UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1998
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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 0-17611
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First Capital Growth Fund - XIV, A Real Estate Limited Partnership
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(Exact name of registrant as specified in its charter)
Illinois 36-3552804
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(State or other jurisdiction (I.R.S. Employer
of 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)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Documents incorporated by reference:
The First Amended and Restated Agreement of Limited Partnership filed as Exhibit
A to the definitive Prospectus dated December 8, 1988, included in the
Registrant's Registration Statement on Form S-11, is incorporated herein by
reference in Part I of this report.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CAPTAL GROWTH FUND - XIV,
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
(All dollars rounded to nearest 00s)
June 30,
1998 December 31,
(Unaudited) 1997
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ASSETS
Investment in commercial rental property:
Land $1,319,000 $1,319,000
Building and improvements 5,967,400 5,935,500
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7,286,400 7,254,500
Accumulated depreciation and amortization (1,622,200) (1,490,400)
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Total investment property, net of accumulated
depreciation and amortization 5,664,200 5,764,100
Cash and cash equivalents 2,091,400 2,145,900
Investments in debt securities 496,700 496,300
Rents receivable 35,000 700
Due from Affiliates, net 5,700
Other assets 10,900 48,200
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$8,303,900 $8,455,200
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued real estate taxes $ 541,200 $ 530,600
Distributions payable 129,000 129,000
Accounts payable and accrued expenses 51,600 137,400
Due to Affiliates 400
Security deposits 39,700 39,700
Other liabilities 45,100
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761,500 882,200
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Partners' capital:
General Partner 147,300 150,300
Limited Partners (145,182 Units issued and
outstanding) 7,395,100 7,422,700
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7,542,400 7,573,000
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$8,303,900 $8,455,200
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STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 1998 (Unaudited)
and the year ended December 31, 1997
(All dollars rounded to nearest 00s)
General Limited
Partner Partners Total
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Partners' capital, January 1, 1997 $154,700 $7,462,800 $7,617,500
Net income for the year ended
December 31, 1997 47,200 424,500 471,700
Distributions for the year ended
December 31, 1997 (51,600) (464,600) (516,200)
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Partners' capital, December 31, 1997 150,300 7,422,700 7,573,000
Net income for the six months ended June 30,
1998 22,800 204,700 227,500
Distributions for the six months ended June
30, 1998 (25,800) (232,300) (258,100)
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Partners' capital, June 30, 1998 $147,300 $7,395,100 $7,542,400
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The accompanying notes are an integral part of the financial statements.
2
FIRST CAPITAL GROWTH FUND--XIV,
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
1998 1997
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Income:
Rental $424,700 $393,400
Interest 33,900 31,800
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458,600 425,200
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Expenses:
Depreciation and amortization 67,300 62,900
Property operating:
Affiliates 25,400 21,900
Nonaffiliates 39,100 31,500
Real estate taxes 129,000 132,600
Insurance--Affiliate 1,200 2,700
Repairs and maintenance 41,600 39,000
General and administrative:
Affiliates 2,400 5,000
Nonaffiliates 16,300 14,600
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322,300 310,200
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Net income $136,300 $115,000
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Net income allocated to General Partner $ 13,700 $ 11,500
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Net income allocated to Limited Partners $122,600 $103,500
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Net income allocated to Limited Partners per Unit (145,182
Units outstanding) $ 0.84 $ 0.71
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STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
1998 1997
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Income:
Rental $809,500 $777,200
Interest 62,900 62,700
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872,400 839,900
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Expenses:
Depreciation and amortization 131,800 126,800
Property operating:
Affiliates 47,300 47,000
Nonaffiliates 73,900 69,700
Real estate taxes 265,600 265,300
Insurance--Affiliate 3,500 5,700
Repairs and maintenance 83,900 77,400
General and administrative:
Affiliates 5,800 7,900
Nonaffiliates 33,100 30,200
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644,900 630,000
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Net income $227,500 $209,900
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Net income allocated to General Partner $ 22,800 $ 21,000
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Net income allocated to Limited Partners $204,700 $188,900
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Net income allocated to Limited Partners per Unit (145,182
Units outstanding) $ 1.41 $ 1.30
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STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s)
1998 1997
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Cash flows from operating activities:
Net income $ 227,500 $ 209,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 131,800 126,800
Changes in assets and liabilities:
(Increase) decrease in rents receivable (34,300) 4,500
Increase in due from Affiliates (6,100) (2,500)
Decrease in other assets 37,300 1,700
Increase in accrued real estate taxes 10,600 15,200
(Decrease) in accounts payable and accrued expenses (85,800) (1,400)
(Decrease) in other liabilities (45,100) (48,700)
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Net cash provided by operating activities 235,900 305,500
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Cash flows from investing activities:
Payments for capital and tenant improvements (31,900) (21,900)
(Increase) decrease in investments in debt securities (400) 496,300
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Net cash (used for) provided by investing activities (32,300) 474,400
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Cash flows from financing activities:
Distributions paid to Partners (258,100) (258,100)
Increase in security deposits 200
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Net cash (used for) financing activities (258,100) (257,900)
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Net (decrease) increase in cash and cash equivalents (54,500) 522,000
Cash and cash equivalents at the beginning of the period 2,145,900 1,986,300
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Cash and cash equivalents at the end of the period $2,091,400 $2,508,300
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The accompanying notes are an integral part of the financial statements.
3
FIRST CAPITAL GROWTH FUND - XIV, A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Agreement of Limited Partnership,
which is included in the Registration Statement and incorporated herein by
reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with 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 information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and six months ended June 30, 1998 are not necessarily indicative
of the operating results for the year ending December 31, 1998.
The financial statements include the Partnership's 50% interest in a joint
venture with an Affiliated partnership. This joint venture was formed for the
purpose of acquiring a 100% interest in 1800 Sherman Office Building and is
operated under the common control of the General Partner and an Affiliate of
the General Partner. Accordingly, the Partnership's pro rata share of the
venture's revenues, expenses, assets, liabilities and Partners' capital is
included in the financial statements.
Commercial rental property is recorded at cost, net of any provisions for value
impairment, and depreciated (exclusive of amounts allocated to land) on the
straight-line method over its estimated useful life. Lease acquisition fees are
recorded at cost and amortized on the straight-line method over the life of
each respective lease. Repair and maintenance costs are expensed as incurred;
expenditures for improvements are capitalized and depreciated over the
estimated life of such improvements.
The Partnership evaluates its rental property for impairment when conditions
exist which may indicate that it is probable that the sum of expected future
cash flows (undiscounted) from such property is less than its carrying basis.
Upon determination that a permanent impairment has occurred, the carrying basis
of the rental property is reduced to its estimated fair value. Management was
not aware of any indicator that would result in a significant impairment loss
during the periods reported.
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 obligations of the United
States government 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 maturities of less than
one year when purchased.
Certain reclassifications have been made to the previously reported 1997
statements in order to provide comparability with the 1998 statements. These
reclassifications had no effect on net income or Partners' Capital.
Reference is made to the Partnership's annual report for the year ended
December 31, 1997, for a description of other accounting policies and
additional details of the Partnership's financial condition, results of
operations, changes in Partners' capital and changes in cash balances for the
year then ended. The details provided in the notes thereto have not changed
except as a result of normal transactions in the interim or as otherwise
disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, commencing with the fiscal
quarter in which the Minimum Subscription Closing Date occurred (the quarter
ended March 31, 1989), Cash Flow (as defined in the Partnership Agreement), if
any, is distributed 90% to the Limited Partners and 10% to the General Partner.
Distributions of Cash Flow (as defined in the Partnership Agreement) to the
General Partner for the quarter and six months ended June 30, 1998 amounted to
$12,900 and $25,800, respectively.
In accordance with the Partnership Agreement, Losses (exclusive of Losses from
a Major Capital Event) are allocated 1% to the General Partner and 99% to the
Limited Partners as a group. Losses from a Major Capital Event, including any
provisions for value impairment, are allocated prior to giving effect to any
distribution of Sale or Refinancing Proceeds from such Major Capital Event;
first, to the General Partner and Limited Partners with positive balances in
their Capital Accounts, in proportion to and to the extent of such positive
balances; and second, the balance, if any, 1% to the General Partner and 99% to
the Limited Partners as a group. Profits (exclusive of Profits from a Major
Capital Event) are allocated; first, in accordance with the ratio in which Cash
Flow (as defined in the Partnership Agreement) was distributable among the
Partners for such fiscal year, to the extent of such Cash Flow (as defined in
the Partnership Agreement); provided, however, that if the Partnership makes no
distributions of Cash Flow (as defined in the Partnership Agreement) for such
fiscal year, then such Profits are allocated 1% to the General Partner and 99%
to the Limited Partners as a group; and second, the balance, if any, 1% to the
General Partner and 99% to the Limited Partners as a group. Profits from a
Major Capital Event are allocated prior to giving effect to any distribution of
Sale or Refinancing Proceeds from such Major Capital Event; first, to the
General Partner and Limited Partners with negative balances in their Capital
Accounts, in proportion to and to the extent of such negative balances; second,
in proportion to and to the extent of the amounts, if any, necessary to make
the positive balance in the Capital Account of each Limited Partner equal to
the Capital Investment of such Limited Partner; third, in proportion to and to
the extent of the amounts, if any, necessary to make the positive balance in
the Capital Account of each Limited
4
Partner equal to the Capital Investment of such Limited Partner, plus an amount
equal to a cumulative, simple return of 6% per annum on the Capital Investment
from time to time of such Limited Partner from the date on which the investment
in the Partnership was made (less amounts previously returned by way of Cash
Flow (as defined in the Partnership Agreement) and Sale or Refinancing Proceeds
in payment of said cumulative return); and fourth, any remaining Profits are
allocated 17% to the General Partner and 83% to the Limited Partners as a
group. Notwithstanding anything to the contrary, the interest of the General
Partner in each material item of Partnership income, gain, loss, deduction or
credit will be equal to at least 1% of each such item at all times during the
existence of the Partnership. For the quarter and six months ended June 30,
1998, the General Partner was allocated Profits of $13,700 and $22,800,
respectively. For the quarter and six months ended June 30, 1997, the General
Partner was allocated Profits of $11,500 and $21,000, respectively.
Fees and reimbursements paid and (receivable)/payable by the Partnership to
Affiliates during the quarter and six months ended June 30, 1998 were as
follows:
Paid
Six (Receivable)
Quarter Months Payable
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Property management and leasing fees $26,200 $49,100 $(6,400)
Reimbursement of property insurance premiums, at
cost 1,200 3,500 None
Legal 700 900 None
Reimbursement of expenses, at cost:
-- Accounting 3,600 3,600 500
-- Investor communication 1,800 1,800 200
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$33,500 $58,900 $(5,700)
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On-site property management for the Partnership's property is provided by an
Affiliate of the General Partner for a fee equal to 3% of gross rents received
by the property. The Affiliate is entitled to leasing fees equal to 3% of gross
rents reduced by leasing fees, if any, paid to third parties.
3. SUBSEQUENT EVENT:
On August 6, 1998, the joint venture in which the Partnership owns a 50%
interest consummated the sale of 1800 Sherman for a sale price of $15,050,000.
The Partnership's share of Sale Proceeds from this transaction amounted to
approximately $7,150,000, which is net of actual and estimated closing
expenses. The Partnership will record a gain of approximately $1,500,000 for
the nine months ended September 30, 1998 in connection with this transaction.
In accordance with the contract to sell the property, the joint venture placed
$500,000 of the proceeds from this transaction into an interest bearing escrow
account for a nine-month period. The funds placed into escrow are intended to
cover any potential claims asserted by the purchaser arising from the
representations and warranties made by the joint venture. The Partnership will
distribute $6,896,100 or $47.50 per Unit on November 30, 1998 to Holders of
record as of August 6, 1998. Following this distribution, the General Partner
will work towards wrapping up the Partnership's affairs. Upon completion,
together with the release of the remaining funds held in escrow, the
Partnership intends to make a liquidating distribution, less funds needed to
cover any remaining or potential liabilities, during 1999.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1997 for a discussion of the Partnership's business.
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of its remaining property, 1800 Sherman Office Building ("1800
Sherman"), for the quarters and six months ended June 30, 1998 and 1997. 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 For the
Quarters Ended Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
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Rental revenues $424,700 $393,400 $809,500 $777,200
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Property net income $120,800 $102,800 $203,300 $185,500
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Average occupancy 100% 96% 100% 96%
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(a) Excludes certain income and expense items, which are not directly related
to individual property operating results such as interest income and
general and administrative expenses.
Unless otherwise disclosed, discussions of fluctuations between 1998 and 1997
refer to both the quarters and six months ended June 30, 1998 and 1997.
Net income increased by $21,300 and $17,600 for the quarter and six months
ended June 30, 1998 when compared to the quarter and six months ended June 30,
1997, respectively. The increases in net income were primarily the result of
increases in rental revenues.
Rental revenues increased by $31,300 or 7.9% and $32,300 or 4.1% for the
quarter and six months ended June 30, 1998 when compared to June 30, 1997,
respectively. The increases were primarily the result of increases in base
rental revenues, which were attributable to the increase in the average
occupancy rate.
Real estate tax expense decreased by $3,600 the quarter ended June 30, 1998
when compared to the quarter ended June 30, 1997. The decrease was primarily
due to a lower estimated tax liability. Real estate tax expense remained
relatively unchanged for the six-month periods under comparison.
Repair and maintenance expenses increased by $2,600 and $6,500 for the quarter
and six months ended June 30, 1998 when compared to the quarter and six months
ended June 30, 1997, respectively. The increases were primarily due to
increases in cleaning costs.
Property operating expenses increased by $11,100 and $4,500 for the quarter and
six months ended June 30, 1998 when compared to the quarter and six months
ended June 30, 1997. The increases were primarily due to increases in utility
costs, which was primarily due to the increase in the average occupancy rate.
Also contributing to the increases was an increase in security costs.
To maintain the occupancy level at 1800 Sherman, the General Partner, through
its Affiliated asset and property management group, 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's leases and addressing any expansion needs these tenants
may have; 3) promotion of local broker events and networking with local
brokers; 4) cold-calling other businesses and tenants in the market area; and
5) providing rental concessions or competitively pricing rental rates depending
on market conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its property when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
property. Notwithstanding the Partnership's intention relative to the sale of
its property, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cash
distributions to Partners exceed net income, such excess distributions will be
treated as a return of capital. Cash Flow (as defined in the Partnership
Agreement) is generally not equal to net income or cash flows as determined by
generally accepted accounting principles ("GAAP"), since certain items are
treated differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows
as determined by GAAP. The following table includes a reconciliation of Cash
Flow (as defined in the Partnership Agreement) to cash flows provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not be considered as an alternative
to the results disclosed in the Statements of Income and Expenses and Cash
Flow.
Comparative
Cash Flow Results
For the Six Months Ended
6/30/98 6/30/97
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Cash Flow (as defined in the Partnership
Agreement) $ 359,300 $ 336,700
Items of reconciliation:
Decrease in current assets 3,000 6,200
(Decrease) in current liabilities (126,400) (37,400)
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Net cash provided by operating activites $ 235,900 $ 305,500
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Net cash (used for) provided by investing
activities $ (32,300) $ 474,400
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Net cash (used for) financing activities $ (258,100) $ (257,900)
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The increase in Cash Flow (as defined in the Partnership Agreement) of $22,600
for the six months ended June 30, 1998 when compared to the six months ended
June 30,
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1997 was primarily due to improved operating results, exclusive of depreciation
and amortization, at 1800 Sherman.
The decrease in the Partnership's cash position of $54,500 was primarily the
result of distributions paid to Partners and payments for capital and tenant
improvements exceeding net cash provided by operating activities.
The decrease in net cash provided by operating activities of $69,600 for the
six months ended June 30, 1998 when compared to the six months ended June 30,
1997 was primarily the result of timing of certain Partnership expenses.
Net cash provided by (used for) investing activities changed from $474,400 for
the six months ended June 30, 1997 to $(32,300) for the six months June 30,
1998. The change was primarily the result of the 1997 maturity of investments
in debt securities. During the six months ended June 30, 1998, the Partnership
spent $31,900 for building and tenant improvements and leasing costs and has
projected to spend approximately $200,000 for the remainder of 1998. Over half
of the amount projected to spent in 1998 relates to a midlease improvement
allowance for one of 1800 Sherman's largest tenants. The General Partner
believes these improvements and leasing costs are necessary in order to
increase and/or maintain occupancy in a very competitive market and to maximize
rental rates charged to new and renewing tenants.
Net cash used for financing activities did not materially change for the six-
month periods under comparison.
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.
On August 6, 1998, the joint venture in which the Partnership has a 50%
interest consummated the sale of 1800 Sherman. Proceeds from this transaction
were approximately $7,150,000. The Partnership intends to make a distribution
of $6,896,100 or $47.50 on November 30, 1998 to Limited Partners of record as
of August 6, 1998 in connection with this transaction. In accordance with the
contract to sell the property, the joint venture placed $500,000 of the
proceeds from this transaction into an interest bearing escrow account for a
nine-month period. The funds placed into escrow are intended to cover potential
claims asserted by the purchaser arising from the representations and
warranties made by the joint venture. The General Partner is working towards
wrapping up the Partnership's affairs. Upon completion, together with the
release of the remaining funds held in escrow, the Partnership intends to make
a liquidating distribution, less any amounts needed to cover actual or
potential liabilities, during 1999.
Distributions to Limited Partners for the quarter ended June 30, 1998 were
declared in the amount of $116,100 or $0.80 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter.
Based upon the current estimated value of its assets, net of its outstanding
liabilities, together with its expected operating results, the General Partner
believes that the Partnership's cumulative distributions to its Limited
Partners from inception through the termination of the Partnership will be less
than such Limited Partners' original Capital Contribution.
7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter ended June 30,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL GROWTH FUND - XIV,
A REAL ESTATE LIMITED PARTNERSHIP
By: FIRST CAPITAL FUND XIV, INC.
GENERAL PARTNER
Date: August 14, 1998 By: /s/ DOUGLAS CROCKER II
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DOUGLAS CROCKER II
President and Chief Executive Officer
Date: August 14, 1998 By: /s/ NORMAN M. FIELD
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NORMAN M. FIELD
Vice President - Finance and Treasurer