<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1998
-------------------------
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 0-12946
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First Capital Income Properties, Ltd. - Series IX
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(Exact name of registrant as specified in its charter)
Florida 59-2255857
- ------------------------------- -------------------
(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)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated May 24, 1983, included
in the Partnership's Registration Statement on Form S-11, is incorporated herein
by reference in Part I of this report.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1997 for a discussion of the Partnership's business.
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
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.
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. Components of the Partnership's operating results are generally expected
to decline as real property interests are sold since the Partnership no longer
receives income nor incurs expenses from such real property interests. Through
September 30, 1998, the Partnership has sold all of its real property
investments with the exception of its 50% interest in Glendale Center Shopping
Mall ("Glendale").
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the quarters and nine months ended September 30,
1998 and 1997. 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 For the
Quarters Ended Six Months Ended
9/30/98 9/30/97 9/30/98 9/30/97
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
GLENDALE CENTER SHOPPING MALL (50%)
Rental revenues $800,100 $ 847,900 $2,512,100 $2,747,800
- ----------------------------------------------------------------------
Property net
income (b) $149,100 $ 124,500 $ 561,200 $ 521,700
- ----------------------------------------------------------------------
Average occupancy 84% 89% 87% 90%
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SOLD PROPERTIES (C)
Rental revenues $ 11,400 $1,176,200 $ 241,600 $5,051,000
- ----------------------------------------------------------------------
Property net (loss) income $(36,000) $ 500,500 $ 113,300 $1,950,600
- ----------------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items, which are not directly related
to individual property operating results such as interest income and
general and administrative expenses.
(b) Property net income excludes the provision for value impairment recorded
for the quarter and nine months ended September 30, 1998.
(c) Sold Properties includes the results of Citrus Center (sold August 1,
1997), Richmond Plaza Shopping Center ("Richmond") (sold December 31, 1997)
and Shoppes of West Melbourne ("Shoppes") (sold February 27, 1998). The
gains recorded on the sales of these properties are not included in this
table.
Unless otherwise disclosed, discussions of fluctuations between 1998 and 1997
refer to both the quarters and nine months ended September 30, 1998 and 1997.
Net results for the Partnership decreased by $8,857,100 and $7,729,100 for the
quarter and nine months ended September 30, 1998 when compared to the quarter
and nine months ended September 30, 1997, respectively. The decreases were
primarily due to the 1997 gain recorded on the sale of Citrus Center, which was
partially offset for the nine-month periods under comparison by the 1998 gain
recorded on the sale of Shoppes. The decreases were also due to the absence of
results from the Sold Properties and the provision for value impairment
recorded in 1998 for Glendale.
Net income, exclusive of Sold Properties and provision for value impairment,
increased by $323,700 for the nine months ended September 30, 1998 when
compared to the nine months ended September 30, 1997. The increase was
primarily due to an increase in interest earned on the Partnership's short-term
investments which was the result of an increase in the average cash available
for investment. Also contributing to the increase was improved operating
results at Glendale.
Net income, exclusive of Sold Properties and provision for value impairment,
decreased by $119,800 for the quarter ended September 30, 1998 when compared to
the quarter ended September 30, 1997. The decrease was primarily due to a
decrease in interest earned on short-term investments resulting from a decrease
in cash available for investment.
The following comparative discussion includes the results of Glendale only.
Rental revenues decreased by $47,800 or 5.6% and $235,700 or 8.6% for the
quarter and nine months ended September 30, 1998 when compared to the quarter
and nine months ended September 30, 1997, respectively. The decrease for the
nine-month periods under comparison was primarily due to the 1997 receipt for
the early termination of tenants' leases. The decreases for the quarterly and
nine-month periods under comparison were also due to a reduction in base rental
income, which was due to the decline in average occupancy. The decreases were
also due to a reduction in tenant reimbursements for common area maintenance
and real estate taxes, which is attributed to the decline in average occupancy.
Real estate tax expense decreased by $12,900 for the quarterly periods under
comparison. The decrease was primarily due to a reduction in estimated expense
for 1998, which was the result of a lower assessed value due to several
successful appeals. Real estate tax expense remained relatively unchanged for
the nine-month periods under comparison.
Interest expense decreased by $25,100 and $70,300 for the quarter and nine
months ended September 30, 1998 when compared to the quarter and nine months
ended September 30, 1997, respectively. The decreases were primarily due to the
effects of principal payments made during the last 21 months on the Glendale
mortgage loan.
Property operating expenses decreased by $27,900 and $96,200 for the quarter
and nine months ended September 30, 1998 when compared to the quarter and nine
months ended September 30, 1997, respectively. The decreases were primarily the
result of decreases in security, utility and advertising and promotional costs
at Glendale.
Repairs and maintenance expenses decreased by $10,900 and $94,200 for the
quarter and nine months ended September 30, 1998 when compared to the quarter
and nine months ended September 30, 1997, respectively. The decrease was
primarily due to a reduction in snow removal for the nine-month periods under
comparison. In addition, the decreases for the quarterly and nine-month periods
under comparison were due to a reduction in ordinary repairs to the interior
and exterior of the property.
To increase and/or maintain the occupancy level at the Partnership's remaining
property, the Managing General Partner, through its 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 tenants' leases
and addressing any expansion needs these tenants may have; 3) promotion of
local broker events and networking with local brokers; 4) networking with
national level retailers; 5) cold-calling other businesses and tenants in the
market area and 6) providing rental concessions or competitively pricing rental
rates depending on market conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
property. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions will be treated
as a return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as determined by generally
accepted accounting principles ("GAAP"), since certain items are treated
differently under the Partnership Agreement than under
2
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GAAP. Management believes that to facilitate a clear understanding of the
Partnership's operations, an analysis of Cash Flow (as defined in the
Partnership Agreement) should be examined in conjunction with an analysis of
net income or cash flows as determined by GAAP. The following table includes a
reconciliation of Cash Flow (as defined in the Partnership Agreement) to cash
flow provided by operating activities as determined by GAAP 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.
<TABLE>
<CAPTION>
Comparative
Cash Flow Results
For the Nine Months
Ended
9/30/98 9/30/97
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 1,344,600 $ 4,129,100
Items of reconciliation:
Principal payments on mortgage loan 716,000 634,700
Decrease in current assets 139,800 117,700
Increase in current liabilities 89,800 202,600
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Net cash provided by operating activities $ 2,290,200 $ 5,084,100
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Net cash provided by investing activities $ 7,524,000 $11,670,000
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Net cash (used for) financing activities $(23,187,400) $(4,237,800)
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</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of
$2,784,500 for the nine months ended September 30, 1998 when compared to nine
months ended September 30, 1997 was primarily due to the absence of results
from the Partnership's Sold Properties. The decrease was partially offset by
the increased interest earned on the Partnership's short-term investments, as
previously discussed.
The decrease of $13,373,200 in the Partnership's cash position for the nine
months ended September 30, 1998 was primarily the result of distributions paid
to Partners, an increase in investments in debt securities and principal
payments on mortgage loans payable exceeding the receipt of Sale Proceeds from
the sale of Shoppes and net cash provided by operating activities. Liquid
assets (including cash, cash equivalents and investments in debt securities) as
of September 30, 1998 were comprised of amounts held for working capital
purposes.
The decrease in net cash provided by operating activities of $2,793,900 for the
nine months ended September 30, 1998 when compared to the nine months ended
September 30, 1997 was primarily due to the effects on the operating results
from the 1997 sales of Citrus Center and Richmond and the 1998 sale of Shoppes.
Net cash provided by investing activities decreased by $4,146,000 for the nine
months ended September 30, 1998 when compared to the nine months ended
September 30, 1997. The decrease was primarily due to the 1997 receipt of
proceeds from the sale of Citrus Center exceeding the 1998 receipt of proceeds
from the sale of Shoppes. The decrease was partially offset by a net decrease
in the incremental amount of investments in debt securities as funds were made
available for distribution to Limited Partners. The investment in debt
securities is a result of the continued extension of the maturities of certain
of the Partnership's short-term investments in an effort to maximize the return
on these amounts as they are held for working capital purposes. These
investments are 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 and to potentially facilitate the refinancing of the mortgage loan
collateralized by Glendale. During the nine months ended September 30, 1998,
the Partnership spent $700 for building and tenant improvements.
As more fully disclosed in the Partnership's annual report for the year ended
December 31, 1997, the future tenancy level at Glendale is uncertain. The
potential loss of one or both of its anchor tenants at their lease termination
date (January 2001) would have a dramatic adverse impact on the operations of
the property. The Managing General Partner is exploring alternatives for
Glendale, which includes, but is not limited to, the sale of the property.
On February 27, 1998, the Partnership consummated the sale of Shoppes for a
sale price of $11,000,000. Sale Proceeds, net of closing expenses, amounted to
$10,575,400. In connection with this sale, the Partnership distributed
$10,550,000 or $105.50 per Unit on August 31, 1998 to Limited Partners of
record as of February 27, 1998.
On May 31, 1998, the Partnership distributed $10,350,000 or $103.50 per Unit to
Limited Partners of record as of December 31, 1997. This distribution
represented the approximate net proceeds realized from the December 31, 1997
sale of Richmond.
The increase in net cash used for financing activities of $18,949,600 for the
nine months ended September 30, 1998 when compared to the nine months ended
September 30, 1997 was primarily due to the special distribution of Richmond
and Shoppes Sales Proceeds. Exclusive of those distributions there was a
decrease of $1,950,400 in net cash used for financing activities for the
comparable periods. The decrease was primarily due to a decrease in
distributions of Cash Flow (as defined in the Partnership Agreement) paid to
Partners in line with reduced operating results following the sale of several
Partnership properties. In addition, the Partnership made increased principal
payments on the mortgage loan collateralized by Glendale.
The mortgage loan collateralized by Glendale contains provisions that require a
portion of the cash generated by Glendale be utilized to reduce the outstanding
mortgage balance. The Partnership informed its lender of its intention to
exercise its first of two options to extend the maturity of this loan. Pursuant
to the covenants of the extension, the Partnership was required to reduce the
Partnership's share of Principal balance outstanding to less than $5,625,000 by
December 31, 1998. In October 1998, the Partnership paid $114,500 to comply
with that extension requirement. This loan now matures in January 2000. Subject
to fulfillment of certain covenants, the Partnership has one extension option
of one year.
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 life 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 their clients. The Managing General
Partner, on behalf of the Partnership, has been in close communication with
each of these service providers regarding steps that they are taking 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 inquiries, 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 failures 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 in its determination of adequate levels of
cash reserves due to the uncertainties surrounding Glendale. 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 a result,
cash continues to be retained to supplement working capital reserves. For the
nine months ended September 30, 1998, Cash Flow (as defined in the Partnership
Agreement) retained to supplement working capital reserves was $202,900.
Distributions to Limited Partners for the quarter ended September 30, 1998 were
declared in the amount of $150,000, or $1.50 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. The amount of future
distributions to Partners will ultimately be dependent upon the performance of
Glendale 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.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES IX
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 2,887,600 $ 5,841,900
Buildings and improvements 11,994,400 22,451,500
- -------------------------------------------------------------------------------
14,882,000 28,293,400
Accumulated depreciation and amortization (7,116,100) (9,587,600)
- -------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 7,765,900 18,705,800
Cash and cash equivalents 9,014,100 22,387,300
Investments in debt securities 7,851,000 4,862,000
Rents receivable 387,500 499,000
Escrow deposits 162,100 100,400
Other assets (including loan acquisition costs, net
of accumulated amortization of $145,100 and
$115,500, respectively) 21,700 79,600
- -------------------------------------------------------------------------------
$25,202,300 $46,634,100
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loan payable $ 5,843,700 $ 6,559,700
Accounts payable and accrued expenses 694,500 598,500
Due to Affiliates 56,200 62,600
Distributions payable 166,700 10,905,600
Security deposits 5,400 21,200
Other liabilities 353,800 353,600
- -------------------------------------------------------------------------------
7,120,300 18,501,200
- -------------------------------------------------------------------------------
Partners' capital:
General Partners -- 86,700
Limited Partners (100,000 units issued and
outstanding) 18,082,000 28,046,200
- -------------------------------------------------------------------------------
18,082,000 28,132,900
- -------------------------------------------------------------------------------
$25,202,300 $46,634,100
- -------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1998 (Unaudited) and the year ended
December 31, 1997
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January 1,
1997 $(117,000) $56,790,200 $56,673,200
Net income for the year ended December
31, 1997 548,100 12,206,000 12,754,100
Distributions for the year ended December
31, 1997 (344,400) (40,950,000) (41,294,400)
- -------------------------------------------------------------------------------
Partners' capital, December 31, 1997 86,700 28,046,200 28,132,900
Net income for the nine months ended
September 30, 1998 30,000 1,635,800 1,665,800
Distributions for the nine months ended
September 30, 1998 (116,700) (11,600,000) (11,716,700)
- -------------------------------------------------------------------------------
Partners' capital, September 30, 1998 $ -- $18,082,000 $18,082,000
- -------------------------------------------------------------------------------
</TABLE>
4
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES IX
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $ 800,000 $2,024,000
Interest 330,400 493,400
Gain on sale of property 6,218,200
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1,130,400 8,735,600
- ----------------------------------------------------------------------------
Expenses:
Interest 154,200 179,300
Depreciation and amortization 117,600 378,200
Property operating:
Affiliates 12,500 79,100
Nonaffiliates 213,200 392,500
Real estate taxes 117,100 182,400
Insurance--Affiliate 16,100 23,800
Repairs and maintenance 50,500 175,400
General and administrative:
Affiliates 7,300 6,800
Nonaffiliates 41,200 60,300
Provision for value impairment 2,000,000
- ----------------------------------------------------------------------------
2,729,700 1,477,800
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Net (loss) income $(1,599,300) $7,257,800
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Net (loss) income allocated to General Partners $ (89,900) $ 229,200
- ----------------------------------------------------------------------------
Net (loss) income allocated to Limited Partners $(1,509,400) $7,028,600
- ----------------------------------------------------------------------------
Net (loss) income allocated to Limited Partners per
Unit (100,000 Units outstanding) $ (15.09) $ 70.29
- ----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $2,742,200 $7,798,700
Interest 1,223,500 924,800
Gain on sale of property 1,990,300 6,218,200
- ------------------------------------------------------------------------
5,956,000 14,941,700
- ------------------------------------------------------------------------
Expenses:
Interest 472,400 542,700
Depreciation and amortization 385,100 1,587,100
Property operating:
Affiliates 41,200 292,600
Nonaffiliates 648,800 1,429,800
Real estate taxes 307,800 643,600
Insurance--Affiliate 42,000 80,500
Repairs and maintenance 167,300 759,400
General and administrative:
Affiliates 25,500 22,800
Nonaffiliates 200,100 188,300
Provision for value impairment 2,000,000
- ------------------------------------------------------------------------
4,290,200 5,546,800
- ------------------------------------------------------------------------
Net income $1,665,800 $9,394,900
- ------------------------------------------------------------------------
Net income allocated to General Partners $ 30,000 $ 462,500
- ------------------------------------------------------------------------
Net income allocated to Limited Partners $1,635,800 $8,932,400
- ------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
(100,000 Units outstanding) $ 16.36 $ 89.32
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,665,800 $ 9,394,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 385,100 1,587,100
Gain on sale of property (1,990,300) (6,218,200)
Provision for value impairment 2,000,000
Changes in assets and liabilities:
Decrease in rents receivable 111,500 37,700
Decrease in other assets 28,300 80,000
Increase in accounts payable and accrued expenses 96,000 68,400
(Decrease) in due to Affiliates (6,400) (37,700)
Increase in other liabilities 200 171,900
- -------------------------------------------------------------------------------
Net cash provided by operating activities 2,290,200 5,084,100
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for capital and tenant improvements (700) (198,900)
(Increase) in investments in debt securities (2,989,000) (15,832,000)
Proceeds from sale of property 10,575,400 27,760,400
(Increase) in escrow deposits (61,700) (59,500)
- -------------------------------------------------------------------------------
Net cash provided by investing activities 7,524,000 11,670,000
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loan payable (716,000) (634,700)
Distributions paid to Partners (22,455,600) (3,500,000)
(Decrease) in security deposits (15,800) (103,100)
- -------------------------------------------------------------------------------
Net cash (used for) financing activities (23,187,400) (4,237,800)
- -------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (13,373,200) 12,516,300
Cash and cash equivalents at the beginning of the
period 22,387,300 15,693,500
- -------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 9,014,100 $28,209,800
- -------------------------------------------------------------------------------
Supplemental information:
Interest paid during the period $ 472,400 $ 542,700
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
FIRST CAPITAL INCOME PROPERTIES LTD.-SERIES IX
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). The Partnership utilizes the accrual
method of accounting. Under this method, revenues are recorded when earned and
expenses are recorded when incurred. Effective July 1, 1998, 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 financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 1998 are not necessarily
indicative of the operating results for the year ending December 31, 1998.
The financial statements include 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 and is operated
under the common control of the Managing General Partner. Accordingly, the
Partnership's pro rata share of the joint venture's revenues, expenses, assets,
liabilities and Partners' capital is included in the financial statements.
Commercial rental properties are recorded at cost, net of any provisions for
value impairment, and depreciated (exclusive of amounts allocated to land) on
the straight-line method over their estimated useful lives. Lease acquisition
fees are recorded at cost and amortized on the straight-line method over the
life of the respective lease. Maintenance and repair costs are expensed against
operations as incurred; expenditures for improvements are capitalized to the
appropriate property accounts and depreciated on the straight-line method 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 future
cash flows (undiscounted) from a property is less than its estimated carrying
basis. Upon determination that an impairment has occurred, the basis in the
rental property is reduced to fair value. Except as noted in Note 5, management
was not aware of any indicator that would result in a significant impairment
loss during the periods reported.
Loan acquisition costs are amortized on the straight-line method over the term
of the mortgage loan made in connection with the acquisition of Partnership
properties or refinancing of Partnership loans. When a property is disposed of
or a loan is refinanced, the related loan acquisition costs and accumulated
amortization are removed from the respective accounts and any unamortized
balance is expensed.
Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation and amortization are removed from the respective
accounts. Any gain is recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
Investments in debt securities at September 30, 1998 are comprised of corporate
debt securities and are classified as held-to-maturity. These investments are
carried at their amortized cost basis in the financial statements, which
approximated fair market value. All of these securities had maturities of less
than one year when purchased.
Certain reclassifications have been made to the previously reported 1997
statements in order to provide comparability with the 1998 statements. These
reclassifications have no effect on net (loss) income or Partners' capital.
Reference is made to the Partnership's annual report for the year ended
December 31, 1997 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' capital and changes in cash balances for the year then
ended. The details provided in the notes thereto have not changed except as a
result of normal transactions in the interim or as otherwise disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, subsequent to October 31, 1983,
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: (A) the General Partners'
Partnership Management Fee for such fiscal year; or (B) 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: (A) the Sale or Refinancing Proceeds to be
distributed to the General Partners with respect to the sale or disposition for
such property; or (B) 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
6
<PAGE>
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 General Partners to the
extent of the aggregate balance in their capital accounts; second, to the
Limited Partners and among them (in the ratio which their respective capital
account balances bear to the aggregate of all capital account balances of the
Limited Partners) until the balance in their capital accounts shall be reduced
to zero; third, the balance, if any, 99% to the Limited Partners and 1% to the
General Partners. In all events there shall be allocated to the General
Partners not less than 1% of Net Profits and Net Losses from the sale,
disposition or provision for value impairment of a Partnership property. For
the quarter and nine months ended September 30, 1998, the General Partners were
paid a Partnership Management Fee, and were allocated Net Profits from
operations of $16,700 and $116,700, respectively. In addition, for the nine-
month period, the General Partners were allocated a gain of $19,900 from the
sale of a Partnership property and for the quarter and nine-month periods under
comparison, the General Partners were allocated (losses) of $(106,600) from
provision for value impairment.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Paid
Quarter Nine Months Payable
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $ 3,000 $ 26,600 $ 3,600
Reimbursement of property insurance premiums, at
cost 34,000 42,000 None
Real estate commission (a) None None 48,500
Legal 9,500 60,300 1,200
Reimbursement of expenses, at cost
--Accounting 2,500 11,600 1,900
--Investor communications 2,300 5,100 1,000
- -----------------------------------------------------------------------------
$51,300 $145,600 $56,200
- -----------------------------------------------------------------------------
</TABLE>
(a) As of September 30, 1998, the Partnership owed $48,500 to the Managing
General Partner for a real estate commission earned in connection with the
sale of a Partnership property. This commission has 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
from the initial date of investment.
3. MORTGAGE LOAN PAYABLE:
Mortgage loan payable at September 30, 1998 and December 31, 1997 consisted of
the following non recourse loan:
<TABLE>
<CAPTION>
Property Partnership's Share of Average
Pledged as Principal Balance at Interest Maturity
Collateral 9/30/98 12/31/97 Rate Date
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Glendale Center
Shopping
Mall (50%) $5,843,700 $6,559,700 10.16%(a) 1/1/2000(b)
- ----------------------------------------------------------------------------------------
</TABLE>
(a) This interest rate represents the weighted average for the nine months
ended September 30, 1998 and is subject to change on a monthly basis in
accordance with the provisions of the loan agreement. As of September 30,
1998, the interest rate on this loan was 10.125%.
(b) The Partnership has advised the lender of its intention to exercise the
first of its two options to extend the maturity date for one year. In
connection with the exercise of the option, the Partnership is required to
make principal payments to reduce the Partnership's share of principal
balance to $5,625,000 by December 31, 1998. In October 1998, the
Partnership made an unscheduled principal payment of $114,500. This
payment, together with the regularly scheduled payment requirements, will
bring the principal balance to $5,625,000 by December 31, 1998.
For additional information regarding the mortgage loan payable, see Notes to
the Financial Statements in the Partnership's annual report for the year ended
December 31, 1997.
4. PROPERTY SALE:
On February 27, 1998, the Partnership completed the sale of Shoppes of West
Melbourne, located in West Melbourne, Florida, for a sale price of $11,000,000.
Sale Proceeds, net of closing expenses, from this transaction were $10,575,400.
The Partnership recorded a gain of $1,990,300 for the nine months ended
September 30, 1998 in connection with this sale and distributed $10,550,000 or
$105.50 per Unit on August 31, 1998 to Limited Partners of record as of
February 27, 1998.
5. ASSET HELD FOR DISPOSITION
The mortgage loan collateralized by Glendale Center Shopping Mall ("Glendale"),
matures in January 2000. While the Partnership has the option to extend the
maturity date for one year, the exercise of such option would require the
payment of a fee together with a requirement to dedicate much of Glendale's
cash flow to service the loan. During the past two years, Glendale has
experienced a reduction in its occupancy. In addition, the leases for both of
Glendale's anchor tenants, representing approximately 61% of the net leasable
square footage of the mall, expire in January 2001. In connection with these
issues, the General Partner believes that it is in the best interest of the
Partnership to sell the property. Accordingly, effective October 1, 1998, the
Partnership has classified Glendale as "Held for Disposition".
The Partnership's share of Glendale's net operating results (exclusive of
provision for value impairment) was $149,100 and $124,500, respectively, for
the quarters ended September 30, 1998 and 1997 and $561,200 and $521,700,
respectively, for the nine months ended September 30, 1998 and 1997.
After researching the market where Glendale is located, the General Partner
believes that the Partnership will not realize its carrying basis from the sale
of the property. Accordingly, the Partnership has recorded a provision for
value impairment in the amount of $2,000,000 for the quarter ended September
30, 1998. This provision for value impairment is considered a non cash event
for the purposes of the Statements of Cash Flow and was not utilized in the
determination of Cash Flow (as defined in the Partnership Agreement).
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES IX
By: FIRST CAPITAL FINANCIAL CORPORATION
MANAGING GENERAL PARTNER
Date: November 13, 1998 By: /s/ DOUGLAS CROCKER II
----------------- -------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 13, 1998 By: /s/ NORMAN M. FIELD
----------------- --------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended
September 30, 1998.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,014,100
<SECURITIES> 7,851,000
<RECEIVABLES> 387,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,252,600
<PP&E> 14,882,000
<DEPRECIATION> 7,116,100
<TOTAL-ASSETS> 25,202,300
<CURRENT-LIABILITIES> 874,300
<BONDS> 5,843,700
0
0
<COMMON> 0
<OTHER-SE> 18,082,000
<TOTAL-LIABILITY-AND-EQUITY> 25,202,300
<SALES> 0
<TOTAL-REVENUES> 5,956,000
<CGS> 0
<TOTAL-COSTS> 1,207,100
<OTHER-EXPENSES> 2,225,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 472,400
<INCOME-PRETAX> 1,665,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,665,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,665,800
<EPS-PRIMARY> 16.36
<EPS-DILUTED> 16.36
</TABLE>
