<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------------------------
Commission file number 0-15632
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FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 4
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Illinois 36-3441345
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
- ------------------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 207-0020
------------------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
------------------------------------
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Assignee Units
------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated November 5, 1986, included
in the Registrant's Registration Statement on Form S-11 (Registration No.
33-06149), is incorporated herein by reference in Part IV of this report.
EXHIBIT INDEX - PAGE A-1
- ------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
The registrant, First Capital Institutional Real Estate, Ltd. - 4 (the
"Partnership"), is a limited partnership organized in 1986 under the Uniform
Limited Partnership Act of the State of Illinois. The Partnership sold
$59,302,500 in Limited Partnership Assignee Units (the "Units") to the public
from November 1986 to May 1988, pursuant to a Registration Statement on Form
S-11 filed with the Securities and Exchange Commission (Registration Statement
No. 33-06149). Capitalized terms used in this report have the same meaning as
those terms have in the Partnership's Registration Statement.
The business of the Partnership is to invest primarily in existing commercial
income-producing real estate, such as shopping centers, warehouses and office
buildings, and, to a lesser extent, in other types of commercial income-
producing real estate. From January 1987 to March 1989, the Partnership made one
real property investment and purchased 50% interests in three joint ventures and
a 75% interest in one joint venture each with Affiliated partnerships. Two of
the 50% joint ventures and the 75% joint venture were each formed for the
purpose of acquiring a 100% interest in certain real property and one 50% joint
venture was formed for the purpose of participating in a mortgage loan
investment, which was recognized as of July 1, 1990 as being foreclosed in-
substance and was recorded as two real property investments. All of the
Partnership's joint ventures, prior to disposition, are operated under the
common control of First Capital Financial Corporation (the "General Partner").
As of December 31, 1995, the Partnership, with its respective joint venture
partner, dissolved the 50% joint venture which was originally formed for the
purpose of participating in a mortgage loan investment, as a result of the sale
and/or disposition of the two real property investments.
Property management services for the Partnership's real estate investments are
provided by Affiliates of the General Partner for fees calculated as a
percentage of gross rents received from the properties.
The real estate business is highly competitive. The results of operations of the
Partnership will depend upon the availability of suitable tenants, real estate
market conditions and general economic conditions which may impact the success
of these tenants. Properties owned by the Partnership frequently compete for
tenants with similar properties owned by others.
As of March 1, 1996, there were eleven employees at the Partnership's properties
for on-site property maintenance and administration.
ITEM 2. PROPERTIES (a)(b)
- ------- -----------------
As of December 31, 1995, the Partnership owned, directly or through a joint
venture, the following four property interests, all of which were owned in fee
simple.
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ------------------------------------ ------------------- ------------ -----------
<S> <C> <C> <C>
Shopping Centers:
- -----------------
Carrollton Crossroads (d) Carrollton, Georgia 303,806 26 (3)
Indian Ridge Plaza Mishawaka, Indiana 191,725 26 (1)
Office Buildings:
- -----------------
Park Plaza Professional Building (d) Houston, Texas 177,395 66 (1)
3120 Southwest Freeway (e) Houston, Texas 89,346 33
</TABLE>
2
<PAGE>
ITEM 2. PROPERTIES (a)(b) - Continued
- --------------------------------------
(a) For a discussion of significant operating results and major capital
expenditures planned for the Partnership's properties refer to Item 7.
(b) For federal income tax purposes, the Partnership depreciates the
portion of the acquisition costs of its properties allocable to real
property (exclusive of land), and all improvements thereafter, over a
useful life of 40 years utilizing the straight-line method. The
Partnership's portion of real estate taxes for Carrollton Crossroads
Shopping Center ("Carrollton"), Indian Ridge Plaza Shopping Center
("Indian Ridge"), Park Plaza Professional Building ("Park Plaza") and
3120 Southwest Freeway was $105,000, $243,400, $235,000 and $55,400,
respectively, for the year ended December 31, 1995. In the opinion of
the General Partner, the Partnership's properties are adequately
insured and serviced by all necessary utilities.
(c) Represents the total number of tenants as well as the number of
tenants, in parenthesis, that individually occupy more than 10% of the
net leasable square footage of the property.
(d) The Partnership owns a 50% joint venture interest in this property.
(e) The Partnership owns a 75% joint venture interest in this property.
The following table presents each of the Partnership's properties' occupancy
rates as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
Property Name 1995 1994 1993 1992 1991
- ---------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Carrollton 99% 99% 99% 99% 97%
Indian Ridge 72% 98% 98% 97% 90%
Park Plaza 86% 90% 91% 91% 89%
3120 Southwest Freeway 88% 96% 90% 80% 88%
</TABLE>
The amounts in the following table represent each of the Partnership's
properties' average annual rental rate per square foot for each of the last five
years ended December 31 and were computed by dividing each property's base
rental revenues by its average occupied square footage:
<TABLE>
<CAPTION>
Property Name 1995 1994 1993 1992 1991
- ---------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Carrollton $6.31 $6.30 $5.94 $5.73 $5.77
Indian Ridge $8.72 $9.32 $9.18 $9.25 $8.36
Park Plaza $18.16 $18.44 $17.65 $16.99 $16.63
3120 Southwest Freeway $10.99 $10.51 $10.23 $9.94 $9.84
</TABLE>
3
<PAGE>
ITEM 2. PROPERTIES - Continued
- -------------------------------
The following table summarizes the principal provisions of the leases for each
of the tenants which occupy ten percent or more of the rentable square footage
at each of the Partnership's properties except 3120 Southwest Freeway which has
no such tenants:
<TABLE>
<CAPTION>
Partnership's Share of per Percentage
Annum Base Rents (a) for of Net Renewal
--------------------------- Leasable Options
Final Twelve Expiration Square (Renewal
Months of Date of Footage Options/
1996 Lease Lease Occupied Years)
-------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Carrollton
- ----------
Wal-Mart
(department store) $306,500 $306,500 9/30/2007 41% 6 / 5
Kroger
(grocery store) $159,000 $159,000 12/9/2007 16% 5 / 5
JC Penney
(department store) $ 63,400 $ 63,400 2/28/2008 11% 4 / 5
Indian Ridge
- ------------
TJ Maxx
(department store) $227,700 $227,700 5/31/1997 17% 3 / 5
Park Plaza
- ----------
AMI Park Plaza Hospital
(health care services) (b) $ 77,900 (b) 5/31/1996 11% None
</TABLE>
(a) The Partnership's share of per annum base rents for each of the
tenants listed above for each of the years between 1996 and the
final twelve months for each of the above leases are no lesser or
greater than the amounts listed in the above table.
(b) Per annum base rents for 1996 are for the period January 1, 1996
through May 31, 1996 (the expiration date of the lease).
4
<PAGE>
ITEM 2. PROPERTIES - Continued
- ------- ----------------------
The amounts in the following table represent the Partnership's portion of leases
in the year of expiration (assuming no lease renewals) through the year ended
December 31, 2005:
<TABLE>
<CAPTION>
Number Base Rents
of in Year of % of Total
Year Tenants Square Feet Expiration (a) Base Rents (b)
---- ------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
1996 39 109,014 $453,600 12.27%
1997 35 85,141 $465,000 15.47%
1998 37 112,399 $540,700 25.26%
1999 13 28,225 $156,800 10.27%
2000 16 57,609 $185,800 15.39%
2001 1 8,413 $ 34,300 3.45%
2002 2 10,662 $ 55,800 6.19%
2003 2 14,185 $ 78,300 9.68%
2004 None None None None
2005 3 15,235 $169,800 24.31%
</TABLE>
(a) Represents the Partnership's portion of base rents to be collected
each year on expiring leases.
(b) Represents the Partnership's portion of base rents to be collected
each year on expiring leases as a percentage of the Partnership's
portion of the total base rents to be collected on leases in effect as
of December 31, 1995.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
(a & b) The Partnership and its properties were not a party to, nor the subject
of, any material pending legal proceedings, nor were any such proceedings
terminated during the quarter ended December 31, 1995. Ordinary routine
litigation incidental to the business which is not deemed material was
maintained during the quarter ended December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
(a,b,c & d) None.
5
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
- ------- ----------------------------------------------------------------------
There has not been, nor is there expected to be, a public market for Units.
As of March 1, 1996, there were 4,825 Holders of Units.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues $ 5,690,700 $ 6,156,100 $ 6,174,800 $ 6,296,800 $ 6,359,800
Net (loss) income $ (784,500) $ 1,249,200 $ 1,623,300 $(2,034,200) $ 864,600
Net (loss) income allocated to
Limited Partners (a) $ (921,700) $ 1,080,700 $ 1,107,600 $(2,013,900) $ 856,000
Net (loss) income allocated to
Limited Partners per Unit
(593,025 Units issued
and outstanding) (a) $ (1.55) $ 1.82 $ 1.87 $ (3.40) $ 1.44
Total assets $39,228,800 $42,175,300 $44,887,600 $46,932,900 $52,943,300
Loan payable to
General Partner $ 4,085,700 $ 3,911,700 $ 3,937,900 $ 3,937,900 $ 3,937,900
Mortgage loan(s) payable None None None $ 2,419,000 $ 5,569,000
Note payable None None None None $ 775,000
Distributions to Limited
Partners per Unit
(593,025 Units issued
and outstanding) (b) $ 3.90 $ 6.14 $ 2.26 None None
Return of capital
to Limited Partners
per Unit (593,025 Units
issued and outstanding) (c) $ 3.90 $ 4.32 $ 0.39 None None
Other data:
- -----------
Investment in commercial
rental properties (net of
accumulated depreciation
and amortization) $34,232,400 $37,607,600 $41,405,300 $43,555,100 $50,356,100
</TABLE>
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA - Continued
- ------- -----------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Number of real
property interests
owned at December 31 4 4 5 5 6
</TABLE>
(a) Net income (loss) allocated to Limited Partners for 1993 and 1992
included an extraordinary gain on extinguishment of debt.
(b) Distributions to Limited Partners per Unit for the years ended
December 31, 1994 and 1993 included Sale Proceeds of $2.74 and $1.42,
respectively.
(c) For the purposes of this table, return of capital represents
either: the amount by which distributions, if any, exceed net income
for each respective year or; total distributions, if any, in years when
the Partnership incurs a net loss. Pursuant to the Partnership
Agreement, Capital Investment is only reduced by distributions of Sale
or Refinancing Proceeds. Accordingly, return of capital as used in the
above table does not impact Capital Investment.
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash Flow (as defined
in the Partnership
Agreement) (a) $2,842,900 $3,112,400 $2,448,300 $2,655,300 $2,265,800
Items of reconciliation:
Principal payments
on mortgage loans
and notes payable 12,500
General Partner
Partnership
Management Fee 161,200 174,000 515,400
Changes in current assets
and liabilities:
Decrease (increase)
in current assets 83,600 1,900 254,500 (175,300) (92,500)
Increase (decrease)
in current liabilities 40,700 (141,100) 132,900 222,600 249,400
---------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities $3,128,400 $3,147,200 $3,351,100 $2,702,600 $2,435,200
========== ========== ========== ========== ==========
</TABLE>
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA - Continued
- ------- -----------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net cash (used for)
provided by
investing activities $ (412,600) $ 1,761,300 $(1,773,300) $(1,027,200) $(460,000)
=========== =========== =========== =========== =========
Net cash (used for)
financing activities $(2,202,700) $(3,820,400) $(1,218,100) $ (905,600) $(490,300)
=========== =========== =========== =========== =========
</TABLE>
(a) Cash Flow is defined in the Partnership Agreement as Partnership
revenues earned from operations (excluding tenant deposits and proceeds
from the sale, disposition or financing of any Partnership properties
or the refinancing of any Partnership indebtedness) minus all expenses
incurred (including Operating Expenses, payments of principal (other
than balloon payments of principal out of offering proceeds) and
interest on any Partnership indebtedness and interest on advances by
the General Partner and any reserves of revenues from operations deemed
reasonably necessary by the General Partner), except depreciation and
amortization expenses and capital expenditures and lease acquisition
expenditures. Cash Flow (as defined in the Partnership Agreement) shall
include amounts distributed to Limited Partners from funds advanced to
the Partnership by the General Partner and the General Partner's
Partnership Management Fee.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing on pages A-1 through
A-7 in this report and the supplemental schedule on pages A-8 and A-9.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through its life
cycle in three phases: (i) the Offering of Units and Investment in Properties;
(ii) the operation of properties and (iii) the sale or other disposition of
properties.
The Partnership commenced the Offering of Units on November 5, 1986 and began
operations on December 15, 1986, after achieving the required minimum
subscription level. On May 4, 1988, the Offering was Terminated upon the sale
of 593,025 Units. From January 1987 to March 1989, the Partnership made one
real property investment and purchased 50% interests in three joint ventures
and a 75% interest in one joint venture each with Affiliated partnership's. Two
of the 50% joint ventures and the 75% joint venture were each formed for the
purpose of acquiring a 100% interest in certain real property. The remaining
50% joint venture was formed for the purpose of participating in a mortgage
loan investment, which was recognized as of July 1, 1990 as being foreclosed
in-substance and was recorded as two real property investments; the Wellington
North Office Complex (comprised of three office buildings, "Wellington A, B and
C") and the North Valley Office Center (comprised of two office buildings
collectively known as "North Valley").
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
1992 the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle with the disposal of
North Valley as a result of a conveyance of title to the mortgage holder in
lieu of foreclosure. During the disposition phase of the Partnership's life
cycle, comparisons of operating results are complicated due to the timing and
effect of property sales and dispositions. Partnership operating results are
generally expected to decline as real property interests are sold or disposed
of since the Partnership no longer receives income generated from such real
property interests. In addition, as of December 31, 1995, the Partnership, with
its respective joint venture partner, have dissolved the 50% joint venture
which was originally formed for the purpose of participating in a mortgage loan
investment as a result of the sale and/or disposition of the three buildings at
Wellington.
The past year was disappointing for most retailers throughout the country.
Gross margins and consequently profits were negatively impacted as retailers
attempted to turn inventories. The prospects for expansion in 1996 are also
minimal, if nonexistent. The poor sales performance of retailers has resulted
in less demand for store space, further retailer consolidations and an
increased number of bankruptcies. Factors utilized by prospective property
purchasers such as higher capitalization and discount rates resulted in lower
prices than previously seen in years. In addition, downward pressure on rent,
upward pressure on tenant improvement costs and larger reserves for capital
expenditures also negatively affected the pricing of retail assets. The
Partnership's retail properties, which accounted for 56% of the Partnership's
rental revenues for the year ended December 31, 1995, also experienced other
issues which have affected the pricing of retail assets. During 1995, Indian
Ridge Plaza Shopping Center ("Indian Ridge") was adversely affected by
competition in its market area, together with the loss of an anchor tenant
through bankruptcy. While this tenant is being replaced, the Partnership will
incur tenant improvement costs related to this space and realize less rental
revenue per square foot.
The Partnership's two office buildings accounted for the remaining 44% of the
Partnership's rental revenues for the year ended December 31, 1995. Several
factors have had an effect on operating performance and market values of these
properties. While occupancy rates have generally continued to gradually
improve, the age of the properties and increased competition from newer
buildings with higher vacancy has caused rental rates to either decline or
remain relatively stable in most instances. In addition, as further described
in the Operations section below, the uncertainty surrounding the health care
industry has had an adverse affect on the operating results of Park Plaza
Professional Building ("Park Plaza").
The General Partner has historically reviewed significant factors regarding the
Partnership's properties to determine that the properties are carried at lower
of cost or market, and where appropriate has made value impairment adjustments.
These factors include, but are not limited to: 1) recent and/or budgeted
operating performance; 2) research of market conditions; 3) economic trends
affecting major tenants; 4) economic factors related to the region where the
properties are located and 5) when available, recent property appraisals. As a
result of the current year review, the Partnership has recorded (losses) for
provisions for value impairment totaling $(2,400,000) for the year ended
December 31, 1995. Of this amount, $(900,000) relates to one of the
Partnership's retail properties and $(1,500,000) relates to the Partnership's
two office buildings. For more details related to these provisions, see Note 7
of Notes to Financial Statements. The General Partner will continue to evaluate
real estate market conditions affecting each of the Partnership's properties,
in its efforts to maximize the realization of proceeds on their eventual
disposition. The recording of the provisions for value impairment does not
impact cash flows as defined by GAAP or Cash Flow (as defined in the
Partnership Agreement).
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1995, 1994 and 1993.
The discussion following the table should be read in conjunction with the
Financial Statements and Notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative Operating Results
(a)
For the Years Ended December 31,
--------------------------------
1995 1994 1993
- ---------------------------------------------------------
<S> <C> <C> <C>
INDIAN RIDGE PLAZA SHOPPING CENTER
Rental revenues $1,853,700 $2,147,400 $2,078,200
- ---------------------------------------------------------
Property net income (b) $ 804,300 $1,100,500 $1,089,200
- ---------------------------------------------------------
Average occupancy 89% 98% 96%
- ---------------------------------------------------------
PARK PLAZA PROFESSIONAL BUILDING
Rental revenues $1,699,200 $1,815,300 $1,889,200
- ---------------------------------------------------------
Property net income (b) $ 395,700 $ 483,100 $ 577,300
- ---------------------------------------------------------
Average occupancy 87% 89% 93%
- ---------------------------------------------------------
CARROLLTON CROSSROADS SHOPPING CENTER
Rental revenues $1,164,300 $1,094,800 $1,017,200
- ---------------------------------------------------------
</TABLE>
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
<TABLE>
<CAPTION>
Comparative Operating
Results (a)
For the Years Ended
December 31,
--------------------------
1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
Property net income $627,200 $549,000 $463,400
- -----------------------------------------------------------
Average occupancy 98% 99% 99%
- -----------------------------------------------------------
3120 SOUTHWEST FREEWAY OFFICE BUILDING
Rental revenues $707,200 $713,100 $607,700
- -----------------------------------------------------------
Property net income (loss) (b) $ 45,100 $ 46,900 $(41,600)
- -----------------------------------------------------------
Average occupancy 91% 91% 86%
- -----------------------------------------------------------
WELLINGTON NORTH OFFICE COMPLEX (C)
Rental revenues $215,400 $497,800
- -----------------------------------------------------------
Property net income (c) $ 5,300 $ 36,000
- -----------------------------------------------------------
Average occupancy (c) 78%
- -----------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income,
interest expense and general and administrative expenses or are related to
properties previously owned by the Partnership.
(b) Property net income excludes losses from provisions for value impairment
which were included in the Statement of Income and Expenses for the years
ended December 31, 1995 and 1994 (see Note 7 of Notes to Financial
Statements for additional information).
(c) The joint venture which owned Wellington A, B and C, in which the
Partnership had a 50% interest, disposed of Wellington A on March 17, 1993,
sold Wellington B on March 23, 1993 and sold Wellington C on June 8, 1994.
The property net incomes exclude the results from the sales and/or
disposition of these buildings, a portion of which was reported by the
Partnership as a provision for value impairment in the Statement of Income
and Expenses for the year ended December 31, 1992. The remaining portions
of the net losses from these sales and/or dispositions (including an
extraordinary gain recognized in 1993 on the extinguishment of debt
relating to Wellington A) were reported by the Partnership in the
Statements of Income and Expenses as a loss on the sale or disposition of
properties in the year of sale or disposition (see Note 6 of Notes to
Financial Statements for additional information).
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net income (loss) for the year ended December 31, 1995 changed $(2,033,700)
when compared to the year ended December 31, 1994. The effects of losses from
provisions for value impairment in 1995 and 1994 and the net loss on the sale
of a Partnership property in 1994 had significant impact on the comparison of
net income (loss) for the years under comparison. As described above, the
Partnership recorded (losses) from provisions for value impairment of
$(2,400,000) during 1995. In addition, the Partnership recorded a (loss) from a
provision for value impairment of $(500,000) during 1994 as well as a (loss) of
$(48,900) on the sale of Wellington C. For further information, see the table
above and the notes thereto as well as Notes 6 and 7 of Notes to Financial
Statements.
Excluding the effects on net income of the provisions for value impairment and
the property sale, net income for the year ended December 31, 1995 decreased
$182,600 when compared to the year ended December 31, 1994. The decrease was
primarily due to a decrease in operating results of $296,200 and $87,400 at
Indian Ridge and Park Plaza, respectively. Partially offsetting the decrease
was: 1) an increase in interest income of $96,200 due to an increase in rates
available on the Partnership's short-term investments as well as in the funds
available for such investments; 2) an increase in operating results of $78,200
at Carrollton Crossroads Shopping Center ("Carrollton") and 3) a decrease in
interest expense of $11,900 as a result of a lower average amount outstanding
on the loan payable to the General Partner.
For purposes of the following comparative discussion, the operating results of
Wellington C have been excluded.
Rental revenues for the year ended December 31, 1995 decreased $346,200, or 6%,
when compared to the year ended December 31, 1994. The primary factor which
contributed to the decrease in rental revenues was a lower average occupancy
rate at Indian Ridge as a result of a major tenant vacating 45,000 square feet
of space in July 1995 subsequent to filing for bankruptcy. This leasable square
footage accounts for 24% of the total leasable square footage of the building.
In addition, starting in December 1995, the other major tenant's lease at
Indian Ridge began to pay percentage rent, in lieu of the required base rent,
because of the major tenant vacancy. In total, rental revenues at Indian Ridge
decreased $293,700 during 1995 when compared to 1994. Affiliates of the General
Partner are actively marketing this space and are in negotiations with a
prospective major tenant. When, and if, this space becomes occupied by this
prospect, or any other prospective tenant, the major tenant currently paying
percentage rent at the property will go back to paying the rental rates charged
prior to the vacancy. Another contributing factor was the decrease in rental
revenues of $116,100 at Park Plaza due to the uncertainties surrounding the
health care industry. Over 95% of the leasable square footage at Park Plaza is
currently leased to tenants in the health care industry. In order to maintain
occupancy levels at Park Plaza, the Partnership in 1994 began to offer to new
and renewing tenants reduced lease rates and the use of the current year as a
base year for tenant expense reimbursements. Accordingly, rental revenues at
Park Plaza have decreased due to the lower average effective rental rate
charged to new and renewing tenants and lower tenant expense reimbursements.
Rental revenues also decreased at Park Plaza due to a reduction in lease
settlement fees received from tenants which in total were $21,300 greater in
1994 than in 1995 and a decrease in the recognition of security deposits as
income in 1995. Other factors contributing to the decrease in rental revenues
of the Partnership were: 1) the recovery of $22,800 in 1994 of certain tenant
receivables which were previously written off as uncollectible at 3120
Southwest Freeway Office Building ("3120 Southwest Freeway"); 2) lower tenant
expense reimbursements of $13,800 at Carrollton as a result of an underestimate
of prior year reimbursements which were billed in 1994 and 3) a decrease in
tenant expense reimbursements of $11,300 at 3120 Southwest Freeway due to lower
operating expenses. Partially offsetting the decrease
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
in rental revenues was an increase of $75,500 in percentage rental income at
Carrollton resulting from higher tenant sales which determine the amount of
percentage rents to be paid to the Partnership and an increase in the average
effective base rental rate charged to new and renewing tenants at 3120
Southwest Freeway.
Real estate tax expense increased $33,900 for the years under comparison
primarily due to increases at Park Plaza and 3120 Southwest Freeway as a result
of projected increases in assessed property valuations and tax rates and at
Carrollton as a result of an underestimate of 1994 taxes which were paid in
1995. Partially offsetting the increase was lower real estate taxes at Indian
Ridge due to an overestimate of 1994 real estate taxes paid in 1995.
Property operating expenses decreased $42,300 for the year ended December 31,
1995 when compared to the prior year primarily due to: 1) lower utility costs
totaling $45,100 at 3120 Southwest Freeway and Park Plaza; 2) lower property
management and leasing fees totaling $25,000 at Indian Ridge, Park Plaza and
3120 Southwest Freeway as a result of lower rental revenues at these properties
which determines the amount of property management and leasing fees and 3)
lower advertising and promotional fees of $16,900 at Indian Ridge. Partially
offsetting the decrease in property operating expenses was: 1) an increase of
$26,700 in professional service fees at Indian Ridge; 2) an increase totaling
$12,500 in property office expenses primarily as a result of the purchase of
new personal computers, printers and software at Park Plaza and 3120 Southwest
Freeway and 3) higher security expenses at both Park Plaza and 3120 Southwest
Freeway totaling $3,700.
Insurance expense decreased $9,100 for the year ended December 31, 1995 when
compared to the prior year. The decrease was primarily due to lower group rates
on the Partnership's combined insurance coverage as a result of a minimal
amount of claims made over the past several years.
Repairs and maintenance expense decreased $5,200 for the year ended December
31, 1995 when compared to the year ended December 31, 1994. The decrease was
primarily due to: 1) decreases of $22,900 and $8,900 in personnel costs at Park
Plaza and Indian Ridge, respectively; 2) decreases of $9,000 and $6,100 at
Indian Ridge and 3120 Southwest Freeway, respectively, for the cleaning,
repairing and restriping of the parking lots; 3) the absence of the 1994 cost
of $6,400 to paint the interior space of a major tenant at Carrollton and 4)
lower snow removal costs of $5,100 at Indian Ridge in 1995. Partially
offsetting the decrease was: 1) an increase of $30,100 in expenditures made at
Indian Ridge in order to enhance the outside appearance of the building
including painting, roof restoration and landscaping; 2) an increase of $6,200
and $6,000 at 3120 Southwest Freeway and Park Plaza, respectively, for the
repair and maintenance of the heating, ventilating and air conditioning systems
and 3) an increase of $10,000 at 3120 Southwest Freeway primarily as a result
of some window maintenance and replacement.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 TO THE YEAR ENDED DECEMBER 31,
1993
Net income for the Partnership decreased $374,100 for the year ended December
31, 1994 when compared to the year ended December 31, 1993. The decrease was
primarily due to a provision for value impairment of $500,000 recorded for the
year ended December 31, 1994 for Park Plaza. Net income, exclusive of the
provision for value impairment, increased $125,900 for the year ended December
31, 1994 when compared to the year ended December 31, 1993. The increase was
primarily due to: 1) improved operating results totaling $185,400 at 3120
Southwest Freeway, Carrollton and Indian Ridge; 2) an increase in interest
income of $85,400 due to an increase in rates and funds available on the
Partnership's short-term investments and 3) lower general and administrative
expenses of $48,500 primarily due to Indiana state sales taxes being assessed
to the Partnership in 1993 for the tax years 1989, 1990 and 1992. Partially
offsetting the increase was: 1) a decrease of $94,200 in operating results at
Park Plaza; 2) decreased operations of $30,700 at Wellington as a result of the
sale of the last office building at the property in June 1994 and 3) an
increase in interest expense of $22,300 as a result of an increase in the
average amount outstanding on the loan payable to the General Partner.
For purposes of the following comparative discussion, the operating results of
Wellington A, B and C have been excluded.
Rental revenues for the year ended December 31, 1994 increased $178,300, or 3%,
when compared to the year ended December 31, 1993. The increase in rental
revenues was primarily due to: 1) the expansion of a major tenant's leasable
square footage at Carrollton in May 1993 from 87,092 square feet to 124,128
square feet which represented a 14% increase in the total square footage of the
property; 2) increases in the base rental rate charged to new and renewing
tenants and in the average occupancy rate at 3120 Southwest Freeway and Indian
Ridge; 3) an increase totaling $61,500 in tenant expense reimbursements at 3120
Southwest Freeway, Carrollton and Indian Ridge; 4) the collection of certain
tenant receivables which were previously written off as uncollectible at 3120
Southwest Freeway as well as a decrease in the tenant receivables written off
as uncollectible at Indian Ridge during 1995 as compared to 1994 and 5) an
increase in the amount of lease settlement fees received at Park Plaza.
Partially offsetting the increase was a decrease in tenant expense
reimbursements and parking income as well as a lower average occupancy rate at
Park Plaza.
Property operating expenses decreased $68,100 for the year ended December 31,
1994 when compared to the prior year primarily due to: 1) a decrease totaling
$42,200 in professional service fees at all of the Partnership's properties; 2)
a decrease of $18,600 in property management and leasing fees at Park Plaza; 3)
a decrease of $16,400 in utility costs at Park Plaza and 4) a decrease of
$10,000 and $4,800 in advertising and promotional costs at Park Plaza and 3120
Southwest Freeway, respectively. Partially offsetting the decrease was
increased advertising and promotional costs at Indian Ridge and increased
property management and leasing fees at 3120 Southwest Freeway.
Real estate tax expense decreased $15,600 between the years under comparison
primarily due to a decrease of $14,200 at 3120 Southwest Freeway as a result of
the 1994 receipt of a 1993 refund and a decrease in the 1994 assessment, and a
decrease of $12,500 at Carrollton as a result of an underestimate of 1992 real
estate taxes which were paid in 1993. Partially offsetting the decrease was
increases of $6,700 and $4,400 at Indian Ridge and Park Plaza, respectively,
due to tax rate increases.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
Depreciation and amortization expense increased $125,800 for the years under
comparison. The increase was due to the fact that the periodic depreciation and
amortization expense for depreciable and amortizable assets placed in service
during 1994 exceeded the periodic depreciation and amortization expense for
certain assets for which the depreciable and amortizable lives expired during
1994.
Repairs and maintenance expense increased $7,200 for the year ended December
31, 1994 when compared to the prior year. The increase was primarily due to: 1)
an increase in 1994 snow removal costs at Indian Ridge; 2) the painting of a
major tenant's space at Carrollton, as previously discussed; 3) an increase in
expenditures made at Indian Ridge in order to enhance the inside appearance of
the building; 4) expenditures at 3120 Southwest Freeway to install a new fire
alarm system and 5) expenditures to repair, maintain and restripe the parking
lots at 3120 Southwest Freeway and Indian Ridge. Partially offsetting the
increase was the extensive parking lot repairs at Carrollton during 1993.
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 tenant leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area; and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
The rate of inflation has remained relatively stable during the years under
comparison and has had a minimal impact on the operating results of the
Partnership. The nature of various tenant lease clauses protects the
Partnership, to some extent, from increases in the rate of inflation. Certain
of the lease clauses provide for the following: (1) annual rent increases based
on the Consumer Price Index or graduated rental increases; (2) percentage
rentals at shopping centers, for which the Partnership receives as additional
rent a percentage based on a tenant's sales over predetermined breakeven
amounts and (3) total or partial tenant reimbursement of property operating
expenses (e.g., common area maintenance, real estate taxes, etc.).
LIQUIDITY AND CAPITAL RESOURCES
A primary objective of the Partnership is to provide cash distributions to
Partners from Partnership operations. Cash Flow (as defined in the Partnership
Agreement) is generally not equal to Partnership net income or cash flows as
defined by GAAP, since certain items are treated differently under the
Partnership Agreement than under GAAP. The General Partner believes that to
facilitate a clear understanding of the Partnership's operations, an analysis
of Cash Flow (as defined in the Partnership Agreement) should be examined in
conjunction with an analysis of net income or cash flow as defined by GAAP. The
table in Item 6. Selected Financial Data of this report includes a
reconciliation of Cash Flow (as defined in the Partnership Agreement) to cash
flow provided by operating activities as defined by GAAP. Such amounts are not
indicative of actual distributions to Partners and should not necessarily be
considered as an alternative to the results disclosed in the Statements of
Income and Expenses and Statements of Cash Flows.
The decrease in Cash Flow (as defined in the Partnership Agreement) of $269,500
for the year ended December 31, 1995 when compared to year ended December 31,
1994 was primarily due to the decrease in net income, exclusive of depreciation
and amortization expense, the provisions for value impairment and the 1994 loss
on the sale of Wellington C, partially offset by a decrease of $12,800 in the
General Partner's Partnership Management Fee.
The increase in the Partnership's cash position as of December 31, 1995 when
compared to December 31, 1994 was primarily the result of net cash provided by
operating activities exceeding distributions paid to Partners and expenditures
for capital and tenant improvements and leasing costs. Liquid assets of the
Partnership as of December 31, 1995 were comprised of undistributed cash from
operations retained for working capital purposes.
Net cash provided by operating activities continues to be a primary source of
funds to the Partnership. Net cash provided by operating activities decreased
slightly from $3,147,200 for the year ended December 31, 1994 to $3,128,400 for
the year ended December 31, 1995. The decrease was primarily due to decreases
in cash provided by operating activities from Indian Ridge and Park Plaza as
well as the absence of the 1994 operating activities from Wellington C,
partially offset by increases in the cash provided by operating activities from
Carrollton and 3120 Southwest Freeway as well as the increase in interest
income, as previously discussed.
Net cash (used for) provided by investing activities changed to $(412,600) for
the year ended December 31, 1995 when compared to $1,761,300 for the year ended
December 31, 1994. The change was primarily due to the sale proceeds received
in 1994 from the sale of Wellington C. In addition, the Partnership maintains
working capital reserves to pay for capital expenditures, such as building and
tenant improvements and leasing costs. During the year ended December 31, 1995,
the Partnership spent $412,600 for capital and tenant improvements and leasing
costs and has budgeted to spend approximately $650,000 during the year ending
December 31, 1996. This budgeted amount relates to anticipated capital and
tenant improvements and leasing costs of approximately: 1) $375,000 at Park
Plaza; 2) $100,000 at 3120 Southwest Freeway; 3) $100,000 at Indian Ridge and
4) $75,000 at Carrollton. The General Partner believes these improvements and
leasing costs are necessary in order to increase and/or maintain the occupancy
levels in very competitive markets, maximize rental rates charged to new and
renewing tenants and prepare the remaining properties for eventual disposition.
Net cash (used for) financing activities changed from $(3,820,400) for the year
ended December 31, 1994 to $(2,202,700) for the year ended December 31, 1995
primarily due to a decrease in the payment of cash distributions to Limited
Partners as a result of the distribution in 1994 of Sale Proceeds from the sale
of Wellington C.
The General Partner continues to take a conservative approach to projections of
future rental income and to maintain higher levels of cash reserves due to
anticipated capital and tenant improvements and leasing costs necessary to be
made at the Partnership's properties during the next several years. As a result
of this, cash continues to be retained to supplement working capital reserves.
For the year
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
ended December 31, 1995, Cash Flow (as defined in the Partnership Agreement)
retained to supplement working capital reserves was $530,100.
Distributions to Limited Partners for the quarter ended December 31, 1995 were
declared in the amount of $1.05 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 amount and/or availability of cash for future distributions
to Partners.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The response to this item is submitted as a separate section of this report. See
page A-1 "Index of Financial Statements, Schedule and Exhibits."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
(a) DIRECTORS
---------
The Partnership has no directors. First Capital Financial Corporation
("FCFC") is the General Partner. The Directors of FCFC, as of March 29,
1996, are shown in the table below. Directors serve for one year or until
their successors are elected. The next annual meeting of FCFC will be held
in June 1996.
Name Office
---- ------
Samuel Zell........................................ Chairman of the Board
Douglas Crocker II................................. Director
Sheli Z. Rosenberg................................. Director
Sanford Shkolnik................................... Director
Samuel Zell, 54, has been a Director of the General Partner since 1983
(Chairman of the Board since December 1985) and is Chairman of the Board of
Great American Management and Investment, Inc. ("Great American"). Mr. Zell
is also Chairman of the Board of Equity Financial and Management Company
("EFMC") and Equity Group Investments, Inc. ("EGI"), and is a trustee and
beneficiary of a general partner of Equity Holdings Limited, an Illinois
Limited Partnership, a privately owned investment partnership. He is also
Chairman of the Board of Directors of Anixter International Inc., Falcon
Building Products, Inc. and American Classic Voyages Co. He is Chairman of
the Board of Trustees of Equity Residential Properties Trust. He is a
director of Quality Food Centers, Inc. and Sealy Corporation. He is
Chairman of the Board of Directors and Chief Executive Officer of Capsure
Holdings Corp. and Manufactured Home Communities, Inc. and Co-Chairman of
the Board of Revco D.S., Inc. Mr. Zell was President of Madison Management
Group, Inc. ("Madison") prior to October 4, 1991. Madison filed for
protection under the Federal bankruptcy laws on November 8, 1991.
Douglas Crocker II, 55, has been President and Chief Executive Officer
since December 1992 and a Director since January 1993 of the General
Partner. Mr. Crocker has been an Executive Vice President of EFMC since
November 1992. Mr. Crocker has been President, Chief Executive Officer and
trustee of Equity Residential Properties Trust since March 31, 1993. He was
President of Republic Savings Bank, F.S.B. ("Republic") from 1989 to June,
1992 at which time the Resolution Trust Company took control of Republic.
Mr. Crocker is a member of the Board of Directors of Horizon Group, Inc.
Sheli Z. Rosenberg, 54, was President and Chief Executive Officer of the
General Partner from December 1990 to December 1992 and has been a Director
of the General Partner since September 1983; was Executive Vice President
and General Counsel for EFMC from October 1980 to November 1994; has been
President and Chief Executive Officer of EFMC and EGI since November 1994;
has been a Director of Great American since June 1984 and is a Director of
various subsidiaries of Great American. She is also a Director of Anixter
International Inc., Capsure Holdings Corp., American Classic Voyages Co.,
Falcon Building Products, Inc., Jacor Communications, Inc., Revco D.S.,
Inc., Sealy Corporation and CFI Industries, Inc. She was Chairman of the
Board from January 1994 to September 1994; Co-Chairman of the Board from
September 1994 until March 1995 of CFI Industries, Inc. She is also a
trustee of Equity Residential Properties Trust. Ms. Rosenberg is a
Principal of Rosenberg & Liebentritt, P.C., counsel to the Partnership, the
General Partner and certain of their Affiliates. Ms. Rosenberg was Vice
President of Madison prior to October 4, 1991. Madison filed for protection
under the Federal bankruptcy
15
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
- -------- --------------------------------------------------------------
(a) DIRECTORS - (continued)
-----------------------
laws on November 8, 1991. She has been Vice President of First Capital
Benefit Administrators, Inc. ("Benefit Administrators") since July 22,
1987. Benefit Administrators filed for protection under the Federal
bankruptcy laws on January 3, 1995.
Sanford Shkolnik, 57, has been a Director of the General Partner since
December 1985. Mr. Shkolnik has been Executive Vice President of EFMC since
1976. He is Chairman of the Board and Chief Executive Officer of SC
Management, Inc., which is general partner of Equity Properties and
Development Limited Partnership, a nationally ranked shopping center
management company.
(b,c & e) EXECUTIVE OFFICERS
------------------
The Partnership does not have any executive officers. The executive
officers of the General Partner as of March 29, 1996 are shown in the
table. All officers are elected to serve for one year or until their
successors are elected and qualified.
Name Office
---- ------
Douglas Crocker II................. President and Chief Executive Officer
Arthur A. Greenberg................ Senior Vice President
Norman M. Field.................... Vice President - Finance and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
Arthur A. Greenberg, 55, has been Senior Vice President of the General
Partner since August 1986. Mr. Greenberg was Executive Vice President and
Chief Financial Officer of Great American from December 1986 to March 1995.
Mr. Greenberg also is an Executive Vice President of EFMC since 1971, and
President of Greenberg & Pociask, Ltd. He is Senior Vice President since
1989 and Treasurer since 1990 of Capsure Holdings Corp. Mr. Greenberg is a
Director of American Classic Voyages Co. and Chairman of the Board of
Firstate Financial A Savings Bank. Mr. Greenberg was Vice President of
Madison prior to October 4, 1991. Madison filed for protection under the
Federal bankruptcy laws on November 8, 1991.
Norman M. Field, 47, has been Vice President of Finance and Treasurer of
the General Partner since February 1984, and also served as Vice President
and Treasurer of Great American from July 1983 until March 1995. Mr. Field
has been Treasurer of Benefit Administrators since July 22, 1987. He also
served as Vice President of Madison until October 4, 1991. He was Chief
Financial Officer of Equality Specialties, Inc. ("Equality"), a subsidiary
of Great American, from August 1994 to April 1995. Equality was sold in
April 1995.
(d) FAMILY RELATIONSHIPS
--------------------
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
----------------------------------------
With the exception of the bankruptcy matters disclosed under Items 10 (a),
(b), (c) and (e), there are no involvements in certain legal proceedings
among any of the foregoing directors and officers.
16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors.
Neither the General Partner, nor any director or officer of the General Partner,
received any direct remuneration from the Partnership during the year ended
December 31, 1995. However, the General Partner and its Affiliates do compensate
its directors and officers. For additional information see Item 13 (a) Certain
Relationships and Related Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(a) As of March 1, 1996, no person owned of record or was known by the
Partnership to own beneficially more than 5% of the Partnership's 593,025 Units
then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1, 1996,
the executive officers and directors of the General Partner, as a group, did not
own any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
(a) Certain Affiliates of the General Partner provide leasing, supervisory and
property management services to the Partnership. Compensation for these property
management services may not exceed 6% of the gross receipts from the property
being managed where the General Partner or Affiliates provide leasing, re-
leasing and leasing related services, or 3% of gross receipts where the General
Partner or Affiliates do not perform leasing, re-leasing and leasing related
services for a particular property. For the year ended December 31, 1995, these
Affiliates were entitled to leasing, supervisory and property management fees of
$326,400. In addition, other Affiliates of the General Partner were entitled to
receive $100,900 for fees and reimbursements from the Partnership for insurance,
personnel and other services. Compensation for these services are on terms which
are fair, reasonable and no less favorable to the Partnership than reasonably
could be obtained from unaffiliated persons. A total of $68,800 of these amounts
was due to Affiliates as of December 31, 1995.
As of December 31, 1995, $40,200 was due to the General Partner for real estate
commissions earned in connection with the disposition and sale of Partnership
property. These commissions have been accrued but not paid. Under the terms of
the Partnership Agreement, these commissions will not be paid until such time as
the Limited Partners have received cumulative distributions of Sale or Financing
Proceeds equal to 100% of their Original Capital Contribution, plus a cumulative
return (including all Cash Flow which has been distributed to Limited Partners)
of 6% simple interest per annum on their Capital Investment from the initial
date of investment.
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to May 4, 1988, the Termination of the
Offering, a Partnership Management Fee payable annually within 60 days following
the last day of each fiscal year, which shall be an amount equal to the lesser
of (i) 0.5% of the net value of the Partnership's assets as of the end of such
fiscal year reflected on the Certificate of Value furnished to the Limited
Partners, plus, to the extent the Partnership Management Fee paid in any prior
year was less than 0.5% of the net value of the Partnership's assets in such
prior year, the amount of such deficit, or (ii) an amount equal to the
difference between 10% of the Partnership's aggregate Cash Flow (as defined in
the Partnership Agreement) for the period from the Commencement of Operations to
the end of the fiscal year for which such Partnership Management Fee is payable,
and the aggregate amount
17
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
- -------- ----------------------------------------------------------
previously paid to the General Partner as a Partnership Management Fee. In
addition, Sale Proceeds are distributed: first, 75% to all Limited Partners and
25% to the General Partner until the earlier of (i) receipt by Limited Partners
of cumulative distributions of Sale Proceeds in an amount equal to 100% of their
Original Capital Contribution, or (ii) receipt by the General Partner of
cumulative distributions of Sale Proceeds sufficient to repay all outstanding
advances to the Partnership from the General Partner; thereafter, to the General
Partner, until all outstanding advances, if any, to the Partnership from the
General Partner have been repaid; thereafter, to the Limited Partners, until
they have received cumulative distributions of Sale Proceeds in an amount equal
to 100% of their Original Capital Contribution, plus an amount (including Cash
Flow (as defined in the Partnership Agreement)) equal to a cumulative return of
6% per annum simple interest on their Capital Investment from their investment
date in the Partnership; thereafter, 85% to all Limited Partners; and 15% to the
General Partner, provided, however, that no distribution of the General
Partner's share of Sale Proceeds shall be made until Limited Partners have
received the greater of (i) Sale Proceeds plus Cash Flow (as defined in the
Partnership Agreement) previously received in excess of the Preferred Return
equal to 125% of the Limited Partners' Original Capital Contribution, or (ii)
Sale Proceeds plus all Cash Flow (as defined in the Partnership Agreement)
previously received equal to their Original Capital Contribution plus a 10% per
annum simple interest return on their Capital Investment from the date of
investment.
In accordance with the Partnership Agreement, Net Profits (exclusive of Net
Profits from the sale or disposition of Partnership properties) shall be
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 during such year, 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 the
General Partner and Limited 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 each Limited Partner
in an amount, if any, necessary to make the positive balance in its Capital
Account equal to the Sale Proceeds to be distributed to such Limited Partner
with respect to the sale or disposition of such property; third, to the General
Partner in an amount, if any, necessary to make the positive balance in its
Capital Account equal to the Sale Proceeds to be distributed to the General
Partner with respect to the sale or disposition of such property; and fourth,
the balance, if any, 15% to the General Partner and 85% 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 the General Partner and
Limited 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 year ended December 31, 1995, the General
Partner was entitled to a Partnership Management Fee of $161,200 and allocated
Net Profits of $137,200, which included a (loss) from provisions for value
impairment of $(24,000).
In accordance with the Partnership Agreement, the General Partner made advances
to the Partnership in cumulative amounts equal to the Acquisition Fees and the
Partnership Management Fees which were paid to the General Partner or its
Affiliates for distribution to the Limited Partners on a pro rata basis to the
extent that Cash Flow (as defined in the Partnership Agreement) was less than
sufficient to distribute cash in amounts equal to the Limited Partners'
Preferred Return (7.5% per annum noncompounding cumulative return on the Limited
Partners' Capital Investment); provided, however, that the maximum amount which
shall be advanced to the Partnership by the General Partner for
18
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
- -------- ----------------------------------------------------------
distribution to the Limited Partners shall be the amount of Acquisition Fees and
Partnership Management Fees actually paid to the General Partner or its
Affiliates. Amounts advanced shall bear interest at the rate of 8.5% per annum
simple interest, payable monthly. Repayment of amounts advanced shall be made
only from Cash Flow (as defined in the Partnership Agreement) if and to the
extent it is more than sufficient to distribute cash to the Limited Partners in
amounts equal to the Limited Partners' Preferred Return and from Sale Proceeds
to the extent permitted by the Partnership Agreement. For the year ended
December 31, 1995, the Partnership was required to pay $349,800 in interest on
this loan payable. As of December 31, 1995 the outstanding loan payable and the
interest expense due to the General Partner was $4,085,700 and $29,900,
respectively.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the General Partner and certain of their Affiliates. Sheli Z.
Rosenberg, President and Chief Executive Officer of the General Partner from
December 1990 to December 1992 and a director of the General Partner since
December 1983, is a Principal of Rosenberg. For the year ended December 31,
1995, Rosenberg was entitled to $47,300 for legal fees from the Partnership. As
of December 31, 1995, all fees due to Rosenberg have been paid. Compensation for
these services are on terms which are fair, reasonable and no less favorable to
the Partnership than reasonably could be obtained from unaffiliated persons.
(c) No management person is indebted to the Partnership.
(d) None.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a,c & d) See Index of Financial Statements, Schedule and Exhibits on page A-1
of Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended December 31, 1995.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 4
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Dated: March 29, 1996 By: /s/ DOUGLAS CROCKER II
----------------- -----------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ SAMUEL ZELL March 29, 1996 Chairman of the Board
- ---------------------------- -------------- and Director of the
SAMUEL ZELL General Partner
/s/ DOUGLAS CROCKER II March 29, 1996 President, Chief Executive
- ---------------------------- -------------- Officer and Director of the
DOUGLAS CROCKER II General Partner
/s/ SHELI Z. ROSENBERG March 29, 1996 Director of the General
- ---------------------------- -------------- Partner
SHELI Z. ROSENBERG
/s/ SANFORD SHKOLNIK March 29, 1996 Director of the General
- ---------------------------- -------------- Partner
SANFORD SHKOLNIK
/s/ NORMAN M. FIELD March 29, 1996 Vice President - Finance
- ---------------------------- -------------- and Treasurer
NORMAN M. FIELD
21
<PAGE>
INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Pages
-------------
Report of Independent Auditors A - 2
Balance Sheets as of December 31, 1995 and 1994 A - 3
Statements of Partners' Capital for the Years
Ended December 31, 1995, 1994, and 1993 A - 3
Statements of Income and Expenses for the Years
Ended December 31, 1995, 1994, and 1993 A - 4
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 A - 4
Notes to Financial Statements A - 5 to A - 7
SCHEDULE FILED AS PART OF THIS REPORT
III - Real Estate and Accumulated Depreciation
as of December 31, 1995 A - 8 and A - 9
All other schedules have been omitted as inapplicable, or for the reason that
the required information is shown in the financial statements or notes thereto.
EXHIBITS FILED AS PART OF THIS REPORT
EXHIBITS (3 & 4) First Amended and Restated Certificate and Agreement of
Limited Partnership as set forth on pages A-1 through A-32 of the Partnership's
definitive Prospectus dated November 5, 1986 on Form S-11 Registration No. 33-
06149, filed pursuant to Rule 424(b), is incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders
- ------------
The 1994 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (27) Financial Data Schedule
- ------------
A - 1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Institutional Real Estate, Ltd. - 4
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Institutional
Real Estate, Ltd. - 4 as of December 31, 1995 and 1994, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 1995, and the schedule listed
in the accompanying index. These financial statements and schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Institutional
Real Estate, Ltd. - 4 at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 1, 1996
A-2
<PAGE>
BALANCE SHEETS
December 31, 1995 and 1994
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 5,050,400 $ 5,550,400
Buildings and improvements 38,273,000 39,760,400
- --------------------------------------------------------------------------
43,323,400 45,310,800
Accumulated depreciation and amortization (9,091,000) (7,703,200)
- --------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 34,232,400 37,607,600
Cash and cash equivalents 4,655,200 4,142,100
Restricted certificates of deposit 62,500 62,500
Rents receivable 225,100 298,100
Other assets 53,600 65,000
- --------------------------------------------------------------------------
$39,228,800 $42,175,300
- --------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Loan payable to General Partner $ 4,085,700 $ 3,911,700
Accounts payable and accrued expenses 732,100 661,700
Due to Affiliates 138,900 150,800
Security deposits 92,600 101,100
Distributions payable 783,900 678,100
Other liabilities 61,400 79,200
- --------------------------------------------------------------------------
5,894,600 5,582,600
- --------------------------------------------------------------------------
Partners' (deficit) capital:
General Partner (270,300) (246,300)
Limited Partners (593,025 Units issued and
outstanding) 33,604,500 36,839,000
- --------------------------------------------------------------------------
33,334,200 36,592,700
- --------------------------------------------------------------------------
$39,228,800 $42,175,300
- --------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1,
1993 $(241,100) $39,632,100 $39,391,000
Net income for the year ended December
31, 1993 515,700 1,107,600 1,623,300
Distributions for the year ended December
31, 1993 (515,400) (1,340,200) (1,855,600)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1993 (240,800) 39,399,500 39,158,700
Net income for the year ended December
31, 1994 168,500 1,080,700 1,249,200
Distributions for the year ended December
31, 1994 (174,000) (3,641,200) (3,815,200)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1994 (246,300) 36,839,000 36,592,700
Net income (loss) for the year ended
December 31, 1995 137,200 (921,700) (784,500)
Distributions for the year ended December
31, 1995 (161,200) (2,312,800) (2,474,000)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1995 $(270,300) $33,604,500 $33,334,200
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-3
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $5,424,400 $5,986,000 $6,090,100
Interest 266,300 170,100 84,700
- -----------------------------------------------------------------------------
5,690,700 6,156,100 6,174,800
- -----------------------------------------------------------------------------
Expenses:
Interest on loan payable to General
Partner 349,800 361,700 339,400
Depreciation and amortization 1,388,600 1,488,300 1,374,500
Property operating:
Affiliates 371,300 375,700 441,200
Nonaffiliates 602,300 695,300 814,500
Real estate taxes 619,300 625,900 658,000
Insurance--Affiliate 58,300 70,300 75,600
Repairs and maintenance 512,500 564,300 657,400
General and administrative:
Affiliates 43,500 36,300 25,500
Nonaffiliates 129,600 140,200 199,500
Loss on sale or disposition of properties 48,900 1,429,900
Provisions for value impairment 2,400,000 500,000
- -----------------------------------------------------------------------------
6,475,200 4,906,900 6,015,500
- -----------------------------------------------------------------------------
Net (loss) income before extraordinary
gain on extinguishment of debt (784,500) 1,249,200 159,300
Extraordinary gain on extinguishment of
debt 1,464,000
- -----------------------------------------------------------------------------
Net (loss) income $ (784,500) $1,249,200 $1,623,300
- -----------------------------------------------------------------------------
Net income allocated to General Partner $ 137,200 $ 168,500 $ 515,700
- -----------------------------------------------------------------------------
Net (loss) income allocated to Limited
Partners $ (921,700) $1,080,700 $1,107,600
- -----------------------------------------------------------------------------
Net (loss) income before extraordinary
gain on extinguishment of debt allocated
to Limited Partners per Unit (593,025
Units issued and outstanding) $ (1.55) $ 1.82 $ (0.58)
- -----------------------------------------------------------------------------
Net (loss) income allocated to Limited
Partners per Unit (593,025 Units issued
and outstanding) $ (1.55) $ 1.82 $ 1.87
- -----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (784,500) $ 1,249,200 $ 1,623,300
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 1,388,600 1,488,300 1,374,500
Loss on sale or disposition of
properties 48,900 1,429,900
Provisions for value impairment 2,400,000 500,000
Extraordinary (gain) on extinguishment
of debt (1,464,000)
Changes in assets and liabilities:
Decrease (increase) in rents
receivable 73,000 (1,600) 218,400
Decrease in other assets 10,600 3,500 36,100
Increase (decrease) in accounts
payable and accrued expenses 70,400 (176,900) 156,200
(Decrease) increase in due to
Affiliates (11,900) 25,500 (16,900)
(Decrease) increase in other
liabilities (17,800) 10,300 (6,400)
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 3,128,400 3,147,200 3,351,100
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from the sale or disposition
of properties 2,168,300 840,000
Payments for capital and tenant
improvements (412,600) (407,000) (2,613,300)
- --------------------------------------------------------------------------------
Net cash (used for) provided by
investing activities (412,600) 1,761,300 (1,773,300)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (2,368,200) (3,777,000) (1,215,700)
(Decrease) in security deposits (8,500) (17,200) (2,400)
Proceeds from (net repayment of) loan
payable to General Partner 174,000 (26,200)
- --------------------------------------------------------------------------------
Net cash (used for) financing activities (2,202,700) (3,820,400) (1,218,100)
- --------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 513,100 1,088,100 359,700
Cash and cash equivalents at the
beginning of the year 4,142,100 3,054,000 2,694,300
- --------------------------------------------------------------------------------
Cash and cash equivalents at the end of
the year $ 4,655,200 $ 4,142,100 $ 3,054,000
- --------------------------------------------------------------------------------
Supplemental information:
Interest paid during the year $ 348,500 $ 361,900 $ 339,400
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms 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.
ORGANIZATION:
The Partnership was formed on May 20, 1986, by the filing of a Certificate and
Agreement of Limited Partnership with the Recorder of Deeds of Cook County,
Illinois, and commenced the Offering of Units on November 5, 1986. On December
15, 1986, the required minimum subscription level was reached and Partnership
operations commenced. The Offering was Terminated on May 4, 1988 with 593,025
Units sold. The Partnership was formed to invest primarily in existing,
improved, income-producing commercial real estate.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 31, 2016. The Limited Partners, by a majority vote, may
dissolve the Partnership at any time.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles. Under this method of accounting, revenues are
recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The financial statements include the Partnership's 50% interest in two joint
ventures and a 75% interest in another joint venture 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. In addition, the 1993 and 1994 financial
statements included the Partnership's 50% interest in a joint venture with an
Affiliated partnership. This joint venture was formed for the purpose of
participating in a mortgage loan investment, which was subsequently foreclosed
in-substance and recorded as two real property investments, and was operated
under the common control of the General Partner prior to the sales and/or
disposition of the property investments in 1993 and 1994. Accordingly, the
Partnership's pro rata share of the ventures' revenues, expenses, assets,
liabilities and capital was included in the financial statements.
The Partnership is not liable for federal income taxes as the Partners
recognize their proportionate share of the Partnership income or loss on their
individual tax returns; therefore, no provision for income taxes is made in the
financial statements of the Partnership. It is not practicable for the
Partnership to determine the aggregate tax bases of the Limited Partners;
therefore, the disclosure of the difference between the tax bases and the
reported bases and the reported assets and liabilities of the Partnership would
not be meaningful.
Commercial rental properties are recorded at cost, net of any provisions for
value impairment, and depreciated (exclusive of amounts allocated to land) on
the straight-line method over their estimated useful lives. Lease acquisition
fees are recorded at cost and amortized over the life of the lease. Repair and
maintenance costs are expensed as incurred; expenditures for improvements are
capitalized and depreciated over the estimated life of the improvements.
The General Partner periodically reviews significant factors regarding the
properties to determine that the properties are carried at the lower of cost or
fair market value. These factors include, but are not limited to, the General
Partner's experience in the real estate industry, an evaluation of recent
operating performance against expected results, economic trends or factors
affecting major tenants or the regions in which the properties are located, and
where available, information included in recent appraisals of properties.
Based on this analysis, where it is anticipated that the carrying value of an
investment property will not be recovered, the General Partner has deemed it
appropriate to reduce the basis of the properties for financial reporting
purposes to fair market value. Such fair market value is the General Partner's
best estimate of the amounts expected to be realized were such properties sold
as of the Balance Sheet date, based upon current information available. The
ultimate realization may differ from these amounts. Provisions, where
applicable, are reflected in the accompanying Statements of Income and Expenses
in the year such evaluations have been made. For additional information see
Note 7.
Property sales or dispositions are recorded when title transfers and sufficient
consideration has been received by the Partnership. Upon disposition, the
related costs and accumulated depreciation are removed from the respective
accounts. Any gain or loss on sale or disposition is recognized in accordance
with generally accepted accounting principles.
Cash equivalents are considered all highly liquid investments with an original
maturity of three months or less when purchased.
The Partnership's financial statements include financial instruments, including
receivables, trade liabilities and the loan payable to the General Partner. The
fair value of financial instruments, including cash and cash equivalents, was
not materially different from their carrying value at December 31, 1995 and
1994.
Certain reclassifications have been made to the previously reported 1994 and
1993 statements in order to provide comparability with the 1995 statements.
These reclassifications have no effect on net income (loss) or Partners'
(deficit) capital.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to May 4, 1988, the Termination of the
Offering, a Partnership Management Fee payable annually within 60 days
following the last day of each fiscal year, which shall be an amount equal to
the lesser of (i) 0.5% of the net value of the Partnership's assets as of the
end of such fiscal year reflected on the Certificate of Value furnished to the
Limited Partners, plus, to the extent the Partnership Management Fee paid in
any prior year was less than 0.5% of the net value of the Partnership's assets
in such prior year, the amount of such deficit, or (ii) an amount equal to the
difference between 10% of the Partnership's aggregate Cash Flow (as defined in
the Partnership Agreement) for the period from the Commencement of Operations
to the end of the fiscal year for which such Partnership Management Fee is
payable, and the aggregate amount previously paid to the General Partner as a
Partnership Management Fee. In addition, Sale Proceeds are distributed: first,
75% to all Limited Partners and 25% to the General Partner until the earlier of
(i) receipt by Limited Partners of cumulative distributions of Sale Proceeds in
an amount equal to 100% of their Original Capital Contribution, or (ii) receipt
by the General Partner of cumulative distributions of Sale Proceeds sufficient
to repay all outstanding advances to the Partnership from the General Partner;
thereafter, to the General Partner, until all outstanding advances, if any, to
the Partnership from the General Partner have been repaid; thereafter, to the
Limited Partners, until they have received cumulative distributions of Sale
Proceeds in an amount equal to 100% of their Original Capital Contribution,
plus an amount (including Cash Flow (as defined in the Partnership Agreement))
equal to a cumulative return of 6% per annum simple interest on their Capital
Investment from their investment date in the Partnership; thereafter, 85% to
all Limited Partners; and 15% to the General Partner, provided, however, that
no distribution of the General Partner's share of Sale Proceeds shall be made
until Limited Partners have received the greater of (i) Sale Proceeds plus Cash
Flow (as defined in the Partnership Agreement) previously received in excess of
the Preferred Return equal to 125% of the Limited Partners' Original Capital
Contribution, or (ii) Sale Proceeds plus all Cash Flow (as defined in the
Partnership Agreement) previously received equal to their Original Capital
Contribution plus a 10% per annum simple interest return on their Capital
Investment from the date of investment.
A-5
<PAGE>
In accordance with the Partnership Agreement, Net Profits (exclusive of Net
Profits from the sale or disposition of Partnership properties) shall be
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 during such year, 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 the
General Partner and Limited 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 each Limited Partner
in an amount, if any, necessary to make the positive balance in its Capital
Account equal to the Sale Proceeds to be distributed to such Limited Partner
with respect to the sale or disposition of such property; third, to the General
Partner in an amount, if any, necessary to make the positive balance in its
Capital Account equal to the Sale Proceeds to be distributed to the General
Partner with respect to the sale or disposition of such property; and fourth,
the balance, if any, 15% to the General Partner and 85% 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 the General
Partner and Limited 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 year ended December 31,
1995, the General Partner was entitled to a Partnership Management Fee of
$161,200 and allocated Net Profits of $137,200, which included a (loss) from
provisions for value impairment of $(24,000). For the year ended December 31,
1994, the General Partner was entitled to a Partnership Management Fee of
$174,000 and allocated Net Profits of $168,500, which included a (loss) from
the sale of a Partnership property of $(500) and a (loss) from a provision for
value impairment of $(5,000). For the year ended December 31, 1993, the General
Partner was entitled to a Partnership Management Fee of $515,400 and allocated
Net Profits of $515,700, which included (losses) on the sale and disposition of
Partnership properties of $(14,300) and an extraordinary gain on extinguishment
of debt of $14,600.
In accordance with the Partnership Agreement, the General Partner made advances
to the Partnership in cumulative amounts equal to the Acquisition Fees and the
Partnership Management Fees which were paid to the General Partner or its
Affiliates for distribution to the Limited Partners on a pro rata basis to the
extent that Cash Flow (as defined in the Partnership Agreement) was less than
sufficient to distribute cash in amounts equal to the Limited Partners'
Preferred Return (7.5% per annum noncompounding cumulative return on the
Limited Partners' Capital Investment); provided, however, that the maximum
amount which shall be advanced to the Partnership by the General Partner for
distribution to the Limited Partners shall be the amount of Acquisition Fees
and Partnership Management Fees actually paid to the General Partner or its
Affiliates. Amounts advanced shall bear interest at the rate of 8.5% per annum
simple interest, payable monthly. Repayment of amounts advanced shall be made
only from Cash Flow (as defined in the Partnership Agreement) if and to the
extent it is more than sufficient to distribute cash to the Limited Partners in
amounts equal to the Limited Partners' Preferred Return and from Sale Proceeds
to the extent permitted in the Partnership Agreement. As of December 31, 1995,
the Partnership has drawn $4,085,700, which represents the total amount of the
General Partner's current commitment.
Fees and reimbursements paid and payable by the Partnership to Affiliates were
as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------
1995 1994 1993
------------------ ----------------- -----------------
Paid Payable Paid Payable Paid Payable
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $ 343,100 $ 60,200 $310,800 $ 76,900 $397,400 $ 39,700
Real estate commissions
(a) None 40,200 None 40,200 None 40,200
Interest expense on
loan payable to
General Partner 348,500 29,900 361,900 28,600 339,400 28,800
Reimbursement of
property insurance
premiums, at cost 58,300 None 67,600 None 72,700 None
Reimbursement of
expenses, at cost:
--Accounting 20,200 6,700 18,600 3,100 18,700 2,600
--Investor
communication 18,000 1,900 13,900 2,000 8,700 1,200
--Legal 47,300 None 48,500 None 65,600 12,800
--Other 900 None None None None None
- -------------------------------------------------------------------------------
$ 836,300 $138,900 $821,300 $150,800 $902,500 $125,300
- -------------------------------------------------------------------------------
</TABLE>
(a) As of December 31, 1995, $40,200 was due to the General Partner for real
estate commissions earned in connection with the disposition of certain
Partnership properties. These commissions have been accrued but not paid.
Under the terms of the Partnership Agreement, these commissions will not be
paid until such time as the Limited Partners have received cumulative
distributions of Sale or Financing Proceeds equal to 100% of their Original
Capital Contribution, plus a cumulative return (including all Cash Flow
which has been distributed to Limited Partners) of 6% simple interest per
annum on their Capital Investment from the initial date of investment.
On-site property management for the Partnership's properties is provided by
Affiliates of the General Partner for fees ranging from 3% to 6% of gross rents
received from the properties.
3. RESTRICTED CERTIFICATES OF DEPOSIT:
Restricted certificates of deposit include a negotiable certificate of deposit
of $37,500, which has been pledged as collateral for security deposits to the
Houston Lighting & Power Company, and $25,000, which has been pledged as
collateral for security deposits to the Florida Lighting & Power Company.
4. FUTURE MINIMUM RENTALS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1995 was as follows:
<TABLE>
<S> <C>
1996 $ 3,697,300
1997 3,005,700
1998 2,140,900
1999 1,527,600
2000 1,207,800
Thereafter 5,110,900
--------------
$16,690,200
--------------
</TABLE>
A-6
<PAGE>
The Partnership is subject to the usual business risks associated with the
collection of the above-scheduled rentals. In addition to the amounts scheduled
above, the Partnership expects to receive rental revenue from operating expense
and real estate tax expense reimbursements and percentage rents. Percentage
rents earned for the years ended December 31, 1995, 1994 and 1993 were $84,300,
$7,500 and $6,400, respectively.
5. INCOME TAX:
The Partnership utilizes the accrual basis of accounting for both income tax
reporting and financial statement purposes. Financial statement results will
differ from income tax results due to the use of differing depreciation lives
and methods, the recognition of rents received in advance as taxable income and
the Partnership's provisions for value impairment. The net effect of these
accounting differences for the year ended December 31, 1995 was that the income
for tax reporting purposes was greater than the net loss for financial
statement purposes by $2,733,000. The aggregate cost of commercial rental
properties for federal income tax purposes at December 31, 1995 was
$46,223,400.
6. PROPERTY SALES AND DISPOSITIONS:
On June 8, 1994, Farmington Hills Associates ("FHA"), the joint venture which
owned North Valley Office Center and Wellington North Office Complex
("Wellington A, B and C"), in which the Partnership owned a 50% interest, sold
Wellington C for the sale price of $4,500,000. The Partnership's share of
selling expenses was $81,700. The Partnership's share of the net proceeds from
this sale was $2,168,300. The Partnership recorded a total (loss) on the sale
of this property of $(2,048,900) for financial statement purposes, of which
$2,000,000 was recorded as of December 31, 1992 as a provision for value
impairment. For tax reporting purposes, the Partnership reported a total (loss)
in 1994 of $(1,915,700) on this sale.
On March 17, 1993, FHA disposed of Wellington A in conjunction with the
mortgage holder, to a third party for a total sale price of $2,060,000. Of this
amount, FHA remitted $1,910,000 to the mortgage holder (the Partnership's share
of this amount was $955,000) which relieved the Partnership of its share of the
obligation of $2,419,000 under the mortgage loan and any interest in the assets
therein. This extinguishment of debt was considered a non-cash event for the
purposes of the Statement of Cash Flows, and was not included in the
Partnership's calculation of Cash Flow (as defined in the Partnership
Agreement) for the year ended December 31, 1993. The Partnership incurred
transaction costs of $63,500, including $10,600 of accrued expenses. The
Partnership's share of the net proceeds from this transaction was $22,100. The
Partnership recorded a (loss) on the disposition of this property of
$(2,027,900) for financial statement purposes. This (loss) represented the net
book value of this property and transaction costs incurred by the Partnership
in excess of the sale price of the property. Due to an anticipated (loss) in
connection with this disposition, the Partnership recorded $(765,000) as a
provision for value impairment in 1992. Upon sale of the property in 1993, an
additional (loss) of $(1,262,900) was recorded. In addition, the Partnership
also recorded an extraordinary gain on extinguishment of debt in connection
with the disposition of this property of $1,464,000 in its 1993 financial
statements. This extraordinary gain on extinguishment of debt represented the
excess property indebtedness over the amount remitted to the mortgage holder
upon sale of the property. For tax reporting purposes the Partnership reported
a total net (loss) of $(597,300) in 1993 on this disposition and extinguishment
of debt.
On March 23, 1993, FHA sold Wellington B for a total sale price of $1,680,000.
The Partnership's share of selling expenses were $64,600, including $45,900 of
accrued expenses. The Partnership's share of the net proceeds from this sale
was $821,300. The Partnership recorded a (loss) on the disposition of this
property of $(463,600) for financial statement purposes. Due to the anticipated
(loss) in connection with this sale, the Partnership recorded $(300,000) of the
total (loss) as of December 31, 1992 as a provision for value impairment and
the remaining portion of the (loss) in 1993. For tax reporting purposes the
Partnership recorded a total (loss) of $(446,500) in 1993 on this sale.
All of the above sales and dispositions were all-cash transactions, with no
further involvement on the part of the Partnership.
7. PROVISIONS FOR VALUE IMPAIRMENT:
Due to the depressed economic environment in the retail industry, regional
factors affecting the Partnership's retail and office properties and other
matters relating specifically to certain of the Partnership's properties, there
is uncertainty as to the Partnership's ability to recover the net carrying
value of certain of its properties during the remaining estimated holding
periods. Accordingly, it was deemed appropriate to reduce the bases of such
properties in the Partnership's financial statements during the years ended
December 31, 1995 and 1994. The provisions for value impairment were considered
non-cash events for the purposes of the Statements of Cash Flow and were not
utilized in the determination of Cash Flow (as defined in the Partnership
Agreement). The following is a summary of the provisions for value impairment
reported by the Partnership for the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Property 1995 1994
---------------------------------------------
<S> <C> <C>
Park Plaza Professional
Building $ 900,000 $500,000
Indian Ridge Plaza Shopping
Center 900,000
3120 Southwest Freeway Office
Building 600,000
---------------------------------------------
$2,400,000 $500,000
---------------------------------------------
</TABLE>
The provisions for value impairment were material fourth quarter adjustments
pursuant to Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting". No other material adjustments were made in the fourth quarters.
Beginning on January 1, 1996, the Partnership will adopt Financial Accounting
Standards Board Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (the "Standard"). The
Standard established guidance for determining if the value of defined assets
are impaired, and if so, how impairment losses should be measured and reported
in the financial statements. The Standard is effective for fiscal years
beginning after December 15, 1995. The Managing General Partner believes that,
based on current circumstances, the adoption on January 1, 1996 of the Standard
will not materially affect the Partnership's financial position or results of
operations.
A-7
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 4
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Column A Column C Column D Column E Column F
- ------------------- ------------------------ ------------------------- ---------------------------------------- ------------
Initial cost Costs capitalized Gross amount carried
to Partnership subsequent to acquisition at close of period
----------------------- ------------------------- ----------------------------------------
Buildings Buildings Accumulated
and Improve- Carrying and Depreciation
Description Land Improvements ments Costs (1) Land Improvements Total (2)(3) (2)
- ------------------- --------- ------------ ----------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDINGS:
- -----------------
Park Plaza
Professional
Building
(Houston, TX)
(50% interest) 803,000 10,772,500 $ 2,061,900 82,400 803,000 11,516,800(4) 12,319,800 $3,559,700
3120 Southwest
Freeway
(Houston, TX)
(75% interest) 737,100 1,489,200 1,156,100 30,600 737,100 2,075,900(4) 2,813,000 978,700
SHOPPING CENTERS:
- -----------------
Carrollton
Crossroads
(Carrollton, GA)
(50% interest) 1,000,400 7,703,400 1,566,600 59,900 1,000,400 9,329,900 10,330,300 1,662,900
Indian Ridge Plaza
(Mishawaka, IN) 3,009,900 15,431,100 252,300 67,000 2,509,900(4) 15,350,400(4) 17,860,300 2,889,700
--------- ---------- ----------- ------- --------- ---------- ---------- ----------
5,550,400 35,396,200 $ 5,036,900 239,900 5,050,400 38,273,000 43,323,400 $9,091,000
========= ========== =========== ======= ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Column A Column G Column H Column I
- ------------------- --------- -------- ------------
Life on
which
depreciation
in latest
Date income
of con- Date statements
Description struction Acquired is computed
- ------------------- --------- -------- ------------
<S> <C> <C> <C>
OFFICE BUILDINGS:
- -----------------
Park Plaza
Professional
Building
(Houston, TX) 35 (5)
(50% interest) 1976 1/87 5-10 (6)
3120 Southwest
Freeway
(Houston, TX) 35 (5)
(75% interest) 1964 3/89 5-10 (6)
SHOPPING CENTERS:
- -----------------
Carrollton
Crossroads
(Carrollton, GA) 35 (5)
(50% interest) 1988 8/88 5-10 (6)
Indian Ridge Plaza 35 (5)
(Mishawaka, IN) 1986 1/89 5-10 (6)
</TABLE>
Column B - Not Applicable
See accompanying notes on the following page.
A-8
<PAGE>
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 4
NOTES TO SCHEDULE III
Note 1. Consists of legal fees, appraisal fees, title costs and other related
professional fees.
Note 2. The following is a reconciliation of activity in columns E and F.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993
-------------------------- -------------------------- --------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
beginning
of the year $45,310,800 $7,703,200 $47,978,600 $6,573,300 $49,009,700 $5,454,600
Additions
during year:
Improvements 412,600 407,000 2,613,300
Provision for
depreciation 1,387,800 1,487,600 1,373,800
Deductions
during year:
Basis of
real estate
disposed (6) (2,574,800) (3,644,400)
Accumulated
depreciation
on real
estate
disposed (357,700) (255,100)
Provisions
for value
impairment (2,400,000) (500,000)
----------- ---------- ----------- ---------- ----------- ----------
Balance at end of
the year $43,323,400 $9,091,000 $45,310,800 $7,703,200 $47,978,600 $6,573,300
=========== ========== =========== ========== =========== ==========
</TABLE>
Note 3. The aggregate cost for federal income tax purposes as of December 31,
1995 was $46,223,400.
Note 4. Included provisions for value impairment. See Note 7 in Notes to
Financial Statements for additional information.
Note 5. Estimated useful life for building.
Note 6. Estimated useful life for improvements.
A-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,655,200
<SECURITIES> 0
<RECEIVABLES> 225,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,942,800
<PP&E> 43,323,400
<DEPRECIATION> 9,091,000
<TOTAL-ASSETS> 39,228,800
<CURRENT-LIABILITIES> 5,793,000
<BONDS> 4,085,700
<COMMON> 0
0
0
<OTHER-SE> 33,334,200
<TOTAL-LIABILITY-AND-EQUITY> 39,228,800
<SALES> 0
<TOTAL-REVENUES> 5,690,700
<CGS> 0
<TOTAL-COSTS> 2,163,700
<OTHER-EXPENSES> 173,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 349,800
<INCOME-PRETAX> (784,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (784,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (784,500)
<EPS-PRIMARY> (1.55)
<EPS-DILUTED> (1.55)
</TABLE>
