<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1998
-----------------------------------------
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 1000, 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>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 12,034,200 $12,034,200
Buildings and improvements 69,760,600 69,717,000
- -------------------------------------------------------------------------------
81,794,800 81,751,200
Accumulated depreciation and amortization (22,174,300) (21,860,700)
- -------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 59,620,500 59,890,500
Cash and cash equivalents 2,470,700 4,879,400
Investments in debt securities 6,386,200 3,948,400
Restricted cash 100,000 100,000
Rents receivable 305,300 379,000
Escrow deposits 728,100 552,400
Other assets (primarily loan acquisition costs, net
of accumulated amortization of $932,900 and
$919,100, respectively) 315,200 356,000
- -------------------------------------------------------------------------------
$ 69,926,000 $70,105,700
- -------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $ 43,626,500 $43,773,700
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Accounts payable and accrued expenses 1,325,900 1,435,200
Due to Affiliates 23,700 5,000
Security deposits 245,500 231,800
Other liabilities 199,000
- -------------------------------------------------------------------------------
58,656,000 59,079,100
- -------------------------------------------------------------------------------
Partners' capital:
General Partner (deficit) (1,662,200) (1,664,600)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 12,932,200 12,691,200
- -------------------------------------------------------------------------------
11,270,000 11,026,600
- -------------------------------------------------------------------------------
$ 69,926,000 $70,105,700
- -------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the quarter ended March 31, 1998 (Unaudited)
and the year ended December 31, 1997
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January 1,
1997 $(1,675,000) $11,661,900 $ 9,986,900
Net income for the year ended December
31, 1997 10,400 1,029,300 1,039,700
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1997 (1,664,600) 12,691,200 11,026,600
Net income for the quarter ended
March 31, 1998 2,400 241,000 243,400
- -------------------------------------------------------------------------------
Partners' (deficit) capital, March 31,
1998 $(1,662,200) $12,932,200 $11,270,000
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended March 31, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $3,042,600 $3,189,700
Interest 113,900 96,000
- ---------------------------------------------------------------------------
3,156,500 3,285,700
- ---------------------------------------------------------------------------
Expenses:
Interest:
Affiliates 261,100 250,500
Nonaffiliates 864,900 872,000
Depreciation and amortization 327,500 615,600
Property operating:
Affiliates 118,300 144,300
Nonaffiliates 396,000 439,800
Real estate taxes 496,100 496,500
Insurance--Affiliate 24,100 29,400
Repairs and maintenance 380,400 410,400
General and administrative:
Affiliates 10,900 9,200
Nonaffiliates 33,800 41,500
- ---------------------------------------------------------------------------
2,913,100 3,309,200
- ---------------------------------------------------------------------------
Net income (loss) $ 243,400 $ (23,500)
- ---------------------------------------------------------------------------
Net income (loss) allocated to General Partner $ 2,400 $ (200)
- ---------------------------------------------------------------------------
Net income (loss) allocated to Limited Partners $ 241,000 $ (23,300)
- ---------------------------------------------------------------------------
Net income (loss) allocated to Limited Partners per
Unit (949,843 Units outstanding) $ 0.25 $ (0.02)
- ---------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 243,400 $ (23,500)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 327,500 615,600
Changes in assets and liabilities:
Decrease in rents receivable 73,700 161,600
Decrease in other assets 26,900 93,400
(Decrease) in accounts payable and accrued expenses (109,300) (79,800)
Increase (decrease) in due to Affiliates 18,700 (58,600)
(Decrease) in other liabilities (199,000) (134,700)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 381,900 574,000
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for capital and tenant improvements (43,600) (42,800)
Net (investment in) maturity of investments in debt
securities (2,437,800) 496,300
(Increase) in escrow deposits (175,700) (364,900)
- -------------------------------------------------------------------------------
Net cash (used for) provided by investing
activities (2,657,100) 88,600
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans payable (147,200) (195,600)
Proceeds from mortgage loan payable 228,100
Increase in security deposits 13,700 1,300
- -------------------------------------------------------------------------------
Net cash (used for) provided by financing
activities (133,500) 33,800
- -------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,408,700) 696,400
Cash and cash equivalents at the beginning of the
period 4,879,400 6,900,600
- -------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 2,470,700 $7,597,000
- -------------------------------------------------------------------------------
Supplemental information:
Interest paid to nonaffiliates during the period $ 865,600 $ 982,600
- -------------------------------------------------------------------------------
Interest paid to Affiliates during the period $ 261,100 $ 338,000
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1998
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"). The Partnership utilizes the accrual
method of accounting. Under this method, revenues are recorded when earned and
expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the three months ended March 31, 1998, are not necessarily indicative of the
operating results for the year ending December 31, 1998.
The financial statements include the Partnership's 50% interest in two joint
ventures 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 (deficit) is included in
the financial statements.
Commercial rental properties held for investment are recorded at cost, net of
any provisions for value impairment, and depreciated (exclusive of amounts
allocated to land) on the straight-line method over their estimated useful
lives. Upon classifying a commercial rental property as held for disposition,
no further depreciation or amortization of such property is provided for in the
financial statements. Lease acquisition fees are recorded at cost and amortized
over the life of the lease. Repair and maintenance costs are expensed as
incurred; expenditures for improvements are capitalized and depreciated over
the estimated life of such improvements.
The Partnership evaluates its commercial rental properties for impairment 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
obligations of the United States government 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 1997
statements in order to provide comparability with the 1998 statements. These
reclassifications had no effect on net income (loss) or Partners' capital
(deficit).
Reference is made to the Partnership's Annual Report for the year ended
December 31, 1997, for a description of other accounting policies and
additional details of the Partnership's financial condition, results of
operations, changes in Partners' capital and changes in cash balances for the
year then ended. The details provided in the notes thereto have not changed
except as a result of normal transactions in the interim or as otherwise
disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to November 22, 1988, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, which shall be an
amount equal to the lesser of (i) 0.5% of the gross value of the Partnership's
assets (not reduced by indebtedness collateralized by such assets), all as
estimated by the General Partner in its reasonable discretion, plus, to the
extent the Portfolio Management Fee paid in any prior year was less than 0.5%
of the gross value of the Partnership's assets in such prior year, the amount
of such deficit, or (ii) an amount equal to the remainder obtained by
subtracting the aggregate amount previously paid to the General Partner as
Portfolio Management Fees during such fiscal year, from an amount equal to 10%
of the Partnership's aggregate Cash Flow (as defined in the Partnership
Agreement) (computed prior to the deduction for Portfolio Management Fees) for
such fiscal year. For the three months ended March 31, 1998, 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
4
<PAGE>
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 three months ended March 31, 1998 and 1997, the
General Partner was allocated a Net Profit (Loss) of $2,400 and $(200),
respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the three months ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Paid Payable
- -----------------------------------------------------------------------
<S> <C> <C>
Property management and leasing fees $112,700 $ 900
Interest expense on Front-End Fees Loan (Note 3) 261,100 None
Reimbursement of property insurance premiums, at cost 12,800 11,300
Legal 14,500 None
Reimbursement of expenses, at cost:
--Accounting None 9,900
--Investor communication None 1,600
- -----------------------------------------------------------------------
$401,100 $23,700
- -----------------------------------------------------------------------
</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., an Affiliate of the
General Partner, is obligated to the Partnership under a lease for office space
at Prentice Plaza. During the three months ended March 31, 1998, ANTEC paid
$91,500 in base rents and reimbursements of expenses. The Partnership owns a
50% joint venture interest in these amounts. The per square foot rent paid by
ANTEC is comparable to that paid by other tenants at Prentice Plaza.
Manufactured Home Communities, Inc. ("MHC"), a real estate investment trust,
which is in the business of owning and operating mobil home communities, an
Affiliate of the General Partner, is obligated to the Partnership under a lease
for office space at Prentice Plaza. During the three months ended March 31,
1998, MHC paid $12,500 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 the Partnership's properties is provided by
Affiliates of the General Partner and a third-party property management group
for a fee equal to 3% of gross rents received by the properties. The Affiliate
and third-party management groups are entitled to leasing fees equal to 3% of
gross rents received, reduced by leasing fees, if any, paid to other leasing
agents.
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership borrowed from an Affiliate of the General Partner an amount
needed for the payment of securities sales commissions, Offering and
Organizational Expenses and other Front-End Fees, other than Acquisition Fees.
Repayment of the principal amount of the Front-End Fees Loan is subordinated
(the "Subordination") to payment to the Limited Partners of 100% of their
Original Capital Contribution from Sale or Refinancing Proceeds (as defined in
the Partnership Agreement). Interest on the outstanding balance of this loan is
due and payable monthly at a rate no greater than the cost of funds obtained by
the Affiliate from unaffiliated lenders.
As of March 31, 1998, the Partnership had drawn $13,434,400 under the Front-End
Fees Loan agreement. The interest rate paid on the Front-End Fees Loan is
subject to change in accordance with the loan agreement. The weighted average
interest rate for the three months ended March 31, 1998 was 7.77%. As of March
31, 1998, the interest rate was 7.63%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 69-month period
beginning April 1, 1993. In addition, any interest payments made by the
Partnership from April 1, 1993 through December 31, 1998 may be borrowed from
the Affiliate. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on January 1, 1999, and
shall not be subject to the Subordination. As of March 31, 1998, the
Partnership had not exercised its option to defer the payment of interest on
this loan.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at March 31, 1998 and December 31, 1997 consisted of the
following loans, which are non-recourse to nor guaranteed by the Partnership:
<TABLE>
<CAPTION>
Partnership's Share of Average
Property Pledged Principal Balance at Interest Maturity
as Collateral 3/31/98 12/31/97 Rate (a) Date
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Meidinger Tower $21,779,000 $21,779,000 8.38% 10/15/1998
Deerfield Mall 17,059,000 17,196,600 7.60% 3/1/2001
Prentice Plaza (50%) 4,788,500 4,798,100 7.58% 12/19/2000
- -----------------------------------------------------------------
$43,626,500 $43,773,700
- -----------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the three months ended
March 31, 1998. Interest rates are subject to change in accordance with the
provisions of the loan agreements (except the loan collateralized by
Deerfield Mall, which has a fixed interest rate). As of March 31, 1998,
interest rates on the loans collateralized by Meidinger Tower and Prentice
Plaza were 8.38% and 7.38%, respectively.
For additional information regarding the mortgage loans payable, refer to the
Partnership's Annual Report for the year ended December 31, 1997.
5. SUBSEQUENT EVENT:
The mortgage loan collateralized by Meidinger Tower was scheduled to mature in
October 1998. In connection with this and other factors, the General Partner
believed that it was in the best interest of the Partnership to sell the
property. Accordingly, effective October 1, 1997, the Partnership classified
the property as "Held for Disposition." On April 1, 1998, the Partnership
consummated the sale of the property for a sale price of $28,450,000. Net
Proceeds from this transaction amounted to $6,182,200, which was net of actual
and estimated closing expenses and the repayment of the mortgage loan
collateralized by the property. The Partnership will record a gain of
approximately $6,750,000 for the quarter ending June 30, 1998 and intends to
distribute $6,126,500 or $6.45 per Unit on August 31, 1998 to Limited Partners
of record as of April 1, 1998 from this transaction.
5
<PAGE>
ITEM 2. 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, 1997 for a discussion of the Partnership's business.
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
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. The
Partnership, in addition to being in the operation of properties phase, is in
disposition phase of its life cycle. During the disposition phase of the
Partnership's life cycle, comparisons of operating results are complicated due
to the timing and effect of property sales and dispositions. Components of the
Partnership's operating results are generally expected to decline as real
property interests are sold or disposed of since the Partnership no longer
receives income nor incurs expenses from such real property interests.
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of each of its properties for the quarters ended March 31, 1998 and
1997. The discussion following the table should be read in conjunction with the
financial statements and notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative
Operating Results (a)
For the Quarters
Ended
3/31/98 3/31/97
- --------------------------------------------------
<S> <C> <C>
MEIDINGER TOWER
Rental revenues $1,229,500 $1,170,500
- --------------------------------------------------
Property net income (loss) $ 126,000 $ (143,500)
- --------------------------------------------------
Average occupancy 96% 98%
- --------------------------------------------------
DEERFIELD MALL
Rental revenues $1,086,700 $1,097,100
- --------------------------------------------------
Property net income $ 222,700 $ 194,900
- --------------------------------------------------
Average occupancy 89% 93%
- --------------------------------------------------
1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues $ 384,800 $ 383,700
- --------------------------------------------------
Property net income $ 82,500 $ 82,700
- --------------------------------------------------
Average occupancy 100% 96%
- --------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 349,700 $ 364,700
- --------------------------------------------------
Property net income $ 12,200 $ 9,400
- --------------------------------------------------
Average occupancy 93% 95%
- --------------------------------------------------
REGENCY PARK SHOPPING CENTER (25%)
(B)
Rental revenues $ 173,700
- --------------------------------------------------
Property net income $ 52,100
- --------------------------------------------------
</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.
(b)Regency Square Shopping Center ("Regency") was sold on June 16, 1997.
Net (loss) income for the Partnership improved from $(23,500) for the three
months ended March 31, 1997 to $243,400 for the three months ended March 31,
1998. The change in net results was primarily the result of improved operating
results at Meidinger Tower primarily resulting from its October 1, 1997
classification as Held For Disposition, which precluded the recording of
depreciation during the first quarter of 1998. The change in net (loss) income
was also due to an increase in interest income earned on the Partnership's
short-term investments due to an increased amount of cash available for
investment. Partially offsetting the improvement is the absence of operating
results at Regency. Net (loss) income exclusive of Regency changed from
$(75,600) for the three months ended March 31, 1997 to $243,400 for the three
months ended March 31, 1998.
The following comparative discussion excludes the operating results of Regency.
Rental revenues increased by $34,700 or 1.1% for the three months ended March
31, 1998 when compared to the three months ended March 31, 1997. The increase
was primarily due to an increase in base rental income at Meidinger Tower, 1800
Sherman Office Building ("1800 Sherman") and Prentice Plaza which was due to an
increase in rates charged to new and renewing tenants. The increase was
partially offset by a decrease in tenant expense reimbursements at 1800
Sherman, Meidinger Tower and Deerfield Mall and the consideration received at
Prentice Plaza during 1997 for the early termination of a tenant's lease.
Depreciation and amortization expense decreased by $288,100 for the three-month
periods under comparison. The decrease was primarily the result of the
Partnership discontinuing the recording of periodic depreciation and
amortization expense for depreciable and amortizable assets at Meidinger Tower
in connection with classifying the property as Held for Disposition.
Interest expense on the Partnership's mortgage loans increased by $64,900 for
the three months ended March 31, 1998 when compared to the three months ended
March 31, 1997. The increase was primarily due to the effects of an increase in
the average interest rate on the mortgage loan collateralized by Meidinger
Tower.
Repairs and maintenance expense decreased by $19,400 for the three months ended
March 31, 1998 when compared to the three months ended March 31, 1997. The
decrease was primarily due to a decrease in elevator repairs at Meidinger Tower
together with a decrease in repairs to the HVAC system at Prentice Plaza.
Real estate tax expense increased by $16,500 for the three-month periods under
comparison. The increase was primarily due to a slight increase in the
projected 1998 tax liability at Meidinger Tower.
Property operating expenses decreased by $36,800 for the three months ended
March 31, 1998 when compared to the three months ended March 31, 1997. The
decrease was primarily due to a decrease in management fees at Prentice Plaza
and Deerfield Mall due to the decrease in rental revenues.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its asset and property management groups,
continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
property brochures; 2) early renewal of existing tenants' leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area; and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain it properties.
Cash Flow (as defined in the Partnership Agreement) is generally not equal to
net income or cash flows as determined by generally accepted accounting
principles ("GAAP"), since certain items are treated differently under the
Partnership Agreement than under GAAP. Management believes that to facilitate a
clear understanding of the Partnership's operations, an analysis of Cash Flow
(as defined in the Partnership
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Agreement) should be examined in conjunction with an analysis of net income or
cash flows as determined by GAAP. The following table includes a reconciliation
of Cash Flow (as defined in the Partnership Agreement) to cash flow provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not be considered as an alternative
to the results disclosed in the Statements of Income and Expenses and
Statements of Cash Flow.
<TABLE>
<CAPTION>
Comparative Cash Flow
Results
For the Quarters
Ended
3/31/98 3/31/97
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 423,700 $ 396,500
Items of reconciliation:
Scheduled principal payments on mortgage loans payable 147,200 195,600
Decrease in current assets 100,600 255,000
(Decrease) in current liabilities (289,600) (273,100)
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 381,900 $ 574,000
- -------------------------------------------------------------------------------
Net cash (used for) provided by investing activities $(2,657,100) $ 88,600
- -------------------------------------------------------------------------------
Net cash (used for) provided by financing activities $ (133,500) $ 33,800
- -------------------------------------------------------------------------------
</TABLE>
The increase in Cash Flow (as defined in the Partnership Agreement) of $27,200
for the three months ended March 31, 1998 when compared to the three months
ended March 31, 1997 was primarily due to a decrease in principal payments made
on the Partnership's mortgage loans. The increase was partially offset by the
absence of operating results during 1998 due to the June 1997 sale of Regency.
The decrease in the Partnership's cash position of $2,408,700 for the three
months ended March 31, 1998 was primarily the result of an increase in
investments in debt securities. Net cash provided by operating activities was
almost entirely offset by cash used for escrow deposits, principal payments
made on Partnership's mortgage loans and expenditures for capital and tenant
improvements and leasing costs. Liquid assets (including cash and cash
equivalents) of the Partnership as of March 31, 1998 were comprised of amounts
held for working capital purposes.
Net cash provided by operating activities continues to be a primary source of
funds for the Partnership. Net cash provided by operating activities decreased
by $192,100 for the three months ended March 31, 1998 when compared to the
three months ended March 31, 1997. The decrease was primarily due to the timing
in 1997 and 1998 of the receipt of rental payments at Deerfield.
Net cash provided by (used for) investing activities changed from $88,600 for
the three months ended March 31, 1997 to $(2,657,100) for the three months
ended March 31, 1998. The change was primarily due to an increase in
investments in debt securities partially offset by a decrease in the amount of
cash paid to real estate tax escrow accounts. The increase in investments in
debt securities is the 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.
The escrow payments are required by the mortgage loans collateralized by
Deerfield Mall and Meidinger Tower.
The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements and leasing costs. During
the three months ended March 31, 1998, the Partnership spent $43,600 for these
items and has projected to spend approximately $600,000 during the remainder of
1998. Included in this projected amount are capital and tenant improvements and
leasing costs of approximately $350,000 for Prentice Plaza and $250,000 at 1800
Sherman. The amounts projected to be spent at both properties relate mostly to
tenant allowances and improvements. Actual amounts expended may vary depending
on a number of factors including actual leasing activity, results of property
operations, liquidity considerations, the sale of a property and other market
conditions throughout the year. The General Partner believes these improvements
and leasing costs are necessary in order to increase and/or maintain occupancy
levels in very competitive markets, maximize rental rates charged to new and
renewing tenants and to prepare the remaining properties for eventual
disposition.
Net cash provided by (used for) financing activities changed from $33,800 for
the three months ended March 31, 1997 to $(133,500) for the three months ended
March 31, 1998. The change was primarily due to a draw on the mortgage loan
collateralized by Meidinger Tower in 1997.
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
69-month period beginning April 1, 1993. In addition, any interest payments
made by the Partnership from April 1, 1993 through December 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 January 1, 1999, and shall not be subordinated to payment of
Original Capital Contributions to Limited Partners. As of March 31, 1998, the
Partnership had not exercised its option to defer the payment of interest on
this loan.
On April 1, 1998, the Partnership completed the sale of Meidinger Tower for a
sale price of $28,450,000. Net proceeds from this transaction were $6,182,200,
which was net of actual and estimated closing expenses and the repayment of the
mortgage loan collateralized by the property. In connection with this
transaction, on August 31, 1998 the Partnership intends to distribute
$6,126,500 or $6.45 per Unit to Limited Partners of record as of April 1, 1998.
The General Partner, on behalf of the Partnership, has contracted for
substantially all of its business activities with certain principal entities
for which computer programs are utilized. Each of these companies is
financially responsible and have represented to management of the General
Partner that they are taking appropriate steps for modifications needed to
their respective systems to accommodate processing data by Year 2000.
Accordingly, the Partnership anticipates incurring no material Year 2000 costs
and is currently not aware of any material contingencies related to this
matter.
The Partnership has significant financial obligations during the remainder of
1998 and beyond. In addition to required principal payments on certain of its
mortgage loans, it is likely that the Partnership will incur a substantial
amount of capital and tenant improvement and leasing costs during the next
several years. In light of this, the General Partner believes that it is in the
Partnership's best interest to retain all cash available. Accordingly, with the
exception of the distribution on August 31, 1998 of sale proceeds from
Meldinger Tower, 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 and least expensive sources of cash available to
the Partnership. For the three months ended March 31, 1998, Cash Flow (as
defined in the Partnership Agreement) of $423,700 was retained to supplement
working capital reserves.
Based upon the current estimated fair value of its assets, net of its
outstanding liabilities, together with its expected operating results and
capital expenditure requirements, the Partnership's cumulative distributions to
its Limited Partners from inception through the termination of the Partnership
will be significantly less than such Limited Partners' original Capital
Investment. There can be no assurance as to the amount and/or availability of
cash for future distributions to Partners.
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 three months ended
March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
By: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: May 15, 1998 By: /s/ DOUGLAS CROCKER II
------------ --------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: May 15, 1998 By: /s/ NORMAN M. FIELD
------------ ---------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,570,700
<SECURITIES> 6,386,200
<RECEIVABLES> 305,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,262,200
<PP&E> 81,794,800
<DEPRECIATION> 22,174,300
<TOTAL-ASSETS> 69,926,000
<CURRENT-LIABILITIES> 1,595,100
<BONDS> 57,060,900
0
0
<COMMON> 0
<OTHER-SE> 11,270,000
<TOTAL-LIABILITY-AND-EQUITY> 69,926,000
<SALES> 0
<TOTAL-REVENUES> 3,156,500
<CGS> 0
<TOTAL-COSTS> 1,414,900
<OTHER-EXPENSES> 44,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,126,000
<INCOME-PRETAX> 243,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 243,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243,400
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
