<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, 1995
-------------------------------------------
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 Identification No.)
incorporation or organization)
<TABLE>
<S> <C>
Two North Riverside Plaza, Suite 950, 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. [ ]
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.
2-94419), 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.-3 (the
"Partnership"), is a limited partnership organized in 1984 under the Florida
Uniform Limited Partnership Law. The Partnership sold $45,737,000 in Limited
Partnership Units ("the Units") to the public from January 1985 to May 1986,
pursuant to a Registration Statement on Form S-11 filed with the Securities and
Exchange Commission (Registration Statement No. 2-94419). 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, or to-be-
developed 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 March 1986 to March 1989, the Partnership purchased 50%
interests in three joint ventures and a 25% interest in one joint venture each
with Affiliated partnerships. Two of the 50% joint ventures and the 25% joint
venture were each formed for the purpose of acquiring a 100% interest in certain
real property and one 50% joint venture was formed for the purpose of
participating in a mortgage loan investment, which was recognized as of July 1,
1990 as being foreclosed in-substance and was recorded as two real property
investments. 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 the
Partnership's joint ventures, prior to dissolution, are operated under the
common control of First Capital Financial Corporation (the "General Partner").
As of December 31, 1995, the Partnership and its Affiliate have dissolved the
50% joint venture which was originally formed for the purpose of participating
in a mortgage loan investment, as a result of the sale and/or disposition of the
two real property investments.
Property management services for the Partnership's real estate investments are
provided by an Affiliate of the General Partner for fees calculated as a
percentage of gross rents received from the 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, 1996 there were twenty employees at the Partnership's properties
for on-site property maintenance and administration.
ITEM 2. PROPERTIES (a)(b)
As of December 31, 1995, the Partnership owned through joint ventures the
following four property interests, all of which were owned in fee simple.
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ----------------------------------------- ----------------- ------------ -----------
<S> <C> <C> <C>
Office Buildings:
Holiday Office Park North and South (d) Lansing, Michigan 398,228 77 (1)
Park Plaza Professional Building (e) Houston, Texas 177,395 66 (1)
</TABLE>
2
<PAGE>
ITEM 2. PROPERTIES (a)(b) - Continued
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ---------------------------- ------------------- ------------ -----------
Office Buildings:
- -----------------
Ellis Building (e) Sarasota, Florida 130,189 30 (2)
3120 Southwest Freeway (f) Houston, Texas 89,346 33
(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 19 years utilizing Accelerated Cost Recovery System to 40
years utilizing the straight-line method. The Partnership's portion of
real estate taxes for Park Plaza Professional Building ("Park Plaza"),
Holiday Office Park North and South ("Holiday") and the Ellis Building
("Ellis"), the Partnership's most significant properties, was $235,000,
$204,300 and $79,300, respectively, for the year ended December 31,
1995. 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) The Partnership owns a 50% interest in a joint venture which owns a 75%
preferred majority interest in this property.
(e) The Partnership owns a 50% joint venture interest in this property.
(f) The Partnership owns a 25% joint venture interest in this property.
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:
Property Name 1995 1994 1993 1992 1991
- --------------------- ---------- ---------- ---------- ---------- -----------
Holiday 82% 73% 84% 76% 85%
Park Plaza 86% 90% 91% 91% 89%
Ellis 93% 95% 86% 96% 98%
3
<PAGE>
ITEM 2. PROPERTIES - Continued
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 1995 1994 1993 1992 1991
- ------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Holiday $8.86 $9.32 $8.57 $8.36 $8.15
Park Plaza $18.16 $18.44 $17.65 $16.99 $16.63
Ellis Building $13.79 $13.32 $13.08 $12.57 $13.07
</TABLE>
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:
<TABLE>
<CAPTION>
Partnership's Share
of the Range of Percentage
per Annum Base Rents (a) for of Net Renewal
---------------------------- Leasable Options
Final Twelve Expiration Square (Renewal
Months of Date of Footage Options/
1996 Lease Lease Occupied Years)
--------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Holiday
- -------
Michigan Public Service
Commission
(state government
administration) $ 373,700 $ 373,700 8/31/00 18% None
Park Plaza
- ----------
AMI Park Plaza Hospital
(health care services)(b) $ 77,900 (b) 5/31/96 11% None
Ellis
- -----
NationsBank
(banking) $ 401,800 $ 403,700 3/9/01 42% 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 each of the years between 1996 and the final twelve months
of each of the above leases is no lesser or greater than the amounts listed
in the above table.
(b) Per annum base rents for 1996 are for the period January 1, 1996 through May
31, 1996 (the expiration date of the lease).
4
<PAGE>
<TABLE>
<CAPTION>
ITEM 2. PROPERTIES - Continued
The amounts in the following table represent the Partnership's portion of leases
in the year of expiration (assuming no lease renewals) for the Partnership's
most significant properties through the year ended December 31, 2005:
Number Base Rents % of
of in Year of Total Base
Year Tenants Square Feet Expiration(a) Rents (b)
---- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1996 54 102,973 $ 333,700 10.16%
1997 27 54,343 $ 208,800 7.32%
1998 34 81,656 $ 335,900 13.59%
1999 28 71,214 $ 285,200 14.81%
2000 17 125,872 $ 461,600 32.02%
2001 8 111,190 $ 139,500 34.86%
2002 3 22,994 $ 102,800 43.26%
2003 None None None None
2004 1 10,520 $ 40,300 49.71%
2005 1 3,709 $ 30,600 100.00%
(a) Represents the Partnership's portion of base rents to be collected each year on
expiring leases.
(b) 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, 1995.
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, 1995. Ordinary routine
litigation incidental to the business which is not deemed material was
maintained during the quarter ended December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a, b, c & d) None.
</TABLE>
5
<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, 1996, there were 7,394 Holders of Units.
ITEM 6. SELECTED FINANCIAL DATA
- ------ -----------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues................ $ 3,671,800 $ 3,761,600 $ 3,916,100 $ 4,263,800 $ 4,388,600
Net (loss) income............. $ (605,600) $ (1,019,100) $ 1,032,000 $ (2,487,800) $ 610,900
Net (loss) allocated to
Limited Partners............. $ (854,900) $ (1,159,500) $ 977,900 $ (2,462,900) $ 604,800
Net (loss) income
allocated to Limited
Partners per Unit
(45,737 Units issued
and outstanding) (a)......... $ (18.69) $ (25.35) $ 21.38 $ (53.85) $ 13.22
Total assets.................. $ 27,076,600 $ 30,120,200 $ 32,409,600 $ 35,171,600 $ 40,808,400
Mortgage loan(s) payable...... None None None $ 2,419,000 $ 5,569,000
Distributions to Limited
Partners per Unit
(45,737 Units issued
and outstanding) (b)......... $ 53.00 $ 30.67 $ 29.05 None None
Return of capital
to Limited Partners
per Unit (45,737 Units
issued and outstanding) (c).. $ 53.00 $ 30.67 $ 7.67 None None
Other data:
- -----------
Investment in
commercial rental
properties (net of
accumulated
depreciation and
amortization)................ $ 13,525,100 $ 15,597,800 $ 19,577,300 $ 22,700,600 $ 29,106,500
Number of real
property interests
owned at December 31......... 4 4 5 5 6
</TABLE>
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA - Continued
- ------- -------------------------------------
(a) Net income (loss) allocated to Limited Partners per Unit for 1993 and
1992 included an extraordinary gain on extinguishment of debt.
(b) Distributions to Limited Partners per Unit for the year ended December
31, 1993 included Sale Proceeds of $18.45.
(c) 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.
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,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash Flow (as defined
in the Partnership
Agreement) (a) $ 2,433,900 $ 2,425,700 $ 2,164,900 $ 1,795,300 $ 1,972,500
Items of reconciliation:
Principal payments
on mortgage loans
payable 12,500
(Distributions) from
joint venture (490,900) (493,000) (471,800) (269,400) (783,700)
Changes in current
assets and liabilities:
(Increase) decrease
in current assets (4,700) 69,200 162,700 (35,200) 18,600
Increase (decrease)
in current liabilities 98,700 (120,200) 38,500 263,400 392,200
----------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities $ 2,037,000 $ 1,881,700 $ 1,894,300 $ 1,754,100 $ 1,612,100
=========== =========== =========== =========== ===========
Net cash provided by
(used for) investing
activities $ 79,000 $ 1,880,200 $ 31,000 $ (672,300) $ 286,300
=========== =========== =========== =========== ===========
Net cash (used for)
financing activities $(2,536,700) $(1,150,100) $(1,249,100) $ (119,200) $ (262,400)
=========== =========== =========== =========== ===========
</TABLE>
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA - Continued
- ------- -----------------------------------
(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>
ITEM 7. 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 sold 45,737 Limited Partnership Units ("the Units") to the
public from January 1985 to May 1986. From March 1986 to March 1989, the
Partnership purchased 50% interests in three joint ventures and a 25% interest
in one joint venture each with Affiliated partnerships. Two of the 50% joint
ventures and the 25% joint venture were each formed for the purpose of
acquiring a 100% interest in certain real property and one 50% joint venture
was formed for the purpose of participating in a mortgage loan investment,
which was recognized as of July 1, 1990 as being foreclosed in-substance and
was recorded as two real property investments. 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 the Partnership's joint ventures,
prior to dissolution, 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
1992 the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle with the disposal of
North Valley I Office Complex ("North Valley") as a result of a conveyance of
title to the mortgage holder in lieu of foreclosure. 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 and dispositions.
Partnership operating results are generally expected to decline as real
property interests are sold or disposed of since the Partnership no longer
receives income generated from such real property interests. In addition, as of
December 31, 1995, the Partnership and its Affiliate have dissolved the 50%
joint venture which was originally formed for the purpose of participating in a
mortgage loan investment as a result of the sale and/or disposition of the
three buildings at the Wellington North Office Complex and the disposal of the
North Valley.
Several factors have had an effect on operating performance and market values
of the Partnership's properties. While occupancy rates have generally continued
to gradually improve, the age of the Partnership's remaining properties and
increased competition from newer buildings with higher vacancy has caused
rental rates to either decline or remain relatively flat in most instances. In
addition, as further described in the Operations section below, the uncertainty
surrounding the health care industry has had an adverse effect on the operating
results of Park Plaza Professional Building ("Park Plaza").
The General Partner has historically reviewed significant factors regarding the
properties such as those mentioned above to determine that the properties are
carried at lower of cost or market, and where appropriate has made value
impairment adjustments. These factors include, but are not limited to 1) recent
and/or budgeted operating performance; 2) research of market conditions; 3)
economic trends affecting major tenants; 4) economic factors related to the
region where the properties are located and 5) when available, recent property
appraisals. As a result of the current year review, the Partnership has
recorded provisions for value impairment totaling $1,600,000 of which $900,000
related to Park Plaza for the year ended December 31, 1995. For further
information related to these provisions, see Note 9 of Notes to Financial
Statements. The General Partner will continue to evaluate real estate market
conditions affecting each of the Partnership's properties, in its efforts to
maximize the realization of proceeds on their eventual disposition. The
recording of the provisions for value impairment does not impact cash flows as
defined by generally accepted accounting principles or Cash Flow (as defined in
the Partnership Agreement).
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1995, 1994 and 1993.
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,
--------------------------------
1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
PARK PLAZA PROFESSIONAL BUILDING
Rental revenues $1,699,300 $1,815,400 $1,889,200
- -------------------------------------------------------------
Property net
income (b) $ 395,700 $ 483,100 $ 577,300
- -------------------------------------------------------------
Average occupancy 87% 89% 93%
- -------------------------------------------------------------
ELLIS BUILDING
Rental revenues $1,121,400 $1,118,300 $1,084,300
- -------------------------------------------------------------
Property net income(b) $ 289,400 $ 324,900 $ 269,500
- -------------------------------------------------------------
Average occupancy 93% 94% 90%
- -------------------------------------------------------------
3120 SOUTHWEST FREEWAY OFFICE BUILDING
Rental revenues $ 235,700 $ 237,700 $ 202,600
- -------------------------------------------------------------
Property net income (loss) $ 15,000 $ 15,600 $ (13,900)
- -------------------------------------------------------------
Average occupancy 91% 91% 86%
- -------------------------------------------------------------
WELLINGTON NORTH OFFICE COMPLEX (C)
Rental revenues $ 215,400 $ 497,800
- -------------------------------------------------------------
Property net income $ 5,300 $ 36,000
- -------------------------------------------------------------
Average occupancy 90% 78%
- -------------------------------------------------------------
</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. Income (loss) from participation in
joint venture is also excluded from the table above.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
(b) Property net income excludes provisions for value impairment included in
the Statements of Income and Expenses for the years ended December 31, 1995
and 1994. See Note 9 of Notes to Financial Statements for further
information.
(c) Wellington A of the Wellington North Office Complex ("Wellington A") was
disposed of on March 17, 1993. The property net income excludes the (loss)
on the disposition of the property of $(1,262,900) and the extraordinary
gain on extingishment of debt in connection with the disposition of this
property of $1,464,000, which were included in the Statement of Income and
Expenses for the year ended December 31, 1993. Wellington B of the
Wellington North Office Complex ("Wellington B") was sold on March 23,
1993. The property net income includes the (loss) on the sale of property
of $(163,600) which was included in the Statement of Income and Expenses
for the year ended December 31, 1993. Wellington C of the Wellington North
Office Complex ("Wellington C") was sold on June 8, 1994. The property net
income excludes the (loss) on the sale of the property of $(48,900) 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 8 of Notes to the Financial Statements.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net (loss) for the Partnership decreased $413,500 for the year ended December
31, 1995 when compared to the year ended December 31, 1994. The effects of the
provisions for value impairment reported for the years ended December 31, 1995
and 1994, together with the 1994 sale of Wellington C had a significant impact
on the Partnership's results for the comparable years. For the years ended
December 31, 1995 and 1994 the Partnership reported provisions for value
impairment of $1,600,000 and $1,500,000, respectively. The Partnership's
Statement of Income and Expenses for the year ended December 31, 1994 included
net (loss) of $(43,600) (which includes property operating income of $5,300)
from Wellington C (for further information see Note 8 of Notes to Financial
Statements).
The Partnership generated net income of $974,900 for the year ended December
31, 1995, a $450,200 increase when compared to the year ended December 31,
1994, exclusive of the effects of Wellington C and provisions for value
impairment. The primary reasons for the increase in net income were: 1)
increased interest income of $221,100 due to an increase in rates available on
the Partnership's short-term investments; 2) decreased losses from the
Partnership's equity investment in the joint venture which owns Holiday Office
Park North and South ("Holiday") of $348,700 and 3) a slight decrease in
general and administrative expenses due to a decrease in accounting and data
processing fees, partially offset by an increase in salaries and printing and
mailing costs. Partially offsetting the increases in net income were decreased
operating results at the Ellis Building ("Ellis"), Park Plaza and 3120
Southwest Freeway ("Southwest Freeway") totaling $123,500.
For purposes of the following discussion, the comparative operating results of
Wellington C have been excluded.
Rental revenues decreased $115,000, or 3.6%, for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The primary factor
which caused the decrease was a decrease in rental revenues of $116,100 at Park
Plaza due to the uncertainties surrounding the health care industry. Over 95%
of the leasable square footage at Park Plaza is currently leased to tenants in
the health care industry. In order to maintain occupancy levels at Park Plaza,
the Partnership in 1994 began to offer to new and renewing tenants reduced
lease rates and the use of the current year as a base year for tenant expense
reimbursements. Accordingly, rental revenues at Park Plaza have decreased due
to the lower effective rental rate charged to new and renewing tenants and
lower tenant expense reimbursements. Rental revenues also decreased at Park
Plaza due to a reduction in lease settlement fees received from tenants which
in total were $21,300 greater in 1994 than in 1995 and a decrease in the
recognition of security deposits as income in 1995.
Depreciation and amortization expenses decreased $40,500 for the years under
comparison primarily as a result of the effects of provisions for value
impairment recorded at Park Plaza and Ellis as of December 31, 1994.
Insurance expense decreased $1,200 for the year ended December 31, 1995 when
compared to the prior year. The decrease was primarily due to lower group rates
on the Partnership's combined insurance coverage as a result of a minimal
amount of claims made over the past several years.
Repairs and maintenance expense decreased $2,500 for the year ended December
31, 1995 when compared to the year ended December 31, 1994. This decrease was
primarily the result of decreased personnel costs at Park Plaza of $22,900,
partially offset by: 1) increased cleaning supplies and uniforms of $10,700 at
Ellis; 2) an increase of $6,000 at Park Plaza for the repair and maintenance of
the HVAC system and 3) an increase of $3,300 at Southwest Freeway primarily as
a result of window maintenance and replacement.
Real estate tax expense increased $51,600 for the years under comparison
primarily due to increases at Park Plaza and Southwest Freeway as a result of
projected increases in assessed property valuations and tax rates.
Property operating expenses increased $1,900 for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The primary factors
which caused the increase were: 1) increased property operating expenses as a
result of new personal computers, printers and software at Park Plaza and
Southwest Freeway totaling $5,300; 2) increased security costs at Park Plaza
and Southwest Freeway of $2,700 and 3) increased management fees at Ellis of
$35,300. Although management fee payments were higher in 1994 than 1995, the
Affiliated management fees increased for the comparable periods due to the fact
that leasing related costs, which are ordinarily paid to and provided by an
Affilate of the General Partner as part of its property management fee were
paid to outside brokers in 1994 and the costs were capitalized and amortized
over the respective lease terms of new tenants. Partially offsetting the
increase in property operating expenses were: 1) lower utility costs totaling
$29,100 at Southwest Freeway and Park Plaza and 2) lower property management
and leasing fees totaling $10,800 at Park Plaza and Southwest Freeway as a
result of lower rental revenues at these properties which determines the amount
of property management and leasing fees.
Exclusive of the provisions for value impairment, net income at Holiday
increased $41,600 for the year ended December 31, 1995 when compared to the
year ended December 31,
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
1994. The increase in net income was due to decreased repairs and maintenance,
real estate taxes and insurance expense. Partially offsetting the increase in
net income was decreased rental revenues.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 TO THE YEAR ENDED DECEMBER 31,
1993
Net income (loss) changed from net income of $1,032,000 for the year ended
December 31, 1993 to a net (loss) of $(1,019,100) for the year ended December
31, 1994. The sales of Partnership properties together with provisions for
value impairment had a significant impact on the comparison of net income
(loss). For the year ended December 31, 1994 the Partnership reported
provisions for value impairment of $1,500,000. In addition during 1994 and
1993, the Partnership sold or disposed of all of its properties in the
Wellington North Office Complex. The effect on net income for 1994 from the
Wellington North Office Complex, was a (loss) of $(43,600), while the 1993
results was income of $114,600, including net operating income and gain on
extinguishment of debt for the Wellington A & B properties.
Excluding the effects of the provisions for value impairment and properties
sold or disposed of during 1994 and 1993, net income decreased $437,300 for the
year ended December 31, 1994 when compared to the year ended December 31, 1993.
The primary reasons for the decrease in net income were: 1) increased losses
from the Partnership's investment in the joint venture which owns Holiday of
$586,800; 2) decreased operating results at Park Plaza of $91,100 and 3)
increased general and administrative expenses of $6,000 due to an increase in
salaries, accounting and appraisal fees, partially offset by a decrease in bank
charges. Partially offsetting the decrease in net income was: 1) increased
interest income of $132,600 due to a trend in higher interest rates earned on
short-term investments and 2) improved operating results at Ellis and Southwest
Freeway of $55,400 and $29,400, respectively.
For purposes of the following discussion, the comparative operating results of
Wellington A, B and C have been excluded.
Rental revenues decreased $4,700 for the year ended December 31, 1994 when
compared to the year ended December 31, 1993. The decrease was primarily due to
decreased rental revenues at Park Plaza resulting from a decrease in tenant
expense reimbursements, parking income and lower average occupancy. Partially
offsetting the decrease in rental revenues was: 1) increases in the base rental
rate charged to new and renewing tenants and increases in the average occupancy
rate at Southwest Freeway and Ellis; 2) an increase in tenant expense
reimbursements at Southwest Freeway; 3) the collection of certain tenant
receivables which were previously written off as uncollectible at Southwest
Freeway and 4) an increase in the amount of lease settlement fees received at
Park Plaza.
Property operating expenses decreased $139,200 for the year ended December 31,
1994 when compared to the year ended December 31, 1993. The primary factors
which caused the decrease were: 1) decreased personnel and security costs,
management fees, office expenses and advertising and promotional costs totaling
$65,000 at Ellis; 2) decreased property management fees and utilities at Park
Plaza of $18,600 and $16,400, respectively, and 3) decreased advertising and
promotional costs at Park Plaza of $10,000.
Repairs and maintenance expense decreased $11,600 for the year ended December
31, 1994 when compared to the year ended December 31, 1993. The primary factors
which caused the decrease were: 1) decreased repairs and maintenance primarily
resulting from a decrease in personnel costs at Ellis of $7,700 and 2)
decreased repairs and maintenance at Park Plaza due to a decrease in janitorial
services, cleaning supplies and uniforms totaling $18,800 and decreased repairs
to the HVAC, fire protection and elevator systems totaling $8,100. Partially
offsetting the decrease in repairs and maintenance expense was: 1) an increase
in personnel costs of $16,100 at Park Plaza; 2) an increase at Southwest
Freeway for installation of a fire alarm system, repairing and restriping of
the parking lot and minor repairs made to the HVAC system totaling $5,100.
Real estate tax expense decreased $6,700 for the comparable periods due to the
following: 1) a decrease at Southwest Freeway of $4,700 as a result of the 1994
receipt of a 1993 refund and a decrease in the 1994 assessment and 2) a
decrease of $6,400 at Ellis due to a decrease in the assessed value of the
property. Partially offsetting the decrease in real estate tax expense was an
increase at Park Plaza of $4,400 due to an increase in the tax rate imposed by
the taxing authority.
Insurance expense decreased $3,000 for the year ended December 31, 1994 when
compared to the prior year. The decrease was primarily due to lower group rates
on the Partnership's combined insurance coverage as a result of a minimal
amount of claims made over the past several years.
Depreciation and amortization expense increased $132,900 for the years under
comparison. The increase was due to the fact that the periodic depreciation and
amortization expense for assets placed in service during 1994 exceeded the
periodic depreciation and amortization expense for certain assets whose
depreciable and amortizable lives expired during 1994.
Exclusive of the provisions for value impairment, net income at Holiday
increased $98,100 for the year ended December 31, 1994 when compared to the
year ended December 31, 1993. The increase in net income was due to decreased
repairs and maintenance and real estate tax 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 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.
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
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
of the lease clauses provide for the following: 1) annual rent increases based
on the Consumer Price Index or graduated rental increases and 2) total or
partial tenant reimbursement of property operating expenses (e.g., common area
maintenance, real estate taxes, etc.).
LIQUIDITY AND CAPITAL RESOURCES
A 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
defined 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 defined by GAAP. The
table in Item 6. Selected Financial Data 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.
Cash Flow (as defined in the Partnership Agreement) for the year ended December
31, 1995 was $2,433,900, an $8,200 increase when compared to the year ended
December 31, 1994. This increase was primarily due to the increase in net
income (exclusive of depreciation, amortization, provisions for value
impairment and allocation of losses from the Partnership's participation in
joint venture), as previously discussed.
The decrease in the Partnership's cash position of $420,700 as of December 31,
1995 when compared to December 31, 1994 was primarily due to distributions paid
to Partners and payments for capital and tenant improvements exceeding cash
flow provided by operating activities and distributions received from the
Partnership's investment in the joint venture which owns Holiday. Liquid assets
of the Partnership are comprised of amounts held for working capital purposes.
Net cash provided by operating activities continues to be the Partnership's
primary source of funds. Net cash provided by operating activities for the year
ended December 31, 1995 was $2,037,000, a $155,300 increase when compared to
the year ended December 31, 1994. This increase was primarily due to the
increase in net income, as previously discussed, and to a lesser extent the
timing of the payment of certain Partnership's expenses.
Net cash provided by investing activities for the year ended December 31, 1995
was $79,000, a $1,801,200 decrease when compared to the year ended December 31,
1994 . The decrease was primarily due to the net proceeds received from the
sale of Wellington C in June 1994. Also affecting the decrease in net cash
provided by investing activities was a decrease in payments made for building
and tenant improvements and leasing costs to the Partnership's properties. The
Partnership maintains working capital reserves to pay for capital expenditures
such as building and tenant improvements and leasing costs. During the year
ended December 31, 1995, the Partnership spent $354,900 for building and tenant
improvements and leasing costs and has budgeted to spend approximately
$1,017,000 during the year ending December 31, 1996. Included in the 1996
budgeted amount are capital and tenant improvements and leasing costs of
approximately $367,000, $151,000 and $38,000 related to anticipated capital and
tenant improvements and leasing costs expected to be incurred at Park Plaza,
Southwest Freeway, and Ellis, respectively. In addition, $466,200 was spent in
1995 and approximately $461,000 is budgeted to be advanced to the Partnership's
joint venture investment in Holiday for capital and tenant improvements and
leasing costs during the year ending December 31, 1996. 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 increase in net cash used for financing activities of $1,386,600 for the
year ended December 31, 1995 when compared to the year ended December 31, 1994
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 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. For the
year ended December 31, 1995, the Partnership withdrew $259,500 of previously
undistributed Cash Flow (as defined in the Partnership Agreement) in its 1995
distributions to the Partners.
Distributions to Limited Partners for the quarter ended December 31, 1995 were
declared in the amount of $14.00 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 and/or the availability of cash for future
distribution 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 29,
1996, 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 1996.
Name Office
---- ------
Samuel Zell........................................ Chairman of the Board
Douglas Crocker II................................. Director
Sheli Z. Rosenberg................................. Director
Sanford Shkolnik................................... Director
Samuel Zell, 54, has been a Director of the General Partner since 1983
(Chairman of the Board since December 1985) and is Chairman of the Board of
Great American Management and Investment, Inc. ("Great American"). Mr. Zell
is also 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., Falcon
Building Products, Inc. and American Classic Voyages Co. He is Chairman of
the Board of Trustees of Equity Residential Properties Trust. He is a
director of Quality Food Centers, Inc. and Sealy Corporation. He is
Chairman of the Board of Directors and Chief Executive Officer of Capsure
Holdings Corp. and Manufactured Home Communities, Inc. and Co-Chairman of
the Board of Revco D.S., Inc. Mr. Zell was President of Madison Management
Group, Inc. ("Madison") prior to October 4, 1991. Madison filed for
protection under the Federal bankruptcy laws on November 8, 1991.
Douglas Crocker II, 55, 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, 54, 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 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.,
Falcon Building Products, Inc., Jacor Communications, Inc., Revco D.S.,
Inc., Sealy Corporation and CFI Industries, Inc. She was Chairman of the
Board from January 1994 to September 1994; Co-Chairman of the Board from
September 1994 until March 1995 of CFI Industries, Inc. 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. Ms. Rosenberg was Vice
President of Madison prior to October 4, 1991. Madison filed for protection
under the
14
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
- -------- --------------------------------------------------
(a) DIRECTORS (continued)
---------
Federal bankruptcy laws on November 8, 1991. She has been Vice President of
First Capital Benefit Administrators, Inc. ("Benefit Administrators") since
July 22, 1987. Benefit Administrators filed for protection under the
Federal Bankruptcy laws on January 3, 1995.
Sanford Shkolnik, 57, has been a Director of the General Partner since
December 1985. Mr. Shkolnik has been Executive Vice President of EFMC since
1976. He is Chairman of the Board and Chief Executive Officer of SC
Management, Inc., which is general partner of Equity Properties and
Development Limited Partnership, a nationally ranked shopping center
management company.
(b,c & e) EXECUTIVE OFFICERS
------------------
The Partnership does not have any executive officers. The executive
officers of the General Partner as of March 29, 1996 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
Arthur A. Greenberg................ Senior Vice President
Norman M. Field.................... Vice President - Finance and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
Arthur A. Greenberg, 54, has been Senior Vice President of the General
Partner since August 1986. Mr. Greenberg was Executive Vice President and
Chief Financial Officer of Great American from December 1986 to March 1995.
Mr. Greenberg also is an Executive Vice President of EFMC since 1971, and
President of Greenberg & Pociask, Ltd. He is Senior Vice President since
1989 and Treasurer since 1990 of Capsure Holdings Corp. Mr. Greenberg is a
director of American Classic Voyages Co. and Chairman of the Board of
Firstate Financial A Savings Bank. Mr. Greenberg was Vice President of
Madison prior to October 4, 1991. Madison filed for protection under the
Federal bankruptcy laws on November 8, 1991.
Norman M. Field, 47, 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
has been Treasurer of Benefit Administrators since July 22, 1987. He also
served as Vice President of Madison until October 4, 1991. 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 matters 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, 1995. However, the General Partner and
its Affiliate do compensate the directors and officers of the General
Partner. 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, 1996, no person owned of record or was known by the
Partnership to own beneficially more than 5% of the Partnership's 45,737
Units then outstanding.
(b) The Partnership has no directors or executive officers as of March 1,
1996. The executive officers and directors of First Capital Financial
Corporation, the General Partner, did not own any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) On September 25, 1992, the entity formerly named First Capital
Financial Corporation and certain subsidiaries which may be or may have
been entitled to receive certain compensation, fees or reimbursements from
the Partnership were merged or liquidated into First Capital Properties
Corporation. On February 23, 1993, First Capital Properties Corporation
changed its name to First Capital Financial Corporation.
Affiliates of the General Partner provide leasing, supervisory and property
management 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 for a particular property. For
the year ended December 31, 1995, these Affiliates were entitled to leasing
and property management fees of $177,300. In addition, other Affiliates of
the General Partner were entitled to receive $70,000 for fees, compensation
and reimbursements from the Partnership for personnel, mailing, insurance
and other miscellaneous services. Compensation for these services are on
terms which are fair, reasonable and no less favorable to the Partnership
than reasonably could be obtained from unaffiliated persons. A total of
$55,700 of these amounts was due to Affiliates as of December 31, 1995.
As of December 31, 1995, $40,200 was due to the General Partner for real
estate commissions earned in connection with the disposition and sale of
Partnership property. 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 Limited Partners) of 6% simple interest per
annum on their Capital Investment from the initial date of investment.
Subsequent to May 16, 1986, the Termination of the Offering, the General
Partner is entitled to 10% of Cash Flow as its Partnership Management Fee.
This fee is to be paid annually and any
16
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (continued)
amounts not paid in any year may be deferred and paid in subsequent years
subject to certain limitations set forth in the Partnership Agreement.
In accordance with the Partnership Agreement, Net Profits are first
allocated 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 is allocated to the Limited Partners. Net Losses
(exclusive of Net Losses from the sale or disposition of a Partnership
property and provision for value impairment) shall be 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, 99% to the Limited
Partners and 1% to the General Partner. Notwithstanding anything to the
contrary, the General Partner shall be allocated not less than 1% of Net
Losses from the sale or disposition of a Partnership property. In addition,
provisions for value impairment are allocated 99% to the Limited Partners
and 1% to the General Partner. For the year ended December 31, 1995 the
General Partner was entitled to a Management Fee of $269,300 and was
allocated Net Profits of $249,300, which included a (loss) from provisions
for value impairment of $(20,000).
(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 be obtained from
unaffiliated persons. Total legal fees paid to Rosenberg for the year ended
December 31, 1995 was $8,100.
(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,
1995.
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. - 3
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Dated: March 29, 1996 By: 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.
<TABLE>
<C> <C> <S>
SAMUEL ZELL March 29, 1996 Chairman of the Board and
- -------------------- -------------- Director of the General Partner
SAMUEL ZELL
DOUGLAS CROCKER II March 29, 1996 President, Chief Executive Officer and
- -------------------- -------------- Director of the General Partner
DOUGLAS CROCKER II
SHELI Z. ROSENBERG March 29, 1996 Director of the General Partner
- -------------------- --------------
SHELI Z. ROSENBERG
SANFORD SHKOLNIK March 29, 1996 Director of the General Partner
- -------------------- --------------
SANFORD SHKOLNIK
NORMAN M. FIELD March 29, 1996 Vice President - Finance and Treasurer
- -------------------- --------------
NORMAN M. FIELD
</TABLE>
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 at December 31, 1995 and 1994 A - 3
Statements of Partners' Capital for the Years
Ended December 31, 1995, 1994, and 1993 A - 3
Statements of Income and Expenses for the Years
Ended December 31, 1995, 1994, and 1993 A - 4
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 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, 1995 A - 8 to 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-33 of the
Partnership's definitive Prospectus dated January 17, 1985, as supplemented
through March 4, 1986, Registration No. 2-94419, filed pursuant to Rule
424(b), is incorporated herein by reference.
EXHIBIT (10) Material Contracts
Lease agreements for tenants that individually occupy more than 10% of the net
leasable square footage of the Partnership's significant properties, filed as
exhibits to the Partnership's Reports on Form 10-K dated December 31, 1994 and
1993, are incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders
The 1994 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
EXHIBIT (99) Additional Exhibits
The audited financial statements for First Capital Lansing Properties Limited
Partnership for the year ended December 31, 1995 are attached hereto for the
information of the Commission and not as a filed document.
A - 1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Institutional Real Estate, Ltd. - 3
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital
Institutional Real Estate, Ltd. - 3 as of December 31, 1995 and 1994, 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, 1995 and
the 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. - 3 at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, 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 1, 1996
A-2
<PAGE>
BALANCE SHEETS
December 31, 1995 and 1994
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 1,908,600 $ 1,908,600
Buildings and improvements 17,468,200 18,713,300
- ---------------------------------------------------------------------------
19,376,800 20,621,900
Accumulated depreciation and amortization (5,851,700) (5,024,100)
- ---------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 13,525,100 15,597,800
Cash and cash equivalents 8,022,200 8,442,900
Restricted cash 62,500 62,500
Investment in joint venture 4,620,200 5,234,600
Rents receivable 29,600 24,800
Other assets (including amounts due from joint
venture of $785,000 and $725,500, respectively) 817,000 757,600
- ---------------------------------------------------------------------------
$27,076,600 $30,120,200
- ---------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 469,300 $ 360,000
Due to Affiliates 95,900 107,400
Security deposits 55,700 51,500
Other liabilities 4,400 3,500
Distributions payable 711,500 559,000
- ---------------------------------------------------------------------------
1,336,800 1,081,400
- ---------------------------------------------------------------------------
Partners' (deficit) capital:
General Partner (183,300) (163,300)
Limited Partners (45,737 Units issued and
outstanding) 25,923,100 29,202,100
- ---------------------------------------------------------------------------
25,739,800 29,038,800
- ---------------------------------------------------------------------------
$27,076,600 $30,120,200
- ---------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994 and 1993
(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)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1993 (147,800) 31,764,300 31,616,500
Net income (loss) for the year ended
December 31, 1994 140,400 (1,159,500) (1,019,100)
Distributions for the year ended December
31, 1994 (155,900) (1,402,700) (1,558,600)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1994 (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)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1995 $(183,300) $25,923,100 $25,739,800
- -------------------------------------------------------------------------------
</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, 1995, 1994 and 1993
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $3,075,900 $ 3,386,800 $3,673,900
Interest 595,900 374,800 242,200
- -------------------------------------------------------------------------------
3,671,800 3,761,600 3,916,100
- -------------------------------------------------------------------------------
Expenses:
Depreciation and amortization 827,600 933,100 812,200
Property operating:
Affiliates 182,300 164,500 254,200
Nonaffiliates 582,500 653,500 819,600
Real estate taxes 332,800 321,800 345,000
Insurance--Affiliate 24,900 29,000 37,400
Repairs and maintenance 410,000 459,000 570,900
General and administrative:
Affiliates 44,100 37,900 30,800
Nonaffiliates 152,200 163,200 165,100
Loss on sale or disposition of properties 48,900 1,429,900
Provisions for value impairment 1,600,000 1,500,000
- -------------------------------------------------------------------------------
4,156,400 4,310,900 4,465,100
- -------------------------------------------------------------------------------
Net (loss) before (loss) income from
participation in joint venture (484,600) (549,300) (549,000)
Net (loss) income from participation in
joint venture (121,000) (469,800) 117,000
- -------------------------------------------------------------------------------
Net (loss) before extraordinary gain on
extinguishment of debt (605,600) (1,019,100) (432,000)
Extraordinary gain on extinguishment of
debt 1,464,000
- -------------------------------------------------------------------------------
Net (loss) income $ (605,600) $(1,019,100) $1,032,000
- -------------------------------------------------------------------------------
Net income allocated to General Partner $ 249,300 $ 140,400 $ 54,100
- -------------------------------------------------------------------------------
Net (loss) income allocated to Limited
Partners $ (854,900) $(1,159,500) $ 977,900
- -------------------------------------------------------------------------------
Net (loss) before extraordinary gain on
extinguishment of debt allocated to
Limited Partners per Unit (45,737 Units
outstanding) $ (18.69) $ (25.35) $ (9.35)
- -------------------------------------------------------------------------------
Net (loss) income allocated to Limited
Partners per Unit (45,737 Units
outstanding) $ (18.69) $ (25.35) $ 21.38
- -------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (605,600) $(1,019,100) $ 1,032,000
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 827,600 933,100 812,200
Provisions for value impairment 1,600,000 1,500,000
Loss (income) from participation in
joint venture 121,000 469,800 (117,000)
Loss on sale or disposition of
properties 48,900 1,429,900
Extraordinary gain on extinguishment
of debt (1,464,000)
Changes in assets and liabilities:
(Increase) decrease in rents
receivable (4,800) 27,900 114,300
Decrease in other assets 100 41,300 48,400
Increase (decrease) in accounts
payable and accrued expenses 109,300 (113,000) 31,600
(Decrease) increase in due to
Affiliates (11,500) 41,100 (30,500)
Increase (decrease) in other
liabilities 900 (48,300) 37,400
- ----------------------------------------------------------------------------
Net cash provided by operating
activities 2,037,000 1,881,700 1,894,300
- ----------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from the sale or disposition
of properties 2,168,200 840,000
Payments for capital and tenant
improvements (354,900) (670,600) (1,078,200)
Distributions received from joint
venture 493,400 317,800 496,400
(Funding of) collection of loans to
joint venture (59,500) 64,800 (227,200)
- ----------------------------------------------------------------------------
Net cash provided by investing
activities 79,000 1,880,200 31,000
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (2,540,900) (1,134,300) (1,247,800)
Increase (decrease) in security
deposits 4,200 (15,800) (1,300)
- ----------------------------------------------------------------------------
Net cash (used for) financing
activities (2,536,700) (1,150,100) (1,249,100)
- ----------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (420,700) 2,611,800 676,200
Cash and cash equivalents at the
beginning of the year 8,442,900 5,831,100 5,154,900
- ----------------------------------------------------------------------------
Cash and cash equivalents at the end
of the year $8,022,200 $ 8,442,900 $ 5,831,100
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 incorporated herein by reference.
ORGANIZATION:
The Partnership was formed on November 6, 1984, 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 January 17, 1985. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of up to 50,000 Units with the General Partner's option to increase the
Offering by an additional 50,000 Units and not less than 1,400 Units. On March
4, 1985, the required minimum subscription level was reached and Partnership
operations commenced. A total of 45,737 Units were sold prior to Termination of
the Offering in May, 1986. 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 31, 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. Under this method of accounting, revenues are
recorded when earned and expenses are recorded when incurred.
The preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles 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 interest in four joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of acquiring a 100% interest in certain real properties. These joint
ventures are operated under the common control of the General Partner.
Accordingly, the Partnership's pro rata share of such ventures' revenues,
expenses, assets, liabilities and capital are 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.
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 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 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 over the life of the lease. Maintenance
and repair costs are expensed against operations as incurred; expenditures for
improvements are capitalized to the appropriate property accounts and
depreciated over the estimated life of the improvements.
The General Partner periodically reviews significant factors regarding the
properties to determine that the properties are carried at lower of cost or
fair market value. These factors include, but are not limited to the General
Partner's experience in the real estate industry, an evaluation of recent
operating performance against expected results, economic trends or factors
impacting either major tenants or the regions in which respective properties
are located, and where available, information included in recent appraisals of
properties.
Based on this analysis, where it is anticipated that the carrying value of an
investment property will not be recovered, the General Partner has deemed it
appropriate to reduce the basis of the properties for financial reporting
purposes to fair market value. Such fair market value is the General Partner's
best estimate of the amounts expected to be realized were such properties sold
as of the Balance Sheet date, based upon current information available. The
ultimate realization may differ from these amounts. Provisions, where
applicable, are reflected in the accompanying Statement of Income and Expenses
in the year such evaluations have been made. For additional information see
Note 9.
Property sales or dispositions 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 or disposition is recognized in accordance
with generally accepted accounting principles.
Cash equivalents are considered all highly liquid investments with an original
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 the investment.
The fair value of financial instruments, including cash and cash equivalents,
was not materially different from their carrying value at December 31, 1995 and
1994.
Certain reclassifications have been made to the previously reported 1994 and
1993 statements in order to provide comparability with the 1995 statements.
These reclassifications have no effect on net income (loss) or Partner's
capital (deficit).
2. RELATED PARTY TRANSACTIONS:
Subsequent to May 16, 1986, the Termination of the Offering, the General
Partner is entitled to 10% of Cash Flow as its Partnership Management Fee. In
accordance with the Partnership Agreement, Net Profits are first allocated 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 is
allocated to the Limited Partners. Net Losses (exclusive of Net Losses from the
sale or disposition of a Partnership property and provision for value
impairment) shall be 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, 99% to the Limited
Partners and 1% to the General Partner. Notwithstanding anything to the
contrary, the General Partner shall be allocated not less than 1% of Net
(Losses) from the sale or disposition of a Partnership property. In addition,
extraordinary gain on extinguishment of debt and provisions for value
impairment are allocated 99% to the Limited Partners and 1% to the General
Partner. For the year ended December 31, 1995, the General Partner was entitled
to a Partnership Management Fee of $269,300 and allocated Net Profits of
$249,300, which included a (loss) from provisions for value impairment of
$(20,000). For the year ended December
A-5
<PAGE>
31, 1994, the General Partner was entitled to a Partnership Management Fee of
$155,900 and allocated Net Profits of $140,400, which included (losses) from
provisions for value impairment of $(15,000) and the sale or disposition of
Partnership property of $(500). For the year ended December 31, 1993, the
General Partner was entitled to a Partnership Management Fee of $53,800 and
allocated Net Profits of $54,100, which included a (loss) from the sale or
disposition of Partnership property of $(14,300) and an extraordinary gain on
extinguishment of debt of $14,600.
Fees and reimbursements paid and payable by the Partnership to Affiliates for
the years ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1995 1994 1993
---------------- ----------------- ----------------
Paid Payable Paid Payable Paid Payable
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $191,500 $48,400 $115,700 $ 62,600 $252,600 $21,700
Real estate commissions
(a) None 40,200 None 40,200 None 40,200
Reimbursement of property
insurance premiums, at
cost 24,900 None 28,000 None 35,900 None
Reimbursement of
expenses, at cost:
--Accounting 19,500 5,300 20,300 2,300 21,700 2,600
--Investor communication 21,900 2,000 14,900 2,300 9,400 1,800
--Legal 8,100 None 15,700 None 37,800 None
--Other 1,000 None None None None None
- ------------------------------------------------------------------------------
$266,900 $95,900 $194,600 $107,400 $357,400 $66,300
- ------------------------------------------------------------------------------
</TABLE>
(a) As of December 31, 1995, $40,200 was due to the General Partner for real
estate commissions earned in connection with the disposition and sale of
Partnership property. 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 Limited Partners) of 6% simple interest per
annum on their Capital Investment from the initial date of investment.
On-site property management for the Partnership's properties is provided by an
Affiliate of the General Partner for fees based upon various percentage rates
of gross rents received from the properties.
3. 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"), for the year ended December 31, 1995 is as follows:
<TABLE>
<S> <C>
ASSETS
Investment property, net of
accumulated depreciation and
amortization $10,175,500
Cash and cash equivalents 388,900
Loans receivable 603,300
Rents receivable 101,700
Other assets 102,600
----------------------------------------------
$11,372,000
----------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Loan payable to Affiliate $ 1,570,000
Accounts payable and accrued expenses 446,500
Due to Affiliates 49,000
Distribution payable 339,700
Security deposits 25,700
Other liabilities 40,300
Partners' capital 8,900,800
----------------------------------------------
$11,372,000
----------------------------------------------
STATEMENT OF INCOME AND EXPENSES
Total income $ 2,918,800
----------------------------------------------
Expenses:
Property operating 1,816,200
Depreciation and amortization 365,500
Provision for value impairment 800,000
Interest 179,200
----------------------------------------------
Net (loss) $ (242,100)
----------------------------------------------
</TABLE>
The information presented above represents 100% of the activity of Holiday. The
Partnership purchased a 50% interest in a joint venture which acquired a 75%
preferred interest in this property. The provision for value impairment was
allocated in accordance with the joint venture agreement. The Partnership's
share of the provision for value impairment was $400,000, for the year ended
December 31, 1995. For additional details see Note 9.
4. FUTURE MINIMUM RENTALS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1995 was as follows:
<TABLE>
<S> <C>
1996 $ 3,484,200
1997 3,009,900
1998 2,572,000
1999 1,990,700
2000 1,493,600
Thereafter 999,200
--------------
$13,549,600
--------------
</TABLE>
A-6
<PAGE>
5. MANAGEMENT AGREEMENTS:
On-site property management for the Partnership's properties is provided by an
Affiliate of the General Partner for fees based upon various percentage rates
of gross rents received from the properties.
6. RESTRICTED CASH:
Restricted cash includes negotiable certificates of deposit in the amount of
$37,500 which has 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.
7. INCOME TAX:
The Partnership utilizes the accrual basis of accounting for both 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 rents received in advance as taxable income, the use of
differing methods in computing the gain on sale of property and the
Partnership's provisions for value impairment. The net effect of these
accounting differences for the year ended December 31, 1995 was that the net
income for tax reporting purposes was greater than the net (loss) for financial
statement purposes by $2,195,300. The aggregate cost of commercial rental
property for income tax purposes at December 31, 1995 was $22,476,800.
8. PROPERTY SALES AND DISPOSITIONS:
On June 8, 1994, Farmington Hills Associates ("FHA"), the joint venture which
owned North Valley Office Center ("North Valley") and Wellington North Office
Complex ("Wellington A, B and C"), in which the Partnership owned a 50%
interest, sold Wellington C for the sale price of $4,500,000. The Partnership's
share of selling expenses was $81,800. The Partnership's share of the net
proceeds from this sale was $2,168,200. The Partnership recorded a total loss
on the sale of this property of $2,048,900 for financial statement purposes, of
which $2,000,000 was recorded for the year ended December 31, 1992 as a
provision for value impairment. For tax reporting purposes the Partnership
recorded a total loss in 1994 of $1,915,700 on this sale.
On March 17, 1993, FHA disposed of Wellington A in conjunction with the
mortgage holder, to a third party for a total sale price of $2,060,000. Of this
amount, FHA remitted $1,910,000 to the mortgage holder (the Partnership's share
of this amount was $955,000) which relieved the Partnership of its share of the
obligation of $2,419,000 under the mortgage loan and any interest in the assets
therein. This extinguishment of debt was considered a noncash event for the
purposes of the Statement of Cash Flows, and was not included in the
Partnership's calculation of Cash Flow (as defined in the Partnership
Agreement) for the year ended December 31, 1993. The Partnership incurred
transaction costs of $63,500, including $10,600 of accrued expenses. The
Partnership's share of the net proceeds from this transaction was $22,100. The
Partnership recorded a loss on the disposition of this property of $2,027,900
for financial statement purposes. This loss represented the net book value of
this property and transaction costs incurred by the Partnership in excess of
the sale price of the property. Due to an anticipated loss in connection with
this disposition, the Partnership recorded $765,000 as a provision for value
impairment in 1992. Upon sale of the property in 1993, an additional loss of
$1,262,900 was recorded. In addition, the Partnership also recorded an
extraordinary gain on extinguishment of debt in connection with the disposition
of this property of $1,464,000 for financial statement purposes. This
extraordinary gain on extinguishment of debt represented the excess property
indebtedness over the amount remitted to the mortgage holder upon sale of the
property. For tax reporting purposes the Partnership recorded a total loss of
$597,300 in 1993 on this disposition.
On March 23, 1993, FHA sold Wellington B for a total sale price of $1,680,000.
The Partnership's share of selling expenses were $64,600, including $45,900 of
accrued expenses. The Partnership's share of the net proceeds from this sale
was $821,300. The Partnership recorded a loss on the disposition of this
property of $463,600 for financial statement purposes. Due to the anticipated
loss in connection with this sale, the Partnership recorded $300,000 of the
total loss as of December 31, 1992 as a provision for value impairment and the
remaining portion of the loss in 1993. For tax purposes the Partnership
recorded a total loss of $446,500 in 1993 on this sale.
All of the above transactions were all-cash sales and dispositions, with no
further involvement on the part of the Partnership.
9. PROVISIONS FOR VALUE IMPAIRMENT:
Due to regional factors and other matters affecting the Partnership's
properties, there is uncertainty as to the Partnership's ability to recover the
net carrying value of certain of its properties during the remaining estimated
holding periods. Accordingly, it was deemed appropriate to reduce the bases of
such properties in the Partnership's financial statements during the years
ended December 31, 1995 and 1994. The provisions for value impairment were
considered non-cash events for the purposes of the Statements of Cash Flows and
were not utilized in the determination of Cash Flow (as defined in the
Partnership Agreement). The following is a summary of the provisions for value
impairment reported by the Partnership for the years ended December 31, 1995
and 1994:
<TABLE>
<CAPTION>
Property 1995 1994
--------------------------------------------
<S> <C> <C>
Ellis Building $ 500,000 $1,000,000
Park Plaza Professional
Building 900,000 500,000
3120 Southwest Freeway 200,000
--------------------------------------------
$1,600,000 $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 reflected in the net
loss from participation in joint venture. For the year ended December 31, 1994,
a provision for value impairment for 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 and the remaining
amount was allocated to the general partners, of which the Partnership's share
is $672,400. The joint venture also recorded a provision for value impairment
in the amount of $4,000,000 as of December 31, 1993. Pursuant to the joint
venture agreement this provision was allocated to the limited partners of the
joint venture that owns Holiday.
The provisions for value impairment were material fourth quarter adjustments
pursuant to Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting". No other material adjustments were made in the fourth quarters.
Beginning on January 1, 1996, the Partnership will adopt the Financial
Accounting Standards Board Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (the
"Standard"). The Standard established guidance for determining if the value of
defined assets are impaired, and if so, how impairment losses should be
measured and reported in the financial statements. The Standard is effective
for fiscal years beginning after December 15, 1995. The Managing General
Partner believes that based on current circumstances, the adoption on January
1, 1996 of the Standard will not materially affect the Partnership's financial
position or results of operations.
A-7
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 3
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Column A Column C Column D Column E
--------------- ------------------------- --------------------------- -------------------------------------------
Initial cost Costs capitalized Gross amount carried
to Partnership subsequent to acquisition at close of period
------------------------- --------------------------- -------------------------------------------
Buildings Buildings
and Improve- Carrying and
Description Land Improvements ments Costs (1) Land Improvements Total (2)(3)
--------------- ---------- ------------ ---------- --------- ---------- ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C>
Office Buildings:
Ellis Building
(Sarasota, FL) $ 860,000 $ 5,405,600 $1,337,300 $ 25,900 $ 860,000 $ 5,268,800 $ 6,128,800 (4)
(50% interest)
Park Plaza
Professional
Building
(Houston, TX) 802,900 10,750,400 2,077,300 82,400 802,900 11,510,100 12,313,000 (7)
(50% interest)
3120 Southwest
Freeway
(Houston, TX) 245,700 440,600 438,500 10,200 245,700 689,300 935,000 (8)
(25% interest)
---------- ----------- ---------- -------- ---------- ----------- -----------
$1,908,600 $16,596,600 $3,853,100 $118,500 $1,908,600 $17,468,200 $19,376,800
========== =========== ========== ======== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
------------ ---------- -------- ------------
Life on
which
depreciation
in latest
Accumulated Date income
Depreciation of con- Date statement
(2) struction Acquired is computed
------------ ---------- -------- ------------
Description
- ---------------
<S> <C> <C> <C> <C>
Office Buildings:
Ellis Building 35(5)
(Sarasota, FL) $1,972,000 1969 3/86 3-10(6)
(50% interest)
Park Plaza
Professional
Building 35(5)
(Houston, TX) 3,553,900 1976 11/86 3-10(6)
(50% interest)
3120 Southwest
Freeway 35(5)
(Houston, TX) 325,800 1972 3/89 3-10(6)
(25% interest)
----------
$5,851,700
==========
Column B - Not Applicable.
</TABLE>
See accompanying notes on the following page.
A-8
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 3
NOTES TO SCHEDULE III
<TABLE>
<CAPTION>
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:
December 31, 1995 December 31, 1994 December 31, 1993
------------------------- ------------------------- -------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
beginning of year $20,621,900 $5,024,100 $24,026,100 $4,448,800 $26,592,300 $3,891,700
Additions during
year:
Improvements 354,900 670,600 1,078,200
Provisions for
depreciation 827,600 933,000 812,200
Deductions
during year:
Basis of real
estate disposed (2,574,800) (3,644,400)
Accumulated
depreciation of real
estate disposed (357,700) (255,100)
Provisions for
value impairment (1,600,000) (1,500,000)
----------- ---------- ----------- ---------- ----------- ----------
Balance at end
of year $19,376,800 $5,851,700 $20,621,900 $5,024,100 $24,026,100 $4,448,800
=========== ========== =========== ========== =========== ==========
Note 3. The aggregate cost for Federal income tax purposes at December 31, 1995 is $22,476,800.
Note 4. Includes provisions for value impairment of $1,500,000.
Note 5. Estimated useful life of building.
Note 6. Estimated useful life of improvements.
Note 7. Includes provisions for value impairment of $1,400,000.
Note 8. Includes a provision for value impairment of $200,000.
</TABLE>
A-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,022,200
<SECURITIES> 0
<RECEIVABLES> 29,600
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,114,300
<PP&E> 19,376,800
<DEPRECIATION> 5,851,700
<TOTAL-ASSETS> 27,076,600
<CURRENT-LIABILITIES> 1,292,200
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 25,739,800
<TOTAL-LIABILITY-AND-EQUITY> 27,076,600
<SALES> 0
<TOTAL-REVENUES> 3,671,800
<CGS> 0
<TOTAL-COSTS> 1,532,500
<OTHER-EXPENSES> 196,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (605,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (605,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (605,600)
<EPS-PRIMARY> (18.69)
<EPS-DILUTED> (18.69)
</TABLE>
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
AUDITED FINANCIAL STATEMENTS
(With Report of Independent Auditors Thereon)
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
<TABLE>
<CAPTION>
INDEX OF FINANCIAL STATEMENTS
<S> <C>
Pages
-----
Report of Independent Auditors..................................... 1
Balance Sheet at December 31, 1995................................. 2
Statement of Partners' Capital for the year
ended December 31, 1995......................................... 3
Statement of Income and Expenses for the year
ended December 31, 1995......................................... 4
Statement of Cash Flows for the year
ended December 31, 1995......................................... 5
Notes to Financial Statements...................................... 6 through 9
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
First Capital Lansing Properties
Chicago, Illinois
We have audited the accompanying balance sheet of First Capital Lansing
Properties as of December 31, 1995, and the related statements of income and
expenses, partners' capital and cash flows. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Lansing
Properties as of December 31, 1995, and the results of its operations and its
cash flows in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
March 1, 1996
-1-
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in commercial rental property:
Land $ 1,999,600
Buildings and improvements 12,925,900
-----------
14,925,500
Accumulated depreciation and amortization (4,750,000)
-----------
Total investment property, net of accumulated
depreciation and amortization 10,175,500
Cash and cash equivalents 388,900
Loans receivable 603,300
Rents receivable 101,700
Other assets 102,600
-----------
$11,372,000
===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Loans payable to General Partner $ 1,570,000
Accounts payable and accrued expenses 446,500
Due to Affiliates 49,000
Distribution payable 339,700
Security deposits 25,700
Other liabilities 40,300
-----------
2,471,200
Partners' capital 8,900,800
-----------
$11,372,000
===========
The accompanying notes are an integral part of the financial statements.
- 2 -
</TABLE>
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- -------- -----------
<S> <C> <C> <C>
Partners' capital, January 1, 1995 $10,124,600 $0 $10,124,600
Net (loss) for the year ended December 31, 1995 (242,100) 0 (242,100)
Distributions for the year ended December 31, 1995 (981,700) 0 (981,700)
----------- -------- -----------
Partners' capital, December 31, 1995 $ 8,900,800 $0 $ 8,900,800
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 3 -
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
STATEMENT OF INCOME AND EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
<S> <C>
Income:
Rental $2,820,800
Interest 98,000
----------
2,918,800
----------
Expenses:
Interest 179,200
Depreciation and amortization 365,500
Property Operating
Affiliated 134,600
Nonaffiliated 672,800
Real estate taxes 408,600
Insurance - Affiliated 35,600
Repairs and maintenance 564,200
General and administrative 400
Provision for value impairment 800,000
----------
3,160,900
----------
Net (loss) $ (242,100)
==========
Net (loss) allocated to General Partner $ (242,100)
==========
Net (loss) allocated to Limited Partners $ 0
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 4 -
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net (loss) $ (242,100)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 365,500
Provision for value impairment 800,000
Changes in assets and liabilities:
Decrease in rents receivable 100,800
(Increase) in other assets (10,600)
Increase in accounts payable and accrued expenses 290,600
Increase in accrued interest payable to Affiliate 38,800
(Decrease) in due to Affiliates (52,400)
Increase in other liabilities 36,500
----------
Net cash provided by operating activities 1,327,100
----------
Cash flows from investing activities:
Payments for capital and tenant improvements (466,200)
Decrease in escrow deposit 46,600
----------
Net cash (used for) investing activities (419,600)
----------
Cash flows from financing activities:
Proceeds from loan payable to Affiliate 119,000
(Increase) in loan receivable (77,700)
(Decrease) in security deposits (8,200)
Distributions paid to Partners (1,048,000)
----------
Net cash (used for) financing activities (1,014,900)
----------
Net (decrease) in cash and cash equivalents (107,400)
Cash and cash equivalents at the beginning of the year 496,300
----------
Cash and cash equivalents at the end of the year $ 388,900
==========
Supplemental information:
Interest paid during the year $ 179,200
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 5 -
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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 Agreement of Limited Partnership (the "Agreement"). Definitions of these
terms are contained in Article III of the Agreement.
Organization:
First Capital Lansing Properties Limited Partnership (the "Partnership") was
formed on December 1, 1986 as a limited partnership pursuant to the laws of
the State of Illinois. First Capital Lansing Associates, whose joint venture
partners are First Capital Institutional Real Estate, Ltd. - 2 and First
Capital Institutional Real Estate, Ltd. - 3, is the General Partner. The
Limited Partners consist of four Michigan limited partnerships. The
Partnership purchased the Holiday Office Park North and South (the
"Property") in Lansing, Michigan in January 1987. The General Partner made an
Initial Capital contribution of $14,250,000 representing an undivided 75%
interest in the Property. The Limited Partners contributed, as their Initial
Capital, property valued at $4,750,000 representing the remaining undivided
25% interest, as tenants in common, in the Property. In addition, the General
Partner paid an acquisition fee to an Affiliate of the General Partner and
closing costs in the amount of $996,200.
The Agreement provides that the Partnership will be dissolved on or before
December 31, 2020, unless terminated sooner under provisions of the
Agreement.
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 preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles 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 Partnership is not liable for Federal income taxes as the Partners
recognize their proportionate share of Partnership income or loss on
their individual 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 Partners;
therefore, the disclosure of the difference between the tax bases and the
reported bases and the reported assets and liabilities of the Partnership
would not be meaningful.
The Property is recorded at cost and depreciated (exclusive of amounts
allocated to land) on the straight-line method over its estimated useful life
of 40 years. Maintenance and repair costs are expensed as incurred and
expenditures for improvements are capitalized and depreciated over the
estimated life of the improvements. Lease
- 6 -
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS-Continued
Accounting policies (continued)
acquisition fees are recorded at cost and amortized over the life of the
leases.
Cash equivalents are considered all highly liquid investments with an
original maturity of three months or less when purchased.
The Partnership's financial statements include financial instruments,
including receivables and trade liabilities. The fair value of all financial
instruments, including cash and cash equivalents, was not materially
different from their carrying value at December 31, 1995.
The General Partner periodically reviews significant factors regarding the
property to determine that the property is carried at lower of cost or fair
market value. These factors include, but are not limited to the General
Partner's experience in the real estate industry and an evaluation of recent
operating performance against expected results, economic trends or factors
impacting either major tenants or the regions in which the property is
located, and where available, information included in recent appraisals of
the property.
Based on this analysis, where it is anticipated that the carrying value of
the property will not be recovered, the General Partner has deemed it
appropriate to reduce the basis of the property for financial reporting
purposes to fair market value. Such fair market value is the General
Partner's best estimate of the amount expected to be realized was the
property sold as of the Balance Sheet date, based on current information
available. The ultimate realization may differ from this amount. The
provision is reflected in the accompanying Statement of Income and Expenses
in the year such evaluations have been made. For additional information see
Note 5.
2. Related party transactions:
In accordance with the Agreement, Cash Flow from Operations is first
distributed to the General Partner in that amount necessary to provide the
General Partner cumulatively with per annum returns (per section 10.1 (a)) on
its Capital Balance. Next, to the extent available, Distributions of Cash
Flow from Operations are distributed to the Limited Partners in that amount
necessary to provide the Limited Partners with the same per annum returns on
their respective Capital Balances. However, to the extent the Limited
Partners do not receive, in any fiscal year, the specified return, such
deficiency shall not accumulate from year to year. The balance, if any, of
Cash Flow from Operations will be distributed 75% to the General Partner and
25% to the Limited Partners. For the year ended December 31, 1995, the rate
of the preferred annual return was 11.50% and the General Partner was
entitled to Cash Flow from Operations of $981,700, of which $339,700 was
payable as of December 31, 1995. The Limited Partners were not entitled to
Cash Flow from Operations for the year ended December 31, 1995.
Net Operating Profits and Net Operating Losses for each fiscal year are
allocated to the respective Partners in the same ratio of such respective
Partner's cumulative Distributions to total Partnership cumulative
Distributions. For the year ended December 31, 1995 Net Operating Profits
allocated to the General Partner was $557,900. Pursuant to the Agreement, the
Limited Partners were not allocated Net Operating Profits for the year ended
December 31, 1995. In addition, pursuant to the Agreement, Sale Losses
(including any provision for value impairment) shall be allocated among the
Partners as follows: (i) first, to Limited Partners with positive Capital
Account balances, in proportion to and to the extent of such positive
balances; (ii) second, if the General Partner has a positive Capital Account
balance, to the General Partner, to the extent of such positive balance; and
(iii) the balance, if any, will be allocated 75% to the General Partner, and
25% to the Limited Partners (in proportion to the respective Percentage
Interests of the Limited Partners as of the date of such allocation). The
provision for value impairment of $ 800,000 for the year ended December 31,
1995 was allocated to the General Partner.
- 7 -
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS-Continued
2. Related party transactions:
Fees and reimbursements paid and payable by the Partnership to Affiliates for
the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Paid Payable
-------- -------
<S> <C> <C>
Property management and leasing fees $153,800 $10,100
Interest expense 154,900 38,900
Reimbursement of property
insurance premiums, at cost 35,600 None
Legal fees 33,200 None
-------- -------
$377,500 $49,000
======== =======
</TABLE>
In addition, through December 31, 1995, the General Partner has made
cumulative loans of $1,954,000 to the Partnership. Of this amount, $384,000
was repaid as of December 31, 1995. These loans were made to pay for capital
and tenant improvements. Total interest expense incurred on these loans
during 1995 was $179,200.
On-site property management for the Property is provided by an Affiliate of
the General Partner for fees based on a percentage of gross rents received
from the Property.
3. Future minimum rentals:
Future minimum rental income due on noncancelable leases as of December 31,
1995 was as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 2,885,300
1997 2,683,300
1998 2,423,900
1999 2,042,500
2000 1,460,200
Thereafter 464,400
----------
$11,959,600
===========
</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
operating expense reimbursements.
4. Income tax:
The Partnership utilizes the accrual basis of accounting for both tax
reporting and financial statement purposes. Financial statement results will
differ from taxable results due to the use of differing depreciation lives
and methods and the recognition of prepaid rents as taxable income. The net
effect of these accounting differences for the year ended December 31, 1995
is that taxable income for tax reporting purposes was greater than the net
(loss) for financial statement purposes by $758,200.
- 8 -
<PAGE>
FIRST CAPITAL LANSING PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS-Continued
5. Provision for value impairment:
Due to the regional factors affecting the Partnership's property, there is
uncertainty as to the Partnership's ability to recover the net carrying value
of the property during the remaining estimated holding period. Accordingly,
it was deemed appropriate to reduce the basis of the property in the
Partnership's financial statements during the year ended December 31, 1995.
The provision for value impairment was considered a non-cash event for the
purposes of the Statement of Cash Flows.
The joint venture which owns Holiday recorded a provision for value
impairment in the amount of $800,000 as of December 31, 1995 which was
allocated to the General Partner. The provision amount was in part based on
the General Partner's estimate of the current market value utilizing current
as well as estimated future operating results, general economic factors and
recent property appraisals. This provision for value impairment is considered
a non-cash event for purposes of the Statement of Cash Flows, and was not
included in the Partnership's calculation of Cash Flow (as defined in the
Partnership Agreement) for the year ended December 31, 1995.
Beginning on January 1, 1996 the Partnership will adopt the Financial
Accounting Standards Board Statement No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (the
"Standard"). The Standard established guidance for determining if the value
of defined assets are impaired, and if so, how impairment losses should be
measured and reported in the financial statements. The Standard is effective
for fiscal years beginning after December 15, 1995. The General Partner
believes that based on the current circumstances the adoption on January 1,
1996 of the Standard will not materially affect the Partnership's financial
position or results of operations.
- 9 -
