UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to_____________
Commission file number 0-10743
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MCNEIL REAL ESTATE FUND XII, LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2717957
- --------------------------------------------------------------------------------
(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 XII, LTD.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land .......................................................... $ 4,534,618 $ 4,534,618
Buildings and improvements .................................... 59,252,670 58,352,857
------------ ------------
63,787,288 62,887,475
Less: Accumulated depreciation and amortization .............. (39,067,304) (36,754,194)
------------ ------------
24,719,984 26,133,281
Asset held for sale .............................................. -- 9,303,533
Cash and cash equivalents ........................................ 6,485,230 1,423,658
Cash segregated for security deposits ............................ 317,549 456,356
Accounts receivable .............................................. 225,298 165,311
Prepaid expenses and other assets ................................ 103,590 139,468
Escrow deposits .................................................. 1,343,025 1,350,788
Deferred borrowing costs, net of accumulated amorti-
zation of $542,917 and $767,891 at September 30,
1998 and December 31, 1997, respectively ...................... 1,441,403 1,544,702
------------ ------------
$ 34,636,079 $ 40,517,097
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable ........................................... $ 41,260,737 $ 54,200,372
Accounts payable ................................................. -- 9,996
Accrued expenses ................................................. 137,415 277,958
Accrued interest ................................................. 285,390 378,010
Accrued property taxes ........................................... 689,851 932,545
Deferred gain - land condemnation ................................ 297,754 297,754
Advance from Southmark ........................................... 41,615 39,839
Advances from affiliates - General Partner ....................... 34,119 32,136
Payable to affiliates - General Partner .......................... 4,879,438 4,573,052
Security deposits and deferred rental revenue .................... 343,381 519,042
------------ ------------
47,969,700 61,260,704
------------ ------------
Partners' deficit:
Limited partners - 240,000 limited partnership units
authorized; 229,666 and 229,690 limited partnership
units issued and outstanding at September 30, 1998
and December 31, 1997, respectively ......................... (2,999,151) (10,579,935)
General Partner ............................................... (10,334,470) (10,163,672)
------------ ------------
(13,333,621) (20,743,607)
------------ ------------
$ 34,636,079 $ 40,517,097
============ ============
</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 XII, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue .................... $ 3,147,850 $ 3,924,806 $ 10,493,265 $ 11,568,267
Interest .......................... 106,627 19,659 199,814 69,467
Gain on sale of real estate........ -- -- 9,568,850 --
------------ ------------ ------------ ------------
Total revenue ................... 3,254,477 3,944,465 20,261,929 11,637,734
------------ ------------ ------------ ------------
Expenses:
Interest .......................... 915,917 1,201,099 3,053,653 3,616,416
Interest - affiliates ............. 669 669 1,983 1,974
Depreciation and
amortization .................... 791,549 893,123 2,313,110 2,828,041
Property taxes .................... 229,674 303,171 768,023 909,513
Personnel expenses ................ 336,864 508,319 1,163,605 1,369,512
Utilities ......................... 213,388 274,895 821,746 962,545
Repair and maintenance ............ 452,238 636,937 1,373,665 1,669,184
Property management
fees - affiliates ............... 155,257 194,795 512,659 578,327
Other property operating
expenses ........................ 178,567 240,491 550,517 657,487
General and administrative ........ 91,013 69,645 458,991 170,405
General and administrative -
affiliates ...................... 66,752 54,110 210,159 165,713
------------ ------------ ------------ ------------
Total expenses .................. 3,431,888 4,377,254 11,228,111 12,929,117
------------ ------------ ------------ ------------
Net income (loss) .................... $ (177,411) $ (432,789) $ 9,033,818 $ (1,291,383)
============ ============ ============ ============
Net income (loss) allocable
to limited partners ............... $ (537,834) $ (411,150) $ 8,582,128 $ (1,226,814)
Net income (loss) allocable
to General Partner ................ 360,423 (21,639) 451,690 (64,569)
------------ ------------ ------------ ------------
Net income (loss) .................... $ (177,411) $ (432,789) $ 9,033,818 $ (1,291,383)
============ ============ ============ ============
Net income (loss) per limited
partnership unit .................. $ (2.34) $ (1.79) $ 37.37 $ (5.34)
============ ============ ============ ============
Distributions per limited
partnership unit .................. $ 4.36 $ -- $ 4.36 $ --
============ ============ ============ ============
</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 XII, LTD.
STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996 ............ $ (9,232,451) $ (9,148,979) $(18,381,430)
Net loss ................................ (64,569) (1,226,814) (1,291,383)
Management Incentive Distribution........ (631,697) -- (631,697)
------------ ------------ ------------
Balance at September 30, 1997 ........... $ (9,928,717) $(10,375,793) $(20,304,510)
============ ============ ============
Balance at December 31, 1997 ............ $(10,163,672) $(10,579,935) $(20,743,607)
Net income .............................. 451,690 8,582,128 9,033,818
Management Incentive Distribution ....... (622,488) -- (622,488)
Distribution to limited partners ........ -- (1,001,344) (1,001,344)
------------ ------------ ------------
Balance at September 30, 1998 ........... $(10,334,470) $ (2,999,151) $(13,333,621)
============ ============ ============
</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 XII, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1998 1997
-------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ................... $ 10,387,896 $ 11,646,198
Cash paid to suppliers ....................... (4,518,315) (4,785,620)
Cash paid to affiliates ...................... (638,920) (1,025,834)
Interest received ............................ 199,814 69,467
Interest paid ................................ (3,041,198) (3,515,888)
Property taxes paid .......................... (959,296) (996,509)
------------ ------------
Net cash provided by operating activities........ 1,429,981 1,391,814
------------ ------------
Cash flows from investing activities:
Additions to real estate investments ......... (899,813) (1,244,560)
Additions to assets held for sale ............ (9,438) --
Proceeds from sale of real estate ............ 18,881,821 --
------------ ------------
Net cash provided by (used in)
investing activities ......................... 17,972,570 (1,244,560)
------------ ------------
Cash used in financing activities:
Principal payments on mortgage notes
payable .................................... (416,574) (487,936)
Retirement of mortgage note payable .......... (12,523,061) --
Management Incentive Distribution paid ....... (400,000) --
Distributions to limited partners ............ (1,001,344) --
------------ ------------
Net cash used in financing activities ........... (14,340,979) (487,936)
------------ ------------
Net increase (decrease) in cash and cash
equivalents .................................. 5,061,572 (340,682)
Cash and cash equivalents at beginning of
period ....................................... 1,423,658 1,768,249
------------ ------------
Cash and cash equivalents at end of period ...... $ 6,485,230 $ 1,427,567
============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financialstatements.
<PAGE>
MCNEIL REAL ESTATE FUND XII, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) ........................................ $ 9,033,818 $(1,291,383)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ......................... 2,313,110 2,828,041
Amortization of deferred borrowing costs .............. 103,299 104,537
Net interest added on advances from
affiliates - General Partner ........................ 1,983 1,974
Net interest added on advances from
Southmark ........................................... 1,776 1,768
Gain on sale of real estate ........................... (9,568,850) --
Changes in assets and liabilities:
Cash segregated for security deposits ............... 138,807 (11,684)
Accounts receivable ................................. (59,987) 88,630
Prepaid expenses and other assets ................... 35,878 29,748
Escrow deposits ..................................... 7,763 (277,172)
Accounts payable .................................... (9,996) (7,412)
Accrued expenses .................................... (140,543) (23,752)
Accrued interest .................................... (92,620) (5,777)
Accrued property taxes .............................. (242,694) 198,862
Payable to affiliates - General Partner ............. 83,898 (281,794)
Security deposits and deferred rental
revenue ........................................... (175,661) 37,228
----------- -----------
Total adjustments ................................. (7,603,837) 2,683,197
----------- -----------
Net cash provided by operating activities ................ $ 1,429,981 $ 1,391,814
=========== ===========
</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 XII, LTD.
Notes to Financial Statements
(Unaudited)
September 30, 1998
NOTE 1.
- -------
McNeil Real Estate Fund XII, Ltd. (the "Partnership") was organized February 2,
1981 as a limited partnership organized under the provisions of the California
Uniform Limited Partnership Act. The general partner of the Partnership is
McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership,
an affiliate of Robert A. McNeil. The Partnership is governed by an amended and
restated limited partnership agreement, dated September 6, 1991 (the "Amended
Partnership Agreement"). The principal place of business for the Partnership and
the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1997, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund XII, 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 the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management services for the Partnership's residential and commercial properties
and leasing services for its residential properties. McREMI may choose to
provide leasing services for the Partnership's commercial properties, in which
case McREMI will receive a property management fee from such commercial
properties equal to 3% of the property's gross rental receipts plus commissions
based on the prevailing market rate for such services where the property is
located.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
Affiliates of the General Partner have advanced funds to the Partnership to meet
working capital requirements. These advances accrue interest at a rate equal to
the prime lending rate plus 1%.
<PAGE>
Under terms of the Amended Partnership Agreement, the Partnership is paying a
Management Incentive Distribution ("MID") to the General Partner. The maximum
MID is calculated as 1% of the tangible asset value of the Partnership. The
maximum MID percentage decreases subsequent to 1999. Tangible asset value is
determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9% to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit for residential property
and $50 per gross square foot for commercial property to arrive at the property
tangible asset value. The property tangible asset value is then added to the
book value of all other assets excluding intangible items.
MID will be paid to the extent of the lesser of the Partnership's excess cash
flow, as defined, or net operating income, as defined, and may be paid (i) in
cash, unless there is insufficient cash to pay the distribution in which event
any unpaid portion not taken in limited partnership ("Units") will be deferred
and is payable, without interest, from the first available cash and/or (ii) in
Units. A maximum of 50% of the MID may be paid in Units. The number of Units
issued in payment of the MID is based on the greater of $50 per Unit or the net
tangible asset value, as defined, per Unit.
Any amount of the MID that is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The MID represents a return of equity
to the General Partner for increasing cash flow, as defined, and accordingly is
treated as a distribution.
Compensation, reimbursements and distributions paid to or accrued for the
benefit of the General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Property management fees - affiliates ................. $512,659 $578,327
Interest - affiliates ................................. 1,983 1,974
Charged to general and administrative affiliates:
Partnership administration ......................... 210,159 165,713
-------- --------
$724,801 $746,014
======== ========
Charged to General Partner's deficit:
MID ................................................ $622,488 $631,697
======== ========
</TABLE>
<PAGE>
NOTE 4.
- -------
The Partnership has become aware of the presence of certain solvent based
contamination in ground water under a portion of the Lodge at Aspen Grove. The
source of the contamination is related to a documented release of solvents from
underground storage tanks located at a Colorado Department of Transportation
("CDOT") facility nearby. The Partnership has been informed that CDOT, as the
responsible party, has agreed to remediate the property to comply with state and
federal standards. CDOT has submitted a corrective action plan to the Colorado
Department of Public Health and Environment and implementation of the plan is
ongoing. The Partnership is unable to estimate impairment, if any, to the
property at this time. However, due to the existence and involvement of the
responsible party, the Partnership does not believe that this event has a
material impact on the accompanying financial statements.
NOTE 5.
- -------
On April 7, 1998, the Partnership sold to an unaffiliated buyer, Channingway
Apartments, a 770 unit apartment complex, located in Columbus, Ohio, for a cash
sales price of $19,150,000. Cash proceeds from this transaction, as well as the
gain on sale are detailed below.
Gain on Sale Cash Proceeds
------------ -------------
Cash sales price .......................... $ 19,150,000 $ 19,150,000
Selling costs ............................. (268,179) (268,179)
Basis of real estate sold ................. (9,312,971)
------------ ------------
Gain on sale of real estate ............... $ 9,568,850
============
Proceeds from sale of real estate ......... 18,881,821
Retirement of mortgage note payable........ (12,523,061)
------------
Net cash proceeds ......................... $ 6,358,760
============
NOTE 6.
- -------
On October 5, 1998, the Partnership made an early payoff of the Plaza Westlake
mortgage loan for approximately $3.7 million.
<PAGE>
NOTE 7.
- -------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential and commercial real estate
and other real estate related assets. At September 30, 1998, the Partnership
owned four apartment properties and one shopping center. Four of the
Partnership's properties are subject to mortgage notes.
The Partnership recorded a $9,568,850 gain on the sale of Channingway
Apartments. Net proceeds from the sale, after repayment of the related mortgage
note, amounted to $6,358,760. The net proceeds from the sale were added to the
Partnership's balance of cash reserves.
On September 30, 1998, the Partnership distributed $1,001,344 ($4.36 per limited
partnership unit) to the limited partners. The distribution was funded from the
recent sale of Channingway Apartments.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Partnership rental revenues decreased $776,956 and $1,075,002 for the three and
nine months ended September 30, 1998 as compared to the same period last year.
Excluding the effects of the sale of Channingway Apartments, Partnership
revenues increased $930,347 or 8% for the nine months ended September 30, 1998.
Greater cash reserves led to an increase of $130,347 in interest income for the
nine months ended September 30, 1998.
Rental revenues increased at all of the Partnership's five remaining properties.
The property reporting the largest increase in rental revenue, on a percentage
basis, were Plaza Westlake and Brendon Way Apartments. The increase in rent on
Plaza Westlake is due to an increase in contingent rents billed, as compared to
the prior year, while the increase at Brendon Way Apartments is primarily due to
greater occupancy during 1998. The Lodge at Aspen Grove increased base rental
rates 7%, but the increase was partially offset by decreased occupancy rates.
The remainder of the Partnership's properties reported small increases in rental
revenue.
Expenses:
Partnership expenses decreased $945,366 and $1,701,006 or 13% for the three and
nine months ended September 30, 1998 as compared to the same period last year.
Excluding the effects of the sale of Channingway Apartments, Partnership
expenses increased $318,816 or 3% for the nine months ended September 30, 1998.
The Partnership incurred slight decreases in utilities and other property
operating expenses. These expenses were offset by increases in general and
administrative and general and administrative - affiliates.
<PAGE>
General and administrative expenses increased $288,586 for the nine months ended
September 30, 1998 as compared to the same period last year. The increase was
mainly due to costs incurred to explore alternatives to maximize the value of
the Partnership (see Liquidity and Capital Resources). The increase was
partially offset by decreases attributable to investor services. During 1997,
charges for investor services were provided by a third party vendor and
beginning with 1998, these services are provided by affiliates of the General
Partner.
General and administrative-affiliate expenses increased $44,446 for the nine
months ended September 30, 1998 as compared to the same period of 1997. The
increase is due to the change in investor relation charges as discussed above.
All other remaining expense categories remained comparable to the same period
last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first nine months of 1998, the Partnership provided $1,429,981 in
cash from operations as compared to $1,391,814 in cash from operations in 1997.
The $38,167 increase can be attributed to the decreases in cash paid to
affiliates, cash paid to suppliers, interest and property taxes paid offset by
the decrease in cash received from tenants in the first nine months of 1998 as
compared to the same period in 1997.
The Partnership expended $909,251 and $1,244,560 for capital improvements to its
properties for the nine months ended September 30, 1998 and 1997, respectively.
The Partnership also received proceeds of $18,881,821 for the sale of
Channingway in April 1998.
Total principal payments on mortgage notes payable were $416,574 for the nine
months ended September 30, 1998 as compared to $487,936 for the same period in
1997. The Partnership used $12,523,061 of the proceeds from the Channingway sale
to retire the mortgage note payable on the property. During the third quarter
the Partnership also paid $400,000 in MID and $1,001,344 in distributions to the
limited partners.
Short-term liquidity:
At September 30, 1998, the Partnership held cash and cash equivalents of
$6,485,230. The General Partner believes that anticipated operating results for
1998 will be sufficient to fund the Partnership's budgeted $1.2 million in
capital improvements for 1998 and to repay the current portion of the
Partnership's mortgage notes. On October 5, 1998, the Partnership made an early
payoff of the Plaza Westlake mortgage loan for approximately $3.7 million. This
early retirement will reduce annual interest costs approximately $86,000 and
$350,000 for 1998 and 1999, respectively, hence increasing cash flow.
<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 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.
As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, has provided
financial and other information to interested parties and is currently
conducting discussions with one such party in an attempt to reach a definitive
agreement with respect to a sale transaction. It is possible that the General
Partner and its affiliates will receive non-cash consideration for their
ownership interests in connection with any such transaction. There can be no
assurance that any such agreement will be reached nor the terms thereof.
Income (loss) allocation and distributions:
Terms of the Amended Partnership Agreement specify that income (loss) before
depreciation is allocated to the General Partner to the extent of MID paid in
cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and
the General Partner, respectively. Therefore, for the nine months ended
September 30, 1998 and 1997, $451,690 and $(64,569), respectively, was allocated
to the General Partner. The limited partners received allocations of $8,582,128
and $(1,226,814) for the nine months ended September 30, 1998 and 1997,
respectively.
On September 30, the Partnership paid its first distribution to the limited
partners since 1986 in the amount of $1,001,344. The distribution was funded
from the recent sale of Channingway Apartments. The General Partner will
continue to monitor the cash reserves, and working capital needs to determine
when cash flows will support additional distributions to the limited partners.
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after September 30, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties, and respond to changing economic and competitive factors.
<PAGE>
Other Information:
Management has reviewed its information technology infrastructure to identify
any systems that could be affected by the year 2000 problem. The year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in major systems failure or miscalculations. The
information systems used by the Partnership for financial reporting and
significant accounting functions were made year 2000 compliant during recent
systems conversions.
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management intends to inventory
all such systems and query suppliers, vendors and manufacturers to determine
year 2000 compliance. In circumstances of non-compliance management will work
with the vendor to remedy the problem or seek alternative suppliers who will be
in compliance. Management believes that the remediation of any outstanding year
2000 conversion issues will not have a material or adverse effect on the
Partnership's operations. However, no estimates can be made as to the potential
adverse impact resulting from the failure of third party service providers and
vendors to be year 2000 compliant. Management is in the process of identifying
those risks as well as developing a contingency plan to mitigate potential
adverse effects from non-compliance.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
<PAGE>
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
3.3 Amended and Restated Partnership Agreement,
dated September 6, 1991 (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1991).
11. Statement regarding computation of net loss
per limited partnership unit: net loss per
limited partnership unit is computed by
dividing net loss allocated to the limited
partners by the number of limited
partnership units outstanding. Per unit
information has been computed based on
229,666 and 229,690 limited partnership
units outstanding in 1998 and 1997.
27. Financial Data Schedule for the quarter
ended September 30, 1998.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended September 30, 1998.
<PAGE>
McNEIL REAL ESTATE FUND XII, LTD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
McNEIL REAL ESTATE FUND XII, Ltd.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 16, 1998 By: /s/ Ron K. Taylor
- ----------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 16, 1998 By: /s/ 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,485,230
<SECURITIES> 0
<RECEIVABLES> 225,298
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 63,787,288
<DEPRECIATION> (39,067,304)
<TOTAL-ASSETS> 34,636,079
<CURRENT-LIABILITIES> 0
<BONDS> 41,260,737
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,636,079
<SALES> 10,493,265
<TOTAL-REVENUES> 20,261,929
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,172,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,055,636
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,033,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,033,818
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
