<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1997
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-15632
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First Capital Institutional Real Estate, Ltd. - 4
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(Exact name of registrant as specified in its charter)
Illinois 36-3441345
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1100, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated November 5, 1986,
included in the Partnership's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
June 30,
1997 December 31,
(Unaudited) 1996
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<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 3,312,800 $ 5,050,400
Buildings and improvements 27,290,400 38,778,200
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30,603,200 43,828,600
Accumulated depreciation and amortization (7,753,600) (10,382,500)
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Total investment properties, net of accumulated
depreciation and amortization 22,849,600 33,446,100
Cash and cash equivalents 1,937,400 2,572,500
Investments in debt securities 2,180,200 1,717,000
Restricted cash 50,000 50,000
Rents receivable 123,100 213,000
Other assets 51,700 9,700
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$27,192,000 $38,008,300
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Loan payable to General Partner $ 1,569,500 $ 4,246,800
Accounts payable and accrued expenses 554,300 775,600
Due to Affiliates 50,000 119,500
Distributions payable 334,000 776,100
Security deposits 57,400 94,600
Other liabilities 24,200 50,500
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2,589,400 6,063,100
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Partners' capital:
General Partner (deficit) 40,900 (270,300)
Limited Partners (593,025 Units issued and
outstanding) 24,561,700 32,215,500
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24,602,600 31,945,200
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$27,192,000 $38,008,300
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 1997 (Unaudited)
and the year ended December 31, 1996
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1996 $(270,300) $33,604,500 $33,334,200
Net income for the year ended
December 31, 1996 153,400 1,101,700 1,255,100
Distributions for the year ended
December 31, 1996 (153,400) (2,490,700) (2,644,100)
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Partners' (deficit) capital,
December 31, 1996 (270,300) 32,215,500 31,945,200
Net income for the six months ended June
30, 1997 348,700 1,431,300 1,780,000
Distributions for the six months ended
June 30, 1997 (37,500) (9,085,100) (9,122,600)
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Partners' capital,
June 30, 1997 $ 40,900 $24,561,700 $24,602,600
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Income:
Rental $ 883,000 $1,229,800
Interest 166,100 60,700
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1,049,100 1,290,500
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Expenses:
Interest on loan payable to General Partner 73,800 91,300
Depreciation and amortization 224,200 324,800
Property operating:
Affiliates 27,300 80,400
Nonaffiliates 136,000 202,600
Real estate taxes 132,500 203,500
Insurance--Affiliate 8,400 16,200
Repairs and maintenance 89,600 149,400
General and administrative:
Affiliates 3,500 9,600
Nonaffiliates 35,000 37,700
Additional expense of sale of property 26,100
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756,400 1,115,500
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Net income $ 292,700 $ 175,000
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Net income allocated to General Partner $ 14,800 $ 43,100
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Net income allocated to Limited Partners $ 277,900 $ 131,900
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Net income allocated to Limited Partners per Unit
(593,025 Units outstanding) $ 0.47 $ 0.22
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Income:
Rental $1,965,500 $2,538,100
Interest 326,300 118,400
Gain on sale of property 1,102,800
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3,394,600 2,656,500
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Expenses:
Interest on loan payable to General Partner 165,200 180,300
Depreciation and amortization 457,100 651,800
Property operating:
Affiliates 59,600 179,500
Nonaffiliates 308,500 361,000
Real estate taxes 279,200 359,600
Insurance--Affiliate 20,100 32,500
Repairs and maintenance 236,700 278,400
General and administrative:
Affiliates 10,200 21,300
Nonaffiliates 78,000 93,800
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1,614,600 2,158,200
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Net income $1,780,000 $ 498,300
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Net income allocated to General Partner $ 348,700 $ 80,600
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Net income allocated to Limited Partners $1,431,300 $ 417,700
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Net income allocated to Limited Partners per Unit
(593,025 Units outstanding) $ 2.41 $ 0.70
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</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,780,000 $ 498,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 457,100 651,800
(Gain) on sale of property (1,102,800)
Changes in assets and liabilities:
Decrease in rents receivable 89,900 83,100
(Increase) decrease in other assets (42,000) 8,800
(Decrease) in accounts payable and accrued expenses (221,300) (91,300)
(Decrease) in due to Affiliates (69,500) (7,600)
(Decrease) in other liabilities (26,300) (12,200)
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Net cash provided by operating activities 865,100 1,130,900
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Cash flows from investing activities:
(Increase) in investments in debt securities (463,200) (3,170,500)
Proceeds from sale of property 11,307,700
Payments for capital and tenant improvements (65,500) (142,200)
(Increase) in restricted cash (37,500)
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Net cash provided by (used for) investing activities 10,779,000 (3,350,200)
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Cash flows from financing activities:
Distributions paid to Partners (9,564,700) (1,406,600)
(Net repayment of) proceeds received from loan payable
to General Partner (2,677,300) 161,100
(Decrease) increase in security deposits (37,200) 600
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Net cash (used for) financing activities (12,279,200) (1,244,900)
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Net (decrease) in cash and cash equivalents (635,100) (3,464,200)
Cash and cash equivalents at the beginning of the period 2,572,500 4,655,200
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Cash and cash equivalents at the end of the period $ 1,937,400 $1,191,000
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Supplemental information:
Interest paid to General Partner during the period $ 185,200 $ 180,100
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Agreement of Limited Partnership,
which is included in the Registration Statement and incorporated herein by
reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and six months ended June 30, 1997, are not necessarily indicative
of the operating results for the year ending December 31, 1997.
The financial statements include the Partnership's 50% interest in two joint
ventures and a 75% interest in another joint venture with Affiliated
partnerships. Each of these ventures were formed for the purpose of each
acquiring a 100% interest in certain real property and are operated under the
common control of the General Partner. Accordingly, the Partnership's pro rata
share of the ventures' revenues, expenses, assets, liabilities and Partners'
capital was included in the financial statements.
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 such improvements.
The Partnership evaluates its commercial rental properties when conditions
exist which may indicate that it is probable that the sum of expected future
cash flows (undiscounted) from a property is less than its carrying basis. Upon
determination that an impairment has occurred, the carrying basis in the rental
property is reduced to its estimated fair value. Management was not aware of
any indicator that would result in a significant impairment loss during the
periods reported.
Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation and amortization are removed from the respective
accounts. Gains on sales are recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with a maturity
of three months or less when purchased.
Investments in debt securities are comprised of corporate debt securities and
are classified as held-to-maturity. These investments are carried at their
amortized cost basis in the financial statements, which approximated fair
value. All of these securities had maturities of less than one year when
purchased.
Certain reclassifications have been made to the previously reported 1996
statements in order to provide comparability with the 1997 statements. These
reclassifications had no effect on net income or Partners' (deficit) capital.
Reference is made to the Partnership's annual report for the year ended
December 31, 1996, for a description of other accounting policies and
additional details of the Partnership's financial condition, results of
operations, changes in Partners' capital and changes in cash balances for the
year then ended. The details provided in the notes thereto have not changed
except as a result of normal transactions in the interim or as otherwise
disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, 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 15% 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
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
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 quarter and six months ended June 30, 1997, the General
Partner was entitled to a Partnership Management Fee of $18,800 and $37,500,
respectively, and allocated Net Profits of $14,800 and $348,700, respectively.
The Net Profits for the six months ended June 30, 1997 included a gain
allocation of $311,200.
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. During the quarter ended
March 31, 1997, the General Partner advanced its Partnership Management Fee for
the year ended December 31, 1996 of $153,400 to the Partnership. During the
quarter ended June 30, 1997 the Partnership, in accordance with the Partnership
agreement, repaid the General Partner $2,830,700, which represented 25% of the
Sales Proceeds from the sales of Carrollton Crossroads Shopping Center
("Carrollton") and 3120 Southwest Freeway Office Building ("Southwest
Freeway"). As of June 30, 1997, the Partnership has drawn $1,569,500, which
represents the total amount of the General Partner's current commitment.
Fees and reimbursements paid and (receivable) payable by the Partnership
(from)/to Affiliates during the quarter and six months ended June 30, 1997 were
as follows:
<TABLE>
<CAPTION>
Paid
------------------- (Receivable)
Quarter Six Months Payable
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<S> <C> <C> <C>
Property management and leasing fees $ 24,300 $105,600 $(6,500)
Real estate commissions (a) None None 40,200
Interest expense on loan payable to General
Partner 94,900 185,200 11,100
Reimbursement of property insurance premiums,
at cost 16,100 16,100 4,100
Reimbursement of expenses, at cost:
-- Accounting 5,300 8,300 700
-- Investor communication 2,600 3,400 400
-- Legal 27,900 30,800 None
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$171,100 $349,400 $50,000
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</TABLE>
(a) As of June 30, 1997, the Partnership owed $40,200 to the General Partner
for real estate commissions earned in connection with the sales of
Partnership properties. These commissions have been accrued but not paid.
In accordance with the Partnership Agreement, the Partnership will not pay
the General Partner or any Affiliates a real estate commission from the
sale of a Partnership property until Limited Partners have received
cumulative distributions of Sale or Financing Proceeds equal to 100% of
their Original Capital Contribution, plus a cumulative return (including
all Cash Flow (as defined in the Partnership Agreement) which has been
distributed to the Limited Partners from the initial investment date) of 6%
simple interest per annum on their Capital Investment.
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. PROPERTY SALES:
On January 17, 1997, a joint venture in which the Partnership owns a 50%
interest, consummated the sale of Carrollton, located in Carrollton, Georgia,
for a sale price of $18,100,000, of which the Partnership's share was
$9,050,000. The Partnership's share of net proceeds from this transaction
approximated $8,847,000, which was net of closing expenses. The Partnership
reported a gain of $373,100 during the six months ended June 30, 1997 in
connection with this sale. On May 31, 1997, in accordance with the Partnership
Agreement, 75% of the net proceeds were distributed to Limited Partners of
record as of January 17, 1997, with the remaining 25% remitted to the General
Partner to repay a portion of the loan payable to the General Partner.
On February 18, 1997, the joint venture in which the Partnership owns a 75%
interest, consummated the sale of Southwest Freeway, located in Houston, Texas,
for a sale price of $3,425,000, of which the Partnership's share was
$2,568,800. The Partnership's share of net proceeds from this transaction
approximated $2,460,800, which was net of closing expenses. The Partnership
reported a gain of $729,700 during the six months ended June 30, 1997 in
connection with this sale. On May 31, 1997, in accordance with the Partnership
Agreement, 75% of the net proceeds were distributed to Limited Partners of
record as of February 18, 1997, with the remaining 25% remitted to the General
Partner to repay a portion of the loan payable to the General Partner.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1996 for a discussion of the Partnership's business.
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of each of its properties for the quarters and six months ended June
30, 1997 and 1996. The discussion following the table should be read in
conjunction with the financial statements and notes thereto appearing in this
report.
<TABLE>
<CAPTION>
Comparative Operating Results (a)
For the Quarters For the Six Months
Ended Ended
6/30/97 6/30/96 6/30/97 6/30/96
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<S> <C> <C> <C> <C>
INDIAN RIDGE PLAZA SHOPPING CENTER
Rental revenues $ 512,900 $ 331,900 $ 1,002,000 $758,000
- ---------------------------------------------------------------
Property net income $ 274,300 $ 28,700 $ 473,300 $173,300
- ---------------------------------------------------------------
Average occupancy 91% 76% 92% 72%
- ---------------------------------------------------------------
PARK PLAZA PROFESSIONAL BUILDING (50%)
Rental revenues $ 381,200 $ 444,000 $ 774,100 $849,700
- ---------------------------------------------------------------
Property net income $ 18,800 $ 77,900 $ 66,200 $168,100
- ---------------------------------------------------------------
Average occupancy 84% 85% 84% 85%
- ---------------------------------------------------------------
CARROLLTON CROSSROADS SHOPPING CENTER (50%) (B)
Rental revenues $ 303,000 $ 98,900 $612,600
- ---------------------------------------------------------------
Property net income $ 163,400 $ 63,400 $337,900
- ---------------------------------------------------------------
Average occupancy 98% 98%
- ---------------------------------------------------------------
3120 SOUTHWEST FREEWAY OFFICE BUILDING (75%) (B)
Rental revenues $ 149,000 $ 90,400 $311,700
- ---------------------------------------------------------------
Property net
(loss) income $ (14,000) $ (2,600) $ 1,700
- ---------------------------------------------------------------
Average occupancy 81% 82%
- ---------------------------------------------------------------
</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.
(b) Property was sold during the quarter ended March 31, 1997. Property net
income excludes gain on the sale of this property. For further information,
see Note 3, in Notes to Financial Statements.
Unless otherwise disclosed, discussions of fluctuations between 1997 and 1996
refer to both the quarters and six months ended June 30, 1997 and 1996.
Net income increased by $1,281,700 for the six months ended June 30, 1997 when
compared to the six months ended June 30, 1996. The increase was primarily due
to the gains recorded on the sale of Carrollton Crossroads Shopping Center
("Carrollton") and 3120 Southwest Freeway Office Building ("Southwest
Freeway"). Also contributing to the increase was improved operating results at
Indian Ridge Plaza Shopping Center ("Indian Ridge") and an increase in interest
earned on the Partnership's short-term investments due to an increase in cash
available for investment. Partially offsetting the increase was the absence of
results in 1997 due to the property sales in the first two months of the year
along with diminished operating results at Park Plaza Professional Building
("Park Plaza"). Net income, exclusive of sold properties, increased by $457,600
for the six-month periods under comparison, which was the result of the
improved operating results at Indian Ridge and the increase in interest income,
partially offset by diminished operating results at Park Plaza.
Net income increased by $117,700 for the quarter ended June 30, 1997 when
compared to the quarter ended June 30, 1996. The increase was primarily due to
improved operating results at Indian Ridge and the increase in interest income.
The increase was partially offset by the diminished operating results at Park
Plaza and the absence of results from the Partnership's sold properties. Net
income, exclusive of sold properties, increased by $320,100 for the quarterly
periods under comparison. The reasons for the increase were the same as the six
month comparison, as previously discussed.
The following comparative discussion excludes the results of Carrollton and
Southwest Freeway.
Rental revenues increased by $118,200 or 15.4% and $168,400 or $10.5% for the
quarter and six months ended June 30, 1997 when compared to the quarter and six
months ended June 30, 1996, respectively. The increases were primarily due to
an increase in base rental income at Indian Ridge due to the increase in the
average occupancy rates, as a result of securing of a new major tenant for the
property in October 1996. Partially offsetting the increase was a decrease in
base rental income at Park Plaza due to a decline in the rates charged to new
and renewing tenants and a decrease in tenant expense reimbursements which
resulted from an estimated billing to tenants to reconcile 1996 monthly
billings, which was payable in 1997 being less than estimated.
Interest expense decreased by $17,400 and $15,100 for the periods under
comparison, respectively. The decreases were due to the effects of the May 31,
1997 paydown of the Partnership's obligation to the General Partner. In
accordance with the Partnership Agreement 25%, of the Sales Proceeds from
Carrollton and Southwest Freeway were used on May 31, 1997 to reduce the loan
payable to the General Partner.
Property operating expenses decreased by $34,300 and $37,400 for the quarter
and six months ended June 30, 1997 when compared to the quarter and six months
ended June 30, 1996, respectively. The decreases were primarily due to a
decrease in professional services at Indian Ridge which was due to the 1996
expenditures related to securing the new major tenant. Also contributing to the
decreases were lower utility costs at Indian Ridge.
Real estate tax expense decreased by $30,700 and $11,800 for the periods under
comparison, respectively. The decreases were primarily due to an adjustment in
1996 of Indian Ridge's estimated taxes to actual.
Repair and maintenance expense decreased by $8,800 for the quarter ended June
30, 1997 when compared to the quarter ended June 30, 1996. The decrease was
primarily due to a decrease in repairs made to improve the exterior appearance
of Indian Ridge.
Repair and maintenance expense increased by $12,400 for the six months ended
June 30, 1997 when compared to the six months ended June 30, 1996. The increase
was primarily due to an increase in repairs made to the HVAC system at Park
Plaza and in cleaning costs at Park Plaza.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated and unaffiliated 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 property brochures; 2) early renewal of existing tenants' leases
and addressing any expansion needs these tenants may have; 3) promotion of
local broker events and networking with local brokers; 4) 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.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
manage and maintain its properties. Notwithstanding the Partnership's intention
relative to property sales, another primary objective of the Partnership is to
provide cash distributions to Partners from Partnership operations. To the
extent cumulative cash distributions exceed net income, such excess
distributions will be treated as a return of capital. Cash Flow (as defined in
the Partnership Agreement) is generally not equal to net income or cash flows
as determined by generally accepted accounting principles ("GAAP"), since
certain items are treated differently under the Partnership Agreement than
under GAAP. Management believes that to facilitate a clear understanding of the
Partnership's operations, an analysis of Cash Flow (as defined in the
Partnership Agreement) should be examined in conjunction with an analysis of
net income or cash flows as determined by GAAP. The following table includes a
reconciliation of Cash Flow (as defined in the Partnership Agreement) to cash
flow provided by operating activities as determined by GAAP. Such amounts are
not indicative of actual distributions to Partners and should not be considered
as an alternative to the results disclosed in the Statements of Income and
Expenses and Statements of Cash Flow.
<TABLE>
<CAPTION>
Comparative
Cash Flow Results
For the Six Months Ended
6/30/97 6/30/96
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 1,096,800 $ 1,069,500
Items of reconciliation:
General Partner's Partnership Management Fee 37,500 80,600
Decrease in current assets 47,900 91,900
(Decrease) in current liabilities (317,100) (111,100)
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 865,100 $ 1,130,900
- -------------------------------------------------------------------------------
Net cash provided by (used for) investing
activities $ 10,779,000 $(3,350,200)
- -------------------------------------------------------------------------------
Net cash (used for) financing activities $(12,279,200) $(1,244,900)
- -------------------------------------------------------------------------------
</TABLE>
The increase in Cash Flow (as defined in the Partnership Agreement) of $27,300
for the six months ended June 30, 1997 when compared to six months ended June
30, 1996 was primarily due to the increase in operating results of Indian Ridge
and in interest income earned on the Partnership's short-term investments, as
previously discussed, exclusive of depreciation and amortization expense.
Partially offsetting the increase was the effects of the Partnership's sold
properties and the diminished operating results at Park Plaza.
The decrease in the Partnership's cash position for the six months ended June
30, 1997 resulted primarily from the investments in debt securities,
distributions paid to Limited Partners and expenditures for capital and tenant
improvements and leasing costs exceeding the net cash provided by operating
activities and the Proceeds from the sale of Partnership properties. Liquid
assets (including cash, cash equivalents and investments in debt securities) of
the Partnership as of June 30, 1997 were comprised of amounts held for working
capital purposes.
Net cash provided by operating activities decreased by $265,800 for the six
months ended June 30, 1997 when compared to the six months ended June 30, 1996.
The decrease was primarily the result of the partial absence of operations at
Carrollton and Southwest Freeway due to their sales during the first quarter of
1997. Partially offsetting the decrease was the increase in net income,
exclusive of depreciation and amortization, as previously discussed, and the
timing of receipt of rental payments at Indian Ridge.
Net cash (used for) provided by investing activities changed from $(3,350,200)
for the six months ended June 30, 1996 to $10,779,000 for the six months ended
June 30, 1997. The change was primarily due to the receipt of proceeds in 1997
from the sales of Southwest Freeway and Carrollton. The change was partially
offset by an increase in investments in debt securities. The increase in
investments in debt securities is a result of the extension of the maturities
of certain of the Partnership's short-term investments in an effort to maximize
the return on these amounts as they are held for working capital purposes.
These investments are of investment-grade and generally mature less than one
year from their date of purchase.
The Partnership maintains working capital reserves to pay for capital
expenditures and spent $65,500 for capital and tenant improvements and leasing
costs during the six months ended June 30, 1997. Approximately $150,000 is
projected to be spent during the remainder of 1997. This projected amount
relates to anticipated capital and tenant improvements and leasing costs of
approximately $85,000 at Park Plaza and $65,000 at Indian Ridge. Actual amounts
expended may vary depending on a number of factors including actual leasing
activity and other market conditions throughout the remainder of the year. 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.
The increase in net cash used for financing activities of $11,034,300 was
primarily due to an increase in the payment of cash distributions to Limited
Partners, which was the result of the May 31, 1997 payment of the special
distribution of Sales Proceeds.
On January 17, 1997, Carrollton Crossroads Associates, a joint venture in which
the Partnership owns a 50% interest, completed the sale of Carrollton. The
Partnership's share of the net proceeds from this sale amounted to
approximately $8,847,000. On May 31, 1997, in accordance with the Partnership
Agreement, 75% of the net proceeds were distributed to Limited Partners of
record as of January 17, 1997, with the remaining 25% remitted to the General
Partner to repay a portion of the loan payable to the General Partner. For
further information, see Note 3 in Notes to the Financial Statements.
On February 18, 1997, the joint venture in which the Partnership owns a 75%
interest completed the sale of Southwest Freeway. The Partnership's share of
the net proceeds from this sale amounted to approximately $2,460,800. On May
31, 1997, in accordance with the Partnership Agreement, 75% of the net proceeds
were distributed to Limited Partners of record as of February 18, 1997, with
the remaining 25% remitted to the General Partner to repay a portion of the
loan payable to the General Partner. For further information, see Note 3 in
Notes to the Financial Statements
The General Partner continues to take a conservative approach to projections of
future rental income in its determination of adequate levels of cash reserves
due to the anticipated capital and tenant improvements and leasing costs
necessary to be made at the Partnership's properties during the next several
years. For the six months ended June 30, 1997, Cash Flow (as defined in the
Partnership Agreement) retained to supplement working capital reserves amounted
to $503,800.
Distributions to Limited Partners for the quarter ended June 30, 1997 were
declared in the amount of $296,500, or $.50 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 properties as well as the General Partner's determination of
the amount of cash necessary to supplement working capital reserves to meet
future liquidity requirements of the Partnership. Accordingly, there can be no
assurance as to the amounts of cash for future distributions to Partners.
7
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
- -----------------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter ended
June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 4
By: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: August 14, 1997 By: /s/ DOUGLAS CROCKER II
--------------- -------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 14, 1997 By: /s/ NORMAN M. FIELD
--------------- -------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,987,400
<SECURITIES> 2,180,200
<RECEIVABLES> 123,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,290,700
<PP&E> 30,603,200
<DEPRECIATION> 7,753,600
<TOTAL-ASSETS> 27,192,000
<CURRENT-LIABILITIES> 955,500
<BONDS> 1,569,500
0
0
<COMMON> 0
<OTHER-SE> 24,602,600
<TOTAL-LIABILITY-AND-EQUITY> 27,192,000
<SALES> 0
<TOTAL-REVENUES> 3,394,600
<CGS> 0
<TOTAL-COSTS> 904,100
<OTHER-EXPENSES> 88,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,200
<INCOME-PRETAX> 1,780,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,780,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,780,000
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 2.41
</TABLE>
