<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-16888
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FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
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(Exact name of registrant as specified in its charter)
Illinois 36-3498223
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
DOCUMENTS INCORPORATED BY REFERENCE:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated 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>
March 31,
1996 December 31,
(Unaudited) 1995
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<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $14,678,900 $14,678,900
Buildings and improvements 89,371,100 89,326,600
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104,050,000 104,005,500
Accumulated depreciation and amortization (26,293,200) (25,675,600)
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Total investment properties, net of accumulated
depreciation and amortization 77,756,800 78,329,900
Cash and cash equivalents 5,907,500 4,983,400
Restricted cash 100,000 80,000
Rents receivable 264,500 563,300
Escrow deposits 337,200 147,700
Other assets (net of accumulated amortization on
loan acquisition costs of $1,295,100 and
$1,281,500, respectively) 560,300 910,700
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$84,926,300 $85,015,000
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $60,156,400 $60,405,300
Front-End Fees Loan payable to General Partner 13,434,400 13,434,400
Accounts payable and accrued expenses 2,738,000 2,687,900
Due to Affiliates 215,100 179,400
Security deposits 326,100 321,500
Other liabilities 32,500 155,200
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76,902,500 77,183,700
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Partners' capital:
General Partner (deficit) (1,694,700) (1,696,600)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 9,718,500 9,527,900
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8,023,800 7,831,300
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$84,926,300 $85,015,000
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the quarter ended March 31, 1996 (Unaudited)
and the year ended December 31, 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January
1, 1995 $(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)
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Partners' (deficit) capital,
December 31, 1995 (1,696,600) 9,527,900 7,831,300
Net income for the quarter ended
March 31, 1996 1,900 190,600 192,500
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Partners' (deficit) capital,
March 31, 1996 $(1,694,700) $ 9,718,500 $ 8,023,800
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended March 31, 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 $4,403,800 $4,229,100
Interest 67,900 55,200
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4,471,700 4,284,300
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Expenses:
Interest:
Affiliate 253,300 271,500
Nonaffiliates 1,113,600 1,187,300
Depreciation and amortization 631,200 1,009,800
Property operating:
Affiliates 271,700 263,100
Nonaffiliates 681,900 644,600
Real estate taxes 673,400 654,000
Insurance-Affiliate 41,700 45,000
Repairs and maintenance 545,100 516,300
General and administrative:
Affiliates 15,300 15,300
Nonaffiliates 52,000 51,600
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4,279,200 4,658,500
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Net income (loss) $ 192,500 $ (374,200)
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Net income (loss) allocated to General Partner $ 1,900 $ (3,700)
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Net income (loss) allocated to Limited Partners $ 190,600 $ (370,500)
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Net income (loss) allocated to Limited Partners per
Unit $ 0.20 $ (0.39)
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Weighted average number of Units outstanding 949,843 957,577
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</TABLE>
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1996 and 1995
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 192,500 $ (374,200)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 631,200 1,009,800
Changes in assets and liabilities:
Decrease in rents receivable 298,800 141,500
Decrease in other assets 346,800 73,600
Increase in accounts payable and accrued expenses 50,100 178,100
Increase in due to Affiliates 35,700 169,200
(Decrease) in other liabilities (122,700) (27,500)
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Net cash provided by operating activities 1,432,400 1,170,500
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Cash flows from investing activities:
Payments for capital and tenant improvements (44,500) (172,000)
(Increase) decrease in restricted cash (20,000) 37,500
(Increase) decrease in escrow deposits (189,500) 5,500
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Net cash (used for) investing activities (254,000) (129,000)
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Cash flows from financing activities:
Principal payments on mortgage loans payable (248,900) (536,200)
Payment of loan extension costs (10,000) (3,900)
Increase in security deposits 4,600 8,700
Repurchase of Units (221,500)
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Net cash (used for) financing activities (254,300) (752,900)
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Net increase in cash and cash equivalents 924,100 288,600
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 $5,907,500 $4,627,600
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Supplemental information:
Interest paid during the period $1,414,500 $1,432,600
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms
have in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles. Under this method of accounting, revenues are
recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter ended March 31, 1996 are not necessarily indicative of the
operating results for the year ending December 31, 1996.
The financial statements include the Partnership's 50% interest in three joint
ventures 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 income (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 ended March 31, 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
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 ended March
31, 1996, the General Partner was allocated a Net Profit of $1,900.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Paid Payable
- ------------------------------------------------------------------------
<S> <C> <C>
Property management and leasing fees $248,700 $ 80,900
Interest expense on Front-End Fees Loan (Note 3) 261,600 83,900
Reimbursement of property insurance premiums, at cost None 41,700
Reimbursement of expenses at cost:
--Accounting 16,600 6,200
--Investor communication 5,000 2,400
--Legal 24,900 None
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$556,800 $215,100
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</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
4
<PAGE>
known as Itel Corporation), an Affiliate of the General Partner, is obligated
to the Partnership under a lease of office space at Prentice Plaza. During the
quarter ended March 31, 1996, ANTEC paid $156,000 in rent. The Partnership owns
a 50% joint venture interest in these rents. The per square foot rent paid by
ANTEC is comparable to that paid by other tenants at Prentice Plaza.
On-site property management for certain of the Partnership's properties is
provided by independent real estate management companies for 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 originally borrowed from an Affiliate of the General Partner an
amount needed for the payment of securities sales commissions, Offering and
Organizational Expenses and other Front-End Fees, other than Acquisition Fees.
Repayment of the principal amount of the Front-End Fees Loan is subordinated to
repayment to the Limited Partners of 100% of their Original Capital
Contribution from Sale or Refinancing Proceeds (as defined in the Partnership
Agreement). Interest on the outstanding balance of this loan is due and payable
monthly at a rate no greater than the cost of funds obtained by the Affiliate
from unaffiliated lenders.
As of March 31, 1996, the Partnership had drawn $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 ended March 31, 1996 was 7.54%. As of March 31,
1996, the interest rate was 7.3125%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 49-month period
beginning March 1, 1993. All deferred amounts (including accrued interest
thereon) shall be due and payable on April 1, 1997, and shall not be
subordinated to repayment to the Limited Partners, as discussed above. As of
March 31, 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 March 31, 1996 and December 31, 1995, consisted of
the following loans which are non-recourse unless otherwise disclosed:
<TABLE>
<CAPTION>
Partnership's Share of
Principal Balance at Average
----------------------- Interest Maturity
Property Pledged as Collateral 3/31/96 12/31/95 Rate Date
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Meidinger Tower $22,405,300 $22,405,300 6.73% 10/15/1998
Deerfield Mall 18,124,500 18,241,300 7.60% 3/1/2001
Equitable of Iowa Building (b) 6,143,800 6,187,500 7.27% 4/1/1997(b)
Prentice Plaza (50%) 4,865,700 4,875,000 8.48% 12/19/2000
Sentry Park West Office Campus
(50%) (c) 4,712,600 4,737,600 8.00% 9/30/1996
Regency Park Shopping Center
(25%) 3,904,500 3,958,600 (d) (d)
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$60,156,400 $60,405,300
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</TABLE>
(a) The average interest rate represents an average for the quarter ended March
31, 1996. Interest rates are subject to change in accordance with the
provisions of the loan agreements (except the loan collateralized by
Deerfield Mall, which has a fixed interest rate). As of March 31, 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 6.5625%, 7.0625%, 8.375% and 7.8125%,
respectively.
(b) In May 1996, the Partnership executed an agreement (the "Agreement"),
effective April 1, 1996, modifying the loan agreement collateralized by
Equitable. Significant terms included in the Agreement were: 1) an extension
of the maturity date to April 1, 1997; 2) initial principal paydowns totaling
$143,750 and 3) a change in the variable interest rate from 30-day LIBOR plus
175 basis points to 30-day LIBOR plus 250 basis points. In conjunction with
the Agreement, a cash collateral agreement was created whereby the Partnership
must remit monthly the net cash flow, as defined by the Agreement, of
Equitable to an interest bearing reserve account ("Reserve") established by
the Partnership and the lender, whereby the lender has a first security
interest. Pursuant to the Agreement, 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. 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.
(c) This loan is guaranteed by the Partnership and an Affiliated partnership.
(d) The joint venture which owns Regency Park Shopping Center, in which the
Partnership has a 25% interest, is in default under the terms of the mortgage
loan which matured on January 1, 1996. The General Partner is negotiating an
extension of the maturity date of the mortgage loan. If consummated, the
agreement for such extension of the loan may include a change in interest
rate, modified payment terms and other provisions that did not exist in the
matured loan. Since January 1, 1996, the Partnership has continued to make
debt service payments to the lender, based on an interim understanding between
the mortgage lender and the Partnership. There can be no assurance that the
Partnership and mortgage lender will consummate an extension of this loan.
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 March 31, 1996 was $6,196,900, 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 quarters ended
March 31, 1996 and 1995 was $300,000 and $83,600, respectively.
In March 1996, the joint venture which owns Sentry West entered into an
agreement to sell Sentry West, located in Blue Bell, Pennsylvania. The closing
of this transaction, expected to take place in the third quarter of 1996, is
subject to the satisfaction of certain conditions and contingencies and,
accordingly, may or may not be consummated. The Partnership's share of the
proceeds from this sale, net of the Partnership's share of the repayment of the
mortgage loan collateralized by this property, will be 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 March 31, 1996 was $4,780,100, which does not exceed the estimated
fair value, less costs to sell. Net income (loss) for Sentry West, included in
the Partnership's Statements of Income and Expenses, for the quarters ended
March 31, 1996 and 1995 was $67,000 and $(118,200), respectively.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1995, for a discussion of the Partnership's business.
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of each of its remaining properties for the quarters ended March 31,
1996 and 1995. The discussion following the table should be read in conjunction
with the Financial Statements and Notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative
Operating Results (a)
For the Quarters
Ended
3/31/96 3/31/95
- ---------------------------------------------------
<S> <C> <C>
MEIDINGER TOWER
Rental revenues $1,145,000 $1,122,200
- ---------------------------------------------------
Property net (loss) $ (114,400) $ (169,000)
- ---------------------------------------------------
Average occupancy 96% 92%
- ---------------------------------------------------
DEERFIELD MALL
Rental revenues $1,101,300 $1,032,200
- ---------------------------------------------------
Property net income $ 191,600 $ 70,900
- ---------------------------------------------------
Average occupancy 93% 94%
- ---------------------------------------------------
EQUITABLE OF IOWA BUILDING
Rental revenues $ 955,200 $ 914,800
- ---------------------------------------------------
Property net income $ 300,000 $ 83,600
- ---------------------------------------------------
Average occupancy 99% 98%
- ---------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%)
Rental revenues $ 372,100 $ 319,100
- ---------------------------------------------------
Property net income (loss) $ 67,000 $ (118,200)
- ---------------------------------------------------
Average occupancy 88% 85%
- ---------------------------------------------------
1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues $ 370,700 $ 384,800
- ---------------------------------------------------
Property net income $ 50,700 $ 88,900
- ---------------------------------------------------
Average occupancy 96% 98%
- ---------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 310,100 $ 306,400
- ---------------------------------------------------
Property net (loss) $ (40,100) $ (20,600)
- ---------------------------------------------------
Average occupancy 98% 97%
- ---------------------------------------------------
REGENCY PARK SHOPPING CENTER (25%)
Rental revenues $ 149,400 $ 148,100
- ---------------------------------------------------
Property net (loss) $ (5,200) $ (18,900)
- ---------------------------------------------------
Average occupancy 87% 88%
- ---------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income,
interest expense on the Partnership's Front-End Fees loan and general and
administrative expenses or are related to properties disposed of by the
Partnership prior to the periods under comparison.
Net (loss) income for the Partnership changed from $(374,200) for the quarter
ended March 31, 1995 to $192,500 for the quarter ended March 31, 1996. The
primary factor contributing to the change was improved operating results
totaling $590,600 at all of the Partnership's properties except 1800 Sherman
Office Building ("1800 Sherman") and Prentice Plaza. In addition, interest
expense on the Partnership's Front-End Fees Loan decreased $18,200, due to a
decrease in the variable interest rate, and interest income increased $12,700,
primarily due to an increase in the funds available for short-term investments.
Partially offsetting the change in net (loss) income was diminished operating
results totaling $57,700 at 1800 Sherman and Prentice Plaza.
Rental revenues increased $174,700, or 4.1%, for the quarter ended March 31,
1996 when compared to the quarter ended March 31, 1995. The primary factors
which contributed to the increase were higher rental revenues at: 1) Deerfield
Mall primarily due to an increase in the average quarterly base rental rate; 2)
Sentry Park West Office Campus ("Sentry West") primarily due to increases in
the average quarterly base rental and occupancy rates; 3) Equitable of Iowa
Building ("Equitable") primarily due to an increase in tenant expense
reimbursements and 4) Meidinger Tower primarily due to the receipt in 1996 of a
one-time lease settlement fee. Partially offsetting the increase in rental
revenues was: 1) a decrease in tenant expense reimbursements and a lower
average quarterly base rental rate at Meidinger Tower; 2) a decrease in the
average quarterly occupancy rate at 1800 Sherman and 3) the receipt in 1995 of
a one-time lease settlement fee at Prentice Plaza.
Depreciation and amortization expense decreased $378,600 for the quarters under
comparison. The decrease was primarily due to the fact that effective January
1, 1996, the Partnership ceased the periodic depreciation and amortization
expense for depreciable and amortizable assets at 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 $73,700 for the
quarter ended March 31, 1996 when compared to the quarter ended March 31, 1995.
The decrease was primarily due to: 1) a lower average interest rate on the
Partnership's variable rate mortgage loans; 2) a reduced interest rate on the
mortgage loan collateralized by Regency Park Shopping Center ("Regency Park")
and 3) lower average outstanding principal balances on all of the Partnership's
mortgage loans except Prentice Plaza.
Property operating expense increased $45,900 for the quarters under comparison
primarily as a result of an increase in utility costs at Equitable as well as
the 1996 settlement of Florida state sales and use tax audits relating to the
tax years 1987 through 1990 at Deerfield Mall and Regency Park.
Repairs and maintenance expense increased $28,800 for the quarter ended March
31, 1996 when compared to the quarter ended March 31, 1995. The properties
contributing most significantly to the increase were Prentice Plaza, due to
repairs to the chillers in the heating, ventilating and air conditioning system
and 1800 Sherman due to increases in the costs connected with the cleaning of
the property and snow removal. Partially offsetting the increase was lower
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
rubbish removal costs at Deerfield Mall due to the fact that in 1995 the city
began billing tenants directly for rubbish removal.
Insurance expense, real estate tax expense and general and administrative
expenses remained stable for the quarter ended March 31, 1996 when compared to
the quarter ended March 31, 1995.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenant leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area; and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
properties. Cash Flow (as defined in the Partnership Agreement) is generally
not equal to Partnership net income (loss) or cash flows as defined by
generally accepted accounting principles ("GAAP"), since certain items are
treated differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income (loss) 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 Quarters
Ended
3/31/96 3/31/95
- ----------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 614,700 $ 398,700
Items of reconciliation:
Principal payments on mortgage loans payable 209,000 236,900
Decrease in current assets 645,600 215,100
(Decrease) increase in current liabilities (36,900) 319,800
- ----------------------------------------------------------------------------
Net cash provided by operating activities $1,432,400 $1,170,500
- ----------------------------------------------------------------------------
Net cash (used for) investing activities $ (254,000) $ (129,000)
- ----------------------------------------------------------------------------
Net cash (used for) financing activities $ (254,300) $ (752,900)
- ----------------------------------------------------------------------------
</TABLE>
The increase in Cash Flow (as defined in the Partnership Agreement) of $216,000
for the quarter ended March 31, 1996 when compared to quarter ended March 31,
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 for the quarter ended March 31, 1996
was primarily the result of net cash provided by operating activities exceeding
the principal payments made on Partnership's mortgage loans payable, the
increase in escrow deposits and the expenditures made for capital and tenant
improvements and leasing costs. Liquid assets of the Partnership as of March
31, 1996 were comprised of undistributed cash from operations retained 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
$261,900 for the quarter ended March 31, 1996 when compared to the quarter
ended March 31, 1995. This increase was primarily due to increases in the net
cash provided by operating activities at Meidinger Tower, Deerfield Mall,
Sentry West and Regency Park. The increase was partially offset by decreases in
the net cash provided by operating activities at Equitable, Prentice Plaza and
1800 Sherman.
The increase in net cash (used for) investing activities of $125,000 was
primarily due to cash used for real estate tax escrow deposits. Also
contributing to the increase was an additional investment pledged as collateral
for a letter of credit issued to the Louisville Gas & Electric Company and the
maturity and 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 quarter ended March 31, 1996, the
Partnership spent $44,500 for these items and has budgeted to spend
approximately $1,030,000 during the remainder of 1996. Included in the
remaining 1996 budgeted amount are building and tenant improvements and leasing
costs of approximately: 1) $410,000 for Meidinger Tower; 2) $260,000 for
Equitable; 3) $130,000 for Deerfield Mall and 4) $130,000 for 1800 Sherman.
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 $498,600 was
primarily due to lower principal payments made in 1996 on the mortgage loans
collateralized by Sentry West and Meidinger Tower and the completion of the
repurchase of Limited Partnership Units as a result of the expiration of the
Repurchase Option Period in 1995. Partially offsetting the decrease was higher
principal payments made
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in 1996 on the mortgage loans collateralized by Regency Park, Equitable,
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
49-month period beginning March 1, 1993. All deferred amounts (including
accrued interest thereon) shall be due and payable on April 1, 1997, and shall
not be subordinated to repayment to the Limited Partners. As of March 31, 1996,
the Partnership had not exercised its option to defer the payment of interest
on this loan.
In March 1996, the Partnership entered into a contract to sell Sentry West. 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 an agreement (the "Agreement"), effective
April 1, 1996, modifying the loan agreement collateralized by Equitable.
Significant terms included in the Agreement were: 1) an extension of the
maturity date to April 1, 1997; 2) initial principal paydowns totaling $143,750
and 3) a change in the variable interest rate from 30-day LIBOR plus 175 basis
points to 30-day LIBOR plus 250 basis points. In conjunction with the
Agreement, a cash collateral agreement was created whereby the Partnership must
remit monthly the net cash flow, as defined by the Agreement, of Equitable to
an interest bearing reserve account ("Reserve") established by the Partnership
and the lender, whereby the lender has a first security interest. Pursuant to
the Agreement, 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.
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, is in default under the terms of the mortgage loan which matured on
January 1, 1996. The General Partner is negotiating an extension of the
maturity date of the mortgage loan. If consummated, the agreement for such
extension of the loan may include a change in interest rate, modified payment
terms and other provisions that did not exist in the matured loan. Since
January 1, 1996, the Partnership has continued to make debt service payments to
the lender, based on an interim understanding between the mortgage lender and
the Partnership. There can be no assurance that the Partnership and mortgage
lender will consummate an extension of this loan.
The 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 $14,760,900 as
of March 31, 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 quarter ended
March 31, 1996 all Cash Flow (as defined in the Partnership Agreement) of
$614,700 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 the respective loans, or
that the 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 less than half of such Limited Partners'
original Capital Investment.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter
ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: May 13, 1996 By: /s/ DOUGLAS CROCKER II
------------ --------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: May 13, 1996 By: /s/ NORMAN M. FIELD
------------ --------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,907,500
<SECURITIES> 0
<RECEIVABLES> 264,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,609,200
<PP&E> 104,050,000
<DEPRECIATION> 26,293,200
<TOTAL-ASSETS> 84,926,300
<CURRENT-LIABILITIES> 3,279,200
<BONDS> 60,156,400
<COMMON> 0
0
0
<OTHER-SE> 8,023,800
<TOTAL-LIABILITY-AND-EQUITY> 84,926,300
<SALES> 0
<TOTAL-REVENUES> 4,471,700
<CGS> 0
<TOTAL-COSTS> 2,213,800
<OTHER-EXPENSES> 67,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,366,900
<INCOME-PRETAX> 192,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 192,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,500
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
