<PAGE>
UNITED STATES
SECURICTIES 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, 1999
----------------------------------------
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
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated May 8, 1987, included
in the Partnership's Registration Statement on Form S-11, is incorporated herein
by reference in Part I of this report.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 9,757,200 $ 9,757,200
Buildings and improvements 33,935,000 33,926,200
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43,692,200 43,683,400
Accumulated depreciation and amortization (11,527,200) (11,287,400)
- ------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 32,165,000 32,396,000
Cash and cash equivalents 6,326,400 9,704,900
Investments in debt securities 3,684,500
Rents receivable 33,800 351,100
Escrow deposits 578,800 379,000
Due from Affiliates 22,300 2,100
Other assets (primarily loan acquisition costs, net
of accumulated amortization of $787,600 and
$773,700, respectively) 115,500 146,100
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$42,926,300 $42,979,200
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $21,231,900 $21,387,900
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Accounts payable and accrued expenses 557,600 459,800
Security deposits 151,700 152,100
Other liabilities 98,100 216,800
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35,473,700 35,651,000
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Partners' capital:
General Partner (deficit) (1,144,800) (1,146,000)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 8,597,400 8,474,200
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7,452,600 7,328,200
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$42,926,300 $42,979,200
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the quarter ended March 31, 1999 (Unaudited) and the year ended December
31, 1998
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January 1,
1998 $(1,664,600) $12,691,200 $11,026,600
Net income for the year ended
December 31, 1998 518,600 9,080,800 9,599,400
Distributions for the year ended
December 31, 1998 (13,297,800) (13,297,800)
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Partners' (deficit) capital,
December 31, 1998 (1,146,000) 8,474,200 7,328,200
Net income for the quarter ended
March 31, 1999 1,200 123,200 124,400
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Partners' (deficit) capital, March 31,
1999 $(1,144,800) $ 8,597,400 $ 7,452,600
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</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended March 31, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $1,510,100 $3,042,600
Interest 114,700 113,900
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1,624,800 3,156,500
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Expenses:
Interest:
Affiliates 234,700 261,100
Nonaffiliates 398,500 864,900
Depreciation and amortization 253,700 327,500
Property operating:
Affiliates 19,600 118,300
Nonaffiliates 164,600 396,000
Real estate taxes 265,500 496,100
Insurance--Affiliate 12,400 24,100
Repairs and maintenance 109,900 380,400
General and administrative:
Affiliates 21,300 10,900
Nonaffiliates 20,200 33,800
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1,500,400 2,913,100
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Net income $ 124,400 $ 243,400
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Net income allocated to General Partner $ 1,200 $ 2,400
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Net income allocated to Limited Partners $ 123,200 $ 241,000
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Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 0.13 $ 0.25
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</TABLE>
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 124,400 $ 243,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 253,700 327,500
Changes in assets and liabilities:
Decrease in rents receivable 317,300 73,700
Decrease in other assets 16,700 26,900
(Increase) in due from Affiliates (20,200)
Increase (decrease) in accounts payable and
accrued expenses 97,800 (109,300)
Increase in due to Affiliates 18,700
(Decrease) in other liabilities (118,700) (199,000)
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Net cash provided by operating activities 671,000 381,900
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Cash flows from investing activities:
Payments for capital and tenant improvements (8,800) (43,600)
(Increase) in investments in debt securities, net (3,684,500) (2,437,800)
(Increase) in escrow deposits (199,800) (175,700)
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Net cash (used for) investing activities (3,893,100) (2,657,100)
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Cash flows from financing activities:
Principal payments on mortgage loans payable (156,000) (147,200)
(Decrease) increase in security deposits (400) 13,700
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Net cash (used for) financing activities (156,400) (133,500)
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Net (decrease) in cash and cash equivalents (3,378,500) (2,408,700)
Cash and cash equivalents at the beginning of the
period 9,704,900 4,879,400
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Cash and cash equivalents at the end of the period $ 6,326,400 $ 2,470,700
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Supplemental information:
Interest paid to nonaffiliates during the period $ 403,400 $ 865,600
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Interest paid to Affiliates during the period $ 234,700 $ 261,100
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</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
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. The Partnership recognizes rental income
that is contingent upon tenants' achieving specified targets only to the extent
that such targets are achieved.
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, 1999, are not necessarily indicative of the
operating results for the year ending December 31, 1999.
The financial statements include the Partnership's 50% interest in two joint
ventures with Affiliated Partnership's, 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.
The Partnership has one reportable segment as the Partnership is in the
disposition phase of its life cycle, wherein it is seeking to liquidate it
remaining operating assets. Management's main focus, therefore, is to prepare
its assets for sale and find purchasers for its remaining assets when market
conditions warrant such an action. The Partnership has one tenant who occupies
15% of the Partnership's rentable space.
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 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 1998
statements in order to provide comparability with the 1999 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, 1998, 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, 1999 and 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.
4
<PAGE>
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 three months ended
March 31, 1999 and 1998, the General Partner was allocated Net Profits of
$1,400 and $2,400, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the three months ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
Payable
Paid (Receivabie)
- -----------------------------------------------------------------------
<S> <C> <C>
Property management and leasing fees $ 28,500 $(24,300)
Interest expense on Front-End Fees Loan (Note 3) 234,700 None
Reimbursement of property insurance premiums 12,400 None
Legal 21,900 None
Reimbursement of expenses, at cost:
--Accounting 5,500 1,200
--Investor communication 4,200 800
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$307,200 $(22,300)
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</TABLE>
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 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, 1999, ANTEC paid
$118,900 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,
1999, MHC paid $24,700 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, 1999, 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, 1999 was 6.99%. For April
1999, the interest rate was 6.94%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for an 81-month period
beginning April 1, 1993. In addition, any interest payments made by the
Partnership from April 1, 1993 through December 31, 1999 may be borrowed from
the Affiliate. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on January 1, 2000, and
shall not be subject to the Subordination. As of March 31, 1999, 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, 1999 and December 31, 1998 consisted of the
following loans, which are non-recourse to nor guaranteed by the Partnership:
<TABLE>
<CAPTION>
Partnership's Share of
Principal Balance at Average
Property Pledged as ----------------------- Interest Maturity
Collateral 3/31/99 12/31/98 Rate Date
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<S> <C> <C> <C> <C>
Deerfield Mall 16,485,900 16,633,500 7.60% 3/1/2001
Prentice Plaza (50%) 4,746,000 4,754,400 6.97%(a) 12/19/2000
- --------------------------------------------------------------------
$21,231,900 $21,387,900
- --------------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the three months ended
March 31, 1999. Interest rates are subject to change in accordance with the
provisions of the loan agreement for Prentice Plaza. For the month of April
1999, the interest rate was 6.69%.
For additional information regarding the mortgage loans payable, refer to the
Partnership's Annual Report for the year ended December 31, 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, 1998 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 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, 1999 and
1998. 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
3/31/99 3/31/98
- -------------------------------------------
<S> <C> <C>
DEERFIELD MALL
Rental revenues $1,135,400 $1,086,700
- -------------------------------------------
Property net income $ 246,300 $ 222,700
- -------------------------------------------
Average occupancy 91% 89%
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PRENTICE PLAZA (50%)
Rental revenues $ 374,600 $ 349,700
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Property net income $ 39,600 $ 12,200
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Average occupancy 95% 93%
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SOLD PROPERTIES (B)
Rental revenues $1,614,300
- -------------------------------------------
Property net income $ 208,500
- -------------------------------------------
</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) Sold Properties is comprised of the results of Meidinger Tower and 1800
Sherman Office Building ("1800 Sherman"), which were both sold in 1998.
Net income for the Partnership decreased by $119,000 for the three months ended
March 31, 1999 when compared to the three months ended March 31, 1998. The
decrease was primarily the result of the absence of operating results in 1999
from the Sold Properties due to their 1998 sales. The decrease was partially
offset by improved operating results at Deerfield Mall and Prentice Plaza.
Net income, exclusive of Sold Properties, increased by $107,000 for the three
months ended March 31, 1999 when compared to the three months ended March 31,
1998. The increase was primarily due to the improved operating results at
Deerfield Mall and Prentice Plaza. Also contributing to the increase was a
decrease in interest paid on the Front-End Fees Loan, which was due to a
decrease in the average interest rate.
The following comparative discussion excludes the operating results of Sold
Properties.
Rental revenues increased by $73,600 or 5.1% for the three months ended March
31, 1999 when compared to the three months ended March 31, 1998. The increase
was primarily due to an increase in base rental income at Prentice Plaza and
Deerfield Mall which was due to an increase in rates charged to new and
renewing tenants together with an increase in the average occupancy rates.
Interest expense on the Partnership's mortgage loans decreased by $16,400 for
the three months ended March 31, 1999 when compared to the three months ended
March 31, 1998. The decrease was primarily due to the effects of principal
payments made on the Partnership's mortgage loans during the past 15 months.
Real estate tax expense increased by $20,800 for the three-month periods under
comparison. The increase was primarily due to an increase in the projected 1999
tax liability at Deerfield Mall.
Property operating expenses increased by $28,500 for the three months ended
March 31, 1999 when compared to the three months ended March 31, 1998. The
increase was primarily due to an increase in management fees at Deerfield Mall
due to the increase in rental revenues. The increase was also due to an
increase in utility expenses at Prentice Plaza.
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
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
("GAAP"), since certain items are treated differently under the Partnership
Agreement than under GAAP. Management believes that to facilitate a clear
understanding of the Partnership's operations, an analysis of Cash Flow (as
defined in the Partnership Agreement) should be examined in conjunction with an
analysis of net income or cash flows as determined by GAAP. The following table
includes a reconciliation of Cash Flow (as defined in the Partnership
Agreement) to cash flow provided by operating activities as determined by GAAP.
Such amounts are not indicative of actual distributions to Partners and should
not be considered as an alternative to the results disclosed in the Statements
of Income and Expenses and Statements of Cash Flow.
<TABLE>
<CAPTION>
Comparative
Cash Flow Results
For the Quarters Ended
3/31/99 3/31/98
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 222,100 $ 423,700
Items of reconciliation:
Scheduled principal payments on mortgage loans
payable 156,000 147,200
Decrease in current assets 313,800 100,600
(Decrease) in current liabilities (20,900) (289,600)
- ------------------------------------------------------------------------------
Net cash provided by operating activities $ 671,000 $ 381,900
- ------------------------------------------------------------------------------
Net cash (used for) investing activities $(3,893,100) $(2,657,100)
- ------------------------------------------------------------------------------
Net cash (used for) financing activities $ (156,400) $ (133,500)
- ------------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $201,600
for the three months ended March 31, 1999 when compared to the three months
ended March 31, 1998 was primarily due to an absence of operating results
during 1999 resulting from the 1998 sales of the Sold Properties. The decrease
was partially offset by the increase in operating results, exclusive of Sold
Properties, depreciation and amortization.
The decrease in the Partnership's cash position of $3,378,500 for the three
months ended March 31, 1999 was primarily the result of the Partnership using
its cash reserves to make investments in debt securities. Net cash provided by
operating activities exceeded 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, cash equivalents
and investments in debt securities) of the Partnership as of March 31, 1999
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 increased
by $289,100 for the three months ended March 31, 1999 when compared to the
three months ended March 31, 1998. The increase was primarily due to the timing
in 1998 and 1999 of the receipt of rental payments at Deerfield and the timing
of 1998 payments of certain expenses at 1800 Sherman.
Net cash used for investing activities increased by $1,236,000 for the three
months ended March 31, 1999 when compared to the three months ended March 31,
1998. The increase was primarily due to an increase in investments in debt
securities during the three months ended March 31, 1999 as compared to the
increase during the comparable period of 1998. 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.
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 three months ended March 31, 1999, the Partnership spent $8,800 for these
items and has projected to spend approximately $500,000 during the remainder of
1999. Included in this projected amount are capital and tenant improvements and
leasing costs of approximately $325,000 at Deerfield Mall and $175,000 at
Prentice Plaza. 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.
With the exception of variable rate mortgage debt, the Partnership has no
financial instruments for which there are significant risks. Based on variable
rate debt outstanding as of March 31, 1999, for every 1% change in interest
rates, the Partnership's annual interest expense would change by $47,500. Due
to the timing and liquid nature of its investments in debt securities, the
Partnership believes that it does not have material risk.
Net cash used for financing activities increased by $22,900 for the three
months ended March 31, 1999 when compared to the three months ended March 31,
1998. The change was primarily due to a net increase in the amount of security
deposits held by the Partnership during the comparable periods.
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 an
81-month period beginning April 1, 1993. In addition, any interest payments
made by the Partnership from April 1, 1993 through December 31, 1999 may be
borrowed from an Affiliate of the General Partner. All deferred and
subsequently borrowed amounts (including accrued interest thereon) shall be due
and payable on January 1, 2000, and shall not be subordinated to payment of
Original Capital Contributions to Limited Partners. As of March 31, 1999, the
Partnership had not exercised its option to defer the payment of interest on
this loan.
The Year 2000 problem is the result of the inability of existing computer
programs to distinguish between a year beginning with "20" rather than "19".
This is the result of computer programs using two rather than four digits to
define an applicable year. If not corrected, any program having time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a wide variety of problems including
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
miscalculations, loss of data and failure of entire systems. Critical areas
that could be affected are accounts receivable and rent collections, accounts
payable, general ledger, cash management, fixed assets, investor services,
computer hardware, telecommunications systems and health, security, fire and
life safety systems.
The Partnership has engaged Affiliated and unaffiliated entities to perform all
of its critical functions that utilize software that may have time-sensitive
applications. All of these providers are providing these services for their own
organizations as well as for their clients. The General Partner, on behalf of
the Partnership, has been in close communication with each of these service
providers regarding steps that they are taking to assure that there will be no
serious interruption of the operations of the Partnership resulting from Year
2000 problems. Based on the results of these inquiries, as well as a review of
the disclosures by these service providers, the General Partner believes that
the Partnership will be able to continue normal business operations and will
incur no material costs related to Year 2000 issues.
The Partnership has not formulated a contingency plan. However, the General
Partner believes that based on the size of the Partnership's portfolio and its
limited number of transactions, aside from catastrophic failures of banks,
government agencies, etc., it could carry out substantially all of its critical
operations on a manual basis or easily convert to systems that are Year 2000
compliant.
Since the beginning of 1996, the Partnership has sold five of its remaining
seven properties. As disclosed in the Partnership's 1998 Annual Report, during
1998 the Partnership distributed a total of $13,297,800 of Sales Proceeds to
Limited Partners. With two properties remaining in its portfolio, the
Partnership believes that the cash generated by the remaining properties,
deducting amounts to be utilized for building and tenant improvements and
principal payments on the Partnership's loans, may not be substantial enough to
maintain distributions of Cash Flow (as defined in the Partnership Agreement).
In light of this, the General Partner believes that it is in the Partnership's
best interest to retain Cash Flow (as defined in the Partnership Agreement).
Accordingly, cash distributions of Cash Flow (as defined in the Partnership
Agreement) 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 March 31, 1999, Cash Flow (as defined in the Partnership Agreement) of
$222,100 was retained to supplement working capital reserves. The General
Partner continues to review other sources of cash available to the Partnership.
There can be no assurance as to the amount and/or availability of cash for
future distributions to Partners.
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
Contribution.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
- -----------------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the three months ended
March 31, 1999.
<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 13, 1999 By: /s/ DOUGLAS CROCKER II
------------ ------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: May 13, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,326,400
<SECURITIES> 3,684,500
<RECEIVABLES> 33,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,623,500
<PP&E> 43,692,200
<DEPRECIATION> 11,527,200
<TOTAL-ASSETS> 42,926,300
<CURRENT-LIABILITIES> 709,300
<BONDS> 34,666,300
0
0
<COMMON> 0
<OTHER-SE> 7,452,600
<TOTAL-LIABILITY-AND-EQUITY> 42,926,300
<SALES> 0
<TOTAL-REVENUES> 1,624,800
<CGS> 0
<TOTAL-COSTS> 572,000
<OTHER-EXPENSES> 41,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 633,200
<INCOME-PRETAX> 124,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 124,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,400
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
