UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-13356
---------
MCNEIL REAL ESTATE FUND XXI, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0030615
- --------------------------------------------------------------------------------
(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 XXI, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ......................................................... $ 1,842,544 $ 3,192,923
Buildings and improvements ................................... 22,275,088 30,048,514
------------ ------------
24,117,632 33,241,437
Less: Accumulated depreciation and amortization ............. (12,302,036) (16,177,771)
------------ ------------
11,815,596 17,063,666
Asset held for sale ............................................. -- 2,795,988
Cash and cash equivalents ....................................... 1,348,027 1,817,585
Cash segregated for security deposits ........................... 200,690 176,258
Accounts receivable ............................................. 52,796 229,435
Escrow deposits ................................................. 474,094 558,752
Deferred borrowing costs, net of accumulated amortiz-
ation of $239,483 and $218,067 at September 30, 1998
and December 31, 1997, respectively .......................... 321,446 368,334
Prepaid expenses and other assets ............................... 28,222 53,944
------------ ------------
$ 14,240,871 $ 23,063,962
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net ..................................... $ 12,421,259 $ 18,534,503
Mortgage notes payable - affiliate .............................. -- 3,730,076
Accounts payable and accrued expenses ........................... 146,634 398,815
Accrued property taxes .......................................... 367,241 447,269
Payable to affiliates ........................................... 5,340,323 4,862,973
Advances from affiliates ........................................ -- 794,981
Security deposits and deferred rental revenue ................... 178,128 194,927
------------ ------------
18,453,585 28,963,544
------------ ------------
Partners' deficit:
Limited partners - 50,000 Units authorized; 46,948 and
47,086 Units outstanding at September 30, 1998 and
December 31, 1997, respectively (24,863 Current
Income Units and 22,085 Growth/Shelter Units out-
standing at September 30, 1998 and 24,906 Current
Income Units and 22,180 Growth/Shelter Units
outstanding at December 31,1997) ............................. (3,852,975) (5,522,974)
General Partner .............................................. (359,739) (376,608)
------------ ------------
(4,212,714) (5,899,582)
------------ ------------
$ 14,240,871 $ 23,063,962
============ ============
</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 XXI, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue .................... $ 1,292,514 $ 1,633,807 $ 4,394,825 $ 4,855,619
Interest .......................... 14,508 23,272 47,420 61,513
Gain on involuntary
conversion ...................... -- 39,846 -- 66,655
Gain on sale of real estate ....... -- -- 863,350 --
----------- ----------- ----------- -----------
Total revenue ................... 1,307,022 1,696,925 5,305,595 4,983,787
----------- ----------- ----------- -----------
Expenses:
Interest .......................... 281,497 483,810 1,092,453 1,503,455
Interest - affiliates ............. -- 30,579 137,371 90,537
Depreciation and
amortization .................... 309,064 372,320 1,048,140 1,125,644
Property taxes .................... 105,126 135,339 357,424 406,017
Personnel costs ................... 195,270 214,682 580,916 596,134
Utilities ......................... 103,234 123,216 326,160 334,780
Repairs and maintenance ........... 197,069 191,082 560,181 581,204
Property management
fees - affiliates ............... 63,456 85,888 228,479 252,172
Other property operating
expenses ........................ 91,108 112,146 276,917 310,802
General and administrative ........ 99,634 28,995 343,669 91,301
General and administrative -
affiliates ...................... 151,035 165,682 483,169 486,630
----------- ----------- ----------- -----------
Total expenses .................. 1,596,493 1,943,739 5,434,879 5,778,676
----------- ----------- ----------- -----------
Loss before extraordinary items ...... (289,471) (246,814) (129,284) (794,889)
Extraordinary items .................. -- -- 1,816,152 --
----------- ----------- ----------- -----------
Net income (loss) .................... $ (289,471) $ (246,814) $ 1,686,868 $ (794,889)
=========== =========== =========== ===========
Net income (loss) allocable to:
Current Income Unit ............... $ (26,053) $ (22,213) $ 151,818 $ (71,540)
Growth/Shelter Unit ............... (260,524) (222,133) 1,518,181 (715,400)
General Partner ................... (2,894) (2,468) 16,869 (7,949)
----------- ----------- ----------- -----------
Net income (loss) .................... $ (289,471) $ (246,814) $ 1,686,868 $ (794,889)
=========== =========== =========== ===========
Net income (loss) per limited
partnership unit:
Current Income Unit Holders:
Loss before extra-
ordinary items ................ (1.04) (.89) (.46) (2.87)
Extraordinary items ............. -- -- 6.57 --
----------- ----------- ----------- -----------
Net income (loss) ............... $ (1.04) $ (.89) $ 6.11 $ (2.87)
=========== =========== =========== ===========
Growth/Shelter Unit Holders:
Loss before extra-
ordinary items ................ (11.80) (10.02) (5.27) (32.25)
Extraordinary items ............. -- -- 74.01 --
----------- ----------- ----------- -----------
Net income (loss) ............... $ (11.80) $ (10.02) $ 68.74 $ (32.25)
=========== =========== =========== ===========
</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 XXI, L.P.
STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996........ $ (361,822) $(4,059,156) $(4,420,978)
Net loss
General Partner ................. (7,949) -- (7,949)
Current Income Units ............ -- (71,540) (71,540)
Growth/Shelter Units ............ -- (715,400) (715,400)
----------- ----------- -----------
Total net loss ..................... (7,949) (786,940) (794,889)
----------- ----------- -----------
Balance at September 30, 1997 ...... $ (369,771) $(4,846,096) $(5,215,867)
=========== =========== ===========
Balance at December 31, 1997 ....... $ (376,608) $(5,522,974) $(5,899,582)
Net income
General Partner ................. 16,869 -- 16,869
Current Income Units ............ -- 151,818 151,818
Growth/Shelter Units ............ -- 1,518,181 1,518,181
----------- ----------- -----------
Total net income ................... 16,869 1,669,999 1,686,868
----------- ----------- -----------
Balance at September 30, 1998 ...... $ (359,739) $(3,852,975) $(4,212,714)
=========== =========== ===========
</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 XXI, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ............................... $ 4,427,771 $ 4,807,668
Cash paid to suppliers ................................... (1,845,421) (1,938,994)
Cash paid to affiliates .................................. (234,298) (248,889)
Interest received ........................................ 47,420 61,513
Interest paid ............................................ (1,110,302) (1,440,267)
Interest paid to affiliates .............................. (407,432) (36,665)
Property taxes paid ...................................... (419,753) (420,636)
----------- -----------
Net cash provided by operating activities ................... 457,985 783,730
----------- -----------
Cash flows from investing activities:
Additions to real estate investments ..................... (284,204) (635,147)
Net proceeds received from insurance
company ................................................ -- 100,241
Proceeds from disposition of real estate ................. 3,698,365 --
----------- -----------
Net cash provided by (used in) investing activities.......... 3,414,161 (534,906)
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes
payable ................................................ (171,491) (199,874)
Principal payments on mortgage notes
payable - affiliate .................................... (5,482) --
Retirement of mortgage notes payable -
affiliate .............................................. (3,534,157) --
Repayment of advances from affiliates .................... (630,574) --
----------- -----------
Net cash used in financing activities ....................... (4,341,704) (199,874)
----------- -----------
Net increase (decrease) in cash and
cash equivalents ......................................... (469,558) 48,950
Cash and cash equivalents at beginning of
period ................................................... 1,817,585 1,670,843
----------- -----------
Cash and cash equivalents at end of period .................. $ 1,348,027 $ 1,719,793
=========== ===========
</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 XXI, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Net income (loss) ....................................... $ 1,686,868 $ (794,889)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ........................ 1,048,140 1,125,644
Amortization of deferred borrowing costs ............. 46,888 49,759
Amortization of discounts on mortgage
notes payable ...................................... 15,666 14,872
Accrued interest on advances from affiliates ......... (164,407) 44,622
Gain on involuntary conversion ....................... -- (66,655)
Gain on sale of real estate .......................... (863,350) --
Extraordinary items .................................. (1,816,152) --
Changes in assets and liabilities:
Cash segregated for security deposits .............. (24,432) (30,836)
Accounts receivable ................................ 85,750 (20,800)
Escrow deposits .................................... 66,596 (91,158)
Prepaid expenses and other assets .................. 4,819 (77)
Accounts payable and accrued expenses .............. (30,009) 6,255
Accrued property taxes ............................. (59,693) 42,062
Payable to affiliates .............................. 477,350 489,913
Security deposits and deferred rental
revenue .......................................... (16,049) 15,018
----------- -----------
Total adjustments ................................ (1,228,883) 1,578,619
----------- -----------
Net cash provided by operating activities ............... $ 457,985 $ 783,730
=========== ===========
</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 XXI, L.P.
Notes to Financial Statements
(Unaudited)
September 30, 1998
NOTE 1.
- -------
McNeil Real Estate Fund XXI, L.P. (the "Partnership"), formerly known as
Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited
partnership under the provisions of the California Revised Limited Partnership
Act to acquire and operate commercial and residential properties. The general
partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a
Delaware limited partnership, an affiliate of Robert A. McNeil ("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, 1998
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1997, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund XXI, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership has had to defer
payment of payables to affiliates in order to meet its working capital needs.
On April 20, 1998, the Partnership sold Fort Meigs Plaza to a non-affiliate for
$3.8 million. All cash proceeds, after payment of selling costs and prorations,
were used to pay off the first and second lien mortgage notes secured by the
property (see Note 5).
The Partnership defaulted on the mortgage notes payable secured by Wise County
Plaza and the lender foreclosed on the property on May 29, 1998. Foreclosure by
the lender has not had a significant effect on the Partnership since all excess
cash flow of the property was payable to the lender as additional interest on
the loans.
<PAGE>
The Partnership has no established lines of credit from outside sources. Other
possible actions to resolve cash deficiencies include refinancings, deferral of
capital expenditures on Partnership properties except where improvements are
expected to increase the competitiveness and marketability of the properties,
deferral of payables to or arranging financing from affiliates, or the ultimate
sale of Partnership properties.
NOTE 4.
- -------
The Partnership pays property management fees equal to 5% of gross rental
receipts for its residential properties and 6% of gross rental receipts for its
commercial 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 also choose to provide leasing services
for the Partnership's commercial properties, in which case McREMI will receive
property management fees from such commercial properties equal to 3% of the
property's gross rental receipts plus leasing 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. Total accrued but unpaid Partnership
general and administration fees of $1,381,779 and $1,171,406 were outstanding at
September 30, 1998 and December 31, 1997, respectively.
The Partnership is paying an asset management fee which is payable to the
General Partner. Through 1999, the Asset Management Fee is calculated as 1% of
the Partnership's tangible asset value. 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 fee percentage decreases subsequent to
1999. Total accrued but unpaid asset management fees of $3,591,202 and
$3,318,406 were outstanding at September 30, 1998 and December 31, 1997,
respectively.
The Partnership pays a disposition fee to the General Partner equal to 3% of the
gross sales price for brokerage services performed in connection with the sale
of the Partnership's properties. The fee is due and payable at the time the sale
closes. In connection with the sales of Suburban Plaza and Wyoming Mall, total
accrued but unpaid disposition fees of $346,050 were outstanding at September
30, 1998 and December 31, 1997. In connection with the sale of Fort Meigs Plaza,
the General Partner waived its right to receive a disposition fee, which would
have totaled $114,000.
Prior to the restructuring of the Partnership, affiliates of the Original
General Partner advanced funds to enable the Partnership to meet its working
capital requirements. These advances were purchased by, and were payable to, the
General Partner. These advances totaling $630,574, and accrued interest of
$182,091, were repaid in full in April 1998.
<PAGE>
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Property management fees .............................. $228,479 $252,172
Charged to interest - affiliates:
Interest on advances from affiliates ............... 17,684 44,622
Interest on mortgage notes payable - affiliate ..... 119,687 45,915
Charged to general and administrative -affiliates:
Partnership administration ......................... 210,373 189,549
Asset management fee ............................... 272,796 297,081
-------- --------
$849,019 $829,339
======== ========
</TABLE>
Payable to affiliates at September 30, 1998 and December 31, 1997 consisted
primarily of unpaid asset management fees, property management fees, disposition
fees and partnership general and administrative expenses and is due and payable
from current operations.
The mortgage notes payable - affiliate secured by Fort Meigs Plaza were repaid
in full when the property was sold in April 1998. See Note 5.
NOTE 5.
- -------
On April 20, 1998, the Partnership sold Fort Meigs Plaza Shopping Center,
located in Perrysburg, Ohio, to an unaffiliated purchaser for a cash purchase
price of $3,800,000. Cash proceeds from the sale, after payment of prorated
rents and property taxes, were used to repay the mortgage notes payable to
McNeil Real Estate Fund XX, L.P. ("Fund XX"), an affiliate. Cash proceeds, as
well as the gain on sale, are detailed below.
<TABLE>
<CAPTION>
Gain Cash
on Sale Proceeds
------------ ------------
<S> <C> <C>
Sales price ..................................... $ 3,800,000 $ 3,800,000
Selling costs ................................... (101,635) (101,635)
Straight-line rents receivable written off ...... (28,979)
Prepaid leasing commissions written off ......... (10,048)
Carrying value .................................. (2,795,988)
----------- -----------
Gain on sale of real estate ..................... $ 863,350
===========
Proceeds from sale .............................. 3,698,365
Prorated rents and property taxes paid at
closing ...................................... (83,012)
Retirement of mortgage notes payable to
Fund XX and related accrued interest ......... (3,615,353)
-----------
Net cash proceeds ............................... $ --
===========
</TABLE>
<PAGE>
The Partnership recognized a $190,437 extraordinary gain on retirement of the
mortgage notes payable to Fund XX, as follows:
First lien mortgage note payable - affiliate......... $ 2,990,694
Second lien mortgage note payable - affiliate........ 733,900
Accrued interest payable............................. 81,196
-----------
Total principal and interest payable to Fund XX... 3,805,790
Cash paid for repayment in full of principal and
interest payable to Fund XX....................... (3,615,353)
-----------
Extraordinary gain on retirement of mortgage
notes payable - affiliate......................... $ 190,437
===========
Under the terms of its partnership agreement, the Partnership normally pays a
disposition fee to the General Partner equal to 3% of the gross sales price for
brokerage services performed in connection with the sale of the Partnership's
properties. The fee is due and payable at the time the sale closes. In
connection with the sale of Fort Meigs Plaza, the General Partner waived its
right to receive such fee, which would have totaled $114,000.
NOTE 6.
- -------
The mortgage notes payable secured by Wise County Plaza matured on August 1,
1997 and the Partnership was unable to negotiate a modification and extension of
the loans. On May 29, 1998, Wise County Plaza was foreclosed on by the lender in
full settlement of the mortgage indebtedness secured by the property. In
connection with this transaction, the Partnership recognized an extraordinary
gain on retirement of mortgage note payable as follows:
Estimated fair value of real estate.................. $ 4,535,814
Accounts receivable written off...................... (61,910)
Prepaid expenses written off......................... (10,855)
Accrued property taxes written off................... 20,335
Deferred rental revenue written off.................. 750
Carrying value....................................... (4,484,134)
-----------
Gain on disposition............................... $ --
===========
Amount of mortgage note payable settled.............. $ 5,957,419
Amount of accrued interest payable settled........... 222,172
Escrow deposits applied.............................. (18,062)
Estimated fair value of real estate.................. (4,535,814)
-----------
Extraordinary gain on retirement of mortgage
note payable...................................... $ 1,625,715
===========
<PAGE>
NOTE 7.
- -------
On July 12 and September 5, 1996, Governour's Square Apartments suffered damage
from two separate hurricanes. Repairs of damages totaling $191,178 were
completed. Reimbursements for the repairs totaling $40,937 were received from
the insurance carrier in 1996, and $100,241 were received in 1997. The
Partnership recognized a gain on involuntary conversion of $27,252 in the fourth
quarter of 1996 and $66,655 in the first nine months of 1997 when the remaining
insurance claims were received. The total gain on involuntary conversion of
$93,907 represents the insurance claims in excess of the basis of the property
damaged by the hurricanes.
NOTE 8.
- -------
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.
<PAGE>
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
Fort Meigs Plaza Shopping Center was sold on April 20, 1998. Wise County Plaza
Shopping Center was foreclosed on by the lender on May 29, 1998. There has been
no significant change in the operations of the remainder of the Partnership's
properties since December 31, 1997. The Partnership reported net income for the
first nine months of 1998 of $1,686,868 as compared to a net loss of $794,889
for the first nine months of 1997. Revenues increased to $5,305,595 in 1998 from
$4,983,787 in 1997, while expenses decreased to $5,434,879 in 1998 from
$5,778,676 in 1997. The Partnership recognized $1,816,152 in extraordinary gains
on retirement of mortgage notes payable and mortgage notes payable - affiliate
in the first nine months of 1998.
Net cash provided by operating activities was $457,985 for the first nine months
of 1998. The Partnership expended $284,204 for capital improvements and $176,973
for regularly scheduled principal payments on its mortgage notes payable and
mortgage notes payable - affiliate. The Partnership repaid $630,574 of principal
on advances from affiliates. The Partnership received $3,698,365 in proceeds
from the sale of Fort Meigs Plaza, $3,534,157 of which was used to pay off the
principal of its mortgage notes payable - affiliate secured by the property.
Cash and cash equivalents decreased by $469,558 in the first nine months of
1998, leaving a balance of $1,348,027 at September 30, 1998.
The Partnership has had little ready cash reserves since its inception. It has
been largely dependent on affiliates to support its operations. Although no
additional advances from affiliates were required during the first nine months
of 1998, at September 30, 1998 the Partnership owed payables to affiliates for
property management fees, Partnership general and administrative expenses, asset
management fees and disposition fees totaling $5,340,323. Affiliate advances
were repaid in full in April 1998.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total revenue decreased by $389,903 for the three months and increased by
$321,808 for the nine months ended September 30, 1998 as compared to the same
periods in 1997. The overall increase was mainly due to a gain on sale of real
estate in the second quarter of 1998, partially offset by a decrease in rental
revenue, as discussed below.
Rental revenue for the three and nine months ended September 30, 1998 decreased
by $341,293 and $460,794, respectively, as compared to the same periods in 1997.
Approximately $629,000 of the decrease was attributable to the disposition of
Fort Meigs Plaza and Wise County Plaza in the second quarter of 1998. This
decrease was partially offset by increases of approximately $75,000 and $46,000
at Evergreen Square and Governour's Square apartments, respectively. Rental
revenue at Evergreen Square increased due to an increase in average occupancy in
the first nine months of 1998. Rental revenue increased at Governour's Square
Apartments due to an increase in rental rates.
Interest income decreased by $8,764 and $14,093 for the three and nine months
ended September 30, 1998, respectively, in relation to the comparable periods in
1997, mainly due to a decline in the amount of cash available for short-term
investment in the third quarter of 1998. The Partnership held cash and cash
equivalents of approximately $1.3 million at September 30, 1998 as compared to
approximately $1.7 million at September 30, 1997. The decrease was mainly due to
the repayment of $812,665 of advances from affiliates in April 1998.
The Partnership recognized a $66,665 gain on involuntary conversion in the first
nine months of 1997, $39,846 of which was recognized in the third quarter of
1997, related to hurricane damage suffered at Governour's Square Apartments in
1996. The gain, which represented the insurance proceeds received in excess of
the basis of the property damaged, was recognized as reimbursement proceeds were
received from the insurance carrier. Additional hurricane damage was incurred in
1998. However, since no insurance proceeds will be received, an involuntary
conversion was not recognized. The write off of the damaged basis was recorded
as a storm damage loss, as discussed below.
In the second quarter of 1998, the Partnership recognized a $863,350 gain on the
sale of Fort Meigs Plaza Shopping Center. No such gain was recognized in the
first half of 1997.
In the second quarter of 1998, the Partnership recognized $1,816,152 in
extraordinary gains. The Partnership recognized a $190,437 gain on the
retirement of the Fort Meigs Plaza mortgage notes payable - affiliate as a
result of the sale of the property. The Partnership also recognized a $1,625,715
gain on retirement of the Wise County Plaza mortgage notes payable as a result
of the foreclosure of the property by the lender.
Expenses:
Total expenses decreased by $347,246 for the three months and by $343,797 for
the nine months ended September 30, 1998 as compared to the same periods in
1997. The decrease was mainly due to a decrease in interest expense, partially
offset by an increase in general and administrative expenses, as discussed
below.
<PAGE>
Interest expense for the three and nine months ended September 30, 1998
decreased by $202,313 and $411,002, respectively, as compared to the same
periods in 1997. The decrease was mainly due to the first lien loan on Fort
Meigs Plaza being purchased by an affiliate in December 1997. Interest on this
loan was recorded as interest expense for the first eleven months of 1997; it
was recorded as interest - affiliates in 1998. Also, there was a decrease in
interest expense relating to the Wise County Plaza loans due to the foreclosure
of the property by the lender in May 1998.
Interest - affiliates decreased by $30,579 and increased by $46,834 for the
quarter and nine months ended September 30, 1998, respectively, as compared to
the same periods in the prior year. The overall increase was due to interest on
the first lien loan secured by Fort Meigs Plaza being payable to an affiliate in
1998, as discussed above. This increase was partially offset by a decrease in
affiliate interest due to the April 1, 1998 payoff of the first and second lien
loans secured by Fort Meigs Plaza.
The disposition of Fort Meigs Plaza and Wise County Plaza in the second quarter
of 1998 resulted in a decrease in property taxes of $30,213 and $48,593 for the
three and nine months ended September 30, 1998, respectively.
General and administrative expenses for the three and nine months ended
September 30, 1998 increased by $70,639 and $252,368, respectively, as compared
to the same periods in 1997. The increase was primarily due to costs incurred in
1998 to explore alternatives to maximize the value of the Partnership (see
Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1998, the Partnership held cash and cash equivalents of
$1,348,027.
Cash of $457,985 was provided by operating activities during the first nine
months of 1998 as compared to $783,730 provided during the same period in 1997.
Cash received from tenants and cash paid to suppliers decreased as a result of
the sale of Fort Meigs Plaza in April 1998 and the foreclosure of Wise County
Plaza in May 1998. There was a decrease in interest paid and an increase in
interest paid to affiliates in 1998, partially due to the first lien loan on
Fort Meigs Plaza being held by an affiliate in 1998, as previously discussed. In
addition, the Partnership paid $182,091 of accrued interest on advances from
affiliates in the first nine months of 1998. The disposition of Fort Meigs Plaza
and Wise County Plaza in the second quarter of 1998 resulted in decreased
interest paid on the related loans. In addition, the Partnership ceased making
excess cash flow payments on the Wise County Plaza loans in 1998, which were
recorded as additional interest on the loans.
Cash used for additions to real estate investments totaled $284,204 for the
first nine months of 1998 as compared to $635,147 for the same period in 1997. A
greater amount was spent in 1997 for exterior upgrades at Bedford Green,
Evergreen Square and Governour's Square apartments. In addition, landscaping
work was performed at Governour's Square, the pool at Woodcreek Apartments was
replastered and the parking lot at Wise County Plaza was paved in 1997.
In 1997, the Partnership received $100,241 in proceeds from the insurance
carrier for hurricane damage at Governour's Square Apartments in 1996. No such
proceeds were received in the first nine months of 1998.
<PAGE>
In 1998, the Partnership repaid $630,574 of principal on advances from
affiliates. The Partnership received $3,698,365 in proceeds from the sale of
Fort Meigs Plaza, $3,534,157 of which was used to pay off the principal of its
mortgage notes payable - affiliate secured by the property.
Short-term liquidity
For the remainder of 1998, present cash balances and operations of the
properties are expected to provide sufficient cash for normal operating
expenses, debt service payments and budgeted capital improvements. Fort Meigs
Plaza was sold to a non-affiliate for $3.8 million in April 1998. There were no
net cash proceeds arising from the sale as all cash proceeds, after payment of
selling costs and prorations, were used to pay off the first and second lien
mortgage notes secured by the property. Wise County Plaza was foreclosed on by
the lender in May 1998.
The Partnership has no established lines of credit from outside sources.
Although affiliates of the Partnership have previously funded cash deficits,
there can be no assurance the Partnership will receive additional funds. Other
possible actions to resolve cash deficiencies include refinancing, deferring
major capital or repair expenditures on Partnership properties except where
improvements are expected to enhance the competitiveness and marketability of
the properties, deferring payables to or arranging financing from affiliates or
the ultimate sale of Partnership properties.
Long-term liquidity
As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, has provided
financial and other information to interested parties and is currently
conducting discussions with one such party in an attempt to reach a definitive
agreement with respect to a sale transaction. It is possible that the General
Partner and its affiliates will receive non-cash consideration for their
ownership interests in connection with any such transaction. There can be no
assurance that any such agreement will be reached nor the terms thereof.
Operations of the Partnership's properties are expected to provide sufficient
cash flow for operating expenses, debt service payments and capital improvements
in the foreseeable future.
Excluding the gain on sale of real estate and extraordinary gains on retirement
of mortgage notes payable and mortgage notes payable - affiliate, the
Partnership reported a net loss from operations for the nine months ended
September 30, 1998. In addition, the Partnership has had to defer payment of
payables to affiliates in order to meet its working capital needs. These
conditions raise substantial doubt about the Partnership's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
<PAGE>
Distributions
To maintain adequate cash balances of the Partnership, distributions to Current
Income Unit holders were suspended in 1989. There have been no distributions to
Growth/Shelter Units holders. 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.
Forward-Looking Information
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after September 30, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties, and respond to changing economic and competitive factors.
Other Information:
Management has reviewed its information technology infrastructure to identify
any systems that could be affected by the year 2000 problem. The year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in major systems failure or miscalculations. The
information systems used by the Partnership for financial reporting and
significant accounting functions were made year 2000 compliant during recent
systems conversions.
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management intends to inventory
all such systems and query suppliers, vendors and manufacturers to determine
year 2000 compliance. In circumstances of non-compliance management will work
with the vendor to remedy the problem or seek alternative suppliers who will be
in compliance. Management believes that the remediation of any outstanding year
2000 conversion issues will not have a material or adverse effect on the
Partnership's operations. However, no estimates can be made as to the potential
adverse impact resulting from the failure of third party service providers and
vendors to be year 2000 compliant. Management is in the process of identifying
those risks as well as developing a contingency plan to mitigate potential
adverse effects from non-compliance.
<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. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- ---------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
4. Amended and Restated Limited Partnership
Agreement dated March 26, 1992.
(Incorporated by reference to the Current
Report of the Registrant on Form 8-K dated
March 26, 1992, as filed on April 9, 1992).
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 weighted average number of limited
partnership units outstanding. Per unit
information has been computed based on
24,863 and 24,906 Current Income Units
outstanding in 1998 and 1997, respectively,
and 22,085 and 22,180 Growth/Shelter Units
outstanding in 1998 and 1997, respectively.
27. Financial Data Schedule for the quarter
ended September 30, 1998.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended September 30, 1998.
<PAGE>
MCNEIL REAL ESTATE FUND XXI, L.P.
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 XXI, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 16, 1998 By: /s/ Ron K. Taylor
- ----------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 16, 1998 By: /s/ Carol A. Fahs
- ----------------- -------------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,348,027
<SECURITIES> 0
<RECEIVABLES> 52,796
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 24,117,632
<DEPRECIATION> (12,302,036)
<TOTAL-ASSETS> 14,240,871
<CURRENT-LIABILITIES> 0
<BONDS> 12,421,259
0
0
<COMMON> 0
<OTHER-SE> (4,212,714)
<TOTAL-LIABILITY-AND-EQUITY> 14,240,871
<SALES> 4,394,825
<TOTAL-REVENUES> 5,305,595
<CGS> 2,312,685
<TOTAL-COSTS> 3,360,825
<OTHER-EXPENSES> 826,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,229,824
<INCOME-PRETAX> 1,686,868
<INCOME-TAX> 0
<INCOME-CONTINUING> (129,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,816,152
<CHANGES> 0
<NET-INCOME> 1,686,868
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
