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 March 31, 1997
------------------------------------------------------
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
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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 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>
MCNEIL PACIFIC INVESTORS FUND 1972
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------------- ---------------
ASSETS
- ------
<S> <C> <C>
Asset held for sale $ 6,312,061 $ 6,253,753
Cash and cash equivalents................................... 577,085 581,031
Cash segregated for security deposits....................... 57,512 57,204
Accounts receivable......................................... 282 4,147
Prepaid expenses and other assets........................... 20,828 23,694
Escrow deposits............................................. 61,119 33,232
Deferred borrowing costs, net of accumulated
amortization of $50,202 and $47,607 at
March 31, 1997 and December 31, 1996,
respectively............................................. 1,732 4,327
-------------- --------------
$ 7,030,619 $ 6,957,388
============== ==============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgage note payable....................................... $ 1,987,254 $ 2,023,577
Accrued interest............................................ 14,490 14,755
Accrued property taxes...................................... 29,762 -
Other accrued expenses...................................... 5,530 24,346
Payable to affiliates - General Partner..................... 22,649 17,108
Security deposits and deferred rental revenue............... 62,169 58,081
-------------- --------------
2,121,854 2,137,867
-------------- --------------
Partners' equity:
Limited partners - 15,000 limited partnership units
authorized; 13,752.5 limited partnership units
issued and outstanding................................. 4,598,821 4,509,577
General Partner.......................................... 309,944 309,944
-------------- --------------
4,908,765 4,819,521
-------------- --------------
$ 7,030,619 $ 6,957,388
============== ==============
</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
March 31,
----------------------------------
1997 1996
-------------- --------------
Revenue:
<S> <C> <C>
Rental revenue................................... $ 446,579 $ 390,949
Interest......................................... 7,517 6,550
------------- -------------
Total revenue.................................. 454,096 397,499
------------- -------------
Expenses:
Interest......................................... 46,334 55,071
Depreciation..................................... - 95,676
Property taxes................................... 29,762 28,974
Personnel expenses............................... 87,783 72,786
Utilities........................................ 18,267 16,879
Repair and maintenance........................... 92,529 87,105
Property management fees - affiliates............ 26,687 23,867
Other property operating expenses................ 40,642 30,198
General and administrative....................... 10,089 10,435
General and administrative - affiliates.......... 12,759 16,986
------------- -------------
Total expenses................................. 364,852 437,977
------------- -------------
Net income (loss)................................... $ 89,244 $ (40,478)
============= =============
Net income (loss) allocated to limited partners..... $ 89,244 $ (40,478)
Net income (loss) allocated to General Partner...... - -
------------- -------------
Net income (loss)................................... $ 89,244 $ (40,478)
============= =============
Net income (loss) per limited partnership unit...... $ 6.49 $ (2.94)
============= =============
</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 Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
-------------- --------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1995.............. $ 309,944 $ 4,405,038 $ 4,714,982
Net loss.................................. - (40,478) (40,478)
------------- ------------- -------------
Balance at March 31, 1996................. $ 309,944 $ 4,364,560 $ 4,674,504
============= ============= =============
Balance at December 31, 1996.............. $ 309,944 $ 4,509,577 $ 4,819,521
Net income................................ - 89,244 89,244
------------- ------------- -------------
Balance at March 31, 1997................. $ 309,944 $ 4,598,821 $ 4,908,765
============= ============= =============
</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)
Decrease in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants....................... $ 452,488 $ 405,624
Cash paid to suppliers........................... (263,524) (242,422)
Cash paid to affiliates.......................... (33,905) (42,094)
Interest received................................ 7,517 6,550
Interest paid.................................... (44,004) (47,035)
Property taxes paid and escrowed................. (27,887) (24,385)
------------- -------------
Net cash provided by operating activities........... 90,685 56,238
------------- -------------
Cash flows from investing activities:
Additions to real estate investments............. (58,308) (23,559)
------------- -------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable........................................ (36,323) (33,290)
------------- -------------
Net decrease in cash and
cash equivalents................................. (3,946) (611)
Cash and cash equivalents at beginning
of period........................................ 581,031 523,389
------------- -------------
Cash and cash equivalents at end of period.......... $ 577,085 $ 522,778
============= =============
</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 Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Net income (loss)................................... $ 89,244 $ (40,478)
------------- -------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation..................................... - 95,676
Amortization of deferred borrowing costs......... 2,595 2,596
Changes in assets and liabilities:
Cash segregated for security deposits.......... (308) (6,232)
Accounts receivable............................ 3,865 3,284
Prepaid expenses and other assets.............. 2,866 672
Escrow deposits................................ (27,887) (24,385)
Accounts payable............................... - (6,216)
Accrued interest............................... (265) 5,440
Accrued property taxes......................... 29,762 28,974
Other accrued expenses......................... (18,816) (20,439)
Payable to affiliates - General Partner........ 5,541 (1,241)
Security deposits and deferred rental
revenue...................................... 4,088 18,587
------------- -------------
Total adjustments............................ 1,441 96,716
------------- -------------
Net cash provided by operating activities........... $ 90,685 $ 56,238
============ =============
</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)
March 31, 1997
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 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 three months ended March 31, 1997,
are not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
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, 1996, 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 The Herman Group, 2121 San Jacinto
St., 26th Floor, Dallas, Texas 75201.
NOTE 3.
- -------
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.
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 or paid during the three month periods ended March 31, 1997
and 1996.
The General Partner is entitled to receive a sales commission as compensation
for selling Partnership property equal to the lesser of 4% of the sales price of
the property sold or the customary fee charged by independent real estate
brokers in the area where the property is located.
<PAGE>
The General Partner is also entitled to a distribution of cash from sales and
refinancings and cash from working capital reserves equal to 9.5% of such
distributions. No such distributions were paid to the partners during 1997 or
1996.
Compensation and reimbursements accrued for the benefit of the General Partner
and its affiliates are as follows:
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
Property management fees - affiliates........ $ 26,687 $ 23,867
Charged to general and administrative -
affiliates:
Partnership administration................ 12,759 16,986
-------- -------
$ 39,446 $ 40,853
======== =======
NOTE 4.
- -------
On October 1, 1996, the General Partner placed the Partnership's only remaining
property, Palm Bay Apartments, on the market for sale. Consequently, Palm Bay
Apartments is classified as an Asset Held for Sale on the accompanying financial
statements.
In 1996, the Partnership adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires the cessation of depreciation on assets held for sale.
Accordingly, no depreciation charges have been incurred since October 1, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
On October 1, 1996, the General Partner determined that the market timing was
right for placing the Partnership's sole remaining real estate asset, Palm Bay
Apartments, on the market for sale. This decision was based both on favorable
market conditions and the June 1997 maturity of the Palm Bay mortgage note.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Revenues:
Rental revenues at Palm Bay Apartments increased $55,630 or 14.2% for the first
quarter of 1997 as compared to the first quarter of 1996. Most of the increase
in rental revenue was obtained by improving the occupancy rate of the Orlando
property. Vacancy losses decreased 52%, and other rental discounts and
concessions decreased 77%. The occupancy rate at March 31 improved to 97.1% from
94.2% at December 31, 1996 and 93.4% at March 31, 1996. The Partnership also
increased base rental rates an average of 2% for the property's units. Although
small rental rate increases have been implemented, most of the increase in
rental revenues is from improved occupancy rates at the property.
Expenses:
Partnership expenses decreased $73,125 or 16.7% in the first quarter of 1997 as
compared to the first quarter of 1996. In accordance with accounting standards,
the Partnership ceased depreciating Palm Bay Apartments after deciding to sell
the property in October 1996. Thus, no depreciation is recorded for the first
quarter of 1997 as opposed to $95,676 of depreciation during the first quarter
of 1996.
Excluding depreciation, expenses increased $22,551 or 6.6% in the first quarter
of 1997. Increases in personnel expenses and other property operating expenses
were partially offset by decreased interest expense.
Personnel expenses increased $14,997 or 21% for the first quarter of 1997 as
compared to 1996. Incentive based compensation increased during the first
quarter reflecting improved operating results over the past year. Also, expenses
for contract and temporary workers increased during the first quarter due to
staff turnover.
Other property operating expenses increased $10,444 or 35% for the first quarter
of 1997 as compared to 1996. Palm Bay Apartments recorded increased costs
related to advertising and other marketing expenses as well as increased
expenses related to tenant retention, credit and collection expenses.
Interest expense decreased $8,737 or 15.9% in the first quarter of 1997 as
compared to the first quarter of 1996. Interest expense on the Palm Bay mortgage
note continues to decrease as the balance of the note is paid down through
monthly debt service payments. Approximately half of the decrease is
attributable to a one-time adjustment that increased interest expense in 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash generated by Partnership operating activities increased to $90,685 for the
first quarter of 1997, a 61% increase over the $56,238 generated by operating
activities during the first quarter of 1996. The capital renovation projects
undertaken at Palm Bay Apartments during the past three years have enabled the
property to compete effectively with other apartment communities in the
surrounding area. For the balance of 1997, financing and investing activities
<PAGE>
are projected to be limited to minimal capital improvements and repayment of the
Palm Bay mortgage note through monthly debt service payments. Such activities
are projected to be adequately funded by cash flow from operations. Having
completed the renovation, and restored net operating income to an acceptable
level, the Partnership is now in a position to profitably dispose of its
investment in Palm Bay Apartments.
Short Term Liquidity:
As discussed above, the Partnership placed Palm Bay Apartments on the market for
sale. However, it is unlikely that a sale will close before the Palm Bay
mortgage note matures on June 1, 1997. Furthermore, the Partnership will not
have adequate cash reserves to pay off the Palm Bay mortgage note at that time.
The General Partner has discussed the situation with the holder of the Palm Bay
mortgage note, and, although no formal agreement has been reached, it appears
the holder will defer foreclosure proceedings pending the sale of Palm Bay
Apartments. Should the Partnership be required to pay off the Palm Bay mortgage
note prior to the sale of Palm Bay Apartments, the General Partner will attempt
to arrange interim financing from an affiliate of the General Partner or from a
third party. The General Partner does not anticipate unusual difficulties
securing temporary financing for Palm Bay Apartments given the high level of
equity the Partnership has in the property and the Partnership's decision to
sell the property. However, such temporary financing, if needed, is not assured.
At March 31, 1997, the Partnership held $577,085 of cash and cash equivalents,
down $3,946 from the balance at the end of 1996. The General Partner considers
the Partnership's cash reserves adequate for anticipated Partnership operations
for the balance of 1997, or until Palm Bay Apartments is sold. Furthermore, the
General Partner believes that operations at Palm Bay Apartments will generate
sufficient cash flow to pay the operating expenses of the property, pay the
required monthly debt service payments on the Palm Bay mortgage note, and
provide funds to make necessary capital improvements to the property.
Long Term Liquidity:
The Partnership has determined to begin an orderly liquidation of the
Partnership's remaining assets. Although there can be no assurance as to the
timing of any liquidation, it is anticipated that such liquidation would result
in distributions to the limited partners of the cash proceeds from the sale of
the Partnership's remaining property, subject to cash reserve requirements, to
be followed by a dissolution of the Partnership. Consummation of any contract to
sell Palm Bay Apartments would be contingent upon the approval of the sale by
the limited partners.
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 until Palm Bay Apartments is sold and all liabilities of the
Partnership are provided for. 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
- ------- -----------------
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.
Plaintiffs have until May 27, 1997 to file a second amended complaint, unless
otherwise agreed to by the parties.
<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
Agreement 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 1997 and 1996.
27. Financial Data Schedule for the quarter
ended March 31, 1997.
(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 March 31, 1997.
<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
May 15, 1997 By: /s/ Ron K. Taylor
- -------------- -----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
May 15, 1997 By: /s/ Brandon K. Flaming
- -------------- -----------------------------------------
Date Brandon K. Flaming
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 577,085
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,030,619
<CURRENT-LIABILITIES> 0
<BONDS> 1,987,254
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,030,619
<SALES> 446,579
<TOTAL-REVENUES> 454,096
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 318,518
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,334
<INCOME-PRETAX> 89,244
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,244
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
