UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-------------------------------------------
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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2669577
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
-----------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
MCNEIL REAL ESTATE FUND XI, LTD.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ....................................................... $ 4,407,325 $ 4,407,325
Buildings and improvements ................................. 48,912,508 48,327,237
------------ ------------
53,319,833 52,734,562
Less: Accumulated depreciation ............................ (34,597,889) (33,063,795)
------------ ------------
18,721,944 19,670,767
Asset held for sale ........................................... 4,963,040 4,765,942
Cash and cash equivalents ..................................... 3,590,765 2,397,968
Cash segregated for security deposits ......................... 395,696 459,382
Cash restricted for mortgage payments ......................... 167,166 286,160
Accounts receivable ........................................... 34,198 149,681
Prepaid expenses and other assets ............................. 175,748 233,791
Escrow deposits ............................................... 947,787 617,502
Deferred borrowing costs (net of accumulated
amortization of $815,752 and $682,223 at
September 30, 1999 and December 31, 1998,
respectively) .............................................. 1,031,657 1,165,186
------------ ------------
$ 30,028,001 $ 29,746,379
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net ................................... $ 35,314,204 $ 36,064,590
Accounts payable .............................................. 3,967 --
Accrued interest .............................................. 208,597 240,794
Accrued expenses .............................................. 1,009,085 414,875
Payable to affiliates - General Partner ....................... 3,727,254 2,950,388
Deferred gain - fire .......................................... -- 25,037
Security deposits and deferred rental revenue ................. 454,369 466,504
------------ ------------
40,717,476 40,162,188
------------ ------------
Partners' deficit:
Limited partners - 159,813 limited partnership units
authorized and outstanding at September 30, 1999
and December 31, 1998 .................................... (3,256,289) (3,598,672)
General Partner ............................................ (7,433,186) (6,817,137)
------------ ------------
(10,689,475) (10,415,809)
------------ ------------
$ 30,028,001 $ 29,746,379
============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Rent revenue ......................... $ 3,656,732 $ 3,693,935 $11,163,530 $11,276,346
Interest ............................. 50,389 53,435 101,238 149,557
Gain on sale of real estate .......... -- -- -- 3,319,137
Gain on involuntary
conversion ......................... -- -- 36,012 --
----------- ----------- ----------- -----------
Total revenue ...................... 3,707,121 3,747,370 11,300,780 14,745,040
----------- ----------- ----------- -----------
Expenses:
Interest ............................. 770,201 948,619 2,291,584 2,656,708
Interest - affiliate mortgage......... -- -- -- 89,621
Depreciation ......................... 501,429 591,362 1,534,094 1,618,193
Property taxes ....................... 230,376 224,908 682,125 682,511
Personnel expenses ................... 415,893 476,688 1,315,909 1,423,084
Utilities ............................ 305,234 309,706 853,593 857,481
Repair and maintenance ............... 560,432 501,015 1,572,338 1,427,331
Property management
fees - affiliates .................. 179,809 181,129 550,226 557,958
Other property operating
expenses ........................... 182,019 205,240 527,437 600,266
General and administrative ........... 247,023 94,884 865,726 442,961
General and administrative -
affiliates ......................... 73,705 84,183 220,804 258,725
----------- ----------- ----------- -----------
Total expenses ..................... 3,466,121 3,617,734 10,413,836 10,614,839
----------- ----------- ----------- -----------
Net income .............................. $ 241,000 $ 129,636 $ 886,944 $ 4,130,201
=========== =========== =========== ===========
Net income allocable to
limited partners ..................... $ 228,950 $ 123,154 $ 842,597 $ 3,923,691
Net income allocable
to General Partner ................... 12,050 6,482 44,347 206,510
----------- ----------- ----------- -----------
Net income .............................. $ 241,000 $ 129,636 $ 886,944 $ 4,130,201
=========== =========== =========== ===========
Net income per limited
partnership unit ..................... $ 1.43 $ .77 $ 5.27 $ 24.55
=========== =========== =========== ===========
Distribution per limited
partnership unit ..................... $ -- $ 13.90 $ 3.13 $ 26.41
=========== =========== =========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
--------------- --------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1997 ............. $ (6,191,624) $ (3,602,274) $ (9,793,898)
Net income ............................... 206,510 3,923,691 4,130,201
Management Incentive Distribution ........ (676,761) -- (676,761)
Distributions to limited partners ........ -- (4,221,415) (4,221,415)
-------------- -------------- ------------
Balance at September 30, 1998 ............ $ (6,661,875) $ (3,899,998) $(10,561,873)
============== ============== ============
Balance at December 31, 1998 ............. $ (6,817,137) $ (3,598,672) $(10,415,809)
Net income ............................... 44,347 842,597 886,944
Management Incentive Distribution......... (660,396) -- (660,396)
Distributions to limited partners ........ -- (500,214) (500,214)
-------------- -------------- ------------
Balance at September 30, 1999 ............ $ (7,433,186) $ (3,256,289) $(10,689,475)
============== ============== ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1999 1998
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ........................ $ 11,289,351 $ 11,174,442
Cash paid to suppliers ............................ (4,939,123) (4,514,412)
Cash paid to affiliates ........................... (581,405) (695,118)
Interest received ................................. 101,238 149,557
Interest paid ..................................... (2,170,294) (2,564,090)
Interest paid - affiliates ........................ -- (110,510)
Property taxes paid ............................... (545,152) (677,813)
------------ ------------
Net cash provided by operating activities ............ 3,154,615 2,762,056
------------ ------------
Cash flow from investing activities:
Additions to real estate investments and
asset held for sale ............................ (782,369) (876,683)
Insurance proceeds from fire ...................... 45,270 --
Additions to assets held for sale ................. -- (168,755)
Proceeds from sale of real estate ................. -- 4,787,389
------------ ------------
Net cash provided by (used in) investing
activities ........................................ (737,099) 3,741,951
------------ ------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable ......................................... (770,344) (382,706)
Cash restricted for mortgage payments ............. 118,994 --
Proceeds from mortgage note payable ............... -- 8,860,000
Repayment of mortgage note
payable - affiliate ............................. -- (2,588,971)
Retirement of mortgage note payable ............... -- (8,540,387)
Deferred borrowing costs paid ..................... -- (140,727)
Management Incentive Distribution ................. (73,155) --
Distributions to limited partners ................. (500,214) (4,221,415)
------------ ------------
Net cash used in financing activities ................ (1,224,719) (7,014,206)
------------ ------------
Net increase (decrease) in cash and
cash equivalents .................................. 1,192,797 (510,199)
Cash and cash equivalents at beginning of
period ............................................ 2,397,968 3,045,785
------------ ------------
Cash and cash equivalents at end of period ........... $ 3,590,765 $ 2,535,586
============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income ............................................ $ 886,944 $ 4,130,201
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 1,534,094 1,618,193
Amortization of deferred borrowing costs ........... 133,529 158,574
Amortization of discounts on mortgage
notes payable .................................... 19,958 18,428
Gain on sale of real estate ........................ -- (3,319,137)
Gain on involuntary conversion ..................... (36,012) --
Changes in assets and liabilities:
Cash segregated for security deposits ............ 63,686 (41,907)
Accounts receivable .............................. 81,188 (62,758)
Prepaid expenses and other assets ................ 58,043 131,075
Escrow deposits .................................. (330,285) (333,705)
Accounts payable ................................. 3,967 --
Accrued interest ................................. (32,197) (84,384)
Accrued interest - affiliates .................... -- (20,889)
Accrued expenses ................................. 594,210 436,937
Payable to affiliates - General Partner .......... 189,625 121,565
Security deposits and deferred rental
revenue ........................................ (12,135) 9,863
----------- -----------
Total adjustments .............................. 2,267,671 (1,368,145)
----------- -----------
Net cash provided by operating activities ............. $ 3,154,615 $ 2,762,056
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
Notes to Financial Statements
(Unaudited)
September 30, 1999
NOTE 1.
- -------
McNeil Real Estate Fund XI, Ltd. (the "Partnership") was organized June 2, 1980
as a limited partnership under the provisions of the California Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil. The Partnership is governed by an amended and restated limited
partnership agreement, dated August 6, 1991 (the "Amended Partnership
Agreement"). The principal place of business for the Partnership and for the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations of the Partnership. All adjustments were of a normal recurring
nature. However, the results of operations for the nine months ended September
30, 1999 are not necessarily indicative of the results to be expected for the
year ending December 31, 1999.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1998, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund XI, Ltd., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
The Partnership pays property management fees equal to 5% of gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
Under terms of the Amended Partnership Agreement, the Partnership is paying a
Management Incentive Distribution ("MID") to the General Partner. The maximum
MID is calculated as 1% of the tangible asset value of the Partnership. Tangible
asset value is determined by using the greater of (i) an amount calculated by
applying a capitalization rate of 9% to the annualized net operating income of
each property or (ii) a value of $10,000 per apartment unit to arrive at the
property tangible asset value. The property tangible asset value is then added
to the book value of all other assets excluding intangible items. The maximum
MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter.
<PAGE>
MID will be paid to the extent of the lesser of the Partnership's excess cash
flow, as defined, or net operating income, as defined, and may be paid (i) in
cash, unless there is insufficient cash to pay the distribution in which event
any unpaid portion not taken in limited partnership units ("Units") will be
deferred and is payable, without interest, from the first available cash and/or
(ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of
Units issued in payment of the MID is based on the greater of $50 per Unit or
the net tangible asset value, as defined, per Unit.
Any amount of the MID that is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The MID represents a return of equity
to the General Partner for increasing cash flow, as defined, and accordingly is
treated as a distribution.
In October 1996, the Partnership obtained a loan from McNeil Real Estate Fund
XXVII, L.P., an affiliate of the General Partner, for $2,588,971. The note was
secured by The Village Apartments 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. This mortgage note was paid off on April 27, 1998
(See Note 6).
Compensation, reimbursements and distributions paid to or accrued for the
benefit of the General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Property management fees - affiliates ................. $550,226 $557,958
Interest - affiliate mortgage ......................... -- 89,621
Charged to general and administrative affiliates:
Partnership administration ......................... 220,804 258,725
-------- --------
$771,030 $906,304
======== ========
Charged to General Partner's deficit:
MID ................................................ $660,396 $676,761
======== ========
</TABLE>
NOTE 4.
- -------
On November 5, 1998, a fire destroyed two units and damaged four units at Gentle
Gale Apartments. In 1999, the Partnership received $45,270 in insurance
reimbursements to cover the cost of repairs. Insurance reimbursements received
in excess of the basis of the property damage were recorded as a gain on
involuntary conversion. The Partnership recorded a gain of $36,012.
<PAGE>
NOTE 5.
- -------
On April 30,1998, the Partnership sold to an unaffiliated buyer, The Park, a 192
unit apartment complex in Joplin, Missouri, for a cash purchase price of
$4,900,000. Net cash proceeds to the Partnership, after payoff of the first
mortgage note and various closing costs, amounted to $2,221,785. Cash proceeds
from this transaction, as well as the gain on sale are detailed below.
<TABLE>
<CAPTION>
Gain on Sale Cash Proceeds
--------------- -------------
<S> <C> <C>
Cash sales price..................................... $ 4,900,000 $ 4,900,000
Selling costs........................................ (112,611) (112,611)
Basis of real estate sold............................ (1,337,454)
Basis of deferred borrowing costs
written off...................................... (130,798)
---------------
Gain on sale of real estate.......................... $ 3,319,137
==============
Proceeds from sale of real estate.................... 4,787,389
Retirement of mortgage note payable.................. (2,565,604)
------------
Net cash proceeds.................................... $ 2,221,785
============
</TABLE>
NOTE 6.
- -------
On April 27, 1998, the Partnership refinanced The Village mortgage note. The new
mortgage note, in the amount of $2,635,000 bears interest at a variable rate
equal to 1.75% plus the London Interbank Offered Rate per annum. The new
mortgage note requires monthly interest-only payments and quarterly principal
payments in an amount necessary to reduce the principal balance of the note by
5% annually. The maturity date of the new mortgage note is May 1, 2001. Cash
proceeds from the refinancing transaction are as follows:
New mortgage note proceeds..................... $ 2,635,000
Amount required to payoff existing debt........ 2,588,971
------------
Cash proceeds from refinancing................. $ 46,029
============
The Partnership incurred $60,438 of deferred borrowing costs related to the
refinancing of The Village mortgage note.
<PAGE>
NOTE 7.
- -------
On June 24, 1999, the Partnership and 18 affiliated partnerships, collectively,
(the "Partnerships"),the General Partner, McNeil Investors, Inc., McNeil Real
Estate Management, Inc. ("McREMI"), McNeil Summerhill, Inc. and Robert A. McNeil
entered into a definitive acquisition agreement (the "Master Agreement") with
WXI/McN Realty L.L.C. ("Newco"), an affiliate of Whitehall Street Real Estate
Limited Partnership XI, a real estate investment fund managed by Goldman, Sachs
& Co., whereby Newco and its subsidiaries will acquire the Partnerships. The
Master Agreement provides that the Partnerships will be merged with subsidiaries
of Newco. The Master Agreement also provides for the acquisition by Newco and
its subsidiaries of the assets of McREMI. The aggregate consideration in the
transaction, including the assumption or prepayment of all outstanding mortgage
debt of the Partnerships, is approximately $644,440,000.
Pursuant to the terms of the Master Agreement, the limited partners in the
Partnership will receive cash on the closing date of the transaction (the
"Closing Date") in exchange for their limited partnership interests. In
addition, the Partnership will declare a special distribution to its limited
partners on the Closing Date equal to its then positive net working capital
balance, if any. The estimated aggregate consideration and net working capital
distribution to be received per unit of limited partnership interest in the
Partnership were estimated as $221.
The above estimates of the Partnership per unit estimated merger consideration
and working capital distribution and the interest of McNeil Partners, L.P. are
based upon, among other things, the balance sheet of the Partnership as of March
31, 1999, adjusted for intangible assets, non-cash liabilities, transaction
expenses and the McNeil Partners, L.P. interest in the Partnership. Actual
amounts, including the estimate allocable to McNeil Partners, L.P., will vary
with the performance of the Partnership and McNeil Partners, L.P. through the
closing date. The above estimated merger consideration and special working
capital distribution will be adjusted at closing to reflect the then working
capital position of the Partnership.
On the Closing Date, the General Partner of the Partnership, will receive an
equity interest in Newco in exchange for its contribution to Newco of the
general partnership interests in the Partnerships, the limited partnership
interests in Fairfax Associates II L.P. and McNeil Summerhill Associates and the
assets of McREMI.
The Partnership's participation in the transaction is subject to, among other
conditions, the approval by a majority of the limited partners of the
Partnership.
In some circumstances, as defined in the Master Agreement, the Partnerships may
be subject to a break-up fee, up to an aggregate maximum of $18,000,000, if the
Master Agreement is terminated with respect to one or more of the Partnerships.
In the case of termination of the Master Agreement in these circumstances, each
of the Partnerships with respect to which the Master Agreement has been
terminated will be severally, but not jointly, liable for payment to Newco of
its respective break-up fee. The break-up fee ratably calculated for the
Partnership is $2,128,896.
<PAGE>
All previous costs associated with this transaction had been allocated among the
Partnerships and McREMI based on the relative number of properties contained
therein. On June 24, 1999, a fairness opinion (the "Fairness Opinion") was
rendered by Robert A. Stanger & Co., Inc., an independent financial advisor, to
the effect that the aggregate consideration to be paid for the general
partnership interests and limited partnership interests in all of the
Partnerships and the assets of McREMI is fair from a financial point of view to
the holders of each class of limited partnership. Based on the relative values
as set forth in the Fairness Opinion, the Partnership recorded an adjustment to
general and administrative expenses and accrued expenses during the second
quarter of 1999 in the amount of $165,755 to reflect the reallocation of
previously paid transaction costs among the Partnerships and McREMI.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential and other real estate related assets. At
September 30, 1999, the Partnership owned seven apartment properties, which are
all subject to mortgage notes.
RECENT DEVELOPMENTS
- -------------------
On June 24, 1999, McNeil Partners, L.P. (the General Partner of the Partnership)
and WXI/McN Realty L.L.C., an affiliate of Whitehall Street Real Estate Limited
Partnership XI ("Whitehall"), a real estate investment fund managed by Goldman,
Sachs & Co., announced that they have entered into a definitive acquisition
agreement whereby the Whitehall affiliate will acquire by merger nineteen real
estate limited partnerships operated by McNeil Partners, L.P. and Robert A.
McNeil. The limited partnerships involved are the Partnership and McNeil Real
Estate Funds IX, X, XII, XIV, XV, XX, XXI, XXII, XXIII, XXIV, XXV, XXVI and
XXVII, Hearth Hollow Associates, McNeil Midwest Properties I, L.P., Regency
North Associates, Fairfax Associates and McNeil Summerhill (collectively, the
"Partnerships"). The Partnerships (other than Fairfax Associates and McNeil
Summerhill which are wholly-owned by Robert A. McNeil and related parties) will
be merged with subsidiaries of WXI/McN Realty L.L.C. The acquisition agreement
also provides for the acquisition by WXI/McN Realty L.L.C. of the assets of
McNeil Real Estate Management, Inc. ("McREMI"). The aggregate consideration in
the transaction, including all outstanding mortgage debt of the Partnerships, is
approximately $644,440,000.
Pursuant to the terms of the acquisition agreement, the limited partners in each
of the Partnerships (other than those wholly-owned by Robert A. McNeil) will
receive cash on the closing date of the transaction in exchange for their
limited partnership interests. In addition, each Partnership will make a special
distribution to its limited partners on the closing date of the transaction
equal to its then net positive working capital balance. McNeil Partners, L.P.
will receive an equity interest in WXI/McN Realty L.L.C. in exchange for its
contribution of its general partnership interests in the Partnerships, the
limited partnership interests in its wholly-owned Partnerships and the assets of
McREMI.
<PAGE>
The proposed transaction follows an extensive marketing effort by PaineWebber
Incorporated, exclusive financial advisor to the Partnerships.
The transaction has been unanimously approved by the Board of Directors of
McNeil Investors, Inc., the general partner of McNeil Partners, L.P., the
general partner of each of the Partnerships other than Regency North Associates,
Fairfax Associates and McNeil Summerhill. The respective general partners of
Regency North Associates, Fairfax Associates and McNeil Summerhill also have
approved the transaction. The Board of Directors of McNeil Investors based its
approval upon, among other things, the recommendation of a Special Committee of
the Board, appointed at the beginning of the discussions with Whitehall to
represent the interests of holders of limited partnership interests in each of
the Partnerships. In addition, the Special Committee and the Board relied upon
fairness opinions given by Robert A. Stanger & Co., Inc. ("Stanger & Co."), an
independent financial advisor to the Partnerships, to the effect that the
aggregate consideration is fair to the holders of each class of limited
partnership interests in each of the Partnerships. The Special Committee's
recommendation was also based upon the separate opinions of Eastdil Realty
Company ("Eastdil"), the independent financial advisor to the Special Committee.
Stanger & Co. and Eastdil have each also rendered an opinion that the aggregate
consideration to be paid for the general partnership interests and limited
partnership interests in all of the Partnerships and the assets of McREMI is
fair from a financial point of view to the holders of each class of limited
partnership interests in each of the Partnerships.
Each of the Partnerships' participation in the transaction is subject to, among
other conditions, the approval by a majority of the limited partners of the
respective Partnerships. The approval of the limited partners of the
Partnerships will be sought at meetings to be held in the coming months after
the filing of proxy statements with the Securities and Exchange Commission with
respect to the publicly traded Partnerships, and the subsequent mailing of proxy
statements to the limited partners. Preliminary proxy statements were filed with
the SEC on August 3, 1999 and amended proxy statements were filed September 30,
1999, October 21, 1999 and November 10,1999.
The aggregate consideration in the transaction has been allocated preliminarily
among the general partnership interests and the limited partnership interests in
each of the Partnerships and McREMI, based upon an allocation analysis prepared
by Stanger & Co. and confirmed by Eastdil. Based upon this allocation analysis
and the fairness opinions rendered by Stanger & Co. and Eastdil, the Special
Committee, the Board of Directors of McNeil Investors, Inc., the respective
general partners of Regency North Associates, Fairfax Associates and McNeil
Summerhill have each unanimously approved the allocation of the aggregate
consideration. The estimated aggregate consideration and working capital
distribution to be received per unit of limited partnership interest of the
Partnership were estimated as $221.
McNeil Partners, L.P. will contribute its real estate investment and management
company business to a subsidiary of WXI/McN Realty, L.L.C., along with its
general partnership interests in the Partnerships and its limited partnership
interests in the wholly-owned Partnerships, having an aggregate allocated value,
as determined by Stanger & Co., of approximately $58,640,000, of which
approximately $29,400,000 reflects balances due to McNeil Partners, L.P. and
McREMI as reflected on the Partnerships' financial statements as of March 31,
1999.
<PAGE>
The above estimates of the Partnership per unit estimated merger consideration
and working capital distribution and the interest of McNeil Partners, L.P. are
based upon, among other things, the balance sheet of the Partnership as of March
31, 1999, adjusted for intangible assets, non-cash liabilities, transaction
expenses and the McNeil Partners, L.P. interest in the Partnership. Actual
amounts, including the estimate allocable to McNeil Partners, L.P., will vary
with the performance of the Partnership and McNeil Partners, L.P. through the
closing date. The above estimated merger consideration and special working
capital distribution will be adjusted at closing to reflect the then working
capital position of the Partnership.
Whitehall is a $2.26 billion equity fund and is the seventh in a series of funds
sponsored and capitalized by Goldman, Sachs & Co. and its affiliates, along with
public and private investors, to acquire real estate worldwide.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenues decreased $40,249 or 1% and $3,444,260 or 23% for the
three and nine months ended September 30, 1999 as compared to the same period
last year. Excluding the effects of the sale of The Park Apartments in April
1998, Partnership revenue increased $152,349 for the nine months ended September
30, 1999 as compared to the same period last year. Interest income decreased
$48,319 for the nine months ended September 30, 1999 as compared to the same
period last year. During the first quarter of 1999, the Partnership recognized a
gain on involuntary conversion of $36,012 related to the fire at Gentle Gale. No
such gain was recognized in 1998. In 1998, the Partnership recognized a gain on
the sale of real estate of $3,319,137 for the sale of The Park Apartments. No
such gain was recognized in 1999.
Expenses:
Total expenses decreased $201,003 for the nine months ended September 30, 1999
and decreased $151,613 for the three months ended September 30, 1999 as compared
to the same period last year. Excluding the effects of the sale of The Park,
Partnership expenses increased $61,509 for the nine months ended September 30,
1999.
Interest expense (excluding The Park) decreased $268,919 or 10% for the nine
months ended September 30, 1999. This decrease is primarily due to the
refinancing of the mortgage note on Rock Creek.
Interest - affiliate mortgage expense decreased by $89,621 for the nine months
ended September 30, 1999. This decrease is due to the refinancing of the
mortgage loan at The Village in April 1998, which replaced affiliate debt with a
third party mortgage note payable.
Repair and maintenance expenses (excluding The Park) increased $177,383 or 12%
for the nine months ended September 30, 1999 as compared to the same period last
year. The increase is due mostly to increased floor covering and appliance
replacements at Gentle Gale Apartments, Acacia Lakes Apartments and Villa Del
Rio Apartments.
<PAGE>
General and administrative expense increased $152,139 and $422,765 for the three
and nine months ended September 30, 1999 as compared to the same period last
year. The increase is mainly due to increased costs incurred to explore
alternatives to maximize the value of the Partnership (see Recent Developments)
and due to a $165,755 reallocation of previously paid transaction costs among
the Partnerships and McREMI in the second quarter of 1999 (see Note 7).
General and administrative - affiliates decreased $37,921 or 15% due to a
decrease in overhead expenses allocated to the Partnership by McREMI.
All other remaining expenses, excluding The Park Apartments, remained comparable
to the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $3,154,615 through operating activities for the nine
month period ended September 30, 1999 as compared to $2,762,056 for the same
period in 1998. This increase is primarily due to decreases in interest and
property taxes paid.
During the first nine months of 1999, the Partnership paid $770,344 in principal
payments on the mortgage notes and made distributions of $500,214 to the limited
partners. In 1999, the Partnership also paid $73,155 in MID to the General
Partner.
Short-term liquidity:
At September 30, 1999, the Partnership held cash and cash equivalents of
$3,590,765. The General Partner considers this level of cash reserves to be
adequate to meet the Partnership's operating needs. The General Partner believes
that anticipated operating results for 1999 will be sufficient to fund the
Partnership's budgeted $1.03 million in capital improvements for 1999 and to
repay the current portion of the Partnership's mortgage notes.
Long-term liquidity:
For the long-term, property operations will remain the primary source of funds.
In this regard, the General Partner expects that the capital improvements made
by the Partnership during the past will yield improved cash flow from property
operations in the future. If the Partnership's cash position deteriorates, the
General Partner may elect to defer certain of the capital improvements, except
where such improvements are expected to increase the competitiveness or
marketability of the Partnership's properties. See "Recent Developments" above.
The Partnership placed Rock Creek Apartments on the market for sale on October
1, 1996.
Income/Loss 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 nine months ended
September 30, 1999 and 1998, net income of $44,347 and $206,510, respectively,
was allocated to the General Partner. The limited partners received net income
allocations of $842,597 and $3,923,691 for the nine months ended September 30,
1999 and 1998, respectively.
<PAGE>
The Partnership distributed $500,214 to the limited partners in 1999. A
distribution of $660,396 for the MID has been accrued by the Partnership for the
nine month period ended September 30, 1999 for the General Partner.
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after September 30, 1999. 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.
YEAR 2000 DISCLOSURE
- --------------------
State of readiness
- ------------------
The year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in major systems failure or
miscalculations.
Management has assessed its information technology ("IT") infrastructure to
identify any systems that could be affected by the year 2000 problem. The IT
used by the Partnership for financial reporting and significant accounting
functions was made year 2000 compliant during recent systems conversions. The
software utilized for these functions is licensed by third party vendors who
have warranted that their systems are year 2000 compliant.
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management has inventoried all
such systems and queried suppliers, vendors and manufacturers to determine year
2000 compliance. Based on this review, management believes these systems are
substantially compliant. In circumstances of non-compliance management will work
with the vendor to remedy the problem or seek alternative suppliers who will be
in compliance. Management believes that the remediation of any outstanding year
2000 conversion issues will not have a material or adverse effect on the
Partnership's operations. However, no estimates can be made as to the potential
adverse impact resulting from the failure of third party service providers and
vendors to be year 2000 compliant.
Cost
- ----
The cost of IT and embedded technology systems testing and upgrades is not
expected to be material to the Partnership. Because all the IT systems have been
upgraded over the last three years, all such systems were compliant, or made
compliant at no additional cost by third party vendors. Management anticipates
the costs of assessing, testing, and if necessary replacing embedded technology
components will be less than $50,000. Such costs will be funded from operations
of the Partnership.
<PAGE>
Risks
- -----
Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is addressed by government agencies and entities that
provide services or supplies to the Partnership. Management has not determined
the most likely worst case scenario to the Partnership. As management studies
the findings of its property systems assessment and testing, management will
develop a better understanding of what would be the worst case scenario.
Management believes that progress on all areas is proceeding and that the
Partnership will experience no adverse effect as a result of the year 2000
issue. However, there is no assurance that this will be the case.
Contingency plans
- -----------------
Management is developing contingency plans to address potential year 2000
non-compliance of IT and embedded technology systems. Management believes that
failure of any IT system could have an adverse impact on operations. However,
management believes that alternative systems are available that could be
utilized to minimize such impact. Management believes that any failure in the
embedded technology systems could have an adverse impact on that property's
performance. Management has assessed these risks and expects to have contingency
plans in place by December 31, 1999 for any material potential failures.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
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 XXIII, 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., Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates,
L.P., - 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 limited partnerships that were named as
nominal defendants as listed above (the "Partnerships"). Plaintiffs allege
that McNeil Investors, Inc., its affiliate McNeil Real Estate Management,
Inc. ("McREMI") and three of their senior officers and/or directors
(collectively, the "Defendants") breached their fiduciary duties and
certain obligations under the respective Amended Partnership Agreement.
Plaintiffs allege that Defendants have rendered such Units highly illiquid
and artificially depressed the prices that are available for Units on the
resale market. Plaintiffs also allege that Defendants engaged in a course
<PAGE>
of conduct to prevent the acquisition of Units by an affiliate of Carl
Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance
their own personal interests at the expense of the Partnerships' public
unit holders by failing to sell Partnership properties and failing to make
distributions to unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended
complaint. Plaintiffs are suing for breach of fiduciary duty, breach of
contract and an accounting, alleging, among other things, that the
management fees paid to the McNeil affiliates over the last six years are
excessive, that these fees should be reduced retroactively and that the
respective Amended Partnership Agreements governing the Partnerships are
invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated
and amended complaint in all respects. The Court granted Defendants'
demurrer, dismissing the consolidated and amended complaint with leave to
amend. On October 31, 1997, the Plaintiffs filed a second consolidated and
amended complaint. The case was stayed pending settlement discussions.
Because the settlement contemplated a transaction which included all of the
Partnerships and plaintiffs claimed that an effort should be made to sell
all of the Partnerships, in or around September 1998, plaintiffs filed a
third consolidated and amended complaint which included allegations with
respect to the Partnerships which had not been named in previously filed
complaints.
On September 15, 1998, the parties signed a Stipulation of Settlement. For
purposes of settlement, the parties stipulated to a class comprised of all
owners of limited partner units in the Partnerships during the period
beginning June 21, 1991, the earliest date that proxy materials began to be
issued in connection with the restructuring of the Partnerships, through
September 15, 1998. As structured, the Stipulation of Settlement provided
for the payment of over $35 million in distributions and the commitment to
market the Partnerships for sale, together with McREMI, through a fair and
impartial bidding process overseen by a national investment banking firm.
To ensure the integrity of that process, defendants agreed, among other
things, to involve plaintiffs' counsel in oversight of that process, and
plaintiffs' counsel retained an independent advisor to represent the
interests of limited partners of the Partnerships in the event of a
transaction. The transaction described in Item 2 - Recent Developments is a
result of that process. The settlement was not conditioned on the
consummation of this transaction.
On October 6, 1998, the court gave preliminary approval to the settlement.
It granted final approval to the settlement on July 8, 1999 and entered a
Final Order and Judgment dismissing the consolidated action with prejudice.
As a condition of final approval, the court requested, and the parties
agreed to, a slight modification of the release in the Stipulation of
Settlement with respect to future claims. Plaintiffs' counsel intends to
seek an order awarding attorneys' fees and reimbursing their out-of-pocket
expenses in an amount which is as yet undetermined. Fees and expenses shall
be allocated amongst the Partnerships on a pro rata basis, based upon
tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the
quarter most recently ended. A Notice of Appeal was filed September 3, 1999
by High River Limited Partnership, Unicorn Associates Corporation and
Longacre Corporation.
<PAGE>
2) High River Limited Partnership, Unicorn Associates Corporation and
Longacre Corporation, et al. v. McNeil Partners, L.P. ("MPLP"), McNeil
Investors, Inc., McNeil Real Estate Management, Inc. (McREMI"), Robert A.
McNeil and Carole J. McNeil, - Supreme Court of the State of New York,
County of New York, - Index No. 99 603526.
On July 23, 1999, High River and two other affiliates of Carl C. Icahn
(Unicorn Associates Corporation and Longacre Corporation), filed a
complaint for damages in the Supreme Court of the State of New York, County
of New York. Plaintiffs allege that the defendants improperly interfered
with tender offers made by High River for limited partner units in the
Partnership and other affiliated partnerships in which MPLP serves as
General Partner (the "McNeil Partnerships"), by, among other things, filing
purportedly frivolous litigation to delay High River's offers, issuing
purportedly false and misleading statements opposing the offers and
purportedly forcing High River itself to file litigation to enforce its
rights. High River also alleges that as a result the defendants caused High
River to incur undue expense and that the defendants ultimately prevented
High River from acquiring a greater number of limited partner units.
Plaintiffs also allege that the defendants improperly excluded High River
from participating in the auction process for the sale of the McNeil
Partnerships, and otherwise took steps to prevent its participation in the
auction. In addition, plaintiffs, who are limited partners in, among
others, McNeil Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and
XXVII, have also sued the defendants based on their status as opt-outs from
the Schofield settlement. Plaintiffs seek undisclosed damages and an
accounting.
On July 30, 1999, defendants filed an answer to the High River Complaint,
denying each and every material allegation contained in the High River
Complaint and asserting several affirmative defenses. Settlement
negotiations are underway.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
4. Amended and Restated Limited Partnership
Agreement dated as of August 6, 1991.
(Incorporated by reference to the Quarterly
Report on Form 10-Q, for the quarter ended
June 30, 1991).
11. Statement regarding computation of net
income per limited partnership unit: Net
income per limited partnership unit is
computed by dividing net income allocated to
the limited partners by the number of
limited partnership units outstanding. Per
unit information has been computed based on
159,813 limited partnership units
outstanding in 1999 and 1998.
27. Financial Data Schedule for the quarter
ended September 30, 1999.
(b) Reports on Form 8-K. A Report on Form 8-K dated July 8, 1999 was
filed on July 9, 1999 regarding the letter received from High River
Limited Partnership.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
McNEIL REAL ESTATE FUND XI, Ltd.
By: McNeil Partners, L.P., and General Partner
By: McNeil Investors, Inc., General Partner
November 15, 1999 By: /s/ Ron K. Taylor
- ----------------- ------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 15, 1999 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,590,765
<SECURITIES> 0
<RECEIVABLES> 34,198
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 53,319,833
<DEPRECIATION> (34,597,889)
<TOTAL-ASSETS> 30,028,001
<CURRENT-LIABILITIES> 0
<BONDS> 35,314,204
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30,028,001
<SALES> 101,238
<TOTAL-REVENUES> 11,300,780
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,122,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,291,584
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 886,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 886,944
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
