<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1994
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File Number: 0-14122
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FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 3
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(Exact name of registrant as specified in its charter)
Florida 36-3330657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
DOCUMENTS INCORPORATED BY REFERENCE:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated January 17, 1985, included
in the Registrant's Registration Statement on Form S-11 (Registration No.
2-79092), is incorporated herein by reference in Part I of this report.
<PAGE>
PART I. FINANCIAL INFORMATION
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
June 30,
1994 December 31,
(Unaudited) 1993
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<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 1,908,600 $ 2,538,600
Buildings and improvements 19,830,000 21,487,500
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21,738,600 24,026,100
Accumulated depreciation and amortization (4,582,800) (4,448,800)
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Total investment properties, net of accumulated
depreciation and amortization 17,155,800 19,577,300
Cash and cash equivalents 8,298,800 5,831,100
Restricted certificates of deposit 62,500 62,500
Investment in joint venture 5,923,200 6,022,300
Rents receivable 42,300 52,700
Other assets (including amounts due from joint
venture of $742,700 and $790,300, respectively) 771,800 863,700
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$32,254,400 $32,409,600
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 278,000 $ 473,000
Due to Affiliates 93,300 66,300
Security deposits 46,000 67,300
Distributions payable 304,900 134,700
Other liabilities 10,100 51,800
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732,300 793,100
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Partners' (deficit) capital:
General Partner (148,300) (147,800)
Limited Partners (45,737 Units authorized, issued
and outstanding) 31,670,400 31,764,300
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31,522,100 31,616,500
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$32,254,400 $32,409,600
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 1994
and the year ended December 31, 1993
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1993 $(148,100) $32,115,100 $31,967,000
Net income for the year ended
December 31, 1993 54,100 977,900 1,032,000
Distributions for the year ended
December 31, 1993 (53,800) (1,328,700) (1,382,500)
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Partners' (deficit) capital,
December 31, 1993 (147,800) 31,764,300 31,616,500
Net income for the six months ended June
30, 1994 55,000 405,500 460,500
Distributions for the six months ended
June 30, 1994 (55,500) (499,400) (554,900)
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Partners' (deficit) capital,
June 30, 1994 $(148,300) $31,670,400 $31,522,100
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</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1994 and 1993
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1994 1993
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<S> <C> <C>
Income:
Rental $861,900 $933,500
Interest 71,400 57,900
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933,300 991,400
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Expenses:
Depreciation and amortization 244,000 195,600
Property operating 207,100 266,200
Real estate taxes and insurance 103,400 71,000
Repairs and maintenance 132,500 142,300
General and administrative 62,900 56,600
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749,900 731,700
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Income before income from participation in joint venture 183,400 259,700
Income from participation in joint venture 63,900 33,900
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Income before (loss) on sale of property 247,300 293,600
(Loss) on sale of property (48,700)
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Net income $198,600 $293,600
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Net income allocated to General Partner $ 30,000 $ 13,500
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Net income allocated to Limited Partners $168,600 $280,100
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Net income allocated to Limited Partners per Unit (45,737
Units authorized, issued and outstanding) $ 3.69 $ 6.12
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1994 and 1993
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1994 1993
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<S> <C> <C>
Income:
Rental $1,761,000 $1,881,200
Interest 135,700 110,700
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1,896,700 1,991,900
Expenses:
Depreciation and amortization 491,600 385,600
Property operating 444,900 528,500
Real estate taxes and insurance 202,800 187,500
Repairs and maintenance 250,700 300,000
General and administrative 111,000 102,600
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1,501,000 1,504,200
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Income before income from participation in joint
venture 395,700 487,700
Income from participation in joint venture 113,500 25,900
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Income before (loss) on disposition of property,
(loss) on sale of property and extraordinary gain on
extinguishment of debt 509,200 513,600
(Loss) on disposition of property (1,256,800)
(Loss) on sale of property (48,700) (152,300)
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Net income (loss) before extraordinary gain on
extinguishment of debt 460,500 (895,500)
Extraordinary gain on extinguishment of debt 1,464,000
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Net income $ 460,500 $ 568,500
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Net income allocated to General Partner $ 55,000 $ 27,400
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Net income allocated to Limited Partners $ 405,500 $ 541,100
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Net income (loss) before extraordinary gain on
extinguishment of debt allocated to Limited Partners
per Unit (45,737 Units authorized, issued and
outstanding) $ 8.87 $ (19.86)
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Net income allocated to Limited Partners per Unit
(45,737 Units authorized, issued and outstanding) $ 8.87 $ 11.83
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</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1994 and 1993
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1994 1993
- - ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 460,500 $ 568,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 491,600 385,600
Loss on disposition of property 1,256,800
Loss on sale of property 48,700 152,300
Extraordinary gain on extinguishment of debt (1,464,000)
Changes in assets and liabilities:
Decrease in rents receivable 10,400 89,400
Decrease in other assets 44,300 45,900
(Decrease) in accounts payable and accrued expenses (195,000) (55,900)
Increase (decrease) in due to Affiliates 25,200 (1,300)
(Decrease) increase in other liabilities (41,700) 43,500
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Net cash provided by operating activities 844,000 1,020,800
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Cash flows from investing activities:
Proceeds from the sale or disposition of property 2,170,300 844,400
Payments for capital and tenant improvements (287,300) (304,700)
Distributions received from joint venture in excess
of income allocated 99,100 174,000
Collection of (funding of) loans to joint venture 47,600 (57,400)
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Net cash provided by investing activities 2,029,700 656,300
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Cash flows from financing activities:
Distributions paid to Partners (384,700) (978,500)
(Decrease) increase in security deposits (21,300) 4,800
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Net cash (used for) financing activities (406,000) (973,700)
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Net increase in cash and cash equivalents 2,467,700 703,400
Cash and cash equivalents at the beginning of the
period 5,831,100 5,154,900
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Cash and cash equivalents at the end of the period $8,298,800 $5,858,300
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</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1994
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 on Form S-11, filed with the
Securities and Exchange Commission. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is incorporated herein by reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles. Under this method of accounting, revenues are
recorded when earned and expenses are recorded when incurred.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and six months ended June 30, 1994 are not necessarily indicative
of the operating results for the year ending December 31, 1994.
The financial statements include the Partnership's interest in four joint
ventures. The joint ventures were formed for the purpose of acquiring a 100%
interest in certain real properties. These joint ventures are operated under
the control of the General Partner. Accordingly, the Partnership's pro rata
share of such ventures' revenues, expenses, assets and liabilities is included
in the financial statements.
Investment in joint venture represents the recording of the Partnership's
interest, under the equity method of accounting, in a joint venture with an
Affiliated partnership. The joint venture acquired a majority preferred
interest in a joint venture with the seller of the Lansing, Michigan property.
Under the equity method of accounting, the Partnership records its initial
interest at cost and adjusts its investment account for its share of joint
venture income or loss and its distribution of cash flow.
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 generally accepted accounting
principles.
Cash equivalents are considered all highly liquid investments purchased with a
maturity of three months or less.
Certain reclassifications have been made to the previously reported 1993
statements in order to provide comparability with the 1994 statements. These
reclassifications have no effect on income or Partners' capital.
Reference is made to the Partnership's annual report for the year ended
December 31, 1993, 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 disclosed
herein.
2. RELATED PARTY TRANSACTIONS:
Subsequent to May 16, 1986, the Termination of the Offering, the General
Partner is entitled to 10% of distributable Cash Flow as its Partnership
Management Fee. For the quarter and six months ended June 30, 1994, the General
Partner was allocated a Partnership Management Fee of approximately $30,500 and
$55,500, respectively, in conjunction with the declaration of cash
distributions to the Limited Partners.
In accordance with the Partnership Agreement, Net Profits are generally
allocated first to the General Partner in an amount equal to the greater of the
General Partner's Partnership Management Fee or 1% of Net Profits. The balance
of Net Profits, if any, is allocated to the Limited Partners. Net Losses
(exclusive of Net Losses from the sale or disposition of a Partnership
property) are allocated 1% to the General Partner and 99% to the Limited
Partners. Net Losses from the sale or disposition of a Partnership property are
allocated first, to the General Partner and Limited Partners pro rata, in
proportion to the positive balance in their capital accounts until the positive
balance is reduced to zero and second, the balance, if any, ninety-nine percent
(99%) to the Limited Partners and one percent (1%) to the General Partner.
Notwithstanding anything to the contrary, the General Partner shall be
allocated not less than one percent (1%) of Net Losses from the sale or
disposition of a Partnership property. For the quarter and six months ended
June 30, 1994 the General Partner was allocated Net Profits of approximately
$30,500 and $55,500, respectively. For the quarter and six months ended June
30, 1994, the Partnership was allocated Net Losses from the sale of a
Partnership property of approximately $500.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 1994 are as follows:
<TABLE>
<CAPTION>
Paid
Quarter Six Months Payable
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $32,800 $ 63,500 $46,500
Reimbursement of property insurance premiums, at
cost 7,700 15,400 None
Real estate commission (a) None None 40,200
Reimbursement of expenses, at cost:
(1) Accounting 8,700 12,000 3,100
(2) Investor communication 4,800 7,900 1,700
(3) Legal 4,400 7,100 1,800
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$58,400 $105,900 $93,300
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</TABLE>
(a) As of June 30, 1994, $40,200 was due to the General Partner for real estate
commissions earned in connection with the sale and disposition of
Partnership properties. These commissions have been accrued but not paid.
Under the terms of the Partnership Agreement, these commissions will not be
paid until such time as the 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
which has been distributed to the Limited Partners) of 6% simple interest
per annum on their Capital Investment from the initial date of investment.
3. RESTRICTED CERTIFICATES OF DEPOSIT:
Restricted certificates of deposit include negotiable certificates of deposit
in the amounts of $25,000 and $12,500 which have been pledged as collateral for
security deposits to the Houston Lighting & Power Company and $25,000 which has
been pledged as collateral for security deposits to the Florida Lighting &
Power Company.
4. PROPERTY SALE:
On June 8, 1994, Farmington Hills Associates, a joint venture in which the
Partnership and an Affiliated partnership each have a 50% interest, sold
Wellington C in the Wellington North Office Complex for a total sale price of
approximately $4,500,000. The Partnership's share of selling expenses were
approximately $81,500, including $1,800 of accrued legal expenses. The
Partnership's share of the net proceeds from this sale approximated $2,170,300.
The Partnership recorded a loss on the sale of this property of approximately
$2,048,700 for financial statement purposes of which $2,000,000 was recorded as
of December 31, 1992 as a provision for value impairment. For tax purposes, the
Partnership will record a total loss in 1994 of approximately $1,980,000 on
this sale.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1993, for a discussion of the Partnership's business.
OPERATIONS
One of the primary objectives of the Partnership is to provide cash
distributions to Limited Partners from Cash Flow generated by Partnership
operations. To the extent cash distributions exceed net income, such excess
distributions will be treated as a return of capital. The statements of cash
flows presented in the financial statements represent a reconciliation of the
changes in cash balances. Cash Flow, as defined by the Partnership Agreement,
is generally not equal to Partnership net income or cash flows as determined
under generally accepted accounting principles, since certain items are treated
differently under the Partnership Agreement than under generally accepted
accounting principles. Management believes that in order to facilitate a clear
understanding of the Partnership's operations, an analysis of Cash Flow (as
defined by the Partnership Agreement) should be examined in conjunction with an
analysis of net income or cash flows, as defined by generally accepted
accounting principles. The amount of Cash Flow and the return on Capital
Investment are not indicative of actual distributions and actual returns on
Capital Investment.
<TABLE>
<CAPTION>
Comparative Cash Flow Results
For the Six Months
For the Quarters Ended Ended
6/30/94 6/30/93 6/30/94 6/30/93
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amount of Cash Flow (as
defined in the Partnership
Agreement) $ 538,500 $ 567,800 $ 1,132,000 $ 1,160,800
Average Capital Investment $44,893,000 $45,455,700 $44,893,000 $45,596,300
Annualized return on average
Capital Investment
(Annualized Cash
Flow/average Capital
Investment) 4.80% 5.00% 5.04% 5.09%
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</TABLE>
As the Partnership enters the disposition phase of its life cycle, comparisons
of Cash Flow results between periods are complicated. Partnership Cash Flow is
generally expected to change as real property interests are sold since the
Partnership no longer receives Cash Flow generated from such real property
interests. Accordingly, rental income, property operating expenses, repairs and
maintenance and real estate taxes are expected to decline, but will continue to
comprise the significant components of Cash Flow and operating results until
the final property sale. Sale Proceeds are excluded from the determination of
Cash Flow. The dispositions of the three remaining buildings at the Wellington
North Office Complex ("Wellington") caused Cash Flow results at Wellington to
decrease during the quarter and six months ended June 30, 1994 when compared to
the quarter and six months ended June 30, 1993 by approximately $87,100 and
$70,300, respectively.
Aside from the disposition and sales at Wellington, Cash Flow results for the
quarter and six months ended June 30, 1994 increased when compared to the
quarter and six months ended June 30, 1993 by approximately $71,300 and
$41,500, respectively. Factors which contributed to the increase in Cash Flow
results were: 1) increased rental revenues at the Ellis Building ("Ellis") and
3120 Southwest Freeway; 2) decreased property operating expenses at Ellis of
approximately $18,800 and $32,600 for the quarter and six months ended June 30,
1994, respectively, and 3) increased interest income earned on short-term
investments due to an increase in funds available for such investments.
Partially offsetting the increases in Cash Flow results were: 1) decreased
rental revenues at Park Plaza Professional Building ("Park Plaza") and 2) a
lower return from the Partnership's investment in the joint venture which owns
Holiday Office Park North and South ("Holiday") due to a decrease in rental
income and increases in repairs and maintenance.
Rental revenues at Park Plaza for the six months ended June 30, 1994 and 1993
were approximately $894,700 and $917,700, respectively, and for the quarters
ended June 30, 1994 and 1993 were $448,600 and $460,900, respectively. The
decrease in 1994 rental revenues was due to decreased tenant expense
reimbursements and lower quarterly and six-month average occupancy rates of 87%
and 88%, respectively, in 1994 from 94% and 93%, respectively, in 1993.
Rental revenues at 3120 Southwest Freeway for the six months ended June 30,
1994 and 1993 were approximately $114,500 and $98,000, respectively, and for
the quarters ended June 30, 1994 and 1993 were approximately $57,300 and
$46,700, respectively. The increase in rental revenues was due to an increase
in the quarterly and six-month average occupancy rates from 84% and 81%,
respectively, in 1993 to 89% and 90%, respectively, in 1994 as well as an
increase in the real estate tax reimbursements billed to tenants in 1994 for
1993 real estate taxes.
Rental revenues at Ellis for the six months ended June 30, 1994 and 1993 were
approximately $535,200 and $525,100, respectively, and for the quarters ended
June 30, 1994 and 1993 were approximately $257,800 and $234,700, respectively.
The increase in rental revenues was primarily due to increased tenant expense
reimbursements in 1994. The quarterly and six-month average occupancy rates
were 94% and 91%, respectively, in 1994 and 90% and 92%, respectively, in 1993.
Rental revenues at Wellington for the six months ended June 30, 1994 and 1993
were approximately $216,600 and $340,400, respectively, and for the quarters
ended June 30, 1994 and 1993 were approximately $98,200 and $191,200,
respectively. The decrease in 1994 rental revenues was due to the disposition
and sale of two of the three buildings at the office complex (Wellington A and
Wellington B) on March 17 and March 23, 1993, respectively, and the sale of
Wellington C on June 8, 1994.
To further increase occupancy levels at the Partnership's properties, the
General Partner, through its Affiliated asset and property management groups,
continues to take the necessary actions deemed appropriate for the properties
discussed above. Some of these actions include: 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) cold-calling other businesses and tenants in
the market area; and 5) providing rental concessions or competitively pricing
rental rates depending on market conditions.
LIQUIDITY AND CAPITAL RESOURCES
The increase in the Partnership's cash position as of June 30, 1994 when
compared to December 31, 1993 was the result of the receipt of net Sale
Proceeds on the sale of Wellington C and net cash provided by operating
activities exceeding expenditures for capital and tenant improvements and net
distributions paid to Partners. Liquid assets of the Partnership as of June 30,
1994 were comprised of amounts held for working capital purposes and
undistributed Sale Proceeds.
Net cash provided by operating activities decreased from $1,020,800 for the six
months ended June 30, 1993 to $844,000 for the six months ended June 30, 1994.
This decrease was primarily due to the disposition and sale in 1993 of
Wellington A and B, respectively, and the timing and payment of certain
Partnership expenses and the collection of rental revenues.
Net cash provided by investing activities increased from approximately $656,300
for the six months ended June 30, 1993 to $2,029,700 for the six months ended
June 30, 1994. This increase was primarily the result of proceeds received from
the sale of Wellington C in 1994 being greater than the proceeds received on
the disposition of Wellington A and the sale of Wellington B in 1993 as well as
the decrease in payments made in 1994 for capital and tenant improvements.
On June 8, 1994, Farmington Hills Associates, a joint venture in which the
Partnership and an Affiliated partnership each have a 50% interest, sold
Wellington C in the Wellington North Office Complex for the sale price of
$4,500,000. The Partnership's share of the net proceeds from this sale
approximated $2,170,300. The proceeds from this sale were added to the
Partnership's working capital.
During the six months ended June 30, 1994, the Partnership spent approximately
$287,300 for capital and tenant improvements and has budgeted to spend
approximately $940,000 during the remainder of 1994. Of the remaining budgeted
amount, approximately $370,000 and $400,000 relates to anticipated capital and
tenant improvements and leasing costs expected to be incurred at Park Plaza and
Holiday, respectively. The General Partner believes these improvements are
necessary in order to maintain occupancy levels in very competitive markets, as
well as to maximize rental rates charged to new and renewing tenants.
Net cash used for financing activities decreased from $973,700 for the six
months ended June 30, 1993 to $406,000 for the six months ended June 30, 1994,
primarily due to a decrease in the payment of cash distributions to Limited
Partners from $978,500 in 1993 to $384,700 in 1994.
The General Partner continues to take a conservative approach to projections of
future rental income and to maintain higher levels of cash reserves for the
Partnership. The higher levels of cash reserves are needed due to the
anticipated capital and tenant improvements necessary to be made to the
Partnership's properties during the next several years. As a result of this,
the Partnership continues to reserve amounts from Cash Flow to supplement
working capital reserves. For the quarter and six months ended June 30, 1994,
Cash Flow retained to supplement working capital reserves approximated $233,600
and $577,100, respectively.
Distributions to Limited Partners for the quarter ended June 30, 1994 were made
at an annualized rate of 2.45% on total Capital Investment. Cash distributions
are made 60 days after the quarter-end. The amount of future distributions to
the Limited Partners will ultimately be dependent upon the performance of the
Partnership's investments as well as the amount of Cash Flow retained for
future cash requirements. Therefore, there can be no assurance of the
availability or the amount of future Cash Flow for distribution to Partners.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
- - ------- ---------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter ended June
30, 1994.
<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. - 3
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: August 12, 1994 By: /s/ DOUGLAS CROCKER II
--------------- -------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 12, 1994 By: /s/ MICHAEL J. MCHUGH
--------------- -------------------------------------
MICHAEL J. MCHUGH
Senior Vice President and
Chief Financial Officer
