<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, 1998
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------------------- to -----------------
Commission File Number 0-12537
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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
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1000,
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(b) 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. [ x ]
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.
Exhibit Index - Page A-1
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<PAGE>
PART I
ITEM 1. BUSINESS
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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 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 Partnership was formed 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 a purchase of a 50%
interest in a joint venture with an Affiliated partnership to acquire 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, 1998:
1) the Partnership had sold or disposed of four real property investments; 2)
the Partnership and its Affiliate dissolved the joint venture following the
sale of the joint venture's real property investment and 3) all four of the
mortgage loan investments were repaid to the Partnership.
Property management services for the Partnership's office building is provided
by an Affiliate of the Managing General Partner. Property management services
for the Partnership's shopping center is provided by an entity not affiliated
with the Managing General Partner. All services are provided for fees calculated
as a percentage of gross rents received by 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, 1999, there were four employees at the Partnership's properties
for on-site property maintenance and administration.
ITEM 2. PROPERTIES (a)(b)
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As of December 31, 1998, the Partnership owned the following two property
investments, which were owned in fee simple.
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- --------------------------------- --------------------------------- --------------------- -----------------
Shopping Center:
- ---------------------------------
<S> <C> <C> <C>
Walker Springs Plaza Knoxville, Tennessee 161,557 7 (3)
Office Building:
- ---------------------------------
Brookwood Metroplex
Office Buildings I & II Birmingham, Alabama 207,664 18 (0)
</TABLE>
(a) For a discussion of operating results and major capital expenditures planned
for the Partnership's properties refer to Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations.
2
<PAGE>
ITEM 2. PROPERTIES (a)(b) (Continued)
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(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 tax expense for Walker Springs Plaza and Brookwood Metroplex
Office Buildings I & II was $161,200 and $143,700, respectively, for the
year ended December 31, 1998. 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 1998 1997 1996 1995 1994
- ---------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Brookwood Metroplex
Office Buildings I & II (a) 98% 96% 97% 100% 100%
Walker Springs Plaza 73% 100% 100% 100% 100%
</TABLE>
a) A tenant occupying 67% of the leasable space at Brookwood vacated on December
31, 1998, the expiration of its lease. See Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations for additional
information regarding this lease expiration.
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 1998 1997 1996 1995 1994
- -------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Brookwood Metroplex
Office Buildings I & II $11.31 $10.97 $10.70 $10.32 $10.29
Walker Springs Plaza $ 5.59 $ 5.36 $ 5.30 $ 5.22 $ 5.14
</TABLE>
3
<PAGE>
ITEM 2. PROPERTIES (Continued)
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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>
Percentage of Renewal
Net Options
Per annum Base Rents (a) for Leasable [Renewal
------------------------------ Square Options /
Final Twelve Expiration Date Footage Years
1999 Months of Lease of Lease Occupied per option)
--------- ------------------ --------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Walker Springs Plaza
- ----------------------
Stein Mart
(department store) $ 195,000 $ 195,000 2/28/2000 24% 1/4
Books-A-Million (b)
(book store) $ 123,100 $ 123,100 3/31/2003 22% 1/5
Revco D.S., Inc.
(drugstore) $ 41,000 $ 41,000 3/31/2003 10% 2/5
</TABLE>
Brookwood Metroplex I & II
- -------------------------------
None
(a) The per annum base rents for each of the tenants listed above for each of
the years between 1999 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 the terms of the lease, Kroger is
lessee.
4
<PAGE>
ITEM 2. PROPERTIES (Continued)
- ------- ----------
The amounts in the following table represent the base rental income from leases
in the year of expiration (assuming no lease renewals) through the year ending
December 31, 2008:
<TABLE>
<CAPTION>
Number Base Rents in Year % of Total
Year of Tenants Square Feet of Expiration (a) Base Rents
(b)
- ------------------ -------------------- ---------------------------------------------- ------------
<S> <C> <C> <C> <C>
1999 11 35,500 $248,700 17.13%
2000 6 61,100 $269,400 27.91%
2001 1 4,000 $ 49,500 6.99%
2002 1 3,800 $ 52,000 8.05%
2003 4 61,800 $171,300 39.81%
2004 1 11,600 $ 47,900 29.34%
2005 1 9,800 $115,300 100.00%
2006 0 None None 0.00%
2007 0 None None 0.00%
2008 0 None None 0.00%
</TABLE>
(a) Represents the base rents to be collected each year on expiring leases.
(b) Represents the base rents to be collected each year on expiring leases as a
percentage of the total base rents to be collected on leases in effect as
of December 31, 1998.
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, 1998. Ordinary routine legal
matters incidental to the business which were not deemed material were pursued
during the quarter ended December 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
(a, b, c & d) None.
5
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
- ------- ----------------------------------------------------------------------
There has not been, nor is there expected to be, a public market for Units.
As of March 1, 1999, there were 6,199 Holders of Units.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 4,371,400 $ 4,746,700 $ 5,310,200 $ 6,518,500 $25,877,800
5Net income $ 1,446,400 $ 909,200 $ 760,300 $ 942,700 $19,957,100
Net income allocated to
Limited Partners (a) $ 1,263,000 $ 717,000 $ 509,000 $ 775,700 $19,423,400
Net income allocated to
Limited Partners per
Unit (70,000 Units
outstanding) (a) $ 18.04 $ 10.24 $ 7.27 $ 11.08 $ 277.48
Total assets $20,141,900 $26,557,900 $27,746,400 $33,910,000 $41,343,100
Distributions to Limited
Partners per Unit
(70,000 Units
outstanding) (b) $ 104.50 $ 26.00 $ 91.50 $ 119.36 $ 255.00
Return of capital to
Limited Partners per
Unit (70,000 Units
outstanding) (c) $ 86.46 $ 15.76 $ 84.23 $ 108.28 None
OTHER DATA:
Investment in commercial
rental properties (net
of accumulated
depreciation and
amortization) $14,410,000 $21,066,800 $22,369,600 $24,393,400 $31,547,600
Investment in mortgage
loan receivable (net of
unearned discount) None None None None $ 1,064,000
Number of real property
interests owned at
December 31 2 3 3 3 4
- -------------------------------------------------------------------------------------
</TABLE>
(a) Net income allocated to Limited Partners for 1994 included an extraordinary
(loss) on early extinguishment of debt.
(b) Distributions to Limited Partners per Unit for the years ended December 31,
1998, 1996, 1995 and 1994 included Sales Proceeds of $80.50, $57.00, $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,
----------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flow (as defined in
the Partnership
Agreement) (a) $ 2,523,300 $ 2,617,600 $ 3,177,300 $ 3,319,400 $ 3,380,200
Items of reconciliation:
Discount of principal
on mortgage loan
receivable 20,000
Principal payments on
mortgage loans payable 233,100
Changes in current
assets and
liabilities:
Decrease (increase) in
current assets 41,600 133,300 (2,700) 48,100 39,700
(Decrease) increase in
current liabilities (256,200) (82,600) 91,900 313,700 (205,200)
- -------------------------------------------------------------------------------------------
Net cash provided by
operating activities $ 2,308,700 $ 2,668,300 $ 3,266,500 $ 3,701,200 $ 3,447,800
===========================================================================================
Net cash provided by
(used for) investing
activities $ 979,900 $ 670,400 $(1,469,100) $ 5,880,300 $ 42,840,500
===========================================================================================
Net cash (used for)
financing activities $(7,606,200) $(2,015,100) $(7,015,900) $(8,689,500) $(48,103,500)
===========================================================================================
</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-6
in this report and the supplemental schedule on pages A-7 and A-8.
7
<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.
Statements contained in the Management's Discussion and Analysis of Financial
Condition, which are not historical facts, may be forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as to the date hereof.
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. 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. Through December
31, 1998: 1) the Partnership sold or disposed of four 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 owned by the Joint
Venture and 3) all four of the mortgage loan investments were repaid to the
Partnership.
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1998, 1997 and 1996.
The discussion following the table should be read in conjunction with the
Financial Statements and Notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative Operating Results
(a) For the Years Ended December
31,
---------------------------------
1998 1997 1996
- ----------------------------------------------------------
<S> <C> <C> <C>
BROOKWOOD METROPLEX OFFICE BUILDINGS I & II
Rental revenues $2,515,600 $2,266,700 $2,402,100
- ----------------------------------------------------------
Property net income (a) $ 773,400 $ 559,000 $ 708,800
- ----------------------------------------------------------
Average occupancy 98% 97% 99%
- ----------------------------------------------------------
WALKER SPRINGS PLAZA SHOPPING CENTER
Rental revenues $ 953,200 $1,127,900 $1,111,300
- ----------------------------------------------------------
Property net income $ 418,300 $ 566,400 $ 566,300
- ----------------------------------------------------------
Average occupancy 82% 100% 100%
- ----------------------------------------------------------
OLD MILL PLACE
Rental revenues $ 488,700 $1,068,400 $1,326,400
- ----------------------------------------------------------
Property net income (b) $ 310,800 $ 661,200 $ 891,500
- ----------------------------------------------------------
Average occupancy (b) 82% 85%
- ----------------------------------------------------------
</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 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 the loss of $332,800 recorded on the sale of
Old Mill in 1998 and the provisions for value impairment of $1,000,000 and
$1,700,000 recorded in 1997 and 1996, respectively, which were included in
the Statements of Income and Expenses for the years ended December 31,
1998, 1997 and 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997
Net income increased by $537,200 for the year ended December 31, 1998 when
compared to the year ended December 31, 1997. The increase was primarily due to
a 1997 provision for value impairment recorded on Old Mill exceeding the 1998
loss on the sale of Old Mill. The increase was also due to improved operating
results at Brookwood Metroplex Office Buildings I & II ("Brookwood") and an
increase in interest earned on the Partnership's short-term investments. The
increase was partially offset by diminished operating results at Walker Springs
Plaza Shopping Center ("Walker Springs") and the partial absence of operating
results from Old Mill due to its 1998 sale.
Net income, exclusive of Old Mill, increased by $220,400 for the year ended
December 31, 1998 when compared to the year ended December 31, 1997. The
increase was primarily due to the increase in interest earned on the
Partnership's short-term investments, which was due to an increase in cash
available for investment, resulting from the proceeds generated from the sale
of Old Mill prior to distribution to Limited Partners together with improved
operating results at Brookwood. The increase was partially offset by diminished
operating results at Walker Springs.
The following comparative discussion excludes the results of Old Mill.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
Rental revenues increased by $74,200 or 2.2% for the year ended December 31,
1998 when compared to the year ended December 31, 1997. The increase was
primarily due to a 1997 adjustment of a 1996 estimate of tenant expense
reimbursements, causing reduced reported 1997 rental revenues, at Brookwood.
Also contributing to the increase was an increase in base rents at Brookwood
due to an increase in rates charged to new and renewing tenants. The increase
was partially offset by a decrease in base rental income at Walker Springs due
to a decline in average occupancy.
Repair and maintenance expenses decreased by $40,700 for the year ended
December 31, 1998 when compared to the year ended December 31, 1997. The
decrease was primarily due to a decrease in repairs to the HVAC at Brookwood
and the roof at Walker Springs. The decrease was also due to a decrease in
landscaping costs at Brookwood.
Property operating expenses increased by $16,900 for the year ended December
31, 1998 when compared to the year ended December 31, 1997. The increase was
primarily due to an increase in management fees at Brookwood resulting from an
increase in rental revenues. The increase was partially offset by a decrease in
management fees at Walker Springs, which was due to a decrease in rental
revenues.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996
Net income for the year ended December 31, 1997 increased by $148,900 when
compared to the year ended December 31, 1996. The increase was primarily due to
a lower provision for value impairment recorded on Old Mill during the year
ended December 31, 1997 than 1996.
Net income exclusive of provisions for value impairment, decreased by $551,100
for the year ended December 31, 1997 when compared to the year ended December
31, 1996. The decrease was primarily due to diminished operating results at
Brookwood and Old Mill. Also contributing to the decrease was reduced income
earned on the Partnership's short-term investments due to a decrease in the
amount of funds available for investment, as a result of a special distribution
to Limited Partners in 1996.
Rental revenues decreased by $374,800 or 7.7% for the year ended December 31,
1997 when compared to the year ended December 31, 1996. The decrease was
primarily due to the 1996 receipt of payments in consideration of the early
termination of leases at Old Mill. Also contributing to the decrease were lower
tenant expense reimbursements at Brookwood resulting from the finalization of
the 1996 reconciliation of tenant expense reimbursements. It was previously
estimated that Brookwood had underbilled its tenants during 1996, which was to
be payable by the tenants upon reconciliation in 1997. After finalizing the
reconciliation it was determined that the tenants had been overbilled.
Repair and maintenance expenses increased by $45,200 for the periods under
comparison. The increase was primarily due to an increase in cleaning and
landscaping costs at Brookwood.
Real estate tax expense decreased by $30,300 for the year ended December 31,
1997 when compared to the year ended December 31, 1996. The decrease was
primarily due to a decrease in real estate taxes at Old Mill, which was due to
a decrease in the assessed value.
To increase and/or maintain occupancy levels at the Partnership's properties,
the Managing General Partner, through its Affiliated and unaffiliated asset and
property management groups, continues to take the following actions: 1)
implementation of marketing programs, including hiring of third-party leasing
agents or providing on-site leasing personnel, advertising, direct mail
campaigns and development of 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 break-even 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
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
properties. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions will be treated
as a return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as determined by GAAP, since
certain items are treated differently under the Partnership Agreement than
under GAAP. Management believes that to facilitate a clear understanding of the
Partnership's operations, an analysis of Cash Flow (as defined in the
Partnership Agreement) should be examined in conjunction with an analysis of
net income or cash flows as determined by GAAP. The second table in Selected
Financial Data includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by GAAP and 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 Flow.
The decrease in Cash Flow (as defined in the Partnership Agreement) of $94,300
for the year ended December 31, 1998 when compared to the year ended December
31, 1997 was primarily due to the partial absence of 1998 results, exclusive of
depreciation, amortization and loss on sale, at Old Mill, due to its June 1998
sale. Also contributing to the decrease was diminished operating results,
exclusive of depreciation and amortization, at Walker Springs. The decrease was
partially offset by the improved operating
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
results, exclusive of depreciation and amortization, at Brookwood and the
increase in interest earned on the Partnership's short-term investments, as
previously discussed.
The decrease in the Partnership's cash position of $2,961,200 for the year
ended December 31, 1998 was primarily the result of the Partnership's 1998
investments in debt securities. Cash provided by operating activities plus the
proceeds from the sale of Old Mill slightly exceeded amounts expended for
capital improvements and distributions to Partners. Liquid assets, including
cash and cash equivalents, of the Partnership as of December 31, 1998 are
comprised of amounts held for working capital purposes.
Net cash provided by operating activities decreased by $359,600 for the year
ended December 31, 1998 when compared to the year ended December 31, 1997. The
decrease was primarily due to the liquidation of Old Mill's trade and accrued
debt in connection with its sale, the timing of the payment of certain expenses
at Walker Springs and the timing of the receipt of rental payments at Brookwood
and Walker Springs.
Net cash provided by investing activities increased by $1,665,900 for the year
ended December 31, 1998 when compared to the year ended December 31, 1997. The
increase was primarily due to the 1998 receipt of proceeds from the sale of Old
Mill. The increase was also due to a decrease in expenditures for building and
tenant improvements. The decrease was partially offset by the 1998 investment
in and the 1997 maturity of investments in debt securities. The investments in
debt securities are a result of the extension of the maturities of certain of
the Partnership's short-term investments in an effort to maximize the return on
these amounts as they are held for working capital purposes. These investments
were of investment grade and mature less than one year from their date of
purchase.
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, 1998, the Partnership spent $81,800 for building
and tenant improvements and leasing costs. The amount to be spent for building
and tenant improvements and leasing costs during 1999 depends to a large extent
on the re-tenanting issues at Brookwood and Walker Springs, as further
discussed below. The Managing General Partner believes that ongoing
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
disposition.
A tenant occupying approximately 67% of the rentable square footage at
Brookwood did not exercise its option to renew its lease on December 31, 1998
and vacated the property. Re-tenanting Brookwood will require a significant
amount of capital and will take an extended period of time. The Managing
General Partner is currently pursuing new tenants for the vacated space. During
this process, the Managing General Partner is evaluating local and regional
market conditions for the potential sale of the property. During 1999, Cash
Flow (as defined in the Partnership Agreement) generated by Brookwood will be
severely reduced.
Walker Springs currently has approximately 44,000 square feet of vacant space.
The Partnership is currently in the process of attempting to locate one or two
suitable tenants to bring the occupancy at the center back up to 100%. There
can be no assurance that the Partnership will be successful in its efforts.
Results at Walker Springs were adversely impacted during 1998 and most likely
will continue to be in 1999 until a new tenant(s) can be secured to occupy the
available space. The securing of a new tenant(s) could result in substantial
tenant improvement costs.
On June 17, 1998, the Partnership consummated the sale of Old Mill. Net
proceeds from this transaction amounted to $5,661,700, which was net of closing
expenses. The Partnership distributed $5,635,000 or $80.50 per Unit on November
30, 1998 to Limited Partners of record as of June 17, 1998.
The increase in net cash used for financing activities of $5,591,100 for the
year ended December 31, 1998 as compared to the year ended December 31, 1997
was primarily due to the 1998 special distribution of proceeds from the sale of
Old Mill.
The Year 2000 problem is the result of the inability of existing computer
programs to distinguish between a year beginning with "20" rather than "19".
This is the result of computer programs using two rather than four digits to
define an applicable year. If not corrected, any program having time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a variety of problems including miscalculations,
loss of data and failure of entire systems. Critical areas that could be
effected are accounts receivable and rent collections, accounts payable,
general ledger, cash management, fixed assets, investor services, computer
hardware, telecommunications systems and health, security, fire and safety
systems.
The Partnership has engaged Affiliated and unaffiliated entities to perform all
of its critical functions that utilize software that may have time-sensitive
applications. All of these service providers are providing these services for
their own organizations as well as for other clients. The Managing General
Partner, on behalf of the Partnership, has been in close communication with
each of these service providers regarding steps that are being taken to assure
that there will be no serious interruption of the operations of the Partnership
resulting from Year 2000 problems. Based on the results of these queries, as
well as a review of the disclosures by these service providers, the Managing
General Partner believes that the Partnership will be able to continue normal
business operations and will incur no material costs related to Year 2000
issues.
The Partnership has not formulated a contingency plan. However, the Managing
General Partner believes that based on the size of the Partnership's portfolio
and its limited number of transactions, aside from catastrophic failure of
banks, governmental agencies, etc., it could carry out substantially all of its
critical operations on a manual basis or easily convert to systems that are
Year 2000 compliant.
The Managing General Partner continues to take a conservative approach to
projections of future rental income
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
in its determination of adequate levels of cash reserves due to the anticipated
building and tenant improvements and leasing costs necessary to be made at
Walker Springs and Brookwood during the next several years. As a result of
this, cash continues to be retained to supplement working capital reserves. For
the year ended December 31, 1998, Cash Flow (as defined in the Partnership
Agreement) retained to supplement working capital reserves amounted to
$656,600.
Distributions to Limited Partners for the quarter ended December 31, 1998 were
declared in the amount of $385,000 or $5.50 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. Total distributions of
Cash Flow (as defined in the Partnership Agreement) to Limited Partners
declared for the year ended December 31, 1998 amounted to $1,680,000 or $24.00
per Unit. 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 amounts of
cash for future distributions to Partners.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership has no financial instruments for which there are significant
market risks. Due to the timing of the maturities and liquid nature of the
Partnership's investments in debt securities, the Partnership does not believe
that it has material market risks.
11
<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
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
(a) & (e) DIRECTORS
---------
The Partnership has no directors. First Capital Financial Corporation ("FCFC")
is the Managing General Partner. The directors of FCFC, as of March 31, 1999,
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
1999.
Name Office
---- ------
Douglas Crocker II......................................Director
Sheli Z. Rosenberg......................................Director
Douglas Crocker II, 58, has been President and Chief Executive Officer since
December 1992 and a Director since January 1993 of the Managing General
Partner. Mr. Crocker has been President, Chief Executive Officer and trustee
of Equity Residential Properties Trust since March 31, 1993. Mr. Crocker is a
member of the Board of Directors of Wellsford Real Properties Inc. and Ventas,
Inc. and was a member of the Board of Directors of Horizon Group, Inc. from
July 1996 to June 1998. Mr. Crocker was an Executive Vice President of Equity
Financial and Management Company ("EFMC") from November 1992 until March 1997.
Sheli Z. Rosenberg, 57, 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 Equity Group
Investments, LLC ("EGI") since November 1994; has been a Director of Great
American Management and Investment Inc. ("Great American") since June 1984 and
is a director of various subsidiaries of Great American. She is also a
director of Anixter International Inc., Capital Trust Inc., CVS Corporation,
Illinova Corporation, Illinois Power Co., Jacor Communications, Inc. and
Manufactured Home Communities, Inc. She is also a trustee of Equity
Residential Properties Trust and Equity Office Properties Trust. Ms. Rosenberg
was a Principal of Rosenberg & Liebentritt, P.C., counsel to the Partnership,
the Managing General Partner and certain of their Affiliates from 1980 until
September 1997. She had been Vice President of First Capital Benefit
Administrators, Inc. ("Benefit Administrators") since July 22, 1987 until its
liquidation in November 1995. Benefit Administrators filed for protection
under the Federal Bankruptcy laws on January 3, 1995.
12
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT-(Continued)
- -------- --------------------------------------------------
(b) & (e) EXECUTIVE OFFICERS
------------------
The Partnership does not have any executive officers. The executive officers
of the Managing General Partner as of March 31, 1999 are shown in the table.
All officers are elected to serve for one year or until their successors are
elected and qualified.
Name Office
---- ------
Douglas Crocker II......................President and Chief Executive Officer
Donald J. Liebentritt...................Vice President
Norman M. Field.........................Vice President - Finance and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
Donald J. Liebentritt, 48, has been Vice President of the Managing General
Partner since July 1997 and is Chief Operating Officer and General Counsel of
EGI, Vice President and Assistant Secretary of Great American and Principal
and Chairman of the Board of Rosenberg & Liebentritt, P.C.
Norman M. Field, 50, has been Vice President of Finance and Treasurer of the
Managing General Partner since February 1984, and also served as Vice
President of Great American from July 1983 until March 1995 and July 1997 to
the present. Mr. Field had been Treasurer of Benefit Administrators since July
22, 1987 until its liquidation in November 1995. He was Chief Financial
Officer of Equality Specialties, Inc. ("Equality"), a subsidiary of Great
American, from August 1994 to 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 matter disclosed under Items 10 (a),
(b) and (e), there are no involvements in certain legal proceedings among
any of the foregoing directors and officers.
13
<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, 1998. 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, 1999, no person of record owned 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, 1999,
none of the executive officers and directors of the Managing General Partner
owned 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, 1998, these
Affiliates were entitled to leasing, property management and supervisory
fees of $161,100. In addition, other Affiliates of the Managing General
Partner were entitled to fees, compensation and reimbursements of $59,600
for insurance and personnel and other services. Compensation for these
services are on terms which are fair, reasonable and no less favorable to
the Partnership than reasonably could have been obtained from unaffiliated
persons. Of these amounts, $3,600 was due to Affiliates as of December 31,
1998.
In addition, as of December 31, 1998, $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. In accordance with 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 (as defined in the
Partnership Agreement) which has been distributed to the Limited Partners
from the initial date of investment) of 6% simple interest per annum on
their Capital 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 Cash Flow (as defined in the Partnership Agreement), as a Partnership
Management Fee. 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
14
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
- -------- ----------------------------------------------
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; and 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, 1998, the General
Partners were paid a Partnership Management Fee of $186,700 and allocated Net
Profits of $183,400, which included a (loss) of $(3,300) from the sale of Old
Mill.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the Managing General Partner and certain of their Affiliates.
Donald J. Liebentritt, Vice President of the Managing General Partner, is a
Principal and Chairman of the Board of Rosenberg. For the year ended
December 31, 1998, Rosenberg was entitled to $49,600 for legal fees from the
Partnership. As of December 31, 1998, $1,000 was 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.
15
<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, 1998.
16
<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. - VIII
BY: FIRST CAPITAL FINANCIAL CORPORATION
MANAGING GENERAL PARTNER
Dated: March 26, 1999 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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ DOUGLAS CROCKER II March 26, 1999 President, Chief Executive Officer and
- --- ------------------ -------------- Director of the Managing General Partner
DOUGLAS CROCKER II
/s/ SHELI Z. ROSENBERG March 26, 1999 Director of the Managing General Partner
- --- ------------------- --------------
SHELI Z. ROSENBERG
/s/ DONALD J. LIEBENTRITT March 26, 1999 Vice President
- --- --------------------- --------------
DONALD J. LIEBENTRITT
/s/ NORMAN M. FIELD March 26, 1999 Vice President - Finance and Treasurer
- --- --------------- --------------
NORMAN M. FIELD
</TABLE>
17
<PAGE>
INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Pages
---------------------
Report of Independent Auditors A-2
Balance Sheets as of December 31, 1998 and 1997 A-3
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996 A-3
Statements of Income and Expenses for the Years
Ended December 31, 1998, 1997 and 1996 A-4
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 A-4
Notes to Financial Statements A-5 to A-6
SCHEDULE FILED AS PART OF THIS REPORT
III - Real Estate and Accumulated Depreciation
as of December 31, 1998 A-7 and A-8
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 and Closing Documents for the sale of Old Mill
Plaza Shopping Center filed as an exhibit to the Partnership's Report on
Form 8-K filed on June 30, 1998 is incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders
- ------------
The 1997 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (27) Financial Data Schedule
- ------------
A-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Income Properties, Ltd. - Series VIII
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Income
Properties, Ltd. - Series VIII as of December 31, 1998 and 1997, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 1998. Our audit also included
the financial statement schedule listed in the accompanying index. These
financial statements and schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Income
Properties, Ltd. - Series VIII at December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
February 26, 1999
A-2
<PAGE>
BALANCE SHEETS
December 31, 1998 and 1997
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 3,985,900 $ 6,086,700
Buildings and improvements 20,033,500 27,622,800
- ---------------------------------------------------------------------------
24,019,400 33,709,500
Accumulated depreciation and amortization (9,609,400) (12,642,700)
- ---------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 14,410,000 21,066,800
Cash and cash equivalents 2,392,000 5,353,200
Investments in debt securities 3,243,600
Rents receivable 95,200 123,400
Other assets 1,100 14,500
- ---------------------------------------------------------------------------
$20,141,900 $ 26,557,900
- ---------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 353,900 $ 620,100
Due to Affiliates 56,600 28,200
Security deposits 31,600 58,300
Distributions payable 427,800 505,600
Other liabilities 14,300 32,700
- ---------------------------------------------------------------------------
884,200 1,244,900
- ---------------------------------------------------------------------------
Partners' capital:
General Partners (deficit) (30,300) (27,000)
Limited Partners (70,000 Units issued and
outstanding) 19,288,000 25,340,000
- ---------------------------------------------------------------------------
19,257,700 25,313,000
- ---------------------------------------------------------------------------
$20,141,900 $ 26,557,900
- ---------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1998, 1997 and 1996
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital, January 1, 1996 $ -- $32,339,000 $32,339,000
Net income for the year ended December
31, 1996 251,300 509,000 760,300
Distributions for the year ended December
31, 1996 (268,300) (6,405,000) (6,673,300)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1996 (17,000) 26,443,000 26,426,000
Net income for the year ended December
31, 1997 192,200 717,000 909,200
Distributions for the year ended December
31, 1997 (202,200) (1,820,000) (2,022,200)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1997 (27,000) 25,340,000 25,313,000
Net income for the year ended December
31, 1998 183,400 1,263,000 1,446,400
Distributions for the year ended December
31, 1998 (186,700) (7,315,000) (7,501,700)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1998 $ (30,300) $19,288,000 $19,257,700
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1998, 1997 and 1996
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $ 3,957,600 $ 4,464,600 $ 4,839,400
Interest 413,800 282,100 470,800
- -------------------------------------------------------------------------------
4,371,400 4,746,700 5,310,200
- -------------------------------------------------------------------------------
Expenses:
Depreciation and amortization 744,100 708,400 717,000
Property operating:
Affiliates 188,200 159,200 338,300
Nonaffiliates 657,600 761,800 583,600
Real estate taxes 391,900 480,100 510,400
Insurance--Affiliate 34,900 44,800 48,700
Repairs and maintenance 438,300 522,100 476,900
General and administrative:
Affiliates 26,100 32,700 40,100
Nonaffiliates 111,100 128,400 134,900
Loss on sale of property 332,800
Provisions for value impairment 1,000,000 1,700,000
- -------------------------------------------------------------------------------
2,925,000 3,837,500 4,549,900
- -------------------------------------------------------------------------------
Net income $ 1,446,400 $ 909,200 $ 760,300
- -------------------------------------------------------------------------------
Net income allocated to General
Partners $ 183,400 $ 192,200 $ 251,300
- -------------------------------------------------------------------------------
Net income allocated to Limited
Partners $ 1,263,000 $ 717,000 $ 509,000
- -------------------------------------------------------------------------------
Net income allocated to Limited
Partners per Unit (70,000 Units
outstanding) $ 18.04 $ 10.24 $ 7.27
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(All dollars rounded to nearest 00s)
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,446,400 $ 909,200 $ 760,300
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 744,100 708,400 717,000
Loss on sale of property 332,800
Provisions for value impairment 1,000,000 1,700,000
Changes in assets and liabilities:
Decrease (increase) in rents
receivable 28,200 138,300 (6,400)
Decrease (increase) in other assets 13,400 (5,000) 3,700
(Decrease) increase in accounts
payable and accrued expenses (266,200) 52,500 (4,700)
Increase (decrease) in due to
Affiliates 28,400 (102,000) 63,600
(Decrease) increase in other
liabilities (18,400) (33,100) 33,000
- -------------------------------------------------------------------------------
Net cash provided by operating
activities 2,308,700 2,668,300 3,266,500
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for building and tenant
improvements (81,800) (405,600) (393,100)
(Increase) decrease in investments in
debt securities (3,243,600) 1,076,000 (1,076,000)
Proceeds from the sale of property 5,661,700
- -------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 2,336,300 670,400 (1,469,100)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (7,579,500) (2,022,200) (7,003,900)
(Decrease) increase in security
deposits (26,700) 7,100 (12,000)
- -------------------------------------------------------------------------------
Net cash (used for) financing
activities (7,606,200) (2,015,100) (7,015,900)
- -------------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (2,961,200) 1,323,600 (5,218,500)
Cash and cash equivalents at the
beginning of the year 5,353,200 4,029,600 9,248,100
- -------------------------------------------------------------------------------
Cash and cash equivalents at the end of
the year $ 2,392,000 $ 5,353,200 $ 4,029,600
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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.
In 1998, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which was effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for the way that public business enterprises report information about
operating segments and major customers in their annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports in the second year of application. The
Partnership has one reportable segment as the Partnership is in the disposition
phase of its life cycle, wherein it is seeking to liquidate its remaining
operating assets. Management's main focus, therefore, is to prepare its assets
for sale and find purchasers for its remaining assets when market conditions
warrant such an action. The adoption of Statement 131 did not effect the
results of operations or financial position. The Partnership has two tenants
who occupy 21% of the Partnership's rental properties. These tenants occupied
11% and 10% of the Partnership's rentable space, respectively.
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 ("GAAP"). The Partnership utilizes the accrual
method of accounting. Under this method, revenues are recorded when earned and
expenses are recorded when incurred. The Partnership recognizes rental income
that is contingent upon tenants' achieving specified targets, only to the
extent that such targets are attained.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The Partnership is not liable for federal income taxes as the Partners
recognize their proportionate share of the Partnership income or loss in their
individual tax returns; therefore, no provision for federal 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
individual 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 held for investment 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. Upon classifying a commercial rental property as held for disposition,
no further depreciation or amortization of such property is provided in the
financial statements. Lease acquisition fees are recorded at cost and amortized
over the life of each respective lease. Repair and maintenance costs are
expensed as incurred; expenditures for improvements are capitalized and
depreciated over the estimated life of such improvements.
The Partnership evaluates its rental properties for impairment when conditions
exist which may indicate that it is probable that the sum of expected cash
flows (undiscounted) from a property is less than its estimated carrying basis.
Upon determination that an impairment has occurred, the carrying basis in the
rental property is reduced to its estimated fair market value. Except as
disclosed in Note 5, the Managing General Partner was not aware of any
indicator that would result in a significant impairment loss during the periods
reported.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
Investments in debt securities as of December 31, 1998 were comprised of
obligations of the United States government and were classified as held-to-
maturity. These investments were carried at their amortized cost basis in the
financial statements which approximated fair market value at December 31, 1998.
All of these securities had maturities of less than one year when purchased.
Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation are removed from the respective accounts. Any gain or
loss on sale is recognized in accordance with GAAP.
5
<PAGE>
The Partnership's financial statements include financial instruments, including
receivables and trade liabilities. The fair values of financial instruments,
including cash and cash equivalents, was not materially different from their
carrying values at December 31, 1998 and 1997.
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
Cash Flow (as defined in the Partnership Agreement), as a Partnership
Management Fee. 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 (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; and 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, 1998, the
General Partners were paid a Partnership Management Fee of $186,700 and
allocated Net Profits of $183,400, which included a (loss) on the sale of
property of $(3,300). For the year ended December 31, 1997, the General
Partners were paid a Partnership Management Fee of $202,200 and allocated Net
Profits of $192,200, which included a (loss) from provision for value
impairment of $(10,000). For the year ended December 31, 1996, the General
Partners were paid a Partnership Management Fee of $268,300, and allocated Net
Profits of $251,300, which included a (loss) from provision for value
impairment of $(17,000).
Fees and reimbursements paid and payable/(receivable) by the Partnership
to/(from) Affiliates for the years ended December 31, 1998, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ----------------- ------------------
Paid Payable Paid Payable Paid Payable
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $136,100 $14,300 $240,100 $(10,700) $254,100 $ 86,800
Real estate
commission(a) None 37,700 None 37,700 None 37,700
Reimbursements of
property insurance
premiums 34,900 None 44,800 None 48,700 None
Legal 48,800 1,000 25,500 200 25,000 1,600
Reimbursements of
expenses at cost:
--Accounting 16,400 2,700 23,300 900 33,300 3,800
--Investor
communication 5,700 900 7,900 100 8,200 300
- -------------------------------------------------------------------------------
$241,900 $56,600 $341,600 $ 28,200 $369,300 $ 130,200
- -------------------------------------------------------------------------------
</TABLE>
The variance between the amounts listed in this table and the Statement of
Income and Expense is due to capitalized legal costs.
(a) As of December 31, 1998, the Partnership owed $37,700 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. These commissions have been accrued but not paid.
In accordance with the Partnership Agreement, the Partnership will not pay
the General Partners or any Affiliates a real estate commission from the
sale of a Partnership property until 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, as defined in the Partnership Agreement, which has been
distributed to the Limited Partners from the initial date of investment) of
6% simple interest per annum on their Capital Investment.
On-site property management for the Partnership's properties is provided by an
Affiliate of the Managing General Partner and an independent property
management group for fees equal to 3% of gross rents received from the
properties. In addition, the Affiliate and the independent property management
group are entitled to leasing fees equal to 3% of gross rents received from the
properties, reduced by leasing fees, if any, paid to third parties.
6
<PAGE>
3. FUTURE MINIMUM RENTALS:
Future minimum rental income due on noncancelable leases as of December 31,
1998 were as follows:
<TABLE>
<S> <C>
1999 $ 1,452,200
2000 965,200
2001 708,300
2002 646,000
2003 430,200
Thereafter 278,500
--------------
$ 4,480,400
--------------
</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, 1998, 1997 and 1996 were $4,200,
$10,200 and $21,900, respectively.
4. INCOME TAX:
The Partnership utilizes the accrual method 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, 1998, was that net income for tax
reporting purposes was greater than net income for financial statement purposes
by $2,456,400. The aggregate cost of commercial rental properties for federal
income tax purposes at December 31, 1998 was $24,769,400.
5. PROPERTY SALE:
On June 17, 1998, the Partnership consummated the sale of Old Mill Shopping
Center ("Old Mill") for a selling price of $5,900,000. Net Proceeds from this
transaction amounted to $5,661,700, which was net of closing expenses. The
Partnership recorded a loss of $332,800 for the year ended December 31, 1998.
During the years prior to 1998, the Partnership recorded provisions for value
impairment totaling $4,000,000 on Old Mill. The Partnership distributed
$5,635,000 or $80.50 per Unit on November 30, 1998 to Limited Partners of
record as of June 17, 1998.
The above sale, with the exception of post-sale matters, was an all-cash
transaction, with no further involvement on the part of the Partnership.
7
<PAGE>
<TABLE>
<CAPTION>
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES VIII
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
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 Center:
Walker Springs Plaza
Shopping Center
(Knoxville, TN) $1,756,800 $ 4,440,200 $1,148,800 $ 98,400 $1,784,700 $ 5,659,500 $ 7,444,200
Office Building:
- ----------------
Brookwood Metroplex
Office Buildings I & II
(Birmingham, AL) 2,188,100 11,595,100 3,460,800 81,200 2,201,200 14,374,000 16,575,200 (5)
---------- ----------- ---------- -------- ---------- ----------- -----------
$3,944,900 $16,035,300 $4,609,600 $179,600 $3,985,900 $20,033,500 $24,019,400
========== =========== ========== ======== ========== =========== ===========
Column B - Not Applicable.
Column A 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 Center:
Walker Springs Plaza
Shopping Center 35 (6)
(Knoxville, TN) $2,471,600 1972 Dec. 1983 3 - 7 (7)
Office Building:
- ----------------
Brookwood Metroplex
Office Buildings I & II 35 (6)
(Birmingham, AL) 7,137,800 1975 Aug. 1983 2 - 13 (7)
----------
$9,609,400
==========
</TABLE>
See accompanying notes on the following page
A-7
<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>
Years Ended
-------------------------------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
------------------------------------- ---------------------------- --------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
------------------- ------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance
at the
beginning
of the year $ 33,709,500 $ 12,642,700 $ 34,303,900 $ 11,934,300 $ 35,610,800 $ 11,217,400
Additions
during the
year:
Improvements 81,800 405,600 393,100
Provision for
depreciation 744,100 708,400 716,900
Deductions
during the
year:
Basis
of disposed
real property (9,771,900)
Accumulated
depreciation
on disposed
real property (3,777,400)
Provisions
for value
impairment (1,000,000) (1,700,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at
the end of
the year $ 24,019,400 $ 9,609,400 $ 33,709,500 $ 12,642,700 $ 34,303,900 $ 11,934,300
============ ============ ============ ============ ============ ============
</TABLE>
Note 4. The aggregate cost for federal income tax purposes at December 31, 1998
was $24,769,400.
Note 5. Includes provisions for value impairment.
Note 6. Estimated useful life for building.
Note 7. Estimated useful life for improvements.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,392,000
<SECURITIES> 3,243,600
<RECEIVABLES> 95,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,730,800
<PP&E> 24,019,400
<DEPRECIATION> 9,609,400
<TOTAL-ASSETS> 20,141,900
<CURRENT-LIABILITIES> 832,200
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,257,700
<TOTAL-LIABILITY-AND-EQUITY> 20,141,900
<SALES> 0
<TOTAL-REVENUES> 4,371,400
<CGS> 0
<TOTAL-COSTS> 1,710,900
<OTHER-EXPENSES> 137,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,446,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,446,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,446,400
<EPS-PRIMARY> 18.04
<EPS-DILUTED> 18.04
</TABLE>
