<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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16888
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First Capital Income and Growth Fund - Series XII
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(Exact name of registrant as specified in its charter)
Illinois 36-3498223
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1000, Chicago, Illinois 60606-2607
- -------------------------------------------------------- -------------------
Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated May 8, 1987, included
in the Registrant's Registration Statement on Form S-11, is incorporated herein
by reference in Part I of this report.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CAPITAL INCOME AND GROWTH FUND-SERIES XII
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 11,076,200 $12,034,200
Buildings and improvements 39,770,800 69,717,000
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50,847,000 81,751,200
Accumulated depreciation and amortization (12,418,300) (21,860,700)
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Total investment properties, net of accumulated
depreciation and amortization 38,428,700 59,890,500
Cash and cash equivalents 8,881,300 4,879,400
Investments in debt securities 6,904,200 3,948,400
Restricted cash 100,000
Rents receivable 192,900 379,000
Escrow deposits 482,600 552,400
Other assets (primarily loan acquisition costs, net
of accumulated amortization of $746,000 and
$919,100, respectively) 209,700 356,000
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$ 55,099,400 $70,105,700
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $ 21,695,800 $43,773,700
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Distributions payable 6,126,500
Accounts payable and accrued expenses 1,262,000 1,435,200
Due to Affiliates 18,900 5,000
Security deposits 182,400 231,800
Other liabilities 199,000
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42,720,000 59,079,100
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Partners' capital:
General Partner (deficit) (1,589,800) (1,664,600)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 13,969,200 12,691,200
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12,379,400 11,026,600
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$ 55,099,400 $70,105,700
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 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
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Partners' (deficit) capital, December
31, 1997 (1,664,600) 12,691,200 11,026,600
Distributions for the six months ended
June 30, 1998 (6,126,500) (6,126,500)
Net income for the six months ended
June 30, 1998 74,800 7,404,500 7,479,300
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Partners' (deficit) capital, June 30,
1998 $(1,589,800) $13,969,200 $12,379,400
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
FIRST CAPITAL INCOME AND GROWTH FUND -- SERIES XII
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $1,844,200 $3,035,200
Interest 213,800 109,100
Gain on sale of property 6,943,900 764,800
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9,001,900 3,909,100
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Expenses:
Interest:
Affiliates 259,700 261,100
Nonaffiliates 411,400 878,400
Depreciation and amortization 327,300 605,500
Property operating:
Affiliates 49,500 123,700
Nonaffiliates 174,800 376,700
Real estate taxes 346,400 519,800
Insurance--Affiliate 13,700 23,300
Repairs and maintenance 143,300 431,600
General and administrative:
Affiliates 6,600 6,100
Nonaffiliates 33,300 54,400
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1,766,000 3,280,600
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Net income $7,235,900 $ 628,500
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Net income allocated to General Partner $ 72,400 $ 6,300
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Net income allocated to Limited Partners $7,163,500 $ 622,200
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Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 7.54 $ 0.66
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $ 4,886,800 $6,224,900
Interest 327,700 205,100
Gain on sale of property 6,943,900 764,800
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12,158,400 7,194,800
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Expenses:
Interest:
Affiliates 520,800 511,600
Nonaffiliates 1,276,300 1,750,400
Depreciation and amortization 654,800 1,221,100
Property operating:
Affiliates 167,800 268,000
Nonaffiliates 570,800 816,500
Real estate taxes 842,500 1,016,300
Insurance--Affiliate 37,800 52,700
Repairs and maintenance 523,700 842,000
General and administrative:
Affiliates 17,500 15,300
Nonaffiliates 67,100 95,900
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4,679,100 6,589,800
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Net income $ 7,479,300 $ 605,000
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Net income allocated to General Partner $ 74,800 $ 6,100
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Net income allocated to Limited Partners $ 7,404,500 $ 598,900
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Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 7.80 $ 0.63
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</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,479,300 $ 605,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 654,800 1,221,100
(Gain) on sale of property (6,943,900) (764,800)
Changes in assets and liabilities:
Decrease in rents receivable 186,100 322,200
Decrease in other assets 107,900 106,200
(Decrease) in accounts payable and accrued
expenses (173,200) (221,000)
Increase (decrease) in due to Affiliates 13,900 (19,100)
(Decrease) increase in other liabilities (199,000) 216,100
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Net cash provided by operating activities 1,125,900 1,465,700
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Cash flows from investing activities:
Proceeds from sale of property 27,955,500 4,653,000
Payments for capital and tenant improvements (166,200) (129,200)
(Increase) in investments in debt securities, net (2,955,800) (466,500)
Decrease (increase) in escrow deposits 69,800 (631,200)
Decrease in restricted cash 100,000
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Net cash provided by investing activities 25,003,300 3,426,100
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Cash flows from financing activities:
Principal payments on mortgage loans payable (298,900) (309,400)
Repayment of mortgage loan payable (21,779,000) (3,819,700)
Proceeds from mortgage loan payable 105,300
(Decrease) in security deposits (49,400) (8,600)
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Net cash (used for) financing activities (22,127,300) (4,032,400)
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Net increase in cash and cash equivalents 4,001,900 859,400
Cash and cash equivalents at the beginning of the
period 4,879,400 6,900,600
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Cash and cash equivalents at the end of the
period $ 8,881,300 $ 7,760,000
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Supplemental information:
Interest paid to Affiliate during the period $ 520,800 $ 513,000
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Interest paid to nonaffiliates during the period $ 1,277,000 $ 1,774,200
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
FIRST CAPITAL INCOME AND GROWTH FUND--SERIES XII
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 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 quarter and six months ended June 30, 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' (deficit) 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 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.
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. Gains on sales are 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 obligations of the United
States government and 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 1997
statements in order to provide comparability with the 1998 statements. These
reclassifications had no effect on net income or Partners' capital (deficit).
Reference is made to the Partnership's annual report for the year ended
December 31, 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 quarter and six months ended June 30, 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 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, 1998,
4
<PAGE>
the General Partner was allocated a Net Profit of $72,400 and $74,800,
respectively, which included the a gain of $69,400 from the sale of a
Partnership property.
Fees and reimbursements paid and payable/(receivable) by the Partnership to
Affiliates during the quarter and six months ended June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Paid
-----------------
Six Payable
Quarter Months (Receivable)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $ 47,100 $159,800 $(9,400)
Interest expense on Front-End Fees Loan (Note
3) 259,700 520,800 None
Reimbursement of property insurance premiums,
at cost 10,300 23,100 12,000
Legal 59,300 73,800 15,000
Reimbursement of expenses, at cost:
--Accounting 11,300 11,300 900
--Investor communication 3,500 3,500 400
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$391,200 $792,300 $18,900
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</TABLE>
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, 1998, MHC paid $17,200 and $29,700, respectively, in rents and
reimbursements of expenses. The Partnership owns a 50% joint venture interest
in these amounts. During the six months ended June 30, 1998 the Partnership
entered into agreement with MHC extending their lease until May 31, 2003 and
increasing their space by approximately 50%. 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 management group for a fee
equal to 3% of gross rents received by the properties. The Affiliates 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
payable monthly at a rate no greater than the cost of funds obtained by the
Affiliate from unaffiliated lenders.
As of June 30, 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 six months ended June 30, 1998 was 7.71%. As of June 30,
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 June 30, 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 June 30, 1998 and December 31, 1997 consisted of the
following loans, which are non-recourse to nor guaranteed by the Partnership
unless otherwise disclosed:
<TABLE>
<CAPTION>
Property Partnership's Share of Average
Pledged as Principal Balance at Interest Maturity
Collateral 6/30/98 12/31/97 Rate (a) Date
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deerfield Mall 16,919,600 17,196,600 7.60% 3/1/2001
Prentice Plaza
(50%) 4,776,200 4,798,100 7.41% 12/19/2000
Meidinger Tower (b) 21,779,000 (b) (b)
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$21,695,800 $43,773,700
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</TABLE>
(a) The average interest rate represents an average for the six months ended
June 30, 1998. The interest rate is subject to change in accordance with
the provisions of the loan agreement (except the loan collateralized by
Deerfield Mall, which has a fixed interest rate). As of June 30, 1998, the
interest rate on the loan collateralized by Prentice Plaza was 7.34%.
(b) The Partnership, repaid the mortgage collateralized by Meidinger Tower with
a portion of the 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, 1997.
5. PROPERTY SALE:
On April 1, 1998, the Partnership consummated the sale of Meidinger Tower for a
sale price of $28,450,000. Net Proceeds from this transaction amounted to
$6,176,500, which was net of actual and estimated closing expenses and the
repayment of the mortgage loan collateralized by the property. The Partnership
recorded a gain of $6,943,900 for the quarter and six months ended 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.
6. SUBSEQUENT EVENT:
On August 6, 1998, a joint venture in which the Partnership has a 50% interest,
consummated the sale of 1800 Sherman Office Building for a sale price of
$15,050,000. The Partnership's share of net proceeds from this transaction were
approximately $7,150,000, which is net of actual and estimated closing
expenses. The Partnership will record a gain of approximately $1,500,000 in
connection with this sale for the quarter ended September 30, 1998. In
accordance with the contract to sell the property, the joint venture was
required to place $500,000 of the proceeds from this sale in escrow for a nine-
month period. The funds placed into escrow are intended to cover potential
claims asserted by the purchaser arising from the representations and
warranties made by the joint venture. The Partnership will distribute
$7,171,300 or $7.55 per Unit on November 30, 1998 to Holders of record as of
August 6, 1998.
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
the disposition phase of its life cycle. During the disposition phase of the
Partnership's life cycle, comparisons of operating results are complicated due
to the timing and effect of property sales. Components of the Partnership's
operating results are generally expected to decline as real property interests
are sold since the Partnership no longer receives income nor incurs expense
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 and six months ended June
30, 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 For the Six Months
Ended Ended
6/30/98 6/30/97 6/30/98 6/30/97
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEERFIELD MALL
Rental revenues $1,011,100 $1,014,100 $2,097,800 $2,111,200
- -------------------------------------------------------------------------
Property net income $ 145,000 $ 155,700 $ 367,700 $ 350,600
- -------------------------------------------------------------------------
Average occupancy 90% 92% 90% 92%
- -------------------------------------------------------------------------
1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues $ 424,700 $ 393,500 $ 809,500 $ 777,200
- -------------------------------------------------------------------------
Property net income $ 120,800 $ 102,800 $ 203,300 $ 185,500
- -------------------------------------------------------------------------
Average occupancy 100% 96% 100% 96%
- -------------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 382,500 $ 222,100 $ 732,200 $ 586,800
- -------------------------------------------------------------------------
Property net income (loss) $ 72,900 $ (167,100) $ 85,100 $ (157,700)
- -------------------------------------------------------------------------
Average occupancy 94% 93% 94% 94%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
MEIDINGER TOWER (B)
Rental revenues $26,000 $1,284,700 $1,255,500 $2,455,200
- ----------------------------------------------------------------------
Property net income (loss) $39,000 $ (34,800) $ 165,000 $ (178,300)
- ----------------------------------------------------------------------
Average occupancy 94% 96%
- ----------------------------------------------------------------------
REGENCY PARK SHOPPING CENTER (25%) (C)
Rental revenues $ 113,800 $ 287,500
- ----------------------------------------------------------------------
Property net income $ 15,500 $ 67,600
- ----------------------------------------------------------------------
</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) Meidinger Tower was sold on April 1, 1998. Property net income excludes
gain on sale. For additional information, see Note 5 of Notes to Financial
Statements.
(c) Regency Square Shopping Center ("Regency") was sold on June 16, 1997.
Property net income excludes gain on sale.
Unless otherwise disclosed, discussions of fluctuations between 1998 and 1997
refer to both the quarters and six months ended June 30, 1998 and 1997.
Net income increased by $6,607,400 and $6,874,300 for the quarter and six
months ended June 30, 1998 when compared to the quarter and six months ended
June 30, 1997, respectively. The increases were primarily due to the gain
recorded during 1998 on the sale of Meidinger Tower exceeding the gain recorded
during 1997 on the sale of Regency. The increases were also due to the improved
operating results at Prentice Plaza and 1800 Sherman Office Building ("1800
Sherman") and an increase in interest earned on the Partnership's short-term
investments, which was due to an increase in cash available for investment.
Partially offsetting the increases was the absence of operating results from
Regency due to its 1997 sale.
Net (loss) income, exclusive of sold properties, changed from $(116,400) and
$(49,100) for the quarter and six months ended June 30, 1997 to $253,000 and
$370,400 for the quarter and six months and June 30, 1998, respectively. The
changes were primarily due to improved operating results at Prentice Plaza and
the increase in interest earned on the Partnership's short-term investments
The following comparative discussion excludes the results of Meidinger Tower
and Regency.
Rental revenues increased by $188,600 or 11.6% and $164,300 or 4.7% for the
quarter and six months ended June 30, 1998 when compared to the quarter and six
months ended June 30, 1997, respectively. The increases were primarily due to
an increase in tenant expense reimbursements at Prentice Plaza due to the
credit due to tenants for 1996 payable in 1997 being significantly larger
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
than estimated. This resulted in significantly reduced 1997 tenant
reimbursements when compared to 1998. The increases were also due to an
increase in base rental revenues at Prentice Plaza and 1800 Sherman, which were
due to an increase in rates charged to new and renewing tenants for Prentice
Plaza and an increase in average occupancy at 1800 Sherman.
Real estate tax expense decreased by $93,300 and $91,100 for the quarterly and
six-month periods under comparison, respectively. The decreases were primarily
the result of a successful appeal of the taxing authority's assessed value of
Prentice Plaza. Actual 1997 real estate taxes for Prentice Plaza, payable in
1998, were significantly lower than originally estimated.
Interest expense on the Partnership's mortgage loans decreased by $12,200 and
$20,300 for the quarter and six months ended June 30, 1998 when compared to the
quarter and six months ended June 30, 1997, respectively. The decrease was
primarily due to the effects of principal payments made during the past 18
months on the mortgage loan collateralized by Deerfield Mall.
Property operating expense increased by $45,900 and $15,100 for the quarterly
and six-month periods under comparison, respectively. The increases were
primarily due to an increase in legal expenses incurred at Deerfield Mall in
connection with several tenant bankruptcies and eviction proceedings. The
increases were also due to increases in utility costs at 1800 Sherman, which
was due to the increase in average occupancy.
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.
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
6/30/98 6/30/97
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 891,300 $ 751,900
Items of reconciliation:
Scheduled principal payments on mortgage loans
payable 298,900 309,400
Decrease in current assets 294,000 428,400
(Decrease) in current liabilities (358,300) (24,000)
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,125,900 $ 1,465,700
- -------------------------------------------------------------------------------
Net cash provided by investing activities $ 25,003,300 $ 3,426,100
- -------------------------------------------------------------------------------
Net cash (used for) financing activities $(22,127,300) $(4,032,400)
- -------------------------------------------------------------------------------
</TABLE>
The increase in Cash Flow (as defined in the Partnership Agreement) of $139,400
for the six months ended June 30, 1998 when compared to the six months ended
June 30, 1997 was primarily due to improved operating results, exclusive of
properties sold and depreciation and amortization, as previously discussed. The
increase was partially offset by the absence of results from Meidinger Tower
and Regency due to their sales.
The net increase in the Partnership's cash of $4,001,900 for the six months
ended June 30, 1998 was primarily the result of the net cash provided by
operating activities and the net proceeds received from the sale of Meidinger
Tower exceeding the repayment of the mortgage loan collateralized by Meidinger
Tower, the increase in 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, 1998 were comprised of amounts held for working
capital purposes and undistributed Sale Proceeds.
Net cash provided by operating activities decreased by $339,800 for the six
months ended June 30, 1998 when compared to the six months ended June 30, 1997.
The decrease was primarily the result of the absence of results generated by
Meidinger Tower and Regency together with timing of the payment of certain
expenses at Prentice Plaza and 1800 Sherman.
Net cash provided by investing activities increased by $21,577,200 for the six
months ended June 30, 1998 when compared to the six months ended June 30, 1997.
The increase was primarily due to the 1998 receipt of proceeds from the sale of
Meidinger Tower exceeding the 1997 receipt of proceeds from the sale of
Regency. The increase was partially offset by the increase in investments in
debt securities. The increase in investments in debt securities is a
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 and distribution to Limited
Partners. These investments are of investment-grade and 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, 1998, the Partnership spent $166,200 for these
items and has projected to spend approximately $450,000 during the remainder of
1998. Included in this projected amount are capital and tenant improvements and
leasing costs of approximately $400,000 for Prentice Plaza and 1800 Sherman.
The amounts projected to be spent relate predominately to tenant improvement
allowances and improvements. 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 April 1, 1998, the Partnership consummated the sale of Meidinger Tower. Net
proceeds from this transaction were $6,176,500, which was net of actual and
estimated closing costs and the repayment of the mortgage loan collateralized
by the property. In connection with this transaction the Partnership 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.
On August 6, 1998 a joint venture in which the Partnership has a 50% interest
consummated the sale of 1800 Sherman. The Partnership's share of net proceeds
from this transaction were approximately $7,150,000, which was net of actual
and estimated closing costs. The joint venture was required to place $500,000
of the proceeds from this transaction into an interest bearing escrow account
for the purpose of providing for any potential liabilities or contingencies
that might arise from any representations or warranties that were made by the
joint venture. The Partnership intends to distribute $7,171,300 or $7.55 per
Unit on November 30, 1998 to Limited Partners of record as of August 6, 1998.
The increase in net cash used for financing activities of $18,094,900 for the
six months ended June 30, 1998 when compared to the six months ended June 30,
1997 was primarily the result of the 1998 repayment of a mortgage loan in
conjunction with the sale of Meidinger Tower exceeding the 1997 repayment of a
mortgage loan in conjunction with the sale of Regency. The increase was also
due to the 1997 additional draw on the mortgage loan collateralized by
Meidinger Tower.
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 to
Limited Partners of their original Capital Contributions. As of June 30, 1998,
the Partnership had not exercised its option to defer the payment of interest
on this loan.
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 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, with the
exception of the distribution on August 31, 1998 of Sale Proceeds from
Meidinger Tower and the distribution on November 30, 1998 of Sale Proceeds from
1800 Sherman, 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, 1998, Cash Flow (as defined in the Partnership
Agreement) of $891,300 was retained to supplement working capital reserves.
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.
8
<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, 1998 By: /s/ DOUGLAS CROCKER II
--------------- ----------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 14, 1998 By: /s/ NORMAN M. FIELD
--------------- ----------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None
(b) Reports on Form 8-K:
A report filed on April 14, 1998 on Form 8-K reporting the sale of
Meidinger Tower.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,881,300
<SECURITIES> 6,904,200
<RECEIVABLES> 192,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,978,400
<PP&E> 50,847,000
<DEPRECIATION> 12,418,300
<TOTAL-ASSETS> 55,099,400
<CURRENT-LIABILITIES> 7,589,800
<BONDS> 35,130,200
0
0
<COMMON> 0
<OTHER-SE> 12,377,400
<TOTAL-LIABILITY-AND-EQUITY> 55,099,400
<SALES> 0
<TOTAL-REVENUES> 12,158,400
<CGS> 0
<TOTAL-COSTS> 2,142,600
<OTHER-EXPENSES> 84,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,797,100
<INCOME-PRETAX> 7,479,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,479,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,479,300
<EPS-PRIMARY> 7.80
<EPS-DILUTED> 7.80
</TABLE>
