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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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 0-15538
First Capital Income Properties, Ltd.--Series XI
(Exact name of registrant as specified in its charter)
Illinois 36-3364279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, 60606-2607
Suite 700, (Zip Code)
Chicago, Illinois
(Address of principal executive offices)
Registrant's telephone number, including area code: (312) 207-0020
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Assignee Units
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated September 12, 1985,
included in the Registrant's Registration Statement on Form S-11 (Registration
No. 2-98749), is incorporated herein by reference in Part IV of this report.
Exhibit Index--Page A-1
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PART I
ITEM 1. BUSINESS
The registrant, First Capital Income Properties, Ltd.--Series XI (the
"Partnership"), is a limited partnership organized in 1985 under the Uniform
Limited Partnership Act of the State of Illinois. The Partnership sold 57,621
Limited Partnership Assignee Units (the "Units") to the public from September
1985 to March 1987 pursuant to a Registration Statement on Form S-11 filed with
the Securities and Exchange Commission (Registration Statement No. 2-98749).
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement.
The Partnership was formed to invest primarily in existing commercial
income-producing real estate, such as shopping centers, warehouses and office
buildings, and, to a lesser extent, in other types of commercial,
income-producing real estate. From May 1986 to September 1989, the Partnership:
1) made one real property investment; 2) purchased 50% interests in four joint
ventures which were each formed with Affiliated partnerships for the purpose of
acquiring a 100% interest in certain real property; 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 and 4) purchased a 70% preferred majority undivided
interest in a joint venture with an unaffiliated third party that was formed
for the purpose of acquiring certain real property. The joint ventures, prior
to dissolution, were operated under the common control of First Capital
Financial LLC (the "General Partner"). Through December 31, 2001, the
Partnership, with its respective joint venture partners, has dissolved the 70%
preferred majority undivided interest in a joint venture, three 50% joint
ventures and the four joint ventures with 50% preferred majority interests in
real property all as a result of the sales of the real properties. In addition,
the Partnership sold a 50% joint venture interest to an Affiliated partner.
Property management services for the Partnership's remaining real estate
investment is provided by a third-party real estate management company for fees
calculated as a percentage of gross rents received from the property. An
Affiliate of the General Partner provides property supervisory services for the
Partnership's remaining property for fees based on hourly rates.
The real estate business is highly competitive. 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. The property owned by the Partnership frequently competes for
tenants with similar properties owned by others.
As of March 1, 2002, there were 22 employees at the Partnership's property for
on-site property maintenance and administration.
ITEM 2. PROPERTIES (a)(b)
As of December 31, 2001, the Partnership owned the following property, which
was owned in fee simple.
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ---------------------------------- ---------------------- ------------ -----------
Marquette Mall and Office Building Michigan City, Indiana 382,513 72(1)
- ---------------------------------- ---------------------- ------------ -----------
(a)For a discussion of significant operating results and major capital
expenditures planned for Marquette refer to Item 7--Management's Discussion
and Analysis of Financial Condition and Results of Operations.
(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
ranging from 19 years to 40 years, utilizing either the Accelerated Cost
Recovery System ("ACRS") or straight-line method. Marquette Mall and Office
Building's ("Marquette") real estate tax expense was $540,900 for the year
ended December 31, 2001. In the opinion of the General Partner, Marquette is
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 Marquette.
The following table presents Marquette's occupancy rates as of December 31 for
each of the last five years:
Property Name 2001 2000 1999 1998 1997
------------- ---- ---- ---- ---- ----
Marquette 77% 78% 80% 82% 80%
------------- ---- ---- ---- ---- ----
The amounts in the following table represent Marquette's average annual rental
rate per square foot for each of the last five years ended December 31 and were
computed by dividing Marquette's base rental revenues by its average occupied
square footage:
Property Name 2001 2000 1999 1998 1997
------------- ----- ----- ----- ----- -----
Marquette $6.49 $7.25 $6.54 $7.08 $7.17
------------- ----- ----- ----- ----- -----
The following table summarizes the principal provisions of the lease for the
tenant, which occupies ten percent or more of the leasable square footage at
Marquette:
Partnership's per annum
Base Rent (a) for
-----------------------
Final Twelve Expiration Percentage of Net Renewal Options
Months of Date of Leasable Square Footage (Renewal
2002 Lease Lease Occupied Options / Years)
- ------------------------------ --------- ------------- ---------- ----------------------- ----------------
J.C. Penney (department store) $139,000 $139,000 1/31/2003 29% 4 / 5
- ------------------------------ --------- ------------- ---------- ----------------------- ----------------
(a)The Partnership's per annum base rent for the tenant listed above for each
of the years between 2002 and the final twelve months for the above lease is
no lesser or greater than the amounts listed in the above table.
2
ITEM 2. PROPERTIES (Continued)
The amounts in the following table represent the Partnership's base rental
income from leases in the year of expiration (assuming no lease renewals)
through the year ending December 31, 2011:
Base Rents in % of Total
Number of Year of Base Rents
Year Tenants Square Feet Expiration (a) (b)
---- --------- ----------- -------------- ----------
2002 31 29,779 $272,600 15.83 %
2003 8 120,371 $111,400 8.42 %
2004 11 26,468 $228,100 21.93 %
2005 7 28,115 $151,800 20.18 %
2006 1 14,992 $ 62,500 10.59 %
2007 1 81,420 $ 7,400 1.63 %
2008 3 23,652 $297,500 67.99 %
2009 0 None None 0.00 %
2010 2 2,264 $ 29,900 28.88 %
2011 0 None None 0.00 %
---- --------- ----------- -------------- ----------
(a)Represents the amount of base rents to be collected each year on expiring
leases. (Note: Since leases expire at different dates in each year, the
amounts in this column do not purport to include a full year's base rent on
expiring leases).
(b)Represents the amount of base rents to be collected each year on expiring
leases as a percentage of the Partnership's total base rents scheduled to be
collected based on leases in effect as of December 31, 2001.
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, 2001. Ordinary routine legal
matters incidental to the business which was not deemed material, were pursued
during the quarter ended December 31, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a, b, c & d) None.
3
PART II
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, 2002, there were 3,708 Holders of Units.
ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
-----------------------------------------------------------
2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Total revenues $ 4,194,400 $ 4,728,900 $17,001,800 $ 9,134,200 $10,926,100
Net income $ 961,900 $ 1,547,400 $11,067,500 $ 214,100 $ 1,280,900
Net income allocated to Limited Partners $ 952,300 $ 1,531,900 $ 8,925,800 None None
Net income allocated to Limited Partners per
Unit (57,621 Units outstanding) $ 16.53 $ 26.59 $ 154.91 None None
Total assets $17,290,300 $17,913,600 $18,098,300 $36,930,500 $36,756,800
Mortgage loans payable None $ 568,400 $ 1,290,000 $25,646,200 $26,735,900
Front-End Fees loan payable to Affiliate (a) $ 8,295,200 $ 8,295,200 $ 8,295,200 $ 8,295,200 $ 8,295,200
Declared distributions to Limited Partners per
Unit (b) $ 16.00 $ 16.00 $ 95.00 None None
Other data:
Investment in commercial rental properties (net of
accumulated depreciation and amortization) $11,125,500 $10,848,700 $11,174,100 $31,663,000 $32,428,200
Number of real property interests owned at
December 31 1 1 1 3 3
- ---------------------------------------------------------------------------------------------------------------
(a)Excludes deferred interest payable.
(b)Distributions to Limited Partners for the year ended December 31, 1999 were
comprised of Sale Proceeds.
4
ITEM 6. SELECTED FINANCIAL DATA (Continued)
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 accounting principles generally accepted in the United States
("GAAP"):
For the Years Ended December 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Cash Flow (as defined in the Partnership
Agreement) (a) $ 1,189,600 $ 1,570,400 $ 2,977,100 $ 615,700 $ 534,600
Items of reconciliation:
Adjustment for extinguishment of deferred interest
to affilate None None $ (2,257,200) None None
Principal payments on mortgage loans payable (b)... 315,400 468,600 819,500 1,089,700 653,700
Changes in current assets and liabilities:
Decrease (increase) in current assets 289,000 (203,000) 666,000 (130,800) 48,200
(Decrease) increase in current liabilities (66,700) (321,600) (229,800) 380,800 (256,800)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,727,300 $ 1,514,400 $ 1,975,600 $ 1,955,400 $ 979,700
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by investing activities $ (819,900) $ 798,000 $ 32,100,700 $(2,141,600) $ 6,995,100
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used for) financing activities $(1,518,500) $(1,410,500) $(29,669,900) $ (421,200) $(7,580,200)
- ----------------------------------------------------------------------------------------------------------------------
(a)Cash Flow is defined in the Partnership Agreement as Partnership 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 expenses incurred
(including Operating Expenses, payments of principal (other than balloon
payments of principal out of Offering proceeds) 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.
(b)Nonscheduled principal payments of $253,000, $253,000 and $668,000 in 2001,
2000 and 1999, respectively, are excluded.
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--7
in this report and the supplemental schedule on pages A--8 and A--9.
5
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 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.
The Partnership commenced the Offering of Units on September 12, 1985 and began
operations on December 3, 1985 after reaching the required minimum subscription
level. On March 31, 1987, the Offering was Terminated upon the sale of 57,621
Units. From May 1986 to September 1989, the Partnership: 1) made one real
property investment; 2) purchased 50% interests in four joint ventures which
were each formed with Affiliated partnerships for the purpose of acquiring a
100% interest in certain real property; 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
and 4) purchased a 70% preferred majority undivided interest in a joint venture
with an unaffiliated third party that was formed for the purpose of acquiring
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. The
Partnership, in addition to being in the operation of properties phase, is in
the disposition phase of its life cycle. During the disposition phase of the
Partnership's life cycle, comparisons of operating results are complicated due
to the timing and effect of property sales and dispositions. Components of the
Partnership's operating results are generally expected to decline as real
property interests are sold or disposed of since the Partnership no longer
realizes income and incurs expenses from such real property interests.
Cumulatively, through December 31, 2001 the Partnership, with its respective
joint venture partners, has dissolved the 70% preferred majority undivided
interest in a joint venture, three joint ventures with a 50% interest in real
property and the four joint ventures with 50% preferred majority interests in
real property all as a result of the sales of the real properties. In addition,
the Partnership sold a 50% joint venture interest to an Affiliated partner.
Operations
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 2001, 2000 and 1999.
The discussion following the table should be read in conjunction with the
Financial Statements and Notes thereto appearing in this report.
Comparative Operating Results (a)
For the Years Ended December 31,
2001 2000 1999
- --------------- ---------- ----------
Marquette Mall and Office
Building
Rental revenues.......... $3,943,400 $4,305,700 $4,236,600
=============== ========== ==========
Property net income (b).. $ 860,100 $1,279,900 $ 777,200
=============== ========== ==========
Average occupancy........ 78% 79% 82%
=============== ========== ==========
Sold Properties (c)
Rental revenues.......... $ 3,500 $ 10,100 $1,964,200
=============== ========== ==========
Property net income (c).. $ 3,500 $ 11,900 $ 214,400
=============== ========== ==========
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, general and
administrative and state income tax expenses or are related to properties
disposed of by the Partnership prior to the periods under comparison.
b) Property net income for 1999 excludes the gain recorded on the sale of a
land parcel. For further information regarding this sale, see Note 7 of
Notes to Financial Statements.
c) Sold Properties includes the results of Prentice Plaza (sold July 1999) and
Burlington Office Center I, II and III ("Burlington") (sold May 1999),
exclusive of the gains recorded on these sales. For further information
regarding these sales, see Note 7 of Notes to Financial Statements.
Comparison of the year ended December 31, 2001 to the year ended December 31,
2000
Net income decreased by $585,500 for year ended December 31, 2001 when compared
to the year ended December 31, 2000. The decrease was primarily due to the
decrease in operating results at Marquette Mall and Office Building
("Marquette"). The decrease was also due to a decrease in interest earned on
the Partnership's short-term investments, which was due to a decline in the
rates earned on those investments.
The following comparison includes only the results of Marquette.
Rental income decreased by $362,300 or 8.4% for the year ended December 31,
2001 when compared to the year ended December 30, 2000. The decrease was due to
a decline in base rental income at the property. The decline in base rental
income can be attributed to a decrease in occupancy and rates paid by new
tenants.
Interest expense decreased by $52,000 for the year ended December 31, 2001 when
compared to the year ended December 31, 2000. This decrease was due to the
repayment of the mortgage loan collateralized by Marquette Office in 2000 and
the mortgage loan collateralized by Marquette Mall in 2001. As the
Partnership's mortgage loans have been repaid in full there will be no future
interest expense.
Property operating expense increased by $108,300 for the year ended December
31, 2001 when compared to the year ended December 31, 2000. The increase was
primarily due to an increase in utility and salary costs.
All other expenses remained relatively unchanged for the period under
comparison.
Comparison of the year ended December 31, 2000 to the year ended December 31,
1999
Net income decreased by $9,520,100 for the year ended December 31, 2000 when
compared to the year ended December 31, 1999. The decrease was primarily due to
the gains recorded during 1999 on the sales of Partnership properties. The
decrease was partially offset by improved operating results at Marquette and
the 2000 absence of interest expense on the Loan from Affiliate.
Net income, exclusive of properties sold during 1999 and interest expense on
Loan from Affiliate, increased by
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--continued
$794,400 for the year ended December 31, 2000 when compared to the year ended
December 31, 1999. The increase was primarily due to improved operating results
at Marquette. The increase was also due to a decrease in state income tax
expense.
The following comparative discussion includes only the operating results of
Marquette.
Rental revenues increased by $69,100 or 1.6% for the year ended December 31,
2000 when compared to the year ended December 31, 1999. The increase was
primarily due to an increase in reimbursements for common area maintenance
expenses and an increase percentage and base rental income. The increase was
partially offset by the 1999 receipt of consideration for the early termination
of a tenant's lease.
Interest expense decreased by $341,800 for the year ended December 31, 2000
when compared to the year ended December 31, 1999. The decrease was primarily
due to the June 1999 repayment of the junior mortgage loan collateralized by
Marquette and the second quarter 2000 repayment of the mortgage loan
collateralized by Marquette Office Building.
Property operating expenses decreased by $90,800 for the year ended December
31, 2000 when compared to the year ended December 31, 1999. The decrease was
primarily due to a decrease in advertising and marketing expenses together with
a decrease in utility costs.
To increase and/or maintain the occupancy level at the Partnership's remaining
property, the General Partner, through the 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, 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 remaining
property. Cash Flow (as defined in the Partnership Agreement) is generally not
equal to Partnership 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 Selected
Financial Data includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flows provided by operating activities as
determined by GAAP. Such amounts are not indicative of actual distributions to
Partners and should not necessarily be considered as an alternative to the
results disclosed in the Statements of Income and Expenses and Statements of
Cash Flows.
Cash Flow (as defined in the Partnership Agreement) decreased by $380,800 for
the year ended December 31, 2001 when compared to the year ended December 31,
2000. The decrease was primarily due to the decrease in net income, as
previously discussed. The decrease was partially offset by a decrease in
principal payments on the Partnership's mortgage loans.
The decrease of $611,100 in the Partnership's cash position for the year ended
December 31, 2001 was primarily the result of principal payments on the
Partnership's mortgage debt, distributions to Limited Partners and payments for
capital and tenant improvements exceeding net cash provided by operating
activities. Liquid assets of the Partnership as of December 31, 2001 were
comprised of amounts held for working capital purposes.
Net cash provided by operating activities increased by $212,900 for the year
ended December 31, 2001 when compared to the year ended December 31, 2000. The
increase was due to the timing of the payment of state income taxes and the
timing of the collection of rent. The increase was partially offset by the
decrease in net income, exclusive of depreciation and amortization, as
previously discussed.
Net cash provided by (used for) investing activities changed from $798,000 for
the year ended December 31, 2000 to $(819,900) for the year ended December 31,
2001. The change was primarily due to the 2000 maturity of 1999 investments in
debt securities. In addition the change was attributable to an increase in
expenditures, during the year ended December 31, 2001, for capital and tenant
improvements.
The Partnership has no financial instruments for which there are significant
market risks.
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, 2001, the Partnership spent $819,900 for building
and tenant improvements and has budgeted to spend approximately $550,000 during
2002. Included in the 2002 budget is $300,000 for repairs to the roof. 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.
Net cash used for financing activities increased by $108,000 for the year ended
December 31, 2001 when compared to the year ended December 31, 2000. The
increase was primarily due to an increase in distributions paid to Limited
Partners. The increase was partially offset by a decrease in principal payments
on the Partnership's mortgage debt.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--continued
During 2000 the Partnership repaid the mortgage loan collateralized by
Marquette Office. During 2001 the Partnership repaid the mortgage loan
collateralized by Marquette Mall. As of December 31, 2001 the Partnership has
no outstanding mortgage debt.
Pursuant to a 1999 modification of the Partnership's Front-End Fees loan
agreement, the Affiliate of the General Partner has elected to waive the
Partnership's obligation for all deferred interest on this loan and charge no
interest in the future. 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). In the event that the Front-End Fees loan is not
repaid, such amount will be reclassed to Partner's Capital.
The General Partner continues to take a conservative approach to projections of
future rental income in its determination of adequate levels of cash reserves
due to the anticipated capital, tenant improvement and leasing costs at
Marquette. The General Partner believes that Cash Flow (as defined in the
Partnership Agreement) is the best and least expensive source of cash. As a
result, cash continues to be retained to supplement working capital reserves.
For the year ended December 31, 2001 Cash Flow (as defined in the Partnership
Agreement) retained to supplement working capital reserves amounted to $267,700.
Distributions to Limited Partners for the quarter ended December 31, 2001 were
declared in the amount of $230,500 or $4.00 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. The amount of future
distributions to Limited Partners will ultimately be dependent on the
performance of Marquette as well as the General Partner's determination of the
amount of cash necessary to supplement working capital reserves to meet future
liquidity requirements of the Partnership. Accordingly, there can be no
assurance as to the amounts of cash for future distributions to Limited
Partners.
Based upon the estimated current 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.
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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) & (e) DIRECTORS
The Partnership has no directors. First Capital Financial LLC ("FCFC")
(formerly known as First Capital Financial Corporation) is the General Partner.
The directors of FCFC, as of March 1, 2002, 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 2002.
Name Office
---- --------
Douglas Crocker II....... Director
Donald J. Liebentritt.... Director
Douglas Crocker II, 61, 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. Mr.
Crocker was an Executive Vice President of Equity Financial and Management
Company ("EFMC") from November 1992 until March 1997.
Donald J. Liebentritt, 51, has been Vice President of the General Partner since
July 1997 and a Director since May 2000 and is President of Equity Group
Investments, LLC, Vice President and Assistant Secretary of Great American
Management and Investment Inc. ("Great American") and was Principal and
Chairman of the Board of Rosenberg & Liebentritt, P.C. until its dissolution in
1999. Mr. Liebentritt has also been a director of Davel Communications, Inc.
since November 2000.
(b) & (e) EXECUTIVE OFFICERS
The Partnership does not have any executive officers. The executive officers of
the General Partner as of March 1, 2002 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
Philip Tinkler.......... Vice President--Finance and Treasurer
PRESIDENT AND CEO--See Table of Directors above.
VICE PRESIDENT--See Table of Directors above.
Philip Tinkler, 37, has been Vice President of Finance and Treasurer of the
Managing General Partner since April 2001, and has also been Vice President/
Assistant Treasurer of Great American since March 2001, and Treasurer and Vice
President of Accounting for Equity Group Investments, LLC since May 2000.
(d) FAMILY RELATIONSHIPS
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
There are no involvements in certain legal proceedings among any of the
foregoing directors and officers.
ITEM 11. EXECUTIVE COMPENSATION
(a-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, 2001. 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. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a)As of March 1, 2002, no person of record owned or was known by the
Partnership to own beneficially more than 5% of the Partnership's 57,621
Units then outstanding.
(b)The Partnership has no directors or executive officers. As of March 1, 2002,
the executive officers and directors of the General Partner, as a group, did
not own any Units.
(c)None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a)Affiliates of the General Partner provide property supervisory services to
the Partnership. During the year ended December 31, 2001, these Affiliates
were entitled to supervisory fees of $9,500. In addition, other Affiliates
of the General Partner were entitled to fees and compensation of $109,200
for insurance, personnel and other services. As of December 31, 2001, $3,300
of these fees and reimbursements were due to Affiliates. Services provided
by Affiliates are on terms, which are fair, reasonable and no less favorable
to the Partnership than reasonably could be obtained from unaffiliated
persons.
Pursuant to a modification of the Partnership's Front-End Fees loan
agreement, the Affiliate of the General Partner has elected to waive the
Partnership's obligation for all deferred interest on this loan and charge
no interest in the future.
10
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from the sale, disposition or
provision for value impairment of Partnership properties) shall be allocated
1% to the General Partner and 99% to the Limited Partners. Net Profits from
the sale or disposition of a Partnership property 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
negative balances in their Capital Accounts, pro rata in proportion to such
respective negative balances, to the extent of the total of such negative
balances; second, to each Limited Partner in an amount, if any, necessary to
make the positive balance in its Capital Account equal to the Sale or
Refinancing Proceeds to be distributed to such Limited Partner with respect
to the sale or disposition of such property; third, to the General Partner
in an amount, if any, necessary to make the positive balance in its Capital
Account equal to the Sale or Refinancing Proceeds to be distributed to the
General Partner with respect to the sale or disposition of such property;
and fourth, the balance, if any, 25% to the General Partner and 75% to the
Limited Partners. Net Losses from the sale, disposition or provision for
value impairment of Partnership properties are allocated: first, after
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, pro rata in proportion to such
respective positive balances, to the extent of the total amount of such
positive balances; and second, the balance, if any, 1% to the General
Partner and 99% to the Limited Partners. 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, 2001, the
General Partner was allocated Net Profits of $9,600.
(b)None.
(c)No management person is indebted to the Partnership.
(d)None
11
PART IV
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 for the quarter ended December 31, 2001.
12
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 PROPERTIES,
LTD.--SERIES XI
BY: FIRST CAPITAL FINANCIAL LLC
GENERAL PARTNER
Dated: March 27, 2002
/s/ DOUGLAS CROCKER II
By:
------------------------------------
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.
/s/ DOUGLAS CROCKER II March 27, 2002 President, Chief Executive Officer and
- -------------------------- Director of the General Partner
Douglas Crocker II
/s/ DONALD J. LIEBENTRITT March 27, 2002 Vice President and
- -------------------------- Director of the General Partner
Donald J. Liebentritt
/s/ PHILIP TINKLER March 27, 2002 Vice President--Finance and Treasurer
- --------------------------
Philip Tinkler
13
INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Pages
- ---------------------------------------------------------------------------------
Report of Independent Auditors A-2
Balance Sheets as of December 31, 2001 and 2000 A-3
Statements of Partners' Capital for the Years Ended
December 31, 2001, 2000 and 1999 A-3
Statements of Income and Expenses for the Years
Ended December 31, 2001, 2000 and 1999 A-4
Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999 A-4
Notes to Financial Statements A-5 to A-7
SCHEDULE FILED AS PART OF THIS REPORT
III--Real Estate and Accumulated Depreciation as of December 31, 2001 A-8 and A-9
- ---------------------------------------------------------------------------------
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-34 of the Partnership's
definitive Prospectus dated September 12, 1985; Registration Statement No.
2-98749, filed pursuant to Rule 424 (b), is incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders
The 2000 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.
A-1
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Income Properties, Ltd.--Series XI
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Income
Properties, Ltd.--Series XI as of December 31, 2001 and 2000, 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, 2001. Our audits 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 auditing standards generally
accepted in the United States. 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
Properties, Ltd.--Series XI at December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. 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 28, 2002
A-2
BALANCE SHEETS
December 31, 2001 and 2000
(All dollars rounded to nearest 00s)
2001 2000
------------------------------------------------------
ASSETS
Investment in commercial
rental property:
Land $ 1,879,500 $ 1,879,500
Buildings and improvements 18,342,000 17,522,100
------------------------------------------------------
20,221,500 19,401,600
Accumulated depreciation
and amortization (9,096,000) (8,552,900)
------------------------------------------------------
Total investment property,
net of accumulated
depreciation and
amortization 11,125,500 10,848,700
Cash and cash equivalents 5,857,300 6,468,400
Rents receivable 307,500 596,500
------------------------------------------------------
$17,290,300 $17,913,600
------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loan payable $ $ 568,400
Front-End Fees loan payable
to Affiliate 8,295,200 8,295,200
Accounts payable and
accrued expenses 735,200 752,200
Due to Affiliates, net 3,300 1,300
Prepaid rent 61,700
State income taxes payable 32,000 25,000
Security deposits 56,000 84,200
Distribution payable 230,600 230,600
Other liabilities 197,200 194,200
------------------------------------------------------
9,549,500 10,212,800
------------------------------------------------------
Partners' Capital:
General Partner 1,414,200 1,404,600
Limited Partners (57,621
Units issued and
outstanding) 6,326,600 6,296,200
------------------------------------------------------
7,740,800 7,700,800
------------------------------------------------------
$17,290,300 $17,913,600
------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 2001, 2000 and 1999
(All dollars rounded to nearest 00s)
General Limited
Partner Partners Total
----------------------------------------------------------
Partners' (deficit),
January 1, 1998 $ (775,200) $ $ (775,200)
Net income for the
year ended
December 31,
1999 2,141,700 8,925,800 11,067,500
Capital adjustment,
extinguishment
of debt to
affiliate of
General Partner 22,600 2,234,600 2,257,200
Distributions for
the year ended
December 31,
1999 (5,474,000) (5,474,000)
----------------------------------------------------------
Partners' capital,
December 31,
1999 1,389,100 5,686,400 7,075,500
Net income for the
year ended
December 31,
2000 15,500 1,531,900 1,547,400
Distributions for
the year ended
December 31,
2000 (922,100) (922,100)
----------------------------------------------------------
Partners' capital,
December 31,
2000 1,404,600 6,296,200 7,700,800
Net income for the
year ended
December 31,
2001 9,600 952,300 961,900
Distributions for
the year ended
December 31,
2001 (921,900) (921,900)
----------------------------------------------------------
Partners' capital,
December 31,
2001 $1,414,200 $ 6,326,600 $ 7,740,800
----------------------------------------------------------
A-3
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 2001, 2000 and 1999
(All dollars rounded to nearest 00s except per Unit amounts)
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------
Income:
Rental $3,947,000 $4,315,800 $ 6,200,800
Interest 247,400 413,100 398,800
Gain on sales of property 10,402,200
- --------------------------------------------------------------------------------------------------------------
4,194,400 4,728,900 17,001,800
- --------------------------------------------------------------------------------------------------------------
Expenses:
Interest:
Affiliate 290,200
Nonaffiliates 23,500 75,500 876,500
Depreciation and amortization 543,100 491,600 874,100
Property operating:
Affiliates 9,500 11,800 148,100
Nonaffiliates 1,411,100 1,298,700 1,559,400
Real estate taxes 540,900 564,100 835,400
Insurance--Affiliate 91,100 101,300 102,200
Repairs and maintenance 464,200 481,000 814,300
General and administrative:
Affiliates 18,100 9,200 28,600
Nonaffiliates 91,000 118,500 83,800
- --------------------------------------------------------------------------------------------------------------
3,192,500 3,151,700 5,612,600
- --------------------------------------------------------------------------------------------------------------
Income before state income tax expense 1,001,900 1,577,200 11,389,200
State income tax expense 40,000 29,800 321,700
- --------------------------------------------------------------------------------------------------------------
Net income $ 961,900 $1,547,400 $11,067,500
- --------------------------------------------------------------------------------------------------------------
Net income allocated to General Partner $ 9,600 $ 15,500 $ 2,141,700
- --------------------------------------------------------------------------------------------------------------
Net income allocated to Limited Partners $ 952,300 $1,531,900 $ 8,925,800
- --------------------------------------------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit (57,621 Units outstanding) $ 16.53 $ 26.59 $ 154.91
- --------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2001, 2000 and 1999
(All dollars rounded to nearest 00s)
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 961,900 $ 1,547,400 $ 11,067,500
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 543,100 491,600 874,100
(Gain) on sales of property (10,402,200)
Changes in assets and liabilities:
Decrease (increase) in rents receivable 289,000 (216,200) 431,600
Decrease in other assets 13,200 234,400
(Decrease) in accounts payable and accrued expenses (17,000) (97,000) (444,900)
Increase (decrease) in due to Affiliates 2,000 (3,000) 14,500
(Decrease) in prepaid rent (61,700) (28,600) (107,100)
Increase (decrease) in state income taxes payable 7,000 (275,000) 300,000
Increase in other liabilities 3,000 82,000 7,700
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,727,300 1,514,400 1,975,600
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of commercial rental properties 30,368,200
Payments for building and tenant improvements (819,900) (166,200) (299,000)
Decrease in investments in debt securities, net 964,200 2,031,500
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by investing activities (819,900) 798,000 32,100,700
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans payable (568,400) (721,600) (819,500)
Repayment of mortgage loans payable (23,536,700)
Interest deferred on Front-End Fees loan payable to Affiliate 290,200
Distributions to Limited Partners (921,900) (691,500) (5,474,000)
(Decrease) increase in security deposits (28,200) 2,600 (129,900)
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used for) financing activities (1,518,500) (1,410,500) (29,669,900)
- --------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (611,100) 901,900 4,406,400
Cash and cash equivalents at the beginning of the year 6,468,400 5,566,500 1,160,100
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 5,857,300 $ 6,468,400 $ 5,566,500
- --------------------------------------------------------------------------------------------------------------------------
Supplemental information:
Interest paid during the year $ 23,500 $ 75,500 $ 906,300
- --------------------------------------------------------------------------------------------------------------------------
A-4
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
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 May 24, 1985, 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 September 12, 1985. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of 50,000 Units (with the General Partner's option to increase to
100,000 Units) and not less than 1,400 Units pursuant to the Prospectus. On
December 3, 1985, the required minimum subscription level was reached and the
Partnership's operations commenced. The General Partner exercised its option to
increase the Offering to 100,000 Units and the Partnership Agreement was
subsequently amended to extend the Offering until March 31, 1987, through which
date 57,621 Units were sold. The Partnership was formed to invest primarily in
existing, improved, income-producing commercial real estate.
In 1998, the Company adopted Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information". 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 asset. Management's main focus,
therefore, is to prepare its remaining asset for sale and find a purchaser when
market conditions warrant such an action. The adoption of Statement 131 did not
affect the results of operations or financial position of the Partnership.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 31, 2015. 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 accounting
principles generally accepted in the United States ("GAAP"). The Partnership
utilizes the accrual method of accounting. Under this method, revenues are
recorded when earned and expenses are recorded when incurred. Effective July 1,
1998, the Partnership recognizes rental income which is contingent upon
tenants' achieving specified targets only to the extent that such targets are
attained.
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 1999 financial statements include the Partnership's 50% interest in a joint
venture with an Affiliated partnership. This joint venture was formed for the
purpose of acquiring a 100% interest in Prentice Plaza. This joint venture,
until Prentice Plaza's July 1999 sale, was 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.
The 1999 financial statements include the Partnership's 70% undivided preferred
interest in a joint venture with an unaffiliated third party. The joint venture
owned a 100% interest in the Burlington Office Center I, II and III
("Burlington"). This joint venture, until Burlington's May 1999 sale, was
operated under the control of the General Partner. The Partnership has included
100% of the venture's revenues, expenses, assets, liabilities and Partner's
capital in the financial statements.
The Partnership is not liable for Federal income taxes as the Partners
recognize their proportionate share of the Partnership income or loss in their
income 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 property held for investment is 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 expenditures are
expensed as incurred; expenditures for improvements are capitalized and
depreciated over the estimated life of such improvements.
The Partnership evaluates its commercial rental property 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.
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 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.
A-5
The Partnership's financial statements include financial instruments, including
receivables, trade liabilities and mortgage debt in 2000. 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. The fair value of all other financial instruments, including cash and
cash equivalents, was not materially different from their carrying value at
December 31, 2001 and 2000.
2. Related party transactions:
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from the sale, disposition or
provision for value impairment of Partnership properties) shall be allocated 1%
to the General Partner and 99% to the Limited Partners. Net Profits from the
sale or disposition of a Partnership property 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 negative balances
in their Capital Accounts, pro rata in proportion to such respective negative
balances, to the extent of the total of such negative balances; second, to each
Limited Partner in an amount, if any, necessary to make the positive balance in
its Capital Account equal to the Sale or Refinancing Proceeds to be distributed
to such Limited Partner with respect to the sale or disposition of such
property; third, to the General Partner in an amount, if any, necessary to make
the positive balance in its Capital Account equal to the Sale or Refinancing
Proceeds to be distributed to the General Partner with respect to the sale or
disposition of such property; and fourth, the balance, if any, 25% to the
General Partner and 75% to the Limited Partners. Net Losses from the sale,
disposition or provision for value impairment of Partnership properties are
allocated: first, after 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, pro rata in
proportion to such respective positive balances, to the extent of the total
amount of such positive balances; and second, the balance, if any, 1% to the
General Partner and 99% to the Limited Partners. 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 years ended December 31, 2001 and 2000,
the General Partner was allocated Net Profits of $9,600 and $15,500,
respectively. For the year ended December 31, 1999, the General Partner was
allocated Net Profits of $2,141,700, which included $2,135,100 of gains from
the sales of Partnership properties.
Fees and reimbursements paid and payable/(receivable) by the Partnership
to/(from) Affiliates were as follows:
For the Years Ended December 31,
- - -------------------------------------------------
2001 2000 1999
---------------- ---------------- ---------------
Paid Payable Paid Payable Paid Payable
- -----------------------------------------------------------------------------------------------
Property management and leasing fees $ 9,500 None $ 11,800 None $ 80,100 $ (400)
Reimbursement of property insurance premiums 91,100 None 101,300 None 102,200 None
Legal None None None None 147,500 None
Reimbursement of expenses, at cost:
--Accounting 2,000 2,000 5,300 None 16,700 3,600
--Investor communication 14,100 1,300 7,300 $1,300 10,300 1,100
- -----------------------------------------------------------------------------------------------
$116,700 $3,300 $125,700 $1,300 $356,800 $4,300
- -----------------------------------------------------------------------------------------------
3. Front-End Fees loan payable to Affiliate:
The Partnership borrowed $8,295,200 from an Affiliate of the General Partner,
the 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). In
the event that the Front-End Fees loan is not repaid, such amount will be
reclassed to Partners' Capital.
Pursuant to a modification of this loan agreement, beginning January 1, 1996,
the Partnership elected to defer payment of interest on the Front-End Fees
Loan. During the year ended December 31, 1999, the Affiliate of the General
Partner elected to waive the Partnership's obligation for all outstanding
deferred interest on this loan and charge no interest in the future. During the
year ended December 31, 1999, the Partnership reflected the waiver of deferred
interest in the financial statements through an adjustment of $2,257,700 to
Partners' Capital.
4. Mortgage loans payable:
The Partnership repaid the mortgage loan collateralized by Marquette Mall
during the fourth quarter of 2001. All mortgage loans obtained by the
Partnership have been repaid in full.
5. Future minimum rents:
Future minimum rental income due on noncancelable leases as of December 31,
2001 was as follows:
2002 $1,722,200
2003 1,323,600
2004 1,040,200
2005 752,100
2006 589,800
Thereafter 1,425,600
---------------------
$6,853,500
---------------------
A-6
The Partnership is subject to the usual business risks associated with the
collection of the above-scheduled rents. In addition to the amounts scheduled
above, the Partnership expects to receive rental revenue from (i) operating
expense and real estate tax reimbursements and (ii) percentage rents.
Percentage rents earned for the years ended December 31, 2001, 2000 and 1999
were $464,500, $452,200 and $371,700, 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 the years ended December
31, 2001, 2000 and 1999, net income for income tax reporting purposes was
$482,200, $998,600, and $8,275,700, respectively. The aggregate cost of
commercial rental properties for Federal income tax purposes at December 31,
2001 was $27,321,500.
7. Property sales:
On July 12, 1999, a joint venture in which the Partnership owned a 50%
interest, consummated the sale of Prentice Plaza for a sale price of
$22,100,000. The Partnership's share of net proceeds from this transaction was
$6,179,800, which was net of closing expenses and the repayment of the mortgage
loan encumbering the property. The Partnership recorded a gain of $4,602,000
for the year ended December 31, 1999 and distributed $5,474,000 or $95.00 per
Unit on November 30, 1999 to Limited Partners of record as of July 12, 1999.
On May 11, 1999, the joint venture in which the Partnership owned a 70%
preferred interest, sold Burlington for a sale price of $19,650,000. Net
proceeds from this transaction amounted to $8,136,200, which was net of closing
expenses and the repayment of the mortgage loan collateralizing the property.
The Partnership recorded a gain of $5,525,600 for the year ended December 31,
1999 in connection with this transaction. The Partnership utilized $6,798,000
of the net proceeds generated from this sale to pay off the junior mortgage
loan collateralized by Marquette. The remaining proceeds were added to working
capital reserves.
On March 30, 1999, the Partnership consummated the sale of a 1.056 acre
outparcel of land at Marquette for a sale price of $500,000. Proceeds from this
transaction, which were net of concessions to obtain requisite approvals and
transaction expenses, amounted to $325,500. These proceeds were utilized to
make principal payments on the loans collateralized by Marquette. The
Partnership recorded a gain of $274,500 in connection with this transaction.
All of the above sales, with the exception of post-closing matters, were
all-cash transactions, with no further involvement on the part of the
Partnership.
8. State income tax:
State income tax expense is comprised substantially of taxes based on the
taxable income imposed by Illinois, Michigan and Indiana.
A-7
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 2001
Column A Column B Column C Column D
-------- ------------ ---------------------- -------------------
Costs capitalized
Initial cost subsequent to
to Partnership acquisition
---------------------- -------------------
Buildings
and
Improve- Improve- Carrying
Description Encumbrances Land ments ments Costs(1)
- ------------------------------------------------- -------------------------------------------------------
Shopping Center:
Marquette Mall and Office Building (Michigan
City, IN) (100% Interest) $0 $2,000,000 $20,306,700 $4,970,500 $164,800
- ----------------------------------------------------------------------------------------------------------
Column A Column E Column F Column G Column H
-------- ---------------------------------- --------------- ------------ ---------
Gross amount at which
carried at close of period
----------------------------------
Buildings
and
Improve- Accumulated Date of Date
Description Land(5) ments Total(2)(3) Depreciation(3) Construction Acquired
- -------------------------------------------------
Shopping Center:
Marquette Mall and Office Building (Michigan
City, IN) (100% Interest) $1,879,500 $18,342,000 $20,221,500(4) $9,096,000 1967 Dec. 1986
- -------------------------------------------------------------------------------------------------------------------------------
Column A Column I
-------- ---------------
Life on which
depreciation in
latest income
statements is
Description computed
- -------------------------------------------------
Shopping Center:
Marquette Mall and Office Building (Michigan 35(6)
City, IN) (100% Interest) 2-10(7)
- -----------------------------------------------------------------
A-8
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:
Years Ended
-------------------------------------------------------------------------------
December 31, 2001 December 31, 2000 December 31, 1999
----------- ------------- ----------- ------------- ------------ -------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
- ---------------------------------------------------------------------------------------------------------------------
Balance at the beginning of the year $19,401,600 $ 8,552,900 $19,235,400 $ 8,061,300 $ 48,863,600 $17,200,600
Additions during the year:
Improvements 819,900 166,200 $ 299,000
Provision for depreciation 543,100 491,600 $ 841,400
Deductions during the year:
Cost of real property sold (29,927,200)
Accumulated depreciation on real
property sold (9,980,700)
- ---------------------------------------------------------------------------------------------------------------------
Balance at the end of the year $20,221,500 $ 9,096,000 $19,401,600 $ 8,552,900 $ 19,235,400 $ 8,061,300
- ---------------------------------------------------------------------------------------------------------------------
Note 3. The aggregate cost for federal income tax purposes as of December 31,
2001 was $27,321,500.
Note 4. Includes cumulative provisions for value impairment of $7,100,000 for
Marquette.
Note 5. Land has been reduced by $120,500 in connection with the sales of two
outparcels at Marquette.
Note 6. Estimated useful life in years for building.
Note 7. Estimated useful life in years for improvements.
A-9