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 0-10743
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MCNEIL REAL ESTATE FUND XII, LTD.
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(Exact name of registrant as specified in its charter)
California 94-2717957
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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
-----------------------------
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 XII, LTD.
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1998 1997
--------------- --------------
ASSETS
- ------
Real estate investments:
Land..................................................... $ 4,534,618 $ 4,534,618
Buildings and improvements............................... 58,451,302 58,352,857
-------------- -------------
62,985,920 62,887,475
Less: Accumulated depreciation and amortization......... (37,514,235) (36,754,194)
-------------- -------------
25,471,685 26,133,281
Asset held for sale......................................... 9,312,971 9,303,533
Cash and cash equivalents................................... 1,644,648 1,423,658
Cash segregated for security deposits ...................... 463,945 456,356
Accounts receivable......................................... 226,697 165,311
Prepaid expenses and other assets........................... 130,932 139,468
Escrow deposits............................................. 1,637,308 1,350,788
Deferred borrowing costs, net of accumulated amorti-
zation of $805,059 and $767,891 at March 31, 1998
and December 31, 1997, respectively...................... 1,507,534 1,544,702
-------------- -------------
$ 40,395,720 $ 40,517,097
============== =============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable...................................... $ 54,025,002 $ 54,200,372
Accounts payable............................................ 9,936 9,996
Accrued expenses............................................ 228,689 277,958
Accrued interest............................................ 376,771 378,010
Accrued property taxes...................................... 1,063,758 932,545
Deferred gain - land condemnation........................... 297,754 297,754
Advance from Southmark...................................... 40,424 39,839
Advances from affiliates - General Partner.................. 32,790 32,136
Payable to affiliates - General Partner..................... 4,862,836 4,573,052
Security deposits and deferred rental revenue............... 487,722 519,042
-------------- -------------
61,425,682 61,260,704
-------------- -------------
Partners' deficit:
Limited partners - 240,000 limited partnership units
authorized; 229,666 and 229,690 limited partnership
units issued and outstanding at March 31, 1998 and
December 31, 1997, respectively........................ (10,637,692) (10,579,935)
General Partner.......................................... (10,392,270) (10,163,672)
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(21,029,962) (20,743,607)
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$ 40,395,720 $ 40,517,097
============== =============
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 XII, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
--------------------------------
1998 1997
-------------- --------------
Revenue:
Rental revenue................................... $ 4,169,057 $ 3,807,257
Interest......................................... 17,059 22,990
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Total revenue.................................. 4,186,116 3,830,247
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Expenses:
Interest......................................... 1,193,972 1,208,030
Interest - affiliates............................ 654 637
Depreciation and amortization.................... 760,041 946,959
Property taxes................................... 300,780 303,171
Personnel expenses............................... 463,150 464,384
Utilities........................................ 369,326 420,750
Repair and maintenance........................... 439,372 459,016
Property management fees - affiliates............ 201,019 192,555
Other property operating expenses................ 205,230 217,540
General and administrative....................... 248,175 50,687
General and administrative - affiliates.......... 65,194 54,805
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Total expenses................................. 4,246,913 4,318,534
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Net loss............................................ $ (60,797) $ (488,287)
============== =============
Net loss allocable to limited partners.............. $ (57,757) $ (463,873)
Net loss allocable to General Partner............... (3,040) (24,414)
-------------- -------------
Net loss............................................ $ (60,797) $ (488,287)
============== =============
Net loss per limited partnership unit............... $ (0.25) $ (2.02)
============== =============
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 XII, 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.............. $ (9,232,451) $ (9,148,979) $ (18,381,430)
Net loss.................................. (24,414) (463,873) (488,287)
Management Incentive Distribution......... (205,048) - (205,048)
------------- ------------- -------------
Balance at March 31, 1997................. $ (9,461,913) $ (9,612,852) $ (19,074,765)
============== ============= ==============
Balance at December 31, 1997.............. $ (10,163,672) $ (10,579,935) $ (20,743,607)
Net loss.................................. (3,040) (57,757) (60,797)
Management Incentive Distribution......... (225,558) - (225,558)
------------- ------------- -------------
Balance at March 31, 1998................. $ (10,392,270) $ (10,637,692) $ (21,029,962)
============== ============= ==============
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XII, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
March 31,
------------------------------------------
1998 1997
------------------- -----------------
Cash flows from operating activities:
Cash received from tenants........................ $ 4,078,873 $ 3,859,819
Cash paid to suppliers............................ (1,872,349) (1,680,714)
Cash paid to affiliates........................... (201,987) (580,332)
Interest received................................. 17,059 22,990
Interest paid..................................... (1,157,458) (1,173,811)
Property taxes paid............................... (359,895) (377,609)
----------------- --------------
Net cash provided by operating activities............ 504,243 70,343
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Cash flows from investing activities:
Additions to real estate investments.............. (98,445) (259,343)
Additions to assets held for sale................. (9,438) -
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Net cash used in investing activities................ (107,883) (259,343)
----------------- --------------
Cash used in financing activities:
Principal payments on mortgage notes
payable......................................... (175,370) (160,444)
----------------- --------------
Net increase (decrease) in cash and cash equivalents. 220,990 (349,444)
Cash and cash equivalents at beginning of
period............................................ 1,423,658 1,768,249
----------------- --------------
Cash and cash equivalents at end of period........... $ 1,644,648 $ 1,418,805
================= ==============
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 XII, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
Three Months Ended
March 31,
-----------------------------------------
1998 1997
----------------- ----------------
Net loss............................................. $ (60,797) $ (488,287)
--------------- --------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 760,041 946,959
Amortization of deferred borrowing costs.......... 37,168 34,787
Net interest added on advances from
affiliates - General Partner.................... 654 637
Net interest added on advances from
Southmark....................................... 585 571
Changes in assets and liabilities:
Cash segregated for security deposits........... (7,589) (2,429)
Accounts receivable............................. (61,386) (4,989)
Prepaid expenses and other assets............... 8,536 15,711
Escrow deposits................................. (286,520) (356,890)
Accounts payable................................ (60) (6,219)
Accrued expenses................................ (49,269) (33,252)
Accrued interest................................ (1,239) (1,139)
Accrued property taxes.......................... 131,213 234,087
Payable to affiliates - General Partner......... 64,226 (332,972)
Security deposits and deferred rental ..........
revenue....................................... (31,320) 63,768
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Total adjustments............................. 565,040 558,630
--------------- --------------
Net cash provided by operating activities............ $ 504,243 $ 70,343
=============== ==============
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 XII, LTD.
Notes to Financial Statements
(Unaudited)
March 31, 1998
NOTE 1.
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McNeil Real Estate Fund XII, Ltd. (the "Partnership") was organized February 2,
1981 as a limited partnership organized 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 September 6, 1991 (the "Amended
Partnership Agreement"). The principal place of business for the Partnership and
the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
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 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 XII, 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 the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management services for the Partnership's residential and commercial properties
and leasing services for its residential properties. McREMI may choose to
provide leasing services for the Partnership's commercial properties, in which
case McREMI will receive a property management fee from such commercial
properties equal to 3% of the property's gross rental receipts plus 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.
Affiliates of the General Partner have advanced funds to the Partnership to meet
working capital requirements. These advances accrue interest at a rate equal to
the prime lending rate plus 1%.
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 for residential property
and $50 per gross square foot for commercial property to arrive at the property
tangible asset value. The property tangible asset value is then added to the
book value of all other assets excluding intangible items.
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") 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.
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
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Charged to other assets:
Property management fees - affiliates................ $ 201,019 $ 192,555
Interest - affiliates................................ 654 637
Charged to general and administrative affiliates:
Partnership administration........................ 65,194 54,805
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$ 266,867 $ 247,997
========= ========
Charged to General Partner's deficit:
Management Incentive Distribution................. $ 225,558 $ 205,048
========= ========
NOTE 4.
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The Partnership has become aware of the presence of certain solvent based
contamination in ground water under a portion of the Lodge at Aspen Grove. The
source of the contamination is related to a documented release of solvents from
underground storage tanks located at a Colorado Department of Transportation
("CDOT") facility nearby. The Partnership has been informed that CDOT, as the
responsible party, has agreed to remediate the property to comply with state and
federal standards. CDOT has submitted a corrective action plan to the Colorado
Department of Public Health and Environment and implementation of the plan is
ongoing. The Partnership is unable to estimate impairment, if any, to the
property at this time. However, due to the existence and involvement of the
responsible party, the Partnership does not believe that this event has a
material impact on the accompanying financial statements.
NOTE 5.
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On April 7, 1998, the Partnership sold to W9/PHC Real Estate Limited
Partnership, an unaffiliated buyer, Channingway Apartments, a 770 unit apartment
complex, located in Columbus, Ohio, for a cash purchase price of $19,150,000.
Net cash proceeds to the Partnership, after payoff of the first mortgage note
and various closing costs, amounted to approximately $5,706,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential and commercial real estate
and other real estate related assets. At March 31, 1998, the Partnership owned
five apartment properties and one shopping center. All of the Partnership's
properties are subject to mortgage notes.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Partnership revenues increased $355,869 or 9% for the three months ended March
31, 1998 as compared to the same period last year. A decrease of $5,931 in
interest income was offset by a $361,800 increase in rental revenue.
Rental revenues increased at five of the Partnership's six properties. The
properties reporting the largest increases in rental revenue, on a percentage
basis, were Castle Bluff Apartments and Plaza Westlake. These properties
achieved increased rental revenue ranging from 5% to 23% primarily by increasing
their base rental rates. One of the Partnership's properties, Channingway
Apartments, reported a decrease in rental revenue. The remainder of the
Partnership's properties reported small increases in rental revenue due to
increased rental rates that were partially offset by decreased occupancy rates.
The increase in rent is also due to an increase in contingent rents billed on
Plaza Westlake as compared to the prior year.
Expenses:
Partnership expenses decreased $71,621 or 2% for the three months ended March
31, 1998 as compared to the same period last year. The Partnership incurred
decreases in depreciation and utilities. These expenses were partially offset by
increases in general and administrative and general and administrative -
affiliates.
Depreciation expense decreased $186,918 or 20% for the three months ended March
31, 1998 as compared to the same period last year. This decrease is mainly due
to Channingway, which is currently classified as an asset held for sale, for
which no depreciation has been recognized since August 1, 1997.
Utility expense decreased $51,424 or 12% for the three months ended March 31,
1998 as compared to the same period last year. Warmer winter weather in
Indianapolis has resulted in lower gas bills at Brendon Way Apartments.
General and administrative expenses increased $197,488 for the three months
ended March 31, 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-affiliate expenses increased $10,389 or 19% for the
three months ended March 31, 1998 as compared to the same period of 1997. The
increase is due to the change in investor relation charges as discussed above.
All other remaining expense categories remained comparable to the same period
last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first three months of 1998, the Partnership provided $504,243 in cash
from operations as compared to $70,343 in cash from operations in 1997. The
$433,900 increase in cash can be attributed to the reduction in cash paid to
affiliates and increase in cash received from tenants in the first quarter of
1998 as compared to the same period in 1997.
The Partnership expended $107,883 and $259,343 for capital improvements to its
properties for the three months ended March 31, 1998 and 1997, respectively.
Cash used for financing activities was $175,370 for the three months ended March
31, 1998 as compared to $160,444 for the same period in 1997. These funds were
used to make principal payments on the Partnership's mortgage notes.
Short-term liquidity:
At March 31, 1998, the Partnership held cash and cash equivalents of $1,644,648.
The General Partner considers this level of cash reserves to be adequate to meet
the Partnership's operating needs in 1998. The General Partner believes that
anticipated operating results for 1998 will be sufficient to fund the
Partnership's budgeted $1.2 million in capital improvements for 1998 and to
repay the current portion of the Partnership's mortgage notes.
On April 7, 1998, the Partnership sold to W9/PHC Real Estate Limited
Partnership, an unaffiliated buyer, Channingway Apartments, a 770 unit apartment
complex, located in Columbus, Ohio, for a cash purchase price of $19,150,000.
Net cash proceeds to the Partnership, after payoff of the first mortgage note
and various closing costs, amounted to approximately $5,706,000.
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 (loss) allocation and distributions:
Terms of the Amended Partnership Agreement specify that income (loss) 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, $(3,040) and $(24,414), respectively, was allocated to the
General Partner. The limited partners received net loss allocations of $(57,757)
and $(463,873) for the three months ended March 31, 1998 and 1997, respectively.
With the exception of the MID, distributions to partners have been suspended
since 1986 as part of the General Partner's policy of maintaining adequate cash
reserves. Distributions to the limited partners will remain suspended for the
foreseeable future. The General Partner will continue to monitor the cash
reserves and working capital needs of the Partnership to determine when cash
flows will support distributions to the limited partners.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
3.3 Amended and Restated Partnership Agreement,
dated September 6, 1991 (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 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
229,666 and 229,690 limited partnership
units outstanding in 1998 and 1997.
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 XII, 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 XII, 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)