-----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, MaTl9sAtMSAtCE0C5wHh0BG4nNglLXEXdiymtPIAwwYrJsPNtchp9ufZe3CEUcaR 3I01gW7080jaXJShnN+evA== 0000778921-97-000002.txt : 19970329 0000778921-97-000002.hdr.sgml : 19970329 ACCESSION NUMBER: 0000778921-97-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXV LP CENTRAL INDEX KEY: 0000778921 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330120335 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15446 FILM NUMBER: 97566817 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD SUITE 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 FORMER COMPANY: FORMER CONFORMED NAME: MCNEIL REAL ESTATE FUND XXV DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK EQUITY PARTNERS II LTD DATE OF NAME CHANGE: 19920413 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, 1996 ------------------------------------------------ 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 0-15446 -------- McNEIL REAL ESTATE FUND XXV, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 33-0120335 - -------------------------------------------------------------------------------- (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 ] 82,916,363 of the registrant's 82,943,685 limited partnership units are held by non-affiliates. 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 40 TOTAL OF 42 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund XXV, L.P. (the "Partnership"), formerly known as Southmark Equity Partners II, Ltd., was organized on February 15, 1985 as a limited partnership under the provisions of the California Revised Limited Partnership Act to acquire and operate commercial office, retail and residential properties. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a meeting of limited partners on March 26, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 26, 1992, the general partner of the Partnership was Equity Partners (the "Original General Partner"), a Texas general partnership, which was formed by affiliates of Southmark Corporation ("Southmark"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. On December 23, 1985, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 33-746) and commenced a public offering for sale of $72,000,000 of limited partnership units ("Units"), with the general partner's right to increase the offering to $84,000,000. 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 August 8, 1986 with 84,000,000 Units sold at one dollar each, or gross proceeds of $84,000,000 to the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered its Units under the Securities Exchange Act of 1934 (File No. 0-15446). 50,000, 49,473 and 5,879 Units were rescinded in 1986, 1991 and 1995, respectively. In 1996, an additional 950,963 Units were rescinded, leaving 82,943,685 Units outstanding at December 31, 1996. 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, the General Partner nor the Original General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interests in the Original 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, 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 March 26, 1992, the limited partners approved a restructuring proposal that provided for (i) the replacement of the Original General Partner with a new general partner, McNeil Partners, L.P.; (ii) the adoption of the Amended Partnership Agreement which substantially alters the provisions of the original partnership agreement relating to, among other things, compensation, reimbursement of expenses and voting rights; (iii) the approval of an amended property management agreement with McREMI, the Partnership's property manager; and (iv) the approval to change the Partnership's name to McNeil Real Estate Fund XXV, L.P. Under the Amended Partnership Agreement, the Partnership began accruing an asset management fee, retroactive to February 14, 1991, which is payable to the General Partner. For a discussion of the methodology for calculating the asset management fee, see Item 13 Certain Relationships and Related Transactions. The proposals approved at the March 26, 1992 meeting were implemented as of that date. Concurrent with the approval of the restructuring, the General Partner acquired from Southmark and its affiliates, for aggregate consideration of $29,065, the general partner interest of the Original General Partner. The General Partner and its affiliates own in the aggregate less than 1% of the Units. 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, $73,122 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 $23,609, which combined with the cash proceeds from Southmark, resulted in a gain on legal settlement of $96,731. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in the ownership, operation and management of commercial office, retail and residential real estate. At December 31, 1996, the Partnership owned five income-producing properties as described in Item 2 - Properties. The Partnership does not directly employ any personnel. The General Partner conducts the business of the Partnership directly and through its affiliates. The Partnership reimburses affiliates of the General Partner for such services rendered in accordance with the Amended Partnership Agreement. 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: The Partnership determined to evaluate market and other economic conditions to establish the optimum time to commence an orderly liquidation of the Partnership's assets in accordance with the terms of the Amended Partnership Agreement. Taking such conditions as well as other pertinent information into account, the Partnership has determined to begin orderly liquidation of all its assets. Although there can be no assurance as to the timing of the liquidation due to real estate market conditions, the general difficulty of disposing of real estate, and other general economic factors, it is anticipated that such liquidation would result in the dissolution of the Partnership followed by a liquidating distribution to the limited partners by December 1999. Until such time as the Partnership's assets are liquidated, the Partnership's plan of operations is to preserve or increase the net operating income of its assets whenever possible, while at the same time making whatever capital expenditures are reasonable under the circumstances in order to preserve and enhance the value of the Partnership's assets. 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 incidental to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and Federal or local economic or rent controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changed circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership) in connection with the sale, financing and leasing of properties. The impact of these risks on the Partnership, including losses from operations and foreclosures of the Partnership's properties, is described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. See Item 2 - Properties for a discussion of the competitive conditions at each of 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, 1996. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties and respond to changing economic and competitive factors. Other Information: The environmental laws of the Federal government and of certain state and local governments impose liability on current property owners for the clean-up of hazardous and toxic substances discharged on the property. This liability may be imposed without regard to the timing, cause or person responsible for the release of such substances onto the property. The Partnership could be subject to such liability in the event that it owns properties having such environmental problems. The Partnership has no knowledge of any pending claims or proceedings regarding such environmental problems. In August 1995, High River Limited Partnership, a Delaware limited partnership controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $0.24 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 $0.252 per Unit. In addition High River made unsolicited tender offers for certain other partnerships controlled by the General Partner. The Partnership recommended that the limited partners reject the tender offers made with respect to the Partnership and not tender their Units. The General Partner believes that as of January 31, 1997, High River has purchased approximately 8.86% of the outstanding Units pursuant to the tender offers. In addition, all litigation filed by High River, Mr. Icahn and his affiliates in connection with the tender offers has been dismissed without prejudice. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1996. All of the buildings and the land on which they are located are owned by the Partnership in fee and are unencumbered by mortgage indebtedness, with the exception of Harbour Club I Apartments, which is subject to a first lien deed of trust as described more fully in Item 8 - Note 6 - - "Mortgage Note Payable" and Fidelity Plaza which is subject to four ground leases as described more fully in Item 8 - Note 5 - "Leases." See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization. In the opinion of management, the properties are adequately covered by insurance.
Net Basis 1996 Date Property Description of Property Debt Property Taxes Acquired - -------- ----------- --------------- ------------- --------------- -------- Century Park Office Building Las Vegas, NV 113,459 sq. ft. $ 8,689,085 $ - $ 74,167 5/86 Fidelity Plaza Office Building Long Beach, CA 124,155 sq. ft. 5,158,211 246,332 72,194 12/85 Harbour Club I Apartments Belleville, MI (1) 294 units 6,602,275 7,381,507 173,103 6/86 Kellogg Office Building Littleton, CO 112,766 ft. 5,739,650 - 167,264 12/85 Northwest Plaza Retail Center Dayton, OH 443,551 sq. ft. 12,542,427 - 298,385 6/86 -------------- ------------ ------------ $ 38,731,648 $ 7,627,839 $ 785,113 ============== ============ ============
- ----------------------------------------- Total: Apartments - 294 units Retail Center - 443,551 sq. ft. Office Buildings - 350,380 sq. ft. (1) Harbour Club I Apartments is owned by Van Buren Associates Limited Partnership, which is wholly-owned by the Partnership and the General Partner. The following table sets forth the properties' occupancy rate and rent per square foot for the last five years:
1996 1995 1994 1993 1992 ------------- ------------- -------------- ------------- ------------ Century Park Occupancy Rate............ 93% 95% 92% 81% 86% Rent Per Square Foot...... $ 17.93 $ 15.41 $ 15.21 $ 14.40 $ 14.59 Fidelity Plaza Occupancy Rate............ 83% 79% 83% 76% 86% Rent Per Square Foot...... $ 13.99 $ 14.04 $ 14.79 $ 15.24 $ 17.70 Harbour Club I Occupancy Rate............ 93% 91% 90% 90% 92% Rent Per Square Foot...... $ 7.11 $ 6.91 $ 6.39 $ 6.16 $ 5.96 Kellogg Occupancy Rate............ 98% 99% 83% 99% 86% Rent Per Square Foot...... $ 14.91 $ 12.53 $ 13.38 $ 13.37 $ 11.62 Northwest Plaza Occupancy Rate............ 87% 98% 97% 88% 94% Rent Per Square Foot...... $ 4.53 $ 4.59 $ 5.24 $ 5.31 $ 5.05
Occupancy rate represents all units leased divided by the total number of units for residential properties and square footage leased divided by the total square footage for other properties as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property. Competitive conditions: Century Park - ------------ Century Park consists of twin two-story class "B" office buildings located in the heart of the East Flamingo Corridor in southeast Las Vegas. The area surrounding the building is abundant with commercial activity. A series of professional buildings line the busy thoroughfare. The Las Vegas economy has continued to expand since the early 1980's. Commercial construction is struggling to keep pace with the widespread demand. Current market conditions are very favorable for landlords because of the strong demand and lack of space available. This environment has tenants competing for available space so very few concessions are offered. Development of new office space began toward the end of 1994 and Century Park is currently competing with existing class "B" buildings that lost tenants to the new buildings. The Partnership plans interior and exterior enhancements to the building, which should allow it to maintain occupancy at Century Park in the mid 90% range in 1997. Fidelity Plaza - -------------- Fidelity Plaza is a ten-story office building located in downtown Long Beach, California, on Ocean Boulevard, parallel to the Pacific Ocean. The area is a strong business mix of legal and maritime businesses due to its close proximity to the Ports of Long Beach and Los Angeles. Due to depressed economic conditions in southern California, rental rates have fallen. Several competing buildings in the area completed extensive capital improvements in 1995. However, with extensive lobby and courtyard capital improvements completed in 1995, management was able to increase occupancy in 1996. The Partnership expects decreased rental income and negative cash flow in 1997 due to lower rental rates and tenant improvements for new leases. Harbour Club I - -------------- Harbour Club I, located in Belleville, Michigan, was built in 1969 as a part of a four-phase apartment complex. The property offers a complete package of amenities including a golf course, clubhouse, exercise room, tanning beds, tennis courts, saunas, boat docks and launch, and playgrounds. The apartments located in this phase of the complex offer lake and golf course views. The Belleville market has significantly rebounded and Harbour Club I's occupancy was consistent with the market average of 93% at December 31, 1996. During the four years prior to 1996, management's limited capital expenditures significantly affected the property's ability to effectively compete in the marketplace. The property was able to complete approximately $445,000 of capital improvements in 1996, which were partially financed by the release of approximately $272,000 of escrow funds held by the mortgage. In 1996, Harbour Club I increased rents for the first time in five years. However, security concerns are prompting demands from tenants for improved lighting, limited access gates and fencing, as offered by competitors. With the improving economy and planned capital expenditures, management expects to increase rental rates in 1997 while maintaining occupancy in the low to mid 90% range. Kellogg - ------- Kellogg Building is located southwest of Denver and is the only high-rise office building in the Littleton area. The building is located within a mile of one of the strongest housing developments in the nation, with projected growth of over 100,000 residents expected over the next three years. The quality of lifestyle in Colorado is placing higher demands for professionals to work closer to home. Professionals are looking for nearby office space that replaces former downtown locations. One building consisting of 30,000 square feet was constructed in 1996 and is 98% occupied. Another building is being solicited for prelease of 45,000 square feet. However, since no official commitment has been received from any lender, development is not certain. Quoted rental rates for both buildings are higher than quoted rental rates for new tenants at Kellogg Building. Rental rates are scheduled to increase for all tenants under signed lease agreements and rental rate increases are projected for any new or renewing tenants. Due to the strong growth in the surrounding area and the great demand for office space, the Partnership expects to maintain occupancy in the high 90% range throughout 1997. Northwest Plaza - --------------- Northwest Plaza is a class "A" retail strip shopping center with three anchor tenants that occupy 64% of the total leasable area. The area has experienced increased criminal activity. However, management has increased security and lighting in the parking areas. In late 1993, an anchor tenant vacated and the space was re-leased at a lower rate. Another anchor tenant's lease was restructured to provide for lower rent based on sales volume. The tenant declared bankruptcy in late 1995 and relinquished 50,000 square feet in 1996. Management expects that it will re-lease the space by the end of 1998. Due to these factors, lower rental revenue is expected for 1997. This decline in rental revenues is considered to be a temporary setback, and, based on projected cash flows, management has concluded that no impairment has occurred. The following schedule shows lease expirations for each of the Partnership's commercial properties for 1997 through 2006:
Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- ------------ ----------- Century Park 1997 16 22,949 $ 384,948 18% 1998 12 35,105 644,868 30% 1999 12 18,457 330,564 16% 2000 5 9,681 171,888 8% 2001 3 13,497 248,796 12% 2002 1 2,998 48,564 2% 2003 1 1,872 33,696 2% 2004-2006 - - - - Kellogg 1997 13 22,132 298,632 21% 1998 11 30,930 404,184 29% 1999 11 25,198 347,100 24% 2000 6 27,710 369,888 26% 2001-2006 - - - - Fidelity Plaza 1997 18 20,844 319,704 21% 1998 8 11,188 189,120 12% 1999 13 25,012 377,220 25% 2000 4 15,216 226,980 15% 2001 6 20,399 281,640 18% 2002 1 2,209 40,884 3% 2003 1 6,300 88,896 6% 2004-2006 - - - - Northwest Plaza 1997 6 14,599 129,480 8% 1998 5 19,577 156,180 10% 1999 7 17,541 159,792 10% 2000 1 1,200 15,540 1% 2001 4 18,810 126,000 8% 2002 2 5,393 24,636 2% 2003 2 8,806 87,468 5% 2004 1 24,358 73,104 4% 2005 1 6,000 49,440 3% 2006 1 42,130 315,000 19%
No residential tenant leases 10% or more of the available rental space. The following schedule reflects information on commercial tenants occupying 10% or more of the leasable square feet for each property:
Nature of Business Square Footage Lease Use Leased Annual Rent Expiration - ------------- -------------- -------------- ----------- Century Park None Kellogg General Office 14,522 $ 188,784 2000 Fidelity Federal Plaza None Northwest Plaza Department Store 217,077 $ 497,712 2012
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: 1) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (as defined in this Section 1, the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought recovery against the Partnership's former auditors, Ernst & Young, for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark, the former general partner. The former auditors initially asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims sought recovery of attorneys' fees and costs incurred in defending this action. The counterclaims were later dismissed on appeal, as discussed below. The trial court granted summary judgment against the Affiliated Partnerships based on the statute of limitations; however, on appeal, the Dallas Court of Appeals reversed the trial court and remanded for trial the Affiliated Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court denied Ernst & Young's application for writ of error on January 11, 1996. Shortly before trial, the district court judge once again granted summary judgment against the Affiliated Partnerships on December 2, 1996. The Partnership is continuing to pursue vigorously its claims against Ernst & Young; however, the final outcome of this litigation cannot be determined at this time. 2) Martha Hess, et al. v. Southmark Equity Partners II, Ltd. (presently known as McNeil Real Estate Fund XXV, L.P.), Southmark Income Investors, Ltd., Southmark Equity Partners, Ltd., Southmark Realty Partners III, Ltd., Southmark Realty Partners II, Ltd., McNeil Partners, L.P. et al. ("Hess"); Kotowski v. Southmark Equity Partners, Ltd. and Donald Arceri v. Southmark Income Investors, Ltd. - Illinois Appellate Court for the First District, Fifth Division, as consolidated Case No. 90-107 (remanded back to Trial Court - Circuit Court of Cook County, Illinois County Department, Chancery Division, as consolidated Case No. 88 CH 4670 (L92026). Consolidated with these cases were an additional 14 matters against unrelated partnership entities. The Hess case was filed on May 20, 1988, by Martha Hess, individually, and on behalf of a putative class of parties similarly situated. The original, first, second and third amended complaints in Hess sought rescission, pursuant to the Illinois Securities Act, of over $2.7 million of principal invested in five (5) Southmark (now McNeil) partnerships (as defined in this Section 2, the "Defendants"), and other relief including damages for breach of fiduciary duty and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The original, first, second and third amended complaints in Hess were dismissed against the defendant-group because the Appellate Court held that they were not the proper subject of a class action complaint. Hess was, thereafter, amended a fourth time to state causes of action against unrelated partnership entities. Hess went to judgment against that unrelated entity and the judgment, along with the prior dismissal of the class action, was appealed. The Hess appeal was decided by the Appellate Court during 1992. The Appellate Court affirmed the dismissal of the breach of fiduciary duty and consumer fraud claims. The Appellate Court did, however, reverse in part, holding that certain putative class members could file class action complaints against the defendant-group, which pursuant to the Appellate Court's ruling, included the Partnership. Although leave to appeal to the Illinois Supreme Court was sought, the Illinois Supreme Court refused to hear the appeal. On June 15, 1994, the Appellate Court issued its mandate sending the case back to Trial Court. In late January 1995, plaintiffs filed a Motion to File an Amended Consolidated Class Action Complaint, which amends the complaint to name McNeil Partners, L.P. as the successor general partner to Southmark Investment Group. In February 1995, Plaintiffs filed a Motion for Class Certification. The amended cases against the defendant-group, and others are proceeding under the caption George and Joy Krugler v. I.R.E. Real Estate Income Fund, Jerry and Barbara Neumann v. Southmark Equity Partners II (McNeil Real Estate Fund XXV, L.P.), Richard and Theresa Bartoszewski v. Southmark Realty Partners III (McNeil Real Estate Fund XXIII, L.P.), and Edward and Rose Weskerna v. Southmark Realty Partners II (McNeil Real Estate Fund XXII, L.P.). In September 1995, the Court granted plaintiffs' Motion to File an Amended Complaint, to Consolidate and for Class Certification. Defendants answered the complaint and plead that the plaintiffs did not give timely notice of their desire to rescind within six months of knowing that right, as required by law. Plaintiffs filed a Motion for Summary Judgment against the remaining partnership defendants, as well as the initial general partners. The Court ruled on plaintiffs' Motion for Summary Judgment on April 25, 1996, and entered partial summary judgment against the Partnership, as well as the initial general partner. Summary judgment against McNeil Partners, L.P., as the successor general partner, was not sought. On October 26, 1996, the court entered judgment against the Partnership in the amount of $1,768,048, plus post-judgment interest. Effective October 31, 1996, 950,963 limited partnership units were rescinded. On October 30, 1996, the Partnership distributed to the plaintiffs' escrow agent $1,771,535 in exchange for a full release of the Partnership and McNeil Partners, L.P. The payment consists of the $950,963 original purchase price of the Units, net of distributions previously paid of $294,908, plus $1,115,480 in interest. In addition, in February 1997, the Partnership was required to pay the plaintiffs' attorneys $690,000 for legal expenses. These legal expenses have been accrued at December 31, 1996. 3) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (as defined in this Section 3, the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (as defined in this Section 3, 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. On January 7, 1997, the Court ordered consolidation with three other similar actions listed below. The Partnerships filed a demurrer to the complaint and a motion to strike on February 14, 1997, seeking to dismiss the complaint in all respects. The demurrer is pending. The Partnerships deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 4) Alfred Napoletano v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California, County of Los Angeles, Case No. BC133849 (Class Action Complaint). On January 7, 1997, this action was consolidated by court order with Scholfield, et al., referenced above. 5) Warren Heller v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California, County of Los Angeles, Case No. BC133957 (Class Action Complaint). On January 7, 1997, this action was consolidated by court order with Scholfield, et al., referenced above. 6) Robert Lewis v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil et al. - In the District Court of Dallas County, Texas, A-14th Judicial District, Cause No. 95-08535 (Class Action) - Plaintiff, Robert Lewis, is a limited partner with McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd. On April 11, 1996, the action was dismissed without prejudice in anticipation of consolidation with other class action complaints. On January 7, 1997, this action was consolidated by court order with Schofield, et al., referenced above. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND - ------- ------------------------------------------------------------ RELATED SECURITY HOLDER MATTERS ------------------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders -------------- ----------------------------- Limited partnership units 8,136 as of January 31, 1997 (C) Cash distributions paid to the limited partners totaled $250,006 in 1996. No distributions were paid to the limited partners in 1995. No distributions have been paid to the General Partner. See Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies - Distributions." 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 1996 1995 1994 1993 1992 - ------------------ ------------- ------------- ------------- ------------ ------------ Rental revenue............... $ 9,494,477 $ 8,783,408 $ 9,110,749 $ 9,041,611 $ 9,005,516 Provision for loss on affiliate advance........... - - - - 113,000 Write-down for permanent impairment of real estate... - 4,633,000 - - 1,341,133 Loss before extraordinary item........................ (2,577,600) (5,943,886) (531,497) (183,926) (2,442,529) Extraordinary item........... - - - - 224,839 Net loss..................... (2,577,600) (5,943,886) (531,497) (183,926) (2,217,690) Net loss per thousand limited partnership units: Loss before extraordinary item........................ $ (30.47) $ (70.14) $ (6.27) $ (2.17) $ (28.82) Extraordinary item........... - - - - 2.65 ------------ ------------- ------------- ---------- --------- Net loss..................... $ (30.47) $ (70.14) $ (6.27) $ (2.17) $ (26.17) ============ ============= ============ ========== ========= Distributions per thousand limited partnership units... $ 2.99 $ - $ 4.77 $ 17.80 $ 18.50 ============ ============= ============ ========== =========
As of December 31, Balance Sheets 1996 1995 1994 1993 1992 - -------------- ------------- ------------- -------------- ------------ ----------- Real estate investments, net... $ 38,731,648 $ 40,620,473 $ 46,683,563 $47,668,916 $49,587,222 Total assets................... 44,105,856 47,723,941 53,432,562 54,109,784 55,641,482 Mortgage note payable.......... 7,381,507 7,381,507 7,381,507 7,366,449 7,384,442 Partners' equity............... 33,981,321 37,464,982 43,408,868 44,340,572 46,017,924
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- FINANCIAL CONDITION - ------------------- The Partnership was formed to engage in the business of acquiring and operating income-producing real properties and holding the properties for investment. Since completion of its capital formation and property acquisition phases in 1986, when it completed the purchase of five properties, the Partnership has operated its properties for production of income. The Partnership's properties were adversely affected by competitive and overbuilt markets, resulting in lower levels of cash from operations. In 1989, the Partnership wrote down the carrying values of two of its office buildings to reflect a permanent decline in value. In 1992, the Partnership recorded a write-down of one of its office buildings and also wrote down the carrying value of its apartment complex. In 1995, the Partnership recorded a further write-down of another of its office buildings. The Partnership continues to operate its portfolio of one apartment complex, three office buildings, and one shopping center. Harbour Club I Apartments has continued to experience financial difficulties. The cash flow from operations of the property has not been sufficient to fund necessary capital improvements and to make the required monthly debt service payments. Effective January 1, 1993, the Partnership ceased making regularly scheduled debt service and escrow payments. In lieu of the aforementioned payments, the Partnership is funding debt service with the excess cash flow of the property. The Partnership has been notified that the mortgage note payable is in default. Effective January 23, 1997, the mortgage note payable was sold by the United States Department of Housing and Urban Development to an unaffiliated lender. The Partnership is currently attempting to negotiate a cure of the default and a modification of the note agreement with the new lender. If the Partnership is unable to successfully cure the default, the mortgagee could declare the entire indebtedness due and proceed with foreclosure on the property or pursue other actions such as gaining control of the property or placing it in receivership. As of year end, no steps have been taken toward foreclosure. RESULTS OF OPERATIONS - --------------------- 1996 compared to 1995 Revenue: Total Partnership revenues increased by $634,402 in 1996 as compared to 1995, mainly due to an increase in rental revenue, as discussed below. Rental revenue in 1996 increased by $711,069 in relation to 1995. The increase was mainly due to increases of approximately $286,000, $56,000, $218,000 and $153,000 at Century Park, Harbour Club I, Kellogg Building and Northwest Plaza, respectively. Rental revenue generated at Fidelity Plaza in 1996 remained comparable to 1995. The increase in rental revenue at Century Park was mainly due to an increase in average occupancy in 1996. Although occupancy at the end of 1996 was less than the occupancy at December 31 of the prior year, average occupancy in 1996 was 97% as compared to 90% in 1995. In addition, two tenants paid a total of approximately $164,000 in lease termination fees in 1996. Harbour Club I's increase in rental revenue in 1996 was due an increase in rental rates in 1996--the property's first rental rate increase in five years. The increase in rental revenue at Kellogg Building was mainly due to an increase in average occupancy in 1996. Kellogg Building had an occupancy rate in the high 90% range throughout 1996, while occupancy was in the low 80% range during the first quarter of 1995 and then rose up to the high 90% range during the remainder of 1995. In addition, there was an increase in reimbursements from tenants for common area maintenance at Kellogg Building in 1996. Rental revenue increased at Northwest Plaza due to increased income based on sales volume of tenants, partially offset by a decrease in rental revenue due to a decrease in occupancy in 1996. See Item 2 - Properties for a more detailed analysis of occupancy and rents per square foot. Interest income increased by $20,064 in 1996 as compared to 1995 due to a greater amount of cash available for short-term investment during most of 1996. Although there was a decrease in total cash and cash equivalents in 1996, the decrease was mainly due to the payment of approximately $1.77 million to the limited partners in late October 1996 for the rescission of partnership units. As discussed in Item 1 - Business, in 1995 the Partnership received cash and common and preferred stock in the reorganized Southmark in settlement of its bankruptcy claims against Southmark. The Partnership recognized a $96,731 gain in 1995 as a result of this settlement. No such gain was recognized in 1996. Expenses: Total expenses decreased by $2,731,884 in 1996 as compared to 1995 primarily due to the Partnership recording a $4,633,000 write-down for permanent impairment of Fidelity Plaza Office Building to its estimated fair value in 1995 (see Item 8 - Note 4 - "Real Estate Investments"). The decrease was partially offset by $1,115,480 of interest paid on rescinded partnership units and an increase in general and administrative expenses during 1996, as discussed below. In 1996, the Partnership paid approximately $1.77 million to the plaintiffs in a lawsuit. Of this amount, $1,115,480 represents interest on limited partnership units that were rescinded by the Partnership. See Item 3 Legal Proceedings. Property taxes increased by $138,804 in 1996 as compared to 1995. In 1995, the Partnership received an $84,000 refund of property taxes due to a successful appeal of the property tax assessments on Harbour Club I Apartments. No such refund was received in 1996. Also, property taxes at Northwest Plaza and Kellogg Building increased in 1996 due to an increase in the assessed taxable values of those properties. Personnel expenses increased by $95,409 in 1996 as compared to 1995. The increase was mainly due to the addition of two maintenance technicians at Fidelity Plaza Office Building and the addition of temporary maintenance technicians at Northwest Plaza Shopping Center. Repairs and maintenance expense decreased by $115,779 in 1996 as compared to 1995. The decrease was mainly the result of a decrease in contracted repairs at Fidelity Plaza due to the hiring of two maintenance technicians in 1996. General and administrative expenses in 1996 increased by $714,707 in relation to 1995. The increase was mainly due to the Partnership incurring $690,000 of legal fees relating to the rescission of limited partnership units as discussed in Item 3 - Legal Proceedings. In 1995, the Partnership recorded a $4,633,000 write-down for permanent impairment of real estate relating to Fidelity Plaza Office Building. No such write-down was recorded in 1996. 1995 compared to 1994 Revenue: Total revenues decreased by $198,214 in 1995 as compared to 1994. The decrease was due to a decrease in rental revenue, partially offset by an increase in interest income and a gain on legal settlement, as discussed above. Rental revenue decreased by $327,341 in 1995 in relation to 1994. Rental revenue decreased by approximately $466,000 at Northwest Plaza Shopping Center as a result of a decline in revenue based on sales volume of tenants, mainly due to a bankruptcy filing by a major tenant. Rental revenue also decreased by approximately $64,000 at Fidelity Plaza Office Building due to a decrease in rental rates. These decreases were partially offset by an increase at Harbour Club I of approximately $142,000 due to a reduction in average vacancies and a decrease in discounts and concessions offered to tenants. Interest income earned on short-term investments of cash and cash equivalents increased by $32,396 in 1995 as compared to 1994. The increase was due to greater average cash balances invested in these accounts during 1995. The Partnership held $4 million of cash and cash equivalents at December 31, 1996 as compared to $3.1 million at December 31, 1994. In addition, there was an increase in interest rates earned on invested cash in 1995. Expenses: Total expenses increased by $5,214,175 in 1995 as compared to 1994. The increase was primarily due to the Partnership recording a $4,633,000 write-down for permanent impairment of Fidelity Plaza Office Building to its estimated fair value, and to an increase in depreciation and amortization and general and administrative expenses, as discussed below. Depreciation and amortization increased by $144,634 in 1995 in relation to 1994. The increase was primarily due to the addition of depreciable capital improvements at the Partnership's properties, the majority being at Kellogg and Fidelity Plaza office buildings and Northwest Plaza Shopping Center. In 1995, general and administrative expenses increased by $266,852 in relation to 1994. The increase was due to costs incurred by the Partnership in 1995 relating to evaluation and dissemination of information regarding an unsolicited tender offer as discussed in Item 1 - Business. In 1995, the Partnership recorded a $4,633,000 write-down for permanent impairment of real estate relating to Fidelity Plaza Office Building. No such write-down was recorded in 1994. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership generated $1,652,784 of cash through operating activities in 1996 as compared to $2,949,445 in 1995 and $2,803,617 in 1994. The decrease in 1996 as compared to 1995 was primarily due to $1,115,480 of interest paid to limited partners in 1996 to rescind partnership units. In addition, cash paid to suppliers increased due to a general increase in the related expense accounts. The increase in 1995 as compared to 1994 was the result of an increase in cash received from tenants resulting from increased rental revenues as discussed above, as well as a decrease in cash paid to suppliers due to the timing of the payment of invoices at the end of the year. Additionally, in 1995 the Partnership received $96,731 in connection with the settlement of the Southmark bankruptcy, as previously discussed. The Partnership expended $1,446,558, $2,044,998 and $2,015,525 on capital additions to its real estate investments in 1996, 1995 and 1994, respectively. The decrease in 1996 as compared to 1995 and 1994 was partially due to fewer capital improvements made at Kellogg Building in 1996 since there was little tenant turnover at the building during the current year. In addition, there was a greater amount of lobby and courtyard improvements at Fidelity Plaza Office Building in 1995 and 1994. Approximately $327,000 of improvements were made at Northwest Plaza Shopping Center for asbestos remediation in 1995. These decreases were partially offset by an increase in improvements at Harbour Club I Apartments which were partially made possible by the release of funds from an escrow account held by the mortgagee. The Partnership distributed $250,006 and $400,207 to the limited partners in 1996 and 1994, respectively. No distributions were paid to the limited partners in 1995. Short-term liquidity: At December 31, 1996, the Partnership held cash and cash equivalents of $3,256,746. This balance provides a reasonable level of working capital for the Partnership's immediate needs in operating its properties. For the Partnership as a whole, management projects positive cash flow from operations in 1997. Only one property, Harbour Club I Apartments, is encumbered with mortgage debt and another property, Fidelity Plaza, is encumbered with lease obligations. As previously discussed, the Harbour Club I mortgage debt is currently in default. The Partnership has budgeted approximately $1,416,000 for necessary capital improvements for all properties in 1997, which are expected to be funded from available cash reserves or from operations of the properties. Additional efforts to maintain and improve Partnership liquidity have included continued attention to property management activities. The objective has been to obtain maximum occupancy rates while holding expenses to levels necessary to maximize cash flows. The Partnership has made capital expenditures on its properties where improvements were expected to increase the competitiveness and marketability of the properties. In February 1997, the Partnership distributed $499,994 to the limited partners from cash from operations. Long-term liquidity: While the outlook for maintenance of adequate levels of liquidity is favorable, should operations deteriorate and present cash resources be insufficient for current needs, the Partnership would require other sources of working capital. No such sources have been identified. The Partnership has no established lines of credit from outside sources. Other possible actions to resolve cash deficiencies include refinancings, deferral of capital expenditures on Partnership properties except where improvements are expected to increase the competitiveness and marketability of the properties, arranging financing from affiliates or the ultimate sale of the properties. Sales and refinancings are possibilities only, and there are at present no plans for any such sales or refinancings. The Partnership determined to evaluate market and other economic conditions to establish the optimum time to commence an orderly liquidation of the Partnership's assets in accordance with the terms of the Amended Partnership Agreement. Taking such conditions as well as other pertinent information into account, the Partnership has determined to begin orderly liquidation of all its assets. Although there can be no assurance as to the timing of the liquidation due to real estate market conditions, the general difficulty of disposing of real estate, and other general economic factors, it is anticipated that such liquidation would result in the dissolution of the Partnership followed by a liquidating distribution to the limited partners by December 1999. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Page Number ------ INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements: Report of Independent Public Accountants....................................... 18 Balance Sheets at December 31, 1996 and 1995................................... 19 Statements of Operations for each of the three years in the period ended December 31, 1996..................................................... 20 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1996.............................................. 21 Statements of Cash Flows for each of the three years in the period ended December 31, 1996..................................................... 22 Notes to Financial Statements.................................................. 24 Financial Statement Schedule - Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization......................................................... 35
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 XXV, L.P.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XXV, L.P. (a California limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996. 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 XXV, L.P. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, 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 10, 1997 McNEIL REAL ESTATE FUND XXV, L.P. BALANCE SHEETS
December 31, ------------------------------------ 1996 1995 --------------- ----------------- ASSETS - ------ Real estate investments: Land..................................................... $ 5,524,462 $ 5,524,462 Buildings and improvements............................... 65,777,015 64,330,457 -------------- ------------- 71,301,477 69,854,919 Less: Accumulated depreciation and amortization......... (32,569,829) (29,234,446) -------------- ------------- 38,731,648 40,620,473 Cash and cash equivalents................................... 3,256,746 3,987,381 Cash segregated for security deposits....................... 314,762 300,223 Note receivable............................................. 344,225 344,225 Accounts receivable, net of allowance for doubtful accounts of $677,123 and $714,050 at December 31, 1996 and 1995, respectively................. 791,836 802,426 Escrow deposits............................................. 75,327 979,938 Deferred borrowing costs, net of accumulated amortization of $76,755 and $67,623 at December 31, 1996 and 1995, respectively................. 241,995 251,127 Prepaid expenses and other assets........................... 349,317 438,148 -------------- ------------- $ 44,105,856 $ 47,723,941 ============== ============== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage note payable....................................... $ 7,381,507 $ 7,381,507 Accounts payable and accrued expenses....................... 995,763 694,624 Accrued interest............................................ 178,277 686,502 Accrued property taxes...................................... 502,142 450,530 Payable to affiliates - General Partner..................... 146,998 98,407 Land lease obligation....................................... 246,332 277,132 Deferred gain............................................... 344,225 344,225 Security deposits and deferred rental revenue............... 329,291 326,032 -------------- ------------- 10,124,535 10,258,959 -------------- ------------- Partners' equity (deficit): Limited partners - 84,000,000 limited partnership units authorized; 82,943,685 and 83,894,648 limited partnership units issued and outstanding at December 31, 1996 and 1995, respectively............... 34,440,696 37,898,581 General Partner.......................................... (459,375) (433,599) -------------- ------------- 33,981,321 37,464,982 -------------- ------------- $ 44,105,856 $ 47,723,941 ============== =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXV, L.P. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1996 1995 1994 -------------- -------------- --------------- Revenue: Rental revenue.......................... $ 9,494,477 $ 8,783,408 $ 9,110,749 Interest................................ 227,778 207,714 175,318 Gain on legal settlement................ - 96,731 - ------------- ------------- -------------- Total revenue......................... 9,722,255 9,087,853 9,286,067 ------------- ------------- -------------- Expenses: Interest................................ 884,739 826,447 829,172 Interest - rescission of limited partnership units..................... 1,115,480 - - Depreciation and amortization........... 3,335,383 3,475,088 3,330,454 Property taxes.......................... 785,113 646,309 609,868 Personnel expenses...................... 808,310 712,901 653,002 Repairs and maintenance................. 1,065,820 1,181,599 1,168,248 Property management fees - affiliates............................ 544,865 523,338 534,044 Utilities............................... 826,634 832,683 825,605 Other property operating expenses....... 935,349 876,510 852,211 General and administrative.............. 1,100,368 385,661 118,809 General and administrative - affiliates............................ 897,794 938,203 896,151 Write-down for permanent impairment of real estate............. - 4,633,000 - ------------- ------------- -------------- Total expenses........................ 12,299,855 15,031,739 9,817,564 ------------- ------------- -------------- Net loss................................... $ (2,577,600) $ (5,943,886) $ (531,497) ============= ============= ============== Net loss allocable to limited partners..... $ (2,551,824) $ (5,884,447) $ (526,182) Net loss allocable to General Partner...... (25,776) (59,439) (5,315) ------------- ------------- --------------- Net loss................................... $ (2,577,600) $ (5,943,886) $ (531,497) ============= ============= ============== Net loss per weighted average thousand limited partnership units................................... $ (30.47) $ (70.14) $ (6.27) ============= ============= ============== Distributions per weighted average thousand limited partnership units....................... $ 2.99 $ - $ 4.77 ============= ============= ===============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXV, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1996, 1995 and 1994
Total General Limited Partners' Partner Partners Equity --------------- ---------------- ----------------- Balance at December 31, 1993.............. $ (368,845) $ 44,709,417 $ 44,340,572 Net loss.................................. (5,315) (526,182) (531,497) Distributions............................. - (400,207) (400,207) -------------- -------------- --------------- Balance at December 31, 1994.............. (374,160) 43,783,028 43,408,868 Net loss.................................. (59,439) (5,884,447) (5,943,886) -------------- -------------- --------------- Balance at December 31, 1995.............. (433,599) 37,898,581 37,464,982 Rescission of 950,963 limited partnership units (net of distributions previously paid of $294,908)........... - (656,055) (656,055) Net loss.................................. (25,776) (2,551,824) (2,577,600) Distributions............................. - (250,006) (250,006) -------------- -------------- --------------- Balance at December 31, 1996.............. $ (459,375) $ 34,440,696 $ 33,981,321 ============== ============== ===============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXV, L.P. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended December 31, ----------------------------------------------------- 1996 1995 1994 --------------- --------------- ---------------- Cash flows from operating activities: Cash received from tenants.............. $ 9,467,928 $ 9,129,170 $ 9,042,034 Cash paid to suppliers.................. (4,048,866) (3,488,428) (3,660,436) Cash paid to affiliates................. (1,394,068) (1,445,561) (1,421,135) Interest received....................... 227,778 207,714 175,318 Interest paid........................... (784,518) (685,155) (578,964) Interest paid to limited partners for rescission of partnership units....... (1,115,480) - - Property taxes paid and escrowed........ (699,990) (865,026) (753,200) Cash received from legal settlement..... - 96,731 - ------------- ------------- -------------- Net cash provided by operating activities.............................. 1,652,784 2,949,445 2,803,617 ------------- ------------- -------------- Cash flows from investing activities: Additions to real estate investments........................... (1,446,558) (2,044,998) (2,015,525) ------------- ------------- -------------- Cash flows from financing activities: Reinstatement of mortgage principal..... - - 15,058 Payments on capitalized land lease obligation...................... (30,800) (43,003) (36,893) Rescission of limited partnership units................................. (656,055) - - Distributions paid...................... (250,006) - (400,207) ------------- ------------- -------------- Net cash used in financing activities...... (936,861) (43,003) (422,042) ------------- ------------- -------------- Net increase (decrease) in cash and cash equivalents.................... (730,635) 861,444 366,050 Cash and cash equivalents at beginning of year....................... 3,987,381 3,125,937 2,759,887 ------------- ------------- -------------- Cash and cash equivalents at end of year................................. $ 3,256,746 $ 3,987,381 $ 3,125,937 ============= ============= ==============
See discussion of noncash investing and financing activites in Note 4 - "Real Estate Investments" and Note 8 "Deferred Gain." See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXV, L.P. STATEMENTS OF CASH FLOWS Reconciliation of Net Loss to Net Cash Provided by Operating Activities
For the Years Ended December 31, ---------------------------------------------------- 1996 1995 1994 -------------- --------------- ---------------- Net loss................................... $ (2,577,600) $ (5,943,886) $ (531,497) ------------ -------------- -------------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........... 3,335,383 3,475,088 3,330,454 Amortization of deferred borrowing costs................................. 9,132 9,132 9,132 Amortization of deferred gain........... - (4,115) (60,062) Allowance for doubtful accounts......... (36,927) 152,624 48,242 Write-down for permanent impairment of real estate............. - 4,633,000 - Changes in assets and liabilities: Cash segregated for security deposits. (14,539) (16,430) (32,920) Note receivable....................... - - 67,316 Accounts receivable................... 47,517 214,838 (37,793) Escrow deposits....................... 904,611 175,339 20,200 Prepaid expenses and other assets.............................. 88,831 (28,528) (16,258) Accounts payable and accrued expenses............................ 301,139 519,605 (207,123) Accrued interest...................... (508,225) 132,160 241,076 Accrued property taxes................ 51,612 (407,770) (45,345) Payable to affiliates - General Partner............................. 48,591 15,980 9,060 Security deposits and deferred rental revenue...................... 3,259 22,408 9,135 ------------- ------------- -------------- Total adjustments................. 4,230,384 8,893,331 3,335,114 ------------- ------------- -------------- Net cash provided by operating activities.............................. $ 1,652,784 $ 2,949,445 $ 2,803,617 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXV, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund XXV, L.P. (the "Partnership"), formerly known as Southmark Equity Partners II, Ltd., was organized on February 15, 1985 as a limited partnership under the provisions of the California Revised Limited Partnership Act to acquire and operate commercial and residential properties. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The General Partner was elected at a meeting of limited partners on March 26, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. The Partnership is engaged in diversified real estate activities including the ownership, operation and management of commercial office, retail and residential real estate. The Partnership has determined to evaluate market and other economic conditions to establish the optimum time to commence an orderly liquidation of the Partnership's assets in accordance with the terms of the Amended Partnership Agreement. At December 31, 1996, the Partnership owned five income-producing properties as described in Note 4 - "Real Estate Investments." 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 Van Buren Associates Limited Partnership ("Van Buren"), a single asset limited partnership formed to accommodate the refinancing of Harbour Club I Apartments. The Partnership is the general partner of Van Buren, and holds a 99.99% interest in Van Buren. The Partnership exercises effective control of Van Buren. The minority interest is not presented as it is both negative and immaterial. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated recoverable amount. The Partnership's method of accounting for real estate investments is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The adoption of SFAS 121 did not have a material impact on the accompanying financial statements. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. Depreciation and Amortization - ----------------------------- Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Tenant improvements are capitalized and are amortized over the terms of the related tenant lease, using the straight-line method. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand and cash on deposit in 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 its mortgage indebtedness agreement. 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 term of the related mortgage note payable. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations. Rental Revenue - -------------- The Partnership leases its residential property under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. The Partnership leases its commercial properties under non-cancelable operating leases. Certain leases provide concessions and/or periods of escalating or free rent. Rental revenue is recognized on a straight-line basis over the life of the related leases. The excess of the rental revenue recognized over the contractual rental payments is recorded as accrued rent receivable and is included in accounts receivable on the Balance Sheets. Income Taxes - ------------ No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners. Allocation of Net Income and Net Loss - ------------------------------------- The Amended Partnership Agreement generally provides that net income and net loss (other than net income arising from sales or refinancing) shall be allocated 1% to the General Partner and 99% to the limited partners. For financial statement purposes, net income arising from sales or refinancing shall be allocated 1% to the General Partner and 99% to the limited partners. For tax reporting purposes, net income arising from sales or refinancing shall be allocated as follows: (a) first, amounts of such net income shall be allocated among the General Partner and limited partners in proportion to, and to the extent of, the portion of such partners' share of the net decrease in Partnership Minimum Gain determined under Treasury Regulations, (b) second, to the General Partner and limited partners in proportion to, and to the extent of, the amount by which their respective capital account balances are negative by more than their respective remaining shares of the Partnership's Minimum Gain attributable to properties still owned by the Partnership and (c) third, 1% of such net income shall be allocated to the General Partner and 99% of such net income shall be allocated to the limited partners. Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocation of Partnership deductions attributable to debt. The Partnership's tax allocations for 1996, 1995 and 1994 have been made in accordance with these provisions. Distributions - ------------- At the discretion of the General Partner, distributable cash (other than cash from sales or refinancing) shall be distributed 100% to the limited partners, with such distributions first paying the limited partners' Priority Return and then to all limited partners on a per limited partnership unit ("Unit") basis. At the discretion of the General Partner, the limited partners will receive 100% of distributable cash from sales or refinancing with such distributions first paying the limited partners' Priority Return, then repayment of Original Invested Capital, and of the remainder, to the limited partners on a per Unit basis. The limited partners' Priority Return represents a 9.25% cumulative return on their Adjusted Invested Capital balance, as defined. In connection with a Terminating Disposition, as defined, cash from sales or refinancing and any remaining reserves shall be allocated among, and distributed to, the General Partner and limited partners in proportion to, and to the extent of, their positive capital account balances after the net income has been allocated pursuant to the above. The Partnership distributed $250,006 of cash from operations to the limited partners in 1996 and $400,207 in 1994. No distributions were paid to the limited partners in 1995 and no distributions have been paid to the General Partner. In February 1997, the Partnership distributed $499,994 to the limited partners from cash from operations. Net Loss Per Thousand Limited Partnership Units - ----------------------------------------------- Net loss per thousand limited partnership units is computed by dividing net loss allocated to the limited partners by the weighted average number of Units outstanding expressed in thousands. Per thousand Unit information has been computed based on 83,736, 83,895 and 83,901 weighted average thousand Units outstanding in 1996, 1995 and 1994, respectively. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its residential property and 6% of gross rental receipts for commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's residential and commercial properties and leasing services for its residential properties. McREMI may also choose to provide leasing services for the Partnership's commercial properties, in which case McREMI will receive property management fees from such commercial properties equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under the terms of the Amended Partnership Agreement, the Partnership is paying an asset management fee to the General Partner. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential properties and $50 per gross square foot for commercial properties to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows:
For the Years Ended December 31, ---------------------------------------------------- 1996 1995 1994 -------------- -------------- --------------- Property management fees - affiliates ..... $ 544,865 $ 523,338 $ 534,044 Charged to general and administrative - affiliates: Partnership administration.............. 225,956 290,839 269,869 Asset management fee.................... 671,838 647,364 626,282 ------------- ------------- -------------- $ 1,442,659 $ 1,461,541 $ 1,430,195 ============= ============= ==============
Payable to affiliates - General Partner at December 31, 1996 and 1995 consisted primarily of unpaid property management fees, Partnership general and administrative expenses and asset management fees and are due and payable from current operations. In May 1992, the Partnership advanced $113,000 to an affiliate of the General Partner which owns a phase in a multi-phased property which includes the Partnership's Harbour Club I Apartments. This advance, which was unsecured and due on demand, accrued interest at a rate equal to the prime lending rate of Bank of America on the date of demand plus 1%. In 1995, the debt was dismissed in the borrowing affiliate's bankruptcy proceeding. Accordingly, the advance and related accrued interest, which were fully reserved for, were written off in 1995. NOTE 3 - TAXABLE INCOME - ----------------------- McNeil Real Estate Fund XXV, L.P. 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 $22,409,365 in 1996, $21,873,312 in 1995 and $16,552,291 in 1994. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments at December 31, 1996 and 1995 are set forth in the following tables:
Accumulated Buildings and Depreciation Net Book 1996 Land Improvements and Amortization Value ---- -------------- ------------ ---------------- --------------- Century Park Las Vegas, NV $ 1,439,077 $ 14,775,849 $ (7,525,841) $ 8,689,085 Fidelity Plaza Long Beach, CA 553,946 12,501,920 (7,897,655) 5,158,211 Harbour Club I Belleville, MI 1,069,513 9,450,779 (3,918,017) 6,602,275 Kellogg Office Building Littleton, CO 1,142,889 9,912,810 (5,316,049) 5,739,650 Northwest Plaza Dayton, OH 1,319,037 19,135,657 (7,912,267) 12,542,427 ------------- ------------- ------------- ------------- $ 5,524,462 $ 65,777,015 $ (32,569,829) $ 38,731,648 ============= ============= ============= ============= Accumulated Buildings and Depreciation Net Book 1995 Land Improvements and Amortization Value ---- -------------- ------------ ---------------- --------------- Century Park $ 1,439,077 $ 14,499,831 $ (6,731,004) $ 9,207,904 Fidelity Plaza 553,946 12,094,420 (7,147,930) 5,500,436 Harbour Club I 1,069,513 9,005,791 (3,476,511) 6,598,793 Kellogg Office Building 1,142,889 9,814,830 (4,816,041) 6,141,678 Northwest Plaza 1,319,037 18,915,585 (7,062,960) 13,171,662 ------------- ------------- ------------- ------------ $ 5,524,462 $ 64,330,457 $ (29,234,446) $ 40,620,473 ============= ============= ============= ============
Fidelity Plaza is a ten-story office building located in downtown Long Beach, California. The southern California area has experienced declining economic conditions over the past several years, and the Partnership has been monitoring conditions closely with the expectations that a rebound would occur. Several factors led to the conclusion that the Partnership had sustained a permanent impairment in the fair value of the asset as follows. The Partnership had originally intended to hold the asset until such time as the real estate market in the area and the performance of the property improved to permit the Partnership to achieve its capital preservation and capital gains objectives. While conditions had improved in 1995, the estimated holding period of the asset was reduced as it became evident that economic factors will not allow for the Partnership to recover its costs over a reasonable period of time. Based upon projected cash flows over the reduced holding period, as well as an analysis of comparable office buildings in the Long Beach area, the Partnership revised its estimated net realizable value of the property; and accordingly, a write-down for permanent impairment of $4,633,000 was recorded in 1995. The Partnership leases its commercial properties under non-cancelable operating leases. Future minimum rents to be received as of December 31, 1996 are as follows: 1997.................................... $ 5,801,000 1998.................................... 4,714,000 1999.................................... 3,333,000 2000.................................... 2,254,000 2001.................................... 1,695,000 Thereafter....................... 6,795,000 ----------- Total $ 24,592,000 =========== Future minimum rentals do not include contingent rentals based on sales volume of tenants. Contingent rentals amounted to $227,311, $0 and $485,412 for the years ended December 31, 1996, 1995 and 1994, respectively. Future minimum rents also do not include expense reimbursements for common area maintenance, property taxes and other expenses. These expense reimbursements amounted to $401,820, $320,960 and $339,690 for the years ended December 31, 1996, 1995 and 1994, respectively. These contingent rents and expense reimbursements are included in rental revenue on the Statements of Operations. Harbour Club I Apartments is encumbered by mortgage indebtedness as discussed in Note 6 - "Mortgage Note Payable." Fidelity Plaza is subject to four ground leases as discussed in Note 5 - "Leases." NOTE 5 - LEASES - --------------- The Partnership leases the land on which Fidelity Plaza is located under four ground leases (one capital lease and three noncancelable operating leases). At December 31, 1996, minimum rental payments under such leases were as follows. Capital Operating Lease Leases --------- ------------ 1997............................... $ 103,538 $ 204,396 1998............................... 103,538 204,396 1999............................... 103,538 204,396 2000............................... 94,910 204,396 2001............................... - 204,396 Thereafter......................... - 11,852,360 -------- ----------- Total minimum payments due......... $ 405,524 $ 12,874,340 =========== Less amount representing interest......................... (159,192) -------- Present value of land lease obligation....................... $ 246,332 ======== Monthly payments are required under the terms of the leases. The capital lease expires in December 2000. The largest operating lease expires in December 2065, while the other two operating leases expire in June and August 2021. Land recorded under the capital lease totaled $553,946 at December 31, 1996 and 1995. The lease contains an option to purchase the land for $1 in 2001. Ground lease expense of $203,704, $201,544 and $200,694 relating to the three operating leases is included in the Statements of Operations with other property operating expenses for the years ended December 31, 1996, 1995 and 1994, respectively. The ground leases contain certain provisions that may give the lessor the right to terminate the leases as a result of the March 1992 restructuring of the Partnership. The lessors have been requested to waive their right to terminate the leasehold, and they may require the payment of fees as a condition to granting such waiver. If the waivers are not obtained, the leases could be terminated. However, management believes the likelihood of this outcome is remote. NOTE 6 - MORTGAGE NOTE PAYABLE - ------------------------------ The following sets forth the mortgage note payable of the Partnership at December 31, 1996 and 1995. The mortgage note payable is secured by the related real estate investment.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rate % Maturity 1996 1995 - -------- ------------------ ------------- ----------- ----------- Harbour Club I First 10.25 (b) 06/23 $ 7,381,507 $ 7,381,507 ========== ==========
(a) The debt is non-recourse to the Partnership. (b) Effective January 1, 1993, the Partnership ceased making regularly scheduled debt service and escrow payments. In lieu of the aforementioned payments, the Partnership is funding debt service with the excess cash flow of the property. The Partnership has been notified that the mortgage note payable is in default. During 1996, the mortgagee applied approximately $599,000 of mortgagee held escrow funds to the outstanding interest payable balance. Effective January 23, 1997, the mortgage note payable was sold by the mortgagee to an unaffiliated lender. The Partnership is currently attempting to negotiate a cure of the default and a modification of the note agreement with the new lender. If the Partnership is unable to successfully cure the default, the mortgagee could declare the entire indebtedness due and proceed with foreclosure on the property or pursue other actions such as gaining control of the property or placing it in receivership. Based on borrowing rates currently available to the Partnership for a mortgage loan with similar terms and average maturities, the fair value of the mortgage note payable was approximately $8,675,000 at December 31, 1996 and $9,018,000 at December 31, 1995. NOTE 7 - ACCOUNTS RECEIVABLE - ---------------------------- The accounts receivable balance includes amounts due from tenants for base rent, common area maintenance, percentage rents and other miscellaneous amounts. In addition, accounts receivable includes amounts relating to rental guarantees from the seller of Century Park Office Building of approximately $470,000 at December 31, 1996 and 1995. The allowance for doubtful accounts primarily consists of amounts for those rental guarantee payments which are not expected to be collected. NOTE 8 - DEFERRED GAIN - ---------------------- In October 1992, the Partnership agreed to restructure a lease with a major tenant of Kellogg Office Building. Under the terms of the restructuring, the tenant relinquished approximately 20,000 square feet of office space, of which approximately 10,000 square feet was subleased to another tenant, and retained existing space at a reduced rate. In connection with the restructuring, the tenant signed a promissory note in the amount of $500,000 secured by an interest in a coal mine, assigned an interest in a sublease with a third party, and transferred 50,000 shares of Confertech International, Inc. common stock to the Partnership. In 1992, the Partnership recorded a deferred gain of $628,938 as a result of this transaction. In 1993, the Partnership sold all 50,000 shares of the stock for $243,855 and recognized a $43,855 gain on sale of marketable securities. The Partnership also recognized the portion of the deferred gain that related to the common stock. The portion of the deferred gain that relates to the promissory note is being amortized as payments on the note are received. The recognition of deferred gain of $64,158 in 1994 is included in rental revenue on the Statements of Operations. No deferred gain was recognized in 1996 or 1995 since no payments were received on the promissory note. The note receivable is currently in default and management has commenced collection efforts. NOTE 9 - LEGAL PROCEEDINGS - -------------------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: 1) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (as defined in this Section 1, the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought recovery against the Partnership's former auditors, Ernst & Young, for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark, the former general partner. The former auditors initially asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims sought recovery of attorneys' fees and costs incurred in defending this action. The counterclaims were later dismissed on appeal, as discussed below. The trial court granted summary judgment against the Affiliated Partnerships based on the statute of limitations; however, on appeal, the Dallas Court of Appeals reversed the trial court and remanded for trial the Affiliated Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court denied Ernst & Young's application for writ of error on January 11, 1996. Shortly before trial, the district court judge once again granted summary judgment against the Affiliated Partnerships on December 2, 1996. The Partnership is continuing to pursue vigorously its claims against Ernst & Young; however, the final outcome of this litigation cannot be determined at this time. 2) Martha Hess, et al. v. Southmark Equity Partners II, Ltd. (presently known as McNeil Real Estate Fund XXV, L.P.), Southmark Income Investors, Ltd., Southmark Equity Partners, Ltd., Southmark Realty Partners III, Ltd., Southmark Realty Partners II, Ltd., McNeil Partners, L.P. et al. ("Hess"); Kotowski v. Southmark Equity Partners, Ltd. and Donald Arceri v. Southmark Income Investors, Ltd. - Illinois Appellate Court for the First District, Fifth Division, as consolidated Case No. 90-107 (remanded back to Trial Court - Circuit Court of Cook County, Illinois County Department, Chancery Division, as consolidated Case No. 88 CH 4670 (L92026). Consolidated with these cases were an additional 14 matters against unrelated partnership entities. The Hess case was filed on May 20, 1988, by Martha Hess, individually, and on behalf of a putative class of parties similarly situated. The original, first, second and third amended complaints in Hess sought rescission, pursuant to the Illinois Securities Act, of over $2.7 million of principal invested in five (5) Southmark (now McNeil) partnerships (as defined in this Section 2, the "Defendants"), and other relief including damages for breach of fiduciary duty and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The original, first, second and third amended complaints in Hess were dismissed against the defendant-group because the Appellate Court held that they were not the proper subject of a class action complaint. Hess was, thereafter, amended a fourth time to state causes of action against unrelated partnership entities. Hess went to judgment against that unrelated entity and the judgment, along with the prior dismissal of the class action, was appealed. The Hess appeal was decided by the Appellate Court during 1992. The Appellate Court affirmed the dismissal of the breach of fiduciary duty and consumer fraud claims. The Appellate Court did, however, reverse in part, holding that certain putative class members could file class action complaints against the defendant-group, which pursuant to the Appellate Court's ruling, included the Partnership. Although leave to appeal to the Illinois Supreme Court was sought, the Illinois Supreme Court refused to hear the appeal. On June 15, 1994, the Appellate Court issued its mandate sending the case back to Trial Court. In late January 1995, plaintiffs filed a Motion to File an Amended Consolidated Class Action Complaint, which amends the complaint to name McNeil Partners, L.P. as the successor general partner to Southmark Investment Group. In February 1995, Plaintiffs filed a Motion for Class Certification. The amended cases against the defendant-group, and others are proceeding under the caption George and Joy Krugler v. I.R.E. Real Estate Income Fund, Jerry and Barbara Neumann v. Southmark Equity Partners II (McNeil Real Estate Fund XXV, L.P.), Richard and Theresa Bartoszewski v. Southmark Realty Partners III (McNeil Real Estate Fund XXIII, L.P.), and Edward and Rose Weskerna v. Southmark Realty Partners II (McNeil Real Estate Fund XXII, L.P.). In September 1995, the Court granted plaintiffs' Motion to File an Amended Complaint, to Consolidate and for Class Certification. Defendants answered the complaint and plead that the plaintiffs did not give timely notice of their desire to rescind within six months of knowing that right, as required by law. Plaintiffs filed a Motion for Summary Judgment against the remaining partnership defendants, as well as the initial general partners. The Court ruled on plaintiffs' Motion for Summary Judgment on April 25, 1996, and entered partial summary judgment against the Partnership, as well as the initial general partner. Summary judgment against McNeil Partners, L.P., as the successor general partner, was not sought. On October 26, 1996, the court entered judgment against the Partnership in the amount of $1,768,048, plus post-judgment interest. Effective October 31, 1996, 950,963 limited partnership units were rescinded. On October 30, 1996, the Partnership distributed to the plaintiffs' escrow agent $1,771,535 in exchange for a full release of the Partnership and McNeil Partners, L.P. The payment consists of the $950,963 original purchase price of the Units, net of distributions previously paid of $294,908, plus $1,115,480 in interest. In addition, in February 1997, the Partnership was required to pay the plaintiffs' attorneys $690,000 for legal expenses. These legal expenses have been accrued at December 31, 1996. 3) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (as defined in this Section 3, the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (as defined in this Section 3, 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. On January 7, 1997, the Court ordered consolidation with three other similar actions listed below. The Partnerships filed a demurrer to the complaint and a motion to strike on February 14, 1997, seeking to dismiss the complaint in all respects. The demurrer is pending. The Partnerships deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 4) Alfred Napoletano v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California, County of Los Angeles, Case No. BC133849 (Class Action Complaint). On January 7, 1997, this action was consolidated by court order with Scholfield, et al., referenced above. 5) Warren Heller v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California, County of Los Angeles, Case No. BC133957 (Class Action Complaint). On January 7, 1997, this action was consolidated by court order with Scholfield, et al., referenced above. 6) Robert Lewis v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil et al. - In the District Court of Dallas County, Texas, A-14th Judicial District, Cause No. 95-08535 (Class Action) - Plaintiff, Robert Lewis, is a limited partner with McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd. On April 11, 1996, the action was dismissed without prejudice in anticipation of consolidation with other class action complaints. On January 7, 1997, this action was consolidated by court order with Schofield, et al., referenced above. 7) McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., and McNeil Real Estate Fund XXV, L.P. v. High River Limited Partnership, Riverdale Investors Corp., Carl C. Icahn, and Unicorn Associates Corporation - United States District Court for the Central District of California, Case No. 96-5680SVW. On August 12, 1996, High River Limited Partnership (as defined in this Section 7, "High River"), a partnership controlled by Carl C. Icahn, sent a letter to the partnerships referenced above demanding lists of the names, current residences or business addresses and certain other information concerning the unitholders of such partnerships. On August 19, 1996, these partnerships commenced the above action seeking, among other things, to declare that such partnerships are not required to provide High River with a current list of unitholders on the grounds that the defendants commenced a tender offer in violation of the federal securities laws by filing certain Schedule 13D Amendments on August 5, 1996. On October 16, 1996, the presiding judge denied the partnerships' requests for a permanent and preliminary injunction to enjoin High River's tender offers and granted the defendants request for an order directing the partnerships to turn over current lists of unitholders to High River forthwith. On October 24, 1996, the partnerships delivered the unitholder lists to High River. The judge's decision resolved all the issues in the action. NOTE 10 - RESCISSION OF LIMITED PARTNERSHIP UNITS - ------------------------------------------------- As discussed in Note 9 - "Legal Proceedings," on October 26, 1996, a judgment was entered against the Partnership which effectively rescinded 950,963 Units of the Partnership as of October 31, 1996. Pursuant to the court order, the Partnership made settlement payments to an escrow agent on behalf of the plaintiff limited partners totaling $1,771,535 on October 30, 1996. The payments consisted of two components. The first component of $656,055, which is recorded as a rescission of limited partnership units on the Statements of Partners' Equity (Deficit), represents the return of the limited partners' equity investments, net of all distributions previously paid to them. The second component of $1,115,480, which is recorded as interest - rescission of limited partnership units on the Statements of Operations, represents interest paid on the rescinded Units pursuant to the court judgment. Additionally, on February 6, 1997, the Partnership agreed to pay the plaintiffs $690,000 for attorney fees in exchange for a release of all claims against the Partnership and General Partner. This settlement amount has been accrued at December 31, 1996, and is recorded as a general and administrative expense on the Statements of Operations. McNEIL REAL ESTATE FUND XXV, L.P. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1996
Cumulative Costs Initial Cost Write-down Capitalized Related Buildings and and Permanent Subsequent Description Encumbrances(c) Land Improvements Impairment(b) To Acquisition - ----------- --------------- ---- ------------- -------------- -------------- APARTMENTS: Harbour Club I Belleville, MI $ 7,381,507 $ 763,364 $ 8,792,575 $ (338,092) $ 1,302,445 OFFICE BUILDINGS: Century Park Las Vegas, NV - 1,549,077 12,537,373 (1,000,000) 3,128,476 Fidelity Plaza Long Beach, CA 246,332 541,239 13,172,687 (4,633,000) 3,974,940 Kellogg Office Building Littleton, CO - 1,743,070 12,804,735 (5,003,041) 1,510,935 RETAIL CENTER: Northwest Plaza Dayton, OH - 1,319,037 17,528,258 - 1,607,399 -------------- -------------- -------------- ------------- ------------- $ 7,627,839 $ 5,915,787 $ 64,835,628 $ (10,974,133) $ 11,524,195 ============== ============== ============== ============= =============
(b) The carrying value of Century Park and Kellogg Office Building were reduced by $1,000,000 and $4,000,000, respectively, in 1989. In 1992, the carrying value of Kellogg Office Building was further reduced by $1,003,041 and the carrying value of Harbour Club I Apartments was reduced by $338,092. The carrying value of Fidelity Plaza was reduced by $4,633,000 in 1995. (c) Related encumbrances include a mortgage note payable and a capitalized land lease obligation. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXV, L.P. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1996
Gross Amount at Which Carried at Close of Period Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization - ----------- ---- ------------ --------- ---------------- APARTMENTS: Harbour Club I Belleville, MI $ 1,069,513 $ 9,450,779 $ 10,520,292 $ (3,918,017) OFFICE BUILDINGS: Century Park Las Vegas, NV 1,439,077 14,775,849 16,214,926 (7,525,841) Fidelity Plaza Long Beach, CA 553,946 12,501,920 13,055,866 (7,897,655) Kellogg Office Building Littleton, CO 1,142,889 9,912,810 11,055,699 (5,316,049) RETAIL CENTER: Northwest Plaza Dayton, OH 1,319,037 19,135,657 20,454,694 (7,912,267) ------------- ------------- --------------- ------------- $ 5,524,462 $ 65,777,015 $ 71,301,477 $ (32,569,829) ============= ============= =============== =============
(a) For Federal income tax purposes, the properties are depreciated over lives ranging from 5-39 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was $82,474,437 and accumulated depreciation was $33,177,798 at December 31, 1996. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXV, L.P. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1996
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------- APARTMENTS: Harbour Club I Belleville, MI 1969 06/86 5-25 OFFICE BUILDINGS: Century Park Las Vegas, NV 1984 05/86 5-25 Fidelity Plaza Long Beach, CA 1968 12/85 5-25 Kellogg Office Building Littleton, CO 1983 12/85 5-25 RETAIL CENTER: Northwest Plaza Dayton, OH 1964/1980 06/86 5-25
See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXV, L.P. Notes to Schedule III Real Estate Investments and Accumulated Depreciation and Amortization A summary of activity for the Partnership's real estate investments and accumulated depreciation and amortization is as follows:
For the Years Ended December 31, ---------------------------------------------------- 1996 1995 1994 -------------- --------------- --------------- Real estate investments: Balance at beginning of year............... $ 69,854,919 $ 72,442,921 $ 70,097,820 Improvements............................... 1,446,558 2,044,998 2,015,525 Land acquired in settlement of lawsuit..... - - 329,576 Write-down for permanent impairment of real estate............... - (4,633,000) - ------------- ------------- -------------- Balance at end of year..................... $ 71,301,477 $ 69,854,919 $ 72,442,921 ============= ============== ============== Accumulated depreciation and amortization: Balance at beginning of year............... $ 29,234,446 $ 25,759,358 $ 22,428,904 Depreciation and amortization.............. 3,335,383 3,475,088 3,330,454 ------------- ------------- -------------- Balance at end of year..................... $ 32,569,829 $ 29,234,446 $ 25,759,358 ============= ============== ==============
PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ----------------------------------------------------------- AND FINANCIAL DISCLOSURES ------------------------- None. 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, 76 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate 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 53 Mrs. McNeil is Co-Chairman, with Co-Chairman of the husband Robert A. McNeil, of McNeil Board Investors, Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate 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 Center, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute. Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Ron K. Taylor 39 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, 1996, 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, 1996. 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 7,352,244 Units at January 31, 1997 (approximately 8.86% 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 27,322 limited partnership units, which represents less than 1% of the outstanding limited partnership units. (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- The amendments to the Partnership compensation structure included in the Amended Partnership Agreement provide for an asset management fee to replace all other forms of general partner compensation other than property management fees and reimbursements of certain costs. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential properties and $50 per gross square foot for commercial properties to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. For the year ended December 31, 1996, the Partnership paid or accrued $671,838 of such asset management fees. The Partnership pays property management fees equal to 5% of the gross rental receipts of residential properties and 6% for commercial properties to McREMI, an affiliate of the General Partner, for providing property management services. Additionally, the Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1996, the Partnership paid or accrued $770,821 of such 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." ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------- ----------------------------------------------------------------- See accompanying Index to Financial Statements at Item 8. (A) Exhibits Exhibit Number Description ------- ----------- 4. Amended and Restated Limited Partnership Agreement dated March 26, 1992 (incorporated by reference to the Current Report of the registrant on Form 8-K dated March 26, 1992, as filed on April 9, 1992). 4.1 Amendment No. 1 to the Amended and Restated Limited Partnership Agreement of McNeil Real Estate Fund XXV, L.P. dated June 1995 (incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the period ended June 30, 1995, as filed on August 14, 1995). 4.2 Certificate and Agreement of Van Buren Associates Limited Partnership (incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1991, as filed on March 24, 1992). 10.1 Revolving Credit Agreement dated August 6, 1991, between McNeil Partners, L.P. and various selected partnerships, including the registrant (incorporated by reference to the Annual Report on Form 10-K for the period ended December 31, 1993, as filed on March 30, 1994). 10.2 Portfolio Services Agreement dated February 14, 1991, between Southmark Equity Partners II, Ltd. and McNeil Real Estate Management, Inc. (1) Exhibit Number Description ------- ----------- 10.3 Mortgage note dated May 6, 1988, among Van Buren Associates Limited Partnership, Southmark Equity Partners II, Ltd. and DRG Funding Corporation relating to Harbour Club I. (1) 10.4 Property Management Agreement dated March 26, 1992, between McNeil Real Estate Fund XXV, L.P. and McNeil Real Estate Management, Inc. (2) 10.5 Amendment of Property Management Agreement dated March 5, 1993 by McNeil Real Estate Fund XXV, L.P. and McNeil Real Estate Management, Inc. (2) 10.6 Property Management Agreement dated March 26, 1992 between Van Buren Associates Limited Partnership and McNeil Real Estate Management, Inc. (2) 10.7 Amendment of Property Management Agreement dated March 5, 1993, by Van Buren Associates Limited Partnership and McNeil Real Estate Management, Inc. (2) 11. Statement regarding computation of Net Income (Loss) per Thousand Limited Partnership Unit (see Item 8 - "Organization and Summary of Significant Accounting Policies"). 22. Following is a list of subsidiaries of the Partnership:
Names Under Jurisdiction of Which It Is Name of Subsidiary Incorporation Doing Business ------------------ --------------- -------------- Van Buren Associates Limited Partnership Michigan None
(1) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the period ended March 31, 1991, as filed on May 14, 1991. (2) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1992, as filed on March 30, 1993. (B) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 1996. McNEIL REAL ESTATE FUND XXV, L.P. 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 XXV, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner March 28, 1997 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 28, 1997 By: /s/ Ron K. Taylor - -------------- ---------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 28, 1997 By: /s/ Carol A. Fahs - -------------- ---------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 12-MOS DEC-31-1996 DEC-31-1996 3,256,746 0 1,468,959 (677,123) 0 0 71,301,477 (32,569,829) 44,105,856 0 7,381,507 0 0 0 33,981,321 44,105,856 9,494,477 0 0 0 10,299,636 0 2,000,219 (2,577,600) 0 (2,577,600) 0 0 0 (2,577,600) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----