-----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, VcYc+FWzYKuZPrFDipk3VC+Bzs1x6AbPe+aHLLEiUi8u2Ov4yD+1aq3/5SURIEmc kqAkiCMR4f5zk92t1BEeZg== 0000351708-99-000012.txt : 19991117 0000351708-99-000012.hdr.sgml : 19991117 ACCESSION NUMBER: 0000351708-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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-Q SEC ACT: SEC FILE NUMBER: 000-10743 FILM NUMBER: 99755892 BUSINESS ADDRESS: STREET 1: 13760 NOEL ROAD, STE 600 STREET 2: LB70, CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9724485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD SUITE 600 STREET 2: LB70 CITY: DALLAS STATE: TX ZIP: 75240 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------------------------------- 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 ---------------------------- 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 --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- MCNEIL REAL ESTATE FUND XII, LTD. BALANCE SHEETS (Unaudited)
September 30, December 31, 1999 1998 ------------- ------------ ASSETS - ------ Real estate investments: Land ..................................................... $ 4,534,618 $ 4,534,618 Buildings and improvements ............................... 60,630,782 59,614,889 ------------ ------------ 65,165,400 64,149,507 Less: Accumulated depreciation and amortization ......... (42,195,261) (39,854,829) ------------ ------------ 22,970,139 24,294,678 Cash and cash equivalents ................................... 2,470,906 2,135,190 Cash segregated for security deposits ....................... 318,477 320,540 Accounts receivable ......................................... 213,459 198,842 Prepaid expenses and other assets ........................... 102,332 103,546 Escrow deposits ............................................. 1,180,901 1,295,584 Deferred borrowing costs, net of accumulated amorti- zation of $482,816 and $491,761 at September 30, 1999 and December 31, 1998, respectively ............. 1,125,995 1,359,656 ------------ ------------ $ 28,382,209 $ 29,708,036 ============ ============ LIABILITIES AND PARTNERS' DEFICIT - --------------------------------- Mortgage notes payable ...................................... $ 37,221,321 $ 37,449,291 Accrued expenses ............................................ 222,857 252,497 Accrued interest ............................................ 245,808 255,330 Accrued property taxes ...................................... 1,039,865 684,333 Litigation expenses payable ................................. 200,000 -- Deferred gain - land condemnation ........................... -- 297,754 Deferred gain - fire damage ................................. 50,880 50,880 Advance from Southmark ...................................... 43,836 42,177 Advances from affiliates - General Partner .................. 36,597 34,746 Payable to affiliates - General Partner ..................... 4,056,878 4,255,518 Security deposits and deferred rental revenue ............... 396,563 325,586 ------------ ------------ 43,514,605 43,648,112 ------------ ------------ Partners' deficit: Limited partners - 240,000 limited partnership units authorized; 229,666 limited partnership units issued and outstanding at September 30, 1999 and December 31, 1998 .................................. (5,163,194) (3,834,776) General Partner .......................................... (9,969,202) (10,105,300) ------------ ------------ (15,132,396) (13,940,076) ------------ ------------ $ 28,382,209 $ 29,708,036 ============ ============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XII, LTD. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- --------------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Revenue: Rental revenue ................ $ 3,311,294 $ 3,147,850 $ 9,771,107 $ 10,493,265 Interest ...................... 38,174 106,627 93,569 199,814 Gain on sale of real estate ... -- -- -- 9,568,850 Gain on land condemnation ..... -- -- 297,754 -- ------------ ------------ ------------ ------------ Total revenue ............... 3,349,468 3,254,477 10,162,430 20,261,929 ------------ ------------ ------------ ------------ Expenses: Interest ...................... 812,697 915,917 2,444,299 3,053,653 Interest - affiliates ......... 640 669 1,851 1,983 Depreciation and amortization ................ 780,144 791,549 2,340,432 2,313,110 Property taxes ................ 234,724 229,674 708,755 768,023 Personnel expenses ............ 315,735 336,864 981,160 1,163,605 Utilities ..................... 200,422 213,388 678,115 821,746 Repair and maintenance ........ 474,398 452,238 1,329,167 1,373,665 Property management fees - affiliates ........... 159,744 155,257 484,058 512,659 Other property operating expenses .................... 139,787 178,567 411,422 550,517 Litigation settlement ......... 200,000 -- 200,000 -- General and administrative .... 216,011 91,013 755,981 458,991 General and administrative - affiliates .................. 69,593 66,752 204,733 210,159 ------------ ------------ ------------ ------------ Total expenses .............. 3,603,895 3,431,888 10,539,973 11,228,111 ------------ ------------ ------------ ------------ Net income (loss) before extraordinary item ............ $ (254,427) $ (177,411) $ (377,543) $ 9,033,818 Extraordinary loss on extinguishment of debt ........ (215,967) -- (215,967) -- ------------ ------------ ------------ ------------ Net income (loss) ................ $ (470,394) $ (177,411) $ (593,510) $ 9,033,818 ============ ============ ============ ============ Net income (loss) allocable to limited partners ........... $ (446,874) $ (537,834) $ (1,328,418) $ 8,582,128 Net income (loss) allocable to General Partner ............ (23,520) 360,423 734,908 451,690 ------------ ------------ ------------ ------------ Net income (loss) ................ $ (470,394) $ (177,411) $ (593,510) $ 9,033,818 ============ ============ ============ ============ Net income (loss) per limited partnership unit .............. $ (1.95) $ (2.34) $ (5.78) $ 37.37 ============ ============ ============ ============ Distributions per limited partnership unit .............. $ -- $ 4.36 $ -- $ 4.36 ============ ============ ============ ============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XII, LTD. STATEMENTS OF PARTNERS' DEFICIT (Unaudited) For the Nine Months Ended September 30, 1999 and 1998
Total General Limited Partners' Partner Partners Deficit ------------ ------------ ------------ Balance at December 31, 1997 ............. $(10,163,672) $(10,579,935) $(20,743,607) Net income ............................... 451,690 8,582,128 9,033,818 Management Incentive Distribution ........ (622,488) -- (622,488) Distribution to limited partners ......... -- (1,001,344) (1,001,344) ------------ ------------ ------------ Balance at September 30, 1998 ............ $(10,334,470) $ (2,999,151) $(13,333,621) ============ ============ ============ Balance at December 31, 1998 ............. $(10,105,300) $ (3,834,776) $(13,940,076) Net income (loss) ........................ 734,908 (1,328,418) (593,510) Management Incentive Distribution ........ (598,810) -- (598,810) ------------ ------------ ------------ Balance at September 30, 1999 ............ $ (9,969,202) $ (5,163,194) $(15,132,396) ============ ============ ============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XII, LTD. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended September 30, --------------------------------- 1999 1998 ------------ ------------ Cash flows from operating activities: Cash received from tenants ...................... $ 9,828,638 $ 10,387,896 Cash paid to suppliers .......................... (4,194,800) (4,518,315) Cash paid to affiliates ......................... (623,513) (638,920) Interest received ............................... 93,569 199,814 Interest paid ................................... (2,378,699) (3,041,198) Property taxes paid ............................. (726,119) (959,296) ------------ ------------ Net cash provided by operating activities .......... 1,999,076 1,429,981 ------------ ------------ Cash flows from investing activities: Additions to real estate investments ............ (1,015,893) (909,251) Proceeds from sale of real estate ............... -- 18,881,821 Proceeds from land condemnation ................. 499,000 -- ------------ ------------ Net cash provided by (used in) investing activities ...................................... (516,893) 17,972,570 ------------ ------------ Cash flows from financing activities: Principal payments on mortgage notes payable ....................................... (313,056) (416,574) Retirement of mortgage note payable ............. (4,329,914) (12,523,061) Proceeds from mortgage note ..................... 4,415,000 -- Deferred borrowing costs paid ................... (55,769) -- Management Incentive Distribution ............... (862,728) (400,000) Distributions to limited partners ............... -- (1,001,344) ------------ ------------ Net cash used in financing activities .............. (1,146,467) (14,340,979) ------------ ------------ Net increase in cash and cash equivalents .......... 335,716 5,061,572 Cash and cash equivalents at beginning of period .......................................... 2,135,190 1,423,658 ------------ ------------ Cash and cash equivalents at end of period ......... $ 2,470,906 $ 6,485,230 ============ ============
See discussion of noncash financing activities in Note 8. The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XII, LTD. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
Nine Months Ended September 30, ------------------------------- 1999 1998 ----------- ----------- Net income (loss) .................................... $ (593,510) $ 9,033,818 ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ..................... 2,340,432 2,313,110 Amortization of deferred borrowing costs .......... 73,463 103,299 Net interest added on advances from affiliates - General Partner .................... 1,851 1,983 Net interest added on advances from Southmark ....................................... 1,659 1,776 Gain on sale of real estate ....................... -- (9,568,850) Gain on land condemnation ......................... (297,754) -- Extraordinary loss on extinguishment of debt ...... 215,967 -- Changes in assets and liabilities: Cash segregated for security deposits ........... 2,063 138,807 Accounts receivable ............................. (14,617) (59,987) Prepaid expenses and other assets ............... 1,214 35,878 Escrow deposits ................................. (384,317) 7,763 Accounts payable ................................ -- (9,996) Accrued expenses ................................ (29,640) (140,543) Accrued interest ................................ (9,522) (92,620) Accrued property taxes .......................... 355,532 (242,694) Litigation expenses payable ..................... 200,000 Payable to affiliates - General Partner ......... 65,278 83,898 Security deposits and deferred rental revenue ....................................... 70,977 (175,661) ----------- ----------- Total adjustments ............................. 2,592,586 (7,603,837) ----------- ----------- Net cash provided by operating activities ............ $ 1,999,076 $ 1,429,981 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XII, LTD. Notes to Financial Statements (Unaudited) September 30, 1999 NOTE 1. - ------- McNeil Real Estate Fund XII, Ltd. (the "Partnership") was organized February 2, 1981 as a limited partnership organized 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 limited partnership agreement, dated September 6, 1991 (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. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1998, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XII, Ltd., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. NOTE 3. - ------- 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 choose to provide leasing services for the Partnership's commercial properties, in which case McREMI will receive a property management fee from such commercial properties equal to 3% of the property's gross rental receipts plus 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. Affiliates of the General Partner have advanced funds to the Partnership to meet working capital requirements. These advances accrue interest at a rate equal to the prime lending rate plus 1%. Under terms of the Amended Partnership Agreement, the Partnership is paying a Management Incentive Distribution ("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. 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, 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 limited partnership ("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. 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, reimbursements and distributions paid to or accrued for the benefit of the General Partner and its affiliates are as follows:
Nine Months Ended September 30, ------------------------ 1999 1998 -------- -------- Property management fees - affiliates ................. $484,058 $512,659 Interest - affiliates ................................. 1,851 1,983 Charged to general and administrative affiliates: Partnership administration ......................... 204,733 210,159 -------- -------- $690,642 $724,801 ======== ======== Charged to General Partner's deficit: MID ................................................ $598,810 $622,488 ======== ========
NOTE 4. - ------- 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. NOTE 5. - ------- Teri King, Madie Troy and Gary Vigil, and John Does 1 through 100, Plaintiffs vs. McNeil Real Estate Fund XII, Ltd., Buccaneer Village Fund XII, Corp., McNeil Real Estate Management, Inc., and Jane Does 1 through 100, Defendants - District Court, City and County of Denver, State of Colorado, Case No. 98CV9156 (environmental suit) This action was served on Defendants on May 28, 1999. The action was filed with the Court on December 3, 1998. A similar action has been filed by Plaintiffs and others against the State of Colorado and the Colorado Department of Transportation ("CDOT"). This action stems from several leaking underground storage tanks which were owned and operated by CDOT. In 1993, CDOT confirmed the presence of contaminants, including solvents and other hazardous substances, which impacted groundwater within the vicinity of the facility. Continued testing and investigation by CDOT found the contaminant plume to include groundwater located within the vicinity of The Lodge at Aspen Grove Apartments. This action is brought by current and former residents of The Lodge at Aspen Grove Apartments and includes a variety of allegations arising from what Plaintiffs contend was Defendants' failure to adequately disclose their knowledge of the plume of contaminants and possible health consequences to residents from exposure. On November 11, 1999, Defendants negotiated a settlement with Plaintiffs. The costs of settling with claimants 1 - 100 and for legal fees and expenses are estimated at $200,000 and are reflected on the accompanying Balance Sheet and Statement of Operations. NOTE 6. - ------- 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 was held in escrow by the mortgagee pending completion of construction and was included with escrow deposits on the Balance Sheet as of December 31, 1998. On June 23, 1999, the Partnership received the $499,000 held in escrow and recognized a $297,754 gain on land condemnation. NOTE 7. - ------- 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 ============ NOTE 8. - ------- On July 30, 1999, the Partnership refinanced Castle Bluff's mortgage note. The new mortgage note, in the amount of $4,415,000 bears interest at a variable rate equal to 1.75% plus the London Interbank Offered Rate per annum. The new mortgage note requires monthly interest-only payments and annual principal payments in an amount necessary to reduce the principal balance of the note by 5% annually. The maturity date of the new mortgage note is August 1, 2002. Cash proceeds from the refinancing transaction are as follows: New mortgage note proceeds.................. $ 4,415,000 Amount required to payoff existing debt..... 4,329,914 ------------- Cash proceeds from refinancing.............. $ 85,086 ============= The Partnership incurred $55,769 of deferred borrowing costs related to the refinancing of Castle Bluff's mortgage note. In connection with the refinance of the Castle Bluff mortgage note, the Partnership wrote off $215,967 of deferred borrowing costs related to the prior mortgage note. The write off deferred borrowing costs resulted in a $215,967 extraordinary loss shown on the accompanying Statement of Operations. NOTE 9. - ------- On June 24, 1999, the Partnership and 18 affiliated partnerships, collectively, (the "Partnerships"),the General Partner, McNeil Investors, Inc., McNeil Real Estate Management, Inc. ("McREMI"), McNeil Summerhill, Inc. and Robert A. McNeil entered into a definitive acquisition agreement (the "Master Agreement") with WXI/McN Realty L.L.C. ("Newco"), an affiliate of Whitehall Street Real Estate Limited Partnership XI, a real estate investment fund managed by Goldman, Sachs & Co., whereby Newco and its subsidiaries will acquire the Partnerships. The Master Agreement provides that the Partnerships will be merged with subsidiaries of Newco. The Master Agreement also provides for the acquisition by Newco and its subsidiaries of the assets of McREMI. The aggregate consideration in the transaction, including the assumption or prepayment of all outstanding mortgage debt of the Partnerships, is approximately $644,440,000. Pursuant to the terms of the Master Agreement, the limited partners in the Partnership will receive cash on the closing date of the transaction (the "Closing Date") in exchange for their limited partnership interests. In addition, the Partnership will declare a special distribution to its limited partners on the Closing Date equal to its then positive net working capital balance, if any. The estimated aggregate consideration and net working capital distribution to be received per unit of limited partnership interest in the Partnership were estimated as $77. The above estimates of the Partnership per unit estimated merger consideration and working capital distribution and the interest of McNeil Partners, L.P. are based upon, among other things, the balance sheet of the Partnership as of March 31, 1999, adjusted for intangible assets, non-cash liabilities, transaction expenses and the McNeil Partners, L.P. interest in the Partnership. Actual amounts, including the estimate allocable to McNeil Partners, L.P., will vary with the performance of the Partnership and McNeil Partners, L.P. through the closing date. The above estimated merger consideration and special working capital distribution will be adjusted at closing to reflect the then working capital position of the Partnership. On the Closing Date, the General Partner of the Partnership, will receive an equity interest in Newco in exchange for its contribution to Newco of the general partnership interests in the Partnerships, the limited partnership interests in Fairfax Associates II L.P. and McNeil Summerhill Associates and the assets of McREMI. The Partnership's participation in the transaction is subject to, among other conditions, the approval by a majority of the limited partners of the Partnership. In some circumstances, as defined in the Master Agreement, the Partnerships may be subject to a break-up fee, up to an aggregate maximum of $18,000,000, if the Master Agreement is terminated with respect to one or more of the Partnerships. In the case of termination of the Master Agreement in these circumstances, each of the Partnerships with respect to which the Master Agreement has been terminated will be severally, but not jointly, liable for payment to Newco of its respective break-up fee. The break-up fee ratably calculated for the Partnership is $1,683,126. All previous costs associated with this transaction had been allocated among the Partnerships and McREMI based on the relative number of properties contained therein. On June 24, 1999, a fairness opinion (the "Fairness Opinion") was rendered by Robert A. Stanger & Co., Inc., an independent financial advisor, to the effect that the aggregate consideration to be paid for the general partnership interests and limited partnership interests in all of the Partnerships and the assets of McREMI is fair from a financial point of view to the holders of each class of limited partnership. Based on the relative values as set forth in the Fairness Opinion, the Partnership recorded an adjustment to general and administrative expenses and accrued expenses during the second quarter of 1999 in the amount of $159,596 to reflect the reallocation of previously paid transaction costs among the Partnerships and McREMI. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- 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 September 30, 1999, the Partnership owned four apartment properties and one shopping center. Four of the Partnership's properties are subject to mortgage notes. Rental revenues increased at four of the Partnership's five properties. The properties reporting the largest increases in rental revenue, on a percentage basis, were The Lodge at Aspen Grove Apartments and Brendon Way Apartments. These increases were partially offset by a decrease in contingent rent billed on Plaza Westlake as compared to the prior year. RECENT DEVELOPMENTS - ------------------- On June 24, 1999, McNeil Partners, L.P. (the General Partner of the Partnership) and WXI/McN Realty L.L.C., an affiliate of Whitehall Street Real Estate Limited Partnership XI ("Whitehall"), a real estate investment fund managed by Goldman, Sachs & Co., announced that they have entered into a definitive acquisition agreement whereby the Whitehall affiliate will acquire by merger nineteen real estate limited partnerships operated by McNeil Partners, L.P. and Robert A. McNeil. The limited partnerships involved are the Partnership and McNeil Real Estate Funds IX, X, XI, XIV, XV, XX, XXI, XXII, XXIII, XXIV, XXV, XXVI and XXVII, Hearth Hollow Associates, McNeil Midwest Properties I, L.P., Regency North Associates, Fairfax Associates and McNeil Summerhill (collectively, the "Partnerships"). The Partnerships (other than Fairfax Associates and McNeil Summerhill which are wholly-owned by Robert A. McNeil and related parties) will be merged with subsidiaries of WXI/McN Realty L.L.C. The acquisition agreement also provides for the acquisition by WXI/McN Realty L.L.C. of the assets of McNeil Real Estate Management, Inc. ("McREMI"). The aggregate consideration in the transaction, including all outstanding mortgage debt of the Partnerships, is approximately $644,440,000. Pursuant to the terms of the acquisition agreement, the limited partners in each of the Partnerships (other than those wholly-owned by Robert A. McNeil) will receive cash on the closing date of the transaction in exchange for their limited partnership interests. In addition, each Partnership will make a special distribution to its limited partners on the closing date of the transaction equal to its then net positive working capital balance. McNeil Partners, L.P. will receive an equity interest in WXI/McN Realty L.L.C. in exchange for its contribution of its general partnership interests in the Partnerships, the limited partnership interests in its wholly-owned Partnerships and the assets of McREMI. The proposed transaction follows an extensive marketing effort by PaineWebber Incorporated, exclusive financial advisor to the Partnerships. The transaction has been unanimously approved by the Board of Directors of McNeil Investors, Inc., the general partner of McNeil Partners, L.P., the general partner of each of the Partnerships other than Regency North Associates, Fairfax Associates and McNeil Summerhill. The respective general partners of Regency North Associates, Fairfax Associates and McNeil Summerhill also have approved the transaction. The Board of Directors of McNeil Investors based its approval upon, among other things, the recommendation of a Special Committee of the Board, appointed at the beginning of the discussions with Whitehall to represent the interests of holders of limited partnership interests in each of the Partnerships. In addition, the Special Committee and the Board relied upon fairness opinions given by Robert A. Stanger & Co., Inc. ("Stanger & Co."), an independent financial advisor to the Partnerships, to the effect that the aggregate consideration is fair to the holders of each class of limited partnership interests in each of the Partnerships. The Special Committee's recommendation was also based upon the separate opinions of Eastdil Realty Company ("Eastdil"), the independent financial advisor to the Special Committee. Stanger & Co. and Eastdil have each also rendered an opinion that the aggregate consideration to be paid for the general partnership interests and limited partnership interests in all of the Partnerships and the assets of McREMI is fair from a financial point of view to the holders of each class of limited partnership interests in each of the Partnerships. Each of the Partnerships' participation in the transaction is subject to, among other conditions, the approval by a majority of the limited partners of the respective Partnerships. The approval of the limited partners of the Partnerships will be sought at meetings to be held in the coming months after the filing of proxy statements with the Securities and Exchange Commission with respect to the publicly traded Partnerships, and the subsequent mailing of proxy statements to the limited partners. Preliminary proxy statements were filed with the SEC on August 3, 1999 and amended proxy statements were filed September 30, 1999, October 21, 1999 and November 10, 1999. The aggregate consideration in the transaction has been allocated preliminarily among the general partnership interests and the limited partnership interests in each of the Partnerships and McREMI, based upon an allocation analysis prepared by Stanger & Co. and confirmed by Eastdil. Based upon this allocation analysis and the fairness opinions rendered by Stanger & Co. and Eastdil, the Special Committee, the Board of Directors of McNeil Investors, Inc., the respective general partners of Regency North Associates, Fairfax Associates and McNeil Summerhill have each unanimously approved the allocation of the aggregate consideration. The estimated aggregate consideration and working capital distribution to be received per unit of limited partnership interest of the Partnership were estimated as $77. McNeil Partners, L.P. will contribute its real estate investment and management company business to a subsidiary of WXI/McN Realty, L.L.C., along with its general partnership interests in the Partnerships and its limited partnership interests in the wholly-owned Partnerships, having an aggregate allocated value, as determined by Stanger & Co., of approximately $58,640,000, of which approximately $29,400,000 reflects balances due to McNeil Partners, L.P. and McREMI as reflected on the Partnerships' financial statements as of March 31, 1999. The above estimates of the Partnership per unit estimated merger consideration and working capital distribution and the interest of McNeil Partners, L.P. are based upon, among other things, the balance sheet of the Partnership as of March 31, 1999, adjusted for intangible assets, non-cash liabilities, transaction expenses and the McNeil Partners, L.P. interest in the Partnership. Actual amounts, including the estimate allocable to McNeil Partners, L.P., will vary with the performance of the Partnership and McNeil Partners, L.P. through the closing date. The above estimated merger consideration and special working capital distribution will be adjusted at closing to reflect the then working capital position of the Partnership. Whitehall is a $2.26 billion equity fund and is the seventh in a series of funds sponsored and capitalized by Goldman, Sachs & Co. and its affiliates, along with public and private investors, to acquire real estate worldwide. RESULTS OF OPERATIONS - --------------------- Revenue: Partnership revenue decreased $10,099,499 for the nine months ended September 30, 1999 as compared to the same period last year. In 1998, the Partnership recognized a gain on sale of real estate of $9,568,850 for the sale of Channingway Apartments. No such gain was recognized in 1999. Rental revenues decreased $722,158 or 7% for the nine months ended September 30, 1999 as compared to the same period last year. Excluding the effects of the sale of Channingway Apartments in April 1998, Partnership rental revenues increased $291,714 and $164,797 for the nine months and three months ended September 30, 1999, respectively, as compared to the same periods last year. Interest income decreased $106,245 for the nine months ended September 30, 1999 as compared to the same period last year due to lower cash balances being invested in interest bearing accounts. The Partnership also recognized a gain on land condemnation of $297,754 in the second quarter of 1999. No such gain was recorded in the first nine months of 1998. Expenses: Partnership expenses decreased $688,138 or 6% for the nine months ended September 30, 1999 as compared to the same period last year. Excluding the effects of the sale of Channingway Apartments, Partnership expenses increased $223,579 or 2% and increased $161,356 or 5% for the nine months and three months ended September 30, 1999, respectively, as compared to the same periods last year. Interest expense (excluding Channingway Apartments) decreased $308,580 or 11% for the nine months ended September 30, 1999 as compared to the same period last year. This decrease is primarily due to the payoff of the mortgage note payable on Plaza Westlake in October 1998 and the refinance of the mortgage note on Castle Bluff in July 1999. Other property operating expenses (excluding Channingway Apartments) decreased $55,967 or 10% for the nine months ended September 30, 1999 as compared to the same period last year. This decrease is primarily due to a decrease in property insurance and locator fees at all of the Partnership's properties. The Partnership accrued $200,000 during the third quarter of 1999 for settlement of litigation costs as discussed in Note 5 and Part II. Item 1 - Legal Proceedings. General and administrative expenses increased $296,990 and $124,998 for the nine and three months ended September 30, 1999, respectively, as compared to the same period last year. The increase was mainly due to increased costs incurred to explore alternatives to maximize the value of the Partnership (see Recent Developments) and due to a $159,596 reallocation of previously paid transaction costs among the Partnerships and McREMI in the second quarter of 1999 (see Note 9). In connection with the recent refinancing of the Castle Bluff mortgage note, the Partnership wrote off $215,967 of unamortized deferred borrowing costs associated with the prior Castle Bluff mortgage note. The write off resulted in a $215,967 extraordinary loss. All other remaining expense categories (excluding Channingway Apartments) remained comparable to the same period last year. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the first nine months of 1999, the Partnership provided $1,999,076 in cash from operations as compared to $1,429,981 in cash from operations in 1998. The $569,095 increase can be attributed to the decreases in cash paid to suppliers, interest and property taxes paid offset by the decrease in cash received from tenants in the first nine months of 1999 as compared to the same period in 1998. The Partnership expended $1,015,893 and $909,251 for capital improvements to its properties for the nine months ended September 30, 1999 and 1998, respectively. In June 1999, the Partnership also received proceeds of $499,000 for a land condemnation in 1996 in which Cobb County needed the land for highway construction. Total principal payments on mortgage notes payable were $313,056 for the nine months ended September 30, 1999 as compared to $416,574 for the same period in 1998. During 1999, the Partnership also paid $862,728 in MID to the General Partner. The Partnership refinanced a mortgage loan of $4,329,914 and recorded mortgage loan proceeds of $4,415,000 during the third quarter of 1999. Short-term liquidity: At September 30, 1999, the Partnership held cash and cash equivalents of $2,470,906. The General Partner believes that anticipated operating results for 1999 will be sufficient to fund the Partnership's budgeted $1.2 million in capital improvements for 1999 and to repay the current portion of the Partnership's mortgage notes. Long-term liquidity: For the long-term, property operations will remain the primary source of funds. In this regard, the General Partner expects that the capital improvements made by the Partnership during the past 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. See "Recent Developments" above. Income (loss) allocation and distributions: Terms of the Amended Partnership Agreement specify that income (loss) 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 nine months ended September 30, 1999 and 1998, $734,908 and $451,690, respectively, was allocated to the General Partner. The limited partners received allocations of $(1,328,418) and $8,582,128 for the nine months ended September 30, 1999 and 1998, respectively. 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 September 30, 1999. 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. 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 is 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. Based on this review, management believes these systems are substantially compliant. 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 has assessed these risks and expects to have contingency plans in place by December 31, 1999 for any material potential failures. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- 1) 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. ("McREMI") 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. 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. Because the settlement contemplated a transaction which included all of the Partnerships and plaintiffs claimed that an effort should be made to sell all of the Partnerships, in or around September 1998, plaintiffs filed a third consolidated and amended complaint which included allegations with respect to the Partnerships which had not been named in previously filed complaints. On September 15, 1998, the parties signed a Stipulation of Settlement. For purposes of settlement, the parties stipulated to a class comprised of all owners of limited partner units in the Partnerships during the period beginning June 21, 1991, the earliest date that proxy materials began to be issued in connection with the restructuring of the Partnerships, through September 15, 1998. As structured, the Stipulation of Settlement provided for the payment of over $35 million in distributions and the commitment to market the Partnerships for sale, together with McREMI, through a fair and impartial bidding process overseen by a national investment banking firm. To ensure the integrity of that process, defendants agreed, among other things, to involve plaintiffs' counsel in oversight of that process, and plaintiffs' counsel retained an independent advisor to represent the interests of limited partners of the Partnerships in the event of a transaction. The transaction described in Item 2 - Recent Developments is a result of that process. The settlement was not conditioned on the consummation of this transaction. On October 6, 1998, the court gave preliminary approval to the settlement. It granted final approval to the settlement on July 8, 1999 and entered a Final Order and Judgment dismissing the consolidated action with prejudice. As a condition of final approval, the court requested, and the parties agreed to, a slight modification of the release in the Stipulation of Settlement with respect to future claims. Plaintiffs' counsel intends to seek an order awarding attorneys' fees and reimbursing their out-of-pocket expenses in an amount which is as yet undetermined. 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. A Notice of Appeal was filed September 3, 1999 by High River Limited Partnership, Unicorn Associates Corporation and Longacre Corporation. 2) High River Limited Partnership, Unicorn Associates Corporation and Longacre Corporation, et al. v. McNeil Partners, L.P. ("MPLP"), McNeil Investors, Inc., McNeil Real Estate Management, Inc. (McREMI"), Robert A. McNeil and Carole J. McNeil, - Supreme Court of the State of New York, County of New York, - Index No. 99 603526. On July 23, 1999, High River and two other affiliates of Carl C. Icahn (Unicorn Associates Corporation and Longacre Corporation), filed a complaint for damages in the Supreme Court of the State of New York, County of New York. Plaintiffs allege that the defendants improperly interfered with tender offers made by High River for limited partner units in the Partnership and other affiliated partnerships in which MPLP serves as General Partner (the "McNeil Partnerships"), by, among other things, filing purportedly frivolous litigation to delay High River's offers, issuing purportedly false and misleading statements opposing the offers and purportedly forcing High River itself to file litigation to enforce its rights. High River also alleges that as a result the defendants caused High River to incur undue expense and that the defendants ultimately prevented High River from acquiring a greater number of limited partner units. Plaintiffs also allege that the defendants improperly excluded High River from participating in the auction process for the sale of the McNeil Partnerships, and otherwise took steps to prevent its participation in the auction. In addition, plaintiffs, who are limited partners in, among others, McNeil Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and XXVII, have also sued the defendants based on their status as opt-outs from the Schofield settlement. Plaintiffs seek undisclosed damages and an accounting. On July 30, 1999, defendants filed an answer to the High River Complaint, denying each and every material allegation contained in the High River Complaint and asserting several affirmative defenses. Settlement negotiations are underway. 3) Teri King, Madie Troy and Gary Vigil, and John Does 1 through 100, Plaintiffs vs. McNeil Real Estate Fund XII, Ltd., Buccaneer Village Fund XII, Corp., McNeil Real Estate Management, Inc., and Jane Does 1 through 100, Defendants - District Court, City and County of Denver, State of Colorado, Case No. 98CV9156 (environmental suit) This action was served on Defendants on May 28, 1999. The action was filed with the Court on December 3, 1998. A similar action has been filed by Plaintiffs and others against the State of Colorado and the Colorado Department of Transportation ("CDOT"). This action stems from several leaking underground storage tanks which were owned and operated by CDOT. In 1993, CDOT confirmed the presence of contaminants, including solvents and other hazardous substances, which impacted groundwater within the vicinity of the facility. Continued testing and investigation by CDOT found the contaminant plume to include groundwater located within the vicinity of The Lodge at Aspen Grove Apartments. This action is brought by current and former residents of The Lodge at Aspen Grove Apartments and includes a variety of allegations arising from what Plaintiffs contend was Defendants' failure to adequately disclose their knowledge of the plume of contaminants and possible health consequences to residents from exposure. On November 11, 1999, Defendants negotiated a settlement with Plaintiffs. The costs of settling with claimants 1 - 100 and for legal fees and expenses are estimated at $200,000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------ -------------------------------- (a) Exhibits. Exhibit Number Description ------- ----------- 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). 11. Statement regarding computation of net income (loss) per limited partnership unit: net income (loss) per limited partnership unit is computed by dividing net income (loss) allocated to the limited partners by the number of limited partnership units outstanding. Per unit information has been computed based on 229,666 limited partnership units outstanding in 1999 and 1998. 27. Financial Data Schedule for the quarter ended September 30, 1999. (b) Reports on Form 8-K. A Report on Form 8-K dated July 8, 1999 was filed on July 9, 1999 regarding the letter received from High River Limited Partnership. McNEIL REAL ESTATE FUND XII, LTD. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: McNEIL REAL ESTATE FUND XII, Ltd. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner November 15, 1999 By: /s/ Ron K. Taylor - ----------------- ------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) November 15, 1999 By: /s/ Brandon K. Flaming - ----------------- ------------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 9-MOS DEC-31-1999 SEP-30-1999 2,470,906 0 213,459 0 0 0 65,165,400 (42,195,261) 28,382,209 0 37,221,321 0 0 0 0 28,382,209 9,771,107 10,162,430 0 0 8,093,823 0 2,446,150 0 0 (377,543) 0 (215,967) 0 (593,510) 0 0
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