<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 June 30, 1996
----------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number: 0-16888
-------------------------------------------------
First Capital Income and Growth Fund - Series XII
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3498223
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
- ------------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(312) 207-0020
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(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 8, 1987,
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>
June 30,
1996 December 31,
(Unaudited) 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 14,678,900 $ 14,678,900
Buildings and improvements 89,766,700 89,326,600
- ------------------------------------------------------------------------------
104,445,600 104,005,500
Accumulated depreciation and amortization (26,912,600) (25,675,600)
- ------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 77,533,000 78,329,900
Cash and cash equivalents 5,812,000 4,983,400
Restricted cash 100,000 80,000
Rents receivable 324,200 563,300
Escrow deposits 1,022,500 147,700
Other assets (net of accumulated amortization on
loan acquisition costs of $1,338,700 and
$1,281,500, respectively) 494,500 910,700
- ------------------------------------------------------------------------------
$ 85,286,200 $ 85,015,000
- ------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $ 59,829,100 $ 60,405,300
Front-End Fees Loan payable to General Partner 13,434,400 13,434,400
Accounts payable and accrued expenses 3,094,600 2,687,900
Due to Affiliates 168,400 179,400
Security deposits 326,800 321,500
Other liabilities 152,200 155,200
- ------------------------------------------------------------------------------
77,005,500 77,183,700
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Partners' capital:
General Partner (deficit) (1,692,100) (1,696,600)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 9,972,800 9,527,900
- ------------------------------------------------------------------------------
8,280,700 7,831,300
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$ 85,286,200 $ 85,015,000
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 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 $(1,562,700) $23,779,700 $22,217,000
Repurchase of Units (999,300) (999,300)
Net (loss) for the year ended
December 31, 1995 (133,900) (13,252,500) (13,386,400)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1995 (1,696,600) 9,527,900 7,831,300
Net income for the six months ended
June 30, 1996 4,500 444,900 449,400
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Partners' (deficit) capital, June 30,
1996 $(1,692,100) $ 9,972,800 $ 8,280,700
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit and Unit amounts)
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $4,533,500 $4,407,200
Interest 77,400 63,800
- ---------------------------------------------------------------------------
4,610,900 4,471,000
- ---------------------------------------------------------------------------
Expenses:
Interest:
Affiliate 251,900 274,500
Nonaffiliates 1,106,500 1,191,000
Depreciation and amortization 663,000 1,012,800
Property operating:
Affiliates 293,300 255,900
Nonaffiliates 559,300 510,900
Real estate taxes 698,000 643,300
Insurance--Affiliate 41,700 31,100
Repairs and maintenance 677,500 541,300
General and administrative:
Affiliates 13,800 7,400
Nonaffiliates 49,000 75,400
- ---------------------------------------------------------------------------
4,354,000 4,543,600
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Net income (loss) $ 256,900 $ (72,600)
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Net income (loss) allocated to General Partner $ 2,600 $ (700)
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Net income (loss) allocated to Limited Partners $ 254,300 $ (71,900)
- ---------------------------------------------------------------------------
Net income (loss) allocated to Limited Partners per
Unit $ 0.27 $ (0.08)
- ---------------------------------------------------------------------------
Weighted average number of Units outstanding 949,843 955,072
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit and Unit amounts)
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $8,937,300 $8,636,300
Interest 145,300 119,000
- ---------------------------------------------------------------------------
9,082,600 8,755,300
- ---------------------------------------------------------------------------
Expenses:
Interest:
Affiliate 505,200 546,000
Nonaffiliates 2,220,100 2,378,300
Depreciation and amortization 1,294,200 2,022,600
Property operating:
Affiliates 565,000 519,000
Nonaffiliates 1,241,200 1,155,500
Real estate taxes 1,371,400 1,297,300
Insurance--Affiliate 83,400 76,100
Repairs and maintenance 1,222,600 1,057,600
General and administrative:
Affiliates 29,100 22,700
Nonaffiliates 101,000 127,000
- ---------------------------------------------------------------------------
8,633,200 9,202,100
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Net income (loss) $ 449,400 $ (446,800)
- ---------------------------------------------------------------------------
Net income (loss) allocated to General Partner $ 4,500 $ (4,500)
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Net income (loss) allocated to Limited Partners $ 444,900 $ (442,300)
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Net income (loss) allocated to Limited Partners per
Unit $ 0.47 $ (0.46)
- ---------------------------------------------------------------------------
Weighted average number of Units outstanding 949,843 956,325
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</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 449,400 $ (446,800)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,294,200 2,022,600
Changes in assets and liabilities:
Decrease in rents receivable 239,100 185,900
Decrease in other assets 373,000 93,900
Increase in accounts payable and accrued expenses 406,700 394,300
(Decrease) increase in due to Affiliates (11,000) 69,500
(Decrease) increase in other liabilities (3,000) 16,300
- -----------------------------------------------------------------------------
Net cash provided by operating activities 2,748,400 2,335,700
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Payments for capital and tenant improvements (440,100) (475,500)
(Increase) decrease in restricted cash (20,000) 37,500
(Increase) decrease in escrow deposits (874,800) (222,400)
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Net cash (used for) investing activities (1,334,900) (660,400)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans payable (576,200) (887,700)
Payment of loan extension costs (14,000) (7,300)
Increase in security deposits 5,300 18,300
Repurchase of Units (474,400)
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Net cash (used for) financing activities (584,900) (1,351,100)
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Net increase in cash and cash equivalents 828,600 324,200
Cash and cash equivalents at the beginning of the
period 4,983,400 4,339,000
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Cash and cash equivalents at the end of the period $ 5,812,000 $4,663,200
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Supplemental information:
Interest paid to Affiliate during the period $ 514,400 $ 533,600
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Interest paid to nonaffiliates during the period $ 2,231,800 $2,382,500
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 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 ("GAAP"). 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 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 six months ended June 30, 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 and its 25% interest in another joint venture with Affiliated
partnerships. Two of the 50% joint ventures and the 25% joint venture were
formed for the purpose of each acquiring a 100% interest in certain real
property and one of the 50% 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.
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, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to November 22, 1988, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, which shall be an
amount equal to the lesser of (i) 0.5% of the gross value of the Partnership's
assets (not reduced by indebtedness collateralized by such assets), all as
estimated by the General Partner in its reasonable discretion, plus, to the
extent the Portfolio Management Fee paid in any prior year was less than 0.5%
of the gross value of the Partnership's assets in such prior year, the amount
of such deficit, or (ii) an amount equal to the remainder obtained by
subtracting the aggregate amount previously paid to the General Partner as
Portfolio Management Fees during such fiscal year, from an amount equal to 10%
of the Partnership's aggregate Cash Flow (as defined in the Partnership
Agreement) (computed prior to the deduction for Portfolio Management Fees) for
such fiscal year. For the quarter and six months ended June 30, 1996, in
conjunction with the suspension of distributions of Cash Flow (as defined in
the Partnership Agreement) to Limited Partners, the General Partner was not
paid a Portfolio Management Fee.
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from a Major Capital Event) are
allocated 1% to the General Partner and 99% to the Limited Partners as a group.
Net Losses from a Major Capital Event 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 positive balances
in their Capital Accounts, in proportion to and to the extent of such positive
balances; and second, the balance, if any, 1% to the General Partner and 99% to
the Limited Partners as a group. Net Profits from a Major Capital
4
<PAGE>
Event are allocated: first, prior to giving effect to any distributions of Sale
or Refinancing Proceeds from the transaction, Net Profit in the amount of the
Minimum Gain (as defined in the Partnership Agreement) attributable to the
property that is the subject of such Major Capital Event is allocated to the
General Partner and Limited Partners with negative balances in their Capital
Accounts, pro rata in proportion to such respective negative balances; second,
to the General Partner and each Limited Partner in proportion to and to the
extent of the amounts, if any, equal to the amount of Sale or Refinancing
Proceeds to be distributed to each such General Partner or Limited Partner with
respect to such Major Capital Event; and third, the balance, if any, 20% to the
General Partner and 80% to Limited Partners as a group. 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 and six months
ended June 30, 1996, the General Partner was allocated a Net Profit of $2,600
and $4,500, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Paid
--------------------
Quarter Six Months Payable
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $ 286,800 $ 535,500 $ 78,300
Interest expense on Front--End Fees Loan (Note
3) 252,800 514,400 82,900
Reimbursement of property insurance premiums,
at cost 83,400 83,400 None
Reimbursement of expenses at cost:
--Accounting 11,200 27,800 5,600
--Investor communication 4,000 9,000 1,600
--Legal 18,900 43,800 None
- -----------------------------------------------------------------------------
$ 657,100 $1,213,900 $168,400
- -----------------------------------------------------------------------------
</TABLE>
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
and six months ended June 30, 1996, ANTEC paid $116,100 and $272,100,
respectively, 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 a fee of 3% 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 GENERAL PARTNER:
The Partnership borrowed from 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 payment 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 General Partner from
unaffiliated lenders.
As of June 30, 1996, the Partnership had drawn $13,434,400 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 and six months ended June 30, 1996 was 7.5%. As
of June 30, 1996, the interest rate was 7.41%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 48-month period
beginning April 1, 1993. In addition, any interest payments paid by the
Partnership from April 1, 1993 through March 31, 1997 may be borrowed from the
General Partner. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on April 1, 1997, and shall
not be subordinated to payment of Original Capital Contributions to Limited
Partners. As of June 30, 1996, the Partnership had not exercised its option to
defer the payment of interest on this loan.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at June 30, 1996 and December 31, 1995, consisted of the
following loans which are non-recourse to or not guaranteed by the Partnership
unless otherwise disclosed:
<TABLE>
<CAPTION>
Partnership's Share of
Principal Balance at Average
----------------------- Interest Maturity
Property Pledged as Collateral 6/30/96 12/31/95 Rate (a) Date
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Meidinger Tower $22,405,300 $22,405,300 6.71% 10/15/1998
Deerfield Mall 18,005,400 18,241,300 7.6% 3/1/2001
Equitable of Iowa Building (b) 6,000,000 6,187,500 7.81% 4/1/1997 (b)
Prentice Plaza (50%) 4,856,600 4,875,000 7.91% 12/19/2000
Sentry Park West Office Campus
(50%) (c) 4,673,700 4,737,600 7.97% 9/30/1996
Regency Park Shopping Center
(25%) 3,888,100 3,958,600 (d) (d)
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$59,829,100 $60,405,300
- -----------------------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the six months ended
June 30, 1996. Interest rates are subject to change in accordance with the
provisions of the loan agreements (except the loan collateralized by
Deerfield Mall, which has a fixed interest rate). As of June 30, 1996,
interest rates on the loans collateralized by Meidinger Tower, Equitable of
Iowa Building ("Equitable"), Prentice Plaza and Sentry Park West Office
Campus ("Sentry West"), were 6.69%, 7.98%, 7.19% and 7.94%, respectively.
(b) In May 1996, the Partnership executed various Agreements (the
"Agreements"), effective April 1, 1996, modifying the existing loan
agreement collateralized by Equitable. Significant terms included in the
Agreements were: 1) an extension of the maturity date to April 1, 1997; 2)
initial principal paydowns totaling $143,750; 3) a change in the variable
interest rate from 30-day LIBOR plus 175 basis points to 30-day LIBOR plus
250 basis points and 4) remittance of monthly net cash flow, as defined in
the Agreements, into an interest bearing reserve account ("Reserve") under
which the lender has a first security interest. Pursuant to the Agreements,
the Partnership may retain $50,000 for working capital purposes. The
Reserve is intended to be used for payments of: a) real estate taxes; b)
interest on the loan and c) principal amortization requirements. As of June
30, 1996, the Reserve balance was $165,700. In addition, the Partnership is
required to make payments of principal to the lender (to the extent not
otherwise paid pursuant to c) above) in such amounts as to reduce the
outstanding unpaid principal balance to: $5,893,000 by July 1, 1996;
$5,681,000 by October 1, 1996; $5,521,000 by January 1, 1997 and $5,340,000
by March 1, 1997.
5
<PAGE>
(c) This loan is guaranteed by the Partnership and an Affiliated partnership.
(d) The joint venture which owns Regency Park Shopping Center ("Regency Park"),
in which the Partnership has a 25% interest with Affiliated partnerships, is
in default under the terms of its mortgage loan which matured on January 1,
1996. The General Partner is finalizing negotiations with the lender to modify
the terms of this mortgage loan. As of the date of this report, the General
Partner and the lender have substantially agreed to the following, which would
be retroactive to January 1, 1996: 1) an extension of the maturity date to
December 31, 1997; 2) monthly principal and interest payments based on a 23-
year amortization schedule with a per annum interest rate of 7.5%; and 3) net
property cash flow (as defined in the proposed modification agreement), if
any, after deducting scheduled principal and interest payments, approved
capital and tenant improvements and leasing commissions, will be required to
be deposited into a non-interest bearing reserve account maintained by the
lender to be used for capital and tenant improvements, leasing commissions and
operating deficits of Regency Park. This agreement has not yet been executed,
and there can be no assurance that an agreement will be finalized. The General
Partner believes that a modification agreement will be finalized incorporating
the above provisions. Since January 1, 1996, the joint venture has made
sufficient remittances to the lender to comply with the terms of the above
described modification.
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. ASSETS HELD FOR DISPOSITION:
During 1995, the largest tenant at Equitable informed the Partnership of its
intent to vacate the property at the end of its lease term, February, 28, 1999.
This tenant currently occupies 42% of the leasable square footage of Equitable.
The General Partner believes that based on current economic conditions in the
region, it is in the best interest of the Partnership to market the property
for sale, rather than incur the costs associated with retenanting Equitable. In
addition, as discussed in Note 4, the mortgage loan collateralized by Equitable
is scheduled to mature on April 1, 1997. Accordingly, the Partnership is
currently marketing Equitable for sale and expects the disposition to be final
by the first quarter of 1997. The carrying basis, net of accumulated
depreciation and amortization, of Equitable included in the Partnership's
Balance Sheet as of June 30, 1996 was $6,430,300, which does not exceed the
estimated fair value, less costs to sell. Net income for Equitable, included in
the Partnership's Statements of Income and Expenses, for the quarter and six
months ended June 30, 1996 was $375,700 and $675,600, respectively. Net income
for Equitable, included in the Partnership's Statements of Income and Expenses,
for the quarter and six months ended June 30, 1995 was $369,800 and $453,500,
respectively.
In March 1996, the joint venture which owns Sentry West entered into an
agreement to sell Sentry West. The Partnership's share of the sale price is
$5,825,000. 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 added to the Partnership's working capital reserves. The carrying
basis, net of accumulated depreciation and amortization, of Sentry West on the
Partnership's Balance Sheet as of June 30, 1996 was $4,781,400, which does not
exceed the estimated fair value, less costs to sell. Net income for Sentry
West, included in the Partnership's Statements of Income and Expenses, for the
quarter and six months ended June 30, 1996 was $102,700 and $169,700,
respectively. Net (loss) for Sentry West, included in the Partnership's
Statements of Income and Expenses, for the quarter and six months ended June
30, 1995 was $(78,400) and $(196,600), respectively.
6
<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 and six months
ended June 30, 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 For the Six Months
Ended Ended
6/30/96 6/30/95 6/30/96 6/30/95
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEIDINGER TOWER
Rental revenues $1,074,900 $1,064,500 $2,219,900 $2,186,700
- ---------------------------------------------------------------------------
Property net (loss) $ (224,300) $ (199,000) $ (338,600) $ (368,000)
- ---------------------------------------------------------------------------
Average occupancy 96% 93% 96% 92%
- ---------------------------------------------------------------------------
DEERFIELD MALL
Rental revenues $1,056,700 $1,045,000 $2,158,100 $2,077,200
- ---------------------------------------------------------------------------
Property net income $ 173,200 $ 130,800 $ 364,800 $ 201,700
- ---------------------------------------------------------------------------
Average occupancy 94% 95% 94% 94%
- ---------------------------------------------------------------------------
EQUITABLE OF IOWA BUILDING
Rental revenues $1,071,900 $1,172,600 $2,027,100 $2,087,400
- ---------------------------------------------------------------------------
Property net income $ 375,700 $ 369,800 $ 675,600 $ 453,500
- ---------------------------------------------------------------------------
Average occupancy 99% 99% 99% 99%
- ---------------------------------------------------------------------------
1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues $ 411,600 $ 389,600 $ 782,300 $ 774,400
- ---------------------------------------------------------------------------
Property net income $ 82,300 $ 110,300 $ 133,000 $ 199,100
- ---------------------------------------------------------------------------
Average occupancy 95% 98% 96% 98%
- ---------------------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%)
Rental revenues $ 386,000 $ 344,600 $ 758,100 $ 663,700
- ---------------------------------------------------------------------------
Property net income (loss) $ 102,700 $ (78,400) $ 169,700 $ (196,600)
- ---------------------------------------------------------------------------
Average occupancy 87% 86% 87% 86%
- ---------------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 381,000 $ 242,400 $ 691,000 $ 548,700
- ---------------------------------------------------------------------------
Property net (loss) $ (17,700) $ (88,500) $ (57,800) $ (109,100)
- ---------------------------------------------------------------------------
Average occupancy 99% 97% 99% 97%
- ---------------------------------------------------------------------------
REGENCY PARK SHOPPING CENTER (25%)
Rental revenues $ 150,800 $ 148,500 $ 300,200 $ 296,600
- ---------------------------------------------------------------------------
Property net income (loss) $ 5,400 $ (18,700) $ 200 $ (37,700)
- ---------------------------------------------------------------------------
Average occupancy 88% 88% 88% 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.
Unless otherwise disclosed, discussions of fluctuations between 1996 and 1995
refer to both the quarters and six months ended June 30, 1996 and 1995.
Net (loss) income for the Partnership changed from $(72,600) for the quarter
ended June 30, 1995 to $256,900 for the quarter ended June 30, 1996 and from
$(446,800) for the six months ended June 30, 1995 to $449,400 for the six
months ended June 30, 1996. The primary factor contributing to the changes was
improved operating results totaling $324,300 for the quarters under comparison
at all of the Partnership's properties except 1800 Sherman Office Building
("1800 Sherman") and Meidinger Tower and improved operating results totaling
$870,100 for the six month periods under comparison at all of the Partnership's
properties except 1800 Sherman. In addition, for the quarterly and six-month
periods: 1) interest expense on the Partnership's Front-End Fees Loan decreased
$22,600 and $40,800, respectively due to a decrease in the variable interest
rate; 2) interest income increased $13,600 and $26,300, respectively, primarily
due to an increase in the funds available for short-term investments and 3)
general and administrative expenses decreased $20,000 and $19,600,
respectively, primarily due to lower data processing costs. Partially
offsetting the change in net (loss) income was diminished operating results for
the quarters under comparison totaling $53,300 at 1800 Sherman and Meidinger
Tower, and diminished operating results for the six-month periods of $66,100 at
1800 Sherman.
Rental revenues increased by $126,300, or 2.9%, and $301,000, or 3.5%, for the
quarter and six months ended June 30, 1996, respectively, when compared to the
quarter and six months ended June 30, 1995. The primary factors which
contributed to the increases were higher rental revenues at: 1) Prentice Plaza
primarily due to an increase in tenant expense reimbursements; 2) Sentry Park
West Office Campus ("Sentry West") primarily due to increases in the average
base rental rate; 3) Deerfield Mall primarily due to an increase in the average
base rental rate; 4) Meidinger Tower primarily due to the receipt in 1996 of a
one-time lease settlement fee and 5) 1800 Sherman due to an increase in tenant
expense reimbursements. Partially offsetting the increases was lower tenant
expense reimbursements at Equitable of Iowa Building ("Equitable").
Depreciation and amortization expense decreased by $349,800 and $728,400 for
the quarter and six-months, respectively. The decreases were 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
Equitable and Sentry West in connection with classifying the properties as held
for disposition. In addition, provisions for value impairment recorded during
the year ended December 31, 1995 reduced the depreciable basis of Deerfield
Mall and Meidinger Tower.
Interest expense on the Partnership's mortgage loans decreased by $84,500 and
$158,200 for the quarter and six months ended June 30, 1996, respectively, when
compared to the quarter and six months ended June 30, 1995. The decreases were
primarily due to: 1) lower average interest rates on the Partnership's variable
rate mortgage loans; 2) a decrease in the interest rate on the mortgage loan
collateralized by Regency Park Shopping Center ("Regency
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Park") and 3) lower average outstanding principal balances on all of the
Partnership's mortgage loans except Prentice Plaza.
Repairs and maintenance expense increased by $136,200 and $165,000 for the
quarter and six months ended June 30, 1996, respectively, when compared to the
quarter and six months ended June 30, 1995. The properties contributing most
significantly to the increases were: 1) Equitable, primarily due to air
conditioning coil replacements and the emergency repair of a broken fire main;
2) Prentice Plaza, primarily due to fountain repairs; 3) 1800 Sherman,
primarily due to increases in the costs connected with landscaping, cleaning
and snow removal at the property and 4) Meidinger Tower, primarily due to an
increase in the cost to maintain the property as a result of an increase in the
average occupancy rate.
Property operating expense increased by $85,800 and $131,700 for the quarterly
and six-month periods under comparison, respectively, as a result of increases
at: 1) Meidinger Tower, primarily due to utility, security and personnel costs
as well as increases in property management and leasing fees as a result of the
increase in rental revenues; 2) Deerfield Mall, primarily as the result of the
1996 settlement of Florida sales and use tax audits relating to the tax years
1987 through 1990, and increases in professional service and property
management and leasing fees; 3) Equitable, primarily due to increases in
personnel and utility costs and 4) Prentice and 1800 Sherman, primarily due to
increases in property management and leasing fees.
Real estate tax expense increased by $54,700 and $74,100 for the quarterly and
six-month periods under comparison, respectively, primarily due to an increase
in the assessed value of Prentice Plaza and an increase in the estimated
liability at 1800 Sherman as a result of an expected increase in the tax rate.
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.
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 net income 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 income or cash flows as defined by GAAP.
The following table includes a reconciliation of Cash Flow (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 Six Months
Ended
6/30/96 6/30/95
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 1,307,300 $ 987,400
Items of reconciliation:
Scheduled principal payments on mortgage loans
payable 436,300 588,400
Decrease in current assets 612,100 279,800
Increase in current liabilities 392,700 480,100
- ------------------------------------------------------------------------------
Net cash provided by operating activities $ 2,748,400 $ 2,335,700
- ------------------------------------------------------------------------------
Net cash (used for) investing activities $(1,334,900) $ (660,400)
- ------------------------------------------------------------------------------
Net cash (used for) financing activities $ (584,900) $(1,351,100)
- ------------------------------------------------------------------------------
</TABLE>
The increase in Cash Flow (as defined in the Partnership Agreement) of $219,900
for the six months ended June 30, 1996 when compared to six months ended June
30, 1995, was primarily due to the change in net income (loss) previously
discussed, exclusive of depreciation and amortization expense.
The net increase in the Partnership's cash of $828,600 for the six months ended
June 30, 1996 was primarily the result of net cash provided by operating
activities exceeding the increase in escrow deposits, the principal payments
made on Partnership's mortgage loans payable and the expenditures made for
capital and tenant improvements and leasing costs. Liquid assets of the
Partnership as of June 30, 1996 were comprised of amounts held for working
capital purposes.
Net cash provided by operating activities continues to be the Partnership's
primary source of funds. Net cash provided by operating activities increased by
$412,700 for the six months ended June 30, 1996 when compared to the six months
ended June 30, 1995. This increase was primarily due to increases in the net
cash provided by operating activities at Meidinger Tower, Sentry West,
Deerfield Mall, and Regency Park. The increase was partially offset by
decreases in the net cash provided by operating activities at Equitable, 1800
Sherman and Prentice Plaza.
The increase in net cash used for investing activities of $674,500 for the six
months ended June 30, 1996 when compared to the six months ended June 30, 1995,
was primarily due to an increase in cash paid into real estate tax escrows.
Also contributing to the increase was a 1995 refund of a restricted certificate
of deposit which collateralized a letter of credit for a construction allowance
to a major new tenant at Regency Park. Partially offsetting the increase in net
cash used for investing activities was a decrease in the amount of cash used
for capital, tenant improvement and leasing costs. The Partnership maintains
working capital reserves to pay for capital expenditures such as building and
tenant improvements and leasing costs. During the six months ended June 30,
1996, the Partnership spent $440,100 for these items and has projected to spend
approximately $1,200,000 during the remainder of 1996. Included in this
projected amount are building and tenant improvements and
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
leasing costs of approximately: 1) $340,000 for Equitable; 2) $300,000 for
Meidinger Tower; 3) $160,000 for Deerfield Mall; 4) $130,000 for 1800 Sherman
and 5) $130,000 for Sentry West. 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. 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.
The decrease in net cash used for financing activities of $766,200 for the six
months ended June 30, 1996 when compared to the six months ended June 30, 1995,
was primarily the result of the expiration of the Repurchase Option Period in
1995 and lower principal payments made in 1996 on the mortgage loans
collateralized by Meidinger Tower and Sentry West. Partially offsetting the
decreases were higher principal payments made in 1996 on the mortgage loans
collateralized by Equitable, Regency Park, Prentice Plaza and Deerfield Mall.
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
48-month period beginning April 1, 1993. In addition, any interest payments
paid by the Partnership from April 1, 1993 through March 31, 1997 may be
borrowed from the General Partner. All deferred and subsequently borrowed
amounts (including accrued interest thereon) shall be due and payable on April
1, 1997, and shall not be subordinated to payment of Original Capital
Contributions to Limited Partners. As of June 30, 1996, the Partnership had not
exercised its option to defer the payment of interest on this loan.
In March 1996, the joint venture which owns Sentry West entered into a contract
to sell Sentry West. The Partnership's share of the sale price is $5,825,000.
If the sale is completed, a portion of the Partnership's proceeds will be
utilized to repay its portion of the mortgage loan collateralized by Sentry
West, with the remaining amount, if any, added to the Partnership's working
capital reserves. If the sale is not consummated by September 30, 1996, the
loan's maturity date, the General Partner will 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.
In May 1996, the Partnership executed various Agreements (the "Agreements"),
effective April 1, 1996, modifying the existing loan agreement collateralized
by Equitable. Significant terms included in the Agreements were: 1) an
extension of the maturity date to April 1, 1997; 2) initial principal paydowns
totaling $143,750; 3) a change in the variable interest rate from 30-day LIBOR
plus 175 basis points to 30-day LIBOR plus 250 basis points and 4) remittance
of monthly net cash flow, as defined in the Agreements, into an interest
bearing reserve account ("Reserve") under which the lender has a first security
interest. Pursuant to the Agreements, the Partnership may retain $50,000 for
working capital purposes. The Reserve is intended to be used for payments of:
a) real estate taxes; b) interest on the loan and c) principal amortization
requirements. As of June 30, 1996, the Reserve balance was $165,700. In
addition, the Partnership is required to make payments of principal to the
lender (to the extent not otherwise paid pursuant to c) above) in such amounts
as to reduce the outstanding unpaid principal balance to:
$5,893,000 by July 1, 1996; $5,681,000 by October 1, 1996; $5,521,000 by
January 1, 1997 and $5,340,000 by March 1, 1997.
The joint venture which owns Regency Park in which the Partnership has a 25%
interest with Affiliated partnerships, is in default under the terms of its
mortgage loan which matured on January 1, 1996. The General Partner is
finalizing negotiations with the lender to modify the terms of this mortgage
loan. As of the date of this report, the General Partner and the lender have
substantially agreed to the following, which would be retroactive to January 1,
1996: 1) an extension of the maturity date to December 31, 1997; 2) monthly
principal and interest payments based on a 23-year amortization schedule with a
per annum interest rate of 7.5%; and 3) net property cash flow (as defined in
the proposed modification agreement), if any, after deducting scheduled
principal and interest payments, approved capital and tenant improvements and
leasing commissions, will be required to be deposited into a non-interest
bearing reserve account maintained by the lender to be used for capital and
tenant improvements, leasing commissions and operating deficits of Regency
Park. This agreement has not yet been executed, and there can be no assurance
that an agreement will be finalized. The General Partner believes that a
modification agreement will be finalized incorporating the above provisions.
Since January 1, 1996, the joint venture has made sufficient remittances to the
lender to comply with the terms of the above described modification.
The Partnership has significant financial obligations during the remainder of
1996 and beyond. As described above, loans collateralized by three of the
Partnership's properties with an aggregate principal balance of $14,561,800 as
of June 30, 1996 have matured or will mature during the next twelve months. In
addition, the Partnership is expected to incur substantial capital, tenant
improvement and leasing costs during 1996. In light of this, together with a
restriction on distributions in the loan agreement collateralized by Sentry
West, the General Partner believes that it is in the Partnership's best
interest to retain all cash available. Accordingly, no cash distributions will
be made to Partners until these needs and obligations are met. The General
Partner believes that Cash Flow (as defined in the Partnership Agreement) is
one of the best and least expensive sources of cash. For the six months ended
June 30, 1996 all Cash Flow (as defined in the Partnership Agreement) of
$1,207,300 was retained to supplement working capital reserves. In addition,
the General Partner continues to review other sources of cash available to the
Partnership, which includes the possible financing, refinancing or sale of
certain of the Partnership's properties. No assurance can be given as to the
timing or successful completion of any further transactions. The General
Partner believes that the amount of cash retained for future liquidity
requirements, future Cash Flow (as defined in the Partnership Agreement) to be
earned, additional proceeds to be received from any sale, disposition,
financing or refinancing of any properties or any mortgage loan modifications
or extensions, as well as the option to defer payment of interest on the Front-
End Fees Loan (see Note 3 of Notes to Financial Statements) are sufficient to
cover the planned expenditures for the ensuing twelve month period. Since there
can be no assurance that a sale or refinancing of Sentry West or a sale of
Equitable will occur prior to the maturity dates of their respective loans, or
that the
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Partnership will successfully complete any other transactions, including the
extension and modification 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 one or more of these
properties. 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 significantly less than such Limited
Partners' Original Capital Investment. Accordingly, there can be no assurance
as to the amounts and/or availability of cash for future distributions to
Partners.
10
<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
June 30, 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 AND GROWTH FUND - SERIES XII
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: August 14, 1996 By: /s/ DOUGLAS CROCKER II
--------------- -------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 14, 1996 By: /s/ NORMAN M. FIELD
--------------- -------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,812,000
<SECURITIES> 0
<RECEIVABLES> 324,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,258,700
<PP&E> 104,445,600
<DEPRECIATION> 26,912,600
<TOTAL-ASSETS> 85,286,200
<CURRENT-LIABILITIES> 3,589,800
<BONDS> 73,263,500
<COMMON> 0
0
0
<OTHER-SE> 8,280,700
<TOTAL-LIABILITY-AND-EQUITY> 85,286,200
<SALES> 0
<TOTAL-REVENUES> 9,082,600
<CGS> 0
<TOTAL-COSTS> 4,483,600
<OTHER-EXPENSES> 130,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,725,300
<INCOME-PRETAX> 449,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 449,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 449,400
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
