<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 September 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 _____________________
Commission File Number 0-16888
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First Capital Income and Growth Fund - Series XII
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3498223
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 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
- --------------------------------------------------------------------------------
(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>
September 30,
1999 December 31,
(Unaudited) 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 8,617,600 $ 9,757,200
Buildings and improvements 25,313,200 33,926,200
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33,930,800 43,683,400
Accumulated depreciation and amortization (8,050,300) (11,287,400)
- ------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 25,880,500 32,396,000
Cash and cash equivalents 3,491,300 9,704,900
Investments in debt securities 12,807,100
Rents receivable 156,300 351,100
Escrow deposits 724,900 379,000
Due from Affiliates, net 2,100
Other assets (primarily loan acquisition costs,
net of accumulated amortization of $688,400 and
$773,700, respectively) 77,200 146,100
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$43,137,300 $ 42,979,200
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $16,182,200 $ 21,387,900
Front-End Fees Loan payable to Affiliate 13,434,400 13,434,400
Accounts payable and accrued expenses 669,500 459,800
Due to Affiliates 432,400
Distributions payable 6,174,000
Security deposits 86,300 152,100
Other liabilities 150,800 216,800
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37,129,600 35,651,000
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Partners' capital:
General Partner (deficit) 692,200 (1,146,000)
Limited Partners (1,000,000 Units issued, 949,843
Units outstanding) 5,315,500 8,474,200
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6,007,700 7,328,200
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$43,137,300 $ 42,979,200
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 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)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December
31, 1998 (1,146,000) 8,474,200 7,328,200
Net income for the nine months ended
September 30, 1999 1,838,200 3,015,300 4,853,500
Distributions for the nine months
ended September 30, 1999 (6,174,000) (6,174,000)
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Partners' capital, September 30, 1999 $ 692,200 $ 5,315,500 $ 6,007,700
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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 September 30, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $1,095,800 $1,538,500
Interest 190,500 250,000
Gain on sale of property 4,594,000 1,621,600
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5,880,300 3,410,100
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Expenses:
Interest:
Affiliates 247,000 262,200
Nonaffiliates 320,400 410,800
Depreciation and amortization 175,400 281,400
Property operating:
Affiliates 35,500 71,200
Nonaffiliates 82,700 140,500
Real estate taxes 170,700 94,800
Insurance--Affiliate 11,100 11,500
Repairs and maintenance 86,900 126,400
General and administrative:
Affiliates 8,000 9,400
Nonaffiliates 26,600 22,000
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1,164,300 1,430,200
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Net income $4,716,000 $1,979,900
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Net income allocated to General Partner $1,836,800 $ 438,400
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Net income allocated to Limited Partners $2,879,200 $1,541,500
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Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 3.03 $ 1.62
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------
<S> <C> <C>
Income:
Rental $4,013,100 $6,425,300
Interest 417,800 577,700
Gain on sales of property 4,594,000 8,565,500
- ----------------------------------------------------
9,024,900 15,568,500
- ----------------------------------------------------
Expenses:
Interest:
Affiliates 717,000 783,000
Nonaffiliates 1,115,600 1,687,100
Depreciation and amortization 680,000 936,200
Property operating:
Affiliates 105,800 239,000
Nonaffiliates 377,400 711,300
Real estate taxes 709,000 937,300
Insurance--Affiliate 36,000 49,300
Repairs and maintenance 318,800 650,100
General and administrative:
Affiliates 36,000 26,900
Nonaffiliates 75,800 89,100
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
4,171,400 6,109,300
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Net income $4,853,500 $9,459,200
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Net income allocated to General Partner $1,838,200 $ 513,200
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Net income allocated to Limited Partners $3,015,300 $8,946,000
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Net income allocated to Limited Partners per Unit
(949,843 Units outstanding) $ 3.17 $ 9.42
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</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 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 $ 4,853,500 $ 9,459,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 680,000 936,200
Gain on sales of property (4,594,000) (8,565,500)
Changes in assets and liabilities:
Decrease in rents receivable 194,800 102,400
Decrease in other assets 12,600 139,300
Increase (decrease) in accounts payable and accrued
expenses 209,700 (543,000)
Increase in due to Affiliates 434,500 12,300
(Decrease) in other liabilities (66,000) (199,000)
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Net cash provided by operating activities 1,725,100 1,341,900
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Cash flows from investing activities:
Proceeds from sales of property 10,897,400 35,234,300
Payments for capital and tenant improvements (411,600) (242,000)
(Increase) in investments in debt securities, net (12,807,100) (2,880,400)
(Increase) in escrow deposits (345,900) (356,000)
Decrease in restricted cash 100,000
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Net cash (used for) provided by investing
activities (2,667,200) 31,855,900
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Cash flows from financing activities:
Principal payments on mortgage loans payable (479,000) (451,900)
Repayments of mortgage loans payable (4,726,700) (21,779,000)
Distributions to Partners (6,126,500)
(Decrease) in security deposits (65,800) (45,700)
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Net cash (used for) financing activities (5,271,500) (28,403,100)
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Net (decrease) increase in cash and cash equivalents (6,213,600) 4,794,700
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 $ 3,491,300 $ 9,674,100
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Supplemental information:
Interest paid to Affiliate during the period $ 312,400 $ 783,000
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Interest paid to nonaffiliates during the period $ 1,145,400 $ 1,847,300
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</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 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 nine months ended September 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 formed for the purpose of
each acquiring a 100% interest in certain real property. These joint ventures
until the respective dates of the sale of their real property 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 operating assets when
market conditions warrant such an action. The Partnership has two tenants who
occupy 21% and 11% of the Partnership's rentable space, respectively.
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. Any gains or losses 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 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.
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 (deficit) 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 is
entitled to receive subsequent to November 22, 1988, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, in 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 nine months ended September 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.
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
4
<PAGE>
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 nine months
ended September 30, 1999, the General Partner was allocated a Net Profit of
$1,836,800 and $1,838,200, respectively, which included a gain of $1,834,500
from the sale of a Partnership property.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
Paid
----------------
Nine (Receivable)
Quarter Months Payable
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $ 2,100 $ 53,900 None
Interest expense on Front-End Fees Loan (Note 3) None 312,400 $404,600
Reimbursement of property insurance premiums 11,100 36,000 None
Legal 25,700 71,400 25,000
Reimbursement of expenses, at cost:
--Accounting 4,700 12,600 2,000
--Investor communication 4,100 10,700 800
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$47,700 $497,000 $432,400
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</TABLE>
The variance between amounts listed and the Statement of Income and Expenses is
due to capitalized legal costs.
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, was obligated to the Partnership under a
lease of office space at Prentice Plaza. During the quarter and nine months
ended September 30, 1999, MHC paid $2,600 and $46,700, 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 MHC was 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 company for a
fee equal to 3% of gross rents received by the properties. The Affiliates and
third-party management company 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 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 September 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 quarter and nine months ended September 30, 1999
was 7.11%. As of September 30, 1999, the interest rate was 7.20%.
Pursuant to a modification of 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 is
subordinated to payment of Original Capital Contributions to Limited Partners.
Effective June 1, 1999, the Partnership exercised its option to defer the
payment of interest on this loan. Deferred interest on this loan as of
September 30, 1999 amounted to $404,600.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at September 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 9/30/99 12/31/98 Rate Date
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deerfield Mall $16,182,200(a) $16,633,500 7.60% 3/1/01
Prentice Plaza (50%) (b) 4,754,400 (b) (b)
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$16,182,200 $21,387,900
- ------------------------------------------------------------------
</TABLE>
(a) In November 1999, the Partnership repaid the mortgage loan collateralized
by Deerfield with a portion of the proceeds generated from its sale. For
further information regarding this sale, see Note 6.
(b) The Partnership repaid the mortgage loan 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 notes to
the financial statements in the Partnership's Annual Report for the year ended
December 31, 1998.
5. PROPERTY SALE:
On July 12, 1999, a joint venture in which the Partnership owns a 50% interest,
consummated the sale of Prentice Plaza for a sale price of $22,100,000. The
Partnership's share of net proceeds from this transaction was approximately
$6,170,700, which is net of actual and estimated closing expenses and the
repayment of the mortgage loan encumbering the property. The Partnership
recorded a gain of $4,594,000 for the quarter ended September 30, 1999 and will
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. SUBSEQUENT EVENT:
On November 12, 1999, the Partnership consummated the sale of Deerfield Mall
for a sale price of $34,700,000. Net proceeds from this transaction were
approximately $18,000,000, which is net of actual and estimated closing
expenses and the repayment of the mortgage loan encumbering the property. The
Partnership will record a gain of approximately $8,200,000 for the quarter
ended December 31, 1999 and will distribute $17,999,500 or $18.95 per Unit on
February 28, 2000 to Limited Partners of record as of November 12, 1999 from
this transaction.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's Annual Report for the year ended
December 31, 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. During the third quarter of 1999, the
Partnership consummated the sale of Prentice Plaza.
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 nine months ended
September 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 Nine Months
Ended Ended
--------------------- ----------------------
9/30/99 9/30/98 9/30/99 9/30/98
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEERFIELD MALL
Rental revenues $1,037,900 $1,038,500 $3,220,100 $3,136,300
- ------------------------------------------------------------------------
Property net income $ 197,400 $ 160,200 $ 624,600 $ 527,900
- ------------------------------------------------------------------------
Average occupancy 90% 90% 91% 90%
- ------------------------------------------------------------------------
PRENTICE PLAZA (50%) (B)
Rental revenues $ 52,500 $ 334,300 $ 809,700 $1,066,500
- ------------------------------------------------------------------------
Property net income $ 9,900 $ 11,900 $ 62,100 $ 97,000
- ------------------------------------------------------------------------
SOLD PROPERTIES (C)
Rental revenues $ 5,400 $ 164,200 $ (16,700) $2,229,200
- ------------------------------------------------------------------------
Property net income (loss) $ 6,200 $ 229,500 $ (15,700) $ 597,800
- ------------------------------------------------------------------------
</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) Prentice Plaza was sold on July 12, 1999. Property net income excludes the
gain on sale of the Property.
(c) Sold Properties includes results, exclusive of gains on the sales of 1800
Sherman Office Building ("1800 Sherman") (sold August 6, 1998) and
Meidinger Tower (sold April 1, 1998).
Unless otherwise disclosed, discussions of fluctuations between 1999 and 1998
refer to both the quarters and nine months ended September 30, 1999 and 1998.
Net income increased by $2,736,100 for the quarter ended September 30, 1999
when compared to the quarter ended September 30, 1998. The increase was
primarily due to the 1999 gain recorded on the sale of Prentice Plaza exceeding
the 1998 gain recorded on the sale of 1800 Sherman. The increase was partially
offset by the absence of operating results in 1999 from properties sold by the
Partnership during 1998.
Net income decreased by $4,605,700 for the nine months ended September 30, 1999
when compared to the nine months ended September 30, 1998. The decrease was
primarily due to the gains recorded in 1998 on the sales of 1800 Sherman and
Meidinger Tower exceeding the gain recorded in 1999 on the sale of Prentice
Plaza. The decrease was also due to the absence of operating results in 1999
due to the 1998 sales of 1800 Sherman and Meidinger Tower.
Net income, exclusive of the results from the Properties sold by the
Partnership, decreased by $11,000 for the quarter ended September 30, 1999 when
compared to the quarter ended September 30, 1998. The decrease was primarily
due to a decrease in interest earned on the Partnership's short-term
investments, which was due to a decrease in the average amount of cash
available for investment. The decrease was partially offset by improved
operating results at Deerfield Mall.
Net income, exclusive of the results from the Properties sold by the
Partnership, increased by $14,200 for the nine months ended September 30, 1999
when compared to the nine months ended September 30, 1998. The increase was
primarily due to the improved operating results at Deerfield Mall and a
decrease in interest expense on the Front-End Fees Loan. The increase was
partially offset by a decrease in interest earned on the Partnership's short-
term investments.
The following comparative discussion includes only the results of Deerfield
Mall.
Rental revenues increased by $83,800 or 2.7% for the nine months ended
September 30, 1999 when compared to the nine months ended September 30, 1998.
The increase was primarily due to an increase in tenant expense reimbursements
for real estate taxes. The increase was also due to an increase in base rental
income, which was due to the slight increase in average occupancy. Rental
revenues remained relatively unchanged for the quarter ended September 30, 1999
when compared to the quarter ended September 30, 1998.
Real estate tax expense increased by $50,900 for the nine-month periods under
comparison. The increase was primarily due to a projected increase in 1999 tax
liability. Real estate tax expense remained relatively unchanged for the
quarterly periods under comparison.
Interest expense on the Partnership's mortgage loan decreased by $11,100 and
$32,900 for the quarter and nine months ended September 30, 1999 when compared
to the quarter and nine months ended September 30, 1998, respectively. The
decreases were due to the effects of principal payments made during the past 21
months on the mortgage loan collateralized by Deerfield Mall.
Repairs and maintenance expense decreased by $23,700 and $14,100 for the
quarter and nine months ended September 30, 1999 when compared to the quarter
and nine months ended September 30, 1998. The decreases were primarily due to a
decrease in landscaping costs and the change to an outside service provider for
repair and maintenance work from on-site personnel.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
property. 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 should not be considered as an alternative to
the results
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
disclosed in the Statements of Income and Expenses and Statements of Cash Flow.
<TABLE>
<CAPTION>
Comparative Cash Flow
Results For the Nine
Months Ended
-------------------------
9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow (as defined in the Partnership Agreement) $ 460,500 $ 1,378,000
Items of reconciliation:
Scheduled principal payments on mortgage loans
payable 479,000 451,900
Decrease in current assets 207,400 241,700
Increase (decrease) in current liabilities 578,200 (729,700)
- --------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,725,100 $ 1,341,900
- --------------------------------------------------------------------------------
Net cash (used for) provided by investing activities $(2,667,200) $ 31,855,900
- --------------------------------------------------------------------------------
Net cash (used for) financing activities $(5,271,500) $(28,403,100)
- --------------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $917,500
for the nine months ended September 30, 1999 when compared to the nine months
ended September 30, 1998 was primarily due to the absence of operating results
during 1999 resulting primarily from the 1998 and 1999 sales of Partnership
properties.
The net decrease in the Partnership's cash of $6,213,600 for the nine months
ended September 30, 1999 was primarily the result of an increase in the amount
of net investments in debt securities, which included the investment of
proceeds received from the sale of Prentice Plaza and cash previously held for
working capital purposes. Liquid assets (including cash, cash equivalents and
investments in debt securities) of the Partnership as of September 30, 1999
were comprised of amounts held for working capital purposes and undistributed
Sale Proceeds.
Net cash provided by operating activities increased by $383,200 for the nine
months ended September 30, 1999 when compared to the nine months ended
September 30, 1998. The increase was primarily due to the 1998 satisfaction of
all trade liabilities in connection with the sales of 1800 Sherman and
Meidinger Tower. The increase was also due to the timing of payment of
Partnership expenses, which included the deferral of the payment of interest on
the Front-End Fee Loan. The increase was partially offset by the satisfaction
of all trade liabilities in connection with the 1999 sale of Prentice Plaza.
Net cash provided by (used for) investing activities changed from $31,855,900
for the nine months ended September 30, 1998 to $(2,667,200) for the nine
months ended September 30, 1999. The change was primarily due to the 1998
receipt of gross proceeds from the sales of 1800 Sherman and Meidinger Tower
exceeding the 1999 receipt of gross proceeds from the sale of Prentice Plaza.
The change was also due to an increase in net investments in debt securities.
The increase in investments in debt securities is a 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 or pending 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 nine months ended September 30, 1999, the Partnership spent $411,600 for
these items. The General Partner believes these improvements and leasing costs
are necessary in order to increase and/or maintain the occupancy level in a
very competitive market, maximize rental rates charged to new and renewing
tenants and to prepare the remaining property for eventual disposition.
On July 12, 1999, a joint venture in which the Partnership owns a 50% interest
consummated the sale of Prentice Plaza. The Partnership's share of net proceeds
from this transaction was $6,170,700, which was net of actual and estimated
closing costs and the repayment of the mortgage loan encumbering the property.
The Partnership will distribute $6,174,000 or $6.50 per Unit on November 30,
1999 to Limited Partners of record as of July 12, 1999.
On November 12, 1999, the Partnership consummated the sale of Deerfield. Net
proceeds from this transaction were approximately $18,000,000, which was net of
actual and estimated closing costs and the repayment of the mortgage loan
encumbering the property. The Partnership intends to distribute $17,999,500 or
$18.95 per Unit on February 28, 2000 to Limited Partners of record as of
November 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
debt outstanding as of September 30, 1999, for every 1% change in interest
rates, the Partnership's annual interest expense would change by $134,300. 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 $23,131,600 for the
nine months ended September 30, 1999 when compared to the nine months ended
September 30, 1998 was primarily the result of the 1998 repayment of the
Meidinger Tower mortgage loan exceeding the 1999 repayment of the Prentice
Plaza mortgage loan. The decrease was also due to the 1998 distribution to
Limited Partners of Sale Proceeds from 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 of
Original Capital Contributions to Limited Partners. As of June 1, 1999, the
Partnership elected to defer interest payments 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
miscalculations, loss of data and failure of entire systems. Critical areas
that could be effected 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.
While the Partnership has not formulated a written contingency plan, it has
selected the Year 2000 compliant systems that it intends to use beginning in
the Year 2000. 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 will be able
carry out substantially all of its critical operations.
With the sale of Prentice Plaza and Deerfield, the Partnership has sold all of
its real property investments. In addition to the above-mentioned distributions
of Sale Proceeds during 2000, the General Partner intends to make a special
distribution of previously retained working capital. The amount to be
distributed will be disclosed following an evaluation of the Partnership's
needs during the process of dissolving the Partnership. The dissolution of the
Partnership is expected to be completed in the fourth quarter of 2000, however,
there can be no assurance that it will be completed as scheduled.
Based upon the current value of its assets, net of its outstanding liabilities,
together with its expected operating results, 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.
7
<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 on Form 8-K was filed on July 27, 1999 reporting the sale of
Prentice Plaza.
<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: November 10, 1999 By: /s/ DOUGLAS CROCKER II
-------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 10, 1999 By: /s/ NORMAN M. FIELD
-------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,491,300
<SECURITIES> 12,807,100
<RECEIVABLES> 156,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,179,600
<PP&E> 33,930,800
<DEPRECIATION> 8,050,300
<TOTAL-ASSETS> 43,137,300
<CURRENT-LIABILITIES> 7,362,200
<BONDS> 29,616,600
0
0
<COMMON> 0
<OTHER-SE> 6,007,700
<TOTAL-LIABILITY-AND-EQUITY> 43,137,300
<SALES> 0
<TOTAL-REVENUES> 9,024,900
<CGS> 0
<TOTAL-COSTS> 1,547,000
<OTHER-EXPENSES> 111,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,832,600
<INCOME-PRETAX> 4,853,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,853,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,853,500
<EPS-BASIC> 3.17
<EPS-DILUTED> 3.17
</TABLE>
