ITEM 1. BUSINESS - ------- --------
The registrant, First Capital Income and Growth Fund-Series XII (the "Partnership") is a limited partnership organized in 1987 under the Revised Uniform Limited Partnership Act of the State of Illinois. The Partnership sold 1,000,000 Limited Partnership Assignee Units (the "Units") to the public from May 1987 to November 1988, pursuant to a Registration Statement on Form S-11 filed with the Securities and Exchange Commission (Registration No. 33-12269). Capitalized terms used in this report have the same meaning as those terms have in the Partnership's Registration Statement.
The business of the Partnership is to invest primarily in existing, income- producing real estate, such as shopping centers, office buildings, apartments, warehouses, or any one or more of these categories. From November 1987 to March 1991, the Partnership: 1) made three real property investments; 2) purchased 50% interests in three joint ventures, a 75% interest in one joint venture and a 25% interest in a separate joint venture which were each formed with Affiliated partnerships for the purpose of acquiring a 100% interest in certain real property and 3) purchased 50% interests in four separate joint ventures which were each formed with Affiliated partnerships for the purpose of acquiring a preferred majority interest in certain real property. All of these joint ventures, prior to dissolution, are operated under the common control of First Capital Financial Corporation (the "General Partner"). Through December 31, 1998 the Partnership, with its respective joint venture partners, has dissolved as a result of the property sale and/or disposition: 1) the 75% interest, the 25% interest and two of the 50% interests in joint ventures that had 100% interests in real property; 2) all four 50% joint ventures that had preferred majority interests in real property and 3) two real property investments.
Property management services for the Partnership's office building is provided by an Affiliate of the General Partner and for its shopping center by a third- party property management company for fees calculated as a percentage of gross rents received from each of the Partnership's properties.
The real estate business is highly competitive. The results of operations of the Partnership will depend upon the availability of suitable tenants, real estate market conditions and general economic conditions which may impact the success of these tenants. Properties owned by the Partnership frequently compete for tenants with similar properties owned by others.
As of March 1, 1999, there was one employee at the Partnership's properties for on-site property maintenance and administration.
ITEM 2.
ITEM 2. PROPERTIES (a)(b) - ------- -----------------
As of December 31, 1998, the Partnership owned directly or through a joint venture, the following two properties, which were owned in fee simple and, were encumbered by mortgages. For details of the significant terms of the mortgages, refer to Note 4 of Notes to Financial Statements.
(a) For a discussion of significant operating results and major capital expenditures planned for the Partnership's properties refer to Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 2. PROPERTIES (a)(b) (Continued) - ------- -----------------
(b) For federal income tax purposes, the Partnership depreciates the portion of the acquisition costs of its properties allocable to real property (exclusive of land), and all improvements thereafter, over useful lives of 40 years utilizing the straight-line method. The Partnership's portion of real estate taxes for Deerfield Mall and Prentice Plaza was $743,800 and $233,100, respectively, for the year ended December 31, 1998. In the opinion of the General Partner, all of the Partnership's properties are adequately insured and serviced by all necessary utilities.
(c) Represents the total number of tenants as well as the number of tenants, in parenthesis, that individually occupy more than 10% of the net leasable square footage of the property.
The following table presents each of the Partnership's properties' occupancy rates as of December 31 for each of the last five years:
The amounts in the following table represent each of the Partnership properties' average annual rental rate per square foot for each of the last five years ended December 31 and were computed by dividing each property's base rental revenues by its average occupied square footage:
The following table summarizes the principal provisions of the leases for each of the tenants which occupy ten percent or more of the rentable square footage at each of the Partnership's properties:
ITEM 2. PROPERTIES (Continued) - ------ ----------
(a) The Partnership's share of per annum base rents for each of the tenants listed above for each of the years between 1999 and the final twelve months for each of the above leases is no lesser or greater than the amounts listed in the above table.
The amounts in the following table represent the Partnership's portion of base rental income from leases in the year of expiration (assuming no lease renewals) through the year ending December 31, 2008:
(a) Represents the Partnership's portion of base rents to be collected each calendar year on expiring leases.
(b) Represents the Partnership's portion of base rents to be collected each year on expiring leases as a percentage of the Partnership's portion of the total base rents to be collected on leases in effect as of December 31, 1998.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - ------- -----------------
(a & b) The Partnership and its properties were not a party to, nor the subject of, any material pending legal proceedings, nor were any such proceedings terminated during the quarter ended December 31, 1998. Ordinary routine legal matters incidental to the business which were not deemed material were pursued during the quarter ended December 31, 1998.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- ---------------------------------------------------
(a, b, c & d) None.
PART III
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS - ------- ----------------------------------------------------------------------
There has not been, nor is there expected to be, a public market for Units.
As of March 1, 1999, there were 6,533 Holders of Units.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(a) Distributions to Limited Partners per Unit for the year ended December 31, 1998, are comprised of Sales Proceeds. (b) For the purposes of this table, return of capital represents either: the amount by which distributions, if any, exceed net income each respective year or; total distributions, if any, in years when the Partnership incurs a net loss. Pursuant to the Partnership Agreement, Capital Investment is only reduced by distributions of Sale or Refinancing Proceeds. Accordingly, return of capital as used in the above table does not impact Capital Investment.
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 generally accepted accounting principles ("GAAP"):
(a) Cash Flow is defined in the Partnership Agreement as Partnership cash revenues earned from operations (excluding tenant deposits and proceeds from the sale, disposition or financing of any Partnership properties or the refinancing of any Partnership indebtedness), minus all cash expenses incurred (including Operating Expenses, payments of principal and interest on any Partnership indebtedness, and any reserves of revenues from operations deemed reasonably necessary by the General Partner), except depreciation and amortization expenses and capital expenditures and lease acquisition expenditures.
The above selected financial data should be read in conjunction with the financial statements and the related notes appearing on pages A-1 through A-8 in this report and the supplemental schedule on pages A-9 and A-10.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through its life cycle in three phases: (i) the Offering of Units and investment in Properties; (ii) the operation of properties and (iii) the sale or other disposition of properties.
Statements contained in the 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 of the date hereof.
The Partnership commenced the Offering of Units on May 8, 1987 and began operations on June 9, 1987 after reaching the required minimum subscription level. On November 22, 1988, the Offering was Terminated upon the sale of 1,000,000 Units. From November 1987 to March 1991, the Partnership: 1) made three real property investments; 2) purchased 50% interests in three joint ventures, a 75% interest in one joint venture and a 25% interest in a separate joint venture, each of which were formed with Affiliated partnerships for the purpose of acquiring a 100% interest in certain real property and 3) purchased 50% interests in four separate joint ventures, each of which were formed with Affiliated partnerships for the purpose of acquiring a preferred majority interest in certain real property.
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 1993 the Partnership, in addition to being in the operation of properties phase, entered 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. Partnership operating results are generally expected to decline as real property interests are sold or disposed of since the Partnership no longer receives income generated from such real property interests. Through December 31, 1998 the Partnership, with its respective joint venture partners, has dissolved as a result of the property sale and/or disposition: 1) the 75% interest, the 25% interest and two of the 50% interests in joint ventures that had 100% interests in real property; 2) all four 50% interests in joint ventures with preferred majority interests in real property and 3) two real property investments.
OPERATIONS The table below is a recap of certain operating results of each of the Partnership's properties for the years ended December 31, 1998, 1997 and 1996. The discussion following the table should be read in conjunction with the Financial Statements and Notes thereto appearing in this report.
(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) Includes the results of properties sold in 1998, 1997 and 1996. Sold Properties is comprised of the results, exclusive of the gains on sale, of 1800 Sherman Office Building ("1800 Sherman"), Meidinger Tower, Equitable of Iowa Office Building ("Equitable"), Sentry Park West Office Campus ("Sentry West") and Regency Park Shopping Center ("Regency") (see Note 7 of Notes to Financial Statements for additional information).
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31, Net income increased by $8,559,700 for the year ended December 31, 1998 when compared to the year ended December 31, 1997. The increase was primarily due to the 1998 gains recognized on the sales of Meidinger Tower and 1800 Sherman exceeding the 1997 gain recognized on the sale of Regency. The increase was also due to improved operating results at Prentice Plaza and an increase in interest earned on the Partnership's short-term investments. The increase was partially offset by the 1998 absence of the operating results from the Sold Properties.
Net results, exclusive of the Sold Properties, changed from $(282,400) for the year ended December 31, 1997 to $383,600 for the year ended December 31, 1998. The change was primarily due to the increase in interest earned
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
on the Partnership's short-term investments and improved operating results at Deerfield Mall and Prentice Plaza. The increase in interest income was primarily the result of the availability of proceeds generated from the sales of Meidinger Tower and 1800 Sherman prior to distribution to Limited Partners.
The following comparative discussion excludes the operating results of the Sold Properties.
Rental revenues increased by $332,000 or 6.3% for the year ended December 31, 1998 when compared to the year ended December 31, 1997. The increase was primarily due to an increase in base rental income at Prentice Plaza, which was due to an increase in rates charged to new and renewing tenants. The increase was also due to an increase in tenant expense reimbursements for real estate taxes at Deerfield Mall and Prentice Plaza. The increase in tenant reimbursements at Deerfield Mall was due to a 1998 adjustment of estimated 1997 billings to actual. The increase in tenant reimbursements at Prentice Plaza was due to 1997 tenant expense reimbursement income being reduced due to credits issued to tenants in 1997 for 1996 activity.
Interest expense on the Partnership's mortgage loans decreased by $47,000 for the year ended December 31, 1998 when compared to the year ended December 31, 1997. The decrease was primarily due to the effects of principal payments made during the past 24 months on the mortgage loan collateralized by Deerfield Mall.
Repair and maintenance expenses decreased by $39,500 for the year ended December 31, 1998 when compared to the year ended December 31, 1997. During 1998 the onsite janitor at Deerfield Mall was replaced by a contracted service provider, which reduced expense. Also contributing to the decrease was a reduction in ordinary repairs to the elevator and HVAC at Prentice Plaza.
Real estate taxes increased by $7,200 for the year ended December 31, 1998 when compared to the year ended December 31, 1997. The increase was primarily the result of an increase in real estate taxes at Deerfield, which was due to an increased assessment from the taxing authority. The increase was partially offset by a decrease in real estate taxes at Prentice Plaza, which was due to an overestimate of 1997 taxes payable in 1998.
Property operating expenses increased by $125,000 for the year ended December 31, 1998 when compared to the year ended December 31, 1997. The increase was primarily due to an increase in legal fees at Deerfield Mall, which was due to an increase in tenant related issues. The increase was also due to a greater portion of leasing related expenditures at Deerfield Mall being chargeable to expense in 1998 than in 1997.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, Net income decreased by $1,115,900 for the year ended December 31, 1997 when compared to the year ended December 31, 1996. The decrease was primarily due to the absence of operating results from Sentry West and Equitable due to their 1996 sales. Also contributing to the decrease was diminished operating results at Deerfield Mall and Prentice Plaza and the smaller gain recorded on the 1997 property sale when compared to the 1996 property sales. Partially offsetting the decrease was improved operating results at Meidinger Tower and 1800 Sherman and an increase in interest income earned on the Partnership's short-term investments due to the proceeds from Certain of the Sold Properties being available for investment. The improved operating results at Meidinger Tower was primarily the result of the classification of Meidinger Tower as "Held of Disposition" as of October 1, 1997 which precluded the Partnership from recording provisions for deprecation or amortization on the property.
Net income, exclusive of gains on the sales and the results of operations of the Sold Properties, increased by $177,200 for the year ended December 31, 1997 when compared to the year ended December 31, 1996. The increase was primarily due to the improved operating results at Meidinger Tower and 1800 Sherman and the increase in interest income, as previously discussed. Also contributing to the increase was a decrease in general and administrative expenses for accounting services and salaries. The increase was partially offset by diminished operating results at Deerfield Mall and Prentice Plaza.
The following comparative discussion includes only the results of the Partnership's four remaining properties as of December 31, 1997.
Rental revenues decreased by $118,500 or 1% for the year ended December 31, 1997 when compared to the year ended December 31, 1996. The decrease was primarily due to a decrease in base rental income at Deerfield Mall due to a decline in the average occupancy. Also contributing to the decrease was a decrease in tenant expense reimbursements at Prentice Plaza resulting from a refund received in 1997 for 1996 real estate taxes reducing amounts due from tenants. Partially offsetting the decrease was an increase in base rental income at 1800 Sherman due to an increase in rates charged new and renewing tenants and the 1997 receipt as consideration for the early termination of a portion of a tenant's lease at Prentice Plaza.
Interest expense on the Partnership's mortgage loans increased by $69,600 for the year ended December 31, 1997 when compared to the year ended December 31, 1996. The increase was primarily due to an increase in the average interest rate charged on the mortgage loan collateralized by Meidinger Tower. Partially offsetting the increase was the effects of principal payments made during the past 24 months on the Partnership's mortgage loans.
Depreciation and amortization expense decreased by $322,400 for the year ended December 31, 1997 when compared to the year ended December 31, 1996. The decrease was primarily due to the effect of the classification of Meidinger Tower as "Held for Disposition" as of October 1, 1997.
Real estate tax expense increased by $128,900 for the year ended December 31, 1997 when compared with the year ended December 31, 1996. The increase was primarily due to a reassessment of property values at Prentice Plaza and 1800 Sherman by the taxing authorities.
Repair and maintenance expenses increased by $119,100 for the year ended December 31, 1997 when compared to the year ended December 31, 1996. The increase was primarily due to an increase in repairs to the HVAC system and the elevators at Meidinger Tower.
Property operating expenses decreased by $91,200 for the year ended December 31, 1997 when compared to the year ended December 31, 1996. The decrease was primarily due to decreases in utility costs at Meidinger Tower and Prentice Plaza and a decrease in security costs at Deerfield Mall.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
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 building brochures; 2) early renewal of existing tenant 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.
The rate of inflation has remained relatively stable during the years under comparison and has had a minimal impact on the operating results of the Partnership. The nature of various tenant lease clauses protects the Partnership, to some extent, from increases in the rate of inflation. Certain of the lease clauses provide for the following: (1) annual rent increases based on the Consumer Price Index or graduated rental increases; (2) percentage rentals at shopping centers, for which the Partnership receives as additional rent a percentage of a tenant's sales over predetermined amounts and (3) total or partial tenant reimbursement of property operating expenses (e.g., common area maintenance, real estate taxes, etc.).
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 properties. Cash Flow (as defined in the Partnership Agreement) is generally not equal to net income or cash flows as determined by 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 second table in Select Financial Data 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 Flows.
The increase in Cash Flow (as defined in the Partnership Agreement) of $515,000 for the year ended December 31, 1998 when compared to the year ended December 31, 1997 was primarily due to reduced scheduled principal payments on the Partnership's mortgage loans, primarily resulting from the payoff of the Meidinger Tower loan in April 1998. In addition, the increase was due to increased interest income and improved operating results at the Partnership's properties, exclusive of gains on sales, depreciation and amortization, as previously discussed.
The net increase in the Partnership's cash position of $4,825,500 for the year December 31, 1998 was primarily the result of the maturity of investments in debt securities and net cash provided by operating activities exceeding principal amortization payments and expenditures made for capital and tenant improvements and leasing costs. The proceeds received from the sales of Meidinger Tower and 1800 Sherman were used to repay mortgage debt with the remainder distributed to Limited Partners. Liquid assets of the Partnership as of December 31, 1998 were comprised of amounts held for working capital purposes.
Net cash provided by operating activities decreased by $521,300 for the year ended December 31, 1998 when compared to the year ended December 31, 1997. The decrease was primarily the result of the satisfaction of all trade liabilities in connection with the sale of 1800 Sherman. The decrease was partially offset by the increase in net income, exclusive of gains on sales, depreciation and amortization, as previously discussed.
Net cash provided by investing activities increased by $38,056,600 for the year ended December 31, 1998 when compared to the year ended December 31, 1997. The increase was primarily due to the cash generated from the 1998 sales of Meidinger Tower and 1800 Sherman exceeding the cash generated by the 1997 sale of Regency. Also contributing to the increase was the maturity of investments in debt securities. Investments in debt securities are the result of the extension of the maturities of certain of the Partnership's short-term investments in an effort to maximize the return on these amounts while they are held for working capital purposes and distribution to Partners. These investments were of investment-grade and matured 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 year ended December 31, 1998, the Partnership spent $304,300 for these items and has budgeted to spend approximately $550,000 during 1999. Included in this budgeted amount are capital and tenant improvements and leasing costs of approximately $375,000 for Deerfield Mall and $175,000 for Prentice Plaza. The amounts budgeted 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 any of the properties and other market conditions throughout the year. The General Partner believes that these improvements and leasing costs are necessary in order to increase and/or maintain occupancy levels in very competitive markets, maximize rental rates charged to new and renewing tenants and to prepare the remaining properties for eventual disposition.
On April 1, 1998, the Partnership consummated the sale of Meidinger Tower. Net proceeds from this transaction were $6,190,300, which was net of closing expenses and the repayment of the mortgage loan collateralized by the property. In connection with this transaction, the Partnership distributed $6,126,500 or $6.45 per Unit on August 31,1998 to Limited Partners of record as of April 1, 1998.
On August 6, 1998, a joint venture in which the Partnership owns a 50% interest consummated the sale of 1800 Sherman. The Partnership's share of net proceeds from this transaction were $7,284,000, which was net of closing expenses. The joint venture was required to place $500,000 of the proceeds from this transaction into an interest bearing account for a nine-month period. The escrowed funds are intended to cover potential claims asserted by the purchaser arising from representations or warranties made by the joint venture. The Partnership distributed $7,171,300 or $7.55 per
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
Unit on November 30, 1998 to Limited Partners of record as of August 6, 1998.
The increase in net cash used for financing activities of $30,688,600 for the year ended December 31, 1998 when compared to the year ended December 31, 1997 was primarily the result of the repayment of the mortgage loan in conjunction with the 1998 sale of Meidinger Tower exceeding the repayment of the mortgage loan in conjunction with the 1997 sale of Regency. The increase was also due to the distribution of proceeds to Limited Partners from the sales of Meidinger Tower and 1800 Sherman.
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 December 31, 1998, 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 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.
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 above, 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, with the exception of the distributions of Sales Proceeds, 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 year ended December 31, 1998, Cash Flow (as defined in the Partnership Agreement) of $1,604,100 was retained to supplement working capital reserves. The General Partner continues to review other sources of cash available to the Partnership.
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 substantially less than such Limited Partners' Original Capital Contribution.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 December 31, 1998, for every 1% change in interest rates, the Partnership's annual interest expense would change by $47,500.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
The response to this item is submitted as a separate section of this report. See page A-1 "Index of Financial Statements, Schedule and Exhibits."
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE - --------------------
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- --------------------------------------------------
(a) & (e) DIRECTORS ---------
The Partnership has no directors. First Capital Financial Corporation ("FCFC") is the General Partner. The directors of FCFC, as of March 31, 1999, are shown in the table below. Directors serve for one year or until their successors are elected. The next annual meeting of FCFC will be held in June 1999.
Name Office ---- ------
Douglas Crocker II................................... Director Sheli Z. Rosenberg................................... Director
Douglas Crocker II, 58, has been President and Chief Executive Officer since December 1992 and a Director since January 1993 of the General Partner. Mr. Crocker has been President, Chief Executive Officer and trustee of Equity Residential Properties Trust since March 31, 1993. Mr. Crocker is a member of the Board of Directors of Wellsford Real Properties Inc. and Ventas Inc. and was a member of the Board of Directors of Horizon Group, Inc. from July 1996 to June 1998. Mr. Crocker was an Executive Vice President of Equity Financial and Management Company ("EFMC") from November 1992 until March 1997.
Sheli Z. Rosenberg, 57, was President and Chief Executive Officer of the General Partner from December 1990 to December 1992 and has been a Director of the General Partner since September 1983; was Executive Vice President and General Counsel for EFMC from October 1980 to November 1994; has been President and Chief Executive Officer of Equity Group Investments, LLC ("EGI") since November 1994; has been a Director of Great American Management and Investment Inc. ("Great American") since June 1984 and is a director of various subsidiaries of Great American. She is also a director of Anixter International Inc., Capital Trust Inc., CVS Corporation, Illinova Corporation, Illinois Power Co., Jacor Communications, Inc. and Manufactured Home Communities, Inc. She is also a trustee of Equity Residential Properties Trust and Equity Office Properties Trust. Ms. Rosenberg was a Principal of Rosenberg & Liebentritt, P.C., counsel to the Partnership, the General Partner and certain of their Affiliates from 1980 until September 1997. She had been Vice President of First Capital Benefit Administrators, Inc. ("Benefit Administrators") since July 22, 1987 until its liquidation in November 1995. Benefit Administrators filed for protection under the Federal Bankruptcy laws on January 3, 1995.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued) - -------- --------------------------------------------------
(b) & (e) EXECUTIVE OFFICERS ------------------
The Partnership does not have any executive officers. The executive officers of the General Partner as of March 31, 1999 are shown in the table. All officers are elected to serve for one year or until their successors are elected and qualified.
Name Office ---- ------
Douglas Crocker II......................President and Chief Executive Officer Donald J. Liebentritt...................Vice President Norman M. Field.........................Vice President - Finance and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
Donald J. Liebentritt, 48, has been Vice President of the General Partner since July 1997 and is Chief Operating Officer and General Counsel of EGI, Vice President and Assistant Secretary of Great American and Principal and Chairman of the Board of Rosenberg & Liebentritt, P.C.
Norman M. Field, 50, has been Vice President of Finance and Treasurer of the General Partner since February 1984, and also served as Vice President of Great American from July 1983 until March 1995 and from July 1997 to the present. Mr. Field had been Treasurer of Benefit Administrators since July 22, 1987 until its liquidation in November 1995. He was Chief Financial Officer of Equality Specialties, Inc. ("Equality"), a subsidiary of Great American, from August 1994 to April 1995.
(d) FAMILY RELATIONSHIPS --------------------
There are no family relationships among any of the foregoing directors and officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS ----------------------------------------
With the exception of the bankruptcy matter disclosed under Items 10 (a), (b) and (e), there are no involvements in certain legal proceedings among any of the foregoing directors and officers.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - -------- ----------------------
(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors. Neither the General Partner, nor any director or officer of the General Partner, received any direct remuneration from the Partnership during the year ended December 31, 1998. However, the General Partner and its Affiliates do compensate its directors and officers.
For additional information see Item 13 Certain Relationships and Related Transactions.
(e) None.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- --------------------------------------------------------------
(a) As of March 1, 1999, no person of record owned or was known by the Partnership to own beneficially more than 5% of the Partnership's 949,843 Units then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1, 1999, the executive officers and directors of the General Partner, as a group, did not own any Units.
(c) None.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------
(a) Affiliates of the General Partner provide leasing, supervisory and property management services to the Partnership. Compensation for these property management services may not exceed 6% of the gross receipts from the property being managed where the General Partner or Affiliates provide leasing, re-leasing and leasing-related services, or 3% of gross receipts where the General Partner or Affiliates do not perform leasing, re-leasing and leasing-related services for a particular property. For the year ended December 31, 1998, these Affiliates were entitled to leasing, property management and supervisory fees of $189,700, of which $9,200 was due from Affiliates as of December 31, 1998. Other Affiliates of the General Partner were also entitled to $92,700 for fees, compensation and reimbursements for insurance and personnel service fees. Compensation for these services are on terms which are fair, reasonable and no less favorable to the Partnership than reasonably could be obtained from unaffiliated persons. Of these amounts, $4,900 was due to Affiliates as of December 31, 1998.
In addition to the principal balance, the Partnership is also obligated to an Affiliate for interest incurred on the Front-End Fees Loan. The Affiliate was entitled to $1,037,700 in interest for the year ended December 31, 1998. In accordance with the Partnership Agreement, neither the General Partner nor its Affiliates shall lend money to the Partnership with interest rates and other finance charges and fees in excess of the lesser of the amounts that are charged by unrelated lending institutions for comparable loans for the same purpose in the same locality or 2% above the prime rate of interest charged by Chase Manhattan Bank.
Pursuant to a modification of the Partnership's Front-End Fees Loan, the Partnership has the option to defer payment of interest on this loan for a 81-month period beginning April 1, 1993. All deferred amounts shall be due and payable on January 1, 2000, and shall not be subordinated to repayment to the Limited Partners of their Original Capital Contribution. As of December 31, 1998, the Partnership had not exercised its option to defer the payment of interest on this loan.
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
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued) - -------- ----------------------------------------------
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 year ended December 31, 1998, in conjunction with the suspension of distributions of Cash Flow (as defined in the Partnership Agreement) to Limited Partners, the General Partner was not paid a Portfolio Management Fee.
In accordance with the Partnership Agreement, Net Profits and Net Losses (exclusive of Net Profits and Net Losses from a Major Capital Event) are allocated 1% to the General Partner and 99% to the Limited Partners as a group. Net Losses from a Major Capital Event are allocated: first, prior to giving effect to any distributions of Sale or Refinancing Proceeds from the transaction, to the General Partner and Limited Partners with positive balances in their Capital Accounts, in proportion to and to the extent of such positive balances; and second, the balance, if any, 1% to the General Partner and 99% to the Limited Partners as a group. Net Profits from a Major Capital Event are allocated: first, prior to giving effect to any distributions of Sale or Refinancing Proceeds from the 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 year ended December 31, 1998, the General Partner was allocated Net Profits of $518,600 which included $508,500 of gain from the sales of Partnership properties.
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 year ended December 31, 1998, the Partnership's 50% share of ANTEC's rent and related payments amounted to $177,800. The per square foot rent paid by ANTEC is comparable to that paid by other tenants at Prentice Plaza.
Manufactured Homes Communities, Inc. ("MHC"), a real estate investment trust which is in the business of owning and operating mobile home communities, an Affiliate of the General Partner, is obligated to the Partnership under a lease of office space at Prentice Plaza. During the year ended December 31, 1998, the Partnership's 50% share of MHC's rent amounted to $39,000. The per square foot rent paid by MHC is comparable to that paid by other tenants at Prentice Plaza.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the Partnership, the General Partner and certain of their Affiliates. Donald J. Liebentritt, Vice President, is a Principal and Chairman of the Board of Rosenberg. For the year ended December 31, 1998, Rosenberg was entitled to $139,100 for legal fees from the Partnership. Compensation for these services are on terms which are fair, reasonable and no less favorable to the Partnership than reasonably could be obtained from unaffiliated persons. As of December 31, 1998 the Partnership owed $2,200 to Rosenberg.
(c) No management person is indebted to the Partnership.
(d) None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------- ----------------------------------------------------------------
(a,c & d) See Index of Financial Statements, Schedule and Exhibits on page A-1 of Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter ended December 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 26, 1999 By: /s/ DOUGLAS CROCKER II -------------- ----------------------------------------- DOUGLAS CROCKER II President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
All other schedules have been omitted as inapplicable, or for the reason that the required information is shown in the financial statements or notes thereto.
EXHIBITS FILED AS PART OF THIS REPORT
EXHIBITS (3 & 4) First Amended and Restated Certificate and Agreement of Limited Partnership as set forth on pages A-1 through A-37 of the Partnership's definitive Prospectus dated May 8, 1987; Registration Statement No. 33-12269, filed pursuant to Rule 424 (b), is incorporated herein by reference.
EXHIBIT (10) Material Contracts - ------------
Real Estate Sale Agreement for the sale of the Partnership's investment in Meidinger Tower filed as an exhibit to the Partnership's Report on Form 8-K dated April 14, 1998 is incorporated herein by reference.
Real Estate Sale Agreement for the sale of the Partnership's investment in 1800 Sherman Office Building filed as an exhibit to the Partnership's Report on Form 8-K dated August 21, 1998 is incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders - ------------
The 1997 Annual Report to Limited Partners is being sent under separate cover, not as a filed document and not via EDGAR, for the information of the commission.
EXHIBIT (27) Financial Data Schedule - ------------
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REPORT OF INDEPENDENT AUDITORS
Partners First Capital Income and Growth Fund - Series XII Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Income and Growth Fund - Series XII, A Real Estate Limited Partnership, as of December 31, 1998 and 1997, and the related statements of income and expenses, partners' capital and cash flows for each of the three years in the period ended December 31, 1998. Our audit also included the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Capital Income and Growth Fund - Series XII, A Real Estate Limited Partnership at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois February 26, 1999
BALANCE SHEETS December 31, 1998 and 1997 (All dollars rounded to nearest 00s)
STATEMENTS OF PARTNERS' CAPITAL For the years ended December 31, 1998, 1997 and 1996 (All dollars rounded to nearest 00s)
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF INCOME AND EXPENSES For the years ended December 31, 1998, 1997 and 1996 (All dollars rounded to nearest 00s except per Unit amounts)
STATEMENTS OF CASH FLOWS For the years ended December 31, 1998, 1997 and 1996 (All dollars rounded to nearest 00s)
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS December 31, 1998
1. ORGANIZATION AND 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 Certificate and Agreement of Limited Partnership, which is included in the Registration Statement and incorporated herein by reference.
ORGANIZATION: The Partnership was formed on February 24, 1987, by the filing of a Certificate and Agreement of Limited Partnership with the Recorder of Deeds of Cook County, Illinois, and commenced the Offering of Units on May 8, 1987. The Certificate and Agreement, as amended and restated, authorized the sale to the public of 500,000 Units (with the General Partner's option to increase to 1,000,000 Units) and not less than 14,000 Units pursuant to the Prospectus. On June 9, 1987, the required minimum subscription level was reached and the Partnership's operations commenced. The General Partner exercised its option to increase the Offering to 1,000,000 Units, which amount was sold prior to the Termination of the Offering in November 1988. The Partnership was formed to invest primarily in existing, improved, income-producing real estate.
In 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", which was effective for fiscal years beginning after December 15, 1997. This statement establishes standards for the way that public business enterprises report information about operating segments and major customers in their annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports in the second year of application. 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 adoption of Statement 131 did not affect the results of operations or financial position. The Partnership has one tenant who occupies 15% of the Partnership's rentable space.
The Partnership Agreement provides that the Partnership will be dissolved on or before December 31, 2017. The Limited Partners, by a majority vote, may dissolve the Partnership at any time.
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 statements include the Partnership's 50% interest in three joint ventures and its 25% interest in another joint venture with Affiliated partnerships. Two of the 50% joint ventures and the 25% joint venture were formed for the purpose of each acquiring a 100% interest in certain real property and one of the 50% joint ventures was formed for the purpose of acquiring a preferred majority 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 is included in the financial statements. With the exception of one 50% joint venture, the properties in all joint ventures have been sold and the joint ventures dissolved.
The Partnership is not liable for federal income taxes as the Partners recognize their proportionate share of the Partnership income or loss in their individual tax returns; therefore, no provision for federal income taxes is made in the financial statements of the Partnership. In addition, it is not practicable for the Partnership to determine the aggregate tax bases of the individual Partners; therefore, the disclosure of the differences between the tax bases and the reported assets and liabilities of the Partnership would not be meaningful.
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 each respective lease. Repair and maintenance costs are expensed as incurred; expenditures for improvements are capitalized and depreciated over the estimated life of such improvements.
The Partnership evaluates its commercial rental properties for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (undiscounted) from a property is less than its carrying basis. Upon determination that an impairment has occurred, the carrying basis in the rental property is reduced to its estimated fair value. Management was not aware of any indicator that would result in a significant impairment loss during the periods reported.
Loan acquisition costs are amortized over the term of the mortgage loan made in connection with the acquisition of Partnership properties or refinancing of Partnership loans. When a property is disposed of or a loan is refinanced, the related loan acquisition costs and accumulated amortization are removed from the respective accounts and any unamortized balance is charged to expense.
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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 gain or loss on sale is 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 are classified as held-to-maturity. These investments are carried at their amortized cost basis in the financial statements, which approximated fair market value. These securities generally mature less than one year from their date purchase.
The Partnership's financial statements include financial instruments, including receivables, escrow deposits, restricted cash, trade liabilities and mortgage debt. The Partnership considers the disclosure of the fair value of its mortgage debt to be impracticable due to the general illiquid nature of the real estate financing market and an inability to obtain comparable financing on certain properties. The fair value of all other financial instruments, including cash and cash equivalents, was not materially different from their carrying value at December 31, 1998 and 1997.
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 years ended December 31, 1998, 1997 and 1996, 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 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 year ended December 31, 1998, the General Partner was allocated a Net Profit of $518,600 which included a net gain of $508,500 from the sale of Partnership properties. For the year ended December 31, 1997, the General Partner was allocated a Net Profit of $10,400, which included a net gain of $8,500 from the sale of a Partnership property. For the year ended December 31, 1996, the General Partner was allocated a Net Profit of $21,600, which included a gain of $9,800 from the sale of two Partnership properties.
Fees and reimbursements paid and payable/(receivable) by the Partnership to Affiliates were as follows:
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 years ended December 31, 1998, 1997 and 1996 the Partnership's 50% share of ANTEC's rent and reimbursement of expenses amounted to $177,800, $137,000 and $293,400, respectively. 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 mobile home communities, an Affiliate of the General Partner, is obligated to the Partnership under a lease of office
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space at Prentice Plaza. During the years ended December 31, 1998, 1997 and 1996 the Partnership's 50% share of MHC's rent amounted to $39,000, $21,800 and $29,800, respectively. 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 an Affiliate 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 property management groups are entitled to leasing fees equal to 3% of gross rents received, reduced by leasing fees, if any, paid to third parties.
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. 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 December 31, 1998, the Partnership had drawn $13,434,400 under the Front- End Fees Loan agreement, which is the full amount available pursuant to the loan's terms. 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 year ended December 31, 1998 was 7.72%. As of December 31, 1998, the interest rate was 7.63%.
Pursuant to a modification of this loan agreement, the Partnership has the option to defer payment of interest on this loan for 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 subordinated to payment of Original Capital Contributions to Limited Partners. As of December 31, 1998, the Partnership had not exercised its option to defer the payment of interest on this loan.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at December 31, 1998 and 1997, consisted of the following loans which are non-recourse:
(a) The average interest rate represents an average for the year ended December 31, 1998. Interest rates are subject to change in accordance with the provisions of the loan agreement for Prentice Plaza. As of December 31, 1998, the interest rate on the loan collateralized by Prentice Plaza was 7.43%. (b) Represents level monthly principal and interest payments. (c) These repayments may require either sale or refinancing of the respective property. (d) In addition to monthly interest, monthly principal payments of $3,960 and $4,305 are required beginning on January 1, 1999 and 2000, respectively. (e) The Partnership, repaid the mortgage collateralized by Meidinger Tower with a portion of the proceeds generated from its sale (see Note 7 for additional information).
Principal amortization of mortgage loans payable for the duration of the loans as of December 31, 1998 was as follows:
5. FUTURE MINIMUM RENTALS:
The Partnership's share of future minimum rental income due on noncancelable leases as of December 31, 1998 was as follows:
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The Partnership is subject to the usual business risks associated with the collection of the above-scheduled rentals. In addition to the amounts scheduled above, the Partnership expects to receive rental revenue from operating expense reimbursements and percentage rents. Percentage rents earned for the years ended December 31, 1998, 1997 and 1996 were $33,200, $29,400 and $147,400, respectively.
6. INCOME TAX:
The Partnership utilizes the accrual method of accounting for both income tax reporting and financial statement purposes. Financial statement results will differ from income tax results due to the use of differing depreciation lives and methods, the recognition of rents received in advance as taxable income and the Partnership's provisions for value impairment. For federal income tax reporting purposes, the Partnership reported a (loss) of $(6,489,100) for the year ended December 31, 1998. The aggregate cost of commercial rental properties for federal income tax purposes at December 31, 1998 was $52,483,400.
7. PROPERTY SALES:
On August 6, 1998, a joint venture in which the Partnership owned a 50% interest, consummated the sale of 1800 Sherman Office Building for a sale price of $15,050,000. The Partnership's share of net proceeds from this transaction was $7,284,000, which was net of closing expenses. The Partnership recorded a gain of $1,626,900 for the year ended December 31, 1998 and distributed $7,171,300 or $7.55 per Unit on November 30, 1998 to Limited Partners of record as of August 6, 1998. In accordance with the contract to sell the property, the joint venture placed $500,000 of the proceeds from this sale in an interest bearing escrow account for a nine-month period. The funds placed into escrow are intended to cover potential claims asserted by the purchaser arising from the representations and warranties made by the joint venture. For income tax reporting purposes, the Partnership reported a gain of $216,700 for the year ended December 31, 1998.
On April 1, 1998, the Partnership consummated the sale of Meidinger Tower for a sale price of $28,450,000. Net proceeds from this transaction amounted to $6,190,300, which was net of closing expenses and the repayment of the mortgage loan encumbering the property. The Partnership recorded a gain of $6,957,600 for the year ended December 31, 1998 and distributed $6,126,500 or $6.45 per Unit on August 31, 1998 to Limited Partners of record as of April 1, 1998. For income tax reporting purposes the Partnership reported a (loss) of $(7,134,000) for the year ended December 31, 1998.
On June 16, 1997, the joint venture in which the Partnership owned a 25% interest, completed the sale of Regency, for a sale price of $19,325,000. The Partnership's share of proceeds from this transaction was $867,900, which was net of closing expenses and the repayment of the mortgage loan encumbering the property. The Partnership recorded a gain of $799,400 in connection with this sale. Net proceeds received from this transaction were retained to supplement working capital reserves. For income tax reporting purposes the Partnership reported a (loss) of $(2,308,900) for the year ended December 31, 1997.
On October 16, 1996, the Partnership consummated the sale of Equitable for a price of $7,000,000. Proceeds from this transaction approximated $520,000, which was net of selling expenses and the repayment of the mortgage loan collateralized by Equitable. During 1996, the Partnership recorded a net gain of $160,200 for financial statement purposes in connection with this sale. For income tax reporting purposes, the Partnership reported a (loss) of $(7,742,500) for the year ended December 31, 1996 in connection with this sale. For the year ended December 31, 1997, the Partnership recorded a gain of $46,100 for financial statement reporting purposes in connection with an overaccrual of legal fees.
On August 28, 1996, the joint venture, which owned Sentry West, consummated the sale of Sentry West for a sale price of $11,650,000. The Partnership's 50% share of the proceeds from this transaction, which was net of selling expenses and the repayment of the mortgage loan on Sentry West was approximately $894,000 and was retained to supplement working capital. The net gain reported by the Partnership for financial statement purposes was $816,100. For income tax purposes, the Partnership reported a (loss) of $(4,762,500) for the year ended December 31, 1996 in connection with this sale.
All of the above sales, with the exception of post sale matters, were all-cash transactions, with no further involvement on the part of the Partnership.
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FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
See accompanying notes on the following page.
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FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII
NOTES TO SCHEDULE III
Note 1. Consists of legal fees, appraisal fees, title costs and other related professional fees. Note 2. The following is a reconciliation of activity in columns E and F.
Note 3. The aggregate cost for federal income tax purposes as of December 31, 1998 was $52,843,400 Note 4. Includes provisions for value impairment cumulatively totalling $8,800,000 for Deerfield Mall. Note 5. Estimated useful life for building in years. Note 6. Estimated useful life for improvements in years.