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 June 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 0-10743
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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>
June 30, December 31,
1999 1998
------------- -------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ...................................................... $ 4,534,618 $ 4,534,618
Buildings and improvements ................................ 60,213,164 59,614,889
------------ ------------
64,747,782 64,149,507
Less: Accumulated depreciation and amortization .......... (41,415,117) (39,854,829)
------------ ------------
23,332,665 24,294,678
Cash and cash equivalents .................................... 2,307,550 2,135,190
Cash segregated for security deposits ........................ 323,963 320,540
Accounts receivable .......................................... 200,525 198,842
Prepaid expenses and other assets ............................ 120,545 103,546
Escrow deposits .............................................. 1,189,545 1,295,584
Deferred borrowing costs, net of accumulated amorti-
zation of $541,683 and $491,761 at June 30,
1999 and December 31, 1998, respectively .................. 1,309,734 1,359,656
------------ ------------
$ 28,784,527 $ 29,708,036
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable ....................................... $ 37,238,012 $ 37,449,291
Accrued expenses ............................................. 466,405 252,497
Accrued interest ............................................. 253,894 255,330
Accrued property taxes ....................................... 941,035 684,333
Deferred gain - land condemnation ............................ -- 297,754
Deferred gain - fire damage .................................. 50,880 50,880
Advance from Southmark ....................................... 43,262 42,177
Advances from affiliates - General Partner ................... 35,957 34,746
Payable to affiliates - General Partner ...................... 3,779,492 4,255,518
Security deposits and deferred rental revenue ................ 428,895 325,586
------------ ------------
43,237,832 43,648,112
------------ ------------
Partners' deficit:
Limited partners - 240,000 limited partnership units
authorized; 229,666 limited partnership units
issued and outstanding at June 30, 1999 and
December 31, 1998 ....................................... (4,742,606) (3,834,776)
General Partner ........................................... (9,710,699) (10,105,300)
------------ ------------
(14,453,305) (13,940,076)
------------ ------------
$ 28,784,527 $ 29,708,036
============ ============
</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 Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue ................. $ 3,248,465 $ 3,176,358 $ 6,459,813 $ 7,345,415
Interest ....................... 30,236 76,128 55,395 93,187
Gain on sale of real estate .... -- 9,568,850 -- 9,568,850
Gain on land condemnation ...... 297,754 -- 297,754 --
----------- ----------- ----------- -----------
Total revenue ................ 3,576,455 12,821,336 6,812,962 17,007,452
----------- ----------- ----------- -----------
Expenses:
Interest ....................... 814,724 943,764 1,631,602 2,137,736
Interest - affiliates .......... 609 660 1,211 1,314
Depreciation and
amortization ................. 780,144 761,520 1,560,288 1,521,561
Property taxes ................. 235,278 237,569 474,031 538,349
Personnel expenses ............. 338,344 363,591 665,425 826,741
Utilities ...................... 161,777 239,032 477,693 608,358
Repair and maintenance ......... 452,260 482,055 854,769 921,427
Property management
fees - affiliates ............ 164,098 156,383 324,314 357,402
Other property operating
expenses ..................... 137,185 166,720 271,635 371,950
General and administrative ..... 443,268 119,803 539,970 367,978
General and administrative -
affiliates ................... 68,526 78,213 135,140 143,407
----------- ----------- ----------- -----------
Total expenses ............... 3,596,213 3,549,310 6,936,078 7,796,223
----------- ----------- ----------- -----------
Net income (loss) ................. $ (19,758) $ 9,272,026 $ (123,116) $ 9,211,229
=========== =========== =========== ===========
Net income (loss) allocable
to limited partners ............ $ (530,751) $ 8,808,425 $ (907,830) $ 8,750,667
Net income allocable to
General Partner ................ 510,993 463,601 784,714 460,562
----------- ----------- ----------- -----------
Net income (loss) ................. $ (19,758) $ 9,272,026 $ (123,116) $ 9,211,229
=========== =========== =========== ===========
Net income (loss) per limited
partnership unit ............... $ (2.31) $ 38.35 $ (3.95) $ 38.10
=========== =========== =========== ===========
</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 Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1997 ............ $(10,163,672) $(10,579,935) $(20,743,607)
Net income .............................. 460,562 8,750,667 9,211,229
Management Incentive Distribution ....... (419,225) -- (419,225)
------------ ------------ ------------
Balance at June 30, 1998 ................ $(10,122,335) $(1,829,268) $(11,951,603)
============ ============ ============
Balance at December 31, 1998 ............ $(10,105,300) $ (3,834,776) $(13,940,076)
Net income (loss) ....................... 784,714 (907,830) (123,116)
Management Incentive Distribution........ (390,113) -- (390,113)
------------ ------------ ------------
Balance at June 30, 1999 ................ $ (9,710,699) $ (4,742,606) $(14,453,305)
============ ============ ============
</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>
Six Months Ended
June 30,
----------------------------------
1999 1998
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ..................... $ 6,563,604 $ 7,102,407
Cash paid to suppliers ......................... (2,697,986) (3,219,696)
Cash paid to affiliates ........................ (462,865) (481,158)
Interest received .............................. 55,395 93,187
Interest paid .................................. (1,582,031) (2,153,992)
Property taxes paid ............................ (530,475) (842,356)
------------ ------------
Net cash provided by operating activities ......... 1,345,642 498,392
------------ ------------
Cash used in investing activities:
Additions to real estate investments and
assets held for sale ......................... (598,275) (653,322)
Proceeds from sale of real estate .............. -- 18,881,821
Proceeds from land condemnation ................ 499,000 --
------------ ------------
Net cash provided by (used in) investing
activities ..................................... (99,275) 18,228,499
------------ ------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable ...................................... (211,279) (294,702)
Retirement of mortgage note payable ............ -- (12,523,061)
Management Incentive Distribution .............. (862,728) --
------------ ------------
Net cash used in financing activities ............. (1,074,007) (12,817,763)
------------ ------------
Net increase in cash and cash equivalents ......... 172,360 5,909,128
Cash and cash equivalents at beginning of
period ......................................... 2,135,190 1,423,658
------------ ------------
Cash and cash equivalents at end of period ........ $ 2,307,550 $ 7,332,786
============ ============
</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)
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Net income (loss) ....................................... $ (123,116) $ 9,211,229
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ........................ 1,560,288 1,521,561
Amortization of deferred borrowing costs ............. 49,922 74,335
Net interest added on advances from
affiliates - General Partner ....................... 1,211 1,314
Net interest added on advances from
Southmark .......................................... 1,085 1,177
Gain on sale of real estate .......................... -- (9,568,850)
Gain on land condemnation ............................ (297,754) --
Changes in assets and liabilities:
Cash segregated for security deposits .............. (3,423) (11,229)
Accounts receivable ................................ (1,683) (69,367)
Prepaid expenses and other assets .................. (16,999) 30,454
Escrow deposits .................................... (392,961) (146,584)
Accounts payable ................................... -- (9,996)
Accrued expenses ................................... 213,908 (165,619)
Accrued interest ................................... (1,436) (91,768)
Accrued property taxes ............................. 256,702 (130,243)
Payable to affiliates - General Partner ............ (3,411) 19,651
Security deposits and deferred rental
revenue .......................................... 103,309 (167,673)
----------- -----------
Total adjustments ................................ 1,468,758 (8,712,837)
----------- -----------
Net cash provided by operating activities ............... $ 1,345,642 $ 498,392
=========== ===========
</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)
June 30, 1999
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 six months ended June 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 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. 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. The maximum
MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter.
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:
Six Months Ended
June 30,
-----------------------
1999 1998
--------- ---------
Property management fees - affiliates ............... $ 324,314 $ 357,402
Interest - affiliates ............................... 1,211 1,314
Charged to general and administrative affiliates:
Partnership administration ....................... 135,140 143,407
--------- ---------
$ 460,665 $ 502,123
========= =========
Charged to General Partner's deficit:
MID .............................................. $ 390,113 $ 419,225
========= =========
<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.
- -------
Teri King, Madie Troy and Gary Vigil, and John Does 1 through 100, Plaintiffs
vs. McNeil Real Estate Fund XII, Ltd., Buccaneer Village Fund XII, Corp., McNeil
Real Estate Management, Inc., and Jane Does 1 through 100, Defendants - District
Court, City and County of Denver, State of Colorado, Case No. 98CV9156
(environmental suit)
This action was served on Defendants on May 28, 1999. The action was filed with
the Court on December 3, 1998. A similar action has been filed by Plaintiffs and
others against the State of Colorado and the Colorado Department of
Transportation ("CDOT"). This action stems from several leaking underground
storage tanks which were owned and operated by CDOT. In 1993, CDOT confirmed the
presence of contaminants, including solvents and other hazardous substances,
which impacted groundwater within the vicinity of the facility. Continued
testing and investigation by CDOT found the contaminant plume to include
groundwater located within the vicinity of The Lodge at Aspen Grove Apartments.
This action is brought by current and former residents of The Lodge at Aspen
Grove Apartments and includes a variety of allegations arising from what
Plaintiffs contend was Defendants' failure to adequately disclose their
knowledge of the plume of contaminants and possible health consequences to
residents from exposure. Defendants take the position that there is no merit to
any of Plaintiffs' claims and intend to vigorously defend this action.
NOTE 6.
- -------
On February 23, 1996, the Partnership was awarded $499,000 as payment for
condemnation of 6.45 acres at Palisades at the Galleria by Cobb County, Georgia.
The county required the right-of-way to this property for highway construction.
The condemnation of this parcel will not materially affect the operations of the
property. The $499,000 was held in escrow by the mortgagee pending completion of
construction and was included with escrow deposits on the Balance Sheet as of
December 31, 1998. On June 23, 1999, the Partnership received the $499,000 held
in escrow and recognized a $297,754 gain on land condemnation.
<PAGE>
NOTE 7.
- -------
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 8.
- -------
On July 30, 1999, the Partnership refinanced Castle Bluff's mortgage note. The
new mortgage note, in the amount of $4,415,000 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 annual 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 August 1, 2002. Cash
proceeds from the refinancing transaction are as follows:
New mortgage note proceeds...................... $ 4,415,000
Amount required to payoff existing debt......... 4,329,914
-------------
Cash proceeds from refinancing.................. $ 85,086
=============
The Partnership incurred $51,540 of deferred borrowing costs related to the
refinancing of Castle Bluff's mortgage note.
<PAGE>
NOTE 9.
- -------
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 is currently estimated as $77.
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 $1,683,126.
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 $159,596 to reflect the reallocation of
previously paid transaction costs among the Partnerships and McREMI.
<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 June 30, 1999, the Partnership owned
four apartment properties and one shopping center. Four of the Partnership's
properties are subject to mortgage notes.
Rental revenues increased at four of the Partnership's five properties. The
properties reporting the largest increases in rental revenue, on a percentage
basis, were The Lodge at Aspen Grove Apartments and Brendon Way Apartments.
These increases were partially offset by a decrease in contingent rent billed on
Plaza Westlake as compared to the prior year.
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, XI, 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.
The proposed transaction follows an extensive marketing effort by PaineWebber
Incorporated, exclusive financial advisor to the Partnerships.
<PAGE>
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.
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 is currently estimated as $77.
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:
Partnership revenue decreased $10,194,490 for the six months ended June 30, 1999
as compared to the same period last year. In 1998, the Partnership recognized a
gain on sale of real estate of $9,568,850 for the sale of Channingway
Apartments. No such gain was recognized in 1999. Rental revenues decreased
$885,602 or 12% for the six months ended June 30, 1999 as compared to the same
period last year. Excluding the effects of the sale of Channingway Apartments in
April 1998, Partnership rental revenues increased $126,917 and $158,355 for the
six months and three months ended June 30, 1999, respectively, as compared to
the same periods last year. Interest income decreased $37,792 for the six months
ended June 30, 1999 as compared to the same period last year due to lower cash
balances being invested in interest bearing accounts. The Partnership also
recognized a gain on land condemnation of $297,754 in the second quarter of
1999. No such gain was recorded in the first six months of 1998.
Expenses:
Partnership expenses decreased $860,145 or 11% for the six months ended June 30,
1999 as compared to the same period last year. Excluding the effects of the sale
of Channingway Apartments, Partnership expenses increased $226,737 or 6% and
$62,723 or 1% for the three months and six months ended June 30, 1999,
respectively, as compared to the same periods last year.
Interest expense (excluding Channingway Apartments) decreased $205,361 or 10%
for the six months ended June 30, 1999 as compared to the same period last year.
This decrease is primarily due to the payoff of the mortgage note payable on
Plaza Westlake in October 1998.
Repairs and maintenance (excluding Channingway Apartments) increased $90,639 or
10% for the six months ended June 30, 1999 as compared to the same period last
year. This increase is primarily due to an increase in snow removal at Brendon
Way Apartments and Plaza Westlake.
General and administrative expenses increased $323,465 and $171,992 for the
three and six months ended June 30, 1999, respectively, as compared to the same
period last year. The increase was mainly due to increased costs incurred to
explore alternatives to maximize the value of the Partnership (see Recent
Developments) and due to a $159,596 reallocation of previously paid transaction
costs among the Partnerships and McREMI in the second quarter of 1999 (see Note
9).
<PAGE>
All other remaining expense categories remained comparable to the same period
last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first six months of 1999, the Partnership provided $1,345,642 in cash
from operations as compared to $498,392 in cash from operations in 1998. The
$847,250 increase can be attributed to the decreases in cash paid to suppliers,
interest and property taxes paid offset by the decrease in cash received from
tenants in the first six months of 1999 as compared to the same period in 1998.
The Partnership expended $598,275 and $653,322 for capital improvements to its
properties for the six months ended June 30, 1999 and 1998, respectively. In
June 1999, the Partnership also received proceeds of $499,000 for a land
condemnation in 1996 in which Cobb County needed the land for highway
construction.
Total principal payments on mortgage notes payable were $211,279 for the six
months ended June 30, 1999 as compared to $294,702 for the same period in 1998.
During the second quarter of 1999, the Partnership also paid $862,728 in MID to
the General Partner.
Short-term liquidity:
At June 30, 1999, the Partnership held cash and cash equivalents of $2,307,550.
The General Partner believes that anticipated operating results for 1999 will be
sufficient to fund the Partnership's budgeted $1.2 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.
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 six months ended June 30,
1999 and 1998, $784,714 and $460,562, respectively, was allocated to the General
Partner. The limited partners received allocations of $(907,830) and $8,750,667
for the six months ended June 30, 1999 and 1998, respectively.
<PAGE>
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 June 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
<PAGE>
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. 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.
<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.
3) Teri King, Madie Troy and Gary Vigil, and John Does 1 through 100,
Plaintiffs vs. McNeil Real Estate Fund XII, Ltd., Buccaneer Village Fund
XII, Corp., McNeil Real Estate Management, Inc., and Jane Does 1 through
100, Defendants - District Court, City and County of Denver, State of
Colorado, Case No. 98CV9156 (environmental suit)
This action was served on Defendants on May 28, 1999. The action was filed
with the Court on December 3, 1998. A similar action has been filed by
Plaintiffs and others against the State of Colorado and the Colorado
Department of Transportation ("CDOT"). This action stems from several
leaking underground storage tanks which were owned and operated by CDOT. In
1993, CDOT confirmed the presence of contaminants, including solvents and
other hazardous substances, which impacted groundwater within the vicinity
of the facility. Continued testing and investigation by CDOT found the
contaminant plume to include groundwater located within the vicinity of The
Lodge at Aspen Grove Apartments. This action is brought by current and
former residents of The Lodge at Aspen Grove Apartments and includes a
variety of allegations arising from what Plaintiffs contend was Defendants'
failure to adequately disclose their knowledge of the plume of contaminants
and possible health consequences to residents from exposure. Defendants
take the position that there is no merit to any of Plaintiffs' claims and
intend to vigorously defend this action.
<PAGE>
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
income (loss) per limited partnership unit:
net income (loss) per limited partnership
unit is computed by dividing net income
(loss) allocated to the limited partners by
the number of limited partnership units
outstanding. Per unit information has been
computed based on 229,666 limited
partnership units outstanding in 1999 and
1998.
27. Financial Data Schedule for the quarter
ended June 30, 1999.
(b) Reports on Form 8-K. A Form 8-K was filed on June 22, 1999 regarding
the class action lawsuit on The Lodge at Aspen Grove.
A Report on Form 8-K dated June 24, 1999 was filed on June 29, 1999
regarding the transaction detailed in Note 9.
<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
August 16, 1999 By: /s/ Ron K. Taylor
- --------------- -----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
August 16, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,307,550
<SECURITIES> 0
<RECEIVABLES> 200,525
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 64,747,782
<DEPRECIATION> (41,415,117)
<TOTAL-ASSETS> 28,784,527
<CURRENT-LIABILITIES> 0
<BONDS> 37,238,012
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,784,527
<SALES> 6,459,813
<TOTAL-REVENUES> 6,812,962
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,303,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,632,813
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<INCOME-CONTINUING> (123,116)
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