<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 March 31, 1999
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-12946
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First Capital Income Properties, Ltd. - Series IX
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2255857
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1000, Chicago, Illinois 60606-2607
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(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>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
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<S> <C> <C>
ASSETS
Investment in commercial rental property:
Land $ 2,887,600 $ 2,887,600
Buildings and improvements 11,994,400 11,994,400
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14,882,000 14,882,000
Accumulated depreciation and amortization (7,116,100) (7,116,100)
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Total investment property, net of accumulated
depreciation and amortization 7,765,900 7,765,900
Cash and cash equivalents 11,043,000 3,855,000
Investments in debt securities 5,647,700 12,993,400
Rents receivable 399,000 259,100
Escrow deposits 224,000 197,200
Other assets (including loan acquisition costs, net
of accumulated amortization of $161,900 and
$154,900, respectively) 58,200 63,400
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$25,137,800 $25,134,000
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loan payable $ 4,953,400 $ 5,570,800
Accounts payable and accrued expenses 612,900 566,000
Due to Affiliates 50,300 53,100
Distributions payable 166,700 166,700
Security deposits 10,000 10,000
Prepaid rent 183,900 65,000
Earnest money deposit 250,000 50,000
Other liabilities 231,800 231,800
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6,459,000 6,713,400
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Partners' capital:
General Partners
Limited Partners (100,000 units issued and
outstanding) 18,678,800 18,420,600
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18,678,800 18,420,600
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$25,137,800 $25,134,000
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the quarter ended March 31, 1999 (Unaudited)
and the year ended December 31, 1998
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
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<S> <C> <C> <C>
Partners' capital, January 1, 1998 $86,700 $28,046,200 $28,132,900
Net income for the year ended December 31,
1998 46,600 2,124,400 2,171,000
Distributions for the year ended December
31, 1998 (133,300) (11,750,000) (11,883,300)
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Partners' capital, December 31, 1998 -- 18,420,600 18,420,600
Net income for the quarter ended
March 31, 1999 16,700 408,200 424,900
Distributions for the quarter ended
March 31, 1999 (16,700) (150,000) (166,700)
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Partners' capital, March 31, 1999 $ -- $18,678,800 $18,678,800
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</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended March 31, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $ 714,900 $1,130,100
Interest 194,100 424,700
Gain on sale of property 1,990,300
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909,000 3,545,100
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Expenses:
Interest 124,100 161,400
Depreciation and amortization 7,000 149,500
Property operating:
Affiliates 3,200 36,500
Nonaffiliates 193,100 208,500
Real estate taxes 89,500 102,600
Insurance--Affiliate 15,100 16,400
Repairs and maintenance 52,400 61,200
General and administrative:
Affiliates 6,500 10,300
Nonaffiliates (6,800) 100,200
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484,100 846,600
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Net income $ 424,900 $2,698,500
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Net income allocated to General Partners $ 16,700 $ 75,500
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Net income allocated to Limited Partners $ 408,200 $2,623,000
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Net income allocated to Limited Partners per Unit
(100,000 Units outstanding) $ 4.08 $ 26.23
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</TABLE>
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 424,900 $ 2,698,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,000 149,500
Gain on sale of property (1,990,300)
Changes in assets and liabilities:
(Increase) decrease in rents receivable (139,900) 4,800
(Increase) in other assets (1,800) (57,100)
Increase in accounts payable and accrued expenses 46,900 142,900
(Decrease) increase in due to Affiliates (2,800) 38,200
Increase in prepaid rent 118,900
Increase in other liabilities 1,400
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Net cash provided by operating activities 453,200 987,900
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Cash flows from investing activities:
Payments for capital and tenant improvements (800)
Decrease (increase) in investments in debt
securities 7,345,700 (17,889,800)
Proceeds from the sale of property 10,575,400
Receipt of earnest money deposit 200,000
(Increase) in escrow deposits (26,800) (19,600)
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Net cash provided by (used for) investing
activities 7,518,900 (7,334,800)
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Cash flows from financing activities:
Principal payments on mortgage loan payable (617,400) (410,200)
Distributions paid to Partners (166,700) (555,600)
(Decrease) in security deposits (15,700)
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Net cash (used for) financing activities (784,100) (981,500)
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Net increase (decrease) in cash and cash equivalents 7,188,000 (7,328,400)
Cash and cash equivalents at the beginning of the
period 3,855,000 22,387,300
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Cash and cash equivalents at the end of the period $11,043,000 $15,058,900
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Supplemental information:
Interest paid during the period $ 124,100 $ 161,400
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</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
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 achieved.
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 three months ended March 31, 1999 are not necessarily indicative of the
operating results for the year ending December 31, 1999.
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 was included in the financial statements.
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 asset for sale and find a purchaser when market conditions warrant such an
action. The Partnership has two tenants who occupy 61% of the Partnership's
rental property. These tenants occupied 36% and 25% of the Partnership's
rentable space, respectively.
Commercial rental property is recorded at cost, net of any provisions for value
impairment, and depreciated (exclusive of amounts allocated to land) on the
straight-line method over its estimated useful life. Upon classifying a
commercial rental property as held for disposition, no further depreciation or
amortization of such property is provided for in the financial statements.
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 property for impairment when conditions
exist which may indicate that it is probable that the sum of expected future
cash flows (undiscounted) is less than its estimated carrying basis. Upon
determination that an impairment has occurred, the basis is reduced to fair
value. Management was not aware of any indicator that would result in a
significant impairment loss during the periods reported.
Loan acquisition costs are amortized 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 refinanced, the
related loan acquisition costs and accumulated amortization are removed from
the respective accounts and any unamortized balance is expensed.
Cash equivalents are considered all highly liquid investments with a maturity
of three months or less 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 and amortization are removed from the respective
accounts. Any gain or loss is recognized in accordance with GAAP.
Investments in debt securities are comprised of obligations of the United
States government and 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 a maturity of less than one year when purchased.
Certain reclassifications have been made to the previously reported 1998
statements in order to provide comparability with the 1999 statements. These
reclassifications have no effect on net income or Partners' capital.
Reference is made to the Partnership's annual report for the year ended
December 31, 1998 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
4
<PAGE>
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 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 three months ended March 31, 1999 and 1998, the
General Partners were paid a Partnership Management Fee, and were allocated Net
Profits from operations, of $16,700 and $55,500, respectively. In addition, in
1998 the General Partners were allocated Net Profits from the sale of a
property of $19,900.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
Paid Payable
- -------------------------------------------------------------
<S> <C> <C>
Asset management fees $ 2,300 None
Reimbursement of property insurance premiums 15,100 None
Real estate commission (a) None $48,500
Legal 1,200 None
Reimbursement of expenses, at cost:
--Accounting 4,900 1,000
--Investor communications 4,000 800
- -------------------------------------------------------------
$27,500 $50,300
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</TABLE>
(a) As of March 31, 1999, 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.
3. MORTGAGE LOAN PAYABLE:
Mortgage loan payable at March 31, 1999 and December 31, 1998 consisted of the
following nonrecourse loan:
<TABLE>
<CAPTION>
Property Partnership's Share of Average
Pledged Principal Balance at Interest Maturity
as Collateral 3/31/99 12/31/98 Rate (a) Date
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Glendale Center
Shopping Mall (50%) $4,953,400 $5,570,800 9.49% 1/1/2000 (b)
- -------------------------------------------------------------------------------------
</TABLE>
(a) This represents the weighted average interest rate for the three months
ended March 31, 1999. The interest rate is subject to change on a monthly
basis in accordance with the provisions of the loan agreement. For the
month of April 1999, the interest rate on this loan was 9.44%.
(b) Upon meeting certain covenants, the Partnership has an option to extend the
maturity date to January 2001.
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, 1998.
4. ASSET HELD FOR DISPOSITION:
The mortgage loan collateralized by 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 three 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, through the joint venture that owns the property, has entered
into an agreement for the sale of Glendale. The contract contains contingencies
under which the purchaser may elect not to consummate the transaction. There
can be no assurance that the transaction contemplated by this agreement will
consummate. However, failure on the purchaser's part to close the transaction,
absent seller default or failure to satisfy the remaining contingencies, would
result in the forfeiture in favor of the Partnership of earnest money in the
amount of $250,000.
The Partnership's share of Glendale's operating results for the quarters ended
March 31, 1999 and 1998 were $232,200 and $245,100 respectively.
5
<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, 1998 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 or disposed of since the
Partnership no longer realizes income nor incurs expenses from such real
property interests. Through March 31, 1999, the Partnership has sold all of its
investments with the exception of its 50% interest in Glendale Center Shopping
Mall ("Glendale").
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of each of its remaining properties for the quarters ended March 31,
1999 and 1998. 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 Quarters Ended
3/31/99 3/31/98
- --------------------------------------------
<S> <C> <C>
GLENDALE CENTER SHOPPING MALL
(50%)
Rental revenues $ 714,900 $ 894,700
- --------------------------------------------
Property net income $ 232,200 $ 245,100
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Average occupancy 86% 88%
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SOLD PROPERTIES (B)
Rental revenues $ 235,300
- --------------------------------------------
Property net income $ 147,500
- --------------------------------------------
</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) Sold Properties includes the results of Shoppes of West Melbourne
("Shoppes") (sold February 27, 1998) and post closing matters from Citrus
Center (sold August 1, 1997) and Richmond Plaza Shopping Center
("Richmond") (sold December 31, 1997).
Net income for the Partnership for the three months ended March 31, 1999
decreased by $2,273,600 when compared to the three months ended March 31, 1998.
The decrease was primarily due to the gain recorded in 1998 on the sale of
Shoppes. The decrease was also due to the absence of results in 1999 from
Shoppes due to its sale in 1998. Net income, exclusive of the effects of the
Sold Properties, decreased by $135,800 for the three months ended March 31,
1999 when compared to the three months ended March 31, 1998. The decrease was
primarily due to a decrease in interest earned on the Partnership's short-term
investments due to a decrease in cash available for investment. The decrease
was partially offset by a decrease in general and administrative expenses
resulting from a 1999 adjustment of state taxes and reduced overhead charges.
The following comparative discussion includes only the results of Glendale.
Rental revenues decreased by $179,800 or 20.1% for the three-month periods
under comparison. The decrease was primarily due to a decrease in percentage
rental income, which was due to the 1999 recognition of rental income that is
contingent upon tenants achieving specified targets only to the extent that
such targets are achieved. The Partnership adopted this method for periods
beginning after July 1, 1998. Also contributing to the decrease was a decrease
in base rental income, which was due to the decline in average occupancy.
Depreciation and amortization expense decreased by $111,000 for the quarter
ended March 31, 1999 when compared to the quarter ended March 31, 1998. The
decrease was primarily due to the classification of Glendale as "Held for
Disposition", effective October 1, 1998, which precludes the recording of
depreciation and amortization.
Interest expense decreased by $37,300 for the periods under comparison. The
decrease was primarily due to the effects of principal payments made during the
past 15 months on the mortgage loan collateralized by Glendale.
Property operating expenses decreased by $19,600 for the periods under
comparison. The decrease was primarily due to a decrease in management fees,
which was due to the decline in rental revenues. The decrease was also due to a
decrease in professional services and utilities.
To increase and/or maintain the occupancy at Glendale, 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 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
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
Quarters Ended
<S> <C> <C>
3/31/99 3/31/98
- ------------------------------------------------------------------------------
Cash (Deficit) Flow (as defined in the Partnership
Agreement) $ (185,500) $ 447,500
Items of reconciliation:
Principal payments on mortgage loan 617,400 410,200
(Increase) in current assets (141,700) (52,300)
Increase in current liabilities 163,000 182,500
- ------------------------------------------------------------------------------
Net cash provided by operating activities $ 453,200 $ 987,900
- ------------------------------------------------------------------------------
Net cash provided by (used for) investing activities $7,518,900 $(7,334,800)
- ------------------------------------------------------------------------------
Net cash (used for) financing activities $ (784,100) $ (981,500)
- ------------------------------------------------------------------------------
</TABLE>
Cash Flow (Deficit) (as defined in the Partnership Agreement) changed from
$447,500 for the three months ended March 31, 1998 to $(185,500) for three
months ended March 31, 1999. The change was primarily due to the decrease in
interest income, as previously discussed. Also contributing to the change was
the absence of results in 1999 from Shoppes due to its 1998 sale and increased
principal payments on the Partnership mortgage debt.
The increase of $7,188,000 in the Partnership's cash position during the three
months ended March 31, 1999 was primarily the result of the maturity of a
portion of the Partnership's investments in debt securities. Liquid assets
(including cash, cash equivalents and investments in debt securities) of the
Partnership as of March 31, 1999 were comprised of amounts held for working
capital purposes.
The decrease in net cash provided by operating activities of $534,700 for the
three months ended March 31, 1999 when compared to the three months ended March
31, 1998 was primarily due to the decrease in interest earned on the
Partnership's short-term investments. The decrease was also due to the timing
of the receipt of rental receipts at Glendale.
Net cash (used for) provided by investing activities changed from $(7,334,800)
for the three months ended March 31, 1998 to $7,518,900 for the three months
ended March 31, 1999. This change was primarily due to activities related to
the Partnership's investments in debt securities. The 1998 receipt of proceeds
from the sale of Shoppes also affected the change.
Investments in debt securities are a result of the continued extension of the
maturities of certain of the Partnership's short-term investments in an effort
to maximize the return on these amounts 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.
With the exception of variable rate mortgage debt, the Partnership has no
financial instruments for which there are significant risks. Based on variable
debt outstanding as of March 31, 1999, for every 1% change in interest rates,
the Partnership's annual interest expense would change by $49,500. 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
risk.
The decrease in net cash used for financing activities of $197,400 for the
three months ended March 31, 1999 when compared to the three months ended March
31, 1998 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. The
decrease was partially offset by an increase in principal payments on the
mortgage loan collateralized by Glendale. The Glendale mortgage loan contains a
provision that requires a portion of the cash generated by Glendale be utilized
to reduce the outstanding mortgage balance. This mortgage loan matures in
January 2000, subject to fulfilling covenants that would provide the
Partnership with an option to extend the maturity date to January 2001. Any
potential extension or refinancing could result in the Partnership having to
further reduce the principal balance of the mortgage loan.
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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As discussed in its 1998 Annual Report to Partners, the Partnership continues
to face uncertainty as to the future performance of Glendale. Increased
competition in the regional area has resulted in a continued reduction in the
sales at the two anchor tenants as well as the specialty tenants at Glendale.
The leases of the two anchor tenants at Glendale expire in January 2001. It is
still currently uncertain whether one or both of its anchor tenants will vacate
at their lease termination dates. The loss of the anchor tenants without
suitable replacements could result in the loss of many of the specialty tenants
pursuant to contingency provisions within their respective leases. The Managing
General Partner is continuing to pursue alternative tenants as well as
exploring other possible options for Glendale. In addition to the issue related
to the future tenancy levels at Glendale, the mortgage loan secured by Glendale
matures (subject to an extension option) on January 1, 2000. The Partnership
has entered into a contract for the sale of the property. While the potential
purchaser has deposited $250,000 ($200,000 of which was received in 1999) in
earnest money funds, there can be no assurance that the transaction
contemplated by the contract will be consummated. For additional information
see Note 4 of Notes to Financial Statements.
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 uncertainty surrounding Glendale. The Managing General
Partner believes that Cash Flow (as defined in the Partnership Agreement) is
one of the Partnership's best and least expensive sources of cash. As a result,
cash continues to be retained to supplement working capital reserves. The
Partnership utilized $352,200 of previously undistributed Cash Flow (as defined
in the Partnership Agreement) in its distributions to Partners and to partially
fund debt service requirements.
Distributions to Limited Partners for the quarter ended March 31, 1999 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 Partners determination of cash
necessary to supplement working capital reserves. Accordingly, there can be no
assurance as to the amounts of cash for future distributions to Partners.
8
<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
March 31, 1999.
<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: May 13, 1999 By: /s/ DOUGLAS CROCKER II
------------ -------------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: May 13, 1999 By: /s/ NORMAN M. FIELD
------------ -------------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,043,000
<SECURITIES> 5,647,700
<RECEIVABLES> 399,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,313,700
<PP&E> 14,882,000
<DEPRECIATION> 7,116,100
<TOTAL-ASSETS> 25,137,800
<CURRENT-LIABILITIES> 975,300
<BONDS> 4,953,400
0
0
<COMMON> 0
<OTHER-SE> 18,678,800
<TOTAL-LIABILITY-AND-EQUITY> 25,137,800
<SALES> 0
<TOTAL-REVENUES> 909,000
<CGS> 0
<TOTAL-COSTS> 353,300
<OTHER-EXPENSES> (300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,100
<INCOME-PRETAX> 424,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 424,900
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<EXTRAORDINARY> 0
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<NET-INCOME> 424,900
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