-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TMLyjoJbKMVLmBb/fNGulWUgvy8hSYUUe4RaF/bn9NiCaRHOvGU5wEz3Gt7oNLDM Rp9rsfW621xY7v39izkqRQ== 0000318140-98-000002.txt : 19980401 0000318140-98-000002.hdr.sgml : 19980401 ACCESSION NUMBER: 0000318140-98-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XI LTD CENTRAL INDEX KEY: 0000318140 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 942669577 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-09783 FILM NUMBER: 98580503 BUSINESS ADDRESS: STREET 1: 13760 NOEL ROAD STREET 2: SUITE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD SUITE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K405 [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 ------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-9783 McNEIL REAL ESTATE FUND XI, LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2669577 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (972) 448-5800 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: None - ---------------------------------------------------------- --------- Securities registered pursuant to Section 12(g) of the Act: Limited partnership units - ---------------------------------------------------------- ------------------- 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 159,500 of the registrant's 159,813 limited partnership units are held by non-affiliates of this registrant. The aggregate market value of units held by non-affiliates is not determinable since there is no public trading market for limited partnership units and transfers of units are subject to certain restrictions. Documents Incorporated by Reference: See Item 14, Page 35 TOTAL OF 38 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund XI, Ltd. (the "Partnership") was organized June 2, 1980 as a limited partnership under the provisions of the California Uniform Limited Partnership Act. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The Partnership is governed by an amended and restated partnership agreement of limited partnership dated August 6, 1991, as amended (the "Amended Partnership Agreement"). Prior to August 6, 1991, Pacific Investors Corporation (the prior "Corporate General Partner"), a wholly-owned subsidiary of Southmark Corporation ("Southmark"), and McNeil were the general partners of the Partnership, which was governed by an agreement of limited partnership dated June 2, 1980 (the "Original Partnership Agreement") as amended August 29, 1980. The principal place of business for the Partnership and for the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. On September 18, 1980, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission whereby the Partnership offered for sale $80,000,000 of limited partnership units ("Units"). The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units closed on June 1, 1981, with 160,000 Units sold at $500 each, or gross proceeds of $80,000,000 to the Partnership. In addition, the original general partners purchased a total of 140 Units for $70,000. During the years 1993 through 1995, 327 Units were rescinded leaving 159,813 Units outstanding as of December 31, 1997. SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - -------------------------------------------------- On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil nor the Corporate General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interests in the Corporate General Partner, were sold or liquidated for the benefit of creditors. In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990, providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio. On February 14, 1991, pursuant to the asset purchase agreement as amended on that date: (a) an affiliate of McNeil purchased the Corporate General Partner's economic interest in the Partnership; (b) McNeil became the managing general partner of the Partnership pursuant to an agreement with the Corporate General Partner that delegated management authority to McNeil; (c) McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates and commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates; and (d) the General Partner purchased the short-term, unsecured loan owing from the Partnership to a Southmark affiliate in the amount of $2,645,950. The unsecured loan has now been settled. On August 6, 1991, the limited partners approved a restructuring proposal providing for (i) the replacement of the Corporate General Partner and McNeil with the General Partner; (ii) the adoption of the Amended Partnership Agreement, which substantially alters the provisions of the Original Partnership Agreement relating to, among other things, compensation, reimbursement of expenses, and voting rights; and (iii) the approval of a new property management agreement with McREMI, the Partnership's property manager. The Amended Partnership Agreement provides for a Management Incentive Distribution ("MID") to replace all other forms of general partner compensation, other than property management fees and reimbursements of certain costs. Additional Units may be issued in connection with the payment of the MID pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." For a discussion of the methodology for calculating and distributing the MID, see Item 13 - Certain Relationships and Related Transactions. Settlement of Claims: During 1990, the Partnership filed claims in the Southmark bankruptcy in the amount of $1,180,040. McNeil also filed claims on behalf of the Partnership in an indeterminate amount, some of which overlapped in whole or in part with claims filed by the Partnership. No claims were filed by McNeil or the Partnership on behalf of individual limited partners. In July 1991, the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, approved an agreement whereby the Partnership settled its claims against Southmark. Under the settlement agreement, an affiliate of McNeil agreed to waive on a dollar-for-dollar basis an amount equal to the settled claims against affiliate advances owed by the Partnership, which at June 30, 1991, were in excess of the amount of the claim. The reduction of affiliate advances resulted in an extraordinary gain on extinguishment of debt of $1,180,040 in 1991. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in real estate activities, including the ownership, operation and management of residential real estate and other real estate related assets. At December 31, 1997, the Partnership owned eight income-producing properties as described in Item 2 - Properties. The Partnership does not directly employ any personnel. The Partnership is managed by the General Partner, and, in accordance with the Amended Partnership Agreement, the Partnership reimburses affiliates of the General Partner for certain cost incurred by affiliates of the General Partner in connection with the management of the Partnership's business. See Item 8 - Note 2 - "Transactions with Affiliates." The business of the Partnership to date has involved only one industry segment. See Item 8 - Financial Statements and Supplementary Data. The Partnership has no foreign operations. The business of the Partnership is not seasonal. Business Plan: Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof. The Partnership has placed Rock Creek Apartments and The Park Apartments on the market for sale effective October 1, 1996 and August 1, 1997, respectively. The Partnership has received an offer from an unaffiliated buyer for the purchase of The Park Apartments for $4.9 million and is currently evaluating the terms and conditions of this offer. Competitive Conditions: Since the principal business of the Partnership is to own and operate real estate, the Partnership is subject to all of the risks incident to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and Federal or local economic or rent controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changed circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership) in connection with the sale, financing and leasing of properties. The impact of these risks on the Partnership, including losses from operations and foreclosures of the Partnership's properties, is described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. See Item 2 - Properties for discussion of competitive conditions at the Partnership's properties. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after December 31, 1997. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties and respond to changing economic and competitive factors. Environmental Matters : The environmental laws of the federal government and of certain state and local governments impose liability on current property owners for the clean-up of hazardous and toxic substances discharged on the property. This liability may be imposed without regard to the timing, cause or person responsible for the release of such substances onto the property. The Partnership could be subject to such liability in the event that it owns properties having such environmental problems. The Partnership has no knowledge of any pending claims or proceedings regarding such environmental problems. Other Information: In August 1995, High River Limited Partnership, a Delaware limited partnership controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $63 per Unit. In September 1996, High River made another unsolicited tender offer to purchase any and all of the outstanding Units of the Partnership for a purchase price of $104.50 per unit. In addition High River made unsolicited tender offers for certain other partnerships controlled by the General Partner. The Partnership recommended that the limited partners reject the tender offers made with respect to the Partnership and not tender their Units. The General Partner believes that as of January 31, 1998, High River has purchased approximately 11.65% of the outstanding Units pursuant to the tender offers. In addition, all litigation filed by High River, Mr. Icahn and his affiliates in connection with the tender offers have been dismissed without prejudice. Management has begun to review its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. The Partnership is in the process of evaluating the computer systems at the various properties. The Partnership also intends to communicate with suppliers, financial institutions and others to coordinate year 2000 issues. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1997. The buildings and the land on which they are located are owned by the Partnership in fee, subject in each case to a first lien deed of trust as set forth more fully in Item 8 - Note 5 - "Mortgage Notes Payable" and Item 8 - Note 6 - "Mortgage Note Payable - Affiliate." See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - "Real Estate Investments and Accumulated Depreciation." In the opinion of management, the properties are adequately covered by insurance.
Net Basis 1997 Date Property Description of Property Debt Property Tax Acquired - -------- ----------- -------------- -------------- ------------ -------- Acacia Lakes (1) Apartments Mesa, AZ 576 units $ 5,931,007 $ 8,773,421 $ 104,096 5/81 Gentle Gale (2) Apartments Galveston, TX 133 units 1,684,759 2,539,656 75,393 5/81 Knollwood (3) Apartments Kansas City, MO 315 units 2,949,982 4,379,253 73,924 5/81 Sun Valley (4) Apartments Charlotte, NC 311 units 4,254,566 6,451,832 106,764 8/81 Villa Del Rio (5) Apartments Jacksonville, FL 444 units 4,133,339 5,442,120 183,301 5/81 The Village (6) Apartments Gresham, OR 152 units 1,723,534 2,588,971 83,469 5/81 ------------- ------------- ----------- $ 20,677,187 $ 30,175,253 $ 626,947 ============= ============= =========== Assets held for sale: The Park (7) Apartments Joplin, MO 192 units $ 1,341,317 $ 2,571,755 $ 22,144 3/81 Rock Creek Apartments Portland, OR 388 units 4,569,548 6,049,641 144,903 2/81 ------------- ------------- ----------- $ 5,910,865 $ 8,621,396 $ 167,047 ============= ============= ===========
- ----------------------------------------- Total: Apartments - 2,511 units (1) Acacia Lakes Apartments is owned by Acacia Lakes Fund XI Limited Partnership which is wholly-owned by the Partnership and the General Partner. (2) Gentle Gale Apartments is owned by Gentle Gale Fund XI Limited Partnership which is wholly-owned by the Partnership. (3) Knollwood Apartments is owned by Knollwood Fund XI Associates, a general partnership, which is wholly-owned by the Partnership and the General Partner. (4) Sun Valley Apartments is owned by Sun Valley Fund XI Associates, a general partnership, which is wholly-owned by the Partnership and the General Partner. (5) Villa Del Rio Apartments is owned by Villa Del Rio Fund XI Limited Partnership which is wholly-owned by the Partnership. (6) The Village Apartments is owned by Village Fund XI Associates, a limited partnership, which is wholly-owned by the Partnership and the General Partner. (7) The Park Apartments is owned by The Park Fund XI Associates, a general partnership, which is wholly-owned by the Partnership and the General Partner. The following table sets forth the properties' occupancy rate and rent per square foot for each of the last five years:
1997 1996 1995 1994 1993 ------------- ------------- -------------- ------------- ----------- Acacia Lakes Occupancy Rate............ 95% 94% 96% 97% 98% Rent Per Square Foot...... $7.92 $7.73 $7.44 $6.64 $5.94 Gentle Gale Occupancy Rate............ 93% 90% 88% 93% 98% Rent Per Square Foot...... $7.90 $7.78 $7.86 $7.83 $7.70 Knollwood Occupancy Rate............ 97% 96% 96% 93% 98% Rent Per Square Foot...... $6.06 $5.72 $5.53 $5.17 $4.77 Sun Valley Occupancy Rate............ 96% 96% 97% 97% 87% Rent Per Square Foot...... $7.81 $7.40 $7.12 $6.51 $5.81 Villa Del Rio Occupancy Rate............ 92% 96% 100% 98% 92% Rent Per Square Foot...... $5.76 $5.67 $5.46 $4.98 $4.87 The Village Occupancy Rate............ 98% 96% 100% 100% 97% Rent Per Square Foot...... $8.31 $8.27 $7.96 $7.76 $7.52
1997 1996 1995 1994 1993 ------------- ------------- -------------- ------------- ----------- Assets held for sale: The Park Occupancy Rate............ 92% 94% 90% 91% 93% Rent Per Square Foot...... $6.13 $6.25 $6.18 $6.23 $5.98 Rock Creek Occupancy Rate............ 94% 95% 99% 94% 98% Rent Per Square Foot...... $8.35 $8.27 $7.91 $7.54 $7.25
Occupancy rate represents all units leased divided by the total number of units of the property as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property. Competitive Conditions at Properties - ------------------------------------ Acacia Lakes - ------------ Due to a substantial investment of capital since 1992, Acacia Lakes has increased its rent per square foot by 33% over the last five years. Currently, the property is slightly above the average market occupancy rate of 94%. Over the last year, 6,295 multi-family units were added to the Mesa submarket. Strong employment growth is expected to add renters to the market and provide positive absorption. Rental rates at Acacia Lakes are lower than the market rate. Gentle Gale - ------------- Gentle Gale is located in Galveston, Texas, where the local economy is dependent upon the University of Texas Medical Branch and tourism. Over the last few years the economy has been sluggish. Gentle Gale experienced a slight increase in its occupancy rate and is currently at 93%. Gentle Gale competes with properties that are newer and offer better amenity packages. Rental rates at Gentle Gale are just below many of their competitors in the market. In 1998 an additional 220 units are going to be added to the already soft market. The property has been upgrading the units and offering rental discounts to remain competitive in the market. Knollwood - --------- Knollwood finished 1997 above the average market occupancy rate of 94%. The current rental rates for Knollwood's townhouses and one and two bedroom apartments are comparable to the market rate. Continued capital improvements are planned to improve the curb appeal and upgrade the apartments to take advantage of the strong market conditions. Sun Valley - ---------- Strong market conditions are beginning to stimulate new developments in the area surrounding Sun Valley. Currently, 3,906 units are under construction in the Charlotte market with numerous other projects in the planning stages. The market began to soften in 1997 and the continued heavy development will continue to increase the market competitiveness in 1998. With the capital improvements made at the property over the last few years, the property has been able to stay competitive with the newer properties. Sun Valley finished 1997 above the market average occupancy rate of 94%. Villa Del Rio - ------------- Villa Del Rio's occupancy rate finished 1997 below the market average of 93%. The overall occupancy rate for the Jacksonville market has experienced a two year low. During 1997, 2,800 units were added to the market with other projects in the planning stages. Villa Del Rio's advantage over its competitors is design and layout of the property. All units are single story apartments and the property is spread over 25 acres. The Village - ----------- The Village finished the year slightly above the Gresham market occupancy rate of 96%. The expanding economy in Portland is beginning to slow after a six year growth period. The new construction over the last couple of years has softened the market with higher vacancies and rental concessions. The market rental rate is slightly lower than the rental rate at The Village. The Village should continue to remain competitive in the marketplace. Assets held for sale: The Park - -------- The Park is the largest apartment community in Joplin, Missouri where the market's average occupancy rate is 90%. The local economy is expected to remain stable; however, over the last four years the market has experienced an increase of 57% in available units. The new units are entering the marketplace with lower rental rates than The Park. To remain competitive in the market, The Park has discounted rents. Rock Creek - ---------- Rock Creek continues to out perform the market and finished the year at 94% occupancy. The Portland market has become saturated with new multi-family units with the addition of 2,747 units in 1997. Over the past few years the property has been upgrading the interiors of the units as well as improving the outside appearances with landscaping and a renovation of the clubhouse and office. These enhancements have allowed the property to remain competitive in the market and compete with the new apartments being built in the area. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998. For a discussion of the Southmark bankruptcy, see Item 1 - Business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED - ------- -------------------------------------------------------------------- SECURITY HOLDER MATTERS ----------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders -------------- ----------------------------- Limited partnership units 7,400 as of January 31, 1998 (C) No distributions were made to the limited partners during 1997 or 1996. In the last week of March 1998, the Partnership distributed approximately $2,000,000 to the limited partners of record at March 1, 1998. The Partnership accrued distributions of $905,153 and $902,697 for the benefit of the General Partner for the years ended December 31, 1997 and 1996, respectively. Total distributions of $2,078,468 remain unpaid at December 31, 1997. These distributions relate to the MID pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of distributions and the likelihood that they will be resumed to the limited partners. ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in Item 8 - Financial Statements and Supplementary Data.
Statements of Years Ended December 31, Operations 1997 1996 1995 1994 1993 - ------------------ ------------- ------------- -------------- ------------- ------------- Rental revenue................. $ 15,187,999 $ 14,855,652 $ 14,304,055 $ 13,313,091 $ 12,527,359 Total revenue.................. 15,536,941 15,582,063 14,451,813 13,425,413 12,757,233 Income (loss) before extraordinary items.......... 1,744,719 1,592,611 307,243 (193,822) (1,038,150) Extraordinary items............ - - - - (521,380) Net income (loss).............. 1,744,719 1,592,611 307,243 (193,822) (1,559,530) Net income (loss) per limited partnership unit: Income (loss) before extraordinary items.......... $ 3.61 $ 5.03 $ 1.83 $ (3.98) $ (6.16) Extraordinary items............ - - - - (3.22) ------------ ------------ ------------- ------------ ------------ Net income (loss).............. $ 3.61 $ 5.03 $ 1.83 $ (3.98) $ (9.38) =========== ============ ============= ============ ============
As of December 31, Balance Sheets 1997 1996 1995 1994 1993 - -------------- ------------- ------------- -------------- ------------- ------------- Real estate investments, net... $ 20,677,187 $ 22,992,254 $ 27,251,831 $ 27,916,213 $ 28,103,619 Assets held for sale........... 5,910,865 4,203,597 - - - Total assets................... 32,369,919 32,592,153 32,508,764 33,355,998 34,963,327 Mortgage notes payable, net.... 38,796,649 39,255,045 39,684,440 40,090,432 40,463,926 Partners' deficit.............. (9,793,898) (10,633,464) (11,323,378) (10,759,568) (9,796,298)
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- FINANCIAL CONDITION - ------------------- The Partnership was formed to acquire, operate and ultimately dispose of a portfolio of income-producing real properties. As of December 31, 1997, the Partnership owned eight apartment properties. All of the Partnership's properties are subject to mortgage notes. RESULTS OF OPERATIONS - --------------------- 1997 compared to 1996 Revenue: Total Partnership revenues for 1997 decreased by $45,122 as compared to 1996. Rental revenue increased $332,347 or 2%. In 1997, the Partnership recognized a gain on involuntary conversion of $219,628 for fires at The Park, The Village and Knollwood as compared to $598,859 in 1996. Rental revenue for 1997 was $15,187,999 as compared to $14,855,652 for 1996. This increase of $332,347 is due to an increase in the rental rates at seven of the eight Partnership's properties, offset by decreases in the occupancy rates at three of the eight Partnership's properties. Expenses: Total Partnership expenses decreased by $197,230 for the year ended December 31, 1997 as compared to 1996. Decreases in depreciation, general and administrative, and general and administrative - affiliates were offset by increases in repairs and maintenance and interest - affiliate. Interest expense decreased by $249,546 or 7% as compared to the same period last year. This decrease is due to the November 1996 refinancing of the mortgage note on The Village with an affiliate mortgage note. As a result of this refinancing, interest expense - affiliates increased by $221,118 for the year ended December 31, 1997. Depreciation declined by $289,254 or 12% for the period ended December 31, 1997 as compared to the same period in 1996. This decrease is mainly due to Rock Creek, which is currently classified as an asset held for sale, for which no depreciation has been recognized since October 1, 1996. The Park was also classified as an asset held for sale as of August 1, 1997, and no depreciation has been recognized since that date. Repairs and maintenance expense increased by $211,296 or 11% for the period ended December 31, 1997 compared to the same period in 1996. The increase can be attributed to increases in service expenses and the replacement of carpeting. Carpet replacements of $162,461 for three of the Partnership properties, which met the Partnership's criteria for capitalization in 1996, were expensed in 1997. General and administrative expenses decreased $234,637 or 54% for the year ended December 31, 1997 as compared to the same period last year. In 1996, the Partnership incurred costs to evaluate and disseminate information regarding an unsolicited tender offer. The decrease was slightly offset by charges for investor services, which beginning in 1997, was provided by a third party vendor. In 1996, these costs were paid to an affiliate of the General Partner and were included in general and administrative - affiliates. General and administrative - affiliates expense decreased by $74,448 or 22% for 1997 as compared to the same period last year due to the reduction of overhead expenses allocable to the Partnership. Allocated expenses decreased in part due to investor services being performed by an unrelated third party in 1997, as discussed above. 1996 compared to 1995 Revenue: Total Partnership revenues for 1996 increased by $1,130,250 or 8% as compared to 1995. Rental revenue increased $551,597 or 4%, while interest income decreased $20,206. In 1996, the Partnership recognized a gain on involuntary conversion of $598,859 as a result of a fire and hail damage at Knollwood Apartments. Rental revenue for 1996 was $14,855,652 as compared to $14,304,055 for 1995. This increase of $551,597 is due to an increase in the rental rates at all of the Partnership's properties, offset by decreases in the occupancy rates at five of the eight Partnership's properties. Expenses: Total Partnership expenses decreased by $155,118 for the year ended December 31, 1996 as compared to 1995. Decreases in other property operating expenses and general and administrative - affiliates were offset by increases in repairs and maintenance and general and administrative expenses. Repairs and maintenance expense increased by $203,664 or 12% for the year ended December 31, 1996 compared to the same period in 1995. The increase can be attributed to increases in service expenses and the replacement of carpeting. Carpet replacements of $282,252 for five of the Partnership's eight properties, which met the Partnership's criteria for capitalization based in 1995, were expensed in 1996. Other property operating expense for the year ended December 31, 1996 decreased by $124,026 or 14% as compared to 1995. This decrease is primarily due to a decrease in hazard insurance, with additional decreases in training and seminars and bad debts in 1996. General and administrative expenses increased $38,744 or 10% for the year ended December 31, 1996 as compared to the same period in 1995. The increase is due to costs incurred by the Partnership for the year ended December 1996, to evaluate and disseminate information regarding an unsolicited tender offer. See Item 1 - Business. General and administrative - affiliates expenses decreased $119,084 or 26% for the year ended December 31, 1996 as compared to the same period in 1995. This decrease is due to the reduction of overhead expenses allocable to the Partnership. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At December 31, 1997, the Partnership held cash and cash equivalents of $3,045,785, up $693,906 as compared to 1996. The Partnership has experienced positive cash flow from operations of $9,461,642 for the three years ended December 31, 1997. During 1996, the Partnership received a mortgage loan from affiliates of $2,588,971. The Partnership has also received $942,162 in insurance proceeds for the three years ended December 31, 1997. Over the last three years the Partnership has used cash to fund $5,803,441 in additions to real estate investments, $3,950,822 in principal payments, $13,157 for additions to deferred borrowing costs and $2,178,937 for the payment of the MID. The Partnership generated $3,703,741 through operating activities in 1997 as compared to $3,412,005 in 1996. The increase of $291,736 can be attributed to the increase in tenant receipts as a result of the increased rental rates at seven of the Partnership's properties and a decrease in the cash paid to affiliates. The Partnership generated $3,412,005 through operating activities in 1996 as compared to $2,345,896 in 1995. The increase of $1,066,109 can be attributed to the increase in tenant receipts as a result of the increased rental rates at all the Partnership's properties and a decrease in the cash paid to affiliates. The Partnership has funded $5,803,441 in additions to real estate investments over the last three years ended December 31, 1997. These capital expenditures are necessary to allow the Partnership's aging properties to maintain their appeal to current and prospective tenants. Short-term liquidity: The Partnership expended considerable resources during the past three years to restore its properties to good operating condition. These expenditures have been necessary to maintain the competitive position of the Partnership's aging properties in each of their markets. The capital improvements made during the past three years have enabled the Partnership to increase its rental revenues and reduce certain of its repairs and maintenance expenses. The Partnership has budgeted an additional $1.3 million of capital improvements for 1998, to be funded from property operations and cash reserves. At December 31, 1997, the Partnership held cash and cash equivalents of $3,045,785. The General Partner considers this level of cash reserves to be adequate to meet the Partnership's operating needs. The General Partner anticipates continuing MID payments if the Partnership's properties continue to perform as projected. The General Partner believes that anticipated operating results for 1998 will be sufficient to fund the Partnership's budgeted capital improvements for 1998 and to repay the current portion of the Partnership's mortgage notes. Long-term liquidity: For the long-term, property operations will remain the primary source of funds. In this regard, the General Partner expects that the $5.8 million of capital improvements made by the Partnership during the past three years will yield improved cash flow from property operations in the future. If the Partnership's cash position deteriorates, the General Partner may elect to defer certain of the capital improvements, except where such improvements are expected to increase the competitiveness or marketability of the Partnership's properties. Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof. The Partnership has placed Rock Creek Apartments and The Park Apartments on the market for sale effective October 1, 1996 and August 1, 1997, respectively. The Partnership has received an offer from an unaffiliated buyer for the purchase of The Park Apartments for $4.9 million and is currently evaluating the terms and conditions of this offer. Income allocation and distributions: Terms of the Amended Partnership Agreement specify that income before depreciation is allocated to the General Partner to the extent of MID paid in cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and the General Partner, respectively. Therefore, for each of the three years in the period ended December 31, 1997, $1,167,537, $788,575 and $15,362, respectively, of net income was allocated to the General Partner. The limited partners received allocations of net income of $577,182, $804,036 and $291,881 for the three year period ended December 31, 1997, respectively. With the exception of the MID, distributions to partners have been suspended since 1986 as part of the General Partner's policy of maintaining adequate cash reserves. In light of improving property performance and sufficient cash reserves, during the last week of March 1998, the General Partner distributed approximately $2,000,000 to unit holders of record as of March 1, 1998. This distribution has been made from cash revenues and operations of the Partnership. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support additional distributions to the limited partners. A distribution of $905,153 for the MID has been accrued by the Partnership for the year ended December 31, 1997 for the General Partner. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Page Number INDEX TO FINANCIAL STATEMENTS Financial Statements: Report of Independent Public Accountants....................................... 15 Balance Sheets at December 31, 1997 and 1996................................... 16 Statements of Operations for each of the three years in the period ended December 31, 1997..................................................... 17 Statements of Partners' Deficit for each of the three years in the period ended December 31, 1997....................................... 18 Statements of Cash Flows for each of the three years in the period ended December 31, 1997..................................................... 19 Notes to Financial Statements.................................................. 21 Financial Statement Schedule - Schedule III - Real Estate Investments and Accumulated Depreciation............................................................. 30
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of McNeil Real Estate Fund XI, Ltd.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XI, Ltd. (a California limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the 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 McNeil Real Estate Fund XI, Ltd. as of 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. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Dallas, Texas March 20, 1998 McNEIL REAL ESTATE FUND XI, LTD. BALANCE SHEETS
December 31, ------------------------------------ 1997 1996 ---------------- --------------- ASSETS - ------ Real estate investments: Land..................................................... $ 4,407,325 $ 4,572,654 Buildings and improvements............................... 47,211,527 50,600,784 -------------- ------------- 51,618,852 55,173,438 Less: Accumulated depreciation.......................... (30,941,665) (32,181,184) -------------- ------------- 20,677,187 22,992,254 Assets held for sale........................................ 5,910,865 4,203,597 Cash and cash equivalents................................... 3,045,785 2,351,879 Cash segregated for security deposits....................... 413,487 403,949 Accounts receivable......................................... 40,018 204,542 Prepaid expenses and other assets........................... 242,961 256,151 Escrow deposits............................................. 683,785 662,003 Deferred borrowing costs, net of accumulated amortization of $677,649 and $515,702 at December 31, 1997 and 1996, respectively................. 1,355,831 1,517,778 -------------- ------------- $ 32,369,919 $ 32,592,153 ============== ============== LIABILITIES AND PARTNERS' DEFICIT - --------------------------------- Mortgage notes payable, net................................. $ 36,207,678 $ 36,666,074 Mortgage note payable - affiliate........................... 2,588,971 2,588,971 Accounts payable............................................ - 52,886 Accrued interest............................................ 292,766 295,428 Accrued expenses............................................ 382,446 455,857 Deferred gain............................................... - 174,656 Payable to affiliates - General Partner..................... 2,231,389 2,558,338 Security deposits and deferred rental income................ 460,567 433,407 -------------- ------------- 42,163,817 43,225,617 -------------- ------------- Partners' deficit: Limited partners - 159,813 limited partnership units issued and outstanding at December 31, 1997 and 1996........................................ (3,602,274) (4,179,456) General Partner........................................ (6,191,624) (6,454,008) -------------- ------------- (9,793,898) (10,633,464) -------------- ------------- $ 32,369,919 $ 32,592,153 ============== =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XI, LTD. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Revenue: Rental revenue.......................... $ 15,187,999 $ 14,855,652 $ 14,304,055 Interest................................ 129,314 127,552 147,758 Gain on involuntary conversion.......... 219,628 598,859 - ------------- ------------- -------------- Total revenue......................... 15,536,941 15,582,063 14,451,813 ------------- ------------- -------------- Expenses: Interest................................ 3,535,009 3,784,555 3,905,403 Interest - affiliates................... 244,738 23,620 - Depreciation............................ 2,083,616 2,372,870 2,484,425 Property taxes.......................... 793,994 787,865 799,717 Personnel expenses...................... 1,808,610 1,716,875 1,722,218 Repairs and maintenance................. 2,133,196 1,921,900 1,718,236 Property management fees - affiliates............................ 752,909 734,247 711,435 Utilities............................... 1,161,104 1,093,688 1,044,938 Other property operating expenses....... 809,790 775,491 899,517 General and administrative.............. 197,770 432,407 393,663 General and administrative - affiliates............................ 271,486 345,934 465,018 ------------- ------------- -------------- Total expenses 13,792,222 13,989,452 14,144,570 ------------- ------------- -------------- Net income................................. $ 1,744,719 $ 1,592,611 $ 307,243 ============= ============= ============== Net income allocable to limited partners................................ $ 577,182 $ 804,036 $ 291,881 Net income allocable to General Partner................................. 1,167,537 788,575 15,362 ------------- ------------- -------------- Net income................................. $ 1,744,719 $ 1,592,611 $ 307,243 ============= ============= ============== Net income per limited partnership unit: Net income.............................. $ 3.61 $ 5.03 $ 1.83 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XI, LTD. STATEMENTS OF PARTNERS' DEFICIT For the Years Ended December 31, 1997, 1996 and 1995
Total General Limited Partners' Partner Partners Deficit ---------------- ---------------- ----------------- Balance at December 31, 1994.............. $ (5,484,195) $ (5,275,373) $ (10,759,568) Net income................................ 15,362 291,881 307,243 Management Incentive Distribution......... (871,053) - (871,053) -------------- -------------- -------------- Balance at December 31, 1995.............. (6,339,886) (4,983,492) (11,323,378) Net income................................ 788,575 804,036 1,592,611 Management Incentive Distribution......... (902,697) - (902,697) -------------- -------------- -------------- Balance at December 31, 1996.............. (6,454,008) (4,179,456) (10,633,464) Net income................................ 1,167,537 577,182 1,744,719 Management Incentive Distribution......... (905,153) - (905,153) -------------- -------------- -------------- Balance at December 31, 1997.............. $ (6,191,624) $ (3,602,274) $ (9,793,898) ============== ============== ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XI, LTD. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 --------------- -------------- --------------- Cash flows from operating activities: Cash received from tenants.............. $ 15,197,251 $ 14,877,289 $ 14,298,528 Cash paid to suppliers.................. (6,259,909) (5,836,491) (5,477,026) Cash paid to affiliates................. (984,779) (1,369,172) (2,115,099) Interest received....................... 129,314 127,552 147,758 Interest paid........................... (3,352,192) (3,645,580) (3,676,175) Interest paid to affiliates............. (244,738) (23,620) - Property taxes paid..................... (781,206) (717,973) (832,090) ------------- ------------- -------------- Net cash provided by operating activities.............................. 3,703,741 3,412,005 2,345,896 ------------- ------------- -------------- Cash flows from investing activities: Additions to real estate investments........................... (1,516,353) (2,467,045) (1,820,043) Insurance proceeds from fire............ 260,164 681,998 - Insurance proceeds from hail damage................................ - 67,016 - ------------- ------------- -------------- Net cash used in investing activities...... (1,256,189) (1,718,031) (1,820,043) ------------- ------------- -------------- Cash flows from financing activities: Principal payments on mortgage notes payable......................... (481,928) (3,041,234) (427,660) Deferred borrowing costs paid........... - (13,157) - Mortgage loan from affiliate............ - 2,588,971 - Management Incentive Distribution....... (1,271,718) (907,219) - ------------- ------------- -------------- Net cash used in financing activities...... (1,753,646) (1,372,639) (427,660) ------------- ------------- -------------- Net increase in cash and cash equivalents...................... 693,906 321,335 98,193 Cash and cash equivalents at beginning of year..................... 2,351,879 2,030,544 1,932,351 ------------- ------------- -------------- Cash and cash equivalents at end of year............................... $ 3,045,785 $ 2,351,879 $ 2,030,544 ============= ============= ==============
See discussion of noncash investing and financing activities in Note 7. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XI, LTD. STATEMENTS OF CASH FLOWS Reconciliation of Net Income to Net Cash Provided by Operating Activities
For the Years Ended December 31, 1997 1996 1995 -------------- -------------- --------------- Net income................................. $ 1,744,719 $ 1,592,611 $ 307,243 ------------- ------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities: Gain on involuntary conversion.......... (219,628) (598,859) - Depreciation............................ 2,083,616 2,372,870 2,484,425 Amortization of discounts on mortgage notes payable................ 23,532 22,868 21,668 Amortization of deferred borrowing costs................................. 161,947 123,008 145,498 Changes in assets and liabilities: Cash segregated for security deposits............................ (9,538) (17,824) (22,276) Accounts receivable................... (10,132) 1,441 (6,750) Prepaid expenses and other assets.............................. 13,190 20,634 85,124 Escrow deposits....................... (21,782) 175,504 79,449 Accounts payable...................... (52,886) (9,170) (50,679) Accrued interest...................... (2,662) (6,901) 62,062 Accrued expenses...................... (73,411) (1,127) 138,356 Payable to affiliates - General Partner............................. 39,616 (288,991) (938,646) Security deposits and deferred rental income....................... 27,160 25,941 40,422 ------------- ------------- -------------- Total adjustments................. 1,959,022 1,819,394 2,038,653 ------------- ------------- -------------- Net cash provided by operating activities.............................. $ 3,703,741 $ 3,412,005 $ 2,345,896 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XI, LTD. NOTES TO FINANCIAL STATEMENTS December 31, 1997 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------- McNeil Real Estate Fund XI, Ltd. (the "Partnership") was organized June 2, 1980 as a limited partnership under the provisions of the California Uniform Limited Partnership Act. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The Partnership is governed by an amended and restated partnership agreement of limited partnership dated August 6, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and for the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. The Partnership is engaged in real estate activities, including the ownership, operation and management of residential real estate and other real estate related assets. At December 31, 1997, the Partnership owned eight income-producing properties as described in Note 4 - Real Estate Investments. Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof. The Partnership has placed Rock Creek Apartments and The Park Apartments on the market for sale effective October 1, 1996 and August 1, 1997, respectively. The Partnership has received an offer from an unaffiliated buyer for the purchase of The Park Apartments for $4.9 million and is currently evaluating the terms and conditions of this offer. Basis of Presentation - --------------------- The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of 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 Partnership's financial statements include the accounts of the following listed tier partnerships for the years ended December 31, 1997, 1996 and 1995. These single asset tier partnerships were formed to accommodate the refinancing of the respective property. The Partnership's and the General Partner's ownership interest in each tier partnership is detailed below. The Partnership retains effective control of each tier partnership. The General Partner's minority interest is not presented as it is both negative or immaterial. % of Ownership Interest Tier Partnership Partnership General Partner Limited Partnerships: Acacia Lakes Fund XI Limited Partnership 99% 1% Gentle Gale Fund XI Limited Partnership* 100 - Villa Del Rio XI Limited Partnership* 100 - Village Fund XI Associates 99 1 General Partnerships: Knollwood XI Associates 99 1 The Park Fund XI Associates 99 1 Sun Valley Fund XI Associates 99 1 * The general partner of these partnerships is a corporation whose stock is 100% owned by the Partnership. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated fair value. The Partnership's method of accounting for real estate investments is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The adoption of SFAS 121 did not have a material impact on the accompanying financial statements. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. Assets Held for Sale - -------------------- The assets held for sale are stated at the lower of depreciated cost or fair value less costs to sell. Depreciation on these assets ceased at the time they were placed on the market for sale. Depreciation Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 40 years. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand and cash on deposit with financial institutions with original maturities of three months or less. Carrying amounts for cash and cash equivalents approximate fair value. Escrow Deposits - --------------- The Partnership is required to maintain escrow accounts in accordance with the terms of various mortgage indebtedness agreements. These escrow accounts are controlled by the mortgagee and are used for payment of property taxes, hazard insurance, capital improvements and/or property replacements. Carrying amounts for escrow deposits approximate fair value. Deferred Borrowing Costs - ------------------------ Loan fees and other related costs incurred to obtain long-term financing on real property are capitalized and amortized using a method that approximates the effective interest method over the terms of the related mortgage notes payable. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations. Discounts on Mortgage Notes Payable - ----------------------------------- Discounts on mortgage notes payable are being amortized over the remaining terms of the related mortgage notes using the effective interest method. Amortization of discounts on the mortgage notes payable is included in interest expense on the Statements of Operations. Rental Revenue - -------------- The Partnership leases its residential properties under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. Income Taxes - ------------ No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax, and the tax effect of its activities accrues to the partners. Allocation of Net Income and Net Loss - ------------------------------------- The Amended Partnership Agreement provides for net income of the Partnership for both financial statement and income tax reporting purposes to be allocated as indicated below. For allocation purposes, net income and net loss of the Partnership are determined prior to deductions for depreciation: a) first, deductions for depreciation shall be allocated 5% to the General Partner and 95% to the limited partners; b) then, net income in an amount equal to the cumulative amount paid to the General Partner for the Management Incentive Distribution ("MID"), for which no previous income allocations have been made, shall be allocated to the General Partner; provided, however, that if all or a portion of such payment consists of limited partnership units ("Units"), the amount of net income allocated shall be equal to the amount of cash the General Partner would have otherwise received; and c) then, any remaining net income shall be allocated to achieve the allocation of 5% to the General Partner and 95% to the limited partners. The Amended Partnership Agreement provides that net losses, other than that arising from a sale or refinancing, shall be allocated 5% to the General Partner and 95% to the limited partners. Net losses arising from a sale or refinancing shall be allocated 1% to the General Partner and 99% to the limited partners. Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocations of Partnership deductions attributable to debt. The Partnership's tax allocations for 1997, 1996 and 1995 have been made in accordance with these provisions. Distributions - ------------- Pursuant to the Amended Partnership Agreement and at the discretion of the General Partner, distributions during each taxable year shall be made as follows: (a) first, to the General Partner, in an amount equal to the MID; and (b) any remaining distributable cash, as defined, shall be distributed 100% to the limited partners. No distributions were made to the limited partners in 1997, 1996 or 1995. The Partnership accrued distributions of $905,153, $902,697 and $871,503 for the benefit of the General Partner for the years ended December 31, 1997, 1996 and 1995, respectively. These distributions are the MID pursuant to the Amended Partnership Agreement. The General Partner has waived the collection terms of reimbursable expenses and MID, and has elected for the Partnership to pay limited partner distributions before the payment of such amounts. During the last week of March 1998, the Partnership plans to distribute approximately $2,000,000 to the limited partners of record at March 1, 1998. Net Income (Loss) Per Limited Partnership Unit - ---------------------------------------------- Net income (loss) per Unit is computed by dividing net income (loss) allocated to the limited partners by the number of Units outstanding. Per Unit information has been computed based on 159,813 Units outstanding in 1997, 1996 and 1995. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- The Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management and leasing services. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The MID will be paid to the extent of the lesser of the Partnership's excess cash flow as defined, or net operating income, as defined (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value per Unit, as defined. No Units were issued in payment of the MID in 1997, 1996 or 1995. During 1991, the Partnership amended its capitalization policy and began capitalizing certain costs of improvements and betterments which under policies of prior management had been expensed when incurred. The purpose of the amendment was to more properly recognize items which were capital in nature. The effect of the amendment standing alone was evaluated at the time the change was made and determined not to be material to the financial statements of the Partnership in 1991, nor was it expected to be material in any future year. However, the amendment can have a material effect on the calculation of the Entitlement Amount which determines the amount of MID earned. Capital improvements are excluded from cash flow, as defined. The majority of base period cash flow was measured under the previous capitalization policy, while incentive period cash flow is determined using the amended policy. Under the amended policy, more items are capitalized, and cash flow increases. The amendment of the capitalization policy did not materially affect the MID for 1997, 1996 or 1995 because the Entitlement Amount was sufficient to pay MID notwithstanding the amendment to the capitalization policy. Any amount of the MID that is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. Compensation and reimbursements paid or accrued for the benefit of the General Partner or its affiliates are as follows: For the Years Ended December 31, -------------------------------------- 1997 1996 1995 ----------- ----------- ------------ Property management fees - affiliates... $ 752,909 $ 734,247 $ 711,435 Interest - affiliates................... 244,738 23,620 - Charged to general and administrative - affiliates: Partnership administration........... 271,486 345,934 465,018 ---------- ---------- ----------- $ 1,269,133 $ 1,103,801 $ 1,176,453 ========== ========== =========== Charged to General Partner's deficit: MID.................................. $ 905,153 $ 902,697 $ 871,053 ========== ========== =========== Payable to affiliates - General Partner at December 31, 1997 and 1996 consisted primarily of accrued property management fees, MID and cost reimbursements and are due and payable from operations. In 1997 and 1996, the Partnership paid $1,271,718 and $907,219, respectively, from cash reserves for the MID. The General Partner has waived the collection terms of reimbursable expenses and MID, and has elected for the Partnership to pay limited partner distributions before the payment of such amounts. NOTE 3 - TAXABLE INCOME (LOSS) - ------------------------------ McNeil Real Estate Fund XI, Ltd. is a partnership and is not subject to Federal and state income taxes. Accordingly, no recognition has been given to income taxes in the accompanying financial statements of the Partnership since the income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly. The Partnership's net assets and liabilities for tax purposes were less than the net assets and liabilities for financial reporting purposes by $261,840 in 1997, $831,834 in 1996 and $62,005 in 1995. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments at December 31, 1997 and 1996 are set forth in the following tables:
Buildings and Accumulated Net Book 1997 Land Improvements Depreciation Value ---- -------------- -------------- --------------- --------------- Acacia Lakes Mesa, AZ $ 1,953,090 $ 13,280,033 $ (9,302,116) $ 5,931,007 Gentle Gale Galveston, TX 450,155 3,768,457 (2,533,853) 1,684,759 Knollwood Kansas City, MO 330,547 7,257,557 (4,638,122) 2,949,982 Sun Valley Charlotte, NC 562,797 8,654,858 (4,963,089) 4,254,566 Villa Del Rio Jacksonville, FL 636,634 9,760,851 (6,264,146) 4,133,339 The Village Gresham, OR 474,102 4,489,771 (3,240,339) 1,723,534 ------------- ------------- ------------- ------------- $ 4,407,325 $ 47,211,527 $ (30,941,665) $ 20,677,187 ============= ============= ============= ============= Buildings and Accumulated Net Book 1996 Land Improvements Depreciation Value ---- -------------- -------------- --------------- --------------- Acacia Lakes $ 1,953,090 $ 13,054,618 $ (8,748,631) $ 6,259,077 Gentle Gale 450,155 3,685,626 (2,351,872) 1,783,909 Knollwood 330,547 7,084,066 (4,299,937) 3,114,676 The Park (a) 165,329 4,354,026 (3,192,577) 1,326,778 Sun Valley 562,797 8,488,851 (4,619,613) 4,432,035 Villa Del Rio 636,634 9,540,354 (5,886,698) 4,290,290 The Village 474,102 4,393,243 (3,081,856) 1,785,489 ------------- ------------- ------------- ------------- $ 4,572,654 $ 50,600,784 $ (32,181,184) $ 22,992,254 ============= ============= ============= =============
(a) Effective August 1, 1997, management placed The Park, located in Joplin, Missouri, on the market for sale. Therefore, at December 31, 1997, The Park is classified as an asset held for sale at a net book value of $1,341,317. The Partnership has received an offer from an unaffiliated buyer for the purchase of The Park Apartments for $4.9 million and is currently evaluating the terms and conditions of this offer. On October 1, 1996, the General Partner placed Rock Creek Apartments, located in Portland, Oregon, on the market for sale. The property was classified as an asset held for sale at December 31, 1997 and 1996. The net book value of the property was $4,569,548 and $4,203,497 at December 31, 1997 and 1996, respectively. The results of operations for the assets held for sale at December 31, 1997 are $671,919, $263,104 and $26,412 for 1997, 1996 and 1995, respectively. Results of operations are operating revenues less operating expenses including interest expense and depreciation expense. The Partnership's real estate properties are encumbered by mortgage indebtedness as discussed in Notes 5 and 6. NOTE 5 - MORTGAGE NOTES PAYABLE - ------------------------------- The following table sets forth the mortgage notes payable of the Partnership at December 31, 1997 and 1996. All mortgage notes are secured by real estate investments or the assets held for sale.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date (d) 1997 1996 - -------- --------------- ---------- ----------------- --------------- -------------- Acacia Lakes First 8.700 $ 71,069 01/01 $ 8,773,421 $ 8,858,883 ------------- -------------- Gentle Gale (c) First 8.150 22,327 07/03 2,589,676 2,644,107 Discount (b) (50,020) (57,508) ------------- -------------- 2,539,656 2,586,599 ------------- -------------- Knollwood First 7.750 32,506 05/24 4,379,253 4,427,873 ------------- -------------- The Park First 10.500 24,021 05/24 2,571,755 2,588,973 ------------- -------------- Rock Creek First 11.875 67,860 02/01 6,049,641 6,139,670 ------------- -------------- Sun Valley First 7.875 48,384 06/24 6,451,832 6,521,362 ------------- -------------- Villa Del Rio (c) First 8.150 47,843 07/03 5,549,306 5,665,944 Discount (b) (107,186) (123,230) ------------- --------------- 5,442,120 5,542,714 ------------- -------------- $ 36,207,678 $ 36,666,074 ============= ==============
(a) The debt is non-recourse to the Partnership. (b) Discounts are based on an effective interest rate of 8.62%. (c) Financing was obtained under the terms of a Real Estate Mortgage Investment Conduit financing. The mortgage notes payable are cross-collateralized and may not be prepaid in whole or part before July 1998. Any prepayments made during the sixth or seventh loan years are subject to a Yield Maintenance premium, as defined. Additionally, the Partnership must pay a release payment equal to 25% of the prepaid balance which will be applied to the remaining mortgage notes in the collateral pool. (d) Balloon payments on the mortgage notes are due as follows: Property Balloon Payment Date -------- --------------- ---- Acacia Lakes $ 8,468,000 01/01 Rock Creek 5,704,000 02/01 Gentle Gale 2,197,000 07/03 Villa Del Rio 4,707,000 07/03 Scheduled principal maturities of the mortgage notes, before consideration of discounts of $157,206, are as follows: Real Estate Assets Held Investments For Sale ------------ ------------ 1998.................... $ 406,479 $ 120,437 1999.................... 440,977 135,252 2000.................... 478,412 151,894 2001.................... 8,865,876 5,732,113 2002.................... 431,266 29,040 Thereafter.............. 17,120,478 2,452,660 ----------- ---------- Total................. $ 27,743,488 $ 8,621,396 =========== ========== Based on borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities, the fair value of notes payable was approximately $38,601,000 as of December 31, 1997 and $36,770,000 as of December 31, 1996. NOTE 6 - MORTGAGE NOTE PAYABLE - AFFILIATE - ------------------------------------------ The following sets forth the mortgage note payable - affiliate of the Partnership at December 31, 1997 and 1996. The mortgage note is secured by the real estate investment.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date 1997 1996 - -------- --------------- ------- ------------------- ----------- ------------ The Village (b) First (c) Variable 11/99 $ 2,588,971 $ 2,588,971 ========== ===========
(a) The debt is non-recourse to the Partnership. (b) In October 1996, the Partnership obtained a mortgage note commitment from an affiliate of the General Partner for an amount up to $2,588,971. On November 25, 1996, $2,588,971 was funded to the Partnership to pay off the mortgage note on The Village. The Partnership incurred deferred borrowing costs of $13,157 for the new mortgage note payable, and the deferred borrowing costs for the old mortgage note payable were written off. (c) The note requires monthly payments of interest only equal to the prime lending rate plus 1%. At December 31, 1997 and 1996, the prime rate was 8.50% and 8.25%, respectively. Under the terms of the Amended Partnership Agreement, borrowings from affiliates approximate fair market value. NOTE 7 - GAIN ON INVOLUNTARY CONVERSION - --------------------------------------- On January 25, 1997, a fire destroyed two units at The Park. The Partnership received $37,624 in insurance reimbursements to cover the cost of repairs. Insurance reimbursements received in excess of the basis of the property damage were recorded as a $22,630 gain on involuntary conversion. On January 20, 1997, a fire destroyed three units at The Village. The Partnership received $49,552 in insurance reimbursements to cover the cost of repairs. Insurance reimbursements received in excess of the basis of the property damage were recorded as a $24,010 gain on involuntary conversion. On January 8, 1996, 23,347 square feet of Knollwood Apartments were destroyed by fire causing approximately $857,000 in damages. The Partnership received $681,998 in insurance reimbursements as of December 31, 1996, to cover the cost to repair Knollwood. Insurance reimbursements received in excess of the basis of the property damaged were recorded as a $531,843 gain on involuntary conversion during 1996. In 1997, the Partnership received an additional $172,988 in insurance reimbursements, all of which was recorded as a gain on involuntary conversion. In 1994, the Partnership received $67,016 in insurance proceeds to cover the cost of repairs caused by a hail storm in August 1994 at Knollwood Apartments. The insurance proceeds were placed in escrow until completion of repairs. During 1996, the Partnership completed the repairs, received the proceeds that had been held in escrow, and recorded a $67,016 gain on the involuntary conversion. NOTE 8 - LEGAL PROCEEDINGS - -------------------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998. McNEIL REAL ESTATE FUND XI, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1997
Costs Initial Cost (b) Cumulative Capitalized Related (b) Buildings and Write-down for Subsequent Description Encumbrances Land Improvements Impairment (d) To Acquisition - ----------- ---------------- -------------------------------- --------------- ---------------- APARTMENTS: Acacia Lakes Mesa, AZ $ 8,773,421 $ 1,953,090 $ 10,784,729 $ - $ 2,495,304 Gentle Gale Galveston, TX 2,539,656 450,155 2,925,081 (21,141) 864,517 Knollwood Kansas City, MO 4,379,253 330,547 5,122,225 - 2,135,332 Sun Valley Charlotte, NC 6,451,832 562,797 7,056,988 - 1,597,870 Villa Del Rio Jacksonville, FL 5,442,120 636,634 7,685,383 - 2,075,468 The Village Gresham, OR 2,588,971 474,102 3,372,567 - 1,117,204 -------------- -------------- -------------- ------------ ------------- $ 30,175,253 $ 4,407,325 $ 36,946,973 $ (21,141) $ 10,285,695 ============== ============== ============== ============ ============= Assets Held for Sale: Rock Creek (c) Portland, OR $ 6,049,641 The Park (c) Joplin, MO $ 2,571,755 -------------- $ 8,621,396 ==============
(b) The initial cost and encumbrances reflect the present value of future loan payments discounted, if appropriate, at a rate estimated to be the prevailing interest rate at the date of acquisition or refinancing. (c) Asset held for sale is stated at the lower of depreciated cost or fair value less costs to sell. Depreciation ceases at the time they are placed on the market for sale. (d) The carrying value of Gentle Gale Apartments was reduced by $21,141 in 1990. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XI, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1997
Gross Amount at Which Carried at Close of Period Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization - ----------- ----------------------------------------------------- ----------------- APARTMENTS: Acacia Lakes Mesa, AZ $ 1,953,090 $ 13,280,033 $ 15,233,123 $ (9,302,116) Gentle Gale Galveston, TX 450,155 3,768,457 4,218,612 (2,533,853) Knollwood Kansas City, MO 330,547 7,257,557 7,588,104 (4,638,122) Sun Valley Charlotte, NC 562,797 8,654,858 9,217,655 (4,963,089) Villa Del Rio Jacksonville, FL 636,634 9,760,851 10,397,485 (6,264,146) The Village Gresham, OR 474,102 4,489,771 4,963,873 (3,240,339) -------------- -------------- --------------- ------------- $ 4,407,325 $ 47,211,527 $ 51,618,852 $ (30,941,665) ============== ============== =============== ============= Assets Held for Sale: Rock Creek (c) Portland, OR $ 4,569,548 The Park (c) Joplin, MO 1,341,317 --------------- $ 5,910,865 ===============
(a) For Federal income tax purposes, the properties are depreciated over lives ranging from 5-27.5 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was $74,981,822 and accumulated depreciation was $60,180,391 at December 31, 1997. (c) Asset held for sale is stated at the lower of depreciated cost or fair value less costs to sell. Depreciation ceases at the time they are placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XI, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1997
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- -------------- -------- ------------- APARTMENTS: Acacia Lakes Mesa, AZ 1980 05/81 3-33 Gentle Gale Galveston, TX 1980 05/81 3-21 Knollwood Kansas City, MO 1970 05/81 3-29 Sun Valley Charlotte, NC 1980 08/81 3-40 Villa Del Rio Jacksonville, FL 1976 05/81 3-40 The Village Gresham, OR 1974 05/81 3-30 Assets Held for Sale: Rock Creek Portland, OR 1975 02/81 The Park Joplin, MO 1977 03/81
See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XI, LTD. Notes to Schedule III Real Estate Investments and Accumulated Depreciation A summary of activity for the real estate investments and accumulated depreciation is as follows:
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 --------------- -------------- --------------- Real estate investments: Balance at beginning of year............... $ 55,173,438 $ 64,347,015 $ 62,526,972 Improvements............................... 1,150,402 2,391,036 1,820,043 Reclassification to assets held for sale... (4,561,586) (11,110,783) - Replacement of assets...................... (143,402) (453,830) - ------------- ------------- -------------- Balance at end of year..................... $ 51,618,852 $ 55,173,438 $ 64,347,015 ============= ============= ============== Accumulated depreciation: Balance at beginning of year............... $ 32,181,184 $ 37,095,184 $ 34,610,759 Depreciation............................... 2,083,616 2,372,870 2,484,425 Reclassification to assets held for sale... (3,220,269) (6,983,195) - Replacement of assets...................... (102,866) (303,675) - ------------- ------------- -------------- Balance at end of year..................... $ 30,941,665 $ 32,181,184 $ 37,095,184 ============= ============= ============== Assets Held for Sale: Balance at beginning of year............... $ 4,203,597 $ - $ - Reclassification to assets held for sale... 1,341,317 4,127,588 - Improvements............................... 365,951 76,009 - ------------- ------------- -------------- Balance at end of year..................... $ 5,910,865 $ 4,203,597 $ - ============= ============= =============
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ----------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------ None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- Neither the Partnership nor the General Partner has any directors or executive officers. The names and ages of, as well as the positions held by, the officers and directors of McNeil Investors, Inc., the general partner of the General Partner, are as follows: Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Robert A. McNeil, 77 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate financing since the late 1940's and in real estate acquisitions, syndications and dispositions since 1960. From 1986 until active operations of McREMI and McNeil Partners, L.P. began in February 1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the International Board of Directors of the Salk Institute, which promotes research in improvements in health care. Carole J. McNeil 54 Mrs. McNeil is Co-Chairman, with Co-Chairman of the husband Robert A. McNeil, of McNeil Board Investors, Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate associate with the Madison Company and, earlier, a commercial sales associate and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established Escrow Training Centers, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute. Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Ron K. Taylor 40 Mr. Taylor is the President and Chief President and Chief Executive Officer of McNeil Real Estate Executive Officer Management which is an affiliate of the General Partner. Mr. Taylor has been in this capacity since the resignation of Donald K. Reed on March 4, 1997. Prior to assuming his current responsibilities, Mr. Taylor served as a Senior Vice President of McREMI. Mr. Taylor has been in this capacity since McREMI commenced operations in 1991. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management firm. In this capacity, Mr. Taylor had the responsibility for the management and leasing of a 21,000,000 square foot portfolio of commercial properties. Mr. Taylor has been actively involved in the real estate industry since 1983. Each director shall serve until his successor shall have been duly elected and qualified. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1997, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1997. The Partnership has no plans to pay any such remuneration to any directors or officers of the general partner of the General Partner in the future. See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- (A) Security ownership of certain beneficial owners. No individual or group, as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, known to the Partnership is the beneficial owner of more than 5 percent of the Partnership's Units, other than High River Limited Partnership, which owns 18,622 Units (approximately 11.65% of the outstanding Units) as of January 31, 1998. The business address for High River Limited Partnership is 100 South Bedford Road, Mount Kisco, New York 10549. (B) Security ownership of management. The General Partner and the officers and directors of its general partner, collectively, own 313 Units which represent less than 1% of the outstanding Units. (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- Under the terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The MID will be paid to the extent of the lesser of the Partnership's excess cash flow as defined, or net operating income, as defined (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined. For the year ended December 31, 1997, the Partnership paid or accrued for the General Partner MID in the amount of $905,153. Any amount of the MID which is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. The Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's properties to McREMI for providing property management and leasing services. Effective February 14, 1991, the Partnership began reimbursing McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1997, the Partnership paid or accrued for McREMI $1,024,395 in property management fees and reimbursements. See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 - Note 2 - "Transactions with Affiliates." In November 1996, the Partnership obtained a loan from McNeil Real Estate Fund XXVII, L.P., an affiliate of the General Partner, totaling $2,588,971. The note is secured by The Village and requires monthly interest-only payments equal to the prime lending rate of Bank of America plus 1% with the principal balance due November 25, 1999. Total interest expense for this loan was $244,738 for the year ended December 31, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------- ----------------------------------------------------------------- See accompanying index to financial statements at Item 8 - Financial Statements and Supplementary Data.
(A) Exhibits Exhibit Number Description ------- ----------- 3. Limited Partnership Agreement (Incorpo- rated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1987). 3.1 Amended and Restated Limited Partnership Agreement, dated August 6, 1991 (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1991). 3.2 Amendment No. 1 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund XI, Ltd., dated March 28, 1994. (2) 3.3 Amendment No. 2 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund XI, Ltd., dated March 28, 1994. (2) 10.1 Deed of Trust Note, dated April 5, 1989, between Knollwood Fund XI Associates and American Mortgages, Inc. (1) 10.2 Deed of Trust Note, dated May 5, 1989, between Sun Valley Fund XI Associates and American Mortgages, Inc. (1) 10.3 Termination Agreement, dated as of August 6, 1991, between The Park Fund XI Associates and McNeil Partners, L.P. regarding McNeil Real Estate Fund XI, Ltd. (1) 10.4 Termination Agreement, dated as of August 6, 1991 between Sun Valley Fund XI Associates and McNeil Real Estate Management, Inc. (1)
Exhibit Number Description ------- ------------ 10.5 Termination Agreement, dated as of August 6, 1991, between Knollwood Fund XI Associates and McNeil Real Estate Management, Inc. (1) 10.6 Termination Agreement, dated as of August 6, 1991 among Southmark Management Corporation, Southmark Commercial Management Company, McNeil Real Estate Fund XI, Ltd. and McNeil Real Estate Fund XI, Ltd. and McNeil Real Estate Management, Inc. (1) 10.7 Property Management Agreement, dated as of August 6, 1991, between McNeil Real Estate Fund XI, Ltd. and McNeil Real Estate Management, Inc. (1) 10.8 Property Management Agreement, dated as of August 6, 1991, between Knollwood Fund XI Associates and McNeil Real Estate Management, Inc. (1) 10.9 Property Management Agreement, dated as of August 6, 1991, between Sun Valley Fund XI Associates and McNeil Real Estate Management, Inc. (1) 10.10 Property Management Agreement, dated as of August 6, 1991 between The Park Fund XI Associates and McNeil Real Estate Management, Inc. (1) 10.12 Amendment of Property Management Agreement, dated March 5, 1993, between McNeil Real Estate Fund XI, Ltd. and McNeil Real Estate Management, Inc. (Incorporated by reference, to the Annual Report of McNeil Real Estate Fund XI, Ltd. (File No. 0-9783), on Form 10-K for the period ended December 31, 1992) 10.13 Loan Agreement dated June 24, 1993, between Lexington Mortgage Company and McNeil Real Estate Fund XI, Ltd. (2) 10.14 Master Property Management Agreement, dated as of June 24, 1993, between McNeil Real Estate Management, Inc. and McNeil Real Estate Fund XI, Ltd. (2)
Exhibit Number Description ------- ------------ 10.15 Multifamily Note, dated November 1, 1993 between Value Line Mortgage Corporation and Acacia Lakes Fund XI Limited Partnership. (2) 10.16 Modification of Deed of Trust Note, dated December 15, 1993, between American Mortgages, Inc. and Knollwood Fund XI Associates. (2) 10.17 Modification of Deed of Trust Note, dated December 20, 1993, between American Mortgages, Inc. and Sun Valley Fund XI Associates. (2) 10.18 Deed of Trust Note, dated April 5, 1989, between The Park Fund XI Associates and American Mortgages, Inc. (3) 10.19 Installment Note, dated December 28, 1990, between The State of Oregon Public Employees' Retirement Fund and McNeil Real Estate Fund XI, Ltd. (3) 11. Statement regarding computation of Net Income (Loss) per limited partnership unit (see Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies). 22. List of subsidiaries of the Partnership. (2)
(1) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XI, Ltd. (File No. 0-9783), on Form 10-K for the period ended December 31, 1991, as filed with the Securities and Exchange Commission on March 29, 1992. (2) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XI, Ltd. (File No. 0-9783), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994. (3) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XI, Ltd. (File No. 0-9783), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1995. 27. Financial Data Schedule for the year ended December 31, 1997. (B) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 1997. McNEIL REAL ESTATE FUND XI, LTD. A Limited Partnership SIGNATURE PAGE 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. McNEIL REAL ESTATE FUND XI, LTD. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner March 31, 1998 By: /s/ Robert A. McNeil - -------------- --------------------------------------- Date Robert A. McNeil Chairman of the Board and Director (Principal 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. March 31, 1998 By: /s/ Ron K. Taylor - -------------- --------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 31, 1998 By: /s/ Brandon K. Flaming - -------------- --------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 12-MOS DEC-31-1997 DEC-31-1997 3,045,785 0 40,018 0 0 0 51,618,852 (30,941,665) 0 32,369,919 38,616,649 0 0 0 0 32,369,919 15,187,999 15,536,941 0 0 10,012,475 0 3,779,747 0 0 1,744,719 0 0 0 1,744,719 0 0
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