10-Q 1 d10q.txt FORM 10-Q -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 EXCHANGEACT OF 1934 For the period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934 For the transition period from to Commission File Number 0-15538 First Capital Income Properties, Ltd.--Series XI (Exact name of registrant as specified in its charter) Illinois 36-3364279 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two North Riverside Plaza, 60606-2607 Suite 700, (Zip Code) Chicago, Illinois (Address of principal executive offices) (312) 207-0020 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Documents incorporated by reference: The First Amended and Restated Certificate and Agreement of Limited Partnership filed as Exhibit A to the Partnership's Prospectus dated September 12, 1985, included in the Partnership's Registration Statement on Form S-11, is incorporated herein by reference in Part I of this report. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BALANCE SHEETS (All dollars rounded to nearest 00s)

~~June~~September 30, 2001 December 31, (Unaudited) 2000 ------------------------------------------------------~~------------------~~ ASSETS Investment in commercial rental property: Land $ 1,879,500 $ 1,879,500 Buildings and improvements 1718,~~825~~233,~~800~~500 17,522,100 ------------------------------------------------------~~------------------~~ 1920,~~705~~113,~~300~~000 19,401,600 Accumulated depreciation and amortization (8,~~798~~923,300) (8,552,900) ------------------------------------------------------~~------------------~~ Total investment property, net of accumulated depreciation and amortization 1011,~~907~~189,~~000~~700 10,848,700 Cash and cash equivalents 65,~~481~~868,~~400~~600 6,468,400 Rents receivable ~~223~~328,~~100~~500 596,500 ------------------------------------------------------~~------------------~~ $17,~~611~~386,~~500~~800 $17,913,600 ------------------------------------------------------~~------------------~~ LIABILITIES AND PARTNERS' CAPITAL Liabilities: Mortgage ~~loan~~loans payable ~~$ 364~~4,~~300~~600 $ 568,400 Front-End Fees Loan payable to Affiliate 8,295,200 8,295,200 Accounts payable and accrued expenses ~~759~~898,~~200~~900 752,200 Due to Affiliates 3,~~200~~900 1,300 Prepaid rent -- 61,700 Distribution payable 230,600 230,600 State income ~~taxes~~tax payable 1624,000 25,000 ~~Distribution payable 230,500 230,600~~ Security deposits 82,800 84,200 Other liabilities 198,600 194,200 ------------------------------------------------------~~------------------~~ 9,~~949~~738,~~800~~600 10,212,800 ------------------------------------------------------~~------------------~~ Partners' capital: General Partner 1,~~408~~411,~~800~~000 1,404,600 Limited Partners (57,621 Units issued and outstanding) 6,~~252~~237,~~900~~200 6,296,200 ------------------------------------------------------~~------------------~~ 7,~~661~~648,~~700~~200 7,700,800 ------------------------------------------------------~~------------------~~ $17,~~611~~386,~~500~~800 $17,913,600 ------------------------------------------------------~~------------------~~

STATEMENTS OF PARTNERS' CAPITAL For the nine months ended September 30, 2001 (Unaudited) and the year ended December 31,2000 (All dollars rounded to nearest 00s)

General Limited Partner Partners Total --------------------------------------------------------~~--------------~~ Partners' capital, January 1, 2000 $1,389,100 $5,686,400 $7,075,500 Net income for the year ended December 31, 2000 15,500 1,531,900 1,547,400 Distributions for the year ended December 31, 2000 (922,100) (922,100) --------------------------------------------------------~~--------------~~ Partners' capital, December 31, 2000 1,404,600 6,296,200 7,700,800 Net income for the ~~six~~nine months ended ~~June~~September 30, 2001 46,~~200~~400 ~~417~~632,~~700~~500 ~~421~~638,900 Distributions for the ~~six~~nine months ended ~~June~~September 30, 2001 (~~461~~691,~~000~~500) (~~461~~691,~~000~~500) --------------------------------------------------------~~--------------~~ Partners' capital, ~~June~~September 30, 2001 $1,~~408~~411,~~800~~000 $6,~~252~~237,~~900~~200 $7,~~661~~648,~~700~~200 --------------------------------------------------------~~--------------~~

4 The accompanying notes are an integral part of the financial statements. STATEMENTS OF INCOME AND EXPENSES For the quarters ended September 30, 2001 and 2000 (Unaudited) (All dollars rounded to nearest 00s except per Unit amounts)

2001 2000 ------------------------------------------------------------~~------------~~ Income: Rental $1919,~~876,600~~500 $1 928,~~972,400~~800 Interest ~~160~~55,~~900~~400 ~~198~~108,~~200~~500 ------------------------------------------------------------~~------------~~ 2974,~~037,500~~900 21,~~170~~037,~~600~~300 ------------------------------------------------------------~~------------~~ Expenses: Interest: ~~Nonaffiliates 18~~4,~~800~~700 4517,500 Depreciation and amortization ~~245~~125,~~400~~000 ~~252~~126,~~200~~100 Property operating: Affiliates 32,~~500~~600 91,~~700~~400 Nonaffiliates ~~691~~336,~~100~~000 ~~659~~378,~~100~~800 Real estate taxes ~~280~~139,~~000~~900 ~~271~~135,900 Insurance--Affiliate 526,~~600~~100 557,~~100~~300 Repairs and maintenance ~~239~~104,~~700~~100 ~~243~~84,~~200~~000 General and administrative: Affiliates 46,~~000~~600 51,800 Nonaffiliates 5724,~~000~~900 5322,~~000~~800 ------------------------------------------------------------~~------------~~ 1749,~~592,100~~900 1775,~~595,500~~600 ------------------------------------------------------------~~------------~~ Income before state income tax expense ~~445~~225,~~400~~000 ~~575~~261,~~100~~700 State income tax expense 238,~~500~~000 197,~~800~~500 ------------------------------------------------------------~~------------~~ Net income $ ~~421~~217,~~900~~000 $ ~~555~~254,~~300~~200 ------------------------------------------------------------~~------------~~ Net income allocated to General Partner $ 42,200 $ 52,600 ------------------------------------------------------------~~------------~~ Net income allocated to Limited Partners $ ~~417~~214,~~700~~800 $ ~~549~~251,~~700~~600 ------------------------------------------------------------~~------------~~ Net income allocated to Limited Partners per Unit (57,621 Units outstanding) $ 73.2573 $ 94.5437 ------------------------------------------------------------~~------------~~

STATEMENTS OF INCOME AND EXPENSES For the nine months ended September 30, 2001 and 2000 (Unaudited) (All dollars rounded to nearest 00s except per Unit amounts)

2001 2000 --------------------------------------------------------------~~----------------~~ Income: Rental $~~854~~2,~~300~~796,100 $ ~~930~~2,~~000~~901,200 Interest 70216,~~200~~300 ~~103~~306,~~900~~700 -------------------------------------------------------------- 3,012,400 3,207,900 ---------------- ~~924,500 1,033,900~~ ---------------------------------------------- Expenses: Interest: Nonaffiliates 23,500 63,000 -------------------------------------------------------------- ~~Expenses: Interest: Nonaffiliates 8,400 21,500~~ Depreciation and amortization ~~124~~370,~~900~~400 ~~126~~378,~~100~~300 Property operating: Affiliates 16,~~600~~100 311,~~700~~100 Nonaffiliates ~~306~~1,~~700~~027,100 ~~296~~1,037,900 -------------------------------------------------------------- Real estate taxes ~~140~~419,~~100~~900 ~~136~~407,~~000~~800 Insurance--Affiliate 3458,~~300~~700 3262,~~800~~400 Repairs and maintenance ~~115~~343,~~200~~800 94327,~~700~~200 General and administrative: Affiliates 210,~~200~~600 37,~~100~~600 Nonaffiliates 3081,900 3275,~~100~~800 --------------------------------------------------------------~~----------------~~ ~~764~~2,~~300~~342,000 ~~746~~2,~~900~~371,100 --------------------------------------------------------------~~----------------~~ Income before state income tax expense ~~160~~670,~~200~~400 ~~287~~836,~~000~~800 State income tax expense 831,~~000~~500 527,~~000~~300 --------------------------------------------------------------~~----------------~~ Net income $~~152~~ 638,~~200~~900 $ ~~282~~809,~~000~~500 --------------------------------------------------------------~~----------------~~ Net income allocated to General Partner $ 16,~~500~~400 $ 28,~~900~~200 --------------------------------------------------------------~~----------------~~ Net income allocated to Limited Partners $~~150~~ 632,~~700~~500 $ ~~279~~801,~~100~~300 --------------------------------------------------------------~~----------------~~ Net income allocated to Limited Partners per Unit (57,621 Units outstanding) $ 210.6298 $ 413.8491 --------------------------------------------------------------~~----------------~~

STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2001 and 2000 (Unaudited) (All dollars rounded to nearest 00s)

2001 2000 -----------------------------------------------------------------~~--------------~~ Cash flows from operating activities: Net income $ ~~421~~638,900 $ ~~555~~809,~~300~~500 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ~~245~~370,400 ~~252~~378,~~200~~300 Changes in assets and liabilities: Decrease in rents receivable ~~373~~268,~~400~~000 ~~283~~305,~~700~~300 ~~Decrease~~(Increase) in other assets ~~6,600~~-- ~~Increase~~ (~~decrease~~8,900) Increase in accounts payable and accrued expenses 7146,~~000~~700 ~~(25~~88,~~600)~~700 ~~Increase~~ (~~decrease) in due to Affiliates 1,900 (4,000) (~~Decrease) in prepaid rent (61,700) (90,300) (Decrease) in state income ~~taxes~~tax payable (91,000) (~~285~~277,~~000~~500) Increase (decrease) in due to Affiliates 2,600 (3,300) Increase in other liabilities 4,400 600 -----------------------------------------------------------------~~--------------~~ Net cash provided by operating activities ~~983~~1,368,300 ~~693~~1,~~500~~202,400 -----------------------------------------------------------------~~--------------~~ Cash flows from investing activities: Decrease in investments in debt securities, net -- 964,200 Payments for capital and tenant improvements (~~303~~711,~~700~~400) (4376,~~400~~200) -----------------------------------------------------------------~~--------------~~ Net cash (used for) provided by investing activities (~~303~~711,~~700~~400) ~~920~~888,~~800~~000 -----------------------------------------------------------------~~--------------~~ Cash flows from financing activities: Principal payments on mortgage loans payable (~~204~~563,~~100~~800) (~~275~~622,500) Distributions paid to Partners (~~461~~691,~~100~~500) (~~230~~461,~~500)~~000 (Decrease) increase in security deposits (1,400) ~~300~~600 -----------------------------------------------------------------~~--------------~~ Net cash (used for) financing activities (~~666~~1,~~600~~256,700) (~~505~~1,~~700~~082,900) -----------------------------------------------------------------~~--------------~~ Net (decrease) increase in cash and cash equivalents 13(599,~~000~~800) 1,~~108~~007,~~600~~500 Cash and cash equivalents at the beginning of the period 6,468,400 5,566,500 -----------------------------------------------------------------~~--------------~~ Cash and cash equivalents at the end of the period $6 5,~~481~~868,~~400~~600 $ 6,~~675~~574,~~100~~000 -----------------------------------------------------------------~~--------------~~ Supplemental information: Interest paid to nonaffiliates during the period $ 1823,~~800~~500 $ 4563,~~500~~000 -----------------------------------------------------------------~~--------------~~

5 The accompanying notes are an integral part of the financial statements. NOTES TO FINANCIAL STATEMENTS (Unaudited) September 30, 2001 1. Summary of significant accounting policies: Definition of special terms: Capitalized terms used in this report have the same meaning as those terms have in the Partnership's Registration Statement filed with the Securities and Exchange Commission on Form S-11. Definitions of these terms are contained in Article III of the First Amended and Restated Certificate and Agreement of Limited Partnership, which is included in the Registration Statement and incorporated herein by reference. Accounting policies: The financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The Partnership utilizes the accrual method of accounting. Under this method, revenues are recorded when earned and expenses are recorded when incurred. The Partnership recognizes rental income, which is contingent upon tenants' achieving specified targets only to the extent that such targets are attained. Preparation of the Partnership's financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial information included in these financial statements is unaudited; however, in management's opinion, all adjustments (consisting of only normal, recurring accruals) necessary for a fair presentation of the results of operations for the periods included have been made. Results of operations for the quarter and nine months ended September 30, 2001 are not necessarily indicative of the operating results for the year ending December 31, 2001. Commercial rental property held for investment is recorded at cost, net of any provisions for value impairment, and depreciated (exclusive of amounts allocated to land) on the straight-line method over its estimated useful life. Upon classifying a commercial rental property as Held for Disposition, no further depreciation or amortization of such property is provided for in the financial statements. Lease acquisition fees are recorded at cost and amortized 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 on the straight-line method over the estimated life of such improvements. The Partnership evaluates its commercial rental property for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (undiscounted) from a property is less than its carrying basis. Upon determination that an impairment has occurred, the carrying basis in the rental property is reduced to its estimated fair value. Management was not aware of any indicator that would result in a significant impairment loss during the periods reported. Loan acquisition costs are amortized over the term of the mortgage loan made in connection with the acquisition of Partnership properties or refinancing of Partnership loans. When a property is disposed of or a loan is refinanced, the related loan acquisition costs and accumulated amortization are removed from the respective accounts and any unamortized balance is expensed. Cash equivalents are considered all highly liquid investments with a maturity of three months or less when purchased. Reference is made to the Partnership's Annual Report for the year ended December 31, 2000, for a description of other accounting policies and additional details of the Partnership's financial condition, results of operations, changes in Partners' (deficit) capital and changes in cash balances for the year then ended. The details provided in the notes thereto have not changed except as a result of normal transactions in the interim or as otherwise disclosed herein. 2. Related party transactions: In accordance with the Partnership Agreement, Net Profits and Net Losses (exclusive of Net Profits and Net Losses from the sale, disposition or provision for value impairment of Partnership properties) shall be allocated 1% to the General Partner and 99% to the Limited Partners. Net Profits from the sale or disposition of a Partnership property are allocated: first, prior to giving effect to any distributions of Sale or Refinancing Proceeds from the transaction, to the General Partner and Limited Partners with negative balances in their Capital Accounts, pro rata in proportion to such respective negative balances, to the extent of the total of such negative balances; second, to each Limited Partner in an amount, if any, necessary to make the positive balance in its Capital Account equal to the Sale or Refinancing Proceeds to be distributed to such Limited Partner with respect to the sale or disposition of such property; third, to the General Partner in an amount, if any, necessary to make the positive balance in its Capital Account equal to the Sale or Refinancing Proceeds to be distributed to the General Partner with respect to the sale or disposition of such property; and fourth, the balance, if any, 25% to the General Partner and 75% to the Limited Partners. Net Losses from the sale, disposition or provision for value impairment of Partnership properties are allocated: first, after giving effect to any distributions of Sale or Refinancing Proceeds from the transaction, to the General Partner and Limited Partners with positive balances in their Capital Accounts, pro rata in proportion to such respective positive balances, to the extent of the total amount of such positive balances; and second, the balance, if any, 1% to the General Partner and 99% to the Limited Partners. Notwithstanding anything to the contrary, there shall be allocated to the General Partner not less than 1% of all items of Partnership income, gain, loss, deduction and credit during the existence of the Partnership. For the quarter and nine months ended September 30, 2001, the General Partners allocated Net Profits of $2,200 and $6,400, respectively. For the quarter and nine months ended September 30, 2000, the General Partner was allocated Net Profits of $2,600 and $8,200, respectively. 6 Fees and reimbursements paid and payable by the Partnership to Affiliates during the quarter and nine months ended September 30, 2001 were as follows:

Paid --------------- ~~Six~~Nine Quarter Months Payable --------------------------------------------------~~-------------------~~ Asset management fees $ 12,600 $ 36,~~500~~100 None Reimbursement of property insurance premiums 346,~~300~~100 5258,~~600~~700 None Reimbursement of expenses, at cost: --Accounting -- -- $2,000 --Investor communications 15,~~000~~900 28,~~100~~000 $31,~~200~~900 --------------------------------------------------~~-------------------~~ $3614,~~900~~600 $5872,~~200~~800 $3,~~200~~900 --------------------------------------------------~~-------------------~~

3. Front-End Fees Loan payable to Affiliate: The Partnership borrowed $8,295,200 from an Affiliate of the General Partner, an amount needed for the payment of securities sales commissions, Offering and Organizational Expenses and other Front-End Fees, other than Acquisition Fees. Repayment of the principal amount of the Front-End Fees loan is subordinated (the "Subordination") to payment to the Limited Partners of 100% of their Original Capital Contribution from Sale or Refinancing Proceeds (as defined in the Partnership Agreement). In the event that the Front-End Fees loan is not repaid, such amount will be written off to Partners' Capital. Pursuant to a modification of this loan agreement, beginning January 1, 1996, the Partnership elected to defer payment of interest of the Front-End Fees Loan. During the year ended December 31, 1999, the Affiliate of the General Partner elected to waive the Partnership's obligation for all outstanding deferred interest on this loan and charge no interest in the future. 4. Mortgage loan payable: Mortgage loan payable at September 30, 2001 and December 31, 2000 consisted of the following non-recourse loan:

Property Partnership's Share of Average Pledged as Principal Balance at Interest Maturity ~~Collateral 6~~9/30/2001 12/31/2000 ~~Rate Date~~ ------------------------------------------------------~~---~~ Marquette Mall and $~~364~~4,~~300~~600 $568,400 7.75% 7/1/2002(a) ------------------------------------------------------~~---~~

(a)Loan was repaid in full on October 31, 2001. For additional information regarding the mortgage loan payable, see notes to the financial statements in the Partnership's Annual Report for the year ended December 31, 2000. TRANSFER AGENT AND REGISTRAR The Bank of New York P.O. Box 7090 Troy, Michigan 48007-7090 (800) 447-7364 [LOGO] FIRST CAPITAL INCOME PROPERTIES, Ltd. Series XI [GRAPHIC] sponsored by FIRST CAPITAL FINANCIAL LLC Two North Riverside Plaxa Chicago, Illinois 60606 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, 2000 for a discussion of the Partnership's business. Statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts, may be forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. One of the Partnership's objectives is to dispose of its properties when market conditions allow for the achievement of the maximum possible sales price. The Partnership, in addition to being in the operation of properties phase, is in the disposition phase of its life cycle. During the disposition phase of the Partnership's life cycle, comparisons of operating results are complicated due to the timing and effect of property sales. Components of the Partnership's operating results are generally expected to decline as real property interests are sold since the Partnership no longer realizes income nor incurs expenses from such real property interests. Operations The table below is a recap of the Partnership's share of Marquette Mall and Office Building ("Marquette") for the quarters and nine months ended September 30, 2001 and 2000. The discussion following the table should be read in conjunction with the financial statements and notes thereto appearing in this report.

Comparative Operating Results (a) For the Quarters For the ~~Six~~Nine Months Ended Ended 69/30/01 69/30/00 69/30/01 69/30/00 ----------------------------------------------------~~--------~~ ~~MARQUETTE~~Marquette ~~MALL~~Mall ~~AND~~and ~~OFFICE~~Office ~~BUILDING~~Building Rental revenues $~~854~~919,~~300~~400 $~~933~~928,~~100~~900 $12,~~873~~792,~~100~~500 $12,~~978~~907,~~100~~000 ----------------------------------------------------~~--------~~ Property net income $~~123~~201,~~200~~100 $~~213~~183,~~500~~900 $ ~~342~~543,~~000~~100 $ ~~433~~617,~~500~~400 ----------------------------------------------------~~--------~~ Average occupancy. 78% 8174% 78% 8177% ----------------------------------------------------~~--------~~

(a)Excludes certain income and expense items which are not directly related to individual property operating results such as interest income, interest expense on the Partnership's Front-End Fees loan and general and administrative expenses or are related to properties disposed of by the Partnership prior to the periods under comparison. Net income for the Partnership decreased by $37,200 and $170,600 for the quarter and nine months ended September 30, 2001 when compared to the quarter and nine months ended September 30, 2000, respectively. The decreases were primarily due to a decrease in interest earned on the Partnership's short-term investments, which were due to the decline in the rates earned on those investments. The following comparative discussion includes only the operating results of Marquette. Rental revenues decreased by $9,500 or 1.0% and $114,500 or 3.9% for the quarter and nine months ended September 30, 2001 when compared to the quarter and nine months ended September 30, 2000 respectively. The decreases were primarily due to a decrease in base rental income, which was partially offset by an increase in short-term rental income. Interest expense on the Partnership's mortgage loans decreased by $12,800 and $39,500 for the quarter and nine months ended September 30, 2001 when compared to the quarter and nine months ended September 30, 2000, respectively. The decreases were due to principal payments on the mortgage loan collateralized by Marquette. Repair and maintenance expenses increased by $20,100 and $16,600 for the quarter and nine months ended September 30, 2001 when compared to the quarter and nine months ended September 30, 2000, respectively. The increases were primarily due to repairs to the exterior and interior of Marquette. Property operating expenses decreased by $41,500 and $15,800 for the quarter and nine months ended September 30, 2001 when compared to the quarter and nine months ended September 30, 2000. The decreases were primarily due to a decrease in security and advertising costs. To increase and/or maintain occupancy levels at the Partnership's remaining property, the General Partner, through its asset and property management groups, continues to take the following actions: 1) implementation of marketing programs, including hiring of third-party leasing agents or providing on-site leasing personnel, advertising, direct mail campaigns and development of property brochures; 2) early renewal of existing tenants' leases and addressing any expansion needs these tenants may have; 3) promotion of local broker events and networking with local brokers; 4) networking with national level retailers; 5) cold-calling other businesses and tenants in the market area and 6) providing rental concessions or competitively pricing rental rates depending on market conditions. Liquidity and Capital Resources One of the Partnership's objectives is to dispose of its 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 property. Notwithstanding the Partnership's intention relative to property sales, another primary objective of the Partnership is to provide cash distributions to Partners from Partnership operations. To the extent cumulative cash distributions 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 accounting principles generally accepted in the United States ("GAAP"), since certain items are treated differently under the Partnership Agreement than under GAAP. Management believes that to facilitate a clear understanding of the Partnership's operations, an analysis of Cash Flow (as defined in the Partnership Agreement) should be examined in conjunction with an analysis of net income or cash flows as determined by GAAP. The following table includes a reconciliation of Cash Flow (as defined in the Partnership Agreement) to cash flow provided by operating activities as determined by GAAP. Such amounts are not indicative of actual distributions to Partners and should not be considered as an alternative to the results disclosed in the Statements of Income and Expenses and Statements of Cash Flow. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--continued

Comparative Cash Flow Results For the ~~Six~~Nine Months Ended 69/30/2001 69/30/2000 ------------------------------------------------------------ Cash Flow (as defined in the Partnership Agreement) $ ~~463~~698,~~200~~500 $ ~~532~~818,~~000~~300 Items of reconciliation: Scheduled principal payments on mortgage loans payable ~~204~~310,~~100~~800 ~~275~~369,500 Decrease in current assets ~~373~~268,~~400~~000 ~~290~~296,~~300~~400 Increase (~~Decrease~~decrease) in current liabilities ~~(57~~91,~~400)~~000 (~~404~~281,~~300~~800) ------------------------------------------------------------ Net cash provided by operating activities $ ~~983~~1,368,300 $ ~~693~~1,~~500~~202,400 ------------------------------------------------------------ Net cash (used for) provided by investing activities $ (~~303~~711,~~700~~400) $ ~~920~~888,~~800~~000 ------------------------------------------------------------ Net cash (used for) financing activities $ (~~666~~1,~~600~~256,700) $ (~~505~~1,~~700~~082,900) ------------------------------------------------------------

Cash Flow (as defined in the Partnership Agreement) decreased by $119,800 for the nine months ended September 30, 2001 when compared to the nine months ended September 30, 2000. The decrease was primarily due to the decrease in net income, as previously discussed. The net decrease in the Partnership's cash position of $599,800 for the nine months ended September 30, 2001 was primarily the result of payments for capital and tenant improvements, distributions to Partners and principal payments on the Partnership's mortgage loan exceeding net cash provided by operating activities. Liquid assets of the Partnership as of September 30, 2001 were comprised of amounts held for working capital purposes. The decrease in net cash provided by operating activities for the comparable nine-month periods of $165,900 was primarily due to the decrease in net income, as previously discussed. Net cash provided by (used for) investing activities changed from $888,000 for the nine months ended September 30, 2000 to $(711,400) for the nine months ended September 30, 2001. The change was primarily due to the 2000 maturities of certain of the Partnership's investments in debt securities. The change was also due to an increase in capital and tenant improvements. The Partnership maintains working capital reserves to pay for capital expenditures such as building and tenant improvements and leasing costs. During the nine months ended September 30, 2001, the Partnership spent $711,400 for capital and tenant improvements and leasing costs and has projected to spend approximately $25,000 during the remainder of 2001. Actual amounts expended may vary depending on a number of factors including actual leasing activity, results of property operations and other market conditions throughout the year. The General Partner believes that these improvements and leasing costs are necessary in order to increase and/or maintain occupancy levels in a very competitive market, maximize rental rates charged to new and renewing tenants and to prepare the remaining property for eventual disposition. The Partnership has no financial instruments for which there are significant risks. Net cash used for financing activities increased by $173,800 for the nine months ended September 30, 2001 when compared to the nine months ended September 30, 2000. The increase was primarily due to an increase in distributions to Limited Partners, which was due to the reinstatement of Cash Flow (as defined in the Partnership Agreement) distributions in 2000. The increase was partially offset by a decrease in principal payments on the Partnership's mortgage loan. Pursuant to a modification of the Partnership's Front-End Fees loan agreement, the Affiliate of the General Partner has elected to waive the Partnership's obligation for all deferred interest on this loan and charge no interest in the future. The Partnership's mortgage loan outstanding was repaid in full on October 31, 2001. The General Partner continues to take a conservative approach to projections of future rental income in its determination of adequate levels of cash reserves due to the anticipated capital, tenant improvement and leasing costs. The General Partner believes that Cash Flow (as defined in the Partnership Agreement) is the best and least expensive source of cash. As a result, cash continues to be retained to supplement working capital reserves. For the nine months ended September 30, 2001, Cash Flow (as defined in the Partnership Agreement) retained to supplement working capital reserves amounted to $7,000. Distributions to Limited Partners for the quarter ended September 30, 2001 were declared in the amount of $230,500 or $4.00 per Unit. Cash distributions are made 60 days after the last day of each fiscal quarter. The amount of future distributions to Limited Partners will ultimately be dependent upon the performance of Marquette as well as the General Partner's determination of the amount of cash necessary to supplement working capital reserves to meet future liquidity requirements of the Partnership. Accordingly, there can be no assurance as to the amounts of cash for future distributions to Limited Partners. Based upon the 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 Contribution. 3 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: None (b) Reports on Form 8-K: There were no reports filed on Form 8-K during the quarter ended September 30, 2001. 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI By: FIRST CAPITAL FINANCIAL LLC GENERAL PARTNER /S/ DOUGLAS CROCKER II Date: November 13, 2001 By: _________________________________ DOUGLAS CROCKER II President and Chief Executive Officer /S/ PHILIP G. TINKLER Date: November 13, 2001 By: _________________________________ PHILIP G. TINKLER Vice President--Finance and Treasurer 9

Filing Compare · FIRST CAPITAL INCOME PROPERTIES LTD SERIES XI