<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1997
---------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------
Commission File Number 0-14122
-------------------------------------------
First Capital Institutional Real Estate, Ltd.-3
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 36-3330657
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1100,
Chicago, Illinois 60606-2607
---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(312) 207-0020
------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated January 17, 1985,
included in the Registrant's Registration Statement on Form S-11 (Registration
No. 2-79092), is incorporated herein by reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
June 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 17,185,100 17,789,600
- --------------------------------------------------------------------------
18,848,000 19,698,200
Accumulated depreciation and amortization (6,535,200) (6,574,900)
- --------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 12,312,800 13,123,300
Cash and cash equivalents 5,038,800 4,749,200
Restricted cash 100,000 100,000
Rents receivable 21,000 45,700
Investment in and loans to joint venture 5,485,300 5,852,800
Other assets 47,600 25,300
- --------------------------------------------------------------------------
$23,005,500 $23,896,300
- --------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 332,800 $ 392,300
Due to Affiliates 40,700 74,600
Distributions payable 355,700 355,700
Security deposits 51,300 61,900
Other liabilities 7,500 47,500
- --------------------------------------------------------------------------
788,000 932,000
- --------------------------------------------------------------------------
Partners' capital:
General Partner (deficit) (135,900) (183,300)
Limited Partners (45,737 Units issued and
outstanding) 22,353,400 23,147,600
- --------------------------------------------------------------------------
22,217,500 22,964,300
- --------------------------------------------------------------------------
$23,005,500 $23,896,300
- --------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 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)
- ----------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1996 (183,300) 23,147,600 22,964,300
Net income for the six months ended
June 30, 1997 118,600 668,900 787,500
Distributions for the six months ended
June 30, 1997 (71,200) (1,463,100) (1,534,300)
- ----------------------------------------------------------------------------
Partners' (deficit) capital,
June 30, 1997 $(135,900) $22,353,400 $22,217,500
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $704,100 $789,900
Interest 93,000 113,000
- -------------------------------------------------------------------------------
797,100 902,900
- -------------------------------------------------------------------------------
Expenses:
Depreciation and amortization 174,100 178,900
Property operating:
Affiliates 45,200 43,600
Nonaffiliates 150,500 164,900
Real estate taxes 85,700 98,200
Insurance--Affiliate 5,500 9,100
Repairs and maintenance 111,300 115,100
General and administrative:
Affiliates 3,200 9,700
Nonaffiliates 49,300 48,400
Additional expenses of sale of property 4,500
- -------------------------------------------------------------------------------
629,300 667,900
- -------------------------------------------------------------------------------
Net income before income from participation in joint venture 167,800 235,000
Income from participation in joint venture 89,200 151,100
- -------------------------------------------------------------------------------
Net income $257,000 $386,100
- -------------------------------------------------------------------------------
Net income allocated to General Partner $ 31,100 $ 71,100
- -------------------------------------------------------------------------------
Net income allocated to Limited Partners $225,900 $315,000
- -------------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit (45,737
Units outstanding) $ 4.94 $ 6.89
- -------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
(except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $1,443,500 $1,541,900
Interest 177,700 231,000
Gain on sale of property 245,400
- ---------------------------------------------------------------------------
1,866,600 1,772,900
- ---------------------------------------------------------------------------
Expenses:
Depreciation and amortization 346,800 366,600
Property operating:
Affiliates 81,700 88,700
Nonaffiliates 311,300 316,700
Real estate taxes 173,900 171,500
Insurance--Affiliate 13,900 18,200
Repairs and maintenance 234,700 213,600
General and administrative:
Affiliates 8,600 20,800
Nonaffiliates 80,200 97,900
- ---------------------------------------------------------------------------
1,251,100 1,294,000
- ---------------------------------------------------------------------------
Net income before income from participation in joint
venture 615,500 478,900
Income from participation in joint venture 172,000 212,000
- ---------------------------------------------------------------------------
Net income $ 787,500 $ 690,900
- ---------------------------------------------------------------------------
Net income allocated to General Partner $ 118,600 $ 142,300
- ---------------------------------------------------------------------------
Net income allocated to Limited Partners $ 668,900 $ 548,600
- ---------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
(45,737 Units outstanding) $ 14.62 $ 11.99
- ---------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 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 $ 787,500 $ 690,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 346,800 366,600
(Income) from participation in joint venture (172,000) (212,000)
(Gain) on sale of property (245,400)
Changes in assets and liabilities:
Decrease in rents receivable 24,700
(Increase) in other assets (22,300) (36,500)
(Decrease) in accounts payable and accrued expenses (59,500) (108,000)
(Decrease) in due to Affiliates (33,900) (54,000)
(Decrease) increase in other liabilities (40,000) 2,700
- ----------------------------------------------------------------------------------
Net cash provided by operating activities 585,900 649,700
- ----------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for capital and tenant improvements (111,200) (169,300)
(Increase) in investments in debt securities (3,948,800)
(Increase) in restricted cash (50,000)
Proceeds from sale of property 820,300
Distributions received from (contributions to) joint
venture 539,500 (35,100)
- ----------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 1,248,600 (4,203,200)
- ----------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (1,534,300) (1,423,000)
(Decrease) increase in security deposits (10,600) 2,000
- ----------------------------------------------------------------------------------
Net cash (used for) financing activities (1,544,900) (1,421,000)
- ----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 289,600 (4,974,500)
Cash and cash equivalents at the beginning of the
period 4,749,200 8,022,200
- ----------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 5,038,800 $ 3,047,700
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 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 six months ended June 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.
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 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
4
<PAGE>
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 six months ended June 30,
1997, the General Partner was entitled to a Partnership Management Fee, and
accordingly, allocated Net Profits, of $35,600 and $71,200, respectively. In
addition, in 1997 the General Partner was also allocated Net Profits from the
sale of Southwest Freeway of $47,400.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Paid
------------------
Quarter Six Months Payable
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $41,200 $112,200 $ None
Reimbursement of property insurance premiums, at
cost 13,900 13,900 None
Real estate commissions (a) None None 40,200
Reimbursement of expenses, at cost:
--Accounting 3,900 6,000 300
--Investor communications 2,700 3,500 200
--Legal 6,200 6,300 None
- ----------------------------------------------------------------------------
$67,900 $141,900 $40,700
- ----------------------------------------------------------------------------
</TABLE>
(a) As of June 30, 1997, the Partnership owed $40,200 to the General Partner
for real estate commissions earned in connection with the sales of
Partnership properties. These commissions have been accrued but not paid.
In accordance with the Partnership Agreement, the Partnership will not pay
the General Partner or any Affiliate a real estate commission from the sale
of a Partnership property until Limited Partners have received cumulative
distributions of Sale or Financing Proceeds equal to 100% of their Original
Capital Contribution, plus a cumulative return (including all Cash Flow (as
defined in the Partnership Agreement) which has been distributed to the
Limited Partners from the initial investment date) of 6% simple interest
per annum on their Capital Investment.
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 net 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. The
Partnership distributed $822,800, or $17.99 per Unit, on May 31, 1997 to
Limited Partners of record as of February 18, 1997.
<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 six months ended June 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 Six Months
Ended Ended
6/30/97 6/30/96 6/30/97 6/30/96
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
PARK PLAZA PROFESSIONAL BUILDING (50%)
Rental revenues $381,200 $444,000 $774,100 $ 849,700
- ------------------------------------------------------------------
Property net income $ 18,800 $ 77,900 $ 66,200 $ 168,100
- ------------------------------------------------------------------
Average occupancy 84% 85% 84% 85%
- ------------------------------------------------------------------
ELLIS BUILDING (50%)
Rental revenues $323,600 $294,200 $639,300 $ 582,200
- ------------------------------------------------------------------
Property net income $118,600 $106,500 $219,200 $ 196,300
- ------------------------------------------------------------------
Average occupancy 97% 94% 97% 94%
- ------------------------------------------------------------------
HOLIDAY OFFICE PARK NORTH AND SOUTH (50%)
Rental revenues $399,200 $415,400 $783,600 $ 791,600
- ------------------------------------------------------------------
Property net income $ 89,200 $151,100 $172,000 $ 212,000
- ------------------------------------------------------------------
Average occupancy 86% 79% 85% 78%
- ------------------------------------------------------------------
3120 SOUTHWEST FREEWAY OFFICE BUILDING (25%)(B)
Rental revenues $ 49,700 $ 30,100 $ 103,900
- ------------------------------------------------------------------
Property net (loss) income $ (4,700) $ (900) $ 1,000
- ------------------------------------------------------------------
Average occupancy 81% 82%
- ------------------------------------------------------------------
</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 six months ended June 30, 1997 and 1996.
Net income increased by $96,600 for the six months ended June 30, 1997 when
compared to the six months ended June 30, 1996. The increase was primarily due
to the gain recorded on the sale of 3120 Southwest Freeway Office Building
("Southwest Freeway") along with improved operating results at Ellis Building
("Ellis") and decreased general and administrative expenses, which were the
result of reduced personnel costs and accounting fees. The increase was
partially offset by diminished operating results at Park Plaza Professional
Building ("Park Plaza") and the Partnership's equity investment in Holiday
Office Park North and South ("Holiday") and the decrease in interest earned on
the Partnership's short-term investments due to a reduction in the cash
available for investment resulting from the special distribution to Limited
Partners in November 1996.
Net income decreased by $129,100 for the quarter ended June 30, 1997 when
compared to the quarter ended June 30, 1996. The decrease was primarily the
result of diminished operating results at Park Plaza and Holiday and the
absence of results from Southwest Freeway.
Net income exclusive of Southwest Freeway decreased by $125,300 and $150,700
for the quarter and six months ended June 30, 1997 when compared to the quarter
and six months ended June 30, 1996, respectively. The decrease was primarily
due to the reasons discussed above.
The following comparative discussion excludes the results of Southwest Freeway.
Rental revenues decreased by $33,400 or 4.5% and $18,500 or 1.2% for the
quarter and six months ended June 30, 1997 when compared to the quarter and six
months ended June 30, 1996, respectively. The decreases were primarily the
result of a decrease in tenant expense reimbursements at Park Plaza which
resulted from billings to tenants to reconcile 1996 escalation charges, payable
in 1997 being less than estimated. Also contributing to the decreases was a
decline in base rental revenues at Park Plaza as a result of a decrease in the
rates charged to new and renewing tenants. The decreases were partially offset
by increases in base rental revenues at Ellis due to an increase in the average
occupancy rate.
Property operating expenses increased $7,200 and $17,600 for the periods under
comparison, respectively. The increases were primarily the result of an
increase in personnel costs and utility costs at Ellis partially offset by a
decrease in security costs at Park Plaza.
Real estate tax expense increased $9,500 for the six months ended June 30, 1997
when compared to the six months ended June 30, 1996. The increase was primarily
due to a budgeted increase in taxes at Ellis.
Real estate tax expense decreased by $7,800 for the quarterly periods under
comparison. The decrease was primarily due to the second quarter 1996
adjustment at Park Plaza to increase the estimated tax liability.
Repairs and maintenance expense increased $7,300 and $32,300 for the quarter
and six months ended June 30, 1997 when compared to the quarter and six months
ended June 30, 1996, respectively. The increase for the six month periods under
comparison was primarily due to an increase in repairs to the HVAC units at
Park Plaza and Ellis, together with an increase in cleaning costs at Park
Plaza. The increase for the quarterly periods was primarily due to an increase
in cleaning costs at Park Plaza partially offset by a decrease in repairs to
the elevators at Ellis.
The Partnership's share of net income from Holiday decreased by $62,100 and
$40,100 for the quarterly and six month periods under comparison, respectively.
The decreases were primarily the result of an increase in depreciation and
amortization expense which was the result of increases in improvements made to
the property along with an increase in management fees which was the result of
lease commissions paid to brokers being less in 1997 than 1996. Partially
offsetting the increases was a decrease in the estimated Michigan single
business tax.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenants' leases and addressing
any 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 Six Months Ended
6/30/97 6/30/96
- ----------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership
Agreement) $ 1,024,300 $ 1,144,800
Less: Cash Flow from joint venture (307,400) (299,300)
Items of reconciliation:
Decrease (increase) in current assets 2,400 (36,500)
(Decrease) in current liabilities (133,400) (159,300)
- ----------------------------------------------------------------------
Net cash provided by operating activities $ 585,900 $ 649,700
- ----------------------------------------------------------------------
Net cash provided by (used for) investing
activities $ 1,248,600 $ (4,203,200)
- ----------------------------------------------------------------------
Net cash (used for) financing activities $ (1,544,900) $ (1,421,000)
- ----------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $120,500
for the six months ended June 30, 1997 when compared to six months ended June
30, 1996 was primarily due to diminished operating results, exclusive of
depreciation and amortization, as previously discussed.
The increase in the Partnership's cash of $289,600 for the six months ended
June 30, 1997 was primarily the result of cash provided by sale proceeds,
operating results and distributions received from the Partnership's equity
investment in Holiday exceeding payments made for capital and tenant
improvements and leasing costs and distributions paid to Partners. Liquid
assets (including cash and cash equivalents) are comprised of amounts held for
working capital purposes.
The decrease in net cash provided by operating activities of $63,800 for the
six months ended June 30, 1997 when compared to the six months ended June 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 $(4,203,200)
for the six months ended June 30, 1996 to $1,248,600 for the six months ended
June 30, 1997. The change was primarily due to the receipt of proceeds from the
sale of Southwest Freeway and distributions from the Partnership's equity
investment in Holiday. Also contributing to the change was the 1996 increase in
investments in debt securities.
The Partnership maintains working capital reserves to pay for capital
expenditures such as capital and tenant improvement and leasing costs. During
the six months ended June 30, 1997, the Partnership's consolidated properties
spent $111,200 for capital and tenant improvements and leasing costs and has
projected to spend approximately $100,000 and $75,000 at Ellis and Park Plaza,
respectively, during the remainder of 1997. In addition, the Partnership spent
$12,600 for capital and tenant improvements and leasing costs at Holiday and is
projecting to spend approximately $200,000 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 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 $123,900 for the six
months ended June 30, 1997 when compared to the six months ended June 30, 1996
was due primarily to an increase in distributions paid to Partners. Although
cash flow distributions were reduced following the 1996 special distribution of
Sales Proceeds, total distributions were greater in 1997 due to the special
distribution of Southwest Freeway Sales Proceeds in 1997.
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 $818,400. The Partnership distributed all of those
Sales Proceeds, 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 six months ended June 30, 1997
amounted to $312,800.
Distributions to Limited Partners for the quarter ended June 30, 1997 were
declared in the amount of $320,200, or $7.00 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. The amount of future
distributions to Partners will ultimately be dependent upon the performance of
the Partnership's investments as well as the General Partner's determination of
the amount of cash necessary to supplement working capital reserves to meet
future liquidity requirements of the Partnership. Accordingly, there can be no
assurance as to the amounts of cash for future distribution to Partners.
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 Partner's 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 June 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 INSTITUTIONAL REAL ESTATE, LTD.-3
By: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: August 14, 1997 By: /s/ DOUGLAS CROCKER II
--------------- --------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,138,800
<SECURITIES> 0
<RECEIVABLES> 21,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,159,800
<PP&E> 18,848,000
<DEPRECIATION> 6,535,200
<TOTAL-ASSETS> 23,005,500
<CURRENT-LIABILITIES> 740,300
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,217,500
<TOTAL-LIABILITY-AND-EQUITY> 23,005,500
<SALES> 0
<TOTAL-REVENUES> 1,866,600
<CGS> 0
<TOTAL-COSTS> 815,500
<OTHER-EXPENSES> 88,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 787,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 787,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 787,500
<EPS-PRIMARY> 14.62
<EPS-DILUTED> 14.62
</TABLE>
