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 period ended June 30, 1996
--------------------------------------------------------
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 0-7162
--------
MCNEIL PACIFIC INVESTORS FUND 1972
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-6279375
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 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>
MCNEIL PACIFIC INVESTORS FUND 1972
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------- ---------------
ASSETS
- ------
Real estate investment:
<S> <C> <C>
Land..................................................... $ 2,336,000 $ 2,336,000
Buildings and improvements............................... 5,109,622 5,010,483
-------------- --------------
7,445,622 7,346,483
Less: Accumulated depreciation.......................... (1,204,987) (1,010,990)
-------------- --------------
6,240,635 6,335,493
Cash and cash equivalents................................... 532,900 523,389
Cash segregated for security deposits....................... 56,586 43,885
Accounts receivable......................................... 469 3,849
Prepaid expenses and other assets........................... 23,210 23,220
Escrow deposits............................................. 98,822 49,353
Deferred borrowing costs, net of accumulated amorti-
zation of $42,413 and $37,220 at June 30, 1996
and December 31, 1995, respectively...................... 9,521 14,714
-------------- --------------
$ 6,962,143 $ 6,993,903
============== ==============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgage note payable....................................... $ 2,093,890 $ 2,161,204
Accounts payable............................................ 4,268 20,363
Accrued interest............................................ 15,268 10,076
Accrued property taxes...................................... 57,948 -
Other accrued expenses...................................... 12,723 24,853
Payable to affiliates - General Partner..................... 14,521 15,227
Security deposits and deferred rental revenue............... 59,150 47,198
-------------- --------------
2,257,768 2,278,921
-------------- --------------
Partners' equity:
Limited partners - 15,000 limited partnership units
authorized; 13,752.5 limited partnership units
issued and outstanding................................. 4,394,431 4,405,038
General Partner.......................................... 309,944 309,944
-------------- --------------
4,704,375 4,714,982
-------------- --------------
$ 6,962,143 $ 6,993,903
============== ==============
</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 PACIFIC INVESTORS FUND 1972
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue................ $ 425,396 $ 338,055 $ 816,345 $ 713,034
Interest...................... 4,611 13,845 11,161 22,814
------------- ------------- ------------- -------------
Total revenue............... 430,007 351,900 827,506 735,848
------------- ------------- ------------- -------------
Expenses:
Interest...................... 48,650 45,829 103,721 98,017
Depreciation.................. 98,321 84,776 193,997 162,620
Property taxes................ 28,974 29,475 57,948 58,950
Personnel expenses............ 63,798 63,987 136,584 120,445
Utilities..................... 16,023 19,723 32,902 41,274
Repair and maintenance........ 73,441 92,133 160,546 158,011
Property management
fees - affiliates........... 24,614 19,091 48,481 40,463
Other property operating
expenses.................... 38,029 44,073 68,227 88,096
General and administrative.... 5,942 6,713 16,377 14,835
General and administrative -
affiliates.................. 2,344 19,824 19,330 40,554
------------- ------------- ------------- -------------
Total expenses.............. 400,136 425,624 838,113 823,265
------------- ------------- ------------- -------------
Net income (loss)................ $ 29,871 $ (73,724) $ (10,607) $ (87,417)
============= ============= ============= =============
Net income (loss) allocated
to limited partners........... $ 29,871 $ (73,274) $ (10,607) $ (87,417)
Net income (loss) allocated
to General Partner............ - - - -
------------- ------------- ------------- -------------
Net income (loss)................ $ 29,871 $ (73,274) $ (10,607) $ (87,417)
============= ============= ============= =============
Net income (loss) per limited
partnership unit.............. $ 2.17 $ (5.33) $ (0.77) $ (6.36)
============= ============= ============= =============
</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 PACIFIC INVESTORS FUND 1972
STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
For the Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
-------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1994.............. $ 309,944 $ 4,690,924 $ 5,000,868
Net loss.................................. - (87,417) (87,417)
------------- ------------- -------------
Balance at June 30, 1995.................. $ 309,944 $ 4,603,507 $ 4,913,451
============= ============= =============
Balance at December 31, 1995.............. $ 309,944 $ 4,405,038 $ 4,714,982
Net loss.................................. - (10,607) (10,607)
------------- -------------- -------------
Balance at June 30, 1996.................. $ 309,944 $ 4,394,431 $ 4,704,375
============= ============= =============
</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 PACIFIC INVESTORS FUND 1972
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1996 1995
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants....................... $ 817,642 $ 678,765
Cash paid to suppliers........................... (441,517) (433,510)
Cash paid to affiliates.......................... (68,517) (162,086)
Interest received................................ 11,161 22,814
Interest paid.................................... (93,336) (98,957)
Property taxes paid and escrowed................. (49,469) (22,300)
------------- -------------
Net cash provided by (used in) operating
activities....................................... 175,964 (15,274)
------------- -------------
Cash flows from investing activities:
Additions to real estate investments............. (99,139) (248,758)
------------- -------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable........................................ (67,314) (61,694)
------------- -------------
Net increase (decrease) in cash and
cash equivalents................................. 9,511 (325,726)
Cash and cash equivalents at beginning
of period........................................ 523,389 1,062,361
------------- -------------
Cash and cash equivalents at end of period.......... $ 532,900 $ 736,635
============= =============
</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 PACIFIC INVESTORS FUND 1972
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by (Used in)
Operating Activities
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Net loss............................................ $ (10,607) $ (87,417)
------------- -------------
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation..................................... 193,997 162,620
Amortization of deferred borrowing costs......... 5,193 5,193
Changes in assets and liabilities:
Cash segregated for security deposits.......... (12,701) (3,095)
Accounts receivable............................ 3,380 (5,755)
Prepaid expenses and other assets.............. 10 2,685
Escrow deposits................................ (49,469) (22,294)
Accounts payable............................... (16,095) (10,787)
Accrued interest............................... 5,192 (6,133)
Accrued property taxes......................... 57,948 58,944
Other accrued expenses......................... (12,130) (22,310)
Payable to affiliates - General Partner........ (706) (81,069)
Security deposits and deferred rental
revenue...................................... 11,952 (5,856)
------------- -------------
Total adjustments............................ 186,571 72,143
------------- -------------
Net cash provided by (used in) operating
activities....................................... $ 175,964 $ (15,274)
============= =============
</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 PACIFIC INVESTORS FUND 1972
Notes To Financial Statements
(Unaudited)
June 30, 1996
NOTE 1.
- -------
McNeil Pacific Investors Fund 1972 (the "Partnership") is a limited partnership
organized under the laws of the State of California to invest in real property.
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
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 700, 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, 1996, are
not necessarily indicative of the results to be expected for the year ending
December 31, 1996.
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, 1995, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Pacific Investors Fund 1972, c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
The General Partner is entitled to receive a partnership management fee equal to
9.5% of distributions of cash from operations when distributable cash from
operations is distributed to the limited partners. No partnership management
fees were incurred during the six month periods ended June 30, 1996 and 1995.
The Partnership pays property management fees equal to 6% of the gross rental
receipts of the Partnership's property to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services for the Partnership's property.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
<PAGE>
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Six Months Ended
June 30,
---------------------
1996 1995
--------- --------
Property management fees - affiliates....... $ 48,481 $ 40,463
Charged to general and administrative -
affiliates:
Partnership administration............... 19,330 40,554
-------- -------
$ 67,811 $ 81,017
======== =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
Since the sale of Pacesetter Apartments in 1994, the focus of the Partnership's
efforts have been directed to the renovation program at Palm Bay Apartments
(formerly known as Greentree Apartments). During 1994 and 1995, the Partnership
completed capital improvements totaling $1,088,676. The Partnership's emphasis
in 1996 has been to improve the rental and occupancy rates at Palm Bay
Apartments. Although the occupancy rate at Palm Bay Apartments has improved, the
Partnership has not been able to increase rental rates at Palm Bay Apartments as
quickly as had been hoped.
RESULTS OF OPERATIONS
- ---------------------
Revenues:
Rental revenues at Palm Bay Apartments increased $87,341 and $103,311 or 25.8%
and 14.5% for the three month and six month periods ended June 30, 1996 as
compared to the similar periods of 1995. Although small rental rate increases
have been implemented, most of the increase in rental revenues is from improved
occupancy rates at the property. The occupancy rate at June 30 had improved to
95.1%, up from 85.5% at December 31, 1995.
Although occupancy rates are finally improving, the Partnership has not yet been
able to increase base rental rates as quickly as had been hoped. Several
apartment communities in the immediate area of Palm Bay Apartments have
undergone major rehabilitation, and several competing apartment communities are
able to offer their units at rates that are subsidized by various government
programs. The effect of this competition has restricted expected increases in
rental rates at Palm Bay Apartments. After occupancy rates stabilize in the
mid-90% range, Management hopes to resume rental rate increases to improve the
revenue growth of the property.
<PAGE>
Expenses:
Partnership expenses decreased $25,488 or 6.0% in the second quarter of 1996 as
compared to the second quarter of 1995. For the six month period ended June 30,
expenses increased $14,848 or 1.8% in 1996 as compared to 1995. Increased
expenses were concentrated in depreciation, personnel expenses, and property
management fees.
Depreciation increased $31,377 or 19.3% for the first six months of 1996 as
compared to the same period of 1995. In the twelve months ended June 30, 1996,
the Partnership placed in service $291,284 of capital improvements at Palm Bay
Apartments. These capital improvements have increased the depreciation expense
incurred by the property. The new improvements are generally being depreciated
over lives ranging from five to ten years.
Personnel expenses increased $16,139 or 13.4% for the first six months of 1996
as compared to the same period of 1995. The Partnership has increased the level
of staffing at Palm Bay Apartments in an effort to provide a higher level of
service to the tenants of Palm Bay Apartments. One of the strategies the
Partnership is using the differentiate itself in the local market is to provide
a greater level of services to its tenants.
Property management fees increased $8,018 or 19.8% for the first six months of
1996 as compared to the same period of 1995. Increased rental revenue caused a
corresponding increase in property management fees which are based on a
percentage of the revenue of the Partnership's property.
Besides the increased expenses discussed above, the Partnership incurred reduced
expenses for utilities, other property operating expenses, and general and
administrative expenses paid to affiliates. The increase in Palm Bay Apartments'
occupancy rate resulted in a 20% reduction in utility expenditures. The
Partnership's tenants pay for most of their own utilities. As the occupancy rate
increases, there are fewer units incurring utility charges at the Partnership's
expense. Other property operating expenses decreased 23% due to a reduction in
bad debt expenses incurred by the Partnership. Finally, general and
administrative expenses paid to affiliates decreased 52% due to a one-time
downward adjustment in the amount of such expenses paid to the General Partner.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash generated by Partnership operating activities amounted to $175,964 for the
first six months of 1996, an improvement over the $15,274 of cash used by
operating activities during the first six months of 1995. The Partnership
anticipates that the capital renovation projects at Palm Bay Apartments will
continue to yield improved cash flow from operations as the restored and
refurbished units are leased to new tenants. The General Partner anticipates
that cash flow from operations for the balance of 1996 will be sufficient to
fund Partnership operating expenses, debt service requirements, and budgeted
capital improvements. If cash flows from operations are not sufficient to meet
Partnership obligations, the Partnership will use its cash reserves to fund such
deficits.
For the six months ended June 30, 1996, cash flows used in investing activities
decreased to $99,139 from $248,758 in 1995. The capital renovation program at
Palm Bay Apartments is complete. The Partnership's capital improvement budget
for 1996 forward should remain substantially below the amounts incurred in 1995
and 1994.
<PAGE>
The financing activities of the Partnership consist of the repayment of the Palm
Bay mortgage note through monthly debt service payments. These payments are
scheduled to gradually increase until June 1997, when the Palm Bay mortgage note
matures.
Short Term Liquidity:
At June 30, 1996, the Partnership held $532,900 of cash and cash equivalents, up
$9,511 from the balance at the end of 1995. The General Partner considers the
Partnership's cash reserves adequate for anticipated Partnership operations for
the balance of 1996.
The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. However, there is no assurance that the Partnership will receive
additional funds under the facility because no amounts will be reserved for any
particular partnership. As of June 30, 1996, $4,082,159 remained available for
borrowing under the facility; however, additional funds could become available
as other partnerships repay borrowings. This commitment will terminate on March
30, 1997.
Long Term Liquidity:
For the long term, property operations will remain the primary source of funds.
While the present outlook for the Partnership's liquidity is favorable, market
conditions may change and property operations may deteriorate. The General
Partner expects that the capital improvements at Palm Bay Apartments will yield
improved cash flow from operations in 1996. Most of the Partnership's budgeted
capital improvement projects for 1996 have already been completed. If the
Partnership's cash position deteriorates, the General Partner may elect to defer
completion of capital improvements, except where such improvements are expected
to increase the competitiveness or marketability of the Partnership's property.
As a additional source of liquidity, the General Partner may attempt to
refinance the Palm Bay mortgage note. The General Partner estimates that such a
refinancing could yield proceeds to the Partnership in excess of the amount
needed to retire the current mortgage note. However, there can be no guarantee
that the Partnership will be able to obtain such mortgage refinancing on terms
or in amounts favorable to the Partnership, or that the cash proceeds from such
refinancing could be timed to coincide with the liquidity needs of the
Partnership.
Distributions:
Distributions to partners have been suspended as part of the General Partner's
policy of maintaining adequate cash reserves. Distributions to Unit holders will
remain suspended for the foreseeable future. The General Partner will continue
to monitor the cash reserves and working capital needs of the Partnership to
determine when cash flows will support distributions to the Unit holders.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
The class action lawsuit styled Robert Lewis vs. McNeil Partners, L.P., et. al.,
filed in the District Court of Dallas County, Texas has been voluntarily
dismissed without prejudice by the respective plaintiffs in such action.
ITEM 5. OTHER INFORMATION
- ------- -----------------
On August 5, 1996, High River Limited Partnership ("High River"), a partnership
controlled by Carl Icahn ("Icahn"), and certain Icahn's affiliates, filed
documents with the Securities and Exchange Commission disclosing that High River
had entered into a letter agreement dated August 2, 1996 with the attorneys for
the plaintiffs in the case styled James F. Schofield, et. al. ("Plaintiffs") v.
McNeil Partners, L.P., et. al. The letter agreement provided, among other
things, that (i) High River will commence, as soon as possible, but in no event
more than six months, a tender offer for any and all of the outstanding Units of
the Partnership and other affiliated partnerships (the "Partnerships") at a
price that is not less than 75% of the estimated liquidation value of the Units
(as determined by utilizing the same methodology that was used to determine the
liquidation values in High River's previous tender offers for the Partnerships,
as previously disclosed), which tender offer may be subject to such other terms
and conditions as High River determines in its sole discretion; (ii) in the
event that High River attains the position of general partner in any of the
Partnerships: (a) High River will take all actions necessary to cause a 25%
reduction of fees of such Partnerships, (b) High River will not cause such
Partnerships to take any action to discontinue the litigation with respect to
receivable claims and (c) High River and Plaintiffs' counsel will in good faith
execute an appropriate Stipulation of Settlement based upon the terms of the
letter agreement, which stipulation shall not include a settlement or provide a
release of the receivable claims; and (iii) from and after the date of the
letter agreement, Plaintiffs' counsel agreed they will not enter into any
settlement of the claims asserted in such litigation that does not provide for
all consideration contained in a demand letter dated June 24, 1996.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
3. Restated Certificate and Agreement of
Limited Partnership dated of March 8,
1972. (1)
4. Amendment to Restated Certificate and Agree-
ment of Limited Partnership dated
March 30, 1992. (2)
11. Statement regarding computation of net
income per limited partnership unit: Net
income per limited partnership unit is
computed by dividing net income allocated to
the limited partners by the number of
limited partnership units outstanding. Per
unit information has been computed based on
13,752.5 limited partnership units
outstanding in 1996 and 1995.
27. Financial Data Schedule for the quarter
ended June 30, 1996.
(1) Incorporated by reference to the Annual Report of Registrant on Form
10-K for the period ended December 31, 1990, as filed on March 29,
1991.
(2) Incorporated by reference to the Current Report on Form 8-K filed by
the Registrant with the Securities and Exchange Commission on April
10, 1992.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended June 30, 1996.
<PAGE>
McNEIL PACIFIC INVESTORS FUND 1972
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 PACIFIC INVESTORS FUND 1972
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
August 14, 1996 By: /s/ Donald K. Reed
- ---------------------- -----------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
August 14, 1996 By: /s/ Ron K. Taylor
- ---------------------- -----------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer of McNeil
Investors, Inc.
August 14, 1996 By: /s/ Brandon K. Flaming
- ---------------------- ----------------------------------------
Date Brandon K. Flaming
Chief Accounting Officer of McNeil Real
Estate Management, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 532,900
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,445,622
<DEPRECIATION> 1,204,987
<TOTAL-ASSETS> 6,962,143
<CURRENT-LIABILITIES> 0
<BONDS> 2,093,890
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,962,143
<SALES> 816,345
<TOTAL-REVENUES> 827,506
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 734,392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,721
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,607)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
