-----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, CF9RvUhcAZ7soGkWbbh/VkmdHxtx1/e3RxRjeenxdM/Ra5L/H4skhXYDaIZsMulk K725hqJQI4KxEW06U4Hfww== 0000810481-99-000007.txt : 19990817 0000810481-99-000007.hdr.sgml : 19990817 ACCESSION NUMBER: 0000810481-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXVII LP CENTRAL INDEX KEY: 0000810481 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 330214387 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17173 FILM NUMBER: 99690661 BUSINESS ADDRESS: STREET 1: 13760 NOEL ROAD STREET 2: SUITE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9724485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD SUITE 700 LB 70 STREET 2: 13760 NOEL ROAD SUITE 700 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK PRIME PLUS L P DATE OF NAME CHANGE: 19920413 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 ------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-17173 ---------- MCNEIL REAL ESTATE FUND XXVII, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 33-0214387 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (972) 448-5800 ------------------------------ Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- MCNEIL REAL ESTATE FUND XXVII, L.P. BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------- ------------- ASSETS - ------ Real estate investments: Land .................................................... $ 4,196,277 $ 4,196,277 Buildings and improvements .............................. 24,335,354 24,202,659 ------------ ------------ 28,531,631 28,398,936 Less: Accumulated depreciation and amortization ........ (10,792,807) (10,156,882) ------------ ------------ 17,738,824 18,242,054 Assets held for sale ....................................... 4,613,386 4,613,386 Mortgage loan investments - affiliates ..................... 1,306,488 1,306,488 Cash and cash equivalents .................................. 3,656,065 2,844,032 Cash segregated for security deposits and repurchase of limited partnership units ............................ 206,447 467,207 Accounts receivable ........................................ 218,778 178,537 Accrued interest receivable ................................ 11,007 12,206 Prepaid expenses and other assets .......................... 371,387 177,461 ------------ ------------ $ 28,122,382 $ 27,841,371 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Accounts payable and accrued expenses ...................... $ 227,607 $ 70,657 Accrued property taxes ..................................... 180,972 -- Payable to limited partners ................................ -- 332,928 Payable to affiliates ...................................... 1,575,755 1,230,795 Security deposits and deferred rental revenue .............. 331,164 248,650 ------------ ------------ 2,315,498 1,883,030 ------------ ------------ Partners' equity (deficit): Limited partners - 10,000,000 limited partnership units authorized; 5,162,909 limited partnership units outstanding at June 30, 1999 and December 31, 1998 ..................................... 25,842,208 26,007,139 General Partner ......................................... (35,324) (48,798) ------------ ------------ 25,806,884 25,958,341 ------------ ------------ $ 28,122,382 $ 27,841,371 ============ ============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXVII, L.P. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenue: Rental revenue .................. $2,352,688 $2,314,188 $4,632,671 $4,517,365 Interest income on mortgage loan investments - affiliates . 33,387 147,631 65,575 337,919 Other interest income ........... 37,805 40,064 78,604 79,152 ---------- ---------- ---------- ---------- Total revenue ................. 2,423,880 2,501,883 4,776,850 4,934,436 ---------- ---------- ---------- ---------- Expenses: Interest ........................ 1,945 66,292 5,139 162,327 Depreciation and amortization .................. 305,254 348,139 635,925 680,347 Property taxes .................. 308,286 282,851 607,543 566,687 Personnel costs ................. 198,720 171,121 401,097 395,819 Utilities ....................... 93,146 91,549 207,491 197,951 Repairs and maintenance ......... 141,908 150,730 298,597 289,725 Property management fees - affiliates ............. 128,122 131,826 254,997 253,321 Other property operating expenses ...................... 121,450 129,309 261,307 277,121 General and administrative ...... 189,954 152,794 283,700 281,222 General and administrative - affiliates .................... 243,310 232,128 473,613 459,501 ---------- ---------- ---------- ---------- Total expenses ................ 1,732,095 1,756,739 3,429,409 3,564,021 ---------- ---------- ---------- ---------- Net income ......................... $ 691,785 $ 745,144 $1,347,441 $1,370,415 ========== ========== ========== ========== Net income allocable to limited partners ............. $ 684,868 $ 737,693 $1,333,967 $1,356,711 Net income allocable to General Partner .............. 6,917 7,451 13,474 13,704 ---------- ---------- ---------- ---------- Net income ......................... $ 691,785 $ 745,144 $1,347,441 $1,370,415 ========== ========== ========== ========== Net income per weighted average hundred limited partnership units ............... $ 13.27 $ 14.19 $ 25.84 $ 26.09 ========== ========== ========== ========== Distributions per weighted average hundred limited partnership units ............... $ -- $ -- $ 29.03 $ 43.21 ========== ========== ========== ==========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXVII, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) (Unaudited) For the Six Months Ended June 30, 1999 and 1998
Total General Limited Partners' Partner Partners Equity (Deficit) ------------- ------------ ---------------- Balance at December 31, 1997 ............. $ (76,949) $ 29,076,126 $ 28,999,177 Net income ............................... 13,704 1,356,711 1,370,415 Distributions to limited partners ........ -- (2,247,060) (2,247,060) ------------ ------------ ------------ Balance at June 30, 1998 ................. $ (63,245) $ 28,185,777 $ 28,122,532 ============ ============ ============ Balance at December 31, 1998 ............. $ (48,798) $ 26,007,139 $ 25,958,341 Net income ............................... 13,474 1,333,967 1,347,441 Distributions to limited partners ........ -- (1,498,898) (1,498,898) ------------ ------------ ------------ Balance at June 30, 1999 ................. $ (35,324) $ 25,842,208 $ 25,806,884 ============ ============ ============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXVII, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Six Months Ended June 30, -------------------------------- 1999 1998 ------------ ------------ Cash flows from operating activities: Cash received from tenants ........................ $ 4,662,606 $ 4,713,734 Cash paid to suppliers ............................ (1,464,794) (1,481,619) Cash paid to affiliates ........................... (383,650) (411,812) Interest received ................................. 78,604 79,152 Interest received from affiliates ................. 66,774 391,098 Interest paid ..................................... (5,139) (162,327) Property taxes paid ............................... (426,571) (389,315) ----------- ----------- Net cash provided by operating activities ............ 2,527,830 2,738,911 ----------- ----------- Cash flows from investing activities: Additions to real estate investments and assets held for sale ............................ (132,695) (592,425) Proceeds from collection of mortgage loan investments - affiliates ........................ -- 5,724,999 Mortgage loan investments - affiliates ............ -- (75,000) ----------- ----------- Net cash provided by (used in) investing activities ........................................ (132,695) 5,057,574 ----------- ----------- Cash flows from financing activities: Net decrease in cash segregated for repurchase of limited partnership units ......... 248,724 247,925 Repayment of revolving credit agreement ........... -- (3,437,648) Repurchase of limited partnership units ........... (332,928) (332,928) Distributions to limited partners ................. (1,498,898) (2,247,060) ----------- ----------- Net cash used in financing activities ................ (1,583,102) (5,769,711) ----------- ----------- Net increase in cash and cash equivalents ............ 812,033 2,026,774 Cash and cash equivalents at beginning of period ............................................ 2,844,032 2,440,084 ----------- ----------- Cash and cash equivalents at end of period ........... $ 3,656,065 $ 4,466,858 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXVII, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Income to Net Cash Provided by Operating Activities
Six Months Ended June 30, ------------------------------- 1999 1998 ----------- ----------- Net income ........................................... $ 1,347,441 $ 1,370,415 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................... 635,925 680,347 Changes in assets and liabilities: Cash segregated for security deposits ........... 12,036 (386) Accounts receivable ............................. (40,241) 213,525 Accrued interest receivable ..................... 1,199 53,179 Prepaid expenses and other assets ............... (193,926) (3,186) Accounts payable and accrued expenses ........... 156,950 (58,512) Accrued property taxes .......................... 180,972 177,372 Payable to affiliates ........................... 344,960 301,010 Security deposits and deferred rental revenue ....................................... 82,514 5,147 ----------- ----------- Total adjustments ............................. 1,180,389 1,368,496 ----------- ----------- Net cash provided by operating activities ............ $ 2,527,830 $ 2,738,911 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXVII, L.P. Notes to Financial Statements June 30, 1999 (Unaudited) NOTE 1. - ------- McNeil Real Estate Fund XXVII, L.P. (the "Partnership"), formerly known as Southmark Prime Plus, L.P., was organized by affiliates of Southmark Corporation ("Southmark") on January 16, 1987, as a limited partnership under the provisions of the Delaware Revised Uniform Limited Partnership Act to make short-term loans to affiliates of the general partner. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, Dallas, Texas 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1998, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XXVII, L.P., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. NOTE 3. - ------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its mini-storage warehouses and 6% of gross rental receipts for its commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's mini-storage warehouses and commercial properties and leasing services for its mini-storage warehouses. 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. The Partnership is paying an asset management fee, which is payable to the General Partner. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $30 per gross square foot for mini-storage warehouses 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 to .75% in 2000, .50% in 2001 and .25% thereafter. Total accrued but unpaid asset management fees of $1,027,131 and $768,885 were outstanding at June 30, 1999 and December 31, 1998, respectively. Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows: Six Months Ended June 30, ------------------------- 1999 1998 ----------- ---------- Property management fees...................... $ 254,997 $ 253,321 Charged to general and administrative - affiliates: Partnership administration................. 158,544 147,977 Asset management fee....................... 315,069 311,524 ----------- ---------- $ 728,610 $ 712,822 =========== ========== Under the terms of its amended partnership agreement, the Partnership is expressly permitted to make loans to affiliates of the General Partner, so long as such loans meet certain conditions, including that such loans bear interest at a rate of prime plus 2.5%, or prime plus 3.5% if the loan is junior to other indebtedness. These loans are secured by income-producing real estate and may be either junior or senior to other indebtedness secured by such property. The Partnership made loans to affiliates of $75,000 during the first six months of 1998 and received $5,724,999 in proceeds from collections of loans to affiliates during the same period. No loans were made or repaid during the first six months of 1999. In order to induce the Partnership to lend funds to affiliates of the General Partner, the General Partner agreed to pay (i) the difference between the interest rate required by the Partnership's amended partnership agreement to be charged to affiliates and the interest rate actually paid by certain of those affiliates, and (ii) all points (1.5% or 2% if the loan is junior to other indebtedness), closing costs and expenses. The Partnership recorded interest income on affiliate loans of $65,575 and $337,919 for the six months ended June 30, 1999 and 1998, respectively, of which $9,718 and $49,179, respectively, was paid or payable by the General Partner. Payable to affiliates at June 30, 1999 and December 31, 1998 consisted primarily of a performance incentive fee of $141,647 accrued in prior years, Partnership general and administrative expenses, asset management fees and prepaid interest. Except for the performance incentive fee and prepaid interest, all accrued fees are due and payable from current operations. NOTE 4. - ------- On October 25, 1996, the Partnership agreed to loan an aggregate of $1.68 million to McNeil Pension Investment Fund, Ltd. ("McPIF"), an affiliate of the General Partner, at an interest rate of prime plus 1% per annum (the maximum rate allowed to be incurred by McPIF in connection with borrowings from affiliates pursuant to McPIF's partnership agreement). The prime lending rate was 7.75% at June 30, 1999 and December 31, 1998 and was 8.5% at June 30, 1998. In 1996, $820,426 was borrowed by McPIF pursuant to this commitment. An additional $75,000 was borrowed in January 1998. McPIF borrowed an additional $411,062 in May 1998 and repaid a $411,062 mortgage loan investment secured by Brice Road Office Building. This loan is secured by a first lien on Verre Center Office Building located in Chamblee, Georgia. Interest on the loan is payable monthly. Principal is payable in November 1999. On February 28, 1997, the Partnership loaned $2,336,029 to McNeil Real Estate Fund X, Ltd. ("Fund X"), at an interest rate of prime plus 1% per annum (the maximum rate allowed to be incurred by Fund X in connection with borrowings from affiliates pursuant to Fund X's partnership agreement). On August 1, 1997, the mortgage note was amended and the principal balance was increased by $800,000, for total borrowings from the Partnership of $3,136,029. Fund X used the $800,000 additional proceeds to repay the $800,000 mortgage loan investment secured by Lakeview Plaza Shopping Center. This loan was secured by a first lien on La Plaza Business Center located in Las Vegas, Nevada and was paid in full in June 1998. On October 25, 1996, the Partnership loaned $2,588,970 to McNeil Real Estate Fund XI, L.P. ("Fund XI") at an interest rate of prime plus 1% per annum (the maximum rate allowed to be incurred by Fund XI in connection with borrowings from affiliates pursuant to Fund XI's partnership agreement). This loan was secured by a first lien on The Village Apartments located in Gresham, Oregon. This loan was paid in full in May 1998. NOTE 5. - ------- In June 1998, the Partnership paid off the $3,437,648 balance of its revolving credit agreement. Any borrowings under the revolving credit agreement bore interest at prime plus one-half of one percent or a LIBOR-based rate, if so elected by the Partnership. The Partnership was required to pay a commitment fee equal to one-quarter of one percent per annum on any unused portion of the line of credit. The revolving credit agreement was cancelled by the Partnership in March 1999. NOTE 6. - ------- On June 24, 1999, the Partnership and 18 affiliated partnerships, collectively (the "Partnerships"), the General Partner, McNeil Investors, Inc., McNeil Real Estate Management, Inc. ("McREMI"), McNeil Summerhill, Inc. and Robert A. McNeil entered into a definitive acquisition agreement (the "Master Agreement") with WXI/McN Realty L.L.C. ("Newco"), an affiliate of Whitehall Street Real Estate Limited Partnership XI, a real estate investment fund managed by Goldman, Sachs & Co., whereby Newco and its subsidiaries will acquire the Partnerships. The Master Agreement provides that the Partnerships will be merged with subsidiaries of Newco. The Master Agreement also provides for the acquisition by Newco and its subsidiaries of the assets of McREMI. The aggregate consideration in the transaction, including the assumption or prepayment of all outstanding mortgage debt of the Partnerships, is approximately $644,440,000. Pursuant to the terms of the Master Agreement, the limited partners in the Partnership will receive cash on the closing date of the transaction (the "Closing Date") in exchange for their limited partnership interests. In addition, the Partnership will declare a special distribution to its limited partners on the Closing Date equal to its then positive net working capital balance, if any. The estimated aggregate consideration and net working capital distribution to be received per unit of limited partnership interest in the Partnership is currently estimated as $10.54. On the Closing Date, the General Partner of the Partnership, will receive an equity interest in Newco in exchange for its contribution to Newco of the general partnership interests in the Partnerships, the limited partnership interests in Fairfax Associates II L.P. and McNeil Summerhill Associates and the assets of McREMI. The Partnership's participation in the transaction is subject to, among other conditions, the approval by a majority of the limited partners of the Partnership. In some circumstances, as defined in the Master Agreement, the Partnerships may be subject to a break-up fee, up to an aggregate maximum of $18,000,000, if the Master Agreement is terminated with respect to one or more of the Partnerships. In the case of termination of the Master Agreement in these circumstances, each of the Partnerships with respect to which the Master Agreement has been terminated will be severally, but not jointly, liable for payment to Newco of its respective break-up fee. The break-up fee ratably calculated for the Partnership is $1,566,648. All previous costs associated with this transaction had been allocated among the Partnerships and McREMI based on the relative number of properties contained therein. On June 24, 1999, a fairness opinion (the "Fairness Opinion") was rendered by Robert A. Stanger & Co., Inc., an independent financial advisor, to the effect that the aggregate consideration to be paid for the general partnership interests and limited partnership interests in all of the Partnerships and the assets of McREMI is fair from a financial point of view to the holders of each class of limited partnership interests. Based on the relative values as set forth in the Fairness Opinion, the Partnership recorded an adjustment to general and administrative expenses and prepaid expenses and other assets during the second quarter of 1999 in the amount of $(193,842) to reflect the reallocation of previously paid transaction costs among the Partnerships and McREMI. This overpayment of general and administrative expenses is included in prepaid expenses and other assets on the Balance Sheet at June 30, 1999. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------ --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - -------------------- There has been no significant change in the operations of the Partnership's properties since December 31, 1998. The Partnership reported net income for the first six months of 1999 of $1,347,441 as compared to $1,370,415 for the first six months of 1998. Revenues were $4,776,850 for the first six months of 1999 and $4,934,436 for the same period in 1998. Expenses were $3,429,409 for the six months ended June 30, 1999 as compared to $3,564,021 for the comparable period in 1998. Net cash provided by operating activities was $2,527,830 for the six months ended June 30, 1999. The Partnership expended $132,695 for capital improvements, paid $332,928 for the repurchase of limited partnership units (excluding a decrease in cash segregated for the repurchase of limited partnership units of $248,724) and distributed $1,498,898 to the limited partners. Cash and cash equivalents totaled $3,656,065 at June 30, 1999, a net increase of $812,033 from the balance at December 31, 1998. RECENT DEVELOPMENTS - ------------------- On June 24, 1999, McNeil Partners, L.P. (the General Partner of the Partnership) and WXI/McN Realty L.L.C., an affiliate of Whitehall Street Real Estate Limited Partnership XI ("Whitehall"), a real estate investment fund managed by Goldman, Sachs & Co., announced that they have entered into a definitive acquisition agreement whereby the Whitehall affiliate will acquire by merger nineteen real estate limited partnerships operated by McNeil Partners, L.P. and Robert A. McNeil. The limited partnerships involved are the Partnership and McNeil Real Estate Funds IX, X, XI, XII, XIV, XV, XX, XXI, XXII, XXIII, XXIV, XXV and XXVI, Hearth Hollow Associates, McNeil Midwest Properties I, L.P., Regency North Associates, Fairfax Associates and McNeil Summerhill (collectively, the "Partnerships"). The Partnerships (other than Fairfax Associates and McNeil Summerhill which are wholly-owned by Robert A. McNeil and related parties) will be merged with subsidiaries of WXI/McN Realty L.L.C. The acquisition agreement also provides for the acquisition by WXI/McN Realty L.L.C. of the assets of McNeil Real Estate Management, Inc. ("McREMI"). The aggregate consideration in the transaction, including all outstanding mortgage debt of the Partnerships, is approximately $644,440,000. Pursuant to the terms of the acquisition agreement, the limited partners in each of the Partnerships (other than those wholly-owned by Robert A. McNeil) will receive cash on the closing date of the transaction in exchange for their limited partnership interests. In addition, each Partnership will make a special distribution to its limited partners on the closing date of the transaction equal to its then net positive working capital balance. McNeil Partners, L.P. will receive an equity interest in WXI/McN Realty L.L.C. in exchange for its contribution of its general partnership interests in the Partnerships, the limited partnership interests in its wholly-owned Partnerships and the assets of McREMI. The proposed transaction follows an extensive marketing effort by PaineWebber Incorporated, exclusive financial advisor to the Partnerships. The transaction has been unanimously approved by the Board of Directors of McNeil Investors, Inc., the general partner of McNeil Partners, L.P., the general partner of each of the Partnerships other than Regency North Associates, Fairfax Associates and McNeil Summerhill. The respective general partners of Regency North Associates, Fairfax Associates and McNeil Summerhill also have approved the transaction. The Board of Directors of McNeil Investors, Inc. based its approval upon, among other things, the recommendation of a Special Committee of the Board, appointed at the beginning of the discussions with Whitehall to represent the interests of holders of limited partnership interests in each of the Partnerships. In addition, the Special Committee and the Board relied upon fairness opinions given by Robert A. Stanger & Co., Inc. ("Stanger & Co."), an independent financial advisor to the Partnerships, to the effect that the aggregate consideration is fair to the holders of each class of limited partnership interests in each of the Partnerships. The Special Committee's recommendation was also based upon the separate opinions of Eastdil Realty Company ("Eastdil"), the independent financial advisor to the Special Committee. Stanger & Co. and Eastdil have each also rendered an opinion that the aggregate consideration to be paid for the general partnership interests and limited partnership interests in all of the Partnerships and the assets of McREMI is fair from a financial point of view to the holders of each class of limited partnership interests in each of the Partnerships. Each of the Partnerships' participation in the transaction is subject to, among other conditions, the approval by a majority of the limited partners of the respective Partnerships. The approval of the limited partners of the Partnerships will be sought at meetings to be held in the coming months after the filing of proxy statements with the Securities and Exchange Commission with respect to the publicly traded Partnerships, and the subsequent mailing of proxy statements to the limited partners. Preliminary proxy statements were filed with the SEC on August 3, 1999. The aggregate consideration in the transaction has been allocated preliminarily among the general partnership interests and the limited partnership interests in each of the Partnerships and McREMI, based upon an allocation analysis prepared by Stanger & Co. and confirmed by Eastdil. Based upon this allocation analysis and the fairness opinions rendered by Stanger & Co. and Eastdil, the Special Committee, the Board of Directors of McNeil Investors, Inc., the respective general partners of Regency North Associates, Fairfax Associates and McNeil Summerhill have each unanimously approved the allocation of the aggregate consideration. The estimated aggregate consideration and working capital distribution to be received per unit of limited partnership interest of the Partnership is currently estimated as $10.54. McNeil Partners, L.P. will contribute its real estate investment and management company business to a subsidiary of WXI/McN Realty, L.L.C., along with its general partnership interests in the Partnerships and its limited partnership interests in the wholly-owned Partnerships, having an aggregate allocated value, as determined by Stanger & Co., of approximately $58,640,000, of which approximately $29,400,000 reflects balances due to McNeil Partners, L.P. and McREMI as reflected on the Partnerships' financial statements as of March 31, 1999. The above estimates of the Partnership per unit estimated merger consideration and working capital distribution and the interest of McNeil Partners, L.P. are based upon, among other things, the balance sheet of the Partnership as of March 31, 1999, adjusted for intangible assets, non-cash liabilities, transaction expenses and the McNeil Partners, L.P. interest in the Partnership. Actual amounts, including the estimate allocable to McNeil Partners, L.P., will vary with the performance of the Partnership and McNeil Partners, L.P. through the closing date. The above estimated merger consideration and special working capital distribution will be adjusted at closing to reflect the then working capital position of the Partnership. Whitehall is a $2.26 billion equity fund and is the seventh in a series of funds sponsored and capitalized by Goldman, Sachs & Co. and its affiliates, along with public and private investors, to acquire real estate worldwide. RESULTS OF OPERATIONS - --------------------- Revenue: Total revenue decreased by $78,003 and $157,586 for the three and six months ended June 30, 1999 as compared to the same periods in the prior year. The decrease was mainly due to a decrease in interest income on mortgage loan investments - affiliates, as discussed below. Interest income on mortgage loan investments - affiliates decreased by $114,244 for the three months and $272,344 for the six months ended June 30, 1999 as compared to the same periods in 1998. The decrease was mainly due to the collection of approximately $5.7 million of affiliate loans in the second quarter of 1998. Expenses: Total expenses decreased by $24,644 and $134,612 for the three and six months ended June 30, 1999, respectively, as compared to the same periods in the prior year. The decrease was mainly due to decreases in interest expense, as discussed below. Interest expense for the three and six months ended June 30, 1999 decreased by $64,347 and 157,188, respectively, in relation to the comparable periods in the prior year, due to the payoff of the Partnership's line of credit in June 1998 and cancellation of the line of credit agreement in March 1999. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership generated $2,527,830 of cash through operating activities in the first six months of 1999 as compared to $2,738,911 for the same period in 1998. Interest received from affiliates decreased in 1999 due to the repayment of affiliate advances in June 1998, as previously discussed. This decrease in cash provided by operating activities was partially offset by a decrease in interest paid due to the repayment of the Partnership's line of credit in June 1998. The Partnership expended $132,695 and $592,425 for capital improvements to its properties in the first six months of 1999 and 1998, respectively. In the first half of 1998, the roofs at AAA Sentry and Fountainbleau mini-storages were replaced and the exterior of Fountainbleau, Forest Hill, Margate and Kendall Sunset mini-storages were repainted. The Partnership loaned $75,000 to an affiliate of the General Partner and received $5,724,999 in repayments of loans to affiliates in the first six months of 1998. No affiliate loans were made or repaid in the first half of 1999. In June 1998, the Partnership repaid the $3,437,648 balance of its revolving credit agreement. The Partnership distributed $1,498,898 and $2,247,060 to the limited partners in the first six months of 1999 and 1998, respectively. Short-term liquidity: At June 30, 1999, the Partnership held cash and cash equivalents of $3,656,065. 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 1999. The Partnership has budgeted approximately $1.05 million for necessary capital improvements for all properties in 1999 which is 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. 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. 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. See "Recent Developments" above. The Partnership placed AAA Century Airport Self-Storage and Burbank Mini-Storage on the market for sale effective August 1, 1997. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after June 30, 1999. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties, and respond to changing economic and competitive factors. YEAR 2000 DISCLOSURE - -------------------- State of readiness - ------------------ The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. Management has assessed its information technology ("IT") infrastructure to identify any systems that could be affected by the year 2000 problem. The IT used by the Partnership for financial reporting and significant accounting functions was made year 2000 compliant during recent systems conversions. The software utilized for these functions is licensed by third party vendors who have warranted that their systems are year 2000 compliant. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management has inventoried all such systems and queried suppliers, vendors and manufacturers to determine year 2000 compliance. Based on this review, management believes these systems are substantially compliant. In circumstances of non-compliance management will work with the vendor to remedy the problem or seek alternative suppliers who will be in compliance. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to be year 2000 compliant. Cost - ---- The cost of IT and embedded technology systems testing and upgrades is not expected to be material to the Partnership. Because all the IT systems have been upgraded over the last three years, all such systems were compliant, or made compliant at no additional cost by third party vendors. Management anticipates the costs of assessing, testing, and if necessary replacing embedded technology components will be less than $50,000. Such costs will be funded from operations of the Partnership. Risks - ----- Ultimately, the potential impact of the year 2000 issue will depend not only on the corrective measures the Partnership undertakes, but also on the way in which the year 2000 issue is addressed by government agencies and entities that provide services or supplies to the Partnership. Management has not determined the most likely worst case scenario to the Partnership. As management studies the findings of its property systems assessment and testing, management will develop a better understanding of what would be the worst case scenario. Management believes that progress on all areas is proceeding and that the Partnership will experience no adverse effect as a result of the year 2000 issue. However, there is no assurance that this will be the case. Contingency plans - ----------------- Management is developing contingency plans to address potential year 2000 non-compliance of IT and embedded technology systems. Management believes that failure of any IT system could have an adverse impact on operations. However, management believes that alternative systems are available that could be utilized to minimize such impact. Management believes that any failure in the embedded technology systems could have an adverse impact on that property's performance. Management has assessed these risks and expects to have contingency plans in place by December 31, 1999 for any material potential failures. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- 1) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. ("McREMI") and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. Because the settlement contemplated a transaction which included all of the Partnerships and plaintiffs claimed that an effort should be made to sell all of the Partnerships, in or around September 1998, plaintiffs filed a third consolidated and amended complaint which included allegations with respect to the Partnerships which had not been named in previously filed complaints. On September 15, 1998, the parties signed a Stipulation of Settlement. For purposes of settlement, the parties stipulated to a class comprised of all owners of limited partner units in the Partnerships during the period beginning June 21, 1991, the earliest date that proxy materials began to be issued in connection with the restructuring of the Partnerships, through September 15, 1998. As structured, the Stipulation of Settlement provided for the payment of over $35 million in distributions and the commitment to market the Partnerships for sale, together with McREMI, through a fair and impartial bidding process overseen by a national investment banking firm. To ensure the integrity of that process, defendants agreed, among other things, to involve plaintiffs' counsel in oversight of that process, and plaintiffs' counsel retained an independent advisor to represent the interests of limited partners of the Partnerships in the event of a transaction. The transaction described in Item 2 - Recent Developments is a result of that process. The settlement was not conditioned on the consummation of this transaction. On October 6, 1998, the court gave preliminary approval to the settlement. It granted final approval to the settlement on July 8, 1999 and entered a Final Order and Judgment dismissing the consolidated action with prejudice. As a condition of final approval, the court requested, and the parties agreed to, a slight modification of the release in the Stipulation of Settlement with respect to future claims. Plaintiffs' counsel intends to seek an order awarding attorneys' fees and reimbursing their out-of-pocket expenses in an amount which is as yet undetermined. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. 2) High River Limited Partnership, Unicorn Associates Corporation and Longacre Corporation, et al. v. McNeil Partners, L.P. ("MPLP"), McNeil Investors, Inc., McNeil Real Estate Management, Inc. (McREMI"), Robert A. McNeil and Carole J. McNeil, - Supreme Court of the State of New York, County of New York, - Index No. 99 603526. On July 23, 1999, High River and two other affiliates of Carl C. Icahn (Unicorn Associates Corporation and Longacre Corporation), filed a complaint for damages in the Supreme Court of the State of New York, County of New York. Plaintiffs allege that the defendants improperly interfered with tender offers made by High River for limited partner units in the Partnership and other affiliated partnerships in which MPLP serves as General Partner (the "McNeil Partnerships"), by, among other things, filing purportedly frivolous litigation to delay High River's offers, issuing purportedly false and misleading statements opposing the offers and purportedly forcing High River itself to file litigation to enforce its rights. High River also alleges that as a result the defendants caused High River to incur undue expense and that the defendants ultimately prevented High River from acquiring a greater number of limited partner units. Plaintiffs also allege that the defendants improperly excluded High River from participating in the auction process for the sale of the McNeil Partnerships, and otherwise took steps to prevent its participation in the auction. In addition, plaintiffs, who are limited partners in, among others, McNeil Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and XXVII, have also sued the defendants based on their status as opt-outs from the Schofield settlement. Plaintiffs seek undisclosed damages and an accounting. On July 30, 1999, defendants filed an answer to the High River Complaint, denying each and every material allegation contained in the High River Complaint and asserting several affirmative defenses. 3) 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 3, 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. Hearing and oral argument before the Court of Appeals was heard on January 26, 1999. Judgment was entered in favor of the partnerships on June 25, 1999 and the case was once again remanded to the Trial Court. The General Partner is investigating whether it is in the limited partners' best interest to continue to pursue this case. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- --------------------------------- (a) Exhibits. Exhibit Number Document Description ------- -------------------- 4.2 Amended and Restated Partnership Agreement of McNeil XXVII, L.P. dated March 30, 1992. (Incorporated by reference to the Current Report of the registrant on Form 8-K dated March 30, 1992, as filed on April 10, 1992). 11. Statement regarding computation of Net Income per Hundred Limited Partnership Units. Net income per one hundred limited partnership units is computed by dividing net income allocated to the limited partners by the weighted average number of limited partnership units outstanding (expressed in hundreds). Per unit information has been computed based on 51,629 and 51,999 weighted average limited partnership units (in hundreds) outstanding in 1999 and 1998. 27. Financial Data Schedule for the quarter ended June 30, 1999. (b) Reports on Form 8-K. A Report on Form 8-K dated June 24, 1999 was filed on June 29, 1999 regarding the transaction detailed in Part 1, Item 1, Note 6. MCNEIL REAL ESTATE FUND XXVII, L.P. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: McNEIL REAL ESTATE FUND XXVII, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner August 16, 1999 By: /s/ Ron K. Taylor - --------------- ------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) August 16, 1999 By: /s/ Carol A. Fahs - --------------- ------------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 6-MOS DEC-31-1999 JUN-30-1999 3,656,065 0 218,778 0 0 0 28,531,631 (10,792,807) 28,122,382 0 0 0 0 0 25,806,884 28,122,382 4,632,671 4,776,850 2,031,032 2,666,957 757,313 0 5,139 1,347,441 0 1,347,441 0 0 0 1,347,441 0 0
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