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 March 31, 1998
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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 0-9783
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MCNEIL REAL ESTATE FUND XI, LTD.
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(Exact name of registrant as specified in its charter)
California 94-2669577
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
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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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCNEIL REAL ESTATE FUND XI, LTD.
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1998 1997
---------------- ----------------
ASSETS
- ------
Real estate investments:
Land..................................................... $ 4,407,325 $ 4,407,325
Buildings and improvements............................... 47,333,820 47,211,527
-------------- --------------
51,741,145 51,618,852
Less: Accumulated depreciation.......................... (31,451,060) (30,941,665)
-------------- --------------
20,290,085 20,677,187
Assets held for sale........................................ 5,968,409 5,910,865
Cash and cash equivalents................................... 1,740,417 3,045,785
Cash segregated for security deposits....................... 439,935 413,487
Accounts receivable......................................... 19,005 40,018
Prepaid expenses and other assets........................... 166,316 242,961
Escrow deposits............................................. 990,699 683,785
Deferred borrowing costs (net of accumulated
amortization of $714,526 and $677,649 at
March 31, 1998 and December 31, 1997,
respectively)............................................ 1,318,954 1,355,831
-------------- --------------
$ 30,933,820 $ 32,369,919
============== ==============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net................................. $ 36,086,151 $ 36,207,678
Mortgage note payable - affiliate........................... 2,588,971 2,588,971
Accrued interest............................................ 270,925 271,877
Accrued interest - affiliate................................ 20,889 20,889
Accrued expenses............................................ 513,541 382,446
Payable to affiliates - General Partner..................... 2,552,821 2,231,389
Security deposits and deferred rental revenue............... 483,781 460,567
-------------- --------------
42,517,079 42,163,817
-------------- --------------
Partners' deficit:
Limited partners - 159,813 limited partnership units
authorized and outstanding at March 31, 1998
and December 31, 1997.................................. (5,175,012) (3,602,274)
General Partner.......................................... (6,408,247) (6,191,624)
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(11,583,259) (9,793,898)
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$ 30,933,820 $ 32,369,919
============== ==============
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 XI, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
--------------------------------
1998 1997
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Revenue:
Rental revenue................................... $ 3,890,225 $ 3,750,149
Interest......................................... 49,765 25,894
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Total revenue.................................. 3,939,990 3,776,043
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Expenses:
Interest......................................... 871,705 887,215
Interest - affiliate mortgage.................... 60,646 59,431
Depreciation..................................... 509,395 523,065
Property taxes................................... 231,183 217,794
Personnel expenses............................... 489,422 496,334
Utilities........................................ 269,591 276,681
Repair and maintenance........................... 425,711 504,104
Property management fees - affiliates............ 193,453 186,323
Other property operating expenses................ 212,359 203,098
General and administrative....................... 146,012 56,682
General and administrative - affiliates.......... 80,749 65,879
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Total expenses................................. 3,490,226 3,476,606
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Net income.......................................... $ 449,764 $ 299,437
============= ============
Net income (loss) allocable to limited partners..... $ 427,276 $ (574,860)
Net income allocable to General Partner............. 22,488 874,297
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Net income.......................................... $ 449,764 $ 299,437
============= ============
Net income (loss) per limited partnership unit...... $ 2.67 $ (3.60)
============= ============
Distribution per limited partnership unit........... $ 12.51 $ -
============= ============
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 XI, LTD.
STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
For the Three Months Ended March 31, 1998 and 1997
Total
General Limited Partners'
Partner Partners Deficit
------------- ------------- -------------
Balance at December 31, 1996.............. $ (6,454,008) $ (4,179,456) $ (10,633,464)
Net income (loss)......................... 874,297 (574,860) 299,437
Management Incentive Distribution......... (215,025) - (215,025)
------------- ------------- -------------
Balance at March 31, 1997................. $ (5,794,736) $ (4,754,316) $ (10,549,052)
============= ============= =============
Balance at December 31, 1997.............. $ (6,191,624) $ (3,602,274) $ (9,793,898)
Net income................................ 22,488 427,276 449,764
Management Incentive Distribution......... (239,111) - (239,111)
Distributions to limited partners......... - (2,000,014) (2,000,014)
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Balance at March 31, 1998................. $ (6,408,247) $ (5,175,012) $ (11,583,259)
============= ============= =============
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 XI, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
March 31,
------------------------------------------
1998 1997
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Cash flows from operating activities:
Cash received from tenants........................ $ 3,913,738 $ 3,852,396
Cash paid to suppliers............................ (1,590,983) (1,567,827)
Cash paid to affiliates........................... (191,881) (236,850)
Interest received................................. 49,765 25,894
Interest paid..................................... (829,995) (838,432)
Interest paid - affiliates........................ (60,646) (62,331)
Property taxes paid............................... (288,204) (237,611)
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Net cash provided by operating activities............ 1,001,795 935,239
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Cash flow from investing activities:
Additions to real estate investments.............. (122,293) (275,161)
Additions to assets held for sale................. (57,544) -
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Net cash used in investing activities................ (179,837) (275,161)
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Cash flows from financing activities:
Principal payments on mortgage notes
payable......................................... (127,312) (116,487)
Management Incentive Distribution................. - (900,450)
Distributions to limited partners................. (2,000,014) -
----------------- --------------
Net cash used in financing activities................ (2,127,326) (1,016,937)
----------------- --------------
Net decrease in cash and cash equivalents............ (1,305,368) (356,859)
Cash and cash equivalents at beginning of
period............................................ 3,045,785 2,351,879
----------------- --------------
Cash and cash equivalents at end of period........... $ 1,740,417 $ 1,995,020
================= ==============
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 XI, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
Three Months Ended
March 31,
----------------------------------------
1998 1997
---------------- ---------------
Net income........................................... $ 449,764 $ 299,437
--------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 509,395 523,065
Amortization of deferred borrowing costs.......... 36,877 40,487
Amortization of discounts on mortgage
notes payable................................... 5,785 5,883
Changes in assets and liabilities:
Cash segregated for security deposits........... (26,448) 106,950
Accounts receivable............................. 21,013 (23,592)
Prepaid expenses and other assets............... 76,645 86,831
Escrow deposits................................. (306,914) (148,803)
Accounts payable................................ - (51,071)
Accrued interest................................ (952) 2,413
Accrued interest-affiliates..................... - (2,900)
Accrued expenses................................ 131,095 61,047
Payable to affiliates - General Partner......... 82,321 15,352
Security deposits and deferred rental
revenue....................................... 23,214 20,140
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Total adjustments............................. 552,031 635,802
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Net cash provided by operating activities............ $ 1,001,795 $ 935,239
=============== ==============
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 XI, LTD.
Notes to Financial Statements
(Unaudited)
March 31, 1998
NOTE 1.
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McNeil Real Estate Fund XI, Ltd. (the "Partnership") was organized June 2, 1980
as a limited partnership under the provisions of the California Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil. The Partnership is governed by an amended and restated limited
partnership agreement, dated August 6, 1991 (the "Amended Partnership
Agreement"). The principal place of business for the Partnership and for the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations of the Partnership. All adjustments were of a normal recurring
nature. However, the results of operations for the three months ended March 31,
1998 are not necessarily indicative of the results to be expected for the year
ending December 31, 1998.
NOTE 2.
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The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1997, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund XI, Ltd., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
NOTE 3.
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The Partnership pays property management fees equal to 5% of gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
Under terms of the Amended Partnership Agreement, the Partnership is paying a
Management Incentive Distribution ("MID") to the General Partner. The maximum
MID is calculated as 1% of the tangible asset value of the Partnership. The
maximum MID percentage decreases subsequent to 1999. Tangible asset value is
determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9% to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit 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.
MID will be paid to the extent of the lesser of the Partnership's excess cash
flow, as defined, or net operating income, as defined ("the Entitlement
Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay
the distribution in which event any unpaid portion not taken in limited
partnership units ("Units") will be deferred and is payable, without interest,
from the first available cash and/or (ii) in Units. A maximum of 50% of the MID
may be paid in Units. The number of Units issued in payment of the MID is based
on the greater of $50 per Unit or the net tangible asset value, as defined, per
Unit.
Any amount of the MID that is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The MID represents a return of equity
to the General Partner for increasing cash flow, as defined, and accordingly is
treated as a distribution.
In November 1996, the Partnership obtained a loan from McNeil Real Estate Fund
XXVII, L.P., an affiliate of the General Partner, for $2,588,971. The note is
secured by Rock Creek Apartments and requires monthly interest-only payments
equal to the prime lending rate of Bank of America plus 1% with the principal
balance due November 25, 1999.
Compensation, reimbursements and distributions paid to or accrued for the
benefit of the General Partner and its affiliates are as follows:
Three Months Ended
March 31,
----------------------------------------
1998 1997
---------------- ---------------
Property management fees - affiliates................ $ 193,453 $ 186,323
Interest - affiliates................................ 60,646 59,431
Charged to general and administrative affiliates:
Partnership administration........................ 80,749 65,879
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$ 334,848 $ 311,633
=============== ==============
Charged to General Partner's deficit:
MID............................................... $ 239,111 $ 215,025
=============== ==============
NOTE 4.
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On April 30,1998, the Partnership sold to Park Associates, L.P., an unaffiliated
buyer, The Park, a 192 unit apartment complex in Joplin, Missouri, for a cash
purchase price of $4,900,000. Net cash proceeds to the Partnership, after payoff
of the first mortgage note and various closing costs, amounted to approximately
$2,161,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
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FINANCIAL CONDITION
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The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential and other real estate related assets. At
March 31, 1998, the Partnership owned eight apartment properties, which are all
subject to mortgage notes.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Partnership revenues increased by $163,947 for the three months ended March 31,
1998 as compared to the same period last year. Rental revenue increased $140,076
or 4% for the three months ended March 31, 1998. Interest income increased by
$23,871 or 92% for the period ended March 31, 1998.
Rental revenue for the first three months of 1998 was $3,890,224 as compared to
$3,750,149 for the same period in 1997. The increase in rental revenue is
primarily due to an increase in occupancy rates at Acacia Lakes along with
increases in the rental rates at Acacia Lakes, Knollwood, Sun Valley and Villa
Del Rio.
Expenses:
Total Partnership expenses increased by $13,620 for the three months ended March
31, 1998 as compared to the same period in 1997. Decreases in interest,
depreciation, repairs and maintenance and utilities were offset by increases in
property taxes, general and administrative and property operating expenses.
Repairs and maintenance decreased by $78,393 or 16% for the three months ended
March 31, 1998 as compared to the three months ended March 31, 1997. This
decrease is primarily due to a reduction on carpet and appliance replacement at
five of the Partnership's eight properties.
General and administrative expenses increased $89,330 or 158% for the first
three months of 1998 as compared to the same period last year. The increase was
mainly due to costs incurred to explore alternatives to maximize the value of
the Partnership (see Liquidity and Capital Resources). The increase was
partially offset by decreases attributable to investor services. During 1997,
charges for investor services were provided by a third party vendor. Beginning
with 1998, these services are provided by affiliates of the General Partner.
General and administrative - affiliates expense increased by $14,870 or 23% for
the first three months of 1998 as compared to the same period last year due to
the change in investor services charges as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $1,001,795 through operating activities for the period
ending March 31, 1998 as compared to $935,239 for the same period in 1997. This
increase is due to an increase in cash received from tenants and a reduction in
the cash paid to affiliates.
The Partnership funded $179,837 in additions to real estate investments for the
three months ending March 31, 1998. All of the Partnership's properties
continued capital improvement projects to enhance the value of the properties so
they can remain competitive in the market.
Financing activities included principal payments on mortgage notes of $127,312.
The Partnership made a distribution of $2,000,014 to the limited partners in
March 1998.
Short-term liquidity:
At March 31, 1998, the Partnership held cash and cash equivalents of $1,740,417.
The General Partner considers this level of cash reserves to be adequate to meet
the Partnership's operating needs. The Partnership resumed MID payments during
the third quarter of 1996 and will continue making MID payments as long as the
Partnership's properties continue to perform as projected. The General Partner
believes that anticipated operating results for 1998 will be sufficient to fund
the Partnership's budgeted $1.3 million in capital improvements for 1998 and to
repay the current portion of the Partnership's mortgage notes.
On April 30,1998, the Partnership sold to Park Associates, L.P., an unaffiliated
buyer, The Park, a 192 unit apartment complex in Joplin, Missouri, for a cash
purchase price of $4,900,000. Net cash proceeds to the Partnership, after payoff
of the first mortgage note and various closing costs, amounted to approximately
$2,161,000.
Long-term liquidity:
For the long-term, property operations will remain the primary source of funds.
In this regard, the General Partner expects that the capital improvements made
by the Partnership during the past will yield improved cash flow from property
operations in the future. If the Partnership's cash position deteriorates, the
General Partner may elect to defer certain of the capital improvements, except
where such improvements are expected to increase the competitiveness or
marketability of the Partnership's properties.
Pursuant to the Partnership's previously announced liquidation plans, the
Partnership has recently retained PaineWebber, Incorporated as its exclusive
financial advisor to explore alternatives to maximize the value of the
Partnership. The alternatives being considered by the Partnership include,
without limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The General Partner of the Partnership or
entities or persons affiliated with the General Partner will not be involved as
a purchaser in any of the transactions contemplated above. Any transaction will
be subject to certain conditions including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory firm as to the fairness of the consideration received by the
Partnership pursuant to such transaction. Finally, there can be no assurance
that any transaction will be consummated, or as to the terms thereof.
Income allocation and distributions:
Terms of the Amended Partnership Agreement specify that income before
depreciation is allocated to the General Partner to the extent of MID paid in
cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and
the General Partner, respectively. Therefore, for the three months ended March
31, 1998 and 1997, $22,488 and $874,297, respectively, were allocated to the
General Partner. The limited partners received net income (loss) allocations of
$427,276 and $(574,860) for the three months ended March 31, 1998 and 1997,
respectively.
The Partnership distributed $2,000,014 to the limited partners in March 1998.
The General Partner will continue to monitor the cash reserves and working
capital needs of the Partnership to determine when cash flows will support
distributions. A distribution of $239,911 for the MID has been accrued by the
Partnership for the three month period ending March 31, 1998 for the General
Partner.
PART II. - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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On April 30,1998, the Partnership sold to Park Associates, L.P., an unaffiliated
buyer, The Park, a 192 unit apartment complex in Joplin, Missouri, for a cash
purchase price of $4,900,000. Net cash proceeds to the Partnership, after payoff
of the first mortgage note and various closing costs, amounted to approximately
$2,161,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits.
Exhibit
Number Description
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4. Amended and Restated Limited Partnership
Agreement dated as of August 6, 1991.
(Incorporated by reference to the Quarterly
Report on Form 10-Q, for the quarter ended
June 30, 1991).
11. Statement regarding computation of net loss
per limited partnership unit: Net loss per
limited partnership unit is computed by
dividing net loss allocated to the limited
partners by the number of limited
partnership units outstanding. Per unit
information has been computed based on
159,813 limited partnership units
outstanding in 1998 and 1997, respectively.
27. Financial Data Schedule for the quarter
ended March 31, 1998.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended March 31, 1998.
McNEIL REAL ESTATE FUND XI, LTD.
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 XI, Ltd.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
May 14, 1998 By: /s/ Ron K. Taylor
- ------------ -----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
May 14, 1998 By: /s/ Brandon K. Flaming
- ------------ -----------------------------------------
Date Brandon K. Flaming
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)