<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 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>
September 30,
1996 December 31,
(Unaudited) 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 13,882,000 $14,678,900
Buildings and improvements 82,812,800 89,326,600
- -------------------------------------------------------------------------------
96,694,800 104,005,500
Accumulated depreciation and amortization (24,485,800) (25,675,600)
- -------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 72,209,000 78,329,900
Cash and cash equivalents 6,085,400 4,983,400
Investments in debt securities 489,700
Restricted cash 100,000 80,000
Rents receivable 379,700 563,300
Escrow deposits 1,526,800 147,700
Other assets (primarily loan acquisition costs,
net of accumulated amortization of $1,289,300 and
$1,281,500, respectively) 449,800 910,700
- -------------------------------------------------------------------------------
$ 81,240,400 $85,015,000
- -------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $ 54,895,700 $60,405,300
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Accounts payable and accrued expenses 2,863,900 2,687,900
Due to Affiliates 155,500 179,400
Security deposits 276,400 321,500
Other liabilities 122,600 155,200
- -------------------------------------------------------------------------------
71,748,500 77,183,700
- -------------------------------------------------------------------------------
Partners' capital:
General Partner (deficit) (866,200) (1,696,600)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 10,358,100 9,527,900
- -------------------------------------------------------------------------------
9,491,900 7,831,300
- -------------------------------------------------------------------------------
$ 81,240,400 $85,015,000
- -------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 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 nine months ended
September 30, 1996 830,400 830,200 1,660,600
- ----------------------------------------------------------------------------
Partners' (deficit) capital,
September 30, 1996 $ (866,200) $10,358,100 $ 9,491,900
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $4,283,800 $4,230,400
Interest 81,800 63,600
Gain on sale of property 822,000
- ---------------------------------------------------------------------------
5,187,600 4,294,000
- ---------------------------------------------------------------------------
Expenses:
Interest:
Affiliates 255,300 273,300
Nonaffiliates 1,064,800 1,177,500
Depreciation and amortization 632,800 1,022,600
Property operating:
Affiliates 278,400 266,200
Nonaffiliates 572,300 559,500
Real estate taxes 437,700 645,100
Insurance--Affiliate 40,900 37,000
Repairs and maintenance 643,800 590,000
General and administrative:
Affiliates 18,100 26,900
Nonaffiliates 32,300 40,900
- ---------------------------------------------------------------------------
3,976,400 4,639,000
- ---------------------------------------------------------------------------
Net income (loss) $1,211,200 $ (345,000)
- ---------------------------------------------------------------------------
Net income (loss) allocated to General Partner $ 825,900 $ (3,500)
- ---------------------------------------------------------------------------
Net income (loss) allocated to Limited Partners $ 385,300 $ (341,500)
- ---------------------------------------------------------------------------
Net income (loss) allocated to Limited Partners per
Unit $ 0.41 $ (0.36)
- ---------------------------------------------------------------------------
Weighted average number of Units outstanding 949,843 952,747
- ---------------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $13,221,100 $12,866,700
Interest 227,100 182,600
Gain on sale of property 822,000
- -----------------------------------------------------------------------------
14,270,200 13,049,300
- -----------------------------------------------------------------------------
Expenses:
Interest:
Affiliates 760,500 819,300
Nonaffiliates 3,284,900 3,555,800
Depreciation and amortization 1,927,000 3,045,200
Property operating:
Affiliates 843,400 785,200
Nonaffiliates 1,813,500 1,715,000
Real estate taxes 1,809,100 1,942,400
Insurance--Affiliate 124,300 113,100
Repairs and maintenance 1,866,400 1,647,600
General and administrative:
Affiliates 47,200 49,600
Nonaffiliates 133,300 167,900
- -----------------------------------------------------------------------------
12,609,600 13,841,100
- -----------------------------------------------------------------------------
Net income (loss) $ 1,660,600 $ (791,800)
- -----------------------------------------------------------------------------
Net income (loss) allocated to General Partner $ 830,400 $ (7,900)
- -----------------------------------------------------------------------------
Net income (loss) allocated to Limited Partners $ 830,200 $ (783,900)
- -----------------------------------------------------------------------------
Net income (loss) allocated to Limited Partners per
Unit $ 0.87 $ (0.82)
- -----------------------------------------------------------------------------
Weighted average number of Units outstanding 949,843 955,124
- -----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 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) $ 1,660,600 $ (791,800)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,927,000 3,045,200
(Gain) on sale of property (822,000)
Changes in assets and liabilities:
Decrease in rents receivable 183,600 97,300
Decrease in other assets 392,900 22,800
Increase in accounts payable and accrued expenses 176,000 806,200
(Decrease) increase in due to Affiliates (23,900) 41,300
(Decrease) increase in other liabilities (32,600) 75,800
- ------------------------------------------------------------------------------
Net cash provided by operating activities 3,461,600 3,296,800
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of commercial rental property 5,612,500
Payments for capital and tenant improvements (515,300) (632,200)
(Increase) in investments in debt securities (489,700)
(Increase) in escrow deposits (1,379,100) (450,200)
(Increase) decrease in restricted cash (20,000) 37,500
- ------------------------------------------------------------------------------
Net cash provided by (used for) investing
activities 3,208,400 (1,044,900)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans payable (940,900) (1,240,100)
Repayment of mortgage loan payable (4,568,700)
Repurchase of Units (710,200)
Loan acquisition costs incurred (13,300) (7,300)
(Decrease) increase in security deposits (45,100) 22,400
- ------------------------------------------------------------------------------
Net cash (used for) financing activities (5,568,000) (1,935,200)
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,102,000 316,700
Cash and cash equivalents at the beginning of the
period 4,983,400 4,339,000
- ------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 6,085,400 $ 4,655,700
- ------------------------------------------------------------------------------
Supplemental information:
Interest paid to Affiliate during the period $ 769,800 $ 808,900
- ------------------------------------------------------------------------------
Interest paid to nonaffiliates during the period $ 3,352,800 $ 3,562,500
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 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 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 nine months ended September 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 joint 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 or residential
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 such
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 is
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 whose
dispositions are expected. The adoption of the Standard did not have a material
effect on the Partnership's financial statements. Evaluation of the potential
impairment of the value of the Partnership's assets is performed on an
individual property basis.
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.
Investments in debt securities are comprised of obligations of the United
States government totaling $489,700 and are classified as held-to-maturity.
These investments are carried at their amortized cost basis in the financial
statements which approximated fair market value. All of these securities had a
maturity of less than one year when purchased.
Certain reclassifications have been made to the previously reported 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 nine months ended September 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
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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 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 such 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 the 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 nine months ended September 30, 1996, the General Partner was
allocated a Net Profit of $825,900 and $830,400, respectively, which included
the entire gain of $822,000 from the sale of a Partnership property.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Paid
--------------------
Quarter Nine Months Payable
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $248,700 $ 784,200 $ 55,800
Interest expense on Front-End Fees Loan (Note 3) 255,400 769,800 82,900
Reimbursement of property insurance premiums, at
cost 40,900 124,300 None
Reimbursement of expenses, at cost:
--Accounting 7,000 34,800 11,300
--Investor communication 2,300 11,300 3,700
--Legal 55,000 98,800 1,800
- -------------------------------------------------------------------------------
$609,300 $1,823,200 $155,500
- -------------------------------------------------------------------------------
</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 nine months ended September 30, 1996, ANTEC paid $167,500 and $439,600,
respectively, in base rents and reimbursements of expenses. The Partnership
owns a 50% joint venture interest in these amounts. 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, supervisory and leasing 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 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 September 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 nine months ended September 30, 1996
was 7.44%. As of September 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 made 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. During the quarter ended September 30, 1996, this loan was
transferred to an Affiliate of the General Partner. As of September 30, 1996,
the Partnership had not exercised its option to defer the payment of interest
on this loan.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at September 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 9/30/96 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 17,884,100 18,241,300 7.60% 3/1/2001
Equitable of Iowa Building(b) 5,893,000 6,187,500 7.86% 4/1/1997(b)
Prentice Plaza (50%) 4,847,400 4,875,000 7.63% 12/19/2000
Sentry Park West Office Campus
(50%)(c) 4,737,600 7.94% (c)
Regency Park Shopping Center
(25%)(d) 3,865,900 3,958,600 7.50% 12/31/1997
- ------------------------------------------------------------------------------
$54,895,700 $60,405,300
- ------------------------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the nine months ended
September 30, 1996. Interest rates are subject to change in accordance with
the provisions of the loan agreements (except the loans collateralized by
Deerfield Mall and Regency Park, which have fixed interest rates). As of
September 30, 1996, interest rates on the loans collateralized by Meidinger
Tower, Equitable of Iowa Building ("Equitable") and Prentice Plaza were
6.69%, 7.92% and 7.13%, 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
September 30, 1996, the Reserve balance was $259,200. The property
collateralizing this loan was sold and the mortgage loan was fully repaid
on October 16, 1996 (see Note 6 for additional information). As a result of
the sale, the balance in the Reserve was remitted to the Partnership.
(c) This property was sold and the mortgage loan was fully repaid on August 28,
1996 (see Note 5 for additional information).
(d) The joint venture which owns Regency Park, in which the Partnership has a
25% interest with Affiliated partnerships, executed an agreement (the
"Extension") with the mortgage lender to modify the terms of this mortgage
loan. Significant terms of the Extension, which are retroactive to January 1,
1996, include: 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 Extension), if any, after deducting scheduled principal and
interest payments, approved capital and tenant improvements and leasing
commissions, is 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.
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. PROPERTY SALE:
On August 28, 1996, the joint venture which owned Sentry West consummated the
sale of Sentry West for $11,650,000. The Partnership's 50% share of the
proceeds from this transaction, which was net of closing prorations, selling
expenses and the repayment of the mortgage loan for Sentry West was
approximately $894,000. The net gain reported by the Partnership for financial
statement purposes was $822,000. For tax reporting purposes the Partnership
will report a net (loss) of approximately $(4,600,000) for the year ending
December 31, 1996 in connection with this sale. This sale was an all-cash sale.
6. SUBSEQUENT EVENT:
As previously reported, 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 believed that it was in the
best interest of the Partnership to market the property for sale, rather than
incur the costs associated with releasing Equitable. The carrying basis, net of
accumulated depreciation and amortization, of Equitable included in the
Partnership's Balance Sheet as of September 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 nine months ended September 30, 1996 was $133,800 and $809,400,
respectively. Net income for Equitable, included in the Partnership's
Statements of Income and Expenses, for the quarter and nine months ended
September 30, 1995 was $73,600 and $527,100, respectively. During the first
quarter of 1996, the Partnership classified Equitable as held for disposition.
In conjunction with classifying this property as held for disposition, no
depreciation expense has been recorded during the nine months ended September
30, 1996.
On October 16, 1996 the Partnership consummated the sale of Equitable for
$7,000,000. Proceeds from this transaction approximated $520,000, which is net
of closing prorations, estimated selling expenses and the repayment of the
mortgage loan collateralized by Equitable. The Partnership will record a net
gain of $262,000 for financial statement purposes in connection with this sale.
For tax reporting purposes the Partnership will report a net (loss) of
approximately $(7,500,000) for the year ending December 31, 1996 in connection
with this sale. This sale was an all-cash sale.
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 properties for the quarters and nine months ended
September 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 Nine Months
Ended Ended
9/30/96 9/30/95 9/30/96 9/30/95
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEIDINGER TOWER
Rental revenues $1,192,300 $1,066,900 $3,412,200 $3,253,600
- ---------------------------------------------------------------------------
Property net (loss) $ (63,900) $ (170,200) $ (402,600) $ (538,200)
- ---------------------------------------------------------------------------
Average occupancy 96% 93% 96% 93%
- ---------------------------------------------------------------------------
DEERFIELD MALL
Rental revenues $1,094,900 $1,053,000 $3,252,900 $3,130,300
- ---------------------------------------------------------------------------
Property net income $ 201,900 $ 121,300 $ 566,700 $ 323,000
- ---------------------------------------------------------------------------
Average occupancy 96% 94% 95% 94%
- ---------------------------------------------------------------------------
EQUITABLE OF IOWA BUILDING
Rental revenues $ 877,300 $ 920,800 $2,904,400 $3,008,100
- ---------------------------------------------------------------------------
Property net income $ 247,800 $ 73,600 $ 923,400 $ 527,100
- ---------------------------------------------------------------------------
Average occupancy 95% 99% 97% 99%
- ---------------------------------------------------------------------------
1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues $ 396,600 $ 396,300 $1,178,900 $1,170,700
- ---------------------------------------------------------------------------
Property net income $ 168,100 $ 65,200 $ 301,100 $ 264,300
- ---------------------------------------------------------------------------
Average occupancy 94% 99% 95% 98%
- ---------------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 334,200 $ 285,900 $1,025,300 $ 834,600
- ---------------------------------------------------------------------------
Property net income (loss) $ 3,700 $ (61,300) $ (54,100) $ (170,400)
- ---------------------------------------------------------------------------
Average occupancy 99% 97% 99% 97%
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
REGENCY PARK SHOPPING CENTER (25%)
Rental revenues $148,000 $146,400 $448,200 $ 443,000
- -------------------------------------------------------------------
Property net income (loss) $ 1,100 $(16,100) $ 1,300 $ (53,800)
- -------------------------------------------------------------------
Average occupancy 91% 88% 89% 88%
- -------------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%) (B)
Rental revenues $241,100 $361,100 $999,200 $1,024,800
- -------------------------------------------------------------------
Property net income (loss) $ 58,800 $(74,900) $228,500 $ (271,500)
- -------------------------------------------------------------------
Average occupancy 87% 87% 87% 86%
- -------------------------------------------------------------------
</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.
(b) Sentry Park West Office Campus ("Sentry West") was sold on August 28, 1996.
The property net income excludes the gain from the sale which was included
in the Statements of Income and Expenses for the quarter and nine months
ended September 30, 1996.
Unless otherwise disclosed, discussions of fluctuations between 1996 and 1995
refer to both the quarters and nine months ended September 30, 1996 and 1995.
Net (loss) income for the Partnership changed from $(345,000) for the quarter
ended September 30, 1995 to $1,211,200 for the quarter ended September 30, 1996
and from $(791,800) for the nine months ended September 30, 1995 to $1,660,600
for the nine months ended September 30, 1996. The change in income for both the
quarterly and nine-month periods under comparison was primarily due to the gain
of $822,000 reported on the sale of Sentry West during 1996 as well as
increased net income at all of the Partnership's properties totaling $679,900
and $1,483,800 for the quarterly and nine-month periods, respectively. In
addition, during the comparable quarterly and nine-month periods: 1) interest
expense on the Partnership's Front-End Fees Loan decreased $18,000 and $58,800,
respectively, due to a decrease in the variable interest rate; 2) interest
income increased $21,200 and $44,500, respectively, primarily due to an
increase in the funds available for short-term investments and 3) general and
administrative expenses decreased $17,400 and $37,000, respectively, primarily
due to lower data processing and printing and mailing costs.
Rental revenues increased by $53,400, or 1.3%, and $354,400, or 2.8%, for the
quarter and nine months ended September 30, 1996, respectively, when compared
to the quarter and nine months ended September 30, 1995. The primary factors
which contributed to the increases were higher rental revenues at: 1) Meidinger
Tower primarily due to the receipt in 1996 of a one-time lease settlement fee
as well as an increase in occupancy; 2) Prentice Plaza, primarily due to an
increase in tenant expense reimbursements; 3) Deerfield Mall, primarily due to
an increase in the average base rental rate charged to new and renewing tenants
and 4) Sentry West, through the August 28, 1996 sale date, primarily due to
increases in the average base rental rate. Partially offsetting the increases
was lower tenant expense reimbursements at Equitable of Iowa Building
("Equitable") and the absence of September 1996 rental revenues at Sentry West
resulting from the sale of the property.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization expense decreased by $389,800 and $1,118,200,
respectively, for the quarterly and nine-month periods under comparison. The
decreases were primarily the result of the Partnership discontinuing the
recording of periodic depreciation and amortization expense for depreciable and
amortizable assets at Equitable and Sentry West, beginning January 1, 1996, in
connection with classifying the properties as held for disposition. In
addition, the effects of provisions for value impairment recorded during the
year ended December 31, 1995 reduced the depreciable bases of Deerfield Mall
and Meidinger Tower.
Interest expense on the Partnership's mortgage loans decreased by $112,700 and
$270,900 for the quarter and nine months ended September 30, 1996,
respectively, when compared to the same periods of 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 fixed-rate
mortgage loan collateralized by Regency Park Shopping Center ("Regency Park"),
as further discussed below and 3) lower average outstanding principal balances
on all of the Partnership's mortgage loans except Prentice Plaza.
Repairs and maintenance expense increased by $53,800 and $218,800 for the
quarter and nine months ended September 30, 1996, respectively, when compared
to the quarter and nine months ended September 30, 1995. The properties
contributing most significantly to the increases were Equitable, primarily due
to air conditioning coil replacements and the emergency repair of a broken fire
main and Meidinger Tower, primarily due to an increase in the costs to operate
and maintain the property as a result of the increase in occupancy.
Property operating expense increased by $25,000 and $156,700 for the quarterly
and nine-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 resulting from the
increase in rental revenues; 2) Equitable, primarily due to increases in
personnel and utility costs and 3) 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.
Real estate tax expense decreased by $207,400 and $133,300 for the quarterly
and nine-month periods under comparison, respectively. The significant decrease
for the periods under comparison was primarily due to the successful appeals in
1996 for reductions of the assessed values of 1800 Sherman Office Building
("1800 Sherman") for the 1995 tax year and for Equitable for the 1996 tax year.
Real estate tax expense also decreased for Equitable due to a reduction in the
assessed value and the tax rate for the 1995 tax year. The decreases were
partially offset for the nine-month comparable periods by an increase in real
estate tax expense at Prentice Plaza resulting from an increase in the assessed
value of this property for real estate tax purposes.
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
property brochures; 2) early renewal of existing tenants' leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area; and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its properties.
Notwithstanding the Partnership's intention relative to property sales, another
primary objective of the Partnership is to provide cash distributions to
Partners from Partnership operations. To the extent cumulative cash
distributions exceed net income, such excess distributions will be treated as a
return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as 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 flow provided by operating
activities as defined by GAAP. Such amounts are not indicative of actual
distributions to Partners and should not be considered as an alternative to the
results disclosed in the Statements of Income and Expenses and Statements of
Cash Flow.
<TABLE>
<CAPTION>
Comparative Cash Flow Results
For the Nine Months Ended
9/30/96 9/30/95
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flow (as defined in the Partnership
Agreement) $ 1,864,500 $ 1,312,600
Items of reconciliation:
Scheduled principal payments on mortgage
loans payable 901,100 940,800
Decrease in current assets 576,500 120,100
Increase in current liabilities 119,500 923,300
- ----------------------------------------------------------------------------
Net cash provided by operating activities $ 3,461,600 $ 3,296,800
- ----------------------------------------------------------------------------
Net cash provided by (used for) investing
activities $ 3,208,400 $(1,044,900)
- ----------------------------------------------------------------------------
Net cash (used for) financing activities $(5,568,000) $(1,935,200)
- ----------------------------------------------------------------------------
</TABLE>
The increase in Cash Flow (as defined in the Partnership Agreement) of $551,900
for the nine months ended September 30, 1996 when compared to the nine months
ended September 30, 1995, was primarily due to the change in net income (loss)
previously discussed, exclusive of depreciation and amortization expense and
the gain on the sale of Sentry West and to the absence of principal payments in
1996 on the mortgage loan collateralized by Meidinger Tower.
The net increase in the Partnership's cash of $1,102,000 for the nine months
ended September 30, 1996 was primarily the result of the net cash provided by
operating activities and the
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
net proceeds received from the sale of Sentry West exceeding the increases in
escrow deposits and investments in debt securities, regularly scheduled
principal payments made on Partnership's mortgage loans payable and
expenditures made for capital and tenant improvements and leasing costs. Liquid
assets (including cash, cash equivalents and investments in debt securities) of
the Partnership as of September 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
$164,800 for the nine months ended September 30, 1996 when compared to the nine
months ended September 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 totaling $708,000 as well as the
increase in interest income and decrease in interest and general and
administrative expenses, previously discussed. The increase was partially
offset by decreases in the net cash provided by operating activities at
Equitable and 1800 Sherman totaling $610,500.
Net cash (used for) provided by investing activities changed from $(1,044,900)
for the nine months ended September 30, 1995 to $3,208,400 for the nine months
ended September 30, 1996. The change was primarily due to the sale of Sentry
West, partially offset by an increase in cash paid into real estate tax escrows
and the increase in investments in debt securities. The increase in investments
in debt securities is a result of the extension of the maturities of certain of
the Partnership's short-term investments in an effort to maximize the return on
these amounts while they are held for working capital purposes. These
investments are of investment-grade and generally mature less than one year
from their date of purchase. The Partnership maintains working capital reserves
to pay for capital expenditures such as building and tenant improvements and
leasing costs. During the nine months ended September 30, 1996, the Partnership
spent $515,300 for these items and has projected to spend approximately
$300,000 during the remainder of 1996. Included in this projected amount are
capital and tenant improvements and leasing costs of approximately $200,000 for
Meidinger Tower and $50,000 for Prentice Plaza. Actual amounts expended 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 increase in net cash used for financing activities of $3,632,800 for the
nine months ended September 30, 1996 when compared to the nine months ended
September 30, 1995, was primarily the result of the repayment of mortgage loan
in conjunction with the sale of Sentry West, partially offset by the effects of
the expiration of the Repurchase Option Period in 1995 and the absence of
principal payments in 1996 on the mortgage loan collateralized by Meidinger
Tower. Also contributing to the increase were higher principal payments made in
1996 compared to 1995 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
made by the Partnership from April 1, 1993 through March 31, 1997 may be
borrowed from an Affiliate of 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 September 30, 1996,
the Partnership had not exercised its option to defer the payment of interest
on this loan.
On August 28, 1996, the joint venture which owned Sentry West, in which the
Partnership has a 50% interest, sold Sentry West for $11,650,000. The
Partnership's share of the proceeds from this transaction, net of closing
prorations, selling expenses and the repayment of the mortgage loan
collateralized by Sentry West was approximately $894,000 and was added to
working capital.
On October 16, 1996 the Partnership sold Equitable for $7,000,000. Proceeds
from this transaction, net of closing prorations, estimated selling expenses
and the repayment of the mortgage loan collateralized by Equitable, were
approximately $520,000.
The joint venture which owns Regency Park, in which the Partnership has a 25%
interest with Affiliated partnerships, executed an agreement (the "Extension")
with the mortgage lender to modify the terms of the mortgage loan
collateralized by Regency Park. Significant terms of the Extension, which are
retroactive to January 1, 1996, include: 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 Extension), if any, after deducting
scheduled principal and interest payments, approved capital and tenant
improvements and leasing commissions, is 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.
The Partnership has significant financial obligations during the remainder of
1996 and beyond. In addition, it is anticipated that the Partnership will incur
a substantial amount of capital and tenant improvements and leasing costs
during the next several years. In light of this, the General Partner believes
that it is in the Partnership's best interest to retain all cash available.
Accordingly, cash distributions to Partners continue to be suspended. 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 nine
months ended September 30, 1996 Cash Flow (as defined in the Partnership
Agreement) of $1,864,500 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. While there can
be no assurance as to the timing or successful completion of any future
transactions or as to the properties' future operating results, the General
Partner currently believes that the amount of the Partnerships' existing cash
reserves, future Cash Flow (as defined in the Partnership Agreement) to be
earned, additional proceeds to be received from any sale, financing or
refinancing of any properties or any mortgage loan modifications or extensions,
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
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 Contribution. 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:
A report on Form 8-K was filed on September 12, 1996 reporting the
sale of Sentry Park West Office Campus, located in Blue Bell,
Pennsylvania.
A report on Form 8-K was filed on October 30, 1996 reporting the sale
of the Equitable of Iowa Building, located in Des Moines, Iowa.
<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: November 14, 1996 By: /s/ DOUGLAS CROCKER II
----------------- ---------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 14, 1996 By: /s/ NORMAN M. FIELD
----------------- ---------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000811117
<NAME> First Capital Income and Growth Fund-Series XII
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,185,400
<SECURITIES> 489,700
<RECEIVABLES> 379,700
<ALLOWANCES> 0000
<INVENTORY> 0000
<CURRENT-ASSETS> 7,054,800
<PP&E> 96,694,800
<DEPRECIATION> 24,485,800
<TOTAL-ASSETS> 81,240,400
<CURRENT-LIABILITIES> 3,295,800
<BONDS> 68,330,100
<COMMON> 0000
0000
0000
<OTHER-SE> 9,491,900
<TOTAL-LIABILITY-AND-EQUITY> 81,240,400
<SALES> 0000
<TOTAL-REVENUES> 14,270,200
<CGS> 0000
<TOTAL-COSTS> 6,456,700
<OTHER-EXPENSES> 180,500
<LOSS-PROVISION> 0000
<INTEREST-EXPENSE> 4,045,400
<INCOME-PRETAX> 1,660,600
<INCOME-TAX> 0000
<INCOME-CONTINUING> 1,660,600
<DISCONTINUED> 0000
<EXTRAORDINARY> 0000
<CHANGES> 0000
<NET-INCOME> 1,660,600
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
