<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, 1999
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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
- -------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 700, 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 I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 9,757,200 $ 9,757,200
Buildings and improvements 33,956,300 33,926,200
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43,713,500 43,683,400
Accumulated depreciation and amortization (11,764,300) (11,287,400)
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Total investment properties, net of accumulated
depreciation and amortization 31,949,200 32,396,000
Cash and cash equivalents 1,970,200 9,704,900
Investments in debt securities 8,280,300
Rents receivable 131,200 351,100
Escrow deposits 518,200 379,000
Due from Affiliates, net 2,100
Other assets (primarily loan acquisition costs, net
of accumulated amortization of $801,400 and
$773,700, respectively) 103,500 146,100
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$42,952,600 $42,979,200
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $21,062,200 $21,387,900
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Accounts payable and accrued expenses 601,700 459,800
Due to Affiliates, net 145,100
Security deposits 148,000 152,100
Other liabilities 95,500 216,800
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35,486,900 35,651,000
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Partners' capital:
General Partner (deficit) (1,144,600) (1,146,000)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 8,610,300 8,474,200
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7,465,700 7,328,200
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$42,952,600 $42,979,200
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 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 six months ended
June 30, 1999 1,400 136,100 137,500
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Partners' (deficit) capital,
June 30, 1999 $(1,144,600) $ 8,610,300 $ 7,465,700
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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 June 30, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $1,407,200 $1,844,200
Interest 112,600 213,800
Gain on sale of property 6,943,900
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1,519,800 9,001,900
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Expenses:
Interest:
Affiliates 235,300 259,700
Nonaffiliates 396,700 411,400
Depreciation and amortization 250,900 327,300
Property operating:
Affiliates 29,200 49,500
Nonaffiliates 151,600 174,800
Real estate taxes 272,800 346,400
Insurance--Affiliate 12,500 13,700
Repairs and maintenance 122,000 143,300
General and administrative:
Affiliates 6,700 6,600
Nonaffiliates 29,000 33,300
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1,506,700 1,766,000
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Net income $ 13,100 $7,235,900
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Net income allocated to General Partner $ 200 $ 72,400
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Net income allocated to Limited Partners $ 12,900 $7,163,500
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Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 0.01 $ 7.54
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</TABLE>
STATEMENT OF INCOME AND EXPENSES
For the six months ended June 30, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $2,917,300 $4,886,800
Interest 227,300 327,700
Gain on sale of property 6,943,900
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3,144,600 12,158,400
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Expenses:
Interest:
Affiliates 470,000 520,800
Nonaffiliates 795,200 1,276,300
Depreciation and amortization 504,600 654,800
Property operating:
Affiliates 48,800 167,800
Nonaffiliates 316,200 570,800
Real estate taxes 538,300 842,500
Insurance--Affiliate 24,900 37,800
Repairs and maintenance 231,900 523,700
General and administrative:
Affiliates 28,000 17,500
Nonaffiliates 49,200 67,100
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3,007,100 4,679,100
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Net income $ 137,500 $7,479,300
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Net income allocated to General Partner $ 1,400 $ 74,800
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Net income allocated to Limited Partners $ 136,100 $7,404,500
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Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 0.14 $ 7.80
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</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 137,500 $ 7,479,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 504,600 654,800
(Gain) on sale of property (6,943,900)
Changes in assets and liabilities:
Decrease in rents receivable 219,900 186,100
Decrease in other assets 14,900 107,900
Increase (decrease) in accounts payable and accrued
expenses 141,900 (173,200)
Increase in due to Affiliates 147,200 13,900
(Decrease) in other liabilities (121,300) (199,000)
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Net cash provided by operating activities 1,044,700 1,125,900
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Cash flows from investing activities:
Proceeds from sale of property 27,955,500
Payments for capital and tenant improvements (30,100) (166,200)
(Increase) in investments in debt securities, net (8,280,300) (2,955,800)
(Increase) decrease in escrow deposits (139,200) 69,800
Decrease in restricted cash 100,000
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Net cash (used for) provided by investing activities (8,449,600) 25,003,300
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Cash flows from financing activities:
Principal payments on mortgage loans payable (325,700) (298,900)
Repayment of mortgage loan payable (21,779,000)
(Decrease) in security deposits (4,100) (49,400)
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Net cash (used for) financing activities (329,800) (22,127,300)
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Net (decrease) increase in cash and cash equivalents (7,734,700) 4,001,900
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 $1,970,200 $ 8,881,300
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Supplemental information:
Interest paid to Affiliate during the period $ 312,400 $ 520,800
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Interest paid to nonaffiliates during the period $ 824,500 $ 1,277,000
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</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 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 quarter and six months ended June 30, 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 partnerships, which were each formed for the purpose
of each acquiring a 100% interest in certain real property. These joint
ventures until their respective sale dates were operated under the common
control of the General Partner and an Affiliate 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.
The Partnership has one reportable segment as the Partnership is in the
disposition phase of its life cycle, wherein it is seeking to liquidate its
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 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 and
amortization of such property is provided for in the financial statements.
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 bases in the
financial statements, which approximated fair market value. All of these
securities had a maturity of less than one year when purchased.
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 quarter and six months ended June 30, 1999, 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 quarter and six months
ended June 30, 1999, the General Partner was allocated a Net Profit of $200 and
$1,400, respectively.
Fees and reimbursements paid and payable/(receivable) by the Partnership to
Affiliates during the quarter and six months ended June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Paid
-----------------
Six (Receivable)
Quarter Months Payable
- ---------------------------------------------------------
<S> <C> <C> <C>
Property management and
leasing fees $ 23,300 $ 51,800 $(16,200)
Interest expense on
Front-End Fees Loan
(Note 3) 77,700 312,400 157,600
Reimbursement of property
insurance premiums 12,500 24,900 None
Legal 23,800 45,700 None
Reimbursement of
expenses, at cost:
--Accounting 2,400 7,900 2,200
--Investor communication 2,400 6,600 1,500
- ---------------------------------------------------------
$142,100 $449,300 $145,100
- ---------------------------------------------------------
</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 of office space
at Prentice Plaza. During the quarter and six months ended June 30, 1999, ANTEC
paid $78,800 and $197,700, respectively, in rents and reimbursements of
expenses. The Partnership owns a 50% joint venture interest in these amounts.
The per square foot rent paid by ANTEC is comparable to that paid by other
tenants at Prentice Plaza.
Manufactured Home Communities, Inc. ("MHC"), a real estate investment trust,
which is an Affiliate of the General Partner and in the business of owning and
operating mobil home communities, is obligated to the Partnership under a lease
of office space at Prentice Plaza. During the quarter and six months ended June
30, 1999, MHC paid $19,400 and $44,100, respectively, in rents and
reimbursements of expenses. The Partnership owns a 50% joint venture interest
in these amounts. The per square foot rent paid by MHC is comparable to that
paid by other tenants at Prentice Plaza.
On-site property management for 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, 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 six months ended June 30, 1999 was 7.00%. For July 1999,
the interest rate was 7.18%.
Pursuant to a modification to this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 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.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at June 30, 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 6/30/99 12/31/98 Rate (a) Date
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deerfield Mall $16,335,500 $16,633,500 7.60% 3/1/2001
Prentice Plaza (50%) (b) 4,726,700 4,754,400 7.00% 12/19/2000
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$21,062,200 $21,387,900
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</TABLE>
(a) The average interest rate represents an average for the six months ended
June 30, 1999. Interest rates are subject to change in accordance with the
provisions of the note for Prentice Plaza. For July 1999, the interest rate
on the loan collateralized by Prentice Plaza was 7.79%.
(b) On July 12, 1999, the Partnership, repaid the mortgage collateralized by
Prentice Plaza 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 note 4 to
the financial statements in the Partnership's Annual Report for the year ended
December 31, 1998.
5
<PAGE>
5. SUBSEQUENT EVENT:
On July 12, 1999, a joint venture in which the Partnership owned a 50% interest
consummated the sale of Prentice Plaza for a sale price of $22,100,000. Net
Proceeds from this transaction amounted to $6,175,000, 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 $4,600,000 for the nine months ended September 30, 1999, and
intends to distribute $6,174,000 or $6.50 per Unit on November 30, 1999 to
Limited Partners of record as of July 12, 1999 from this transaction.
6
<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. 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, 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 For the Six Months
Ended Ended
---------------------- ----------------------
6/30/99 6/30/98 6/30/99 6/30/98
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEERFIELD MALL
Rental revenues $1,046,800 $1,011,100 $2,182,200 $2,097,800
- -------------------------------------------------------------------------
Property net income $ 180,500 $ 145,000 $ 427,200 $ 367,700
- -------------------------------------------------------------------------
Average occupancy 91% 90% 91% 90%
- -------------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $ 382,600 $ 382,500 $ 757,200 $ 732,200
- -------------------------------------------------------------------------
Property net income $ 12,600 $ 72,900 $ 52,200 $ 85,100
- -------------------------------------------------------------------------
Average occupancy 88% 94% 91% 94%
- -------------------------------------------------------------------------
SOLD PROPERTIES (B)
Rental revenues $ (22,100) $ 450,700 $ (22,100) $2,065,000
- -------------------------------------------------------------------------
Property net income (loss) $ (21,900) $ 159,800 $ (21,900) $ 368,300
- -------------------------------------------------------------------------
</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 sold by the
Partnership prior to the periods under comparison.
(b) Sold Properties is comprised of the operating results of Meidinger Tower
(sold April 1998) and 1800 Sherman Office Building ("1800 Sherman") (sold
August 1998). Meidinger Tower and 1800 Sherman are collectively referred to
hereafter as the Sold Properties.
Unless otherwise disclosed, discussions of fluctuations between 1999 and 1998
refer to both the quarters and six months ended June 30, 1999 and 1998.
Net income decreased by $7,222,800 and $7,341,800 for the quarter and six
months ended June 30, 1999 when compared to the quarter and six months ended
June 30, 1998, respectively. The decreases were primarily due to the gain
recorded during 1998 on the sale of Meidinger Tower. The decreases were also
due to the absence of 1999 operating results from the Sold Properties due to
their 1998 sales.
Net income, exclusive of Sold Properties, decreased by $97,200 and $7,700 for
the quarter and six months ended June 30, 1999 when compared to the quarter and
six months ended June 30, 1998, respectively. The decreases were primarily due
to a decrease in interest earned on the Partnership's short-term investments,
which was due to reduced availability of investable cash resulting from the
August 1998 distribution of the proceeds from the sale of Meidinger Tower. The
decreases were also due to diminished operating results at Prentice Plaza. The
decreases were partially offset by improved operating results at Deerfield Mall
and reduced interest expense on the Front-End Fees Loan.
The following comparative discussion excludes the results of the Sold
Properties.
Rental revenues increased by $35,800 or 2.6% and $109,400 or 3.9% for the
quarter and six months ended June 30, 1999 when compared to the quarter and six
months ended June 30, 1998, respectively. The increases were primarily due to
increases at Deerfield Mall and Prentice Plaza in the rates charged to new and
renewing tenants. The increases were also due to an increase in tenant
reimbursements for real estate taxes at Deerfield Mall. The increases were
partially offset by a decline in average occupancy at Prentice Plaza.
Real estate tax expense increased by $53,200 and $74,000 for the quarterly and
six-month periods under comparison, respectively. The increases were primarily
due to increases in the projected 1999 tax liabilities at Deerfield Mall and
Prentice Plaza.
Interest expense on the Partnership's mortgage loans decreased by $14,700 and
$31,100 for the quarter and six months ended June 30, 1999 when compared to the
quarter and six months ended June 30, 1998, 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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Property operating expense increased by $27,700 for the six-month periods under
comparison. The increase was primarily due to an increase in utility costs at
Prentice Plaza. The increase was also due to an increase in security costs at
Deerfield Mall and Prentice Plaza. Property operating expenses remained
relatively unchanged for the quarterly periods under comparison.
Repair and maintenance expenses increased by $31,500 and $31,600 for the
quarter and six months ended June 30, 1999 when compared to the quarter and six
months ended June 30, 1998, respectively. The increases were primarily due to
an increase in landscaping costs at Deerfield Mall. The increases were also due
to an increase in cleaning costs 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.
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
-------------------------
6/30/99 6/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 316,400 $ 891,300
Items of reconciliation:
Scheduled principal payments on mortgage loans
payable 325,700 298,900
Decrease in current assets 234,800 294,000
Increase (decrease) in current liabilities 167,800 (358,300)
- --------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,044,700 $ 1,125,900
- --------------------------------------------------------------------------------
Net cash (used for) provided by investing activities $(8,449,600) $ 25,003,300
- --------------------------------------------------------------------------------
Net cash (used for) financing activities $ (329,800) $(22,127,300)
- --------------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $574,900
for the six months ended June 30, 1999 when compared to the six months ended
June 30, 1998 was primarily due to the absence of operating results during 1999
resulting primarily from the 1998 sales of the Sold Properties.
The net decrease in the Partnership's cash of $7,734,700 for the six months
ended June 30, 1999 was primarily the result of a net increase in investments
in debt securities. Net cash provided by operating activities exceeded
regularly scheduled principal payments and escrow deposits made on the
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, 1999 were comprised of amounts held for working capital purposes.
Net cash provided by operating activities decreased by $81,200 for the six
months ended June 30, 1999 when compared to the six months ended June 30, 1998.
The decrease was primarily the result of the 1999 absence of results generated
by the Sold Properties. The decrease was partially offset by the timing of the
payment of trade payables.
Net cash provided by (used for) investing activities changed from $25,003,300
for the six months ended June 30, 1998 to $(8,449,600) for the six months ended
June 30, 1999. The change was primarily due to the 1998 receipt of proceeds
from the sale of Meidinger Tower. The change was also due to an increase in the
amount of investments in debt securities during the period. Investments in debt
securities is a result of the extension of the maturities of certain of the
Partnership's short-term investments in an effort to maximize the return on
these amounts while they are held for working capital purposes. These
investments are of investment-grade and 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, 1999, the Partnership spent $30,100 for these
items and has projected to spend approximately $450,000 during the remainder of
1999. Included in this projected amount are capital and tenant improvements and
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
leasing costs of approximately $325,000 for Deerfield Mall and $125,000 for
Prentice Plaza. 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 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.
On July 12, 1999 a joint venture in which the Partnership has a 50% interest
consummated the sale of Prentice Plaza. The Partnership's share of net proceeds
from this transaction were approximately $6,175,000, which was net of actual
and estimated closing costs and the repayment of the mortgage collateralizing
the Property. The Partnership intends to distribute $6,174,000 or $6.50 per
Unit on November 30, 1999 to Limited Partners of record as of July 12, 1999.
With the exception of variable rate debt, the Partnership has no financial
instruments for which there is significant market risk. Based on variable rate
outstanding as of June 30, 1999, for every 1% change in interest rates, the
Partnership's annual interest expense would change by 181,600. Due to the
timing and liquid nature of the Partnership's investments in debt securities,
the Partnership believes that it does not have material risk.
The decrease in net cash used for financing activities of $21,797,500 for the
six months ended June 30, 1999 when compared to the six months ended June 30,
1998 was primarily the result of the 1998 repayment of a mortgage loan in
conjunction with the sale of 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
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 to
Limited Partners of their Original Capital Contributions.
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
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 written contingency plan, however, the
General Partner believes that based on the size of the Partnership's real
estate 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 six 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. In addition, the Partnership intends to distribute $6,174,000
of Prentice Plaza Sale Proceeds to Limited Partners on November 30, 1999. With
one property remaining in its portfolio, the Partnership believes that the cash
generated by Deerfield Mall, deducting amounts to be utilized for building and
tenant improvements and principal payments on the loan, 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 six months ended June 30, 1999, Cash Flow (as defined in
the Partnership Agreement) of $316,400 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 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.
9
<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 July 27, 1999 on Form 8-K reporting the sale of
Prentice Plaza.
10
<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 13, 1999 By: /s/ DOUGLAS CROCKER II
--------------- --------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,970,200
<SECURITIES> 8,280,300
<RECEIVABLES> 131,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,381,700
<PP&E> 43,713,500
<DEPRECIATION> 11,764,300
<TOTAL-ASSETS> 42,952,600
<CURRENT-LIABILITIES> 894,800
<BONDS> 34,496,600
0
0
<COMMON> 0
<OTHER-SE> 7,465,700
<TOTAL-LIABILITY-AND-EQUITY> 42,952,600
<SALES> 0
<TOTAL-REVENUES> 3,144,600
<CGS> 0
<TOTAL-COSTS> 1,160,100
<OTHER-EXPENSES> 77,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,265,200
<INCOME-PRETAX> 137,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 137,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,500
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
