<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 September 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14122
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FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 3
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 36-3330657
- --------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
- ------------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
DOCUMENTS INCORPORATED BY REFERENCE:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the 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>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
September 30,
1996 December 31,
(Unaudited) 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 1,908,600 $ 1,908,600
Buildings and improvements 17,698,300 17,468,200
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19,606,900 19,376,800
Accumulated depreciation and amortization (6,394,400) (5,851,700)
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Total investment properties, net of accumulated
depreciation and amortization 13,212,500 13,525,100
Cash and cash equivalents 3,292,800 8,022,200
Investments in debt securities 3,462,000
Restricted cash 112,500 62,500
Rents receivable 22,700 29,600
Investment in joint venture 4,828,400 4,620,200
Other assets (including amount due from joint
venture of $895,800 and $804,400, respectively) 904,200 817,000
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$25,835,100 $27,076,600
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 357,200 $ 429,100
Due to Affiliates 75,000 136,100
Distributions payable 2,355,800 711,500
Security deposits 60,500 55,700
Other liabilities 7,000 4,400
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2,855,500 1,336,800
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Partners' capital:
General Partner (deficit) (183,300) (183,300)
Limited Partners (45,737 Units issued and
outstanding) 23,162,900 25,923,100
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22,979,600 25,739,800
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$25,835,100 $27,076,600
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1996 (Unaudited) and the year ended
December 31, 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January 1,
1995 $(163,300) $29,202,100 $29,038,800
Net income (loss) for the year ended
December 31, 1995 249,300 (854,900) (605,600)
Distributions for the year ended December
31, 1995 (269,300) (2,424,100) (2,693,400)
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Partners' (deficit) capital, December 31,
1995 (183,300) 25,923,100 25,739,800
Net income for the nine months ended
September 30, 1996 177,900 840,700 1,018,600
Distributions for the nine months ended
September 30, 1996 (177,900) (3,600,900) (3,778,800)
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Partners' (deficit) capital, September
30, 1996 $(183,300) $23,162,900 $22,979,600
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $751,700 $762,900
Interest 115,200 137,500
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866,900 900,400
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Expenses:
Depreciation and amortization 176,100 211,500
Property operating:
Affiliates 40,900 53,200
Nonaffiliates 151,900 154,700
Real estate taxes 73,200 79,300
Insurance--Affiliate 9,200 6,200
Repairs and maintenance 115,600 102,700
General and administrative:
Affiliates 12,800 20,300
Nonaffiliates 22,100 31,200
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601,800 659,100
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Net income before income from participation in joint venture 265,100 241,300
Income from participation in joint venture 62,600 61,200
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Net income $327,700 $302,500
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Net income allocated to General Partner $ 35,600 $ 68,600
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Net income allocated to Limited Partners $292,100 $233,900
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Net income allocated to Limited Partners per Unit (45,737
Units outstanding) $ 6.39 $ 5.11
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $2,293,600 $2,326,300
Interest 346,200 456,400
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2,639,800 2,782,700
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Expenses:
Depreciation and amortization 542,700 626,900
Property operating:
Affiliates 129,600 139,600
Nonaffiliates 468,600 438,200
Real estate taxes 244,700 238,000
Insurance--Affiliate 27,400 18,700
Repairs and maintenance 329,200 295,800
General and administrative:
Affiliates 33,600 37,500
Nonaffiliates 120,000 129,200
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1,895,800 1,923,900
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Net income before income from participation in joint
venture 744,000 858,800
Income from participation in joint venture 274,600 252,000
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Net income $1,018,600 $1,110,800
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Net income allocated to General Partner $ 177,900 $ 198,200
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Net income allocated to Limited Partners $ 840,700 $ 912,600
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Net income allocated to Limited Partners per Unit
(45,737 Units outstanding) $ 18.38 $ 19.95
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</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,018,600 $1,110,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 542,700 626,900
(Income) from participation in joint venture (274,600) (252,000)
Changes in assets and liabilities:
Decrease in rents receivable 6,900 1,500
Decrease in other assets 4,200 14,200
(Decrease) increase in accounts payable and accrued
expenses (71,900) 19,600
(Decrease) increase in due to Affiliates (61,100) 45,000
Increase (decrease) in other liabilities 2,600 (600)
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Net cash provided by operating activities 1,167,400 1,565,400
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Cash flows from investing activities:
Payments for capital and tenant improvements (230,100) (196,200)
(Increase) in investments in debt securities (3,462,000)
(Increase) in restricted cash (50,000)
(Funding of) loans to joint venture (91,400) (85,400)
Distributions received from joint venture 66,400 454,300
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Net cash (used for) provided by investing activities (3,767,100) 172,700
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Cash flows from financing activities:
Distributions paid to Partners (2,134,500) (1,854,800)
Increase (decrease) in security deposits 4,800 (300)
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Net cash (used for) financing activities (2,129,700) (1,855,100)
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Net (decrease) in cash and cash equivalents (4,729,400) (117,000)
Cash and cash equivalents at the beginning of the
period 8,022,200 8,442,900
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Cash and cash equivalents at the end of the period $3,292,800 $8,325,900
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 1996 are not necessarily
indicative of the operating results for the year ending December 31, 1996.
The financial statements include the Partnership's 50% interest in two joint
ventures and 25% interest in another joint venture all 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'
(deficit) capital is included in the financial statements.
Investment in joint venture represents the recording of the Partnership's
interest, under the equity method of accounting, in a joint venture with an
Affiliated partnership. The joint venture acquired a preferred majority
interest in a joint venture with the seller of the Lansing, Michigan property.
Under the equity method of accounting, the Partnership recorded its initial
interest at cost and adjusts its investment account for its share of joint
venture income or loss and its distributions of cash flow (as defined by the
joint venture agreement).
Commercial rental properties held for investment are recorded at cost, net of
any provisions for value impairment, and depreciated (exclusive of amounts, if
any, allocated to land and value impairments) on the straight-line method over
their estimated useful lives. Upon classifying a commercial rental property as
held for disposition, no further depreciation or amortization of such property
is provided for in the financial statements. Lease acquisition fees are
recorded at cost and amortized 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. The Standard also addressed the accounting for long-
lived assets that are expected to be disposed of. The adoption of the Standard
did not have a material effect on the Partnership's financial statements.
Evaluation of the potential impairment of the value of the Partnership's assets
is performed on an individual property basis.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
Investments in debt securities are comprised of corporate debt securities and
obligations of the United States government totaling $3,462,000 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 a maturity of less than one year when
purchased.
Certain reclassifications have been made to the previously reported 1995
statements in order to provide comparability with the 1996 statements. These
reclassifications have no effect on net income or Partners' (deficit) capital.
Reference is made to the Partnership's annual report for the year ended
December 31, 1995 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' (deficit) 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 May 16, 1986, 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. In addition, Net Profits (exclusive of Net Profits
from the sale or disposition of Partnership properties) are allocated to the
General Partner in an amount equal to the greater of 1% of such Net Profits or
the Partnership Management Fee paid by the Partnership to the General Partner
and, 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 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 all 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 positive 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 from the sale,
disposition or provision for value impairment of Partnership properties are
allocated: first, after giving effect to any distributions of Sale Proceeds
from the transaction to all Partners with positive balances in their Capital
Accounts, pro rata in proportion to such respective positive balances, to the
extent of the total amount of such positive balances; and second, the balance,
if any, 1% to the General Partner and 99% to the Limited Partners.
Notwithstanding anything to the contrary, there shall be allocated to the
General Partner not less than 1% of all items of Partnership income, gain,
loss, deduction and credit during the existence of the Partnership. For the
quarter and nine months ended September 30, 1996, the General Partner was
entitled to a Partnership Management Fee, and accordingly, allocated Net
Profits, of $35,600 and $177,900, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Paid
-------------------
Quarter Nine Months Payable
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $53,100 $151,800 $24,000
Reimburement of property insurance premiums, at
cost 9,200 27,400 None
Real estate commissions (a) None None 40,300
Reimbursement of expenses, at cost:
--Accounting 5,500 21,100 7,700
--Investor communications 1,700 8,600 3,000
--Legal 500 2,700 None
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$70,000 $211,600 $75,000
- ----------------------------------------------------------------------------
</TABLE>
(a) As of September 30, 1996, the Partnership owed $40,300 to the General
Partner for real estate commissions earned in connection with the sales of
Partnership properties. These commissions have been accrued but not paid.
In accordance with the Partnership Agreement, the Partnership will not pay
the General Partner or any Affiliate a real estate commission from the sale
of a Partnership property until Limited Partners have received cumulative
distributions of Sale or Financing Proceeds equal to 100% of their Original
Capital Contribution, plus a cumulative return (including all Cash Flow (as
defined in the Partnership Agreement) which has been distributed to the
Limited Partners from the initial investment date) of 6% simple interest
per annum on their Capital Investment.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1995 for a discussion of the Partnership's business.
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the quarters and nine months ended September 30,
1996 and 1995. The discussion following the table should be read in conjunction
with the Financial Statements and Notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative Operating Results (a)
For the Quarters For the Nine Months
Ended Ended
9/30/96 9/30/95 9/30/96 9/30/95
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PARK PLAZA PROFESSIONAL BUILDING (50%)
Rental revenues $403,500 $424,100 $1,253,200 $1,281,700
- --------------------------------------------------------------------------------------
Property net income $ 86,000 $ 92,800 $ 254,100 $ 326,600
- --------------------------------------------------------------------------------------
Average occupancy 83% 85% 84% 87%
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ELLIS BUILDING (50%)
Rental revenues $293,100 $281,800 $ 875,300 $ 846,400
- --------------------------------------------------------------------------------------
Property net income $ 91,700 $ 68,500 $ 288,000 $ 222,700
- --------------------------------------------------------------------------------------
Average occupancy 95% 91% 94% 94%
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3120 SOUTHWEST FREEWAY OFFICE BUILDING (25%)
Rental revenues $ 55,200 $ 57,000 $ 159,100 $ 178,700
- --------------------------------------------------------------------------------------
Property net income (loss) $ 1,200 $ (4,900) $ 2,200 $ 3,500
- --------------------------------------------------------------------------------------
Average occupancy 85% 88% 83% 92%
- --------------------------------------------------------------------------------------
</TABLE>
(a) The above table excludes certain income and expense items which are either
not directly related to individual property operating results such as
interest income, general and administrative expenses and income from
participation in joint venture or are related to properties previously
owned by the Partnership.
Unless otherwise disclosed, discussions of fluctuations between 1996 and 1995
refer to both the quarters and nine months ended September 30, 1996 and 1995.
Net income for the Partnership increased by $25,200 for the quarter ended
September 30, 1996 when compared to the quarter ended September 30, 1995. The
increase was primarily the result of improved operating results at Ellis
Building ("Ellis") and 3120 Southwest Freeway Office Building ("Southwest
Freeway") as well as reduced general and administrative expenses which was the
result of a decrease in salaries and printing and mailing expenses. The
increase was partially offset by diminished operating results at Park Plaza
Professional Building ("Park Plaza") and a decrease in interest income which
was due to a decrease in rates available for investment, and to a lesser
extent, funds available for such investments.
Net income decreased by $92,200 for the nine months ended September 30, 1996
when compared to the nine months ended September 30, 1995. The decrease was
primarily the result of diminished operating results at Park Plaza together
with a decrease in interest income, as previously discussed. Partially
offsetting the decrease was improved operating results at Ellis and an increase
in the Partnership's equity interest in Holiday Office Park North and South
("Holiday") along with a decrease in general and administrative expenses which
was primarily due to a decrease in printing, mailing and data processing costs.
Rental revenues decreased by $11,200 or 1.6% and $32,700 or 1.4% for the
quarter and nine months ended September 30, 1996, respectively, when compared
to the quarter and nine months ended September 30, 1995. The primary factors
which caused the decreases were decreased base rental income at Park Plaza and
Southwest Freeway as a result of a decrease in the average occupancy rate and
decreased utility reimbursements and roof antenna income at Ellis. These
decreases were partially offset by an increase in tenant expense reimbursements
at Park Plaza and Ellis and increased parking income at Park Plaza.
Repairs and maintenance expense increased by $12,900 and $33,400, respectively,
for the comparable quarterly and nine-month periods. The primary factors which
caused the increases were increased expenditures associated with the parking
facility at Park Plaza and increases in maintenance staff salaries at all of
the Partnership's properties. Partially offsetting the increases were decreases
in repairs to the HVAC units at Park Plaza and Southwest Freeway.
Property operating expense decreased by $15,100 for the quarter ended September
30, 1996 when compared to the quarter ended September 30, 1995. The decrease
was primarily the result of a decrease in security costs at Park Plaza and
decreased professional services at all of the Partnership's properties. The
decrease was partially offset by an increase in salaries at Park Plaza.
Property operating expense increased by $20,400 for the nine months ended
September 30, 1996 when compared to the nine months ended September 30, 1995.
The increase was primarily the result of increases in salaries and utility
expense at Park Plaza, partially offset by decreases in utility expense at
Ellis and advertising and promotion at Southwest Freeway.
Depreciation and amortization decreased by $35,400 and $84,200, respectively,
for the quarterly and nine-month periods under comparison. The decreases were
primarily due to the effects of the provisions for value impairment recorded
for all of the Partnership's properties during the year ended December 31,
1995.
The Partnership's share of net income from Holiday increased by $1,400 and
$22,600, respectively, for the quarterly and nine-month periods under
comparison. The increases were primarily the result of increased rental
revenues due to an increase in occupancy and decreased property operating
expenses primarily resulting from a decrease in utilities. Partially offsetting
this increase was increased repairs and maintenance.
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' leases and addressing
any
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
properties. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions are treated as
a return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as defined by generally
accepted accounting principles ("GAAP"), since certain items are treated
differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows,
as defined by GAAP. The following table includes a reconciliation of Cash Flow
(as defined in the Partnership Agreement) to cash flow provided by operating
activities as defined by GAAP. Such amounts are not indicative of actual
distributions to Partners and should not necessarily be considered as an
alternative to the results disclosed in the Statements of Income and Expenses
and Statements of Cash Flows.
<TABLE>
<CAPTION>
Comparative Cash Flow Results
For the Nine Months Ended
9/30/96 9/30/95
- -----------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership
Agreement) $ 1,694,800 $ 1,831,700
Less: Cash Flow (as defined in Joint Venture
Agreement) from Joint Venture (408,100) (346,000)
Items of reconciliation:
Decrease in current assets 11,100 15,700
(Decrease) increase in current liabilities (130,400) 64,000
- -----------------------------------------------------------------------------
Net cash provided by operating activities $ 1,167,400 $ 1,565,400
- -----------------------------------------------------------------------------
Net cash (used for) provided by investing
activities $ (3,767,100) $ 172,700
- -----------------------------------------------------------------------------
Net cash (used for) financing activities $ (2,129,700) $ (1,855,100)
- -----------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $136,900
for the nine months ended September 30, 1996 when compared to nine months ended
September 30, 1995 was primarily due to the decreases in interest income, as
previously discussed and operating results, exclusive of depreciation and
amortization, at Park Plaza.
The decrease in the Partnership's cash position of $4,729,400 as of September
30, 1996 when compared to December 31, 1995, was primarily the result of
investments in debt securities, payments for capital and tenant improvements
and leasing costs and distributions paid to Partners exceeding net cash
provided by operating activities. Liquid assets (including cash, cash
equivalents and investments in debt securities) of the Partnership are
comprised of undistributed Sales Proceeds and Cash Flow (as defined in the
Partnership Agreement) and amounts held for working capital purposes.
The decrease in net cash provided by operating activities of $398,000 for the
nine months ended September 30, 1996 when compared to the nine months ended
September 30, 1995 was primarily due to the decrease in operating results,
excluding depreciation and amortization, at all of the Partnership's properties
and to a lesser extent to the timing of the payment of expenses, most notably
at Ellis.
Net cash provided by (used for) investing activities changed from $172,700 for
the nine months ended September 30, 1995 to $(3,767,100) for the nine months
ended September 30, 1996. The change was primarily due to increases in
investments in debt securities, payments made for capital and tenant
improvements and leasing costs at the Partnership's properties and reductions
in distributions 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 as they are held for working capital.
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 nine months ended September 30,
1996, the Partnership spent $230,100 for capital and tenant improvements and
leasing costs and has projected to spend approximately $140,000 during the
remainder of 1996. Of the projected amount, approximately $110,000 and $30,000
relates to anticipated improvement and leasing costs expected to be incurred at
Park Plaza and Ellis, respectively. 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 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 reduction in distributions from
Holiday is the result of increased tenant improvements during 1996 when
compared to 1995.
The increase in net cash used for financing activities of $274,600 for the nine
months ended September 30, 1996 when compared to the nine months ended
September 30, 1995 was due primarily to an increase in distributions paid to
Partners.
The General Partner continues to take a conservative approach to projections of
future rental income in its determination of adequate levels of cash reserves
due to the anticipated capital and tenant improvements and leasing costs
necessary to be made at the Partnership's properties during the next several
years. For the nine months ended September 30, 1996, the Partnership included
$83,900 of previously undistributed Cash Flow (as defined in the Partnership
Agreement) in its distribution to Partners.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Distributions to Limited Partners for the quarter ended September 30, 1996 were
declared in the amount of $320,200, or $7.00 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 distribution to Partners.
As a result of the performance of the Partnership's remaining properties, the
General Partner has determined that Sales Proceeds previously reserved for
working capital purposes can be distributed to the Limited Partners.
Accordingly, the Partnership has declared a special distribution in the amount
of $2,000,100, or $43.73 per Unit, to Limited Partners of record as of October
1, 1996. This special distribution will be included with the third quarter
distribution to Limited Partners on November 30, 1996.
7
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter ended
September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 3
By: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: November 13, 1996 By: /s/ DOUGLAS CROCKER II
----------------- ---------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 13, 1996 By: /s/ NORMAN M. FIELD
----------------- --------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000757528
<NAME> First Capital Institutional Real Estate - 3
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,405,300
<SECURITIES> 3,462,000
<RECEIVABLES> 22,700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,890,000
<PP&E> 19,606,900
<DEPRECIATION> 6,394,400
<TOTAL-ASSETS> 25,835,100
<CURRENT-LIABILITIES> 2,808,200
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 22,979,600
<TOTAL-LIABILITY-AND-EQUITY> 25,835,100
<SALES> 0
<TOTAL-REVENUES> 2,639,800
<CGS> 0
<TOTAL-COSTS> 1,199,500
<OTHER-EXPENSES> 153,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,018,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,018,600
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,018,600
<EPS-PRIMARY> 18.38
<EPS-DILUTED> 18.38
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