UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 -------------------------------------------- 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 ---------------------------- Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- MCNEIL REAL ESTATE FUND XXIV, L.P. BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 ------------ ------------ ASSETS - ------ Real estate investments: Land ...................................................... $ 1,624,347 $ 1,624,347 Buildings and improvements ................................ 18,235,974 17,771,163 ------------ ------------ 19,860,321 19,395,510 Less: Accumulated depreciation and amortization .......... (8,789,242) (7,997,592) ------------ ------------ 11,071,079 11,397,918 Assets held for sale ......................................... 2,729,114 10,935,647 Cash and cash equivalents .................................... 1,225,250 2,180,029 Cash segregated for security deposits ........................ 61,853 84,737 Accounts receivable, net of allowance for doubtful accounts of $5,597 and $24,095 at September 30, 1998 and December 31, 1997, respectively .................. 418,503 588,578 Prepaid expenses and other assets, net ....................... 143,207 114,823 ------------ ------------ $ 15,649,006 $ 25,301,732 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage notes payable ....................................... $ 1,650,000 $ 5,293,017 Accounts payable and accrued expenses ........................ 246,473 181,540 Payable to tenant ............................................ -- 1,622,873 Payable to affiliates ........................................ 713,940 192,735 Security deposits and deferred rental revenue ................ 74,508 100,283 ------------ ------------ 2,684,921 7,390,448 ------------ ------------ Partners' equity (deficit): Limited partners - 40,000 limited partnership units authorized and outstanding at September 30, 1998 and December 31, 1997 .............................. 12,991,673 17,935,844 General Partner ........................................... (27,588) (24,560) ------------ ------------ 12,964,085 17,911,284 ------------ ------------ $ 15,649,006 $ 25,301,732 ============ ============ The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenue: Rental revenue ................... $ 756,191 $ 1,074,348 $ 2,565,028 $ 3,184,085 Interest ......................... 55,681 27,505 124,110 71,805 Gain on involuntary conversion ..................... -- 55,105 -- 149,585 Other income ..................... -- 20,000 -- 20,000 ----------- ----------- ----------- ----------- Total revenue .................. 811,872 1,176,958 2,689,138 3,425,475 ----------- ----------- ----------- ----------- Expenses: Interest ......................... 34,256 95,306 142,927 293,774 Depreciation and amortization ................... 403,552 218,048 791,650 677,954 Property taxes ................... 55,679 112,726 220,036 330,172 Personnel costs .................. 69,655 80,216 212,081 234,754 Utilities ........................ 53,966 52,299 173,483 169,451 Repairs and maintenance .......... 64,045 97,658 238,419 304,524 Property management fees - affiliates .............. 41,969 60,186 144,694 176,145 Other property operating expenses ....................... 69,616 54,738 170,278 215,886 General and administrative ....... 78,512 15,924 281,490 61,113 General and administrative - affiliates ..................... 116,660 129,178 372,049 381,070 Loss on disposition of real estate ......................... -- -- 118,750 -- Write-down for impairment of real estate ................. -- -- 126,080 -- ----------- ----------- ----------- ----------- Total expenses ................. 987,910 916,279 2,991,937 2,844,843 ----------- ----------- ----------- ----------- Net income (loss) ................... $ (176,038) $ 260,679 $ (302,799) $ 580,632 =========== =========== =========== =========== Net income (loss) allocable to limited partners ................. $ (174,278) $ 258,073 $ (299,771) $ 574,826 Net income (loss) allocable to General Partner .................. (1,760) 2,606 (3,028) 5,806 ----------- ----------- ----------- ----------- Net income (loss).................... $ (176,038) $ 260,679 $ (302,799) $ 580,632 =========== =========== =========== =========== Net income (loss) per limited partnership unit ................. $ (4.35) $ 6.45 $ (7.49) $ 14.37 =========== =========== =========== =========== Distributions per limited partnership unit ................. $ 78.61 $ 12.50 $ 116.11 $ 12.50 =========== =========== =========== =========== The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) (Unaudited) For the Nine Months Ended September 30, 1998 and 1997 Total General Limited Partners' Partner Partners Equity (Deficit) ------------- ------------- ---------------- Balance at December 31, 1996 ............ $ (28,862) $ 18,009,967 $ 17,981,105 Net income .............................. 5,806 574,826 580,632 Distributions to limited partners........ -- (500,000) (500,000) ------------ ------------ ------------ Balance at September 30, 1997 ........... $ (23,056) $ 18,084,793 $ 18,061,737 ============ ============ ============ Balance at December 31, 1997 ............ $ (24,560) $ 17,935,844 $ 17,911,284 Net loss ................................ (3,028) (299,771) (302,799) Distributions to limited partners ....... -- (4,644,400) (4,644,400) ------------ ------------ ------------ Balance at September 30, 1998 ........... $ (27,588) $ 12,991,673 $ 12,964,085 ============ ============ ============ The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents Nine Months Ended September 30, ------------------------------- 1998 1997 ----------- ----------- Cash flows from operating activities: Cash received from tenants .............................. $ 2,565,803 $ 3,047,071 Cash paid to suppliers .................................. (1,122,475) (1,015,557) Cash paid to affiliates ................................. (255,038) (608,259) Interest received ....................................... 124,110 71,805 Interest paid ........................................... (158,833) (285,997) Property taxes paid ..................................... (131,803) (168,816) Other income ............................................ -- 20,000 ----------- ----------- Net cash provided by operating activities .................. 1,021,764 1,060,247 ----------- ----------- Cash flows from investing activities: Additions to real estate investments and assets held for sale .................................. (2,127,656) (475,327) Proceeds from disposition of real estate ................ 8,438,530 -- Proceeds received from insurance company ................ -- 226,747 ----------- ----------- Net cash provided by (used in) investing activities......... 6,310,874 (248,580) ----------- ----------- Cash flows from financing activities: Principal payments on mortgage note payable ............................................... (31,075) (97,317) Retirement of mortgage note payable ..................... (5,261,942) -- Proceeds from mortgage note payable ..................... 1,650,000 -- Distributions to limited partners ....................... (4,644,400) (500,000) ----------- ----------- Net cash used in financing activities ...................... (8,287,417) (597,317) ----------- ----------- Net increase (decrease) in cash and cash equivalents .................................... (954,779) 214,350 Cash and cash equivalents at beginning of period .................................................. 2,180,029 1,615,604 ----------- ----------- Cash and cash equivalents at end of period ................. $ 1,225,250 $ 1,829,954 =========== =========== The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIV, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities Nine Months Ended September 30, ------------------------------- 1998 1997 ------------ ----------- Net income (loss) ....................................... $ (302,799) $ 580,632 ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on involuntary conversion ....................... -- (149,585) Depreciation and amortization ........................ 791,650 677,954 Loss on disposition of real estate ................... 118,750 -- Write-down for impairment of real estate ............. 126,080 -- Amortization of deferred borrowing costs ............. 5,235 7,770 Changes in assets and liabilities: Cash segregated for security deposits .............. 22,884 (1,202) Accounts receivable, net ........................... 39,902 (190,254) Prepaid expenses and other assets, net ............. (80,801) (357) Accounts payable and accrued expenses .............. 64,933 127,124 Payable to affiliates .............................. 261,705 (51,044) Security deposits and deferred rental revenue .......................................... (25,775) 59,209 ----------- ----------- Total adjustments ................................ 1,324,563 479,615 ----------- ----------- Net cash provided by operating activities ............... $ 1,021,764 $ 1,060,247 =========== =========== The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXIV, L.P. Notes to Financial Statements September 30, 1998 (Unaudited) NOTE 1. - ------- 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 principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XXIV, L.P., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. NOTE 3. - ------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its 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. Under the terms of its partnership agreement, the Partnership pays a disposition fee to the General Partner equal to 3% of the gross sales price for brokerage services performed in connection with the sale of the Partnership's properties. The fee is due and payable at the time the sale closes. The Partnership incurred $204,000 of such fees during the first quarter of 1998 and $55,500 of such fees during the second quarter of 1998 in connection with the sale of Southpointe Plaza and Island Plaza shopping centers, respectively. These fees have not yet been paid by the Partnership and are included in payable to affiliates on the Balance Sheet at September 30, 1998. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. The Partnership is paying an asset management fee which is payable to the General Partner. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $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. Total accrued but unpaid asset management fees of $292,856 and $86,889 were outstanding at September 30, 1998 and December 31, 1997, respectively. Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows: Nine Months Ended September 30, ------------------------ 1998 1997 -------- -------- Property management fees ............................. $144,694 $176,145 Charged to general and administrative - affiliates: Partnership administration ........................ 166,082 147,876 Asset management fee .............................. 205,967 233,194 Charged to loss on disposition of real estate: Disposition fee ................................... 204,000 -- Charged to write-down for impairment of real estate: Disposition fee ................................... 55,500 -- -------- -------- $776,243 $557,215 ======== ======== Payable to affiliates at September 30, 1998 and December 31, 1997 consisted primarily of unpaid property management fees, disposition fee (1998 only), Partnership general and administrative expenses and asset management fees and are due and payable from current operations. NOTE 4. - ------- On March 31, 1998, the Partnership sold Southpointe Plaza Shopping Center, located in Sacramento, California, to an unaffiliated purchaser for a cash purchase price of $6,800,000. Cash proceeds from the sale were received on April 1, 1998. Sales proceeds received, as well as the loss on sale, are detailed below. Loss Sales on Sale Proceeds ------------ ------------ Sales price.......................................... $ 6,800,000 $ 6,800,000 Selling costs ....................................... (389,990) (185,990) Straight-line rents receivable written off........... (48,601) Prepaid leasing commissions written off.............. (43,913) Carrying value....................................... (6,436,246) ------------ ----------- Loss on disposition of real estate................... $ (118,750) =========== Proceeds from sale of real estate.................... 6,614,010 Retirement of mortgage note payable.................. (5,261,942) Retirement of accrued interest payable............... (32,338) ------------ Net cash proceeds.................................... $ 1,319,730 ============ As discussed in Note 3, the Partnership incurred a $204,000 disposition fee payable to the General Partner in connection with the sale of Southpointe Plaza. This fee increased the amount of the loss on disposition of real estate and is included in selling costs above. However, as the fee has not yet been paid, it did not reduce the amount of net cash proceeds received from the sale. The net cash proceeds from the sale of Southpointe Plaza will be $1,115,730 after payment of the disposition fee. NOTE 5. - ------- On April 1, 1998, the Partnership sold Island Plaza Shopping Center, located in Ft. Myers, Florida, to an unaffiliated purchaser for a cash purchase price of $1,850,000. The Partnership recorded a $126,080 write-down for impairment of real estate in the first quarter of 1998 to record the property at its sales price less estimated costs to sell. Sales proceeds are detailed below. Loss Sales on Sale Proceeds ------------ ------------ Sales price.......................................... $ 1,850,000 $ 1,850,000 Selling costs ....................................... (80,980) (25,480) Straight-line rents receivable written off........... (81,572) Prepaid leasing commissions written off.............. (3,269) Carrying value....................................... (1,684,179) ----------- ------------ Loss on disposition of real estate................... $ -- =========== Net cash proceeds.................................... $ 1,824,520 ============ As discussed in Note 3, the Partnership incurred a $55,500 disposition fee payable to the General Partner in connection with the sale of Island Plaza. This fee increased the amount of the write-down for impairment of real estate and is included in selling costs above. However, as the fee has not yet been paid, it did not reduce the amount of net cash proceeds received from the sale. The net cash proceeds from the sale of Island Plaza will be $1,769,020 after payment of the disposition fee. NOTE 6. - ------- Effective January 1, 1996, the Partnership adopted 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." This statement requires the cessation of depreciation on assets held for sale. Since Island Plaza, Southpointe Plaza and Springwood Plaza were placed on the market for sale, no depreciation was taken effective April 1, 1996, October 1, 1996 and August 1, 1997, respectively. NOTE 7. - ------- On June 1, 1998, the Partnership received $1,650,000 in proceeds from a mortgage note payable secured by Riverbay Plaza Shopping Center. The proceeds were used to pay for improvements made in 1997 to renovate and expand an anchor tenant's space. The mortgage note, payable to an unaffiliated lender, bears interest at a variable rate equal to 1.75% plus the London Interbank Offered Rate per annum and matures on April 15, 2001. Interest-only payments are due monthly until July 1, 1999, at which time monthly principal and interest payments of $13,301 are due. The remaining principal balance is due at maturity. NOTE 8. - ------- 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. NOTE 9. - ------- 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. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing on final Court approval is scheduled for December 17, 1998. Plaintiff's counsel intend to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- On March 31, 1998, the Partnership sold Southpointe Plaza for a gross sales price of $6.8 million. The Partnership recognized a $118,750 loss on the sale. On April 1, 1998, the Partnership sold Island Plaza for a gross sales price of $1.85 million. A $126,080 write-down for impairment of real estate was recorded in the first quarter of 1998 and no gain or loss was recorded on the sale. The Partnership reported a net loss for the first nine months of 1998 of $302,799 as compared to net income of $580,632 for the first nine months o,f 1997. Revenues decreased to $2,689,138 in 1998 from $3,425,475 for the same period in 1997. Expenses were $2,991,937 in 1998 as compared to $2,844,843 in 1997. In June 1998, the Partnership received $1,650,000 in proceeds from a mortgage note payable secured by Riverbay Plaza Shopping Center. The proceeds were used to pay for improvements made in 1997 to renovate and expand an anchor tenant's space. Net cash provided by operating activities was $1,021,764 for the first nine months of 1998. The Partnership received $1,650,000 in proceeds from a mortgage note payable secured by Riverbay Plaza, as previously discussed. The Partnership made $31,075 in regularly scheduled principal payments on its mortgage note payable. The Partnership received $8,438,530 in proceeds from the sales of Southpointe Plaza and Island Plaza shopping centers, $5,261,942 of which was used to pay off the mortgage note payable secured by Southpointe Plaza. After distributions of $4,644,400 to the limited partners during the first nine months of 1998, cash and cash equivalents decreased by $954,779, leaving a balance of $1,225,250 at September 30, 1998. RESULTS OF OPERATIONS - --------------------- Revenue: Total revenue decreased by $365,086 and $736,337 for the three and nine months ended September 30, 1998, respectively, as compared to the same periods in 1997. The decrease was due to decreases in rental revenue, gain on involuntary conversion and other income, partially offset by an increase in interest income, as discussed below. Rental revenue for the three and nine months ended September 30, 1998 decreased by $318,157 and $619,057, respectively, in relation to the comparable periods in 1997. Approximately $766,000 of the decrease was due to the sales of Southpointe Plaza and Island Plaza on March 31, 1998 and April 1, 1998, respectively. In addition, rental revenue decreased by approximately $32,000 at Towne Center due to a major tenant vacating a large space in the second quarter of 1997. These decreases were partially offset by increases in rental revenue of approximately $89,000, $32,000 and $28,000 at Riverbay Plaza, Sleepy Hollow and Pine Hills, respectively, due to increases in average occupancy rates and rental rates in the first nine months of 1998. Rental revenue remained relatively unchanged at Springwood Plaza. Interest income increased by $28,176 and $52,305 for the quarter and nine months ended September 30, 1998, respectively, as compared to the same periods in the prior year. The increase was due to a higher average amount of cash and cash equivalents available for short-term investment in 1998, mainly due to net cash proceeds from the sales of Southpointe Plaza and Island Plaza shopping centers received in the second quarter of 1998. A gain on involuntary conversion of $149,585 was recognized in the first nine months of 1997 relating to fire damage that occurred at Riverbay Plaza Shopping Center. The gain, which represented the insurance proceeds received in excess of the basis of the property damaged, was recognized as reimbursement proceeds were received from the insurance carrier. No such gain was recognized in the first nine months of 1998. In the third quarter of 1997, the Partnership received $20,000 for a deposit forfeited by a prospective buyer of Island Plaza. No such income was received in the first nine months of 1998. Expenses: Total expenses increased by $71,631 for the three months and by $147,094 for the nine months ended September 30, 1998 as compared to the same periods in 1997. The increase was mainly due to a loss on disposition of real estate and a write-down for impairment of real estate recognized in the first quarter of 1998, as discussed below. Interest expense for the three and nine months ended September 30, 1998 decreased by $61,050 and $150,847, respectively, in relation to the comparable periods in 1997. Interest expense decreased by approximately $196,000 due to the retirement of the Southpointe Plaza mortgage note payable in conjunction with the sale of the property. This decrease was partially offset by an increase in interest expense related to the Riverbay Plaza loan, which was acquired in June 1998. Depreciation and amortization expense increased by $185,504 and $113,696 for the three and nine months ended September 30, 1998, respectively, in relation to the same periods in 1997. The increase was mainly due to approximately $1.6 million in tenant improvements completed at Riverbay Plaza at the end of 1997. The sales of Southpointe Plaza and Island Plaza resulted in decreased property taxes, repairs and maintenance expenses and property management fees - affiliates. For the three and nine months ended September 30, 1998, property taxes decreased by $57,047 and $110,136, respectively, repairs and maintenance decreased by $33,613 and $66,105, respectively, and property management fees - affiliates decreased by $18,217 and $31,451, respectively, as compared to the same periods in the prior year. Other property operating expenses increased by $14,878 for the three months and decreased by $45,608 for the nine months ended September 30, 1998. The overall decrease was due to the sales of Southpointe Plaza and Island Plaza shopping centers. This decrease was partially offset by an increase in bad debts at Springwood Plaza in the third quarter of 1998. General and administrative expenses increased by $62,588 and $220,377 for the three and nine months ended September 30, 1998, respectively, as compared to the same periods in 1997. The increase was mainly due to costs incurred in 1998 to explore alternatives to maximize the value of the Partnership (see Liquidity and Capital Resources). The Partnership recognized a $118,750 loss on the sale of Southpointe Plaza Shopping Center in the first nine months of 1998. No such loss was recognized in the first nine months of 1997. Island Plaza Shopping Center was sold to an unaffiliated buyer on April 1, 1998. The Partnership recorded a $126,080 write-down for impairment of real estate in the first quarter of 1998 to record the property at its sales price less estimated costs to sell. No such write-down was recorded in the first nine months of 1997. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership's primary source of cash flows is from operating activities, which generated $1,021,764 of cash in the first nine months of 1998, comparable to the $1,060,247 generated for the same period in 1997. The Partnership expended $2,127,656 and $475,327 for capital improvements to its properties in the first nine months of 1998 and 1997, respectively. In the fourth quarter of 1997, improvements totaling approximately $1.6 million were performed at Riverbay Plaza to renovate and expand an anchor tenant's space. These costs were paid by the tenant and reimbursed by the Partnership in the second quarter of 1998. On April 1, 1998, the Partnership received a total of $8,438,530 in proceeds from the sales of Southpointe Plaza and Island Plaza shopping centers. $5,261,942 of the proceeds was used to repay the Southpointe Plaza mortgage note payable. In the first nine months of 1997, the Partnership received $226,747 in proceeds from the insurance company for fire damage that occurred at Riverbay Plaza Shopping Center. No such insurance proceeds were received in the first nine months of 1998. The Partnership made $31,075 and $97,317 in regularly scheduled principal payments on the Southpointe Plaza mortgage note payable in the first nine months of 1998 and 1997, respectively. The decrease in 1998 was due to the sale of the property and the repayment of the loan on April 1, 1998. In June 1998, the Partnership received $1,650,000 in proceeds from a mortgage note payable secured by Riverbay Plaza Shopping Center. The proceeds were used to pay for improvements made in 1997 to renovate and expand an anchor tenant's space. The Partnership distributed $4,644,400 and $500,000 to the limited partners in the first nine months of 1998 and 1997, respectively. Short-term liquidity: At September 30, 1998, the Partnership held cash and cash equivalents of $1,225,250. 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 (excluding the approximately $1.6 million of tenant improvements that were completed in 1997 but not reimbursed to the tenant until 1998). These capital improvements 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 approximately $1.6 million were performed at Riverbay Plaza to renovate and expand an anchor tenant's space. These costs were paid by the tenant and reimbursed by the Partnership in 1998. The Partnership obtained a mortgage loan secured by Riverbay Plaza to pay these costs and received such funds in June 1998. On March 31, 1998, the Partnership sold Southpointe Plaza Shopping Center, located in Sacramento, California, to an unaffiliated purchaser for a cash purchase price of $6,800,000. On April 1, 1998, cash proceeds totaling $6,614,010 were received and $5,294,280 was used to pay the principal and accrued interest balance of the mortgage note payable secured by the property. An additional $204,000 disposition fee is payable to the General Partner. On April 1, 1998, the Partnership sold Island Plaza Shopping Center, located in Ft. Myers, Florida, to an unaffiliated purchaser for a cash purchase price of $1,850,000. Cash proceeds totaling $1,824,520 were received after payment of various closing costs. An additional $55,500 disposition fee is payable to the General Partner. Additional efforts to maintain and improve partnership liquidity have included continued attention to property management activities. The objective has been to obtain maximum occupancy rates while holding expenses to levels necessary to maximize cash flows. The Partnership has made capital expenditures on its properties where improvements were expected to increase the competitiveness and marketability of the properties. Long-term liquidity: While the present outlook for the Partnership's liquidity is favorable, market conditions may change and property operations can deteriorate. In that event, the Partnership would require other sources of working capital. No such other sources have been identified and the Partnership has no established lines of credit. Other possible actions to resolve working capital deficiencies include refinancing or renegotiating terms of existing loans, deferring major capital expenditures on Partnership properties except where improvements are expected to enhance the competitiveness or marketability of the properties, or arranging working capital support from affiliates. No affiliate support has been required in the past, and there is no assurance that support would be provided in the future, since neither the General Partner nor any affiliates have any obligation in this regard. As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, has provided financial and other information to interested parties and is currently conducting discussions with one such party in an attempt to reach a definitive agreement with respect to a sale transaction. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance that any such agreement will be reached nor the terms thereof. 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 September 30, 1998. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties, and respond to changing economic and competitive factors. Other Information: Management has reviewed 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. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management intends to inventory all such systems and query suppliers, vendors and manufacturers to determine year 2000 compliance. In circumstances of non-compliance management will work with the vendor to remedy the problem or seek alternative suppliers who will be in compliance. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to be year 2000 compliant. Management is in the process of identifying those risks as well as developing a contingency plan to mitigate potential adverse effects from non-compliance. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- 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. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing on final Court approval is scheduled for December 17, 1998. Plaintiff's counsel intend to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) Exhibits. Exhibit Number Description ------- ----------- 4. Amended and Restated Limited Partnership Agreement 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 for the period ended June 30,1995, as filed on August 14, 1995). 11. Statement regarding computation of Net Income per Limited Partnership Unit: Net income per limited partnership unit is computed by dividing net income allocated to the limited partners by the number of limited partnership units outstanding. Per unit information has been computed based on 40,000 limited partnership units outstanding in 1998 and 1997. 27. Financial Data Schedule for the quarter ended September 30, 1998. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended September 30, 1998. McNEIL REAL ESTATE FUND XXIV, L.P. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: McNEIL REAL ESTATE FUND XXIV, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner November 16, 1998 By: /s/ Ron K. Taylor - ----------------- ------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) November 16, 1998 By: /s/ Carol A. Fahs - ----------------- ------------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer)