-----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, UYHoqJsCCmbWGKZzeOlXka1CV7mh7nJM12AkQ6staxG1hELQzqGlIf07YHSFKdQ+ SgzdOJ2KpjMvyMUwMnSGbw== 0000351708-98-000004.txt : 19980401 0000351708-98-000004.hdr.sgml : 19980401 ACCESSION NUMBER: 0000351708-98-000004 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 XII LTD CENTRAL INDEX KEY: 0000351708 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 942717957 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-10743 FILM NUMBER: 98580654 BUSINESS ADDRESS: STREET 1: 13760 NOEL ROAD, STE 700 STREET 2: LB70, CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD SUITE 700 STREET 2: 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 0-10743 --------- McNEIL REAL ESTATE FUND XII, LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2717957 - -------------------------------------------------------------------------------- (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 ] 228,138 of the registrant's 229,690 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 37 TOTAL OF 41 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund XII, Ltd. (the "Partnership") was organized February 2, 1981, 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 September 6, 1991, as amended (the "Amended Partnership Agreement"). Prior to September 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 February 2, 1981 (the "Original Partnership Agreement") as amended May 13, 1981. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. On June 8, 1981, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission whereby the Partnership offered for sale $120,000,000 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 September 30, 1982, with 230,728 Units sold at $500 each, or gross proceeds of $115,364,000 to the Partnership. In addition, the original general partners purchased a total of 200 Units for $100,000. During 1993 to 1996, a total of 1,100 Units were relinquished. In 1997, 138 Units were relinquished leaving 229,690 Units outstanding at 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; and (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. On September 6, 1991, the limited partners approved a restructuring proposal that provided 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 reimbursement 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: The Partnership filed claims with the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") against Southmark for damages relating to improper overcharges, breach of contract and breach of fiduciary duty. The Partnership settled these claims in 1991, and such settlement was approved by the Bankruptcy Court. An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April 14, 1995, was issued by the Bankruptcy Court. In accordance with the Order, in May 1995, the Partnership received in full satisfaction of its claims, $49,818 in cash, and common and preferred stock in the reorganized Southmark which represents the Partnership's pro-rata share of Southmark assets available for Class 8 Claimants. The Partnership sold the Southmark common and preferred stock in May 1995 for $16,039, which combined with the cash proceeds from Southmark, resulted in a gain on legal settlement of $65,857. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At December 31, 1997, the Partnership owned six 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 costs 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 Channingway Apartments on the market for sale effective August 1, 1997. In February 1998, the Partnership received an offer from an unaffiliated buyer for the purchase of Channingway for $19.15 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 against the Partnership regarding such environmental problems. The Partnership has become aware of the existence of certain underground solvent-based contamination at a portion of the Lodge at Aspen Grove. The Partnership understands the source of the contamination is related to underground storage tanks located at a Colorado Department of Transportation ("CDOT") facility nearby. The Partnership has been informed that CDOT, as the responsible party, has agreed to remediate the property to comply with state and federal standards. The Partnership believes that CDOT has submitted a corrective action plan to the Colorado Department of Public Health and Environment and that implementation of the plan is ongoing. CDOT has obtained an access agreement from the Partnership to perform its corrective action plan and monitor its progress. Other Information: 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 properties 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". See also Item 8 - - Note 4 - "Real Estate Investments" and Schedule III - "Real Estate Investments and Accumulated Depreciation and Amortization." In the opinion of management, the properties are adequately covered by insurance.
Net Basis 1997 Date Property Description of Property Debt Property Tax Acquired - -------- ----------- ----------- ---- ------------ -------- Real Estate Investments: Brendon Way (1) Apartments Indianapolis, IN 770 units $ 9,197,112 $ 17,642,466 $ 454,442 1/82 Castle Bluff (2) Apartments Kentwood, MI 241 units 2,214,376 4,392,431 136,126 1/82 Lodge at Aspen Grove (3) Apartments Denver, CO 284 units 4,574,353 5,401,881 73,304 2/82 Palisades at the Galleria (4) Apartments Atlanta, GA 370 units 6,223,616 10,410,165 154,828 7/82 Plaza Westlake (5) Glendale Retail Center Heights, IL 120,370 sq. ft. 3,923,824 3,773,779 95,804 3/82 --------------- ------------- ------------ $ 26,133,281 $ 41,620,722 $ 914,504 =============== ============= ============ Asset Held for Sale: Channingway Apartments Columbus, OH 770 units $ 9,303,533 $ 12,579,650 $ 253,461 12/82 =============== ============= ============
- ----------------------------------------- Total: Apartments - 2,435 units Retail Center - 120,370 sq. ft. (1) Brendon Way Apartments is owned by Brendon Way Fund XII Associates, a general partnership, which is wholly-owned by the Partnership and the General Partner. (2) Castle Bluff Apartments is owned by Castle Bluff Fund XII Associates, L.P. which is wholly-owned by the Partnership and the General Partner. (3) Lodge at Aspen Grove is owned by Buccaneer Fund XII, Ltd. which is wholly-owned by the Partnership. (4) Palisades at the Galleria Apartments is owned by Palisades Fund XII Associates, L.P. which is wholly-owned by the Partnership. (5) Plaza Westlake is owned by Plaza Westlake Fund XII, Ltd. which is wholly-owned by the Partnership. 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 ------------- ------------- -------------- ------------- ------- Real Estate Investments: Brendon Way Occupancy Rate............ 83% 82% 86% 90% 90% Rent Per Square Foot...... $5.85 $5.97 $6.12 $6.05 $5.60 Castle Bluff Occupancy Rate............ 95% 97% 96% 98% 93% Rent Per Square Foot...... $7.56 $7.55 $7.28 $6.92 $6.62 Lodge at Aspen Grove Occupancy Rate............ 96% 97% 94% 95% 96% Rent Per Square Foot...... $8.75 $8.14 $7.92 $7.42 $7.00 Palisades at the Galleria Occupancy Rate............ 96% 96% 97% 99% 98% Rent Per Square Foot...... $7.35 $7.39 $6.97 $6.65 $5.98 Plaza Westlake Occupancy Rate............ 97% 100% 98% 99% 100% Rent Per Square Foot...... $8.04 $8.60 $7.75 $7.73 $7.92 Asset Held for Sale: Channingway Occupancy Rate............ 86% 88% 86% 89% 91% Rent Per Square Foot...... $6.55 $6.35 $5.88 $5.88 $5.75
Occupancy rate represents all units leased divided by the total number of units for residential properties and square footage leased divided by total square footage for other properties 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 - ---------------------- Real Estate Investments: Brendon Way - ----------- Brendon Way is competing in an increasingly soft market with many lease incentives available to renters. The property's occupancy is currently below the average Indianapolis sub-market occupancy rate of 90%. Rental rates at Brendon Way are slightly below the rates offered by competitors in the Indianapolis sub-market in which Brendon Way is located. Minor renovations have improved the curb appeal of the property. The lack of funds to complete a major renovation of the aging property creates a challenge for Brendon Way to stay competitive. Castle Bluff - ------------ Castle Bluff is in a highly competitive market with the occupancy rates running at 95%. Castle Bluff is currently competing in a robust economy. During 1997, construction permits increased by 35%. The Kentwood, Michigan property has done some renovations to remain aggressive in the market and anticipates raising the rental rates by 3% in 1998. Lodge at Aspen Grove - -------------------- Since 1993, the rental rates at Lodge at Aspen Grove have increased by 25% due to improved market conditions. The market maintains a strong occupancy level at 96%. The Denver economy is still expanding and creating job growth that is fueling new construction. During 1997, 3,500 units were added to the metropolitan area. Palisades at the Galleria - ------------------------- Occupancy rates at Palisades at the Galleria have dropped since 1994 due to increased multi-family construction and road construction in the area. As a result, no rental rate increase was implemented in 1997. The property plans a 3.5% rental rate increase in May 1998. The Atlanta sub-market continues to maintain average occupancy rates running between 90% and 92%. Plaza Westlake - -------------- Plaza Westlake enters 1998 with an occupancy rate of 97%, well above the market average of 89%. Plaza Westlake is located in Glendale Heights, Illinois, in a high traffic area with a proven anchor. Planned improvements for 1998 include sidewalk replacement and landscaping. Asset Held for Sale: Channingway - ----------- Channingway is located in an area east of Columbus, Ohio with a sub-market of 28,355 apartment units. The property is currently below the market average occupancy rate of 94% and monthly rental rates are slightly lower than market. The Partnership has placed this asset on the market for sale effective August 1, 1997. If a sale is not consummated, the Partnership will continue to cure the deferred maintenance items of the property to add value and marketability to the community. The following schedule shows lease expirations for the Partnership's commercial property for 1998 through 2007:
Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- ----------- ----------- Plaza Westlake - -------------- 1998 4 22,790 $ 212,685 25% 1999 5 73,295 377,551 45% 2000 2 3,690 50,963 6% 2001 3 9,438 111,138 13% 2002-2007 2 5,600 72,880 9%
No residential tenant leases 10% or more of the available rental space. The following schedule reflects information on commercial tenants occupying 10% or more of the leasable square feet for the commercial property:
Nature of Business Square Footage Lease Use Leased Annual Rent Expiration - --------- -------------- ----------- ---------- Plaza Westlake Entertainment 17,584 $ 149,464 1998 Retail 68,020 310,857 1999
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 2,284 as of January 31, 1998 (C) No distributions were made to the limited partners in 1997 or 1996, and none are anticipated in 1998. The Partnership accrued distributions for the MID of $855,907 and $924,117 for the benefit of the General Partner for the years ended December 31, 1997 and 1996, respectively. Total MID distributions of $4,368,319 remain unpaid as of December 31, 1997. 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............... $ 15,427,506 $ 16,327,181 $ 17,533,914 $ 21,295,696 $ 24,228,119 Total revenue................ 15,542,127 18,046,806 21,195,706 27,701,373 32,481,572 Gain on disposition of real estate................. - 1,506,169 3,247,513 6,307,885 8,193,880 Income (loss) before extraordinary item.......... (1,506,270) 391,871 1,183,425 3,220,934 4,178,756 Extraordinary gain on extinguishment of debt, net. - - 1,304,587 246,149 - Net income (loss)............ (1,506,270) 391,871 2,488,012 3,467,083 4,178,756 Net income (loss) per limited partnership unit: Income (loss) before extraordinary item.......... $ (6.23) $ (7.12) $ 4.89 $ 13.27 $ 17.20 Extraordinary gain on extinguishment of debt...... - - 5.25 1.01 - ------------- ----------- ----------- ---------- ----------- Net income (loss)............ $ (6.23) $ (7.12) $ 10.14 $ 14.28 $ 17.20 ============= =========== =========== ========== ===========
As of December 31, Balance Sheets 1997 1996 1995 1994 1993 - -------------- -------------- -------------- --------------- --------------- ---------------- Real estate investments, net... $ 26,133,281 $ 37,221,352 $ 39,098,068 $ 40,915,017 $ 52,304,839 Assets held for sale........... 9,303,533 - 3,164,323 12,724,693 11,421,936 Total assets................... 40,517,097 42,666,935 52,112,866 60,189,348 72,830,100 Mortgage notes payable......... 54,200,372 54,859,073 59,160,426 68,152,522 79,867,507 Partners' deficit.............. (20,743,607) (18,381,430) (17,849,184) (19,292,331) (21,594,865)
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. The following properties have been sold during the five years ended December 31, 1997. Property Date Sold -------- --------- Millwood Park October 1996 Lamar Plaza July 1995 Sundance Apartments June 1995 Fox Run Apartments December 1994 Village East Apartments November 1994 Cedar Mill Crossing Apartments December 1993 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 six properties. All of the Partnership properties are subject to mortgage notes. RESULTS OF OPERATIONS - --------------------- 1997 compared to 1996 Revenue: Total Partnership revenue decreased by $2,504,679 or 14% in 1997 as compared to 1996. This decrease can be attributed to sale of Millwood in 1996. Excluding the effects of the Millwood sale, rental revenue increased $138,097 in 1997 compared to the same period in 1996. Rental rates increased at four of the Partnerships properties but this was offset by a decrease in the average occupancy rate for the year at all of the Partnership's properties. Interest income in 1997 decreased by $98,835 or 46% as compared the same period last year due to smaller average cash balances being invested in interest bearing accounts. The Partnership also recorded a $1,506,169 gain on disposition of asset as a result of the sale of Millwood during 1996. No such gain was recorded in 1997. Expenses: Partnership expenses decreased by $606,538 or 3% for the year ended 1997 as compared to 1996. The effects from the sale of Millwood in 1996 were declines of $252,161 for interest, $65,877 for property taxes, $158,205 for personnel expenses, $144,940 for utilities, $199,849 for repairs and maintenance, $50,915 for property management fees and $111,963 for other property operating expenses. In addition to the sale of Millwood, other factors affected the level of expenses reported by the remaining properties. Interest expense - affiliates decreased by $50,980 or 95% in 1997 as compared to 1996. This decrease is due to the repayment of affiliate advances in 1996. Property taxes increased $162,332 or 15% for the year ended December 31, 1997 (excluding the effects of the sale of Millwood Park) as compared to the same period in 1996. This increase can be attributed to a tax refund received in 1996 which reduced the tax expense for that year. No such refund was received in 1997. Repairs and maintenance increased $268,606 or 14% in 1997 (excluding the effects of the sale of Millwood Park) compared to the same period in 1996. The increase is attributable to a $300,410 increase in appliances and floor covering replacements during 1997. Such expenditures during 1996 were large enough to qualify for capitalization under the Partnership's capitalization policy. These expenditures in 1997 did not qualify for capitalization and were, accordingly, expensed. General and administrative expenses increased $35,529 or 21%. The increase is attributable to charges for investor services which, beginning in 1997, were provided by a third party vendor instead of by affiliates of the General Partner. General and administrative - affiliate expenses decreased $120,070 or 35% in 1997 as compared to the same period last year. This decrease is due to a decrease in the percentage of the Partnership's portion of reimbursable costs and to costs of investor services discussed above. 1996 compared to 1995 Revenue: Total Partnership revenues decreased in 1996 by $3,148,900 or 15% as compared to the same period in 1995. Rental revenue decreased by $1,206,733 or 7% while interest income increased $45,034. In 1996, the Partnership incurred a gain on disposition of real estate totaling $1,506,169, while in 1995, gains on legal settlement and disposition of real estate totaled $3,493,370. The decrease in rental revenue is due to the loss of revenue generated by Sundance and Lamar Plaza, which were sold in June and July of 1995, and Millwood Park, which was sold in October of 1996. See Item 8 - Note 6 - "Dispositions of Properties". This decrease was partially offset by the increase in rental revenue at four of the Partnership's properties. Expenses: Partnership expenses decreased by $2,357,346 for the year ended 1996 as compared to 1995 primarily due to the sales of Sundance and Lamar Plaza in 1995 and Millwood Park in 1996. The effects from these transactions were declines of $807,431 for interest, $623,094 for depreciation, $73,719 for property taxes, $185,004 for personnel expenses, $97,043 for utilities, $133,406 for repairs and maintenance, $84,924 for property management fees, and $137,026 for other operating expenses. In addition to the sales of Sundance, Lamar Plaza, and Millwood Park, other factors affected the level of expenses reported by the remaining properties during 1996 as compared to 1995. Interest expense - affiliates decreased by $107,231 or 67% due to the to the repayment of affiliate advances of $235,146 in October 1995 and $1,419,339 in May 1996. Property tax expense decreased by $77,316 or 7% in 1996 as compared to 1995 (excluding the effects of the sales noted above) due to the successful appeal of prior year real estate taxes at Channingway and Palisades at the Galleria. Utilities expense increased by $109,328 or 9% (excluding the effects of the sales noted above) in 1996 compared to 1995 due the increase in costs of gas and oil rates with the largest increase occurring at Brendon Way. General and administrative expenses increased $70,648 or 71% in 1996 as compared to the same period in 1995. This increase is due to legal and professional fees relating to the land condemnation at Palisades and the sale of Millwood Park. General and administrative - affiliate expenses decreased $103,237 or 23% for the year ended 1996 as compared to 1995. This decrease is due to a decrease in the percentage of the Partnership's portion of reimbursable costs, which is based on the number of properties owned. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At December 31, 1997, the Partnership held cash and cash equivalents of $1,423,658, down $344,591 from the balance at the end of 1996. The Partnership has experienced positive cash flow from operations of $4,719,037 for the three years ended December 31, 1997. During 1995, the Partnership received net cash proceeds of $5,017,966 for the refinancing of Millwood Park, Lodge at Aspen Grove, Palisades at the Galleria and Plaza Westlake. The Partnership also sold three properties in 1996 and 1995 and received $5,255,430 in proceeds. Over the last three years the Partnership has used cash to fund $5,693,397 in additions to real estate investments, $3,958,288 to retire mortgage notes related to the sold properties, $3,491,450 in principal payments, $673,369 for additions to deferred borrowing costs, $1,654,485 for the repayment of advances and mortgage loans from affiliates and $2,210,551 for the payment of the MID. The Partnership generated $2,111,743 through operating activities in 1997 as compared to $183,712 in 1996. The increase of $1,928,031 can be attributed to the decrease in cash paid to affiliates, suppliers and interest paid. The Partnership continues to invest substantial sums into improvements at its properties. A total of $5,693,397 of improvements have been added to the Partnership's properties over the past three years. An additional $1.6 million of improvements have been budgeted for 1998. 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 on its remaining six properties. The Partnership has budgeted an additional $1.6 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 $1,423,658. The General Partner considers this level of cash reserves to be adequate to meet the Partnership's operating needs. The General Partner anticipates using reserves to repay the affiliate payables. 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. During 1998, the Partnership is faced with a mortgage maturity at Channingway of approximately $12.3 million. On August 1, 1997, the Partnership placed Channingway on the market for sale. In February 1998, the Partnership received an offer from an unaffiliated buyer for the purchase of Channingway for $19.15 million and is currently evaluating the terms and conditions of this offer. Long-term liquidity: The Partnership's working capital needs have been supported by advances from affiliates during the past several years. Some of that support was provided on a short-term basis to meet monthly operating requirements, with repayment occurring as funds became available; other advances were longer term in nature due to lack of funds for repayment. Additionally, the General Partner has allowed the Partnership to defer payment of MID and reimbursements until such time as the Partnership's cash reserves allow payments. During 1994, the Partnership began to make repayments to the General Partner for advances and accrued MID. The Partnership will continue to make such payments as is allowed by cash reserves and cash flows of the Partnership. However, the Partnership will not be able to repay the General Partner all payables outstanding in the foreseeable future. The General Partner will continue to defer the unpaid sums until the Partnership's cash reserves allow such payments. For the long-term, property operations will remain the primary source of funds. In this regard, the General Partner expects that the $5.69 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 Channingway Apartments on the market for sale effective August 1, 1997. 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 the three year period ended December 31, 1997, $(75,314), $2,027,598 and $156,482, respectively, of net income (loss) was allocated to the General Partner. The limited partners received allocations of net income (loss) of $(1,430,956), $(1,635,727) and $2,331,530 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. Distributions to the limited partners will remain suspended for the foreseeable future. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support distributions to the limited partners. A distribution of $855,907 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 and Amortization............................................ 32
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 XII, Ltd.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XII, 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 XII, 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 XII, LTD. BALANCE SHEETS
December 31, ----------------------------------- 1997 1996 --------------- --------------- ASSETS - ------ Real estate investments: Land..................................................... $ 4,534,618 $ 6,079,334 Buildings and improvements............................... 58,352,857 75,302,352 -------------- ------------- 62,887,475 81,381,686 Less: Accumulated depreciation and amortization......... (36,754,194) (44,160,334) -------------- ------------- 26,133,281 37,221,352 Asset held for sale......................................... 9,303,533 - Cash and cash equivalents................................... 1,423,658 1,768,249 Cash segregated for security deposits....................... 456,356 433,750 Accounts receivable......................................... 165,311 242,360 Prepaid expenses and other assets........................... 139,468 138,853 Escrow deposits............................................. 1,350,788 1,167,732 Deferred borrowing costs, net of accumulated amortization of $767,891 and $617,954 at December 31, 1997 and 1996, respectively................. 1,544,702 1,694,639 -------------- ------------- $ 40,517,097 $ 42,666,935 ============== ============= LIABILITIES AND PARTNERS' DEFICIT - --------------------------------- Mortgage notes payable...................................... $ 54,200,372 $ 54,859,073 Accounts payable............................................ 9,996 16,402 Accrued expenses............................................ 277,958 142,099 Accrued interest............................................ 378,010 383,990 Accrued property taxes...................................... 932,545 837,798 Deferred gain - land condemnation........................... 297,754 297,754 Advances from Southmark..................................... 39,839 37,472 Advances from affiliates - General Partner.................. 32,136 29,494 Payable to affiliates - General Partner..................... 4,573,052 3,941,378 Security deposits and deferred rental income................ 519,042 502,905 -------------- ------------- 61,260,704 61,048,365 -------------- ------------- Commitments and Contingencies Partners' deficit: Limited partners - 240,000 limited partnership units authorized; 229,690 and 229,828 limited partnership units issued and outstanding at December 31, 1997 and 1996, respectively................................... (10,579,935) (9,148,979) General Partner.......................................... (10,163,672) (9,232,451) -------------- ------------- (20,743,607) (18,381,430) -------------- ------------- $ 40,517,097 $ 42,666,935 ============== =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, LTD. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Revenue: Rental revenue.......................... $ 15,427,506 $ 16,327,181 $ 17,533,914 Interest................................ 114,621 213,456 168,422 Gain on dispositions of real estate..... - 1,506,169 3,427,513 Gain on legal settlement................ - - 65,857 ------------- ------------- -------------- Total revenue......................... 15,542,127 18,046,806 21,195,706 ------------- ------------- -------------- Expenses: Interest................................ 4,828,851 5,112,770 6,204,096 Interest - affiliates................... 2,642 53,622 160,853 Depreciation and amortization........... 3,582,171 3,659,059 4,019,174 Property taxes.......................... 1,167,965 1,071,510 1,222,545 Personnel expenses...................... 1,746,287 1,842,298 2,077,845 Repairs and maintenance................. 2,254,008 2,185,251 2,321,887 Property management fees - affiliates............................ 768,159 811,532 877,423 Utilities............................... 1,243,260 1,359,246 1,346,961 Other property operating expenses....... 1,023,327 1,043,379 1,232,640 General and administrative.............. 205,326 169,797 99,149 General and administrative - affiliates............................ 226,401 346,471 449,708 ------------- ------------- -------------- Total expenses........................ 17,048,397 17,654,935 20,012,281 ------------- ------------- -------------- Income (loss) before extraordinary item.... (1,506,270) 391,871 1,183,425 Extraordinary gain on extinguishment of debt, net............................ - - 1,304,587 ------------- ------------- -------------- Net income (loss).......................... $ (1,506,270) $ 391,871 $ 2,488,012 ============= ============= ============== Net income (loss) allocable to limited partners................................ $ (1,430,956) $ (1,635,727) $ 2,331,530 Net income (loss) allocable to General Partner................................ (75,314) 2,027,598 156,482 ------------- ------------- -------------- Net income (loss).......................... $ (1,506,270) $ 391,871 $ 2,488,012 ============= ============= ============== Net income (loss) per limited partnership unit: Income (loss) before extraordinary item. $ (6.23) $ (7.12) $ 4.89 Extraordinary gain on extinguishment of debt............................... - - 5.25 ------------- ------------- ------------- Net income (loss)....................... $ (6.23) $ (7.12) $ 10.14 ============= ============= =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, 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.............. $ (9,447,549) $ (9,844,782) $ (19,292,331) Net income................................ 156,482 2,331,530 2,488,012 Management Incentive Distribution......... (1,044,865) - (1,044,865) -------------- -------------- -------------- Balance at December 31, 1995.............. (10,335,932) (7,513,252) (17,849,184) Net income (loss)......................... 2,027,598 (1,635,727) 391,871 Management Incentive Distribution......... (924,117) - (924,117) -------------- -------------- -------------- Balance at December 31, 1996.............. (9,232,451) (9,148,979) (18,381,430) Net loss.................................. (75,314) (1,430,956) (1,506,270) Management Incentive Distribution......... (855,907) - (855,907) -------------- -------------- -------------- Balance at December 31, 1997.............. $ (10,163,672) $ (10,579,935) $ (20,743,607) ============== ============== ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, 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..................... $ 15,462,328 $ 16,089,650 $ 17,504,409 Cash received from legal settlement............ - - 65,857 Cash paid to suppliers......................... (6,379,022) (6,855,751) (7,527,222) Cash paid to affiliates........................ (1,218,793) (3,126,674) (1,102,197) Interest received.............................. 114,621 213,456 168,422 Interest paid.................................. (4,682,527) (4,985,617) (5,428,928) Interest paid to affiliates.................... - (79,757) (264,854) Property taxes paid............................ (1,184,864) (1,071,595) (991,905) ------------- ------------- ------------- Net cash provided by operating activities......... 2,111,743 183,712 2,423,582 ------------- ------------- ------------- Cash flows from investing activities: Additions to real estate investments and asset held for sale.......................... (1,797,633) (2,249,348) (1,646,416) Proceeds from disposition of real estate investments...................... - 5,210,430 45,000 Land condemnation escrow....................... - 499,000 - ------------- ------------- ------------- Net cash provided by (used in) investing activities........................... (1,797,633) 3,460,082 (1,601,416) ------------- ------------- ------------- Cash flows from financing activities: Principal payments on mortgage notes payable................................ (658,701) (343,065) (2,489,684) Net proceeds from refinancing of mortgage notes payable....................... - - 5,017,966 Principal addition to mortgage note payable from release of capital improvements escrow....................................... - 300,000 - Retirement of mortgage notes due to dispositions of real estate.................. - (3,958,288) - Deferred borrowing costs paid.................. - (35,665) (637,704) Repayment of advances from affiliates - General Partner................. - (1,419,339) (235,146) Management Incentive Distribution.............. - (2,210,551) - ------------- ------------- ------------- Net cash provided by (used in) financing activities..................................... (658,701) (7,666,908) 1,655,432 ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents............................. (344,591) (4,023,114) 2,477,598 Cash and cash equivalents at beginning of year............................ 1,768,249 5,791,363 3,313,765 ------------- ------------- ------------- Cash and cash equivalents at end of year.......... $ 1,423,658 $ 1,768,249 $ 5,791,363 ============= ============= =============
See discussion of noncash investing and financing activities in Notes 6 and 7. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, LTD. STATEMENTS OF CASH FLOWS Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 --------------- -------------- --------------- Net income (loss).......................... $ (1,506,270) $ 391,871 $ 2,488,012 ------------- ------------- -------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........... 3,582,171 3,659,059 4,019,174 Amortization of discounts on mortgage notes payable................ - - 217,857 Amortization of deferred borrowing costs....................... 149,937 152,327 170,772 Net interest added to advances from Southmark........................ 2,367 2,325 2,457 Net interest added to advances from affiliates - General Partner..... 2,642 - 27,726 Gain on disposition of real estate...... - (1,506,169) - Gain on involuntary conversion.......... - - (3,427,513) Extraordinary gain on extinguish- ment of debt.......................... - - (1,304,587) Changes in assets and liabilities: Cash segregated for security deposits............................ (22,606) (117,085) (13,229) Accounts receivable................... 77,049 (35,513) 110,712 Prepaid expenses and other assets.............................. (615) 10,359 109,456 Escrow deposits....................... (183,056) (166,824) (263,246) Accounts payable...................... (6,406) (69,762) (134,177) Accrued expenses...................... 135,859 (4,280) (343) Accrued interest...................... (5,980) (53,634) 252,355 Accrued property taxes................ 94,747 (97,520) (26,141) Payable to affiliates - General Partner............................. (224,233) (1,968,671) 224,934 Security deposits and deferred rental income....................... 16,137 (12,771) (30,637) ------------- ------------- -------------- Total adjustments................. 3,618,013 (208,159) (64,430) ------------- ------------- -------------- Net cash provided by operating activities............................ $ 2,111,743 $ 183,712 $ 2,423,582 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, LTD. NOTES TO FINANCIAL STATEMENTS December 31, 1997 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund XII, Ltd. (the "Partnership") was organized February 2, 1981, 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 September 6, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At December 31, 1997, the Partnership owned six 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 Channingway Apartments on the market for sale effective August 1 1997. In February 1998, the Partnership received an offer from an unaffiliated buyer for the purchase of Channingway for $19.15 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 and immaterial. % of Ownership Interest Tier Partnership Partnership General Partner ---------------- ----------- --------------- Limited Partnerships: Buccaneer Fund XII, Ltd.* 100% -% Castle Bluff Fund XII Associates, L.P. 99 1 Palisades Fund XII Associates, L.P.* 100 - Plaza Westlake Fund XII, Ltd.* 100 - General Partnerships: Brendon Way Fund XII 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. Asset Held for Sale - ------------------- The asset held for sale is stated at the lower of depreciated cost or fair value less costs to sell. Depreciation on this asset ceased at the time it was placed on the market for sale. Depreciation and Amortization - ----------------------------- Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 25 years. Tenant improvements are amortized over the terms of the related tenant lease using the straight-line method. 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. 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. The Partnership leases its commercial property under non-cancelable operating leases. Certain leases provide concessions and/or periods of escalating or free rent. Rental revenue is recognized on a straight-line basis over the term of the related leases. The excess of the rental revenue recognized over the contractual rental payments is recorded as accrued rent receivable and included in accounts receivable on the Balance Sheets. 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 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, 5% of all deductions for depreciation shall be allocated 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 ratio of 5% to the General Partner and 95% to the limited partners. The Amended Partnership Agreement also provides that net losses, other than those 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, 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 paid or accrued distributions of $855,907, $924,117 and $1,044,865 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. 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 weighted average number of Units outstanding. Per Unit information has been computed based on 229,690, 229,828 and 229,980 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 services for the Partnership's residential and commercial properties and leasing services for its residential properties. McREMI may also choose to provide leasing services for the Partnership's commercial property, in which case McREMI will receive property management fees from the commercial property equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located. 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 and $50 per gross square foot for commercial 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, per Unit. 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...... $ 768,159 $ 811,532 $ 877,423 Charged to interest expense: Interest expense on affiliate loans and advances.................... 2,642 53,622 160,853 Charged to general and administrative - affiliates: Partnership administration.............. 226,401 346,471 449,708 ------------- ------------- -------------- $ 997,202 $ 1,211,625 $ 1,487,984 ============= ============= ============== Charged to General Partner's deficit: MID..................................... $ 855,907 $ 924,117 $ 1,044,865 ============= ============= ==============
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. The General Partner has waived the collection terms of the MID until the Partnership has an adequate level of cash reserves. In 1996, the Partnership paid $2,210,551 from cash reserves for the MID. The total advances from affiliates at December 31, 1997 and 1996 consist of the following: 1997 1996 --------- --------- Advances purchased by General Partner $ 27,903 $ 27,903 Accrued interest payable 4,233 1,591 -------- -------- $ 32,136 $ 29,494 ======== ======== The advances are unsecured, due on demand and accrue interest at the prime lending rate of the Bank of America plus 1%. The prime lending rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively. NOTE 3 - TAXABLE LOSS - --------------------- McNeil Real Estate Fund XII, 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 financial reporting purposes exceeded the net assets and liabilities for tax purposes by $1,664,332 in 1997, $3,627,641 in 1996 and $1,939,981 in 1995. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments held at December 31, 1997 and 1996 are set forth in the following tables:
Accumulated Buildings and Depreciation Net Book 1997 Land Improvements and Amortization Value ---- -------------- ------------ ---------------- --------------- Brendon Way Indianapolis, IN $ 1,067,661 $ 21,895,901 $ (13,766,450) $ 9,197,112 Castle Bluff Kentwood, MI 239,839 5,450,627 (3,476,090) 2,214,376 Lodge at Aspen Grove Denver, CO 996,813 9,579,207 (6,001,667) 4,574,353 Palisades at the Galleria Atlanta, GA 774,721 14,701,750 (9,252,855) 6,223,616 Plaza Westlake Glendale Heights, IL 1,455,584 6,725,372 (4,257,132) 3,923,824 ------------- -------------- ------------- ------------- $ 4,534,618 $ 58,352,857 $ (36,754,194) $ 26,133,281 ============= ============== ============= ============= Accumulated Buildings and Depreciation Net Book 1996 Land Improvements and Amortization Value ---- -------------- ------------ ---------------- --------------- Brendon Way $ 1,067,661 $ 21,439,074 $ (12,614,845) $ 9,891,890 Castle Bluff 239,839 5,329,617 (3,209,323) 2,360,133 Channingway (a) Columbus, OH 1,544,716 18,357,567 (10,480,266) 9,422,017 Lodge at Aspen Grove 996,813 9,158,390 (5,550,437) 4,604,766 Palisades at the Galleria 774,721 14,354,131 (8,414,943) 6,713,909 Plaza Westlake 1,455,584 6,663,573 (3,890,520) 4,228,637 ------------- -------------- ------------- ------------- $ 6,079,334 $ 75,302,352 $ (44,160,334) $ 37,221,352 ============= ============== ============= =============
(a) On August 1, 1997, the General Partner placed Channingway Apartments on the market for sale. Channingway Apartments is classified as such at December 31, 1997 with a net book value of $9,303,553. In February 1998, the Partnership received an offer from an unaffiliated buyer for the purchase of Channingway for $19.15 million and is currently evaluating the terms and conditions of this offer. The results of operations for the asset held for sale at December 31, 1997 are $64,481, $(115,844) and $(476,754) for 1997, 1996 and 1995, respectively. Results of operations are operating revenues less operating expenses including depreciation and interest expense. The Partnership leases its commercial property under various non-cancelable operating lease agreements. Future minimum rents to be received as of December 31, 1997, are as follows: 1998.................................... $ 683,159 1999.................................... 536,974 2000.................................... 235,753 2001.................................... 115,435 2002.................................... 74,136 Thereafter.............................. 7,216 --------- Total............................... $1,652,673 ========= Future minimum rents do not include contingent rents or operating expense reimbursements. Contingent rents and operating expense reimbursements amounted to $187,775 in 1997, $147,333 in 1996 and $191,814 in 1995, and are included in rental revenue on the Statements of Operations. The Partnership's properties are encumbered by mortgage indebtedness as discussed in Note 5. NOTE 5 - MORTGAGE NOTES PAYABLE - ------------------------------- The following table sets forth mortgage notes payable of the Partnership at December 31, 1997 and 1996. All mortgage notes are secured by the related real estate investments or the asset held for sale.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a)Rates % Maturity Date (d) 1997 1996 - -------- ------------------- -------------------- -------------- -------------- Brendon Way First 8.00 $133,911 05/24 $ 17,642,466 $ 17,829,789 ------------- ------------- Castle Bluff First 9.25 36,926 12/24 4,392,431 4,427,466 ------------- ------------- Channingway(c) First Variable (b) Variable (b) 08/98 12,579,650 12,791,999 ------------- -------------
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a)Rates % Maturity Date (d) 1997 1996 - -------- ------------------- -------------------- -------------- -------------- Lodge at Aspen Grove First 8.10 40,741 10/02 5,401,881 5,451,038 ------------- ------------- Palisades at the Galleria First 8.08 78,371 10/02 10,410,165 10,505,263 ------------- ------------- Plaza Westlake First 9.50 37,285 01/00 3,773,779 3,853,518 ------------- ------------- $ 54,200,372 $ 54,859,073 ============= =============
(a) The debt, except for Plaza Westlake, is non-recourse to the Partnership. (b) Interest on the Channingway mortgage note is adjusted annually to 2.75% over the one year Treasury bill weekly average rate with a ceiling of 15% and a floor of 7.25%. The interest rate at December 31, 1997 and 1996 was 8.5% and 8.625%, respectively. (c) The mortgage encumbering Channingway contains provisions which may give the lenders the right to accelerate the mortgage debt as a result of the September 1991 restructuring of the Partnership. The General Partner has requested that the lender waive its right to accelerate the mortgage debt. The lender may require the payment of fees or additional interest as a condition to granting such waiver. In the event the waiver is not obtained, and the mortgage debt is accelerated, the Partnership will be required to satisfy the outstanding mortgage debt which approximated $12.6 million at December 31, 1997. In such event, the Partnership will arrange alternative sources of mortgage financing. However, such refinancing may be at an interest rate, which is higher or is otherwise on terms, which are less favorable than those provided for by the current mortgage. Furthermore, if alternative financing cannot be obtained, the lender could foreclose on the property securing the mortgage. Management believes the likelihood of this outcome is remote. (d) Balloon payments on the mortgage notes are due as follows: Property Balloon Payment Date -------- --------------- ---- Channingway $ 12,293,000 08/98 Plaza Westlake 3,145,640 01/00 Lodge at Aspen Grove 5,099,378 10/02 Palisades at the Galleria 9,825,319 10/02 Principal maturities of the mortgage notes payable are as follows: Real Estate Asset Held Investments For Sale ------------ ------------- 1998.................... $ 485,627 $ 12,579,650 1999.................... 527,927 - 2000.................... 4,057,252 - 2001.................... 507,477 - 2002.................... 15,437,972 - Thereafter.............. 20,604,467 - ----------- ------------ Total................. $ 41,620,722 $ 12,579,650 =========== ============= 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 $56,219,000 as of December 31, 1997 and $53,290,000 as of December 31, 1996. NOTE 6 - DISPOSITIONS OF PROPERTIES - ----------------------------------- On October 3, 1996, the Partnership sold Millwood Park Apartments to an unaffiliated buyer for a cash sales price of $5,327,000. Cash proceeds from this transaction, as well as the gain on sale of Millwood Park Apartments are detailed below.
Gain on Sale Cash Proceeds ---------------- ------------- Cash sales price.......................................... $ 5,327,000 $ 5,327,000 Selling costs............................................. (116,570) (116,570) Basis of deferred borrowing costs written off........................................... (115,607) Basis of real estate sold................................. (3,430,082) Basis of escrows written off.............................. (158,572) ------------- Gain on sale.............................................. $ 1,506,169 ============== ----------- Proceeds from disposition of real estate.................. 5,210,430 Retirement of mortgage note............................... (3,958,288) ----------- Net cash proceeds......................................... $ 1,252,142 ===========
On July 27, 1995, the Partnership sold its investment in Lamar Plaza to an unaffiliated buyer for assumption of the first and second liens by the purchaser. The gain on disposition is detailed below: Gain on Sale Mortgage and accrued interest assumed by purchaser......................................... $ 4,195,215 Basis of real estate sold............................ (3,030,994) ----------- Gain on disposition of real estate................... $ 1,164,221 =========== On June 19, 1995 the Partnership sold its investment in Sundance to an unaffiliated buyer for a cash sales price of $45,000 and assumption of the first, second and third liens by the purchaser. Cash proceeds and the gain on disposition are detailed below.
Gain on Sale Cash Proceeds ---------------- ------------- Sales price.......................................... $ 45,000 $ 45,000 Mortgages and accrued interest assumed by purchaser......................................... 8,191,859 Basis of real estate sold............................ (5,973,567) --------------- Gain on disposition of real estate................... $ 2,263,292 =============== ---------- Net cash proceeds.................................... $ 45,000 ==========
Also related to the sale of Sundance, the Partnership recognized a $268,433 gain on early extinguishment of debt related to the interest in net profits portion of the debt. NOTE 7 - REFINANCING OF MORTGAGE NOTES PAYABLE - ----------------------------------------------- On October 31, 1995, the Partnership refinanced the mortgage note payable on Millwood Park. Following is a summary of the transaction: New loan proceeds......................... $ 3,982,500 Existing debt retired..................... (3,172,754) ------------ Cash proceeds from refinancing............ $ 809,746 ============ On October 3, 1996, the Partnership sold Millwood Park (See Note 6). On October 20, 1995, the Partnership refinanced the mortgage note payable on Lodge at Aspen Grove. The new loan bears an interest rate of 8.1%, requires monthly principal and interest payments of $40,741, and will mature October 24, 2002. Following is a summary of the transaction: New loan proceeds......................... $ 5,500,000 Existing debt retired..................... (3,398,218) Prepayment penalty........................ (113,650) ------------ Cash proceeds from refinancing............ $ 1,988,132 ============ The Partnership deposited $149,217 into property tax and deferred maintenance escrows and incurred loan costs of $161,625 related to the refinancing. Also relating to the refinancing, the Partnership recognized a $468,958 loss on early extinguishment of debt due to the unamortized mortgage discount and prepayment penalties related to the retired mortgage. On October 13, 1995, the Partnership refinanced the mortgage note payable on Palisades at the Galleria. The new loan bears an interest rate of 8.08%, requires monthly principal and interest payments of $78,371 and will mature October 16, 2002. Following is a summary of the transaction: New loan proceeds......................... $ 10,600,000 Existing debt retired..................... (8,413,974) ------------ Cash proceeds from refinancing............ $ 2,186,026 ============ The Partnership deposited $290,726 into property tax, insurance and deferred maintenance escrows and incurred loan costs of $252,200 related to the refinancing. On March 24, 1995, the Partnership refinanced the mortgage note payable on Plaza Westlake. The new loan bears an interest rate of 9.5%, requires monthly principal and interest payments of $37,285, and will mature January 31, 2000. Following is a summary of the transaction: New loan proceeds......................... $ 4,000,000 Capital improvement account............... (300,000) Existing debt retired..................... (3,365,938) -------------- Cash proceeds from refinancing............ $ 334,062 ============== In addition, the Partnership incurred loan costs of $132,903 relating to the refinancing. On February 6, 1995, the Partnership paid off the interest in net profits on Lodge at Aspen Grove for retirement of $3,588,192 of debt and accrued interest. The debt was retired at a discounted payoff of $1,750,000, which resulted in an extraordinary gain on extinguishment of debt of $1,838,192. NOTE 8 - LEGAL PROCEEDINGS - -------------------------- The Partnership is not party to, nor is 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. NOTE 9 - DEFERRED GAIN - LAND CONDEMNATION - ------------------------------------------ On February 23, 1996, the Partnership was awarded $499,000 as payment for condemnation of 6.45 acres at Palisades at the Galleria by Cobb County, Georgia. The county required the right-of-way to this property for highway construction. The condemnation of this parcel will not materially affect the operations of the property. The $499,000 is being held in escrow by the mortgagee pending completion of construction and is included with escrow deposits on the Balance Sheet. The release of the escrow is also contingent upon the property's compliance with a prescribed debt ratio. The Partnership has recorded a deferred gain of $297,754, which will recognized upon receipt of the $499,000. NOTE 10 - COMMITMENTS AND CONTINGENCIES - --------------------------------------- The Partnership has become aware of the existence of certain underground solvent-based contamination at a portion of the Lodge at Aspen Grove. The Partnership understands the source of the contamination is related to underground storage tanks located at a Colorado Department of Transportation ("CDOT") facility nearby. The Partnership has been informed that CDOT, as the responsible party, has agreed to remediate the property to comply with state and federal standards. The Partnership believes that CDOT has submitted a corrective action plan to the Colorado Department of Public Health and Environment and that implementation of the plan is ongoing. CDOT has obtained an access agreement from the Partnership to perform its corrective action plan and monitor its progress. McNEIL REAL ESTATE FUND XII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
Costs Initial Cost (b) Cumulative Capitalized Related (b) Buildings and Write-down Subsequent Description Encumbrances Land Improvements For Impairment(d) To Acquisition - ----------- ------------ ---- -------------- ------------------ --------------- Real Estate Investments: Apartments: Brendon Way Indianapolis, IN $ 17,642,466 $ 1,067,661 $ 17,490,677 $ - $ 4,405,224 Castle Bluff Kentwood, MI 4,392,431 239,839 4,650,535 - 800,092 Lodge at Aspen Grove Denver, CO 5,401,881 996,813 8,058,534 - 1,520,673 Palisades at the Galleria Atlanta, GA 10,410,165 975,967 10,920,268 - 3,580,236 Plaza Westlake Glendale Heights, IL 3,773,779 1,635,485 6,222,137 (746,424) 1,069,758 -------------- -------------- -------------- ------------ ------------ $ 41,620,722 $ 4,915,765 $ 47,342,151 $ (746,424) $ 11,375,983 ============== ============== ============== ============ ============ Asset Held for Sale: Channingway (c) Columbus, OH $ 12,579,650 ==============
(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. (c) The asset held for sale is carried at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and cumulative write-downs, becomes the new cost basis when the asset is classified as "Asset Held for Sale". Depreciation ceases at the time the asset is placed on the market for sale. (d) The carry value of Plaza Westlake was reduced by $746,424 in 1990. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
Gross Amount at Which Carried at Close of Period Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization - ----------- ---- -------------- --------- ---------------- Real Estate Investments: Apartments: Brendon Way Indianapolis, IN $ 1,067,661 $ 21,895,901 $ 22,963,562 $ (13,766,450) Castle Bluff Kentwood, MI 239,839 5,450,627 5,690,466 (3,476,090) Lodge at Aspen Grove Denver, CO 996,813 9,579,207 10,576,020 (6,001,667) Palisades at the Galleria Atlanta, GA 774,721 14,701,750 15,476,471 (9,252,855) Plaza Westlake Glendale Heights, IL 1,455,584 6,725,372 8,180,956 (4,257,132) -------------- ------------- ---------------- ------------- $ 4,534,618 $ 58,352,857 $ 62,887,475 $ (36,754,194) ============== ============= =============== ============= Asset Held for Sale: Channingway (c) Columbus, OH $ 9,303,533 ===============
(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 $91,089,562 and accumulated depreciation was $75,307,789 at December 31, 1997. (c) The asset held for sale is carried at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and cumulative write-downs, becomes the new cost basis when the asset is classified as "Asset Held for Sale". Depreciation ceases at the time the asset is placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------- Real Estate Investments: Apartments: Brendon Way Indianapolis, IN 1968/73 01/82 3-25 Castle Bluff Kentwood, MI 1976/77 01/82 3-25 Lodge at Aspen Grove Denver, CO 1970 02/82 3-25 Palisades at the Galleria Atlanta, GA 1973 07/82 3-25 Plaza Westlake Glendale Heights, IL 1980 03/82 3-25 Asset Held for Sale: Channingway (c) Columbus, OH 1970/75 12/82
(c) The asset held for sale is carried at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and cumulative write-downs, becomes the new cost basis when the asset is classified as "Asset Held for Sale". Depreciation ceases at the time the asset is placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XII, LTD. Notes to Schedule III Real Estate Investments and Accumulated Depreciation and Amortization A summary of activity for the Partnership's real estate investments and accumulated depreciation and amortization is as follows:
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Real Estate Investments: Balance at beginning of year............... $ 81,381,686 $ 79,599,343 $ 78,020,212 Improvements............................... 1,797,633 1,983,589 1,579,131 Reclassification to asset held for sale.... (20,291,844) - - Dispositions of real estate................ - (201,246) - ------------- ------------- ------------- Balance at end of year..................... $ 62,887,475 $ 81,381,686 $ 79,599,343 ============= ============= ============= Accumulated Depreciation and Amortization: Balance at beginning of year............... $ 44,160,334 $ 40,501,275 $ 37,105,195 Depreciation and amortization.............. 3,582,171 3,659,059 3,396,080 Reclassification to asset held for sale.... (10,988,311) - - ------------- ------------- ------------- Balance at end of year..................... $ 36,754,194 $ 44,160,334 $ 40,501,275 ============= ============= ============= Asset Held for Sale: Balance at beginning of year............... $ - $ 3,164,323 $ 12,724,693 Reclassification to asset held for sale.... 9,303,533 - - Improvements............................... - 265,759 67,285 Depreciation............................... - - (623,094) Sale ...................................... - (3,430,082) (9,004,561) ------------- ------------- ------------- Balance at end of year..................... $ 9,303,533 $ - $ 3,164,323 ============= ============= =============
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 securities. (B) Security ownership of management. The General Partner and the officers and directors of its general partner, collectively, own 1,551 Units, which is 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. The 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 and $50 per gross square foot for commercial 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, per Unit. For the year ended December 31, 1997, the Partnership paid or accrued for the General Partner MID in the amount of $855,907. 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 Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's properties to McREMI, an affiliate of the General Partner, for providing property management services for residential and commercial properties and leasing services for the Partnership's residential properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1997, the Partnership paid or accrued $994,560 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." 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 ------- ----------- 3.1 First Amended and Restated Certificate of Limited Partnership dated February 20, 1981. (1) 3.2 Limited Partnership Agreement dated February 2, 1981 and amended March 31, 1981 and May 13, 1981. (1) 3.3 Amended and Restated Partnership Agreement, dated September 6, 1991 (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1991). 3.4 Amendment No. 1 to the Amended and Restated Partnership Agreement, dated March 28, 1994. (4) 3.5 Amendment No. 2 to the Amended and Restated Partnership Agreement, dated March 28, 1994. (4) 10.1 Promissory Note, dated July 13, 1988, between McNeil Real Estate Fund XII, Ltd. and Transohio Savings Bank. (1) 10.3 Mortgage Note, dated April 25, 1989, between Brendon Way Fund XII Associates and American Mortgages, Inc. (1)
Exhibit Number Description ------- ----------- 10.4 Assignment and Assumption Agreement, dated September 6, 1991, between Pacific Investors Corporation, Robert A. McNeil and McNeil Partners, L.P. regarding McNeil Real Estate Fund XII, Ltd.(2) 10.5 Assignment and Assumption Agreement, dated September 6, 1991, between Pacific Investors Corporation and McNeil Partners, L.P. regarding Brendon Way Fund XII Associates.(2) 10.6 Assignment and Assumption Agreement, dated September 6, 1991, between Castle Bluff Apartments Corp. and McNeil Partners, L.P. regarding Castle Bluff Fund XII Associates.(2) 10.7 Property Management Agreement, dated September 6, 1991, between McNeil Real Estate Fund XII, Ltd. and McNeil Real Estate Management, Inc.(2) 10.8 Property Management Agreement, dated September 6, 1991, between Brendon Way Fund XII Associates and McNeil Real Estate Management, Inc.(2) 10.9 Property Management Agreement, dated September 6, 1991, between Castle Bluff Fund XII Associates and McNeil Real Estate Management, Inc.(2) 10.10 Asset Management Agreement, dated September 6, 1991, between McNeil Real Estate Fund XII, Ltd. and McNeil Partners, L.P.(2) 10.11 Termination Agreement, dated September 6, 1991, Southmark Management Corporation, Southmark Commercial Management, McNeil Real Estate Fund XII, Ltd. and McNeil Real Estate Management, Inc.(2) 10.12 Termination Agreement, dated September 6, 1991, between Brendon Way Associates Fund XII and McNeil Real Estate Management, Inc.(2)
Exhibit Number Description ------- ----------- 10.13 Termination Agreement, dated September 6, 1991, between Castle Bluff XII Associates, L.P. and McNeil Real Estate Management, Inc.(2) 10.15 Amended Property Management Agree- ment, dated March 5, 1993, between McNeil Real Estate Fund XII, Ltd. and McNeil Real Estate Management, Inc. (3) 10.16 Second Modification of Deed of Trust Note, dated June 30, 1993, between American Mortgages, Inc. and Brendon Way XII Associates. (4) 10.17 Mortgage Note, dated March 24, 1995, between Plaza Westlake Fund XII, Ltd. and Bank One. (5) 10.18 Promissory Note, dated October 13, 1995, between Palisades Fund XII Associates, L.P. and Fleet Real Estate Capital, Inc. (5) 10.19 Mortgage Note, dated October 20, 1995, between Buccaneer Village Fund XII, Ltd. and Fleet Real Estate Capital, Inc. (5) 11. Statement regarding computation of net income per limited partnership unit (see Item 8 - Note 1 "Organization and Summary of Significant Accounting Policies")
22. Following is a list of subsidiaries of the Partnership: Names Under Jurisdiction Which It Is Name of Subsidiary of Incorporation Doing Business ------------------ ---------------- -------------- Brendon Way Fund XII Indiana None Associates Buccaneer Fund XII, Ltd. Texas None Castle Bluff Fund XII Georgia None Associates, L.P. Millwood Park Fund Texas None Fund XII, Ltd. Palisades Fund XII Texas None Associates, L.P. Plaza Westlake Fund Texas None XII, Ltd.
(1) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XII, Ltd. (File No. 0-10743), on Form 10-K for the period ended December 31, 1990, as filed with the Securities and Exchange Commission on March 29, 1991. (2) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XII, Ltd. (File No. 0-10743), on Form 10-K for the period ended December 31, 1991, as filed with the Securities and Exchange Commission on March 29, 1992. (3) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XII, Ltd. (File No. 0-10743), on Form 10-K for the period ended December 31, 1992, as filed with the Securities and Exchange Commission on March 30, 1993. (4) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XII, Ltd. (File No. 0-10743), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994. (5) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XII, Ltd. (File No. 0-10743), on Form 10-K for the period ended December 31, 1995, as filed with the Securities and Exchange Commission on March 29, 1996. The Partnership has omitted instruments with respect to long-term debt where the amount of securities authorized thereunder does not exceed 10% of the total assets of the Partnership and its subsidiaries on a consolidated basis. The Partnership agrees to furnish a copy of each such instrument to the Commission upon request. (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 XII, 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 XII, 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 1,423,658 0 0 165,311 0 0 62,887,475 (36,754,194) 40,517,097 0 54,200,372 0 0 0 0 40,517,097 15,427,506 15,542,127 0 0 12,216,904 0 4,831,493 0 0 (1,506,270) 0 0 0 (1,506,270) 0 0
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