<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
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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 0-12537
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First Capital Income Properties, Ltd. - Series VIII
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2192277
- ------------------------------- ------------------------------------
(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 Units
-------------------------
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 July 28, 1982, included in
the Registrant's Registration Statement on Form S-11 (Registration No. 2-78064),
is incorporated herein by reference in Part IV of this report.
<PAGE>
The Partnership's Report on Form 8-K dated June 16, 1995, reporting the sale of
the Tuckerstone Commons / Rooker Royal I & II Warehouses, located in Atlanta,
Georgia, is incorporated herein by reference in Part IV of this report.
The Partnership's Report on Form 8-K dated April 6, 1994, reporting the sale of
the El Paso Natural Gas Building, located in El Paso, Texas, 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 Income Properties, Ltd. - Series VIII (the
"Partnership") is a limited partnership organized in 1982 under the Florida
Uniform Limited Partnership Law. The Partnership sold $70,000,000 in Limited
Partnership Units (the "Units") to the public from August 1982 to December 1982,
pursuant to a Registration Statement on Form S-11 filed with the Securities and
Exchange Commission (Registration Statement No. 2-78064). 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, improved,
income-producing real estate, such as shopping centers, warehouses and office
buildings, and, to a lesser extent, in other types of income-producing real
estate, such as mortgage loans on real estate. From January 1983 to October
1984, the Partnership made six real property investments and purchased a 50%
interest in a joint venture which was formed with an Affiliated partnership for
the purpose of acquiring a 100% interest in certain real property. The
Partnership's joint venture, prior to dissolution, was operated under the common
control of First Capital Financial Corporation (the "Managing General Partner").
In addition, in April 1986 the Partnership purchased four mortgage loan
investments. As of December 31, 1995: 1) the Partnership sold or disposed of
three real property investments; 2) the Partnership and its affiliate dissolved
the joint venture as a result of the sale of the real property investment and 3)
all four of the mortgage loan investments were repaid to the Partnership. (See
Note 6 in Notes to Financial Statements for more information regarding the sale
or disposition of Partnership properties and Note 3 in Notes to Financial
Statements for more information regarding the repayment of the last mortgage
loan investment.)
Property management services for the Partnership's real estate investments are
provided by Affiliates of the Managing 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 seven 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 directly owned the following three
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:
- -----------------
Walker Springs Plaza Knoxville, Tennessee 161,405 10(5)
Old Mill Place San Antonio, Texas 153,018 22(1)
Office Building:
- ----------------
Brookwood Metroplex
Office Buildings I & II Birmingham, Alabama 207,664 24(1)
</TABLE>
3
<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
useful lives ranging from 18 years to 39 years, utilizing either the
Accelerated Cost Recovery System ("ACRS") or straight-line method. The
Partnership's portion of real estate taxes for Walker Springs Plaza, Old
Mill Place and Brookwood Metroplex Office Buildings I & II were
$147,000, $214,900, $143,700, respectively, for the year ended December
31, 1995. In the opinion of the Managing 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.
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>
Walker Springs Plaza 100% 100% 99% 99% 97%
Old Mill Place 85% 92% 96% 97% 95%
Brookwood Metroplex
Office Buildings I & II 100% 100% 93% 94% 94%
</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>
Walker Springs Plaza $5.22 $5.14 $4.91 $4.68 $4.17
Old Mill Place $7.86 $8.00 $8.12 $7.59 $8.02
Brookwood Metroplex
Office Buildings I & II $10.32 $10.29 $9.95 $9.63 $9.59
</TABLE>
4
<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:
<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>
Walker Springs Plaza
- --------------------
Stein Mart
(department store) $ 195,000 $ 195,000 2/28/1999 24% 1 / 5
Books-A-Million (b)
(book store) $ 114,700 $ 114,700 3/31/1998 22% 2 / 5
Big Lots
(discount department store) $ 120,000 $ 120,000 4/30/1998 16% None
Steinberg's
(appliance store) $ 108,900 $ 108,900 3/31/1997 11% 2 / 5
Revco D. S., Inc.
(drugstore) $ 41,000 $ 41,000 3/31/1998 10% 2 / 5
Old Mill Place
- --------------
Kroger (c)
(grocery store) $ 280,600 $ 280,600 8/31/2000 28% 6 / 5
Brookwood Metroplex
Office Buildings I & II
- ------------------------
Vulcan Materials Co.
(construction material and
chemical manufacturer) $1,254,000 $1,248,700 12/31/1998 66% 2 / 5
</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 is no lesser or greater than
the amounts listed in the above table.
(b) Space is sublet from Kroger. Pursuant to lease, Kroger is lessee.
(c) This tenant does not physically occupy any space at this property
but continues to pay rent under the terms of its lease.
5
<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 12 27,866 $ 209,200 5.68%
1997 11 56,150 $ 174,700 5.34%
1998 17 231,188 $1,514,200 54.20%
1999 5 62,510 $ 181,300 18.80%
2000 4 53,341 $ 219,600 32.61%
2001 2 16,620 $ 10,100 2.52%
2002 1 2,500 $ 23,300 6.33%
2003 1 3,465 $ 27,700 8.75%
2004 1 8,352 $ 33,600 15.13%
2005 1 9,610 $ 115,300 61.19%
</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.
6
<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 7,239 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 $ 6,518,500 $25,877,800 $ 9,462,300 $ 9,729,500 $ 9,781,700
Net income (loss) $ 942,700 $19,957,100 $ (517,900) $ (751,800) $ 883,400
Net income (loss)
allocated to
Limited Partners (a) $ 775,700 $19,423,400 $ (778,900) $ (907,000) $ 688,900
Net income (loss)
allocated to Limited
Partners per Unit
(70,000 Units issued
and outstanding)(a) $ 11.08 $ 277.48 $ (11.13) $ (12.96) $ 9.84
Total assets $ 33,910,000 $41,343,100 $68,570,400 $ 73,171,600 $ 78,041,900
Mortgage loans payable None None $28,611,600 $ 29,803,400 $ 32,319,700
Distributions to Limited
Partners per Unit
(70,000 Units issued
and outstanding)(b) $ 119.36 $ 255.00 $ 36.78 $ 22.50 $ 25.00
Return of capital
to Limited Partners
per Unit (70,000 Units
issued and outstanding)(c) $ 108.28 None $ 36.78 $ 22.50 $ 15.16
Other data:
- -----------
Investment in
commercial rental
properties (net of
accumulated
depreciation and
amortization) $ 24,393,400 $31,547,600 $56,374,800 $ 63,912,500 $ 71,486,900
Investment in mortgage
loan receivable (net of
unearned discount) None $ 1,064,000 $ 1,064,000 $ 1,064,000 $ 1,063,300
</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>
Number of real
property interests
owned at December 31 3 4 5 7 7
</TABLE>
(a) Net income (loss) allocated to Limited Partners for 1994
and 1993 included an extraordinary (loss) on early extinguishment of
debt.
(b) Distributions to Limited Partners per Unit for the years ended
December 31, 1995 and 1994 included Sale Proceeds of $75.00 and $215.00,
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) $ 3,319,400 $ 3,380,200 $ 3,248,600 $ 3,520,600 $ 3,132,400
Items of reconciliation:
Forgiveness of principal
on mortgage loan
receivable 20,000
Principal payments on
mortgage loans payable 233,100 903,500 123,100 233,700
Amortization of
discount on mortgage
loans receivable (700) (1,500)
Changes in current assets
and liabilities:
Decrease (increase)
in current assets 48,100 39,700 234,100 (24,500) (7,300)
Increase (decrease)
in current liabilities 313,700 (205,200) (380,200) 179,200 361,600
------------ ----------- ----------- ------------- -------------
Net cash provided by
operating activities $ 3,701,200 $ 3,447,800 $ 4,006,000 $ 3,797,700 $ 3,718,900
============ =========== =========== ============= =============
</TABLE>
8
<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 provided
by (used for)
investing activities $ 5,880,300 $ 42,840,500 $ (301,500) $ 3,116,300 $ (520,000)
============= ============= ============ ============== ==============
Net cash (used for)
financing activities $ (8,689,500) $(48,103,500) $ (363,000) $ (4,641,700) $ (1,654,200)
============= ============= ============ ============== ==============
</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 and
interest on any Partnership indebtedness, and any reserves of revenues
from operations deemed reasonably necessary by the Managing General
Partner), except depreciation and amortization expenses and capital
expenditures and lease acquisition expenditures made from Offering
proceeds and the General Partners' 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.
9
<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 August 9, 1982, and began
operations on September 2, 1982, after reaching the required minimum
subscription level. In December 1982, the Offering was Terminated upon the sale
of 70,000 Units. From January 1983 to October 1984, the Partnership made six
real property investments and purchased a 50% interest in a joint venture
("Joint Venture") which was formed with an Affiliated partnership for the
purpose of acquiring a 100% interest in certain real property. The Joint
Venture, prior to dissolution, was operated under the common control of the
Managing General Partner. In addition, in April 1986, the Partnership purchased
four mortgage loan investments.
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 by selling five of the
seven warehouses situated at Atlanta Gateway Park Industrial Center ("Atlanta
Gateway"). 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. As of December 31, 1995: 1) the Partnership sold or disposed of
three of its real property investments; 2) the Partnership and its affiliate
dissolved the Joint Venture as a result of the sale of the real property
investment of the Joint Venture and 3) all four of the mortgage loan
investments were repaid to the Partnership.
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 47% 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, Old Mill
Place Shopping Center ("Old Mill") experienced an erosion in its occupancy. In
addition, while the Partnership continues to collect rent on its anchor space,
the anchor tenant space was vacated in December 1995. The Managing General
Partner is negotiating with a replacement tenant. While occupancy of this space
is critical to performance of the property, this prospective tenant may not
attract the same level of traffic to Old Mill as previous anchor tenants. The
Partnership is currently marketing Old Mill for sale.
The Partnership's remaining office building has 22 tenants, one of which
occupies approximately 66% of the leasable square footage. This tenant's lease
expires in December 1998. The tenant has two 5-year options to renew its lease.
It is unknown whether the tenant will exercise its renewal option upon the
expiration of the lease. As a result of the potential significant vacancy and
the costs related to retenanting, the Partnership faces a considerable amount
of uncertainty with respect to this property.
The Managing General Partner has historically reviewed significant factors
regarding the properties, such as those mentioned above, 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
$(2,050,000) for the year ended December 31, 1995. Of this amount, $(1,300,000)
relates to one of the Partnership's retail properties and $(750,000) relates to
the Partnership's office building. For more details related to these
provisions, see Note 7 of Notes to Financial Statements. The Managing 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>
BROOKWOOD METROPLEX OFFICE BUILDINGS I & II
Rental revenues $2,305,800 $2,195,300 $1,875,800
- -------------------------------------------------------------------------------
Property net income (loss) (b)(c) $ 490,700 $ (13,600) $ (385,700)
- -------------------------------------------------------------------------------
Average occupancy 100% 98% 89%
- -------------------------------------------------------------------------------
OLD MILL PLACE
Rental revenues $1,289,000 $1,303,200 $1,392,100
- -------------------------------------------------------------------------------
Property net income (b) $ 523,300 $ 526,100 $ 514,400
- -------------------------------------------------------------------------------
Average occupancy 89% 95% 97%
- -------------------------------------------------------------------------------
</TABLE>
10
<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>
WALKER SPRINGS PLAZA SHOPPING CENTER
Rental revenues $ 1,067,100 $ 1,082,900 $ 1,026,500
- -----------------------------------------------------------------------------
Property net income $ 541,800 $ 565,100 $ 489,900
- -----------------------------------------------------------------------------
Average occupancy 100% 99% 99%
- -----------------------------------------------------------------------------
TUCKERSTONE COMMONS/ROOKER ROYAL I & II
WAREHOUSES (D)
Rental revenues $ 348,000 $ 645,900 $ 657,100
- -----------------------------------------------------------------------------
Property net income (d) $ 129,100 $ 238,400 $ 197,700
- -----------------------------------------------------------------------------
Average occupancy (d) 90% 90%
- -----------------------------------------------------------------------------
EL PASO NATURAL GAS
BUILDING (E)
Rental revenues $ 1,003,400 $ 3,688,100
- -----------------------------------------------------------------------------
Property net income (e) $ 324,100 $ 1,105,700
- -----------------------------------------------------------------------------
Average occupancy 100% 100%
- -----------------------------------------------------------------------------
HAIRSTON/MEMORIAL
CROSSING SHOPPING
CENTER (F)
Rental revenues $ 315,700
- -----------------------------------------------------------------------------
Property net (loss) (f) $ (136,600)
- -----------------------------------------------------------------------------
Average occupancy (f)
- -----------------------------------------------------------------------------
ATLANTA GATEWAY PARK
INDUSTRIAL CENTER (G)
Rental revenues $ 27,000
- -----------------------------------------------------------------------------
Property net income (g) $ 21,100
- -----------------------------------------------------------------------------
Average occupancy (g)
- -----------------------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income on
short-term investments or the mortgage loan receivable and general and
administrative expenses or are related to properties disposed of by the
Partnership prior to the periods under comparison.
(b) Property net income excludes provisions for value impairment of $750,000
and $1,300,000 on Brookwood Metroplex Office Buildings I & II ("Brookwood")
and Old Mill, respectively, which were included in the Statement of Income
and Expenses for the year ended December 31, 1995 (see Note 7 of Notes to
Financial Statements for additional information).
(c) On October 3, 1994 the Partnership repaid the principal balance of the
mortgage loan collateralized by Brookwood in the amount of $7,000,000,
along with a prepayment penalty of $210,000. The property net (loss)
excludes the prepayment penalty, which was included in the Statement of
Income and Expenses for the year ended December 31, 1994 as an
extraordinary (loss) on early extinguishment of debt.
(d) Tuckerstone Commons/Rooker Royal I & II Warehouses ("Rooker") was sold on
June 16, 1995. The property net income excludes the net gain of $868,800
from the sale of the property, which was included in the Statement of
Income and Expenses for the year ended December 31, 1995.
(e) The Joint Venture which owned El Paso Natural Gas Building ("El Paso"), in
which the Partnership had a 50% interest, sold El Paso on April 6, 1994.
The property net income excludes the Partnership's share of the net gain
which was $18,929,600 from the sale of the property and an extraordinary
(loss) of $914,300 on the early extinguishment of debt, which were included
in the Statement of Income and Expenses for the year ended December 31,
1994. In addition, on January 15, 1993 the Joint Venture obtained new
financing on El Paso in the amount of $45,000,000. The existing loan on El
Paso was paid off in full upon closing of the new loan, along with a
prepayment penalty of $540,100. The property net income excludes the
prepayment penalty, which was included in the Statement of Income and
Expenses for the year ended December 31, 1993 as an extraordinary (loss) on
early extinguishment of debt.
(f) Hairston/Memorial Crossing Shopping Center ("Hairston") was sold on August
3, 1993. The property net (loss) excludes the net (loss) of $1,956,500 from
the sale of the property, which was included in the Statement of Income and
Expenses for the year ended December 31, 1993.
(g) The two remaining warehouses situated at Atlanta Gateway were sold on
February 16, 1993. The property net income excludes the net (loss) of
$12,700 from the sale of these two warehouses, which was included in the
Statement of Income and Expenses for the year ended December 31, 1993.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net income for the year ended December 31, 1995 decreased $19,014,400 when
compared to the year ended December 31, 1994. The decrease was primarily due to
the effects of: 1) the sale of El Paso in 1994; 2) provisions for value
impairment recognized in 1995; 3) the absence of the 1994 results of operations
from El Paso; 4) the absence in 1995 of a full year of results of operations
from Rooker and 5) the absence in 1995 of a full year of interest income earned
on the mortgage note receivable. Partially offsetting these effects were the
gain on the sale of Rooker and the extraordinary (loss) recognized in 1994 on
the early extinguishment of debt on the mortgage loan collateralized by
Brookwood. As described above, the Partnership recorded (losses) for provisions
for value impairment of $(2,050,000) during 1995. The sale of Rooker (including
operating results and the net gain on sale of the property) and the interest
income earned on the mortgage loan receivable accounted for net income of
$994,200 in 1995, as compared to the sale of El Paso (including operating
results and the net gain, after
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
the extraordinary (loss) on the early extinguishment of debt, on the sale of
the property), the extraordinary (loss) on the early extinguishment of debt on
the mortgage loan collateralized by Brookwood, the operating results of Rooker
and the interest income earned on the mortgage loan receivable accounting for
net income of $18,484,300 in 1994. For further information, see the table above
and the notes thereto as well as Notes 3, 6 and 7 of Notes to Financial
Statements.
Excluding the effects on net income of the properties sold, provisions for
value impairment, extraordinary (losses) on the early extinguishment of debt
and the interest income earned on the mortgage loan receivable, net income for
the year ended December 31, 1995 increased $525,600 when compared to the net
income for the year ended December 31, 1994. The primary factors contributing
to the increase in net income was improved operating results of $504,300 at
Brookwood and an increase of $41,200 in interest income as a result of an
increase in the rates on and funds available for short-term investments.
Partially offsetting the increase in net income was a decrease totaling $26,100
in the operating results of Walker Springs Plaza Shopping Center ("Walker
Springs") and Old Mill.
The following comparative discussion includes only the operating results of the
Partnership's three remaining property investments.
Rental revenues increased $80,500, or 2%, for the year ended December 31, 1995
when compared to the year ended December 31, 1994. The primary factors which
caused the increase in rental revenues were an increase of $67,400 and $36,100
in tenant expense reimbursements at Brookwood and Old Mill, respectively, due
to reimbursements in 1995, which included prior year reimbursements that were
greater than had been previously estimated. Increases in the average occupancy
rate and base rental rate charged to new and renewing tenants at Brookwood and
Walker Springs also contributed to the increase in rental revenues. Partially
offsetting the increase was a decrease of $56,700 in tenant expense
reimbursements at Walker Springs, as a result of reimbursements in 1994, which
included prior year reimbursements that were greater than had been previously
estimated as well as a decrease in 1995 expense reimbursements charged to
tenants and a decrease in the average occupancy rate at Old Mill.
Interest expense decreased $515,600 for the year ended December 31, 1995 as
compared to 1994 due to the payoff on October 3, 1994 of the mortgage loan
collateralized by Brookwood.
Insurance expense decreased $13,900 for the year ended December 31, 1995 when
compared to 1994. This 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 $13,900 for the year ended December
31, 1995 when compared to the prior year. The decrease was primarily due to
nonrecurring expenses incurred in 1994 including emergency roof repairs at Old
Mill and driveway and parking lot repair and restriping at Walker Springs.
Partially offsetting the decrease was increased repair and maintenance expense
at Brookwood during 1995 due to additional landscaping as well as an increase
in the cost of janitorial services.
Property operating expense increased $105,100 for the comparable periods. The
primary factors which caused the increase in property operating expense were
increased utility costs, property management and leasing fees and professional
service costs at Brookwood and professional service costs at Old Mill.
Depreciation and amortization expense increased $27,400 for the periods 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 1995 exceeded the periodic depreciation and amortization expense for
certain assets for which the depreciable and amortizable lives expired during
1995. In addition, amortization expense increased as a result of the 1995
write-off of the unamortized acquisition costs on the mortgage loan
collateralized by Brookwood, which was paid off in October 1994.
Real estate tax expense increased $6,800 for the years under comparison. The
increase was primarily due to a tax rate increase at Walker Springs and an
increase in the assessed value at Old Mill.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 TO THE YEAR ENDED DECEMBER 31,
1993
Net income for the year ended December 31, 1994 increased $20,475,000 when
compared to the net (loss) for the year ended December 31, 1993. The effects of
the sales or dispositions of certain Partnership properties during 1994 and
1993 as well as the absence of the net results of operations from these
properties and the extraordinary (losses) in 1994 and 1993 on the early
extinguishment of debt on the mortgage loans collateralized by Brookwood and El
Paso had significant impact on the comparison of net income (loss) for the
years under comparison. The sale of El Paso and the extraordinary loss on the
early extinguishment of debt on the mortgage loan collateralized by Brookwood
during 1994 accounted for net income (including El Paso operating results and
net gain on the sale and the (loss) on early extinguishment of debt on the new
mortgage loan collateralized by El Paso) of $18,129,400 as compared to the
dispositions of certain Partnership properties in 1993 and the extraordinary
(loss) on early extinguishment of debt on the previous mortgage loan
collateralized by El Paso which accounted for a net (loss) (including net
operating results and the net (loss) on the disposition of these properties) of
$(1,519,100). For further information, see the table above and the notes
thereto as well as Note 6 of Notes to Financial Statements.
Excluding the effects on net income of the properties sold or disposed of and
the extraordinary losses on the early extinguishment of debt, net income for
the year ended December 31, 1994 increased $826,600 when compared to the year
ended December 31, 1993. The primary factors contributing to the increase in
net income were: 1) improved operating results totaling $499,700 at Brookwood,
Walker Springs, Rooker and Old Mill; 2) an increase of $257,300 in interest
income as a result of an increase in the rates on and funds available for
short-term investments and 3) a decrease of $58,400 in general and
administrative expenses primarily due to lower professional service fees and
printing and mailing expenses. Partially offsetting the increase in net income
was a decrease of $21,800 in interest income on the mortgage loan receivable.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
For purposes of the following comparative discussion, the operating results of
El Paso, Hairston and Atlanta Gateway have been excluded.
Rental revenues increased $275,800, or 6%, for the year ended December 31, 1994
when compared to the year ended December 31, 1993. The primary factors which
caused the increase in rental revenues were: 1) an increase in the average
occupancy rate as well as the base rental rate at Brookwood; 2) increases in
tenant expense reimbursements totaling $80,500 at Brookwood, Walker Springs and
Rooker primarily due to reimbursements in 1994, which included prior year
reimbursements that were greater than had been previously estimated; 3) an
increase in the base rental rate at Walker Springs; 4) a decrease in 1994 of
$49,000 in the write-offs of tenant receivables deemed uncollectible at Old
Mill and 5) the receipt in 1994 of a one-time lease cancellation fee of $14,300
at Brookwood. Partially offsetting the increase in rental revenues was: 1) a
decrease in the base rental rate charged to new and renewing tenants as well as
a lower average occupancy rate at Old Mill; 2) lower tenant expense
reimbursements of $62,100 at Old Mill due to receipts in 1993 of prior years'
tenant expense reimbursements and 3) a decrease of $12,900 in the recovery of
write-offs of tenant receivables previously deemed uncollectible at Rooker.
Interest expense decreased $266,500 from 1993 to 1994, of which $166,900 was
due to the repayment of the mortgage loan collateralized by Brookwood in
October 1994 and $99,600 was due to the repayment of the single mortgage loan
collateralized by Old Mill and Rooker.
Real estate tax expense decreased $6,900 for the years under comparison. The
decrease was primarily due to Walker Springs. In 1993, real estate taxes at the
property increased $57,400, when compared to 1992, due to the annexation of the
property by the city of Knoxville, which now subjects the property to city
taxes as well as county taxes, and an increase in the assessed valuation of the
property in 1993. The Managing General Partner paid the 1993 taxes under
protest, as taxes were appealed. As a result of this appeal, the assessed
valuation of the property was reduced. The 1994 real estate tax expense for
this property decreased $45,900 when compared to 1993, which reflected the
decrease in the assessed value and included the receipt of a refund of $17,500
for 1993 taxes. The Partnership also received $18,600 in early 1995 as an
additional refund of 1993 taxes. Partially offsetting the decrease was an
increase of $39,700 at Brookwood due to the fact that 1993 included refunds
resulting from the favorable outcome of the Partnership's protest of real
estate tax increases at that property relating to the tax years 1991 and 1992.
Repairs and maintenance expense increased $8,400 for the year ended December
31, 1994 when compared to the prior year. The increase was primarily due to
higher costs for janitorial services as well as additional expenditures to
enhance the appearance of Brookwood.
To increase and/or maintain occupancy levels at the Partnership's properties,
the Managing 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 of 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 Managing 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 $60,800
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 the (loss)
from provisions for value impairment, the gains on sale of properties, the 1994
extraordinary (loss) on early extinguishments of debt and the effects of
depreciation and amortization expense, which components have been previously
discussed, partially offset by the absence of principal payments on the
mortgage loan collateralized by El Paso.
The increase in the Partnership's cash position as of December 31, 1995 when
compared to December 31, 1994, was primarily due to the net cash provided by
operating activities and the net cash received on the retirement of the
mortgage loan investment exceeding the distributions of Cash Flow (as defined
in the Partnership Agreement) paid to Partners and the payments for capital and
tenant improvements and leasing costs. The liquid assets of the Partnership as
of December 31, 1995, are comprised of undistributed Sale Proceeds and
undistributed cash from operations retained for working capital purposes.
Net cash provided by operating activities increased $253,400 for the year ended
December 31, 1995 when compared to the year ended December 31, 1994. This
increase was primarily due to an increase in the cash provided by operating
activities of Brookwood, Old Mill and Walker
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
Springs partially offset by the absence of operating results of El Paso and
lower cash provided by operating activities at Rooker due to the sale of the
property in June 1995.
Net cash provided by investing activities decreased $36,960,200 for the year
ended December 31, 1995 when compared to the year ended December 31, 1994.
During the years ended December 31, 1995 and 1994, the Partnership realized
proceeds of $6,207,900 and $43,267,700, respectively, from the sales of
properties and liquidation of mortgage loan investments. Partially offsetting
the decrease in net cash provided by investing activities was the decrease of
$239,900 in payments made for capital and tenant improvements and leasing
costs. 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 $327,600 for capital
and tenant improvements and leasing costs and has budgeted to spend
approximately $500,000 during the year ending December 31, 1996. This budgeted
amount relates to anticipated capital and tenant improvements and leasing costs
of approximately: 1) $360,000 at Old Mill; 2) $100,000 at Walker Springs and 3)
$40,000 and Brookwood. The Managing General Partner believes these improvements
and leasing costs are necessary in order to increase and/or maintain occupancy
levels in very competitive markets, maximize rental rates charged to new and
renewing tenants and to prepare the remaining properties for eventual
disposition.
On February 24, 1995, the Partnership received $1,060,300, including $16,300 in
accrued interest from January 1, 1995, in satisfaction of the mortgage loan
receivable.
On June 16, 1995, the Partnership sold its interest in Rooker, located in
Atlanta, Georgia, for a sale price of $5,300,000. The Partnership incurred
selling expenses of $136,100, including $21,500 in legal expenses paid to an
Affiliate of the Managing General Partner. The Partnership received net sale
proceeds of $5,163,900. The Partnership distributed $5,250,000, or $75 per
Unit, as Sale Proceeds to the Limited Partners in August 1995.
Net cash (used for) financing activities changed from $(48,103,500) for the
year ended December 31, 1994 to $(8,689,500) for the year ended December 31,
1995. This change was primarily due to the payoff of the mortgage loan
collateralized by El Paso, including a prepayment penalty, and the
distributions paid to Partners in 1994 exceeding the distributions paid to
Partners in 1995. Partially offsetting the change was a decrease in security
deposits, primarily as a result of the sale of Rooker.
The Managing General Partner continues to take a conservative approach to
projections of future rental income and to maintain higher 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. The Managing General Partner believes that Cash Flow (as defined
in the Partnership Agreement) is one of the best and least expensive sources of
cash.
As of December 31, 1995, 17 of the 56 tenants at the Partnership's properties
have leases totaling 231,188 square feet that expire during 1998. Total base
rental revenue budgeted to be collected from these 17 tenants for the year
ending December 31, 1996 is $1,827,600. Several of these tenants have at least
one option to renew their lease for an additional 5-year term. The base rental
rates applicable to these options varies from lease to lease, and are either
based on market conditions prevalent at the time of renewal, or are already
specified in the original lease. Notwithstanding the rental rates that may be
in effect upon the tenants exercising any or all of these options, the
Partnership faces a significant amount of uncertainty with respect to the
occupancy at its properties in 1998 and possibly beyond. The Managing General
Partner and its Affiliated management companies intend to address the possible
renewal of these leases well in advance of their scheduled maturities in an
attempt to maintain the occupancy level and rental revenues of the
Partnership's portfolio.
Distributions to Limited Partners for the quarter ended December 31, 1995 were
declared in the amount of $10.75 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 Managing 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.
14
<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.
15
<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 Managing 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.
<TABLE>
<CAPTION>
Name Office
---- ------
<S> <C>
Samuel Zell . . . . . . . . . . . . . . . . . . Chairman of the Board
Douglas Crocker II. . . . . . . . . . . . . . . Director
Sheli Z. Rosenberg. . . . . . . . . . . . . . . Director
Sanford Shkolnik. . . . . . . . . . . . . . . . Director
</TABLE>
Samuel Zell, 54, has been a Director of the Managing 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 Managing 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
Managing General Partner from December 1990 to December 1992 and has been a
Director of the Managing 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
Managing 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
16
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
- -------- --------------------------------------------------------------
(a) DIRECTORS (continued)
---------------------
bankruptcy 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 Managing 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 Managing 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.
<TABLE>
<CAPTION>
Name Office
---- ------
<S> <C>
Douglas Crocker II.................. President and Chief Executive Officer
Arthur A. Greenberg................. Senior Vice President
Norman M. Field..................... Vice President - Finance and Treasurer
</TABLE>
PRESIDENT AND CEO- See Table of Directors above.
Arthur A. Greenberg, 55, has been Senior Vice President of the Managing
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
Managing 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.
17
<PAGE>
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, 1995. However, the Managing 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 70,000 Units
then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1, 1996,
the executive officers and directors of the Managing General Partner, as a
group, did not own any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
(a) Affiliates of the Managing General Partner, provide leasing, property
management and supervisory services to the Partnership. Compensation for these
property management services may not exceed 6% of the gross receipts from the
property being managed, plus normal out-of-pocket expenses where the General
Partners or Affiliates provide leasing, re-leasing and leasing related services,
or 3% of gross receipts where the General Partners 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,
property management and supervisory fees of $338,100. In addition, other
Affiliates of the Managing General Partner were entitled to fees, compensation
and reimbursements of $101,000 for insurance, personnel, and mortgage servicing
fees. Compensation for these services are on terms which are fair, reasonable
and no less favorable to the Partnership than reasonably could have been
obtained from unaffiliated persons. Of these amounts, a total of $28,900 was due
to Affiliates as of December 31, 1995.
In addition, as of December 31, 1995, $37,700 was due to the Managing General
Partner for real estate commissions earned in connection with the sale of five
of the buildings comprising a portion of Atlanta Gateway. 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 Limited Partners have received
cumulative distributions of Sale or Refinancing Proceeds equal to 100% of their
Original Capital Contribution plus a cumulative return (including all Cash Flow
which has been distributed to the Limited Partners from the initial date of
investment) of 6% simple interest per annum on their Capital Investment from the
initial date of investment.
In accordance with the Partnership Agreement, subsequent to December 23, 1982,
the Termination of the Offering, the General Partners are entitled to 10% of
distributable Cash Flow (as defined in the Partnership Agreement), as a
Partnership Management Fee. In addition, Net Profits (exclusive of 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'
Partnership Management Fee for such fiscal year, 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 and the Limited Partners with negative balances in their capital
accounts, pro rata in proportion to such
18
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
- -------- ----------------------------------------------------------
respective negative balances, to the extent of the total of such negative
balances; second, to the General Partners, in an amount necessary to make the
aggregate amount of their capital accounts equal to the greater of the Sale or
Refinancing 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 third,
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 Partners and 99% 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 (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 pro rata in proportion to the balances in
their respective capital accounts until the balances 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.
For the year ended December 31, 1995 the General Partners were entitled to
distributable Cash Flow of $345,000 and allocated Net Profits of $167,000, which
included Net Profits from the sale of a Partnership property of $8,700 and a
(loss) from provisions for value impairment of $(186,700).
Revco D. S., Inc. ("Revco"), a drug store company, of which a 20% ownership
interest was acquired by Zell Chilmark Fund, L.P., an Affiliate of the Managing
General Partner, on September 1, 1992, is obligated to the Partnership under a
lease for store space at Walker Springs Plaza Shopping Center. During the year
ended December 31, 1995, Revco paid rent of $49,400. The per square foot rent
paid by Revco is comparable to those paid by other tenants at this property.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the Managing General Partner and certain of their Affiliates. Sheli
Z. Rosenberg, President and Chief Executive Officer of the Managing General
Partner from December 1990 to December 1992 and a director of the Managing
General Partner since December 1983, is a Principal of Rosenberg. For the year
ended December 31, 1995, Rosenberg was entitled to $44,700 for legal fees from
the Partnership. As of December 31, 1995, no fees were due to Rosenberg.
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 INCOME PROPERTIES, LTD. - SERIES VIII
BY: FIRST CAPITAL FINANCIAL CORPORATION
MANAGING 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 Managing General Partner
/s/ DOUGLAS CROCKER II March 29, 1996 President, Chief Executive
- ---------------------------- -------------- Officer and Director of the
DOUGLAS CROCKER II Managing General Partner
/s/ SHELI Z. ROSENBERG March 29, 1996 Director of the Managing
- ---------------------------- -------------- General Partner
SHELI Z. ROSENBERG
/s/ SANFORD SHKOLNIK March 29, 1996 Director of the Managing
- ---------------------------- -------------- 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 Certified Public Accountants A - 2
Balance Sheets at 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-30 of the Partnership's
definitive Prospectus dated July 28, 1982; Registration Statement No. 2-78064,
filed pursuant to Rule 424 (b), is incorporated herein by reference.
EXHIBIT (10) Material Contracts
- ------------
(a) Real Estate Sale Agreement for the sale of the Partnership's interest in
the Tuckerstone Commons / Rooker Royal I & II Warehouses filed as an exhibit to
the Partnership's Report on Form 8-K dated June 16, 1995, is incorporated herein
by reference.
(b) Real Estate Sale Agreements for the sale of the Partnership's investment in
the El Paso Natural Gas Building filed as an exhibit to the Partnership's Report
on Form 8-K dated April 6, 1994, is incorporated herein by reference.
(c) Loan Agreement for the refinancing of the Partnership's investment in the
El Paso Natural Gas Building filed as an exhibit to the Partnership's Report on
Form 8-K dated January 15, 1993, 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 CERTIFIED PUBLIC ACCOUNTANTS
Partners
First Capital Income Properties, Ltd. - Series VIII
Chicago, Illinois
We have audited the balance sheets of First Capital Income Properties, Ltd. -
Series VIII as of December 31, 1995 and 1994, and the related statements of
income and expenses, Partners' Capital and cash flows for the years ended
December 31, 1995, 1994 and 1993. 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 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 Income
Properties, Ltd. - Series VIII as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for the years ended December 31, 1995, 1994
and 1993 in conformity with generally accepted accounting principles. We have
also audited Schedule III of First Capital Income Properties, Ltd. - Series VIII
as of December 31, 1995. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
Grant Thornton LLP
Chicago, Illinois
February 15, 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 $ 6,086,700 $ 7,260,400
Buildings and improvements 29,524,100 36,197,000
- ------------------------------------------------------------------------------
35,610,800 43,457,400
Accumulated depreciation and amortization (11,217,400) (11,909,800)
- ------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 24,393,400 31,547,600
Investment in mortgage loan receivable 1,064,000
- ------------------------------------------------------------------------------
24,393,400 32,611,600
Cash and cash equivalents 9,248,100 8,356,100
Rents receivable 255,300 259,700
Other assets (net of accumulated amortization on
loan acquisition costs of $163,300 and $104,500,
respectively) 13,200 115,700
- ------------------------------------------------------------------------------
$33,910,000 $ 41,343,100
- ------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 572,300 $ 237,900
Due to Affiliates 66,600 115,200
Security deposits 63,200 110,800
Distributions payable 836,100 777,800
Other liabilities 32,800 4,900
- ------------------------------------------------------------------------------
1,571,000 1,246,600
- ------------------------------------------------------------------------------
Partners' capital:
General Partners 178,000
Limited Partners (70,000 Units, issued and
outstanding) 32,339,000 39,918,500
- ------------------------------------------------------------------------------
32,339,000 40,096,500
- ------------------------------------------------------------------------------
$33,910,000 $ 41,343,100
- ------------------------------------------------------------------------------
</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 $ (19,500) $ 41,698,600 $ 41,679,100
Net income (loss) for the year ended
December 31, 1993 261,000 (778,900) (517,900)
Distributions for the year ended
December 31, 1993 (286,100) (2,574,600) (2,860,700)
- ------------------------------------------------------------------------------
Partners' (deficit) capital, December
31, 1993 (44,600) 38,345,100 38,300,500
Net income for the year ended December
31, 1994 533,700 19,423,400 19,957,100
Distributions for the year ended
December 31, 1994 (311,100) (17,850,000) (18,161,100)
- ------------------------------------------------------------------------------
Partners' capital, December 31, 1994 178,000 39,918,500 40,096,500
Net income for the year ended December
31, 1995 167,000 775,700 942,700
Distributions for the year ended
December 31, 1995 (345,000) (8,355,200) (8,700,200)
- ------------------------------------------------------------------------------
Partners' capital, December 31, 1995 $ 0 32,339,000 32,339,000
- ------------------------------------------------------------------------------
</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 $4,993,200 $ 6,232,700 $8,982,300
Interest on short-term investments 640,200 599,000 341,700
Interest on mortgage loan receivable 16,300 116,500 138,300
Gain on sale of property 868,800 18,929,600
- -------------------------------------------------------------------------------
6,518,500 25,877,800 9,462,300
- -------------------------------------------------------------------------------
Expenses:
Interest 969,000 2,689,600
Depreciation and amortization 1,195,500 1,461,500 2,160,700
Property operating:
Affiliates 359,300 367,700 426,000
Nonaffiliates 686,600 619,300 676,000
Real estate taxes 536,500 566,600 615,600
Insurance--Affiliate 52,500 78,800 86,600
Repairs and maintenance 495,800 535,500 560,000
General and administrative:
Affiliates 51,400 80,600 45,100
Nonaffiliates 148,200 117,400 211,300
Loss on sale and disposition of
properties 1,969,200
Provisions for value impairment 2,050,000
- -------------------------------------------------------------------------------
5,575,800 4,796,400 9,440,100
- -------------------------------------------------------------------------------
Net income before extraordinary (loss) on
early extinguishment of debt 942,700 21,081,400 22,200
Extraordinary (loss) on early
extinguishment of debt (1,124,300) (540,100)
- -------------------------------------------------------------------------------
Net income (loss) $ 942,700 $19,957,100 $ (517,900)
- -------------------------------------------------------------------------------
Net income allocated to General Partners $ 167,000 $ 533,700 $ 261,000
- -------------------------------------------------------------------------------
Net income (loss) allocated to Limited
Partners $ 775,700 $19,423,400 $ (778,900)
- -------------------------------------------------------------------------------
Net income (loss) before extraordinary
(loss) on early extinguishments of debt
allocated to Limited Partners per Unit
(70,000 Units issued and outstanding) $ 11.08 $ 293.25 $ (3.49)
- -------------------------------------------------------------------------------
Net income (loss) allocated to Limited
Partners per Unit (70,000 Units issued
and outstanding) $ 11.08 $ 277.48 $ (11.13)
- -------------------------------------------------------------------------------
</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 income (loss) $ 942,700 $19,957,100 $ (517,900)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,195,500 1,461,500 2,160,700
(Gain) loss on sale and disposition of
properties (868,800) (18,929,600) 1,969,200
Provisions for value impairment 2,050,000
Forgiveness of principal on mortgage
loan receivable 20,000
Extraordinary loss on early
extinguishment of debt 1,124,300 540,100
Changes in assets and liabilities:
Decrease in rents receivable 4,400 31,400 111,300
Decrease in other assets 43,700 8,300 122,800
Increase (decrease) in accounts
payable and accrued expenses 334,400 (74,600) (509,900)
(Decrease) increase in due to
Affiliates (48,600) 28,700 4,700
Increase (decrease) in other
liabilities 27,900 (159,300) 125,000
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 3,701,200 3,447,800 4,006,000
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for capital and tenant
improvements (327,600) (567,500) (500,600)
Proceeds from the sale of property 5,163,900 43,267,700
Proceeds from retirement of mortgage
loan receivable 1,044,000
Decrease in escrow deposits 65,300 287,700
Maturity of (investment in) restricted
certificate of deposit 75,000 (75,000)
Costs incurred on sale and disposition
of properties (13,600)
- --------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 5,880,300 42,840,500 (301,500)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (8,641,900) (18,378,800) (2,303,200)
(Decrease) increase in security
deposits (47,600) 11,200 (25,200)
Principal payments on mortgage loans
payable (28,611,600) (19,821,600)
Prepayment cost on mortgage loans
payable (1,124,300) (540,100)
Proceeds from the issuance of mortgage
loan payable 22,500,000
Payment of loan acquisition costs (397,900)
Refund of loan commitment fee 225,000
- --------------------------------------------------------------------------------
Net cash (used for) financing
activities (8,689,500) (48,103,500) (363,000)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 892,000 (1,815,200) 3,341,500
Cash and cash equivalents at the
beginning of the year 8,356,100 10,171,300 6,829,800
- --------------------------------------------------------------------------------
Cash and cash equivalents at the end of
the year $9,248,100 $ 8,356,100 $10,171,300
- --------------------------------------------------------------------------------
Supplemental information:
Interest paid during the year $ 1,025,900 $ 2,766,900
- --------------------------------------------------------------------------------
</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 June 3, 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 August 9, 1982. The Certificate
and Agreement, as amended and restated, authorized the sale to the public of
60,000 Units (with the Managing General Partner's option to increase the
Offering to 70,000 Units) and not less than 1,250 Units. On September 2, 1982,
the required minimum subscription level was reached and the Partnership's
operations commenced. The Managing General Partner exercised its option to
increase the Offering to 70,000 Units, which amount was sold prior to the
Termination of the Offering on December 23, 1982. The Partnership was formed to
invest primarily in existing, improved, income-producing commercial real estate
and, to a lesser extent, in other types of investment vehicles such as mortgage
loans.
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 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 1994 and 1993 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 acquiring a 100% interest in certain real property
which was operated under the common control of the Managing General Partner
prior to its sale on April 6, 1994. Accordingly, the Partnership's pro rata
share of the venture's 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 in their
individual tax returns; therefore, no provision for income taxes is made in the
financial statements of the Partnership. In addition, it is not practicable for
the Partnership to determine the aggregate tax bases of the Limited Partners;
therefore, the disclosure of the differences between the tax 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. Rental guarantees
from the sellers of properties are treated as a reduction of the purchase price
of the property for accounting purposes and are not treated as Cash Flow (as
defined in the Partnership Agreement) for Partnership distribution purposes.
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 Managing 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
Managing 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 Managing 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 Managing
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.
Loan acquisition costs are amortized over the term of the note issued under
mortgage loans made in connection with the acquisition or refinancing of
Partnership properties. When a property is disposed or refinanced, the related
loan acquisition costs and accumulated amortization are removed from the
respective accounts and any unamortized balance is expensed.
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 and amortization 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 and trade liabilities. 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.
The discount on the mortgage loan receivable was amortized over the original
life of the loan. The mortgage loan was recorded at face value, net of the
unearned discount.
Certain reclassifications have been made to the previously reported 1993 and
1994 statements in order to provide comparability with the 1995 statements.
These reclassifications have no effect on net income (loss) or Partners'
capital (deficit).
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, subsequent to December 23, 1982,
the Termination of the Offering, the General Partners are entitled to 10% of
distributable Cash Flow (as defined in the Partnership Agreement), as a
Partnership Management Fee. In addition, Net Profits (exclusive of 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' Partnership Management Fee for such fiscal year, 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 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; second, to the General
Partners, in an amount necessary to make the aggregate amount of their capital
accounts equal to the greater of the Sale or Refinancing 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 third, the balance, if any, to the
Limited Partners. Net Losses
A-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(exclusive of 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. 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 (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 pro rata in
proportion to the balances in their respective capital accounts until the
balances 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. For the year ended December 31, 1995 the
General Partners were entitled to distributable Cash Flow of $345,000 and,
allocated Net Profits of $167,000, which included Net Profits from the sale of
a Partnership property of $8,700 and a (loss) from provisions for value
impairment of $(186,700). For the year ended December 31, 1994 the General
Partners were entitled to distributable Cash Flow of $311,100 and, allocated
Net Profits of $533,700, which included Net Profits from the sale of a
Partnership property of $236,100 and an extraordinary (loss) on early
extinguishment of debt of $(13,500). For the year ended December 31, 1993, the
General Partners were entitled to distributable Cash Flow of $286,100 and,
allocated Net Profits of $261,000, which included a Net (loss) on the sale and
disposition of Partnership properties of $(19,700) and an extraordinary (loss)
of $(5,400) on an early extinguishment of debt.
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 $392,700 $17,900 $273,100 $ 72,500 $339,100 $42,000
Real estate commission
(a). None 37,700 None 37,700 None 37,700
Reimbursements of
property insurance
premiums, at cost 52,600 None 75,900 None 80,200 None
Reimbursements of
expenses at cost:
--Accounting 27,200 7,900 23,700 2,800 20,800 2,800
--Investor
communication 15,200 1,500 10,100 1,100 10,000 2,100
--Legal 44,700 None 112,500 None 110,000 1,200
--Mortgage servicing None 1,600 2,700 1,100 2,000 700
- ------------------------------------------------------------------------------
$532,400 $66,600 $498,000 $115,200 $562,100 $86,500
- ------------------------------------------------------------------------------
</TABLE>
(a) As of December 31, 1995, $37,700 was due to the Managing General Partner
for real estate commissions earned in connection with the sale of five of
the warehouses comprising a portion of the Atlanta Gateway Park Industrial
Center ("Atlanta Gateway"). 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 Refinancing Proceeds equal to 100% of
their Original Capital Contribution plus a cumulative return (including all
Cash Flow which has been distributed to the Limited Partners from the
initial date of investment) 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 Managing General Partner for fees ranging from 3% to 6% of
gross rents received from the properties.
Revco D. S., Inc. ("Revco"), a drug store company, of which a 20% ownership
interest was acquired by Zell Chilmark Fund, L.P., an Affiliate of the Managing
General Partner, on September 1, 1992, is obligated to the Partnership under a
lease for store space at Walker Springs Plaza Shopping Center. During the years
ended December 31, 1995, 1994 and 1993, Revco paid rent of $49,400, $60,800 and
$52,700, respectively. The per square foot rent paid by Revco is comparable to
those paid by other tenants at this property.
3. INVESTMENT IN MORTGAGE LOAN RECEIVABLE:
On April 30, 1986, the Partnership acquired a first mortgage loan with an
aggregate outstanding principal balance of $1,064,000. The loan was purchased
at a discount of $50,700, which amount was amortized over the life of the loan.
The real property mortgaged by this loan was held as collateral under certain
loan documents. In addition, payment of the mortgage loan was guaranteed by the
original holder of the loan if the borrower were to be declared in default by
the Partnership. As of December 31, 1994, the loan balance remained at
$1,064,000, earning interest at a rate of 10% per annum. On February 24, 1995,
the Partnership received $1,060,300, including $16,300 in accrued interest from
January 1, 1995 less a discount of $20,000, in full satisfaction of this
mortgage loan receivable.
4. FUTURE MINIMUM RENTALS:
Future minimum rental income due on noncancelable leases as of December 31,
1995 were as follows:
<TABLE>
<S> <C>
1996 $ 3,685,200
1997 3,273,000
1998 2,793,800
1999 964,600
2000 673,600
Thereafter 2,397,100
--------------
$13,787,300
--------------
</TABLE>
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 reimbursements and percentage rents. Percentage rents
earned for the years ended December 31, 1995, 1994 and 1993 were $7,300,
$10,000 and $28,600, 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 differing depreciation lives and methods,
the recognition of rents received in advance as taxable income, the use of
differing methods in computing the gain on sale of property for financial
statement purposes and provisions for value impairment. The net effect of these
differences for the year ended December 31, 1995, was that the net income for
tax reporting purposes was greater than the net income for financial statement
purposes by $2,339,000. The aggregate cost of commercial rental properties for
federal income tax purposes at December 31, 1995 was $37,660,800.
A-6
<PAGE>
6. PROPERTY SALES AND DISPOSITIONS:
On June 16, 1995, the Partnership sold its interest in the Tuckerstone
Commons/Rooker Royal I & II Warehouses, located in Atlanta, Georgia, for a sale
price of $5,300,000. The Partnership incurred selling expenses of $136,100,
including $21,500 in legal expenses paid to an Affiliate of the Managing
General Partner. The Partnership received net sale proceeds of $5,163,900. The
net gain reported by the Partnership for financial statement purposes was
$868,800. For tax reporting purposes the Partnership reported a net gain of
$2,066,300 for the year ended December 31, 1995.
On April 6, 1994, First Capital Kayser Center, in which the Partnership was a
50% joint venture partner, sold its interest in El Paso for a sale price of
$88,450,000. The outstanding indebtedness on this property of $42,757,000 was
repaid at closing. First Capital Kayser Center incurred selling expenses of
$3,743,300, of which $1,828,600 related to a prepayment penalty on the early
extinguishment of debt. First Capital Kayser Center received net sale proceeds
of $84,706,700, of which the Partnership's share was $42,353,400. The net gain,
after recognition of the prepayment penalty, reported by the Partnership for
financial statement purposes was $18,015,300. For tax reporting purposes the
Partnership reported a gain of $28,646,700.
On February 16, 1993, the Partnership disposed of the two remaining warehouses
comprising Atlanta Gateway through conveyance of the titles to the mortgage
holder in lieu of foreclosure. The disposition of these properties relieved the
Partnership of its obligations under the mortgage loans of $1,024,100 and any
interest in the assets therein. The gain for tax reporting purposes on this
disposition was $457,700 and the (loss) for financial statement purposes was
$(84,200). Due to the anticipated (loss) in connection with this disposition,
the Partnership recorded $(81,200) of the total (loss) as of December 31, 1992
as a provision for value impairment with the remaining portion of the (loss)
was recorded in 1993. An additional (loss) of $(9,700) relating to the
warehouses at Atlanta Gateway sold in 1992, was also recorded in 1993.
On August 3, 1993, as a result of a sheriff's sale, the Partnership disposed of
the Hairston Memorial Crossing Shopping Center. The disposition relieved the
Partnership of its obligation under the mortgage loan of $2,846,100 and any
interest in the assets therein. The (loss) for tax reporting purposes on this
disposition was $(708,400) and the (loss) for financial statement purposes was
$(2,806,500). Due to the anticipated (loss) in connection with this
disposition, the Partnership recorded $(850,000) of the total (loss) as of
December 31, 1992 as a provision for value impairment. The remaining portion of
the (loss) was recorded in 1993.
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 year ended
December 31, 1995. The provisions for value impairment were considered non-cash
events for the purposes of the Statement 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 year ended December 31, 1995:
<TABLE>
<S> <C>
Old Mill Place Shopping Center $1,300,000
Brookwood Metroplex Office Buildings I
& II 750,000
---------------------------------------------
$2,050,000
---------------------------------------------
</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 quarter.
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 the 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>
<TABLE>
<CAPTION>
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES VIII
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
Column A Column C Column D Column E
- ------------------------- ------------------------- ------------------------- ---------------------------------------------
Initial cost Costs capitalized Gross amount at which
to Partnership (1) subsequent to acquisition carried at close of period
------------------------- ------------------------- ---------------------------------------------
Buildings Buildings
and and
Improve- Improve- Carrying Improve-
Description Land ments ments Costs (2) Land ments Total (3)(4)
- ------------------------- ----------- ------------ ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers:
- -----------------
Old Mill Place
Shopping Center
(San Antonio, TX) $ 2,475,900 10,385,400 584,500 130,800 2,100,800 10,175,800 12,276,600(5)
Walker Springs Plaza
Shopping Center
(Knoxville, TN) 1,756,800 4,440,200 1,027,200 98,400 1,784,700 5,537,900 7,322,600
Office Buildings:
- -----------------
Brookwood Metroplex
Office Buildings I & II
(Birmingham, AL) 2,188,100 11,595,100 2,897,200 81,200 2,201,200 13,810,400 16,011,600(5)
----------- ------------ ----------- --------- ----------- ------------ ------------
$ 6,420,800 $ 26,420,700 $ 4,508,900 $ 310,400 $ 6,086,700 $ 29,524,100 $ 35,610,800
=========== ============ =========== ========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
------------ --------- ---------- ------------
Life on
which
deprecia-
tion in lat-
Accumu- est income
lated Date of statements
Deprecia- construc- Date is com-
Description tion (3) tion Acquired puted
- ------------------------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Shopping Centers:
- -----------------
Old Mill Place
Shopping Center 35 (6)
(San Antonio, TX) 3,777,500 1980 - 81 Sept. 1983 2 - 11 (7)
Walker Springs Plaza
Shopping Center 35 (6)
(Knoxville, TN) 1,883,500 1972 Dec. 1983 3 - 7 (7)
Office Buildings:
- -----------------
Brookwood Metroplex
Office Buildings I & II 35 (6)
(Birmingham, AL) 5,556,400 1975 Aug. 1983 2 - 13 (7)
------------
$ 11,217,400
============
</TABLE>
Column B - Not Applicable.
See accompanying notes on the following page.
A - 8
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES VIII
NOTES TO SCHEDULE III
Note 1. Amounts presented are net of rent guarantees.
Note 2. Consists of legal fees, appraisal fees, title costs and other related
professional fees.
Note 3. 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 the beginning
of the year $ 43,457,400 $ 11,909,800 $ 74,510,900 $ 18,136,100 $ 82,216,500 $ 18,304,000
Additions during the year:
Improvements 327,600 567,500 500,600
Provision for depreciation 1,136,700 1,454,500 2,085,900
Deductions during the year:
Basis of disposed
real property (6,124,200) (31,621,000) (8,206,200)
Accumulated depreciation
on real estate disposed (1,829,100) (7,680,800) (2,253,800)
Provisions for value
impairment (2,050,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at the end
of the year $ 35,610,800 $ 11,217,400 $ 43,457,400 $ 11,909,800 $ 74,510,900 $ 18,136,100
============ ============ ============ ============ ============ ============
</TABLE>
Note 4. The aggregate cost for federal income tax purposes at December 31, 1995
was $37,660,800.
Note 5. Includes a provision for value impairment. See Note 7 of Notes to
Financial Statements for additional information.
Note 6. Estimated useful life for building.
Note 7. 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> 9,248,100
<SECURITIES> 0
<RECEIVABLES> 255,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,503,400
<PP&E> 35,610,800
<DEPRECIATION> 11,217,400
<TOTAL-ASSETS> 33,910,000
<CURRENT-LIABILITIES> 1,500,500
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 32,339,000
<TOTAL-LIABILITY-AND-EQUITY> 33,910,000
<SALES> 0
<TOTAL-REVENUES> 5,649,700
<CGS> 0
<TOTAL-COSTS> 2,130,700
<OTHER-EXPENSES> 199,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 942,700
<INCOME-TAX> 0
<INCOME-CONTINUING> 942,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 942,700
<EPS-PRIMARY> 11.08
<EPS-DILUTED> 11.08
</TABLE>
