<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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[B
Commission File Number 0-16888
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First Capital Income and Growth Fund - Series XII
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(Exact name of registrant as specified in its charter)
Illinois 36-3498223
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1100, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated May 8, 1987, included
in the Partnership's Registration Statement on Form S-11, is incorporated herein
by reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996
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<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $13,074,900 $13,074,900
Buildings and improvements 73,550,200 73,507,400
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86,625,100 86,582,300
Accumulated depreciation and amortization (21,681,000) (21,081,700)
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Total investment properties, net of accumulated
depreciation and amortization 64,944,100 65,500,600
Cash and cash equivalents 7,597,000 6,900,600
Investments in debt securities 496,300
Restricted cash 100,000 100,000
Rents receivable 388,100 549,700
Escrow deposits 1,112,500 747,600
Other assets (primarily loan acquisition costs, net
of accumulated amortization of $1,183,500 and
$1,167,200, respectively) 368,200 477,900
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$74,509,900 $74,772,700
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $48,890,900 $48,858,400
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Accounts payable and accrued expenses 1,860,000 1,939,800
Due to Affiliates 128,300 186,900
Security deposits 223,100 221,800
Other liabilities 9,800 144,500
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64,546,500 64,785,800
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Partners' capital:
General Partner (deficit) (1,675,200) (1,675,000)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 11,638,600 11,661,900
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9,963,400 9,986,900
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$74,509,900 $74,772,700
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the quarter ended March 31, 1997 (Unaudited)
and the year ended December 31, 1996
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1996 $(1,696,600) $ 9,527,900 $7,831,300
Net income for the year ended December
31, 1996 21,600 2,134,000 2,155,600
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Partners' (deficit) capital, December
31, 1996 (1,675,000) 11,661,900 9,986,900
Net (loss) for the quarter ended March
31, 1997 (200) (23,300) (23,500)
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Partners' (deficit) capital,
March 31, 1997 $(1,675,200) $11,638,600 $9,963,400
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended March 31, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Income:
Rental $3,189,700 $4,403,800
Interest 96,000 67,900
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3,285,700 4,471,700
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Expenses:
Interest:
Affiliates 250,500 253,300
Nonaffiliates 872,000 1,113,600
Depreciation and amortization 615,600 631,200
Property operating:
Affiliates 144,300 271,700
Nonaffiliates 439,800 681,900
Real estate taxes 496,500 673,400
Insurance--Affiliate 29,400 41,700
Repairs and maintenance 410,400 545,100
General and administrative:
Affiliates 9,200 15,300
Nonaffiliates 41,500 52,000
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3,309,200 4,279,200
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Net (loss) income $ (23,500) $ 192,500
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Net (loss) income allocated to General Partner $ (200) $ 1,900
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Net (loss) income allocated to Limited Partners $ (23,300) $ 190,600
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Net (loss) income allocated to Limited Partners per
Unit (949,843 Units outstanding) $ (0.02) $ 0.20
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</TABLE>
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (23,500) $ 192,500
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 615,600 631,200
Changes in assets and liabilities:
Decrease in rents receivable 161,600 298,800
Decrease in other assets 93,400 346,800
(Decrease) increase in accounts payable and accrued
expenses (79,800) 50,100
(Decrease) increase in due to Affiliates (58,600) 35,700
(Decrease) in other liabilities (134,700) (122,700)
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Net cash provided by operating activities 574,000 1,432,400
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Cash flows from investing activities:
Payments for capital and tenant improvements (42,800) (44,500)
Maturity of investments in debt securities 496,300
(Increase) in escrow deposits (364,900) (189,500)
(Increase) in restricted cash (20,000)
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Net cash provided by (used for) investing activities 88,600 (254,000)
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Cash flows from financing activities:
Principal payments on mortgage loans payable (195,600) (248,900)
Payment of loan extension costs (10,000)
Proceeds from mortgage loan payable 228,100
Increase in security deposits 1,300 4,600
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Net cash provided by (used for) financing activities 33,800 (254,300)
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Net increase in cash and cash equivalents 696,400 924,100
Cash and cash equivalents at the beginning of the period 6,900,600 4,983,400
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Cash and cash equivalents at the end of the period $7,597,000 $5,907,500
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Supplemental information:
Interest paid to nonaffiliates during the period $ 982,600 $1,414,500
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Interest paid to Affiliates during the period $ 338,000 $ 261,600
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Agreement of Limited Partnership,
which is included in the Registration Statement and incorporated herein by
reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the three months ended March 31, 1997, are not necessarily indicative of the
operating results for the year ending December 31, 1997.
The financial statements include the Partnership's 50% interest in two joint
ventures and its 25% interest in another joint venture with Affiliated
partnerships which were each formed for the purpose of each acquiring a 100%
interest in certain real property. These joint ventures are operated under the
common control of the General Partner. Accordingly, the Partnership's pro rata
share of the joint ventures' revenues, expenses, assets, liabilities and
Partners' capital is included in the financial statements.
Commercial rental properties held for investment are recorded at cost, net of
any provisions for value impairment, and depreciated (exclusive of amounts
allocated to land) on the straight-line method over their estimated useful
lives. Upon classifying a commercial rental property as held for disposition,
no further depreciation or amortization of such property is provided for in the
financial statements. Lease acquisition fees are recorded at cost and amortized
over the life of the lease. Repair and maintenance costs are expensed as
incurred; expenditures for improvements are capitalized and depreciated over
the estimated life of such improvements.
The Partnership evaluates its commercial rental properties when conditions
exist which may indicate that it is probable that the sum of expected future
cash flows (undiscounted) from a property is less than its carrying basis. Upon
determination that an impairment has occurred, the carrying basis in the rental
property is reduced to its estimated fair value. Management was not aware of
any indicator that would result in a significant impairment loss during the
periods reported.
Loan acquisition costs are amortized over the term of the mortgage loan made in
connection with the acquisition of Partnership properties or refinancing of
Partnership loans. When a property is disposed of or a loan is refinanced, the
related loan acquisition costs and accumulated amortization are removed from
the respective accounts and any unamortized balance is expensed.
Cash equivalents are considered all highly liquid investments with a maturity
of three months or less when purchased.
Certain reclassifications have been made to the previously reported 1996
statements in order to provide comparability with the 1997 statements. These
reclassifications had no effect on net income or Partners' capital (deficit).
Reference is made to the Partnership's Annual Report for the year ended
December 31, 1996, for a description of other accounting policies and
additional details of the Partnership's financial condition, results of
operations, changes in Partners' capital and changes in cash balances for the
year then ended. The details provided in the notes thereto have not changed
except as a result of normal transactions in the interim or as otherwise
disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to November 22, 1988, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, which shall be an
amount equal to the lesser of (i) 0.5% of the gross value of the Partnership's
assets (not reduced by indebtedness collateralized by such assets), all as
estimated by the General Partner in its reasonable discretion, plus, to the
extent the Portfolio Management Fee paid in any prior year was less than 0.5%
of the gross value of the Partnership's assets in such prior year, the amount
of such deficit, or (ii) an amount equal to the remainder obtained by
subtracting the aggregate amount previously paid to the General Partner as
Portfolio Management Fees during such fiscal year, from an amount equal to 10%
of the Partnership's aggregate Cash Flow (as defined in the Partnership
Agreement) (computed prior to the deduction for Portfolio Management Fees) for
such fiscal year. For the three months ended March 31, 1997, 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 such amounts, if any, equal to the amount of Sale or Refinancing
Proceeds to be distributed to each such General Partner or Limited Partner with
respect to such Major Capital Event; and third, the balance, if any, 20% to the
General Partner and 80% to the Limited Partners as a group. Notwithstanding
anything to the contrary, there shall be allocated to the General Partner not
less than 1% of all items of Partnership income, gain, loss, deduction and
credit during the existence of the
4
<PAGE>
Partnership. For the three months ended March 31, 1997 and 1996, the General
Partner was allocated a Net (Loss) Profit of $(200) and $1,900, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the three months ended March 31, 1997 were as follows:
<TABLE>
<CAPTION>
Paid Payable
- ------------------------------------------------------------------------
<S> <C> <C>
Property management and leasing fees $138,100 $ 28,000
Interest expense on Front-End Fees Loan (Note 3) 338,000 None
Reimbursement of property insurance premiums, at cost None 29,400
Reimbursement of expenses, at cost:
--Accounting 4,100 6,000
--Investor communication 1,200 1,800
--Legal 11,600 63,100
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$493,000 $128,300
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</TABLE>
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 30% owned by Anixter International Inc. (formerly known as Itel
Corporation), an Affiliate of the General Partner, is obligated to the
Partnership under a lease for office space at Prentice Plaza. During the three
months ended March 31, 1997, ANTEC paid $89,500 in base rents and
reimbursements of expenses. In addition, during the three months ended March
31, 1997, ANTEC remitted $120,000 as partial consideration for the early
release of approximately 38% of its leased space. Substantially all of this
released space has been retenanted for rents approximating the terms of ANTEC's
lease. The Partnership owns a 50% joint venture interest in these amounts. The
per square foot rent paid by ANTEC is comparable to that paid by other tenants
at Prentice Plaza.
Manufactured Home Communities, Inc. ("MHC"), a real estate investment trust,
which is in the business of owning and operating mobil home communities, an
Affiliate of the General Partner, is obligated to the Partnership under a lease
for office space at Prentice Plaza. During the three months ended March 31,
1997, MHC paid $12,600 in rents and reimbursements of expenses. The Partnership
owns a 50% joint venture interest in these amounts. The per square foot rent
paid by MHC is comparable to that paid by other tenants at Prentice Plaza.
Effective on December 31, 1996, the Affiliate providing property management and
certain leasing services to the Partnership's shopping centers, sold its
interest in its property management agreements to an unrelated party.
On-site property management for certain of the Partnership's properties is
provided by Affiliates of the General Partner for fees ranging from 3% to 6% of
gross rents received by the properties.
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership 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
payment to the Limited Partners of 100% of their Original Capital Contribution
from Sale or Refinancing Proceeds (as defined in the Partnership Agreement).
Interest on the outstanding balance of this loan is due and payable monthly at
a rate no greater than the cost of funds obtained by the Affiliate from
unaffiliated lenders.
As of March 31, 1997, 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 three months ended March 31, 1997 was 7.46%. As of March
31, 1997, the interest rate was 7.44%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 72-month period
beginning April 1, 1993. In addition, any interest payments made by the
Partnership from April 1, 1993 through March 31, 1999 may be borrowed from the
Affiliate. All deferred and subsequently borrowed amounts (including accrued
interest thereon) shall be due and payable on April 1, 1999, and shall not be
subordinated to payment of original Capital Contributions to Limited Partners.
As of March 31, 1997, the Partnership had not exercised its option to defer the
payment of interest on this loan.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at March 31, 1997 and December 31, 1996 consisted of the
following loans which are non-recourse to or not guaranteed by the Partnership:
<TABLE>
<CAPTION>
Partnership's Share of
Principal Balance at Average
Property Pledged ----------------------- Interest Maturity
as Collateral 3/31/97 12/31/96 Rate (a) Date
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<S> <C> <C> <C> <C>
Meidinger Tower $22,633,400 $22,405,300 6.71% 10/15/1998
Deerfield Mall 17,592,100 17,760,400 7.60% 3/1/2001
Prentice Plaza (50%) 4,828,100 4,838,100 7.18% 12/19/2000
Regency Park Shopping Center (25%) 3,837,300 3,854,600 7.50% 12/31/1997
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$48,890,900 $48,858,400
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</TABLE>
(a) The average interest rate represents an average for the three months ended
March 31, 1997. Interest rates are subject to change in accordance with the
provisions of the loan agreements (except the loans collateralized by
Deerfield Mall and Regency, which have fixed interest rates). As of March
31, 1997, interest rates on the loans collateralized by Meidinger Tower and
Prentice Plaza were 6.69% and 7.19%, respectively.
For additional information regarding the mortgage loans payable, refer to the
Partnership's Annual Report for the year ended December 31, 1996.
5. ASSET HELD FOR DISPOSITION:
During 1996, the Partnership modified its mortgage obligation on the loan
secured by Regency Park Shopping Center ("Regency"). Among other provisions,
the modification provides for a maturity date of December 31, 1997. The
Partnership is marketing Regency for sale and expects to complete a sale
transaction prior to December 31, 1997. Accordingly, the Partnership has
classified Regency as "Held for Disposition". The Partnership's carrying basis,
net of accumulated depreciation and amortization, of Regency on the Balance
Sheet as of March 31, 1997 was $3,875,800 and does not exceed the estimated
fair value, less costs to sell. The Partnership's share of net income (loss) of
Regency, included in the Statements of Income and Expenses for the three months
ended March 31, 1997 and 1996 was $52,100 and $(5,200), respectively. The 1996
loss includes depreciation and amortization of $28,100. In connection with
classifying Regency as "Held for Disposition", no depreciation or amortization
was recorded against the property during 1997.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's Annual Report for the year ended
December 31, 1996 for a discussion of the Partnership's business.
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.
components of the Partnership's operating results are generally expected to
decline as real property interests are sold or disposed of since the
Partnership no longer receives income generated and expenses incurred from such
real property interests.
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of each of its properties for the quarters ended March 31, 1997 and
1996. The discussion following the table should be read in conjunction with the
financial statements and notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative
Operating Results (a)
For the Quarters
Ended
3/31/97 3/31/96
- ---------------------------------------------------
<S> <C> <C>
MEIDINGER TOWER
Rental revenues $1,170,500 $1,145,000
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Property net (loss) $ (143,500) $ (114,400)
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Average occupancy 98% 96%
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DEERFIELD MALL
Rental revenues $1,097,100 $1,101,300
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Property net income $ 194,900 $ 191,600
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Average occupancy 93% 93%
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1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues $ 383,700 $ 370,700
- ---------------------------------------------------
Property net income $ 82,700 $ 50,700
- ---------------------------------------------------
Average occupancy 96% 96%
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PRENTICE PLAZA (50%)
Rental revenues $ 364,700 $ 310,100
- ---------------------------------------------------
Property net income (loss) $ 9,400 $ (40,100)
- ---------------------------------------------------
Average occupancy 95% 98%
- ---------------------------------------------------
REGENCY PARK SHOPPING CENTER (25%)
Rental revenues $ 173,700 $ 149,400
- ---------------------------------------------------
Property net income (loss) $ 52,100 $ (5,200)
- ---------------------------------------------------
Average occupancy 92% 87%
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Comparative
Operating Results
(a)
For the Quarters
Ended
3/31/97 3/31/96
- ----------------------------------------
<S> <C> <C>
EQUITABLE OF IOWA BUILDING (B)
Rental revenues $955,200
- ----------------------------------------
Property net income $300,000
- ----------------------------------------
Average occupancy 99%
- ----------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%)
(B)
Rental revenues $372,100
- ----------------------------------------
Property net income $ 67,000
- ----------------------------------------
Average occupancy 88%
- ----------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income,
interest expense on the Partnership's Front-End Fees loan and general and
administrative expenses or are related to properties disposed of by the
Partnership prior to the periods under comparison.
(b) The property was sold in 1996.
Net income (loss) for the Partnership changed from $192,500 for the three
months ended March 31, 1996 to $(23,500) for the three months ended March 31,
1997. The change in net results was primarily due the effects of the sales of
Equitable of Iowa Building ("Equitable") and Sentry Park West Office Campus
("Sentry West") in 1996. Net income exclusive of the sold properties improved
by $164,300 for the periods under comparison. The improvement was primarily due
to improved operating results at all of the Partnership's remaining properties
except for Meidinger Tower. Also contributing to the increase was a decrease in
general and administrative expenses due to a decrease in personnel costs and
accounting fees.
The following comparative discussion excludes the operating results of
Equitable and Sentry West.
Rental revenues increased by $113,200 or 3.7% for the three months ended March
31, 1997 when compared to the three months ended March 31, 1996. The increase
was in part due to the 1997 receipt of cash of $60,000 as consideration for the
settlement of a lease at Prentice Plaza. Also contributing to the increase were
increases in base rental income at Regency Park Shopping Center ("Regency") and
Meidinger Tower, due to increases in average occupancy and at 1800 Sherman
Office Building ("1800 Sherman") due to an increase in base rental rates
charged to new and renewing tenants. The increase was partially offset by the
1996 receipt of consideration for the early termination of a tenant's lease at
Meidinger Tower in the amount of $52,800.
Depreciation and amortization expense decreased by $14,900 for the three-month
periods under comparison. The decrease was primarily the result of the
Partnership discontinuing the recording of periodic depreciation and
amortization expense for depreciable and amortizable assets at Regency,
beginning January 1, 1997, in connection with classifying the property as Held
for Disposition.
Interest expense on the Partnership's mortgage loans decreased by $32,200 for
the three months ended March 31, 1997 when compared to the three months ended
March 31,
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1996. The decrease was primarily due to a lower average interest rate on the
mortgage loan collateralized by Prentice Plaza together with the effects of
principal payments made during the past 15 months on the Partnership's mortgage
loans with the exception of Meidinger Tower, which has not made a cash flow
principal payment since 1995.
Repairs and maintenance expense increased by $79,700 for the three months ended
March 31, 1997 when compared to the three months ended March 31, 1996. The
increase was primarily due to an increase in elevator repairs at Meidinger
Tower together with an increase in repairs to the HVAC system at Prentice Plaza
and Meidinger Tower. The increase was partially offset by a decrease in snow
removal costs at 1800 Sherman.
Real estate tax expense decreased by $27,000 for the three-month periods under
comparison. The decrease was primarily due to the successful appeal in 1996 for
a reduction of the assessed value of 1800 Sherman for the 1995 tax year. The
decrease was partially offset by an increase in real estate tax expense at
Prentice Plaza resulting from an increase in the assessed value of this
property for real estate tax purposes.
Property operating expense remained relatively unchanged for the periods under
comparison.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated and unaffiliated asset and property
management groups, continues to take the following actions: 1) implementation
of marketing programs, including hiring of third-party leasing agents or
providing on-site leasing personnel, advertising, direct mail campaigns and
development of property brochures; 2) early renewal of existing tenants' leases
and addressing any expansion needs these tenants may have; 3) promotion of
local broker events and networking with local brokers; 4) networking with
national level retailers; 5) cold-calling other businesses and tenants in the
market area; and 6) providing rental concessions or competitively pricing
rental rates depending on market conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain it properties.
Cash Flow (as defined in the Partnership Agreement) is generally not equal to
net income or cash flows as determined by generally accepted accounting
principles ("GAAP"), since certain items are treated differently under the
Partnership Agreement than under GAAP. Management believes that to facilitate a
clear understanding of the Partnership's operations, an analysis of Cash Flow
(as defined in the Partnership Agreement) should be examined in conjunction
with an analysis of net income or cash flows as determined by GAAP. The
following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by GAAP. Such amounts are not indicative of actual distributions to
Partners and should not be considered as an alternative to the results
disclosed in the Statements of Income and Expenses and Statements of Cash Flow.
<TABLE>
<CAPTION>
Comparative
Cash Flow Results
For the Quarters
Ended
<S> <C> <C>
3/31/97 3/31/96
- -----------------------------------------------------------------------------
Cash Flow (as defined in the Partnership Agreement) $396,500 $ 614,700
Items of reconciliation:
Scheduled principal payments on mortgage loans payable 195,600 209,000
Decrease in current assets 255,000 645,600
(Decrease) in current liabilities (273,100) (36,900)
- -----------------------------------------------------------------------------
Net cash provided by operating activities $574,000 $1,432,400
- -----------------------------------------------------------------------------
Net cash provided by (used for) investing activities $ 88,600 $ (254,000)
- -----------------------------------------------------------------------------
Net cash provided by (used for) financing activities $ 33,800 $ (254,300)
- -----------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $218,200
for the three months ended March 31, 1997 when compared to the three months
ended March 31, 1996, was primarily due to the 1997 absence of results from
Equitable and Sentry West due to their sale in 1996. The decrease was partially
offset by the increase in net income from the Partnership's other properties,
as previously discussed, exclusive of depreciation and amortization expense.
The increase in the Partnership's cash position of $696,400 for the three
months ended March 31, 1997 was primarily the result of the net cash provided
by operating activities, maturity of the Partnership investments in debt
securities and draw on the mortgage loan collateralized by Meidinger Tower
exceeding the increase in escrow deposits, principal payments made on
Partnership's mortgage loans and expenditures made for capital and tenant
improvements and leasing costs. Liquid assets (including cash and cash
equivalents) of the Partnership as of March 31, 1997 were comprised of amounts
held for working capital purposes.
Net cash provided by operating activities continues to be a primary source of
funds for the Partnership. Net cash provided by operating activities decreased
by $858,400 for the three months ended March 31, 1997 when compared to the
three months ended March 31, 1996. The decrease was most significantly due to
the absence of operating results from Equitable and Sentry West in 1997 due to
their 1996 sales. Also contributing to the decrease was the timing of the
liquidation of assets and payment of certain expenses at Deerfield Mall,
Meidinger Tower and Prentice Plaza. The decrease was partially offset by the
improved operating results, exclusive of depreciation and amortization, of
Prentice Plaza, 1800 Sherman and Regency.
Net cash (used for) provided by investing activities changed from $(254,000)
for the three months ended March 31, 1996 to $88,600 for the three months ended
March 31, 1997. The change was primarily due to the maturity of the
Partnership's investments in debt securities partially offset by an increase in
cash paid into real estate tax escrows. The escrow payments are required by the
mortgage loans collateralized by Deerfield Mall and Meidinger Tower.
The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements and leasing costs. During
the three months ended March 31, 1997, the Partnership spent $42,800 for
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
these items and has projected to spend approximately $950,000 during the
remainder of 1997. Included in this projected amount are capital and tenant
improvements and leasing costs of approximately $500,000 for Meidinger Tower.
Actual amounts expended may vary depending on a number of factors including
actual leasing activity, results of property operations, liquidity
considerations, the sale of a property and other market conditions throughout
the year. The General Partner believes these improvements and leasing costs are
necessary in order to increase and/or maintain occupancy levels in very
competitive markets, maximize rental rates charged to new and renewing tenants
and to prepare the remaining properties for eventual disposition.
Net cash (used for) provided by financing activities changed from $(254,300)
for the three months ended March 31, 1996 to $33,800 for the three months ended
March 31, 1997. The change was primarily due to a draw on the mortgage loan
collateralized by Meidinger Tower together with a decrease in principal
payments on the Partnership's mortgage obligations which was due to the sale of
Equitable and Sentry West.
Pursuant to a modification of the Partnership's Front-End Fees loan agreement,
the Partnership has the option to defer payment of interest on this loan for a
72-month period beginning April 1, 1993. In addition, any interest payments
made by the Partnership from April 1, 1993 through March 31, 1999 may be
borrowed from an Affiliate of the General Partner. All deferred and
subsequently borrowed amounts (including accrued interest thereon) shall be due
and payable on April 1, 1999, and shall not be subordinated to payment of
Original Capital Contributions to Limited Partners. As of March 31, 1997, the
Partnership had not exercised its option to defer the payment of interest on
this loan.
During 1996, the joint venture which owns Regency, in which the Partnership has
a 25% interest with Affiliated partnerships, executed an agreement (the
"Extension") with the mortgage lender to modify the terms of the mortgage loan
collateralized by Regency. Significant terms of the Extension, include: 1) an
extension of the maturity date to December 31, 1997; 2) monthly principal and
interest payments based on a 23-year amortization schedule with a per annum
interest rate of 7.5%; and 3) net property cash flow (as defined in the
Extension), if any, after deducting scheduled principal and interest payments,
approved capital and tenant improvements and leasing commissions, is required
to be deposited into a non-interest bearing reserve account maintained by the
lender to be used for capital and tenant improvements, leasing commissions and
operating deficits of Regency.
As of December 31, 1996, 26 of the 33 tenants at Prentice Plaza and 35 of the
54 tenants at Deerfield Mall had leases, totaling 236,905 square feet, that
expire during the next three years. The Partnership's share of total base
rental revenues projected to be collected from these tenants for the year
ending December 31, 1997 is $2,180,600. Notwithstanding the market rental rates
that may be in effect at the time that these leases mature, the Partnership
faces uncertainty with respect to the occupancy at its properties in 1998 and
possibly beyond. The General Partner and its management companies intend to
address the possible renewal of these leases well in advance of their scheduled
maturities in an attempt to maintain occupancy and rental revenues at its
properties.
The Partnership has significant financial obligations during the remainder of
1997 and beyond. In addition to required principal payments on certain of its
mortgage loans, two of the Partnership's mortgage loans mature during the next
two years. As a result of the potential tenant turnover discussed above, it is
likely that the Partnership will incur a substantial amount of capital and
tenant improvement and leasing costs during the next several years. In light of
this, the General Partner believes that it is in the Partnership's best
interest to retain all cash available. Accordingly, cash distributions to
Partners continue to be suspended. The General Partner believes that Cash Flow
(as defined in the Partnership Agreement) is one of the best sources of cash
available to the Partnership. For the three months ended March 31, 1997, Cash
Flow (as defined in the Partnership Agreement) of $396,500 was retained to
supplement working capital reserves. The General Partner continues to review
other sources of cash available to the Partnership, which includes the possible
financing, refinancing or sale of certain of the Partnership's properties.
While there can be no assurance as to the timing or successful completion of
any future transactions or as to the properties' future operating results, the
General Partner currently believes that the amount of the Partnership's
existing cash reserves, future Cash Flow (as defined in the Partnership
Agreement) to be earned as well as additional proceeds to be received from any
sale, disposition, financing or refinancing of any properties or any mortgage
loan modifications or extensions are sufficient to cover the planned
expenditures for the ensuing twelve month period.
Based upon the current estimated fair value of its assets, net of its
outstanding liabilities, together with its expected operating results and
capital expenditure requirements, the Partnership's cumulative distributions to
its Limited Partners from inception through the termination of the Partnership
will be significantly less than such Limited Partners' original Capital
Investment. There can be no assurance as to the amount and/or availability of
cash for future distributions to Partners.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
- -----------------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the three months ended
March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
By: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: May 15, 1997 By: /s/ DOUGLAS CROCKER II
------------ --------------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: May 15, 1997 By: /s/ NORMAN M. FIELD
------------ --------------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,697,000
<SECURITIES> 0
<RECEIVABLES> 388,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,197,600
<PP&E> 86,625,100
<DEPRECIATION> 21,681,000
<TOTAL-ASSETS> 74,509,900
<CURRENT-LIABILITIES> 2,211,400
<BONDS> 62,325,300
0
0
<COMMON> 0
<OTHER-SE> 9,963,400
<TOTAL-LIABILITY-AND-EQUITY> 74,509,900
<SALES> 0
<TOTAL-REVENUES> 3,285,700
<CGS> 0
<TOTAL-COSTS> 1,520,400
<OTHER-EXPENSES> 50,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,122,500
<INCOME-PRETAX> (23,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,500)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
