<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1997
------------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number 0-16888
--------------------------------------------
First Capital Income and Growth Fund - Series XII
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3498223
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1100, Chicago, Illinois 60606-2607
- -------------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(312) 207-0020
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ----
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated May 8, 1987, included
in the Partnership's Registration Statement on Form S-11, is incorporated herein
by reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(Unaudited) 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $12,034,200 $13,074,900
Buildings and improvements 69,633,800 73,507,400
- -------------------------------------------------------------------------------
81,668,000 86,582,300
Accumulated depreciation and amortization (21,542,900) (21,081,700)
- -------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 60,125,100 65,500,600
Cash and cash equivalents 6,776,600 6,900,600
Investments in debt securities 1,469,000 496,300
Restricted cash 100,000 100,000
Rents receivable 304,500 549,700
Escrow deposits 1,384,100 747,600
Other assets (primarily loan acquisition costs, net
of accumulated amortization of $1,197,700 and
$1,167,200, respectively) 301,600 477,900
- -------------------------------------------------------------------------------
$70,460,900 $74,772,700
- -------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $44,276,500 $48,858,400
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Accounts payable and accrued expenses 1,803,100 1,939,800
Due to Affiliates 68,800 186,900
Security deposits 230,300 221,800
Other liabilities 144,500
- -------------------------------------------------------------------------------
59,813,100 64,785,800
- -------------------------------------------------------------------------------
Partners' capital:
General Partner (deficit) (1,668,400) (1,675,000)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 12,316,200 11,661,900
- -------------------------------------------------------------------------------
10,647,800 9,986,900
- -------------------------------------------------------------------------------
$70,460,900 $74,772,700
- -------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 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
- --------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1996 (1,675,000) 11,661,900 9,986,900
Net income for the nine months ended
September 30, 1997 6,600 654,300 660,900
- --------------------------------------------------------------------------
Partners' (deficit) capital,
September 30, 1997 $(1,668,400) $12,316,200 $10,647,800
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $ 2,993,700 $ 4,283,800
Interest 120,100 81,800
Gain on sale of property 822,000
- --------------------------------------------------------------------------
3,113,800 5,187,600
- --------------------------------------------------------------------------
Expenses:
Interest:
Affiliates 262,800 255,300
Nonaffiliates 817,900 1,064,800
Depreciation and amortization 607,000 632,800
Property operating:
Affiliates 129,300 278,400
Nonaffiliates 321,800 572,300
Real estate taxes 487,700 437,700
Insurance--Affiliate 25,000 40,900
Repairs and maintenance 360,300 643,800
General and administrative:
Affiliates 9,300 18,100
Nonaffiliates 32,300 32,300
Additional expense of sale of property 4,500
- --------------------------------------------------------------------------
3,057,900 3,976,400
- --------------------------------------------------------------------------
Net income $ 55,900 $ 1,211,200
- --------------------------------------------------------------------------
Net income allocated to General Partner $ 500 $ 12,100
- --------------------------------------------------------------------------
Net income allocated to Limited Partners $ 55,400 $ 1,199,100
- --------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 0.06 $ 1.26
- --------------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $ 9,218,600 $ 13,221,100
Interest 325,200 227,100
Gain on sale of property 760,300 822,000
- ---------------------------------------------------------------------------
10,304,100 14,270,200
- ---------------------------------------------------------------------------
Expenses:
Interest:
Affiliates 774,400 760,500
Nonaffiliates 2,568,300 3,284,900
Depreciation and amortization 1,828,100 1,927,000
Property operating:
Affiliates 397,300 843,400
Nonaffiliates 1,138,300 1,813,500
Real estate taxes 1,504,000 1,809,100
Insurance--Affiliate 77,700 124,300
Repairs and maintenance 1,202,300 1,866,400
General and administrative:
Affiliates 24,600 47,200
Nonaffiliates 128,200 133,300
- ---------------------------------------------------------------------------
9,643,200 12,609,600
- ---------------------------------------------------------------------------
Net income $ 660,900 $ 1,660,600
- ---------------------------------------------------------------------------
Net income allocated to General Partner $ 6,600 $ 16,600
- ---------------------------------------------------------------------------
Net income allocated to Limited Partners $ 654,300 $ 1,644,000
- ---------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 0.69 $ 1.73
- ---------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 660,900 $1,660,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,828,100 1,927,000
Gain on sale of property (760,300) (822,000)
Changes in assets and liabilities:
Decrease in rents receivable 245,200 183,600
Decrease in other assets 114,900 392,900
(Decrease) increase in accounts payable and accrued
expenses (136,700) 176,000
(Decrease) in due to Affiliates (118,100) (23,900)
(Decrease) in other liabilities (144,500) (32,600)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 1,689,500 3,461,600
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property 4,648,500 5,612,500
Payments for capital and tenant improvements (279,400) (515,300)
(Increase) in investments in debt securities, net (972,700) (489,700)
(Increase) in escrow deposits (636,500) (1,379,100)
(Increase) in restricted cash (20,000)
- ------------------------------------------------------------------------------
Net cash provided by investing activities 2,759,900 3,208,400
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans payable (762,200) (940,900)
Repayments of mortgage loans payable (3,819,700) (4,568,700)
Loan acquisition costs incurred (13,300)
Increase (decrease) in security deposits 8,500 (45,100)
- ------------------------------------------------------------------------------
Net cash (used for) financing activities (4,573,400) (5,568,000)
- ------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (124,000) 1,102,000
Cash and cash equivalents at the beginning of the
period 6,900,600 4,983,400
- ------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $6,776,600 $6,085,400
- ------------------------------------------------------------------------------
Supplemental information:
Interest paid to Affiliate during the period $ 861,900 $ 769,800
- ------------------------------------------------------------------------------
Interest paid to nonaffiliates during the period $2,705,700 $3,352,800
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 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 quarter and nine months ended September 30, 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 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 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 on the straight-line method over the
life of each respective lease. Repair and maintenance costs are expensed as
incurred; expenditures for improvements are capitalized and depreciated on the
straight-line method 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.
Property sales 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 is recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with a maturity
of three months or less when purchased.
Investments in debt securities are comprised of corporate debt securities and
are classified as held-to-maturity. These investments are carried at their
amortized cost basis in the financial statements which approximated fair market
value. All of these securities had a maturity of less than one year when
purchased.
Certain reclassifications have been made to the previously reported 1996
statements in order to provide comparability with the 1997 statements. These
reclassifications had no effect on net (loss) or Partners' capital (deficit).
Reference is made to the Partnership's annual report for the year ended
December 31, 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 quarter and nine months ended September 30, 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 Partnership. For the quarter and nine months
ended September 30, 1997, the General Partner was allocated a Net Profit of
$500 and $6,600, respectively, which for the nine months ended September 30,
1997 included $7,600 from the sale of a Partnership property. The General
Partner was allocated 1% of the gain on sale of
4
<PAGE>
property due to the fact that the gain represented a partial recovery of the
loss on provisions for value impairment taken in prior periods which were
allocated 1% to the General Partner and 99% to the Limited Partners.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Paid
-------------------
Nine
Quarter Months Payable
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $107,700 $ 373,000 $16,400
Interest expense on Front-End Fees Loan (Note 3) 348,900 861,900 None
Reimbursement of property insurance premiums, at
cost 36,200 77,700 None
Legal 31,100 62,100 47,600
Reimbursement of expenses, at cost:
--Accounting 3,900 15,700 3,200
--Investor communication 2,000 7,300 1,600
- -----------------------------------------------------------------------------
$529,800 $1,397,700 $68,800
- -----------------------------------------------------------------------------
</TABLE>
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 18.5% owned by Anixter International Inc. (formerly known as Itel
Corporation), an Affiliate of the General Partner, is obligated to the
Partnership under a lease of office space at Prentice Plaza. During the quarter
and nine months ended September 30, 1997, ANTEC paid $43,600 and $185,800,
respectively, in base rents and reimbursements of expenses. In addition, during
the nine months ended September 30, 1997, ANTEC remitted $120,000 as partial
consideration for the early release of approximately 38% of its leased space.
Substantially all of this space has been retenanted for rents approximating the
terms of ANTEC's lease. ANTEC has reached an agreement with another tenant to
sublease the remainder of their space. The subletting has no effect on the
Partnership as ANTEC still retains ultimate responsibility for the rent on
their space until the lease expires in September 1999. 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 an Affiliate of the General Partner and in the business of owning and
operating mobil home communities, is obligated to the Partnership under a lease
of office space at Prentice Plaza. During the quarter and nine months ended
September 30, 1997, MHC paid $15,400 and $33,600, respectively, 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.
On-site property management for certain of the Partnership's properties is
provided by independent real estate management companies for a fee of 3% of
gross rents received by the properties. In addition, Affiliates of the General
Partner provide on-site property management, supervisory and leasing services
for fees based upon various percentage rates of gross rents for the properties.
These fees range from 1% to 6% based upon the terms of the individual
management agreements.
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership borrowed from the General Partner an amount needed for the
payment of securities sales commissions, Offering and Organizational Expenses
and other Front-End Fees, other than Acquisition Fees. Repayment of the
principal amount of the Front-End Fees Loan is subordinated to payment to the
Limited Partners of 100% of their Original Capital Contribution from Sale or
Refinancing Proceeds (as defined in the Partnership Agreement). Interest on the
outstanding balance of this loan is due and payable monthly at a rate no
greater than the cost of funds obtained by the General Partner from
unaffiliated lenders.
As of September 30, 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 quarter and nine months ended September 30, 1997
was 7.60%. As of September 30, 1997, the interest rate was 7.66%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 60-month period
beginning April 1, 1993. In addition, any interest payments made by the
Partnership from April 1, 1993 through March 31, 1998 may be borrowed from the
General Partner. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on April 1, 1998, and shall
not be subordinated to payment of original Capital Contributions to Limited
Partners. During the quarter ended September 30, 1996, this loan was
transferred to an Affiliate of the General Partner.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at September 30, 1997 and December 31, 1996 consisted of
the following loans which are non-recourse to nor guaranteed by the Partnership
unless otherwise disclosed:
<TABLE>
<CAPTION>
Partnership's Share of
Principal Balance at Average
----------------------- Interest Maturity
Property Pledged as Collateral 9/30/97 12/31/96 Rate (a) Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Meidinger Tower $22,137,600 $22,405,300 6.85% 10/15/1998
Deerfield Mall 17,330,800 17,760,400 7.60% 3/1/2001
Prentice Plaza (50%) 4,808,100 4,838,100 7.34% 12/19/2000
Regency Park Shopping Center (25%) (b) 3,854,600 (b) (b)
- -------------------------------------------------------------------------------
$44,276,500 $48,858,400
- -------------------------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the nine months ended
September 30, 1997. Interest rates are subject to change in accordance with
the provisions of the loan agreements (except the loan collateralized by
Deerfield Mall, which has a fixed interest rate). As of September 30, 1997,
interest rates on the loans collateralized by Meidinger Tower and Prentice
Plaza were 6.91% and 7.38%, respectively.
(b) The joint venture which owns Regency Park Shopping Center ("Regency"), in
which the Partnership has a 25% interest with Affiliated partnerships,
repaid the mortgage collateralized by Regency with proceeds generated from
its sale. For further information regarding the sale see Note 5.
For additional information regarding the mortgage loans payable, see notes to
the financial statements in the Partnership's Annual Report for the year ended
December 31, 1996.
5. PROPERTY SALE:
On June 16, 1997, the joint venture in which the Partnership has a 25%
interest, completed the sale of Regency for a sale price of $19,325,000, of
which the Partnership's share was $4,831,250. The Partnership's share of
proceeds from this transaction was $828,800, which is net of closing expenses
and the repayment of the mortgage loan encumbering the property. The
Partnership recorded a gain of $760,300 in connection with this sale. Net
proceeds received from this transaction have been added to working capital
reserves.
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.
OPERATIONS
The Partnership is in the disposition phase of its life cycle. During the
disposition phase, comparisons of operating results are complicated due to the
timing and effect of property sales. Operating results are generally expected
to decline as real property interests are sold since the Partnership no longer
receives income generated from such real property interests.
The table below is a recap of the Partnership's share of certain operating
results of each of its properties for the quarters and nine months ended
September 30, 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 For the Nine Months
Ended Ended
9/30/97 9/30/96 9/30/97 9/30/96
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEIDINGER TOWER
Rental revenues $1,276,800 $1,192,300 $3,732,000 $3,412,200
- ---------------------------------------------------------------------------
Property net (loss) $ (29,600) $ (63,900) $ (207,900) $ (402,600)
- ---------------------------------------------------------------------------
Average occupancy 96% 96% 96% 96%
- ---------------------------------------------------------------------------
DEERFIELD MALL
Rental revenues $ 971,500 $1,094,900 $3,082,700 $3,252,900
- ---------------------------------------------------------------------------
Property net income $ 147,400 $ 201,900 $ 498,000 $ 566,700
- ---------------------------------------------------------------------------
Average occupancy 92% 95% 92% 95%
- ---------------------------------------------------------------------------
1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues $ 404,800 $ 396,600 $1,182,000 $1,178,900
- ---------------------------------------------------------------------------
Property net income $ 98,700 $ 168,100 $ 284,200 $ 301,100
- ---------------------------------------------------------------------------
Average occupancy 98% 94% 97% 95%
- ---------------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 340,300 $ 334,200 $ 927,100 $1,025,300
- ---------------------------------------------------------------------------
Property net income (loss) $ 32,800 $ 3,700 $ (124,900) $ (54,100)
- ---------------------------------------------------------------------------
Average occupancy 96% 99% 95% 99%
- ---------------------------------------------------------------------------
REGENCY PARK SHOPPING CENTER (25%) (B)
Rental revenues $ 148,000 $ 287,600 $ 448,200
- ---------------------------------------------------------------------------
Property net income $ 1,100 $ 63,400 $ 1,300
- ---------------------------------------------------------------------------
Average occupancy 91% 89%
- ---------------------------------------------------------------------------
EQUITABLE OF IOWA BUILDING (C)
Rental revenues $ 877,300 $2,904,400
- ---------------------------------------------------------------------------
Property net income $ 247,800 $ 923,400
- ---------------------------------------------------------------------------
Average occupancy 95% 97%
- ---------------------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%) (C)
Rental revenues $ 241,100 $ 999,200
- ---------------------------------------------------------------------------
Property net income $ 58,800 $ 228,500
- ---------------------------------------------------------------------------
Average occupancy 87% 87%
- ---------------------------------------------------------------------------
</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 was sold on June 16, 1997. Property net income excludes gain on
sale. For additional information, see Note 5 of Notes to Financial
Statements.
(c) Property was sold during 1996. Property net income excludes gain on sale.
Unless otherwise disclosed, discussions of fluctuations between 1997 and 1996
refer to both the quarters and nine months ended September 30, 1997 and 1996.
Net income decreased by $1,155,300 and $999,700 for the quarter and nine months
ended September 30, 1997 when compared to the quarter and nine months ended
September 30, 1996. The decreases were primarily due to the effects of the
property sales during 1996 and 1997.
Net (loss), exclusive of sold properties, increased by $16,900 for the quarter
ended September 30, 1997 when compared to the quarter ended September 30, 1996.
The change was primarily the result of diminished operating results at
Deerfield Mall ("Deerfield") and 1800 Sherman Office Building ("1800 Sherman"),
partially offset by the improved operating results at Meidinger Tower and
Prentice Plaza and an increase in interest earned on the Partnership's short-
term investments due to an increase in cash available for investment.
Net (loss) exclusive of sold properties decreased by $165,700 for the nine
months and September 30, 1997 when compared to the nine months ended September
30, 1996. The decreases were primarily due to improved operating results at
Meidinger Tower and the increase in interest earned on the Partnership's short-
term investments due to an increase in the cash available for investment.
Partially offsetting the decreases in net (loss) were diminished operating
results at Prentice Plaza, Deerfield and 1800 Sherman.
The following comparative discussion excludes the results of Equitable, Sentry
West and Regency.
Rental revenues increased by $54,500 or 0.6% for the nine months ended
September 30, 1997 when compared to the nine months ended September 30, 1996.
The increase was primarily due to an increase in tenant expense reimbursements
at Meidinger Tower and Deerfield together with the receipt of consideration for
the early termination of a tenant's lease at Prentice Plaza. The increase was
partially offset by a decrease in tenant expense reimbursements at Prentice
Plaza due to the credit due to tenants for 1996 being significantly larger than
previously estimated and a decrease in base rental income at Deerfield Mall due
to a decline in the average occupancy. Rental revenues remained relatively
unchanged for the quarterly periods under comparison.
Real estate tax expense increased by $92,600 and $40,900 for the quarterly and
nine-month periods under comparison, respectively. The increases were primarily
the result of projected increases in real estate taxes at 1800 Sherman and
Prentice Plaza. During the nine months ended September 30, 1997,
representatives of the Partnership concluded the appeal process and reached a
settlement with the taxing authority for Meidinger Tower for the 1992 through
1996 tax years. The result was the successful reduction in the taxing
authority's assessed value of the property which has partially offset the
increase in expense. A substantial portion of the real estate tax savings for
the years 1992 through 1996 will be remitted to tenants who had paid real
estate escalations based on the higher amounts.
Property operating expense decreased by $25,700 and $76,900 for the quarter and
nine months ended September 30, 1997 when compared to the quarter and nine
months ended September 30, 1996. The decreases were primarily due to decreases
in management fees at Deerfield and Prentice Plaza and in security costs at
Deerfield.
Interest expense on the Partnership's mortgage loans increased by $12,800 for
the quarter ended September 30, 1997 when compared to the quarter ended
September 30, 1996. The increase was primarily due to an additional draw made
on the Meidinger Tower loan during 1997. Partially offsetting the increase was
the effects of principal payments made during the past 21 months on the
mortgage loan collateralized by Deerfield. Interest expense remained relatively
unchanged for the nine-month periods under comparison with expense increasing
slightly at Meidinger Tower and decreasing by a similar amount at Deerfield.
Repairs and maintenance expense increased by $72,200 for the nine months ended
September 30, 1997 when compared to the nine months ended September 30, 1996.
The increases were primarily the result of an increase in repairs to the HVAC
system and the elevators at Meidinger Tower.
Repairs and maintenance expense decreased by $33,800 for the quarter ended
September 30, 1997 when compared to the quarter ended September 30, 1996. The
decrease was primarily due to decreases in plumbing repairs at Meidinger Tower
and in roof repairs at Deerfield.
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
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 should not be considered as an alternative to
the results disclosed in the Statements of Income and Expenses and Statements
of Cash Flow.
<TABLE>
<CAPTION>
Comparative
Cash Flow Results
For the Nine Months Ended
9/30/97 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 966,500 $ 1,864,500
Items of reconciliation:
Scheduled principal payments on mortgage loans
payable 762,200 901,100
Decrease in current assets 360,100 576,500
(Decrease) increase in current liabilities (399,300) 119,500
- --------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,689,500 $ 3,461,600
- --------------------------------------------------------------------------------
Net cash provided by investing activities $ 2,759,900 $ 3,208,400
- --------------------------------------------------------------------------------
Net cash (used for) financing activities $ (4,573,400) $ (5,568,000)
- --------------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $898,000
for the nine months ended September 30, 1997 when compared to the nine months
ended September 30, 1996 was primarily due to the absence of operating results
in 1997 due to the sales of Sentry West, Equitable and Regency.
The net decrease in the Partnership's cash of $124,000 for the nine months
ended September 30, 1997 was primarily the result of increases in escrow
deposits and investments in debt securities, regularly scheduled principal
payments made on Partnership's mortgage loans payable and expenditures made for
capital and tenant improvements and leasing costs slightly exceeding the net
cash provided by operating activities and the net proceeds received from the
sale of Regency. Liquid assets (including cash, cash equivalents and
investments in debt securities) of the Partnership as of September 30, 1997
were comprised of amounts held for working capital purposes.
Net cash provided by operating activities decreased by $1,772,100 for the nine
months ended September 30, 1997 when compared to the nine months ended
September 30, 1996. The decrease was primarily the result of the absence of
operating results generated by Equitable, Sentry West and Regency partially
offset by the decrease in net (loss), exclusive of depreciation and
amortization, as previously discussed.
Net cash provided by investing activities decreased by $448,500 for the nine
months ended September 30, 1997 when compared to the nine months ended
September 30, 1996. The decrease was primarily due to the Sale Proceeds
received from the sale of Sentry West exceeding the Sale Proceeds received from
the sale of Regency. Also contributing to the decrease was an increase in net
investments in debt securities. The increase in investments in debt securities
is a result of the continued extension of the maturities of certain of the
Partnership's short-term investments in an effort to maximize the return on
these amounts while they are held for working capital purposes. These
investments are of investment-grade and generally mature less than one year
from their date of purchase. Partially offsetting the decrease was a reduction
in expenditures for capital and tenant improvements and in escrow deposits.
The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements and leasing costs. During
the nine months ended September 30, 1997, the Partnership spent $279,400 for
these items and has projected to spend approximately $175,000 during the
remainder of 1997. Included in this projected amount are capital and tenant
improvements and leasing costs of approximately $75,000 and $50,000 for
Deerfield Mall and Meidinger Tower, respectively. Actual amounts expended may
vary depending on a number of factors including actual leasing activity,
results of property operations, the potential sale of 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.
On June 16, 1997 the joint venture in which the Partnership has a 25% interest
sold Regency. The Partnership's share of net proceeds from this transaction
approximated $828,800, which was net of closing costs and repayment of the
mortgage loan collateralized by Regency. Proceeds from this sale have been
added to working capital reserves.
The decrease in net cash used for financing activities of $994,600 for the nine
months ended September 30, 1997 when compared to the nine months ended
September 30, 1996 was primarily the result of the 1996 repayment of the Sentry
West mortgage loan exceeding the 1997 repayment of the Regency mortgage loan.
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
60-month period beginning April 1, 1993. In addition, any interest payments
made by the Partnership from April 1, 1993 through March 31, 1998 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, 1998, and shall not be subordinated to payment of
Original Capital Contributions to Limited Partners.
As of September 30, 1997, 22 of the 37 tenants at Prentice Plaza and 35 of the
54 tenants at Deerfield Mall had leases, totaling 210,113 square feet, that
expire in the next two 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 $2,012,800. 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, the Meidinger loan matures in October 1998. As of a result of
the potential tenant turnover discussed above, it is likely that the
Partnership will incur a substantial amount of capital and tenant improvements
and leasing costs during the next several years. In light of this, the General
Partner believes that it is in the Partnership's best interest to retain all
cash available. Accordingly, cash distributions to Partners continue to be
suspended. The General Partner believes that Cash Flow (as defined in the
Partnership Agreement) is one of the best sources of cash available to the
Partnership. For the nine months ended September 30, 1997, Cash Flow (as
defined in the Partnership Agreement) of $966,500 was retained to supplement
working capital reserves. The General Partner continues to review other sources
of cash available to the Partnership, which include 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 planned expenditures for
the ensuing twelve month period.
Based upon the current estimated value of its assets, net of its outstanding
liabilities, together with its expected operating results and capital
expenditure requirements, the General Partner believes that the Partnership's
cumulative distributions to its Limited Partners from inception through the
termination of the Partnership will be significantly less than such Limited
Partners' original Capital Contribution. There can be no assurance as to the
amount and/or availability of cash for future distributions to Partners.
7
<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 quarter ended
September 30, 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: November 14, 1997 By: /s/ DOUGLAS CROCKER II
----------------- -------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 14, 1997 By: /s/ NORMAN M. FIELD
----------------- -------------------------------------
NORMAN M. FIELD
Vice President-Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,876,600
<SECURITIES> 1,469,000
<RECEIVABLES> 304,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,034,200
<PP&E> 81,668,000
<DEPRECIATION> 21,542,900
<TOTAL-ASSETS> 70,460,900
<CURRENT-LIABILITIES> 2,102,200
<BONDS> 57,710,900
0
0
<COMMON> 0
<OTHER-SE> 10,647,800
<TOTAL-LIABILITY-AND-EQUITY> 70,460,900
<SALES> 0
<TOTAL-REVENUES> 10,304,100
<CGS> 0
<TOTAL-COSTS> 4,319,600
<OTHER-EXPENSES> 152,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,342,700
<INCOME-PRETAX> 660,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 660,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 660,900
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
