UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-15538
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First Capital Income Properties, Ltd. - Series XI
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(Exact name of registrant as specified in its charter)
Illinois 36-3364279
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1100, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 207-0020
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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
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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
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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 business of the Partnership is 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. All of these joint ventures,
prior to dissolution, are operated under the common control of First Capital
Financial Corporation (the "General Partner"). Through December 31, 1996, the
Partnership, with its respective joint venture partner, has dissolved one joint
venture with a 50% interest in real property and the four joint ventures with
50% preferred majority interests in real property as a result of the sales of
the real properties. In addition, the Partnership sold one 50% joint venture
interest with an Affiliated partnership to that Affiliated partnership.
Property management services for certain of the Partnership's real estate
investments are provided by independent real estate management companies for
fees calculated as a percentage of gross rents received from the properties. In
addition, Affiliates of the General Partner provide property management and
supervisory services for fees calculated as a percentage of gross rents received
from each of the Partnership's properties.
The real estate business is highly competitive. The results of operations of
the Partnership will depend upon the availability of suitable tenants, real
estate market conditions and general economic conditions which may impact the
success of these tenants. Properties owned by the Partnership frequently
compete for tenants with similar properties owned by others.
As of March 1, 1997, there were 34 employees at the Partnership's properties for
on-site property maintenance and administration.
2
ITEM 2. PROPERTIES (a)(b)
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As of December 31, 1996, the Partnership owned directly or through a joint
venture, the following four properties, which were owned in fee simple and were
encumbered by mortgages. For complete details of the material terms of the
encumbrances, refer to Note 5 of the Notes to Financial Statements.
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ---------------------------------------- ------------------------- --------------- -----------
Shopping Centers:
- -----------------
Marquette Mall and Office Building Michigan City, Indiana 398,104 104 (1)
Regency Park Shopping Center (50%) Jacksonville, Florida 329,858 23 (3)
Office Buildings:
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Burlington Office Center I, II and III(d) Ann Arbor, Michigan 173,215 40 (4)
Prentice Plaza (50%) Englewood, Colorado 157,311 33 (1)
a) For a discussion of significant operating results and major capital
expenditures planned for the Partnership's properties refer to Item 7 -
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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. The
Partnership's portion of real estate taxes for Marquette Mall and
Office Building ("Marquette"), Burlington Office Center I, II and III
("Burlington"), Prentice Plaza and Regency Park Shopping Center
("Regency") was $588,200, $434,000, $143,000 and $134,700,
respectively, for the year ended December 31, 1996. In the opinion of
the General Partner, the Partnership's properties are adequately
insured and serviced by all necessary utilities.
c) Represents the total number of tenants as well as the number of
tenants, in parenthesis, that individually occupy more than 10% of the
net leasable square footage of the property.
d) The Partnership owns 70% preferred majority undivided interest in the
joint venture which owns this property.
3
ITEM 2. PROPERTIES (Continued)
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The following table presents each of the Partnership's properties' occupancy
rates as of December 31 for each of the last five years:
Property Name 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
Marquette 83% 83% 79% 81% 86%
Burlington 96% 78% 91% 88% 97%
Regency 93% 87% 89% 78% 78%
Prentice Plaza 98% 99% 97% 92% 93%
The amounts in the following table represent each of the Partnership's
properties' average annual rental rate per square foot for each of the last five
years ended December 31 and were computed by dividing each property's base
rental revenues by its average occupied square footage:
Property Name 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
Marquette $ 6.90 $ 6.74 $ 6.85 $ 6.71 $ 6.65
Burlington $17.32 $18.04 $17.23 $17.55 $16.33
Regency $ 6.67 $ 6.46 $ 6.34 $ 6.85 $ 6.97
Prentice Plaza $14.91 $14.31 $13.65 $12.63 $13.09
4
ITEM 2. PROPERTIES (Continued)
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The following table summarizes the principal provisions of the leases for each
of the tenants which occupy ten percent or more of the rentable square footage
at each of the Partnership's properties:
Partnership's Share of per
annum Base Rents (a) for Percentage of
--------------------------- Expiration Net Leasable Renewal Options
Final Twelve Date of Square Footage (Renewal
1997 Months of Lease Lease Occupied Options / Years)
-------- --------------- ---------- -------------- ----------------
Marquette
- ---------
J.C. Penney
(department store) $139,000 $139,000 1/31/2003 28% 4 / 5
Burlington
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Network Express, Inc.
(Telecommunications company) $365,200 $375,700 7/31/2000 12% 1 / 3
Washtenaw Mortgage Company
(mortgage broker) $ 59,600 (b) 4/30/1997 12% 1 / 3 and 1 / 5
A.E. Clevite, Inc.
(transportation products
manufacturer) $343,200 $343,200 12/31/1997 11% None
Dykema Gossett
(legal firm) $324,500 $338,800 3/31/2001 10% 1 / 5
Regency
- -------
Rhodes Furniture (c)
(furniture store) $143,400 $143,400 1/15/2005 26% 3 / 5
Service Merchandise
(department store) $175,000 $175,000 2/28/2009 14% 10 / 5
Baby Superstore
(specialty store) $140,600 $150,600 9/30/2004 12% 3 / 5
Prentice Plaza
- --------------
ANTEC Corporation
(design, engineering, manufac-
turing and distribution of
cable television products) $213,500 $224,400 9/30/1999 17% None
a) The Partnership's share of per annum base rents for each of the tenants
listed above for each of the years between 1997 and the final twelve
months for each of the above leases is no lesser or greater than the
amounts listed in the above table.
b) As of the date of this report the tenant has not exercised their option
to renew.
5
ITEM 2. PROPERTIES (Continued)
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c) Space is sublet from Publix, who in turn sublet from Supervalue Inc.
Pursuant to the lease, Supervalue Inc. is lessee. In addition, Books-a-
Million, a retail book store, has sublet a portion of the Rhodes
Furniture space through an agreement with Rhodes Furniture.
The amounts in the following table represent the Partnership's portion of income
from leases in the year of expiration (assuming no lease renewals) through the
year ended December 31, 2006.
Number Base Rents in Year % of Total
Year of Tenants Square Feet of Expiration (a) Base Rents (b)
---- ---------- ----------- ------------------ --------------
1997 71 150,101 $1,074,800 16.79%
1998 36 217,187 $ 716,600 14.69%
1999 23 107,617 $ 697,100 18.46%
2000 14 55,691 $ 630,000 21.55%
2001 15 111,789 $ 547,600 30.60%
2002 3 17,168 $ 115,400 9.66%
2003 2 13,683 $ 59,100 5.56%
2004 6 50,894 $ 238,400 27.29%
2005 5 114,055 $ 102,500 20.98%
2006 0 None None None
a) Represents the amount of base rents to be collected each year 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 portion of the
total base rents to be collected on leases in effect as of December 31,
1996.
ITEM 3. LEGAL PROCEEDINGS
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(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, 1996. Ordinary routine
litigation incidental to the business which is not deemed material was pursued
during the quarter ended December 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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(a,b,c & d) None.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
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There has not been, nor is there expected to be, a public market for Units.
As of March 1, 1996, there were 4,950 Holders of Units.
7
ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
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1996 1995 1994 1993 1992
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Total revenues $11,264,700 $10,436,500 $ 10,995,500 $ 11,456,300 $ 13,661,800
Net income (loss) $ 241,900 $(7,553,400) $ 10,580,500) $(10,373,500) $(12,422,000)
Net (loss) allocated to
Limited Partners None $(5,330,200) $(10,474,700) $(10,269,800) $(12,382,400)
Net (loss) allocated to
Limited Partners per
Unit (57,621 Units
outstanding) None $ (92.50) $ (181.79) $ (178.23) $ (214.89)
Total assets $43,459,800 $49,323,600 $ 55,551,600 $ 71,451,800 $ 88,430,500
Mortgage loans payable $34,803,200 $41,189,600 $ 40,369,100 $ 44,255,200 $ 50,674,500
Front-End Fees loan
payable to Affiliate(a) $ 8,295,200 $ 8,295,200 $ 8,295,200 $ 8,295,200 $ 8,295,200
OTHER DATA:
Investment in commercial
rental properties (net
of accumulated
depreciation and
amortization) $40,962,400 $46,724,100 $ 52,648,100 $ 68,506,700 $ 86,601,900
Number of real property
interests owned at
December 31 4 5 5 8 9
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(a) Excludes deferred interest.
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by generally accepted accounting principles ("GAAP"):
For the Years Ended December 31,
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1996 1995 1994 1993 1992
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Cash Flow (Deficit) (as
defined in the
Partnership
Agreement)(a) $ 152,200 $ (241,700) $ 18,900 $ 342,900 $ 620,600
Items of reconciliation:
Principal payments on
mortgage loans payable 923,200 630,100 551,700 548,600 565,000
Changes in current
assets and
liabilities:
Decrease (increase) in
current assets 64,100 (53,800) 304,900 (74,300) 203,700
(Decrease) increase in
current liabilities (31,500) (100,700) (125,600) (130,500) 54,000
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Net cash provided by
operating activities $ 1,108,000 $ 233,900 $ 749,900 $ 686,700 $ 1,443,300
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Net cash provided by
(used for) investing
activities $ 4,810,400 $(1,227,500) $ 3,392,500 $ 2,127,300 $(1,436,200)
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Net cash (used for)
provided by financing
activities $(5,877,100) $ 712,600 $(3,981,900) $(1,585,800) $ (574,900)
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(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.
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-9
in this report and the supplemental schedule on pages A-10 and A-11.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through its life
cycle in three phases: (i) the Offering of Units and investment in properties;
(ii) the operation of properties and (iii) the sale or other disposition of
properties.
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. In
1993, the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle. During the disposition
phase of the Partnership's life cycle, comparisons of operating results are
complicated due to the timing and effect of property sales and dispositions.
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. Through December 31, 1996 the Partnership, with its
respective joint venture partner, has dissolved one joint venture with a 50%
interest in real property and four joint ventures with 50% preferred majority
interests in real property as a result of the sales of the real properties. In
addition, the Partnership sold one 50% joint venture interest with an
Affiliated partnership to that Affiliated partnership.
As disclosed in the Partnership's Annual Report for the year ended December 31,
1995, the Partnership was faced with significant financial obligations during
1996, including the maturity of two of its mortgage loans payable. In addition,
future operating results were expected to be affected by industry issues of its
tenants as well as unique matters related to certain of its individual
properties. During 1996, the General Partner was successful in selling one of
the two properties whose mortgage debt was maturing during 1996 and was able to
extend the other maturing loan's maturity date to December 31, 1997. In
addition, the Partnership has been able to maintain or increase occupancy
levels and improve operating results at its properties. The Partnership is
again faced with significant financial issues during 1997. In addition to
market issues affecting its tenants, the Partnership's properties are at risk
for potentially high tenant turnover, two mortgage loans mature in 1997 with no
extension provision and substantial expenditures for capital and tenant
improvements are projected.
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1996, 1995 and 1994.
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,
----------------------------------
1996 1995 1994
- -------------------------------------------------------------------
MARQUETTE MALL AND OFFICE BUILDING
Rental revenues $4,141,000 $4,012,400 $4,009,200
- -------------------------------------------------------------------
Property net income (loss) (b) $ 131,100 $ (171,300) $ (245,600)
- -------------------------------------------------------------------
Average occupancy 83% 82% 81%
- -------------------------------------------------------------------
BURLINGTON OFFICE CENTER I, II AND III
Rental revenues $2,766,400 $2,626,200 $2,973,200
- -------------------------------------------------------------------
Property net (loss) (b) $ (180,200) $ (224,000) $ (35,300)
- -------------------------------------------------------------------
Average occupancy 84% 76% 87%
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REGENCY PARK SHOPPING CENTER (50%)
Rental revenues $1,198,600 $1,175,000 $1,046,500
- -------------------------------------------------------------------
Property net income (loss) (b) $ 21,100 $ (140,300) $ (326,200)
- -------------------------------------------------------------------
Average occupancy 90% 88% 79%
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PRENTICE PLAZA (50%)
Rental revenues $1,270,700 $1,169,400 $1,072,900
- -------------------------------------------------------------------
Property net (loss) $ (19,900) $ (229,800) $ (250,400)
- -------------------------------------------------------------------
Average occupancy 99% 97% 93%
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SENTRY PARK WEST OFFICE CAMPUS (50%) (C)
Rental revenues $1,009,500 $1,399,200 $1,149,500
- -------------------------------------------------------------------
Property net income (loss) (b) $ 244,700 $ (351,400) $ (396,100)
- -------------------------------------------------------------------
Average occupancy (c) 86% 76%
- -------------------------------------------------------------------
SENTRY PARK EAST OFFICE CAMPUS (50%)
Rental revenues $ 137,000
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Property net (loss) (d) $ (32,800)
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Average occupancy 61%
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PARK CENTRAL OFFICE PARK I, II AND III (50%)
Rental revenues $ 371,500
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Property net income (d) $ 5,100
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Average occupancy (d)
- -------------------------------------------------------------------
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income,
interest expense on the Partnership's Front-End Fees loan and general and
administrative expenses or are related to properties disposed of by the
Partnership prior to the periods under comparison.
(b) Property net (loss) excludes (losses) from provisions for value impairment
which were included in the Statements of Income and Expenses for the years
ended December 31, 1995 and 1994 (see Note 10 of Notes to Financial
Statements for additional information).
(c) The joint venture which owned Sentry Park West Office Campus ("Sentry
West"), in which the Partnership had a 50% interest, sold Sentry West on
August 28, 1996. Property net income excludes a gain on sale of property of
$816,100 which was recorded for the year ended December 31, 1996. The
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
large variance between 1996 income and 1995 (loss) is due to the property
being classified as "Held for Disposition" during 1996, which precluded the
recording of depreciation. For further information, see Note 10 of Notes to
Financial Statements.
(d) These properties were sold during 1994. The gains/losses realized on the
sales of these properties are excluded from property net income (loss). For
further information see Note 9 of Notes to the Financial Statements.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995
Net results for the Partnership changed from a (loss) of $(7,553,400) for the
year ended December 31, 1995 to income of $241,900 for the year ended December
31, 1996. The change was primarily the result of provisions for value
impairment totaling $5,600,000 recorded for the year ended December 31, 1995
and the gain of $816,100 recorded on the sale of Sentry West for the year ended
December 31, 1996.
Net (loss), exclusive of the provisions for value impairment, gain on the sale
of Sentry West and operations of Sentry West, improved by $783,100. The
improvement was primarily due to improved operating results at all of the
Partnership's properties with the most significant increases coming at
Marquette Mall and Office Building ("Marquette"), Prentice Plaza and Regency
Park Shopping Center ("Regency").
The following comparative discussion includes the results from the
Partnership's four remaining property investments.
Rental revenues increased by $393,800 or 4.4% for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The increase was
primarily due to an increase in base rental income at Burlington Office Center
I, II and III ("Burlington") which was the result of the increase in the
average occupancy rate. Also contributing to the increase was increased tenant
expense reimbursements and base rents at Prentice Plaza. Partially offsetting
the increase was the 1996 absence at Prentice Plaza of a lease settlement.
Interest expense on the Partnership's mortgage loans decreased by $322,600 for
the year ended December 31, 1996 when compared to the year ended December 31,
1995. The decrease was primarily due to a reduced interest rate on the mortgage
loan collateralized by Regency and the lower average outstanding principal
balance on the mortgage loans collateralizing Marquette and Regency.
Marquette's outstanding principal balance was reduced by the application of the
net sale proceeds from the sale of Sentry West.
Depreciation and amortization expense decreased by $147,900 for the years under
comparison. The decrease was primarily due to the effects of provisions for
value impairment recorded during the year ended December 31, 1995 which reduced
the depreciable bases of Marquette, Burlington and Regency. In addition, the
periodic depreciation and amortization expense for certain assets for which the
depreciable and amortizable lives expired during 1996 exceeded the periodic
depreciation and amortization expense for depreciable and amortizable assets
placed in service during 1996.
Real estate tax expense increased by $138,300 for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The increase was
primarily due to a projected increase in the tax rate at Marquette. The
increase was partially offset by the receipt in 1996 of a refund at Prentice
Plaza which was the culmination of a successful appeal of the 1989 through 1994
tax years.
Property operating expenses decreased by $70,700 for the years under
comparison. The decrease was primarily due to reduced professional fees and
utility costs at Marquette, partially offset by an increase in professional
fees and administrative salaries at Burlington, which was the result of the
significant increase in occupancy.
Repairs and maintenance increased by $49,100 for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The increase was
primarily due to increases in janitorial expenses and the maintenance of the
energy plant at Marquette. In addition, the increase was due to increases in
janitorial and HVAC costs at Burlington. Partially offsetting the increase was
a decrease in janitorial salaries at Marquette.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net (loss) for the Partnership decreased from $(10,580,500) for the year ended
December 31, 1994 to $(7,553,400) for the year ended December 31, 1995. The
effects of the sales of certain Partnership properties during 1994 and
provisions for value impairment recognized in 1994 and 1995 had a significant
impact on the comparison of net (loss) for the year ended December 31, 1995
when compared to the year ended December 31, 1994. The Partnership recorded
provisions for value impairment of $5,600,000 during 1995. During 1994, the
Partnership recorded provisions for value impairment of $10,000,000 and sold
the three remaining office buildings at Sentry East as well as Park Central.
Properties sold during 1994 accounted for net income (including operating
results and the net gain on sales of properties) of $160,700. For further
information, see Notes 9 and 10 of Notes to Financial Statements.
Excluding the effects on net income of the properties sold and provisions for
value impairment, net (loss) for the year ended December 31, 1995 decreased by
$78,300 when compared to the year ended December 31, 1994. The decrease in net
loss was primarily due to improved operating results at Regency, Marquette,
Sentry West and Prentice Plaza as well as lower general and administrative
expenses primarily due to lower fees for professional and data processing
services. Partially offsetting the decrease in net loss was diminished
operating results at Burlington and an increase in interest expense on the
Partnership's Front-End Fees loan due to an increase in the variable interest
rate and an increase in printing and mailing costs.
For purposes of the following comparative discussion, the operating results of
Park Central and Sentry East have been excluded.
Rental revenues increased by $130,900 or 1% for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The increase was
primarily due to: 1) increases in the average occupancy rate at Sentry West,
Regency and Prentice Plaza; 2) an increase in percentage rental income at
Marquette resulting from higher tenant sales which determine the amount of
percentage rents to be paid to the Partnership; 3) an increase in tenant
expense reimbursements at Regency as a result of the increase in the average
occupancy rate as well as the receipt in 1995 of tenant expense reimbursements
related to 1994 and 4) an increase in tenant expense reimbursements at Sentry
West
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
primarily as a result of the increase in the average occupancy rate. Partially
offsetting the 1995 increase in rental revenues was: 1) lower rental revenues
at Burlington due to a decrease in occupancy as a result of a major tenant
exercising a cancellation clause in its lease and downsizing its leasable
square footage from 19,700 square feet to 2,500 square feet, a decrease of 10%
of the total leasable square footage of the property; 2) the receipt of lease
termination fees in 1994 from two tenants at Marquette; 3) lower tenant expense
reimbursements as a result of a refund to tenants in 1995 of previously billed
1994 expense reimbursements at Marquette and Prentice Plaza as well as
additional 1993 expense reimbursements received in 1994 at Marquette and 4)
lower percentage rental income at Regency.
Depreciation and amortization expense decreased by $188,100 for the years under
comparison. The decrease was primarily due to the reduction in expense as a
result of the effects of provisions for value impairment recorded for several
Partnership properties for the year ended December 31, 1994. In addition, the
periodic depreciation and amortization expense for certain assets for which the
depreciable and amortizable lives expired during 1995 exceeded the period
depreciation and amortization expense for depreciable and amortizable assets
placed in service during 1995.
Real estate tax expense decreased by $82,900 for the year ended December 31,
1995 when compared to 1994. The decrease was primarily due to a decrease at
Marquette as a result of an overestimate of the 1994 tax liability paid in 1995
as well as a decrease in the 1995 projected liability payable in 1996 and a
lower expense at Burlington as a result of the Partnership's successful protest
in 1993 which resulted in reduced billings in subsequent periods. Partially
offsetting the decrease was an increase in real estate tax expense at Prentice
Plaza as a result of an increase in the assessed valuation of the property for
real estate tax purposes.
Interest expense on the Partnership's mortgage loans increased by $256,100 for
the year ended December 31, 1995 when compared to the year ended December 31,
1994. The increase was primarily due to increases in the principal balance and
variable interest rate on the junior mortgage loan collateralized by Marquette
as well as an increase in the variable interest rate on the mortgage loan
collateralized by Sentry West.
Property operating expense increased by $42,300 for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The increase was
primarily due to: 1) increases in property management fees at Prentice Plaza,
Sentry West and Regency as a result of the increases in rental revenues which
is a factor in determining the amount of such fees; 2) an increase in
advertising and promotional fees, security costs and training and development
costs at Marquette; 3) an increase in professional service fees at Prentice
Plaza, Burlington, Sentry West and Regency and 4) increased utility costs at
Sentry West. Partially offsetting the increase in property operating expense
was: 1) lower utility costs at Burlington and Marquette; 2) lower professional
service fees as well as management and leasing fees at Marquette and 3) lower
advertising and promotional fees at Regency.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenant leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area; and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
The rate of inflation has remained relatively stable during the years under
comparison and has had a minimal impact on the operating results of the
Partnership. The nature of various tenant lease clauses protects the
Partnership, to some extent, from increases in the rate of inflation. Certain
of the lease clauses provide for the following: (1) annual rent increases based
on the Consumer Price Index or graduated rental increases; (2) percentage
rentals at shopping centers, for which the Partnership receives as additional
rent a percentage of a tenant's sales over predetermined amounts and (3) total
or partial tenant reimbursement of property operating expenses (e.g., common
area maintenance, real estate taxes, etc.).
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its properties.
Cash Flow (as defined in the Partnership Agreement) is generally not equal to
Partnership net income (loss) or cash flows as defined by GAAP, since certain
items are treated differently under the Partnership Agreement than under GAAP.
The General Partner 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/(loss) or cash flows as defined 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.
The increase in Cash Flow (as defined in the Partnership Agreement) of $393,900
for the year ended December 31, 1996 when compared to the year ended December
31, 1995 was primarily due to the change in net income, as previously
discussed, exclusive of depreciation, amortization, provisions for value
impairment and the gain on the sale of property. Partially offsetting the
increase was an increase in regularly scheduled principal payments made on the
Partnership's mortgage loans.
The increase of $41,300 in the Partnership's cash position for the year ended
December 31, 1996 was primarily the result of net cash provided by operating
activities exceeding payments for capital and tenant improvements, leasing
costs and principal amortization. The liquid assets of the Partnership as of
December 31, 1996 were comprised of amounts held for working capital purposes.
Net cash provided by operating activities increased by $874,100 for the year
ended December 31, 1996 when
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
compared to the year ended December 31, 1995. The increase was primarily the
result of the increase in net income, as previously discussed, along with the
timing of the liquidation of current assets at Burlington and the payment of
certain operating expenses at Regency.
Net cash (used for) provided by investing activities changed from $(1,227,500)
for the year ended December 31, 1995 to $4,810,400 for the year ended December
31, 1996. The change was primarily due to proceeds received in 1996 from the
sale of Sentry West and a decrease in 1996 in the cash used for capital and
tenant improvements and leasing costs. 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, 1996, the
Partnership spent $875,900 for building and tenant improvements and leasing
costs and has budgeted to spend approximately $1,465,000 during 1997. Included
in the amount spent by the Partnership in 1996 is $300,000 related to the
refurbishment and modernization of one of the major department stores at
Marquette. Included in the 1997 budgeted amount are capital and tenant
improvements and leasing costs of approximately $650,000 at Burlington and
$535,000 at Marquette. As of December 31, 1996, the Partnership has accrued
$300,000 as an additional liability which also relates to the refurbishment and
modernization of the major department store at Marquette, which was paid by the
Partnership in February 1997. The General Partner believes these improvements
and leasing costs are necessary in order to increase and/or maintain occupancy
levels in very competitive markets, maximize rental rates charged to new and
renewing tenants and to prepare the remaining properties for eventual
disposition.
On August 28, 1996, the joint venture which owned Sentry West, in which the
Partnership had a 50% interest, consummated the sale of Sentry West for a price
of $11,650,000. The Partnership's share of the proceeds from this transaction,
net of closing prorations, selling expenses and the repayment of the mortgage
loan collateralized by Sentry West was approximately $894,500. Pursuant to an
amended agreement with the junior mortgage lender for Marquette, which was also
the mortgage lender for Sentry West, the Partnership's entire share of the net
proceeds from this sale was used to paydown the principal balance of the junior
mortgage loan collateralized by Marquette.
Net cash provided by (used for) financing activities changed from $712,600 for
the year ended December 31, 1995 to $(5,877,100) for the year ended December
31, 1996. The change was primarily due to the repayment of the Sentry West
mortgage loan and the paydown of the Marquette loan, both in conjunction with
the sale of Sentry West (see Notes 5 and 9 of Notes to Financial Statements)
and the absence of net proceeds received in 1995 on the refinanced mortgage
loans collateralized by Marquette and Prentice Plaza. Partially offsetting the
change was the 1996 deferral of interest payments on the Partnership's Front-
End Fees loan, which the Partnership elected to begin deferring starting with
the January 1, 1996 interest payment.
Pursuant to a modification of the Partnership's Front-End Fees loan agreement
with an Affiliate of the General Partner, the Partnership has the option to
defer payment of interest on this loan, for a 72-month period beginning January
1, 1993. In addition, any interest payments paid by the Partnership from
January 1, 1993 through December 31, 1998 may be borrowed from this Affiliate.
All deferred and subsequently borrowed amounts (including accrued interest
thereon) shall be due and payable on January 1, 1999, and shall not be
subordinated to payment of original Capital Contributions to Limited Partners.
As of March 1, 1996, the two senior mortgage loans collateralized by Marquette
Mall and Office Building were amended. The terms of the amendment to the
mortgage loan collateralized by Marquette Mall provided that during the period
beginning March 1, 1996 through February 28, 1998, accrued interest only shall
be paid and that on March 1, 1998 the original terms of the mortgage loan will
become effective. The terms of the amendment to the mortgage loan
collateralized by Marquette Office Building provided that during the period
beginning March 1, 1996 through February 28, 1998, monthly installments of
principal in the amount of $8,333 plus accrued interest shall be paid and that
on March 1, 1998 the original terms of the mortgage loan will become effective.
On March 29, 1996, the Partnership executed an amendment which modified and
amended the junior mortgage loan collateralized by Marquette, effective January
1, 1996. Terms of the amendment included: 1) a reduction in the loan commitment
amount from $9,770,000 to $9,350,000; 2) a change from quarterly principal
amortization payments of $125,000 each quarter beginning January 1, 1996 and
increasing to $150,000 on July 1, 1996 to monthly principal amortization
payments of $30,000; 3) a reduction in the variable interest rate from 30-day
LIBOR plus 300 basis points to 30-day LIBOR plus 250 basis points; 4) an
assignment to the lender of the net sale proceeds on the sale of Sentry West
(see Note 9 of Notes to Financial Statements) to reduce the outstanding
principal balance on the junior mortgage loan; 5) an option to extend the
maturity date of the loan to September 30, 1998 for a .5% extension fee, with a
change in the interest rate to 30-day LIBOR plus 275 basis points and an
increase in the monthly principal amortization payments to $50,000 and 6) to
the extent that proceeds from the sale of Sentry West utilized to reduce this
loan exceeded $700,000, a deferral of the monthly principal amortization
payments. Terms of the existing loan include a prohibition on distributions to
Limited Partners and a guarantee of repayment by the Partnership. As a result
of a principal paydown of $894,500 from the proceeds from the sale of Sentry
West, the Partnership is not obligated to pay the $30,000 monthly principal for
a period of six months, beginning September 1, 1996.
In August 1996, the joint venture which owns Regency, in which the Partnership
owns a 50% interest with Affiliated partnerships, executed an agreement with
the mortgage lender to modify the terms of its mortgage loan. Significant terms
of this agreement, which are retroactive to January 1, 1996, include: 1) an
extension of the maturity date to December 31, 1997; 2) monthly principal and
interest payments based on a 23-year amortization schedule with a per annum
interest rate of 7.5%; and 3) net property cash flow (as defined in the
agreement), if any, after deducting scheduled principal and interest payments,
approved capital and tenant improvements and leasing commissions, is required
to be deposited into a non-interest bearing reserve account maintained by the
lender to be used for capital and tenant improvements, leasing commissions and
operating deficits of Regency.
As of December 31, 1996, 26 of the 33 tenants at Prentice Plaza and 28 of the
40 tenants at Burlington, have leases
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONCLUDED)
totaling 233,019 square feet, that expire in the next three years. The
Partnership's share of total base rental revenues projected to be collected
from these tenants for the year ending December 31, 1997 is $2,279,400.
Notwithstanding the market rental rates that may be in effect at the time that
these leases mature, the Partnership faces a significant amount of uncertainty
with respect to the occupancy at its properties during 1997 and possibly
beyond. The General Partner and its Affiliated management companies intend to
address the possible renewal of these leases well in advance of their scheduled
maturities in an attempt to maintain occupancy and rental revenues at its
properties.
The Partnership has significant financial obligations during the year ending
December 31, 1997. As disclosed in Note 5 of Notes to Financial Statements,
payments due on the mortgage loans collateralized by the Partnership's
properties are substantial. The mortgage loan collateralized by Burlington
matures in 1997. While the General partner is currently negotiating to
refinance the mortgage note, there can be no assurance that such efforts will
be successful. Failure to secure a replacement mortgage could result in the
current lender foreclosing on the property through default of the terms of the
mortgage note. Also maturing in 1997 is the mortgage loan collateralized by
Regency. The General Partner is currently attempting to sell the property.
There can be no assurance that the General Partner will succeed in this effort.
Failure to sell the property could result in the loss of the property through
foreclosure. In connection with the potential replacement of tenants together
with ongoing required maintenance of the Partnership's properties, the
Partnership anticipates incurring substantial capital, tenant improvement and
leasing costs during 1997. Net cash provided by operating activities will not
be sufficient to meet the above debt and capital expenditure requirements for
the year ending December 31, 1997. As a result of this issue together with the
restriction on distributions to Limited Partners in the junior loan
collateralized by Marquette, the General Partner believes that it is in the
best interest of the Partnership to retain all cash available. Accordingly,
distributions to Partners continue to be suspended. For the year ended December
31, 1996, Cash Flow (as defined in the Partnership Agreement) of $152,200 was
retained to supplement working capital reserves. The General Partner continues
to review other sources of cash available to the Partnership, which includes
the sale of Regency and sale or refinancing of the Partnership's other
properties. There can be no assurance as to the timing or successful completion
of any future transactions, including the refinancing of Burlington and sale of
Regency. The Partnership may have inadequate liquidity to meet its mortgage
loan obligations, which could result in the foreclosure of one or Burlington
and Regency. The General Partner believes that such events would not affect the
Partnership's ability to continue business operations.
Based upon the current estimated value of its assets, net of its outstanding
liabilities, together with its expected operating results and capital
expenditure requirements, the General Partner believes that the Partnership's
cumulative distributions to its Limited Partners from inception through the
termination of the Partnership will be substantially less than such Limited
Partners' original Capital Investment.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
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.
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
(a) DIRECTORS
---------
The Partnership has no directors. First Capital Financial Corporation
("FCFC") is the General Partner. The Directors of FCFC, as of March 28,
1997, 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 1997.
Name Office
---- ------
Samuel Zell.......................................Chairman of the Board
Douglas Crocker II................................Director
Sheli Z. Rosenberg................................Director
Samuel Zell, 55, has been a Director of the General Partner since 1983
(Chairman of the Board since December 1985) and is Chairman of the Board of
Equity Financial and Management Company ("EFMC") and Equity Group
Investments, Inc. ("EGI"), and is a trustee and beneficiary of a general
partner of Equity Holdings Limited, an Illinois Limited Partnership, a
privately owned investment partnership. He is also Chairman of the Board of
Directors of Anixter International Inc., American Classic Voyages Co. and
Manufactured Home Communities Inc. ("MHC"). He is Chairman of the Board of
Trustees of Equity Residential Properties Trust. He is a Director of Chart
House Enterprises, Inc., Ramco Energy plc, TeleTech Holdings Inc., Quality
Food Centers, Inc. ("QFC") and Sealy Corporation. He is Chairman of the
Board of Directors and Chief Executive Officer of Capsure Holdings Corp.
and Co-Chairman of the Board of Revco D.S., Inc.
Douglas Crocker II, 56, has been President and Chief Executive Officer
since December 1992 and a Director since January 1993 of the General
Partner. Mr. Crocker has been an Executive Vice President of EFMC since
November 1992. Mr. Crocker has been President, Chief Executive Officer and
trustee of Equity Residential Properties Trust since March 31, 1993. He was
President of Republic Savings Bank, F.S.B. ("Republic") from 1989 to June
1992 at which time the Resolution Trust Company took control of Republic.
Mr. Crocker is a member of the Board of Directors of Horizon Group, Inc.
Sheli Z. Rosenberg, 55, was President and Chief Executive Officer of the
General Partner from December 1990 to December 1992 and has been a Director
of the General Partner since September 1983; was Executive Vice President
and General Counsel for EFMC from October 1980 to November 1994; has been
President and Chief Executive Officer of EFMC and EGI since November 1994;
has been a Director of Great American Management and Investment Inc.
("Great American") since June 1984 and is a Director of various
subsidiaries of Great American. She is also a Director of Anixter
International Inc., Capsure Holdings Corp., American Classic Voyages Co.,
Jacor Communications, Inc., Revco D.S., Inc., Sealy Corporation, QFC and
MHC. She is also a trustee of Equity Residential Properties Trust. Ms.
Rosenberg is a Principal of Rosenberg & Liebentritt, P.C., counsel to the
Partnership, the General Partner and certain of their Affiliates. She had
been Vice President of First Capital Benefit Administrators, Inc. ("Benefit
Administrators") since July 22, 1987 until its liquidation in November
1995. Benefit Administrators filed for protection under the Federal
bankruptcy laws on January 3, 1995.
13
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT--Continued
- -------- -------------------------------------------------------------
(b,c & e) EXECUTIVE OFFICERS
------------------
The Partnership does not have any executive officers. The executive officers
of the General Partner as of March 28, 1997 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
Gus J. Athas..........................Senior Vice President
Norman M. Field.......................Vice President - Finance and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
Gus J. Athas, 60, has been Senior Vice President of the General Partner
since March 1995. Mr. Athas has served as Senior Vice President, General
Counsel and Assistant Secretary of Great American since March 1995. Mr.
Athas has served as Senior Vice President, General Counsel and Secretary of
Falcon Building Products, Inc. since March 1994 and served as Vice President
and Secretary from January 1994 to March 1994. Mr. Athas served as Senior
Vice President, General Counsel and Secretary of Eagle Industries, Inc.
("Eagle") since May 1993. From September 1992 to May 1993, Mr. Athas was
Vice President, General Counsel and Secretary of Eagle. From November 1987
to September 1992, Mr. Athas served as Vice President, General Counsel and
Assistant Secretary of Eagle.
Norman M. Field, 48, has been Vice President of Finance and Treasurer of the
General Partner since February 1984, and also served as Vice President and
Treasurer of Great American from July 1983 until March 1995. Mr. Field had
been Treasurer of Benefit Administrators since July 22, 1987 until its
liquidation in November 1995. Benefit Administrators filed for protection
under the Federal bankruptcy laws on January 3, 1995. He was Chief Financial
Officer of Equality Specialties, Inc. ("Equality"), a subsidiary of Great
American, from August 1994 to April 1995. Equality was sold in April 1995.
(d) FAMILY RELATIONSHIPS
--------------------
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
----------------------------------------
With the exception of the bankruptcy matter disclosed under Items 10 (a),
(b), (c) and (e), there are no involvements in certain legal proceedings
among any of the foregoing directors and officers.
14
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors.
Neither the General Partner, nor any director or officer of the General Partner,
received any direct remuneration from the Partnership during the year ended
December 31, 1996. However, the General Partner and its Affiliates do
compensate its directors and officers. For additional information see Item 13
(a) Certain Relationships and Related Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(a) As of March 1, 1997, 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,
1997, 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 leasing, property management and
supervisory services to the Partnership. Compensation to the General
Partner, its Affiliates and all other parties for property management
services may not exceed the lesser of the compensation customarily charged
in arm's-length transactions in the same geographic area and for a
comparable property or 6% of the gross receipts from the property being
managed where the General Partner or Affiliate provides leasing, re-leasing
and leasing related services, or 3% of gross receipts where the General
Partner or Affiliate does not perform leasing, re-leasing and leasing
related services and, in that event, may pay an unaffiliated party for
leasing services to the Partnership in an amount not to exceed the
compensation customarily charged in arm's-length transactions by persons
rendering similar services as an ongoing public entity in the same
geographic location for a comparable property. During the year ended
December 31, 1996, these Affiliates were entitled to leasing fees and
property management and supervisory fees of $506,800. In addition, other
Affiliates of the General Partner were entitled to fees and compensation of
$172,300 for insurance, personnel and other services. As of December 31,
1996, $55,000 of the these fees and reimbursements due to Affiliates were
unpaid. 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.
For the year ended December 31, 1996 an Affiliate of the General Partner was
entitled to interest on the Partnership's Front-End Fees loan in the amount
of $626,700. In accordance with the Partnership Agreement, neither the
General Partner nor its Affiliates shall lend money to the Partnership with
interest rates and other finance charges and fees in excess of the lesser of
the amounts that are charged by unrelated lending institutions on comparable
loans for the same purpose in the same locality or 2% above the prime rate
of interest charged by Chase Manhattan Bank.
Pursuant to a modification of the Partnership's Front-End Fees loan
agreement, the Partnership has the option to defer payment of interest on
this loan, for a 72-month period beginning January 1, 1993. All deferred
amounts (including accrued interest thereon) shall be due and payable on
January 1, 1999, and shall not be subordinated to repayment to the Limited
Partners of their original Capital Contributions. Beginning with the
interest payment due on January 1, 1996, the
15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
- -------- ----------------------------------------------
Partnership elected to defer payment of interest. As of December 31, 1996,
$683,600 of deferred interest was due to an Affiliate.
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, 1996, the
General Partner was allocated Net Profits of $241,900 which included a gain
on the sale of property of $816,100.
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 30% owned by Anixter International Inc. (formerly known as
Itel Corporation), an Affiliate of the General Partner, is obligated to the
Partnership under a lease of office space at Prentice Plaza. During the year
ended December 31, 1996, the Partnership's share of ANTEC's rent was
$293,400. The per square foot rent paid by ANTEC is comparable to that paid
by other tenants at Prentice Plaza.
Manufactured Homes Communities Inc. ("MHC") a real estate investment trust
which is in the business of owning and operating mobil home communities, an
Affiliate of the General Partner, is obligated to the Partnership under a
lease of office space at Prentice Plaza. During the year ended December 31,
1996, the Partnership's share of MHC's rent was $29,800. The per square foot
rent paid by MHC is comparable to that paid by other tenants at Prentice
Plaza.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the General Partner and certain of their Affiliates. Sheli Z.
Rosenberg, President and Chief Executive Officer of the General Partner from
December 1990 to December 1992 and a director of the General Partner since
December 1983, is a Principal of Rosenberg. For the year ended December 31,
1996, Rosenberg was entitled to $132,000 for legal fees from the
Partnership. As of December 31, 1996, $7,000 was due to Rosenberg.
Compensation for these services are on terms which are fair, reasonable and
no less favorable to the Partnership than reasonably could be obtained from
unaffiliated parties.
(c) No management person is indebted to the Partnership.
(d) None.
16
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, 1996.
17
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 CORPORATION
GENERAL PARTNER
Dated: March 28, 1997 By: /s/ DOUGLAS CROCKER II
-------------- --------------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ SAMUEL ZELL March 28, 1997 Chairman of the Board and
- ------------------------- -------------- Director of the General Partner
SAMUEL ZELL
/s/ DOUGLAS CROCKER II March 28, 1997 President, Chief Executive Officer and
- ------------------------- -------------- Director of the General Partner
DOUGLAS CROCKER II
/s/ SHELI Z. ROSENBERG March 28, 1997 Director of the General Partner
- ----- ------------------ --------------
SHELI Z. ROSENBERG
/s/ GUS J. ATHAS March 28, 1997 Senior Vice President
- ------------------------- --------------
GUS J. ATHAS
/s/ NORMAN M. FIELD March 28, 1997 Vice President - Finance and Treasurer
- ------------------------- --------------
NORMAN M. FIELD
18
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, 1996 and 1995 A-3
Statements of Partners' Capital for the Years Ended
December 31, 1996, 1995, and 1994 A-3
Statements of Income and Expenses for the Years
Ended December 31, 1996, 1995, and 1994 A-4
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 A-4
Notes to Financial Statements A-5 to A-9
SCHEDULE FILED AS PART OF THIS REPORT
III - Real Estate and Accumulated Depreciation as of
December 31, 1996 A-10 and A-11
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 (10) Material Contracts
- ------------
Lease agreement for a tenant at Burlington Office Park I, II & III, one of the
Partnership's most significant properties. The revenues from this lease for
1997, exceed 10% of Burlington's 1997 budgeted rental revenues.
Real Estate Sale Agreement for the sale of the Partnership's investment in
Sentry Park West Office Campus filed as an exhibit to the Partnership's Report
on Form 8-K dated August 28, 1996 is incorporated herein by reference
EXHIBIT (13) Annual Report to Security Holders
- ------------
The 1995 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (27) Financial Data Schedule
- ------------
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, 1996 and 1995, 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, 1996, and the financial
statement schedule listed in the accompanying index. These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Income
Properties, Ltd. - Series XI at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 14, 1997
A-2
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
BALANCE SHEETS
December 31, 1996 and 1995
(All dollars rounded to nearest 00s)
1996 1995
- ----------------------------------------------------------------------------
ASSETS
Investment in commercial rental properties:
Land $ 8,151,600 $ 8,948,500
Buildings and improvements 49,873,600 56,326,700
- ----------------------------------------------------------------------------
58,025,200 65,275,200
Accumulated depreciation and amortization (17,062,800) (18,551,100)
- ----------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 40,962,400 46,724,100
Cash and cash equivalents 1,372,900 1,331,600
Restricted escrow deposits 79,700
Rents receivable 624,400 626,800
Other assets (net of accumulated amortization on
loan acquisition costs of $967,200 and $938,300,
respectively) 500,100 561,400
- ----------------------------------------------------------------------------
$43,459,800 $49,323,600
- ----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
Mortgage loans payable $34,803,200 $41,189,600
Front-End Fees loan payable to Affiliate 8,295,200 8,295,200
Accounts payable and accrued expenses 1,260,700 1,300,400
Due to Affiliates 745,600 114,700
Security deposits 186,300 200,700
Other liabilities 439,000 735,100
- ----------------------------------------------------------------------------
45,730,000 51,835,700
- ----------------------------------------------------------------------------
Partners' (deficit):
General Partner (deficit) (2,270,200) (2,512,100)
Limited Partners (57,621 Units issued and
outstanding)
- ----------------------------------------------------------------------------
(2,270,200) (2,512,100)
- ----------------------------------------------------------------------------
$43,459,800 $49,323,600
- ----------------------------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
(All dollars rounded to nearest 00s)
General Limited
Partner Partner Total
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
January 1, 1994 $ (183,100) $ 15,804,900 $ 15,621,800
Net (loss) for the year ended
December 31, 1994 (105,800) (10,474,700) (10,580,500)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December
31, 1994 (288,900) 5,330,200 5,041,300
Net (loss) for the year ended
December 31, 1995 (2,223,200) (5,330,200) (7,553,400)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1995 (2,512,100) 0 (2,512,100)
Net income for the year ended
December 31, 1996 241,900 0 241,900
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1996 $(2,270,200) $ 0 $ (2,270,200)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
3
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1996, 1995 and 1994
(All dollars rounded to nearest 00s
except per Unit amounts)
1996 1995 1994
- ------------------------------------------------------------------------------
Income:
Rental $10,386,100 $10,383,600 $ 10,759,900
Interest 62,500 52,900 47,200
Net gain on sale of properties 816,100 188,400
- ------------------------------------------------------------------------------
11,264,700 10,436,500 10,995,500
- ------------------------------------------------------------------------------
Expenses:
Interest:
Affiliate 626,600 673,000 570,400
Nonaffiliates 3,249,100 3,724,100 3,563,500
Depreciation and amortization 1,649,600 2,341,800 2,627,800
Property operating:
Affiliates 575,200 602,000 574,800
Nonaffiliates 1,972,300 2,162,500 2,326,100
Real estate taxes 1,382,300 1,285,100 1,397,900
Insurance--Affiliate 140,500 111,800 156,600
Repairs and maintenance 1,242,700 1,296,900 1,418,400
General and administrative:
Affiliates 37,800 41,500 41,100
Nonaffiliates 146,700 151,200 187,700
Provisions for value impairment 5,600,000 10,000,000
- ------------------------------------------------------------------------------
11,022,800 17,989,900 22,864,300
- ------------------------------------------------------------------------------
Income (loss) before Venture partner's
participation in loss of joint
venture 241,900 (7,553,400) (11,868,800)
Venture partner's participation in
loss of joint venture 1,288,300
- ------------------------------------------------------------------------------
Net income (loss) $ 241,900 $(7,553,400) $(10,580,500)
- ------------------------------------------------------------------------------
Net income (loss) allocated to General
Partner $ 241,900 $(2,223,200) $ (105,800)
- ------------------------------------------------------------------------------
Net (loss) allocated to Limited
Partners $ 0 $(5,330,200) $(10,474,700)
- ------------------------------------------------------------------------------
Net (loss) allocated to Limited
Partners per Unit (57,621 Units
outstanding) $ 0 $ (92.50) $ (181.79)
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(All dollars rounded to nearest 00s)
1996 1995 1994
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 241,900 $(7,553,400) $(10,580,500)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,649,600 2,341,800 2,627,800
Venture partner's participation in
(loss) of joint venture (1,288,300)
Net (gain) on sale of properties (816,100) (188,400)
Provisions for value impairment 5,600,000 10,000,000
Changes in assets and liabilities:
Decrease (increase) in rents
receivable 2,400 (55,300) 225,700
Decrease in other assets 61,700 1,500 79,200
(Decrease) in accounts payable and
accrued expenses (39,700) (169,600) (25,900)
Increase (decrease) in due to
Affiliates 4,300 2,000 (87,900)
Increase (decrease) in other
liabilities 3,900 66,900 (11,800)
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 1,108,000 233,900 749,900
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of commercial
rental properties 5,606,600 4,697,900
Payments for capital and tenant
improvements (875,900) (1,335,100) (1,230,400)
Maturity of (investment in)
restricted certificate of deposit
and escrow deposits 79,700 107,600 (75,000)
- ------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 4,810,400 (1,227,500) 3,392,500
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans
payable (1,817,700) (929,500) (551,700)
Repayment of mortgage loan payable (4,568,700) (3,642,100)
Proceeds from mortgage loan payable 1,750,000 307,700
Interest deferred on Front-End Fees
loan payable to Affiliate 626,600
Payment of loan acquisition or
extension fees (102,900) (113,500) (76,100)
(Decrease) increase in security
deposits (14,400) 5,600 (19,700)
- ------------------------------------------------------------------------------
Net cash (used for) provided by
financing activities (5,877,100) 712,600 (3,981,900)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 41,300 (281,000) 160,500
Cash and cash equivalents at the
beginning of the year 1,331,600 1,612,600 1,452,100
- ------------------------------------------------------------------------------
Cash and cash equivalents at the end
of the year $ 1,372,900 $ 1,331,600 $ 1,612,600
- ------------------------------------------------------------------------------
Supplemental information:
Interest paid during the year $ 3,293,700 $ 4,404,100 $ 4,157,700
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
A-4
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 had been sold. The Partnership was formed to invest primarily
in existing, improved, income-producing commercial real estate.
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 generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial statements include the Partnership's 50% interest in three joint
ventures with Affiliated partnerships. Two of these joint ventures were formed
for the purpose of each acquiring a 100% interest in certain real property and
one of these joint ventures was formed for the purpose of acquiring a preferred
majority interest in certain real property. These joint ventures are operated
under the common control of the General Partner. Accordingly, the Partnership's
pro rata share of the joint ventures' revenues, expenses, assets, liabilities
and Partners' capital is included in the financial statements.
The financial statements also include the Partnership's 70% undivided interest
in a joint venture with an unaffiliated third party. The joint venture owns a
100% interest in the Burlington Office Center I, II and III ("Burlington").
This joint venture is 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 income taxes is made in the
financial statements of the Partnership. In addition, it is not practicable for
the Partnership to determine the aggregate tax bases of the individual
Partners; therefore, the disclosure of the differences between the tax bases
and the reported assets and liabilities of the Partnership would not be
meaningful.
Commercial rental properties held for investment are recorded at cost, net of
any provisions for value impairment, and depreciated (exclusive of amounts
allocated to land) on the straight-line method over their estimated useful
lives. Upon classifying a commercial rental property as held for disposition,
no further depreciation or amortization of such property is provided for in the
financial statements. Lease acquisition fees are recorded at cost and amortized
over the life of each respective lease. Repair and maintenance expenditures are
expensed as incurred; expenditures for improvements are capitalized and
depreciated over the estimated life of such improvements.
During the first quarter of 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (the "Standard"). The
Standard established guidance for determining if the value of defined assets is
impaired, and if so, how impairment losses should be measured and reported in
the financial statements. Management is not aware of any indicator that would
result in any significant impairment loss. The Standard also addressed the
accounting for long-lived assets that are expected to be disposed of.
Evaluation of the potential impairment of the value of the Partnership's assets
is performed on an individual property basis.
Loan acquisition costs are amortized over the term of the mortgage loan made in
connection with the acquisition of Partnership properties or refinancing of
Partnership loans. When a property is disposed of or a loan is refinanced, the
related loan acquisition costs and accumulated amortization are removed from
the respective accounts and any unamortized balance is charged to expense.
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
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
The Partnership's financial statements include financial instruments, including
receivables, trade liabilities and mortgage debt. The Partnership considers the
disclosure of the fair value of its mortgage debt to be impracticable due to
the general illiquid nature of the real estate financing market and an
inability to obtain comparable financing on certain properties. The fair value
of all other financial instruments, including cash and cash equivalents, was
not materially different from their carrying value at December 31, 1996 and
1995.
Certain reclassifications have been made to the previously reported 1995 and
1994 statements in order to provide comparability with the 1996 statements.
These reclassifications had no effect on net income (loss) or Partners' capital
(deficit).
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 year ended December 31, 1996, the General
Partner was allocated Net Profits of $241,900 which included Net Profits from
sale of property of $816,100. For the year ended December 31, 1995, the General
Partner was allocated a Net (Loss) of $(2,223,200), which included a (loss)
from provisions for value impairment of $(2,203,700). For the year December 31,
1994, the General Partner was allocated a Net (Loss) of $(105,800), which
included a Net Profit from the sale of a Partnership property of $2,900, a Net
(Loss) from the sale of Partnership properties of $(1,000) and (loss) from
provisions for value impairment of $(87,200). The allocations to the General
Partner and Limited Partners for the years ended December 31, 1996 and 1995 are
computed on a basis that is different than in prior periods. Allocations of
losses to Limited Partners were limited to an amount that would result in
Limited Partners capital amounting to not less than zero.
Fees and reimbursements paid and payable by the Partnership to Affiliates were
as follows:
For the Years Ended December 31,
---------------------------------------------------------
1996 1995 1994
----------------- ------------------- -------------------
Paid Payable Paid Payable Paid Payable
- ----------------------------------------------------------------------------------
Property management and
leasing fees $498,700 $ 51,700 $ 527,400 $ 43,600 $ 498,000 $ 61,200
Interest expense on
Front-End Fees loan
(Note 3) None 683,600 664,200 56,900 605,200 48,100
Reimbursement of
property insurance
premiums, at cost 140,500 None 107,200 None 149,700 None
Reimbursement of
expenses, at cost:
--Accounting 33,300 3,100 23,700 9,000 24,300 2,600
--Investor
communication 5,100 200 11,100 900 7,700 800
--Legal 129,300 7,000 95,800 4,300 144,500 None
--Other None None 900 None None None
- ----------------------------------------------------------------------------------
$806,900 $745,600 $1,430,300 $114,700 $1,429,400 $112,700
- ----------------------------------------------------------------------------------
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 30% owned by Anixter International Inc. (formerly known as Itel
Corporation), an Affiliate of the General Partner, is obligated to the
Partnership under a lease of office space at Prentice Plaza. During the years
ended December 31, 1996, 1995 and 1994, the Partnership's share of ANTEC's rent
was $293,400, $189,100 and $194,100 (which excludes $93,200 in reimbursements
from ANTEC for tenant improvements), respectively. The per square foot rent
paid by ANTEC is comparable to that paid by other tenants at Prentice Plaza.
Manufactured Home Communities, Inc. ("MHC"), a real estate investment trust,
which is in the business of owning and operating mobil home communities, an
Affiliate of the General Partner, is obligated to the Partnership under a lease
of office space at Prentice Plaza. During the years ended December 31, 1996,
1995 and 1994, the Partnership's share of MHC's rent was $29,800, $22,100 and
$9,900, respectively. The per square foot rent paid by MHC is comparable to
that paid by other tenants at Prentice Plaza.
On-site property management for certain of the Partnership's properties is
provided by independent real estate management companies for fees ranging from
3% to 4% of gross rents received by the properties. In addition, Affiliates of
the General Partner provide on-site property management, leasing and
supervisory services for fees based upon various percentage rates of gross
rents for the properties. These fees range from 1% to 6% based upon the terms
of the individual management agreements.
A-6
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership originally borrowed from an Affiliate of the General Partner an
amount needed for the payment of securities sales commissions, Offering and
Organizational Expenses and other Front-End Fees, other than Acquisition Fees.
Repayment of the principal amount of the Front-End Fees loan is subordinated to
payment to the Limited Partners of 100% of their Original Capital Contribution
from Sale or Refinancing Proceeds (as defined in the Partnership Agreement).
Interest on the outstanding balance of this loan is due and payable monthly at
a rate no greater than the cost of funds obtained by the Affiliate from
unaffiliated lenders.
As of December 31, 1996, the Partnership had drawn $8,295,200 under the Front-
End Fees loan agreement. The interest rate on the Front-End Fees loan is
subject to change in accordance with the loan agreement. The weighted average
interest rate for the year ended December 31, 1996 was 7.43%. As of December
31, 1996, the interest rate was 7.56%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan, for a 72-month period
beginning January 1, 1993. In addition, any interest payments paid by the
Partnership from January 1, 1993 through December 31, 1998 may be borrowed from
the Affiliate. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on January 1, 1999, and
shall not be subordinated to payment of original Capital Contributions to
Limited Partners. Beginning with the interest payment due on January 1, 1996,
the Partnership elected to defer payment of interest. During the year ended
December 31, 1996, this loan was transferred to another Affiliate of the
General Partner. As of December 31, 1996, the amount of interest deferred
pursuant to this modification was $683,600.
4. RESTRICTED ESCROW DEPOSITS:
Restricted escrow deposits at December 31, 1995 included $159,400, of which the
Partnership's share was 50%, being held by the mortgage holder of Regency in a
non-interest bearing escrow account as collateral for its mortgage loan. In
connection with a 1996 modification of the loan, the balance in this escrow
account was applied to the principal balance of the loan, effective January 1,
1996.
5. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at December 31, 1996 and 1995 consisted of the following
loans which are non-recourse unless otherwise noted:
Property
Pledged Principal Balance at Average Estimated
as -------------------------- Interest Maturity Periodic Balloon
ollateralC 12/31/96 12/31/95 Rate (a) Date Payment (b) Payment (c)
- ------------------------------------------------------------------------------------------------
Marquette Mall and
Office Building $ 2,202,200(d) $ 2,247,600 7.75% 7/1/2002 None $ 759,100
1,023,900(d) 1,135,600 7.75% 7/1/2002 (d) None
8,215,500(e) 9,350,000 7.94% 9/30/1997 (e) (e)
Burlington I, II and III
Office Center 10,814,200 10,926,700 9.88% 5/1/1997 $98,900 $10,774,100
Regency Park Shopping
Center (50%)(f) 7,709,200 7,917,100 7.50% 12/31/1997 $59,600 $ 7,554,800
Prentice Plaza (50%) 4,838,200 4,875,000 7.50% 12/19/2000 (g) $ 4,658,200
Sentry Park West Office
Campus (50%) (h) 4,737,600
- ------------------------------------------------------------------------------------------------
$34,803,200 $41,189,600
- ------------------------------------------------------------------------------------------------
(a) The average interest rate represents an average for the year ended December
31, 1996. Interest rates are subject to change in accordance with the
provisions of the loan agreements on Marquette's junior mortgage loan and
Prentice Plaza's mortgage loan. As of December 31, 1996, interest rates on
the Marquette junior mortgage and the Prentice Plaza loan were 8.03% and
7.50%, respectively.
(b) Represents level monthly principal and interest payments, paid in arrears,
except as otherwise noted.
(c) This repayment will require either sale or refinancing of the respective
property.
(d) As of March 1, 1996, the two senior mortgage loans collateralized by
Marquette Mall and Office Building, individually, were amended. The terms
of the amendment to the mortgage loan collaterialized by Marquette Mall
provided that during the period beginning March 1, 1996 through February
28, 1998, accrued interest only shall be paid and that on March 1, 1998 the
original terms of the mortgage loan will become effective. The terms of the
amendment to the mortgage loan collaterialized by Marquette Office Building
provided that during the period beginning March 1, 1996 through February
28, 1998, monthly installments of principal in the amount of $8,333 plus
accrued interest shall be paid and that on March 1, 1998 the original terms
of the mortgage loan will become effective.
(e) On March 29, 1996, the Partnership executed an amendment to the agreement
which modified and amended the junior mortgage loan collaterialized by
Marquette. Significant terms of the amendment included: 1) a reduction in
the loan commitment amount from $9,770,000 to $9,350,000; 2) a change from
quarterly principal amortization payments of $125,000 on the first day of
each quarter beginning January 1, 1996 and increasing to $150,000 on July
1, 1996 to monthly principal amortization payments of $30,000; 3) a
reduction in the variable interest rate from 30-day LIBOR plus 300 basis
points to 30-day LIBOR plus 250 basis points; 4) an assignment to the
lender of a portion of the net sale proceeds received by the Partnership
from the joint venture which owned Sentry Park West Office Campus ("Sentry
West"), in which the Partnership has a 50% interest, on the sale of Sentry
West to reduce the outstanding principal balance on the junior mortgage
loan; 5) an option to extend the maturity date of the loan to September 30,
1998 for a .5% extension fee, with a change in the interest rate to 30-day
LIBOR plus 275 basis points and an increase in the monthly principal
amortization payments to $50,000 and 6) to the extent that proceeds from
the sale of Sentry West utilized to reduce this loan exceed $700,000, a
deferral of the monthly principal amortization payments. Terms of the
existing agreement include a maturity date of September 30, 1997, a
prohibition on distributions to Partners of the Partnership and a guarantee
of repayment by the Partnership. As a result of a principal paydown of
$894,500 from the
A-7
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
proceeds from the sale of Sentry West, the Partnership is not obligated to
pay the $30,000 monthly principal for a period of six months, beginning
September 1, 1996.
(f) In August 1996, the joint venture which owns Regency, in which the
Partnership has a 50% interest with Affiliated partnerships, executed an
agreement (the "Extension") with the mortgage lender to modify the terms
of this mortgage loan. Significant terms of the Extension, which are
retroactive to January 1, 1996, include: 1) an extension of the maturity
date to December 31, 1997; 2) monthly principal and interest payments
based on a 23-year amortization schedule with a per annum interest rate of
7.5%; and 3) net property cash flow (as defined in the Extension), if any,
after deducting scheduled principal and interest payments, approved
capital and tenant improvements and leasing commissions, is required to be
deposited into a non-interest bearing reserve account maintained by the
lender to be used for capital and tenant improvements, leasing commissions
and operating deficits of Regency. In connection with the execution of the
extension, the $79,700 which was being held by the lender as collateral,
referred to in Note 4, was utilized by the lender to reduce the principal
balance of the mortgage effective January 1, 1996.
(g) In addition to monthly interest, monthly principal payments are $3,070
starting February 1, 1996 and increasing to $3,343, $3,638, $3,960 and
$4,305 on January 1 of each subsequent year from 1997 through 2000,
respectively.
(h) This property was sold and the mortgage loan was fully repaid on August
28, 1996 (see Note 9 for additional information).
Principal amortization of mortgage loans payable for each of the next five
years and thereafter as of December 31, 1996 was as follows:
1997 $26,878,700
1998 456,600
1999 558,000
2000 5,259,700
2001 596,200
Thereafter 1,054,000
---------------
$34,803,200
---------------
6. FUTURE MINIMUM RENTS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1996 was as follows:
1997 $ 6,403,100
1998 4,876,800
1999 3,775,600
2000 2,923,300
2001 1,789,500
Thereafter 5,650,400
---------------
$25,418,700
---------------
The Partnership is subject to the usual business risks associated with the
collection of the above-scheduled rentals. In addition to the amounts
scheduled above, the Partnership expects to receive rental revenue from (i)
operating expense and real estate tax reimbursements, (ii) parking income and
(iii) percentage rents. Percentage rents earned for the years ended December
31, 1996, 1995 and 1994 were $245,100, $239,500 and $189,500, respectively.
7. INCOME TAX:
The Partnership utilized the accrual basis 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. The net effect of these
accounting differences for the year ended December 31, 1996 was that the
results for income tax reporting purposes was a loss of $5,966,200 and the net
income for financial statement purposes was $241,900. The aggregate cost of
commercial rental properties for federal income tax purposes at December 31,
1996 was $67,809,500.
8. DISTRIBUTIONS:
Commencing with the quarter ended September 30, 1990, cash distributions to
Limited Partners were suspended and no further distributions will be made
until such time as the Partnership's cash position is increased to a level
that is expected to be sufficient to meet all of the anticipated capital
expenditures, debt repayments, including the loan agreements restricting
distributions (see Note 5), and other working capital requirements.
9. PROPERTY SALES:
On August 28, 1996, the joint venture which owned Sentry West consummated the
sale of Sentry West for a price of $11,650,000. The Partnership's 50% share of
the proceeds from this transaction, which was net of closing prorations,
selling expenses and the repayment of the mortgage loan for Sentry West was
approximately $894,500. Pursuant to a letter agreement with the junior
mortgage lender for Marquette, the Partnership's entire share of the net
proceeds from this sale was used to paydown the principal balance of the
junior mortgage loan collateralized by Marquette. The net gain reported by the
Partnership for financial statement purposes was $816,100. For income tax
reporting purposes the Partnership will report a net (loss) of $(4,758,200)
for the year ended December 31, 1996 in connection with this sale. Provisions
for value impairment during prior periods reported cumulatively amounted to
$5,000,000.
A-8
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
On June 29, 1994, the joint ventures which owned Park Central Office Park I, II
and III ("Park Central"), located in Greenville, South Carolina, in which the
Partnership had 50% interests, sold Park Central for a sale price of
$7,250,000. The outstanding indebtedness on Park Central I and II of $7,000,000
was satisfied at closing. The joint ventures incurred selling expenses of
$143,700. The joint ventures received net Sale Proceeds of $106,300, of which
the Partnership's share was $53,200. The (loss) reported by the Partnership for
financial statement purposes was $(4,654,100) of which a total of $(4,550,000)
was previously recorded as part of the provisions for value impairment in 1992
and 1993.
On April 22, 1994, the joint venture which owned Sentry East, located in Blue
Bell, Pennsylvania, in which the Partnership had a 50% interest, sold one of
the remaining three office buildings situated in this office campus for a sale
price of $1,198,500. The joint venture incurred selling expenses of $95,600.
The joint venture received net Sale Proceeds of $1,102,900, of which the
Partnership's share was $551,500. The (loss) reported by the Partnership for
financial statement purposes was $(280,700) and was previously recorded as part
of the provisions for value impairment in 1992.
On December 29, 1994, the joint venture which owned Sentry East sold the
remaining two office buildings situated in this office campus for a sale price
of $1,286,300. The joint venture incurred selling expenses of $99,900. The
joint venture received net Sale Proceeds of $1,186,400, of which the
Partnership's share was $593,200. The gain reported by the Partnership for
financial statement purposes was $292,500 which represented a partial recovery
of the (loss) from provisions for value impairment recorded in 1992.
All of the above sales were all-cash transactions, with no further involvement
on the part of the Partnership.
10. PROVISIONS FOR VALUE IMPAIRMENT:
Due to the depressed economic environment in the retail industry, regional
factors affecting the Partnership's retail and office properties and other
matters relating specifically to certain of the Partnership's properties, there
was uncertainty as to the Partnership's ability to recover the net carrying
basis of certain of its properties during the remaining estimated holding
periods. Accordingly, it was deemed appropriate to reduce the bases of such
properties in the Partnership's financial statements during the years ended
December 31, 1995 and 1994. The provisions for value impairment were considered
non-cash events for the purposes of the Statements of Cash Flows and were not
utilized in the determination of Cash Flow (as defined in the Partnership
Agreement). The following is a summary of the provisions for value impairment
reported by the Partnership for the years ended December 31, 1995 and 1994.
There were no provisions recorded for the year ended December 31, 1996.
Property 1995 1994
--------------------------------------------
Marquette Mall and Office
Building $3,100,000 $ 4,000,000
Burlington Office Center
I, II and III 500,000 3,000,000
Regency Park Shopping
Center 2,000,000 1,500,000
Sentry Park West Office
Campus 1,500,000
--------------------------------------------
$5,600,000 $10,000,000
--------------------------------------------
11. ASSET HELD FOR DISPOSITION:
During 1996, the Partnership modified the terms of the mortgage loan secured by
Regency. Among other provisions, the modification provides for a maturity date
of December 31, 1997. The Partnership is marketing Regency for sale and expects
to complete a sale prior to December 31, 1997. Accordingly, the Partnership
began classifying Regency as "Held for Disposition" as of December 31, 1996.
The Partnership's carrying basis, net of accumulated depreciation and
amortization, of Regency on the Balance sheet effective December 31, 1996 was
$7,751,600 and does not exceed the estimated fair value, less costs to sell.
The Partnership's share of net income (loss) (exclusive of provisions for value
impairment) from Regency included in the Statements of Income and Expenses for
the years ended December 31, 1996, 1995 and 1994 was $21,100, $(140,300) and
$(326,200), respectively.
A-9
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES XI
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
Column A Column B Column C Column D Column E
- ----------------------- ----------- ------------------------ --------------------- ---------------------------------------
Costs capi-
Initial cost talized subsequent Gross amount at which
to Partnership to acquisition carried at close of period
------------------------ --------------------- ---------------------------------------
Buildings Buildings
and and
Encum- Improve- Improve- Carrying Improve-
Description brances Land ments ments Costs (1) Land ments Total (2)(3)
- ----------------------- ----------- ----------- ----------- ---------- --------- ---------- ----------- ------------
Shopping Centers:
- ----------------
Marquette Mall
and Office Building
(Michigan City, IN)
(100% Interest) $11,441,600 $ 2,000,000 $20,306,700 $3,742,900 $164,800 $1,930,500 $17,114,400 $19,044,900(4)
Regency Park
Shopping Center
(Jacksonville, FL)
(50% Interest) 7,709,200 4,125,300 12,316,400 461,800 179,200 2,081,600(7) 8,306,100 10,387,700(4)
Office Buildings:
- ----------------
Burlington Office
Centers I, II and III
(Ann Arbor, MI)
(100% Interest) 10,814,200 3,000,000 17,597,800 1,795,300 72,500 3,000,000 15,964,600 18,964,600(4)
Prentice Plaza
(Englewood, Co
50% Interest) 4,838,200 1,139,600 7,390,200 1,057,400 40,800 1,139,600 8,488,400 9,628,000
----------- ----------- ----------- ---------- -------- ---------- ----------- -----------
$34,803,200 $10,264,900 $57,611,100 $7,057,400 $457,300 $8,151,700 $49,873,500 $58,025,200
=========== =========== =========== ========== ======== ========== =========== ===========
Column A Column F Column G Column H Column I
- ----------------------- ----------- --------- --------- -------------
Life on which
depreciation
Accumu- in latest
lated Date of income
Deprecia- construc- Date statements
Description tion (2) tion Acquired is computed
- ----------------------- ----------- --------- --------- -------------
Shopping Centers:
- ----------------
Marquette Mall
and Office Building
(Michigan City, IN) 35 (5)
(100% Interest) $ 6,489,300 1967 Dec. 1986 2-10 (6)
Regency Park
Shopping Center
(Jacksonville, FL) 35 (5)
(50% Interest) 2,636,100 1985 Feb. 1988 5-10 (6)
Office Buildings:
- ----------------
Burlington Office
Centers I, II and III
(Ann Arbor, MI) 35 (5)
(100% Interest) 4,851,500 (7) (7) 2-10 (6)
Prentice Plaza
(Englewood, CO) 35 (5)
(50% Interest) 3,085,900 1985 Mar. 1988 2-10 (6)
-----------
$17,062,800
===========
See accompanying notes on the following page.
A-8
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES XI
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:
December 31, 1996 December 31, 1995 December 31, 1994
----------------------------- --------------------------- ---------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
-------------- ------------- ------------ ------------ ------------ ------------
Balance at the
beginning
of the year $ 65,275,200 $ 18,551,100 $ 68,940,100 $ 16,292,000 $ 84,445,700 $ 15,939,000
Additions
during
the year:
Improvement 875,900 1,935,100 1,230,400
Provisions for
depreciation 1,649,600 2,259,100 2,580,000
Deductions
during the
year:
Cost of real
estate sold (8,125,900) (6,736,000)
Accumulated
depreciation
on real
estate sold (3,137,900) (2,227,000)
Provisions
for value
impairment (5,600,000) (10,000,000)
-------------- ------------- ------------ ------------ ------------ ------------
Balance at
the end of
the year $ 58,025,200 $ 17,062,800 $ 65,275,200 $ 18,551,100 $ 68,940,100 $ 16,292,000
============== ============= ============ ============ ============ ============
Note 3. The aggregate cost for federal income tax purposes as of December 31,
1996 was $67,809,500.
Note 4. Included provisions for value impairment. See Note 10 of Notes to
Financial Statements for additional information.
Note 5. Estimated useful life in years for building.
Note 6. Estimated useful life in years for improvements.
Note 7. Burlington Office Center I was completed in 1983, Burlington Office
Center II was completed in 1985 and Burlington Office Center III was
completed in 1989. Burlington Office Center I and II were purchased in
September 1988 and Burlington Office Center III was purchased in
September 1989.
A-9