registrant's Registration Statement on Form S-11 (Registration
No. 2-86361), is incorporated herein by reference in Part IV of this report.
Exhibit Index - Page A-1
- ------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
The registrant, First Capital Institutional Real Estate, Ltd.- 2 (the
"Partnership"), is a limited partnership organized in 1983 under the Florida
Uniform Limited Partnership Law. The Partnership sold 84,886 Limited
Partnership Units (the "Units") to the public from November 1983 to October
1984, pursuant to a Registration Statement on Form S-11 filed with the
Securities and Exchange Commission (Registration Statement No. 2-86361).
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement.
The business of the Partnership is to invest primarily in existing, improved,
income-producing real estate, such as shopping centers, warehouses and office
buildings, and, to a lesser extent, in other types of income-producing real
estate. From May 1984 to May 1986, the Partnership made seven real property
investments and purchased 50% interests in four joint ventures which were each
formed with an Affiliated partnership for the purpose of acquiring a 100%
interest in certain real property. In addition, in January 1987 the Partnership
formed a joint venture with an Affiliated partnership (the "Joint Venture"), in
which they are each 50% partners. The Joint Venture was formed for the purpose
of entering into a limited partnership agreement with an unaffiliated third
party to which the Joint Venture contributed 75% of the total purchase price of
a property in order to obtain a preferred majority interest in the limited
partnership. All of the Partnership's joint ventures are operated under the
common control of First Capital Financial Corporation (the "General Partner").
Through December 31, 1996, the Partnership has sold five real property
investments.
Property management services for one of the Partnership's real estate
investments is provided by an independent real estate management company for
fees calculated as a percentage of gross rents received from the property.
Affiliates of the General Partner provide property management and supervisory
services for fees calculated as a percentage of gross rents received from the
remaining six Partnership properties.
The real estate business is highly competitive. The results of operations of
the Partnership will depend upon the availability of suitable tenants, real
estate market conditions and general economic conditions which may impact the
success of these tenants. Properties owned by the Partnership frequently
compete for tenants with similar properties owned by others.
As of March 1, 1997, there were 14 employees at the Partnership's properties for
on-site property maintenance and administration.
2
<PAGE>
ITEM 2. PROPERTIES (a)(b)
- ------- -----------------
As of December 31, 1996, the Partnership owned, directly or through a joint
venture, the following seven property interests, all of which were owned in fee
simple.
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- --------------------------------------- ------------------- ------------ -----------
Shopping Centers:
- -----------------
<S> <C> <C> <C>
Lakewood Square (50%) Lakewood, California 150,711 32 (1)
Market Place at Rivergate Nashville, Tennessee 104,411 14 (2)
Banana River Square Cocoa Beach, Florida 81,433 20 (2)
Office Buildings:
- -----------------
Foxhall Square Building (50%) Washington D.C. 141,902 66
Ellis Building (50%) Sarasota, Florida 130,189 31 (2)
12621 Featherwood Building (50%) Houston, Texas 88,811 (d)
Holiday Office Park North and South (e) Lansing, Michigan 398,228 78 (1)
</TABLE>
a) For a discussion of significant operating results and major capital
expenditures planned for the Partnership's properties refer to Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
b) For Federal income tax purposes, the Partnership depreciates the portion of
the acquisition costs of its properties allocable to real property
(exclusive of land) and all improvements thereafter, over useful lives
ranging from 18 years utilizing Accelerated Cost Recovery System to 40 years
utilizing the straight-line method. The Partnership's portion of real estate
taxes for Holiday Office Park North and South ("Holiday"), Foxhall Square
Building ("Foxhall"), Lakewood Square Shopping Center ("Lakewood"), Banana
River Square Shopping Center ("Banana River"), Ellis Building ("Ellis"),
Market Place at Rivergate Shopping Center ("Rivergate"), the Partnership's
most significant properties, was $189,400, $162,500, $103,200, $82,900,
$80,000 and $50,900, 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) Sole tenant vacated building on December 14, 1996.
e) The Partnership owns a 50% interest in a joint venture which owns a 75%
preferred majority interest in this property.
3
<PAGE>
ITEM 2. PROPERTIES (continued)
The following table presents each of the Partnership's most significant
properties' occupancy rates as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
Property Name 1996 1995 1994 1993 1992
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Lakewood 95% 96% 84% 86% 94%
Rivergate 94% 100% 88% 82% 62%
Banana River 94% 97% 93% 95% 93%
Holiday 85% 82% 73% 84% 76%
Foxhall 89% 83% 88% 85% 82%
Ellis 97% 93% 95% 86% 96%
</TABLE>
The amounts in the following table represent each of the Partnership's most
significant properties' average annual rental rate per square foot for each of
the last five years ended December 31 which were computed by dividing each
property's base rental revenues by its average occupied square footage:
<TABLE>
<CAPTION>
Property Name 1996 1995 1994 1993 1992
- --------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Lakewood $14.09 $13.67 $14.56 $14.17 $15.15
Rivergate $ 8.42 $ 7.96 $ 7.39 $ 6.86 $ 6.25
Banana River $ 8.09 $ 7.64 $ 7.26 $ 6.80 $ 7.51
Holiday $ 9.09 $ 8.86 $ 9.32 $ 8.57 $ 8.36
Foxhall $22.80 $22.99 $22.64 $21.94 $21.94
Ellis $13.96 $13.79 $13.32 $13.08 $12.57
</TABLE>
4
<PAGE>
ITEM 2. PROPERTIES (continued)
The following table summarizes the principal provisions of the leases for the
tenants which occupy ten percent or more of the rentable square footage at each
of the Partnership's most significant properties. No individual tenant at
Foxhall, one of the significant properties, occupies ten percent or more of the
rentable square footage.
<TABLE>
<CAPTION>
Partnership's Share of per annum
Base Rents (a) for Percentage of Net
--------------------------------------- Leasable Renewal Options
Final Twelve Expiration Date of Square Footage (Renewal Options
1997 Months of Lease Lease Occupied / Years)
-------------- ------------------ -------------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Lakewood
- --------
Cost Plus
(specialty store) $ 123,500 $ 123,500 10/28/07 13% 2/10
Rivergate
- ---------
Marshalls
(department store) $ 188,500 $ 188,500 1/31/00 25% 2/5
Office Max
(office supply store) $ 141,000 $ 141,000 1/31/04 23% 3/5
Banana River
- ------------
Eckerd Drugs
(drugstore) $ 64,800 $ 64,800 3/12/03 13% 4/5
Publix
(drugstore) $ 203,200 $ 203,200 6/30/03 45% 4/5
Holiday
- -------
Michigan Public Service
Commission
(state government
administration) $ 373,700 $ 373,700 8/31/00 18% None
Ellis
- -----
NationsBank
(bank) $ 407,300 $ 408,800 3/09/01 43% 4/5
University Club
(restaurant/banquet
facility) $ 50,300 $ 50,300 4/28/01 10% None
</TABLE>
a) The Partnership's share of per annum base rents for each of the tenants
listed above for the years between 1997 and the final twelve months of
each of the above leases is no lesser or greater than the amounts listed
in the above table.
5
<PAGE>
ITEM 2. PROPERTIES (continued)
- ------- ----------
The amounts in the following table represent the Partnership's portion of income
from leases in the year of expiration (assuming no lease renewals) for the
Partnership's most significant properties through the year ending December 31,
2006:
<TABLE>
<CAPTION>
Base Rents in % of Total
Number Year of Base Rents
Year of Tenants Square Feet Expiration (a) (b)
- ---- ------------ ------------- -------------- ----------
<S> <C> <C> <C> <C>
1997 42 69,817 $329,000 5.33%
1998 53 120,124 $482,700 8.78%
1999 39 92,144 $427,100 9.09%
2000 22 166,349 $600,100 15.48%
2001 34 173,156 $317,600 13.24%
2002 10 42,541 $222,600 11.10%
2003 15 73,211 $297,600 19.63%
2004 3 36,933 $ 95,600 9.24%
2005 7 38,364 $250,000 31.90%
2006 7 30,372 $229,600 53.24%
</TABLE>
a) Represents the Partnership's portion of base rents to be collected each
year on expiring leases.
a) Represents the Partnership's portion of base rents to be collected each
year on expiring leases as a percentage of the Partnership's portion of
the total base rents to be collected on leases existing as of December
31, 1996.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
(a & b) The Partnership and its properties were not a party to, nor the subject
of, any material pending legal proceedings, nor were any such proceedings
terminated during the quarter ended December 31, 1996. Ordinary routine
litigation incidental to the business which is not deemed material was pursued
during the quarter ended December 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
(a,b,c & d) None.
6
<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 units.
As of March 1, 1997, there were 13,221 Holders of Units.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 7,003,700 $ 7,054,400 $ 6,715,900 $ 7,725,700 $ 6,768,700
Net income (loss) $ 3,203,200 $ 1,797,300 $(1,017,200) $ 3,222,100 $ (439,300)
Net income (loss)
allocated to Limited
Partners $ 2,778,800 $ 1,326,300 $(1,324,200) $ 3,025,800 $ (738,200)
Net income (loss)
allocated to Limited
Partners per Unit
(84,886 Units
outstanding) $ 32.74 $ 15.62 $ (15.60) $ 35.65 $ (8.70)
Total assets $44,166,200 $50,803,100 $53,442,100 $57,394,300 $56,366,300
Distributions to Limited
Partners per Unit
(84,886 Units
outstanding) (b) $ 104.00 $ 51.00 $ 35.50 $ 21.20 $ 35.00
Return of capital to
Limited Partners per
Unit (84,886 Units
outstanding)(a) $ 71.26 $ 35.38 $ 35.50 None $ 35.00
OTHER DATA:
Investment in:
Commercial rental
properties (net of
accumulated
depreciation and
amortization) $32,480,000 $32,902,700 $34,620,300 $40,639,300 $42,321,900
Real estate joint
venture $ 4,937,100 $ 4,620,200 $ 5,234,600 $ 6,022,300 $ 6,401,700
Number of real property
interests owned at
December 31 7 7 7 8 9
- ---------------------------------------------------------------------------------------
</TABLE>
(a) For the purposes of this table, return of capital represents either: 1) the
amount by which distributions, if any, exceed net income for the respective
year or 2) total distributions, if any, when the Partnership incurs a net
loss for the respective year. Pursuant to the Partnership Agreement,
Capital Investment is only reduced by distributions of Sale Proceeds.
Accordingly, return of capital as used in the above table does not impact
Capital Investment.
(b) Distributions to Limited Partners per Unit for the year ended December 31,
1996 included Sales Proceeds of $59.00.
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flow (as defined in
the Partnership
Agreement) (a) $ 4,657,000 $ 4,742,800 $ 4,118,700 $ 5,360,100 $ 4,266,900
Items of reconciliation:
(Cash Flow) from joint
venture (574,700) (490,900) (493,100) (471,800) (269,400)
Changes in current
assets and
liabilities:
Decrease (increase) in
current assets 23,900 74,100 138,700 (43,700) 76,800
(Decrease) increase in
current liabilities (164,600) 118,200 (118,500) 117,200 51,500
- ------------------------------------------------------------------------------------------
Net cash provided by
operating activities $ 3,941,600 $ 4,444,200 $ 3,645,800 $ 4,961,800 $ 4,125,800
- ------------------------------------------------------------------------------------------
Net cash (used for)
provided by investing
activities $(1,960,700) $ (182,100) $ 2,228,700 $ 168,600 $ 401,300
- ------------------------------------------------------------------------------------------
Net cash (used for)
financing activities $(9,675,500) $(4,554,500) $(2,816,500) $(2,311,300) $(3,313,800)
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Cash Flow is defined in the Partnership Agreement as Partnership revenues
earned from operations (excluding tenant deposits and proceeds from the
sale or disposition of any Partnership properties), minus all expenses
incurred (including Operating Expenses and any reserves of revenues from
operations deemed reasonably necessary by the General Partner), except
depreciation and amortization expenses and capital expenditures, lease
acquisition expenditures and the General Partner's Partnership Management
Fee.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing on pages A-1 through A-7
in this report and the supplemental schedule on pages A-8 and A-9.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through three
phases: (i) Offering of Units and investment in properties, (ii) operation of
properties and (iii) sale or other disposition of properties.
The Partnership commenced the Offering of Units on November 10, 1983 and began
operations on December 5, 1983, after achieving the required minimum
subscription level. On October 15, 1984, the Offering was terminated upon the
sale of 84,886 Units. From May 1984 to January 1987, the Partnership made seven
real property investments and purchased 50% interests in four joint ventures
which were each formed with an Affiliated partnership for the purpose of
acquiring a 100% interest in certain real property. In addition, in January
1987 the Partnership formed a joint venture with an Affiliated partnership (the
"Joint Venture"), in which they are each 50% partners. The Joint Venture was
formed for the purpose of entering into a limited partnership agreement with an
unaffiliated third party to which the Joint Venture contributed 75% of the
total purchase price of a property in order to obtain a preferred majority
interest in the limited partnership. All of the Partnership's joint ventures
are operated under the common control of First Capital Financial Corporation
(the "General Partner").
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
1991 the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle. During the disposition
phase of the Partnership's life cycle, comparisons of operating results are
complicated due to the timing and effect of property sales. Partnership
operating results are generally expected to decline as real property interests
are sold since the Partnership no longer receives income generated from such
real property interests. Through December 31, 1996, the Partnership has sold
five real property investments.
As disclosed in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995, the lease for the tenant occupying 100% of the net leasable
area of 12621 Featherwood Building ("Featherwood") expired in December 1996.
Upon expiration of the lease, the tenant has vacated the property. The General
Partner is evaluating alternatives for the property, including costs associated
with converting the property into a multi-tenant building or the possible sale
of the property.
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of each of the Partnership's properties for the years ended December
31, 1996, 1995 and 1994. The discussion following the table should be read in
conjunction with the Financial Statements and Notes thereto appearing in this
report.
<TABLE>
<CAPTION>
Comparative Operating Results
(a)
For the Years Ended December 31,
--------------------------------
1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
FOXHALL SQUARE BUILDING (50%)
Rental revenues $1,576,900 $1,643,500 $1,634,200
- ---------------------------------------------------------
Property net income (b) $ 455,700 $ 483,800 $ 449,400
- ---------------------------------------------------------
Average occupancy 85% 85% 86%
- ---------------------------------------------------------
LAKEWOOD SQUARE SHOPPING CENTER (50%)
Rental revenues $1,297,700 $1,170,100 $1,168,900
- ---------------------------------------------------------
Property net income $ 641,100 $ 602,500 $ 496,600
- ---------------------------------------------------------
Average occupancy 96% 91% 84%
- ---------------------------------------------------------
ELLIS BUILDING (50%)
Rental revenues $1,182,700 $1,121,400 $1,118,300
- ---------------------------------------------------------
Property net income (b) $ 373,600 $ 289,400 $ 324,900
- ---------------------------------------------------------
Average occupancy 95% 93% 94%
- ---------------------------------------------------------
MARKET PLACE AT RIVERGATE SHOPPING CENTER
Rental revenues $1,018,900 $ 956,000 $ 835,200
- ---------------------------------------------------------
Property net income $ 495,200 $ 464,600 $ 322,600
- ---------------------------------------------------------
Average occupancy 96% 94% 87%
- ---------------------------------------------------------
BANANA RIVER SQUARE SHOPPING CENTER
Rental revenues $ 760,300 $ 779,500 $ 691,400
- ---------------------------------------------------------
Property net income $ 309,600 $ 320,800 $ 236,100
- ---------------------------------------------------------
Average occupancy 94% 96% 94%
- ---------------------------------------------------------
12621 FEATHERWOOD BUILDING (50%)
Rental revenues $ 506,000 $ 498,700 $ 456,600
- ---------------------------------------------------------
Property net income (b) $ 197,300 $ 154,400 $ 94,800
- ---------------------------------------------------------
Average occupancy (c) (c) 100% 100%
- ---------------------------------------------------------
HOLIDAY OFFICE PARK NORTH AND SOUTH (50%)
Rental revenues $1,585,300 $1,410,400 $1,464,300
- ---------------------------------------------------------
Property net income (b) $ 383,300 $ 279,000 $ 202,600
- ---------------------------------------------------------
Average occupancy (c) 84% 79% 79%
- ---------------------------------------------------------
NORWEST PLAZA (d)
Rental revenues $ 272,400
- ---------------------------------------------------------
Property net income $ 67,200
- ---------------------------------------------------------
Average occupancy 94%
- ---------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income
and general and administrative expenses or are related to properties
previously owned by the Partnership. The Partnership's share of results
from its participation in a joint venture, treated on the equity method, is
included above.
(b) Property net income excludes losses from provisions for value impairment
which are included in the Statement of Income and Expenses. For additional
information see Note 7 of Notes to the Financial Statements.
(c) Property has been vacant since December 14, 1996. Prior to that it was 100%
occupied by a single tenant.
(d) Norwest Plaza ("Norwest"), formerly known as the United Bank of Arizona,
was sold on June 8, 1994. Property net income excludes the (loss) on the
sale of
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
the property of $(1,276,600) which was included in the Statement of Income
and Expenses for the year ended December 31, 1994. For additional
information regarding this transaction see Note 6 of Notes to Financial
Statements.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995
Net income increased by $1,405,900 for the year ended December 31, 1996 when
compared to the year ended December 31, 1995. The increase was primarily the
result of
provisions for value impairment totaling $1,400,000 recorded during 1995.
Included in the total is the Partnership's share of the provision for value
impairment recorded at Holiday Office Park North and South ("Holiday") of
$400,000, which is accounted for on the equity method by the Partnership. Net
income exclusive of the provisions for value impairment remained relatively
unchanged for the years under comparison. The Partnership experienced improved
operating results at Lakewood Square Shopping Center ("Lakewood"), Ellis
Building ("Ellis"), 12621 Featherwood Building ("Featherwood") and Marketplace
at Rivergate Shopping Center ("Rivergate"). Offsetting this was a decrease in
interest income which was the result of a decrease in rates and cash available
for short-term investment, slightly diminished operating results at Banana
River Square Shopping Center ("Banana River") and Foxhall Square Building
("Foxhall") and an increase in general and administrative expenses resulting
from the settlement of a state of Florida intangible tax audit.
Rental revenues increased by $173,300 or 2.8% for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The primary factors
which caused the increases were: 1) increased tenant real estate tax expense
reimbursements at Ellis, Featherwood and Lakewood; 2) increased base rent at
Lakewood and Rivergate as a result of increases in the average rental and
occupancy rates and 3) increased common area maintenance reimbursements at
Lakewood. Partially offsetting the increase was decreased tenant real estate
tax expense reimbursements at Foxhall and Banana River along with a decrease in
percentage rental income at Foxhall.
Depreciation and amortization expense decreased by $71,100 for the year ended
December 31, 1996 when compared to the year ended December 31, 1995. The
decrease was primarily due to the effects of provisions for value impairment
recorded on the Partnerships properties during the year ended December 31,
1995.
Repairs and maintenance expense decreased by $46,300 for the year ended
December 31, 1996 when compared to the year ended December 31, 1995. The
decrease was primarily the result of the decrease in repairs to the HVAC system
at Featherwood and roof at Rivergate along with a decrease in expenditures for
supplies at Banana River.
Property operating expenses increased by $113,300 for the year ended December
31, 1996 when compared to the year ended December 31, 1995. The increase was
primarily the result of increases in salaries and utilities at Foxhall,
security at Lakewood and management fees at Rivergate. The increase in
management fee expense is the result of the portion of management fees that are
capitalizable and amortizable as leasing costs being less during 1996 than
1995.
Real estate tax and insurance expense remained relatively unchanged for the
years under comparison.
The Partnership's share of net income, exclusive of the provision for value
impairment of $400,000 recorded during 1995, from Holiday increased by $104,300
for the years
under comparison. The increase was primarily the result of increased rental
revenues due to an increase in average occupancy and rental rates. The increase
was partially offset by increased property operating and repair and maintenance
expenses which were primarily the result of an increase in stormwater fees and
electricity costs, along with an increase in snow removal costs due to an
increase in snowfall in 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net results improved by $2,814,500 for the year ended December 31, 1995 when
compared to the year ended December 31, 1994. The effects of the sale of a
Partnership property together with the provisions for value impairment reported
for the years ended December 31, 1995 and 1994 had a significant impact on the
comparison of net income (loss). The Partnership reported provisions for value
impairment in the amount of $1,400,000 and $2,172,400 for the years ended
December 31, 1995 and 1994, respectively, which includes the Partnership's
share of such provisions for Holiday. Also impacting the change in net results
was the 1994 sale of Norwest. The 1994 operating results of Norwest, including
the (loss) on sale, amounted to $(1,209,400).
Net income, exclusive of the provisions for value impairment and the effects of
the operating results and (loss) on sale of Norwest, increased by $826,400 for
the year ended December 31, 1995 when compared to the year ended December 31,
1994. The primary reasons for the increase in net income were: 1) improved
operating results at Foxhall, Lakewood, Banana River, Rivergate and
Featherwood; 2) increased interest income resulting from an increase in rates
available on the Partnership's short-term investments; 3) improved results from
the Partnership's equity investment in Holiday and 4) decreased general and
administrative expenses primarily due to a decrease in data processing costs.
Partially offsetting the increase in net income for the years under comparison
was decreased operating results at Ellis.
For purposes of the following discussion, the operating results of Norwest have
been excluded.
Rental revenues increased by $264,600 or 4.5% for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The primary factors
which contributed to the increase in rental revenues were: 1) increased base
rental income at Rivergate due to an increase in the average occupancy rate; 2)
increased base rental income and tenant expense reimbursements for common area
costs and real estate taxes at Banana River resulting from an increase in the
average occupancy rate; 3) increased base rental rates and tenant expense
reimbursements for real estate tax escalations and common area costs at
Featherwood and 4) increased base rental income, due to an increase in rental
rates, and tenant expense reimbursements at Foxhall.
Real estate tax expense decreased by $69,400 for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The decrease was
primarily due to the receipt of partial refunds in 1995 of 1993/1994 real
estate
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
taxes for Lakewood and Rivergate and a decrease in the assessed value for real
estate tax purposes for Featherwood. Partially offsetting the decrease was an
increase in expense at Foxhall. Although the assessed value at Foxhall has
decreased and the actual taxes paid in 1995 were lower than in 1994, real
estate tax expense was higher in 1995 due to
the fact that 1994 included a partial refund of real estate taxes for the
1992/1993 tax year.
Property operating expenses decreased by $82,600 for the year ended December
31, 1995 when compared to the year ended December 31, 1994. The primary factors
which caused the decrease were: 1) decreased professional fees at Rivergate; 2)
decreased utilities at Foxhall and Featherwood and 3) decreased management fees
at Lakewood, Rivergate and Foxhall. The decrease in management fee expense is
the result of the portion of management fees that are capitalizable and
amortizable as leasing costs being greater during 1995 than 1994. Partially
offsetting the decrease in property operating expenses was increased security
costs at Lakewood and Featherwood and increased management fees at Ellis, which
was the result of a decrease in 1995 in leasing related costs paid to outside
brokers.
Repairs and maintenance expense increased by $65,400 for the year ended
December 31, 1995 when compared to the year ended December 31, 1994. The
primary factors which caused the increase for the comparable periods were: 1)
increased supplies and minor roof and plumbing repairs at Banana River; 2)
increased cleaning supplies and uniforms at Ellis; 3) increased repairs and
maintenance associated with patching and resurfacing and striping of the
parking lots at Lakewood and Rivergate and 4) increased repairs and maintenance
expense at Featherwood resulting from an increase in minor repairs required to
maintain the HVAC system.
Exclusive of the provisions for value impairment, the Partnership's equity
interest in the net income at Holiday increased $76,400 for the year ended
December 31, 1995 when compared to the year ended December 31, 1994. The
increase in net income was primarily the result of decreased repairs and
maintenance, real estate taxes and insurance expense. Partially offsetting the
increase in net income was decreased rental revenues.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenants and addressing any
expansion needs these tenants may have; 3) promotion of local broker events and
networking with local brokers; 4) networking with national level retailers; 5)
cold-calling other businesses and tenants in the market area; and 6) providing
rental concessions or competitively pricing rental rates depending on market
conditions.
The rate of inflation has remained relatively stable during the years under
comparison and has had a minimal impact on the operating results of the
Partnership. The nature of various tenants' lease clauses protects the
Partnership, to some extent, from increases in the rate of inflation. Certain
of the lease clauses provide for the following: 1) annual rent increases based
on the Consumer Price Index or graduated rental increases, 2) percentage
rentals at shopping centers,
for which the Partnership receives as additional rent, a percentage of a
tenant's sales over predetermined 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
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 existing
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. Cash Flow (as defined in
the Partnership Agreement) is generally not equal to Partnership net income or
cash flow as determined by GAAP, since certain items are treated differently
under the Partnership Agreement than under GAAP. The General Partner believes
that to facilitate a clear understanding of the Partnership's operations, an
analysis of Cash Flow (as defined in the Partnership Agreement) should be
examined in conjunction with an analysis of net income or cash flow as
determined by GAAP. The second table in Selected Financial Data includes a
reconciliation of Cash Flow (as defined in the Partnership Agreement) to cash
flow provided by operating activities as determined by GAAP. Such amounts are
not indicative of actual distributions to Partners and should not necessarily
be considered as an alternative to the results disclosed in the Statements of
Income and Expenses and Statements of Cash Flows.
Cash Flow (as defined in the Partnership Agreement) for the year ended December
31, 1996 was $4,657,000, a decrease of $85,800 when compared to the year ended
December 31, 1995. This decrease is predominately the result of diminished
interest income partially offset by improved operating results, exclusive of
depreciation, amortization and provisions for value impairment, at the
Partnership's properties.
The decrease in the Partnership's cash position of $7,694,600 as of December
31, 1996 when compared to December 31, 1995 was primarily the result of the
special distribution of Sales Proceeds to Limited Partners on November 30,
1996, as further discussed below. In addition, regular distributions to
Partners, investments in debt securities and expenditures for capital and
tenant improvements and leasing costs exceeded net cash provided by operating
activities. Liquid assets (including cash, cash equivalents and investments in
debt securities) of the Partnership as of December 31, 1996 were comprised of
amounts held for working capital purposes. In addition, the Partnership's
undistributed share of cash and cash equivalents at Holiday approximated
$419,000 as of December 31, 1996.
Net cash provided by operating activities continues to be a primary source of
funds to the Partnership. The decrease of $502,600 in net cash provided by
operating activities for the year ended December 31, 1996 when compared to the
year ended December 31, 1995 was primarily due to the receipt of a rebate in
1995 for the replacement of the air conditioner at Foxhall along with the
decrease in net income, exclusive of depreciation, amortization and provisions
for value impairment, as previously discussed, and the timing of the collection
of certain assets and the payment of certain expenses at Foxhall.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
The increase of $1,778,600 in net cash used for investing activities for the
year ended December 31, 1996 when compared to the year ended December 31, 1995
was primarily due to an increase in investments in debt securities along with a
decrease in distributions received from the
Partnership's equity investment in Holiday. 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 while 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 and tenant improvements and
leasing costs. During the year ended December 31, 1996, the Partnership spent
$839,700 at its consolidated properties for capital and tenant improvements and
leasing costs and has budgeted to spend approximately $825,000 during 1997.
Included in the 1997 budgeted amount are capital and tenant improvements and
leasing costs of approximately $325,000, $200,000 and $175,000, at Foxhall,
Banana River and Ellis, respectively. In addition, the Partnership's share of
amounts spent for building and tenant improvements and leasing costs at Holiday
during 1996 amounted to $448,900. The Partnership's share of amounts budgeted
to be spent at Holiday in 1997 is approximately $225,000. Actual amounts
expended 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 $5,121,000 in net cash used for financing activities for the
year ended December 31, 1996 when compared to the year ended December 31, 1995
was primarily due to the special distribution of Sales Proceeds to Limited
Partners on November 30, 1996. As a result of the performance of the
Partnership's remaining properties, the General Partner determined that Sales
Proceeds previously reserved for working capital purposes could be distributed
to the Limited Partners. Accordingly, the Partnership declared and paid this
special distribution in the amount of $5,008,300, or $59.00 per Unit, on
November 30, 1996 to Limited Partners of record as of October 1, 1996.
On December 14, 1996, the sole tenant occupying Featherwood vacated the
premises upon the expiration of their lease. The General Partner is evaluating
options, including marketing the property for sale and retenanting the building
which is projected to cost the Partnership as much as $600,000 if the building
is converted from single tenant to multi-tenant use.
In December 1996, the General Partner became aware of the existence of
hazardous substances in the ground under Lakewood. The source of the hazardous
substances is believed to emanate from a tenant operating a dry cleaning
business at Lakewood. The Partnership and its Affiliated partner in the joint
venture which owns Lakewood are currently utilizing consultants to evaluate the
matter and propose courses of action. The effects on the Partnership cannot be
determined at this time as the costs associated with this matter are not
presently determinable.
The General Partner continues to take a conservative approach to projections of
future rental income and to maintain higher levels of cash reserves due to the
anticipated capital and tenant improvements and leasing costs necessary to be
made at the Partnership's properties during the next several years. As a
result, cash continues to be retained to
supplement working capital reserves. Cash Flow (as defined in the Partnership
Agreement) retained to supplement working capital reserves for the year ended
December 31, 1996 amounted to $412,800.
Distributions to Limited Partners for the quarter ended December 31, 1996 were
declared in the amount of $764,000, or $9.00 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. The amount of future
distributions to Partners will ultimately be dependent upon the performance of
the Partnership's investments as well as the General Partner's determination of
the amount of cash necessary to supplement working capital reserves to meet
future liquidity requirements of the Partnership. Accordingly, there can be no
assurance as to the amounts of cash for future distributions to Partners.
12
<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, Schedule and Exhibits."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
13
<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 28,
1997, are shown in the table below. Directors serve for one year or until
their successors are elected. The next annual meeting of FCFC will be held
in June 1997.
Name Office
---- ------
Samuel Zell.................................Chairman of the Board
Douglas Crocker II..........................Director
Sheli Z. Rosenberg..........................Director
Samuel Zell, 55, has been a Director of the General Partner since 1983
(Chairman of the Board since December 1985) and is Chairman of the Board of
Equity Financial and Management Company ("EFMC") and Equity Group
Investments, Inc. ("EGI"), and is a trustee and beneficiary of a general
partner of Equity Holdings Limited, an Illinois Limited Partnership, a
privately owned investment partnership. He is also Chairman of the Board of
Directors of Anixter International Inc., American Classic Voyages Co. and
Manufactured Home Communities, Inc. ("MHC"). He is Chairman of the Board of
Trustees of Equity Residential Properties Trust. He is a director of Chart
House Enterprises, Inc., Ramco Energy plc, TeleTech Holding, Inc., Quality
Food Centers, Inc. ("QFC") and Sealy Corporation. He is Chairman of the
Board of Directors and Chief Executive Officer of Capsure Holdings Corp. and
Co-Chairman of the Board of Revco D.S., Inc.
Douglas Crocker II, 56, has been President and Chief Executive Officer since
December 1992 and a Director since January 1993 of the General Partner. Mr.
Crocker has been an Executive Vice President of EFMC since November 1992.
Mr. Crocker has been President, Chief Executive Officer and trustee of
Equity Residential Properties Trust since March 31, 1993. He was President
of Republic Savings Bank, F.S.B. ("Republic") from 1989 to June, 1992 at
which time the Resolution Trust Company took control of Republic. Mr.
Crocker is a member of the Board of Directors of Horizon Group, Inc.
Sheli Z. Rosenberg, 55, was President and Chief Executive Officer of the
General Partner from December 1990 to December 1992 and has been a Director
of the General Partner since September 1983; was Executive Vice President
and General Counsel for EFMC from October 1980 to November 1994; has been
President and Chief Executive Officer of EFMC and EGI since November 1994;
has been a Director of Great American Management and Investment, Inc.
("Great American") since June 1984 and is a director of various subsidiaries
of Great American. She is also a Director of Anixter International Inc.,
Capsure Holdings Corp., American Classic Voyages Co., Jacor Communications,
Inc., Revco D.S., Inc., Sealy Corporation, MHC and QFC. She is also a
trustee of Equity Residential Properties Trust. Ms. Rosenberg is a Principal
of Rosenberg & Liebentritt, P.C., counsel to the Partnership, the General
Partner and certain of their Affiliates. She had been Vice President of
First Capital Benefit Administrators, Inc. ("Benefit Administrators") since
July 22, 1987 until its liquidation in November 1995. Benefit Administrators
filed for protection under the Federal Bankruptcy laws on January 3, 1995.
14
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
- -------- --------------------------------------------------
(b,c & e) EXECUTIVE OFFICERS
- ----------------------------
The Partnership does not have any executive officers. The executive officers
of the General Partner as of March 28, 1997 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
Gus J. Athas.........................Senior Vice President
Norman M. Field......................Vice President - Finance and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
-----------------
Gus J. Athas, 60, has been Senior Vice President of the General Partner since
March 1995. Mr. Athas has served as Senior Vice President, General Counsel
and Assistant Secretary of Great American since March 1995. Mr. Athas has
served as Senior Vice President, General Counsel and Secretary of Falcon
Building Products, Inc. since March 1994 and served as Vice President and
Secretary from January 1994 to March 1994. Mr. Athas has served as Senior
Vice President, General Counsel and Secretary of Eagle Industries, Inc.
("Eagle") since May 1993. From September 1992 to May 1993, Mr. Athas was Vice
President, General Counsel and Secretary of Eagle. From November 1987 to
September 1992, Mr. Athas served as Vice President, General Counsel and
Assistant Secretary of Eagle.
Norman M. Field, 48, has been Vice President of Finance and Treasurer of the
General Partner since February 1984, and also served as Vice President and
Treasurer of Great American from July 1983 until March 1995. Mr. Field had
been Treasurer of Benefit Administrators from July 22, 1987 until its
liquidation in November 1995. Benefit Administrators filed for protection
under the Federal bankruptcy laws on January 3, 1995. He was Chief Financial
Officer of Equality Specialties, Inc. ("Equality"), a subsidiary of Great
American, from August 1994 to April 1995. Equality was sold in April 1995.
(d) FAMILY RELATIONSHIPS
- ------------------------
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
- --------------------------------------------
With the exception of the bankruptcy matter disclosed under Items 10 (a), (b),
(c) and (e), there are no involvements in certain legal proceedings among any
of the foregoing directors and officers.
15
<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, 1996. However, Affiliates of the General Partner do
compensate the directors and officers. For additional information see Item
13 (a) Certain Relationships and Related Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(a) As of March 1, 1997 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,
1997, 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) During 1994, an Affiliate of the General Partner provided real estate
brokerage services to the Partnership in connection with the sale of a
property. Total real estate brokerage commissions for all such services
shall not exceed the lesser of the compensation customarily charged in
arm's-length transactions in the same geographic location for a comparable
property, or 6% of the sales price of the property. Real estate commissions
paid to any Affiliate of the General Partner may not exceed 50% of the
compensation customarily charged in arm's-length transactions in the same
geographical location for comparable property, or 3% of the total selling
price of the property; provided, further, that no Affiliate of the General
Partner may receive payment of a real estate commission until Limited
Partners have received cumulative distributions of Sale or Financing
Proceeds equal to 100% of their Original Capital Contributions, plus a
cumulative return (including all Cash Flow which has been distributed to the
Limited Partners) of 6% simple interest per annum on their Capital
Investment from the date upon which their investment in the Partnership was
made. To the extent that real estate commissions are not currently paid in
full by the Partnership because of any of the foregoing provisions, the
unpaid commissions will remain accrued and will be paid at such time as the
provisions have been satisfied. As of December 31, 1996, 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.
Affiliates of the General Partner, provide leasing, property management and
supervisory services to the Partnership. Compensation for these property
management services may not exceed 6% of the gross receipts from the
property being managed where the General Partner or Affiliates provide
leasing, re-leasing, and/or leasing related services, or 3% of gross
receipts where the General Partner or Affiliates do not perform leasing, re-
leasing and/or leasing related services. Provided further, that in the event
the Partnership leases properties on a long-term net 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,
1996, these Affiliates were entitled to supervisory and property management
and leasing fees of $342,600. In addition, other Affiliates of the General
Partner were entitled to compensation and reimbursements of $134,400 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
16
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
than reasonably could be obtained from unaffiliated persons. As of December
31, 1996, total fees and reimbursements of $35,300 were due to Affiliates.
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 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 year ended December 31,
1996, the General Partner was entitled to a Partnership Management Fee, and
accordingly, allocated Net Profits, of $424,400.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the General Partner and certain of their Affiliates. Sheli Z.
Rosenberg, President and Chief Executive Officer of the General Partner from
December 1990 to December 1992 and a director of the General Partner since
September 1983, is a Principal of Rosenberg. Compensation for these
services are on terms which are fair, reasonable and no less favorable to
the Partnership than reasonably could have been obtained from unaffiliated
persons. Total legal fees which Rosenberg was entitled to for the year
ended December 31, 1996 was $55,600. Of this amount $600 was due as of
December 31, 1996.
(c) No management person is indebted to the Partnership.
(d) None.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a,c & d) (1,2 & 3) See Index of Financial Statements, Schedule and Exhibits
on page A-1 of Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended December 31, 1996.
18
<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 28, 1997 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 28, 1997 Chairman of the Board and Director
- ------------------------ -------------- of the General Partner
SAMUEL ZELL
/s/ DOUGLAS CROCKER II March 28, 1997 President, Chief Executive Officer
- ------------------------ -------------- and Director of the General
DOUGLAS CROCKER II Partner
/s/ SHELI Z. ROSENBERG March 28, 1997 Director of the General Partner
- ------------------------ --------------
SHELI Z. ROSENBERG
/s/ GUS J. ATHAS March 28, 1997 Senior Vice President
- ------------------------ --------------
GUS J. ATHAS
/s/ NORMAN M. FIELD March 28, 1997 Vice President - Finance and
- ------------------------ -------------- Treasurer
NORMAN M. FIELD
19
<PAGE>
INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Pages
-------------
Report of Independent Auditors A-2
Balance Sheets as of December 31, 1996 and 1995 A-3
Statements of Partners' Capital for the Years Ended
December 31, 1996, 1995, 1994 A-3
Statements of Income and Expenses for the Years Ended
December 31, 1996, 1995, 1994 A-4
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, 1994 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, 1996 A-8 and A-9
All other schedules have been omitted as inapplicable, or for the reason that
the required information is shown in the financial statements or notes thereto.
EXHIBITS FILED AS PART OF THIS REPORT
EXHIBITS (3 & 4) First Amended and Restated Certificate and Agreement of
Limited Partnership as set forth on pages A-1 through A-31 of the Partnership's
definitive Prospectus dated October 19, 1983; Registration Statement No.
2-86361, filed pursuant to Rule 424 (b), is incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders
The 1995 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (27) Financial Data Schedule
A-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Institutional Real Estate, Ltd. - 2
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Institutional
Real Estate, Ltd. - 2 as of December 31, 1996 and 1995, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 1996, and the financial
statement schedule listed in the accompanying index. These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Institutional
Real Estate, Ltd. - 2 at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 14, 1997
A-2
<PAGE>
BALANCE SHEETS
December 31, 1996 and 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $10,237,400 $10,237,400
Buildings and improvements 36,061,200 35,221,500
- ---------------------------------------------------------------------------
46,298,600 45,458,900
Accumulated depreciation and amortization (13,818,600) (12,556,200)
- ---------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 32,480,000 32,902,700
Cash and cash equivalents 4,573,400 12,268,000
Investments in debt securities 1,051,100
Restricted cash 50,000 25,000
Rents receivable 99,800 169,800
Investment in joint venture 4,937,100 4,620,200
Other assets (including amounts due from joint
venture of $915,700 and $804,400, respectively) 974,800 817,400
- ---------------------------------------------------------------------------
$44,166,200 $50,803,100
- ---------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 322,900 $ 491,000
Due to Affiliates 76,200 74,900
Security deposits 137,600 136,200
Distributions payable 848,900 1,273,300
Other liabilities 114,400 112,200
- ---------------------------------------------------------------------------
1,500,000 2,087,600
- ---------------------------------------------------------------------------
Partners' (deficit) capital:
General Partner (131,300) (131,300)
Limited Partners (84,886 Units issued and
outstanding) 42,797,500 48,846,800
- ---------------------------------------------------------------------------
42,666,200 48,715,500
- ---------------------------------------------------------------------------
$44,166,200 $50,803,100
- ---------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1996, 1995 and 1994
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January 1,
1994 $ (93,500) $56,187,300 $56,093,800
Net income (loss) for the year ended
December 31, 1994 307,000 (1,324,200) (1,017,200)
Distributions for the year ended December
31, 1994 (334,800) (3,013,500) (3,348,300)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1994 (121,300) 51,849,600 51,728,300
Net income for the year ended December
31, 1995 471,000 1,326,300 1,797,300
Distributions for the year ended December
31, 1995 (481,000) (4,329,100) (4,810,100)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1995 (131,300) 48,846,800 48,715,500
Net income for the year ended December
31, 1996 424,400 2,778,800 3,203,200
Distributions for the year ended December
31, 1996 (424,400) (8,828,100) (9,252,500)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1996 $(131,300) $42,797,500 $42,666,200
- -------------------------------------------------------------------------------
</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, 1996, 1995 and 1994
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $6,342,500 $6,169,200 $ 6,177,200
Interest 661,200 885,200 538,700
- ------------------------------------------------------------------------------
7,003,700 7,054,400 6,715,900
- ------------------------------------------------------------------------------
Expenses:
Depreciation and amortization 1,262,400 1,333,500 1,396,400
Property operating:
Affiliates 390,000 332,500 350,900
Nonaffiliates 912,200 856,400 996,100
Real estate taxes 520,600 513,200 618,000
Insurance--Affiliate 77,500 64,800 90,600
Repairs and maintenance 702,900 749,200 735,200
General and administrative:
Affiliates 55,300 69,300 61,900
Nonaffiliates 262,900 217,100 237,600
Loss on sale of property 1,276,600
Provisions for value impairment 1,000,000 1,500,000
- ------------------------------------------------------------------------------
4,183,800 5,136,000 7,263,300
- ------------------------------------------------------------------------------
Net income (loss) before income (loss)
from participation in joint venture 2,819,900 1,918,400 (547,400)
Income (loss) from participation in joint
venture 383,300 (121,100) (469,800)
- ------------------------------------------------------------------------------
Net income (loss) $3,203,200 $1,797,300 $(1,017,200)
- ------------------------------------------------------------------------------
Net income allocated to General Partners $ 424,400 $ 471,000 $ 307,000
- ------------------------------------------------------------------------------
Net income (loss) allocated to Limited
Partners $2,778,800 $1,326,300 $(1,324,200)
- ------------------------------------------------------------------------------
Net income (loss) allocated to Limited
Partners per Unit (84,886 Units
outstanding) $ 32.74 $ 15.62 $ (15.60)
- ------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,203,200 $ 1,797,300 $(1,017,200)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,262,400 1,333,500 1,396,400
Loss on sale of property 1,276,600
Provisions for value impairment 1,000,000 1,500,000
(Income) loss from participation in
joint venture (383,300) 121,100 469,800
Changes in assets and liabilities:
Decrease (increase) in rents
receivable 70,000 (69,400) 170,300
(Increase) decrease in other assets (46,100) 143,500 (31,600)
(Decrease) increase in accounts
payable and accrued expenses (168,100) 101,800 (61,700)
Increase (decrease) in due to
Affiliates 1,300 (17,900) (10,000)
Increase (decrease) in other
liabilities 2,200 34,300 (46,800)
- -----------------------------------------------------------------------------
Net cash provided by operating
activities 3,941,600 4,444,200 3,645,800
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds from sale of property 3,005,600
Payments for capital and tenant
improvements (839,700) (615,900) (1,159,500)
(Increase) in investments in debt
securities (1,051,100)
(Increase) in restricted cash (25,000)
Distributions received from joint
venture 66,400 493,300 317,800
(Funding of) collection of loans to
joint venture (111,300) (59,500) 64,800
- -----------------------------------------------------------------------------
Net cash (used for) provided by
investing activities (1,960,700) (182,100) 2,228,700
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (9,676,900) (4,574,300) (2,810,700)
Increase (decrease) in security
deposits 1,400 19,800 (5,800)
- -----------------------------------------------------------------------------
Net cash (used for) financing
activities (9,675,500) (4,554,500) (2,816,500)
- -----------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (7,694,600) (292,400) 3,058,000
Cash and cash equivalents at the
beginning of the year 12,268,000 12,560,400 9,502,400
- -----------------------------------------------------------------------------
Cash and cash equivalents at the end
of the year $ 4,573,400 $12,268,000 $12,560,400
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-4
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.-2
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms in
the Partnership's Registration Statement filed with the Securities and Exchange
Commission on Form S-11. Definitions of these terms are contained in Article
III of the First Amended and Restated Certificate and Agreement of Limited
Partnership, which is included in the Registration Statement and incorporated
herein by reference.
ORGANIZATION:
The Partnership was formed on August 22, 1983, by the filing of a Certificate
and Agreement of Limited Partnership with the Department of State of the State
of Florida, and commenced the Offering of Units on November 10, 1983. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of up to 85,000 Units and not less than 1,400 Units pursuant to the
Prospectus. On December 5, 1983, the required minimum subscription level was
reached and Partnership operations commenced. A total of 84,886 Units were sold
prior to Termination of the Offering in October, 1984. The Partnership was
formed to invest primarily in existing, income-producing commercial real
estate.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 2014. The Limited Partners, by a majority vote, may dissolve
the Partnership at any time.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("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 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 Lansing
Associates ("Lansing") with an Affiliated partnership. Lansing 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). For further information, see Note
5.
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 income 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 held for investment are recorded at cost, net of
any provisions for value impairment, and depreciated (exclusive of amounts
allocated to land) on the straight-line method over their estimated useful
lives. Lease acquisition fees are recorded at cost and amortized on the
straight-line method over the life of each respective lease. Maintenance and
repair costs are expensed against operations as incurred; expenditures for
improvements are capitalized to the appropriate property accounts and
depreciated on the straight-line method over the estimated life of such
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 is
impaired, and if so, how impairment losses should be measured and reported in
the financial statements. Management is not aware of any indicator that would
result in any significant impairment loss. The Standard also addressed the
accounting for long-lived assets that are expected to be disposed of.
Evaluation of the potential impairment of the value of the Partnership's assets
is performed on an individual property basis.
Property sales 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 is recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
The Partnership's financial statements include financial instruments, including
receivables, trade liabilities and investment in joint venture. The Partnership
considers the disclosure of the fair value of its investment in joint venture
to be impracticable due to the illiquid nature of its investment. The fair
value of financial instruments, including cash and cash equivalents, was not
materially different from their carrying value at December 31, 1996 and 1995.
Investments in debt securities are comprised of corporate debt securities
totaling $1,051,100 and are classified as held-to-maturity. These investments
are carried at their amortized cost basis in the financial statements which
approximated fair market value at December 31, 1996. All of these securities
had maturities of less than one year when purchased.
Certain reclassifications have been made to the previously reported 1995 and
1994 statements in order to provide comparability with the 1996 statements.
These reclassifications have no effect on net income (loss) or Partners'
(deficit) capital.
A-5
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.-2
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 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 or disposition of a Partnership
property. For the year ended December 31, 1996, the General Partner was
entitled to a Partnership Management Fee and accordingly, allocated Net Profits
of $424,400. For the year ended December 31, 1995, the General Partner was
entitled to a Partnership Management Fee of $481,000 and allocated Net Profits
of $471,000, which included a (loss) from provisions for value impairment of
$(10,000). For the year ended December 31, 1994 the General Partner was
entitled to a Partnership Management Fee of $334,800 and allocated Net Profits
of $307,000, which included (losses) from provisions for value impairment of
$(15,000) and the sale or disposition of Partnership property of $(12,800).
Fees and reimbursements paid and payable by the Partnership to Affiliates for
the years ended December 31, were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
Paid Payable Paid Payable Paid Payable
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $333,400 $31,000 $286,100 $21,800 $307,800 $45,400
Reimbursement of property
insurance premiums, at
cost 77,500 None 64,800 None 87,700 None
Real estate commissions
(a) None 40,300 None 40,300 None 40,300
Reimbursement of expenses,
at cost
--Accounting 38,700 3,500 27,700 9,400 28,400 4,100
--Investor communication 18,600 800 33,300 3,400 16,500 3,000
--Legal 55,000 600 53,300 None 91,400 None
--Other 8,100 None 2,600 None None None
- ------------------------------------------------------------------------------
$531,300 $76,200 $467,800 $74,900 $531,800 $92,800
- ------------------------------------------------------------------------------
</TABLE>
a) As of December 31, 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, no Affiliate of the General
Partner may receive payment of a real estate commission upon the sale of a
Partnership property until Limited Partners have received cumulative
distributions of Sale or Financing Proceeds equal to 100% of their Original
Capital Contribution, plus a cumulative return (including all Cash Flow (as
defined in the Partnership Agreement) which has been distributed to the
Limited Partners) of 6% simple interest per annum on their Capital
Investment.
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.
3. FUTURE MINIMUM RENTALS:
The Partnership's share of future minimum rental income due on non-cancelable
leases as of December 31, 1996 was as follows:
<TABLE>
<S> <C>
1997 $ 6,173,400
1998 5,496,900
1999 4,698,100
2000 3,876,000
2001 2,398,800
Thereafter 6,174,100
--------------
$28,817,300
--------------
</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.
Percentage rents earned for the years ended December 31, 1996, 1995 and 1994
were $29,200, $57,200 and $46,300, respectively.
4. INCOME TAX:
The Partnership utilizes the accrual basis of accounting for both income 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
A-6
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.-2
income and the Partnership's provisions for value impairment. The net effect of
these differences for the year ended December 31, 1996 was that the income for
tax reporting purposes was less than the income for financial statement
purposes by $650,900. The aggregate cost in commercial rental properties for
federal income tax purposes at December 31, 1996 was $53,011,100.
5. 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"), as of and for the year ended December 31, 1996 is as follows:
<TABLE>
<S> <C>
ASSETS
Investment property, net of
accumulated depreciation and
amortization $10,690,300
Cash and cash equivalents 837,800
Loans receivable 458,700
Rents receivable 26,900
Other assets 165,100
---------------------------------------------
$12,178,800
---------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Loan payable to Affiliate $ 1,634,500
Accounts payable and accrued expenses 609,400
Due to Affiliates 33,800
Security deposits 24,500
Other liabilities 2,500
Partners' capital 9,874,100
---------------------------------------------
$12,178,800
---------------------------------------------
STATEMENT OF INCOME AND EXPENSES
Total revenues $ 3,236,600
---------------------------------------------
Expenses:
Property operating 1,928,900
Depreciation and amortization 382,900
Interest to Affiliates 158,200
---------------------------------------------
Total expenses 2,470,000
---------------------------------------------
Net income $ 766,600
---------------------------------------------
</TABLE>
The information presented above represents 100% of the activity of Holiday. The
Partnership owns a 50% interest in Lansing which owns a 75% preferred interest
in Holiday.
6. PROPERTY SALE:
On June 8, 1994, the Partnership sold Norwest Plaza (formerly known as United
Bank of Arizona Building) for a total sale price of $3,225,000. The Partnership
incurred selling expenses of $219,400. Proceeds received by the Partnership
from the sale were $3,005,600. The net (loss) to the Partnership in connection
with this sale for financial statement purposes was $(1,276,600). This sale was
on all-cash terms with no further involvement on the part of the Partnership.
7. PROVISIONS FOR VALUE IMPAIRMENT:
Due to regional factors and other matters affecting the Partnership's office
properties, there was uncertainty as to the Partnership's ability to recover
the net carrying basis of certain of its properties during the remaining
estimated holding periods. Accordingly, it was deemed appropriate to reduce the
basis of certain properties in the Partnership's financial statements during
the years ended December 31, 1995 and 1994. These provisions for value
impairment were considered non-cash events for purposes of the Statements of
Cash Flows (as defined in the Partnership Agreement), and were not utilized in
the determination of Cash Flows. The following is a summary of the amounts and
years in which provisions for value impairment were recorded by the
Partnership:
<TABLE>
<CAPTION>
Property 1995 1994
-----------------------------------
<S> <C> <C>
Ellis Building $ 500,000 $1,000,000
12621 Featherwood 300,000 500,000
Foxhall Square 200,000
-----------------------------------
$1,000,000 $1,500,000
-----------------------------------
</TABLE>
The joint venture which owns Holiday recorded a provision for value impairment
in the amount of $800,000 for the year ended December 31, 1995. This provision
was allocated to the general partners of the joint venture. Accordingly, the
Partnership's share of this provision was $400,000 and is included in the net
loss from participation in joint venture. For the year ended December 31, 1994,
a provision for value impairment on Holiday was recorded in the amount of
$2,000,000. Of this amount, $655,200 was allocated to the limited partners of
the joint venture which reduced their capital account to zero with the
remaining amount allocated to the general partners, of which the Partnership's
share was $672,400.
8. ENVIRONMENTAL MATTER:
In December 1996, the General Partner became aware of the existence of
hazardous substances in the ground under Lakewood. The source of the hazardous
substances is believed to emanate from a tenant operating a dry cleaning
business at Lakewood. The Partnership and its Affiliated partner in the joint
venture which owns Lakewood are currently utilizing consultants to evaluate the
matter and propose courses of action. The effects on the Partnership cannot be
determined at this time, as the costs associated with this matter are not
presently determinable. The financial statements do not include any adjustments
that might result from this matter.
A-7
<PAGE>
FIRST CAPITAL REAL ESTATE, LTD. - 2
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 1996
<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 $ 769,100 $ 40,200 $ 2,652,800 $ 8,798,000 $11,450,800
Banana River Square
(Cocoa Beach, FL) 887,400 5,297,600 318,800 54,200 887,400 5,670,600 6,558,000
Market Place at Rivergate
(Nashville, TN) 2,954,400 6,554,700 1,519,600 47,200 2,988,300 5,587,600 8,575,900(6)
Office Buildings:
Foxhall Square Building
(Washington, DC)
(50% interest) 2,351,100 5,893,400 2,346,200 188,500 2,351,100 8,228,100 10,579,200(7)
12621 Featherwood
Building
(Houston, TX)
(50% interest) 497,800 5,037,700 108,800 57,400 497,800 2,403,900 2,901,700(8)
Ellis Building
(Sarasota, FL)
(50% interest) 860,000 5,405,600 1,441,500 25,900 860,000 5,373,000 6,233,000(9)
----------- ----------- ---------- -------- ----------- ----------- -----------
$10,203,500 $36,177,700 $6,504,000 $413,400 $10,237,400 $36,061,200 $46,298,600
=========== =========== ========== ======== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column A 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) $ 2,933,100 1982 5/84 2-10(5)
Banana River Square 35(4)
(Cocoa Beach, FL) 1,904,800 1982 6/84 2-10(5)
Market Place at Rivergate 35(4)
(Nashville, TN) 2,123,000 1970 5/86 2-15(5)
Office Buildings:
Foxhall Square
Building
(Washington, DC) 35(4)
(50% interest) 3,321,100 1972 6/84 1-10(5)
12621 Featherwood
Building
(Houston, TX)
(50% interest) 1,334,000 1983 1/85 35(4)
Ellis Building
(Sarasota, FL) 35(4)
(50% interest) 2,202,600 1969 3/86 1-10(5)
-----------
$13,818,600
===========
</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, 1996 December 31, 1995 December 31, 1994
--------------------------- --------------------------- ---------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $45,458,900 $12,556,200 $45,843,000 $11,222,700 $51,404,300 $10,765,000
Additions during year:
Improvements 839,700 615,900 1,159,500
Provision for depreciation
and amortization 1,262,400 1,333,500 1,396,300
Deductions during year:
Cost of real estate sold (5,220,800)
Accumulated depreciation on
real estate sold (938,600)
Provisions for value
impairment (1,000,000) (1,500,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance at end of year $46,298,600 $13,818,600 $45,458,900 $12,556,200 $45,843,000 $11,222,700
=========== =========== =========== =========== =========== ===========
</TABLE>
Note 3. The aggregate cost for Federal income tax purposes as of December 31,
1996 is $53,011,100.
Note 4. Estimated useful life for building.
Note 5. Estimated useful life for improvements.
Note 6. Includes a provision for value impairment of $2,500,000.
Note 7. Includes provision for value impairment of $200,000.
Note 8. Includes provisions for value impairment of $2,800,000.
Note 9. Includes provisions for value impairment of $1,500,000.
A-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000727087
<NAME> First Capital Institutional Real Estate, Ltd - 2
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,573,400
<SECURITIES> 1,051,100
<RECEIVABLES> 99,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,774,300
<PP&E> 46,298,600
<DEPRECIATION> 13,818,600
<TOTAL-ASSETS> 44,166,200
<CURRENT-LIABILITIES> 1,345,300
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 42,666,200
<TOTAL-LIABILITY-AND-EQUITY> 44,166,200
<SALES> 0
<TOTAL-REVENUES> 7,003,700
<CGS> 0
<TOTAL-COSTS> 2,603,200
<OTHER-EXPENSES> 318,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,203,200
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,203,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,203,200
<EPS-PRIMARY> 32.74
<EPS-DILUTED> 32.74
</TABLE>
