UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K405 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 ----------------------------------------------- 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 0-14267 -------- McNEIL REAL ESTATE FUND XXIV, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 74-2339537 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (972) 448-5800 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: None - ---------------------------------------------------------- ------------------- Securities registered pursuant to Section 12(g) of the Act: Limited partnership units - ---------------------------------------------------------- ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] All of the registrant's 40,000 outstanding limited partnership units are held by non-affiliates. The aggregate market value of units held by non-affiliates is not determinable since there is no public trading market for limited partnership units and transfers of units are subject to certain restrictions. Documents Incorporated by Reference: See Item 14, Page 37 TOTAL OF 38 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund XXIV, L.P. (the "Partnership"), formerly known as Southmark Equity Partners, Ltd., was organized on October 19, 1984 as a limited partnership under the provisions of the California Revised Limited Partnership Act to acquire and operate commercial and residential properties. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a meeting of limited partners on March 30, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 30, 1992, the general partner of the Partnership was Southmark Investment Group, Inc. (the "Original General Partner"), a wholly-owned subsidiary of Southmark Corporation ("Southmark"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. On January 8, 1985, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 2-93979) and commenced a public offering for sale of $40,000,000 of limited partnership units ("Units"). The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units closed on December 15, 1985 with 40,000 Units sold at $1,000 each, or gross proceeds of $40,000,000 to the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered its Units under the Securities Exchange Act of 1934 (File No. 0-14267). SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - -------------------------------------------------- On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, the General Partner nor the Original General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interests in the Original General Partner, were sold or liquidated for the benefit of creditors. In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990, providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio. On February 14, 1991, pursuant to the asset purchase agreement as amended on that date, McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates and commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates. On March 30, 1992, the limited partners approved a restructuring proposal that provided for (i) the replacement of the Original General Partner with a new general partner, McNeil Partners, L.P.; (ii) the adoption of the Amended Partnership Agreement which substantially alters the provisions of the original partnership agreement relating to, among other things, compensation, reimbursement of expenses and voting rights; (iii) the approval of an amended property management agreement with McREMI, the Partnership's property manager; and (iv) the approval to change the Partnership's name to McNeil Real Estate Fund XXIV, L.P. Under the Amended Partnership Agreement, the Partnership began accruing an asset management fee, retroactive to February 14, 1991, which is payable to the General Partner. For a discussion of the methodology for calculating the asset management fee, see Item 13 Certain Relationships and Related Transactions. The proposals approved at the March 30, 1992 meeting were implemented as of that date. Concurrent with the approval of the restructuring, the General Partner acquired from Southmark and its affiliates, for aggregate consideration of $43,193, (i) the right to receive payment on the advances owing from the Partnership to Southmark and its affiliates in the amount of $642,581, and (ii) the general partner interest of the Original General Partner. None of the Units are owned by the General Partner or its affiliates. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in the ownership, operation and management of residential and retail real estate. At December 31, 1997, the Partnership owned seven revenue-producing properties as described in Item 2 - Properties. Six of the Partnership's seven properties were acquired in transactions involving payment of all cash to the sellers. A large portion of the Partnership's rental revenue is attributable to one property, Southpointe Plaza Shopping Center. Southpointe Plaza Shopping Center contributed approximately 25% of the total Partnership rental revenue in 1997, 27% in 1996 and 30% in 1995. The Partnership does not directly employ any personnel. The General Partner conducts the business of the Partnership directly and through its affiliates. The Partnership reimburses affiliates of the General Partner for such services rendered in accordance with the Amended Partnership Agreement. See Item 8 - Note 2 "Transactions With Affiliates." The business of the Partnership to date has involved only one industry segment. See Item 8 - Financial Statements and Supplementary Data. The Partnership has no foreign operations. The business of the Partnership is not seasonal. Business Plan: 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. The Partnership has placed Island Plaza, Southpointe Plaza and Springwood Plaza on the market for sale effective April 1, 1996, October 1, 1996 and August 1, 1997, respectively. The Partnership has received offers from non-affiliates to purchase Island Plaza for $1.85 million and Southpointe Plaza for $6.8 million. Competitive Conditions: Since the principal business of the Partnership is to own and operate real estate, the Partnership is subject to all of the risks incidental to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and Federal or local economic or rent controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changed circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership) in connection with the sale, financing and leasing of properties. The impact of these risks on the Partnership, including losses from operations and foreclosures of the Partnership's properties, is described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. See Item 2 - Properties for a discussion of the competitive conditions at each of the Partnership's properties. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after December 31, 1997. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties and respond to changing economic and competitive factors. Environmental Matters: The environmental laws of the Federal government and of certain state and local governments impose liability on current property owners for the clean-up of hazardous and toxic substances discharged on the property. The liability may be imposed without regard to the timing, cause or person responsible for the release of such substances onto the property. The Partnership could be subject to such liability in the event that it owns properties having such environmental problems. The Partnership has no knowledge of any pending claims or proceedings regarding such environmental problems. Other information: In August 1995, High River Limited Partnership, a Delaware limited partnership controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $150 per Unit. In September 1996, High River made another unsolicited tender offer to purchase any and all of the outstanding Units of the Partnership for a purchase price of $268.13 per unit. In addition High River made unsolicited tender offers for certain other partnerships controlled by the General Partner. The Partnership recommended that the limited partners reject the tender offers made with respect to the Partnership and not tender their Units. The General Partner believes that as of January 31, 1998, High River has purchased approximately 9% of the outstanding Units pursuant to the tender offers. In addition, all litigation filed by High River, Mr. Icahn and his affiliates in connection with the tender offers has been dismissed without prejudice. Management has begun to review its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. 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. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. The Partnership is in the process of evaluating the computer systems at the various properties. The Partnership also intends to communicate with suppliers, financial institutions and others to coordinate year 2000 issues. 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. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1997. All of the buildings and the land on which they are located are owned by the Partnership in fee and are unencumbered by mortgage indebtedness, with the exception of Southpointe Plaza Shopping Center, which is subject to a first lien deed of trust as set forth more fully in Item 8 - - Note 5 - "Mortgage Note Payable." See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization. In the opinion of management, the properties are adequately covered by insurance. Net Basis 1997 Date Property Description of Property Debt Property Taxes Acquired - -------- ----------- ----------- ---- -------------- -------- Real Estate Investments: Pine Hills Apartments Livingston, TX 128 units $ 2,419,669 $ - $ 39,163 10/85 Riverbay Plaza Retail Center Riverview, FL 73,065 sq. ft. 5,040,544 - 64,985 4/85 Sleepy Hollow Apartments Cleveland, TX 112 units 2,570,878 - 63,537 8/85 Towne Center Retail Center Derby, KS 94,320 sq. ft. 1,366,827 - 33,758 7/85 ------------ ------------ ------------ $ 11,397,918 $ - $ 201,443 ============ ============ ============ Assets Held for Sale: Island Plaza Retail Center Ft. Myers, FL 60,076 sq. ft. $ 1,810,259 $ - $ 40,481 4/85 Southpointe Plaza Retail Center Sacramento, CA 83,506 sq. ft. 6,433,611 5,293,017 92,272 11/85 Springwood Plaza Retail Center Dellwood, MO 88,323 sq. ft. 2,691,777 - 78,915 9/85 ----------- ------------ ------------ $ 10,935,647 $ 5,293,017 $ 211,668 ============ ============ ============ - --------------------------------------- Total: Apartments - 240 units Retail Centers - 399,290 sq. ft. The following table sets forth the properties' occupancy rate and rent per square foot for the last five years: 1997 1996 1995 1994 1993 -------------- --------------- -------------- ------------- ---------- Real Estate Investments: Pine Hills Occupancy Rate............ 98% 94% 99% 99% 98% Rent Per Square Foot...... $7.10 $6.93 $6.76 $6.44 $6.06 Riverbay Plaza Occupancy Rate............ 100% 94% 94% 92% 88% Rent Per Square Foot...... $7.97 $7.15 $6.85 $8.55 $7.03 Sleepy Hollow Occupancy Rate............ 100% 92% 100% 99% 95% Rent Per Square Foot...... $7.24 $7.14 $7.32 $6.91 $6.76 Towne Center Occupancy Rate............ 56% 100% 100% 100% 53% Rent Per Square Foot...... $3.30 $3.21 $3.59 $3.21 $2.93 Assets Held for Sale: Island Plaza Occupancy Rate............ 81% 86% 79% 80% 84% Rent Per Square Foot...... $7.25 $6.45 $6.20 $7.09 $7.56 Southpointe Plaza Occupancy Rate............ 88% 83% 97% 90% 86% Rent Per Square Foot...... $12.32 $13.46 $14.18 $14.35 $13.41 Springwood Plaza Occupancy Rate............ 87% 96% 80% 72% 80% Rent Per Square Foot...... $5.95 $6.03 $4.49 $4.59 $4.96 Occupancy rate represents all units leased divided by the total number of units for residential properties and square footage leased divided by total square footage for other properties as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property. Competitive Conditions - ---------------------- Real Estate Investments: Pine Hills - ---------- Pine Hills is a two-story apartment community located in the small town of Livingston, approximately 60 miles north of Houston, Texas. There is no comparable competition within the area at present, however there is an abundance of affordable alternative housing such as mobile homes and rental houses. Although the property is located on a busy thoroughfare near an interstate highway, visibility is poor as the property frontage is limited to a driveway which leads to the main entrance. The vacant land in front of Pine Hills is currently on the market for sale. If the property is developed, it could have an impact on Pine Hills' future performance. The Partnership expects to maintain occupancy in the mid 90% range in 1998. Riverbay Plaza - -------------- Riverbay Plaza is a single-story retail shopping center located at the busiest intersection of a rural area near Riverview, Florida. It is anchored by a grocery store and a drugstore and there are two out parcels in front of the center that draw customers to the center. The Partnership recently renovated and expanded the grocery anchor tenant's space. Currently, there is only one competing shopping center in the area, and it is not as well maintained as Riverbay Plaza. There are currently two proposed shopping center developments within five miles of Riverbay Plaza. Any future development is not expected to have a significant impact on the property due to the high occupancy rates in the area and the renovation and expansion of the grocery anchor tenant's space. The Partnership expects to maintain occupancy in the high 90% range in 1998. Sleepy Hollow - ------------- Sleepy Hollow is a two-story apartment community located in the small town of Cleveland, approximately 30 miles north of Houston, Texas. Although the property is located on a busy thoroughfare approximately three miles from an interstate highway, visibility is poor as the property frontage is limited to a driveway which leads to the main entrance. The driveway is shared with a comparable apartment community that completed exterior renovations, resulting in a decrease in Sleepy Hollow's occupancy in 1996. Occupancy improved in 1997 after Sleepy Hollow completed its own exterior upgrades. A new luxury apartment community opened in 1997 and another community is scheduled to open in early 1998. In addition, low interest rates and the availability of affordable alternative housing such as mobile homes and rental houses have softened the local real estate market. The Partnership expects to maintain occupancy in the low 90% range in 1998 by offering discounts and concessions to tenants. Towne Center - ------------ Towne Center is a retail strip shopping center located in a suburb 10 miles south of Wichita, Kansas. The property is one of five strip shopping centers located in Derby, and it is by far the largest. In 1994, the center became 100% occupied due to the leasing of a large space that comprised 42% of the leasable area and had been vacant for several years. The lease on this space expired in 1997 and was not renewed. Although demand for retail space in Derby is limited, space available is also limited and smaller spaces are not difficult to lease. However, since there is a shortage of tenants requiring large spaces, management is currently investigating the possibility of dividing the large vacated space into three smaller spaces. The Partnership anticipates increasing occupancy to the low 70% range by the end of 1998. Management has concluded that, based on the projected future cash flows of the property, no impairment of value exists. Assets Held for Sale: Island Plaza - ------------ Island Plaza is a 60,076 square foot, single-story retail strip shopping center located near a major intersection of a suburban market in Ft. Myers, Florida. The property is set back from its frontage road behind three out parcels. The center was anchored by a grocery chain which occupied 30,800 square feet. Two new grocery-anchored shopping centers were developed within the area and have brought strong competition to Island Plaza. The competitors' grocery anchors occupy approximately 65,000 square feet--more than twice the square footage of Island Plaza's anchor. As a result, the grocery anchor tenant at Island Plaza filed for reorganization under the U.S. bankruptcy laws. In order to keep the anchor open and maintain the viability of Island Plaza, it was necessary to negotiate a modification of the lease during 1995, resulting in a reduction in rent. In 1997, the anchor tenant vacated Island Plaza. Although the prior anchor is continuing to pay rent at the higher pre-bankruptcy rate, the property currently does not have an anchor tenant to draw customers to the shopping center. Additionally, road construction completed during 1995 moved the flow of traffic away from Island Plaza toward the two new shopping centers previously described. In 1998, the Partnership will market the vacant anchor space to attract a new traffic-producing anchor tenant. Management will continue to maintain the current tenants and renew any leases as they come due. Leases for tenants occupying 21% of the shopping center will expire in 1998, and several of these leases will be renewed at lower rates to accommodate the reduction in shoppers at the center. The Partnership placed Island Plaza on the market for sale effective April 1, 1996 and has received an offer from a non-affiliate to purchase the center for $1.85 million. Based on this offer, the Partnership recorded a $220,000 write-down for impairment of value during the fourth quarter of 1997 to record the shopping center at its fair value less costs to sell. Southpointe Plaza - ----------------- Southpointe Plaza is a retail strip shopping center located in the southern quadrant of Sacramento, California. The property is easily accessible and highly visible from the highway. The declining economic conditions in the adjacent neighborhood have resulted in increased criminal activity. The center has strong anchor tenants which, while doing well, seem to be destination stores and do not generate a lot of foot traffic for the center. Upscale shoppers prefer to shop at the new shopping centers built to the south of the property, adjacent to newer housing. Occupancy at the center improved in 1997, however management reduced rents for tenants who were paying rents above market. The Partnership anticipates increasing occupancy to the mid 90% range by the end of 1998 through aggressive leasing by an unaffiliated real estate brokerage firm. Springwood Plaza - ---------------- Springwood Plaza is a multi-leveled strip shopping center located in a suburb of St. Louis, Missouri. The center is anchored by a popular local grocery chain and contains fifteen other retail spaces. The area surrounding the property has been in a slow state of decline for the past few years. Occupancy, which had declined in 1994, increased in 1995 and 1996 due to capital improvements made to improve the appearance of the center. Most of the comparable properties in the area are superior to Springwood Plaza. However, with continued attention to the appearance of the property and rental rates lower than the newer centers in the area, management expects to maintain occupancy in the low to mid 90% range in 1998. The following schedule shows lease expirations for each of the Partnership's commercial properties for 1998 through 2007: Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- ------------- ----------- Real Estate Investments: Riverbay Plaza 1998 3 3,281 $ 20,140 4% 1999 1 755 7,550 2% 2000 4 8,720 69,027 14% 2001 - - - - 2002 1 1,201 13,812 3% 2003 1 1,200 11,400 2% 2004 2 41,197 258,726 54% 2005 - 2007 - - - - Towne Center 1998 4 11,087 $ 65,269 26% 1999 5 9,229 62,911 25% 2000 2 2,992 17,764 7% 2001 1 2,768 15,584 6% 2002 2 25,660 91,736 36% 2003 - 2007 - - - - Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- ------------- ----------- Assets Held for Sale: Island Plaza 1998 7 9,817 $ 80,236 21% 1999 2 3,415 28,672 7% 2000 3 3,250 22,575 6% 2001 - - - - 2002 1 2,370 16,590 4% 2003 - - - - 2004 1 30,800 241,032 62% 2005 - 2007 - - - - Southpointe Plaza 1998 3 6,512 $ 88,494 10% 1999 3 5,488 70,877 8% 2000 2 3,872 46,522 5% 2001 3 7,382 77,740 9% 2002 7 24,408 294,171 34% 2003 2 19,848 182,487 21% 2004 1 1,304 15,648 2% 2005 - 2006 - - - - 2007 1 1,872 45,000 5% Springwood Plaza 1998 2 3,284 $ 26,840 7% 1999 4 54,335 273,537 67% 2000 4 7,161 49,866 12% 2001 2 4,475 32,960 8% 2002 1 7,100 26,625 6% 2003 - 2007 - - - - No residential tenant leases 10% or more of the available rental space. The following schedule reflects information on commercial tenants occupying 10% or more of the leasable square feet for each property: Nature of Business Square Footage Lease Use Leased Annual Rent Expiration - ---------- -------------- ------------ ---------- Real Estate Investments: Riverbay Plaza - -------------- Grocery Store 40,297 $ 248,250 2004 Drugstore 13,500 101,250 2042 Towne Center - ------------ Grocery Store 22,660 $ 61,616 2002 Nature of Business Square Footage Lease Use Leased Annual Rent Expiration - --------- -------------- ----------- ---------- Assets Held for Sale: Island Plaza - ------------ Grocery Store 30,800 $ 241,032 2004 Southpointe Plaza - ----------------- Sporting Goods 10,000 $ 50,000 2002 Toy Store 14,850 95,098 2003 Springwood Plaza - ---------------- Grocery Store 46,558 $ 217,679 1999 ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND - ------- ------------------------------------------------------------ RELATED SECURITY HOLDER MATTERS ------------------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders Limited partnership units 3,258 as of January 31, 1998 (C) Distributions paid to limited partners totaled $500,000 in 1997 and $750,016 in 1996. No distributions were paid to the General Partner in 1997 or 1996. During the last week of March 1998, the Partnership distributed approximately $1,500,000 to the limited partners of record as of March 1, 1998. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 Note 1 - "Organization and Summary of Significant Accounting Policies - Distributions." ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in Item 8 - Financial Statements and Supplementary Data. Statements of Years Ended December 31, Operations 1997 1996 1995 1994 1993 - ------------------ ------------- ------------- -------------- ------------- ------------- Rental revenue............... $ 4,186,633 $ 4,136,447 $ 4,058,503 $ 4,127,396 $ 3,903,950 Write-down for impairment of real estate (220,000) (700,000) (1,500,085) - - Net income (loss)............ 430,179 (608,182) (1,694,787) (65,511) (30,846) Net income (loss) per limited partnership unit.......... $ 10.65 $ (15.05) $ (41.95) $ (1.62) $ (.76) ============ ============ ============= ============ ============ Distributions per limited partnership unit.......... $ 12.50 $ 18.75 $ - $ - $ - ============ =========== ============= ============ ============ As of December 31, Balance Sheets 1997 1996 1995 1994 1993 - -------------- ------------- ------------- -------------- ------------- ------------- Real estate investments, net... 11,397,918 $ 12,971,315 $ 22,816,356 $ 25,251,693 $ 25,836,338 Assets held for sale........... 10,935,647 8,408,672 - - - Total assets................... 25,301,732 23,771,150 25,912,389 27,674,971 28,067,428 Mortgage note payable.......... 5,293,017 5,421,763 5,538,527 5,660,558 5,874,740 Partners' equity............... 17,911,284 17,981,105 19,339,303 21,034,090 21,099,601 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- FINANCIAL CONDITION - ------------------- The Partnership was formed to engage in the business of acquiring and operating revenue-producing real properties and holding the properties for investment. Since completion of its capital formation and property acquisition phases in 1985, when it completed the purchase of seven properties, the Partnership has operated its properties for production of income. Island Plaza, a retail strip shopping center located in Ft. Myers, Florida, has experienced strong competition from two grocery-anchored shopping centers in the area. The competitors' grocery anchors occupy more than twice the square footage of Island Plaza's anchor. As a result, the grocery anchor tenant at Island Plaza filed for reorganization under the U.S. bankruptcy laws. In order to keep the anchor open and maintain the viability of Island Plaza, it was necessary to negotiate a modification of the lease during 1995, resulting in a reduction in rent. Additionally, road construction completed during 1995 moved the flow of traffic away from Island Plaza toward the two new shopping centers previously described. These events caused a decline in anticipated future cash flows that were considered to be an impairment; accordingly, the Partnership recorded a write-down for impairment of real estate of $1,500,085 during the fourth quarter of 1995. The General Partner placed Island Plaza Shopping Center on the market for sale effective April 1, 1996 and has received an offer from a non-affiliate to purchase the center for $1.85 million. Based on this offer, the Partnership recorded a $220,000 write-down for impairment of value during the fourth quarter of 1997 to record the shopping center at its fair value less costs to sell. The General Partner placed Southpointe Plaza Shopping Center on the market for sale effective October 1, 1996. Based on an offer from a non-affiliate to purchase the center, the Partnership recorded a $700,000 write-down for impairment of value during the fourth quarter of 1996 to record the shopping center at its fair value less costs to sell. RESULTS OF OPERATIONS - --------------------- 1997 compared to 1996 Revenue: Total revenue increased by $197,959 in 1997 as compared to 1996. The increase was mainly due to a greater gain on involuntary conversion, property tax refund and other revenue being recorded in 1997, as discussed below. Rental revenue in 1997 increased by $50,186 as compared to 1996. The slight increase was mainly due to increased rental rates at all of the properties except for Southpointe Plaza where expiring leases were renewed at lower market rates in 1997. A gain on involuntary conversion of $149,585 was recognized in 1997 relating to fire damage that occurred at Riverbay Plaza Shopping Center. In 1996, a $45,134 gain on involuntary conversion relating to wind and hail damage suffered at Pine Hills Apartments was recorded. In 1997, the assessed taxable value of Southpointe Plaza was reduced by taxing authorities, resulting in a $39,700 refund of prior years' property taxes. The Partnership received $20,433 in refunds of prior years' property taxes for Towne Center Shopping Center in 1996. In 1997, the Partnership received $30,000 in deposits forfeited by prospective buyers of Southpointe Plaza and Island Plaza. No such income was received in 1996. Expenses: Total expenses decreased by $840,402 in 1997 as compared to 1996. The decrease was mainly due to a $700,000 write-down for impairment of real estate recorded in 1996 as compared to a write-down for impairment of $220,000 in 1997. In addition, there was a decrease in depreciation and amortization expense and general and administrative expenses, partially offset by an increase in utilities, as discussed below. Depreciation and amortization expense in 1997 decreased by $281,194 in relation to 1996. The decrease was due to Island Plaza, Southpointe Plaza and Springwood Plaza being classified as assets held for sale by the Partnership effective April 1, 1996, October 1, 1996 and August 1, 1997, respectively. In accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Partnership ceased recording depreciation on these assets at the time they were placed on the market for sale. In 1997, utilities increased by $31,190 as compared to 1996, mainly due to an increase in water and sewer rates at a majority of the properties. In addition, there was an increase in water usage at Riverbay Plaza due to the expansion of a major tenant's space at the shopping center. General and administrative expenses decreased by $93,903 in 1997 as compared to 1996. The decrease was mainly due to a decrease in costs incurred relating to evaluation and dissemination of information regarding an unsolicited tender offer. This decrease was partially offset by approximately $18,000 of costs incurred for investor services which were paid to an unrelated third party in 1997. In 1996, such costs were paid to an affiliate of the General Partner and were included in general and administrative - affiliates on the Statements of Operations. In 1997, the Partnership recorded a $220,000 write-down for impairment of Island Plaza Shopping Center. In 1996, the Partnership recorded a $700,000 write-down for impairment of Southpointe Plaza Shopping Center. 1996 compared to 1995 Revenue: Total revenue increased by $90,253 in 1996 as compared to 1995. The increase was due to an increase in rental revenue and a gain on involuntary conversion, partially offset by decreases in interest income and property tax refunds, as discussed below. Rental revenue for 1996 increased slightly by $77,944 in relation to 1995. The increase was mainly due to an approximately $136,000 increase in rental revenue at Springwood Plaza due to an increase in occupancy in 1996. This increase was partially offset by a decrease of approximately $60,000 at Southpointe Plaza due to a decrease in occupancy in 1996. See Item 2 - Properties for a more detailed analysis of occupancy and rents per square foot. Interest income decreased by $18,116 in 1996 as compared to 1995. The decrease was due to a lower amount of cash available for short-term investment as a result of cash distributions paid to the limited partners in 1996. A gain on involuntary conversion of $45,134 was recognized in the first quarter of 1996 relating to wind and hail damage suffered at Pine Hills Apartments. No such gain was recognized in 1995. In 1996, the Partnership received $20,433 in refunds of prior years' property taxes for Towne Center Shopping Center. In 1995, the Partnership received $35,142 in refunds of prior years' property taxes for Riverbay Plaza, Southpointe Plaza and Springwood Plaza shopping centers. Expenses: Total expenses decreased by $996,352 in 1996 as compared to 1995. The decrease was mainly due to a greater write-down for impairment of real estate being recorded in 1995. In addition, there was a decrease in depreciation and amortization and general and administrative - affiliates, partially offset by an increase in other property operating expenses, as discussed below. Depreciation and amortization expense for 1996 decreased by $176,093 in relation to 1995. The decrease was due to Island Plaza and Southpointe Plaza being classified as assets held for sale by the Partnership effective April 1, 1996 and October 1, 1996, respectively. In accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Partnership ceased recording depreciation on these assets at the time they were placed on the market for sale. Other property operating expenses increased by $110,678 in 1996 as compared to 1995. The increase was partially due to an increase in bad debts due to the bankruptcy filing by a tenant at Southpointe Plaza. In addition, there was an increase in amortization of leasing commissions in 1996. Two tenants at Southpointe Plaza and one tenant at Springwood Plaza vacated prior to the expiration of their leases, resulting in the balance of their prepaid leasing commissions being fully amortized in 1996. General and administrative - affiliates for 1996 decreased by $101,615 in relation to 1995. The decrease was mainly due to a decrease in overhead expenses allocated to the Partnership by McREMI. In addition, there was a decrease in asset management fees as a result of a decrease in the Partnership's tangible asset value, on which the fees are based. In 1996, the Partnership recorded a $700,000 write-down for impairment of Southpointe Plaza Shopping Center. In 1995, the Partnership recorded a $1,500,085 write-down for impairment of Island Plaza Shopping Center. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership's primary source of cash flows is from operating activities which generated $1,504,410 of cash through operating activities in 1997, $1,153,592 in 1996 and $1,215,207 in 1995. The increased cash generated through operating activities in 1997 as compared to 1996 and 1995 was mainly due to an increase in cash received from tenants due to an increase in rental revenue and an increase in collections of prior year receivables. In addition, there was a decrease in cash paid to affiliates in 1997. In 1997, the Partnership received $226,747 of net insurance proceeds for damage caused by a fire at Riverbay Plaza Shopping Center. In 1996, the Partnership received $75,000 of net insurance proceeds for wind and hail damage suffered at Pine Hills Apartments. The Partnership spent $537,986, $484,810 and $432,154 on capital additions to its real estate investments and assets held for sale in 1997, 1996 and 1995, respectively. The increase in expenditures in 1997 in relation to 1996 and 1995 was primarily due to costs incurred at Riverbay Plaza to repair a portion of the property destroyed by fire. This increase was partially offset by a decrease in tenant improvements completed at Springwood Plaza Shopping Center in 1997. In addition to the $537,986 spent in 1997, $1,622,873 of tenant improvements were completed at Riverbay Plaza, for which the Partnership has not yet reimbursed the tenant. The Partnership distributed $500,000 and $750,016 of cash from operations to the limited partners in 1997 and 1996, respectively. No distributions were paid to the limited partners in 1995. In 1996, the Partnership repaid $642,581 of advances from affiliates. Short-term liquidity: At December 31, 1997, the Partnership held cash and cash equivalents of $2,180,029. 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 1998. The Partnership has budgeted approximately $619,000 for necessary capital improvements for all properties in 1998, which are expected to be funded from available cash reserves or from operations of the properties. The present cash balance is believed to provide an adequate reserve for property operations. In 1997, improvements totaling $1,622,873 were performed at Riverbay Plaza to renovate and expand an anchor tenant's space. These costs were paid by the tenant and have not yet been reimbursed by the Partnership. The Partnership has arranged to obtain a mortgage loan secured by Riverbay Plaza to pay these costs and expects to receive such funds in April 1998. 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. Only one property, Southpointe Plaza Shopping Center, is encumbered with mortgage debt. The Partnership has placed Southpointe Plaza on the market for sale and has received an offer from a non-affiliate to purchase the center for $6.8 million. Although the mortgage note matured in 1997, the Partnership has continued to make regularly scheduled monthly payments on the note and plans to continue doing so until the property can be sold. In accordance with the terms of the mortgage note agreement, when the Partnership is in default of the terms of the agreement, the lender can require the Partnership to make additional payments in the amount of Southpointe Plaza's cash flows from operations. Although to date, the lender has not required payments of such amounts, if the lender does require their payment, all amounts would be applied to the outstanding principal balance, per the mortgage note agreement. During the last week of March 1998, the Partnership distributed approximately $1,500,000 to the limited partners of record as of March 1, 1998. Long-term liquidity: While the outlook for maintenance of adequate levels of liquidity is favorable, should operations deteriorate and present cash resources become insufficient to fund current needs, the Partnership would require other sources of working capital. No such sources have been identified. The Partnership has no established lines of credit from outside sources. Other possible actions to resolve cash deficiencies include refinancings, deferral of capital expenditures on Partnership properties except where improvements are expected to increase the competitiveness and marketability of the properties, arranging financing from affiliates or the ultimate sale of the properties. Sales and refinancings are possibilities only. 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. The Partnership has placed Island Plaza, Southpointe Plaza and Springwood Plaza on the market for sale effective April 1, 1996, October 1, 1996 and August 1, 1997, respectively. The Partnership has received offers from non-affiliates to purchase Island Plaza for $1.85 million and Southpointe Plaza for $6.8 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Number ------ INDEX TO FINANCIAL STATEMENTS Financial Statements: Report of Independent Public Accountants....................................... 18 Balance Sheets at December 31, 1997 and 1996................................... 19 Statements of Operations for each of the three years in the period ended December 31, 1997..................................................... 20 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1997....................................... 21 Statements of Cash Flows for each of the three years in the period ended December 31, 1997..................................................... 22 Notes to Financial Statements.................................................. 24 Financial Statement Schedule - Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization............................................ 32 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of McNeil Real Estate Fund XXIV, L.P.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XXIV, L.P. (a California limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of McNeil Real Estate Fund XXIV, L.P. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Dallas, Texas March 20, 1998 McNEIL REAL ESTATE FUND XXIV, L.P. BALANCE SHEETS December 31, ----------------------------------- 1997 1996 --------------- -------------- ASSETS - ------- Real estate investments: Land..................................................... $ 1,624,347 $ 2,409,114 Buildings and improvements............................... 17,771,163 19,449,373 -------------- ------------- 19,395,510 21,858,487 Less: Accumulated depreciation and amortization......... (7,997,592) (8,887,172) -------------- ------------- 11,397,918 12,971,315 Assets held for sale........................................ 10,935,647 8,408,672 Cash and cash equivalents................................... 2,180,029 1,615,604 Cash segregated for security deposits....................... 84,737 82,466 Accounts receivable, net of allowance for doubtful accounts of $24,095 and $41,151 at December 31, 1997 and 1996, respectively.............................. 588,578 550,752 Prepaid expenses and other assets, net...................... 114,823 142,341 -------------- ------------- $ 25,301,732 $ 23,771,150 ============== ============= LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage note payable....................................... $ 5,293,017 $ 5,421,763 Accounts payable and accrued expenses....................... 181,540 202,045 Payable to tenant........................................... 1,622,873 - Payable to affiliates....................................... 192,735 74,343 Security deposits and deferred rental revenue............... 100,283 91,894 -------------- ------------- 7,390,448 5,790,045 -------------- ------------- Partners' equity (deficit): Limited partners - 40,000 limited partnership units authorized and outstanding at December 31, 1997 and 1996............................. 17,935,844 18,009,967 General Partner.......................................... (24,560) (28,862) -------------- ------------- 17,911,284 17,981,105 -------------- ------------- $ 25,301,732 $ 23,771,150 ============== ============= See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Revenue: Rental revenue.......................... $ 4,186,633 $ 4,136,447 $ 4,058,503 Interest................................ 99,777 105,722 123,838 Gain on involuntary conversion.......... 149,585 45,134 - Property tax refund..................... 39,700 20,433 35,142 Other revenue........................... 30,000 - - ------------- ------------- -------------- Total revenue......................... 4,505,695 4,307,736 4,217,483 ------------- ------------- -------------- Expenses: Interest................................ 387,432 427,365 433,768 Depreciation and amortization........... 910,119 1,191,313 1,367,406 Property taxes.......................... 413,111 423,275 402,569 Personnel costs......................... 297,655 273,780 284,238 Repairs and maintenance................. 435,291 399,778 421,102 Property management fees - affiliates............................ 241,025 226,592 232,136 Utilities............................... 244,238 213,048 201,597 Other property operating expenses....... 296,725 316,234 205,556 General and administrative.............. 102,067 195,970 213,635 General and administrative - affiliates............................ 527,853 548,563 650,178 Write-down for impairment of real estate........................ 220,000 700,000 1,500,085 ------------- ------------- -------------- Total expenses........................ 4,075,516 4,915,918 5,912,270 ------------- ------------- -------------- Net income (loss).......................... $ 430,179 $ (608,182) $ (1,694,787) ============= ============= ============== Net income (loss) allocable to limited partners........................ $ 425,877 $ (602,100) $ (1,677,839) Net income (loss) allocable to General Partner......................... 4,302 (6,082) (16,948) ------------- ------------- -------------- Net income (loss).......................... $ 430,179 $ (608,182) $ (1,694,787) ============= ============= ============== Net income (loss) per limited partnership unit........................ $ 10.65 $ (15.05) $ (41.95) ============= ============= ============== Distributions per limited partnership unit.................................... $ 12.50 $ 18.75 $ - ============= ============= ============== See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1997, 1996 and 1995 Total General Limited Partners' Partner Partners Equity --------------- -------------- -------------- Balance at December 31, 1994.............. $ (5,832) $ 21,039,922 $ 21,034,090 Net loss.................................. (16,948) (1,677,839) (1,694,787) ------------- ------------- ------------- Balance at December 31, 1995.............. (22,780) 19,362,083 19,339,303 Net loss.................................. (6,082) (602,100) (608,182) Distributions to limited partners......... - (750,016) (750,016) ------------- ------------- ------------- Balance at December 31, 1996.............. (28,862) 18,009,967 17,981,105 Net income................................ 4,302 425,877 430,179 Distributions to limited partners......... - (500,000) (500,000) ------------- -------------- -------------- Balance at December 31, 1997.............. $ (24,560) $ 17,935,644 $ 17,911,284 ============= ============= ============= See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 --------------- --------------- ---------------- Cash flows from operating activities: Cash received from tenants.............. $ 4,177,736 $ 3,977,657 $ 4,050,223 Cash paid to suppliers.................. (1,363,390) (1,370,950) (1,323,776) Cash paid to affiliates................. (650,486) (760,339) (861,503) Interest received....................... 99,777 105,722 123,838 Interest paid........................... (380,361) (398,254) (399,056) Property taxes paid..................... (408,866) (420,677) (409,661) Property tax refund..................... - 20,433 35,142 Other revenue........................... 30,000 - - ------------- ------------- -------------- Net cash provided by operating activities.............................. 1,504,410 1,153,592 1,215,207 ------------- ------------- -------------- Cash flows from investing activities: Net proceeds received from insurance company..................... 226,747 75,000 - Additions to real estate investments and assets held for sale.............. (537,986) (484,810) (432,154) ------------- ------------- -------------- Net cash used in investing activities...... (311,239) (409,810) (432,154) ------------- ------------- -------------- Cash flows from financing activities: Principal payments on mortgage note payable.......................... (128,746) (116,764) (122,031) Repayment of advances from affiliates............................ - (642,581) - Distributions to limited partners....... (500,000) (750,016) - ------------- ------------- -------------- Net cash used in financing activities...... (628,746) (1,509,361) (122,031) ------------- ------------- -------------- Net increase (decrease) in cash and cash equivalents.................... 564,425 (765,579) 661,022 Cash and cash equivalents at beginning of year....................... 1,615,604 2,381,183 1,720,161 ------------- ------------- -------------- Cash and cash equivalents at end of year................................. $ 2,180,029 $ 1,615,604 $ 2,381,183 ============= ============= ============== See discussion of noncash investing and financing activities in Note 4 - "Real Estate Investments" and Note 7 - "Gains on Involuntary Conversions." See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. STATEMENTS OF CASH FLOWS Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities For the Years Ended December 31, ----------------------------------------------------- 1997 1996 1995 -------------- ---------------- ---------------- Net income (loss).......................... $ 430,179 $ (608,182) $ (1,694,787) ------------- -------------- -------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........... 910,119 1,191,313 1,367,406 Allowance for doubtful accounts......... (17,056) 41,151 (77,044) Amortization of deferred borrowing costs................................. 7,770 31,079 31,079 Amortization of deferred gain........... - - (17,000) Gain on involuntary conversion.......... (149,585) (45,134) - Write-down for impairment of real estate........................ 220,000 700,000 1,500,085 Changes in assets and liabilities: Cash segregated for security deposits. (2,271) 12,314 (8,929) Accounts receivable................... (20,770) (158,323) 44,989 Prepaid expenses and other assets, net......................... 19,748 13,070 (1,828) Accounts payable and accrued expenses............................ (20,505) (27,583) 35,015 Payable to affiliates................. 118,392 14,816 20,811 Security deposits and deferred rental revenue...................... 8,389 (10,929) 15,410 ------------- ------------- -------------- Total adjustments................. 1,074,231 1,761,774 2,909,994 ------------- ------------- -------------- Net cash provided by operating activities.............................. $ 1,504,410 $ 1,153,592 $ 1,215,207 ============= ============= ============== See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund XXIV, L.P. (the "Partnership"), formerly known as Southmark Equity Partners, Ltd., was organized on October 19, 1984, as a limited partnership under the provisions of the California Revised Limited Partnership Act to acquire and operate commercial and residential properties. The general partner of the Partnership is McNeil Partners, L.P. ( the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The General Partner was elected at a meeting of limited partners on March 30, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial properties. At December 31, 1997, the Partnership owned seven revenue-producing properties as described in Note 4 - "Real Estate Investments." Six of the Partnership's seven properties were acquired in transactions involving payment of all cash to the sellers. A large portion of the Partnership's rental revenue is attributable to one property, Southpointe Plaza Shopping Center. Southpointe Plaza Shopping Center contributed approximately 25% of the total Partnership rental revenue in 1997, 27% in 1996 and 30% in 1995. 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. The Partnership has placed Island Plaza, Southpointe Plaza and Springwood Plaza on the market for sale effective April 1, 1996, October 1, 1996 and August 1, 1997, respectively. The Partnership has received offers from non-affiliates to purchase Island Plaza for $1.85 million and Southpointe Plaza for $6.8 million. Basis of Presentation - --------------------- The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated fair value. The Partnership's method of accounting for real estate investments is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The adoption of SFAS 121 did not have a material impact on the accompanying financial statements. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. Assets Held for Sale - -------------------- Assets held for sale are stated at the lower of depreciated cost or fair value less costs to sell. Depreciation on these assets ceases at the time they are placed on the market for sale. Depreciation and Amortization - ----------------------------- Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Tenant improvements are capitalized and are amortized over the terms of the related tenant lease, using the straight-line method. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand and cash on deposit in financial institutions with original maturities of three months or less. Carrying amounts for cash and cash equivalents approximate fair value. Deferred Borrowing Costs - ------------------------ Loan fees and other related costs incurred to obtain long-term financing on real property are capitalized and are included in prepaid expenses and other assets on the Balance Sheets. Amortization is recorded using a method that approximates the effective interest method over the term of the related mortgage note payable. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations. Rental Revenue - -------------- The Partnership leases its residential properties under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. The Partnership leases its commercial properties under non-cancelable operating leases. Certain leases provide concessions and/or periods of escalating or free rent. Rental revenue is recognized on a straight-line basis over the life of the related leases. The excess of the rental revenue recognized over the contractual rental payments is recorded as accrued rent receivable and is included in accounts receivable on the Balance Sheets. Income Taxes - ------------ No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners. Allocation of Net Income and Net Loss - -------------------------------------- The Amended Partnership Agreement generally provides that net income and net loss (other than net income arising from sales or refinancing) shall be allocated 1% to the General Partner and 99% to the limited partners. For financial statement purposes, net income arising from sales or refinancing shall be allocated 1% to the General Partner and 99% to the limited partners. For tax reporting purposes, net income arising from sales or refinancing shall be allocated as follows: (a) first, amounts of such net income shall be allocated among the General Partner and limited partners in proportion to, and to the extent of, the portion of such partners' share of the net decrease in Partnership Minimum Gain determined under Treasury Regulations, (b) second, to the General Partner and limited partners in proportion to, and to the extent of, the amount by which their respective capital account balances are negative by more than their respective remaining shares of the Partnership's Minimum Gain attributable to properties still owned by the Partnership and (c) third, 1% of such net income shall be allocated to the General Partner and 99% of such net income shall be allocated to the limited partners. Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocation of Partnership deductions attributable to debt. The Partnership's tax allocations for 1997, 1996, and 1995 have been made in accordance with these provisions. Distributions - ------------- At the discretion of the General Partner, distributable cash (other than cash from sales or refinancing) shall be distributed to the limited partners until the limited partners have received distributions of cash flow equal to a 10% per annum cumulative return on their Adjusted Invested Capital, as defined, and then 100% to the limited partners as a class. At the discretion of the General Partner, cash from sales or refinancing shall be distributed to limited partners: (first) in an amount which when added to prior distributions from all sources to such limited partners is equal to a cumulative preferred return of 10% per annum; and (second) to limited partners in an amount which when added to prior distributions of cash from sales and refinancing to such limited partners is equal to such limited partners' Original Invested Capital, as defined; and (third) to the limited partners on a per limited partnership unit ("Unit") basis. In connection with a Terminating Disposition, as defined, cash from sales or refinancing and any remaining reserves shall be allocated among, and distributed to, the General Partner and limited partners in proportion to, and to the extent of, their positive capital account balances after the net income has been allocated pursuant to the above. The Partnership distributed $500,000 and $750,016 to the limited partners in 1997 and 1996, respectively. No distributions were made to the partners in 1995. During the last week of March 1998, the Partnership plans to distribute approximately $1,500,000 to the limited partners of record as of March 1, 1998. Net Income (Loss) Per Limited Partnership Unit - ---------------------------------------------- Net income (loss) per limited partnership unit is computed by dividing net income (loss) allocated to the limited partners by the weighted average number of Units outstanding. Per Unit information has been computed based on 40,000 Units outstanding in 1997, 1996 and 1995. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its residential properties 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 residential and commercial properties and leasing services for its residential properties. McREMI may also choose to provide leasing services for the Partnership's commercial properties, in which case McREMI will receive property management fees from such commercial properties equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under the terms of the Amended Partnership Agreement, the Partnership is paying an asset management fee to the General Partner. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential properties and $50 per gross square foot for commercial properties to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows: For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Property management fees................... $ 241,025 $ 226,592 $ 232,136 Charged to general and administrative - affiliates: Partnership administration.............. 210,751 233,066 310,258 Asset management fee.................... 317,102 315,497 339,920 ------------- ------------- -------------- $ 768,878 $ 775,155 $ 882,314 ============= ============= ============== In 1996, the Partnership repaid $642,581 of non-interest bearing advances from affiliates. Payable to affiliates at December 31, 1997 and 1996 consisted primarily of unpaid property management fees, Partnership general and administrative expenses and asset management fees and is due and payable from current operations. NOTE 3 - TAXABLE INCOME (LOSS) - ------------------------------ McNeil Real Estate Fund XXIV, L.P. is a partnership and is not subject to Federal and state income taxes. Accordingly, no recognition has been given to income taxes in the accompanying financial statements of the Partnership since the income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly. The Partnership's net assets and liabilities for tax purposes exceeded the net assets and liabilities for financial reporting purposes by $5,529,886 in 1997, $6,081,071 in 1996 and $5,490,840 in 1995. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation and amortization of the Partnership's real estate investments at December 31, 1997 and 1996 are set forth in the following tables: Accumulated Buildings and Depreciation Net Book 1997 Land Improvements and Amortization Value ---- -------------- ------------ ---------------- --------------- Pine Hills Apartments Livingston, TX $ 605,145 $ 3,764,012 $ (1,949,488) $ 2,419,669 Riverbay Plaza Riverview, FL 294,546 7,451,775 (2,705,777) 5,040,544 Sleepy Hollow Apartments Cleveland, TX 363,051 4,370,296 (2,162,469) 2,570,878 Towne Center Derby, KS 361,605 2,185,080 (1,179,858) 1,366,827 ------------- ------------- ------------- ------------- $ 1,624,347 $ 17,771,163 $ (7,997,592) $ 11,397,918 ============= ============= ============= ============= Accumulated Buildings and Depreciation Net Book 1996 Land Improvements and Amortization Value ---- -------------- ------------ ---------------- --------------- Pine Hills Apartments $ 605,145 $ 3,735,664 $ (1,756,654) $ 2,584,155 Riverbay Plaza 294,546 5,670,698 (2,495,310) 3,469,934 Sleepy Hollow Apartments 363,051 4,297,494 (1,952,845) 2,707,700 Springwood Plaza (a) 784,767 3,579,942 (1,605,337) 2,759,372 Towne Center 361,605 2,165,575 (1,077,026) 1,450,154 ------------- ------------- ------------- ------------- $ 2,409,114 $ 19,449,373 $ (8,887,172) $ 12,971,315 ============= ============= ============= ============= (a) On August 1, 1997 the General Partner placed Springwood Plaza, located in Dellwood, Missouri, on the market for sale. Springwood Plaza was classified as such at December 31, 1997 with a net book value of $2,691,777. Island Plaza, a retail strip shopping center located in Ft. Myers, Florida, has experienced strong competition from two grocery-anchored shopping centers in the area. The competitors' grocery anchors occupy more than twice the square footage of Island Plaza's anchor. As a result, the grocery anchor tenant at Island Plaza filed for reorganization under the U.S. bankruptcy laws. In order to keep the anchor open and maintain the viability of Island Plaza, it was necessary to negotiate a modification of the lease during 1995, resulting in a reduction in rent. Additionally, road construction completed during 1995 moved the flow of traffic away from Island Plaza toward the two new shopping centers previously described. These events caused a decline in anticipated future cash flows that were considered to be an impairment; accordingly, the Partnership recorded a write-down for impairment of real estate of $1,500,085 during the fourth quarter of 1995. The General Partner placed Island Plaza on the market for sale effective April 1, 1996 and has received an offer from a non-affiliate to purchase the center for $1.85 million. Based on this offer, the Partnership recorded a $220,000 write-down for impairment of value during the fourth quarter of 1997 to record the shopping center at its fair value less costs to sell. The shopping center was classified as an asset held for sale by the Partnership at December 31, 1997 and 1996. The net book value of Island Plaza was $1,810,259 and December 31, 1997 and $2,016,188 at December 31, 1996. The General Partner placed Southpointe Plaza on the market for sale effective October 1, 1996. Based on an offer from a non-affiliate to purchase the center, the Partnership recorded a $700,000 write-down for impairment of value during the fourth quarter of 1996 to record the shopping center at its fair value less costs to sell. The Partnership has received an additional offer from a non-affiliate to purchase the center for $6.8 million. The shopping center was classified as an asset held for sale by the Partnership at December 31, 1997 and 1996. The net book value of Southpointe Plaza was $6,433,611 at December 31, 1997 and $6,392,484 at December 31, 1996. The results of operations for the assets held for sale at December 31, 1997 were $626,063, $317,577 and $169,474 for the years ended December 31, 1997, 1996 and 1995, respectively. Results of operations are operating revenues less operating expenses including depreciation and amortization and interest expense. In 1997, improvements totaling $1,622,873 were performed at Riverbay Plaza to renovate and expand an anchor tenant's space. These costs were paid by the tenant and have not yet been reimbursed by the Partnership. The Partnership has arranged to obtain a mortgage loan secured by Riverbay Plaza to pay these costs. The Partnership leases its commercial properties under non-cancelable operating leases. Future minimum rents to be received as of December 31, 1997 are as follows: Real Estate Assets Held Investments For Sale ----------- ------------ 1998.................................... $ 871,921 $ 1,538,864 1999.................................... 791,955 1,339,067 2000.................................... 714,426 1,056,416 2001.................................... 668,770 930,977 2002.................................... 621,136 717,576 Thereafter.............................. 5,350,982 930,714 ---------- ----------- Total $ 9,019,190 $ 6,513,614 ========== =========== Future minimum rents do not include contingent rentals based on sales volume of tenants. Contingent rents amounted to $38,404, $32,518 and $8,426 for the years ended December 31, 1997, 1996 and 1995, respectively. Future minimum rents also do not include expense reimbursements for common area maintenance, property taxes and other expenses. These expense reimbursements amounted to $526,529, $548,716 and $444,862 for the years ended December 31, 1997, 1996 and 1995, respectively. These contingent rents and expense reimbursements, which include amounts related to the assets held for sale, are included in rental revenue on the Statements of Operations. NOTE 5 - MORTGAGE NOTE PAYABLE - ------------------------------ The following sets forth the mortgage note payable of the Partnership, related to Southpointe Plaza Shopping Center, at December 31, 1997 and 1996. The mortgage note payable is secured by the related real estate investment. Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rate %(b) Maturity 1997 1996 - -------- --------------------- ----------------- ------------ ----------- Southpointe Plaza First 7.137 $41,931 9/97 $ 5,293,017 $ 5,421,763 =========== ========== (a) The debt is non-recourse to the Partnership. (b) The interest rate varies monthly based on the monthly weighted average cost of savings, borrowings and advances by the Federal Home Loan Bank of San Francisco, with a minimum rate of 5% and a maximum interest rate of 13%. The rate listed above represents the interest rate in effect at December 31, 1997. The Partnership has placed Southpointe Plaza on the market for sale and has received an offer from a non-affiliate to purchase the center for $6.8 million. Although the mortgage note matured in 1997, the Partnership has continued to make regularly scheduled monthly payments on the note and plans to continue doing so until the property can be sold. In accordance with the terms of the mortgage note agreement, when the Partnership is in default of the terms of the agreement, the lender can require the Partnership to make additional payments in the amount of Southpointe Plaza's cash flows from operations. Although to date, the lender has not required payments of such amounts, if the lender does require their payment, all amounts would be applied to the outstanding principal balance, per the mortgage note agreement. Based on borrowing rates currently available to the Partnership for a mortgage loan with similar terms and average maturities, the fair value of the mortgage note payable was approximately $4,953,000 at December 31, 1997 and $5,081,000 at December 31, 1996. NOTE 6 - LEGAL PROCEEDINGS - -------------------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998. NOTE 7 - GAINS ON INVOLUNTARY CONVERSIONS - ----------------------------------------- In December 1995, wind and hail damage occurred at Pine Hills Apartments. During 1996, reimbursements totaling $75,000 were received from the insurance carrier, and repairs to the property were completed. In 1996, the Partnership recognized a $45,134 gain on involuntary conversion, which represents the amount of insurance reimbursements received in excess of the basis of the property damaged. In February 1997, a fire occurred at Riverbay Plaza Shopping Center. One tenant's space (less than 3% of the total leasable square footage of the center) was completely destroyed. In addition, there was damage to the roof and several tenant spaces incurred water and smoke damage. During 1997, reimbursements totaling $226,747 were received from the insurance carrier and repairs were completed. The Partnership recognized a $149,585 gain on involuntary conversion which represents the amount of insurance reimbursements received in excess of the basis of the property damaged. McNEIL REAL ESTATE FUND XXIV, L.P. REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997 Costs Initial Cost Cumulative Capitalized Related Buildings and Write-down for Subsequent Description Encumbrances Land Improvements Impairment (b) To Acquisition - ----------- --------------- -------------- -------------- -------------- -------------- APARTMENTS: Pine Hills Livingston, TX $ - $ 605,145 $ 3,917,607 $ (692,000) $ 538,405 Sleepy Hollow Cleveland, TX - 363,051 4,010,076 - 360,220 RETAIL CENTERS: Riverbay Plaza Riverview, FL - 294,546 4,736,097 - 2,715,678 Towne Center Derby, KS - 361,605 2,359,900 (500,000) 325,180 -------------- -------------- -------------- ------------ ------------- $ - $ 1,624,347 $ 15,023,680 $ (1,192,000) $ 3,939,483 ============== ============== ============== ============ ============= Assets Held for Sale (c): Island Plaza Fort Myers, FL $ - Southpointe Plaza Sacramento, CA 5,293,017 Springwood Plaza Dellwood, MO - $ 5,293,017 ============== (b) The carrying values of Pine Hills Apartments and Towne Center Shopping Center were reduced by $692,000 and $500,000, respectively, in 1991. The carrying value of Island Plaza Shopping Center was reduced by $1,500,085 in 1995. The carrying value of Southpointe Plaza Shopping Center was reduced by $700,000 in 1996. The carrying value of Island Plaza Shopping Center was further reduced by $220,000 in 1997. (c) Assets held for sale are stated at lower of cost or fair value less cost to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "Held for Sale." Depreciation ceases at the time the assets are placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXIV, L.P. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997 Gross Amount at Which Carried at Close of Period Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization - ----------- ---- ------------- --------- ---------------- APARTMENTS: Pine Hills Livingston, TX $ 605,145 $ 3,764,012 $ 4,369,157 $ (1,949,488) Sleepy Hollow Cleveland, TX 363,051 4,370,296 4,733,347 (2,162,469) RETAIL CENTERS: Riverbay Plaza Riverview, FL 294,546 7,451,775 7,746,321 (2,705,777) Towne Center Derby, KS 361,605 2,185,080 2,546,685 (1,179,858) ------------- ------------- --------------- ------------- $ 1,624,347 $ 17,771,163 $ 19,395,510 $ (7,997,592) ============= ============= =============== ============= Assets Held for Sale (c): Island Plaza Fort Myers, FL $ 1,810,259 Southpointe Plaza Sacramento, CA 6,433,611 Springwood Plaza Dellwood, MO 2,691,777 --------------- $ 10,935,647 =============== (a) For Federal income tax purposes, the properties are depreciated over lives ranging from 7-39 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was $38,707,198 and accumulated depreciation was $17,616,612 at December 31, 1997. (c) Assets held for sale are stated at lower of cost or fair value less cost to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "Held for Sale." Depreciation ceases at the time the assets are placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXIV, L.P. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997 Date of Date Depreciable Description Construction Acquired Lives (Years) - ----------- ------------ -------- ------------- APARTMENTS: Pine Hills Livingston, TX 1984 10/85 5-25 Sleepy Hollow Cleveland, TX 1983 08/85 5-25 RETAIL CENTERS: Riverbay Plaza Riverview, FL 1983 04/85 5-25 Towne Center Derby, KS 1976 07/85 5-25 Assets Held for Sale (c): Island Plaza Fort Myers, FL 1985 04/85 Southpointe Plaza Sacramento, CA 1982-84 11/85 Springwood Plaza Dellwood, MO 1974 09/85 (c) Assets held for sale are stated at lower of cost or fair value less cost to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "Held for Sale." Depreciation ceases at the time the assets are placed on the market for sale. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXIV, L.P. Notes to Schedule III Real Estate Investments and Accumulated Depreciation and Amortization A summary of activity for the Partnership's real estate investments and accumulated depreciation and amortization is as follows: For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- ---------------- Real estate investments: Balance at beginning of year............... $ 21,858,487 $ 35,244,771 $ 36,312,702 Improvements............................... 2,052,205 458,752 432,154 Reclassification to assets held for sale... (4,368,709) (13,794,699) - Write-off of damaged basis................. (146,473) (50,337) - Write-down for impairment of real estate.......................... - - (1,500,085) ------------- ------------- -------------- Balance at end of year..................... $ 19,395,510 $ 21,858,487 $ 35,244,771 ============= ============= ============== Accumulated depreciation and amortization: Balance at beginning of year............... $ 8,887,172 $ 12,428,415 $ 11,061,009 Depreciation............................... 910,119 1,191,313 1,367,406 Reclassification to assets held for sale... (1,730,388) (4,712,085) - Write-off of damaged basis................. (69,311) (20,471) - ------------- ------------- -------------- Balance at end of year..................... $ 7,997,592 $ 8,887,172 $ 12,428,415 ============= ============= ============== Assets Held for Sale: Balance of beginning of year............... $ 8,408,672 $ - $ - Reclassification to assets held for sale... 2,638,321 9,082,614 - Improvements............................... 108,654 26,058 - Write-down for impairment of real estate.......................... (220,000) (700,000) - -------------- ------------- -------------- Balance at end of year..................... $ 10,935,647 $ 8,408,672 $ - ============= ============= ============== ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURES --------------------- None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- Neither the Partnership nor the General Partner has any directors or executive officers. The names and ages of, as well as the positions held by, the officers and directors of McNeil Investors, Inc., the general partner of the General Partner, are as follows: Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Robert A. McNeil 77 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate financing since the late 1940's and in real estate acquisitions, syndications and dispositions since 1960. From 1986 until active operations of McREMI and McNeil Partners, L.P. began in February 1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the International Board of Directors of the Salk Institute, which promotes research in improvements in health care. Carole J. McNeil 54 Mrs. McNeil is Co-Chairman, with Co-Chairman of the husband Robert A. McNeil, of McNeil Board Investors, Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate associate with the Madison Company and, earlier, a commercial sales/associate and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established Escrow Training Centers, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute. Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Ron K. Taylor 40 Mr. Taylor is the President and Chief President and Chief Executive Officer of McNeil Real Estate Executive Officer Management which is an affiliate of the General Partner. Mr. Taylor has been in this capacity since the resignation of Donald K. Reed on March 4, 1997. Prior to assuming his current responsibilities, Mr. Taylor served as a Senior Vice President of McREMI. Mr. Taylor has been in this capacity since McREMI commenced operations in 1991. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management firm. In this capacity, Mr. Taylor had the responsibility for the management and leasing of a 21,000,000 square foot portfolio of commercial properties. Mr. Taylor has been actively involved in the real estate industry since 1983. Each director shall serve until his successor shall have been duly elected and qualified. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1997, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1997. The Partnership has no plans to pay any such remuneration to any directors or officers of the general partner of the General Partner in the future. See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- (A) Security ownership of certain beneficial owners. No individual or group, as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, was known by the Partnership to own more than 5% of the Units, other than High River Limited Partnership which owns 3,648 Units at January 31, 1998 (approximately 9% of the outstanding Units). The business address for High River Limited Partnership is 100 South Bedford Road, Mount Kisco, New York 10549. (B) Security ownership of management. Neither the General Partner nor any of the officers or directors of its general partner own any limited partnership units. (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- The amendments to the Partnership compensation structure included in the Amended Partnership Agreement provide for an asset management fee to replace all other forms of general partner compensation other than property management fees and reimbursements of certain costs. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential properties and $50 per gross square foot for commercial properties to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. For the year ended December 31, 1997, the Partnership paid or accrued $317,102 of such asset management fees. The Partnership pays property management fees equal to 5% of the gross rental receipts of residential properties and 6% for commercial properties to McREMI, an affiliate of the General Partner, for providing property management services. Additionally, the Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1997, the Partnership paid or accrued $451,776 of such property management fees and reimbursements. See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Note 2 - "Transactions With Affiliates." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------- ----------------------------------------------------------------- See accompanying Index to Financial Statements at Item 8 - Financial Statements and Supplementary Data. (A) Exhibits Exhibit Number Description ------- ----------- 4. Amended and Restated Limited Partnership Agreement of McNeil Real Estate Fund XXIV, 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). 4.1 Amendment No. 1 to the Amended and Restated Limited Partnership Agreement of McNeil Real Estate Fund XXIV, L.P. dated June 1995 (incorporated by reference to the Quarterly Report of the registrant on Form 10-Q dated June 30, 1995, as filed on August 14, 1995). 10.3 Promissory Note dated March 23, 1987, between Southmark Equity Partners, Ltd. and Great Western Savings relating to Southpointe Plaza Shopping Center. (1) 10.4 Property Management Agreement dated March 30, 1992, between McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Management, Inc. (2) 10.5 Amendment of Property Management Agreement dated March 5, 1993, by McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Management, Inc. (2) 11. Statement regarding computation of net income per limited partnership unit (see Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies"). (1) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the period ended March 31, 1991, as filed on May 14, 1991. (2) Incorporated by reference to the Annual Report of the registrant on form 10-K for the period ended December 31, 1992, as filed on March 30, 1993. (B) Reports on Form 8-K: There were no reports on Form 8-K filed during the quarter ended December 31, 1997. McNEIL REAL ESTATE FUND XXIV, L.P. A Limited Partnership SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. McNEIL REAL ESTATE FUND XXIV, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner March 30, 1998 By: /s/ Robert A. McNeil - -------------- ----------------------------------------- Date Robert A. McNeil Chairman of the Board and Director Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 30, 1998 By: /s/ Ron K. Taylor - -------------- ----------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 30, 1998 By: /s/ Carol A. Fahs - -------------- ----------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer)