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, 1997
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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 1000, 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
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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
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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. The joint ventures, prior to
dissolution, are operated under the common control of First Capital Financial
Corporation (the "General Partner"). Through December 31, 1997, the
Partnership, with its respective joint venture partners, has dissolved two 50%
joint ventures 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 a 50% joint venture interest to an Affiliated partner.
Property management services for certain of the Partnership's real estate
investments are provided by third-party real estate management companies for
fees calculated as a percentage of gross rents received from the properties. In
addition, an Affiliate of the General Partner provides property management
services for fees calculated as a percentage of gross rents received for one of
the Partnership's office properties. Affiliates of the General Partner provide
property supervisory services for all 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, 1998, there were 30 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, 1997, the Partnership owned directly or through joint
ventures, the following three properties, all of which were owned in fee simple
and encumbered by mortgages. For details of the material terms of the
mortgages, refer to Note 4 of Notes to Financial Statements.
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ----------------------------------------- ---------------------------- ---------------- ---------------
Shopping Center:
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Marquette Mall and Office Building Michigan City, Indiana 398,104 98(1)
Office Buildings:
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Burlington Office Center I, II and III (d) Ann Arbor, Michigan 173,215 39(4)
Prentice Plaza (50%) Englewood, Colorado 157,311 35(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") and Prentice Plaza was $466,100, $451,300 and $285,600,
respectively, for the year ended December 31, 1997. 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 a 70% preferred majority undivided interest
through a 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 1997 1996 1995 1994 1993
- --------------------- ------ ------ ------ ------ ------
Marquette 80% 83% 83% 79% 81%
Burlington 97% 96% 78% 91% 88%
Prentice Plaza 95% 98% 99% 97% 92%
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 1997 1996 1995 1994 1993
- --------------------- ------ ------ ------ ------ ------
Marquette $ 7.17 $ 6.90 $ 6.74 $ 6.85 $ 6.71
Burlington $17.58 $17.32 $18.04 $17.23 $17.55
Prentice Plaza $15.68 $14.91 $14.31 $13.65 $12.63
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 Renewal
Base Rents (a) for Percentage of Options
-------------------------------- Net Leasable (Renewal
Final Twelve Expiration Square Footage Options /
1998 Months of Lease Date of Lease Occupied Years)
-------- --------------- ------------- -------------- ----------
Marquette
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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) $369,600 $375,700 7/31/2000 12% 1/3
Washtenaw Mortgage Company
(mortgage broker) $253,900 284,200 8/31/2001 10% None
A.E. Clevite, Inc.
(transportation products (b) (b) 12/31/1997 11% None
manufacturer)
Dykema Gossett
(legal firm) $328,900 $338,800 3/31/2001 10% 1/5
Prentice Plaza
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IGC(c)
(fiber optical provider) $146,900 $150,200 9/30/1999 11% None
(a) The Partnership's share of per annum base rents for each of the
tenants listed above for each of the years between 1998 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) A.E. Clevite, Inc.'s lease expired on December 31, 1997 and in January
1998, vacated the building. The Partnership is currently in
negotiations with a possible replacement tenant.
(c) This space is sublet from ANTEC Corporation, who is the lessee and is
responsible for the rent payments through the expiration of the lease.
5
ITEM 2. PROPERTIES (Continued)
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The amounts in the following table represent the Partnership's portion of base
rental income from leases in the year of expiration (assuming no lease renewals)
through the year ended December 31, 2007.
Base Rents in
Number Year of % of Total
Year of Tenants Square Feet Expiration (a) Base Rents (b)
------ ---------- ----------- -------------- --------------
1998 74 161,707 $824,000 15.29%
1999 37 110,463 $726,500 17.30%
2000 26 82,884 $807,700 25.60%
2001 15 82,697 $831,800 46.73%
2002 6 20,806 $153,100 17.83%
2003 3 124,554 $ 70,700 12.62%
2004 5 8,626 $165,100 35.70%
2005 3 29,055 $102,500 34.84%
2006 0 None None 0%
2007 1 2,060 $ 24,700 12.90%
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, 1997.
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, 1997. Ordinary routine legal
matters incidental to the business which was not deemed material were pursued
during the quarter ended December 31, 1997.
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, 1998, there were 4,658 Holders of Units.
7
ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
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1997 1996 1995 1994 1993
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Total revenues $10,926,100 $11,264,700 $10,436,500 $ 10,995,500 $ 11,456,300
Net income (loss) $ 1,280,900 $ 241,900 $(7,553,400) $(10,580,500) $(10,373,500)
Net income (loss)
allocated to Limited
Partners: None None $(5,330,200) $(10,474,700) $(10,269,800)
Net income (loss)
allocated to Limited
Partners per Unit
(57,621 Units
outstanding) None None $ (92.50) $ (181.79) $ (178.23)
Total assets $36,756,800 $43,459,800 $49,323,600 $ 55,551,600 $ 71,451,800
Mortgage loans payable $26,735,900 $34,803,200 $41,189,600 $ 40,369,100 $ 44,255,200
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) $32,428,200 $40,962,400 $46,724,100 $ 52,648,100 $ 68,506,700
Number of real property
interests owned at
December 31 3 4 5 5 8
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(a) Excludes deferred interest payable.
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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1997 1996 1995 1994 1993
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Cash Flow (deficit) (as
defined in the
Partnership Agreement)
(a) $ 534,600 $ 152,200 $ (241,700) $ 18,900 $ 342,900
Items of reconciliation:
Principal payments on
mortgage loans payable 653,700 923,200 630,100 551,700 548,600
Changes in current
assets and
liabilities:
Decrease (increase) in
current assets 48,200 64,100 (53,800) 304,900 (74,300)
(Decrease) in current
liabilities (256,800) (31,500) (100,700) (125,600) (130,500)
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Net cash provided by
operating activities $ 979,700 $ 1,108,000 $ 233,900 $ 749,900 $ 686,700
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Net cash provided by
(used for) investing
activities $ 6,995,100 $ 4,810,400 $(1,227,500) $ 3,392,500 $ 2,127,300
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Net cash (used for)
provided by financing
activities $(7,580,200) $(5,877,100) $ 712,600 $(3,981,900) $(1,585,800)
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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-8
in this report and the supplemental schedule on pages A-9 and A-10.
8
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, 1997 the Partnership, with its
respective joint venture partners, has dissolved two joint ventures 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 a 50% joint venture interest to an Affiliated
partner.
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1997, 1996 and 1995.
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,
---------------------------------
1997 1996 1995
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MARQUETTE MALL AND OFFICE BUILDING
Rental revenues $4,141,100 $4,141,000 $4,012,400
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Property net income (loss) (b) $ 99,400 $ 131,100 $ (171,300)
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Average occupancy 82% 83% 82%
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BURLINGTON OFFICE CENTER I, II AND III
Rental revenues $3,231,700 $2,766,400 $2,626,200
- ------------------------------------------------------------------
Property net income (loss) (b) $ 337,200 $ (180,200) $ (224,000)
- ------------------------------------------------------------------
Average occupancy 96% 84% 76%
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PRENTICE PLAZA (50%)
Rental revenues $1,253,500 $1,270,700 $1,169,400
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Property net (loss) $ (114,800) $ (19,900) $ (229,800)
- -------------------------------------------------------------------
Average occupancy 96% 99% 97%
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SOLD PROPERTIES (C)
Rental revenues $ 570,000 $2,208,100 $2,574,200
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Property net income (loss) (b) $ 35,700 $ 265,800 $ (491,700)
- -------------------------------------------------------------------
(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) for the year ended December 31, 1995 excludes a (loss)
from a provision for value impairment which was included in the Statement
of Income and Expenses (see Note 8 of Notes to Financial Statements for
additional information).
(c) Sold Properties includes the results of Regency Park Shopping Center
("Regency"), sold in 1997, and Sentry Park West Office Campus ("Sentry
West"), sold in 1996. Property net income excludes the gains recorded on
these sales (see Note 7 of Notes to Financial Statements for additional
information).
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996
Net income increased by $1,039,000 for the year ended December 31, 1997 when
compared to the year ended December 31, 1996. The increase was primarily due to
a larger gain recorded in 1997 on the sale of Regency when compared to the gain
recorded in 1996 on the sale of Sentry West. Also contributing to the increase
was the improved operating results at Burlington Office Center I,II and III
("Burlington"). The increase was partially offset by the absence of results in
1997 due to the 1996 sale of Sentry West.
Net operating results, exclusive of the gains on sale and operating results of
the Sold Properties, improved by $486,400. The improvement was primarily due to
the improved operating results at Burlington. Also contributing to the increase
was the increase in interest income earned on the Partnership's short-term
investments due to the proceeds from the sale of Regency being added to the
amounts available for investment. Partially offsetting the improvement was
diminished operating results at Prentice Plaza and Marquette Mall and Office
Building ("Marquette").
The following comparative discussion includes only the results from the
Partnership's three remaining property investments.
Rental revenues increased by $448,200 or 5.5% for the year ended December 31,
1997 when compared to the year ended December 31, 1996. The increase was
primarily due to the increase in base rental income at Burlington which was due
to the successful leasing of the majority of the vacant space
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
in Burlington III during 1996. Also contributing to the increase was a receipt
in 1997 of consideration for an early lease termination at Prentice Plaza. The
increase was partially offset by a decrease in tenant expense reimbursements at
Prentice Plaza due to the successful appeal of 1996 real estate taxes which
resulted in a 1997 refund to tenants which was credited against amounts due for
tenant expense reimbursements.
Interest expense decreased by $170,300 for the year ended December 31, 1997
when compared to the year ended December 31, 1996. The decrease was primarily
due to a decrease in the average effective interest rate on the mortgage loan
collateralized by Burlington.
Real estate tax expense increased by $37,800 for the year ended December 31,
1997 when compared to the year ended December 31, 1996. The increase was
primarily due to the 1996 receipt of refunds for 1995 taxes at Prentice Plaza.
Refunds received in 1997 at Prentice Plaza for 1996 taxes were offset by a
significant increase in real estate taxes which was due to a reassessment of
the taxing authorities value of Prentice Plaza. This reassessment is currently
under appeal, however, it is currently uncertain as to the Partnership's
success in its efforts. Partially offsetting the increase was a decrease in
expense at Marquette which was due to an overestimate of 1996 real estate
taxes, adjusted in 1997.
Depreciation and amortization increased by $87,600 for the year ended December
31, 1997 when compared to the year ended December 31, 1996. The increase was
primarily due to the depreciable assets placed in service at Burlington during
the past 24 months exceeding the depreciable assets whose lives expired during
1996 and 1997.
Repair and maintenance expenses increased by $48,900 for the year ended
December 31, 1997 when compared to the year ended December 31, 1996. The
increase was primarily due to an increase in janitorial services at Burlington
due to the increase in the average occupancy and an increase in salaries.
Property operating expenses increased by $52,600 for the year ended December
31, 1997 when compared to the year ended December 31, 1996. The increase was
primarily due to an increase in professional services and advertising and
promotional expenses at Marquette. The increase in professional services at
Marquette was due to expenses incurred in the exploration of a possible sale
and/or refinancing of the property.
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. This change was primarily the result of provisions for value
impairment totaling $5,600,000 recorded for the year ended December 31, 1995
and a gain of $816,100 recorded on the sale of Sentry West for the year ended
December 31, 1996.
Net operating results, 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, Prentice Plaza and Regency.
The following comparative discussion includes the results from the
Partnership's four remaining property investments at December 31, 1996
(Marquette, Burlington, Prentice Plaza and Regency).
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 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 lower average outstanding principal balances
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.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its asset and property management groups,
continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenant leases and addressing
any
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
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 determined 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 determined by GAAP. The second
table in Selected Financial Data includes a reconciliation of Cash Flow (as
defined in the Partnership Agreement) to cash flows provided by operating
activities as determined by GAAP. Such amounts are not indicative of actual
distributions to Partners and should not necessarily be considered as an
alternative to the results disclosed in the Statements of Income and Expenses
and Statements of Cash Flows.
The increase in Cash Flow (as defined in the Partnership Agreement) of $382,400
for the year ended December 31, 1997 when compared to the year ended December
31, 1996 was primarily due to the improvement in operating results, as
previously discussed, exclusive of depreciation, amortization and gains on the
sales of property together with a decrease in regularly scheduled principal
payments made on the Partnership's mortgage loans.
The increase of $394,600 in the Partnership's cash position for the year ended
December 31, 1997 was primarily the result of net proceeds from the sale of
Regency after repayment of mortgage debt and net cash provided by operating
activities exceeding payments for capital and tenant improvement and leasing
costs, principal amortization and investments in debt securities. The liquid
assets of the Partnership as of December 31, 1997 were comprised of amounts
held for working capital purposes.
Net cash provided by operating activities decreased by $128,300 for the year
ended December 31, 1997 when compared to the year ended December 31, 1996. The
decrease was primarily the result of the significant absence of results due to
the sale of Regency in 1997 and Sentry West in 1996. The decrease was partially
offset by the improved operating results, exclusive of depreciation and
amortization, as previously discussed.
Net cash provided by investing activities increased by $2,184,700 for the year
ended December 31, 1997 when compared to the year ended December 31, 1996. The
increase was primarily due to proceeds received in 1997 from the sale of
Regency exceeding proceeds received in 1996 from the sale of Sentry West.
Partially offsetting the increase was the increase in investments in debt
securities. The increase in investments in debt securities is a result of the
extension of the maturities of certain of the Partnership's short-term
investments in an effort to maximize the return on these amounts while they are
held for working capital purposes. These investments are of investment-grade
and mature less than one year from their date of purchase.
The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements and leasing costs. During
the year ended December 31, 1997, the Partnership spent $892,400 for building
and tenant improvements and leasing costs and has budgeted to spend
approximately $1,125,000 during 1998. Included in the 1998 budgeted amount are
capital and tenant improvements and leasing costs of approximately $600,000 at
Burlington and $400,000 at Prentice Plaza which relate to tenant turnover
discussed below. 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 June 16, 1997, a joint venture in which the Partnership owns a 50% interest
completed the sale of Regency. The Partnership's share of net proceeds from
this transaction was $1,735,600, which was net of closing costs and the
repayment of the mortgage loan encumbering the property, and has been retained
to supplement working capital reserves.
Net cash used for financing activities increased by $1,703,100 for the year
ended December 31, 1997 when compared to the year ended December 31, 1996. The
increase was primarily due to the 1997 repayment of the Regency mortgage loan
exceeding the 1996 repayment of the Sentry West mortgage loan and the paydown
of the Marquette loan, both from proceeds from the sale of Sentry West (see
Notes 4 and 7 of Notes to Financial Statements).
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 is not subordinated
to payment of original Capital Contributions to Limited Partners. As of
December 31, 1997, the Partnership has deferred $1,326,300 of the interest.
During 1997, the Partnership exercised its option to extend the maturity date
of the junior mortgage loan collateralized by Marquette. Terms of the extension
included a .5% fee, 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. Terms of the existing loan include a
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
prohibition on distributions to Limited Partners and a guarantee of repayment
by the Partnership. This loan matures on September 30, 1998. The Partnership is
currently pursuing alternative financing. There can be no assurance that the
financing efforts will be successful.
On May 15, 1997, Burlington Associates General Partnership, in which the
Partnership owns a 70% undivided preferred interest, obtained a new mortgage
loan in the amount of $11,000,000 which is secured by Burlington and a
guarantee by the Partnership. The existing loan of $10,774,100 was paid off in
full with proceeds from the new loan. The maturity date of the new loan is May
15, 1999, and includes an option for a one-year renewal under slightly
different terms, provided the Partnership is able to meet the conditions for
the renewal. The new loan requires interest only payments during the initial
term of the loan, payable monthly in arrears, and precludes the Partnership
from making distributions to Partners until the loan is repaid.
The General Partner, on behalf of the Partnership, has contracted for
substantially all of its business activities with certain principal entities
for which computer programs are utilized. Each of these companies is
financially responsible and have represented to management of the General
Partner that they are taking appropriate steps for modifications needed to
their respective systems to accommodate processing data by Year 2000.
Accordingly, the Partnership anticipates incurring no material Year 2000 costs
and is currently not aware of any material contingencies related to this
matter.
As of December 31, 1997, 33 of the 39 tenants at Burlington and 27 of the 35
tenants at Prentice Plaza have leases totaling 232,825 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 ended December 31,
1998 is $2,137,300. Notwithstanding the market rental rates that may be in
effect at the time that these leases expire, the Partnership faces a
significant amount of uncertainty with respect to occupancy at its properties
during 1998 and possibly beyond. The General Partner and its property
management companies intend to address the possible renewal of all 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, 1998. As disclosed in Note 4 of Notes to Financial Statements,
payments due on the mortgage loans collateralized by the Partnership's
properties are substantial. The junior mortgage loan collateralized by
Marquette matures in September 1998. While the General Partner is currently
negotiating to refinance this 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. In connection with
the replacement of tenants, as discussed above, together with ongoing required
maintenance of the Partnership's properties, the Partnership anticipates
incurring substantial capital, tenant improvement and leasing costs during
1998. As a result of these issues together with the prohibitions on
distributions to Partners in loans collateralized by Marquette and Burlington,
the Partnership continues to retain all cash available. Accordingly,
distributions to Partners continue to be suspended. For the year ended December
31, 1997, Cash Flow (as defined in the Partnership Agreement) of $534,600 was
retained to supplement working capital reserves. The General Partner continues
to review other sources of cash available to the Partnership, which include the
sale or refinancing of the Partnership's properties. There can be no assurance
as to the timing or successful completion of any future transactions. The
Partnership may have inadequate liquidity to meet its mortgage loan
obligations, which could result in foreclosure of one or more properties. The
General Partner currently believes that the value of each property is
sufficiently in excess of its respective mortgage obligation(s) and,
accordingly, such an event 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 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.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
(a) & (e) DIRECTORS
The Partnership has no directors. First Capital Financial Corporation
("FCFC") is the General Partner. The directors of FCFC, as of March 31,
1998, 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 1998.
Name Office
---- ------
Douglas Crocker II....................................... Director
Sheli Z. Rosenberg....................................... Director
Douglas Crocker II, 57, has been President and Chief Executive Officer
since December 1992 and a Director since January 1993 of the General
Partner. Mr. Crocker has been President, Chief Executive Officer and
trustee of Equity Residential Properties Trust since March 31, 1993. Mr.
Crocker is a member of the Board of Directors of Horizon Group, Inc. and
Wellsford Real Properties, Inc. Mr. Crocker was an Executive Vice President
of Equity Financial and Management Company ("EFMC") from November 1992
until March 1997.
Sheli Z. Rosenberg, 56, was President and Chief Executive Officer of the
General Partner from December 1990 to December 1992 and has been a Director
of the General Partner since September 1983; was Executive Vice President
and General Counsel for EFMC from October 1980 to November 1994; has been
President and Chief Executive Officer of Equity Group Investments, Inc.
("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., American Classic Voyages Co., CVS
Corporation, Illinova Corporation, Illinois Power Co., Jacor
Communications, Inc., and Manufactured Home Communities, Inc. She is also a
trustee of Equity Residential Properties Trust, Equity Office Properties
Trust and Capital Trust. Ms. Rosenberg was a Principal of Rosenberg &
Liebentritt, P.C., counsel to the Partnership, the General Partner and
certain of their Affiliates from 1980 until September 1997. She had been
Vice President of First Capital Benefit Administrators, Inc. ("Benefit
Administrators") since July 22, 1987 until its liquidation in November
1995. Benefit Administrators filed for protection under the Federal
Bankruptcy laws on January 3, 1995.
14
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
(b) & (e) EXECUTIVE OFFICERS
The Partnership does not have any executive officers. The executive
officers of the General Partner as of March 31, 1998 are shown in the
table. All officers are elected to serve for one year or until their
successors are elected and qualified.
Name Office
---- ------
Douglas Crocker II................ President and Chief Executive Officer
Donald J. Liebentritt............. Vice President
Norman M. Field................... Vice President - Finance and Treasurer
PRESIDENT AND CEO- See Table of Directors above.
Donald J. Liebentritt, 47, has been Vice President of the General Partner
since July 1997 and is Executive Vice President and General Counsel of EGI,
Vice President and Assistant Secretary of Great American and Principal and
Chairman of the Board of Rosenberg & Liebentritt, P.C.
Norman M. Field, 49, 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) and (e), there are no involvements in certain legal proceedings among
any of the foregoing directors and officers.
15
ITEM 11. EXECUTIVE COMPENSATION
(a - d) As stated in Item 10, the Partnership has no officers or directors.
Neither the General Partner, nor any director or officer of the General Partner,
received any direct remuneration from the Partnership during the year ended
December 31, 1997. However, the General Partner and its Affiliates do
compensate its directors and officers. For additional information see Item 13
Certain Relationships and Related Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) As of March 1, 1998, 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,
1998, 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, 1997, these Affiliates were entitled to leasing fees and
property management and supervisory fees of $195,900. In addition, other
Affiliates of the General Partner were entitled to fees and compensation of
$139,400 for insurance, personnel and other services. As of December 31,
1997, $1,200 of these fees and reimbursements due to Affiliates were unpaid
and $16,000 was due from Affiliates. Services provided by Affiliates are on
terms which are fair, reasonable and no less favorable to the Partnership
than reasonably could be obtained from unaffiliated persons.
For the year ended December 31, 1997 an Affiliate of the General Partner
was entitled to interest on the Partnership's Front-End Fees loan in the
amount of $642,700. 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 Partnership elected to defer
payment of interest. As of December 31, 1997, the total deferred interest
was $1,326,300.
16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
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, 1997, the General Partner was allocated Net Profits
of $1,280,900, which included a gain on the sale of property of $1,598,800.
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 18.5% owned by Anixter International Inc. (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, 1997, the Partnership's share of ANTEC's rent was
$137,000. In addition, during the year ended December 31, 1997, ANTEC
remitted $60,000 as consideration for the early release of approximately
38% of its leased space. ANTEC has also reached an agreement with another
tenant to sublease the remainder of their space. The subletting has no
effect on the Partnership as ANTEC still retains responsibility for the
rent on their space until their lease expires in September 1999. The per
square foot rent paid by ANTEC is comparable to that paid by other tenants
at Prentice Plaza.
Manufactured Homes Communities Inc. ("MHC") a real estate investment trust
which is in the business of owning and operating mobile home communities,
an Affiliate of the General Partner, is obligated to the Partnership under
a lease of office space at Prentice Plaza. During the year ended December
31, 1997, the Partnership's share of MHC's rent was $21,900. The per square
foot rent paid by MHC is comparable to that paid by other tenants at
Prentice Plaza.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the General Partner and certain of their Affiliates. Donald J.
Liebentritt, Vice President, is a Principal and the Chairman of the Board
of Rosenberg. For the year ended December 31, 1997, Rosenberg was entitled
to $131,800 for legal fees from the Partnership. Compensation for these
services are on terms which are fair, reasonable and no less favorable to
the Partnership than reasonably could be obtained from unaffiliated
parties.
(c) No management person is indebted to the Partnership.
(d) None
17
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, 1997.
18
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 31, 1998 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/ DOUGLAS CROCKER II March 31, 1998 President, Chief Executive Officer and
- ---------------------------- -------------- Director of the General Partner
DOUGLAS CROCKER II
/s/ SHELI Z. ROSENBERG March 31, 1998 Director of the General Partner
- ---------------------------- --------------
SHELI Z. ROSENBERG
/s/ DONALD J. LIEBENTRITT March 31, 1998 Vice President
- ---------------------------- --------------
DONALD J. LIEBENTRITT
/s/ NORMAN M. FIELD March 31, 1998 Vice President - Finance and Treasurer
- ---------------------------- --------------
NORMAN M. FIELD
19
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, 1997 and 1996 A-3
Statements of Partners' Capital (Deficit) for the Years Ended
December 31, 1997, 1996 and 1995 A-3
Statements of Income and Expenses for the Years Ended
December 31, 1997, 1996 and 1995 A-4
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 A-4
Notes to Financial Statements A-5 to A-8
SCHEDULE FILED AS PART OF THIS REPORT
III - Real Estate and Accumulated Depreciation as of
December 31, 1997 A-9 and A-10
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 filed as an exhibit to the
Partnership's Report on Form 10-K for the year ended December 31, 1996 is
incorporated herein by reference.
Real Estate Sale Agreement and Closing Documents 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 filed on August 28, 1996 is incorporated
herein by reference.
Real Estate Sale Agreement and Closing Documents for the sale of the
Partnership's investment in Regency Park Shopping Center filed as an exhibit to
the Partnership's Report on Form 8-K filed on June 26, 1997 is incorporated
herein by reference.
EXHIBIT (13) Annual Report to Security Holders
The 1996 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, 1997 and 1996, 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, 1997, 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, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, 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 9, 1998
A-2
BALANCE SHEETS
December 31, 1997 and 1996
(All dollars rounded to nearest 00s)
1997 1996
- ----------------------------------------------------------------------------
ASSETS
Investment in commercial rental properties:
Land $ 6,070,100 $ 8,151,600
Buildings and improvements 42,160,000 49,873,600
- ----------------------------------------------------------------------------
48,230,100 58,025,200
Accumulated depreciation and amortization (15,801,900) (17,062,800)
- ----------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 32,428,200 40,962,400
Cash and cash equivalents 1,767,500 1,372,900
Investments in debt securities 1,487,600
Rents receivable 666,100 624,400
Other assets (net of accumulated amortization on
loan acquisition costs of $476,400 and $382,200,
respectively) 407,400 500,100
- ----------------------------------------------------------------------------
$36,756,800 $43,459,800
- ----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
Mortgage loans payable $26,735,900 $34,803,200
Front-End Fees loan payable to Affiliate 8,295,200 8,295,200
Accounts payable and accrued expenses 1,065,200 1,260,700
Due to Affiliates, net 1,311,500 745,600
Security deposits 183,800 186,300
Other liabilities 154,500 439,000
- ----------------------------------------------------------------------------
37,746,100 45,730,000
- ----------------------------------------------------------------------------
Partners' (deficit):
General Partner (deficit) (989,300) (2,270,200)
Limited Partners (57,621 Units issued and
outstanding)
- ----------------------------------------------------------------------------
(989,300) (2,270,200)
- ----------------------------------------------------------------------------
$36,756,800 $43,459,800
- ----------------------------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s)
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
Partners' (deficit) capital, January 1,
1995 $ (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)
Net income for the year ended December 31,
1997 1,280,900 0 1,280,900
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1997 $ (989,300) $ 0 $ (989,300)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
A-3
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s except per Unit amounts)
1997 1996 1995
- ------------------------------------------------------------------------------
Income:
Rental $ 9,201,000 $10,386,100 $10,383,600
Interest 126,300 62,500 52,900
Gain on sale of property 1,598,800 816,100
- ------------------------------------------------------------------------------
10,926,100 11,264,700 10,436,500
- ------------------------------------------------------------------------------
Expenses:
Interest:
Affiliate 642,700 626,600 673,000
Nonaffiliates 2,573,000 3,249,100 3,724,100
Depreciation and amortization 1,506,200 1,649,600 2,341,800
Property operating:
Affiliates 269,800 575,200 602,000
Nonaffiliates 2,014,100 1,972,300 2,162,500
Real estate taxes 1,264,300 1,382,300 1,285,100
Insurance--Affiliate 118,200 140,500 111,800
Repairs and maintenance 1,096,300 1,242,700 1,296,900
General and administrative:
Affiliates 28,000 37,800 41,500
Nonaffiliates 132,600 146,700 151,200
Provisions for value impairment 5,600,000
- ------------------------------------------------------------------------------
9,645,200 11,022,800 17,989,900
- ------------------------------------------------------------------------------
Net income (loss) $ 1,280,900 $ 241,900 $(7,553,400)
- ------------------------------------------------------------------------------
Net income (loss) allocated to General
Partner $ 1,280,900 $ 241,900 $(2,223,200)
- ------------------------------------------------------------------------------
Net (loss) allocated to Limited Partners $ 0 $ 0 $(5,330,200)
- ------------------------------------------------------------------------------
Net (loss) allocated to Limited Partners
per Unit (57,621 Units outstanding) $ 0 $ 0 $ (92.50)
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s)
1997 1996 1995
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 1,280,900 $ 241,900 $(7,553,400)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,506,200 1,649,600 2,341,800
(Gain) on sale of property (1,598,800) (816,100)
Provisions for value impairment 5,600,000
Changes in assets and liabilities:
(Increase) decrease in rents
receivable (41,700) 2,400 (55,300)
Decrease in other assets 89,900 61,700 1,500
(Decrease) in accounts payable and
accrued expenses (195,500) (39,700) (169,600)
(Decrease) increase in due to
Affiliates (76,800) 4,300 2,000
Increase in other liabilities 15,500 3,900 66,900
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 979,700 1,108,000 233,900
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property 9,375,100 5,606,600
Payments for capital and tenant
improvements (892,400) (875,900) (1,335,100)
(Increase) in investments in debt
securities, net (1,487,600)
Maturity of restricted certificate
of deposit and escrow deposits 79,700 107,600
- ------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 6,995,100 4,810,400 (1,227,500)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans
payable (653,700) (1,817,700) (929,500)
Repayment of mortgage loans payable (18,413,600) (4,568,700)
Proceeds from mortgage loan payable 11,000,000 1,750,000
Interest deferred on Front-End Fees
loan payable to Affiliate 642,700 626,600
Payment of loan acquisition or
extension fees (153,100) (102,900) (113,500)
(Decrease) increase in security
deposits (2,500) (14,400) 5,600
- ------------------------------------------------------------------------------
Net cash (used for) provided by
financing activities (7,580,200) (5,877,100) 712,600
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 394,600 41,300 (281,000)
Cash and cash equivalents at the
beginning of the year 1,372,900 1,331,600 1,612,600
- ------------------------------------------------------------------------------
Cash and cash equivalents at the end
of the year $ 1,767,500 $ 1,372,900 $ 1,331,600
- ------------------------------------------------------------------------------
Supplemental information:
Interest paid during the year $ 2,786,800 $ 3,293,700 $ 4,404,100
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
A-4
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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"). The Partnership utilizes the accrual
method of accounting. Under this method, 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 two joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of each acquiring a 100% 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 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.
The Partnership evaluates its commercial rental properties for impairment when
conditions exist which may indicate that it is probable that the sum of
expected future cash flows (undiscounted) from a property is less than its
carrying basis. Upon determination that an impairment has occurred, the
carrying basis in the rental property is reduced to its estimated fair value.
Except as disclosed in Note 8, the General Partner was not aware of any
indicator that would result in a significant impairment loss during the periods
reported.
Loan acquisition costs are amortized over the term of the mortgage loan made in
connection with the acquisition of Partnership properties or refinancing of
Partnership loans. When a property is disposed of or a loan is refinanced, the
related loan acquisition costs and accumulated amortization are removed from
the respective accounts and any unamortized balance is charged to expense.
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.
Investments in debt securities are comprised of corporate debt securities and
are classified as held-to-maturity. These investments are carried at their
amortized cost basis in the financial statements which approximated fair value.
All of these securities had a maturity of less than one year when purchased.
A-5
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, 1997 and
1996.
Certain reclassifications have been made to the previously reported 1996 and
1995 statements in order to provide comparability with the 1997 statements.
These reclassifications had no effect on net income (loss) or Partners'
(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, 1997, the General
Partner was allocated 100% of the Net Profits of $1,280,900 which included the
gain on the sale of property of $1,598,800. For the year ended December 31,
1996, the General Partner was allocated 100% of the Net Profits of $241,900
which included the gain on the 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). No amounts will be allocated to Limited Partners until such time
as the cumulative computation of Limited Partners' capital account would result
in a positive balance.
Fees and reimbursements paid and payable/(receivable) by the Partnership
to/(from) Affiliates were as follows:
For the Years Ended December 31,
----------------------------------------------------------
1997 1996 1995
------------------- ----------------- -------------------
Paid Payable Paid Payable Paid Payable
- -----------------------------------------------------------------------------------
Property management and
leasing fees $263,600 $ (16,000) $498,700 $ 51,700 $ 527,400 $ 43,600
Interest expense on
Front-End Fees loan
(Note 3) None 1,326,300 None 683,600 664,200 56,900
Reimbursement of
property insurance
premiums, at cost 118,200 None 140,500 None 107,200 None
Legal 138,800 None 129,300 7,000 95,800 4,300
Reimbursement of
expenses, at cost:
--Accounting 20,400 1,100 33,300 3,100 23,700 9,000
--Investor
communication 2,900 100 5,100 200 11,100 900
--Other None None None None 900 None
- -----------------------------------------------------------------------------------
$543,900 $1,311,500 $806,900 $745,600 $1,430,300 $114,700
- -----------------------------------------------------------------------------------
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 18.5% owned by Anixter International Inc. (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, 1997, 1996 and 1995, the Partnership's share of ANTEC's rent
and reimbursement of expenses was $137,000, $293,400 and $189,100,
respectively. In addition, during the year ended December 31, 1997, ANTEC
remitted $60,000 as consideration for the early release of approximately 38% of
its leased space. ANTEC has also reached an agreement with another tenant to
sublease the remainder of their space. The subletting has no effect on the
Partnership as ANTEC still retains responsibility for the rent on their space
until their lease expires in September 1999. 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 an Affiliate of the General Partner and is in the business of owning
and operating mobile home communities, is obligated to the Partnership under a
lease of office space at Prentice Plaza. During the years ended December 31,
1997, 1996 and 1995, the Partnership's share of MHC's rent and reimbursement of
expenses was $21,800, $29,800 and $22,100, 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 third-party management companies for fees ranging from 3% to 6% 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 certain of the
properties. These fees range from 1% to 6% based upon the terms of the
individual management agreements.
A-6
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership borrowed from an Affiliate of the General Partner an amount
needed for the payment of securities sales commissions, Offering and
Organizational Expenses and other Front-End Fees, other than Acquisition Fees.
Repayment of the principal amount of the Front-End Fees loan is subordinated to
payment to the Limited Partners of 100% of their Original Capital Contribution
from Sale or Refinancing Proceeds (as defined in the Partnership Agreement).
Interest on the outstanding balance of this loan is due and payable monthly at
a rate no greater than the cost of funds obtained by the Affiliate from
unaffiliated lenders.
As of December 31, 1997, 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, 1997 was 7.64%. As of December
31, 1997, the interest rate was 7.97%.
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. As of December 31, 1997,
the amount of interest deferred pursuant to this modification was $1,326,300.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at December 31, 1997 and 1996 consisted of the following
loans which are non-recourse unless otherwise noted:
Property
Pledged Principal Balance at Average Estimated
as -------------------------- Interest Maturity Periodic Balloon
Collateral 12/31/97 12/31/96 Rate (a) Date Payment Payment (b)
- ---------------------------------------------------------------------------------------------
Marquette Mall and
Office Building $ 2,202,200(c) $ 2,202,200 7.75% 7/1/2002 (c) $ 759,100
915,600(c) 1,023,900 7.75% 7/1/2002 (c) None
7,820,000(d) 8,215,500 8.07% 9/30/1998 (d) (d)
Burlington I, II and III
Office Center 11,000,000(e) 10,814,200 (e) 5/15/1999 None $11,000,000
Prentice Plaza (50%) 4,798,100 4,838,200 7.34% 12/19/2000 (f) $ 4,655,200
Regency Park Shopping
Center (50%) (g) 7,709,200
- ---------------------------------------------------------------------------------------------
$26,735,900 $34,803,200
- ---------------------------------------------------------------------------------------------
(a) The average interest rate represents an average for the year ended December
31, 1997. 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, 1997, interest rates on
the Marquette junior mortgage and the Prentice Plaza loan were 8.72% and
7.44%, respectively.
(b) Repayment may require sale or refinancing of the respective property.
(c) 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 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.
(d) On September 30, 1997, the Partnership exercised its option to extend the
maturity date of the junior mortgage loan collateralized by Marquette.
Significant terms include a .5% extension fee, interest at 30-day LIBOR
plus 275 basis points and monthly principal amortization payments of
$50,000. Additional terms include a maturity date of September 30, 1998, a
prohibition on distributions to Partners of the Partnership and a guarantee
of repayment by the Partnership.
(e) On May 15, 1997, Burlington Associates General Partnership, in which the
Partnership owns a 70% undivided preferred interest, obtained a new
mortgage loan in the amount of $11,000,000 secured by Burlington and
guaranteed by the Partnership. The existing loan was paid off with proceeds
from the new loan. The interest rate on the new loan is variable at LIBOR
plus 187.5 basis points. The maturity date of the new loan is May 15, 1999
and includes an option for a one-year renewal under slightly different
terms, provided the Partnership is able to meet certain conditions for
renewal. The new loan requires interest only payments monthly in arrears
and contains a prohibition on distributions to Partners. The interest rate
as of December 31, 1997 was 7.81%. The average interest rate for the seven
and a half months this loan was in effect was 7.63.
(f) In addition to monthly interest, monthly principal payments of $3,638,
$3,960 and $4,305 are required commencing on January 1 of 1998, 1999 and
2000, respectively.
(g) The joint venture which owns Regency, in which the Partnership has a 50%
interest with Affiliated partnership, repaid the mortgage collateralized by
Regency with a portion of the proceeds generated from its sale (see Note 7
for additional information).
A-7
Principal amortization of mortgage loans payable for each of the next five
years and thereafter as of December 31, 1997 was as follows:
1998 $ 8,309,700
1999 11,561,600
2000 5,262,300
2001 600,100
2002 1,002,200
--------
$26,735,900
--------
5. FUTURE MINIMUM RENTS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1997 was as follows:
1998 $ 5,390,400
1999 4,199,800
2000 3,155,300
2001 1,780,100
2002 858,800
Thereafter 2,289,900
--------------
$17,674,300
--------------
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,
1997, 1996 and 1995 were $271,500, $245,100 and $239,500, respectively.
6. INCOME TAX:
The Partnership utilizes 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. For the year ended December
31, 1997 the results for income tax reporting purposes was a (loss) of
$(5,434,700). The aggregate cost of commercial rental properties for federal
income tax purposes at December 31, 1997 was $58,830,100.
7. PROPERTY SALES:
On June 16, 1997, a joint venture in which the Partnership owns a 50% interest
sold Regency for a sale price of $19,325,000, of which the Partnership's share
was $9,662,500. The Partnership's share of net proceeds from this transaction
was $1,735,600, which is net of closing expenses and the repayment of the
mortgage loan encumbering the property. The Partnership recorded a gain of
$1,598,800 for the year ended December 31, 1997 in connection with this sale.
Net proceeds received from this transaction have been retained to supplement
working capital reserves. For income tax purposes the Partnership reported a
(loss) of $(4,617,800) for the year ended December 31, 1997 in connection with
this sale.
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 an 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 purposes the
Partnership reported a (loss) of $(4,631,700) for the year ended December 31,
1996 in connection with this sale.
All of the above sales were all-cash transactions, with no further involvement
on the part of the Partnership.
8. 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
value of certain of its properties during their remaining estimated holding
periods. Accordingly, it was deemed appropriate to reduce the bases of such
properties in the Partnership's financial statements during the year ended
December 31, 1995. The provisions for value impairment were considered non-cash
events for the purposes of the Statement 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 year ended December 31, 1995:
Property
----------------------------------------------
Marquette Mall and Office Building $ 3,100,000
Burlington Office Center I, II and III 500,000
Regency Park Shopping Center 2,000,000
----------------------------------------------
$ 5,600,000
----------------------------------------------
Copies of the Partnership's Form 10-K are
available upon written request to the
General Partner at no charge.
A-8
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES XI
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
Column A Column B Column C Column D
- ----------------------- ------------ -------------------------- -------------------------
Initial cost Costs capitalized
to Partnership subsequent to acquisition
-------------------------- -------------------------
Buildings
and
Encum- Improve- Improve- Carrying
Description brances Land ments ments Costs (1)
- ----------------------- ------------ ----------- ------------ ----------- ---------
Shopping Center:
- ----------------
Marquette Mall
and Office Building
(Michigan City, IN)
(100% Interest) $ 10,937,800 $ 2,000,000 $ 20,306,700 $ 3,806,300 $ 164,800
Office Buildings:
- -----------------
Burlington Office
Centers I, II and III
(Ann Arbor, MI)
(100% Interest) 11,000,000 3,000,000 17,597,800 2,106,500 72,500
Prentice Plaza
(Englewood, CO)
(50% Interest) 4,798,100 1,139,600 7,390,200 1,204,900 40,800
------------ ----------- ------------ ----------- ---------
$ 26,735,900 $ 6,139,600 $ 45,294,700 $ 7,117,700 $ 278,100
============ =========== ============ =========== =========
Column A Column E Column F Column G Column H Column I
- ----------------------- ----------------------------------------- ------------ --------- --------- -------------
Life
Gross amount at which on which
carried at close of period deprecia-
----------------------------------------- tion in
Buildings Accumu- latest
and lated Date of income
Improve- Deprecia- construc- Date statements
Description Land ments Total (2)(3) tion (2) tion Acquired is computed
- ----------------------- ----------- ------------ ------------ ------------ --------- --------- -------------
Shopping Center:
- ----------------
Marquette Mall
and Office Building
(Michigan City, IN) 35(5)
(100% Interest) $ 1,930,500 $ 17,247,300 $ 19,177,800(4) $ 7,021,400 1967 Dec. 1986 2-10(6)
Office Buildings:
- -----------------
Burlington Office
Centers I, II and III
(Ann Arbor, MI) 35(5)
(100% Interest) 3,000,000 16,276,800 19,276,800(4) 5,372,500 (7) (7) 2-10(6)
Prentice Plaza
(Englewood, CO) 35(5)
(50% Interest) 1,139,600 8,635,900 9,775,500 3,408,000 1985 Mar. 1988 2-10(6)
----------- ------------ ------------ ------------
$ 6,070,100 $ 42,160,000 $ 48,230,100 $ 15,801,900
=========== ============ ============ ============
See accompanying notes on the following page.
A-9
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, 1997 December 31, 1996 December 31, 1995
--------------------------- -------------------------- --------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
------------ ------------ ----------- ------------ ----------- ------------
Balance at the beginning of the year $ 58,025,200 $17,062,800 $65,275,200 $18,551,100 $68,940,100 $16,292,000
Additions during the year:
Improvements 592,400 575,900 1,935,100
Provisions for depreciation 1,375,200 1,649,600 2,259,100
Deductions during the year:
Cost of real estate sold (10,387,500) (7,825,900)
Accumulated depreciation on real estate sold (2,636,100) (3,137,900)
Provisions for value impairment (5,600,000)
------------ ----------- ----------- ----------- ----------- -----------
Balance at the end of the year $ 48,230,100 $15,801,900 $58,025,200 $17,062,800 $65,275,200 $18,551,100
============ =========== =========== =========== =========== ===========
Note 3. The aggregate cost for federal income tax purposes as of December 31,
1997 was $58,830,100.
Note 4. Includes cumulative provisions for value impairment of $7,100,000 and
$3,500,000 for Marquette and Burlington, respectively.
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-10