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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 10-Q
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[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 2000
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)
FLORIDA 59-2313852
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
TWO NORTH RIVERSIDE PLAZA,
SUITE 700,
CHICAGO, ILLINOIS 60606-2607
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(312) 207-0020
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
DOCUMENTS INCORPORATED BY REFERENCE:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated October 19, 1983,
included in the Partnership's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's Annual Report for the year ended
December 31, 1999 for a discussion of the Partnership's business.
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
The Partnership has substantially completed the disposition phase of its life
cycle. The Partnership has sold its remaining real property investments and is
currently working toward resolution of post closing property sale matters.
OPERATIONS
Net income increased by $49,000 for the quarter ended June 30, 2000 when
compared to the quarter ended June 30, 1999. The increase was primarily due to
the increase in interest earned on the Partnership's short-term investments,
which was due to an increase in the average cash available for investment and
an increase in interest rates earned on those investments.
Net income decreased by $63,900 for the six months ended June 30, 2000 when
compared to the six months ended June 30, 1999. The decrease was primarily due
to a decrease in interest earned on the Partnership's short-term investments,
which was due to a decrease in the average net cash available for investment
during the period, partially offset by an increase in interest rates earned on
those investments.
LIQUIDITY AND CAPITAL RESOURCES
The increase in the Partnership's cash position of $3,040,500 for the six
months ended June 30, 2000 was primarily the result of the maturity of the
Partnership's investments in debt securities together with cash provided by
operating activities. Liquid assets (including cash and cash equivalents) of
the Partnership as of June 30, 2000 were comprised of amounts held for the
Lakewood environmental matter (as hereafter discussed) and Partnership
liquidation expenses.
The increase of $79,900 in net cash provided by operating activities for the
six months ended June 30, 2000 when compared to the six months ended June 30,
1999 was primarily the result of the timing of the payment of state income
taxes and certain of the Partnership's expenses. The increase was partially
offset by the decrease in net income, as previously discussed.
Net cash (used for) provided by investing activities changed from $(951,100)
for the six months ended June 30, 1999 to $2,943,000 the six months ended June
30, 2000. The change was primarily due to the maturity of the Partnership's
investments in debt securities in 2000. Investments in debt securities are a
result of the continued extension of the maturities of certain of the
Partnership's investments in an effort to maximize the return on these assets
as they are held for working capital purposes. These investments are of
investment-grade and mature less than one year from their date of purchase.
The Partnership has no financial instruments for which there are significant
market risks. Due to the timing of the maturities and liquid nature of the
Partnership's investments in debt securities, the Partnership does not believe
that it has material market risk.
The decrease of $13,361,200 in net cash used for financing activities for the
six months ended June 30, 2000 when compared to the six months ended June 30,
1999 was due to the February 28, 1999 special distributions to Partners of
proceeds from the sales of Ellis Building and Holiday Office Park North and
South.
As described in Note 3 of Notes to Financial Statements, the Partnership is
awaiting resolution of an environmental matter at Lakewood. The General Partner
is continuing to monitor the documentation delivered by the purchaser of
Lakewood regarding the purchaser's activities to remedy the hazardous
substances at Lakewood. There can be no assurance as to the actual timeframe
for the remediation or that it will be completed without cost to the
Partnership. When the environmental matter is satisfactorily remediated and the
other post closing matters are resolved, the Partnership will pay a liquidating
distribution to Partners of the remaining assets held by the Partnership, less
amounts reserved for administrative expenses and any amounts deemed necessary
for contingencies and other post closing matters. In line with reduced Cash
Flow (as defined in the Partnership Agreement) following the sale of the
Partnership's remaining properties, distributions to Partners have been
suspended until such time as a liquidating distribution is paid.
2
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
---------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $6,058,000 $3,017,500
Investments in debt
securities 2,943,000
Rents receivable 27,800 27,800
Other assets 8,000 8,000
---------------------------------------------------
$6,093,800 $5,996,300
---------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and
accrued expenses $ 130,700 $ 140,500
Due to Affiliates 300 3,200
Other liabilities 1,300 1,300
---------------------------------------------------
132,300 145,000
---------------------------------------------------
Partners' capital:
General Partner 77,300 76,200
Limited Partners (84,886
Units issued and
outstanding) 5,884,200 5,775,100
---------------------------------------------------
5,961,500 5,851,300
---------------------------------------------------
$6,093,800 $5,996,300
---------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the Six Months Ended June 30, 2000 (Unaudited)
and the Year Ended December 31, 1999
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
-------------------------------------------------
<S> <C> <C> <C>
Partners' capital,
January 1, 1999 $73,300 $5,486,200 $5,559,500
Net income for the
year ended
December 31, 1999 2,900 288,900 291,800
-------------------------------------------------
Partners' capital,
December 31, 1999 76,200 5,775,100 5,851,300
Net income for the
six months ended
June 30, 2000 1,100 109,100 110,200
-------------------------------------------------
Partners' capital,
June 30, 2000 $77,300 $5,884,200 $5,961,500
-------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the Quarters Ended June 30, 2000 and 1999
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest $91,200 $67,400
--------------------------------------------------------------------------
Expenses:
Property operating 6,000
General and administrative:
Affiliates 2,800 7,000
Nonaffiliates 28,500 44,800
--------------------------------------------------------------------------
31,300 57,800
--------------------------------------------------------------------------
Income before state income tax expense 59,900 9,600
State income tax expense 1,900 600
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Net income $58,000 $ 9,000
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Net income allocated to General Partner $ 600 $ 0
--------------------------------------------------------------------------
Net income allocated to Limited Partners $57,400 $ 9,000
--------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit (84,886
Units outstanding) $ 0.68 $ 0.11
--------------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest $183,900 $232,700
-----------------------------------------------------------------------------
Expenses:
Property operating:
Affiliates 200
Nonaffiliates 11,800
Real estate taxes (1,300)
Repairs and maintenance (300)
General and administrative:
Affiliates 5,700 15,800
Nonaffiliates 66,100 31,800
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71,800 58,000
-----------------------------------------------------------------------------
Income before state income tax expense 112,100 174,700
State income tax expense 1,900 600
-----------------------------------------------------------------------------
Net income $110,200 $174,100
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Net income allocated to General Partner $ 1,100 $ 1,700
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Net income allocated to Limited Partners $109,100 $172,400
-----------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit (84,886
Units outstanding) $ 1.29 $ 2.03
-----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 110,200 $ 174,100
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in assets and liabilities:
(Increase) in other assets (6,000)
(Decrease) in accounts payable and accrued expenses (9,800) (73,800)
(Decrease) increase in due to Affiliates (2,900) 1,700
(Decrease) in state income taxes payable (75,300)
(Decrease) in other liabilities (3,100)
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Net cash provided by operating activities 97,500 17,600
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Cash flows from investing activities:
Decrease (increase) in investments in debt securities 2,943,000 (951,100)
-----------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 2,943,000 (951,100)
-----------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (13,361,200)
-----------------------------------------------------------------------------------
Net cash (used for) financing activities -- (13,361,200)
-----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,040,500 (14,294,700)
Cash and cash equivalents at the beginning of the period 3,017,500 19,078,600
-----------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $6,058,000 $ 4,783,900
-----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
ACCOUNTING POLICIES:
The Partnership has disposed of its real estate properties. Upon resolution of
the environmental matter disclosed in Note 3 and other post-closing matters
related to the sales of the Partnership's properties, the Partnership will make
a liquidating distribution and dissolve.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"). The Partnership
utilizes the accrual method of accounting. Under this method, revenues are
recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and six months ended June 30, 2000 are not necessarily indicative
of the operating results for the year ending December 31, 2000.
The Partnership has one reportable segment as the Partnership is in the
disposition phase of its life cycle, wherein it is seeking to resolve post-
closing matters related to the properties sold by the Partnership.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
Investments in debt securities are comprised of obligations of the United
States government 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. All of these securities had maturities of less
than one year when purchased.
Reference is made to the Partnership's Annual Report for the year ended
December 31, 1999 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' capital and changes in cash balances for the year then
ended. The details provided in the notes thereto have not changed except as a
result of normal transactions in the interim or as otherwise disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, subsequent to October 19, 1984,
the Termination of the Offering, the General Partner is entitled to 10% of Cash
Flow (as defined in the Partnership Agreement) as a Partnership Management Fee.
For the quarter and six months ended June 30, 2000 and 1999, the General
Partner was not paid 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 quarter and six months ended June 30, 2000, the
General Partner was allocated Net Profits of $600 and $11,000, respectively.
For the quarter and six months ended June 30, 1999, the General Partner was
allocated Net Profits, of $0 and $1,700, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
Paid
------------------
Quarter Six Months Payable
---------------------------------------------------------------
<S> <C> <C> <C>
Reimbursement of expenses, at cost:
--Accounting $ 700 $3,400 None
--Investor communications 2,100 5,200 $300
---------------------------------------------------------------
$2,800 $8,600 $300
---------------------------------------------------------------
</TABLE>
5
<PAGE>
3. ENVIRONMENTAL MATTER:
In 1996, the General Partner became aware of the existence of hazardous
substances in the soil and groundwater of Lakewood Square Shopping Center
("Lakewood"). In connection with the 1997 sale of Lakewood, the purchaser
assumed the obligation to remedy the hazardous substances in the manner
required by law, which includes, but is not limited to, payment of all costs in
connection with the remediation work. In addition, the purchaser provided the
Partnership with certain indemnification protection in relation to clean-up
costs and related expenses arising from the presence of these hazardous
substances. At the present time, the General Partner is unaware of any claims
or other matters referred to above against the Partnership. As more fully
described in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1999, the purchaser provided the California Regional Water Quality
Control Board (the "Water Board") with its corrective action plan (the "Plan")
for the clean up of the site. The Water Board's recommended modifications to
the Plan have been implemented. Currently, the purchaser is monitoring to
determine the extent of the contamination of the groundwater at the site. Upon
determination of the groundwater concentrations, the purchaser will submit a
revised plan to the Water Board and request its approval.
The timing of the completion of the remediation process is contingent upon,
among other things, the Water Board's issuance of this approval. Accordingly,
there can be no assurance as to the timing of the completion of the remediation
process. The General Partner continues to monitor the documentation delivered
by the purchaser regarding the purchaser's activities to remedy the hazardous
substances at Lakewood.
6
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits: None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended June 30,
2000.
7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE,
LTD.-2
By: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
/s/ DOUGLAS CROCKER II
Date: August 14, 2000 By: ______________________________________
DOUGLAS CROCKER II
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ NORMAN M. FIELD
Date: August 14, 2000 By: ______________________________________
NORMAN M. FIELD
VICE PRESIDENT--FINANCE AND TREASURER
8
