<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, 1996
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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: 0-15538
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FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES XI
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(Exact name of registrant as specified in its charter)
Illinois 36-3364279
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 950, 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 September 12, 1985,
included in the Partnership's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
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<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 8,948,500 $ 8,948,500
Buildings and improvements 56,337,200 56,326,700
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65,285,700 65,275,200
Accumulated depreciation and amortization (18,947,300) (18,551,100)
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Total investment properties, net of accumulated
depreciation and amortization 46,338,400 46,724,100
Cash and cash equivalents 1,249,300 1,331,600
Restricted escrow deposit 79,700
Rents receivable 519,900 626,800
Other assets (net of accumulated amortization on
loan acquisition costs of $950,200 and $938,300,
respectively) 395,900 561,400
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$ 48,503,500 $ 49,323,600
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LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
Mortgage loans payable $ 40,848,100 $ 41,189,600
Front-End Fees loan payable to Affiliate 8,295,200 8,295,200
Accounts payable and accrued expenses 1,267,300 1,300,400
Due to Affiliates 242,200 114,700
Security deposits 220,000 200,700
Other liabilities 316,800 735,100
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51,189,600 51,835,700
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Partners' (deficit):
General Partner (deficit) (2,686,100) (2,512,100)
Limited Partners (57,621 Units issued and
outstanding) 0 0
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(2,686,100) (2,512,100)
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$ 48,503,500 $ 49,323,600
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the quarter ended March 31, 1996 (Unaudited)
and the year ended December 31, 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January 1,
1995 $ (288,900) $ 5,330,200 $ 5,041,300
Net (loss) for the year ended December
31, 1995 (2,223,200) (5,330,200) (7,553,400)
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Partner's (deficit), December 31, 1995 (2,512,100) 0 (2,512,100)
Net (loss) for the quarter ended March
31, 1996 (174,000) (174,000)
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Partner's (deficit), March 31, 1996 $(2,686,100) $ 0 $(2,686,100)
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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, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $2,666,100 $2,615,400
Interest 14,200 13,500
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2,680,300 2,628,900
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Expenses:
Interest:
Affiliate 156,400 167,700
Nonaffiliates 869,100 927,900
Depreciation and amortization 408,100 575,500
Property operating:
Affiliates 134,500 126,700
Nonaffiliates 574,600 563,800
Real estate taxes 304,500 283,600
Insurance--Affiliate 35,700 36,900
Repairs and maintenance 306,100 302,400
General and administrative:
Affiliates 8,100 20,100
Nonaffiliates 57,200 36,000
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2,854,300 3,040,600
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Net (loss) $ (174,000) $ (411,700)
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Net (loss) allocated to General Partner $ (174,000) $ (4,100)
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Net (loss) allocated to Limited Partners $ 0 $ (407,600)
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Net (loss) allocated to Limited Partners per Unit
(57,621 Units outstanding) $ 0.00 $ (7.07)
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</TABLE>
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (174,000) $ (411,700)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization 408,100 575,500
Changes in assets and liabilities:
Decrease in rents receivable 106,900 114,400
Decrease in other assets 163,700 163,400
(Decrease) in accounts payable and accrued expenses (33,100) (172,900)
Increase in due to Affiliates 127,500 59,600
(Decrease) in other liabilities (118,300) (19,700)
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Net cash provided by operating activities 480,800 308,600
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Cash flows from investing activities:
Payments for capital and tenant improvements (310,500) (928,800)
Maturity of restricted certificate of deposit and
escrow deposits 79,700 107,600
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Net cash (used for) investing activities (230,800) (821,200)
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Cash flows from financing activities:
Proceeds from mortgage loan payable 800,000
Principal payments on mortgage loans payable (341,500) (446,000)
Payment of loan acquisition or extension fees (10,100) (9,900)
Increase in security deposits 19,300 4,200
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Net cash (used for) provided by financing activities (332,300) 348,300
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Net (decrease) in cash and cash equivalents (82,300) (164,300)
Cash and cash equivalents at the beginning of the period 1,331,600 1,612,600
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Cash and cash equivalents at the end of the period $1,249,300 $1,448,300
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Supplemental information:
Interest paid during the period $ 877,400 $1,077,500
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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, 1996
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. Under this method of accounting, revenues are
recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The 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 ended March 31, 1996 are not necessarily indicative of the
operating results for the year ending December 31, 1996.
The financial statements include the Partnership's 50% interest in three joint
ventures with Affiliated partnerships. Two of these joint ventures were formed
for the purpose of each acquiring a 100% interest in certain real property and
one of these joint ventures was formed for the purpose of acquiring a preferred
majority interest in certain real property. These joint ventures are operated
under the common control of the General Partner. The financial statements also
include the Partnership's 70% undivided interest in a joint venture with an
unaffiliated third party. The joint venture owns a 100% interest in the
Burlington Office Center I, II and III. This joint venture is operated under
the control of the General Partner. Accordingly, the Partnership's pro rata
share of the ventures' revenues, expenses, assets, liabilities and Partners'
capital is included in the financial statements.
Commercial rental properties held for investment are recorded at cost, net of
any provisions for value impairment, and depreciated (exclusive of amounts, if
any, allocated to land and value impairments) 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 for in the Financial Statements. Lease acquisition fees are
recorded at cost and amortized over the life of the lease. Repair and
maintenance costs are expensed as incurred; expenditures for improvements are
capitalized and depreciated over the estimated life of the improvements.
During the first quarter of 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (the "Standard"). The
Standard established guidance for determining if the value of defined assets
are impaired, and if so, how impairment losses should be measured and reported
in the financial statements. The Standard also addressed the accounting for
long-lived assets that are expected to be disposed of. The adoption of the
Standard did not have a material effect on the Partnership's financial
statements.
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 is 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 an original
maturity of three months or less when purchased.
Certain reclassifications have been made to the previously reported 1995
statements in order to provide comparability with the 1996 statements. These
reclassifications had no effect on net (loss) or Partners' capital (deficit).
Reference is made to the Partnership's annual report for the year ended
December 31, 1995 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, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from the sale, disposition or
provision for value impairment of Partnership properties) shall be allocated 1%
to the General Partner and 99% to the Limited Partners. Net Profits from the
sale or disposition of a Partnership property are allocated: first, prior to
giving effect to any distributions of Sale or Refinancing Proceeds from the
transaction, to the General Partner and 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 each
Limited Partner in an amount, if any, necessary to make the positive balance in
its Capital Account equal to the Sale or Refinancing Proceeds to be distributed
to such Limited Partner with respect to the sale or disposition of such
property; third, to the General Partner in an amount, if any, necessary to make
the positive balance in its Capital Account equal to the Sale or Refinancing
Proceeds to be distributed to the General Partner with respect to the sale or
disposition of such property; and fourth, the balance, if any, 25% to the
General Partner and 75% to the Limited Partners. Net Losses from the sale,
disposition or provision for value impairment of Partnership properties are
allocated: first, after giving effect to any distributions of Sale or
Refinancing Proceeds from the transaction, to the General Partner and Limited
Partners with positive balances in their Capital Accounts, pro rata in
proportion to such respective positive balances, to the extent of the total
amount of such positive balances; and second, the balance, if any, 1% to the
General Partner and 99% to the Limited Partners. Notwithstanding anything to
the contrary, there shall be allocated to the General Partner not less than 1%
of all items of Partnership income, gain, loss, deduction and credit during the
existence of the Partnership. For the quarter ended March 31, 1996, the General
Partner was allocated 100% of the Net (Loss) of $(174,000) in order to preclude
the Limited Partners' capital accounts from being reduced to an amount less
than zero.
Fees and reimbursements paid, (receivable) and payable by the Partnership
to/(from) Affiliates during the quarter ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
(Receivable)
Paid Payable
- ----------------------------------------------------------------------------
<S> <C> <C>
Property management and leasing fees $181,800 $(11,700)
Interest expense on Front-End Fees loan (Note 3) None 213,300
Reimbursement of property insurance premiums, at cost None 35,700
Reimbursement of expenses, at cost:
--Accounting 11,400 4,100
--Investor communication 1,700 800
--Legal 22,000 None
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$216,900 $242,200
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</TABLE>
4
<PAGE>
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 30% owned by Anixter International Inc. (formerly known as Itel
Corporation), an Affiliate of the General Partner, is obligated to the
Partnership under a lease of office space at Prentice Plaza. During the quarter
ended March 31, 1996, ANTEC paid $156,000 in rent. The Partnership owns a 50%
joint venture interest in these rents. The per square foot rent paid by ANTEC
is comparable to that paid by other tenants at Prentice Plaza.
On-site property management for certain of the Partnership's properties is
provided by independent real estate management companies for fees ranging from
3% to 4% of gross rents received by the properties. In addition, Affiliates of
the General Partner provide on-site property management and supervisory
services for fees based upon various percentage rates of gross rents for the
properties. These fees range from 1% to 6% based upon the terms of the
individual management agreements.
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership originally borrowed from an Affiliate of the General Partner an
amount needed for the payment of securities sales commissions, Offering and
Organizational Expenses and other Front-End Fees, other than Acquisition Fees.
Repayment of the principal amount of the Front-End Fees loan is subordinated to
repayment to the Limited Partners of 100% of their Original Capital
Contribution from Sale or Refinancing Proceeds (as defined in the Partnership
Agreement). Interest on the outstanding balance of this loan is due and payable
monthly at a rate no greater than the cost of funds obtained by the Affiliate
from unaffiliated lenders.
As of March 31, 1996, the Partnership had drawn $8,295,200 under the Front-End
Fees loan agreement. The interest rate paid on the Front-End Fees loan is
subject to change in accordance with the loan agreement. The weighted average
interest rate for the quarter ended March 31, 1996 was 7.54%. As of March 31,
1996, the interest rate was 7.3125%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan, for a 72-month period
beginning January 1, 1993. All deferred amounts (including accrued interest
thereon) shall be due and payable on January 1, 1999, and shall not be
subordinated to repayment to the Limited Partners, as discussed above.
Beginning with the interest payment due on January 1, 1996, the Partnership has
elected to defer payment of interest.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at March 31, 1996 and December 31, 1995 consisted of the
following loans which are non-recourse unless otherwise disclosed:
<TABLE>
<CAPTION>
Partnership's Share of
Principal Balance at Average
Property Pledged -------------------------- Interest Maturity
as Collateral 3/31/96 12/31/95 Rate Date
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marquette Mall and $ 2,202,200(a) $ 2,247,600 7.75% 7/1/2002
Office Building 1,099,000(a) 1,135,600 7.75% 7/1/2002
9,260,000(b) 9,350,000 8%(c) 9/30/1997
Burlington I, II and III
Office Center 10,899,500 10,926,700 9.875% 5/1/1997
Regency Park Shopping Center
(50%) 7,809,000 7,917,100 (d) (d)
Prentice Plaza (50%) 4,865,800 4,875,000 8.46%(c) 12/19/2000
Sentry Park West Office
Campus (50%) (e) 4,712,600 4,737,600 8%(c) 9/30/1996
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$40,848,100 $41,189,600
- ------------------------------------------------------------------------------
</TABLE>
(a) As of March 1, 1996, the two senior mortgage loans collateralized by
Marquette Mall and Marquette Office Building, respectively, were amended.
The terms of the amendment to the mortgage loan collateralized by Marquette
Mall provided that during the period beginning March 1, 1996 through
February 28, 1998 accrued interest only shall be paid and that as of March
1, 1998 the original terms of the mortgage loan will become effective. The
terms of the amendment to the mortgage loan collateralized by Marquette
Office Building provided that during the period beginning March 1, 1996
through February 28, 1998 monthly installments of principal in the amount
of $8,333 plus accrued interest shall be paid and that as of March 1, 1998
the original terms of the mortgage loan will become effective.
(b) On March 29, 1996, the General Partner executed an amendment to the
agreement dated December 29, 1994 which modified and amended the junior
mortgage loan collateralized by Marquette Mall and Office Building
("Marquette"). Terms of the amendment included: 1) a reduction in the loan
commitment amount from $9,770,000 to $9,350,000; 2) a change from quarterly
principal amortization payments of $125,000 on the first day of each
quarter beginning January 1, 1996 and increasing to $150,000 on July 1,
1996 to monthly principal amortization payments of $30,000; 3) a reduction
in the variable interest rate from 30-day LIBOR plus 300 basis points to
30-day LIBOR plus 250 basis points; 4) an assignment to the lender of a
portion of the net sale proceeds received by the Partnership from the joint
venture which owns Sentry Park West Office Campus ("Sentry West"), in which
the Partnership has a 50% interest, on the sale of Sentry West (see Note 5)
to reduce the outstanding principal balance on the junior mortgage loan and
5) an option to extend the maturity date of the loan to September 30, 1998
for a .5% extension fee, with a change in the interest rate to 30-day LIBOR
plus 275 basis points and an increase in the monthly principal amortization
payments to $50,000. The March 29, 1996 amendment is retroactive to January
1, 1996. Significant terms of the agreement dated December 29, 1994
included an extension of the maturity date until September 30, 1997 and a
restriction that no distributions be made to Partners of the Partnership
until the loan is fully repaid. The loan is guaranteed by the Partnership.
(c) This average interest rate represents an average for the quarter ended
March 31, 1996. Interest rates are subject to change in accordance with the
provisions of the loan agreement. As of March 31, 1996, interest rates on
the loans collateralized by Marquette, Prentice Plaza and Sentry West were
7.83%, 8.375% and 7.8125%, respectively.
(d) The joint venture which owns Regency Park Shopping Center, in which the
Partnership has a 50% interest, is in default under the terms of the
mortgage loan which matured on January 1, 1996. The General Partner is
negotiating an extension of the maturity date of the mortgage loan. If
consummated, the agreement for such extension of the loan may include a
change in interest rate, modified payment terms and other provisions that
did not exist in the matured loan. Since January 1, 1996, the Partnership
has continued to make debt service payments to the lender, based on an
interim understanding between the mortgage lender and the Partnership.
There can be no assurance that the Partnership and mortgage lender will
consummate an extension of this loan.
(e) This loan is guaranteed by the Partnership and an Affiliated partnership
and restricts the payment of distributions to Partners.
For additional information regarding the mortgage loans payable see Notes to
the Financial Statements in the Partnership's annual report for the year ended
December 31, 1995.
5. ASSET HELD FOR DISPOSITION:
In March 1996, the joint venture which owns Sentry West entered into an
agreement to sell Sentry West, located in Blue Bell, Pennsylvania. The closing
of this transaction, expected to take place in the third quarter of 1996, is
subject to the satisfaction of certain conditions and contingencies and,
accordingly, may or may not be consummated. The Partnership's share of the
proceeds from this sale, net of the Partnership's share of the repayment of the
mortgage loan collateralized by this property, will be utilized to reduce the
outstanding principal balance on the junior mortgage loan collateralized by
Marquette. The carrying basis, net of accumulated depreciation and
amortization, of Sentry West on the Partnership's Balance Sheet as of March 31,
1996 was $4,780,100, which does not exceed the estimated fair value, less costs
to sell. Net income (loss) for Sentry West, included in the Partnership's
Statements of Income and Expenses, for the quarters ended March 31, 1996 and
1995 was $67,000 and $(118,200), respectively.
5
<PAGE>
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, 1995, for a discussion of the Partnership's business.
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,
1996 and 1995. 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
3/31/96 3/31/95
- --------------------------------------------------
<S> <C> <C>
MARQUETTE MALL AND OFFICE BUILDING
Rental revenues $1,018,000 $ 934,700
- --------------------------------------------------
Property net income (loss) $ 64,300 $ (41,600)
- --------------------------------------------------
Average occupancy 83% 82%
- --------------------------------------------------
BURLINGTON OFFICE CENTER I, II AND III
Rental revenues $ 667,100 $ 757,400
- --------------------------------------------------
Property net (loss) income $ (37,000) $ 31,400
- --------------------------------------------------
Average occupancy 78% 81%
- --------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%)
Rental revenues $ 372,100 $ 319,100
- --------------------------------------------------
Property net income (loss) $ 67,000 $(118,200)
- --------------------------------------------------
Average occupancy 88% 85%
- --------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 310,100 $ 306,400
- --------------------------------------------------
Property net (loss) $ (40,100) $ (20,600)
- --------------------------------------------------
Average occupancy 98% 97%
- --------------------------------------------------
REGENCY PARK SHOPPING CENTER (50%)
Rental revenues $ 298,900 $ 296,200
- --------------------------------------------------
Property net (loss) $ (10,500) $ (37,800)
- --------------------------------------------------
Average occupancy 87% 88%
- --------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income,
interest expense on the Partnership's Front-End Fees loan and general and
administrative expenses or are related to properties disposed of by the
Partnership prior to the periods under comparison.
Net (loss) for the quarter ended March 31, 1996 decreased $237,700 when
compared to the quarter ended March 31, 1995. The decrease in net (loss) was
primarily due to improved operating results totaling $318,400 at Sentry Park
West Office Campus ("Sentry West"), Marquette Mall and Office Building
("Marquette") and Regency Park Shopping Center ("Regency Park") as well as
lower interest expense of $11,300 on the Partnership's Front-End Fees loan due
to a decrease in the variable interest rate. Partially offsetting the decrease
in net (loss) was diminished operating results totaling $87,900 at Burlington
Office Center I, II and III ("Burlington") and Prentice Plaza as well as an
increase of $9,200 in general and administrative expenses primarily due to
higher professional service fees which were partially offset by lower data
processing costs.
Rental revenues increased $50,700, or 1.9% for the quarter ended March 31, 1996
when compared to the quarter ended March 31, 1995. The increase was primarily
due to increases at Marquette and Sentry West primarily as a result of
increases in the average base rental and quarterly occupancy rates. In
addition, percentage rental income at Marquette increased as a result of higher
tenant sales which determine the amount of percentage rents to be paid to the
Partnership. Partially offsetting the increase in rental revenues was lower
rental revenues at Burlington due to a decrease in the average quarterly
occupancy rate primarily as a result of a major tenant exercising a
cancellation clause in its lease in 1995 and downsizing its leasable square
footage from 19,700 square feet to 2,500 square feet, a decrease of 10% of the
total leasable square footage of the property. In addition, the Partnership
received in 1995 a one-time lease termination fee of $60,000 from another
tenant at Burlington.
Depreciation and amortization expense decreased $167,400 for the quarters under
comparison. The decrease was primarily due to the fact that effective January
1, 1996, the Partnership ceased the periodic depreciation and amortization
expense for depreciable and amortizable assets at Sentry West in connection
with classifying the property as held for disposition. In addition, provisions
for value impairment recorded during the year ended December 31, 1995 reduced
the depreciable basis of Marquette, Burlington and Regency Park.
Interest expense on the Partnership's mortgage loans decreased $58,800 for the
quarter ended March 31, 1996 when compared to the quarter ended March 31, 1995.
The decrease was primarily due to: 1) a reduced interest rate on the mortgage
loan collateralized by Regency Park 2) a lower average interest rate on the
Partnership's variable rate mortgage loans and 3) lower average outstanding
principal balances on all of the Partnership's mortgage loans except Prentice
Plaza.
Real estate tax expense increased $20,900 for the quarterly periods under
comparison. The increase was primarily due to a projected increase in the tax
rate at Marquette as well as a projected increase in the assessed valuation of
Prentice Plaza for real estate tax purposes. Partially offsetting the increase
was a decrease in real estate tax expense at Burlington due to refunds received
in 1996 for the tax years 1994 and 1995.
Property operating expense increased $18,600 for the quarter ended March 31,
1996 when compared to the quarter ended March 31, 1995. The increase was
primarily due to increased professional service fees at Burlington and utility
costs at Sentry West. Partially offsetting the increase was lower professional
service fees at Marquette.
Insurance expense and repairs and maintenance expenses remained stable for the
quarter ended March 31, 1996 when compared to the quarter ended March 31, 1995.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenant leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area; and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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. Cash Flow (as defined in the Partnership Agreement) is generally
not equal to Partnership net loss or cash flows as defined 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 loss or cash flows,
as defined by GAAP. The following table includes a reconciliation of Cash Flow
(Deficit) (as defined in the Partnership Agreement) to cash flows provided by
operating activities as defined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not necessarily be considered as an
alternative to the results disclosed in the Statements of Income and Expenses
and Statements of Cash Flows.
<TABLE>
<CAPTION>
Comparative
Cash Flow Results
For the Quarters Ended
3/31/96 3/31/95
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (Deficit) (as defined in the Partnership
Agreement) $ (27,700) $ 17,200
Items of reconciliation:
Principal payments on mortgage loans payable 261,800 146,600
Decrease in current assets 270,600 277,800
(Decrease) in current liabilities (23,900) (133,000)
- -------------------------------------------------------------------------------
Net cash provided by operating activities $480,800 $ 308,600
- -------------------------------------------------------------------------------
Net cash (used for) investing activities $ (230,800) $ (821,200)
- -------------------------------------------------------------------------------
Net cash (used for) provided by financing activities $ (332,300) $ 348,300
- -------------------------------------------------------------------------------
</TABLE>
The (decrease) in Cash Flow (Deficit) (as defined in the Partnership Agreement)
of $(44,900) for the quarter ended March 31, 1996 when compared to the quarter
ended March 31, 1995 was primarily due to an increase in the scheduled
principal payments made on the Partnership's amortizing mortgage loans,
partially offset by the improvement in operating results, exclusive of
depreciation and amortization expense, as previously discussed.
The net decrease in the Partnership's cash for the quarter ended March 31, 1996
was primarily the result of principal payments on mortgage loans payable, net
of the maturity of the restricted escrow deposit (which was used by the lender
to reduce the principal balance outstanding on the mortgage loan collateralized
by Regency Park), the payment of loan extension fees and payments for capital,
tenant improvement and leasing costs exceeding the net cash provided by
operating activities and the increase in tenant security deposits. The liquid
assets of the Partnership as of March 31, 1996 were comprised of undistributed
Refinancing Proceeds held for working capital purposes.
The increase in net cash provided by operating activities of $172,200 was
primarily due to increases in the net cash provided by operating activities at
Regency Park, Sentry West and Marquette as well as the election to defer
interest payments on the Partnership's Front-End Fees loan (see Note 3 of Notes
to Financial Statements for additional information). The increase was partially
offset by decreases in the net cash provided by operating activities at
Burlington and Prentice Plaza.
The decrease in net cash (used for) investing activities of $590,400 was
primarily due to a decrease in 1996 in the cash used for capital, tenant
improvement and leasing costs partially offset by the fact that the restricted
certificate of deposit for Regency Park and the restricted escrow deposit for
Marquette released in 1995 were greater than the escrow deposit used in 1996 by
the lender to reduce the mortgage loan collateralized by Regency Park. The
Partnership maintains working capital reserves to pay for capital expenditures
such as building and tenant improvements and leasing costs. During the quarter
ended March 31, 1996, the Partnership spent $310,500 for capital, tenant
improvement and leasing costs and has budgeted to spend approximately
$1,030,000 during the remainder of 1996. Included in the amount spent by the
Partnership in 1996 is $300,000 related to the refurbishment and modernization
of one of the major department stores at Marquette. Included in the remaining
1996 budgeted amount are capital, tenant improvement and leasing costs of
approximately: 1) $460,000 for Burlington; 2) $350,000 for Marquette; 3)
$130,000 for Regency Park and 4) $90,000 for Prentice Plaza. Actual amounts
expended in 1996 may vary depending on a number of factors including actual
leasing activity, results of property operations, liquidity considerations and
other market conditions throughout the year. As of March 31, 1996 the
Partnership has $300,000 accrued as an additional liability which also relates
to the refurbishment and modernization of the major department store at
Marquette, and is payable in February 1997. The General Partner believes these
improvements and leasing costs are necessary in order to increase and/or
maintain occupancy levels in very competitive markets, maximize rental rates
charged to new and renewing tenants and to prepare the remaining properties for
eventual disposition.
Net cash provided by (used for) financing activities changed from $348,300 for
the quarter ended March 31, 1995 to $(332,300) for the quarter ended March 31,
1996. The change was primarily due to $800,000 in proceeds, net of loan fees,
received in 1995 on the junior mortgage loan collateralized by Marquette as
well as an increase in principal payments made in 1996 on this loan and the
mortgage loan collateralized by Regency Park. The change was partially offset
by lower principal payments made in 1996 on the mortgage loan collateralized by
Sentry West and an increase in the amount of tenant security deposits held by
the Partnership.
Pursuant to a modification of the Partnership's Front-End Fees loan agreement,
the Partnership has the option to defer payment of interest on this loan, for a
72-month period beginning January 1, 1993. All deferred amounts (including
accrued interest thereon) shall be due and payable on January 1, 1999, and
shall not be subordinated to repayment to the Limited Partners. Beginning with
the interest payment due on January 1, 1996, the Partnership has elected to
defer payment of interest.
In March 1996, the Partnership entered into a contract to sell Sentry West. If
the sale is not consummated by September 30, 1996, the loan's maturity date,
the General Partner will
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
pursue an extension or refinancing of the loan. There can be no assurance that
a sale, extension or refinancing will be completed by September 30, 1996.
As of March 1, 1996, the two senior mortgage loans collateralized by Marquette
Mall and Marquette Office Building, individually, were amended. The terms of
the amendment to the mortgage loan collateralized by Marquette Mall provided
that during the period beginning March 1, 1996 through February 28, 1998
accrued interest only shall be paid and that as of March 1, 1998 the original
terms of the mortgage loan will become effective. The terms of the amendment to
the mortgage loan collateralized by Marquette Office Building provided that
during the period beginning March 1, 1996 through February 28, 1998 monthly
installments of principal in the amount of $8,333 plus accrued interest shall
be paid and that as of March 1, 1998 the original terms of the mortgage loan
will become effective.
On March 29, 1996, the Partnership executed an amendment to the agreement dated
December 29, 1994 which modified and amended the junior mortgage loan
collateralized by Marquette. Terms of the amendment included: 1) a reduction in
the loan commitment amount from $9,770,000 to $9,350,000; 2) a change from
quarterly principal amortization payments of $125,000 on the first day of each
quarter beginning January 1, 1996 and increasing to $150,000 on July 1, 1996 to
monthly principal amortization payments of $30,000; 3) a reduction in the
variable interest rate from 30-day LIBOR plus 300 basis points to 30-day LIBOR
plus 250 basis points; 4) an assignment to the lender of the net sale proceeds
on the sale of Sentry West (see Note 5 of Notes to Financial Statements) to
reduce the outstanding principal balance on the junior mortgage loan and 5) an
option to extend the maturity date of the loan to September 30, 1998 for a .5%
extension fee, with a change in the interest rate to 30-day LIBOR plus 275
basis points and an increase in the monthly principal amortization payments to
$50,000. The March 1996 amendment is retroactive to January 1, 1996.
The joint venture which owns Regency Park, in which the Partnership has a 50%
interest, is in default under the terms of the mortgage loan which matured on
January 1, 1996. The General Partner is negotiating an extension of the
maturity date of the mortgage loan. If consummated, the agreement for such
extension of the loan may include a change in interest rate, modified payment
terms and other provisions that did not exist in the matured loan. Since
January 1, 1996, the Partnership has continued to make debt service payments to
the lender, based on an interim understanding between the mortgage lender and
the Partnership. There can be no assurance that the Partnership and mortgage
lender will consummate an extension of this loan.
The recourse junior mortgage loan collateralized by Marquette and the mortgage
loan collateralized by Burlington mature in 1997, exclusive of the option to
extend the maturity date of the junior mortgage loan mentioned above. The
Partnership's ability to satisfy these maturities is dependent upon the
successful sale or refinancing of these properties prior to their respective
loan maturity dates.
As of March 31, 1996, 67 of the 237 tenants at the Partnership's properties
have leases totaling 184,443 square feet that expire during 1997. Total base
rental revenues budgeted to be collected from these 67 tenants for the year
ending December 31, 1996 are $1,981,200. Of this amount, $562,900 relates to
two tenants at Burlington. Notwithstanding the market rental rates that may be
in effect at the time these leases mature, the Partnership faces a significant
amount of uncertainty with respect to the occupancy at its properties in 1997
and possibly beyond. The General Partner and its Affiliated management
companies intend to address the possible renewal of these leases well in
advance of their scheduled maturities in an attempt to maintain occupancy
levels and rental revenues of the Partnership's portfolio.
The Partnership has significant financial obligations during the remainder of
1996 and beyond. As disclosed in the Partnership's annual report for the year
ended December 31, 1995, terms of the mortgage loans collateralized by certain
of the Partnership's properties have substantial principal payment
requirements. Two of the loans, collateralized by Sentry West and Regency Park,
whose March 31, 1996 principal balances totaled $12,521,600, have matured or
will mature during 1996. As described above, in March 1996, the Partnership
entered into an agreement to sell Sentry West and is in negotiations with the
lender for an extension of the maturity date for the defaulted Regency Park
loan. In addition, the Partnership anticipates incurring substantial capital,
tenant improvement and leasing costs during the remainder of 1996. Net cash
provided by operating activities may not be sufficient to meet the above debt
service and capital expenditure requirements for the year ending December 31,
1996. As a result of these issues, together with the need to have sufficient
working capital to potentially retenant properties with leases expiring in 1997
and any restrictions that currently exist or may result from any refinancings,
loan extensions or modifications, the General Partner believes that it is in
the best interest of the Partnership to retain all cash available. Accordingly,
distributions to Partners continue to be suspended. The General Partner
continues to review other sources of cash available to the Partnership, which
includes the sale or refinancing of the Partnership's properties. No assurance
can be given as to the timing or successful completion of any future
transactions. The General Partner currently believes that the amount of the
Partnership's existing cash reserves, combined with any additional net proceeds
to be received from sales or refinancings of any properties, as well as the
option to defer payments of interest on the Front-End Fees loan (see Note 3 of
Notes to Financial Statements) are sufficient to cover planned expenditures for
1996. Since there can be no assurance that the sale or refinancing of Sentry
West will occur prior to the maturity of its loan or that the Partnership will
successfully complete any other transactions, including the extension of the
mortgage loan collateralized by Regency Park, the Partnership may have
inadequate liquidity to meet its mortgage loan obligations which could result
in the foreclosure of either property. The General Partner believes that such
events would not affect the Partnership's ability to continue business
operations.
Based upon the current estimated value of its assets, net of its outstanding
liabilities, together with its expected operating results and capital
expenditure requirements, the General Partner believes that the Partnership's
cumulative distributions to its Limited Partners from inception through the
termination of the Partnership will be less than half of such Limited Partners'
original Capital Investment.
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 during the quarter
ended March 31, 1996.
<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 XI
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: May 13, 1996 By: /s/ DOUGLAS CROCKER II
------------ --------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: May 13, 1996 By: /s/ NORMAN M. FIELD
------------ --------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,249,300
<SECURITIES> 0
<RECEIVABLES> 519,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,769,200
<PP&E> 65,285,700
<DEPRECIATION> 18,947,300
<TOTAL-ASSETS> 48,503,500
<CURRENT-LIABILITIES> 1,729,500
<BONDS> 49,143,300
<COMMON> 0
0
0
<OTHER-SE> (2,686,100)
<TOTAL-LIABILITY-AND-EQUITY> 48,503,500
<SALES> 0
<TOTAL-REVENUES> 2,680,300
<CGS> 0
<TOTAL-COSTS> 1,355,400
<OTHER-EXPENSES> 65,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,025,500
<INCOME-PRETAX> (174,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (174,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (174,000)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
