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, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-9783
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McNEIL REAL ESTATE FUND XI, LTD.
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(Exact name of registrant as specified in its charter)
California 94-2669577
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Limited partnership
units
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
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 ]
159,500 of the registrant's 159,813 limited partnership units are held by
non-affiliates of this registrant. 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 35
TOTAL OF 38 PAGES
<PAGE>
PART I
ITEM 1. BUSINESS
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ORGANIZATION
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McNeil Real Estate Fund XI, Ltd. (the "Partnership") was organized June 2, 1980
as a limited partnership under the provisions of the California Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil ("McNeil"). The Partnership is governed by an amended and restated
partnership agreement of limited partnership dated August 6, 1991, as amended
(the "Amended Partnership Agreement"). Prior to August 6, 1991, Pacific
Investors Corporation (the prior "Corporate General Partner"), a wholly-owned
subsidiary of Southmark Corporation ("Southmark"), and McNeil were the general
partners of the Partnership, which was governed by an agreement of limited
partnership dated June 2, 1980 (the "Original Partnership Agreement") as amended
August 29, 1980. The principal place of business for the Partnership and for the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
On September 18, 1980, a Registration Statement on Form S-11 was declared
effective by the Securities and Exchange Commission whereby the Partnership
offered for sale $80,000,000 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 June 1, 1981, with 160,000 Units sold at $500 each, or
gross proceeds of $80,000,000 to the Partnership. In addition, the original
general partners purchased a total of 140 Units for $70,000. In 1993, 61 Units
were relinquished. An additional 162 and 104 Units were relinquished in 1994 and
1995, respectively, leaving 159,813 Units outstanding as of December 31, 1996.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
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On July 14, 1989, Southmark filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil nor the
Corporate 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 Corporate
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: (a) an affiliate of McNeil purchased the Corporate General Partner's
economic interest in the Partnership; (b) McNeil became the managing general
partner of the Partnership pursuant to an agreement with the Corporate General
Partner that delegated management authority to McNeil; (c) McNeil Real Estate
Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets
relating to the property management and partnership administrative business of
<PAGE>
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; and (d) the General Partner purchased
the short-term, unsecured loan owing from the Partnership to a Southmark
affiliate in the amount of $2,645,950. The unsecured loan has now been settled.
On August 6, 1991, the limited partners approved a restructuring proposal
providing for (i) the replacement of the Corporate General Partner and McNeil
with the General Partner; (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; and (iii) the approval of a new property management
agreement with McREMI, the Partnership's property manager.
The Amended Partnership Agreement provides for a Management Incentive
Distribution ("MID") to replace all other forms of general partner compensation,
other than property management fees and reimbursements of certain costs.
Additional Units may be issued in connection with the payment of the MID
pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 -
"Transactions with Affiliates." For a discussion of the methodology for
calculating and distributing the MID, see Item 13 - Certain Relationships and
Related Transactions.
Settlement of Claims:
During 1990, the Partnership filed claims in the Southmark bankruptcy in the
amount of $1,180,040. McNeil also filed claims on behalf of the Partnership in
an indeterminate amount, some of which overlapped in whole or in part with
claims filed by the Partnership. No claims were filed by McNeil or the
Partnership on behalf of individual limited partners.
In July 1991, the United States Bankruptcy Court for the Northern District of
Texas, Dallas Division, approved an agreement whereby the Partnership settled
its claims against Southmark. Under the settlement agreement, an affiliate of
McNeil agreed to waive on a dollar-for-dollar basis an amount equal to the
settled claims against affiliate advances owed by the Partnership, which at June
30, 1991, were in excess of the amount of the claim. The reduction of affiliate
advances resulted in an extraordinary gain on extinguishment of debt of
$1,180,040 in 1991.
CURRENT OPERATIONS
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General:
The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential real estate and other real estate
related assets. At December 31, 1996, the Partnership owned eight
income-producing properties as described in Item 2 - Properties.
The Partnership does not directly employ any personnel. The Partnership is
managed by the General Partner, and, in accordance with the Amended Partnership
Agreement, the Partnership reimburses affiliates of the General Partner for
certain cost incurred by affiliates of the General Partner in connection with
the management of the Partnership's business. See Item 8 - Note 2 -
"Transactions with Affiliates."
<PAGE>
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:
The Partnership determined to evaluate market and other economic conditions to
establish the optimum time to commence an orderly liquidation of the
Partnership's assets in accordance with the terms of the Amended Partnership
Agreement. Taking such conditions as well as other pertinent information into
account, the Partnership has determined to begin orderly liquidation of all its
assets. Although there can be no assurance as to the timing of the liquidation
due to real estate market conditions, the general difficulty of disposing of
real estate, and other general economic factors, it is anticipated that such
liquidation would result in the dissolution of the Partnership followed by a
liquidating distribution to Unit holders by December 2001. In this regard, the
Partnership has placed Rock Creek on the market for sale. Until such time as the
Partnership's assets are liquidated, the Partnership's plan of operations is to
preserve or increase the net operating income of its assets whenever possible,
while at the same time making whatever capital expenditures are reasonable under
the circumstances in order to preserve and enhance the value of the
Partnership's assets.
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 incident 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 discussion of competitive conditions at 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, 1996. 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.
<PAGE>
Other Information:
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. This 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.
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 $63 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 $104.50 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, 1997, High River has purchased approximately 11.28% 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 have been dismissed without prejudice.
ITEM 2. PROPERTIES
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The following table sets forth the real estate investment portfolio of the
Partnership at December 31, 1996. The buildings and the land on which they are
located are owned by the Partnership in fee, subject in each case to a first
lien deed of trust as set forth more fully in Item 8 - Note 5 - "Mortgage Notes
Payable" and Item 8 - Note 6 - "Mortgage Note Payable - Affiliate." See also
Item 8 - Note 4 - "Real Estate Investments" and Schedule III - "Real Estate
Investments and Accumulated Depreciation." In the opinion of management, the
properties are adequately covered by insurance.
<TABLE>
<CAPTION>
Net Basis 1996 Date
Property Description of Property Debt Property Tax Acquired
- -------- ----------- ----------- ---- ------------ --------
<S> <C> <C> <C> <C> <C>
Acacia Lakes (1) Apartments
Mesa, AZ 576 units $ 6,259,077 $ 8,858,883 $ 100,672 5/81
Gentle Gale (2) Apartments
Galveston, TX 133 units 1,783,909 2,586,599 82,981 5/81
Knollwood (3) Apartments
Kansas City, MO 315 units 3,114,676 4,427,873 73,195 5/81
The Park (4) Apartments
Joplin, MO 192 units 1,326,778 2,588,973 20,597 3/81
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Basis 1996 Date
Property Description of Property Debt Property Tax Acquired
- -------- ----------- ----------- ---- ------------ --------
<S> <C> <C> <C> <C> <C>
Sun Valley (5) Apartments
Charlotte, NC 311 units 4,432,035 6,521,362 97,834 8/81
Villa Del Rio (6) Apartments
Jacksonville, FL 444 units 4,290,290 5,542,714 185,320 5/81
The Village (7) Apartments
Gresham, OR 152 units 1,785,489 2,588,971 70,393 5/81
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$ 22,992,254 $ 33,115,375 $ 630,992
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Asset held for sale:
Rock Creek Apartments
Beaverton, OR 388 units $ 4,203,597 $ 6,139,670 $ 156,873 2/81
============= ============= ===========
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Total: Apartments - 2,511 units
</TABLE>
(1) Acacia Lakes Apartments is owned by Acacia Lakes Fund XI Limited
Partnership which is wholly-owned by the Partnership and the General
Partner.
(2) Gentle Gale Apartments is owned by Gentle Gale Fund XI Limited
Partnership which is wholly-owned by the Partnership.
(3) Knollwood Apartments is owned by Knollwood Fund XI Associates, a general
partnership, which is wholly-owned by the Partnership and the General
Partner.
(4) The Park Apartments is owned by The Park Fund XI Associates, a general
partnership, which is wholly-owned by the Partnership and the General
Partner.
(5) Sun Valley Apartments is owned by Sun Valley Fund XI Associates, a
general partnership, which is wholly-owned by the Partnership and the
General Partner.
(6) Villa Del Rio Apartments is owned by Villa Del Rio Fund XI Limited
Partnership which is wholly-owned by the Partnership.
(7) The Village Apartments is owned by Village Fund XI Associates which is
wholly-owned by the Partnership and the General Partner.
<PAGE>
The following table sets forth the properties' occupancy rate and rent per
square foot for each of the last five years:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Acacia Lakes
Occupancy Rate............ 94% 96% 97% 98% 96%
Rent Per Square Foot...... $ 7.73 $ 7.44 $ 6.64 $ 5.94 $ 5.16
Gentle Gale
Occupancy Rate............ 90% 88% 93% 98% 100%
Rent Per Square Foot...... $ 7.78 $ 7.86 $ 7.83 $ 7.70 $ 7.25
Knollwood
Occupancy Rate............ 96% 96% 93% 98% 95%
Rent Per Square Foot...... $ 5.72 $ 5.53 $ 5.17 $ 4.77 $ 4.56
The Park
Occupancy Rate............ 94% 90% 91% 93% 96%
Rent Per Square Foot...... $ 6.25 $ 6.18 $ 6.23 $ 5.98 $ 5.46
Rock Creek
Occupancy Rate............ 95% 99% 94% 98% 96%
Rent Per Square Foot...... $ 8.27 $ 7.91 $ 7.54 $ 7.25 $ 6.94
Sun Valley
Occupancy Rate............ 96% 97% 97% 87% 91%
Rent Per Square Foot...... $ 7.40 $ 7.12 $ 6.51 $ 5.81 $ 5.78
Villa Del Rio
Occupancy Rate............ 96% 100% 98% 92% 88%
Rent Per Square Foot...... $ 5.67 $ 5.46 $ 4.98 $ 4.87 $ 4.49
The Village
Occupancy Rate............ 96% 100% 100% 97% 98%
Rent Per Square Foot...... $ 8.27 $ 7.96 $ 7.76 $ 7.52 $ 7.03
</TABLE>
Occupancy rate represents all units leased divided by the total number of units
of the property 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 at Properties
Due to a substantial investment of capital since 1992, Acacia Lakes has
increased its rent per square foot by 50% over the last five years. Currently,
the property is mirroring the average market rate of 94%. Rental rates at Acacia
Lakes are averaging $.71 per square foot, while many competitors are averaging
$.68 per square foot.
<PAGE>
Gentle Gale is located in Galveston, Texas, where the local economy is dependent
upon the University of Texas Medical Branch and tourism. Over the last few years
the economy has been sluggish and this has been reflected in the drop in the
occupancy rates at the property from 1992 to 1995. Gentle Gale experienced a
slight increase in its occupancy rate and is currently at 90%. Gentle Gale
competes with properties that are newer and offer better amenity packages.
During the fourth quarter of 1996, an additional 177 units were added to the
already soft market. The property has been upgrading the units and offering
rental discounts to remain competitive in the market.
Knollwood finished 1996 just above the average market occupancy rate of 94%. The
current rental rates per square foot are between $.54 and $.58 for Knollwood's
townhouses and one and two bedroom apartments, while the market rate per square
foot is between $.38 and $.57. Capital improvements are planned to improve the
curb appeal and upgrade the apartments to take advantage of the strong market
conditions.
The Park is the largest apartment community in Joplin, Missouri where the
market's average occupancy rate is 95%. The local economy is expected to remain
stable; however, over the last three years the market has experienced an
increase of 45% in available units. The new units are entering the marketplace
at $.44 per square foot while The Park is averaging $.54 per square foot. To
remain competitive in the market, The Park has discounted rents.
Rock Creek is located in a strong rental market where the average occupancy rate
is 95% and the rent per square foot averages $.72. Over the past few years the
property has been upgrading the interiors of the units as well as improving the
outside appearance with landscaping and a renovation of the clubhouse and
office. These enhancements allowed the property to remain competitive with
rental rates per square foot averaging $.71. An additional 3,300 units were
built in the market during 1996 with an additional 2,091 units under
construction in 1997. The economy is continuing to grow; however, with the
additional units scheduled in 1997, the market is expected to soften.
Strong market conditions are beginning to stimulate new developments in the area
surrounding Sun Valley. Currently, 4,071 units are under construction with
numerous other projects in the planning stages. These new units may soften the
market during 1997. With the capital improvements made at the property over the
last few years, the property has been able to stay competitive with the newer
properties. Sun Valley finished 1996 above the market average occupancy rate of
92%.
Villa Del Rio's occupancy rate has increased by 8% since 1992 and finished 1996
above the market average of 94%. The overall occupancy rate for Jacksonville has
remained strong. The city experienced its highest level of new construction of
apartment communities since 1986. During 1996, 3,000 units were added. These new
units will have no adverse effect on the property. Villa Del Rio's advantage
over its competitors is design and layout of the property. All units are single
story apartments and the property is spread over 25 acres.
The Village finished the year slightly above the market occupancy rate of 95%.
The Portland apartment market saw its second year of expansion. There were 8,158
units under construction through 1996. This new construction has softened the
market with higher vacancies and rental concessions. The market rental rate per
square foot is $.69 while the rental rate at The Village is $.72. The Village
should remain competitive in the marketplace.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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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:
1) James F.Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners
L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund
XXII, L.P., McNeil Real Estate Fund 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 (as defined in this Section 1,
the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its
affiliate McNeil Real Estate Management, Inc. and three of their senior
officers and/or directors (as defined in this Section 1, 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. On January 7, 1997, the Court ordered consolidation with three
other similar actions listed below.
The Partnerships filed a demurrer to the complaint and a motion to strike
on February 14, 1997, seeking to dismiss the complaint in all respects. The
demurrer is pending. The Partnerships deny that there is any merit to
Plaintiff's allegations and intend to vigorously defend this action.
<PAGE>
2) Alfred Napoletano v. McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil
Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P. - Superior Court of the State of California, County of Los
Angeles, Case No. BC133849 (Class Action Complaint). On January 7, 1997,
this action was consolidated by court order with Scholfield, et al.,
referenced above.
3) Warren Heller v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil
Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real
Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate
Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund
XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV,
L.P. - Superior Court of the State of California, County of Los Angeles,
Case No. BC133957 (Class Action Complaint). On January 7, 1997, this action
was consolidated by court order with Scholfield, et al., referenced above.
4) Robert Lewis v. McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil et al. - In the District Court of Dallas County, Texas, A-14th
Judicial District, Cause No. 95-08535 (Class Action) - Plaintiff, Robert
Lewis, is a limited partner with McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd.
On April 11, 1996, the action was dismissed without prejudice in
anticipation of consolidation with other class action complaints. On
January 7, 1997, this action was consolidated by court order with
Schofield, et al., referenced above.
For a discussion of the Southmark bankruptcy, see Item 1 - Business."
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 8,139 as of January 31, 1997
<PAGE>
(C) No distributions were made to the limited partners during 1996 or 1995.
The Partnership accrued distributions of $902,697 and $871,503 for the
benefit of the General Partner for the years ended December 31, 1996
and 1995, respectively. Total distributions of $2,445,033 remain unpaid
at December 31, 1996. These distributions relate to the MID pursuant to
the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions
with Affiliates." See Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of
distributions and the likelihood that they will be resumed to the
limited partners.
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.
<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1996 1995 1994 1993 1992
- ------------------ ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental revenue................. $ 14,855,652 $ 14,304,055 $ 13,313,091 $ 12,527,359 $ 11,621,595
Total revenue.................. 15,582,063 14,451,813 13,425,413 12,757,233 11,970,421
Income (loss) before
extraordinary items........... 1,592,611 307,243 (193,822) (1,038,150) (1,316,607)
Extraordinary items............ - - - (521,380) 86,660
Net income (loss).............. 1,592,611 307,243 (193,822) (1,559,530) (1,229,947)
Net income (loss)
per limited partnership unit:
Income (loss) before
extraordinary items........... $ 5.03 $ 1.83 $ (3.98) $ (6.16) $ (7.81)
Extraordinary items............ - - - (3.22) .51
------------ ------------ ------------- ------------ ------------
Net income (loss).............. $ 5.03 $ 1.83 $ (3.98) $ (9.38) $ (7.30)
=========== ============ ============ ============ ============
As of December 31,
Balance Sheets 1996 1995 1994 1993 1992
- -------------- ------------- ------------- -------------- ------------- -------------
Real estate investments, net... $ 22,992,254 $ 27,251,831 $ 27,916,213 $ 28,103,619 $ 28,192,464
Asset held for sale............ 4,203,597 - - - -
Total assets................... 32,592,153 32,508,764 33,355,998 34,963,327 31,779,500
Mortgage notes payable, net.... 39,255,045 39,684,440 40,090,432 40,463,926 33,292,396
Partners' deficit.............. (10,633,464) (11,323,378) (10,759,568) (9,796,298) (7,611,239)
</TABLE>
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FINANCIAL CONDITION
- -------------------
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. As of December 31, 1996, the
Partnership owned eight apartment properties. All of the Partnership's
properties are subject to mortgage notes.
RESULTS OF OPERATIONS
- ---------------------
1996 compared to 1995
Revenue:
Total Partnership revenues for 1996 increased by $1,130,250 or 8% as compared to
1995. Rental revenue increased $551,597 or 4%, while interest income decreased
$20,206. In 1996, the Partnership recognized a gain on involuntary conversion of
$598,859 as a result of a fire and hail damage at Knollwood Apartments.
Rental revenue for 1996 was $14,855,652 as compared to $14,304,055 for 1995.
This increase of $551,597 is due to an increase in the rental rates at all of
the Partnership's properties, offset by decreases in the occupancy rates at five
of the eight Partnership's properties.
Expenses:
Total Partnership expenses decreased by $155,118 for the year ended December 31,
1996 as compared to 1995. Decreases in other property operating expenses and
general and administrative - affiliates were offset by increases in repairs and
maintenance and general and administrative expenses.
Repairs and maintenance expense increased by $203,664 or 12% compared to the
same period in 1995. The increase can be attributed to increases in service
expenses and the replacement of carpeting. Carpet replacements of $282,252 for
five of the Partnership's eight properties, which met the Partnership's criteria
for capitalization based in 1995, were expensed in 1996.
Other property operating expense for the year ended December 31, 1996 decreased
by $124,026 or 14% as compared to 1995. This decrease is primarily due to a
decrease in hazard insurance, with additional decreases in training and seminars
and bad debts in 1996.
General and administrative expenses increased $38,744 or 10% as compared to the
same period in 1995. The increase is due to costs incurred, by the Partnership,
to evaluate and disseminate information regarding an unsolicited tender offer.
See Item 1 - Business.
General and administrative - affiliates expenses decreased $119,084 or 26% as
compared to the same periods last year. This decrease is due to the reduction of
overhead expenses allocable to the Partnership.
<PAGE>
1995 compared to 1994
Revenue:
Total Partnership revenues for 1995 increased by $1,026,400 or 8% as compared to
1994. Rental revenue and interest income increased $990,964 or 7% and $63,545 or
75%, respectively. In 1994, the Partnership recognized a gain on involuntary
conversion of $28,109 as a result of a fire at Sun Valley in 1993.
Rental revenue for 1995 was $14,304,055 as compared to $13,313,091 for 1994.
This increase of $990,964 is due to an increase in the rental rates at seven of
the Partnership's eight properties and increases in the occupancy rates at three
of the Partnership's properties. Of the three properties that experienced an
increase in their occupancy rate, Rock Creek showed the largest increase of 5%
from 94% at December 31, 1994 to 99% at December 31, 1995. This increase can be
attributed to the capital improvements made at the property over the last two
years.
Expenses:
Total Partnership expenses increased by $525,335 or 4% for the year ended
December 31, 1995 as compared to 1994.
Depreciation expense increased $142,940 or 6% in 1995 as compared to 1994. This
increase is due to capital improvements made at the properties. During 1995, the
Partnership made $1,820,043 in capital improvements.
Property taxes decreased $98,679 or 11% in 1995 as compared to 1994. This is due
to an decrease in the estimated tax liability at Gentle Gale, Knollwood, Rock
Creek, Sun Valley and The Park.
Repairs and maintenance increased by $128,072 or 8% in 1995 as compared to 1994.
This increase can be attributed to increases in ground maintenance,
exterminating, carpet cleaning and sheet rock repairs. Additionally, carpet
replacements of $66,216 for Villa Del Rio, which met the Partnership's criteria
for capitalization based on the magnitude of replacements in 1994, were
expensed in 1995.
General and administrative increased $242,009 or 160% in 1995 as compared to
1994. This increase was due to costs incurred by the Partnership in the third
quarter of 1995 to evaluate and disseminate information regarding an unsolicited
tender offer. See Item 1 - Business.
General and administrative - affiliates increased $30,441 or 7% in 1995 as
compared to 1994. This is due to an increase in reimbursements to affiliates
because of fewer partnerships over which overhead costs are allocated.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1996, the Partnership held cash and cash equivalents of
$2,351,879, up $321,335 as compared to 1995.
<PAGE>
The Partnership has experienced positive cash flow from operations of $8,913,486
for the three years ended December 31, 1996. During 1996, the Partnership
received a mortgage loan from affiliates of $2,588,971. The Partnership has also
received $749,014 in insurance proceeds. Over the last three years the
Partnership has used cash to fund $6,441,167 in additions to real estate
investments, $3,862,902 in principal payments, $140,958 for additions to
deferred borrowing costs, $936,377 for the repayment of advances and mortgage
notes from affiliates and $1,467,254 for the payment of the MID.
The Partnership generated $3,412,005 through operating activities in 1996 as
compared to $2,345,896 in 1995. The increase of $1,066,109 can be attributed to
the increase in tenant receipts as a result of the increased rental rates at all
the Partnership's properties and decreases in the cash paid to affiliates and
property taxes paid.
The Partnership generated $2,345,896 through operating activities in 1995 as
compared to $3,155,585 in 1994. This decrease can be attributed to the increase
in the cash paid to affiliates for Partnership administrative expenses which had
previously been deferred as well as an increase in the cash paid to suppliers
during 1995. These cash changes were somewhat offset by an increase in tenant
receipts as a result of the increased rental rates at seven of the Partnership's
properties.
The Partnership has funded $6,441,167 in additions to real estate investments
over the last three years. The expenditures are necessary to allow the
Partnership's aging properties to maintain their appeal to current and
prospective tenants.
Short-term liquidity:
The Partnership expended considerable resources during the past three years to
restore its properties to good operating condition. These expenditures have been
necessary to maintain the competitive position of the Partnership's aging
properties in each of their markets. The capital improvements made during the
past three years have enabled the Partnership to increase its rental revenues
and reduce certain of its repairs and maintenance expenses. The Partnership has
budgeted an additional $1.4 million of capital improvements for 1997, to be
funded from property operations and cash reserves.
At December 31, 1996, the Partnership held cash and cash equivalents of
$2,351,879. The General Partner considers this level of cash reserves to be
adequate to meet the Partnership's operating needs. The General Partner
anticipates continuing MID payments if the Partnership's properties continue to
perform as projected. The General Partner believes that anticipated operating
results for 1997 will be sufficient to fund the Partnership's budgeted capital
improvements for 1997 and to repay the current portion of the Partnership's
mortgage notes.
During 1996, the Partnership was faced with a mortgage maturity on The Village
totaling approximately $2,564,000. In November 1996, the Partnership refinanced
the mortgage note with a mortgage loan from affiliates.
<PAGE>
Long-term liquidity:
For the long-term, property operations will remain the primary source of funds.
In this regard, the General Partner expects that the $6.44 million of capital
improvements made by the Partnership during the past three years will yield
improved cash flow from property operations in the future. If the Partnership's
cash position deteriorates, the General Partner may elect to defer certain of
the capital improvements, except where such improvements are expected to
increase the competitiveness or marketability of the Partnership's properties.
The Partnership determined to evaluate market and other economic conditions to
establish the optimum time to commence an orderly liquidation of the
Partnership's assets in accordance with the terms of the Amended Partnership
Agreement. Taking such conditions as well as other pertinent information into
account, the Partnership has determined to begin orderly liquidation of all its
assets. Although there can be no assurance as to the timing of the liquidation
due to real estate market conditions, the general difficulty of disposing of
real estate, and other general economic factors, it is anticipated that such
liquidation would result in the dissolution of the Partnership followed by a
liquidating distribution to Unit holders by December 2001. In this regard, the
Partnerships has placed Rock Creek on the market for sale.
Income allocation and distributions:
Terms of the Amended Partnership Agreement specify that income before
depreciation is allocated to the General Partner to the extent of MID paid in
cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and
the General Partner, respectively. Therefore, for the three year period ended
December 31, 1996, $788,575, $15,362 and $442,961, respectively, were allocated
to the General Partner. The limited partners received allocations of net income
(loss) of $804,035, $291,881 and $(636,783) for the three year period ended
December 31, 1996, respectively.
With the exception of the MID, distributions to partners have been suspended
since 1986 as part of the General Partner's policy of maintaining adequate cash
reserves. Distributions to the limited partners will remain suspended for the
foreseeable future. The General Partner will continue to monitor the cash
reserves and working capital needs of the Partnership to determine when cash
flows will support distributions to the limited partners. A distribution of
$902,697 for the MID has been accrued by the Partnership for the year ended
December 31, 1996 for the General Partner.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
Number
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Financial Statements:
Report of Independent Public Accountants....................................... 15
Balance Sheets at December 31, 1996 and 1995................................... 16
Statements of Operations for each of the three years in the period
ended December 31, 1996..................................................... 17
Statements of Partners' Deficit for each of the three years
in the period ended December 31, 1996....................................... 18
Statements of Cash Flows for each of the three years in the period
ended December 31, 1996..................................................... 19
Notes to Financial Statements.................................................. 21
Financial Statement Schedule -
Schedule III - Real Estate Investments and Accumulated
Depreciation............................................................. 30
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
McNeil Real Estate Fund XI, Ltd.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund XI,
Ltd. (a California limited partnership) as of December 31, 1996 and 1995, and
the related statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1996. 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 XI,
Ltd. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, 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 17, 1997
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
ASSETS
- ------
Real estate investments:
Land..................................................... $ 4,572,654 $ 5,938,464
Buildings and improvements............................... 50,600,784 58,408,551
-------------- -------------
55,173,438 64,347,015
Less: Accumulated depreciation.......................... (32,181,184) (37,095,184)
-------------- -------------
22,992,254 27,251,831
Asset held for sale......................................... 4,203,597 -
Cash and cash equivalents................................... 2,351,879 2,030,544
Cash segregated for security deposits....................... 403,949 386,125
Accounts receivable......................................... 204,542 31,327
Prepaid expenses and other assets........................... 256,151 276,785
Escrow deposits............................................. 662,003 904,523
Deferred borrowing costs, net of accumulated
amortization of $515,702 and $507,241 at
December 31, 1996 and 1995, respectively................. 1,517,778 1,627,629
-------------- -------------
$ 32,592,153 $ 32,508,764
============== =============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net................................. $ 36,666,074 $ 39,684,440
Mortgage note payable - affiliate........................... 2,588,971 -
Accounts payable............................................ 52,886 62,056
Accrued interest............................................ 295,428 302,329
Accrued expenses............................................ 455,857 456,984
Deferred gain............................................... 174,656 67,016
Payable to affiliates - General Partner..................... 2,558,338 2,851,851
Security deposits and deferred rental income................ 433,407 407,466
-------------- -------------
43,225,617 43,832,142
-------------- -------------
Partners' deficit:
Limited partners - 159,813 limited partnership units
issued and outstanding at December 31, 1996
and 1995............................................. (4,179,456) (4,983,492)
General Partner........................................ (6,454,008) (6,339,886)
-------------- -------------
(10,633,464) (11,323,378)
-------------- -------------
$ 32,592,153 $ 32,508,764
============== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenue:
Rental revenue.......................... $ 14,855,652 $ 14,304,055 $ 13,313,091
Interest................................ 127,552 147,758 84,213
Gain on involuntary conversion.......... 598,859 - 28,109
------------- ------------- --------------
Total revenue......................... 15,582,063 14,451,813 13,425,413
------------- ------------- --------------
Expenses:
Interest................................ 3,784,555 3,905,403 3,901,700
Interest - affiliates................... 23,620 - 3,589
Depreciation............................ 2,372,870 2,484,425 2,341,485
Property taxes.......................... 787,865 799,717 898,396
Personnel expenses...................... 1,716,875 1,722,218 1,741,104
Repairs and maintenance................. 1,921,900 1,718,236 1,590,164
Property management fees -
affiliates............................ 734,247 711,435 671,785
Utilities............................... 1,093,688 1,044,938 1,003,419
Other property operating expenses....... 775,491 899,517 881,362
General and administrative.............. 432,407 393,663 151,654
General and administrative -
affiliates............................ 345,934 465,018 434,577
------------- ------------- --------------
Total expenses 13,989,452 14,144,570 13,619,235
------------- ------------- --------------
Net income (loss).......................... $ 1,592,611 $ 307,243 $ (193,822)
============= ============= ==============
Net income (loss) allocable to limited
partners................................ $ 804,036 $ 291,881 $ (636,783)
Net income allocable to General
Partner................................. 788,575 15,362 442,961
------------- ------------- --------------
Net income (loss).......................... $ 1,592,611 $ 307,243 $ (193,822)
============= ============= ==============
Net income (loss) per limited partnership
unit:
Net income (loss)....................... $ 5.03 $ 1.83 $ (3.98)
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1993.............. $ (5,157,708) $ (4,638,590) $ (9,796,298)
Net income (loss)......................... 442,961 (636,783) (193,822)
Management Incentive Distribution......... (769,448) - (769,448)
-------------- -------------- --------------
Balance at December 31, 1994.............. (5,484,195) (5,275,373) (10,759,568)
Net income................................ 15,362 291,881 307,243
Management Incentive Distribution......... (871,053) - (871,053)
-------------- -------------- --------------
Balance at December 31, 1995.............. (6,339,886) (4,983,492) (11,323,378)
Net income................................ 788,575 804,036 1,592,611
Management Incentive Distribution......... (902,697) - (902,697)
-------------- -------------- --------------
Balance at December 31, 1996.............. $ (6,454,008) $ (4,179,456) $ (10,633,464)
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from tenants.............. $ 14,877,289 $ 14,298,528 $ 13,292,954
Cash paid to suppliers.................. (5,836,491) (5,477,026) (5,037,523)
Cash paid to affiliates................. (1,369,172) (2,115,099) (667,861)
Interest received....................... 127,552 147,758 84,213
Interest paid........................... (3,645,580) (3,676,175) (3,839,943)
Interest paid to affiliates............. (23,620) - (3,589)
Property taxes paid..................... (717,973) (832,090) (672,666)
------------- ------------- --------------
Net cash provided by operating
activities.............................. 3,412,005 2,345,896 3,155,585
------------- ------------- --------------
Cash flows from investing activities:
Additions to real estate
investments........................... (2,467,045) (1,820,043) (2,154,079)
Insurance proceeds from fire............ 681,998 - 28,109
Insurance proceeds from hail
damage................................ 67,016 - -
------------- ------------- --------------
Net cash used in investing activities...... (1,718,031) (1,820,043) (2,125,970)
------------- ------------- --------------
Cash flows from financing activities:
Principal payments on mortgage
notes payable......................... (3,041,234) (427,660) (394,008)
Deferred borrowing costs paid........... (13,157) - (127,801)
Mortgage loan from affiliate............ 2,588,971 - -
Repayment of advances from
affiliates............................ - - (936,377)
Management Incentive Distribution....... (907,219) - (560,035)
------------- ------------- --------------
Net cash used in financing activities...... (1,372,639) (427,660) (2,018,221)
------------- ------------- --------------
Net increase (decrease) in cash
and cash equivalents.................. 321,335 98,193 (988,606)
Cash and cash equivalents at
beginning of year..................... 2,030,544 1,932,351 2,920,957
------------- ------------- --------------
Cash and cash equivalents at end
of year............................... $ 2,351,879 $ 2,030,544 $ 1,932,351
============= ============= ==============
</TABLE>
See discussion of noncash investing and financing activities in Notes 6 and 7.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1996 1995 1994
-------------- ---------------- --------------
<S> <C> <C> <C>
Net income (loss).......................... $ 1,592,611 $ 307,243 $ (193,822)
------------- --------------- ------------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain on involuntary conversion.......... (598,859) - (28,109)
Depreciation............................ 2,372,870 2,484,425 2,341,485
Amortization of discounts on
mortgage notes payable................ 22,868 21,668 20,514
Amortization of deferred borrowing
costs................................. 123,008 145,498 137,072
Changes in assets and liabilities:
Cash segregated for security
deposits............................ (17,824) (22,276) (25,939)
Accounts receivable................... 1,441 (6,750) 3,889
Prepaid expenses and other
assets.............................. 20,634 85,124 60,668
Escrow deposits....................... 175,504 79,449 422,335
Accounts payable...................... (9,170) (50,679) (112,570)
Accrued interest...................... (6,901) 62,062 (95,829)
Accrued expenses...................... (1,127) 138,356 154,930
Payable to affiliates - General
Partner............................. (288,991) (938,646) 438,501
Security deposits and deferred
rental income....................... 25,941 40,422 32,460
------------- ------------- --------------
Total adjustments................. 1,819,394 2,038,653 3,349,407
------------- ------------- --------------
Net cash provided by operating
activities.............................. $ 3,412,005 $ 2,345,896 $ 3,155,585
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
McNeil Real Estate Fund XI, Ltd. (the "Partnership") was organized June 2, 1980
as a limited partnership under the provisions of the California Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil. The Partnership is governed by an amended and restated partnership
agreement of limited partnership dated August 6, 1991, as amended (the "Amended
Partnership Agreement"). The principal place of business for the Partnership and
for the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas,
75240.
The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential real estate and other real estate
related assets. The Partnership has determined to evaluate market and other
economic conditions to establish the optimum time to commence an orderly
liquidation of the Partnership's assets in accordance with the terms of the
Amended Partnership Agreement. At December 31, 1996, the Partnership owned eight
income-producing properties. One of these properties is currently held for sale
as described in Note 4 - Real Estate Investments.
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.
<PAGE>
The Partnership's financial statements include the accounts of the following
listed tier partnerships for the years ended December 31, 1996, 1995 and 1994.
These single asset tier partnerships were formed to accommodate the refinancing
of the respective property. The Partnership's and the General Partner's
ownership interest in each tier partnership is detailed below. The Partnership
retains effective control of each tier partnership. The General Partner's
minority interest is not presented as it is either negative or immaterial.
% of Ownership Interest
Tier Partnership Partnership General Partner
---------------- ----------- ---------------
Limited Partnerships:
Acacia Lakes Fund XI Limited Partnership 99% 1%
Gentle Gale Fund XI Limited Partnership* 100 -
Villa Del Rio XI Limited Partnership* 100 -
Village Fund XI Associates 99 1
General Partnerships:
Knollwood XI Associates 99 1
The Park Fund XI Associates 99 1
Sun Valley Fund XI Associates 99 1
* The general partner of these partnerships is a corporation whose stock is 100%
owned by the Partnership.
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
recoverable amount.
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.
Asset Held for Sale
- -------------------
The asset held for sale is stated at the lower of depreciated cost or fair value
less costs to sell. Depreciation on this asset ceased at the time it was placed
on the market for sale.
<PAGE>
Depreciation
- ------------
Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 3 to 40 years.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and cash on deposit with
financial institutions with original maturities of three months or less.
Carrying amounts for cash and cash equivalents approximate fair value.
Escrow Deposits
- ---------------
The Partnership is required to maintain escrow accounts in accordance with the
terms of various mortgage indebtedness agreements. These escrow accounts are
controlled by the mortgagee and are used for payment of property taxes, hazard
insurance, capital improvements and/or property replacements. Carrying amounts
for escrow deposits approximate fair value.
Deferred Borrowing Costs
- ------------------------
Loan fees and other related costs incurred to obtain long-term financing on real
property are capitalized and amortized using a method that approximates the
effective interest method over the terms of the related mortgage notes payable.
Amortization of deferred borrowing costs is included in interest expense on the
Statements of Operations.
Discounts on Mortgage Notes Payable
- -----------------------------------
Discounts on mortgage notes payable are being amortized over the remaining terms
of the related mortgage notes using the effective interest method. Amortization
of discounts on the mortgage notes payable 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.
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.
<PAGE>
Allocation of Net Income and Net Loss
- -------------------------------------
The Amended Partnership Agreement provides for net income of the Partnership for
both financial statement and income tax reporting purposes to be allocated as
indicated below. For allocation purposes, net income and net loss of the
Partnership are determined prior to deductions for depreciation:
a) first, deductions for depreciation shall be allocated 5% to the
General Partner and 95% to the limited partners;
b) then, net income in an amount equal to the cumulative amount paid to
the General Partner for the Management Incentive Distribution ("MID"),
for which no previous income allocations have been made, shall be
allocated to the General Partner; provided, however, that if all or a
portion of such payment consists of limited partnership units
("Units"), the amount of net income allocated shall be equal to the
amount of cash the General Partner would have otherwise received; and
c) then, any remaining net income shall be allocated to achieve the
allocation of 5% to the General Partner and 95% to the limited
partners.
The Amended Partnership Agreement provides that net losses, other than that
arising from a sale or refinancing, shall be allocated 5% to the General Partner
and 95% to the limited partners.
Net losses arising from a sale or refinancing shall be allocated 1% to the
General Partner and 99% 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 allocations of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1996, 1995, and 1994 have been made
in accordance with these provisions.
Distributions
- -------------
Pursuant to the Amended Partnership Agreement and at the discretion of the
General Partner, distributions during each taxable year shall be made as
follows:
(a) first, to the General Partner, in an amount equal to the MID; and
(b) any remaining distributable cash, as defined, shall be distributed 100%
to the limited partners.
No distributions were made to the limited partners in 1996, 1995 or 1994. The
Partnership accrued distributions of $902,697, $871,503 and $769,448 for the
benefit of the General Partner for the years ended December 31, 1996, 1995 and
1994, respectively. These distributions are the MID pursuant to the Amended
Partnership Agreement.
<PAGE>
Net Income (Loss) Per Limited Partnership Unit
- ----------------------------------------------
Net income (loss) per Unit is computed by dividing net income (loss) allocated
to the limited partners by the number of Units outstanding. Per Unit information
has been computed based on 159,813 Units outstanding in 1996 and 1995,and
159,917 Units outstanding in 1994.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------
The Partnership pays property management fees equal to 5% of the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
Under terms of the Amended Partnership Agreement, the Partnership is paying the
MID to the General Partner. The maximum MID is calculated as 1% of the tangible
asset value of the Partnership. The maximum MID percentage decreases subsequent
to 1999. Tangible asset value is determined by using the greater of (i) an
amount calculated by applying a capitalization rate of 9% to the annualized net
operating income of each property or (ii) a value of $10,000 per apartment unit
for residential property to arrive at the property tangible asset value. The
property tangible asset value is then added to the book value of all other
assets excluding intangible items.
MID will be paid to the extent of the Entitlement Amount, and may be paid (i) in
cash, unless there is insufficient cash to pay the distribution in which event
any unpaid portion not taken in Units will be deferred and is payable, without
interest, from the first available cash and/or (ii) in Units. A maximum of 50%
of the MID may be paid in Units. The number of Units issued in payment of the
MID is based on the greater of $50 per Unit or the net tangible asset value per
Unit, as defined. No Units were issued in payment of the MID in 1996, 1995 or
1994.
During 1991, the Partnership amended its capitalization policy and began
capitalizing certain costs of improvements and betterments which under policies
of prior management had been expensed when incurred. The purpose of the
amendment was to more properly recognize items which were capital in nature. The
effect of the amendment standing alone was evaluated at the time the change was
made and determined not to be material to the financial statements of the
Partnership in 1991, nor was it expected to be material in any future year.
However, the amendment can have a material effect on the calculation of the
Entitlement Amount which determines the amount of MID earned. Capital
improvements are excluded from cash flow, as defined. The majority of base
period cash flow was measured under the previous capitalization policy, while
incentive period cash flow is determined using the amended policy. Under the
amended policy, more items are capitalized, and cash flow increases. The
amendment of the capitalization policy did not materially affect the MID for
1996, 1995 or 1994 because the Entitlement Amount was sufficient to pay MID
notwithstanding the amendment to the capitalization policy.
<PAGE>
Any amount of the MID that is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The MID represents a return of equity
to the General Partner for increasing cash flow, as defined, and accordingly is
treated as a distribution.
Compensation and reimbursements paid or accrued for the benefit of the General
Partner or its affiliates are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Property management fees - affiliates...... $ 734,247 $ 711,435 $ 671,785
Interest - affiliates...................... 23,620 - 3,589
Charged to general and
administrative - affiliates:
Partnership administration.............. 345,934 465,018 434,577
------------- ------------- -------------
$ 1,103,801 $ 1,176,453 $ 1,109,951
============= ============= =============
Charged to General Partner's deficit:
MID..................................... $ 902,697 $ 871,053 $ 769,448
============= ============= =============
</TABLE>
Payable to affiliates - General Partner at December 31, 1996 and 1995 consisted
primarily of accrued property management fees, MID and cost reimbursements and
are due and payable from operations. The General Partner has waived the
collection terms of the MID until the Partnership has an adequate level of cash
reserves. In 1996 and 1994, the Partnership paid $1,467,254 from cash reserves
for the MID.
NOTE 3 - TAXABLE INCOME (LOSS)
- ------------------------------
McNeil Real Estate Fund XI, Ltd. 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 were less than the
net assets and liabilities for financial reporting purposes by $831,834 in 1996,
$62,005 in 1995 and $415,728 in 1994.
<PAGE>
NOTE 4 - REAL ESTATE INVESTMENTS
- --------------------------------
The basis and accumulated depreciation of the Partnership's real estate
investments at December 31, 1996 and 1995 are set forth in the following tables:
<TABLE>
<CAPTION>
Buildings and Accumulated Net Book
1996 Land Improvements Depreciation Value
-------- -------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Acacia Lakes
Mesa, AZ $ 1,953,090 $ 13,054,618 $ (8,748,631) $ 6,259,077
Gentle Gale
Galveston, TX 450,155 3,685,626 (2,351,872) 1,783,909
Knollwood
Kansas City, MO 330,547 7,084,066 (4,299,937) 3,114,676
The Park
Joplin, MO 165,329 4,354,026 (3,192,577) 1,326,778
Sun Valley
Charlotte, NC 562,797 8,488,851 (4,619,613) 4,432,035
Villa Del Rio
Jacksonville, FL 636,634 9,540,354 (5,886,698) 4,290,290
The Village
Gresham, OR 474,102 4,393,243 (3,081,856) 1,785,489
------------- ------------- ------------- -------------
$ 4,572,654 $ 50,600,784 $ (32,181,184) $ 22,992,254
============= ============= ============= =============
Buildings and Accumulated Net Book
1995 Land Improvements Depreciation Value
-------- -------------- ------------ ------------ ---------------
Acacia Lakes $ 1,953,090 $ 12,687,204 $ (8,213,224) $ 6,427,070
Gentle Gale 450,155 3,577,012 (2,167,312) 1,859,855
Knollwood 330,547 6,423,419 (4,298,156) 2,455,810
The Park 165,329 4,238,254 (3,069,781) 1,333,802
Rock Creek (a) 1,365,810 9,663,748 (6,671,446) 4,358,112
Sun Valley 562,797 8,204,402 (4,282,305) 4,484,894
Villa Del Rio 636,634 9,261,056 (5,531,458) 4,366,232
The Village 474,102 4,353,456 (2,861,502) 1,966,056
------------- ------------- ------------- -------------
$ 5,938,464 $ 58,408,551 $ (37,095,184) $ 27,251,831
============= ============= ============= =============
</TABLE>
(a) Effective October 1, 1996, management placed Rock Creek, located in
Beaverton, OR, on the market for sale. Therefore, at December 31, 1996,
Rock Creek is classified as an asset held for sale at a net book value of
$4,203,597.
The results of operations for the assets held for sale at December 31, 1996 are
$94,412, $8,533 and $(50,314) for 1996, 1995 and 1994, respectively. Results of
operations are operating revenues less operating expenses including depreciation
and interest expense.
<PAGE>
The Partnership's real estate properties are encumbered by mortgage indebtedness
as discussed in Notes 5 and 6.
NOTE 5 - MORTGAGE NOTES PAYABLE
- -------------------------------
The following table sets forth the mortgage notes payable of the Partnership at
December 31, 1996 and 1995. All mortgage notes are secured by real estate
investments or the asset held for sale.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date (e) 1996 1995
- -------- --------------- ------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Acacia Lakes First 8.700 $ 71,069 01/01 $ 8,858,883 $ 8,937,249
------------- --------------
Gentle Gale (d) First 8.150 22,327 07/03 2,644,107 2,694,292
Discount (b) (57,508) (64,784)
------------- --------------
2,586,599 2,629,508
------------- --------------
Knollwood First 7.750 32,506 05/24 4,427,873 4,472,878
------------- --------------
The Park First 10.500 24,021 05/24 2,588,973 2,604,482
------------- --------------
Rock Creek First 11.875 67,860 02/01 6,139,670 6,224,682
------------- --------------
Sun Valley First 7.875 48,384 06/24 6,521,362 6,585,644
------------- --------------
Villa Del Rio (d) First 8.150 47,843 07/03 5,665,944 5,773,484
Discount (b) (123,230) (138,822)
------------- ---------------
5,542,714 5,634,662
------------- --------------
The Village (c) First 10.875 26,219 11/96 - 2,595,335
------------- --------------
$ 36,666,074 $ 39,684,440
============= ==============
</TABLE>
(a) The debt is non-recourse to the Partnership.
(b) Discounts are based on an effective interest rate of 8.62%.
(c) On November 25, 1996, the Partnership refinanced the mortgage note
payable on The Village with a mortgage note from an affiliate. See Note 6.
<PAGE>
(d) Financing was obtained under the terms of a Real Estate Mortgage Investment
Conduit financing. The mortgage notes payable are cross-collateralized and
may not be prepaid in whole or part before July 1998. Any prepayments made
during the sixth or seventh loan years are subject to a Yield Maintenance
premium, as defined. Additionally, the Partnership must pay a release
payment equal to 25% of the prepaid balance which will be applied to the
remaining mortgage notes in the collateral pool.
(e) Balloon payments on the mortgage notes are due as follows:
Property Balloon Payment Date
-------- --------------- ----
Acacia Lakes $ 8,468,000 01/01
Rock Creek 5,704,000 02/01
Gentle Gale 2,197,000 07/03
Villa Del Rio 4,707,000 07/03
Scheduled principal maturities of the mortgage notes, before consideration of
discounts of $180,738, are as follows:
Real Estate Asset Held
Investments For Sale
------------ -----------
1997.................................... $ 391,901 $ 90,029
1998.................................... 425,595 101,322
1999.................................... 462,199 114,030
2000.................................... 501,974 128,333
2001.................................... 8,892,033 5,705,956
Thereafter.............................. 20,033,440 -
----------- ----------
Total.................................. $ 30,707,142 $ 6,139,670
=========== ==========
Based on borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities, the fair value of notes payable
was approximately $36,770,000 as of December 31, 1996 and $40,765,000 as of
December 1995.
<PAGE>
NOTE 6 - MORTGAGE NOTE PAYABLE - AFFILIATE
- ------------------------------------------
The following sets forth the mortgage note payable - affiliate of the
Partnership at December 31, 1996. The mortgage note is secured by real estate
investment.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date 1996
- -------- --------------- ------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
The Village (b) First (c) Variable 11/99 $ 2,588,971
==========
</TABLE>
(a) The debt is non-recourse to the Partnership.
(b) In October 1996, the Partnership obtained a mortgage note commitment from
an affiliate of the General Partner for an amount up to $2,588,971. On
November 25, 1996, $2,588,971 was funded to the Partnership to pay off the
mortgage note on The Village. The Partnership incurred deferred borrowing
costs of $13,157 for the new mortgage note payable, and the deferred
borrowing costs for the old mortgage note payable were written off.
(c) The note requires monthly payments of interest only equal to the prime
lending rate plus 1%. At December 31, 1996, the prime rate was 8.25%.
Under the terms of the Amended Partnership Agreement, borrowings from affiliates
approximate fair market value.
NOTE 7 - GAIN ON INVOLUNTARY CONVERSION
- ---------------------------------------
On January 8, 1996, 23,347 square feet of Knollwood Apartments was destroyed by
fire causing $856,654 in damages. The Partnership has received $681,998 in
insurance reimbursements as of December 31, 1996, to cover the cost to repair
Knollwood. Insurance reimbursements received in excess of the basis of the
property damaged were recorded as a $531,843 gain on involuntary conversion. The
Partnership will receive an additional $174,656 in insurance reimbursements. The
Partnership has recorded a deferred gain and a receivable from its insurance
company for funds which were not reimbursed as of December 31, 1996. The
deferred gain will be recognized when the insurance proceeds are received.
In 1994, the Partnership received $67,016 in insurance proceeds to cover the
cost of repairs caused by a hail storm in August 1994 at Knollwood Apartments.
The insurance proceeds were placed in escrow until completion of repairs. During
1996, the Partnership completed the repairs and received the $67,016 that was
held in escrow. The Partnership has recorded a $67,016 gain on the involuntary
conversion.
<PAGE>
On March 15, 1993, 8 units at Sun Valley were destroyed by fire causing $317,100
in damages. The Partnership received $277,145 in insurance reimbursements as of
December 31, 1993, to cover the cost to repair Sun Valley. The property received
an additional $28,109 in insurance reimbursements in 1994. Insurance
reimbursements received in excess of the basis of the property damaged were
recorded as a gain on involuntary conversion. The Partnership recorded a gain of
$28,109 1994.
NOTE 8 - 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:
1) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners
L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund
XXII, L.P., McNeil Real Estate Fund 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 (as defined in this Section 1,
the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its
affiliate McNeil Real Estate Management, Inc. and three of their senior
officers and/or directors (as defined in this Section 1, 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. On January 7, 1997, the Court ordered consolidation with three
other similar actions listed below.
<PAGE>
The Partnerships filed a demurrer to the complaint and a motion to strike
on February 14, 1997, seeking to dismiss the complaint in all respects. The
demurrer is pending. The Partnerships deny that there is any merit to
Plaintiff's allegations and intend to vigorously defend this action.
2) Alfred Napoletano v. McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil
Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P. - Superior Court of the State of California, County of Los
Angeles, Case No. BC133849 (Class Action Complaint). On January 7, 1997,
this action was consolidated by court order with Scholfield, et al.,
referenced above.
3) Warren Heller v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil
Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real
Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate
Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund
XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV,
L.P. - Superior Court of the State of California, County of Los Angeles,
Case No. BC133957 (Class Action Complaint). On January 7, 1997, this action
was consolidated by court order with Scholfield, et al., referenced above.
4) Robert Lewis v. McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil et al. - In the District Court of Dallas County, Texas, A-14th
Judicial District, Cause No. 95-08535 (Class Action) - Plaintiff, Robert
Lewis, is a limited partner with McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd.
On April 11, 1996, the action was dismissed without prejudice in
anticipation of consolidation with other class action complaints. On
January 7, 1997, this action was consolidated by court order with
Schofield, et al., referenced above.
5) McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real
Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate
Fund XXIV, L.P., and McNeil Real Estate Fund XXV, L.P. v. High River
Limited Partnership, Riverdale Investors Corp., Carl C. Icahn, and Unicorn
Associates Corporation - United States District Court for the Central
District of California, Case No. 96-5680SVW.
On August 12, 1996, High River Limited Partnership (as defined in this
Section 5, "High River"), a partnership controlled by Carl C. Icahn, sent a
letter to the partnerships referenced above demanding lists of the names,
current residences or business addresses and certain other information
concerning the unitholders of such partnerships. On August 19, 1996, these
partnerships commenced the above action seeking, among other things, to
declare that such partnerships are not required to provide High River with
a current list of unitholders on the grounds that the defendants commenced
a tender offer in violation of the federal securities laws by filing
certain Schedule 13D Amendments on August 5, 1996.
<PAGE>
On October 16, 1996, the presiding judge denied the partnerships' requests
for a permanent and preliminary injunction to enjoin High River's tender
offers and granted the defendants request for an order directing the
partnerships to turn over current lists of unitholders to High River
forthwith. On October 24, 1996, the partnerships delivered the unitholder
lists to High River. The judge's decision resolved all the issues in the
action.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs
Initial Cost (b) Cumulative Capitalized
Related (b) Buildings and Write-down for Subsequent
Description Encumbrances Land Improvements Impairment To Acquisition
- ----------- ------------ ---- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
APARTMENTS:
Acacia Lakes
Mesa, AZ $ 8,858,883 $ 1,953,090 $ 10,784,729 $ - $ 2,269,889
Gentle Gale
Galveston, TX 2,586,599 450,155 2,925,081 (21,141) 781,686
Knollwood
Kansas City, MO 4,427,873 330,547 5,122,225 - 1,961,841
The Park
Joplin, MO 2,588,973 165,329 3,795,607 - 558,419
Sun Valley
Charlotte, NC 6,521,362 562,797 7,056,988 - 1,431,863
Villa Del Rio
Jacksonville, FL 5,542,714 636,634 7,685,383 - 1,854,971
The Village
Gresham, OR 2,588,971 474,102 3,372,567 - 1,020,676
-------------- -------------- -------------- ------------ -------------
$ 33,115,375 $ 4,572,654 $ 40,742,580 $ (21,141) $ 9,879,345
============== ============== ============== ============ =============
Asset Held for Sale:
Rock Creek (c)
Beaverton, OR $ 6,139,670
=============
</TABLE>
(b) The initial cost and encumbrances reflect the present value of future loan
payments discounted, if appropriate, at a rate estimated to be the
prevailing interest rate at the date of acquisition or refinancing.
(c) Asset held for sale is stated at the lower of depreciated cost or fair
value less costs to sell. Depreciation ceases at the time they are placed
on the market for sale.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period Accumulated
Buildings and Depreciation
Description Land Improvements Total (a) and Amortization
- ----------- ---- -------------- --------- ----------------
<S> <C> <C> <C> <C>
APARTMENTS:
Acacia Lakes
Mesa, AZ $ 1,953,090 $ 13,054,618 $ 15,007,708 $ (8,748,631)
Gentle Gale
Galveston, TX 450,155 3,685,626 4,135,781 (2,351,872)
Knollwood
Kansas City, MO 330,547 7,084,066 7,414,613 (4,299,937)
The Park
Joplin, MO 165,329 4,354,026 4,519,355 (3,192,577)
Sun Valley
Charlotte, NC 562,797 8,488,851 9,051,648 (4,619,613)
Villa Del Rio
Jacksonville, FL 636,634 9,540,354 10,176,988 (5,886,698)
The Village
Gresham, OR 474,102 4,393,243 4,867,345 (3,081,856)
-------------- -------------- ---------------- -------------
$ 4,572,654 $ 50,600,784 $ 55,173,438 $ (32,181,184)
============== ============== ================ =============
Asset Held for Sale:
Rock Creek (c)
Beaverton, OR $ 4,203,597
================
</TABLE>
(a) For Federal income tax purposes, the properties are depreciated over lives
ranging from 5-27.5 years using ACRS or MACRS methods. The aggregate cost
of real estate investments for Federal income tax purposes was
approximately $73,504,874 and accumulated depreciation was $59,251,834 at
December 31, 1996.
(c) Asset held for sale is stated at the lower of depreciated cost or fair
value less costs to sell. Historical cost net of accumulated depreciation
and write-downs becomes the new cost basis when the asset is classified as
"Held for sale." Depreciation ceases at the time they are placed on the
market for sale.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Date of Date Depreciable
Description Construction Acquired lives (years)
- ----------- ------------ -------- -------------
<S> <C> <C> <C>
APARTMENTS:
Acacia Lakes
Mesa, AZ 1980 05/81 3-33
Gentle Gale
Galveston, TX 1980 05/81 3-21
Knollwood
Kansas City, MO 1970 05/81 3-29
The Park
Joplin, MO 1977 03/81 3-35
Sun Valley
Charlotte, NC 1980 08/81 3-40
Villa Del Rio
Jacksonville, FL 1976 05/81 3-40
The Village
Gresham, OR 1974 05/81 3-30
Asset Held for Sale:
Rock Creek
Beaverton, OR 1975 02/81
</TABLE>
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
Notes to Schedule III
Real Estate Investments and
Accumulated Depreciation
A summary of activity for the real estate investments and accumulated
depreciation is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- -------------- ---------------
Real estate investments:
<S> <C> <C> <C>
Balance at beginning of year............... $ 64,347,015 $ 62,526,972 $ 60,372,893
Improvements............................... 2,391,036 1,820,043 2,154,079
Reclassification to asset held for sale.... (11,110,783) - -
Replacement of assets...................... (453,830) - -
------------- ------------- --------------
Balance at end of year..................... $ 55,173,438 $ 64,347,015 $ 62,526,972
============= ============= ==============
Accumulated depreciation:
Balance at beginning of year............... $ 37,095,184 $ 34,610,759 $ 32,269,274
Depreciation............................... 2,372,870 2,484,425 2,341,485
Reclassification to asset held for sale.... (6,983,195) - -
Replacement of assets...................... (303,675) - -
------------- ------------- --------------
Balance at end of year..................... $ 32,181,184 $ 37,095,184 $ 34,610,759
============= ============= ==============
Asset Held for Sale:
Balance at beginning of year............... $ - $ - $ -
Reclassification to asset held for sale.... 4,127,588 - -
Improvements............................... 76,009 - -
------------- ------------- --------------
Balance at end of year..................... $ 4,203,597 $ - $ -
============= ============= =============
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
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, 76 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 53 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.
<PAGE>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
Ron K. Taylor 39 Mr. Taylor is the President and Chief
President and Executive Officer of McNeil Real Estate
Chief 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, 1996, 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, 1996. 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, known to the Partnership is the
beneficial owner of more than 5 percent of the Partnership's Units,
other than High River Limited Partnership, which owns 18,022 Units
(approximately 11.28% of the outstanding Units) as of January 31, 1997.
The business address for High River Limited Partnership is 100 South
Bedford Road, Mount Kisco, New York 10549.
<PAGE>
(B) Security ownership of management.
The General Partner and the officers and directors of its general
partner, collectively, own 313 Units which represent less than 1% of
the outstanding Units.
(C) Change in control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Under the terms of the Amended Partnership Agreement, the Partnership is paying
the MID to the General Partner. The maximum MID is calculated as 1% of the
tangible asset value of the Partnership. The maximum MID percentage decreases
subsequent to 1999. Tangible asset value is determined by using the greater of
(i) an amount calculated by applying a capitalization rate of 9% to the
annualized net operating income of each property or (ii) a value of $10,000 per
apartment unit for residential property to arrive at the property tangible asset
value. The property tangible asset value is then added to the book value of all
other assets excluding intangible items.
MID will be paid to the extent of the Entitlement Amount, and may be paid (i) in
cash, unless there is insufficient cash to pay the distribution in which event
any unpaid portion not taken in Units will be deferred and is payable, without
interest, from the first available cash and/or (ii) in Units. A maximum of 50%
of the MID may be paid in Units. The number of Units issued in payment of the
MID is based on the greater of $50 per Unit or the net tangible asset value, as
defined. For the year ended December 31, 1996, the Partnership paid or accrued
for the General Partner MID in the amount of $902,697.
Any amount of the MID which is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The MID represents a return of equity
to the General Partner for increasing cash flow, as defined, and accordingly is
treated as a distribution.
The Partnership pays property management fees equal to 5% of the gross rental
receipts of the Partnership's properties to McREMI for providing property
management and leasing services. Effective February 14, 1991, the Partnership
began reimbursing McREMI for its costs, including overhead, of administering the
Partnership's affairs. For the year ended December 31, 1996, the Partnership
paid or accrued for McREMI $1,080,181 in 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."
In November 1996, the Partnership obtained a loan from McNeil Real Estate Fund
XXVII, L.P., an affiliate of the General Partner, totaling $2,588,971. The note
was secured by The Village and required monthly interest-only payments equal to
the prime lending rate of Bank of America plus 1% with the principal balance due
November 25, 1999. Total interest expense for this loan was $23,620 for the year
ended December 31, 1996.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
- ------- -----------------------------------------------------------------
See accompanying index to financial statements at Item 8.
(A) Exhibits
Exhibit
Number Description
------- -----------
3. Limited Partnership Agreement
(Incorporated by reference to the
Annual Report on Form 10-K for the
fiscal year ended September 30,
1987).
3.1 Amended and Restated Limited
Partnership Agreement, dated August
6, 1991 (Incorporated by reference
to the Quarterly Report on Form 10-Q
for the quarter ended June 30,
1991).
3.2 Amendment No. 1 to the Amended and
Restated Partnership Agreement of
McNeil Real Estate Fund XI, Ltd.,
dated March 28, 1994. (2)
3.3 Amendment No. 2 to the Amended and
Restated Partnership Agreement of
McNeil Real Estate Fund XI, Ltd.,
dated March 28, 1994. (2)
10.1 Deed of Trust Note, dated April 5,
1989, between Knollwood Fund XI
Associates and American Mortgages,
Inc. (1)
10.2 Deed of Trust Note, dated May 5,
1989, between Sun Valley Fund XI
Associates and American Mortgages,
Inc. (1)
10.3 Termination Agreement, dated as of
August 6, 1991, between The Park
Fund XI Associates and McNeil
Partners, L.P. regarding McNeil Real
Estate Fund XI, Ltd. (1)
10.4 Termination Agreement, dated as of
August 6, 1991 between Sun Valley
Fund XI Associates and McNeil Real
Estate Management, Inc. (1)
<PAGE>
Exhibit
Number Description
------- -----------
10.5 Termination Agreement, dated as of
August 6, 1991, between Knollwood
Fund XI Associates and McNeil Real
Estate Management, Inc. (1)
10.6 Termination Agreement, dated as of
August 6, 1991 among Southmark
Management Corporation, Southmark
Commercial Management Company,
McNeil Real Estate Fund XI, Ltd. and
McNeil Real Estate Fund XI, Ltd. and
McNeil Real Estate Management, Inc.
(1)
10.7 Property Management Agreement, dated
as of August 6, 1991, between McNeil
Real Estate Fund XI, Ltd. and McNeil
Real Estate Management, Inc. (1)
10.8 Property Management Agreement, dated
as of August 6, 1991, between
Knollwood Fund XI Associates and
McNeil Real Estate Management, Inc.
(1)
10.9 Property Management Agreement, dated
as of August 6, 1991, between Sun
Valley Fund XI Associates and McNeil
Real Estate Management, Inc.
(1)
10.10 Property Management Agreement, dated
as of August 6, 1991 between The
Park Fund XI Associates and McNeil
Real Estate Management, Inc. (1)
10.11 Revolving Credit Agreement dated
August 6, 1991, between McNeil Real
Estate Fund XI, Ltd. and McNeil
Partners, L.P. (1)
10.12 Amendment of Property Management
Agreement, dated March 5, 1993,
between McNeil Real Estate Fund XI,
Ltd. and McNeil Real Estate
Management, Inc. (Incorporated by
reference, to the Annual Report of
McNeil Real Estate Fund XI, Ltd.
(File No. 0-9783), on Form 10-K for
the period ended December 31, 1992)
<PAGE>
Exhibit
Number Description
------- -----------
10.13 Loan Agreement dated June 24,
1993, between Lexington Mortgage
Company and McNeil Real Estate Fund
XI, Ltd. (2)
10.14 Master Property Management
Agreement, dated as of June 24,
1993, between McNeil Real Estate
Management, Inc. and McNeil Real
Estate Fund XI, Ltd. (2)
10.15 Multifamily Note, dated November
1, 1993 between Value Line Mortgage
Corporation and Acacia Lakes Fund XI
Limited Partnership. (2)
10.16 Modification of Deed of Trust Note,
dated December 15, 1993, between
American Mortgages, Inc. and
Knollwood Fund XI Associates. (2)
10.17 Modification of Deed of Trust Note,
dated December 20, 1993, between
American Mortgages, Inc. and Sun
Valley Fund XI Associates. (2)
10.18 Deed of Trust Note, dated April 5,
1989, between The Park Fund XI
Associates and American Mortgages,
Inc. (3)
10.19 Installment Note, dated December
28, 1990, between The State of
Oregon Public Employees' Retirement
Fund and McNeil Real Estate Fund XI,
Ltd. (3)
10.20 Promissory Note, dated November
25, 1991, between Village Fund XI
Associates Limited Partnership and
Sun Life Insurance Company of
America. (3)
11. Statement regarding computation of
Net Income (Loss) per limited
partnership unit (see Item 8 - Note
1 - "Organization and Summary of
Significant Accounting Policies).
22. List of subsidiaries of the
Partnership. (2)
<PAGE>
(1) Incorporated by reference to the
Annual Report of McNeil Real Estate
Fund XI, Ltd. (File No. 0-9783), on
Form 10-K for the period ended
December 31, 1991, as filed with the
Securities and Exchange Commission
on March 29, 1992.
(2) Incorporated by reference to the
Annual Report of McNeil Real Estate
Fund XI, Ltd. (File No. 0-9783), on
Form 10-K for the period ended
December 31, 1993, as filed with the
Securities and Exchange Commission
on March 30, 1994.
(3) Incorporated by reference to the
Annual Report of McNeil Real Estate
Fund XI, Ltd. (File No. 0-9783), on
Form 10-K for the period ended
December 31, 1993, as filed with the
Securities and Exchange Commission
on March 30, 1995.
27. Financial Data Schedule for the year
ended December 31, 1996.
(B) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended December 31, 1996.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
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 XI, LTD.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
March 28, 1997 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 28, 1997 By: /s/ Ron K. Taylor
- -------------- -----------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
March 28, 1997 By: /s/ Brandon K. Flaming
- -------------- -----------------------------------
Date Brandon K. Flaming
Vice President of McNeil
Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,351,879
<SECURITIES> 0
<RECEIVABLES> 204,542
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 55,173,438
<DEPRECIATION> (32,181,184)
<TOTAL-ASSETS> 32,592,153
<CURRENT-LIABILITIES> 0
<BONDS> 36,666,074
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,592,153
<SALES> 14,855,652
<TOTAL-REVENUES> 15,582,063
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,181,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,808,175
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,592,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,592,611
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
