ITEM 1. BUSINESS
The Registrant, First Capital Institutional Real Estate, Ltd.-1 (the "Partnership") is a limited partnership organized in 1982 under the Florida Uniform Limited Partnership Law. The Partnership sold $60,000,000 in Limited Partnership Units (the "Units") to the public from November 1982 through March 1983, pursuant to a Registration Statement on Form S-11 filed with the Securities and Exchange Commission (Registration Statement No. 2-79092). 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 was to invest primarily in existing, improved, income-producing commercial real estate, such as shopping centers, warehouses, office buildings, and, to a lesser extent, in other types of income-producing commercial real estate. From May 1983 to January 1985, the Partnership made six real property investments, including purchases of 50% interests in three joint ventures with an Affiliated partnership. Each of these joint ventures was formed for the purpose of acquiring a 100% interest in certain real property and were operated under the common control of First Capital Financial Corporation (the "Managing General Partner"). During the year ended December 31, 1997, the Partnership sold its remaining four real property investments. The Partnership is monitoring the remediation of an environmental matter at one of the properties sold during 1997. Upon the successful remediation of the environmental matter and resolution of any other post-closing matters, the Partnership will make a liquidating distribution and dissolve.
ITEM 2.
ITEM 2. PROPERTIES
During the year ended December 31, 1997, the Partnership sold its remaining property investments.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
(a & b) The Partnership was 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, 1999. Ordinary routine legal matters incidental to the business which were not deemed material were pursued during the quarter ended December 31, 1999.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a,b,c & d) None.
PART II
ITEM 5.
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, 2000, there were 7,805 Holders of Units.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Notes:
(a) Distributions per Unit to Limited Partners for the year ended December 31, 1997 included Sales Proceeds of $430.43. (b) For purposes of this table, return of capital represents either: 1) the amount by which distributions, if any, exceed net income for the respective year or 2) total distributions, if any, when the Partnership incurs a net loss for the respective year. Pursuant to the Partnership Agreement, Capital Investment is only reduced by distributions of Sale Proceeds. Accordingly, return of capital as used in this 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"):
(a) Cash Flow is defined in the Partnership Agreement as Partnership revenues earned from operations (excluding tenant deposits and proceeds from the sale or disposition of any Partnership properties), minus all expenses incurred (including Operating Expenses and any reserves deemed reasonably necessary by the Managing General Partner), except depreciation and amortization expenses and capital expenditures, lease acquisition expenditures and the General Partners' Subordinated 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.
ITEM 7.
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 three phases: (i) Offering of Units and investment in properties, (ii) operation of properties and (iii) sale or other disposition of properties.
Statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts, may be forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward- looking statements, which speak only as of the date hereof.
The Partnership commenced the Offering of Units on November 16, 1982 and began operations on January 3, 1983, after reaching the required minimum subscription level. In March, 1983, the Offering was terminated upon the sale of 60,000 Units. During the period from 1983 to 1985, the Partnership purchased a total of six properties, including three 50% joint venture interests.
One of the Partnership's objectives was to dispose of its properties when market conditions allowed for the achievement of the maximum possible sales price. The Partnership, has substantially completed the disposition phase of its life cycle. During the disposition phase of the Partnership's life cycle, comparisons of operating results are complicated due to the timing and effect of property sales. Partnership operating results are generally expected to decline as real property interests are sold since the Partnership no longer receives income generated from such real property interests. Through December 31, 1999, the Partnership has sold all of its real property investments.
Operations The Partnership's property operations for the years ended December 31, 1999 and 1998 were comprised substantially of post-closing matters related to properties sold during 1997.
Comparison of the year ended December 31, 1999 to the year ended December 31, 1998. Net income increased by $82,900 for the year ended December 31, 1999 when compared to the year ended December 31, 1998. The increase was primarily due to the 1998 recognition of a tax imposed by the District of Columbia in connection with the sale of Foxhall Square Office Building ("Foxhall"). Partially offsetting the increase was a decrease in interest income due to a decrease in cash available for investment resulting from the distribution of Foxhall Sale Proceeds during 1998.
Comparison of the year ended December 31, 1998 to the year ended December 31, 1997. Net income decreased by $3,811,200 for the year ended December 31, 1998 when compared to the year ended December 31, 1997. The decrease in net income was primarily due to the effects of the 1997 sales of the Partnership's remaining properties. In addition, the Partnership realized less interest income during the 1998 period as compared to 1997 resulting from a reduction in the amount of cash available for investment. The reduction in cash was primarily the result of the Partnership's 1998 distribution of the proceeds from the sale of Foxhall.
Liquidity and Capital Resources The decrease in the Partnership's cash position of $3,625,300 for the year ended December 31, 1999 was primarily the result of an increase in investments in debt securities. Liquid assets (including cash, cash equivalents and investments in debt securities) of the Partnership as of December 31, 1999 were comprised of amounts reserved for the Lakewood environmental matter (as hereafter discussed) and Partnership liquidation expenses.
Net cash provided by operating activities for the year ended December 31, 1999 was $102,500, a $46,000 increase when compared to the year ended December 31, 1998. This increase was primarily due to the increase in net income as previously discussed.
Net cash used for investing activities increased by $3,727,800 for the year ended December 31, 1999 when compared to the year ended December 31, 1998. The change was the result of the Partnership utilizing cash reserves to make investments in debt securities during 1999.
Investments in debt securities are a result of the continued extension of the maturities of certain of the Partnership's short-term investments in an effort to maximize the return on these amounts while they are held as working capital reserves. These investments are of investment-grade and mature less than one year from their date of purchase.
The Partnership has no financial instruments for which there are significant market risks. Due to the timing of the maturities and the liquid nature of the Partnership's investments in debt securities, the Partnership does not believe that it has material market risk.
The decrease in net cash used for financing activities of $8,460,000 for the year ended December 31, 1999 when compared to the year ended December 31, 1998 was due to the February 28, 1998 distribution of Foxhall Sale Proceeds.
In prior years, the Partnership discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Partnership completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Partnership experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Partnership incurred minimal expenses in connection with remediating its systems. The Partnership is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Partnership will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
As described in Note 5 of Notes to Financial Statements, the Partnership is awaiting resolution of an environmental matter at Lakewood. The Managing General Partner is continuing to monitor the documentation delivered by the purchaser of Lakewood regarding the purchaser's activities to remedy the hazardous substances at Lakewood. There can be no assurance as to the actual timeframe for the remediation or that it will be completed without cost to the Partnership. As a result of this, together with other potential post closing matters related to the Partnership's properties, it will be necessary for the Partnership to remain in existence. When the environmental matter at Lakewood is satisfactorily remediated, Limited Partners will receive a final liquidating distribution of the remaining cash held by the Partnership, less amounts reserved for administrative expenses and any amounts deemed necessary to resolve, or provide for, any post closing matters.
ITEM 8.
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, Schedules and Exhibits."
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) & (e) DIRECTORS The Partnership has no directors. First Capital Financial Corporation ("FCFC") is the Managing General Partner. The directors of FCFC, as of March 31, 2000, 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 2000.
Douglas Crocker II, 59, has been President and Chief Executive Officer since December 1992 and a Director since January 1993 of the Managing General Partner. Mr. Crocker has been President, Chief Executive Officer and trustee of Equity Residential Properties Trust since March 31, 1993. Mr. Crocker is a member of the Board of Directors of Wellsford Real Properties Inc. and Ventas, Inc. and was a member of the Board of Directors of Horizon Group, Inc. from July 1996 to June 1998. Mr. Crocker was an Executive Vice President of Equity Financial and Management Company ("EFMC") from November 1992 until March 31, 1997.
Sheli Z. Rosenberg, 58, was President and Chief Executive Officer of the Managing General Partner from December 1990 to December 1992 and has been a Director of the Managing General Partner since September 1983; has been vice chairman of Equity Group Investments, LLC ("EGI") since January 2000. From November 1994 until 1999 had been President and Chief Executive Officer of EGI. Ms. Rosenberg has been a Director of Great American Management and Investment Inc. ("Great American") since June 1984 and is a director of various subsidiaries of Great American. She is also a director of Anixter International Inc., Capital Trust Inc., CVS Corporation, Danka Business Systems PLC, Dynergy, Inc., and Manufactured Home Communities, Inc. She is also a trustee of Equity Residential Properties Trust and Equity Office Properties Trust. Ms. Rosenberg was a Principal of Rosenberg & Liebentritt, P.C., ("R&L") from 1980 to September 1997. R&L served as counsel to the Partnership, the Managing General Partner and certain of their Affiliates until its dissolution in 1999.
(b) & (e) EXECUTIVE OFFICERS The Partnership does not have any executive officers. The executive officers of the Managing General Partner as of March 31, 2000 are shown in the table. All officers are elected to serve for one year or until their successors are elected and qualified.
PRESIDENT AND CEO-- See Table of Directors above.
Donald J. Liebentritt, 49, has been Vice President of the Managing General Partner since July 1997 and is President of EGI, Vice President and Assistant Secretary of Great American and was Principal and Chairman of the Board of R&L.
Norman M. Field, 51, has been Vice President of Finance and Treasurer of the Managing General Partner since February 1984, and also served as Vice President of Great American from July 1983 until March 1995 and from July 1997 to the present.
(d) FAMILY RELATIONSHIPS
There are no family relationships among any of the foregoing directors and officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
There are no involvements in certain legal proceedings among any of the foregoing directors and officers.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors. Neither the Managing General Partner, nor any director or officer of the Managing General Partner, received any direct remuneration from the Partnership during the year ended December 31, 1999. However, the Managing General Partner and Affiliates of the Managing General Partner do compensate the directors and officers of the Managing General Partner.
For additional information see Item 13 (a) Certain Relationships and Related Transactions.
(e)None.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) As of March 1, 2000 no person of record owned or was known by the Partnership to own beneficially more than 5% of the Partnership's 60,000 Units then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1, 2000, none of the executive officers and directors of First Capital Financial Corporation, the Managing General Partner, owned any Units.
(c)None.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Certain Affiliates of the Managing General Partner were entitled to compensation and reimbursements of approximately $18,400 from the Partnership for personnel, and other miscellaneous services. Services of Affiliates are on terms, which the Managing General Partner believes are fair, reasonable and no less favorable to the Partnership than reasonably could be obtained from unaffiliated persons. As of December 31, 1999, total fees and reimbursements of $3,000 were due to Affiliates.
In accordance with the Partnership Agreement, subsequent to March 31, 1983, the Termination of the Offering, the General Partners are entitled to 10% of Cash Flow (as defined by the Partnership Agreement) as their Subordinated Partnership Management Fee, provided that Limited Partners first receive specified non-cumulative annual rates of return on their Capital Investment.
In accordance with the Partnership Agreement, Net Profits (exclusive of depreciation and Net Profits from the sale or disposition of Partnership properties) are allocated: first, to the General Partners, in an amount equal to the greater of the General Partners' Subordinated Partnership Management Fee or 1% of such Net Profits; and second, the balance, if any, to the Limited Partners. Net Profits from the sale or disposition of a Partnership property are allocated: first, to the General Partners, in an amount equal to the aggregate amount of depreciation previously allocated to them; second, to the General Partners and the 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; third, to the General Partners, in an amount necessary to make the aggregate amount of their capital accounts equal to the greater of the Sale Proceeds to be distributed to the General Partners with respect to the sale or disposition of such property or 1% of such Net Profits; and fourth, the balance, if any, to the Limited Partners. Net Losses (exclusive of depreciation and Net Losses from the sale, disposition or provision for value impairment of Partnership properties) are allocated 1% to the General Partners and 99% to the Limited Partners. All depreciation is allocated 10% to the General Partners and 90% to the Limited Partners. Net Losses from the sale, disposition or provision for value impairment of Partnership properties are allocated: first, to the extent that the balance in the General Partners' capital accounts exceeds their Capital Investment or the balance in the capital accounts of the Limited Partners exceeds the amount of their Capital Investment (collectively, the "Excess Balances"), to the General Partners and the Limited Partners pro rata in proportion to such Excess Balances until such Excess Balances are reduced to zero; second, to the General Partners and the Limited Partners and among them (in the ratio which their respective capital account balances bear to the aggregate of all capital account balances) until the balance in their capital accounts shall be reduced to zero; third, the balance, if any, 99% to the Limited Partners and 1% to the General Partners. In all events there shall be allocated to the General Partners not less than 1% of Net Profits and Net Losses from the sale, disposition or provision for value impairment of a Partnership property. The General Partners were not entitled to cash distributions for the year ended December 31, 1999. For the year ended December 31, 1999, the General Partners were allocated Net Profits of $1,200.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), served as legal counsel to the Partnership, the Managing General Partner and certain of their Affiliates. Donald J. Liebentritt, Vice President of the Managing General Partner was a Principal and
Chairman of the Board of Rosenberg. Compensation for these services were on terms which were fair, reasonable and no less favorable to the Partnership than reasonably could have been obtained from unaffiliated persons. Total legal fees charged by Rosenberg for the year ended December 31, 1999 were $3,000. As of December 31, 1999, there were no fees due to Rosenberg.
(c) No management person is indebted to the Partnership.
(d) None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a,c & d) (1,2 & 3) 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, 1999.
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.-1
BY: FIRST CAPITAL FINANCIAL CORPORATION MANAGING GENERAL PARTNER
/s/ DOUGLAS CROCKER II Dated: March 24, 2000 By: ____________________________________ 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.
NORMAN M. FIELD
INDEX OF FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
SCHEDULES FILED AS PART OF THIS REPORT
All 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-29 of the Partnership's definitive Prospectus dated October 25, 1982; Registration Statement No. 2- 79092, filed pursuant to Rule 424 (b), is incorporated herein by reference. The Partnership Agreement as filed has subsequently been amended to reflect the admission, withdrawal and substitution of Limited Partners, the reduction of Limited Partners' Capital Contributions, and the withdrawal of an individual General Partner.
EXHIBIT (13) Annual Report to Security Holders
The 1998 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
REPORT OF INDEPENDENT AUDITORS
Partners First Capital Institutional Real Estate, Ltd.-1 Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Institutional Real Estate, Ltd.-1 as of December 31, 1999 and 1998, 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, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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.-1 at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Chicago, Illinois February 15, 2000
A-2
BALANCE SHEETS December 31, 1999 and 1998 (All dollars rounded to nearest 00s)
STATEMENTS OF PARTNERS' CAPITAL For the years ended December 31, 1999, 1998 and 1997 (All dollars rounded to nearest 00s)
The accompanying notes are an integral part of the financial statements
A-3
STATEMENTS OF INCOME AND EXPENSES For the years ended December 31, 1999, 1998 and 1997 (All dollars rounded to nearest 00s except per Unit amounts)
STATEMENTS OF CASH FLOWS For the years ended December 31, 1999, 1998 and 1997 (All dollars rounded to nearest 00s)
The accompanying notes are an integral part of the financial statements
A-4
NOTES TO FINANCIAL STATEMENTS December 31, 1999
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 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 June 6, 1982, by the filing of a Certificate and Agreement of Limited Partnership with the Department of State of the State of Florida, and commenced the Offering of Units on November 16, 1982. The Certificate and Agreement, as amended and restated, authorized the sale to the public of up to 50,000 Units (with the Managing General Partner's option to increase to 60,000 Units) and not less than 1,300 Units. On January 3, 1983, the required minimum subscription level was reached and the Partnership operations commenced. The Managing General Partner exercised its option to increase the Offering to 60,000 Units, which amount was sold prior to the Termination of the Offering in March 1983. The Partnership was formed to invest primarily in existing, improved, income-producing commercial real estate.
The Partnership has disposed of its real estate properties. Upon resolution of the environmental matter disclosed in Note 5 and other post closing matters related to the sale of the Partnership's properties, the Partnership will make a liquidating distribution and dissolve.
In 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Partnership has one reportable segment as the Partnership is in the disposition phase of its life cycle, wherein it is seeking to resolve post-closing matters relating to properties sold by the Partnership. The adoption of Statement 131 did not affect the results of operations or financial position.
The Partnership Agreement provides that the Partnership will be dissolved on or before December 31, 2013. 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 accounting principles generally accepted in the United States ("GAAP"). The Partnership utilizes the accrual method of accounting. Under this method, revenues are recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The 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 Federal 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 assets and liabilities of the Partnership would not be meaningful.
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. Any gain or loss is recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with maturity of three months or less when purchased.
Investments in debt securities are comprised of obligations of the United States government and are classified as held-to-maturity. These investments are carried at their amortized cost basis in the financial statements, which approximated fair market value. These securities had a maturity of less than one year when purchased.
The Partnership's financial statements include financial instruments, including receivables and trade liabilities. The fair value of all financial instruments, including cash and cash equivalents, was not materially different from their carrying value at December 31, 1999 and 1998.
A-5
Certain reclassifications have been made to the previously reported 1998 and 1997 financial statements in order to provide comparability with the 1999 financial statements. These reclassifications have no effect on net income or Partners' capital.
2. Related party transactions:
In accordance with the Partnership Agreement, subsequent to March 31, 1983, the Termination of the Offering, the General Partners are entitled to 10% of Cash Flow (as defined by the Partnership Agreement) as their Subordinated Partnership Management Fee, provided that Limited Partners first receive specified non-cumulative annual rates of return on their Capital Investment.
In accordance with the Partnership Agreement, Net Profits (exclusive of depreciation and Net Profits from the sale, disposition, or provision for value impairment of Partnership properties) are allocated: first, to the General Partners, in an amount equal to the greater of the General Partners' Subordinated Partnership Management Fee or 1% of such Net Profits; second, the balance, if any, to the Limited Partners. Net Profits from the sale or disposition of a Partnership property are allocated: first, to the General Partners, in an amount equal to the aggregate amount of depreciation previously allocated to them; second, to the General Partners and the 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; third, to the General Partners, in an amount necessary to make the aggregate amount of their capital accounts equal to the greater of the Sale Proceeds to be distributed to the General Partners with respect to the sale or disposition of such property or 1% of such Net Profits; and fourth, the balance, if any, to the Limited Partners. Net Losses (exclusive of depreciation and Net Losses from the sale, disposition, or provision for value impairment of Partnership properties) are allocated 1% to the General Partners and 99% to the Limited Partners. All depreciation is allocated 10% to the General Partners and 90% to the Limited Partners. Net Losses from the sale, disposition, or provision for value impairment of Partnership properties are allocated: first, to the extent that the balance in the General Partners' capital accounts exceeds their Capital Investment or the balance in the capital accounts of the Limited Partners exceeds the amount of their Capital Investment (collectively, the "Excess Balances"), to the General Partners and the Limited Partners pro rata in proportion to such Excess Balances until such Excess Balances are reduced to zero; second, to the General Partners and the Limited Partners and among them (in the ratio which their respective capital account balances bear to the aggregate of all capital account balances) until the balance in their capital accounts shall be reduced to zero; third, the balance, if any, 99% to the Limited Partners and 1% to the General Partners. In all events there shall be allocated to the General Partners not less than 1% of Net Profits and Net Losses from the sale, disposition, or provision for value impairment of a Partnership property. The General Partners were not entitled to cash distributions for the years ended December 31, 1999, 1998 and 1997. During the year ended December 31, 1999, the General Partners were allocated Net Profits of $1,200. During the year ended December 31, 1998, the General Partners were allocated Net Profits of $400. During the year ended December 31, 1997, the General Partners were allocated Net Profits of $1,059,900 which included a net gain on the sale of four properties totaling $1,100,100.
Fees and reimbursements paid/(refunded) and payable by the Partnership to Affiliates for the years ended December 31, 1999, 1998 and 1997 were as follows:
The variance between amounts listed in this table and the income statement are due to capitalized legal costs.
3. Property sales:
On May 5, 1997, the Partnership consummated the sale of Peachtree, located in Atlanta, Georgia, for a sale price of $7,749,200. Net proceeds from this transaction were $7,547,500, which was net of closing expenses. The Partnership reported a net gain of $1,204,300 for the year ended December 31, 1997 in connection with this sale and distributed $7,440,000 or $124.00 per Unit on August 31, 1997 to Limited Partners of record as of May 5, 1997. The Partnership recorded a gain of $3,942,400 for income tax purposes for the year ended December 31, 1997.
On May 16, 1997, a joint venture in which the Partnership owned a 50% interest, consummated the sale of Lakewood Square Shopping Center ("Lakewood"), located in Lakewood, California, for a sale price of $17,750,000, of which the
A-6
Partnership's share was $8,875,000. The Partnership's share of net proceeds from this transaction was $8,660,000, which was net of closing expenses. The Partnership reported a net gain of $166,600 for the year ended December 31, 1997 in connection with this sale and distributed $8,640,000 or $144.00 per Unit on August 31, 1997 to Limited Partners of record as of May 16, 1997. The Partnership recorded a gain of $3,238,700 for income tax purposes for the year ended December 31, 1997.
On June 27, 1997, a joint venture in which the Partnership owned a 50% interest, consummated the sale of 12621 Featherwood Office Building, located in Houston, Texas, for a sale price of $3,146,700, of which the Partnership's share was $1,573,350. The Partnership's share of net proceeds from this transaction was $1,492,000, which was net of closing expenses. The Partnership reported a net loss of $53,700 for the year ended December 31, 1997 in connection with this sale and distributed $1,495,800 or $24.93 per Unit on November 30, 1997 to Limited Partners of record as of June 27, 1997. The Partnership recorded a loss of $848,000 for income tax purposes for the year ended December 31, 1997.
On November 10, 1997, a joint venture in which the Partnership owned a 50% interest, consummated the sale of Foxhall Square Office Building, located in Washington D.C., for a sale price of $17,125,000, of which the Partnership's share was $8,562,500. The Partnership's share of proceeds from this transaction was $8,283,000, which was net of closing expenses. The Partnership reported a net gain for financial reporting purposes of $1,079,000 for the year ended December 31, 1997 from this sale and distributed $8,250,000 or $137.50 per Unit on February 28, 1998 to Limited Partners of record as of November 10, 1997. The Partnership recorded a gain of $2,316,600 for income tax purposes for the year ended December 31, 1997.
The above transactions, with the exception of post-closing matters, were all- cash sales, with no further involvement on the part of the Partnership.
4. State Income tax:
State income tax expense for 1998 is comprised substantially of a tax imposed by the District of Columbia, based on taxable income. State income tax expense for 1997 is comprised substantially of a tax imposed by the state of Georgia, based on taxable income. The 1998 state income tax expense includes a change in estimate of tax due related to the 1997 sales of properties.
5. Environmental matter:
In 1996, the Managing General Partner became aware of the existence of hazardous substances in the soil and groundwater under Lakewood. In connection with the 1997 sale of Lakewood, the purchaser assumed the obligation to remedy the hazardous substances in the manner required by law, which includes, but is not limited to, payment of all costs in connection with the remediation work. In addition, the purchaser provided the Partnership with certain indemnification protection in relation to clean-up costs and related expenses arising from the presence of these hazardous substances. At the present time, the Managing General Partner is unaware of any claims relating to the above- described matter, or any other environmental matter, against the Partnership. During 1998, the purchaser submitted its corrective action plan to the California Regional Water Quality Board (the "Water Board"). The Water Board subsequently approved this plan subject to its review of purchaser's pilot study (the "Pilot Study"). The Plan provided for the recommended method for clean up and the obtaining of regulatory approval upon completion. In February 2000, purchaser reported that the results of the Pilot Study indicated that the plan may not adequately address some of the contamination in the soil below Lakewood. In response, in February 2000, purchaser presented an outline of its alternative plan (the "Alternative Plan") to the Water Board. Purchaser is awaiting final approval from the Water Board to begin implementation of the Alternative Plan. The timing of the completion of the remediation process is contingent upon, among other things, the Water Board's issuance of this approval. Accordingly, there can be no assurance as to the timing of the completion of the remediation process. The Managing General Partner continues to monitor the documentation delivered by the purchaser regarding the purchaser's activities to remedy the hazardous substances at Lakewood.
A-7