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 September 30, 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
-------
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>
September 30, December 31,
1997 1996
--------------- ---------------
ASSETS
- ------
<S> <C> <C>
Asset held for sale......................................... $ - $ 6,253,753
Cash and cash equivalents................................... 5,285,695 581,031
Cash segregated for security deposits....................... - 57,204
Accounts receivable......................................... - 4,147
Prepaid expenses and other assets........................... 22,842 23,694
Escrow deposits............................................. 119,346 33,232
Deferred borrowing costs, net of accumulated
amortization of $47,607 at December 31, 1996............. - 4,327
-------------- --------------
$ 5,427,883 $ 6,957,388
============== ==============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgage note payable....................................... $ - $ 2,023,577
Accrued interest............................................ - 14,755
Other accrued expenses...................................... 10,665 24,346
Payable to affiliates - General Partner..................... 150,272 17,108
Security deposits and deferred rental revenue............... - 58,081
-------------- --------------
160,937 2,137,867
-------------- --------------
Partners' equity:
Limited partners - 15,000 limited partnership units
authorized; 13,752.5 limited partnership units
issued and outstanding................................. 4,834,716 4,509,577
General Partner.......................................... 432,230 309,944
-------------- --------------
5,266,946 4,819,521
-------------- --------------
$ 5,427,883 $ 6,957,388
============== ==============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financialstatements.
<PAGE>
McNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
-------------- --------------- -------------- --------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue................ $ 451,095 $ 437,221 $ 1,349,802 $ 1,253,566
Interest...................... 9,056 8,560 24,143 19,721
Gain on sale of
real estate................. 151,141 - 151,141 -
------------- ------------- ------------- -------------
Total revenue............... 611,292 445,781 1,525,086 1,273,287
------------- ------------- ------------- -------------
Expenses:
Interest...................... 40,700 47,895 133,196 151,616
Depreciation.................. - 100,119 - 294,116
Property taxes................ 32,029 28,974 90,765 86,922
Personnel expenses............ 75,719 68,873 221,237 205,457
Utilities..................... 16,696 16,036 50,785 48,938
Repair and maintenance........ 84,692 84,174 277,151 244,720
Property management
fees - affiliates........... 26,802 25,965 80,160 74,446
Other property operating
expenses.................... 46,315 34,340 109,447 102,567
General and administrative.... 37,753 14,769 63,178 31,146
General and administrative -
affiliates.................. 18,114 13,577 51,742 32,907
------------- ------------- ------------- -------------
Total expenses.............. 378,820 434,722 1,077,661 1,272,835
------------- ------------- ------------- -------------
Net income....................... $ 232,472 $ 11,059 $ 447,425 $ 452
============= ============= ============= =============
Net income allocated
to limited partners........... $ 110,186 $ 11,059 $ 325,139 $ 452
Net income allocated
to General Partner............ 122,286 - 122,286 -
------------- ------------- ------------- -------------
Net income....................... $ 232,472 $ 11,059 $ 447,425 $ 452
============= ============= ============= =============
Net income per limited
partnership unit.............. $ 8.01 $ .80 $ 23.64 $ .03
============= ============= ============= =============
</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 Nine Months Ended September 30, 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 income................................ - 452 452
------------- ------------- -------------
Balance at September 30, 1996............. $ 309,944 $ 4,405,490 $ 4,715,434
============= ============= =============
Balance at December 31, 1996.............. $ 309,944 $ 4,509,577 $ 4,819,521
Net income................................ 122,286 325,139 447,425
------------- ------------- -------------
Balance at September 30, 1997............. $ 432,230 $ 4,834,716 $ 5,266,946
============= ============= =============
</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 in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1997 1996
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants....................... $ 1,351,258 $ 1,256,778
Cash paid to suppliers........................... (732,813) (664,713)
Cash paid to affiliates.......................... (135,738) (108,546)
Interest received................................ 24,143 19,721
Interest paid.................................... (143,624) (138,888)
Property taxes paid and escrowed................. (176,879) (74,902)
------------- -------------
Net cash provided by operating activities........... 186,347 289,450
------------- -------------
Cash flows from investing activities:
Additions to real estate investments............. (69,821) (137,449)
Proceeds from sale of real estate................ 6,611,715 -
------------- -------------
Net cash provided by (used in)
investing activities............................. 6,541,894 (137,449)
------------- --------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable........................................ (98,648) (102,087)
Retirement of mortgage note payable.............. (1,924,929) -
------------- -------------
Net cash used in financing activities............... (2,023,577) (102,087)
------------- -------------
Net increase in cash and cash equivalents........... 4,704,664 49,914
Cash and cash equivalents at beginning
of period........................................ 581,031 523,389
------------- -------------
Cash and cash equivalents at end of period.......... $ 5,285,695 $ 573,303
============= =============
</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 to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Net income.......................................... $ 447,425 $ 452
------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... - 294,116
Amortization of deferred borrowing costs......... 4,327 7,790
Gain on sale of real estate...................... (151,141) -
Changes in assets and liabilities:
Cash segregated for security deposits.......... 57,204 (13,011)
Accounts receivable............................ 4,147 2,017
Prepaid expenses and other assets.............. 852 (1,047)
Escrow deposits................................ (86,114) (74,902)
Accounts payable............................... - (19,903)
Accrued interest............................... (14,755) 4,938
Accrued property taxes......................... - 86,922
Other accrued expenses......................... (13,681) (12,624)
Payable to affiliates - General Partner........ (3,836) (1,193)
Security deposits and deferred rental
revenue...................................... (58,081) 15,895
------------- -------------
Total adjustments............................ (124,078) 288,998
------------- -------------
Net cash provided by operating activities........... $ 186,347 $ 289,450
============= =============
</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)
September 30, 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 nine months ended September 30, 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 nine month periods ended September 30,
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 1996 or
during the first nine months of 1997.
Compensation and reimbursements accrued for the benefit of the General Partner
and its affiliates are as follows:
Nine Months Ended
September 30,
-----------------------
1997 1996
---------- ---------
Property management fees - affiliates............... $ 80,160 $ 74,446
Charged to gain on sale of real estate:
Sales commission................................. 137,000 -
Charged to general and administrative -
affiliates:
Partnership administration....................... 51,742 32,907
-------- --------
$ 268,902 $ 107,353
======== ========
NOTE 4.
- -------
On September 30, 1997, the Partnership sold Palm Bay Apartments to an
unaffiliated purchaser for a cash sales price of $6,850,000. Cash proceeds from
the transaction, as well as the gain on sale, are detailed below.
<TABLE>
<CAPTION>
Proceeds
Gain on Sale from Sale
------------- --------------
<S> <C> <C>
Sales price......................................... $ 6,850,000 $ 6,850,000
Selling costs....................................... (375,285) (375,285)
Add back unpaid sales commission
due to the General Partner..................... - 137,000
Basis of real estate sold........................... (6,323,574)
----------- ------------
Gain on sale of real estate......................... $ 151,141
===========
Proceeds from sale of real estate................... 6,611,715
Sales commission due to the General Partner......... (137,000)
Retirement of mortgage note payable................. (1,924,929)
-------------
Net cash proceeds................................... $ 4,549,786
============
</TABLE>
<PAGE>
NOTE 5.
- -------
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 was classified as an Asset Held for Sale on the accompanying
financial statements until the September 30, 1997 sale of the property.
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
---------------------
FINANCIAL CONDITION
- -------------------
On September 30, 1997, the Partnership sold Palm Bay Apartments. The sale of
Palm Bay Apartments completes the liquidation of the Partnership's real estate
investment portfolio. Proceeds from the sale have been invested in short-term
interest bearing accounts while the General Partner winds-up the Partnership's
affairs.
RESULTS OF OPERATIONS
- ---------------------
Revenues:
Rental revenues at Palm Bay Apartments increased 3.2% and 7.7% for the quarter
and nine months ended September 30, 1997 as compared to the same periods of
1996. Most of the increase in rental revenue was obtained by improving the
occupancy rate of the Orlando property. Vacancy losses decreased 11.9%, and
other rental discounts and concessions decreased 77%. The Partnership also
increased base rental rates an average of 4.1% for the property's units.
Also included in revenues for the third quarter is the $151,141 gain on the sale
of Palm Bay Apartments.
Expenses:
Partnership expenses decreased $195,174 or 15.3% for the nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996. For
the third quarter, expenses decreased $55,902 or 12.9%. 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 in 1997; the Partnership incurred $294,116 of depreciation expense for
the nine months ended September 30, 1996.
Excluding depreciation, expenses increased $98,942 or 10.1% for the nine months
ended September 30, 1997. Increases in repair and maintenance, general and
administrative, and general and administrative expenses paid to affiliates were
partially offset by decreased interest expense.
<PAGE>
Repair and maintenance expenses increased $32,431 or 13.2% for the first nine
months of 1997 as compared to the first nine months of 1996. Costs incurred for
replacement of appliances and floor coverings were expensed in 1997 as opposed
to being capitalized in 1996. The 1997 costs did not meet the Partnership's
capitalization criteria and were, therefore, expensed.
General and administrative expenses doubled to $63,178 for the first nine months
of 1997 as compared to the first nine months of 1996. The Partnership incurred
approximately $48,000 of costs in connection with the proxy of the limited
partners to approve the sale of Palm Bay Apartments and the liquidation of the
Partnership. Additionally, beginning in 1997, the Partnership began incurring
charges for investor services, which are now provided by a third party vendor
instead of by affiliates of the General Partner.
General and administrative expenses paid to affiliates of the General Partner
increased $18,835 or 57% for the first nine months of 1997 as compared to the
first nine months of 1996. As discussed in the preceding paragraph, the
Partnership's costs for investor relations are reported in general and
administrative instead of general and administrative paid to affiliates
beginning in 1997. However, the Partnership incurred increased costs relating to
the proposed sale of Palm Bay Apartments and the anticipated liquidation of the
Partnership.
Interest expense decreased $18,420 or 12.1% in the first nine months of 1997 as
compared to the first nine months 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 decreased to $186,347 for the
nine months ended September 30, 1997 from the $289,450 generated by operating
activities for the first nine months of 1996. Increases in cash payments to
suppliers, affiliates and for property taxes increased more than the increase in
rental receipts from Palm Bay Apartments.
The Partnership also expended $69,821 in 1997 for capital improvements to Palm
Bay Apartments prior to the September 30, 1997 sale of the property. Cash
proceeds from the sale amounted to $6,611,715. Of that amount, $1,924,929 was
used to retire the Palm Bay mortgage note. An additional $137,000 will be used
to pay the sales commission due to the General Partner.
Liquidity:
As a result of the sale of Palm Bay Apartments and the retirement of the Palm
Bay mortgage note, the Partnership had $5,285,695 of cash and cash equivalents
as of September 30, 1997, and no material obligations other than a $137,000 sale
commission due to the General Partner.
<PAGE>
Distributions:
Distributions to partners have been suspended as part of the General Partner's
policy of maintaining adequate cash reserves. However, with the sale of Palm Bay
Apartments, the Partnership is now in the process of winding up its affairs, and
will distribute its remaining cash to the limited partners after various
provisions are made for remaining fees and expenses due to the General Partner,
and for a $250,000 reserve to provide for potential legal fees, costs and
expenses relating to ongoing litigation (see Item 1 - Legal Proceedings). The
General Partner has determined to distribute approximately $4,772,397 in
December 1997, of which $4,340,167 will be distributed to the limited partners,
and $432,230 will be distributed to the General Partner.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
<PAGE>
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. Defendants intend to file a demurrer to the second consolidated and
amended complaint on or before December 1, 1997.
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 September 30, 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.
On October 15, 1997, the Partnership filed a Current Report on Form 8-K to
report the September 30, 1997 sale of Palm Bay Apartments to an
unaffiliated purchaser.
<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
November 14, 1997 By: /s/ Ron K. Taylor
- ----------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 14, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,285,695
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,427,883
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,427,883
<SALES> 1,349,802
<TOTAL-REVENUES> 1,525,086
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 944,465
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,196
<INCOME-PRETAX> 447,425
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 447,425
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
