<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 June 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>
June 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 69,483,600 73,507,400
- ------------------------------------------------------------------------------
81,517,800 86,582,300
Accumulated depreciation and amortization (20,952,200) (21,081,700)
- ------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 60,565,600 65,500,600
Cash and cash equivalents 7,760,000 6,900,600
Investments in debt securities 962,800 496,300
Restricted cash 100,000 100,000
Rents receivable 227,500 549,700
Escrow deposits 1,378,800 747,600
Other assets (primarily loan acquisition costs, net
of accumulated amortization of $1,181,400 and
$1,167,200, respectively) 326,600 477,900
- ------------------------------------------------------------------------------
$71,321,300 $74,772,700
- ------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $44,834,600 $48,858,400
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Accounts payable and accrued expenses 1,718,800 1,939,800
Due to Affiliates 167,800 186,900
Security deposits 213,200 221,800
Other liabilities 360,600 144,500
- ------------------------------------------------------------------------------
60,729,400 64,785,800
- ------------------------------------------------------------------------------
Partners' capital:
General Partner (deficit) (1,668,900) (1,675,000)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 12,260,800 11,661,900
- ------------------------------------------------------------------------------
10,591,900 9,986,900
- ------------------------------------------------------------------------------
$71,321,300 $74,772,700
- ------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 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 six months ended
June 30, 1997 6,100 598,900 605,000
- -------------------------------------------------------------------------------
Partners' (deficit) capital, June 30,
1997 $(1,668,900) $12,260,800 $10,591,900
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $3,035,200 $4,533,500
Interest 109,100 77,400
Gain on sale of property 764,800
- ------------------------------------------------------------------------
3,909,100 4,610,900
- ------------------------------------------------------------------------
Expenses:
Interest:
Affiliates 261,100 251,900
Nonaffiliates 878,400 1,106,500
Depreciation and amortization 605,500 663,000
Property operating:
Affiliates 123,700 293,300
Nonaffiliates 376,700 559,300
Real estate taxes 519,800 698,000
Insurance--Affiliate 23,300 41,700
Repairs and maintenance 431,600 677,500
General and administrative:
Affiliates 6,100 13,800
Nonaffiliates 54,400 49,000
- ------------------------------------------------------------------------
3,280,600 4,354,000
- ------------------------------------------------------------------------
Net income $ 628,500 $ 256,900
- ------------------------------------------------------------------------
Net income allocated to General Partner $ 6,300 $ 2,600
- ------------------------------------------------------------------------
Net income allocated to Limited Partners $ 622,200 $ 254,300
- ------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 0.66 $ 0.27
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $6,224,900 $8,937,300
Interest 205,100 145,300
Gain on sale of property 764,800
- ------------------------------------------------------------------------
7,194,800 9,082,600
- ------------------------------------------------------------------------
Expenses:
Interest:
Affiliates 511,600 505,200
Nonaffiliates 1,750,400 2,220,100
Depreciation and amortization 1,221,100 1,294,200
Property operating:
Affiliates 268,000 565,000
Nonaffiliates 816,500 1,241,200
Real estate taxes 1,016,300 1,371,400
Insurance--Affiliate 52,700 83,400
Repairs and maintenance 842,000 1,222,600
General and administrative:
Affiliates 15,300 29,100
Nonaffiliates 95,900 101,000
- ------------------------------------------------------------------------
6,589,800 8,633,200
- ------------------------------------------------------------------------
Net income $ 605,000 $ 449,400
- ------------------------------------------------------------------------
Net income allocated to General Partner $ 6,100 $ 4,500
- ------------------------------------------------------------------------
Net income allocated to Limited Partners $ 598,900 $ 444,900
- ------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 0.63 $ 0.47
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 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 $ 605,000 $ 449,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,221,100 1,294,200
(Gain) on sale of property (764,800)
Changes in assets and liabilities:
Decrease in rents receivable 322,200 239,100
Decrease in other assets 106,200 373,000
(Decrease) increase in accounts payable and accrued
expenses (221,000) 406,700
(Decrease) in due to Affiliates (19,100) (11,000)
Increase (decrease) in other liabilities 216,100 (3,000)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 1,465,700 2,748,400
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property 4,653,000
Payments for capital and tenant improvements (129,200) (440,100)
(Increase) in investments in debt securities, net (466,500)
(Increase) in escrow deposits (631,200) (874,800)
(Increase) in restricted cash (20,000)
- --------------------------------------------------------------------------------
Net cash provided by (used for) investing
activities 3,426,100 (1,334,900)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans payable (309,400) (576,200)
Repayment of mortgage loan payable (3,819,700)
Proceeds from mortgage loan payable 105,300
Loan acquisition costs incurred (14,000)
(Decrease) increase in security deposits (8,600) 5,300
- --------------------------------------------------------------------------------
Net cash (used for) financing activities (4,032,400) (584,900)
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 859,400 828,600
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 $ 7,760,000 $ 5,812,000
- --------------------------------------------------------------------------------
Supplemental information:
Interest paid to Affiliate during the period $ 513,000 $ 514,400
- --------------------------------------------------------------------------------
Interest paid to nonaffiliates during the period $ 1,774,200 $ 2,231,800
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 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 six months ended June 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 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 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.
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 six months ended June 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 six months
ended June 30, 1997, the General Partner was allocated a Net Profit of $6,300
and $6,100, respectively, which included the a gain of $7,600 from the sale of
a Partnership property.
4
<PAGE>
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Paid
-----------------
Six
Quarter Months Payable
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $127,200 $265,300 $ 23,500
Interest expense on Front-End Fees Loan (Note 3) 175,000 513,000 86,100
Reimbursement of property insurance premiums, at
cost 41,500 41,500 11,200
Reimbursement of expenses, at cost:
--Accounting 7,700 11,800 700
--Investor communication 4,100 5,300 300
--Legal 19,400 31,000 46,000
- ----------------------------------------------------------------------------
$374,900 $867,900 $167,800
- ----------------------------------------------------------------------------
</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 six months ended June 30, 1997, ANTEC paid $52,700 and $142,200,
respectively, in base rents and reimbursements of expenses. In addition, during
the six months ended June 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 six months ended June
30, 1997, MHC paid $5,600 and $18,200, 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.
Effective on December 31, 1996, the Affiliate providing property and 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 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 June 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 six months ended June 30, 1997 was 7.57%. As
of June 30, 1997, the interest rate was 7.69%.
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. As of June 30, 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 June 30, 1997 and December 31, 1996 consisted of the
following loans which are non-recourse to or not guaranteed by the Partnership
unless otherwise disclosed:
<TABLE>
<CAPTION>
Partnership's Share of
Property Principal Balance at Average
Pledged ----------------------------- Interest Maturity
as Collateral 6/30/97 12/31/96 Rate (a) Date
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Meidinger Tower $22,510,600 $22,405,300 6.82% 10/15/1998
Deerfield Mall 17,505,900 17,760,400 7.60% 3/1/2001
Prentice Plaza (50%) 4,818,100 4,838,100 7.30% 12/19/2000
Regency Park
Shopping Center (25%) (b) 3,854,600 (b) (b)
- ---------------------------------------------------------------------------------
$44,834,600 $48,858,400
- ---------------------------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the six months ended
June 30, 1997. Interest rates are subject to change in accordance with the
provisions of the loan agreements (except the loans collateralized by
Deerfield Mall, which has a fixed interest rate). As of June 30, 1997,
interest rates on the loans collateralized by Meidinger Tower and Prentice
Plaza were 6.94% and 8.19%, respectively.
(b) The joint venture which owns 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 future 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 Park Shopping Center for a sale price
of $19,325,000, of which the Partnership's share was $4,831,250. The
Partnership's share of net proceeds from this transaction was $833,200, which
is net of closing expenses and the repayment of the mortgage loan encumbering
the property. The Partnership recorded a gain of $764,800 in connection with
this sale. Net proceeds received from this transaction will be retained to
supplement 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 table below is a recap of the Partnership's share of certain operating
results of each of its properties for the quarters and six months ended June
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 Six Months
Ended Ended
6/30/97 6/30/96 6/30/97 6/30/96
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEIDINGER TOWER
Rental revenues $1,284,700 $1,074,900 $2,455,200 $2,219,900
- --------------------------------------------------------------------
Property net (loss) $ (34,800) $ (224,300) $ (178,300) $ (338,600)
- --------------------------------------------------------------------
Average occupancy 94% 96% 96% 96%
- --------------------------------------------------------------------
DEERFIELD MALL
Rental revenues $1,014,100 $1,056,700 $2,111,200 $2,158,100
- --------------------------------------------------------------------
Property net income $ 155,700 $ 173,200 $ 350,600 $ 364,800
- --------------------------------------------------------------------
Average occupancy 92% 94% 92% 94%
- --------------------------------------------------------------------
1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues $ 393,500 $ 411,600 $ 777,200 $ 782,300
- --------------------------------------------------------------------
Property net income $ 102,800 $ 82,300 $ 185,500 $ 133,000
- --------------------------------------------------------------------
Average occupancy 96% 95% 96% 96%
- --------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 222,100 $ 381,000 $ 586,800 $ 691,000
- --------------------------------------------------------------------
Property net (loss) $ (167,100) $ (17,700) $ (157,700) $ (57,800)
- --------------------------------------------------------------------
Average occupancy 93% 99% 94% 99%
- --------------------------------------------------------------------
REGENCY PARK SHOPPING CENTER (25%) (B)
Rental revenues $ 113,800 $ 150,800 $ 287,500 $ 300,200
- --------------------------------------------------------------------
Property net (loss) $ 15,500 $ 5,400 $ 67,600 $ 200
- --------------------------------------------------------------------
Average occupancy 88% 88%
- --------------------------------------------------------------------
EQUITABLE OF IOWA BUILDING (C)
Rental revenues $1,071,900 $2,027,100
- --------------------------------------------------------------------
Property net income $ 375,700 $ 675,600
- --------------------------------------------------------------------
Average occupancy 99% 99%
- --------------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%) (C)
Rental revenues $ 386,000 $ 758,100
- --------------------------------------------------------------------
Property net income $ 102,700 $ 168,700
- --------------------------------------------------------------------
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.
Unless otherwise disclosed, discussions of fluctuations between 1997 and 1996
refer to both the quarters and six months ended June 30, 1997 and 1996.
Net income increased by $371,600 and $155,600 for the quarter and six months
ended June 30, 1997 when compared to the quarter and six months ended June 30,
1996. The increases were primarily due to the gain recorded on the sale of
Regency Park Shopping Center ("Regency"). The increases were also due to the
improved operating results at Meidinger Tower and Regency. Partially offsetting
the increases was the absence of results from Sentry Park West Office Campus
("Sentry West") and Equitable of Iowa Building ("Equitable") due to their sales
in 1996 along with diminished operating results at Prentice Plaza.
Net (loss) exclusive of sold properties decreased by $75,700 and $182,600 for
the quarter and six months and June 30, 1997 when compared to the quarter and
six months ended June 30, 1996. The decreases were primarily due to improved
operating results at Meidinger Tower and 1800 Sherman Office Building ("1800
Sherman"). Also contributing to the decreases was an 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 and Deerfield Mall.
The following comparative discussion excludes the results of Equitable, Sentry
West and Regency.
Rental revenues increased by $79,100 or 1.4% for the six months ended June 30,
1997 when compared to the six months ended June 30, 1996. The increase was
primarily due to an increase in tenant expense reimbursements at Meidinger
Tower and Deerfield Mall along 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 expected and
a decrease in base rental income at Deerfield Mall which was due to the decline
in the average occupancy rate. Rental revenues remained relatively unchanged
for the quarterly periods under comparison.
Real estate tax expense decreased by $30,400 and $62,500 for the quarterly and
six-month periods under comparison, respectively. During the quarter ended June
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 lead to the decrease in
expense. Also contributing to the decrease was a decrease in expense at 1800
Sherman which was the result of a successful appeal in 1995. Partially
offsetting the decrease was an increase in expense at Prentice Plaza due to a
projected increase in the tax rate. A significant amount of the real estate tax
savings at Meidinger for the years 1992-1996 will be remitted to tenants who
had paid real estate escalations based on the higher amounts.
Property operating expense decreased by $50,300 and $51,200 for the quarterly
and six-month periods under comparison, respectively. The decreases were
primarily due to decreases in utility costs at Meidinger Tower and security
costs at Deerfield Mall.
Interest expense on the Partnership's mortgage loans decreased by $24,000 for
the six months ended June 30, 1997 when compared to the six months ended June
30, 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 18 months on the mortgage loan
collateralized by Deerfield Mall. Partially offsetting the decrease was an
increase at Meidinger Tower due to the additional draw made in 1997.
Repairs and maintenance expense increased by $27,300 and $106,000 for the
quarter and six months ended June 30, 1997 when compared to the quarter and six
months ended June 30, 1996. The increases were primarily the result of an
increase in repairs to the HVAC system and the elevators at Meidinger Tower.
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
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
businesses and tenants in the market area; and 6) providing rental concessions
or competitively pricing rental rates depending on market conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its properties.
Notwithstanding the Partnership's intention relative to property sales, another
primary objective of the Partnership is to provide cash distributions to
Partners from Partnership operations. To the extent cumulative cash
distributions exceed net income, such excess distributions will be treated as a
return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as 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 Six Months
Ended
<S> <C> <C>
6/30/97 6/30/96
- -------------------------------------------------------------------------------
Cash Flow (as defined in the Partnership Agreement) $ 751,900 $ 1,307,200
Items of reconciliation:
Scheduled principal payments on mortgage loans
payable 309,400 436,300
Decrease in current assets 428,400 612,100
(Decrease) in current liabilities (24,000) 392,700
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,465,700 $ 2,748,300
- -------------------------------------------------------------------------------
Net cash provided by (used for) investing activities $ 3,426,100 $(1,334,900)
- -------------------------------------------------------------------------------
Net cash (used for) financing activities $(4,032,400) $ (584,900)
- -------------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $555,300
for the six months ended June 30, 1997 when compared to the six months ended
June 30, 1996 was primarily due to the sales of Sentry West, Equitable and
Regency.
The net increase in the Partnership's cash of $859,400 for the six months ended
June 30, 1997 was primarily the result of the net cash provided by operating
activities and the net proceeds received from the sale of Regency exceeding the
increases in escrow deposits and investments in debt securities, regularly
scheduled principal payments made on Partnership's mortgage loans payable and
expenditures made for capital and tenant improvements and leasing costs. Liquid
assets (including cash, cash equivalents and investments in debt securities) of
the Partnership as of June 30, 1997 were comprised of amounts held for working
capital purposes.
Net cash provided by operating activities decreased by $1,282,600 for the six
months ended June 30, 1997 when compared to the six months ended June 30, 1996.
The decrease was primarily the result of the absence of results generated by
Equitable and Sentry West along with a reduction in amounts due from tenants
for expense reimbursements at Meidinger Tower.
Net cash (used for) provided by investing activities changed from $(1,334,900)
for the six months ended June 30, 1996 to $3,426,100 for the six months ended
June 30, 1997. The change was primarily due to the sale of Regency the increase
in investments in debt securities. The increase in investments in debt
securities is a result of the extension of the maturities of certain of the
Partnership's short-term investments in an effort to maximize the return on
these amounts while they are held for working capital purposes. These
investments are of investment-grade and generally mature less than one year
from their date of purchase.
The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements and leasing costs. During
the six months ended June 30, 1997, the Partnership spent $129,200 for these
items and has projected to spend approximately $475,000 during the remainder of
1997. Included in this projected amount are capital and tenant improvements and
leasing costs of approximately $175,000 and $100,000 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 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 $833,200, 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 increase in net cash used for financing activities of $3,447,500 for the
six months ended June 30, 1997 when compared to the six months ended June 30,
1996 was primarily the result of the repayment of mortgage loan in conjunction
with the sale of Regency. Partially offsetting the increase was the additional
draw on the mortgage loan collateralized by Meidinger Tower together with a
decrease in principal payment obligations due to the sales of Equitable, Sentry
West and Regency.
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 June 30, 1997, the
Partnership had not exercised its option to defer the payment of interest on
this loan.
As of June 30, 1997, 22 of the 35 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 and a half 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 theses 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 of next year. 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 six months ended June 30, 1997, Cash Flow (as defined in
the Partnership Agreement) of $751,900 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 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 June 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: August 14, 1997 By: /s/ DOUGLAS CROCKER II
--------------- --------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,860,000
<SECURITIES> 962,800
<RECEIVABLES> 227,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,429,100
<PP&E> 81,517,800
<DEPRECIATION> 20,952,200
<TOTAL-ASSETS> 71,321,300
<CURRENT-LIABILITIES> 2,099,800
<BONDS> 58,269,000
0
0
<COMMON> 0
<OTHER-SE> 10,591,900
<TOTAL-LIABILITY-AND-EQUITY> 71,321,300
<SALES> 0
<TOTAL-REVENUES> 7,194,800
<CGS> 0
<TOTAL-COSTS> 2,995,500
<OTHER-EXPENSES> 111,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,262,000
<INCOME-PRETAX> 605,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 605,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 605,000
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
