-----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, DyELs5nE5BEQdPTRZ89t94LnYigp9+9MNwpeRFTYQckW5R/ot1W5QIiq8i0XjOEt fAflADUhuj52IYtgqRkIFQ== 0000751044-99-000004.txt : 19990402 0000751044-99-000004.hdr.sgml : 19990402 ACCESSION NUMBER: 0000751044-99-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XV LTD /CA CENTRAL INDEX KEY: 0000751044 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942941516 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14258 FILM NUMBER: 99580577 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 2: 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, 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 0-14258 --------- McNEIL REAL ESTATE FUND XV, LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2941516 - -------------------------------------------------------------------------------- (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 ] 101,439 of the registrant's 102,796 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 36 TOTAL OF 38 PAGES PART I ITEM 1. BUSINESS - ------- -------- Organization - ------------ McNeil Real Estate Fund XV, Ltd. (the "Partnership") was organized June 26, 1984 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 October 11, 1991, as amended (the "Amended Partnership Agreement"). Prior to October 11, 1991, McNeil Realty 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 June 26, 1984 (the "Original Partnership Agreement"). The principal place of business for the Partnership and General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. On September 14, 1984, 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 $60,000,000. 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 January 31, 1986, with 101,519 Units sold at $500 each, for gross proceeds of $50,759,500 to the Partnership. In addition, the original general partners purchased a total of 10 Units for $5,000. In 1991 and 1992, 651 and 696 Units, respectively, were issued to the General Partner for payment of the Management Incentive Distribution ("MID"). From 1993 to 1998, 80 Units were relinquished leaving 102,796 Units outstanding as of December 31, 1998. SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - -------------------------------------------------- On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil nor the Corporate General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interest in the Corporate General Partner, were sold or liquidated for the benefit of creditors. In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990, providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio. On February 14, 1991, pursuant to the asset purchase agreement as amended on that date: (a) an affiliate of McNeil purchased the Corporate General Partner's economic interest in the Partnership; (b) McNeil became the managing general partner of the Partnership pursuant to an agreement with the Corporate General Partner that delegated management authority to McNeil; and (c) McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates and commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates. On October 11, 1991, the limited partners approved a restructuring proposal providing 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 provisions of the Original Partnership Agreement relating to, among other things, compensation, reimbursements of expenses, and voting rights; and (iii) the approval of a new property management agreement with McREMI, the Partnership's property manager. The Amended Partnership Agreement provides for a 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". In 1992, the General Partner received 696 Units for such a payment. 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, $26,655 in cash, and common and preferred stock in the reorganized Southmark which represents the Partnership's pro-rata share of Southmark assets available for Class 8 Claimants. The Partnership sold the Southmark common and preferred stock in May 1995 for $8,608 which, combined with the cash proceeds from Southmark, resulted in a gain on legal settlement of $35,263. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in real estate activities, including the ownership, operation and management of residential real estate and other real estate related assets. At December 31, 1998, the Partnership owned four income-producing properties as described in Item 2 - Properties. The Partnership does not directly employ any personnel. The Partnership is managed by the General Partner and, in accordance with the Amended Partnership Agreement, the Partnership reimburses affiliates of the General Partner for certain costs incurred by affiliates in connection with the management of the Partnership's business. See Item 8 - Note 2 - "Transactions With Affiliates." The business of the Partnership to date has involved only one industry segment. See Item 8 - Financial Statements and Supplementary Data. The Partnership has no foreign operations. The business of the Partnership is not seasonal. Business Plan: As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership, including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance regarding whether any such agreement will be reached nor the terms thereof. The Partnership has placed Cedar Run Apartments on the market for sale effective August 1, 1997. Competitive Conditions: Since the principal business of the Partnership is to own and operate real estate, the Partnership is subject to all of the risks incident to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and Federal or local economic or rent controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changed circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership) in connection with the sale, financing and leasing of properties. The impact of these risks on the Partnership, including losses from operations and foreclosures of the Partnership's properties, is described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. See Item 2 - Properties for discussion of competitive conditions at the Partnership's properties. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after December 31, 1998. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties, and respond to changing economic and competitive factors. Environmental Matters: Environmental laws create potential liabilities that may affect property owners. The environmental laws of Federal and certain state governments, for example, impose liability on current and certain past owners of property from which there is a release or threat of release of hazardous substances. This liability includes costs of investigation and remediation of the hazardous substances and natural resource damages. Liability for costs of investigation and remediation is strict and may be imposed irrespective of whether the property owner was at fault, although there are a number of defenses. Both governments and third parties may seek recoveries under these laws. Third parties also may seek recovery under the common law for damages to their property or person, against owners of property from which there has been a release of hazardous and other substances. The presence of contamination or the failure to remediate contaminations may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. Various buildings at properties do or may contain building materials that are the subject of various regulatory programs intended to protect human health. Such building materials include, for example, asbestos, lead-based paint, and lead plumbing components. The Company has implemented programs to deal with the presence of those materials, which include, as appropriate, reduction of potential exposure situations. The Company does not believe that the costs of such programs are likely to have a material adverse effect. Failure to implement such programs can result in regulatory violations or liability claims resulting from alleged exposure to such materials. In connection with the proposed sale transaction as more fully described above, Phase I environmental site assessments have been completed for each property owned by the Partnership. Such environmental assessments performed on the properties have not revealed any environmental liability that the Partnership believes would have a material adverse effect on the Partnership's business, assets, or results of operations. The Partnership has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of its properties. There can be no assurances, however, that environmental liabilities have not developed since such environmental assessments were prepared, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability. 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 6.9% of the outstanding Units of the Partnership for a purchase price of $95.00 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 $100.24 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 February 1, 1999, High River has purchased approximately 10.3% 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 have been dismissed without prejudice. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1998. The buildings and the land on which they are located are owned by the Partnership in fee, subject in each case (with the exception of Cedar Run, which is unencumbered by mortgage indebtedness) to a first lien deed of trust as set forth more fully in Item 8 - Note 5 - "Mortgage Notes Payable". See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - "Real Estate Investments and Accumulated Depreciation." In the opinion of management, the properties are adequately covered by insurance.
Net Basis 1998 Date Property Description of Property Debt Property Tax Acquired - -------- ----------- ----------- ---- ------------ -------- Real Estate Investments: Arrowhead (1) Apartments Shawnee, KS 436 units $ 7,370,155 $ 6,733,222 $ 157,929 3/85 Mountain Shadows (2) Apartments Albuquerque, NM 504 units 11,614,764 11,215,316 197,719 8/85 Woodcreek (3) Apartments Cary, NC 200 units 5,300,787 5,108,786 62,044 12/85 ------------- ------------- ----------- $ 24,285,706 $ 23,057,324 $ 417,692 ============= ============= =========== Asset Held for Sale: Cedar Run Apartments Lexington, KY 152 units $ 3,487,893 $ - $ 30,399 12/85 ============= ============= ===========
- ----------------------------------------- Total: Apartments - 1,292 units (1) Arrowhead Apartments is owned by Arrowhead Fund XV Limited Partnership which is wholly-owned by the Partnership. (2) Mountain Shadows Apartments is owned by McNeil Mountain Shadows Fund XV Limited Partnership which is wholly-owned by the Partnership. (3) Woodcreek Apartments is owned by Woodcreek Fund XV, Ltd. which is wholly-owned by the Partnership. The following table sets forth the properties' occupancy rate and rent per square foot for each of the last five years:
1998 1997 1996 1995 1994 ------------- ------------- -------------- ------------- ----------- Arrowhead Occupancy Rate............ 96% 94% 95% 95% 95% Rent Per Square Foot...... $7.79 $7.46 $7.12 $6.76 $6.42 Mountain Shadows Occupancy Rate............ 84% 92% 87% 88% 94% Rent Per Square Foot...... $7.40 $7.96 $8.28 $8.24 $7.97 Woodcreek Occupancy Rate............ 92% 97% 96% 95% 99% Rent Per Square Foot...... $9.23 $9.27 $8.80 $8.42 $8.08 Asset Held for Sale: Cedar Run Occupancy Rate............ 91% 94% 95% 95% 95% Rent Per Square Foot...... $8.04 $7.92 $7.62 $7.22 $7.14
Occupancy rate represents all units leased divided by the total number of units of the property 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: Arrowhead - --------- The occupancy rate at Arrowhead is slightly ahead the local area average of 95%. Arrowhead is located in an affluent county in metropolitan Kansas City. The apartment market is extremely concentrated with over 3,000 apartment units within a one-mile radius of Arrowhead. The increase in capital improvements over the last several years has allowed the property to reposition itself as one of the leaders in the market. Rental increases of 3% are budgeted for 1999. Mountain Shadows - ---------------- Mountain Shadows is located in a very competitive market in Albuquerque and has experienced declines in occupancy rates since 1994. This decline can be attributed to the construction of new multi-family units during the mid-1990's and an abundance of affordable single family homes. The market maintains an occupancy level at 88%. The capital improvements program that Mountain Shadows has implemented has kept the property aggressively competitive in the market. Woodcreek - --------- The occupancy rate at Woodcreek is below the market rate of 96%. The property is located in a rapidly developing area of Wake County in North Carolina. Since 1995, 11,096 units have been added in the area. The current capital improvement program has enabled the property to stay competitive in a growing market. Asset Held for Sale: Cedar Run - --------- Over the past three years, the Lexington market has softened modestly. The market average occupancy dropped from 92% to 90%, while Cedar Run has maintained an occupancy rate of 91% in 1998. The property's rent per square foot is currently 13.5% higher than the local market rate and the property has budgeted a 4% increase in rental rates in 1999. There has been little new development of multi-family projects in the area. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999. Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint. Plaintiff's counsel intends to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. For a discussion of the Southmark bankruptcy, see Item 1 - Business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED - ------- -------------------------------------------------------------------- SECURITY HOLDER MATTERS ----------------------- (A) There is no established public trading market for Units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders Limited partnership units 4,555 as of February 1, 1999 (C) Cash distributions of $749,797 and $1,000,008 were made to the limited partners during 1998 and 1997, respectively. During the last week of March 1999, the Partnership distributed approximately $400,000 to the limited partners of record as of March 1, 1999. The Partnership accrued distributions of $493,012 and $505,375 for the benefit of the General Partner for the years ended December 31, 1998 and 1997, respectively, of which all but $657,102 was paid as of December 31, 1998. These distributions are the MID pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of distributions and the likelihood that they will continue to be made 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 1998 1997 1996 1995 1994 - ------------------ ------------ ------------ ------------- ------------- ------------- Rental revenue ................ $ 7,966,118 $ 8,042,385 $ 7,973,979 $ 7,716,859 $ 7,415,746 Total revenue ................. 8,063,341 8,193,714 8,076,096 7,991,130 7,772,979 Net income (loss) ............. (134,412) 107,228 (133,470) (198,113) (41,096) Net loss per limited partnership unit ........... $ (1.29) $ (2.50) $ (5.66) $ (6.90) $ (5.19) ============ ============ ============ ============ ============ Distribution per limited partnership unit ........... $ 7.29 $ 9.75 $ 9.70 $ - $ 4.86 ============ ============ ============ ============ ============ Years Ended December 31, Balance Sheets 1998 1997 1996 1995 1994 - ------------------ ------------ ------------ ------------- ------------- ------------- Real estate investments, net ........................ $ 24,285,706 $ 25,525,582 $ 30,251,493 $ 31,548,994 $ 32,336,645 Asset held for sale ........... 3,487,893 3,400,316 -- -- -- Total assets .................. 30,176,809 31,395,272 33,180,985 35,129,849 37,030,171 Mortgage notes payable, net ........................ 23,057,324 23,474,480 23,857,021 24,216,133 25,443,252 Partners' equity .............. 5,617,266 6,994,487 8,392,642 10,037,853 10,755,778
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- FINANCIAL CONDITION - ------------------- The Partnership was formed to acquire, operate and ultimately dispose of a portfolio of income-producing real properties. As of December 31, 1998, the Partnership owned four apartment properties. Three of the four Partnership's properties are subject to mortgage notes. RESULTS OF OPERATIONS - --------------------- 1998 compared to 1997 Revenue: Partnership revenues decreased by $130,373 or 2% for the year ended 1998 as compared to 1997. Rental revenue decreased by $76,267 while interest income increased by $43,104 in 1998. The Partnership recognized a gain on involuntary conversion of $97,210 in 1997. No such gain was recognized in 1998. Rental revenue was $7,966,118 for 1998 as compared to $8,042,385 in 1997. The decrease in rental revenues is primarily due to a decrease in occupancy rate at Mountain Shadows. Mountain Shadows, located in Albuquerque, New Mexico, has experienced a decline in occupancy rates as a result of over building in the apartment market. Interest income increased by $43,104 in 1998 as compared to 1997 due to interest earned in the escrow accounts for Arrowhead Apartments and Mountain Shadows Apartments. Expenses: Partnership expenses increased in 1998 by $111,267 as compared to the same period last year. Depreciation expense decreased $130,118 as compared to the same period last year. This decrease is due to Cedar Run which is currently classified as an asset held for sale for which no depreciation has been recognized since August 1, 1997. Personnel expense increased $96,117 in 1998 as compared to 1997. This increase is primarily due to an increase in maintenance salaries and other personnel costs at Mountain Shadows. Utilities expense increased $45,084 in 1998. This increase is due to an increase in water and sewer expense at Arrowhead and Woodcreek. General and administrative expenses increased $216,946 in 1998 as compared to the same period last year. The increase was mainly due to costs incurred to explore alternatives to maximize the value of the Partnership (see Current Operations). The increase was partially offset by decreases attributable to investor services. During 1997, charges for investor services were provided by a third party vendor. Beginning with 1998, these services are provided by affiliates of the General Partner. 1997 compared to 1996 Revenue: Partnership revenues increased by $117,618 or 1% for the year ended 1997 as compared to 1996. Rental revenue increased by $68,406, gain on involuntary conversion increased by $97,210, while interest income decreased $47,998. Rental revenue was $8,042,385 for 1997 as compared to $7,973,979 in 1996. The increase of $68,406 is primarily due to increases in rental rates, offset by an increase in rental discounts given to Mountain Shadow tenants. On October 30, 1996, four units at Woodcreek Apartments were destroyed by fire causing $192,775 in damages. In 1997, the Partnership received $182,775 in insurance reimbursements, of which $97,210 was recorded as a gain on involuntary conversion. Interest income decreased by $47,988 or 47% in 1997 as compared to 1996 due to smaller average cash balances invested in interest-bearing accounts. Expenses: Partnership expenses decreased in 1997 by $123,080 or 2% as compared to the same period last year. General and administrative expenses decreased $157,626 or 54% for the year ended December 31, 1997 as compared to the same period last year. In 1996, the Partnership incurred costs to evaluate and disseminate information regarding an unsolicited tender offer. The decrease was slightly offset by charges for investor services, which beginning in 1997, was provided by a third party vendor. In 1996, these costs were paid to an affiliate of the General Partner and were included in general and administrative - affiliates. General and administrative - affiliates expense decreased by $47,310 or 23% for 1997 as compared to the same period last year due to the reduction of overhead expenses allocable to the Partnership. Allocated expenses decreased in part due to investor services being performed by an unrelated third party in 1997, as discussed above. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership has experienced positive cash flow from operations of $6,117,416 for the three years ended December 31, 1998. In 1997, the Partnership received $182,775 in insurance proceeds from a fire at Woodcreek. Over the last three years the Partnership has used cash to fund $2,264,213 in additions to real estate investments, $1,312,677 in scheduled principal payments on mortgage notes payable, $853,507 for payment of the MID and $2,749,786 for distributions to the limited partners. The Partnership generated cash flow of $2,044,440 through operating activities in 1998 as compared to $2,090,556 in 1997. This decrease of $46,115 is primarily due to an increase in the cash paid to suppliers. The Partnership generated cash flow of $2,090,556 through operating activities in 1997 as compared to $1,982,419 in 1996. This increase of $108,137 is due to a reduction in the cash paid to affiliates as well as the amounts paid for interest and property taxes. The Partnership expended $739,947, $696,769 and $827,496 for capital improvements to the properties in 1998, 1997 and 1996, respectively. During 1998, 1997 and 1996, the Partnership paid distributions to the limited partners totaling $2,749,786. Short-term liquidity: The Partnership held cash and cash equivalents of $1,199,360 at December 31, 1998, up $80,981 from the balance at December 31, 1997. This balance provides a reasonable level of working capital for the Partnership's operations. In 1999, operations of the Partnership's properties are expected to provide positive cash flow from operations. Management will perform routine repairs and maintenance on the properties to preserve and enhance their value in the market. In the past three years the Partnership has spent $2,081,438 renovating the properties so they can remain competitive in their respective markets. In 1999, the Partnership has budgeted to spend approximately $408,000 on capital improvements, which are expected to be funded from operations of the properties. Long-term liquidity: For the long-term, property operations will remain the primary source of funds. While the present outlook for the Partnership's liquidity is favorable, market conditions may change and property operations can deteriorate. In that event, the Partnership would require other sources of working capital. No such other sources have been identified, and the Partnership has no established lines of credit. Other possible actions to resolve working capital deficiencies include refinancing or renegotiating terms of existing loans, deferring major capital expenditures on Partnership properties except where improvements are expected to enhance the competitiveness or marketability of the properties, or arranging working capital support from affiliates. All or a combination of these steps may be inadequate or unfeasible in resolving such potential working capital deficiencies. No affiliate support has been required in the past, and there is no assurance that support would be provided in the future, since neither the General Partner nor any affiliates have any obligation in this regard. As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership, including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance regarding whether any such agreement will be reached nor the terms thereof. The Partnership has placed Cedar Run Apartments on the market for sale effective August 1, 1997. Income allocations and distributions: Terms of the Amended Partnership Agreement specify that income before depreciation is allocated to the General Partner to the extent of MID paid in cash. Depreciation is allocated in the ratio of 99:1 to the limited partners and the General Partner, respectively. Therefore, for the years ended December 31, 1998, 1997 and 1996, net loss of $1,344 and net income of $364,174 and $448,715, respectively, was allocated to the General Partner. The limited partners received allocations of net loss of $133,068, $256,946 and $582,185 for the three years ended December 31, 1998, 1997 and 1996, respectively. During 1998, the limited partners received a cash distribution of $749,797. The distributions consisted of funds from operations and cash reserves. A distribution of $493,012 for the MID was accrued by the Partnership for the General Partner in 1998. During the last week of March 1999, the Partnership distributed approximately $400,000 to the limited partners of record as of March 1, 1999. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flow will support additional distributions to the limited partners. YEAR 2000 DISCLOSURE - -------------------- State of readiness: - ------------------- The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. Management has assessed its information technology ("IT") infrastructure to identify any systems that could be affected by the year 2000 problem. The IT used by the Partnership for financial reporting and significant accounting functions was made year 2000 compliant during recent systems conversions. The software utilized for these functions are licensed by third party vendors who have warranted that their systems are year 2000 compliant. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management has inventoried all such systems and queried suppliers, vendors and manufacturers to determine year 2000 compliance. Management will complete assessment of findings by May 1, 1999. In circumstances of non-compliance management will work with the vendor to remedy the problem or seek alternative suppliers who will be in compliance. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to be year 2000 compliant. Cost - ---- The cost of IT and embedded technology systems testing and upgrades is not expected to be material to the Partnership. Because all the IT systems have been upgraded over the last three years, all such systems were compliant, or made compliant at no additional cost by third party vendors. Management anticipates the costs of assessing, testing, and if necessary replacing embedded technology components will be less than $50,000. Such costs will be funded from operations of the Partnership. Risks - ----- Ultimately, the potential impact of the year 2000 issue will depend not only on the corrective measures the Partnership undertakes, but also on the way in which the year 2000 issue is addressed by government agencies and entities that provide services or supplies to the Partnership. Management has not determined the most likely worst case scenario to the Partnership. As management studies the findings of its property systems assessment and testing, management will develop a better understanding of what would be the worst case scenario. Management believes that progress on all areas is proceeding and that the Partnership will experience no adverse effect as a result of the year 2000 issue. However, there is no assurance that this will be the case. Contingency plans - ----------------- Management is developing contingency plans to address potential year 2000 non-compliance of IT and embedded technology systems. Management believes that failure of any IT system could have an adverse impact on operations. However, management believes that alternative systems are available that could be utilized to minimize such impact. Management believes that any failure in the embedded technology systems could have an adverse impact on that property's performance. Management will assess these risks and develop plans to mitigate possible failures by June, 1999. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- ---------------------------------------------------------- Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Page Number ------ INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements: Report of Independent Public Accountants....................................... 16 Balance Sheets at December 31, 1998 and 1997................................... 17 Statements of Operations for each of the three years in the period ended December 31, 1998..................................................... 18 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1998....................................... 19 Statements of Cash Flows for each of the three years in the period ended December 31, 1998.............................................. 20 Notes to Financial Statements.................................................. 22 Financial Statement Schedule - Schedule III - Real Estate Investments and Accumulated Depreciation............................................................. 31
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 XV, Ltd.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XV, Ltd. (a California limited partnership) as of December 31, 1998 and 1997, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of McNeil Real Estate Fund XV, Ltd. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Dallas, Texas March 19, 1999 McNEIL REAL ESTATE FUND XV, LTD. BALANCE SHEETS
December 31, ---------------------------------- 1998 1997 ------------- ------------- ASSETS - ------ Real estate investments: Land ........................................................ $ 6,220,730 $ 6,220,730 Buildings and improvements .................................. 42,086,266 41,433,896 ------------ ------------ 48,306,996 47,654,626 Less: Accumulated depreciation ............................. (24,021,290) (22,129,044) ------------ ------------ 24,285,706 25,525,582 Asset held for sale ............................................ 3,487,893 3,400,316 Cash and cash equivalents ...................................... 1,199,360 1,118,379 Cash segregated for security deposits .......................... 214,190 213,528 Accounts receivable ............................................ 33,736 94,750 Prepaid expenses and other assets .............................. 37,105 36,974 Escrow deposits ................................................ 365,199 341,153 Deferred borrowing costs, net of accumulated amortization of $455,712 and $344,742 at December 31, 1998 and 1997, respectively .................... 553,620 664,590 ------------ ------------ $ 30,176,809 $ 31,395,272 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage notes payable, net .................................... $ 23,057,324 $ 23,474,480 Accrued expenses ............................................... 126,907 120,757 Accrued interest ............................................... 160,388 163,621 Accrued property taxes ......................................... 177,643 175,741 Payable to affiliates - General Partner ........................ 851,407 249,503 Security deposits and deferred rental income ................... 185,874 216,683 ------------ ------------ 24,559,543 24,400,785 ------------ ------------ Partners' equity (deficit): Limited partners - 120,000 limited partnership units authorized; 102,796 limited partnership units issued and outstanding at December 31, 1998 and 1997 ..... 6,672,660 7,555,525 General Partner ............................................. (1,055,394) (561,038) ------------ ------------ 5,617,266 6,994,487 ------------ ------------ $ 30,176,809 $ 31,395,272 ============ ============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XV, LTD. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1998 1997 1996 ----------- ----------- ------------ Revenue: Rental revenue ............................... $ 7,966,118 $ 8,042,385 $ 7,973,979 Interest ..................................... 97,223 54,119 102,117 Gain on involuntary conversion ............... -- 97,210 -- ----------- ----------- ----------- Total revenue .............................. 8,063,341 8,193,714 8,076,096 ----------- ----------- ----------- Expenses: Interest ..................................... 2,110,229 2,129,976 2,134,252 Depreciation ................................. 1,892,246 2,022,364 2,039,432 Property taxes ............................... 448,091 444,088 433,520 Personnel expenses ........................... 1,000,234 904,117 883,514 Repairs and maintenance ...................... 949,040 1,027,540 1,002,566 Property management fees - affiliates ................................. 397,758 405,298 399,829 Utilities .................................... 415,218 370,134 362,268 Other property operating expenses ............ 446,359 492,055 458,335 General and administrative ................... 352,601 135,655 293,281 General and administrative - affiliates ................................. 185,977 155,259 202,569 ----------- ----------- ----------- Total expenses ............................. 8,197,753 8,086,486 8,209,566 ----------- ----------- ----------- Net income (loss) ............................... $ (134,412) $ 107,228 $ (133,470) =========== =========== =========== Net loss allocable to limited partners .......... $ (133,068) $ (256,946) $ (582,185) Net income (loss) allocable to General Partner .............................. (1,344) 364,174 448,715 ----------- ----------- ----------- Net income (loss) ............................... $ (134,412) $ 107,228 $ (133,470) =========== =========== =========== Net loss per limited partnership unit ........... $ (1.29) $ (2.50) $ (5.66) =========== =========== =========== Distribution per limited partnership unit........ $ 7.29 $ 9.73 $ 9.70 =========== =========== ===========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XV, LTD. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1998, 1997 and 1996
Total General Limited Partners' Partner Partners Equity ------------- ------------- ------------- Balance at December 31, 1995 ............ $ (356,792) $ 10,394,645 $ 10,037,853 Net income (loss) ....................... 448,715 (582,185) (133,470) Distributions to limited partners ....... -- (999,981) (999,981) Management Incentive Distribution........ (511,760) -- (511,760) ------------ ------------ ------------ Balance at December 31, 1996 ............ (419,837) 8,812,479 8,392,642 Net income (loss) ....................... 364,174 (256,946) 107,228 Distributions to limited partners ....... -- (1,000,008) (1,000,008) Management Incentive Distribution ....... (505,375) -- (505,375) ------------ ------------ ------------ Balance at December 31, 1997 ............ (561,038) 7,555,525 6,994,487 Net loss ................................ (1,344) (133,068) (134,412) Distributions to limited partners ....... -- (749,797) (749,797) Management Incentive Distribution ....... (493,012) -- (493,012) ------------ ------------ ------------ Balance at December 31, 1998 ............ $ (1,055,394) $ 6,672,660 $ 5,617,266 ============ ============ ============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XV, LTD. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended December 31, ---------------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Cash flows from operating activities: Cash received from tenants .................... $ 7,982,278 $ 7,965,817 $ 7,957,172 Cash paid to suppliers ........................ (3,147,932) (2,983,507) (2,999,800) Cash paid to affiliates ....................... (474,843) (531,923) (593,626) Interest received ............................. 97,223 54,119 102,117 Interest paid ................................. (1,945,933) (1,983,057) (2,017,275) Property taxes paid ........................... (466,353) (430,893) (466,169) ----------- ----------- ----------- Net cash provided by operating activities......... 2,044,440 2,090,556 1,982,419 ----------- ----------- ----------- Cash flows from investing activities: Additions to real estate investments and asset held for sale ..................... (739,947) (696,769) (827,496) Insurance proceeds from fire .................. -- 182,775 -- ----------- ----------- ----------- Net cash used in investing activities ............ (739,947) (513,994) (827,496) ----------- ----------- ----------- Cash flows from financing activities: Principal payments on mortgage notes payable ............................... (473,715) (436,589) (402,373) Distributions to the limited partners ......... (749,797) (1,000,008) (999,981) Management Incentive Distribution paid ........................................ -- (384,398) (469,109) ----------- ----------- ----------- Net cash used in financing activities ............ (1,223,512) (1,820,995) (1,871,463) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents .............................. 80,981 (244,433) (716,540) Cash and cash equivalents at beginning of year ............................. 1,118,379 1,362,812 2,079,352 ----------- ----------- ----------- Cash and cash equivalents at end of year ....................................... $ 1,199,360 $ 1,118,379 $ 1,362,812 =========== =========== ===========
See discussion of noncash financing activities in Notes 2 and 7. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XV, LTD. STATEMENTS OF CASH FLOWS Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
For the Years Ended December 31, ---------------------------------------------------- 1998 1997 1996 ------------ ----------- ------------ Net income (loss) ........................... $ (134,412) $ 107,228 $ (133,470) ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on involuntary conversion ........... -- (97,210) -- Depreciation ............................. 1,892,246 2,022,364 2,039,432 Amortization of discounts on mortgage notes payable ................. 56,559 54,048 43,261 Amortization of deferred borrowing costs .................................. 110,970 95,850 76,462 Changes in assets and liabilities: Cash segregated for security deposits ............................. (662) 49,727 (13,681) Accounts receivable .................... 61,014 (88,694) 635 Prepaid expenses and other assets ...... (131) 6,292 639 Escrow deposits ........................ (24,046) (30,265) 53,543 Accounts payable ....................... -- -- (42,258) Accrued expenses ....................... 6,150 (28,567) (47,788) Accrued interest ....................... (3,233) (2,979) (2,746) Accrued property taxes ................. 1,902 5,294 5,913 Payable to affiliates - General Partner .............................. 108,892 28,634 8,772 Security deposits and deferred rental income ........................ (30,809) (31,166) (6,295) ----------- ----------- ----------- Total adjustments .................. 2,178,852 1,983,328 2,115,889 ----------- ----------- ----------- Net cash provided by operating activities... $ 2,044,440 $ 2,090,556 $ 1,982,419 =========== =========== ===========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XV, LTD. NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund XV, Ltd. (the "Partnership") was organized June 26, 1984 as a limited partnership under the provisions of the California Uniform Limited Partnership Act. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The Partnership is governed by an amended and restated partnership agreement of limited partnership dated October 11, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. The Partnership is engaged in real estate activities, including the ownership, operation and management of residential real estate and other real estate related assets. At December 31, 1998, the Partnership owned four income-producing properties as described in Note 4 - Real Estate Investments. As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership, including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance regarding whether any such agreement will be reached nor the terms thereof. The Partnership has placed Cedar Run Apartments on the market for sale effective August 1, 1997. Basis of Presentation - --------------------- The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Partnership's financial statements include the accounts of the following listed tier partnerships for the years ended December 31, 1998, 1997 and 1996. These single asset tier partnerships were formed to accommodate the refinancing of the respective properties. The general partner of these partnerships is a corporation whose stock is 100% owned by the Partnership. The Partnership has a 100% ownership interest in each of the following tier partnerships: Tier Partnership ---------------- Arrowhead Fund XV Limited Partnership McNeil Mountain Shadows Fund XV Limited Partnership Woodcreek Fund XV, Ltd. Adoption of Recent Accounting Pronouncements - -------------------------------------------- The Partnership has adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 requires an enterprise to report financial information about its reportable operating segments, which are defined as components of a business for which separate financial information is evaluated regularly by the chief decision maker in allocating resources and assessing performance. The Partnership does not prepare such information for internal use, since it analyzes the performance of and allocates resources for each property individually. The Partnership's management has determined that it operates one line of business and it would be impracticable to report segment information. Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial statements. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated fair value. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. Asset Held for Sale - ------------------- The asset held for sale is stated at the lower of depreciated cost or fair value less costs to sell. Depreciation on the asset ceased at the time it was 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 3 to 25 years. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand and cash on deposit with financial institutions with original maturities of three months or less. Carrying amounts for cash and cash equivalents approximate fair value. Escrow Deposits - --------------- The Partnership is required to maintain escrow accounts in accordance with the terms of various mortgage indebtedness agreements. These escrow accounts are controlled by the mortgagee and are used for payment of property taxes, hazard insurance, capital improvements and/or property replacements. Carrying amounts for escrow deposits approximate fair value. Deferred Borrowing Costs - ------------------------ Loan fees and other related costs incurred to obtain long-term financing on real property are capitalized and amortized using a method that approximates the effective interest method over the terms of the related mortgage notes payable. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations. Discounts on Mortgage Notes Payable - ----------------------------------- Discounts on mortgage notes payable are being amortized over the remaining terms of the related mortgage notes using the effective interest method. Amortization of discounts on mortgage notes payable is included in interest expense on the Statements of Operations. Rental Revenue - -------------- The Partnership leases its residential properties under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. Income Taxes - ------------ No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners. Allocation of Net Income and Net Loss - ------------------------------------- The Amended Partnership Agreement provides for net income of the Partnership for both financial statement and income tax reporting purposes to be allocated as indicated below. For allocation purposes, net income and net loss of the Partnership are determined prior to deductions for depreciation: (a) first, deductions for depreciation shall be allocated 1% to the General Partner and 99% to the limited partners; (b) then, net income in an amount equal to the greater of 1) 1% of net income or 2) the cumulative amount distributed for the Management Incentive Distribution ("MID") for which no income allocation has previously been made shall be allocated to the General Partner; provided that if all or a portion of such distribution consists of limited partnership units ("Units"), the amount of net income allocated shall be equal to the amount of cash the General Partner would have otherwise received; and (c) any remaining net income shall be allocated 100% to the limited partners. The Amended Partnership Agreement provides that net losses shall be allocated 1% to the General Partner and 99% to the limited partners. Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocation of Partnership deductions attributable to debt. The Partnership's tax allocations for 1998, 1997 and 1996 have been made in accordance with these provisions. Distributions - ------------- Pursuant to the Amended Partnership Agreement and at the discretion of the General Partner, distributions of cash from property operations shall be made as follows: (a) first, to the General Partner, an amount equal to the MID; and (b) any remaining distributable cash, as defined, shall be distributed 100% to the limited partners. At the discretion of the General Partner, distribution of cash from sales or refinancing shall be distributed as follows: (a) first, to the General Partner, an amount equal to any MID not satisfied through distributions of cash from property operations; and (b) any remaining cash shall be distributed to the limited partners in the following proportions: 95/270 to Group A subscribers, 90/270 to Group B subscribers and 85/270 to Group C subscribers of the pro rata portion of the original invested capital attributable to each group of subscribers. Cash distributions of $749,797, $1,000,008 and $999,981 were made to the limited partners during 1998, 1997 and 1996, respectively. The Partnership paid or accrued distributions of $493,012, $505,375 and $511,760 for the benefit of the General Partner for the years ended December 31, 1998, 1997 and 1996, respectively. These distributions are the MID pursuant to the Amended Partnership Agreement. Net Loss Per Limited Partnership Unit - ------------------------------------- Net loss per Unit is computed by dividing net loss allocated to the limited partners by the weighted average number of Units outstanding calculated on the last day of each calendar month. Per Unit information has been computed based on 102,796 weighted average Units outstanding in 1998 and 1997 and 102,836 weighted average Units outstanding in 1996. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- The Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's residential and commercial properties and leasing services for its residential properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under the terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. 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 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 maximum MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter. The MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income, as defined (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. During 1991, the Partnership amended its capitalization policy and began capitalizing certain costs of improvements and betterments which under policies of prior management had been expensed when incurred. The purpose of the amendment was to more properly recognize items which were capital in nature. The effect of the amendment standing alone was evaluated at the time the change was made and determined not to be material to the financial statements of the Partnership in 1991, nor was it expected to be material in any future year. However, the amendment can have a material effect on the calculation of the Entitlement Amount which determines the amount of MID earned. Capital improvements are excluded from cash flow, as defined. The majority of base period cash flow was measured under the previous capitalization policy, while incentive period cash flow is determined using the amended policy. Under the amended policy, more items are capitalized, and cash flow increases. The amendment of the capitalization policy did not materially affect the MID for 1998, 1997 or 1996 because the Entitlement Amount was sufficient to pay MID notwithstanding the amendment to the capitalization policy. Any amount of the MID that is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. Compensation and reimbursements paid or accrued for the benefit of the General Partner or its affiliates are as follows:
For the Years Ended December 31, ---------------------------------------- 1998 1997 1996 -------- -------- -------- Property management fees - affiliates $397,758 $405,298 $399,829 Charged to general and administrative - affiliates: Partnership administration .............. 185,977 155,259 202,569 -------- -------- -------- $583,735 $560,557 $602,398 ======== ======== ======== Charged to General Partner's deficit: MID ..................................... $493,012 $505,375 $511,760 ======== ======== ========
Payable to affiliates - General Partner at December 31, 1998 and 1997 consists primarily of MID, reimbursable costs and property management fees which 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 INCOME (LOSS) - ------------------------------ McNeil Real Estate Fund XV, 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 $1,444,042 in 1998 $856,079 in 1997 and $713,934 in 1996. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments at December 31, 1998 and 1997 are set forth in the following tables:
Buildings and Accumulated Net Book 1998 Land Improvements Depreciation Value ---- ------------ ------------- ------------ ------------ Arrowhead Shawnee, KS $ 1,537,294 $14,345,458 $ (8,512,597) $ 7,370,155 Mountain Shadows Albuquerque, NM 3,236,768 19,634,317 (11,256,321) 11,614,764 Woodcreek Cary, NC 1,446,668 8,106,491 (4,252,372) 5,300,787 ------------ ------------ ------------ ------------ $ 6,220,730 $ 42,086,266 $(24,021,290) $ 24,285,706 ============ ============ ============ ============ Buildings and Accumulated Net Book 1997 Land Improvements Depreciation Value ---- ------------ ------------- ------------ ------------ Arrowhead $ 1,537,294 $14,180,810 $ (7,877,117) $ 7,840,987 Mountain Shadows 3,236,768 19,260,309 (10,403,070) 12,094,007 Woodcreek 1,446,668 7,992,777 (3,848,857) 5,590,588 ------------ ----------- ------------ ------------ $ 6,220,730 $41,433,896 $(22,129,044) $ 25,525,582 ============ =========== ============ ============
Effective August 1, 1997, management placed Cedar Run, located in Lexington, Kentucky, on the market for sale. Therefore, at December 31, 1998 and 1997, Cedar Run was classified as an asset held for sale at a net book value of $3,487,893 and $3,400,316, respectively. The results of operations for the asset held for sale at December 31, 1998 are $418,278, $283,452 and $129,824 for the years ended December 31, 1998, 1997 and 1996, respectively. Results of operations are operating revenues less operating expenses, including depreciation expense. Except for Cedar Run, the Partnership's real estate properties are encumbered by mortgage indebtedness as discussed in Note 5. NOTE 5 - MORTGAGE NOTES PAYABLE - ------------------------------- The following table sets forth the mortgage notes payable of the Partnership at December 31, 1998 and 1997. All mortgage notes are secured by real estate investments.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date (d) 1998 1997 - -------- --------------- ------- ----------------- ---------------- ---------------- Arrowhead (c) First 8.150 $ 60,450 07/03 $ 6,851,705 $ 7,011,548 Discount (b) (118,483) (138,764) ------------- -------------- 6,733,222 6,872,784 ------------- -------------- Mountain Shadows (c) First 8.150 100,670 07/03 11,410,470 11,676,664 Discount (b) (195,154) (231,432) ------------- -------------- 11,215,316 11,445,232 Woodcreek First 8.540 40,517 08/02 5,108,786 5,156,464 ------------- -------------- $ 23,057,324 $ 23,474,480 ============= ==============
(a) The debt is non-recourse to the Partnership. (b) Discounts are based on an effective interest rate of 8.62%. (c) Financing was obtained under the terms of a Real Estate Mortgage Investment Conduit financing. The mortgage notes payable are cross-collateralized. Principal prepayments made before July 2000 are subject to a Yield Maintenance premium, as defined. Additionally, the Partnership must pay a release payment equal to 25% of the prepaid balance which will be applied to the remaining mortgage notes in the collateral pool. (d) Balloon payments on the mortgage notes payable are due as follows: Property Balloon Payment Date -------- --------------- ---- Woodcreek $4,894,767 08/02 Arrowhead 5,947,622 07/03 Mountain Shadows 9,904,857 07/03 Scheduled principal maturities of the mortgage notes payable under existing agreements, before consideration of discounts of $313,637, are as follows: Real Estate Investments ------------ 1999.................................... $ 513,999 2000.................................... 557,708 2001.................................... 605,137 2002.................................... 5,528,392 2003.................................... 16,165,725 Thereafter.............................. - ----------- Total................................. $ 23,370,961 =========== Based on borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities, the fair value of notes payable was approximately $23,411,000 at December 31, 1998 and $24,293,000 at December 31, 1997. NOTE 6 - LEGAL PROCEEDINGS - -------------------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary routine litigation incidental to the Partnership's business, except for the following: James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999. Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint. Plaintiff's counsel intends to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. NOTE 7 - GAIN ON INVOLUNTARY CONVERSION - --------------------------------------- On October 30, 1996, four units at Woodcreek Apartments were destroyed by fire causing $192,775 in damages. In 1997, the Partnership received $182,775 in insurance reimbursements, of which $97,210 was recorded as a gain on involuntary conversion. NOTE 8 - COMMITMENTS AND CONTINGENCIES - -------------------------------------- Environmental laws create potential liabilities that may affect property owners. The environmental laws of Federal and certain state governments, for example, impose liability on current and certain past owners of property from which there is a release or threat of release of hazardous substances. This liability includes costs of investigation and remediation of the hazardous substances and natural resource damages. Liability for costs of investigation and remediation is strict and may be imposed irrespective of whether the property owner was at fault, although there are a number of defenses. Both governments and third parties may seek recoveries under these laws. Third parties also may seek recovery under the common law for damages to their property or person, against owners of property from which there has been a release of hazardous and other substances. The presence of contamination or the failure to remediate contaminations may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. Various buildings at properties do or may contain building materials that are the subject of various regulatory programs intended to protect human health. Such building materials include, for example, asbestos, lead-based paint, and lead plumbing components. The Company has implemented programs to deal with the presence of those materials, which include, as appropriate, reduction of potential exposure situations. The Company does not believe that the costs of such programs are likely to have a material adverse effect. Failure to implement such programs can result in regulatory violations or liability claims resulting from alleged exposure to such materials. In connection with the proposed sale transaction as more fully described in Note 1 - "Organization and Summary of Significant Accounting Policies", Phase I environmental site assessments have been completed for each property owned by the Partnership. Such environmental assessments performed on the properties have not revealed any environmental liability that the Partnership believes would have a material adverse effect on the Partnership's business, assets, or results of operations. The Partnership has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of its properties. There can be no assurances, however, that environmental liabilities have not developed since such environmental assessments were prepared, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability. McNEIL REAL ESTATE FUND XV, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1998
Costs Initial Cost Cumulative Capitalized Related (b) Buildings and Write-down for Subsequent Description Encumbrances Land Improvements Impairment To Acquisition - ----------- ------------ ---- ------------- -------------- -------------- APARTMENTS: Arrowhead Shawnee, KS $ 6,733,222 $ 1,537,294 $ 12,035,648 $ - $ 2,309,810 Mountain Shadows Albuquerque, NM 11,215,316 3,236,768 17,555,977 - 2,078,340 Woodcreek Cary, NC 5,108,786 1,446,668 6,590,377 - 1,516,114 -------------- -------------- -------------- ------------ ------------- $ 23,057,324 $ 6,220,730 $ 36,182,002 $ - $ 5,904,264 ============== ============== ============== ============ ============= Asset Held for Sale: Cedar Run Lexington, KY (c) $ - =============
(b) The 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) Asset held for sale is stated at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and write-downs, becomes the new cost basis when the asset is classified as "Held for sale." Depreciation ceases at the time it is placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XV, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1998
Gross Amount at Which Carried at Close of Period Buildings and Accumulated Description Land Improvements Total (a) Depreciation - ----------- ---- -------------- --------- ------------ APARTMENTS: Arrowhead Shawnee, KS $ 1,537,294 $ 14,345,458 $ 15,882,752 $ (8,512,597) Mountain Shadows Albuquerque, NM 3,236,768 19,634,317 22,871,085 (11,256,321) Woodcreek Cary, NC 1,446,668 8,106,491 9,553,159 (4,252,372) -------------- -------------- ---------------- -------------- $ 6,220,730 $ 42,086,266 $ 48,306,996 $ (24,021,290) ============== ============== ================ ============== Asset Held for Sale: Cedar Run Lexington, KY (c) $ 3,487,893 ================
(a) For Federal income tax purposes, the properties are depreciated over lives ranging from 5-27.5 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was $54,198,308 and accumulated depreciation was $24,432,544 December 31, 1998. (c) Asset held for sale is stated at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and write-downs, becomes the new cost basis when the asset is classified as "Held for sale." Depreciation ceases at the time it is placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XV, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1998
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------- APARTMENTS: Arrowhead Shawnee, KS 1971 03/85 3-25 Mountain Shadows Albuquerque, NM 1986 08/85 3-25 Woodcreek Cary, NC 1981 12/85 3-25 Asset Held for Sale: Cedar Run Lexington, KY 1978 12/85
(c) Asset held for sale is stated at the lower of depreciated cost or fair value less costs to sell. Historical cost, net of accumulated depreciation and write-downs, becomes the new cost basis when the asset is classified as "Held for sale." Depreciation ceases at the time it is placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XV, LTD. Notes to Schedule III Real Estate Investments and Accumulated Depreciation A summary of activity for the Partnership's real estate investments and accumulated depreciation is as follows:
For the Years Ended December 31, ----------------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Real estate investments: Balance at beginning of year ................. $ 47,654,626 $ 52,650,334 $ 51,977,016 Improvements ................................. 652,370 696,769 827,496 Reclassification to asset held for sale....... -- (5,692,477) -- Replacement of assets ........................ -- -- (154,178) ------------ ------------ ------------ Balance at end of year ....................... $ 48,306,996 $ 47,654,626 $ 52,650,334 ============ ============ ============ Accumulated depreciation: Balance at beginning of year ................. $ 22,129,044 $ 22,398,841 $ 20,428,022 Depreciation ................................. 1,892,246 2,022,364 2,039,432 Reclassification to asset held for sale ...... -- (2,292,161) -- Replacement of assets ........................ -- -- (68,613) ------------ ------------ ------------ Balance at end of year ....................... $ 24,021,290 $ 22,129,044 $ 22,398,841 ============ ============ ============ Asset held for sale: Balance at beginning of year ................. $ 3,400,316 $ -- $ -- Reclassification to asset held for sale ...................................... -- 3,400,316 -- Improvements ................................. 87,577 -- -- ------------ ------------ ------------ Balance at end of year ....................... $ 3,487,893 $ 3,400,316 $ -- ============ ============ ============
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ----------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------ None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- Neither the Partnership nor the General Partner has any directors or executive officers. The names and ages of, as well as the positions held by, the officers and directors of McNeil Investors, Inc., the general partner of the General Partner, are as follows: Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Robert A. McNeil, 78 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such an entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate financing since the late 1940's and in real estate acquisitions, syndications and dispositions since 1960. From 1986 until active operations of McREMI and McNeil Partners, L.P. began in February 1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the International Board of Directors of the Salk Institute, which promotes research in improvements in health care. Carole J. McNeil 55 Mrs. McNeil is Co-Chairman, with husband Co-Chairman of the Robert A. McNeil, of McNeil Investors, Board Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate associate with the Madison Company and, earlier, a commercial sales associate and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established Escrow Training Centers, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute. Ron K. Taylor 41 Mr. Taylor is the President and Chief President and Chief Executive Officer of McNeil Real Estate Executive Officer Management which is an affiliate of the General Partner. Mr. Taylor has been in this capacity since the resignation of Donald K. Reed on March 4, 1997. Prior to assuming his current responsibilities, Mr. Taylor served as a Senior Vice President of McREMI. Mr. Taylor has been in this capacity since McREMI commenced operations in 1991. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management firm. In this capacity, Mr. Taylor had the responsibility for the management and leasing of a 21,000,000 square foot portfolio of commercial properties. Mr. Taylor has been actively involved in the real estate industry since 1983. Each director shall serve until his successor shall have been duly elected and qualified. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1998, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1998. The Partnership has no plans to pay any such remuneration to any directors or officers of the general partner of the General Partner in the future. See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- (A) Security ownership of certain beneficial owners. No individual or group, as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, was known by the Partnership to own more than 5% of the Units, other than High River Limited Partnership which owns 10,587 Units at February 1, 1999 (10.3% of the outstanding Units). The business address for High River Limited Partnership is 100 South Bedford Road, Mount Kisco, New York 10549. (B) Security ownership of management. The General Partner and the officers and directors of its general partner, collectively, own 1,357 Units at February 1, 1999, which represent less than 2% of the outstanding Units. (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- Under the terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. 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 maximum MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter. The MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income, as defined (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. For the year ended December 31, 1998, the Partnership paid or accrued for the General Partner MID in the amount of $493,012. Any amount of the MID that is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. The Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's properties to McREMI, an affiliate of the General Partner, for providing property management and leasing services for the Partnership's residential properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1998, the Partnership paid or accrued $583,735 in property management fees and reimbursements. See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 - Note 2 - "Transactions with Affiliates." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------- ----------------------------------------------------------------- See accompanying Index to Financial Statements at Item 8 - Financial Statements and Supplementary Data. (A) Exhibits The following exhibits are incorporated by reference and are an integral part of this Form 10-K. Exhibit Number Description ------- ----------- 3. Partnership Agreement dated June 26, 1984 and amended as of September 7, 1984. (1) 3.1 Amended and Restated Partnership Agreement of McNeil Real Estate Fund XV, Ltd., dated October 11, 1991. (1) 3.2 Amendment No. 1 to the Amended and Restated Partnership Agreement, dated March 28, 1994. (2) 3.3 Amendment No. 2 to the Amended and Restated Partnership Agreement, dated March 28, 1994. (2) 10.1 Property Management Agreement, dated October 11, 1991, between McNeil Real Estate Fund XV, Ltd. and McNeil Real Estate Management, Inc. (1) 10.2 Termination Agreement, dated October 11, 1991, between McNeil Real Estate Fund XV, Ltd. and McNeil Partners, L.P. (1) 10.3 Amendment of Property Management Agreement, dated March 5, 1993, between McNeil Real Estate Fund XV, Ltd. and McNeil Real Estate Management, Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1992) 10.4 Loan Agreement, dated June 24, 1993, between Lexington Mortgage Company and McNeil Real Estate Fund XV, Ltd. et al. (Incorporated by reference to the Annual Report of McNeil Real Estate Fund XI, Ltd. (File No. 0-9783), on Form 10-K for the period ended December 31, 1993) 10.5 Master Property Management Agree- ment, dated as of June 24, 1993 between McNeil Real Estate Management, Inc. and McNeil Real Estate Fund XV, Ltd. (2) 10.6 Mortgage Note, dated August 11, 1995, between Woodcreek Fund XV, Ltd. and Fleet Real Estate Capital, Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1995) Exhibit Number Description ------- ----------- 11. Statement regarding computation of net loss per limited partnership unit (see Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies"). 22. Following is a list of subsidiaries of the Partnership:
Names Under Jurisdiction Which It Is Name of Subsidiary Incorporation Doing Business ------------------ ------------- -------------- Arrowhead Fund XV Delaware None Limited Partnership McNeil Mountain Shadows Delaware None Fund XV Limited Partnership Woodcreek Fund XV, Ltd. Texas None
(1) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XV, Ltd. (File No. 0-14258), on Form 10-K for the period ended December 31, 1991, as filed with the Securities and Exchange Commission on March 29, 1992. (2) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XV, Ltd. (File No. 0-14258), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994. The Partnership has omitted instruments with respect to long-term debt where the total amount of the securities authorized thereunder does not exceed 10% of the total assets of the Partnership and its subsidiaries on a consolidated basis. The Partnership agrees to furnish a copy of each instrument to the Commission upon request. 27. Financial Data Schedule for the year ended December 31, 1998. (B) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 1998. McNEIL REAL ESTATE FUND XV, 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 XV, LTD. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner March 31, 1999 By: /s/ Robert A. McNeil - -------------- --------------------------------------------- Date Robert A. McNeil Chairman of the Board and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 31, 1999 By: /s/ Ron K. Taylor - -------------- --------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 31, 1999 By: /s/ Brandon K. Flaming - -------------- --------------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 12-MOS DEC-31-1998 DEC-31-1998 1,199,360 0 33,736 0 0 0 48,306,996 (24,021,290) 30,176,809 0 23,057,324 0 0 0 0 30,176,809 7,966,118 8,063,341 0 0 6,087,524 0 2,110,229 0 0 (134,412) 0 0 0 (134,412) 0 0
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