<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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-14122
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First Capital Institutional Real Estate, Ltd. - 3
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(Exact name of registrant as specified in its charter)
Florida 36-3330657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1000, 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>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.-3
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
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<S> <C> <C>
ASSETS
Investment in commercial rental property:
Land $ 860,000 $ 860,000
Buildings and improvements 5,467,700 5,464,700
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6,327,700 6,324,700
Accumulated depreciation and amortization (2,557,300) (2,437,500)
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Total investment property, net of accumulated
depreciation and amortization 3,770,400 3,887,200
Cash and cash equivalents 4,638,900 13,336,700
Investments in debt securities 993,300
Restricted cash 50,000 100,000
Rents receivable 3,800 11,600
Investment in joint venture 5,017,800 5,311,400
Other assets 41,900 56,600
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$14,516,100 $22,703,500
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 200,500 $ 163,900
Due to Affiliates 65,500 73,000
Distributions payable 355,700 8,474,000
Security deposits 20,400 26,400
Other liabilities 28,500 52,800
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670,600 8,790,100
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Partners' capital:
General Partner (deficit) (136,500) (136,500)
Limited Partners (45,737 Units issued and
outstanding) 13,982,000 14,049,900
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13,845,500 13,913,400
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$14,516,100 $22,703,500
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 1998 (Unaudited)
and the year ended December 31, 1997
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
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<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1997 $(183,300) $ 23,147,600 $22,964,300
Net income for the year ended
December 31, 1997 189,100 1,124,000 1,313,100
Distributions for the year ended
December 31, 1997 (142,300) (10,221,700) (10,364,000)
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Partners' (deficit) capital,
December 31, 1997 (136,500) 14,049,900 13,913,400
Net income for the six months ended
June 30, 1998 71,200 572,400 643,600
Distributions for the six months ended
June 30, 1998 (71,200) (640,300) (711,500)
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Partners' (deficit) capital,
June 30, 1998 $(136,500) $ 13,982,000 $13,845,500
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</TABLE>
2
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 3
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Income:
Rental $351,500 $704,100
Interest 147,900 93,000
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499,400 797,100
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Expenses:
Depreciation and amortization 59,800 174,100
Property operating:
Affiliates 17,200 45,200
Nonaffiliates 67,000 150,500
Real estate taxes 23,900 85,700
Insurance--Affiliate 2,300 5,500
Repairs and maintenance 37,900 111,300
General and administrative:
Affiliates 4,000 3,200
Nonaffiliates 32,500 49,300
Additional expenses of sale of property 4,500
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244,600 629,300
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Net income before income from participation in joint venture 254,800 167,800
Income from participation in joint venture 60,900 89,200
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Net income $315,700 $257,000
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Net income allocated to General Partner $ 35,600 $ 31,100
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Net income allocated to Limited Partners $280,100 $225,900
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Net income allocated to Limited Partners per Unit
(45,737 Units outstanding) $ 6.12 $ 4.94
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Income:
Rental $665,700 $1,443,500
Interest 332,400 177,700
Gain on sale of property 245,400
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998,100 1,866,600
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Expenses:
Depreciation and amortization 119,800 346,800
Property operating:
Affiliates 33,700 81,700
Nonaffiliates 151,600 311,300
Real estate taxes 47,500 173,900
Insurance--Affiliate 5,400 13,900
Repairs and maintenance 87,300 234,700
General and administrative:
Affiliates 9,900 8,600
Nonaffiliates 70,200 80,200
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525,400 1,251,100
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Net income before income from participation in joint
venture 472,700 615,500
Income from participation in joint venture 170,900 172,000
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Net income $643,600 $ 787,500
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Net income allocated to General Partner $ 71,200 $ 118,600
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Net income allocated to Limited Partners $572,400 $ 668,900
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Net income allocated to Limited Partners per Unit
(45,737 Units outstanding) $ 12.52 $ 14.62
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</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 643,600 $ 787,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 119,800 346,800
(Income) from participation in joint venture (170,900) (172,000)
(Gain) on sale of property (245,400)
Changes in assets and liabilities:
Decrease in rents receivable 7,800 24,700
Decrease (increase) in other assets 14,700 (22,300)
Increase (decrease) in accounts payable and accrued
expenses 36,600 (59,500)
(Decrease) in due to Affiliates (7,500) (33,900)
(Decrease) in other liabilities (24,300) (40,000)
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Net cash provided by operating activities 619,800 585,900
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Cash flows from investing activities:
Payments for capital and tenant improvements (3,000) (111,200)
(Increase) in investments in debt securities (993,300)
Decrease in restricted cash 50,000
Proceeds from sale of property 820,300
Distributions received from joint venture 464,500 539,500
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Net cash (used for) provided by investing activities (481,800) 1,248,600
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Cash flows from financing activities:
Distributions paid to Partners (8,829,800) (1,534,300)
(Decrease) in security deposits (6,000) (10,600)
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Net cash (used for) financing activities (8,835,800) (1,544,900)
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Net (decrease) increase in cash and cash equivalents (8,697,800) 289,600
Cash and cash equivalents at the beginning of the
period 13,336,700 4,749,200
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Cash and cash equivalents at the end of the period $ 4,638,900 $ 5,038,800
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 3
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
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"). The Partnership utilizes the accrual
method of accounting. Under this method, 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, 1998 are not necessarily indicative
of the operating results for the year ending December 31, 1998.
The financial statements include the Partnership's 50% interest in a joint
venture with an Affiliated partnership. This joint venture was formed for the
purpose of acquiring a 100% interest in certain real property and is operated
under the common control of the General Partner. Accordingly, the Partnership's
pro rata share of the ventures' revenues, expenses, assets, liabilities and
Partners' (deficit) capital is included in the financial statements.
Investment in joint venture 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 limited partnership with the seller of the Lansing, Michigan
property ("Holiday"). Under the equity method of accounting, the Partnership
recorded its initial interest at cost and adjusts its investment account for
its share of Holiday's income or loss and its distributions of cash flow (as
defined by the limited partnership 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 for impairment 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 its 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 or losses 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 obligations of the United
States government 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 1997
statements in order to provide comparability with the 1998 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, 1997 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 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 six months ended June 30, 1998, the
General Partner was paid a Partnership Management Fee and allocated Net
Profits, of $35,600 and $71,200, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Paid
Quarter Six Months Payable
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $21,400 $41,100 $12,700
Reimbursement of property insurance premiums, at
cost 2,300 5,400 None
Real estate commissions (a) None None 40,200
Legal 4,600 8,400 11,600
Reimbursement of expenses, at cost
--Accounting 5,600 5,600 700
--Investor communications 2,300 2,300 300
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$36,200 $62,800 $65,500
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</TABLE>
(a) As of June 30, 1998, 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. SPECIAL DISTRIBUTION:
On May 31, 1998, the Partnership distributed Park Plaza Sale Proceeds totaling
$8,118,300 or $177.50 per Unit to Limited Partners of record as December 18,
1997. For additional information related to this sale, see Note 7 of Notes to
Financial Statements in the Partnership's Annual Report for the year ended
December 31, 1997.
4. SUBSEQUENT EVENT:
In July 1998, a joint venture, in which the Partnership owns a 50% interest,
entered into a binding agreement to sell the Ellis Building for a selling price
of $13,875,000, which is prior to all transactional expenses. The transaction
is scheduled to consummate in August 1998. The consummation of the transaction
contemplated by this agreement is subject to customary conditions precedent.
There can be no assurance that this transaction will close.
5
<PAGE>
ITEM 2. 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, 1997 for a discussion of the Partnership's business.
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
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
addition to being in the operation of properties phase, the Partnership is in
the disposition phase of its life cycle. 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. Partnership operations are
generally expected to decline as real property interests are sold since the
Partnership no longer realizes the net income generated from such real property
interests. Through June 30, 1998, the Partnership has sold all of its
investments in real property with the exception of its 50% interest in the
Ellis Building ("Ellis") and its 50% interest in a joint venture's equity
interest in Holiday Office Park North and South ("Holiday").
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, 1998
and 1997. 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 For the
Quarters Six Months
Ended Ended
6/30/98 6/30/97 6/30/98 6/30/97
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<S> <C> <C> <C> <C>
ELLIS BUILDING (50%)
Rental revenues $344,800 $323,600 $660,600 $639,300
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Property net income $137,000 $118,600 $246,400 $219,200
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Average occupancy 98% 97% 98% 97%
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HOLIDAY OFFICE PARK NORTH AND SOUTH (50%)
Rental revenues $399,100 $399,200 $808,300 $783,600
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Property net income $ 60,900 $ 89,200 $170,900 $172,000
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Average occupancy 86% 86% 86% 85%
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SOLD PROPERTIES (B)
Rental Revenues $ 6,800 $381,200 $ 5,100 $804,200
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Property net income (loss) $ 5,400 $ 18,800 $(20,500) $ 65,300
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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 and 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) Includes results from 3120 Southwest Freeway Office Building ("Southwest
Freeway") and Park Plaza Professional Building ("Park Plaza"),
(collectively, the "Sold Properties"), which were sold February 18, 1997
and December 18, 1997, respectively.
Unless otherwise disclosed, discussions of fluctuations between 1998 and 1997
refer to both the quarters and six months ended June 30, 1998 and 1997.
Net income decreased by $143,900 for the six months ended June 30, 1998 when
compared to the six months ended June 30, 1997. The decrease was primarily due
to the gain recorded in 1997 on the sale of 3120 Southwest Freeway Office
Building ("Southwest Freeway") together with the absence of results from the
Sold Properties resulting from their 1997 sales. The decrease was partially
offset by an increase in interest earned on the Partnership's short-term
investments due to an increase in cash available for investment and improved
operating results at Ellis Building ("Ellis").
Net income increased by $58,700 for the quarter ended June 30, 1998 when
compared to the quarter ended June 30, 1997. The increase was primarily the
result of the increase in interest earned on the Partnership's short-term
investments and the improved operating results at Ellis. The increase was
partially offset by the absence of results from Park Plaza due to its 1997 sale
and diminished operating results at the Partnership's equity investment in
Holiday Office Park North and South ("Holiday").
Net income exclusive of Sold Properties increased by $67,600 and $187,400 for
the quarter and six months ended June 30, 1998 when compared to the quarter and
six months ended June 30, 1997, respectively. The increases were primarily due
to the increase in interest earned on the Partnership's short-term investments
and the improved operating results at Ellis. The increases were partially
offset by the diminished operating results at Holiday.
The following comparative discussion excludes the results of Sold Properties.
Rental revenues increased by $21,100 or 6.5% and $21,300 or 3.3% for the
quarter and six months ended June 30, 1998 when compared to the quarter and six
months ended June 30, 1997, respectively. The increases were primarily the
result of an increase in tenant expense reimbursements at Ellis, which resulted
from increased billings to tenants.
Property operating expenses decreased by $5,200 for the six months ended June
30, 1998 when compared to the six months ended June 30, 1997. The decrease was
primarily the result of a decrease in personnel costs at Ellis. Property
operating expenses remained relatively unchanged for the quarterly periods
under comparison.
The Partnership's share of net income from Holiday decreased by $28,300 for the
quarter ended June 30, 1998 when compared to the quarter ended June 30, 1997.
The decrease was primarily the result of an increase in landscaping costs. The
decrease was also due to an increase in professional services which was related
to costs incurred in the successful appeal of real estate taxes. The decrease
was partially offset by an increase in base rental income, which was due to an
increase in the rates charged to new and renewing tenants. The Partnership's
share of net income from Holiday remained relatively unchanged for the six
months ended June 30, 1998 when compared to the six months ended June 30, 1997.
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
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
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
6/30/98 6/30/97
- -----------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership
Agreement) $ 923,100 $ 1,024,300
Less: Cash Flow from joint venture (330,600) (307,400)
Items of reconciliation:
Decrease in current assets 22,500 2,400
Increase (decrease) in current liabilities 4,800 (133,400)
- -----------------------------------------------------------------------
Net cash provided by operating activities $ 619,800 $ 585,900
- -----------------------------------------------------------------------
Net cash (used for) provided by investing
activities $ (481,800) $ (1,248,600)
- -----------------------------------------------------------------------
Net cash (used for) financing activities $ (8,835,800) $ (1,544,900)
- -----------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $101,200
for the six months ended June 30, 1998 when compared to six months ended June
30, 1997 was primarily due to the absence of results from the Sold Properties.
Partially offsetting the decrease was the increase in interest income, as
previously discussed, and improved operating results, exclusive of depreciation
and amortization, at Ellis.
The decrease in the Partnership's cash of $8,697,800 for the six months ended
June 30, 1998 was primarily the result of the special distribution of Park
Plaza Sale Proceeds. Exclusive of the special distribution, investments in debt
securities and regular cash flow distributions exceeded cash provided by
operating results and distributions received from the Partnership's equity
investment in Holiday. Liquid assets (including cash and cash equivalents) are
comprised of amounts held for working capital purposes.
The increase in net cash provided by operating activities of $33,900 for the
six months ended June 30, 1998 when compared to the six months ended June 30,
1997 was primarily due to the timing of the collection of receivables along
with the payment of trade payables. The increase was partially offset by the
absence of results in 1998 from the Sold Properties, exclusive of depreciation
and amortization.
Net cash provided by (used for) investing activities changed from $1,248,600
for the six months ended June 30, 1997 to $(481,800) for the six months ended
June 30, 1998. The change was primarily due to the 1997 receipt of proceeds
from the sale of Southwest Freeway. Also contributing to the change was the
1998 investments in debt securities. The Partnership has invested a portion of
its cash in debt securities with longer terms to improve yields on its cash
reserves. These debt securities are of investment grade and mature less than
one year from when purchased. During the six months ended June 30, 1998, the
Partnership received $464,500 in cash distributions from Holiday.
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, 1998, the Partnership's spent $3,000 for capital
and tenant improvements and leasing costs at Ellis and has projected to spend
approximately $45,000 during the remainder of 1998. In addition, the
Partnership spent $13,600 for capital and tenant improvements and leasing costs
at Holiday and is projecting to spend approximately $190,000 during the
remainder of 1998. Actual amounts expended in 1998 may vary depending on a
number of factors including leasing activity, other market conditions
throughout the year and the potential sale of one or both of the properties.
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 $7,290,900 for the
six months ended June 30, 1998 when compared to the six months ended June 30,
1997 was primarily due to the special distribution in 1998 of Park Plaza Sale
Proceeds. The increase was partially offset by the 1997 special distribution of
Southwest Freeway Sale Proceeds.
On December 18, 1997, a joint venture in which the Partnership owned a 50%
interest completed the sale of Park Plaza. In connection with this sale, on May
31, 1998, Limited Partners of record as of December 18, 1997 were paid a
distribution of Sale Proceeds of $8,118,300 or $177.50 per Unit.
The General Partner, on behalf of the Partnership, has contracted for
substantially all of its business activities with certain principal entities
for which computer programs are utilized. Each of these companies is
financially responsible and have represented to management of the General
Partner that they are taking appropriate steps for modifications needed to
their respective systems to accommodate processing data by
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000. Accordingly, the Partnership anticipates incurring no material Year
2000 costs and is currently not aware of any material contingencies related to
this matter.
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 coming years. As a result,
Cash Flow (as defined in the Partnership Agreement) continues to be retained to
supplement working capital reserves. Cash Flow (as defined in the Partnership
Agreement) retained to supplement working capital reserves for the six months
ended June 30, 1998 amounted to $211,600.
Distributions to Limited Partners for the quarter ended June 30, 1998 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.
8
<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, 1998.
<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: August 14, 1998 By: /s/ DOUGLAS CROCKER II
--------------- --------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 14, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,688,900
<SECURITIES> 993,300
<RECEIVABLES> 3,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,686,000
<PP&E> 6,327,700
<DEPRECIATION> 2,557,300
<TOTAL-ASSETS> 14,516,100
<CURRENT-LIABILITIES> 601,900
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,845,500
<TOTAL-LIABILITY-AND-EQUITY> 14,516,100
<SALES> 0
<TOTAL-REVENUES> 998,100
<CGS> 0
<TOTAL-COSTS> 325,500
<OTHER-EXPENSES> 80,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 643,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 643,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643,600
<EPS-PRIMARY> 12.52
<EPS-DILUTED> 12.52
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