-----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, UmMD3KYJS2HEoTCBWgGl5shvCnbwfqYvZkSO2M/au2JvHfva0vxja3PaWq04BUlX 9hkUeH6omhTQ5cwF39L5JQ== 0000702657-98-000003.txt : 19980401 0000702657-98-000003.hdr.sgml : 19980401 ACCESSION NUMBER: 0000702657-98-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XIV LTD CENTRAL INDEX KEY: 0000702657 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 942822299 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-12915 FILM NUMBER: 98579864 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD SUITE 700 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K405 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 ------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-12915 --------- McNEIL REAL ESTATE FUND XIV, LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2822299 - -------------------------------------------------------------------------------- (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 ] 85,662 of the registrant's 86,534 limited partnership units are held by non-affiliates of this registrant. The aggregate market value of units held by non-affiliates is not determinable since there is no public trading market for limited partnership units and transfers of units are subject to certain restrictions. Documents Incorporated by Reference: See Item 14, Page 37. TOTAL OF 40 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund XIV, Ltd. (the "Partnership") was organized April 30, 1982 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 20, 1991, as amended (the "Amended Partnership Agreement"). Prior to September 20, 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 April 30, 1982 (the "Original Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. On February 14, 1983, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission whereby the Partnership offered for sale $35,000,000 of limited partnership units ("Units"), with the General Partners' right to increase the offering up to $50,000,000. 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 17, 1984, with 86,101 Units sold at $500 each, or gross proceeds of $43,050,500 to the Partnership, including the original general partners' purchase of 200 Units for $100,000. In 1992, 483 Units were issued to the General Partner in payment of the fixed portion of the Management Incentive Distribution ("MID"). In 1993, 30 Units were relinquished. An additional 20 Units were relinquished in 1994, leaving 86,534 Units outstanding at December 31, 1997. SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - -------------------------------------------------- On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil nor the Corporate General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, including Southmark's interests in the Corporate General Partner, were sold or liquidated for the benefit of creditors. In accordance with Southmark's reorganization plan, on October 12, 1990, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement 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 20, 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 the MID to replace all other forms of general partner compensation other than property management fees and reimbursements of certain costs. Additional Units may be issued in connection with the payment of the MID pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 "Transactions with Affiliates." For a discussion of the methodology for calculating and distributing the MID, see Item 13 - Certain Relationships and Related Transactions. Settlement of Claims: 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, $30,118 in cash, and common and preferred stock in the reorganized Southmark. The cash and stock represent 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 $9,723 which, when combined with the cash proceeds from Southmark, resulted in a gain on legal settlement of $39,841. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and retail real estate and other real estate related assets. At December 31, 1997, the Partnership owned five income-producing properties as described in Item 2 - Properties. The Partnership does not directly employ any personnel. The General Partner conducts the business of the Partnership directly and through its affiliates. The Partnership is managed by the General Partner. In accordance with the Amended Partnership Agreement, the Partnership reimburses affiliates of the General Partner for certain expenses incurred by the affiliates in connection with the management of the Partnership. See Item 8 - Note 2 - "Transactions With Affiliates." The business of the Partnership to date has involved only one industry segment. See Item 8 - Financial Statements and Supplementary Data. The Partnership has no foreign operations. The business of the Partnership is not seasonal. Business Plan: Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof. On October 1, 1996, the Partnership placed Redwood Plaza on the market for sale. 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 a discussion of competitive conditions at the Partnership's properties. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after December 31, 1997. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties and respond to changing economic and competitive factors. Environmental Matters: The environmental laws of the Federal government and of certain state and local governments impose liability on current property owners for the clean-up of hazardous and toxic substances discharged on the property. This liability may be imposed without regard to the timing, cause or person responsible for the release of such substances onto the property. The Partnership could be subject to such liability in the event that it owns properties having such environmental problems. The Partnership has no knowledge of any pending claims or proceedings regarding such environmental problems. Other Information: In August 1995, High River Limited Partnership, a Delaware limited partnership controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $95 per Unit. In September 1996, High River made another unsolicited tender offer to purchase any and all of the outstanding Units of the Partnership for a purchase price of $95 per Unit. In addition, High River made unsolicited tender offers for certain other partnerships controlled by the General Partner. The Partnership recommended that the limited partners reject the tender offers made with respect to the Partnership and not tender their Units. The General Partner believes that as of January 31, 1998, High River has purchased approximately 12.3% of the outstanding Units pursuant to the tender offers. In addition, all litigation filed by High River, Mr. Icahn and his affiliates in connection with the tender offers has been dismissed without prejudice. Management has begun to review its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. The Partnership is in the process of evaluating the computer systems at the various properties. The Partnership also intends to communicate with suppliers, financial institutions and others to coordinate year 2000 issues. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1997. The buildings and the land on which they are located are owned by the Partnership in fee, subject in each case to a first lien deed of trust as set forth more fully in Item 8 - Note 5 - "Mortgage Notes Payable." See also Item 8 - Note 4 - "Real Estate Investments" and Item 8 - Schedule III - "Real Estate Investments and Accumulated Depreciation and Amortization." In the opinion of management, the properties are adequately covered by insurance.
Net Basis 1997 Date Property Description of Property Debt Property Tax Acquired - -------- ----------- ----------- ---- ------------ -------- Real Estate Investments: Embarcadero Club (1) Apartments College Park, GA 404 units $ 6,390,646 $ 7,594,425 $ 134,662 09/84 Tanglewood Village (2) Apartments Carson City, NV 130 units 3,154,949 2,704,333 41,074 06/86 Thunder Hollow (3) Bensalem Apartments Township, PA 301 units 7,267,411 9,340,509 282,252 11/84 Windrock (4) Apartments El Paso, TX 150 units 3,438,184 3,387,741 101,200 10/84 ------------- ------------- ---------- $ 20,251,190 $ 23,027,008 $ 559,188 ============= ============= ========== Asset Held for Sale: Redwood Plaza Retail Center Salt Lake City, UT 87,186 sq. ft. $ 1,932,910 $ 864,004 $ 55,948 06/84 ============= ============= ==========
- ----------------------------------------- Total: Apartments - 985 units Retail centers - 87,186 sq. ft. (1) Embarcadero Club Apartments is owned by Embarcadero Associates which is wholly-owned by the Partnership and the General Partner. (2) Tanglewood Village Apartments is owned by Tanglewood Fund XIV Associates, L.P. which is wholly-owned by the Partnership and the General Partner. (3) Thunder Hollow Apartments is owned by Thunder Hollow Fund XIV Limited Partnership which is wholly-owned by the Partnership. (4) Windrock Apartments is owned by Windrock Fund XIV, L.P. which is wholly-owned by the Partnership. The following table sets forth the properties' occupancy rate and rent per square foot for each of the last five years:
1997 1996 1995 1994 1993 ------------- ------------- -------------- ------------- ---------- Real Estate Investments: Embarcadero Club Occupancy Rate............ 99% 97% 99% 98% 88% Rent Per Square Foot...... $7.54 $7.10 $6.89 $6.46 $6.12 Tanglewood Village Occupancy Rate............ 95% 97% 98% 97% 99% Rent Per Square Foot...... $7.47 $7.36 $7.35 $7.00 $6.64 Thunder Hollow Occupancy Rate............ 97% 99% 97% 99% 100% Rent Per Square Foot...... $8.44 $8.15 $7.76 $7.53 $7.18 Windrock Occupancy Rate............ 96% 93% 75% 83% 91% Rent Per Square Foot...... $5.57 $5.02 $5.01 $5.33 $5.11 Asset Held for Sale: Redwood Plaza Occupancy Rate............ 100% 100% 100% 98% 76% Rent Per Square Foot...... $7.45 $7.13 $7.04 $6.33 $5.28
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 retail properties as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property. Competitive Conditions - ---------------------- Real Estate Investments: Embarcadero Club Apartments - --------------------------- The area surrounding Embarcadero Club Apartments has rebounded from the 1991 Eastern Airlines bankruptcy. Embarcadero Club is 2.5 miles from Atlanta's Hartsfield International Airport. Area occupancy rates have improved to 95%, and the occupancy rate at Embarcadero Club generally is two to three percentage points above the market average. Embarcadero Club competes with both low end and high end properties, but good location and stable management have allowed the property to successfully hold its competitive niche. Renovations in excess of $1,300,000 in the past few years have added significantly to the property's competitiveness. No new construction is planned for the area. Tanglewood Village Apartments - ----------------------------- Tanglewood Village Apartments rental rates have increased ahead of its Carson City competition due to the addition of a new swimming pool, renovation of the clubhouse, and a unique floor plan mix. Occupancy rates for both the Carson City area and Tanglewood Village average a strong 95%. Tanglewood Village has shown strong earnings growth the past two years due to capital improvements. However, the low cost of home ownership in the Carson City area, relative to the rental market, will make it difficult to increase rents in the near future. Thunder Hollow Apartments - ------------------------- Thunder Hollow Apartments has been able to increase rental rates to a higher level than its competitors and still maintain occupancy rates at the local market's 96% average occupancy rate. The property has some of the largest floor plans in its market, an especially attractive feature for tenants with children. There has been no new multi-family development in the market for several years. Competition is limited in this market, but further increases in rental rates may be difficult to achieve due to the predominantly blue collar demographics of the area and an overbuilt single family home market. Windrock Apartments - ------------------- The 1997 occupancy rate at Windrock Apartments exceeded the 92% market average for the first time in several years. Furthermore, only minimal multi-family construction is planned for El Paso during 1998. The local economy remains closely tied to Mexico's economy, which has been volatile. High unemployment and relatively inexpensive single family housing will limit rental rate increases. Windrock offers some unusually large floor plans in a secluded setting, but lack of washer/dryer connections and limited parking space have been handicaps for the property as it competes with newer properties with full amenity packages. Asset Held for Sale: Redwood Plaza - ------------- The area surrounding Redwood Plaza is transforming from a middle to low income area to a growing commercial district. Local businesses, such as McDonnell Douglas, Litton Industries and Unisys, as well as one of the property's tenants, the Utah Motor Vehicle Division, provide strong lunch time traffic to the property. The Motor Vehicle Division is one of only three offices in the Salt Lake Valley where motorists may renew their licenses. Occupancy is projected to remain strong during 1998. The Partnership and one of the property's anchor tenants are negotiating a plan to expand the anchor's space by expanding into space occupied by two other tenants and by constructing an additional 15,838 square feet of space. If the Partnership and the anchor tenant agree on an expansion plan, the terms of the anchor tenant's lease will likely be modified, and the Partnership will likely be responsible for capital repairs to the property's facade and parking lot. The following schedule shows lease expirations for the Partnership's commercial property for 1998 through 2007:
Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- ----------- ----------- Asset Held for Sale: Redwood Plaza 1998 7 15,884 $ 100,653 18% 1999 3 4,856 36,242 7% 2000 2 28,313 86,938 16% 2001 1 3,040 55,630 10% 2002 0 - - - 2003 1 20,100 203,613 37% 2004 1 14,993 63,270 12% 2005 0 - - - 2006 0 - - - 2007 0 - - -
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 each property:
Nature of Business Square Footage Lease Use Leased Annual Rent Expiration -------------- ----------- ---------- Asset Held for Sale: Redwood Plaza Grocery Store 24,873 $ 55,964 2000 Government Office 20,100 203,613 2003 Discount Store 14,993 63,270 2004
ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998. For a discussion of the Southmark bankruptcy, see Item 1 - Business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND - ------- ------------------------------------------------------------ RELATED SECURITY HOLDER MATTERS ------------------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders Limited partnership units 3,838 as of January 31, 1998 (C) The Partnership paid distributions totaling $6,146,222 ($71.02 per Unit) to the limited partners in 1997. No distributions were paid to the limited partners during 1996 or 1995. In the last week of March 1998, the Partnership distributed $500,000 to limited partners of record as of March 1, 1998. The Partnership accrued distributions of $564,834, $618,786 and $601,583 for the benefit of the General Partner for the years ended December 31, 1997, 1996 and 1995, respectively. These distributions are the MID pursuant to the Amended Partnership Agreement. In 1995, the Partnership suspended payment of MID. The Partnership paid $1,774,877 and $500,000 of MID to the General Partner in 1997 and 1996, respectively. See Item 8 - Note 2 - "Transactions with Affiliates." See also Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the likelihood that the Partnership will continue distributions to limited partners. ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in Item 8 - Financial Statements and Supplementary Data.
Statements of Years Ended December 31, Operations 1997 1996 1995 1994 1993 - ------------------ ------------- ------------- -------------- ------------- ------------- Rental revenue................ $ 8,996,989 $ 9,429,880 $ 9,188,439 $ 8,899,488 $ 8,881,991 Gain on legal settlement...... - - 39,841 - - Gain on involuntary conversion................. - - - 51,588 - Gain on disposition of real estate................ 3,081,755 - - - 627,902 Total revenue................. 12,289,725 9,536,634 9,350,464 8,988,225 9,539,165 Net income (loss)............. 3,328,774 (119,302) (331,176) (300,760) (626,596) Net income (loss) per limited partnership unit... $ 3.02 $ (1.36) $ (3.79) $ (3.44) $ (7.17) =========== ============ ============ ============ ============ Distributions per limited partnership unit........... $ 71.02 $ - $ - $ - $ - =========== ============ ============= ============ ============
As of December 31, Balance Sheets 1997 1996 1995 1994 1993 - -------------- ------------- ------------- -------------- ------------- ------------- Real estate investments, net........................ $ 20,251,190 $ 21,656,966 $ 30,950,884 $ 31,396,082 $ 32,248,606 Assets held for sale.......... 1,932,910 7,942,855 - - - Total assets.................. 26,325,605 34,188,885 35,275,343 35,214,866 35,514,281 Mortgage notes payable, net........................ 23,891,012 27,423,689 27,871,969 27,161,556 27,520,265 Partners' equity.............. 1,099,044 4,481,326 5,219,414 6,152,173 7,026,841
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. The Partnership sold Country Hills Plaza, Midvale Plaza and Ridgewood Park Apartments on April 8, 1997, September 24, 1997, and June 15, 1993, respectively. 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. At the end of 1997, the Partnership owned four apartment properties and one retail shopping center. The retail shopping center is on the market for sale. All of the Partnership's properties are subject to mortgage notes. The Partnership sold Country Hills Plaza and Midvale Plaza on April 8, 1997 and September 24, 1997, respectively. The Partnership distributed the net proceeds from the sale of these two properties to the limited partners. Redwood Plaza, the Partnership' sole remaining commercial property, remains on the market for sale. RESULTS OF OPERATIONS - --------------------- 1997 compared to 1996 Revenue: Rental revenue for the year ended December 31, 1997 decreased $432,891 or 4.6% from rental revenue earned for 1996. Excluding rental revenue derived from Country Hills Plaza and Midvale Plaza for both 1997 and 1996, rental revenue increased $375,765 or 4.7% in 1997 compared to 1996. Rental revenue increased at all of the Partnership's remaining properties. Increased occupancy at Windrock Apartments led to a 10.9% increase in rental revenue at the El Paso property. Increased rental rates provided rental revenue increases ranging from 3.5% to 6.1% at Embarcadero Club Apartments, Thunder Hollow Apartments and Redwood Plaza. Rental revenues increased approximately 1.5% at Tanglewood Village Apartments as an increase in rental rates was partially offset by increased vacancy losses. Interest revenue nearly doubled in 1997 compared to 1996. Increased interest income was the result of increasing amounts of cash and cash equivalents the Partnership was able to invest in interest-bearing accounts. The sale of Country Hills Plaza on April 8, 1997 provided a $2,208,359 one-time gain on sale of real estate. An additional gain of $873,396 was realized with the September 24, 1997 sale of Midvale Plaza. Expenses: Partnership expenses decreased $694,985 or 7.2% for the year ended December 31, 1997 as compared to the same period of 1996. Expenses decreased primarily because of the sale of Country Hills Plaza on April 8, 1997, and the sale of Midvale Plaza on September 24, 1997. After excluding expenses related to Country Hills Plaza and Midvale Plaza, the Partnership's expenses decreased $26,310 or 0.3% for 1997 as compared to 1996. General and administrative expenses and general and administrative expenses paid to affiliates decreased, while property taxes increased. General and administrative expenses decreased 60.4% for 1997 as compared to 1996. In 1996, the Partnership incurred costs to evaluate and disseminate information regarding an unsolicited tender offer. Similar costs were not incurred in 1997. The decrease was partially offset by charges for investor services, which beginning in 1997, were provided by a third party vendor instead of by affiliates of the General Partner. The switch of investor service expenses from affiliates to a third party vendor also accounts for most of the 15.5% decrease in general and administrative expenses paid to affiliates. Also contributing to the decrease in general and administrative expenses paid to affiliates was a decrease in partnership administrative reimbursements due to the sale of Country Hills Plaza in April 1997, and also the sale of Midvale Plaza in September 1997. Property taxes on the Partnership's remaining properties increased $51,293 or 9.1% in 1997 as compared to 1996. Increased assessments on Thunder Hollow Apartments contributed to a 7.7% increase in property taxes at the Pennsylvania property. Property taxes at Embarcadero Club Apartments in 1996 were reduced by a one-time credit for an adjustment for prior year's property taxes. No such adjustment was made in 1997. Other property operating expenses increased $89,104 or 17.2% in 1997 as compared to 1996. All of the increase in other property operating expenses is due to increased bad-debt write-offs incurred at Country Hills Plaza and Midvale Plaza. An evaluation of the receivables after the sale of the two properties indicated that the Partnership was unlikely to collect approximately $89,916 of receivables due from a single tenant that entered into bankruptcy proceedings, and who occupied space at both properties. 1996 compared to 1995 Revenue: Thunder Hollow Apartments and Embarcadero Club Apartments accounted for most of the Partnership's $241,441 or 2.6% increase in rental revenue in 1996 compared to 1995. Base rental rates were increased at both properties. Vacancy losses reduced the effect of the rental rate increases at Embarcadero Club, but improving occupancy boosted the effect of the increases at Thunder Hollow Apartments. Although Tanglewood Village Apartments increased base rental rates, the increase was wholly offset by increased vacancy losses, leading to unchanged rental revenue in 1996 compared to 1995. Rental revenue earned at Windrock Apartments improved throughout 1996. Windrock Apartments began 1996 with an occupancy rate of 75%, and increased occupancy to 93% at the end of 1996. For the year, rental revenue rates and occupancy were unchanged from 1995. All three of the Partnership's Utah retail shopping centers ended 1996 100% leased. Good locations and a strong Utah economy have enabled the three properties to continue to provide positive cash flow for the Partnership. A decrease in expense recoveries from tenants led to a 0.9% decrease in rental revenue at Country Hills. Redwood Plaza increased its rental revenue 1.4% principally through increased rental rates on its newer leases. Midvale Plaza's anchor tenant, a home supply store, vacated its space in June 1995. The anchor tenant subsequently assigned its lease to a new tenant, a retail second hand store, that has occupied 55% of the anchor tenant space. The remaining space remains vacant, but under lease. For the year, Midvale Plaza increased rental revenue 2.3% mostly through an increase in contingent rentals based on the sales activity of the property's tenants. Expenses: Partnership expenses decreased $25,704 or 0.3% in 1996 compared to 1995. On a combined basis, the Partnership reported a significant increases in repairs and maintenance expense and in general and administrative expenses, and significant decreases in other property operating expenses and general and administrative expenses paid to affiliates. Repairs and maintenance expenses increased $106,875 or 10.3% in 1996 compared to 1995. The increase was concentrated at the Partnership's residential properties. Under the Partnership's capitalization policy, most expenditures for floor covering replacements were capitalized in 1995. However, such expenditures were generally expensed in 1996 because the level of such expenditures was not great enough to qualify for capitalization. Floor covering expenses increased $48,563 in 1996 compared to 1995. Also a factor in the increase in repairs and maintenance was a $60,628 increase in snow removal expenses and other storm-related clean up expenses incurred at Thunder Hollow Apartments. General and administrative expenses increased $37,061 or 19% in 1996 compared to 1995. The Partnership incurred increased costs associated with the fees charged by professionals such as appraisers, auditors and other consultants, as well a 7.9% increase in expenses associated with an unsolicited tender offer. Other property operating expenses decreased $62,728 or 10.8% in 1996 compared to 1995. The Partnership incurred decreased expenses for property insurance and for costs associated with credit and collection activities. These decreases were concentrated at the Partnership's residential properties. General and administrative expenses paid to affiliates decreased 21.3% in 1996 compared to 1995. The decrease was mainly due to a decrease in overhead expenses allocated to the Partnership by McREMI. Such reimbursements are paid in accordance with the Partnership's Amended Partnership Agreement. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash flow from operating activities decreased 1.5% in 1997 compared to 1996. The decrease is due to the sale of Country Hills Plaza and Midvale Plaza during the course of 1997. Operating cash flow from the Partnership's remaining properties increased almost enough to offset the loss of the two properties during the course of 1997. The Partnership invested $668,126 in capital improvements in 1997, in addition to the $834,036 and $1,743,497 invested in 1996 and 1995, respectively. The Partnership has budgeted an additional $625,000 for capital improvements in 1998. The capital improvements budgeted for 1998 are expected to be funded from cash flow from operations. In 1997 and 1996, the Partnership's improving cash position allowed the Partnership to resume MID payments to the General Partner. MID payments had been suspended since the beginning of 1994 to increase the cash reserves of the Partnership. $500,000 of MID was paid to the General Partner during 1996, and an additional $1,774,877 of MID was paid during 1997. $90,326 of MID remains accrued but unpaid at the end of 1997. The Partnership anticipates further MID payments in 1998 if the Partnership's properties continue to perform as anticipated. As discussed above, two of the Partnership's properties, Country Hills Plaza and Midvale Plaza were sold during 1997. The sale of these two properties provided $6,146,226 of cash proceeds to the Partnership, after repayment of the mortgage notes associated with the two properties. The net cash proceeds from the sale of the two properties was distributed to the limited partners in two installments in September 1997 and December 1997. During the last week of March 1998, the Partnership distributed an additional $500,000 to limited partners of record as of March 1, 1998. The $500,000 distribution was funded from cash reserves of the Partnership. Short Term Liquidity: The Partnership expended considerable resources over the past several 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 three years have enabled the Partnership to increase its rental revenues and reduce certain of its repairs and maintenance expenses. For 1998, the Partnership has budgeted an additional $625,000 of capital improvements to its real estate investments. Budgeted capital improvements for 1998 will be funded from property operations. At December 31, 1997, the Partnership held cash and cash equivalents of $1,292,615. The General Partner considers this level of cash reserves to be adequate to meet the Partnership's operating needs. The General Partner resumed MID payments during 1996, and anticipates additional MID payments will be made in 1998 if the Partnership's properties continue to perform as projected. The General Partner believes that anticipated operating results for 1998 will be sufficient to fund the Partnership's budgeted capital improvements for 1998 and to repay the current portion of the Partnership's mortgage notes. The Partnership's remaining commercial property, Redwood Plaza, is on the market for sale. Although the General Partner expects to successfully sell Redwood Plaza, there is no guarantee that the Partnership will be able to conclude a sale of Redwood Plaza for an amount sufficient to retire the related mortgage note and provide cash proceeds to the Partnership. The Partnership anticipates that any proceeds from the sale of Redwood Plaza, after repayment of the related mortgage note, will be distributed to the limited partners. 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 over the past few 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 improvements are expected to increase the competitiveness or marketability of the Partnership's properties. Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof. On October 1, 1996, the Partnership placed Redwood Plaza on the market for sale. Income Allocations and Distributions: Terms of the Amended Partnership Agreement specify that net losses for financial reporting purposes are allocated 99% to the limited partners and 1% to the General Partner. Net income for financial reporting purposes is allocated to the General Partner in an amount equal to the greater of (a) 1% of net income or (b) the cumulative amount of the contingent portion of the MID paid for which no income allocation has previously been made; any remaining net income is allocated to the limited partners. Therefore, for the years in the periods ended December 31, 1997, 1996 and 1995, net income of $3,067,248 and net losses of $1,193 and $3,312, respectively, were allocated to the General Partner. The limited partners received allocated net income of $261,526 and net losses of $118,109 and $327,864 for the years ended December 31, 1997, 1996 and 1995, respectively. Distributions to Unit holders had been suspended since 1986 as part of management's policy of maintaining adequate cash reserves. In 1997, however, the Partnership distributed $6,146,222 to the limited partners. During the last week of March 1998, the Partnership distributed an additional $500,000 to limited partners of record as of March 1, 1998. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support additional distributions to the Unit holders. The Partnership paid $1,774,877 and $500,000 of MID to the General Partner during 1997 and 1996, respectively. No MID was paid during 1995. The Partnership anticipates making additional MID payments during 1998 if the Partnership's properties continue to perform as projected. 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, 1997 and 1996................................... 17 Statements of Operations for each of the three years in the period ended December 31, 1997..................................................... 18 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1997....................................... 19 Statements of Cash Flows for each of the three years in the period ended December 31, 1997..................................................... 20 Notes to Financial Statements.................................................. 22 Financial Statement Schedule: Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization............................................ 32
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of McNeil Real Estate Fund XIV, Ltd.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XIV, Ltd. (a California limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of McNeil Real Estate Fund XIV, Ltd. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Dallas, Texas March 20, 1998 McNEIL REAL ESTATE FUND XIV, LTD. BALANCE SHEETS
December 31, ------------------------------------ 1997 1996 ---------------- -------------- ASSETS - ------ Real estate investments: Land..................................................... $ 4,663,828 $ 4,663,828 Building and improvements................................ 36,220,158 35,944,879 -------------- ------------- 40,883,986 40,608,707 Less: Accumulated depreciation.......................... (20,632,796) (18,951,741) -------------- ------------- 20,251,190 21,656,966 Assets held for sale........................................ 1,932,910 7,942,855 Cash and cash equivalents................................... 1,292,615 1,903,902 Cash segregated for security deposits....................... 431,148 399,366 Accounts receivable......................................... 663,087 385,721 Prepaid expenses and other assets........................... 141,281 173,908 Escrow deposits............................................. 664,294 681,430 Deferred borrowing costs, net of accumulated amortization of $441,912 and $346,255 at December 31, 1997 and 1996, respectively................. 949,080 1,044,737 -------------- ------------- $ 26,325,605 $ 34,188,885 ============== ============= LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage notes payable, net................................. $ 23,891,012 $ 27,423,689 Accounts payable............................................ 69,128 103,747 Accrued interest............................................ 164,766 197,124 Accrued property taxes...................................... 101,200 100,981 Other accrued expenses...................................... 73,912 82,329 Payable to affiliates - General Partner..................... 211,757 1,388,371 Deferred gain on involuntary conversions.................... 346,114 - Security deposits and deferred rental revenue............... 368,672 411,318 -------------- ------------- 25,226,561 29,707,559 -------------- ------------- Partners' equity (deficit): Limited partners - 100,000 limited partnership units authorized; 86,534 limited partnership units issued and outstanding at December 31, 1997 and 1996.......... 1,763,445 7,648,141 General Partner.......................................... (664,401) (3,166,815) -------------- ------------- 1,099,044 4,481,326 -------------- ------------- $ 26,325,605 $ 34,188,885 ============== =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Revenue: Rental revenue.......................... $ 8,996,989 $ 9,429,880 $ 9,188,439 Interest................................ 210,981 106,754 122,184 Gain on legal settlement................ - - 39,841 Gain on sales of real estate............ 3,081,755 - - ------------- ------------- -------------- Total revenue......................... 12,289,725 9,536,634 9,350,464 ------------- ------------- -------------- Expenses: Interest................................ 2,400,690 2,682,467 2,694,731 Depreciation and amortization........... 1,882,343 2,185,099 2,171,607 Property taxes.......................... 670,709 713,729 719,183 Personnel expenses...................... 946,896 925,738 984,852 Repairs and maintenance................. 1,148,956 1,145,081 1,038,206 Utilities............................... 514,372 495,851 469,550 Property management fees - affiliates............................ 451,074 465,738 456,139 Other property operating expenses....... 606,017 516,913 579,641 General and administrative.............. 92,005 232,097 195,036 General and administrative - affiliates............................ 247,889 293,223 372,695 ------------- ------------- -------------- Total expenses........................ 8,960,951 9,655,936 9,681,640 ------------- ------------- -------------- Net income (loss).......................... $ 3,328,774 $ (119,302) $ (331,176) ============= ============= ============== Net income (loss) allocated to limited partners........................ $ 261,526 $ (118,109) $ (327,864) Net income (loss) allocated to General Partner......................... 3,067,248 (1,193) (3,312) ------------- ------------- -------------- Net income (loss).......................... $ 3,328,774 $ (119,302) $ (331,176) ============= ============= ============== Net income (loss) per limited partnership unit......................... $ 3.02 $ (1.36) $ (3.79) ============= ============= ============== Distributions per limited partnership unit.................................... $ 71.02 $ - $ - ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1997, 1996 and 1995
Total General Limited Partners' Partner Partners Equity ---------------- ---------------- ---------------- Balance at December 31, 1994.............. $ (1,941,941) $ 8,094,114 $ 6,152,173 Net loss.................................. (3,312) (327,864) (331,176) Management Incentive Distribution......... (601,583) - (601,583) -------------- -------------- -------------- Balance at December 31, 1995.............. (2,546,836) 7,766,250 5,219,414 Net loss.................................. (1,193) (118,109) (119,302) Management Incentive Distribution......... (618,786) - (618,786) -------------- -------------- -------------- Balance at December 31, 1996.............. (3,166,815) 7,648,141 4,481,326 Net income................................ 3,067,248 261,526 3,328,774 Management Incentive Distribution......... (564,834) - (564,834) Distributions to limited partners......... - (6,146,222) (6,146,222) -------------- --------------- -------------- Balance at December 31, 1997.............. $ (664,401) $ 1,763,445 $ 1,099,044 ============== ============== ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended December 31, ----------------------------------------------------- 1997 1996 1995 --------------- --------------- ---------------- Cash flows from operating activities: Cash received from tenants.............. $ 8,962,254 $ 9,395,118 $ 9,215,001 Cash paid to suppliers.................. (3,253,015) (3,182,745) (3,400,938) Cash paid to affiliates................. (665,534) (744,666) (1,166,657) Interest received....................... 210,981 106,754 122,184 Interest paid........................... (2,246,442) (2,450,431) (2,477,133) Property taxes paid..................... (635,937) (715,239) (704,400) Cash received from legal settlement............................ - - 39,841 ------------- ------------- -------------- Net cash provided by operating activities.............................. 2,372,307 2,408,791 1,627,898 ------------- ------------- -------------- Cash flows from investing activities: Additions to real estate investments........................... (668,126) (834,036) (1,743,497) Proceeds from sales of real estate...... 9,868,596 - - Insurance proceeds from gain on involuntary conversion................ - - 17,088 ------------- ------------- -------------- Net cash provided by (used in) investing activities.................... 9,200,470 (834,036) (1,726,409) ------------- ------------- -------------- Cash flows from financing activities: Principal payments on mortgage notes payable......................... (540,595) (588,801) (536,941) Retirement of mortgage notes payable............................... (3,722,370) - - Deferred borrowing costs paid........... - - (107,525) Net proceeds from refinancing of mortgage notes payable................ - - 1,115,767 Management incentive distribution paid.................................. (1,774,877) (500,000) - Distributions to limited partners....... (6,146,222) - - ------------- ------------- -------------- Net cash provided by (used in) financing activities.................... (12,184,064) (1,088,801) 471,301 ------------- ------------- -------------- Net increase (decrease) in cash and cash equivalents.................. (611,287) 485,954 372,790 Cash and cash equivalents at beginning of year..................... 1,903,902 1,417,948 1,045,158 ------------- ------------- -------------- Cash and cash equivalents at end of year............................... $ 1,292,615 $ 1,903,902 $ 1,417,948 ============= ============= ==============
See discussion of noncash investing and financing activities in Note 6 - "Sale of Real Estate" and Note 8 - "Gain on Involuntary Conversion." See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. STATEMENTS OF CASH FLOWS Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- ----------------- -------------- Net income (loss).......................... $ 3,328,774 $ (119,302) $ (331,176) ------------- --------------- ------------ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........... 1,882,343 2,185,099 2,171,607 Amortization of deferred borrowing costs....................... 95,657 95,658 88,026 Amortization of discounts on mortgage notes payable................ 90,949 140,521 131,587 Gain on sales of real estate............ (3,081,755) - - Changes in assets and liabilities: Cash segregated for security deposits............................ (31,782) (29,269) 2,060 Accounts receivable................... 137,088 (34,898) 43,462 Prepaid expenses and other assets.............................. 18,289 26,666 29,947 Escrow deposits....................... 17,136 163,192 (188,855) Accounts payable...................... (34,619) (62,687) 11,363 Accrued property taxes................ 219 104 15,997 Accrued interest...................... (32,358) (4,143) (2,015) Other accrued expenses................ (8,417) 2,604 (1,880) Payable to affiliates - General Partner............................. 33,429 14,295 (337,823) Security deposits and deferred rental revenue...................... (42,646) 30,951 (4,402) -------------- ------------- -------------- Total adjustments................. 956,467 2,528,093 1,959,074 ------------- ------------- -------------- Net cash provided by operating activities.............................. $ 2,372,307 $ 2,408,791 $ 1,627,898 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund XIV, Ltd. (the "Partnership") was organized April 30, 1982 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 agreement of limited partnership dated September 20, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At December 31, 1997, the Partnership owned five income-producing properties as described in Note 4 - Real Estate Investments. Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof. On October 1, 1996, the Partnership placed Redwood Plaza on the market for sale. 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. These single asset tier partnerships were formed to accommodate the refinancings of the related properties. The ownership interest of the Partnership and the General Partner in each tier is detailed on the following page. The Partnership retains effective control of each tier partnership. The General Partner's minority interest is not presented as it is either negative or immaterial. % of Ownership Interest Tier Partnership Partnership General Partner ---------------- ----------- --------------- Limited partnerships: Tanglewood Fund XIV Associates, L.P...... 99% 1% Thunder Hollow Fund XIV Limited Partnership (a)........................ 100 - Windrock Fund XIV, L.P. (a).............. 100 - General partnerships: Embarcadero Associates................... 99 1 (a) The general partner of these partnerships is a corporation whose stock is 100% owned by the Partnership. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated fair value. The Partnership's method of accounting for real estate investments is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The adoption of SFAS 121 did not have a material impact on the accompanying financial statements. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. Assets Held for Sale - -------------------- Assets held for sale are stated at the lower of depreciated cost or fair value less costs to sell. Depreciation on these assets ceases at the time they are placed on the market for sale. Depreciation - ------------ Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Tenant improvements are amortized over the terms of the related tenant leases 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 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. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations. Discounts on Mortgage Notes Payable - ----------------------------------- Discounts on mortgage notes payable are amortized over the remaining terms of the related mortgage notes using the effective interest method. Amortization of discounts on mortgage notes 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 income is recognized as earned. The Partnership leases its commercial properties under non-cancelable operating leases. Certain leases provide concessions and/or periods of escalating or free rent. Rental income is recognized on a straight-line basis over the term of the related lease. The excess of rental income recognized over the contractual rental payments is recorded as accrued rent receivable and is 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 - ------------------------------------- Net losses of the Partnership for both financial statement and income tax reporting purposes are allocated 99% to the limited partners and 1% to the General Partner. Net income of the Partnership for both financial statement and income tax reporting purposes is allocated to the General Partner in an amount equal to the greater of (a) 1% of net income or (b) the cumulative amount paid for the Management Incentive Distribution ("MID") for which no income allocation has previously been made (see Note 2 - "Transactions with Affiliates"). Any remaining net income is allocated 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 allocation of partnership deductions attributable to debt. The Partnership's tax allocations for 1997, 1996 and 1995 have been made in accordance with these provisions. Distributions - ------------- Pursuant to the Amended Partnership Agreement and at the discretion of the General Partner, distributions during each taxable year shall be made as follows: (a) First, to the General Partner, in an amount equal to the MID (see Note 2 - "Transactions with Affiliates"); and (b) any remaining distributable cash, as defined, shall be distributed 100% to the limited partners. The Partnership paid distributions of $6,146,222 to the limited partners in 1997. No distributions were paid to the limited partners in 1996 or 1995. The Partnership paid or accrued distributions of $564,834, $618,786 and $601,583 for the benefit of the General Partner for the MID in 1997, 1996 and 1995, respectively. These distributions are the MID pursuant to the Amended Partnership Agreement. The General Partner has waived the collection terms of reimbursable expenses and MID, and has elected for the Partnership to pay limited partner distributions before the payment of such amounts. The Partnership plans to distribute approximately $500,000 to the limited partners in March 1998. Net Loss Per Limited Partnership Unit - ------------------------------------- Net loss per limited partnership unit ("Units") is computed by dividing net loss allocated to the limited partners by the weighted average number of Units outstanding. Per Unit information has been computed based on 86,534 Units outstanding in 1997, 1996 and 1995. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- The Partnership pays property management fees equal to 5% of the Partnership's gross rental receipts 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 perform leasing services for the Partnership's commercial properties, in which case McREMI will receive a property management fee equal to 3% of the gross rental receipts of the Partnership's commercial properties plus a commission for performing leasing services equal to the prevailing market rate for such services in the area 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 MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible assets. 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. During 1997, 1996 and 1995, no Units were issued as payment for the MID. 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 does have a material effect on the calculation of the Entitlement Amount which determines the amount of MID earned. Capital improvements are excluded from cash flow, as defined. The majority of base period cash flow was measured under the previous capitalization policy, while incentive period cash flow is determined using the amended policy. Under the amended policy, more items are capitalized, and cash flow increases. The amendment of the capitalization policy did not materially affect the MID for 1997, 1996 or 1995 as the Entitlement Amount was sufficient to pay the MID notwithstanding the amendment of the capitalization policy. Any amount of 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 and its affiliates are as follows: For the Years Ended December 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- Property management fees - affiliates........................... $ 451,074 $ 465,738 $ 456,139 Charged to general and administrative - affiliates: Partnership administration........... 247,889 293,223 372,695 -------- -------- -------- $ 698,963 $ 758,961 $ 828,834 ======== ======== ======== Charged to General Partner's deficit: Management Incentive Distribution $ 564,834 $ 618,786 $ 601,583 ======== ======== ======== Payable to affiliates - General Partner at December 31, 1997 and 1996 consists of reimbursable costs, property management fees and MID that are due and payable from current operations. The General Partner has waived the collection terms of reimbursable expenses and MID, and has elected for the Partnership to pay limited partner distributions before the payment of such amounts. NOTE 3 - TAXABLE LOSS - --------------------- McNeil Real Estate Fund XIV, Ltd. is a partnership and is not subject to Federal and state income taxes. Accordingly, no recognition has been given to income taxes in the accompanying financial statements of the Partnership since the income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly. The Partnership's net assets and liabilities for tax purposes exceeded the net assets and liabilities for financial reporting purposes by $2,059,398, $1,802,969 and $1,331,413 in 1997, 1996 and 1995, respectively. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments at December 31, 1997 and 1996 are set forth in the following tables:
Buildings and Accumulated Net Book 1997 Land Improvements Depreciation Value ---- -------------- ------------ ------------ --------------- Embarcadero Club College Park, GA $ 1,216,712 $ 12,552,561 $ (7,378,627) $ 6,390,646 Tanglewood Village Carson City, NV 705,859 5,131,625 (2,682,535) 3,154,949 Thunder Hollow Bensalem Township, PA 1,837,539 12,744,793 (7,314,921) 7,267,411 Windrock El Paso, TX 903,718 5,791,179 (3,256,713) 3,438,184 ------------- ------------- ------------- ------------- $ 4,663,828 $ 36,220,158 $ (20,632,796) $ 20,251,190 ============= ============= ============= ============= Buildings and Accumulated Net Book 1996 (a) Land Improvements Depreciation Value -------- -------------- ------------ ------------ --------------- Embarcadero Club $ 1,216,712 $ 12,312,055 $ (6,803,966) $ 6,724,801 Tanglewood Village 705,859 5,031,895 (2,395,364) 3,342,390 Thunder Hollow 1,837,539 12,883,353 (6,815,730) 7,905,162 Windrock 903,718 5,717,576 (2,936,681) 3,684,613 ------------- ------------- ------------- ------------- $ 4,663,828 $ 35,944,879 $ (18,951,741) $ 21,656,966 ============= ============= ============= =============
(a) On October 1, 1996, the General Partner placed Country Hills Plaza, Midvale Plaza and Redwood Plaza on the market for sale. All three properties were classified as assets held for sale at December 31, 1996. The net book values of Country Hills Plaza, Midvale Plaza and Redwood Plaza at December 31, 1996 were $3,787,273, $2,229,912 and $1,925,670, respectively. The Partnership sold Country Hills Plaza on April 8, 1997. Midvale Plaza was sold September 24, 1997. Redwood Plaza, located in Salt Lake City, Utah, remains classified as an asset held for sale at December 31, 1997. The net book value of Redwood Plaza at December 31, 1997 was $1,932,910. Included in the Partnership's Statements of Operations are results of operations for the assets held for sale. Results of operations for assets held for sale amounted to $440,868, $459,447 and $297,444 for 1997, 1996 and 1995, respectively. Results of operations are operating revenues less operating expenses including and interest expense and depreciation and amortization. The Partnership leases its commercial property under various non-cancelable operating leases. Future minimum rents to be received for the property, which is classified as an asset held for sale as of December 31, 1997, are as follows: 1998............................... $ 469,292 1999............................... 437,463 2000............................... 400,124 2001............................... 313,242 2002............................... 266,883 Thereafter......................... 173,321 --------- $2,060,325 ========= Future minimum rents do not include contingent rents based on sales volume of tenants. Contingent rents amounted to $2,591, $2,462 and $3,489 for the years ended December 31, 1997, 1996 and 1995, respectively. Future minimum rents also do not include expense reimbursements for common area maintenance, property taxes, and other expenses. These expense reimbursements amounted to $206,243, $349,600 and $370,814 for the years ended December 31, 1997, 1996 and 1995, respectively. These contingent rents and expense reimbursements, which are comprised of amounts generated by assets held for sale, are included in rental revenue on the Statements of Operations. The Partnership's real estate investments and asset held for sale are encumbered by mortgage notes as discussed in Note 5 - "Mortgage Notes Payable." NOTE 5 - MORTGAGE NOTES PAYABLE - ------------------------------- The following table sets forth the mortgage notes of the Partnership at December 31, 1997 and 1996. All mortgage notes are secured by the related real estate investments or assets held for sale:
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date (d) 1997 1996 - -------- ------------- ------- ----------------- --------------- -------------- Country Hills Plaza First 9.000 $ 24,742 07/04 $ - $ 2,255,102 Discount (b) - (411,154) ------------ ------------- - 1,843,948 ------------ ------------- Embarcadero Club First 7.875 57,280 12/23 7,594,425 7,680,034 ------------ ------------- Midvale Plaza First 9.500 20,589 09/06 - 1,566,962 Discount (b) - (268,881) ------------ ------------- - 1,298,081 ------------ -------------
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date (d) 1997 1996 - -------- ------------- ------- ----------------- --------------- -------------- Redwood Plaza First 9.875 $14,660 06/06 $ 1,009,255 $ 1,081,583 Discount (b) (145,251) (168,601) ------------ ------------- 864,004 912,982 ------------ ------------- Tanglewood Village First 6.750 20,176 11/18 2,704,333 2,761,777 ------------ ------------- Thunder Hollow (c) First 8.150 82,131 07/03 (d) 9,526,308 9,726,634 Discount (b) (185,799) (212,702) ------------ ------------- 9,340,509 9,513,932 ------------ ------------- Windrock First 9.440 28,859 04/02 (d) 3,387,741 3,412,935 ------------ ------------- $ 23,891,012 $ 27,423,689 ============ =============
(a) The debt is non-recourse to the Partnership. (b) The discount on the Thunder Hollow mortgage note is based on an effective interest rate of 8.62%. All other discounts are based on effective interest rates ranging from 12% to 14.4%. (c) Financing was obtained under the terms of a Real Estate Mortgage Investment Conduit financing. The mortgage note may not be prepaid in whole or part before July 1998. Any prepayments made during the sixth or seventh loan years are subject to a Yield Maintenance premium, as defined. (d) Balloon payments on the mortgage notes are due as follows: Property Balloon Payment Date -------- --------------- ---- Windrock $ 3,249,832 04/02 Thunder Hollow 8,080,794 07/03 Scheduled principal maturities of the mortgage notes under existing agreements, before consideration of discounts of $331,050, are as follows: 1998 ...................... $ 478,695 1999 ...................... 519,886 2000 ...................... 564,669 2001....................... 613,361 2002....................... 3,885,549 Thereafter ................ 18,159,902 ------------ $ 24,222,062 =========== Based on borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities, the fair value of the Partnership's mortgage notes payable was approximately $24,889,000 and $27,340,000 at December 31, 1997 and 1996, respectively. NOTE 6 - SALES OF REAL ESTATE - ----------------------------- On April 8, 1997, the Partnership sold Country Hills Plaza to an unaffiliated purchaser for a cash sales price of $6,610,000. Cash proceeds from the sale, as well as the gain on sale are detailed below.
Gain on Sale Cash Proceeds ---------------- --------------- Cash sales price....................................... $ 6,610,000 $ 6,610,000 Selling costs.......................................... (185,304) (185,304) Mortgage discount written off.......................... (397,561) Straight-line rent receivables written off............. (26,828) Basis of real estate sold.............................. (3,791,948) -------------- Gain on sale of real estate............................ $ 2,208,359 ============== ------------- Proceeds from sale of real estate...................... 6,424,696 Retirement of mortgage note payable.................... (2,231,440) ------------- Net cash proceeds...................................... $ 4,193,256 =============
On September 24, 1997, the Partnership sold Midvale Plaza to an unaffiliated purchaser for a cash sales price of $3,500,000. Cash proceeds from the sale, as well as the gain on sale are detailed below.
Gain on Sale Cash Proceeds ---------------- -------------- Cash sales price....................................... $ 3,500,000 $ 3,500,000 Selling costs.......................................... (56,100) (56,100) Mortgage discount written off.......................... (241,778) Straight-line rent receivables written off............. (85,197) Prepaid leasing commission written off................. (14,338) Basis of real estate sold.............................. (2,229,191) -------------- Gain on sale of real estate............................ $ 873,396 ============== ------------- Proceeds from sale of real estate...................... 3,443,900 Retirement of mortgage note payable.................... (1,490,930) ------------- Net cash proceeds...................................... $ 1,952,970 =============
NOTE 7 - REFINANCING OF MORTGAGE NOTE PAYABLE - --------------------------------------------- On March 13, 1995, the Partnership refinanced the Windrock mortgage note. The new mortgage note, in the amount of $3,450,000, bears interest at 9.44% per annum, and requires monthly principal and interest payments of $28,859. The maturity date of the new mortgage note is April 1, 2002. Cash proceeds from the refinancing transaction shown below: New loan proceeds .......................... $ 3,450,000 Existing first lien retired ................ (1,894,233) Existing second lien retired ............... (440,000) ----------- Cash proceeds from refinancing ............. $ 1,115,767 =========== The Partnership incurred $107,525 of deferred borrowing costs related to the refinancing of the Windrock mortgage note. The Partnership was also required to use $184,172 of the refinancing proceeds to fund various escrow accounts for the payment of property taxes, hazard insurance and capital improvements. NOTE 8 - GAIN ON INVOLUNTARY CONVERSION - --------------------------------------- On July 18, 1997, a fire caused $49,498 of damage to two units of Embarcadero Club Apartments. Subsequent to year end, the Partnership received $39,498 of insurance reimbursements to cover the repair and restoration costs to Embarcadero Club Apartments. The excess of the insurance reimbursements received over the basis of the property damaged was recorded as a $17,998 deferred gain on involuntary conversion on the Partnership's December 31, 1997 Balance Sheet. The gain on involuntary conversion will be recognized in 1998, the period in which the Partnership received the insurance proceeds. On November 14, 1997, a fire caused $496,981 of damage to eight units of Thunder Hollow Apartments. The Partnership expects to receive approximately $487,000 of insurance reimbursements to cover the repair and restoration costs to Thunder Hollow Apartments. The excess of the expected insurance reimbursements to be received over the basis of the property damaged was recorded as a $328,116 deferred gain on involuntary conversion on the Partnership's December 31, 1997 Balance Sheet. The gain on involuntary conversion will be recognized when the insurance reimbursements are received. NOTE 9 - 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 as noted below. James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998. McNEIL REAL ESTATE FUND XIV, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
Costs Initial Cost (b) Cumulative Capitalized Related (b) Buildings and Write-down for Subsequent Description Encumbrances Land Improvements Impairment (d) To Acquisition - ----------- ---------------- --------------- --------------- --------------- ---------------- APARTMENTS: Embarcadero Club College Park, GA $ 7,594,425 $ 1,216,712 $ 10,081,573 $ - $ 2,470,988 Tanglewood Village Carson City, NV 2,704,333 705,859 4,004,394 - 1,127,231 Thunder Hollow Bensalem Township, PA 9,340,509 1,837,539 10,412,721 - 2,332,072 Windrock El Paso, TX 3,387,741 903,718 4,490,001 (97,632) 1,398,810 -------------- -------------- -------------- ------------ ------------- $ 23,027,008 $ 4,663,828 $ 28,988,689 $ (97,632) $ 7,329,101 ============== ============== ============== ============ ============= ASSET HELD FOR SALE (c): Redwood Plaza Salt Lake City, UT $ 864,004 =============
(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 asset held for sale is carried at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "held for sale." Depreciation ceases at the time the asset is placed on the market for sale. (d) The carrying value of Windrock Apartments was written down by $97,632 for impairment in 1991. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XIV, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
Gross Amount at Which Carried at Close of Period Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization - ----------- ---- ------------- -------- ---------------- APARTMENTS: Embarcadero Club College Park, GA $ 1,216,712 $ 12,552,561 $ 13,769,273 $ (7,378,627) Tanglewood Village Carson City, NV 705,859 5,131,625 5,837,484 (2,682,535) Thunder Hollow Bensalem Township, PA 1,837,539 12,744,793 14,582,332 (7,314,921) Windrock El Paso, TX 903,718 5,791,179 6,694,897 (3,256,713) ------------- ------------- --------------- -------------- $ 4,663,828 $ 36,220,158 $ 40,883,986 $ (20,632,796) ============= ============= =============== ============== ASSET HELD FOR SALE (c): Redwood Plaza Salt Lake City, UT $ 1,932,910 ===============
(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 the real estate investments and the asset held for sale for Federal income tax purposes was $42,040,592 and accumulated depreciation was $24,271,001 at December 31, 1997. (c) The asset held for sale is carried at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "held for sale." Depreciation ceases at the time the asset is placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XIV, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------- APARTMENTS: Embarcadero Club College Park, GA 1970/74 09/84 5-25 Tanglewood Village Carson City, NV 1979 06/86 5-25 Thunder Hollow Bensalem Township, PA 1973 11/84 5-25 Windrock El Paso, TX 1971 10/84 5-25 ASSET HELD FOR SALE (c): Redwood Plaza Salt Lake City, UT 1976 06/84
(c) The asset held for sale is carried at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "held for sale." Depreciation ceases at the time the asset is placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XIV, LTD. Notes to Schedule III Real Estate Investments and Accumulated Depreciation and Amortization A summary of activity for the Partnership's real estate investments and accumulated depreciation and amortization is as follows:
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Real estate investments: Balance at beginning of year............... $ 40,608,707 $ 52,787,046 $ 51,070,722 Improvements............................... 656,932 771,475 1,743,497 Replacements............................... (381,653) - (27,173) Reclassification of assets held for sale................................ - (12,949,814) - ------------- ------------- -------------- Balance at end of year..................... $ 40,883,986 $ 40,608,707 $ 52,787,046 ============= ============= ============== Accumulated depreciation and amortization: Balance at beginning of year............... $ 18,951,741 $ 21,836,162 $ 19,674,640 Depreciation and amortization.............. 1,882,343 2,185,099 2,171,607 Replacements............................... (201,288) - (10,085) Reclassification of assets held for sale................................ - (5,069,520) - ------------- ------------- -------------- Balance at end of year..................... $ 20,632,796 $ 18,951,741 $ 21,836,162 ============= ============= ============== Assets held for sale: Balance at beginning of year............... $ 7,942,855 $ - $ - Reclassification of assets held for sale............................... - 7,880,294 - Improvements............................... 11,194 62,561 - Sale of assets held for sale............... (6,021,139) - - ------------- ------------- -------------- Balance at end of year..................... $ 1,932,910 $ 7,942,855 $ - ============= ============= ==============
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ----------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------ None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- Neither the Partnership nor the General Partner has any directors or executive officers. The names and ages of, as well as the positions held by, the officers and directors of McNeil Investors, Inc., the general partner of the General Partner, are as follows:
Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Robert A. McNeil, 77 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate acquisitions, mortgage financing and real estate syndications 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 has been a member of the International Board of Directors of the Salk Institute, which promotes research in improvements in health care. Carole J. McNeil 54 Mrs. McNeil is Co-Chairman, with Co-Chairman of the husband Robert A. McNeil, of McNeil Board Investors, Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate agent and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established the Escrow Training Company, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute.
Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Ron K. Taylor 40 Mr. Taylor is the President and Chief President and Chief Executive Officer of McNeil Real Estate Executive Officer Management which is an affiliate of the General Partner. Mr. Taylor has been in this capacity since the resignation of Donald K. Reed on March 4, 1997. Prior to assuming his current responsibilities, Mr. Taylor served as a Senior Vice President of McREMI. Mr. Taylor has been in this capacity since McREMI commenced operations in 1991. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management firm. In this capacity, Mr. Taylor had the responsibility for the management and leasing of a 21,000,000 square foot portfolio of commercial properties. Mr. Taylor has been actively involved in the real estate industry since 1983.
Each director shall serve until his successor shall have been duly elected and qualified. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1997, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1997. The Partnership has no plans to pay any such remuneration to any directors or officers of the general partner of the General Partner in the future. See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- (A) Security ownership of certain beneficial owners. No individual or group, as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, known to the Partnership is the beneficial owner of more than 5% of the Partnership's securities except for the following: High River Limited Partnership, 100 S. Bedford Road, Mount Kisco, New York, 10549, which owns 10,631 (12.3%) of the Partnership's Units as of January 31, 1998. (B) Security ownership of management. As of January 31, 1998, the General Partner and its affiliates own 872 of the Partnership's Units, which is approximately 1% of the 86,534 outstanding Units. (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- Under terms of the Amended Partnership Agreement, the Partnership is paying a MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible assets. The MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution, in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. For the year ended December 31, 1997, the Partnership accrued MID in the amount of $564,834. The Partnership pays property management fees equal to 5% of gross rental receipts of the Partnership's properties to McREMI, an affiliate of the General Partner, for providing property management services for the Partnership's residential and commercial properties and leasing services for the Partnership's residential properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1997, the Partnership accrued $698,963 of 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. Partnership Agreement dated April 30, 1982, and amended September 15, 1982, October 13, 1982, and February 1, 1983. (1) 3.1 Amended and Restated Limited Partnership Agreement dated September 20, 1991. (3) 3.2 Amendment No. 1 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund XIV, Ltd., dated to be effective as of July 31, 1993. (5) 3.3 Amendment No. 2 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund XIV, Ltd., dated March 8, 1994. (5) 10.1 Security Deed Note, dated November 16, 1988, between Embarcadero Associates and American Mortgages, Inc. (1) 10.2 Property Management Agreement, dated September 12, 1991, between McNeil Real Estate Fund XIV, Ltd. and McNeil Real Estate Management, Inc. (3) 10.3 Property Management Agreement, dated September 12, 1991, between Embarcadero Associates and McNeil Real Estate Management, Inc. (3)
Exhibit Number Description ------- ----------- 10.4 Property Management Agreement, dated September 12, 1991, between Tanglewood Village Associates and McNeil Real Estate Management, Inc. (3) 10.5 Termination Agreement, dated September 20, 1991, between McNeil Real Estate Fund XIV, Ltd. and McNeil Real Estate Management, Inc. (3) 10.6 Termination Agreement, dated September 20, 1991, between Embarcadero Associates and McNeil Real Estate Management, Inc. (3) 10.7 Termination Agreement, dated September 20, 1991, between Tanglewood Village Associates and McNeil Real Estate Management, Inc. (3) 10.8 Asset Management Agreement, dated September 20, 1991, between McNeil Real Estate Fund XIV, Ltd. and McNeil Partners, L.P. (3) 10.9 Assignment and Assumption Agreement Relating to McNeil Real Estate Fund XIV, Ltd., dated September 20, 1991, between McNeil Partners, L.P. and Pacific Investors Corporation. (3) 10.10 Assignment and Assumption Agreement Relating to Embarcadero Associates, dated September 20, 1991, between McNeil Partners, L.P. and Pacific Investors Corporation. (3) 10.11 Assignment and Assumption Agreement Relating to Tanglewood Village Associates, dated September 20, 1991, between McNeil Partners, L.P. and Pacific Investors Corporation. (3)
Exhibit Number Description ------- ----------- 10.12 Amendment to Certificate of Limited Partnership filed September 25, 1991, with the Secretary of State of the State of California. (3) 10.14 Amendment of Property Management Agreement dated March 5, 1993 between McNeil Real Estate Fund XIV, Ltd. and McNeil Real Estate Management, Inc. (2) 10.15 Loan Agreement dated June 24, 1993 between Lexington Mortgage Company and McNeil Real Estate Fund XIV, Ltd., et. al. (4) 10.16 Master Property Management Agree- ment, dated as of June 24, 1993, between McNeil Real Estate Management, Inc. and Thunder Hollow Fund XIV, Ltd. (5) 10.17 Multifamily Note dated March 13, 1995 between Washington Mortgage Financial Group, Ltd. and Windrock Fund XIV, L.P. (6) 10.18 Property Management Agreement dated February 2, 1995 between Windrock Fund XIV, L.P. and McNeil Real Estate Management, Inc. (6) 10.19 Promissory Note, dated May 22, 1976, between Price Rentals, Inc. and Aetna Life Insurance Company. (6) 10.22 Deed of Trust Note, dated October 1, 1993, between Tanglewood Fund XIV Associates Limited Partnership and Love Funding Corporation. (6) 11. Statement regarding computation of Net Income (Loss) per Limited Partnership Unit (see Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies").
Exhibit Number Description -------- ----------- 22. Following is a list of subsidiaries of the Partnership:
Names Under Jurisdiction of Which It Is Name of Subsidiary Incorporation Doing Business ------------------ --------------- -------------- Embarcadero Associates Georgia None Tanglewood Fund XIV Associates, L.P. Nevada None Thunder Hollow Fund XIV Limited Partnership Delaware None Windrock Fund XIV, L.P. Texas None
27. Financial Data Schedule for the year ended December 31, 1997. The Partnership has omitted instruments with respect to long-term debt where the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Partnership. The Partnership agrees to furnish a copy of each such instrument to the Commission upon request.
(1) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XIV, Ltd., on Form 10-K for the period ended December 31, 1990, as filed on March 29, 1991. (2) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XIV, Ltd., (Commission file number 0-12915) on Form 10-K for the period ended December 31, 1992, as filed with the Securities and Exchange Commission on March 30, 1993.
(3) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XIV, Ltd. (Commission file number 0-12915) for the period ended December 31, 1991, as filed with the Securities and Exchange Commission on March 30, 1992. (4) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XI, Ltd. (Commission file number 0-9783), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994. (5) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XIV, Ltd. (Commission file number 0-12915) for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994. (6) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XIV, Ltd. (Commission file number 0-12915) for the period ended December 31, 1994, as filed with the Securities and Exchange Commission on March 30, 1995.
(B) Reports on Form 8-K. There were no reports on Form 8-K for the quarter ended December 31, 1997. McNEIL REAL ESTATE FUND XIV, 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 XIV, LTD. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner March 30, 1998 By: /s/ Robert A. McNeil - -------------- -------------------------------------- Date Robert A. McNeil Chairman of the Board and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 30, 1998 By: /s/ Ron K. Taylor - -------------- -------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 30, 1998 By: /s/ Brandon K. Flaming - -------------- -------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 12-MOS DEC-31-1997 DEC-31-1997 1,292,615 0 0 0 0 0 40,883,986 (20,632,796) 26,325,605 0 23,891,012 0 0 0 0 26,325,605 8,996,989 12,289,725 0 0 6,560,261 0 2,400,690 3,328,774 0 0 0 0 0 3,328,774 0 0
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