-----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, EKTJUId++KHDs/hLzTLCj6FgUEGqkwjOUrvYp0CToV9NmMVgA+OAM0v/qZkmjqdH JRvMmfBsLgIRjGoD1Q5yPA== 0000734761-98-000010.txt : 19980817 0000734761-98-000010.hdr.sgml : 19980817 ACCESSION NUMBER: 0000734761-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXI L P CENTRAL INDEX KEY: 0000734761 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330030615 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13356 FILM NUMBER: 98687751 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD,. SUITE 700, LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 1: 2711 LBJ FREEWAY, SUITE 900 CITY: DALLAS STATE: TX ZIP: 75234 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK REALTY PARTNERS LTD DATE OF NAME CHANGE: 19920413 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-13356 --------- MCNEIL REAL ESTATE FUND XXI, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 33-0030615 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (972) 448-5800 ----------------------------- Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- MCNEIL REAL ESTATE FUND XXI, L.P. BALANCE SHEETS (Unaudited)
June 30, December 31, 1998 1997 ------------ ------------ ASSETS - ------ Real estate investments: Land .......................................................... $ 1,842,544 $ 3,192,923 Buildings and improvements .................................... 22,155,980 30,048,514 ------------ ------------ 23,998,524 33,241,437 Less: Accumulated depreciation and amortization .............. (11,993,081) (16,177,771) ------------ ------------ 12,005,443 17,063,666 Asset held for sale .............................................. - 2,795,988 Cash and cash equivalents ........................................ 1,331,693 1,817,585 Cash segregated for security deposits ............................ 209,265 176,258 Accounts receivable .............................................. 22,167 229,435 Escrow deposits .................................................. 403,121 558,752 Deferred borrowing costs, net of accumulated amortiz- ation of $223,853 and $218,067 at June 30, 1998 and December 31, 1997, respectively ........................... 337,075 368,334 Prepaid expenses and other assets ................................ 28,222 53,944 ------------ ------------ $ 14,336,986 $ 23,063,962 ============ ============ LIABILITIES AND PARTNERS' DEFICIT - --------------------------------- Mortgage notes payable, net ...................................... $ 12,468,828 $ 18,534,503 Mortgage notes payable - affiliate ............................... - 3,730,076 Accounts payable and accrued expenses ............................ 118,132 398,815 Accrued property taxes ........................................... 307,008 447,269 Payable to affiliates ............................................ 5,189,575 4,862,973 Advances from affiliates ......................................... - 794,981 Security deposits and deferred rental revenue .................... 176,686 194,927 ------------ ------------ 18,260,229 28,963,544 ------------ ------------ Partners' deficit: Limited partners - 50,000 Units authorized; 46,948 and 47,086 Units outstanding at June 30, 1998 and December 31, 1997, respectively (24,863 Current Income Units and 22,085 Growth/Shelter Units out- standing at June 30, 1998 and 24,906 Current Income Units and 22,180 Growth/Shelter Units outstanding at December 31,1997) ........................................ (3,566,398) (5,522,974) General Partner ............................................... (356,845) (376,608) ------------ ------------ (3,923,243) (5,899,582) ------------ ------------ $ 14,336,986 $ 23,063,962 ============ ============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXI, L.P. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenue: Rental revenue ....................... $ 1,448,230 $ 1,614,511 $ 3,102,311 $ 3,221,812 Interest ............................. 16,111 19,740 32,912 38,241 Gain on involuntary conversion ......................... - 26,809 - 26,809 Gain on sale of real estate .......... 863,350 - 863,350 - ----------- ----------- ----------- ----------- Total revenue ...................... 2,327,691 1,661,060 3,998,573 3,286,862 ----------- ----------- ----------- ----------- Expenses: Interest ............................. 390,131 505,794 810,956 1,019,645 Interest - affiliates ................ 11,591 30,411 137,371 59,958 Depreciation and amortization......... 351,818 387,101 739,076 753,324 Property taxes ....................... 114,713 135,339 252,298 270,678 Personnel costs ...................... 182,712 172,259 385,646 381,452 Utilities ............................ 105,957 96,252 222,926 211,564 Repairs and maintenance .............. 199,206 211,357 363,112 390,122 Property management fees - affiliates .................. 78,742 82,757 165,023 166,284 Other property operating expenses ........................... 81,899 104,006 185,809 198,656 General and administrative ........... 151,539 28,871 244,035 62,306 General and administrative - affiliates ......................... 161,543 163,349 332,134 320,948 ----------- ----------- ----------- ----------- Total expenses ..................... 1,829,851 1,917,496 3,838,386 3,834,937 ----------- ----------- ----------- ----------- Income (loss) before extraordinary items .................. 497,840 (256,436) 160,187 (548,075) Extraordinary items ..................... 1,816,152 - 1,816,152 - ----------- ----------- ----------- ----------- Net income (loss) ....................... $ 2,313,992 $ (256,436) $ 1,976,339 $ (548,075) =========== =========== =========== =========== Net income (loss) allocable to: Current Income Unit .................. $ 208,260 $ (23,079) $ 177,871 $ (49,327) Growth/Shelter Unit .................. 2,082,593 (230,793) 1,778,705 (493,267) General Partner ...................... 23,139 (2,564) 19,763 (5,481) ----------- ----------- ----------- ----------- Net income (loss) ....................... $ 2,313,992 $ (256,436) $ 1,976,339 $ (548,075) =========== =========== =========== =========== Net income (loss) per limited partnership unit: Current Income Unit Holders: Income (loss) before extraordinary items ................ $ 1.80 $ (.93) $ .58 $ (1.98) Extraordinary items .................. 6.57 - 6.57 - ----------- ----------- ----------- ----------- Net income (loss) .................... $ 8.37 $ (.93) $ 7.15 $ (1.98) =========== =========== =========== =========== Growth/Shelter Unit Holders: Income (loss) before extraordinary items ................ $ 20.29 $ (10.41) $ 6.53 $ (22.24) Extraordinary items .................. 74.01 - 74.01 - ----------- ----------- ----------- ----------- Net income (loss) .................... $ 94.30 $ (10.41) $ 80.54 $ (22.24) =========== =========== =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXI, L.P. STATEMENTS OF PARTNERS' DEFICIT (Unaudited) For the Six Months Ended June 30, 1998 and 1997
Total General Limited Partners' Partner Partners Deficit ------------ ------------ ------------ Balance at December 31, 1996 ......... $ (361,822) $(4,059,156) $(4,420,978) Net loss General Partner ................... (5,481) - (5,481) Current Income Units .............. - (49,327) (49,327) Growth/Shelter Units .............. - (493,267) (493,267) ----------- ----------- ----------- Total net loss ....................... (5,481) (542,594) (548,075) ----------- ----------- ----------- Balance at June 30, 1997 ............. $ (367,303) $(4,601,750) $(4,969,053) =========== =========== =========== Balance at December 31, 1997.......... $ (376,608) $(5,522,974) $(5,899,582) Net income General Partner ................... 19,763 - 19,763 Current Income Units .............. - 177,871 177,871 Growth/Shelter Units .............. - 1,778,705 1,778,705 ----------- ----------- ----------- Total net income ..................... 19,763 1,956,576 1,976,339 ----------- ----------- ----------- Balance at June 30, 1998 ............. $ (356,845) $(3,566,398) $(3,923,243) =========== =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXI, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Six Months Ended June 30, -------------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Cash received from tenants ................................ $ 3,163,151 $ 3,223,375 Cash paid to suppliers .................................... (1,181,977) (1,302,991) Cash paid to affiliates ................................... (170,555) (164,657) Interest received ......................................... 32,912 38,241 Interest paid ............................................. (849,274) (976,353) Interest paid to affiliates ............................... (225,341) (24,443) Property taxes paid ....................................... (317,182) (293,553) ----------- ----------- Net cash provided by operating activities .................... 451,734 499,619 ----------- ----------- Cash flows from investing activities: Additions to real estate investments ...................... (164,987) (381,245) Proceeds from disposition of real estate .................. 3,698,365 - ----------- ----------- Net cash provided by (used in) investing activities........... 3,533,378 (381,245) ----------- ----------- Cash flows from financing activities: Principal payments on mortgage notes payable ................................................. (118,700) (131,807) Principal payments on mortgage notes payable - affiliate ..................................... (5,482) - Retirement of mortgage notes payable - affiliate ............................................... (3,534,157) - Repayment of advances from affiliates ..................... (812,665) - ----------- ----------- Net cash used in financing activities ........................ (4,471,004) (131,807) ----------- ----------- Net decrease in cash and cash equivalents .................... (485,892) (13,433) Cash and cash equivalents at beginning of period .................................................... 1,817,585 1,670,843 ----------- ----------- Cash and cash equivalents at end of period ................... $ 1,331,693 $ 1,657,410 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXI, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
Six Months Ended June 30, -------------------------------- 1998 1997 ----------- ------------ Net income (loss) ........................................ $ 1,976,339 $ (548,075) ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ......................... 739,076 753,324 Amortization of deferred borrowing costs .............. 31,259 34,330 Amortization of discounts on mortgage notes payable ....................................... 10,444 9,914 Accrued interest on advances from affiliates .......... 17,684 29,516 Gain on involuntary conversion ........................ - (26,809) Gain on sale of real estate ........................... (863,350) - Extraordinary items ................................... (1,816,152) - Changes in assets and liabilities: Cash segregated for security deposits ............... (33,007) (12,933) Accounts receivable ................................. 116,379 14,916 Escrow deposits ..................................... 137,569 (140,183) Prepaid expenses and other assets ................... 4,819 2,618 Accounts payable and accrued expenses ............... (58,511) (19,117) Accrued property taxes .............................. (119,926) 68,728 Payable to affiliates ............................... 326,602 322,575 Security deposits and deferred rental revenue ........................................... (17,491) 10,815 ----------- ----------- Total adjustments ................................. (1,524,604) 1,047,694 ----------- ----------- Net cash provided by operating activities ................ $ 451,734 $ 499,619 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXI, L.P. Notes to Financial Statements (Unaudited) June 30, 1998 NOTE 1. - ------- McNeil Real Estate Fund XXI, L.P. (the "Partnership"), formerly known as Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited partnership under the provisions of the California Revised Limited Partnership Act to acquire and operate commercial and residential properties. 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 principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XXI, L.P., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. NOTE 3. - ------- Certain prior period amounts have been reclassified to conform with the current period presentation. NOTE 4. - ------- The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. The Partnership has had to defer payment of payables to affiliates in order to meet its working capital needs. On April 20, 1998, the Partnership sold Fort Meigs Plaza to a non-affiliate for $3.8 million. All cash proceeds, after payment of selling costs and prorations, were used to pay off the first and second lien mortgage notes secured by the property. The Partnership defaulted on the mortgage notes payable secured by Wise County Plaza and the lender foreclosed on the property on May 29, 1998. Foreclosure by the lender has not had a significant effect on the Partnership since all excess cash flow of the property was payable to the lender as additional interest on the loans. The Partnership has no established lines of credit from outside sources. Other possible actions to resolve cash deficiencies include refinancings, deferral of capital expenditures on Partnership properties except where improvements are expected to increase the competitiveness and marketability of the properties, deferral of payables to or arranging financing from affiliates, or the ultimate sale of Partnership properties. NOTE 5. - ------- The Partnership pays property management fees equal to 5% of gross rental receipts for its residential properties and 6% of gross rental receipts for its commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's residential and commercial properties and leasing services for its residential properties. McREMI may also choose to provide leasing services for the Partnership's commercial properties, in which case McREMI will receive property management fees from such commercial properties equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Total accrued but unpaid Partnership general and administration fees of $1,320,235 and $1,171,406 were outstanding at June 30, 1998 and December 31, 1997, respectively. The Partnership is paying an asset management fee which is payable to the General Partner. Through 1999, the Asset Management Fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. Total accrued but unpaid asset management fees of $3,501,711 and $3,318,406 were outstanding at June 30, 1998 and December 31, 1997, respectively. The Partnership pays a disposition fee to the General Partner equal to 3% of the gross sales price for brokerage services performed in connection with the sale of the Partnership's properties. The fee is due and payable at the time the sale closes. In connection with the sales of Suburban Plaza and Wyoming Mall, total accrued but unpaid disposition fees of $346,050 were outstanding at June 30, 1998 and December 31, 1997. In connection with the sale of Fort Meigs Plaza, the General Partner waived its right to receive a disposition fee, which would have totaled $114,000. Prior to the restructuring of the Partnership, affiliates of the Original General Partner advanced funds to enable the Partnership to meet its working capital requirements. These advances were purchased by, and were payable to, the General Partner. These advances and accrued interest, in the amount of $812,665, were repaid in full in April 1998. Compensation and reimbursements paid to or accrued for the benefit of the General Partner and its affiliates are as follows: Six Months Ended June 30, ------------------- 1998 1997 -------- -------- Property management fees .............................. $165,023 $166,284 Charged to interest - affiliates: Interest on advances from affiliates ............... 17,684 29,516 Interest on mortgage notes payable - affiliate ..... 119,687 30,442 Charged to general and administrative - affiliates: Partnership administration ......................... 148,829 126,398 Asset management fee ............................... 183,305 194,550 ------- ------- $634,528 $547,190 ======= ======= Payable to affiliates at June 30, 1998 and December 31, 1997 consisted primarily of unpaid asset management fees, property management fees, disposition fees and partnership general and administrative expenses and is due and payable from current operations. The mortgage notes payable - affiliate secured by Fort Meigs Plaza were repaid in full when the property was sold in April 1998. See Note 6. NOTE 6. - ------- On April 20, 1998, the Partnership sold Fort Meigs Plaza Shopping Center, located in Perrysburg, Ohio, to an unaffiliated purchaser for a cash purchase price of $3,800,000. Cash proceeds from the sale, after payment of prorated rents and property taxes, were used to repay the mortgage notes payable to McNeil Real Estate Fund XX, L.P. ("Fund XX"), an affiliate. Cash proceeds, as well as the gain on sale, are detailed below.
Gain Cash on Sale Proceeds ------------ ------------- Sales price.......................................... $ 3,800,000 $ 3,800,000 Selling costs ....................................... (101,635) (101,635) Straight-line rents receivable written off........... (28,979) Prepaid leasing commissions written off.............. (10,048) Carrying value....................................... (2,795,988) ----------- Gain on sale of real estate.......................... $ 863,350 =========== ------------ Proceeds from sale................................... 3,698,365 Prorated rents and property taxes paid at closing........................................... (83,012) Retirement of mortgage notes payable to Fund XX and related accrued interest.............. (3,615,353) ------------ Net cash proceeds.................................... $ - ============
The Partnership recognized a $190,437 extraordinary gain on retirement of the mortgage notes payable to Fund XX, as follows: First lien mortgage note payable - affiliate......... $ 2,990,694 Second lien mortgage note payable - affiliate........ 733,900 Accrued interest payable............................. 81,196 ----------- Total principal and interest payable to Fund XX... 3,805,790 Cash paid for repayment in full of principal and interest payable to Fund XX....................... (3,615,353) ----------- Extraordinary gain on retirement of mortgage notes payable - affiliate......................... $ 190,437 =========== Under the terms of its partnership agreement, the Partnership normally pays a disposition fee to the General Partner equal to 3% of the gross sales price for brokerage services performed in connection with the sale of the Partnership's properties. The fee is due and payable at the time the sale closes. In connection with the sale of Fort Meigs Plaza, the General Partner waived its right to receive such fee, which would have totaled $114,000. NOTE 7. - ------- The mortgage notes payable secured by Wise County Plaza matured on August 1, 1997 and the Partnership was unable to negotiate a modification and extension of the loans. On May 29, 1998, Wise County Plaza was foreclosed on by the lender in full settlement of the mortgage indebtedness secured by the property. In connection with this transaction, the Partnership recognized a gain on retirement of mortgage note payable as follows: Estimated fair value of real estate.................. $ 4,535,814 Accounts receivable written off...................... (61,910) Prepaid expenses written off......................... (10,855) Accrued property taxes written off................... 20,335 Deferred rental revenue written off.................. 750 Carrying value....................................... (4,484,134) ---------- Gain on disposition............................... $ - ========== Amount of mortgage note payable settled.............. $ 5,957,419 Amount of accrued interest payable settled........... 222,172 Escrow deposits applied.............................. (18,062) Estimated fair value of real estate.................. (4,535,814) ---------- Extraordinary gain on retirement of mortgage note payable...................................... $ 1,625,715 ========== ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- Fort Meigs Plaza Shopping Center was sold on April 20, 1998. Wise County Plaza Shopping Center was foreclosed on by the lender on May 29, 1998. There has been no significant change in the operations of the remainder of the Partnership's properties since December 31, 1997. The Partnership reported net income for the first six months of 1998 of $1,976,339 as compared to a net loss of $548,075 for the first six months of 1997. Revenues increased to $3,998,573 in 1998 from $3,286,862 in 1997. Expenses were $3,838,386 in 1998 as compared to $3,834,937 in 1997. The Partnership recognized $1,816,152 in extraordinary gains on extinguishment of mortgage notes payable and mortgage notes payable - affiliate in the first six months of 1998. Net cash provided by operating activities was $451,734 for the first six months of 1998. The Partnership expended $164,987 for capital improvements and $124,182 for regularly scheduled principal payments on its mortgage notes payable and mortgage notes payable - affiliate. The Partnership repaid $812,665 of advances from affiliates, including accrued interest. The Partnership received $3,698,365 in proceeds from the sale of Fort Meigs Plaza, $3,534,157 of which was used to pay off the principal of its mortgage notes payable - affiliate secured by the property. Cash and cash equivalents decreased by $485,892 for the first six months of 1998, leaving a balance of $1,331,693 at June 30, 1998. The Partnership has had little ready cash reserves since its inception. It has been largely dependent on affiliates to support its operations. Although no additional advances from affiliates were required during the first six months of 1998, at June 30, 1998 the Partnership owed payables to affiliates for property management fees, Partnership general and administrative expenses, asset management fees and disposition fees totaling $5,189,575. Affiliate advances were repaid in full in April 1998. RESULTS OF OPERATIONS - --------------------- Revenue: Total revenue increased by $666,631 for the three months and by $711,711 for the six months ended June 30, 1998 as compared to the same periods in 1997, mainly due to a gain on sale of real estate, as discussed below. Rental revenue for the three and six months ended June 30, 1998 decreased by $166,281 and $119,501, respectively, as compared to the same periods in 1997. Approximately $236,000 of the decrease was attributable to the disposition of Fort Meigs Plaza and Wise County Plaza in the second quarter of 1998. This decrease was partially offset by increases of approximately $51,000 and $34,000 at Evergreen Square and Governour's Square apartments, respectively. Rental revenue at Evergreen Square increased due to an increase in occupancy from 82% at June 30, 1997 to 91% at June 30, 1998. Rental revenue increased at Governour's Square Apartments due to an increase in rental rates. Interest income decreased by $3,629 and $5,329 for the three and six months ended June 30, 1998, respectively, in relation to the comparable periods in 1997, mainly due to a decline in the amount of cash available for short-term investment in the second quarter of 1998. The Partnership held cash and cash equivalents of approximately $1.3 million at June 30, 1998 as compared to approximately $1.7 million at June 30, 1997. The decrease was mainly due to the repayment of $812,665 of advances from affiliates in April 1998. The Partnership recognized a gain on involuntary conversion of $26,809 in the second quarter of 1997 related to hurricane damage suffered at Governour's Square Apartments in 1996. The gain, which represented the insurance proceeds received in excess of the basis of the property damaged, was recognized as reimbursement proceeds were received from the insurance carrier. No such gain was recognized in the first six months of 1998. In the second quarter of 1998, the Partnership recognized a $863,350 gain on the sale of Fort Meigs Plaza Shopping Center. No such gain was recognized in the first half of 1997. In the second quarter of 1998, the Partnership recognized $1,816,152 in extraordinary gains. The Partnership recognized a $190,437 gain on the extinguishment of the Fort Meigs Plaza mortgage notes payable - affiliate as a result of the sale of the property. The Partnership also recognized a $1,625,715 gain on extinguishment of the Wise County Plaza mortgage notes payable as a result of the foreclosure of the property by the lender. Expenses: Total expenses decreased by $87,645 for the three months and increased by $3,449 for the six months ended June 30, 1998 as compared to the same periods in 1997. There was a decrease in interest expense in the first and second quarters of 1998, partially offset by an increase in general and administrative expenses, mainly in the first quarter of 1998, as discussed below. Interest expense for the three and six months ended June 30, 1998 decreased by $115,663 and $208,689, respectively, as compared to the same periods in 1997. The decrease was mainly due to the first lien loan on Fort Meigs Plaza being purchased by an affiliate in December 1997. Interest on this loan was recorded as interest expense for the first eleven months of 1997; it was recorded as interest - affiliates in 1998. Also, there was a decrease in interest expense relating to the Wise County Plaza loans due to the foreclosure of the property by the lender in May 1998. Interest - affiliates decreased by $18,820 and increased by $77,413 for the quarter and six months ended June 30, 1998, respectively, as compared to the same periods in the prior year. The overall increase was due to interest on the first lien loan secured by Fort Meigs Plaza being payable to an affiliate in 1998, as discussed above. This increase was partially offset by a decrease in affiliate interest due to the April 1, 1998 payoff of the first and second lien loans secured by Fort Meigs Plaza. General and administrative expenses for the three and six months ended June 30, 1998 increased by $122,668 and $181,729, respectively, as compared to the same periods in 1997. The increase was primarily due to costs incurred in 1998 to explore alternatives to maximize the value of the Partnership (see Liquidity and Capital Resources). LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At June 30, 1998, the Partnership held cash and cash equivalents of $1,331,693. Cash of $451,734 was provided by operating activities during the first six months of 1998 as compared to $499,619 provided during the same period in 1997. There was a decrease in interest paid and an increase in interest paid to affiliates in 1998 due to the first lien loan on Fort Meigs Plaza being held by an affiliate in 1998, as previously discussed. The overall net decrease in interest paid was primarily the result of the sale of Fort Meigs Plaza in April 1998 and the foreclosure of Wise County Plaza in May 1998. In addition, the Partnership ceased making excess cash flow payments on the Wise County Plaza loans in 1998, which was recorded as additional interest on the loans. Cash used for additions to real estate investments totaled $164,987 for the first six months of 1998 as compared to $381,245 for the same period in 1997. A greater amount was spent in 1997 for exterior upgrades at Bedford Green, Evergreen Square and Governour's Square apartments. In addition, landscaping work was performed at Governour's Square and the pool at Woodcreek Apartments was replastered in 1997. The Partnership repaid $812,665 of advances from affiliates, including accrued interest. The Partnership received $3,698,365 in proceeds from the sale of Fort Meigs Plaza, $3,534,157 of which was used to pay off the principal of its mortgage notes payable - affiliate secured by the property. Short-term liquidity For the remainder of 1998, present cash balances and operations of the properties are expected to provide sufficient cash for normal operating expenses, debt service payments and budgeted capital improvements. Fort Meigs Plaza was sold to a non-affiliate for $3.8 million in April 1998. There were no net cash proceeds arising from the sale as all cash proceeds, after payment of selling costs and prorations, were used to pay off the first and second lien mortgage notes secured by the property. Wise County Plaza was foreclosed on by the lender in May 1998. The Partnership has no established lines of credit from outside sources. Although affiliates of the Partnership have previously funded cash deficits, there can be no assurance the Partnership will receive additional funds. Other possible actions to resolve cash deficiencies include refinancing, deferring major capital or repair expenditures on Partnership properties except where improvements are expected to enhance the competitiveness and marketability of the properties, deferring payables to or arranging financing from affiliates or the ultimate sale of Partnership properties. Long-term liquidity As previously announced, the Partnership has retained PaineWebber ("PaineWebber"), Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, has provided financial and other information to interested parties and is currently conducting discussions with one such party in an attempt to reach a definitive agreement with respect to a sale transaction. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance that any such agreement will be reached nor the terms thereof. Operations of the Partnership's properties are expected to provide sufficient cash flow for operating expenses, debt service payments and capital improvements in the foreseeable future. Excluding the gain on sale of real estate and extraordinary gains on extinguishment of mortgage notes payable and mortgage notes payable - affiliate, the Partnership reported a net loss from operations for the six months ended June 30, 1998. In addition, the Partnership has had to defer payment of payables to affiliates in order to meet its working capital needs. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Distributions To maintain adequate cash balances of the Partnership, distributions to Current Income Unit holders were suspended in 1989. There have been no distributions to Growth/Shelter Units holders. Distributions to Unit holders will remain suspended for the foreseeable future. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support distributions to the Unit holders. 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 June 30, 1998. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties, and respond to changing economic and competitive factors. Other Information: Management has begun to review its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. The Partnership is in the process of evaluating the computer systems at the various properties. The Partnership also intends to communicate with suppliers, financial institutions and others to coordinate year 2000 issues. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- 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. The case has been stayed pending settlement discussions. While actively working toward a final resolution, there can be no assurances regarding settlement. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- --------------------------------- (a) Exhibits. Exhibit Number Description ------- ----------- 4. Amended and Restated Limited Partnership Agreement dated March 26, 1992. (Incorporated by reference to the Current Report of the Registrant on Form 8-K dated March 26, 1992, as filed on April 9, 1992). 11. Statement regarding computation of Net Income (Loss) per Limited Partnership Unit: Net income (loss) per limited partnership unit is computed by dividing net income (loss) allocated to the limited partners by the weighted average number of limited partnership units outstanding. Per unit information has been computed based on 24,863 and 24,906 Current Income Units outstanding in 1998 and 1997, respectively, and 22,085 and 22,180 Growth/Shelter Units outstanding in 1998 and 1997, respectively. 27. Financial Data Schedule for the quarter ended June 30, 1998. (b) Reports on Form 8-K. A Form 8-K with respect to Item 2 dated April 20, 1998 was filed on April 29, 1998 regarding the sale of Fort Meigs Plaza Shopping Center. A Form 8-K with respect to Item 2 dated May 29, 1998 was filed on June 5, 1998 regarding the foreclosure of Wise County Plaza Shopping Center. MCNEIL REAL ESTATE FUND XXI, L.P. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: McNEIL REAL ESTATE FUND XXI, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner August 14, 1998 By: /s/ Ron K. Taylor - --------------- ----------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) August 14, 1998 By: /s/ Carol A. Fahs - --------------- ----------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 6-MOS DEC-31-1998 JUN-30-1998 1,331,693 0 22,167 0 0 0 23,998,524 (11,993,081) 14,336,986 0 12,468,828 0 0 0 (3,923,243) 14,336,986 3,102,311 3,998,573 1,574,814 2,313,890 576,169 0 948,327 1,976,339 0 160,187 0 1,816,152 0 1,976,339 0 0
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