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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2002
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)
(312) 207-0020
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated September 12, 1985,
included in the Partnership's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
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BALANCE SHEETS
(All dollars rounded to nearest 00s)
March 31,
2002 December 31,
(Unaudited) 2001
-----------------------------------------------------
ASSETS
Investment in commercial
rental property:
Land $ 1,879,500 $ 1,879,500
Buildings and
improvements 18,405,500 18,342,000
--------------------------- ----------- ------------
20,285,000 20,221,500
Accumulated depreciation
and amortization (9,241,300) (9,096,000)
--------------------------- ----------- ------------
Total investment property,
net of accumulated
depreciation and
amortization 11,043,700 11,125,500
Cash and cash equivalents 6,129,500 5,857,300
Rents receivable 369,200 307,500
--------------------------- ----------- ------------
$17,542,400 $17,290,300
--------------------------- ----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Front-End Fees Loan
payable to Affiliate $ 8,295,200 $ 8,295,200
Accounts payable and
accrued expenses 1,197,000 767,200
Due to Affiliates 3,500 3,300
Distribution payable 230,600 230,600
Security deposits 57,200 56,000
Other liabilities 196,600 197,200
--------------------------- ----------- ------------
9,980,100 9,549,500
--------------------------- ----------- ------------
Partners' capital:
General Partner 1,414,700 1,414,200
Limited Partners (57,621
Units issued and
outstanding) 6,147,600 6,326,600
--------------------------- ----------- ------------
7,562,300 7,740,800
--------------------------- ----------- ------------
$17,542,400 $17,290,300
--------------------------- ----------- ------------
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the quarter ended March 31, 2002 (Unaudited)
and the year ended December 31, 2001
(All dollars rounded to nearest 00s)
General Limited
Partner Partners Total
--------------------- ---------- ---------- ----------
Partners' capital,
January 1, 2001 $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
Net income for the
quarter ended
March 31, 2002 500 51,500 52,000
Distributions for the
quarter ended
March 31, 2002 -- (230,500) (230,500)
--------------------- ---------- ---------- ----------
Partners' capital,
March 31, 2002 $1,414,700 $6,147,600 $7,562,300
--------------------------------------------------------
4
The accompanying notes are an integral part of the financial statements
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended March 31, 2002 and 2001
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
2002 2001
-----------------------------------------------------
Income:
Rental $870,600 $1,022,300
Interest 24,000 90,700
-----------------------------------------------------
894,600 1,113,000
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Expenses:
Interest:
Nonaffiliates -- 10,400
Depreciation and amortization 145,300 120,500
Property operating:
Affiliates 6,800 1,900
Nonaffiliates 373,000 384,400
Real estate taxes 142,200 139,900
Insurance--Affiliate 19,600 18,300
Repairs and maintenance 114,900 124,500
General and administrative:
Affiliates 2,500 1,800
Nonaffiliates 38,300 41,600
-----------------------------------------------------
842,600 843,300
-----------------------------------------------------
Net income $ 52,000 $ 269,700
-----------------------------------------------------
Net income allocated to General
Partner $ 500 $ 2,700
-----------------------------------------------------
Net income allocated to Limited
Partners $ 51,500 $ 267,000
-----------------------------------------------------
Net income allocated to Limited
Partners per Unit (57,621 Units
outstanding) $ 0.89 $ 4.63
-----------------------------------------------------
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 2002 and 2001
(Unaudited)
(All dollars rounded to nearest 00s)
2002 2001
--------------------------------------------------------
Cash flows from operating
activities:
Net income $ 52,000 $ 269,700
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 145,300 120,500
Changes in assets and
liabilities:
(Increase) decrease in
rents receivable (61,700) 171,400
Increase in accounts
payable and accrued
expenses 429,800 171,300
Increase in due to
Affiliates 200 700
(Decrease) in prepaid rent -- (61,700)
(Decrease) increase in
other liabilities (600) 4,500
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Net cash provided by
operating activities 565,000 676,400
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Cash flows from investing
activities:
Payments for capital and tenant
improvements (63,500) (14,300)
--------------------------------------------------------
Net cash (used for)
investing activities (63,500) (14,300)
--------------------------------------------------------
Cash flows from financing
activities:
Principal payments on
mortgage loans payable -- (101,100)
Distributions paid to Partners (230,500) (230,500)
Increase (decrease) in security
deposits 1,200 (400)
--------------------------------------------------------
Net cash (used for)
financing activities (229,300) (332,000)
--------------------------------------------------------
Net increase in cash and cash
equivalents 272,200 330,100
Cash and cash equivalents at the
beginning of the period 5,857,300 6,468,400
--------------------------------------------------------
Cash and cash equivalents at the
end of the period $6,129,500 $6,798,500
--------------------------------------------------------
Interest paid to nonaffiliates
during the period $ -- $ 10,400
--------------------------------------------------------
5
The accompanying notes are an integral part of the financial statements
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 2002
1. Summary of significant accounting policies:
Definition of special terms:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
Accounting policies:
The financial statements have been prepared in accordance with 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. 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 financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the three months ended March 31, 2002, are not necessarily indicative of the
operating results for the year ending December 31, 2002.
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 remaining asset for sale and find a purchaser for its asset when market
conditions warrant such an action.
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 its estimated useful life.
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 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.
Loan acquisition costs are amortized over the term of the mortgage loan made in
connection with the acquisition of Partnership properties or refinancing of
Partnership loans. When a property is disposed of or a loan refinanced, the
related loan acquisition costs and accumulated amortization are removed from
the respective accounts and any unamortized balance is expensed.
Cash equivalents are considered all highly liquid investments with a maturity
of three months or less when purchased.
Reference is made to the Partnership's Annual Report for the year ended
December 31, 2001, for a description of other accounting policies and
additional details of the Partnership's financial condition, results of
operations, changes in Partners' capital and changes in cash balances for the
year then ended. The details provided in the notes thereto have not changed
except as a result of normal transactions in the interim or as otherwise
disclosed herein.
2. Related party transactions:
In accordance with the Partnership Agreement, 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 three months ended March 31, 2002 and
March 31, 2001, the General Partner was allocated Net Profits of $500 and
$2,700, respectively.
6
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the three months ended March 31, 2002 were as follows:
Paid Payable
---------------------------------------------------
Asset management fees $ 6,800 None
Reimbursement of property
insurance premiums 19,600 None
Reimbursement of expenses, at cost:
--Accounting 1,000 1,500
--Investor communication 1,300 2,000
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$28,700 $3,500
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3. Front-End Fees Loan payable to Affiliate:
The Partnership borrowed $8,295,200 from an Affiliate of the General Partner an
amount needed for the payment of securities sales commissions, Offering and
Organizational Expenses and other Front-End Fees, other than Acquisition Fees.
Repayment of the principal amount of the Front-End Fees Loan is subordinated
(the "Subordination") to payment to the Limited Partners of 100% of their
Original Capital Contribution from Sale or Refinancing Proceeds (as defined in
the Partnership Agreement). In the event that the Front-End Fees loan is not
repaid, such amount will be written off to Partners' Capital.
Pursuant to a modification of this loan agreement, beginning January 1, 1996,
the Partnership elected to defer payment of interest of 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 $2,257,200 to
Partners' Capital.
TRANSFER AGENT AND REGISTRAR
The Bank of New York
P.O. Box 7090
Troy, Michigan 48007-7090
(800) 447-7364
[LOGO] FIRST CAPITAL
INCOME PROPERTIES, Ltd.
Series XI
[GRAPHIC]
sponsored by FIRST CAPITAL FINANCIAL LLC
Two North Riverside Plaxa
Chicago, Illinois 60606
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's Annual Report for the year ended
December 31, 2001 for a discussion of the Partnership's business.
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. The
Partnership, in addition to being in the operation of properties phase, is in
the disposition phase of its life cycle. During the disposition phase of the
Partnership's life cycle, comparisons of operating results are complicated due
to the timing and effect of property sales and dispositions. Components of the
Partnership's operating results are generally expected to decline as real
property interests are sold or disposed of since the Partnership no longer
realizes income and incurs expenses from such real property interests.
Operations
The table below is a recap of certain operating results of Marquette Mall and
Office Building ("Marquette") for the three months ended March 31, 2002 and
2001. 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 Quarters
Ended
---------------------
3/31/2002 3/31/2001
--------------------------------------------------------
Marquette Mall and Office Building
Rental revenues $870,600 $1,018,800
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Property net income $ 68,900 $ 218,800
--------------------------------------------------------
Average occupancy 78% 78%
--------------------------------------------------------
(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.
Net income for the three months ended March 31, 2002 decreased by $217,700 when
compared to the three months ended March 31, 2001. The decrease was primarily
due to the decline in operating results at Marquette. In addition the decrease
was due to a decrease in interest earned on the Partnership's short-term
investments, which was due to a decrease in the rates earned on those
investments.
The following comparative discussion includes only the operating results of
Marquette.
Rental revenues decreased by $151,700 or 14.8% for the three months ended March
31, 2002 as compared to the three months ended March 31, 2001. The decrease was
primarily due to a decrease in base and percentage rental income. While the
occupancy at Marquette has remained stable the leases that have been signed to
replace vacating tenants have not been on as favorable terms as the previous
leases.
Interest expense on decreased by $10,400 for the three months ended March 31,
2002 when compared to the three months ended March 31, 2001. The decrease was
due to the 2001 repayment of the mortgage loan collateralized by Marquette Mall.
Repairs and maintenance expense decreased by $9,600 for the three months ended
March 31, 2002 when compared to the three months ended March 31, 2001. The
decrease was primarily due to a decrease in snow removal.
All other expenses remained relatively unchanged for the periods under
comparison.
To increase and/or maintain occupancy levels at the Partnership's remaining
property, the General Partner, through its asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
property brochures; 2) early renewal of existing tenants' leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
Liquidity and Capital Resources
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
property. Cash Flow (as defined in the Partnership Agreement) is generally not
equal to net income or cash flows as determined by accounting principles
generally accepted in the United States ("GAAP"), since certain items are
treated differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows
as determined by GAAP. The following table includes a reconciliation of Cash
Flow (as defined in the Partnership Agreement) to cash flow provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not be considered as an alternative
to the results disclosed in the Statements of Income and Expenses and
Statements of Cash Flow.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--continued
Comparative Cash Flow Results
For the Quarters Ended
3/31/2002 3/31/2001
------------------------------------------------------
Cash Flow (as defined in
the Partnership
Agreement) $ 197,300 $ 289,100
Items of reconciliation:
Scheduled principal
payments on
mortgage loans
payable -- 101,100
(Increase) decrease in
current assets (61,700) 171,400
Increase in current
liabilities 429,400 114,800
------------------------------------------------------
Net cash provided by
operating activities $ 565,000 $ 676,400
------------------------------------------------------
Net cash (used for)
investing activities $ (63,500) $ (14,300)
------------------------------------------------------
Net cash (used for)
financing activities $(229,300) $(332,000)
------------------------------------------------------
Cash Flow (as defined in the Partnership Agreement) decreased by $91,800 for
the three months ended March 31, 2002 when compared to the three months ended
March 31, 2001. The decrease was primarily the result of the decline in the
Partnership's operating results, exclusive of depreciation and amortization.
The decrease was partially offset by a decrease in principal payments on the
Partnership's mortgage loan obligation.
The net increase in the Partnership's cash position of $272,200 for the three
months ended March 31, 2002 was primarily the result of net cash provided by
operating activities exceeding distributions to Partners. Liquid assets of the
Partnership (including cash and cash equivalents) as of March 31, 2002 were
comprised of amounts held for working capital purposes.
Net cash provided by operating activities decreased by $111,400 for the three
months ended March 31, 2002 when compared to the three months ended March 31,
2001. The decrease was primarily the result of the decline in Partnership
operations, as previously discussed. The decrease was partially offset by the
receipt of refunds for real estate taxes.
Net cash used for investing activities increased by $49,200 for the three
months ended March 31, 2002 when compared to the three months ended March 31,
2001. The increase was due to an increase in expenditures for capital and
tenant improvements.
The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements and leasing costs. During
the three months ended March 31, 2002, the Partnership spent $63,500 for
capital and tenant improvements and leasing costs and has projected to spend
approximately $500,000 during the remainder of 2002. Included in the 2002
budget is $300,000 for repairs to the roof. Actual amounts expended may vary
depending on a number of factors including actual leasing activity, results of
property operations, liquidity considerations, the sale of Marquette and other
market conditions throughout the year. The General Partner believes these
improvements and leasing costs are necessary in order to increase and/or
maintain occupancy levels in a very competitive market, maximize rental rates
charged to new and renewing tenants and to prepare the remaining property for
eventual disposition.
The Partnership has no financial instruments for which there are significant
risks.
Net cash used for financing activities decreased by $102,700 for the three
months ended March 31, 2002 when compared to the three months ended March 31,
2001. The decrease was primarily due to the decrease in principal payments on
the Partnership's mortgage loan, which was repaid in full during 2001.
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.
For the quarter ended March 31, 2002, the Partnership utilized Cash Flow (as
defined in the Partnership Agreement) and $33,200 of previously retained Cash
Flow (as defined in the Partnership Agreement) in its distribution to Limited
Partners.
Distributions to Limited Partners for the quarter ended March 31, 2002 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 upon the
performance of Marquette as well as the General Partners 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 current estimated value of its assets, net of its outstanding
liabilities, together with its expected future operating results and capital
expenditure requirements, the Partnership's cumulative distributions to its
Limited Partners from inception through the termination of the Partnership will
be significantly less than such Limited Partners' Original Capital Contribution.
3
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the three months ended March 31,
2002.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INCOME PROPERTIES,
LTD.--SERIES XI
By: FIRST CAPITAL FINANCIAL LLC
GENERAL PARTNER
Date: May 13, 2002
By: /s/ DOUGLAS
CROCKER II
_____________________________
DOUGLAS
CROCKER II
President and
Chief Executive Officer
Date: May 13, 2002
By: /s/ PHILIP G.
TINKLER
__________________________________
PHILIP G.
TINKLER
Vice
President--Finance and Treasurer
9