<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1997
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14122
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First Capital Institutional Real Estate, Ltd. - 3
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(Exact name of registrant as specified in its charter)
Florida 36-3330657
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1100, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated January 17, 1985, included
in the Registrant's Registration Statement on Form S-11, is incorporated herein
by reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(Unaudited) 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 1,662,900 $ 1,908,600
Buildings and improvements 17,271,500 17,789,600
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18,934,400 19,698,200
Accumulated depreciation and amortization (6,710,200) (6,574,900)
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Total investment properties, net of accumulated
depreciation and amortization 12,224,200 13,123,300
Cash and cash equivalents 4,174,600 4,749,200
Investment in debt securities 983,000
Restricted cash 100,000 100,000
Rents receivable 33,900 45,700
Investment in and loans to joint venture 5,495,300 5,852,800
Other assets 38,200 25,300
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$23,049,200 $23,896,300
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 404,100 $ 392,300
Due to Affiliates 41,200 74,600
Distributions payable 355,700 355,700
Security deposits 52,100 61,900
Other liabilities 7,400 47,500
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860,500 932,000
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Partners' capital:
General Partner (deficit) (135,900) (183,300)
Limited Partners (45,737 Units issued and
outstanding) 22,324,600 23,147,600
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22,188,700 22,964,300
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$23,049,200 $23,896,300
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1997 (Unaudited)
and the year ended December 31, 1996
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January 1,
1996 $(183,300) $25,923,100 $25,739,800
Net income for the year ended December
31, 1996 213,400 1,145,500 1,358,900
Distributions for the year ended December
31, 1996 (213,400) (3,921,000) (4,134,400)
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Partners' (deficit) capital, December 31,
1996 (183,300) 23,147,600 22,964,300
Net income for the nine months ended
September 30, 1997 154,200 960,200 1,114,400
Distributions for the nine months ended
September 30, 1997 (106,800) (1,783,200) (1,890,000)
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Partners' (deficit) capital, September
30, 1997 $(135,900) $22,324,600 $22,188,700
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $718,000 $751,700
Interest 93,100 115,200
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811,100 866,900
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Expenses:
Depreciation and amortization 175,000 176,100
Property operating:
Affiliates 49,300 40,900
Nonaffiliates 147,400 151,900
Real estate taxes 60,200 73,200
Insurance--Affiliate 6,600 9,200
Repairs and maintenance 121,900 115,600
General and administrative:
Affiliates 4,700 12,800
Nonaffiliates 27,600 22,100
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592,700 601,800
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Income before income from participation in joint venture 218,400 265,100
Income from participation in joint venture 108,500 62,600
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Net income $326,900 $327,700
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Net income allocated to General Partner $ 35,600 $ 35,600
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Net income allocated to Limited Partners $291,300 $292,100
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Net income allocated to Limited Partners per Unit (45,737
Units outstanding) $ 6.37 $ 6.39
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $2,161,500 $2,293,600
Interest 270,800 346,200
Gain on sale of property 245,400
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2,677,700 2,639,800
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Expenses:
Depreciation and amortization 521,800 542,700
Property operating:
Affiliates 131,000 129,600
Nonaffiliates 458,700 468,600
Real estate taxes 234,100 244,700
Insurance--Affiliate 20,500 27,400
Repairs and maintenance 356,600 329,200
General and administrative:
Affiliates 13,300 33,600
Nonaffiliates 107,800 120,000
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1,843,800 1,895,800
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Income before income from participation in joint
venture 833,900 744,000
Income from participation in joint venture 280,500 274,600
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Net income $1,114,400 $1,018,600
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Net income allocated to General Partner $ 154,200 $ 177,900
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Net income allocated to Limited Partners $ 960,200 $ 840,700
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Net income allocated to Limited Partners per Unit
(45,737 Units outstanding) $ 20.99 $ 18.38
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</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,114,400 $ 1,018,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 521,800 542,700
(Income) from participation in joint venture (280,500) (274,600)
Gain on sale of property (245,400)
Changes in assets and liabilities:
Decrease in rents receivable 11,800 6,900
(Increase) decrease in other assets (12,900) 4,200
Increase (decrease) in accounts payable and accrued
expenses 11,800 (71,900)
(Decrease) in due to Affiliates (33,400) (61,100)
(Decrease) increase in other liabilities (40,100) 2,600
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Net cash provided by operating activities 1,047,500 1,167,400
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Cash flows from investing activities:
Payments for capital and tenant improvements (197,600) (230,100)
(Increase) in investments in debt securities (983,000) (3,462,000)
(Increase) in restricted cash (50,000)
Proceeds from sale of property 820,300
Distributions from (contributions to) joint venture,
net 638,000 (25,000)
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Net cash provided by (used for) investing
activities 277,700 (3,767,100)
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Cash flows from financing activities:
Distributions paid to Partners (1,890,000) (2,134,500)
(Decrease) increase in security deposits (9,800) 4,800
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Net cash (used for) financing activities (1,899,800) (2,129,700)
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Net (decrease) in cash and cash equivalents (574,600) (4,729,400)
Cash and cash equivalents at the beginning of the
period 4,749,200 8,022,200
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Cash and cash equivalents at the end of the period $ 4,174,600 $ 3,292,800
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 1997 are not necessarily
indicative of the operating results for the year ending December 31, 1997.
The financial statements include the Partnership's 50% interest in two joint
ventures and 25% interest in another joint venture all with Affiliated
partnerships. These joint ventures were formed for the purpose of each
acquiring a 100% interest in certain real property and are operated under the
common control of the General Partner. Accordingly, the Partnership's pro rata
share of the ventures' revenues, expenses, assets, liabilities and Partners'
(deficit) capital is included in the financial statements.
Investment in and loans to joint venture includes the recording of the
Partnership's interest, under the equity method of accounting, in a joint
venture with an Affiliated partnership. The joint venture acquired a preferred
majority interest in a joint venture with the seller of the Lansing, Michigan
property. Under the equity method of accounting, the Partnership recorded its
initial interest at cost and adjusts its investment account for its share of
joint venture income or loss and its distributions of cash flow (as defined by
the joint venture agreement).
Commercial rental properties are recorded at cost, net of any provisions for
value impairment, and depreciated (exclusive of amounts allocated to land) on
the straight-line method over their estimated useful lives. Lease acquisition
fees are recorded at cost and amortized on the straight-line method over the
life of each respective lease. Repair and maintenance costs are expensed
against operations as incurred; expenditures for improvements are capitalized
to the appropriate property accounts and depreciated on the straight-line
method over the estimated life of such improvements.
The Partnership evaluates its rental properties when conditions exist which may
indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a property is less than its carrying value. Upon
determination that an impairment has occurred, the carrying basis in the rental
property is reduced to estimated fair value. Management was not aware of any
indicator that would result in a significant impairment loss during the periods
reported.
Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation and amortization are removed from the respective
accounts. Gains on sales are recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
Investments in debt securities are comprised of corporate debt securities and
are classified as held-to-maturity. These investments are carried at their
amortized cost basis in the financial statements, which approximated fair
market value. All of these securities had maturities of less than one year when
purchased.
Certain reclassifications have been made to the previously reported 1996
statements in order to provide comparability with the 1997 statements. These
reclassifications have no effect on net income or Partners' (deficit) capital.
Reference is made to the Partnership's annual report for the year ended
December 31, 1996 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' capital and changes in cash balances for the year then
ended. The details provided in the notes thereto have not changed except as a
result of normal transactions in the interim or as otherwise disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, subsequent to May 16, 1986, the
Termination of the Offering, the General Partner is entitled to 10% of
distributable Cash Flow (as defined in the Partnership Agreement) as a
Partnership Management Fee. Net Profits (exclusive of Net Profits from the sale
or disposition of Partnership properties) are allocated to the General Partner
in an amount equal to the greater of 1% of such Net Profits or the Partnership
Management Fee paid by the Partnership to the General Partner and, the balance,
if any, to the Limited Partners. Net Losses (exclusive of Net Losses from the
sale, disposition or provision for value impairment of Partnership properties)
are allocated 1% to the General Partner and 99% to the Limited Partners. Net
Profits from the sale or disposition of a Partnership property are allocated:
first, prior to giving effect to any distributions of Sale Proceeds from the
transaction, to all Partners with negative balances in their Capital Accounts,
pro rata in proportion to such respective negative balances, to the extent of
the total of such negative balances; second, to the General Partner, in an
amount necessary to make the positive balance in its Capital Account equal to
the amount of Sale Proceeds to be distributed to the General Partner with
respect to the sale or disposition of such property; and third, the balance, if
any, to the Limited Partners. Net Losses from the sale, disposition or
provision for value impairment of
4
<PAGE>
Partnership properties are allocated: first, after giving effect to any
distributions of Sale Proceeds from the transaction to all Partners with
positive balances in their Capital Accounts, pro rata in proportion to such
respective positive balances, to the extent of the total amount of such
positive balances; and second, the balance, if any, 1% to the General Partner
and 99% to the Limited Partners. Notwithstanding anything to the contrary,
there shall be allocated to the General Partner not less than 1% of all items
of Partnership income, gain, loss, deduction and credit during the existence of
the Partnership. For the quarter and nine months ended September 30, 1997, the
General Partner was entitled to a Partnership Management Fee, and accordingly,
allocated Net Profits, of $35,600 and $106,800, respectively. In addition, the
General Partner was also allocated Net Profits from the sale of Southwest
Freeway of $47,400.
Fees and reimbursements paid and payable/(receivable) by the Partnership
to/(from) Affiliates during the quarter and nine months ended September 30,
1997 were as follows:
<TABLE>
<CAPTION>
Paid
----------------
Nine (Receivable)
Quarter Months Payable
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $44,300 $156,500 $(1,400)
Reimbursement of property insurance premiums, at
cost 6,600 20,500 None
Real estate commissions (a) 40,200
Legal 2,700 9,000 None
Reimbursement of expenses at cost
--Accounting 1,600 7,600 1,300
--Investor communications 1,400 4,900 1,100
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$56,600 $198,500 $41,200
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</TABLE>
(a) As of September 30, 1997, the Partnership owed $40,200 to the General
Partner for real estate commissions earned in connection with the sales of
certain Partnership properties. These commissions have been accrued but not
paid. In accordance with the Partnership Agreement, the Partnership will
not pay the General Partner or any Affiliate a real estate commission from
the sale of a Partnership property until Limited Partners have received
cumulative distributions of Sale or Financing Proceeds equal to 100% of
their Original Capital Contribution, plus a cumulative return (including
all Cash Flow (as defined in the Partnership Agreement) which has been
distributed to the Limited Partners from the initial investment date) of 6%
simple interest per annum on their Capital Investment.
3. PROPERTY SALE:
On February 18, 1997, the joint venture in which the Partnership owns a 25%
interest consummated the sale of 3120 Southwest Freeway Office Building,
located in Houston, Texas. The sale price was $3,425,000, of which the
Partnership's share was $856,250. The Partnership's share of Sales Proceeds
from this transaction was $820,300, which was net of closing expenses. The
Partnership recorded a gain of $245,400 for financial reporting purposes in
connection with this sale and distributed $822,800, or $17.99 per Unit, on May
31, 1997 to Limited Partners of record as of February 18, 1997.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1996 for a discussion of the Partnership's business.
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the quarters and nine months ended September 30,
1997 and 1996. The discussion following the table should be read in conjunction
with the Financial Statements and Notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative Operating Results (a)
For the Quarters For the Nine Months
Ended Ended
9/30/97 9/30/96 9/30/97 9/30/96
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<S> <C> <C> <C> <C>
PARK PLAZA PROFESSIONAL BUILDING (50%)
Rental revenues $400,900 $403,500 $1,175,000 $1,253,200
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Property net income $ 50,400 $ 86,000 $ 116,600 $ 254,100
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Average occupancy 86% 83% 85% 84%
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ELLIS BUILDING (50%)
Rental revenues $317,100 $293,100 $ 956,400 $ 875,300
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Property net income $109,400 $ 91,700 $ 328,600 $ 288,000
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Average occupancy 98% 95% 97% 94%
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HOLIDAY OFFICE PARK NORTH AND SOUTH (50%)
Rental revenues $469,600 $392,900 $1,253,200 $1,184,500
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Property net income $108,500 $ 62,600 $ 280,500 $ 274,600
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Average occupancy 86% 85% 86% 84%
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3120 SOUTHWEST FREEWAY OFFICE BUILDING (25%)(B)
Rental revenues $ 55,200 $ 30,100 $ 159,100
- --------------------------------------------------------------------
Property net income (loss) $ 1,200 $ (1,500) $ 2,200
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</TABLE>
(a) The above table excludes certain income and expense items which are not
directly related to individual property operating results such as interest
income, general and administrative expenses. The Partnership's share of
results from its participation in a joint venture, treated on the equity
method, is included above.
(b) The property was sold on February 18, 1997.
Unless otherwise disclosed, discussions of fluctuations between 1997 and 1996
refer to both the quarters and nine months ended September 30, 1997 and 1996.
Net income increased by $95,800 for the nine months ended September 30, 1997
when compared to the nine months ended September 30, 1996. The increase was
primarily due to the gain recognized on the sale of 3120 Southwest Freeway
Office Building ("Southwest Freeway") together with improved operating results
at Ellis Building ("Ellis") and decreased general and administrative expenses,
which were the result of lower personnel costs and accounting fees. The
increase was partially offset by diminished operating results at Park Plaza
Professional Building ("Park Plaza") and a decrease in interest earned on the
Partnership's short-term investments due to a lesser amount of cash available
for investment. The decrease in the amount of cash available for investment is
the result of the Partnership's distribution of a portion of the previously
retained Sales Proceeds in November 1996.
Net income decreased by $800 for the quarter ended September 30, 1997 when
compared to the quarter ended September 30, 1996. The decrease was primarily
the result of diminished operating results at Park Plaza, the absence of
results from Southwest Freeway and a decrease in interest income. The decrease
was almost completely offset by the improved operating results at Ellis and
Holiday Office Park North and South ("Holiday").
Net income, exclusive of Southwest Freeway, increased by $1,500 and decreased
by $145,900 for the quarter and nine months ended September 30, 1997 when
compared to the quarter and nine months ended September 30, 1996, respectively.
The following comparative discussion excludes the results of Southwest Freeway.
Rental revenues increased by $21,400 or 3.1% and $2,900 or 0.1% for the quarter
and nine months ended September 30, 1997 when compared to the quarter and nine
months ended September 30, 1996, respectively. The increases were primarily due
to increases in base rental revenues at Ellis due to an increase in the average
occupancy rate. The increases were partially offset by a decline in base rental
revenues at Park Plaza as a result of a decrease in the rates charged to new
and renewing tenants. Also partially offsetting the increase for the nine month
periods under comparison was a decrease in tenant expense reimbursements at
Park Plaza resulting from billings to tenants to settle 1996 escalation charges
payable in 1997 being less than estimated.
Property operating expenses increased by $23,900 and $41,400 for the periods
under comparison, respectively. The increases were primarily the result of an
increase in personnel costs at Ellis and Park Plaza together with an increase
in security costs at Park Plaza.
Real estate tax expense decreased by $8,300 for the quarter ended September 30,
1997 when compared to the quarter ended September 30, 1996. The decrease was
primarily due to a projected decrease in taxes at Park Plaza. Real estate tax
expense remained relatively unchanged for the nine month periods under
comparison.
Repairs and maintenance expense increased by $19,700 and $52,000 for the
quarter and nine months ended September 30, 1997 when compared to the quarter
and nine months ended September 30, 1996, respectively. The increases were
primarily due to increases in repairs to the HVAC unit and in cleaning costs at
Park Plaza. Partially offsetting the increases was a decrease in repairs to the
elevators at Ellis.
The Partnership's equity share of net income from Holiday increased by $45,900
and $5,900 for the quarterly and nine month periods under comparison,
respectively. The increases were primarily the result of increased rental
income due to increases in tenant expense reimbursements. Also contributing to
the increases was a decrease in the estimated business tax payable to the state
of Michigan. Partially offsetting the increases were increases in depreciation
and amortization expense which were the result of increases in improvements
made to the property together with increases in management fees which were the
result of lease commissions paid to brokers being less in 1997 than 1996.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
group, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenants' leases and addressing
any 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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
properties. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions are treated as
a return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as determined by generally
accepted accounting principles ("GAAP"), since certain items are treated
differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows,
as determined by GAAP. The following table includes a reconciliation of Cash
Flow (as defined in the Partnership Agreement) to cash flow provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not necessarily be considered as an
alternative to the results disclosed in the Statements of Income and Expenses
and Statements of Cash Flows.
<TABLE>
<CAPTION>
Comparative
Cash Flow Results
For the Nine Months
Ended
9/30/97 9/30/96
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 1,607,300 $ 1,694,800
Less: Cash Flow from joint venture (497,000) (408,100)
Items of reconciliation:
(Increase) decrease in current assets (1,100) 11,100
(Decrease) in current liabilities (61,700) (130,400)
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,047,500 $ 1,167,400
- -------------------------------------------------------------------------------
Net cash provided by (used for) investing activities $ 277,700 $(3,767,100)
- -------------------------------------------------------------------------------
Net cash (used for) financing activities $(1,899,800) $(2,129,700)
- -------------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $87,500
for the nine months ended September 30, 1997 when compared to nine months ended
September 30, 1996 was primarily due to diminished operating results, exclusive
of depreciation and amortization and the gain on the sale of Southwest Freeway,
as previously discussed.
The decrease in the Partnership's cash of $574,600 for the nine months ended
September 30, 1997 was primarily the result of investments in debt securities,
payments made for capital and tenant improvements and leasing costs and
distributions paid to Partners exceeding cash provided by sale proceeds,
operating results and distributions received from the Partnership's equity
investment in Holiday. Liquid assets (including cash, cash equivalents and
investments in debt securities) are comprised of amounts held for working
capital purposes.
The decrease in net cash provided by operating activities of $119,900 for the
nine months ended September 30, 1997 when compared to the nine months ended
September 30, 1996 was primarily due to the decrease in operating results,
excluding depreciation and amortization.
Net cash (used for) provided by investing activities changed from $(3,767,100)
for the nine months ended September 30, 1996 to $277,700 for the nine months
ended September 30, 1997. The change was primarily due to the 1997 receipt of
proceeds from the sale of Southwest Freeway and the increased 1997
distributions from the Partnership's equity investment in Holiday. Also
contributing to the change was the variance in the amounts invested in debt
securities during the periods under comparison. The increase in investments in
debt securities is the result of the extension of the maturities of certain of
the Partnership's short-term investments in an effort to maximize the return on
these amounts as they are held for working capital purposes or distributions to
Limited Partners. These investments are of investment-grade and generally
mature less than one year from their date of purchase.
The Partnership maintains working capital reserves to pay for capital
expenditures such as capital and tenant improvement and leasing costs. During
the nine months ended September 30, 1997, the Partnership's consolidated
properties spent $197,600 for capital and tenant improvements and leasing costs
and has projected to spend approximately $50,000 at Ellis during the remainder
of 1997. In addition, the Partnership spent $71,800 for capital and tenant
improvements and leasing costs at Holiday and is projecting to spend
approximately $125,000 during the remainder of 1997. Actual amounts expended in
1997 may vary depending on a number of factors including leasing activity and
other market conditions throughout the year. The General Partner believes that
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 decrease in net cash used for financing activities of $229,900 for the nine
months ended September 30, 1997 when compared to the nine months ended
September 30, 1996 was due primarily to an decrease in distributions paid to
Partners. Distributions were reduced following the 1996 special distribution of
Sales Proceeds, which was greater than the 1997 distribution of Sales Proceeds
from Southwest Freeway.
On February 18, 1997, the joint venture in which the Partnership owns a 25%
interest completed the sale of Southwest Freeway. The Partnership's share of
the net sales proceeds was $820,300. In connection with this sale the
Partnership distributed $822,800, or $17.99 per Unit, on May 31, 1997 to
Limited Partners of record as of February 18, 1997. For further information,
see Note 3 in Notes to the Financial Statements.
The General Partner continues to take a conservative approach to projections of
future rental income in its determination of adequate levels of cash reserves
due to the capital and tenant improvements and leasing costs that may be
necessary at the Partnership's properties during the next several years. As a
result, Cash Flow (as defined in the Partnership Agreement) retained to
supplement working capital reserves for the nine months ended September 30,
1997 amounted to $540,100.
Distributions to Limited Partners for the quarter ended September 30, 1997 were
declared in the amount of $320,100, or $7.00 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. The amount of future
distributions to Partners will ultimately be dependent upon the performance of
the Partnership's investments as well as the General Partner's determination of
the amount of cash necessary to supplement working capital reserves to meet
future liquidity requirements of the Partnership. Accordingly, there can be no
assurance as to the amounts of cash for future distribution to Partners.
Based upon the current estimated value of its assets, net of its outstanding
liabilities, together with its expected operating results and capital
expenditure requirements, the General Partner believes that the Partnership's
cumulative distributions to its Limited Partners from inception through the
termination of the Partnership may be less than such Limited Partners' original
Capital Contributions.
7
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
- -----------------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter ended
September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INSTITUTION REAL ESTATE, LTD. - 3
By: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: November 14, 1997 By: /s/ DOUGLAS CROCKER II
----------------- --------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 14, 1997 By: /s/ NORMAN M. FIELD
----------------- --------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,274,600
<SECURITIES> 983,000
<RECEIVABLES> 33,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,291,500
<PP&E> 18,934,400
<DEPRECIATION> 6,710,200
<TOTAL-ASSETS> 23,049,200
<CURRENT-LIABILITIES> 812,900
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,188,700
<TOTAL-LIABILITY-AND-EQUITY> 23,049,200
<SALES> 0
<TOTAL-REVENUES> 2,677,700
<CGS> 0
<TOTAL-COSTS> 1,200,900
<OTHER-EXPENSES> 121,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,114,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,114,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,114,400
<EPS-PRIMARY> 20.99
<EPS-DILUTED> 20.99
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