With the growing popularity of ad-hoc sensor networks, spatially distributed MIMO systems have drawn a lot of attention. This work considers a spatially distributed MIMO system with randomly distributed transmit and receive antennas over spatial regions. We use the modal decomposition of wave propagation to analyse the performance limits of such system, since the sampling of the spatial regions populated with antennas is a form of mode excitation. Specifically, we decompose signals into orthogonal spatial modes and apply concepts of MIMO communications to quantify the instantaneous capacity and the outage probability. Our analysis shows that analogous to conventional point-to-point MIMO system, the instantaneous capacity of spatially distributed MIMO system over Rayleigh fading channel is equivalent to a Gaussian random variable. Afterwards, we derive an accurate closed-form expression for the outage probability of proposed system utilizing the definition of instantaneous capacity. Besides, in rich scattering environment, the spatially distributed MIMO system provides best performance when the spatial regions are of same size, and each region is equipped with equal number of antennas. Furthermore, to facilitate the total transmit power allocation among the channels, we propose an algorithm which indicates a significant performance improvement over conventional equal transmit power allocation scheme, even at low SNR.