<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
----------------------------------------------
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
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FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Illinois 36-3498223
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
- ------------------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 207-0020
------------------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
------------------------------------
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Assignee Units
------------------------------------
</TABLE>
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated May 8, 1987, included in
the Registrant's Registration Statement on Form S-11 (Registration No.
33-12269), is incorporated herein by reference in Part IV of this report.
EXHIBIT INDEX - PAGE A-1
- ------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
The registrant, First Capital Income and Growth Fund-Series XII (the
"Partnership") is a limited partnership organized in 1987 under the Revised
Uniform Limited Partnership Act of the State of Illinois. The Partnership sold
$100,000,000 in Limited Partnership Assignee Units (the "Units") to the public
from May 1987 to November 1988, pursuant to a Registration Statement on Form
S-11 filed with the Securities and Exchange Commission (Registration No.
33-12269). Capitalized terms used in this report have the same meaning as those
terms have in the Partnership's Registration Statement.
The business of the Partnership is to invest primarily in existing, income-
producing real estate, such as shopping centers, office buildings, apartments,
warehouses, or any one or more of these categories. From November 1987 to March
1991, the Partnership: 1) made three real property investments; 2) purchased 50%
interests in three joint ventures, a 75% interest in one joint venture and a 25%
interest in a separate joint venture which were each formed with Affiliated
partnerships for the purpose of acquiring a 100% interest in certain real
property and 3) purchased 50% interests in four separate joint ventures which
were each formed with Affiliated partnerships for the purpose of acquiring a
preferred majority interest in certain real property. All of these joint
ventures, prior to dissolution, are operated under the common control of First
Capital Financial Corporation (the "General Partner"). As of December 31, 1995
the Partnership, with its respective joint venture partner, has dissolved as a
result of the sale and/or disposition of the real properties: 1) one joint
venture with a 50% interest in real property; 2) three joint ventures with 50%
preferred majority interests in real property and 3) the joint venture with a
75% interest in real property.
Property management services for one of the Partnership's real estate
investments is provided by an independent real estate management company for
fees calculated as a percentage of gross rents received from the property. In
addition, Affiliates of the General Partner provide property management and
supervisory services for fees calculated as a percentage of gross rents received
from each of the Partnership's properties.
The real estate business is highly competitive. The results of operations of the
Partnership will depend upon the availability of suitable tenants, real estate
market conditions and general economic conditions which may impact the success
of these tenants. Properties owned by the Partnership frequently compete for
tenants with similar properties owned by others.
As of March 1, 1996, there were 26 employees at the Partnership's properties for
on-site property maintenance and administration.
ITEM 2. PROPERTIES (a)(b)
- ------- -----------------
As of December 31, 1995, the Partnership owned directly or through joint
ventures, the following seven properties, which were owned in fee simple and,
except for 1800 Sherman Office Building ("1800 Sherman"), were encumbered by
mortgages. For complete details of the material terms of the encumbrances, refer
to Note 5 of the Notes to Financial Statements.
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ----------------------------------------- -------------------------------- ---------------- -----------
<S> <C> <C> <C>
Shopping Centers:
- -----------------
Deerfield Mall Deerfield Beach, Florida 373,630 56 (2)
</TABLE>
2
<PAGE>
ITEM 2. PROPERTIES (a)(b) - Continued
- ------- -----------------------------
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ------------------------------------------ ------------------------------- ---------------- -----------
<S> <C> <C> <C>
Shopping Centers: (continued)
- ------------------------------
Regency Park (d) Jacksonville, Florida 329,858 21 (3)
Office Buildings
- ----------------
Meidinger Tower Louisville, Kentucky 331,054 46 (1)
Sentry Park West Office Campus (e) Blue Bell, Pennsylvania 218,733 54
Equitable of Iowa Building Des Moines, Iowa 217,638 31 (2)
Prentice Plaza (f) Englewood, Colorado 157,311 31 (1)
1800 Sherman (f) Evanston, Illinois 134,541 33 (2)
</TABLE>
(a) For a discussion of significant operating results and major capital
expenditures planned for the Partnership's properties refer to Item 7.
(b) For federal income tax purposes, the Partnership depreciates the
portion of the acquisition costs of its properties allocable to real
property (exclusive of land), and all improvements thereafter, over useful
lives of 40 years utilizing the straight-line method. The Partnership's
portion of real estate taxes for Deerfield Mall, Meidinger Tower and the
Equitable of Iowa Building ("Equitable"), the Partnership's most
significant properties, was $659,300, $386,200, and $435,200, respectively,
for the year ended December 31, 1995. In the opinion of the General
Partner, all of the Partnership's properties are adequately insured and
serviced by all necessary utilities.
(c) Represents the total number of tenants as well as the number of
tenants, in parenthesis, that individually occupy more than 10% of the net
leasable square footage of the property.
(d) The Partnership owns a 25% joint venture interest in this property.
(e) The Partnership owns a 50% interest in a joint venture which owns a
preferred majority interest in the joint venture which owns the property.
(f) The Partnership owns a 50% joint venture interest in this property.
The following table presents each of the Partnership's most significant
properties' occupancy rates as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
Property Name 1995 1994 1993 1992 1991
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Deerfield Mall 93% 92% 89% 80% 92%
Meidinger Tower 96% 93% 85% 88% 90%
Equitable 99% 98% 96% 97% 80%
</TABLE>
3
<PAGE>
ITEM 2. PROPERTIES - Continued
- ------- ----------------------
The amounts in the following table represent each of the Partnership's most
significant properties' average annual rental rate per square foot for each of
the last five years ended December 31 and were computed by dividing each
property's base rental revenues by its average occupied square footage:
<TABLE>
<CAPTION>
Property Name 1995 1994 1993 1992 1991
- --------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Deerfield Mall $9.58 $9.25 $9.40 $9.70 $9.47
Meidinger Tower $8.33 $8.21 $8.46 $10.11 $10.86
Equitable $14.47 $14.11 $12.96 $12.75 $11.99
</TABLE>
The following table summarizes the principal provisions of the leases for each
of the tenants which occupy ten percent or more of the rentable square footage
at each of the Partnership's most significant properties:
<TABLE>
<CAPTION>
Partnership's Share of per Percentage
Annum Base Rents (a) for of Net Renewal
--------------------------- Leasable Options
Final Twelve Expiration Square (Renewal
Months of Date of Footage Options /
1996 Lease Lease Occupied Years)
---------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Deerfield Mall
- --------------
T. J. Maxx (department store) $ 382,300 $ 433,500 11/30/2012 21% 5 / 5
Publix (grocery store) $ 252,700 $ 252,700 5/4/2008 11% 4 / 5
Meidinger Tower
- ---------------
William M. Mercer (management and insurance consulting) $ 807,100 $ 807,100 7/31/2002 31% (b)
Equitable
- ---------
Equitable Life of Iowa (life insurance) $1,461,900 $1,461,900 2/28/1999 42% 1 / 5
Student Loan Liquidity Corporation (loan servicing) $ 502,200 $ 518,400 12/31/2001 15% 2 / 5
</TABLE>
(a) The Partnership's share of per annum base rents for each of the
tenants listed above for each of the years between 1996 and the final
twelve months for each of the above leases is no lesser or greater than the
amounts listed in the above table.
(b) Tenant has one ten-year renewal option and two additional five-year
renewal options.
4
<PAGE>
ITEM 2. PROPERTIES - Continued
- ------- ----------------------
The amounts in the following table represent the Partnership's portion of leases
in the year of expiration (assuming no lease renewals) through the year ended
December 31, 2005:
<TABLE>
<CAPTION>
Number Base Rents
of in Year of % of Total
Year Tenants Square Feet Expiration (a) Base Rents (b)
---- ------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
1996 26 85,943 $808,300 8.94%
1997 13 29,520 $198,500 2.41%
1998 32 83,645 $529,400 6.85%
1999 23 188,446 $894,800 16.04%
2000 13 34,882 $226,700 5.03%
2001 6 71,200 $722,400 17.44%
2002 2 121,701 $622,300 20.84%
2003 5 25,168 $273,000 11.90%
2004 5 27,234 $192,200 9.97%
2005 2 4,280 $21,100 1.26%
</TABLE>
(a) Represents the Partnership's portion of base rents to be collected each
year on expiring leases.
(b) Represents the Partnership's portion of base rents to be collected each
year on expiring leases as a percentage of the Partnership's portion of the
total base rents to be collected on leases in effect as of December 31,
1995.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
(a & b) The Partnership and its properties were not a party to, nor the subject
of, any material pending legal proceedings, nor were any such proceedings
terminated during the quarter ended December 31, 1995. Ordinary routine
litigation incidental to the business which is not deemed material was
maintained during the quarter ended December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
(a,b,c & d) None.
5
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
- ------- ----------------------------------------------------------------------
There has not been, nor is there expected to be, a public market for Units.
As of March 1, 1996, there were 7,927 Holders of Units.
ITEM 6. SELECTED FINANCIAL DATA
- ------- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 17,678,700 $ 16,698,200 $ 18,534,400 $ 22,687,900 $ 23,391,300
Net (loss) $(13,386,400) $(14,742,000) $(22,424,800) $(11,581,300) $ (2,307,200)
Net (loss) allocated to Limited Partners(a) $(13,252,500) $(14,594,600) $(22,200,600) $(11,465,500) $ (2,284,100)
Weighted average number of Units outstanding 953,845 963,785 973,695 984,436 993,744
Net (loss) allocated to Limited Partners
per weighted average Unit (a) $ (13.89) $ (15.14) $ (22.80) $ (11.65) $ (2.30)
Total assets $ 85,015,000 $100,121,600 $120,664,800 $167,132,400 $185,295,900
Mortgage loans payable $ 60,405,300 $ 61,195,100 $ 65,853,800 $ 87,530,600 $ 92,696,900
Front-End Fees Loan payable to General Partner $ 13,434,400 $ 13,434,400 $ 13,434,400 $ 13,434,400 $ 13,434,400
Distributions to Limited Partners per
weighted average Unit None None None $ 0.25 $ 1.12
Return of capital to Limited Partners per weighted
average Unit (b) None None None $ 0.25 $ 1.12
Other data:
- -----------
Investment in commercial rental properties (net of
accumulated depreciation and amortization) $ 78,329,900 $ 94,027,300 $113,844,700 $148,740,900 $160,146,600
</TABLE>
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA - Continued
- ------- -----------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of real property interests owned at December 31 7 7 10 11 11
</TABLE>
(a) Net (loss) allocated to Limited Partners for 1993 included an
extraordinary gain on extinguishment of debt.
(b) For the purposes of this table, return of capital represents either:
the amount by which distributions, if any, exceed net income each
respective year or; total distributions, if any, in years when the
Partnership incurs a net loss. Pursuant to the Partnership Agreement,
Capital Investment is only reduced by distributions of Sale or Refinancing
Proceeds. Accordingly, return of capital as used in the above table does
not impact Capital Investment.
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash Flow (as defined in the Partnership Agreement) (a) $2,141,300 $2,259,300 $2,673,200 $3,387,400 $2,381,600
Items of reconciliation:
Principal payments on mortgage loans payable $1,240,500 $ 449,200 $ 185,200 $ 187,700 $ 160,000
General Partner's Portfolio Management Fee 27,500 123,600
Loan application fee (113,300)
Nonoperating expense (43,200)
Changes in current assets and liabilities:
(Increase) decrease in current assets (271,600) 495,000 540,200 (84,400) 587,200
Increase (decrease) in current liabilities 50,600 (156,100) (758,200) (33,800) 735,000
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities $3,160,800 $3,047,400 $4,156,800 $3,484,400 $3,830,900
========== ========== ========== ========== ==========
</TABLE>
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA - Continued
- ------- -----------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net cash (used for) provided by investing activities $ (683,000) $ 2,141,100 $(5,627,100) $(3,683,300) $(10,103,900)
=========== =========== =========== =========== =============
Net cash (used for) provided by financing activities $(1,833,400) $(5,762,800) $(4,329,500) $(6,628,800) $ 3,355,500
=========== =========== =========== =========== =============
</TABLE>
(a) Cash Flow is defined in the Partnership Agreement as Partnership cash
revenues earned from operations (excluding tenant deposits and proceeds
from the sale, disposition or financing of any Partnership properties or
the refinancing of any Partnership indebtedness), minus all cash expenses
incurred (including Operating Expenses, payments of principal and interest
on any Partnership indebtedness, and any reserves of revenues from
operations deemed reasonably necessary by the General Partner), except
depreciation and amortization expenses and capital expenditures and lease
acquisition expenditures.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing on pages A-1 through
A-8 in this report and the supplemental schedule on pages A-9 and A-10.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through its life
cycle in three phases: (i) the Offering of Units and Investment in Properties;
(ii) the operation of properties and (iii) the sale or other disposition of
properties.
The Partnership commenced the Offering of Units on May 8, 1987 and began
operations on June 9, 1987 after reaching the required minimum subscription
level. On November 22, 1988 the Offering was Terminated upon the sale of
1,000,000 Units. From November 1987 to March 1991, the Partnership: 1) made
three real property investments; 2) purchased 50% interests in three joint
ventures, a 75% interest in one joint venture and a 25% interest in a separate
joint venture which were each formed with Affiliated partnerships for the
purpose of acquiring a 100% interest in certain real property and 3) purchased
50% interests in four separate joint ventures which were each formed with
Affiliated partnerships for the purpose of acquiring a preferred majority
interest in certain real property.
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
1993 the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle. During the disposition
phase of the Partnership's life cycle, comparisons of operating results are
complicated due to the timing and effect of property sales and dispositions.
Partnership operating results are generally expected to decline as real
property interests are sold or disposed of since the Partnership no longer
receives income generated from such real property interests. As of December 31,
1995 the Partnership, with its respective joint venture partner, has dissolved
as a result of the sale and/or disposition of the real properties: 1) one joint
venture with a 50% interest in real property; 2) three joint ventures with 50%
preferred majority interests in real property and 3) the joint venture with a
75% interest in real property.
The past year was disappointing for most retailers throughout the country.
Gross margins and consequently profits were negatively impacted as retailers
attempted to turn inventories. The prospects for expansion in 1996 are also
minimal, if nonexistent. The poor sales performance of retailers has resulted
in less demand for store space, further retailer consolidations and an
increased number of bankruptcies. Factors utilized by prospective property
purchasers such as higher capitalization and discount rates resulted in lower
prices than previously seen in years. In addition, downward pressure on rent,
upward pressure on tenant improvement costs and larger reserves for capital
expenditures also negatively affected the pricing of retail assets. The
Partnership's two retail properties, which accounted for approximately 28% of
the Partnership's rental revenues for the year ended December 31, 1995, have
experienced other issues which have affected their estimated fair market
values. During 1995, competition at Deerfield Mall has intensified as a result
of the development of similar type properties in the area. As a result of the
increased supply of retail space, together with reduced demand, the Partnership
may need to provide concessions to renewing and prospective tenants at
Deerfield Mall, such as reduced rental rates, increased tenant improvements and
rent abatements. With respect to Regency Park Shopping Center ("Regency Park"),
the vacancy of an anchor tenant's space for a significant period of time has
had a negative impact on the property's appeal to existing and prospective
tenants. While the tenant has continued to pay rent pursuant to its lease, the
Partnership has experienced difficulty leasing the specialty retail space which
surrounds this area of the property. The General Partner has been negotiating
with two merchants to each sublet a portion of the vacant space and currently
anticipates that each of these stores will be open for business by the third
quarter of 1996. While there can be no assurances that either of these two
merchants will sublease space at Regency Park, if negotiations are completed
and they do take occupancy, then the lease-up of the vacant specialty space may
improve.
The Partnership's five office buildings accounted for the remaining 72% of the
Partnership's gross rental revenues for the year ended December 31, 1995.
Several factors have had an effect on operating performance and market values
of certain office buildings. While occupancy rates have generally continued to
gradually improve, the age of the Partnership's office buildings and increased
competition from newer buildings with higher vacancy has caused rental rates to
either decline or remain relatively stable in most instances. The rental rate
issue is extremely prevalent in the market where Meidinger Tower is located.
Gross market rental rates in effect at the time Meidinger Tower was purchased
were approximately $18 to $20 per square foot ("psf"), gross. In addition,
several larger tenants at this property were paying rates considerably above
market. These particular tenants have subsequently vacated the building, and
were replaced by smaller tenants at lower rates. Recent leases have been
executed at this property for approximately $13 to $14 psf, gross. 1800 Sherman
Office Building's ("1800 Sherman") operations are expected to be adversely
affected by a potential leveling or reduction in rental rates resulting from an
increased supply of vacant office space in its local area. The General Partner
has learned that a competitive office property will shortly be vacated by its
sole tenant. This event may cause an imbalance in the supply of office space
available versus the demand for such space. During 1995, the largest tenant at
the Equitable of Iowa Building ("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.
There are limited opportunities in this market for replacing a tenant of this
size. Costs associated with leasing this space may be substantial. The General
Partner feels that it is not economically feasible to expend such funds.
Accordingly, the General Partner is currently marketing Equitable for sale.
The General Partner has historically reviewed significant factors regarding the
properties, such as those mentioned above, to determine that the properties are
carried at lower of cost or market, and where appropriate, has made value
impairment adjustments. These factors include, but are not limited to: 1)
recent and/or budgeted operating performance; 2) research of market conditions;
3) economic trends affecting major tenants; 4) economic factors related to the
region where the properties are located and 5) when available, recent property
appraisals. As a result of the current year review, the Partnership has
recorded provisions for value impairment totaling $12,700,000 for the year
ended December 31, 1995. Of this amount, $6,800,000 relates to the retail
properties and $5,900,000 relates to office buildings. For more details related
to these provisions, see Note 12 of Notes to Financial Statements. The General
Partner will continue to evaluate real estate market conditions affecting each
of the Partnership's properties, in its efforts to maximize the realization of
proceeds on their
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
eventual disposition. The recording of the provisions for value impairment does
not impact cash flows as defined by GAAP or Cash Flow (as defined in the
Partnership Agreement).
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1995, 1994 and 1993.
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 Years Ended December 31,
----------------------------------
1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
MEIDINGER TOWER
Rental revenues $4,680,200 $4,134,300 $4,083,300
- ------------------------------------------------------------
Property net
(loss) (b) $ (311,200) $ (563,000) $ (459,000)
- ------------------------------------------------------------
Average occupancy 93% 90% 87%
- ------------------------------------------------------------
DEERFIELD MALL
Rental revenues $4,212,300 $3,941,300 $3,784,200
- ------------------------------------------------------------
Property net income (b) $ 550,500 $ 247,600 $ 604,100
- ------------------------------------------------------------
Average occupancy 94% 89% 86%
- ------------------------------------------------------------
EQUITABLE OF IOWA BUILDING
Rental revenues $3,845,500 $3,503,300 $3,159,700
- ------------------------------------------------------------
Property net income (b) $ 528,900 $ 147,900 $ 177,100
- ------------------------------------------------------------
Average occupancy 99% 97% 96%
- ------------------------------------------------------------
1800 SHERMAN OFFICE BUILDING
Rental revenues $1,538,200 $1,496,900 $1,427,300
- ------------------------------------------------------------
Property net income (b) $ 316,000 $ 388,900 $ 461,500
- ------------------------------------------------------------
Average occupancy 97% 95% 93%
- ------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS
Rental revenues $1,399,200 $1,149,500 $ 995,700
- ------------------------------------------------------------
Property net
(loss) (b) $ (351,400) $ (396,100) $ (425,500)
- ------------------------------------------------------------
Average occupancy 86% 76% 73%
- ------------------------------------------------------------
PRENTICE PLAZA
Rental revenues $1,169,400 $1,072,900 $ 958,800
- ------------------------------------------------------------
Property net (loss) $ (229,800) $ (250,400) $ (372,100)
- ------------------------------------------------------------
Average occupancy 97% 93% 91%
- ------------------------------------------------------------
REGENCY PARK SHOPPING CENTER
Rental revenues $ 587,500 $ 523,200 $ 542,200
- ------------------------------------------------------------
Property net
(loss) (b)(c) $ (70,200) $ (163,100) $ (172,300)
- ------------------------------------------------------------
Average occupancy 88% 79% 78%
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Comparative Operating Results
(a)
For the Years Ended December 31,
---------------------------------
1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
PARK CENTRAL OFFICE PARK I, II & III (D)
Rental revenues $ 371,500 $ 831,700
- ---------------------------------------------------------------------
Property net income (loss) (b)(d) $ 5,100 $ (97,700)
- ---------------------------------------------------------------------
Average occupancy (d) 76%
- ---------------------------------------------------------------------
SENTRY PARK EAST OFFICE CAMPUS (E)
Rental revenues $ 137,000 $ 221,700
- ---------------------------------------------------------------------
Property net
(loss) (e) $ (32,800) $ (116,400)
- ---------------------------------------------------------------------
Average occupancy 61% 47%
- ---------------------------------------------------------------------
ONE CHARLES CENTER (F)
Rental revenues $2,184,100
- ---------------------------------------------------------------------
Property net
(loss) (f) $ (369,200)
- ---------------------------------------------------------------------
Average occupancy (f)
- ---------------------------------------------------------------------
</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) Property net (loss) income excludes provisions for value impairment which
were included in the Statements of Income and Expenses for the years ended
December 31, 1995, 1994 and 1993 (see Note 12 of Notes to Financial
Statements for additional information).
(c) The joint venture which owns Regency Park in which the Partnership has a
25% interest, sold a parcel of land at Regency Park on March 1, 1993. The
property net (loss) excludes the (loss) of $(20,800) from the sale of the
parcel of land which was included in the Statement of Income and Expenses
for the year ended December 31, 1993 (see Note 11 of Notes to Financial
Statements for additional information).
(d) The joint ventures which owned Park Central Office Park I, II and III
("Park Central"), in which the Partnership had a 50% interest, sold Park
Central on June 29, 1994. The property net income excludes the (loss) of
$(104,000) from the sale of the property which was included in the
Statement of Income and Expenses for the year ended December 31, 1994 (see
Note 11 of Notes to Financial Statements for additional information).
(e) The joint venture which owned Sentry Park East Office Campus ("Sentry
East"), in which the Partnership had a 50% interest, sold one of five
office buildings situated in this office campus on July 1, 1993, a second
building was sold on October 14, 1993 and a third building was sold on
April 22, 1994. The property net (losses) exclude the (losses) from the
sales of these buildings which were previously reported by the Partnership
as a provision for value impairment which was included in the Statement of
Income and Expenses for the year ended December 31, 1992. In addition, on
December 29,
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
1994, the joint venture sold the remaining two office buildings situated in
this office campus. The property net (loss) excludes the gain of $292,500 on
the sale of these two buildings which was included in the Statement of
Income and Expenses for the year ended December 31, 1994, (see Note 11 of
Notes to Financial Statements for additional information).
(f) The joint venture which owned One Charles Center in which the Partnership
had a 75% interest, disposed of One Charles Center on August 17, 1993. The
property net (loss) excludes the (loss) of $(10,206,400) from the
disposition of the property as well as the extraordinary gain on the
extinguishment of debt of $4,602,100 which were included in the Statement
of Income and Expenses for the year ended December 31, 1993 (see Note 11 of
Notes to Financial Statements for additional information). In addition, the
Partnership recorded $314,300 as its portion of amounts due to the mortgage
holder as a final proration of all income and expense items as of August
17, 1993, the majority of which represented net cash flow (as defined by
the loan agreement) received subsequent to June 1, 1993.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net (loss) for the Partnership decreased $1,355,600 for the year ended December
31, 1995 when compared to the year ended December 31, 1994. The effects of the
sales of certain Partnership properties during 1994 and provisions for value
impairment recognized in 1995 and 1994 had a significant impact on the
comparison of net (loss) for the year ended December 31, 1995 as compared to
1994. As described above, the Partnership recorded provisions for value
impairment of $12,700,000 during 1995. During 1994, the Partnership recorded
provisions for value impairment of $13,250,000 and sold the three remaining
office buildings at Sentry East as well as Park Central. Properties sold during
1994 accounted for net income (including operating results and the net gain on
sales of properties) of $160,800. For further information, see the table above
and the notes thereto as well as Notes 11 and 12 of Notes to Financial
Statements.
Excluding the effects on net income of the properties sold and provisions for
value impairment, net (loss) for the year ended December 31, 1995 decreased
$968,700 when compared to the net (loss) for the year ended December 31, 1994.
The primary factor contributing to the decrease in net (loss) was improved
operating results totaling $1,093,900 at all of the Partnership's remaining
property interests except 1800 Sherman. In addition, interest income increased
$92,000 due to increases in the rates and funds available for short-term
investments. Partially offsetting the decrease in net (loss) was an increase of
$165,900 in interest expense on the Partnership's Front-End Fees Loan due to an
increase in the variable interest rate.
For purposes of the following comparative discussion, the operating results of
Park Central and Sentry East have been excluded.
Rental revenues increased $1,610,900, or 10%, for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The primary factor
which contributed to the increase was an increase in the average occupancy
rates at all of the Partnership's properties. This factor, along with increases
in the average base rental rate charged to new and renewing tenants,
contributed to a total increase for the Partnership of $974,300 in base rents.
Another significant factor was a net increase of $604,900 in tenant expense
reimbursements at the Partnership's properties, particularly at Meidinger
Tower, as a result of an underestimate of reimbursements due from tenants.
Depreciation and amortization expense decreased $223,100 for the years under
comparison. The decrease was primarily the result of the provisions for value
impairment recorded for several Partnership properties for the year ended
December 31, 1994.
Insurance expense decreased $23,800 for the year ended December 31, 1995, when
compared to the prior year. The decrease was primarily due to lower group rates
on the Partnership's combined insurance coverage as a result of a minimal
amount of claims made over the past several years.
Interest expense on the Partnership's mortgage loans increased $568,000 for the
year ended December 31, 1995 when compared to the year ended December 31, 1994.
The increase was primarily due to increases in the variable interest rates on
the mortgage loans collateralized by Meidinger Tower, Equitable and Sentry Park
West Office Campus ("Sentry West") together with a fixed interest rate on the
new mortgage loan collateralized by Deerfield Mall which was higher than the
1994 variable interest rate on its prior mortgage loan.
Property operating expense increased $191,600 for the years under comparison.
Contributing factors were increases in property management and leasing fees at
all of the Partnership's properties except for Deerfield Mall as a result of
the increase in rental revenues, and in fees for professional services at
Sentry West, Equitable and Prentice Plaza. Partially offsetting the increase in
property operating expense was decreased professional service fees at Deerfield
Mall and 1800 Sherman.
Repairs and maintenance expense increased $28,500 for the year ended December
31, 1995 when compared to the year ended December 31, 1994. The properties with
the most significant increases were: 1) Sentry West with an increase of $30,100
primarily due to: a) higher costs in the maintenance of the building as a
result of the increase in the average occupancy rate; b) an increase in the
repairs and maintenance of the heating, ventilating and air conditioning system
and c) additional expenditures in 1995 in order to enhance the inside
appearance of the building, partially offset by a decrease in snow removal
costs; 2) Meidinger Tower with an increase of $22,600 primarily due to higher
costs in the maintenance of the building as a result of the increase in the
average occupancy rate and 3) Prentice Plaza with an increase of $19,200
primarily due to additional expenditures in 1995 in order to enhance the
appearance of the building as well as to upgrade the fire protection system,
partially offset by a decrease in salaries. Partially offsetting the increase
was a decrease of $24,900 at Deerfield Mall primarily due to the fact that in
1995 the city began billing tenants directly for rubbish removal, partially
offset by additional expenditures in order to enhance the outside appearance of
the building particularly in landscaping, and Equitable with a decrease of
$19,200 primarily due to lower expenditures in 1995 in order to enhance the
appearance of the building partially offset by higher costs in the maintenance
of the building as a result of the increase in the average occupancy rate.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
Real estate tax expense remained stable with a $5,700 increase for the year
ended December 31, 1995 when compared to the year ended December 31, 1994.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 TO THE YEAR ENDED DECEMBER 31,
1993
Net (loss) for the Partnership decreased by $7,682,800 for the year ended
December 31, 1994 when compared to the year ended December 31, 1993. The
effects of sales and disposition of certain Partnership properties as well as
provisions for value impairment recognized in 1994 and 1993 had a significant
impact on the comparison of net (loss) for those years. As previously
described, during 1994 the Partnership reported provisions for value impairment
of $13,250,000 and sold the three remaining office buildings at Sentry East as
well as Park Central. During 1993, the Partnership reported provisions for
value impairment of $14,800,000, disposed of its investment in One Charles
Center, sold two office buildings at Sentry East and sold a parcel of land at
Regency Park. Properties sold and disposed of during 1993 accounted for a net
(loss) (including operating results, the net (loss) on sale or disposition of
properties and an extraordinary gain on extinguishment of debt) of
$(6,208,400). For further information, see the table above and the notes
thereto as well as Notes 11 and 12 of Notes to Financial Statements.
Excluding the effects on the net (loss) of the properties sold and disposed of
and provisions for value impairment, the net (loss) for the year ended December
31, 1994 increased $236,400 when compared to the net (loss) for the year ended
December 31, 1993. The primary factors contributing to the increase were: 1)
lower operating results totaling $562,300 at Deerfield Mall, Meidinger Tower,
1800 Sherman and Equitable; 2) an increase of $143,400 in interest expense on
the Partnership's Front-End Fees Loan due to an increase in the variable
interest rate and 3) a decrease of $115,000 in interest income due to a
decrease in the funds available for short-term investments. Partially
offsetting the increase in net (loss) was a decrease in general and
administrative expenses of $262,100 as a result of lower professional service
costs, particularly due to the absence of legal costs associated with the
appeal process of the Deerfield Mall lawsuit, and improved operating results
totaling $160,300 at Prentice Plaza, Sentry West and Regency Park.
For purposes of the following comparative discussion, the operating results of
Park Central, Sentry East and One Charles Center have been excluded.
Rental revenues increased $870,200, or 6%, for the year ended December 31, 1994
when compared to the year ended December 31, 1993. The primary factor which
contributed to the increase was an increase in the base rental rate charged to
new and renewing tenants at most of the Partnership's properties. This factor,
along with increases in the average occupancy rate at all of the Partnership's
properties, contributed to a net increase of $602,400 in the Partnership's base
rental income. Another significant factor was a net increase of $181,200 in
tenant expense reimbursements at the Partnership's properties, particularly at
Equitable, 1800 Sherman and Deerfield Mall, primarily as a result of receipts
in 1994 of prior years' reimbursements. In addition, percentage rental income
increased by $27,200 and $22,500 at Deerfield Mall and Regency Park,
respectively, resulting from higher tenant sales which determine the amount of
percentage rents to be paid to the Partnership.
Interest expense on the Partnership's mortgage loans increased $783,300 for the
year ended December 31, 1994 when compared to the year ended December 31, 1993.
The increase was primarily due to increases in the variable interest rates on
the mortgage loans collateralized by Deerfield Mall, Meidinger Tower, Sentry
West and Equitable.
Repairs and maintenance expense increased $162,500 for the year ended December
31, 1994 when compared to the year ended December 31, 1993 primarily due to: 1)
higher costs in the maintenance of the buildings at Deerfield Mall, Equitable
and Prentice Plaza as a result of the increases in the average occupancy rate;
2) an increase in the expenditures made at Equitable in order to enhance the
appearance of the building and 3) higher snow removal costs at Sentry West.
Real estate tax expense increased $125,300 in 1994 when compared to 1993. The
increase was primarily due to: 1) an increase of $88,300 at 1800 Sherman as the
result of an overestimate in 1992 of the real estate taxes to be paid in 1993
as well as a projected increase in the 1994 tax rate; 2) an increase of $33,100
at Equitable as a result of increases in the assessed valuation of the property
for real estate tax purposes and higher tax rates and 3) an increase of $18,400
at Deerfield Mall as a result of a refund received in 1993 for the tax year
1992. Partially offsetting the increase was a decrease of $20,400 at Meidinger
Tower as a result of a decrease in the estimated assessed valuation of the
property for real estate tax purposes.
Depreciation and amortization expense increased $45,000 for the years under
comparison. The increase is due to the fact that the periodic depreciation and
amortization expense for depreciable and amortizable assets placed in service
during 1994 exceeded the periodic depreciation and amortization expense for
certain assets for which the depreciable and amortizable lives expired during
1994, partially offset by the reduction in depreciation expense as a result of
the provisions for value impairment recorded for Partnership properties for the
year ended December 31, 1993.
Property operating expense increased $34,800 for the years under comparison
primarily due to higher utility costs at all of the Partnership's properties
except 1800 Sherman. Partially offsetting the increase was decreases in
property management and leasing fees at all of the Partnership's properties.
Despite the fact that rental revenue is a factor in determining the amount of
property management and leasing fees to be paid, property management and
leasing fees decreased primarily as a result of an increase in leasing fees
paid to outside leasing agents during 1994 which are capitalized for reporting
purposes. In addition, professional service fees decreased at various
Partnership properties.
Insurance expense decreased $17,500 for the year ended December 31, 1994, when
compared to the prior year. The decrease was primarily due to lower group rates
on the Partnership's combined insurance coverage as a result of a minimal
amount of claims made over the past several years.
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
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
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.
The rate of inflation has remained relatively stable during the years under
comparison and has had a minimal impact on the operating results of the
Partnership. The nature of various tenant lease clauses protects the
Partnership, to some extent, from increases in the rate of inflation. Certain
of the lease clauses provide for the following: (1) annual rent increases based
on the Consumer Price Index or graduated rental increases; (2) percentage
rentals at shopping centers, for which the Partnership receives as additional
rent a percentage of a tenant's sales over predetermined breakeven amounts and
(3) total or partial tenant reimbursement of property operating expenses (e.g.,
common area maintenance, real estate taxes, etc.).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow (as defined in the Partnership Agreement) is generally not equal to
Partnership net (loss) or cash flows as defined by GAAP, since certain items
are treated differently under the Partnership Agreement than under GAAP. The
General Partner believes that to facilitate a clear understanding of the
Partnership's operations, an analysis of Cash Flow (as defined in the
Partnership Agreement) should be examined in conjunction with an analysis of
net (loss) or cash flows as defined by GAAP. The table in Item 6. Selected
Financial Data 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.
The decrease in Cash Flow (as defined in the Partnership Agreement) of $118,000
for the year ended December 31, 1995 when compared to year ended December 31,
1994, was primarily due to an increase of $791,300 in principal payments on the
Partnership's amortizing mortgage loans. The increase in principal payments was
due to: 1) excess property cash flow amortization (as defined in the
restructured loan agreement) on the mortgage loan collateralized by Meidinger
Tower; 2) the recognition of an entire year of regularly scheduled mortgage
principal payments on the mortgage loan collateralized by Deerfield Mall; 3) an
increase in the quarterly principal payment on the mortgage loan collateralized
by Equitable and 4) the commencement of quarterly principal amortization
payments on the mortgage loan collateralized by Sentry West. Partially
offsetting the decrease in Cash Flow (as defined in the Partnership Agreement)
was the decrease in net (loss) previously discussed, exclusive of the decrease
in depreciation and amortization expense, (losses) from provisions for value
impairment and the net gain on the sales of properties in 1994, components of
which have been previously discussed.
The increase in the Partnership's cash position for the year ended December 31,
1995 was primarily the result of net cash provided by operating activities and
net proceeds from the new mortgage loan collateralized by Prentice Plaza
exceeding the principal payments made on Partnership's mortgage loans payable,
the repurchase of Limited Partnership Units and the expenditures made for
capital and tenant improvements and leasing costs. Liquid assets of the
Partnership as of December 31, 1995 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
$113,400 for the year ended December 31, 1995 when compared to the year ended
December 31, 1994. This increase was primarily due to: 1) increases in the net
cash provided by operating activities at Equitable, 1800 Sherman, Sentry West
and Prentice Plaza; 2) the absence of the net cash (used for) operating
activities in 1994 at One Charles Center (particularly the payment of $314,300
to the holder of the mortgage loan previously collateralized by One Charles
Center), Park Central and Sentry East and 3) the increase in interest income on
the Partnership's short-term investments. The increase was partially offset by
decreases in the net cash provided by operating activities at Meidinger Tower,
Deerfield Mall and Regency Park as well as the increase in interest expense on
the Partnership's Front-End Fees Loan.
Net cash provided by (used for) investing activities changed by $(2,824,100)
for the year ended December 31, 1995 when compared to the year ended December
31, 1994. This change was primarily due to the sale proceeds received on the
sales of Park Central and Sentry East in 1994, partially offset by a decrease
in 1995 in cash used for capital and tenant improvements and leasing costs as
well as real estate tax escrow deposit activity and the release in 1995 of the
restricted certificate of deposit collateralizing the letter of credit at
Regency Park. The Partnership maintains working capital reserves to pay for
capital expenditures such as building and tenant improvements and leasing
costs. During the year ended December 31, 1995, the Partnership spent $945,500
for building and tenant improvements and leasing costs and has budgeted to
spend approximately $1,200,000 during the year ending December 31, 1996.
Included in the 1996 budgeted amount are building and tenant improvements and
leasing costs of approximately: 1) $450,000 for Meidinger Tower; 2) $300,000
for Equitable; 3) $175,000 for Deerfield Mall and 4) $140,000 for 1800 Sherman.
The General Partner believes these improvements and leasing costs are necessary
in order to increase and/or maintain occupancy levels in very competitive
markets, maximize rental rates charged to new and renewing tenants and to
prepare the remaining properties for eventual disposition.
Net cash (used for) financing activities decreased by $3,929,400 for the year
ended December 31, 1995 when compared to the year ended December 31, 1994. This
decrease was primarily due to: 1) the payoff in 1994 of the mortgage loan
collateralized by Park Central I and II from the sale proceeds of Park Central,
as previously discussed; 2) the net principal reduction from the refinancing in
1994 of the mortgage loan collateralized by Deerfield Mall and 3) the net
proceeds received in 1995 on the refinancing of the loan collateralized by
Prentice Plaza. The decrease was partially offset by: 1) an increase in the
amount of principal payments made in 1995 on the Partnership's mortgage loans;
2) the receipt in 1994 of additional proceeds on the loans collateralized by
Sentry West and Meidinger Tower and 3) a partial principal paydown in 1995 on
the mortgage loan collateralized by Sentry West.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
As of December 1995, the Repurchase Option for the repurchase of Limited
Partnership Interests concluded. The Repurchase Option, as defined in the
Partnership Agreement, allowed Limited Partners to resell their Interests to
the Partnership. During 1995, the fifth and final year of the Repurchase Option
period, the Partnership paid a price equal to 115% of the Limited Partners'
Original Capital Contribution, reduced by all prior distributions previously
made to the Limited Partner. The maximum amount of Interests that the
Partnership was obligated to purchase during the Repurchase Option period was
0.25% of the total Original Capital Contribution for each and every calendar
quarter during the Repurchase Option period. As of December 31, 1995, the
Partnership repurchased 50,157 Units which represented Original Capital
Contributions of $5,015,700. The repurchase of these Units, reduced by all
prior distributions previously made to the Limited Partners, resulted in a net
reduction of Limited Partners' Capital and net payments by the Partnership of
$4,581,400.
On December 29, 1994 the joint venture which owns Sentry West, in which the
Partnership has a 50% interest with an Affiliated partnership, executed an
agreement (the "Modification") with the existing lender of this loan, which
originally matured on September 30, 1994, to modify and amend this loan.
Significant terms of the Modification in proportion to the Partnership's 50%
interest included: 1) a reduction in the loan commitment from $5,250,000 to
$5,157,800, of which $45,800 was held back for tenant improvements; 2) a change
in the variable interest rate to 30-day LIBOR plus 212.50 basis points (unless
unavailable in which case the variable interest rate will be the lender's prime
rate plus 0.75%); 3) an extension of the maturity date until September 30,
1996; 4) monthly interest only payments until September 30, 1995; thereafter,
monthly interest plus principal payments of $25,000 on the first day of each
quarter starting October 1, 1995 plus quarterly cash flow principal payments in
an amount equal to the adjusted net operating income of the property as defined
in the Modification; 5) a restriction that no distributions be made to Partners
of the Partnership or Affiliated partnership until the loan is fully repaid and
6) that the loan is guaranteed by the Partnership and the Affiliated
partnership. In addition, the joint venture paid $93,200 in extension and
administrative fees, of which $46,600 will be amortized by the Partnership over
the period of the extension.
In March 1996, the Partnership entered into a contract to sell Sentry West. If
the sale is completed, the Partnership's portion of the proceeds will be
utilized to repay its portion of the mortgage loan collateralized by Sentry
West, and the remaining amount, if any, will be 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.
On December 20, 1995, the joint venture which owns Prentice Plaza, in which the
Partnership has a 50% interest with an Affiliated partnership, executed a non-
recourse promissory note in the amount of $9,750,000, collateralized by a
mortgage on and an assignment of leases and rents of the property. The
Partnership's share of the note amount was $4,875,000. The existing loan was
repaid in full with the proceeds from the note. Significant terms of the
promissory note, which matures in December 2000, in proportion to the
Partnership's 50% interest, include a monthly interest payment in which the
joint venture may choose between either a variable interest rate of 30-day
LIBOR plus 175 basis points or the prime rate of the lender plus 125 basis
points as well as monthly principal payments of $3,070 starting on February 1,
1996 and increasing to $3,343, $3,638, $3,960 and $4,305 on January 1 of each
subsequent year from 1997 through 2000, respectively.
The joint venture which owns Regency Park, in which the Partnership has a 25%
interest with Affiliated partnerships, is in default under the terms of the
mortgage loan which matured on January 1, 1996. The General Partner is
negotiating with the mortgage lender to extend the maturity 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 do
not exist in the matured loan. Since January 1, 1996, the Partnership has
continued to make payments to the lender, based on the terms of the matured
loan. There can be no assurance that the Partnership and mortgage lender will
consummate an extension of this loan. In addition, the General Partner has
initiated efforts to market Regency Park for sale.
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
37-month period beginning March 1, 1993. All deferred amounts (including
accrued interest thereon) shall be due and payable on April 1, 1996, and shall
not be subordinated to repayment to the Limited Partners. As of December 31,
1995, the Partnership had not exercised its option to defer the payment of
interest on this loan.
The mortgage loan collateralized by Equitable is scheduled to mature on April
1, 1996. The Partnership is in negotiations with the mortgage lender to extend
the maturity date of this loan. An extension, if consummated, may result in a
partial principal paydown and adjustments in the terms of the loan, including
principal amortization payments and the interest rate. There can be no
assurance that an extension will be successfully consummated.
The Partnership has significant financial obligations during the year ending
December 31, 1996. As described above, loans collateralized by three of the
Partnership's properties with an aggregate principal balance of $14,883,700 as
of December 31, 1995 mature during 1996. In addition, the Partnership is
expected to incur substantial capital and 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 year ended December 31, 1995 all Cash Flow (as defined
in the Partnership Agreement) of $2,141,300 was retained to supplement working
capital reserves. In addition, the General Partner continues to review other
sources of cash available to the Partnership, which includes the possible
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
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
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
1996. Since there can be no assurance that a refinancing or sale of Sentry West
will occur prior to the maturity date of its loan or that the Partnership will
successfully complete any of the other transactions, including the extension
and modification of the mortgage loans collateralized by Equitable and Regency
Park, the Partnership may have inadequate liquidity to meet its mortgage loan
obligations which could result in the foreclosure of these three 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 substantially less than such Limited
Partners' original Capital Investment.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The response to this item is submitted as a separate section of this report. See
page A-1 "Index of Financial Statements, Schedule and Exhibits."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
(a) DIRECTORS
---------
The Partnership has no directors. First Capital Financial Corporation
("FCFC") is the General Partner. The Directors of FCFC, as of March 29,
1996, are shown in the table below. Directors serve for one year or until
their successors are elected. The next annual meeting of FCFC will be held
in June 1996.
Name Office
---- ------
Samuel Zell........................................ Chairman of the Board
Douglas Crocker II................................. Director
Sheli Z. Rosenberg................................. Director
Sanford Shkolnik................................... Director
Samuel Zell, 54, has been a Director of the General Partner since 1983
(Chairman of the Board since December 1985) and is Chairman of the Board of
Great American Management and Investment, Inc. ("Great American"). Mr. Zell
is also Chairman of the Board of Equity Financial and Management Company
("EFMC") and Equity Group Investments, Inc.("EGI"), and is a trustee and
beneficiary of a general partner of Equity Holdings Limited, an Illinois
Limited Partnership, a privately owned investment partnership. He is also
Chairman of the Board of Directors of Anixter International Inc., Falcon
Building Products, Inc. and American Classic Voyages Co. He is Chairman of
the Board of Trustees of Equity Residential Properties Trust. He is a
director of Quality Food Centers, Inc. and Sealy Corporation. He is
Chairman of the Board of Directors and Chief Executive Officer of Capsure
Holdings Corp. and Manufactured Home Communities, Inc. and Co-Chairman of
the Board of Revco D.S., Inc. Mr. Zell was President of Madison Management
Group, Inc. ("Madison") prior to October 4, 1991. Madison filed for
protection under the Federal bankruptcy laws on November 8, 1991.
Douglas Crocker II, 55, has been President and Chief Executive Officer
since December 1992 and a Director since January 1993 of the General
Partner. Mr. Crocker has been an Executive Vice President of EFMC since
November 1992. Mr. Crocker has been President, Chief Executive Officer and
trustee of Equity Residential Properties Trust since March 31, 1993. He was
President of Republic Savings Bank, F.S.B. ("Republic") from 1989 to June
1992 at which time the Resolution Trust Company took control of Republic.
Mr. Crocker is a member of the Board of Directors of Horizon Group, Inc.
Sheli Z. Rosenberg, 54, was President and Chief Executive Officer of the
General Partner from December 1990 to December 1992 and has been a Director
of the General Partner since September 1983; was Executive Vice President
and General Counsel for EFMC from October 1980 to November 1994; has been
President and Chief Executive Officer of EFMC and EGI since November 1994;
has been a Director of Great American since June 1984 and is a Director of
various subsidiaries of Great American. She is also a Director of Anixter
International Inc., Capsure Holdings Corp., American Classic Voyages Co.,
Falcon Building Products, Inc., Jacor Communications, Inc., Revco D.S.,
Inc., Sealy Corporation and CFI Industries, Inc. She was Chairman of the
Board from January 1994 to September 1994; Co-Chairman of the Board from
September 1994 until March 1995 of CFI Industries, Inc. She is also a
trustee of Equity Residential Properties Trust. Ms. Rosenberg is a
Principal of Rosenberg & Liebentritt, P.C., counsel to the Partnership, the
General Partner and certain of their Affiliates. Ms. Rosenberg was Vice
President of Madison prior to October 4, 1991. Madison filed for protection
under the Federal bankruptcy
17
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
- -------- --------------------------------------------------------------
(a) DIRECTORS - (continued)
-----------------------
laws on November 8, 1991. She has been Vice President of First Capital
Benefit Administrators, Inc. ("Benefit Administrators") since July 22,
1987. Benefit Administrators filed for protection under the Federal
bankruptcy laws on January 3, 1995.
Sanford Shkolnik, 57, has been a Director of the General Partner since
December 1985. Mr. Shkolnik has been Executive Vice President of EFMC since
1976. He is Chairman of the Board and Chief Executive Officer of SC
Management, Inc., which is general partner of Equity Properties and
Development Limited Partnership, a nationally ranked shopping center
management company.
(b,c & e) EXECUTIVE OFFICERS
------------------
The Partnership does not have any executive officers. The executive
officers of the General Partner as of March 29, 1996 are shown in the
table. All officers are elected to serve for one year or until their
successors are elected and qualified.
Name Office
---- ------
Douglas Crocker II................. President and Chief Executive Officer
Arthur A. Greenberg................ Senior Vice President
Norman M. Field.................... Vice President - Finance and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
Arthur A. Greenberg, 55, has been Senior Vice President of the General
Partner since August 1986. Mr. Greenberg was Executive Vice President and
Chief Financial Officer of Great American from December 1986 to March 1995.
Mr. Greenberg also is an Executive Vice President of EFMC since 1971, and
President of Greenberg & Pociask, Ltd. He is Senior Vice President since
1989 and Treasurer since 1990 of Capsure Holdings Corp. Mr. Greenberg is a
Director of American Classic Voyages Co. and Chairman of the Board of
Firstate Financial A Savings Bank. Mr. Greenberg was Vice President of
Madison prior to October 4, 1991. Madison filed for protection under the
Federal bankruptcy laws on November 8, 1991.
Norman M. Field, 47, has been Vice President of Finance and Treasurer of
the General Partner since February 1984, and also served as Vice President
and Treasurer of Great American from July 1983 until March 1995. Mr. Field
has been Treasurer of Benefit Administrators since July 22, 1987. He also
served as Vice President of Madison until October 4,1991. He was Chief
Financial Officer of Equality Specialties, Inc. ("Equality"), a subsidiary
of Great American, from August 1994 to April 1995. Equality was sold in
April 1995.
(d) FAMILY RELATIONSHIPS
--------------------
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
----------------------------------------
With the exception of the bankruptcy matters disclosed under Items 10 (a),
(b), (c) and (e), there are no involvements in certain legal proceedings
among any of the foregoing directors and officers.
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors.
Neither the General Partner, nor any director or officer of the General Partner,
received any direct remuneration from the Partnership during the year ended
December 31, 1995. However, the General Partner and its Affiliates do compensate
its directors and officers. For additional information see Item 13 (a) Certain
Relationships and Related Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(a) As of March 1, 1996, no person owned of record or was known by the
Partnership to own beneficially more than 5% of the Partnership's 949,843 Units
then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1, 1996,
the executive officers and directors of the General Partner, as a group, did not
own any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
(a) Affiliates of the General Partner provide leasing, supervisory and property
management services to the Partnership. Compensation for these property
management services may not exceed 6% of the gross receipts from the property
being managed where the General Partner or Affiliates provide leasing, re-
leasing and leasing-related services, or 3% of gross receipts where the General
Partner or Affiliates do not perform leasing, re-leasing and leasing-related
services for a particular property. For the year ended December 31, 1995, these
Affiliates were entitled to leasing, property management and supervisory fees of
$995,500, of which $70,800 was due as of December 31, 1995. Other Affiliates of
the General Partner were also entitled to receive $212,500 for fees,
compensation and reimbursements for insurance and personnel services fees.
Compensation for these services are on terms which are fair, reasonable and no
less favorable to the Partnership than reasonably could be obtained from
unaffiliated persons. Of these amounts, $15,000 was due to Affiliates as of
December 31, 1995.
The Partnership is also obligated to the General Partner for interest incurred
on the Front-End Fees Loan. The General Partner was entitled to $1,090,000 in
interest for the year ended December 31, 1995. Of this amount $92,200 was due to
the General Partner as of December 31, 1995. In accordance with the Partnership
Agreement, neither the General Partner nor its Affiliates shall lend money to
the Partnership with interest rates and other finance charges and fees in excess
of the lesser of the amounts that are charged by unrelated lending institutions
on comparable loans for the same purpose in the same locality or 2% above the
prime rate of interest charged by Chemical Bank.
Pursuant to a modification of the Partnership's Front-End Fees Loan, the
Partnership has the option to defer payment of interest on this loan for a
37-month period beginning March 1, 1993. All deferred amounts shall be due and
payable on April 1, 1996, and shall not be subordinated to repayment to the
Limited Partners. As of December 31, 1995, the Partnership had not exercised its
option to defer the payment of interest on this loan.
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
19
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
- -------- ----------------------------------------------------------
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 year ended December
31, 1995, 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 year ended December 31, 1995, the
General Partner was allocated a Net (Loss) of $(133,900), which included a
(loss) from provisions for value impairment of $(127,000).
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 year ended December 31, 1995,
ANTEC paid $378,100 in rent. The Partnership owns a 50% joint venture interest
in these rents. The per square foot rent paid by ANTEC is comparable to those
paid by other tenants at Prentice Plaza.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the General Partner and certain of their Affiliates. Sheli Z.
Rosenberg, President and Chief Executive Officer of the General Partner from
December 1990 to December 1992 and a director of the General Partner since
December 1983, is a Principal of Rosenberg. For the year ended December 31,
1995, Rosenberg was entitled to $45,100 for legal fees from the Partnership. As
of December 31, 1995, $1,400 was due to Rosenberg. Compensation for these
services are on terms which are fair, reasonable and no less favorable to the
Partnership than reasonably could be obtained from unaffiliated persons.
(c) No management person is indebted to the Partnership.
(d) None.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ------- ----------------------------------------------------------------
(a,c & d) See Index of Financial Statements, Schedule and Exhibits on page A-1
of Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended December 31, 1995.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 29, 1996 By: /s/ DOUGLAS CROCKER II
-------------------- ---------------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ SAMUEL ZELL March 29, 1996 Chairman of the Board and
- ----------------------- -------------- Director of the General Partner
SAMUEL ZELL
/s/ DOUGLAS CROCKER II March 29, 1996 President, Chief Executive
- ----------------------- -------------- Officer and Director of the
DOUGLAS CROCKER II General Partner
/s/ SHELI Z. ROSENBERG March 29, 1996 Director of the General Partner
- ----------------------- --------------
SHELI Z. ROSENBERG
/s/ SANFORD SHKOLNIK March 29, 1996 Director of the General Partner
- ----------------------- --------------
SANFORD SHKOLNIK
/s/ NORMAN M. FIELD March 29, 1996 Vice President - Finance and
- ----------------------- -------------- Treasurer
NORMAN M. FIELD
22
<PAGE>
INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
<TABLE>
<CAPTION>
Pages
----------
<S> <C>
Report of Independent Auditors A-2
Balance Sheets as of December 31, 1995 and 1994 A-3
Statements of Partners' Capital for the Years Ended
December 31, 1995, 1994, and 1993 A-3
Statements of Income and Expenses for the Years Ended
December 31, 1995, 1994, and 1993 A-4
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 A-4
Notes to Financial Statements A-5 to A-8
SCHEDULE FILED AS PART OF THIS REPORT
III -- Real Estate and Accumulated Depreciation as of
December 31, 1995 A-9 to A-10
</TABLE>
All other schedules have been omitted as inapplicable, or for the reason that
the required information is shown in the financial statements or notes thereto.
EXHIBITS FILED AS PART OF THIS REPORT
EXHIBITS (3 & 4) First Amended and Restated Certificate and Agreement of Limited
Partnership as set forth on pages A-1 through A-37 of the Partnership's
definitive Prospectus dated May 8, 1987; Registration Statement No. 33-12269,
filed pursuant to Rule 424 (b), is incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders
The 1994 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (27) Financial Data Schedule
A-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Income and Growth Fund - Series XII
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Income and
Growth Fund - Series XII as of December 31, 1995 and 1994, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 1995, and the schedule listed
in the accompanying index. These financial statements and schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Income and Growth
Fund - Series XII at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 1, 1996,
except for Note 13,
as to which the date is
March 25, 1996
A-2
<PAGE>
BALANCE SHEETS
December 31, 1995 and 1994
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 14,678,900 $ 16,678,900
Buildings and improvements 89,326,600 99,081,100
- -----------------------------------------------------------------------------
104,005,500 115,760,000
Accumulated depreciation and amortization (25,675,600) (21,732,700)
- -----------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 78,329,900 94,027,300
Cash and cash equivalents 4,983,400 4,339,000
Restricted certificates of deposit and escrow
deposit 119,800 157,300
Rents receivable 563,300 540,400
Real estate tax escrow deposits 107,900 332,900
Other assets (net of accumulated amortization on
loan acquisition costs of $1,281,500 and
$1,156,200, respectively) 910,700 724,700
- -----------------------------------------------------------------------------
$85,015,000 $100,121,600
- -----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $ 60,405,300 $ 61,195,100
Front-End Fees Loan payable to General Partner 13,434,400 13,434,400
Accounts payable and accrued expenses 2,687,900 2,508,500
Due to Affiliates 179,400 250,300
Security deposits 321,500 303,200
Other liabilities 155,200 213,100
- -----------------------------------------------------------------------------
77,183,700 77,904,600
- -----------------------------------------------------------------------------
Partners' capital:
General Partner (deficit) (1,696,600) (1,562,700)
Limited Partners (949,843 and 959,825 Units
outstanding at
December 31, 1995 and 1994, respectively) 9,527,900 23,779,700
- -----------------------------------------------------------------------------
7,831,300 22,217,000
- -----------------------------------------------------------------------------
$ 85,015,000 $100,121,600
- -----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1993 $(1,191,100) $ 62,477,300 $ 61,286,200
Repurchase of Units (901,400) (901,400)
Net (loss) for the year ended
December 31, 1993 (224,200) (22,200,600) (22,424,800)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December
31, 1993 (1,415,300) 39,375,300 37,960,000
Repurchase of Units (1,001,000) (1,001,000)
Net (loss) for the year ended
December 31, 1994 (147,400) (14,594,600) (14,742,000)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1994 (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
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-3
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s except Unit and per Unit amounts)
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $ 17,433,800 $ 16,353,100 $ 18,188,700
Interest 244,900 156,600 345,700
Net gain on sales of properties 188,500
- ------------------------------------------------------------------------------
17,678,700 16,698,200 18,534,400
- ------------------------------------------------------------------------------
Expenses:
Interest
Affiliates 1,090,000 924,100 780,700
Nonaffiliates 4,725,900 4,253,400 4,521,800
Depreciation and amortization 4,068,200 4,389,000 4,858,100
Property operating
Affiliates 1,036,300 964,300 1,154,200
Nonaffiliates 2,277,600 2,336,800 3,173,400
Real estate taxes 2,441,000 2,465,200 2,665,700
Insurance--Affiliate 151,100 185,300 239,000
Repairs and maintenance 2,322,500 2,418,100 2,621,800
General and administrative
Affiliates 66,600 55,800 49,400
Nonaffiliates 185,900 198,200 470,000
Net loss on sale or disposition of
properties 10,227,200
Provisions for value impairment 12,700,000 13,250,000 14,800,000
- ------------------------------------------------------------------------------
31,065,100 31,440,200 45,561,300
- ------------------------------------------------------------------------------
Net (loss) before extraordinary
gain on extinguishment of debt (13,386,400) (14,742,000) (27,026,900)
Extraordinary gain on
extinguishment of debt 4,602,100
- ------------------------------------------------------------------------------
Net (loss) $(13,386,400) $(14,742,000) $(22,424,800)
- ------------------------------------------------------------------------------
Net (loss) allocated to General
Partner $ (133,900) $ (147,400) $ (224,200)
- ------------------------------------------------------------------------------
Net (loss) allocated to Limited
Partners $(13,252,500) $(14,594,600) $(22,200,600)
- ------------------------------------------------------------------------------
Net (loss) before extraordinary
gain on extinguishment of debt
allocated to Limited Partners per
Unit $(13.89) $ (15.14) $ (27.48)
- ------------------------------------------------------------------------------
Net (loss) allocated to Limited
Partners per Unit $(13.89) $ (15.14) $ (22.80)
- ------------------------------------------------------------------------------
Weighted average number of Units
outstanding 953,845 963,785 973,695
- ------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) $(13,386,400) $(14,742,000) $(22,424,800)
Adjustments to reconcile net
(loss) to net cash provided by
operating activities:
Depreciation and amortization 4,068,200 4,389,000 4,858,100
Net (gain) loss on sales or
disposition of properties (188,500) 10,227,200
Provisions for value impairment 12,700,000 13,250,000 14,800,000
Extraordinary (gain) on
extinguishment of debt (4,602,100)
Changes in assets and
liabilities:
(Increase) decrease in rents
receivable (22,900) 245,300 344,800
(Increase) decrease in other
assets (248,700) 249,700 195,400
Increase in accounts payable and
accrued expenses 179,400 97,600 229,900
(Decrease) increase in due to
Affiliates (70,900) 52,800 64,100
(Decrease) increase in other
liabilities (57,900) (306,500) 464,200
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 3,160,800 3,047,400 4,156,800
- ------------------------------------------------------------------------------
Cash flows from investing
activities:
Payments for capital and tenant
improvements (945,500) (2,186,500) (4,886,800)
Payment for settlement of
purchase price dispute (2,054,100)
Proceeds from the sales of
commercial rental properties 4,698,000 674,800
Maturities of (investment in)
restricted certificates of
deposit and time deposits 37,500 (37,500) 405,200
Decrease (increase) in escrow
deposits 225,000 (332,900) 233,800
- ------------------------------------------------------------------------------
Net cash (used for) provided by
investing activities (683,000) 2,141,100 (5,627,100)
- ------------------------------------------------------------------------------
Cash flows from financing
activities:
Principal payments on mortgage
loans payable (5,664,800) (24,076,400) (3,162,200)
Proceeds from mortgage loans
payable 4,875,000 19,417,700
Repurchase of Units (999,300) (1,001,000) (901,400)
Payment of loan extension costs (62,600) (307,700) (71,300)
Refund (deposit) of loan
commitment fee 190,000 (190,000)
Increase (decrease) in security
deposits 18,300 14,600 (4,600)
- ------------------------------------------------------------------------------
Net cash (used for) financing
activities (1,833,400) (5,762,800) (4,329,500)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 644,400 (574,300) (5,799,800)
Cash and cash equivalents at the
beginning of the year 4,339,000 4,913,300 10,713,100
- ------------------------------------------------------------------------------
Cash and cash equivalents at the
end of the year $ 4,983,400 $ 4,339,000 $ 4,913,300
- ------------------------------------------------------------------------------
Supplemental information:
Interest paid during the year $ 5,779,800 $ 5,057,500 $ 5,122,000
- ------------------------------------------------------------------------------
Noncash investing activity:
Disposal of commercial rental
property (see Note 11)
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND 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.
ORGANIZATION:
The Partnership was formed on February 24, 1987, by the filing of a
Certificate and Agreement of Limited Partnership with the Recorder of Deeds of
Cook County, Illinois, and commenced the Offering of Units on May 8, 1987. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of 500,000 Units (with the General Partner's option to increase to
1,000,000 Units) and not less than 14,000 Units pursuant to the Prospectus. On
June 9, 1987, the required minimum subscription level was reached and the
Partnership's operations commenced. The General Partner exercised its option
to increase the Offering to 1,000,000 Units, which amount was sold prior to
the Termination of the Offering in November 1988. The Partnership was formed
to invest primarily in existing, improved, income-producing real estate.
The Partnership Agreement provides that the Partnership will be dissolved on
or before December 31, 2017. The Limited Partners, by a majority vote, may
dissolve the Partnership at any time.
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 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. In
addition, the 1993 and 1994 financial statements included the Partnership's
50% interest in four joint ventures and its 75% interest in another joint
venture with Affiliated partnerships in which the 75% joint venture and one
50% joint venture were formed for the purpose of acquiring a 100% interest in
certain real property and three 50% joint ventures were formed for the purpose
of acquiring a 100% preferred majority interest in certain real property.
These joint ventures were operated under the common control of the General
Partner prior to the sales or disposition of these properties. Accordingly,
the Partnership's pro rata share of the ventures' revenues, expenses, assets,
liabilities and capital is included in the financial statements.
The Partnership is not liable for federal income taxes as the Partners
recognize their proportionate share of the Partnership income or loss in their
individual tax returns; therefore, no provision for income taxes is made in
the financial statements of the Partnership. In addition, it is not
practicable for the Partnership to determine the aggregate tax bases of the
Limited Partners; therefore, the disclosure of the differences between the tax
bases and the reported assets and liabilities of the Partnership would not be
meaningful.
Commercial rental properties are recorded at cost, net of any provisions for
value impairment, and depreciated (exclusive of amounts allocated to land) on
the straight-line method over their estimated useful lives. 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.
The General Partner periodically reviews significant factors regarding the
properties to determine that the properties are carried at the lower of cost
or fair market value. These factors include, but are not limited to, the
General Partner's experience in the real estate industry, an evaluation of
recent operating performance against expected results, economic trends or
factors affecting major tenants or the regions in which the properties are
located, and where available, information included in recent appraisals of
properties.
Based on this analysis, where it is anticipated that the carrying value of an
investment property will not be recovered, the General Partner has deemed it
appropriate to reduce the basis of the properties for financial reporting
purposes to fair market value. Such fair market value is the General Partner's
best estimate of the amounts expected to be realized were such properties sold
as of the Balance Sheet date, based upon current information available, the
ultimate realization may differ from these amounts. Provisions, where
applicable, are reflected in the accompanying Statements of Income and
Expenses in the year such evaluations have been made. For additional
information, see Note 12.
Loan acquisition costs are amortized over the term of the note issued under
mortgage loans made in connection with the acquisition or refinancing of
Partnership properties. When a property is disposed or refinanced, the related
loan acquisition costs and accumulated amortization are removed from the
respective accounts and any unamortized balance is expensed.
Property sales or dispositions are recorded when title transfers and
sufficient consideration has been received by the Partnership. Upon
disposition, the related costs and accumulated depreciation and amortization
are removed from the respective accounts. Any gain or loss on sale or
disposition is recognized in accordance with generally accepted accounting
principles.
Cash equivalents are considered all highly liquid investments with an original
maturity of three months or less when purchased.
Proceeds received under the Front-End Fees Loan payable to General Partner are
reflected as a liability of the Partnership. Repayment of this loan is
subordinated to the prior receipt by Limited Partners of Sale or Refinancing
proceeds equal to 100% of their Original Capital Contribution. While Partners'
Capital was reduced for the amount of Front-End Fees incurred, the effect of
this subordination is that Partners' Capital will not be utilized for the
payment of such fees or the repayment of such loan.
The Partnership's financial statements include financial instruments,
including receivables, trade liabilities and mortgage debt. The Partnership
considers the disclosure of the fair value of its mortgage debt to be
impracticable due to the general illiquid nature of the real estate financing
market and an inability to obtain comparable financing on certain properties
due to declines in market value. The fair value of all other financial
instruments, including cash and cash equivalents, was not materially different
from their carrying value at December 31, 1995 and 1994.
Certain reclassifications have been made to the previously reported 1993 and
1994 statements in order to provide comparability with the 1995 statements.
These reclassifications had no effect on net (loss) or Partners' capital
(deficit).
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 years ended December 31, 1995, 1994 and 1993, 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
A-5
<PAGE>
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
year ended December 31, 1995, the General Partner was allocated a Net (Loss) of
$(133,900), which included a (loss) from provisions for value impairment of
$(127,000). For the year ended December 31, 1994, the General Partner was
allocated a Net (Loss) of $(147,400), which included Net Profit from the sales
of properties of $1,900 and a (loss) from provisions for value impairment of
$(132,500). For the year ended December 31, 1993, the General Partner was
allocated a Net (Loss) of $(224,200), which included a Net (Loss) on the sale
and disposition of properties of $(102,200), an extraordinary gain on
extinguishment of debt of $46,000 and a (loss) from provisions for value
impairment of $(148,000).
Fees and reimbursements paid and payable by the Partnership to Affiliates were
as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
Paid Payable Paid Payable Paid Payable
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $1,092,100 $ 70,800 $ 726,300 $167,400 $1,100,300 $111,100
Interest expense on
Front-End Fees Loan
(Note 3) 1,075,700 92,200 898,900 77,900 583,200 52,600
Reimbursement of
property insurance
premiums, at cost 146,400 None 177,300 None 222,400 10,200
Loan refinancing fees None None 18,000 None None None
Reimbursement of
expenses at cost:
--Accounting 31,700 12,200 29,900 3,700 37,700 3,000
--Investor
communication 23,100 2,800 12,200 1,300 10,900 2,500
--Legal 43,700 1,400 216,000 None 98,200 18,100
--Other 1,300 None None None 13,000 None
- ------------------------------------------------------------------------------------
$2,414,000 $179,400 $2,078,600 $250,300 $2,065,700 $197,500
- ------------------------------------------------------------------------------------
</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 years
ended December 31, 1995, 1994 and 1993, ANTEC paid $378,100, $388,100 (which
excludes $186,400 in reimbursements from ANTEC for tenant improvements) and
$193,100 (which was paid under a lease that was amended to increase its office
space from 15,335 square feet as of January 1, 1993 and to 28,007 square feet
as of January 1, 1994), respectively, in rent. The Partnership owns a 50% joint
venture interest in these rents. The per square foot rent paid by ANTEC is
comparable to those 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 December 31, 1995, 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 year ended December 31, 1995 was 8.11%. As of December
31, 1995, the interest rate was 7.9688%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 37-month period
beginning March 1, 1993. All deferred amounts (including accrued interest
thereon) shall be due and payable on April 1, 1996, and shall not be
subordinated to repayment to the Limited Partners, as discussed above. As of
December 31, 1995, the Partnership had not exercised its option to defer the
payment of interest on this loan.
4. RESTRICTED CERTIFICATES OF DEPOSIT AND ESCROW DEPOSIT:
Restricted certificate of deposit represented a negotiable certificate of
deposit in the amount of $80,000 which had been pledged as collateral for a
letter of credit issued to the Louisville Gas & Electric Company. This
certificate of deposit matured on February 7, 1996, and was replaced with a
$100,000 Eurodollar investment (denominated in United States currency) which
now collateralizes the letter of credit.
On June 24, 1994, the joint venture which owns Regency Park Shopping Center
("Regency Park"), in which the Partnership has a 25% interest, invested
$150,000 in a restricted certificate of deposit which collateralized a letter
of credit for a construction allowance to a major new tenant which occupies
40,150 leasable square feet at Regency Park. This amount, of which the
Partnership's share was $37,500, was reimbursed to the new tenant in 1995 upon
compliance with the lease section pertaining to this construction allowance.
The letter of credit was cancelled and the certificate of deposit was released
to the Partnership in May 1995.
Restricted escrow deposits at December 31, 1995 and 1994 included $159,400, of
which the Partnership's share was 25%, being held by the mortgage holder of
Regency Park in a non-interest bearing escrow account as collateral for its
mortgage loan (see Note 5 for additional information).
5. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at December 31, 1995 and 1994, consisted of the
following loans which are non-recourse unless otherwise noted:
<TABLE>
<CAPTION>
Principal Balance at Average Estimated
Property Pledged as ----------------------- Interest Maturity Periodic Balloon
Collateral 12/31/95 12/31/94 Rate Date Payment (a) Payment (b)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sentry Park West Office
Campus(c)(d) $ 4,737,600 $ 5,062,000 8.3942%(e) 9/30/1996 (d) $ 4,662,600(d)
Regency Park Shopping
Center (c)(f) 3,958,600 3,998,500 (f) (f) (f) (f)
Prentice Plaza (c)(g) 4,875,000 4,125,000 8.625%(e) 12/19/2000 (g) $ 4,658,200
Meidinger Tower (h) 22,405,300 22,985,000 7.3464%(e) 10/15/1998 (h) $22,405,300
Deerfield Mall (i) 18,241,300 18,687,100 7.6% 3/1/2001 $154,257 $15,313,900
Equitable of Iowa
Building 6,187,500 6,337,500 7.8457%(e) 4/1/1996 (j) $ 6,100,000
- --------------------------------------------------------------------------------------------------
$60,405,300 $61,195,100
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents level monthly principal and interest payments, paid in arrears,
except where otherwise noted.
(b) This repayment may require either sale or refinancing of the respective
property.
(c) This property is owned through a joint venture. Amounts represent the
Partnership's share of the liability and are not the total amount by which
the property is encumbered.
(d) On December 29, 1994 the joint venture which owns Sentry Park West Office
Campus ("Sentry West"), in which the Partnership has a 50% interest with an
Affiliated partnership, executed an agreement (the "Modification") with the
existing lender of this loan, which originally matured on September 30,
1994, to modify and amend this loan. Significant terms of the Modification
in proportion to the Partnership's 50% interest included: 1) a reduction in
the loan commitment from $5,250,000 to $5,157,800, of which $45,800 was
held back for tenant improvements; 2) a change in the variable interest
rate to 30-day LIBOR plus 212.50 basis points (unless unavailable in which
case the variable interest rate will be the lender's prime rate plus
0.75%); 3) an extension of the maturity date until September 30, 1996; 4)
monthly interest only payments until September 30, 1995; thereafter,
monthly interest plus
A-6
<PAGE>
principal payments of $25,000 on the first day of each quarter starting
October 1, 1995 plus quarterly cash flow principal payments in an amount
equal to the adjusted net operating income of the property as defined in the
Modification; 5) a restriction that no distributions be made to Partners of
the Partnership or Affiliated partnership until the loan is fully repaid and
6) that the loan is guaranteed by the Partnership and the Affiliated
partnership. In addition, the joint venture paid $93,200 in extension and
administrative fees, of which $46,600 will be amortized by the Partnership
over the period of the extension.
Incorporated in the Modification are the terms of a 1993 letter agreement
whereby the joint venture obtained consent from the lender to terminate the
lease agreement with a tenant at Sentry West in order that this tenant may
purchase and occupy one of the five buildings at Sentry Park East Office
Campus ("Sentry East"). Pursuant to this letter agreement, the joint venture
was obligated to pay the lender 50% of the excess net sale proceeds over
$1,300,000 from the sales of the remaining four buildings at Sentry East for
principal paydowns. During 1993 and 1994, the remaining four buildings at
Sentry East were sold (see Note 11) and the joint venture paid the lender
$184,300 and $598,700, of which the Partnership's share was $92,100 and
$299,400, respectively, in May 1994 and January 1995, respectively, from the
net proceeds received from the sales of the last three buildings. In
addition, in July 1994, the joint venture drew an additional $615,400 as a
reimbursement for tenant improvements at one of the buildings in the office
campus, in accordance with the loan Modification. The Partnership's share of
this draw was $307,700.
(e) This interest rate represents an average for the year ended December 31,
1995. Interest rates are subject to change in accordance with the
provisions of the loan agreements. As of December 31, 1995, interest rates
for Sentry West, Prentice Plaza, Meidinger Tower and the Equitable of Iowa
Building were 8.50%, 8.625%, 7.25% and 7.5%, respectively.
(f) The joint venture which owns Regency Park, in which the Partnership has a
25% interest with Affiliated partnerships, is in default under the terms of
the mortgage loan which matured on January 1, 1996. The General Partner is
negotiating with the mortgage lender to extend the maturity 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 do not exist in the matured loan. Since January 1, 1996,
the Partnership has continued to make payments to the lender, based on the
terms of the matured loan. There can be no assurance that the Partnership
and mortgage lender will consummate an extension of this loan.
(g) On December 20, 1995, the joint venture which owns Prentice Plaza, in which
the Partnership has a 50% interest with an Affiliated partnership, executed
a non-recourse promissory note in the amount of $9,750,000, collateralized
by a mortgage on and an assignment of leases and rents of the property. The
Partnership's share of the note amount was $4,875,000. The existing loan
was repaid in full with the proceeds from the note. Significant terms of
the promissory note, which matures in December 2000, in proportion to the
Partnership's 50% interest, include a monthly interest payment in which the
joint venture may choose between either a variable interest rate of 30-day
LIBOR plus 175 basis points or the prime rate of the lender plus 125 basis
points as well as monthly principal payments of $3,070 starting on February
1, 1996 and increasing to $3,343, $3,638, $3,960 and $4,305 on January 1 of
each subsequent year from 1997 through 2000, respectively.
(h) For the year ended December 31, 1995, the Partnership, in addition to
monthly interest payments, made quarterly principal payments totaling
$579,700 which represented excess cash flow (as defined in the restructured
loan agreement) from the property. In May 1994, the Partnership received
$110,000 from the mortgage holder representing a funding under the
revolving credit facility and was used to reimburse the Partnership for
property operating deficits, tenant improvements and other costs as
stipulated by the restructured loan agreement. In October 1994, the
Partnership made a principal payment of $125,000 which represented excess
cash flow (as defined by the restructured loan agreement) from the property
which was applied first towards the revolving credit facility and then
towards the principal balance outstanding.
(i) On March 22, 1994, the Partnership obtained a new mortgage loan in the
amount of $19,000,000 collateralized by this property. The interest rate on
this loan is fixed at 7.6% and the maturity date is March 1, 2001. Regular
monthly payments of principal and interest are to be made based on a 20-
year amortization along with an estimated reserve for real estate taxes.
The existing loan on Deerfield Mall was repaid in full with the proceeds of
the new loan combined with an additional amount funded from working capital
of the Partnership. The total cash outlay to the Partnership in connection
with obtaining this new loan, including loan acquisition costs of $305,100,
was $1,180,100.
(j) Includes monthly interest payments, paid in arrears, plus principal
amortization payments on the first day of each quarter.
Principal amortization of mortgage loans payable for each of the next five
years and thereafter as of December 31, 1995 was as follows:
<TABLE>
<S> <C>
1996 $15,398,300
1997 558,900
1998 23,008,600
1999 651,100
2000 5,361,100
Thereafter 15,427,300
--------------
$60,405,300
--------------
</TABLE>
The amounts scheduled above do not include amounts equal to the Sentry West
adjusted net operating income (as defined in the loan agreement) or the
Meidinger Tower net cash flow (as defined in the restructured loan agreement),
which must each be paid periodically under the terms of the mortgage loans, as
well as amounts which are available but unfunded to the Partnership under
certain mortgage loans.
6. REPURCHASE OPTION:
On January 1, 1991, the Repurchase Option period commenced for the repurchase
of Limited Partnership Interests. This Repurchase Option, as defined in the
Partnership Agreement, allowed Limited Partners to resell their Interests to
the Partnership. During 1995, the fifth and final year of the Repurchase Option
period, the Partnership paid a price equal to 115% of the Limited Partners'
Original Capital Contribution reduced by all prior distributions previously
made to the Limited Partner. The maximum amount of Interests that the
Partnership was obligated to purchase during the Repurchase Option period was
0.25% of the total Original Capital Contribution for each and every calendar
quarter during the Repurchase Option period. As of December 31, 1995, the
Partnership repurchased 50,157 Units which represented Original Capital
Contributions of $5,015,700. The repurchase of these Units, reduced by all
prior distributions previously made to the Limited Partners, resulted in a net
reduction of Limited Partners' Capital and net payments by the Partnership of
$4,585,300.
7. FUTURE MINIMUM RENTALS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1995 was as follows:
<TABLE>
<S> <C>
1996 $13,243,900
1997 12,116,300
1998 10,953,100
1999 8,135,100
2000 6,198,200
Thereafter 26,966,300
--------------
$77,612,900
--------------
</TABLE>
The Partnership is subject to the usual business risks associated with the
collection of the above-scheduled rentals. In addition to the amounts scheduled
above, the Partnership expects to receive rental revenue from operating expense
reimbursements and percentage rents. Percentage rents earned for the years
ended December 31, 1995, 1994 and 1993 were $164,600, $167,600 and $118,300,
respectively.
8. INCOME TAX:
The Partnership utilizes the accrual basis of accounting for both income tax
reporting and financial statement purposes. Financial statement results will
differ from income tax results due to the use of differing depreciation lives
and methods, the recognition of rents received in advance as taxable income and
the Partnership's provisions for value impairment. The net effect of these
accounting differences for the year ended December 31, 1995 was that the (loss)
for tax reporting purposes was less than the net (loss) for financial statement
purposes by $13,351,500. The aggregate cost of commercial rental properties for
federal income tax purposes at December 31, 1995 was $132,078,400.
A-7
<PAGE>
9. PURCHASE PRICE ADJUSTMENT:
In April 1990, the seller of Deerfield Mall filed a lawsuit against the
Partnership. In January 1992, a judgement was rendered against the Partnership.
On March 30, 1993, pursuant to a final decision adverse to the Partnership
rendered by the Florida Court of Appeals, the Partnership paid $2,054,100,
which represented the net amount of the judgement plus interest. The amount of
the settlement increased the investment in commercial rental properties
presented in the Partnership's financial statements (see Note 12 regarding
provisions for value impairment).
10. DISTRIBUTIONS:
Commencing with the quarter ended June 30, 1992, cash distributions to Partners
were suspended and no further distributions will be made until such time as the
Partnership's cash position is increased to a level that is expected to be
sufficient to meet all of the anticipated capital expenditures, debt
repayments, including the loan agreement restricting distributions (see Note
5), and other working capital requirements during the next several years.
11. PROPERTY SALES AND DISPOSITIONS:
On April 22, 1994, the joint venture which owned Sentry East, located in Blue
Bell, Pennsylvania, in which the Partnership had a 50% interest, sold one of
the remaining three office buildings situated in this office campus for a sale
price of $1,198,500. The joint venture incurred selling expenses of $95,600.
The joint venture received net Sale Proceeds of $1,102,900, of which the
Partnership's share was $551,500. The (loss) reported by the Partnership for
financial statement purposes was $(280,700) and was previously recorded as part
of the provisions for value impairment in 1992. For tax reporting purposes, the
Partnership reported a total (loss) of $(334,200) in 1994 in connection with
this sale.
On June 29, 1994, the joint ventures which owned Park Central Office Park I, II
and III ("Park Central"), located in Greenville, South Carolina, in which the
Partnership had 50% interests, sold Park Central for a sale price of
$7,250,000. The outstanding indebtedness on Park Central I and II of $7,000,000
was satisfied at closing. The joint ventures incurred selling expenses of
$143,700. The joint ventures received net Sale Proceeds of $106,300, of which
the Partnership's share was $53,200. The (loss) reported by the Partnership for
financial statement purposes was $(4,654,000) of which a total of $(4,550,000)
was previously recorded as part of the provisions for value impairment in 1992
and 1993. For tax reporting purposes, the Partnership reported a total (loss)
of $(5,049,500) in 1994 in connection with this sale.
On December 29, 1994, the joint venture which owned Sentry East sold the
remaining two office buildings situated in this office campus for a sale price
of $1,286,300. The joint venture incurred selling expenses of $99,900. The
joint venture received net Sale Proceeds of $1,186,400, of which the
Partnership's share was $593,200. The gain reported by the Partnership for
financial statement purposes was $292,500 which represented a partial recovery
of the (loss) from provisions for value impairment recorded in 1992. For tax
reporting purposes, the Partnership reported a total (loss) of $(559,500) in
1994 in connection with this sale.
In addition, pursuant to an agreement between the joint venture which owns
Sentry West, in which the Partnership has a 50% interest, and the mortgage
holder of the loan collateralized by Sentry West, the Partnership was obligated
to pay the mortgage holder $92,100 and $299,400, respectively, from the net
proceeds received from the 1994 sales at Sentry East (see Note 5 for details of
this agreement).
On March 1, 1993, a joint venture in which the Partnership holds a 25%
interest, sold a parcel of land at Regency Park, located in Jacksonville,
Florida. The Partnership's portion of the sale price was $78,800 and selling
expenses of $2,100 were incurred. The Partnership received net proceeds from
this sale of $76,700, of which $39,800 was deposited in a non-interest bearing
escrow held by the mortgage holder of the loan collateralized by Regency Park.
For financial statement and tax reporting purposes, the Partnership reported a
(loss) of $(20,800) as a result of this transaction.
On July 1, 1993, the joint venture which owned Sentry East sold the first of
the five office buildings situated in this office campus, for a total sale
price of $675,000. The net sale proceeds of $613,800 plus additional funds
provided by the Partnership and its Affiliated joint venture partner were used
to repay the balance of the mortgage loan collateralized by the entire office
campus. The Partnership utilized additional funds of $670,100 in connection
with this loan repayment. The Partnership incurred a (loss) on this sale of
$(124,500) for financial statement purposes which was previously recorded as
part of the provisions for value impairment in 1992. For tax reporting
purposes, the Partnership reported a (loss) in 1993 of $(131,000) on this sale.
On August 17, 1993, the joint venture which owned One Charles Center (the
"Property"), in which the Partnership had a 75% interest, transferred title to
the Property to the mortgage holder through foreclosure. The disposition of the
Property relieved the Partnership of its share of the obligation under the
nonrecourse mortgage loan collateralized by the Property as well as any
interest in the assets therein including escrow deposits which represented
funds reserved from the original loan proceeds to cover costs of building and
tenant improvements and lease commissions. This extinguishment of debt was
considered a non-cash event for the purposes of the Statement of Cash Flows,
and was not included in the Partnership's calculation of Cash Flow (as defined
by the Partnership Agreement) for the year ended December 31, 1993. The
Partnership recorded a cumulative (loss) on the Property of $(16,131,400) for
financial statement purposes. This (loss) represented the net book value of the
Property in excess of the estimated fair market value. The Partnership recorded
$(5,925,000) of the total (loss) as part of the (loss) from provisions for
value impairment recognized in 1992, with the remaining portion of the (loss)
recorded in 1993 upon the disposition of the Property. In addition, in 1993,
the Partnership also recorded an extraordinary gain on extinguishment of debt
in connection with the disposition of the Property of $4,602,100 for financial
statement purposes. This extraordinary gain on extinguishment of debt
represented the excess property indebtedness over the estimated fair market
value of the Property. In addition, during the year ended December 31, 1994,
the Partnership paid $314,300 as its portion due to the mortgage holder as a
final proration of all income and expense items as of August 17, 1993, the
majority of which represented net cash flow received subsequent to June 1,
1993. This amount was included in other liabilities as of December 31, 1993.
For tax reporting purposes, the Partnership recorded a (loss) in 1993 of
$(11,512,200) on this disposition.
On October 14, 1993, the joint venture which owned Sentry East sold the second
of five office buildings situated in this office campus for a total sale price
of $625,000. Selling expenses incurred were $51,900, including $7,900 in legal
expenses payable to an Affiliate. The Partnership's share of the net proceeds
from this sale was $290,500. The Partnership incurred a (loss) on this sale of
$(189,100) for financial statement purposes which was previously recorded as
part of the provisions for value impairment in 1992. For tax reporting
purposes, the Partnership reported a (loss) in 1993 of $(196,300) on this sale.
All of the above sales and disposition were all-cash transactions, with no
further involvement on the part of the Partnership.
12. PROVISIONS FOR VALUE IMPAIRMENT:
Due to the depressed economic environment in the retail industry, regional
factors affecting the Partnership's retail and office properties and other
matters relating specifically to certain of the Partnership's properties, there
is uncertainty as to the Partnership's ability to recover the net carrying
value of certain of its properties during the remaining estimated holding
periods. Accordingly, it was deemed appropriate to reduce the bases of such
properties in the Partnership's financial statements during the years ended
December 31, 1995, 1994 and 1993. The provisions for value impairment were
considered non-cash events for the purposes of the Statements of Cash Flows and
were not utilized in the determination of Cash Flow (as defined in the
Partnership Agreement). The following is a summary of the provisions for value
impairment reported by the Partnership for the years ended December 31, 1995,
1994 and 1993:
<TABLE>
<CAPTION>
Property 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C>
Meidinger Tower $ 2,200,000 $ 7,000,000 $ 5,000,000
Deerfield Mall 5,800,000 3,000,000
Equitable of
Iowa Building 2,500,000 4,000,000
Sentry Park West
Office Campus 1,500,000 2,500,000
Regency Park
Shopping Center 1,000,000 750,000 1,500,000
Park Central
Office Park I,
II and III 2,800,000
1800 Sherman 1,200,000
------------------------------------------------
$12,700,000 $13,250,000 $14,800,000
------------------------------------------------
</TABLE>
The provisions for value impairment were material fourth quarter adjustments
pursuant to Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting". No other material adjustments were made in the fourth quarters.
Beginning on January 1, 1996 the Partnership will adopt 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 is effective for fiscal years
beginning after December 15, 1995. The General Partner believes that, based on
the current circumstances, the adoption on January 1, 1996 of the Standard will
not materially affect the Partnership's financial position or results of
operations.
13. SUBSEQUENT EVENT:
In March 1996, the joint venture which owns Sentry West, in which the
Partnership has a 50% interest with an Affiliated partnership, entered into an
agreement to sell Sentry West, located in Blue Bell, Pennsylvania. The closing
of this transaction, expected to take place in the second 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.
A-8
<PAGE>
FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------- ----------- ------------------------- ------------------------- ----------------------------------------
Initial cost Costs capitalized Gross amount at which
to Partnership subsequent to acquisition carried at close of period
------------------------- ------------------------- ----------------------------------------
Buildings Buildings
Encum- and Improve- Carrying and
Description brances Land Improvements ments Costs(1) Land Improvements Total(2)(3)
- ------------------- ----------- ----------- ------------ ----------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDINGS:
- -----------------
Sentry Park West
Office Campus
(Blue Bell, PA)
(50% Interest) $ 4,737,600 $ 793,000 $ 8,885,600 $ 2,986,900 $154,600 $ 796,800 $ 7,023,300 $ 7,820,100(4)
Prentice Plaza
(Englewood, CO)
(50% Interest) 4,875,000 1,139,600 7,390,200 1,030,800 40,800 1,139,600 8,461,800 9,601,400
Meindinger Tower
(Louisville, KY)
(100% Interest) 22,405,300(8) 937,500 39,718,400 3,836,700 238,500 958,000 29,573,100 30,531,100(4)
Equitable of
Iowa Building
(Des Moines, IA)
(100% Interest) 6,187,500 804,900 11,440,400 4,430,200 69,600 807,100 9,438,000 10,245,100(4)
1800 Sherman
Office Building
(Evanston, IL)
(50% interest) None 1,319,000 6,147,100 833,300 26,900 1,319,000 5,807,300 7,126,300(4)
SHOPPING CENTERS:
- -----------------
Regency Park
Shopping Center
(Jacksonville, FL)
(25% Interest) 3,958,600 2,062,600 6,158,300 165,800 89,600 1,040,800(7) 4,088,000 5,128,800(4)
Deerfield Mall
(Deerfield
Beach, FL)
(100% interest) 18,241,300 9,607,900 30,996,300 1,555,600 192,900 8,617,600 24,935,100 33,552,700(4)
----------- ----------- ------------ ----------- -------- ----------- ----------- ------------
$60,405,300 $16,664,500 $110,736,300 $14,839,300 $812,900 $14,678,900 $89,326,600 $104,005,500
=========== =========== ============ =========== ======== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Column A Column F Column G Column H Column I
- ----------------------- ----------- --------- --------- ------------
Life on
which
deprecia-
tion in lat-
Accumu- est income
lated Date of statements
Deprecia- construc- Date is com-
Description tion(2) tion Acquired puted
- ----------------------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C>
OFFICE BUILDINGS:
- -----------------
Sentry Park West
Office Campus
(Blue Bell, PA) 35(5)
(50% Interest) $ 3,042,400 1973 Nov. 1987 2-10(6)
Prentice Plaza
(Englewood, CO) 35(5)
(50% Interest) 2,756,600 1985 Mar. 1988 2-10(6)
Meindinger Tower
(Louisville, KY) 35(5)
(100% Interest) 8,101,800 1982 Oct. 1988 1-10(6)
Equitable of
Iowa Building
(Des Moines, IA) 35(5)
(100% Interest) 4,074,400 1924 Feb. 1989 1-10(6)
1800 Sherman
Office Building
(Evanston, IL) 35(5)
(50% interest) 987,500 1986 Mar. 1991 3-10(6)
SHOPPING CENTERS:
- -----------------
Regency Park
Shopping Center
(Jacksonville, FL) 35(5)
(25% Interest) 1,213,400 1985 Feb. 1988 5-10(6)
Deerfield Mall
(Deerfield
Beach, FL) 35(5)
(100% interest) 5,499,500 1987 Jan. 1989 1-5(6)
-----------
$25,675,600
===========
</TABLE>
See accompanying notes on the following page.
A-9
<PAGE>
FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
NOTES TO SCHEDULE III
Note 1. Consists of legal fees, appraisal fees, title costs and other related
professional fees.
Note 2. The following is a reconciliation of activity in columns E and F.
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------------------------------------------
1995 1994 1993
-------------------------- -------------------------- --------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at the beginning of the year $115,760,000 $21,732,700 $133,558,700 $19,714,000 $166,852,900 $18,112,000
Additions during the year:
Purchase price adjustment 371,100
Improvements 945,500 2,186,500 4,886,800
Provisions for depreciation 3,942,900 4,245,000 4,745,000
Deductions during the year:
Cost of real estate disposed (6,735,200) (23,752,100)
Accumulated depreciation on real
estate disposed (2,226,300) (3,143,000)
Provisions for value impairment (12,700,000) (13,250,000) (14,800,000)
------------ ----------- ------------ ----------- ------------ -----------
Balance at the end of the year $104,005,500 $25,675,600 $115,760,000 $21,732,700 $133,558,700 $19,714,000
============ =========== ============ =========== ============ ===========
</TABLE>
Note 3. The aggregate cost for federal income tax purposes as of December 31,
1995 was $132,078,400.
Note 4. Includes provisions for value impairment. See Note 12 of Notes to
Financial Statements for additional information.
Note 5. Estimated useful life for building in years.
Note 6. Estimated useful life for improvements in years.
Note 7. Land was reduced by $97,500 due to the sale of an out-parcel of land in
1993.
A-10
s
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,983,400
<SECURITIES> 0
<RECEIVABLES> 563,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,774,400
<PP&E> 104,005,500
<DEPRECIATION> 25,675,600
<TOTAL-ASSETS> 85,015,000
<CURRENT-LIABILITIES> 16,623,200
<BONDS> 60,405,300
<COMMON> 0
0
0
<OTHER-SE> 7,831,300
<TOTAL-LIABILITY-AND-EQUITY> 85,015,000
<SALES> 0
<TOTAL-REVENUES> 17,678,700
<CGS> 0
<TOTAL-COSTS> 8,228,500
<OTHER-EXPENSES> 252,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,815,900
<INCOME-PRETAX> (13,386,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,386,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,386,400)
<EPS-PRIMARY> (13.89)
<EPS-DILUTED> (13.89)
</TABLE>
