-----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, FJFlwyw6msN0hIqbX72QR4Sdb+nfFu6BW1k2R8o3tcjgUxYq7B6qmS41E8ONCmmz EjRJYHzHXgaDBMUvTx34/w== 0000351708-99-000003.txt : 19990402 0000351708-99-000003.hdr.sgml : 19990402 ACCESSION NUMBER: 0000351708-99-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99580648 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, 1998 ------------------------------------------------- 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 ] 228,114.5 of the registrant's 229,666 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 38 TOTAL OF 40 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 1997, a total of 1,238 Units were relinquished. In 1998, 24 Units were relinquished leaving 229,666 Units outstanding at December 31, 1998. 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, 1998, the Partnership owned five 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: As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership, including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance regarding whether any such agreement will be reached nor the terms thereof. 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, 1998. 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: Environmental laws create potential liabilities that may affect property owners. The environmental laws of Federal and certain state governments, for example, impose liability on current and certain past owners of property from which there is a release or threat of release of hazardous substances. This liability includes costs of investigation and remediation of the hazardous substances and natural resource damages. Liability for costs of investigation and remediation is strict and may be imposed irrespective of whether the property owner was at fault, although there are a number of defenses. Both governments and third parties may seek recoveries under these laws. Third parties also may seek recovery under the common law for damages to their property or person, against owners of property from which there has been a release of hazardous and other substances. The presence of contamination or the failure to remediate contaminations may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. Various buildings at properties do or may contain building materials that are the subject of various regulatory programs intended to protect human health. Such building materials include, for example, asbestos, lead-based paint, and lead plumbing components. The Company has implemented programs to deal with the presence of those materials, which include, as appropriate, reduction of potential exposure situations. The Company does not believe that the costs of such programs are likely to have a material adverse effect. Failure to implement such programs can result in regulatory violations or liability claims resulting from alleged exposure to such materials. In connection with the proposed sale transaction as more fully described above, Phase I environmental site assessments have been completed for each property owned by the Partnership. Such environmental assessments performed on the properties have not revealed any environmental liability that the Partnership believes would have a material adverse effect on the Partnership's business, assets, or results of operations. The Partnership has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of its properties except for the Lodge at Aspen Grove, as more fully described below. There can be no assurances, however, that environmental liabilities have not developed since such environmental assessments were prepared, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability. The Partnership has become aware of the presence of certain solvent based contamination in ground water under a portion of the Lodge at Aspen Grove. The source of the contamination is related to a documented release of solvents from 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. CDOT has submitted a corrective action plan to the Colorado Department of Public Health and Environment and implementation of the plan is ongoing. The Partnership is unable to estimate impairment, if any, to the property at this time. However, due to the existence and involvement of the responsible party, the Partnership does not believe that this event has a material impact on the accompanying financial statements. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the properties of the Partnership at December 31, 1998. The buildings and the land on which they are located are owned by the Partnership in fee, subject in each case (with the exception of Plaza Westlake, which is unencumbered by mortgage indebtedness) 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 1998 Date Property Description of Property Debt Property Tax Acquired - -------- ----------- ------------- ------ ------------ -------- Brendon Way (1) Apartments Indianapolis, IN 770 units $ 8,548,237 $ 17,439,594 $ 448,565 1/82 Castle Bluff (2) Apartments Kentwood, MI 241 units 2,041,895 4,354,014 139,545 1/82 Lodge at Aspen Grove (3) Apartments Denver, CO 284 units 4,239,519 5,348,590 72,898 2/82 Palisades at the Galleria (4) Apartments Atlanta, GA 370 units 5,803,373 10,307,093 158,811 7/82 Plaza Westlake (5) Glendale Retail Center Heights, IL 120,370 sq. ft. 3,661,654 - 98,136 3/82 --------------- ------------- ------------ $ 24,294,678 $ 37,449,291 $ 917,955 =============== ============= ============
- ----------------------------------------- Total: Apartments - 1,665 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:
1998 1997 1996 1995 1994 ------------- ------------- -------------- ------------- ------------ Brendon Way Occupancy Rate............ 91% 83% 82% 86% 90% Rent Per Square Foot...... $6.45 $5.85 $5.97 $6.12 $6.05 Castle Bluff Occupancy Rate............ 96% 95% 97% 96% 98% Rent Per Square Foot...... $7.83 $7.56 $7.55 $7.28 $6.92 Lodge at Aspen Grove Occupancy Rate............ 97% 96% 97% 94% 95% Rent Per Square Foot...... $8.97 $8.75 $8.14 $7.92 $7.42 Palisades at the Galleria Occupancy Rate............ 98% 96% 96% 97% 99% Rent Per Square Foot...... $7.64 $7.35 $7.39 $6.97 $6.65 Plaza Westlake Occupancy Rate............ 100% 97% 100% 98% 99% Rent Per Square Foot...... $9.61 $8.04 $8.60 $7.75 $7.73
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 - ---------------------- Brendon Way - ----------- The occupancy rate at Brendon Way increased 8% in 1998. The property's occupancy is currently just above the average Indianapolis sub-market occupancy rate of 90%. Rental rates at Brendon Way are just below the rates offered by competitors. Brendon way continues to do minor renovations that have improved the curb appeal of the property, however, the lack of funds to complete a major renovation of the aging property creates a challenge for the property 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 1998, 1,009 construction permits for apartments were issued. The Kentwood, Michigan property has done some renovations to remain aggressive in the market and anticipates raising the rental rates by 2% in 1999. Lodge at Aspen Grove - -------------------- The Lodge at Aspen Grove finished 1998 slightly above the market occupancy rate of 96%. The Denver economy is still expanding and creating job growth that is fueling construction of new apartments. During 1998, approximately 5,600 new units were added to the area. A rental increase of 3% is budgeted in 1999. Palisades at the Galleria - ------------------------- The occupancy rate at Palisades at the Galleria increased in 1998 by 2%. The road construction in the area is scheduled to be completed in the spring of 1999. This should increase additional development in the area. During 1998, approximately 10,000 units were added to the Atlanta area. A rental increase of 4% is budgeted for 1999. Plaza Westlake - -------------- Plaza Westlake finished 1998 with an occupancy rate of 100%, well above the market average of 90%. Plaza Westlake is located in Glendale Heights, Illinois, in a high traffic area with a proven anchor. During 1999, leases occupying 71,678 square feet or 60% of the shopping center will expire. It is anticipated that all but 1,625 square feet will be renewed. Planned improvements for 1999 include curb and sidewalk replacement and landscaping. The following schedule shows lease expirations for the Partnership's commercial property for 1999 through 2008:
Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ------------ ------------ ----------- Plaza Westlake 1999 4 71,678 $ 357,045 40% 2000 2 3,690 53,390 6% 2001 4 11,055 132,159 15% 2002 2 4,757 50,558 5% 2003 6 11,606 143,301 16% 2004 - - - -% 2005 1 17,584 161,069 18% 2006-2008 - - - -%
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 Retail 68,020 $ 310,857 1999 Entertainment 17,584 $ 161,069 2005
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 XXIII, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - 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 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. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999. Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint. Plaintiff's counsel intends to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. 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 11,530 as of February 1, 1999 (C) Cash distributions of $1,001,344 were made to the limited partners in 1998. No distributions were made to the limited partners in 1997. The Partnership accrued distributions for the MID of $777,083 and $855,907 for the benefit of the General Partner for the years ended December 31, 1998 and 1997, respectively. Total MID distributions of $4,153,766 remain unpaid as of December 31, 1998. 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 1998 1997 1996 1995 1994 - ------------------ ------------ ------------ ------------ ------------ ------------ Rental revenue ................... $ 13,557,960 $ 15,427,506 $ 16,327,181 $ 17,533,914 $ 21,295,696 Total revenue .................... 23,372,730 15,542,127 18,046,806 21,195,706 27,701,373 Gain on disposition of real estate ..................... 9,568,850 -- 1,506,169 3,247,513 6,307,885 Income (loss) before extraordinary item .............. 8,581,958 (1,506,270) 391,871 1,183,425 3,220,934 Extraordinary gain on extinguishment of debt, net -- -- -- 1,304,587 246,149 Net income (loss) ................ 8,581,958 (1,506,270) 391,871 2,488,012 3,467,083 Net income (loss) per limited partnership unit: Income (loss) before extraordinary item .............. $ 33.73 $ (6.23) $ (7.12) $ 4.89 $ 13.27 Extraordinary gain on extinguishment of debt .......... -- -- -- 5.25 1.01 ------------ ------------ ------------ ------------ ------------ Net income (loss) ................ $ 33.73 $ (6.23) $ (7.12) $ 10.14 $ 14.28 ============ ============ ============ ============ ============ Distributions per limited partnership unit................ $ 4.36 $ -- $ -- $ -- $ -- ============ ============ ============ ============ ============ As of December 31, Balance Sheets 1998 1997 1996 1995 1994 - -------------- -------------- ------------ ------------ ------------- ------------ Real estate investments, net..... $ 24,294,678 $ 26,133,281 $ 37,221,352 $ 39,098,068 $ 40,915,017 Assets held for sale............. -- 9,303,533 -- 3,164,323 12,724,693 Total assets..................... 29,708,036 40,517,097 42,666,935 52,112,866 60,189,348 Mortgage notes payable........... 37,449,291 54,200,372 54,859,073 59,160,426 68,152,522 Partners' deficit................ (13,940,076) (20,743,607) (18,381,430) (17,849,184) (19,292,331)
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, 1998. Property Date Sold -------- --------- Channingway April 1998 Millwood Park October 1996 Lamar Plaza July 1995 Sundance Apartments June 1995 Fox Run Apartments December 1994 Village East Apartments November 1994 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, 1998, the Partnership owned five properties. All of the Partnership properties, except Plaza Westlake, are subject to mortgage notes. RESULTS OF OPERATIONS - --------------------- 1998 compared to 1997 Revenue: Total Partnership revenue increased $7,830,603 in 1998 as compared to 1997. Rental revenue decreased by $1,869,546 in 1998 while interest income increased $131,299. The Partnership also recognized a gain of $9,568,850 on the sale of Channingway Apartments. No such gain was recognized in 1997. Rental revenue in 1998 was $13,557,960 as compared to $15,427,506 in 1997. The decrease of $1,869,546 can be attributed to the sale of Channingway Apartments in April 1998. Excluding the revenues from Channingway Apartments, rental revenue increased $981,250 or 6% due to an increase in occupancy rates at all the Partnership's properties. Interest income increased $131,299 in 1998 as compared to 1997 due to an increase in cash balances invested in interest bearing accounts. Expenses: Total expenses decreased $2,257,625 in 1998 as compared to 1997. Excluding the expenses from Channingway Apartments, total expenses increased $589,075 primarily due to increases in general and administrative, personnel expenses and repairs and maintenance. All other expenses remained comparable. General and administrative expenses increased $365,540 for the year ended December 31, 1998 compared to the same period last year. The increase was mainly due to the costs incurred to explore alternatives to maximize the value of the Partnership. The increase was partially offset by decreases attributable to investor services. During 1997, charges for investor services were provided by a third party vendor. Beginning in 1998, these services are provided by affiliates of the General Partner. As a result, general and administrative - affiliates increased by $51,782 in 1998. 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. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At December 31, 1998, the Partnership held cash and cash equivalents of $2,135,190, up $711,532 from the balance at the end of 1997. The Partnership has experienced positive cash flow from operations of $4,182,957 for the three years ended December 31, 1998. The Partnership also sold a property in 1998 and 1996 and received $24,092,251 in proceeds from these sales. Over the last three years the Partnership has used cash to fund $5,360,711 in additions to real estate investments, $16,481,349 to retire mortgage notes related to the sold properties, $3,709,068 to pay off a mortgage note, $35,665 for additions to deferred borrowing costs, $1,419,339 for the repayment of advances from affiliates, $3,202,187 for the payment of the MID and $1,001,344 for distributions to the limited partners. The Partnership generated $1,887,502 through operating activities in 1998 as compared to $2,111,743 in 1997. The decrease of $224,241 can be attributed the sale of Channingway Apartments in April 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 five properties. The Partnership has budgeted an additional $1.2 million of capital improvements for 1999, to be funded from property operations and cash reserves. At December 31, 1998, the Partnership held cash and cash equivalents of $2,135,190. 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 1999 will be sufficient to fund the Partnership's budgeted capital improvements for 1999 and to repay the current portion of the Partnership's mortgage notes. During 1998, the Partnership was faced with a mortgage maturity at Channingway of approximately $12.3 million. On April 7, 1998, the Partnership sold its investment interest in the property. With the proceeds from the sale of Channingway, the Partnership paid off the mortgage note payable on Plaza Westlake in the amount of $3,709,068 and made distributions to the limited partners in the amount of $1,001,344. 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 $5.36 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. As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership, including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance regarding whether any such agreement will be reached nor the terms thereof. 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, 1998, $835,455, $(75,314) and $2,027,598, respectively, of net income (loss) was allocated to the General Partner. The limited partners received allocations of net income (loss) of $7,746,503, $(1,430,956) and $(1,635,727), respectively, for the three year period ended December 31, 1998. During 1998, the Partnership paid its first distribution to the limited partners since 1986 in the amount of $1,001,344. The distribution was funded from the sale of Channingway Apartments. The General Partner will continue to monitor the cash reserves, and working capital needs to determine when cash flows will support additional distributions to the limited partners. A distribution of $773,083 for the MID has been accrued by the Partnership for the year ended December 31, 1998 for the General Partner. YEAR 2000 DISCLOSURE - --------------------- State of readiness - ------------------ 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. Management has assessed its information technology ("IT") infrastructure to identify any systems that could be affected by the year 2000 problem. The IT used by the Partnership for financial reporting and significant accounting functions was made year 2000 compliant during recent systems conversions. The software utilized for these functions are licensed by third party vendors who have warranted that their systems are year 2000 compliant. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management has inventoried all such systems and queried suppliers, vendors and manufacturers to determine year 2000 compliance. Management will complete assessment of findings by May 1, 1999. In circumstances of non-compliance management will work with the vendor to remedy the problem or seek alternative suppliers who will be in compliance. 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. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to be year 2000 compliant. Cost - ---- The cost of IT and embedded technology systems testing and upgrades is not expected to be material to the Partnership. Because all the IT systems have been upgraded over the last three years, all such systems were compliant, or made compliant at no additional cost by third party vendors. Management anticipates the costs of assessing, testing, and if necessary replacing embedded technology components will be less than $50,000. Such costs will be funded from operations of the Partnership. Risks - ----- Ultimately, the potential impact of the year 2000 issue will depend not only on the corrective measures the Partnership undertakes, but also on the way in which the year 2000 issue is addressed by government agencies and entities that provide services or supplies to the Partnership. Management has not determined the most likely worst case scenario to the Partnership. As management studies the findings of its property systems assessment and testing, management will develop a better understanding of what would be the worst case scenario. Management believes that progress on all areas is proceeding and that the Partnership will experience no adverse effect as a result of the year 2000 issue. However, there is no assurance that this will be the case. Contingency plans - ----------------- Management is developing contingency plans to address potential year 2000 non-compliance of IT and embedded technology systems. Management believes that failure of any IT system could have an adverse impact on operations. However, management believes that alternative systems are available that could be utilized to minimize such impact. Management believes that any failure in the embedded technology systems could have an adverse impact on that property's performance. Management will assess these risks and develop plans to mitigate possible failures by June, 1999. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- ---------------------------------------------------------- Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Page Number ------ INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements: Report of Independent Public Accountants....................................... 16 Balance Sheets at December 31, 1998 and 1997................................... 17 Statements of Operations for each of the three years in the period ended December 31, 1998..................................................... 18 Statements of Partners' Deficit for each of the three years in the period ended December 31, 1998.............................................. 19 Statements of Cash Flows for each of the three years in the period ended December 31, 1998..................................................... 20 Notes to Financial Statements.................................................. 22 Financial Statement Schedule - Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization............................................ 33
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, 1998 and 1997, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, 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 19, 1999 McNEIL REAL ESTATE FUND XII, LTD. BALANCE SHEETS
December 31, ------------------------------ 1998 1997 ------------ ------------- ASSETS - ------- Real estate investments: Land ...................................................... $ 4,534,618 $ 4,534,618 Buildings and improvements ................................ 59,614,889 58,352,857 ------------ ------------ 64,149,507 62,887,475 Less: Accumulated depreciation and amortization .......... (39,854,829) (36,754,194) ------------ ------------ 24,294,678 26,133,281 Asset held for sale .......................................... -- 9,303,533 Cash and cash equivalents .................................... 2,135,190 1,423,658 Cash segregated for security deposits ........................ 320,540 456,356 Accounts receivable .......................................... 198,842 165,311 Prepaid expenses and other assets ............................ 103,546 139,468 Escrow deposits .............................................. 1,295,584 1,350,788 Deferred borrowing costs, net of accumulated amortization of $491,761 and $767,891 at December 31, 1998 and 1997, respectively .................. 1,359,656 1,544,702 ------------ ------------ $ 29,708,036 $ 40,517,097 ============ ============ LIABILITIES AND PARTNERS' DEFICIT - --------------------------------- Mortgage notes payable ....................................... $ 37,449,291 $ 54,200,372 Accounts payable ............................................. -- 9,996 Accrued expenses and deferred rental income .................. 252,497 277,958 Accrued interest ............................................. 255,330 378,010 Accrued property taxes ....................................... 684,333 932,545 Deferred gain - land condemnation ............................ 297,754 297,754 Deferred gain - fire damage .................................. 50,880 -- Advances from Southmark ...................................... 42,177 39,839 Advances from affiliates - General Partner ................... 34,746 32,136 Payable to affiliates - General Partner ...................... 4,255,518 4,573,052 Security deposits ............................................ 325,586 519,042 ------------ ------------ 43,648,112 61,260,704 ------------ ------------ Commitments and Contingencies Partners' deficit: Limited partners - 240,000 limited partnership units authorized; 229,666 and 229,690 limited partnership units issued and outstanding at December 31, 1998 and 1997, respectively .................................. (3,834,776) (10,579,935) General Partner ........................................... (10,105,300) (10,163,672) ------------ ------------ (13,940,076) (20,743,607) ------------ ------------ $ 29,708,036 $ 40,517,097 ============ ============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, LTD. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ----------------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Revenue: Rental revenue .................... $ 13,557,960 $ 15,427,506 $ 16,327,181 Interest .......................... 245,920 114,621 213,456 Gain on dispositions of real estate 9,568,850 -- 1,506,169 ------------ ------------ ------------ Total revenue ................... 23,372,730 15,542,127 18,046,806 ------------ ------------ ------------ Expenses: Interest .......................... 3,933,339 4,828,851 5,112,770 Interest - affiliates ............. 2,610 2,642 53,622 Depreciation and amortization ..... 3,123,624 3,582,171 3,659,059 Property taxes .................... 987,674 1,167,965 1,071,510 Personnel expenses ................ 1,534,834 1,746,287 1,842,298 Repairs and maintenance ........... 1,881,530 2,254,008 2,185,251 Property management fees - affiliates ...................... 672,292 768,159 811,532 Utilities ......................... 1,070,524 1,243,260 1,359,246 Other property operating expenses . 735,296 1,023,327 1,043,379 General and administrative ........ 570,866 205,326 169,797 General and administrative - affiliates ...................... 278,183 226,401 346,471 ------------ ------------ ------------ Total expenses .................. 14,790,772 17,048,397 17,654,935 ------------ ------------ ------------ Net income (loss) .................... $ 8,581,958 $ (1,506,270) $ 391,871 ============ ============ ============ Net income (loss) allocable to limited partners .................. $ 7,746,503 $ (1,430,956) $ (1,635,727) Net income (loss) allocable to General Partner .................. 835,455 (75,314) 2,027,598 ------------ ------------ ------------ Net income (loss) .................... $ 8,581,958 $ (1,506,270) $ 391,871 ============ ============ ============ Net income (loss) per limited partnership unit .................. $ 33.73 $ (6.23) $ (7.12) ============ ============ ============ Distribution per limited partnership unit .............................. $ 4.36 $ -- $ -- ============ ============ ============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, LTD. STATEMENTS OF PARTNERS' DEFICIT For the Years Ended December 31, 1998, 1997 and 1996
Total General Limited Partners' Partner Partners Deficit ------------- ------------- ------------- 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) Net income ............................ 835,455 7,746,503 8,581,958 Distributions to limited partners ..... -- (1,001,344) (1,001,344) Management Incentive Distribution ..... (777,083) -- (777,083) ------------ ------------ ------------ Balance at December 31, 1998 .......... $(10,105,300) $ (3,834,776) $(13,940,076) ============ ============ ============
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, ------------------------------------------------------- 1998 1997 1996 ------------- ------------- ------------- Cash flows from operating activities: Cash received from tenants ..................... $ 13,522,570 $ 15,462,328 $ 16,089,650 Cash paid to suppliers ......................... (5,751,105) (6,379,022) (6,855,751) Cash paid to affiliates ........................ (1,053,456) (1,218,793) (3,126,674) Interest received .............................. 245,920 114,621 213,456 Interest paid .................................. (3,868,635) (4,682,527) (4,985,617) Interest paid to affiliates .................... -- -- (79,757) Property taxes paid ............................ (1,207,792) (1,184,864) (1,071,595) ------------ ------------ ------------ Net cash provided by operating activities ......... 1,887,502 2,111,743 183,712 ------------ ------------ ------------ Cash flows from investing activities: Additions to real estate investments and assets held for sale ......................... (1,313,730) (1,797,633) (2,249,348) Proceeds from disposition of real estate .................................. 18,881,821 -- 5,210,430 Land condemnation escrow ....................... -- -- 499,000 ------------ ------------ ------------ Net cash provided by (used in) investing activities ........................... 17,568,091 (1,797,633) 3,460,082 ------------ ------------ ------------ Cash flows from financing activities: Principal payments on mortgage notes payable ................................ (518,952) (658,701) (343,065) Principal addition to mortgage note payable from release of capital improvements escrow ....................................... -- -- 300,000 Retirement of mortgage note payable ............ (3,709,068) -- -- Retirement of mortgage notes due to dispositions of real estate .................. (12,523,061) -- (3,958,288) Deferred borrowing costs paid .................. -- -- (35,665) Repayment of advances from affiliates - General Partner ................. -- -- (1,419,339) Management Incentive Distribution .............. (991,636) -- (2,210,551) Distributions to limited partners .............. (1,001,344) -- -- ------------ ------------ ------------ Net cash used in financing activities ............. (18,744,061) (658,701) (7,666,908) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents ............................. 711,532 (344,591) (4,023,114) Cash and cash equivalents at beginning of year ............................ 1,423,658 1,768,249 5,791,363 ------------ ------------ ------------ Cash and cash equivalents at end of year .......... $ 2,135,190 $ 1,423,658 $ 1,768,249 ============ ============ ============
See discussion of noncash investing and financing activities in Notes 2, 6 and 10. 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, --------------------------------------------------- 1998 1997 1996 ----------- ------------ ----------- Net income (loss) ................................ $ 8,581,958 $(1,506,270) $ 391,871 ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ................. 3,123,624 3,582,171 3,659,059 Amortization of deferred borrowing costs ............................. 185,046 149,937 152,327 Net interest added to advances from Southmark .............................. 2,338 2,367 2,325 Net interest added to advances from affiliates - General Partner ........... 2,610 2,642 -- Gain on dispositions of real estate ........... (9,568,850) -- (1,506,169) Changes in assets and liabilities: Cash segregated for security deposits .................................. 135,816 (22,606) (117,085) Accounts receivable ......................... 36,620 77,049 (35,513) Prepaid expenses and other assets .................................... 35,922 (615) 10,359 Escrow deposits ............................. 55,204 (183,056) (166,824) Accounts payable ............................ (9,996) (6,406) (69,762) Accrued expenses and deferred rental income ............................. (25,461) 135,859 (4,280) Accrued interest ............................ (122,680) (5,980) (53,634) Accrued property taxes ...................... (248,212) 94,747 (97,520) Payable to affiliates - General Partner ................................... (102,981) (224,233) (1,968,671) Security deposits ........................... (193,456) 16,137 (12,771) ----------- ----------- ----------- Total adjustments ....................... (6,694,456) 3,618,013 (208,159) ----------- ----------- ----------- Net cash provided by operating activities .................................. $ 1,887,502 $ 2,111,743 $ 183,712 =========== =========== ===========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, LTD. NOTES TO FINANCIAL STATEMENTS December 31, 1998 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, 1998, the Partnership owned five income-producing properties as described in Note 4 - Real Estate Investments. As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership, including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance regarding whether any such agreement will be reached nor the terms thereof. 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, 1998, 1997 and 1996. 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. Adoption of Recent Accounting Pronouncements - -------------------------------------------- The Partnership has adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 requires an enterprise to report financial information about its reportable operating segments, which are defined as components of a business for which separate financial information is evaluated regularly by the chief decision maker in allocating resources and assessing performance. The Partnership does not prepare such information for internal use, since it analyzes the performance of and allocates resources for each property individually. The Partnership's management has determined that it operates one line of business and it would be impracticable to report segment information. Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial statements. 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 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". 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. 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 was 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 1998, 1997 and 1996 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. Cash distributions of $1,001,344 were made to the limited partners in 1998. No distributions were made to the limited partners in 1997 or 1996. The Partnership paid or accrued distributions of $777,083, $855,907 and $924,117 for the benefit of the General Partner for the years ended December 31, 1998, 1997 and 1996, 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 229,666, 229,690 and 229,828 Units outstanding in 1998, 1997 and 1996. 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. 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 maximum MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter. 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 1998, 1997 or 1996. 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 1998, 1997 or 1996 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, ---------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Property management fees - affiliates ....... $ 672,292 $ 768,159 $ 811,532 Charged to interest expense: Interest expense on affiliate loans and advances ..................... 2,610 2,642 53,622 Charged to general and administrative - affiliates: Partnership administration ............... 278,183 226,401 346,471 ---------- ---------- ---------- $ 953,085 $ 997,202 $1,211,625 ========== ========== ========== Charged to General Partner's deficit: MID ...................................... $ 777,083 $ 855,907 $ 924,117 ========== ========== ==========
Payable to affiliates - General Partner at December 31, 1998 and 1997 consisted primarily of accrued property management fees, MID and cost reimbursements and are due and payable from operations. In 1998 and 1996, the Partnership paid MID of $991,636 and $2,210,551, respectively, from cash reserves. The General Partner has waived the collection terms of reimbursable expenses and MID, and has elected for the Partnership to pay limited partner distributions before the payment of such amounts. The total advances from affiliates at December 31, 1998 and 1997 consist of the following: 1998 1997 ----------- ------------ Advances purchased by General Partner $ 27,903 $ 27,903 Accrued interest payable 6,843 4,233 ---------- ------------ $ 34,746 $ 32,136 ========== ============ 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 7.75% and 8.5% at December 31, 1998 and 1997, respectively. NOTE 3 - TAXABLE INCOME (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 assets and liabilities for tax purposes exceeded the net assets and liabilities for financial reporting purpose by $6,645,214 in 1998. The Partnership's net assets and liabilities for financial reporting purposes exceeded the net assets and liabilities for tax purposes by $6,645,214 in 1998, $1,664,332 in 1997 and $3,627,641 in 1996. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments held at December 31, 1998 and 1997 are set forth in the following tables:
Accumulated Buildings and Depreciation Net Book 1998 Land Improvements and Amortization Value ---- -------------- ------------ ---------------- --------------- Brendon Way Indianapolis, IN $ 1,067,661 $ 22,428,849 $ (14,948,273) $ 8,548,237 Castle Bluff Kentwood, MI 239,839 5,557,019 (3,754,963) 2,041,895 Lodge at Aspen Grove Denver, CO 996,813 9,735,213 (6,492,507) 4,239,519 Palisades at the Galleria Atlanta, GA 774,721 15,080,153 (10,051,501) 5,803,373 Plaza Westlake Glendale Heights, IL 1,455,584 6,813,655 (4,607,585) 3,661,654 ------------- ------------- ------------- ------------- $ 4,534,618 $ 59,614,889 $ (39,854,829) $ 24,294,678 ============= ============= ============= ============= Buildings and Depreciation Net Book 1997 Land Improvements and Amortization Value ---- -------------- ------------ ---------------- --------------- Brendon Way $ 1,067,661 $ 21,895,901 $ (13,766,450) $ 9,197,112 Castle Bluff 239,839 5,450,627 (3,476,090) 2,214,376 Lodge at Aspen Grove 996,813 9,579,207 (6,001,667) 4,574,353 Palisades at the Galleria 774,721 14,701,750 (9,252,855) 6,223,616 Plaza Westlake 1,455,584 6,725,372 (4,257,132) 3,923,824 ------------- -------------- ------------- ------------- $ 4,534,618 $ 58,352,857 $ (36,754,194) $ 26,133,281 ============= ============== ============= =============
On August 1, 1997, the General Partner placed Channingway Apartments on the market for sale. Channingway Apartments was classified as such at December 31, 1997 with a net book value of $9,303,553. On April 7, 1998 the Partnership sold Channingway Apartments. See Note 6. The results of operations for the asset held for sale are $59,674, $64,481 and $(115,844) for 1998, 1997 and 1996, 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, 1998, are as follows: 1999.................................... $ 861,451 2000.................................... 543,921 2001.................................... 417,316 2002.................................... 382,845 2003.................................... 289,739 Thereafter.............................. 346,053 -------------- Total............................... $ 2,841,325 ============== Future minimum rents do not include contingent rents or operating expense reimbursements. Contingent rents and operating expense reimbursements amounted to $289,013 in 1998, $187,775 in 1997 and $147,333 in 1996, and are included in rental revenue on the Statements of Operations. The Partnership's properties, with the exception of Plaza Westlake, 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, 1998 and 1997. 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 (e) 1998 1997 - -------- ------------------- ----------------- --------------- --------- Brendon Way First 8.00 $133,911 05/24 $ 17,439,594 $ 17,642,466 ----------- ------------ Castle Bluff First 9.25 36,926 12/24 4,354,014 4,392,431 ----------- ------------ Channingway (c) First Variable (b) Variable (b) 08/98 - 12,579,650 ----------- ------------ Lodge at Aspen Grove First 8.10 40,741 10/02 5,348,590 5,401,881 ----------- ------------ Palisades at the Galleria First 8.08 78,371 10/02 10,307,093 10,410,165 ----------- ------------- Plaza Westlake (d) First 9.50 37,285 01/00 - 3,773,779 ----------- ------------- $ 37,449,291 $ 54,200,372 =========== =============
(a) The debt, except for Plaza Westlake, is non-recourse to the Partnership. (b) Interest on the Channingway mortgage note was 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 was 8.5%. (c) On April 7, 1998, Channingway was sold and the related mortgage note was repaid. See Note 6. (d) On October 5, 1998, the Partnership paid off the Plaza Westlake mortgage note payable in the amount of $3,709,068. (e) Balloon payments on the mortgage notes are due as follows: Property Balloon Payment Date -------- --------------- ---- 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: 1999.................................... $ 431,322 2000.................................... 467,850 2001.................................... 507,477 2002.................................... 15,437,972 2003.................................... 363,147 Thereafter.............................. 20,241,523 ----------- Total................................. $ 37,449,291 =========== 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 $39,057,000 as of December 31, 1998 and $56,219,000 as of December 31, 1997. NOTE 6 - DISPOSITIONS OF PROPERTIES - ----------------------------------- On April 7, 1998, the Partnership sold to an unaffiliated buyer, Channingway Apartments, a 770 unit apartment complex, located in Columbus, Ohio, for a cash sales price of $19,150,000. Cash proceeds from this transaction, as well as the gain on sale are detailed below.
Gain on Sale Cash Proceeds ---------------- --------------- Cash sales price..................................... $ 19,150,000 $ 19,150,000 Selling costs........................................ (268,179) (268,179) Basis of real estate sold............................ (9,312,971) ------------- Gain on sale of real estate.......................... $ 9,568,850 ============== ------------- Proceeds from sale of real estate.................... 18,881,821 Retirement of mortgage note payable.................. (12,523,061) ------------- Net cash proceeds.................................... $ 6,358,760 ============= 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 =============
NOTE 7 - 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 XXIII, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - 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 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. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999. Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint. Plaintiff's counsel intends to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. NOTE 8 - 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 9 - COMMITMENTS AND CONTINGENCIES - -------------------------------------- Environmental laws create potential liabilities that may affect property owners. The environmental laws of Federal and certain state governments, for example, impose liability on current and certain past owners of property from which there is a release or threat of release of hazardous substances. This liability includes costs of investigation and remediation of the hazardous substances and natural resource damages. Liability for costs of investigation and remediation is strict and may be imposed irrespective of whether the property owner was at fault, although there are a number of defenses. Both governments and third parties may seek recoveries under these laws. Third parties also may seek recovery under the common law for damages to their property or person, against owners of property from which there has been a release of hazardous and other substances. The presence of contamination or the failure to remediate contaminations may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. Various buildings at properties do or may contain building materials that are the subject of various regulatory programs intended to protect human health. Such building materials include, for example, asbestos, lead-based paint, and lead plumbing components. The Company has implemented programs to deal with the presence of those materials, which include, as appropriate, reduction of potential exposure situations. The Company does not believe that the costs of such programs are likely to have a material adverse effect. Failure to implement such programs can result in regulatory violations or liability claims resulting from alleged exposure to such materials. In connection with the proposed sale transaction as more fully described in Note 1 - "Organization and Summary of Significant Accounting Policies", Phase I environmental site assessments have been completed for each property owned by the Partnership. Such environmental assessments performed on the properties have not revealed any environmental liability that the Partnership believes would have a material adverse effect on the Partnership's business, assets, or results of operations. The Partnership has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of its properties except for the Lodge at Aspen Grove, as more fully described below. There can be no assurances, however, that environmental liabilities have not developed since such environmental assessments were prepared, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability. 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. NOTE 10 - GAIN ON INVOLUNTARY CONVERSION - ---------------------------------------- On April 23, 1998, two units of Brendon Way Apartments was destroyed by fire causing $80,151 in damages. The Partnership received $70,151 in insurance proceeds and the insurance proceeds were placed in escrow until completion of repairs. The Partnership has recorded a deferred gain and a receivable from its mortgage company for funds which were not reimbursed as of December 31, 1998. The deferred gain in the amount of $50,880 represents the amount of insurance reimbursements to be received in excess of the basis of the property destroyed. The deferred gain will be recognized when the insurance proceeds are received. McNEIL REAL ESTATE FUND XII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1998
Costs Initial Cost (b) Cumulative Capitalized Related (b) Buildings and Write-down Subsequent Description Encumbrances Land Improvements For Impairment (c) To Acquisition - ----------- ------------ ---- ------------- ----------------- -------------- Apartments: Brendon Way Indianapolis, IN $ 17,439,594 $ 1,067,661 $ 17,490,677 $ - $ 4,938,172 Castle Bluff Kentwood, MI 4,354,014 239,839 4,650,535 - 906,484 Lodge at Aspen Grove Denver, CO 5,348,590 996,813 8,058,534 - 1,676,679 Palisades at the Galleria Atlanta, GA 10,307,093 975,967 10,920,268 - 3,958,639 Retail Center: Plaza Westlake Glendale Heights, IL - 1,635,485 6,222,137 (746,424) 1,158,041 -------------- -------------- -------------- ------------ ------------- $ 37,449,291 $ 4,915,765 $ 47,342,151 $ (746,424) $ 12,638,015 ============== ============== ============== ============ =============
(b) The initial cost and encumbrances reflect the present value of future loan payments discounted, if appropriate, at a rate estimated to be the prevailing interest rate at the date of acquisition or refinancing. (c) 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, 1998
Gross Amount at Which Carried at Close of Period Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization - ----------- ---- ------------- --------- ----------------- Apartments: Brendon Way Indianapolis, IN $ 1,067,661 $ 22,428,849 $ 23,496,510 $ (14,948,273) Castle Bluff Kentwood, MI 239,839 5,557,019 5,796,858 (3,754,963) Lodge at Aspen Grove Denver, CO 996,813 9,735,213 10,732,026 (6,492,507) Palisades at the Galleria Atlanta, GA 774,721 15,080,153 15,854,874 (10,051,501) Retail Center: Plaza Westlake Glendale Heights, IL 1,455,584 6,813,655 8,269,239 (4,607,585) -------------- -------------- ---------------- ------------- $ 4,534,618 $ 59,614,889 $ 64,149,507 $ (39,854,829) ============== ============= =============== ============
(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 $69,977,500 and accumulated depreciation was $56,409,014 at December 31, 1998. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1998
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------- 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 Retail Center: Plaza Westlake Glendale Heights, IL 1980 03/82 3-25
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, ------------------------------------------------------ 1998 1997 1996 ------------ ------------ ------------ Real Estate Investments: Balance at beginning of year ................... $ 62,887,475 $ 81,381,686 $ 79,599,343 Improvements ................................... 1,304,292 1,797,633 1,983,589 Reclassification to asset held for sale ........ -- (20,291,844) -- Replacement of assets .......................... (42,260) -- -- Dispositions of real estate .................... -- -- (201,246) ------------ ------------ ------------ Balance at end of year ......................... $ 64,149,507 $ 62,887,475 $ 81,381,686 ============ ============ ============ Accumulated Depreciation and Amortization: Balance at beginning of year ................... $ 36,754,194 $ 44,160,334 $ 40,501,275 Depreciation and amortization .................. 3,123,624 3,582,171 3,659,059 Replacement of assets .......................... (22,989) -- -- Reclassification to asset held for sale ........ -- (10,988,311) -- ------------ ------------ ------------ Balance at end of year ......................... $ 39,854,829 $ 36,754,194 $ 44,160,334 ============ ============ ============ Asset Held for Sale: Balance at beginning of year ................... $ 9,303,533 $ -- $ 3,164,323 Reclassification to asset held for sale ........ -- 9,303,533 -- Improvements ................................... 9,438 -- 265,759 Depreciation ................................... -- -- -- Sale ........................................... (9,312,971) -- (3,430,082) ------------ ------------ ------------ Balance at end of year ......................... $ -- $ 9,303,533 $ -- ============ ============ ============
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, 78 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 an 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 55 Mrs. McNeil is Co-Chairman, with husband Co-Chairman of the Robert A. McNeil, of McNeil Investors, Board 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. Ron K. Taylor 41 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, 1998, 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, 1998. 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 1,551.5 Units as of February 1, 1999, 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 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 maximum MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter. 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, 1998, the Partnership paid or accrued for the General Partner MID in the amount of $777,083. 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, 1998, the Partnership paid or accrued $950,475 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 Certifi- cate 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) 10.3 Mortgage Note, dated April 25, 1989, between Brendon Way Fund XII Associates and American Mortgages, Inc. (1) 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) Exhibit Number Description -------- ----------- 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) 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) Exhibit Number Description -------- ------------ 10.16 Second Modification of Deed of Trust Note, dated June 30, 1993, between American Mortgages, Inc. and Brendon Way XII Associates. (4) 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 (loss) 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 of Which It Is Name of Subsidiary 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. 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, 1998. 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, 1999 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, 1999 By: /s/ Ron K. Taylor - -------------- ---------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 31, 1999 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-31-1998 DEC-31-1998 2,135,190 0 198,842 0 0 0 64,149,507 (39,854,829) 29,708,036 0 37,449,291 0 0 0 0 29,708,036 13,557,960 23,372,730 0 0 10,854,823 0 3,935,949 0 0 8,581,958 0 0 0 8,581,958 0 0
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